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NON-REPORTABLE CIVIL APPEAL NO 2350 OF 2008. Arising out of SLP C No.8500 of 2006 Leave granted. This appeal is directed against an order passed by the Chief Justice of the High Court of Orissa at Cuttack dated 20th of May, 2005 on an application under Section 11 of the Arbitration and Conciliation Act, 1996 in short the Act for appointment of an arbitrator and for referring the dispute between the parties to him for adjudication. By the impugned order, the Chief Justice of the High Court on companysideration of Clause 50 of the agreement entered into by the parties which provides for arbitration and in view of Section 85 of the Act, held that numberappointment companyld be made under Section 11 of the Act and further held that the appellant in terms of Clause 50 of the agreement had to approach the arbitration tribunal and, accordingly, the application for appointment of arbitrator was rejected. Feeling aggrieved, the appellant has companye up by way of a special leave petition which on grant of leave was heard in the presence of the learned companynsel for the parties. The companye question involved in this appeal relates to the interpretation of Section 85 of the Act. In order to appreciate the question, it is appropriate to refer to Section 85 of the Act which runs as under - Repeal and saving The Arbitration Protocol and Convention Act, 1937 6 of 1937 , the Arbitration Act, 1940 10 of 1940 and the Foreign Awards Recognition and Enforcement Act, 1961 45 of 1961 are hereby repealed. Notwithstanding such repeal. a the provisions of the said enactments shall apply in relation to arbitral proceedings which companymenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which companymenced on or after this Act companyes into force b all rules made and numberifications published, under the said enactments shall, to the extent to which they are number repugnant to this Act, be deemed respectively to have been made or issued under this Act. The High Court, by the impugned order, while interpreting Section 85 of the Act has given a companystruction to the language of Section 85 of the Act and held that the provisions of the repealed Act 1940 in the present case would apply. Before we proceed further, we may companysider the arbitration clause as entered into by the parties in the agreement. Clause 50 of the agreement companytains provisions for arbitration which provides, inter alia, that except as otherwise provided in the companytract, all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions mentioned therein before and as to the quality of the workmanship or materials used in the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the companytract, designs, drawings, specifications, estimates, instructions, orders of these companyditions companycerning the work or the execution or failure to execute the same with or arising during the progress of the work after companypletion of or abandonment thereof shall be referred to the arbitration by the Arbitration Tribunal companystituted by the State Government which shall companysist of three members of whom one shall be chosen from among the officers belonging to Orissa Superior Judicial Service Sr. Branch , one from Engineers in the active service of Government number below the rank of a Superintending Engineer and the remaining member shall be chosen from officers belonging to the Orissa Finance Service number below the rank of Class-I officer. It was held by the High Court in the impugned order that in view of clause 50 of the agreement, it was only the arbitration tribunal before which the disputes and differences companyld be referred and, therefore, numberappointment companyld be made under Section 11 of the Act. The High Court in the impugned order while rejecting the application for appointment of an arbitration under Section 11 of the Act further held that the arbitration clause 50 clearly provides that if the companytractor did number make any payment for arbitration in respect of any claim in writing within 90 days after receiving intimation from the Government that the bill was ready for payment, that claim of the companytractor shall be deemed to have been waived and absolutely barred and the government shall be discharged and released of all the liability under the companytract in respect of such claim. Having heard the learned companynsel for the parties and after companysidering the impugned order rejecting the application for appointment of arbitrator and the provisions under Section 85 of the Act and Clause 50 of the agreement in detail, we are of the view that the order of the High Court is number sustainable in law. An order of the Orissa High Court on the question of existence of an arbitration tribunal was brought to our numberice by the learned companynsel for the parties from which it clearly appears that the arbitration tribunal created under the Arbitration Act, 1940 does number exist for deciding the disputes which had arisen out of an agreement entered into after the Arbitration Act, 1940 was repealed. Accordingly, it has been held that the arbitration tribunal set up by the Arbitration Act, 1940 does number exist as on date and the present dispute between the parties cannot be referred to the said tribunal which is number in existence in the eyes of law. It has also been accepted by the learned companynsel for the parties that against this order of the High Court, numberappeal was filed or steps taken by either of the parties, that is to say, that it has number been accepted that there is numberexistence of any arbitration tribunal. On the basis of the aforesaid judgment of the Chief Justice of the High Court, it has been accepted that numberarbitration tribunal is in existence. Therefore, without going into the merits and in view of the aforesaid decision of the Orissa High Court, we are of the view that in the absence of existence of any arbitration tribunal, it is only the High Court to exercise its power under Section 11 of the Act to appoint an arbitrator to go into the disputes and differences between the parties. Accordingly, we set aside the order of the High Court. | 1 |
Judgment of the Court (First Chamber) of 9 January 1990. - Società agricola fattoria alimentare SpA (SAFA) v Amministrazione delle finanze dello Stato. - Reference for a preliminary ruling: Tribunale civile e penale di Genova - Italy. - Accession of Greece - Transitional measures - Validity of a regulation - Retroactive effect - Regulations EEC Nº 49/81 et 57/81. - Case C-337/88.
European Court reports 1990 Page I-00001
Summary
Parties
Grounds
Decision on costs
Operative part
Keywords
++++
1.Acts of the institutions - Regulations - Publication - Date
( EEC Treaty, Art . 191, first paragraph )
2.Acts of the institutions - Application ratione temporis - Principle of non-retroactivity - Exceptions - Conditions - Particular case
( Commission Regulation No 57/81, Art . 6 )
Summary
1 . A regulation must be regarded as published throughout the Community on the date borne by the issue of the Official Journal containing the text of that regulation . However, should evidence be produced that the date on which an issue was in fact available does not correspond to the date which appears on that issue, regard must be had to the date of actual publication .
2 . Although in general the principle of legal certainty precludes a Community measure from taking effect from a point in time before its publication, it may exceptionally be otherwise where the purpose to be achieved so demands and where the legitimate expectations of those concerned are duly respected .
That was so in the specific case of the application with retroactive effect from 1 January 1981 of Regulation No 57/81 on transitional measures to be taken, on account of the accession of Greece, in respect of trade in agricultural products, provided for in Article 6 thereof . On the one hand, it was necessary in the general interest to ensure a smooth change from the previously applicable arrangements to the Community system and prevent speculation . On the other hand, traders were not legitimately entitled to expect to be able to benefit from the abolition of the Community import levy for goods for which export refunds had been paid in Greece, in view of the fact that the purpose of that levy is to neutralize the effect of refunds obtained in non-member countries .
Parties
In Case C-337/88
REFERENCE to the Court under Article 177 of the EEC Treaty by the tribunale civile ( Civil District Court ), Genoa, ( First Chamber ), for a preliminary ruling in the proceedings pending before that court between
Società agricola fattoria alimentare SpA
and
Amministrazione delle finanze dello Stato,
on the validity of Commission Regulation ( EEC ) No 49/81 of 1 January 1981 on methods of administrative cooperation to safeguard during the transitional period the free movement of goods between Greece and the other Member States ( Official Journal 1981, L 4, p . 1 ), and of Commission Regulation ( EEC ) No 57/81 of 1 January 1981 on transitional measures to be taken, on account of the accession of Greece, in respect of trade in agricultural products ( Official Journal 1981, L 4, p . 43 ),
THE COURT ( First Chamber )
composed of : Sir Gordon Slynn, President of Chamber, R . Joliet and G . C . Rodríguez Iglesias, Judges,
Advocate General : G . Tesauro
Registrar : J . A . Pompe, Deputy Registrar
after considering the observations submitted on behalf of
SAFA, by Giorgio Schiano di Pepe, of the Genoa Bar,
the Commission of the European Communities, by its Legal Adviser, Giuliano Marenco, acting as Agent,
having regard to the Report for the Hearing and further to the hearing on 27 September 1989,
after hearing the Opinion of the Advocate General delivered at the sitting on 9 November 1989,
gives the following
Judgment
Grounds
1 By an order of 29 September 1988, which was received at the Court on 22 November 1988, the tribunale civile, Genoa, referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty two questions concerning the interpretation and the validity of Commission Regulation No 57/81 of 1 January 1981 on transitional measures to be taken, on account of the accession of Greece, in respect of trade in agricultural products ( Official Journal 1981, L 4, p . 43 ), and of Commission Regulation No 49/81 of 1 January 1981 on methods of administrative cooperation to safeguard during the transitional period the free movement of goods between Greece and the other Member States ( Official Journal 1981, L 4, p . 1 ).
2 Those questions arose in the context of proceedings between Società agricola fattoria alimentare SpA ( hereinafter referred to as "SAFA ") and the Italian customs authorities concerning the imposition of an import levy on a quantity of olive oil which SAFA exported from Greece before the accession on 1 January 1981 of that country to the Community, and which it declared for home use on the following day .
3 The act concerning the conditions of accession of the Hellenic Republic ( Official Journal 1979, L 291, p . 17, hereinafter referred to as "the Act of Accession ") entered into force on 1 January 1981 . Article 41 of the Act of Accession entrusted the Commission with the task of determining methods of cooperation to ensure that goods fulfilling the requisite conditions were to benefit, from 1 January 1981, from the abolition of customs duties and charges having equivalent effect .
4 Pursuant to Title IV of the Act of Accession, the arrangements introduced by the Association Agreement between the Community of the Nine and Greece, whose characteristic feature was the application of levies, were to be replaced by a system of accession compensatory amounts . However, Article 73 of the Act of Accession provided for the possibility of transitional measures as follows :
"If transitional measures are necessary to facilitate the passage from the existing arrangements in Greece to those resulting from the application of the common organization of the markets as provided for in this title, particularly if for certain products the implementation of the new arrangements on the scheduled date meets with appreciable difficulties, such measures shall be adopted in accordance with the procedure provided for in Article 38 of Regulation No 136/66/EEC or, as the case may be, in the corresponding articles of the other regulations on the common organization of agricultural markets . Such measures may be taken during the period up to 31 December 1982, but their application may not extend beyond that date ."
5 On 12 September 1980 the Commission undertook to adopt on 1 January 1981 a series of regulations based on Article 41 of the Act of Accession . In order to bring the draft regulations in question to the knowledge of the customs authorities of the Member States and traders, it published them in Official Journal 1980, C 259, p . 1 .
6 The first of those draft texts subsequently became Regulation No 49/81 . By virtue of Article 1 in conjunction with Article 18 thereof, goods in respect of which an AG 1 or AG 3 movement certificate provided for under the Association Agreement between Greece and the Community of Nine had been issued and which on 1 January 1981 were either in transit or had been placed in the Community in temporary storage, in a customs warehouse or a free zone were to benefit from the abolition of customs duties and charges having equivalent effect . In accordance with Article 20 thereof, Regulation No 49/81 entered into force on 1 January 1981 .
7 Under Article 2 of Regulation No 57/81, which is based on Article 73 of the Act of Accession and was not among the texts published by the Commission in Official Journal 1980, C 259 :
"Agricultural products which are exported from Greece before 1 January 1981 and which are imported into the Community of Nine on and after this date shall be subject in the Community of Nine, notwithstanding the provisions of Regulation ( EEC ) No 49/81 :
( i ) to the arrangements applicable to trade between the Community of Nine and Greece on 31 December 1980 if the products in question are accompanied by a movement certificate AG 1 or AG 3,
( ii ) ..."
In accordance with Article 6 thereof, Regulation No 57/81 also entered into force on 1 January 1981 .
8 Both regulations were published in Official Journal L 4, of 1 January 1981, which, it is undisputed, was not in fact available at the Office for Official Publications of the European Communities until 23 January 1981 .
9 Pursuant to Regulation No 57/81, the Italian customs authorities claimed the levies in force on 31 December 1980, which SAFA paid . SAFA subsequently brought proceedings against the defendant before the tribunale civile, Genoa, for a declaration that the sums in question should be repaid on the ground that Regulation No 57/81 was invalid on account of its retroactive effect and that Regulation No 49/81 should be applied to it .
10 Taking the view that a problem of retroactivity was also raised by Regulation No 49/81, the tribunale civile stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling :
"( a ) Is the retroactive effect from 1 January 1981 of Commission Regulation ( EEC ) No 57/81 of 1 January 1981 on transitional measures to be taken, on account of the Accession of Greece, in respect of trade and agricultural products, provided for by Article 6 thereof, lawful in view of the fact that the issue of the Official Journal of the European Communities for 1 January 1981 in which Regulation No 57/81 was published was in fact available at the Office for Official Publications of the European Communities solely from 23 January 1981?
( b)If the Court holds that Article 6 of the aforementioned regulation is unlawful in so far as it provides for it to have retroactive effect from 1 January 1981, is the retroactive effect from 1 January 1981 of Commission Regulation ( EEC ) No 49/81 of 1 January 1981 on methods of administrative cooperation to safeguard during the transitional period the free movement of goods between Greece and the other Member States, provided for by Article 20 thereof, lawful in view of the fact that the issue of the Official Journal of the European Communities for 1 January 1981 in which Regulation No 49/81 was published was in fact available at the Office for Official Publications of the European Communities solely from 23 January 1981?"
11 Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the course of the procedure and the observations submitted to the Court which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court .
12 It should be emphasized at the outset that the Commission rightly did not deny that the regulations in question were of a retroactive nature . A regulation must be regarded as published throughout the Community on the date borne by the issue of the Official Journal containing the text of that regulation . However, should evidence be produced that the date on which an issue was in fact available does not correspond to the date which appears on that issue regard must be had to the date of actual publication ( see judgments of 25 January 1979 in Case 98/78 Racke v Hauptzollamt Mainz (( 1979 )) ECR 69 and in Case 99/78 Decker v Hauptzollamt Landau (( 1979 )) ECR 101 ). Both regulations must therefore be deemed to have been published on 23 January 1981, that is to say more than three weeks after the date of their entry into force .
13 As the Court has already held, in particular in the aforementioned judgments, although in general the principle of legal certainty precludes a Community measure from taking effect from a point in time before its publication, it may exceptionally be otherwise where the purpose to be achieved so demands and where the legitimate expectations of those concerned are duly respected . In order to reply to the questions raised, it is therefore necessary to examine whether those criteria were satisfied in the present case .
Regulation No 57/81
14 As the Commission stated in its written observations, the situation at the end of 1980 was exceptional . On the one hand, the Act of Accession provided for the immediate application, in the absence of any derogating measures, of the Community agricultural rules to Greece and, on the other hand, the Commission could not adopt any such measures prior to the entry into force of the Act of Accession, that is to say on 1 January 1981 . In those circumstances, it was well nigh impossible for the regulations in question to be adopted, published and made available on 1 January 1981 . In addition, the publication of the documents made necessary by the accession of Greece had greatly exacerbated the customary seasonal congestion of the Official Journal .
15 It should also be acknowledged that the objective pursued by Regulation No 57/81 justifies its application with effect from 1 January 1981 . The first recital in the preamble to Regulation No 57/81 states that the transitional measures provided for in Regulation No 49/81 for goods sent before the entry into force of the Act of Accession from Greece to the Community of Nine presented problems in the case of agricultural products which had received export refunds . Moreover, the third recital states that, in view of speculative movements of certain products which might have begun to take place, measures had to be taken to prevent such products from enjoying a twofold benefit, namely the export refund paid by the Greek authorities and the abolition of the Community levy . Regulation No 57/81 related therefore to the very specific situation of agricultural products which were located between Greek customs territory and that of the Community of Nine at the time when the arrangements under the Association Agreement were superseded by the Community agricultural rules . In order to prevent importers of such products from obtaining an unjustified benefit from that temporary situation, it was essential for the regulation in question to be applicable with effect from 1 January 1981 .
16 In those circumstances, the Commission was properly entitled to take the view that the objective to be attained in the general interest, namely the smooth change from the previously applicable arrangements to the Community system and the prevention of speculative movements of agricultural products, made it necessary for Regulation No 57/81 to have retroactive effect .
17 Finally, it should be determined whether the retroactive effect of Regulation No 57/81 frustrated the legitimate expectations of traders . In that connection it is sufficient to point out that traders were not legitimately entitled to expect to be able to benefit from the abolition of the Community levy for goods for which export refunds had been paid in Greece, in view of the fact that the purpose of the levy is in particular to neutralize the effect of refunds obtained in a non-member country .
18 The reply to be given to the first question raised by the tribunale civile should therefore be that consideration of the questions submitted for a preliminary ruling has disclosed no factor of such a kind as to affect the validity of Article 6 of Regulation No 57/81 on transitional measures to be taken, on account of the accession of Greece, in respect of trade in agricultural products, in so far as it confers on that regulation retroactive effect from 1 January 1981 .
19 In view of the reply given to the first question, there is no need to give a preliminary ruling on the second question .
20 As to SAFA' s claim that the Court should as an ancillary matter give a preliminary ruling on the repayment of levies in pursuance of Article 13 of Council Regulation ( EEC ) No 1430/79 of 2 July 1979 on the repayment or remission of import or export duties ( Official Journal 1979, L 175, p . 1 ), it is sufficient to recall that, in view of the division of jurisdiction laid down by Article 177 of the Treaty, it is for the national court alone to determine the subject-matter of the questions which it wishes to refer to the Court . The Court cannot therefore, at the request of a party to the main proceedings, examine questions which have not been referred to it by the national court ( see in particular the judgment of 3 October 1985 in Case 311/84 CBEM v CLT and IPB (( 1985 )) ECR 3261 ).
Decision on costs
Costs
21 The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable . Since these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the proceedings pending before the national court, the decision on costs is a matter for that court .
Operative part
On those grounds,
THE COURT ( First Chamber ),
in answer to the questions referred to it by the tribunale civile Genoa, by order of 29 September 1988, hereby rules :
Consideration of the questions submitted for a preliminary ruling has disclosed no factor of such a kind as to affect the validity of Article 6 of Regulation ( EEC ) No 57/81 on transitional measures to be taken, on account of the accession of Greece, in respect of trade in agricultural products, in so far as it confers on that regulation retroactive effect from 1 January 1981 . | 5 |
LORD JUSTICE RICHARDS: This is an appeal against a determination of the Upper Tribunal (Immigration and Asylum Chamber) upholding a decision of the Secretary of State for the Home Department to make a deportation order against the Appellant. The case has a substantial history but the issues now before us are relatively limited in scope. In order to explain them, I need first to summarise the salient facts.
The Appellant is an Indian national born in 1954 who entered the United Kingdom illegally in 1984 and has remained here without leave ever since. He married a Ms Kaur in 1991. They have two children: a daughter born in February 1992 and now aged 22, and a son born in May 1993 and now aged 21. Ms Kaur and the children are British citizens.
In February 1988, when he was aged 33 and before his marriage, the Appellant committed an offence of rape. He was working on a market stall. The victim, a woman then aged 59, wanted to purchase a pair of jeans from his stall. He took her to a lorry in which he said she could try on the jeans, but he then pushed her over, pinned her down, removed her underwear and raped her. It was a serious offence with a serious impact on the victim and her family. The rape was reported, swabs were taken and DNA samples were kept, but the Appellant was not identified or arrested at the time. It was only much later, as I will explain, that he was caught.
In May 2005, he attempted to regularise his immigration status in this country, submitting an application for indefinite leave to remain on the ground of long residence. In March 2006, he was arrested in respect of offences of driving with excess alcohol and other motoring offences. On his arrest, DNA samples were taken. In due course, a match was made with the DNA samples taken at the time of the rape offence in 1988. The result was that, some 18 years after that offence had been committed, the Appellant was charged with the rape. He pleaded guilty on the day of trial and was sentenced in December 2006 to four and a half years' imprisonment.
In June 2008, he was served with a decision refusing his application for indefinite leave to remain and with notice of a decision to deport him on the ground that deportation was conducive to the public good, having regard to the seriousness of the offence of rape. The deportation decision was taken pursuant to section 3(5)(a) of the Immigration Act 1971 and paragraph 364 of the Immigration Rules as then in force.
The Appellant appealed, relying on Article 8 of the European Convention on Human Rights and paragraph 364 of the Immigration Rules. His appeal was dismissed by the AIT. Reconsideration was ordered by the High Court on the ground that the Tribunal had arguably erred in not applying the Home Office's policy DP5/96 in respect of children with long residence. On a further reconsideration, the Tribunal ruled that policy DP5/96 was irrelevant. On appeal to the Court of Appeal against that decision, it was held that the policy was relevant and should have been considered by the Tribunal and that the Tribunal had also failed to give proper consideration to the issue of relocation of the children to India with the Appellant. The court remitted the case so that the Tribunal could reconsider all relevant factors and balance them against what the court described as "the very weighty factor of the legitimate aim of deportation in this case". The Court of Appeal's judgment was given in April 2010 under the title SS (India) v Secretary of State for the Home Department [2010] EWCA Civ 388.
There was then an unexplained delay of over two years before the remitted case was heard in May 2012 by a panel of the Upper Tribunal (Immigration and Asylum Chamber) consisting of Upper Tribunal Judge Hanson and Deputy Upper Tribunal Judge Juss. That panel's determination was promulgated on 13 August 2012. It remade the original Tribunal decision but again dismissed the Appellant's appeal against the decision to deport him. That is the determination against which the present appeal to this court is brought.
I refused permission to appeal on the papers but permission was granted by Maurice Kay LJ on an oral renewal in April 2013. Maurice Kay LJ said that the written statement filed by the Appellant's counsel, Mr Mahmood, for the renewal hearing contained more refined submissions than those in the original grounds and skeleton argument. As appears from his judgment and the order of the court on that occasion, it was specifically on the basis of the grounds in the renewal statement that permission to appeal was granted. The written renewal statement has, therefore, stood as the basis of the Appellant's case on this appeal.
The determination under appeal is a lengthy document. In my reasons for refusing permission on the papers I said that although unduly lengthy and laboured, it amounted to a thorough and conscientious reconsideration of the case in the light of the remittal by the Court of Appeal. I adhere to that view but it is, of course, not dispositive of the specific issues now raised on the appeal.
The main issues so raised are these. First, that the Tribunal erred in law in its treatment of policy DP5/96. Secondly, that the delay of over two years before the case was reheard by the Tribunal following the remittal by the Court of Appeal resulted in unfairness. Thirdly, that as regards the public interest in deportation of those convicted of serious offences, the Tribunal appears to have applied the more stringent test applicable to automatic deportation rather than the test in paragraph 364 of the Immigration Rules. There are certain additional points that Mr Mahmood has ventilated or sought to ventilate before us, to which I will refer briefly in due course.
Going then first to the issue concerning policy DP5/96, that policy was in force at the time of the decision to deport the Appellant but was revoked in 2008. At the time of the decision to deport it was in these terms:
"The purpose of this instruction is to define more clearly the criteria to be applied when considering whether enforcement action should proceed or be initiated against parents who have children who were either born here and are aged 7 or over or where, having come to the United Kingdom at an early age, they have accumulated 7 years or more continuous residence.
Whilst it is important that each case must be considered on its merits, the following are factors which may be of particular relevance:
(a) the length of the parents' residence without leave;
(b) whether removal has been delayed through protracted (and often repetitive) representations or by the parents going to ground;
(c) the age of the children;
(d) whether the children were conceived at a time when either of the parents had leave to remain;
(e) whether return to the parents' country of origin would cause extreme hardship for the children or put their health seriously at risk;
(f) whether either of the parents has a history of criminal behaviour or deception."
The policy applied in this case because the children had been born in this country and had accumulated more than 7 years' continuous residence here. As I have said, the failure to treat the policy as relevant on an earlier reconsideration was one of the reasons why the Court of Appeal remitted the present case to the Tribunal in 2010.
In the determination under appeal, the Tribunal tackled the policy head on at paragraphs 43 to 51. At paragraph 45 it referred to the decision in NF (Ghana) v Secretary of State for the Home Department [2008] EWCA Civ 906 to the effect that there is a presumption against deportation where a child has 7 years' accumulated residence in this country. The Court of Appeal had said in that case that the Tribunal should start from the position that it was only in exceptional cases that indefinite leave to remain would not be granted and then go on to consider the extent to which the factors mentioned made the case an exceptional one.
Having set out the terms of the policy, the Tribunal in the present case mentioned examples of circumstances which have been found in other cases to amount to exceptional circumstances and referred in that respect to two cases decided by way of judicial review in the Administrative Court.
It then turned to the submissions of the Home Office presenting officer, Mr Smart, in the case before it and said as follows (at paragraph 49):
"In relation to this appeal, Mr Smart stated that the Secretary of State relies upon the factors set out at subparagraphs (a), (b), (d), (e) and (f) of the policy document when considering the facts of the Appellant's behaviour in relation to his failure to regularise his stay in the United Kingdom since entry until the application was refused as a result of the deportation decision, the fact that the Appellant went to ground for a substantial period of time; the fact the children were conceived at a time that the Appellant himself had no leave to remain; that although it may be proved hardship would be suffered, it had not been proved that extreme hardship would be suffered by the children if they had returned to India (a country they have visited and where the second child was sent following his father's conviction and imprisonment as this was deemed to be for his own good); and the Appellant's criminal conduct, the test of exceptionality had been met."
At paragraph 50 the Tribunal said that it had to consider the situation in respect of all issues at the date of the hearing before it. In the light of all the circumstances, including the facts relied upon by Mr Smart, it rejected the submission on behalf of the Appellant that if the policy had been properly considered the presumption in favour of allowing the Appellant to remain would not have been rebutted. It continued (at paragraph 51):
"We find the Respondent has discharged the burden of proof upon her to the required standard to show that the Appellant's criminal conduct, lack of status and failure to attempt to regularise that status sooner all amount to exceptional circumstances sufficient to rebut the presumption in favour of allowing him to remain under the terms of the policy."
The first submission advanced this morning by Mr Mahmood in relation to that analysis is that the failure of the Secretary of State to reach a decision on policy DP5/96 at the material time rendered the Secretary of State's decision to deport unlawful and should have led the Tribunal to allow the appeal to the extent of declaring that the Secretary of State's decision was not in accordance with the law, pursuant to section 84(1)(e) of the Nationality, Immigration and Asylum Act 2002, with the result that the case should have been remitted to the Secretary of State for him or her to take a decision on the policy.
It does not appear that this point was advanced before the Tribunal below. If that is right, the point, as it seems to me, is in the circumstances not open to Mr Mahmood. Nevertheless, out of an abundance of caution, I will deal with it.
I do not accept the validity of the argument. On appeal to the Tribunal it was for the Tribunal to apply the policy even though that policy had not been applied by the Secretary of State. It is a misconception to suggest that the Tribunal had to allow the appeal and remit the case to the Secretary of State to take an original decision on to the policy. There is nothing about this particular policy to require such an exceptional course, as it would be, to be adopted. It seems to me that the Tribunal approached the issue of policy DP5/96 in the correct way in considering the policy for itself and in reaching a conclusion reasonably open to it that the relevant considerations, including the factors relied on by the Secretary of State, amounted to exceptional circumstances sufficient to rebut the presumption in favour of allowing the Appellant to remain under the terms of the policy.
That brings me to the second way in which Mr Mahmood has advanced his case, which is a submission that the Tribunal's application of the policy itself was flawed. He says that in paragraph 51, which I have quoted, the Tribunal focused on a limited number of factors. He criticises the reference to "failure to attempt to regularise that status sooner" as not fitting within any of the specific factors identified in the policy itself, though that seems to me to fall fairly obviously within paragraph (a) of the policy. He submits that the Tribunal did not carry out the necessary balancing exercise in application of the policy. I disagree. The Tribunal was plainly engaged here in a balancing of the relevant considerations; and it viewed those picked out in paragraph 51, considered in the overall context, as amounting to exceptional circumstances sufficient to rebut the presumption. As I have indicated, that was, in my judgment, a reasonable conclusion.
I move to the second of the main issues, which relates to children and delay. Mr Mahmood submits that once the Court of Appeal had remitted the case in April 2010, it ought to have been heard within a reasonable time, and the fact that it took over two years before it was heard resulted in unfairness, in particular because the Appellant's son (though not the daughter) was under 18 years of age at the date of the Court of Appeal decision but was over 18 years old by the time of the hearing before the Tribunal. The significance of that is said to rest in various authorities relating to the treatment of the position of children. Mr Mahmood points out that the Article 8 rights of children fall to be taken into account in considering the overall position under Article 8 in a case of this sort: see Beoku-Betts [2009] 1 AC 115. He points out that the welfare of children needs to be promoted and safeguarded pursuant to section 55 of the Borders, Citizenship and Immigration Act 2009. He also points to what was said in ZH (Tanzania) [2011] 2 AC 116 about the best interests of children being a primary consideration. All of that is very well-known.
Mr Mahmood submits that unfairness arose in this case because of the delay, in that by the date of the decision the son's best interests and welfare no longer fell to be taken into consideration by the Tribunal. He says that what occurred amounted to the Tribunal sidestepping the positive obligation to promote and safeguard the welfare of the son. He submits that the consequences of the delay were something that should have been taken into account as a relevant factor in the Tribunal's reasoning.
This too appears to be a point not taken before the Tribunal itself and again I deal with it only out of an abundance of caution, recognising that it is probably not open to Mr Mahmood at all. I simply do not understand, let alone accept, the argument. The Tribunal was required to consider the Article 8 rights of the Applicant and his family as at the date of the hearing, which is exactly what the Tribunal did at considerable length. It had been accepted on behalf of the Secretary of State that although the children were now young adults, there was a continued dependency on the Appellant and his wife and there continued to be family life within Article 8. All this was taken into account. Nothing was sidestepped. There was no failure to take a relevant factor into account.
Mr Mahmood submitted that looking at the issues of delay and the position of the children cumulatively, there can be seen to be a fundamental flaw in the Tribunal's approach. In my judgment, as I have indicated, the points have no force individually. They gain no greater force when considered in combination.
I would add that in one respect the delay was relied on before the Tribunal as working in the Appellant's favour, in that it increased the lapse of time since the offence of rape. A key part of the Appellant's case before the Tribunal was that it could not be proportionate to deport him now for an offence committed so long ago, especially because he had not offended in the meantime. The Tribunal, however, dealt robustly with that argument, pointing out that the weight to be attached to it must be considered in the light of the fact that the Appellant had in fact offended in the meantime; that is to say the offences that led to his identification as the perpetrator of the rape. He had been assessed as presenting a risk as recently as 2008. He had been illegally in the United Kingdom throughout. He was still trading in his market business. As regards risk, the Tribunal was concerned that the Appellant had tried to ignore and escape responsibility for his actions between 1988 and when the positive DNA match was obtained in 2006. It observed, in my judgment very pertinently, that there was a strong argument that the element of deterrence carried more weight in this case as it would demonstrate that a person should not be rewarded for effectively going to ground and believing they had got away with it for a substantial period of time.
That also links with the point raised by Sir Stanley Burnton in the course of argument that, in reality, the Appellant had only himself to blame for the overall lapse of time in this case because, rather than face up to his offending at the time when he committed it, he went to ground for so long, got married and had children before he was finally identified as the perpetrator of the rape and the inevitable deportation decision was taken.
At this point in his submissions, Mr Mahmood sought to advance what turned out, upon analysis, to be an irrationality challenge in relation to the general exercise undertaken by the Tribunal in carrying out the Article 8 balance by reference to relevant factors, in particular those identified in Üner v The Netherlands [2007] 45 EHHR 14 (on the basis of which the Tribunal directed itself at paragraph 111). It was apparent that permission to appeal had not been granted on such a ground, which had not been raised directly or even indirectly in the renewal statement on the basis of which permission was granted. In those circumstances, I need say no more about the way in which Mr Mahmood began to develop his case in relation to that point.
I can move to the final of the three main points that he raised, which concerns the relationship between what the Tribunal said about paragraph 364 of the Immigration Rules and the position under cases of automatic deportation pursuant to statutory provisions to which I will come in a moment.
The way which the matter was addressed in the renewal statement, and part of the way in which I understood Mr Mahmood still to put his case, was that the Tribunal erroneously had regard to the more stringent approach towards the public interest in deportation in automatic deportation cases than is applicable under paragraph 364 of the Immigration Rules.
At the relevant time paragraph 364 read as follows:
"Subject to paragraph 380, while each case will be considered on its merits, where a person is liable to deportation the presumption shall be that the public interest requires deportation. The Secretary of State will consider all relevant factors in considering whether the presumption is outweighed in any particular case, although it will only be in exceptional circumstances that the public interest in deportation will be outweighed in a case where it would not be contrary to the Human Rights Convention and the Convention and Protocol relating to the Status of Refugees to deport. The aim is an exercise of the power of deportation which is consistent and fair as between one person and another, although one case will rarely be identical with another in all material respects..."
The regime of automatic deportation as introduced by section 32 of the UK Borders Act 2007 is a strict non-discretionary regime for the deportation of foreign criminals, that is persons who are not British citizens and are convicted of a serious offence. The statute provides that for the purpose of section 3(5)(a) of the Immigration Act 1971 the deportation of a foreign criminal is conducive to the public good and that, unless defined exceptions apply, the Secretary of State must make a deportation order in respect of a foreign criminal.
The key point about the automatic deportation regime for present purposes is that the Parliamentary endorsement of the policy of deporting foreign criminals increases the weight to be attached to the public interest in deportation when carrying out the Article 8 balancing exercise. That was the position found to be the case in SS (Nigeria) v Secretary of State for the Home Department [2013] EWCA Civ 550, in the judgment of Laws LJ at paragraphs 48 to 55. Laws LJ observed at paragraph 48 that insufficient attention had been paid in Article 8 cases to the weight to be attached. in virtue of its origin in primary legislation, to the policy of deporting criminals. At paragraph 54, he said:
"The pressing nature of the public interest here is vividly informed by the fact that by Parliament's express declaration the public interest is injured if the criminal's deportation is not effected. Such a result could in my judgment only be justified by a very strong claim indeed."
In the present case, it is plain that the Tribunal had well in mind that it was dealing with a case under paragraph 364 of the Immigration Rules, not with an automatic deportation case. For example, at the very beginning of the section on the law at paragraph 33 of the determination it said that this was a conducive deportation appeal. It set out the guidance, referring in terms to the approach in such a case and, in particular, under paragraph 364. That guidance was to the effect that the Tribunal should first confirm that the Appellant was liable to deportation. It should then consider whether deportation would be in breach of the European Convention on Human Rights or the Refugee Convention and, if not, it should consider paragraph 364 and, in particular, whether there were exceptional circumstances outweighing the presumption that the public interest requires deportation.
That is precisely the approach that the Tribunal then adopted. It was not disputed that the Appellant was liable to deportation. The Tribunal examined the case under Article 8 exhaustively. Having found that deportation would not be in breach of Article 8, it moved on finally at paragraphs 176 and following of the determination to consider paragraph 364 itself.
In his renewal statement, Mr Mahmood relies, however, on the fact that the Tribunal said at paragraph 76 of the determination that it had been assisted in relation to the public interest element of deportation proceedings by the case of Masih [2012] UKUT 00046 (IAC) in which the Tribunal set out the basic principles to be derived from the authorities on the public interest side of the balancing exercise. I quote those principles from the extract at paragraph 76 of the present Tribunal's determination:
"1. In a case of automatic deportation, a full account must be taken of the strong public interest in removing foreign citizens convicted of serious offences, which lies not only in the prevention of further offences on the part of the individual concerned, but in deterring others from committing them in the first place.
2. Deportation of foreign criminals expresses society's condemnation of serious criminal activity and promotes public confidence in the treatment of foreign citizens who have committed them.
3. The starting point for assessing the facts of the offence of which an individual has been convicted and their effect on others or the public as a whole must be taken by the sentencing judge.
4. The appeal has to be dealt with on the basis of the situation at the date of the hearing.
5. A full account should also be taken of any developments since sentence was passed..."
Mr Mahmood's point appears to be that Masih was a case of automatic deportation and that the first of the basic principles set out with regard to the strong public interest in removing foreign criminals started with the words "in a case of automatic deportation". It appears to be submitted that by applying those principles the Tribunal applied a stricter test than was appropriate for a discretionary deportation case to which paragraph 364 of the Immigration Rules applied.
I do not accept that the Tribunal's reference to the principles set out in Masih caused it to give undue weight to the public interest in deportation. Nothing in that list of principles is inappropriate in the context of a discretionary deportation. Nothing was said in Masih itself or by the Tribunal in the determination in the present case about giving greater weight to the public interest because the policy of deportation has its source in primary legislation. In making the point in SS (Nigeria) about the weight to be attached to that consideration, Laws LJ said that insufficient attention had been paid to the point in previous cases. Although he did not refer in that connection to Masih, I note that Masih did predate SS (Nigeria) by a significant period.
Most importantly, however, I see nothing in the Tribunal's detailed consideration of the Article 8 balancing exercise to suggest that it was misled into applying too strict a test as to the weight to be placed on the public interest in deportation. Its analysis was perfectly appropriate for a case of discretionary deportation and it cited numerous cases that were not automatic deportation cases.
In submissions today, Mr Mahmood has raised a further point by way of criticism of the Tribunal's determination, in particular in relation to the balancing exercise carried out under paragraph 364 itself. That exercise was engaged in at paragraphs 176 to 179 of the determination. An aspect of the criticism is that there was a need to consider policy DP5/96 in considering the balance in paragraph 364, but a more general complaint is also made about the balancing exercise.
This point, as it seems to me, is again one not covered by the grounds in the written renewal statement and is one not open to Mr Mahmood before this court. But in any event, since the Tribunal was entitled to find, as it did, that there were exceptional circumstances to displace the presumption in policy DP5/96, I cannot see how reference to that policy can be of any assistance to the Appellant in the context of paragraph 364 of the Immigration Rules.
I am also satisfied that the Tribunal imported its Article 8 analysis into its consideration of the balancing exercise under paragraph 364 and that, although it expressed its reasons briefly in dealing with that paragraph, it left nothing material out of account and did not apply too high a standard.
For all those reasons, I am satisfied that there is no substance in this appeal and I would dismiss it.
SIR STANLEY BURNTON: I entirely agree. I would add that it seems to me that there is a further reason why the first point made by Mr Mahmood is not open to the Appellant. His deportation was considered by the Court of Appeal, as Richards LJ has referred to, in 2010 in the judgment the neutral citation number of which is [2010] EWCA Civ 388.
His ground of appeal was that the Secretary of State and the Upper Tribunal had failed to consider and to apply policy DP5/96. The Court of Appeal found that the Secretary of State and the Upper Tribunal both should have applied that policy but failed to do so. As sought by the Appellant, the Court of Appeal remitted the case to the Upper Tribunal.
It would not have done so if it had considered that fairness required remission to the Secretary of State. Indeed, it was not asked to do so. It would be entirely inconsistent with the Court of Appeal decision and the order it made for this court to have come to the conclusion that the Upper Tribunal, having been required by the Court of Appeal to consider this policy, should have remitted the matter for fresh decision by the Secretary of State.
In any event, I agree with my Lord that there is nothing in the point.
THE CHANCELLOR OF THE HIGH COURT: I agree with both judgments. | 7 |
Ram Bux owned agricultural lands in two villages, namely, Parson and Galand in the then Tehsil Ghaziabad, District Meerut in the State of Uttar Pradesh. He had two wives. From his first wife, he had a son named Rasal Singh. From his second wife, he had four sons. He died somewhere in the year sic . His progeny were in occupation of his agricultural lands when companysolidation operations started in the villages sometimes in the late sixties. A dispute arose between the heirs of Ram Bux with regard to the rule of succession. The progeny of the first wife claimed that they had half share in the owned agricultural lands of Ram Bux. The progeny of the second wife claimed that they had 4/5th share in the properties of Ram Bux, under the rules of succession known to Hindu Law, Ram Bux having left five sons. The customary succession pleaded by the progeny of the first wife was Chondapatt whereby the share is determined wife-wise. It appears that in the ordinary companyrse of litigation in village Parson the Deputy Director of Consolidation, Merrut when companyfronted with the subject, vide judgment dated 25-3-1971, took stock of the situation and determined in favour of the Chondapatt customary succession. Since the claim of the progeny of the first wife however was companyfined to 2/5th share instead of one half, as that had been their accepted share for a long time, their claim was allowed to the extent of 2/ 5th and their holdings were companysolidated in village Parson on that basis. When the turn came to apply such rule in village Galand, the Consolidation Officer opted in favour of dividing the ownership lands in five equal shares. On appeal to the Settlement Officer, however, the view was reversed. He took in aid the Order of the Deputy Director of Consolidation dated 25-3-1971 relating to village Parson to give to the progeny of the first wife half share and this view was affirmed by the Deputy Director of Consolidation in further appeal. As is evident the basis of the Orders in favour of the progeny of the first wife is the Order of the Deputy Director, Consolidation dated 25-3-1971 relating to village Parson taking the view that the same operates as res judicata. The Writ Petition of the progeny of the second wife of Ram Bux was dismissed by the High Court of Allahabad on July 29, 1977, being C.M.W.P. No. 8976 of 1972, which gave rise to this appeal by special leave. We have heard learned Counsel and have perused all the Orders of the Consolidation Authorities. It is evident therefrom that the Sharat-Wajib-Ul-Arz in both the villages record in identical terms existence of such a custom amongst the Hindu Rajputs and that custom is known as Chondapatt. | 4 |
Judgment of the Court of First Instance (Third Chamber) of 3 April 1990. - Fred Pfloeschner v Commission of the European Communities. - Officials - Admissibility - Provisional statement of pensions rights - Act adversely affecting the official. - Case T-135/89.
European Court reports 1990 Page II-00153
Summary
Parties
Grounds
Decision on costs
Operative part
Keywords
++++
1 . Officials - Actions - Act adversely affecting an official - Concept - Provisional statement of pension rights - Excluded
( Staff Regulations, Arts 90 and 91 )
2 . Officials - Actions - Request under Article 90(1 ) of the Staff Regulations - Concept
( Staff Regulations, Art . 90(1 ) )
Summary
1 . The concept of an act adversely affecting an official covers any act capable of directly affecting a given legal situation .
A provisional calculation of an official' s pension rights, provided by the administration by way of information, subject to definitive determination of the rights of the person concerned upon his being awarded a pension, is not be regarded as constituting a decision, which as such is capable of being the subject of an action .
2 . A request made by an official by telephone, manifestly intended merely to secure information about pension rights, cannot be regarded as a formal request for a decision by the administration within the meaning of Article 90(1 ) of the Staff Regulations .
Parties
In Case T-135/89
Fred Pfloeschner, an official of the Commission of the European Communities, residing in Brussels, represented by G . Vandersanden, of the Brussels Bar, with an address for service in Luxembourg at the Chambers of A . Schmitt, 62 avenue Guillaume,
applicant,
v
Commission of the European Communities, represented by its Legal Adviser, J . Griesmar, acting as Agent, with an address for service in Luxembourg at the office of Georgios Kremlis, a member of its Legal Department, Wagner Centre, Kirchberg,
defendant,
APPLICATION for the annulment of a memorandum from the Head of the Pensions Department informing the applicant of the "provisional statement of pension rights" which would be paid to him as from 1 September 1990, in so far as the weighting applicable to the applicant' s pension would be 100 if he retired to Switzerland,
THE COURT OF FIRST INSTANCE ( Third Chamber )
composed of : A . Saggio, President of Chamber, C . Yeraris and K . Lenaerts, Judges,
Registrar : H . Jung
having regard to the written procedure and further to the hearing on 21 February 1990,
gives the following
Judgment
Grounds
Facts and procedure
1 By application lodged at the Court Registry on 18 September 1989, Fred Pfloeschner brought an action for the annulment of the memorandum from the Head of the Pensions Department containing a "provisional statement of pension rights" which would be paid to him as from 1 September 1990, in so far as the weighting applicable to the applicant' s pension would be 100 if he retired to Switzerland .
2 By a document received at the Court Registry on 27 October 1989, the Commission raised an objection of inadmissibility based on Article 91(1 ) of the Rules of Procedure of the Court of Justice, which apply mutatis mutandis to proceedings before the Court of First Instance, and asked that a decision be given on the objection without the substance of the case being considered . It also asked that the applicant be ordered to pay the costs .
3 The background to the dispute is as follows . In 1958 the applicant, a Swiss national, was appointed a Commission official by way of derogation from the nationality clause ( Article 28(a ) of the Staff Regulations of Officials ). On 11 February 1988, the Head of the Pensions Department in the Commission, Mr Caston, sent to Mr Pfloeschner - in response to an oral request from him - a provisional statement of his pension rights as from 1 September 1990, at the age of 62 years and one month, based on the maximum rate . That statement showed a net pension of approximately BFR 263 000, calculated by using the weighting of 145.4 then applicable both for pensions payable to persons residing in Switzerland and for the remuneration of officials assigned to work in Switzerland . However, on 18 July 1988 that weighting was substantially reduced with respect to pensions by Council Regulation ( ECSC, EEC, Euratom ) No 2175/88 laying down the weightings applicable in third countries ( Official Journal 1988, L 191, p . 1 ), Article 3 of which provides that "the weighting to be applied to a pension where the recipient has established his residence in a third country shall be 100 ".
4 Therefore, on 13 September 1988, the applicant lodged a complaint under Article 90(2 ) of the Staff Regulations against Regulation No 2175/88 - and specifically against the "decrease in the future net pension resulting from elimination of the weighting for pensioners who establish their residence in a third country" - claiming that that regulation is unlawful since it infringes the principle of the protection of legitimate expectations and the principle of equal treatment for officials ( complaint 190/88 ). On 22 March 1988, the Commission rejected that complaint on the following grounds : first, when the applicant was recruited the weighting applicable to pensions paid to ex-officials established in a third country was 100; secondly, the legal relationship between officials and the administration is governed by the Staff Regulations; and, finally, the contested regulation adopts the criterion of place of residence and not of nationality . The decision also drew the applicant' s attention to the fact that any legal action by an official against a regulation relating to matters within the ambit of the Staff Regulations was inadmissible .
5 The applicant also sought an amended calculation of his pension rights as at 1 September 1990, following the entry into force of the new rules . In reply, Mr Caston sent him, by letter of 16 January 1989, a "provisional statement of his pension rights ... subject to definitive determination of (( his )) rights upon the award of his pension ". The new calculation was made by the administration on the basis of Regulation No 2175/88, that is to say using a weighting of 100 . It gave a net pension of about BFR 182 000, thus showing a shortfall of more than BFR 81 000 a month in the amount receivable by the applicant . Consequently, on 24 February 1989 he lodged a fresh complaint against "the calculation of his future pension appearing in the (( abovementioned )) letter" ( complaint 91/89 ): the applicant claimed that the new statement had been based on the abovementioned regulation which he considered to be illegal for the reasons set out in his complaint 190/88 .
6 Following the implied rejection of that second complaint, arising from the Commission' s failure to reply to it within the period prescribed by Article 90(2 ) of the Staff Regulations, Mr Pfloeschner brought the present action before the Court of Justice on 18 September 1989 with a view to securing annulment of "the Commission' s decision of 16 January 1989 establishing the applicant' s pension rights in so far as the weighting applicable to the applicant' s pension if he retires to Switzerland is fixed at 100 ". In addition to the submissions contained in his complaint ( breach of the principle of the protection of legitimate expectations and of the principle of equal treatment for officials ), the applicant alleges lack of powers on the part of the Council to adopt Regulation No 2175/88, breach of the principle of estoppel and of the principle of good management and proper administration .
7 The Commission lodged an objection of inadmissibility against the application as a whole . It also contended that the three new submissions referred to in the preceding paragraph were inadmissible since they did not correspond to any head of claim in the complaint .
8 By order of 15 November 1989, the Court of Justice assigned the case to the Court of First Instance pursuant to Article 14 of the Council Decision of 24 October 1988 establishing a Court of First Instance of the European Communities . The applicant lodged observations to the effect that the objections of inadmissibility should be dismissed . Upon hearing the report of the Judge-Rapporteur, the Court of First Instance ( Third Chamber ) decided, pursuant to Article 91(3 ) of the Rules of Procedure, to open the oral procedure without any preparatory inquiry .
Admissibility
9 The Commission, referring to the nature of the contested measure, objects that the entire application is inadmissible . It relies in particular on the judgment of 10 December 1969 in Case 32/68 Grasselli v Commission (( 1969 )) ECR 505, in which the Court declared inadmissible an action brought against an "explanatory table" of the applicant' s contingent pension rights and contends that the letter at issue merely provides administrative information concerning the administration' s intention in due course to calculate the applicant' s pecuniary entitlements, in accordance with certain detailed rules, in the event of his retirement : that letter was not therefore in the nature of a "decision" intended to produce legal effects . Thus, since - in the defendant' s contention - it is not an act adversely affecting the official concerned, the memorandum from the Head of Department cannot be the subject of an action . The Commission states in particular that the applicant cannot rely on the judgment of 1 February 1979 in Case 17/78 Deshormes v Commission (( 1979 )) ECR 189, paragraphs 9 to 13, in which the Court held that an official in active employment has a "legitimate, present, vested ... interest" in challenging by legal proceedings the basis of the future calculation of his pension rights . The defendant contends in that regard that, by contrast with the position in Deshormes, the measure at issue in these proceedings does not rank as a decision in so far as it is neither a decision adopted ex proprio motu nor an express decision rejecting a request within the meaning of Article 90(1 ), but was communicated to the applicant in response to a mere request for information . In support of its view, the Commission states that in any event Article 40 of Annex VIII to the Staff Regulations precludes the adoption of a decision calculating in advance the pension rights of an official who has not yet retired .
10 The applicant claims, on the contrary, that the letter signed by the Head of Department, Mr Caston, does adversely affect him : having come from "a duly informed and competent authority" it is not "mere 'information' " as in Grasselli but is in the nature of an "individual decision" affecting him, precisely because it shows that the weighting applicable to the pension which he would receive in the event of his retirement on 1 September 1990 would be reduced to 100 by application of Regulation No 2175/88 . Arguing by analogy with salary statements - which are regarded as acts adversely affecting an official where they show a change which is open to challenge - Mr Pfloeschner considers that the letter at issue, in so far as it deprives him of an adjustment to which he was previously entitled according to a first provisional statement prepared one year earlier by the Head of the same department, "contains the elements of an individual decision adversely affecting him", by contrast with the measure attacked in Grasselli, where the official, furthermore, had an option available to him as to the basis on which his pension rights were to be calculated . He also relies on the allegedly "decisional" nature of the contested letter and claims that Deshormes is applicable to his case, irrespective of whether or not a prior request, within the meaning of Article 90(1 ) of the Staff Regulations, was submitted . It is thus not necessary, in the applicant' s view, that the administration should have rejected such a request for the applicant to be entitled to challenge by legal proceedings the amount of the pension rights to be determined in the near future . Mr Pfloeschner nevertheless claims that, in the present case, the oral request for "an amended calculation of his pension rights as at 1 September 1990, following the entry into force of the new rules" made by him to Mr Caston must be regarded as a request within the meaning of the abovementioned provision .
11 It must be pointed out in the first place that, according to Article 91(1 ) of the Staff Regulations, any dispute between the Communities and any person to whom the Staff Regulations apply regarding the legality of an act adversely affecting that person may be brought before the Court of Justice . The Court has consistently held that the concept of an act adversely affecting an official covers any act capable of directly affecting a given legal situation ( judgments of 1 July 1964 in Case 26/63 Pistoj v Commission (( 1964 )) ECR 341, and in Case 78/63 Huber v Commission (( 1964 )) ECR 367, of 6 February 1973 in Case 56/72 Goeth-Van der Schueren v Commission (( 1973 )) ECR 181, paragraphs 8 to 10, and of 11 July 1974 in Joined Cases 177/73 and 5/74 Reinarz v Commission (( 1974 )) ECR 819 ). It is therefore necessary to examine the substantive features of the contested measure in order to determine its legal nature .
12 The letter dated 16 January 1989 sent to the applicant by the Head of the Pensions Department of the Commission' s Directorate-General for Personnel and Administration displays numerous features conducive to the conclusion that it is not decisional in character . The first paragraph of the letter clearly states that it is intended to provide the official with a "provisional statement of the pension rights payable (( to him )) as from 1 September 1990 ". In view of the use of the word "provisional", which relates to the statement, that is to say to the actual content of the letter in its entirety, it seems clear that the administration sought, at the very commencement of the letter, to stress that it was not a definitive position but merely gave information as to the future amount of the pension . That analysis is confirmed by the second paragraph of the letter, in which it is stated that the statement provided was "prepared on the basis of the Staff Regulations as at present in force, subject to definitive determination (( of the applicant' s rights )) upon (( his )) being awarded a pension ". It is thus quite plain that the staff who wrote the letter were anxious to make it unequivocally clear that the information communicated to him in the previous paragraph could in no circumstances be interpreted as constituting a position taken by the administration, that is to say a measure constituting a decision which, as such, could be proceeded against through administrative channels and before the Court .
13 It must also be emphasized that the contested letter appears manifestly to have been based on an established standard form, so as not to give the addressee the impression that it could in fact constitute a decision . The appropriateness of the use of the term standard form is confirmed by the fact that the letter of 16 January 1989 ( annex 6 to the application ) uses exactly the same terms as the letter sent to the applicant on 11 November 1988 ( annex 3 to the application ): both letters have the same structure and use exactly the same terminology .
14 It is thus apparent from an analysis of the letter at issue that it contains only administrative information . It must be borne in mind that the Court has consistently held that purely explanatory measures and statements provided for information are not capable of determining rights which the applicants would derive from a given legal situation ( judgments of 10 December 1969 in Grasselli, supra, paragraph 5, of 28 May 1970 in Joined Cases 19, 20, 25 and 30/69 Richez-Parise v Commission (( 1970 )) ECR 325, paragraph 19, of 9 July 1970 in Case 23/69 Fiehn v Commission (( 1970 )) ECR 547, paragraph 11, and of 1 February 1979 in Deshormes, supra, paragraphs 23 and 24 ).
15 Consequently, by virtue of those principles, it must be considered that the letter of 16 January 1989 is not an act adversely affecting an official and therefore not an act against which an action can be brought .
16 In support of his application, the applicant also claims that the letter must in any event be regarded as a decision adopted by the Commission in response to his request for "an amended calculation of his pension rights as at 1 September 1990, following the entry into force of the new rules ". The applicant states that he made that request by telephone to the Head of the Pensions Division . That argument cannot be accepted . It is difficult to classify a request made by telephone, manifestly intended merely to secure information - in a sphere, moreover, where requests for information are made very frequently - as a formal request for a decision by the Commission within the meaning of Article 90(1 ) of the Staff Regulations : both the means used ( the telephone ) and the subject on which information was requested were such as to lead the Commission to consider that the official was seeking information, not a decision .
17 In that regard, it must be emphasized that Article 90(1 ) of the Staff Regulations provides for a pre-litigation procedure designed to prompt the administration to adopt a position constituting a decision . That procedure was laid down not only in the interests of the administration - which must, without any doubt, be placed in a position where it can identify the substance of the official' s request and, if necessary, accede to it, thus avoiding further stages in the pre-litigation procedure and then proceedings before the Court - but also in the interests of the official . The official must be in a position to deduce from the purport of the measure adopted by the administration whether it constitutes a decision or merely information .
18 It follows from the foregoing that the contested measure cannot be regarded as an act adversely affecting the applicant .
19 Consequently, it is unnecessary to consider the other arguments advanced by the Commission in support of its contention that the application is inadmissible .
20 It follows that the application must be declared inadmissible .
Decision on costs
Costs
21 Under Article 69(2 ) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they are asked for in the successful party' s pleadings . However, Article 70 of those Rules provides that, in proceedings brought by servants of the Communities, the institutions are to bear their own costs .
Operative part
On those grounds,
THE COURT OF FIRST INSTANCE ( Third Chamber )
hereby :
( 1 ) Dismisses the application as inadmissible;
( 2 ) Orders the parties to bear their own costs .
Delivered in open court in Luxembourg on 3 April 1990 . | 7 |
COURT OF APPEAL FOR ONTARIO
CITATION: R. v. Abdulle, 2018 ONCA 643
DATE: 20180717
DOCKET: C64201
Benotto, Trotter and Paciocco JJ.A.
BETWEEN
Her Majesty the Queen
Respondent
and
Mohamed Farah Abdulle
Appellant
Mohamed Farah Abdulle, acting in person
Concetta Zary, for the respondent
Ingrid Grant, duty counsel
Heard and released orally: July 11, 2018
On appeal from the conviction entered on November 18,
2015 and the sentence imposed on October 31, 2016 by Justice Robert N. Beaudoin
of the Superior Court of Justice.
REASONS FOR DECISION
[1]
The appellant was convicted of multiple offences under the
Criminal
Code
,
R.S.C., 1985, c. C-46, and
the
Immigration and Refugee Protection Act
, SC 2001, c 27, in
respect of fraudulent refugee applications 170 applications in total. After
staying some counts in order to comply with the rule against multiple
convictions, the trial judge imposed the total sentence of 45 months
imprisonment less credit for a modest number of days of pre-sentence custody.
The appellant appeals his convictions and sentence.
[2]
In our view, there is no merit in the conviction appeal. The evidence
overwhelmingly supported the trial judges findings of guilt. The trial judge
gave careful reasons in support of his overall conclusions. He evaluated the
evidence of each witness and made sound credibility findings. Moreover, the
trial judge found that the appellants evidence was completely unworthy of belief
a finding he was entitled to make. The trial judge considered all of this
evidence within the framework of
R. v. W.(D.),
[1991] 1 S.C.R. 742
.
We
see no error.
[3]
During the oral argument of this appeal, the appellant provided written
submissions raising various grounds of appeal. In particular, the appellant
suggests that there were problems with the interpretation services he received
during his trial. On the basis of the very limited information provided to us
on this issue, we are satisfied that the trial judge properly dealt with the
interpretation issues as they arose. If there were other issues that troubled
the appellant, he ought to have raised them with the trial judge at the time.
There is no indication that any of this impacted on the fairness of the
appellants trial during which he was represented by counsel throughout. We see
no merit in these or any of the other grounds of appeal raised by the appellant
in his written materials or in oral argument.
[4]
The appeal against conviction is dismissed.
[5]
The appellant also seeks leave to appeal his sentence. He argues that it
was too harsh and failed to give effect to the mitigating features present in
his case. Again, we disagree. There were many serious aggravating factors in
this case including:
i.
the number of fraudulent applications;
ii.
the multiple breaches of trust committed by the appellant; and
iii.
the appellants motives of financial gain and enhancing his standing in
his community.
A sentence
emphasizing general deterrence and denunciation was required to address these
aggravating factors and to restore faith in the integrity of Canadas
immigration system.
The sentence imposed falls within the
appropriate range for this type and pattern of offending.
[6]
Leave to appeal is granted, but the appeal against
sentence is dismissed.
M.L. Benotto J.A.
Gary T. Trotter J.A.
David M. Paciocoo
J.A.
| 0 |
MR JUSTICE STANLEY BURNTON: This is an appeal by Konrad Pilecki under section 26 of the Extradition Act 2003 against an order made for his extradition by District Judge Purdey on 9 July 2007, pursuant to section 21(3) of the Extradition Act 2003. He was ordered to be extradited as a result of two European Arrest Warrants to which I shall shortly refer.
There are two points taken on this appeal. The first is that neither of the Arrest Warrants complies with the requirements of the Extradition Act 2003, and in particular with the requirement contained in section 2(6)(e) that the Warrant contain particulars of the sentence which has been imposed under the law of the category 1 territory in respect of the offence if the person has been sentenced for the offence. Here, the category 1 territory in question was Poland.
The second issue is not as to the validity of the Arrest Warrant, but as to the decision of the district judge that the appellant had deliberately absented himself from his trial, a decision which he was required to make by section 20(3) of the Act in a case where, as here, in respect of both Arrest Warrants, the appellant had not been present during his trial. So far as that issue is concerned, it is one which was not taken before the district judge. It was not taken in the notice of appeal to this court, and therefore leave is required to amend the notice of appeal if the point is to be taken. I shall consider that requirement later in my judgment.
The first of the Arrest Warrants in question, referred to as European Arrest Warrant number 56/07, was issued on 18 April 2007 by Judge Bartlomiej in the Circuit Court of Poland. The second Warrant, which has been referred to as European Arrest Warrant 60/07, was issued by the same court. Warrant 56/07 relates to convictions for two offences of supplying controlled drugs and one offence of theft, for which the appellant was sentenced on 26 July 2005 before the District Court of Lubin. The total sentence imposed was one of one year and two months' imprisonment, which was originally suspended for a period of three years. During the period of suspension, the appellant committed a further offence, and therefore on 19 April 2006 the District Court of Lubin ordered the execution of the sentence, from which a two-day period of imprisonment was deducted. The appellant's return was requested under Warrant 56/07 for the purposes of serving a sentence of one year, one month and 28 days' imprisonment.
Warrant 60/07 relates to three offences of supplying controlled drugs and one offence of stealing a mobile telephone. In respect of those four offences, the appellant was sentenced on 22 February 2006 to a total of one year's imprisonment, which sentence was originally suspended for a probation period of three years. The appellant breached the terms of court probation, and on 1 February 2007 the District Court in Lubin ordered the execution of the sentence of one year, from which a two-day period of detention served was deducted. His return was requested under Warrant 60/07 for the purpose of serving a sentence of imprisonment of 11 months and 28 days. On 24 May 2007, the Serious and Organised Crime Agency certified both warrants in accordance with section 2(7) of the 2003 Act.
The European Arrest Warrant 56/07 identifies the appellant and refers to the relevant judges of the District Court of Lubin. Under box C, which is information on the amount of penalty, it states as follows:
"2. Amount of adjudged penalty of deprivation of freedom or another measure relying on deprivation of freedom:-
1 year and 2 months of deprivation of freedom-
3. Amount of penalty to be served:-
1 year 1 month and 28 days of deprivation of freedom."
In box E, the Warrant states that it refers generally to three offences, and it sets out the circumstances of committing the offence. It states:
"Konrad Pilecki was sentenced for the act that:-
(a) In the period from November 2004 through December 2004 in Lubin, acting with intent conceived in advance and in order to obtain financial benefit, he gave - three times - narcotic drugs in the form of marijuana in the amount of [and the value in Polish currency is given] per portion to a minor [who is named], however this act constitutes a petty case.
(b) In the period from October 2004 through December 2004 in Lubin, acting with intent conceived in advance and in defiance of the law he gave - two times - narcotic drugs in the form of marijuana to a [different] minor.
(c) In the period from October 2004 through January 2005 in Lubin, acting with intent conceived in advance and in common and together with the minors materials concerning whose were separated to proceed separate proceedings, he committed theft of ... "
And then there is a list of trademarks of various Renault motorcars and other motorcars, and a statement as to the total amount of loss caused. The categories and classification of the offences are then stated, on which nothing turns. There were ticks against the framework offence boxes as to illicit trafficking in narcotic drugs and psychotropic substances and swindling.
In the case of European Arrest Warrant 60/07, as stated above, the amount of penalty to be served was said to be 11 months and 28 days of deprivation of freedom. The amount of adjudged penalty was stated to be "one year of deprivation of freedom". In box E, there was a reference to the four separate offences which were alleged to have been committed and of which he had been found guilty in his absence, namely the taking of a mobile telephone and the giving of narcotic drugs to various minors.
The above information was supplemented by a letter dated 22 June 2007 from the Polish Court. Referring to Warrant 56/07, it said there had been one trial, and that:
"Konrad Pilecki was validly sentenced for committing three offences:
a. for an act stipulated in article 46 item 3 in connection with article 46 item 2 of the Act on counteraction against drug addiction of 24 April 1997 in connection with article 12 of the penal code - committed in the period from November 2004 through December 2004 - to a penalty of 3 months of deprivation of freedom.
b. for an act stipulated in article 45 item 2 of the Act on counteraction against drug addiction ... in connection with article 12 of the penal code ... to a penalty of 5 months of deprivation of freedom.
c. for an act stipulated in article 278 §1 of the penal code in connection with article 12 of the penal code - committed in the period from October 2004 though January 2005 to a penalty of 1 year of deprivation of freedom.
The court aggregated the above mentioned penalties of deprivation of freedom adjudged with regard to Konrad Pilecki for the above mentioned offences and computed a combined punishment of 1 year and 2 months of deprivation of freedom with a conditional stay of its execution for a probation period of 3 years."
Then it referred to the fact that the period of probation has been interrupted by an offence and therefore the sentence had been activated.
Similar information was given in relation to European Arrest Warrant 60/07. Again, there had been one trial. The four offences referred to in the European Arrest Warrant were set out in the letter. It stated that for the theft there had been a penalty of 6 months' deprivation of freedom, and for each of the drugs offences a penalty of 3 months' deprivation of freedom. The letter continued:
"The court aggregated the above mentioned penalties of deprivation of freedom adjudged for the above mentioned offences and computed a combined punishment of one year of deprivation of freedom for Konrad Pilecki."
It then referred to the suspension of that sentence and then its activation.
Section 2(6)(e), as I have said, requires that the Warrant should contain "particulars of the sentence which has been imposed under the law of the category 1 territory in respect of the offence if the person has been sentenced for the offence". Indeed, this appellant had been sentenced for a number of offences, and therefore section 2(6)(e) required particulars of the sentence to be included in each of the European Arrest Warrants.
The point that is taken under section 2(6)(e) is that in fact the European Arrest Warrants in neither case contained particulars of the sentence which had been imposed. In each case, a number of sentences had been imposed, as appears from the letter of 22 June 2007. In the case of Warrant 56/07, there were sentences of three months, five months, and one year, and in the case of Warrant 60/07, there were penalties of three months on three of the offences, and six months on one, as set out in the letter. In those circumstances, it is submitted section 2(6)(e) required the Arrest Warrant either to identify, that is to say to specify, each of those individual sentences, or at least to state expressly that the total sentence imposed had been arrived at after the imposition of the individual sentences to which I have referred. The importance of so doing derives from the fact that, under section 65, there are minimum requirements for the custodial sentence which may constitute an offence, which has been the subject of sentence as an extradition offence. Under section 65(2), the minimum period is one of 12 months' imprisonment, and under section 65 (3), the minimum period is one of four months. In the present case, the requesting authority sought extradition pursuant to section 65(3). The requirements under section 65(3) for an offence to constitute an extradition offence are:
(a) that the conduct constituting the offence occurs in a category 1 territory. As I have already mentioned, it was common ground that Poland is a category 1 territory, and that this conduct occurred in it.
(b) The conduct would constitute an offence under the law of the relevant part of the United Kingdom if it occurred in that part of the United Kingdom. It is not suggested in this case that the conduct which is the subject of the Arrest Warrants would not be offences under the law of England and Wales; and
(c) importantly, that "a sentence of imprisonment or another form of detention for a term of four months or a greater punishment has been imposed in a category 1 territory in respect of the conduct". If in fact there have been a number of offences, each of which was the subject of the imposition of a sentence less than four months, it is submitted it would be quite wrong in respect of those minor offences for there to be extradition to the requesting state.
The first question which has to be considered is: what was the sentence imposed by the courts on the two occasions which are the subject of these two European Arrest Warrants? True it is, as appears from the letter of 22 June 2007, that in each case the court seems to have expressed a number of specific determinate sentences, one in respect of each offence which was the subject of the penalties it imposed. However, the court aggregated those penalties in each case, and the sentence actually imposed was a combined punishment in the one case of one year and two months, and in the other a combined punishment of one year. There is nothing in the Arrest Warrants or in any of the supplementary material placed before the district judge or this court to indicate that any part of those two sentences of one year and two months, and one year respectively, was determined by the court to be attributable to any particular offence. There was, as the court stated, an aggregate punishment -- a combined punishment which covered all of the offences in question. If therefore one asks oneself what are the particulars of the sentence which has been imposed under the law of the category one territory in respect of the offences in question in this case, it seems to me that the answer must be, in respect of one European Arrest Warrant, one year and two months deprivation of freedom, and in the other, one year's deprivation of freedom, subject to the deduction for the period actually served -- two days in each case.
That it is permissible or required to read section 2(6)(e) in that way is confirmed by the decision of this court in Trepac v Presiding Judge of the County Court in Trencin, Slovak Republic [2006] EWHC 3346 Admin That was a case in which the foreign court had imposed a single sentence in respect of two offences: attempted murder and carrying a concealed weapon. It is relevant to note that, in that case, both of the offences appear to have been committed on the same day. In that case, as in this, it was objected that the European Arrest Warrant did not comply with the requirements of the Act because it did not contain an apportionment of the total sentence to each of the offences which was the subject of the Warrant. This court rejected that submission. Giving the only judgment of the court, with which Lloyd Jones J agreed, Keene LJ said this at paragraph 16:
I. "16. The form of the warrant itself and the wording of section 2(6)(e) do not seem to me to require the specification of a separate sentence for each separate offence.
II. 16. Having said that, I accept that where a foreign court has passed two separate sentences for two offences, one would expect the warrant to indicate that. Whether a failure to do that invalidates the warrant I will come to in a moment. But one should resist the temptation to assume that other member states in the European Union use the same sentencing regime as ourselves, with consecutive or concurrent terms in multiple offence cases. It seems that in the Slovak Republic it is possible in the case of multiple offences to impose a single overall sentence reflecting the total criminality, which sentence then appears to stand as the sentence for each offence. It is an unjustified assumption that the 13-year sentence in the present case can be split into its 'constituent parts' for each offence, as the appellant argues. No doubt one could seek, post hoc, to apportion in some way as between the two offences, but it does not appear that the sentences is built up in such a way by the sentencing court. The evidence here clearly shows that the court's order does not indicate separate sentences or separate penalties being imposed for each of those two offences. No separate sentences were imposed for each offence.
III. 17. It would be an unwarranted action on the part of the English courts to demand, as Mr Watson suggests, that the Slovak court should divide up the sentence of 13 years into such constituent parts when it has not itself done so in its original decision. I can see no justification for such a course of action. The ethos of the Framework Decision involves respect for, and confidence in, the legal systems of other Member States even though they may well differ in various ways amongst themselves in their particular procedures.
IV. 18. As I have said, I can see an argument for stating separate sentences where separate sentences are in fact imposed, because such information may be necessary in order to decide whether under section 10 an offence is an extradition offence. That, however, is not this case. Moreover, whilst such information may be needed by the court for the initial section 10 stage hearing, it does not follow that it can only be provided in the warrant and that the warrant is invalid if that is not included amongst the information within it. That does not have to be decided in this case but, for my part, I can see no reason why the requesting state cannot provide such information in supplementary documentation. Indeed Mr Watson in the course of argument accepted that that could be done.
V. 19. For these reasons I conclude, therefore, that the arrest warrant in this case is a valid one because it complies with section 2(6) of the 2003 Act."
On behalf of the appellant, Miss Dobbin sought to distinguish Trepac on two bases. The first is that the Polish Court in this case did in fact identify separate penalties for the separate offences in question. However, in the end, it imposed one aggregate sentence for the offences covered by it: one in the case of each European Arrest Warrant which is the subject of this appeal. As I have indicated, it is not possible to identify which part of the aggregate sentence is attributable to any individual offence. In that respect, therefore, the Arrest Warrants in the present case do not differ from that considered by the Divisional Court in Trepac.
The second distinction which is advanced is that, in Trepac, the offences in question were committed at the same time and part of a single course of conduct. However, nowhere in the judgment of Keene LJ is there a reference to that being a necessary constituent of his decision. Moreover, the concepts of similar occasion, similar course of conduct and single course of conduct are not to be found anywhere in the Framework Decision or in the Act. In my judgment, it would not be right for the validity of a European Arrest Warrant to be said to depend on whether or not the offences to which it referred were committed on the same or different occasions, or were part of the same or different courses of conduct. Such concepts are quite extraneous to the question of the validity of the Warrant. In those circumstances, I am satisfied that both of these Warrants complied with the requirements of section 2(6)(e).
The question also arises whether the requirement of section 65(3)(c) of the 2003 Act is satisfied. It seems to me to follow from the decision of this Court in Trepac that in a case in which an aggregate penalty of detention for a term of 4 months or longer has been imposed, it has been satisfied. There was one entire penalty for all the offences covered by each Warrant, and it was for 4 months or longer. The alternative result would be that the foreign court could not show that this paragraph had been satisfied even where it could not be shown that an individual penalty of the requisite length had been imposed in respect of one or any of the offences to which the aggregate penalty related.
I turn to the second issue which has been raised before us, and that is whether the district judge was entitled to decide that the appellant had deliberately absented himself from his trial. Before considering the evidence that was before the district judge, it is, I think, important to emphasise that this issue was not one which was taken before him. In extradition cases, as in other cases, it is important for the parties to identify to the court, and indeed to each other, the live issues which have to be determined by the court. That is necessary as a matter of fairness and in order for there to be a just determination of the case. The issue which has been raised as to the absence of the appellant from his trial is not one which goes to the validity or otherwise of the European Arrest Warrant, it is one which both parties to extradition proceedings may address by evidence – documentary or live evidence. What evidence they will adduce will of course depend on their understanding of the issues that have been raised. If the issue as to the absence of the defendant from his trial in the foreign court is a live issue, fairness requires that the prosecuting authority is so informed. That did not occur in this case. The matter was dealt with on the documentary material before the court.
Moreover, this is not a case in which the appellant gave evidence that he was ignorant of the criminal proceedings against him in Poland, or that his absence from Poland and from the court where his trial took place was other than deliberate. He gave no evidence on the issue at all.
The evidence before the district judge included that contained in the letter of 22 June 2007. It contained the following paragraph:
I. "In the trial when the valid judgment sentencing Konrad Pilecki was pronounced by the District Court in Lubin in case ... 486/05 as well as in case ... 1439/05 - though having been summoned properly, the named above convict did not take part in the trials. In the trial dealt with by the District Court in Lubin, case No ... 1439/05 [the subject of European Arrest Warrant 60/07], the convict was served a summons by mail to the address he had indicated during the preparatory proceedings. The convict did not notify the court of a change to his home address and did not deliver his new address. While in the trial dealt with by the District Court in Lubin, case ... 486/05 [the subject of European Arrest Warrant 56/07], the convict was served a summons also to the address indicated by the convict, but here the summons was taken over by Dorota Pilecki - mother of the convict. In the above described situations, the Polish law stipulates that a summons was served correctly."
Clearly, in relation to case 1439/05, the appellant was aware of the criminal proceedings on the basis of the evidence before the district judge. I say that because he had given an address during the preparatory proceedings to the criminal proceedings themselves. In relation to case 486/05, the summons was sent to the home address he had given, and it was taken over by his mother, who would be expected to inform him of it if he was ignorant of it. That was the evidence before the district judge. There was no evidence to the contrary. In deciding whether he was entitled to come to the conclusion, as he was required to do, that the appellant had deliberately absented himself from his trial, the judge had before him that material, and nothing to the contrary and nothing to indicate that there was an issue as to whether he had in fact deliberately absented himself from his trial.
In those circumstances, it seems to me that the material before the district judge was more than adequate to justify his finding that the defendant had deliberately absented himself from his trial, and from his so deciding on a criminal standard of proof, there being no evidence to the contrary and no mention to him that there was an issue on the point, the question arises in those circumstances whether it would be right to give permission to amend the notice of appeal to raise the point. In my judgment, it would not be right to give permission for two reasons. One is that issues such as that must be indicated and taken at first instance unless there is very good reason indeed why they should not be. That must be done so that the appropriate evidence is before the district judge and so that he is aware of what the real issues between the parties are. Secondly, having examined the evidence that was before the district judge, I am of the clear view that he was entitled to find as he did, and therefore there is nothing in the point.
For these reasons, I would dismiss this appeal.
LORD JUSTICE LEVESON: I agree. I add a few words only on the additional and new ground pursued by Miss Dobbin. It is of course the obligation of the requesting authority to ensure that sufficient evidence to justify the extradition is put before the court, and the obligation of the district judge to ensure that each of the statute requirements set out in the Extradition Act 2003 have been met. In that sense, the person whose extradition is sought can sit back and put the requesting authority to proof.
A sensible approach for the court, however, is to have regard to the criteria, analysing them each with the parties, noting what is in issue, and understanding why other points are not in issue and of which he can be sure based upon the material before the court. In that way the focus of the court and the parties can be directed. This court will be very wary of new points taken for the first time on appeal, given that it does not know precisely what was said to the district judge. I emphasise that I do not criticise Miss Dobbin, who has come into this case at a very late stage and has herself sensibly and carefully reviewed all the material from first principles, but the point remains.
As to the appellant's knowledge of the hearings and thus his deliberate failure to attend, no issue was taken before the district judge, who expressed himself sure as to that requirement. The evidence consisted of the appellant's involvement in a preparatory hearing to which he provided an address. He provided no notice of change of the address, but clearly knew of the ongoing prosecution. In the second case he was served at another address that he had also indicated, and that documentation was taken over by his mother. In further material provided by the court, the authority asserted that the appellant had been notified correctly of the terms of the trials.
I add that, when arrested in this country on the warrants, he acknowledged, perhaps ambiguously, that he knew about them. I agree with my Lord, Stanley Burnton J, that it was open to the district judge without more, and absent any challenge, to express himself sure that the appellant knew of these summonses and deliberately failed to attend his trials. Had it been challenged, the district judge would doubtless have provided reasons for his conclusion, which could then have been analysed. Although the requirements for the legislation must still be satisfied, absent obvious error, this court should be slow to allow new arguments as to inferences from the facts.
In this case, I also agree that there is no basis for now allowing this new argument to be erected. In the event, I agree that this appeal should be dismissed. | 2 |
COURT OF APPEAL FOR ONTARIO
CITATION: R. v. Pham, 2017 ONCA 847
DATE: 20171103
DOCKET: C62615
Simmons, van Rensburg and Nordheimer JJ.A.
BETWEEN
Her Majesty the Queen
Respondent
and
Hai Thi Pham
Appellant
Kim Schofield and Daniel Stein, for the appellant
Nick Devlin and John North, for the respondent
Heard: November 1, 2017
On appeal from the conviction entered on March 23, 2015 by
Justice E.E. Frank of the Superior Court of Justice.
APPEAL BOOK ENDORSEMENT
[1]
The appellant asserts that the trial judge made a palpable and
overriding error in failing to make more detailed inquiries into the
appellants mental status when the appellant was testifying. We reject this
submission. Following some inquiries, the appellant confirmed she was able to
continue and that she had no difficulty with her memory. Defence counsel did
not pursue the issue at trial (this was part of a
voir dire
). We are
not persuaded the record suggests the trial judge should have made further
inquiries. In any event, no fresh evidence has been produced to support the
appellants claim that at the time she testified there was a problem with her
mental status such that it would interfere with her ability to testify.
[2]
Conviction appeal dismissed.
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ORIGINAL JURISDICTION Writ Petition Criminal No. 1987 of 1982. Under Article 32 of the Constitution of India Mrs. K. Hingorani for the Petitioner. Goburdhan for the Respondent. The Judgment of the Court was delivered by CHANDRACHUD, C.J. This Writ Petition discloses a sordid and disturbing state of affairs. Though the petitioner was acquitted by the Court of Sessions, Muzaffarpur, Bihar, on June 3, 1968 he was released from the jail on October 16, 1982, that is to say, more than 14 years after he was acquitted. By this Habeas Corpus petition, the petitioner asks for his release on the ground that his detention in the jail is unlawful. He has also asked for certain ancillary reliefs like rehabilitation, reimbursements of expenses which he may incur for medical treatment and companypensation for the illegal incarceration. This petition came up before us on November 22, 1982 when we were informed by Shri Goburdhan, companynsel for the State of Bihar, that the petitioner was already released from the jail. The relief sought by the petitioner for his release thus became infructuous but despite that, we directed that a Notice to show cause be issued to the State of Bihar regarding prayers 2, 3 and 4 of the petition. By prayer No. 2 the petitioner asks for medical treatment at Government expense, by prayer No. 3 he asks for an ex gratia payment for his rehabilitation, while by prayer No 4 he asks for companypensation for his illegal detention in the jail for over 14 years. We expected a prompt response to the Show Cause Notice from the Bihar Government at least at this late stage, but they H offered numberexplanation for over four months. The Writ Petition was listed before us on March 31, 1983 when Shri Goburdhan restated that the petitioner had been already released from the jail. We passed a specific order on that date to the effect that the release of the petitioner cannot be the end of the matter and we called upon the Government of Bihar to submit a written explanation supported by an affidavit as to why the petitioner was kept in the jail for over 14 years after his acquittal. On April 16, 1983, Shri Alakh Deo Singh, Jailor, Muzaffarpur Central Jail, filed an affidavit in pursuance of that order. Shorn of its formal recitals, the affidavit reads thus That the petitioner was received on 25.3.67 from Hazaribagh Central Jail and was being produced regularly before the Additional Sessions Judge, Muzaffarpur and on 30.8.68 the learned Judge passed the following order The accused is acquitted but he should be detained in prison till further order of the State Government and I.G. Prisons , Bihar. A true companyy of the same is attached as Annexure I . That accused Rudul Sah was of unsound mind at the time of passing the above order. This information was sent to the Law Department in letter No. 1838 dated 10.5.74 of the Superintendent, Central Jail, Muzaffarpur through District Magistrate, Muzaffarpur. That the Civil Surgeon, Muzaffarpur, reported on 18.2.77 that accused Rudul Sah was numbermal and this information was companymunicated to the Law Department on 21.2.77. That the petitioner, Rudul Shah was treated well in accordance with the rules in the Jail Manual, Bihar, during the period of his detention. That the petitioner was released on 16.10.82 in companypliance with the letter No. 11637 dated 14.10 82 of the Law Department. The Writ Petition came up before us on April 26, 1983 when we adjourned it to the first week of August 1983 since it was number clear either from the affidavit filed by the Jailor or from the order of the learned Additional Sessions Judge, Muzaffarpur, which is annexed to the affidavit as Annexure I, as to what was the basis on which it was stated in the affidavit that the petitioner was of unsound mind or the reason why the learned Additional Sessions Judge directed the detention of the petitioner in jail, until further orders of the State Government and the Inspector General of Prisons. The writ petition has companye up for hearing once again before us today. If past experience is any guide, numberuseful purpose is likely to be served by adjourning the petition in the hope that the State authorities will place before us satisfactory material to explain the companytinued detention of the petitioner in jail after his aquittal. We apprehend that the present state of affairs, in which we are left to guess whether the petitioner was number released from the prison for the benign reason that he was insane, is number likely to improve in the near future. The Jailor s affidavit leaves much to be desired. It narrates with an air of candidness what is numberorious, for example, that the petitioner was number released from the jail upon his acquittal and that he was reported to be insane. But it discloses numberdata on the basis of which he was adjudged insane, the specific measures taken to cure him of that affliction and, what is most important, whether it took 14 years to set right his mental imbalance. No medical opinion is produced in support of the diagnosis that he was insane number indeed is any jail record produced to show what kind of medical treatment was prescribed for and administered to him and for how long. The letter No. 1838 dated May 10, 1974 which, according to paragraph 3 of the affidavit, was sent to the Law Department by the Superintendent of the Central Jail, Muzaffarpur, is number produced before us. There is numberhing to show that the petitioner was found insane on the very date of his acquittal. And, if he was insane on the date of acquittal, he companyld number have been tried at all for the simple reason that an insane person cannot enter upon his defence Under the Code of Criminal Procedure, insane persons have certain statutory rights in regard to the procedure governing their trial. According to paragraph 4 of the affidavit, the Civil Surgeon, Muzaffarpur, reported on February 18, 1977 that the petitioner was numbermal and that this information was companymunicated to the Law Department on February 21, 1977. Why was the petitioner number released for over 51/2 years thereafter ? It was on october 14, 1982 that the Law Department of the Government of Bihar directed that the petitioner should be released. Why was the Law Department so insensitive to justice ? We are inclined to believe that the story of the petitioners insanity is an afterthought and is exaggerated out of proportion. If indeed he was insane, at least a skeletal medical record companyld have been produced to show that he was being treated for insanity. In these circumstances, we are driven to the companyclusion that, if at all the petitioner was found insane at any point of time, the insanity must have supervened as a companysequence of his unlawful detention in jail. A sense of helplessness and frustration can create despondency and persistent despondency can lead to a kind of mental imbalance. The companycerned Department of the Government of Bihar companyld have afforded to show a little more companyrtesy to this Court and to display a greater awareness of its responsibilities by asking one of its senior officers to file an affidavit in order to explain the callousness which pervades this case. Instead, the Jailor has been made a scapegoat to own up vicariously the dereliction of duty on the part of the higher officers who ought to have known better. This is number an isolated case of its kind and we feel companycerned that there is darkness all around in the prison administration of the State of Bihar. The Bhagalpur blindings should have opened the eyes of the Prison Administration of the State. But that bizarre episode has taught numberlesson and has failed to evoke any response in the Augean Stables. Perhaps, a Hercules heas to be found who will clean them by diverting two rivers through them, number the holy Ganga though. We hope and pray that the higher officials of the State will find time to devote their personal attention to the breakdown of Prison Administration in the State and rectify the grave injustice which is being perpetrated on helpless persons. The High Court of Patna should itself examine this matter and call for statistical data from the Home Department of the Government of Bihar on the question of unlawful detentions in the State Jails A tabular statement from each jail should be called for, disclosing how many companyvicts have been in jail for more than 10 years, 12 years, 14 years and for over 16 years. The High Court will then be in a position to release prisoners who are in unlawful detention in the jails and to ask the State Government to take steps for their rehabilitation by payment of adequate companypensation wherever necessary. That takes us to the question as to how the grave injustice which has been perpetrated upon the petitioner can be rectified, in so far as it lies within our power to do in the exercise of our writ jurisdiction under Article 32 of the Constitution. That article companyfers power on the Supreme Court to issue directions or orders or writs, including writs in the nature of habeas companypus, mandamus, prohibition, quo warranto and certiorari, whichever may be appropriate, for the enforcement of any of the rights companyferred by Part III. The right to move the Supreme Court by appropriate proceedings for the enforcement of the rights companyferred by Part III is guaranteed, that is to say, the right to move the Supreme Court under Article 32 for the enforcement of any of the rights companyferred by Part III of the Constitution is itself a fundamental right. It is true that Article 32 cannot be used as a substitute for the enforcement of rights and obligations which can be enforced efficaciously through the ordinary processes of Courts, Civil and Criminal. A money claim has therefore to be agitated in and adjudicated upon in a suit instituted in a companyrt of lowest grade companypetent to try it. But the important question for our companysideration is whether in the exercise of its jurisdiction under article 32, this Court can pass an order for the payment of money if such an order is in the nature of companypensation companysequential upon the deprivation of a fundamental right. The instant case is illustrative of such cases. The petitioner was detained illegally in the prison for over fourteen years after his acquittal in a full-dressed trial. He filed a Habeas Corpus petition in this Court for his release from illegal detention. He obtained that relief, our finding being that his detention in the prisonafter his acquittal was wholly unjustified. He companytends that he is entitled to be companypensated for his illegal detention and that we ought to pass appropriate order for the payment of companypensation in this Habeas Corpus petition itself. We cannot resist this argument. We see numbereffective answer to it save the stale and sterile objection that the petitioner may, if so advised, file a suit to recover damages from the State Government. Happily, the States Counsel has number raised that objection. The petitioner companyld have been relegated to the ordinary remedy of a suit if his claim to companypensation was factually companytroversial, in the sense that a civil companyrt may or may number have upheld his claim. But we have numberdoubt that if the petitioner files a suit to recover damages for his illegal detention, a decree for damages would have to be passed in that suit, though it is number possible to predicate, in the absence of evidence, the precise amount which would be decreed in his favour. In these circumstances, the refusal of this Court to pass an order of companypensation in favour of the petitioner will be doing mere lip-service to his fundamental right to liberty which the State Government has so grossly violated. Article 21 which guarantees the right to life and liberty will be denuded of its significant companytent if the power of this Court were limited to passing orders to release from illegal detention. One of the telling ways in which the violation of that right can reasonably be prevented and due companypliance with the mandate of Article 21 secured, is to mulct its violaters in the payment of monetary companypensation. Administrative sclerosis leading to flagrant infringements of fundamental rights cannot be companyrected by any other method open to the judiciary to adopt. The right to companypensation is some palliative for the unlawful acts of instrumentalities which act in the name of public interest and which present for their protection the powers of the State as a shield. If civilization is number to perish in this companyntry as it has perished in some others too well-known to suffer mention, it is necessary to educate ourselves into accepting that, respect for the rights of individuals is the true bastion of democracy. Therefore, the State must repair the damage done by its officers to the petitioners rights. It may have recourse against those officers. Taking into companysideration the great harm done to the petitioner by the Government of Bihar, we are of the opinion that, as an interim measure, the State must pay to the petitioner a further sum of Rs. 30,000 Rupees thirtythousand in addition to the sum of Rs. 5,000 Rupees five thousand already paid by it. The amount shall be paid within two weeks from today. The Government of Bihar agrees to make the payment though, we must clarify, our order is number based on their companysent. This order will number preclude the petitioner from bringing a suit to recover appropriate damages from the state and its erring officials. The order of companypensation passed by us is, as we said above, in the nature of a palliative. We cannot leave the petitioner penniless until the end of his suit, the many appeals and the execution proceedings. A full-dressed debate on the nice points of fact and law which takes place leisurely in companypensation suits will have to await the filing of such a suit by the poor Rudul Sah. The Leviathan will have liberty to raise those points in that suit. Until then, we hope, there will be numbermore Rudul Sahs in Bihar or elsewhere. | 1 |
Lord Justice Munby :
This appeal raises a short but important point of principle of great practical significance in relation to the standard form of suspended possession order used in mortgage cases and granted on a daily basis in hundreds of County Courts up and down the land. That is the reason why, although this is a second appeal, permission was granted by Rix LJ.
The facts
The facts lie within a short compass and are commonplace.
On 3 March 2003 the appellant, Mr Justin Oliver Zinda, executed a mortgage deed, charging his house in Northolt to the respondent bank to secure a loan from the bank of £133,000. The loan was repayable over a 25-year term with interest-only instalments. The mortgage was on the usual basis. So long as Mr Zinda paid the monthly instalments of interest the bank would not seek repayment of the capital or possession of the property, but if he fell into arrears the full amount of the secured indebtedness would become payable and the bank would be entitled to take possession. Clause 3 of the mortgage deed stated that "The mortgage secures further advances."
Mr Zinda fell into arrears. In August 2005 the bank issued possession proceedings in Brentford County Court. On 24 October 2005 Deputy District Ryan made an order in the following terms:
"1 The defendant give the claimant possession of [the property] on or before 21 November 2005.
2 This order is not to be enforced so long as the defendant pays the claimant the unpaid instalments under the mortgage of £11046.50 by the payments set out below in addition to the current instalments under the mortgage.
…
Payments required
£96.02 per month the first payment being made on or before 21 November 2005."
A simple calculation shows that payment off of the arrears of £11,046.50 at the rate of £96.02 per month would take about 9½ years. In the bottom left-hand corner of the order the following words appeared:
"To the defendant
The court has ordered that unless you pay the arrears under the mortgage at the rate set out above in addition to your normal payments, you must leave the premises …"
In the bottom right-hand corner there was the following:
"If you do not make the payments or leave the premises, the claimant can ask the court, without a further hearing, to authorise a bailiff or High Court Enforcement Officer to evict you. (In that case, you can apply to the court to stay the eviction; a judge will decide if there are grounds for doing so.)"
It is to be noted that this was not some special form of order, or an order in a form unique to Brentford County Court. The order was in the standard form set out in Form N31.
On 20 March 2008 the bank agreed to consolidate Mr Zinda's remaining arrears of £16,887.83 with the outstanding balance of the loan. The new mortgage balance was £168,699.71. The revised monthly instalment payment was set at £1,070.42. Subsequently it was reduced. The term of the loan remained unchanged. This consolidation, I might add, was in accordance with a practice which the Council of Mortgage Lenders has long sanctioned: see Cheltenham and Gloucester Building Society v Norgan [1996] 1 WLR 343, 349.
Mr Zinda again fell into arrears. On 18 September 2009 he applied to suspend enforcement of the possession order. On 21 September 2009 the bank applied for a warrant of possession. Mr Zinda applied for execution of the warrant to be suspended. His applications were dismissed by District Judge Allen on 28 May 2010. By then the arrears amounted to £20,500.28. The total amount outstanding was £197,496.78. The current monthly instalment was £951.85. The last payment received by the bank had been the sum of £10 paid by Mr Zinda in January 2010. Before the District Judge Mr Zinda accepted that the property was in negative equity. Insofar as he was in a position to make any proposal, all he could offer was an amount significantly less than the amount of the monthly instalment.
Mr Zinda appealed. His appeal was heard by His Honour Judge Oppenheimer. On 14 September 2010 Judge Oppenheimer made an order dismissing the appeal.
Before the District Judge and again before Judge Oppenheimer Mr Zinda took a number of points. Given the limited basis upon which Rix LJ subsequently gave him permission to appeal to this court, I need refer to only one of these points. Mr Zinda contended that the effect of the arrangement in March 2008 had been to discharge the arrears which existed at the time of the suspended possession order and bring those arrears into a larger loan upon which a new interest rate was agreed; that even if only for a short time, until he fell again into arrears, there were therefore no arrears (the arrears at the time of the possession order having been paid up, albeit in the form of the new borrowing); and that the possession order had thereby been extinguished. Before the District Judge, as before us, the bank accepted that the effect of the consolidation was to clear the arrears on which the possession order was based. But it disputed, as it continues to dispute, that this has the consequence for which Mr Zinda contends.
Mr Zinda's argument was rejected both by the District Judge and by Judge Oppenheimer. In her judgment the District Judge said this:
"There are sometimes orders that say "on payment of arrears this order should be discharged." Yours says the opposite. Yours says unless you pay the current monthly instalments this order can be enforced.
… The terms of this order are quite clear, that the court can enforce the order if – whatever you do with regard to the original arrears – you do not pay your normal instalments and continue to do so."
Judge Oppenheimer agreed. He said:
"There are really two separate questions that I have been able to identify. One is whether there is an ambiguity in the order. I hold there is not and that the district judge was right about that. But, secondly, whether, as a matter of law, the order was ever discharged either expressly or by implication, or by operation of law as a result of the fact that there came a time when there were no arrears because of the March 2008 consolidation. That is an interesting point of law on which no authority has been cited to me by counsel acting for the respondent; nor any authority cited by Mr Zinda to me. It is to be remembered that he is a third year law student. I have to say that this is an interesting and very important point of law, which one day ought to be considered by the Court of Appeal if it has not already been so considered."
He continued:
"I hold that the order was indeed unambiguous in its terms and continues in accordance with its terms until discharged. I have no authority before me to suggest that the order automatically was discharged upon consolidation of the arrears. For my part I am not prepared to say that there is any such rule of law. This court is not to invent one. In my judgment, therefore, the district judge was not wrong when she held that the order was unambiguous."
Mr Zinda sought permission to appeal. His application was considered on the papers and dismissed by Jacob LJ on 8 November 2010. So far as material his reasons were as follows:
"Mr Zinda argues that the effect of the consolidation was to discharge the [order]. I am unable to see why or how … The order suspends enforcement so long as two criteria are fulfilled: payment of the existing arrears and payment of current instalments. Whilst I accept that the effect of the consolidation was arguably to wipe out the existing arrears (instead adding them to the capital owing) the second criterion – payment of current instalments – cannot have been discharged."
Mr Zinda renewed his application. It was heard by Rix LJ on 20 January 2011. He gave permission but limited to what in the order he made was described as "the construction and/or discharge of the possession order point". In his judgment Rix LJ explained that he was giving permission because on this one issue the case raised an important point of law or practice which brought it within CPR 52.13(2)(a): Zinda v Bank of Scotland [2011] EWCA Civ 95. He identified the point, which he provisionally thought was ultimately a point of construction, as being whether the possession order continues to bite for the entire length of the mortgage, even if the arrears which led to it being made have been paid up. He spelt out the limited basis upon which he was giving permission to appeal:
"I do not extend my permission to the other points raised by Mr Zinda, such as a factual point about estoppel as to what he was told by the bank at the time of the consolidation of the mortgage, or an argument that he is entitled to rescind the consolidation of the mortgage, or an argument based on human rights. It seems to me that those arguments have no merit, and in any event do not on the facts of this case give rise to anything that could be described as an important point of principle or practice."
The appeal came on before us on 8 June 2011. Before us, as below, Mr Zinda appeared in person. The bank was represented by Mr Thomas Grant, for whose lucid and compelling submissions I am grateful.
The initial skeleton argument filed by Mr Zinda was so skeletal as to give little indication of the nature of his arguments. Mr Grant accordingly, and most helpfully, sought in his skeleton argument to meet in advance a variety of points that he thought might be taken by Mr Zinda but which in the event were not. Mr Zinda, when he eventually came to file a detailed skeleton argument, sought to ventilate a variety of arguments some of which were simply not open to him, given the terms of the order made by Rix LJ, and some of which were so manifestly misconceived as not to warrant further consideration. I propose to focus on what, at the end of the day, really matters. Grateful as I am to Mr Grant for his very helpful submissions, he will I am sure understand why there is much in his skeleton argument which in the event there is no need for me to refer to.
The legal context
Bearing in mind some of Mr Zinda's submissions it may be useful to start with some elementary propositions of law which provide the context in which the possession order came to be made.
A mortgage is a charge on property to secure the repayment by a debtor to his creditor of monies lent. The word mortgage is used in a number of different senses. Colloquially it may be used to refer to the loan (as in "I have a mortgage from the bank") or to the overall contractual arrangements (as in "I have a mortgage with the bank"). In law, however, the mortgage is neither the loan nor the contract. It is that element of the overall transaction constituting the charge on property which gives the lender his security. The effect of the Law of Property (Miscellaneous Provisions) Act 1989 is that the mortgage or charge can only be created by a written document complying with certain statutory formalities. Typically, as in the present case, the document is in the form of a deed.
From the point of view of the lender – the mortgagee – a mortgage has a number of advantages. In the first place it enables him, if the borrower defaults, to obtain possession of the mortgaged property and sell it in order to recoup the monies he has lent. The mortgagee does not need to obtain a money judgment and then a charging order; he can proceed immediately to obtain a possession order. Second, it gives him priority over the borrower's unsecured creditors. Assuming there is adequate equity in the mortgaged property, the lender will recover his debt in full, even if the debtor is insolvent. But a mortgage also has a number of advantages from the point of view of the borrower – the mortgagor. Precisely because the debt will be secured, a lender is likely to be more willing to lend money to people whose credit would otherwise be thought inadequate and, crucially, more willing to lend larger amounts and at a lower rate of interest than he would be prepared to agree if the loan was unsecured. It is, after all, these commercial and economic realities which have enabled so many people to become the owner-occupiers of houses which they would otherwise never have been able to afford.
Absent a contractual fetter, the mortgagee is entitled to take possession of the mortgaged property whether or not the mortgagor has defaulted. As Harman J (as he then was) famously observed in Four-Maids Ltd v Dudley Marshall (Properties) Ltd [1957] Ch 317, 320, "The mortgagee may go into possession before the ink is dry on the mortgage unless there is something in the contract express or by necessary implication, whereby he has contracted himself out of that right." Typically the modern bank or building society mortgage does, as in the present case, contain just such a provision. And typically, as in the present case, the terms of an instalment mortgage (whether the instalments cover both principal and interest or, as in the present case, interest only) are, as I have said, that so long as the mortgagor pays the monthly instalments the mortgagee will not seek repayment of the capital or possession of the property, but if he falls into arrears the full amount of the secured indebtedness becomes payable and the mortgagee becomes entitled to take possession.
Now at common law the rule was, and remains, that once the mortgagee has become entitled to take possession the court has only a very limited power to grant the mortgagor any relief. As Russell J (as he then was) said in Birmingham Citizen's Permanent Building Society v Caunt [1962] Ch 883, 912:
"where (as here) the legal mortgagee under an instalment mortgage under which by reason of default the whole money has become payable, is entitled to possession, the court has no jurisdiction to decline the order or to adjourn the hearing whether on terms of keeping up payments or paying arrears, if the mortgagee cannot be persuaded to agree to this course. To this the sole exception is that the application may be adjourned for a short time to afford to the mortgagor a chance of paying off the mortgagee in full or otherwise satisfying him; but this should not be done if there is no reasonable prospect of this occurring."
It was in these circumstances that the legislature intervened with the enactment of section 36 of the Administration of Justice Act 1970. So far as is material, section 36 is in the following terms:
"(1) Where the mortgagee under a mortgage of land which consists of or includes a dwelling house brings an action in which he claims possession of the mortgaged property, not being an action for foreclosure in which a claim for possession of the mortgaged property is also made, the court may exercise any of the powers conferred on it by subsection (2) below if it appears to the court that in the event of its exercising the power the mortgagor is likely to be able within a reasonable period to pay any sums due under the mortgage or to remedy a default consisting of a breach of any other obligation arising under or by virtue of the mortgage.
(2) The court –
(a) may adjourn the proceedings, or
(b) on giving judgment, or making an order, for delivery of possession of the mortgaged property, or at any time before the execution of such judgment or order, may –
(i) stay or suspend execution of the judgment or order, or
(ii) postpone the date for delivery of possession, for such period or periods as the court thinks reasonable.
(3) Any such adjournment, stay, suspension or postponement as is referred to in subsection (2) above may be made subject to such conditions with regard to payment by the mortgagor of any sum secured by the mortgage or the remedying of any default as the court thinks fit.
(4) The court may from time to time vary or revoke any condition imposed by virtue of this section."
The effect of the words "pay any sums due under the mortgage" in subsection (1), was that in order to satisfy the requirements for obtaining statutory relief the mortgagor had to be able to show that he was likely to be able to pay within the reasonable period referred to not only the arrears of instalments but also the principal sum due under the mortgage: Halifax Building Society v Clark [1973] Ch 307.
Following that decision there was further legislative intervention with the enactment of section 8 of the Administration of Justice Act 1973. So far as is material, section 8 is in the following terms:
"(1) Where by a mortgage of land which consists of or includes a dwelling house, or by any agreement between the mortgagee under such a mortgage and the mortgagor, the mortgagor is entitled or is to be permitted to pay the principal sum secured by instalments or otherwise to defer payment of it in whole or in part, but provision is also made for earlier payment in the event of any default by the mortgagor or of a demand by the mortgagee or otherwise, then for purposes of section 36 of the Administration of Justice Act 1970 … a court may treat as due under the mortgage on account of the principal sum secured and of interest on it only such amounts as the mortgagor would have expected to be required to pay if there had been no such provision for earlier payment.
(2) A court shall not exercise by virtue of subsection (1) above the powers conferred by section 36 of the Administration of Justice Act 1970 unless it appears to the court not only that the mortgagor is likely to be able within a reasonable period to pay any amounts regarded (in accordance with subsection (1) above) as due on account of the principal sum secured, together with the interest on those amounts, but also that he is likely to be able by the end of that period to pay any further amounts that he would have expected to be required to pay by then on account of that sum and of interest on it if there had been no such provision as is referred to in subsection (1) above for earlier payment."
Now as Mr Grant correctly submitted, the effect of these provisions is two-fold. First, there is the jurisdictional gateway created by the requirement on the mortgagor to demonstrate that he is (section 36(1)) "likely to be able within a reasonable period to pay" both (section 8(1)) the "amounts [he] would have expected to be required to pay if there had been no … provision for earlier payment" – in other words, the arrears of the instalments due to date – and (section 8(2)) the "further amounts that he would have expected to be required to pay by then" – in other words, the future instalments accruing during the reasonable period. The power of suspension exercisable by the court under section 36 is conditional on its appearing to the court that in the event of the exercise of the power the mortgagor is likely to be able to pay the sums in question within a reasonable period. Absent such proof, the court has no jurisdiction to stay or suspend the order for possession: Royal Trust Co of Canada v Markham [1975] 1 WLR 1416, 1422B, 1423B, 1424E.
Second, and assuming that the mortgagor surmounts the jurisdictional hurdle, the court is given a wide discretion under sections 36(2) and (3). In particular, section 36(3) permits the court, if it decides to stay or suspend a possession order, to attach such "conditions with regard to payment by the mortgagor of any sum secured by the mortgage" (emphasis added) as the court thinks fit. This power is not confined to the arrears of the instalments due to date or to the future instalments accruing during the reasonable period referred to in section 36(1). It extends to "any" sum secured by the mortgage, including, for example, the totality of the future instalments accruing due throughout the remaining life of the mortgage. Section 36(3), in contrast to both section 36(1) and section 36(2), contains no reference to the "reasonable period". The power to impose conditions is not qualified by reference to, nor is it confined to, the "reasonable period".
Mr Grant understandably placed much emphasis upon this last point. And in my judgment he was right to do so. Whereas the existence of the court's jurisdiction is focused upon an examination of what is likely to happen before the end of the reasonable period referred to in section 36(1), the exercise of the jurisdiction, once established, is not so limited. The terms of section 36(3) make clear that in deciding what conditions (if any) to attach, the court can have regard to events occurring at any stage during the remaining life of the mortgage.
The appeal
I return to the appeal. In his skeleton argument Mr Zinda formulates the two points upon which he says he is entitled to succeed as follows:
i) The possession order is either ambiguous or its construction is fundamentally wrong "as it follows me throughout the entire life of the mortgage." As such, he says, the order is "too disproportionate and illegal."
ii) The consolidation in March 2008 discharged the possession order either expressly or by implication of law, because after the consolidation "the arrears were no longer there." A "new contract" was formed, setting aside any earlier agreements.
It is convenient to deal first with the effect of the consolidation.
The first issue: the effect of the consolidation
Mr Zinda's case is based upon a fundamental misapprehension as to what happened in March 2008. Even if the terms of the contract were varied (and the bank's case is that there was no variation; it merely exercised a right it had under the existing contract), the mortgage, in the sense of the legal charge on the property created by the mortgage deed dated 3 March 2003, remained, and indeed still remains, in force.
The events of March 2008 involved the consolidation of the arrears with the outstanding capital, with the consequential substitution of a loan of £168,699.71 for the original loan of £133,000 and adjustment of the amount of the monthly instalment. But the original mortgage deed was neither replaced nor discharged. There was no need for a new mortgage deed. Even if the consolidation involved the making of a further advance (and the bank says it did not; it merely added the arrears to the debt), the original deed, as we have seen, was expressed as securing further advances. In other words the mortgage deed dated 3 March 2003 continued, and remains in force to this day, as a mortgage charging Mr Zinda's property by way of security for the repayment by him of both the original advance of £133,000 and the consolidated arrears of £35,699.71.
The effect of what was done in March 2008 may have been, as Mr Zinda puts it, to create a new contract discharging the previous contract, or to vary the existing contract, though in my judgment it was probably neither. Be that as it may, what is quite clear – and this is decisive for present purposes – is that there was no discharge either of the mortgage deed dated 3 March 2003 or of the security created by the mortgage deed. In that sense, the mortgage created in March 2003 survived unchanged by anything that happened in March 2008. Indeed it survives unchanged today.
The one point on which Mr Zinda is correct, as the bank concedes, is that the effect of the consolidation was to clear the arrears. So what Mr Zinda can say is that, for a short period, and until he again defaulted, he was not in arrears.
That takes me conveniently to consideration of the meaning and effect of the possession order.
The second issue: the meaning and effect of the possession order
As I have explained, the immediate consequence when Mr Zinda first fell into arrears was that, in accordance with his contract with the bank, the full amount of the secured indebtedness became immediately repayable and the bank became entitled to take possession. So in the events which had happened by the time the bank began proceedings in August 2005, the bank had a contractual right to take possession. And at common law, the court was, for the reasons explained by Russell J in Caunt, unable to give Mr Zinda any protection against eviction. All that stood between him and immediate eviction was the hope that the court would exercise its powers under the 1970 and 1973 Acts in his favour.
Mr Zinda was able to persuade Deputy District Judge Ryan that he would be able to pay off the arrears within a period – some 9½ years – which the Deputy District Judge was prepared to accept was reasonable. So Mr Zinda was able to surmount what I have called the jurisdictional hurdle. The court then had to exercise its discretion under sections 36(2) and (3). It chose to do so by suspending the possession order which it granted the bank on the condition spelt out in paragraph 2 of the order, namely
"so long as [Mr Zinda] pays the [bank] the unpaid instalments under the mortgage of £11046.50 by the payments set out below in addition to the current instalments under the mortgage."
Now in my judgment there are two things about the possession order which are clear beyond all sensible argument. In the first place, there can be no doubt at all that, whatever its precise meaning and effect, the condition set out in paragraph 2 of the order was one which the court had jurisdiction to impose. It is quite plainly a condition "with regard to payment by the mortgagor of … sum[s] secured by the mortgage" within the meaning of section 36(3). Deputy District Judge Ryan had jurisdiction to suspend the possession order. He had jurisdiction to impose the condition set out in paragraph 2 of the order. The order was properly made. It has never been challenged on appeal – as will be appreciated the order which is the subject of this appeal is not the order made by Deputy District Judge Ryan in October 2005 but the order made by His Honour Judge Oppenheimer in September 2010. The order was, and is, a valid and effective order, properly made and binding on the parties.
It follows that the only question is the order's meaning and effect. This takes me on to the second point. It is quite clear that the condition set out in paragraph 2 of the possession order comprises two elements, imposing a double requirement on Mr Zinda. If he is to stave off eviction, if the possession order is to remain suspended, Mr Zinda has, as Jacob LJ pointed out, to do two things:
i) first, he must pay off the arrears of £11,046.50 by monthly instalments of £96.02; and
ii) second, he must "in addition" pay what are described as "the current instalments under the mortgage".
Doing the one without the other will avail him nothing. So the fact that he complies with the first requirement, paying off the arrears as required, is not sufficient; he must also comply with the second requirement. It follows, as Jacob LJ observed, that the mere fact that the arrears may have been discharged in their entirety – as they were by reason of the consolidation in March 2008 – is not enough if there is nonetheless a failure to comply with the second limb of the condition.
The central issue on this appeal therefore reduces itself to this: What, on the true construction of the order and in the events which have happened (including in particular the consolidation in March 2008), is the meaning and effect of the words requiring Mr Zinda to pay "in addition" what are described as "the current instalments under the mortgage"?
As to that there is, in my judgment, no real room for argument. The words mean what the bank says they mean and what District Judge Allen, His Honour Judge Oppenheimer and Jacob LJ have all held that they mean. Four factors, as it seems to me, all point in the same direction. First, the words are quite general and are not limited, whether in time or otherwise. Unlike an order in the form referred to by District Judge Allen, the order contains no provision allowing for proleptic discharge. The order refers to "the current instalments", current here being used in contradistinction to the arrears. The "instalments under the mortgage" are, as a matter of fact and legal obligation, payable throughout the remaining life of the mortgage. So, as a matter of simple language, "the current instalments under the mortgage" means the future instalments payable "under the mortgage", that is, payable until such time as the mortgage has been redeemed. Second, there is, as I have already explained, nothing in the statutory scheme to confine the conditions that can be imposed under section 36(3) to or by reference to the "reasonable period". So there is nothing in the statutory scheme which by implication might have the effect of cutting down the otherwise unrestricted words used in the order. Third, all that this limb of the condition requires Mr Zinda to do is to perform his existing contractual obligations, namely to pay the instalments when and in the amounts he has contracted for. Fourth, and in a sense flowing on from the previous points, given that the ambit of such a condition is not confined to the "reasonable period", and given that his contractual obligations extend to the end of the mortgage term, what rational basis can there be for asserting that the condition is by implication limited in time and, moreover, limited to the period of some 9½ years? As Mr Grant points out, and the observation seems to me to be unanswerable, what relevance can the period by the end of which it is reasonable to expect Mr Zinda to have paid off the arrears have when considering what the consequences ought to be if he defaults on his continuing and future obligations? Precisely so.
It follows, in my judgment, that District Judge Allen was fully entitled to decide as she did and that His Honour Judge Oppenheimer was right to dismiss Mr Zinda's appeal. It likewise follows that his appeal to this court must be dismissed.
Mr Zinda complains that this result is unfair since, as he puts it, it is tantamount to an indefinite death sentence. He says that it amounts to a re-writing of his contract with the bank, interfering with the freedom of contract which, relying upon the controversial authority of Lochner v New York (1905) 198 US 45, he describes as the cornerstone of free market libertarianism. (The irony of Mr Zinda's position here is exquisite, for he seeks to take the benefit of a statute which interferes with the bank's freedom of contract and which for that very reason the majority in Lochner would probably have struck down as unconstitutional!) Be that as it may, and ignoring Mr Zinda's inflated rhetoric, there is, for the reasons I have already given, nothing in any of these points. The order does not vary the terms of the contract at all so far as Mr Zinda is concerned. And the fact that he remains under the sword of Damocles – rather than simply having been evicted for default in 2005 – is merely the consequence of the contract he entered into with the bank (in which expression I include the consolidation), of his default and of his successful seeking of relief under the 1970 and 1973 Acts. Any 'unfairness' – in truth, there is none – is of his own making, the consequence of his own repeated defaults.
Moreover, as Mr Grant points out, it is not as if Mr Zinda is left wholly unprotected to face whatever steps the bank may take to enforce the possession order however far away in the future: in principle he can apply under section 36(4) to vary or revoke any of the conditions; in principle he can seek an order suspending any warrant of possession; and if six years have elapsed since the possession order was made it cannot be enforced without the permission of the court.
Conclusion
For these reasons this appeal must in my judgment be dismissed.
There is one final point I should make. Reference was made in the course of argument to the County Court decisions of His Honour Judge Hallam in Leeds County Court in Greyhound Guaranty v Caulfield [1981] CLY 1808 and of His Honour Judge Grenfell, also in Leeds County Court, in Bradford & Bingley plc v Harris (unreported, 6 November 2003). The second case is directly in point. Both cases, in my judgment, were correctly decided: cf, Halifax plc v Taffs [1999] EWCA Civ 698.
Mr Justice Hedley :
I agree.
Lord Justice Mummery :
I also agree. | 3 |
FOURTH SECTION
CASE OF KAYMAK AND OTHERS v. ROMANIA
(Application no. 481/15 and 11 other applications -
see appended list)
JUDGMENT
STRASBOURG
28 June 2018
This judgment is final but it may be subject to editorial revision.
In the case of Kaymak and Others v. Romania,
The European Court of Human Rights (Fourth Section), sitting as a Committee composed of:
Vincent A. De Gaetano, President,Georges Ravarani,Marko Bošnjak, judges,and Liv Tigerstedt Acting Deputy Section Registrar,
Having deliberated in private on 7 June 2018,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in applications against Romania lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) on the various dates indicated in the appended table.
2. The applications were communicated to the Romanian Government (“the Government”).
THE FACTS
3. The list of applicants and the relevant details of the applications are set out in the appended table.
4. The applicants complained of the inadequate conditions of their detention.
THE LAW
I. JOINDER OF THE APPLICATIONS
5. Having regard to the similar subject matter of the applications, the Court finds it appropriate to examine them jointly in a single judgment.
II. ALLEGED VIOLATION OF ARTICLE 3 OF THE CONVENTION
6. The applicants complained of the inadequate conditions of their detention. They relied on Article 3 of the Convention, which reads as follows:
Article 3
“No one shall be subjected to torture or to inhuman or degrading treatment or punishment.”
7. In applications nos. 22155/15, 25665/15 and 39596/15 the Government raised a preliminary objection of failure to comply with the six-month time-limit claiming that the applicants’ complaints in so far as they concerned the initial period of their detention had been lodged out of the six-month time-limit.
8. The Court observes that the applicant’s complaint in application no. 22155/15, concerning the period of detention in Jilava Prison, which ceased on 17 March 2006, date of his release, was lodged with the Court on 22 May 2015, that is, more than six months after his release.
9. The Court notes that in application no. 25665/15 the applicant’s complaint regarding his initial detention in Aiud Prison, which ceased on 7 December 2010 by his transfer to another prison facility in respect of which he did not raise any complaint, was lodged with the Court on 15 June 2015, that is, more than six months after the transfer.
10. The Court further notes that in application no. 39596/15 the applicant’s complaint regarding his initial detention in Iași Prison, which ceased on 29 May 2012 by his transfer to another prison facility in respect of which he did not raise any complaint, was lodged with the Court on 7 December 2015, that is, more than six months after the transfer.
11. Therefore, the Court accepts the Government’s objection and finds that these parts of the applications nos. 22155/15, 25665/15 and 39596/15 were lodged outside of the six-month time-limit and must be rejected in accordance with Article 35 §§ 1 and 4 of the Convention.
12. The Court notes that the applicants were kept in detention in poor conditions. The details of the applicants’ detention are indicated in the appended table. The Court refers to the principles established in its case‑law regarding inadequate conditions of detention (see, for instance, Muršić v. Croatia [GC], no. 7334/13, §§ 96‑101, ECHR 2016). It reiterates in particular that a serious lack of space in a prison cell weighs heavily as a factor to be taken into account for the purpose of establishing whether the detention conditions described are “degrading” from the point of view of Article 3 and may disclose a violation, both alone or taken together with other shortcomings (see Muršić, cited above, §§ 122‑141, and Ananyev and Others v. Russia, nos. 42525/07 and 60800/08, §§ 149‑159, 10 January 2012).
13. In the leading case of Rezmiveș and Others v. Romania (nos. 61467/12 and 3 others, 25 April 2017) the Court already found a violation in respect of issues similar to those in the present case.
14. Having examined all the material submitted to it, as well as the Government’s objection concerning the application of the six-month rule to the continuous situation of the applicants’ conditions of detention in some of the cases, the Court has not found any fact or argument capable of persuading it to reach a different conclusion on the admissibility and merits of these complaints. Having regard to its case-law on the subject, the Court considers that in the instant cases the applicants’ conditions of detention were inadequate.
15. These complaints are therefore admissible and disclose a breach of Article 3 of the Convention.
III. REMAINING COMPLAINT
16. In application no. 481/15, the applicant also complained under Article 3 of the Convention about the inadequate conditions of his detention in various prisons from 6 June 2014 to 2 July 2015.
17. The Court has examined the application and considers that, in the light of all the material in its possession and in so far as the matters complained of are within its competence, the complaint either does not meet the admissibility criteria set out in Articles 34 and 35 of the Convention or does not disclose any appearance of a violation of the rights and freedoms enshrined in the Convention or the Protocols thereto. It follows that this part of the application must be rejected in accordance with Article 35 § 4 of the Convention.
IV. APPLICATION OF ARTICLE 41 OF THE CONVENTION
18. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
19. Regard being had to the documents in its possession and to its case‑law (see, in particular, Rezmiveș and Others v. Romania, nos. 61467/12 and 3 others, 25 April 2017), the Court considers it reasonable to award the sums indicated in the appended table.
20. The Court considers it appropriate that the default interest rate should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT, UNANIMOUSLY,
1. Decides to join the applications;
2. Declares the complaints concerning the inadequate conditions of detention as set out in the appended table, admissible and the remainder of the applications nos. 481/15, 22155/15, 25665/15 and 39596/15, concerning the applicants’ detention periods which ended on 2 July 2015, 17 March 2006, 7 December 2010 and 29 May 2012 respectively, inadmissible;
3. Holds that these complaints disclose a breach of Article 3 of the Convention concerning the inadequate conditions of detention;
4. Holds
(a) that the respondent State is to pay the applicants, within three months, the amounts indicated in the appended table, to be converted into the currency of the respondent State at the rate applicable at the date of settlement;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points.
Done in English, and notified in writing on 28 June 2018, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Liv TigerstedtVincent A. De Gaetano Acting Deputy RegistrarPresident
APPENDIX
List of applications raising complaints under Article 3 of the Convention
(inadequate conditions of detention)
No.
Application no.
Date of introduction
Applicant name
Date of birth
Facility
Start and end date
Duration
Sq. m. per inmate
Specific grievances
Amount awarded for pecuniary and non-pecuniary damage and costs and expenses per applicant
(in euros)[1]
481/15
18/12/2014
Kayhan Kaymak
08/03/1975
Rahova Prison
02/07/2015
pending
More than 2 years and 10 months and 15 days
1.93-3.26 m²
Overcrowding, lack of or insufficient natural light, constant electric light, lack of or inadequate hygienic facilities, no or restricted access to toilet
3,000
9716/15
03/12/2015
Ionuț-Valentin Mavru
05/11/1986
Tulcea Prison
17/04/2013
pending
More than 5 years and 5 days
2.82 m²
Overcrowding, bunk beds, lack of or insufficient natural light, inadequate temperature, infestation of cell with insects/rodents, lack or inadequate furniture, lack or insufficient quantity of food, mouldy or dirty cell, lack of or poor quality of bedding and bed linen, lack of or insufficient physical exercise in fresh air
5,000
18424/15
25/06/2015
Irimie Cornelea
24/12/1959
Miercurea Ciuc Prison
08/03/2011
pending
More than 7 years and 1 month and 15 days
1.4 - 2.66 m²
Overcrowding, inadequate temperature, infestation of cell with insects/rodents, lack of fresh air, lack of or poor quality of bedding and bed linen, lack or inadequate furniture, lack or insufficient quantity of food, lack of or inadequate hygienic facilities, lack of or insufficient physical exercise in fresh air
5,000
22155/15
22/05/2015
Carmeluș Constantin
28/05/1973
Bucharest Police Arrest, Jilava, Mărgineni, Galați, Rahova, Giurgiu, Miercurea Ciuc and Ploiești Prisons
31/12/2006 to
30/09/2016
9 years and 9 months and 1 day
1.43-4.34 m²
Overcrowding (save for the period from 17/02/2007 to 12/04/2007 in Jilava Prison), lack of or inadequate hygienic facilities, infestation of cell with insects/rodents, lack of or restricted access to leisure or educational activities, poor quality of food
5,000
25665/15
15/06/2015
Ionuţ Andrei
08/12/1988
Aiud Prison
10/11/2011 to
02/09/2016
4 years and 9 months and 24 days
1.7-3.73
Overcrowding (save for the period from 17/04/2015 to 16/03/2016 in Aiud Prison), inadequate temperature, lack of or insufficient natural light, lack of or insufficient physical exercise in fresh air, lack of or poor quality of bedding and bed linen, lack of or inadequate hygienic facilities, lack or inadequate furniture, lack or insufficient quantity of food
3,000
39596/15
07/12/2015
Ionuț Munteanu
12/01/1992
Iași Prison
27/01/2013 to
06/12/2016
3 years and 10 months and 10 days
1.28-1.99 m²
Overcrowding, infestation of cell with insects/rodents, lack or insufficient quantity of food, mouldy or dirty cell
3,000
42995/15
03/03/2016
Gerald-Mirel Toilă
08/10/1971
Craiova Prison
10/10/2014
pending
More than 3 years and 7 months and 15 days
1.21 - 3.2 m²
Overcrowding (save for the periods from 06/11/2014 to 10/11/2014, from 20/11/2014 to 24/11/2014 and from 06/01/2015 to 10/01/2015), bunk beds, infestation of cell with insects/rodents, lack of fresh air, lack of or inadequate hygienic facilities, lack of or insufficient physical exercise in fresh air, lack or inadequate furniture, no or restricted access to shower, no or restricted access to warm water
3,000
56966/15
07/12/2015
Eugen-Árpád Nagy
23/04/1977
Miercurea Ciuc Prison
30/10/2011 to
06/03/2017
5 years and 4 months and 7 days
0.77-1.68 m²
Overcrowding, lack of or inadequate hygienic facilities, lack of or insufficient natural light, lack or inadequate furniture
5,000
6300/16
18/01/2016
Marin Georgescu
Craiova Prison
22/12/2011
pending
More than 6 years and 5 months and 4 days
1.42-4.16 m²
Overcrowding (save for the period from 04/08/2012 to 21/08/2012 in Craiova Prison), infestation of cell with insects/rodents, lack of or inadequate hygienic facilities, lack of or insufficient physical exercise in fresh air, lack or insufficient quantity of food, lack or inadequate furniture
5,000
11422/16
09/05/2016
Karol Fogarași
05/12/1972
represented by Irina Maria Peter
Bucharest
Rahova, Giurgiu, Jilava and Găești Prisons
16/11/2010 to
10/09/2016
5 years and 9 months and 26 days
1.7-3.19 m²
Overcrowding (save for the period in Gaești Prison from 22/12/2014 to 31/08/2015), infestation of cell with insects/rodents, lack of or inadequate hygienic facilities, poor quality of food, no or restricted access to potable water, lack or inadequate furniture, lack of or insufficient physical exercise in fresh air
5,000
16700/16
27/07/2016
Mihăiță Dumitriu
29/03/1986
Iași Prison
08/06/2011
pending
More than 6 years and 11 months and 18 days
1.28-2.19 m²
Overcrowding, lack of or insufficient natural light, lack or inadequate furniture
5,000
17849/16
04/05/2016
George-Petru Baras
26/08/1984
Iași Prison
12/10/2015 to
22/04/2016
6 months and 11 days
1.3-5.8 m²
Overcrowding, bunk beds, inadequate temperature, lack of or insufficient electric light, lack of fresh air, lack of or insufficient natural light, mouldy or dirty cell, no or restricted access to toilet, no or restricted access to shower
1,000
[1] Plus any tax that may be chargeable to the applicants.
| 0 |
Having heard both companynsel, we are of the opinion that this appeal has to be dismissed. A preliminary objection has been raised that all the three appellants who originally filed the appeal have died and that the appeal has abated. We, however, find that in respect of one of the appellants the legal representatives were already on record and in respect of another appellant the legal representatives were duly brought on record. Only after the death of Piara Singh, one of the appellants, numberimmediate steps were taken to bring the legal representatives on record. Piara Singh died in June, 1990. A belated application has been filed before us, dated 7-3-91, seeking permission to bring on record his legal representatives. This application is opposed by the respondents pointing out that this application has been filed immediately after the respondents filed an application on 6-3-91 praying that the appeal should be dismissed on the ground of abatement. We have looked into the application for substitution and having regard to the fact that numbercounter-affidavit has yet been filed and as the parties are agriculturists and diligent steps were taken in respect of the earlier deaths, we think we should companydone the delay and bring on record the legal representatives of Piara Singh as prayed for. I. A. No/91 is accordingly allowed. In place of Piara Singh, Daljit Kaur, Angrez Singh, Ajit Singh and Dalbir Singh may be brought on record as prayed for. However, we find that on the merits there is numberground to interfere with the decision of the High Court. The short question before the High Court was whether the will executed by Sadhu Singh in 1962 was genuine or number. | 4 |
CRIMINAL APPELLATE JURISDICTION Criminal Appeal No. 204 of 1959. Appeal by special leave from the judgment and order dated June 23, 1959, of the Calcutta High Court in Criminal Revision No. 640 of 1958. K. Acharya and Janardan Sharma, for the appellants. M. Bose, Advocate-General for, the State of West Bengal, K. C. Mukherjee and P. K. Bose, for the respondent. 1959. December 18. The judgment of Sinha, C. J., Gajendragadkar and Shah, JJ. was delivered by Gajendragadkar The judgment of Sarkar and Subba Rao, JJ. was delivered by Sarkar, J. GAJENDRAGADKAR J.-This appeal by special leave challenges the vires of S. 2 b and the proviso to s. 4 1 of the West Bengal Tribunals of Criminal Jurisdiction Act, 1952 W.B. Act XIV of 1952 hereinafter called the Act . A companyplaint was filed against Kangsari Haldar and Jogendra Nath Guria hereinafter called the appellants in which it was alleged that the appellants along with some others had companymitted offences under s. 120B read with ss. 302 and 436 of the Indian Penal Code. The case against them was that in 1947 a tebhaga movement had been launched in Kakdwip area by the companymunist party and that later on the Bhagehasis were persuaded to claim the entire and number only 2/3 of the produce in pursuance of the said movement. It was further alleged that the leaders of said movement including the appellants preached murder and arson amongst the cultivators and that such preaching and propaganda were followed by arson and murders on a large scale. It was on these allegations that a charge-sheet was submitted against the appellants and the case against them taken up for trial before the Third Tribunal at Alipore companystituted under the Act. Ninetynine witnesses were examined by the prosecution in support of its case and the tribunal framed charges against the appellants under the three sections already mentioned by its order dated May 16, 1958. The offences in question are alleged to have been companymitted during the period beginning from January 1, 1948, and ending on March 31, 1950, within Kakdwip and Sagaour police stations. By their Criminal Revision Application No. 640 of 1958 the appellants challenged the validity of the proceedings before the tribunal and applied for quashing the said proceedings and the charges framed against them under s. 439 of the Code of Criminal Procedure as well as Art. 227 of the Constitution in the Calcutta High Court. Their application was first heard by Mitter and Bhattacharya, JJ. but since there was a difference of opinion between the two learned judges the case was referred to Sen, J. Bhattacharya, J., had taken the view that the impugned provisions of the Act were ultra vires and so he was inclined to allow the revision application and quash the proceedings taken against the appellants on the other hand, Mitter, J., had taken a companytrary view, and Sen, J., to whom the matter was referred agreed with the view taken by Mitter, J. In the result it was held that the impugned provisions of the Act were intra vires and so the rule issued on the appellants revision application was discharged and the application itself was dismissed. The appellants then applied to the said High Court for a certificate either under Art. 132 or under Art. 134 of the Constitution but their applications were dismissed. Thereupon they moved for, and obtained, special leave from this Court. That is how this appeal has companye before this Court and the only point which it raises for our decision is about the vires of the two impugned provisions of the Act. On behalf of the appellants Mr. Acharya has companytended that the genesis of the Act should be borne in mind in dealing with the vires of the impuged provisions and in support of this argument he has strongly relied on the sequence of events which led to the passing of the Act. It appears that the West Bengal special Courts Act X of 1950, was passed by the West Bengal Legislature and came into force on March 15, 1950. The vires of s. 5 1 of the said Act were impeached by Anwar Ali Sarkar and others who were being tried under the provisions of the said Act. On August 28, 1951, the Calcutta High Court partially upheld the plea and struck down a part of s. 5 1 . The said decision was challenged by the State of West Bengal before this Court in The State of West Bengal v. Anwar Ali Sarkar 1 but the appeal preferred by the State was dismissed and by a majority decision of this Court number only a part of s. 5 1 but the whole of it was declared to be ultra vires as being violative of Art. 14 of the Constitution. This decision was pronounced on January 11, 1952. Soon thereafter an Ordinance was promulgated No. 1 of 1952 by the West Bengal Government on March 24, 1952, and in due companyrse this Ordinance was replaced by the Act which came into force on July 30, 1952. Section 12 of the Act purports to repeal the earlier Act of 1950 in companyformity with the decision of this Court in Anwar Ali Sarkars case 1 . The argument is that by passing the Act the West Bengal Government has attempted to achieve the same result which it intended to achieve by s. 5 1 of the earlier Act, and so, according to the appellants, in substance the decision of this Court in Anwar Ali Sarkars case 1 should govern the decision of the present appeal. In any case it is urged that the sequence of events which supply the background to the present Act should carefully be borne in mind in dealing with the merits of the points raised by the appellants. The challenge to the vires of the impugned provisions is based on the ground that they violate the fundamental right guaranteed by Art. 14 of the Constitution. The scope and effect of the provisions of Art. 14 have been companysidered by this Court on several occasions, and the matter has been clarified beyond all doubt. The equality before law which is guaranteed by Art. 14 numberdoubt prohibits class legislation 1 1952 S.C.R. 284. but it does number prohibit the Legislature from legislating on the basis of a reasonable classification. If the classification is reasonable and is founded on intelligible differentia and the said differentia have a rational relation to the object sought to be achieved by the statute based on such reasonable classification the validity of the statute cannot be successfully challenged under Art. 14. These propositions have been repeated so many times during the past few years that they number sound almost platitudinous-. Thus the enunciation of the principles which flow from. the fundamental rights enshrined in Art. 14 number presents numberdifficulty it is, however, in the application of the said principles that difficulties often arise. In applying the said principles to the different sets of facts presented by different cases emphasis may shift and the approach may number always be identical but it is inevitable that the final decision about the vires of any impugned provision must depend upon the decision which the companyrt reaches, having regard to the facts and circumstances of each case, the general scheme of the impugned Act and the nature and effect of the provisions the vires of which are under examination. Let us, therefore, first examine the relevant scheme of the Act and ascertain the effect of the provisions under challenge. The Act was passed because the Legislature thought it expedient in the interest of the security of the State, the maintenance of public peace and tranquillity and the due safeguarding of the industry and business, to provide for the speedy trial of the offences specified in the schedule. Section 2 b defines a disturbed area as meaning an area in which in the opinion of the State Governmenti there was, or ii there is, any extensive-disturbance of the public peace and tranquillity and in respect of which area the State Government has issued a numberification declaring such area to be a disturbed area. The section then adds that in cases falling under cl. i the numberification shall have effect during such period as may be specified therein, and in cases falling under cl. ii the numberification shall have effect from such date as may be specified in the numberification until the numberification is revoked. It would thus be numbericed that the disturbed area can be of two categories it can be an area where extensive disturbance as described had taken place but at the time of the numberification the disturbance may have ceased and an area where the disturbance is taking place at the time of the numberification. In respect of the first category of disturbed areas the numberification has to specify the period companyered by the previous disturbance, and it is the specified offences which had taken place during the said period that fall within the mischief of the Act. In the case of the numberification issued in respect of areas where disturbances are taking place the numberification has effect from such date as it may specify and it will companytinue to be in operation until it is revoked. Section 2 d defines a scheduled offence as any offence specified in the schedule and s. 2 e defines a tribunal as meaning a tribunal of Criminal Jurisdiction companystituted under sub-s. 1 of s. 3. The scheduled offences are specified in four items. Item 1 deals with offences against the State prescribed by ch. 6 of the Indian Penal Code. Item 2 deals with some of the offences against human body and property companyered by ch. 16 and ch. 17 of the Code. Item 3 refers to some of the said offences if they are companymitted in the companyrse of a raid on or a riot in a factory or a mill or a workshop or a bank or in relation to transportation of property to or from a factory, mill, workshop or bank and the last item companyers cases of companyspiracy to companymit or any attempt to companymit or any abetment of any of the offences specified in items 1 to 3. The scheme of the Act is thus to appoint special. tribunals to try the scheduled offences which have taken place in disturbed areas as defined in s. 2 b . That is the effect of s. 4 of the Act. The proviso to s. 4 1 enables the tribunal when it is trying any case to try in its discretion any offence other than a scheduled offence with which the accused may under the Code be charged at the same trial. In other words, the trial of an accused person in respect of the scheduled offences may include any other offence which is number included in the schedule and which would be triable under the provisions of the Code. As we have already indicated the present appeal challenges the vires of s. 2 b and the proviso to s. 4 1 . It cannot be disputed that the procedure prescribed for the trial before the tribunal under the Act differs in some material, particulars from the procedure prescribed by the Code, and the said difference can be treated as amounting to discrimination which is pre-judicial to the accused under the Act numbercommitment proceedings have to be taken and the benefit of jury trial is denied. The provision made by the first proviso -to s. 5 in respect of adjournment of the trial is also stricter and more stringent. Similarly, the right of an accused person to claim a de numbero trial where a judge presiding over a tribunal ceases to be available before the companypletion of the trial is also materially affected by the provisions of s. 6. Section 10 makes applicable the provisions of the Code or of any other law for the time being in force which may be applicable to the trial of criminal cases in so far as they are number inconsistent with the provisions of the Act. Thus it may be companyceded that the appellants are entitled to companyplain that on the whole the procedure prescribed for the trial of scheduled offences under the Act amounts to discrimination. The question is whether such discrimination violates the provisions of Art. 14. This question necessarily leads us to inquire whether the discriminatory provisions of the Act are based on any rational classification, and whether the differentiation of the offenders brought within the mischief of the Act has a rational nexus with the policy of the Act and the object which it intends to achieve. The preamble shows that the Legislature was dealing with the problem raised by disturbances which had thrown a challenge to the security of the State and raised a grave issue about the maintenance of public peace and tranquillity and the safeguarding of industry and business. It, therefore, decided to meet the situation by providing for speedy trial of the scheduled offences. Thus the object of the Act and the principles underlying it are number in doubt. It is true that speedy trial of all criminal offences is desirable but there would be numberdifficulty in appreciating the anxiety of the Legislature to provide for a special procedure for trying the scheduled offences so as to avoid all possible delay which may be involved if the numbermal procedure of the Code was adopted. If the disturbance facing the areas in the State had to be companytrolled and the mischief apprehended had to be Checked and rooted out a very speedy trial of the offences companymitted was obviously indicated. The classification of offenders who are reached by the Act is obviously reasonable. The offences specified in the four items in the schedule are clearly of such a character as led to the disturbance and it is these offences which were intended to be speedily punished in order to put an end to the threat to the security of the State and the maintenance of public peace and tranquillity. It would be idle to companytend that if the offences of the type mentioned in the schedule were companymitted and the Legislature thought that they led to the disruption of public peace and tranquillity and caused jeopardy to the security of the State they companyld number be dealt with as a class by themselves. Other offences companymitted by individuals under the same categories of offences specified by the Code companyld be rationally excluded from the classification adopted by the Act because they did number have the tendency to create the problem which the Act intended to meet. We are, therefore, satisfied that the classification made by the Act is rational and the differentiation on which the offenders included within the Act are treated as a class as distinguished from other offenders has a rational nexus or relation with the object of the Act and the policy underlying it. Therefore, it would be difficult to accede to the argument that the Act violates Art. 14 of the Constitution. It is, however, urged that s. 2 b i is number intra vires because the classification on which it is based violates Art. 14. This companytention has taken a two-fold form. It isurged that the numberification which is authorised to be issued under s. 2 b i necessarily deals with an area which has ceased to be disturbed at the time when it is issued and it is inevitable that when such a numberification is issued some of the offences which would have been tried under the Act as a result of the numberification may have already. been tried under the ordinary Code, and it is only such cases as are number disposed of on the date of the numberification which would fall within the mischief of the Act and that companystitutes an irrational or arbitrary classification. It is also urged that when the area companyered by such a numberification has ceased to be disturbed there is numberrational or valid justification for applying the Act to the offences companymitted in such an area when in the other companytinuously undisturbed areas similar offences would be tried under the numbermal provisions of the Code. In fact it is these two aspects of the question which have been strongly pressed before us by Mr. Acharya in the present appeal. Before dealing with these two arguments it would be relevant to recall that this Court has accepted the general principle that if any state of facts can reasonably be companyceived to sustain a classification, the existence of that state of facts must be assumed Vide Chiranjitlal Chaudhuri v. The Union of India Ors. 1 and Kedar Nath Bajoria v. The State of West Bengal 2 . It is quite true that when a numberification is issued under s. 2 b i specifying the period during which the area in question was disturbed some offences though falling under the schedule might have been tried under the Code while some others which may be pending at the date of the numberification would be tried under the Act. But does that introduce any vice in the classification ? If the area was disturbed and the numberification specifying the period of such disturbance is otherwise justified in the sense that the speedy trial of the seheduled offences companymitted during the specified period can be validly directed, then the fact that some offences had already been tried before the numberification cannot, in our opinion, introduce any infirmity in the statutory provision itself It must be remembered that the classification on which the impugned numberification rests is between the scheduled offences companymitted in an area which is declared to be a disturbed area and similar offences companymitted elsewhere in the State and so the fact that some of the scheduled offences 1 1950 S.C.R. 869 at p. 877. 2 1954 S.C. R. 30 at P. 39. escaped the operation of the numberification because they had been already tried cannot affect its legality or validity. Such an adventitious or accidental result cannot sustain the attack against the classification which is otherwise rational, reasonable and valid. In fact it would number be easy or always possible for the Legislature to prevent such an accidental escape of some cases from the provisions of a special statute for the reason that they had already been decided. If the statute had permitted discrimination between cases under the scheduled offences which still remained to be tried that would have been another matter. In our opinion it would be unreasonable to requisition the assistance of cases which had been disposed of and have become a matter of history to challenge the classification in question. The second companytention is also without substance because it ignores the material difference between the character of the offences companymitted during the specified period in the disturbed area and offences companymitted in companytinuously undisturbed areas. The offences companymitted in areas subsequently declared to be disturbed led to and were the cause of the extensive disturbance. In companysequence of such disturbance investigation into such offences is rendered difficult it is number easy in such disturbed companyditions to companylect and marshall evidence because witnesses are apt to be terrorised, and though the area has ceased to be disturbed absence of disturbance may be temporary, and unless the offenders are brought to book speedily the temporary peace may turn out to be the lull before another storm. That is why even in respect of areas which have ceased to be disturbed, offences companymitted when the area was disturbed during the period specified in the numberification are required to be tried under the Act. Such offences cannot, in our opinion, be reasonably companypared with offences companymitted under the same sections of the Code in companytinuously undisturbed areas. In their essential features the two offences form two distinct and different categories and the companytention that the classification of the offences made in such a case is irrational must, therefore, be rejected. The argument that some limitation of time should have been prescribed within which the numberification should be issued declaring such areas to be disturbed ignores the fact that prescription of such limitation may in some cases defeat the purpose of the Act itself. If the offenders abscond or go underground, as in the present case appellant 1 did, how can any period of limitation be prescribed beyond which the power to issue numberification cannot be exercised ? In issuing such numberification several relevant factors pertaining to the local situation in the area have to be taken into account and so failure to prescribe any limitation cannot introduce any infirmity in the provision. It is companyceivable that the numberification issued under s. 2 b i may be companyourable or mala fide but in such a case it is the validity of the numberification which can be successfully challenged, number the vires of the statute under which it is issued. The companyourable or mala fide exercise of the power in issuing a numberification would undoubtedly affect the validity of the numberification itself but the possibility of such abuse of power cannot reasonably affect the vires of the statute itself. Mr. Acharya numberdoubt suggested that the object of the impugned numberification was to bring only the case of the appellants under the mischief of the Act but he frankly companyceded that he had number made such a specific plea in his petition and that, though it would be possible for him to urge that a large majority of the scheduled offences companymitted during the specified period had already been tried under the Code, it would number be possible for him to sustain the plea on the material available on the record that the numberification has been issued solely with a view to bring the case of the appellants alone under the mischief of the Act. That is why this aspect of the matter does number fall to be companysidered in the present appeal. The next argument is that the proviso to s. 4 1 is ultra vires. We do number think that here is any substance in this argument. What the proviso does is to enable the tribunal to try any offence other than the scheduled offence with which the accused may be charged and which would be ordinarily triable under the provisions of the Code. But does this amount to an infringement of Art. 14 at all ? In our opinion the answer to this question must be in the negative. It is significant that the proviso leaves it to the discretion of the tribunal whether or number any other offence should be tried under the Act along with the scheduled offence charged against the accused in a given case. Besides there can be numberdoubt that the offences other than the scheduled offences which may be included in a trial under the Act would be,minor or allied offences the proof of which would follow from the facts adduced in support of the major offences. That in fact is the position even under the provisions of the Code. If the trial of the major scheduled offence under the Act is justified and valid the impugned proviso does numberhing more than enable the tribunal to decide whether the accused is guilty of any minor or allied offence. In our opinion, therefore, the challenge to the proviso in question cannot succeed. It number remains to companysider the decisions to which our attention was invited. In the case of Anwar Ali Sarkar 1 where s. 5 1 of the Bengal Act X of 1950 was impeached the majority decision was that the said section was wholly invalid. The preamble to the Act had merely stated that it was expedient to provide for the speedy trial of certain offences, and s. 5 1 had empowered a special companyrt to try such offences or classes of offences or cases or classes of cages as the State Government may bygeneral or special order in writing direct. According to the majority decision the preamble to the Act was vague and gave numberindication about them principles underlying it or the object which it intended to achieve and it was also held that s 5 1 vested an unrestricted discretion in the State Government to direct any cases or classes of cases to be tried by the special companyrt. It was observed that the necessity of a speedier trial mentioned in the preamble was too vague, uncertain and elusive a criterion to form a rational basis for the discriminations made, and that it was unreasonable to have left to the absolute and unfettered discretion of the 1 1952 S.C.R. 284. executive government with numberhing in the law to guide or to companytrol its action to decide which cases or classes of cases should be tried under the Act. There were, however, two dissents. Patanjali Sastri, C.J. held that s. 5 1 was wholly valid, where, Das, J., as he then was, agreed with the companyclusion of the High Court that s. 5 1 was bad only in so far as it empowered the State Government to direct cases to be tried by a special companyrt it may be added that though Bose, J., agreed with the companyclusion of the majority, he was number satisfied that the tests laid down in deciding the validity of the classification companyld afford infalliable guide because he thought that the problem posed in such cases is number solved by substituting one generalisation for another. It would thus be seen that the majority decision in that case was based on two principal companysiderations that, having regard to the bald statement made in the preamble about the need of speedier trials, it was difficult to sustain the classification made by s. 5 1 , and that the discretion left to the executive was unfettered and for its exercise numberguidance was given by the statute. It is difficult to accept the suggestion of Mr. Acharya that the impugned provisions in the Act with which we are companycerned are companyparable to s. 5 1 in that case. The next decision to which reference must be made is Kathi Raning Rawat v. The State of Saurashtra 1 . The majority decision in that case upheld the validity of ss. 9, 10 and 1 1 of the Saurashtra State Public Safety Third Amendment Ordinance, 1949 66 of 1949 and the numberification issued under it. Patanjali Sastri, C.J., and three other learned judges of this Court took the view that the preamble to the Act gave a clear indication about the policy underlying the Act and the object which it intended to achieve, that the classification on which the impugned provisions were based was a rational classification, and that the differentia on which the classification was made had a rational nexus with the object and policy of the Act. Mahajan, Chandrasekhara Ayyar and Bose, JJ., however, dissented. According to them the numberification 1 1952 S.C.R. 435. and the impugned provisions had violated Art. 14. It is significant that in up holding the validity of the impugned provisions and the numberifications the tests applied were the same as laid down in Anwar Ali Sarkars case 1 . The third decision pronounced by this Court in the same year -is Lachmandas Kewalram Ahuja Anr. v. The State of Bombay 2 . Section 12 of the Bombay Public Safety Measures Act, 1947, was struck down by the majority decision in that case as it companytravened Art. 14 and was void under Art. 13 on the principles laid down in the two earlier decisions to which we have just referred. Patanjali Sastri, C. J., struck a numbere of dissent. He adhered to the view which he had expressed in Anwar Ali Sarkars case 1 and held that the impugned provision was valid. The decision in the case of Ahuja 2 proceeded on the basis that the discrimination which may have been permissible before January 26, 1950, companyld number be sustained after the said date because it violated Art. 14 of the Constitution. Having regard to the objects which the act intended to achieve and the principles underlying it, it was held that the said object and principles applied equally to both categories of cases, those which were referred to the special judge and those which were number so referred and so the discrimination made between the two categories of cases which companyld number be rationally put under two different classes was violative of Art. 14. Thus the application of the same tests this time resulted in striking down the impugned provision and the numberification. In 1953 a similar problem was posed before this Court for its decision. This time it was s. 4 1 of the West Bengal Criminal Law Amendment Special Courts Act, 1949, which was challenged in Kedar Nath Bajorias case 3 . This Act had been passed to provide for the more speedy and more effective punishment of certain offences because the Legislature thought that it was expedient to provide for the more speedy trial and more effective punishment of certain offences which were set out in the schedule annexed 1 1952 S.C.R. 284. 2 1952 S.C.R. 710. 3 1954 S.C.R. 30. to the Act. Section 4 1 authorised the Provincial Government to allot cases for trial to a special judge by numberification as well as transfer cases from one special judge to another or to withdraw any case from the jurisdiction of the special judge or make such modifications in the description of a case as may be companysidered necessary. Pronouncing the majority judgment in that case Patanjali Sastri, C. J., elaborately companysidered the earlier decisions of this Court to which we have already referred, applied the tests laid down therein, and held that s. 4 of the Act was valid and that the special companyrt had jurisdiction to tryand companyvict the, appellants. Bose, J., however, did number agree and recorded his dissent with deepest regret. In dealing with the merits of the companytroversyraised before the Court Patanjali Sastri, C. J., referredto the fact that according to the dissenting view thedecision of the majority in the case of Kathi Baning Rawat v. The State of Saurashtra 1 marked a retreat from the position taken up by the majority in the earlier case of Anwar Ali Sarkar He, however, added that the Saurashtra case 1 would seem to lay down the principle that if the impugned legislation indicates the policy which inspired it and the object which it seeks to attain, the mere fact that the legislation does number itself make a companyplete and precise classification of the persons or things to which it is to be applied, but leaves the selective application of the law to be made by the executive authority in accordance with the standard indicated or the underlying policy and object disclosed is number a sufficient ground for companydemning it as arbitrary and, therefore, obnoxious to Art. 14. There is is one more decision to which reference may be made. In Gopi Chand v. Delhi Administration 3 this Court has upheld the validity of s. 36 1 of the East Punjab Public Safety Act 5 of 1949. The provisions of this section authorised the State Government to apply the prescribed summons procedure for the trial of the specified offences in dangerously 1 1952 S.C.R. 435. 2 1952 S.C.R. 284. A.I.R. 1959 S.C. 609. disturbed areas. The numberification issued by the State Government under authority companyferred on it by the impugned Act was challenged as offending Art. 14 but this challenge was repelled and the statutory provision and the numberification were held to be valid. The result of these decisions appears to be this. In companysidering the validity of the impugned statute on the ground that it violates Art. 14 it would first be necessary to ascertain the policy underlying the statute and the object intended to be achieved by it. In this process the preamble to the Act and its material provisions can and must be companysidered. Having thus ascertained the policy and the object of the Act the companyrt should apply the dual test in examining its validity Is the classification rational and based on intelligible differentia and has the basis of differentiation any rational nexus with its avowed policy and object ? If both these tests are satisfied the statute must be held to be valid. and in such a case the companysideration as to whether the same result companyld number have been better achieved by adopting a different classification would be foreign to the scope of the judicial enquiry. If either of the two tests is number satisfied the statute must be struck down as violative of Art. 14. Applying this test it seems to us that the impugned provisions companytained in s. 2 b and the proviso to s. 4 1 cannot be said to companytravene Art. 14. As we have indicated earlier, if in issuing the numberification authorised by s. 2 b the State Government acts mala fide or exercises its power in a companyourable way that can always be effectively challenged but, in the absence of any such plea and without adequate material in that behalf this aspect of the matter does number fall to be companysidered in the present appeal. The result is the order passed by the High Court is companyfirmed and the appeal dismissed. Before we part with this appeal, however, we would like to add that, since the offences are alleged to have been companymitted more than ten years ago, it is desirable that the case against the appellants should number be tried and disposed of as expeditiously as possible. SARKAR. J. -The question that arises in this appeal whether a certain provision of the Tribunal Criminal Jurisdiction Act, 1952, W. B. Act XIV of 1952 is void as it takes away the right companyferred by art. 14 of the Constitution. In my view, it is. The Act came into force on July 30, 1952. The object of the Act is set out in the preamble which so far as is relevant in this case reads, Whereas it is expedient in the interests of the security of the State, the maintenance of public peace and tranquillity to provide for the speedy trial of the offences specified in the Schedule It is hereby enacted The provisions of the Act which have to be companysidered in this case are set out below. S. 2. Definitions.-In this Act unless there is anything repugnant in the subject or companytext- a b disturbed area means an area in which in the opinion of the State Governmentthere was or there is any extensive disturbance of the public peace and tranquillity and in respect of which area the State Government has issued a numberification declaring such area to be a disturbed area. In cases falling under clause i the numberification shall have effect during such period as may be specified therein, and in cases falling under clause ii the numberification shall have effect from such date as may be specified in the numberification until the numberification is revoked c Scheduled offence means any offence specified in the Schedule. Tribunal means a Tribunal of Criminal Jurisdiction companystituted under sub-section 1 of section 3. S. 4. Scheduled offences shall be triable by the Tribunals only SCHEDULE An offence punishable under section 302, section 304, section 307, section 326, section 363, section 364, section 365, section 366, section 376, section 395, section 396, section 397, or section 436 of the Indian Penal Code, if companymitted in a disturbed area. Any companyspiracy to companymit or any attempt to companymit or any abetment of any of the offences specified in items 1 to 3. The Act provides by some of the sections which need number be set out, a special procedure for trial under it. Thus the trial is to be without a jury even in case, which are triable by a jury. Again, the Tribunal is to follow the procedure laid down for the trial of warrant cases by a Magistrate,. instituted otherwise than on a police report and the procedure for companymittal for trial is omitted. Further, a Judge presiding over a Tribunal may act on the evidence recorded by his predecessor. The procedure provided by the Act is thus clearly less beneficent to an accused than the numbermal procedure under the Code of Criminal Procedure, which would have to be adopted for his trial if the Act had number been passed. The learned Advocate-General of West Bengal, appearing for the respondent, the State of West Bengal, did number companytend to the companytrary. The Act, therefore, provides a disadvantageous and so, a discriminatory procedure for the persons who companye under its scope. We turn number to the facts of this case. On September 12, 1952, the Government of West Bengal issued a numberification under s. 2 b of the Act declaring the whole area within the jurisdiction of Kakdwip and Sagar police-stations to be a disturbed area and specified the period from January 1, 1948, to March 31, 1950, to be the period during which the numberification was to have effect. The Special Public Prosecutor Kakdwip cases, of the Government of West Bengal filed a companyplaint against the appellants and several other persons as a result of the proceedings taken by that Government in case No. 1 of Judicial Department Notification No. 5916 dated October 24, 1952. The date of the companyplaint does number appear from the record. The case against the appellants and the -other persons appears to be that, between the dates mentioned in the Notification Of September 12, 1952, they were among the leaders of the violent form of a movement called the Tebhaga movement, in the Kakdwip area and they, with the others, led the movement to kill the landlords and jotdars and burn down their houses, so that the bhagchasis, that is, the cultivators who cultivated the lands of the landlords and jotdars on the basis of getting a share of the crop produced, might obtain full companytrol over the lands they cultivated and the object of the movement included offering resistance to and killing the police if they intervened, and burning down school houses where the police frequently camped. On the aforesaid companyplaint, on March 3, 1958, proceedings were started against the appellants under the Act. After examining 99 witnesses the learned Judge presiding over the Tribunal hearing the case, framed a charge against them on May 16, 1958, under s. 120 B, read with ss. 302 and 436, of the Indian Penal Code. These offences are included in items Nos. 2 and 4 of the Schedule. On May 26, 1958, the appellants moved the High Court at Calcutta under art. 227 of the Constitution and s. 439 of the Code of Criminal Procedure for an order quashing the proceedings against them on certain grounds. I propose to deal in this judgment with one of these grounds only. It was said that s 2 b of the Act in so far as it allowed the Government to declare an area in which there was disturbance in the past, to be a disturbed area, offends art. 14. of the Constitution as it then discriminates between persons who had companymitted the same -offences in that area within the specified period but whose trials had been companycluded before the numberification and others similarly situated but whose trials had number been so companycluded. It was said that the former class of persons had the advantage of the numbermal procedure while the latter, in whom the appellants are included, were to tried by a less advantageous procedure. The application of the appellants was heard by a bench of the High Court companysisting of Mitter and Bhattacharya, JJ. These learned Judges came to entertain different views on the question. Mitter, J., thought that the Act had been given a retrospective operation by permitting the declaration of an area as a disturbed area for a past period but that the Act dealt only with procedure and procedural alterations were always ,retrospective. Bhattacharya, J., seems to have been of the view that a retrospective operation even of a procedural statute is number permissible if such operation results in the statute offending art. 14 that the principle of the retrospective operation of a procedural statute is number available to by-pass the companystitutional safeguard guaranteed by art. 14. In view of this difference of opinion, the matter was referred to a third learned Judge of the Court, namely, Sen, He was of the view that the retrospective operation of the Act, by which he meant the application of the procedure laid down in it to cases in respect of offences companymitted before the Act the trial of which had number been companycluded, did number offend art. 14 that there was numberfundamental right to a particular procedure for trial and alterations in the procedural law were always retrospective unless the companytrary was indicated. He further observed, The change in the procedure made by a statute in respect of offences falling within a prescribed reasonable classification, affects all pending cases of that class and so long as all pending cases within the class are tried under the special procedure, there is numberdiscrimination. In the result, the appellants application was refused. They have number appealed to this Court. It seems to me that the learned Judges of the High Court were unduly oppressed by companysiderations of the retrospective operation of the Act. The question is number whether the Act is prospective or retrospective in its operation. Nor is it the question whether the Act deals with procedures or substantive rights. The only question is whether the Act operates in respect only of a class of persons and if so, whether the classification is justifiable. Whether a law offends art. 14, does number depend upon whether it is prospective or retrospective. There is numberhing in art. 14 to indicate that a law operating retrospectively cannot offend it. It is possible both for prospective and retrospective statutes to companytravene the provisions of that article. It is number necessary therefore to companysider whether the Act is prospective or retrospective or whether it companycerns procedure or substantive rights. The general rule is that a law must apply to all persons. But it is permissible within certain well recognised limits, to validly legislate for a class of persons. The test for a valid classification is well known. It may be read from the judgment in the recent case of Sri Ram Krishna Dalmia v. Shri Justice S. R. Tendolkar 1. Das, C.J., said at p. In determining the validity or otherwise of such a statute the companyrt has to examine whether such classification is or can be reasonably regarded as based upon some differentia which distinguishes such persons or things grouped together, from those left out of the group and whether such differentia has a reasonable relation to the object sought to be achieved by the statute Where the companyrt finds that the classification satisfies the tests, the companyrt will uphold the validity of the law. Again at p. 299 he observed A statute may number make any classification of the persons or things for the purpose of applying its provisions but may leave it to the discretion of the Government to select and classify persons or things to whom its provisions are to apply the companyrt will strike down the statute if it does number lay down any principle or policy for guiding the exercise of the discretion by the Government in the matter of selection or classification In such a case the companyrt will strike down both the law as well as the executive action taken under such law. 1 1959 S.C.R. 279. The statute before us has made a classification in regard to offences. It applies only to those offences which are mentioned in the Schedule. I will assume that this classification satisfies the test and is good. I wish to observe here that in this case I am companysidering the validity of the statute only in so far as it is companycerned with an offence companymitted in a disturbed area. Such an offence companyes under items 2 and 4 of the Schedule which alone, therefore, I have set out. Now, the Act leaves it to the Government to decide which is a disturbed area and to make a classification on the basis of areas. I will also assume that the Act is number invalid in so far as it leaves it to the Government to make this classification that it lays down a principle or policy, namely, extensive disturbance of public peace and tranquillity for guiding the Government in making this classification. Now, s. 2 b empowers the Government to declare an area to be a disturbed area where there was extensive disturbance of the public peace and tranquillity in the past. The Government has however to mention in the numberification making such a declaration, the period during which it shall have effect in other words, the numberification has to specify the period in which in the area declared a disturbed area , disturbance of the public peace and tranquillity had taken place. The area,so declared a disturbed area becomes a disturbed area within the meaning of the Act for that period only. In such a case only such of the offences mentioned in items Nos. 2 and 4 of the Schedule as were companymitted in the specified area during the specified period companye under the scope of the Act. This is the kind of declaration of a disturbed area that we have in this case. The effect of this kind of declaration is that it makes the Act applicable only to persons who have companymitted any of the specified offences in the area and during the period indicated. As will presently be seen, it does number apply to all such persons. This being a case, where there had been disturbances in the area in the past, the period mentioned in the declaration must be a period in the past. That is what happened in the present case. The declaration was made on September 12, 1952, and the period specified was from January 1, 1948, to March 31, 1950. It is possible in such a case that many of the persons who had companymitted the offences within the past period specified in the declaration, might have already been tried and their trials companycluded before the declaration was made. They would in such circumstances have been tried according to the numbermal procedure provided by the Code of Criminal Procedure. To them the Act does number apply. Other persons, like the appellants who companymitted the same offences in the same period and in the same area but whose trials had number been companycluded before the declaration was made, have to be tried under the disadvantageous procedure prescribed by the Act. The effect of the Act therefore is to group into one class, persons companymitting the specified offences in the specified area and in the specified period whose trials had number been companycluded before the making of the declaration. It is only to them that the Act applies. This is where the difficulty arises. There does number seem to be any intelligible differentia by which such persons can be differentiated from others who companymitted the same offences in the same area and during the same period but whose trials had been companycluded before the making of the declaration. The object of the Act, as earlier stated, is to secure speedy trials in the interests of the security of the State and the maintenance of the public peace and tranquillity in view of the extensive disturbance of the public peace and tranquillity in an area. It would be necessary to carry out this object that both the classes of persons, namely, those whose trials had been companycluded as also those whose trials had number been companycluded, should be treated according to the same law. The only distinction between the two classes is that in one case the trials had been companycluded while in the other, they had number been. Now that is number a differentia, if it may be called so, which has any reasonable relation to the object of the Act. lndeed, in order to secure that object, it is necessary to place both the classes of persons in the same situation. By permitting a declaration classifying offences companymitted in the past, the Act makes a classification which cannot stand the well-known test which I have read from Ram Krishna Dalmias case 1 . It cannot be said that the object of the Act is only to provide speedy trial and that therefore as there is of numberquestion of speedy trial in the cases where the trial hadalready been companycluded there is an intelligible differentia between such cases and those where the trial had number been companycluded. It is quite plain that the object of the Act is number simply to provide a speedy trial. Indeed, all offences require speedy trial. The object of the Act is expressly to provide speedy trial of certain offences companymitted in a specified area and during a specified period because it is expedient in the interests of the security of the State, the maintenance of public peace and tranquillity to do so. The classification by areas is based on disturbance in an area and the necessily of restoring peace there. Such being the object, a distinction made between the cases were the trials had been companycluded and the cases where the trials had number been companycluded, is number a distinction which has any rational relation to that object. The learned Advocate-General for the State of West Bengal companytended that this case is companyered by the decision of this companyrt in Gopi Chand v. Delhi Administration 2 . There, numbersuch difficulty as arises in this case, had arisen. I therefore do number think that that case is of any assistance. | 4 |
Judgment of the Court of 11 March 1981. - Susan Jane Worringham and Margaret Humphreys v Lloyds Bank Limited. - Reference for a preliminary ruling: Court of Appeal (England) - United Kingdom. - Equal pay. - Case 69/80.
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Spanish special edition Page 00107
Summary
Parties
Subject of the case
Grounds
Decision on costs
Operative part
Keywords
1 . SOCIAL SECURITY - MEN AND WOMEN - PAY - CONCEPT - CONTRIBUTIONS PAID BY AN EMPLOYER TO A RETIREMENT BENEFITS SCHEME
( EEC TREATY , ART . 119 )
2 . SOCIAL POLICY - MEN AND WOMEN - PAY - CONCEPT - SAME SCOPE IN ARTICLE 119 OF THE TREATY AND IN DIRECTIVE 75/117
( EEC TREATY , ART . 119 ; COUNCIL DIRECTIVE 75/117 , ART . 1 )
3 . SOCIAL POLICY - MEN AND WOMEN - EQUAL PAY - PRINCIPLE - DIRECT EFFECT - DISCRIMINATION ARISING FROM CONTRIBUTIONS PAID BY AN EMPLOYER TO A RETIREMENT BENEFITS SCHEME
( EEC TREATY , ART . 119 )
Summary
1 . A CONTRIBUTION TO A RETIREMENT BENEFITS SCHEME WHICH IS PAID BY AN EMPLOYER ON BEHALF OF EMPLOYEES BY MEANS OF AN ADDITION TO THE GROSS SALARY AND WHICH THEREFORE HELPS TO DETERMINE THE AMOUNT OF THAT SALARY CONSTITUTES ' ' PAY ' ' WITHIN THE MEANING OF THE SECOND PARAGRAPH OF ARTICLE 119 OF THE EEC TREATY .
2 . DIRECTIVE 75/117/EEC IS BASED ON THE CONCEPT OF ' ' PAY ' ' AS DEFINED IN THE SECOND PARAGRAPH OF ARTICLE 119 OF THE EEC TREATY . ALTHOUGH ARTICLE 1 OF THE DIRECTIVE EXPLAINS THAT THE CONCEPT OF ' ' SAME WORK ' ' CONTAINED IN THE FIRST PARAGRAPH OF ARTICLE 119 OF THE TREATY INCLUDES CASES OF ' ' WORK TO WHICH EQUAL VALUE IS ATTRIBUTED ' ' , IT IN NO WAY AFFECTS THE CONCEPT OF ' ' PAY ' ' CONTAINED IN THE SECOND PARAGRAPH OF ARTICLE 119 BUT REFERS BY IMPLICATION TO THAT CONCEPT .
3 . ARTICLE 119 OF THE EEC TREATY APPLIES DIRECTLY TO ALL FORMS OF DISCRIMINATION WHICH MAY BE IDENTIFIED SOLELY WITH THE AID OF THE CRITERIA OF EQUAL WORK AND EQUAL PAY REFERRED TO BY THE ARTICLE IN QUESTION , WITHOUT NATIONAL OR COMMUNITY MEASURES BEING REQUI- RED TO DEFINE THEM WITH GREATER PRECISION IN ORDER TO PERMIT OF THEIR APPLICATION . THE FORMS OF DISCRIMINATION WHICH MAY BE THUS JUDICIALLY IDENTIFIED INCLUDE CASES WHERE MEN AND WOMEN RECEIVE UNEQUAL PAY FOR EQUAL WORK CARRIED OUT IN THE SAME ESTABLISHMENT OR SERVICE , PUBLIC OR PRIVATE .
THIS IS THE CASE WHERE THE REQUIREMENT TO PAY CONTRIBUTIONS TO A RETIREMENT BENEFITS SCHEME APPLIES ONLY TO MEN AND NOT TO WOMEN AND THE CONTRIBUTIONS PAYABLE BY MEN ARE PAID BY THE EMPLOYER ON THEIR BEHALF BY MEANS OF AN ADDITION TO THE GROSS SALARY THE EFFECT OF WHICH IS TO GIVE MEN HIGHER PAY WITHIN THE MEANING OF THE SECOND PARAGRAPH OF ARTICLE 119 THAN THAT RECEIVED BY WOMEN ENGAGED IN THE SAME WORK OR WORK OF EQUAL VALUE .
Parties
IN CASE 69/80
REFERENCE TO THE COURT UNDER ARTICLE 177 OF THE EEC TREATY BY THE COURT OF APPEAL ( CIVIL DIVISION ), LONDON , FOR A PRELIMINARY RULING IN THE ACTION PENDING BEFORE THAT COURT BETWEEN
SUSAN JANE WORRINGHAM
MARGARET HUMPHREYS
AND
LLOYDS BANK LIMITED
Subject of the case
ON THE INTERPRETATION OF ARTICLE 119 OF THE EEC TREATY , ARTICLE 1 OF COUNCIL DIRECTIVE 75/117/EEC OF 10 FEBRUARY 1975 ON THE APPROXIMATION OF THE LAWS OF THE MEMBER STATES RELATING TO THE APPLICATION OF THE PRINCIPLE OF EQUAL PAY FOR MEN AND WOMEN ( OFFICIAL JOURNAL 1975 , L 45 , P . 19 ) AND ARTICLE 1 ( 1 ) AND ARTICLE 5 ( 1 ) OF COUNCIL DIRECTIVE 76/207/EEC OF 9 FEBRUARY 1976 ON THE IMPLEMENTATION OF THE PRINCIPLE OF EQUAL TREATMENT FOR MEN AND WOMEN AS REGARDS ACCESS TO EMPLOYMENT , VOCATIONAL TRAINING AND PROMOTION , AND WORKING CONDITIONS ( OFFICIAL JOURNAL 1976 , L 39 , P . 40 ),
Grounds
1 BY ORDER OF 19 FEBRUARY 1980 , WHICH WAS RECEIVED AT THE COURT ON 3 MARCH 1980 , THE COURT OF APPEAL , LONDON , REFERRED TO THE COURT OF JUSTICE UNDER ARTICLE 177 OF THE EEC TREATY SEVERAL QUESTIONS FOR A PRELIMINARY RULING ON THE INTERPRETATION OF ARTICLE 119 OF THE EEC TREATY , COUNCIL DIRECTIVE 75/117/EEC OF 10 FEBRUARY 1975 ON THE APPROXIMATION OF THE LAWS OF THE MEMBER STATES RELATING TO THE APPLICATION OF THE PRINCIPLE OF EQUAL PAY FOR MEN AND WOMEN ( OFFICIAL JOURNAL L 45 , P . 19 ) AND COUNCIL DIRECTIVE 76/207/EEC OF 9 FEBRUARY 1976 ON THE IMPLEMENTATION OF THE PRINCIPLE OF EQUAL TREATMENT FOR MEN AND WOMEN AS REGARDS ACCESS TO EMPLOYMENT , VOCATIONAL TRAINING AND PROMOTION , AND WORKING CONDITIONS ( OFFICIAL JOURNAL L 38 , P . 40 ).
2 THESE QUESTIONS HAVE BEEN RAISED WITHIN THE CONTEXT OF PROCEEDINGS BETWEEN TWO FEMALE WORKERS AND THEIR EMPLOYER , LLOYDS BANK LIMITED ( HEREINAFTER REFERRED TO AS ' ' LLOYDS ' ' ), WHICH THEY COMPLAIN WAS IN BREACH OF THE CLAUSE GUARANTEEING EQUAL PAY FOR MEN AND WOMEN INCORPORATED IN THEIR CONTRACTS OF EMPLOYMENT WITH THE BANK BY VIRTUE OF THE PROVISIONS OF SECTION 1 ( 2 ) ( A ) OF THE EQUAL PAY ACT 1970 . THE PLAINTIFFS IN THE MAIN ACTION HAVE CLAIMED IN PARTICULAR THAT LLOYDS HAS FAILED TO FULFIL ITS OBLIGATIONS UNDER THE EQUAL PAY ACT 1970 BY NOT PAYING FEMALE STAFF UNDER 25 YEARS OF AGE THE SAME GROSS SALARY AS THAT OF MALE STAFF OF THE SAME AGE ENGAGED IN THE SAME WORK .
3 IT IS CLEAR FROM THE INFORMATION CONTAINED IN THE ORDER MAKING THE REFERENCE THAT LLOYDS APPLIES TO ITS STAFF TWO RETIREMENT BENEFITS SCHEMES , ONE FOR MEN AND ONE FOR WOMEN . UNDER THESE RETIREMENT BENEFITS SCHEMES , WHICH ARE THE RESULT OF COLLECTIVE BARGAINING BETWEEN THE TRADE UNIONS AND LLOYDS AND WHICH HAVE BEEN APPROVED BY THE NATIONAL AUTHORITIES UNDER THE FINANCE ACT 1970 AND CERTIFIED UNDER THE SOCIAL SECURITY PENSIONS ACT 1975 , THE MEMBER CONTRACTS OUT OF THE EARNINGS-RELATED PART OF THE STATE PENSION SCHEME AND THIS PART IS REPLACED BY A CONTRACTUAL SCHEME .
4 IT FOLLOWS FROM THE SAME ORDER THAT ALTHOUGH THE TWO RETIREMENT BENEFITS SCHEMES APPLIED BY LLOYDS DO NOT ESSENTIALLY INVOLVE A DIFFERENCE IN THE TREATMENT OF MEN AND WOMEN AS REGARDS THE BENEFITS RELATING TO THE RETIREMENT PENSION , THEY LAY DOWN DIFFERENT RULES AS REGARDS OTHER ASPECTS NOT RELATED TO THAT PENSION .
5 THE UNEQUAL PAY ALLEGED IN THIS CASE BEFORE THE NATIONAL COURT ORIGINATES , ACCORDING TO THE PLAINTIFFS IN THE MAIN ACTION , IN THE PROVISIONS OF THESE TWO RETIREMENT BENEFITS SCHEMES RELATING TO THE REQUIREMENT TO CONTRIBUTE APPLICABLE TO STAFF WHO HAVE NOT YET ATTAINED THE AGE OF 25 . IN FACT , IT IS CLEAR FROM THE ORDER MAKING THE REFERENCE THAT MEN UNDER 25 YEARS OF AGE ARE REQUIRED TO CONTRIBUTE 5% OF THEIR SALARY TO THEIR SCHEME WHEREAS WOMEN ARE NOT REQUIRED TO DO SO . IN ORDER TO COVER THE CONTRIBUTION PAYABLE BY THE MEN , LLOYDS ADDS AN ADDITIONAL 5% TO THE GROSS SALARY PAID TO THOSE WORKERS WHICH IS THEN DEDUCTED AND PAID DIRECTLY TO THE TRUSTEES OF THE RETIREMENT BENEFITS SCHEME IN QUESTION ON BEHALF OF THOSE WORKERS .
6 THE ORDER MAKING THE REFERENCE ALSO SHOWS THAT WORKERS LEAVING THEIR EMPLOYMENT WHO CONSENT TO THE TRANSFER OF THEIR ACCRUED RIGHTS TO THE STATE PENSION SCHEME RECEIVE A ' ' CONTRIBUTIONS EQUIVALENT PREMIUM ' ' WHICH ENTITLES THEM TO THE REFUND , SUBJECT TO DEDUCTIONS IN RESPECT OF A PART OF THE COST OF THE PREMIUM AND IN RESPECT OF INCOME TAX , OF THEIR PAST CONTRIBUTIONS TO THE SCHEME OF WHICH THEY WERE MEMBERS , WITH INTEREST ; THAT AMOUNT INCLUDES , IN THE CASE OF MEN UNDER THE AGE OF 25 , THE 5% CONTRIBUTION PAID IN THEIR NAME BY THE EMPLOYER .
7 FINALLY , AS FOLLOWS FROM THE INFORMATION PROVIDED BY THE NATIONAL COURT , THE AMOUNT OF THE SALARY IN WHICH THE ABOVE-MENTIONED 5% CONTRIBUTION IS INCLUDED HELPS TO DETERMINE THE AMOUNT OF CERTAIN BENEFITS AND SOCIAL ADVANTAGES SUCH AS REDUNDANCY PAYMENTS , UNEMPLOYMENT BENEFITS AND FAMILY ALLOWANCES , AS WELL AS MORTGAGE AND CREDIT FACILITIES .
8 THE INDUSTRIAL TRIBUNAL , BEFORE WHICH AN ACTION WAS BROUGHT AT FIRST INSTANCE , DISMISSED BY DECISION OF 19 SEPTEMBER 1977 THE APPLICANTS ' CLAIM ON THE GROUND IN PARTICULAR THAT THE UNEQUAL PAY FOR MEN AND WOMEN COMPLAINED OF IN THIS INSTANCE WAS THE RESULT OF A DIFFERENCE IN THE RULES OF THE BANK ' S RETIREMENT BENEFITS SCHEMES FOR MEN AND WOMEN AND THEREFORE FELL WITHIN THE EXCEPTION CONTAINED IN SECTION 6 ( 1 A ) ( B ) OF THE EQUAL PAY ACT 1970 WHICH EXCLUDES FROM THE OPERATION OF THE PRINCIPLE OF EQUAL PAY FOR MEN AND WOMEN TERMS RELATED TO DEATH OR RETIREMENT OR ANY PROVISION MADE IN CONNEXION WITH DEATH OR RETIREMENT .
9 THE PLAINTIFFS IN THE MAIN ACTION APPEALED TO THE EMPLOYMENT APPEAL TRIBUNAL , CONTENDING THAT THE PAYMENT OF AN ADDITIONAL 5% GROSS SALARY TO MALE EMPLOYEES OF LLOYDS AGED UNDER 25 RAISED A PROBLEM OF DISCRIMINATION BETWEEN MEN AND WOMEN IN RESPECT OF PAY WHICH FELL OUTSIDE THE EXCEPTION CONTAINED IN SECTION 6 ( 1 A ) ( B ) OF THE EQUAL PAY ACT 1970 . THEY ALSO ARGUED THAT IN ANY CASE THAT SECTION COULD NOT BE INTERPRETED AND APPLIED SO AS TO BE CONTRARY TO COMMUNITY LAW , WHICH OVERRIDES THE PROVISIONS OF THE EQUAL PAY ACT 1970 .
10 THE EMPLOYMENT APPEAL TRIBUNAL ALLOWED THE APPEAL ON THE GROUNDS THAT : ( A ) THERE WAS INEQUALITY OF PAY FOR MEN AND WOMEN UNDER THE AGE OF 25 IN THAT INSTANCE ; ( B ) THE TERMS OR PROVISIONS IN THE CONTRACT OF EMPLOYMENT WITH REFERENCE TO PAY HAD TO BE KEPT SEPARATE FROM TERMS OR PROVISIONS WITH REFERENCE TO PENSIONS ; AND ( C ) THE RELEVANT CLAUSE IN THE CONTRACT OF EMPLOYMENT WAS NOT A PROVISION RELATING TO DEATH OR RETIREMENT AS CONTEMPLATED BY SECTION 6 ( 1 A ) ( B ) OF THE EQUAL PAY ACT 1970 .
11 IN VIEW OF THIS LEGAL PROBLEM , THE COURT OF APPEAL , BEFORE WHICH AN APPEAL WAS BROUGHT BY LLOYDS AGAINST THE DECISION OF THE EMPLOYMENT APPEAL TRIBUNAL , DECIDED TO REFER TO THE COURT OF JUSTICE QUESTIONS ON THE INTERPRETATION OF ARTICLE 119 OF THE EEC TREATY , ARTICLE 1 OF COUNCIL DIRECTIVE 75/117/EEC OF 10 FEBRUARY 1975 AND ARTICLES 1 AND 5 OF COUNCIL DIRECTIVE 76/207/EEC OF 9 FEBRUARY 1976 .
THE FIRST QUESTION
12 THE FIRST QUESTION SUBMITTED BY THE NATIONAL COURT IS WORDED AS FOLLOWS :
' ' 1 . ARE
( A ) CONTRIBUTIONS PAID BY AN EMPLOYER TO A RETIREMENT BENEFITS SCHEME ,
OR
( B)RIGHTS AND BENEFITS OF A WORKER UNDER SUCH A SCHEME
' PAY ' WITHIN THE MEANING OF ARTICLE 119 OF THE EEC TREATY? ' '
13 IT IS CLEAR FROM THE INFORMATION SUPPLIED BY THE NATIONAL COURT THAT THE FIRST QUESTION ASKS ESSENTIALLY , FIRST , UNDER ( A ), WHETHER SUMS OF THE KIND IN QUESTION PAID BY THE EMPLOYER IN THE NAME OF THE EMPLOYEE TO A RETIREMENT BENEFITS SCHEME BY WAY OF AN ADDITION TO THE GROSS SALARY COME WITHIN THE CONCEPT OF ' ' PAY ' ' WITHIN THE MEANING OF ARTICLE 119 OF THE TREATY .
14 UNDER THE SECOND PARAGRAPH OF ARTICLE 119 OF THE EEC TREATY , ' ' PAY ' ' MEANS , FOR THE PURPOSE OF THAT PROVISION , ' ' THE ORDINARY BASIC OR MINIMUM WAGE OR SALARY AND ANY OTHER CONSIDERATION , WHETHER IN CASH OR IN KIND , WHICH THE WORKER RECEIVES , DIRECTLY OR INDIRECTLY , IN RESPECT OF HIS EMPLOYMENT FROM HIS EMPLOYER ' ' .
15 SUMS SUCH AS THOSE IN QUESTION WHICH ARE INCLUDED IN THE CALCULATION OF THE GROSS SALARY PAYABLE TO THE EMPLOYEE AND WHICH DIRECTLY DETERMINE THE CALCULATION OF OTHER ADVANTAGES LINKED TO THE SALARY , SUCH AS REDUNDANCY PAYMENTS , UNEMPLOYMENT BENEFITS , FAMILY ALLOWANCES AND CREDIT FACILITIES , FORM PART OF THE WORKER ' S PAY WITHIN THE MEANING OF THE SECOND PARAGRAPH OF ARTICLE 119 OF THE TREATY EVEN IF THEY ARE IMMEDIATELY DEDUCTED BY THE EMPLOYER AND PAID TO A PENSION FUND ON BEHALF OF THE EMPLOYEE . THIS APPLIES A FORTIORI WHERE THOSE SUMS ARE REFUNDED IN CERTAIN CIRCUMSTANCES AND SUBJECT TO CERTAIN DEDUCTIONS TO THE EMPLOYEE AS BEING REPAYABLE TO HIM IF HE CEASES TO BELONG TO THE CONTRACTUAL RETIREMENT BENEFITS SCHEME UNDER WHICH THEY WERE DEDUCTED .
16 MOREOVER , THE ARGUMENT MENTIONED BY THE BRITISH GOVERNMENT THAT THE PAYMENT OF THE CONTRIBUTIONS IN QUESTION BY THE EMPLOYER DOES NOT ARISE OUT OF A LEGAL OBLIGATION TOWARDS THE EMPLOYEE IS NOT IN POINT SINCE THAT PAYMENT IS IN FACT MADE , IT CORRESPONDS TO AN OBLIGATION BY THE WORKER TO CONTRIBUTE AND IS DEDUCTED FROM HIS SALARY .
17 IN VIEW OF ALL THESE FACTS , IT IS THEREFORE NECESSARY TO REPLY TO QUESTION 1 ( A ) THAT A CONTRIBUTION TO A RETIREMENT BENEFITS SCHEME WHICH IS PAID BY THE EMPLOYER IN THE NAME OF THE EMPLOYEES BY MEANS OF AN ADDITION TO THE GROSS SALARY AND WHICH HELPS TO DETERMINE THE AMOUNT OF THAT SALARY IS ' ' PAY ' ' WITHIN THE MEANING OF THE SECOND PARAGRAPH OF ARTICLE 119 OF THE EEC TREATY .
18 IN VIEW OF THIS REPLY , THERE IS NO NEED TO EXAMINE THE SECOND PART OF THE FIRST QUESTION , QUESTION 1 ( B ), WHICH IS SUBSIDIARY TO QUESTION 1 ( A ).
THE SECOND QUESTION
19 IN ITS SECOND QUESTION , WHICH IS ALMOST IDENTICAL TO THE FIRST , THE NATIONAL COURT PUTS THE SAME PROBLEM TO THE COURT WITH REFERENCE TO ARTICLE 1 OF COUNCIL DIRECTIVE 75/117/EEC OF 10 FEBRUARY 1975 .
20 SINCE THE INTERPRETATION OF DIRECTIVE 75/117/EEC WAS REQUESTED BY THE NATIONAL COURT MERELY SUBSIDIARILY TO THAT OF ARTICLE 119 OF THE EEC TREATY , EXAMINATION OF THE SECOND QUESTION IS PURPOSELESS , HAVING REGARD TO THE INTERPRETATION GIVEN TO THAT ARTICLE .
21 MOREOVER , DIRECTIVE 75/117/EEC , WHOSE OBJECTIVE IS , AS FOLLOWS FROM THE FIRST RECITAL OF THE PREAMBLE THERETO , TO LAY DOWN THE CONDITIONS NECESSARY FOR THE IMPLEMENTATION OF THE PRINCIPLE THAT MEN AND WOMEN SHOULD RECEIVE EQUAL PAY , IS BASED ON THE CONCEPT OF ' ' PAY ' ' AS DEFINED IN THE SECOND PARAGRAPH OF ARTICLE 119 OF THE TREATY . ALTHOUGH ARTICLE 1 OF THE DIRECTIVE EXPLAINS THAT THE CONCEPT OF ' ' SAME WORK ' ' CONTAINED IN THE FIRST PARAGRAPH OF ARTICLE 119 OF THE TREATY INCLUDES CASES OF ' ' WORK TO WHICH EQUAL VALUE IS ATTRIBUTED ' ' , IT IN NO WAY AFFECTS THE CONCEPT OF ' ' PAY ' ' CONTAINED IN THE SECOND PARAGRAPH OF ARTICLE 119 BUT REFERS BY IMPLICATION TO THAT CONCEPT .
THE THIRD QUESTION
22 THE NATIONAL COURT ASKS FURTHER IN ITS THIRD QUESTION WHETHER , IF THE ANSWER TO QUESTION 1 IS IN THE AFFIRMATIVE , ' ' ARTICLE 119 OF THE EEC TREATY . . . ( HAS ) DIRECT EFFECT IN THE MEMBER STATES SO AS TO CONFER ENFORCEABLE COMMUNITY RIGHTS UPON INDIVIDUALS IN THE CIRCUMSTANCES OF THE PRESENT CASE ' ' .
23 AS THE COURT HAS STATED IN PREVIOUS DECISIONS ( JUDGMENT OF 8 APRIL 1976 IN CASE 43/75 , DEFRENNE ( 1976 ) ECR 455 AND JUDGMENT OF 27 MARCH 1980 IN CASE 129/79 , MACARTHYS LTD ( 1980 ) ECR 1275 ), ARTICLE 119 OF THE TREATY APPLIES DIRECTLY TO ALL FORMS OF DISCRIMINATION WHICH MAY BE IDENTIFIED SOLELY WITH THE AID OF THE CRITERIA OF EQUAL WORK AND EQUAL PAY REFERRED TO BY THE ARTICLE IN QUESTION , WITHOUT NATIONAL OR COMMUNITY MEASURES BEING REQUIRED TO DEFINE THEM WITH GREATER PRECISION IN ORDER TO PERMIT OF THEIR APPLICATION . AMONG THE FORMS OF DISCRIMINATION WHICH MAY BE THUS JUDICIALLY IDENTIFIED , THE COURT MENTIONED IN PARTICULAR CASES WHERE MEN AND WOMEN RECEIVE UNEQUAL PAY FOR EQUAL WORK CARRIED OUT IN THE SAME ESTABLISHMENT OR SERVICE , PUBLIC OR PRIVATE . IN SUCH A SITUATION THE COURT IS IN A POSITION TO ESTABLISH ALL THE FACTS ENABLING IT TO DECIDE WHETHER A WOMAN RECEIVES LESS PAY THAN A MAN ENGAGED IN THE SAME WORK OR WORK OF EQUAL VALUE .
24 THIS IS THE CASE WHERE THE REQUIREMENT TO PAY CONTRIBUTIONS APPLIES ONLY TO MEN AND NOT TO WOMEN AND THE CONTRIBUTIONS PAYABLE BY MEN ARE PAID BY THE EMPLOYER IN THEIR NAME BY MEANS OF AN ADDITION TO THE GROSS SALARY THE EFFECT OF WHICH IS TO GIVE MEN HIGHER PAY WITHIN THE MEANING OF THE SECOND PARAGRAPH OF ARTICLE 119 THAN THAT RECEIVED BY WOMEN ENGAGED IN THE SAME WORK OR WORK OF EQUAL VALUE .
25 ALTHOUGH , WHERE WOMEN ARE NOT REQUIRED TO PAY CONTRIBUTIONS , THE SALARY OF MEN AFTER DEDUCTION OF THE CONTRIBUTIONS IS COMPARABLE TO THAT OF WOMEN WHO DO NOT PAY CONTRIBUTIONS , THE INEQUALITY BETWEEN THE GROSS SALARIES OF MEN AND WOMEN IS NEVERTHELESS A SOURCE OF DISCRIMINATION CONTRARY TO ARTICLE 119 OF THE TREATY SINCE BECAUSE OF THAT INEQUALITY MEN RECEIVE BENEFITS FROM WHICH WOMEN ENGAGED IN THE SAME WORK OR WORK OF EQUAL VALUE ARE EXCLUDED , OR RECEIVE ON THAT ACCOUNT GREATER BENEFITS OR SOCIAL ADVANTAGES THAN THOSE TO WHICH WOMEN ARE ENTITLED .
26 THIS APPLIES IN PARTICULAR WHERE , AS IN THIS INSTANCE , WORKERS LEAVING THEIR EMPLOYMENT BEFORE REACHING A GIVEN AGE ARE , IN CERTAIN CIRCUMSTANCES , REFUNDED IN THE FORM OF A ' ' CONTRIBUTIONS EQUIVALENT PREMIUM ' ' AT LEAST A PROPORTION OF THE CONTRIBUTIONS PAID IN THEIR NAME BY THE EMPLOYER AND WHERE THE AMOUNT OF THE GROSS SALARY PAID TO THE WORKER DETERMINES THE AMOUNT OF CERTAIN BENEFITS AND SOCIAL ADVANTAGES , SUCH AS REDUNDANCY PAYMENTS OR UNEMPLOYMENT BENEFITS , FAMILY ALLOWANCES AND MORTGAGE OR CREDIT FACILITIES , TO WHICH WORKERS OF BOTH SEXES ARE ENTITLED .
27 IN THIS CASE THE FACT THAT CONTRIBUTIONS ARE PAID BY THE EMPLOYER SOLELY IN THE NAME OF MEN AND NOT IN THE NAME OF WOMEN ENGAGED IN THE SAME WORK OR WORK OF EQUAL VALUE LEADS TO UNEQUAL PAY FOR MEN AND WOMEN WHICH THE NATIONAL COURT MAY DIRECTLY ESTABLISH WITH THE AID OF THE PAY COMPONENTS IN QUESTION AND THE CRITERIA LAID DOWN IN ARTICLE 119 OF THE TREATY .
28 FOR THOSE REASONS , THE REPLY TO THE THIRD QUESTION SHOULD BE THAT ARTICLE 119 OF THE TREATY MAY BE RELIED UPON BEFORE THE NATIONAL COURTS AND THESE COURTS HAVE A DUTY TO ENSURE THE PROTECTION OF THE RIGHTS WHICH THIS PROVISION VESTS IN INDIVIDUALS , IN PARTICULAR IN A CASE WHERE , BECAUSE OF THE REQUIREMENT IMPOSED ONLY ON MEN OR ONLY ON WOMEN TO CONTRIBUTE TO A RETIREMENT BENEFITS SCHEME , THE CONTRIBUTIONS IN QUESTION ARE PAID BY THE EMPLOYER IN THE NAME OF THE EMPLOYEE AND DEDUCTED FROM THE GROSS SALARY WHOSE AMOUNT THEY DETERMINE .
THE TEMPORAL EFFECT OF THIS JUDGMENT
29 IN ITS WRITTEN AND ORAL OBSERVATIONS , LLOYDS HAD REQUESTED THE COURT TO CONSIDER THE POSSIBILITY , IF THE ANSWER TO THE THIRD QUESTION IS IN THE AFFIRMATIVE , OF LIMITING THE TEMPORAL EFFECT OF THE INTERPRETATION GIVEN BY THIS JUDGMENT TO ARTICLE 119 OF THE TREATY SO THAT THIS JUDGMENT ' ' CANNOT BE RELIED ON IN ORDER TO SUPPORT CLAIMS CONCERNING PAY PERIODS PRIOR TO THE DATE OF THE JUDGMENT ' ' .
30 IT MAINTAINS FOR THIS PURPOSE , FIRST , THAT THE PROBLEM OF THE COMPATIBILITY OF THE NATIONAL LAW WITH COMMUNITY LAW WAS RAISED ONLY AT THE STAGE OF THE APPEAL BROUGHT BEFORE THE EMPLOYMENT APPEAL TRIBUNAL AND , SECONDLY , THAT ACKNOWLEDGMENT BY THE COURT OF THE DIRECT EFFECT OF ARTICLE 119 OF THE TREATY WOULD LEAD , IN A CASE SUCH AS THE PRESENT , TO ' ' CLAIMS FOR THE RETROSPECTIVE ADJUSTMENT OF PAY SCALES COVERING A PERIOD OF YEARS ' ' .
31 AS THE COURT ACKNOWLEDGED IN ITS ABOVE-MENTIONED JUDGMENT OF 8 APRIL 1976 , ALTHOUGH THE CONSEQUENCES OF ANY JUDICIAL DECISION MUST BE CAREFULLY TAKEN INTO ACCOUNT , IT WOULD BE IMPOSSIBLE TO GO SO FAR AS TO DIMINISH THE OBJECTIVITY OF THE LAW AND THUS COMPROMISE ITS FUTURE APPLICATION ON THE GROUND OF THE REPERCUSSIONS WHICH MIGHT RESULT , AS REGARDS THE PAST , FROM SUCH A JUDICIAL DECISION .
32 IN THE SAME JUDGMENT THE COURT ADMITTED THAT A TEMPORAL RESTRICTION ON THE DIRECT EFFECT OF ARTICLE 119 OF THE TREATY MIGHT BE TAKEN INTO ACCOUNT EXCEPTIONALLY IN THAT CASE HAVING REGARD , FIRST , TO THE FACT THAT THE PARTIES CONCERNED , IN THE LIGHT OF THE CONDUCT OF SEVERAL MEMBER STATES AND THE VIEWS ADOPTED BY THE COMMISSION AND REPEATEDLY BROUGHT TO THE NOTICE OF THE CIRCLES CONCERNED , HAD BEEN LED TO CONTINUE , OVER A LONG PERIOD , WITH PRACTICES WHICH WERE CONTRARY TO ARTICLE 119 AND HAVING REGARD , SECONDLY , TO THE FACT THAT IMPORTANT QUESTIONS OF LEGAL CERTAINTY AFFECTING NOT ONLY THE INTERESTS OF THE PARTIES TO THE MAIN ACTION BUT ALSO A WHOLE SERIES OF INTERESTS , BOTH PUBLIC AND PRIVATE , MADE IT UNDESIRABLE IN PRINCIPLE TO REOPEN THE QUESTION OF PAY AS REGARDS THE PAST .
33 IN THIS CASE NEITHER OF THESE CONDITIONS HAS BEEN FULFILLED , EITHER IN RESPECT OF THE INFORMATION AVAILABLE AT PRESENT TO THE CIRCLES CONCERNED AS TO THE SCOPE OF ARTICLE 119 OF THE TREATY , IN THE LIGHT IN PARTICULAR OF THE DECISIONS OF THE COURT IN THE MEANTIME ON THIS SUBJECT , OR IN RESPECT OF THE NUMBER OF THE CASES WHICH WOULD BE AFFECTED IN THIS INSTANCE BY THE DIRECT EFFECT OF THAT PROVISION .
THE FOURTH QUESTION
34 AS THE FOURTH QUESTION WAS ONLY SUBMITTED TO THE COURT OF JUSTICE BY THE NATIONAL COURT IN CASE THE FIRST TWO QUESTIONS WERE ANSWERED IN THE NEGATIVE , EXAMINATION OF IT HAS BECOME PURPOSELESS .
Decision on costs
THE COSTS INCURRED BY THE GOVERNMENT OF THE UNITED KINGDOM AND THE COMMISSION OF THE EUROPEAN COMMUNITIES , WHICH HAVE SUBMITTED OBSERVATIONS TO THE COURT , ARE NOT RECOVERABLE . AS THESE PROCEEDINGS ARE , IN SO FAR AS THE PARTIES TO THE MAIN ACTION ARE CONCERNED , IN THE NATURE OF A STEP IN THE ACTION PENDING BEFORE THE NATIONAL COURT , THE DECISION ON COSTS IS A MATTER FOR THAT COURT .
Operative part
ON THOSE GROUNDS ,
THE COURT
IN ANSWER TO THE QUESTIONS REFERRED TO IT BY THE COURT OF APPEAL , LONDON , BY ORDER OF 19 FEBRUARY 1980 HEREBY RULES :
1 . A CONTRIBUTION TO A RETIREMENT BENEFITS SCHEME WHICH IS PAID BY AN EMPLOYER IN THE NAME OF EMPLOYEES BY MEANS OF AN ADDITION TO THE GROSS SALARY AND WHICH THEREFORE HELPS TO DETERMINE THE AMOUNT OF THAT SALARY CONSTITUTES ' ' PAY ' ' WITHIN THE MEANING OF THE SECOND PARAGRAPH OF ARTICLE 119 OF THE EEC TREATY .
2 . ARTICLE 119 OF THE TREATY MAY BE RELIED UPON BEFORE THE NATIONAL COURTS AND THESE COURTS HAVE A DUTY TO ENSURE THE PROTECTION OF THE RIGHTS WHICH THIS PROVISION VESTS IN INDIVIDUALS , IN PARTICULAR IN A CASE WHERE , BECAUSE OF THE REQUIREMENT IMPOSED ONLY ON MEN OR ONLY ON WOMEN TO CONTRIBUTE TO A RETIREMENT BENEFITS SCHEME , THE CONTRIBUTIONS IN QUESTION ARE PAID BY THE EMPLOYER IN THE NAME OF THE EMPLOYEE AND DEDUCTED FROM THE GROSS SALARY WHOSE AMOUNT THEY DETERMINE . | 6 |
FIFTH SECTION
CASE OF ANEVA AND OTHERS v. BULGARIA
(Applications nos. 66997/13 and 2 others – see appended list)
JUDGMENT
STRASBOURG
6 April 2017
FINAL
06/07/2017
This judgment has become final under Article 44 § 2 of the Convention. It may be subject to editorial revision.
In the case of Aneva and Others v. Bulgaria,
The European Court of Human Rights (Fifth Section), sitting as a Chamber composed of:
Angelika Nußberger, President,Erik Møse,Faris Vehabović,Yonko Grozev,Síofra O’Leary,Mārtiņš Mits,Lәtif Hüseynov, judges,and Milan Blaško, Deputy Section Registrar,
Having deliberated in private on 14 March 2017,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in three applications (nos. 66997/13, 77760/14 and 50240/15) against the Republic of Bulgaria lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by four Bulgarian nationals. The first application was lodged by Ms Vladimira Angelova Aneva (“the first applicant”) and Mr Mihail Antonov Ivanov (“the second applicant”), who are mother and son, on 8 October 2013. The second application was lodged by Ms Slaveyka Vladimirova Kicheva (“the third applicant”) on 10 December 2014. The third application was lodged by Mr Stanimir Vasilev Drumev (“the fourth applicant”) on 25 September 2015.
2. The applicants in the first application were represented before the Court by Mr A. Kashamov, a lawyer practising in Sofia. The applicants in the second and third applications were represented before the Court by Ms A. Kachaunova, from the Bulgarian Helsinki Committee. The Bulgarian Government (“the Government”) were represented by their Agents, Ms R. Nikolova, Ms L. Gyurova and Ms D. Dramova, from the Ministry of Justice.
3. The first, third and fourth applicants alleged that they had been unable to have contact with their children, and the second applicant with his mother, for a prolonged period, despite final domestic judgments awarding the first, third and fourth applicants custody or visiting rights.
4. The applications were communicated to the Government on 14 December 2015, 24 August 2015 and 14 December 2015 respectively.
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
A. The case of the first and second applicants
5. The first and second applicants were born in 1981 and 2002 respectively, and live in Sofia.
1. Background
6. The first applicant married A.I. in 2001 and their son, the second applicant, was born in 2002. According to the first applicant, her husband started abusing her psychologically after the marriage, which grew worse after the child was born.
2. Proceedings for interim measures
7. The first applicant filed for divorce in 2004. She applied for interim measures in the same proceedings, seeking custody of the child while the proceedings were ongoing. The Sofia District Court granted her application for interim measures on 11 May 2005, giving her custody of the child.
8. In the meantime, in January 2005, the second applicant visited his father for two days. A.I. then took the child back to the first applicant and insisted that they both return to live with him. When the first applicant refused, he put the child back in the car and drove away, saying that she could only see her son at his apartment.
9. A.I. has kept the second applicant with him ever since.
3. Divorce proceedings
10. On 23 June 2006 the first-instance court granted the couple a divorce, finding that the husband was responsible for the marriage’s failure. It granted custody of the child to the first applicant and limited A.I.’s contact rights to two hours twice a month in the presence of the first applicant and another adult designated by her. The decision was upheld in ordinary appeal on 14 June 2007 and in cassation appeal on 1 October 2008.
4. Enforcement proceedings
(a) Enforcement of the interim measures
11. On 13 May 2005 the first applicant obtained a writ of enforcement on the basis of the decision on interim measures. She brought enforcement proceedings later the same month.
12. The bailiff scheduled handovers of the child to the first applicant on the following dates: 14 June 2005, 15 July 2005, 25 August 2005, 30 September 2005, 21 October 2005, 18 November 2005, 22 November 2005, 26 January 2006, 5 March 2008, 14 July 2008, 5 August 2008 and 20 August 2008. A.I. did not come to any of those appointments or cooperate with the bailiff.
13. On 19 September 2005 the bailiff fined A.I. about 25 euros (EUR) for failing to comply with a judicial decision.
14. Subsequently, A.I. went to the bailiff’s office and challenged her for having fined him. As a police officer, he threatened to fine her for wrongfully crossing the street as soon as she left her office. A.I. was dismissed from the police on 17 January 2007 as a result of that conduct. The order for his dismissal referred to his systematic obstruction of the enforcement of a final judicial decision and to conduct damaging to the image of the police.
15. On 22 November 2006 the Sofia District Court ordered that the child be removed from A.I.’s home and handed over to the first applicant on the basis of Article 71 § 1 of the Family Code of 1985. On 4 January 2007 the first applicant, accompanied by a lawyer and several police officers, went to the village where A.I. was living with the child and spoke to both A.I. and A.I.’s father. A.I. categorically refused to hand the child over, thus failing to comply either with the court order of 22 November 2006 or the decision on interim measures of May 2005.
(b) Enforcement of the final custody judgment
16. The first applicant obtained a writ of enforcement in October 2008 in respect of the final judgment on the divorce and on granting custody to her.
17. On 11 December 2008, 5 March 2009, 2 September 2009 and 22 December 2009 the bailiff unsuccessfully attempted to hand the child over to the first applicant. On those occasions A.I. either failed to arrive for the appointments or did not take the child to them. When the bailiff and the first applicant visited his house on 11 December 2008, A.I. had left a note on his front door addressed to the first applicant and all accompanying individuals. The note stated that he was firmly opposed to handing the child over to her.
18. The bailiff fined A.I. in July 2008 and in September 2009 for failure to cooperate in the enforcement proceedings. In 2009 the first applicant did not attend two of the scheduled meetings for handing over of the child, indicating in a letter to the bailiff that prior work commitments prevented her from attending one of those meetings. It would appear that those meetings had been scheduled by the bailiff without prior consultation with the applicant as to her availability.
19. On 30 December 2009 the Pazardzhik District Court suspended the enforcement proceedings brought by the first applicant in relation to the final judgment of 1 October 2008. It acted in response to an application from A.I. for interim measures (обезпечителни мерки) in the context of proceedings which he had brought to seek the limitation of the first applicant’s parental rights and the granting of custody to him.
20. The first applicant asked the Pazardzhik Regional Court to quash the suspension order. The court rejected her application in a final decision of 15 June 2010.
21. Following a change of jurisdiction, the case was sent to the Sofia District Court. The proceedings for a change of custody were terminated by the Sofia City Court in a final decision of 19 June 2013 after A.I. withdrew his application.
22. In the meantime, between April 2008 and July 2010, representatives of the social services, accompanied by the police, the mayor and the first applicant, repeatedly visited the house where A.I. lived with the second applicant. They met the child’s teachers and his paternal grandparents. On 20 April 2010 the social services sent a report to the police in which they concluded that while A.I. was caring for the second applicant appropriately, the child needed to have contact with his mother to ensure his healthy development.
23. The social services renewed their involvement in the case in 2012. After A.I. had expressed an intention to cooperate, the social services met him and the second applicant a number of times between September 2012 and April 2014. During the meetings the second applicant consistently expressed the wish to continue to live with his father.
5. Other proceedings
(a) Criminal proceedings against A.I.
24. The first applicant brought criminal proceedings against A.I. for obstructing the enforcement of the 2005 and 2008 decisions on the exercise of parental rights.
25. On 13 July 2009 the first-instance court found A.I. guilty of obstructing the implementation of final judicial decisions. The court observed that A.I. had demonstrated a belief that he was beyond the reach of the justice system and could act with impunity. The court also held that the particularly long period in which A.I. had kept the child, namely between his third and seventh birthday, was an aggravating circumstance. The court nevertheless absolved A.I. of criminal responsibility and, instead, imposed on him a fine of EUR 2,400 as an administrative punishment under Article 78a § 1 of the Criminal Code. The decision was upheld on appeal by the Pazardzhik Regional Court on 8 October 2009 in a final judgment.
(b) Police assistance for the transfer of the second applicant
26. On 17 December 2009 the Supreme Administrative Court quashed an earlier decision by the police to refuse to provide assistance for the transfer of the second applicant and ordered it to determine the best way to arrange it. The social services cooperated with the police towards organising such a transfer, which was due to take place on 14 January 2010. That procedure was not carried out because the child refused to go with the first applicant.
B. The case of the third applicant
27. The third applicant was born on 29 August 1972 and lives in Sofia.
1. Background
28. The third applicant gave birth to a child, P.P., in July 2005 while she was living with the child’s father, Kh.P. The parents split up in March 2009 and the third applicant moved out with the child and his two elder siblings, who were not Kh.P.’s children.
2. Interim measures and judgments on custody
29. On 1 July 2010, during judicial proceedings on custody, the Sofia District Court determined interim measures, giving custody to the third applicant. She started living with her child alone thereafter.
30. An expert report of 19 December 2010 drawn up in the context of the proceedings concluded that the child was strongly attached to both parents and had expressed a wish to live with his mother while continuing to see his father.
31. In a final decision of 29 October 2013 the Supreme Court of Cassation gave custody of the child to the third applicant.
3. The child’s separation from the third applicant
32. On 5 September 2011, after one of his scheduled meetings with the child, Kh.P. did not return the latter to the third applicant’s home. Since that day the third applicant has only seen the child a few times and the meetings have always been in an institutional setting.
4. Attempted enforcement of the court decision granting custody to the third applicant
33. On 13 September 2011 the third applicant visited Kh.P.’s home in order to agree on the child’s return, but Kh.P. prevented the child from leaving with her. Instead, according to the third applicant, he assaulted her in the presence of the child by hitting her on the head, pushing her against the lift, and knocking her to the ground. The third applicant submitted that thereafter she had repeatedly attempted to reach an agreement with the child’s father on the child’s return to live with her, as well as that she had contacted two private bailiffs over the following months but neither of them had taken any action because they considered that the case was too difficult.
34. On 17 October 2012 the Sofia District Court issued a writ of enforcement to the third applicant on the basis of the court’s decision on interim measures of July 2010.
35. A first attempt by the bailiff to get the child handed over to the third applicant took place on 11 December 2012 but it failed as Kh.P. did not take the child to the meeting. The bailiff voiced his intention to seek police assistance to summon Kh.P. to the following meeting.
36. The third applicant met the child on 11 January 2013 for the first time since he had been taken away by his other parent on 5 September 2011. The meeting took place in the presence of Kh.P. and a social worker. The child was reserved at the beginning but gradually warmed up to his mother, told her about his school and other activities, and allowed her to hug and kiss him.
37. A second meeting between the third applicant and her child took place on 18 January 2013. The child arrived in a negative frame of mind and acted coldly towards the third applicant, refused to take the presents she had brought for him and asked to leave with his father.
38. In two reports issued on 25 January 2013 and 1 February 2013 the social services found that, while the child had developed a solid emotional connection with the father, he had not lost his bond to his mother. The father had to show approval and encouragement for the relationship between the child and the mother for it to develop healthily.
39. The bailiff attempted to have the third applicant meet with the child on five more occasions – 28 January 2013, 19 April 2013, 26 April 2013, 31 May 2013 and 28 June 2013. Kh.P. did not attend the first four meetings nor send the child, despite having been summoned to some of them by the police. On 26 April and 31 May 2013 the bailiff fined him for his failure to take the child to the appointments scheduled on those two days. One of those fines was subsequently quashed in court.
40. When Kh.P. took the child to meet with the third applicant on 28 June 2013, the child became visibly upset and tearful at the sight of her. He refused to hug her or otherwise engage with her. A psychologist present at the meeting concluded that it was impossible to hand the child over at that point in time as he was in a state of psychological stress and had a clearly negative attitude to his mother. As a result the bailiff postponed the handover of the child and urged both parents to actively cooperate so that the child could gradually accept his mother. The bailiff noted that the other parent played a key role in that process and that his constructive attitude was crucial for restoring the mother-child relationship.
41. In June 2013 the social services recommended that the third applicant, Kh.P. and the child have six months of counselling. Kh.P. disapproved of psychologists working with his son, insisted that such sessions were a form of child exploitation and said that the mere mention of the child’s mother gave his son headaches, which in turn impeded his ability to play football. Kh.P. did not allow the child to see his mother. He informed the psychologists that he and the child slept in the same bed at night and avoided their attempts to discuss the child’s psychological development. Kh.P. instead emphasised his own financial resources and stability.
42. A psychologist met the child once during the six-month counselling period. The child refused to speak about the third applicant and only referred to her as “M”. The psychologist concluded that the child’s speech was full of inconsistent statements which showed that his attitude to her was being manipulated. The father was categorically opposed to contact between the child and the mother, which meant the child was afraid to express his need and wish to maintain a relationship with her. The child missed having contact with his mother, but could not express that openly for fear of his father’s disapproval. The child suffered from parental alienation syndrome and there was a risk to his emotional and psychological development. On 28 August 2013 the social centre put an end to the counselling because of Kh.P.’s lack of cooperation, in not taking the child to the appointments.
43. A psychological assessment of the child and the situation with his parents was drawn up in September 2013. It concluded that the child was experiencing a chronic emotional crisis. His categorical rejection of the third applicant was at the origin of parental alienation syndrome.
44. A new attempt to voluntarily hand the child over to the third applicant took place on 10 June 2014 but failed because the other parent did not take the child to the meeting. The bailiff postponed any further enforcement measures. The following day, 11 June 2014, the child, Kh.P. and the third applicant met at the social centre. Kh.P. stated that he would not allow any meetings in the future and the third applicant has not met her child since.
45. An expert report drawn up on 17 June 2014 found that Kh.P. exhibited a tendency to verbal aggression, that he continuously demeaned the mother and criticised her personality and that this had turned the child into “a child at risk”. The obsessive and controlling love demonstrated by him towards the child risked making him rebel in the future; the permanent pitching of the child against the third applicant had led to psychosomatic disorders, as evidenced by the child’s frequent headaches.
46. On 11 July 2014 the third applicant asked the bailiff to schedule a new date for implementing the court’s decision and to not suspend enforcement. She also asked the bailiff to direct the child to attend mandatory sessions with a psychologist and psychiatrist before his actual handing over to her, given that he needed specialist assistance to overcome his feelings of alienation towards her.
47. On 22 July 2014 the third applicant asked the social services to provide her child with psychological counselling and support. On 8 August 2014 she complained to the Minister of Justice about the bailiff’s inability to enforce the court decision granting custody to her. The Ministry replied on 21 April 2015 that the bailiff had done nothing wrong in the exercise of her functions.
48. On 3 September 2014 she asked the bailiff to order weekly meetings between her and the child on the premises of the social services, emphasising that that was something to which Kh.P. had agreed but with which he had not complied. The third applicant also stressed that the child’s health and well-being were the most important aspects of the process and asked the bailiff to coordinate all the actions related to the child’s attendance at counselling sessions. On 5 September 2014 the third applicant sent documents to the bailiff issued by the social services directing the child to attend psychological counselling and support with a view to re‑establishing contact with his mother. On 7 November 2014 the social services reported to the bailiff that the support work which was to be carried out with the child had not started as the father had repeatedly failed to take the child to the social centre.
49. On 22 October 2014 the third applicant again asked the social services to provide counselling for her child. The social services replied on 29 October 2014 that they had organised new sessions for the child and had apprised the other parent accordingly. They also informed the third applicant that the bailiff had ordered the child to report to the social centre every Thursday at 4 p.m. in order to meet with the third applicant. The first meeting was set for 30 October 2014 but did not take place as Kh.P. did not take the child to it.
50. The third applicant subsequently received a letter from the State Agency for Child Protection, which directed her to seek counselling from the social services. The report drawn up in that connection indicated that the negative attitude displayed by the father towards the mother had been adopted by the child, who refused to meet his mother. It was necessary to work with the child for him to overcome his negative attitude to his mother.
51. On 28 November 2014 the third applicant wrote to the bailiff, copying in the social services, and expressed her concern about the child’s well-being. She asked for the judicial decision granting custody to her to be enforced, pointing out that the child’s well-being was of paramount importance and had to be considered in any related actions.
52. A report, dated 25 March 2015 and drawn up by the municipal social services, stated that specialists had met with the third applicant on ten occasions. She was found to be cooperative and willing to do whatever was necessary in order to facilitate contact with her child. The report concluded that it was not in the child’s interests to continue to live with his father given that he manipulated him emotionally. The child did not dare to oppose the father as he was entirely dependent on him. The child’s alienation from the mother was damaging for him as he needed her close involvement in his life. It was necessary to impose mandatory psychological counselling on the father in order for him to cooperate, otherwise the child had to be taken out of his home and either entrusted to the third applicant or placed in a “neutral environment”. The placing of the child into a foster home had to be only considered as a last resort, if the father continued to obstruct contact with the mother.
53. The bailiff scheduled another meeting, for 23 April 2015, to hand the child over to the third applicant but Kh.P. again failed to appear. The bailiff postponed further enforcement to an unspecified date. The third applicant signed the report drawn up by the bailiff, expressing her discontent at the bailiff’s inability to enforce the judicial decision.
5. Criminal proceedings against Kh.P.
54. On 8 October 2012 the third applicant complained to the prosecutor under Article 182 § 2 of the Criminal Code about Kh.P.’s active obstruction of the enforcement of the judicial decision granting custody to her. The prosecutor opened criminal proceedings and informed the third applicant of his decision on 19 April 2013.
55. A full psychological expert report on the child was drawn up on 2 February 2014 in the context of those proceedings. The report’s conclusion was that the child should not be forced to see his mother at that point in time. What was needed was systematic good-faith efforts by the father aimed at improving the child’s attitude to his mother. Pressure from public institutions for the child to see his mother was likely to have a negative impact on him and so developing a relationship with his mother had to happen gradually. The report emphasised that if the child were to receive his father’s support he would in all likelihood open up to his mother and develop a close relationship with her.
56. Kh.P. was acquitted at the end of the proceedings in a final judgment of 7 July 2015 by the Sofia City Court.
6. Proceedings for domestic violence against the third applicant
57. On 26 July 2013, the child, represented by Kh.P., brought court proceedings against the third applicant, alleging acts of domestic violence by her. The child alleged, through his father, that he had been put under constant psychological pressure by his mother, which had led to sleep disturbances and restlessness and a fear that she could appear at any time in the street and kidnap him. He claimed that he had developed a headache, felt sick and had even vomited during the latest attempt to reunite him with his mother on 28 June 2013. Experts questioned in the proceedings found that the child tended to identify himself with the father and his active denial of his mother was damaging for him. The experts concluded that it was imperative for the child’s well-being to provide him with urgent psychological therapy.
58. On 20 December 2013 the first-instance court rejected an application for a restraining order on the third applicant. In particular, the court found the complaint about psychological violence ill-founded as it had been based on the mother’s repeated attempts to have the bailiff hand the child over to her in accordance with the court’s decision. The court held that the third applicant had been right to seek effective enforcement of the decision granting custody to her, just as Kh.P. had been obliged to comply with that decision. The court concluded that the child’s well-being was at risk as a result of the ongoing, open animosity between the parents and ruled that a copy of the judgment should be sent to the social services with a view to them taking appropriate measures. There is no information on file about whether that court’s decision was appealed against.
7. Proceedings for change of custody
59. Kh.P. brought proceedings in 2014 to be given custody of the child. The Sofia District Court rejected his application on 29 July 2015.
C. The case of the fourth applicant
60. The fourth applicant was born on 14 March 1973 and lives in Stara Zagora region.
1. The facts as submitted by the fourth applicant
61. On 13 February 2012 the fourth applicant’s marriage to R.D. was dissolved by a court decision which also determined his contact rights with his child, who had been born in 2009. According to the decision, the fourth applicant was to see the child every first and third weekend of the month between 9 a.m. on Saturday and 6 p.m. on Sunday, and for one month during the summer holidays. Immediately after an argument between him and the child’s mother on 15 June 2012, the mother started preventing him from having contact with his child.
62. The fourth applicant brought forced enforcement proceedings in February 2013, seeking the effective implementation of his contact rights. According to him, the bailiff informed him that as the meetings with the child were scheduled to take place at the weekend, when the bailiff was off work, the fourth applicant would be better being accompanied to the meetings by witnesses. Those individuals were to testify about what they saw by signing a declaration every time he encountered difficulties in seeing the child. The fourth applicant attempted to see the child on numerous occasions but his former wife continued to place obstacles in his way. He submitted seven declarations about such incidents, all drawn up in the course of 2013. The bailiff fined the mother once, setting the sum at about EUR 50.
63. The fourth applicant turned to the Child Protection Agency a number of times and the agency urged the mother to allow contact between the child and the fourth applicant, as set out in the court decision of 13 February 2012.
64. Notwithstanding those efforts, the fourth applicant submitted that he was still unable to see the child owing to the obstacles created by the mother.
65. In July 2013 the fourth applicant complained to the prosecutor. In August 2013 the prosecutor refused to open criminal proceedings, finding in particular that the child’s mother had earlier been fined for impeding contact between the child and the fourth applicant, and that it would be unlawful to sanction her twice for the same offence. On appeal, the higher prosecutor returned the case for further examination. In September 2013 the district prosecutor opened criminal proceedings against the child’s mother for obstructing the implementation of a judicial decision. The prosecutor terminated those proceedings on the basis of the fact that the child systematically refused to spend time alone with her father, but the first‑instance court later quashed that decision and returned the case for further consideration.
66. On 21 November 2014 a different district prosecutor again terminated the proceedings, a decision that was upheld by courts at two levels of jurisdiction, on 17 December 2014 and 4 May 2015 respectively. The highest court involved, the Stara Zagora Regional Court, found more specifically that instead of pursuing a constructive dialogue with the child’s mother with a view to seeing the child, the fourth applicant had resorted to forced enforcement proceedings, which had been unsuitable in the circumstances and had meant the child had been scared to go with him as he had always been accompanied by strangers.
2. Additional facts submitted by the Government after communication
(a) Divorce and contact rights granted to the fourth applicant
67. The fourth applicant applied for a divorce on 15 June 2011. The court granted it on 13 February 2012, granting custody to the mother, R.D., and giving contact rights to the applicant. R.D. did not participate in those proceedings; she was represented by a court-appointed lawyer as the fourth applicant had stated that he did not know where his wife could be contacted to be summoned. The fourth applicant continued to live with R.D. and the child at their family home until 15 June 2012.
68. On the latter date an argument erupted between the fourth applicant and R.D., following which he left the family home. On 21 June 2012 R.D. instructed a lawyer to file for divorce on her behalf. The lawyer informed her that she was already divorced and had been so since 13 February 2012. Her former husband had also married another woman two weeks after that judgment had become final, in March 2012.
69. On 15 July 2013 R.D. sought a change in the arrangements for contact between the fourth applicant and the child. She expressed serious concerns about the child’s well-being and, in particular, voiced a fear that the father, having acted deceitfully in the past, might emigrate to Canada with his new wife, taking the child without R.D.’s agreement or knowledge. She specified that the fourth applicant had proposed that she give up the child so that his new wife could adopt her. She also stated that he had not sought to have contact with the child since 15 June 2012 and had arrived at her dwelling on 20 April 2013 for the first time with several strangers; that had scared the child and she had refused to go with her father.
70. The fourth applicant submitted during those proceedings that he had had a hernia operation in July 2012 and had been put on sick leave until 31 March 2013. As a result, he had been unwell and had not been in a position to collect the child, whom he had only seen at her kindergarten. He had been on bad terms with R.D. and that was the reason he had not called to enquire about the child’s well-being. In September 2012 he had attempted to meet his daughter but R.D. had kept the child away from him and had refused to let them have any contact with each other.
71. The social services submitted a report concluding that as the fourth applicant had not seen the child for many months in a row the relationship between the two of them had broken down. They recommended that contact between him and the child take place, at least temporarily, in the presence of the mother.
72. On 10 January 2014 the first-instance court granted R.D.’s application for limiting the father’s contact rights with the child to visits without sleepovers. It concluded on the basis of a number of reports by social services that the relationship between the fourth applicant and the child had broken down. That decision was upheld on appeal on 30 April 2014.
(b) Enforcement of the fourth applicant’s contact rights
73. On 27 July 2012 the fourth applicant complained to social services that R.D. had been preventing him from seeing his daughter since 15 June 2012 and that the mother was not caring for the child appropriately. He stated that it was the latter’s grandmother, who suffered from a psychiatric condition, who was the child’s main care-giver. The social services carried out an inquiry and established in a report of 3 September 2012 that the child was not being brought up by her grand-mother but enjoyed the daily care and support of her mother. They also found that R.D. had not been preventing contact between the child and the applicant, but that the fourth applicant himself had not been seeking contact with his child. They had informed him that he had to meet his daughter regularly and that she needed the support and care of both of her parents.
74. On 22 February 2013 the fourth applicant asked the bailiff to start enforcement proceedings on the basis of a writ of enforcement obtained on 29 June 2012. On 27 February 2013 the bailiff asked R.D. to hand the child over to the fourth applicant in line with his contact rights. R.D. replied on 28 February 2013 that the father had not sought any contact with the child since 15 June 2012, when he had left the family home, and had not telephoned to ask about the child’s physical or emotional state. R.D. pointed out that she was aware of the arrangements for contact between him and the child, and had not opposed any meetings between them.
75. The applicant complained to the bailiff on 1 and 16 March 2013 that R.D. had not taken the child to meet him in a café located about 30 metres from R.D.’s home. The bailiff replied that the fourth applicant was expected to collect the child from the house and not from cafés or other locations of his own choosing.
76. The bailiff scheduled a handover of the child to the fourth applicant for 12 August 2013 and R.D. took the child to that appointment. However, the bailiff did not enforce it as the child refused to go with her father. The bailiff scheduled a new appointment, 19 August 2013, for a handover for a contact meeting and R.D. took the child along to it. In the meantime, on 16 August 2013 the fourth applicant withdrew his request to use his right to spend a month with the child during the holidays. Despite that withdrawal, the bailiff fined R.D. on 19 August 2013 for not complying with the contact arrangements in favour of the fourth applicant.
77. The bailiff further fined R.D. respectively on 28 May 2013, 11 July 2013 and 9 October 2013, referring to her continued failure to hand the child over to the father, beginning from 22 February 2013. R.D. brought judicial review proceedings in respect of the last fine, submitting that she had systematically prepared the child for her two-day stays with her father, but that the child had regularly refused to go with him after he had arrived at meetings in the company of strangers. On 6 November 2013 the Stara Zagora Regional Court quashed the fine of 9 October 2013. The court held that the bailiff should have attempted different means for enforcing the judgment before resorting to repeated fines. It set out his prerogatives under the law and emphasised that the bailiff was expected to be present when the child was handed over and to draw up reports on the particular circumstances, instead of relying on declarations signed by the parties or by individuals selected by them.
78. Subsequently, the fourth applicant requested that further fines be imposed on R.D. for not being at home when he had gone to take the child. The bailiff refused on two occasions, finding that the dates in question had not been part of the applicant’s visiting schedule. R.D. informed the bailiff that the fourth applicant had also arrived at her home in order to collect the child on days which had not been in the visiting schedule.
79. The fourth applicant informed the bailiff on 28 October 2013 that he would not be in a position to meet his child for the foreseeable future owing to health problems. Thereafter, on 22 February 2014, without prior notice and on a day which was not part of the schedule for visits, he complained to the bailiff that R.D. and the child had not been at home when he had attempted to collect her. Subsequently, on 1 March 2014 and 25 April 2014 he failed to collect the child as scheduled. After being asked by the bailiff to state whether he wanted to resume contact with the child, the fourth applicant confirmed on 2 April 2014 that he did.
80. The bailiff fined R.D. on 13 May 2014 because she had failed since 22 March 2013 to hand the child over to the fourth applicant. The Stara Zagora Regional Court quashed the fine on 20 June 2014 in a final decision, finding that R.D. had not impeded enforcement. R.D. informed the bailiff that the fourth applicant had failed to collect the child on 11 June 2014 as scheduled.
(c) Criminal proceedings brought by the fourth applicant
81. In a final decision of 4 May 2015, the Stara Zagora Regional Court dismissed the complaint made by the fourth applicant in criminal proceedings he had brought against R.D. in July 2013. The court established that he had divorced R.D. without her knowledge in March 2012 and had continued living with her and the child until 15 June 2012. Immediately after learning later that month about the divorce and the contact regime, R.D. had sought to meet the fourth applicant in order to discuss and arrange his meetings with the child. He had not gone to a scheduled appointment at the end of June 2012 and had told R.D. over the telephone, something he had himself admitted to the prosecutor, that there was nothing to discuss with her. The court concluded that that demonstrated, on the one hand, R.D.’s willingness and readiness to comply with the contact regime and, on the other hand, the fourth applicant’s categorical refusal to have a dialogue with the child’s mother.
82. It was likewise established that after he had left the family home in June 2012 the applicant had not sought contact with the child for a number of months. He had also not called to ask about her well-being although that would have been fully compatible with his state of health at the time. That had led to the breakdown of his relationship with the child. Further, he had thereafter only sought contact with the child via forced enforcement proceedings in which he had gone to collect the child in the company of strangers. He had also at times sought meetings on days that had not been part of his visiting schedule while omitting to seek contact on days that had been set as part of the schedule.
II. RELEVANT DOMESTIC LAW
A. Enforcement of judgments
83. In accordance with Article 404 of the Code of Civil Procedure of 2008 (“the 2008 Code”) final judicial decisions can be subject to forced enforcement. Article 528 of the 2008 Code provides that a bailiff can impose fines on a person who fails to comply with a final court order on parental rights to hand over a child. Every instance of such a failure can be fined. In addition, the bailiff may request assistance from the social services and municipal and police authorities. In the event that the parent who is obliged to hand the child over does not do so voluntarily, the bailiff with the assistance of the police authorities and of the mayor of the municipality can also take the child by force and hand him or her over to the entitled parent.
84. Under Article 529 of the 2008 Code, the police can arrest a parent who poses obstacles to the handover of a child, following which they immediately notify the prosecution.
85. A person with a judgment in their favour can appeal in court against a bailiff’s refusal to carry out an action requested by that person, or against a bailiff’s decision to terminate or suspend enforcement proceedings (Article 435 of the 2008 Code).
B. Criminal sanctions for failure to ensure contact with a child
86. According to Article 182 § 2 of the Criminal Code of 1968 a parent or another relative who prevents contact with a child or the enforcement of a court judgment on custody can be sentenced to probation, fined up to EUR 153 and, in serious cases, sentenced to up to six months’ imprisonment or to a fine of up to EUR 1,533.
C. Children’s place of residence
87. According to Article 71 § 1 of the Family Code of 1985, minors must live with their parents. If the children do not comply with this obligation, the district court issues an order for the child’s return to his or her parents. The order can be appealed against before the regional court and an appeal does not suspend enforcement.
THE LAW
I. JOINDER OF THE APPLICATIONS
88. Given their similar factual and legal background, the Court decides that the three applications should be joined, pursuant to Rule 42 § 1 of the Rules of Court.
II. ALLEGED VIOLATION OF ARTICLE 8 OF THE CONVENTION
89. The first, third and fourth applicants complained that the prolonged impossibility for them to have contact with their children, and the second applicant to have contact with his mother, despite final domestic judgments awarding the adult applicants custody or visiting rights, had breached their right to family life, as provided in Article 8 of the Convention, which reads as follows:
“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.”
A. Admissibility
90. The Government submitted that the first applicant had not exhausted all available domestic remedies. In particular, she had failed to seek the return of the child in accordance with Article 71 § 1 of the Family Code (see paragraph 87 above) and had only sought the quashing of the suspension of enforcement once, while the court proceedings in respect of the father’s application for a change in custody had been ongoing. However, she had failed to seek the lifting of the suspension of enforcement after those proceedings had been terminated.
91. The Court considers that the above objection is closely linked to the merits of the complaint by the two applicants in the first application. It will therefore deal with the objection in its examination of the merits below.
92. The Court further notes that being the natural parent suffices to afford him or her the necessary power to apply to the Court on the child’s behalf too, in order to protect his or her interests (see Scozzari and Giunta v. Italy [GC], nos. 39221/98 and 41963/98, § 138, ECHR 2000-VIII). Furthermore, in cases arising out of disputes between parents, it is the parent entitled to custody who is entrusted with safeguarding the child’s interests (see, to the contrary, Eberhard and M. v. Slovenia, nos. 8673/05 and 9733/05, and Wildgruber v. Germany (dec.), no. 32817/02, 16 October 2006). The first applicant is the natural parent and has been given custody over the child, the second applicant. Consequently, she has standing to apply to the Court on his behalf.
93. The Court notes that the applications are not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention. It further notes that they are not inadmissible on any other grounds. They must therefore be declared admissible.
B. Merits
1. The Government’s submissions
(a) In respect of the first and second applicants
94. The Government pointed out that the bailiff had performed his duties diligently by scheduling appointments for the child’s handover to the first applicant, and also by summoning the father, accompanying the mother to the second applicant’s home and seeking the cooperation of the police and the social services. A nationwide search for the second applicant and his father had been launched; the second applicant had been given police protection; A.I. had been fined twice and he had also been found guilty of obstructing enforcement, sentenced to a suspended prison sentence and fined about EUR 2,400.
95. The authorities had taken practical steps to encourage the two parties to cooperate and had provided the appropriate assistance to improve communication between them. The absence of preparatory measures to help rebuild the relationship between the first and the second applicant had been entirely due to the unwillingness of both parents to cooperate. The Government pointed out that, while it was undoubtedly the case that the second applicant’s father had consistently obstructed the implementation of the court decisions, an excessively aggressive intervention by the authorities in such a sensitive area as family relations was not in children’s best interests.
(b) In respect of the third applicant
96. The Government emphasised that the relevant authorities had done everything possible to enforce the judicial decisions related to the exercise of parental rights. Crucially, the third applicant had failed to pursue enforcement for about a year, namely between 5 September 2011, when the child had been collected by the father, and 17 October 2012, when the applicant had obtained a writ of enforcement in respect of the judicial decision of 1 July 2010 ordering that the applicant exercise parental rights as an interim measure. Consequently, the third applicant had been at the origin of the impossibility to enforce the judgment granting her custody to her child. In particular, by delaying the start of the enforcement proceedings by over a year (see paragraph 34 above), she herself had significantly contributed to her child becoming accustomed to his new environment and to becoming reluctant to changing it by returning to live with the applicant.
97. A number of expert reports describing the psychological state of the child and the parents had been drawn up on the bailiff’s initiative. The bailiff had also requested the assistance of the police on several occasions to summon the father to meetings.
98. All of the authorities’ actions had been guided by their concern for the emotional stability of the child and the need to avoid negative consequences for his development. The authorities had been unable to physically hand the child over to the third applicant as it had been necessary to implement preparatory measures towards that end.
(c) In respect of the fourth applicant
99. The Government argued that the authorities had taken the appropriate steps. They emphasised that the fourth applicant had acted inconsistently when it came to seeing the child, to the extent that he had at times been in bad faith and had shown a lack of interest in maintaining contact with the child.
2. The applicants’ submissions
100. The applicants contested those arguments. The first, third and fourth applicants reiterated their position that they had been unable to maintain meaningful contact with their children, and the second applicant with his mother, despite judicial decisions granting them custody or contact rights, and that the authorities had not done enough to enforce those rights.
3. The Court’s assessment
(a) General principles
101. The relevant general principles concerning the State’s role in protecting the relationship between parents and their children have been outlined in the Court’s judgments in a number of cases (see Eriksson v. Sweden, 22 June 1989, § 71 Series A no. 156; Olsson v. Sweden (no. 2), 27 November 1992, § 90, Series A no. 250; Hokkanen v. Finland, 23 September 1994, § 55, Series A no. 299-A; Ignaccolo-Zenide v. Romania, no. 31679/96, § 94, ECHR 2000-I; Santos Nunes v. Portugal, no. 61173/08, §§ 66-69, 22 May 2012). The essence of those principles is that, given that the relationship between parents and children is protected under the Article 8 notions of family life, individuals’ inability to maintain this relation calls for action by the authorities in line with their positive obligations to adopt measures to reunite, or help re-establish contact between, child and parent (see Eriksson, §71; Olsson (no. 2), § 90; and Ignaccolo-Zenide, § 94, all cited above). The obligation of the national authorities to take measures to facilitate such a reunion is not absolute, since the reunion of a parent with a child who has lived for some time with other persons may not be able to take place immediately and may require preparatory measures. The nature and extent of such preparation will depend on the circumstances of each case. Any obligation to apply coercion in this area must be limited, since the interests as well as the rights and freedoms of all concerned must be taken into account and, more particularly, the best interests of the child (see Hokkanen, § 58, and Ignaccolo-Zenide, § 94, both cited above). What is decisive, and what the Court is called upon to review, is whether the national authorities have taken all necessary steps that could reasonably be demanded in the circumstances, aimed at allowing the individuals concerned to reunite and preserve the relationship between them (see Kříž v. the Czech Republic, no. 26634/03, § 85, 9 January 2007).
(b) Application of those principles to the present case
102. In the three applications under consideration, the Court observes that the first, third and fourth applicants’ relationship with their children, and the second applicant’s relationship with his mother, is protected under Article 8. Therefore, their inability to maintain that relationship calls for action by the authorities stemming from their positive obligations to adopt measures to reunite or to help re-establish contact between a child and his or her parent.
(i) As regards the first, second and third applicants
103. Firstly, the Court observes that the first and third applicants have to date held uninterrupted custody rights in respect of their children, the first applicant since 2005 and the third applicant since 2010 (see paragraphs 7 and 31 above). However, they have been unable to exercise those rights, despite having actively pursued proceedings to enforce the court decisions granting them custody.
104. Next, the Court notes that once the first and third applicants had obtained writs of enforcement, bailiffs started execution proceedings promptly (see paragraphs 12 and 35 above). In all, bailiffs scheduled at least fifteen meetings for the handing over of the child to the first applicant as well as twelve meetings between the third applicant and her child. The first applicant met her son five times. The third applicant managed to see her child on four occasions, always in institutional settings and in the presence of the other parent and social workers. When no meeting took place, it was a result of the other parent either not bringing the child to the meetings or not attending them altogether. On those occasions, and when the children did meet the first and third applicants but refused to go with them voluntarily, the bailiffs explicitly recognised that the cooperation of the other parent was crucial for restoring the bond between the first and third applicants and the children; the bailiffs limited themselves to postponing enforcement.
105. Faced with continuous obstruction by the other parent in each case, the bailiffs did little more than schedule meetings between the parties. In both cases, those meetings were on occasion scheduled several months apart (see paragraphs 12 and 17 above as regards the first applicant and paragraphs 39, 44, 49 and 53 above as regards the third applicant). The authorities have not provided an explanation to justify that delay. The Court emphasises in that connection that in cases such as these the adequacy of the measure is to be judged by the swiftness of its implementation (see Ignaccolo-Zenide, cited above, § 102). Swift implementation is of particular importance in the early stages of separation, when the relationship with the child still exists. Given that the enforcement proceedings at stake were decisive for the applicants’ effective enjoyment of their right to a family life and, in particular, for their ability to be reunited with their children, the Court considers that the proceedings needed to be conducted with particular diligence.
106. Moreover, the Court finds it important that the first and third applicants had been granted custody, and not simply visiting rights in respect of their children. Seeing that custody rights were decided by domestic courts following an overall assessment of all relevant factors, including where it was in the best interest of the child for him or her to live, timely enforcement of custody rights was crucial. Bearing in mind that both children were growing more and more apart from the applicants because of the passage of time and the particular circumstances brought about by the other parent in each case, the Court finds that the prolonged enforcement proceedings had an undeniably negative impact on the applicants’ possibility to reunite with their children and contributed to the related difficulties experienced by them (see, similarly, Kříž, cited above, § 88).
107. Furthermore, the Court observes that the law authorised the bailiffs to repeatedly fine the parent who persistently frustrated efforts to rebuild the relationship between the applicants and their children. The bailiffs fined the obstructing parent in the first applicant’s case three times throughout the whole duration of the enforcement proceedings (see paragraphs 13 and 18 above) and in the third applicant’s case twice, and one of those fines was later quashed in court (see paragraph 39 above). Those fines had no effect on the other parents’ compliance with the judgments.
108. The relevant provisions of domestic law further empowered the bailiff to seek the active assistance of the police (see paragraphs 83-84 above). Such assistance was only sought after many months during which numerous summons were disregarded by the other parent in each case. In the case of the first applicant, police officers accompanied representatives of the social services and the mayor a number of times when they visited the place where A.I. lived with the second applicant. Their intervention was confined to assisting the bailiff in summoning and accompanying, without that actually leading to the handing over of the child to the first applicant or even to bringing about meetings between her and the child. In addition, in the first applicant’s case, the police failed to effectively fulfil the court order to assist with the transfer of second applicant to the first applicant, explaining that omission with the child’s opposition to it (see paragraph 26 above). Similarly, in the case of the third applicant the bailiff told the parties that police assistance might be sought during the first attempt to hand the child over to her (see paragraph 35 above). However, it does not appear that the police were involved in the enforcement proceedings at any point in time, with the exception of summoning the other parent to some of the meetings.
109. The Court further observes that the social services and psychologists were involved at different stages during the enforcement proceedings in both cases. A number of assessments of the children were carried out and the situation as a whole was also examined, including the position and responsibility of each parent. The Court observes that the relevant authorities consistently concluded in the first applicant’s case that the other parent explicitly opposed all attempts to re-establish contact between her and the child, and actively and effectively avoided such attempts (see paragraphs 14, 15 and 25 above), and in the third applicant’s case that the other parent’s cooperation to that end was lacking and that the child was suffering from parental alienation syndrome (see paragraphs 42, 45, 48 and 50 above). Despite such unambiguous observations by the social services, the Court notes that they produced reports with conclusions and recommendations which were not followed up. In that connection, the relevant authorities failed to make sure that professional, targeted support was effectively provided to the children, which was critical for them to get used to the idea of seeing their mothers, the first and third applicants, and accept them back into their lives. Such support was part of the indispensable preparatory measures that the authorities were required to take in line with their positive obligations under Article 8. In particular, preparatory measures were vital for ensuring the children’s autonomous engagement with the situation, independently from the other parent’s undeniably decisive influence.
110. Although criminal proceedings had been opened against the other parent in both cases (see paragraphs 24-25 and 54-56 above), one of them was absolved from criminal responsibility and given an administrative sanction of a fine instead (see paragraph 25 above) and the other one was acquitted (see paragraph 56 above). Apparently those proceedings had no effect and the other parent continued to further hamper enforcement in both cases. The Court reiterates in this connection that, although coercive measures in the context of child care and relations with children are not desirable, the use of sanctions must not be ruled out in the event of unlawful conduct by the parent who owes enforcement (see, similarly, Ignaccolo‑Zenide, cited above, § 106; and, Karadžić v. Croatia, no 35030/04, § 61, 15 December 2005).
111. As to the first and third applicants’ conduct in the course of the enforcement proceedings, the Court observes that their acts were not limited to insisting on an immediate handing over of the children to them (contrast with the situation in Mihailova v. Bulgaria, no. 35978/02, § 92, 12 January 2006). Both the first and third applicants displayed understanding, patience and flexibility, and their actions were guided above all by concern for their children’s well-being.
112. In particular, the first applicant demonstrated continued understanding for and accommodation to the various measures aimed at creating conditions conducive to her re-establishing contact with her son. She cooperated to that end with all the authorities involved in the process. Her efforts were sustained, spread over several years, starting in 2006, and have not ceased, despite their steady lack of success. The Court finds that the fact that, as the Government contended in their observations (see paragraph 90 above), she had not sought the lifting of the suspension of the enforcement once the change of custody proceedings brought by the other parent had been terminated, or the return of her child under Article 71 of the Family Code, did not have an effect on the conduct and effectiveness of the enforcement proceedings. As is clear from the facts, the various authorities continued to carry out different enforcement measures (see paragraphs 22 and 23 above).
113. Likewise, the third applicant, being aware that an abrupt transfer of the child to her might be destabilising and could well produce adverse consequences for the comfort and welfare of her child, repeatedly sought the assistance of psychologists and social workers, and demonstrated openness and readiness to work with those professionals in order to achieve positive developments in her relationship with the child (see paragraphs 46-49 and 52 above). As to the Government’s submission that she had herself caused the child to be estranged by delaying the start of enforcement proceedings for a year (see paragraph 96 above), the Court makes the following findings. Before the child’s father failed to return him in September 2011, the third applicant had lived alone with the child for over a year, exercising custody rights in line with the court’s decision on interim measures (see paragraph 29 above). While the third applicant significantly delayed the initiation of the enforcement proceedings, the Court accepts her explanation that she made repeated direct attempts to reach an agreement with the father following the advice of private bailiffs (see paragraph 33 above). In any case, this delay could not be considered decisive for the deficiency of the subsequent enforcement proceedings throughout which the third applicant continuously demonstrated willingness to cooperate with the authorities in order to obtain the return of the child and to find the best arrangement for contact with him.
114. The Court observes, as detailed above, that both cases were marked by a clear absence of cooperation on the part of the other parent, who systematically obstructed the authorities’ efforts to reunite the first and third applicants with their children, and the second applicant with his mother. It is important to emphasise that that fact does not absolve the authorities of their responsibility to do everything necessary to facilitate such reunion (see, similarly, Santos Nunes, cited above, § 71; and, mutatis mutandis, Reigado Ramos v. Portugal, no. 73229/01, § 55, 22 November 2005).
115. The Court recognises that at a certain point in time the children became reluctant to go and live with the first and third applicants, and at times even rejected them (see paragraphs 23, 37, 40 and 43 above). The Court notes that that situation was brought about by the other parent’s unlawful refusal to comply with the judgments in question in each case and by the ineffectiveness of the enforcement measures. It finds that the protracted lack of enforcement contributed to creating and consolidating a situation where the passage of time effectively alienated the first and third applicants and their children, which in turn significantly enhanced the difficulties in enforcing the judgments.
116. The Court reiterates that it is not its role to substitute itself for the national authorities in the assessment of what specific measures were necessary to be undertaken in the circumstances, given that those authorities are in principle better placed to take such decisions (see Stanková v. Slovakia, no. 7205/02, § 59, 9 October 2007). Admittedly, a number of authorities and officials were involved to varying degrees and with varying intensity in facilitating or attempting to ensure the applicants could meet their children at various times. However, those measures have not brought about the return of the children to the first and third applicants, nor have they led to the re-establishment of any kind of meaningful contact between them and the children with a view to rebuilding the relationships. The parties at fault, the other parent refusing to follow a final judicial decision in each case, have remained largely unconstrained, which has allowed them to persist in their obstruction of all related efforts. The relevant authorities, faced with such obstruction, did not ensure that timely and suitable preparatory measures were put in place and carried through (see, similarly, Zavřel v. the Czech Republic, no. 14044/05, § 52, 18 January 2007, and, to the contrary, Krasicki v. Poland, no. 17254/11, § 93). Consequently, having regard to the foregoing and notwithstanding the respondent State’s margin of appreciation in the matter, the Court finds that the authorities failed effectively to pursue adequate and timely actions to enforce the first and third applicants’ right to the return of their children, and the second applicant’s right to the enjoyment of a meaningful relationship with his mother.
117. In view of the foregoing, the Court dismisses the Government’s preliminary objection that the first applicant failed to exhaust all available domestic remedies and, ruling on the merits, finds that there has been a violation of Article 8 of the Convention as regards the first, second and third applicants.
(ii) As regards the fourth applicant
118. The Court notes, firstly, that the fourth applicant’s initial contentions were incomplete, both in terms of the facts and in terms of supporting documents. The Court accepts the description of the facts as supported by relevant documents including the findings of the domestic courts, which were submitted by the Government following communication of the case to them. While the fourth applicant contested those facts, he did not provide evidence in support of his factual claims.
119. The Court then notes that the fourth applicant was granted contact rights in respect of his child on 13 February 2012 and that he complained that he has not been able to exercise those rights since 15 June 2012. He stated that that was because the authorities had done nothing to effectively enforce his rights, either by applying coercion in the face of the obstruction of the other parent or by putting preparatory measures in place.
120. The Court finds that in contrast to the first and third applicants in this case, the fourth applicant’s own conduct contributed in great measure to his not being able to exercise his contact rights. In particular, there were long periods when he did not seek contact with his child (see paragraphs 79 and 81 above) and his statements about those periods have been inconsistent (paragraphs 70, 73, 76 and 79 above). In any event, the Court observes that the domestic authorities established clearly that the fourth applicant had not sought contact with his daughter for months at a time and that this had had a clearly negative effect on his relationship with her (see paragraphs 71 and 81 above).
121. There were also periods when the fourth applicant requested to meet his daughter, who was very young at the time, at locations which were different from those set out in the court judgment (see paragraph 75 above) and which, in addition, were inappropriate for a young child. He also attempted to meet the child on days which were not part of the schedule and failed to pick her up on days that had been scheduled, despite social services’ recommendations that he meet his daughter regularly (see paragraphs 78-79 above). In addition, when the fourth applicant asked the bailiff to enforce his contact rights, he insisted on the immediate transfer of the child to him and on the repeated imposition of fines on the other parent as the sole means of compulsion. He did not show any willingness to have a dialogue to find the best way to re-establish contact with the child and rebuild his relationship with her (see paragraph 81 above). Likewise, on a number of occasions he did not cooperate with the authorities but behaved in a disruptive manner instead.
122. Examining the relevant authorities’ actions aimed at re-establishing contact between the fourth applicant and his daughter, the Court finds as follows. The fact that he did not see his child between 15 June 2012 and 22 February 2013 cannot be attributed to the authorities, given that he only put them on notice of the situation on the latter date (see paragraphs 62 and 74 above), following which the bailiff immediately directed R.D. to hand the child over to him (see paragraph 74 above). The same applies in respect of the one-month period in August 2013 when he explicitly stated that he did not wish to exercise his contact right, as well as in respect of the period between 28 October 2013 and 20 April 2014 (see paragraphs 76 and 79 above). As to whether the authorities used the appropriate coercive and/or preparatory measures, the Court observes that the bailiff acted swiftly by repeatedly fining the mother in the months that followed, having found that she had not handed the child over. For their part, the social services assessed the situation and recommended that the fourth applicant make a sustained effort to see the child regularly, at least temporarily in the presence of the mother. However, instead, the fourth applicant refused to accept R.D.’s presence during his meetings with the child and, as established above, failed to seek contact with the child for prolonged periods of time or tried to have meetings on days that were not part of the schedule of visits.
123. In view of all of the above, it cannot be said that the authorities failed to act in a timely and appropriate manner to ensure that the fourth applicant meet with his daughter in accordance with the court judgment on his contact rights, or that they did not do enough to help him rebuild his relationship with her.
124. There has accordingly been no violation of Article 8 in respect of the fourth applicant.
III. ALLEGED VIOLATION OF ARTICLE 13 IN CONJUNCTION WITH ARTICLE 8 OF THE CONVENTION
125. The first, third and fourth applicants complained that they had not had an effective domestic remedy in connection with their complaint about not being able to be reunited with their children, and the second applicant to enjoy meaningful contact with his mother. They relied on Article 13 of the Convention, which reads as follows:
“Everyone whose rights and freedoms as set forth in [the] Convention are violated shall have an effective remedy before a national authority ...”
126. The Government contested their allegations.
127. The Court notes that this complaint is not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention. It further notes that it is not inadmissible on any other grounds. It must therefore be declared admissible.
128. The Court finds that in the instant case the effectiveness of the authorities’ actions aimed at allowing the adult applicants to have meaningful contact with their children, and the second applicant with his mother, lies at the heart of the applicants’ complaint under Article 13. The issues linked to the measures pursued by the authorities in the context of protecting the applicants’ right to family life, and those measures’ effectiveness, have been examined under Article 8 above. The Court therefore considers that no separate issue arises under Article 13 (see, for a similar approach, Lautsi and Others v. Italy [GC], no. 30814/06, § 77, ECHR 2011 (extracts)).
IV. APPLICATION OF ARTICLE 41 OF THE CONVENTION
129. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
A. Damage
130. The first and second applicants claimed non-pecuniary damage for the suffering resulting from their impossibility to live together, in the amount to be determined by the Court. The third applicant claimed EUR 20,000 in respect of non-pecuniary damage stemming from her prolonged separation from her child.
131. The Government considered that the above claims were unjustified. They submitted that, were the Court to find a breach of Article 8, the finding of a violation would be a sufficient just satisfaction in the circumstances.
132. The Court considers that the impossibility for the first and third applicants to maintain meaningful contact with their children and for the second applicant to maintain such contact with his mother must have caused the first and third applicants frustration and suffering and prevented the second applicant from developing relations with his mother. Accordingly, it awards EUR 12,000 to the first two applicants jointly and EUR 12,000 to the third applicant in respect of non-pecuniary damage.
B. Costs and expenses
133. The first two applicants also claimed EUR 2,570, and the third applicant claimed EUR 4,106.20, for the costs and expenses incurred before the Court.
134. The Government considered that these amounts were unjustified and excessive.
135. According to the Court’s case-law, an applicant is entitled to the reimbursement of costs and expenses only in so far as it has been shown that these have been actually and necessarily incurred and are reasonable as to quantum. In the present case, regard being had to the documents in its possession and the above criteria, the Court considers it reasonable to award the first two applicants jointly the sum of EUR 1,910 and the third applicant EUR 2,100 for the proceedings before the Court. The above amounts cover legal fees incurred in the context of the proceedings before the Court and postal expenses. The amount in respect of the legal fees is reached with reference to the hourly rate of EUR 70 applied in respect of applicants’ lawyers’ fees in recent cases against Bulgaria of comparable complexity (see Bulves AD v. Bulgaria, no. 3991/03, § 85, 22 January 2009; Mutishev and Others v. Bulgaria, no. 18967/03, § 160, 3 December 2009; and Penchevi v. Bulgaria, no. 77818/12, § 88, 10 February 2015).
C. Default interest
136. The Court considers it appropriate that the default interest rate should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT, UNANIMOUSLY,
1. Decides to join applications nos. 66997/13, 77760/14 and 50240/15;
2. Joins to the merits the Government’s preliminary objection as regards the first applicant’s failure to exhaust domestic remedies and dismisses that objection;
3. Declares the above applications admissible;
4. Holds that there has been a violation of Article 8 of the Convention in respect of the first, second and third applicants;
5. Holds that there has been no violation of Article 8 of the Convention in respect of the fourth applicant;
6. Holds that there is no need to examine the complaint under Article 13 of the Convention;
7. Holds
(a) that the respondent State is to pay the first three applicants, within three months from the date on which the judgment becomes final in accordance with Article 44 § 2 of the Convention, the following amounts, to be converted into Bulgarian levs at the rate applicable at the date of settlement:
(i) EUR 12,000 (twelve thousand euros), plus any tax that may be chargeable, jointly to the first and the second applicants in respect of non-pecuniary damage;
(ii) EUR 12,000 (twelve thousand euros), plus any tax that may be chargeable, to the third applicant in respect of non-pecuniary damage;
(iii) EUR 1,910 (one thousand nine hundred and ten euros), jointly to the first and second applicants, plus any tax that may be chargeable to them, in respect of costs and expenses, and EUR 2,100 (two thousand and one hundred euros) to the third applicant, plus any tax that may be chargeable to her, in respect of costs and expenses, the above amounts to be paid directly into the bank accounts of the applicants’ representatives;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;
8. Dismisses the remainder of the applicants’ claim for just satisfaction.
Done in English, and notified in writing on 6 April 2017, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Milan BlaškoAngelika Nußberger Deputy RegistrarPresident
APPENDIX
No.
Application no.
Lodged on
Applicant name
Represented by
66997/13
08/10/2013
Vladimira Angelova ANEVA
Mihail Antonov
IVANOV
Aleksandar Emilov KASHAMOV
77760/14
10/12/2014
Slaveyka Vladimirova KICHEVA
Adela Valeri KACHAUNOVA
50240/15
19/10/2015
Stanimir Vasilev DRUMEV
Adela Valeri KACHAUNOVA
| 1 |
Lord Justice Moses:
The appellant, Thomas Smart, appeals against the order of His Honour Judge Wood QC on 18 May 2012. HHJ Wood QC struck out the appellant's claim for negligence and breach of the Human Rights Act 1998. For the purposes of striking out the appellant's claim, certain factual allegations contained in the particulars of claim of 10 March 2010 must be assumed.
On 9 January 2008 police searched the claimant's home at 100 East Lancashire Road, Liverpool L11, for drugs, which they believed had been kept there by the claimant's brother. During the search they found what appeared to be a live bullet and arrested the appellant on suspicion of possession of live ammunition pursuant to s.1(1) of the Firearms Act 1968.
The appellant told the police in interview that he had bought the bullet as an ornament at a car boot sale and had assumed that it was not live. Whether it was a live bullet or not could not be discerned from visual examination and the police, having charged the appellant, sought to make good their case by sending what appeared to be a live bullet to the defendant for scientific analysis. The defendant was a company, all of whose shares were held by the state.
On 30 May 2008 a forensic scientist employed by the defendant, Philip Rydeard, produced a witness statement pursuant to s.9 of the Criminal Justice Act 1967. The witness statement gave a laboratory reference and described the "receipt of items". It read:-
"Laboratory records show that on 19 February 2008 the following item was received at the Northern Firearms Unit from the Merseyside Police:
PG1 cartridge – 100 East Lancashire Road, L9."
The expert described the item as a bulleted cartridge. He dismantled the cartridge and found it contained the required components of ammunition designed for use in self-loading pistols and sub-machine guns. He classified the cartridge PG1 as ammunition for the purposes of s.57(2) of the 1968 Act.
The appellant was then charged and pleaded guilty, since s.1(1) of the 1968 Act is an offence of strict liability. He was sentenced to four months' imprisonment, suspended, with a requirement to undertake 180 hours of unpaid work.
On 23 January 2009 the Merseyside Crown Prosecution Service told the claimant's solicitors that, following an internal review carried out by the Forensic Science Service, the item recovered from the appellant was not in fact ammunition. The letter made the suggestion that the appellant should invite the Magistrates' Court to re-list the case pursuant to the provisions of s.142 of the Magistrates' Court Act 1980 with a view to the conviction and sentence being set aside. It said the Crown Prosecution Service would support that application and offer no evidence. It concluded:-
"As I am sure you will appreciate, the proceedings were brought against your client in good faith, based upon the evidence presented to the Crown Prosecution Service by the Forensic Science Service."
The letter dated 23 January 2009 enclosed a letter from the Forensic Science Service dated 9 January 2009. The relevant parts of the letter dated 9 January 2009 signed by the General Manager of the Forensic Science Service read:-
"I would like to inform you of a quality issue that has arisen at the NFU with regard to two Merseyside cases which require the classification of ammunition.
On 19 February 2008 two cases, each comprising a single round of ammunition, were received at the Northern Firearms Unit (NFU) from Merseyside Police. One case was assigned FSS laboratory reference number (300735613 [40104862]) and the other (300735611 [40104860]).
300735611
Division Lower Lane Police Station, Liverpool North Area E
Officer in case Constable 8975 Mahoney
Number of items received: 1
Details re items: PG1, labelled as '1 x bullet inside blue wash bag'
Requirement: Classification of bullet
Suspect: Thomas Smart, DOB 28/08/1987
Other: URN number – 05E60221908; date of offence 09/01/08; drugs related; suspect said he bought as an ornament from a car boot sale
300735613
Division: Admiral Street, Liverpool South Area F
Officer in case: DC 2153 Smith
Number of items received:|1
Details re items: PR1, labelled as '1 bullet'
Requirement: Classification of bullet
On 28th March 2008 the OIC for 300735611 (bullet in blue wash bag) contacted NFU to check on the progress of case. The officer was informed that the case had not been started and the delivery date would be the 19 May 2008. The officer said he would call at the end of April for an update. On 30th May 2008 the OIC contacted NFU regarding the status of 300735611 and it was agreed that the case would be progressed that day.
On 30th May 2008 the case was allocated to a Reporting Officer who carried out an examination of an item which was believed to be the exhibit relevant to that case and a report was prepared, posted and faxed to the OIC.
The conclusion was that the cartridge constitutes ammunition as defined in section 57 (2) of the Firearms Act 1968 and is subject to the provisions of Section 1 of this Act.
However, the item reported under laboratory reference 300735611, was an exhibit bearing the affidavit PR1 and assigned the laboratory reference number 300735613. This exhibit relates to the other case from Merseyside received at the NFU the same day and not case reference number 300735611.
When the correct item PG1 from laboratory reference 300735611 was examined on 8th January 2009, it was found to be a dummy round.
I would like to offer my sincere apologies for this quality failure and assure you that a full and thorough internal investigation is currently underway. The Forensic Science Service appreciates that this failure has taken some time to come to light and that there is the potential for a miscarriage of justice to have occurred. It is for this reason that despite our internal investigations being at any (sic) early stage that we considered it appropriate to bring this matter to your immediate attention."
On 6 February 2009, as suggested by the Crown Prosecution Service, an application was made to the Magistrates' Court pursuant to s.142 of the Magistrates' Court Act 1980, the plea was vacated, the CPS offered no evidence, and the charge was dismissed. This had the unfortunate effect, not realised at the time, that this appellant fell outwith the statutory scheme for compensation (see s. 133(1) and (5) Criminal Justice Act 1998). Neither side advanced any submission before us that the statutory scheme was relevant to the issues of immunity. Proceedings were then launched in the Liverpool County Court with the particulars of claim dated 10 March 2010. At that stage, there was no further information as to how a bullet had been wrongly attributed to the claimant. The claim merely referred to the letter from the Crown Prosecution Service dated 23 January 2009 as indicating "that there had been a mix-up of exhibits between two unconnected cases…". The claim alleged negligence:-
"8. The defendant owed the claimant a duty to operate proper systems to ensure that the continuity of exhibits was secure, and that expert reports actually related to the exhibits referred to in those reports. The defendant knew that the claimant had admitted possession of the said bullet, and that errors in continuity could lead to miscarriages as occurred in the instant case, and dire consequences such as damage to reputation and loss or restriction of liberty.
9. The actions and omissions of the defendant breached the aforesaid duty. Particulars of negligence:
(a) The defendant failed to maintain a proper system to ensure the continuity and integrity of exhibits.
(b) The defendant failed to ensure that the bullet seized from the claimant's home was the same exhibit as was examined by Mr Rydeard and referred to his report under the same exhibit reference."
The particulars of claim also alleged that the defendant had violated the appellant's Article 8 rights.
The defence dated 2 July 2010 admitted the alleged "mix-up" but denied that the Forensic Science Service Limited owed any duty of care, and asserted that Mr Rydeard, an employee of the respondent, was immune from civil proceedings as a witness, and that no duty of care was owed to suspects or witnesses by the police in relation to the investigation of crime or third parties employed to assist the police. It also denied that the defendant was a public authority "within the meaning of s.6(1) of the Human Rights Act 1998".
On 10 December 2010 the defendant applied to strike out the claim and on 19 January 2011 to stay the proceedings, pending the hearing of the strike-out application.
The judge, in a full judgment dated 12 February 2012, held that the respondent was protected by witness immunity which covered both the negligence and the claims pursuant to the Human Rights Act 1998, that the respondent owed the appellant no duty of care and was not a public authority for the purposes of the Human Rights Act. The appellant then appealed.
By the time the judge heard the respondent's application to strike out the appellant's claim, further documents had been disclosed on 3 March 2011. These showed that the original draft statement of Philip Rydeard gave the same laboratory reference number, 300735611, as the statement which was subsequently served but where the served statement refers to PG1 cartridge, the draft refers to the PR1 cartridge and, although it is difficult to see, someone has written in hand the exhibit number PG1 above the typed exhibit number PR1. Where the typed address reads 100 East Lancashire Road, L19, beneath the postcode L19, someone has written in hand the code L9. No explanation for the difference between the draft statement and the final statement has ever been forthcoming.
A packaging sheet under the box showing item number seems to show an exhibit number overwritten by PG1, crossed out, and then the exhibit number PR1 underneath. An ammunition examination sheet seems again to show PG1 overwritten, crossed out, and the exhibit number PR1 written underneath.
The only explanation for these handwritten alterations is contained in a document dated 14 January 2009 which is headed "Investigation into P1 NFU action – Reference CO1911", and under the heading "Casefile 300735611:-
"1. Movement of items on back of casefile is not fully documented. There is no exhibit reference number present and also no year present in the date column. It is common practice to write "all" under the item column.
2. A photocopy of the exhibit bag was on file but this had only been added after the draft statement had been reviewed and is not common practice at the NFU.
3. On the packaging sheet, TF1 128, the item number was originally documented as PR1. This was overwritten as PG1 and then crossed out, PR1 was later written in red. On the ammunition examination sheet, TF1 127, the exhibit was also originally documented as PR1, overwritten as PG1 and then crossed out, PR1 was again later written in red. The amendments were not signed and dated.
4. Draft statement refers to 'PR1. Cartridge – 100, East Lancashire Road, L19'. The file reviewer has put a question mark next to this information, written PG above PR1 and amended the postcode to L9. This doesn't correspond to the MGFSP, which describes the item as 'PG1, 1 x bullet inside blue wash bag, East Lancashire Road L9', nor to the packaging 'PR1, 1 x Bullet.'
5. The tag number referred to on the packaging sheet (FA116551), is different to the tag number on the MGFSP (FA15264).
Interview with RO, Phil Rydeard
The overwriting of exhibit numbers and the strikethrough referred to in point 3 were carried out by the RO. He also amended it to PR1 in red ink and further made a comment on the MGFSP 'PR1 on bag'. He believed this was done after the draft statement was reviewed.
The RO believes he photocopied the exhibit packaging after the draft statement was reviewed in order to show the reviewer the item reference number.
The item was reported in the final statement as PG1, which was the correct exhibit reference relating to the case but this was not the reference of the item which was examined.
RESTRICTED: Staff
The file reviewer was offsite during the investigation and was therefore not available for questioning.
Interview with SDTL, Ben Astley
In August/early September 2008, Ben was conducting an audit of the stores in order to update the firearms register. He noticed that the item PG1 from 300735611 was present in the stores when the OMS record indicated that the item had been returned to the customer on 27th June 2008. He asked the CSD SDC to request the exhibit which had been returned under 300735611 back from the customer.
On 23rd September 2008, the item previously returned to Merseyside under lab reference 300735611 was resubmitted in a crate, along with other items which were required for defence examination. The items relating to the defence exam were booked onto OMS and the firearms register updated accordingly. The item resubmitted under lab reference 300735611 was not booked in and there is no electronic record for the resubmission of this item, therefore the SDTL was unaware that the exhibit had not been resubmitted.
No follow up action was taken by the team leader to check why the genuine item relating to 300735611 was still in the stores."
Counsel instructed by the Treasury Solicitor frankly admitted that this provides no adequate explanation as to what happened, still less why it happened.
At this appeal the appellant challenged all three conclusions of the judge. But after one and a half days' argument, he sought, to some extent prompted by the court, to amend his particulars of claim so as to allege deceit. We were compelled to grant an adjournment so that the appellant could draft his proposed amendment and to afford the respondent a proper opportunity to make submissions about it. A further hearing was arranged.
17. The relevant parts of the proposed amendment read:-
"6A Records relating to the bullet examined by Mr Rydeard for the purposes of preparing the aforesaid 30 May 2008 report had been altered by an employee, servant or agent of the defendant, or several of them, to incorrectly show that it was the dummy bullet seized from the claimant's home.
…
10A The claimant was deceived by a misrepresentation of fact which appeared in the final version of Mr Rydeard's 30 May 2008 report, that the live bullet that formed the subject matter of the report was the item seized from the claimant's home. The claimant acted to his detriment in reliance on the misrepresentation.
PARTICULARS OF DECEIT
Mr Rydeard and /or an employee, servant or agent of the defendant, or several of them:
(a) Altered exhibit records relating to a live bullet, to falsely represent that it was the dummy bullet seized from the Claimant's home.
(b) Altered the exhibit reference in the final 30 May 2008 report to show the reference of the dummy seized from the Claimant's home, PG1, instead of the reference of the actual bullet examined, PR1, which appeared in the draft report.
(c) Knew that the representations were false, or were recklessly indifferent to their truth.
(d) Knew or were recklessly indifferent to whether the misrepresentations on the exhibit records would be repeated in the 30 May 2008 report.
(e) Intended or knew that the Claimant would act on the findings of the said report to his potential detriment.
10B The Claimant did rely on the misrepresentations of fact by pleading guilty to the charge, and the said deceit thereby caused the Claimant loss, injury and damage.
PARTICULARS OF INJURY AND DAMAGE
(a) the particulars at paragraph 10 are repeated."
In its response to the proposed amendment the Forensic Science Service Limited accepts that it has not been able to provide a satisfactory explanation of how the report dated 30 May 2008 came to state incorrectly that the bullet found at the appellant's home contained live ammunition. It accepts that it cannot assert that the appellant has no proper basis for pleading deceit although it does not accept that the claim is made out in law or in fact. But it does contend that the proposed amendment fundamentally alters the basis upon which the claim is brought. It says that the documents on which the deceit allegation is founded were disclosed more than two years ago, on 3 March 2011, and it is far too late to make such an amendment now. Further, it maintains its objection to the original claim and contends that even if the court allows this late amendment, the allegations of negligence and breach of the Human Rights Act, 1998 should remain struck out as the judge ordered.
There was no dispute as to the principles which this court should apply in relation to late amendments. The court must strike the balance between the prejudice which will be caused to the appellant if the amendment is refused against the prejudice to the Forensic Science Service Limited. It may not be possible to compensate the resisting party by an award of costs. The later the application is made, the more difficult it will be for the applicant to establish that justice demands permission to make the amendment. The court must also take into account the public interest in the efficient administration of justice which may be damaged by the disruption and delay caused by late amendments (see White Book at 17.3.7, Worldwide Corporation v GPT Limited [1998] EWCA Civ 189 (pages 11-13), Swain Mason v Mills & Reeve [2011] 1 WLR 2735 (paragraph 72) and the useful summary of Hamblen J in Brown v InnovatorOne [2011] EWHC 3221 [5]-[14]).
It must be recalled that the application for an adjournment came right at the end of the argument in relation to the appeal and over two years after the documents on which it was based. No good explanation was advanced as to why it was not made shortly after the documents to which I have referred were revealed. Even though they are, largely, incomprehensible the stark fact was revealed that someone had altered the exhibit numbers, had made no note at the time of the alteration as to why it was necessary to alter those numbers, and had concealed the fact of those alterations in the statement that was served on the defendant and his legal advisers. The application for an amendment should have been made shortly after those documents were disclosed and, certainly, well before the hearing in the Liverpool County Court.
The Forensic Science Service Limited contends that it has been prejudiced in a way which cannot be compensated in costs. It points out the events on which the allegations are based occurred nearly five years ago. It says that it could have provided evidence as to the systems operated at the material time but responding to "specific factual allegations of falsifying records is quite different". It argues that had the amendment been made earlier it would have been in a "considerably better position" to produce evidence.
The Forensic Science Service Limited adduces no evidence as to whether those responsible for altering the records and producing the final witness statement are still available or not. If, as I will charitably assume, the alteration of exhibit numbers is a rare event, one might have expected whoever is responsible to remember it. All the more so since the alteration was not disclosed in the final written statement. Without any evidence from the witnesses responsible for what at this stage appears a grave state of affairs, I cannot assume that the absence of explanation is due to delay in applying for the amendment. The respondent has not given any explanation as to why there is no contemporaneous note of the reasons for the manuscript alterations of exhibit numbers or why those alterations were concealed in the written statement served on the appellant.
In those circumstances, as the court has already announced, I would grant permission to amend in the terms proposed.
It remains necessary, however, to decide the question whether the judge's order striking out the claim for negligence and under the Human Rights Act should be maintained. For that purpose I should deal with the basis upon which the judge struck out those claims.
First, the judge concluded that the evidence relating to the collection, transmission and examination of exhibits was protected by witness immunity. This conclusion was based upon the decision of Drake J conferring immunity in Evans v London Hospital Medical College (University of London) [1981] 1 WLR 184 and the distinction between Evans and Darker v Chief Constable of the West Midlands Police [2001] AC 435 in which the House of Lords refused immunity. In Evans organs removed from a dead child had been, so it was alleged, negligently contaminated with morphine, leading to a false charge of murder. In Darker, police had allegedly planted evidence. Two features in Darker are of significance in this appeal. First, absolute immunity is in principle inconsistent with the rule of law and the protection it affords must not be given any wider application than is absolutely necessary in the interests of the administration of justice (see Lord Cooke, page 435D-E). Second, there is no immunity which covers the fabrication or creation of evidence in circumstances where that fabrication is never intended to appear in any statement, (see, e.g., Lord Cooke at 454C and Lord Hutton at 466F).
The paradigm circumstance which falls within the protection of witness immunity is the giving of evidence by a witness in court. This has been extended to the preparation of evidence with a view to it being adduced, whether or not the witness is to give evidence (see Lord Hutton 463G-465E). The rationale for the immunity is: first, the need to protect witnesses from the fear that they will be harassed by subsequent actions against them. The immunity is designed to encourage freedom of speech and communication in judicial proceedings (see Lord Hoffman in Taylor v Director of the Serious Fraud Office [1999] 2 AC 177, 208). Second, the immunity is designed to prevent a collateral attack being made on the decision in which the allegedly false evidence was given (see, e.g., Lord Clyde, 461D-E).
Now that we have allowed the amendment, the rationale for conferring witness immunity has gone. First, witnesses, if called by the respondent, will have to explain and justify the handling of the exhibits in this case. They cannot be protected from being questioned or from accounting for their actions. Second, now that the allegations of deceit are to be fully aired, the immunity serves no purpose because it will not prevent a collateral attack.
In Darker their Lordships gave differing reasons for declining to extend the immunity to what was alleged to be the fabrication of evidence. It is, no doubt, for that reason that the respondent accepts that the documents now disclosed afford a proper ground for alleging deceit and that in those circumstances, apart from the resistance to the amendment, they accept that the new allegation should not be struck out. If, as a result of this court's ruling, the trial continues on the basis of the allegations of deceit, then it does not seem to be wise to strike out the allegations of negligence. The boundaries between those circumstances in which an immunity can be conferred and those where it will not depend upon the facts. As Lord Cooke envisaged:-
"Each category of immunity requires separate consideration and justification, while each set of facts requires full examination in determining whether it can be brought within a particular category." (454G)
Some of the reasons given in the speeches in Darker justify keeping the claim for negligence alive. Not all of their Lordships founded their conclusion upon the distinction between negligence and fraud. Lord Hope, for example, noted that the allegations referred to things done by the police "during the initial stage when they were acting as investigators". He did not think that it could be asserted, without hearing the evidence, that the allegations fell within the boundaries of the immunity (450B). Whilst agreeing with the conclusion, Lord Mackay did not think that Drake J's decision in Evans extended the immunity to "alleged negligent conduct not reflected in a written report or statement" (451G). For those reasons, I would not strike out a claim in negligence.
For similar reasons, I do not think it appropriate at this stage to uphold the judge's view that no duty of care was owed. All the more so since, as Lord Cooke, following Lord Hoffman, thought that Evans' case might be decided on the ground that the defendants owed the plaintiff no duty of care (454D). The judge took the view that no duty of care was owed by a forensic scientist, an employee of the respondents. In the light of the amendments now made, I think it would be wrong to exclude the proposition that whoever it was who interfered with the correct exhibit number, whether it was the forensic examiner or not, owed a duty to the person to whom the bullet would be attributed as a result of interference with the exhibit number.
It must be recognised that as a result of interference with the exhibit number the real bullet was falsely attributed to this appellant. The effect of interference with the exhibit numbers, whether it was designed originally to conceal confusion or "mix up" or not, was the same as planting the real bullet in the appellant's premises. It is alarming that the course of justice appears to have been perverted by the alteration of exhibit numbers and the failure to disclose that that had occurred or any reason why it occurred. I suggest any court would be most reluctant to allow immunity to be deployed in a way which prevents these matters being litigated. All the more so when the suggestion that the matter be rectified in the Magistrates' Court removed any right of statutory redress.
It is unlikely that the Human Rights Act claim will need resolution. But in the light of the continuation of the claim on other grounds it seems to me wrong that the question whether the respondent was a public body or not should rest upon summary judgment without any full examination of the facts.
For those reasons, without the need for any searching analysis of the distinction between Evans and Darker or full examination of the reasons given for the distinction in the speeches in the House of Lords, I would allow the amendment and uphold the appeal. If my Lords agree with my conclusions, then we will consider written arguments in relation to directions and costs.
Lord Justice Rimer:
I agree with both judgments.
Lord Justice Aikens:
I agree. Mr Squires, for the respondent, accepted that the proposed amendments alleging deceit were properly pleaded and could not be struck out on the ground that they did not raise an arguable case. In the absence of any evidence whatsoever as to why this amendment would cause irremediable prejudice to the FSSL, I cannot accept the submission Mr Squires made that these amendments should not be permitted because it is now too late. After all, his case has not got beyond the stage of an attempt to strike out the claim. It is not like many of the decisions to which we were referred, (including that of Brown v InnovatorOne) which concern an attempt to amend during the trial itself.
Once that amendment is allowed, the trial of the deceit claim will have to go ahead unless it is settled in the meantime. As my lord has pointed out, the precise scope of the immunity of witnesses, which may have seemed clear at the time Evans was decided, is no longer so as a result of the five speeches of their Lordships in Darker, which lay different emphasis on different factors. The present case is not the right one to analyse and define the outer limits of the immunity, because I suspect that, as a result of Darker, whether there is immunity or not will depend on the precise facts of a particular case. We must not prejudge what will be found when the facts are investigated here. To the riposte that such an approach undermines the purposes of granting immunity in the first place I would give the same answer as Lord Hope of Craighead gave in Darker at 446C-D. The general principle must be that where there is a wrong there is a remedy and immunity is a derogation from a person's right of access to a court which requires to be justified. A justifiable boundary has to be drawn somewhere, but it cannot be drawn when you do not know the terrain.
The next question, that is, whether the respondent can owe the appellant a duty of care so as to found any claim in negligence, must also depend on the facts. As Mr Squires accepted, the issue here must be whether it is "fair just and reasonable" to impose such a duty, because the requirements of foreseeability of damage and proximity can readily be satisfied. Whether it is fair just and reasonable to impose a duty of care must depend on the facts, in particular the nature of the body "The Forensic Science Service Limited" and what precisely happened to the bullet and how it came to be mislabelled. They are all going to be investigated in any event as a result of the amendment pleading deceit.
As for the Human Rights Act claim, the key issue (assuming that there is no immunity) is whether the FSSL is a public body or not. It is not clear to me, on the facts we have, which side of the line it falls on. That also needs investigation.
39. For those reasons I would allow this appeal. | 3 |
Lady Justice Hallett:
This is an appeal, in which permission to appeal is not required, from an order made by HHJ Simpkiss on 12 September 2012 whereby he ordered Mrs Sarah Coates to be sentenced to 28 days in prison, suspended until 12 October 2012. The suspension of the sentence was on condition she complied with injunctions obtained by the respondent council on 7 July 2011 and varied by order of the court in August 2011 and October 2011.
On Tuesday of this week we refused an adjournment requested by Mr Jones on behalf of Mrs Coates because full transcripts were not available of the hearing and the judgment. My Lord and I concluded that it was important to have this matter resolved and that sufficient time had elapsed between the making of the order and this application being heard. This is, after all, an application which relates to the liberty of the subject.
HHJ Simpkiss found the appellant to be in contempt of court for breach of an injunction order made by HHJ Hammerton sitting in the Dartford County Court in July 2011. The injunction order prohibits residential occupation of the land known as The Stables, Station Road, Sutton at Hone, Dartford. At the time the injunction was first made it was targeted at a number of named individuals, which did not include Mrs Coates, and "persons unknown". One caravan was permitted on site. Ms Bolton for the local council has provided a description of the land. She described it as being within the Green Belt on a site of potential archaeological interest. The Environment Agency has confirmed to the council for whom she acts that it would probably object to any application for planning permission and the use of the land could cause environmental harm. The appellant concedes that her residential use of the land at present is a breach of planning control but says that she hopes to appeal successfully the refusal of planning permission for change of use.
Mrs Coates in fact bought the land from a Mr Gaffney, to whom the original injunction had been specifically addressed. Until she bought the land in May 2012 she had been living in recent years in a caravan at her parents' property. However, she moved on to the land on 12 May 2012 with her children, one of whom is severely disabled. She claimed that she was unaware of the injunction until the local council informed her on 12 May this existed. She accepted she was informed again on the 14th and then again on 18 May 2012. Albeit the original injunction would have applied to her because it was targeted at "persons unknown", for the avoidance of doubt she was made a party to the litigation soon afterwards.
Mrs Coates, when confronted with the injunction, declined to leave, saying she had nowhere else to go. She has stayed in occupation despite the injunction and a hearing on 11 July 2012 at which HHJ Cameron found against her in the clearest possible terms, rejecting inter alia her assertion that she had nowhere else to go. She was refused permission to appeal and sought permission and a stay from the High Court. At the time of the hearing before HHJ Simpkiss and before us the applications remain unresolved, because, as Mr Jones explained, Mrs Coates's solicitors have been having difficulties in extracting from the county court a transcript of the judgment of HHJ Cameron to place before the High Court.
Mr Jones acknowledged that the appellant was in breach of the injunction. He also informed us that at the hearing before HHJ Simpkiss no oral evidence was called albeit there were statements from Mrs Coates before him. The hearing began with an application for an adjournment pending Mrs Coates' attempt to appeal the injunction and to rectify her planning status. HHJ Simpkiss had a very full list and at one stage was concerned about the length of time that the hearing was likely to take. However, having heard submissions from both counsel, he eventually decided not to adjourn and he continued with the hearing, ensuring that other cases in his list were put off to either another court or another day.
During the hearing HHJ Simpkiss was confronted with a wide-ranging attack by Mr Jones on the findings made by HHJ Cameron. Mr Jones insisted that they were relevant to the issues before HHJ Simpkiss as to whether or not Mrs Coates was in wilful breach of the order: in other words, whether it was possible for her to comply with it. He argued that she had nowhere else to go and therefore she could not be described as being in wilful breach. He referred the judge to Mrs Coates' ethnicity and lifestyle and emphasised the importance to her of not being housed in bricks and mortar. He also properly brought to the judge's attention the difficulties that Mrs Coates faces in looking after her children, in particular her disabled child, as a single mother.
Despite what were no doubt powerful submissions by Mr Jones, the judge was satisfied that there was a deliberate breach and he ordered that Mrs Coates was in contempt of court by remaining in residential occupation of the land and he sentenced her to the 28 days suspended to which I have already referred.
The law appears to be common ground. A number of provisions of the European Convention on Human Rights are potentially in play here. The members of this court are extraordinarily familiar with them and so I do not need to rehearse them in the course of this short extempore judgment. In particular I have very much in mind the provisions of Article 8 of the Convention and the provisions of the First Protocol of Article 1. Mr Jones was entitled to rely upon the First Protocol of Article 1, because the land in question belongs to Mrs Coates. She is not, he emphasised, and I readily accept (as did HHJ Simpkiss), a trespasser.
It is also common ground that the burden of proof was on the council, in an application to commit a defendant to prison for contempt of court, to prove that the appellant was in deliberate breach of an order of the court. The standard of proof to be applied was the criminal standard: the judge had to be satisfied that he was sure that there was a deliberate breach.
Mr Jones also invited our attention to the decision in South Bucks DC v Porter [2003] 2 AC 558 in which the court had been confronted with applications for injunctive relief under the planning regime. The House of Lords emphasised that, in deciding whether or not to grant such relief, the court is far from a rubber stamp. In typically wise words, Lord Bingham observed that the court must have regard to all relevant circumstances including the personal circumstances of the person to be made subject of the injunction and that it was essential that that an individual's Convention rights should be given proper consideration. Ms Bolton did not appear to contradict the importance of a full and fair consideration of an individual's Convention rights when deciding whether or not to grant injunctive relief, but brought to our attention the fact that these matters had been considered very fully before HHJ Cameron.
She also referred us to the recent decision in Broxbourne Borough Council v Robb [2011] EWCA Civ 1355, which she argued provided a clear ratio that it is no defence to a committal application for a Romany gypsy, even one with young children, to claim they have nowhere else to go after they have been ordered to leave land which they occupy in breach of planning control.
Mr Jones, asked whether he accepted that this was indeed the ratio of Broxbourne, was prepared to agree subject to qualification of the word "defence". He sought to insert the word "automatic" before it so that the ratio would read :
"It is not an automatic defence to a committal application for a Romany gypsy to claim they have nowhere else to go."
Further, he sought to distinguish the facts of Broxbourne from the facts here. He observed that the individual concerned in Broxbourne had deliberately moved on to the land in breach of an order and he had done nothing to find himself alternative accommodation. Mr Jones was anxious to assure the court that that was not the situation here and that Mrs Coates was in complete ignorance of the injunction when she moved onto the land. She would not be in the position she is today were it not for the consistent failings, as he would have it, of the local authorities to comply with their statutory duty to provide a sufficient allocation of land for residential use by Romany gypsies.
Ms Bolton further relied upon the decision in Sheridan v Basildon Borough Council [2012] EWCA Civ 335- a housing case in which it was held that the offer of bricks and mortar accommodation to a Romany gypsy who claimed to have no where to go was capable of amounting to an offer of suitable accommodation when the gypsy was removed from an unlawful site. The relevance of that decision, Ms Bolton argues, to the facts of the present case is that the local authority here is prepared to rehouse Mrs Coates in bricks and mortar. In fact she has previously been a tenant of a traditional council house in which she lived from 2000 to 2003, which she bought from the council and then sold. There was evidence from the appellant herself to the effect that she had been offered housing by the local authority. Mr Jones for his part countered with the information that any offer of rehousing did not relate to a specific property and that any property that was offered to Mrs Coates would have to be suitable for the particular needs of the family, in particular, her disabled son.
With that background, Mr Jones advanced the following grounds of appeal. First, he complained that the judge had erred in applying the wrong standard of proof to the issues he had to decide. Mr Jones submitted that the judge had in effect relied upon findings of fact made by HHJ Cameron to the civil standard of proof, the balance of probabilities, in finding in the council's favour. Given the burden of proof was to the criminal standard where wilful breach of a court order is in play, the judge must have misdirected himself and taken into account irrelevant matters.
Second, he argued that the judge had failed to apply the test of whether or not he was sure that the appellant was in wilful breach to the questions of whether she had alternative accommodation that accorded with her Romany gypsy lifestyle, whether she had resources to go elsewhere and whether she had indeed, as she insisted, bought the premises ignorant of the existence of the injunction. Mr Jones did not shrink from criticising the council for failing "to inform those who were representing Mrs Coates" of the existence of an injunction when the relevant searches were carried out for the purchase to take place.
Mr Jones argued that the material was not there for the judge to find to the criminal standard that she was in wilful breach and he complains that the judge made no direct reference to the Convention rights of the appellant when he reached his conclusions. In particular, Mr Jones complained (and this is potentially a separate or sub-part of the first ground of appeal) that the judge failed to perform appropriately the balancing exercise as to what was proportionate when imposing a prison sentence.
For my part, it was not clear to me the extent to which the entirety of this argument relating to alternative accommodation survived Broxbourne. However, to the extent that it is relevant, it is plain that the judge did appreciate the standard that he had to apply and he recorded Mr Jones' submissions to that effect without demur. He accepted, as it seems to me reading his judgment as a whole, that he had to be satisfied to the criminal standard that Mrs Coates was in wilful breach. He said in terms that he could not rely on the findings of HHJ Cameron as to the availability of accommodation elsewhere, for example with an uncle or with a parent, and he could not make such findings without hearing evidence himself. But what he could do was act upon admissions made by Mrs Coates to the effect that she had alternative accommodation available (whether or not the precise location of the property had not yet been identified by the local authority). To my mind, all that the judge was doing when he was reciting what had happened before HHJ Cameron was doing what many judges do, particularly in an extempore judgment: they recite the background to the present proceedings.
As Ms Bolton observed, the judge was not required to ask himself whether he was satisfied beyond reasonable doubt that the appellant had accommodation available to her that accorded with her Romany gypsy lifestyle. He was required to consider whether he was satisfied beyond reasonable doubt that it was possible for her to comply with the terms of the injunction and he declared that he did. Accordingly, I for my part was not persuaded there was any merit in the first ground of appeal under the heading "standard of proof".
I turn to what Mr Jones has categorised as his "human rights" arguments. He submitted that the judge had demonstrated an inappropriately dismissive attitude to the human rights issues in this case. He summarised the judge's approach as being one of dismissing the rights and interests of Romany gypsies or those who belonged to the travelling community as simply "hundreds of cases" which involve hundreds of human rights arguments. He took us to page 38H of the partial transcript we have of the hearing. HHJ Simpkiss, having heard some submissions from Mr Jones in relation to the law and the facts, said this:
"Subject to that, but I want to finish reading this skeleton and it is fair that I should read it. It is essential that I should read it but I have not unfortunately -- I mean one of the problems that arises in this type of case, and I have had it before, several times they get listed in shortish appointments and then one is faced with hundreds of human rights cases. I have taken a robust line so far and I have been threatened with the Court of Appeal, I have not yet been appealed. [Makes a reference to the Master of the Rolls].
I will finish reading this skeleton and I will keep my mouth shut that'll probably speed things up. I will hear from you just concluding what you are going to say. I am not going to decide the adjournment point at the moment because part and parcel of that, I think, is going to be whether I have had enough time to do justice to this case."
Mr Jones takes exception to the reference to "hundreds of cases". He couples that with remark made in an unapproved note of judgment to this effect:
"The rest of his defence refers to the body of voluminous litigation before the European courts relating to breaches of planning permission"
Mr Jones argues that when you take these comments together they indicate that the judge has a closed mind to the human rights issues in the case, to the human rights issues involved where there are alleged breaches of planning control, particularly in the case of Romany gypsies or travellers.
To my mind this was but the first of a number of personal and totally inappropriate criticisms made by Mr Jones. To be fair to him, when he realised the import of how his criticisms might be read, he did attempt to retract them, but his intemperate argument did his cause no favours. It displays an excess of sensitivity. The judge, when he referred to the "hundreds of cases" before him was doing no more, no less, than what many a judge will do which is try to discourage the over citation of authority particularly in a case listed for only a short period. He wanted to keep an own eye on the clock, to get the advocates to keep their eye on the clock and to focus on the issues before the court. He did not wish to travel over ground that had been rehearsed before unless it was relevant to the issues before him, nor did he wish to be taken through a whole series of cases which established principles which were in fact common ground. It is plain to my view, from the partial transcript that we have, that the references made by the judge were perfectly legitimate. He was not intending to underplay or undermine the importance of human rights jurisprudence in the European court. He was merely ensuring that counsel kept their references to authority to a minimum. Far from the judge displaying a dismissive attitude to the human rights arguments, it is plain that he gave appropriate time to all relevant arguments. At one stage he complimented Mr Jones on the cogency and lucidity of the arguments that he had been advancing and made sure that other cases in his list were moved so that he could give full justice to this case.
Similarly, Mr Jones accused the judge of behaving improperly when he made what has been described as "the filibustering comment". This appears at page 48E of the transcript. The judge said that he was quite keen to hear about what Mr Jones said about Broxbourne but he was concerned about the other cases in his list and wanted to know how long this case would last. Mr Jones attempted to reply and the judge said this:
"I have to say I have experienced what I can only describe as filibustering arguments in these sorts of cases before. I am certainly listening to what you sat but it is down for two hours, your side have not indicated for a moment that that was not going to be an adequate estimate. They should have done ages ago. I feel slightly that you are trying to pull a loaded gun to my head..."
Mr Jones, as I have indicated, retracted his earlier assertion that this passage displayed prejudice on the judge's part against those who represent gypsies, but he did still argue that this showed an unfortunate attitude towards those in Mrs Coates' position.
I have already noted the extent of time that the judge gave this hearing, and, to my mind, the mention of the word "filibustering" did not indicate prejudice to Mrs Coates' case. This was a case where an application for an adjournment had been made to a judge who had a busy list in front of him. If counsel were so minded they could try to prolong their submissions so that they got the adjournment for which they had contended by another means. I do not take the judge's comment as indicating any kind of prejudice against Mr Jones for representing a Romany gypsy. This was simply another attempt to get counsel to focus.
I come to the same conclusion on Mr Jones's final point, which was an allegation that the judge had demonstrated prejudice, albeit not conscious prejudice, on the grounds of the appellant's ethnicity. This complaint was based on a comment which comes towards the end of the hearing when the judge came to sentence Mrs Coates. Unfortunately this is an aspect of the case where a full transcript might have been of assistance because what happened is in dispute. We have a note of the judgment from Mr Jones's instructing solicitor that HHJ Simpkiss said :
"HHJ Simpkiss – Sentencing, Mrs Coates stood for the Court.
No doubt Mrs Coates you are used to these kinds of cases."
Ms Bolton, who was also present, informed us that, as she understood what the judge said to be :
"No doubt you are used to these kinds of proceedings."
As soon as the comment was made, whatever the exact terms, Mr Jones, having understood the judge to be suggesting that the appellant was familiar with committal proceedings and being sentenced to imprisonment, raised his concerns with the judge. Ms Bolton has recorded that the judge responded that Mr Jones had got it wrong. That was not what he meant. He was simply referring to the fact that she must be familiar with the proceedings as far as this land in particular was concerned. Nevertheless, Mr Jones has argued before us that, given Mrs Coates has only appeared before the courts on one or two previous occasions in relation to this land, this was an inappropriate comment and indicates some kind of closed mind towards Mrs Coates.
Whatever words were used having considered the transcript of the proceedings that we do have and the note of the judgment, I have no doubt that there was here simply a misunderstanding on the part of Mr Jones. The judge did not intend to slur Mrs Coates with an implication that she was somebody who was repeatedly guilty of breaching court orders. Once the judge had said these words and given an explanation, (if that is what he did) that should have been the end of the matter. This was not a point not worth pursuing and I do not intend to dignify the complaint with further consideration. I detect here no prejudice, conscious or unconscious on the part of the judge towards Mrs Coates in particular or Romany gypsies in general.
The final ground of appeal is in relation to the actual sentence imposed. Mr Jones claims that the judge's approach to sentencing was irrational. He took the view that he should apply the same period for compliance with the court order as was given in Broxbourne. Mr Jones complains that here again the judge has failed to refer appropriately to Mrs Coates' human rights and he has made no allowance for the exceptional needs of her and her family. He submitted this was an inappropriate way of approaching Broxbourne. Again, in my view, it is important to read all that the judge said. When one does that it is absolutely plain that the judge was acutely aware of the personal circumstances of Mrs Coates and the needs not only of her and her children but in particular of her disabled child. The judge did not blindly follow the periods and sentence handed down in Broxbourne. I have no doubt that the judge very much bore in mind the appellant's personal circumstances (repeatedly put before him by Mr Jones) when determining the sentence, exercising his discretion to suspend the order and granting a period of time for compliance. The fact that the judge noted this was the same compliance period as provided for in Broxbourne does not mean it was not appropriate and it certainly does not mean that the compliance period was irrational.
Therefore I would reject Mr Jones's argument in this respect as well. A judge is not obliged to reiterate as a mantra all the considerations that he has borne in mind provided it is clear that he has taken all relevant circumstances into account.
For all those reasons, therefore, I am satisfied that this appeal should be dismissed.
Lord Justice McFarlane:
In reading the papers for this case, two matters struck me as of particular importance over and above the detailed matters that my Lady has so clearly spelled out. The first was that this is a case which involves an order committing a young mother to prison, albeit a suspended order, she being the mother of three children, the eldest having significant disabilities and she being an individual who has the particular aspects of her ethnicity, culture and finances that my Lady has summarised. The second matter that struck me was that experienced senior junior counsel plainly left the courtroom on the day of the hearing considering that the approach of the judge both to the manner in which the hearing was conducted and also to the structure and legal content of the judgment had been markedly in error and, as counsel told us this morning, that the mother had thereby been the victim of a massive injustice. That caused me to look anxiously at each of the matters raised. In the cold light of that process, albeit at some distance from the courtroom on the day, partly because clearly we were not there but also because the notes of the process are not complete, I am however entirely satisfied in the same terms that my Lady has spelled out, that this appeal can only be dismissed and I too therefore agree.
Order: Appeal dismissed
Post Judgment Discussion
LADY JUSTICE HALLETT: Any consequential orders?
MR JONES: My Lady, yes. I do apply for an extension of time. The order obviously ran out at some stage in October, for Mrs Coates to comply with the court order.
LADY JUSTICE HALLETT: Was it, I cannot remember, presumably it hasn't been running …
MR JONES: It has been stayed.
LADY JUSTICE HALLETT: It has been stayed pending the resolution of the …
MR JONES: Pending resolution of the …
SPEAKER: …. Contact, I got that.
MR JONES: It has been stayed pending this resolution and I ask for no order extending it. This is a matter, you have all the personal facts, I won't reiterate them, but I do make an application to extend it for a further 28 days.
LADY JUSTICE HALLETT: Ms Bolton?
MS BOLTON: That's not opposed.
LADY JUSTICE HALLETT: Right, well we … let's just think. We have, what day are we today? I think if it is probably better if we make sure we have a date in mind.
MR JONES: Well, today is the 7th
LADY JUSTICE HALLETT: 7th …
MR JONES: 8th. It does occur to me that permission to appeal from HHJ Cameron's order, which you anticipated would be determined in the course of the next week or so…
SPEAKER: Determined on the papers, yes.
MR JONES: If permission is given to appeal what is to happen to this order?
LADY JUSTICE HALLETT: That is just what I was thinking.
MS BOLTON: Well my Lady, these are all parts of the discussions of the Court of Appeal in Broxbourne. A stay was put in place there. The fact there is a court order and there isn't any accommodation, and otherwise you will be permitting a continued breach of a court order. It is my submission that that should not be a consideration at this stage.
LADY JUSTICE HALLETT: The High Court judge won't be able to do anything about this order, even if they granted permission to appeal, would they? It is only a question of what we can do. Is that right?
MS BOLTON: I believe that's correct.
LADY JUSTICE HALLETT: Well, given that both I and my Lord are in the building for the next, well … to the end of term.
LORD JUSTICE MCFARLANE: : … We are effectively putting the order back in place, as it were, on HHJ Simpkiss
LADY JUSTICE HALLETT: So liberty to find …
LORD JUSTICE MCFARLANE: : … apply to the County Court.
LADY JUSTICE HALLETT: Yes. I don't know if you both heard that. My Lord was saying … effectively what we are doing is putting the County Court order back in place. Therefore if we allow 28 days, and if there needs to be any further adjustment in the light of perhaps something the High Court judge says or whatever, then the parties could return to the County Court, couldn't they? Is that right?
LORD JUSTICE MCFARLANE: To vary the suspension…
LADY JUSTICE HALLETT: To vary the suspension, if there were grounds.
MR JONES: Yes, because it's a County Court order.
LADY JUSTICE HALLETT: County Court order, and if there were grounds. So it has to be good grounds, Mr Jones, I am not suggesting you could just potter back and say we would like a bit more time and a bit more time, but supposing something happened that truly affected things – that's where you ought to go, isn't it?
MR JONES: I believe that's right. I would be reassured if my learned friend also agrees so we don't …
MS BOLTON: My Lady, I do agree ….
LORD JUSTICE MCFARLANE: Yes. But it would be the alternative is for this court to be running this bit of the case, and I think that is not …
LADY JUSTICE HALLETT: Yes, it would be better if it went back to the County Court.
MR JONES: I cannot see any reason why it shouldn't, and obviously a note will be taken of what your Ladyship and your Lordship has said, and I note of course that there needs to be good grounds, but subject to that there are good grounds; it seems to me perfectly proper to go back to them.
LADY JUSTICE HALLETT: So right, in which case we will say 28 days, shall we fix the actual date?
LORD JUSTICE MCFARLANE: Fix the date, one is … what is Thursday in four weeks' time.
MS BOLTON: That would be the 7 December.
LADY JUSTICE HALLETT: 7 December?
MR JONES: 7th.
LADY JUSTICE HALLETT: Very well, well the date is now 7 December Any other consequential orders?
MS BOLTON: My Lady, the respondents apply for their costs in this matter. Obviously we have been successful and accordingly we do seek our costs to be assessed, if not agreed
LADY JUSTICE HALLETT: What is Mrs Coates position? Is she publicly funded?
MR JONES: Publicly funded with a nil contribution. I ask for the usual … I accept the usual order
LADY JUSTICE HALLETT: You accept … So it is to be the usual order … costs but not to be enforced without leave of the court?
MR JONES: Yes indeed, my Lady.
LADY JUSTICE HALLETT: And do you require any planned taxations?
MR JONES: We do ask for detailed assessment of legal aid costs, yes, on instructing solicitors.
LADY JUSTICE HALLETT: Thank you, yes certainly.
LORD JUSTICE MCFARLANE: Plainly Mrs Coates will make her own decision, but the local authority, as I understand it, still have open their offer to rehouse her but that involves her engaging in the process of being assessed of her housing needs and the other consequential procedural steps.
MR JONES: Indeed, my Lord.
LADY JUSTICE HALLETT: And we do have Christmas coming up, and I would hate to think about her and her family with nowhere to go because she hadn't engaged with Christmas coming up, if she were to continue to lose in the court, so I hope you will give her some sound advice Mr Jones, because she has got to think of the children. Thank you. | 3 |
MR. JUSTICE NEUBERGER: On 26th February this year I made an order in connection with an application by the Commissioners of Customs and Excise ("the Commissioners") to restrain Anchor Foods Ltd. ("AFL") from transferring effectively the whole of its business to another company. The Commissioners' claim against AFL, the financial claim on which the injunction sought was based, arose out of certain PCDNs (whose nature is briefly explained in my earlier judgment). Although I had some doubt about the Commissioners' case, which was based on the contention that the transfer was at very substantial undervalue, I thought it right to grant the order but, rather unusually, I also decided to require the Commissioners to give a cross-undertaking in damages.
Because I had such doubts, I included a rather unusual provision enabling, in effect, AFL and its accountants to persuade the Commissioners and their accountants that the proposed transfer of the business was not at an undervalue. The order that I made included an order for costs in the cause. As a result of discussions which subsequently took place between the parties' respective accountants, the Commissioners have decided, as I understand it, that they can no longer maintain the contention that the proposed transfer is at an undervalue.
There is no suggestion, very fairly, on behalf of AFL that the advice that the Commissioners were given was not in good faith. Views developed in something of a hurry and without full information can change as a result of further consideration of new facts and discussions and deeper thought. It is right and proper for accountants, like all other professionals, particularly when advising or giving evidence in connection with litigation, to state their honest views and, far from criticising the accountants advising the Commissioners, I consider that they appear to have acted entirely properly.
In the event, therefore, I am now invited to discharge the undertaking which was offered on behalf of AFL, and I do so. I am also asked by AFL to stand over any claim it might have on the Commissioners' cross-undertaking in damages. Provided that, when this matter comes next before me, an appropriate timetable is agreed, so that the matter is not left hanging in the air, I also do that.
There are, however, two other issues which arise. The case is due to come before me in eight days time, because AFL contends that the proceedings should be stayed. It argues that the proper way in which its liability, if any, should be determined under the PCDNs is before the tribunal and that these proceedings before the court are inappropriate and misconceived. That turns on the construction of the Community Customs Code and, in particular, I think, art.242.
If that argument is right in principle, then, subject to any other argument, I anticipate that a stay will be granted. If it is wrong, then the Commissioners wish to argue that, however unfair it may be suggested to be, they would be entitled to judgment for the whole amount claimed in the PCDNs on the basis that the terms of the Code entitle the Commissioners to recover the whole of the amount claimed in the PCDNs when they are issued, and that the application to the tribunal by AFL will, if successful or to the extent that it is successful, result in AFL's being entitled to a repayment.
At the moment it seems to me that that is something which, if it is possible to decide in eight days time, should be decided then. It is a point which is said by Mr. McCombe for the Commissioners to turn upon construction of the Code. To a substantial extent it is said to be a mirror image of AFL's case in support of the stay. If that is so, I see no good reason why it cannot and should not be determined at the same time. It involves abridging time but only by one or two days, and there has been no suggestion of prejudice to AFL as a result of abridging the time, provided the issue is limited to one of construction.
Mr. Lewis on behalf of AFL suggests that the Commissioners' case may involve having to go into the various defences of fact raised by AFL. I make it clear now, and indeed Mr. McCombe has made it clear, that if that is right, then it would be inappropriate for the application of the Commissioners to proceed in eight days time.
Given that it may turn out on further analysis that the argument on the Commissioners' case will be more complicated or more wide-ranging than Mr. McCombe has suggested, I should not want it to be thought that I am saying that I will hear it on Friday come what may. If it is simply the mirror image of AFL's case, then I cannot see any reason for not hearing it. Equally if it involves going into detailed facts, then, as Mr. McCombe himself accepts, there can be no question of dealing with it. If it turns out to be somewhere in the middle, then to some extent one will have to use commonsense, but I have to say in fairness to
Mr. Lewis that, if it involves significantly more than a mirror image of the stay application of AFL, then I would not anticipate letting it proceed in eight days.
That brings me to the other matter. Mr. Lewis argues that I should award AFL the costs of and occasioned by the preparation for, and evidence and argument at, the hearing resulting in the order of 26th February and the costs of the discussions that took place thereafter. In principle and subject to one point, I have very considerable sympathy with that submission. I quite accept that the Commissioners have acted in good faith. I quite accept that the advice they took was on the face of it sensible advice (and if, as I said, I was sceptical about it at the time, that does not make it unsensible) and it was itself given in good faith.
However, it seems to me that if a party, be it the Commissioners or anyone else, applies for a freezing order or any other order interfering with the commercial freedom of another organisation, then in the absence of very special circumstances it does so at its own risk. An award of costs is intended to be compensatory and is not normally punitive in its aim. If I were free to do so, I would grant AFL its costs of and occasioned by the interlocutory hearing and indeed the reasonable costs incurred in connection with the negotiations afterwards. It seems to me that those negotiations resulted from - and solely resulted from - the Commissioners' application. There would be no reason, particularly bearing in mind that AFL could not recover more than what was reasonable by way of costs, to exclude them. After all, what the Commissioners have avoided was a longer period of the injunction running, with the risk of a larger possible claim for damages, and a further hearing which would itself have involved considerable expenditure. Indeed that was the whole purpose of the rather unusual provision in the order.
The point taken by Mr. McCombe is that I ordered costs in cause and I cannot go behind that. Two arguments are put the other way by Mr. Lewis.
The first is that I have a wide discretion on costs, in particular in light of CPR rule 44.3, and that I can, as it were, revisit my order on costs which is pre-eminently a matter of discretion. Attractive though that argument is, I must reject it. It seems to me that when the court makes an order, only in the most exceptional circumstances such as those involving fraud or the slip rule, could the court revisit the order even where it is for costs. The court cannot act as an appellate court in respect of its own orders. It is not even as if the circumstances in which I am asked to revisit the order were not contemplated at the time when the order for costs was made. The order for costs was included in an order which reflected the possibility of the parties talking with a view to the undertaking (in lieu of the injunction I would have granted) being discharged. That is precisely what has happened.
The other course suggested by Mr. Lewis is that I revisit the question of costs in the sense of ordering the costs of these proceedings up to a certain date to be AFL's in any event thereby sweeping up the costs in cause. I am tempted by that, and I suggest that his application be renewed on Friday week. The reason I do not think that it is right to deal with it today is that I simply have insufficient information to satisfy myself that I can fairly make such an order for costs today.
If the stay is granted on Friday week, I anticipate (although, of course, it will be subject to argument) that AFL would have a powerful case for all its costs, including the costs in cause. If I grant summary judgment in favour of the Commissioners or refuse any relief to either party Friday week, then it may still well be possible for AFL to persuade me then to make an order for costs up to a certain date. However, in order to make a proper and fair order for costs it will be necessary for me to know, for instance, if I made an order for costs in favour of AFL, what costs to exclude. It may, for instance, be right to exclude merely the costs of the writ and statement of claim, if any. Or there may be other costs which Mr. McCombe can fairly say should be excluded from any order for costs in favour of AFL.
Accordingly, if Mr. Lewis still wishes me to make an application for costs, I would be sympathetic in principle to considering it on Friday week. If the parties wish to suggest that certain costs are excluded or included in any order
I make, then they should come with brief but clear evidence or argument, given to the other side in advance, as to what they say should be done. But I think it would be unfair and might be unjust on the Commissioners if I were to accede to that course today without their having had proper notice of it.
I do not think that there would be the same risk of injustice, as at present advised, if I were to reconsider that application on Friday week.
MR. LEWIS: I am obliged to your Lordship for that. As I understand it, then the order would be that the undertakings should be discharged and that costs be reserved?
MR. JUSTICE NEUBERGER: Well, the costs of today be reserved and your application for costs----
MR. LEWIS: Be adjourned to Friday?
MR. JUSTICE NEUBERGER: Yes. I mean, really - yes. Or you can make a fresh application as to how the costs up to and including next Friday are dealt with on Friday. If you win your stay, then you might be pushing at an open door for all your costs to date.
MR. LEWIS: Indeed.
MR. JUSTICE NEUBERGER: I say "may", because I do not know what Mr. McCombe will say.
MR. LEWIS: Indeed. I am obliged to your Lordship for that indication. Only one other matter arises and that is that your Lordship effectively indicated that the summary judgment should only be proceeded with on Friday week if my learned friend was right as to what the summary judgment involved.
MR. JUSTICE NEUBERGER: They would fit the summary judgment.
MR. LEWIS: The further basis of the summary judgment. In other words, that it is a point of law alone - a point of construction alone and not of fact. I would be anxious that my client should not be under an obligation to serve evidence in response to whatever evidence my learned friend's clients have served, when that evidence is not going to advance matters one way or the other.
MR. JUSTICE NEUBERGER: I do not know what his evidence consists of, but if I understand his case correctly, it would simply involve saying, "These are the PCDNs we served. We are entitled to money on them". But it may be a lot more. Even if it is a lot more, it may just be for convenience that it is a witness statement. But I see your point.
MR. LEWIS: It clearly would not be right for us to have to set out what we say our defences are to an O.14 application if it extends beyond the question of the law.
MR. McCOMBE: My Lord, we entirely agree with that. What our witness statement - I am sorry. I hoped my learned friend would have seen it before he came in, but it did not quite work. The summary judgment application does not go to the full extent of the PCDNs included in the writ.
MR. JUSTICE NEUBERGER: I see.
MR. McCOMBE: There are other administrative matters that need to be taken into account, and the reduced claim is for, I think, £125 million. What we have done in the witness statement is to illustrate why we have confined the claim as far as we have.
MR. JUSTICE NEUBERGER: But really all you are----
MR. McCOMBE: There is nothing to say, "Well, this is butter and therefore it is dutiable at this rate".
MR. JUSTICE NEUBERGER: Basically your claim is, "Here are the PCDNs. Here are the regulations. End of story"?
MR. McCOMBE: Yes. That is it. But, my Lord, illustrating why we have confined it in the way we have.
MR. JUSTICE NEUBERGER: So the evidence really explains why you are asking for so little rather than so much?
MR. McCOMBE: Well, yes.
MR. JUSTICE NEUBERGER: I am sure that that is not the way Mr. Lewis sees it!
MR. McCOMBE: I do not want to steal my learned friend's thunder again when he sees the evidence. There may be other things that he wants to say about procedures. As we see it, all we have done is said, "Here are the PCDNs, and this is why we are not asking for the full amount of them summarily but only a more modified claim".
MR. JUSTICE NEUBERGER: What I am minded to say, Mr. Lewis, is if the evidence goes further than that, you do not have to answer it. And no adverse inferences will be made from it.
MR. LEWIS: I am obliged.
MR. JUSTICE NEUBERGER: The Commissioners' case, as I understand it, is simply, "We have put in evidence to explain why we are claiming less than on our case we might be seeking to claim". It may be that you will say, "Look, even on your case, you should be claiming less", and it may be that on Friday week all I should do, if I am in the Commissioners' favour is to give a judgment in principle and leave the parties to discuss the quantum or something like that.
MR. LEWIS: Indeed.
MR. JUSTICE NEUBERGER: But I think it is right that you should not be under pressure to put in evidence.
MR. LEWIS: I am obliged for that indication.
MR. JUSTICE NEUBERGER: Good. Or it may be that you cay say, "We will accept £100 million but even on the Commissioners' case we have got a defence for the balance" or something.
MR. LEWIS: Indeed.
MR. JUSTICE NEUBERGER: I think it unlikely - I know that you are sceptical about the whole of the Commissioners' case, but what I am saying is that if they are right, you may say, "Well, we would accept £100 million", and if contrary to your expectations I am with the Commissioners it may be right for me to say, "They are right in principle" and I will give them an interim order for that or something like that.
MR. LEWIS: Indeed.
MR. JUSTICE NEUBERGER: But by the sound of it you do not have to worry much about the evidence.
MR. LEWIS: I am obliged both to my learned friend and to your Lordship for those indications.
MR. JUSTICE NEUBERGER: I have not gone too far in what I have said from your point of view?
MR. McCOMBE: No, my Lord, I do not believe so.
MR. JUSTICE NEUBERGER: Thank you. How long do you estimate it will take on Friday?
MR. McCOMBE: My Lord, I have put in for this application a skeleton of some five pages. The skeleton that I anticipate drafting for the stay will be also considerably longer than my learned friend's might be in the light of the fact that he has not served any skeleton at all in relation to today. The basis on which my learned friend makes the case means that it is a short one, but the analysis that we put on it means that it cannot be dealt with shortly. In other words, if my learned friend were right, then the matter would be dealt with very quickly, no doubt. On the basis of the arguments that we put it takes more time to deal with the various different authorities and the various different points of law. So our estimate is that it will exceed half a day, and it will go into the second half of the day, but we will deal with it in one day.
MR. JUSTICE NEUBERGER: Right. If I want to start at 9.30, because I may have something to put in right at the end of the day - (after a brief discussion with the Associate): I thought I had another matter which was down - I have another matter which is down possibly for what is called "a good hour". I suspect that means a very bad hour. If I try to put that in at ten and give you a not before eleven marking?
MR. McCOMBE: We would be happy to start at 9.30 or to do as your Lordship wishes.
MR. JUSTICE NEUBERGER: If you have a choice, would you rather start early or finish late?
MR. McCOMBE: Start early in my case. I do not know what my learned friend would----
MR. LEWIS: It sounds like a good idea at this range.
MR. JUSTICE NEUBERGER: Let me see what can be arranged through the usual channels, but I will dispose of it on Friday. Would you agree with three to four hours? Does that sound unreal?
MR. LEWIS: No, it does not, my Lord.
MR. JUSTICE NEUBERGER: I look forward to seeing you. | 5 |
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Mr Justice Thomas:
Introduction
There is before the Court an application by the applicants to set aside an arbitration award on the grounds (under s. 67 of the Arbitration Act 1996) that there was no jurisdiction to make an award in favour of the first respondents as they were not a party to the arbitration agreement and on the grounds (under s. 68 of the Act) that there had been serious irregularities. The applicants also seek an order under s. 28 of the Act that the fees and expenses charged by the second, third and fourth respondents who were the arbitrators should be considered and adjusted by the court on the grounds that they were excessive. Before considering the issues raised by these applications, it is necessary to set out the background.
Background
The original agreement
The claimants are the successors in title to Hussmann Craig Nicol Limited (HCN). No point arises on the assumption by the claimants of the obligations and liabilities of HCN and I shall therefore refer to them both as HCN. HCN has been part of the Hussmann Corporation International (Hussmann USA) since 1984.
On 5 January 1990 HCN entered into a distributorship agreement (called the sales and services agreement) with Al Ameen Development and Trade Establishment of Saudi Arabia appointing them distributors for their products in Saudi Arabia. Under the law of Saudi Arabia, an establishment is in effect a registered trading name; it has no legal personality distinct or separate from its owner. Al Ameen Development and Trade Establishment was the trading name of Mr Ahmed Pharaon and was registered by the number 101007415. I shall refer to this as the Establishment to distinguish it from the first respondents to which the business was subsequently transferred as I shall explain .
By May 1991 the Establishment had ordered refrigeration cabinets from HCN for which a balance remained outstanding of about £217,000. On 28 May 1991, HCN agreed to accept £162,297 (amounting to 75% of the balance) paid by instalments. HCN maintained that their agreement to take 75% was conditional on punctual payment. The payments due were made punctually except in November and December 1991 and January 1992 when the payments were late. When the February 1992 payment was not made, HCN sent a chaser to the Establishment. They responded by saying that Hussmann products had been sold to the Al Azizya supermarket chain without their knowledge.
Although HCN manufactured refrigeration display cabinets, their parent Hussmann USA also manufactured cabinets, though their lines were different. HCN’s position in response to the point taken by the Establishment was that the sales to Al Azizya were sales by Hussmann USA and HCN was not involved. HCN went on to say that although the distributorship agreement was for HCN products, they had agreed with Hussmann USA to reserve a distributorship fee. This was paid by Hussmann USA to HCN who held that sum against what was owed by the Establishment. Matters between the Establishment and HCN continued to be the subject of dispute; one of the disputes related to a contention by the Establishment that it had appointed a sub-distributor, Al Naerabayn, and that entity was responsible for payment of goods supplied to it and not the Establishment. HCN contended that sums were owing and the Establishment maintained commission was due.
The transfer of the business to a limited liability company
In May 1994 the Establishment and HCN agreed that the Establishment would pay $57,428 in settlement of the outstanding balance. It was again HCN’s contention that it was a condition of this agreement that this sum would be promptly paid. It will be necessary to refer to the circumstances in which that agreement was made in a little more detail in due course; this is because a change was made shortly before this by Mr Pharaon to the ownership of the business. That change can be summarised as follows:
• By an agreement made on 25 December 1992, Mr Pharaon incorporated the business carried on by him through the Establishment into a limited liability company known as Al Ameen Development and Trading Company with a registration number 1010122156; this entity is the first respondent to this application and to distinguish it from the Establishment, I shall refer to it as the Company. Mr Pharaon’s family held 100% of the shares in the Company. After incorporation, the business of the Establishment was transferred to it and on 14 February 1994 the Ministry of Commerce of Saudi Arabia gave approval to the transfer.
• Mr Pharaon’s evidence was that a circular dated 4 April 1994 was sent to all those he did business with including HCN; that letter stated:
“Memorandum to Whom it may concern
We hereby inform that the name “Al-Ameen Establishment” is changed to read as “Al-Ameen Dev. & Trade Co.”. A copy of the Gazette paper is enclosed herewith.
Ahmed Pharaon
Owner & General Manager”
The copy of the Gazette dated 26 October 1993 enclosed was in Arabic; no translation was then supplied. From a translation that was before the arbitration tribunal, the Gazette notice made clear that the business of the Establishment had been transferred to the Company.
• HCN did not know whether they had received the notification, but their position was that they did not know of the transfer from the Establishment to the Company.
As this issue goes to the jurisdiction of the tribunal, it will be necessary to examine the question in greater detail in due course.
The termination of the agreement and the appointment of the arbitration tribunal
The payments promised to HCN were not made. HCN decided to terminate the agreement and did so by notice on 23 April 1996, because they wished to appoint a new distributor and recover the sum due. For both these reasons, on 7 February 1997 HCN commenced an arbitration under clause 17 (the arbitration clause) of the distributorship agreement of 5 January 1990 which provided:
“This agreement shall be governed under the commercial agencies regulation of Saudi Arabia, amendment and implementing procedures in accordance with the Royal Decree No. II dated 20.02.1382 Hijra. Any dispute arising out of or in connection with this agreement shall be finally settled in accordance with the arbitration provisions in the Rules of Conciliation, Arbitration and Expertise of the Euro-Arab Chamber of Commerce, by one or more arbitrator(s) appointed in accordance with the set rules.”
Their notice requesting arbitration was made against Al Ameen Development & Trade Establishment. In the notice Al Ameen was defined as follows:
“Al Ameen” means Al Ameen Development & Trade Establishment (also known as Al Ameen Development & Trade Co.) a limited liability company incorporated under the laws of the Kingdom of Saudi Arabia (Commercial Registration No. 7415) and having a place of business at PO Box 166, Riyadh 11411, Saudi Arabia.”
Although the definition referred to it being a limited liability company, the number given was the registration number of the Establishment.
The arbitration was to take place pursuant to the terms of the arbitration clause of the distributorship agreement under the Rules of Conciliation, Arbitration and Expertise of the Euro-Arab Chamber of Commerce to which it will be necessary to refer in greater detail. On 21 May 1997 HCN nominated Mr Anthony Murray as their arbitrator; he was at the time a partner in a firm of solicitors in Glasgow but has since become a partner of a firm of solicitors in London. On 22 July 1997 Dr Nader Gangi was nominated by Pearson Lowe solicitors instructed by Mr Pharaon and the Company as the arbitrator for the respondents to the arbitration; where it is not clear to me whether any distinction was being made between the Establishment, the Company and Mr Pharaon, I shall refer to the other party to the arbitration as the Respondents. Dr Gangi resigned in January 1998 and was replaced by Dr A Anvari, a lawyer practising in London. Thereafter the Euro-Arab Arbitration System appointed His Honour Judge Eugene Cottran as Chairman of the tribunal; he is a Circuit Court Judge who prior to his appointment had in the course of a distinguished career gained considerable expertise in Arab law. Permission was given by the Lord Chancellor to his appointment on terms that he conducted the arbitration in his own time and that any remuneration or fee charged was paid to HM Treasury. I understand that he very generoulsy and conscientiously agreed to the appointment on these terms to try and assist the Euro-Arab Chamber of Commerce and its new arbitral system. This was the first arbitration they had had which proceeded to a full hearing.
The pleadings, the hearing and the award
On 10 April 1997, HCN submitted their statement of claim claiming £108,000; they repeated in this pleading their definition of Al Ameen. The Respondents did not submit their defence and the counter claim until 2 February 1998. An objection was taken by HCN to the service of this pleading on the grounds of delay and this question was referred to the arbitrattion tribunal. Submissions were made. On 20 March 1998 the arbitration tribunal gave a detailed ruling running to some 17 pages dismissing the objection. A reply and defence to counter claim was served by HCN and there were directions meetings. The tribunal thereafter appointed its own expert on Saudi Arabian law; it will be necessary to refer to the tribunal’s conduct in relation to the expert evidence in greater detail as it forms the basis of one of the allegations of serious irregularity.
The hearing of the arbitration began on Monday 2 November 1998. At the commencement of the hearing HCN raised an objection to the admissibility
of the expert evidence; the tribunal in a ruling rejected this. HCN also raised an objection to the Company being party to the arbitration on the basis that it was not party to the distributorship agreement with HCN; they developed this later in the hearing after much more evidence was available. That objection was also rejected by the tribunal. The hearing lasted some 4½ days. On 11 June 1999 the tribunal signed their award. It was a lengthy document of some 68 pages with 9 annexes comprising the preliminary ruling and other documentation. They held:
• That HCN’s claim succeeded to the extent of $57,438.
• That the counterclaim for commission made by the Company succeeded to the extent of $660,287.32
• That HCN was therefore to pay the Company $602,859.32
• That the costs of Pearson Lowe in the amount of £54,310.50 be paid by HCN.
• That HCN was to pay the amounts paid by Pearson Lowe towards the costs of the Euro-Arab Arbitration System and the arbitrators’ fees and expenses which had been fixed by the Arbitration Board in the sum of £85,520.
The issues
The application made by HCN raised three main issues:
(1) Did the tribunal have jurisdiction to make an award in favour of the Company ?
(2) Did the tribunal’s conduct of the proceedings amount to a serious irregularity
(a) in relation to the expert evidence, or
(b) by failing to deal with certain issues put to it?
(3) Does the court have jurisdiction to review the fees and expenses of the tribunal and, if so, should the court direct an adjustment?
The Company, as the first respondent to the application, sought to uphold the award on the first two issues; however, they adopted a neutral position on the third issue. Their solicitor made it clear in his affidavit that they were not suggesting that the fees were excessive, but would have no objection if the court reviewed the fees downwards; they addressed no argument to the court on this issue as ultimately advanced by HCN. The arbitrators, as the second third and fourth respondents to the application took no part in the first two issues; on the third issue they contended that the court had no jurisdiction and that in any event the court should not adjust their fees and expenses. HCN’s application also included an application for leave to appeal under s.69 of the Arbitration Act, but this was not before the court and determination of that part of the application is to take place, without an oral hearing in accordance with this court’s usual procedures, after the determination of the issues presently before the court.
Issue 1: The jurisdiction of the tribunal to make an award in favour of the Company
HCN contended that the tribunal had no jurisdiction to make any award against the Company as the Company had never become party to the distributorship agreement, clause 17 of which contained the arbitration agreement.
Under the scheme set out in the Arbitration Act 1996, it is for the tribunal to consider and rule on its own jurisdiction, as it in effect did in this case. However if its decision is challenged, the court must ultimately decide under s.67 whether the tribunal has jurisdiction. The Company contended the tribunal did have jurisdiction as it had become a party to the distributorship agreement and thus to the arbitration agreement in clause 17; that HCN, in any event, had lost its right to object to the jurisdiction of the tribunal under s.73 of the Act, as they had failed to take the objection to jurisdiction forthwith before the tribunal when they knew or ought to have known of the matters relied on for their contention; they had nonetheless continued with the arbitration.
The law of Saudi Arabia
It was common ground that the question of whether the Company had become party to the distributorship agreement (and therefore to the arbitration agreement) was governed by Saudi law. It was agreed that the relevant provisions of that law can be summarised as follows:
(1) Contractual rights can be assigned. The agreement between the Establishment (or Mr Pharaon) and the Company was an effective agreement to assign the rights and obligations under the contract made between the Establishment and HCN.
(2) An assignment does not become binding on the other party to the contract unless that other party consents. There was no clear evidence as to what constituted consent under Saudi law, but it was agreed that to establish consent under the law of Saudi Arabia it would be necessary to show that HCN knew of the transfer of the agreement from the Establishment to the Company and expressly or impliedly consented to that transfer.
There were no witness statements before the tribunal (for reasons which will become apparent) and none before me dealing with the issue of consent save for the witness statement of HCN’s solicitor dealing with the position in 1998 when it is said that the position became known to HCN. My task was therefore to draw inferences from documents relating to the events prior to 1998.
HCN’s knowledge of the transfer of the business to the limited company
As the essential issue both on jurisdiction and the loss of the right to object raised issues of the knowledge of HCN, it is convenient to set out my findings on knowledge in relation to both issues together.
(1) Prior to April 1994 Mr Pharaon had written to HCN on notepaper which was headed “Al-Ameen Development & Trade Est.” in English with the equivalent in Arabic. At the foot of the notepaper, there was a notation in both English and Arabic which set out the commercial registration number of the Establishment and its branches.
(2) I accept that, on the balance of probabilities, the circular of 4 April 1994 was sent to HCN; they do not deny receiving it. However the notice did nothing more than to state that there had been a change of name. It was signed by Mr Pharaon as “Owner and General Manager”. It did, however, enclose the Gazette but only in Arabic; all the correspondence between the parties had been in the English language. I therefore cannot accept that the sending to HCN of the document in Arabic was in those circumstances sufficient to give them notice that there had been a change from a sole proprietorship into a limited liability company, particularly when the letter referred to this as a change of name only. The letterhead did contain the new name “Al-Ameen Dev. & Trade Co.” and at the bottom stated in addition to the address and the list of branches the words “Limited Liability Company - Paid up Capital S.R. 500,000”. It also gave the new commercial registered number. In view of the text of the letter and the necessity under Saudi law for knowledge of and consent to the transfer, I hold that this letter did not set out the change in a way in which it could be argued that HCN had the necessary knowledge. It certainly did not seek their consent.
(3) Mr Pharaon said in a statement that was before the tribunal that he told Mr Stowell of HCN at the FMI exhibition in 1993 that the name Al Ameen Est would be changed to read Al Ameen Co; however this evidence was no more than evidence of a change of name and not a change of the legal status of the person with whom HCN had done business and there was no evidence that the consent of HCN had been sought. There was a meeting between Mr Pharaon and Mr Morgenthaler (representing HCN) at the FMI exhibition at Chicago in 1994. That meeting was the subject of evidence by Mr Morgenthaler and Mr Wallace Fairweather (also representing HCN) set out in witness statements served in the arbitration. Those statements dealt solely with discussions at that meeting relating to settlement of the outstanding balance and the dispute over commission; nothing was said about the change to a limited company. That is not surprising as, at the time the witness statements were prepared, the issue was not a live issue at the arbitration, as HCN did not know of the change. However, when, as I shall explain, the issue became a live one at a late stage at the arbitration hearing, no further evidence was adduced then or was adduced for the purpose of the hearing before me. Instead it was submitted that a letter written by Mr Pharaon on 8 May 1994 confirming the agreement reached at that meeting and the subsequent correspondence demonstrated that HCN knew of the change to a limited liability company. Apart from the use of the new notepaper, there was nothing in that letter, or the subsequent correspondence which, in my view, would have brought the change to the knowledge of HCN. It was argued that, by use of the terms such as “we agree to settle our account with you concerning the old debt” and “Hussmann agreed to co-operate with Al Ameen Co... as before”, the offer was being made by Mr Pharaon that the Company should take on the old debt and that the Company should act as before. It is quite clear however from the context in which this letter was written that these references were to the dispute over the outstanding balances and the desire of Mr Pharaon to continue as the distributor in the light of that dispute. I therefore find nothing in the correspondence at this time to suggest that HCN had knowledge of, let alone consented by their continued dealing to, the assignment.
(4) As I have already set out, when HCN gave notice of arbitration, they referred to the Establishment as a limited liability company. It was submitted this showed they had knowledge of the transfer. I do not accept that submission. It is clear that they were referring to the Establishment by its original number and that at that stage they thought that an Establishment had separate legal personality from its owner. There is nothing to suggest that they knew of the transfer to the Company. They had simply made a mistake as to the legal status of the Establishment; it is clear from their reference to the correct number that they were referring to the original party to the agreement.
(5) I do not find it surprising that Mr Pharaon did not draw the matter specifically to the attention of HCN because his own view expressed in November 1998 was the following:
As there were no major change in status and I am holding partner of Al-Ameen Co & other partners were my Sons & Daughters (All Minors). In Sharia (Islamic thoughts) Sons & Daughters will be the successor of their father in terms of Assets, Liabilities & all other obligations. I do not deemed necessary to inform officially to every one about this, in other words we would say that only change was the word “establishment” to “Company”.
That statement goes on to refer to the conversation with Mr Stowell of Hussmann at the FMI exhibition in 1993, but again, as I have set out, that was in terms of merely the change of name from Establishment to Company.
(6) In August 1998, prior to the arbitration hearing, HCN obtained legal advice in relation to the status of the Establishment as set out in the statement of Mr Yousef Al-Jadaan a lawyer practising in Riyadh. Mr Al-Jadaan advised that the Establishment was an individual establishment and had been deleted from the commercial register on 16 February 1994; that the Company had been incorporated as a limited liability company as a separate entity from the Establishment. He added that the Establishment no longer existed as a legal entity and it had had no legal capacity since 16 February 1994. The advice was not accurate in stating the Establishment no long existed as a legal entity and had no legal capacity since 16 February 1994. That is because the Establishment had never had a separate legal personality; it was no different from Mr Pharaon. What obviously must have been meant in the advice was that Mr Pharaon could not trade as a commercial agent under the name of the Establishment as it was not registered in the Commercial Register.
(7) HCN’s solicitor stated in his witness statement (which was before the Court) that as soon as the information from Mr Al-Jadaan was drawn to HNC’s attention, consideration was given as to whether or not to proceed with the arbitration, as it appeared that the party to the distributorship agreement (the Establishment) was not and could not be a party to the arbitration. His statement explained that the arbitration had been commenced by HCN, not only to recover the substantial sum owed by the Establishment, but also because it wanted to appoint another distributor in Saudi Arabia; there was a real concern on their part that, without a declaration from the tribunal that the agreement had been terminated or was no longer in effect, attempts would be made by Mr Pharaon to prevent the appointment of a new distributor by way of proceedings in Saudi Arabia. Because of this concern, HCN decided it would proceed with the arbitration with a view to getting the matter dealt with in an arbitral award from the tribunal.
(8) In the note of his opening submission handed to the tribunal at the commencement of the hearing on 2 November 1998, counsel for HCN made the point in the first paragraph of that note that the parties to the arbitration were HCN and the Establishment; that no other entity was entitled to be represented or heard or bring any claims or to obtain any relief or to have an award entered against it. A footnote to the paragraph stated:
“Paragraph 1.2 of the Statement of Claim fails to distinguish between two separate legal entities: Al Ameen (as defined above) which ceased to exist on 16/02/94 (see statement of Mr Al-Jadaan) and Al Ameen Development & Trade Co. Ltd. (Company registration number 1010122156), which came into existence at about the same time. The Statement of Claim is wrong not to make the distinction. The latter entity will be referred to by Hussmann as “Al Ameen Company Limited” to distinguish it from the unincorporated Al Ameen”.
Counsel for HCN was making the clear point that the jurisdiction of the tribunal only extended to disputes between HCN and the Establishment, though he was repeating the incorrect advice of Mr Al-Jadaan that the Establishment had ceased to exist.
(9) It was in this way that the issue before the court which relates to the jurisdiction of the tribunal in respect of the claim by the Company was first raised between the parties and before the tribunal. It must have been this which caused those advising the Respondents to enquire into the transfer and the contention that this had been notified to HCN. This resulted in the provision of much of the information which I have set out above.
(10) At this stage no formal application was made to the tribunal; instead it appears that counsel for HCN pointed out that there were two separate parties and that the Establishment did not appear to exist. The initial reaction of the tribunal was that there was insufficient evidence and the tribunal was not prepared to dismiss the counterclaim based on this submission. However, questions were asked of the expert on Saudi Arabian law in relation to the transfer. These elucidated answers which I have summarised in paragraph 15 above.
(11) After that evidence was given and the further information provided by the Respondents, an application was made by HCN for leave to amend the definition of Al Ameen in their request for arbitration and statement of claim which I have set out in paragraph 8 above so that it was made clear that it referred to Mr Pharaon trading as the Establishment; they also sought leave to amend the defence to the counterclaim to plead that notice of the assignment had not been given to HCN and that therefore the Company had not become a party to the agreement; that the Company was therefore not entitled to claim the commission and the Establishment had disabled itself from performing the agreement in February 1994 and was therefore not entitled to commission after that date. The tribunal refused leave, giving reasons in its award.
The jurisdiction of the tribunal over the Company under the arbitration agreement
The tribunal in its award dealt with the question of jurisdiction not as a separate issue but in relation to the application to amend. Although therefore there was no formal decision by the tribunal on the question of its jurisdiction, the issue raised on the amendment was in fact the jurisdiction issue. Although the primary ground on which the tribunal relied was that it was far too late to take the point in relation to the participation by the Company in the arbitration, they found that the point was without merit. They held that the conversion from an establishment to a limited company in February 1994 made the Company the correct party to the arbitration and that the fact of conversion was clearly well known to HCN on the basis of the correspondence to which I have referred, though they made no express finding on consent. They were satisfied from the English and Arabic texts that there had been a proper succession of the rights and obligations to the Company from the Establishment by Saudi law. They concluded by saying:
We do not know if this point is taken seriously in the context of an Arbitration in the Euro Arab System. …..
Having had the issue argued fully before me, I am quite satisfied that the tribunal was wrong in the decision to which it came both in respect of its decision that the Company was a party to the arbitration and that it was too late to take the point. I do not consider that any criticism can be made of the tribunal, bearing in mind the way in which the matter was put before them at a very late stage and the evidential problems which that caused. However, whether I approach this question as a review of the decision made by the tribunal (as was suggested by Toulson J in Ranko Group v. Antarctic Maritime (The Robin) 12 June 1998, briefly reported at Lloyd’s Maritime Newsletter 15 September 1998) or as a fresh hearing of the issue on jurisdiction (as was submitted was the proper approach), the decision of the tribunal was plainly wrong.
It is clear as a matter of the law of Saudi Arabia that if the assignment was to be effective, HCN had to consent to it. I am satisfied on the materials before me that they had no idea that there might have been any change in the other party to the distributorship agreement until late August 1998; in the context of correspondence carried on in English, the supply of a document in Arabic did not provide the necessary information to HCN. It cannot therefore be argued that they had the requisite knowledge from which an implied consent to the assignment could be inferred at any time prior to late August 1998; at that time their knowledge was incomplete and the full facts were not made known to them until the hearing in November 1998. Therefore when the arbitration was commenced it follows that the parties to the arbitration agreement remained HCN and the Establishment and at no time thereafter did the position change. This had the consequence that the claim of HCN lay against the Establishment and any claim for commission that lay could only be made in arbitral proceedings by the Establishment and not the Company. The tribunal therefore had no jurisdiction to make an award in favour of the Company as it was never a party to the distributorship agreement or to the arbitration agreement. The Company also raised in its skeleton argument for this court the contention that there had been an agreement in writing between the Company and HCN to arbitrate within the terms of s.5 (5) of the Arbitration Act 1996 because of the definition of Al-Ameen in HCN’s request for arbitration and statement of case which the Company had not disputed. I do not accept that contention; I have already held that the definition referred to the Establishment.
The loss of the right to object
S. 31 of the Arbitration Act 1996 makes it clear that any objection to the substantive jurisdiction of the tribunal arising during the course of arbitral proceedings must be made as soon as possible after the matter alleged to be beyond its jurisdiction is raised. S.73 provides that if a party to arbitral proceedings continues to take part in the proceedings, without making forthwith any objection that the tribunal lacks substantive jurisdiction, he cannot raise that objection later before the tribunal or the Court:
“unless he shows that at the time he took part or continued to take part in the proceedings he did not know and could not with reasonable diligence have discovered the grounds for the objection”.
The purpose of the provision is to ensure that a party does not keep a point “up his sleeve” and wait and see what happens while considerable expense is incurred. A party cannot be allowed to take part in proceedings and then challenge the award if he is dissatisfied with it on the basis of a point about which he knows or ought with reasonable diligence to have discovered. (see the judgment of Moore-Bick J in Rustall v Gill and Duffus [2000] 1 Lloyd’s Rep 14 at page 20).
It was contended before me by the Respondents that HCN had lost its right to object. The principles applicable are not in doubt and the question for determination is whether on the facts HCN had failed to act forthwith, but continued their participation in the arbitration at the time they knew of the objection or could with reasonable diligence have discovered it.
It is clear from the facts which I have set out that until late August 1998 HCN knew only of the Establishment and that the party against which they had commenced the arbitration was the original party to the distributorship agreement – the Establishment. At that time they learnt from the advice of Mr Al-Jadaan that the Establishment had ceased to be registered and that there was a separate entity - the Company. However the advice they had received from Mr Al-Jadaan in relation to the status of the Establishment was not correct, as I have explained; the Establishment had no separate personality from Mr Pharaon and therefore the Establishment still existed. Moreover the Respondents had not, at that stage, produced any information about the transfer; the statement of Mr Pharaon served in early September 1998 did not deal with the transfer; it merely stated that he was the sole owner of Al Ameen which was a limited liability company until 25 December 1992 when four new partners joined the company; however, at that stage HCN were not aware from the advice of Mr Al-Jadaan that the Establishment was not a trading name for Mr Pharaon with no separate legal personality; his advice clearly gave the impression that it was a separate legal entity. The suggestion that the Respondents had made the position clear in their pleading is fanciful; at paragraph 4.5 of the defence served in the arbitration by the Respondents, there was a reference to the commercial registration form of Al Ameen which was exhibited; however that was in the context of drawing a distinction between “Al Ameen” and “Al Naerabayn” in the context of a plea that Al Ameen was not responsible for payment of supplies made to Al Naerabayn.
In my view the position taken by the legal advisers to HCN (who are very experienced in conducting arbitrations) was one they were entitled to take. On the first day of the hearing, they put the point clearly before the tribunal and did not take part in the hearing keeping the point “up their sleeve”. It was only after the first day that information was provided by the Respondents and the law of Saudi Arabia elucidated; given all the preparation that had to take place for the arbitration, I do not consider they were to be criticised for waiting until the first day of the hearing, particularly given the fact that the Respondents had failed themselves to provide any information about the transfer or to plead it. Moreover, had they taken the point that they believed was correct that the Establishment did not exist, they would have in fact been wrong. The Establishment did exist and, in fact, they were right in their decision to continue with the arbitration. The tribunal did in fact have jurisdiction over its claim for the moneys claimed to be due from the Establishment and to decide on the termination of the distributorship agreement. Having put the issue before the arbitrators on the first day, they had in my judgement acted very promptly. It was only after the first day that the necessary information about the transfer was supplied; they then sought leave to raise the submission which I have found to be correct.
I am satisfied that in these circumstances they did act forthwith and they had not lost their right to object, under the provisions of s.73, to the substantive jurisdiction which the tribunal has exercised in relation to the claim by the Company which was not a party to the arbitration agreement and never became one. On the incomplete information they had, they put the issue before the tribunal on the first day of the hearing and as soon as they had complete information, they made the submission in full.
Issue 2 (a): Serious procedural irregularity; the tribunal’s handling of the expert evidence on Saudi Arabian law
HCN sought an order under s.68 of the Arbitration Act setting aside the award on the counterclaim or in its entirety. S.68 entitles the court to do so, if there has been a serious irregularity affecting the tribunal, the proceedings or the award. The principal ground on which HCN relied was the way in which expert evidence was dealt with by the tribunal; it also said there had been a serious irregularity as a result of the tribunal's failure to deal with the issues put to it. It is convenient to consider these two matters separately and first to set out the facts relating to the expert evidence before turning to the question of whether what happened amounted to a serious irregularity within the definition set out in s.68(2) of the Act.
The appointment by the tribunal of the expert
Although the contract between the Establishment and HCN was clearly governed by the law of Saudi Arabia, none of the pleadings in the case suggested that the law of Saudi Arabia was in any material respect different from the law of England and Wales. For example, although the Respondents’ defence and counterclaim stated that the proper law of the distributorship agreement was the law of Saudi Arabia and should be construed accordingly and referred in general terms to local custom, far from pleading any provisions of Saudi Arabian law in relation to the construction of the agreement, it suggested, for example, that the agreement was to be construed contra proferentem.
On 26 June 1998, there was a directions meeting held by the chairman of the tribunal. There was no clear evidence before me as to what happened at that meeting, but in written directions sent on 29 June 1998, the tribunal directed that the “law to be applied” (other than the Saudi Commercial Agency law referred to in clause 17 of the distributorship agreement) was to be submitted within 14 days of 26 June 1998. They also ordered that experts on Saudi law were to be asked to report on each issue on Saudi law as agreed by the parties and to be determined by the tribunal; the reports were to be submitted by 14 September 1998.
In response to these directions, HCN’s solicitors wrote to the clerk to the tribunal stating that their position was that, although the law to be applied under clause 17 of the agreement was Saudi law, except insofar as evidence was led and accepted by the tribunal on Saudi law, the law to be applied was English law. The letter went on to state that their understanding was that both parties had agreed that the tribunal should take whatever expert advice on Saudi or other law which it thought appropriate and that the parties would not have separate expert reports on Saudi law.
The chairman of the tribunal then telephoned HCN’s solicitors and told them that the tribunal did not accept that the law to be applied was English law and there was an issue as to whether Saudi law applied to matters such as the interpretation of the agreement. That position was subsequently confirmed by the chairman in a letter dated 3 August 1998 sent to both solicitors. In response to that the Respondents’ solicitors stated that in January 1998 they had raised with the clerk to the tribunal the question as to whether a preliminary ruling needed to be made on the applicable law and had been told that the clerk had spoken to the chairman who had said that the chairman had confirmed that Saudi law was applicable to the proceedings. In any event after this exchange, sometime in August 1998 it was agreed between the solicitors that it would be sensible to ask the tribunal to appoint their own expert to advise on Saudi law.
On 21 September 1998 the tribunal suggested that they should appoint Dr Anis Al-Qasem as the expert on Saudi law. He has had a career of immense distinction, first in Libya then in Egypt and Palestine and finally in London. He has given expert evidence in a number of cases in these courts. The parties agreed to his appointment.
The instructions given by the tribunal to the expert
No written instructions were provided to Dr Al-Qasem; instead the chairman of the tribunal had a meeting with him on about 24 September 1998 at which he gave him instructions. Those instructions were given on the basis of draft terms of reference (which were never signed as it was decided at the directions hearing on 26 June 1998 that they were not essential in the light of the detailed pleadings). The draft terms of reference set out the background facts and summarised the claims made by the parties; paragraph 4 of the draft terms of reference summarised each of the points in dispute and the issues in the case in terms such as “was Al Ameen in breach of the agreement in failing to promote sales?”. It is significant that the draft terms of reference did not identify any specific points of Saudi law.
Shortly before 12 October 1998, Dr Al-Qasem sent a draft report to the tribunal. Without informing the parties, the tribunal had a meeting with him. According to the witness statement of the chairman of the tribunal, the intention of the meeting was to clarify matters of Saudi law and to cover any matter which had not been dealt with. No changes were made to the draft as a result of the meeting, save that the tribunal asked Dr Al-Qasem to produce a further report on trade marks and labelling. Dr Al-Qasem submitted his report on 12 October 1998 and it was sent by the tribunal to the parties on 19 October 1998. He submitted a further report on labelling and trade marks on 19 October 1998.
The content of the expert’s report
The main report of Dr Al-Qasem first set out the documents he had seen. Then, with great clarity, he set out the principles of Saudi law relating to construction, the rules as to liability, evidence and commercial agency regulation. That part of the report showed that there is one significant difference between the law of England and Wales and that of Saudi Arabia in relation to construction of agreements; under Saudi law evidence of the subsequent conduct of the parties is admissible to assist in construction.
The second part of his report then addressed the issues in dispute as set out in the draft terms of reference. In this part of the report, he proceeded to give his opinion as to all the points in issue before the tribunal, applying the principles of law to the facts as he saw them and reaching various conclusions on the matters that had been submitted to the tribunal for their decision.
HCN’s objection
After having had a proper opportunity of considering the report, HCN’s solicitors wrote to the tribunal on 27 October 1998 suggesting that the report should be ruled inadmissible and excluded. They enclosed an extract from Mustill and Boyd: Commercial Arbitration (second edition)(to which I shall refer) and drew the attention of the tribunal to the fact that the parties had proceeded on the basis that for the purpose of the dispute between the parties, there was no material issue on Saudi law; they had agreed to the retention by the tribunal of an expert on Saudi law on the basis that queries might have arisen as to Saudi law and someone should be available. They went on to point out that the report in any event went considerably beyond what should have been within an expert report. A response was sent on behalf of the tribunal expressing surprise at the position taken by HCN.
The ruling by the tribunal
At the outset of the arbitration HCN made an application that the tribunal should disqualify itself on the basis that it had been coloured or irreversibly influenced by the opinion of Dr Al-Qasem, alternatively that they should rule the report inadmissible or should excise part of the report.
The tribunal rejected that application in its entirety. In a written ruling handed to the parties during the course of the arbitration, the tribunal made it clear that they were not coloured or influenced by Dr Al-Qasem’s views. Dr Al-Qasem accordingly was asked to give evidence to the tribunal; when he did so, he was asked (as I have mentioned) for his views in relation to the transfer of liabilities from the Establishment to the Company and in the course of that examination the fact that he had met with the tribunal emerged.
It is clear that although the tribunal relied in their award upon the views of Dr Al-Qasem that Saudi law permitted reliance on post contractual conduct as an aid to the construction of the agreement, their decisions on the issues generally followed a different approach to that of Dr Al-Qasem.
The allegation of serious procedural irregularities
HCN made three principal allegations:
(1) The tribunal should not of its own motion and without consulting the parties have instructed Dr Al-Qasem in the terms they did.
(2) They should not have instructed him to cover the issues raised in the terms of reference but only deal with Saudi law.
(3) They should not have met with him and discussed the report in the absence of the parties without obtaining their consent.
The manner of giving instructions
It is convenient to deal with the first two allegations together. As I have already pointed out, the pleadings raised no issues of Saudi law. In those circumstances a passage in Mustill and Boyd Second Edition at page 72 (which was sent to the tribunal) gives clear and pragmatic advice:
First the arbitrator should recall that it is for the parties to allege that the foreign law differs from English law. If they are content to have their disputes decided according to English law, it is no part of his function to multiply trouble and expense by suggesting that the two laws differ. Furthermore, when it has become plain that one or other party had raised a serious issue as to foreign law, the arbitrator will be well advised to adopt a rigorous attitude towards the particularisation of the claim however informal the remainder of the proceedings may be....
The obvious good sense of this needs no elaboration. Experience has shown that in many cases, recourse to foreign law adds very considerably to the expense of an arbitration and in very many cases makes little difference; where there are genuine points of difference (as in this case in relation to the admissibility of evidence of post contractual conduct as an aid to construction), the point can generally be isolated and often be agreed. A general request to a foreign lawyer to review the entire case and opine on the principles of foreign law where the parties have not raised specific issues is a course that a prudent tribunal should not embark on without considerable hesitation.
It was suggested that, as s.46(1)(a) of the Arbitration Act 1996 requires the arbitral tribunal to decide the dispute in accordance with the law chosen by the parties as applicable to the substance of the dispute, a mandatory requirement was imposed on a tribunal sitting in London where the proper law was a law other than the law of England and Wales to obtain general evidence and guidance in relation to that foreign law. I do not accept that construction of the Act. If there is no suggestion by the parties that there is an issue under the applicable system of law which is different from the law of England and Wales, or the tribunal does not itself raise a specific issue, then the tribunal is free to decide the matter on the basis of the presumption that the applicable system of law is the same as the law of England and Wales. To hold otherwise would mean that international arbitrations held in London would be encumbered with the considerable extra expense of obtaining general evidence of foreign law relevant to the matters in issue in every case where the proper law of the contract was not the law of England and Wales.
In my view the correct course to have been followed by the tribunal was to have asked the parties whether there were any points where the law of Saudi Arabia differed from the law of England and Wales or to have itself raised with the parties specific points on which they might need assistance. Certainly it would have been better if the tribunal had sought the views of the parties on the issues raised before instructing Dr Al-Qasem and discussed with the parties the terms in which he should be instructed.
However, on the facts of this case, the parties themselves left to the tribunal a considerable latitude in the way in which the expert was to be instructed and, in those circumstances, I do not consider that it can be said that there was an irregularity in instructing the expert without reference to the parties. It would have been desirable for any instructions given to have been in accordance with the pragmatic advice given in Mustill and Boyd. But again what happened cannot have amounted to an irregularity; the tribunal were left to instruct the expert and they adopted a course which was perhaps understandable given what had happened.
Meeting with Dr Al-Qasem to discuss his draft report
Under s.37(1) of the Arbitration Act 1996 the tribunal may, unless the parties have agreed otherwise, appoint an expert and may allow an expert to attend proceedings. However section 37(1)(b) provides:
The parties shall be given a reasonable opportunity to comment on any information, opinion or advice offered by any such person.
The terms of the provision are clear. A tribunal should generally not hear evidence in the absence of the parties. As the Act sets out the principle in clear user-friendly language, it is therefore not necessary any longer to refer to the number of cases decided prior to the Act which made that principle clear: Giacomo Costa Fu Andrea v. British Italian Trading Co. [1961] 2 Lloyd’s Rep 392, Royal Commission on the Sugar Supply v. Trading Society Kwik-Hoo-Tong (1922) 38 T.L.R. 684, London Export Corporation v. Jubilee Coffee Roasting Company [1958] 1 Lloyd’s Rep 197 and Mediterranean & Eastern Export Co Ltd v Fortress Fabrics (Manchester) Ltd [1948] 2 All ER 186. I agree with the observation of Professor Merkin in his work on Arbitration at paragraph 13.46(e):
“.... consultation with the experts should not take place after the close of the hearing or otherwise in the absence of the parties as this deprives the parties of their right to comment”.
The point was taken that in the meeting with Dr Al-Qasem, the tribunal was not taking evidence and so the provisions of s 37(1)(b) did not apply; I do not agree. They were plainly discussing with him the law of Saudi Arabia and the content of his report; in my judgment the provisions of the section were applicable to this meeting at which his evidence was discussed.
There are no details in the affidavits before the court as to precisely what happened when the arbitrators met with Dr Al-Qasem after the submission of his draft report. No note of that meeting was made. It is clear however that some information must have been imparted to the tribunal and his evidence discussed. The parties were never told of the meeting in advance of it taking place nor were they told of it subsequently; they only learnt of it when Dr Al-Qasem was cross-examined. Although it was accepted on behalf of the Respondents that to have this meeting had been unwise on the part of the tribunal, they submitted it was not an irregularity. I do not agree. It seems to me that on this occasion the conduct of the tribunal in holding this private meeting with the expert to discuss his draft report without obtaining the consent of the parties to such a course fell below the standards ordinarily to be expected of arbitrators. Their failure to inform the parties of the fact of the meeting immediately after was also, in my view, an irregularity. Mr Mark Cato in his “Arbitration Practice and Procedure: Interlocutory and Hearing Problems” at para 14.5.2 gives the sensible and highly practical advice that an arbitrator who finds himself in this position should tell the parties about what he has done and give them a full opportunity to test the evidence by way of cross examination or by calling evidence in rebuttal. They did not do so, but fortunately the fact of the meeting did emerge when Dr Al-Qasem was examined.
The failure to excise part of Dr Al-Qasem’s report
It is not the infrequent experience of the courts that experts opine on the matter that it is for the tribunal to decide. Although in some cases an application is made to excise part of the report, the more common course is for a tribunal to say that it will pay no attention to the passages in which the expert opines upon such matters. In this case, the tribunal summarised its position:
“It would be almost impossible for any expert on foreign law to give his opinion on law divorced from the facts and issues in the case. We are of the view that this is precisely what Dr Anis Al-Qasem has done giving his views on the law in the light of the issues and written materials with which he was supplied. Of course Dr Anis Al-Qasem’s opinion on factual matters will have no room in our deliberations. These will be the subject of submissions in the light of the evidence and both his factual and legal views can be, and no doubt will be, if the Claimant wished to cross examine him before us. At the end of the day the tribunal will come to their own conclusions on the evidence as a whole and make their own findings on Saudi law without we hope being coloured in any way by the views of Dr Anis Al-Qasem or anyone else.”
It is clear from reading the report of Dr Al-Qasem and the award that the tribunal followed a process of reasoning that is quite different to the reasoning which Dr Al-Qasem had set out in his report. Thus, in my view not only did the tribunal state that they would reach their own decision, but they in fact did so. I cannot therefore discern any irregularity in what the tribunal did in this respect, though it may have been more prudent for them to have made clear that they would totally ignore that part of his report where he expressed his views on the very issues which the tribunal had to determine.
Was there a serious irregularity?
S.68(2) defines serious irregularity as:
An irregularity of one or more of the following kinds which the Court considers has caused or will cause substantial injustice to the Applicant -
(a) Failure by the tribunal to comply with section 33 (general duty of tribunal).
(d) Failure by the tribunal to deal with all the issues that were put to it.
The intention behind this sub-section is clearly set out in paragraph 58 of the Report of the Departmental Advisory Committee (DAC) where they stated:
“The Court does not have a general supervisory jurisdiction over arbitrations. We have listed the specific cases where a challenge can be made under this Clause. The test of “substantial injustice” is intended to be applied by way of support for the arbitral process, not by way of interference with that process. Thus it is only in those cases where it can be said that what has happened is so far removed from what could reasonably be expected of the arbitral process that we would expect the Court to take action. The test is not what would have happened had the matter been litigated. To apply such a test would be to ignore the fact that the parties have agreed to arbitrate, not litigate. Having chosen arbitration, the parties cannot validly complain of substantial injustice unless what has happened simply cannot on any view be defended as an acceptable consequence of that choice.”
The sub-section has also been considered in a number of cases since the passing of the Act: Conder Structures v. Kvaerner Construction Limited [1999] ADRLJ 305, Egmatra A.G v. Marco Trading Corporation [1999] 1 Lloyd’s Rep 862 and Pacol v. Joint Stock Co. Rossakhar [2000] 1 Lloyd’s Rep 109. Although in my view the clear language of the Act needs no elaboration, there is in the first of those cases a helpful observation by Dyson J:
It is not sufficient to show that the irregularity has demonstrated incompetence on the part of the arbitrator and has undermined the confidence of the applicant in the ability of the arbitrator. Loss of confidence is neither a sufficient nor a necessary condition of substantial injustice. It is simply not the test. It is possible for an arbitrator to commit an irregularity which raises a question as to his competence and yet which causes no injustice to either party, still less any substantial injustice.
Conversely it is possible for a competent arbitrator to make a mistake which causes substantial injustice and which needs to be put right by the court but in circumstances where, in the general sense, the applicant retains full confidence in the arbitrator. After all, Homer does sometimes nod.
The tribunal made, in the circumstances of this case, an error in meeting with Dr Al-Qasem and in failing to tell the parties, but that is all. The conduct goes no further than that and certainly does not raise a question about the competence of the tribunal. Furthermore no prejudice or injustice flowed in fact from their error as the fact of the meeting became known to the parties during the evidence of Dr Al-Qasem.
Conclusion
It was the contention of HCN that the irregularities upon which they relied should be looked at cumulatively. I agree with that approach and to the extent I have found there were irregularities I will consider their cumulative effect. However, I am entirely satisfied that the irregularities were not serious irregularities within the meaning of s.68(2). As I have already stated, it is clear that the tribunal reached their own decision by a process of reasoning quite distinct from that of Dr Al-Qasem. HCN submitted that the reasoning of Dr Al-Qasem in that part of his report which is complained of must have caused substantial prejudice because there was no rational basis upon which the tribunal could have found for HCN on the issue of commission. I do not agree. Although there are very powerful and persuasive arguments that, if the contract is construed in accordance with the principles of Saudi law, it is clear that no commission was due under the distributorship agreement in the circumstances; however, I cannot say that no tribunal could have reached a different view. Furthermore the irregularity in relation to the meeting with the expert in the absence of the parties or without their knowledge was, as I have stated, brought to the attention of the parties during the course of Dr Al-Qasem’s oral evidence and HCN had an opportunity of cross examining him. Considering the matter as a whole, I am entirely satisfied that there was no serious irregularity.
Issue 2 (b): Serious procedural irregularity: failure by the tribunal to deal with the issues that were put to it
In their application to the court, HCN put forward seven issues which they contended the tribunal had not dealt with. One of these matters concerned the question of the assignment between the Establishment and the Company. I have already considered that matter and the way in which the tribunal dealt with it under issue 1. It cannot give rise to any question of any irregularity, as the tribunal dealt with the matter in the way in which it was put to them. The other six matters can be grouped under three headings.
The issue of whether the Establishment was entitled to the discount for prompt payment.
As I have set out at paragraph 4 above, a settlement of outstanding balances was made in May 1991 under which HCN agreed to accept 75% of the balance then outstanding to be paid by instalments. It was HCN’s contention that its agreement to take 75% was conditional on punctual payment. It was their contention before the Court that the tribunal did not consider and adjudicate upon the question whether the payments were made punctually, and, if they were not, whether the amount due should have been the original amount without the discount.
It is clear, however, from the section of the award dealing with the amount of the debt that the tribunal concluded on the evidence before them that the sum due was the balance as discounted. They concluded that the matter was settled at the Chicago meeting in 1994 and the subsequent exchange of correspondence in which the parties agreed that the net outstanding balance was $57,428. It is implicit in their findings in the award that they decided that the original amount without the discount was not due and the matter was therefore dealt with by them; it is also implicit in their findings that the agreement made in 1994 was not conditional on prompt payment of that amount.
The products on which commission was payable
HCN argued that under the introductory wording of the distributorship agreement, HCN were not bound to pay commission on goods which were not manufactured by HCN themselves. They contend that the award never dealt with this point. However it is clear from the section of the award dealing with direct sales that the tribunal did have regard to this point and decided it against HCN. It is plain that they appreciated this argument was being made to them and that their decision was that commission was payable on goods manufactured not only by HCN but also Hussmann USA. They may not have dealt with the argument as clearly as might have been anticipated, but in my view they comprehensively dealt with it in the result.
The identification of the fact subsequent to the agreement which imposed upon HCN an obligation to pay commission on sales made by Hussmann USA.
It is clear from the same section of the award that the tribunal came to the clear view, as I have set out, that commission was payable on goods manufactured by Hussmann USA; the point therefore did not arise. Again their reasoning might not be as clear as might have been anticipated, but their decision was clear in the result. I do not consider that s.68(2)(d) requires a tribunal to set out each step by which they reach their conclusion or deal with each point made by a party in an arbitration. Any failure by the arbitrators in that respect is not a failure to deal with an issue that was put to it. It may amount to a criticism of the reasoning, but it is no more than that.
Conclusion on this issue
Even if I had considered that all of these points amounted to irregularities (which I do not) I would not have considered them, even cumulatively, as amounting to a serious irregularity. The arbitration award did deal with the two main issues that were put to the tribunal, namely the amount due from the Establishment or the Company to HCN and the amount of commission payable by HCN. Those were the fundamental issues in the arbitration and they are comprehensively dealt with in the award. I therefore conclude that this ground of the application fails.
Issue 3: The fees of the tribunal
HCN sought an order under s.28(2) of the Act that the amount of the arbitrators’ fee and expenses be considered and adjusted by the court. The ground set out in the arbitration application was:
The fees of £85,520 charged by the tribunal are excessive.
The fees charged
HCN became concerned about the fees when they were told of the proposed fees prior to the issue of the award. On 1 April 1999 the secretary to the Euro-Arab Arbitration System wrote to the parties to tell them that the Board had examined the award and approved it and had fixed the administrative charges and costs incurred by the System and the arbitrators’ fees in accordance with the rules:
(1) The administrative charges and costs were fixed at £15,520
(2) The arbitrators fees were fixed at £70,000.
Correspondence followed in which HCN’s solicitors attempted to obtain a breakdown of the fees; explanations were given. On 19 April 1999, the Legal Advisor to the Euro- Arab Arbitration System gave the following explanation of the arbitrators’ fees:
As you know, the Rules provide that these shall be fixed by the Board taking into account the complexity of the case, the amount in dispute and the hourly rates of £150-£200 per hour stipulated in Appendix II.
For your information, each of the arbitrators spent a total of over 150 hours on this case. Having regard to this and other criteria, the Board fixed the Arbitrators’ fees at the total sum stipulated in my letter of 1 April 1999 of £70,000
Further information was provided; in a letter of 28 April 1999, the Legal Advisor stated that although the Arbitrators’ fee was fixed by the Board, it was the minimum that could have been fixed having regard to the Rules. Further correspondence ensued. This did not satisfy HCN’s solicitors. The total fees were, however, paid by the Respondents’ solicitors and the award made available to the parties on 9 September 1999.
From the evidence filed for the purpose of the application and from the correspondence that had taken place prior to the issue of the award, the basis upon which the fees were charged can be summarised:
Charge based on the value of the matters in issue based on the scale of charges
£3,588.00
Costs incurred by the system (including hire of rooms, photocopying, secretarial costs, fax, lunch and beverages)
£8,079.00
Out of pocket expenses of Mr Murray
£ 190.80
Out of pocket expenses of Dr Anvari
£ 162.26
Chairman’s expenses (largely related to word processing and typing) £3,500.00
The fees of the arbitrators of £70,000 were made up of £30,000 paid to the chairman and £20,000 paid to each of the other two arbitrators. The total number of hours spent by the arbitrators were: the chairman 185 hours, Mr Murray 160 hours and Dr Anvari 150 hours. On this basis the average hourly rate was just over £140 per hour. In a witness statement jointly signed by the members of the tribunal they explained that the numerous hours were spent over four periods:
(1) Pre-hearing between November 1997 and November 1998 in correspondence, considering the documents and pleadings, dealing with the preliminary objection in relation to the service of the defence and ruling on it, settling the terms of reference, framing issues, directions, discovery of documents, witness statements and the appointment of the expert.
(2) Five days for the hearing.
(3) Post hearing they had several meetings, and the chairman drafted the award; they considered the award and its annexes and sent it to the Board. In a further statement, the Chairman explained that although the decision of the tribunal was unanimous, it was reached after necessary deliberation and minute and thorough examination and discussion of the evidence, documentation, correspondence, arguments of counsel and Saudi law. They had several meetings; drafts were discussed with the arbitrators and sent back to the Chairman with comments. Where agreement could not be reached, a meeting was held. The final award took time and careful reasoning.
(4) The cost problems between March and May 1999.
The letters written by the officers of the Euro-Arab Arbitration System and the witness statements of the tribunal made it clear that the expenses of the arbitrators had been approved by the Board of the Euro-Arab Arbitration System and the Board had fixed the arbitrators’ fees.
The challenge made by HCN
HCN confined their challenge (after considering all the evidence) to two matters:
(1) the sum paid to the chairman by way of expenses in respect of typing and word processing and
(2) the overall amount of the fee paid to the arbitrators.
In response the tribunal who were represented by counsel advanced two principal arguments:
(1) The court had no jurisdiction under the Arbitration Act 1996 to review the amounts as the fees had been fixed by the Euro-Arab Arbitration System under the terms of their Rules.
(2) The court ought not to adjust the fees in any event.
They also contended that it would in any event be unjust to order repayment of the fees as two of the arbitrators had been paid and had expended the sums.
The rules of the Euro-Arab Arbitration System
It is necessary therefore to refer first to the Rules of the Euro-Arab Arbitration System which, as I have already set out, were incorporated into the distributorship agreement by clause 17. The main body within the Euro-Arab Arbitration System relevant to this arbitration is the Arbitration Board; it is comprised of 10-20 persons who are to act independently and impartially; it has the powers in respect of arbitrations set out in the Rules . Under Article 21.3, for example, the Board has power to nominate an arbitrator if the parties fail to agree. Under Article 24.4, the arbitrators have to submit the award to the Board in draft for examination before signing it; although the Board has no power to intervene in the arbitration proceedings, the Board can draw the attention of the arbitrators to questions of substance or form so that the award may be given full effect.
The powers in respect of expenses and fees are contained in specific rules:
Article 23.4 provides:
23.4 No application for arbitration shall be submitted to the arbitrator unless it is preceded or accompanied by payment of a deposit on account of costs, expenses and fees, as determined in accordance with Article 29.
Article 29 then provides:
The charges, costs and fees payable on an arbitration under Article 23.4 and 23.5 of the Rules shall include:-
(a) Administration costs, including the fee for registration for the application.
(b) Arbitrators’ fees, together with their costs and expenses.
It is not necessary to set out the details in relation to the registration fee and administrative costs as no challenge was ultimately made to these, but it is necessary to refer to the provisions in respect of arbitrators’ fees set out in article 29.4:
29.4.1 Each arbitrator’s fees shall be fixed according to the amounts in dispute, by reference to the scale applicable to the date on which the request for arbitration is submitted.
Where the parties have not specified the amounts in dispute when submitting their requests, the Board shall fix the amount of the advance to be paid on account of fees at its discretion.
29.4.2 As an exception to the above provisions, the arbitrators’ fees may be calculated at an hourly rate, according to the amount of time spent by them in the matter, provided that the parties so request the Board at the commencement of the arbitral proceedings and likewise at the time of the appointment of the sole arbitrator or the arbitrators appointed by each of them, or on their behalf, in accordance with Article 21 of the Rules.
29.4.3 These fees shall be determined by taking into account, in particular, the complexity of the case and any other significant factors.
29.5 Reimbursement of the arbitrators’ personal expenses:
Expenses incurred by the arbitrators’ relating directly to the arbitral proceedings shall be reimbursed by deducting them from the sums advanced by the parties or from the inclusive amount, calculated as above, on presentation of proof of expenditure and in accordance with the guidelines given by the Secretariat/Registry, which the arbitrator will receive on his appointment.
The provisions of article 29.7 contained the general provisions relating to fees; article 29.7.1 provided that the Board would fix the amount of the advance for costs and fees. Article 26.7.6 made it clear that the parties would be jointly and individually liable for payment of all costs and fees arising out of the arbitration proceedings.
Appendix II set out the fees for arbitrators in the following terms:
The fees of Conciliators, Arbitrators or Experts appointed or nominated under these Rules shall be based upon hourly rates of £150 - £200 per hour plus a percentage of the value of the subject-matter.
Value of the sum in dispute
$
(IN US DOLLARS) MINIMUN
%
Percentage MAXIMUM
%
Percentage
....
$300,001 to $500,000
$500,001 to $1,000,000
0.60%
0.40%
2.50%
2.00%
When the arbitrators were appointed by the Euro-Arbitration System by a letter to them in November 1997, no fee was fixed. The letter recorded that the fee would be fixed at the end of the proceedings on the basis of the fee scale annexed to the Rules, also taking into account the complexity of the case and other significant factors.
The power of the Court to review fees
The power of the courts to review the fees of the arbitrators is set out in s.28 of the Arbitration Act 1996. The material parts of the section are as follows:
(1) The parties are jointly and severally liable to pay to the arbitrators such reasonable fees and expenses (if any) as are appropriate in the circumstances.
(2) Any party may apply to the Court ... which may order that the amount of the arbitrators’ fees and expenses shall be considered and adjusted by such means and upon such terms as it may direct.
(3) If the application is made after any amount has been paid to the arbitrators by way of fees or expenses, the Court may order the repayment of such amounts (if any) as is shown to be excessive, but shall not do so unless it is shown that it is reasonable in the circumstances to order repayment ...
(4) Nothing in this section affects ...any contractual right of an arbitrator to payment of his fees and expenses.
S.28 is a mandatory provision listed in Schedule 1 and takes effect by reason of s.4(1) notwithstanding any agreement to the contrary.
It was the contention of the tribunal that the court had no jurisdiction to consider their fees under s.28(2). These had been fixed by the Board of the Euro-Arab Arbitration System and the parties were bound to pay to the Euro-Arab Arbitration System whatever the Board fixed in accordance with the Rules. The arbitrators were entitled to be paid their fees by the Euro-Arab Arbitration System and not by the parties. In these circumstances, the terms of s.28(5) took effect.
Although s.28 is a mandatory provision, I will accept (for the purposes of this application) that both parties are free by the terms of s.28(5) to agree the fee payable to an arbitrator for the conduct of an arbitration; and that if they do so in clear terms (including the eventuality in which it is payable) the court cannot review that fee under s.28(2). The tribunal relied on the view to this effect expressed by Professor Merkin in his commentary on s.28:
The starting point is section 28(5), which recognises that the arbitrators are entitled to be paid, by way of fees and expenses, the amount (or on the basis) agreed by them with the parties, thereby following section 19(2) of the Arbitration Act 1950 in preventing that agreement from being challenged by the parties. The Arbitration Act 1996, unlike the July 1995 Bill, does not refer expressly to fees as determined by an arbitral body, but it must be assumed that acceptance of the terms of such a body amounts to an agreement to pay fees and expenses in accordance with those terms.
The DAC Report, however, contains no direct observations. It is plainly an important point for arbitral bodies and arbitrators appointed under their rules, but it is not necessary for me to decide whether this view is right.
This is because any such agreement with an arbitrator or an arbitral body has to be clear. In my view the Rules of the Euro-Arab Arbitration System do not have that clear effect and there is nothing express in those rules which provides an obligation to pay the fees in whatever amount the Board decides at the end of the proceedings; nothing in Article 29 gives the Board that power. It seems to me implicit in Article 29.4.1(read in the light of Article 29.4.2) that the Board was to fix the fee on appointment so that the parties would know where they stood; were it otherwise, they were entering into an open ended commitment constrained only by the very broad terms of Appendix II. The Board did not fix the fees when the arbitrators were appointed. In my view therefore there was no contractual agreement to pay whatever the Board demanded within the range of Appendix II.
Furthermore, it is clear on the rules that although the mechanism of payment was to be through the Euro-Arab Arbitration System, the fees payable to the arbitrators were fees that the parties were directly charged for arbitrators’ fees and expenses. In my view these fees and expenses were plainly fees and expenses to which s.28 of the Act applied as they were arbitrators’ fees and expenses within the meaning of that section. The arbitrators have in my view taken the mistaken position that the fees charged were determined by the Board and they are therefore not responsible for their reasonableness. In my view they are; the provisions of s.28 are applicable and for the reasons given s.28(5) is not applicable in the particular circumstances of this case. Furthermore, it is in such circumstances important for the good name of arbitration that arbitrators should bear some responsibility for the fees that they will themselves receive and not adopt the position that the amount charged was not their decision. This is important to ensure that in accordance with the principles set out in s.1 and s.33 of the Act, an arbitration is a fair resolution of a dispute without unnecessary expense.
Should the fees be adjusted by the Court?
HCN accepted that the hourly rates (of just over £140 per hour) charged by the arbitrators were reasonable and had no objection to them; their challenge was directed at the amount of time they had spent. In summary they contended that the reasonable amount of time would have been:
(1) As the hearing lasted 4½ days, the time occupied by each would have been 27 hours, allowing for dealing with the applications that took place during it.
(2) The Chairman dealt with the interlocutory matters prior to the hearing and it would be reasonable to allow 12 hours for that.
(3) The documentation before the tribunal was limited and a reasonable amount of time to allow was 24 hours.
(4) It would be reasonable to allow 4 hours discussion between the arbitrators and then a further 10 hours for the Chairman to draft the award.
They therefore contended that the Chairman should have spent 77 hours and the other members 55 hours each, as opposed to the 185, 160 and 155 hours actually spent. On the basis of an 8 hour day (which is generally accepted to be the working day for fees charged at these rates), this represented an average of about 20 days spent by each arbitrator, only 4½ of which they had spent at the hearing in November 1998.
I have set out in paragraph 60 the evidence of the tribunal as to the hours they spent; it was, of course, accepted that they did in fact spend those hours. The complaint of HCN was that they should not have spent as long and when the overall fee was looked at, it was excessive in relation to the complexity of the arbitration and the time which it should have taken. Although I accept that the fees are quite extraordinarily high for what was, in my judgment, a straight forward arbitration, nonetheless the arbitrators did spend a very large number of hours and their rate for those hours is not challenged. Although I have very considerable sympathy with the submission that arbitrators should have been able to deal with what was involved in this arbitration in substantially less time than these arbitrators in fact spent, it is clear from the affidavit of the chairman that a unanimous award only followed on from discussion between the arbitrators. The time those discussions took and their course is a matter of confidentiality between the arbitrators and is not a matter that can be enquired into. Furthermore there can be little doubt that they were all extremely conscientious; it must be remembered that the chairman gave of his own free time to undertake the work and derived no financial benefit at all; that benefit will go to HM Treasury. A suggestion was made that the tribunal had unnecessarily spent time with Dr Al-Qasem; I have considered the issue relating to the tribunal’s conduct in relation to his evidence as issue 2(a). Although I consider that the tribunal was in error in the respects I have identified, this is not, in the circumstances relevant; the fact that an arbitrator makes an error is not ordinarily a ground for an adjustment to his fee for the time taken as a result of that error.
Given the fact that there is no challenge to the arbitrators’ evidence that they did spend the amount of time they say they spent, that they have explained the time spent, that a material amount of time was spent in the confidential discussions leading to the award and that the time spent had been spent in a conscientious attempt to produce a detailed award, I have, in all the circumstances come to the view that I should not adjust the fees of £70,000 charged.
However, it is inconceivable that a professional person charging at a rate of £140 per hour would charge extra for typing services; he would be expected to provide typing facilities as part of the rate charged. The chairman did not have those facilities available to him, as he is a serving judge and was to do the work in his own time. However, I have no doubt that this was an expense that should have been set against the fee charged in respect of his work at professional rates; it would have been part of the ordinary expenditure of a professional man charging those rates and not an extra expense. I therefore propose to adjust the fees and expenses by reference to the sum claimed for typing expenses - £3,500 - either by way of reduction of the fee of £30,000 or by disallowing the expense. This will result in no personal loss to the chairman as it must be set off against the amount to be paid to HM Treasury.
Would it have been reasonable to order repayment by Mr Murray and Dr Anvari?
Both Mr Murray and Dr Anvari were paid their fees on 27 September 1999 and their evidence was that they had expended them in the discharge of their personal and business expenditure. It was contended that in the circumstances it would not be reasonable to order repayment. This point was not taken on behalf of the chairman as his fee is held by the Euro-Arab Arbitration System and has not been paid over to HM Treasury.
I consider the argument to be misconceived. It must have been obvious to these arbitrators from the fact that HCN did not pay their proportion of the fees claimed that they were not content with the explanations given. The award was only made available to the parties on 9 September and the application to the Court made on 5 October 1999. In the circumstances, if they each expended the sum of £20,000 paid to them on 27 September 1999, that was their risk. Moreover there is no suggestion that they would suffer any hardship (as professional men) in being ordered to repay these sums, had I made such an order.
Conclusion
I therefore conclude that the tribunal had no jurisdiction to make an award in favour of the Company but dismiss the application based on the allegations of serious irregularities. I allow to the limited extent I have set out the application to adjust the fees and expenses of the arbitrators. | 2 |
KAPADIA, J. This appeal by special leave is filed by the defendants against the judgment and order of the Karnataka High Court dated 31st August, 1998 passed in S.A. No.76 of 1996 whereby the High Court allowed the second appeal and restored the judgment and decree of the trial Court decreeing the original suit filed by the respondents-plaintiffs for declaration of title to property described more particularly in schedule A and for possession of seven rooms in possession of the defendants-appellants herein, which seven rooms form part of schedule A and more particularly described as schedule B to the plaint. The short point which arises for companysideration in this civil appeal is whether the suit for possession filed by the respondents-plaintiffs stood abated in its entirety as held by the Civil Judge at Kolar Gold Fields in Regular Appeal No.13 of 1991 hereinafter referred to for the sake of brevity as the lower appellate Court . The facts giving rise to this civil appeal are as follows Plaintiffs are the wife and children of Essanullah. They inter alia filed suit number417 of 1979 in the companyrt of Additional Munsiff at Kolar Gold Fields for declaration of title to schedule A property and for possession of seven rooms in schedule A more particularly described in schedule B to the plaint. In the present matter, we are companycerned with plaintiffs right to recover possession of the seven rooms. According to the plaintiffs, the property schedule A was a self acquired property of Essanullah who died on 8.1.1970, whereas according to the defendants herein the said property belonged to all the heirs of Moosa Saheb, the father of Essanullah, K.M. Ziauddin defendant number3 and K.M. Obeidulla defendant number4 . In 1973, after the demise of Essanullah, defendant number1 herein daughter-in-law of Moosa Saheb had instituted suit number49 of 1973 in the companyrt of Subordinate Judge, Thirupathur, North Arcot district, Tamilnadu for partition alleging that the property in question was number the self acquired property of Essanullah and that they belonged to all the heirs of Moosa Saheb. She was supported by defendants number2 to However, that suit was dismissed. It was held that the property in schedule A including the seven rooms was self acquired property of Essanullah. The decree passed by the trial Court in suit number49 of 1973 was companyfirmed in appeal. Consequently, the present suit was filed by the heirs of Essanullah for declaration of title to properties mentioned in schedule A and for recovery of possession of the seven rooms more particularly described in schedule B to the plaint. In the present suit, defendants number1 to 4 once again alleged that the suit properties belonged to all the heirs of Moosa Saheb and they denied that the suit property was self acquired property of Essanullah. They pleaded that Moosa Saheb had started business in tobacco. That Moosa Saheb died on 6.3.1948. On his demise, his heirs companytinued the business as family business. The business was run in the name and style of Moosa Tobacco House and after the death of Moosa, the tobacco business companytinued in the name and style of K.M. Essanullah Company. It was pleaded in the written statement that all the heirs of Moosa Saheb were tenants-in-common. That they were the partners of the Essanullah Company. In the written statement, it was pleaded that the suit property was bought out of the income earned by M s Moosa Tobacco House and companysequently, the suit property was the property of the heirs of Moosa Saheb as tenants-in-common and number exclusive property of the deceased Essanullah, from whom the plaintiffs claimed title. Alternatively, the defendants pleaded that they had perfected their title by adverse possession as they, as heirs of Moosa Saheb, have been in permissive possession of the seven rooms for more than 12 years. They companyceded that defendant number4 had let out a portion to the 5th defendant in 1961 on rent. However, at the same time the defendants pleaded that all the heirs of Moosa Saheb had acquired a joint title in the property along with the plaintiffs that the suit property was a part of a companymon estate and companysequently defendants number3 and 4 sons of Moosa Saheb were entitled 2/15th share that defendants number1 and 2 and Hamida Begum as heirs of Rahamatulla were also entitled to 2/15th share and that similarly the plaintiffs as heirs of Essanullah were entitled to 2/15th share in the suit property. Therefore, it was urged that the plaintiffs had numberexclusive title to the suit property or to any portion thereof except to the extent of 2/15th share along with other heirs of Moosa Saheb. On above pleadings, the trial Court framed certain issues. Two main issues framed by the trial companyrt were whether the suit property was the self acquired property of Essanullah and whether the defendants had perfected their title by adverse possession over the suit property? During the pendency of the suit, defendant number4 died on 8.5.1987. At the request of the plaintiffs, time was granted repeatedly to bring the legal representatives of the 4th defendant on record. The plaintiffs failed to take steps, therefore, on 1.8.1987, the trial Court recorded that as the steps to bring the LRs of defendant number4 on record have number been taken, the suit against defendant number4 alone shall stand abated. As stated above, in the present case, the only point for determination is whether the High Court was right in companying to the companyclusion that the suit against defendant number4 alone abated and that the entire suit did number abate? However, to companyplete the chronology of the events, we may state that the trial Court came to the companyclusion that the suit property was the self acquired property of Essanullah. In this companynection, the trial Court placed reliance on the judgment and decree passed in the earlier suit number49 of 1973, which decree was passed by the Subordinate Judge, Thirupathur, North Arcot district, Tamilnadu, and which decree was affirmed by the appellate Court. The trial Court dismissed the claim of the defendants herein based on adverse possession. Consequently, the trial Court decreed the suit filed by the plaintiffs in the present case for recovery of seven rooms more particularly described in schedule B to the plaint. At this stage, it may be stated that the decree of the trial Court for possession of seven rooms is based on the map Ex.P8 showing the entire property in schedule A and the seven rooms mentioned in schedule B in possession of each of the defendants. The trial Court further found that the deceased defendant number4 admittedly had let out the room in his possession to defendant number5, which indicated that defendant number4 was occupying a separate room out of seven rooms. The trial Court further found that each of the four defendants had asserted their rights in respect of the seven rooms as tenants-in-common and they had asserted that they were in adverse possession having perfected their title to each of the seven rooms. In the circumstances, the trial Court held that on the demise of defendant number4 and on failure of the plaintiffs to bring on record the heirs of defendant number4, the entire suit did number abate. The trial Court, therefore, decreed the suit against defendants number1 to 3 and dismissed the suit against defendant number4. Being aggrieved by the decree passed by the trial Court, defendants number1 to 3 preferred an appeal to the Civil Judge at Kolar Gold Fields being R.A. No.13 of 1991. It was held in appeal that the plaintiffs had sought for a decree jointly against defendants number1 to 4 that the plaintiffs have number sought for decree against a particular defendant in respect of a particular portion of the property that the plaintiffs have number stated in their plaint as to in what capacity defendants number1 to 4 were in possession of the seven rooms that the plaintiffs have merely averred that they were in possession of one portion of the building and that the defendants were in occupation of the other portion of the building and, therefore, the plaintiffs had sought for a joint decree against all the defendants and companysequently on the demise of defendant number4 and on the plaintiffs failing to take steps to bring the LRs of defendant number4 on record, the entire suit stood abated. The lower appellate Court further held that even though the plaintiffs had sought relief against all the defendants jointly and severally, the trial Court had proceeded to pass judgment and decree only against defendants number1 to 3. In this companynection, the lower appellate Court further observed that the plaintiffs were number entitled to recover possession of the seven rooms from defendants number1 to 3 alone as there was numberevidence adduced by the plaintiffs as to the portion rooms in possession of defendants number1 to 3. That except for Ex.P8 showing each room to be in possession of the said defendants, numberevidence has been led by the plaintiffs to show as to which room was exactly in possession of defendants number1, 2 and 3. That the relief sought for against the defendants was joint and inseparable and companysequently the entire suit stood abated on the demise of defendant number4 and on failure of the plaintiffs to bring the LRs of defendant number4 on record. It was held that the interest of the defendants was joint interest and, therefore, it was number possible to sue some of the defendants without the other. Consequently, the lower appellate Court dismissed the entire suit as having abated. The appeal was allowed and the judgment and decree dated 28.11.1990 passed by the trial Court in suit number417 of 1979 was set aside. Aggrieved by the judgment passed by the learned lower appellate Court dated 11.10.1995 in R.A. No.13 of 1991, the plaintiffs preferred appeal under section 100 CPC to the High Court. At this stage, it may be mentioned that the High Court framed the following substantial question of law at the time of admission of the second appeal Whether the dismissal by the first appellate Court on the ground that the LRs of defendant number4 were number brought on record was companyrect in view of the dictum in 1972 My. L.J. 656, 1974 2 KLR 123, AIR 1964 SC 234 and 1973 2 My. L.J. 395? The High Court came to the companyclusion that in the present case, the facts were number in dispute and in the light of the above judgments as each of the defendants was in separate independent possession of each of the rooms, the reliefs prayed for were divisible and the decree was enforceable separately against each of the defendants. Accordingly, the second appeal was allowed. The High Court restored the decree of the trial Court after setting aside the judgment of the lower appellate Court. The High Court also remitted the matter to the lower appellate Court as an application was made by the plaintiffs to bring the LRs of defendant number4 on record. The lower appellate Court has been directed to deal with the rights of defendant number4 alone as the decree has been made against other defendants number1 to 3. Hence, this civil appeal. We do number find any merit in this civil appeal. As stated above, the plaintiffs instituted the suit inter alia for recovery of possession of seven rooms more particularly described in schedule B to the plaint. Schedule B gave detailed description of the suit property. Each of the seven rooms has been marked on the sketch tendered in evidence as B1 to B7. In the plaint, the original plaintiffs separately mentioned the rooms in possession of each of the defendants vide paragraph number5. They gave a separate schedule to the plaint, which described the rooms in possession of each of the above defendants. Schedule B also gave the dimension of each room. Further, plaintiffs sought possession of each of the rooms separately from each of the defendants vide paragraph number11 read with schedule B to the plaint. In the evidence, plaintiffs produced and proved the map Ex.P8 based on the description of the seven rooms which tallied with the description in schedule B. Further, the defendants herein alleged that they were in possession of the seven rooms with companysent of Essanullah. In the suit, the defendants further companytended that they had perfected their title in respect of each of the seven rooms by adverse title. The most clinching fact was that defendant number4 had died during the pendency of the suit. Defendant number4 was in possession of a room leased out to defendant number5 for rent. Taking into account the above circumstances, the trial Court was right in holding that the suit against defendant number4 alone stood dismissed as abated. The trial Court was, therefore, right in decreeing the suit of the plaintiffs as prayed for only against defendants number1 to 3. Order 22 Rule 4 CPC lays down that where within the time limited by law, numberapplication is made to implead the legal representatives of a deceased defendant, the suit shall abate as against a deceased defendant. This rule does number provide that by the omission to implead the legal representative of a defendant, the suit will abate as a whole. What was the interest of the deceased defendant in the case, whether he represented the entire interest or only a specific part is a fact that would depend on the circumstances of each case. If the interests of the companydefendants are separate, as in case of companyowners, the suit will abate only as regards the particular interest of the deceased party. See Masilamani Nadar v. Kuttiamma Ors. reported in 1960 4 Kerala Law Journal 936. In the case Sant Singh Anr. v. Gulab Singh Ors. reported in AIR 1928 Lahore 573, it has been held that under Order 22 Rule 4 3 read with Order 22 Rule 11 CPC where numberapplication is made to implead the legal representative of the deceased respondent, the appeal shall abate as against the deceased respondent. That, so far as the statute is companycerned, the appeal abates only qua the deceased respondent, but the question whether the partial abatement leads to an abatement of the appeal in its entirety depends upon general principles. If the case is of such a nature that the absence of the legal representative of the deceased respondent prevents the Court from hearing the appeal as against the other respondents, then the appeal abates in toto. Otherwise, the abatement takes place only in respect of the interest of the respondent who has died. The test often adopted in such cases is whether in the event of the appeal being allowed as against the remaining respondents there would or would number be two companytradictory decrees in the same suit with respect to the same subject matter. The Court cannot be called upon to make two inconsistent decrees about the same property, and in order to avoid companyflicting decrees the Court has numberalternative but to dismiss the appeal as a whole. If, on the other hand, the success of the appeal would number lead to companyflicting decrees, then there is numbervalid reason why the Court should number hear the appeal and adjudicate upon the dispute between the parties. It was further held in the said judgment that a distinction must be made between the cases in which there is specification of shares or interests, and those in which there is numberspecification of interests. That in cases where there is a specification of share or interest, the appeal cannot abate as a whole. That in such cases, the appeal abates only in respect of the interest of the deceased respondent and number as a whole. To the same effect is the ratio of the judgment of this Court in the case of Sardar Amarjit Singh Kalra Dead by LRs. Ors. v. Pramod Gupta SMT Dead by LRs. Ors. reported in 2003 3 SCC 272, in which it has been held that existence of a joint right as distinguished from tenancy-in-common alone is number the criteria but the joint character of the decree de hors relationship of the parties inter-se and the frame of the appeal will take companyour from the nature of the decree challenged. Laws of procedure are meant to regulate effectively, assist and aid the object of doing substantial and real justice. A careful reading of Order 22 CPC would support the view that the said provisions were devised to ensure companytinuation and culmination in an effective adjudication. It was further observed that the mere fact that a khata was a joint khata was number relevant for deciding the question of abatement under Order 22, as long as each of the appellants had their own independent, distinct and separate shares in the property. It was held that wherever the plaintiffs are found to have distinct, separate and independent rights of their own, joined together for sake of companyvenience in a single suit, the decree passed by the Court is to be viewed in substance as the companybination of several decrees in favour of one or the other party and number as the joint decree. The question as to whether the decree is joint and inseverable or joint and severable has to be decided, for the purposes of abatement with reference to the fact as to whether the decree passed in the proceedings vis--vis the remaining parties would suffer the vice of inconsistent decrees or companyflicting decrees. A decree can be said to be inconsistent or companytradictory with another decree only when two decrees are incapable of enforcement and that enforcement of one would negate the enforcement of the other. In the present case, the 4th defendant was found by the trial Court to be in possession of one of seven rooms. He had let it out on rent to defendant number5. The trial Court on evidence found that Ex.P8 showed different rooms to be in possession of different defendants who claimed to be tenants-in-common in possession of each of the seven rooms. They claimed to have perfected their title by adverse possession to each of the seven rooms. There was numberchallenge to Ex.P8 in evidence. | 7 |
FIRST SECTION
CASE OF SHUVALOV v. RUSSIA
(Application no. 38047/04)
JUDGMENT
STRASBOURG
18 October 2011
FINAL
18/01/2012
This judgment has become final under Article 44 § 2 of the Convention. It may be subject to editorial revision.
In the case of Shuvalov v. Russia,
The European Court of Human Rights (First Section), sitting as a Chamber composed of:
Nina Vajić, President,Anatoly Kovler,Peer Lorenzen,Mirjana Lazarova Trajkovska,Julia Laffranque,Linos-Alexandre Sicilianos,Erik Møse, judges,and Søren Nielsen, Section Registrar,
Having deliberated in private on 27 September 2011,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 38047/04) against the Russian Federation lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a Russian national, Mr Gennadiy Aleksandrovich Shuvalov (“the applicant”), on 2 September 2004.
2. The Russian Government (“the Government”) were represented by Mr G. Matyushkin, the Representative of the Russian Federation at the European Court of Human Rights.
3. The applicant alleged, in particular, that he had been ill-treated while in State custody and that the domestic authorities had failed to investigate the matter.
4. On 4 September 2008 the President of the First Section decided to give notice of the application to the Government. It was also decided (pursuant to former Article 29 § 3 of the Convention) to rule on the admissibility and merits of the application at the same time.
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
5. The applicant was born in 1973 and lives in Volgograd.
A. Criminal proceedings against the applicant
6. On 23 March 2001 the applicant, a former police officer, was arrested, with two others, on suspicion of drug dealing.
7. On 26 March 2001 the applicant was detained pending investigation, and on 30 March 2001 charges were brought against him.
8. On 9 September 2003 the Volgograd Kirovskiy District Court convicted the applicant of drug dealing and sentenced him to ten years’ imprisonment.
9. On 8 June 2004 the Volgograd Regional Court quashed the judgment on appeal and remitted the case for retrial.
10. On 29 June 2006 the Volgograd Kirovskiy District Court convicted the applicant of drug dealing and sentenced him to five years and four months’ imprisonment. The judgment was not appealed against and became final.
11. On 22 July 2006 the applicant was released on completing his sentence.
B. Alleged ill-treatment
12. On 19 July 2002 officer P. of the Volgograd Regional remand prison IZ-34/4 (ФБУ ИЗ № 34/4 ГУФСИН России по Волгоградской области), where the applicant was detained at the material time, allegedly hit the applicant several times with a rubber truncheon on the lower back and buttocks. The applicant could hardly walk afterwards. In the evening he felt feverish. The doctor on duty was to examine the applicant. However, according to the applicant, despite his request the doctor was instructed not to record the injuries.
13. On 23 July 2002 the applicant was brought to Volgograd Kirovskiy District Court for trial. However, he felt unwell, and an ambulance team was called. The ambulance paramedic discovered bruises on the soft tissue of the applicant’s buttocks. When he returned to the remand prison the applicant was examined by a medical assistant. The latter recorded multiple haematomas on the applicant’s buttocks, measuring 1.5 x 1.5 cm. On the same day the applicant made a complaint about the beatings to the Volgograd City Prosecutor’s Office.
14. On 16 August 2002 the chief assistant of the Volgograd City Prosecutor refused to institute criminal proceedings against officer P. The decision read as follows:
“[...] The inquiry conducted [into the applicant’s allegations] established that at 11.15 a.m. on 19 July 2002 [officers P. and Podm. of the Volgograd Regional remand prison IZ-34/4] took [the applicant] out of cell no. 47 for a talk on the subject of compliance with the detention regime [...]
[Officer P.] invited officer K. by telephone to come to his office, no. 4, and bring [the applicant’s] personal file. Approximately ten minutes later those present went to P.’s office, where K. informed [the applicant] of the material in the file. The latter threatened to have criminal proceedings instituted against K., and to make all others present regret everything, without offering any further explanation.
At about 12.30 p.m. [the applicant] was taken to a temporary isolation cell, from where, three hours later, he was escorted back to his cell.
No physical force or special means were applied to the [applicant]. According to the records on the use of special means, officers P., Podm. and K. were not given special means on 19 July 2002.
When he returned to his cell [the applicant] made no health-related complaints to his cellmates or to the medical unit of the [remand prison].
During the exercise period on 20 July 2002 [the applicant] was rubbing his buttocks against the wall of the exercise yard (explanations by detainees Sh., D., and others), deliberately causing himself harm.
At 12.12 p.m. on 23 July 2002, having been escorted to the Kirovskiy District Court, [the applicant] complained to convoy officers that he felt unwell, mentioning in particular pain in the area of his kidneys, for which reason an ambulance was called to the courthouse.
Medical assistant Sh. discovered haematomas on [the applicant’s] buttocks [...].
[The applicant’s] allegations of “blows to the kidneys and high blood pressure” were not confirmed. His health was assessed as relatively satisfactory.
It follows from submissions by detainees D., I., P., and Sh. that [the applicant] repeatedly expressed discontent with [officer P.] and was planning to make accusations against him...
In view of the foregoing, [the applicant’s] allegations were not substantiated...”
15. On 8 September and 29 November 2002 the applicant obtained written statements from his cellmates P., I. and B., who stated that they had not seen the applicant causing himself injuries. They further stated that police officer P. had made them and other inmates sign statements to the contrary.
16. In the meantime, in October 2002 the applicant appealed against the decision of 16 August 2002 to the Prosecutor General of the Russian Federation.
17. In December 2002 the applicant was informed that his complaint had been referred to the Volgograd Regional Prosecutor’s Office, which, in its turn, referred the complaint to the Volgograd Regional Prosecutor supervising the enforcement of legislation in correctional institutions.
18. Soon afterwards the applicant received a letter dated 15 December 2002 from the Volgograd Regional Prosecutor, informing him that his complaint had been examined and that no grounds had been found to quash the decision of 16 August 2002. A copy of the relevant decision was not however made available to the applicant.
19. The applicant tried to challenge the refusal to institute criminal proceedings against officer P. before the court examining his criminal case in 2003, during the trial and in 2004 on appeal. However, neither of the domestic courts considered the applicant’s arguments.
20. Since some considerable time had elapsed since the quashing of the applicant’s conviction in 2004 and no new trial had yet started (see paragraphs 9 and 10 above), the applicant decided to challenge the refusal to institute criminal proceedings against police officer P. in separate proceedings.
21. On an unspecified date in June 2005 he challenged the refusal before the Volgograd Regional Prosecutor’s Office and the Tsentralniy District Court of Volgograd.
22. On 4 July 2005 the Deputy Prosecutor of the Volgograd Region quashed the decision of 16 August 2002, because it had been taken by the wrong person and outside the procedural time-limits. The decision also referred to the results of the inspection of the case file material (материалы служебной проверки). An additional investigation was ordered.
23. On 7 July 2005 the Tsentralniy District Court of Volgograd dismissed the applicant’s appeal against the decision of 4 July 2005.
24. However, on 14 July 2005 the Volgograd City Prosecutor refused to institute criminal proceedings against officer P. The decision read as follows:
“... Junior inspector [of facility IZ-34/4] Kush. explained that on 19 July 2002 ... [officers P. and Podm.] took [the applicant] from cell. 47 to the management and security office. [Officer K.] was already there. [They] spent about ten minutes in the office, after which [the applicant] was taken back to cell. 47. The [officers] had no special equipment on them. Neither P. nor Podm were issued with rubber truncheons. He had seen no injuries on [the applicant]; [the applicant’s] behaviour was normal and, [the latter] made no health-related complaints.
Similar statements were made by junior inspector [of facility IZ-34/4] G., who confirmed that no physical force had been applied to [the applicant].
[Officer] K. submitted that on 19 July 2002 ... she had been showing [the applicant] the material in his personal file, explaining [to the latter] the lawfulness of his detention.. On that occasion no violence was used against [the applicant] by the officers of IZ-34/4.
[Officer Podm.] submitted that on 19 July 2002 together with [officers P. and K.] at about 11 a.m. he had [had a talk with the applicant]. [...] On that occasion none of [the officers] had used violence on [the applicant], beaten him or threatened him.
Medical staff from IZ-34/4 K. and T. submitted that [the applicant] had not sought medical assistance between 19 July and 24 July 2002.
A medical auxiliary from IZ-34/4 M. submitted that on 23 July 2002 he examined [the applicant] and discovered blue marks on his buttocks, the origin of which [the applicant] did not explain. [The applicant] did not seek medical assistance until 24 July 2002.
[Officer P.] [made statements similar to those made by officers K. and Podm.]...
[According to the IZ-34/4 records], Sh., P., I., D., R., B., M., A. [formerly detained with the applicant] were no longer being held in facility IZ-34/4 [...].
Shakh. confirmed that he had been detained in facility IZ-34/4 with [the applicant], but in a different cell [...]. Regarding the circumstances of the alleged beatings, he only knew what [the applicant] had told him, that he had filed a complaint about the beatings. [...]
The above-mentioned detainees had not confirmed the alleged beatings at the initial inquiry.
Therefore, it follows that the events outlined by [the applicant] in his complaint that he had been beaten up by [officer P.] had not taken place [...].”
25. The applicant challenged the above decision before the court.
26. On 2 December 2005 the Volgograd Tsentralniy District Court did not find grounds for quashing the decision of 14 July 2005. It concluded that the decision in question had been made following analysis of all the pertinent information and in full compliance with the requirements of the domestic law.
27. On 14 February 2006 the Volgograd Regional Court quashed the judgment of 2 December 2005 because it had been given in the applicant’s absence, without necessary measures having been taken to ensure that he was duly notified of the hearing and summons. The case was remitted for fresh examination, with an instruction to check more thoroughly the arguments set out in the complaint.
28. On 11 April 2006 the Volgograd Tsentralniy District Court held again that the decision of 14 July 2005 was lawful.
29. On 6 June 2006 the Volgograd Regional Court upheld the above decision on appeal.
C. Proceedings in connection with a flat
30. The applicant was involved in court proceedings over his tenancy rights to a flat, which ended, to the applicant’s detriment, with final decisions of the Volgograd Regional Court of 26 April and 12 July 2007.
D. Proceedings over salary arrears
31. The applicant brought proceedings against his former employer (the Volgograd police office) for salary arrears and non-pecuniary damage.
32. On 24 August 2005 the Volgograd Regional Court, as the final appeal court, dismissed the applicant’s claims in full.
II. RELEVANT DOMESTIC LAW
A. Criminal Code
33. Abuse of position associated with the use of violence or entailing serious consequences carries a punishment of up to ten years’ imprisonment (Article 286 § 3 of the Criminal Code).
B. Code of Criminal Procedure
34. The Russian Code of Criminal Procedure (Law no. 174-FZ of 18 December 2001, in force from 1 July 2002, the “CCrP”) states that a criminal investigation may be initiated by an investigator or prosecutor on a complaint by an individual (Articles 140 and 146). Within three days of receipt of such a complaint the investigator or prosecutor must carry out a preliminary inquiry and make one of the following decisions: (1) to open criminal proceedings if there are reasons to believe that a crime has been committed; (2) to decline to open criminal proceedings if the inquiry reveals that there are no grounds to initiate a criminal investigation; or (3) to refer the complaint to the appropriate investigating authority. The complainant must be notified of any decision taken. The decision not to open criminal proceedings is amenable to appeal to a higher prosecutor or a court of general jurisdiction (Articles 144, 145 and 148).
35. The CCrP provides for judicial review of a decision or (in)action on the part of an inquirer, investigator or prosecutor which has affected constitutional rights or freedoms. The judge is empowered to verify the lawfulness and reasonableness of the decision/(in)action and to grant the following forms of relief: (1) to declare the impugned decision/(in)action unlawful or unreasonable and to order the respective authority to remedy the violation; or (2) to reject the complaint (Article 125).
THE LAW
I. ALLEGED VIOLATION OF ARTICLE 3 OF THE CONVENTION
36. The applicant complained under Articles 3 and 13 of the Convention that he had been ill-treated on 19 July 2002 whilst in State custody and that the investigation into his complaint had not been effective. The Court will examine this complaint from the standpoint of the State’s negative and positive obligations flowing from Article 3, which reads as follows:
“No one shall be subjected to torture or to inhuman or degrading treatment or punishment.”
A. Admissibility
37. The Court considers that this complaint is not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention and is not inadmissible on any other grounds. It must therefore be declared admissible.
B. Merits
1. Submissions by the parties
38. Reiterating the factual circumstances of the case, the general principles of Article 3 of the Convention as developed in the Court’s case‑law and the relevant domestic law, the Government submitted that the domestic investigating authorities had on two occasions carefully checked the applicant’s arguments by questioning the applicant himself, the alleged perpetrator, the latter’s colleagues and medical staff of Volgograd Region remand prison IZ-34/4, as well as other inmates, and had taken the decision to refuse to institute criminal proceedings in the absence of an indication that a crime had been committed. The domestic court reviewed the conclusions reached by the investigating authorities and found them lawful. In such circumstances, the Government concluded that there had been no breach of Article 3 of the Convention, under either the substantive or the procedural heads.
39. The applicant argued that he could not have caused himself the injuries in question by rubbing his buttocks against the walls of the exercise yard. Rubbing would only have left scratches, not multiple haematomas. The haematomas could only have originated from the impact of a blunt object, such as, in his case, the rubber truncheon used by police officer P. The applicant further drew the Court’s attention to the fact that the Government had failed to make any comments on the written statements by his cellmates P., I. and B. (see paragraph 15 above) to the effect that they had not seen the applicant harming himself during the exercise period on 20 July 2002, and that police officer P. had made them and other inmates sign statements to the contrary. He further alleged that the additional inquiry had been based on the material of the initial inquiry without additionally questioning those involved in the incident. The applicant concluded, therefore, that the Government’s conclusion as to the compliance of the domestic authorities with their obligations under Article 3 of the Convention in his respect had been unsubstantiated.
2. The Court’s assessment
(a) Alleged ill-treatment of the applicant
(i) General principles
40. The Court reiterates that persons in custody are in a vulnerable position and that the authorities are under a duty to protect their physical well-being (see Gladyshev v. Russia, no. 2807/04, § 51, 30 July 2009; Sarban v. Moldova, no. 3456/05, § 77, 4 October 2005; and Mouisel v. France, no. 67263/01, § 40, ECHR 2002-IX). In respect of a person deprived of his liberty, any recourse to physical force which has not been made strictly necessary by his own conduct diminishes human dignity and is in principle an infringement of the right set forth in Article 3 of the Convention (see Sheydayev v. Russia, no. 65859/01, § 59, 7 December 2006; Krastanov v. Bulgaria, no. 50222/99, § 53, 30 September 2004; and Ribitsch v. Austria, 4 December 1995, § 38, Series A no. 336).
41. The Court further reiterates that to fall under Article 3 of the Convention ill-treatment must attain a minimum level of severity. The standard of proof relied upon by the Court is that “beyond reasonable doubt” (see Avşar v. Turkey, no. 25657/94, § 282, ECHR 2001-VII). Such proof may follow from the coexistence of sufficiently strong, clear and concordant inferences or of similar unrebutted presumptions of fact. Where the events in issue lie wholly or in large part within the exclusive knowledge of the authorities, as in the case of persons within their control in custody, strong presumptions of fact will arise in respect of injuries occurring during such detention. Indeed, the burden of proof may be regarded as resting on the authorities to provide a satisfactory and convincing explanation (see Gladyshev, cited above, § 52; Oleg Nikitin v. Russia, no. 36410/02, § 45, 9 October 2008; and Salman v. Turkey [GC], no. 21986/93, § 100, ECHR 2000-VII).
42. Where domestic proceedings have taken place, it is not the Court’s task to substitute its own assessment of the facts for that of the domestic courts and, as a general rule, it is for those courts to assess the evidence before them (see Klaas v. Germany, 22 September 1993, § 29, Series A no. 269). Although the Court is not bound by the findings of the domestic courts, in normal circumstances it requires cogent elements to lead it to depart from the findings of fact reached by those courts (see Matko v. Slovenia, no. 43393/98, § 100, 2 November 2006). The Court must apply a particularly thorough scrutiny where the applicant raises an arguable complaint of ill-treatment (see Ribitsch, cited above, § 32, and Avşar, cited above, § 283).
(ii) Application of the above principles in the present case
43. Turning to the facts of the present case, the Court notes that shortly after the alleged beatings, on 23 July 2002, the ambulance paramedic discovered bruises on the soft tissue of the applicant’s buttocks. On the same day the applicant was examined by a medical auxiliary at the remand prison, who recorded multiple haematomas on the applicant’s buttocks, measuring 1.5 x 1.5 cm (see paragraph 13 above).
44. The Court considers that the above medical evidence, together with the fact that the alleged beatings took place while the applicant was under the authorities’ control in custody, created an unrebutted presumption of fact that the applicant was subjected to ill-treatment at the hands of State agents and required the Government to provide a satisfactory and convincing explanation as to how those injuries could have originated.
45. The Court observes that, having conducted a police inquiry, the investigating authorities arrived at the conclusion that the applicant had inflicted the injuries in question by rubbing his buttocks against the walls of the exercise yard during the exercise period on 20 July 2002 (see paragraph 14 above).
46. The Court notes that the above explanation as to the origin of the applicant’s injuries was not supported by any forensic medical evidence which would answer the questions as to how and when the injuries on the applicant’s body had been inflicted (see paragraph 57 below). Besides, the written statements by three of the applicant’s former cellmates indicate that they did not see the applicant harming himself during the exercise period on 20 July 2002, and their previous statements to the contrary had been made under pressure from officer P. (see paragraph 15 above). No comment was made on the statements in question by the domestic authorities, either during the proceedings at domestic level or before the Court.
47. Regard being had to the absence of any consistent or indisputable proof supporting the account of events put forward by the domestic authorities, the Court finds it unconvincing and implausible that the applicant could have sustained multiple haematomas by rubbing himself against the walls of the remand prison’s exercise yard. It therefore finds it established to the standard of proof required in Convention proceedings that the injuries on the applicant’s body were the result of the treatment about which he complained and for which the Government bore responsibility.
48. Accordingly, having regard to the nature and the extent of his injuries, the Court concludes that the State is responsible under Article 3 on account of the inhuman and degrading treatment to which the applicant was subjected on 19 July 2002 by police officer P. and that there has thus been a violation of that provision.
(b) Alleged inadequacy of the investigation
(i) General principles
49. The Court reiterates that where an individual raises an arguable claim that he has been seriously ill-treated in breach of Article 3, that provision, read in conjunction with the State’s general duty under Article 1 of the Convention to “secure to everyone within their jurisdiction the rights and freedoms defined in ... [the] Convention”, requires by implication that there should be an effective official investigation (see Assenov and Others v. Bulgaria, 28 October 1998, § 102, Reports of Judgments and Decisions 1998‑VIII).
50. An obligation to investigate “is not an obligation of result, but of means”: not every investigation should necessarily be successful or come to a conclusion which coincides with the claimant’s account of events; however, it should in principle be capable of leading to the establishment of the facts of the case and, if the allegations prove to be true, to the identification and punishment of those responsible (see Paul and Audrey Edwards v. the United Kingdom, no. 46477/99, § 71, ECHR 2002-II; Mahmut Kaya v. Turkey, no. 22535/93, § 124, ECHR 2000-III; and Mikheyev v. Russia, no. 77617/01, § 107, 26 January 2006).
51. The investigation of arguable allegations of ill-treatment must be thorough. That means that the authorities must always make a serious attempt to find out what happened and should not rely on hasty or ill‑founded conclusions to close their investigation or as the basis of their decisions. They must take all reasonable steps available to them to secure the evidence concerning the incident, including, inter alia, a detailed statement concerning the allegations from the alleged victim, eyewitness testimony, forensic evidence and, where appropriate, additional medical certificates capable of providing a full and accurate record of the injuries and an objective analysis of the medical findings, in particular as regards the cause of the injuries. Any deficiency in the investigation which undermines its ability to establish the cause of injuries or the identity of the persons responsible will risk falling foul of this standard (see Mikheyev, cited above, § 108, and Nadrosov v. Russia, no. 9297/02, § 38, 31 July 2008).
52. The investigation into the alleged ill-treatment must be prompt. There must be a sufficient element of public scrutiny of the investigation or its results; in particular, in all cases, the complainant must be afforded effective access to the investigatory procedure (see Mikheyev, cited above, § 109; Maksimov v. Russia, no. 43233/02, § 83, 18 March 2010; and Lopata v. Russia, no. 72250/01, §§ 110, 13 July 2010).
53. Finally, the investigation into alleged ill-treatment by State agents should be independent (see Öğur v. Turkey, [GC], no. 21954/93, ECHR 1999-III, §§ 91-92; Mehmet Emin Yüksel v. Turkey, no. 40154/98, § 37, 20 July 2004; Menesheva v. Russia, no. 59261/00, § 67, ECHR 2006‑III; and Oleg Nikitin, cited above, § 35).
(ii) Application of the above principles in the present case
54. Turning to the circumstances of the present case, the Court observes that on 23 July 2002 the applicant submitted to the Volgograd City Prosecutor’s Office a clear and direct statement to the effect that on 19 July 2002, while he was in Volgograd Regional remand prison IZ-34/4, he had been beaten up by police officer P. He substantiated his complaint with medical documents attesting to a number of bruises on his body, specifically on the buttocks (see paragraph 13 above). The applicant’s claim was, therefore, shown to be “arguable”, and the domestic authorities were placed under an obligation to carry out “a thorough and effective investigation capable of leading to the identification and punishment of those responsible”.
55. The Court further observes that on 16 August 2002 the chief assistant of the Volgograd City Prosecutor refused to institute criminal proceedings against officer P., finding that the applicant had inflicted the bruises on himself by rubbing his buttocks against the walls of the remand prison’s exercise yard during the exercise period on 20 July 2002. That decision was subsequently quashed on 4 July 2005, essentially on procedural grounds, and an additional inquiry was ordered. Shortly afterwards, on 14 July 2005, the Volgograd City Prosecutor took a decision to refuse to institute criminal proceedings against officer P. It appears that the decision was based on the material of the previous inquiry (see paragraphs 24 and 39 above). Subsequently, the domestic court at two levels of jurisdiction reviewed the lawfulness of the decision of 14 July 2005 and found no grounds for quashing it. The issue is consequently not so much whether there was an investigation as whether it was conducted diligently, whether the authorities were determined to identify and prosecute those responsible, and, accordingly, whether the investigation was effective (see Oleg Nikitin, cited above, § 39).
56. The Court notes that the decisions of 16 August 2002 and 14 July 2005 refusing the applicant’s request for criminal proceedings against police officer P. were based on statements by the alleged perpetrator and his colleagues, on statements by the applicant’s cellmates, and on the results of the applicant’s medical examination by the medical auxiliary at the remand prison on 23 July 2002.
57. The Court is concerned at the fact that no attempt whatsoever was made by the investigating authorities to establish the cause of the applicant’s injuries and the time when they could have been inflicted. These failures alone, for which no explanation was provided to the Court, were sufficient to render all the subsequent investigation ineffective (see Samoylov v. Russia, no. 64398/01, § 37, 2 October 2008).
58. The Court further observes that the questioning of the applicant’s cellmates was done by the alleged perpetrator himself. This inference is made on the basis of written statements by three of the applicant’s cellmates dating shortly after the first refusal to institute criminal proceedings, in which they deny having seen the applicant harming himself, and convey that the statements to the contrary were extracted from them by police officer P. by means of intimidation (see paragraphs 15 and 39 above). The Court considers that entrusting the questioning of the witnesses in a case to a person who was implicated in the alleged ill-treatment undermines the requirement for an effective investigation to be independent and irretrievably undermines its capability of leading to the establishment of the true circumstances of the case.
59. In view of the foregoing, the Court concludes that the investigation carried out into the applicant’s allegations of ill-treatment failed to meet the requirement of effectiveness, in that it had not been thorough and independent, and, for that reason, was not capable of leading to the establishment of the facts and to the identification and punishment of those responsible.
60. Accordingly, there has been a violation of Article 3 of the Convention on account of the lack of an effective investigation into the applicant’s allegations of ill-treatment.
II. OTHER ALLEGED VIOLATIONS OF THE CONVENTION
61. Finally, the applicant submitted a number of additional complaints under Articles 6, 8 and 13 of the Convention and under Article 1 of Protocol No. 1, relating to the applicant’s trial and to the civil disputes to which he had been a party.
62. However, having regard to all the material in its possession, and in so far as these complaints fall within its competence, the Court finds that there is no appearance of a violation of the rights and freedoms set out in the Convention or its Protocols. It follows that this part of the application must be rejected as manifestly ill-founded, pursuant to Article 35 §§ 3 (a) and 4 of the Convention.
III. APPLICATION OF ARTICLE 41 OF THE CONVENTION
63. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
A. Damage
64. The applicant claimed 11,000 euros (EUR) in respect of non‑pecuniary damage.
65. The Government submitted that if the Court were to find a violation, the finding of such a violation would constitute in itself sufficient just satisfaction.
66. The Court notes that it has found a violation under both the substantive and the procedural heads of Article 3 of the Convention on account of the applicant’s ill-treatment whilst in State custody and the failure to carry out an effective investigation into the matter. In these circumstances, the Court considers that the pain, humiliation and frustration caused to the applicant cannot be compensated for by the mere finding of a violation. Making its assessment on an equitable basis, the Court awards the applicant EUR 11,000 in respect of non-pecuniary damage, plus any tax that may be chargeable on it.
B. Costs and expenses
67. The applicant did not claim costs and expenses. Accordingly, there is no call to make an award under this head.
C. Default interest
68. The Court considers it appropriate that the default interest should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT UNANIMOUSLY
1. Declares admissible the complaints under Article 3 of the Convention and the remainder of the application inadmissible;
2. Holds that there has been a violation of Article 3 of the Convention on account of the applicant’s ill-treatment of 19 July 2002;
3. Holds that there has been a violation of Article 3 of the Convention on account of the fact that the domestic authorities failed to carry out an effective investigation;
4. Holds
(a) that the respondent State is to pay the applicant, within three months of the date on which the judgment becomes final in accordance with Article 44 § 2 of the Convention, EUR 11,000 (eleven thousand euros), plus any tax that may be chargeable, in respect of non-pecuniary damage, to be converted into Russian roubles at the rate applicable on the date of settlement;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amount at a rate equal to the marginal lending rate of the European Central Bank during the default period, plus three percentage points.
Done in English, and notified in writing on 18 October 2011, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Søren NielsenNina VajićRegistrarPresident
| 1 |
JUDGMENT OF THE COURT (Second Chamber)
11 September 2014 ( *1 )
‛Failure of a Member State to fulfil obligations — Environment — Directive 2000/60/EC — Framework for Community action in the field of water policy — Recovery of the costs for water services — Concept of ‘water services’’
In Case C‑525/12,
ACTION for failure to fulfil obligations under Article 258 TFEU, brought on 19 November 2012,
European Commission, represented by E. Manhaeve and G. Wilms, acting as Agents, with an address for service in Luxembourg,
applicant,
v
Federal Republic of Germany, represented by T. Henze and J. Möller, acting as Agents,
defendant,
supported by
Kingdom of Denmark, represented by M. Wolff and V. Pasternak Jørgensen, acting as Agents,
Hungary, represented by M.Z. Fehér and K. Szíjjártó, acting as Agents,
Republic of Austria, represented by C. Pesendorfer, acting as Agent,
Republic of Finland, represented by J. Heliskoski and H. Leppo, acting as Agents,
Kingdom of Sweden, represented by A. Falk, C. Meyer-Seitz, U. Persson and S. Johannesson, acting as Agents,
United Kingdom of Great Britain and Northern Ireland, represented by S. Behzadi-Spencer and J. Beeko, acting as Agents, assisted by G. Facenna, Barrister,
interveners,
THE COURT (Second Chamber),
composed of R. Silva de Lapuerta, President of the Chamber, J.L. da Cruz Vilaça, G. Arestis, J.-C. Bonichot (Rapporteur) and A. Arabadjiev, Judges,
Advocate General: N. Jääskinen,
Registrar: C. Strömholm, Administrator,
having regard to the written procedure and further to the hearing on 5 March 2014,
after hearing the Opinion of the Advocate General at the sitting on 22 May 2014,
gives the following
Judgment
By its application, the European Commission asks the Court to declare that, by excluding certain services (inter alia, impoundment for the purposes of hydroelectric power generation, navigation and flood protection, abstraction for irrigation and industrial purposes and personal consumption) from the concept of ‘water services’, the Federal Republic of Germany has failed to fulfil its obligations under Directive 2000/60/EC of the European Parliament and of the Council of 23 October 2000 establishing a framework for Community action in the field of water policy (OJ 2000 L 327, p. 1), particularly Articles 2(38) and 9 of that directive.
Legal context
Directive 2000/60
Directive 2000/60 includes the following recitals:
‘(1)
Water is not a commercial product like any other but, rather, a heritage which must be protected, defended and treated as such.
...
(11)
As set out in Article 174 of the Treaty, the Community policy on the environment is to contribute to pursuit of the objectives of preserving, protecting and improving the quality of the environment, in prudent and rational utilisation of natural resources, and to be based on the precautionary principle and on the principles that preventive action should be taken, environmental damage should, as a priority, be rectified at source and that the polluter should pay.
...
(13)
There are diverse conditions and needs in the Community which require different specific solutions. This diversity should be taken into account in the planning and execution of measures to ensure protection and sustainable use of water in the framework of the river basin. Decisions should be taken as close as possible to the locations where water is affected or used. Priority should be given to action within the responsibility of Member States through the drawing-up of programmes of measures adjusted to regional and local conditions.
...
(19)
This Directive aims at maintaining and improving the aquatic environment in the Community. This purpose is primarily concerned with the quality of the waters concerned. Control of quantity is an ancillary element in securing good water quality and therefore measures on quantity, serving the objective of ensuring good quality, should also be established.
(20)
The quantitative status of a body of groundwater may have an impact on the ecological quality of surface waters and terrestrial ecosystems associated with that groundwater body.
...
(33)
The objective of achieving good water status should be pursued for each river basin, so that measures in respect of surface water and groundwaters belonging to the same ecological, hydrological and hydrogeological system are coordinated.
...
(38)
The use of economic instruments by Member States may be appropriate as part of a programme of measures. The principle of recovery of the costs of water services, including environmental and resource costs associated with damage or negative impact on the aquatic environment should be taken into account in accordance with, in particular, the polluter-pays principle. An economic analysis of water services based on long-term forecasts of supply and demand for water in the river basin district will be necessary for this purpose.
...’
Article 2 of Directive 2000/60, headed ‘Definitions’, provides:
‘For the purposes of this Directive, the following definitions shall apply:
...
(38)
“[w]ater services” means all services which provide, for households, public institutions or any economic activity:
(a)
abstraction, impoundment, storage, treatment and distribution of surface water or groundwater;
(b)
waste-water collection and treatment facilities which subsequently discharge into surface water;
(39)
“[w]ater use” means water services together with any other activity identified under Article 5 and Annex II having a significant impact on the status of water.
This concept applies for the purposes of Article 1 and of the economic analysis carried out according to Article 5 and Annex III, point (b).
...’
Article 9 of Directive 2000/60, entitled ‘Recovery of costs for water services’, provides:
‘1. Member States shall take account of the principle of recovery of the costs of water services, including environmental and resource costs, having regard to the economic analysis conducted according to Annex III, and in accordance in particular with the polluter-pays principle.
Member States shall ensure by 2010:
—
that water-pricing policies provide adequate incentives for users to use water resources efficiently, and thereby contribute to the environmental objectives of this Directive,
—
an adequate contribution of the different water uses, disaggregated into at least industry, households and agriculture, to the recovery of the costs of water services, based on the economic analysis conducted according to Annex III and taking account of the polluter-pays principle.
Member States may in so doing have regard to the social, environmental and economic effects of the recovery as well as the geographic and climatic conditions of the region or regions affected.
2. Member States shall report in the river basin management plans on the planned steps towards implementing paragraph 1 which will contribute to achieving the environmental objectives of this Directive and on the contribution made by the various water uses to the recovery of the costs of water services.
3. Nothing in this Article shall prevent the funding of particular preventive or remedial measures in order to achieve the objectives of this Directive.
4. Member States shall not be in breach of this Directive if they decide in accordance with established practices not to apply the provisions of paragraph 1, second sentence, and for that purpose the relevant provisions of paragraph 2, for a given water-use activity, where this does not compromise the purposes and the achievement of the objectives of this Directive. Member States shall report the reasons for not fully applying paragraph 1, second sentence, in the river basin management plans.’
Article 11 of Directive 2000/60, entitled ‘Programme of measures’, includes the following paragraphs:
‘1. Each Member State shall ensure the establishment for each river basin district, or for the part of an international river basin district within its territory, of a programme of measures, taking account of the results of the analyses required under Article 5, in order to achieve the objectives established under Article 4. Such programmes of measures may make reference to measures following from legislation adopted at national level and covering the whole of the territory of a Member State. Where appropriate, a Member State may adopt measures applicable to all river basin districts and/or the portions of international river basin districts falling within its territory.
2. Each programme of measures shall include the “basic” measures specified in paragraph 3 and, where necessary, “supplementary” measures.
3. “Basic measures” are the minimum requirements to be complied with and shall consist of:
(a)
those measures required to implement Community legislation for the protection of water, including measures required under the legislation specified in Article 10 and in part A of Annex VI;
(b)
measures deemed appropriate for the purposes of Article 9;
...’
Annex III to Directive 2000/60 entitled ‘Economic analysis’, is worded as follows:
‘The economic analysis shall contain enough information in sufficient detail (taking account of the costs associated with collection of the relevant data) in order to:
(a)
make the relevant calculations necessary for taking into account under Article 9 the principle of recovery of the costs of water services, taking account of long term forecasts of supply and demand for water in the river basin district and, where necessary:
—
estimates of the volume, prices and costs associated with water services, and
—
estimates of relevant investment including forecasts of such investments;
(b)
make judgments about the most cost-effective combination of measures in respect of water uses to be included in the programme of measures under Article 11 based on estimates of the potential costs of such measures.’
Directive 2006/123/EC
Under Article 4 of Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006, on services in the internal market (OJ 2006 L 376, p. 36), entitled ‘Definitions’:
‘For the purpose of this Directive:
(1)
“service” means any self-employed economic activity, normally provided for remuneration, as referred to in Article 50 of the Treaty;
(2)
“provider” means any natural person who is a national of a Member State, or any legal person as referred to in Article 48 of the Treaty and established in a Member State, who offers or provides a service;
(3)
“recipient” means any natural person who is a national of a Member State or who benefits from rights conferred upon him by Community acts, or any legal person as referred to in Article 48 of the Treaty and established in a Member State, who, for professional or non-professional purposes, uses, or wishes to use, a service; ...’
Directive 2004/35/EC
Under Article 2(13) of Directive 2004/35/EC of the European Parliament and of the Council of 21 April 2004 on environmental liability with regard to the prevention and remedying of environmental damage (OJ 2004 L 143, p. 56), entitled ‘Definitions’, for the purposes of that directive ‘services’ and ‘natural resources services’ mean the functions performed by a natural resource for the benefit of another natural resource or the public.
Pre-litigation procedure and procedure before the Court
In August 2006 the Commission received a complaint to the effect that the Federal Republic of Germany was interpreting the definition of ‘water services’ referred to in Article 2(38) of Directive 2000/60 as meaning that the services in question were restricted to the supply of water and the collection, treatment and elimination of waste water, thereby narrowing the scope of Article 9 of that directive, relating to the recovery of the costs of water services.
In particular, according to that interpretation, impoundments, inter alia for the purposes of hydroelectric power generation, navigation and flood protection, do not come within the scope of water services and are therefore not taken into account for the application of the principle of recovery of costs under Article 9 and Annex III(a) of that directive.
On 7 November 2007 the Commission sent the Federal Republic of Germany a letter of formal notice in which the Commission made clear that the German legislation was not compatible with several provisions of Directive 2000/60 and that the Member State was incorrectly applying the concept of ‘water services’. The Commission considered, in essence, that, in the interest of protecting water resources, the various uses of water had to have a price. Accordingly, the Member States have an obligation to provide for a pricing structure for the different water uses, even if they are not supplies of services in the conventional sense of the term. Thus, for example, mere navigation should be subject to a fee.
The Federal Republic of Germany replied to the letter of formal notice on 6 March 2008 and 24 September 2009.
On 30 September 2010, the Commission sent a supplementary letter of formal notice, to which the Federal Republic of Germany replied on 18 November 2010. On 27 July 2011, the Member State sent to the Commission the regulation on the protection of surface waters (Verordnung zum Schutz der Oberflächengewässer) of 20 July 2011, which transposes Article 5 of Directive 2000/60.
On 30 September 2011, the Commission sent the Federal Republic of Germany a reasoned opinion.
Following two extensions of the time-limit, the Federal Republic of Germany replied to that opinion on 31 January 2012, then, in July 2012, the Federal Republic of Germany notified the Commission of the transposition of Article 2(38) and (39) and Article 9 of Directive 2000/60.
The transposition of the provisions in question notwithstanding, the Commission took the view that the issue of the differing interpretation of the definition of ‘water services’ and, therefore, of the — in its view — incomplete application of Article 9 of Directive 2000/60 persisted. It therefore decided to bring the present action.
By orders of the President of the Court of 2, 5, 8, 11 and 15 April 2013, respectively, the Republic of Austria, the Kingdom of Sweden, the Republic of Finland, Hungary, the United Kingdom of Great Britain and Northern Ireland and the Kingdom of Denmark were granted leave to intervene in support of the form of order sought by the Federal Republic of Germany.
The action
Admissibility
Arguments of the parties
The Federal Republic of Germany contends that the Commission’s action is inadmissible on the ground that it merely asks the Court to clarify a purely theoretical question, without substantiating how specifically it has failed to fulfil its obligations under the Treaties and Directive 2000/60. In arguing that the Federal Republic of Germany has failed to fulfil those obligations by excluding certain services from its interpretation of the concept of ‘water services’, the Commission is imprecise because it fails to identify specific conduct which should be changed.
The list of services referred to by the Commission in its forms of order sought by way of examples of that concept do not remedy that lack of precision because if the Court were to follow the Commission’s line of argument, the Federal Republic of Germany would be unable to know whether other water services must be categorised in the same manner. Nor were those examples referred to in the reasoned opinion, the operative part of which was different from the forms of order sought in the present action.
The Commission contends that its action is perfectly clear in that it seeks a declaration that the Federal Republic of Germany is applying the elements listed in Article 2(38) of Directive 2000/60 cumulatively, with the result that numerous water services fall outside the scope of the definition laid down in that provision. Consequently, the activities referred to in the application are automatically excluded from the pricing structure in the territory of the Federal Republic of Germany.
Findings of the Court
It should be noted at the outset that, in the context of an action for failure to fulfil obligations, the purpose of the pre-litigation procedure is to give the Member State concerned an opportunity, on the one hand, to comply with its obligations under EU law and, on the other, to avail itself of its right to defend itself properly against the objections formulated by the Commission. The subject-matter of proceedings under Article 258 TFEU is therefore delimited by the pre-litigation procedure prescribed by that provision. The proper conduct of that procedure constitutes an essential guarantee required by the FEU Treaty not only in order to protect the rights of the Member State concerned, but also in order to ensure that any contentious procedure will have a clearly defined dispute as its subject-matter (see, inter alia, judgment in Commission v Netherlands, C‑508/10, EU:C:2012:243, paragraphs 33 and 34).
By virtue of the first paragraph of Article 21 of the Statute of the Court of Justice of the European Union and Article 38(1)(c) of its Rules of Procedure, the Commission must, in any application made under Article 258 TFEU, indicate the specific complaints on which the Court is asked to rule and, at the very least in summary form, the legal and factual particulars on which those complaints are based. It follows that the Commission’s action must contain a coherent and detailed statement of the reasons which have led it to conclude that the Member State in question has failed to fulfil one of its obligations under the Treaties (see, inter alia, judgment in Commission v Netherlands, EU:C:2012 :243, paragraphs 35 and 36).
In the context of the present proceedings, it is clear that the application does contain a coherent and detailed statement of the reasons which have led the Commission to conclude that the Federal Republic of Germany has failed to fulfil its obligations under Articles 2(38) and 9 of Directive 2000/60. It is apparent from both the pre-litigation procedure and in particular the reasoned opinion issued by the Commission to the Federal Republic of Germany that in the application lodged with the Court the Commission claims, in essence, that due to that Member State’s interpretation of the concept of ‘water services’, some of them remain, incorrectly, outside the scope of the obligation introduced by that directive, which requires them to be subject to the principle of recovery of the costs of water services, including environmental and resource costs.
The procedure for a declaration of a failure on the part of a State to fulfil an obligation itself affords a means of determining the exact nature of the obligations of the Member States in case of differences of interpretation (see, to that effect, judgment in Commission v Spain, C‑196/07, EU:C:2008:146, paragraph 28).
It should also be noted that, without prejudice to the Commission’s obligation to discharge the burden of proof upon it in proceedings under Article 258 TFEU, there is nothing precluding the Commission from acting on such a difference of interpretation and bringing proceedings before the Court, alleging a failure by the Member State concerned to fulfil its obligations, putting forward the numerous sets of circumstances which, in its view, are contrary to EU law, even though it does not identify each and every one of them (see, by analogy, inter alia judgment in Commission v Italy, C‑135/05, EU:C:2007:250, paragraphs 20 to 22)
In the present case, the interpretation given by the Member State concerned to a provision of EU law which differs from the one endorsed by the Commission gives rise to a situation in the territory of that Member State where there is an administrative practice whose existence is undisputed even though it is not generalised. Accordingly, the fact that the Commission has given only a few examples of that practice in support of its argument does not mean its action lacks the necessary detail to enable an assessment to be made of the subject-matter of the action.
It remains to be determined whether, in the operative part of the application, the Commission refers to examples of situations which, in its view, demonstrate the Federal Republic of Germany’s failure to fulfil its obligations, even though those examples were not in the operative part of the reasoned opinion issued to it. This cannot be regarded as expanding the subject-matter of the action, which remains an application for a declaration of failure to fulfil obligations under Articles 2(38) and 9 of Directive 2000/60.
Accordingly, the Commission’s action is admissible.
Substance
Arguments of the parties
The Commission submits that, through its restrictive interpretation of the concept of ‘water services’ within the meaning of Article 2(38) of Directive 2000/60, the Federal Republic of Germany is misapplying Article 9 of that directive, the scope of which concerns the recovery of the costs of those services, the water-pricing policy and the application of the polluter-pays principle to water users.
Contrary to the Federal Republic of Germany’s assertions, the concept of ‘water services’ covers not only the supply of water and the treatment of waste water. The very wording of Article 2(38) of Directive 2000/60, its context and the objectives pursued by that directive lead to the conclusion that the definition of those services encompasses other activities such as navigation, hydroelectric power generation and flood protection.
In referring to abstraction, impoundment, storage, treatment and distribution, Article 2(38) of Directive 2000/60 lists various activities, one of which must be present in the water service; the use of commas between those terms and the use of the conjunction ‘and’ does not have any other meaning. A water service does not require that all the activities listed in Article 2(38)(a) or (b) of that directive to be present cumulatively.
The purpose of that directive is to ensure efficient use of water resources, by providing for adequate participation by the various water services towards the recovery of the costs associated with those water services, in the light of the polluter-pays principle. That purpose would not be undermined if, as the Federal Republic of Germany argues, undertakings involved in water abstraction outside water supply or waste-water treatment activities, such as undertakings involved in open-cast mining in certain Länder, were not required to cover the costs of those abstractions.
According to the Commission, Directive 2000/60 and Directive 2004/35 have the same legal basis and both pursue objectives aimed at protecting the environment, which, the Federal Republic of Germany asserts, does not allow for a different interpretation of the concept of ‘Funktion’ found in the German-language version of the latter directive and the concept of ‘Dienstleitung’ found in Directive 2000/60, before going on to infer that the latter refers to human activity. Moreover, in environmental law, services do not presuppose participation by a human being, as observed in the assessment of ecosystem services contained in the Millennium Ecosystem Assessment launched by the United Nations in 2001 (CREDOC, Biotope, Asconit Consultants, 2009).
The Commission submits that its broad interpretation of the concept of ‘water services’ does not make the distinction drawn in Article 2(39) of Directive 2000/60 superfluous in its concept of water services. The latter encompasses not only water services but also, more broadly, any activity liable to have a significant impact on water conditions, such as competitive fishing, bathing or navigation on natural water which could not be impounded.
The Commission submits that, in those circumstances, the concept of water services covers abstraction for irrigation purposes, which places significant pressure on bodies of water, abstraction for industrial purposes, auto-supply, impoundment for hydroelectric power operations, navigation and flood protection, as well as water storage, treatment and distribution. Yet it would appear that certain Länder, for example, do not charge for abstraction or allow for broad derogations.
In the Federal Republic of Germany’s submission, the Commission’s action is based on an incorrect overall approach with regard to Directive 2000/60, in particular the water-pricing structure for water services which, although an important instrument for providing incentive for greater economy and prudence in water resource management, is not the only means provided for in that directive for attaining that objective. The Commission’s interpretations of Articles 2(38) and 9 of Directive 2000/60 nevertheless disregard the management system of that directive, the central idea of which is that water protection requirements in river basins must be weighed up against legitimate rights of use. The Commission thus disregards the existing balance between the various management instruments provided for in that directive as much for reasons of subsidiarity as efficiency.
The Federal Republic of Germany submits that the very structure of Article 2(38)(a) and (b) of Directive 2000/60 is based on a clear separation between activities relating to the supply of water and the treatment of waste water. The former are usually necessary stages for the supply of water (acquisition, treatment, storage, routing, distribution); they are set out in detail because it is necessary to specify that those stages must be taken into account in the calculation of costs.
The Federal Republic of Germany submits that the concept of ‘water services’ includes not the various activities relating to the supply of water, but rather the supply as a whole. Including those activities in the concept amounts to an unlawful expansion of its scope. That definition does not deprive Directive 2000/60 of its useful effect, which results from a balance between, on the one hand, water protection requirements and, on the other, legitimate uses of water. It may not be inferred from the mere fact that Article 9 of Directive 2000/60 refers to the polluter-pays principle that the obligation to recover costs must be extended to all uses and actions which harm water, since there are other measures specifically laid down such as those found in Annex VI, Part B, to that directive.
In order to define the concept of ‘services’, the Federal Republic of Germany considers that the definition given in Article 57 TFEU, which requires a bilateral relationship, should be applied, which is not found, for example, in water use for navigation or flood protection measures, but is established for water supply activities and waste-water treatment.
That definition of services is not to be found in Directive 2004/35, which was adopted four years after Directive 2000/60 and does not contain any reference to it in that regard. The German version, moreover, does not refer to ‘Dienstleistung’, but rather to ‘Funktionen’, which does not presuppose human activity. Nor is it to be found in the concept of ‘ecosystem services’, which emerged long after Directive 2000/60.
It should also be noted that the Commission’s broad interpretation of the concept of ‘water services’ in reality leads to a denial of the existence of other uses of water, such as those referred to in Article 2(39) of Directive 2000/60. The travaux préparatoires for Article 2(38) of that directive, which shed light on how the latter provisions is to be interpreted, show, inter alia, that the Commission itself had maintained that the principle of recovery of costs was intended to apply only to the supply of drinking water and the treatment of waste water.
In their statements in intervention, the Kingdom of Denmark, Hungary, the Republic of Austria, the Republic of Finland, the Kingdom of Sweden and the United Kingdom of Great Britain and Northern Ireland have all submitted observations in support of the forms of order sought by the Federal Republic of Germany.
Findings of the Court
It should be borne in mind, as a preliminary point, that in accordance with the Court’s settled case-law, the interpretation of a provision of EU law requires that account be taken not only of its wording and the objectives it pursues, but also its context and the provisions of EU law as a whole. The origins of a provision of EU law may also provide information relevant to its interpretation (see, inter alia, judgment in Inuit Tapiriit Kanatami and Others v Parliament and Council, C‑583/11 P, EU:C:2013:625, paragraph 50 and the case-law cited).
In the present case, it is clear from the wording of Article 9 of Directive 2000/60 that the Member States are to take account of the principle of recovery of the costs of water services, including environmental and resource costs, having regard to the economic analysis conducted according to Annex III, and in accordance in particular with the polluter-pays principle. Member States must inter alia ensure that water-pricing policies provide adequate incentives for users to use water resources efficiently and thereby contribute to the environmental objectives of Directive 2000/60. Article 2(38) of that directive defines ‘water services’ as comprising all services which provide, for households, public institutions or any economic activity, both abstraction, impoundment, storage, treatment and distribution of surface water or groundwater, as well as waste-water collection and treatment facilities which subsequently discharge into surface water.
Those provisions, which do not define the concept of ‘services’, do not make it immediately clear whether the EU legislature intended to make any service relating to each of the activities listed in Article 2(38)(a) of Directive 2000/60, in addition to waste-water treatment activities referred to in Article 2(38)(b), subject to the principle of recovery of costs, as maintained in essence by the Commission, or only those services associated with the supply of water, by requiring account to be taken of all the stages of that activity, as listed in Article 2(38)(a), as well as those associated with waste-water treatment, as referred to in Article 2(38)(b), as contended by the Federal Republic of Germany.
It is, therefore, appropriate to begin by analysing the context and overall scheme of the provisions in question in order to ascertain whether cost-pricing is required for all activities associated with the abstraction, impoundment, storage, treatment and distribution of surface water or groundwater, as maintained in essence the Commission.
First of all, it is apparent from the travaux préparatoires for Directive 2000/60, as summarised by the Advocate General in points 68 and 69 of his Opinion, that the EU legislature intended, on the one hand, to allow the Member States to determine, on the basis of an economic analysis, the measures to be adopted for the purposes of the application of the principle of recovery of costs, whilst on the other to promote the pricing of those costs, without extending it to all services associated with water use, as practices in the Member States varied widely, inter alia in terms of pricing for water supply services and waste-water treatment.
Next, Directive 2000/60, in requiring in Article 9 that Member States are to have regard to the principle of recovery of the costs of water services and ensure that water-pricing policies provide adequate incentives for users to use water resources efficiently and thereby contribute to the environmental objectives of that directive, does not per se impose a generalised pricing obligation in respect of all activities relating to water use.
It is therefore necessary to examine, secondly, the scope of those provisions in the light of the objectives pursued by Directive 2000/60.
In that regard, it must be noted that Directive 2000/60 is a framework directive adopted on the basis of Article 175(1) EC (now Article 192 TFEU). It establishes the common principles and an overall framework for action in relation to water protection and coordinates, integrates and, in a longer perspective, develops the overall principles and structures for protection and sustainable use of water in the European Union. The common principles and overall framework for action which it lays down are to be developed subsequently by the Member States, which are to adopt a series of individual measures in accordance with the timescales laid down in the directive. However, the directive does not seek to achieve complete harmonisation of the rules of the Member States concerning water (judgment in Commission v Luxembourg, C‑32/05, EU:C:2006:749, paragraph 41).
As evidenced by recital 19 in the preamble to Directive 2000/60, it aims at maintaining and improving the aquatic environment in the European Union. This purpose is primarily concerned with the quality of the waters concerned. Control of quantity is an ancillary element in securing good water quality and therefore measures on quantity, serving the objective of ensuring good quality, should also be established.
Having found that the existing conditions and requirements call for specific solutions, the EU legislature intended, as is apparent inter alia from recital 13 in the preamble to Directive 2000/60, that that diversity of solutions be taken into account in the planning and implementation of measures aimed at ecologically viable protection and use of water in river basins and that decisions be taken at the level as close as possible to the places of use or degradation of water. Consequently, and without prejudice to the importance of water-pricing policies and the polluter-pays principle, as reaffirmed by that directive, priority must be given to actions coming within the jurisdiction of the Member States, in drawing up action programmes adapted to local and regional conditions.
Thus, as observed by the Advocate General inter alia in point 72 of his Opinion, Directive 2000/60 is based essentially on the principles of management per river basin; the setting of objectives per body of water; plans and programmes; an economic analysis of the detailed arrangements governing water pricing; the taking into account of the social, environmental and economic effects of cost recovery, and also the geographic and climatic conditions of the region(s) concerned.
To that end, Article 11 provides that each Member State must ensure the establishment for each river basin district, or for the part of an international river basin district within its territory, of a programme of measures, taking account of the results of the analyses required under Article 5 of that directive, in order to achieve the objectives established under Article 4 thereof. Under Article 11(3)(b), measures relating to the recovery of the costs for water services, such as those provided for under Article 9 of Directive 2000/60, are among the minimum requirements to be included in such a programme.
It is thus clear that measures for the recovery of the costs for water services are one of the instruments available to the Member States for qualitative management of water in order to achieve rational water use.
Although, as rightly pointed out by the Commission, the various activities listed in Article 2(38) of Directive 2000/60, such as abstraction or impoundment, may have an impact of the state of bodies of water and are therefore liable to undermine the achievement of the objectives pursued by that directive, it cannot be inferred therefrom that, in any event, the absence of pricing for such activities will necessarily jeopardise the attainment of those objectives.
In that regard, Article 9(4) of Directive 2000/60 provides that the Member States may, subject to certain conditions, opt not to proceed with the recovery of costs for a given water-use activity, where this does not compromise the purposes and the achievement of the objectives of that directive.
It follows that the objectives pursued by Directive 2000/60 do not necessarily imply that Article 2(38)(a) thereof must be interpreted as meaning that they all subject all activities to which they refer to the principle of recovery of costs, as maintained in essence by the Commission.
In those circumstances, the fact that the Federal Republic of Germany does not make some of those activities subject to that principle does not establish by itself, in the absence of any other ground of complaint, that that Member State has thereby failed to fulfil its obligations under Articles 2(38) and 9 of Directive 2000/60.
In the light of all the above considerations, the Commission’s action must be dismissed.
Costs
Under Article 138(1) of the Rules of Procedure of the Court of Justice, the unsuccessful party must be ordered to pay the costs if they have been applied for in the other party’s pleadings. Since the Federal Republic of Germany has applied for costs and the Commission has been unsuccessful, the latter must be ordered to pay the costs. Under Article 140(1) of the Rules of Procedure, Member States intervening in the proceedings are to bear their own costs; it must therefore be held that the Kingdom of Denmark, Hungary, the Republic of Austria, the Republic of Finland, the Kingdom of Sweden and the United Kingdom of Great Britain and Northern Ireland must bear their own costs.
On those grounds, the Court (Second Chamber) hereby:
1.
Dismisses the action;
2.
Orders the European Commission to pay the costs;
3.
Orders the Kingdom of Denmark, Hungary, the Republic of Austria, the Republic of Finland, the Kingdom of Sweden and the United Kingdom of Great Britain and Northern Ireland to bear their own costs.
[Signatures]
( *1 ) Language of the case: German. | 6 |
MR JUSTICE HICKINBOTTOM:
Introduction
The defendant council ("the Council") is the social services authority for Pembrokeshire, and, as such it has an obligation under section 21 of the National Assistance Act 1948 to provide residential accommodation to those in its area who, by reason of age, are in need of care and attention not otherwise available to them. It does so in a variety of ways, including providing support in the community and through its own homes. However, to comply with its section 21 obligation, it mainly engages private residential care homes to which it pays a weekly fee for the provision of accommodation and care to those in relevant need. The fee is usually expressed on a per resident per week rate basis, and, in this judgment, given rates will be on that basis unless otherwise indicated. There are approximately 500 elderly people who are so accommodated in Pembrokeshire on the payment by the Council of such a fee.
The claimant companies (Forest Care Homes Limited, Mavalon Limited and Woodhill Care Limited) have common shareholders and directors, including the effective chief executive and manager of the companies, Mr Michael Davies, who is also the Chairman of the Pembrokeshire Care Home Owners ("the PCHO"), a trade association, the name of which is self-describing.
The claimants own and manage four residential care homes in Pembrokeshire, accommodating 87 people, 43 of whom are paid for by the Council. The average age of the residents in each home is over 86 years, and some are in their late 90s. All of the homes provide the accommodation and care to which I have referred. However, one is also a nursing home, i.e. in addition, it provides care by a registered nurse which, under different provisions (i.e. section 3 of the National Health Service Act 1977, and the NHS (Nursing Care in Residential Accommodation) (Wales) Directions 2004), is paid for, not by the Council, but by the relevant local health board. The residents in the nursing home have particular nursing care needs, and they include those who suffer from dementia and other mental conditions.
As I have indicated, about half of the residents in the claimants' homes are paid for by the Council, the fee rate being fixed by the Council under the relevant statutory provisions. In this action, the claimants challenge various decisions of the Council in relation to the fee rate fixed for the year 2010-11. During the course of the proceedings the claimants' case has evolved, but the challenges made fall under three broad heads.
First, the claimants seek to challenge the failure of the Council to make any decision setting a fee rate for the year 2010-11. The Council asserts that, following the collection of relevant data from care homes in Pembrokeshire, it made a decision to fix the fee at £390 per resident per week, prior to 7 May 2010, on the basis of a well-known economic model or toolkit, designed to ensure that an appropriate, fair and justifiable rate was set; and that that decision was communicated to the claimants, through Mr Davies, at a meeting on 24 June 2010.
Second, the claimants contend that, if a decision was made to fix the rate at £390, then that decision was unlawful; because it was irrational or, in the phrase used by Sedley J (as he then was) in R v Parliamentary Commission for Administration ex p Balchin (unreported, 25 October 1996) at page 19, "There is an error of reasoning which robs the decision of logic". Indeed, Mr Charles Béar QC for the claimants identified six such alleged legal errors.
Five of these sub-grounds are in relation to the methodology used in the assessment of the costs of care home providers as follows.
First, the methodology failed to deal properly with capital costs ("the capital costs issue"). I will come on to deal with this sub-ground in detail in due course; but, during the course of the hearing before me, the Council accepted that the manner in which it had dealt with providers' capital costs to arrive at the 2010-11 rate was wrong and unlawful, with the result that it conceded that the decision to set the fee rate at £390 should be set aside and a new decision taken. It also conceded that, as a result of that error, the claimants were entitled to be paid at a rate of £405.50, backdated to 1 April 2010: and, as I understand it, the relevant back-payment has subsequently been made. However, the claimants do not accept that that is the full extent of the legal errors in the methodology used by the Council to arrive at a rate, either in respect of capital costs discretely, or in respect of the other sub-grounds upon which they rely. Other than its concession, the Council denies any irrationality or illogic in its decision-making process that arrived at the figure of £390, now revised to £405.50. That is why this claim has proceeded to judgment, so that I can rule on the grounds remaining in issue and, if I find that any other legal errors were made, hopefully prevent the Council making similar errors in the new decision it is now bound to make.
The second sub-ground relied upon by the claimants in relation to the costs methodology, is that it failed to use appropriate local data on the average number of care hours spent on each resident per week ("the first staffing issue").
Third, it failed to recognise that residents who require nursing care, for which the local health board is responsible, also require more non-nursing care for which the Council is responsible ("the second staffing issue").
Fourth, it failed to take into account data from all care homes in Pembrokeshire, it being based upon data from only the larger homes, i.e. those with 20 or more registered places ("the smaller homes issue").
Fifth, it was based upon costs data collected from the year 2008-9, and failed to take into account inflation in the two years to 2010-11 and the introduction of new Working Hours' Regulations in April 2010 which increased the minimum holiday entitlement from 24 to 28 days ("the inflation etc issue").
In response to each of those five sub-grounds, the Council submits that its methodology was appropriate and lawful.
The sixth sub-ground does not relate to the methodology used to assess providers' costs; but rather that, in determining the rate on the basis of those assessed costs, it took into account the Council's own limited resources which, the claimants contend, is an irrelevant consideration for these purposes. The Council contend that, in setting the rate, it is lawful to take account that factor, as it did.
Those are the six sub-grounds upon which the claimants seek to challenge the Council's decision to set the 2010-11 fee rate at £390. They lie at the heart of this claim.
The third and final broad ground of challenge, also still in issue, is that the claimants contend that the Council acted unlawfully in taking steps to prevent them from seeking a contribution towards its costs from next of kin and others responsible for residents, over and above the fee set and paid by the Council. In response, the Council says that there is no relevant public law decision here that might attract relief in this court; and, in any event, that, by seeking such a contribution, the claimants acted in breach of their contracts with the Council and that therefore the Council was entitled to take the action it did to stop them.
The claimants' application for permission and interim relief came before His Honour Judge Jarman QC on 9 November 2010. He granted permission in the following terms:
"Permission is granted to review the [Council's] failure from 25 August 2010 to agree and act up[on] a properly constructed toolkit that
(i) takes appropriate account of data from all providers of residential personal care in Pembrokeshire; and
(ii) takes account of legitimate current and future costs faced by all providers of residential care in Pembrokeshire as well as the factors that affect those costs."
The relevance of the date 25 August 2010 will become apparent during the course of this judgment, although that relevance has waned as a result of the Council's concession to which I have referred.
At the start of the hearing before me, there was debate about the scope of that permission, and the extent to which I should allow the claimants permission to proceed with a judicial review on grounds not pursued before Judge Jarman and/or on grounds which he had considered but upon which he had refused permission. There was certainly evidence before me that was not before Judge Jarman, as well as further submissions. Whilst not granting any permission wider than that granted by the judge on 9 November, I allowed the claimants to pursue all of the above grounds on the basis that I would deal with the grounds that fell outside that permission on a rolled-up basis, and I have heard submissions accordingly. I took that course to reserve the Council's position on delay. For reasons to which I shall come in due course, delay is no longer maintained as a defence to the claim and, all grounds having been argued fully before me, I am satisfied that all are at least arguable; and I formally now grant permission on all remaining grounds.
However, before I come to the substance of those grounds, I shall deal with the relevant legal provisions and guidance upon which the grounds are based.
The Law
Statutory Provisions
Section 21 of the National Assistance Act 1948 (as amended) provides:
"(1) Subject to and in accordance with the provisions of this Part of this Act, a local authority may with the approval of the Secretary of State, and to such extent as he may direct shall, make arrangements for providing –
(a) residential accommodation for persons aged eighteen or over who by reason of age, illness, disability or any other circumstances are in need of care and attention which is not otherwise available to them…
(2) In making any such arrangements a local authority shall have regard to the welfare of all persons for whom accommodation is provided, and in particular to the need for providing accommodation of different descriptions suited to different descriptions of such persons as are mentioned in the last foregoing subsection…
(3) …
(4) Subject to the provisions of section 26 of this Act accommodation provided by a local authority in the exercise of their functions under this section shall be provided in premises managed by the authority …".
Insofar as applicable to Wales, section 26(1) and (1A) provide that accommodation under section 21 may be provided by a private organisation that manages premises for reward, if the premises are a care home and the manager of that home is registered under Part II of the Care Standards Act 2000, which also empowers the relevant central authority – in Wales, the Welsh Assembly Government – to set standards for care homes generally, and to set conditions on individual registrations.
Section 26(2) of the 1948 Act provides:
"Any arrangements made by virtue of this section shall provide for the making by the local authority to the other party thereto of payments in respect of the accommodation provided at such rates as may be determined by or under the arrangements …".
The Contractual Arrangements
As between the Council and the claimants, "the arrangements" referred to in section 26(2) were set out in the Council's Residential Care Services Standard Contract entered into by the Council and each of the claimants, effective from 1 April 1999 for three years, but thereafter extended from time to time. This is an umbrella service contract, under clause 1(c) of which the Council and the provider are required to enter into an individual contract in respect of each placement (i.e. resident) made.
Each of the current service contracts, which are in similar terms, expires on 31 March 2011. Under that contract, the care services to be provided are set out in schedule 1, for which, by virtue of clause 1(b) of the contract, the Council is obliged to pay in accordance with schedule 2. By paragraph 1(a) of that schedule, the Council agrees to pay the rates set out in appendix 1 (at the date of the contract, £247.50 per week, for the category "very dependent elderly" into which all of the claimants' residents now fall): and, by clause 8(c) of and paragraph 1(c) of schedule 2 to the contract, the Council may set the annual rate and alter schedule 2 accordingly on an annual basis. Paragraph 1(b) of schedule 2 provides that no additional payments for the service, over and above those set out in the schedule from time-to-time, "shall be made by the Council or the placement". Paragraphs 3(c) and (d) provide:
"(c) In instances where the Placement exercises their choice and wishes to make use of a Service that is more expensive than that which the Council would normally purchase, or wishes to purchase services additional to those specified in the Service Specification, and the Council is in agreement, then an interested party (not the Placement) shall be responsible for the difference between the amount the Council would normally pay and the actual cost of the Service.
(d) In these instances, where there is an interested third party willing to pay an amount additional to that detailed above, the provider shall be responsible for ensuring that they receive these additional payments. The Council shall not be responsible for these additional payments under any circumstances." (emphasis in the original).
These contractual provisions chime with guidance issued under section 7 of the Local Authority Social Services Act 1970 (to which I shall return in a moment), entitled "Guidance on the National Assistance Act 1948 (Choice of Accommodation) Directions 1993". Paragraph 4 of that guidance applies where a resident explicitly chooses to enter accommodation other than that which the local authority offers, which is more expensive than the authority would usually expect to pay. It allows such placements, if a third party is willing to pay the shortfall or "top up", on the basis that the authority will pay "its usual costs". The guidance warns, in paragraph 4.3, that "… an authority must be able to demonstrate that this cost is sufficient to provide most residents with the level of care services that they could reasonably expect to receive if the option for … third party contributions did not exist": i.e. third party contributions cannot result in an authority avoiding the financial consequences of its section 21 obligations or any part of them. Authorities are expressly told that they "must not encourage or imply that care home providers can or should seek further contributions from individuals in order to meet assessed needs" (paragraph 4.4). When such a third party arrangement is entered into, the authority is responsible for the full care and accommodation costs of the provider, and it must contract with the provider to pay the fees in full but it (the authority) can recover the contribution from the third party as income (paragraphs 4.6-4.7).
As I have said, the service contract is, in effect, an umbrella contract: and, for each placement, the Council and provider sign a Contract to Provide Residential/Nursing Accommodation and Care, which is specific to the particular resident. That individual contract is made expressly subject to the terms of the service contract. Reflecting the terms of that contract, it also says: "Pembrokeshire County Council scales of reimbursement for services are reviewed annually, and revised charges, if applicable, shall apply from a date in early April of each year".
Government Guidance
I now turn to government guidance, more generally.
By section 7 of the Local Authority Social Services Act 1970, in performing its functions, the Council must "act under" the general guidance of the relevant Minister or, in respect of a devolved function, the Welsh Ministers. Following guidance is not mandatory: but an authority can only depart from it for good reason. If it deviates from guidance without a considered and cogently-reasoned decision, it acts unlawfully and in a manner which is amenable to judicial review (R v London Borough of Islington ex parte Rixon [1997] ELR 66, especially at page 71; and R (Munjaz) v Mersey Care National Health Service Trust [2005] UKHL 58, especially per Lord Bingham at paragraph 21 and per Lord Hope at paragraphs 68 to 69). Sedley J (as he then was) encapsulated the proper approach to guidance in Rixon as follows:
"… [W]hile 'guidance' does not compel any particular decision…, especially when prefaced by the word 'general', in my view Parliament by section 7(1) has required authorities to follow the path charted by the Secretary of State's guidance, with liberty to deviate from it where the local authority judges on admissible grounds that there is good reason to do so...."
With that I respectfully agree.
The learned judge went on to insert a restriction on the authority's ability to deviate from the guidance, namely: "… but without the freedom to take a substantially different course". I hesitate to do anything but agree with that too, because of the eminence of (now) Sedley LJ as an administrative lawyer and the fact that the point is not going to be determinative in this claim: but it seems to me, as a matter of principle, Parliament has given the relevant decision-making power to the local authority and, despite the terms of section 7 of the 1970 Act, it would be open to an authority to depart even substantially from guidance if it had sufficiently compelling grounds for so doing. However, certainly, the more the proposed deviation from guidance, the more compelling must be the grounds for departure from it.
The provision of social services is, of course, a devolved function. The Welsh Assembly Government gave guidance in respect of commissioning care services in August 2010, "Fulfilled Lives, Supportive Communities: Commissioning Framework Guidance and Good Practice" ("the 2010 Guidance"), which replaced guidance issued in March 2003, "Promoting Partnership in Care: Commissioning across Health and Social Services ("the 2003 Guidance").
The 2003 Guidance was operative until 11 August 2010. It is therefore relevant to any decision made by the Council in this claim in, say, May 2010. It is expressly "an enabling framework, leaving detailed decisions to be made locally" (paragraph 8.2). In other words, it sets out an approach to commissioning with which local authorities are required to comply in the manner I have outlined. The guidance marked (it said, in its foreword) "the beginning of a more positive partnership between the commissioners and providers of health and social care".
The expressed objective of the Guidance was to achieve "real improvement and significant benefits for people using services and their carers" (foreword); and it stressed the paramountcy of "the well-being of people using services and their carers" (paragraph 3.1). However, it also noted the need for authorities charged with commissioning, to take account of the providers' costs and the factors that may affect them, on the basis of good local evidence (paragraph 6.7); and it confirmed the need for those authorities commissioning care services to comply with the Wales Improvement Programme policy of Best Value, "that requires local authorities to balance cost and quality" (paragraphs 4.3 and 5.14). It also noted the importance of strategic planning of care services. Under the heading "Building capacity confidence and reducing instability", it said:
"6.1 It is in everyone's interest to build and maintain appropriate capacity and achieve stability in the social care economy through high quality commissioning. Longer term visions for service planning are essential to identifying the areas which need development and innovation. This needs to encompass realistic budgeting and costing for quality services. Both providers and commissioners have much to gain from a stable system in which everyone has confidence….
6.2 Providers have become increasingly concerned that some commissioners have used their dominate position to drive down or hold down fees to a level that recognises neither the costs to providers nor the inevitable reduction in the quality of service provision that follows. This is short-sighted and may put individuals at risk. It is in conflict with the Welsh Assembly Government's Best Value policy and the Wales Programme for Improvement. It can also destabilise the system, causing unplanned exits from the market. Fee setting must take into account the legitimate current and future costs faced by providers as well as factors that affect these costs, and the potential for improved performance and more cost-effective ways of working. Contract prices should not be set mechanistically but should have regard to providers' costs and efficiencies, and planned outcomes for people using services, including patients."
The 2010 Guidance has been operative since 12 August 2010, and will consequently be relevant to any decision since then, including any future decision the Council is now bound to make in respect of the 2010-11 rate. It too is expressed in terms of being framework guidance, and confirms that the commissioning of care services remains "citizen centred"; but it is a much more substantial document, written at a time of greater awareness of the limited nature of public funds. The introduction indicates that
"… local authorities and their partners all face a very difficult financial climate over the next few years coupled with increasing demand. This poses a considerable challenge."
The importance and difficulty of commissioning social care services are stressed throughout.
The Guidance also emphasises the importance of process which, it suggests, is causatively critical to good decision-making. Part 1 paragraph 1 says:
"Commissioning for social care is one of the most important activities undertaken by a local authority. It can have a very significant impact on people's lives.… This framework is intended to help local authorities to improve the quality of commissioning practice and hence the quality and coherence of services for the people of Wales."
It is clear from that, and other parts of the Guidance (e.g. standard 10, to which I shall refer shortly), that it is the policy of the Welsh Assembly Government that the quality of care services are improved over time.
The 2010 Guidance is set out in the form of standards local authorities are expected to meet. "Commissioning", as that term is used in the Guidance, includes both strategic planning, over a 3-5 year period, based upon an evidential foundation, with clearly specified outcomes, developed with stakeholders such as users, carers and providers, in the form of publicly available documents; and the conversion of those plans into effective services (standards 1-4, 8 and 12). Of the approach of local authorities to decision-making in the commissioning of social services, in what the Guidance describes as "difficult times", the introduction says that, on the basis of good evidence:
"We must therefore be clear about:
the needs we are able to meet;
those we cannot meet together with the possible consequences;
the outcomes achieved; and
the effective use of resources."
Under section 21 of the 1948 Act, where an authority has determined that a person has section 21 needs, it is bound to satisfy the minimum requirements of section 21 without regard to its own resources (see paragraph 46(2)) below). However, wherever an authority is required to exercise a discretion, this Guidance stresses the importance of that authority taking into account the consequences of its proposed decisions in relation to the services it is proposing to provide or withhold; particularly, the consequences for service users (in this case, the residents) but also for providers.
Standard 7 provides:
"The local authority has ensured that its Financial and Contract Standing Orders allow social are commissioners to be efficient and effective in developing the local social care market.
Local authorities should keep their Financial and Contract Standing Orders under review to ensure that they are fit for purpose to secure social care services of the quality required.
…
In developing services that are responsive to citizens' needs, it is important for local authorities to have financial regulations which allow them to support the development of a sustainable economy of care across the public, private and third sectors.
Sustainable means that short term considerations should not threaten medium to long term service delivery. Unrealistic fees, for example, may ease the pressure on the budget of the commissioner this year but if the service ceases to operate due to financial difficulties the savings will prove self defeating. Equally, the continued investment in services which may undermine independence or fail to promote independence may prove to be unsustainable both in financial and workforce terms."
Standard 10 reads as follows:
"Commissioners have understood the costs of directly provided and contracted social care services and have acted in a way to promote service sustainability.
Commissioners will have to take into account the full range of demands on them and their strategic priorities, as well as the resources they have at their disposal in developing their commissioning strategies. As stated earlier the financial outlook is going to be very challenging for some time to come. This makes the commissioning framework more important.
In seeking long term value for money and determining the budget available for specific social care services it is necessary for commissioners to take into consideration a whole range of factors, for example:
The national or local economic environment may be making it difficult for some provider organisations to remain financially viable.
A requirement to improve the quality of services may put a short-term strain on resources.
The move to an outcomes-based approach may pose serious cultural as well as financial challenges.
Recognition of the need for service providers to be able to recruit employees with the skills and aptitudes necessary to deliver good quality care, to provide them with the training they require to obtain qualifications relevant to their duties and to facilitate continuing professional development to extend their abilities.
The need to re-train the workforce to respond to more up-to-date practices may have transition cost and service implications.
Thus, it will be important for commissioners, in contract, fee and service level negotiations, to recognise the financial and service challenges that are having an effect on providers, and consider both short and longer term scenarios.
Local authorities need to have mechanism in place to discuss costs and performance with providers. Fee setting must take into account the legitimate current and future costs faced by providers as well as the factors that affect those costs, and the potential for improved performance and more cost-effective ways of working. The fees need to be adequate to enable providers to meet the specifications set by the commissioners together with regulatory requirements.
Registered providers also have an obligation to ensure that the income which they receive for providing the service is sufficient to meet the cost of delivering a service which complies with all statutory requirements, contractual conditions and specified service standards.
Commissioners should have a rationale to explain their approach to fee setting. The primary concern is that services operate safely and effectively to promote the welfare of service users and carer and meet regulatory requirements."
There is more than one reference there to the costs set for services being sufficient to enable providers to meet "all statutory requirements". Those requirements are considerable. For example, I have already referred to the need for an independent provider of residential home accommodation and care to be registered under the Care Standards Act 2000 (paragraph 21 above). Under that Act and regulations thereunder (such as the Registration of Social Care and Independent Health Care (Wales) Regulations 2002, and the Care Homes (Wales) Regulations 2002), the Care and Social Services Inspectorate Wales ("the CSSIW") has powers to inspect care homes and impose conditions upon the registration, e.g. as to specific levels of care staff who are to be on duty at any particular time. That is over and above the possibility of the imposition of criminal sanctions: for example, under regulations 18 and 37 of the Care Homes (Wales) Regulations, a registered person commits an offence if he fails to ensure suitable staff in appropriate numbers are working at a care home.
The CSSIW works on a local basis; and, for a variety of reasons to which I shall return in due course, it imposes some standards (e.g. for specific levels of care) on a local basis. In commissioning care services, understandably one might think, the Guidance requires a local authority to have regard to these requirements. I shall return to that when I deal with the ground of challenge to which it is particularly relevant (Ground 2(2) and (3): see paragraphs 120-131 below).
"Value for money", as referred to in standard 10, is dealt with in standard 9, which requires that: "Directly provided and contracted social care services offer value for money and are fit for purpose". The definition of "value for money" used is derived from HM Treasury Value for Money Guidance, as "the optimum combination of whole-of-life costs and quality (or fitness for purpose) of the goods or service to meet the user's requirement. Value for money is not the choice of goods and services based on the lowest cost bid". Value for money, standard 9 says, "balances quality, cost and effectiveness"; and "available resources" is one of the identified key components of commissioning.
Article 8
Care service contracts are made between the Council and providers such as the claimants. Although, as described above (paragraphs 22-23), third parties may contribute to the costs of care, the resident (or "placement", in the terms of the agreement) is forbidden from doing so. However, those who need care and accommodation by virtue of age are, by definition, vulnerable individuals. The guidance to which I have referred acknowledges that in terms of the well-being of residents being "paramount", or the commissioning being "citizen [i.e. resident] centred".
It is clear from the evidence and submissions I have heard that both the Council and the claimants are very sensitive to the needs of the elderly housed and cared for under these provisions. I appreciate that the claimants are commercial organisations, and that the Council has many other areas of responsibility, but nothing in the evidence suggests that either has anything but the well-being of the elderly and needy, who fall within the provisions of section 21 of the 1948 Act, at heart.
They are clearly right to do so. So far as the Council is concerned, it is a public body and, as such, where it makes a decision which may result in the removal of a vulnerable person from their home, with the potential associated stress, distress and adverse impact on his or her health, then that engages Article 8 of the European Convention on Human Rights; and removal may constitute an interference with those rights such that it will be allowed only if the removal is proportionate and justified in pursuit of a legitimate public aim (Watts v United Kingdom (2010) 51 EHRR SE5 (Application No 53586/09) at paragraph 97; and Manchester City Council v Pinner [2010] UKSC 45; [2010] 3 WLR 1441 at paragraphs 45 and 51-52). In making its decisions in relation to section 21, the Council is required to bear that in mind and make the appropriate proportionality balancing exercise where necessary. The claimants, as the owners of care homes in which the residents reside, have an interest in seeking to protect those Article 8 rights (Green Corns Limited v Claverly Group Limited [2005] EWHC 958 (QB)).
Discussion
Those are the main legal provisions relevant to this claim, which highlights the tension between an authority's obligation to provide the statutory services required of it on the one hand, and its fiduciary duty to those who provide public funds on the other – a tension identified by Auld J in R v Newcastle-upon-Tyne City Council ex parte Dixon, 20 October 1993, unreported but cited by Stanley Burnton J (as he then was) in R (Birmingham Care Consortium) v Birmingham City Council [2002] EWHC 2188 (Admin) at paragraph 32.
The following propositions, relevant to the determination of the issues before me, can be derived from the provisions to which I have referred, together with the case law to which I was referred.
(1) Section 21 of the National Assistance Act 1948 charges local social service authorities with the responsibility for making decisions as to who requires care and accommodation by reason of age, illness or disability which is not otherwise available to them; and, if such a person is identified, how those needs should be met.
(2) In deciding whether a person is in need of care and accommodation, an authority is entitled to have regard to its own limited financial resources. However, having set that threshold and found that a particular person surpasses it, an authority is under an obligation to provide care and accommodation in fulfilment of its section 21 obligations, which is a specific duty on the authority owed to an individual, not a target duty: lack of resources is no excuse for non-fulfilment of that obligation (R v London Borough of Islington ex parte McMillan [1995] 30 BMLR 20 at page 30; and R v Sefton Metropolitan Borough Council ex parte Help the Aged [1997] 4 All ER 532).
(3) However, in fulfilling its section 21 obligations to provide accommodation and are, so long as it provides the minimum statutory requirement in some form, an authority has a wide discretion, both with regard to the nature of the accommodation and care, and its precise standard.
(4) That discretion is tempered by relevant government guidance, particularly in this claim now, the 2010 Guidance from the Welsh Assembly Government to which I have referred (paragraphs 31 and following). The 2010 Guidance associates better decision-making process with better outcomes, emphasising the crucial nature of the former. It requires good decision-making process, and identifies how that is to be achieved. In times of public financial constraint, the importance of proper process is compounded. Unless an authority has compelling reasons for departing from that Guidance, it is bound to follow it. The greater the departure from the Guidance, the more compelling the reasons for the departure must be.
(5) The Guidance requires the authority to plan commissioning, strategically and transparently, over at least the medium term: and to make individual decisions (i.e. all decisions other than those I have described as "strategic") in the light of both the Guidance and that plan. It must not make short-term individual decisions which might adversely impact upon its longer term strategic plan, without proper consideration and compelling explanation.
(6) In making strategic or individual decisions, an authority must have proper regard to the consequences such decisions will or may have on both providers and, especially, the residents of care homes. As with any such assessment, the authority must have regard to both the nature of potential adverse consequences, and the chance of such consequences coming about. A potential, or even actual, adverse consequence for providers or residents or both will not necessarily be determinative of a decision – an authority does not have to guarantee that its decision will not have adverse consequences for some interested party – however, an authority cannot make a decision that may have such consequences without proper consideration and compelling reasons. That requires an authority to identify any relevant risks, and then assess those risks in terms of the chances of the adverse event occurring and the seriousness of the potential consequences if it does.
That is particular so in respect of potentially adverse consequences for residents, who are necessarily elderly and vulnerable and whose interests are at the heart of the commissioning of care services. An authority cannot make a decision which potentially has adverse consequences for a resident, such as a move to another home or a reduction in the level of care, without proper consideration and compelling reasons.
(7) The 2010 Guidance requires strategic plans to be publicly available. Without placing a disproportionate burden on authorities, the essential reasoning of individual decisions should also be recorded in writing, and given to interested parties including, where appropriate, providers. The 2010 Guidance has transparency as a hallmark. It requires a commissioning authority to work "in partnership" with providers (as did the 2003 Guidance), and that can only be achieved if providers are aware of the reasoning behind commissioning decisions important for them. Providers also need to know to reasons for a decision affecting them to enable them to consider the legality of the decision, and to challenge it if they consider it to be unlawful and they wish to pursue that course.
(8) Where a commissioning decision is challenged by way of judicial review, as identified by Munby J (as he then was) in R (P) v Essex County Council [2004] EWHC 2027 (Admin) at paragraph 30 together with the cases there cited, the court's function is merely to review an authority's decision, not one of primary decision making which Parliament has entrusted exclusively to the relevant local authority. Where a challenge is made, it is not the court's function to reconsider the merits of the decision – in this case the rate at which accommodation and care provided will be paid for – but to review the decision by reference to public law criteria. These focus upon process rather than outcome: although, of course, an outcome might be so outside the range of reasonable decisions that is betrays irrationality on the decision-maker's part and, as a result, it might be challengeable on the ground that no reasonable authority could have reached it.
The last point concerning the role of this court is important. The claimants have lodged a considerable amount of evidence to the effect that £390 per resident per week is simply insufficient to maintain their businesses as commercially viable concerns. In his 18 October 2010 statement, Mr Davies sets out in some detail the various actual costs the claimant has to bear, including for one of the companies (Woodhill Care Limited), the costs of servicing a £1.3 million bank loan with which the business was set up. Mr Davies indicates in that statement (at paragraph 127) that the bank is unwilling further to support the company, unless it becomes more profitable – specifically, unless it can demonstrate that it can service the loan and break even financially on the basis of an 85 % occupancy level – and that the bank would reconsider its position if the Council were immediately to increase its weekly fee per resident to £480.
Throughout the correspondence I have seen, the claimants suggest that, without a fee rate of £450 or £480, they are not financially viable and would be forced to close one, or all of the care homes they run. They suggest that that is likely to be an unfortunate or even devastating step for their residents, particularly as there are no other obvious available places in residential care homes in Pembrokeshire. They therefore express concern for both their own financial future and the future welfare of their residents. That was the basis of their application to Judge Jarman on 9 November, in the event unsuccessful, for interim relief in the form of an immediate increase in the fee rate to £480.
However, as I have indicated, Parliament has entrusted responsibility for providing care and accommodation to those who, through age, need it, to local authorities such as the Council – including the responsibility for setting a fee for the provision of such services. The relevant guidance makes clear that, in performing such functions, an authority must actively consult with and consider the consequences of its decisions for, amongst others, providers - particularly because the setting of a rate is in the context of contractual negotiations with them – but the rate is set by an authority in accordance with its statutory public functions, not by way of agreement between it and actual or potential providers. The rate having been properly and lawfully set, providers are entitled to contract for the provision of care services on the basis of that rate, or not to contract on that basis. That is a commercial decision for them.
It is my job only to review the legality of the Council's decision – in effect, the legality of the Council's decision making process. If the decision is unlawful and the error is material – and the Council now concedes it is on at least one ground – then I can refer the decision back to the Council to make the decision again, this time according to law. Unless I can be satisfied that there is only one rate that the Council could properly set (which, on the evidence before me, I clearly cannot), that is the only substantive relief I can give. It is the only substantive relief that the claimants seek. I cannot, even if I find the Council has acted unlawfully, give an opinion as to what an appropriate rate might be, yet alone require the Council to pay such a rate. I stress that, not because the sub-grounds to which I have referred seek to do more, but because I fear, from the evidence that has been lodged, that the claimants and others may not have fully appreciated the limited role of this court in such challenges as these.
Factual Background
So, as I have indicated, it is for the Council to set the fees payable to independent providers of care and accommodation. That has been so since 1993 and the implementation of the National Health Service and Community Care Act 1990, by which, save for various preserved categories, the funding of residential care homes passed from the Department of Social Services in central government to local authorities. The National Assistance Act (Choice of Accommodation) (Wales) Directions 1993 imposed the duty of determining the amount they would expect to pay for assessed needs on local authorities. From 2002, the preserved categories were abolished, so that local authorities became responsible for funding the placement of all in relevant need in residential care homes that fell within section 21.
Until 2008, the Council used a historical rate, increased annually to reflect inflation and similar factors. For the year 2008-9 that rate was £368.
For several years, providers (including the claimants) had complained about the rates for accommodation and care being paid by the Council. In November 2008, under pressure from the Welsh Assembly Government to set a rate on a principled and transparent basis, and from the owners of care homes and the PCHO who considered the current rate significantly too low, the Council agreed with the PCHO that an economic model should be used in the assessment of the fee rate: and, following internal discussions and external advice, on 8 December 2008, the Council decided to use the Laing model (Jonathan Skone 4 November 2010 statement, paragraphs 16-18.)
In April 2002, William Laing, an economist with the firm Laing & Buisson, prepared a report, "Calculating a Fair Price for Care: A Toolkit for Residential and Nursing Home Costs", which, as its title suggests, incorporated a financial model or toolkit for calculating the reasonable costs of care in residential homes. In 2004, having been commissioned by the Welsh Local Government Association to prepare a report to update that toolkit and apply it to Wales, he prepared a further report, "A Fair Price for Care 2004: Wales", with a revised model ("the Laing 2004 Wales report and model"). In the same year, he prepared a report with a model on broadly the same basis for England which was revised in 2008 ("the Laing 2008 England report and model"). Each model is accompanied by guidance notes as part of the report. The Council determined to use the Laing 2004 Wales model in the assessment of a rate for Pembrokeshire.
The models are in the form of a spreadsheet into which data on variable assumptions and parameters such as the number of hours, wages and costs of supplies are fed, under four cost heads, namely (i) staff, including employers own costs, (ii) repairs and maintenance, (iii) other non-staff current costs, and (iv) "capital costs (return on capital)".
The populating of the model requires the collection, and then insertion, of relevant data which, once done, produces an appropriate rate for care and accommodation services provided by an independent provider per resident per week. However, the model presupposes that the full exercise of data collection and insertion into the model will not necessarily be done every year – for example, section 5 of the Laing 2004 Wales model proposes a method of adjusting fees in line with inflation – but the report suggests "recalibration" by reference to up-to-date data regularly, e.g. every three years (paragraph 5.1).
The Laing 2004 Wales model is designed to provide a "robust and transparent means of calculating the reasonable operating costs of efficient care homes… in any given locality in Wales" (paragraph 1.2, emphasis added); i.e. the model itself expressly recognises the importance of the workings of the model being available to those interested in it, particularly providers.
The Council considered that it did not have the appropriate in-house expertise to gather and deploy the relevant data into the model, and so employed Mr Christopher Hine of RSM Bentley Jennison, now RSM Tenon ("RSM"), a forensic accountant with a background in economics, to do so. Indeed, RSM had also advised the Council on the use of the Laing 2004 Wales model in the first place. Mr Hine sent out a survey form to each of the 35 residential care homes in Pembrokeshire, of which 24 were completed and returned. In the meantime, on 24 March 2009, the Council notified providers of an interim rate increase of 2.5%, from £368 to £377, payable from 6 April 2009.
Mr Hine produced a draft report dated 22 May 2009 that confirmed the basis of calculation of a rate for the provision of accommodation and services to the Council was on the basis of the Laing 2004 Wales model (paragraph 2.3). The report concluded that, on the basis of that model, populated with data RSM had collected, the fee level per resident per week for 2008-9 should be £390 as a standard fee but "for future years an incentive to improve standards would be set at a maximum of £25 over the standard fee" (executive summary). I shall return to that £25 in due course.
The report was discussed with, and explained to, the Council's Chief Financial Officer and Director of Finance & Leisure (Mr Mark Lewis), and its Director of Social Services (Mr Jonathan Skone) at a meeting on 10 June 2009. Mr Lewis said that some concerns were raised in relation to capital cost adjustment, the new homes policy and the adoption of the efficient homes threshold criteria (29 November 2010 statement, paragraph 14): but Mr Skone said in his evidence that no significant issues apparently arose in that meeting. He had expected "a slightly higher fee rate", but "careful questioning of RSM's forensic accountant about the conclusions produced by the revised toolkit satisfied the Council that this was the right result" (26 November 2010 statement, paragraph 16). The evidence does not otherwise disclose the nature or subject matter of that meeting in respect of which there are no minutes or notes.
The final RSM report was produced on 24 June 2009 in similar form and with a similar conclusion to the draft. The Council accepted that recommendation, in the sense that it set the fee for 2009-10 at the level of £390, backdated to 1 April 2009.
The RSM report was not disclosed to the claimants at that time, nor indeed until after the permission hearing in this claim in November 2010. However, Mr Lewis and Mr Skone met Mr Davies on 24 June 2009, and Mr Davies expressed some concerns in relation to the capital cost adjustment and the exclusion of data from homes with less than 20 registered placements; but, although discussions between the Council and Mr Davies/the PCHO continued, the decision to set the rate thus was not formally challenged.
Because of the extent of the exercise involved, the Council expected that the full exercise would only be done every three years, as suggested in the Laing 2004 Wales report would be appropriate; but, again as suggested in that report, in the meantime, there would be an annual review to take into account any material variations in circumstances.
The first annual review was, of course, for the year 2010-11. The Council (particularly through Mr Skone) and the claimants (through Mr Davies) had in the meantime continued their dialogue. They had four meetings in 2009 after the fixing of the 2009-10 rate, which mainly concerned the rate and the additional pressures under which the claimants were working; and the claimants continued to press for further information about how RSM had populated the Laing model with data (see, e.g., the letter from the claimants' solicitors to Mr Lewis of 24 December 2009). There was an abundance of consultation, although not all of the information requested by Mr Davies was provided. However, Mr Skone was unimpressed by the evidence produced by Mr Davies and "this combined with increasing financial constraints on the [Council], led the [Council] to conclude that there would be no increase to the level of fee for the financial year 2010/11" (4 November 2010 statement, paragraph 26). Mr Skone was the relevant decision-maker on behalf of the authority.
Unfortunately, there is no contemporaneous documentation with regard to when the decision was made or the reasons for it. Mr Skone accepted in his oral evidence that it would have been better had there been more documentation, which is clearly right. However, he said that the decision was taken before 7 May 2010, following discussions with Mr Lewis and, in reaching the decision, he took into account the following factors (29 November 2010 statement, paragraph 18):
"(a) The County Council had adopted a cash standstill to its base revenue budgets for 2010/11, but recognised the additional costs pressure arising from the increased demand for services as a result of demographic growth.
(b) Within that framework, increased resource was made available for adult social services to meet additional demand for community support services such as home care for older people. This additional resource was specifically to increase service capacity.
(c) A cash standstill was applied to budgets within social services with a number of budgets, including those for the Council's own residential care provision, decreasing.
(d) All services were expected to absorb inflationary pressures through efficiency savings.
(e) If any particular service area was to be treated differently then that would result in a decrease within other service areas such as children's services, including child protection, looked after children and disabled children."
Mr Skone's statement continues:
"The conclusion reached as a result of considering these factors was that private section residential care homes had not presented additional material evidence that would justify the sector being treated as a special case for increased funding when compared with other service areas and client groups."
Although this has now been overtaken by the Council's concession to which I have referred (see paragraph 8 above), the date of 7 May 2010 derives from a letter, recently found on the Council's computer system, from a Ms Angela Watwood (the Council's Head of Community Care Commissioning, who works under Mr Skone) to care service providers. Under the heading, "Fee Reviews 2010-11 - Rates for Residential Care", the letter reads:
"Please find attached details of the standard rates for residential care which [the Council] is continuing to apply for 2010-11.
Discussions with [the PCHO] are continuing."
In the attached schedule, the rate for "very dependent elderly", into which category all of the claimants' residents fall, was £390.
However, the Council now accept that that letter was never sent to the claimants, or indeed to any other provider. In his oral evidence, Mr Skone explained that the letter was found on the Council's system after 9 November 2010 (the date of the permission hearing before Judge Jarman) but before 28 November 2010 (when it was appended to Mr Skone's statement as a letter purportedly sent to the claimants): but, upon further research, it appeared that the letter had been prepared on or about 7 May 2010 as a draft, but it was not sent out pending a meeting with Mr Davies and other members of the PCHO which, in the event, occurred on 24 June 2010. Mr Skone said that the Council's practice was to meet with members of the PCHO to discuss the rate that had been set, before confirming the rate in writing to each provider. The letter was, he said, the written record of decision. Unfortunately, apparently due to an oversight, the letter for 2010-11 has never been sent out, either on 7 May or indeed subsequently. I accept all of that evidence.
The meeting on 24 June was attended by Mr Skone for the Council and Mr Davies and one other member of the PCHO. The gist of that meeting appears to be relatively uncontentious, except in relation to the certainty with which the rate of £390 had been finally fixed (see, in particular, Michael Davies 18 October 2010 statement, paragraph 116; and Jonathan Skone statement, 4 November 2010, paragraph 28). Mr Davies accepts that Mr Skone told him that "[the Council] had finished its cost-cutting review", and he was not going to reduce the fee rate for 2010-11: Mr Skone explained that most of the Council's services, including their own care homes, were having their budgets cut, but it was not the intention to cut the fees for independently run care homes. It was intended to keep the fees the same for 2010-11, as for the previous year. In his statement (at paragraph 28), Mr Skone said that:
"I told Mr Davies that I did not consider it practical or sustainable to reflect the decrease in [the Council's own] care homes and as a result the fee level remained at £390 per week."
At the meeting, Mr Davies referred to the financial plight of the claimants: which resulted in Mr Skone sending him an email the following day asking him what rate would be required for the claimants to "break even". Mr David Phillips QC for the Council submitted that this did not suggest that the rate for 2010-11 was still in issue, but rather Mr Skone was thinking about the Council's wide powers under Part 1 of the Local Government Act 2000 for the promotion of the economic social and environmental wellbeing of its area, with a view to considering specific support for the claimants to overcome any adverse trading position – which of course would have been in a different form from an uplift in rates – a point also referred to by Mr Lewis in his evidence (4 November 2010 statement, paragraph 10).
However, the claimants still considered that issues remained between them and the Council in respect of the rate, and that the key to resolving those issues was for the Council to disclose documents that would enable the claimants to take an informed view as to the reliability of the RSM run of the Laing 2004 Wales model, prepared by Mr Hine in the Spring of 2009. The claimants' solicitor (Miss Alison Castrey) wrote again on 7 July 2010, indicating that, if the information was not received, it would form the basis of an application to the court for disclosure. On 26 August, the Council's solicitor responded saying that, "It is the Council's view that commencement of proceedings at this stage is premature"; although, in fact, the letter refused to disclose any further documents. Some disclosure was made, following another trade of letters, on 17 September 2010. That prompted a letter before action from Miss Castrey, dated 8 October, more or less on the basis of the first and second grounds of challenge now before me.
In the meantime, there had been a further meeting, on 25 August, between Mr Davies and two other members of the PCHO, and Ms Watwood of the Council. Ms Watwood appears to have been surprised that a meeting without Mr Skone or Mr Lewis had been arranged, but she attended and kept full minutes. Those show that much of the meeting was concerned with the financial plight of the providers, including the claimants, as they saw it. They pressed for a rate of £480, alternatively £450. Ms Watwood says, and I accept, that she was not a decision-maker in respect of rates – that was Mr Skone – but she agreed to pass on the information given to her by Mr Davies and his colleagues. The minutes (at page 5) reflect that. The minutes also say:
"AW [Ms Watwood] advised the £390 was always seen by the Council as an interim measure pending further negotiations. No work has been done on quality measures linked to fee as the baseline rate has not been agreed yet".
At that same meeting, Mr Davies indicated that he proposed to set a fee of £480 per resident per week; and he proposed to write to third parties (next of kin and others responsible for residents) seeking a top-up of the fee being paid by the Council to that level. Mr Davies proposed produced drafts of letters at that meeting. The proposed letter to residents in respect of whom there were no existing third party contributions was as follows:
"As you are aware, your mother's care and accommodation are paid for by the local authority. The true cost of our providing this care and accommodation to the required legal and contractual standards, and on a sustainable basis, is currently around £480 per resident per week. The amount that we actually receive from the authorities is only £390. This is a shortfall of £90 per week, or 18.75%.
This situation has been ongoing for some time, and we have been attempting to persuade the authorities to meet their legal obligations to fund placements properly. We are continuing with our efforts, but the shortfall has now become so great that standards of care and accommodation could be at risk if the home's income does not increase. We have effectively been subsidising the local authority in meeting its obligations but cannot continue to do so to the same extent.
For that reason, we propose to charge a 'state funding shortfall contribution' of £90 per week from 1st October 2010. This is not a top-up and we shall refund the appropriate amount to you in the event that we succeed in resolving the dispute with the local authority and receive back payments for the shortfall.
I anticipate that you may not be happy to receive this letter; we are not pleased to have had to send it, but the current funding situation leaves us with little choice as a responsible provider. I have attached contact details for the relevant people and organisations who have responsibility and influence in this situation, in case you wish to write to them. I am copying this letter to the people indicated."
The letter in respect of residents where there were existing contributions was in similar terms, but tailored accordingly. On 14 September, Mr Davies wrote to the Council confirming the intention to send the letters "in a couple of weeks' time".
The proposed letters therefore indicated that the Council were failing to pay for services "to the required legal and contractual standards", and sought from the third party an amount which the claimants had calculated met the difference between a rate paid by the Council and the sum needed to enable the required legal and contractual standards to be met. The payment of this top-up sum was to be a requirement of continued residence of the relevant resident at the claimants' home, and was to be repayable to the third party only if and when the claimants were paid a higher rate by the Council. It is not suggested in the letter that the Council's agreement had been sought for this course, nor does Mr Davies, either in his letter to the Council of 14 September or in his evidence prepared for this claim, suggest that it was.
The Council formally responded to that proposal by a letter from Ms Ruth Ewing (a Contracts Manager with the Council) dated 15 October 2010, indicating that the Council considered that any letter to a resident or a third party in the terms which had been suggested "could constitute a breach of contract", and also expressing concern about the anxiety that such letters might cause to residents and those responsible for them. The letter requested that any contributions from third parties that had been received by the claimants should be repaid to the third parties who had made them. In fact, although unknown to the Council, the claimants had not sent out any letters seeking contributions by them. However, in ignorance of that, at about the same time in October, the Council wrote to the next of kin and others responsible for residents in the following terms:
"Pembrokeshire County Council has an individual placement agreement with [X] Home for the care of Mrs [Y].
I am writing to advise you that, should you receive any information or requests for additional financial contributions to the care of Mrs [Y] then please bring them to my attention straight away.
I have reminded [X] Home that they should not be contacting residents or their next of kin and that I have now initiated the escalating concerns process.
I will be pleased to answer any queries or concerns that you may have."
Under such pressure form the Council, the claimants in the event did not send out any letters to any third parties seeking a contribution towards their costs, as a result of which no such contributions have in fact been made.
During the course of these events, the claimants attached the following note to every, or almost every, individual placement contract:
"This home is in active dispute with the authority over the correct level of fees due under the contract and in law. Pending resolution of this dispute, all fee levels in contract and placement agreements are provisional only and all payments invoiced and accepted by the home from the authority are 'on account only'."
Those matters concerning the steps taken by the Council to prevent the claimants soliciting contributions from third parties are relevant to the third ground of appeal and I shall return to them when I deal with that ground (Ground 3: see paragraphs 146-152 below).
Grounds of Challenge
Introduction
I now turn to the claimants' grounds of challenge. Before I consider them in turn, two general points.
The first concerns the use of the Laing 2004 Wales model in setting the fee rate. Although the model was not re-populated with fresh data for the year 2010-11, the working of the model by Mr Hine in the Spring of 2009 formed the basis of the Council's decision to set the 2009-10 rate at £390, and its decision to use the same rate for 2010-11.
As I have indicated, the Council determined – and also agreed with the PCHO – to set the fee rate for accommodation and care services provided by an independent care home by using the Laing 2004 Wales model. That model was designed by Mr Laing to produce a fair rate for the provision of care services, based upon an assessment of the reasonable costs of providers, if appropriate data were inserted into it. However, the model is the servant of the decision-maker in setting a rate, not his master. Within the parameters of the model, there must be a margin of appreciation available to the decision-maker in properly populating it with data. But, even though those parameters are designed to arrive at a fair fee rate, it is open to a decision-maker to deviate from the parameters of the model or the rate figure produced: although, given the nature of the model and the Council's policy decision to use it, any departure would have to be for compelling reasons. Whether particular criteria on which to include data fall within or outside the parameters of the model is not a question which, in my view, necessarily warrants any fine judgment; because any criteria used must be capable of rational justification by the decision-maker. Most criteria will easily be justified on the basis of the model itself, and the Laing 2004 Wales report which supports them. They will not need any further justification. However, where the criteria the model demands are not inherently obvious, the data used may be justifiable and justified by reference to external criteria. In those circumstances, it is important that the authority makes a rational and reasoned decision to use a particular criterion in the context of the model it has adopted, and it is able and willing to share that reasoning with interested persons, including of course providers.
The second general point is this. In respect of each sub-ground relied upon by Mr Béar, he submitted that the criteria chosen in working the model were bad as a matter of public law as being irrational or so illogical as to rob the reasoning for the choice of those criteria of all force. In considering those submissions, I have been hampered by the lack of contemporaneous documents from the Council. There is no evidence that the Council had, or yet have, any strategic plan for the provision of care services in Pembrokeshire as advocated by the 2010 guidance. In respect of individual decisions, including the decision to fix the 2010-11 rate at £390, again neither are there contemporaneous documents nor is there any evidence that any such documents ever existed. There are no minutes or other record of the internal Council meeting between Mr Skone and Mr Lewis at which the rate was discussed. There is no record of Mr Skone making the decision after that meeting, let alone his reasons for doing so. There is no internal record of Miss Watwood being told of the decision, with a request, for example, that she prepares draft letters to providers informing them of that decision. There is no letter sent to claimants or any provider indicating what the set rate was, or, again, informing them of the reasons for that rate. There are no minutes of the 24 June 2010 meeting at which, the Council says, Mr Davies was informed of the Council's final decision to set the rate at £390.
Mr Phillips submitted that, in relation to this claim, those matters are largely evidential. However, good administrative decision making and practice demands appropriate recording and communication of decisions made, and the essential reasons for them. Further, the evidential position for the Council does not get much better when one looks at the written evidence it has prepared and lodged for the purposes of this claim. In respect of the factual assertions it seeks to make good, that evidence is very thin. For example, in relation to Mr Skone's reasons for fixing the rate at £390 for 2010-11, I have already referred to and quoted from paragraph 18 of his 29 November 2010 statement (paragraph 65 above). From that, in making the decision, it is clear that he had in mind the budgetary constraints on the Council: indeed, they appear to be listed as the only considerations that he had in mind when making the fee rate decision.
With regard to other factors that he clearly ought also to have had in mind, Mr Phillips relied heavily upon paragraph 28 of Mr Skone's earlier statement dated 4 November 2010, in which he says that he told Mr Davies at the 24 June meeting that he did not intend to apply the cut which had applied to the Council's own homes to the fee rates for independent care homes because: "I did not consider it to be practical or sustainable to reduce the fee level to the private care homes sector to reflect the decrease in the [Council's] care homes and as a result the fee level remained at £390 per week." But that is the only evidence the Council has which suggests that Mr Skone, in setting the rate, had anything else in mind other than the budgetary constraints on the Council. That is but one example of the lack of substantial evidence in relation to the Council's decision-making process, to which I shall return as I deal with the specific ground of challenge.
There may be an assumption, in some circumstances, that an authority has acted lawfully: but, where it has apparently acted in deviation from governmental guidance to which it is subject and the parameters of an economic model for the assessment of a fair rate which it has adopted, any such assumption must give way. These matters to which I have referred may be, as Mr Phillips submitted, essentially evidential; but the absence of documentary records makes it more difficult for an authority to show that it has taken decisions in a rational and reasoned way, having taken into account all relevant factors. That is why, as I have said, good administrative practice demands that decisions, including essential reasons for decisions, are recorded.
I now turn to the specific grounds of challenge upon which the claimants rely.
The First Ground
First, the claimants seek to challenge the failure of the Council to make any decision setting a fee rate for the year 2010-11.
There is a factual dispute between the parties as to whether (and, if so, when) such a decision was made. The Council asserts that it made a decision to fix the fee of £390 per resident per week prior to 7 May 2010, and that decision was communicated to the claimants through Mr Davies at the meeting on 24 June. The claimants' second broad ground, to which I shall come in a moment, challenges the legality of that decision, if made. Because the Council now concedes that that decision, if made, was erroneous in law, requiring the matter to be reconsidered by the Council and a new decision made, the first ground of challenge has become substantively empty. Further, the Council also relied upon the facts and matters that founded its defence to the first ground – notably, that a decision to set the rate was made and communicated to the claimants by 24 June 2010 – to contend that the claimants had failed to challenge the decision to fix the rate at £390 within three months of the relevant decision or promptly, and they should not be granted the necessary extension to bring it now. Given its concession, as I have already noted, the Council properly no longer relies upon any alleged delay by the claimants in bringing this claim.
For those reasons, it has become unnecessary for the claimants to rely upon this first ground of challenge. However, as it may be relevant to subsidiary issues such as costs, I should say that I see compelling force in the ground.
Mr Skone says that, at some time before 7 May 2010, he made a decision fixing the 2010-11 rate at £390. However, the date he used was based upon the premise that, that day (7 May 2010), the Council sent a letter to all providers, including the claimants, informing them of the setting of that rate. However, as I have explained (see paragraphs 66-7 above), Mr Skone has subsequently accepted that that letter was never sent; and the Council's usual procedure, he said, was to have a meeting with a few members of the PCHO to discuss the rate that was being set before a letter was sent to each provider informing them of the set rate for the year. He frankly accepted that it was the letter that stated the fee that would be paid: it was, he said, "the written record of the Council's decision". There is, as I have already pointed out, no other such record, either internal or sent to providers. It is also noteworthy that, under the contractual provisions between the Council and the claimants, any fee rate remains in place unless and until a new rate is set by the Council.
Further, the evidence as to what was said at the 24 June meeting does not persuade me that Mr Skone made it clear to Mr Davies that a final decision had been made in relation to the 2010-11 rate, in the sense of a decision that could or would not be reviewed on the basis of additional information from the claimants. Further information and representations were indeed thereafter made by Mr Davies, and Ms Watwood indicated on 25 August that the rate would be reconsidered in the light of the further information that had been provided to her. Mr Davies said that he did not consider the final fee set without receiving a letter to that effect, as he had done in previous years (7 December 2010 statement, paragraph 3.2). There is, of course, no suggestion that the decision has been notified to any of the many providers not attending the 24 June meeting. Mr Skone frankly said that the reason no letter notifying providers of the set rate was that this had simply been overlooked.
The importance of proper notification of a decision is not a technicality: it is a fundamental constitutional principle, important to trigger an individual's right to challenge that decision in the courts (R (Anufrijeva) v Secretary of State for the Home Department [2003] UKHL 36; [2004] 1 AC 604 at paragraph 26, per Lord Steyn). The correspondence following 24 June meeting (referred to in paragraph 67 above in the review the factual background to the claim), does not indicate that that right had arisen. It suggests that, even if and insofar as Mr Skone had decided that the rate ought not to be increased, the Council was prepared to consider the rate further in the light of new information and representations made by the claimants. For example, there is what Ms Watwood said at 25 August meeting (see paragraph 68 above). The Council's solicitor wrote to a Miss Castrey on 26 August saying that the Council considered the commencement of proceedings would be premature, and Mr Skone wrote to Mr Davies on 8 September saying that "no decision on the basis of the new material can be made without the populated toolkits" (i.e. the Laing 2004 Wales model, populated by data which the claimants considered were appropriate).
Given the Council's longstanding practice of communicating the rate set by letter to each of provider, the nature of the rate discussions between the Council and the claimants (which Mr Skone understatedly described as "informal"), and the evidence of the content of the 24 June and 25 August meetings I have described (see paragraph 68 and following above), had it been necessary for me to consider the issue, I would not have been satisfied that a final rate decision by the Council had been properly notified to the claimants; and that, in failing to make a properly notified rate decision, the Council had erred in law. That is my view of the merits of the first ground. However, given the Council's concession in relation to the second ground, I formally refuse the application on ground one.
The Second Ground
The second ground is more substantive. I will deal in turn with each of the six sub-grounds that Mr Béar identified (and set out in paragraphs 6-15 above).
(1) The Capital Costs Issue
I deal with the capital costs issue first because Mr Laing described the manner in which RSM approached capital costs to be "the most important source of discrepancy between its view and [Mr Laing's own] view of reasonable care home costs" (3 December 2010 report, paragraph 29); and, as I have indicated (paragraph 8 above), the Council now accepts that the manner in which it dealt with capital costs was wrong and unlawful, and that requires it to reconsider and re-determine the fee rate for 2010-11 - although it does not concede that it was wrong to the extent alleged by the claimants.
As I have already described (paragraph 55 above), in calculating the costs of a provider, the Laing models include provision for a rate of return on capital. The way that is done is that, for the purposes of calculating the true costs of providers, a reasonable rate of return on capital for those investing in care homes over time is calculated by reference to a percentage of the capital required to acquire or set up the business; and that is then added to the other revenue costs. The reasonable percentage return fell from 16% in 2002 to 14% in 2004 (see the Laing 2004 Wales report at paragraph 1.3). It was common ground before me that the appropriate percentage rate at all relevant times for the purposes of this claim was 12%. For this court, Mr Laing (who was retained as an expert by the claimants) explained that "capital costs" were calculated to include
"… all costs other than revenue costs, including rents, mortgage or loan interest (but not capital repayments), the imputed costs of the equity capital contributed by the owner (i.e. foregone income from not using that capital elsewhere), any head office overheads… and a reasonable level of profit as a reward for setting up and maintaining the business. All of this is accommodated within a 12% return on the capital required to acquire or set up the business." (3 December 2010 report, paragraph 28).
In terms of valuation of that capital requirement, leaving aside the land (the valuation of which is low and uncontentious for the purposes of this claim), the model values the capital invested in terms of buildings and equipment meeting current "national minimum standards", adjusted downwards by a "capital cost adjustment factor" to reflect the extent to which a home does not meet such standards.
By way of explanation, under the provisions of section 23 of the Care Standards Act 2000 and the Care Homes (Wales) Regulations 2002, in 2002 the Welsh Assembly Government issued the national minimum standards for care homes for older people, which were revised in 2004. Those set general standards for care homes in Wales. Section 8 sets various minimum standards for "the physical environment" ("PE standards") in care homes and extensions built in Wales and registered after that date. The standards relate to such matters as shared facilities, en suite facilities and space requirements. Homes that were built and registered before 22 April 2002 do not have to comply with those standards (although, in some respects, they may have to comply with earlier and generally less onerous standards). As I understand it, over time, the standards for those older homes have increased, with the intent that, eventually, all homes will have to comply with the same higher PE standards. That is in line with Government policy to improve standards for those who are in residential care homes to which I have already referred (paragraph 34 above).
Therefore, all homes must meet the lower, pre-2002 PE standards; but full payment under this head of costs is determined by the extent to which a home, whenever built, meets the new, post-2002 PE standards. As the guidance notes to the Laing 2008 England model state (at page 33):
"The same building and equipment cost should in principle be allowed for any care home, whether new build or not, which meets the same standards. The rationale for this is that councils… must not only attract new capacity but also incentivise operators of existing stock to remain in operation and to upgrade facilities if necessary to meet the highest physical standards with commissioners are willing to pay."
That is not expressed in precisely those terms in the Laing 2004 Wales model; but the same principle is reflected in the Laing 2004 Wales report (see, for example, paragraph (a) on page 42) and must apply to the application of that model also.
In respect of assessment of the appropriate provision for return on capital, this is dealt with on a single sheet in the RSM's Spring 2009 working of the Laing 2004 Wales model, with one page of back-up calculations. Although Mr Lewis indicated that capital costs were discussed at 10 June meeting he had with Mr Hine and Mr Skone, there is no evidence that, prior to making its decision as to fee rate based on the cost assessment, Mr Skone had any further explanation other than that which is on those pages; and any rationale must consequently derive primarily from them.
The main calculation shows an aggregate figure of £121 taken for the capital costs of land (£11) and buildings and equipment meeting the minimum standards for post 2002 homes (£110). Those figures are uncontroversial. Shown then is a deduction of £73, under the heading, "Maximum capital cost adjustment factor for homes not meeting physical standards for 'new' homes". As appears from both that description and the back-up calculation, this figure is calculated on the basis of the per placement "floor" or base value of care home premises that comply with the PE standards for pre-2002 care homes, which comply with none of the post-2002 standards, i.e. they are compliant with the lowest possible PE standards. In other words, RSM took the maximum possible downward adjustment for homes not meeting the post-2002 PE standards, by taking, as the comparator, homes which met none of those standards.
Deducting that figure of £73 from £121, the calculation arrived at the figure of £48 for what the model describes as, "Total capital costs". That is then added to the figures for the other categories of cost to give a total figure of £415, described in the RSM worked model as "'Target' fair market price for homes meeting all standards for 'new' homes…". From that, RSM deducted £25 representing (their working model indicates), "Incentive for homes meeting standards within the County (shown at 100%)"; which gives £390 for "'Floor' fair market price for homes which do not exceed the interim physical standards for 'existing' homes in National Minimum Standards…". It is that figure of £390 which RSM recommended and the Council accepted be used as an across the board rate per resident per week in any Pembrokeshire care home, irrespective of the extent to which a particular care home betters the PE standards for pre-2002 homes.
However, during the course of the hearing, Mr Phillips indicated that, on reflection, Mr Hine accepted a number of errors in that calculation which the Council no longer sought to justify. The errors were as follows.
First, he accepted that the figure of £73 for the capital cost adjustment factor, representing the discount for homes meeting the minimum pre-2002 PE standards but none of the post-2002 standards, was wrong. He accepted that the approach used in the Laing 2008 England model should be used, namely that the "floor" for those homes that met none of the post-2002 standards should be 50% of the "ceiling" set by the homes that met all such standards. In this case, that would be 50 % of £110, or £55.
Second, Mr Hine said that the terminology that he had used in the latter part of the calculation was also wrong. It did not reflect the substance of the methodology he had used.
He said that he had added the capital costs for those homes that met only the minimum pre-2002 PE standards to the other revenue costs in the model, to obtain a figure for "Target fair market price for homes which do not exceed the interim physical standards for 'existing' homes in the National Minimum Standards for Care Homes for Older People (Revised March 2004) but which meet [the Council's] quality of care standards", i.e. homes that met the minimum PE standards, but the highest non-PE care standards. That, exchanging the figure of £55 in the calculation for £73 for the reasons I have already given, gives a figure of £433.
However, Mr Hine took the view that "the capital cost adjustment factor reflects both the physical state of the care home and the quality of care (the 'non-physical standards')" (16 December 2010 report, paragraph 5.2), i.e. that the capital costs include an element that reflects the extent to which a home complies with the standards expected other than PE standards, and particularly the standards of care. He estimated that proportion to be 25%. He consequently reduced the £433 figure by a further 25 % of the full £110 (i.e. by a further £27.50), to arrive at the figure of £405.50: but, on the basis that the Council would instigate a means of assessing the extent to which homes complied with the highest non-PE care standards and reimburse providers with that £27.50 to the extent that there was compliance. Therefore, dependent upon a provider's compliance with those care standards, the fee rate for 2010-11 would be in the range of £405.50 to £433.
The Council conceded that it had erred in law in setting the rate at £390 rather than £405.50; and further in failing to implement a scheme of assessment of standards of care in homes, meaning that homes with the highest standards were being deprived of £27.50 per resident per week – and all other homes were being deprived of pro rata payment in respect of care standards, and the incentive to better standards of care in their homes.
However, otherwise, Mr Philips submitted that the approach of Mr Hine was justified, if the Council had a policy of incentivising better standards of care in homes, but of not incentivising better PE standards. There was no evidence that that was the Council's policy – as I have indicated, I had before me no evidence of any particular strategic policy of the Council in relation to the provision of care services, nor indeed that the Council had any such strategic policy at all – however, Mr Phillips submitted that I could and should assume that the Council has had, at all material times, such a policy of differential incentivisation: and, on that basis, the approach of Mr Hine and the Council which has adopted it, is therefore lawful.
Those submissions were, as ever, very ably put by Mr Phillips – they could not have been better put – and boldly and bravely put too. Unfortunately, in my judgment, they do not withstand any sensible scrutiny, and certainly not the overwhelmingly compelling submissions of Mr Béar. He submitted that the submissions fell at not one but every hurdle. That seems to me to be about right.
First, Mr Hine's calculation is based on the premise that the Council has a policy of encouraging higher standards of care, but of not encouraging higher PE standards in care homes. However, there is no evidence at all before me that that is Council policy: and the evidence that I do have, thin as it is, suggests that that is not its policy. It was the Council that determined to use the Laing 2004 Wales model which seeks, in line with Welsh Assembly Government policy and guidance, to incentivise homes that are not at post-2002 PE standards, to obtain those higher standards. In his calculation, Mr Hine himself refers to the older pre-2002 PE standards as "interim", reflecting the intention of the Government to raise such standards to the post-2002 standards over time. I would be reluctant to find that it was the Council's policy to have the same floor or base rate for all care homes, irrespective of the actual extent to which they comply with the post-2002 PE standards, because, as well as not offering any incentive to enhance their facilities, as Mr Béar pointed out, there would be every commercial encouragement for homes with higher PE standards to leave the market – because the capital return for them would be relatively less than that for a home with lower standards. It would take compelling evidence to persuade me that that was indeed the intended policy of the Council.
Given that the evidence that I do have suggests that it is Council policy to encourage such betterment and there is certainly no evidence before me that it is the Council's policy not to do so, and that a policy to discourage or not to encourage providers from raising the physical environmental standards of their homes would deviate from Welsh Assembly Government policy and guidance the Council is bound to follow, unless it has compelling grounds to deviate, there is no basis upon which I could make the bold assumption Mr Phillips pressed me to make, namely that the Council has a policy not to encourage providers to enhance the PE standards of care homes. There are no such compelling grounds.
In any event, second, Mr Hine does not appear to have acted on any such assumption. He appears to have worked on the basis that the Council wished to discourage the building of new homes, rather than not to encourage existing homes to raise their PE standards towards the post-2002 level. That is the indication in his contemporaneous report. In the report upon which the rate decisions were made by the Council – I have 22 May 2009 draft, but I understand the final report was in the same form – he said:
"4.58 Since it is not the Council's objective to encourage the building of new homes but to maintain and improve the existing homes, the methodology for calculating the ceiling is not appropriate. This is because it is based on costs of land and construction associated with new homes."
I pause there to note that that is, of course, wrong. Although the valuation of capital costs is based on business set up or acquisition, as I have explained, the inclusion of "capital costs" in the assessment of a provider's costs is to ensure that a return on capital is properly reflected. The better the PE standards (whether as a result of new build, or older homes that in fact comply with the new standards), the higher the assumed capital costs should be. Such costs are real, if only because, if money was not invested in care homes, it could be invested elsewhere. The methodology for the calculation of capital costs does not become inappropriate simply because an authority wishes to discourage new build, or even if it wishes to discourage enhancement of PE standards in older homes. For example, there will be homes that now comply with the highest PE standards that should be entitled to the highest level of capital costs on the basis of this model. Continuing with the quotation:
"4.59 The Council's objective is to incentivise homes to reach high quality standards but without encouraging new build."
That is what the Council had before it. There is no evidence of any further explanation. Those passages on their face suggest that the calculation has been based upon the premise that the Council wished to encourage raising standards (at least including PE standards), but does not wish to encourage new build. That it did not seek to discourage enhancing PE standards in existing homes appears to be consistent with both the evidence of the Council's own intention, and the Welsh Assembly Government Guidance which seeks to promote such improvements.
Third, whereas there is, of course, nothing wrong with an authority including a separate monetary incentive to providers to increase their non-PE standards of care, the manner in which Mr Hine approached this was, in my judgment, based upon a misunderstanding of capital costs and consequently it lacked rationality.
Mr Phillips said that capital costs included an element that reflected the extent of a provider's compliance with non-PE care standards: and, as an incentive to comply with those standards, it was rational to withhold that element if, and insofar as those standards were not met – as Mr Hine had done. He referred me to the following passage at paragraph 4.4.2.4 on page 41 of the Laing 2004 Welsh report, particularly relying on the last sentence:
"It would not be appropriate for councils… to pay physically substandard homes at the 'fair' rate established for physically good homes. If they were to do so, they would find themselves paying fees for sub-standard care homes at a level which would generate super-profits for them…. This is the reason for proposing a range (ceiling and floor) of fair fees.… Our recommendation is that councils should apply a capital costs adjustment factor such that fees payable to each individual home would reflect the degree to which that home meets or falls short of the upper end of the range of physical standards for which the council is willing to pay. In addition, in order to avoid paying high fees to homes which provide poor care, it is recommended that homes of a physically high standard should also surmount a quality hurdle relating to non-physical standards in order to qualify for payment at the upper end of the fee range."
I do not consider that Mr Phillips' submission has any force. "Capital costs", as I have explained, concern ensuring that a provider's costs include an appropriate return on capital, and are calculated by reference to the capital costs of setting up or acquiring the business. Within that calculation, there is no element referable to compliance with non-PE standards of care, nor could there be. Compliance with non-PE standards may require revenue costs, but no significant capital costs. That is why the calculation of such costs focuses exclusively on the extent to which buildings etc comply with various standards for the physical environment or premises themselves. Mr Béar submitted that the 25% figure chosen by Mr Hine for this deduction was arbitrary. In my view, any figure would inevitably be arbitrary, because no part of capital costs is rationally referable to non-PE standards of care.
There is nothing in the Laing 2004 Wales report or model to suggest the contrary. The passage I have quoted, upon which Mr Phillips relied, is clearly focused on how compliance/non-compliance with PE standards can most appropriately be dealt with in the model: although, understandably, it is proposed that high non-PE standards should be a precondition of obtaining the higher levels of capital costs. That is suggested in paragraph (d) on page 43 of the Laing 2004 Wales model:
"All homes should be expected to score highly on 'soft' quality criteria, most of which do not impose a cost burden on the home, and this should be viewed as a precondition for unlocking their capital costs entitlement as calculated through the capital cost adjustment factor."
There was some debate before me as to whether economically 'soft' quality criteria covered the general level of care of residents – but, whatever the precise scope of that term, there is nothing to suggest anywhere in the model that capital costs include an element representing the achievement of anything other than PE standards.
I fully accept that it would be open to an authority to incentivise the raising of non-PE standards of care in some way. The Laing 2008 England model suggests one way, namely that the floor for capital costs based upon PE standards should be half the ceiling – and then making any allocation within that range conditional upon particular non-PE care standards being maintained. However, that is, of course, a very different logical approach from that adopted in this case. In working on the basis that there is an element of capital costs representing the difference between minimum and maximum non-PE care standards – which can be allocated on the basis of extent of compliance with such maximum standards – Mr Hine did not, in my judgment, adopt a logically defensible or legally rational approach.
For those reasons, as well as the matters conceded by the Council, I consider the approach adopted by the Council in relation to the assessment of provider's costs for the purposes of setting the fee rate to have been unlawful.
(2) and (3) The Staffing Issues
I can deal with two issues, both related to staffing, together. They are financially important, because wages are the largest component of running costs for any care home.
In populating the Laing 2004 Wales model, in terms of levels of care, RSM (i) used benchmark figures, as opposed to figures derived from the local data they collected; and (ii) did not differentiate between the levels of non-nursing care required by those residents who required nursing care and those who did not. Mr Béar submitted that (i) using local data would have led to a figure of 24.22 hours of care staff per resident per week, as opposed to the 22 hours used in the model; and (ii) it is well recognised that those residents who require nursing care also require a higher level of non-nursing care, a differential that ought to have been reflected by a higher level of non-nursing care hours being allowed in relation to residents who needed nursing care.
Mr Phillips provided a single response to both. He submitted that levels of care were not subject to significant geographical variation, and hence national benchmarks were appropriate; and, whilst accepting that those who needed nursing care also required higher levels of non-nursing care, the full non-nursing care needs of residents who required nursing care were catered for in the RSM workings by their use of the non-nursing care benchmark figure for "elderly mentally infirm" residents (or "EMI") in the Laing 2008 England model, for all residents across the board in Pembrokeshire. EMI have the highest care needs.
I accept that actual levels of care in terms of non-nursing hours cannot be determinative of the reasonable hours that an authority should pay for on a cost basis. That would only be an encouragement for providers to use staffing ratios that are higher than are necessary to give residents appropriate levels of care under section 21. I also accept that levels of care in terms of non-nursing hours for a similar profile of residents is less likely to vary geographically than, say, rates of pay. However, I do not accept that care staffing levels are completely immune from local variations.
First, the level of hours of non-nursing care may vary from place to place as a result of historical factors. Local authorities were responsible for setting such levels of care until 2002, when the regulator under the Care Standards Act 2000 (now the CSSIW) took over. As a result, there were historical geographical variations, which have not been entirely moderated. Before 2002, the Council had amongst the highest levels of staffing ratios in Wales (see, e.g., the Council's Social Service Department Policy and Procedures for the Registration of Homes for Elderly People 1993, especially at chapter 4), which have since been maintained. The current staffing ratios used by the claimants are those that were applied by the Council pre-2002 (Michael Davies 29 November 2010 statement, paragraph 4).
Second, the evidence before me was that, after 2002, the CSSIW have been reluctant to sanction any reductions in staff resident ratio. Mr Davies said:
"My experience… is that… neither CSSIW nor the [Council] (nor the local health board in relation to nursing care) will contemplate any decrease in staffing levels, unless the resident numbers drop very low."
That evidence was not contested. As I have indicated, the CSSIW can enforce what they consider to be appropriate staff levels in a number of ways, including by taking criminal proceedings in extreme cases, if they consider that appropriate (see paragraph 39 above).
In the Laing 2004 Wales report (at page 22), it is said that the staffing standards currently being applied by CSSIW "vary across Wales as a consequence of the decentralisation of regulation prior to April 2002 and the discretion allowed to inspectors." Mr Laing said in his 3 December 2010 report for this claim (at paragraph 2):
"… [A]cceptable levels [for staff] are in practice determined by the interplay of care home providers' views on what is safe and reasonable and the professional views of the local inspectors employed by the regulator, [the CSSIW]. They will both have regard to local practice, which may in turn be determined by historical standards established under the former regulatory scheme prior to 2002, when local and health authorities were responsible for setting standards and typically did so in a more prescriptive way, stating for example a number of staff of various types who should be on duty during the day and night in a given home. It is for this reason that fair price calculation should consider local data on staffing levels and other significant determinants of costs."
The importance of taking local factors into account when considering appropriate staffing levels is also recognised in paragraphs 1 and 7 of that report.
There was no compelling evidence to the contrary before me, Mr Hine relying upon other passages from Mr Laing's works which set out the reasons for the general practice of using benchmarks for staffing levels. I do not find those passages inconsistent with the evidence I have quoted, which I accept.
Third, the importance of taking account of local staffing levels is recognised elsewhere by Mr Hine himself, who used figures for domestic staff derived from the data collected from Pembrokeshire, rather than the Laing 2008 England benchmark, which would have been higher (Mr Laing 3 December 2010 report, paragraph 22).
Therefore, whilst national benchmark staffing levels may be an appropriate starting point, an authority must at least consider whether any local factors militate against the use of a particular benchmark in particular circumstances. In this case, the Council had evidence that they may. In any event, the Council had evidence (collected by RSM) that the actual levels of care were higher than those for which the Council proposed to include in the costs assessment model, and a reduction in staffing levels could have an adverse impact on residents. The Council was therefore bound to take into account the potential adverse consequences for residents before setting a rate on that basis. There is no evidence that it did.
It is no answer to that complaint (as suggested in Mr Hine's 15 December 2010 report, at paragraph 4.18) that the benchmark used for all residents was the EMI benchmark in Laing 2008 England model, which was of course higher than the benchmarks in that model for either ordinary residents or those with lesser nursing needs. That simply makes it more likely that the benchmark used by RSM was reasonable – but does not overcome the failure of the Council to take into account local factors of which it was or ought to have been aware.
I conclude that the methodology relied upon by the Council failed properly to deal with staffing costs. In failing to consider local factors, the Council erred in law.
(4) The Smaller Homes Issue
It is uncontroversial that a significant proportion of the care homes in Pembrokeshire are relatively small (under 20 registered places); and that smaller residential care homes, even if run competently, are inherently more likely to cost more per resident per week to run, because they lack the economies of scale. In that sense, they are economically "inefficient". Mr Laing accepts that, as a matter of principle, it is wrong to reward such inefficiency, and therefore it is in principle open to an authority to restrict its selection of relevant data to larger homes (the Laing 2004 Wales report, paragraph 3.4; and his 3 December 2010 report for this claim, paragraph 9). RSM restricted collection of data to those homes with 20 or more registered beds. Mr Laing accepts that such homes would benefit from economies of scale and that a home with at least 20 registered places is an acceptable definition of an economically efficient care home (3 February 2010 report, paragraph 2).
However, Mr Laing again indicates that local circumstances may override this principle or benchmark. In the Laing 2004 Wales report (at page 10), he accepted that higher prices for small scale homes may be justified by an overriding factor "such as preservation of otherwise uneconomic smaller homes in isolated rural communities". In his 3 December 2010 report for this claim (at paragraph 6), he confirms that:
"In exceptional circumstances the [Laing model] also recognises that there may be overriding public policy reasons for councils to subsidise inefficient [i.e. economically inefficient, namely smaller] care homes, for example in order to sustain small scale care homes in sparsely populated areas. [Laing] recommends that in the interests of transparency, any such subsidies should be the subject of a separate item in the toolkit spreadsheet and provided on a case by case basis."
Where, as in Pembrokeshire, a significant proportion of residential homes are small and population is sparse, setting a fee rate on the basis of homes that may benefit from economies of scale, may have the effect of putting smaller homes out of commercial business, which may result in residents being moved. That move may be to a less convenient home in the area (e.g. less local for the resident), or even, where places in homes in the area are generally occupied, movement out of the area altogether.
In the case of Pembrokeshire, the Council was aware that a significant proportion of homes are small, the occupancy level is very high and providers have been expressing concerns about the fee rates in the context of their business. In the circumstances, the Council, if determined to set one rate for all homes large and small (as it was: see Mark Lewis 4 November 2010 statement, paragraph 6) ought to have taken into consideration the local circumstances, and the possible consequences to providers and residents of setting a fee rate based upon only those homes which benefited from the economies of scale. There is no evidence that it did so.
In the circumstances, I consider that, in this respect too the Council's methodology was unlawful (although whether the claimants, who only own and run larger homes, would have been entitled to relief on this sub-ground alone, might be a matter for debate).
(5) The Inflation etc Issue
The decision that the 2010-11 fee rate should be £390 was of course based upon the RSM working of the Laing 2004 model, which was itself based upon data collected from care homes in Pembrokeshire in February 2009. Mr Béar submitted that the Council erred in failing to take into account inflation, or the recent changes in the Working Time Regulations which increased the minimum holiday entitlement from 24 to 28 days and which is effective from April 2010. Mr Hine accepts that these two matters should be taken into account when calculating future year fees (15 December 2010 report, paragraph 6.8).
In my judgment, the same failure in approach by the Council as I have identified with other sub-grounds has occurred in relation to this. Subject to the manner in which it took into account its own finances, with which I shall deal shortly, it would, in my judgment, have been open to the Council to have taken the view that no increase in rate ought to be made, although the effects of inflation and any change in the Working Hours Regulations would have meant that this was, in real terms, a cut in the fee rate. However, such a decision could only be made on the basis of proper consideration of its effects on the provider and/or residents. Before making such a decision, the Council should have considered possibly adverse consequences for both. Would inflation, in whole or in part, have been borne by the provider out of its profits? If so, given that the Council worked on a profit margin of 5%, then inflation over a year of over 2% would clearly be significant. On the other hand, if the real cut would have been reflected in a loss of service to the residents, were those consequences acceptable in terms of proportionality? Those are just two of the potential consequences the Council ought to have had in mind.
On the evidence, it had no such consequences in mind at all. There is no evidence that it had any consideration of any potential consequences for residents. The evidence that it had providers in mind is restricted to the sentence in paragraph 28 of Mr Skone's statement of 4 November 2010, which I have already quoted (paragraph 68 above):
"I told Mr Davies that I did not consider it practical or sustainable to reflect the decrease in the Council's own care homes and as a result the fee level remained at £390 per week."
However, that appears to have been in relation to the extent that the decrease in money terms would have made the claimants' commercial business unsustainable: it does not appear from that that Mr Skone had in mind the potential consequences for providers and residents of inflation and the change in the Working Hours Regulations which represented a cut in fee in real, although not money, terms. There is no evidence that the Council considered at all the effect of the cut in real terms that it was imposing.
Given that the RSM calculation calculated the appropriate costs of care that ought to be reimbursed, before making the important and difficult decision as to the 2010-11 rate, the Council was bound to consider the potential adverse effects for providers and residents of setting fees below that "fair and appropriate" rate in real terms. There is no evidence that it did so. Again, that failure was an error of law.
(6) The Issue of the Council's Own Resources
I can deal with this ground shortly.
Mr Béar submitted that, in fixing the fee rate, the Council could not lawfully take into account at all its own resources, and in particular the financial constraints under which it was working; and that it erred in doing so. For the reasons I have already given (paragraph 46 above), I cannot accept that submission in its extreme form. As well as in the decision as to which the persons it should extend section 21(a), the Council is entitled to take into account its own financial position when exercising its discretion as to the manner in which and the standard to which such assistance is given, provided that the minimum requirements of section 21 are met. That is clear as a matter of principle. It is that to which Stanley Burnton J referred in the Birmingham Care Consortium case (cited in paragraph 46 above), when he said (at paragraph 31):
"… [A]ffordability is in general a highly relevant consideration to be taken into account by any local authority in making its decisions on rates to be offered to service providers, subject to the local authority being able to meet its duties at the rates it offers."
With that, I respectfully agree.
However, when exercising its discretion in a manner which is adverse to an interested party – e.g. in this context, a provider or resident – the Council's own financial position is of course not necessarily determinative. It is bound to take into account and balance all relevant factors; and in particular it is bound to balance such matters as the quality of the service it provides and the need to maintain stability in the care services sector on the one hand, against the resources with which it has to provide that service on the other. The interests and rights of residents are of particular weight in that balance. The 2003 and now 2010 guidance makes them so, as does Article 8.
In my judgment, the Council was fully entitled to take into account its own financial position when determining the level of accommodation and care services upon the minimum required by section 21, and in setting the fee rate for those who provide those services. However, it erred in law in failing properly to take into account other factors which I have identified in this judgment, such as the potential adverse consequences of the decision for providers and residents, which it was required to balance against the constraints on its own resources. The manner in which the Council dealt with capital costs for the purposes of setting the rate was simply methodologically wrong; but the other sub-grounds succeed, because the Council failed to take into account matters other than its own financial resources in a proper and lawful way.
The Second Ground: Conclusion
For all of those reasons, as well as for the reasons as conceded by the Council to which I have referred, this second ground of challenge succeeds.
The Third Ground
I therefore come to the third and final ground of challenge.
I have already recited the relevant facts (see paragraphs 70 and following above). Briefly, at 25 August 2010 meeting, Mr Davies told Ms Watwood that he proposed to set a fee of £480 per resident per week, and he proposed to write to third parties (mainly next of kin of residents) seeking a top up of the fee being paid by the Council to that level. He produced proposed drafts of letters, in the terms I have quoted (in paragraph 71 above). He wrote to the Council confirming this proposed course. The Council responded saying it considered such a letter "could constitute a breach of contract", and by sending its own letters to the next of kind and others responsible for residents asking them to contact the Council if such a request was made. Mr Béar submitted that the Council acted unlawfully, as a matter of public law, in taking those steps, designed to frustrate the claimants' wish to obtain fees from third parties over and above the fees set by the Council itself.
The ground is based on the premise that:
"Where fees have not been agreed between the local authority and the provider, as is the case here, there is no breach of contract committed by seeking co-funding. Further, where a provider is in genuine difficulties and the local authority making placement does not dispute those difficulties, the provider is not acting unreasonably in seeking co-funding." (Amended Statement of Grounds, paragraph 10).
I do not consider that that premise, or the ground, has been made good.
Leaving aside the issue of whether there is here any decision of the Council amenable to judicial review as a matter of public law – which I consider to be a real issue in this context – the premise fails to take into account the true contractual position between the parties, with which I have already dealt at some length. Briefly, the relevant points are as follows.
(1) The contract provides that the fee rate is set out in schedule 2, as reviewed from time to time by the Council. It is not a matter for agreement. Further, the rate that is current applies until another rate is set by the Council.
(2) The contract does allow for third party funding, where the services are more expensive than those which the Council would normally purchase. However, paragraph 3(c) and (d) of schedule 2 to the contract require (i) the resident to exercise choice and wishes to make use of the particular service; and, more importantly to this claim, (ii) the Council's agreement to any such funding arrangement. As a matter of contract between the Council and the claimant, it was not open to the claimants to seek third party contribution to funding without the resident exercising that choice, and the Council giving that agreement: the reference to the Council's agreement is prefaced by an emphasised "and" in the text of the contract (see paragraph 24 above). The agreement of the Council is vital because, by virtue of the relevant section 7 guidance to which I refer above (paragraph 25), namely "Guidance on the National Assistance Act 1948 (Choice of Accommodation) Directions 1993", under any third party contribution arrangement, the Council becomes liable for the entire fee (including that contribution), and must therefore be assured that the contribution will be forthcoming from the third party before agreeing to it. Further, in this case, it is open to question as to whether the services for which the claimant sought third party contribution were over and above those which the Council would normally purchase. The Council suggested in correspondence that the claimants were simply seeking more money for the very services they had contracted to provide for the contractual fee in their contract with the Council, and Mr Davies' proposed letter to third parties appears consistent with that.
(3) The note attached to placement letters (quoted in paragraph 75 above) does not assist the claimants. In those letters, the claimants expressly agreed to provide services on the basis of the Council's terms and conditions, including those of the service contract. By indicating that payments were being accepted "on account only" because of the dispute over fees with the Council, that could not and did not override the service contract provisions for the setting of fees. Those were that fees were not to be agreed between the parties, but were to be set by the Council after appropriate consultation.
(4) Nor are these provisions a possible breach of Article 8, as Mr Béar submitted. There is no blanket prohibition of co-funding here. The contractual provisions, supported by the guidance, do provide a mechanism – a contractual mechanism – for contributions from third parties. It was a mechanism that the claimants failed to follow.
As a contractual matter, the claimants would have breached their contracts with the Council had they obtained any third party contributions as a result of the letters they proposed to send to next of kin and others responsible for residents. The terms of that letter were certainly misleading in respect of the powers the claimants indicated they had in relation to seeking contributions. They were not entitled to any contribution from any third party unless they had obtained the Council's agreement, which they do not suggest they sought or intended to seek. The claimants appeared intent on breaching their contracts with the Council by soliciting contributions from third parties without the Council's consent. In the circumstances, the Council were entitled to prevent such a breach of contract in the manner of the modest steps that they took.
I refuse the application on this third ground.
Conclusion
However, for the reasons I have given, I grant the application for judicial review on the second ground, namely that the decision of the Council to set a rate at £390 was unlawful. I shall set aside that decision, and direct that Council shall remake the decision lawfully by 31 January 2011, a time by when it agrees it can reconsider the rate in the light of this judgment and make a fresh decision. | 2 |
Conclusions
OPINION OF ADVOCATE GENERAL
GEELHOED
delivered on 19 September 2002 (1)
Case C-121/01 P
Eoghan O'Hannrachain
v
European Parliament
((Appeal against the judgment the Court of First Instance (Fifth Chamber) of 16 January 2001 (T-97/99 and T-99/99 O'Hannrachain and Chamier v Parliament) dismissing an application for annulment of the decision appointing Mr Lopez Veiga to the post of Director-General of the Directorate-General for Finance and Financial Control and for compensation for the damage allegedly arising from the decision not to appoint the appellant to the post in question))
I ─ Introduction
1. In this appeal Mr O'Hannrachain seeks annulment of the judgment delivered on 16 January 2001 by the Court of First Instance in Joined Cases T-97/99 and T-99/99 Chamier and O'Hannrachain v Parliament [2001] ECR-SC I-A-1 and II-1 (the judgment appealed against). The judgment appealed against dismissed, inter alia, the claim for annulment of the decision of the appointing authority to appoint Mr Lopez Veiga as Director General of the Directorate General for Finance and Financial Control.
II ─ Facts and procedure
2. For a more detailed account of the facts and procedure before the Court of First Instance I refer to the judgment appealed against.
3. In summary, following an internal reorganisation in which the Directorate General for Personnel, the Budget and Finance was split in order to create a Directorate General for Finance and Financial Control and a Directorate General for Personnel a vacancy arose for a Director General for Finance and Financial Control. Initially, it was decided to invite applications under Article 29(1)(a) of the Staff Regulations. The vacancy notice required candidates to demonstrate inter alia specific expertise in financial matters. Both Mr O'Hannrachain and Mr Lopez Veiga, as well as four other candidates, applied for this post. Together with one other candidate Mr Lopez Veiga, who was at that time a Commission official seconded to the Parliament as the President's chef de cabinet, did not come within the category of persons eligible under Article 29(1)(a) of the Staff Regulations to be considered for appointment to the above post. None the less, he did apply in view of the possibility that the appointing authority might decide to extend the recruitment procedure under Article 29(2) of the Staff Regulations. It was in fact so decided. Shortly thereafter Mr Lopez Veiga was appointed to that post. Mr O'Hannrachain lodged a complaint against that appointment decision which was unsuccessful, and, subsequently, brought an action.
4. On 19 March 2001 Mr O'Hannrachain lodged an appeal in which he is seeking the setting aside of the judgment appealed against, the upholding of his pleas at first instance and finally an order that the defendant should pay the costs.
III ─ Appeal
5. Mr O'Hannrachain raises six pleas on appeal. The first concerns infringement of Article 29 of the Staff Regulations of Officials. Secondly, the Court of First Instance disregarded the principle of legality, the duty to provide a statement of reasons and the audi alteram partem rule. Thirdly, it disregarded the effects attaching to a vacancy notice. Fourthly, there was a misinterpretation of the concept of the misuse of powers. Fifthly, there was a failure to have regard to Articles 7 and 27 of the Staff Regulations and to the principle of non-discrimination. Finally, there was a failure to have regard to the principle of sound management and proper administration, and breach of the obligation to provide a statement of reasons.
A ─ First plea: infringement of Article 29 of the Staff Regulations
6. The first plea is directed against the view formed by the Court in paragraphs 33 to 37 and paragraphs 39 and 40 of the judgment appealed against.
7. Mr O'Hannrachain submits that the Court of First Instance misconstrued Article 29 of the Staff Regulations by taking the view that the appointing authority may have recourse to the procedure referred to in Article 29(2) of the Staff Regulations after initiating a recruitment procedure under Article 29(1) of the Staff Regulations without first carrying out an examination of the comparative merits of the eligible candidates under Article 29(1) with a view to verifying whether they meet the requirements of the vacancy notice. By acting in that way, the appointing authority failed to examine whether, in the present case and in accordance with Article 29 of the Staff Regulations, the promotion/transfer procedure was likely to result in the appointment of a person possessing the highest levels of ability, efficiency and integrity.
8. Furthermore, at paragraph 37 of its judgment the Court of First Instance recognized that the candidatures were of a priori significance without providing further reasoning or justification in support. According to Mr O'Hannrachain that amounts to an acknowledgement that there was a deliberate and predetermined intention on the part of the Parliament to appoint Mr Lopez Veiga in breach of the procedures existing for that purpose.
9. Mr O'Hannrachain submits that the shortness of the period within which Mr Lopez Veiga was appointed is in fact open to question as far as the circumstances in which the appointment was made are concerned. In that connection he points to the fact that Mr Lopez Veiga was allowed to take part in the recruitment procedure as a result of improper recourse being had to the procedure under Article 29(2) of the Staff Regulations; to the failure to conduct a comparative examination of the merits of candidates whose applications were admissible under Article 29(1) of the Staff Regulations; to the precipitate decision by the Bureau on a barely reasoned proposal from the Secretary General; to the absence of discussion of the candidatures finally accepted and of reasoning enabling appraisal of the reasons why preference was given to Mr Lopez Veiga.
10. The Parliament contends that the first plea is inadmissible since it concerns a factual assessment and that the plea is in any event unfounded since the Court of First Instance in forming its view based itself on settled case-law concerning the procedure under Article 29(2) of the Staff Regulations. Moreover, the appellant misinterpreted the term a priori in paragraph 37 of the judgment appealed against.
Appraisal of the first plea
11. I share the Parliament's view that the Court of First Instance does not appear to have misdirected itself in law by concluding that it was permissible to extend the recruitment procedure under Article 29(2) of the Staff Regulations whilst a recruitment procedure under Article 29(1) thereof was pending even where four possibly eligible candidates had manifested themselves. In so doing the Court of First Instance was able to base itself on settled case-law. For it has been held that use of the term whether in Article 29 of the Staff Regulations demonstrates that the appointing authority is not bound absolutely to adopt those measures, but merely to consider in each case whether they are capable of resulting in the appointment of an official of the highest standard of ability, efficiency and integrity.
(2) The Court of First Instance was entitled to infer therefrom that the appointing authority is not bound to follow, in the order indicated, the various stages of procedure set out in Article 29(1) of the Staff Regulations.
(3) Under that decision it is also the case that the appointing authority is not obliged to carry through a recruitment procedure once it has been initiated
(4) but possesses discretionary power to extend its field of choice
(5) in the interests of the service and thus to avail itself of its power under Article 29(2) of the Staff Regulations. It is also settled case-law that a decision to make use of the possibility provided for in Article 29(2) of the Staff Regulations does not necessarily have to be taken at the time of publication of the vacancy notice and that application of Article 29(2) of the Staff Regulations is not subject to a specific publication requirement.
(6) The only relevant factor is whether the recruitment is of Grade A1 or A2 officials or to posts for which special qualifications are required.
12. Thus, on the basis of existing case-law, to which reference was also made in the judgment appealed against, the Court of First Instance was entitled to conclude that the appointing authority had competence to decide to continue the recruitment procedure under Article 29(2) of the Staff Regulations and also, in the context of the extended field of choice in question, to include in its appraisal the two candidatures which were not able to be taken into consideration under the initial recruitment procedure under Article 29(1)(a) of the Staff Regulations.
13. As to Mr O'Hannrachain's view in relation to use of the term a priori in paragraph 37 of the judgment appealed against I would point out that the Court of First Instance plainly meant in this connection that the two candidatures submitted after initiation of the procedure under Article 29(2) of the Staff Regulations were at first sight ( a priori ) important in order to ensure that the available vacancy was correctly filled.
14. It follows from the foregoing that that plea cannot succeed.
B ─ Second plea: non-observance of the principle of legality, failure to comply with the duty to provide a statement of reasons and breach of the principle of the right to be heard by acceptance of production of documents drawn up after adoption of the contested decision
15. Mr O'Hannrachain submits that in paragraphs 58, 61 and 66 of the judgment appealed against the Court of First Instance infringed the principle of legality, the duty to provide a statement of reasons and the principle of the right to be heard by accepting production by the Parliament at first instance of documents drawn up after adoption of the decision to appoint Mr Lopez Veiga.
16. Essentially Mr O'Hannrachain considers that the legality of a decision must be appraised at the time when the decision was adopted without regard being had to information becoming available at a subsequent stage owing to the fact that such information was not known when the decision was adopted. The reasoning must therefore also be founded on verifiable grounds which must be ascertainable from the file established for the purposes of the decision-making process. Moreover, it is said to be contrary to the principle of the right to be heard to have regard, as the Court of First Instance did in the judgment appealed against, to documents drawn up after adoption of the contested decision in order to justify that decision.
17. According to the Parliament, Mr O'Hannrachin's view as to the principle of legality is based on a mistaken interpretation of the case-law. In the present case the matters referred to merely serve to confirm what was already known at the time of the decision to appoint Mr Lopez Veiga. That plea, it is contended, is therefore unsubstantiated.
Assessment of the second plea
18. It is settled case-law that in the context of an application for annulment under Article 230 EC the legality of the contested measure must be assessed on the basis of the elements of fact and of law existing at the time when the measure was adopted.
(7) That is, however, not material in the present context.
19. For there is a difference between, on the one hand, documents which form the basis of a decision and, on the other, documents produced in exercise of the rights of the defence which serve to support justification of the decision adopted.
20. In that connection it should be noted that at paragraphs 56 and 57 of the judgment appealed against the Court of First Instance recalls that, in accordance with settled case-law, the exercise of the discretion which the appointing authority enjoys in the matter of appointments presupposes a meticulous examination of the application files and a careful regard for the requirements set out in the vacancy notice, so that the appointing authority is required to reject any candidate who does not meet those requirements. The vacancy notice constitutes a legal framework which the appointing authority imposes on itself and which it must meticulously respect. The Court of First Instance goes on to recall that, for the purpose of verifying whether the appointing authority has not acted outside the bounds of that legal framework and has acted in the interest of the service, the Court of First Instance must first establish what were the requisite conditions in order subsequently to verify whether the chosen candidate satisfies those conditions. Finally, the Court of First Instance notes that such a review does not, however, mean that the Court of First Instance can substitute its own assessment of the candidates' merits for that of the appointing authority.
21. The Court of First Instance subsequently inquired as to whether Mr Lopez Veiga satisfied the requirements laid down in the vacancy notice. Since the applicants at first instance stated that Mr Lopez Veiga did not hold a university degree in economics or finance and did not have equivalent professional experience and was also said to have no detailed knowledge of the specific rules, in particular the financial regulations applicable to the Community institutions, the Court of First Instance went into these aspects particularly extensively. In that connection the Court of First Instance took Mr Lopez Veiga's curriculum vitae as the point of departure. After requesting the Parliament for an official copy of the relevant degree and a list of the courses followed in that connection, the Court of First Instance subsequently concluded that Mr Lopez Veiga possessed a degree qualification in economics. It further found that on the basis of the curriculum vitae and the documents annexed by the Parliament to its defence that Mr Lopez Veiga also possessed the requisite knowledge concerning the rules and regulations applicable to the institutions.
22. These documents produced by the Parliament are challenged by Mr O'Hannrachain. In his view the Court of First Instance should not have admitted them in evidence. It should be noted that in this case they constitute further substantiation of the information given in the curriculum vitae of Mr Lopez Veiga and that those documents were produced in the context of the defence to the action at first instance. The Court of First Instance held that, although those documents were submitted after the candidacy of Mr Lopez Veiga and were intended to demonstrate the correctness and completeness of the information before the appointing authority at the time when the decision was made, that could not be equated with events occurring after the date when the decision was made. Viewed in that light there was no evidence to suggest that the Court had formed an incorrect legal view. Accordingly that plea is of no avail.
C ─ The other pleas
23. The third, fourth, fifth and sixth pleas have to a large extent in common that they essentially concern the unsuitability of the appointed person for the post of Director General of Finance and Financial Control and irregularities in the appointment procedure. I shall set out below first the views of the parties before giving my assessment of those other pleas.
1. Third plea: non-observance of the duty to provide a statement of reasons and disregard of the effects attaching to a vacancy notice
24. This plea is directed against paragraphs 62 to 66 of the judgment appealed against. In that part of the judgment appealed against the Court of First Instance forms the view that the appointing authority did not manifestly err in its assessment that Mr Lopez Veiga possesses the knowledge and experience required by the vacancy notice. In Mr O'Hannrachain's view, the Court of First Instance, in making that assessment, formed an incorrect view of the matter and thus disregarded the effects of a vacancy notice.
25. Mr O'Hannrachain points to the context in which the vacancy arose. In particular he dwells on the fact that the reason why the previous directorate general was split into two new directorates general has to do with the increasingly complex financial and budgetary regulatory framework applicable to the Community institutions, which is reflected in the specific expertise and broad experience required of the occupant of the post in question. It is submitted that the Court of First Instance should also have had regard to that aspect in determining whether the appointing authority could properly have adopted the contested decision. Mr Lopez Veiga is said not to satisfy two conditions in the vacancy notice, namely possession of a university degree in economics or finance or equivalent experience and a thorough knowledge of the regulations applicable to the Community institutions, particularly in the financial sector.
26. Nor, it is submitted, does the decision appointing Mr Lopez Veiga to the post of director general contain any reasoning from which it might be inferred that he satisfies the requirements laid down. In that regard the Court of First Instance is said to have been satisfied by statements by the Parliament. Moreover, the Court is said to have taken over a task of the appointing authority by itself making a selection of the qualifications required and stressing that Mr Lopez Veiga satisfies those and disregarding the others which could not be determined with certainty.
27. The Parliament considers this plea to be inadmissible and in any event unfounded. First, the Court of First Instance is said to have satisfactorily indicated why the appointing authority was entitled to form the view that Mr Lopez Veiga satisfied the functional requirements laid down. The Parliament further points out that Mr O'Hannrachain persists in his view that the contested appointment decision itself contains insufficient reasoning concerning the requirements laid down in the vacancy notice. The Court of First Instance would thus have had to inquire not only as to whether the appointing authority could have reached the present decision but also into whether the appointment decision was itself based on an adequate statement of reasons. However, at first instance Mr O'Hannrachain never raised such a plea. Moreover, the Parliament points out that the appointing authority in that respect is not bound to give reasons for its decisions. As regards the alleged disregard of the effects of a vacancy notice the Parliament states that it is not for the Court ─ at the appellate stage ─ to re-evaluate the facts as submitted to the Court.
2. Fourth plea: infringement of the concept of misuse of powers
28. This plea is directed against the view formed by the Court of First Instance at paragraphs 109, 111, 112 and paragraphs 116 to 120 of the judgment appealed against. The Court is therein said to have misconstrued the concept of misuse of powers by not regarding the numerous objective, material and concordant matters raised by Mr O'Hannrachain as indicative of a misuse of powers. Moreover, the Court is said to have examined each of the various matters individually and neglected to make a general assessment of the total picture emerging.
29. As examples of this he mentions the declarations by the Vice President, a quaestor of the Parliament and political parties respectively, the fact that a number of candidates withdrew, the fact that Mr Lopez Veiga applied in view of the possibility that the appointing authority might decide to have recourse to Article 29(2) of the Staff Regulations and also the fact that Mr Lopez Veiga did not satisfy certain essential requirements of the post in question. In Mr O'Hannrachain's view, the finding by the Court of First Instance that the President of the Parliament made a statement of his intention to appoint Mr Lopez Veiga to a high-ranking post as well as its finding that Mr Lopez Veiga was involved in the preparation of the recruitment procedure, as stated in paragraph 120 of the judgment appealed against, were in themselves sufficient to support the assumption of a misuse of powers. In any event, it is said, that assumption may be inferred from the totality of those matters.
30. Finally, the Court of First Instance is said to have dismissed a number of those matters as immaterial without examination or adequate examination.
31. The Parliament asserts that the Court of First Instance concluded on proper grounds that there was no misuse of powers, and that this plea must therefore also be rejected.
3. Fifth plea: infringement of Articles 7 and 27 of the Staff Regulations and the principle of non-discrimination
32. In paragraphs 84 to 88 of the judgment appealed against the Court of First Instance disregarded Articles 7 and 27 of the Staff regulations and the principle of non-discrimination by not calling in question the appointment of a candidate not satisfying all the requirements of the vacancy notice whereas Mr O'Hannrachain satisfies them in all respects.
33. Mr O'Hannrachain asserts that, even though the appointing authority has a wide margin of discretion, the present case concerns a non-qualified candidate with the result that that candidate cannot therefore be compared with the other candidates and should not even have been considered.
34. By adjudging that the appointing authority did not manifestly err in regard to the suitability of the candidacy of Mr Lopez Veiga who, according to the appellant, does not satisfy the qualifications in particular because he does not possess the requisite knowledge in the budgetary and financial fields, the Court of First Instance erred in its assessment in paragraphs 84 to 86 of the judgment appealed against.
35. At paragraph 87 of the judgment appealed against the Court of First Instance is said to have misconstrued the term in the interest of the service because responsibilities of a general and political nature cannot replace the specific expertise required for the function in question.
36. In the Parliament's view that plea must be dismissed. The Court of First Instance remained entirely within the limits drawn by the case-law in holding that the Bureau had not manifestly erred in its assessment. Moreover, the Parliament points to the wide margin of appreciation conferred on the appointing authority in regard to A1 posts. Nor in regard to the term in the interest of the service was there any error of assessment on the part of the Court of First Instance.
4. Sixth plea: breach of the principle of sound management and good administration and non-observance of the duty to provide a statement of reasons
37. This plea is directed against paragraphs 128 and 129 of the judgment appealed against. According to Mr O'Hannrachain this was essentially a case of a political appointment concerning a person not satisfying the special qualifications required in an irregular procedure which was abridged for that purpose. Thus the Court of First Instance erred in regard both to the facts and the law.
38. The Parliament states that Mr O'Hannrachain merely recalls the context in which Mr Lopez Veiga was appointed and his dissatisfaction with the interpretation of the facts by the Court of First Instance. Such a criticism is not a plea which is admissible on appeal. Accordingly, the plea concerning the alleged breach of the principle of sound management and non-compliance with the duty to provide a statement of reasons must be dismissed.
5. Appraisal of the other pleas
39. The third, fourth, fifth and sixth pleas have in common that the factual context in which that appointment procedure took place is contested in closer detail.
40. As was indicated in the case of the first plea the Court of First Instance was entitled to hold, on the basis of existing case-law, that in the present case it was permissible to extend the recruitment procedure under Article 29(2) of the Staff Regulations.
41. It may be inferred from the treatment of the second plea that it was possible to establish on the basis of the curriculum vitae of Mr Lopez Veiga that he satisfies the requirements as laid down in the vacancy notice. That was reaffirmed by the documents drawn up pursuant to the rights of the defence.
42. Also in the context of the inquiry into whether the appointing authority did not exceed the limits of its discretionary power and observed the requirements laid down in the vacancy notice, the Court of First Instance established on review that Mr Lopez Veiga satisfied all the requirements of the vacancy notice and concluded that the appointing authority could properly come to the decision which it adopted.
43. The third plea is directed to the statement of reasons and disregard of the effects of the vacancy notice. In so far as the plea is also directed against the reasoning of the appointment decision itself it is inadmissible. In that respect it should also be noted that an appointment decision which states that the candidate satisfies the requirements of the vacancy notice and possesses relevant personal qualities and experience contains an adequate statement of reasons. The task of the Court of First Instance is to review whether the appointing authority has adhered to the requirements stated in the vacancy notice and whether the candidate appointed actually satisfies them. I already stated in the preceding paragraph that the Court of First Instance inquired whether the relevant candidate satisfied all the requirements connected with the post. In regard to financial expertise and relevant work experience an adequate statement of reasons was provided by the Court of First Instance in paragraphs 62 to 66 of the judgment appealed against. Accordingly, that plea must fail since it is unsubstantiated.
44. In regard to the argument that the Court of First Instance ought to have taken account of the context in which the vacancy arose (the background of a new directorate general and the specific expertise and experience to head it), I would additionally point out that it may be assumed that in the determination of the requirements of the post account was taken of those matters. Accordingly, a review of whether those requirements of the post were satisfied is sufficient.
45. In regard to the fourth plea I would point out that the alleged misuse of powers is elucidated on appeal by reference to the factual circumstances in which the appointment was made. These circumstances were inquired into by the Court of First Instance at paragraphs 109, 111 and 116 to 120. On the basis of that inquiry the Court of First Instance was entitled to conclude that there was no question of a misuse of powers in the present case. For the sake of completeness I would point out that the arguments deployed by Mr O'Hannrachain in order to substantiate his view are of a factual nature and on that basis are manifestly inadmissible. The Parliament rightly refers to the judgment in Hilti .
(8) It is stated therein that the appraisal by the Court of First Instance of the evidence put before it does not constitute (save where the clear sense of that evidence has been distorted) a point of law which is subject, as such, to review by the Court of Justice. The Parliament is likewise correct when it notes that a plea challenging a finding of fact in the contested judgment, according to which no misuse of power was established, must be rejected as inadmissible.
(9)
46. The fifth plea is essentially based on the view that the appointing authority was obliged to compare the respective merits of Mr Lopez Veiga (or precisely did not need to compare them) and ought to have concluded that the applicant was more suitable than the candidate appointed. In this connection the appellant is repeating his view of the facts that Mr Lopez Veiga did not satisfy the requirements in the vacancy notice. That prompts me to conclude that this is an argument which I already noted was unsubstantiated in connection with the first, second and third pleas. In appraising the first plea I already established that it is permissible to extend a pending recruitment procedure. That means that it was legitimate also to take into consideration the candidacy of Mr Lopez Veiga. It follows from the appraisal of the second and third pleas that the Court of First Instance was entitled to consider that the appointing authority could legitimately form the view on the basis of the facts available to it that Mr Lopez Veiga satisfied the requirements of the post laid down.
47. Nor therefore can the sixth plea based on the factual view that Mr Lopez Veiga does not satisfy the requirements laid down, which was dismissed as unfounded by the Court of First Instance, be upheld since it is manifestly inadmissible.
D ─ Compensation
48. Since it follows from the foregoing that none of the pleas can succeed, it is not necessary to deal with the claim for payment of compensation.
IV ─ Conclusion
49. In light of the foregoing I suggest that the Court of Justice:
(1) dismiss the appeal; and
(2) order Mr O'Hannrachain to pay the costs.
1 –
Original language: Dutch.
2 –
Joined Cases 12/64 and 29/64 Ley v Commission [1965] ECR 107.
3 –
See, for example, reference by the Court of First Instance to its earlier case-law in Case T-586/93 Kotzonis v ESC [1995] ECR II-665 and Case T-118/95 Anacoreta Correira v Commission [1995] ECR-SC I-A-283 and II-835.
4 –
See, for example, Cases 26/68 Fux v Commission [1969] ECR 145, Joined Cases 316/82 and 40/83 Kohler v Court of Auditors [1984] ECR 641 and Case 135/87 Vlacho v Court of Auditors [1988] ECR 2901.
5 –
See, for example, Case T-38/89 Hochbaum v Commission [1990] ECR II-43 and Kotzonis v ESC (cited above at footnote 3).
6 –
Joined Cases 81/74 to 88/74 Marenco v Commission [1975] ECR 1247.
7 –
Joined Cases 15/76 and 16/76 France v Commission [1979] ECR 321.
8 –
Case C-53/92 P Hilti v Commission [1994] ECR I-667.
9 –
Case C-18/91 P V v Parliament [1992] ECR I-3997; and more recently, Case C-340/00 P Commission v Cwik [2001] ECR I-10269. | 6 |
CIVIL APPELLATE JURISDICTION Civil Appeal No. 94-of 1972. Appeal by Special leave from the Judgment and order dated the 23rd July, 1971 of the Punjab and Haryana High Court in Execution Second Appeal No. 1941 of 1969. Uma Datta and Krishna Datta for the Appellant. K. Mehta, P.N. Puri and M.R. Dua for the Respondent. The Judgment of the Court was delivered by BAHARUL ISLAM, J. In this appeal by special leave under Article 136 of the Constitution, the appellant is the victim of Courts craze for technicalities of law at the companyt of justice. This Court exercises its discretionary power under Article 136 of the Constitution to meet the ends of justice or to remove miscarriage of justice perpetrated in a case. This appeal arises out of an execution proceeding. The facts material for the purpose of disposal of this appeal may be stated thus. The appellant was the plaintiff in a pre-emption suit and Bot a decree. Respondent No. I was the vendee and respondent No. 2, who was the real brother of the plaintiff-appellant, was the vendor. The suit was for pre-emption and possession in respect of some agricultural land. The trial companyrt decreed the suit, on payment of Rs. 15,500 as the price of the land and Rs. 100 as the charges on account of registration and other charges of the deed. The appellant deposited the amount as directed by the Court. 3 Respondent No. I filed an appeal and the Additional District Judge who heard and disposed of the appeal dismissed the appeal with the modification directing the appellant to deposit a sum of Rs. 1836.25 more in the trial companyrt for payment to the vendee, within 15.4.1967 in case of failure the suit was directed to be dismissed. On 14.4.1967, the appellant deposited Rs. 1836.00 instead of Rs. 1836.25. He, however, made good the short deposit of 25 paise on 28. 10.1968 with the permission of the Court on the allegation that the omission to deposit 25 paise was due to bona fide mistake. Respondent No. 1 filed a regular second appeal before the High Court of Punjab and Haryana. The High Court affirmed the decree of the first appellate Court but ordered the appellant to deposit a further sum of Rs. 500.00 for the improvements made to the land. The appellant was given three months time to make the payment of the said sum of Rs. 500.00, failing which, it was directed, the suit would stand dismissed. The appellant deposited this sum to within the time limit. The appellant on 28.10.1968 filed an execution case before the executing companyrt to get possession of the suit land. The executing companyrt issued numberice to the judgmentdebtor respondent No. 1 herein . The judgment-debtor filed an application under order XX, rule 14 1 b of the Code of Civil Procedure on the ground, inter alia that the appellant was directed to make the payment of the sum of Rs. 1836.25 within April 15, 1967, but the appellant had deposited only a sum of Rs. 1836.00 within the due date and the amount fell short of 25 paise, and as such the execution proceedings should be struck off. The appellant filed a rejoinder to the objection petition of the judgment-debtor. His plea was that the short deposit of 25 paise was due to a bona fide mistake on his part, but that the shortage was made good on October 28, 1968 after obtaining necessary permission from the trial Court. The executing Court, by its order dated February 1, 1969, held that the short deposit of 25 paise was due to a bona fide mistake on the part of the degree holder and overruled the objection of the judgment-debtor, taking the view that in the interest of justice the default on the part of the decree-holder should be companydoned. The Judgment-debtor preferred an appeal in the Court of the IInd Additional District Judge, who, by his order dated October 24, 1969 set aside the order of the executing companyrt. He held that the provisions of order 20, rule 14 1 b of the Code of Civil Procedure were mandatory, and as such the suit should be deemed to have stood dismissed. He also held that the short deposit of 25 paise was number on account of mistake and the default companyld number be companydoned. The appellant preferred a second execution appeal, being Execution Second Appeal No. 1941 of 1969 in the High Court. The appeal was however presented without a certified companyy of the order of the executing Court. The appellant, however, made an application for dispensing with the filing of the certified companyy. The High Court while admitting the appeal passed the following order E Admitted. Certified companyy to be filed as soon as it is available Sd - R.S. Narula 25.11.69. The appellant obtained the certified companyy on June 3, 1970 and filed it in the High Court on June 10, 1970. The appellant filed an application on July 17, 1970 under section S of the Limitation Act for the companydonation of the delay. The second appeal came up for hearing on March 25, 1971 before a single Judge. Respondent No. I raised the preliminary objection that the appeal was barred by limitation. The objection was upheld by the learned single Judge asa result he dismissed the execution second appeal filed by the appellant herein. The appellant prayed for leave to appeal under Letters Patent. The prayer was also rejected. H Hence this appeal by special leave. Shri S.K. Mehta, learned companynsel appearing for Respondent No. I submitted that the execution appeal filed by the appellant in - the High Court was incompetent as the certified companyy of the impugned order of the lower appellate Court was number filed alongwith the memorandum of appeal. We do number find any substance in the submission for the reason, as we have already stated above, that the appellant was granted time by the High Court at the time of the admission and was allowed to file the certified companyy as soon as it is available. It is number the companytention of the respondent that the companyy was number filed at all, number it is his submission that the Court had numberpower to grant time to file the companyy of the impugned order. As stated above, the companyy was obtained on 3.6.1970 and filed in companyrt on 10.6.1970- seven days after the companyy was obtained. So he filed the petition under Section 5 of the Limitation Act. There was numberreason as to why the delay companyld number be companydoned. That apart, under Section 148 of the Code of Civil Procedure, the Court has enough power to enlarge time from time to time. Section 148 provides Where any period is fixed or granted by the Court for the doing of any act prescribed or allowed by this Code, the Court, may, in its discretion, from time to time, enlarge such period, even though the period originally fixed or granted may have expired. The power given to the Court under Section 148 is discretionary and is given for the purpose of securing the ends of justice in case of necessity. In our opinion, the High Court companymitted an error in number adverting to, and number exercising its powers under Section 148 C.P.C. and in dismissing the appeal without going to the merit of the matter. Mr. Mehta drew our attention to the second proviso to subrule of Order 41, rule 1 C.P.C. as amended by Punjab, Haryana and Chandigarh. The amendment is in the following words Provided further that the Court may permit the appeal to be filed with true companyies duly authenticated by an advocate as companyrect. This provision hardly helps him. It is number understandable, how the companynsel for the appellant companyld file true companyies, when his client had number obtained the certificate companyy of the order tn question. The next question for decision is whether the first execution A appellate Court was justified in holding that the amount directed to be deposited was number deposited as it fell short by 25 paise. Order 20, rule 14 CPC provides Decree in pre-emption suits Where the Court decrees a claim to pre-emption in respect of a particular scale of property and the purchase money has number been paid into Court, the decree shall- a specify a day on or before which the purchase money shall be so paid, and c direct that on payment into Court of such purchase money, together with the companyts if any decreed against the plaintiff, on or before the day referred to in clause a , the defendant shall deliver possession of the property to the plaintiff, whose title thereto shall be deemed to have accrued from the date of such payment, but that, if the purchase money and the companyts if any are number so paid, the suit shall be dismissed with companyts. 2 Under order 20, rule 14 CPC, the plaintiff decreeholder, in order to get delivery of possession of the land, has to fulfil two companyditions, i he has to deposit in Court the purchase money together with the companyt, if any, decreed against him and ii the deposit must be made on or before the date fixed by the Court. F Here the admitted position is that the appellant deposited the entire amount of purchase money together with the companyts decreed against him, less 25 paise within the time fixed by the Court and 25 paise too was deposited, but beyond time. The executing Court held that the short deposit was . due to a bona fide mistake, while the executing appellate Court held that it was number due to any bona fide mistake, but it was a default and thereby the executing appellate Court deprived the decree-holder of the legitimate fruits of the decree he obtained in all the Courts. The finding of the first executing appellate Court that the numberdeposit companyld number be due to any bona fide mistake, is absolutely untenable for the reason that while the appellant has deposited in total Rs. 17,936.00 from time to time as directed by the Courts, there was absolutely numberreason as to why he would number have deposited 25 paise, unless it was due to a mistake. This was pre-eminently a case in which the first execution appellate Court ought to have exercised its discretionary powers under section 148 CPC and accepted the delayed deposit of 25 paise, 85 was done by the original executing Court. | 1 |
Civil Appeal No. 7456 of 2004 Heard learned companynsel for the parties. Delay companydoned. Leave granted. The following question raised at the instance of the revenue in an appeal before the Bombay High Court was answered in favour of the assessee The following question raised at the instance of the revenue in an appeal before the Bombay High Court was answered in favour of the assessee Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the assessee is entitled to deduction of investment allowance under section 32A of the Income Tax Act, 1961, in respect of machinery used in mining activity ignoring the fact that the assessee is engaged in extraction and processing of iron ore, number amounting to manufacture or production of any article or thing ? The High Court, while dismissing the appeal preferred by the revenue, held that extraction and processing of iron ore did number amount to manufacture. However, it came to the companyclusion that extraction of iron ore and the various processes would involve production within the meaning of section 32A 2 b iii of the Income Tax Act, 1961 hereinafter referred to as, the Act , entitling the assessee to investment allowance under the said provision. The High Court, while dismissing the appeal preferred by the revenue, held that extraction and processing of iron ore did number amount to manufacture. However, it came to the companyclusion that extraction of iron ore and the various processes would involve production within the meaning of section 32A 2 b iii of the Income Tax Act, 1961 hereinafter referred to as, the Act , entitling the assessee to investment allowance under the said provision. According to the revenue, which is in appeal before us, the High Court erred in its companyclusion as it failed to companysider that extraction and processing of iron ore did number produce any new product. The definition of the word ore in Strouds Judicial Dictionary, Volume 3, Fifth edition, has been relied upon in this companytext. Reliance has also been placed upon the decision of this companyrt in Minerals and Metals Trading Corporation of India Ltd. v. Union of India 1973 1 SCR 997 AIR 1972 SC 2551 and on Chapter Note II of Chapter 26 of the Central Excise Tariff Act, 1985. According to the revenue, which is in appeal before us, the High Court erred in its companyclusion as it failed to companysider that extraction and processing of iron ore did number produce any new product. The definition of the word ore in Strouds Judicial Dictionary, Volume 3, Fifth edition, has been relied upon in this companytext. Reliance has also been placed upon the decision of this companyrt in Minerals and Metals Trading Corporation of India Ltd. v. Union of India 1973 1 SCR 997 AIR 1972 SC 2551 and on Chapter Note II of Chapter 26 of the Central Excise Tariff Act, 1985. Learned companynsel for the assessee, on the other hand, has companytended that the High Court had companyrectly relied upon earlier decisions of this companyrt in arriving at the companyclusion it did. We have also been referred to the other provisions of the Act, which are substantially phrased in the same manner as section 32A 2 b iii of the Act, wherefrorn, according to the assessee, it will be abundantly clear that Parliament had intended to include the mining of ores within the meaning of the word production. Learned companynsel for the assessee, on the other hand, has companytended that the High Court had companyrectly relied upon earlier decisions of this companyrt in arriving at the companyclusion it did. We have also been referred to the other provisions of the Act, which are substantially phrased in the same manner as section 32A 2 b iii of the Act, wherefrorn, according to the assessee, it will be abundantly clear that Parliament had intended to include the mining of ores within the meaning of the word production. At the outset, it may be numbered that section 32A 2 b iii makes it clear that investment allowance is deductible in respect of, inter alia, a plant owned by the assessee which is wholly used for the purposes of the assessees business under section 32A 1 if the plant is installed after 31-3-1976, in an industrial undertaking for the purposes of the business of companystruction or manufacture or production of any article or thing, except those articles or things mentioned in the Eleventh Schedule to the Act. There is numberdispute that the plant in respect of which the assessee claimed deduction was owned by it and was installed after 31-3-1976, in the assessees industrial undertaking for excavating, mining and processing mineral ore. Mineral ore is number excluded by the Eleventh Schedule. The only question is whether such business is one of manufacture or production of ore. The issue had arisen before different High Courts over a period of time. The High Courts have held that the activity amounted to production and answered the issue in question in favour of the assessee. The High Court of Andhra Pradesh did so in CIT v. Singareni Collieries Co. Ltd. 1996 221 ITR 48 AP , the Calcutta High Court in Khalsa Brothers v. CIT 1996 217 ITR 185 Cal and CIT v. Mercantile Construction Co. 1994 74 Taxman 41 Cal and the Delhi High Court in CIT v. Univmine P Ltd. 1993 202 ITR 825 Del . The revenue has number questioned any of these decisions, at least number successfully, and the position of law, therefore, was taken as settled. At the outset, it may be numbered that section 32A 2 b iii makes it clear that investment allowance is deductible in respect of, inter alia, a plant owned by the assessee which is wholly used for the purposes of the assessees business under section 32A 1 if the plant is installed after 31-3-1976, in an industrial undertaking for the purposes of the business of companystruction or manufacture or production of any article or thing, except those articles or things mentioned in the Eleventh Schedule to the Act. There is numberdispute that the plant in respect of which the assessee claimed deduction was owned by it and was installed after 31-3-1976, in the assessees industrial undertaking for excavating, mining and processing mineral ore. Mineral ore is number excluded by the Eleventh Schedule. The only question is whether such business is one of manufacture or production of ore. The issue had arisen before different High Courts over a period of time. The High Courts have held that the activity amounted to production and answered the issue in question in favour of the assessee. The High Court of Andhra Pradesh did so in CIT v. Singareni Collieries Co. Ltd. 1996 221 ITR 48 AP , the Calcutta High Court in Khalsa Brothers v. CIT 1996 217 ITR 185 Cal and CIT v. Mercantile Construction Co. 1994 74 Taxman 41 Cal and the Delhi High Court in CIT v. Univmine P Ltd. 1993 202 ITR 825 Del . The revenue has number questioned any of these decisions, at least number successfully, and the position of law, therefore, was taken as settled. The reasoning given by the High Court, in the decisions numbered by us earlier, is, in our opinion, unimpeachable. This companyrt had, as early as in 1961, in Chrestian Mica Industries Ltd. v. State of Bihar 1961 12 STC 150, defined the word production, albeit, in companynection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word in the Oxford English Dictionary as meaning amongst other things that which is produced a thing that results from any action, process or effort, a product a product of human activity or effort. From the wide definition of the word production, it has to follow that mining activity for the purpose of production of mineral ores would companye within the arnbit of the word production since ore is a thing, which is the result of human activity or effort. It has also been held by this companyrt in CIT v. N. C. Budharaja and Co. 1993 204 ITR 412 SC that the word ,production is much wider than the word manufacture. It was said page 423 The reasoning given by the High Court, in the decisions numbered by us earlier, is, in our opinion, unimpeachable. This companyrt had, as early as in 1961, in Chrestian Mica Industries Ltd. v. State of Bihar 1961 12 STC 150, defined the word production, albeit, in companynection with the Bihar Sales Tax Act, 1947. The definition was adopted from the meaning ascribed to the word in the Oxford English Dictionary as meaning amongst other things that which is produced a thing that results from any action, process or effort, a product a product of human activity or effort. From the wide definition of the word production, it has to follow that mining activity for the purpose of production of mineral ores would companye within the arnbit of the word production since ore is a thing, which is the result of human activity or effort. It has also been held by this companyrt in CIT v. N. C. Budharaja and Co. 1993 204 ITR 412 SC that the word ,production is much wider than the word manufacture. It was said page 423 The word production has a wider companynotation than the word manufacture. While every manufacture can be charaterised as production, every production need number amount to manufacture The word production or produce when used in juxtaposition with the word manufacture takes in bringing into existence new goods by a process which may or may number amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the companyrse of manufacture of goods. It is, therefore, number necessary, as has been sought to be companytended by learned companynsel for the revenue, that the mined ore must be a companymercially new product. The decisions and other authorities on the definition of the word ore, as cited by the appellant, are irrelevant. Learned companynsel appearing on behalf of the assessee, companyrectly submitted that the other provisions of the Act, particularly section 33 1 b B read with Item No. 3 of the Fifth Schedule to the Act, would show that mining of ore is treated as production. Section 35E also speaks of production in the companytext of mining activity. The language of these sections is similar to the language of section 32A 2 . There is numberreason for us to assume that the word production was used in a different sense in section 32A. Learned companynsel appearing on behalf of the assessee, companyrectly submitted that the other provisions of the Act, particularly section 33 1 b B read with Item No. 3 of the Fifth Schedule to the Act, would show that mining of ore is treated as production. Section 35E also speaks of production in the companytext of mining activity. The language of these sections is similar to the language of section 32A 2 . There is numberreason for us to assume that the word production was used in a different sense in section 32A. We are, therefore, of the opinion that extraction and processing of iron ore amounts to production within the meaning of the word in section 32A 2 b iii of the Act and, companysequently, the assessee is entitled to the benefit of section 32A 1 of the Act. The question whether the High Court was companyrect in holding that the activity did number amount to manufacture is left open. We are, therefore, of the opinion that extraction and processing of iron ore amounts to production within the meaning of the word in section 32A 2 b iii of the Act and, companysequently, the assessee is entitled to the benefit of section 32A 1 of the Act. The question whether the High Court was companyrect in holding that the activity did number amount to manufacture is left open. The civil appeal is, accordingly, dismissed but without any order as to companyts. L. P. C No. 15724 of 2004, S. L. P. C No. 18232 of 2004, S. L. P. C No. 18525 of 2004, S. L. P. C No. 18537 of 2004 and S. L. P. C No. 9437 of 2004 L. P. C No. 15724 of 2004, S. L. P. C No. 18232 of 2004, S. L. P. C No. 18525 of 2004, S. L. P. C No. 18537 of 2004 and S. L. P. C No. 9437 of 2004 Following the decision given by us today in CIT v. Sesa Goa Ltd. Civil Appeal No. 7456 of 2004 , the special leave petitions are dismissed. | 4 |
FOURTH SECTION
CASE OF OSKIRKO v. LITHUANIA
(Application no. 14411/16)
JUDGMENT
STRASBOURG
25 September 2018
This judgment is final but it may be subject to editorial revision.
In the case of Oskirko v. Lithuania,
The European Court of Human Rights (Fourth Section), sitting as a Committee composed of:
Paulo Pinto de Albuquerque, President,Egidijus Kūris,Iulia Motoc, judges,and Andrea Tamietti, Deputy Section Registrar,
Having deliberated in private on 4 September 2018,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 14411/16) against the Republic of Lithuania lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a stateless person, Mr Igor Oskirko (“the applicant”), on 9 March 2016.
2. The Lithuanian Government (“the Government”) were represented by their Agent, Ms K. Bubnytė.
3. On 13 September 2017 the complaints under Article 3 of the Convention concerning the applicant’s conditions of detention and the complaints under Articles 8 and 14 of the Convention concerning his inability to receive long-term conjugal visits were communicated to the Government, and the remainder of the application was declared inadmissible pursuant to Rule 54 § 3 of the Rules of Court. On 18 April 2018 the parties were asked to submit further observations in writing (Rule 54 § 2 (c) of the Rules of Court).
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
4. The applicant was born in 1973 and is detained in Kybartai.
A. The applicant’s detention in Klaipėda police station
5. On 22 December 2011 the applicant was arrested and taken to Klaipėda police station, where he was detained for various periods until 5 March 2013, for 130 days in total. For twenty-two days the applicant had between 3.25 and 4 square metres of personal space at his disposal; for the remaining period he had more than 4 square metres of personal space, sometimes even up to 9.36 square metres.
B. The applicant’s detention in Šiauliai Remand Prison
6. On 4 January 2012 the applicant was taken to Šiauliai Remand Prison, where he was detained for various periods until 13 March 2013. No information concerning separate cells, their sizes and the number of inmates has been provided to the Court.
C. The applicant’s detention in Lukiškės Remand Prison
7. On 4 March 2013 the applicant was convicted of murder and sentenced to twelve years’ imprisonment. On 11 October 2013 the Court of Appeal rejected an appeal by the applicant and the judgment became final.
8. On 13 March 2013 the applicant was taken to Lukiškės Remand Prison to serve his sentence, and was detained there until 23 December 2015, when he was transferred to Kybartai Correctional Facility.
9. According to the documents in the Court’s possession, the conditions of the applicant’s detention were as follows. Between 13 March 2013 and 5 May 2014 the applicant was held in five different cells: nos. 88A, 93, 111, 223 and 228 and he was detained there for 419 days in total. For 316.5 days the applicant was alone in the cells, the plot of which varied between 6.83 and 7.94 square metres. For the remaining period he had between 3.82 and 3.87 square metres of personal space, except for one evening, when he had 2.48 square metres of personal space at his disposal.
10. The applicant submitted two schemes of different cells in Lukiškės Remand Prison. It is indicated in the schemes that the toilets were separated from the rest of the cells by partitions but that they were visible from the entrance of the cell. The Government have not provided any information regarding this matter.
D. Administrative proceedings regarding the applicant’s conditions of detention and family visits
11. On 3 June 2014 the applicant lodged a complaint with the Vilnius Regional Administrative Court. He asked the court to oblige Lukiškės Remand Prison to immediately terminate his inhuman and degrading treatment, transfer him to a cell where he would have no less than 4 square metres of personal space (not including space for the toilet and the furniture), and award him 86,886 euros (EUR) in compensation. He complained regarding overcrowding, low temperatures, damp, the lack of proper partitions between toilets and cells, the fact that he was held with convicted inmates who were serving sentences for grave crimes, the insufficient nutritional value of the food, the fact that he could only shower once a week for fifteen minutes, and the lack of time spent in the open air. He also complained about the lack of long-term visits in Lukiškės Remand Prison from 23 November 2011 until October 2013, and claimed that consequently he had separated from his partner.
The applicant further complained regarding his conditions of detention in Klaipėda police station between 23 December 2011 and 5 March 2013. He complained regarding overcrowding, the lack of ventilation, damp, low temperatures, the lack of proper partitions between toilets and cells, the lack of time spent in the open air, the fact that the shower had only been available once a week for fifteen minutes, the insufficient nutritional value of the food, the fact that there had been no long-term or short-term visits, and the fact that there were no separate cells for non-smokers and inmates who had tuberculosis or HIV.
He also complained regarding his conditions of detention in Šiauliai Remand Prison between 4 January 2012 and 13 March 2013. He complained regarding overcrowding, low temperatures during the winter and high temperatures during the summer, insufficient ventilation, the fact that he could only shower once a week, the lack of proper partitions between toilets and cells, and the fact that there had been no long-term visits.
12. On 26 January 2015 the Vilnius Regional Administrative Court allowed the applicant’s claim in part. The court held that he had spent 419 days in Lukiškės Remand Prison, and had had more than 3.6 square metres of personal space at his disposal for 418 days. On one evening the applicant had had 2.48 square metres of personal space at his disposal. The court further held that the partition between the toilet and the cell of 1.5 < metres in height did not constitute sufficient implementation of national hygiene norms and the standards of the European Committee for the Prevention of Torture and Inhuman or Degrading Treatment or Punishment (CPT). The other complaints by the applicant (regarding high temperatures in the summer, damp, a lack of proper ventilation, mould, a lack of cleaning materials, not having enough time to shower, the low energy value of the food, and having insufficient time outside) were dismissed as unsubstantiated. As regards long-term visits, the court held that the applicant could not receive them, as he was a remand prisoner and not a convicted inmate.
As regards Šiauliai Remand Prison, the court held that the applicant had spent 296 days there. The court further held that he had had insufficient personal space in the cells for 283 days (insufficient cell space had been unquestionably proved in respect of forty-eight days, and for the remaining 235 days the applicant had had a varying amount of personal space at his disposal) and found that the lack of proper partition walls between toilets and cells had breached both domestic requirements and the standards of the CPT. The court also found that the air temperature in cell no. 9 had been 0.19˚C lower than the standard. As regards long-term visits, the court held that the applicant had not been entitled to them, in accordance with domestic law.
With regard to Klaipėda police station, the court found that the applicant had had insufficient personal space (less than 5 square metres) for fifty‑seven days, and that the partition wall between the toilet and the cell, which was 1.2 and 1.3 metres in height in different cells, had been too low and had not satisfied the standards of the domestic law or the CPT. In relation to visits, the court held that people did not have a right to receive any visits from their relatives when they were transferred to police stations temporarily.
As a result, the court awarded the applicant compensation of EUR 1,200 from Šiauliai Remand Prison and EUR 200 from Klaipėda police station.
13. The applicant lodged an appeal against that decision, but on 10 November 2015 the Supreme Administrative Court upheld the first-instance decision. The court only noted that with regard to Klaipėda police station, the first-instance court had miscalculated the time that the applicant had spent in overcrowded cells and stated that he had had less than 5 square metres of personal space for eighty-three days. However, the higher court found that for twenty-six days he had had between 4.77 and 4.84 square metres of personal space, which was less than the domestic requirement at the time (see paragraph 18 below). However, the court held that for those twenty-six days the deviation from the domestic norms had not been significant and thus it agreed with the first-instance decision.
14. From the information available to the Court, it appears that the applicant never asked the prison administration if he could receive long‑term conjugal visits from his partner, and although short-term visits were available to him, he only used his right to receive them once, on 26 June 2013. Two other short-term visits were changed into phone calls (the visits of 12 June 2015 and 29 October 2015).
II. RELEVANT DOMESTIC LAW AND INTERNATIONAL MATERIAL
A. On conditions of detention
15. For the relevant domestic law and practice and international material on conditions of detention, see Mironovas and Others v. Lithuania (nos. 40828/12 and 6 others, §§ 50-69, 8 December 2015).
16. During its latest visit to Lithuania from 5 to 15 September 2016, the CPT again visited Lukiškės Remand Prison. In its report, published on 1 February 2018, the CPT noted:
“As regards regimes, the Committee once again calls upon the Lithuanian authorities to take decisive steps to develop programmes of activities for both sentenced and remand prisoners. The current situation where more than half of sentenced prisoners have no meaningful activities certainly does not contribute to their social rehabilitation ...
...
Turning to the regime in remand prisons, it remained impoverished even though remand prisoners were now allowed to attend secondary education. This notwithstanding, remand prisoners continued to be locked up in their cells for up to 22-23 hours per day.
50. At Lukiškės Prison, the delegation noted that material conditions were in general better than during the 2012 visit due to continuous efforts of the management to renovate parts of the prison. However, a number of unrenovated cells were still dilapidated, humid and lacking adequate ventilation; proper access to daylight was problematic throughout the prison due to small windows. Despite the decrease of population, some cells were overcrowded and did not provide 4 m2 of living space per inmate.
58. The Committee wishes to reiterate that ensuring that sentenced prisoners are engaged in purposeful activities of a varied nature (work, preferably with vocational value; education; sport; recreation/association) is not only an essential part of rehabilitation and re-socialisation, but it also contributes to the establishment of a more secure environment within prisons. Moreover, remand prisoners should also, as far as possible, be offered work and other structured activities.
The CPT once again calls upon the Lithuanian authorities to take decisive steps to develop programmes of activities for both sentenced and remand prisoners. The aim should be to ensure that prisoners are able to spend a reasonable part of the day (8 hours or more) outside their cells, engaged in purposeful activities of a varied nature (work, education, sport, etc.) tailored to the needs of each category of prisoner (adult remand or sentenced prisoners, inmates serving life sentences, female prisoners, etc.).
59. At Lukiškės Prison, the delegation was informed of plans to adapt parts of the adjoining premises of the former Prison Hospital for organised activities such as work, schooling and sports. The Committee would like to be informed whether these plans have now been implemented and if so, how many remand prisoners participate in the aforementioned activities.”
17. Rules on equipment and maintenance of correctional facilities (Dėl pataisos įstaigų įrengimo ir eksploatavimo taisyklių patvirtinimo), approved by the order No. V-82 of 3 March 2011 of the Director of the Prison Department, provided that if it was not possible to equip a cell with a separate sanitary unit, the existing unit had to be separated from the rest of the cell by a partition of at least 1.5 metres in height and it had to be covered with surface that was easily cleaned and protected against humidity and disinfection products (Point 16.5).
18. Rules on activities of territorial police stations (Teritorinių policijos įstaigų areštinių veiklos taisyklės), approved by the order No. 5-V-356 of 29 May 2007 of the Police Commissioner General, provided that a person held in a cell of a police station had to have no less than 5 square metres of personal space.
B. On visits
19. For the relevant domestic law and practice as regards visits, see Varnas v. Lithuania (no. 42615/06, §§ 58-61, 9 July 2013) and Čiapas v. Lithuania, ((dec.), no. 62564/13, §§ 10-14, 4 July 2017).
20. In a case unrelated to that of the applicant, the Supreme Administrative Court relied on the Court’s interpretation in the case of Varnas (cited above) and awarded the relevant applicant compensation of EUR 2,000 for both his conditions of detention and the lack of long-term conjugal visits (decision of 19 April 2016, no. A-618-552/2016).
21. In another case unrelated to that of the applicant, the Supreme Administrative Court also relied on the Court’s interpretation in the case of Varnas (cited above) and held that public administrative authorities should rely on Article 8 of the Convention. The Supreme Administrative Court acknowledged that the refusal on the basis of domestic law to grant conjugal visits to pre-trial detainees was not justified by objective and reasonable grounds to treat pre-trial detainees and convicted inmates differently. As a result, the Supreme Administrative Court awarded the applicant in that case compensation of EUR 1,000 (decision of 8 September 2016, no. A‑850‑662/2016).
THE LAW
I. ALLEGED VIOLATION OF ARTICLE 3 OF THE CONVENTION
22. The applicant complained regarding the conditions of his detention. He relied on Article 3 of the Convention, which reads as follows:
Article 3
“No one shall be subjected to torture or to inhuman or degrading treatment or punishment.”
A. Admissibility
1. The parties’ submissions
23. The Government argued that the applicant could no longer be considered a “victim” of a violation of Article 3 of the Convention. His case had been reviewed by the administrative courts and decisions in his favour had been issued. The applicant had received adequate and sufficient compensation and, as regards Šiauliai Remand Prison, the number of inmates there had constantly changed over the course of 235 days, and thus that had positively affected the applicant’s personal space. The compensation for this period could thus be reduced. The Government also stated that, as regards Klaipėda police station, the applicant had received adequate compensation, and it had to be taken into account that at all times he had had more than 4 square metres of personal space there. Finally, the Government argued that although in Lukiškės Remand Prison the applicant had not had enough personal space for one evening and the partition between the sanitary facilities and the rest of the cells had not been sufficient, the acknowledgement of the violation of the applicant’s rights had been sufficient.
24. The applicant argued that the amounts awarded to him had been inadequate.
2. The Court’s assessment
25. The principles governing the assessment of an applicant’s victim status have been summarised in paragraphs 178-192 of the Court’s judgment in the case of Scordino v. Italy (no. 1) ([GC], no. 36813/97, ECHR 2006‑V). In that connection, the Court notes that a decision or measure favourable to the applicant is not, in principle, sufficient to deprive him or her of his or her status as a “victim” for the purposes of Article 34 of the Convention unless the national authorities have acknowledged, either expressly or in substance, and then afforded redress for the breach of the Convention. One of the characteristics of sufficient redress which may remove a litigant’s victim status relates to the amount awarded as a result of using the domestic remedy. The Court indicates that an applicant’s victim status may depend on the level of compensation awarded at domestic level on the basis of the facts about which he or she complains before the Court (ibid., §§ 180 and 202).
26. The Court also refers to the general principles concerning the assessment of an applicant’s victim status in cases of conditions of detention, stemming from its case‑law and to its earlier findings (see Mironovas and Others v. Lithuania, nos. 40828/12 and 6 others, §§ 84-85 and 93-94, 8 December 2015) and the specific aspects of the victim status in Lithuanian conditions of detention cases (ibid., §§ 86-88).
(a) Šiauliai and Lukiškės Remand Prisons
27. In the applicant’s case the Lithuanian courts admitted a violation of domestic legal norms setting out specific aspects pertinent to the conditions of detention in both Šiauliai and Lukiškės Remand Prisons (see paragraphs 12 and 13 above). However, the Court considers that even though the applicant was awarded EUR 1,200 for the time spent in Šiauliai Remand Prison, this amount, whilst apparently consistent with Lithuanian case-law at that time, is significantly lower than the amounts that the Court awards in similar cases (see Mironovas and Others, cited above, §§ 99 and 156). As for Lukiškės Remand Prison, the applicant did not receive any award at all. The Court thus considers that the applicant retains his victim status under Article 34 of the Convention for his complaint in respect of Šiauliai and Lukiškės Remand Prisons and dismisses the Government’s preliminary objection of loss of victim status.
28. The Court furthermore notes that the applicant’s complaint about his conditions of detention in Šiauliai and Lukiškės Remand Prisons is not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention. It furthermore notes that it is not inadmissible on any other grounds. It must therefore be declared admissible.
(b) Klaipėda police station
29. The Court considers that in Klaipėda police station the applicant had no less than 3 square metres of personal space during the entire period of his detention (see paragraph 5 above). He had up to 4 square metres of personal space for twenty-two days in total. For the remaining periods, he had no less than 4.3 square metres of personal space, and sometimes even up to 9.36 square metres of personal space. In the Court’s view, the personal space at his disposal during the applicant’s entire stay in Klaipėda police station did not in itself raise an issue under Article 3 of the Convention; however, the Court has to assess the other aspects of the physical conditions of the applicant’s detention (see Muršić v. Croatia [GC], no. 7334/13, §§ 139-140, ECHR 2016).
30. The Court notes that in previous cases before it concerning the issue of proper partition between sanitary facilities from the cells, it found violations of Article 3 only when other aggravating factors were present and their cumulative effect made the conditions of detention incompatible with that provision (see, mutatis mutandis, Szafrański v. Poland, no. 17249/12, § 27, 15 December 2015 and the references therein).
31. In contrast, the Court observes that in the present case the domestic courts acknowledged that the partition between the sanitary facilities and the rest of the cell was not sufficient (see paragraph 12 above) but no other aggravating factors were found, thus it was the only hardship that the applicant had to bear. Moreover, the applicant was awarded compensation of EUR 200. Having examined the documents submitted to it by the parties, the Court sees no grounds to depart from the assessment of the domestic courts.
32. Taking into consideration the foregoing, the Court considers that the overall circumstances of the applicant’s detention in Klaipėda police station cannot be found to have caused distress and hardship which went beyond the threshold of severity under Article 3 of the Convention. This part of the applicant’s complaint is therefore manifestly ill-founded and must be declared inadmissible in accordance with Article 35 §§ 3 (a) and 4 of the Convention.
B. Merits
1. The parties’ submissions
(a) The applicant
33. The applicant submitted that during his detention in Lukiškės and Šiauliai Remand Prisons he had had insufficient personal space and the toilets had not been properly separated from the cells.
(b) The Government
34. The Government submitted that the applicant had spent 283 days in total in Šiauliai Remand Prison: for forty-eight consecutive days the domestic standard in respect of personal space had not been met, and for the remaining 235 days the number of inmates in the prison had constantly changed. Since the prison administration had not submitted information about the number of inmates detained on those days, the courts had accepted that the applicant had not had sufficient personal space throughout this period, although in reality he might have had. The Government further submitted that the therapy and fitness rooms in the prison had been newly equipped and that the inmates had been offered various out-of-cell activities.
35. The Government also submitted that the domestic courts had established that legal norms regarding the proper separation of toilets from cells had been violated, and the applicant had received compensation for this violation in Šiauliai Remand Prison.
36. The Government stated that monetary compensation was not the only possible satisfaction for violation of certain rights. They also stated that it had to be taken into account that out of 419 days the applicant had spent in Lukiškės Remand Prison, he was the only inmate in the cell for 316 days, which was a decisive factor in assessing the separation between sanitary facilities and the cells. Moreover, other material conditions of the applicant’s detention regarding temperature, ventilation and humidity had been met. The applicant could have one or one hour and a half of outdoor daily exercise, he could also visit the chapel, the library with internet access, go to the gym and take part in cultural and sports events organised by the prison administration.
37. The Government also claimed that in accordance with domestic rules in force at the material time, it was necessary to separate the sanitary unit from the rest of the cell with a partition of at least 1.5 metres high (see paragraph 17 above), and in the applicant’s case the sanitary facilities had been separated from the rest of the cell by a brick partition. The Government thus were of the view that the applicant’s conditions of detention in Lukiškės Remand Prison had not reached the threshold of severity required by Article 3 of the Convention.
2. The Court’s assessment
(a) General principles
38. The Court refers to the principles summarised in its case-law regarding conditions of detention (see, for instance, Kudła v. Poland [GC], no. 30210/96, §§ 90-94, ECHR 2000-XI; Ananyev and Others v. Russia, nos. 42525/07 and 60800/08, §§ 139-159, 10 January 2012; Varga and Others v. Hungary, nos. 14097/12 and 5 others, §§ 69-78, 10 March 2015; Mironovas and Others, cited above, §§ 115-123; and Muršić, cited above, §§ 96-141).
(b) Application of the general principles to the present case
(i) Šiauliai Remand Prison
39. The Court considers it established that for 283 days out of the 296 days the applicant spent in Šiauliai Remand Prison he did not have enough personal space at his disposal. In the absence of evidence showing otherwise, the Court considers that the applicant had less than 3 square metres of personal space in Šiauliai Remand Prison for those 283 days.
40. The Court finds that it is not necessary to assess whether any of the periods during which the applicant had less than 3 square metres of personal space were short, occasional and minor, because in any event they were not compensated for by other factors (see Muršić, cited above, §§ 137-38). It firstly notes that the domestic courts established that the temperature in one of the cells was lower than the standard and that the toilets and the cells had not been properly separated, which was contrary to both domestic hygiene norms and the standards of the CPT (see paragraph 12 above). The Court further observes that the CPT, in its reports concerning Lithuania, repeatedly stated that the vast majority of remand prisoners in Šiauliai Remand Prison were locked up in their cells for twenty-three hours per day, the only regular daily out-of-cell activity being one hour of outdoor exercise (see Mironovas and Others, cited above, § 149). In such circumstances, the Court finds those facts sufficient to create a strong presumption of a violation of Article 3 in relation to the period of 283 days when it can be assumed that the applicant did not have enough personal space at his disposal. The Court is unable to find that the lack of personal space was compensated for by appropriate material conditions of detention, sufficient freedom of movement outside the cell and adequate out-of-cell activities. It follows that the applicant’s conditions of detention in Šiauliai Remand Prison subjected him to hardship going beyond the unavoidable level of suffering inherent in detention and thus amounted to degrading treatment prohibited by Article 3 of the Convention.
41. There has accordingly been a violation of this provision.
(ii) Lukiškės Remand Prison
42. The Court notes that during the period from 13 March 2013 to 23 December 2015 (see paragraph 8 above) was detained in Lukiškės Remand Prison. The Court has information concerning his conditions of detention only as far as 418.5 days (between 13 March 2013 and 5 May 2014) are concerned. During that period, there was one evening when he did not have enough personal space at his disposal. The Court considers it as a short, occasional and minor reduction in his required personal space. Moreover, for 316.5 out of those 418.5 days the applicant was alone in his cells (see paragraph 9 above). For 102 days, the applicant had between 3 and 4 square metres of personal space at his disposal. It cannot be said that the dimensions of his cells were so small as to restrict the applicant’s freedom of movement below the threshold tolerated by Article 3. However, even in cases where a prison cell – measuring in range of 3 to 4 square metres of personal space per inmate – is at issue the space factor remains a weighty factor in the Court’s assessment of the adequacy of the conditions of detention. In such instances a violation of Article 3 will be found if the space factor is coupled with other aspects of inappropriate physical conditions of detention related to, in particular, access to outdoor exercise, natural light or air, availability of ventilation, adequacy of room temperature, the possibility of using the toilet in private, and compliance with basic sanitary and hygienic requirements (see Muršić, cited above, § 139). In cases where a detainee disposed of more than 4 square metres of personal space in multi-occupancy accommodation in prison and where therefore no issue with regard to the questions of personal space arises, other aspects of physical conditions of detention remain relevant for the Court’s assessment of adequacy of an applicant’s conditions of detention under Article 3 of the Convention (ibid., § 140).
43. The Court has already noted the inappropriateness of conditions of detention which did not allow the possibility of using the toilet in private (see Muršić, cited above, § 106; Neshkov and Others v. Bulgaria, nos. 36925/10 and 5 others, § 241, 27 January 2015; Shkarupa v. Russia, no. 36461/05, §§ 55-56, 15 January 2015; Ananyev and Others, cited above, §§ 149 and 157, 10 January 2012; and Mandić and Jović v. Slovenia, nos. 5774/10 and 5985/10, § 76, 20 October 2011). In the present case, the height of the partitions installed to separate the lavatory from the living area in cells where the applicant was kept, was not able to ensure his privacy when he had to use the toilet. The Court notes that in the absence of any information provided by the Government, even though explicitly requested by the Court, about the partition between the sanitary facilities and the cell in Lukiškės Remand Prison concerning the applicant, it will take into account the schemes the applicant has provided together with the courts’ decisions (see paragraphs 10, 12 and 13 above). For several months of his detention, the applicant could be seen by his cellmates, and possibly by guards, while carrying out such intimate procedures. Even during the time he spent alone in the cells, he could be possibly seen by guards, as the lavatories had no doors and, as it appears, they had not been separated from the entrance by any partition.
44. The lack of sufficient partition between sanitary facilities and the rest of the cells was not the only hardship that the applicant had to bear, as he had almost no access to various activities outside the cells. In this context, the Court observes that the CPT, after visiting Lukiškės Remand Prison in 2008 and 2012, found that nearly all detainees were locked up in their cells for twenty-three hours a day, with no out-of-cell activities other than outdoor exercise of one hour in small and dilapidated yards; its findings following a visit in 2016 were similar (see Mironovas and Others, cited above, §§ 65 and 67, as well as paragraph 16 above). The applicant was not able to freely move around the prison during the day and remained confined to his cell most of the time (compare and contrast Mironovas and Others, cited above, §§ 134 and 139, and Muršić, cited above, §§ 155‑63).
45. Having regard to the cumulative effect of the aforementioned factors (see Canali v. France, no. 40119/09, §§ 52-53, 25 April 2013), the Court finds that the fact that the applicant, being afforded no privacy and experiencing a lack of out-of-cell activities, was obliged to live, sleep and use the toilet in the cells for 419 days, must have caused him distress or hardship of an intensity exceeding the unavoidable level of suffering inherent in detention, and to arouse in him feelings of fear, anguish and inferiority capable of humiliating and debasing him.
46. There has therefore been a violation of Article 3 of the Convention on account of the conditions of the applicant’s detention in Lukiškės Remand Prison.
II. ALLEGED VIOLATION OF ARTICLE 8 OF THE CONVENTION TAKEN ALONE AND IN CONJUNCTION WITH ARTICLE 14
47. The applicant complained under Article 8 that not being allowed conjugal visits from his partner and visits from his family during his pre‑trial detention had caused him intolerable mental and physical suffering, and that eventually his partner had decided to separate from him. He also complained under Article 8 taken in conjunction with Article 14 that his entitlement in that respect had been restricted more than that of a convicted person serving a prison sentence. The relevant parts of Article 8 and Article 14 provide as follows:
Article 8
“1. Everyone has the right to respect for his private and family life ...
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.”
Article 14
“The enjoyment of the rights and freedoms set forth in [the] Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status.”
A. The parties’ submissions
48. The applicant stated that he had not had long-term visits in Klaipėda police station, Šiauliai Remand Prison or Lukiškės Remand Prison.
49. The Government stated that the applicant had been detained on remand from 22 December 2011 onwards and had been convicted on 4 March 2013. The judgment convicting him had become final on 11 October 2013 (see paragraph 7 above). During that period, the applicant had not addressed the prison administration with a request for a long-term visit. The Government noted that the exercise of a person’s right to a long-term visit depended on his or her will. In the absence of such will, the prison administration could not be obliged to organise a long-term visit.
50. The Government maintained that the applicant had been able to rely on Varnas v. Lithuania (no. 42615/06, 9 July 2013) and the provisions of the Convention before the domestic courts, because by the time his administrative case had been examined in the domestic courts, the judgment in Varnas v. Lithuania had already become final. The Government also argued that the domestic courts had established an effective domestic compensatory remedy: the Supreme Administrative Court had taken account of the difference in treatment between remand detainees and convicted people as regards long-term visits, had found violations and had awarded compensation (see paragraphs 20 and 21 above). However, the applicant had failed to use that remedy.
B. The Court’s assessment
51. The Court finds that it is not necessary to address all the issues raised by the parties, because the complaints are in any event inadmissible for the following reasons.
52. The Court reiterates that in order to rely on Article 34 of the Convention an applicant must meet two conditions: he or she must fall into one of the categories of applicants mentioned in Article 34 and must be able to make out a case that he or she is the victim of a violation of the Convention. According to the Court’s established case-law, the concept of “victim” must be interpreted autonomously and irrespective of domestic concepts such as those concerning an interest or capacity to act (see Gorraiz Lizarraga and Others v. Spain, no. 62543/00, § 35, ECHR 2004-III, and Čiapas v. Lithuania (dec.), no. 62564/13, § 27, 4 July 2017). The word “victim”, in the context of Article 34 of the Convention, denotes the person or persons directly or indirectly affected by the alleged violation (see Vallianatos and Others v. Greece [GC], nos. 29381/09 and 32684/09, § 47, ECHR 2013 (extracts)).
53. In the present case, the Court notes that the applicant never explicitly requested any long-term conjugal visits from his partner (see paragraph 14 above) and never complained about the lack of long-term conjugal visits before the national authorities, save for his hypothetical statement before the domestic courts that no long-term visits had been allowed (see paragraph 11 above). The applicant had a short-term visit on 26 June 2013, and two other short-term visits were changed into phone calls (see paragraph 14 above). It appears that the applicant never asked for more short-term visits or argued that he had been refused them.
54. The applicant therefore cannot be said to have suffered from the lack of long-term conjugal visits. It follows that he cannot claim to be a victim of a violation of Article 8 of the Convention in relation to his complaint regarding the lack of conjugal visits from his partner (see Burden v. the United Kingdom [GC], no. 13378/05, § 33, ECHR 2008).
55. Having regard to the above, the Court finds that this part of the application is incompatible ratione personae with the provisions of the Convention within the meaning of Article 35 § 3 (a) of the Convention. It must therefore be rejected pursuant to Article 35 § 4.
56. The Court lastly notes that the applicant’s complaint of discrimination is closely linked to his complaint under Article 8 which was examined above. Consequently, taking into account its above findings, the Court considers that the applicant cannot claim to be a victim, within the meaning of the Convention, of a violation of his rights guaranteed by Article 14. Therefore, this part of the application is likewise incompatible ratione personae with the provisions of the Convention and must be dismissed pursuant to Article 35 § 4.
III. APPLICATION OF ARTICLE 41 OF THE CONVENTION
57. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
A. Damage
58. The applicant claimed 85,486 euros (EUR) in respect of non‑pecuniary damage.
59. The Government submitted that the amount requested by the applicant in respect of non-pecuniary damage was excessive, unjustified and unsubstantiated.
60. Regard being had to the documents in its possession and to its case‑law, the Court considers it reasonable to award the applicant EUR 8,900 in respect of non-pecuniary damage.
B. Costs and expenses
61. The applicant did not submit any claim in respect of costs and expenses. The Court therefore makes no award under this head.
C. Default interest
62. The Court considers it appropriate that the default interest rate should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT, UNANIMOUSLY,
1. Declares the complaints under Article 3 of the Convention concerning the applicant’s conditions of detention in Lukiškės and Šiauliai Remand Prisons admissible, and the remainder of the application inadmissible;
2. Holds that there has been a violation of Article 3 of the Convention in respect of the applicant’s conditions of detention in Šiauliai and Lukiškės Remand Prisons;
3. Holds
(a) that the respondent State is to pay the applicant, within three months, EUR 8,900 (eight thousand nine hundred euros), plus any tax that may be chargeable, in respect of non-pecuniary damage;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amount at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;
4. Dismisses the remainder of the applicant’s claim for just satisfaction.
Done in English, and notified in writing on 25 September 2018, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Andrea TamiettiPaulo Pinto de AlbuquerqueDeputy RegistrarPresident
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Abhay Manohar Sapre, J. This appeal is filed by the State of Kerala against the final judgment dated 23.03.2006 passed by the High Court of Kerala at Ernakulam in C.R.P. No. 1924 of 2003 wherein the High Court allowed the revision petition filed by the respondent herein and quashed the companyfiscation order. The companytroversy involved in the appeal is short. However, few facts need mention to appreciate the Signature Not Verified Digitally signed by ANITA MALHOTRA Date 2017.09.09 133144 IST issue involved. Reason The appellant is State of Kerala. On 29.11.1998, the police sleuths seized 3 bags of sandalwood weighing 20 Kg. from one Jeep bearing Registration No. KA-12-2932. Basheer-the driver of the Jeep was arrested and handed over to the custody of Assistant Wild Life Warden, Tholpetty. The Jeep was also handed over to the said authority for further action in the case. On investigation, it was revealed that the respondent is the owner of the Jeep. His statement was accordingly recorded. | 0 |
Case No: B2/1999/1113/CCRTF
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION DIVISION)
ON APPEAL FROM BRADFORD COUNTY COURT
(HHJ ALTMAN)
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 20th October 2000
B e f o r e :
LORD JUSTICE PETER GIBSON
LORD JUSTICE MUMMERY
and
LORD JUSTICE LATHAM
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GREENBANK
Respondent
-
and -
PICKLES
Appellant
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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2HD
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
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Mr Martin Rodger (instructed by Messrs Oglethorpe Sturton &
Gillibrand of Lancaster for the Respondent)
Mr Anthony De Freitas (instructed by Messrs Walker Foster of Skipton
for the Appellant)
Judgment
As Approved by the Court
Crown Coyright
LORD JUSTICE LATHAM:
1. This appeal is the culmination of protracted litigation between the
appellant, who was the defendant in the action, and the respondent, who claimed
that he and the appellant had entered into a partnership agreement to farm land
in Yorkshire of which he, the respondent was the freehold owner. The appellant
denied that there was any true partnership; he asserted that the arrangement
entered into between the two of them was to enable him the appellant, to farm
the land for his own benefit as an agricultural tenant. The action was
commenced as long ago as October 1990. The matter came before HHJ Altman, who
heard evidence from the parties and their witnesses, and concluded that there
was a partnership. The parties then came to terms which resulted in a Consent
Order dated the 28th July 1993. This provided as follows:
"It is declared: that
1. The partnership consisting of the plaintiff and the defendant who are
tenants of the holding known as Far Gearstones Farm, Ribblehead, North
Yorkshire under a tenancy granted by the plaintiff to the partnership in 1980
on the terms of the draft lease (Document 14A) as continued by the Agricultural
Holdings Act 1986 save that the rent from January 1990 is the sum of
£3,800 per annum increased in accordance with percentage increase in the
Retail Price Index between January 1st 1986 and January 1st 1990 and thereafter
to be at the same rate until varied in accordance with the Agricultural
Holdings Act 1986.
2. That the partnership between the plaintiff and the defendant is to be
dissolved as at the 28th July 1993.
By consent it is ordered that:
(i) that the plaintiff and the defendant do assign the said tenancy to the
defendant in consideration of payment to the plaintiff by the defendant of 10%
of the value of such tenancy as at today's date. Such value to be determined
by the court if not agreed by the parties and the defendant to pay in addition
to the plaintiff interest at (Midland Bank) base rate plus 1% from today's date
until the date of payment.
(ii) That an account be taken of the partnership assets and dealings (other
than the value of the said tenancy) as at the date hereof and that the
defendant be permitted to purchase the plaintiff's share of such assets of the
partnership on the basis of the value attributed to such assets in such
accounts as taken.
(iii) That there be no order as to costs of the action.
(iv) That either party be at liberty to apply generally."
2. The parties were not able to agree the value of the tenancy. The matter
came back before the court on the 19th October 1998. HHJ Altman heard evidence
from the two valuation experts called by the parties, Mr Baily on behalf of the
respondent and Mr Foster on behalf of the appellant. Mr Baily valued the
tenancy at about £120,000; Mr Foster valued it at £23,500. After
considering their reports and their evidence, the judge preferred, in general,
the evidence of Mr Baily. He found that the value of the tenancy was
£100,000. The appellant was therefore ordered to pay £10,000 plus
interest. It is against this order that he appeals to this court
3. The tenancy was an agricultural tenancy for a term of 10 years at an
original rent of £3,000 per annum. It was subject to a covenant which
precluded assignment without the consent of the respondent. As an agricultural
holding the tenancy was therefore protected pursuant to the provisions of the
Agricultural Holdings Acts as enacted from time to time. In particular,
because the tenancy was entered into prior to the 12th July 1984, it was
possible for there to be two occasions for succession to the tenancy to occur
provided certain conditions were met. As far as rent was concerned, these
provisions entitled the parties to review the rent every three years in
accordance with the provisions of s. 12 of and Schedule 2 to the Agricultural
Holdings Act 1986. It was common ground between the parties that the
application of these provisions, as a result of which the rent at the relevant
date was £4,720 per annum, was a rent which was less than the market rent.
4. The two valuation experts, despite their widely divergent views on the value
of the tenancy, were roughly in agreement as to the value of the freehold with
vacant possession. Mr Baily valued it at £240,000; Mr Foster valued it at
£227,000. They differed fundamentally, however, about the basis upon
which the tenancy should be valued.
5. Mr Foster, on behalf of the appellant, provided two reports one dated the
24th June 1996, and the second the 6th October 1998. He took what he described
as "the existing use" basis of valuation as the appropriate basis. He
described that as the price which the tenant would have had to pay to replace
the opportunities for earning from the farm. He considered that this was
appropriate in the circumstances of the case, and that he was following the
principles set out by this court in the case of Walton's Executors -v-
Commissioners of Inland Revenue [1996] 1 EGLR 159 to which I will return.
Putting it shortly, his valuation was based upon the difference between the
rent payable under the lease, subject to adjustment by way of arbitration, and
the market value rent. To this he applied multipliers, producing a figure of
some £13,600. To this he added the tenant's entitlement to statutory
compensation which he valued at £9,650, and, in his last report, a figure
of £250 to take account of the fact that the tenancy carried with it
greater succession rights that would be possible if a new farm had to be
found.
6. Mr Baily also produced two reports, dated the 1st June 1997 and the 6th
October 1998. In his first report he stated that in his opinion the
Walton's case had no relevance. He took into account the fact that on
the 16th April 1996, the respondent had made an offer of £90,000 to the
appellant for the surrender of the tenancy. The appellant had refused this
offer on the basis that the whole purpose of his defence to the claim had been
to enable him to continue farming. It should be noted that the bona fides of
this offer was obviously doubted by the appellant, although the respondent was
not required to give any evidence about the matter at the hearing. Mr Baily's
conclusion was stated in short form as follows:
"The value to the tenant should be measured by his opportunity to farm there on
a protected basis and to earn an income from the farm, in effect for three
generations. The tenant has turned down an offer of £90,000 for
possession and clearly the farm is worth much more than that to him, or he
would have taken the offer. I consider that 25 years purchased at the rental
of £4,720 to produce a capital equivalent of £118,000 is
appropriate.
For the landlord the tenancy represents the difference between ability to sell
the farm with vacant possession and subject to the tenancy. I would expect the
vacant possession value to be £240,000 and the tenanted value to be
£120,000 to produce a value to the landlord of obtaining vacant possession
of £120,000.
We therefore value the tenancy at a figure between £118,000 and
£120,000 or £119,000."
7. In his second report, he repeats his valuation of the freehold with vacant
possession at £240,000. He then considered the viability of the farm, and
concluded that the appellant, who was in his view a man of ability, had been
able to make good use of the farm, and would be entitled, in addition to his
ordinary income, to substantial annual Environmentally Sensitive Area Scheme
payments, which would be greater than the rent itself. He concluded:
"Indeed I do not find it surprising that the tenant rejects an offer of
£90,000 made by the landlord to vacate the tenancy. This to me
establishes a base line for the value of the tenancy as at 28th July 1993 and I
consider that had the tenant chosen to negotiate the surrender of the tenancy,
he could have upped that offer by between one quarter and one third taking the
value of the tenancy to between £115,000 and £120,000.
Conclusion
I am of the opinion that the value of the above tenancy as at the 28th July
1993 was £118,000."
8. In their evidence, both experts adhered to the valuations that they had
provided in their reports. As far as Mr Foster was concerned, his evidence was
not challenged in detail. It was accepted that, if his basis of valuation was
right, his calculations were correct. The only dispute apart from the issue of
principle as to the basis of valuation related to the value he ascribed to the
chance of succession. It was suggested to him that £250 was a
ridiculously small sum to award for the value of continued possession. He
explained it on the basis of the appellant's life expectancy, and the
application of actuarial tables to the value of the profit rent so far in the
future. It was suggested by Mr Baily, but only by way of assertion, that this
benefit was in itself worth between £25,000 and £50,000. He did not
produce any supporting evidence. Mr Foster in his evidence valued the freehold
with vacant possession, as I have said, at £227,000. He considered that
the value of the freehold subject to the tenancy was £118,000 namely the
current rental multiplied by 25, which was the figure arrived at by Mr Baily in
his first report as representing the value of the tenancy to the appellant.
9. In evidence, Mr Baily stated for the first time that he had adopted the
approach of the valuation expert called by the Revenue in Walton's case
(supra). He had taken the value of the tenancy to the tenants in that case as
being one half of the difference between the value of the land with vacant
possession and it's value subject to the tenancy, the vacant possession
premium. It is to be noted that the valuer whose basis of valuation he was
purporting to follow had calculated the value to the landlord subject to
tenancy by applying a multiplier of 25 to the rental as Mr Baily had done in
his first report for the purposes of assessing its value to the tenant. It was
pointed out to him in cross-examination that whereas in Walton's case
the valuer had taken one half of the vacant possession premium as the
appropriate value, he had effectively taken 100% of the vacant possession
premium, using the same basis of calculation as in that case. To counter this
Mr Baily introduced for the first time the concept of "investor's value". This
was, he said, £70,000 which was the sum he would advise an investor (i.e.
a person other than the landlord or the tenant) to pay for the freehold subject
to the tenancy. This figure was arrived at by multiplying the rent by 15 as
opposed to 25. This produced a vacant possession premium of £170,000. He
would expect, he said, a landlord to be prepared to pay between a third and a
half of the premium, which, when added to the investor's value, produced
figures of between £126,000 and £155,000. He did not explain why he
considered that the landlord would be willing to pay for the investor's value
as well as the proportion of the vacant possession premium, but used these
figures to justify his overall conclusion that £120,000 was an appropriate
valuation of the tenancy. He made it clear that it was only one basis upon
which he had come to his value of £120,000. Another was the fact that the
offer of £90,000 had both been made and turned down. And finally, he
expressed the view that £120,000 was about right, on the basis of his
experience.
10. Although the judge considered that both experts within their own arguments
were consistent and impressive and very experienced, he came to the conclusion
that he preferred Mr Baily. That was because, as he put it:
"Mr Baily seems to me to have taken account of the realities on the ground,
which is what Walton's case suggests ....."
11. In essence, he concluded that a combination of the fact that both the
landlord and the tenant had a clear interest in realising the value of the
tenancy which was not the case, as he saw it in the Walton case, and the
fact that there were in his view real prospects of succession, Mr Baily's
valuation was more appropriate. In coming to his conclusion as to the sum to
be awarded, however, he took Mr Baily's value of £119,000 from the first
report, and then deducted the value which he attributed to the ECAS scheme
grant, namely £19,000, as this was, in the judge's view, not a matter
which would have affected the value of the tenancy in 1993, because the
payments were not then certain, and did not commence until 1996. It was by
this method that he arrived at the valuation of £100,000.
12. The appellant submits that the judge's conclusion was perverse. Mr de
Freitas on his behalf submits that the evidence of Mr Baily was fundamentally
flawed. He points out that the valuation contained in the first report
essentially asserted that the landlord would be prepared to pay a figure which
amounted to the whole of the vacant possession premium if the value of the
freehold subject to the tenancy was calculated by taking the rent and
multiplying by 25, which, he submits would accord with proper valuation
practice and the apparent basis of valuation put forward by Mr Baily in
evidence. He submits that in the second report, Mr Baily effectively relied on
an offer of £90,000 as the base figure from which to value the tenancy,
which was a self serving figure produced by the respondent himself, without any
indication that he was in any position to produce such a sum, and when there
was no indication in 1993, that is at the relevant time for valuation, that he
was interested in purchasing the tenancy. Yet further he submits that the
evidence from Mr Baily must be viewed with considerable scepticism in view of
the evidence that he gave at the trial, which introduced the novel concept of
the investor's value and depended, in order to produce figures justifying a
valuation of £120,000, on the assumption that the landlord would be
prepared to pay a proportion of the vacant possession premium plus the
investor's value, whereas in other answers, he appeared to be saying that the
landlord could be expected to pay simply one third to one half of the vacant
possession premium in order to secure the tenancy. Finally, he submits that
the judge and Mr Baily misunderstood the decision of this court in
Walton, whereas Mr Foster's evidence was entirely in accordance with
it.
13. Mr Rodger on behalf of the respondent submits that the judge was fully
entitled, having heard the evidence of both Mr Baily and Mr Foster, to prefer
Mr Baily. He submitted that Mr Baily was seeking simply to provide as much
material as he considered he could in order to support his professional view
that the value of the tenancy was £120,000. It is submitted that none of
the specific bases used by Mr Baily to come to his final conclusion should be
examined under a microscope. What mattered was his professional view, which
was a matter of judgment and not analysis. Mr Rodger submits that, properly
understood, Walton's case makes it clear that any tribunal valuing a
tenancy in this or any other situation is not only entitled to, but must, take
into account the particular landlord and tenant in question, and come to a view
as to the extent to which they have special interests which can properly be
taken into account in the valuation of the tenancy.
14. Walton's case was a revenue case. It nonetheless has some
similarities to the present. The question was the value to be attributed to
the deceased's share in an agricultural partnership between him and his son
John, which was the tenancy of a hill farm in Northumbria in which the freehold
was held by the deceased, his son John and a second son. Putting it simply,
the revenue contended that the value of the deceased's share as a partner was
£70,000 being his half share of the tenancy value, which the valuer
assessed at half the vacant possession premium of £100,000, plus tenant's
rights of £40,000. The vacant possession premium had been calculated by
applying a multiplier of 25 to the annual rental figure. The matter went to
the Lands Tribunal at which the son John gave evidence which was accepted by
the Tribunal that farming was his and his family's life, and that there would
have been no question of the tenancy being alienated wholly or in part in any
way from him. The Lands Tribunal concluded that the sole value of the tenancy
to the partnership was the extent to which its terms enhanced the value of the
partnership because the partners were able to exploit the assets of the
partnership without paying the full market rent for the value of the farm. The
value of the partnership was therefore assessed on the basis of what was
described as the "profit rent" available to the partners by reason of the terms
and incidents of the tenancy. The Court of Appeal upheld this decision. Peter
Gibson LJ said at page 162 M
"It is not necessary for the operation of a statutory hypothesis of a sale in
the open market of an interest in a tenancy that the landlord should be treated
as a hypothetical person and it is a question of fact established by the
evidence before the tribunal of fact whether the attributes of the actual
landlord would be taken into account in the market."
15. The ultimate exercise is wholly artificial. The consent order assumes a
sale. And it assumes a sale in an open market in which the whole world is
assumed to be free to bid. As Peter Gibson LJ said at page 162 A:
"However improbable that there would ever be a sale of the property in the real
world, for example because of restrictions attached to the property,
nevertheless the sale must be treated as capable of being completed, the
purchaser then holding the property subject to the same restrictions ..... it
also means that the vendor, if he offered the best price reasonably obtainable
in the market, cannot be assumed to say that he will not sell because the price
is too low as inadequately reflecting some feature of the property, nor can the
purchaser be assumed to say that he will not buy because that price is too
high."
16. It seems to me that in the present case, although we are not dealing with
statute but the terms of the consent order the same principles should apply.
It follows that the judge was entitled to take a view as to the realities of
the situation in coming to a conclusion as to the landlord's intention in
relation to the tenancy. By that I mean he was entitled to conclude if the
facts justified it that the tenancy should be valued on the basis that the
landlord, that is the respondent, was interested in purchasing it. Equally,
the judge was entitled to take into account, if the facts justified it, the
intentions of the tenant. Both tenant and landlord can be taken as prospective
purchasers provided the facts support such a conclusion. But even if they do,
it would have to be remembered that the tenant was bidding, not for something
that he already had, but something that he wanted to have and had the means to
purchase. It follows that in this case the fact that the appellant may have
refused £90,000 in 1996 was irrelevant to this calculation. It was not
the sum that the tenant would have been prepared to accept to give up the
tenancy which represented its value, but the sum he would have been prepared to
pay to purchase it. There may in some cases be a correlation between these two
figures, but they are not necessarily the same. It follows that, if the
evidence were to justify it, a valuer or tribunal considering the valuation,
could conclude that the tenant was no longer intending to continue farming, and
that the landlord was seeking to purchase the surrender of the tenancy. In
such a circumstance, and if both could establish that they were in a position
to purchase, a division of the vacant possession premium could be an
appropriate approach to the value at which each might be prepared to purchase
the tenancy and accordingly a proper basis for valuing the tenancy. This was
the view of the Lands Tribunal in Walton's case, as recorded by Peter
Gibson LJ at page 161 D:
"The Lands Tribunal found from the evidence that the value of a whole tenancy
depended on the circumstances of the parties at the material date, landlords
only seeking and paying for the surrender of tenancies when they wished to
release the VPP at an early date and tenants only contemplating surrender when
their prime objective was not to continue farming; only if aspirations came
together might the 50/50 division of the VPP be a realistic interpretation of
market behaviour, but they were not the circumstances of valuation in the
instant case."
17. In my judgment, the judge fell into error in failing to recognise that the
basis of valuation depended upon a proper assessment of the evidence as to the
position in 1993, that is the date at which the valuation was to be made. At
that time, as the judge himself recognised, and as was clear from all the
evidence, the appellant was intending to continue to farm the land. There was
no question of his seeking to surrender the tenancy. Equally, at that time,
there was no evidence to suggest that the respondent had either the desire or
the ability to seek to purchase a surrender of the tenancy. The only evidence
was that in 1996 he had made an offer, which has all the hallmarks of a
tactical offer, for the surrender of the tenancy. There was no material before
the judge to show that that offer could have been made good. Mr Baily asserted
that, with a vacant possession value of £240,000 as collateral, there
would be no difficulty in obtaining the appropriate advance from a bank. But
there was no evidence as to the extent of the respondent's outstanding
borrowing at the time, or the extent to which his interest in the land was
already encumbered. The fact of the offer in 1996 was therefore wholly
insufficient evidence from which to be able to infer that at the relevant date
in 1993 he had an interest in purchasing the tenancy and the ability to
purchase it which could be used to justify the conclusion that he was a special
purchaser for the purposes of the valuation exercise.
18. In ordinary circumstances, this is a case which would be remitted to the
County Court for a further hearing. But because of the protracted nature of
the litigation, and the relatively small sums involved at the end of the day,
both parties have encouraged this court not to take that course, but to
substitute, if minded to allow the appeal, such sum as may appear appropriate.
In the absence of sufficient evidence to justify the conclusion that the tenant
and the landlord had sufficient interest in releasing the vacant possession
premium, it seems to me that the proper approach to be adopted is that which
was adopted by the Lands Tribunal, and approved by this court, in
Walton's case, namely the approach taken by Mr Foster. In those
circumstances, and as Mr Foster's valuation save as to the value of the right
to succession was not essentially challenged, his figure, namely £23,500
should be substituted for the £100,000 found by the judge. As far as the
value of the succession is concerned, I do not consider that there is
sufficient material to justify concluding that Mr Foster was in error in
attributing to it such an apparantly low value, bearing in mind the extended
period of time before which the benefits of those rights would accrue to the
appellant and his family, and the absence of any reasoning, cogent or
otherwise, to support any other figure.
19. Accordingly I consider that this appeal should be allowed, and that the sum
to be paid by the appellant to the respondent pursuant to the consent order is
£2,350, plus the appropriate interest.
Mummery L.J.
20. I agree with Latham L.J. that this appeal should be allowed and that the
sum to be paid by Mr. Pickles to Mr. Greenbank is £2,350 plus interest.
21. I agree with Peter Gibson L.J.'s analysis of the correct approach to the
valuation of the agricultural tenancy of Far Gearstones Farm under the terms of
the Consent Order. I also agree with his trenchant criticisms of the expert
evidence of Mr. Baily. The judge ought to have preferred the expert evidence
of Mr. Foster.
Peter Gibson L.J.
22. I also agree that this appeal must be allowed. As we are differing from
the Judge I shall express my reasons in my own words.
23. On the Judge's order of 28 July 1993 the tenancy to be assigned, that is to
say the tenancy held by Mr. Greenbank and Mr. Pickles as partners, fell to be
valued. But, unusually, nothing was said as to the basis of the valuation.
However, it is common ground that the conventional open market valuation was
thereby intended. On well-settled principles that requires the assumption that
a hypothetical sale of the tenancy, with all of its incidents, will have
occurred on the valuation date, the sale being by a hypothetical willing vendor
to a hypothetical willing purchaser, and that even though in the real world no
such sale would or could occur, because the tenancy is non-assignable, the sale
must nevertheless be deemed to have occurred, the purchaser thereupon becoming
bound by the restrictions of the tenancy, including that against assignment.
24. As the hypothetical sale is in the open market, everyone in the world is
assumed to be able to bid to acquire the tenancy. But because of the nature of
the unassignable tenancy, the number of likely interested purchasers is likely
to be limited. There will be those who want the tenancy in order to live in
the house and to farm the farm and who will pay a price measured by the value
of such ordinary user of the farm, having regard to the rent to be paid and the
other obligations of the tenant. That in essence was the existing use value
asserted by Mr. Foster, Mr. Pickles' expert. There could also be special
purchasers willing to pay a special price for special reasons.
25. Given that a farm with vacant possession is always more valuable than a
farm subject to an agricultural tenancy providing security of tenure to the
tenant paying a rent which may be below the open market rent, the landlord may
be prepared to pay a sum greater than the existing value so as to be able to
sell the farm with vacant possession. Such sum might represent part of the
vacant possession premium ("the VPP", being the difference between the value of
the farm with vacant possession and the value of the farm subject to the
tenancy).
26. The tenant may be prepared to pay more than the existing use value if he
farmed the farm before and is anxious to continue to be the tenant. But as the
tenancy is non-assignable it can provide no security for a borrowing of the
purchase price and unless the actual tenant has the means to pay more, the
tenant will not normally be a special purchaser.
27. Whether there is an actual special purchaser to be taken into account in
the valuation will depend on the evidence, which one would expect to show that
the special purchaser at the time of the valuation both wanted to acquire the
tenancy and had the ability to pay a price above the existing use value. In
this context it is important to bear in mind that the open market value is not
the highest price to which a special purchaser would be prepared to go. This
can be demonstrated by imagining the archetypal open market, an auction at
which all interested parties are present to make their bids. Those parties are
the ordinary purchaser prepared to pay the current market use value, who, let
us say, would be prepared to go up to £20,000, the actual tenant who was
prepared to pay up to, say, £25,000 and the actual landlord who wanted the
merger of the tenancy in the freehold so as to be able to sell with vacant
possession and who was prepared to pay up to half the VPP of, say,
£120,000, viz. £60,000. The ordinary purchaser would drop out of the
bidding at £20,000, the tenant at £25,000 and the landlord would
obtain the property at the bid above that figure, which would not be anything
like £60,000. Mr. Rodger for Mr. Greenbank submitted that the tenant
would not be prepared to sell for less than "the true value" of the tenancy.
But the only relevant value is the open market value. Because a sale is
assumed to occur, it is not open to the hypothetical vendor to refuse to sell
on the basis that he considers the true value to be higher.
28. The Judge was faced with valuations from two well-qualified valuers, Mr.
Baily, for Mr. Greenbank, and Mr. Foster. He described them both as having
"brought to bear both a logical analysis and experience on the ground" to their
approach to this case, and as being "within their own arguments and their own
logic .... consistent and impressive"; he referred to Mr. Baily's arguments as
"logically consistent". Mr. Rodger submitted that the Judge was entitled to
prefer the approach of Mr. Baily to Mr. Foster and that this court should not
interfere with what was a finding of fact. Mr. de Freitas for Mr. Pickles
submitted that Mr. Baily's analysis was illogical and not logically consistent.
If that is right and it can be seen that Mr. Baily erred in his valuation, I
see no reason why this court should not interfere with the Judge's
conclusion.
29. Mr. Baily's first valuation was on the basis that there were only two
persons who need be considered as bidders in the open market, for each of whom
the tenancy had "a real value". He then proceeded to consider what that value
was to each, and he treated the value to each as the open market value. Thus
he was treating them as special purchasers, each willing to bid a sum equal to
the value to him. That is a novel basis of valuation which can lead to
difficulties, as can be seen from Mr. Baily's own description of how he arrived
at the values to the tenant and landlord respectively.
30. Mr. Baily said that because the tenant, Mr. Pickles, had turned down an
offer of £90,000, the farm was worth much more than that to him. Thus he
was measuring the value, not by reference to what the tenant would pay (which
is what is relevant for a sale of the tenancy on the open market), but by
reference to what the actual tenant refused to accept for the surrender of the
tenancy. A sitting tenant who cannot be compelled to surrender his tenancy may
well be unwilling to undergo the disruption of giving up his tenancy without a
considerable payment to him. But that has nothing to do with what he would be
willing and able to pay in order to acquire the tenancy. Even more egregious
an error is then made by Mr. Baily when he went on to say that he considered
that 25 years' purchase at the rental of £4,720 to produce a capital
equivalent of £118,000 was appropriate for the value to the tenant. How
the rent payable by the tenant to the landlord, when capitalised, could have
any bearing on the value of the tenancy to the tenant passes comprehension. It
is, of course, the classic way of valuing the freehold subject to the tenancy,
i.e. the landlord's property. Nor does it have any bearing on what the tenant
would be prepared to pay for the tenancy in an open market sale. Indeed there
was no evidence at all of what the actual tenant would have been prepared to
pay and could pay at the date of the valuation, other than the fact that Mr.
Pickles by the order consented to pay 10% of the value of the tenancy at that
date. Even if the refusal of the £90,000 offer were somehow relevant,
that was an offer made in the different circumstances of 1996, by which time
the Agricultural Tenancies Act 1995 had come into force.
31. Mr. Baily then turned to the value to the landlord. He gave the value of
the farm with vacant possession as £240,000 and the value of the farm
subject to the tenancy as £120,000, and said that the value to the
landlord of obtaining vacant possession was £120,000. Thus he was
assuming that the landlord would be prepared to pay the whole of the VPP to
acquire the tenancy. For the reasons already given, even if there was evidence
that this was the highest that Mr. Greenbank was willing and able to pay, in
the hypothetical open market it cannot be taken that the landlord would pay
more than he needed to pay to acquire the tenancy by outbidding other bidders.
Further, in the circumstances, somewhat different from a hypothetical sale in
the open market by a hypothetical tenant and a hypothetical landlord, of a
surrender by an actual tenant to an actual landlord, Mr. Baily's own evidence
was that the tenant would receive a sum of from one third to one half of the
VPP. Why the landlord in the hypothetical sale would be prepared to pay at
least double the highest proportion of the VPP payable in those circumstances
is not explained by Mr. Baily. In any event there was no direct evidence that
Mr. Greenbank was willing or able to pay anything like that sum in July 1993.
Surprisingly he gave no evidence. The fact of the consent order for the
assignment to Mr. Pickles of the tenancy and the terms of that assignment and
the absence of any offer in 1993 to buy out Mr. Pickles hardly suggest that Mr.
Greenbank wanted or had the financial ability at that time to make a
substantial capital payment to acquire the tenancy. Mr. Baily gave some
generalised evidence about banks being willing to lend to landlords to acquire
agricultural tenancies so as to enable the landlord to sell the freehold with
vacant possession. But there was no evidence from any bank or other lender
that it would have lent to Mr. Greenbank in July 1993, and Mr. Baily in
cross-examination acknowledged that he did not know Mr. Greenbank's financial
position in 1993, and was not aware of the mortgages which Mr. Greenbank then
had nor the extent of them. The offer in 1996 to pay Mr. Pickles £90,000
in the context of the continuing litigation must be viewed with some suspicion.
In any event it does not show that in July 1993 Mr. Greenbank would have been
prepared and had the ability to pay that sum for the tenancy.
32. Mr. Baily in his first valuation split the difference between the value to
the tenant (£118,000) and the value to the landlord (£120,000) to
arrive at £119,000 as his valuation of the tenancy. For the reasons which
I have given the logical basis of that valuation cannot be sustained.
33. Mr. Baily in his second valuation referred again to the value of the
tenancy to the landlord and the tenant. He referred to Environmentally
Sensitive Area payments as demonstrating the value of the tenancy to the
tenant. He regarded the 1996 offer of £90,000 as establishing a baseline
for the value of the tenancy and he considered that had the tenant chosen to
negotiate the surrender of the tenancy he could have caused the offer to be
increased by between one quarter and one third, taking the value of the tenancy
to between £115,000 and £120,000, and he valued the tenancy at
£1,000 less than in the first valuation. For the reasons already given, I
cannot accept this methodology for arriving at the open market value in the
hypothetical sale on 28 July 1993.
34. In giving oral evidence in chief Mr. Baily said that he had adopted the
approach of Mr. Stanton, the Revenue's valuer in the case of Walton's
Executors v C.I.R. [1996] 1 EGLR 159. I pause to observe that this is a
little surprising given that Mr. Stanton's approach in that case was accepted
neither by the Lands Tribunal nor by this court. Mr. Stanton's approach was
that an agricultural tenancy was to be valued by having regard to the VPP which
he divided 50/50 between landlord and tenant to arrive at the valuation. That
was rejected by the Lands Tribunal and by this court on the basis that as the
actual landlords gave evidence, which was accepted, that they were not
interested in acquiring the tenancy, they were not special purchasers. It was
held that a valuation based on a profit rent, not the VPP, was appropriate. In
fact it is hard to see that Mr. Baily did adopt Mr. Stanton's approach. He
even said that there was a misunderstanding in Walton of what a VPP is, though
his explanation of it ("the difference between the tenanted value that an
investor would pay and the vacant possession price") does not differ from the
understanding in the Walton case if what the investor would pay is the
open market price. If it is not, it is hard to see why what the investor would
pay is the open market price. If it is not, it is hard to see why what the
investor would pay is relevant. However, in cross-examination, contrary to his
first report in which "the tenanted value" of the property was given as
£120,000, he came up for the first time with the figure of £70,000,
giving a higher VPP of £170,000. No explanation of this change the
tenanted value of £120,000 was proffered by Mr. Baily. It appears to be
the product of 15 years' purchase of the rent, contrasting with Mr. Stanton's
approach in Walton of about 25 years' purchase. The Judge himself said
that Mr. Foster might well have been right in saying that 25 years' purchase
was appropriate. Mr. Baily said that to arrive at the value of the tenancy one
takes the tenanted value of £70,000 and adds to that about one third of
the VPP. That produces a total of some £126,000 which he appears to have
rounded down to £120,000. How the value of the freehold subject to the
tenancy can be an element of the market value of the tenancy I do not
understand, nor did Mr. Rodger attempt to defend it. This was certainly not
part of Mr. Stanton's approach in Walton.
35. Mr. Baily then said that he would expect Mr. Pickles would pay a premium of
£50,000 or one third of the VPP to buy the farm and would outbid by that
sum the ordinary purchaser bidding £70,000 for the freehold. Once again
Mr. Baily confuses freehold values and tenancy values, and I do not accept his
notion of how the hypothetical sale on the open market operates.
36. Finally, in answer to the Judge Mr. Baily said that £120,000 seemed
about right, and that assertion, although not supported by any convincing
reasoning, appears to have found favour with the Judge.
37. I have to say that Mr. de Freitas' criticisms of Mr. Baily seem to me
abundantly justified. I am at a loss to understand how the Judge when faced
with evidence showing so confused, illogical and inconsistent an approach could
think that Mr. Baily's valuation was to be preferred to that of Mr. Foster.
38. In the circumstances this court would normally remit the case back to the
County Court for a rehearing. However, because of the modest sums involved, we
have been asked by the parties to arrive at a valuation based on the material
put before us.
39. In agreement with Latham L.J. I do not think that there is evidence which
would justify our holding that there were special purchasers in the market at
the relevant time. I agree therefore that we should accept Mr. Foster's
valuation and substitute the figure of £2,350 as the figure to be paid by
Mr. Pickles to Mr. Greenbank.
Order: Appeal allowed with costs. Figure of £2, 350 to be substituted
as the figure repaid by Mr Pickles to Mr Greenbank. Claimant to pay the
Defendant's costs of the determination of the value of the tenancy from the
date of the payment in, namely 27th September 1996, to be assessed
if not agreed; and repayment of £1, 099.24 (the amount of overpayment plus
interest to date).
(Order does not form part of approved judgment.) | 2 |
MR JUSTICE BEATSON:
There are before me two applications. The first, made on 31 December last year, concerns the substitution of a party pursuant to CPR 19.5(3)(d)(i). The second, made on 22 January 2009, is an application by the claimant for an extension of time in which to serve its particulars of claim. The second application only arises if the first application, which is made by the defendant, is unsuccessful. Therefore, I consider that first.
By the first application the defendants, members of the Willis Group, seek to set aside an order made without notice by Master Fontaine on 22 December 2008 substituting Willis Group Limited and Willis Limited for the defendant originally named in the claim form, Willis Group Holdings Limited. The defendant does for the following basis. First, there was no mistake by the claimant as to the name of the party sued. Secondly, if there was a mistake, the defendant was misled because the true identity of the party the claimant was intending to sue was not apparent from the claim form or known to the defendant or known on any reasonable grounds.
The underlying claim out of which the two applications arise is a claim made by the claimant, Lockheed Martin Corporation, on 28 August 2008. That claim arises out of a global settlement between the claimant and London Market Insurance Companies on 29 August 2002. The total sum agreed in the settlement was US$124 million. Of this US$8.124 million was attributed to "unknown ship building London Market Insurers" and the sum paid to the claimant was reduced by this amount because the insurers remained unknown.
The proceedings issued on 28 August 2008 were thus filed shortly before the expiration of the limitation period. It is accepted for the purpose of these applications that that period expired at the latest on 26 November 2008.
The claim launched on 28 August 2008 was brought against Willis Group Holdings Limited, a Bermudian company, which is the senior or ultimate holding company in Willis Group, and against Marsh Limited. The proceedings against March Limited have been discontinued recently.
The claimant alleged that their brokers were negligent in the conduct of their business in failing to maintain proper records of those subscribing to the policies. The policy records, including the placement slips, have apparently been lost or been disposed of.
The original claim form describes the claim as:
"…for professional negligence arising from the Defendants' broking of insurance policies on behalf of the Claimant and its predecessors in interest prior to 1993. The Defendants' owed duties of care to the Claimant including a duty to maintain evidence of the terms, conditions and subscribing market to the policies of insurance sufficient to enable the handling of the claims made by the Claimant under the said policies, and collection of such sums from the subscribing market as may be payable by reason of a settlement of any claims."
The claim form states that in 2002 the claimant agreed to a settlement of its claim of London Market Insurers and release of liability for a total sum of US$124 million. It also states that the settlement was achieved in two stages. On 6 March 2002 a full and final settlement was agreed with certain underwriters at Lloyds of London whereby the underwriters agreed to pay a total of US$63 million.
On August 29, 2002 a full and final settlement was agreed with London Market Insurance Companies ("LMIC") whereby the companies agreed to pay US$40 million:.The several shares allotted to LMIC are stated to be set out in attachment and deed to the August settlement agreement. The LMIC agreement provided that a number of LMIC were excluded from the settlement. The settlement agreement provided for payment of the several allocated shares to be made within 90 days of execution of the agreement.
The claim form also states that the remaining US$21 million of the settlement amount was not allocated to individual LMIC. It represents the aggregate total of the amounts allocated to the insolvent insurers, plus an amount allocated to LMIC subscribing to those policies for which no subscribing market could be established by the expiration of the 90-day period.
The claim form states that the breach of duty to maintain records was a continuing breach and the damage caused by the said breach accrued on the expiration of the said 90-day period by reason of the admission of those amounts so allocated from attachment D to the August 29th settlement agreement. The damage as claimed at that stage was stated to be the difference between the amounts claimed against the insolvent LMIC and US$21 million.
What happened was that the claim was sent to Willis Group Holdings Limited at 10 Trinity Square, London, an address which was no longer current for the Willis Group, which had moved to a new building. It did not reach the Willis Group until 19 December. When it did, it reached Ms Bolton-Jones, an inhouse solicitor employed by Willis Limited, who worked at the new address at 51 Lime Street. She has furnished a witness statement in support of the defendant's application dated 14 January 2009.
The application is also supported by three witness statements made by Mr Ogden, a partner in the firm of Ince & Co, made on 15 January, 17 April and 3 June this year. Ms Bolton-Jones in her statement notes that Willis Group Holdings is not an English company. Its registered address is 9 Trinity Square, Lower Lime Street. It is a Bermudian company, which is the ultimate holding company for various Willis corporate entities, a company quoted on the New York Stock Exchange, and valid service could not be effected on it in England.
Ms Bolton-Jones spoke to the claimant's solicitor, Mr Scanlan, on 19 December and explained these facts. She also informed him that the legal team in London was not authorised to accept service of the claim form for Willis Group Holdings Limited.
According to the attendance note she made, she also indicated that Willis Group Holdings Limited was not in existence on the dates referred to in the claim form, and this might be a problem for the claimant.
Following that conversation the claimant applied to Master Fontaine and made an application to change the name of the defendants and to substitute the names for Willis Group Holdings Limited and Marsh Limited to the companies of Willis Group Limited and Willis Limited. The former is the senior or ultimate holding company in England; the latter is a broking company which was formerly called Willis Faber Dumas.
That order came before the learned master on the same day and the amendment was made pursuant to CPR 19.5(3)(a)(i). CPR 19.5(2) provides that:
"The court may add or substitute a party only if,
(a) the relevant limitation period was current when the proceedings were started, and
(b) in addition or substitute is necessary."
19.5(3) provides that:
"The addition or substitution of a party is necessary only if the court is satisfied,
(a) the new party is to be substituted for a party who is named in the claim form in mistake for the new party.
(b) the claim cannot be properly 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 and/or a bankruptcy order made against him, and his interests or liabilities asked of the new party."
Only (a) is relevant in this application.
The most recent statement of the position of the operation of this provision, a provision which has been said to be "notoriously causing problems", is in the decision of the Court of Appeal last year in Adelson v Associated Newspapers [2008] 1WLR 585. In that case the Court of Appeal in the judgment handed down by the then Lord Chief Justice, Lord Phillips, sought to clarify what the court described in paragraph 5 as "a difficult area of procedural law". The court had regard to the predecessor of CPR, Rule 19.5, Order 20 r 5 because (see paragraph 47 of the judgment) the court considered that the new rules were intended to replicate the provisions of Order 20 r 5. In paragraph 27 of the judgment Lord Phillips stated that the wording of order 20 r 5 suggests that the following requirements must be satisfied before an amendment can be made under that rule:
"The wording of Ord 20, r 5 suggests that the following requirements must be satisfied before an amendment can be made under that rule: (i) A mistake must have been made. (ii) The mistake must be genuine. (iii) The mistake must not have been misleading or such as to cause any reasonable doubt as to the identity of the person intending to sue or, as the case may be, intended to be sued."
Those requirements broaden or reflect the outcome of the decision of the Court of Appeal in the Sardinia Sulcis [1991] 1 LR 201 and in particular the summary of the criteria to be satisfied set out by Lloyd LJ.
The first and second requirements set out by Lord Phillips reflect the first requirement set out by Lloyd LJ. The third requirement set out by Lord Phillips reflects the second requirement set out by Lloyd LJ. The other two requirements set out by Lloyd LJ are not overly referred to by Lord Phillips as following from the wording of Order 20. Lloyd LJ stated that:
"The court must be satisfied (i) that there was a genuine mistake, (ii) that the mistake was to the misleading, (iii) that the mistake was not such as to cause reasonable doubt as to the identity of the person intending to sue and (iv) that it would be just to allow the amendment."
In Adelson's case the court stated (at paragraph 29) that most of the problems arise out of the difference between an error of identification and an error of nomenclature, a difference which was said to be sometimes elusive. The court stated that an error of nomenclature occurs where the claimant identifies the correct person as having caused him injury and describes him in the pleadings by the wrong name. An error of identification will occur where the claimant identifies an individual as the person who has caused him an injury, intends to sue that person, describes him by the correct name, but discovers that he has identified the wrong person.
The court stated (at paragraph 30) that where the claimant knows the attributes of the person he wishes to sue, for example the manufacturer of an object but has no personal knowledge of the identity of that person, a problem arises in distinguishing two types of error. The rule envisages that a defendant is identified by the claimant but is described by a name which is not correct.
Lord Phillips concluded that the mistake must be as to the name of the party and not as to the identity of the party (see paragraph 43). Such a mistake can be demonstrated where the pleading gives a description of the party and identifies the party but gives the party the wrong name in such circumstances: a "mistake as to name" is given a generous interpretation. The mistake will have been made by the person who issues the proceedings bearing the wrong name. The true identity of the person intended to be sued must be apparent to the latter, although the wrong name has been used. Finally, he stated that most if not all of the cases have proceeded on the basis that the effect of an amendment is to substitute a new party for the party named.
The reference to a "generous interpretation" is repeated in paragraph 56 which states that the test laid down in Sardinia Sulcis is a "generous test" of mistake.
The overall conclusions in Adelson are to be found in paragraphs 55 to 57. First, as a precondition, it is clear from the language of Rule 19.5(3)(a) that the person who has made the mistake must be the person responsible for the issue of claim. There is no question that that is so in this case. Here it is the claimant's solicitor, Mr Scanlan, from Scanlan & Co who made the claim. I will come to the evidence due course.
Secondly, it is stated in paragraph 55 that that person "must be in a position to demonstrate that, had the mistake not been made, the new party would have been named in the pleading". See also paragraph 69 which refers to a situation where, discussing the Morgan Est case, which the court said should not be followed. It is stated that if they are to fall within the rule claimants must establish that there was a mistake as to the group structure or the roles played by members of the group and would, but for that mistake, have included the particular people as claimants.
In the present case the evidence as to mistake is contained in Mr Scanlan's first witness statement dated 22 December. Mr Stafford-Michael relied on paragraphs 4 to 11 of this. Paragraphs 4 to 6 do not identify the mistake, they identify the claimant's purpose in issuing the claim form. Paragraph 4 states:
"The Claim Form was issued on the 28th August to preserve the Claimant's position whilst a further investigation was being conducted. The purpose of the investigation was to establish the precise quantum sought from each of the Defendants. The Claimant has now established the total quantum (in excess of US$8 million) and is in the process of agreeing with the agents for the London Market Companies, access to the relevant documents which will enable the Claimant to particularise the Claim against each of the Defendants. It is anticipated that Particulars of Claim will be served by January 31st 2009."
Paragraph 5 states that:
"If the proposed Defendants do not agree to an extension of time to serve the particulars, an application shall be made for an Order to do so in the first week of January 2009."
Paragraph 7 to 11 deal with service on Willis Group Holdings Limited. Paragraph 7 states that the new holding company for the Willis Group is Willis Group Holdings. Paragraph 8 states that the claim form was served on Friday 19 December by leaving it at the reception of the Willis building at 51 Lime Street and refers to a telephone conversation between Mr Scanlan and Ms Bolton-Jones who informed him that the service was ineffective because the company was a Bermudian company.
Mr Scanlan states: "I was surprised at her comments because I believed the Claimant had correctly named the appropriate holding company."
Paragraph 9 states that Mr Scanlan undertook a search at Company's House and reviewed the Willis Group website and he exhibits the results of that.
Paragraph 10 sets out the mistake:
"My searches revealed that the First Defendant had been misnamed. The Claimant should have been named as Willis Group Limited. This mistake was entirely understandable given the contents of the web site which consistently refer to Willis Group Holdings and gives the impression that this company is the principal company for the Willis Group. The web page does not refer to the fact, which I now accept, that this company is a Bermudian company. The Bermudian company was apparently set up as a vehicle to be quoted on the New York Stock Exchange. At no stage did the Claimant intend to issue proceedings against the Bermudian company. It intended to issue against Willis Group Limited, the senior UK company. My searches also revealed that Willis Limited should be named as a Defendant as they are the direct successor in interest to Willis Faber and Dumas Limited and Stuart Wrightson Limited."
The claimant relies on what Mr Stafford-Michael referred to as the "opaque nature of the Willis Group". Mr Stafford-Michael relies on Mr Scanlan's evidence that the claimant intended to issue against the appropriate holding company and that Willis Group Limited is the senior UK company. As to the complexity of the group, the structure is exhibited to Mr Scanlan's first witness statement. Mr Stafford-Michael relies on a mis-description by Willis itself on its website, which refers to Willis Group Limited as listed on the New York Stock Exchange rather than Willis Group Holdings Limited, as such, to show the difficulties it faces.
The only evidence of the claimant's intention is in Mr Scanlan's first witness statement. There is no evidence of a mistake of a different nature to that stated in his evidence. Mr Stafford-Michael said that, as for adding Willis Limited, as the claimant was going to a lower level of the pyramid, having left Willis Group Holdings Limited, it is not surprising that there is an increase in the number of companies.
As far as the second requirement of CPR Rule 19 that the mistake not be misleading, Mr Stafford-Michael submitted that the Willis Group is able to identify the proper parties. He relied, by way of example, to Willis's response to a request made on 7 January about a Lockheed policy 55/4597 as showing that Willis was able to produce documents in response to such requests. This document is a cover sheet from Willis Limited Claims and Research Solutions in Ipswich. It is one of a number of such documents available to the claimant. It does not in fact relate to one of the missing policies, but it was relied upon to show that there would be no confusion.
Mr Stafford-Michael submitted that the defendant could see from the claim form is reference to Lloyds underwriters that the broker likely to be involved was one authorised to place business at Lloyds and thus an English entity, and also that, as the claims related to the period before 1993, they related to entities in existence before that date. He submitted that, relying on the case of Weston v Gribben [2006] EWCA Civ 1425, the test is whether the identity of the claimant or defendant could be changed without significantly altering the claim. He submitted that had since all the amendment sought to achieve was the naming of companies within the same group, it was difficult to see that this test was not satisfied.
He also relied on Horne-Roberts v SmithKline Beecham [2001] EWCA Civ 2006 in which the Court of Appeal approved as part of the approach adopted in the Sardinia Sulcis, in which it asked whether it was possible to identify an intended defendant by reference to a description more or less specific to the particular case. If it is, it is a mistake of the type covered by the rule.
He also relied on the fact that the statement of case in the claim form is capable of only one meaning: that the defendant is a company within the Willis Group responsible for breach of duty in failing to maintain records of insurance placed by a member of the group on behalf of Lockheed. For these reasons he invites me to reject the defendant's application.
Mr Dougherty, on behalf of the defendants, submits that there are several problems with the order made by Master Fontaine. The first is that there was no mistake as to the name because little thought had been given by the claimant as to who to name before the claim form was issued. To say that the mistake was one of name only, submitted Mr Dougherty, meant that the claimant must have focused on the identity of the proposed defendant in the first place. Mr Scanlan's evidence is that what the claimant was looking to was the "appropriate holding company" and Willis Group Holdings Limited was indeed the ultimate superior holding company.
Secondly, as far as the submissions that it was clear from the role of Lloyds' underwriters in the settlement that the broker was, or brokers, were United Kingdom brokers authorised to place business at Lloyds, Mr Dougherty submits that that is not clear. It is not clear that the insurance company defendants who were in the Unknown Shipbuilding London Markets Insurers category are not those with whom the business was placed.
While recognising the force of Mr Dougherty's submission, given the generous test of mistake in this context, I am prepared to assume for the purpose of this application that the claimant made a mistake as to name rather than identity. That does not, however, include Willis Limited. That is not a holding company. It is a trading and broking company. Mr Scanlan's first statement makes it clear that there was no intention to sue Willis Limited at the time the claim form was issued. It was only after 19 December that the claimant appreciated that proceedings ought to be brought against Willis Limited as the "successor" to Willis Faber and Dumas and Stuart Wrightson, although it is not in fact the successor to Willis Faber, but it is Willis Faber and Dumas under a different name.
In view of Mr Scanlan's evidence it is not possible to conclude that Willis Group Holdings Limited was named in mistake for Willis Limited. It is not a holding company. There was no intention to sue it when the claim form was issued. Thus, the second limb of the test set out at paragraph 55 of Adelson's case, that had the mistake not be made the new party would have been named in the pleading, is not satisfied. (See also Evans LJ in International Bulk Shipping and Services Limited v Minerals and Metals Trading Corporation [1996] 1 AER 1017 at paragraph 41.)
The problem in this case, as far as Willis Group Limited is concerned, is what identification with respect to a description of broker does to the per se identity of a defendant within the Willis Group. There are a large number of broking entities within the Willis Group. This takes us to the second limb of the test: whether the mistake was misleading to the other party. Did it cause reasonable doubt as to the identity of the party who is intended to be sued?
In Adelson's case Lord Phillips referred to Stocker LJ's words in the Sardinian Sulcis where he asks at page 209:
"Can the intending plaintiff or defendant be identified by reference to the description which is specific to the particular case, e.g. landlord, employer, owners or ship owners? If the identification of the person intending to be sued appears to be of such specific description any amendment is one of name, where it does not it will in many if not all cases involve the description of another party rather than simply the name."
Here the evidence of Mis Bolton-Jones is that it was unclear to the Willis Group Holdings Limited, the defendants, which entity the claimant was intending to sue. Her statement states that it was clear that Willis Group Holdings Limited was the wrong defendant because it was not a trading company but a holding company and also because it did not exist prior to about the year 2000. She states that it was not, however, clear who the intended defendant was because, given the nature of the claim, it was not clear that what was intended was to sue a holding company.
Her evidence is (see paragraph 15) that on receipt of the claim form, whether on 19 December or 24 December, following Master Fontaine's order, it was not obvious to her which company or companies the claimant intended to sue: "the claim form gave insufficient information with which we could readily identify the correct intended defendant to any proceedings."
Her evidence refers to the fact that, although there are references in the claim form to London Market Insurers, certain underwriters at Lloyds and London Market Insurance Companies, and those references meant that the defendant was likely to be an English broking company, that was not certain. First, the claimant was based in the United States and it was not clear whether the brokers were main or sub-brokers.
Secondly, the claim form suggested that there was no complaint with regard to the Lloyds insurers, but that the complaints were about the company placements. Ms Bolton-Jones and Mr Dougherty, in his submissions, also relied on the vagueness as to dates, the claim form referring to the period only as prior to 1993, and to the fact that there was no information given as to the type of policy or which policies were missing.
Thirdly, Ms Bolton-Jones's evidence and Mr Dougherty's submissions were that, although the company which was most commonly proceeded against in the UK was Willis Limited, it was not the only one. She refers to Stuart Wrightson, and Mr Dougherty also relies on that.
In the draft particulars of claim, which were served earlier this year, the allegations are made of risks brokered by four different Willis companies. The only companies the defendant has identified are Willis Limited and Stuart Wrightson Limited.
Mr Dougherty also relies on the fact that some of the policies will have been issued to the claimant's predecessor (see Mr Scanlan's fourth witness statement at paragraph 4). There is no dispute (see Mr Scanlan's fourth witness statement, paragraph 7) that the Willis Legal Department did not know who the intended defendant was when they received the claim. They did not get the settlement at the time they received the claim form. When they did receive the settlement they did not get the full documentation. In particular attachments A and B, respectively the Lockheed policies, and the particular companies subscribing to those policies were not furnished. As to the submission that the defendant's response to the request, the example of which I have referred, shows that it could identify the relevant company, that request quoted a policy number. The claim form, however, did not quote policy numbers.
Finally, I observe that the cases considered by the Court of Appeal in Adelson's case were all cases in which the party resisted the substitution of name knew who the intended party was. For the reasons I have given, I do not consider that the attack on Ms Bolton-Jones' evidence succeeds.
It was said by Mr Stafford-Michael that the difficulties arose from the complexity of the Willis structure. The complexity of that structure was surely known to experienced insurance solicitors such as Scanlan & Co. The decisions made when the claim form was issued were made on the basis of information on a web site, not on the basis of Company's House searches. Once those searches were made, Willis Group Limited and Willis Limited were identified in a short time.
It is accepted that the claim form was issued in a protective way because the limitation period was about to expire. There had been no communication with Willis prior to issuing the claim. Accordingly, although I accept that the claim was mistaken, the test under CPR Rule 19.5 requires that the true identity of the person intended to be sued must have been apparent to the other party, although the wrong name was used. Here all that was apparent is a description of the person intended to be sued, a broker. That does not identify the party, but a description. Moreover, it does not accord with who the claimant stated it wished to proceed against, an appropriate holding company.
I turn to the question of discretion. If I am wrong as to whether the identity of the person who was intended to be sued should have been apparent on reasonable inquiry to the other party, here the Willis entities, the question is whether, in the exercise of discretion, the substitution should be allowed. I accept Mr Stafford-Michael's submissions that this is in a sense like a strike out, because not to the permit the substitution would be to prevent the merits of a dispute coming before the court because of a limitation period. But that is the nature of limitation periods.
I also understand that the claimants found difficulties in identifying proper defendants. Those difficulties largely arose because of the lateness of the instructions to their present solicitors in respect of these claims almost at the expiry of the limitation period. When the claim form was issued the claimants accepted that they were unable to plead the particulars of case at that stage. They assumed they would get information within a four-month period. I accept that they sought to get that information in a timely way and, save for their omission to make an application for an extension of time for the particulars, once they started acting, after the issue of the claim form, they did not delay.
However, there is no explanation whatsoever as to what happened in the six years from the date of the settlement. The problem of the unknown policies was known then. Secondly, it does not appear, it is not said, and Mr Stafford-Michael did not suggest otherwise, that any research had been conducted prior to the service of the claim form to identify the correct defendant. Thirdly, the defendant was unaware of this claim on any view until after the expiry of the limitation period. In Adelson's case the Court of Appeal (at paragraph 57) approved the statement of Keene LJ in Horne-Roberts v SmithKline Beecham [2002] 1 WLR 1662 at paragraph 42. Keene LJ said that in such a case the court would be likely to exercise its discretion against permission to make the amendment. That is the position in this case. In these circumstances, where there has been no explanation given as to what happened during the six years before Scanlan & Co were instructed, the claimant provides no reason to displace that general predisposition.
Fourthly, at the time the claim form was issued the claimant could not plead its claim. Mr Dougherty relied on the decision of Cooke J in Nomura v Granada Group [2007] EWHC 642 to the effect that it is an abuse of process to issue a claim form in such circumstances. In particular he relied on paragraph 38 of the judgment. There are differences between this case and that one. There is more detail in the claim form in this case than there was in the Nomura case. The claim in this case is not contingent. But paragraph 38 of the judgment in Nomura indicates that a claimant must be in a position to proceed and formulate particulars of claim when the claim form is issued. That this is so, it is also seen from CPR 7.7 whereby a defendant may call for a claim form to be issued on 14 days' notice.
In this case the claimant could not plead until a considerable time after the claim form was issued. It could not do so until March of this year. It did not know which documents had been lost. It could not particularise those, and, it could not particularise the basis of the negligence claim or the loss suffered because of that negligence. See in particular the emails sent to Mr Cooke of Navigam(?) dated 25 November which states that the claim cannot proceed without identifying the missing market policies. See also the letters dated 3 December to Peter Judge seeking disclosure, to Holmans dated 19 January, and Mr Scanlan's second and fourth statements, respectively paragraphs 16 and 17.
While recognising the differences between this case and the factual scenario that Cooke J was considering, the inability of the claimant to formulate particulars of claim at the time of where was the claim form was issued is not a mere formality but went to substance. There are other procedural defects which Mr Dougherty relied on, the service of Master Fontaine's order without the application notice, and service of the amended claim without the particulars of claim, and the fact that the particulars of claim were not served prior to the expiry of the claim form. I have taken these into account, but they are make-weight arguments, not in themselves of significance.
For the reasons I have given, however, I allow the defendant's application to set aside Master Fontaine's order. In these circumstances it is not necessary for me to consider the claimant's application. | 2 |
Opinion of Mr Advocate General La Pergola delivered on 6 March 1997. - Bioforce GmbH v Oberfinanzdirektion München. - Reference for a preliminary ruling: Finanzgericht München - Germany. - Common customs tariff - Heading 3004 - Echinacea - Medicament. - Case C-405/95.
European Court reports 1997 Page I-02581
Opinion of the Advocate-General
I - Introduction
1 In these proceedings the Court is called upon to define what constitutes a `medicament'. The question is whether the provisions of the Common Customs Tariff (`CCT') concerning medicaments can be applied to preparations made of Echinacea purpurea extract.
II - Facts
2 On 31 May 1994 the Oberfinanzdirektion München (Principal Revenue Office, Munich, Germany) issued the applicant Bioforce GmbH with a binding notice of customs tariff classification in which it stated that the product in question, consisting of Echinacea extract-based drops, must be classified under subheading 2208 90 69 of the Combined Nomenclature, `other spirituous beverages'. The applicant contested that notice in an action before the Finanzgericht München (Financial Court, Munich).
3 The substance whose tariff classification is in issue consists of a mixture of vegetable extracts (95% Echinacea purpurea e herba and 5% Echinacea purpurea e radice) and distilled alcohol with an alcoholic strength of 65% by volume. The preparation is sold retail in the form of drops or under the name `Echinaforce' in packages indicating their composition together with their use and recommended dosage.
The national court states that the therapeutic information notices supplied by the company manufacturing the product describe the drops in question as being `Traditionally used as a prophylactic: taken preventively, Echinacea Drops provide protection at times of increased risk of infection from colds and enhance resistance to feverish colds'. The recommended dose as a prophylactic is 20 drops taken in a little water three times a day. Echinaforce packages also recommend a dose of 20 drops three times a day for preventive purposes and, in cases of severe colds, 20 to 30 drops five times a day. The instructions for use go on to list contraindications.
4 The national court states further that, according to the notice issued by the Oberfinanzdirektion and contested by the applicant, the active substances in Echinacea have not as yet found universal recognition as medicaments. Accordingly, they could not be classified under heading 3004 of the Nomenclature. The applicant, for its part, maintains that Echinacea has been accepted as a medicinal product by the competent German authorities and by the health authorities of other European countries. Moreover, it claims that the prophylactic effects of taking Echinacea are sufficient to warrant its inclusion among the products coming under heading 3004. Moreover, the applicant points out, Echinacea is normally sold as a medicinal product in German pharmacies.
5 In order to settle the dispute it is necessary to interpret the provisions of Community law contained in the CCT, and the national court has decided that it must refer the following questions to the Court of Justice for a preliminary ruling:
`(1) Is the Common Customs Tariff - Combined Nomenclature 1994 - to be interpreted as meaning that products such as Echinacea Drops (extract of echinacea purpurea e herba and e radice in 56.1% alcohol by weight, for protection against colds and influenza and for strengthening resistance to colds) are to be classified under heading 3004 - Medicaments consisting of unmixed products for therapeutic or prophylactic uses, put up ... for retail sale?
(2) If not, is the Common Customs Tariff to be interpreted as meaning that products such as those referred to in Question 1 are to be classified as "other" spirituous beverages under subheading 2208 90 69?'
III - Relevant provisions
6 Council Regulation (EEC) No 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff (1) introduced a combined nomenclature. Pursuant to Article 12 thereof, for the year 1994 the Commission adopted Regulation (EEC) No 2551/93 of 10 August 1993 (2) which sets out all the rates of duty under the CCT.
7 Chapter 22 of the CCT covers `Beverages, spirits and vinegar'.
Heading 2208 concerns the following products:
`Undenatured ethyl alcohol of an alcoholic strength by volume of less than 80% vol: spirits, liqueurs and other spirituous beverages; (...)'.
Subheading 2208 90 69 covers `other spirituous beverages'.
Note 1(e) of the introductory notes to Chapter 22 of the CCT expressly states that that chapter does not cover `medicaments of heading No 3003 or 3004'.
8 Chapter 30 of the Common Customs Tariff concerns `Pharmaceutical products'.
Heading 3004 covers:
`Medicaments (...) consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses or in forms or packings for retail sale'.
It follows from Note 1(a) of the introductory notes to Chapter 30 of the CCT that that chapter does not cover `foods or beverages such as dietetic, diabetic or fortified foods, food supplements, tonic beverages and mineral waters'.
IV - Analysis of the dispute
9 In essence, the dispute which the Court is asked to resolve concerns the definition of `medicament' to be used for the purpose of deciding whether or not the products in question should be included in tariff heading 3004. The Court has already been called upon to give a ruling on a similar question in which the issue was the customs classification of hawthorn drops. (3) It should also be borne in mind that the term medicament is used in Community legislation (4) and has been the subject of several judgments delivered by this Court, of which Case C-219/91 Ter Voort (5) is of particular relevance to the present case. Those judgments define the framework within which the problem now submitted for the Court's consideration must be considered and resolved.
10 Let me now turn to the first question, which is whether the product concerned is a medicament. What meaning should we give to the concept of `Medicaments (...) consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses or in forms or packings for retail sale' used in heading 3004 of the Common Customs Tariff? In its observations the Commission states that in the circumstances of this case classification as a medicament is precluded by the explanatory notes to Chapter 30 of the Common Customs Tariff. The rule is that `The description of a product as a medicament in Community legislation (other than that relating specifically to classification in the combined nomenclature) or in the national legislation of the Member States, or in any pharmacopoeia, is not the deciding factor in so far as its classification in (...) [C]hapter [30] is concerned'. However, the Commission interprets that rule in one way only: it considers that the fact that a product is classified as a medicament for other purposes does not mean or necessarily imply that it is covered by the heading concerning medicaments in the Common Customs Tariff.
11 I, however, am not persuaded by that reading of the provision. Were it to be adopted, the result would be the introduction of further classification criteria other than those required by the facts and by the Community legislation, in order to be able to determine whether or not a particular product falls into the category of medicaments for the purposes of the Common Customs Tariff. I take the view that the first mentioned rule of interpretation means something else, much simpler and more logical. The provision merely sets out a criterion for interpretation which the Court has, moreover, had occasion to define in the `hawthorn drops' judgment. The Court specifically ruled that it is necessary to consider the actual nature of the product, that is to say that the characteristics and properties of the product must be objectively appraised. It should be added that, in the light of Ter Voort, it is also necessary to establish how the product is regarded by averagely well-informed consumers in order to decide whether or not it is covered by the tariff heading in question. The fact that the official pharmacopoeia of a Member State counts a particular product as a medicament may therefore constitute one criterion of assessment, but is not the only valid evidence for that purpose. Similarly, the fact that the product is not among those listed in the pharmacopoeia does not, to my mind, prove conclusively that it is not a genuine medicament.
12 Furthermore, Community legislation very clearly draws the distinction which I have pointed out. According to Article 1(2) of Directive 65/65/EEC, cited above, a medicinal product is `any substance or combination of substances presented for treating or preventing disease in human beings or animals. Any substance or combination of substances which may be administered to human beings or animals with a view to making a medical diagnosis or to restoring, correcting or modifying physiological functions in human beings or animals is likewise to be considered a medicinal product'.
Thus Community legislation provides a definition of medicinal product `by virtue of presentation'. It should be noted that Advocate General Tesauro, in his Opinion in Ter Voort, cited above, stated that `the definition of a medicinal product "by virtue of presentation" also covers products indicated or recommended as having therapeutic or prophylactic properties by oral representation and, more generally, all products which appear to the averagely well-informed consumer in the light of their presentation to be medicinal products'. (6) Mr Tesauro went on, in the same Opinion, to assert that `even a product which is generally regarded as a foodstuff and, in the present state of scientific knowledge, has no pharmacological properties whatsoever, falls within the Community definition of a medicinal product by virtue of its presentation within the meaning of the first paragraph of Article 1(2) of Directive 65/65 where it is presented by the seller or a third party linked to the seller as having therapeutic or prophylactic properties'. The Court fully endorsed the Advocate General's point of view, declaring that: `even if it comes within the scope of other, less stringent Community rules, such as the rules on cosmetic products, a product must be held to be a medicinal product and be made subject to the corresponding rules if it is presented as possessing therapeutic or prophylactic properties or if it is intended to be administered with a view to restoring, correcting or modifying physiological functions. Moreover, the fact that a product is in the nature of a foodstuff cannot prevent it from being categorized as a "medicinal product" within the meaning of the provisions of the first subparagraph of Article 1(2) of Directive 65/65 in so far as the indication or recommendation of its therapeutic or prophylactic properties is in itself of such a kind as to cause it to be regarded as a product presenting the characteristic properties of a therapeutic substance, that is to say, a medicinal product'. (7)
13 In the light of the foregoing, I am inclined to consider that there are various factors which come into play in determining whether or not a product is a medicament for the purposes of heading 3004: in addition to the official classification in the pharmacopoeia, the product's particular properties as indicated on the packaging, the manner in which it is presented for sale, its recommended use, the method of administration, the place in which it is marketed, and also the general perception of the substance as being a medicinal product, constitute useful criteria and relevant evidence for the purpose of determining its classification in one heading or another of the Common Customs Tariff.
In any event, it would be impossible to consider a different interpretation which would imply that the Community legislature intended to lay down contradictory rules: such a conclusion could only create confusion for those called upon to apply the law and lead to a situation of legal uncertainty as to the true definition of a medicament. That definition cannot vary according to whether it is a question of applying the rules governing the pharmacological sector or of placing the product in the appropriate heading of the Common Customs Tariff.
14 Furthermore, the Commission's observation that the product in question is not used for the treatment or prevention of a specific illness in a particular part or area of the body, but rather performs a generic prophylactic function is not pertinent. If the condition which the Commission considers necessary were really fundamental and necessary in order for a preparation to be classed as a medicament, a whole series of substances which are undeniably medicaments and which have a definite broad-spectrum prophylactic and/or preventive function, such as antibiotics or immunizing substances, or which, like aspirin, have various functions, could not be classified in heading 3004.
15 In the case with which we are concerned, without prejudice to the more detailed assessment of the facts which naturally falls to the national court, it is certain, for example, that the presentation of the product and its recommended administration make it impossible to contemplate its use for other than medicinal purposes. It does not display any particular organoleptic properties making it suitable for different usage, thus transforming it into a drink for consumption in moments of relaxation or at other times. To my mind, its unambiguous usage, together with the other criteria already considered, constitutes decisive evidence for the purposes of the possible classification of the product in question as a medicament under the Common Customs Tariff, irrespective of its actual pharmacological nature and the proven presence of active principles with an efficacious therapeutic or prophylactic action. This argument inter alia was upheld by the Court in its judgment in Colin and Dupré. (8)
16 The other observations submitted by the Commission in order to show that heading 3004 of Common Customs Tariff cannot cover products such as those involved in this case are not, in my view, well founded. The distinction which the Commission seeks to draw between medicaments and tonic beverages under heading 2208 does not seem to me to be relevant: the action on the human body of the food supplements to which the Commission refers cannot be regarded as the transformation or alteration of a physiological function. On the other hand, Echinacea Drops cause a real increase in phagocytosis: the Commission, nevertheless, disputes the view that the change brought about by taking the product concerned is sufficient to enable it to be classified as a medicament. The Commission, however, confuses supplementing substances in which the body is deficient (vitamins and minerals) with the actual alteration of a normal physiological process. Nor is it relevant in this respect that, as the Commission is anxious to point out, there are substances which, while capable of effecting a change in the body, are none the less classified as food supplements: the difference in those cases is that those substances do not have the primarily therapeutic or prophylactic purpose of fighting or preventing disease. The cases cited by the Commission concern substances which do not in themselves contain active ingredients intended to cure or prevent disease (for example, food preparations for use against obesity) and which are not as a rule designed to have prophylactic or therapeutic effects on the body, but to act as adjuvants to other substances.
17 In case the Court should decide that the product in question does not possess the character of a medicament, I shall set out below - purely in the alternative - some further considerations as to how it could be given a different classification. In the `hawthorn drops' judgment, the Court had occasion to state that, as regards the product then under consideration, `(...) as also emerges from the documents before the Court, the alcohol contained in the product, however high the percentage may be, does not change its nature. On the contrary, its function is to act as an adjuvant, a preservative and a vehicle for the active principles of the said product'. Similar observations may hold true for the product at issue in this case. That finding of the Court means that in this case too it may be stated that the presence of alcohol in the mixture concerned does not give rise to the conclusion that the product is an alcoholic beverage coming within heading 2208 90 69, as on the contrary the defendant would have it. In the light of the foregoing considerations, the only classification left is under heading 1302 (Vegetable saps and extracts).
V - Conclusion
18 In the light of the considerations set out above, I propose that the Court reply as follows to the question referred by the Finanzgericht München:
Heading 3004 of the customs tariff nomenclature contained in Commission Regulation (EEC) No 2551/93 of 10 August 1993 must be interpreted as including a product used exclusively for therapeutic or prophylactic purposes and composed of a vegetable extract and a solution of alcohol where that preparation, regardless of its classification in the pharmacopoeia, is presented as a medicament and is normally regarded as acting as such on the basis of the following features: the product's characteristic properties, method of administration, packaging and presentation, principal place of sale, recommended use, dosage and general recognition of its medicinal characteristics by averagely well-informed consumers.
(1) - OJ 1987 L 256, p. 1.
(2) - OJ 1993 L 241, p. 1.
(3) - Case C-177/91 Bioforce v Oberfinanzdirektion München [1993] ECR I-45.
(4) - Council Directive 65/65/EEC of 26 January 1965 on the approximation of provisions laid down by law, regulation or administrative action relating to proprietary medicinal products (OJ, English Special Edition 1965-66, p. 20).
(5) - [1992] ECR I-5485.
(6) - Opinion of Mr Tesauro in Case C-219/91 Ter Voort ECR I-5496, at p. 5498.
(7) - Ter Voort, cited above, paragraphs 19 and 20.
(8) - Joined Cases C-106/94 and C-139/94 Colin and Dupré [1995] ECR I-4759, paragraph 28. | 5 |
FOURTH SECTION
CASE OF URÍK v. SLOVAKIA
(Application no. 7408/05)
JUDGMENT
STRASBOURG
21 December 2010
FINAL
21/03/2011
This judgment has become final under Article 44 § 2 of the Convention. It may be subject to editorial revision.
In the case of Urík v. Slovakia,
The European Court of Human Rights (Fourth Section), sitting as a Chamber composed of:
Nicolas Bratza, President,David Thór Björgvinsson,Ján Šikuta,Päivi Hirvelä,Ledi Bianku,Nebojša Vučinić,Vincent A. de Gaetano, judges,and Lawrence Early, Section Registrar,
Having deliberated in private on 30 November 2010,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 7408/05) against the Slovak Republic lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a Slovak national, Mr Ladislav Urík (“the applicant”), on 7 February 2005.
2. The applicant was initially represented by Mr L. Potocký and, subsequently, by Mr Š. Bucha, lawyers practising in Žilina. The Government of the Slovak Republic (“the Government”) were represented by their Agent, Mrs M. Pirošíková.
3. On 12 March 2009 the President of the Fourth Section decided to give notice of the application to the Government. It was also decided to rule on the admissibility and merits of the application at the same time (Article 29 § 1).
THE FACTS
THE CIRCUMSTANCES OF THE CASE
4. The applicant was born in 1938 and lives in Plevník - Drienové.
A. Inheritance proceedings before the State Notary in Považská Bystrica in case no. D186/61, subsequently before the Považská Bystrica District Court in cases nos. D1133/98, Dnot 652/96
5. Inheritance proceedings in respect of the applicant's father's estate were concluded by a decision of 31 July 1962. The stamp on that decision indicates that it became final on 27 October 1962.
6. On 17 February 1995 the Banská Bystrica Regional Court, upon the appeal of an heir lodged on 15 October 1962, quashed the above decision on the ground that it (i) had been issued without sufficient establishment of the facts and (ii) could not be reviewed for lack of reasons. On 6 March 1995 the case file was remitted for further examination to the Považská Bystrica District Court which had taken over similar cases in the meantime.
7. On 13 July 1998 the district court discontinued the proceedings since the matter at issue was a res iudicata. The district court stated that the decision of the State Notary of 31 July 1962 had become final on 27 October 1962 and that no new assets had been found. On 31 May 1999 the Trenčín Regional Court quashed the decision of 13 July 1998 and remitted the case file for further examination to the first-instance. It reasoned that the decision of the State Notary of 31 July 1962 had been quashed by the Banská Bystrica Regional Court on 17 February 1995 and the case file had been remitted for further examination. On 25 May 2000 the Supreme Court rejected the applicant's appeal on points of law lodged against the decision of the Trenčín Regional Court of 31 May 1999.
8. On 25 March 2004 the district court stayed the inheritance proceedings pending the outcome of another set of civil proceedings (file no. 6 C 156/04, see below). On 15 July and 18 November 2004 the district court corrected errors in its decision. The district court decided on the applicant's appeal in its decision of 5 May 2005. The decision to stay the inheritance proceedings became final on 3 June 2005.
9. In the subsequent period, the district court repeatedly verified whether the related civil proceedings had ended. The inheritance proceedings are still stayed.
B. Civil proceedings case no. 6 C 156/04
10. On 18 March 2010 the Považská Bystrica District Court delivered a judgment. Those proceedings are now pending before the appellate court.
C. Civil proceedings case no. 3 C 845/01
11. On 7 March 2002 the Považská Bystrica District Court dismissed the applicant's claim to have a donation contract declared null and void. On 22 April 2003 the Trenčín Regional Court confirmed the judgment.
D. Constitutional proceedings
1. Case no. III. ÚS 15/06
12. On 10 May 2006 the Constitutional Court found that the Považská Bystrica District Court had violated the applicant's right to a hearing without unjustified delay in proceedings nos. D1133/98, Dnot 652/96.
13. The Constitutional Court awarded 60,000 Slovakian korunas to the applicant as just satisfaction in respect of non-pecuniary damage and ordered reimbursement of the applicant's legal costs. It did not order the district court to avoid further delays as the inheritance proceedings were stayed pending the outcome of related civil proceedings.
14. The Constitutional Court noted that (i) it had jurisdiction to examine the duration of the proceedings only as from 15 February 1993 and (ii) until 6 March 1995 the district court had correctly assumed that the inheritance proceedings had been concluded by a final decision. Therefore, it examined the delays which had occurred in the proceedings only after 6 March 1995. It further stated that even after that date the proceedings had lasted nine years and the district court had been responsible for four years and nine months of delays.
2. Case no. Rvp 1289/04
15. A Constitutional Court judge informed the applicant in a letter of 24 August 2004 that his submission concerning the proceedings before the Považská Bystrica District Court in case no. 3 C 845/01 did not comply with the formal requirements for proceedings before the Constitutional Court.
3. Case no. III. ÚS 84/2010
16. On 18 February 2010 the Constitutional Court rejected the applicant's complaint about the length of unspecified proceedings before the Považská Bystrica District and Regional Court and the State Notary as falling short of the statutory requirements.
THE LAW
I. ALLEGED VIOLATION OF ARTICLE 6 § 1 OF THE CONVENTION
17. The applicant complained about the course and outcome of the above sets of proceedings. He further alleged that the length of the inheritance proceedings and of the related civil proceedings (file no. 6 C 156/04) had been incompatible with the “reasonable time” requirement. He relied on Article 6 § 1 of the Convention, which reads as follows:
“In the determination of his civil rights and obligations ..., everyone is entitled to a fair and public hearing within a reasonable time by [a] ... tribunal...”
A. Admissibility
1. Inheritance proceedings before the State Notary in Považská Bystrica in case no. D186/61, subsequently before the Považská Bystrica District Court in cases nos. D1133/98, Dnot 652/96
(a) Alleged length of the inheritance proceedings
18. The Government admitted that a stamp on the State Notary's decision of 31 July 1962 had indicated that it had become final on 27 October 1962. However, on 17 February 1995, the regional court, upon appeal lodged by one party to the proceedings on 15 October 1962, quashed the decision and remitted the case to the district court for further examination. Therefore, the Government stated that the decision of 31 July 1962 had not become final in 1962. They further argued that the Constitutional Court correctly examined only the period after 6 March 1995 when the proceedings had been pending before the district court upon return of the case file from the regional court. They stated that until that date the district court had correctly assumed that the decision of 31 July 1962 had become final.
19. The Government expressed the view that the applicant could no longer claim to be a victim of a violation of his right to a hearing within a reasonable time. They argued that the Constitutional Court had expressly acknowledged such a violation and had awarded the applicant sufficient just satisfaction for non-pecuniary damage suffered. The applicant should have lodged a fresh constitutional complaint in respect of the subsequent period in the inheritance proceedings as well as in respect of the related civil proceedings (file no. 6 C 156/04).
20. The applicant contested the above arguments and stated that he had used the remedies available and that he was still a victim of a violation of his right to a hearing within a reasonable time.
21. The Court notes that it is not clear from the parties' submissions whether it was the State Notary, the Považská Bystrica District Court or the Banská Bystrica Regional Court which kept the appeal lodged by an heir for nearly thirty-three years. The Court has only limited power to examine alleged errors of facts or law imputed to the national courts. However, it is to be noted that on 17 February 1995 the Banská Bystrica Regional Court, upon appeal lodged on 15 October 1962, quashed the decision of 31 July 1962. The first-instance decision had thus not become final in 1962 as indicated by the stamp. This fact cannot be imputed to the applicant.
22. Accordingly, the period to be taken into consideration began on 18 March 1992, when the recognition by the former Czech and Slovak Federal Republic, to which Slovakia is one of the successor States, of the right of individual petition took effect. However, in assessing the reasonableness of the time that elapsed after that date, account must be taken of the state of proceedings at the time.
23. The Court finds that the Constitutional Court, by reviewing only the period after 6 March 1995, when the case file had been returned from the regional court, had refused to examine the duration of the entire relevant period which the Court has jurisdiction to examine.
24. In these circumstances, the manner in which the applicant's complaint was dealt with by the Constitutional Court failed to meet the purpose of protection of his right under Article 6 § 1 of the Convention to a hearing within a reasonable time, as interpreted and applied by the Court.
25. The period in question ended on 3 June 2005 when the inheritance proceedings were stayed pending the outcome of the related civil proceedings.
26. The period under consideration thus lasted 13 years and more than 2 months at three levels of jurisdiction.
27. The Court considers, in the light of the criteria established by its case-law on the question of “reasonable time”, and having regard to all the material in its possession, that this complaint is not manifestly ill-founded within the meaning of Article 35 § 3 of the Convention. There are no other grounds for its inadmissibility. It must therefore be declared admissible.
(b) Alleged unfairness of the proceedings
28. The applicant complained that the manner, in which the domestic courts had dealt with the case, was contrary to his right to a fair hearing guaranteed under Article 6 § 1 of the Convention.
29. The Court notes that the inheritance proceedings have been stayed pending the outcome of related civil proceedings. The complaint of their alleged unfairness is therefore premature.
30. It follows that this complaint must be rejected under Article 35 §§ 1 and 4 of the Convention for non-exhaustion of domestic remedies.
2. Civil proceedings case no. 6 C 156/04 and case no. 3 C 845/01
31. The applicant failed to show that he had raised the complaints now made to the Court in respect of the above two sets of proceedings in a complaint to the Constitutional Court under Article 127 of the Constitution, lodged in accordance with the applicable statutory requirements.
32. It follows that these complaints must also be rejected under Article 35 §§ 1 and 4 of the Convention for non-exhaustion of domestic remedies.
B. Merits
33. The applicant argued that the inheritance proceedings had lasted an unreasonably long time.
34. The Government pointed to the Constitutional Court's finding and admitted that the complaint about the length of the proceedings was not manifestly ill-founded.
35. The Court reiterates that the reasonableness of the length of proceedings must be assessed in the light of the circumstances of the case and with reference to the following criteria: the complexity of the case, the conduct of the applicant and the relevant authorities and what was at stake for the applicant in the dispute (see, among many other authorities, Frydlender v. France [GC], no. 30979/96, § 43, ECHR 2000-VII).
36. The Court has frequently found violations of Article 6 § 1 of the Convention in cases raising issues similar to the one in the present case (see Frydlender, cited above).
37. Having examined all the material submitted to it, the Court considers, having regard to its case-law on the subject that in the instant case the length of the proceedings was excessive and failed to meet the “reasonable time” requirement.
38. There has accordingly been a breach of Article 6 § 1.
II. OTHER ALLEGED VIOLATIONS OF THE CONVENTION
39. On 23 June 2010 the applicant's representative submitted additional observations which had not been solicited by the Court. In that context, he alleged a violation of Article 13 of the Convention and Article 1 of Protocol No. 1 to the Convention.
40. However, in the light of all the materials in its possession, and to the extent that these complaints are substantiated and fall within its competence, the Court finds that they do not disclose any appearance of a violation of the rights guaranteed under the Convention or its Protocols.
41. It follows that this part of the application is manifestly ill-founded and must be rejected in accordance with Article 35 §§ 3 and 4 of the Convention.
III. APPLICATION OF ARTICLE 41 OF THE CONVENTION
42. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
A. Damage
43. Within the time-limit set for that purpose and without claiming any specific amount, the applicant argued that he had suffered non-pecuniary damage. He stated that the amount awarded by the Constitutional Court was not sufficient.
44. The Government requested the Court to award the applicant compensation for non-pecuniary damage to the extent justified and to take into account the just satisfaction already granted to him by the Constitutional Court.
45. Even in the absence of quantification, the Court accepts that the applicant has suffered non-pecuniary damage which would not have been sufficiently compensated by the finding of a violation. Making its assessment on an equitable basis and having regard to the circumstances of the case and the award made by the Constitutional Court, the Court awards the applicant EUR 5,100 under this head.
B. Costs and expenses
46. Within the time-limit set for that purpose the applicant also claimed EUR 1,927 for the costs and expenses incurred before the domestic courts and for those incurred before the Court.
47. The Government had no objection against the award of a demonstrably and necessarily incurred sum.
48. According to the Court's case-law, an applicant is entitled to the reimbursement of costs and expenses only in so far as it has been shown that these have been actually and necessarily incurred and were reasonable as to quantum. In the present case, the Court found a violation of the applicant's right to a hearing within a reasonable time. The documents submitted indicate that the costs and expenses which the applicant actually and necessarily incurred in that respect in the proceedings before the Court amount to EUR 96. Therefore, regard being had to the above criteria, the Court awards the applicant that sum.
C. Default interest
49. The Court considers it appropriate that the default interest should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT UNANIMOUSLY
1. Declares the complaint under Article 6 § 1 of the Convention concerning the excessive length of the inheritance proceedings admissible and the remainder of the application inadmissible;
2. Holds that there has been a violation of Article 6 § 1 of the Convention;
3. Holds
(a) that the respondent State is to pay the applicant, within three months from the date on which the judgment becomes final in accordance with Article 44 § 2 of the Convention, the following amounts:
(i) EUR 5,100 (five thousand one hundred euros), plus any tax that may be chargeable, in respect of non-pecuniary damage;
(ii) EUR 96 (ninety-six euros), plus any tax that may be chargeable to the applicant, in respect of costs and expenses;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;
4. Dismisses the remainder of the applicant's claim for just satisfaction.
Done in English, and notified in writing on 21 December 2010, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Lawrence EarlyNicolas BratzaRegistrarPresident
| 0 |
Opinion of Mr Advocate General Tesauro delivered on 24 October 1996. - Kingdom of Spain v Commission of the European Communities. - State aids - Aid for the construction of a steel foundry in the Province of Teruel, Spain. - Case C-169/95.
European Court reports 1997 Page I-00135
Opinion of the Advocate-General
1 By application brought under Article 173 of the EC Treaty, the Kingdom of Spain requests the Court to annul Commission Decision 95/438/EC of 14 March 1995 concerning investment aid granted by Spain to the company Piezas y Rodajes SA, a steel foundry located in Teruel province (Aragon), Spain (1) (hereinafter `the decision'). In the decision the Commission declared the aids in question unlawful and incompatible with the common market and ordered their recovery.
In support of its application, the Spanish Government pleads an infringement of Article 92(3)(a) of the EC Treaty and a manifest error vitiating the appraisal of the facts on which the Commission based its decision to declare the aids incompatible, together with breach of the principle of proportionality and of the principle of the protection of the legitimate expectations of the recipients, in relation to the imposition of recovery together with interest for late payment decided by the Commission.
Facts
2 The facts underlying this dispute date back to the beginning of the 1990s when the Spanish authorities granted the aids in question to Piezas y Rodajes SA (hereinafter `PYRSA') for an investment programme having a total value of PTA 2 788 300 000. Those aids, intended for the construction, in the province of Teruel, of a foundry to produce sprockets and GET parts (used in the construction of earth-moving and excavation equipment), consisted more particularly of:
(a) a grant of PTA 975 905 000 from the Spanish Government;
(b) grants and other aid from various local authorities, in particular:
- a grant of PTA 182 000 000 from the Autonomous Community of Aragon;
- a grant of PTA 2 300 000 from the municipality of Monreal del Campo;
- a guarantee on a bank loan of PTA 490 000 000 from the Autonomous Community of Aragon;
- interest-rate subsidies of 7% for five years on the abovementioned loans, from the Provincial authority of Teruel.
3 On 24 April 1991, following a complaint by William Cook plc, a major European undertaking in the foundry sector (hereinafter `Cook'), the Commission adopted Decision 91/C 178/04 (NN 12/91) `to raise no objections' to the aids granted to PYRSA by the Spanish authorities. (2)
The decision was challenged by Cook before the Court which annulled it by judgment of 19 May 1993. (3) Annulment was founded essentially on the fact that, although the Commission was faced with a situation calling for in-depth analysis and subsequent checks, it established that there was no overcapacity in the relevant sub-sector and decided to raise no objections to the aids, without initiating, as it should have done, the procedure under Article 93(2) of the Treaty.
4 On 28 July 1993, following the judgment by the Court, the Commission initiated the procedure laid down in the aforementioned Article 93(2), and concluded it by adopting the decision which forms the subject-matter of this action. As already mentioned, the decision declared the aids in question unlawful and incompatible with the common market and ordered their recovery, together with interest calculated from the date on which the aid was paid.
5 The decision is essentially based on an evaluation of the sectoral impact of the aids in question, which was carried out by the Commission on the basis of information and data supplied to it by interested third parties who had been invited to submit observations, (4) and on the study made by an independent expert. As is apparent from the reasoning of the decision, the conclusion of that evaluation may be summarized as follows:
- contrary to the position which the Commission had adopted previously, the reference sector for the evaluation of the effects of the contested aids is not the sub-sector for sprockets and GET parts but the steel foundry sector as a whole;
- this sector (and also, in any event, the sub-sector of sprockets and GET parts) was characterized, as regards the years to which the data collected by the Commission relate (1990 to 1993), by manifest and increasing overcapacity;
- even in the absence of precise information in that connection, on the basis of the table of data from the Committee of European Foundry Associations (CAEF), it may be presumed that already in 1988 (the year in which the Spanish Government approved the aids and started to pay them) the sector was characterized by levels of overcapacity equivalent to, if not higher than, those of the following years;
- the aids in question which are incompatible with the common market for the reasons given above cannot benefit from the exception provided for in Article 92(3)(a) of the Treaty since they contribute to exacerbating the situation of overcapacity in the sector; consequently, although they are aids granted to an undertaking located in a region where the standard of living is abnormally low and there is serious underemployment, (5) the criteria for the application of that exception, as laid down in the Court's recent case-law, are not met; (6)
- nor do the aids at issue come within the exception laid down in Article 92(3)(c) of the Treaty because, although they may facilitate the development of the region in which the beneficiary undertaking within the meaning of this provision is located, they are such as to adversely affect trading conditions to an extent contrary to the common interest.
The first plea
6 In its first plea the Spanish Government, as indicated above, submits that the Commission has infringed Article 92(3)(a) of the Treaty. In particular, the applicant Government maintains that, when evaluating the compatibility with the common market of the aids granted to undertakings established in the regions which fall to be considered for the application of that article, the Commission should essentially take into account the likely positive effects of the aids themselves on the economic development of the region in question, rather than the possible negative consequences of those aids on trading conditions.
In other words, according to the Spanish Government, for the purposes of Article 92(3)(a) of the Treaty, the requirements of the protection of the common interest, which must none the less be taken into consideration, do not necessarily prevail when it is a question of evaluating the compatibility with the common market of aids which, as in the present case, may significantly contribute to the development of an underdeveloped region. That interpretation, it says, is corroborated by subparagraph (c) of the same article; that provision, which concerns both sectoral aids and regional aid (without, moreover, stipulating that they must be underdeveloped areas), makes those aids subject to the express condition that they do not adversely affect trading conditions `to an extent contrary to the common interest'; (7) that confirms, the Spanish Government says, that aid coming within the scope of subparagraph (a) of that article must be examined chiefly, if not exclusively, in the light of the benefits which they may bring for the development of the (underdeveloped) region in question.
A proper application of the provision in question implies, then, according to the Spanish Government, that where the aids in question were granted to an undertaking established in a region falling to be considered for the purposes of that provision, they were to benefit from the exception provided for by it.
7 I may say straight away that I do not agree with the interpretation of the provision in question proposed by the Spanish Government. In my opinion, the fact that Article 92(3)(a) does not expressly require the Commission to evaluate the effect of the aid on trading conditions and does not make compatibility of the aid subject thereto, does not allow the inference to be drawn that, in authorizing aid, the Commission may exempt itself from weighing adequately the Community interest. On the contrary I consider that even the permissibility of regional aid coming within the scope of Article 92(3)(a) must, in any event, be subject to an evaluation of the sectoral impact of the aid and its effects on trading conditions.
To accept the contrary view of the matter, as we are urged to do by the Spanish Government, would be tantamount to stating that aid having the characteristics set out in Article 92(3)(a) of the Treaty would be compatible with the common market irrespective of any evaluation of its sectoral impact or of its effects on trading conditions, which, quite evidently, is contrary to the logic underpinning the judgment in Cook v Commission, in which the Court annulled the Commission decision `not to raise objections' to the aids (although for regional purposes) granted to PYRSA, precisely because `it was not clear from the figures and statistics available ... whether or not there was overcapacity in the sprockets and GET parts sub-sector', `a complex analysis of the sub-sector in question' was therefore necessary and to that end, therefore, it should have initiated the procedure under Article 93(2) of the Treaty. (8)
8 In other words, as I already stated in my Opinion in the Cook v Commission case, I consider it essential that, even when applying the derogation provided for in Article 92(3)(a) of the Treaty, the Commission does not confine its attention only to the regional implications of a particular public measure, but must also determine the full extent of the sectoral repercussions which the measure itself is likely to have, in order to avert the possibility that, under cover of worthwhile regional objectives, artificial sectoral development can be brought into being which may produce harmful effects from the common interest point of view. (9)
Indeed it is clear that aid for regional purposes intended to finance productive investments in sectors characterized by structural overcapacity merely exacerbate the imbalances suffered by the markets in question, by bringing fresh pressures to bear on price levels and/or by transferring the sectoral economic difficulties, and the associated employment problems, to other regions of the Community and to the undertakings located there which are not in receipt of analogous aid. Consequently, such aids in no way appear to be consistent with the purpose of the regional aid scheme, which is to resolve effectively and on a permanent basis the development problems of the regions concerned, (10) and must therefore be declared incompatible with the common market.
9 As regards, in particular, the difference in wording between subparagraphs (a) and (c) of Article 92(3) of the Treaty, which is relied on by the Spanish Government in support of its proposition, it does not in my view call for any further remarks than those which I have already made. The reasons for this difference in wording (of provisions whose scope is in part the same) must in fact be sought purely and simply in the greater flexibility to be demonstrated by the Commission when evaluating the compatibility of aids whose prime purpose is to contribute to the economic development of the underdeveloped regions. Nevertheless, it goes without saying that, for the reasons I have just given, the requirements associated with protection of the common interest must be observed in order to prevent the positive effects of the aid on the beneficiary undertaking or on the region in which it is located from having negative repercussions on competitor undertakings or, worse still, on the economy of other regions of the Community which may in themselves also be underdeveloped. (11)
As regards the present case, I consider therefore that the Commission was entitled, on noting that the aids at issue could have contributed to worsening the situation in a sector already characterized by a high level of overcapacity, not to apply the derogation provided for in Article 92(3)(a) of the Treaty.
The first plea is therefore unfounded.
The second plea
10 In its second plea, I would remind the Court, the Spanish Government disputes the evaluation of the factual and legal circumstances on which the Commission based the contested decision. In particular, the applicant Government maintains that the statistical data and information used by the Commission are not representative because they were supplied by an insufficient number of undertakings which are moreover competitors of PYRSA. Also they refer to years (from 1990 on) later than those (1988 and 1989) when the decisions to grant the aids at issue were made and the aids paid.
11 In truth, these arguments appear to me to be unfounded as well. In the first place, as is clear from the decision itself, the Commission had regard not only to the data and information obtained from interested third parties but also to information provided by PYRSA itself, and by CAEF, which is a body sufficiently representative of the sector.
Furthermore, it should be remembered - and this seems to me to be the decisive fact - that the Commission also based itself on the results of a study commissioned from an independent expert, specifically in order to obtain objective information and assessments on certain questions of a technical nature. I consider therefore that the impartiality of the reconstruction of the facts by the Commission cannot be open to doubt.
12 As regards, specifically, the allegation going to the data taken into account by the Commission in order to evaluate the effects of the aids on the sector concerned, it is in my view also totally without foundation or relevance. In fact, on the one hand, it seems to me that the Commission's reasoning was correct when it inferred from the statistics of production capacity for 1990 and subsequent years, supplied by CAEF, that capacity in the two preceding years had been equivalent. The supposition that the level of overcapacity in the sector was in those years at least equal to what it was in the ensuing period is therefore entirely reasonable.
Moreover, it should be remembered, in any event, that the aids at issue did not consist of a single grant, but rather of grants of various kinds, certain of which were paid well after 1988. I am thinking for example of the grant of PTA 182 millions by the Autonomous Community of Aragon which, as is apparent from a letter sent to the Commission by the Spanish authorities themselves, was paid between 1990 and 1992. (12) Besides, some of those grants, irrespective of the date on which they were approved, by their very nature, were intended to be long-term, for example the loan guarantee in the amount of PTA 490 millions for a period of eleven years.
The second plea is therefore also without foundation.
The third plea
13 In its third plea the Spanish Government challenges the obligation to recover the aids at issue imposed on it by Article 3 of the decision. In particular, the applicant Government maintains that the aids at issue, even if deemed unlawful and incompatible with the common market, should not in any event be reimbursed because Commission Decision NN 12/91 `to raise no objections' to the grant thereof aroused in the beneficiary undertaking a legitimate expectation in the lawfulness of those aids which must be protected.
In view of that fact, the obligation to recover the aids at issue would in the present case be contrary to the principle of proportionality and the principle of the protection of legitimate expectations, which both form part of the Community legal order.
14 As is well known, the Court has on several occasions had the opportunity of ruling on the obligation imposed on beneficiary undertakings to reimburse unlawful aids in order to restore the status quo ante. In particular, it has held that recovery of such aids cannot in principle be regarded as disproportionate in relation to the objectives pursued by the Treaty provisions on State aids. (13)
As regards, specifically, the limits of the protection of legitimate expectations of beneficiaries in the lawfulness of aids already received and subsequently declared incompatible with the common market by the Commission, the Court has held that, whilst the principle of the protection of legitimate expectations forms part of the Community legal order, it can be applicable only if the aid in question was granted in compliance with the procedure provided for in that connection, on the ground that a prudent economic operator must normally be in a position to ensure that that procedure was in fact observed. (14)
Again as regards legitimate expectations in the lawfulness of illegal aids, the Court has drawn an important distinction between the situation of the undertaking in receipt of the aid and that of the Member State which has paid it. On the one hand, it held that `a recipient of illegally granted aid is not precluded from relying on exceptional circumstances on the basis of which it had legitimately assumed the aid to be lawful and thus declining to refund that aid'. (15) On the other hand, it has consistently prohibited a Member State which has granted aid in contravention of the applicable rules of procedure from relying `on the legitimate expectations of recipients in order to justify failure to comply with the obligation to take the steps necessary to implement a Commission decision instructing it to recover the aid'. (16)
15 It is evident that, in the present case, the aids were decided upon and also paid in contravention of the provisions of Article 93 of the Treaty and must therefore be considered unlawful. Accordingly, a straightforward application of the principles laid down by the Court should entail rejection as unfounded of the allegation made by the Spanish Government.
Notwithstanding that fact, the applicant Government points to the hopes aroused by Decision NN 12/91 in which the Commission essentially approved the aids at issue, and considers that in the present case there are exceptional circumstances, within the meaning of the case-law already cited, to give rise in the case of the beneficiary undertaking to a legitimate expectation in the legality of the aids at issue, whose protection must ultimately imply a bar on their recovery.
16 I acknowledge that the argument of the Spanish Government would in principle merit a certain attention. In fact, it is not possible in my view to rule out ab initio that, in view of the circumstances of the case, the beneficiary undertaking did in fact reasonably count on the legality of aids which, though granted illegally, were subsequently (though erroneously) approved by the Commission which adopted a formal decision in that connection. (17)
However, I do not believe that the context of the present procedure enables the Court to give its attention to the merits of the problem raised and to take it into consideration.
17 In fact, the Spanish Government is relying expressly (and solely) on the legitimate expectation of the undertaking in receipt of the aids in the legality thereof, in order to oppose their recovery. In other words, the applicant Government is contesting the obligation imposed on it by the decision to recover the aids at issue, by invoking a legal situation which is not its own, but that of another, the beneficiary undertaking, which is not a party to these proceedings, even as an intervener; it is doing that at best in the absence of any specific provision of law conferring on it any such rights of subrogation.
That fact militates, in my view decisively, in favour of rejection of the plea relied on by the Spanish Government.
18 The conclusion which I have just formulated seems to me, moreover, consistent with the principles laid down by the Court in this regard, even if this aspect of the problem has never been specifically reflected upon.
Indeed, it is not by chance that, as I have stated, the Court expressly precluded the possibility of a Member State's relying on the legitimate expectation of the beneficiary undertaking as a bar to recovery of that aid, although it has given that possibility to the beneficiary undertaking, albeit in exceptional circumstances. (18) Although it is implied, it is of course clear that the beneficiary undertaking can avail itself of this possibility only in the appropriate procedural context. (19)
Finally, then, I consider that that the third plea is equally without foundation and that the obligation to recover the aids granted to PYRSA imposed on the Spanish Government by the decision must be observed.
The fourth plea
19 In light of the conclusions which I have reached on the previous pleas, in particular on the third plea, I do not consider it necessary to form a view on the fourth, in which the Spanish Government challenges the calculation by the Commission of interest for late payment on the amounts to be recovered on the ground that the recovery obligation relates solely to aid granted after adoption of the decision challenged in these proceedings.
Clearly this plea would only become relevant if the Court were to uphold, at least in part, the third plea and if it were therefore necessary to make a fresh calculation of the amounts in question.
Conclusion
20 In light of the foregoing considerations I therefore propose that the Court should:
(1) dismiss the application;
(2) order the applicant Government to pay the costs.
(1) - OJ 1995 L 257, p. 45.
(2) - OJ 1991 C 178, p. 4. In fact, the decision concerned solely the grants made by the local authorities since the grant of PTA 975 905 000 made by the Spanish Government was considered to form part of a general regional aid scheme already notified to and approved by the Commission and, consequently, the compatibility of that grant with the common market was not at issue. Cook had, moreover, been advised of that finding by letter of 13 March 1991.
(3) - Case C-198/91 Cook v Commission [1993] ECR I-2487.
(4) - In addition to PYRSA itself and the Committee of European Foundry Associations which provided a table of data concerning steel foundry capacity in different European countries, these are competitor undertakings of PYRSA established in Spain, France, Italy, Germany and the United Kingdom.
(5) - The province of Teruel is in fact amongst the regions which may be considered for the application of Article 92(3)(a) which are expressly mentioned in a Commission communication on this point (OJ 1988 C 212, p. 2, in particular Point I(4) and Annex I).
(6) - The decision refers to the judgment in Joined Cases C-278/92, C-279/92 and C-280/92 Spain v Commission [1994] ECR I-4103 in order to assert that in that judgment the Court held that `an ad hoc decision may be regarded as regional aid compatible with Article 92(3)(a) if it does contribute to the long-term development of the region without adversely affecting the common interest and competitive conditions in the Community.' In fact this quotation is inaccurate, inasmuch as it reflects the Commission's orientation (paragraph 50). On this specific point the Court does not take a view until further on, when it recalls its settled case-law that, for the purposes of Article 92(3) of the Treaty, the Commission enjoys `a wide discretion, the exercise of which involves assessments of an economic and social nature which must be made within a Community context' (paragraph 51).
(7) - Article 92(3) of the Treaty is worded as follows: `The following may be considered to be compatible with the common market: (a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment; (...) (c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest.'
(8) - Judgment in Cook v Commission (cited at footnote 3), paragraphs 37 and 38.
(9) - Opinion delivered on 31 March 1993 in the Cook v Commission case, cited above, paragraph 53. That requirement, which was already expressly stipulated by the Commission in the First Report on Competition Policy (point 142), was reaffirmed in the communication on the method for applying Article 92(3)(a) and (c) to regional aid (cited above at footnote 5) where the Commission stated that, in order to come within the exception provided for in Article 92(3)(a) of the Treaty, the aid may not lead at Community level to excessive sectoral capacity such that the sectoral problem created at Community level becomes more serious than the initial regional problem.
(10) - Opinion cited above, paragraph 53.
(11) - This reasoning seems to me, moreover, to be entirely consistent not only with the viewpoints expressed on several occasions by the Commission (for example in the abovementioned communication of 1988) but also with the position adopted by Advocate General Jacobs in his Opinion in the Spain v Commission case (cited above at footnote 6; paragraphs 43 to 45), which the Spanish Government none the less relied on in support of its arguments.
(12) - See point V, fourth paragraph, of the decision.
(13) - See, for example, judgment in Case C-142/87 Belgium v Commission [1990] ECR I-959, paragraph 66.
(14) - Judgment in Case C-5/89 Commission v Germany [1990] ECR I-3437, paragraph 14.
(15) - In such a case it is for any national court before which the case comes to assess the circumstances of the case; Commission v Germany, cited above, paragraph 16.
(16) - Commission v Germany, cited above, paragraph 17; see also more recently the judgment in Spain v Commission, cited above, paragraph 76.
(17) - I would recall in this regard that in the only case in which the Court has acknowledged that the legitimate expectation of the undertaking in receipt of aid was entitled to judicial protection, it attached decisive importance specifically to the conduct of the Commission in the circumstances of the case. I refer to the judgment in Case 223/85 (RSV v Commission [1987] ECR 4617, paragraphs 16 and 17) in which the Court held that the delay (of more than 26 months) before the Commission had adopted a decision under Article 93(2) `could in the case in point establish a legitimate expectation on the applicant's part so as to prevent the Commission from requiring the Netherlands authorities to order the refund of the aid', even though it was clear that the aid had been paid prior to its notification.
(18) - Commission v Germany, cited above.
(19) - In practice, by an action under Article 173 of the Treaty, but brought by the undertaking itself before the Court of First Instance or, if appropriate, before the national court against the claim for recovery made by the State in implementation of the Commission decision. I would recall in that connection that the judgment in RSV v Commission (cited above at footnote 17) was precisely on an action for annulment brought (at the time before the Court) by the undertaking pleading legitimate expectation. | 7 |
FIRST SECTION
CASE OF SAKHVADZE v. RUSSIA
(Application no. 15492/09)
JUDGMENT
This version was rectified on 11 September 2012
under Rule 81 of the Rules of Court
STRASBOURG
10 January 2012
FINAL
09/07/2012
This judgment has become final under Article 44 § 2 (c) of the Convention. It may be subject to editorial revision.
In the case of Sakhvadze v. Russia,
The European Court of Human Rights (First Section), sitting as a Chamber composed of:
Nina Vajić, President,Anatoly Kovler,Peer Lorenzen,Elisabeth Steiner,Khanlar Hajiyev,Linos-Alexandre Sicilianos,Erik Møse, judges,and Søren Nielsen, Section Registrar,
Having deliberated in private on 6 December 2011,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 15492/09) against the Russian Federation lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a Russian national, Mr Teymuraz Zurabiyevich[1] Sakhvadze (“the applicant”), on 4 February 2009.
2. The applicant was represented by Mr F. Bagryanskiy, Mr A. Mikhaylov and Mr M. Ovchinnikov, lawyers practising in Vladimir. The Russian Government (“the Government”) were represented by G. Matyushkin, Representative of the Russian Federation at the European Court of Human Rights.
3. On 30 September 2009 the President of the First Section decided to give priority treatment to the application and to give notice of it to the Government. It was also decided to rule on the admissibility and merits of the application at the same time (Article 29 § 1).
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
4. The applicant was born in 1975 and is currently serving a prison sentence in the Vladimir region.
5. In 2004 and 2005 the applicant was convicted of a number of criminal offences and sentenced to eight years’ imprisonment. He has served his sentence in prisons in the Vladimir region.
A. The applicant’s medical conditions and health care from July 2006 to June 2009
6. From 20 July 2006 to 5 June 2009 the applicant was admitted to the tuberculosis unit in the hospital attached to Vladimir prison no. 3 (“the hospital”). On 5 June 2009 the applicant was transferred to medical facility LIU-8 in Kirzhach, in the Vladimir region.
1. The applicant’s account
7. The applicant raised the following specific grievances concerning his medical history and state of health.
(a) Myelopathy
8. On an unspecified date the applicant was diagnosed with cervical spinal myelopathy accompanied by motor neuron impairment. In 2009 he described his condition as follows. He could bend his left knee but his right knee only bent with severe pain. As a result, the applicant hardly ever moved and his leg muscles were atrophied. His right-hand fingers were crooked; it was painful when he tried to straighten them. He suffered from severe pain in his right hand, left shoulder, small of the back, knees, neck, left foot and hip. His right-hand palm, back and right hip were covered with sores. He had sores on his right-hand fingers which suppurated.
9. During his admission and stay in the hospital from July 2006 to June 2009 the applicant was examined by neurologist K. The applicant’s medical records indicate that the applicant was bedridden and, for a period of time, communicated with hospital staff by handwritten notes. The neurologist recommended an MRI scan and early release from prison on health grounds. For unspecified reasons, no MRI scan was carried out. Early release was refused in August 2006.
10. In September 2006 the applicant was examined by neurologist N., who prescribed physical therapy, vitamin-based treatment, pain relief medication and non-steroidal anti-inflammatory drugs. It was also recommended that the applicant be examined by a rheumatologist and a trauma specialist (see also paragraph 17 below). X-rays of the right wrist joint and left knee joint were indicated.
11. It is unclear what acts of medical care were performed in relation to the applicant’s myelopathy from September 2006 to February 2007.
12. In reply to a letter from the applicant’s lawyer, in February 2007 L., a neurologist at the Vladimir Region Clinical Hospital, wrote to him advising that myelopathy was a chronic and slowly progressing disease, leading to gradual deterioration of the patient’s condition with increased symptoms related to the motor function, level of awareness, the function of the pelvic organs and bedsores. The neurologist concluded that “complex therapy was required in a specialised medical institution, including an electromyography (EMG) test every six months, irrespective of the treatment’s effectiveness”.
13. In September 2007 the applicant complained to the national authorities in relation to inadequate medical assistance rendered to him and poor conditions of his detention (see paragraphs 41-58 below).
14. In 2008 one of the above-mentioned neurologists examined the applicant and prescribed massage, medication and vitamins.
15. According to the applicant, he was not provided with any specific treatment (medication or physical therapy) in relation to his myelopathy. Any mention in his medical records of a refusal to receive myelopahy‑related treatment was forged. None of the refusals were written on a special form and none of them bore his signature, despite the requirements of national legislation (see also paragraph 18 below).
16. Since early 2009 the applicant has suffered from frequent convulsions and has had difficulties in holding items in his hands.
17. In May 2009 the applicant was examined by neurologist N., who made the following findings:
“There is long-term and progressive post-traumatic damage to the lumbosacral plexus, which prevents active movement with the left leg. Damage to the lumbar spine and left leg prevents autonomous walking and results in a considerable reduction of autonomous movement. Thus, at the moment, the patient has a persisting dysfunction of the motor function of the left leg, impossibility of autonomous movement, dysfunction of the motor function of the right arm/hand...The patient requires constant help and active treatment. Focus should be on physiotherapeutic procedures and medical rehabilitation (electro-stimulation, anaesthetic/analgesic treatment). I recommend medication by Milgamma compositum, Berlition and adequate non‑steroid anaesthetic/analgesic treatment and vascular medication with Kurantil and a course of Aktovegin... A consultation with a trauma specialist and a rheumatologist is necessary to [further] adapt [existing] medical procedures.”[2]
Similar recommendations were made in September 2009.
(b) Other medical conditions and complaints
18. Since 1998 the applicant has been suffering from tuberculosis, which became drug-resistant and affected by haemoptysis (coughing up of blood) in July 2006. The applicant was prescribed medication and injections but refused them on numerous occasions because of acute negative side effects such as nausea. The applicant’s medical records indicate that on several occasions medical staff talked to him about the need to continue treatment but to no avail.
19. On an unspecified date before his admission to hospital, the applicant underwent a gastrectomy, significantly reducing his stomach. The applicant has also had half of his tongue removed, due to which his speech is impaired. In 2009 the applicant weighed less than 56 kg for 180 cm in height.
20. The applicant has also suffered (and continues to suffer) from acute pain in the stomach area, the liver, the kidneys and from nausea. According to the applicant, he was not examined by a gastroenterologist or given any treatment. An endoscopy was carried out for the first time in 2008. On three occasions it was not carried out, although the applicant had not made a valid refusal. No medication was provided to him.
21. In January 2007 the applicant was given an electrocardiogram (ECG) test. No prior or subsequent tests or medication were provided, despite the applicant’s acute and persistent heart pains. He was not examined by a cardiologist.
22. Since mid-2007 the applicant has also suffered from enuresis (urinary incontinence). It was recorded in late 2007 that the applicant had made verbal complaints to the unit supervisor about his treatment and had asked that his mattress be replaced because of a urine odour. His request was refused, as no smells were detected and the mattress was dry.
23. Despite his liver pains, he was not examined by a hepatologist; nor was he given any medication. He submitted that the latter was particularly important, given that he had received chemotherapy for his tuberculosis.
24. In July 2006 the applicant was examined by an ophthalmologist. In March 2007 he was diagnosed with slight nearsightedness and retinal angiospasm. In reply to a complaint he made of deteriorating eyesight, in April 2008 it was recorded that no visual acuity test could be carried out in the cell and no treatment was required.
25. The applicant has lost most of his teeth. His remaining teeth and his gums are rotten and cause him pain. The applicant had two consultations with a dentist; no treatment was given following those consultations.
26. According to the applicant, no medical assistance has been provided to him – in particular, from late December 2008 to June 2009 – in relation to his above-mentioned conditions (see also paragraph 27 below).
(c) Discharge from the hospital
27. A discharge certificate was issued on 12 January 2009. It is unclear whether the applicant remained in solitary confinement or was transferred to another part of the hospital. On 15 January 2009 he complained to a neurologist of pain in his extremities and was prescribed medicine. He was also examined by a therapist and was given medicines for headache and abdominal pains. He was examined on 22 January 2009 due to the worsening of his state of health and was given vitamins and medicines for intestinal disbacteriosis and colitis. Three days later he was examined by an ENT specialist, on whose prescription he was given an iodine-based liquid to rinse his mouth with. On 29 January 2009 he was examined by a dentist and an ENT specialist who confirmed a diagnosis of antritis. In February 2009 he was provided with a follow-up check-up and was told to continue the treatment.
2. The Government
28. The Government argued, with reference to the applicant’s medical records, that on numerous occasions between 2006 and 2008 the applicant had refused to be examined, to take medicines (mainly tuberculosis related), to undergo medical examinations or to submit to laboratory tests. For instance, as could be seen from his medical records, the applicant had complained of pain in his body on 12 and 19 September 2007, pelvic pain on 8 October 2007 and pain in his arms on 7 March 2008 but had “plainly refused to submit to an examination”.
29. In support of their statements, the Government relied on typed copies of the applicant’s medical records for the period from July 2006 to January 2009, medical reports (медицинские заключения) of 21 December 2009 issued by the administration of prison no. 3, as well as on various certificates issued by the administrations of prisons no. 3 and LIU-8, their licences for providing medical care and documents confirming the qualifications of their medical staff.
30. The Government stated that the above documents were official documents submitted by duly authorised public officials in the performance of their official duties. These officials, by the nature of their functions, were aware of the fact that any false information could result in prosecution for abuse of power or forgery of official documents.
B. Material conditions of the applicant’s confinement in the prison hospital
1. The applicant’s account
31. In July 2006 the applicant was admitted to the tuberculosis unit of the hospital attached to prison no. 3.
32. Between July and November 2007 the applicant was kept in various cells accommodating, at various times, two to eight people. In the first cell there was no mandatory ventilation. The cells were dirty, poorly heated, filled with unpleasant kitchen odours and infested with insects and rodents.
33. In November 2007 the applicant was transferred to another cell in which he was kept alone. The cell window was covered with newspaper, hindering access to natural light. The temperature in the cell and the adjoining shower room was often low.
34. Being unable to shout for help owing to the fact that part of his tongue was missing, the applicant was obliged to attract the hospital attendants’ attention by throwing items at the door or by knocking on his bedside table. The door to the cell was kept locked and was unlocked by prison officers at the attendants’ request.
35. The applicant needed assistance to use toilet and to wash himself. Once a month two detainees took him to the shower room and washed him. In addition, a hospital attendant brought a basin into the cell so that the applicant could wash his face. The applicant was provided with a piece of soap and a small roll of toilet paper once a month.
36. The cell was filled with a urine odour because of the applicant’s enuresis. According to the applicant, his request for a new mattress and more frequent cleaning of bed linen was refused. The food was of poor quality. The applicant was not provided with drinking water and had to drink tap water. He was not taken outdoors during his stay in the hospital.
37. The applicant was not visited by doctors or given medication after 29 December 2008. On 12 January 2009 a prison doctor told him that he would soon be discharged from the hospital because he had completed his tuberculosis treatment and that further treatment would be of no use because the applicant was suffering from a drug-resistant form of the disease and his lungs were deteriorating.
38. Although he had been informed of his imminent discharge, the applicant was not transferred from the prison hospital. He was not examined by the doctors; once a day he received visits from hospital attendants who brought him food and water and cleaned his chamber pot. The doctors and nurses refused to examine him, claiming that he had been discharged and thus was not “on the hospital’s books”.
39. The applicant submitted written statements from several detainees, who, however, had not been kept in the same cell(s). Mr Po. described the general material conditions of confinement in the tuberculosis unit between 2004 and 2009. Mr V. described the conditions of his detention in the hospital in 2004 and “in and after 2005”. Mr D. and Mr Ch. stated that since September 2007 they had been kept in rooms measuring approximately fourteen square metres and accommodating ten people. They added that they had heard about the applicant’s solitary confinement; about his inability to move around and to take care of himself; and that he had not been taken outdoors for a long time.
2. The Government’s account
40. According to the Government, the applicant had been kept alone under the constant supervision of one hospital attendant and twenty‑four‑hour assistance from on-duty staff had been available. At any moment the applicant could have asked to be helped by the attendant present. The applicant was able to access, alone or with assistance, a chamber pot or the toilet, which was two metres from his cell. The toilet was equipped with a flushing cistern; a sink was also made available there. The chamber pot was kept in the cell and was always cleaned after use. Bedding had been cleaned and a shower had been available once per week. As could be seen from the applicant’s medical records, in 2007 the applicant had not needed another mattress because he had not asked for it or because there had not been a urine odour in the cell. The cell had functioning mandatory ventilation and air was able to enter the cell through a window ventilator. The window provided access to natural light; this window was properly glazed. Artificial light was also available in the cell. The heating system functioned properly, achieving a room temperature of 20 degrees Celsius on average. The applicant had been fed in accordance with the regulations concerning ill detainees. The applicant had been taken, on foot or in a wheelchair, to outdoor exercise three times per day.
C. The applicant’s complaints to national authorities
41. On 7 September 2007 the applicant and his lawyer requested that criminal proceedings be initiated concerning inadequate medical assistance rendered to the applicant and poor conditions of his detention. They referred to Article 124 (“failure to provide medical assistance”) and Article 236 (“breach of sanitary and health regulations”) of the Russian Criminal Code.
42. Subsequent events can be split into two parallel sets of proceedings, in which the applicant was represented by a lawyer before the national authorities, including the courts.
1. Proceedings under the Prosecutors Act and the Code of Civil Procedure
43. On 5 October 2007 an assistant to the Vladimir town prosecutor supervising penitentiary facilities (“the town prosecutor”) examined the above complaint and issued a written opinion (заключение) stating that no action was required from the prosecutor under section 33 of the Prosecutors Act (see paragraph 59 below). The town prosecutor approved the assistant prosecutor’s opinion; the applicant was informed accordingly.
44. The applicant brought court proceedings, challenging the opinion of 5 October 2007 and the town prosecutor’s refusal to take action. By a judgment of 21 January 2008 the Oktyabrskiy District Court in Vladimir held that this refusal was unlawful because the inquiry had not been thorough for the following reasons: the applicant’s medical records had not been assessed; no medical expert had been appointed; the material conditions of the applicant’s confinement in hospital had not been inspected; the applicant and his counsel had not been heard; no assessment had been made of the applicant’s complaints concerning lack of outdoor exercise, the deplorable quality of food, insufficiency of hygiene items and the sanitary condition of the shower room and toilets.
45. In February 2008 an assistant town prosecutor issued a new opinion, again concluding that that no action was required from the town prosecutor under section 33 of the Prosecutors Act. This decision was confirmed by the town prosecutor. However, in March 2008 for unspecified reasons the town prosecutor reconsidered his own decision and ordered an additional inquiry. In April 2008 the assistant prosecutor issued a new refusal, which was then confirmed by the town prosecutor.
46. The applicant brought court proceedings to challenge this refusal. By a judgment of 16 June 2008 the District Court held that the refusal had not been properly reasoned because only part of the procedural shortcomings identified in the court decision of 21 January 2008 had been remedied in the resumed inquiry. The court held as follows:
“The proper examination of the complaint relating to inadequate medical assistance within the penitentiary system required that an expert opinion should be sought from specialists unrelated to the penitentiary system... The refusal under review contained no assessment of the complaints concerning chest and heart pain; ... no assessment was made of the allegations concerning the lack of consultation with a cardiologist and the absence of any electrocardiogram...The prosecutor’s findings as to the quality of the food was based on ... reports, while no indication was made as to the method used, for instance lab tests. No assessment was made of the relevant logbooks. The assessment concerning sanitary installations, the alleged presence of rodents and insects, and lack of outdoor exercise was not thorough...”
47. In March 2009 the regional tuberculosis hospital examined the applicant’s medical records at the request of the Vladimir Regional Department of the Health Ministry. The hospital considered that the applicant had been provided with adequate tuberculosis-related treatment in prison no. 3 and that the effectiveness of this treatment had been adversely affected by the applicant’s repeated refusals to take medicines and to comply with his doctors’ recommendations.
48. Also, three people, apparently connected to the regional clinical hospital, examined the applicant’s medical records and on 2 April 2009 issued a short report concerning illnesses affecting the applicant’s nervous system. The panel held as follows:
“The treatment provided [to the applicant] was in full compliance with the applicable standards, in line with the diagnosis established in 2003 and the recommendations issued by medical specialists in Moscow. Since 2003 the patient has been regularly supervised by neurologists from the regional hospital and medical institutions [in] Moscow and Cherepovets. The disease has developed gradually so that additional check-ups were necessary in the meantime. Conclusions: no cervical spine MRI scan has been carried out, despite a recommendation [that one should be conducted] after computer X-ray imaging; no consultation by a neurosurgeon has been arranged; no thioctic acid based medicine has been prescribed.”
49. The town prosecutor asked the Vladimir Regional Department of the Health Ministry to carry out an inquiry regarding the medical care provided to the applicant in detention. The department’s letter of 6 April 2009 indicated that the department had carried out an “independent” inquiry involving unspecified “out-of-staff” leading medical professionals who had examined the applicant’s medical records. They concluded as follows:
“Treatment provided [to the applicant] in prison no. 3 was in compliance with the standard treatment required for patients suffering from drug-resistant tuberculosis... All relevant methods of treatment were used. The effectiveness of the treatment was affected by [the applicant’s] repeated refusals to [take his] prescribed medicines, as confirmed by the medical records. Treatment of [the applicant’s] somatic illnesses was fully compliant with the diagnosis and recommendations made by the Moscow‑based specialists in 2003. Since 2003 the patient has been regularly supervised by neurologists from the regional hospital and medical institutions [in] Moscow and Cherepovets. The disease has developed gradually so that additional check-ups were necessary in the meantime. Conclusions: no cervical spine MRI scan has been carried out, despite a recommendation [that one should be conducted] after computer X-ray imaging; no consultation by a neurosurgeon has been arranged; no thioctic acid based medicine has been prescribed.”
50. In his opinion of 18 April 2009, an assistant town prosecutor again considered that no action was required on the part of the prosecutor in reply to the applicant’s complaint. The assistant town prosecutor held as follows:
“The applicant has been admitted to hospital in relation to infiltrating pulmonary tuberculosis, as well as cervical spinal myelopathy affecting movement of the right arm and the legs...
The main diagnosis (tuberculosis) has been confirmed by X-rays and bacteria analysis. The following medical acts were carried out: blood tests, an electromyography (EMG) test in September 2006, CT scanning in September 2007... As mentioned in the [applicant’s medical] records, between November 2007 and January 2008 [the applicant] refused to take medicines for [treating his] tuberculosis... During his stay in the tuberculosis unit he was regularly examined by neurologist K. The latter explained that he had been supervising the patient since 2005.
As can be seen from the medical history: in 2003 the patient was treated for post‑traumatic plexopathy. He was given an EMG test, was examined by a specialist doctor and was diagnosed with osteochondrosis and discogenic radiculopathy... He received vascular therapy, B-group vitamins [and] non-steroidal anti-inflammatory drugs.
In 2006 the applicant was diagnosed with pulmonary tuberculosis and was treated in a tuberculosis unit. He was given an EMG test, a CT scan and an X-ray. As a result, he was diagnosed with cervical spinal myelopathy... radiculopathy [and] sciatic neuralgia affecting the movement of [his] left foot.
The patient was and is regularly examined by a neurologist. The [doctor’s] recommendations included a course of vascular therapy, vitamin therapy and [the applicant] was instructed about the further intake of muscle [neuromuscular] relaxants...
At present the patient’s state of health is stable, he has been regularly examined by a neurologist but has refused to [take the medicines prescribed for him] in 2006 and 2007. On several occasions he was examined by specialist medical professionals (such as a surgeon, a therapist and a dermatologist) but refused to be examined by a psychiatrist. At present, he is in section 1 of the hospital in prison no. 3.
In order to assess the medical care afforded [to the applicant], specialists from the regional department of the Ministry of Health were asked to examine [his] medical records together with regional specialists.”
Having cited the letter of 6 April 2009 (see paragraph 49 above), the assistant prosecutor concluded that “independent specialists [had] considered that the patient had been treated in full compliance with the relevant standards”.
Concerning the material conditions of the applicant’s confinement, the assistant prosecutor made the following findings:
“The material in the file discloses that in March 2006 the prison received a favourable (preventive) epidemiological report. This report is valid until 2011... In February 2008 section 1 of the prison hospital was inspected; [the inspection] did not disclose any violations of sanitary regulations. Moreover, in September 2007 repair works were carried out in the tuberculosis unit. Thus, in 2008 it was not possible to inspect the sanitary conditions [pertaining in] the earlier period. Food provided to detainees complied with the relevant regulations concerning minimum rations for convicts. Food cooking and [detainees’] diet were controlled by medical professionals together with on-duty officers. [The applicant] was given a special diet for ill detainees. He was also provided with the required hygiene items, which could be confirmed by his signatures in the logbooks. Clothes and bedding had to be submitted for laundering once per week and would be disinfected.
During the inquiry detainees T., P. and S. were interviewed. Their testimony was not convincing, as they had been named by [the applicant’s] lawyer. Detainees Kh., Z. and Pa. were also interviewed and stated that the material conditions in the living premises of the tuberculosis unit, including food, had been acceptable; cleaning had been regular. [The applicant] had been in the unit since October 2006 when the material conditions had been the same; he had been given medication and had had regular check-ups. An attending assistant had been assigned to him.
Zo. and Pi. had not answered the summons and could not be interviewed.
The prison has a contract with a private company for disinfecting the premises and eradicating rodents and insects. This work was done on a weekly basis. No complaints were made by detainees or staff.
Consequently, the arguments raised by the [applicant’s] lawyers were examined during the additional inquiry and should be dismissed as unfounded.”
51. The applicant sought judicial review of the refusal of 18 April 2009 under Chapter 25 of the Code of Civil Procedure (see paragraph 60 below). The applicant argued that the report of 2 April 2009 (see paragraph 48 above) had not been “independent” and thorough because: there had been no information about the professional status and the medical specialities of the experts, who may or may not have been the report’s signatories; the applicant had not been examined by any of those individuals; the report had contained no findings concerning the adequacy of the applicant’s medical care in relation to his neurological illness, various (liver, stomach and heart) pains, eyesight or his dental care. Thus, a court-ordered forensic examination was indispensable.
52. By a judgment of 3 August 2009 the Oktyabrskiy District Court in Vladimir examined the applicant’s complaint against the above refusal of 18 April 2009 and rejected the complaint. The court considered that a public prosecutor was empowered to ensure that no inhuman or degrading treatment was inflicted on detainees. To comply with this function the prosecutor was empowered to carry out inquiries, which should result in reasoned decisions. Such an inquiry had been carried out between 2007 and 2009. In the court’s view, the prosecutor had examined all relevant medical documents, including expert reports, and had interviewed a number of public officials, detainees, the applicant and his counsel. The court also held as follows:
“A number of medical professionals were charged with the task of assessing the treatment provided to the applicant. An independent expert examination concluded that the applicable standards for treating tuberculosis had been respected; the treatment had been affected by the applicant’s repeated refusals, as recorded, to comply with the recommended course of treatment. The applicable standards of treating somatic diseases had been equally respected. From 2003 the applicant had been supervised by neurologists; no cervical spine MRI scan had been carried out, despite a recommendation [that one should be conducted] after computed X-ray imaging; no consultation by a neurosurgeon had been arranged; no thioctic acid based medicine had been prescribed.
As to the complaints concerning chest or heart pain, as indicated in the inquiry report, the applicant had been examined by cardiologists, had had an electrocardiogram test and had received treatment.
No sufficient argument was adduced by the applicant for commissioning yet another independent expert report. In any event, this argument had not been raised during the inquiry.
As to food, the applicant was given and continues to receive a special diet. The food control record indicates that [his] rations, their quality and quantity were in line with applicable instructions and standards.
As to sanitary installations, the competent authority has issued a report confirming the sanitary conditions [were] proper. It was established that in September 2007 significant repair works had been ongoing in the tuberculosis unit. Thus, it had been impracticable to inspect the units, the shower room or the toilet facilities to which the applicant had previously had access. The findings concerning the absence of rodents and insects in the detention facility had been made with reference to a valid contract for disinfection services, the current reports concerning the performance of the contract and due to the absence of any complaints from the [facility’s] personnel or detainees. Hygiene items had been given to the applicant against his signature on a monthly basis. Clothing and bedding was and is disinfected and cleaned once per week.
In view of the foregoing, the court concludes that the 2009 inquiry report and its conclusions were reasoned and thorough, and comply with the requirements of [applicable] legislation”.
53. The applicant appealed. On 6 October 2009 the Regional Court upheld the judgment of 3 August 2009. It held as follows:
“The applicant’s arguments concerning the correctness of [his] medical diagnosis and the scope and correctness of [his] treatment were thoroughly examined and dismissed by the first-instance court. The latter’s assessment was based on all available medical evidence, which had been received from, amongst other sources, sources unrelated to the penal authorities.”
2. Proceedings under the Code of Criminal Procedure
54. In the meantime, the applicant complained that no decision had been taken as to the institution of criminal proceedings, as requested. By a decision of 23 November 2007 the regional prosecutor’s office refused to institute criminal proceedings, considering there had not been the corpus delicti required under Articles 124 and 236 of the Criminal Code in the actions of the hospital’s staff. On 21 January 2008 the higher investigating authority quashed this decision, considering that it was necessary to interview the medical staff of the detention facility.
55. On 31 January 2008 the investigating authority issued a new refusal to institute criminal proceedings for lack of a criminal offence. On 6 March 2008 the Oktyabrskiy District Court in Vladimir dismissed the applicant’s appeal and upheld this refusal. On 10 April 2008 the Vladimir Regional Court upheld the first-instance decision of 6 March 2008.
56. For unspecified reasons, the inquiry was resumed. On 12 May 2008 an investigator in the Vladimir Investigations Department issued another refusal to institute criminal proceedings.
57. On 23 July 2008 the Leninskiy District Court in Vladimir examined the applicant’s complaint against the refusal of 12 May 2008 under Article 125 of the Code of Criminal Procedure and rejected the complaint. The court held as follows:
“Since 2007 the inquiry proceedings have been resumed on several occasions... The applicant is being detained in a medical facility and has been and is being provided with appropriate medical assistance. It has been established that on a number of occasions he impeded treatment and refused to make medicines. It has not been established that the deterioration of his health was due to inaction on the part of the medical staff. No dangerousness on account of a breach of sanitary regulations, required by Article 236 of the Criminal Code, has been established.”
58. On 11 September 2008 the Regional Court upheld the above judgment.
II. RELEVANT DOMESTIC LAW AND PRACTICE
A. Complaints procedures
59. Section 33 of the Prosecutors Act (Federal Law no. 2202-I of 17 January 1992) provided at the time that a prosecutor was empowered to order a detention facility to take measures necessary in order that a detainee’s rights and freedoms be respected.
60. In accordance with ruling no. 2 of 10 February 2009 made by the Plenary Supreme Court of Russia, complaints brought by detainees in relation to inappropriate conditions of detention (for instance, a lack of adequate medical assistance), as well as complaints against decisions imposing disciplinary penalties, should be examined by a court under a procedure prescribed by Chapter 25 of the Code of Civil Procedure. According to this procedure, a person may lodge a court action if an action or omission by a public authority or official has violated an individual’s rights or freedoms, has impeded their exercise or has unlawfully imposed an obligation or liability (Articles 254 and 255 of the Code). This action should be lodged within three months of the date when the person learnt about the violation of his rights or freedoms (Article 256). If the court considers that the complaint is justified, the court shall order the respondent authority or official to remedy the violation (Article 258).
B. Health care in detention
61. Section 29 of the Health Care Act (Federal Law no. 5487-I of 22 July 1993) provides that detainees have a right to medical assistance, such assistance being provided if necessary in public or municipal medical institutions and at public or municipal expense.
62. Detailed regulation of medical care in detention is provided in a Regulation adopted by the Federal Ministry of Justice and the Federal Ministry of Health and Social Development (decree no. 640/190 of 17 October 2005). It provides that medical assistance in detention should be the same as that guaranteed by the general programme of free health care provided in Russia (Rule 9 of the Regulation). Outpatient health files and prescription records should not be handed over to detainees; detainees have a right to receive information relating to their state of health and should be given access to medical documents (Rule 65).
THE LAW
I. ALLEGED VIOLATIONS OF ARTICLE 3 OF THE CONVENTION
63. The applicant alleged that the conditions of his detention and the health care in the prison hospital had been so inadequate as to amount to inhuman and degrading treatment, in breach of Article 3 of the Convention. He also contended that the respondent State should be held liable for having failed to investigate his allegations and that the domestic inquiry had fallen short of the requirements of Article 3 of the Convention, which reads as follows:
“No one shall be subjected to torture or to inhuman or degrading treatment or punishment.”
A. Admissibility
64. The Government argued that the applicant had not exhausted domestic remedies because he had not brought a civil action for compensation in respect of non-pecuniary damage caused by inadequate health care and the conditions of his detention. For the Government, such an action would have had reasonable prospects of success as it would not have been based on any allegedly systemic problem of cell overpopulation, as in some other cases before the Court.
65. The applicant submitted that he had sufficiently raised his grievances before the national authorities (see paragraphs 41-58 above).
66. The Court reiterates that in the area of the exhaustion of domestic remedies there is a distribution of the burden of proof. It is incumbent on the Government claiming non-exhaustion to satisfy the Court that the remedy was an effective one available in theory and in practice at the relevant time – that is to say, that it was accessible, was one which was capable of providing redress in respect of the applicant’s complaints and offered reasonable prospects of success. However, once this burden of proof has been satisfied it falls to the applicant to establish that the remedy advanced by the Government had in fact been used or was for some reason inadequate and ineffective in the particular circumstances of the case or that there existed special circumstances absolving him or her from the requirement (see, among other authorities, Akdivar and Others v. Turkey, 16 September 1996, § 68, Reports of Judgments and Decisions 1996-IV).
67. The Court observes that the applicant raised his grievances in two separate proceedings, including judicial review at two levels of jurisdiction, in respect of the decisions taken by the investigating or supervising authorities. The first proceedings were carried out under the Criminal Code and the Code of Criminal Procedure and ended with a final decision of 11 September 2008 (see paragraphs 41-53 above). The second proceedings were carried out under the Prosecutors Act and the Code of Civil Procedure and ended with the final decision of 6 October 2009 (see paragraphs 54-58 above).
68. The respondent Government have not argued, and the Court does not consider, that the remedies used by the applicant, who was assisted by a lawyer, were manifestly inappropriate and devoid of any reasonable prospects of success (see, for comparison, Skorobogatykh v. Russia, no. 4871/03, §§ 32 and 33, 22 December 2009; see also the Supreme Court’s ruling cited in paragraph 60 above). The applicant lodged this application in February 2009, while he was still in the prison hospital. The Court does not consider in the present case that before lodging an application before this Court the applicant should have brought a civil action for compensation in respect of non-pecuniary damage. The Court is satisfied that this action would not have offered reasonable prospects of success in view of the factual findings made in the above-mentioned second set of proceedings (see, for comparison, Romokhov v. Russia, no. 4532/04, §§ 101-112, 16 December 2010, and Gladkiy v. Russia, no. 3242/03, §§ 120 and 121, 21 December 2010). In view of the foregoing, the Court dismisses the Government’s objection.
69. The Court also considers that the application is not manifestly ill‑founded within the meaning of Article 35 § 3 (a) of the Convention. No other ground for declaring it inadmissible has been established. It must therefore be declared admissible.
B. Merits
1. The parties’ submissions
(a) The applicant
70. The applicant argued that he had not been provided with any specific treatment in relation to his myelopathy. Despite a doctor’s recommendations in 2006, he had not been examined by a rheumatologist or a trauma specialist; no X-rays of his right wrist joint and left knee joint had been taken. Despite a doctor’s recommendation in 2007, an electromyography (EMG) test had not been carried out every six months. Despite pain in the stomach area and nausea, he had not been examined by a gastroenterologist and had not been given any treatment for these symptoms. The referral for an endoscopy had only been acted upon in 2008. It had failed to be acted upon on three previous occasions. As to his heart pain, an electrocardiogram (ECG) had only been carried out in January 2007. No previous or subsequent tests or medication had been provided, despite his acute and persistent heart pains. He had not been examined by a cardiologist. Despite his liver pains, he had not been examined by a hepatologist; nor had he been given any medication. Such medication had been particularly important given that he had received chemotherapy for his tuberculosis. No medical assistance had been provided in relation to the deterioration in his eyesight or his dental problems. All mentions in his medical records of refusals to receive treatment had been forged. None of the refusals had been recorded on a special form and none of them bore his signature, despite the requirements of national legislation. Lastly, the applicant alleged that no medical care had been provided to him between late December 2008 and June 2009 in relation to the aforementioned medical conditions.
71. The applicant further argued that it was incumbent on the respondent Government to refute his allegations, which were sufficiently specific and detailed. He noted in that connection that as a detained and seriously ill person, he had been under the control of the staff of the prison hospital. All relevant medical records had been kept by the hospital. He had had no opportunity to verify or challenge the notes made in these records. Moreover, he had been detained alone and had had a limited ability to speak. In the applicant’s submission, the Government had not responded to his allegations, thereby failing to discharge the burden of proof.
72. Furthermore, the applicant contended that the material conditions of his confinement in the prison hospital, in particular during his solitary confinement, had been unacceptable (for details see paragraphs 33-39 above).
73. Lastly, the applicant argued, with reference to the Court’s case-law concerning the procedural limb of Article 3 of the Convention (Labita v. Italy [GC], no. 26772/95, § 131, ECHR 2000‑IV), that the respondent State had been under an obligation to investigate his complaints relating to his medical care and the material conditions of his confinement. Although domestic inquiries had been carried out at the domestic level, they had not satisfied the requirements for an “effective and thorough” investigation, as required under Article 3 of the Convention.
(b) The Government
74. The Government argued that the applicant had been and was being provided with all necessary medical assistance for the illnesses which he had already had and those which had developed during his time in detention, as confirmed by the reports of 23 March and 6 April 2009. Between July 2006 and January 2009 he had been detained in a medical facility under the constant supervision of its medical staff, including during the evening and at night. He had been regularly examined by a tuberculosis specialist; the progress of the applicant’s condition and treatment had been recorded. The applicant had also been regularly examined by several neurologists, as well as by a surgeon, an ophthalmologist, a dermatologist, an otolaryngologist and a psychiatrist. The applicant had undergone the requisite examinations, including biochemical tests, X-rays, an ultrasound examination, an endoscopy, an EMG test, an ECG, a pneumogram and a CT scan. He had been given appropriate medication for his tuberculosis. His treatment had been adversely affected by his repeated refusals to take his prescribed medicine, as noted in his medical records.
75. As to the conditions of the applicant’s detention in the hospital, the Government submitted that the applicant, who was suffering from an infectious disease, had been kept alone. The Government insisted that the conditions of his confinement in the tuberculosis unit had not offended against Article 3 of the Convention.
76. Lastly, the Government argued that the applicant’s grievances had received a thorough examination by the national authorities.
2. The Court’s assessment
(a) General principles
(i) Ill-treatment
77. The Court reiterates that Article 3 of the Convention enshrines one of the fundamental values of a democratic society. It prohibits in absolute terms torture or inhuman or degrading treatment or punishment (see Labita v. Italy [GC], cited above, § 119). However, ill-treatment must attain a minimum level of severity if it is to fall within the scope of Article 3. The assessment of this minimum depends on the circumstances of the case, such as the duration of the treatment, its physical and mental effects and, in some cases, the sex, age and state of health of the victim (see, among other authorities, Ireland v. the United Kingdom, 18 January 1978, § 162, Series A no. 25).
78. Ill-treatment that attains such a minimum level of severity usually involves bodily injury or intense physical or mental suffering. However, even in the absence of these, where treatment humiliates or debases an individual, showing a lack of respect for or diminishing his or her human dignity, or arouses feelings of fear, anguish or inferiority capable of breaking an individual’s moral and physical resistance, it may be characterised as degrading and also fall within the prohibition of Article 3 (see Pretty v. the United Kingdom, no. 2346/02, § 52, ECHR 2002-III, with further references).
79. In the context of deprivation of liberty, the Court has consistently stressed that, to fall under Article 3, the suffering and humiliation involved must in any event go beyond that inevitable element of suffering and humiliation connected with detention (see, mutatis mutandis, Tyrer v. the United Kingdom, 25 April 1978, § 30, Series A no. 26, and Soering v. the United Kingdom, 7 July 1989, § 100, Series A no. 161).
80. Regarding the issue of health care in detention facilities, the Court reiterates that under Article 3 of the Convention the State must ensure that a person is detained in conditions which are compatible with respect for his human dignity, that the manner and method of the execution of the measure do not subject him to distress or hardship of an intensity exceeding the unavoidable level of suffering inherent in detention and that, given the practical demands of imprisonment, his health and well-being are adequately ensured by, among other things, providing him with the requisite medical assistance (see Kudła v. Poland [GC], no. 30210/96, § 94, ECHR 2000‑XI).
81. Where complaints are made about a failure to provide requisite medical assistance in detention, it is not indispensable for such a failure to lead to any medical emergency or otherwise cause severe or prolonged pain in order to find that a detainee was subjected to treatment incompatible with the guarantees of Article 3 (see Ashot Harutyunyan v. Armenia, no. 34334/04, § 114, 15 June 2010). The fact that a detainee needed and requested such assistance but it was unavailable to him may, in certain circumstances, suffice to reach a conclusion that such treatment was in breach of that Article (ibid).
82. Thus, although Article 3 cannot be interpreted as laying down a general obligation to release a detainee on health grounds save for exceptional cases (see Papon v. France (no. 1) (dec.), no. 64666/01, ECHR 2001-VI, and Priebke v. Italy (dec.), no. 48799/99, 5 April 2001), a lack of appropriate medical treatment may raise an issue under Article 3, even if the applicant’s state of health does not require his immediate release.
83. The national authorities must ensure that diagnosis and care in detention facilities, including prison hospitals, are prompt and accurate, and that, where necessitated by the nature of a medical condition, supervision is regular and involves a comprehensive therapeutic strategy aimed at ensuring the detainee’s recovery or at least preventing his or her condition from worsening (see Pitalev v. Russia, no. 34393/03, § 54, 30 July 2009, with further references).
84. On the whole, while taking into consideration “the practical demands of imprisonment”, the Court reserves sufficient flexibility in deciding, on a case-by-case basis, whether any deficiencies in medical care were “compatible with the human dignity” of a detainee (see Aleksanyan v. Russia, no. 46468/06, § 140, 22 December 2008).
(ii) Establishment of facts and assessment of evidence
85. The Court reiterates that allegations of ill-treatment should be supported by appropriate evidence. In assessing evidence, the Court has generally applied the standard of proof “beyond reasonable doubt” (see Ireland v. the United Kingdom, cited above, § 161).
86. It has not been the Court’s purpose to borrow the approach of the national legal systems that use that standard. The Court’s role is not to rule on criminal guilt or civil liability, but rather on Contracting States’ responsibility under the Convention. The specificity of its task under Article 19 of the Convention – to ensure the observance by the Contracting States of their engagement to secure the fundamental rights enshrined in the Convention – conditions its approach to the issues of evidence and proof. In proceedings before the Court, there are no procedural barriers to the admissibility of evidence or pre-determined formulae for its assessment. It adopts conclusions that are, in its view, supported by the free evaluation of all evidence, including such inferences as may flow from the facts and the parties’ submissions. According to its established case-law, proof may follow from the coexistence of sufficiently strong, clear and concordant inferences or of similar unrebutted presumptions of fact. Moreover, the level of persuasion necessary for reaching a particular conclusion and, in this connection, the distribution of the burden of proof are intrinsically linked to the specificity of the facts, the nature of the allegation made and the Convention right at stake (see, among others, Nachova and Others v. Bulgaria [GC], nos. 43577/98 and 43579/98, § 147, ECHR 2005‑VII; Ilaşcu and Others v. Moldova and Russia [GC], no. 48787/99, § 26, ECHR 2004‑VII; and Akdivar and Others, cited above, § 168).
87. The Court is mindful of the objective difficulties experienced by detained applicants in collecting evidence to substantiate their claims about the conditions of their detention. Owing to the restrictions imposed by the prison regime, detainees cannot realistically be expected to be able to furnish photographs of their cell or give precise measurements of its dimensions, temperature or the amount of natural light. Nevertheless, an applicant must provide an elaborate and consistent account of the conditions of his or her detention mentioning the specific factors, such as the dates of his or her transfer between facilities, which would enable the Court to determine that the complaint is not manifestly ill-founded or inadmissible on any other grounds. A credible and reasonably detailed description of the allegedly degrading conditions of detention constitutes a prima facie case of ill-treatment and serves as a basis for giving notice of the complaint to the respondent Government.
88. As to health care in detention, an unsubstantiated allegation of no, delayed or otherwise unsatisfactory medical care is normally insufficient to disclose an issue under Article 3 of the Convention. A credible complaint should normally include, among other things, sufficient reference to the medical condition in question, related medical prescriptions which were sought, made or refused, as well as some evidence – for instance, expert reports – capable of disclosing serious failings in the applicant’s medical care.
89. Convention proceedings do not in all cases lend themselves to a rigorous application of the principle affirmanti incumbit probatio (he who alleges something must prove that allegation), as in certain instances the respondent Government alone have access to information capable of corroborating or refuting allegations. Failure on a Government’s part to submit such information without a satisfactory explanation may give rise to the drawing of inferences as to the plausibility of the applicant’s allegations (see, in various contexts, D.H. and Others v. the Czech Republic [GC], no. 57325/00, § 179, ECHR 2007‑IV; Ahmet Özkan and Others v. Turkey, no. 21689/93, § 426, 6 April 2004; Aleksandr Leonidovich Ivanov v. Russia, no. 33929/03, §§ 27-35, 23 September 2010; and Boris Popov v. Russia, no. 23284/04, §§ 65-67, 28 October 2010).
90. Without establishing the truthfulness of each and every allegation made by the applicant, the Court has previously chosen in conditions‑of‑detention cases to concentrate on the allegations that have not been disputed by the respondent Government, or those in respect of which the Government did not comment, although they had been clearly and consistently formulated before the domestic authorities and later before the Court (see Trepashkin v. Russia, no. 36898/03, § 85, 19 July 2007, and Shteyn (Stein) v. Russia, no. 23691/06, § 73, 18 June 2009).
91. As to domestic remedies, the Court has previously stated, for instance in the context of Article 2 of the Convention, that if an infringement of the right to life or to physical integrity is not caused intentionally, the positive obligation imposed by Article 2 to set up an effective judicial system does not necessarily require the provision of a criminal-law remedy in every case (see Vo v. France [GC], no. 53924/00, § 90, ECHR 2004‑VIII; see also, in the context of Article 3 of the Convention, Yazgül Yılmaz v. Turkey, no. 36369/06, §§ 56 and 57, 1 February 2011). For example, in the sphere of medical negligence, the obligation may also be satisfied if the legal system affords victims a remedy in the civil courts, either alone or in conjunction with a remedy in the criminal courts, enabling any liability on the part of the doctors concerned to be established and any appropriate civil redress to be obtained (ibid.).
92. Concerning its own scrutiny, the Court reiterates that, in view of the subsidiary nature of its role, it must be cautious in taking on the role of a first-instance tribunal of fact, where this is not rendered unavoidable by the circumstances of a case. The Court has held in various contexts that where domestic proceedings have taken place, as in the present case, it is not the Court’s task to substitute its own assessment of the facts for that of the domestic courts and, as a general rule, it is for those courts to assess the evidence before them (see, among others, Giuliani and Gaggio v. Italy [GC], no. 23458/02, §§ 179 and 180, 24 March 2011). Although the Court is not bound by the findings of domestic courts, in normal circumstances it requires cogent elements to lead it to depart from the findings of fact reached by those courts (ibid).
93. At the same time, as already mentioned, in accordance with Article 19 of the Convention, the Court’s duty is to ensure the observance of the engagements undertaken by the Contracting Parties to the Convention. In its assessment of issues under Article 3 of the Convention, the Court gives thorough scrutiny to the question of the authorities’ compliance with prescriptions issued by medical professionals, in the light of specific allegations made by the applicant.
(b) Application of the principles to the present case
94. The Court observes at the outset that the applicant has a relatively long history of health problems, covering a period dating back to at least 2003. His complaint in the present case concerns one period of his detention from July 2006 to June 2009 in one medical facility (prison hospital no. 3). Thereafter, the applicant was transferred to another detention facility, of which he does not complain.
95. The Court also observes, and it is common ground between the parties, that some of the applicant’s medical conditions during the relevant period of time were undeniably serious and required a wide range of treatment, including medication, supervision and monitoring.
96. It is fundamental for the proper examination of the case to determine the scope of the complaints raised by the applicant vis-à-vis the respondent State (see paragraph 70 above). In the applicant’s submission, he had not been provided with adequate medical care in relation to his myelopathy, the deterioration of his eyesight, dental problems, and stomach, heart and liver pains. It is common ground between the parties that these complaints may be qualified as credible and sufficiently serious.
97. It is also noted that responsibility for the above grievances was attributed to the State, given that the applicant, who was a convict serving a prison term, was held in a prison hospital run by the State.
98. The Court observes, and it is not in dispute, that the applicant was provided with adequate medical care for his tuberculosis, which was the main reason for his admission to the prison hospital in July 2006. Nevertheless, it appears that this treatment gave no significant positive result and that the applicant’s state of health progressively deteriorated. This inevitably affected other aspects of his health and the treatment to be prescribed.
99. In September 2007, after more than one year of confinement in the hospital, the applicant’s lawyer lodged a complaint in which he raised a number of specific issues pertaining to the alleged lack or inadequacy of medical care, also providing a detailed account of the allegedly degrading conditions of confinement in the hospital. Counsel sought to have a prosecutor ordered to take action under the Prosecutors Act to remedy the above grievances (see paragraphs 43 and 59 above).
100. By domestic standards, the applicant’s allegations appeared prima facie credible, and an inquiry under the Prosecutors Act was ordered. This initial inquiry, which was completed within one month, concluded that no action was required. As subsequently acknowledged by the national court, this inquiry had not been thorough because, amongst other reasons, the applicant’s medical records had not been assessed, no medical expert had been appointed and the applicant and his counsel had not been heard (see paragraph 44 above). After a new refusal to take action, the national court again considered that the proper examination of the complaint of inadequate health care in detention required that an expert opinion should be sought outside the prison system. The national court pointed out that the recent refusal had not contained an assessment of the applicant’s complaints concerning his chest and heart pain and the authorities’ failure to arrange for the applicant to have a consultation with a cardiologist and an ECG (see paragraph 46 above).
101. In March and April 2009 the national authorities obtained two medical reports concerning the applicant’s medical conditions and medical care provided to him. While upholding in general the treatment provided to the applicant, one of the reports concluded that no cervical spine MRI scan had been carried out, despite a recommendation that one should be conducted after computer X-ray imaging; no consultation by a neurosurgeon had been arranged; no thioctic acid based medicine had been prescribed (see paragraphs 47 and 48 above).
102. These reports served as a basis for a new decision to refuse to order any action on the part of the prosecutor. The prosecutor also examined a number of relevant medical documents, interviewed the applicant, his lawyer, and a number of public officials and detainees. Subsequently, the national courts at two levels of jurisdiction upheld the refusal on judicial review (see paragraphs 50-53 above).
103. The Court reiterates that its task is to determine whether the circumstances of a given case disclose a violation of the Convention in respect of an applicant, rather than to assess in abstracto national legislation of the respondent State, its regulatory schemes or the complaints procedure used by an applicant. Thus, mere reference to the domestic compliance with such legislation or schemes, for instance as regards licensing of medical institutions or qualifications of medical professionals, does not suffice to oppose an alleged violation of Article 3 of the Convention. It is fundamental that the national authorities dealing with such an allegation apply the standards which are in conformity with the Convention principles as interpreted by the Court (see paragraphs 77-83 above).
104. It has not been argued that the applicant omitted to raise in substance in the domestic proceedings certain specific complaints concerning his medical conditions. Thus, it is assumed that the domestic authorities, including the courts, should have dealt with the substance of such complaints, making relevant findings of fact and of law. However, it does not follow from the material available to the Court or from the Government’s own submissions before it that the applicant’s complaints concerning his eyesight and dental treatment were dealt with. In fact, the respondent Government centred their submissions on the tuberculosis-related matters. In the absence of a proper explanation from the respondent Government, the Court is inclined to give credence to the applicant’s submission that he required medical care in relation to the aforementioned medical conditions and that no adequate medical care was provided to him.
105. Between 2006 and 2009 a number of neurologists made various recommendations in relation to the applicant’s myelopathy, after having examined the applicant and/or his medical file (see paragraphs 8-14 above). The applicant contended that he had not received any specific treatment (for instance, medication or physiotherapeutic procedures) in relation to his myelopathy. The Government provided no convincing evidence which could confirm that the applicant had refused to take any medicine prescribed for that illness or that the doctors’ recommendations were complied with. For instance, it has not been specified what acts of medical care were performed in relation to the applicant’s myelopathy from September 2006 to February 2007.
106. In addition, neither at the domestic level nor before the Court did the Russian authorities assess the findings of the two expert reports stating that: no cervical spine MRI scan had been carried out, despite a recommendation that one should be conducted after computer X‑ray imaging; no consultation by a neurosurgeon had been arranged; no thioctic acid based medicine had been prescribed (see paragraphs 47 and 48 above). The Court is not ready to dismiss these findings as minor or clearly incapable of affecting the adequacy of the health care provided to the applicant.
107. The respondent Government also submitted another medical report dated 21 December 2009 issued by the detention facility which was in charge of the medical care at issue in the present case (see paragraph 29 above). While the fact that experts are employed by one of the parties to domestic proceedings may give rise to apprehension as to the neutrality of the experts, what is decisive are the positions taken by the experts throughout the proceedings, the manner in which they perform their functions and the way the courts assess the expert opinion. An opinion given by a court-appointed expert is likely to carry significant weight in the judicial assessment of the issues within that expert’s competence (see, albeit in the context of Article 6 of the Convention, Shulepova v. Russia, no. 34449/03, § 62, 11 December 2008). In the Court’s view, the available reports in the present case do not effectively disprove the applicant’s allegations.
108. Also, while noting that the applicant was able to benefit from legal representation and that the national courts acknowledged a number of shortcomings in the course of the domestic inquiry, the Court observes with concern that this inquiry spanned over two years, which is worrisome when an individual’s current and serious medical conditions and medical care are at issue (see X v. France, 31 March 1992, §§ 31-49, Series A no. 234‑C). Indeed, the applicant’s medical conditions evolved over time during the inquiry, thus making each delay an additional factor contributing to the complexity of the issues to be determined.
109. The Court’s findings in the preceding paragraphs concerning the assessment of the applicant’s medical care at the domestic level make it unnecessary to make any further findings in relation to the applicant’s arguments about the alleged ineffectiveness of the inquiries carried out in the present case.
110. In view of the available material, the Court is not satisfied that the applicant was provided with adequate medical care between January and June 2009 (see paragraph 27 above). None of the available medical reports gives any adequate assessment of the applicant’s medical care in respect of this period of time after the formal discharge of the applicant from the hospital.
111. While it is true that the Court was provided with a typed copy of the applicant’s medical file, the Court is struck by the unspecific and summary nature of the respondent Government’s observations in the present case, which sits ill with the specific and detailed nature of the grievances raised by the applicant and the gravity of his medical conditions, as recorded in his medical file.
112. In view of the foregoing, the Court concludes that there has been a violation of Article 3 of the Convention in relation to the applicant’s health care from July 2006 to June 2009.
113. Having reached the above conclusion, the Court does not need in the present case to make separate findings concerning the material conditions of the applicant’s confinement in the medical facility.
II. APPLICATION OF ARTICLE 41 OF THE CONVENTION
114. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
A. Damage
115. The applicant claimed 150,000 euros (EUR) in respect of non‑pecuniary damage.
116. The Government considered that the claim was excessive and that a finding of a violation would suffice.
117. The Court observes that it is undeniable that the applicant must have suffered physical pain and mental anguish in relation to his serious medical conditions. It should also be accepted that he must have suffered distress, frustration and anxiety related to his inadequate health care. Having regard to the nature of the violation, the Court awards the applicant EUR 9,000 in respect of non-pecuniary damage, plus any tax that may be chargeable.
B. Costs and expenses
118. The applicant also claimed EUR 10,000 for lawyers’ fees incurred before the Court.
119. The Government submitted that there was no proof of payment of this sum to the applicant’s lawyers.
120. According to the Court’s case-law, an applicant is entitled to the reimbursement of costs and expenses only in so far as it has been shown that these have been actually and necessarily incurred and are reasonable as to quantum. The respondent Government have not argued that the legal assistance agreement between the applicant and his lawyers was not enforceable under Russian law or that the applicant was not under a contractual obligation to pay the fees agreed (see, for comparison, Flux v. Moldova (no. 2), no. 31001/03, § 60, 3 July 2007, and Salmanov v. Russia, no. 3522/04, § 98, 31 July 2008). Regard being had to the documents in its possession and to the above criteria, the Court finds it reasonable to award the applicant EUR 5,000, plus any tax that may be chargeable to him thereon.
C. Default interest
121. The Court considers it appropriate that the default interest rate should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT
1. Declares unanimously the application admissible;
2. Holds by five votes to two that there has been a violation of Article 3 of the Convention in respect of the applicant’s health care from July 2006 to June 2009;
3. Holds by five votes to two that there is no need to examine the complaints concerning the conditions of detention;
4. Holds by five votes to two
(a) that the respondent State is to pay the applicant, within three months from the date on which the judgment becomes final in accordance with Article 44 § 2 of the Convention, the following amounts, to be converted into Russian roubles at the rate applicable at the date of settlement:
(i) EUR 9,000 (nine thousand euros), plus any tax that may be chargeable, in respect of non-pecuniary damage;
(ii) EUR 5,000 (five thousand euros), plus any tax that may be chargeable to the applicant, in respect of costs and expenses;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;
5. Dismisses unanimously the remainder of the applicant’s claim for just satisfaction.
Done in English, and notified in writing on 10 January 2012, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Søren NielsenNina VajićRegistrarPresident
In accordance with Article 45 § 2 of the Convention and Rule 74 § 2 of the Rules of Court, the separate opinion of Judges Lorenzen and Møse is annexed to this judgment.
N.V.S.N.
JOINT DISSENTING OPINION OF JUDGES LORENZEN AND MØSE
In our view, the Court should attach particular importance to the existence of domestic inquiries and judicial proceedings, which ended with the judgment of 3 August 2009, as upheld on appeal (see paragraphs 43 to 53 of the judgment). The national authorities assessed the applicant’s medical records and obtained testimonies and medical opinions. The applicant, who was represented, was afforded an adequate opportunity to present his arguments and evidence, as well as to contest the other party’s submissions, in adversarial proceedings. It appears that the applicant and his counsel had access to the relevant documents, including the applicant’s medical records, necessary for substantiating their allegations. The applicant’s grievances relating to the effectiveness of the domestic inquiries are not convincing.
Although it is regrettable that the inquiry took nearly two years, we find no sufficient reason to depart from the factual findings made by the domestic authorities, as confirmed on judicial review, concerning the various aspects of the applicant’s complaints about his health care.
In particular, it has not been convincingly established that any alleged failure to carry out specific treatment or make arrangements for consulting specialist medical professionals, including between late December 2008 and the applicant’s transfer to another detention facility, was contrary to any previous medical prescriptions or – more generally – led to treatment below an adequate standard. In this context, it should be taken into account that the applicant had a variety of different health problems, including tuberculosis and a chronic and progressing neurological disease which inevitably affected other aspects of his health; that the authorities provided medical care on numerous occasions; and that he on occasions refused to take the necessary medication (see paragraphs 18, 28-30 and 57-58).
It is true that two medical reports indicated that no cervical spine MRI scan had been carried out, despite a recommendation that one should be conducted after computer X-ray imaging; no consultation by a neurosurgeon had been arranged; and no thioctic acid based medicine had been prescribed. But we are not convinced that the fact that these recommendations were not followed up affected the adequacy of the health care provided to the applicant to such an extent that it amounted to ill-treatment within the meaning of Article 3 of the Convention.
We therefore conclude that there has been no violation of Article 3 in relation to the health care provided to the applicant from July 2006 to June 2009.
Turning to the material conditions in the hospital, we note that also these submissions by the applicant were duly assessed at the domestic level. The applicant, who was assisted by a lawyer at the domestic level and before the Court, has not put forward convincing arguments which lead us to disagree with the domestic courts’ assessment. Consequently, there was also no breach of Article 3 with respect to the material conditions in the hospital.
[1] Rectified on 11 September 2012: previously the text was “Zurabovich”
[2] Names of medical substances are given hereafter in accordance with the classification of drugs adopted in Russia.
| 1 |
WITH A. Nos. 1176/92, 1177/92, 1178/92, 1179/92. O R D E R A.NO. 1175 of 1992 The judgment and order under appeal by special leave was delivered by a Division Bench of the High Court of Punjab and Haryana. it reversed the judgment and order of a learned Single Judge allowing the writ, petition filed by the appellant. The appellant is a registered dealer in dhoop and aggarbatti and we are companycerned with its assessment to sales tax thereon under the provisions of the Punjab General Sales Tax Act, 1948, for the period 1973-74. Entry No.16 of Schedule A to the said Act. at the relevant time read thus Cosmetics, perfumery and toilet goods, excluding tooth-paste, tooth-power, kum-kum and soap, The said Entry No.16 was broken up into Entries 16 and 16A by a numberification dated 28th September, 1979. The new Entries read thus Cosmetics, and toilet goods excluding tooth-paste, toothpowder, kum kum and soap. 16A. perfumery including dhoop and Aggarbati. The appellant was sought to be made liable to pay sales tax at the rate of 10 paisa in a rupee, as was leviable upon items falling under the said Entry No.16, on the basis that dhoop and aggarbatti were companyered by the word perfumery therein. The writ petition filed by the appellant there against was allowed by the learned Single Judge, who placed reliance upon the companytext in which the word perfumery was used in the said Entry No. 16. The Division Bench, in appeal, reversed the learned Single Judge, principally relying upon the judgment of this Court in Commissioner of Sales Tax, U.P. v. India Herbs Research and Supply Cp., 25 STC 151. In case of Indian Herbs Research and Supply Co., strongly relied upon by learned companynsel for the respondents, the relevant Entry read Scents and perfumes in English and Ttra tatha sugandhian in Hindi. The question was whether dhoop or dhoopbatti fell within the description of perfume thereunder. This Court look the view that their was numberwarrant for restricting the meaning of the expression perfume to substances which emitted a fragrance in their natural state and number extending it to those which produced a fragrance as a result of the application of heat or some foreign matter to induce a chemical reaction which resulted in the odour being released. The word perfumes in that entry, it was held, should he companystrued in its ordinary sense and dhoop and dhoopatti, therefore, fell within that word. Learned companynsel or the appellant companymended for our acceptance the reasoning of a Division Bench of the High Court at Bombay in the judgment in Commissioner of Sales Tax, Maharashtra State, Bombay, v. Gordhandas Tokersey, 52 STC 381. The question here was whether sandalwood and sandalwood oil were perfumes that fell within the entry perfumes, depilatories and companymetics. The Bombay High Court numbered that it was a well-known rule of companystruction that words in such entries had to be companystrued with reference to the words found in immediate companynection with them. When two or more words which were capable of being understood in an analogous manner were companypled together, they had to be understood in the companymon analogous sense and number in the general sense. Applying this rule of numbereilur a sociis, the words perfumes in the entry was to be understood in companyjunction with companymetics and depilatories. In other words, the word perfumes referred only to such preparations as were companymonly known in the market for use on the human body as perfumes. The Bombay High Court drew support from the judgment of the Madras High Court in Board Roberts adn Co. India Ltd. v. Board of Revenue C.T. , Madras, 1942 STC 370,. here a Similar view had been taken. The Bombay High Court also drew support from the case of Assessing Authority v. Amir Chand Om Parkash, 33 STC 120, in which the Punjab Haryana High Court had earlier companystrued the very same Entry No.16 which is number before us and held that dhoop and aggarbatti companyld number be held to be perfumery within the meaning of that entry. The Bombay High Court distinguished the judgment of this Court in Indian Herbs Research Supply Company by numbering that this Court was number there required to companysider the terms scent and perfumes in companyjunction with articles of toilet or companymetics the words stood by themselves and there was numberreason to limit them in any manner. In Assessing Authority, Amritsar, and Another v. Amir Chand Om Prakash, 33 S.T.C. 121, a Division Bench of the Punjab Haryana High Court, companysidered whether dhoop and aggarbatti fell within the ambit of the said Entry No.16. It held that they did number for two reasons. The first of the two reasons is numberlonger valid by reason of a subsequent amendment, but the second reason is till valid. The Punjab Haryana High Court said So far as dhoop and aggarbatti are companycerned, there is another way of looking at the matter. The entry i.e. entry No.16 is companymetics, perfumery and toilet goods The companytext in which the word perfumery occurs shows that what is meant by all the three general items companymetics, pefumery and toilet goods are articles which are used for personal hygiene or pleasure. The items which are excepted from this entry are tooth-paste, tooth-powder, soap and kum-kum. This viz., that only those articles of luxury, which are used for personal hygiene and pleasure were intended to be included in this entry. So the word perfumery in this companytext would number include dhoop and aggarbatti, which are never used for personal hygiene or pleasure, but are primarily used for religious ceremonies. The Punjab Haryana High Courts attention was drawn to this Courts judgment in the Indian Herbs Research and Supply Co.s case and it came to the companyclusion, having analysed it, that it was of numberassistance because, as it has already held, the companytext in which the word perfumery occurred in the said Entry No.16 indicated that it was used only in respect of items used for personal hygiene. The judgment in Amir Chand Om Parkash was cited before the Division Bench that delivered the judgment under appeal. It numbered, rightly, that the first ground upon which it had been held that dhoop and aggarbatti fell outside the word perfumery in the said Entry No.16 numberlonger survived, but it was in error in distinguishing the judgment entirely on the ground that Entry No.16A specifically mentions perfumery as including Dhoop and aggarbatties. The second ground in the judgment, namely, that the companytext in which the word perfumery was used in the said Entry No. 16 showed that it referred only to perfumes used for personal hygiene or pleasure, remained binding on the Division Bench that decided the present matter as also the finding that this Courts decision in the Indian Herbs Research and Supply Co. was distinguishable. Entries in the Schedules of Sales tax and Excise statutes list some article separately and some articles are grouped together. When they are grouped together, each word in the Entry draws companyour from the other words therein. This is the principle of numbercitur a sociis. We are in numberdoubt whatever that the word perfumery in the said Entry No.16 draws companyour from the words companymetics and toilet goods therein and that, so read, the word perfumery in the said Entry No.16 can only refer to such articles of perfumery as are used, as companymetics and toilet goods are, upon the person. The word perfumery in the companytext in which it, is used has, therefore, numberapplication to dhoop and aggarbatti. The distinction between the present case and the case o Indian Herbs Research and Supply Company is evident for the word perfumes in the entry under companysideration in the latter case was number limited by the words before and after, as in the entry before us both the words scent and perfumes related to articles that produced fragrances. Consequently, we are of the view that the judgment under appeal is erroneous and must be set aside. The appeal is allowed. The judgment under appeal is set aside and the judgment of the learned Single Judge allowing the appellants writ petition is restored. No order as to companyts. J Nos. | 4 |
Mr Justice Walker:
A. Introduction 1
A1. The claims and the outcome 1
A2. Companies, partnerships and individuals 8
A2.1 Descriptions of companies, partnerships and individuals 8
A2.2 Arch FP, Arch UK, AIGHL, Mr Farrell and Mr Addison 9
A2.3 Mr King, Mr Jeffs, Mr Derks, Mr Smith and Mr Ruparell 13
A2.4 The OEICs, the UK funds and sub-funds, and Capita FML 14
A2.5 The ICC, the cells, AT1, Bordeaux, Mr Radford and Mr Meader 19
A2.6 Carey Olsen, Moore Stephens and Fortis 23
A2.7 Club Easy, Mr Hayes and Storeys 24
A2.8 FCL, Mr Barkman, Mr Montague, FHL and "Foundations" 28
A2.9 FPP, Mr Blythe and Blythe Financial 30
A2.10 PKF and Cobbetts 31
A2.11 Mr Scott, Mr Davey and Spearpoint 33
A3. Lonscale: overview of events 34
A4. The FSA investigation 60
A5. The issues at trial 62
B. The trial 72
B1. The trial: introductory 72
B2. Factual evidence 74
B2.1 Factual evidence: general 74
B2.2 Factual evidence of Mr Scott 76
B2.3 Mr Davey 80
B2.4 Mr Farrell 84
B2.5 Mr Addison 87
B2.6 Mr Jeffs 89
B2.7 Hearsay evidence: Mr Radford and Mr Meader 91
B2.8 Hearsay evidence of Mr King 92
B3. Expert evidence 93
B3.1 Expert evidence: general 93
B3.2 Expert evidence of Mr Walton 95
B3.3 Expert evidence of Mr Rees 97
B4. The defendants' general observations about the trial 100
B5. Inequality of arms 109
C. Aims and events in 2007 111
C1. Aims and events in 2007: general 111
C2. Aims and events prior to 18 August 2007 112
C3. Aims and events in the remainder of 2007 128
C4. Disclosure to, and consent by, the cells 140
C5. Processes involved in the acquisition 151
C6. The defendants' evidence as to events in 2007 157
D. Duties and entitlements 164
D1. Duties and entitlements: general 164
D2. Mandate: powers and duties 165
D3. Management powers and duties 171
D4. Duties of loyalty 172
D5. Disclosure as an answer to breaches of duties of loyalty 182
D5.1 Disclosure: general 182
D5.2 Oral disclosure to Mr Radford and Mr Meader 184
D5.3 The alleged Base Prospectus 186
D5.4 Disclosure in other ways 199
E. Failures of care in October 2007 200
E1. Failures of care in October 2007: general 200
E2. Arch FP's approach to Storeys' valuations 204
E3. PKF's identified need for a capital injection 217
E4. Risk/reward analysis in October 2007 226
E5. Conclusion on reasonable care in October 2007 233
F. Failures of care after October 2007 234
G. Breaches of fiduciary duty 243
G1. Breaches of fiduciary duty: general 243
G2. Advice on fair management of conflicts 246
G3. Alleged fair management of the conflict 248
G4. Conclusions on breaches of duties of loyalty 264
H. Breach of mandate 265
J. Alleged dishonesty by Mr Farrell 276
J1. Alleged dishonesty by Mr Farrell: general 276
J2. Legal tests for dishonest assistance 278
J3. Whether the tests were met 283
K. Alleged inducing of breach of contract 286
K1. Inducing breach of contract: general 286
K2: Legal principles concerning inducement 288
K3. Application of the principles in this case 289
L. The alleged release under the waiver agreement 293
M. Causation, remedies and recoverability 308
M1. Causation, remedies and recoverability: general 308
M2. Effect of later events 309
M2.1 Effect of later events: general 309
M2.2 Losses on alternative investments 311
M2.3 Scope of Arch FP's duties and intervening causes 327
M3. The duty to mitigate losses 331
M4. Claim for equitable compensation against Arch FP 347
M5. Alternative remedies for breach of fiduciary duty 350
M6. Damages for failure to exercise reasonable skill and care 354
M7. Restitutionary remedies 356
M8. Equitable compensation for Mr Farrell's dishonest assistance 357
M9. Damages against Mr Farrell for inducement 358
N. Conclusion 359
Annex 1A: Annex 1A
Abbreviations and short forms, sorted by short form
Annex 1B: Annex 1B
Abbreviations and short forms, sorted by long form
Annex 2: History of main events Annex 2
A2/ A. Summary of events: introduction Annex 2/A
A2/ B. Late July up to and including 17 August 2007 Annex 2/B
A2/ C. 18 August up to and including 29 October 2007 Annex 2/C
A2/ D. 30 October 2007 to 9 January 2008 inclusive Annex 2/D
A2/ E. 10 January 2008 to 28 April 2008 inclusive Annex 2/E
A2/ F. 29 April 2008 to 9 June 2008 inclusive Annex 2/F
A2/ G. 10 June to 2 July 2008 inclusive Annex 2/G
A2/ H. 3 July to 6 October 2008 inclusive Annex 2/H
A2/ J. 7 October 2008 to 11 December 2008 inclusive Annex 2/J
A2/ K. 12 December 2008 to 5 January 2009 inclusive Annex 2/K
A2/ L. 6 January to 13 March 2009 Annex 2/L
A2/ M. 14 March 2009 onwards Annex 2/M
A. Introduction
A1. The claims and the outcome
Arch Financial Products LLP ("Arch FP") was, among other things, an investment manager. It managed funds which were known as "the Arch-Cru funds". For this purpose an incorporated cell company ("ICC") was used. The ICC was incorporated in Guernsey under the Incorporated Cell Companies Ordinance 2006. I shall refer to this company, now known as SPL Guernsey ICC Limited, as "the ICC". The ICC comprised a number of cells ("the cells"), each of which was a separate legal entity, and each of which held its own separate assets. Among them were cells with a focus on private finance ("the PF cells") and cells with a focus on real estate ("the RE cells").
The claims advanced in 2011 Folio 1559 are brought against Arch FP by 18 cells, each of which entered into a written investment management agreement ("IMA") with Arch FP. They include claims ("the Lonscale Arch claims") which concern a student housing business known as "Club Easy" run by companies in the Clubeasy Group ("the Clubeasy Group companies"). Those companies included three companies which were the effective corporate owners of that business ("the CG owning companies").
References below to the "acquisition" are to the proposed or actual acquisition of the CG owning companies. They were in the event bought by Lonscale Ltd ("Lonscale"), an Isle of Man company, under agreements made on 17 August 2007 and completed at the end of October 2007. During the period from late October 2007 to August 2009 inclusive various types of investment in Lonscale, using this expression to include the purchase of loan notes with ultimate values dependent upon Lonscale's performance or value, were made. The investors included six of the cells. They are the second, third, fourth and fifth claimants in 2011 Folio 1559 (referred to below as "PF2", "PF3", "PF4" and "PF5" respectively and as "the PF claimants" together), and the twelfth and thirteenth claimants in 2011 Folio 1559 (referred to below as "RE1" and RE2" respectively and as "the RE claimants" together). I refer to these six cells below as "the Lonscale claimant cells".
The Lonscale claimant cells make key assertions that the decisions to make these investments were driven by Arch FP's financial interest in obtaining illegitimate payments rather than proper consideration of the investments' merits and the interests of the cells, and that in this regard Arch acted in breach of fiduciary duty, in breach of contract and negligently.
In addition to their claim against Arch FP in 2011 Folio 1559, the Lonscale claimant cells make claims ("the Lonscale Farrell claims") against Mr Robin Farrell. The Lonscale Farrell claims are the subject of the proceedings in 2012 Folio 419. Mr Farrell is and at all material times was the Chief Executive Officer ("CEO") of Arch FP. The Lonscale claimant cells make key assertions that Mr Farrell dishonestly assisted Arch FP to breach its fiduciary duties and induced its breaches of contract.
By an order made on 27 July 2012 Mr Colin Edelman QC, sitting as a Deputy Judge, directed that the Lonscale Arch claims and the Lonscale Farrell claims be tried together. This judgment sets out my conclusions following the trial, in accordance with that order, of the Lonscale Arch claims and the Lonscale Farrell claims. At the trial the Lonscale claimant cells were represented by Mr Richard Coleman QC and Mr Giles Wheeler, instructed by Stephenson Harwood LLP. Arch FP and Mr Farrell were represented by solicitors and counsel until 5 July 2013, by which time the parties had given disclosure and exchanged witness statements. Since then they have been unrepresented. At the trial Mr Farrell acted in person as defendant to the Arch Farrell claims. With my permission under CPR 39.6, he and Mr Robert Addison acted at trial on behalf of Arch FP. Mr Farrell is managing partner, and Mr Addison is a partner, of Arch FP.
For the reasons given later in this judgment I am sure that the key assertions described in paragraphs 4 and 5 above are correct. I reach this conclusion with reluctance, as the key assertions involve very serious allegations. The evidence in support of the key assertions, however, is so strong that I am left in no doubt that they are correct. The result is that the Lonscale claimant cells will be entitled to remedies against Arch FP and Mr Farrell. I deal with those remedies in section M below.
A2. Companies, partnerships and individuals
A2.1 Descriptions of companies, partnerships and individuals
Written material prepared by the Lonscale claimant cells and the defendants included descriptions of companies, partnerships and individuals. In this section I have made use of those descriptions to the extent that they are not in controversy. Abbreviations and short forms used in this regard, and more generally in this judgment, are set out in annexes 1A and 1B to this judgment. My descriptions, both below and earlier in this judgment, are mainly in the past tense. That is because the trial concerned past events. No inference should be drawn as to the current status of any company, partnership or individual.
A2.2 Arch FP, Arch UK, AIGHL, Mr Farrell and Mr Addison
As noted above, Mr Farrell was CEO of Arch FP. After graduating in mathematics from Imperial College London in 1988 he spent the next 14 years in a series of increasingly high level posts concerned with various aspects of investment management. In 2002 he established an enterprise which carried out business advisory and research services. Arch FP was created as a limited liability partnership in November 2004 and in March 2005 was authorised to arrange and manage investments under Part IV of the Financial Services and Markets Act 2000. Mr Farrell was approved by the Financial Services Authority ("FSA") to carry out certain controlled functions (including that of chief executive). He was responsible for the overall operation of the firm, including compliance with its regulatory obligations.
At all material times 97% of the membership rights in Arch FP were owned by Arch Group (UK) Limited ("Arch UK"), incorporated in November 2004. Mr Farrell was initially the sole shareholder of Arch UK. His shareholding was later reduced to 80%, where it remained until March 2008. In March 2008 Arch International Group Holdings Limited ("AIGHL") purchased the entire issued share capital in Arch UK and so replaced Arch UK as ultimate parent company. The majority shareholding in AIGHL was held by Mr Farrell until 23 January 2009, and thereafter by Mr Farrell and his wife. I shall refer to the business conducted by Arch FP and Arch UK from November 2004 onwards, and by those entities and AIGHL from March 2008 onwards, as "the Arch business". Arch FP, Arch UK and AIGHL are referred to below as "the Arch entities".
As CEO of Arch FP, founder of the Arch business, and owner of the largest share of the economic interests in the group, Mr Farrell was the dominant person in Arch FP and in the Arch business. In addition to representing Arch FP and himself at the trial, Mr Farrell gave evidence and was cross examined (see section B2.4 below).
Mr Addison, in addition to being a partner (see section A1 above), was the Chief Operating Officer of Arch FP. He was also, along with Mr Radford and Mr Meader, a director of the Lonscale claimant cells (see section A2.5 below). After graduating in economics from University College London in 1990 he was employed in senior roles concerned with investment management. From 2003 to 2005 he managed his own structuring and derivatives consultancy where he oversaw the development and launch of a number of investment funds. On joining Arch FP in 2006 he took on finance, operations and compliance roles at the firm. These included the role of compliance officer, a role in which he was responsible for implementing compliance policies and undertaking compliance monitoring of Arch FP's business practices. In addition to assisting Mr Farrell to represent Arch FP at the trial, Mr Addison gave evidence and was cross examined (see section B2.5 below).
A2.3 Mr King, Mr Jeffs, Mr Derks, Mr Smith and Mr Ruparell
Mr Gary King graduated from the University of New South Wales in Australia in 1982 with a Bachelor of Science degree in Physics and Mathematics. Over the next twenty two years he was appointed to a number of senior positions involving the trading of derivatives and of debt securities in Sydney, New York and London. He also completed a Masters Degree in Finance at the University of New South Wales. In March 2006 he was employed in London by the UK asset management arm of a New York bank, where he had a consultancy role for fixed income and foreign exchange investments. In October 2006 he joined Arch FP as Head of Trading and Execution. This involved putting into place the operational arrangements needed to launch the cells. Thereafter his role also involved executing hedges, calculating and executing foreign exchange hedging, and buying and selling bonds and equity on an execution basis. He became a portfolio manager for the RE claimants following their launch in the second half of 2007. Both before and after the launch Mr King carried out work in connection with the proposed acquisition. After the acquisition he was a director of Lonscale and involved in the management of Club Easy. At trial a witness statement by Mr King was adduced as hearsay evidence on behalf of the defendants (see section B2.8 below).
Others who acted on behalf of the RE claimants included Mr Smith (see paragraph 16 below) and Mr Michael Derks, chief investment strategist of Arch FP.
Mr Peter Jeffs is a former officer in the Royal Air Force who has experience of various aspects of business development. In 2006 he assisted a team bidding to become an adviser to Arch FP in relation to investment risks using environmental, social and governance metrics. After meeting Mr Farrell and Mr King he accepted an offer to join Arch FP as a project/business manager. His role changed as Arch FP grew. Initially he provided support on internal services management projects, moving later to provide support on external investment projects. Mr Jeffs was involved in the due diligence work carried out by Arch FP in relation to the proposed acquisition. Following the acquisition, he became a director of several of the Clubeasy Group companies. Mr Jeffs gave evidence at the trial and was cross examined (see section B2.6 below).
As noted earlier, Mr King was portfolio manager for the RE claimants. Two other portfolio managers call for mention. Mr Adam Smith was portfolio manager for the PF claimants. Mr Silash Ruparell was portfolio manager for the cell known as "AT1" (see section A2.5 below).
A2.4 The OEICs, the UK funds and sub-funds, and Capita FML
The investment structure primarily relevant for present purposes involved investment funds ("the UK funds") and sub-funds ("the UK sub-funds") set up so that UK investors could participate in them. In order to participate in this way such an investor would invest in a UK open-ended investment company ("OEIC"). In March 2006 Arch FP approached Capita Financial Managers Limited ("Capita FML") to see if Capita FML would be interested in acting as Authorised Corporate Director ("ACD") in this regard. Capita FML agreed to do this. In June 2006 an OEIC known as CF Arch Cru Investment Funds (the "Arch Cru Investment Fund") was authorised by the FSA. Capita FML was appointed as ACD and in July 2006 it delegated the investment management role to Arch FP. The Arch Cru Investment Fund was structured as an umbrella company and held two UK sub-funds.
The investment role for a pre-existing OEIC authorised by the FSA was subsequently taken over by Arch. The OEIC in question was renamed CF Arch Cru Diversified Fund (the "Arch Cru Diversified Fund"), and would ultimately hold four UK sub-funds. Capita FML was again appointed as ACD, and delegated the investment management role to Arch FP in September 2007. I refer below to the Arch Cru Investment Fund and the Arch Cru Diversified Fund as "the UK OEICs."
A2.5 The ICC, the cells, AT1, Bordeaux, Mr Radford and Mr Meader
During 2006 Arch FP became aware that in Guernsey an ICC could incorporate cells, enabling cell sub-funds to be constituted as separate corporate entities with their own particular investment objectives. The shares of each cell (in effect, shares in each cell sub-fund) could also be listed on the Channel Islands Stock Exchange ("CISX"). Arch FP considered that this structure could provide both the UK Funds and other investors with the opportunity to invest in shares in entities holding a more diversified range of assets than might otherwise have been the case.
On 21 December 2006 the ICC was incorporated. Between December 2006 and May 2008 more than 20 cells were incorporated and authorised by the Guernsey Financial Services Commission ("GFSC"). They included the Lonscale claimant cells. Most were listed on the CISX. Most of the shares in the Lonscale claimant cells were held by one or more of the UK sub-funds.
The cells also included Arch Treasury IC Limited ("AT1", now known as SPL Treasury (AT1) IC Ltd). It differed from other cells. Mr Farrell explained that it was established in June 2007 "mainly as a syndications and warehousing vehicle".
Bordeaux Services (Guernsey) Limited ("Bordeaux") acted as administrator of the cells. The directors of Bordeaux, Peter Radford and Neal Meader, were appointed as directors of the ICC along with Mr Addison. In accordance with the requirements of Guernsey law they were also the directors of the cells. Hearsay evidence of Mr Radford and Mr Meader was adduced at trial on behalf of the Lonscale claimant cells: see section B2.7 below.
A2.6 Carey Olsen, Moore Stephens and Fortis
As noted above, Arch FP was the investment manager for each of the Lonscale claimant cells. Also as regards each of the Lonscale claimant cells:
(1) Guernsey lawyers, Carey Olsen, were appointed as the cells' legal advisors;
(2) Moore Stephens were appointed as the cells' auditors;
(3) Fortis Bank (CI) Limited ("Fortis") was appointed as custodian and in that capacity held the assets of each cell.
A2.7 Club Easy, Mr Hayes and Storeys
Club Easy provided student accommodation in Exeter, Durham, Hull, Loughborough and Lincoln. It was ultimately controlled by Jason Hayes. A family business, Club Easy was founded by Mr Hayes's father, and built up over a number of years.
The Clubeasy Group companies comprised a number of companies, of which three were directly owned by Mr Hayes: Club Easy Group plc, Clubeasy Property (UK) Limited and Hayes Limited (an Isle of Man company). These three companies were the CG owning companies. ASA (Hull) Limited was a wholly owned subsidiary of Clubeasy Property (UK) Limited. Clubeasy Student Services Limited and Acepoint Limited were wholly owned subsidiaries of Clubeasy Property (UK) Limited.
Mr Hayes decided to sell the CG owning companies. By mid 2007 he wished to do so urgently. The reason that he gave was that he needed to raise money in order to pursue projects in the U.S.A.
The most valuable assets of the group were the properties in which students were housed. They were primarily residential properties converted to be used as multiple occupancy accommodation, not modern purpose-built accommodation. Ownership of the properties was split between the various group companies. The group had substantial borrowings from a number of banks and building societies secured on the various properties. In relation to those borrowings, valuations of the properties had, shortly before Mr Hayes made it known that he wished to sell the CG owning companies, been prepared by Storeys:ssp Limited ("Storeys"), real estate surveyors and valuers.
A2.8 FCL, Mr Barkman, Mr Montague, FHL and "Foundations"
Mr Lee Barkman was a resident of Guernsey. He was closely connected with a company called Foundations Capital Limited ("FCL"). FCL was incorporated in the British Virgin Islands and was under the control of Mr Barkman and Mr Philip Montague. In December 2006 Arch UK and FCL incorporated a joint venture company, Foundations Holdings Limited ("FHL"). FHL was incorporated in the Isle of Man, and was owned as to 65 per cent by FCL and as to 35 per cent by Arch UK. Arch UK also acquired preference shares in FHL. The directors of FHL were Mr Farrell, Mr Addison, Mr Barkman and Mr Montague.
Mr Barkman sometimes used the word "Foundations" on its own in circumstances where it might mean himself or FCL, or both himself and FCL. He did this in contradistinction to the Arch business and FHL. For convenience I shall generally use this word in that way. Accordingly, unless the context indicates otherwise, references below to "Foundations" are to Mr Barkman and/or FCL, and do not include FHL.
A2.9 FPP, Mr Blythe and Blythe Financial
Foundations Program Plc ("FPP") was an Isle of Man company originally owned by FCL with the object of engaging in various kinds of investment activity. It was acquired by FHL on 10 January 2007. Mr Barkman and Mr Montague were directors of FPP. Mr Farrell was a director of FPP until 17 April 2009. A further director of FPP was Mr Alan Blythe. Mr Blythe, who was also an investment committee member of FPP, was a financial adviser who traded through Blythe Financial Limited, an Isle of Man regulated company ("Blythe Financial"). In his role as a financial adviser Mr Blythe was given conduct by Mr Hayes of the sale of the CG owning companies.
A2.10 PKF and Cobbetts
PKF (UK) LLP ("PKF") are and were a limited liability partnership trading as accountants and consultants. On 12 July 2007 PKF wrote to the directors of FCL setting out the terms on which they would carry out an assignment concerning what was described as the "Proposed Transaction". This was the proposed acquisition of the CG owning companies. The assignment was described as a limited review of the CG owning companies in connection with the Proposed Transaction. The letter was countersigned by Mr Barkman and Mr Montague on 13 July 2007, in each case for and on behalf of FCL.
Cobbetts, LLP ("Cobbetts"), solicitors with offices in Leeds and in Guernsey, were instructed to act initially for FCL, and subsequently for Lonscale, in relation to the acquisition.
A2.11 Mr Scott, Mr Davey and Spearpoint
Mr William Scott was appointed a director of the ICC, and of each of the cells, on 31 December 2009. On 1 December 2009, a company called Spearpoint Limited ("Spearpoint", now called Brooks Macdonald Asset Management (International) Limited) was appointed investment manager to the ICC and of each of the cells. Spearpoint took over this role from Arch FP. Mr John Davey was the CEO of Spearpoint. At the trial Mr Scott and Mr Davey gave evidence on behalf of the Lonscale claimant cells and were cross examined: see sections B2.2 and B2.3 below.
A3. Lonscale: overview of events
In this overview I give a very broad account of the history, sufficient only to give some context to my overview of the issues in section A5 below. A more detailed history of events is set out in Annex 2. Where emails or documents are cited in this section and in later sections of this judgment, extracts or descriptions of the source email or document will usually be found in the relevant section of Annex 2.
By late July 2007 FCL, as the result of an introduction by Mr Blythe, had become the preferred bidder for the CG owning companies. Mr Barkman and Mr Hayes envisaged that FCL would acquire the CG owning companies in August 2007. The proposal that it should do so was sometimes referred to as "the Club Easy project". In order to take the Club Easy project forward, FCL had engaged PKF, Cobbetts and Storeys. Possible involvement of the Arch business was discussed by Mr Barkman and Mr Farrell, among others, at meetings on 25 July and 1 August 2007. Among other things discussed on 1 August 2007 was the possibility of a delay of some months between contracting for the purchase of the CG owning companies and completion of that purchase.
By 2 August 2007 the Club Easy project had become a project which involved the Arch business. Various aspects of that involvement were discussed in the period up to 17 August 2007, and in subsequent months, mainly by Mr Farrell and Mr Barkman.
There is a dispute between the Lonscale claimant cells and the defendants as to the nature of these discussions. I examine this aspect of the history in section D below. For present purposes I record the rival contentions:
(1) The defence served on 1 May 2012 in 2011 Folio 1559 ("the main defence") asserted that it was agreed in August 2007 that Arch FP "would receive fees representing 50% of the difference between the acquisition price and the value of the Club Easy Group with Mr Barkman retaining the other 50%". The main defence also asserted, when describing what was agreed in August 2007, that this payment was subject to an overall limit of £6m, and that any additional difference beyond the limit of £6m would accrue for the benefit of Lonscale, AT1 and the purchasers of notes which were to be issued by AT1. In his first witness statement dated 11 March 2013 Mr Farrell alleged expressly that Arch FP's role was to help Mr Barkman by providing corporate finance advice. He added that the relevant value of the Club Easy Group was a "discounted value", and that the limit of £6m was agreed in October 2007.
(2) By contrast, the Lonscale claimant cells say that Arch FP was not merely a service provider doing work for a fee. They maintain that there was no discussion of any true "fee". Their contention is that:
… the evidence clearly shows that there was a joint venture between Arch and FCL/Mr Barkman whereby they would arrange the purchase of the Clubeasy group by Lonscale, and share between themselves a substantial part of the monies invested by investors.
By 17 August 2007 Lonscale had been created and identified as the company which would purchase the CG owning companies from Mr Hayes. On that day contracts agreeing the purchase were signed, and a £1m deposit was paid by Lonscale to Mr Hayes. As explained below, this payment was financed by a cell which I shall refer to as "SO3". The bulk of the purchase money was to be paid on completion, which was fixed for 26 October, and provision was made for the balance to be paid as deferred consideration.
During the period prior to 26 October 2007, it became apparent that Mr Hayes would not be able to comply with conditions precedent to completion, among them a condition as to net asset value. Negotiations between the parties eventually resulted in an agreement on 29 October 2007 for completion that day with reductions in the amounts to be paid on completion and by way of deferred consideration.
In the meantime on 26 October 2007 the Lonscale claimant cells, as to various individual amounts totalling £20.2m, and FPP, as to £0.8m, subscribed for notes issued by AT1 ("AT1 notes") to a total value of £21m; these notes were on terms under which they had ultimate values dependent upon Lonscale's performance or value. On the same day arrangements were put in hand for AT1 to subscribe for £13m of notes issued by Lonscale on terms matching those applicable to £13m of the notes issued by AT1. At around this time it was envisaged that AT1 would also subscribe for £8m of shares in Lonscale.
On 29 October 2007:
(1) AT1 received from the Lonscale claimant cells and FPP the total sum of £21m due in respect of their subscriptions for the notes issued on 26 October 2007;
(2) AT1 paid a sum of £1m plus interest to SO3, thereby repaying with interest the money it had provided to fund the deposit of £1m paid to Mr Hayes on 17 August 2007;
(3) the balance of £19.98m odd ("the £19.98m") was paid by AT1 to Cobbetts' client account.
As to the £19.98m, Cobbetts were instructed by Mr Farrell that "structuring fees" were to be paid of £3m to Arch and £3m to the order of Mr Barkman. In this regard, and more generally as to payments made by Cobbetts out of the £19.98m:
(1) on 30 October 2007, in fulfilment of an undertaking given by Cobbetts the previous day, completion moneys amounting to £12.21m odd were paid to solicitors acting for Mr Hayes;
(2) in November 2007 sums of £500,000 and £950,000, described as "working capital" were transferred to Clubeasy Group companies;
(3) on 6 November 2007 a sum of £3 million, described as "structuring fees", was paid to Arch FP;
(4) on 9 November 2007 a sum of £556,152 was paid to Arch UK, being a payment directed by Mr Barkman to be made out of his £3m "structuring fee" in respect of the redemption by FHL of Arch UK's preference shares;
(5) on 23 November 2007, a sum of £150,000 was paid to FCL, described as "£150,000 of their structuring fee";
(6) also in November 2007, payments were made for stamp duty and in settlement of bills rendered by PKF, Storeys, and Cobbetts themselves;
(7) on 14 February 2008, Cobbetts advised that the remaining sums held amounted to £2,316,911.82; they added that by their calculation this was split so that they were holding £2,293,848 for FCL (which would be the amount left over from Mr Barkman's £3m "structuring fee" after deducting the £556,152 paid on 9 November 2007 and the £150,000 paid on 23 November 2007) along with a balance of £23,063.82 for Lonscale.
During November and December 2007 FPP made additional purchases of AT1 notes which were, in effect, sold by the RE claimants. The result was that each of RE1 and RE2 received £598,281 from selling notes which had formed part of their initial investment. Each thereby made a gain of £118,281.
During the period January 2008 to January 2009 inclusive, in order to provide additional funding for Club Easy, on seven occasions arrangements were made under which the RE claimants paid amounts totalling £3.95 million in return for notes issued by AT1 on terms under which their ultimate values depended upon Lonscale's performance or value. On each occasion AT1 paid Lonscale an identical amount for notes issued by Lonscale on terms matching those of the notes issued by AT1.
In March 2009 the notes issued by AT1 were restructured and replaced by a combination of equity in Lonscale and the assumption by Lonscale of certain of AT1's obligations under the notes. The result was that the shares in Lonscale were owned as to 75.5% equally by RE1 and RE2. In addition, they became holders of Lonscale senior notes, and the PF claimants became holders of Lonscale mezzanine notes. By this time it had been established that the position of the CG owning companies at relevant times was such that Lonscale's obligation to pay deferred consideration was extinguished.
More generally in relation to investments managed by Arch FP, in early 2009 reviews were conducted by the FSA and the GFSC. In March 2009 the GFSC imposed on the ICC a condition that it and each of the cells were prohibited from disposing of any of their assets without the GFSC's prior consent. Capita FML suspended trading in shares of the UK OEICs on the grounds of deteriorating liquidity. Capita FML expressed concern that investments by individual cells in other cells ("cross investments") led to Arch FP double-charging by receiving additional fees, which I shall refer to as "cross investment fees", for managing the same investment.
In May 2009 the GFSC directed that investment management fees should not be paid to Arch FP until the basis of the valuation of the cells had been proven. In July 2009 the shares of the cells were temporarily suspended from their official listing on the CISX at the request of the directors pending publication of the ICC's net asset value as at 31 March 2009.
Discussions took place with a view to Spearpoint replacing Arch FP as investment manager of the cells. In order to facilitate this on 25 September 2009 Spearpoint and Arch FP entered into a "Transfer and Implementation Agreement" recording obligations which Arch FP and Spearpoint had undertaken in this regard.
A conditional agreement ("the waiver agreement") was made between Arch FP and the cells on 22 October 2009. It came about in this way. On 22 October 2009 Arch FP wrote a letter ("the waiver letter") addressed to the directors of the cells. It was headed, "Proposed change of Investment Manager". The letter began by referring, among other things, to the IMAs, to recent discussions concerning the proposal to appoint Spearpoint as investment manager or investment adviser, and to recent discussions concerning cross investment fees. The waiver letter went on to state that without admission of liability, in consideration for satisfaction of two conditions, Arch FP waived its entitlement to receive all investment management or investment advisory fees and expenses payable pursuant to the IMAs from 1 March 2009 up to and including the date on which Spearpoint was appointed investment manager or investment adviser. The two conditions are described in more detail in Annex 2 at section A2/M. In broad terms the first condition was that Spearpoint had been appointed as investment manager or investment adviser on or before 30 November 2009, and the second was that there be "a full release (in the form attached)" in respect of claims against Arch FP. The "form attached" made reference to cross investment fees. The defendants contend, but the Lonscale claimant cells deny, that the form provided for a release which went beyond potential claims in relation to cross investment fees, and extended to all potential claims.
Immediately following Arch FP's signature of the letter a typed paragraph set out confirmation of agreement to the terms of the waiver letter, and this was followed by the "form" of release described in the second condition. Signatures then appeared on behalf of each of the cells. The result was that on 22 October 2009, while the first condition to the waiver agreement had yet to be met, upon that condition being met the second condition would be fulfilled.
On 30 November 2009, with the approval of the FSA, the GFSC and Capita FML, Spearpoint replaced Arch FP as investment manager to the ICC and the cells. This had the consequence that both conditions in the waiver letter were met. Accordingly on 30 November 2009 the waiver agreement came into force.
Returning to the Lonscale investment, in May, June and August 2009 sums totalling £2.06 million were made available to Club Easy. In each case these sums were financed, with the consent of GFSC, by payments from RE1 and RE2 to Lonscale in return for Lonscale senior notes.
In October/November 2009, for the purpose of audit of the financial statements of the Lonscale claimant cells as at 31 March 2009, the auditors indicated that they intended to value the equity investment in Lonscale at zero, and "impair" the loan notes by £4.3 million. In November 2009 Arch FP asked Bordeaux to proceed accordingly. Later in November 2009, for the purpose of calculation of the net asset value of the Lonscale claimant cells as at 30 September 2009, Arch FP asked Bordeaux to mark the equity investment at zero and the loan notes also at zero.
Mr King was one of a number of staff who moved across to Spearpoint when it became investment manager on 30 November 2009. On 3 December 2009 he prepared a memorandum addressed to Spearpoint's Guernsey Investment Committee entitled "Lonscale Restructuring Proposal". It noted that "[d]ue to the financial circumstances of the company… both the equity and debt of Lonscale are marked at zero in the funds now under Spearpoint management." Under the heading "forecast profitability" the memorandum stated:
Clubeasy was acquired as a turnaround project, and had a running loss of approximately £5m per year when purchased. …the hugely loss making run-rate continued for some time building up the need for Lonscale to borrow to fund operating losses. This only put more burden on the consolidated company.
Since then, some progress has been made in increasing revenues … and reductions in costs… however the company, even on an operating level excluding all debt to the funds, is still running at a loss. This requires either the equity owners or lenders to support the company to keep it going.
…
… the company remains fairly static at around £700k loss per year.
Under the heading, "On-going Issues/Challenges/Risks" Mr King concluded that it was clear that Clubeasy "cannot even break even under the current set-up…". He listed a number of issues, the first of which was a huge debt burden. Among other issues, the memorandum identified that the auditors had to rely "on support by the funds to certify that the operation is a going concern". The memorandum then identified proposals for consideration, adding that a requirement by the auditor for confirmation of support meant that changes would have to be put into place very quickly.
At a meeting of the board of the ICC and the cells on 10 December 2009 Mr Davey presented Mr King's memorandum to the board. Mr Davey drew the board's attention to the fact that Arch FP had written down the equity and debt investments in Lonscale to zero with effect from 30 September 2009. He nevertheless expressed the view that there could be value in the investment, but only if there were changes to the controls and management. It was agreed that Spearpoint would put a proposal on how to deal with the Lonscale investment to the board at a future board meeting once more consideration had been given to the options.
Later in December 2009 and early in January 2010 Mr Davey took part in discussions with Mr Barkman and Mr Montague. These resulted in a memorandum of understanding ("the MoU") dated 19 January 2010 for the sale and purchase of Lonscale debt and equity. The parties to the MoU were the Lonscale claimant cells as "Sellers", Spearpoint in its capacity as agent for the Sellers, and CE Holdings Limited SPV (the "Buyer"). The ultimate beneficial owners of the Buyer were Mr Barkman and Mr Montague. An initial consideration of £200,000 under the MoU was received on 22 February 2010. After further negotiation the Lonscale claimant cells on 26 March 2010 entered into a sale and purchase agreement ("the Disposal Agreement") with a corporate entity established by Mr Barkman and Mr Montague named Lonscale Holdings Limited ("Lonscale Holdings").
The result was that by 13 April 2010 the Lonscale claimant cells, in exchange for their shares in Lonscale and their holdings of notes issued by Lonscale, had received a total of just over £1m comprising the £200,000 transferred under the MoU, a sum of £200,000 initial cash consideration under the Disposal Agreement, and the value of other assets transferred to the Lonscale claimant cells pursuant to the Disposal Agreement. A balance of £9,316,587.72 remained payable in instalments in accordance with the Disposal Agreement by way of deferred consideration.
The claim by the Lonscale claimant cells and others against Arch FP (2011 Folio 1559) was begun by claim form issued on 21 December 2011. The claim by the Lonscale claimant cells against Mr Farrell (2012 Folio 419) was begun by claim form issued on 16 March 2012.
A4. The FSA investigation
The regulatory findings of the FSA were published in a decision notice dated 14 September 2012. As against Arch FP the FSA identified breaches of the FSA Principles for Businesses. As against Mr Farrell and Mr Addison the FSA identified breaches of the FSA Statements of Principle for Approved Persons.
The Lonscale claimant cells' skeleton argument placed reliance upon the FSA findings. However, the appropriateness or otherwise of the regulatory action taken by the FSA is to be the subject of a hearing before the Upper Tribunal. Moreover, my task is different from that of the FSA. Accordingly, in reaching the conclusions set out in this judgment I have had no regard to the FSA findings. Nor have I examined what Mr Farrell and Mr Addison said to the FSA. The Lonscale claimant cells made criticisms of what was said, but it is unnecessary and undesirable for me to make any specific finding as to whether those criticisms were justified. Pending the outcome of the hearing in the Upper Tribunal I proceed on the basis that Mr Farrell and Mr Addison have had unblemished careers. This is a factor which supports the credibility of their evidence, and makes it less likely that they would have behaved improperly.
A5. The issues at trial
Detailed lists of issues were prepared in both actions. The Lonscale claimant cells' skeleton argument used a composite structure identifying a series of main issues. Adopting this approach, but with a degree of restructuring, I have grouped the issues as set out below.
The first group of issues concerns what benefits to which individuals and other entities, and for what services, were contemplated in 2007; who provided what actual benefits to which individuals and entities in 2007; and what disclosures were made to, and what consents were given by, the Lonscale claimant cells in 2007. I deal with this group of issues in section C below.
The next group of issues concerns the duties and entitlements of Arch FP. They are discussed in section D below. An important document in this regard is the IMA made between each Lonscale claimant cell and Arch FP: see section A1 above. Each of these IMAs was in materially identical terms, consisting of 22 numbered paragraphs and 2 schedules. They referred to Arch FP as the "Investment Manager", and to the cell with which the agreement was made as the "Company". Paragraph 1 of the IMAs defined "Portfolio" to mean "all the assets (including uninvested cash) of the Company and entrusted from time to time by the Company to the day-to-day discretionary management by the Investment Manager". In the present judgment where I refer to the portfolio of a cell that reference is, unless the context otherwise requires, a reference to the definition in the IMAs. The IMAs also contained a definition of "Prospectus". As I explain in section D2 below, this referred to documentation specific to the particular cell, and which differed among the cells so as to reflect, among other things, their differing investment objectives.
Paragraph 15 of the IMA provided that Arch FP would always take reasonable care in managing the portfolio. Allegations by the Lonscale claimant cells that Arch failed to do this, or was in breach of an equivalent common law duty of care, as regards the matters which led to the Lonscale claimant cells making payments on 29 October 2007, are considered in section E below. Allegations of failure to take reasonable care in relation to subsequent dealings affecting the Lonscale claimant cells are discussed in section F below.
Assertions by the Lonscale claimant cells that Arch FP acted in breach of fiduciary duty are discussed in section G below. Also considered in this section are contentions by the Lonscale claimant cells that Arch FP was in breach of obligations under paragraph 13 of the IMAs.
Assertions are also made by the Lonscale claimant cells that Arch FP caused them to make investments in Lonscale which did not fall within the mandate given by the Lonscale claimant cells to Arch FP. These assertions are examined in section H below.
Two groups of assertions made by the Lonscale claimant cells against Mr Farrell are examined in sections J and K below. Those examined in section J concern allegations that Mr Farrell dishonestly assisted Arch FP in the breaches of fiduciary duty discussed in section G. Those examined in section K concern allegations that Mr Farrell procured breaches by Arch FP of the IMAs.
In section L below I examine a contention on behalf of Arch FP that the waiver agreement involved a release by the Lonscale claimant cells of all claims made in the present proceedings.
In section M below I discuss issues which arise as to causation and remedies.
Before turning to these issues, I set out some observations in relation to the trial in section B below.
B. The trial
B1. The trial: introductory
The trial occupied fifteen court days, of which ten were taken up with the hearing of evidence. I deal with the factual witness evidence in section B2 below. In section B3 I deal with the expert evidence.
As noted in section A1 above, in the present proceedings the defendants have had legal representation only up to 5 July 2013. The Lonscale claimant cells, by contrast, have been represented by solicitors and leading and junior counsel throughout. There has thus been an inequality of arms. In section B5 below I discuss submissions made by the defendants in that regard, after first discussing in section B4 other general submissions by the defendants about the trial.
B2. Factual evidence
B2.1 Factual evidence: general
Oral evidence was given by five witnesses of fact. They were Mr Scott and Mr Davey for the Lonscale claimant cells and Mr Farrell, Mr Addison and Mr Jeffs for the defendants. I deal with their evidence in sections B2.2 to B2.6 below.
In addition hearsay material was put in evidence for both sides. I deal with that evidence in sections B2.7 and B2.8 below.
B2.2 Factual evidence of Mr Scott
Mr Scott's evidence in chief was set out in three witness statements, dated 1 March, 22 October and 20 November respectively. He was cross examined by Mr Farrell over the course of much of the second day and the morning of the third day of the hearing.
The defendants' written closing submissions said that both Mr Scott and Mr Davey had a vested interest in making allegations against Arch FP whilst appearing blameless themselves for any losses incurred "on their watches". The defendants' further written closing submissions made complaints about what was said to be "irresponsible" litigation. I deal with these matters in section B4 below.
The defendants' written closing submissions also criticised Mr Scott's conduct and evidence concerning the "write off and the subsequent sale" of the Lonscale investments. I deal with that aspect of the proceedings in section M below.
More generally, the defendants said that Mr Scott's evidence should be treated with some caution where it was opinion-based. I have treated all the evidence of Mr Scott with some caution, for I recognise that in his evidence he is necessarily seeking to justify his own decisions, and may be expected to be sympathetic to the claimants. Treating his evidence with appropriate caution, I am satisfied that his evidence was generally credible and I accept it.
B2.3 Mr Davey
Mr Davey's evidence in chief was set out in two witness statements, dated 1 March and 13 November respectively. He was cross examined on the third day of the hearing by Mr Addison initially and later by Mr Farrell.
The defendants' written closing submissions commenting on credibility of Mr Davey and Mr Scott jointly are dealt with in section B4 below. The remaining criticisms of Mr Davey fall into two categories. The first concerns points which were put to him in cross examination. I deal with the relevant topics in section M below. None of those points is such as casts serious doubt upon Mr Davey's credibility.
The second category concerns criticisms of Mr Davey in relation to his evidence about whether Spearpoint had any incentive to do things complained of by the defendants. The criticisms rely on assertions which went beyond what was put to Mr Davey when he gave evidence. For that reason I ignore them.
As with Mr Scott, I approach Mr Davey's evidence with caution, and for the same reasons. Approaching his evidence on that basis, I conclude that his explanations for the approach adopted were clear and cogent, and in general I accept his evidence.
B2.4 Mr Farrell
Mr Farrell's evidence in chief was set out in four witness statements dated 11 March, 23 October, 30 October and 13 December 2013 respectively. At the conclusion of his examination in chief it seemed to me desirable that I should ask him to clarify certain aspects of his statements prior to cross examination. This clarification occupied an initial part of the fourth day of the hearing. Cross examination of Mr Farrell by Mr Coleman occupied the remainder of the fourth day of the hearing, the whole of the fifth and sixth days of the hearing, and an initial part of the seventh day of the hearing.
In their skeleton argument the defendants stressed that there was no evidence of any personal gain on the part of Mr Farrell. I accept that this is so. As with his unblemished record prior to the allegations made in current litigation, I treat this as a factor in his favour, making it less likely than would otherwise be the case that he would have behaved improperly.
Making full allowance for all factors in his favour, I am nonetheless driven to the conclusion that Mr Farrell's evidence cannot be relied upon generally. In particular, for the reasons given in sections C2, C3, C6 and G below, I am driven to the conclusion that Mr Farrell knowingly misled the court in what he said in relation to Arch FP's role in 2007, in relation to the suggestion that Mr Barkman paid Arch's £3m fee out of a £6m "capital gain" made by Mr Barkman, and in saying that Arch FP had complied with the advice it had received on the fair management of conflicts of interest.
B2.5 Mr Addison
Mr Addison's evidence in chief took the form of a witness statement dated 8 March 2013. His cross examination by Mr Coleman occupied the whole of the eighth day of the hearing. After re-examination by Mr Farrell during the initial part of the ninth day of the hearing, there was further cross examination of Mr Addison by Mr Coleman. I asked some questions of Mr Addison at that stage, and this led to further cross examination of Mr Addison by Mr Coleman during the initial part of the ninth day of the hearing.
As with Mr Farrell, I take into account in Mr Addison's favour his unblemished career prior to the current litigation, and the fact that the conduct on his part which is criticised in these proceedings gave rise to no personal gain to him. Nonetheless, I cannot proceed upon the basis that his evidence is reliable. In particular, I am driven to the conclusion, for the reasons given in sections C4 and C6 below, that he deliberately misled the court in his evidence concerning the suggestion that Mr Barkman paid £3m to Arch FP out of a £6m "capital gain" made by Mr Barkman, and in his evidence alleging disclosure of Arch FP's "fees" to Mr Meader.
B2.6 Mr Jeffs
Mr Jeffs' evidence in chief took the form of a witness statement dated 8 March 2013. He was cross examined by Mr Coleman during much of the ninth day of the hearing.
The Lonscale claimant cells acknowledged that Mr Jeffs' oral evidence was generally frank. They suggested that his witness statement lacked the balance of his oral evidence. In that regard I am satisfied that to the extent that the balance needed correcting, Mr Jeffs made appropriate corrections in the course of cross examination.
B2.7 Hearsay evidence: Mr Radford and Mr Meader
As noted in section A2.5 above, Mr Radford and Mr Meader were directors of the ICC and the cells, including the Lonscale claimant cells. Proceedings have been brought against them by the cells in Guernsey. Defences served by them in those proceedings deny that they knew or consented to the payments by the Lonscale claimant cells which are the subject of the present proceedings. The Lonscale claimant cells explained that Mr Meader and Mr Radford had declined to give evidence voluntarily in the present proceedings, and that in those circumstances what was said in their defences was relied upon as hearsay evidence on behalf of the Lonscale claimant cells. I deal with relevant matters concerning Mr Meader and Mr Radford in section C4 below.
B2.8 Hearsay evidence of Mr King
Mr King (see section A2.3 above) was in Australia at the time of the trial. A witness statement prepared for these proceedings and signed by Mr King on 11 March 2013 was relied upon as hearsay evidence on behalf of the defendants. I deal with matters concerning Mr King in sections A3, C2 and C3, E, F, and M below.
B3. Expert evidence
B3.1 Expert evidence: general
Each side had permission to call expert evidence as to fund management and as to accounting and valuation. The Lonscale claimant cells relied upon such evidence from Mr Michael Walton and Mr Simon Rees respectively.
At the stage when the defendants ceased to have legal representation no expert evidence had been served on their behalf. No such evidence was served prior to the trial. However in the course of their evidence Mr Farrell and Mr Addison both took issue with certain aspects of what was said by Mr Walton and Mr Rees.
B3.2 Expert evidence of Mr Walton
Mr Walton's evidence in chief was set out in a report dated 22 July 2013 and a supplemental report dated 13 November 2013. He was cross examined by Mr Farrell for much of the tenth day of the hearing, and further cross examined by Mr Addison for the remainder of that day. On the eleventh day of the hearing Mr Walton was cross examined by Mr Farrell during an initial part of the morning.
As appears from section E below, it is only in relation to certain limited aspects that I have derived assistance from Mr Walton's evidence. That is not of itself a criticism of him: it has come about because his evidence concerned many matters which I have found it unnecessary to examine in this judgment. On those matters which I have examined in this judgment, I have found Mr Walton's evidence to be carefully considered and I accept it.
B3.3 Expert evidence of Mr Rees
The evidence in chief of Mr Rees, dealing with accounting and valuation matters, took the form of three reports dated 22 July, 18 September and 13 November 2013. After the conclusion of his oral evidence the Lonscale claimant cells sought to rely upon a fourth report from Mr Rees. I upheld objections made by the defendants to that report and it was not put in evidence. In its place, a fifth report dated 17 January 2014 was admitted in evidence.
Mr Rees was cross examined by Mr Addison for much of the eleventh day of the hearing and by Mr Farrell for most of the remainder of that day.
As with Mr Walton, as appears from section E below, it is only in relation to certain limited aspects that I have derived assistance from Mr Rees's evidence. That is not of itself a criticism of him: it has come about because his evidence concerned many matters which I have found it unnecessary to examine in this judgment. On those matters which I have examined in this judgment, I have found Mr Rees's evidence to be carefully considered and I accept it.
B4. The defendants' general observations about the trial
The defendants' skeleton argument made observations about inequality of arms. I discuss these observations in section B5 below. Before doing so, it is convenient to mention here certain other general observations made by the defendants.
A first general contention made in the defendants' skeleton argument was that, notwithstanding the seriousness of the allegations made against the defendants, the Lonscale claimant cells had not "meaningfully" particularised the duties, breaches or losses alleged by reference to any developed factual analysis of the issues. As regards the key assertions, I reject this contention: see sections D to G and J to M below.
The defendants advanced four further points in paragraph 6 of their skeleton argument. All were advanced in support of an assertion that the Lonscale claimant cells' case was "almost entirely made up of circumstantial evidence and supposition". The first of these additional points was that the Lonscale claimant cells had provided no witness statements addressing "the specific contemporaneous evidence at the time of the Lonscale investment". The second point was put in this way:
None of the [Lonscale claimant cells'] current directors or advisers were involved, so they have no knowledge of the contemporaneous facts. Any attempts to reconstruct or reinterpret events and contracts must therefore be treated with the utmost caution
The third further point was that the Lonscale claimant cells' expert evidence comprised unsupported conclusions and opinion, based on erroneous assumptions which had not even been identified as assumptions. As to the fourth further point, this was a comment by the defendants that the global financial crisis "and its far reaching effects" had not been recognised in the Lonscale claimant cells' statements of case, and had not been recognised in their experts' reports.
I discuss these four further points where they arise in my examination of the issues in sections C to M below. There are common features of these further points which I deal with here. The defendants repeatedly stressed that differences in recollection were only to be expected. Similarly, accounts given at the time may differ according to the perspective of the person giving the account. Indeed inconsistencies of this kind are normal, and demonstrate honesty on the part of those involved. I take full account of these points. In later sections of this judgment I rely upon inconsistencies only where these points cannot explain them away.
At paragraph 10(e) of the defendants' skeleton argument it was asserted that on the claim against Mr Farrell there was "absolutely no evidence (or allegation) of any personal gain." I have dealt with this in section B2.4 above.
A further general point was made by the defendants in paragraph 21 of their skeleton argument. This concerned what was said in parts of the skeleton argument which focussed on legal issues. The defendants were anxious to make it clear that by focussing on legal issues they were not "in any way shy" about meeting the fundamental merits of the claims. As will be apparent of my discussion of the issues below, it was very clear at trial that the defendants were not at all shy in this regard.
A final group of general points appeared in paragraphs 86 to 96 of the defendants' skeleton argument. The defendants drew my attention to the close links between the Lonscale claimant cells and Capita FML. Mr Aldous, an officer of Capita Sinclair Henderson Ltd (which, like Capita FML, is owned by Capita Plc), became the chairman of the ICC and thus of its incorporated cells. Capita FML is being sued in proceedings brought by private investors, for which a group litigation order has been made. It has accepted a decision against it by the Financial Services Authority, and has made a contribution towards a £54m investor payment scheme. I accept that the commercial links between the Lonscale claimant cells and Capita FML are an additional reason for approaching the evidence of Mr Scott and Mr Davey with caution. Nonetheless, having approached that evidence with the requisite degree of caution, I am nevertheless satisfied of their evidence as appears later in this judgment.
Also in this group of general points the defendants draw my attention to what they describe as "a highly litigious approach to the cells' former service providers and counterparties." Reference is made to proceedings both in the UK and in Guernsey, and it is said that in the present proceedings "there is nil prospect of any net economic recovery." I am not in any position to judge the merits or otherwise of other proceedings. As to these proceedings, for the reasons given below, I have concluded that they are well founded. I am not in a position to conclude that the prospects of economic recovery are so slight as to justify the criticism advanced in this regard by the defendants.
B5. Inequality of arms
The defendants stressed that the present trial has involved an inequality of arms. The Lonscale claimant cells have been represented by leading and junior counsel and solicitors, and have instructed expert witnesses who have provided lengthy and detailed reports. By contrast, Mr Farrell appears in person and Mr Farrell and Mr Addison appear on behalf of Arch FP. In the absence of expert witnesses for Arch FP and Mr Farrell, Mr Farrell and Mr Addison sought to answer the expert evidence by expressing opinions of their own on matters of expertise.
It is right to record that as the trial proceeded Mr Farrell and Mr Addison were given additional time to deal with various aspects of the case, and that on certain aspects offers of additional time were declined. Nevertheless, conduct of this litigation during a period when the defendants did not have legal representation, and did not have independent experts instructed to give evidence, has involved real and substantial difficulties for the defendants. I do not underestimate those difficulties. As with Mr Farrell and Mr Addison's unblemished record prior to this litigation, and their lack of personal gain, I take into account in their favour that what might otherwise be a matter for criticism may be attributable to inequality of arms. It is only after making due allowance for this that I have reached adverse conclusions against Mr Farrell and Mr Addison.
C. Aims and events in 2007
C1. Aims and events in 2007: general
In this section I divide up my consideration of aspects of what was contemplated, and what came about, in relation to the acquisition during the period from late July 2007 to the end of 2007. Putting on one side questions of disclosure to, and consent by, the cells, I consider in section C2 below the period up to and including 17 August 2007. On the same basis, in section C3 below I consider the period from 18 August 2007 to the end of that year. In section C4 below I consider questions of disclosure to, and consent by, the Lonscale claimant cells. The role in 2007 of Arch FP's investment committee, and what happened as regards other approval and decision processes, are discussed in section C5. I set out in section C6 some comments on the defendants' evidence as to events in 2007.
C2. Aims and events prior to 18 August 2007
Under this sub-heading, I consider aspects of what was contemplated, and what came about, in relation to the acquisition during the period up to and including 17 August 2007. I noted at the start of section A3 above that the main defence set out assertions as to what was agreed "in August 2007". The relevant period in this regard is the period up to and including signature of the SPAs on 17 August 2007. There has been no suggestion that those assertions, if not correct by the time that the SPAs were signed, could nonetheless be justified by events between 18 and 31 August inclusive.
So far as material, the relevant passages in the main defence were sub paragraphs (1) to (3) of paragraph 113:
113. …
(1) The purchase price paid for the acquisition of the Club Easy Group was at a discount to the value of the Group.
(2) In August 2007 it was agreed that Arch would receive fees representing 50% of the difference between the acquisition price and the value of the Club Easy Group with Mr Barkman retaining the other 50%. This payment was subject to an overall limit of £6 million.
(3) Any additional difference beyond the limit of £6 million would accrue for the benefit of Lonscale, AT1 and the purchasers of the notes issued by AT1.
In section A3 above I also noted two features of Mr Farrell's witness statement dated 11 March 2013. They concerned a reference to a "discounted value" and the date when the £6m cap was said to have been agreed. As to the "discounted value", paragraph 43 of that statement made assertions concerning what had been agreed between Mr Farrell and Mr Barkman by "early August 2007". It said that by this time it had been agreed that AT1 would act as "the syndications vehicle", in the sense that it "would issue Club Easy-linked securities, subject to the transaction meeting the due diligence requirements and investors being found by Lee Barkman and his team." In relation to the "fees", it added that they were to be calculated "as the difference between the acquisition price of the Club Easy Group and its discounted value." As to a limit on the "fees", no such limit featured in paragraph 43. That paragraph made no mention of a £6m cap: the statement made no reference to a limit until paragraph 47, where it referred to a cap of £6m which "was subsequently agreed in October 2007."
On 1 May 2012 Mr Farrell signed a statement of truth verifying what was said in the main defence. If what Mr Farrell said in his statement of 11 March 2013 were right, it would inevitably follow that, despite Mr Farrell's statement of truth verifying the main defence, paragraph 113 of the main defence was inaccurate:
(1) in saying that in August 2007 it was agreed that the "fees" would represent the difference between the acquisition price and "the value of the Club Easy Group" rather than a "discounted value" of that group; and
(2) in presenting the "overall limit of £6m" as something which was agreed in August 2007.
I am sure, however, that when describing the position in August 2007 the main defence was untrue, and when he verified it was known by Mr Farrell to be untrue, for a much more fundamental reason. It is this: the assertion that there was an agreement in August 2007 under which Arch FP "would receive fees" was simply not a true account of the position in August 2007. On the contrary, a true account would have described how Mr Barkman and Mr Farrell had made a plan to use a purchase of the CG owning companies as a way of extracting money from investors. I am sure that by the end of 17 August 2007:
(1) Mr Barkman and Mr Farrell had agreed that Arch FP and Mr Barkman would work together on an extraction venture which would, if successful, involve a purchase of the CG owning companies;
(2) they had agreed that the purchase would be funded by very substantial payments by investors, from which substantial amounts would be extracted in order to provide finance for benefits received by the Arch business and Foundations;
(3) neither side had agreed that the amounts extracted would be described as "fees", although they may have contemplated that this might come about; and
(4) the first stage of such an extraction venture was in place, in that an initial payment of deposit under the SPAs had been funded by SO3, and the period prior to completion under the SPAs was available to be used to identify investors so as to enable the extraction venture to come to fruition.
It was envisaged that most of the investors would be introduced by Foundations. However, I am also sure that throughout August 2007 Mr Farrell envisaged that one or more of the cells would be among the investors making payments from which substantial amounts would be extracted in order to provide initial or later finance for benefits received by the Arch business and Foundations.
The essential elements of the plan had been identified by 2 August 2007. They emerge clearly from Mr King's email of that date, based upon what he had been told by Mr Farrell: the purchase price (which would be paid to Mr Hayes) would be the end result of a calculation involving four elements. The first three elements would determine what amount would be provided by investors, some of which might have the benefit of a loan from Barclays bank. The calculation would start with the gross value of the properties owned by the Club Easy business, and would deduct the total amount of Club Easy debt along with tax arising from capital gains that would either be payable or would need to be provided for. The result, in effect a net value of the properties, would be the amount that the investors would provide. The difference between that amount and the purchase price was described by Mr King as, "what we can take out of it".
Mr King added:
… we need to get a very good handle on the gross property value. … valuation is the weak link. … The valuation mandate is unclear on what specs are required. I think we need a more robust valuation.
As to the position between 3 August and 17 August 2007:
(1) Both Mr Barkman and Mr Farrell wanted, if possible, to complete the acquisition speedily. To this end, pursuant to Mr Farrell's instructions, on Friday 3 August 2007 three of the cells invested £8 million in AT1 notes, so that AT1 would be ready to pay that amount early the following week.
(2) On 4 August 2007 Mr Farrell sent an email noting that with £33m "official value on balance sheet" for the CG owning companies, the "ability to extract lots of cash … upfront is good". He added that RE1 and RE2 were likely to be investors once the deal was fully settled.
(3) On 7 August 2007 an email was sent by Mr Barkman to Mr Farrell. In this email Mr Barkman:
(a) at paragraph [9], proposed that the October payment be funded as to part by "… Arch producing a note that bears an appropriate interest rate and gains a portion of the extracted profits …";
(b) at paragraphs [10] and [11], proposed that the balance be paid by lending in support of a mutual fund to be constructed by FCL and the proceeds from which would serve, over time, to "retire the Arch note"; and
(c) added at paragraph [14]: "We structure the deal in such a manner that the mutual fund and Arch note gain a portion of future appreciation but Arch Group and Foundations Capital Ltd are left with a sizable portion of the future value".
(4) At paragraph [18] of his 7 August email, Mr Barkman:
(a) set out various ways in which investors could contribute funds, adding that the split "between Arch and Foundations looks set for a 50/50 deal…";
(b) described the contribution from Foundations as: "we brought the deal forward, progressed it to a very advanced point and are injecting cash through [FPP] and our sales force [who would be selling participation in a mutual fund]";
(c) described the contribution from the Arch business as "supplying the backing to make certain the payments are made, adding structuring skills and general skill sets in terms of making the company a saleable entity in the end"; and
(d) equated the two contributions.
(5) In a summary at the end of his 7 August 2007 email, Mr Barkman:
(a) envisaged that the two sides would receive at least £8 million from the project, describing this as "considerable meat left on the bones" and adding that there was "scope to take more than that from this deal";
(b) concluded by saying that the deal offered "the combination of Arch/Foundations the opportunity to use their unique abilities to turn a profit…".
(6) By this time it had become clear that signature of contracts to purchase the CG owning companies would need to be put back until mid August, and that the contracts would build in a period of several months before completion. Accordingly on 7 August 2007 it was recognised that the £8 million that had been put in to AT1 would not be needed imminently, and the funding transaction in this regard was cancelled.
(7) Also in an email on 7 August 2007 Mr Farrell told Mr Barkman that in order to ensure "that take up is certain" there was a "change to structure", namely that "the arch real estate fund(s) can go alongside the foundations fund as well…". I have no doubt that this email makes plain what the Arch business would be doing when "supplying the backing" as described by Mr Barkman: it would be doing what it had done on 3 August 2007, namely, using the cells to provide investors as and when Mr Farrell thought it desirable so as to ensure that the extraction venture could proceed.
(8) On 10 August 2007 Mr Barkman emailed that he was working on the basis that as part of the project the preference shares in FHL (which were owned by Arch UK) would be redeemed, after which "each of our respective funds will take what they need and we split anything we take out above that on a 50/50 basis."
(9) Mr Farrell's response the same day was that fifty percent should go "to arch treasury (our risk taking/warehousing entity)" and fifty percent to FHL, out of which it would finance redemption of the preference shares.
(10) In an email on 14 August 2007 Mr Barkman was willing to agree that the Foundations side should bear the cost of redeeming the preference shares, but was not willing to have "our end being paid into FHL".
(11) In fulfilment of a revised price agreement between the purchasing company (now identified as Lonscale) and Mr Hayes, Arch FP on 17 August 2007 provided a letter stating that Lonscale was "backed by the financial resources at the disposal of the Arch Group and Foundations Capital both as principals and agents."
Minutes of Lonscale's board meeting on 17 August 2007 were prepared. I shall assume, although I am by no means sure, that they accurately reflect what was discussed on that day. They referred to the acquisition as "the Project". In that regard paragraph 5.2 of the minutes noted that the directors agreed that the acquisition should be funded by a mixture of equity and debt. As to equity, the directors agreed that AT1 should subscribe £8 million for shares. As to debt, the directors agreed that AT1 should propose a "facility which would be available for draw down at completion [of the SPAs] and to fund the working capital requirement of the Company for the following three years." Paragraph 5.3 of the minutes added that the directors "also discussed payment of an introduction commission to the introducers of the Project to the Company and appropriate structuring/arrangement fees to be invoiced in due course." These passages from the minutes do not in my view support the defendants' contentions as to what was agreed in August 2007. The account of the directors' discussions in paragraph 5.3 of the minutes was vague. No attempt was made to identify the recipient of the "structuring/arrangement fees". Nor was there any attempt to identify an agreement under which such fees would be payable.
Under cross-examination Mr Farrell said he did not think the structure "had been fully finalised or defined" in paragraph 5.3, "so it would be an outstanding issue." The wording in the minutes was in my view consistent with a recognition by Mr Farrell and Mr Barkman that when Mr Barkman and Arch FP extracted what Mr Barkman called the "meat left on the bones" it might be convenient to seek to categorise this as a payment of "structuring/arrangement fees". This is also consistent with what was later said by Mr Farrell in his email exchanges with Mr Barkman on 24 October 2007 at paragraph [2]: "Structures obviously evolve over time to fit in with the situation and information provided."
Mr Farrell undoubtedly envisaged from the outset that there would be use of the cells for funding. This is shown by the steps immediately taken on 3 August 2007 to put in place investments by 3 of the cells. In Mr Farrell's email of 4 August 2007 he said that RE1 and RE2 were "likely to share some of Club Easy". In order to ensure that the deposit could be paid, Mr Farrell arranged for it to be funded by SO3 in the full amount of £1 million. There is a dispute, which emerged only after oral evidence was complete and which I do not need to resolve, as to whether FPP provided £800,000 to SO3 for this purpose. Even if that were so, it remains the case that Mr Farrell was prepared to use SO3 as the entity which provided £1 million when needed. Moreover, it is clear that from 4 August 2007 onwards Mr Farrell envisaged that the RE cells would be investing at some stage.
Any investment by the Lonscale claimant cells had important ramifications:
(1) The Lonscale claimant cells were, of course, already paying Arch FP for its services. In his oral evidence on day 7 Mr Farrell explained to me that the fee structure for Arch's role as investment manager allowed for a considerable amount of work by Arch FP. That work extended to active management, typically by putting a management team to work with the management team of the investee company.
(2) Important duties were owed by Arch FP to the Lonscale claimant cells under the IMAs. Those duties are considered later in this judgment. For present purposes I note that, as regards the evidence as to what occurred in August 2007, there is nothing to suggest any recognition of the important duties which would arise if any of the PF cells or the RE cells were to invest in the acquisition.
As regards what was agreed in August 2007 the main defence was the subject of requests for further information. In answers dated 20 July 2012, verified by a statement of truth signed that day by Mr Farrell, it was said that the "fees" of Arch FP representing 50% of the value/acquisition price difference were "for its assistance in negotiating and structuring the transaction, including due diligence." For the reasons given above, this answer was misleading. The costs of due diligence were not envisaged to be paid by Arch FP. In the event, consistently with what was contemplated in August 2007, they were all paid by Lonscale using funds which came from the investors. As to Arch FP providing assistance by "negotiating and structuring the transaction", such work as Arch FP did in that regard was in order to enable it and Foundations to extract money from investors, not by way of assistance to whatever entity might acquire the CG owning companies. The true position was that Lonscale was created in order to assist Mr Farrell and Mr Barkman in their plan to extract from the total payment that was to be made by investors "what we can take out of it".
The further information also made an assertion concerning what the defence described as "Mr Barkman retaining the other 50%." As to what this was for, the assertion said that "as originator of the transaction, Mr Barkman received a payment representing 50% of his capital gain capped at £6m." This was an assertion as to what happened. It did not answer the question, which concerned what Arch FP had said in the main defence about the agreement, rather than the outcome. I deal with what happened in sections C3 to C6 below.
Thus from 17 August 2007 onwards the first stage of the extraction venture was in place. The SPAs were signed on 17 August 2007. Arch FP had used its investment management powers on behalf of SO3 to ensure that Lonscale was lent sufficient money to pay the deposit. What was agreed about the extraction venture was that if it succeeded it would involve a purchase of the CG owning companies funded by very substantial payments by investors, a substantial part of which would find their way to Arch FP and to Foundations. There was no agreement on anything more detailed: that would have to await events. There was no agreement at this stage that when funds were extracted they would be characterised as "structuring fees", nor as "arrangement fees", nor indeed as "fees" at all: Mr Farrell and Mr Barkman wanted to leave open the possibility that (as happened very much later, and indeed too late, as explained in section C6 below) they might think it desirable to characterise extraction of funds in a different way.
C3. Aims and events in the remainder of 2007
Under this sub-heading I consider aspects of what was contemplated, and what came about, in relation to the acquisition during the period from 18 August 2007 to the end of that year.
During this period the idea that Arch FP might receive the money it extracted as a payment described as a "structuring fee" or as "structuring fees" began to take prominence. It may well have been agreed prior to 13 October 2007 that the expression "structuring fee" or "structuring fees" would be used to describe the money that was to be extracted for the benefit of Arch FP. However what Arch FP was to receive could not, in my view, have been thought to be in truth anything other than Arch FP's share of "the meat" which was to be stripped out of the Club Easy business once sufficient funding from investors had been found in order to enable this to happen.
There was still no precise agreement for such "fees". Mr Farrell appears to have contemplated such an agreement on 13 October 2007. His email that day said there was a "need to sign the terms of the Lonscale restructuring, management & control & ownership" adding that this was needed "so that Lee Barkman cedes to Arch Treasury in return for upfront structuring fees as agreed …". But no such "terms" were ever signed. If the reference to "structuring fees as agreed" was a reference to the position in August 2007, for the reasons given above it was not accurate: at that stage "upfront structuring fees" had not been agreed, and what were vaguely described as "structuring/arrangement fees" had merely been identified as a potentially convenient way of characterising the extraction of funds.
In their emails of 23 and 24 October Mr Farrell and Mr Barkman worked on the premise that AT1 would pay what Mr Farrell described as "the residual completion balance" of £20m on top of the "£1m deposit": see item "1)" in Mr Farrell's email of 23 October 2007. It was clear, however, that this was not the completion balance that Lonscale would have to pay to Mr Hayes. On the contrary, it was to comprise "syndication proceeds" which needed to be significantly larger than the acquisition cost that Lonscale would have to pay. As item "2)" in the same email made clear, this difference was proposed to be described as "structuring fees" which were to be paid by Lonscale to Arch FP and a Foundations entity. Mr Farrell's email the following day, at paragraph [7], noted that the "structuring fees" were expected to be £6m.
Prior to 29 October 2007 Lonscale had no money of its own. The £1m deposit notionally passed through Lonscale on its way from SO3 to Mr Hayes. It did not belong to Lonscale for any significant period of time.
On 29 October, in a letter written on Arch FP notepaper, Mr Farrell referred to the £19.98m which would be arriving in Cobbetts' client account that day "for completion of the acquisition of the Clubeasy group of businesses by Lonscale Limited." The letter said that upon successful completion of the acquisition, "structuring fees" were to be paid as to £3m to Arch FP and as to £3m "to the order of Lee Barkman".
The Lonscale claimant cells submitted, and under cross-examination Mr Farrell accepted, that this letter was an instruction given by Mr Farrell on behalf of Lonscale. This makes sense. The arrangement was that AT1 would pay Lonscale £13m for notes and £8m for shares, a total of £21m. As against the £21m, AT1 was entitled to set off amounts paid to SO3. The balance was the £19.98m referred to in the letter. That money is thus received by Lonscale before making payments to be made by Lonscale to Arch FP and to Foundations which are to be characterised as "structuring fees".
Mr Farrell's evidence was that the instruction was not acted upon, and that instead a last minute change in the arrangements, following tax advice, led to Mr Barkman receiving a capital gain. As I explain in section C6 below, this evidence was incoherent and was inconsistent with the documentary records.
The £19.98m was paid by AT1 only because it had received payment from the Lonscale claimant cells of £20.2m and payment of £0.8m from FPP. It represented the total of those sums after repaying £1m and interest to SO3.
On 29 October 2007 the £19.98m which Cobbetts received that day was held by Cobbetts on behalf of Lonscale first, to complete the acquisition, and second, to pay the two sums of £3m described in Mr Farrell's emailed letter to them of 29 October 2009. This is, in effect, what Mr Farrell told Cobbetts in that letter. It is plain from Cobbetts' email of 3 December 2007 that Cobbetts thought that by reason of Mr Farrell's letter:
(1) they had been entitled to pay the sum of £3m to Arch FP on 6 November 2007;
(2) they had been entitled to pay the sums of £556,152 (used by Foundations to redeem the preference shares in FHL) and £150,000 at the direction of Mr Barkman on 9 and 23 November 2007;
(3) they held the balance of Mr Barkman's £3m for FCL; and
(4) as to the remaining monies in the £19.98m ledger account, they held those monies for Lonscale.
There can to my mind be no doubt that the £3m which was paid out to Arch FP on 6 November originated from the £21m received by AT1 on 29 October 2007. The Lonscale claimant cells had paid just over 96% of that £21m. On any view the £800,000 provided by FPP to AT1 was very much less than the £3m paid out to Arch FP on 6 November. It follows that the Lonscale claimant cells are right to say that they funded either the whole or a very substantial part of the £3m which Arch FP received. I am sure that it was the Lonscale claimant cells' investment which resulted in Arch FP taking what it regarded as a £3m profit.
The notion that either or both of the sums of £3m could be properly described as "structuring fees" was the reverse of the truth. None of this money went to cover costs incurred in order to bring the acquisition about: those costs were the subject of separate payments out of the £19.98m ledger account. The only reason for the payments of £3m was so that, in Mr Barkman's words, Arch FP and Mr Barkman could "turn a profit" of such a size that it would "turn heads." (See paragraph [21] of Mr Barkman's email of 7 August 2007.)
C4. Disclosure to, and consent by, the cells
In paragraph 129(2) of the main defence it was asserted that the payment of £3m to Arch FP was disclosed to, and/or consented to by, the Lonscale claimant cells. As to the giving of consent, paragraph 129(2) identified only one way in which any express consent was given, namely in what was said in clause 13 of the IMAs. I discuss this aspect in later sections of this judgment. As to disclosure, it was asserted that there had been disclosure of the payment to the directors of the ICC and the relevant cells. A request for further information was made in this regard. In the response, verified by Mr Farrell in the same statement of truth signed on 20 July 2012, a general observation was made that it was a working practice of Arch FP, in particular Mr Farrell and Mr Addison, and the cell directors, Mr Radford and Mr Meader, "to regularly discuss potential and on-going investments both formally and informally." The response then added:
The best particulars that Arch can provide at the present time is that disclosure was made in August 2007 in the course of a telephone conversation between Mr Addison and Mr Radford. At the time of the telephone conversation the precise size of the fee was not known however the structure and approximate figures were discussed.
In his first witness statement dated 8 March 2013 Mr Addison stated under the heading "August 2007":
Because of the Cells' planned investment in a deal which involved a fee being paid to AFP, I telephoned Neal Meader and asked him whether the non-AFP ICC directors would object to the Cells' involvement in an investment in which it had already been agreed that AFP would be paid a fee. Neal Meader stated that he had no objection.
As was noted in the Lonscale claimant cells' closing submissions, there was a flat inconsistency between Mr Addison's evidence and the response that was given to the request for further information. The response said that he had spoken to Mr Radford in August 2007. His evidence was that he had spoken to Mr Meader in August 2007.
Moreover, the evidence of Mr Radford and Mr Meader, in the form of the defences signed on their behalf in the proceedings against them in Guernsey, includes assertions that:
(1) they had no knowledge of an agreement between Mr Farrell on behalf of Arch FP and Mr Barkman on behalf of FCL that each would received a commission payment of £3m from Lonscale Ltd in connection with the acquisition of the Clubeasy Group;
(2) these commission payments were not disclosed to the board of directors of the cells, whether before or after the investments were made;
(3) no authorisation for these commission payments was given on behalf of the cells by either Mr Radford or Mr Meader.
In the opening oral statements on behalf of the parties, Mr Addison dealt with disclosure on behalf of the defendants. He added a number of things which had not been mentioned in his witness statement:
(1) He added that the conversation which he had had with Mr Meader as described in paragraph 21 of his witness statement was a conversation which occurred because "I was actually asked by Mr Farrell to check that there would be no objections…".
(2) He added that while the size of the fee was not known at the time so an accurate figure could not be given, nonetheless Mr Meader was told "it would be substantial".
(3) He added that Mr Meader was told that "owing to the other proposed investors not being ready or available – potentially available – there was an opportunity for the cells to participate in it and Arch thought it would be a good deal for them."
(4) He added that not merely did Mr Meader state that he had no objection, he [Mr Meader] said "it was fine and standard for a financial services firm such as Arch to be engaged in such matters."
(5) He added that at a later stage, prior to the proceedings against Mr Radford being issued in Guernsey, a telephone conversation took place in which Mr Radford confirmed "that he recalled that Arch had discussed Lonscale with him and the fact that Arch would be receiving a fee from the transaction." Mr Addison said that this confirmation had led to a telephone call from himself and Mr Farrell to Mr Radford on 15 August 2011, a note of which was in the material made available by the defendants for the trial. Mr Addison acknowledged, however, that the note of the conversation did not contain any indication by Mr Radford of the date on which the discussion about Lonscale was said to have taken place.
I have no doubt that when the main defence was being prepared, and the responses to the request for further information were being formulated, great care would have been taken in relation to what was said about disclosure and consent. First, if the cells had consented to the payment extracted by Arch FP, then this would go a long way towards providing a complete defence to the Lonscale Arch claim. It is clear that as at 20 July 2012 neither Mr Farrell nor Mr Addison had given instructions to Arch FP's lawyers that any director of the cells, whether Mr Meader or otherwise, had said in August 2007 that there was no objection to the payment envisaged to be received by Arch FP, let alone that it "was fine". I am sure that if instructions had been given that either of these things had occurred then they would have featured in the main defence or in the further information. By the stage that Mr Addison's witness statement was verified on 8 March 2013, Arch FP's lawyers had been instructed that in August 2007 Mr Meader had stated that he had no objection to the payment – but not that it "was fine".
Turning to allegations of disclosure, in 2012 Arch FP instructed its lawyers that the best information that it could provide to back up a claim of disclosure was that "the structure and approximate figures" were discussed in August 2007 in the course of a telephone conversation between Mr Addison and Mr Radford. By the time that Mr Addison's witness statement was signed on 8 March 2013, the instructions by Arch FP to its lawyers were that Mr Addison's evidence was that in August 2007 he had telephoned Mr Meader, and asked him whether he and Mr Radford would object to the cells being involved in an investment in which it had already been agreed that Arch FP would be paid a fee.
It is difficult to understand how on this topic the instructions which Arch FP gave to its lawyers on 8 March 2013 when Mr Addison's witness statement was signed could have been so very different from the instructions given to those same lawyers in 2012. The changes are, to say the least, surprising. In addition to those surprising changes, at the stage of oral openings Mr Addison came up with the five additions listed above. It is astonishing that there could be such a dramatic change as would be involved if those additions were correct. When Mr Addison gave evidence he added for good measure that:
I said the fee would be a seven figure fee, but I didn't know any more than that.
Mr Addison was simply unable to give any coherent explanation as to how it was that so many important matters that he now describes were omitted in Arch FP's statements of case in 2012. I have no doubt that the Lonscale claimant cells were right to submit that the entirety of the evidence about disclosure, along with the evidence that Mr Meader had consented, was invention. What was said by Mr Addison in opening and in his oral evidence in relation to a conversation with Mr Meader in August 2007 was made up by him as he went along. The reason that it was made up was that he was conscious that neither what had been said in the statements of case, nor what had been said in his witness statement, had any basis in truth. In so far as Mr Farrell supported Mr Addison's account of a conversation with Mr Meader this, too, had no basis in truth.
Nevertheless I cannot rule out the possibility that either or both of Mr Meader and Mr Radford were told informally prior to 17 August 2007 or prior to 29 October 2007 that some of the cells would be investing in the acquisition, and that Arch FP would be receiving a "fee". It is not suggested that they were told that the "fee" would come in large part from funds invested by the cells. I am sure that they were not told this.
I add that:
(1) Neither Mr Meader nor Mr Radford has signed a witness statement for these proceedings. Nor has either of them attended to give oral evidence. I do not consider that I should draw any adverse inference against either side in this regard. It would have been open to either side to invite the court to put in hand procedures for obtaining evidence from Mr Meader and Mr Radford. Neither side has done so. I treat this as entirely neutral.
(2) Oral reply submissions for the Lonscale claimant cells relied in part upon a letter dated 17 August 2011 written by Arch FP's solicitors. As it was not referred to during the oral evidence, I have not placed reliance upon it when reaching conclusions adverse to the defendants as set out above.
C5. Processes involved in the acquisition
The defendants' skeleton argument at paragraph 71 asserted that there was no element of concealment "as to the Lonscale fees." Seven specific points were made in order to show that everything had been above board. The first six points were identified as (a) to (f) and for convenience I identify the seventh as [g]:
(a) the existence of the Lonscale fees was disclosed by Mr Addison.
(b) the approval and decision processes within Arch required the approval and/or signature of a range of people and functions – Lonscale Limited, Corporate finance, Portfolio Management, Structuring, Legal, Compliance and Operations. In respect of Lonscale, Mr Jeffs was given Power of Attorney on 17 August 2007.
(c) staff within Arch who were aware of the fee payments included Mr Addison (Compliance), Mr Duxbury (Finance), Mr King (Real Estate cells), Mr Smith (Private Finance cells), Mr Ruparell (AT1), Mr Douglas (Legal), and Mr Jeffs.
(d) the transaction payments from AT1 were paid to the client account of the law firm Cobbetts.
(e) the payment was paid to Arch's bank account from Cobbetts and was clearly marked as "Club Easy".
(f) Arch took VAT advice on the payment from BDO LLP.
[g] the purchase of the FHL preference shares was properly documented and evidenced by board minutes and stock transfer forms.
Point (a) is not established by the evidence. As indicated in section C4 above, I cannot rule out the possibility that either or both of Mr Meader and Mr Radford were told informally that some of the cells would be investing in the acquisition, and that Arch FP would be receiving a "fee". However, I am sure that they were not told that the "fee" would come in large part from funds invested by the cells.
As to points (d), (e), (f) and [g], each is correct. None involves disclosure of the fact that the "fee" had or would come in large part from funds invested by the cells.
Turning to points (b) and (c), it is convenient to begin with the position of Mr Jeffs. In his witness statement, he said:
By October 2007 I knew that AFP was going to be paid a fee for its work in structuring and negotiating the deal and that Foundations or Lee would be paid a finder's fee for bringing the deal. This didn't strike me as unusual or odd. In reality my focus was on reviewing the quality of the potential investment and planning the post-acquisition strategy, assuming the investment went ahead.
As far as I can now recall, I didn't know the final size of AFP's fee for the work until after the acquisition in October 2007, although I believe the exact amount was not finalised until the day of completion. I was, however, aware of the general level of the fee prior to completion. Whilst I thought the fee was generous, other than that I did not really consider it further. …
When asked about this in cross examination, Mr Jeffs clarified that he had not known that the payment of £3m was being funded by the investors. He had thought it was generous in size and scale, but had not thought about whose generosity was involved. Moreover, if he had been aware that there had been no consent from the directors of the investing cells, he would have found that odd.
In so far as point (c) relies upon Mr King as having been aware of the fee payment, there has been no opportunity to cross examine him in the same way as Mr Jeffs. In relation to others named in point (c), and in relation to the functions described in (b), I have no evidence from any of those involved other than Mr Farrell himself. For the reasons given in section B2.4 above, while Mr Farrell asserts that the transaction was approved by the Investment Committee, I can place no reliance upon this assertion. No documentary record has been found of any Investment Committee meeting relevant to Lonscale prior to 2009. In all the circumstances, I am sure that the assertions in paragraph 71 are of no assistance to the defendants.
C6. The defendants' evidence as to events in 2007
The Lonscale claimant cells advanced a suggestion that even on the defendants' account of the "fees" agreement, the total amount of £6m exceeded "the difference between the acquisition price of the Club Easy Group and its discounted value". This was, they said, because in arriving at the discounted value it was necessary to deduct in excess of £10m to allow for corporation tax which would arise in respect of capital gains made when the properties were sold. Mr Farrell's answer was that reliance had been placed on advice that this liability to tax could be reduced to less than £2m through tax efficient structuring. In their closing submissions the Lonscale claimant cells said that there was no clear evidence that such a restructuring would have been possible. But this criticism seems to me unsustainable, as there had been no advance notice of the suggestion. In these circumstances I place no reliance on this particular suggestion by the Lonscale claimant cells.
However there were other much stronger criticisms made by the Lonscale claimant cells about the evidence of Mr Farrell and Mr Addison in relation to events in 2007. In so far as Mr Farrell and Mr Addison gave evidence inconsistent with the conclusions set out in sections C2 to C5, for the reasons given below I cannot accept that evidence.
The defendants accepted in their written closing submissions that "FCL and Arch had agreed to work on a joint venture basis in late July 2007, with the 50/50 terms being agreed by early August 2007". This concession that there was a joint venture, rather than Arch FP doing work to help Mr Barkman, ought to have been made much earlier. It was an inevitable concession in the light of the contemporaneous material. Under cross examination Mr Farrell and Mr Addison had found it impossible to answer the obvious points put to them from that material.
Oral evidence was given by both Mr Farrell and Mr Addison that when Arch FP was paid its "fee" of £3m on 6 November 2007 a change in structure had occurred at Mr Barkman's request. Both said that the request came because Mr Barkman had received tax advice that it would be preferable for him to make a capital gain. In this regard:
(1) The oral evidence first came from Mr Farrell in cross examination on day 4:
A. [p. 41, line 25] … originally we were to be paid from Lonscale's account but it changed to Mr Barkman's account.
Q. You were paid from the Cobbetts client account, were you not?
A. It was essentially to do with the tax efficiency of the arrangements for Mr Barkman. So he changed the arrangements at the last minute, on advice on his side, so that he would achieve a capital gain rather than receive a fee.
(2) A further exchange then took place:
A. What was the consideration for acquiring Lonscale? It clearly wasn't going to be just £1, which was the nominal amount of the share. So Arch Treasury acquired Lonscale and Mr Barkman's rights to the Club Easy transaction.
Q. Were the moneys out of which Cobbetts paid Arch its £3m fee not moneys that AT1 Had paid to Cobbetts for Cobbetts to hold on behalf of Lonscale …?
…
A. Those proceeds were paid to Cobbett's client account to be subdivided between Lonscale and Mr Barkman's upside.
Q. Were they not Lonscale's moneys?
A. Some of it was Lonscale's money and some of it was to the order of Mr Barkman in order to effect the transaction, the acquisition of Club Easy..
(3) No such change of structure had been mentioned in the defendants' statements of case, their witness statements or their skeleton argument. As noted in section C2 above, Arch FP supplied further information on 20 July 2012 referring to Mr Barkman receiving "a payment representing 50% of his capital gain capped at £6m." It was not said that this was a change of structure, nor was it said that the £3m paid to Arch FP came from Mr Barkman.
(4) Mr Farrell repeated this evidence on day 5. He accepted that the payment of £3m to Arch FP had come from Cobbetts, but said that they made the payment out of Mr Barkman's money:
Q. … do you accept that the payment of £3m to Arch was funded by monies that AT1 had raised form the claimants and which AT1 then forwarded to the Cobbetts client account?
A. Not directly, no. Arch Treasury purchased Lonscale.
Q. Yes.
A. Lonscale acquired Club Easy. In doing so it paid Mr Barkman his gain, capital gain and Mr Barkman made payment to Arch for our 50 per cent of that gain.
(5) Mr Addison gave similar evidence on day 8. At an early stage in cross examination he was asked to identify Arch FP's client, and said that at the outset he had understood Arch FP's client to be FCL, as distinct from Mr Barkman. In response to a question whether that changed over time, the following exchange occurred:
A. Mr Barkman informed us, I can't remember exactly when but towards or at the end of the transaction, that it would actually be more tax advantageous for him to be the client rather than Foundations Capital Ltd.
Q. … When did that change happen?
A. I don't know the exact date but, as I said, as an indication, it was right towards the very end or it could even well have been communicated to me after the transaction happened.
(6) Later in his evidence that day Mr Addison was shown the different invoices prepared in March 2009 on behalf of FCL and addressed to Lonscale. One of them was for "£3m in respect of the capital appreciation arising from the sale of the Clubeasy Group". Mr Addison confirmed that on his understanding of the revised payment arrangements this invoice should have been for £6m.
The evidence on this alleged last minute change to the structure, given by both Mr Farrell and Mr Addison is simply incredible:
(1) The structure of what was to take place at the end of October 2007 is said to have changed so that Mr Barkman made a capital gain of £6m. However, the contemporaneous material describes plans for and achievement of a sale by Mr Barkman of the sole issued share in Lonscale to AT1 for a consideration of £1. This is the only contemporary evidence of any dealing by Mr Barkman with any of his assets in late October 2007.
(2) The instruction given by Mr Farrell on 29 October 2007 to Cobbetts referred to the £19.98m which would be arriving in their client account that day "for completion of the acquisition of Club Easy by Lonscale" and said that, upon successful completion of the acquisition, "structuring fees" of £3 million were to be paid to Arch FP and £3 million to the order of Mr Barkman. This is completely inconsistent with Mr Barkman making a £6m capital gain. He was to receive £3m, not £6m. What he received was to be described as "structuring fees", not as a capital gain.
(3) Arch FP was to receive £3m out of the balance of the £19.98m "upon completion of the acquisition", not out of moneys belonging to Mr Barkman. Less than 3 weeks after the transaction, on 15 November 2007, Mr Addison wrote to BDO making no reference whatever to Arch FP being paid by Mr Barkman. It is apparent from BDO's reply dated 23 November 2007 that they understood that Arch FP was entitled to £3m to be paid by Lonscale.
(4) The defendants' written closing submissions acknowledged, in the first two sentences of paragraph 26(c) that what is said by the defendants in this regard is inconsistent with the documentary evidence.
(5) In the remainder of paragraph 26(c) the defendants sought to explain away the inconsistency. It was said, first, that the payment evidence was clear. Second, it was said that "the perceived inconsistency relates to invoices used for audit purposes some eighteen months after the event. They are inaccurate due to what was a lack of proper enquiry at that time." Third, reference was made to "the genesis of the change" and Mr Barkman's working practices. Below I deal with these explanations in reverse order.
(6) The genesis of the change was said to be clear from an email sent by Mr Barkman to Mr Farrell on 15 October 2007. The email had as its subject line, "Tax, Clubeasy". The body of the email stated:
I met with a chap I use for advice in Tax issues. This idea is way out there but thought you should hear about it.
1) I own Lonscale
2) Lonscale buys/bought Clubeasy
3) as I am selling Lonscale as a Guernsey resident selling an IOM company I am not liable for CGT
4) The initial profit for both Arch T and FCL could pass to me tax free
5) I buy shares in/from any entity/persons which Arch instructs for the value that Arch is to receive
6) I immediately cede control of and income/sale rights of the shares but retain the shares as far as Inland Revenue are concerned
7) Over time I cede ownership based on a variety of incomprehensible reasons
Arch/directors of, pay no tax.
I have no idea if this has legs, but if it does it could be used as a template.
(7) The defendants' written closing submissions said that it was not hard to comprehend why the change took place, although it caused inconsistencies in the paperwork. In that regard they cited evidence of Mr Farrell on day five about the email sent by Mr Addison to Cobbetts on 5 November 2007. That email attached Mr Farrell's letter of instructions to Cobbetts which had been sent to them on 29 October 2007, indicating that "structuring fees" were to be paid as to £3m to Arch FP and £3m "to the order of Lee Barkman". It was suggested that instructions had to come from both Mr Barkman and Mr Farrell because they were both directors of Lonscale. Mr Farrell replied:
No, that is not the position as it was then. The tax arrangements of Mr Barkman had only just been communicated. So Mr Barkman preferred to receive his fee as a capital gain. Whether the paperwork has caught up with that… is another matter.
…
Q. Your understanding surely as a commercial person was that there was no relevant capital gain in relation to these payments at the time?
A. Well, capital gain was structured by Mr Barkman. The paperwork did not keep up with that…
(8) Reliance was also placed on evidence by Mr Addison on day eight, concerning the invoice addressed by Arch to Lonscale which Mr Addison had prepared for audit purposes in early 2009:
Q. If, as you say, Mr Barkman made the payment on his own behalf, it should surely have been an invoice addressed to Mr Barkman; is that not right?
A. At this particular time I may not have known it was Mr Barkman. Remember we told you Mr Barkman changed the agreement, and I have to say we were annoyed with him at the time because of all the paperwork we had done at the time on the assumption it was someone else.
…
A. …Mr Barkman subsequently came back to us after the event… to say it would be more tax efficient if he had actually made that payment and he was deciding that he was the one who was making that payment. I am not going to try and change history; that would be wrong.
Q. …You are indeed changing history, are you not?
A. No, we are not at all, otherwise I would have had to go back and change all the particular documents to refer to Mr Barkman. I think its very clear, as you have shown in all the documents, that we have not done that.
Q. … Is it your evidence that it was Lonscale Limited or Mr Barkman who made the payment to Arch?
A. I am saying it was Foundations Capital who I understood to be the person paying us, and that was true at the time, and then subsequently after the event at some stage Mr Barkman said he wanted to change the transaction for his tax purposes.
(9) The defendants' written closing submissions continued:
Arch simply had to keep up with the last minute change. The inconsistency arises as a function of Mr Barkman's frequent business travel and lack of provision of documentation or explanation, to Mr Addison and indeed his own company FCL. The defendants should not be criticised for perceived inconsistencies that naturally arise from Mr Barkman's last minute changes and/or working practices.
(10) This observation is disingenuous. Mr Farrell's oral evidence was that he was told of the change shortly before 29 October 2007. Yet he wrote the letter of 29 October 2007 to Cobbetts, which is plainly inconsistent with the change. Mr Addison began by saying, as set out in the passage cited above, that in early 2009 he might not have known it was Mr Barkman. He then accepted that he would have known it was Mr Barkman before this, and said that by 27 January 2009 he was pretty certain he knew it was Mr Barkman. Later he said that when BDO provided their tax advice on 23 November 2007 he thought it was FCL that made the payment, and that he had learnt this on about 23 November 2007 or sometime after. I reminded Mr Addison of Mr Farrell's evidence that it was just before 29 October 2007 that the transaction changed. Mr Addison replied:
A. …With the greatest of respect, that was Mr Farrell's understanding. He may not have necessarily conveyed that to me.
…
A. Sitting here now, I cannot recollect Mr Farrell or Mr Barkman telling me at that time [shortly before 29 October 2007].
(11) This evidence by Mr Addison strongly suggests that it was not a question of difficulty in keeping up with the paperwork: the difficulty lay, as Mr Addison understood it, in a decision by Mr Barkman to proceed as if there had been a capital gain by him whereas the transactions which had occurred had involved no such capital gain.
(12) Turning to what was said about the invoices being "inaccurate due to… a lack of proper enquiry…", the invoices were produced because the auditors of Lonscale were seeking supporting evidence in relation to payments by Lonscale. There was no "lack of proper enquiry".
(13) As to the payment evidence being clear, nothing in that evidence suggests a payment by Mr Barkman of Arch's £3m. That amount was paid in accordance with the instruction given by Mr Farrell in his letter to Cobbetts of 29 October 2007. Mr Addison's email of 5 November to Cobbetts concerned a different payment for the redemption of Arch UK's preference shares in FHL, and was treated by Cobbetts as coming out of the £3m held "to the order of Lee Barkman".
(14) As to how Mr Barkman achieved a capital gain of £6m, the defendants' written closing submissions at paragraph 26(a) said:
… It stands to reason that Mr Barkman would have sold Lonscale for a commercial sum, which would not have been a nominal sum of £1, as asserted by the claimants. Given this simple commercial reality, it is clear that Mr Barkman received his personal gain and out of that Arch received its fee. …
(15) What emerges from the evidence is that Mr Barkman on 15 October 2007 was saying that an idea had been suggested to him so that "Arch/directors pay no tax". The idea had six numbered elements. Element three noted that Lonscale was an Isle of Man company, and that as a Guernsey resident Mr Barkman could sell it without being liable for capital gains tax. This led on to element four, which contemplated that "the initial profit for both [Arch FP] and FCL could pass to me tax free". Elements five, six and seven envisaged instructions from Arch FP that Mr Barkman was to buy shares in an asset, and over time transfer them to Arch FP. In his conclusion, Mr Barkman put this forward as a possible template. The template plainly would require not only a transaction of some kind under which £6m passed to Mr Barkman, but also identification by Arch FP of shares to be purchased by Mr Barkman and transferred from him to Arch FP. Far from adopting any of this "template", in the second half of October 2007 the dealings between the parties completely ignored this idea.
(16) As to the suggestion that it "stands to reason" that Mr Barkman would have sold Lonscale for a commercial sum, it is common ground that prior to the alleged change in structure, the plan was that Mr Barkman or his creature FCL would receive a "structuring fee" of £3m from Lonscale. There was nothing "uncommercial" about this. There was no reason for Mr Barkman to insist on any additional consideration for the transfer of ownership of Lonscale. Thus the premise for the assertion that "it is clear that Mr Barkman received his personal gain" is incorrect. Moreover, there is no explanation of any transaction taking place such as would result in such a capital gain accruing to Mr Barkman.
The defendants correctly note that the £19.98m ledger account is headed "Foundations Capital Limited/Clubeasy Group of Companies". In reliance upon this and on other matters the defendants make an assertion that the ledger shows clearly that Cobbetts' client was "FCL/Mr Barkman" and that payments from that account were "to the order of Mr Barkman". As to the heading, it does not expressly refer to Mr Barkman, and it expressly refers to the Clubeasy Group, which was not a client of Cobbetts. I consider that the Lonscale claimant cells are likely to be right when they say that the heading referred to the transaction and not the client.
I accept that something happened at some point which led Foundations to want to present the transaction as one in which Mr Barkman received a capital gain. I cannot accept that it happened at the time and in the way that Mr Farrell and Mr Addison described in their oral evidence. There is one aspect of their evidence which I accept. This is that, after obtaining advice from BDO that in certain circumstances the payment of £3m by Lonscale would be for services of a financial intermediary falling within a VAT exemption, Arch FP chose not to rely upon this. Instead they relied on advice from Mr Barkman that no VAT need be paid because the payment had come from him and he was a Guernsey resident. I accept this evidence because it provides the only conceivable explanation for Mr Farrell and Mr Addison's insistence that there was indeed a capital gain by Mr Barkman of £6m out of which Mr Barkman paid Arch FP £3m. It is because this is the stance that Arch FP has adopted as its justification for not paying VAT that Mr Farrell and Mr Addison consider it vital to keep up a pretence which could barely qualify as a charade. I say that it barely qualifies as a charade because the Lonscale claimant cells are right to say that this account has been "mired in inconsistency" and beggars belief. I am sure that Mr Farrell and Mr Addison are both well aware that their contention that the sum of £3m was paid by Mr Barkman is utterly untrue.
D. Duties and entitlements
D1. Duties and entitlements: general
In this section I examine the relationship between Arch FP and the Lonscale claimant cells. That relationship gave entitlements to Arch FP. It also imposed duties upon Arch FP. Below I consider three general aspects of Arch FP's entitlements and duties. Those aspects concern the mandate given to Arch FP by the Lonscale claimant cells (section D2 below), Arch FP's management powers and duties (section D3 below) and Arch FP's duties of loyalty (section D4 below). In addition, in section D5 below I consider whether Arch FP's duties of loyalty were modified by what is said to have been a "Base Prospectus" for notes issued by AT1.
D2. Mandate: powers and duties
The IMAs stated in paragraph 4:
4. Investment discretion
a). The Investment Manager will manage the Portfolio within the investment objectives and investment policy as set out in the Prospectus. Subject to such objectives and restrictions, the Investment manager, will have complete discretion for the Company's account … to buy, sell, retain, exchange or otherwise deal in investments, and other assets, … subscribe to issues and offers for sale of, and accept placings, underwritings and sub-underwritings of, any investments, … take all day to day decisions and otherwise act as the Investment Manager judges appropriate in relation to the management of the Portfolio. …
Arch FP's powers to act on behalf of the Lonscale claimant cells were thus in all respects subject to "such objectives and restrictions" as were set out in the Prospectus. The word "Prospectus" was defined to mean:
The offering document whereby shares in the Company are offered to investors and any supplemental or replacement documentation having similar effect.
The re-amended particulars of claim asserted that the relevant documentation comprising the Prospectus within this definition consisted of Scheme Particulars issued for the ICC in January 2007 and Supplemental Scheme Particulars for each of the Lonscale claimant cells. This was not expressly admitted in the defence, but it was not disputed at the trial. Nor was it disputed at the trial that the Supplemental Scheme Particulars in each case required Arch FP to arrange investments which were likely to produce capital appreciation over the medium to long term.
On behalf of the PF cells it was alleged at trial, without objection by the defendants, that the investment objectives and policies of the PF cells concerned lending to third party borrowers constituting "exposure to the private finance market … including public and private debt … instruments…" explained in an "Outline of Private Finance" as "generally employed where companies need to borrow but are either unable or unwilling to source financing from a bank and/or do not … approach the public market."
Also at trial it was submitted on behalf of PF4, again without objection by the defendants, that its Supplemental Scheme Particulars included a "requirement for a bias towards late stage structured finance or early stage (venture) finance".
The matters described above are all said to constitute limitations on the mandate given by the Lonscale claimant cells to Arch FP. It is elementary that if Arch FP, purporting to act by virtue of its status as agent on behalf of a cell, exceeded the authority given by that mandate, then it would be liable to the cell for loss caused: see, for example, Chitty on Contracts, 31st edition, para 31-114.
D3. Management powers and duties
In the absence of any contractual term to the contrary, Arch FP's role as agent would carry with it a duty to exhibit such a degree of skill and diligence as is appropriate to the performance of the duties accepted. This includes a duty to exercise discretionary powers with due care and in the interests of the principal: see Chitty on Contracts, 31st edition, paragraphs 31-115 and 31-116. In the present case, Arch FP's duties in that regard were set out expressly, so as to make it clear that it would be liable for negligence, wilful default or fraud by Arch FP or those acting on its behalf. This was clear from paragraph 15, which was in these terms:
15. Liability
a) Although the Investment Manager will always take reasonable care in managing the Portfolio, it cannot guarantee that they will not depreciate in value or that they will not be affected by adverse tax consequences.
b) The Investment Manager shall not be liable for any error of judgement or any loss suffered by the Company in connection with the services it provides to the Company unless such loss arises from its negligence, wilful default or fraud by it or any of its officers, employees, agents or delegates.
…
D4. Duties of loyalty
Where an agent undertakes to act for another (the "principal") in circumstances giving rise to a relationship of trust and confidence, that agent owes duties of loyalty to give preference to the principal's interests over the agent's own interests. These duties are usually referred to as "fiduciary duties". There are two supplemental duties which "reinforce the duty of loyalty". These are the duty of the agent to avoid conflicts, or potential conflicts, of interest, and the duty not to profit from the agent's position. They are special fiduciary duties which operate strictly, without proof of intentional wrongdoing or even fault: see Chitty on Contracts, 31st edition, paragraph 31-119.
In their skeleton argument the defendants referred to JP Morgan Bank v Springwell Navigation Corp [2008] EWHC 1186 (Comm). They relied upon this case for propositions that the relationship in question had to be understood in the context of the contractual documentation between the parties, and that the mere fact that one party "trusts" the other does not predicate a fiduciary relationship. These propositions are undoubtedly correct, but they do not assist the defendants. That case was one where a party alleged a fiduciary relationship, but its complaint concerned a commercial transaction with the alleged fiduciary where there was no good reason to expect that the alleged fiduciary would have regard to the other party's best interests. By contrast, consideration of what to do in the best interests of the cells lay at the heart of the IMAs.
In the present case Arch FP was given exclusive control over the assets of the Lonscale claimant cells. Instructions as to dealings with those assets were given by Arch FP as agent of the relevant cell. It is elementary that this relationship between Arch FP and the Lonscale claimant cells would, in the absence of contractual provision to the contrary, be a relationship giving rise to fiduciary duties and in particular the two supplemental duties. However, the defendants say that fiduciary duties were excluded, or conduct which would otherwise constitute a breach of fiduciary duty was permitted, by provisions in three paragraphs of the IMAs.
The first of these paragraphs was paragraph 12. Below I set out relevant passages in paragraph 12 with individual clauses numbered in square brackets for convenience:
12. Dealing and Counterparties
a) [12.1] In effecting transactions for the Portfolio, the Investment Manager may in its absolute discretion deal with the Company as principal or agent.
[12.2] …
[12.3] The Investment Manager may match the Company's order with an order from another client by acting as agent for all parties …
[12.4] …
[12.5] The Investment Manager may take all such steps as may be required or permitted by … good market practice …
The second of these paragraphs was paragraph 13. Below I set out paragraph 13, again with individual clauses numbered in square brackets for convenience:
13. Potential Conflicts of Interest and Disclosures
[13.1] The Investment Manager may without prior reference to the Company, effect transactions in which or provide services in circumstances where the Investment Manager has, directly or indirectly, a material interest or relationship of any description with another party which may involve a potential conflict with the Investment Manager's duty to the Company.
[13.2] The Investment Manager shall not be liable to account to the Company for any profit, commission or any connected transactions and the Investment Manager's fees shall not, unless otherwise provided, be abated thereby.
[13.3] For example, such potential conflicting interests or duties may arise because:-
a) the Investment Manager undertakes investment business for other clients;
b) any of the Investment Manager's directors or employees is a director of, holds or deals in securities of or is otherwise interested in any company whose securities are held or deal in on the Company's behalf;
c) the transaction is in securities issued by a client;
d) the Investment Manager may act as agent for the Company in relation to transactions in which it is also acting as agent for the account of other clients;
e) the Investment Manager may have regard, in exercising its management discretion, to the relative performance of other funds under its management;
[13.4] However, the Investment Manager shall at all times have due regard to its duties owed to the Company and the Company and where a conflict arises it will endeavour to ensure that it is resolved fairly. [13.5] Furthermore, where the Investment Manager could:-
(i) allocate an Investment between two or more funds or accounts which it manages (including the Company); or
(ii) make a disposal of investments held by two or more such funds or accounts,
it will act fairly as between the relevant funds or accounts in making such allocation or disposal, having regard to, inter alia, factors such as cash availability and portfolio balance.
The third paragraph relied upon was paragraph 18. Below I set it out in similar fashion:
18. Relationship
[18.1] The relationship between the Company and the Investment Manager is as described in this Agreement.
[18.2] None of the services to be provided hereunder or any other matter shall give rise to any fiduciary or equitable obligations
[18.3] which would prevent or hinder the Investment Manager in transactions with or for the Company from acting as principal or agent, dealing with other clients and generally effecting transactions as provided above.
It is apparent that paragraphs 12, 13 and 18 are concerned to ensure that Arch FP has the freedom to commit the cell to transactions in which Arch FP is a counterparty, either as principal or as agent, or in other ways has a direct or indirect material interest or a direct or indirect relationship with another party which may involve a potential conflict with its duty to the cell. On the other hand, Arch FP is not to have a completely free hand in that regard. When setting out the freedom each of these three paragraphs adds words of limitation. Clause [12.5] acknowledges that steps may be required by good market practice. What Arch FP must at all times do is set out in clause [13.4] which to my mind is founded on, and must be read in the context of, principles of good market practice. If one were to examine that clause minutely, a question might arise as to whether the use of the expression "endeavour to ensure that it [the conflict] is resolved fairly" might involve some lesser obligation than the unqualified obligations earlier in clause [13.4] that it must "have due regard to its duties owed to [the cell]", and in clause [13.5] identifying circumstances where it is said that Arch FP "will act fairly". I need not, however, examine that question further as the defendants accepted [DFWCS, para 250] that, as regards "situations of potential conflict":
The overriding obligation for Arch in any such situation was to ensure that any potential conflicts were managed fairly, consistent with the FSA Principle 8.
FSA principle 8 provides:
A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.
The defendants' closing submissions also advanced a contention that paragraph 18 circumscribed the duties owed by Arch FP "by specifically excluding fiduciary and equitable obligations." I agree that there was a specific exclusion of fiduciary and equitable obligations. In my view it is important to note that this was not a general exclusion. The clause which I have numbered [18.3] was plainly worded so as to limit the exclusion found in clause [18.2]. The result is, I believe, clear. If a cell asserts that a fiduciary or equitable obligation arises, and Arch FP relies on paragraph 18, then under what I have referred to as clause [18.3] the fiduciary or equitable obligation in question would not apply to the extent that it would prevent or hinder Arch FP from effecting transactions as provided in the IMA. For present purposes the IMA provides that Arch FP can act where there is a potential conflict of interest, but has an obligation to ensure that the potential conflict is managed fairly. The defendants accept that this obligation is "overriding". It follows from this, and from established principles of the interpretation of contracts, that the freedoms given by clauses [12.1], [12.3], [13.1], [13.2] and [18.2] are limited so that they only apply when the overriding obligation is complied with. As regards conflicts of interest, accordingly, the supplemental duties identified above will apply, but modified by paragraph 18 so that they do not prevent or hinder Arch FP from acting if it ensures that potential conflicts are managed fairly. Similarly they are modified so as to give to Arch FP the "absolute discretion" conferred by clause [12.1], and the freedoms conferred by clauses [13.1] and [13.2], so long as Arch FP complies with the requirement of good market practice that conflicts of interest must be managed fairly.
The Lonscale claimant cells sought to derive a broader limitation on Arch FP's abilities to act where a potential conflict might arise. Not only, they submitted, did Arch FP have an obligation to ensure that any potential conflicts were managed fairly, even if the conflict were managed fairly Arch FP could only act where a potential conflict arose if that conflict were similar or analogous to the examples given in the clause that I have numbered [13.3]. These examples, they said, concerned "ordinary, unexceptionable situations that may arise in the course of an investment manager carrying its business on behalf of a number of clients." In my view, however, it is unnecessary to add any further gloss. The overriding obligation accepted by the defendants ensures that potential conflicts of interest must be managed fairly if Arch FP is to have the benefit of exceptions to the duties of loyalty. There is no good reason, in my view, to infer from the giving of examples that Arch FP's ability to act by managing a potential conflict of interest fairly would be confined to such transactions as met a rather nebulous test of being "ordinary" or "unexceptionable".
D5. Disclosure as an answer to breaches of duties of loyalty
D5.1 Disclosure: general
An agent may have a defence to a claim for breach of the duties of loyalty if the principal has consented to what has been done. However, it is well established that this will only be the case if the agent has made full disclosure of all the material facts and the nature and extent of the agent's interest.
The defendants asserted that disclosure had taken place in three ways. I deal with them at D5.2, D5.3 and D5.4 below.
D5.2 Oral disclosure to Mr Radford and Mr Meader
In section C4 above I discussed the defendants' evidence as to oral disclosure to the independent directors of the Lonscale claimant cells. For the reasons given in that section, while either or both of Mr Meader and Mr Radford may have been told informally that some of the cells would be investing in the acquisition, and that Arch FP would be receiving a "fee", I am sure that they were not told that the "fee" would come in large part from funds invested by the cells.
As noted above, the test for adequacy of disclosure is that there must be full disclosure of all the material facts. I have no doubt that the funding by the cells of Arch FP's "fee" was a highly material fact. It follows that there was no adequate disclosure to the independent directors of the Lonscale claimant cells.
D5.3 The alleged Base Prospectus
A new assertion relevant to duties of loyalty was made in the defendants' skeleton argument. This was that Arch FP's "fee and dual role" were "contemplated and permitted" not merely by the IMAs but also by an alleged "Base Prospectus" governing notes issued by AT1. Three sets of provisions in the alleged Base Prospectus were relied upon in this regard. Those provisions referred to AT1 as the "the Issuer", and to Arch FP as "the Investment Manager". Notes of the kind issued by AT1 in the present case were referred to as "Instruments" involving a "Variable Underlying", an expression defined on page 1 as something to which the "payout" under an Instrument was linked:
The Issuer is authorised to and may issue Instruments whose payout is linked to the level, value or price of shares… and/or other assets and securities which the Issuer may from time to time determine, and/or any baskets of any of the above (each a "Variable Underlying").
The way in which the defendants relied on these provisions was later rephrased as being that they constituted disclosure of a kind which would bar subsequent complaint. If the assertions made about the alleged Base Prospectus were sound, however, the Lonscale claimant cells would have made a contractual agreement permitting the conduct in question. Either way, issues arise as to whether the document relied on by the defendants was indeed the Base Prospectus, and if so, what it envisaged as permissible.
The first set of provisions comprises what were said to be the third and fourth clauses on page 42 of the alleged Base Prospectus. For convenience I number them as [42.3] and [42.4]:
CONFLICTS OF INTEREST
[42.3] Transactions Involving the Variable Underlying
[Insert if Variable Underlying Instruments:
The Issuer and its affiliates may from time to time engage in transactions involving the Variable Underlying for their proprietary accounts and for accounts under their management. Such transactions may have a positive or negative effect on the value of the Variable Underlying and consequently upon the value of the Instruments.
[42.4] Acting in other capacities
[Insert if Variable Underlying Instruments:
The Issuer and its affiliates may from time to time act in other capacities with regard to the Instruments, such as calculation agent, agent and/or index sponsor. Such functions can allow the Issuer to determine the composition of the Variable Underlying or to calculate its value, which could raise conflicts of interest where Instruments or other assets issued by the Issuer itself or a group company can be chosen to be part of the Variable Underlying, or where the Issuer maintains a business relationship with the issuer of such Instruments or assets.
The second set of provisions comprises what was said to be the first clause on page 44 of the alleged Base Prospectus. For convenience, I have numbered it as [44.1]:
[44.1] Acting as underwriter or otherwise for the Issuer of Variable Underlying
[Insert if Variable Underlying Instruments:
The Issuer and its affiliates may also act as underwriter in connection with future offerings of the Variable Underlying or may act as financial adviser to the issuer of a Variable Underlying or in a commercial banking capacity for the issuer of a Variable Underlying. Such activities could present certain conflicts of interest and may affect the value of the Instruments.
The third set of provisions comprises what was said to be the first clause on 286 of the alleged Base Prospectus. For convenience, I have numbered it as [286.1], and I have also numbered each of its sub-clauses:
[286.1] Fees and Expenses of the Issuer Investment Manager
[286.1(1)] Where the Collateral Assets are managed by the Issuer and/or the Investment Manager then fees shall be payable to the Issuer and/or Investment Manager out of the assets of the Issuer, including but not limited to the Collateral Assets in respect of the Instruments.
[286.1(2)] Such fees may be received either as structuring or placement fees from counterparties to investments constituting the Collateral Assets or may be remuneration from the Issuer to the Investment Manager or deducted from the Collateral Assets. In all cases fees due to the Investment Manager shall not constitute Collateral Assets.
[286.1(3)] The Investment Manager may, from time to time, at its sole discretion decide to pay distributors or intermediaries part of or all of the investment management fee or rebate such fees to the Collateral Assets.
[286.1(4)] Additionally, Issuer shall incur fees in respect of the its administrator, auditors and any other Relevant Party, each of which will be discharged out of such assets of the Issuer as it shall in its sole discretion decide and whether or not such assets are ring-fenced.
The Lonscale claimant cells' first answer to this assertion was that the document relied upon by the defendants as constituting the Base Prospectus was no more than a draft. They pointed out that, as can be seen in the clauses from pages 42 and 44 quoted above, it contains instructions as to what to do. Another example of this is found in the second clause on page 8 of the alleged Base Prospectus. For convenience I have numbered it as [8.2], and I have also numbered each of its sub clauses:
[8.2] Listing
[8.2(1)] Application has been made to list the Instruments on the [Channel Islands] Stock Exchange.
[8.2(2)] However, unlisted Instruments may be issued pursuant to the Programme and the Programme provides that Instruments may be listed on such other stock exchange(s) or markets as may be specified in the relevant Final Terms. The relevant Final Terms in respect of the issue of any Instruments will specify whether or not such Instruments will be listed on the [insert relevant exchange] (or any other stock exchange)]
[8.2(3)] [Insert if this Base Prospectus is subsequently filed and approval sought in relation to the Prospectus Directive:
[8.2(4)] [This document constitutes a Base Prospectus for the purposes of Directive 2003/71/EC (the "Prospectus Directive").
[8.2(5)] This Base Prospectus has been filed with and approved by the Irish Financial Services Regulatory Authority in its capacity as competent authority in Guernsey (the "Competent Authority") in relation to prospectuses for securities for the purposes of the Prospectus Directive. Such approval relates only to Instruments which are to be admitted to trading on the regulated market of the Channel Islands Stock Exchange or other regulated markets for the purposes of Directive 93/22/EEC or which are to be offered to the public in any Member State of the European Economic Area.
[8.2(6)] Application has been made to the [insert relevant regulatory authority], as competent authority under the Prospectus Directive, for the base prospectus to be approved. Application has been made to the [insert relevant exchange] Stock Exchange for the Instruments to be issued under the Programme to be admitted to trading on its regulated market. The [insert relevant exchange] Stock Exchange's regulated market (the "Market") is a regulated market for the purposes of Directive 92/22/EEC. However, unlisted Instruments may be issued pursuant to the Programme and the Programme provides that Instruments may be listed on such other stock exchange(s) or markets as may be specified in the relevant Final Terms. The relevant Final Terms in respect of the issue of any Instruments will specify whether or not such Instruments will be listed on the [insert relevant exchange] (or any other stock exchange)]
As clause 8.2 shows, the alleged Base Prospectus contained at least one obvious inaccuracy: clause [8.2(5)] referred to the Irish Financial Services Regulatory Authority as the competent authority in Guernsey for the purposes of the Prospectus Directive.
The Lonscale claimant cells add that there is no board minute of AT1 approving the note programme until 4 August 2008.
Mr Addison under cross examination observed that the relevant notes had been issued by AT1 on 26 October 2007, and referred to "the Base Prospectus of the ARCTIC Multi-Instrument Programme". Accordingly, he said, it must be assumed that the alleged Base Prospectus was in place when the notes were issued. He added that the board minute of August 2008 was needed because revised security documentation had been prepared and approved by the GFSC.
Mr Addison's evidence does not, to my mind, diminish the force of the Lonscale claimant cells' first answer. It is true that the notes issued by AT1 on 26 October 2007 contemplated that there was a Base Prospectus in existence. However there is no evidence which explains how the Base Prospectus contemplated by the notes issued on 26 October 2007 could possibly have been the document produced by the defendants. The alleged Base Prospectus is no more than a draft which would require very considerable further work before it could become a document with legal effect.
Turning to the board minutes of AT1, in my view it is likely that there is a very good reason why there is no record of any approval by AT1 of the alleged Base Prospectus: namely, that no reasonable director of AT1 could possibly have regarded this document as one which merited approval. The board minute of 4 August 2008 makes no mention of there having been any previous approval. It was not suggested, nor in my view could it have been realistically suggested, that the approval on 4 August 2008 was, in relation to clauses [42.3], [42.4], [44.1] and [286.1], retrospective so as to take effect from 26 October 2007 onwards.
In these circumstances it is not necessary to turn to the observations made in the Lonscale claimant cells' second answer, and I deal with it briefly. The first observation is that clauses [42.3], [42.4] and [44.1] form part of a section of the alleged Base Prospectus under the heading "conflicts of interest". For present purposes the Variable Underlying referred to in those clauses would be Lonscale. Clause [42.3] on this basis points out that transactions between AT1 and its affiliates may have a positive or negative effect on the value of Lonscale and consequently upon the value of the relevant notes. Clause [42.4] points out that AT1 and its affiliates might act in capacities which allowed AT1 to determine the composition of Lonscale or to calculate its value. Clause [44.1] points out that AT1 and its affiliates might act as underwriter in connection with future offerings as regards Lonscale, or as financial adviser to Lonscale, or in a commercial banking capacity for Lonscale. Nothing in any of these provisions is remotely relevant to the "fee" taken by Arch FP.
Second, as to clause [286.1], the Lonscale claimant cells pointed out that sub-clause [286.1(1)] contemplated fees being paid out of assets of the issuer. They added that sub-clause [286.1(2)] contemplated that those fees might be received either as structuring or placement fees from counterparties to investments constituting collateral assets or might be remuneration from the issuer to the investment manager. In order to claim that the present case fell within clause [286.1] Mr Farrell, later on day five, maintained that the "fees" were financed by AT1. I am sure that when giving this answer Mr Farrell knew it to be untrue. For the reasons set out in section C above, there can be no doubt whatever that the £3m paid to Arch FP was almost entirely financed by the Lonscale claimant cells.
D5.4 Disclosure in other ways
In their further written closing submissions the defendants suggested that they could rely upon not only the alleged Base Prospectus but also upon the Supplemental Scheme Particulars for AT1. This appears to me to be plainly without foundation. The Supplemental Scheme Particulars for AT1 were not part of the contracts between the Lonscale claimant cells and Arch FP. Nor is there any reason why the Lonscale claimant cells should be concerned with them: they were of relevance only to those who had holdings in AT1. I add that Supplemental Scheme Particulars for each of the Lonscale claimant cells made reference to conflicts of interest, but not in such a way as would materially affect the analysis in section D4 above.
E. Failures of care in October 2007
E1. Failures of care in October 2007: general
The Lonscale claimant cells made no investment in Lonscale prior to 26 October 2007. On that day the PF cells made investments by subscribing for £13m AT1 October 2007 class B notes and the RE cells made investments by subscribing for £7.2m AT1 October 2007 class C notes. I shall refer to these investments as "the October 2007 investments". The benefits promised to the cells under the October 2007 investments could only be enforced by recourse to assets of Lonscale.
It is elementary that before entering into these investments on behalf of the Lonscale claimant cells Arch FP needed both:
(1) to satisfy itself that the prospects of receiving the promised benefits were so great as to outweigh the risk that £20.2m of the cells' money might be lost; and
(2) for this purpose, to take reasonable care in evaluating both the prospects of receiving the promised benefits and in assessing the risk that £20.2m might be lost.
The Lonscale claimant cells' closing written submissions identified overarching alleged failings. These constituted the three principal respects in which it was said that Arch FP acted in breach of its duty to exercise reasonable skill and care in October 2007. They were:
(1) It failed to conduct adequate due diligence.
(2) It failed to obtain an enforceable funding commitment from a third party prior to committing the Claimants to the investment.
(3) It caused the Claimants to invest in the Lonscale investments when it knew or should have known that the investments were uneconomic and/or that they involved risks disproportionate to the likely returns.
The Lonscale claimant cells identified many and various detailed alleged failings falling within these three respects. On analysis, however, the case advanced by the Lonscale claimant cells in relation to these three respects can be seen to involve key elements which overlap. Below, in order to keep the present judgment within manageable proportions, I focus on these key elements. In section E2 I examine Arch FP's approach to the Storeys property valuations. Questions concerning the need for a capital injection, identified by PKF in their draft reports and final report, are examined in section E3. I examine in section E4 the extent to which Arch FP made any evaluation of the rewards promised to the cells, and the risks to which they would be exposed, before committing the cells to the October 2007 investments. In section E5 I return to the three overarching alleged failings.
E2. Arch FP's approach to Storeys' valuations
The Lonscale claimant cells identified three main criticisms of Arch FP's approach to Storeys' valuations. The first was that there had been no valuation of the business itself, rather than the properties. The second was that Arch FP had ignored its own concerns about the reliability of the Storeys' valuation. The third was that Storeys were not independent.
To my mind, these criticisms have a common thread. The Storeys valuations all stressed that they gave a high valuation to the properties because of the strength of the Clubeasy brand name: see paras 1.14 and 5.22 of the Storeys August 2007 draft report, repeated in the Storeys final report as emailed on 15 October 2007. Thus Storeys made it perfectly clear that they were not giving a market value of what the properties would be worth if Clubeasy were to dispose of them. The properties were being given a higher value dependent upon the property in question remaining a Club Easy property and forming part of a thriving Club Easy business. At times the Lonscale claimant cells appeared to be relying on Mr Rees's evidence as warranting a conclusion that Storeys had been negligent. I do not reach any such conclusion. The only question I need consider for the purposes of this section of my judgment is whether Arch FP was negligent in the reliance it placed on the Storeys' valuations. For the reasons given below, I am sure that Arch FP was at the very least negligent, and through Mr Farrell knew that it was acting wrongly, in treating the Storeys property valuations (after deduction of amounts secured on the properties) as a proxy for a valuation of the business, in ignoring its own reservations about those valuations, and in relying upon the Storeys property valuations despite the care which Storeys had taken both to point out the true basis upon which the valuations had been compiled and to draw attention to their prior and continuing involvement with the properties.
As to treating the Storeys property valuations (net of amounts secured on the properties) as a proxy for a valuation of the business, Mr Rees at paragraph 3.1 of his first report pointed out that any valuation of the Clubeasy Group will be based on its financial performance, both historical and anticipated, and its balance sheet. One method of valuing property investment companies is by reference to their net asset value, with the valuations of the properties being of prime significance. However, as Mr Rees pointed out at paragraph 4.1, the overall value of a trading business will ultimately be derived from its future cash flows, while net assets will be reviewed to establish a fall back position should the need arise to liquidate the investment. They may also be reviewed as part of a purchase to establish if there are surplus assets, for example cash, which could be distributed to the seller, or if there is a need for further funds to be provided by the purchaser. Mr Rees commented at paragraph 4.4 that he had not seen any indication that Arch FP considered a trading based valuation of the Clubeasy Group. Any such valuation would have required detailed profit and loss accounts, cash flows and balance sheets, which were not prepared.
The defendants' written closing submissions sought to deal with this aspect of the case at paragraphs 89 to 119. However those paragraphs do not show that the points made by Mr Rees on this aspect had been addressed at any stage in 2007. At paragraph 108 of the defendants' written closing submissions reference was made to accounts subsequently prepared by Kingston Smith. A figure in those accounts of £7.5 million is described as "negative good will", and is also said at paragraph 98(1) to have been a "valuation reserve". Mr Walton rightly described it as no more than a book keeping entry: it assumes that Storeys were right to value the properties in the way that they did, and thus adopts a figure which is only valid if the Clubeasy business is indeed a thriving one.
Moreover, Mr Walton pointed out that the stark difference between the purchase price of around £15 million, including the deferred consideration, and the alleged net asset book value of Clubeasy of around £30 million, ought to have indicated that the net asset book value did not correspond to the market value. Mr Farrell and Mr Addison suggested in evidence at the trial that the difference could be explained because Mr Hayes was in their words "a stressed seller", anxious to bring about a quick sale so that he could fund his proposed investments in the United States. I accept that Mr Hayes in August 2007 wanted at least to secure a speedy commitment to payment of an immediate deposit with the bulk of the purchase price being paid in October 2007. It would nevertheless be surprising if the net book value of the properties could, of itself, be relied upon as showing that he was willing to part with the business for around half its true worth.
Suggestions were made by the defendants that PKF and Bordeaux had valued the Clubeasy business or had endorsed the Storeys property valuations (net of amounts secured on the properties) as a proxy for the value of the business. The answer to these suggestions was identified by the Lonscale claimant cells in a supplemental note on valuation evidence dated 22 January 2014. As to PKF, their role was to provide a "limited review", and it was only for that purpose that they produced a set of accounts based on the Storeys property valuations. As to Bordeaux, its valuation was based on the completion accounts which in turn were based on the Storeys valuation. Neither PKF nor Bordeaux was asked to give independent consideration to the question whether the Storeys property valuations (net of amounts secured on the properties) represented an appropriate proxy for the value of the business.
As to Arch FP's own reservations, Mr King in his witness statement said that by late September 2007 he and Mr Jeffs had looked closely at the Storeys valuation. Mr King said that he was happy with the valuation methodology used by Storeys, but "had some reservations about the yield figures being used against known rental levels to derive the actual valuations of the properties."
Mr Farrell was asked about this in cross examination. His response on this, as on other aspects of the reasons which underlay the purchase, was cagey. When shown this passage in Mr King's witness statement, and asked whether Mr King had said that he had some reservations about the yield figures that were being used Mr Farrell did not initially reply. The question was put again, and Mr Farrell eventually replied that he and Mr King had had many discussions over quite a long period. When asked whether it could be assumed from that answer that Mr King did indeed say that he had had reservations about the yield figures, Mr Farrell simply responded that Mr King had said that he had such reservations in his statement. Only when the question was put yet again did Mr Farrell give an answer, which was that as to whether Mr King had told him of these reservations, "I imagine he did at some point, yes."
Turning to Mr Jeffs, in cross examination he accepted that if gross rents were to be used as the basis for a reliable valuation, then it would be important to know how much of the gross rent represented costs. However he said that he had not known that Storeys in fact had no information about the amount of the costs that would need to be deducted from the gross rent in order to derive a net rent.
Moreover, on 29 August 2007 Mr Jeffs sent an email in which permission was given to release the draft Storeys valuation to Clubeasy provided that they were told:
we have reservations about the valuation because of the methodology used; namely deriving the property value from assumed yield percentage. As fund managers Arch adopts a prudent valuation approach for multi-let property acquisition somewhere between fully yield derived and the valuation as a stand alone, non-specialist and possibly non-rental residential property. Independently, Arch's property adviser confirms that valuations solely derived from assumed yield will give a "toppy" valuation.
Mr Farrell and Mr Jeffs suggested that this assertion of reservations must be read in the context of the bargaining process which was underway with Mr Hayes at this stage, but it does not seem to me that that detracts to any significant extent from the fundamental force of the point being made.
Turning to Storeys' lack of independence, and the true basis of their valuation, the defendants' closing written submissions at paragraphs 92 to 107 acknowledged that in the Storeys August 2007 memorandum Storeys had rightly raised points relevant to their independence. The defendants then sought to dismiss the matter on the basis that the potential for conflict was common in the industry and disclosed by Storeys, that Cobbetts and PKF were happy for Storeys to proceed, and that Storeys' familiarity with the localities and properties in question was an advantage.
This stance on the part of the defendants ignores a key consequence of Storeys' close relationship with the Clubeasy group, a consequence which Storeys made plain in their valuations. This was that Storeys had formed a very high opinion of the accommodation services offered by Clubeasy. As was stated by Storeys in paragraphs 1.14 and 5.22 of both the Storeys August 2007 draft report and the Storeys final report, it was this high opinion of the Clubeasy business which led to the high valuations. I consider that the Storeys valuations were obviously founded upon Clubeasy being a thriving business. The consequence is that an objective reader of those valuations would have appreciated that if, for whatever reason, the business was not viable then the valuations could not be relied upon. I have no doubt that this was something which Mr Farrell fully appreciated.
E3. PKF's identified need for a capital injection
A constant feature of the PKF report, both in drafts and in the final version was that the need for a capital injection was identified as a key issue. The section of the report headed "Key Issues" included a section concerned with the profitability of historic and current trading, stating:
The Group as it stands is very highly geared and, as a result, there is a significant interest burden that has been exaggerated by recent interest rate increases. Due to this apparent over-gearing, the group has been unable to generate sufficient profits to cover interest payable and has therefore been loss-making in recent years.
In relation to this key issue, PKF made two points. The first was as follows:
A further injection of capital is required to reduce the gearing of the Group and we understand that this is proposed in the funding structure that will be used to finance the proposed transaction.
PKF added a second point:
The purchaser should ensure that the projected level of EBIT is sufficient to cover the interest that will fall due on the level of debt assumed going forward and to hedge against any future interest rate rises where possible.
The defendants did not dispute that PKF had indeed been told that there would be a capital injection in accordance with PKF's own account of what it had been told. The Lonscale claimant cells pointed out that no such capital injection had occurred. They complained that Arch FP had been negligent in failing to obtain enforceable commitments for further funding, or at the very least investigating whether FCL's promises of investment by FPP could be relied upon.
In their further written closing submissions at paragraph 282 the defendants suggested, in effect, that there was an obvious answer to this point. There was, they suggested, "no requirement for an enforceable funding commitment from a third party. The cells were capable of funding the investment themselves. Neither did the investment mandate require an enforceable funding commitment from anyone. Additional investment could have been made at any time."
In my view this reasoning is fundamentally flawed. The October 2007 investment involved the payment over by each Lonscale claimant cell of very substantial sums of money. It was clear from the PKF report that if that investment were to have any prospect of success, then there must be arrangements in place to ensure that there would be a substantial capital injection. It is no answer to say that "the cells" generally were capable of providing the necessary funds. Unless immediate steps were taken to ensure that the capital was provided, each Lonscale claimant cell was exposed to an obviously unacceptable risk. In this regard there was no satisfactory answer to points made by Mr Walton in cross examination. He noted that at the outset there had been no commitment from anyone to provide further funding. Whether or not further funding was contemplated, he thought that "to be certain there needs to be a commitment." He added:
… one has to consider the rights of the individual investors… one has to question how far Arch, even with the initial investment, actually looked at the investment from the point of view of the investors. …
The defendants' initial closing written submissions at paragraphs 71 to 78 addressed the matter in more detail. Reliance was placed in particular upon the completion accounts showing a "cushion" of £7.5 million. This sum was (described as) set aside for losses. That was, however, by reference to the gross asset value of £29 million, which in turn was based on Storeys valuation, and thus explicitly based on the assumption that Clubeasy was a thriving business. However, as PKF had pointed out, Clubeasy could only be a thriving business if gearing was reduced.
More generally, in so far as the defendants sought to identify ways in which further borrowing could enable Clubeasy to remain in business, for the reasons that PKF identified, further borrowing was not a solution. What Clubeasy desperately needed was a substantial capital injection to enable it to repay loans and reduce gearing.
Both in their original written closing submissions and in their further written closing submissions the defendants placed reliance upon an appreciation in the housing market. Again, the short answer is that, quite apart from inherent uncertainty as to whether there would be any such appreciation, it would not give rise to the capital injection needed to reduce gearing.
E4. Risk/reward analysis in October 2007
The defendants accept that reasonable care required a risk/reward analysis. Mr Farrell's oral evidence was that such an analysis was carried out by the portfolio managers. For the reasons given below, I am sure that in giving this evidence Mr Farrell was telling the court that such an analysis had been produced, when in fact he well knew that no such analysis had been produced.
On Day 1 of the trial I asked the Lonscale claimant cells to identify for me the documentary evidence in relation to each decision on behalf of each cell to make the investment made by that cell in the Lonscale project. In response to this request a considerable amount of work was done by both sides as the trial progressed. The first stage was that on 27 November 2013 the Lonscale claimant cells produced a note entitled "The approval of note subscriptions by the cells". Among other things, the note said that:
(1) Prior to May 2009 there were nine separate occasions on which the Lonscale claimant cells subscribed to loan notes relating to Lonscale. As regards those nine occasions, the Lonscale claimant cells had found no record of any decision to subscribe being taken by any of those cells, whether through their directors or otherwise. Nor had they found any record by Arch FP of a decision that any particular cell should invest in Lonscale.
(2) In relation to those nine occasions, the Lonscale claimant cells had been able to find documentary evidence of the decisions to invest only in the form of the documents which showed the subscriptions being made. In each case the loan note subscriptions were signed on behalf of the cells by an Arch FP employee pursuant to Arch FP's discretionary mandate, and were also signed by an Arch FP employee on behalf of the note issuer (whether that be AT1 or Lonscale).
(3) As regards the October 2007 investments:
(a) when AT1 subscribed to the Lonscale October 2007 class B notes Mr Farrell signed on behalf of Lonscale as issuer and Mr Ruparell signed on behalf of AT1 as subscriber.
(b) The subscriptions to the AT1 October 2007 notes (class B in the case of the PF claimants and class C in the case of the RE claimants) were signed on behalf of the Lonscale claimant cells by Mr Smith of Arch FP and on behalf of AT1 as the issuing cell by Mr Ruparell of Arch FP.
When the note was produced on the morning of 27 November Mr Farrell was about to start his oral evidence. I asked whether he would wish to take half an hour to work his way through the note and consider whether there were particular things that he would wish to say in addition to what was already in his witness statements, or whether longer than half an hour might be needed. Mr Farrell's reply was, "I think I can do it now actually." In response to a question from me, he confirmed that he believed that at the start of his evidence he could give further evidence in chief in which he would tell the court about anything he thought relevant to the note. Accordingly when he gave evidence that morning, after some initial questions from Mr Addison by way of examination in chief, I invited Mr Farrell to deal with the note. He responded that from the perspective of the Lonscale claimant cells the most important documents were "the trade documents which are the notes issued by Arch Treasury and purchased by the range of investors." From the perspective of Lonscale Mr Farrell identified the share purchase agreements and what he referred to as "a bible of documents relating to the acquisition of the Clubeasy Group." In terms of what was recorded within Arch FP Mr Farrell identified what he called "trade tickets", "trade database entries", and "the note documentation." The portfolio manager for a cell would complete the trade ticket, and the trigger to doing that would be an investment decision made by the portfolio manager or managers.
Paragraphs 123 to 125 of the defendants' written closing submissions said of Mr Farrell's evidence that it revealed the note to be materially incomplete and misleading, proving that the Lonscale claimant cells were simply unaware of the processes within Arch and Bordeaux. Complaint was made that there had been no disclosure of relevant information in relation to the deal tickets/trade database, and that there were relevant documents which were not before the court.
In my view these assertions on behalf of the defendants were clutching at straws. The Lonscale claimant cells gave a detailed account of the searches they had made. I am satisfied that all available material has been produced in so far as relevant. As to the defendants' assertions:
(1) If the RE cells had made any risk/reward analysis Mr King would have known about it. His witness statement made no mention of any such analysis.
(2) If the PF claimants had made any risk/reward analysis Mr Jeffs would have known about it. As the Lonscale claimant cells pointed out in their written closing submissions, Mr Jeffs accepted in evidence that he did not recall seeing any written investment proposal and that he did not write one himself.
(3) Mr Farrell dealt with the position in the period shortly before completion of the acquisition at the end of October 2007 in paragraph 56 of his first witness statement:
Shortly before completion I learnt from Lee Barkman that his ability to raise funding had been severely constrained (by what we now know was the onset of the developing financial crisis) and he had been unable to secure any debt finance for the deal. I understood that the expected lending from Barclays had not concluded in time, and this was after the prospect of any lending from Investec had fallen through in mid-October 2007. As for his equity investors, my understanding from Lee Barkman was that this was primarily a timing issue and that he was still confident that he would fund the deal but he needed a bit more time. Whilst unexpected, it did present the Cells with a good opportunity. They could invest on highly favourable terms and get access to the majority of the transaction, at a time when there was plenty of new liquidity arriving…
(4) Mr Farrell's first witness statement added in the remainder of paragraph 56 that if Mr Barkman's funding materialised, the Lonscale claimant cells would "exit… at a significant premium." If not, they "would hold an asset-rich business with substantial growth and restructuring potential, acquired for approximately 60% of its asset value." On the footing that the "turnaround" plan prepared by Mr Jeffs was put in place, this was expected to be "an extremely attractive and profitable investment."
(5) At paragraph 57 of the same statement Mr Farrell said:
Whilst we had various group discussions at AFP about whether to let the deal fall away, the view was taken by the portfolio managers, Adam Smith and Gary King, that the Cells' investments should go ahead and that it would be a bad decision for the Cells to pass up on the investment. The portfolio managers had up to then been willing to invest alongside other investors in a business that they by then understood very well given AFP's involvement in the due diligence, and although taking on the bulk of the transaction carried different risks, it also offered more potential for gains. As such, I understood that the portfolio managers were of the view that the Club Easy investment was in the interests of the Lonscale Investing Cells.
(6) In a section of his first witness statement headed "Rationale for the Club Easy investment", Mr Farrell said this:
64. The balance sheet of the Club Easy Group was healthy, with a PKF/Storey's valuation of £30.6 million, that is, a surplus of assets over bank debt of £30.6 million. However, although seemingly asset-rich, we knew that in terms of cash flow, the Club Easy Group would need to be supported by way of further capital injections because the previous owner had in place a number of arrangements and financing terms which were unnecessarily draining the cash availability of the business. This was the reason AFP was able to secure the acquisition from the vendor on the terms it did.
65. Losses were to be reduced within two years and were in any event small when compared to the net asset value or equity within the business at the outset. …
66. The plan for the investment was, in summary, to bring the business back into profit through a combination of, inter alia, further capital injections (to increase the size of the portfolio), corporate restructuring, rental income increases (subject to student year time lags) and cost reductions. Interest rate reductions would also have a significant impact on the overall profitability, with hedging to be considered at a later date and part of the initial post-acquisition strategy was to consolidate and simplify the debt arrangements in place at the Club Easy Group.
(7) Under cross examination on day 6, Mr Farrell was asked about the position in late October 2007. It was pointed out to him that there was no written analysis to demonstrate that the Clubeasy business would generate sufficient value to enable the investing cells to recover their money. Mr Farrell's response was:
That would only be one consideration for a portfolio manager.
(8) The point was made to Mr Farrell again that there was no written analysis to demonstrate that the business would generate sufficient value to enable the investing cells to recover their money. Mr Farrell's response was:
If I went and bought a government bond tomorrow morning would I do a written analysis to determine whether I get my money back?
(9) It was only after the point was put a third time that Mr Farrell conceded that there was "no specific written analysis in the way you describe it."
(10) Specifically in relation to the position shortly before completion it was put to Mr Farrell that he had considered it essential to complete the transaction regardless of whether it was in the cells' interests. Mr Farrell replied that as the deposit was refundable it would have been possible to walk away. He then asserted that in the emails there were many discussions among portfolio managers as to "how they are going to take this deal in the event that Mr Barkman does not come up with the goods." It was then put to him that there was not a single document from the portfolio managers in which they identified or analysed why the deal would be in the best interests of the cells. Mr Farrell's response was:
That is already a given by then.
(11) It was at this stage that Mr Farrell then made a claim that there was a document from portfolio managers in which they identified why the deal would be in the interests of the cells. This suggested document, however, never materialised.
Mr Farrell's understanding of what was "a given" by the end of October 2007 was something which, in my view, became clear a little later in cross examination. It was that, even allowing for a fifteen percent marketability discount, the Storeys property valuations, as adopted in the PKF reports, could be asserted to mean that "the syndicate" (i.e. the Lonscale claimant cells and FPP) had bought something for £21 million which was worth £22.95 million.
In these circumstances the evidence to my mind points overwhelmingly to the lack of any risk/reward analysis on behalf of the cells. Mr Farrell's approach in October 2007 was that despite all the obvious problems with the Clubeasy business the Storeys property valuations could be used to justify investments which he knew to be unjustifiable.
E5. Conclusion on reasonable care in October 2007
For the reasons given above I conclude that Arch FP was negligent in relying upon the Storeys property valuations, in committing the Lonscale claimant cells to the October 2007 investments when they knew that a substantial capital injection was needed and that nothing was in place to ensure that the necessary capital injection would be made, and in failing to conduct any risk/reward analysis on behalf of the cells. The analysis under each of these three heads identified earlier leads to the same conclusion: no reasonable investment manager could possibly have considered that the October 2007 investments would be in the best interests of the cells. Mr Farrell knew that they were unjustifiable. He nevertheless ensured that Arch FP committed the Lonscale claimant cells to those investments so as to enable Arch FP and Foundations to extract the substantial sums planned as the second stage of their extraction venture.
F. Failures of care after October 2007
It is common ground that during the period January 2008 to August 2009 inclusive the RE claimants invested additional sums totalling £6.1 million. It is also common ground that these sums were used to fund Clubeasy's operational costs. Details of the investments are set out in annex 2 at section A2/D to A2/M.
The RE claimants say that if they had not been involved in the October 2007 investments these subsequent investments would never have been made. If that is right then it will not be necessary to examine whether Arch FP's instructions that the RE claimants should make the subsequent investments were negligent in themselves. In case that assertion should not be made good, in this section I examine whether the RE claimants are right to say that the decisions made by Arch FP committing the RE claimants to each of these subsequent investments were negligent on their own merits.
Three principal matters are relied upon by the RE claimants to justify their assertions that Arch FP acted in breach of its duty to exercise reasonable care and skill in relation to the subsequent investments. The first is that there had been no material improvement in the viability of the Clubeasy business since the acquisition. On the contrary, the position had only worsened since the initial investments, as Arch FP's awareness of the problems faced by the Clubeasy business increased over time. The second is that there is no evidence of Arch FP giving any greater consideration as to how subsequent investments could be justified as being in the interests of the RE claimants than had been the case with the October 2007 investments. Indeed none of Arch FP's witness statements attempted to explain why each of the subsequent investments was thought at the time to be in the RE claimants' best interests. Arch FP, it was submitted, was simply trying to keep the business afloat, meeting day to day operational costs, without regard for any properly thought out investment proposals, at least during the period up to May 2009. Third, it is said that in these circumstances it is clear that Arch gave no proper consideration as to whether the subsequent investments were in the best interests of the RE claimants.
The defendants seek to answer these criticisms under two main heads. The first concerns funding plans at the outset. This in substance repeats points made in answer to the claim for negligence in relation to the October 2007 investments. Four examples were given of a recognition that additional investment was needed. Two of these relate to unsuccessful attempts on the part of FCL to secure funding which, in the event, was not forthcoming. The inability of FCL to attract funding seems to me to be a point in favour of the case advanced by the RE claimants rather than a point against it. Reference was then made by the defendants to what was described as the "working capital funding reserve." This was reference to the £7.5 million discussed in section E3 above. For the reasons given in that section this so called "reserve" was no more than a bookkeeping entry. Finally, reference was made to a £15 million initial commitment for expansion in Exeter, Durham and London: but this was not the capital injection contemplated in the PKF draft reports and final report, an injection which was vital in order to reduce Clubeasy's high level of gearing.
The other head under which the defendants responded to these criticisms concerned changes in market conditions during 2008. Those changes cannot in my view provide any answer to the criticisms made by the RE claimants. The defendants refer to problems relating to the global financial crisis, in the form of "the complete removal of liquidity and bank lending appetite, and the general loss of confidence in valuations at such time." They assert that these fundamental changes could not have been foreseen in 2007. Whether that is right or not, it provides no answer to the failure to recognise the weaknesses of the Clubeasy business from January 2008 onwards.
The defendants take issue with certain of the particular matters relied upon by the RE claimants concerning events during the period from January 2008 onwards. It is not necessary to go into the detail in that regard. The problems facing Clubeasy form a consistent theme. Thus prior to the investments on 9 January 2008 Arch FP had received the report from Mr Featherstone warning about what he had learnt in relation to Mr Hayes' management style, warning that the company would require capital injections to keep it going unless something significant happened, warning that the expected increase in property values had slowed down, and seeking to know what strategy existed to bring the company to profitability. During the period prior to the investments made on 28 April 2008 the position summarised in the briefing document prepared by Mr Jeffs on 22 April 2008 involved a lack of self reliance on the part of management, inadequate financial systems, reluctance on the part of mortgage and loan providers to enter into new or renegotiated arrangements. During the period prior to the investments on 9 June 2008 it was noted that Clubeasy had lost most of its senior management team, that it had a cost base commensurate with twice the level of properties currently on its books, and that it made a loss on most of its property base. Moreover it had become apparent that Barclays had concerns in relation to the proposals that it should support FPP's investment activities involving the Arch business. Mr King had noted that Lloyds had stated a desire to lend to Arch, and potentially increase their lending to Clubeasy, but this would not in any way provide the capital injection which PKF had identified to be needed. There was no significant improvement by 2 July 2008 when the RE claimants made further investments of £1.1 million in order to enable Lonscale to provide operational funding to the Clubeasy business in that amount. By the time of the next investment in October 2008 there had been continuing problems in seeking to keep loan to value ratios within the limits required by lenders. Clubeasy management had produced a "business plan for growth" which assumed a capital property development programme of £20 million per year from 2009/10. Mr King had produced his own plan on 21 August 2008 aimed at "making Clubeasy perform in the near term". Paragraph [2] of his covering email commented that "this requires huge input from Arch and Foundations otherwise I can't see that Clubeasy will ever show a profit with its current level of gearing." He made it clear that "for the management to even have a shot at making inroads" Arch/Foundations would have to give a commitment to Clubeasy to provide the necessary capital investment, which he estimated at £50 million equity over the next two to three years. A further investment of £500,000 was made by the RE claimants on 11 December 2008. At this time there was nothing to suggest that Clubeasy would be given the capital commitment which Mr King had identified as necessary. A note from Arch FP's real estate division identified, at least by implication, a "required equity injection" of £11 million to £12.3 million, but even in this regard there was no commitment in place. The position was no better on 5 January 2009 when the RE claimants invested a further £500,000 in order to enable Lonscale to provide funding to Clubeasy in that amount.
For these reasons I conclude that as regards investments prior to March 2009 the RE claimants' first head of criticism is made good. Also as regards those payments the RE claimants' second head of criticism is also made good. There is nothing to suggest that those responsible for the portfolios of the RE claimants made any risk/reward analysis. Nor, in relation to the third head of criticism, does the evidence suggest that there was any focus on the need to consider whether the subsequent investments were in the best interests of the RE claimants. The focus was entirely on keeping the Clubeasy business afloat.
It was in March 2009 that Capita FML suspended trading in shares of the UK OEICs on the grounds of deteriorating liquidity. This was followed by a restructuring of the note holdings. Three subsequent investments were made by the RE claimants. There is a stark contrast between these three investments and what had gone before. They were the subject of consideration at meetings of the relevant investment committee. They were approved by GFSC. The crucial point made to the investment committee was that these were limited funding requirements, which in major respects represented a fulfilment of commitments that had been given as part of the external audit process for the year ending July 2009. These funding proposals were the subject of careful scrutiny and, despite criticisms by the RE claimants, I am not prepared to hold that in relation to these specific further payments Arch FP acted negligently. It does, however, seem to me that it was only by reason of Arch FP's failure to exercise reasonable skill and care over the previous fifteen months that the RE claimants were in a position where these specific further payments came about.
Accordingly for all these reasons, and to the extent set out above, I conclude that Arch FP was in breach of clause 15 of the IMAs in relation to subsequent payments by the RE claimants from January 2008 onwards.
G. Breaches of fiduciary duty
G1. Breaches of fiduciary duty: general
The Lonscale claimant cells contended that Arch FP broke each of the two supplemental duties identified in section D4 above. The facts relied upon by the Lonscale claimant cells in this regard are:
(1) as demonstrating breach of the duty to avoid actual or potential conflicts of interest, that Arch FP had a huge financial interest in causing the Lonscale claimant cells to invest in the notes to which they subscribed, because their investment would mean that Arch FP itself could, and on 6 November 2007 did, receive a £3m payment, and Arch UK could, and on 9 November 2007 did, receive £556,152 by way of redemption of the preference shares it held in FHL; and
(2) as constituting a breach of the duty not to profit from its position, that the payment to Arch FP of £3m on 6 November 2007 came about not merely because Arch FP was in a position to ensure and did ensure that the Lonscale claimant cells entered into the October 2007 investments but also because sums invested by those cells would fund almost the entirety of that payment.
For the reasons given in section C4 above I am sure that the Lonscale claimant cells are right to say that these facts have been established. For the reasons given in section D5.2 above, while there may have been some informal disclosure to the independent directors of the Lonscale claimant cells, I am sure that it was inadequate, as it did not include the fact that the relevant payments would be substantially funded from moneys invested by the cells. For the reasons given in sections D5.3 and 5.4, I am sure that there was no disclosure in other ways, whether in the form of the alleged Base Prospectus or otherwise. Accordingly, unless permitted by the IMAs, there were breaches by Arch FP of its fiduciary duties in each of these two respects. Thus the only issue which calls for consideration in the present section of this judgment is whether the IMAs permitted that conduct. For the reasons given in section D4 above, the effect of the IMAs is that the question becomes whether Arch FP managed the relevant conflict of interest fairly. If it did, then under the IMAs it was permitted to act, despite the conflict of interest, and to retain the £3m.
For the reasons given below, I am sure that Arch FP did not manage the conflict of interest fairly. In section G2 below I deal with advice received by Arch FP in 2007 in relation to the fair management of conflicts of interest. In section G3 I examine the reasons given by Arch FP for saying that the conflict was managed fairly.
G2. Advice on fair management of conflicts
In paragraph 72 of their skeleton argument the defendants asserted, correctly, that Arch FP took external advice on "situations where it might earn a transactional or advisory fee…". That advice was given orally by Mr Richard Symington, chief executive of Methuen Consulting, at a meeting on 23 August 2007 ("the Symington meeting"). Also present were Mr Farrell, Mr Addison, and a legal adviser, Mr Charles Douglas. A note of the meeting was prepared and was signed by Mr Farrell and Mr Addison. In the note Mr Symington and Mr Douglas are referred to as "RS" and "CD" respectively.
With paragraph numbers added in square brackets for convenience, the note of the Symington meeting stated:
Purpose of the Meeting
[1] Arch sought external advice on how to correctly manage conflicts of interest that are likely to occur between investment funds/vehicles where Arch acts as Investment Manager/Adviser, including funds/vehicles in which Arch shareholders have a beneficial interest.
Background
[2] Arch is Investment Manager/Adviser to a member of funds in Guernsey and the shareholders of Arch are to become beneficial owners of one such fund called Arch Treasury ("AT")
[3] AT is designed as a fund to source, structure and syndicate investments of various types in order to provide various beneficial services:-
(i) To customise/re-package such investments to better fit the risk/return requirements of the funds and end investors in general
(ii) To apply various treasury and risk management techniques in order to provide liquidity for Arch and other third party funds/investors
(iii) To warehouse risk and investment positions thereby enabling investors/funds to participate who would not be able to participate otherwise, due to cash flow timing
(iv) To open up distribution of investments to a much wider potential audience consisting of syndicates of Arch funds, third party firms/funds and other investors.
Conflicts of Interest – Summary of Discussion
[4] General and specific issues of conflicts of interest between funds were discussed. …
[5] RS outlined the current FSA position which requires disclosure to clients and RA demonstrated the disclosures already contained within the offering particulars of each fund. While the wording is considered sufficient it is being reviewed and will be updated for the next round of fund placings e.g. review description of affiliates specifically to mention shareholders and beneficial owners as well as employees of the Investment Manager.
(i) The allocation of opportunities amongst the funds was a relatively straightforward issue …
(ii) On the retention by AT of some of the rights to the underlying investments RS commented that it was perfectly reasonable to expect AT to retain a benefit from the trades in a number of instances highlighted by RF such as where it was adding value to a transaction (such as liquidity provision) or the transaction could not otherwise be undertaken by the individual funds.
…
(iii) RS detailed four possible actions under MIFID
disclosure of interests
policy of independence
internal arrangements
declining to act
[6] Disclosure of conflicts of interests was being dealt with through the offering particulars of each fund. It was noted that disclosure on its own was not enough to comply with the new rules.
[7] Policy of independence – It was highlighted by RS that there was no independent way of determining how to resolve conflicts of this nature, but that reference should be made to a combination of factors such as:
[7.1] the beneficial lessening/altering of the risk profile to the underlying funds via AT
[7.2] the pricing/terms of similar external deals that could be identified in the market
[7.3] pricing that an external counterparty to such deals would find acceptable
[7.4] whether the expected risk and return met or exceeded the investment objectives of the funds involved
[7.5] reasonable costs for structuring/re-packaging of the opportunities
[8] Internal arrangements – it was considered sensible and pragmatic for the various funds to agree to work together as a syndicate through AT in order to foster such attractive transactions. It was also raised by RF and noted by RS that the ability of AT to earn a return meant that Arch was able to attract and reward structuring talent that can source more underlying direct transactions with higher IRRs than the current range of investments in the funds. Without this the funds would be worse off in terms of returns even after allowing for the retention of benefits at AT level.
[9] RS commented that for each case we should document the reasons for undertaking a transaction via AT, so that there is a clear paper trail for the dealing of the conflict in a fair manner. RF highlighted that internal processes had already been upgraded to record the rationale for every transaction undertaken by the funds. In practical terms a different fund manager to the funds would represent AT in the consideration of such opportunities.
[10] An alternative arrangement considered was the use of a Chinese Wall but it was agreed that this would not solve the issues as given the size and ownership structure of Arch all staff regardless of their individual fund "hats" would know about the trades and where their duties lay. Bonus incentives would not alter this as the size would not be sufficient to outweigh the Arch inventive and would cause inequalities within the Group.
[11] Declining to act – RS echoed CD's earlier interpretation that it would be somewhat ridiculous for the funds to decline to act on the investment simply because AT was a beneficiary of such transaction. This would be tantamount to "cutting off one's nose to spite face". Further, RF highlighted that AT would be capable of obtaining funds from an external syndicate at lower rates of return (as exemplified by similar publicly-observable issuances), hence the opportunity for the funds was highly attractive.
…
G3. Alleged fair management of the conflict
The defendants repeatedly asserted that the acquisition involved an "equitable split" of benefits. Although they did not put it in this way, their contention was that even if it is right to describe the acquisition as an "extraction venture", it nevertheless gave the investors a fair share of expected profit.
In this regard I should stress that in describing what was proposed as an "extraction venture" I am not using the term "extraction" in a pejorative sense. Those involved in commerce commonly speak of "extracting value". Sometimes that can be achieved by doing work under an agreement for the payment of fees. For the reasons I have identified, however, in August 2007 there was no such agreement, nor was there any definite arrangement that there would be such an agreement. The defendants were anxious to maintain that the extraction of gains was for the "collective benefit of the investors and originators", and that the gains were to be extracted from the vendor, not from the investors. For the reasons I have identified, however, no gains were extracted from the vendor: it was the investors who funded the total of £6m paid to Arch FP and Foundations.
As to fair management of conflicts of interest, the defendants cannot in my view realistically suggest that they were entitled to do anything substantially less than what had been recommended at the Symington meeting.
The first point made by the Lonscale claimant cells is that nothing akin to the present transaction was discussed at the Symington meeting. Nothing in Mr Symington's advice suggested that Arch FP could fairly commit the cells to pay £20.2m in circumstances where that payment would cause FCL to receive £3m out of which it would provide a benefit to the Arch group by payment to Arch UK, Arch FP's parent company, of more than £500,000. Still less did anything said by Mr Symington suggest that Arch FP could fairly commit the cells to a payment of £20.2m which would cause Arch FP itself to receive a benefit of £3m. Even so, it seems to me that examination of whether the defendants put into effect Mr Symington's recommendations provides a minimum base line against which to assess whether there was fair management.
Citing evidence given by Mr Farrell under cross examination, the defendants' further written closing submissions relied upon paragraph [11] of the note of the Symington meeting. Mr Farrell did indeed refer to this paragraph of the note (day 6, page 14, line 5), but he did so in circumstances where he had already correctly acknowledged that the note did not specifically address the question whether Arch FP could take a substantial fee financed by the cells in addition to the contractually agreed fee for its management services: see day 6, page 13, line 22. He nevertheless maintained that an ability to take such an additional fee was implicit in the advice given by Mr Symington.
Mr Farrell was then taken in cross examination to paragraph [7.1] of the note. It was put to him that there was no "beneficial lessening/altering of the risk profile to the underlying funds" as a result of the involvement of AT1. Mr Farrell disagreed, maintaining that there was indeed such a beneficial lessening or altering of the risk profile. He acknowledged, as he was bound to acknowledge, that AT1 took no risk in the transaction. He nevertheless placed reliance upon the returns which were promised under the notes issued to the Lonscale claimant cells. It was pointed out to him that those rights could have been conferred without any involvement by AT1. Mr Farrell was obliged to accept that this was so. Nevertheless he maintained that "the whole point" of AT1's involvement was "to do it in a systematic way so that we don't generate tons of administration on these types of deals."
Turning to paragraph [7.2] of the note, it was put to Mr Farrell that there was no industry practice to support the amount of the fees in the present case. This was a matter which had been the subject of cross examination the previous day, and Mr Farrell dealt with it by simply asserting that he did not agree with what was put to him. However, what had happened on the previous day was that under cross examination he had not in fact been able to identify any comparable example by way of industry practice which supported fees of anything like the amounts involved in the present case.
The cross examination then turned to what had been identified at paragraph [7.3] of the note. This was that the pricing should be such as an external counterparty to the deal would find acceptable. It was pointed out to Mr Farrell that he had made no investigation as to what pricing an external counterparty would find acceptable in relation to the total of £6m paid to Arch and FCL. Mr Farrell did not attempt to deny this. His only observation was an assertion that this was referring to the terms or the pricing of the notes. As to that, however, for the reasons I have given above, no external counterparty would find the terms or pricing of the note acceptable.
Moreover, at [7.5] the note of the Symington meeting identified as relevant that there were "reasonable costs for structuring/re-packaging of the opportunities". It was put to Mr Farrell that there was no serious consideration given to whether £6m, in the context of a £13m to £15m transaction, was a reasonable sum. Mr Farrell did not attempt to assert that there had been any such consideration. Instead he claimed that the reference to "reasonable costs" was a reference to AT1, and that AT1's costs were zero.
Thus in cross examination on day 6 Mr Farrell made a determined attempt to suggest that the present transaction could be brought within paragraph [7] of the note of the Symington meeting. As regards the examples Mr Farrell relied upon (those at [7.1], [7.2], [7.3] and [7.5]), Mr Farrell in cross examination was making points which were obviously false, and I am sure that they were known by him to be false. The notion that this transaction could be brought within paragraph [7] of the Symington note was preposterous.
The cross examination then turned to paragraph [9] of the note of the Symington meeting. Mr Farrell accepted that, following what had been said at the meeting, his understanding was that if Arch FP's interests conflicted with those of the cells there had to be a clear documented paper trail in order to justify any action that Arch FP might take. When it was suggested to him that there was no such documented paper trail, his immediate response was to rely upon his email to Mr Smith dated 4 August 2007. When that email was turned up, however, it was seen to be the email referred to in section A2/B of annex 2 to this judgment, sent at 6:40am, in which Mr Farrell, having noted that Club Easy had £33m "official value on balance sheet" went on to say:
Ability to extract lots of cash P&L upfront is good…
As this plainly offered no rationale for the transaction from the point of view of the cells, Mr Farrell was compelled to assert that the document he had in mind was somewhere else. On day 7 it was suggested to him in re-examination that it was a different email, sent to Mr Smith on 4 August 2007 at 11:52am. This email, however, merely listed items to be recorded using drop down menus with a list of possible reasons for trades. This may have been what Mr Farrell had in mind when he said, as recorded at paragraph [9] of the note, that "internal processes had already been upgraded". However it had nothing to do with recording how a conflict had been dealt with in a fair manner.
The reality is that, for the reasons given earlier in this judgment, there was no merit whatever in Mr Farrell's assertion that there was a documented rationale for the transaction. Thus the transaction plainly did not comply with the requirements identified at paragraph [9] of the note of the Symington meeting.
Moreover, Mr Farrell's initial assertion that it fell within paragraph [11] of the note of the meeting was absurd. There would have been nothing "ridiculous" about the funds declining to pay AT1 £20.2m for the October 2007 investments if they had been told what was going to happen to nearly a third of that money.
In each of the above respects I am sure that Mr Farrell gave evidence at the very least without regard to its truth and in most respects knowing it to be untrue.
In these circumstances there is simply no basis whatever for the defendants' assertion that Arch FP managed the conflict of interest fairly. Similarly there is no basis whatever for the assertion made in the defendants' closing submissions that the October 2007 investments represented an "equitable split" of benefits among those involved. The consequence is that Arch FP cannot rely upon the IMAs as relieving them from the supplementary duties, and the Lonscale claimant cells' claim that those duties were broken is made good.
G4. Conclusions on breaches of duties of loyalty
For the reasons given above I conclude that there were serious breaches by Arch FP of its duties of loyalty owed to the Lonscale claimant cells. As they observed in their closing written submissions, it is not necessary for them to prove that Arch FP's conflict of interest and unauthorised profit had a causal impact on its decision making. It is nevertheless right that I should record that I am sure that it did. This is indeed my conclusion at the end of section E above. All the attention on the part of Mr Farrell and those whom he instructed was devoted to ensuring that the acquisition went ahead. This was the overriding focus from the start. It was able to remain the overriding focus only by deliberately allowing an unjustifiable assumption as to the value of the business to be made, knowing that assumption to be unjustifiable. This would never have come about if Arch FP had recognised that it should not have put itself in the position that it did. It would equally not have come about if Arch FP had made proper disclosure to the independent directors. Had they been informed that the cells would be funding almost the entirety of a payment of £3m to Arch FP, I am sure that they would have objected in the strongest possible terms.
H. Breach of mandate
The remaining claims against Arch FP are that the Lonscale investments were not within the scope of the mandate given to Arch FP by the Lonscale claimant cells. I shall refer to these claims as "the mandate claims". They do not in my view add anything of significance in the circumstances of the present case. The reason is that I have already held that the Lonscale claimant cells are successful in their claims for breaches of the duty to act with reasonable skill and care and for breaches of fiduciary duty. A finding that a mandate claim also succeeds will give rise to no additional entitlement in favour of the Lonscale claimant cells. For this reason I deal with the mandate claims relatively briefly.
In support of the mandate claims the Lonscale claimant cells rely on paragraph 4(c) of the IMAs. This provides that Arch FP's discretionary powers are subject to "the investment objectives and investment policy as set out in the Prospectus". The defendants do not dispute that Arch FP's mandate was confined in this way.
The Prospectus for each of the Lonscale claimant cells included what were described as "Supplementary Scheme Particulars". A common feature in the case of each of the Lonscale claimant cells was that the Supplementary Scheme Particulars contained a section headed "Investment Objective." In the case of the PF claimants, this section included the following:
Investment Objective
The investment objective of the Fund is to provide Shareholders over the medium to long term with capital appreciation through an economic exposure to a diverse range of investments in private finance selected by the Investment Manager.
There is no guarantee of performance and past or projected performance is not necessarily a guide to the future. Any return targets quoted are based on performance projections of investment approach using a historical portfolio constructed by the Investment Manager with similar anticipated investment exposures.
In the case of the RE claimants a similar section appeared. It differed only in that the first sentence stated:
The objective of the Fund is to provide Shareholders with capital appreciation over the medium to long term through economic exposure to a diverse range of real estate investment opportunities selected by the Investment Manager.
The primary way in which the mandate claims were put relied on this section of the Supplementary Scheme Particulars. For the purposes of his expert report Mr Walton was asked to consider the question whether the notes purchased by the cells were "likely to produce capital appreciation over the medium to long term, as required by the investment policy in the relevant Supplemental Scheme Particulars." He duly gave reasons why he considered that purchase of the notes was very unlikely to produce any capital appreciation.
That approach to the matter assumes that because the investment objective is to provide shareholders with capital appreciation over the medium to long term, it follows that Arch FP's mandate extends only to those investments which can be shown to be objectively likely to produce capital appreciation over the medium to long term. However in my view the one does not follow from the other.
An investment manager may well be given criteria under which the mandate is defined by reference to an objective criterion. For example, the mandate may be confined to the sale or purchase of securities listed on a particular stock exchange. In such circumstances the plain intention of the parties will be that if a security is listed on the stock exchange in question then the investment manager may sell or purchase it. If it is not, then the investment manager will have no power to make such a sale or purchase on behalf of the client.
The Lonscale claimant cells implicitly recognised that their mandate claims do not fall within this type of case. The question which Mr Walton was asked was not simply an objective one as to whether or not a particular investment would provide capital appreciation over the medium to long term. Instead, the suggestion was that the mandate must be confined to investments which are "likely to" produce such a result. This would be a wholly unworkable restriction upon the mandate of an investment manager, and would expose those dealing with the manager to unacceptable risks. In the present case Arch FP was, quite separately, under an obligation to exercise reasonable skill and care: see paragraph 15 of the IMAs. There is no need to introduce any restriction upon the mandate in this regard.
A subsidiary claim was advanced by the PF claimants only. This was that the notes purchased by the PF claimants were concerned not with private finance, but with private equity. Reliance was placed on what was said by Mr Walton under cross examination on day 10:
… Lonscale, as far as I am concerned, is a private equity deal that happened to be involved in the acquisition and management of student accommodation. So that would be a fairly typical private equity transaction, like investing in a company that manages hotels or just happens to fall into that sector. …
It is not, however, necessary for me to consider whether the notes purchased by the PF claimants were properly categorised as "private equity" rather than "private finance". The reason is identified by the defendants in their written closing submissions: the investment policy in the Supplemental Scheme Particulars clearly stated that it included "public and private debt and equity instruments". There is thus no basis for any contention that the mandate for the PF claimants excluded private equity investments.
For these reasons I conclude that the mandate claims fail.
J. Alleged dishonesty by Mr Farrell
J1. Alleged dishonesty by Mr Farrell: general
In this section I deal with the first of two claims made by the Lonscale claimant cells against Mr Farrell. This claim concerns the breaches of fiduciary duty by Arch FP. It is said that Mr Farrell is personally liable for those breaches of fiduciary duty because he dishonestly assisted Arch FP in committing them.
There are particular legal tests which must be met before a claim for dishonest assistance can succeed. I describe them in section J2 below. In section J3 I examine whether they have been met in the present case.
J2. Legal tests for dishonest assistance
The claim against Mr Farrell for dishonest assistance asserts that he is liable as an accessory to Arch FP's breaches of duty to the Lonscale claimant cells. If the relevant test for dishonesty is met, such a liability will be imposed upon a person who assists a breach of duty by a fiduciary: see Snell's Equity (32nd edition, 2010) paragraph 30-077. Footnote 316 to that paragraph draws attention to Goose v Wilson Sandford & Co (No. 2) [2001] Lloyd's Rep PN 189. In that case the Court of Appeal left open the question whether there can be liability for dishonest assistance where the relevant breach of duty does not involve misapplication of a trust fund or other property subject to a fiduciary obligation (see Gencor ACP Ltd v Delby [2000] 2 BCLC 734 at paragraph 86). There can be no doubt in the present case, however, that the £20.2m of the Lonscale claimant cells' money used to purchase the relevant notes was the subject of a fiduciary obligation.
As to the relevant test of dishonesty, the standard by which the law determines dishonesty for this purpose is objective. It has been established by the Privy Council decision in Barlow Clowes v Eurotrust International Ltd [2005] UKPC 37; [2006] 1 WLR 1476 at paragraph 16 that the test will be met if there is:
… consciousness of those elements of the transaction which make participation transgress ordinary standards of honest behaviour.
Moreover, it is not essential that there be actual knowledge of the relevant element of the transaction. A dishonest state of mind will exist where there is suspicion of the relevant element of the transaction, combined with a conscious decision not to make enquiries which result in knowledge: see Barlow Clowes at paragraph 10.
The defendants' skeleton argument relied on the well established principle governing the approach to allegations of fraud or dishonesty. This is that the standard of proof is the balance of probabilities, but the cogency and strength of the evidence required to prove dishonesty and fraud is heightened by the nature and seriousness of the allegation. Neither dishonesty nor fraud should be equated with negligence, or even gross negligence.
It was also suggested in the defendants' skeleton argument that Mr Farrell did not provide any advice in a personal capacity, and moreover did not act on behalf of Arch FP, merely acting "as the relay or conduit between Mr Barkman and Lonscale on the one hand, and the Arch teams on the other." As was rightly pointed out in the claimant's written closing submissions, however, neither of these assertions, even if made good, would provide any answer in law to a claim of dishonest assistance. Liability for dishonest assistance arises whether or not the person who provided the assistance acted in a personal capacity. I add that my conclusions earlier in this judgment are inconsistent with the notion that Mr Farrell distanced himself from "the Arch teams" so as to be no more than a "relay or conduit". But even if Mr Farrell had been no more than a relay or conduit, that would not prevent possible liability on his part for dishonest assistance. If assistance is provided, and the person providing that assistance acted dishonestly, then it does not matter that the person in question may have been acting as no more than a "relay or conduit".
J3. Whether the tests were met
I have held in section G above that Arch FP was in breach of fiduciary duty in committing the Lonscale claimant cells to the October investments in circumstances where this gave rise to a conflict of interest, and in taking the payment of £3m on 6 November 2007 which came about because Arch FP was in a position to ensure and did ensure that the Lonscale claimant cells entered into the October 2007 investments. For the reasons given in section G above, I have no doubt that Mr Farrell assisted Arch FP to breach its duty in both these respects: he was in charge of the extraction venture on behalf of Arch FP throughout August 2007, and he ensured that it was carried through during the months which followed.
Thus the only question which remains is whether Mr Farrell acted dishonestly in the sense described in section J2 above. In that regard I apply the well established principle under which I can reach a conclusion of dishonesty only if the evidence has the cogency and strength necessary to demonstrate the allegation of this nature and seriousness has been proven. I bear in mind, too, that a conclusion on my part that Mr Farrell was lying in his evidence to the court, or on other occasions, does not of itself demonstrate that he acted dishonestly in relation to any particular element of the relevant transaction or transactions. Lies may be told for reasons which are consistent with honest conduct. Even allowing for all this, and all the other factors which Mr Farrell can rely upon, the evidence against Mr Farrell is so strong and cogent that I am driven to the conclusion that he knew that what he was doing was wrong.
Moreover, even if I were wrong to conclude that Mr Farrell was well aware that what he was doing was wrong, in my view it is plain that at the very least he suspected that relevant elements of the transaction were such as would make it wrong, and nevertheless took a conscious decision not to make enquiries which would have resulted in him learning things which would have made it wrong to proceed with the transaction.
K. Alleged inducing of breach of contract
K1. Inducing breach of contract: general
In this section I deal with the second of the claims made by the Lonscale claimant cells against Mr Farrell. This claim concerns alleged inducement by Mr Farrell of breaches by Arch FP of the IMAs made between it and the Lonscale claimant cells. In this regard the Lonscale claimant cells in their closing written submissions focused on a particular type of breach by Arch FP. This was Arch FP's conduct causing the Lonscale claimant cells to finance "fee" payments in breach of its fiduciary obligation not to act in circumstances where its own interests conflicted with those of the Lonscale claimant cells.
In section K2 below I deal with the legal principles which govern such a claim. In section K3 I examine whether the facts of the present case give rise to liability on the part of Mr Farrell in accordance with those principles.
K2: Legal principles concerning inducement
It is common ground that liability for the tort of inducing breach of contract will arise if three requirements are met. These are that there must be knowledge of the contract, an intention to induce a breach of the contract, and an actual breach of the contract caused by the defendant's conduct. As to the second of these requirements, the Lonscale claimant cells acknowledge that if Mr Farrell had been acting in good faith as part of his relationship with Arch FP and within the scope of his authority to act on behalf of Arch FP, then a claim against him for inducing Arch FP's breach of its contract could not succeed: see Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270 at 295.
K3. Application of the principles in this case
It is common ground that Mr Farrell was aware that each Lonscale claimant cell was in a contractual relationship with Arch FP under which Arch FP owed to that cell duties pursuant to the IMA made between the cell and Arch FP. It is also common ground that Mr Farrell was aware that, at the very least, Arch FP owed a duty under that contractual relationship to manage any potential or actual conflict of interest fairly.
The first answer given on behalf of Mr Farrell to the claim for inducing breach of contract was that no breach of contract on the part of Arch FP occurred. For the reasons given in section G above, that answer fails. There was a breach of contract because Arch FP did not manage the conflict fairly.
The second answer was that, even if Arch FP was in breach of contract, Mr Farrell had acted in good faith. I have already held, however, that Mr Farrell did not act in good faith. He acted dishonestly, knowing that what he was doing was wrong. Moreover, even if he did not have actual knowledge of elements of the transaction which made it wrong, he suspected that there were such elements and consciously decided not to enquire further lest he gain knowledge of elements which would plainly make it wrong for Arch FP to proceed.
In these circumstances I hold that Mr Farrell is liable to the Lonscale claimant cells for inducing the breaches by Arch FP identified in section G above.
L. The alleged release under the waiver agreement
Section A3 above describes the concerns which arose in 2009 concerning cross investment fees, and the waiver letter written by Arch FP to the directors of the cells on 22 October 2009. By that letter Arch FP agreed to waive its entitlement to receive all investment management or investment advisory fees and expenses payable pursuant to the IMAs from 1 March 2009 up to and including the date upon which Spearpoint was appointed investment manager or investment adviser. That agreement was subject to two conditions. The second involved the provision by the cells of "a full release (in the form attached)" in respect of claims against Arch FP, and was satisfied on 22 October 2009. The release, like the waiver letter, was conditional upon Spearpoint having been appointed as investment manager or investment adviser on or before 30 November 2009. Spearpoint was duly appointed on 30 November 2009, and both the waiver letter and the release accordingly took effect.
The defendants advance a contention that the release extended to any claims which the cells might have against Arch FP. If right, they say that this would mean that the Lonscale claimant cells were not entitled to advance any of the present claims.
This contention falls to be considered in accordance with well-established principles for determining the true meaning of contracts. Those principles require the words used to be considered as a whole in their context. Applying those principles, I cannot accept the defendants' contention. It is contrary to the clear words used both in the release and in the waiver letter.
For convenience I have set out in annex 2 at section A2/M the text of the waiver letter and of the release, split up into numbered or lettered sub-clauses. It is convenient to begin with the wording of the release. As will be seen from annex 2, if sub-clauses [e], [f] and [g] were read in isolation then they would have constituted an irrevocable release, in favour of Arch FP and, among others, its partners, from any and all manner of actions, causes of action, suits, proceedings and the like. These were described as the "Potential Claims".
However, the release immediately went on to say more about the "Potential Claims" which were the subject of the release. Sub-clause [h] made this clear by beginning with the word "which". After explaining in sub-clause [h] that the release was in relation to "Potential Claims" which the cells had or might have against Arch FP and those associated with it, the release immediately continued in sub-clause [j]:
in relation to the Cross Investment Fees (as defined in the letter) …
These words in my view make it perfectly clear that the release was confined to claims arising in relation to the cross investment fees. If the release were intended to apply to all claims that the cells might have against Arch FP or those associated with it, then the words in sub-clause [j] would not have appeared. The presence of those words is completely inconsistent with any notion that the release went beyond claims in relation to the cross investment fees.
The defendants relied upon the undertaking found in sub-clause [k]. It was an undertaking by the cells that they would not threaten or commence legal proceedings in respect of any "Potential Claims". As a matter of ordinary English, it seems to me to be clear that the undertaking was referring to the "Potential Claims" which were the subject of the release. These "Potential Claims" were those in relation to the cross investment fees.
Turning to the waiver letter itself, it referred in clause [3.]2 to a "full release (in the form attached) in respect of any Claims…". In my view it is clear that by referring to the "Claims" the letter is referring to the "Potential Claims" which were the subject of the release. For the reasons given earlier, the "Potential Claims" which were the subject of the release are claims in relation to the cross investment fees.
This is, in my view, made abundantly clear by the care which was taken at the start of the letter to explain and define what was meant by "Cross Investment Fees". The reason for taking such care is made plain in the final sub-clause in each of clause [3.]2 and clause [4] of the waiver letter. It describes the release in this way:
… the said full release in relation to the Cross Investment Fees …
If the defendants were right in saying that the release extended to all claims then the words "in relation to the Cross Investment Fees" would simply not have been present. A release in relation to all claims cannot be described as a "release in relation to the Cross Investment Fees." If the defendants were right, the presence of those words could not be explained away as a mere infelicity of drafting. Their presence would be a blunder of huge proportions.
Far from acknowledging this, the defendants positively relied on the words "in relation to the Cross Investment Fees". They make the point that these words were followed by the words "or not". This is an obviously false point. The final sub-clause is specifically concerned to ensure that the release extends to claims not contemplated at the time that the release was given. It is for that reason that it contains the words "and whether in contemplation … or not."
The defendants sought to rely upon matters other than the words used in the release and the waiver letter. First, they drew attention to what was recorded in the minutes of a meeting of the board of directors of the ICC and the cells on 22 October 2009. Those minutes referred to the waiver letter and recorded a resolution to accept the terms and conditions detailed within the letter. When describing the letter, the minutes noted that the letter envisaged:
… a full release in respect of any Claims the Funds, or each of them may have against Arch Financial Products LLP, whether past, present or future, actual or contingent, known or unknown, suspected or unsuspected.
I do not accept that this assists the defendants. On well established principles, the release and the waiver letter must be construed objectively, and not by reference to any subjective intention of the cells. Moreover, even if it were permissible to have regard to the subjective intention of the cells, the minutes simply record the wording used by the waiver letter in relation to "Claims". For the reasons given above, that wording is a reference to the terminology in the release, which itself was plainly concerned only with claims in relation to the cross investment fees.
Second, the defendants contend that a release confined to claims concerning the cross investment fees would have been uncommercial. They sought to maintain that the defendants would have been giving up an eight figure sum in exchange for something worth much less. Here I shall assume that the evidence of contractual matrix relied upon by the defendants meets the necessary legal requirements so as to be admissible. I shall also assume that the defendants are right in so far as they object to evidence of matrix relied upon by the Lonscale claimant cells.
Even on this basis, in my view, this contention does not assist the defendants either. The potential claim in relation to the cross investment fees was very large and went back several years. There is nothing in the commercial matrix which demonstrates that an agreement to waive fees as set out in the waiver letter in exchange for a release from claims about the cross investment fees would have been so illogical so as to make it imperative to ignore the references both in the release and in the waiver letter to the release being in respect of the cross investment fees.
M. Causation, remedies and recoverability
M1. Causation, remedies and recoverability: general
In this section I deal with the consequences of earlier findings. I start with general matters affecting remedies, after which I turn to the particular remedies that are sought. In section M2 I deal with questions as to whether the Lonscale claimant cells would have lost money in any event, and I examine assertions that losses were caused by intervening events rather than by the wrongdoing of Arch FP. In section M3 I examine whether the Lonscale claimant cells were in breach of a duty to mitigate their losses. I then proceed to consider the particular claims against Arch FP for equitable compensation (section M4), for alternative remedies for breach of fiduciary duty (section M5), for damages for breach of contract and negligence (section M6), and for restitution (section M7). I then turn to consider particular claims against Mr Farrell for equitable compensation for dishonest assistance (section M8), and damages for inducing Arch FP to breach the IMAs (section M9).
M2. Effect of later events
M2.1 Effect of later events: general
A major element of the financial claims advanced by the Lonscale claimant cells concerns losses alleged to have arisen by reason of the investments in Lonscale. The premise for this head of financial claim is that if Arch FP had acted in accordance with its duties, the Lonscale claimant cells would not have invested in Lonscale. That premise is not in dispute. It is not suggested by the defendants that if Arch FP had acted in accordance with its contractual duties the Lonscale claimant cells would nevertheless have made any of the investments in Lonscale that they in fact made.
There are nevertheless two general answers given by the defendants to this head of financial claim. In section M2.2 below I consider an assertion on the part of the defendants that if Arch FP had not committed the Lonscale claimant cells to the Lonscale investments, it would nevertheless have committed them to alternative investments which would have resulted in financial loss. In section M2.3 below I consider the defendants' contention that the losses claimed to have resulted from the Lonscale investments were losses which were not attributable to those investments but arose from an independent intervening cause.
M2.2 Losses on alternative investments
The question for consideration here is whether, in the event that Arch FP had fulfilled its duties, the Lonscale claimant cells would nevertheless have made alternative investments giving rise to losses. It is common ground that if this would have been the case, then the Lonscale claimant cells can recover under this head of financial claim only to the extent that their actual losses exceeded the losses that would have been made on alternative investments. It is also common ground that the burden of proving that losses would have been made on alternative investments lies on the defendants.
Relevant questions in this regard were identified in the second report of Mr Rees dated 18 September 2013. He considered the matter on the basis of a hypothetical assumption that the Lonscale claimant cells had not invested in Lonscale on the dates and in the amounts when they did, and that they had those amounts available to be used for some other purpose. The questions which he identified, and the answers which he gave, were as follows:
(1) What criteria should have governed selection by Arch FP of any alternative investments? Mr Rees noted that it was on 14 September 2007 that Northern Rock Plc announced that it had been granted emergency funding by the Bank of England. By the end of September 2007 it had been reported that banks had reduced corporate lending and were expecting further reductions in the final quarter of 2007. In these circumstances Mr Rees stated that the relevant criteria which should have governed the selection of any alternative investments were compliance with the Supplemental Scheme Particulars and an appropriate anticipated likely return on the investment which was supported by rigorous examination and analysis.
(2) Was it likely, and if so to what extent, that the Lonscale claimant cells could reasonably have invested further in investments already held within their existing portfolios? Mr Rees said that he had not been asked to consider the investments held within the existing portfolios. However, in general those investments would normally have been made because finance was sought by the business in question for a specific purpose. Any additional investment would therefore be sporadic and dependent on when any requirement arose. Accordingly there would be very limited (if any) opportunities for "follow-on" unquoted investments. Mr Rees added that it would be unusual at this time for "follow-on quoted investments" to be made. He therefore thought it unlikely that the Lonscale claimant cells would have been able to make significant follow-on investments.
(3) How should Arch FP have handled the sums which were in fact invested in Lonscale if it had been unable to identify appropriate alternative investments? Mr Rees noted that all the Lonscale claimant cells held significant cash balances at relevant times. He added that the investment policy in the Supplemental Scheme Particulars for the RE claimants stated that it might take time for the fund to become fully invested, and that during that time monies would be invested in a variety of short term deposits, other money market instruments and financing related investments. Accordingly his view was that such sums ought to have been held as cash on short term deposits.
(4) Is it reasonably possible to identify any particular alternative investments that might have been made? Mr Rees stated that if he had been seeking investments at this time he would have approached introducers (such as corporate financiers, estate agents and accountants) and his existing contacts and clients, reviewed the trade press, and possibly instructed a targeted search by a corporate finance house. Should opportunities have been identified, he would then have rigorously reviewed the expected returns to determine which, if any, investments to make. Mr Rees added that he did not think it possible to conduct these procedures retrospectively. The result was that he was not able to identify any particular alternative investments that might have been made by the Lonscale claimant cells. It followed that he was also unable to quantify the likely level of any returns on those investments.
In his third witness statement dated 30 October 2013 Mr Farrell made numerous criticisms of the second report of Mr Rees. In addition, section D of his statement proposed what he described as the "most appropriate methods of selection" for alternative investments. In paragraph 59 of his third statement Mr Farrell addressed the position where Lonscale investments had represented a large proportion of a particular cell's portfolio. In such a case he suggested that there would have been a portfolio comprising a number of alternative investments, a number which "would most likely be driven by the average investment size" of the cell. The selection of investments would, he said, "most likely be driven by the existing favoured strategy allocation."
On this basis, Mr Farrell proposed two methods of identifying losses that would have been made on alternative investments. What he called "Method One" consisted of investment of relevant sums into "the strategies selected at that time, rebalanced according to the contemporaneous (and dynamic) portfolio weightings of each Claimant cell at each month end." This, he said, was an accurate measure of what would have happened, "in that it reapportions the Lonscale holdings back to precisely those strategies that were being invested in over time, in the same weightings."
What Mr Farrell described as "Method Two" was reinvestment of relevant sums into "replacement investments that have similar risk and return characteristics or are the same type of investment exposure." This method, he said, assumed that "a close (or broad) equivalent of Lonscale (or its investment alternatives)" is chosen as a replacement. As the PF claimants had invested in class B notes, Mr Farrell said that the equivalent would be similar mezzanine debt exposures, or a diversified portfolio of asset based lending funds. As to the RE claimants, comparable investments would be similar student accommodation investments, or diversified portfolios and indices of UK and global real estate.
Accompanying his third statement Mr Farrell produced calculations showing that under Method One during the period to the end of March 2009 alternative investments would have given rise to profits for PF2 of £381,460, PF3 of £18,673, and PF4 of £365,759. Thus for those three cells alternative investments would have resulted in a total profit of £765,892. However, against this would need to be set losses for PF5 of £178,820, RE1 of £1,366,331 and RE2 of £1,386,194. The total of these losses would have been £2,931,345. Taking the Lonscale claimant cells as a whole, the overall loss would have been £2,165,453.
As regards Method Two, for the PF claimants Mr Farrell identified three comparables. During the period October 2007 to March 2009 the first (ACP Mezzanine) would have resulted in losses of 90%, the second (Intermediate Capital Group) would have resulted in losses of 84%, and the third (estimated Asset-based Lending Sector) would have resulted in losses of 50%. For the RE claimants Mr Farrell proposed what he described as the fourth to ninth comparables. The results would have been in the case of the fourth comparable (IMA Property Sector) a loss of 46%, for the fifth comparable (UNITE) a loss of 78%, for the sixth comparable ( Opal Property Group) a loss of 100%, for the seventh comparable (Halifax Average House Price index) a loss of 18%, for the eighth comparable (FTSE Commercial Property Index NAV) a loss of 34%, and for the ninth comparable (Leveraged Property Funds - Tilney, Goldman Sachs) a loss of 97%.
It is superficially plausible to suppose that if Arch FP had fulfilled its duties, the Lonscale claimant cells would nevertheless have made alternative investments giving rise to losses. However there are inherent weaknesses in Mr Farrell's Method One and Method Two, weaknesses which he was not able to remedy in his oral evidence.
As regards Method One, the Lonscale claimant cells rightly pointed out that it proceeds on a particular premise. The premise is that, for a particular cell, alternative investments made with reasonable skill and care would have achieved a performance comparable to the performance of that cell's non-Lonscale portfolio. I do not consider that this premise is justified or justifiable. I have concluded that the Lonscale investments involved breaches of fiduciary duty and failure to exercise reasonable skill and care. Those breaches are so serious and so fundamental that I cannot assume that, in relation to any particular cell, the non-Lonscale investments were investments which did not involve any breach of duty. Moreover, even if earlier investments had been properly made at some point in the past, it does not follow that they were investments which could properly be regarded as appropriate to make in the market conditions which prevailed at the time when the Lonscale investments were made.
The defendants' closing submissions offered no response to this fundamental difficulty with Method One. It is therefore unnecessary to analyse in detail a number of points raised by the Lonscale claimant cells as showing that the calculations in Method One were flawed. I observe that none of these detailed points was answered in the defendants' closing submissions and that each of them seems to me to be well founded.
Turning to Mr Farrell's Method Two, the Lonscale claimant cells accepted that in general terms it offered a sounder approach in principle. They complained at the adoption of March 2009 as the end point of the analysis. As discussed in section M2.3 below, it was in March 2009 that the GFSC imposed on the ICC a condition that it and each of the cells were prohibited from disposing of any of their assets without the GFSC's prior consent, and that Capita FML suspended trading in shares of the UK OEICs on the grounds of deteriorating liquidity. I am content to assume that for these reasons March 2009 was an appropriate cut off point.
The difficulty with Mr Farrell's Method Two lies in his choice of proposed comparables. In his second witness statement Mr Davey gave an analysis which dealt with the private finance comparables as regards the PF claimants and the real estate comparables as regards the RE claimants.
As to the PF claimants, the first private finance comparable proposed by Mr Farrell was ACP Mezzanine. Mr Davey noted that it had considerably higher levels of leverage than one would expect from private finance structures. The defendants' closing submissions rely upon their own paraphrase of a statement by Mr Walton referring to "mezzanine" finance. That remark, however, concerned the general area of "mezzanine" finance, and provides no answer to Mr Davey's criticism of ACP Mezzanine as an appropriate alternative investment. The second comparable was Intermediate Capital Group. Mr Davey pointed out that this was listed on the London Stock Exchange and would therefore be highly unlikely to be an alternative investment. No answer to this observation was provided by the defendants. The third comparable, described as "Asset-based Lending Sector" was no more than Mr Farrell's own estimate of the performance of the sector. I cannot regard this as offering any objective basis for showing that a reasonable alternative investment would be likely to have resulted in losses during the period to March 2009. By contrast Mr Davey notes that comparables identified by Arch FP in "Fact Sheets" for PF2, PF3 and PF4 would have produced a performance of between 7 and 8% during the period from October 2007 to March 2009. As regards the comparables given in the "Fact Sheet" for PF5, one would have produced a performance of plus 5.53%, while the other would have produced a performance of -18.99%. The comparators in the "Fact Sheets", however, included some derived from investments outside those permitted by the Supplemental Scheme Particulars. For this reason, it does not seem to me that the comparables identified by Mr Davey in themselves show that alternative investments would have led to a positive performance. Overall, however, the state of the evidence is such that it does not provide me with any sound basis upon which to conclude that it is more likely than not that alternative investments made at the time that the PF cells invested in Lonscale would, as at March 2009, have resulted in losses.
In relation to the RE claimants, Mr Davey examined Mr Farrell's fourth to ninth comparables. He accepted that the fourth, the IMA Property Sector Index, was one of a number of reasonable comparators for the RE claimants. His evidence was that from October 2007 until March 2009 the performance of this comparator would have been -46%. If the end point is extended until December 2009 then the performance was -29%, while if the end point were not until November 2013 performance was -6%. Mr Davey objected to the fifth proposed comparator, UNITE, on the ground that it was listed on the London Stock Exchange. No answer to this was provided by the defendants. The sixth proposed comparator was Opal Property Group. Mr Davey said that it went into administration blaming its demise on a mis-sold financial instrument, and for its own idiosyncratic reasons was not a relevant comparable. No answer was provided by the defendants. The seventh comparable suggested by Mr Farrell was the Halifax Average House Price Index. Mr Davey accepted that this was a good comparator for the RE claimants, but noted that it did not include income which would be an integral part of the expected return profile from property. During the period from October 2007 until March 2009 the index had a negative performance of just under 20%. Against that, however, Mr Davey considered that income would be likely to be 5% per annum. The result would be that the negative performance from October 2007 to March 2009 would be in the region of -13%. Mr Farrell's eighth proposed comparable was the FTSE Commercial Property Index NAV. Mr Davey commented, and I accept, that this included retail and industrial sectors and so was not as appropriate as the Halifax Average House Price Index. Mr Farrell's ninth proposed comparable took three leverage property funds. Mr Davey considered that these were extreme examples. Under cross examination on day seven Mr Farrell accepted that they were extreme. He added that these leveraged funds were run by well known groups, and that if they were "losing ninety plus percent, I think that tells you something about the environment at the time." The fact that they are extreme examples, however, means that I am unable to regard their results as providing any basis for an objective assessment of the return that would have been provided by a truly comparable alternative investment.
Mr Davey noted that the comparables given in the "Fact Sheets" for the RE cells produced returns ranging from +7.99% to -75.24% at March 2009. He added that another alternative comparable would be the Brandaux Student Accommodation Fund, which increased by +15.46% from October 2007 to March 2009. The defendants accepted that Brandeaux was the largest student accommodation fund provider at the time. They added that it suspended fund redemptions on two occasions and was currently in an "orderly wind down" status. This does not, however, answer the point that Brandeaux was a comparable which achieved a positive investment result over the period from October 2007 to March 2009. In these circumstances I do not consider that the defendants have shown on the balance of probabilities that if alternative investments had been made by the RE cells in October 2007 they would have resulted in losses.
Moreover, as noted in section A3 above, substantial parts of the investments made by the RE cells in October 2007 were sold at a relatively early stage to FPP at a substantial profit. For the most part, the losses to the RE claimants came about as a result of investments made during the period January 2008 to March 2009. I have no data on which to form any conclusion as to what results would have been achieved by alternative investments made during that period.
M2.3 Scope of Arch FP's duties and intervening causes
The Lonscale claimant cells rightly acknowledged that, following the decision of the House of Lords in South Australian Asset Management Company v York Montague [1997] AC 191, the loss claimed must be within the scope of the duty owed. The breaches of duty that I have identified earlier in this judgment are such as, in my view, make it plain that the Lonscale claimant cells were committed to investments of a type which they should not have been committed to at all. It follows that, subject to arguments that alternative investments would themselves have resulted in losses, they are entitled to recover their entire loss, including any element arising from matters unconnected with the breaches of duty.
In the present case, moreover, it seems to me that the matters which the defendants rely upon as intervening causes are matters which are directly related to the defendants' breaches of duty. The first such matter concerned the global financial crisis of late 2008. In this regard Mr Jeffs accepted in cross examination on day nine that Lonscale's problems were not brought about by the global financial crisis. Indeed the reduction in interest rates flowing from the financial crisis was beneficial. The Lonscale claimant cells rightly pointed out that Arch FP's own monthly reports as early as August 2007 had drawn attention to the reduction in banks' willingness to lend. The root cause of the difficulties with the Clubeasy business was that it did not have adequate equity funding.
The second matter relied upon as an intervening cause concerned the events in March 2009 discussed above. As the Lonscale claimant cells rightly pointed out, the complaint in this regard is that after March 2009 injection of new capital into Clubeasy was impossible. The key element, however, in respect of which the Lonscale investments involved a failure to exercise reasonable skill and care on the part of Arch FP lay in Arch FP's failure to ensure that the business had adequate equity funding at the time that it was purchased. In these circumstances it is simply not open to Arch FP to assert that difficulties in securing new capital in March 2009 represented a new and intervening cause of the Lonscale claimant cells' losses.
The third and final suggested intervening cause concerned the decisions in December 2009 and January 2010 to wind up the UK funds, and to change the investment mandate for the Lonscale claimant cells so they were to proceed to an orderly realisation of their assets. As the Lonscale claimant cells pointed out, however, by this time Arch FP itself had already written down the value of the Lonscale claimant cells' investments to zero. Neither of these decisions can sensibly be regarded as the causes of the Lonscale claimant cells' losses.
M3. The duty to mitigate losses
The Lonscale claimant cells accepted that they were under a "duty" to take reasonable steps to mitigate their losses, in the sense that they would not be able to claim for any part of their losses which was due to a neglect to take such steps. They added that the standard of reasonableness is not a high one, relying in this regard upon the well established principle that where an innocent party is put in a position of embarrassment the measures which that party may be driven to adopt are not to be weighed "in nice scales" at the instance of the party whose breach of contract has occasioned the difficulty. The defendants did not dispute that these were the governing legal principles in relation to this aspect of the case.
As to the measures actually taken by the Lonscale claimant cells, I have noted in section A3 above that in November 2009 Arch FP valued the Lonscale investments at zero, that in January 2010 the Lonscale claimant cells entered into the MoU, and that in March 2010 they entered into the Disposal Agreement. Sums received pursuant to these agreements will thus reduce the amount of damages which the defendants would otherwise have to pay.
The defendants recognise that the disposal agreement is to their benefit in the sense that sums paid under it will reduce the amount of the damages which they would otherwise have to pay. They nevertheless asserted in their skeleton argument that the Lonscale claimant cells failed to act reasonably in three respects. The first is that the disposal agreement was premature, and therefore at an undervalue, because the business turnaround strategy had not been completed. The second is that the terms of the disposal agreement "left the business to fend for itself" with no further assistance from the Lonscale claimant cells, despite those cells having a contingent economic interest in the business. The third complaint is that the "contingent terms" of the disposal agreement left the Lonscale claimant cells "exposed to the risks of non-payment and default, with an untested ability to regain full control".
These complaints, along with an assertion that Spearpoint had an interest in engineering the valuation of the Lonscale investments at zero and maintaining that valuation, were dealt with by Mr Davey in his capacity as chief executive officer of Spearpoint. Key matters described in Mr Davey's first witness statement included:
(1) When Mr Davey reviewed the matter in December 2009, Mr King was a director of Lonscale and was "closest to the investment", and in his note of 3 December 2009 took a "particularly negative view" of Lonscale's prospects.
(2) There was no third party buyer for Lonscale.
(3) The easiest course of action from Spearpoint's perspective would have been to allow the Lonscale business to default on its debts, leaving it to the secured lenders to salvage what they could. Mr Davey discussed this with Mr Martin Bolland, who on 1 January 2010 became chairman of Capita Plc. Mr Bolland had been a founding partner of Alchemy Partners, a private equity house specialising in investing in distressed and undervalued or underperforming businesses. He regarded the assets of the business as "pretty low quality", was sceptical "as to whether in the Arch run-off period any value, or at least meaningful value, can be recovered", questioned whether "any meaningful management time" should be devoted to the assets, and commented that on this analysis "the responsible/practical thing to do" would be "to facilitate consensual handovers to the banks".
(4) Mr Davey considered that he should nevertheless consider whether Lonscale could be rescued, or whether it could be sold to the ultimate minority shareholder, in the form of Mr Barkman and Mr Montague. As to a rescue, in the absence of a significant recovery in the property market, any rescue would require the Lonscale claimant cells to put significant capital into the business in order to persuade secured lenders to write off some of the debt. If that course had been taken, the "quite likely" possibility was that, "no matter how hard we tried to rescue it, the investment would fail and we… would be accused of throwing good money after bad."
(5) Mr Davey learnt that Mr Barkman and Mr Montague were keen to acquire full ownership and control over Lonscale, taking the view that "they could do a better job" than had been done in the past, and that the property market "would roar back".
(6) Mr Davey's reaction when he learnt this was, "I could not believe my luck". He negotiated the "absolute maximum price", and for this purpose gave Mr Barkman and Mr Montague the ultimatum that either they took over Lonscale at a satisfactory price or the Lonscale claimant cells would take it over and wipe out their interest. Just in case Mr Barkman and Mr Montague's predictions about the future should prove to be correct, provision was made for the Lonscale claimant cells to receive 30% of any amounts by which the banks agreed to a reduction in debt or by which the properties were sold above the then current valuations.
(7) A substantial element of the consideration for the disposal was deferred. Mr Davey said he never thought that all of it would be received: "My thinking was that if [they] could keep the Lonscale business alive in order … to pay us anything at all under the agreed payment schedule, then that was a victory." On various occasions Mr Davey himself had lent money to Mr Barkman and Mr Montague "in order to get them through one financial crisis or another". This was done with the consent of the board, and the loans in question were duly repaid. A proposal made by Mr Barkman and Mr Montague in 2012 for acquisition by the Lonscale claimant cells of properties mortgaged to the Yorkshire Building Society was considered to be in the cells' best interests and had led to acquisition of the properties at a discount to the most recent valuation.
Mr Scott, in his capacity as a director of the ICC and the cells from 31 December 2009 onwards, also dealt with questions as to whether the Lonscale claimant cells had failed to take reasonable steps to mitigate their losses. Key points in his first witness statement dated 1 March 2013 were:
(1) While he, Mr Hugh Aldous, and Mr Andrew Duquemin had been appointed to the board of the ICC and the cells by resolution dated 19 November 2009, they had insisted that they would not take up the appointment until the existing directors had approved and signed the accounts to 31 March 2009.
(2) A meeting of the board took place on 10 December 2009. It had been intended that the new directors would be appointed to the board on this date. However, the accounts for the period ending 31 March 2009 were not ready, and accordingly Mr Scott, Mr Aldous, and Mr Duquemin attended the meeting as observers. Mr King's memorandum of 3 December 2009 was considered, and it was agreed that Spearpoint would put a proposal on how to deal with the Lonscale investment to the board once more consideration had been given to the options.
(3) On 30 December 2009 information relating to the proposed disposal agreement was circulated. It included valuations by Storeys dated 22 July 2009.
(4) On 31 December 2009 Mr Duquemin noted that this material suggested that there was a margin of property assets over and above the bank debt. Mr Scott said that he and Mr Duquemin were keen to obtain as much value as possible from the Lonscale investment, and he accordingly raised this issue at the audit committee meeting on 8 January 2010. Mr Duquemin was also concerned at the absence of an independent valuation of the properties, and arranged for Mr Bob Locker, of CNC Property Fund Management, to look through the properties.
(5) The proposal that the board approve a Memorandum of Understanding ("MoU") with Mr Barkman and Mr Montague was put to the board on 15 January 2010. By this time both Mr Locker and one of the lenders had called into question the valuations by Storeys dated 22 July 2009.
(6) The board concluded that all realistic options had been considered and that the proposed MoU offered the best chance of squeezing value out of Lonscale with minimal risk.
(7) By this time Mr Scott took the view that "making any recovery at all from this investment would be pretty fortuitous". He considered that "getting anything for this kind of asset, even on a deferred consideration basis, was a worthwhile achievement."
(8) The MoU was signed and dated 19 January 2010. The steps to be taken by the purchaser under the MoU were duly performed during the period to 26 March 2010, when the disposal agreement was signed. Mr Scott's view was that Mr Davey had done extremely well to close the deal.
(9) Mr Scott gave an account of Lonscale's difficulties in paying deferred consideration in 2011, and of Mr Davey's personal loans in that regard, which was consistent with the account given by Mr Davey.
(10) Turning to the Yorkshire Portfolio described by Mr Davey, Mr Scott gave an account of the discussions in this regard in the first half of 2012, and described the advantages of the proposal put forward by Spearpoint. There would be "some straightforward recovery of liquidity" through an early sale of some of the properties, and it would avoid the need to call an event of default and take over Lonscale.
In his second witness statement dated 22 October 2013 Mr Scott explained that Lonscale Holdings remained in a financially precarious position and that a proposal for payment of the balance of the deferred consideration was awaited. In the meantime, Lonscale Holdings had agreed to pay an amount of £5,000 weekly, an agreement which had in most, but not all, weeks been complied with since May 2013.
In a third witness statement dated 20 November 2013 Mr Scott recorded that no further weekly payments had been received. It was understood that a proposed refinancing of Lonscale Holdings had not occurred, that Lonscale Holdings was financially destitute, and that it was very unlikely that any more money would be obtained from it.
Mr Scott gave oral evidence on day two. Relevant criticisms that were put to him by Mr Farrell, and the answers given by Mr Scott to those criticisms, were as follows:
(1) Mr Farrell suggested that the Lonscale sale was more or less agreed in December 2009. Mr Scott disagreed. He said that in January 2010 the Lonscale sale was "still very much a work in progress". He added, "I think the deal wasn't ultimately concluded until probably March 2010."
(2) Mr Farrell suggested that the decision to sell to the minority shareholders had been made in haste, at the very start of the appointment of the new investment manager and new directors, and that there had been a lack of consideration "of the going concern solution". Mr Scott replied that the sale had been a sale of a going concern to a buyer which subsequently sought to operate the business as a going concern, and indeed the business was "still operating largely." It was not a rush decision but rather had been something done over a period of months. Mr Scott accepted that on 23 February 2010 he had received an email from Mr Davey in which Mr Davey said, "The bottom line is we remain desperate to sell." This, said Mr Scott, needed to be read in context: "we had somebody who was essentially prepared to pay us £10m for a worthless asset, if asset is the right word, and, yes, we were desperate to close the deal and get their money from them because, frankly, we wouldn't have got anything like £10m through any other route."
(3) Mr Farrell questioned whether "a worthless asset" could have been "sold for £10.6m". Mr Scott confirmed that the board considered it to be a worthless asset, while obviously the buyer must have had a different view. Even after it was sold it continued to be valued at nil on the grounds that there were reservations as to whether the buyer would be able to meet the payment schedule. Accordingly the payments were only recognised when they were received. As to the net book value of Clubeasy, Mr Scott said that it had no relevance because the entitlement was to receive the balance payments, and the only question was whether they would actually be received.
(4) Mr Farrell asked Mr Scott whether he accepted that the buyer might make a profit on the purchase. Mr Scott replied that he thought that was highly unlikely, and in response from a further question from Mr Farrell that "at the time we thought it very, very highly unlikely. We have thought consequently that it would be very unlikely that they would be able to meet the repayment schedule, certainly in full." As to the possibility of the buyer making a profit, Mr Scott said: "I think we are talking about a very, very small probability and one that got even smaller as time went by."
(5) Mr Farrell asked whether Mr Duquemin had been questioning the zero valuation from an audit perspective. Mr Scott replied that Mr Duquemin had been giving due consideration to the proposed transaction that was at that time under contemplation. The matter had been raised with the audit committee because the meeting of the audit committee gave an opportunity to raise the subject with the then external auditors. This had enabled the directors to satisfy themselves "that actually the accounting NAV might not really represent anything in substance."
(6) Mr Farrell suggested that an asset was being marked at zero and then being sold very quickly straight afterwards, giving rise to a large performance fee potentially. Mr Scott replied that he thought they had been "very lucky to find the only purchaser in the world who would take this asset for anything other than zero, if indeed they would take it at all."
Mr Scott's evidence continued on day three. Further criticism by Mr Farrell, and answers by Mr Scott were as follows:
(1) Mr Farrell suggested that the decision for an "orderly wind-down" meant that liquidity had to be generated wherever it could be found in order to start to repay the UK funds. Mr Scott replied that an orderly wind-down was not a fire sale: "The whole point about an orderly wind-down was to realise the assets to the best advantage over a period of approximately three to five years.
(2) Mr Farrell suggested it was "very brave" to enter into a disposal agreement where "essentially you were taking on the capital raising risk of Lee Barkman Foundations in what was a terrible environment." Mr Scott did not agree: "The situation presented itself as it was, and after consideration we took what we thought was the best exit route… Mr Barkman clearly did not have £10m in cash on day one. That is why we had a deferred consideration deal. Ideally we would like not to have had such a deal. Had he offered a little bit less but … been able to fund it completely on day one we might have taken that as an alternative."
(3) Mr Farrell asked a further question reiterating his comment that it was "a brave decision" and asking how much consideration was given by the directors to keeping the investment. As to the first part of the question, Mr Scott replied that the business was loss making and "burning cash to the extent of I think £2m odd a year … A deal was structured whereby we sold the asset, albeit on the basis of receiving consideration … partly deferred … all other things being equal we were in no worse position because we would have had the business back and we would have had whatever consideration we had received in the meantime which was not returnable to the buyer."
(4) Mr Scott added that how the deferred consideration was generated was up to the buyer, it was not necessarily to do with Lonscale.
(5) As to the second part of Mr Farrell's question, Mr Scott commented that the directors discussed supporting the business and retaining it, but it was very highly geared. It had been loss making from the time of the acquisition, and had never managed to become consistently profitable "or cash generative". In January 2010 a consideration of £10m partly upfront and partly deferred "seemed to us a more attractive risk adjusted outcome than signing up for a lot of commitment with very uncertain outcome."
(6) Mr Farrell then reviewed the position following the Yorkshire Portfolio transaction, asking how much cash had actually been received. Mr Scott agreed with Mr Farrell that approximately £2.6m of cash had been received, but on top of this the Yorkshire Portfolio properties had been received some of which may have been sold.
(7) Mr Farrell suggested that Spearpoint had adopted a balance sheet for Lonscale showing a value of £23.3m. Mr Scott did not accept this, observing that while the document in question was a recital of what Lonscale Holdings were saying, the directors had had severe reservations over the level of that valuation.
(8) As to Mr Scott's description of the Lonscale business currently being "extremely shaky with significant cash flow problems", Mr Farrell suggested that this was a direct reflection of the fact that the directors had taken a decision to sell the Lonscale business and not support it. In these circumstances, Mr Farrell suggested, all the pressure was landed on the purchaser to deliver the deferred consideration and money to support the business. Mr Farrell suggested that this was "the worst of both worlds." Mr Scott disagreed: "… from our point of view it is the best of both worlds. We had an asset which nobody else wanted to buy, which if we were to try to fix it ourselves would require the commitment of a considerable amount of money and time … with an uncertain outcome against which we received, albeit… that we quite expected never to get the full amount, … up to £10m … with the right to take the business back if it did not work in which case we would essentially be no worse off than we were before we started."
(9) Mr Farrell suggested that the cost of supporting the Lonscale investment would have been about £2 to £3 million over the next two years. Mr Scott responded that £2m may well have been an annual number.
(10) Mr Farrell suggested that what had happened in relation to the Yorkshire Portfolio proved that it was necessary to put money in by default to keep Lonscale going. Mr Scott replied that assets had been taken back with a view to selling them later. There had been no intention to "run a mini Lonscale".
In re-examination Mr Scott clarified that the figure of about £2m a year that he had given would not have been the amount required in order to inject capital into the business to bring the debt down to a level where the business would have been profitable. To get the business down to a sustainable level of debt would, he thought, have involved something of the order of £30m.
Mr Davey gave oral evidence on day three. Relevant matters raised with him by Mr Farrell, and his answers, included:
(1) Mr Farrell pointed out that a document dated 17 November 2009 identified the option of contacting Mr Barkman and giving him an opportunity to put in more equity. Mr Farrell asked when Mr Barkman was contacted. Mr Davey replied that he recalled a meeting in the first half of December in which Mr Barkman "expressed a desire to buy us out if we were interested in selling".
(2) Mr Farrell asked about potential sales to third parties, and suggested that "it clearly was not an environment to be selling a business like Clubeasy at the time." Mr Davey replied that "if it had been a good business we would have found a good buyer, it would have been a question of price."
(3) Mr Farrell asked whether the decision was one for the board or for Spearpoint. Mr Davey replied that it was a decision for the board, but it was for Spearpoint as investment managers to make a proposal to the board. Spearpoint had, he said, been "very particular on all of the early decisions to make sure we had full board support and make sure everything was subject to a high level of board scrutiny …".
(4) Mr Farrell suggested that fixing the business with a view to making it more saleable "would sound like a fairly pragmatic thing to do." Mr Davey replied that they had tried to establish what would be required to fix the business, and had always had "a plan B up our sleeve" if they ever had to take the business back. However such a plan involved a considerable amount of uncertainty: "… it would require some form of debt relief for this business to be viable… it would have been a highly risky venture with no known sum of capital to be put in… I had… a figure of something like £40m that might be required".
(5) Mr Farrell asked about the "actual working capital support to just keep the business ticking over". Mr Davey replied that "… I do not think you could keep it ticking over because of the unstable nature of the business. … probably [the banks] would require additional capital beyond the working capital requirements. … I think this business was losing something like £2m of cash a year at that particular point with other surprises that may come around…"
(6) Mr Farrell referred to the net book value of around £17m or £18m, and suggested that "the valuation of the debt portion of Lonscale would clearly have value based on the dividends in net book value". Mr Davey replied that Spearpoint had not believed that the suggested net book value was correct. His perception that the business was worthless came very clearly from meetings with Mr Smith and Mr King: "The general perception was this was a basket case… to move it from being a basket case would take a very substantial investment with a very high level of uncertainty."
(7) Mr Farrell suggested that Spearpoint had an incentive to adopt a low value of Lonscale because "the lower one could value Lonscale the greater would be the performance fees that could flow from a recovery later in valuation". Mr Davey replied emphatically to the contrary: "Quite the opposite… A valuation of nil gives us no annual management fee for an extended period of time. So actually it would have suited us to have a valuation of something. … the write-down to nil happened before we were appointed so we had no… involvement in that."
(8) Mr Farrell suggested that a worthless business would result in a performance fee if the valuation were subsequently increased or the business were sold. Mr Davey agreed that Spearpoint would get a performance fee if the value went from nil to something, but it would also get a performance fee if the value went from ten to something, plus the management annual fees over the period of time involved. There was no incentive in the fee structure for Spearpoint to realise any assets quickly.
(9) Mr Farrell suggested there had been a change in late 2010 as to the calculation of the performance fee which was backdated to April 2010 so as to include Lonscale. Mr Davey replied that the change made no difference so far as the Lonscale investments were concerned.
(10) Mr Farrell suggested that in November 2009 Arch staff, conducting reviews of the assets, would have been tempted to do what "their new boss" would want, and that lowering the valuation would have been seen by them as a good thing because it would mean more performance fees in the future. Mr Davey replied that he did not think any of the Arch staff would have been dishonest in that sense, at a time when they were under scrutiny by both the FSA and the GFSC.
(11) Mr Farrell then said: "All I am saying is there is subjectivity as to where you make valuations. A zero valuation I think in anyone's book is an extreme position especially when there is a net book value approaching £20m." Mr Davey replied that when buying a business one would look at the net book value "with a very jaundiced eye as to what is the real book value and that would be one part of a valuation. The other part of a valuation is, does the business generate cash and profits? And clearly in this case the answer was no."
(12) Mr Farrell then suggested that there may have been "group think" in the sense that the overriding need for an orderly wind-up was affecting the way everyone was thinking, leading them to converge on what may be the wrong view. Mr Davey replied that there had been a material sum of money in the cells when Spearpoint was appointed. They had used some of that cash to support other investments. They would not have relied on the Arch view, but would have taken their own view.
(13) Mr Farrell suggested that by March 2010 Spearpoint had ruled out potential sales to third parties. Mr Davey replied that they were always open minded up to the point when the deal was actually completed, but had thought it was highly unlikely that a third party would make any offer that was more than nil.
(14) Mr Farrell then suggested that releases to the Channel Islands Stock Exchange "might have [had an effect] on the availability of capital to buy Lonscale because in a way this is putting the dirty laundry in public…". Mr Davey replied that they were not putting dirty laundry in public, but were trying to give enough information to shareholders without putting in things that would have been detrimental.
(15) Mr Farrell pressed the point, saying that it would seem extraordinary that notes should come out which mentioned complications associated with the sale. Mr Davey said that if information were put out which was very rosy and led to an offer, the offer would never complete when the facts became clear.
(16) Mr Farrell then suggested that it had been a difficult environment in which to sell, with "lots of scrutiny and press around the situation… which would not have helped on achieving a good price." Mr Davey replied that it depended on the starting view as to the worth of the asset that was being sold. Having found that Mr Barkman was "a very motivated buyer at a price that we thought was much higher than it was worth" Spearpoint had been "very keen to pursue that particular avenue, even though we wondered whether it would actually complete."
(17) Mr Farrell suggested that an email from Mr King indicated that Clubeasy was within its "interest cover covenants". Mr Davey replied that the feedback from the Arch staff "was of grave concern about the banking arrangements."
(18) Mr Farrell suggested that Mr King's note of 3 December suggested that the capital injection needed was in an amount of £2 to £4 million. Mr Davey replied that this part of the note was concerned with immediate working capital requirements.
(19) Mr Farrell drew attention to a passage in Mr King's witness statement suggesting that in December 2009 Mr Davey had mentioned that he had effectively agreed to sell Lonscale to Mr Barkman. Mr Davey replied that he had not effectively agreed this, but had decided that if they could complete the transaction with Mr Barkman it was a fantastic offer and they should take it.
(20) Mr Farrell noted that in paragraph 35 of Mr King's witness statement, Mr King said, "My impression was that even before John Davey formally came on board he was looking to get rid of assets quickly, particularly those assets requiring active management." Mr Davey replied that he did not agree with that impression. Spearpoint had kept some assets which required intensive active management, and had invested in assets which required intensive active management since its appointment. He added: "… we were absolutely clear that we had to look at every case on its own merit and… within the constraints of governance procedures that were in place at the time with the new board we could not rush through anything."
(21) Mr Farrell then noted that at paragraph 36 of Mr King's witness statement Mr King said that the disposal agreement represented a liquidation of the investment at a poor time, adding "It would have been in the best interests of Lonscale and the Cells to complete the turnaround process by making some hard calls and overruling intransigent management…". Mr Davey replied that he did not agree, and that what was said in paragraph 36 was inconsistent with Mr King's note of 3 December 2009.
(22) Mr Farrell asserted that in the remainder of paragraph 36 Mr King was suggesting that he would rather have waited "for the banks' commercial lending practices to return to a new normality", recognising that there was a lot of stress in the lending market at the time. Mr Davey replied that there were structural issues around Lonscale which even in a good banking environment would have made it very difficult to sell to anybody at an attractive price. Mr Davey added: "… my view at the time was not that the banking environment had a negative impact on our ability to sell this. Our ability to sell this was constrained by the fact that we had a very messy business with a minority shareholder."
(23) Mr Farrell suggested that Spearpoint had not gone to the market to find out whether there were banks at the time prepared to lend to Lonscale. Mr Davey replied that it was obvious that no bank was going to put any sort of financing on top of the massively leveraged structure of Lonscale.
(24) Mr Farrell asked about Mr Davey's expectation as to what actually would be received under the disposal agreement. Mr Davey replied that Spearpoint were sceptical about the ability to collect the deferred consideration but were very happy with the situation where in default the cells would end up with 100% ownership instead of 75% ownership. He accepted that under the disposal agreement the senior debt on Lonscale was wiped out. Spearpoint felt that the senior debt would never be recovered anyway.
(25) Mr Farrell suggested that giving up the senior debt was the difference between a fair value and an immediate sale value. Mr Davey replied that the fair value of the business was nil. There had been, he said, no counter to that from the Arch staff. He added: "We would not have been able to get the deal through the scrutiny that we would have had to have, going through the board structure and being in the spotlight in the way that we were."
(26) Mr Farrell returned to the question of performance fees, putting the matter to Mr Davey in this way: "I am not suggesting that the performance fees were the motivation but they were not dissuading from the decision?" Mr Davey replied that Spearpoint's motivation, from a fee perspective, would have been to do the opposite of what they had done. If £20m or more had been put into Lonscale, the business would have had at least some value based on that cash going in, and Spearpoint would then have had an annual management fee for five years based on that value.
(27) Mr Farrell then clarified that what he meant was that the performance fees would be "a nice side benefit". Mr Davey replied that Lonscale's zero value was a disappointment, as was the case for values of a number of the investments, so far as the annual management fee was concerned.
(28) Mr Farrell suggested that the RE claimants did not have the cash to support the investment. Mr Davey accepted this, but maintained that there was capacity to borrow from other cells.
(29) Mr Farrell commented that in October there had not been enough cash to meet commitments, and Arch FP had accordingly asked Capita FML whether it would be possible to earmark some of the UK funds' capital to support investments if required. Mr Davey said that Capita FML had been willing to do that if necessary, but Spearpoint preferred not to ask unless it were really needed, and as it had turned out they did not need to ask.
(30) There was then a discussion as to the date upon which a "parallel transaction" occurred which provided greater liquidity. Mr Davey maintained that even before that transaction there had been investments which Spearpoint supported. The reluctance to commit capital to Lonscale was, he maintained, "absolutely nothing to do with the liquidity situation of the funds. It was the state of Lonscale that made us reluctant to invest into Lonscale and if there was a credible case to make the investments we would have considered it and made it. But I do not believe we could have put a case to the board to invest into Lonscale which was based on the poor quality of the information available and the extreme amount of leverage… it could tip over at any stage."
(31) Mr Farrell suggested that the problem of funding Lonscale had been passed to the minority shareholder. Mr Davey refused to accept this, commenting that what had been passed to the minority shareholder was "the opportunity to throw good money after bad". Mr Barkman was willing to put money in. He was highly critical of previous management and felt he could do a better job, and Spearpoint were happy to let him try.
(32) Mr Farrell returned to Mr King's witness statement pointing out that at paragraph 37 Mr King had commented that employee levels at Spearpoint in London dropped substantially in the six months after its takeover and that any assets that required management attention were sold in that period. Mr Davey disagreed. He noted that Spearpoint was based in Guernsey and had fifty-odd staff in the Channel Islands. Arch staff had been taken on for their "back knowledge" and there was a clear understanding that there would be redundancies once they were not needed.
(33) Mr Farrell referred to passages in Mr Jeffs's witness statement asserting that Mr Davey had arranged for a financial adviser to attend a meeting with Lloyds at which the financial adviser "appeared to be negotiating against Clubeasy's interests." Mr Davey responded that the adviser in question was Mr Colin Walker Robson, and that he had seen no evidence of Mr Walker Robson negotiating against the company's interests.
(34) Mr Farrell suggested that the disposal agreement had involved "quite extreme things", and suggested that "it was the overriding need to generate cash that was driving these decisions." Mr Davey responded that this was simply not the case. The upfront payments under the disposal agreements had not generated an enormous amount of cash. It was a transaction outside of normal market conditions because it involved a highly motivated buyer who needed to protect his current position from being wiped out.
(35) The cross examination then repeated questions concerning whether attempts had been made to find other buyers, the net book value of Lonscale, and whether Lonscale had been sold "at the bottom". Mr Davey gave similar answers to those he had given earlier.
(36) Mr Farrell then asked Mr Davey about the current performance of Lonscale. Mr Davey responded that Mr Barkman had done "a remarkable job to keep the ship from going down…". While Mr Barkman was not paying on time, "we have been happy to provide our indulgence… to allow him to continue to do what he needs to do in the business and collect what consideration we can collect and if he is in default and we issue the default notice we end up with 100% of the business and can exercise our rights at any time."
I have described these exchanges at some length because they demonstrate that every point put to Mr Scott and Mr Davey was convincingly answered. In their closing submissions the defendants complained about the "unprecedented" write-down "from £17m to zero [which] happened in the space of one month (November 2009)." However the obvious first answer to this complaint is that the write-down occurred during the period when Arch FP was investment manager, and was acquiesced in Arch FP. The suggestion in cross examination that the write-down might have occurred because Arch FP's employees were anxious to ingratiate themselves with the new owners was both unworthy and farfetched. The write-down in my view was fully warranted. The net asset value of £17m was dependent upon the validity of the Storeys valuations, but they were based on a premise that the Clubeasy business was viable whereas in the absence of a substantial capital injection the business was plainly not viable. The defendants sought to rely upon the fact that Mr Duquemin initially questioned the write-down. That merely seems to me to show that the new directors were taking their job seriously. There is no reason to doubt that they were right to conclude that the write-down was fully justified.
The defendants submitted that the views of Mr Locker and Mr Bolland were "informal and caveated" and the defendants commented that no external valuation was undertaken and "no formal valuation was sought." However there was no evidence to suggest that any external or formal valuation would have shown that the Lonscale investments had any real worth. There is no reason to doubt that the assessments of Lonscale's value made by Mr Bolland and Mr Locker, albeit rough and ready, were amply justified.
The defendants asserted that the decision to sell was "rushed or premeditated". This ignores the fact that keeping Lonscale afloat required finance of the order of £2m each year. Complaint was made that Mr Davey did not have the requisite background knowledge, but in my view the note of 3 December 2009 prepared by Mr King gave Mr Davey a clear picture of the serious problems and fully justified his decision to take action. There is no evidence whatever to suggest that this was premeditated. Nor was it rushed: the matter was looked at in an orderly manner and a sensible commercial decision was taken. The defendants were unable to point to any evidence which would warrant an inference that further bank finance would have been available. Even if further bank finance would have been available, moreover, it would not have been an answer to the problem: what was needed was a very substantial capital injection.
The defendants suggested that whereas Mr Davey had claimed that capital of the order of £40m was required, "the evidence also shows that he had thought that only £2-3m of working capital support was required". This was a distortion of Mr Davey's evidence. The scope for possible distortion had been recognised, and the fact that Mr Davey's figure of £2-3m did not include the capital injection needed, had been clarified in re-examination. This, however, did not deter the defendants from making an obviously false point.
My conclusion is that the criticisms of the decision by the Lonscale claimant cells to enter into the disposal agreement were utterly unwarranted.
M4. Claim for equitable compensation against Arch FP
The Lonscale claimant cells noted that equitable compensation can be recovered for breach of the fiduciary duties identified earlier, provided that it is shown that but for the breach, the beneficiary would not have acted in the way which has caused loss. The defendants did not contest these propositions as a matter of law.
Turning to the factual position, the Lonscale claimant cells submitted that the investment in Lonscale would not have been made at all if Arch FP had not been induced to commit the cells to that investment in order to bring about an extraction of funds for its own benefit. The defendants' closing submissions asserted that this reasoning was based on flawed logic. They said that the investment was acquired at 40% below the net asset value as assessed by PKF, that it was not made purely on value, that it was made because of strong future growth prospects and turnaround prospects, that the strong return potential counterbalanced the risk of having to fund the company in the interim, that Mr Barkman was able to acquire the company at a level even lower than the 40% discount, and that for this reason the split was considered equitable. These points all appear to me to be completely divorced from reality. What was presented by Mr Barkman to Mr Farrell was an extraction venture. The evidence that Arch FP committed the Lonscale claimant cells to the investment in order to ensure the success of that extraction venture is overwhelming. The notion that the Lonscale claimant cells would have paid £20.2m for the October 2007 investments, content that £6m of this sum would go elsewhere, is absurd.
Two further answers were put forward in the defendants' closing submissions when dealing with equitable compensation. These were that there had been disclosure to the Lonscale claimant cells, and that those cells would have suffered losses in any event. For reasons given earlier in this judgment, neither of these suggestions has any merit.
M5. Alternative remedies for breach of fiduciary duty
In their closing written submissions the Lonscale claimant cells identified alternative claims in the event that an order were not to be made for recovery of equitable compensation extending to all the types of loss identified in section M4. The first of these alternatives was for equitable compensation computed in a different way. The second alternative concerned entitlements by way of proprietary interest, accounts and enquiries.
The first of these alternatives does not arise. I have held that the October 2007 investments and the follow-on payments were losses caused by Arch FP's breach of fiduciary duty and are recoverable as equitable compensation: see section M4 above. However, if that were wrong then in my view the Lonscale claimant cells are right to say that at the very least Arch FP's breaches of fiduciary duty would entitle the Lonscale claimant cells to recover as equitable compensation the amounts extracted from the Lonscale claimant cells and paid over to Arch FP and Mr Barkman. This was a transaction in which the payments to Arch FP and those to Mr Barkman went hand in hand. There can be no doubt that Arch FP's breaches of fiduciary duty caused both the extraction of the £3m which went to Arch FP and the extraction of the £3m that went to Mr Barkman. These extractions were made from the £21m, contributed by the Lonscale claimant cells as to £20.2m and by FPP as to £0.8m. The Lonscale claimant cells recognised that this alternative claim would not apply in relation to such part of the extraction as came from FPP's share of the £21m. Accordingly they confine this particular alternative claim to 20.2/21 of the total of £6m, with the result that the claim would be £5,714,285.
In relation to this first alternative claim the defendants merely repeat points made earlier about disclosure, the true construction of the IMA, suggested intervening causes, and the suggestion that alternative investments would have led to greater losses. For reasons given earlier, none of these points has merit. Accordingly, if my conclusion in section M4 as to the extent of equitable compensation were wrong, I would nevertheless have awarded as equitable compensation the amount of £5,714,285 claimed under this first alternative head.
The second alternative concerned the gain to Arch FP deriving from its breach of its fiduciary duties. This gain comprised a sum of £3m which, for the reasons given earlier in this judgment, was a secret profit. The Lonscale claimant cells asserted that as a beneficiary of Arch FP's fiduciary duties they were entitled to claim a proprietary interest in respect of any money or asset acquired by Arch FP by taking advantage of an opportunity or right which was properly that of the beneficiary. In this regard they relied upon the decision in the Court of Appeal in FHR European Ventures LLP v Mankarious [2013] EWCA Civ 17; [2013] 1 Lloyd's Rep 416. This decision has now been the subject of an appeal, and the recent appeal decision of the Supreme Court [2014] UKSC 45 in my view confirms this entitlement. On this aspect, in one respect only, the defendants sought to rely upon an answer not already dealt with in earlier sections of this judgment. This was a contention that to the extent that a restitutionary remedy was sought, Arch FP had a defence of change of position. However, change of position is no answer to a claim to a proprietary remedy for breach of fiduciary duty. I deal separately with Arch FP's possible restitutionary claim in section M7 below. As regards the second alternative claim, I conclude that the Lonscale claimant cells may, if they choose to do so, rely upon this second alternative. As was accepted in their skeleton argument, the Lonscale claimant cells will need to elect as to the course they wish to adopt no later than the stage at which I make my order in this matter consequential upon the present judgment.
M6. Damages for failure to exercise reasonable skill and care
For the reasons set out in sections E and F above I have held that both in relation to the October 2007 investments and in relation to the follow on investments Arch FP was in breach of its contractual duty to exercise reasonable skill and care and to the similar duty which arose in tort and was not materially modified by the IMAs. The Lonscale claimant cells acknowledged that in order to be recoverable as damages, the losses for which they claimed must have been causally related to Arch FP's breach of duty to exercise reasonable skill and care in two respects. The first is that the causal relationship must exist as a matter of fact. The second is that the losses claimed must fall within the scope of Arch FP's duty to the Lonscale claimant cells. I have already held that the second of these respects has been satisfied. As to the first, my conclusions in relation to the October 2007 investments are such that it cannot, in my view, be seriously contended that an investment manager acting with reasonable care and skill could have committed the Lonscale claimant cells to those investments. The same applies in relation to those of the follow on investments which were made prior to May 2009. For the reasons given in section F above, I have held that if the follow on investments from May 2009 onwards are examined on their own, there was no breach of duty by Arch FP. As noted in section F, however, my primary finding is that those investments, as with earlier follow on investments, came about as a result of Arch FP's breaches in October 2007, and will thus be recoverable under that head.
In answer to this aspect of the Lonscale claimant cells' closing submissions the defendants relied only upon matters which I have dealt with earlier in this judgment. Accordingly I hold that the entitlement to damages for breach of the duty to exercise reasonable care and skill, as asserted by the Lonscale claimant cells in their closing submissions, is made out.
M7. Restitutionary remedies
A restitutionary claim, on the basis of unjust enrichment, was advanced in the particulars of claim against Arch FP and repeated in the claimant's skeleton argument. However no such claim was advanced by the Lonscale claimant cells in their closing submissions. Accordingly I need not investigate the reliance, mentioned earlier, by the defendants on a potential defence of change of position. There is no need to do so because no restitutionary claim is now made.
M8. Equitable compensation for Mr Farrell's dishonest assistance
I have held in section J above that Mr Farrell dishonestly assisted Arch FP in its breaches of fiduciary duty. As noted in that section, his liability arises as an accessory. It is not necessary to show that his assistance in fact caused the loss suffered by the Lonscale claimant cells, but if this were a requirement I would have no doubt that in the present case Mr Farrell's assistance was the prime factor which brought about Arch FP's breaches of fiduciary duty. To the extent that that assistance must have some causative impact in facilitating the breach of duty, there can be no doubt whatever that Mr Farrell's assistance did this.
M9. Damages against Mr Farrell for inducement
As noted in section K above, the claim against Mr Farrell for inducing breach of contract is limited to causing the Lonscale claimant cells to finance the payments of £3m to Arch and £3m to Mr Barkman. The Lonscale claimant cells submitted that without Mr Farrell's inducement, neither of these two sums would have been paid, and accordingly the relevant tests for recovery were satisfied. In answer the defendants asserted that there was no "extraction", that Mr Barkman's involvement as a principal was agreed from the outset before the Lonscale claimant cells became involved, that the same was true of Arch FP's "corporate finance fee split", and that the interests of Arch FP's clients were fairly managed. For reasons given earlier in this judgment, there is no merit in any of these contentions.
N. Conclusion
For the reasons given above, the claims against Arch FP and Mr Farrell succeed. I ask the parties to seek to agree the terms of necessary consequential orders.
Annex 1A:
Abbreviations and short forms, sorted by short form
Abbreviation/short form
Long form
Notes
£19.98m
£19,983,750.34 paid by AT1 to Cobbetts on 29 October 2007.
See "£19.98m ledger account".
£19.98m ledger account
£19.98m ledger account opened as a ledger within the client accounts of Cobbetts on 29 October 2007
The £19.98m was treated by Cobbetts as the initial entry in the £19.98m ledger account on 29 October 2007: see Judgment, sections A3 and C3.
AB
see "Blythe, Mr"
ACD
Authorised Corporate Director
See Judgment, section A2.4.
Acepoint Ltd
Acepoint Limited
A wholly owned subsidiary of Clubeasy Property (UK) Ltd.
acquisition
acquisition, proposed or actual, of the CG owning companies
See Judgment, section A1.
AD
see "Duquemin, Mr"
Addison, Mr
Addison, Robert
See Judgment, sections A1 and A2.3. Chief Operating Officer of Arch; director of the cells from 21 December 2006 until 31 December 2009; director of FHL from 27
December 2006.
AFP
see Arch FP
AIGHL
Arch International Group Holdings Limited
See Judgment, section A2.2. Ultimate parent company of the Arch group from March 2008.
Aldous, Mr
Aldous, Hugh
Current director of the Cells, appointed 31 December 2009.
Annex 1A
Annex 1A to the Judgment
Abbreviations and short forms, sorted by abbreviation/short form. See Judgment, section A2.1.
Annex 1B
Annex 1B to the Judgment
Abbreviations and short forms, sorted by long form. See Judgment, section A2.1.
Annex 2
Annex 2 to the Judgment
History of main events. See Judgment, section A3.
Arch business
Arch FP, Arch UK and AIGHL's business
See Judgment, section A2.2: the business conducted by Arch FP and Arch UK from November 2004 onwards, and by those entities and AIGHL from March 2008 onwards, is referred to as as "the Arch business".
Arch Cru Diversified Fund
CF Arch Cru Diversified Fund
See Judgment, section A2.4.
Arch Cru Investment Fund
CF Arch Cru Investment Fund
See Judgment, section A2.4.
Arch entities
Arch FP, Arch UK and AIGHL
See Judgment, section A2.2.
Arch FP
Arch Financial Products LLP
See Judgment, sections A1 and A2.2. Sometimes referred to as "Arch" or as "AFP"; see also "firm".
Arch Lonscale claims
see Lonscale Arch claims
Arch UK
Arch Group (UK) Limited
See Judgment, section A2.2. Holder of about 97% of the membership rights in Arch and, until March 2008, ultimate parent company of the Arch group.
Arch-Cru funds
Funds managed by Arch FP
ARCTIC MCABN terms
ARCTIC Multi-Class Asset Backed Note terms executed by AT1 on 26 October 2007
See E9/2133 and Judgment Annex 2, section A2/ C.
ARCTIC MIP
ARCTIC Multi-Instrument Programme
See E9/2133 and Judgment, section C3.
AS
see "Smith, Mr"
ASA (Hull) Ltd
ASA (Hull) Limited
A wholly owned subsidiary of Clubeasy Property (UK) Ltd.
AT1
SPL Treasury (AT1) IC Ltd
See Judgment, section A2.5. Formerly known as Arch Treasury IC Ltd.
AT1 notes
AT1 loan notes
AT1 October 2007 notes
AT1 loan notes issued on 26 October 2007
See Judgment section C3. The AT1 October 2007 Notes were divided into three classes, A, B and C. Class B Notes in the amount of £13 million were issued on identical terms to those applicable to the Lonscale October 2007 class B Notes. Class C Notes were issued in the total amount of £8 million. Holders of class C Notes would not receive their nominal amount or any interest on maturity. Rather, they would be entitled to any value of Lonscale after the liabilities to holders of class A and class B Notes had been discharged.
Barclays Wealth
Barclays Bank PLC Wealth Management Division
See Judgment, section C6 and BWIC.
Barkman, Mr
Barkman, Lee
See "Foundations" and Judgment, section A2.8. Controller (with Mr Montague) of FCL and director of FPP and FHL.
Base Prospectus
Base Prospectus of the ARCTIC Multi-Instrument Programme
See Judgment, section D5.3.
BLME
Bank of London and the Middle East
See E18/4464, E18/4467.
BLr
see "Locker, Mr"
Blythe Financial
Blythe Financial Ltd
See Judgment, section A2.9. An IoM regulated company through which Mr Blythe traded as a financial adviser.
Blythe, Mr
Blythe, Alan
See Judgment, section A2.9. Director of FPP and a member of its investment committee. Traded as a financial advisor through Blythe Financial. Engaged by Mr Hayes in relation to the sale of Club Easy.
BMAM
Brooks Macdonald Asset Management (International) Limited
See "Spearpoint" and Judgment, section A2.11. The Lonscale claimant cells' current investment manager, formerly known as Spearpoint Limited.
Bordeaux
Bordeaux Services (Guernsey) Limited
See Judgment, section A2.5. Administrator of the cells until 1 July 2010 (for some cells) and 2 August 2010 (for the others).
Burgess, Mr
Burgess, Piers
Solicitor of Cobbetts, acting for (among others) Lonscale.
BPCIL
Barclays Private Clients International Ltd
See BWIC and OFM.
BSc
see "Scott, Mr"
BSGL
See "Bordeaux"
Business Plan for Growth
Business Plan for Growth prepared by Club Easy management
Emailed by BM on 8 Aug 2008, see E16/4039.
Butler, Mr
Butler, Jeremy
Solicitor of Howard Kennedy, acting for Jason Hayes.
BVI
British Virgin Islands
BWIC
Barclays Wealth Intermediates & Corporates
Part of BPCIL; SHi was Manager, OFM; see E14/3513 and Barclays Wealth.
Campbell, Mr
Campbell, Vincent
At SMP Partners, administrators of FPP: see E14/3513.
Capita
Capita Financial Managers Ltd
See Judgment, section A2.4. ACD of the Arch Cru Investment Fund and the Arch Cru Diversified Fund.
Carey Olsen
Carey Olsen
See Judgment, section A2.6. Guernsey lawyers, appointed as the Lonscale claimant cells' legal advisers.
Cbts
see "Cobbetts"
CD
see "Douglas, Mr"
cells, the
Cells forming part of the ICC
See Judgment, section A1.
CEO
Chief Executive Officer
See Judgment, section A1.
CG owning companies
Clubeasy Group owning companies, being companies which themselves were asset owners/operators , or which owned asset owners/operators, of the Club Easy business
See Judgment, sections A1 and A2.7. The CG owning companies were purchased by Lonscale under the SPAs. See "Club Easy Group plc", "Clubeasy Property (UK) Ltd" and "Hayes Limited".
CH
see "Harris, Mr"
CISX
Channel Islands Stock Exchange
See Judgment, section A2.5.
Club Easy
Club Easy, a student accommodation business
See Judgment, sections A1 and A2.7. At relevant times the Club Easy business was run by the Clubeasy Group companies.
Club Easy Group plc
Club Easy Group plc
See Judgment, section A2.7. Clubeasy Group company, owned by Mr Hayes prior to its purchase by Lonscale.
Clubeasy Group
Clubeasy Group companies, being companies which ran the Club Easy business
See Judgment, sections A1 and A2.7. The Clubeasy Group companies included the CG owning companies.
Clubeasy Property (UK) Ltd
Clubeasy Property (UK) Limited
See Judgment, section A2.7. Clubeasy Group company, owned by Mr Hayes prior to its purchase by Lonscale. See "ASA (Hull) Ltd", "Clubeasy Student Services Ltd" and "Acepoint Ltd".
Clubeasy Student Services Ltd
Clubeasy Student Services Limited
A wholly owned subsidiary of Clubeasy Property (UK) Limited.
Cobbetts
Cobbetts LLP
See Judgment, section A2.10. Solicitors based in Leeds, instructed to act initially for FCL, and subsequently for Lonscale, in relation to acquisition of Clubeasy Group companies.
Company
Company for the purposes of the IMAs
The IMAs define "Company" to mean the cell entering into the IMA with Arch FP.
cross investment
cross investment arising when individual cells invested in other cells
See Judgment, section A3.
cross investment fees
fees received by Arch FP as a result of cross investment and constituting a double charge in that regard.
See Judgment, section A3.
Davey, Mr
Davey, John
See Judgment, section A2.11. CEO of Spearpoint.
Derks, Mr
Derks, Michael
Chief Investment Strategist of Arch. See Judgment, section A2.3.
Development Director
Development Director envisaged by Mr Jeffs as the description of his role
See "turnaround plan letter".
Disposal Agreement
Sale and purchase agreement entered into between the Lonscale claimant cells and Lonscale Holdings in January 2010
See Judgment, section A3.
Douglas, Mr
Douglas, Charles
Legal adviser to Arch FP: see Judgment, sections C5 and G2.
Duquemin, Mr
Duquemin, Andrew
director of the Cells from 31 December 2009 to 1 October 2010; executive chairman of Elysium Fund Management Ltd.
Duxbury, Mr
Duxbury, Paul
EBIT
earnings before interest and tax
EFM
Elysium Fund Management Ltd
Administrator of the Cells from 1 July 2010 (for some Cells) and from 2 August 2010 (for the others).
ESOP
Employee Share Ownership Plan
Farrell, Mr
Farrell, Robin
See Judgment, sections A1 and A2.2. CEO of Arch; director of FHL from 27 December 2006; director of FPP from 26 February 2007 to 17 April 2009.
FCL
Foundations Capital Limited
See Judgment, section A2.8. A BVI company under the control of Mr Barkman and Mr Montague.
Annex 1B:
Abbreviations and short forms, sorted by long form
Long form
Abbreviation/short form
Notes
£19,983,750.34 paid by AT1 to Cobbetts on 29 October 2007.
£19.98m
See "£19.98m ledger account".
£19.98m ledger account opened as a ledger within the client accounts of Cobbetts on 29 October 2007
£19.98m ledger account
The £19.98m was treated by Cobbetts as the initial entry in the £19.98m ledger account on 29 October 2007: see Judgment, sections A3 and C3.
Acepoint Limited
Acepoint Ltd
A wholly owned subsidiary of Clubeasy Property (UK) Ltd.
acquisition, proposed or actual, of the CG owning companies
acquisition
See Judgment, section A1.
Addison, Robert
Addison, Mr
See Judgment, sections A1 and A2.3. Chief Operating Officer of Arch; director of the cells from 21 December 2006 until 31 December 2009; director of FHL from 27
December 2006.
Aldous, Hugh
Aldous, Mr
Current director of the Cells, appointed 31 December 2009.
Annex 1A to the Judgment
Annex 1A
Abbreviations and short forms, sorted by abbreviation/short form. See Judgment, section A2.1.
Annex 1B to the Judgment
Annex 1B
Abbreviations and short forms, sorted by long form. See Judgment, section A2.1.
Annex 2 to the Judgment
Annex 2
History of main events. See Judgment, section A3.
Arch Financial Products LLP
Arch FP
See Judgment, sections A1 and A2.2. Sometimes referred to as "Arch" or as "AFP"; see also "firm".
Arch FP, Arch UK and AIGHL
Arch entities
See Judgment, section A2.2.
Arch FP, Arch UK and AIGHL's business
Arch business
See Judgment, section A2.2: the business conducted by Arch FP and Arch UK from November 2004 onwards, and by those entities and AIGHL from March 2008 onwards, is referred to as as "the Arch business".
Arch FP's defence served on 1 May 2012 in 2011 Folio 1559
main defence
See Judgment, section A3.
Arch Group (UK) Limited
Arch UK
See Judgment, section A2.2. Holder of about 97% of the membership rights in Arch and, until March 2008, ultimate parent company of the Arch group.
Arch International Group Holdings Limited
AIGHL
See Judgment, section A2.2. Ultimate parent company of the Arch group from March 2008.
Arch Sustainable Finance IC Limited
SO3
See Judgment, section A3: a £1m payment by SO3 was used to finance payment by Lonscale of the £1m deposit due under the SPAs.
ARCTIC Multi-Class Asset Backed Note terms executed by AT1 on 26 October 2007
ARCTIC MCABN terms
See E9/2133 and Judgment Annex 2, section A2/ C.
ARCTIC Multi-Instrument Programme
ARCTIC MIP
See E9/2133 and Judgment, section C3.
ASA (Hull) Limited
ASA (Hull) Ltd
A wholly owned subsidiary of Clubeasy Property (UK) Ltd.
AT1 loan notes
AT1 notes
AT1 loan notes issued on 26 October 2007
AT1 October 2007 notes
See Judgment section C3. The AT1 October 2007 Notes were divided into three classes, A, B and C. Class B Notes in the amount of £13 million were issued on identical terms to those applicable to the Lonscale October 2007 class B Notes. Class C Notes were issued in the total amount of £8 million. Holders of class C Notes would not receive their nominal amount or any interest on maturity. Rather, they would be entitled to any value of Lonscale after the liabilities to holders of class A and class B Notes had been discharged.
Authorised Corporate Director
ACD
See Judgment, section A2.4.
Bank of London and the Middle East
BLME
See E18/4464, E18/4467.
Barclays Bank PLC Wealth Management Division
Barclays Wealth
See Judgment, section C6 and BWIC.
Barclays Private Clients International Ltd
BPCIL
See BWIC and OFM.
Barclays Wealth Intermediates & Corporates
BWIC
Part of BPCIL; SHi was Manager, OFM; see E14/3513 and Barclays Wealth.
Barkman, Lee
Barkman, Mr
See "Foundations" and Judgment, section A2.8. Controller (with Mr Montague) of FCL and director of FPP and FHL.
Base Prospectus of the ARCTIC Multi-Instrument Programme
Base Prospectus
See Judgment, section D5.3.
Blythe Financial Ltd
Blythe Financial
See Judgment, section A2.9. An IoM regulated company through which Mr Blythe traded as a financial adviser.
Blythe, Alan
Blythe, Mr
See Judgment, section A2.9. Director of FPP and a member of its investment committee. Traded as a financial advisor through Blythe Financial. Engaged by Mr Hayes in relation to the sale of Club Easy.
Bordeaux Services (Guernsey) Limited
Bordeaux
See Judgment, section A2.5. Administrator of the cells until 1 July 2010 (for some cells) and 2 August 2010 (for the others).
British Virgin Islands
BVI
Brooks Macdonald Asset Management (International) Limited
BMAM
See "Spearpoint" and Judgment, section A2.11. The Lonscale claimant cells' current investment manager, formerly known as Spearpoint Limited.
Burgess, Piers
Burgess, Mr
Solicitor of Cobbetts, acting for (among others) Lonscale.
Business Plan for Growth prepared by Club Easy management
Business Plan for Growth
Emailed by BM on 8 Aug 2008, see E16/4039.
Butler, Jeremy
Butler, Mr
Solicitor of Howard Kennedy, acting for Jason Hayes.
Campbell, Vincent
Campbell, Mr
At SMP Partners, administrators of FPP: see E14/3513.
Capita Financial Managers Ltd
Capita
See Judgment, section A2.4. ACD of the Arch Cru Investment Fund and the Arch Cru Diversified Fund.
Carey Olsen
Carey Olsen
See Judgment, section A2.6. Guernsey lawyers, appointed as the Lonscale claimant cells' legal advisers.
Cells forming part of the ICC
cells, the
See Judgment, section A1.
cells with a focus on real estate investments
real estate cells
See Judgment, section A2.3.
CF Arch Cru Diversified Fund
Arch Cru Diversified Fund
See Judgment, section A2.4.
CF Arch Cru Investment Fund
Arch Cru Investment Fund
See Judgment, section A2.4.
Channel Islands Stock Exchange
CISX
See Judgment, section A2.5.
Chief Executive Officer
CEO
See Judgment, section A1.
Claims advanced against Arch FP in 2011 Folio 1559 by the Lonscale claimant cells
Lonscale Arch claims
See Judgment, section A1.
Claims advanced by the Lonscale claimant cells in 2012 Folio 419
Lonscale Farrell claims
Club Easy Group plc
Club Easy Group plc
See Judgment, section A2.7. Clubeasy Group company, owned by
Annex 2: History of main events
A2/ A. Summary of events: introduction
A2.1. In this summary I identify some stages in the course of events. On occasion, when quoting from documents or emails, I have added paragraph numbers, or bullet point numbers, in square brackets for ease of reference. What is set out in relation to each stage does not give a complete account of all relevant events: only the most important events are described. I indicate some major matters of controversy, but do not seek to decide them. To the extent necessary, matters of controversy are resolved in the main judgment.
A2.2. Much of what happened is common ground. Where that is so in relation to a particular event, I have, for convenience only, adopted the account of that event given in the Lonscale claimant cells' skeleton argument.
A2.3. The stages I have identified are:
(1) The period from late July up to and including 17 August 2007, the day on which share purchase agreements ("SPAs") were signed by Lonscale for the purchase from Mr Hayes of the CG owning companies (section A2/B below).
(2) The period from 18 August 2007 up to and including 29 October 2007, the day on which completion occurred pursuant to the SPAs as amended (section A2/C below).
(3) The period from 30 October 2007 up to and including 9 January 2008, when RE1 and RE2 made further investments in Lonscale (section A2/D below).
(4) Successive periods ending on 28 April, 9 June, 2 July, 6 October and 11 December 2008, and 5 January 2009, being the dates of successive further investments by RE1 and RE2 in Lonscale (sections A2/E to A2/J below).
(5) The period from 6 January 2009 up to and including 13 March 2009, this being the date upon which Capita suspended trading in the shares of the UK OEICs (section A2/K below).
(6) The period from 14 March 2009 onwards (section A2/L below).
A2/ B. Late July up to and including 17 August 2007
A2.4. An email was sent by Cobbetts on 20 July 2007 to those acting for Mr Hayes. It referred to there having been an agreement in principle between Mr Hayes and Cobbetts' client (at that stage, FCL) which was subject to due diligence and agreeing the terms of the contract.
A2.5. By this time FCL had engaged PKF to undertake a review of the CG owning companies in connection with the proposed acquisition: see section A2.10 of the main judgment.
A2.6. A "Memorandum of Valuation Instructions" signed on behalf of Storeys on 1 August 2007 ("the August 2007 memorandum") records that they were asked on behalf of FCL to value student properties belonging to Clubeasy Group companies. The original instruction had come from Mr Barkman, and had been confirmed by an email from Mr Blythe dated 14 June 2007. The August 2007 memorandum recorded that Mr Hayes, FCL, Mr Blythe, Cobbetts and PKF were aware of Storeys' prior and continuing involvement with the properties, including loan security valuations for Mr Hayes. All were said to be "happy that we should proceed with the valuation having made these disclosures."
A2.7. On 25 July 2007 Mr Barkman, Mr Addision and Mr Farrell [?and Mr Montague?] met to discuss the possibility of Arch FP becoming involved in the acquisition. At that time:
(1) Mr Hayes was looking to sell the CG owning companies in August 2007 for around £19.5 million;
(2) Mr Barkman was looking to finance the acquisition, in part, with a loan of £9 million from Barclays in the Isle of Man.
A2.8. Mr Farrell met Mr Barkman again on 1 August 2007. Various aspects of the way in which the transaction would be structured were discussed, including the possibility of paying a deposit for the purchase and then allowing a period of possibly six months in which to complete the transaction.
A2.9. On 2 August 2007 Mr Montague sent an email to PKF and Cobbetts stating:
Please note that Arch Group Ltd are now partnered with us on the due diligence and acquisition of Club Easy project. …
A2.10. At 7:10pm that evening Mr King emailed Mr Farrell. His email included a number of bullet points. I set out the email below, including only the first, ninth and eleventh bullet points:
Some points that I would like clarified at this stage:-
[1] ? Since the trade is virtually a "purchase price = gross property value – debt – CGT – what we can take out of it" trade, we need to get a very good handle on the gross property value. I presume worst case CGT can be calculated, and we will know debt with accuracy, so valuation is the weak link. I am concerned that valuations in the spreadsheet are on the basis of # rooms * a number = property value. The valuation mandate is unclear on what specs are required. I think we need a more robust valuation.
…
With respect to our issues:-
…
[9] ? What are the exact loan by loan rates and caps / floors / fixed rates / hedges / length of facility / single loan or group facility / break penalties etc.
…
[11] ? What are the covenants / terms of the Barclays bank offer?
…
A2.11. An email within Arch FP on 3 August 2007 recorded that Mr Farrell had asked that AT1 be funded with £8 million of cash, "so that it is ready for the Club Easy real estate investment early next week." It also recorded that this had been achieved by issuing five year maturity 8 percent notes, which had been bought by three of the cells in a total amount of £8 million. An email from Mr Farrell to Mr Smith at 6:40am the following day explained that he wanted to make sure that the cash was "physically in situ at AT, rather than be part of an ongoing competition for available cash at the time…" The email stated that Mr Barkman was authorised to negotiate with Club Easy up to £15 million, adding
Reality is Club Easy has 33m official value on balance sheet… So ability to extract lots of cash P&L upfront is good… RE1 and RE2 likely to share some of Club Easy… once deal is fully settled.
A2.12. In an email to Mr Farrell dated 7 August 2007 Mr Barkman made a number of points. In the second paragraph he recorded that Mr Hayes would accept £17 million based on a share purchase agreement on 17 August, with an associated payment of £1 million, and with completion in October. In the third paragraph Mr Barkman proposed that the way forward was to accept Mr Hayes's timing but offer either £16.5 million or £16.75 million, the latter of which would include "our costs". On this basis Mr Barkman envisaged in the fifth paragraph that the balance sheet would "come in at over £33 million leaving more than £16 million over the sale value." Mr Barkman continued by making further points as set out below:
[6] The due diligence procedure is second to none that I have been involved with and therefore we know all the problems that may arise. Given this level of knowledge the issues seem less than I would have expected given the amount being left on the balance sheet.
[7] I see the structure of the deal from our end as follows.
[8] 1) Foundations Program Plc buys the £1million in August to consummate the deal. It also buys £250,000 to cover costs.
[9] 2) October payment of £15.5-.75 is made by a combination of Arch producing a note that bears an appropriate interest rate and gains a portion of the extracted profits and lending from a bank. Both Barclays and Investec are in the frame here. Neither has said yes at this point as they need to see the due diligence, but both have provided valid expressions of interest. There are also other banks.
[10] 3) Foundations Capital Ltd constructs a fund which is both sold by it sales staff and bought by the Foundations Program plc, The proceeds from this serve to 1) give us a method of extracting a portion (if not all) of the balance sheet, 2) add to the property portfolio of the company, 3) and, over time, retire the Arch note.
[11] Presuming that the Arch note is at 10%, lending at 8% and needed return and costs of the mutual are at 11% (9.25% return, AMC 1.5%, Costs 0.4%) the cost of carry would look something like
Arch £8 million * 10% £800k
Lender £7 million * 8% £560k
Total £1.360
[12] Capital appreciation is £3.6 leaving £2.24 million in growth.
[13] The mutual fund would use some of the net growth to underwrite its unit price – but as the fund grows so does both the profitability and the capital appreciation as a result of the increase in the property portfolio that occurs … My sales chaps tell me that properly structured this is a very saleable product.
[14] We structure the deal in such a manner that the mutual fund and Arch note gain a portion of future appreciation but Arch Group and Foundations Capital Ltd are left with a sizable portion of the future value.
[15] The only down side is the latent CGT. Three points on this, 1) We only owe CGT if we sell the properties – not if we sell the company as shares in the same way as we are buying it now without incurring this cost. 2) We do not owe CGT on the recent purchases as they are structured under an IOM company. 3) A tax structuralist, (if such a word exists) in Guernsey informs us that over time and with prudent negotiations we can "chip away" at the potential liability.
[16] Presupposing that the potential CGT is £8 million a number that seems in line with the thinking of most of our due diligence parties, that leaves no less than £8 million for us to extract over the short term, and growing by the capital appreciation not used to service the various capital input mechanisms.
[17] Cleaning up the company and injecting needed growth capital, in concert with the efforts of a group such as Knight Frank should see us in a position to sell the company in 36 months.
[18] The split between Arch and Foundations looks set for a 50/50 deal, as we brought the deal forward, progressed it to a very advanced point and are injecting cash through the Program and our sales force. Arch are supplying the backing to make certain the payments are made, adding structuring skills and general skill sets in terms of making the company a saleable entity in the end.
A2.13. In a summary at the end of the email Mr Barkman added:
[20] While we are not achieving the desired price of £15 million, we have received a substantial discount and there is still considerable meat left on the bones, (at least £8 million) both of our companies will accelerate their growth patterns as a result of this capital injection. There is scope to take more than that from this deal …
A2.14. The summary continued:
[21] … it is unlikely that a deal of this magnitude under which we have a huge residual balance sheet and time to put it together is likely to present itself to Foundations any time soon. So while there are issues, especially with the attitude and management skills of the loan wolf vendor, this deal offers the combination of Arch/Foundations the opportunity to use their unique abilities to turn a profit and, given the size of the deal, turn heads.
A2.15. Also on 7 August 2007 the £8 million funding transaction for AT1 was cancelled. In an email timed at 11:45 or 12:45 that day Mr Farrell advised Mr Barkman:
One change to structure – the arch real estate fund(s) can go alongside the foundations fund as well – so that take up is certain.
A2.16. In an email timed at 17:36 on 7 August 2007 Mr King explained to Mr Farrell that he had just spoken to Mr Barkman. What Mr Hayes would now accept was a £1 million deposit, followed by £14 million on completion in October 2007, followed by £1 million in one year's time, and a further £1 million in two years' time. Mr King's email noted in the third paragraph that the final two payments, which he described as "trailing payments", were "subject to no surprises appearing from under rocks", thus providing "protection just in case". It added that Mr Barkman needed to give an answer the following day, but was going "back into hospital" at 2pm that day. Mr King's email then continued:
[5] Worst case on this is £119m [property valuation] less £89m [loans] less £10m [max CGT] = £20m. At £17m purchase price, this leaves us at least £3m upside, and potentially £5+m [more if we manage CGT well, improve the business, inject more properties etc.].
[6] My call would be to say yes – go to £17m max – and ensure the trailing payments have wide warranty scope over any / all surprises. Please confirm and I'll let Lee know in the morning.
[7] I presume we buy the IoM company, and then later sell it to the Mutual / RE2 and extract the intrinsic value as cash. My preference would be to hold fire until we can sort out the CGT issues (a lot of value stored in that gem), as we could do inter-company transfers (to offshore) without triggering tax, agree something with HMRC etc. We'll need to get the experts onto this one.
[8] Is the Mutual fund really going to happen or just RE2? If so, how split?
[9] Re 50/50 income split of this up-front bump-up with Foundations – has this been agreed or is Lee's dream?
[10] Re the capital upside, I am working on minimums in my mind of funds 60% and AT 20%. This leaves Foundations with 20% max going forward.
A2.17. On 9 August 2007 Mr Addison reported to others in Arch FP that Barclays in the Isle of Man had said that Mr Hayes was known by reputation to them and they recommended "thorough due diligence". Mr Addison added that a £9 million loan from Barclays "would be too much they would be more likely to lend £3 million …".
A2.18. An email from Mr Barkman on 10 August 2007 commented on this:
The £3M versus £9M is news to me, but Investec are still talking £8[million] and they know Jason all too well. Yes he has honesty issues. Once the due diligence is done we can bring in other banks …
…
We all realise that there is some clean up work to do on the company but we are getting a cracking discount to do that…
I am working on the basis that this is an Arch/Foundations JV where the current pref shares are retired, (this would normally be taken from Arch's cut of FHL and therefore represents a bonus to Arch), each of our respective funds will take what they need and we split anything we take out above that on a 50/50 basis.
A2.19. An email from Cobbetts was sent to those acting for Mr Hayes on 12 August 2007. The email noted that the buyer was "in effect being required to enter into this agreement prior to it completing its due diligence". It explained that this had necessitated "adding a few further conditions" which were "fundamental to doing the deal this week".
A2.20. Meanwhile on 10 August 2007 in an email timed at 19:30 Mr Farrell had responded to Mr Barkman's email earlier that day. In relation to the proposed 50/50 split, Mr Farrell suggested that 50 percent should go "to arch treasury (our risk taking/warehousing entity)" and 50 percent to FHL, which could use the cash to expand and pay down preference shares. Mr Barkman replied on 14 August that he agreed "with the 50/50 aspect" and also agreed that the cost of repaying the preference shares should be taken out of the initial earnings. This, he said, represented "a £270K bonus to Arch". Mr Barkman's email continued:
That said, we can't agree to the idea of our end being paid into FHL. This is not an FHL deal as your end of the initial earnings doesn't sit inside that vehicle therefore ours should not be treated in that way.
A2.21. At around this time, Mr Barkman caused Lonscale to be incorporated in the Isle of Man. Mr Barkman owned the sole issued share of Lonscale. Mr Barkman and Mr Farrell were appointed as directors.
A2.22. Shortly after 1:30pm on 16 August 2007 an email was sent by PKF to Mr Barkman and Mr Jeffs attaching a draft of PKF's report ("the PKF August 2007 draft report"). The Lonscale claimant cells' skeleton argument identified what it described as "significant features" in the draft. These included:
(1) At the outset of section 2, entitled "Executive Summary":
Clubeasy is a substantial and dynamic property based group which has established a strong brand in the arena in which it operates the provision of quality student accommodation.
The financial highlights demonstrate the significant growth of the business in both property value and rental income over recent years as a result of the efforts of the owner and his team. The Group achieves high occupancy levels which are one of the key elements to maximising income from its property portfolio.
However in this executive summary we have focussed not on detailing the positive aspects of the Group, which we believe are recognised by the potential purchaser, but on key issues which may have a negative impact on the transaction or the business, or issues which should be resolved in the contract process of exchange and completion.
The recent history of the Group shows that the interest burden which accompanies the current level of borrowings exceeds the operating profit of the Group and results in a small loss making position. A new financing structure in terms of capital and loans can address this and we understand that this is planned in the short term.
The net asset position of the Group is very important in the pricing of the transaction. We show in the above table an adjusted net asset position as at 30 April 2007, starting with management figures and highlighting a number of adjustments which could potentially reduce the net assets from £33.5 million to £30.6 million. The mechanism which will provide greater assurance of the net asset position is audited accounts for all the target companies as at 31 July 2007 and completion accounts as at the completion date. We recommend the requirement for these is incorporated into the sale and purchase agreement.
(2) In the same section, under a sub-heading "Key Issues":
Historic and Current Trading
Profitability
• The Group as it stands is very highly geared and, as a result, there is a significant interest burden that has been exaggerated by recent interest rate increases. Due to this apparent over-gearing, the group has been unable to generate sufficient profits to cover interest payable and has therefore been loss-making in recent years.
(3) In relation to what was said about historic and current trading, the same section of the draft report included under the heading "Observations and Conclusions":
• A further injection of capital is required to reduce the gearing of the Group and we understand that this is proposed in the funding structure that will be used to finance the proposed transaction.
• The purchaser should ensure that the projected level of EBIT is sufficient to cover the interest that will fall due on the level of debt assumed going forward and to hedge against any future interest rate rises where possible.
(4) In the Executive Summary PKF noted that management accounts were currently prepared on a quarterly basis, automatically generated by accounting software on a company by company basis. They observed that this approach did not appear appropriate going forward, and added that the content and format of monthly management accounts should be designed to meet the needs of remote stakeholders.
(5) In section 4, headed "Corporate Structure", the draft report noted that an internal sale said to have given rise to an intra group profit of £12 million had been followed by the declaration of a dividend of that amount to Mr Hayes. £4.5 million had been paid in cash to Mr Hayes, and he was shown as a creditor in relation to the remainder of the dividend. The draft report commented that, "as this profit is unrealised by the Group it is questionable whether it is distributable."
(6) In section 10, headed "Financial Control Environment", the draft report stated under the sub-heading "Budgetary procedures":
Due to the size, nature and hands on approach adopted by management no recorded budgetary procedures are carried out and therefore the projections to 31 July 2008 commented on in this report have been prepared on a one off basis.
Management stated that directors meet to discuss budgets but no records of this are held or measurements of actual to budgeted.
… The Group however has made losses in recent years due to significant interest charges as a result of the level of gearing and impact of rate rises.
Management have stated that to improve the control and performance measurement procedures budgetary information should be prepared in an accounts format and variances followed up.
(7) The projections referred to in section 10 were discussed in detail in section 8 of the draft report. At the outset of section 8 PKF noted that the projections, which had been prepared by management and their advisers, Blythe Financial, included only profit and loss figures. As a result PKF were unable to review projected balance sheet or cash flow items.
(8) While the Group had projected earnings before interest and tax of £6.43 million in the year to 31 July 2008, PKF considered that after additional costs of sales of £0.55 million, depreciation of £0.2 million, and estimated interest payments of £5.85 million, an adjusted loss before tax of £0.17 million should be assumed.
(9) While the draft report noted that Mr Hayes appeared to be responsible for driving the business forward and concentrated on strategic issues, it added that he also appeared "to be relatively hands-on in some respects." The draft commented that it would be necessary to find a replacement for the role undertaken by Mr Hayes after December 2007. In this regard the draft said that PKF understood that there were plans to ensure that a suitable replacement would be recruited prior to the peak lettings season in April 2008. In addition, the draft noted that some of the key managers were employed under contracts entitling them to resign their positions by giving only one week's notice. The draft commented that it was vital that all key staff contract terms included sufficiently long notice periods to ensure that the loss of one of those employees would not significantly disrupt the business, affording the Group time to recruit an appropriate replacement.
A2.23. At 7:24am on 17 August 2007 Mr Blythe emailed Mr Jeffs drawing attention to an aspect of the revised price agreement. This was that Mr Hayes was to receive confirmation that Arch was effectively underwriting the transaction, and that Arch was financially capable of underwriting the transaction. This confirmation was provided later that day in a letter written on Arch FP note paper and signed by Mr Addison. The letter stated at the outset that Lonscale was "backed by the financial resources at the disposal of the Arch Group and Foundations Capital both as principals and agents." It added:
We currently manage around $700m worth of assets in both open and closed end vehicles which have a combination of upfront and annual management charges together with performance fees that are paid quarterly. Current inflows into the funds from the retail sector are running at approximately £1m every two days. The closed end nature of the majority of our funds, together with the emphasis on investing in private markets means that we are sheltered from the turmoil that is currently besieging the public equity and bond markets.
A2.24. Minutes of a meeting of the board of directors of Lonscale, held in the Isle of Man on 17 August 2007, state that Mr Barkman was present, and that Mr Farrell participated by telephone. The business of the meeting was described in paragraph 4 of the minutes as being to approve the proposed acquisition by Lonscale of "the Clubeasy group". Paragraph 7 recorded that it was resolved to authorise execution on behalf of Lonscale of the SPAs and other documents as might be required.
A2.25. The minutes as signed also noted:
(1) at paragraph 3, that each director present "declared their interest in the business to be transacted at the meeting in accordance with the requirements of the Company's articles of association and other lawful requirements."
(2) at paragraph 5.2, that the directors agreed that the acquisition of the Clubeasy Group should be funded by a mixture of equity and debt:
The Directors agreed to the proposal that Arch Treasury IC Limited should subscribe for 8 million £1 ordinary shares in the Company and should propose a debt facility which would be available for draw down at completion of the Agreements and to fund the working capital requirement of the Company for the following three years. The Directors agreed that Arch Financial Partners LLP should negotiate the terms of these facilities and report back for approval.
(3) at paragraph 5.3:
The Directors also discussed payment of an introduction commission to the introducers of the Project [i.e. the acquisition of the Clubeasy Group] to the Company and appropriate structuring/arrangement fees to be invoiced in due course.
(4) at paragraph 6, that it was agreed that Mr Blythe should be approached to become a director of Lonscale.
A2.26. Also on 17 August 2007, Lonscale and Mr Hayes entered into the SPAs. There were three separate agreements for the three parts of the Clubeasy Group. For present purposes they can be treated as one. On that basis:
(1) A deposit totalling £1 million was payable on execution of the agreements.
(2) The total consideration for the purchase was £16,587,226.
(3) This consideration included an amount of £2 million which was deferred. In that regard loan notes were to be issued by Lonscale to Mr Hayes, under which £1 million would be payable on 31 October 2008 and a further £1 million would be payable on 31 October 2009. The loan notes entitled Lonscale to set off against the deferred consideration any admitted or finally determined claim which Lonscale had against Mr Hayes in connection with the SPAs.
(4) Apart from the deferred consideration, and the deposit, the remainder of the purchase money was payable on completion, which was due to take place on 26 October 2007.
(5) However, under clause 3 of the SPAs Lonscale was entitled to insist that certain conditions be met prior to completion. They included that:
(a) the aggregated net asset position of Club Easy as at 31 July 2007 should be no less than £32,337,500 [clause 3.1.7];
(b) consent letters be obtained from lenders that had the ability to demand repayment of monies or terminate a loan facility upon a change of control, consenting to the transfer of shares to Lonscale [clause 3.1.5];
(c) Mr Hayes should deliver a signed Warranty Certificate to Lonscale [clause 3.1.4];
(d) related-party loans be settled in full [clause 3.1.8].
A2.27. The £1 million that was paid by Lonscale as a deposit was initially funded by a cell known as SO3. As appears below, that cell was later reimbursed from monies provided by the Lonscale claimant cells for the completion of the transaction.
A2/ C. 18 August up to and including 29 October 2007
A2.28. On 21 August 2007 Cobbetts produced a document entitled "Legal Due Diligence Report". Schedule 1 to the report stated that Cobbetts had been instructed by Lonscale to prepare the report in relation to the proposed acquisition.
A2.29. On 24 August 2007 Storeys sent an email to Mr Barkman and Mr Montague attaching a draft appraisal and valuation report ("Storeys August 2007 draft report"). The cover sheet described the draft as prepared "without prejudice for: Foundations Capital …". The draft report comprised a summary, a table of contents, a letter addressed to "Foundations Capital" bearing the date "1st August 2007", thirteen sections, and a supplementary appendix. As to these:
(1) The summary described the purpose of valuation as, "Market Valuation for acquisition purposes."
(2) The letter bearing the date "1st August 2007" ended with a section headed, "VALUATION". In this section the draft report gave an opinion as to the value of Clubeasy Group companies' student bed spaces, assuming full occupancy, in each of Hull, Lincoln, Loughborough, Exeter and Durham. The amounts identified for student bed spaces in each of these cities totalled £114,790,000. In addition, it was stated that Storeys were of the opinion that the value of various "non student/commercial properties" in Hull, Lincoln and Loughborough was in the order of £4,640,000. Thus the total valuation of properties held by the Clubeasy Group companies was £119,430,000.
(3) Section 1 of the draft report was entitled "OVERVIEW". It stated at paragraph 1.1 that the portfolio "under consideration herein for acquisition purposes" comprised "2533 student bed spaces with a gross rental income (with full occupancy) at the 2007/2008 academic year of £8,157,361." Paragraph 1.14 added that Storeys had:
… taken into consideration the advantages of "Club Easy brand" in the various locations when considering our values herein, which is the pre-eminent reason why these properties are valued towards the "top end" of the market.
(4) Section 5 of the draft report was entitled "TENURE AND TENANCIES". In this section Storeys set out, among other things, a table identifying the number of student bed spaces in each location and the gross residential rental income for 2007/2008 in relation to those bed spaces. Paragraphs 5.9 and 5.10 identified Loughborough, Lincoln and Hull as "core locations" which were run exceptionally well, constituting "the strongest brand name within these locations in terms of student accommodation", with very high levels of demand and exceptionally low levels of voids and bad debts. Paragraphs 5.11 to 5.13 and 5.22 stated:
5.11 We know from our previous involvement that in the aforementioned core locations, the various properties have invariably enjoyed 100% occupancy year-on-year for the last 5 years or so. Overall occupancy levels stand in excess of 95%, at the time of our inspection.
5.12 However, in agreement with yourselves we have assumed that all of the units are 100% occupied and have not made any specific provisions for bad debts or voids, although have reflected these in the Gross Initial Yields returned, which can be considered as an All Risks Yield.
5.13 Please note, however, that the Gross Yields returned on the new build properties have simply been extrapolated from the Net Yields. …
…
5.22 We re-emphasise that we have valued the properties taking into consideration the strength of the Clubeasy brand name and caution that should any of these properties be sold individually as investment that they may not necessarily achieve the yields articulated herein since they would not enjoy the wider benefits that being within the Clubeasy Group affords in terms of University accreditation, management and maintenance policies, and so forth.
(5) Section 10 of the draft report was entitled "VALUATION METHODOLOGY". At paragraphs 10.5 and 10.6 the draft report stated:
10.5 We have elected to value the properties individually and in respect of the overwhelming majority of the stock have adopted a straightforward straight line Gross All Risks Initial Yield approach.
10.6 This simply involves capitalising the Gross Income Stream at a yield which reflects the inherent risk and also takes into specific consideration Facilities Management costs and the like.
A2.30. In an email to Mr Montague dated 29 August 2007 Mr Jeffs recorded that he had spoken with Mr Barkman. It had been agreed that the Storeys draft August 2007 report could be released to Mr Blythe and Mr Hayes subject to certain reservations being communicated. Those reservations were also being communicated to Storeys. They included the following:
We have reservations about the valuation because of the methodology used; namely deriving the property value from assumed yield percentage. As fund managers Arch adopts a prudent valuations approach for multi-let property acquisition somewhere between fully yield derived and the valuation as a standalone, non-specialist and possibly non-rental residential property. Independently, Arch's property advisor confirms that valuation solely derived from assumed yield will give a 'toppy' valuation.
A2.31. On 4 September 2007 PKF produced a revised draft of their report ("the PKF September 2007 draft report"). The revisions did not materially affect the "significant features" identified above in relation to the draft of 16 August 2007.
A2.32. On 17 September 2007 Mr Jeffs, in his capacity as business manager and partner of Arch FP, wrote a letter addressed to the board of directors of Lonscale. It was headed, "Immediate Post-Acquisition Recommendations for Clubeasy Group". The letter described a plan which has been referred to as "the turnaround plan", and it is convenient to refer to this letter as "the turnaround plan letter". Mr Jeffs explained that he had prepared the letter following his recent review of the due diligence undertaken by PKF, Cobbetts and Storeys, and his own "research and evaluation of the current status of business management at Clubeasy".
A2.33. In the turnaround plan letter Mr Jeffs envisaged an integration team:
Lonscale should provide an integration team to address the key risk areas that have been highlighted in the due diligence reports and additionally to cover the transition from an "Owner Managed" model of business management into an "Institutionally Owned" model.
The integration team to be tasked as follows:
• Ensure risk areas identified in PKF and Cobbetts due diligence reports are dealt with in a prompt and effective manner.
• Familiarise themselves with the day-to-day operations of the company.
• Recommend change or continuance of management practices and procedures where appropriate.
• Guide and advise the Managing Board of Clubeasy (MBC) to develop a business plan and associated budget.
• Guide and advise the MBC in developing the required level of management information reporting.
A2.34. Mr Jeffs then set out things that he would plan to do, in a role which he suggested be referred to as "Development Director":
• Represent the Lonscale Board in day to day dealings with other members of the MBC and in general review the way that Clubeasy is run, recommend changes that may be required and supervise implementation of agreed changes as may be required.
• Review the opportunity that exists post acquisition but pre next year's main lettings season (understood to be January to March), of adding suitable student residential properties to the operation.
• Make formal property acquisition proposals for completion in time for Jan/Mar 2008 letting season, as long as they do not jeopardise the letting season activities.
• Subject to Lonscale funding approval; supervise acquisition of approved properties and ensure they are on-stream in time for the Jan/Mar 2008 letting season.
• Ensure that there are no obstacles to achieving a smoothly operating, fully committed lettings season Jan/Mar 2008. This is the first lettings season post-acquisition and is vital for Clubeasy that it occurs efficiently and effectively.
A2.35. The turnaround plan letter also envisaged that:
(1) Gary Thompson, the existing Managing Director of Club Easy, would remain in his position and would take on more responsibilities that had been taken by Mr Hayes under his ownership; and
(2) a final budget would be created for the first three months post-acquisition would be available within one month of acquisition, "following access to more detailed information".
A2.36. By 20 September 2007 Mr Jeffs had prepared what he described as "my valuation of Clubeasy properties". In an email that day to Mr Barkman and Mr Farrell, he noted that Storeys had used forecast revenue for the year ending 2008. In relation to the Molly Hayes Building, purpose built student accommodation in Exeter which was newly constructed in 2007, Storeys had used a yield of 6.70 percent on projected lettings for its first year of operation (it was described in the Storeys August 2007 draft report as "fully let… off plan") of £215,280. This led to a valuation of £3,213,134. Mr Jeffs noted that the remaining properties as valued by Storeys amounted to £116,207,296. The valuation had been on the basis of projected revenue of £8,244,317, and thus represented a gross yield of 7.09 percent. In his email Mr Jeffs explained that if that gross yield of 7.09 percent were applied to the expected 2007 revenue of £7,310,000, then the properties excluding the Molly Hayes Building would achieve a value of £103,037,683. Once the Molly Hayes Building was added back in (adopting Storeys' valuation for it of £3,213,134), Mr Jeffs arrived at a total value in 2007 of £106,250,817.
A2.37. Thus by adopting expected revenue for 2007 in relation to all property other than the Molly Hayes Building, Mr Jeffs arrived at a value of approximately £106.2 million, £13.2 million less than Storeys' valuation of £119.4 million. Mr Jeffs explained his reasoning in this way:
I believe that the valuation for net asset purposes in 2007 should not be based on next year's revenue (and therefore a forecast only at this stage).
A2.38. On 3 October 2007 Mr Jeffs emailed Mr King setting out his understanding of funding requirements for completion. PKF were expected to report net assets of £30 million. As against those assets, Mr Jeffs identified, first, a sum of £17 million required to purchase the CG owning companies. He then assumed £7 million for additional working capital, additional properties and restructuring costs. Thus when these figures were added together at £24 million, this would allow an "on sale" after restructuring "at say £27M leaving +3 for ultimate funds as they take ownership".
A2.39. Turning to the sources of actual funds for the purchase, Mr Jeffs envisaged Arch's contribution as "AT 14M (PF or PE funding initially?)". Mr Jeffs then envisaged bank borrowing by Lonscale, which he understood to be from Barclays, of £3 to £6 million, commenting "BUT THIS NOW NEEDS TO BE DEFINITE". As to the remaining balance of £4 to £7 million, Mr Jeffs envisaged that this would come from a second bank "or (say PF)". Mr Jeffs added:
Above assumes full cash funding on day of completion but Lonscale could just be funded with 15M and allow 2M "holdback" and 7M working cap etc to be funded over longer time as drawdown facility to suit AT or RE cashflow.
A2.40. PKF's final report ("the PKF final report") was issued on 8 October 2007. As with the revised draft of 4 September, there were no material changes to the "significant features" identified above in relation to the draft dated 16 August 2007.
A2.41. On 13 October 2007 Mr Farrell prepared an email headed "Updates on Corporate Stuff". Under the heading "Overviews", Mr Farrell included a paragraph concerned with Lonscale, noting that the deal was scheduled to complete on October 26th. He added:
Before then we need to sign the terms of the Lonscale restructuring, management & control & ownership, so that Lee Barkman cedes to ARCH Treasury in return for upfront structuring fees as agreed …
A2.42. Storeys emailed Mr King, Mr Jeffs, Mr Farrell and Mr Barkman on 15 October 2007 attaching their finalised valuation ("the Storeys final report"). The covering email explained that Storeys had now clarified certain aspects, and were confident that "there are no other issues outstanding in respect of this undertaking." The Storeys final report continued to adopt a methodology under which a "straight line gross all risks initial yield approach" was applied to forecast gross residential rental income for 2007/2008. Paragraphs 14 and 5.22 were unchanged from the Storeys August 2007 draft report. The total valuation was £122.5 million. This was £3.07 million greater than the total of £119.43 million in the Storeys August 2007 draft report. The difference came about as a result of increases in the valuations for non-student property (up £0.5 million), student accommodation in Hull (up £2.1 million), student accommodation in Loughborough (up £0.01 million), and student accommodation in Lincoln (up £0.46 million).
A2.43. An email was sent by Mr Barkman to Mr Farrell on 15 October 2007. The email had as its subject line, "Tax, Clubeasy". The body of the email stated:
I met with a chap I use for advice in Tax issues. This idea is way out there but thought you should hear about it.
1) I own Lonscale
2) Lonscale buys/bought Clubeasy
3) as I am selling Lonscale as a Guernsey resident selling an IOM company I am not liable for CGT
4) The initial profit for both Arch T and FCL could pass to me tax free
5) I buy shares in/from any entity/persons which Arch instructs for the value that Arch is to receive
6) I immediately cede control of and income/sale rights of the shares but retain the shares as far as Inland Revenue are concerned
7) Over time I cede ownership based on a variety of incomprehensible reasons
Arch/directors of, pay no tax.
I have no idea if this has legs, but if it does it could be used as a template.
A2.44. A further meeting of the board of Lonscale was held on 23 October 2007. The minutes record Mr Farrell as chairing the meeting. At paragraph 3.4 they record that the directors of Lonscale approved the payment by Lonscale of "structuring" fees of £3m to each of Arch and Mr Barkman (see paragraph 3.4 of the minute).
A2.45. By 23 October 2007 it was apparent that arrangements with Barclays were taking longer than Mr Barkman had hoped, and would not be in place by 26 October 2007. On 23 October 2007 Mr Farrell emailed Mr Barkman. The email said that, based on Mr Barkman's "latest progress update with Barclays", it set out "the terms and timetable for the proposed transactions in order to complete on the acquisition of the Club Easy group."
A2.46. Under the heading, "Completion Date: 26th October 2007", Mr Farrell's email of 23 October stated:
1) ARCH Treasury IC Ltd ("AT") pays for the residual completion balance, as discussed we expect this to be around £20m, allowing for the £1m deposit already paid.
2) You transfer the entire share capital of the acquisition SPV Lonscale Ltd ("Lonscale") to AT. AT understands that, in consideration for this and for Foundations jointly bringing and co-structuring the transaction with ARCH Financial Products, Lonscale will compensate both parties for 50% of the difference between syndication proceeds and acquisition cost ("Structuring Fees").
3) You have committed that you will procure that the Foundations Program PLC ("FPP") and the (to be established) Foundations Property Opportunities Mutual Fund ("FM1"), will participate in the senior and junior notes, as soon as practical, and that Barclays Bank Isle of Man have agreed to provide funding to FPP in support of this.
4) Barclays Bank provide evidence of commitment to fund FPP to enable FPP's investment in senior and junior notes.
5) FPP will, as soon as practical, subscribe for at least £1m of junior notes, as described in the multi-class asset backed notes termsheet (attached). AT is relying upon this funding to be put in place in order to complete the transaction described above.
6) The board of directors of Lonscale to be expanded to include a further Isle of Man based director (to be nominated).
A2.47. Mr Farrell's email of 23 October 2007 then continued, under the heading "Following Completion":
7) FPP will, as soon as practical, subscribe for at least £4m of senior notes, as described in the multi-class asset backed notes termsheet (attached). AT is relying upon this funding to be put in place in order to complete the transaction described above.
8) Upon receipt of the Structuring Fees by Foundations the existing preference share capital of Foundations Holdings Limited shall be repaid.
9) As they grow in size through time, FPP and FM1 will be entitled to increase their exposure to the classes of notes, at the prevailing market value for such notes. AT will procure that reasonable secondary-market liquidity will be made available for such purchases. AT will also create further issues in the multi-class notes, in order to facilitate additional investments by Lonscale.
A2.48. An exchange of emails then took place on Wednesday 24 October 2007. In response to points raised by Mr Barkman, Mr Farrell began by saying:
[2] - Structures obviously evolve over time to fit in with the situation and information provided. At some point we need to firm up.
A2.49. Mr Farrell added:
[7] … After receipt of AT syndication proceeds, Lonscale pays structuring fees = 50% of (syndication proceeds minus acquisition cost) to AFP and to Foundations (which entity? FCL?) – Notes paid down on participation of FPP/FM1 in the Notes as soon as practical. The amount of structuring fees will be a function of the deal with Hayes – we expect this to be £6M but clearly depends on last minute negotiation.
A2.50. A futher point was a suggestion by Mr Barkman that FPP had put £800,000 into Arch's Sustainable Opportunities fund to help with the deposit. Mr Farrell replied:
[8] … FPP has a holding in Sustainable Opportunities fund because it could not transact as originally planned in the Lonscale Notes. AT purchased £1M Notes instead. There is no link as such and SO3 fund currently holds notes it would not ordinarily hold.
A2.51. In response to a suggestion from Mr Barkman that the easiest way forward was for the note [i.e. the class C notes for which FPP would pay a total of £2m] to be bought through an Arch fund, Mr Farrell said this:
[15] … This does not achieve the desired result at our end. NB – There are regulatory and reporting issues with Arch conducting all money flows without third party buyers.
A2.52. In response to a question as to how Mr Farrell saw "our role in the Clubeasy project after completion" Mr Farrell said this:
[20] … AT will own Lonscale. Lonscale will be managed and controlled from Isle of Man, with Directors Alan, Lee & Robin. 'Influence' should be driven by the interests of the shareholders, namely 100% AT, plus the look-through interests of the Noteholders (again mainly Arch funds at present time, reducing as FM1 grows in size and Note allocations).
A2.53. In response to a suggestion that "any benefit given to Alan Blythe for doggedly sending the deal our way" should be split between Arch/Foundations, Mr Farrell replied:
[21] … Consistency please. You originally stated that you would take care of Alan's end.
A2.54. By the time of this email exchange it was apparent that Mr Hayes would not be able to meet all the conditions prior to completion set out in the SPAs. In particular, audited accounts of Club Easy indicated an aggregated net asset position significantly less than £32,337,500. In addition, from the following morning onwards it was clear that Mr Barkman would not be able to provide the funding that was envisaged in Mr Farrell's email of 23 October 2007. The upshot, as explained in more detail below, was that:
(1) on Friday 26 October 2007:
(a) FCL signed a commitment letter as to future funding;
(b) Lonscale and Mr Hayes entered into a further agreement reducing the total purchase price by £1,428,153, so that the sum due on completion would be £12,334,073 and the deferred consideration would be £1,825,000; and
(c) as set out in more detail below, the Lonscale claimant cells subscribed for notes under which they would lend £20.2 million to AT1;
(d) FPP subscribed for notes under which it would lend £0.8m to AT1; after which
(2) on Monday 29 October 2007:
(a) it having become clear that there were additional deficiencies in the aggregated net assets, a further agreement was made between Lonscale and Mr Hayes under which the acquisition price was reduced to a total of £15,043,078, of which £12,218,078 was payable on completion, which was to take place that day;
(b) AT1 subscribed for notes under which it would lend £13 million to Lonscale, and the parties proceeded on the basis that AT1 subscribed for £8 million of equity in Lonscale;
(c) ownership of the sole issued share in Lonscale was transferred by Mr Barkman to AT1 for a consideration of £1; and
(d) AT1 received a total of £21 million from the Lonscale claimant cells and FPP, and made payments including a sum of £19,983,750.34 to Cobbetts' client account; after which
(3) from Tuesday 30 October 2007 onwards payments out of Cobbetts' client account were made, starting with payment of the completion monies on 30 October 2007.
A2.55. The commitment letter dated 26 October 2007 was signed by Mr Barkman and Mr Montague on behalf of FCL. It had no specific addressee, but expressed the hope that the commitments it described would be acceptable "in order for Arch Treasury to go ahead with the acquisition as soon as possible". The letter stated:
Letter of Intent
In connection with Lonscale Ltd, the acquisition vehicle for the Club Easy Group and related assets, we hereby confirm our commitment to part fund the acquisition through the purchase over time of the Arch Treasury Notes (Class A and Class C).
Owing to the timing of release of monies through our lender, Barclays (Isle of Man), we envisage the schedule will be as follows:-
1. The excess borrow amount from Barclays (£8M approx) is expected to be agreed in 1-2 weeks' time. This amount will be invested 50/50 between Arch Treasury Private Finance Asset backed Notes (8% coupon) and Class A (6.5% coupon) of the Multi-Class Notes of the Arch Treasury Asset Backed Notes.
2. The Foundations Program commits to subscribe for £2M of Class C Notes today, with £800k for immediate settlement two weeks later.
3. Finally, the Foundations Property Opportunities Fund (being established November 2007) will be funded by the Foundations Program with the normal monthly draw mechanism and will commit to a minimum of £4M of Class C Notes, in addition to those held directly by the Foundations Program.
4. To enable us to commit to this larger amount, we require that we have the right to transfer the Notes over time in specie from the Foundations Program to the Foundations Property Opportunities Fund.
A2.56. As to other events on 26 October 2007, arrangements made that day for Lonscale to receive funds totalling £21 million included the following:
(1) Arrangements were made for Lonscale to execute a document ("the Lonscale MCN terms") setting out terms for the issue of loan notes ("the Lonscale October 2007 notes"), divided into two classes, senior and mezzanine. The former, none of which were to be issued at the outset, ranked ahead of the latter, and would give holders an entitlement to receive the nominal amount on maturity on 13 April 2013, plus interest of 6.5% per annum. As regards the latter, a total of £13 million Lonscale October 2007 mezzanine notes were issued. Holders of those notes would be entitled to receive the nominal amount on maturity on 13 April 2013, plus interest of 12% per annum, plus 25% of any value of Lonscale in excess of £21 million. AT1 subscribed for the mezzanine notes. It also has been said to have subscribed for 8 million £1 ordinary shares in Lonscale, although the paperwork was not put in place until later.
(2) AT1 executed a document ("the ARCTIC MCAB terms") headed "ARCTIC Multi-Class Asset Backed Notes. Final Terms". This document concerned notes said to be issued pursuant to the ARCTIC Multi-Instrument Programme ("the ARCTIC MIP"). It set out terms for the issue of collateralised limited recourse loan notes ("the AT1 October 2007 notes"), divided into three classes, A, B and C:
(a) Class A notes, none of which were to be issued at the outset, were to be on terms which were materially identical to those applicable to the Lonscale senior notes.
(b) Class B notes in the total amount of £13 million were to be issued at the outset on identical terms to those applicable to the Lonscale mezzanine notes.
(c) Class C notes were to be issued at the outset in the total amount of £8 million. Holders of class C notes would not receive their nominal amount or any interest on maturity. Rather, they would be entitled to any value of Lonscale after the liabilities to holders of class A and class B notes had been discharged.
(3) The AT1 October 2007 notes were secured on shares that AT1 was said to hold in Lonscale. Note holders had no recourse against AT1. The notes were not tradable.
(4) Arch FP caused the Lonscale claimant cells between them to subscribe for AT1 October 2007 notes in a total nominal amount of £20,200,000. Separate subscription requests, each signed on their behalf by Mr Smith, were prepared for the PF claimants and RE claimants respectively. The notes issued in response were signed by Mr Ruparell on behalf of AT1. The amounts payable for the notes equalled the nominal amounts. Payment was due immediately. The allocations were as follows:
(a) PF2 - £3,900,000 of class B notes;
(b) PF3 - £2,900,000 of class B notes;
(c) PF4 - £3,900,000 of class B notes;
(d) PF5 - £2,300,000 of class B notes;
(e) RE1 - £3,600,000 of class C notes; and
(f) RE2 - £3,600,000 of class C notes.
(5) FPP subscribed for £2,000,000 of AT1 October 2007 class C Notes. £800,000 of that sum was paid on that day and the balance of £1,200,000 was payable on or before 14 November 2007.
A2.57. By way of supplement to the summary above of what occurred on 29 October 2007, on that day:
(1) Arch FP instructed Bordeaux to execute payments to AT1 by each of the Lonscale claimant cells in the amounts due under their subscriptions for their respective AT1 October 2009 notes. The payments were to be made at AT1's internal account at Fortis;
(2) Bordeaux instructed Fortis to make the transfers to AT1.
(3) AT1 received the £800,000 due from FPP in respect of the first tranche of its subscription for AT1 October 2007 class C notes.
(4) AT1 thus received £21m in total. It used £1,016,750.34 to repay the amount due, including interest, to SO3, which, as stated in section A2/B above, had funded the payment of £1 million that Lonscale had made to Mr Hayes in August 2007 when the SPAs were concluded.
(5) Arch FP instructed Bordeaux to transfer the balance remaining, £19,983,750.34, to the client account of Cobbetts. Bordeaux gave the necessary instructions to Fortis.
(6) Mr Farrell wrote to Cobbetts noting that they were aware that £19,983,750.34 would be arriving in their client account that day for completion of the acquisition of Club Easy by Lonscale. His letter was written on Arch FP headed paper. It said that, upon successful completion of the acquisition, "structuring fees" of £3 million were to be paid to Arch FP (whose bank account details were supplied) and £3 million to the order of Mr Barkman.
(7) The sum of £19,983,750.34 was credited to Cobbetts' client account. In respect of this sum Cobbetts created a client ledger account. I shall refer to it as "the £19.98m ledger account".
A2.58. Documents bearing the date 29 October 2007 were prepared for auditors in early 2009. They included:
(1) an invoice from Arch FP to Lonscale bearing the date of 29 October 2007 and stating that it was "for £3,000,000 for the provision of intermediary services in relation to the acquisition of the Clubeasy group of companies";
(2) various versions of an invoice for £3m from FCL to Lonscale, some of them bearing this date, which were prepared in the period after 29 January 2009 (see the account of events following an audit request relayed on 29 January 2009 as set out in sections A2/L and A2/M).
A2/ D. 30 October 2007 to 9 January 2008 inclusive
A2.59. On 30 October 2007 the first transfer out from the £19.98m ledger account is recorded. It was a transfer of the sum of £12,218,078 to the client account of Mr Hayes's solicitors. This was the payment of the completion monies.
A2.60. The second payment out of the £19.98m ledger account was a transfer to Club Easy on 2 November 2007 of £500,000. The narrative entry was "Working Capital from Completion monies Clubeasy Group plc".
A2.61. The third payment out from the £19.98m ledger account was on 6 November 2007. This was a transfer of £3 million to Arch FP. The narrative described this payment as "Arch structuring fee". It is common ground that this is a reference to the description used by Mr Farrell in his letter of 29 October 2007 to Cobbetts, in which a payment of £3 million to Arch FP was described as one of two "structuring fees".
A2.62. On 5 November 2007 Mr Addison emailed Cobbetts. Mr Addison explained that Mr Barkman would be "calling you shortly to give consent to release funds to Arch Financial Products …". In that regard Mr Addison's email attached Mr Farrell's letter of 29 October 2007. It will be recalled that this described the second "structuring fee" as being £3 million "to the order of Lee Barkman". Mr Addison's email concluded:
I would be grateful for immediate release of the funds once you have Lee's authorisation.
A2.63. While Mr Addison's email referred to a release of funds to "Arch Financial Products", the fourth payment out from the £19.98m ledger account was in fact a transfer to Arch UK of £556,152 on 9 November 2007. The narrative described it as "from Foundations Capital Limited". It is common ground that this payment was made at Mr Barkman's direction out of his £3 million "structuring fee", and constituted the amount due to be paid by FCL to Arch UK for the redemption of Arch UK's preference shares in FHL.
A2.64. On 15 November 2007 Mr Addison in his capacity as a partner of Arch FP wrote to BDO Stoy Haywood LLP ("BDO"). The content of the letter is set out below, with paragraph numbers added in square brackets for convenience:
VAT Advice
[1] Arch Financial Products recently received a fee of £3m from an Isle of Man company from assistance in acquiring another group of companies. I would like to confirm our understanding how we should treat this payment for VAT purposes.
Background
[2] In July 2007 Arch was made aware by a company called Foundations Capital Limited (FCL) of an opportunity to purchase a group of companies involved in the student accommodation and letting business in the UK. The vendor is an Isle of Man resident individual.
[3] The intended purchaser of the transaction could not complete the transaction at the time and so Arch was approached by FCL with a view to finding an alternative purchaser for the group of companies.
[4] Arch introduced and acted on behalf of Arch Treasury IC Limited a Guernsey investment company to which Arch has an investment management agreement.
[5] As there were a number of companies in the UK and the Isle of Man under common ownership that were being sold, it was recommended that a separate Isle of Man holding company was set up to purchase the various businesses and so Lonscale Limited was set up by FCL and Arch as a holding company to hold the disparate companies under the Clubeasy umbrella, and Arch Treasury IC Limited purchased Lonscale.
[6] There is no formal letter appointing Arch. Arch acted on behalf of Arch Treasury IC Ltd under the terms of the investment management agreement between the parties.
Due Diligence
[7] FCL had already appointed the following parties to undertake due diligence for the purchase and whose fees were paid by Lonscale:-
[7.1] ? Cobbetts solicitors to undertake due diligence, disclosure, conveyancing, banking and tax issues.
[7.2] ? PKF undertook a forensic accounting review covering the financial control environment, accounting policies, balance sheet, cash flow and profit and loss and future projections of the companies.
[7.3] ? Storeys were engaged to prepare a valuation report on the property portfolio.
[8] I have attached a copy of the engagement letters. You will note that they were engaged by FCL as Lonscale had not been formed at the time.
[9] Arch and FCL undertook the following activities
[9.1] ? Negotiated the price with the vendor
[9.2] ? Negotiated the terms of the sale and purchase agreement
[10] We understand from the above that the entire fee is therefore classed as financial intermediary service and as such no VAT is due on the invoice.
[11] Payment has been made to us in November by Cobbetts but I have not submitted a formal invoice yet, and attach a draft invoice for your consideration to ensure that it correctly describes the work undertaken and the appropriate VAT treatment.
Timing
[12] Our VAT quarter ends on 30 November and we will need to submit the return and any payment by 31 December.
A2.65. BDO replied by letter dated 23 November 2007. The letter noted that they had had a conference call with Mr Addison. Material parts of the remainder of the letter are set out below, with paragraph numbers added in square brackets for convenience.
…
[2] I understand that Arch FP provides fund management services to a Guernsey based investment company, Arch Treasury IC Ltd (Arch TIC). Arch TIC recently incorporated an Isle of Man subsidiary company, Lonscale Ltd, which purchased a group of companies. Arch FP together with a third party FCL, acted as an intermediary in arranging and brokering the deal which resulted in the acquisition.
[3] FCL had previously acted as an intermediary in arranging an acquisition by an alternative purchaser but the deal fell through. FCL then approached and invited Arch FP to introduce a potential purchaser and assistant in negotiating/arranging the deal between the two parties.
[4] Arch FP introduced the purchaser (Lonscale Ltd) to the vendor, helped raise funds for the acquisition and together with FCL negotiated the terms of the sales/purchase agreement and price for the shares. Arch FP is now entitled to a commission of £3Million payable by Lonscale. FCL is also entitled to commission. These commission payments were contingent upon the successful conclusion of the deal. In the event that the acquisition had not completed both parties would not have been entitled to a commission.
VAT Implications
[5] The services of a financial intermediary are exempt from VAT. The definition of a financial intermediary is someone who:
[5.1] 1. Brings together parties who wish to buy and sell shares, securities, loans and other such financial instruments;
[5.2] 2. Acts as the middle man between the two parties in negotiating the terms of the acquisition; and
[5.3] 3. Undertakes preparatory work for the conclusion of contracts.
[6] Please note that the exemption only covers the services of an intermediary in carrying out activities detailed in points 1-3 above and does not extend to additional services such as due diligence, valuation, legal work etc.
[7] In this instance I understand that Lonscale Ltd has paid separately for these services and that Arch FP's commission only relates to its service of introducing and brokering the deal. Therefore the services provided by Arch FP fall within the above definition and I can confirm that its commission will be exempt from VAT.
Fund Management Services
[8] It is important that Arch FP's financial intermediary services can be distinguished from its supplies of fund management to Arch TIC. I understand from our conversation that this is indeed the case and that the two supplies are independent of each other.
[9] If this was not the case we would need to consider whether the intermediary services form part of a wider service of fund management and as such should be treated as taxable fund management services rather than exemption financial intermediary supplies.
[10] In this instance if HMRC considered that the intermediary services formed part of the fund management supply, the commission would be outside the scope of UK VAT, as service as Arch TIC is based in Guernsey. However, I feel that this is a distinctly separate service supplied to Lonscale Ltd and is exempt from VAT.
…
A2.66. In the meantime, a fifth payment out of the £19.98m ledger account had been made. This was a payment of stamp duty to HM Revenue and Customs on 22 November 2007 in an amount of £54,915.
A2.67. The sixth payment from the £19.98m ledger account was made on 23 November 2007 to FCL. It was a sum of £150,000, described in the narrative as "Foundations Capital - £150K of their structuring fee". The defendants explained [see DFWCS para 87] that this was part of Mr Barkman's £3m, used by him to pay "the introducer's fee to Mr Blythe".
A2.68. The seventh and eighth payments out of the £19.98m ledger account were both made on 27 November 2007. They were in response to invoices from PKF and PKF (IOM), in amounts of £70,664.61 and £1,141.22 respectively.
A2.69. The ninth and tenth payments out of the £19.8m ledger account were also made on 27 November 2007. They were in respect of invoices from Dickinson Cruickshank (lawyers in the Isle of Man) and from Storeys, in amounts of £5,475.50 and £52,875 respectively.
A2.70. The eleventh, twelfth and thirteenth payments out of the £19.98m ledger account were on 29 November 2007. They comprised a "Client to Client Transfer FO 00475.1/FO 00475.2", in an amount of £19,659.23, and payments of £66,845.94 and £21,032.02, each described in the narrative as "Client to Office Transfer".
A2.71. The fourteenth payment out of the £19.98m ledger account was on 30 November 2007, for an amount of £950,000. It was described in the narrative as "from Lonscale Ltd to Clubeasy Group plc". This payment was the subject of a letter written to Cobbetts on paper headed with Lonscale's name and address and dated 29 November 2007. It was signed by Mr Farrell and Mr Barkman in their capacity as directors, and asked that the payment to Clubeasy Group plc be made to Clubeasy Group plc's bank account, adding "bank costs may be debited from the funds held on behalf of Lonscale Ltd."
A2.72. On 3 December 2007 Cobbetts emailed Mr Jeffs, Mr Barkman and Mr Montague attaching an annotated print out of the transactions on the £19.98m ledger account. The balance of that account, following the fourteenth payment described above, was £2,316,911.82. The annotations calculated that after deducting the fourth and sixth payments (made at the direction of Mr Barkman on 9 and 23 November 2007 respectively), the sum of £3 million to be held to the order of Mr Barkman had been reduced to £2,293,848. A further calculation showed that when that sum was deducted from the £19.98m ledger account balance of £2,316,911.82, there remained in that account a sum of £23,063.82. In Cobbetts' covering email they asked for confirmation that the split of the balance of funds held was:
Foundations Capital £2,293,848; and
Lonscale Limited £23,063.82.
A2.73. In December 2007 and early January 2008 email exchanges took place between Mr Jeffs and Mr Farrell concerning preparation of what was described as an "Abbreviated Business Plan for Clubeasy". On 6 January 2008 Mr Gordon Featherstone, a consultant to Club Easy brought in by Mr Jeffs, prepared a report stating, among other things:
…
Looking at the company now it appears that Jason probably ran it principally to create cash. He regularly re-mortgaged the property but did not always re-invest that money in the company. He had a management style that was very 'capital' focussed and made it plain to the staff that he was not very concerned about bottom line profitability. He had a management style that was very dictatorial and employed staff to accommodate that way of working.
So we now have a company that is losing money and will require capital injections to keep it going unless something significant happens. The expected increase in property values has slowed down and this could have an impact on the underlying asset value of Clubeasy. We have a level of senior staff that is struggling to make the adjustments needed by the new owners in the way that they work, and this makes one wonder if they have what it takes to change and move forward.
…
One final point that could impact how we move forward is the Arch/Lonscale strategy for their Clubeasy investment. It would seem that the original investment that was made was expected to be in a company with an increasing capital value. This increase has now slowed down because of the downturn in property value increase. It would be useful to know the strategy you have in mind to bring the company to profitability as this may affect the way we move forward now.
A2.74. On 9 January 2008 Lonscale provided funding to Club Easy in an amount of £1 million. This was financed by a payment in that amount by AT1 to Lonscale by way of subscription for one hundred Lonscale October 2007 senior notes. AT1's payment itself was funded by payments of £500,000 by each of RE1 and RE2 pursuant to subscriptions by each of them for fifty AT1 October 2007 class A notes.
A2/ E. 10 January 2008 to 28 April 2008 inclusive
A2.75. Mr Featherstone produced an updated report on 16 January 2008. In a section entitled "background" Mr Featherstone said this:
…
In the past there was never any requirement for the finance department to produce monthly information of any kind, other than schedules of bank balances and a rudimentary Balance Sheet – Jason Hayes was not concerned with profitability. As a result of this the systems in place have been set up simply to provide Jason with what he wanted, as well as produce year end accounts. There is no comprehensive schedule by property showing the loan raised against it and the interest payments due and when the payments are due: there is no comprehensive schedule by property showing the outgoings on that property and when payments are due: there is no schedule of the various city offices and their associated costs and payment due dates: there is no comprehensive schedule of all the employees, what they do, where they work and what they are paid. There is no properly prepared budget for the year and thus no derived cash-flow forecast.
A2.76. Mr Featherstone also noted issues concerning the way that work was split between the finance director and the commercial director. In a concluding section of his updated report, Mr Featherstone noted that resolution of those issues would be a vital part of the exercise that he proposed. As to that exercise, what Mr Featherstone proposed was this:
1. The simple cash-flow … produced [by the Finance Director] is reasonably accurate for the moment and will give an idea of what cash needs to be injected and when.
2. We produce the necessary back up schedules needed to create a 'proper' budget, and use them for a more practical budget, a budget that is in a similar format to the financial accounts so that the accounts can show actual and budget figures and highlight variances.
3. We then create a cash-flow forecast from that budget, again in a format that can easily be compared to actual figures.
4. We can then work on forecasting the Balance Sheet on a monthly basis.
5. We can also address the detailed information requirements of Arch/Lonscale that include results/profitability by property and also by city.
A2.77. In an internal email sent by Mr Jeffs on 14 February 2008, Mr Jeffs forwarded the email sent by Cobbetts on 3 December 2007 giving their breakdown of the funds held in the £19.98m ledger account (see section A2/D above). Mr Jeffs noted that the balance described in Cobbetts' email as being held for Lonscale should match with the amount in a Barclays account that was due to be opened.
A2.78. A fifteen page briefing document was circulated by Mr Jeffs on 22 April 2008. It was entitled "An Introduction to Clubeasy: Background Narrative." With the addition of paragraph numbers in square brackets, this document included the following:
…
[9] Lonscale acquired Clubeasy on 29th October, anticipating that the existing management team and company structure and personnel would be able to continue the day-to-day operations of the company. This would allow a combination of Lonscale owners (Arch and Foundations) to be able to concentrate on expanding the accommodation portfolio, re-negotiate loans to reduce debt-repayment burden and generally restructure the company and get costs under control.
[10] In fact the basic assumption proved to be incorrect: the operating board were not used to directing the Company, they had been operating in a culture of "don't do anything unless instructed to do so". The previous owner was very hands-on and would frequently and typically get involved in everyday matters and decision making and micro-management down to fine details. Over time staff had got used to this way of working and were expecting to be told and steered rather than be self reliant, while this might be more acceptable in junior roles/jobs this unfortunately was pervasive up to and including the operating board.
[11] Management information was non-existent and the finance and admin systems in place were not able to produce consolidate group information: in fact monthly accounts were not prepared as the owner was not interested in looking at profit and loss as he was concerned with capital value. Nor were systems and processes in place that allowed the individual cities to be analyzed in any meaningful way. An additional unexpected problem arose when it was discovered that, due to procedural and hardware inadequacies, financial information had become corrupted. …
[12] The thrust of the companies finances appear to have been to re-mortgage as the properties increased in capital value and ensure that direct expenses could be covered by repeating such exercise on a regular basis. Prior to acquisition the previous owner was able, in a rising property market, to cover the P&L deficit by regularly releasing funds from the re-financing and draw substantial dividend payments as well. Latterly interest rates were rising, property capital value growth was slowing, overall level of debts was increasing, larger scale operation had increasing level of costs – unchanged this would represent a poor outlook. These facts would show the full impact on the Company's financial position once the new levels of debt, costs etc were fully and accurately set out in a forecast or budget. …
[13] A consequence of not having Completion Accounts that are agreed between vendor and purchaser is that mortgage and loan providers are reluctant to enter into new or re-negotiated arrangements until the Completion Accounts are signed off and subsequent management information is readily and routinely available to them.
…
[17] Immediately following the acquisition three individuals (Company mangers who were relatives or close friends of the previous owner) caused a crisis by refusing to work with the MD and made demands, expecting to have their previous arrangements recreated (these arrangements centred on the individuals being gifted a share in their respective city's capital appreciation of the property). …
A2.79. On 28 April 2008 Lonscale provided funding to Clubeasy in an amount of £200,000. This was financed by a payment in that amount by AT1 to Lonscale by way of subscription for twenty Lonscale October 2007 senior notes. AT1's payment itself was funded by payments of £100,000 by each of RE1 and RE2 pursuant to subscriptions by each of them for ten AT1 October 2007 class A notes.
A2/ F. 29 April 2008 to 9 June 2008 inclusive
A2.80. On 10 May 2008 Mr Farrell prepared an email which he entitled, "real estate – update notes". It included as section B a synopsis in relation to Club Easy. Under the heading, "current trading", the synopsis noted that an interim CEO had been appointed, that a strategy of a structure under which there would be an operating company ("OpCo") and a property owning company ("PropCo") had been "oft discussed" but was still in need of progression, and that Club Easy had lost most of its senior management team, which posed considerable operational risk if further departures were to ensue. At item 5 under this heading the synopsis stated:
5. Further buying in the Southern cities (and London) is planned, which should serve to provide additional future revenues against the cost base, which is being gradually reduced.
A2.81. Under the heading "Structural Problems/Opportunities", the synopsis stated:
1. Club Easy needs an infusion of professionals in order to migrate from a single entrepreneur owner-run business into a sustainable more professional business, focussed on returning to profit within one year
2. Club Easy has a cost base commensurate with twice the level of properties currently on its books
3. Club Easy makes a loss on most of its property base, through inappropriate pricing and marketing policies
4. Club Easy is significantly loss-making, so Arch has prudently created large loss provisions over the next 12 months which are steadily being drawn down
5. Club Easy has had little active management in the period since acquisition. Lender relationships, strategy, staff all need to be optimized
6. Student accommodation properties are valued at a higher level than comparable residential properties. This presents both a potential uplift on change of use, and a potential loss on revaluation/disposal if not sold en bloc.
A2.82. Under the heading "Structural Solutions", the synopsis stated:
1. Additional funding for new purchases. Lenders are still keen on student accommodation so making LTV ratios still attractive
2. Additional funding for new staff and structural fixes to the cost base
3. New pricing policies. Removal of the all-in unlimited package, to be replaced by a higher-priced "reasonable use" package
4. Better communication and marketing strategy development, as opposed to advertising
5. Given the housing nature of much of the portfolio and the need to upgrade some of the housing stock, the attraction of other high quality tenant groups e.g. young professionals
A2.83. On 23 May 2008 Mr Montague forwarded to Mr Barkman and Mr Addison an email that had been received from the wealth management division of Barclays Bank PLC ("Barclays Wealth") in relation to FPP. The email noted that Barclays Wealth were currently conducting a review of what was described as "the Foundations Programme". There had been a request that Barclays Wealth include as security for an existing facility what it described as a "heavy Arch investment". The email expressed concerns as to "the supporting documentation and the Arch funds themselves." Among other concerns, the email noted that FPP's holding of AT1 October 2007 class C notes formed the largest part of the Arch investment, and commented that there was "no appetite to use this as collateral". The email gave two reasons for this lack of appetite from Barclays Wealth's point of view. They were as follows:
[1] "there is no transparency of the underlying company, i.e. Lonscale Ltd"; and
[2] "the fact that these are C class and therefore only have value following the redemption of class A and B notes".
A2.84. In relation to this aspect of Barclays Wealth's concerns, Mr Addison replied by email the same day thanking Mr Montague and adding, "we're on the case".
A2.85. On 6 June 2008 Mr King sent Mr Farrell an email describing a meeting that had taken place with Lloyds TSB ("Lloyds") on 3 June 2014. Lloyds had lent to Club Easy on the basis that each loan was supported by a personal guarantee ("PG") provided by Mr Hayes. Mr King noted that the lending was subject to covenants which would be reviewed at the end of 2008. It would be important to satisfy the covenants as breach would lead to a higher interest rate and a reduction in the existing minimum ratio of the amount of the loans against the value of the security ("loan to value" or "LTV"). At present Mr Hayes's liability under his PG remained in place, and Mr King noted that removal of that liability might be something to raise in negotiations with Mr Hayes. He added that Lloyds had stated a desire to lend to Arch, and potentially to increase their lending to Clubeasy.
A2.86. On 9 June 2008 Lonscale provided funding to Club Easy in an amount of £600,000. This was financed by a payment in that amount by AT1 to Lonscale by way of subscription for sixty Lonscale October 2007 senior notes. AT1's payment itself was funded by payments of £300,000 by each of RE1 and RE2 pursuant to subscriptions by each of them for thirty AT1 October 2007 class A notes.
A2/ G. 10 June to 2 July 2008 inclusive
A2.87. On or shortly after 25 June 2008 a document described as the "latest version of the 2008/2009 budget for the consolidated Clubeasy Group" was prepared. It projected a loss of £3.4m for 2008/2009 [using a year end of 31 July], against a forecast loss for the current year [ending 31 July 2008] of £3.8m. As to cash flow, there would be a cash requirement by the end of July 2008 [the document referred to "2007", which appears to be an obvious slip] of approximately £1.1m, and that by the end of 2008/2009 there would be an additional requirement of approximately £3.3m, to which would need to be added tax and VAT penalties expected to be over £200,000. Five general comments were made in relation to the budget figures. With the addition of numbering in square brackets, they were as follows:
[1] We have prepared these figures on a conservative basis to ensure that we show a 'worst case' scenario. They reflect the information that we currently have. We do expect to identify areas where improvements can be made and so intend to re-forecast on a quarterly basis to reflect any such improvements.
[2] For the purposes of this budget exercise we have ignored the effect of any potential VAT registration for Clubeasy as we do not yet know what effect these will have.
[3] We have prepared these figures to be 'inclusive of OpCo and PropCo' so that all items of income and expenditure that affect the Consolidated Group are included. The only exception to this are the costs of the properties purchased since acquisition that are owned offshore by Savile Durham and Savile Exeter.
[4] We have used current interest rates so there would be a saving in this area if rates were to reduce. Kingston Smith have done an exercise which includes interest projections for 2008/2009 at around £5.6m compared to our budgeted £6.2m.
[5] City budgets resulted from property by property forecasts for revenue and direct costs, an exercise that has already given much useful information.
A2.88. On 2 July 2008 Lonscale provided funding to Clubeasy in an amount of £1.1m. This was financed by a payment in that amount by AT1 to Lonscale by way of subscription for one hundred and ten Lonscale October 2007 senior notes. AT1's payment itself was funded by payments of £550,000 by each of RE1 and RE2 pursuant to subscriptions by each of them for fifty five AT1 October 2007 class A notes.
A2/ H. 3 July to 6 October 2008 inclusive
A2.89. On 3 July 2008 Kingston Smith LLP ("Kingston Smith") produced a report for Lonscale and its directors. The report was entitled "Lonscale Restructuring", and comprised a review of the current business structure along with advice on appropriate changes to make the structure more tax efficient. The report noted that all employees had a single contract of employment with Clubeasy Group plc, which recharged costs of the employees to other Clubeasy Group companies on a "best guess" basis. It advised that this was a supply of staff for VAT purposes, and that Clubeasy Group plc or any earlier employer of staff should have been VAT registered. There would be a late registration penalty in that regard. The VAT due would need to be paid, which would be a true cost as the company receiving the services would be VAT exempt and unable to recover. In addition there was likely to be a liability to VAT surcharges. In the eight months to March 2008 Kingston Smith calculated the VAT on recharges of employment costs as amounting to £101,875.
A2.90. In an email sent by Mr King to Mr Farrell and Mr Jeffs on 23 July 2008, Mr King reported on a discussion with Bath Building Society. The building society had asked to be provided with current rents so that rough valuations could be made. Mr King commented that using the current figures for rents which were inclusive of utilities, and a yield for valuation of 7.25 percent, the loan to value ratio was 83 percent, which he described as "probably way too high" to give the building society comfort. Mr King added that if the building society were to use a "blanket ten percent utility cost assumption", which he said was what Lloyds did, this would increase the ratio to 93 percent. Immediately after making this observation, Mr King continued:
If we use a realistic 20% utility number, the LTV is 104%!!
A2.91. On 8 August 2008 Club Easy management produced a "Business Plan for Growth." The plan envisaged that Club Easy would add 1,654 bed spaces over a five year period by "opening up" two or three new cities. It assumed a capital property development programme of £20 million per year from 2009/10. This would be "in addition to the acquisitions/developments currently being planned in Exeter and Durham." The plan envisaged that capital property developments would "be funded 60/40 borrowing to equity." Under the plan a break even position would be reached in 2012/13.
A2.92. In an email to Mr Farrell, Mr Barkman and Mr Blythe on 14 August 2008, Mr Jeffs recommended that Lonscale's board of directors should approve and support the Business Plan for Growth. The following morning Mr Farrell emailed Mr Blythe and Mr Barkman, commenting:
The numbers therein [i.e. in the Business Plan for Growth] are low-ball i.e. base case 20M expenditure over next 4 years on new properties, so all that should be achievable on a much earlier timescale.
A2.93. Mr King had received a copy of Mr Farrell's email, and on the afternoon of 15 August 2008 responded:
… I wouldn't accept the plan… if I was part of the Executive unless there was a written undertaking from Arch/Foundations to provide the capital for additional purchases. There's no way any profitability can be achieved standalone at current leverage levels. Maybe a way to get Foundations on the hook?
A2.94. On 21 August 2008 Mr King sent Lloyds an email headed "clubeasy – information requested". In the email he referred to a recent conversation regarding Club Easy's desire to refinance various loans provided by, among others, Bath Building Society. Attached to his email was information on those facilities. Later that day Mr King forwarded the email to Mr Jeffs and Mr Farrell among others, commenting:
Note that for the Lloyds email below, I've removed any details of costs [i.e. just property details, loan amount and 2008/9 rent etc.].
Since Lloyds are an existing lender and therefore know Clubeasy, they assume a 10% cost ratio. The real number is 25%, so I didn't want to show this.
A2.95. Also on 21 August 2008 Mr King emailed Mr Farrell and Mr Barkman, attaching a plan which would reduce the time needed to show "earnings multiples in valuations on OpCo", as well as accelerating the break even point in cash terms on the group. His covering email included a number of comments, one of which referred to the Employee Share Ownership Plan ("ESOP"). With the addition of paragraph numbers in square brackets, those comments were as follows:
[1] Attached is my plan of making Clubeasy perform in the near term i.e. shrink the period before we can start to see some earnings multiples in valuations on OpCo, and accelerate the breakeven point in cash terms on the group.
[2] Clearly this requires huge input from Arch and Foundations otherwise I can't see that Clubeasy will ever show a profit with its current level of gearing. That said the refinancing exercise may require additional capital in the coming months of up to £7m.
[3] In order for the management to even have a shot at making inroads, Arch/Foundations have to give a commitment to Clubeasy to provide the necessary capital investment [say £50m equity over the next 2-3 years], via whatever means are available to each party.
[4] I'm surprised that, so far, the management hasn't made noises that without this commitment the ESOP scheme is pointless as they will have meaningless and unachievable targets.
[5] Accordingly, I seek an undertaking from both parties re the capital injection levels and plans on this front.
[6] Lee – I'm pretty much in the dark on Foundations plans/capacity. If you could flesh this out for me that would be most appreciated.
A2.96. On 6 October 2008 Lonscale provided funding to Club Easy in an amount of £50,000. This was financed by a payment in that amount by AT1 to Lonscale by way of subscription for five Lonscale October 2007 senior notes. AT1's payment itself was funded by payments of £25,000 by each of RE1 and RE2 pursuant to subscriptions by each of them for 2.5 AT1 October 2007 class A notes.
A2/ J. 7 October 2008 to 11 December 2008 inclusive
A2.97. On 31 October 2008 Mr King received an email from a colleague reporting on discussions with banks with a view to replacing the Club Easy debt. Mr King's colleague reported that at the stage when terms were to be provided for the facility, HSBC pulled out of the market. He had contacted a director of Abbey UK Corporate who was familiar with Mr Hayes and did not want to lend on the portfolio, having seen it in the past and having taken a decision not to lend then. In relation to other banks the position was summarised in the email in this way:
I am still in discussions with three banks who are eager to proceed and I am advancing them quickly, but the main problem is that they will require a third party valuation from another firm. The Storey's valuations is above what we feel is the market value of the property and as such we have been trying to find banks friendly with Storey's as the valuer. If we are unable to reuse the valuation (or the firm) the resulting value and LTV will drive our debt to levels that will require us to substantially increase our equity.
A2.98. On 3 November 2008 Arch FP's real estate division sent an email to Mr King and Mr Farrell, among others, attaching a review paper regarding "Clubeasy Funding of Jason Hayes PG secured loans." In a section entitled "Background" the note commented that there had been a protracted attempt to refinance the existing Clubeasy portfolio, which had been hampered by a number of factors. One such factor was that the existing debt had been "secured in a rising market, pre-credit crunch." In a section entitled "Valuations" the note commented that the valuations provided by Storeys were "not only very generous, but arguably flawed, being based on a Gross Yield methodology rather than Net Yield – the norm for student accommodation and residential rental investments… no Banks we have spoken to are willing to consider Storeys to provide their lending security valuations." In addition the market had fallen materially since August 2007 when the Storeys valuations were undertaken. The note identified a best case valuation of £25.787m, but commented that this contrasted with a vacant possession valuation of £21.255 million and noted a doubt as to whether an external valuer could justify such a large discrepancy. The note concluded that on the footing of an expected valuation of £23.6 million, the expected achievable debt would be £16.5 million from the Bank of London and the Middle East ("BLME") on terms specifying a 70% LTV, or £15.3m from Barclays on terms involving a 65% LTV. The implication identified in the note was that there would be a "required equity injection" of £11m to £12.3m.
A2.99. On 10 November 2008 Mr King prepared a note setting out the "general gist" of discussions with banks about Club Easy. The note identified four existing lenders where the sale of the CG owning companies had involved a breach of loan covenants. While in one case, Beverly Building Society, there had been agreement to the sale, the remaining three lenders (Bath Building Society, Skipton Building Society and Paragon) were insisting on repayment. Mr King commented that the facility provided by Beverly Building Society was "small in the scheme of things". In relation to Paragon he noted that the facility was for £25m odd, as to which "we do not have unlimited resources to inject this amount of capital." More generally, Mr King commented:
The sale of Clubeasy by the Vendor to Arch was a breach of loan covenants in all of the above loans. Unfortunately we did not find this out until well after Completion due to poor documentation trails, and this left us in the lurch in potentially facing a £30m liquidity hit if really pressed, or having the company fail.
A2.100. On 11 December 2008 Lonscale provided funding to Club Easy in an amount of £500,000. This was financed by a payment in that amount by AT1 to Lonscale by way of subscription for fifty Lonscale October 2007 senior notes. AT1's payment itself was funded by payments of £250,000 by each of RE1 and RE2 pursuant to subscriptions by each of them for twenty five AT1 October 2007 class A notes.
A2/ K. 12 December 2008 to 5 January 2009 inclusive
A2.101. On 21 December 2008 Arch FP produced a document entitled "Valuations Policy Real Estate". It applied to funds for which Arch FP was the investment manager. As regards student accommodation, it noted that there were different methods of valuing this asset class depending, among other things, on the mode of operation. In the case of Lonscale, having identified that the mode of operation was "Direct Operation", the document continued:
There are basically 3 methodologies that we can use for Direct Operation student accommodation:-
i) Vacant Possession i.e. normal residential market valuation of an empty property; or
ii) Bedspace Model : a valuation based on the average bed cost in a particular regional market multiplied by the number of beds in the property e.g. 4 beds x £60,000/bed = £240,000. The average bed prices vary by each regional city, and by location in that city; or
iii) Yield Model : a yield based calculation which uses the rental yield divided by the market yield for accommodation in that particular market e.g. a rental income from a property of £20,000/yr in a 7% commercial yield environment implies a valuation of £285,000.
The Vacation Possession valuation is the most conservative, however it misprices the commerciality of the property which now has a changed use from normal residential, and has a much higher yield than normal buy-to-let use.
The Yield Model is at the other end of the spectrum, and would be used when selling a commercial business of this type i.e. it is the most aggressive.
For conservatism, we will use the Bedspace Model utilizing market prices per bed in each of the markets we enter.
A2.102. On 5 January 2009 Lonscale provided funding to Club Easy in an amount of £500,000. This was financed by a payment in that amount by AT1 to Lonscale by way of subscription for fifty Lonscale October 2007 senior notes. AT1's payment itself was funded by payments of £250,000 by each of RE1 and RE2 pursuant to subscriptions by each of them for twenty five AT1 October 2007 class A notes.
A2/ L. 6 January to 13 March 2009
A2.103. On 21 January 2009 Mr Featherstone emailed Mr Jeffs. He noted that answers were needed for Kingston Smith in relation to a number of matters. The third of them was described in this way:
3. Arch Real Estate provided £21m to be deposited at Cobbetts to pay acquisition costs and the two £3m amounts to Arch and Foundations. We need some documentary evidence for the £3m amounts. So far I have shown the payments as 'Restructuring Costs'
A2.104. Just over a week later, Mr Featherstone received an email from Kingston Smith, auditors of Lonscale, referring to "the two £3m fees paid on the acquisition". In the email Kingston Smith said:
Given the size of these we need to understand the commercial rationale behind them; …
A2.105. Mr Featherstone forwarded that email to Mr Jeffs on the same day, adding in relation to the £3 million fees, "Only you guys can help here".
A2.106. Mr Farrell was told that as regards the Lonscale audit Kingston Smith needed "documentary support and commercial rationale" for these fees. Mr Farrell indicated in an email that those involved should ask Mr Addison adding:
- he went thru it with bdo at our end
also [AT1] acquired + then securitised the deal into a+b+c notes
A2.107. Mr Farrell's email had been sent at 1:16pm on 27 January 2009. At 2:21pm Mr Addison sent a reply. With paragraph numbers added in square brackets, it was as follows:
[1] I hope this helps
[2] In July 2007 Arch was made aware by a company called Foundations Capital Limited (FCL) of an opportunity to purchase a group of companies involved in the student accommodation and letting business in the UK. The vendor is an Isle of Man resident individual.
[3] The intended purchaser of the transaction could not complete the transaction at the time and so Arch was approached by FCL with a view to finding an alternative purchaser for the group of companies.
[4] Arch introduced and acted on behalf of Arch Treasury IC Limited a Guernsey investment company to which Arch has an investment management agreement.
[5] As there were a number of companies in the UK and the Isle of Man under common ownership that were being sold, it was recommended that a separate Isle of Man holding company was set up to purchase the various businesses and so Lonscale Limited was set up by FCL and Arch as a holding company to hold the disparate companies under the Clubeasy umbrella, and Arch Treasury IC Limited purchased Lonscale.
[6] Arch and FCL undertook the following activities
[6.1] ? Negotiated the price with the vendor
[6.2] ? Negotiated the terms of the sale and purchase agreement
A2.108. Mr Addison's explanation, along with Arch FP's invoice to Lonscale dated 29 October 2007, was forwarded to Mr Jeffs, who in turn forwarded it to Kingston Smith. On 29 January 2009 Mr Jeffs emailed Mr Barkman and Mr Montague, informing them that the auditors were "asking to see the Foundations invoice to help them complete their outstanding queries in this particular area."
A2.109. On 31 January 2009 Mr Farrell emailed, among others, Mr Addison, Mr King and Mr Jeffs. In his email Mr Farrell reported that he had spoken to Capita, who had told him that the FSA had raised queries, and had expressed concerns in three areas. Mr Farrell's email described these three areas, and set out plans to assemble documentation so that Capita would be in a position to give responses to the FSA. The three main areas were these:
1. Risk management process of Arch (and Capita's governance of Arch)
2. Strong concerns about liquidity (and 100% ownership of some Guernsey cells) – can investors get out if they want?
3. Conflicts of interest – how does Arch pick its investments (there is a financial inducement for Arch to invest in Arch cells, as opposed to other investments). Also separation of the investment managers & appropriate level of independence.
A2.110. Mr King reported to Mr Farrell on 5 February 2009 that he had found a note "late last year referring to an options structure that Clubeasy had in place." Mr King said that it now appeared that Mr Blythe had "actively sought to enter an options structure that really is pretty awful for Clubeasy." The upshot was that as regards lending by Lloyds at rates linked to LIBOR, in relation to interest on an amount of £24 million LIBOR was effectively stuck at 5.67 percent. Mr King commented that "there could be a case that it was mis-sold to someone not understanding what they were buying".
A2.111. In an email the following day to Mr Jeffs, copied to Mr Farrell, Mr King set out a number of comments. His first three comments, with the addition of paragraph numbers in square brackets, were as follows:
[1] The situation with the Lloyds loan & option is complex, but with the interest rate struck it will be impossible for the 2 companies [Hayes Ltd & ASA] to make a profit for at least another 3 years, and this could prove a drag on the entire Group [and hence our valuation].
[2] Lloyds are the sole lender to these 2 companies, and they have security over all the properties owned – so if we did anything with the company it is clean & isolated in that sense. We'd of course need to check if we could trigger any other loan within the Group if we made proposals to Lloyds on the debt/option.
[3] Given that the LTV is probably over 100%, the funding rate is about to be increased dramatically with the change to LIBOR and a new spread etc., these companies might not be in good shape going forward.
A2.112. On 10 February 2009 Mr Jeffs emailed Arch Treasury. He attached a draft letter of support from Arch Treasury in relation to Lonscale/Clubeasy, explaining that it had been requested by the auditors and asking if formal approval from the Investment Committee could be sought at the earliest opportunity. The attached draft letter contained, among other things, confirmations that AT1 would continue to provide working capital funding for a period of at least twelve months from the date of approval of the accounts of Lonscale Limited and its subsidiaries, and that AT1's budget included provision of additional loans of £3 million from AT1 and its shareholders for the period to 31 July 2009.
A2.113. In an internal email dated 22 February 2009 Mr King, in response to a suggestion that revaluation of the Lonscale assets would not be a trivial process, replied:
Lonscale is a big issue, however the Board have decided that the value of the properties is fine as stated.
A2.114. On 3 March 2009 AT1 provided a letter of support for Lonscale which included the confirmations described above.
A2.115. On 9 March 2009 FCL emailed Mr Jeffs attaching a draft invoice from FCL to Lonscale in an amount of £3 million. The covering email explained:
Just thought that I'd run this past you first as Guernsey have copied your invoice word for word – this won't really case a problem will it, or would you like me to shuffle it a bit?
A2.116. On 12 March 2009 an email was sent to Mr Jeffs on behalf of Mr Montague. It attached an invoice from FCL to Lonscale dated 9 March 2009, but what was said in the invoice differed from what had been said in the draft emailed to Mr Jeffs on 9 March 2009. Whereas that draft had, as indicated in the body of the email dated 9 March 2009, used materially identical wording to the invoice issued by Arch FP, the wording of the invoice of 9 March 2009 as signed by Mr Montague was:
09th March 2009
Dear Sirs
REF: Lonscale Acquisition of Clubeasy
Invoice for £3,000,000 in respect of the capital appreciation arising in the sale of the Clubeasy group.
Yours faithfully
Philip Montague
Director
A2.117. As noted in section A3 above, in March 2009 Capita suspended trading in shares of the UK OEICs on the grounds of deteriorating liquidity. This occurred on 13 March 2009. [Also on that day the GFSC, as stated in section A3 above, imposed on the ICC a condition that it and each of the cells were prohibited from disposing of any of their assets without the GFSC's prior consent.]
A2/ M. 14 March 2009 onwards
A2.118. It appears from emails dated 16 March 2009 that Foundations Capital sent to Mr Jeffs on that day a copy of the draft invoice from FCL to Lonscale as emailed on 9 March 2009, and thus using materially identical wording to that which had been used in Arch FP's invoice, but with the date of the invoice revised to "30 October 2007". This was then forwarded by Mr Jeffs to Mr Featherstone.
A2.119. Also on 16 March 2009 Mr King sent Mr Featherstone what he described as "a more accurate summary" for the auditors. With paragraph numbers added in square brackets, the "more accurate summary" stated:
[1] The funding of Lonscale for the purchase of Clubeasy was always intended to be structured in such a way that part of it would be capital and part loans. There has been some confusion regarding Loan Notes which was caused, in part, by poor drafting internally within Arch. In addition there was an implication that Lonscale had itself issued Loan Notes to support the monies that it received from Arch which was incorrect. All of this is now being corrected.
[2] We believe that … the draft Lonscale Balance Sheet that we currently have should be adjusted by reducing the 'Creditors Falling Due After More Than One Year' by £8m and increasing the 'Capital and Reserves' by £8m.
[3] The original funding to Lonscale from Arch Treasury, plus interest to 30 July 2008, of £23.9m was made up as follows
[3.1] ? £2.9m of funding via 6.5% Senior Loan Notes; and
[3.2] ? £13m of funding via 12% Mezzanine Loan Notes; and
[3.3] ? £8m capital.
[4] The £8m of capital should be seen as a subscription for share yet to be issued at that time: as the paperwork was not done at the time we are now putting this in place.
[5] As Arch Treasury did not have the resources to provide all of this, it needed to be able to break up transactions, and there was a requirement to add some equity component to a mezzanine loan note, Arch Treasury issued the following Loan Notes to Investors (i.e. various Arch managed funds):-
[5.1] ? "Lonscale A Notes" – £2.9m of senior loan notes paying a 6.5% coupon (with no equity share) – so these are effectively identical to the Senior Notes issued to AT by Lonscale.
[5.2] ? "Lonscale B Notes" – 13m mezzanine notes paying a 12% coupon, plus 25% share of any equity upside – so these are effectively the Mezzanine Notes issued to AT by Lonscale with the addition of the synthetic equity; and
[5.3] ? "Lonscale C Notes" – effectively synthetic equity of £8m that included 100% of Lonscale equity, but only 75% of the equity performance upside – there is no Lonscale equivalent to these;
A2.120. On 24 March 2009 a revised draft letter of support for Lonscale was signed on behalf of AT1 and Arch FP.
A2.121. A meeting of the board of directors of Lonscale was held on 25 March 2009. Those present were Mr Blythe, along with Mr Barkman and Mr Farrell both of whom participated by telephone. The minutes record that, among other things:
…
3. DECLARATION OF INTEREST
3.1 Each director present declared their interest in the business to be transacted at the meeting in accordance with the requirements of the Company's articles of association and other lawful requirements.
4. BUSINESS OF THE MEETING
4.1 The chairperson reported that the business of the meeting was to rectify the omission from the books and registers of the Company the allotment of 8 million ordinary £1 shares in the capital of the Company to Arch Treasury IC Ltd.
…
5.3 The Chairman … noted that, in order to permit the Company to complete the [SPAs] and to provide further working capital to the Company, the Company on 29 October 2007:
(a) borrowed from Arch Treasury IC Ltd £13 million via a 12% Mezzanine "B" Class Loan Note; and
(b) accepted from Arch Treasury IC Ltd £8 million via a subscription of 8 million ordinary £1 shares in the capital of the Company (Shares).
5.4 The Chairman then confirmed that it had now come to the Board's attention that the subscription for the Shares had been omitted from the books and registers of the Company.
5.5 The Chairman noted section 64(1) of the Companies Act 2006 which provides that "if the directors are satisfied that any information that ought to be entered in the register of members has been omitted therefrom or has been inaccurately entered therin, they may, by resolution, amend the register of members accordingly, provided that any such person thereby affected or to whom such amendment relates consents to such amendment being made".
6. ALLOTMENT OF SHARES
IT WAS RESOLVED TO:
6.1 Rectify the omission of the allotment of Shares by entering into the books and registers of the Company, with effect from 29 October 2007, the allotment of the Shares to Arch Treasury IC Ltd.
6.2 Instruct the Company Secretary to prepare share certificates in respect of the shares allotted and to arrange for the share certificates to be executed and delivered to Arch Treasury IC Ltd.
…
A2.122. Section A3 of the main judgment records that in March 2009 the notes issued by AT1 were restructured and replaced. This was achieved by arrangements which were completed on 30 March 2009. The AT1 October 2007 class A notes were called in by AT1, which discharged its obligations by transferring to those who held those notes the interest which AT1 held as noteholder under the Lonscale October 2007 senior notes. AT1 called in the AT1 October 2007 class B notes, discharging its obligations by procuring Lonscale to issue to the holders of those notes Lonscale mezzanine notes with attachable warrants for 25 percent equity in Lonscale. AT1 called in the AT1 October 2007 class C notes, discharging its obligations by transferring to the holders of those notes eight million shares in Lonscale, pro-rata to their respective holdings. The result was that AT1 ceased to hold any notes issued by Lonscale, and the AT1 October 2007 notes were all redeemed.
A2.123. A proposal was drawn up on 7 April 2009 for Arch FP's investment committee to approve limited further investments in Lonscale. The proposal described the cash flow forecast for Lonscale/Clubeasy for the year ending July 2009 as confirming that the remaining additional working capital (cash) requirement was £1.46m, split between April £0.24m, May £0.24m and July £0.98m. The proposal noted that on the basis of assurance provided as part of the formal external audit process Clubeasy had based its business on the assumption that working capital would be provided in line with forecast. It added that the outlook for the year August 2009 to July 2010 on a like-for-like basis was that there would be no requirement for additional working capital. In relation to potential conflicts of interest the proposal noted that both Mr King and Mr Jeffs were directors of Lonscale, and that Mr King was joint portfolio manager on the Real Estate funds. It added that the PF funds and RE funds benefitted from this transaction with support of their direct equity or warrant related exposure. By email dated 8 April 2009 Mr Jeffs confirmed that this proposal represented the last working capital loan requirements for the current year and that in the following year there should be zero requirement.
A2.124. On 9 April 2009 Mr Farrell resigned as a director of Lonscale. On 17 April 2009 Mr Farrell ceased to be a director of FPP.
A2.125. Section A3 of the main judgment records that in May 2009 the GFSC directed that investment management fees should not be paid to Arch FP until the basis of the valuation of the cells had been proven. This direction was made on 1 May 2009.
A2.126. On 12 May 2009 Mr King emailed Mr Meader, Mr Radford and Mr Addison, noting that minutes of the Arch FP investment committee recorded that it had approved the proposal of 7 April 2009. Accordingly Mr King sought approval from the ICC directors and the GFSC for payment of £0.24 million which had been due in April, and approval for payments of £0.24 million due in May and £0.98 million due in July. This was duly approved by the ICC directors on 13 May 2009. GFSC gave its approval on 15 May 2009. On 19 May 2009 RE1 and RE2 duly made the April and May payments, thus enabling Lonscale to provide funding to Clubeasy in an amount of £480,000. The total sum received by Lonscale comprised payments of £240,000 by each of RE1 and RE2 pursuant to subscriptions by each of them for twenty four Lonscale MCAB class A notes dated 19 May 2009.
A2.127. On 10 June 2009 Mr King emailed PricewaterhouseCoopers on a number of matters. The second of these referred to what was described as a "structuring fee". It also referred to net asset value ("NAV"):
A structuring fee was paid as part of the negotiations if … successful. This was agreed by the Directors of Lonscale to be paid on successful transfer (copy of Minutes attached) if a large discount to the NAV was negotiated with the Vendor. These fees formed part of the purchase of Clubeasy, and therefore are not relevant to the accounts as they form part of the purchase price.
A2.128. On 24 June 2009 Lonscale provided funding to Clubeasy in an amount of £985,933.70. This was financed by payments of £492,966.85 by each of RE1 and RE2 pursuant to subscriptions by each of them for forty nine Lonscale MCAB class A notes dated 23 June 2009.
A2.129. A proposal for Arch FP's investment committee was prepared on 8 July 2009. A section entitled "background" gave an account of the options structure affecting loans by Lloyds to Club Easy, resulting in a very high cost of the loan which put Hayes Ltd, the relevant CG owning company, in a position where covenants were being breached. Remaining sections of the proposal explained that various options had been discussed with Lloyds, and that there was a preference for an option under which Hayes Ltd would place a deposit for one year's interest cover shortfall, approximately £0.65 million. It was proposed that RE1 and RE2 would lend the sum required to make the Lloyds deposit by way of subscription for Lonscale senior notes. A section of the proposal concerned with potential conflicts of interest noted that both Mr King and Mr Jeffs were directors of Lonscale Ltd, and that Mr King was the joint head of Guernsey Portfolio Management which managed the RE and PF funds, and chairman of the Guernsey Investment Committee which would approve this transaction.
A2.130. Minutes of the Arch Guernsey Investment Committee meeting on 9 July 2009 noted that the committee confirmed their support of the proposal and would recommend it to the Guernsey Investment Committee Board.
A2.131. Section A3 of the main judgment records that in July 2009 the shares of the cells were temporarily suspended from their official listing on the CISX at the request of the directors pending publication of the ICC's net asset value as at 31 March 2009. This suspension occurred on 27 July 2009.
A2.132. On 13 August 2009 Lonscale provided funding to Clubeasy in an amount of £600,000. This was financed by payments of £300,000 by each of RE1 and RE2 pursuant to subscriptions by each of them for thirty Lonscale MCAB class A notes.
A2.133. A draft document was prepared within Arch FP entitled, "Synopsis of legal and compliance issues 21 August 2009". In section 11, entitled "Compliance Monitoring", the draft stated, among other things, that all conflicts were identified at the trade ticket level, and that any new potential conflicts of interest were "reported to the Head of Compliance, and placed onto the conflicts register." Section 12, entitled "Conflicts of Interest", included the following:
[1] We have managed our conflicts fairly and always undertook any investments for the funds on the same terms or better for the funds
…
[3] Conflicts management and rationales for trading were built into all trade ticketing and investment committee proposals as a matter of course – this demonstrates best practice
[4] External advice was sought on conflicts and the Board of Arch was consulted
[5] Use of market comparables was included in any analysis
[6] The original written Conflicts of Interest Policy was put in place following enaction of MiFID in Nov 2007. Prior to this general conflict principles were followed as laid out in the Compliance Manual and a Conflicts and Insider policy note dated Jan 2007.
[7] Conflict Notes were made on an ongoing basis following referral to compliance and senior management.
[8] In cases of uncertainty external advice would be sought.
…
[10] When a potential conflict arises, front office personnel are required to record the potential conflict on the relevant deal ticket.
[11] The Head of Compliance has also insisted that any potential conflicts of interest need to be reported to him as soon as they are known, and be recorded in the Conflicts Register.
A2.134. In section 22 of the draft, entitled "Other Investment Vehicles and Counterparties", a number of points were made under the heading "Lonscale/Club Easy". These included:
…
[4] As originator of the transaction and in consideration for them agreeing to give up the lion share of the transaction to the Arch syndicate, it was agreed that Foundations would be paid an origination fee based on the difference between the total amount paid for the Notes (syndication proceeds) and the acquisition price.
[5] Arch created a debt and equity investment syndicate via Arch Treasury in the form of A, B and C Notes, with Arch FP as Arranger. Several funds participated. The syndication proceeds were £21M. Foundations agreed to share their origination fee 50/50 with Arch FP as Arranger i.e. £3M each.
[6] At the time of acquisition, the completion balance sheet value was circa £33.3M and the acquisition price circa £17M, thus the acquisition was believed to be extremely good value. Upon deal finalisation (completed by Foundations), the acquisition price dropped further to £13.2M plus a contingent amount of £1.8M, making £15M. Thus the funds made a substantial gain at inception.
[7] Further, the £1.8M amount was contested by Arch and subsequently did not need to be paid, providing additional value to the investor syndicate.
A2.135. Section A3 of the main judgment records the Transfer and Implementation Agreement between Arch FP and Spearpoint, and the waiver agreement made between Arch FP and the cells on 22 October 2009. It is convenient here to set out the terms of the waiver letter, written by Arch FP and addressed to the cells:
[1] We refer to the investment management agreements and investment advisory agreements (the "Investment Management Agreements") between us and each of the incorporated cells of Arch Guernsey ICC Limited or their investment manager (as the case may be) and between us and the investment manager of BMS Specialist Debt Fund Limited (together the "Funds"). We also refer to our recent discussions concerning:
(a) the proposal in appoint Spearpoint Limited ("Spearpoint") as investment manager or investment adviser (as the case may be) to each of the Funds; and
(b) the investment management fees or investment advisory fees (as the case may be) paid to us under the Investment Management Agreements on those assets of the Funds which were invested in other Funds on which fees had already been paid in the originating/investee Fund for the period up to and including 31 December 2008 (the "Cross Investment Fees")
[2] Without admission of liability in respect of the payment of the Cross Investment Fees and without prejudice to, and with full reservation of the rights of Arch Financial Products LLP in respect of the Cross Investment Fees until satisfaction by you, and each of you, of Condition 1 and Condition 2, and each of them (as defined below), we hereby and in consideration for the satisfaction by each of you of Condition 1 and Condition 2, waive our entitlement to receive all investment management or investment advisory fees (as the case may be) and expenses payable to us pursuant to the Investment Management Agreements from 1 March 2009 up to and including the date on which Spearpoint is appointed as investment manager or investment advisor (as the case may be) to the Funds.
[3] The foregoing is subject to, and conditional upon, the satisfaction by you, and each of you, of both of the following conditions:
[3.]1 the appointment of Spearpoint as investment manager or investment advisor (as the case may be) to each of the Funds and the satisfaction of all of the conditions set out in the transfer and implementation agreement made between Spearpoint and Arch Financial Products LLP and dated 25 September 2009 (to the extent that the satisfaction of any such conditions has not been waived by the parties to that agreement) on or before 30 November 2009 (or such later date as we may notify you of in writing) ("Condition 1"); and
[3.]2 you, and each of you, agree to provide to us a full release (in the form attached) in respect of any Claims the Funds or any one, or each of them, may have against Arch Financial Products LLP, whether past present or future, actual or contingent, known or unknown suspected or unsuspected, and whether in the contemplation of the Funds or any one or each of them at the time of entering into the said full release in relation to the Cross Investment Fees or not ("Condition 2")
[4] For the purposes of the foregoing the word "Claims" shall include any claim, potential claim, counterclaim, any potential counterclaim, right of set-off, indemnity, cause of action, right, demand, or interest of any kind or nature whatsoever whether past, present or future, actual or contingent, known or unknown, suspected or unsuspected and whether in the contemplation of the Funds or any one, or each of them at the time of entering into the said full release in relation to the Cross Investment Fees or not.
[5] If you are agreeable to this proposal please sign and return the enclosed duplicate of this letter which contains the release referred to in Condition 2 above ...
[6] This letter shall be governed by and construed in accordance with the laws of the Island of Guernsey and the parties hereto submit to the exclusive jurisdiction of the Royal Court of Guernsey.
Yours faithfully
Arch Financial Products LLP
A2.136. Immediately beneath this signature was the form of release, which was duly signed on behalf of the cells. For ease of reference I have divided the wording into clauses, each indicated by a letter in square brackets. As so divided, the wording of the form of release was:
[a] We hereby confirm our agreement to the terms of this letter and [b] consent to the proposal as set out in the letter. [c] We note that the waiver of your fees is conditional upon Condition 1 and Condition 2 being satisfied as detailed in the letter. [d] Conditional upon the satisfaction of Condition 1 as detailed in your letter [e] we hereby irrevocably release you [f] and any officer, partner, member, director or employee of Arch Financial Products LLP [g] from any and all manner of actions, causes of action, suits, proceedings, debts, dues, profits, expenses, contracts, damages, claims, demands and liabilities, whatsoever, in law or in equity (the "Potential Claims"), [h] which the Funds or any one of them, ever had, now has or may have in the future against Arch Financial Products LLP or any of its officers, partners, members, directors, or employees [j] in relation to the Cross Investment Fees (as defined in the letter) [k] and undertake that we shall not threaten or commence any legal proceedings against Arch Financial Products LLP or any of its officers, partners, members, directors or employees in respect of any Potential Claims.
A2.137. Remaining events are sufficiently summarised for present purposes in section A3 of the main judgment and are not repeated here. | 2 |
JUDGMENT OF THE COURT (Fifth Chamber) 30 September 2010 (*)
(Appeal – Community trade mark – Word mark DANELECTRO – Figurative mark QWIK TUNE – Request for renewal of registration of the trade mark – Application for restitutio in integrum – Failure to observe the time-limit for submitting the request for renewal of registration of the trade mark) In Case C‑479/09 P, APPEAL under Article 56 of the Statute of the Court of Justice, brought on 25 November 2009, Evets Corp., established in Irvine, California (United States), represented by S. Ryan, Solicitor,
appellant, the other party to the proceedings being: Office for Harmonisation in the Internal Market (Trade Marks and Designs) (OHIM), represented by A. Folliard-Monguiral, acting as Agent,
defendant at first instance, THE COURT (Fifth Chamber), composed of E. Levits, President of the Chamber, A. Borg Barthet (Rapporteur) and J.-J. Kasel, Judges, Advocate General: J. Mazák, Registrar: R. Grass, having regard to the written procedure, having decided, after hearing the Advocate General, to proceed to judgment without an Opinion, gives the following Judgment 1 By its appeal, Evets Corp. (‘Evets’) seeks to have set aside in part the judgment of the Court of First Instance of the European Communities (now ‘the General Court’) of 23 September 2009 in Joined Cases T‑20/08 and T-21/08 Evets v OHIM (DANELECTRO and QWIK TUNE) [2009] ECR II-0000 (‘the judgment under appeal’), by which that Court dismissed Evets’ action for annulment of two decisions of the Fourth Board of Appeal of the Office for Harmonisation in the Internal Market (Trade Marks and Designs) (OHIM) of 5 November 2007 (Cases R 603/2007‑4 and R 604/2007-4) relating to its application for restitutio in integrum (‘the contested decisions’).
Legal context 2 Council Regulation (EC) No 40/94 of 20 December 1993 on the Community trade mark (OJ 1994 L 11, p. 1) was repealed by Council Regulation (EC) No 207/2009 of 26 February 2009 on the Community trade mark (codified version) (OJ 2009 L 78, p. 1), which entered into force on 13 April 2009. However, in view of the date of the facts, the present proceedings remain governed by Regulation No 40/94.
3 Article 47 of Regulation No 40/94, headed ‘Renewal’, provided:
‘1. Registration of the Community trade mark shall be renewed at the request of the proprietor of the trade mark or any person expressly authorised by him, provided that the fees have been paid.
2. The Office shall inform the proprietor of the Community trade mark, and any person having a registered right in respect of the Community trade mark, of the expiry of the registration in good time before the said expiry. Failure to give such information shall not involve the responsibility of the Office.
3. The request for renewal shall be submitted within a period of six months ending on the last day of the month in which protection ends. The fees shall also be paid within this period. Failing this, the request may be submitted and the fees paid within a further period of six months following the day referred to in the first sentence, provided that an additional fee is paid within this further period.
…’ 4 Article 78 of Regulation No 40/94, headed ‘Restitutio in integrum’, provided:
‘1. The applicant for or proprietor of a Community trade mark or any other party to proceedings before the Office who, in spite of all due care required by the circumstances having been taken, was unable to observe a time-limit vis-à-vis the Office shall, upon application, have his rights re-established if the non-observance in question has the direct consequence, by virtue of the provisions of this Regulation, of causing the loss of any right or means of redress.
2. The application must be filed in writing within two months from the removal of the cause of non-compliance with the time-limit. The omitted act must be completed within this period. The application shall only be admissible within the year immediately following the expiry of the unobserved time-limit. In the case of non-submission of the request for renewal of registration or of non-payment of a renewal fee, the further period of six months provided in Article 47(3), third sentence, shall be deducted from the period of one year.
…’ 5 Rule 76, headed ‘Authorisations’, of Commission Regulation (EC) No 2868/95 of 13 December 1995 implementing Council Regulation (EC) No 40/94 (OJ 1995 L 303, p. 1), as amended by Commission Regulation (EC) No 1041/2005 of 29 June 2005 (OJ 2005 L 172, p. 4) (‘Regulation No 2868/95’), provides:
‘1. Legal practitioners and professional representatives entered on the list maintained by the Office pursuant to Article 89(2) of the Regulation shall file with the Office a signed authorisation for insertion in the files only if the Office expressly requires it, or where there are several parties to the proceedings in which the representative acts before the Office, if the other party expressly asks for it.
2. Employees acting on behalf of natural or legal persons pursuant to Article 88(3) of the Regulation shall file with the Office a signed authorisation for insertion in the files.
3. The authorisation may be filed in any official language of the Community. It may cover one or more applications or registered trade marks or may be in the form of a general authorisation authorising the representative to act in respect of all proceedings before the Office to which the person giving the authorisation is a party.
… 6. Any representative who has ceased to be authorised shall continue to be regarded as the representative until the termination of his authorisation has been communicated to the Office.
…’ 6 Rule 77 of Regulation No 2868/95, headed ‘Representation’, provides:
‘Any notification or other communication addressed by the Office to the duly authorised representative shall have the same effect as if it had been addressed to the represented person. Any communication addressed to the Office by the duly authorised representative shall have the same effect as if it originated from the represented person.’
Background to the dispute 7 On 1 April 1996, Evets filed two applications for registration of Community trade marks with OHIM pursuant to Regulation No 40/94.
8 The marks for which registration was sought are the word mark DANELECTRO and the figurative mark QWIK TUNE covering goods in Classes 9 and 15 of the Nice Agreement concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks of 15 June 1957, as revised and amended.
9 The mark QWIK TUNE was registered on 30 April 1998 and the mark DANELECTRO on 25 May 1998.
10 On 7 and 14 September 2005, pursuant to Article 47(2) of Regulation No 40/94 and Rule 29 of Regulation No 2868/95, OHIM informed Evets’ representative of the need to renew the abovementioned two Community trade marks before 30 April 2006. The requests for renewal could still be submitted and the fees could still be paid within a further period of six months expiring on 1 November 2006.
11 On 21 and 23 November 2006, OHIM issued notifications pursuant to Article 47 of Regulation No 40/94, Rule 30(6), Rule 84(3)(1) and Rule 84(5) of Regulation No 2868/95 to inform Evets’ representative that the registrations of the trade marks QWIK TUNE and DANELECTRO had been cancelled from the Register of Community trade marks on 1 October 2006, with effect from 1 April 2006.
12 On 26 January 2007, Evets’ representative filed, in respect of the two marks at issue, an application pursuant to Article 78 of Regulation No 40/94 for restitutio in integrum, in which it requested that the right to renew the registrations in question be re-established.
13 By decisions of 22 February 2007, the Trade Marks and Register Department of OHIM refused the application for restitutio in integrum on the ground that Evets had not taken all due care required by the circumstances to comply with the time-limit for renewal. Consequently, the registration of the marks QWIK TUNE and DANELECTRO was deemed to have been cancelled pursuant to Rule 30(6) of Regulation No 2868/95.
14 On 21 June 2007, Evets filed a notice of appeal against the decisions of the Trade Marks and Register Department of OHIM of 22 February 2007.
15 By the contested decisions, the Fourth Board of Appeal of OHIM dismissed the appeal and declared that the application for restitutio in integrum was deemed not to have been filed as the application had been made outside the two-month period provided for in Article 78(2) of Regulation No 40/94 and the fee required for re-establishment of rights had been paid outside that period. The Board of Appeal found that the dates of removal of the cause of non-compliance with the time-limit were 21 November 2006 for QWIK TUNE and 23 November 2006 for DANELECTRO, the dates on which OHIM had informed Evets’ representative that those marks had been cancelled, and that the application for restitutio in integrum submitted on 26 January 2007 had been made after that two-month period had expired.
Procedure before the General Court and the judgment under appeal 16 By applications lodged at the Registry of the General Court on 8 January 2008, Evets brought an action for annulment of the contested decisions.
17 In support of its action for annulment, Evets put forward, in essence, three pleas alleging, first, infringement of the principle prohibiting reformatio in pejus, second, infringement of the rights of the defence and of the right to be heard and, third, breach of Article 78 of Regulation No 40/94.
18 It is necessary to mention only the General Court’s assessment with regard to the breach of Article 78 of Regulation No 40/94, which is set out in paragraphs 14 to 34 of the judgment under appeal, in so far as the appeal relates only to that plea.
19 The General Court first found, in paragraph 17 of the judgment under appeal, that the parties agreed, in principle, that the ‘removal of the cause of non-compliance with the time-limit’, within the meaning of Article 78(2) of Regulation No 40/94, occurred on the date on which Evets was informed of the loss of the rights in question.
20 As regards Evets’ argument that the application for restitutio in integrum was filed within the time-limit because the two-month period could start to run only on the date on which it, and not its representative, became aware of the loss of the rights in question, namely on 26 November 2006, the General Court rejected this in paragraph 21 of the judgment under appeal on the ground that, in its view, the date on which the loss of a right is brought to the attention of the representative must be deemed to be the date on which the represented person, namely Evets, became aware of it.
21 The General Court pointed out in that respect, as is apparent from paragraphs 22 and 23 of the judgment under appeal, that, pursuant to Rule 77 of Regulation No 2868/95, any notification or other communication addressed by OHIM to a duly authorised representative is to have the same effect as if it had been addressed to the represented person. With regard to OHIM, what matters are its communications with Evets’ representative and not the communications between Evets’ representative and Evets.
22 As for Evets’ argument relating to the overall time-limit of one year laid down by the Community legislature within which restitutio in integrum proceedings must be brought, the General Court pointed out, in paragraph 28 of the judgment under appeal, that Article 78(2) of Regulation No 40/94 does not concern solely applications for restitutio in integrum in cases of non-submission within the time-limit of a request for renewal of registration of a mark, but also concerns applications for restitutio in integrum on account of failure to observe the time-limit where the non-observance in question has the direct consequence, by virtue of the provisions of that regulation, of causing the loss of any right or means of redress. It stated that the non-observance, and in particular the removal of its cause, can take many forms and, therefore, the one-year time-limit is laid down as an absolute deadline, with the result that, if the cause of non-compliance is removed only one year after the unobserved time-limit has passed, the application for restitutio in integrum is no longer admissible. According to the General Court, the two-month period laid down in Article 78(2) thus forms part of the one-year period.
23 As regards Evets’ argument relating to the practice of the European Patent Office’s (EPO) Boards of Appeal and to Article 122(2) of the Convention on the Grant of European Patents of 5 October 1973, as amended, the General Court held, in paragraphs 29 to 31 of the judgment under appeal, that that practice is not relevant in so far as the Community trade mark regime is an autonomous system with its own set of rules and objectives peculiar to it, which applies independently of any other system, and in so far as the provisions governing patents seek to regulate procedures different from those applicable in the area of trade marks.
24 In paragraph 32 of the judgment under appeal, the General Court added that, in any event, the decision of the Technical Board of Appeal of the EPO of 16 April 1985, to which Evets refers, in no way shows how the EPO would give a different interpretation to Article 78 of Regulation No 40/94. In the case which gave rise to that decision, it was found that, where the employee of an agent discovers that failure to observe a time-limit has led to the loss of a right, the cause of non-compliance which is at the root of that failure is deemed not to have been removed as long as the agent concerned has not been personally informed of the situation, since it is for him to decide whether to file an application for restitutio in integrum and, if he decides to file such an application, to outline the grounds and circumstances which should be invoked before the EPO. According to the General Court, however, Evets’ representative did not, in the present case, claim that it had not been personally informed of the situation on the dates of the notifications mentioned in paragraph 11 of the present judgment.
25 Consequently, the General Court held that the plea alleging breach of Article 78 of Regulation No 40/94 had to be rejected.
Procedure before the Court and forms of order sought 26 By its appeal, Evets claims that the Court should:
– annul the judgment under appeal; – declare that the application for restitutio in integrum was brought within the time-limits prescribed by Article 78(2) of Regulation No 40/94;
– refer the case back to the General Court so that it may in turn refer the case back to the Fourth Board of Appeal of OHIM for it to rule on the substantive issue as to whether all due care was taken to renew the trade marks in question; and
– order OHIM to pay the costs incurred both in the appeal proceedings and in the proceedings before the General Court. 27 OHIM contends that the appeal should be dismissed and that Evets should be ordered to pay the costs.
The appeal Arguments of the parties 28 Evets puts forward a single ground of appeal, alleging breach of Article 78 of Regulation No 40/94 in so far as the General Court was wrong to hold that the two-month period from the removal of the cause of non-compliance with the time‑limit started to run on the date on which its representative became aware of the loss of the rights in question, that is to say, on 21 November 2006 in respect of the mark QWIK TUNE and on 23 November 2006 in respect of the mark DANELECTRO, and that, consequently, the application for restitutio in integrum submitted on 26 January 2007 had been filed outside the time-limit.
29 Evets maintains that Rule 77 of Regulation No 2868/95, according to which any notification addressed by OHIM to a duly authorised representative is to have the same effect as if it had been addressed to the represented person, applies only to notifications sent to a party’s representative in relation to matters for which that representative has authority to act. Rule 77 is not, however, relevant in the present case in so far as the representative in question that received the notification from OHIM was not authorised by Evets to act in respect of the payment of renewal fees.
30 Evets takes the view that, given that Article 47 of Regulation No 40/94 provides that registration of the Community trade mark may be renewed at the request of the proprietor of the trade mark or of ‘any person expressly authorised by him’, professional representation is not required for the purposes of renewal of registration of a trade mark. Regulation No 40/94 therefore distinguishes between, first, representation of the proprietor of the trade mark before OHIM, which must satisfy the requirements of Articles 88 and 89 of that regulation, and, secondly, mere payment of renewal fees, which any person may be authorised to do under Article 47 of that regulation.
31 Evets therefore submits that the relevant person to be considered in the present case to ascertain the date of removal of the cause of non-compliance with the time-limit, and therefore the starting point of the two-month period for submitting an application for restitutio in integrum, is the person with responsibility for carrying out the act in question, that is to say, in the present case, the renewal of registration of the Community trade marks at issue and the payment of the fees relating to that registration.
32 Evets adds that the interpretation given by the EPO’s Boards of Appeal must be taken into consideration for the purposes of interpreting Article 78 of Regulation No 40/94, even though the provisions of the Convention on the Grant of European Patents of 5 October 1973, as amended, are not strictly binding in Community law.
33 OHIM submits that the ground of appeal is unfounded.
34 OHIM contends that, pursuant to Rule 76 of Regulation No 2868/95, the authorisation given by the proprietor of a trade mark to a representative covers all procedural steps, whether that authorisation is an individual or a general authorisation, and thus includes the procedural steps relating to the renewal of registration of that trade mark. The fact that the proprietor of a trade mark has entrusted a third party with the specific task of requesting the renewal of his trade mark and paying the relevant fees cannot limit the extent of the representative’s authorisation vis-à-vis OHIM, unless that authorisation has been withdrawn.
35 OHIM maintains that the interpretation given by Evets to Rule 77 of Regulation No 2868/95 would mean that the date on which OHIM’s notifications take effect may depend on provisions in the representative’s authorisation of which OHIM may never be informed. Such an interpretation would conflict with the principles provided for by Rule 67(2) of that regulation, according to which, if several representatives have been appointed for a single interested party, notification to any one of them is to be sufficient, unless a specific address for service has been indicated, and by Rule 76(8) of that regulation, which provides that, where several representatives are appointed by the same party, they may, notwithstanding any provisions to the contrary in their authorisations, act either jointly or singly.
Findings of the Court 36 In order to establish whether the General Court was right in law to hold that the application for restitutio in integrum filed by Evets on 26 January 2007 was submitted out of time, it is necessary to examine whether the starting point for the period of two months from the removal of the cause of non-compliance with the time-limit for submitting an application for restitutio in integrum within the meaning of Article 78 of Regulation No 40/94 corresponds to the date on which Evets’ representative was informed that the rights in question had been lost or to that on which Evets itself became aware of that loss.
37 It must be borne in mind that the detailed rules of application governing representation within the context of Regulation No 40/94 are laid down in Title XI, Part G, of Regulation No 2868/95.
38 It is thus apparent from Rule 76(1) to (3) of that regulation, headed ‘Authorisations’, that the authorisation of the representative of a trade mark proprietor before OHIM covers all procedural steps relating to trade marks, including the procedural steps relating to the renewal of registration of a Community trade mark.
39 Pursuant to Rule 77 of Regulation No 2868/95, headed ‘Representation’, any notification or other communication addressed by OHIM to a duly authorised representative is to have the same effect as if it had been addressed to the represented person. The same is true of any communication addressed to OHIM by the duly authorised representative, which is to have the same effect as if it originated from the represented person.
40 It must be pointed out that Rule 77 does not lay down any distinction between a notification or communication which has the effect of causing a period to start to run and one which does not have such an effect, with the result that that rule applies irrespective of the effect produced by that notification or communication.
41 It therefore follows from the rules of representation in the context of Regulation No 40/94 that what matters with regard to OHIM are the communications and notifications exchanged between it and the representative of the proprietor of the trade mark in question, and not those exchanged between the representative of the proprietor of that mark and that proprietor.
42 It follows, in the present case, that the dates on which OHIM informed Evets’ representative of the expiry of the registration of the trade marks QWIK TUNE and DANELECTRO, namely 21 and 23 November 2006 respectively, must be deemed to be the dates on which Evets became aware of the loss of its rights, as the General Court correctly held in paragraph 21 of the judgment under appeal.
43 None of the arguments put forward by Evets can call that finding into question.
44 First, the Court rejects the argument that, as Regulation No 40/94 establishes a distinction between, on the one hand, representation of the proprietor of a trade mark before OHIM in accordance with Articles 88 and 89 of that regulation and, on the other, performance of the formal requirements for renewal which any person may be authorised to carry out in accordance with Article 47 of that regulation, the relevant person to be taken into consideration for the purpose of determining the starting point of the period for submitting an application for restitutio in integrum is the person with responsibility for carrying out the act in question.
45 It must be pointed out in this regard that it follows clearly from Rule 77 of Regulation No 2868/95 that any notification or other communication addressed by OHIM to a duly authorised representative is to have the same effect as if it had been addressed to the represented person, irrespective of whether the proprietor of the Community trade mark in question has, in addition to the representative before OHIM, made a third party responsible for carrying out certain acts such as the renewal of registration of that mark.
46 Furthermore, Rule 76(6) of Regulation No 2868/95 provides that any representative who has ceased to be authorised is to continue to be regarded as the representative until the termination of his authorisation has been communicated to OHIM.
47 It must also be pointed out that, where the proprietor of a Community trade mark expressly appoints a third party to carry out the procedural requirements for renewal of registration of that mark, pursuant to Article 47 of Regulation No 40/94, that third party does not have capacity, under the scheme established by that regulation, to receive a notification or communication from OHIM unless he has also been appointed as a representative before OHIM.
48 What is more, in a situation where that third party is appointed as a representative before OHIM, it is apparent from Rule 67(2) of Regulation No 2868/95 that, if several representatives have been appointed for a single interested party, notification to any one of them is to be sufficient.
49 As regards, secondly, the argument relating to the practice of the EPO’s Boards of Appeal, suffice it to point out in that regard, as the General Court stated correctly in paragraphs 29 to 31 of the judgment under appeal, that the Community trade mark regime is an autonomous system with its own set of rules and objectives peculiar to it; it applies independently of any other system (see Case C‑238/06 P Develey v OHIM [2007] ECR I-9375, paragraph 71, and Case T‑32/00 Messe München v OHIM (electronica) [2000] ECR II‑3829, paragraph 47).
50 It follows from the foregoing that the appeal must be dismissed as unfounded.
Costs 51 Under Article 69(2) of the Rules of Procedure of the Court, applicable to appeal proceedings by virtue of Article 118 of those rules, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since OHIM has applied for costs to be awarded against Evets and the latter has been unsuccessful, Evets must be ordered to pay the costs.
On those grounds, the Court (Fifth Chamber) hereby: 1. Dismisses the appeal; 2. Orders Evets Corp. to pay the costs. [Signatures]
* Language of the case: English. | 6 |
CIVIL APPELLATE JURISDICTION Civil Appeal No. 1598 NT of 1974. From the Judgment and Order dated 26.2.1971 of the Allahabad High Court in I.T. Reference No. 92 of 1966. M. Lodha, N.M. Tandon and Miss A. Subhashini for the Appellant. Dhananjoy Chandrachud Amicus Curiae for the Respondents. The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J. This is an appeal from the judgment and order of the High Court of Allahabad dated 26th February, 1971. The assessee is a partnership firm which at the relevant time enjoyed the status of a registered firm for the assessment years 1960-61, 1961-62 and 1962-63. In the assessment proceedings for the assessment year 1960-61, the assessee suffered a loss of Rs.60,054 in the speculation business which was to be carried forward for adjustment against speculation profits of future years. For the assessment year 1961-62 also, the assessee had suffered a loss amounting to Rs.6,839 in speculation business and this was also to be carried forward for adjustment against speculation profits of future years. For the assessment year 1962-63 which is the year with which this appeal is companycerned, the assessee made a profit of Rs.58,102 from speculation business. In the assessment proceedings for that year the assessee claimed that a loss of Rs.60,054 suffered in respect of the assessment year 1960-61 and the loss of Rs.6,839 suffered in respect 0 the assessment year 1961-62 should be set off against this speculation profit of Rs.59,102 for this year. If that had been done, the speculation profits of the year under companysideration would have been absorbed companypletely by the losses brought forward from the preceding years. The Income-tax Officer, however, rejected the assessees claim. He held that as the assessee was a registered firm, the losses companyld be carried forward and set off only by the partners and number by the firm. The appeal by the assessee before the Assistant Appellate Commissioner was dismissed. The assessee went up in appeal to the Tribunal. The Tribunal held that the right to carry forward the losses relating to the assessment years 1960-61 and 1961-62 was governed by the Indian Income-tax Act, 1922 hereinafter called the 1922 Act and the section 75 2 of the Income-tax Act, 1961 which was applicable to the assessment year 1960-61 had numberapplication in the facts of this case. The Tribunal was of the view that when an Act was passed repealing an earlier enactment, it companyld number be said to supersede any right already accrued under the repealed enactment unless there was something in the repealing Act to indicate that clearly. The Tribunal, therefore, held that the assessee was entitled to have the losses brought forward from the preceding two years and set off against the profits earned for the year 1962-63 and accordingly allowed the appeal. The revenue sought for reference to the High Court of Allahabad on the following question Whether, the assessee is, in law, entitled to set off of the speculation losses suffered in the assessment years 1960-61 and 1961-62 against the speculation profits of the previous year? The High Court companysidering the provisions of section 75 of 1961 Act came to the companyclusion that a right had accrued to the assessee by virtue of 1922 Act which entitled him to have the losses from speculation business in respect of the assessment year 1960-61 and 1961-62 to be carried forward and set off against the profits in speculation business of future years. The High Court was of the view that that was a right which had accrued to it before the 1961 Act was brought into force. The High Court came to the companyclusion that by virtue of section 6 of the General Clauses Act that right companytinued to subsist. The High Court, therefore, was of the view that the Tribunal was fight in holding that the assessee was entitled to set off the speculation losses suffered in the assessment years 1960-61 and 1961-62 against the speculation profits of the previous year 1962-63. In appeal on behalf of the revenue before us, it was companytended that the High Court was in error. Our attention was drawn to the provisions of section 24 2 of 1922 Act which, inter alia, provided that where any assessee sustained any loss of profits or gains in any year, being a previous year number earlier than the previous year for the assessment for the year ending 31st day of March, 1940, in any business, profession or vocation, and the loss companyld number be wholly set off under sub-section 1 of section 24 of the said Act, so much of the loss as was number so set off or the whole loss where the assessee had numberother head of income would have been carried forward in the manner indicated therein. So, therefore, the 1922 Act gave a right to set off speculation losses against speculation profits and to the extent it was unabsorbed, it had a fight to carry forward the losses for the future years to be set off against speculation profits for future years. It was submitted that in a way it was vested right--a fight on assessment to set off the losses against the profits of the year in question and if number fully absorbed to carry forward to be set off against the profits of future years. It was submitted on behalf of the revenue that it therefore companytinued so long as the Act permitted the setting off in that manner. It was, however, urged that in view of the companying into operation of 1961 Act which came into operation on 1st of April, 1962, that fight numberlonger was there with the assessee. Section 75 of 1961 Act provided an entirely new scheme. It was as follows Losses of registered firms.--- 1 Where the assessee is a registered firm, any loss which cannot be set off against any other income of the firm shall be apportioned between the partners of the firm, and they alone shall be entitled to have the amount of the loss set off and carried forward for set off under sections 70, 71, 72, 73, 74 and 74A. Nothing companytained in sub-section 1 of section 72, sub-section 2 of section 73, sub-section 1 of section 74 or sub-section 3 of section 74A shall entitle any assessee, being a registered firm, to have its loss carried forward and set off under the provisions of the aforesaid sections. As a result of sub-section 2 of section 75 of the said Act, there is prohibition, according to the revenue, entitling the assessee being registered firm to have its loss carried forward and set off under the provisions except in the manner indicated in sub-section 2 of section 75 of the Act. It was submitted that as the assessment for the year 1962-63 had to be made under the provisions of 1961 Act, the assessee companyld number have the benefit of set off of the carried forward loss. In support of this companytention reliance was placed on the decision of the Allahabad High Court in Commissioner of Income-tax, Kanpur v. Mangiram Gopi Chand, 111 I.T.R. 807 where it was held that a registered firm companyld, so long as the 1922 Act was in force, carry forward speculation loss, if it companyld number be set off against speculation income of the year in question. However, the Court observed after companying into force of 1961 Act, specific provisions had been made in respect of losses of registered firms and such right of set off of speculation losses was numberlonger available. The High Court was of the view that the right of a registered firm to set off and carry forward losses under section 24 2 of the 1922 Act was a substantive right. However, where a repealing provision indicated the effect of the repeal on previous matters and provided for the operation of the previous law in part as also the operation of the new law in the other part in positive terms, the repealing and saving provision companyld be said to be selfcompanytained and excluded the applicability of section 6, according to the Allahabad High Court, of the General Clauses Act. Section 297 2 of 1961 Act, according to the Allahabad High Court, must be taken to be a self-contained companye in respect of the operation of 1922 Act and the rights which might have been created under it. Inasmuch as section 297 2 of the 1961 Act did number save, said the Allahabad High Court, the right, if any, of a registered firm to set off its speculation losses, which have been carried forward, against the speculation profits of the firm, the right, if any, created by section 24 2 companyld number be said to remain intact after the repeal of the 1922 Act. Speculation losses of years anterior to 1962-63 companyld number, therefore, be carried forward and set off against speculation profits of a registered firm. The Allahabad High Court companysidering the decision of this Court in State of Punjab v. Mohar Singh, I.R. 1955 S.C. 84 observed that the principle laid down by this Court was that where the repealing provision indicated the effect of repeal on previous matters and provided for the operation of the previous law in part and in negative terms as also for the operation of the new law in other part in positive terms, the repealing and the saving provision companyld be said to be self-contained Act. While we respectfully agree with the principle applicable in interpreting the application of the Act, we are of the opinion that the Allahabad High Court was number fight in the application of that principle in the light of section 297 2 of 1961 Act in the aforesaid decision. There is numberhing in any of the clauses of subsection 2 of section 297 of the Act which indicates that accrued rights under 1922 Act lapsed in respect of the assessment to be made after companying into operation of 1961 Act. According to the Allahabad High Court in that decision, section 297 2 a provided for companypletion of assessment in accordance with the old Act where the return was filed before the companymencement of the 1961 Act but section 297 2 b of the Act provided for companypletion of assessment in accordance with the provision of the new Act where the return was filed even in respect of years companyered by the 1922 Act, after 31st March, 1962. Reading section 297 in the manner it did, the Allahabad High Court was of the view that where the provisions of the previous Act stood repealed, the set off cannot be given. The Allahabad High Court had, it appears, numberoccasion to numberice the judgment under appeal. On behalf of the revenue, reliance was also placed on a decision of the Calcutta High Court in the case of Reliance Jute Mills Co. Ltd. v. Commissioner of Income-tax, West Bengal 1, 86 I.T.R. 570 on the question of carry forward of the loss after the companying into operation of the Finance Act, 1955. The principle enunciated therein, in our opinion, will have numberapplication to the companytroversy in the present case. Our attention was also drawn by the revenue to the decision of the Kerala High Court in the case of Helen Rubber Industries Ltd. v. Commissioner of Income-Tax, Mysore, Travancompanye-Cochin and Coorg, 36 I.T.R. 544. The Kerala High Court observed that the loss incurred in Travancore in a Part B State by the assessee during M.E. 1123 which companyld only have been carried forward for two years in accordance with the provisions of section 32 2 of the Travancore Income-tax Act, 1121, companyld be carried forward beyond those two years for a period of six years in accordance with sections 24 2 of the Indian Income-tax Act, 1922 for the assessment year 195 1-52, as the Indian Income-tax Act, 1922 was applicable for that assessment year and the assessee had the right to carry forward losses in accordance with the provisions of that Act. The High Court had to companystrue section 3 of the Taxation Laws Part B States Removal of Difficulties Order, 1950. This case must also be understood in the background of the facts of that case which are different from the instant case with the provisions with which we are companycerned. That was number a case of deciding whether the vested right was curtailed and if so to what extent. This Court in Karimtharuvi Tea Estate Ltd. v. State of Kerala, 60 I.T.R. 262 observed that it was well-settled that the Income-tax Act as it stands amended on the first day of April of any financial year must apply to the assessment of the year. Any amendments in that Act which came into force after the first day of April of a financial year, would number apply to the assessment for that year, even if the assessment was actually made after the amendments came into force. There, the Kerala Surcharge on Taxes Act, 1957, having companye into force on 1st September, 1957, being the date appointed by the Kerala Government under section 1 3 of the Act, and number being retrospective in operation, by express intendment or necessary implication, companyld number be made applicable from 1st April, 1957. Since the Act was number the law in force on 1st April, 1957, numbersurcharge on agricultural income-tax companyld be levied under that Act in respect of the assessment year 1957-58. That decision had also number dealt with the question of affecting vested rights. In our opinion the right given to the assessee for the assessment year 1961-62 under section 24 2 of 1922 Act was an accrued right and a vested right. It companyld have been taken away expressly or by necessary implication. It has number been so done. Neither section 297 2 b number any other subclauses of sub-section 2 of section 297 indicates companytrary intention of the legislature regarding any vested right of the assessee under the 1922 Act. On the companytrary section 6 c of the General Clauses Act indicates that right should be preserved. Reliance may be placed on the observations of this Court in T.S. Baliah v.T.S. Rangachari, Income-tax Officer, Central Circle VI, Madras, 72 I.T.R. 787. This Court observed that the provisions of section 52 of the Indian Income-tax Act, 1922, do number alter the nature or quality of the offence enacted in section 177 of the Indian Penal Code, 1860. They merely provide a new companyrse of procedure for what was already an offence. There is numberrepugnancy or inconsistency the two enactments can stand together and they must be treated as cumulative in effect. This Court, however, observed that in enacting section 297 2 of the Income-tax Act, 1961, it was number the intention of the Parliament to take away the right of instituting prosecutions in respect of proceedings which were pending at the companymencement of the Act. Parliament had number made any detailed provision for the institution of prosecutions in respect of offences under the 1922 Act. Section 6 e of the General Clauses Act, 1987 applied for the companytinuation of such proceedings after the repeal of the Indian Income-tax Act, 1922, and a legal proceeding in respect of an offence companymitted under the 1922 Act may be instituted after the repeal of the 1922 Act by the 1961 Act. The Court reiterated that before companying to the companyclusion that there is a repeal of an earlier enactment by a later enactment by implication, the companyrt must be satisfied that the two enactments are so inconsistent or repugnant that these companyld number stand together and the repeal of the express prior enactment must flow from necessary implication of the language of the later enactment. In Commissioner of Income-Tax Central , Calcutta v.B.P. India Ltd., 116 I.T.R. 440 the Calcutta High Court was companycerned with section 25 3 of the 1922 Act. It is number necessary to set out in extenso the facts of that case. It suffices to say that the discontinuance of the assessees business in that case took place on 28th February, 1962. It companyld number be disputed that if the 1961 Act had number companye into effect, the assessee would have been entitled to get the relief as granted by virtue of section 25 3 of the 1922 Act. It was observed that on a reading of section 6 of the General Clauses Act, 1897, it was clear that unless a companytrary intention appears, the repeal of an Act does number affect any existing right, privilege, obligation or liability. It is, therefore, necessary to find out from the provisions of section 297 of the 1961 Act which.repeals the 1922 Act, whether the old rights and liabilities have been intended to be destroyed. There was numbercorresponding provision under the 1961 Act dealing with the type of claims mentioned in sub-section 3 or 4 of section 25 of the 1922 Act. It was companytended by the revenue that what was number said was destroyed and such intention would be apparent in that case from section 297 2 h of the 1961 Act. The High Court referred to the 12th Report of the Law Commission, and Speaking for the Court, one of us Sabyasachi Mukharji,J. said that it was number possible to accept the submission for the revenue that whatever was number said was destroyed. The Court reiterated that there must be a manifest intention of Parliament to destroy a right or privilege under the old Act. There is numbersuch provision in the new Act. In the instant case also, section 75 2 dealt with a different scheme of carrying forward of loss but it did number speak of any accrued right. It did number destroy either by express words or by necessary implication the vested right given to an assessee under section 24 2 of the Act of 1922. Therefore, unless one finds in section 297 or within the fourcompanyners of the General Clauses Act any intendment express or implied of destroying the rights created by section 24 2 of carrying forward the losses to set off in subsequent years in case of speculation business that right cannot be said to be destroyed. The fact that the fight created by the operation of section 24 2 is a vested right cannot in our opinion be disputed. See in this companynection the observations of this Court in Gujarat Electricity Board v. Shantilal R. Desai, 1969 1 S.C.R. 580 at 587 and Isha Valimohamad Anr. v. Haji Gulam Mohamad Haii Dada Trust, 1975 1 S.C.R. 720 at 723. Under the Income Tax Act of 1922, the assessee was entitled to carry forward the losses of the speculation business and set off such losses against profits made from that business in future years. The fight of carrying forward and set off accrued to the assessee under the Act of 1922. A right which had accrued and had become vested companytinued to be capable of being enforced numberwithstanding the repeal of the statute under which that fight accrued unless the repealing statute took away such right expressly or by necessary implication. This is the effect of section 6 of the General Clauses Act, 1897. In this case the savings provision in the repealing statute is number exhaustive of the rights which are saved or which survive the repeal of the statute under which such rights had accrued. In other words, whatever fights are expressly saved by the savings provision stand saved. But, that does number mean that fights which are number saved by the savings provision are extinguished or stand ipso facto terminated by the mere fact that a new statute repealing the old statute is enacted. Rights which have accrued are saved unless they are taken away expressly. This is the principle behind section 6 c of the General Clauses Act, 1897. The right to carry forward losses which had accrued under the repealed Income-tax Act of 1922 is number saved expressly by section 297 of the Income-tax Act, 1961. But, it is number necessary to save a right expressly in order to keep it alive after the repeal of the Old Act of 1922. Section 6 c saves accrued rights unless they are taken away by the repealing statute. We do number find any such taking away of the rights by section 297 either expressly or by implication. We are, therefore, of the opinion that the Allahabad High Court was in error in the view it took in the decision in Commissioner of Income-tax, Kanpur v. Mangiram Gopi Chand supra but the High Court of Allahabad was fight in the judgment under appeal and the question was properly answered. The assessee in person did number appear at the time of the heating of this appeal. | 4 |
CIVIL APPELLATE JURISDICTION Civil Appeal No. 2031 of 1979. Appeal by Special Leave from the Judgment and Order dated 20-1-79 of the Rajasthan High Court Jaipur Bench at Jaipur in S.B. Revision No. 112/76. Soli J. Sorabjee, Solicitor General, Subhodh Markendya and Girish Chandra for the Appellants. Balakrishna Gaur for the Respondent. The Judgment of the Court was delivered by KRISHNA IYER, J.-An odd case of sentence of three months civil imprisonment and attachment of assets of the Central Government and two of its officers for default in instant reinstatement of a Railway Inspector removed from service for misconduct occasions this appeal by special leave. The Court System is neither a cloistered virtue number a self-righteous process and readily re-examines, in its appellate crucible, the judgments rendered at lesser levels even if the subject-matter be, as here, alleged disobedience of a judicial order. Justice is number hubristic and truth triumphs by self-criticism. And so, this Court, in keeping with such an invigilative perspective, must review the punitive directive of the trial companyrt, affirmed upto the High Court but challenged before us, that the Union of India and its officers in the Railway Department-the appellants-do suffer distraint of property and imprisonment of person for the companytempt of its authority by number-compliance with its order of injunction. This case disturbs us somewhat and companystrains us to go to the basics in a certain branch of the jurisprudence of companytempt of companyrt. As will presently appear, the synthesis of two seemingly antithetical creeds, both vital to our Republic is the key to the crucial issue projected by this appeal where disobedience of a mandatory injunction to retain in service, pendente lite, the respondent, a railway inspector, regardless of the disciplinary proceedings which had by then allegedly culminated in his exist from service. The companyrt shall neither be imperious number be obsequious. The law, in the area of companytempt of companyrt, must avoid the extremes of hyper-reactivity to marginal indifference to judicial authority out of pragmatic difficulties and of hypo-respect for companyrt companymands in a cavalier spirit of the companyrt has numberguns. Why care ? The fluid, yet valid, companycept of companytempt of companyrt keeps judges under the rule of law for, personal liberty, under our companystitutional order, is protected by a processual armour, even if its deprivation be the product of the judicial process. This caveat is called for in the present case where we are companyfronted by a bizarre order of companytingent imprisonment of unspecified servants and companyrcive attachment of un-particularised properties of the Union of India. And yet, this order has survived two appeals before arriving here by special leave. The facts are few and the law is number abstruse yet, in our view, the order under appeal is an overzealous companymand with fatal failings writ on its face. The respondent, an Inspector in the Western Railway, was proceeded against for misconduct. He did number show up when the show cause numberice was issued and when the disciplinary steps proceeded further, he artfully rushed to the munsifs companyrt, by passing the departmental process, and sued for a declaration of immunity and permanent injunction against further governmental action. Inevitably, he moved for an ad interim injunction to restrain the Railways from affecting his position in service by companytinuing the disciplinary enquiry and to companytinue to pay his full salary. After hearing both sides the companyrt issued, on April 15, 1974, such an injunction or freeze order, which was appealed against in vain and eventually, the revision to the High Court also proved fruitless. The blanket order, which was sustained, reads thus I, therefore, order and direct the N.A. Union of India and its employees number to implement or otherwise put in effect the order of dismissal at 18-1-74 or any other one removing, terminating or dismissing the services of the applicant as I.O.W. Of Western Railways and direct further that the applicant shall be retained and companytinued on post, power, pay, privileges and perquisites attached to the post of Inspector of Works, Rly, and in the same manner as if numberorders of removal or any other one were passed. In other words he shall be placed in the position as he held it on 14-1-1974 in the matter of pay, power, privileges and all other perquisites that he availed and enjoyed on 14-1-1974 and immediately before. The appellants, hopefully but harmfully, as events proved, awaited the decision in the higher companyrts before implementing the direction for reinstatement. But even while the case of injunction was pending in the District Court, in appeal, an application under 0.39 R.2 3 or disobedience was filed on 15-7-1974. The trial judge held the appellants guilty and passed a nebulous sentence against nameless culprits on January 5, 1976 in these terms. It is also clear that the number-applicants according to the decision of this companyrt dated 15-4-74 have number companytinued payment of the wages and other allowances and therefore it fully proved that the number-applicants have number carried out the order dated 15-4-74 of this companyrt. Now the number-applicants are hereby further ordered that if they fail to companyply with the order dated 15.4.74 within 15 days the opposite party shall be visited with the order of attachment of property and sending them to civil jail. As the number-applicant No. 2 has been transferred from Kota Division, therefore, the companypliance of the order will be made by the present Divisional Superintendent, Kota. Translation furnished in companyrt by the learned Solicitor General An unsuccessful appeal and an unrewarding revision ensued. The High Court hortatively told the Union of India that the law is the King of Kings and, admonished in high-sounding stylethat the state functionaries should atleast after 28 years of the functioning of the Constitution and rule of law in this companyntry, realise understand and literally and faithfully implement the judicial pronouncement by showing respect to law All the officers, the citizens in general, the litigants and the State functionaries in all seriousness should keep the following internal saying of the great jurist Maharshi Manu as uppermost in our mind, i.e. Law is the King of Kings-far more rigid and powerful than they, there is numberhing higher than law and by its powers the weak shall prevail over the strong and justice shall triumph. I wish this should number only be exhibited as the guide lines in all Government offices, important public institutions, street-corners and road companyners but acts upon both in letter and spirit by all irrespective of the office, profession, status and assignment which one holds in life. We agree but wish to add that the Manu text be exhibited also in companyrts halls together with Cromwells famous statement which the great Judge, learned Hand wanted should be hung on legislative and companyrt halls l beseech you, in the bowels of Christ, think it possible that you might be mistaken If we scan the anatomy of the Munsifs order, which was upheld all along, we numberice awesome implications that if, within 15 days, companypliance with the injunction did number take place-which implied payment of long years salaries and reinduction into service of the respondent who had by then been removed , all of which required much more time to secure sanctions and drawls of moneys in a mammoth hierarchical machine-the opposite parties who, among them ? shall be visits with the order of attachment of property which ? and sending them whom ? to civil jail for how long ? . As the number-applicant No. 2 has been transferred from Kota Division therefore, the companypliance of the order will be made by the present Divisional Superintendent, Kota and so, the transferee officer was in peril of imprisonment ? . The bracketed interrogations are ours, briefly to indicate that where liberty and property are to be deprived it is fundamental that vagueness is a fatal vice even if the issuing authority be the companyrt. The infirmity was companyrected in small part by the High Court in revision as will presently numberice Anyway, this order was stayed by the High Court on 5-3- 1976 until it finally dismissed the revision on January 20, 1979. And it is the appellants case that salaries thereafter have been paid, calculations have been made, sanctions obtained and money withdrawn and all the dues of years are ready to be distributed. The question is whether the action for disobedience was legal and justified and, in any case, the draconian punishment of Government by attaching its properties and putting its servants in jail was a desertion of judicial discretion whole hall-mark is to be firm but number authoritarian, liberal but number petulant. and ever informed by realism and impressed with companytrition. We have here an interlocutory injunction, though unusual, whose soundness is being tested in a separate proceeding in this Court. Let use pro tempore, assume its valid existence and focus on the folk-up of alleged breach and visitation of punishment. What was the direction ? Could it be practical to companyply within that time, having due regard to the inertia of administrative processes ? Was there recusant refusal, and, if so, by whom, in the companyspectus of facts here? When does the companyrt go to the extreme of imprisonment of Government servants at lesser levels, who have to act on orders from above, for disobedience? Is it the path of judicial discretion to temper justice with mercy or practise the opposite ? Above all. though arising in limine, can there be an order of companytingent attachment of unspecified properties ? Can the companyrt imprison any one unidentified in the order by making an omnibus direction leaving the life-giving parts blanks to be filled up long after the judgment and. perhaps, to allow the bailiff to seize whom he regards as the violatory? May be, Hurry Kills and hasten slowly are mottos good for every one who exercises power either at the wheel of an automobile or through the pen of a public functionary. We will proceed to resolve these questions which unbosom their answers in their very formulation For instance, does number the mere asking call for the obvious answer that numberorder by however high a power can be fair or reasonable if it jeopardises the person of a citizen wearing the armour of part III, without so much as specificating the identity of the human being upon whom the authority is to lay hands. And yet, the learned Munsif merely directed that the opposite party plurality of three, including the Central Government be sent to civil jail. Moreover, the order numberices that the Divisional Superintendent P2 has been transferred and yet the innocent transferee is put in peril of incarceration. Realising this fatal Haw, the High Court sought to repair the yawning tear by making the in observation-cum-direction The learned Munsif Magistrate, who passed the earlier ll order on January 5, 1976 companyld number proceed with the proceedings for sending the petitioners companycerned to Civil Jail and also of attachment of the property. It would be for the Munsif companycerned to name the officer companycerned who is required to be sent to Jail and further to give details of the property to be attached for the purpose of companypelling companypliance as per finding already given in judgment dated January 5, 1976 as modified in appeal. emphasis added The companyrt was relentless even when informed that the payment of salary pursuant to the order passed by the High Court had already been made. The companycluding portion of the High Courts judgment stated that the Munsif companycerned should take prompt action for executing his order in respect of sending companycerned officer to jail and the attachment of the property companycerned as mentioned in his judgment Both the orders keep the identity of the key persons and properties in uncertainty. We are a little startled that a companyrt in the companytempt jurisdiction should deprive the personal liberty of a person without naming in the order whom the Courts bailiff should take into custody or the jail authorities should receive. Equally clearly, how companyld property be taken without its being particularised in the judgment, disregarding procedural obligations ? It is number as if without hearing the officer to be jailed and his case against detention companysidered, the Munsif give ad hoc details of property to be attached without hearing the owner thereof as to his version about why his property should number be touched. The companystitutional sanctity of liberty and the then protection of property will become chimerical and the processual law will hang limp is the substantive order is silent and identifying the offender is left over as a ministerial measure. The High Court was in error in leaving it to the trial companyrt to designate such names when it actually issued the ministerial order to execute its decretal order. Nameless humans cannot be whisked off to prison even in the name of companytempt by insertion of the name after the judgment is delivered. Natural justice is pervasive doctrine integral to processual fair-play in Indian jurisprudence. For this reason alone, the extent order under challenge is vulnerable-against both the attachment of unspecified property and detention of unnamed companytemners. Independently of this invalidatory circumstance, it is apparent that there is numberground for judicial indignation once the facts are appreciated in their realistic setting. The order of injunction was made by the trial companyrt on 15-4-74 and brought before the High Court where the revision petition was dismissed on 3-1-1979. Strictly speaking, the order of injunction had number been stayed and should have been obeyed. It is numberexcuse to say that when appeal and revision pend, litigative hopes lull people into insouciance. While this is number prudent, it is companyponent in, judging about obstinate number-compliance. To institute a proceeding for disobedience of an injunction companymanding reinstatement of a government servant purportedly removed from service by the higher officers of the Railway, together with payment of salary for prior periods, is a stultification of the jurisdiction, if sufficient time is number given. A little touch of realism would have easily companyvinced the High Court that a government servant of the Union of India who has been removed from service for misconduct companyld number be reinstated with full back pay immediately the order was made by the Court. It had to be companymunicated to various officers, orders had to be made at various levels, files had to move and numberings made for gestation before implementation. All this takes time and when the companyrt order is eventually effectuated, the salary of the officer will, of companyrse, have to be paid with effect from the original date of the impugned threat of action. To proceed to punish in haste without pausing to realise how government functions is number fair in this drastic jurisdiction where personal freedom is in peril. The description of is processes, as prevalent in the days of Lord Curzon, holds good to-day. Here are his impatient words dipped in pungent ink . the administration had become ponderous, like an elephant-very stately, very powerful, with a high standard of intelligence, but with a regal slowness in its gait Round and round, like the diurnal revolution of the earth, went the file, stately, solemn, sure and slow and number, in due season, it has companypleted its orbit, and I am invited to register the companycluding stage. We are in numbermood to companydone willful procrastination number suffer wanton stagnation in Administration as a ground for default in obeying companyrt orders. The Law does number respect lazy bosses number cheeky evaders . But numberproof of that species of guilt has been brought to our numberice Mere inaction has numberlong mileage where means rea is a sine qua number We, therefore, regard the companyrts order, holding the appellants in companytempt, a hasty measure, probably annoyed by absence of instant companypliance. The severity of the sentence is beyond companyprehension. We cannot understand how the companyrt companyld ignore the fact that salary had been paid from the date of the High Courts order upto date and the readiness to pay the back salaries, on securing the appropriate sanction and drawl of cheque, had been represented to the companyrt. Before us, the learned Solicitor General said that the entire back wages were ready to be paid and the necessary cheque had already beery drawn. We see numberinclination on the part of the Government of India to adopt a challenging attitude against the companyrts writ. it is well-known that the companytempt power should be kept sheathed and the swore should be drawn only sparingly if the companyrt is companyvinced that there has been willful defiance or disobedience. Moderation lends dignity to power and we feel that the facts of the present case far from call for any stronger step than an admonition to companyply within a realistic spell of time and stiffer action thereafter. We do number take the view that the Union of India should be shown undue indulgence or its officer singular solicitude. But once there is clear evidence of active obedience, V companypled with expression, of regret delayed though the companypliance be due to the inevitable time-lag induced by paper-logged procedures, the companyrt may be clement. Here, companypliance and companytrition are number present. In these circumstances, we allow the appeal and record the undertaking of the Union of India, the 1st appellant, that the entire salary due to the respondent will be paid within one week from to-day. | 1 |
CIVIL APPELLATE JURISDICTION Civil Appeals Nos. 212-215 of From the judgment and order dated the 29th August, 1972 of the Madhya Pradesh High Court at Jabalpur, in Misc. Petitions Nos. 191 of 1968, 30 of 1970, 63. and 64 of 1972. Sen, R. V.Patel Biswar up Gupte, R. N. Jhujhunwala and K. Khaitan, for the appellants in C. A. 212-215 . N. Shroff, for respondent Nos. 1-3 in C.A. 212-215 . Sen and S. P. Nayar, for respondent No. 4 in C.A. 212 . S. Nayar, for respondent No. 4 in C.A. 213-215 . The judgment of U. R. Khanna, J. A. Alagiriswami and P. N. Bhagwati, JJ. was delivered by Khanna J. K. K. Mathew, J. gave a separate Opinion, on behalf of A. N. Ray, C. J. and himself. KHANNA, J. The short question which arises for determination in these four appeals on certificate against the judgment of the Madhya Pradesh High Court is whether the provisions of section 8 2 b of the Central Sales Tax Act, 1956 Act 54 of 1956 hereinafter referred to as the Act . suffer from the vice of excessive delegation. The High Court answered this question in the negative and upheld the companystitutional validity of those provisions. Sub-sections 1 , 2 and 4 of section 8 of the Act read as under Every dealer, who in the companyrse of inter- Estate trade or companymerce- a sells to the Governmentany goods or b sells to a registered dealer other than the Government goods of the description referred to in subsection 3 shall be liable to pay tax under this Act, which shall, be three per cent of his turnover. The tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the companyrse of interstate trade or companymerce number falling within sub-section 1 - a in the case of declared goods, shall be calculated at the rate applicable to the sale or purchase of such goods inside the appropriate State and b in the case of goods other than declared goods, shall be calculated at the rate of ten per cent or at the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever is higher and for the purpose of making any such calculation any such dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, numberwithstanding that he, in fact, may number be so liable under that law. The provisions of sub-section 1 shall number apply to any sale in the companyrse of inter- State trade or companymerce, unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner- a a declaration duly filled and signed by the registered dealer to whom the goods are sold companytaining the prescribed Particulars in a prescribed form obtained from the. prescribed authority or b if the goods are sold to the Government, number being a. registered dealer, a certificate in the prescribed form duly filled and signed by a duly authorised officer of Government. It has been argued on-behalf of the appellants that the, fixation of rate of tax is a legislative function and as the Parliament has, under section 8 2 b of the Act, number fixed the rate of central sales tax but has adopted the rate applicable to the sale or purchase of goods inside the appropriate State in case such rate exceeds 10 per cent, the Parliament has abdicated its legislative function. The above provision is companysequently stated to be companystitutionally invalid because of excessive delegation of legislative power. This companytention, in our opinion is number well founded. Section 8 2 b of the Act has plainly been enacted with a view to prevent evasion of the payment of the central sales tax. The Act prescribes a low rate of tax of 3 per cent in the case of inter-State sales only if the goods are sold to the Government or to a registered dealer other than the Government In the case of such a registered dealer, it is essential that the goods should be of the description mentioned in sub-section 3 of section 8 of the Act. In order, however, to avail of the benefit of such a low rate of tax under section 8 1 of the Act, it is also essential that the dealer selling the goods should furnish to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer, to. whom the goods are sold, companytaining the prescribed particulars in prescribed form obtained from the prescribed authority, or if the goods are sold to the Government number being a registered dealer, a certificate in the prescribed form duly filled and signed by a duly authorised officer of the Government. In cases number falling under subsection 1 , the tax payable by any dealer in respect of inter-State sale of declared goods is the rate applicable to the sale or purchase of such goods inside the appropriate state vide section 8 2 a of the Act. As regards goods other than the declared goods, section 8 2 b provides that the tax payable by any dealeron the sale of such goods in the companyrse of inter-State trade or companymerce shall be calculated at the rate of 1 0 per cent or at the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever is higher. The question with which we are companycerned is whether the Parliament in number fixing. the rate itself and in adopting the rate applicable to the sale or purchase of goods inside the appropriate State has number laid down any legislative policy and has abdicated its legislative function. In this companynection we are of the view that a clear legislative policy can be found in the provisions of section 8 2 b of the Act. The policy of the law in this respect is that in case the rate of local sales tax be less than 10 per cent, in such an event the dealer, if the case does number fall within section.8 1 of the Act, should pay central sales tax at the rate of 10 per cent. If, however, the rate of local sales tax for the goods companycerned be more than 10 per cent, in that event the policy is that the rate of the central sales tax shall also be the same as that of the local,sales tax for the said goods. The object of law thus is that the rate of the central sales tax shall in numberevent be less than the rate of local sales tax for the, goods in question though it may exceed the local rate in case that rate be less than 10 per cent. For example, if the local rate of tax in the appropriate State for the number-declared goods be 6 per cent, in such an event a dealer, whose case is number companyered by section 8 1 of the Act would have to pay central sales tax at a rate of 10 per cent. In case, however, the rate of local sales tax for such goods be 12 per cent, the rate of central sales tax would also be 12 per cent because otherwise, if the rate of central sales tax were only IO per cent, the unregistered dealer who purchases goods in the companyrse of inter-State trade would be in a better position than an intra-state purchaser and there would be numberdisincentive to the dealers to desist from selling goods to unregistered purchasers in the companyrse of inter-State trade. The object of the law apparently is to deter inter-State sales to unregistered dealers as such inter-State sales would facilitate evasion of tax. It is also number possible to fix the maximum rate under section 8 2 b because the rate of local sales tax varies from State to State. The rate of local sales tax can also be changed by the State legislatures from time to time. It is number within the companypetence of the Parliament to fix the maximum rate of local sales tax. The fixation of the rate of local sales tax is essentially a matter for the State Legislatures and the Parliament does number have any companytrol in the matter, The Parliament has therefore necessarily, if it wants, to prevent evasion of payment of central sales tax, to tack the rate of such tax with that of local sales tax, in case the rate of local sales tax exceeds a particular limit. Dealing with the provisions of section 8 2 b of the Act, Hegde J. in the case of State of Madras v. N. K. Nataraja Mudaliar 1 observed Then we companye to el. b of s. 8 2 , which deals with goods other than declared goods. Here the law at the relevant time was that the tax shall be calculated at the rate of seven percents of the turnover or at the rate applicable to sale or purchase of such goods inside the appropriate State, whichever is higher. As companyld be seen from the report of the Taxation Enquiry Committee, the main reason for this provision was to prevent as far as possible the evasion of sales tax. The Parliament was anxious that inter-State trade should be canalised through registered dealers over whom the appropriate government has a great deal of companytrol. It is number very easy for. them to evade tax. A measure which is intended to check the evasion of tax is undoubtedly a valid measure. Further, inter-State trade carried on through 1 1968 3 SCR 829. dealers companying within s 8 2 , must be in the very nature of things very little. It is in public interest to see that in the guise of freedom of trade, they do number evade the payment of tax. If the sales tax they have to pay is as high or even higher than intre-State sales tax thin they will be companystrained to register themselves and pay the tax legitimately due. The impact of this provision on inter-State trade is bound to be negligible, but at the same time it is an effective safeguard against evasion of tax. The adoption of the rate of local, sales tax for the. purpose of the central, sales tax as applicable in a particular State does number show that the Parliament has in any way abdicated its legislative function. Where a law of Parliament provides that the rate. of central sales tax should be IO per cent. or that of the local sales tax, whichever be higher, a definite legislative policy can be discerned in such a law, the policy being that the rate of central sales tax should in numberevent be less than the rate of local sales tax. In such a case, it is as already stated above, number possible to mention the precise figure of the maximum rate of central sales tax in the law made by the Parliament because such a rate is linked with the rate of local sales tax which is prescribed by the State Legislatures. The Parliament in making such a law cannot be said to have indulged in self-effacement. On the companytrary, the Parliament by making such a law effectuates its legislative policy, according to which the rate of central sales tax should in certain companytingencies be number less than the rate of the local sales tax in the appropriate State. A law made by Parliament. companytaining the above provision cannot be said to be suffering from the vice of excessive delegation of legislative function. On the companytrary, the above law incorporates within itself the necessary provisions to carry out the objective of the legislature, namely, to prevent evasion of payment of central sales tax and to plug possible loopholes. There is, in our opinion, marked difference between the enactment of a law which was struck down by this Court in the case of B. Shama Rao v. The Union Territory of Pondicherry 1 and that companytained in section 8 2 b of the Central Sales Tax Act. In Shama Raos case the Legislative Assembly for the Union Territory of Pondicherry passed the Pondicherry General Sales Tax Act which was published on June 30, 1965. Section 1 1 . of the Act provided that it would companye into force on such date as the Pondicherry Government may by numberification appoint and section 2 1 provided that the Madras General Sales Tax Act, 1959, as in force in the State of Madras immediately before the companymencement of the Pondichery Act, shall be extended to Pondicherry subject to certain modifications. The Pondicherry Government issued a numberification on March 1, 1966, appointing April 1, 1966 as the date of companymencement of he Pondicherry Act. Prior to the issue of the numberification, the Madras Legislature had amended the Madras Act and. companysequently it was the Madras Act as amended tip to April 1, 1966 which was brought in force in Pondicherry. 1 1967 2 SCR 650. Petition was thereupon filed challenging the validity of the Pondicherry Act. During the pendency of that petition, the Pondicherry Legislature passed Amendment Act 1 3 of 1966 whereby section 1 2 of the principal Act was amended to read that the latter Act would companye into force on April 1, 1966, and that all proceedings and action taken under that Act would be deemed valid as if the principal Act as amended had been in force at all material times. It was held by majority by this Court that the Act of 1965 was void and still-born and companyld number be revived by the Amendment Act of 1966. According to the Court, the Pondicherry Legislature number only adopted the Madras Act as it stood at the date when it passed the principal Act, but in effect it also enacted that if the Madras Legislature were to amend its Act prior to the numberification of its extension to Pondicherry, it would be the amended Act that would apply. The Legislature, it was held, at that stage companyld number anticipate that the Madras Act would number be amended number companyld it would be carried out, whether they would character or whether they would be suitable in Ponies the opinion of the Court, was that the Pondicherry Legislature accepted the amended Act though it was and companyld provisions of the amended Act would be. There Court, in these circumstances a total surrender tax legislation by the Pondicherry Assembly in favour of the Madras Legislature. It would appear from the above that the reason which prevailed with the majority in striking down the Pondicherry Act was the total surrender in the matter of sales tax legislation by the Pondicherry Legislature in favour of the Madras Legislature. No such surrender is involved in the present case because of the Parliament having adopted in one particular respect the rate of local sales tax for the purpose of central sales tax. Indeed as mentioned earlier, the adoption of the local sales tax is in pursuance of a legislative policy induced by the desire to prevent evasion of the Payment of central sales tax by discouraging inter- State sales to unregistered dealers. No such policy companyld be discerned in the Pondicherry Act which was struck down by this Court. Another distinction, though number very material, is that in the Pondicherry case the provisions of the Madras Act along with the subsequent amendments were made applicable to an area which was within the Union Territory of Pondicherry and number in Madras State. As against that, in the present case we find that the Parliament has adopted the rate of local sales tax for certain purposes of the Central Sales Tax Act only for the territory of the State for which the Legislature of that State had prescribed the rate of sales t, x. The central sales tax in respect of the territory of a State is ultimately assigned to that State under article 269 of the Constitution and is imposed for the benefit of that State. We would, therefore, hold that the appellants cannot derive much assistance from the above mentioned decision of this Court. It may be stated that this Court in two cases has upheld the validity of statute by which the legislature left the fixation of rates to another body. This was, however, subject to the rider that the legislature must provide guidance for such fixation. In the case of Corporation of Calcutta Anr. V. Liberty Cinema 1 while dealing with section 548 of the Calcutta Municipal Act relating to the levy of licence fee, on cinema houses Sarkar J as the then was speaking for the majority after referring to the earlier case of Pandit Banarsi Das Bhanot The State of Madhya Pradesh 2 observed This therefore is clear authority that the fixing of rates may be left to number-legislative body. No doubt when the power to fix rates of taxes is left to another body, the legislature must provide guidance for such fixation. The question then was much guidance provided in the Act? We first wish, to observe that the validity of the guidance cannot be tested by a rigid uniform rule. that must demand on the object of the Act giving power to fix the rate. In Municipal Corporation of Delhi v. Birla Cotton, Spinning and, Weaving Mills Delhi Anr. 3 this Court dealt with the provisions of sections 113 and 150 of the Delhi Municipal Corporation Act in the companytext of levy of certain taxes, including tax on companysumption or sale of electricity. One of the questions which arose for determination in that case was with section- 150, of the above mentioned Act transgressed the limits of permissible delegation. According to that section, the Municipal Corporation may at a meeting pass a resolution for the levy of any of the taxes specified in sub-section 2 of section 113 defining the maximum rate of tax to be levied, the class or classes of persons or the description of articles and properties to be taxed, the system of assessment to be adopted and the exemptions. if any, to ranted. Such a resolution has to be sanctioned by the Central Government and thereafter the Corporation has to pass a second resolutions determining subject to the maximum rate, the actual rate of tax. Wanchoo CJ., Hidayatullah, Sikri, Ramaswami and Shelat JJ. upheld the validity of the above section, while Shah and Vaidialingam JJ dissented and held that section 150 1 of the Act was void because of excessive delegation of legislative authority to the Corporation. Wanchoo CJ. and Shelat J. on a companysideration of the various of the Act held that the power companyferred by section 150 on provisions ration was number unguided and companyld number be said to amount to excessive delegation. After referring to the earlier authorities, Wanchoo CJ. speaking for himself and Shelat J. observed A review of these authorities therefore leads to the. companyclusion that so far as this Court is companycerned the principle is well established that essential legislative function companysists of the determination of the legislative policy, and its formulation as a binding rule of companyduct and cannot be delegated by the legislature. Nor is there any unlimited right of delegation inherent in the legislative power itself. This is number 1 1965 2 SCR 477. 2 1959 SCR 427- 3 1968 3 SCR 231. warranted by the provisions of the Constitution. The legislature must retain in its own hands the essential legislative functions and what can be delegated is the task of subordinate legislation necessary for implementing the purposes and objects of the Act. Where the legislative policy is enunciated with sufficient clearness or a standard is laid down, the companyrts should number interfere. What guidance should be given and to what extent and whether guidance has been given in a particular case at all depends on a companysideration of the provisions of the particular Act with which the Court has to deal including its preamble. Further it appears to us that the nature of the body to which delegation is made to also a factor to be taken into companysideration in determining whether there is sufficient guidancein the matter of delegation. Hidayatullah J. as he then was speaking for himself and Ramaswami J. observed Once it is established that the legislature itself has willed that a particular thing be done and has merely left the execution of it to a chosen instrumentality provided that it has number parted with its companytrol there can be numberquestion of excessive delegation. If the delegate acts companytrary to the wishes of the legislature the legislature can undo what the delegate has done. It was further observed To insist that the legislature should provide for every matter companynected with municipal taxation would make municipalities mere tax companylecting departments and number self,governing bodies which they are intended to be. Government might as well companylect taxes and make them available to the municipalities. That is number a companyrect reading of the history of Municipal Corporations and other selfgoverning institutions in our companyntry. Sikri J. as he then was observed I can see numbersign of abdication of its functions by Parliament in this Act. On the companytrary Parliament has companystituted the Corporation and prescribed its duties and powers in great deal. But assuming I am bound by authorities of this companyrt to test the validity of s.113 2 d and s.150 of the Act by ascertaining whither a guide or policy exists in the Act, I find adequate guide or policy in the expression purposes of the Act in S. 113. The Act has pointed out the objectives or the results to be achieved and taxation can be levied only for the purpose of, achieving the objectives, or the results. This, in my view, is Sufficient guidance especially to a selfgoverning body like the Delhi Municipal Corporation. It is necessary to rely an the safeguards mentioned by the learned Chief Justice to sustain the delegation Shah J. as he then was speaking for himself and Vaidialingan J. after referring to the earlier authorities observed On a review of the cases the following principles appear to be well-settled i Under the, Constitution the Legislature has plenary powers within its allocated field Essentiallegislative function cannot be delegated by the Legislature,that is, there can be numberabdication of legislative, function orauthority by companyplete effacement, or even partially in respect of a particular topic or matter entrusted by the Constitution to the Legislature- iii Power to make subsidiary or ancillary legislation may however be. entrusted by the Legislature to another body of its choice, provided there is enunciation of policy, principles or standards either expressly or by implication for the guidance of the delegate in that behalf. Entrustment of power without guidance amounts to excessive delegation of legislative authority iv Mere authority to legislate on a particular topic does number companyfer authority to delegate its power to legislate on that topic to another body. The power companyferred upon the Legislature on a topic is specifically entrusted to that body, necessary intendment of the companystitutional provision companyfers that power that it shall number be delegated without laying down principles, policy, standard or guidance to another body unless the Constitution expressly nation and the taxing provisions are number these rules. It was further observed The Constitution entrusts the legislative functions to the legislative branch of the State and directs that the functions shall beperformed by that body to which the Constitution has entrusted and number by some, one else to whom the, Legislature at a given time thinks it proper to delegate the function entrusted to it. A body of experts in a particular branch of undoubted integrity or special companypetence may Probably be in a better position to exercise the power of legislation in that branch, but Constitution has chosen to invest the elected representatives of the people to exercise the power of legislation, and number to such bodies of experts. Any attempt on the part of the experts to usurp, or of the representatives of the people to abdicate the functions vested in the legislative branch is inconsistent with the companystitutional scheme. Power to make subordinate or ancillary legislation may undoubtedly be companyferred upon a delegate, but the Legislature must in companyferring that power disclose the policy, principles or standards which are to govern the delegate in the exercise of that power so as to set out a guidance. Any delegation which transgresses this limit infringes the companystitutional scheme. After referring to the provisions of the Delhi Municipal Corporation Act, Shah and Vaidialingam JJ. held that the delegation companyld number be upheld merely because of the. special status, character, companypetence or capacity of the delegate or by reference to the provisions made in the statute to prevent abuse by the delegate of its authority. Shah and Vaidialingam JJ. accordingly came to the companyclusion that Section 150 1 was void as it permitted excessive delegation of legislative authority to the Corporation. It would appear from the above that number only was the companystitutional validity of section 150 of the Delhi Municipal Corporation Act upheld by the majority, the majority of the judges also expressed the view that it was essential for the legislature to lay down the legislative it policy and standards before companyld delegate the task of subordinate legislations to another body. We find ourselves unable to agree, with the view. which has been canvassed during the companyrse of arguments that if a legislature companyfers power to make subordinate or ancillary legislation upon a delegate, the legislature need number disclose any policy, principle or standard which might provide guidance for the delegate in the exercise of that power. It may be stated at the outset that the growth of the legislative powers of the executive is a significant development of the twentieth century. The theory of laissez-faire has been given a go-by and large and companyprehensive powers are being assumed by the State with a view to improve social and economic well-being of the people. Most of the modern socioeconomic legislations passed by the legislature lay down the guiding principles and the legislative policy. The legislatures because of limitation imposed upon by the time factor hardly go into matters of detail. Provision is, therefore, made for delegated legislation to obtain flexibility, elasticity, expedition and opportunity for experimentation. The practice of empowering the executive to make subordinate legislation within a prescribed sphere has evolved out of practical necessity and pragmatic needs of a modern welfare state. At the same time it has to be borne in mind that our Constitution-makers have entrusted the power of legislation to the representatives of the people, so that the said power may be exercised number only in the name of the people but also by the people speaking through their representatives. The rule against excessive delegation of legislative authority flows from and is a necessary postulate of the sovereignty of the people. The rule companytemplates that it is number permissible to substitute in the matter of legislative policy the views of individual officers or other authorities, however companypetent they may be, for that of the popular will as expressed by the representatives of the people. As observed on page 224 of Vol. 1 in Cooleys Constitutional Limitations, 8th Ed. One of the settled maxims in companystitutional law is, that the power companyferred upon the legislature to make laws cannot be delegated by that department to any other body or authority. Where the sovereign power of the State has located the authority, there it must remain and by the companystitutional agency done the laws must be Made until the companystitution Itself is changed. The power to whose judgment, wisdom and patriotism this high prerogative has been intrusted cannot relieve itself of the responsibility by choosingother agencies upon which the power shalt be devoted, number can it substitute the judgment, wisdom, and patriotism of any other body for those to which atom the people have seen fit to companyfide this sovereign. trust. According to John Locke when, parliamentary representatives have been chosen and the, authority to make laws has been delegated to them,, they have numberright, to redelegate it. As against that Jeremy Renthas in. The Limits of Jurisprudence Defined distinguishes between laws which belong to the legislator by companyception, being his work alone, and laws which belong to him by proadoption, being the joint work of the legislator and the subordinate power holder. In the latter case, he says, the legislator sketches out a sort of imperfect mandate which he leaves it to the subordinate holder to fill up. To economise its own time and to take advantage of export skill in administration, parliament is companytent to lay down principles and to leave the details frequently experimental or requiring companystant adjustment in the light of experience to some responsible minister or public body. see Foreword by Sir Cecil Carr to Hewitts The Control of Delegated Legislation, 1953 Ed. . The Constitution, as observed by this Court in the case of Devi Dass Gopal Krishan v. State of Punjab 1 companyfers a power and imposes duty on the legislature to make laws. The essential legislative function is the determination of the legislative policy and its formulation as a rule of companyduct. Obviously it cannot abdicate its functions in favour of another. But in view of the multifarious activities of a welfare, State, it cannot presumably work out all the details to suit the varying aspect of a companyplex situation. It must necessarily delegate the working out of details to the executive or any other agency. But there is danger inherent in such a process of delegation. An over-burdened legislature or one companytrolled by a powerful executive may unduly overstep the limits of delegation. It may number lay down any policy at all it may declare its policy in vague and general terms, it may number set down any standard for the guidance of the executive it may companyfer an arbitrary power on the executive to change or modify the policy laid down by it without reserving for itself any companytrol over subordinate legislation. This self effacement of legislative power in favour of another agency either in whole or in part is beyond the permissible limits of delegation. It is for a Court to hold on a fair, generous and liberal companystruction of an impugned statute whether the legislature exceeded such limits. The question as to the limits or permissible delegation of legislative power has arisen before this Court in a number of cases. Those cases were reviewed at length in the judgments of Wanchoo CJ. and Shah J. in the case of Municipal Corporation of Delhi v. Birla Mills supra and they summed up the companyclusions or principles which had been AIR 1967 S.C, 1895. established by those cases. Those companyclusions or principles havealready been reproduced above. The matter came up for the first time before, this Court In re Delhi Laws Act, 1912. 1 Although each one of the learned Judges who beard that case wrote a separate judgment, the view which emerged from the different judgments was that it companyld number be said that an unlimited right of delegation was inherent in the legislative power itself. This was number warranted by the provisions of the Constitution, which vested the power of legislation either in Parliament or State legislatures. The legitimacy of delegation depended upon its being vested as an ancillary measure which the legislature companysidered to be necessary for the purpose of exercising its legislative powers effectively and companypletely. The legislature must retain in its own hands the essential legislative function. Exactly what companystituted essential legislative function wag difficult to define in general terms, but this much was clear that the essential legislative function must at least companysist of the,., determination of the legislative policy and its formulation as a binding rule of companyduct. Thus where the law passed by the legislature declares the legislative policy and lays down the standard which is enacted into a rule of law, it can leave the task of subordinate legislation like, the making of rules, regulations or byelaws which by its very nature is ancillary to the statute to subordinate bodies. The subordinate authority must do so within the framework of the law which makes the delegation, and such subordinate legislation has to be companysistent with the law under which it is made and cannot go beyond the limits of the policy and standard laid down in the law. As long as the legislative policy is enunciated with sufficient clearness or a standard is laid down, the companyrts should number interfere with the discretion that undoubtedly rests with the legislature itself in determining the extent of delegation necessary in a particular case see observations of Wanchoo CJ. in Municipal Corporation of Delhi v. Birla Mills, Supra . In Harishankar Bagla v. The State of Madhya Pradesh 2 this Court dealt with the validity of clause 3 of the Cotton Textile Control of Movement Order, 1948 promulgated by the Central Government under section 3 of the Essential Supplies Temporary Powers Act, 1946. While upholding the validity--of the impugned clause, this Court observed that the legislature must declare the policy of the law and the legal principles which are to companytrol any given cases and must provide a standard to guide the officials or the body in power to execute the law, and where the legislature has laid down such a principle in the Act and that principle is the maintenance or increase in supply of essential companymodities and of securing equitable distribution and availability at given prices, the exercise of the power was valid. In Pandit Banarsi Das Bhanot v. The State of Madhya Pradesh ors. supra Venkatarama Aiyar J. speaking for majority observed 1 1951 SCR 747. 2 1955 1 SCR 380. the authorities are clear that it is number 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. The learned Judge held that the power companyferred on the State Government by section 6 2 of the Central Provinces and Berar Sales Tax Act, 1947, to amend the Schedule relating to exemptions was in companysonance with the accepted legislative practice relating to the topic and was number unconstitutional. In Vasantlal- Maganbhai Sanjanwala v. The State of Bombay Ors. 1 the validity of section 6 2 of the Bombay Tenancy and Agricultural Lands Act 67 of 1948 was assailed. The said provision authorised the Provincial Government by numberification to fix a lower rate of the maximum rent payable by the tenants of lands situate in any particular area or to fix such rate on any other suitable basis as it thought fit. Gajendragadkar J. as he than was speaking for the majority observed that although the power of delegation was a companystituent element of legislative power, the, legislature, cannot delegate its essential legislative function in any case and before it can delegate any subsidiary or ancillary powers to a delegate of its choice, it must lay down the legislative policy and principle so as to afford the delegate proper guidance in implementing the same. The views expressed by this Court in Corporation of Calcutta Anr. v. Liberty Cinema supra , B. Shama Rao v. Union Territory of Pondicherry supra and Devi Dass Gopal Krishan State of Punjab supra have already been reproduced above. In Sita Ram Bishambhar Dayal Ors. v. State of U.P. Ors., 2 this Court observed It is true that the power to fix the rate of a tax is a legislative power but if the legislature lays down the legislative policy and provides the necessary. guidelines, that power can be delegated to the executive. It would appear from the above that the view taken by this Court in a long chain of authorities is that the legislature in companyferring power upon another authority to make subordinate or ancillary legislation must lay down policy, principle or standard for the guidance of the authority companycerned. The said view has been affirmed by Benches of this Court companysisting of seven Judges., Nothing companyent, in our opinion, has been brought to our numberice as may justify departure from the said view. The binding effect of that view cannot be watered down by the opinion of a writer, however eminent he may be, number by observations in foreign judgments,made in the companytext of the statutes with which they were dealing. 1 1961 SCR 341. 2 1972 2 SCR 141. Regarding the subject of delegation, it has been observed on page 228 of Cooleys Constitutional Limitations, Vol. I, 8th Edition The maxim that power companyferred upon the legislature to make laws cannot be delegated to any other authority does number preclude the legislature from delegating any power number legislative which it may itself rightfully exercise. It may companyfer an authority in relation to the execution of a law which may involve discretion, but such authority must be exercised under and in pursuance of the. law. The legislature must declare the policy of the law and fix the legal principle-, which are to companytrol in given cases but an administrative officer or by may be invested with the power to ascertain the facts and, companyditions to which the policy and principles apply. If this companyld number be done there would be infinite companyfusion in the laws,, and in an effort to detail and to particularise, they would miss sufficiency both in provision and execution. The matter has been dealt with on page 1637 of Vol. it in Willoughby on the Constitution of the United States, 2nd Edition, in the following words The qualifications to the rule prohibiting the delegation of legislative power which have been, earlier adverted to are those which provide that while the real law-making power may number be delegated, a discretionary authority may be granted to executive and administrative authorities 1 to determine in specific cases when and how the powers legislatively companyferred are to be exercised and 2 to establish administrative rules and regulations, binding both upon their subordinates and upon the public, fixing in detail the manner in which the requirements of the statutes are to be met, and the rights therein created to be enjoyed. The matter has also been dealt with in Corpus Juris Secundum Vol. 73, page 324. It is stated there that the law-making power may number be granted to an administrative body to be exercised under the guise of administrative discretion. Accordingly, in delegating powers to an administrative body with respect to the administration of statutes, the legislature must ordinarily prescribe a policy, standard, or rule for their guidance and must number vest them with an arbitrary and uncontrolled discretion with regard thereto, and a statute or ordinance which is deficient in this respect is invalid. In other words, in order to avoid the pure delegation of legislative power by the creation of an administrative agency, the legislature must set limits on such agencys power and enjoin on it a certain companyrse of procedure and rule-. of decision in the performance of its function and, if the legislature fails to prescribe with reasonable clarity the limits of power delegated to an administrative agency, or if those limits are too broad, its attempt to delegate is a nullity. We are also unable to subscribe to the view that if the legislature can repeal an enactment, as it numbermally can, it retains enough companytrol over the authority making the subordinate legislation and, as such, it is number necessary for the legislature to lay down legislative policy, standard or guidelines in the statute. The acceptance of this view would lead to startling results. Supposing the Parliament tomorrow enacts that as. the crime situation in the companyntry has deteriorated, criminal law to be enforced in the companyntry from a particular date would be such as is framed by an officer mentioned in the enactment. Can it be said that there has been numberexcessive delegation of legislative, power even though the Parliament omits to lay down in the statute any guideline or legislative policy for the making of such criminal law ? The vice of such an enactment cannot, in our opinion, be ignored or lost sight of on the ground that if the Parliament does number approve the law made by the officer companycerned, it can repeal the enactment by which that officer was authorised to make the law. Reference has been made to the decision of the Judicial Committee in the case of Cobb Co. Ltd. Ors. v. Norman Eggert Kropp 1 . The appellant companypanies in that case brought two actions against the Commissioner for Transport, who was the numberinal defendant for the Government of Queens-land. The first action was for repayment of fees levied under the State Transport Facilities Act for the carriage of goods and passengers on motor vehicles operated by the appellants in the State of Queens-land. The second action was for repayment of fees levied under the State Transport Act for the same purposes as in the first action. The appellants challenged the validity of the legislation in both the actions. The respondent companyceded that the licence fees were an imposition of taxation, which would be illegal and void if number done with the authority of Parliament but companytended that the two Acts were within the legislative companypetence of the queens-land legislature. The Judicial Committee held that the power of the Queens-land legislature to legislate for the peace welfare and good government of the state was full and plenary within certain limits. It was further held that the Queer legislature was entitled to use any agent or any subordinate agency or any machinery that they companysidered appropriate for carrying out the object and the purposes that they had in mind and which they designated. The legislature, it was observed, was entitled to use the Commissioner for Transport as their instrument to fix and recover the licence and permit fees, provided they preserved their own capacity intact and retained perfect companytrol over him. In this companytext, the Judicial Committee observed In their Lordships view the Queens-land legislature were fully warranted in legislating in the terms of the Transport Acts number being companysidered. They preserved their own capacity intact and they retained perfect companytrol over the Commissioner for Transport inasmuch as they companyld at any time repeal the legislation and withdraw such authority and discretion as they had vested in him. It cannot be asserted that there was a levying of money by presence or prerogative 1 1967 AC 141. -748SCI/74 without grant of Parliament or without parliamentary warrant. Reference in the above observations to the retention of companytrol and repeal of legislation, in our opinion, should be taken to be in the companytext of the overall effect of the impugned legislation. The effect of the impugned legislation had been brought out clearly in the judgment of Stable J. and the Judicial Committee quoted with approval the following passage from that judgment The Commissioner has number been given any power to act outside the law as laid down by Parliament. Parliament has number abdicated from any of its own power. It has laid down a framework, a set of bounds, within which the person holding the office created by Parliament may grant, or retrain from companylecting fees which are taxes. The above passage shows that the Judicial Committee expressly book-note of the fact that the, impugned legislation had laid down the framework and set of bounds within which the authority holding office companyld act. The above case, cannot, therefore, be an authority for the proposition that it is number necessary for the Parliament to lay down a framework and set of bounds within which a person authorised by an enactment companyld act. We have been referred to the literal meaning of the word abdication and it has been argued that even if the legislature does number lay down any guidelines, policy or standard for the guidance, of the authority to whom it gives the power of making subordinate legislation, it the legislature does number abdicate its function as long as it retains the power to repeal the statute giving that power. What is the exact companynotation of the word abdication and whether there is proper use of the word abdication if the legislature, retains the right of repealing the law by which uncanalised and unguided power is companyferred upon another body for making subordinate legislation are questions which may have some attraction for literary purists or those indulging in sonantic niceties they cannot, in our view, detract from the principle which has been well established in a long chain of authoritiesof this Court that the legislature must lay down the guidelines, principles or policy for the authority to whom power to make subordinate legislation is entrusted. The companyrect position of law, if we may say so with all respect, is what was enunciated by Mukherjea J. inthe Delhi Laws Act case supra . Said the learned Judge It cannot be said that an unlimited right of delegation is inherent in the legislative power itself. This is number warranted by the provisions of the Constitution and the legitimacy of delegation depends entirely upon its being used as an ancillary measure which the legislature companysiders to be necessary for the purpose of exercising its legislative powers effectively and companypletely. The legislature must retain in its own hands the essential legislative functions which companysist in declaring the legislative policy and laying down the standard which is to be enacted into a rule of law, and what can be delegated is the task of subordinate legislation which by its very nature is ancillary to the statute which delegates the power to make it. Provided the legislative policy is enunciated with sufficient clearness or a standard laid down the companyrts cannot and should number interfere with the discretion that undoubtedly rests with the legislature itself in determining the extent of delegation necessary in a particular case. As a result of the above, we hold that section 8 2 b of the Central Sales Tax Act does number suffer from the vice of abdication or excessive delegation of legislative power. The appeals fail and are dismissed with companyts. One hearing fee. MATHEW, J.-These appeals are preferred on the basis of certificates granted by the High Court of Madhya Pradesh under article 133 1 c of the Constitution from a companymon judgment of that Court holding that the provisions of s. 8 2 b of the Central Sales Tax Act, 1956 hereinafter referred to as the Act do number suffer from the vice of excessive delegation and are therefore immune from attack on the ground that Parliament has abdicated its essential legislative function in enacting them. Mr. A. K. Sen appearing for the appellants submitted that Parliament, by enacting s. 8 2 b has delegated its legislative function to fix the rate of tax leviable on the turnover of sales of goods in the companyrse of inter-State trade companying within the purview of the sub-clause and has abdicated its legislative function in so far as it adopted the rate that might be. fixed in the sales tax law of the appropriate State from time to time for taxing the local sales. Counsel submitted that fixing the rate of tax is an essential legislative function and that this function cannot be delegated without laying down the legislative policy for the guidance of the delegate. In support of this companytention companyncil referred to the decisions of this Court on the subject. In Corporation of Calcutta and Another v. Liberty Cinema, 1 the validity of s. 548 2 of the Calcutta Municipal Act, 1951, which empowered the Corporation to levy fees at such rates as may from time to time be fixed by the Corporation was challenged on the ground of excessive delegation as it provided numberguidance for the fixation of the amount. The majority upheld the provision relaying on the decision in Banarsidas v. State of Madhya Pradesh 2 holding that the fixation of rates of tax number being an essential legislative function, companyld be validly delegated to a number-legislative body, but observed that when it was left to such a body, the legislature must provide guidance for such fixation. The Court found the guidance in the monetary needs of the Corporation for carrying out the functions entrusted to it under the Act. 1 1965 2 I. C. R. 477. 2 1959 S.C.R. 427. In Municipal Board, Hapur v. Raghuvendra Kripal 1 , the validity of the U.P. Municipalities Act, 1916, was involved. The Act had empowered the municipalities to fix the rate of tax and after having enumerated the kinds of taxes to be levied, prescribed an elaborate procedure for such a levy and also provided for the sanction of the Government. Section 135 3 of the Act raised a companyclusive presumption that the procedure prescribed had been gone through on a certain numberification being issued by the Government in that regard. This provision, it was companytended, was ultra vires because there was an abdication of essential legislative functions by the legislature with respect to the imposition of tax inasmuch, as the State Government was given the power to companydone the breaches of the Act and to set at naught the Act itself. This, it was companytended, was an indirect exempting or dispensing power. Hidayatullah, J., speaking for the majority, said that regard being had to the democratic set-up of the municipalities which need the proceeds of these taxes for their own administration, at is proper to leave to these municipalities the power to impose and companylect these taxes. He further said that apart from the fact that the Board wasa representative body of the local population on whom the tax was levied, there were other safeguards by way of checks and companytrols by Government which companyld veto the action of the Board in case it did number carry out the mandate of the legislature. In Devi Das Gopalkrishnan v. State of Punjab 2 , the question was whether s. 5 of the East Punjab General Sales Tax Act, 1948, which empowered the State Government to fix sales tax at such rates as it thought fit was bad. The Court struck down the section on the ground that the legislature did number lay down any policy or guidance to the executive in the matter of fixation of rates. Subba Rao J., speaking for the Court, pointed out that the needs of the State and the purposes of the Act would number provide sufficient guidance for the fixation of rates of tax. He pointed out the danger inherent in the process of delegation Art overburdened legislature or one companytrolled by a powerful executive may unduly overstep the limits of delegation. It may number lay down any policy at all it may number set down any standard for the guidance of the executive it may companyfer an arbitrary power on the executive to change or modify the policy laid down by it without reserving for itself any companytrol over subordinate legislation. This self-effacement of legislative power in favour of another agency either in whole or in part is beyond the permissible limits of delegation. In Municipal Corporation of Delhi v. Birla Cotton and Spinning and Weaving Mills 3 , the main question was about the companystitutionality of delegation of taxing powers to Municipal Corporations. The Delhi Municipal Corporation Act 66 of 1957 , by S. 113 2 had empowered the Corporation to levy certain optional taxes. Under s. 150, 1 1966 1 S.C.R. 950. 2 1967 3 S.C.R. 557. 3 1968 3 S.C.R. 251. power was given to the Corporation to define the maximum rate of tax to-be levied, the classes of persons and the description of articles and property to be taxed, the system of assessment to be adopted and the exemptions, if any, to be granted. The majority of the Court held the delegation to be valid. Wanchoo C.J. observed that there were sufficient guidance, checks and safeguards in the Act which prevented excessive delegation. The learned Chief Justice observed that state merits in certain cases to the effect that the power to fix rates of taxes is number an essential legislative function were too broad and that the nature of the body to which delegation is made is also a factor to be taken into companysideration in determining whether there is sufficient guidance in the matter of delegation. According to the learned Chief Justice, the fact that delegation was made to an elected. body responsible to the people including those who paid taxes provided a great check on the elected companyncillors imposing unreasonable rates of tax. He then said The guidance may take the form of providing maximum rates of tax upto which a local body may be given the discretion to make its choice, or it may take the form of providing for companysultation with the people of the local areas and then fixing the rates after such companysultation. It may also take the form of subjecting the rate to be fixed by the local body to the approval of Government which acts as a watchdog on the actions of the local body in this matter on behalf of the legislature. There may be other ways in which guidance may be provided. In Sita Ram Bishambher Dayal v. State of P. 1 , s3-D 1 of the U.P. Sales Tax Act, 1948, had provided for levying taxes at such rates as may be prescribed by the State Government number exceeding the maximum prescribed therein. Hegde, J. speaking for the Court, observed However much one might deplore the New Despotism of the executive, the very companyplexity of the modern society and the demand it makes on its Government have set in motion forces which have made it absolutely necessary for the legislatures to entrust more and more powers to the executive. Text book doctrines evolved in the 19th Century have become out of date. In this companytext it is necessary to have a clear idea of the companycept of delegation. Delegation is number the companyplete handing over or transference of a power from one person or body of persons to another. Delegation may be defined as the entrusting, by a person or body of persons, of the exercise of a power residing in that person or body of persons, to another person or body of persons, with companyplete power of revocation or amendment remaining in the grantor or delegator. It is important to grasp the implications of this, for, much companyfusion of thought had unfortunately resulted from assuming that, 1 1972 2 S.C.R. 141, delegation involves, or may involve the companyplete abdication or abrogation of a power. This is precluded by the definition,. Delegation often involves the granting of discretionary authority to another, but inch authority is purely derivative. The, ultimate power always remains in the delegator and is never renounced. Willis, J. said in Huth v. Clarke, 1 Delegation, as the word is generally used, does number imply a parting with powers by the person who grants the delegation, but points rather to the companyferring of an authority to do things which otherwise that person would have to do himself. It is never used by legal writers, so far as I am aware, as implying that the delegating person parts with his power in such a manner as to denude himself of his rights. See also John Willis, Delegates number protest delegate 2 If this essential nature of the companycept of delegation is kept in mind, it is number difficult to understand the principle of the leading decisions on the question of delegation of legislative power and the theory of abdication. In Hedge v. The Queen 3 , the Privy Council said that s. 92 of the British North America Act companyferred powers number in any sense to be exercised by delegation from or as agents of the Imperial Parliament, but authority as plenary and as ample within the limits prescribed by s. 92 as the Imperial Parliament in the plenitude of its power possessed and companyld bestow and that, within these limits of subjects and area the local legislature is supreme, and has the same authority as the Imperial Parliament, or the Parliament of the Dominion would have had under like circumstances to companyfide to a municipal institution or body of its own creation authority to make by-laws or resolutions as to subjects specified in the enactment, and with the object of carrying the enactment into operation and effect. The main argument in the case was that the delegation of a power to make regulation ancillary to legislation might be intra vires but for a legislature to pass a skeleton legislation and to empower the Government to clothe the bare bones was number delegation but abdication, as that would create and endow with its own capacity a new legislative power number created by the British North America Act to which it owes its existence. In 1918, nearly forty years after Hedge v. The Queen 3 , he theory of abdication was raised in In re Gray 4 where the Supreme Court of Kanada upheld an Act but the judges did number agree in heir reasoning for so holding. The Act was called the Dominion War Measures Act which, empowered the Governor-General to make such regulations as he may by reason of the existence of real or 1 1890 25Q.B.D.391,395. 2 21 Canadian Bar Review 257. 3 1883 9 A.C.117. 4 57 S.R.C. 150. apprehended war deem necessary or advisable for the security, defence, peace, order add welfare of Canada. The argument was that the legislation transferred legislative power of Dominion Parliament to the executive authority. Anglin, J. thought that the British North America Act forbade companyplete abdication but obviously gave to that phrase a very narrow meaning for he went on to describe it as something so inconceivable that the companystitutionality of an attempt to do anything of the kind need number be companysidered and expressly said that the Dominion Parliament had as much authority to delegate as the Imperial Parliament. Duff,, J. also thought that an implied prohibition against abandonment must be read into the Act but for him numberdelegation of legislative power, however extensive, would amount to abandonment, since the executive in making the regulations is numbermore than an agent of the legislature which can always recall its authority. For him the forbidden point of abandonment is number reached until there is, on the part of the legislature, an intention to abandon companytrol over the executive or an abandonment of companytrol in fact. Despite these differences of opinion, the, judges agreed in holding that there was numberconstitutional objection to the extremely extensive delegation companytemplated by the Act, and in giving a very narrow meaning to the word abdication. Unfortunately, In re Gray was a wartime case and the profession tends to regard wartime cases with a cynical but natural suspicion. In re initiative and Referendum Act 1 Viscount Haldane said that by s. 92 of the British North America Act, legislative power in a province is companyferred only upon its legislature and went on to make a statement which has often been quoted No doubt a body, with a power of legislation on the subjects entrusted to it so ample as that enjoyed by a Provincial Legislature in Canada companyld, while preserving its own capacity intact, seek the assistance of subordinate agencies as in Hodde v. The Queen supra but it does number follow that it can create and endow with its own capacity a new legislative power number created by the Act to which it owes its own existence. In Shannon v. Lower Mainland Dairy Products Board 2 , the usual objection was made that in the present case there is practically a surrender by the provincial Legislature of its legislative responsibility to another body and as usual Lord Haldanes dictum was cited. The Privy Council did number even call on the Attorney General for British Columbia for an answer and dealt with the objection in the following pithy sentences of Lord Atkin Within its appointed sphere the Provincial Legislature is as supreme as any other Parliament and it is unnecessary to try to enumerate the innumerable occasions on which Legislatures, Provincial, Dominion and imperial, have 1 1919 A.C. 935. 2 1938 A.C. C. 708 entrusted various persons and bodies with similar powers to A those companytained in this Act. Now it is well known that the English Parliament may, by legislation, give to anybody of its own, choosing, the power to modify or add to a given Act of Parliament the legality of all English statutory rules and orders derives from this . In R. v. Burah 1 , the Privy Council held that the Indian Legislature was in numbersense an agent or delegate of the British Parliament, that within the limits of its powers, the Indian legislature had plenary powers of legislation as wide and of the same nature as those of the British Parliament, and that the plenary powers of legislation carried with them the power to legislate absolutely or companyditionally. The Privy Council did number require as a prerequisite to a valid delegation of legislative power that the law must lay down a policy or standard number did it do so, in any other case of delegated legislation. Indeed, such a requirement is opposed to the principle affirmed by it that within the limits of their powers, Indian legislatures had, and were intended to have plenary powers of legislation as large, and of the same nature, as the British Parliament itself. And as already stated, it has never been doubted that the British Parliament can delegate legislative powers without laying down any policy or standard for guidance. In In re the Delhi Laws Act, 1912, etc. 2 , the question was elaborately dealt with and all the relevant ruling were companysidered but it is difficult to extract any binding principle from that decision. While dealing with this decision in Kathi Ranging Ravat v. State of Saurashtra 3 Patanjali Sastri, C.J. said While undoubtedly certain definite companyclusions were reached by the majority of the judges who took part in the decision in this regard to the companystitutionality of certain specified enactments, the reasoning in each case was different and it is difficult to say that any particular principle has been laid down by the majority which can be of assistance in the determination of other cases. But that decision is generally held to have laid down the principle that the legislature should number abdicate its essential legislative function by transferring it and thus efface itself. In Municipal Corporation of Delhi v. Birla Cotton and Spinning and Weaving Mills supra already referred to, Sikri, J. as he then was , in his companycurring judgment took the view that there was adequate guide or policy in the expression purposes of the Act in s. 113 but that it was number necessary to rely on the safeguards mentioned by Wanchoo, C. J. in his judgment to sustain the delegation. He said Apart from authority, in MY view, Parliament has full power to delegate legislative authority to subordinate bodies. 1 1878 5 I.A. 178. 2 1951 S.C.R. 747. 3 1952 S.C.R, 435,444. This power flows, in my judgment, from article 246 of the Constitution. The word exclusive means exclusive of any other subordinate body. There is, however, one restriction in this respect and that is also companytained in Art. Parliament must pass a law. in respect of an item or items of the relevant list. Negatively, this means that Parliament can number abdicate its functions. It seems to me that this was the position under the various Government of India Acts and the Constitution has made numberdifference in this respect. I read 1883 9 A.C. 117 and 1885 10 A.C. 282 as laying down that legislatures like Indian legislatures had full power to delegate legislative authority to subordinate bodies. In the judgments in these cases numbersuch words as policy, standard or guidance is mentioned. In Lichter v. United States 1 , the Supreme Court upheld the validity of the Renegotiation Act. That Act provided for the renegotiation of war companytracts and authorised administrative officers to recover profits which they determined to be excessive such profits being defined to mean any amount of a companytract or a sub-contract price which is found as a result of renegotiation to represent excessive profits which means, in other words that excessive profits mean excessive profits. The Court repelled the challenge on the ground of delegated legislation by saying It is number necessary that Congress supply administrative officials with a specific formula for their guidance in a field where flexibility and the adaptation of the companygressional policy to infinitely variable companyditions companystitute the essence of the program. The statutory terms excessive profits in the companytext Was a sufficient expression of legislative policy and standards to render it companystitutional. The position so far as U.S.A. is companycerned has been summarized by Schwartz 2 . . . . If standards such as those companytained in the Renegotiation and Communications Acts are upheld as adequate, it becomes apparent that the requirement of standards has become more a matter of form than substance. Provided that there is numberabdication of the Congressional function, as there was in the Schechter Case, the enabling law will be upheld, even though the only standard which the Court can find is so broad as to be almost illusory. The position in Australia is also practically the same. In Victorian Srevedoring and General Contracting Co. Pvt. Ltd. Dignan 3 Dixon, J. said that the objection to delegation of legislative power was number based on the ground that the doctrine of separation of powers forbade such delegation. He said that when in Huddart Parker Ltd. v 1 334 U.S. 742. American Administrative Law, 2nd ed., pp. 41-42. 3 1931 46 C.L.R. 73. Commonwealth 1 the judges answered the objection against delegation of legislative power by observing that Roche v. Kronheimer 2 upheld the validity of such a delegation, it really meant that the time had gone by for assigning to the separation of powers in the Australian Constitution, the effect of restraining Parliament from making a law companyferring the power of an essentially legislative character on the executive While logically or theoretically, legislative power exclusively to Parliament, the power of Parliament to authorise subordinate legislation was based more upon the usages of British legislation and to the theory of English Law and whatever may be the rationale, the decision in Roche v. Kronheimer 2 must be to. And according to that judgment the true view is that legislative power in itself includes the power of delegation see also Wynes, Legislative, Judicial and Executive Powers. 4th ed. 118 . In the ultimate analysis, what is prohibited, according to Chief Justice Subba Rao in Devi Das Gopal Krishnan v. State of, Punjab supra is the companyferment of arbitrary power by the legislature upon a subordinate body without reserving to itself companytrol over that body and the self-effacement of legislative power in favour of another agency either in whole or in part. In other words, the legislature should number abdicate its essential function. The question to be asked and answered then is. when does a legislature abdicate its legislative function The companycept of abdication seems numberless vague, fluctuating and uncertain than the transfer to others of the essential legislative functions banned by the Supreme Court of the United States In the Panama Refining Co. v. Ryan 3 . To Lord Haldane, a legislature does number abdicate unless it withdraws from the field and surrenders its responsibility therefore. But in the eyes of some other judges, there seems to be abdication whenever a legislature, while remaining in the field and retaining its responsibility therefore entrusts to others the formulation of policy otherwise than with a definite standard or purpose laid down by it. In In re the Delhi Laws Act, 1912 etc. supra Kania, C.J. said that if full powers to do everything that the legislature can do are companyferred on a subordinate authority, although the legislature retains the power to companytrol the action of subordinate authority by recalling such power or repealing the Acts passed by the subordinate authority, there is numberabdication or effacement of the legislature companyferring such power. Fazl Ali, J. observed that there are only two main checks in this companyntry on the power of the legislature to delegate, these being its good sense and, the principle that it should number cross the line beyond which delegation amounts to abdication and self-effacement. Patanjali Sastri, J. was of the view that delegation of legislative authority is different from the creation of a new legislative power. In the former, the delegating body does number efface itself but retains its legislative power intact and 1 1931 44 C.L.R. 49 . 2 1921 29 C.L.R. 329. 3 293 U.S. 388, 421. merely elects to exercise such power through an agency or instrumentality of its choice. In the latter there is numberdelegation of power to subordinate units but a grant of power to an independent and companyrdinate body to make laws operative of their own force. For the first numberexpress provision authorities delegation is required. in the absence of a companystitutional inhibition, delegation of legislative power, however extensive, companyld be made so long as the delegating body retains its own legislative power intact. Mahajan, J. was of the opinion that the legislature cannot substitute the judgment, wisdom and patriotism of any other body, for those to which alone the people have seen fit to companyfide this sovereign trust and that the view that unless expressly prohibited a legislature has a general power to delegate its legislative functions to a subordinate authority is number supported by authority or principle. Mukherjea, J. took the view that it cannot be said that an unlimited right of delegation is inherent in the legislative power itself and the legislature must retain in its own hands the essential legislative functions which companysist in declaring the legislative policy and laying down the standard which is to be enacted into a rule of law. Das, said that the power of delegation is necessary for, and ancillary to, the exercise of legislative power and is a companyponent part of it. The only qualification upon the, power to delegate is that the legislature may number, without reserving its own capacity intact, create and endow with its own capacity a new legislative power number created or authorise by the Act to which it owes its existence. Bose, J. said that the Indian Parliament can legislate along the lines Queen v. Burah supra , that is to say, it can leave to another person or body the introduction or application of laws which are or may be in existence at that time in any part of India which is subject to the legislative companytrol of Parliament. In Cobb Co. Ltd. v, Kroop 1 , the question was whether the Queensland legislature had legislative authority under the impugned Acts to invest the Commissioner for Transport with power to impose and levy licence and permit fees. It was number disputed before their Lordships that fees imposed are to be regarded as companystituting taxation. Accordingly, it was companytended that the legislature had abdicated its exclusive power of levying taxation. The Privy Council held that Queensland Legislature was entitled to use any agent or subordinate agency and any machinery that it companysidered appropriate for carrying out the object and the purposes that they had in mind and which they designated, and to use the Commissioner for Transport as its instrument to fix and recover the licence and permit fees, provided it preserved its own capacity intact and retained perfect companytrol over him that as it companyld at any time repeal the legislation and withdraw such authority and discretion as it had vested in him, it had number assigned, transferred or abrogated its sovereign power to levy taxes, number had it renounced or abdicated its responsibilities in favour of a newly created legislative authority and, that, accordingly, the two Acts were valid. Lord Morris of Borth-y-Gest said What they the legislature created by the, passing of the Transport Acts companyld number reasonably be described as a new 1 1967 1 A.C. 141. legislative power or separate legislative body armed with general legislative authority see R V. Burah, 3 A.C. 889 . Nor did the. Queensland legislature create and endow with its own capacity a new legislative power number created by the Act to which it owes its own existence see In re the Initiative and Referendum Act, 1919 A.C. 935, 945 The point to be emphasised and this is rather crucial-is the statement of their Lordships that the legislature preserved its capacity intact and retained perfect companytrol over the Commissioner for Transport in as much as it companyld at any time repeal the legislation and withdraw the authority and discretion it had vested in him and, therefore, the legislature did number abdicate its functions. Duff, J. aid In re Gray supra There is numberattempt to substitute the executive for Parliament in the sense of disturbing the existing balance of companystitutional authority. The powers granted companyld at any time be revoked and anything done under them nullified by Parliament,, which Parliament did number, and for that matter companyld number, abandon any of its own legislative jurisdiction. Delegation of law making power, it has been said, is the dynamo of modern Government. Delegation by the legislature is necessary in order that the exertion of legislative power does number become a futility. Today, while theory still affirms legislative supremacy, we see power flowing back increasingly to the executive. Departure from the traditional rationalization of the status quo arouses distrust. The legislature companyprises a broader cross-section of interests than any one administrative organ it is less likely to be captured by particular interests. We must number, therefore, lightly say that here can be a transfer of legislative power under the guise of di-legation which would tantamount to abdication. At the same time, we must be aware of the practical reality, and that is, that Parliament cannot go into all legislative matters. The doctrine of abdication expresses a fundamental democratic companycept but at the same time we should number insist that law-making as such is the exclusive province of the legislature. The aim of government is to gain acceptance for objectives demonstrated as desirable and to realize them as fully as possible. The making of law is only a means to achieve a purpose. It is number an end in itself. That end can be attained by the legislature making the law. But many topics or subjects of legislation pre such that they require expertise, technical knowledge and a degree of adaptability to changing situations which parliament might number possess and, therefore, this end is better secured by extensive delegation of legislative power. The legislative process would frequently bog down if a legislature were required to appraise before hand the myriad situations to which it wishes a particular policy to be applied and to formulate specific rules for each situation. The presence of Henry VIII clause in many of the statutes is a pointer to the necessity of extensive delegation. The hunt by companyrt for legislative policy or guidance in the crevices of a statute, or the numberk and cranny of its preamble is number an edifying spectacle. It is number clear what difference does it make in principle by saying that since the delegation is to a representative body that Would be a guarantee that the delegate will number exercise the power unreasonably, for, if ex hypothesi the legislature must perform the essential legislative function, it is certainly numberconsolation, it the body to which the function has been delegated has a representative character. In other words, if numberguidance is provided or policy laid down, the fact that the delegate has a representative character companyld make numberdifference in principle. Seeing that by s. 8 2 b of the Act Parliament has number delegated any power to the State legislatures the question is Has Parliament abdicated its legislative function, when it chose to adopt the rate to, be fixed by the State legislatures for taxing local sales ? Counsel said that when the State legislature makes its sales tax law or amends or alters it from time to time it does number act as delegate of Parliament. It acts as a sovereign legislature with plenary powers of legislation within its sphere and while legislating in that sphere, it is number subject to any guidance or companytrol, from any outside agency including the Parliament, and, the rates of tax which may be fixed by the State Legislature from time to time would, therefore, be, rates for taxing the local sales having numberhing to do with the formulation of any policy by Parliament and, Parliament would be adopting those rates for the Central tax even without being aware of what those rates might be when fixed in future. Counsel relied heavily on Shama Rao v. Pondicherry 1 in support of this submission. In that case, the legislative assembly for the Union Territory of Pondicherry passed the Pondicherry General Sales Tax Act 10 of 1965 which was published on June 30, 1965 Section 1 2 of the Act provided that it would companye into force on such date as the PondiCherry Government may, by numberification, appoint, and s. 2 1 provided that the Madras General Sales Tax Act, 1959, as in force in the State of Madras immediately before the companymencement of the Pondicherry Act, shall be extended to Pondicherry subject to certain modifications, one of which related to the companystitution of the Appellate Tribunal. The Act also enacted a Schedule, giving the description of goods, the point of levy and the rates of tax. The Pondicherry Government issued a numberification on March 1, 1966, appointing April 1, 1966, as the date of companymencement. Prior to the issue of the numberification, the Madras legislature had amended the Madras Act and companysequently it was the Madras Act as amended upto April 1, 1966, which was brought into force in Pondicherry. When the Act had companye into force, the petitioner was served with a numberice to register himself as a dealer and he thereupon filed a writ petition challenging the validity of the Act. After the petition was filed, the Pondicherry Legislature passed the Pondicherry General Sales Tax Amendment Act 13 of 1966 whereby s. 1 2 of the principal Act was amended to read that the latter Act shalt companye into force on the 1st day of April, 1966 it was also provided that all taxes levied or companylected and all proceedings 1 1967 2 S.C.R. 650. taken and things done were to be, deemed valid as if the principal Act as amended had been in force at all material times. The Court, by a majority, held that the Pondicherry legislature number only adopted the Madras Act as it stood at the date when it passed the principal Act, but in effect also enacted that if the Madras Legislature were to amend its Act prior to the numberification of its extension to Pondicherry, it would be the amended Act that would apply that the legislature at that stage, companyld number anticipate that the Madras Act would number be amended number companyld it predicate what amendments would be carried out or whether they would be of a sweeping character or whether they would be suitable in Pondicherry and that, the result was that the Pondicherry Legislature accepted the amended Act though it was number and companyld number be aware what the provisions of the amended Act would be. There was, in these circumstances, the Court said, I total surrender in the matter of sales tax legislation by the Pondicherry Assembly in favour of the Madras Legislature. The Court referred with approval the of quoted dictum of Lord Haldane in In re Initiative and Referendum Act supra that the legislature of a province in Canada companyld number create and endow with its own capacity a new legislative power number created by the Act to which it owed its own existence and the passage from Cooley on Constitutional Law, 4th ed. 138, to the effect This high prerogative have been entrusted to its own wisdom, judgment and patriotism and number to those of other persons and it will act ultra vires if it undertakes to delegate the trust instead of executing it. It is pertinent to numbere that in almost all cases the argument against delegation was built upon the dictum of Lord Haldane but that has never stood in the way of the Courts upholding the most extensive delegation. Bora Laskin, after referring to the dictum of Lord Haldane, said 1 This oft-quoted passage remains more a companynsel of caution than a companystitutional limitation. This proposition has in numberway affected the widest kind of delegation by Parliament and by a provincial legisl ature to agencies of their own creation or under their companytrol see Reference re Regulations Chemicals, 1943 1 D.L.R. 248 Shannon v. Lower Mainland Dairy Product., Board, 1938 C. 708. And, as regards the observations of Cooley, we think that they were based on the American doctrine that the legislature being the delegate of the people cannot further delegate the trust but execute it themselves. We think that the principle of the ruling in Shama Rao v. Pondicherry supra must be companyfined to the facts of the case. It is doubtful See Canadian Bar Review, vol. 34 1956 , footnote on p. 919. whether there is any general principle which precludes either Parliament or a State legislature from adopting a law and the future amendments to the law passed respectively by a State legislature or Parliament and incorporating them in its legislation. At any rate, there can be numbersuch prohibition when the adoption is number of the entire companypus of law on a subject but only of a provision and its future amendments and that for a special reason or purpose In A-G S. v. A.G. Can. Nova Scotia Inter-delegation Case 1 , the Supreme Courts of Canada said that neither the Parliament of Canada number the legislature of any province can delegate one to the other to be exercised by that other as a Parliament or Legislature, as the case may be any of the legislative authority respectively companyferred upon them by the British North America Act and especially by sections 91 and 92 thereof. The Court was of the view that legislative authority companyferred upon Parliament and upon a provincial legislature is exclusive and, in companysequence, neither can bestow upon or accept power from the other, although each way delegate to subordinate agencies and to permit through delegation alteration of the distribution of legislative power established by the British North America Act save as permitted by s. 94 would mean that matters within Dominion companypetence would be incorporated in legislation assented to by the Lieutenant-Governor instead of by the Governor- General, and vice versa and, moreover, it would mean that the debate and judgment of one legislative body would be addressed to matters which were number its companycern but that of another legislative body as provided in a companystituent Act. The Court said that delegation of this kind is incompatible with a federal State. In his book Canadian Constitutional Law, 3rd. ed., Bora Laskin has this much to say on the case It is important however, to appeciate the limits of the doctrine affirmed by the Nova Scotia Inter-delegation case. Property understood the case does number prohibit either Parliament or a provincial legislature from incorporating referentially into the valid legislation of one the future valid enactments of the other. Illustrations of this kind of anticipatory incorporation by reference may be seen in the Cr. Code,, S.534 fixing the qualifications of jurors in criminal proceedings as those prescribed by the laws in force for the time being in a province , and in the Summary Convictions Act, R.S.O. 1960, c. 387, s. 3 making applicable to provincial summary companyviction proceedings certain provisions of the Cr. Code as amended or reenacted from time to time . There is number unconstitutional delegation involved where there is numberenlargement of the legislative authority of the referred legislature, but rather a borrowing of provisions which are within its companypetence and which were enacted for its own purposes, and which the referring legislature companyld have validly spelled out for its own purposes. This was appreciated by Judson, J. in Re Brinklow, 1953 O.W.N. 325, 105 Can. C.C. 203 affd on appeal on other grounds . However, in Regina v. Pialka 1953 4 D.L.R. 440, 1953 O.W.N. 596, 106 Can. CC. 197 C.A. , Laidlaw, J.A. reserved the question ofthe- 1 1950 4 D.L.R. 369. validity of the Provincial Summary Convictions Act if it were companystrued to incorporate number only provisions of the Cr. Code in existence when the provincial statute was last. enacted but also provisions subsequently introduced. This is, with respect, an unnecessary as well as an unwarranted acceptance of a limitation on legislative companypetence, and justifiable only as a matter of legislative policy of the referring legislature see Laskin, Note 1956 34 Can. Bar. Rav. 215 but cf. Bourne, Note, 1956 34 Can.Bar. Rav. 500. Once it is determined that a referring legislature is legislating in relation to a matter within its companypetence and that the referred legislature is similarly legislating within its companypetence and for its own purposes, a borrowing by the one from the other of future enactments does number involve the latter in exercise of power which it does number otherwise possess This view is simply supported by Regina v. Glibbery, 1963 1 O.R. 232, 36 L.R. 2d 548. see Bora Laskin, Canadian Constitutional Law, 3rd ed., pp. 40-41 . The decision in A-G Ont. v. Scott 1 was in an appeal front a Judgment reversing an order dismissing a motion for prohibition directed to a Magistrate purporting to act under the Ontario Reciprocal Enforcement of Maintenance Orders Act, R.S.O. 1950, c.334. The Act carried out an arrangement, to which certain other provinces and England became parties, for enforcement in Ontario, against resident husbands, of provisional maintenance orders for which proceedings had been initiated in a reciprocating jurisdiction by wives resident there. By.s.5 2 of the Act, a resident husband against whom companyfirmation of a foreign order was sought was entitled to raise any defence that he might have raised in the original proceedings had he been a party thereto but numberother defence. Among the objections to the validity of the Act was one directed to s.5 2 as being an unconstitutional delegation or abdication of legislative authority. Rand, J. with whom Kerwin, C.J.C., Kellock and Cartwright JJ. agreed, held that the action of each legislature was wholly discrete and independent of the other, a relation incompatible with delegation and that it was a case of adoption of a circumscribed nature in that only a single right was involved, namely, the private right of maintenance between husband and wife that the right touched a resident of each companyntry that the obligation of support was recognized by both and that the material matters of adoption went to the grounds of defence. He was of the view that there was numberattempt to permit another legislature to enact generally laws for a Province which would obviously be an abdication. He said that the adoption of rules and procedure from time to time in force in another jurisdiction was exemplified by R.2 of the Exchequer Court and the adoption of various provisions of the Criminal Code by Provincial statutes was seen in the Summary Convictions Act, S.O. 1950, c.379, s.3. According to the learned judge, from the standpoint of legislative companypetency, there was numberdifference between the adoption of procedure and that of substantive 1 1956 S.C.R. 137. law, that in each case legislation was enacted by reference to the legislation as it may from time to time be made by another legislature, that numberchallenge companyld be made to the companyplementary enactment there and that if the Province cannot exercise the same power in relation to a subject of such a local and civil rights nature, then the oft-.quoted words of Lord Fitzgerald in Hedge v. The Queen that its power is as plenary and as ample within the limits prescribed by s. 92 as the Imperial Parliament in the plenitude of its power possessed and companyld bestow would seem to be somewhat rhetorical. Locke, J. said that the validity of the statute was directed to s.5 2 which limited the available defences to those that might have been raised in the original proceedings in England. The defences permitted under the law of England, as the date of Reciprocal Enforcement of Maintenance Orders Act came into force in Ontario, may have been extended or limited by legislation passed thereafter in England, and this, it was companytended, amounted to a delegation of the authority of the legislature of its power to deal with the civil rights of residents in Ontario and that this companyld number be done was made clear by the judgment of the Supreme Court of Canada in A-G N.S. v. A-G Can. supra but the learned judge came to the companyclusion that this objection should number prevail as it was a valid exercise of provincial powers under head 13 of s. 92 of the British North America Act to declare that the defences which may be relied upon in proceedings of this nature shall be those from time to time permissible under the laws of England, those laws in substance being adopted and declared to be the law in the Province. As regards the companyrectness of the reasoning of Locke J. see Bora Laskin, companyments in 1956 34 Can. Bar. Review, 215, 227. We think that Parliament fixed the rate of tax on inter- State sales of the description specified in s. 8 2 b of the Act at the rate fixed by the appropriate State legislature in respect of intra-State sales with a purpose, namely, to check evasion of tax on inter-State sales and to prevent discrimination between residents in one State and those in other States. Parliament thought that unless the rate fixed by the States from time to time is adopted as the rate of tax for inter-State sales of the kind specified in the sub-clause, there will be evasion of tax in inter-State sales as well as discrimination. We have already pointed out in our judgment in Civil Appeals No. 2547-2549 of 1969 and 105106 of 1970 the objectives which Parliament wanted to achieve by adopting the rate of tax in the appropriate State for taxing the local sales. And for attaining these objectives Parliament companyld number have fixed the rate otherwise than by incorporating the rate to be fixed from time to time by the appropriate State legislature in respect, of local sales. It may be numbered that in so far as inter-State sales are companycerned, the Central Sales Tax Act, by s. 9 2 has adopted the law of the appropriate State as regards the procedure for levy and companylection of the tax as also for imposition of penalties. | 4 |
SECOND SECTION
CASE OF AYDEMİR AND KARAVİL v. TURKEY
(Application no. 16624/12)
JUDGMENT
STRASBOURG
9 October 2018
This judgment is final but it may be subject to editorial revision.
In the case of Aydemir and Karavil v. Turkey,
The European Court of Human Rights (Second Section), sitting as a Committee composed of:
Paul Lemmens, President,Valeriu Griţco,Stéphanie Mourou-Vikström, judges,and Hasan Bakırcı, Deputy Section Registrar,
Having deliberated in private on 18 September 2018,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 16624/12) against the Republic of Turkey lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by two Turkish nationals, Mr Ziya Aydemir and Mr Kenan Karavil (“the applicants”), on 13 February 2012.
2. The applicants were represented by Ms S. Aracı Bek a lawyer practising in Adana. The Turkish Government (“the Government”) were represented by their Agent.
3. On 6 September 2013 the complaint concerning the alleged breach of the applicants’ right to freedom of expression was communicated to the Government and the remainder of the application was declared inadmissible pursuant to Rule 54 § 3 of the Rules of Court.
4. On 26 February 2014 the Government submitted their observations on the admissibility and merits of the applications. By a letter dated 12 March 2014, the applicants were requested to submit by 22 April 2014 any written observations which they might wish to make in reply to those of the Government, together with any claims for just satisfaction under Article 41 of the Convention. On 22 August 2014 the applicants sent a letter to the Court enclosing their observations in reply to the Government’s observations, together with their claims for just satisfaction. By a letter dated 9 October 2014 the parties were informed that the President of the Section had decided, pursuant to Rule 38 § 1 of the Rules of Court, to admit the applicants’ observations and claims for just satisfaction, submitted outside the time-limit, to the case file.
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
5. The applicants were born in 1957 and 1981 and live in Diyarbakır and Adana respectively.
6. On 17 August 2006 the Adana public prosecutor filed a bill of indictment with Adana Magistrate’s Court charging the applicants and five other persons with praising an offence and an offender under Article 215 of the Criminal Code. The public prosecutor alleged that the applicants had signed a petition in September 2005 which had been drafted in order to be sent to several institutions. The petition read as follows:
“As a person from Kurdistan, I consider and accept Mr/Esteemed Abdullah Öcalan of Kurdistan as a political actor.”[1]
7. On 19 January 2007 the Adana Magistrate’s Court decided that it lacked jurisdiction in the case due to the possibility of application of section 7(2) of the Prevention of Terrorism Act (Law no. 3713) proscribing disseminating propaganda in favour of a terrorist organisation. The court then sent the file to Adana Assize Court.
8. On 24 March 2008 the Adana Assize Court convicted the applicants of disseminating propaganda in favour of a terrorist organisation under section 7(2) of Law No. 3713 and sentenced them each to two years’ imprisonment. In its judgment, the first-instance court found it established that the above-mentioned petition had been prepared for the purpose of disseminating propaganda in favour of the PKK and its leader and that by signing that petition the applicants had committed the offence proscribed in section 7(2) of Law no. 3713.
9. On 13 July 2011 the Court of Cassation upheld the judgment of 24 March 2008. On 24 August 2011 the Court of Cassation’s judgment was deposited with the first instance court’s registry.
10. On an unspecified date the second applicant started serving his prison sentence.
11. On 19 October 2012 the Adana Assize Court decided to suspend the execution of the applicants’ prison sentence in accordance with Law no. 6352 which had entered into force on 5 July 2012 and which had amended certain provisions of Law no. 3713. The suspension was for a period of three years, on condition that they did not commit an offence through the press, media or other methods of expressing ideas and opinions.
II. RELEVANT DOMESTIC LAW
12. Between 7 August 2003 and 18 July 2006, section 7(2) of Law no. 3713 read as follows:
“Any person who assists members of the aforementioned organisations [terrorist organisations] or who disseminates propaganda inciting others to violence or other methods of terrorism shall be liable to a term of imprisonment of one to five years and a judicial fine of five million liras to one billion liras ...”
The first sentence of section 7(2) of Law no. 3713 was amended by Law no. 5532, which entered into force on 18 July 2006, as follows:
“Any person who disseminates propaganda in favour of a terrorist organisation shall be liable to a term of imprisonment of one to five years ...”
The first sentence of section 7(2) of Law no. 3713, amended on 30 April 2013 by Law no. 6459, currently reads as follows:
“Any person who disseminates propaganda in favour of a terrorist organisation by justifying, praising or encouraging the use of methods constituting coercion, violence or threats shall be liable to a term of imprisonment of one to five years ...”
THE LAW
I. THE GOVERNMENT’S OBJECTION
13. The Government claimed that the applicants’ observations in reply to their observations and their claims for just satisfaction should not have been included in the case file since they had been submitted outside the time-limit.
14. The Court notes that on 9 October 2014 the parties were informed that the President of the Section had decided, pursuant to Rule 38 § 1 of the Rules of Court, to admit those observations and claims for just satisfaction to the case file (see paragraph 4 above). The Court also notes that it has already rejected similar objections by the respondent Government (see Atılgan and Others v. Turkey, no. 14495/11 and 10 others, § 12, 27 January 2015; Şakir Kaçmaz v. Turkey, no. 8077/08, § 62, 10 November 2015; Yigin v. Turkey [Committee], no. 36643/09, § 16, 30 January 2018; and Aymelek v. Turkey [Committee], no. 15069/05, § 26, 30 January 2018). The Government’s arguments on this point are therefore rejected.
II. ALLEGED VIOLATION OF ARTICLE 10 OF THE CONVENTION
15. The applicants complained that their conviction on account of their participation in a petition campaign had constituted a breach of articles 10 and 11 of the Convention.
The Court considers that this part of the application should be examined from the standpoint of Article 10 of the Convention alone. Article 10 reads as follows:
“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.”
16. The Government contested that argument. They argued that the applicants had failed to exhaust the domestic remedies available to them, within the meaning of Article 35 § 1 of the Convention. They submitted that subsequent to the Adana Assize Court’s decision of 19 October 2012, the applicants should have applied to the Constitutional Court and raised their Convention grievances before that court, as that decision had been rendered after 23 September 2012, that is to say after the individual application system had been put in place.
17. As regards the merits of the applicants’ complaint under Article 10, the Government submitted that the interference with the applicants’ right to freedom of expression had had a legal basis and had pursued the legitimate aims of protecting national security and territorial integrity and public safety, as well as preventing disorder and crime. Leaving it to the Court’s discretion to decide on the necessity of the interference with the applicants’ right to freedom of expression, the Government noted that the applicant had disseminated propaganda in favour of the PKK, which was considered to be a terrorist organisation by a number of States and organisations.
18. The Court notes at the outset that it has already examined and dismissed an identical objection regarding the rule of exhaustion of domestic remedies by the respondent Government (see Öner and Türk v. Turkey, no. 51962/12, §§ 14-18, 31 March 2015). The Court finds no particular circumstances in the instant case which would require it to depart from this jurisprudence. The Court accordingly rejects the Government’s objection. The Court further notes that this application is not manifestly ill‑founded within the meaning of Article 35 § 3 (a) of the Convention. It further notes that it is not inadmissible on any other grounds. It must therefore be declared admissible.
19. As to the merits of the case, the Court considers that the applicants’ criminal convictions amounted to an “interference” with the exercise of their freedom of expression, and that the interference was based on section 7(2) of Law no. 3713. In the light of its findings regarding the necessity of the interference (see paragraph 23 below), the Court considers that it is not required to conduct an examination of the “lawfulness” of the interference. The Court is also prepared to accept that, in the present case, the national authorities may be considered to have pursued the legitimate aims of protecting national security and preventing disorder and crime (see Faruk Temel v. Turkey, no. 16853/05, § 52, 1 February 2011).
20. As regards the necessity of the interference in a democratic society, the Court notes that it has already examined similar grievances in a number of cases and found violations of Articles 10 and 11 of the Convention (see, for example, Bahçeci and Turan v. Turkey, no. 33340/03, § 30, 16 June 2009; Savgın v. Turkey, no. 13304/03, § 45, 2 February 2010; Faruk Temel, cited above, § 62; Öner and Türk, cited above, § 24; and Belge v. Turkey, no. 50171/09, § 38, 6 December 2016). The Court has examined the present case and considers that the Government have not put forward any argument which would require it to reach a different conclusion in this case.
21. In particular, the Court notes that the applicants were prosecuted and convicted under section 7(2) of Law no. 3713 on the grounds that they had signed a petition in which they had declared that they recognised Abdullah Öcalan as a political actor. The Court observes that the first-instance court’s judgment does not contain any information as to the reasons why the applicants were found guilty of disseminating propaganda in support of the PKK. Besides, the first-instance court did not examine whether the text of the petition could be construed as encouraging violence, armed resistance or an uprising, or being capable of inciting to violence, which are essential elements to be taken into account. Hence, the Court considers that the reasons adduced by the national courts to justify the applicants’ criminal conviction under section 7(2) of Law no. 3713 were not “relevant and sufficient” for the purposes of Article 10 of the Convention.
22. Last but not least, the Court notes the severity of the penalty imposed on the applicants, that is to say two years of imprisonment, which the second applicant served in part (see Karataş v. Turkey [GC], no. 23168/94, § 53, ECHR 1999‑IV).
23. The Court concludes that the interference in question was not “necessary in a democratic society”. Accordingly, there has been a violation of Article 10 of the Convention.
III. APPLICATION OF ARTICLE 41 OF THE CONVENTION
24. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
25. The applicants claimed 150,000 euros (EUR) each in respect of pecuniary damage. They also claimed EUR 150,000 each in respect of non‑pecuniary damage. Lastly, they claimed EUR 3,506 in respect of costs and expenses incurred before the Court. In support of their claim for costs and expenses, the applicants submitted the scale of fees of the Adana Bar Association.
26. The Government contested those claims.
27. Having regard to the applicants’ failure to submit to the Court any document in support of their claims in respect of pecuniary damage and costs and expenses, the Court rejects those claims. On the other hand, ruling on an equitable basis, the Court awards the first applicant EUR 2,500 and the second applicant EUR 5,000 in respect of non-pecuniary damage.
FOR THESE REASONS, THE COURT, UNANIMOUSLY,
1. Declares the application admissible;
2. Holds that there has been a violation of Article 10 of the Convention;
3. Holds
(a) that the respondent State is to pay the applicants, within three months the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement:
(i) EUR 2,500 (two thousand five hundred euros) plus any tax that may be chargeable, to the first applicant in respect of non-pecuniary damage;
(ii) EUR 5,000 (five thousand euros), plus any tax that may be chargeable, to the second applicant in respect of non-pecuniary damage;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;
4. Dismisses the remainder of the applicants’ claim for just satisfaction.
Done in English, and notified in writing on 9 October 2018, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Hasan BakırcıPaul LemmensDeputy RegistrarPresident
[1]. In Turkish: “Ben bir Kürdistanlı olarak Kürdistanlı Sayın Abdullah Öcalan’ı bir siyasi irade olarak görüyor ve kabul ediyorum.”
| 0 |
civil appellate jurisdiction civil appeal number 2136 of
1969.
appeal by special leave from the judgment and order
dated 24-1-1969 of the andhra pradesh high companyrt in s.a. number
552/66. govindan nair v.v. rao and g.n. rao for the
appellants. v. nair for the respondent. 1008
the judgment of the companyrt was delivered by
koshal j.-the facts giving rise to this appeal by
special leave are companycluded by companycurrent findings of fact
arrived at by the trial companyrt and the first appellate companyrt
and may be briefly stated here with reference to the
following pedigree-table
krishna reddy
subramanyam reddy daughter name number venkatarama
plaintiff knumbern reddy
pocha subba reddy krishna challamma
defendant number 6 reddy defendent
number 1
srinivasan reddy
defendant number2
defendants number. 1 and 2 and one p.k. reddy were the owners
of the lands in dispute which are situated in village
makhamambavilasam forming part of chittoor district. some of
the lands were sold by defendants number. 1 and 2 and the rest
by p.k. reddy and defendant number 2 by means of two sale deeds
dated the 25th of september 1947 exhibits a-8 and a-9
respectively in favour of defendant number 6 who was the
brother of defendant number 1 and therefore the maternal uncle
of defendant number 2. although both the sale deeds were
supported by valid companysideration possession was number
delivered to the vendee under either of them and companytinued
to be with defendant number 1.
in 1948 was promulgated the madras estates abolition
and companyversion into ryotwari act hereinafter called the
madras act section 3 of which reads thus
with effect on and from the numberified date and
save as otherwise expressly provided in this act-
a the madras estates land reduction of rent
act 1947 madras act xxx of 1947 in so far as it
relates to matters other than the reduction of rents
and the companylection of arrears of rent and the madras
permanent settlement regulation 1802 madras
regulation xxv of 1802 the madras estates land act
1908 madras act 1 of 1908
1009
and all other enactments applicable to the estate as
such shall be deemed to have been repealed in their
application to the estate
b the entire estate including all companymunal
lands porambokes other number-ryoti lands waste lands
pasture lands lanka lands forests mines and
minerals quarries rivers and streams tanks and
irrigation works fisheries and ferries shall stand
transferred to the government and vest in them free of
all encumbrances and the madras revenue recovery act
1864 the madras irrigation cess act 1865 and all
other enactments applicable to ryotwari areas shall
apply to the estate
c all rights and interests created in or over
the estate before the numberified date by the principal or
any other landholder shall as against the government
cease and determine
d the government may after removing any
obstruction that may be offered forthwith take
possession of the estate and all accounts registers
pattas muchilikas maps plans and other documents
relating to the estate which the government may require
for the administration thereof
provided that the government shall number dispossess
any person of any land in the estate in respect of
which they companysider that he is prima facie entitled to
a ryotwari patta-
if such person is a ryot pending the
decision of the settlement officer as to
whether he is actually entitled to such
patta
if such person is a landholder pending the
decision of the settlement officer and the
tribunal on appeal if any to it as to
whether he is actually entitled to such
patta
e the principal or any other landholder and any
other person whose rights stand transferred under
clause b or cease and determine under clause c
shall be entitled only to such rights and privileges as
are recognized or companyferred on him by or under this
act
f the relationship of landholder and ryot
shall as between them be extinguished
g any rights and privileges which may have
accrued in the estate to any person before the
numberified date against
1010
the principal or any other landholder thereof shall
cease and determine and shall number be enforceable
against the government or such landholder and every
such person shall be entitled only to such rights and
privileges as are recognized or companyferred on him by or
under this act. the term estate is defined in clause 3 of section 2
of the madras act as meaning a zamindari or an under-tenure
or an inam estate. section 11 declares that every ryot in an estate would
be entitled to a ryotwari patta in respect of all ryoti and
lanka lands in his occupation before the numberified date
which meant under clause 10 of section 2 the date
appointed by a numberification issued by the government. sections 12 to 15 deal with the determination of lands in
zamindari inam and under-tenure estates in which the
landholder is declared to be entitled to a ryotwari patta. on the 1st of october 1953 came into being the state
of andhra through an act of parliament knumbern as the andhra
state act by virtue of section 3 companytained in part ii of
which the entire chittoor district forming part of the state
of madras prior to the said date was transferred along with
other areas to the state of andhra. section 53 of the act
last mentioned provided as follows
the provisions of part ii shall number be deemed
to have effected any change in the territories to which
any law in force immediately before the appointed day
extends or applies and territorial references in any
such law to the state of madras or of mysore shall
until otherwise provided by a companypetent legislature or
other companypetent authority companytinue to have the same
meaning. as a result of this provision the district of chittoor
continued to be governed by all the laws including the act
which were in force in the state of madras immediately
before the 1st of october 1953.
a dispute arose between defendant number 1 and defendant
number 6 as to who of them was entitled to a patta under the
act in respect of the lands companyered by exhibits a-8 and a-9. the additional assistant settlement officer resolved the
dispute by means of an order dated the 14th of september
1957 exhibits b-3 and b-4 holding that defendant number 1 was
entitled to the patta on the ground that she had throughout
been in possession of the lands in question to the exclusion
of defendant number 6
1011
on the same date i.e. 14th of september 1957
defendant number 6 sold the lands in dispute by means of a
registered sale deed exhibit a-7 to the plaintiff who was
his maternal uncle and who about three years later filed
the suit suit number 169 of 1960 which has given rise to this
appeal against six persons claiming declaration of title
to the said lands and possession thereof. defendants number. 1 and 2 were alleged by the plaintiff to have taken
possession of part of the land while defendants number. 3 to 5
were accused of having trespassed into some other parts
thereof. numberrelief was claimed against defendant number 6 and
the suit was based on sale-deed exhibits a-7 a-8 and a-9
all three of which were claimed to be genuine documents
under which it was pleaded by the plaintiff possession had
passed to defendant number 6 in the first instance and to
himself the plaintiff on the 14th of september 1957.
anumberher plea taken was that the grant of the patta in favour
of defendant number 1 under the order evidenced by exhibits b-3
and b-4 did number companyfer any title on her and was obtained
fraudulently on the basis of her unlawful possession. the trial companyrt held that the sale deeds exhibits a-8
and a-9 were genuine but that the possession of the lands in
dispute had throughout remained with defendants number. 1 and
it was further of the opinion however that by virtue of
sale deed exhibit a-7 the plaintiff had become entitled to
the lands. the companytention raised on behalf of defendant number
1 that the civil companyrts companyld number take companynizance of the
suit in view of the provisions of the act was overruled on
the strength of krishnaswami thevar v. perumal konar wherein
it was held that a settlement officer had numberjurisdiction
under the act to adjudicate upon rival claims for the grant
of a patta and that such disputes fell within the
jurisdiction of the civil companyrts. the suit was found to be
within limitation and in view of the other findings above
detailed was decreed against defendants number. 7 and 8 who had
by then been substituted for defendants 1 and 2 as the
latters legal representatives defendants number. 1 and 2
having died during the pendency of the suit. numberrelief was
granted against defendants 3 to 5 as they did number claim number
were found to be in possession of any part of the lands in
dispute. the learned additional district judge of chittoor who
decided the first appeal preferred by defendants number. 7 and
8 companycurred with the findings of fact arrived at by the
trial companyrt but reversed its decree and dismissed the suit
holding on the authority of guddiradu v. murugappa modali
that by virtue of the provisions of section 3 of the act
with effect from the numberified date all rights in the lands
in dispute vested in
1012
the government except those recognised under the act as
vesting in others so that after the numberified date the only
right which a landholder under-tenure holder or a ryot
could claim was the right to obtain a patta. the rights of
the plaintiff under exhibit a-7 were thus held to have been
dislodged by the grant of a patta to defendant number 1.
in second appeal the high companyrt observed that the only
question requiring determination by it was whether the
plaintiff who was admittedly the owner of the property
lost his right by reason of the patta having been granted to
defendant number 1. it relied upon krishnaswami thevars case
and a. r. sanjeevi naicker v. p. m. shanmuga udayar in
support of its view that it was companypetent to a civil companyrt
to adjudicate upon the title of the parties numberwithstanding
the grant of a patta under the act to one of hem. it was in
this view of the matter that the high companyrt accepted the
appeal before it and restored the decree of the trial companyrt
thus granting to the plaintiff the relief claimed by him
and it is the judgment of the high companyrt which is challenged
before us by defendants number. 7 and 8.
the case was argued before us by learned companynsel for
the companytending parties on the assumption that it was
governed by the provisions of the andhra pradesh andhra
area estates abolition and companyversion into ryotwari act
1948 hereinafter referred to as the andhra act the
provisions enacted by which except for necessary changes
were practically the same as those of the madras act. that
assumption however is number well-founded. as already pointed
out chittoor district in which lie the lands in dispute
continued to be governed by the provisions of the madras act
as they stood on the 1st of october 1953 even after its
transfer to the state of andhra by reason of the mandate of
section 53 above extracted. after that date the madras act
could be amended or repealed by the andhra pradesh
legislature but till that was done the district of chittoor
would companytinue to be governed by the madras act in its
unamended form and as it stood on that date. we make it
clear however that the companyrection of the error on which
the assumption was based would number really make any
difference to the decision of the case inasmuch as the
relevant provisions of the madras act as they stood on the
1st of october 1953 are practically the same as the
corresponding provisions of the andhra act. apart from
sections 3 and 11 to 15 it is section 56 of the madras act
which clinches the matter. it reads thus
56. 1 where after an estate is numberified a
dispute arises as to a whether any rent due from a
ryot for any
1013
fasli year is in arrear or b what amount of rent is
in arrear or c who the lawful ryot in respect of any
holding is the dispute shall be decided by the
settlement officer. any person deeming himself aggrieved by any
decision of the settlement officer under sub-section
1 may within two months from the date of the
decision or such further time as the tribunal may in
its discretion allow appeal to the tribunal and its
decision shall be final and number be liable to be
questioned in any companyrt of law. sub-section 2 of the section categorically declares
that the decision of the tribunal deciding the appeal shall
be final and number liable to be questioned in any companyrt of
law in so far as it relates to any of the matters companyered
by sub-section 1 . it goes without saying that if numberappeal
is filed a similar finality shall attach to the decision of
the settlement officer. one of such matters is companyered by
clause c of sub-section 1 and embraces the determination
of the question as to who the lawful ryot in respect of any
holding is. questions which a settlement officer may be
called upon to decide under the said clause c would
certainly include such as may have resulted from a dispute
between two or more persons as to who of them is the lawful
ryot and once a dispute of that type has been adjudicated
upon by the settlement officer his decision becomes final
unless an appeal is filed before the tribunal in which
event it is the decision of the tribunal to which finality
attaches. in either case the decision is number liable to be
called into question in any companyrt of law. we need number go
into further details on the question of interpretation of
section 56 of the madras act inasmuch as our view is fully
supported by anumberher decision of this companyrt in muddada
chayanna v. karnam narayana and anumberher etc in that case
chinnappa reddy j. who delivered the judgment of the companyrt
was companycerned with the interpretation to be placed on
section 56 of the andhra act which repeats word for word the
contents of section 56 of the madras act. in holding that
the authorities mentioned in sub-section 2 of section 56
of the andhra act had exclusive jurisdiction to decide a
dispute between rival claimants for a ryotwari patta this
court approved the decision in t. munuswami naidu died and
others v. r. venkata reddi and others in which the same
interpretation had been given to section 56 of the andhra
act as a result of an elaborate discussion. this companyrt
further held that cherukuru muthayya v. gadde gopala-
1014
krishnayya which was also decided by a full bench but had
been overruled by a larger full bench in munuswamis case
supra had been wrongly decided. faced with the above situation learned companynsel for
the plaintiffs sought support for a companytrary view from the
two madras cases on which reliance had been placed by the
high companyrt in the impugned judgment. we may state at once
that those cases are wholly irrelevant for deciding this
case and that the high companyrt erred in taking them into
consideration. in this companynection all that need be stated is
that section 56 of the madras act was repealed by madras act
xxxiv of 1958 and both the madras cases above mentioned were
decided after section 56 had ceased to be part of the madras
act. that those cases may well have been differently decided
if section 56 had companytinued to be part of the madras act was
recognized by ramachandra iyer j. who decided krishnaswami
thevars case supra with the following observations -
the abolition act as originally enacted companytained
section 56 which companyferred in terms a power to decide
any dispute as to who the lawful ryot of a holding is. sub-section 2 provided for an appeal from such a
decision. if that provision were still to exist it can
be said that as the question whether the person was the
lawful ryot or number was one to be decided by the
settlement officer the issue of ryotwari patta by him
presumably after such decision companyld number be challenged
in a civil companyrt to that extent there would be an
ouster of the jurisdiction of the civil companyrt. but
section 56 1 has been repealed by act xxxiv of 1958.
there is number numbermachinery to decide the case of a
disputed claim to patta. thus if a ryot is entitled to
the ryoti land before the numberification he would by
virtue of that right be entitled to the grant of
ryotwari patta. there is numberhing in the procedure to be
adopted for the grant of patta under section 11 to
justify an adjudication of title. number is there anything
in the nature of the patta itself to show that there
must have been an adjudication of title in favour of
the pattadar. krishnaswami thevars case was followed in sanjeevi
naickers case which is again a single bench decision in
which ramamurti j. also made a reference to the repeal of
section 56 of the madras act by a later madras enactment. 1015
in the above view of the matter numberassistance can be
drawn by learned companynsel for the plaintiff who has to meet
the challenge of the provisions of section 56 because that
section was a part of the madras act on the 1st of october
1953 and companytinues to be so in so far as its application to
the district of chittoor in andhra pradesh is companycerned the
repeal of that section by the madras legislature being
wholly ineffective in so far as territories forming part of
the state of andhra are companycerned. the only other case to which reference was made by
learned companynsel for the plaintiff was pinninty peda
govindayya v. pinninty subbarao. that was a case in which
sections 3 4 7 12 and 14 of the andhra inams abolition
and companyversion into ryotwari act 1956 and rule 15 of the
rules framed thereunder came in for interpretation. the
relevancy of the case is number apparent inasmuch as it makes
numberreference to a provision similar to the one enacted by
section 56 of the madras act as forming part of the statute
or rules then under companysideration. we do number see therefore
that the plaintiffs case is in any manner advanced by the
decision cited. | 1 |
INDU MALHOTRA, J. Leave granted. The present Civil Appeals have been filed to challenge the Final Judgment and Order dated 25.07.2018 passed by the Gujarat High Court, whereby the Special Civil Application Nos. 19409 of 2015, 12711 of 2016, 14000 of 2016, and 14001 of 2016 have been dismissed. Since a companymon issue arises in all 4 Civil Appeals, they are being disposed of by the present companymon Judgment and Order. The factual matrix in which the present Civil Appeals have been filed is as under 3.1. On 08.02.2011, a Notification was issued under Section 20A of the Railways Act, 1989 hereinafter referred to as the said Act by the Ministry of Railways numberifying its intention to acquire the lands specified in 18 Villages, situated in District Surat, Gujarat for the public purpose of companystruction of the Western Dedicated Freight Corridor. The total land under acquisition was a stretch of 131 kms. The land owned by the Appellants, companyprising of approximately 6 kms, was included under the Notification. 3.2. The Appellants along with other landowners filed written Objections between 06.04.2011 and 07.04.2011 under Section 20D 1 of the Act before the Competent Authority Special Land Acquisition Officer, Surat hereinafter referred to as the Competent Authority, Surat to challenge the proposed acquisition. 3.3. The Competent Authority vide letter dated 15.07.2011, informed the landowners that the acquisition was for a necessary public purpose i.e. the development of the Western Dedicated Freight Corridor. It was stated that companypensation would be paid to all affected land owners in accordance with Sections 20F and 20G of the Railways Act, 1989. The landowners were asked to remain present with necessary proofs at the time of personal hearing, the date of which would be intimated to them. 3.4. The Competent Authority vide letter dated 19.07.2011, directed the landowners to appear for a personal hearing on the Objections on 30.07.2011. 3.5. The landowners appeared before the Competent Authority on 30.07.2011 for personal hearing, and submitted further written Objections on 31.07.2011. 3.6. The Competent Authority submitted its Report to the Central Government under Section 20E 1 of the Act on 03.01.2012. On 06.02.2012, the Ministry of Railways issued a Notification under Section 20E 1 of the Railways Act, 1989 stating that 59 Objections had been received in respect of the proposed acquisition, which had been companysidered and disallowed by the Competent Authority. 3.7. On 06.02.2013 and 07.02.2013, Awards were passed by the Competent Authority under Section 20F of the Railways Act, 1989. 3.8. On 13.08.2013, Shri Ghanshyamsinh Gambhirsinh Vashi, a landowner, filed an RTI Application before the Competent Authority seeking a certified companyy of the Order passed on the Objections filed by the land owners. 3.9. The Competent Authority replied to the said RTI Application on 05.09.2013, and stated that the reply to the Objections raised by the landowners had already been companymunicated vide letter dated 15.07.2011. 3.10. The Appellants herein challenged the acquisition proceedings by filing Special Civil Application Nos. 19409 of 2015, 12711 of 2016, 14000 of 2016, and 14001 of 2016 before the Gujarat High Court. The principal ground of challenge raised by the Appellants was that numberOrder had been passed on the Objections in accordance with Section 20D 2 of the said Act. The Appellants prayed for quashing and setting aside the Notification issued under Section 20A on 08.02.2011, and the Declaration issued under Section 20E on 06.02.2012. 3.11. During the pendency of the proceedings, the High Court vide Interim Order dated 12.07.2018, directed the Respondents to file an Affidavit giving specific details pertaining to the disposal of the Objections after personal hearing was granted on 30.07.2011. 3.12. The Chief Project Manager, Dedicated Freight Corridor Corporation of India Limited filed Affidavit dated 17.07.2018 on behalf of the Respondents before the High Court, wherein it was stated that I state that the clarification reply given vide letter dated 15/7/2011 does number indicate the decision order predetermination of the Competent Authority. The Competent Authority has merely clarified the purpose of acquisition and provision of Railway Amendment Act 2008 to be companysidered while awarding companypensation. On the companytrary, in the said letter dated 15/7/2011, the Competent Authority has clearly informed the objector to remain present with all the relevant documents on a date which was to be intimated later. I state that the Competent Authority, after hearing all the objectors of land under acquisition, has passed two orders dated 28//11/2011 and 3/1/2012 disallowing all the objections raised by the objectors in public interest. Annexed hereto and marked as Annexure VI Colly. Are the companyies of the orders dated 28/11/2011 as well as 3/1/2012. 3.13. The High Court vide Final Judgment and Order dated 25.07.2018 dismissed the Special Civil Applications filed by the Appellants. The Court took the view that in matters involving highly technical and scientific fields, companyrts would be extremely slow in overruling the decision taken by the Government after due deliberation. Unless it was pointed out that relevant companysiderations were number properly weighed, or that the decision was blatantly mala fide, companyrts would number attempt to substitute their understanding of such companyplex subjects for that of the Government. The Appellants failed to produce any material to support their objection that the proposed railway line was number advisable. It was, however, held that Section 20D of the Act companyfers a valuable right on a person interested in the land under acquisition, to raise objections, and be heard on such objections. The objections raised by a person interested have to be companysidered and disposed of, after a hearing is given by the companypetent authority. If the objections received by persons interested have number been disallowed by the companypetent authority, it would number be open for the Central Government to proceed to issue the Declaration under Section 20E 1 of the Act. The High Court recorded its companycern about the manner in which the entire matter was dealt with by the Respondents. The landowners were informed that their objections were number valid even prior to the personal hearing took place. After the personal hearing took place on 30.07.2011, the Competent Authority disposed of the objections on the office file, but never companyveyed the decision to the objectors. The Competent Authority had number fulfilled the important stage of disposal of the objections prior to the Declaration being issued under Section 20E. It was further observed that the Competent Authority gave a companypletely wrong reply to the RTI Application filed by the landowners. This was an act of utter carelessness which had serious ramifications. The Competent Authority vide Report dated 03.01.2012, informed the Chief Project Manager, Dedicated Freight Corridor Corporation of India Limited that all the Objections raised by the Appellants were heard at length, and orally answered. The Special Civil Applications were dismissed by the High Court, and the Competent Authority was directed to pay Costs of Rs. 50,000/ in each of the Special Civil Applications. 3.14. Aggrieved by the aforesaid Judgment, the Appellant Landowners filed the present Civil Appeals. We have heard the learned Counsel for the parties, and perused the pleadings and written submissions filed by the parties. Mr. C. A. Sundaram, Senior Counsel appearing for the Appellants inter alia submitted that 5.1. The Objections raised by the Appellants were number decided in accordance with the provisions of Section 20D 2 of the Act. The numbercompliance of the same would render the entire acquisition proceedings null and void. 5.2. It was further submitted that the Reply dated 05.09.2013 given by the Respondents to the RTI Application filed by the landowners, clearly showed that there was numberapplication of mind on the part of the Respondents. The said Reply simply stated that the Order disposing of the Objections raised by the land owners had already been companymunicated to them on 15.07.2011. 5.3. The letter dated 15.07.2011 cannot be companystrued to be an Order as companytemplated by Section 20D 2 of the Act, since it was issued prior to the personal hearing which took place on 30.07.2011, and filing of the final objections on 31.07.2011. 5.4. The letter dated 15.07.2011 was number an Order, but merely a direction to the Appellants to remain present with necessary proofs and documents at a time and date which would be subsequently intimated. 5.5. It was submitted that even though the landowners were granted a personal hearing, there was numberorder passed either allowing or disallowing the objections as per the mandate of S. 20 D 2 of the Act. 5.6. The orders dated 28.11.2011 and 03.01.2012 were number companymunicated to the landowners. They were merely numberations made on the internal files of the Competent Authority. The rejection of the Objections vide an endorsement or file numbering would number companystitute an order in the eyes of the law. An order passed by a statutory authority must be a speaking order supported by companyent reasons, which is required to be companymunicated to the objectors. Mr. Sanjay Jain, Additional Solicitor General appearing for the Union of India inter alia submitted that 6.1. The land acquisition proceedings in the present case have been undertaken in companypliance with Chapter IV A of the Railways Act, 1989. 6.2. Chapter IV A of the Railways Act, 1989 is a self companytained companye. The Court should number resort to, or seek the aid of the Land Acquisition Act, 1894 to interpret the provisions of the Railways Act, particularly since Section 20N of the Act makes the provisions of the Land Acquisition Act, 1894 inapplicable to acquisitions under the Railways Act. 6.3. The process for filing objections under Section 20D 2 of the Act is twofold. First, the Competent Authority permits objections to be filed within 30 days of the publication of the Notification under Section 20A by the Central Government numberifying its intention to acquire land. Thereafter, the Competent Authority has the discretion to call for a personal hearing in order to companyduct a further enquiry if deemed necessary. 6.4. In the present case, the Objections raised by the Appellants were received in writing on 06.04.2011. The Competent Authority after companysidering the said Objections, passed an Order on 15.07.2011 which was companymunicated to each of the Appellants. Thereafter, personal hearing was granted on 30.07.2011, which was in the nature of a further enquiry. The Objections raised by the Appellants in the personal hearing on 30.07.2011 were almost identical to those raised earlier on 06.04.2011. The Objections raised by the Appellants had effectively been dealt with vide letter dated 15.07.2011, which was companymunicated to each of the Appellants. 6.5. It was further submitted that numberorder was required to be passed after the personal hearing dated 30.07.2011, because numberfresh material came on record. The issues which arise for our companysideration are Whether the provisions of Section 20D 2 have number been companyplied with by the Competent Authority in the present case? ii If so, what would be the companysequences of the number companypliance of Section 20D 2 with respect to the acquisition proceedings, and the rights of the Appellants? Relevant Statutory Provisions To determine the issues raised by the Appellants in the present proceedings, the statutory provisions of the Railways Act, 1989 as amended in 2008, would require to be companysidered. The statutory provisions for acquisition of land for a Special Railway Project are companytained in Chapter IV A of the Railways Act, 1989. Chapter IV A is a companyplete selfcontained companye for the acquisition of land. Chapter IV A was incorporated vide Amendment Act 11 of 2008. The Statement of Objects and Reasons of the Railways Amendment Act, 2008 states that There is a need to provide for land acquisition provisions in the Railways Act, 1989 to empower the Central Government in the Ministry of Railways for land acquisition on fast track basis for the special railway projects on the lines of the land acquisition provisions available in the National Highways Act, 1956. Chapter IV A companyprises of Section 20A to 20P of the amended Act. The relevant provisions under Chapter IV A are set out hereinbelow for ready reference 20A. Power to acquire land, etc. Where the Central Government is satisfied that for a public purpose any land is required for execution of a special railway project, it may, by numberification, declare its intention to acquire such land. Every numberification under subsection 1 , shall give a brief description of the land and of the special railway project for which the land is intended to be acquired. The State Government or the Union territory, as the case may be, shall for the purposes of this section, provide the details of the land records to the companypetent authority, whenever required. The companypetent authority shall cause the substance of the numberification to be published in two local newspapers, one of which shall be in a vernacular language. 20D. Hearing of objections, etc. Any person interested in the land may, within a period of thirty days from the date of publication of the numberification under subsection 1 of section 20A, object to the acquisition of land for the purpose mentioned in that sub section. Every objection under subsection 1 , shall be made to the companypetent authority in writing, and shall set out the grounds thereof and the companypetent authority shall give the objector an opportunity of being heard, either in person or by a legal practitioner, and may, after hearing all such objections and after making such further enquiry, if any, as the companypetent authority thinks necessary, by order, either allow or disallow the objections. Explanation.For the purposes of this sub section, legal practitioner has the same meaning as in clause 1 of subsection 1 of section 2 of the Advocates Act, 1961 25 of 1961 . Any order made by the companypetent authority under subsection 2 shall be final. 20E. Declaration of acquisition Where numberobjection under subsection 1 of section 20D has been made to the companypetent authority within the period specified therein or where the companypetent authority has disallowed the objections under subsection 2 of that section, the companypetent authority shall, as soon as may be, submit a report accordingly to the Central Government and on receipt of such report, the Central Government shall declare, by numberification, that the land should be acquired for the purpose mentioned in subsection 1 of section 20A. On the publication of the declaration under subsection 1 , the land shall vest absolutely in the Central Government free from all encumbrances. Where in respect of any land, a numberification has been published under subsection 1 of section 20A for its acquisition, but numberdeclaration under subsection 1 of this section has been published within a period of one year from the date of publication of that numberification, the said numberification shall cease to have any effect Provided that in companyputing the said period of one year, the period during which any action or proceedings to be taken in pursuance of the numberification issued under subsection 1 of section 20A is stayed by an order of a companyrt shall be excluded. A declaration made by the Central Government under subsection 1 shall number be called in question in any companyrt or by any other authority. 20G. Criterion for determination of market value of land The companypetent authority shall adopt the following criteria in assessing and determining the marketvalue of the land, the minimum land value, if any, specified in the Indian Stamp Act, 1899 2 of 1899 , for the registration of sale deeds in the area, where the land is situated or the average of the sale price for similar type of land situated in the village or vicinity, ascertained from number less than fifty per cent, of the sale deeds registered during the preceding three years, where higher price has been paid, whichever is higher. Where the provisions of subsection 1 are number applicable for the reason that the land is situated in such area where the transactions in land are restricted by or under any other law for the time being in force in that area or the registered sale deeds for similar land as mentioned in clause i of subsection 1 are number available for the preceding three years or the minimum land value has number been specified under the Indian Stamp Act, 1899 2 of 1899 by the appropriate authority, the companycerned State Government shall specify the floor price per unit area of the said land based on the average higher prices paid for similar type of land situated in the adjoining areas or vicinity, ascertained from number less than fifty per cent, of the sale deeds registered during the preceding three years where higher price has been paid, and the companypetent authority may calculate the value of the land accordingly. The companypetent authority shall, before assessing and determining the marketvalue of the land being acquired under this Act, a ascertain the intended land use category of such land and b take into account the value of the land of the intended category in the adjoining areas or vicinity, for the purpose of determination of the marketvalue of the land being acquired. In determining the marketvalue of the building and other immovable property or assets attached to the land or building which are to be acquired, the companypetent authority may use the services of a companypetent engineer or any other specialist in the relevant field, as may be companysidered necessary by the companypetent authority. The companypetent authority may, for the purpose of determining the value of trees and plants, use the services of experienced persons in the field of agriculture, forestry, horticulture, sericulture, or any other field, as may be companysidered necessary by him. For the purpose of assessing the value of the standing crops damaged during the process of land acquisition proceedings, the companypetent authority may utilise the services of experienced persons in the field of agriculture as he companysiders necessary. 20I. Power to take possession Where any land has vested in the Central Government under subsection 2 of section 20E, and the amount determined by the companypetent authority under section 20F with respect to such authority by the Central Government, the companypetent authority may, by numberice in writing direct the owner as well as any other person who may be in possession of such land to surrender or deliver possession thereof to the companypetent authority or any person duly authorised by it in this behalf within a period of sixty days of the service of the numberice. If any person refuses or fails to companyply with any direction made under subsection 1 , the companypetent authority shall apply In case of any land situated in any area falling within the metropolitan area, to the Commissioner of Police In case of any land situated in any area other than the area referred to in clause a , to the Collector of a district, And such Commissioner or Collector, as the case may be, shall enforce the surrender of the land, to the companypetent authority or to the person duly authorised by it. 20J. Right to enter into land where land has vested in Central Government Where the land has vested in the Central Government under section 20E, it shall be lawful for any person authorised by the Central Government in this behalf, to enter and do other act necessary upo0n the land for carrying out the building, maintenance, management or operation of the special railway project or part thereof or nay other work companynected therewith. 20N. Land Acquisition Act 1 of 1894 number to apply Nothing in the Land Acquisition Act, 1894 shall apply to an acquisition under this Act. The scheme of Chapter IV A is as follows The Central Government is empowered under Section 20A to issue a preliminary Notification, numberifying its intention to acquire land for a public purpose required for the execution of a special railway project. ii Section 20D provides for filing of objections and grant of personal hearing. The provision is in two parts Subsection 1 states that any person interested in the land, may within a period of 30 days from the date of publication of the numberification under sub section 1 of Section 20A, file objections to the acquisition of land for the purpose mentioned in that subsection. Under subsection 2 of Section 20D, the mandate of the statute is that Every objection shall be made in writing to the Competent Authority The Competent Authority is mandated to give an opportunity of hearing to the Objector, either in person or by a legal practitioner That after hearing all objections, and after making such further enquiry, if any, the Competent Authority may either allow or disallow the objections by an order. Subsection 3 of Section 20D states that an order passed by the Competent Authority under Section 20D 2 shall be final. iii Subsection 1 of Section 20E provides that if numberobjections are received, or if the objections are disallowed, then the Competent Authority shall submit a report to the Central Government. iv On receipt of such report from the Competent Authority, the Central Government shall declare by numberification, that the land should be acquired for the purpose mentioned in subsection 1 of Section 20A. On the publication of the declaration under Section 20E 1 , the land shall vest absolutely in the Central Government free from all encumbrances. vi Subsection 3 of Section 20E states that if the declaration is number published within a period of one year from the date of publication of the Notification under Section 20A 1 , the Notification shall cease to have any effect. vii Subsection 4 of Section 20E states that the declaration made by the Central Government under subsection 1 shall number be called in question in any companyrt of law or by any authority. 9.1. A reading of the aforesaid statutory provisions shows that the landowner or interested person has been granted a limited right to file objections under Section 20D of the Railways Act, 1989. The scope of the objections is limited to the purpose for which the acquisition is made. It is number a general right to file objections as under Section 5A of the Land Acquisition Act, 1894. 9.2. The statute has mandated a strict procedure to be followed under Section 20D with respect to the submission and hearing of objections. The statute mandates that the order is required to be passed by the Competent Authority after hearing the landowners. The order cannot precede the hearing of objections. If an order is passed prior to the personal hearing, and enquiry by the Competent Authority, it would be companytrary to the statute, invalid, and vitiated by a predetermined disposition. In the present case, it is the admitted position that after the personal hearing took place on 30.07.2011, numberdecision was passed on the objections submitted by the landowners, either allowing or disallowing their objections number was any companymunication sent to them. This is companyfirmed by the Affidavit of the Competent Authority dated 18.07.2018 filed before the High Court pgs. 296 301, Volume II , wherein it is stated as follows It is respectfully submitted that personal hearing was fixed in between 30.07.2011 to 18.08.2011 and 21.10.2011 to 03.01.2012 and alongwith the objections raised by the petitioners, in total 88 objectors are given opportunity of hearing in the aforementioned time period, and as the date qua the present petitioners was fixed for providing hearing on 30.07.2011, the personal hearing was provided wherein the same kind of objections were raised as raised by way of objection application dated 06.04.2011 and therefore the objection was recorded in the hearing memo dated 30.07.2011 and after companypletion of the hearing proceedings qua all the objectors, on 28.11.2011 and 03.01.2012 respectively the numbering was prepared by endorsing that all the objections are rejected and therefore the proposal was submitted before the Dedicated Freight Corridor Corporation for further procedure. I crave leave to produce the original file at the time of hearing of the present matter. It is most humbly and respectfully submitted that so far as the averment regarding reply dated 05.09.2013 under RTI application is companycerned, I say and submit that the applicants have asked for certified companyy of the decision taken for hearing provided to the objector, wherein vide reply dated 05.09.2013 the reply was given from the office of the answering respondent by stating that the reply to the objection application given by you against Notification under the provisions of Section 20A of the Railway Amendment Act has already been given to you by this office companyy is enclosed . Moreover, necessary hearing in that behalf has also been afforded to you. No order regarding objection application is passed after such hearing, because reply regarding objection application has already been given to you. emphasis supplied 10.1. It is abundantly clear that in the absence of an order being passed as companytemplated by Section 20D of the said Act, numberfurther steps companyld have been taken by the Competent Authority in the acquisition in question. 10.2. During the hearing of the Special Civil Applications, the High Court called for the office files of the Respondent. On a perusal of the files, the Court chanced upon a handwritten numbere sent by the Competent Authority to the Chief Project Manager, Dedicated Freight Corridor Corporation of India Limited, which is set out hereinbelow Finally after due companysideration and taking in to view the nationwide infrastructure, long lifetime permanent utility and hence public utility is greater than that of person, all the 59 objection were disallowed by order by the undersigned and their applications for objection were filed at this end. The file numbering in the office files of the Competent Authority cannot be companysidered to be an order on the objections. Section 20D is a mandatory provision which companyfers a substantive and valuable right on the landowners, to object to the proposed acquisition, before they are forcibly divested of their right, title and interest in the land by an expropriatory legislation. The right to file objections under Section 20D of the Railways Act, 1989 is pari materia to Section 5A of the Land Acquisition Act, 1894 even though the scope of objections may be more limited. The judgments rendered by this Court on the nature of the right to object under the Land Acquisition Act, 1894 are equally applicable to the Railways Act. Subsection 2 of Section 20D mandates the Competent Authority to give the objectors an opportunity of hearing, either in person or through a legal practitioner. The Competent Authority after hearing all objections, and after making such further enquiry, if any, is mandated to pass an order either allowing or disallowing the objections. There are a catena of judgments passed on Section 5A of the Land Acquisition Act, 1894, which are relevant for the interpretation of Section 20D 2 of the said Act. This Court has held that the rules of natural justice have been ingrained in the scheme of Section 5A of the 1894 Act with a view to ensure that before any person is forcibly deprived of his land by way of companypulsory acquisition, he must be provided with an opportunity to oppose the decision of the Government.1 This Court has held that the hearing given to a person must be an effective one, and number a mere formality. Formation of opinion with regard to the public purpose, as also suitability thereof, must be preceded by application of mind having due regard to the relevant factors. Section 5A of the Land Acquisition Act, 1894 companyfers a valuable right on the landowners. Having regard to the provisions companytained in Article 300A of the Constitution, the right to raise and file objections has been held to be akin to a fundamental right.2 1 Union of India v. Shivraj, 2014 6 SCC 564. 2 Ibid. In Hindustan Petroleum Corpn. Ltd. v. Darius Shapur Chenai,3 this Court held that It is number in dispute that Section 5A of the Act companyfers a valuable right in favour of a person whose lands are sought to be acquired. Having regard to the provisions companytained in Article 300 A of the Constitution, the State in exercise of its power of eminent domain may interfere with the right of property of a person by acquiring the same but the same must be for a public purpose and reasonable companypensation therefor must be paid. It is trite that hearing given to a person must be an effective one and number a mere formality. Formation of opinion as regards the public purpose as also suitability thereof must be preceded by application of mind as regards companysideration of relevant factors and rejection of irrelevant ones. The State in its decisionmaking process must number companymit any misdirection in law. It is also number in dispute that Section 5A of the Act companyfers a valuable important right and having regard to the provisions companytained in Article 300A of the Constitution it has been held to be akin to a fundamental right. emphasis supplied In N. Padmamma v. S. Ramakrishna Reddy, this Court held that If the right of property is a human right as also a companystitutional right, the same cannot be taken away except in accordance with law. Article 300A of the Constitution protects such right. The provisions of the Act seeking to divest such right, keeping in view of the provisions of Article 300A of the Constitution of India, must be strictly companystrued. emphasis supplied 3 2005 7 SCC 627. In Om Prakash v. State of U.P.,4 this Court held that Our attention was also invited by Shri Shanti Bhushan, learned Senior Counsel for the appellants to a decision of a twoJudge Bench of this Court in the case of State of Punjab v. Gurdial Singh 1980 2 SCC 471 wherein Krishna Iyer, J. dealing with the question of exercise of emergency powers under Section 17 of the Act observed in para 16 of the Report that save in real urgency where public interest did number brook even the minimum time needed to give a hearing, land acquisition authorities should number, having regard to Articles 14 and 19, burke an inquiry under Section 17 of the Act. Thus, according to the aforesaid decision of this Court, inquiry under Section 5A is number merely statutory but also has a flavour of fundamental rights under Articles 14 and 19 of the Constitution though right to property has number numberlonger remained a fundamental right, at least observation regarding Article 14, visvis, Section 5A of the Land Acquisition Act would remain apposite. The said decision has been cited with approval in Union of India v. Krishan Lal Arneja 2004 8 SCC 453. emphasis supplied 11.1. The limited right given to a landowner interested person to file objections, and be granted a personal hearing under Section 20D cannot be reduced to an empty formality, or a mere eyewash by the Competent Authority. The Competent Authority was dutybound to companysider the objections raised by the Appellants, and 4 1998 6 SCC 1. pass a reasoned order, which should reflect application of mind to the objections raised by the landowners. In the present case, there has been a companyplete dereliction of duty by the Competent Authority in passing a reasoned order on the objections raised by the Appellants. 11.2. In the present case, it is the undisputed position that numberorder as companytemplated in the eyes of law was passed by the Competent Authority in deciding the objections raised by the Appellants. A statutory authority discharging a quasijudicial function is required to pass a reasoned order after due application of mind. In Laxmi Devi v. State of Bihar,5 this Court held that The importance of Section 5A cannot be overemphasised. It is companyceived from natural justice and has matured into manhood in the maxim of audi alteram partem i.e. every person likely to be adversely affected by a decision must be granted a meaningful opportunity of being heard. This right cannot be taken away by a side wind, as so powerfully and pellucidly stated in Nandeshwar Prasad v. State of U.P. AIR 1964 SC 1217. So stringent is this right that it mandates that the person who heard and companysidered the objections can alone decide them and number even his successor is companypetent to do so even on the basis of the materials companylected by his predecessor. Furthermore, the decision on the objections should be available in a self companytained, speaking and reasoned order reasons cannot be added to it later as that would be akin to putting old wine in new bottles. We can do numberbetter than companymend a careful 5 2015 10 SCC 241. perusal of Union of India v. Shiv Raj 2014 6 SCC 564 2014 3 SCC Civ 607 , on these as well as companynate companysiderations. emphasis supplied In Raghbir Singh Sehrawat v. State of Haryana,6 this Court held that Though it is neither possible number desirable to make a list of the grounds on which the landowner can persuade the Collector to make recommendations against the proposed acquisition of land, but what is important is that the Collector should give a fair opportunity of hearing to the objector and objectively companysider his plea against the acquisition of land. Only thereafter, he should make recommendations supported by brief reasons as to why the particular piece of land should or should number be acquired and whether or number the plea put forward by the objector merits acceptance. In other words, the recommendations made by the Collector must reflect objective application of mind to the objections filed by the landowners and other interested persons. emphasis supplied In Usha Stud Agricultural Farms P Ltd. v. State of Haryana,7 this Court held that, The ratio of the aforesaid judgments is that Section 5A 2 , which represents statutory embodiment of the rule of audi alteram partem, gives an opportunity to the objector to make an endeavour to companyvince the Collector that his land is number required for the public purpose specified in the Notification issued under Section 4 1 or that there are other valid reasons for number acquiring the same. That section also makes it obligatory for the Collector to submit report s to the appropriate Government companytaining his recommendations on the objections, together with the record of the proceedings held by him so that the Government may take appropriate 6 2012 1 SCC 792. 7 2013 4 SCC 210. decision on the objections. Section 6 1 provides that if the appropriate Government is satisfied, after companysidering the report, if any, made by the Collector under Section 5A 2 that particular land is needed for the specified public purpose then a declaration should be made. This necessarily implies that the State Government is required to apply mind to the report of the Collector and take final decision on the objections filed by the landowners and other interested persons. Then and then only, a declaration can be made under Section 6 1 . emphasis supplied In Hindustan Petroleum Corpn. Ltd. supra , this Court held that However, companysiderations of the objections by the owner of the land and the acceptance of the recommendations by the Government, it is trite, must precede a proper application of mind on the part of the Government. As and when a person aggrieved questions the decisionmaking process, the companyrt in order to satisfy itself as to whether one or more grounds for judicial review exist, may call for the records whereupon such records must be produced. The writ petition was filed in the year 1989. As numbericed hereinbefore, the said writ petition was allowed. This Court, however, interfered with the said order of the High Court and remitted the matter back to it upon giving an opportunity to the parties to raise additional pleadings. Furthermore, the State is required to apply its mind number only on the objections filed by the owner of the land but also on the report which is submitted by the Collector upon making other and further enquiries therefor as also the recommendations made by him in that behalf. The State Government may further inquire into the matter, if any case is made out therefor, for arriving at its own satisfaction that it is necessary to deprive a citizen of his right to property. It is in that situation that production of records by the State is necessary. Although assignment of reasons is the part of principles of natural justice, necessity thereof may be taken away by a statute either expressly or by necessary implication. A declaration companytained in a numberification issued under Section 6 of the Act need number companytain any reason but such a numberification must precede the decision of the appropriate Government. When a decision is required to be taken after giving an opportunity of hearing to a person who may suffer civil or evil companysequences by reason thereof, the same would mean an effective hearing. emphasis supplied In Kranti Associates P Ltd. v. Masood Ahmed Khan,8 this Court held that The necessity of giving reason by a body or authority in support of its decision came up for companysideration before this Court in several cases. Initially this Court recognised a sort of demarcation between administrative orders and quasijudicial orders but with the passage of time the distinction between the two got blurred and thinned out and virtually reached a vanishing point in the judgment of this Court in A.K. Kraipak v. Union of India 1969 2 SCC 262 AIR 1970 SC 150 Summarising the above discussion, this Court holds In India the judicial trend has always been to record reasons, even in administrative decisions, if such decisions affect anyone prejudicially. A quasijudicial authority must record reasons in support of its companyclusions. Insistence on recording of reasons is meant to serve the wider principle of justice that justice must number only be done it must also appear to be done as well. Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasijudicial or even administrative power. 8 2010 9 SCC 496. Reasons reassure that discretion has been exercised by the decisionmaker on relevant grounds and by disregarding extraneous companysiderations. Reasons have virtually become as indispensable a companyponent of a decisionmaking process as observing principles of natural justice by judicial, quasijudicial and even by administrative bodies. Reasons facilitate the process of judicial review by superior companyrts. The ongoing judicial trend in all companyntries companymitted to rule of law and companystitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the lifeblood of judicial decisionmaking justifying the principle that reason is the soul of justice. Judicial or even quasijudicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one companymon purpose which is to demonstrate by reason that the relevant factors have been objectively companysidered. This is important for sustaining the litigants faith in the justice delivery system. Insistence on reason is a requirement for both judicial accountability and transparency. If a judge or a quasijudicial authority is number candid enough about his her decisionmaking process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism. Reasons in support of decisions must be companyent, clear and succinct. A pretence of reasons or rubberstamp reasons is number to be equated with a valid decisionmaking process. It cannot be doubted that transparency is the sine qua number of restraint on abuse of judicial powers. Transparency in decisionmaking number only makes the judges and decisionmakers less prone to errors but also makes them subject to broader scrutiny. See David Shapiro in Defence of Judicial Candor 1987 100 Harvard Law Review 73137 . Since the requirement to record reasons emanates from the broad doctrine of fairness in decisionmaking, the said requirement is number virtually a companyponent of human rights and was companysidered part of Strasbourg Jurisprudence. See Ruiz Torija v. Spain 1994 19 EHRR 553 EHRR, at 562 para 29 and Anya v. University of Oxford 2001 EWCA Civ 405 CA , wherein the Court referred to Article 6 of the European Convention of Human Rights which requires, adequate and intelligent reasons must be given for judicial decisions. In all companymon law jurisdictions judgments play a vital role in setting up precedents for the future. Therefore, for development of law, requirement of giving reasons for the decision is of the essence and is virtually a part of due process. emphasis supplied 11.3. File Notings and lack of Communication It is settled law that a valid order must be a reasoned order, which is duly companymunicated to the parties. The file numbering companytained in an internal office file, or in the report submitted by the Competent Authority to the Central Government, would number companystitute a valid order in the eyes of law. In the present case, there was numberorder whatsoever passed rejecting the objections, after the personal hearing was companycluded on 30.07.2011. It is important to numbere that the Competent Authority did number companymunicate the companytents of the file numbering to the Appellants at any stage of the proceedings. The said file numbering came to light when the matter was pending before the High Court, and the original files were summoned. The High Court, upon a perusal of the files, came across the file numbering recording rejection of the objections only on the ground that the matter pertained to an infrastructure project for public utility. In Bachhittar Singh v. State of Punjab,9 a Constitution Bench held that merely writing something on the file does number amount to an order. For a filenoting to amount to a decision of the Government, it must be companymunicated to the person so affected, before that person can be bound by that order. Until the order is companymunicated to the person affected by it, it cannot be regarded as anything more than being provisional in character. Similarly, in Shanti Sports Club v. Union of India,10 this Court held that numberings recorded in the official files, by the officers of the Government at different levels, and even the Ministers, do number become a decision of the Government, unless the same are sanctified and acted upon, by issuing an order in the 9 AIR 1963 SC 395. 10 2009 15 SCC 705. name of the President or Governor, as the case may be, and are companymunicated to the affected persons. In Sethi Auto Service Station v. DDA,11 this Court held that It is trite to state that numberings in a departmental file do number have the sanction of law to be an effective order. A numbering by an officer is an expression of his viewpoint on the subject. It is numbermore than an opinion by an officer for internal use and companysideration of the other officials of the department and for the benefit of the final decisionmaking authority. Needless to add that internal numberings are number meant for outside exposure. Notings in the file culminate into an executable order, affecting the rights of the parties, only when it reaches the final decisionmaking authority in the department, gets his approval and the final order is companymunicated to the person companycerned. To the like effect are the observations of this Court in Laxminarayan R. Bhattadv. State of Maharashtra 2003 5 SCC 413 , wherein it was said that a right created under an order of a statutory authority must be companymunicated to the person companycerned so as to companyfer an enforceable right. emphasis supplied 11.4. Contradictory Stand taken by the Respondents The mandate of the law is that the order on the objections is required to be passed by the Competent Authority after the personal hearing is granted. The Respondents had filed an Affidavit dated 17.07.2018 before the High Court wherein it was 11 2009 1 SCC 180. stated that the reply given vide letter dated 15.07.2011 does number indicate the decision order predetermination of the Competent Authority. The Competent Authority had informed the objectors to remain present with all material documents at the time of personal hearing, the date of which would be numberified later. At the time of arguments before this Court, it was sought to be companytended by the Additional Solicitor General for the Union of India that the letter dated 15.07.2011 was an order passed under Section 20D 2 of the Act. We find that the stand taken by the Respondents before the High Court and this Court is companypletely companytradictory, and does number companymend acceptance. 11.5. In any event, the order under Section 20D 2 cannot be passed prior to the personal hearing. The mandate of the law is that the order must be passed after the grant of personal hearing, and after any further enquiry is made by the Competent Authority. The whole process of granting a personal hearing would be reduced to an empty formality and a farcical exercise, if the order on the objections precedes the grant of personal hearing. This would be clearly companytrary to the provisions of Section 20D 2 of the Act. It is well settled that where a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in numberother manner.12 The provisions of an expropriatory legislation, which companypulsorily deprives a person of his right to property without his companysent, must be strictly companystrued. 13 The Railways Act, 1989 being an expropriatory legislation, its provisions have to be strictly companystrued. 14 11.6. The Competent Authority being a quasijudicial authority, is obligated by law to act in companyformity with mandatory statutory provisions. It is important to numbere that this is the only opportunity made available to a landowner, as on submission of the Report to the Central Government, there is numberfurther companysideration that takes place. The Central Government acts upon the Report of the Competent Authority, and issues the Declaration under Section 20E of the said Act. 12 Nazir Ahmad v. King Emperor, 1875 LR 1 Ch D 426 followed in Rao Shiv Bahadur Singh State of Vindhya Pradesh, AIR 1954 SC 322 State of U.P. v. Singhara Singh, AIR 1964 SC 358 JK Housing Board v. Kunwar Sanjay Krishan Kaul, 2011 10 SCC 714 Kunwar Pal Singh v. State of U.P., 2007 5 SCC 85. 13 Jilubhai Nanbhai Khachar v. State of Gujarat, 1995 Supp 1 SCC 596 See also Khub Chand v. State of Rajasthan, AIR 1967 SC 1074 CCE v. Orient Fabrics P Ltd., 2004 1 SCC 597. 14 Indore Vikas Pradhikaran v. Pure Industrial Coke Chemicals Ltd., 2007 8 SCC 705. This is in companytradistinction with the provisions of the Land Acquisition Act, 1894. Section 6 of the Land Acquisition Act requires the satisfaction of Central Government before the Declaration is issued. 11.7. In the absence of an order passed under Section 20D 2 , the subsequent steps taken in the acquisition would companysequentially get invalidated. The issue which remains to be decided is that in the absence of an order passed on the objections under Section 20D, should the companysequential steps be invalidated. We find that the challenge before this Court has been made by the Appellants with respect to a stretch of land admeasuring approximately 6 kms, out of the total stretch of 131 kms. The remaining stretch of land companyprising of 125 kms has been acquired, and stands vested in the Government. The Respondents have stated on Affidavit that preconstruction activity and earth work has been companypleted on most parts of the stretch. Furthermore, most of the bridges are either in progress, or have already been companypleted. The Senior Counsel representing the Appellants in all the present Civil Appeals, after taking instructions from his clients, submitted that since the land was being acquired for a public utility project, his clients would be satisfied if they were granted companypensation by awarding the current rate for acquisition of land. Admittedly, numbermala fides have been alleged by the Appellants against the Respondents in the acquisition proceedings. The larger public purpose of a railway project would number be served if the Notification under Section 20A is quashed. The public purpose of the acquisition is the companystruction and operation of a Special Railway Project viz. the Western Dedicated Freight Corridor in District Surat, Gujarat. In these extraordinary circumstances, we deem it fit to balance the right of the Appellants on the one hand, and the larger public purpose on the other, by companypensating the Appellants for the right they have been deprived of. The interests of justice persuade us to adopt this companyrse of action. In Savitri Devi v. State of U.P. Ors.,15 this Court held that Thus, we have a scenario where, on the one hand, invocation of urgency provisions under Section 17 of the Act and dispensing with the right to file objection under Section 5A of the Act, is found to be illegal. On the other hand, we have a situation where because of delay in challenging these acquisitions by the land 15 2015 7 SCC 21. owners, developments have taken in these villages and in most of the cases, third party rights have been created. Faced with this situation, the High Court going by the spirit behind the judgment of this Court in Bondu Ramaswamy and Others supra came out with the solution which is equitable to both sides. We are, thus, of the view that the High Court companysidered the ground realities of the matter and arrived at a more practical and workable solution by adequately companypensating the land owners in the form of companypensation as well as allotment of developed Abadi land at a higher rate i.e. | 4 |
R. Krishna Iyer, J. Two appellants filed the present appeal which, according to the respondent, has abated. The second appellant admittedly died on 7th October, 1974, but 90 days passed and thereafter the 60 days limited by the law also passed without any application for setting aside the abatement. The first appellant came up with an application on 31st March, 1975 for setting aside the abatement but he was 85 days beyond the date on which abatement took place, and 25 days beyond the date limited by law for moving the Court to set aside the abatement. This delay of 60 days plus 25 days has to be explained by the first appellant and he has to make out sufficient cause as to why he companyld number companye to companyrt in time. The parties are close relations and it is admitted that the first appellant was present for the funeral of the second appellant What is more, the respondent had filed an application to declare that the appeal had abated as early as 8th February, 1975 and still numberapplication was filed by the first appellant for setting aside the abatement in time. We have heard long arguments from both the appellant-petitioner and the respondent. Two points were urged by Mr. Lokur in support of his case that the abatement must be set aside. Firstly, he argued that his client was nearly 80 years old and his mental companydition, as proved by the certificate produced subsequently, was such that he suffered from loss of memory, listlessness and loneliness, his sons being away from him. The second point urged was that the decree was divisible and that, the worst companying to the worst, the award in so far as the second appellant was companycerned the appeal relates to the setting aside of the award was divisible and the first appellants appeal must be treated as still surviving. We see numbermerit in either point. The medical certificate is number companyvincing and an overall view of the facts and the close relationship of the parties and the circumstance that the first appellant has two adult sons satisfies us that there is numbersufficient cause for companydonation of the delay or for setting aside the abatement. We do number understand how the award companyld be treated as severable or divisible. It is an integrated award for partition among various members of the family and it is number possible to split it up into various separate awards. That point also fails. In the result, the petitions for companydonation of delay and for setting aside the abatement stand dismissed without companyts. | 1 |
SECOND SECTION
CASE OF AYHAN AND OTHERS v. TURKEY
(Application no. 29287/02)
JUDGMENT
STRASBOURG
14 October 2008
FINAL
14/01/2009
This judgment may be subject to editorial revision.
In the case of Ayhan and Others v. Turkey,
The European Court of Human Rights (Second Section), sitting as a Chamber composed of:
Françoise Tulkens, President,
Ireneu Cabral Barreto,
Vladimiro Zagrebelsky,
Danutė Jočienė,
András Sajó,
Nona Tsotsoria,
Işıl Karakaş, judges,
and Sally Dollé, Section Registrar,
Having deliberated in private on 23 September 2008,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 29287/02) against the Republic of Turkey lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by three Turkish nationals, Mr Mehmet Ali Ayhan, Mr Ali Akkurt and Mr Şükrü Töre (“the applicants”), on 11 June 2002.
2. The applicants were represented by Mr M.A. Kırdök and Mrs M. Kırdök, lawyers practising in Istanbul. The Turkish Government (“the Government”) were represented by their Agent for the purposes of the proceedings before the Court.
3. On 11 December 2006 the Court decided to give notice of the application to the Government. It also decided to examine the merits of the application at the same time as its admissibility (Article 29 § 3).
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
4. The applicants were born in 1961, 1959 and 1964 respectively.
A. The criminal proceedings against Mr Ayhan
5. In the course of a police operation against an illegal armed organisation, namely the TKEP (the Communist Labour Party of Turkey), the police arrested and detained Mr Ayhan in police custody on 5 May 1993. The applicant had fake identity papers on him at the time of the arrest.
6. He was subsequently brought before a judge who remanded him in custody on 19 May 1993.
7. By an indictment dated 30 July 1993, the public prosecutor initiated criminal proceedings against the applicant and other accused before the Istanbul State Security Court, accusing the applicant, inter alia, of participation in activities which undermined the constitutional order of the State. These included aggravated theft from various jewellery shops and involvement in the killing of Mr Y.I. and Mr M.Ö in 1990 and 1991 respectively. The prosecution sought the death penalty under Article 146 § 1 of the Criminal Code.
8. In the course of the proceedings before the Istanbul State Security Court, the latter considered the applicant’s detention at the end of each hearing of its own motion and each time it ordered continued detention with reference to the nature of the offence, the state of the evidence and the content of the case file. At the hearing held on 28 January 1997, the applicant requested to be released for the first time. The court ordered the continuation of his detention, having regard to the nature of the offences with which he was charged and the state of the evidence. Thereafter until 30 May 2000 the applicant did not specifically request release. However, the court continued of its own motion to examine the applicant’s detention and ordered it to be continued on the same grounds as before. Between the hearings held on 30 May 2000 and 24 February 2004, the court considered the applicant’s detention regularly, either of its own motion or at the request of the applicant, and each time it ordered his continued detention, having regard to the nature of the offence, the state of the evidence and the content of the case file.
9. On 24 February 2004 the Istanbul State Security Court convicted the applicant as charged and sentenced him to life imprisonment. This judgment was upheld by the Court of Cassation on 4 October 2004.
B. The criminal proceedings against Mr Akkurt and Mr Töre
10. On 10 February 1994 the second applicant, Mr Akkurt, and the third applicant, Mr Töre, were arrested and taken into custody on suspicion of involvement in the activities of the above-mentioned organisation. They were remanded in custody on 24 February 1994.
11. By an indictment dated 17 May 1994, the public prosecutor initiated criminal proceedings against the applicants and other accused before the Istanbul State Security Court, accusing the applicants, inter alia, of involvement in activities which undermined the constitutional order of the State. These included aggravated theft from various jewellery shops. The prosecution sought the death penalty under Article 146 § 1 of the Criminal Code.
12. In the course of the proceedings before the Istanbul State Security Court, the latter considered the applicants’ detention at the end of each hearing of its own motion, and each time it ordered their continued detention with reference to the nature of the offence, the state of the evidence and the content of the case file. At a hearing held on 5 August 1998, the applicants requested to be released for the first time. The court ordered the continuation of their detention, having regard to the nature of the offence and the length of their detention. Thereafter until 4 November 2002 the court considered the applicants’ detention regularly, either of its own motion or at the request of the applicants, and each time it ordered their continued detention, having regard to the nature of the offence, the state of the evidence and the content of the case file. On 4 November 2002 the applicants, at their request, were released pending trial. The court took note, in determining their request for release, of the length of time the applicants had already spent in detention and the state of the evidence.
13. On 27 December 2006 the Istanbul Assize Court convicted the applicants as charged and sentenced them to life imprisonment. Their appeal against this decision is apparently pending before the Court of Cassation.
II. RELEVANT DOMESTIC LAW AND PRACTICE
14. The relevant domestic law and practice in force at the material time are outlined in Çobanoğlu and Budak v. Turkey (no. 45977/99, §§ 29‑30, 30 January 2007).
THE LAW
I. ALLEGED VIOLATION OF ARTICLE 5 § 3 OF THE CONVENTION
15. The applicants complained that their detention during judicial proceedings exceeded the “reasonable time” requirement as provided in Article 5 § 3 of the Convention, which reads, in so far as relevant, as follows:
“Everyone arrested or detained in accordance with the provisions of paragraph 1 (c) of this Article shall be ... entitled to trial within a reasonable time or to release pending trial. Release may be conditioned by guarantees to appear for trial.”
A. Admissibility
16. The Government maintained under Article 35 § 1 of the Convention that the application must be rejected for non-exhaustion of domestic remedies or, alternatively, for failure to comply with the six-month rule. Under the first limb of their objections, the Government pointed out that the criminal proceedings against the applicants were still pending when they lodged their application with the Court. They also noted that the applicants had failed to object to the continuation of their detention until 5 August 1998. As regards the second limb of their objections, the Government argued that the applicants should have lodged their complaint within six months following the date on which they had realised the ineffectiveness of the domestic remedies, that is on 5 August 1998.
17. The applicants contested the Government’s arguments.
18. The Court notes that it has already examined and rejected the Government’s similar objections regarding exhaustion of domestic remedies in previous cases (see, in particular, Özden Bilgin v. Turkey, no. 8610/02, § 21, 14 June 2007, Tamer and Others v. Turkey, no. 235/02, § 28, 22 June 2006, and Koşti and Others v. Turkey, no. 74321/01, §§ 19-24, 3 May 2007). It finds no particular circumstances in the instant case which would require it to depart from its findings in the above‑mentioned applications. In so far as the Government suggest that the applicants have failed to comply with the six-month rule, the Court reiterates that if an applicant submits complaints of the present kind to the Court while he is still in detention, the case cannot be dismissed as being out of time (see, in particular, Ječius v. Lithuania, no. 34578/97, § 44, ECHR 2000-IX). In the instant case, the applicants were still in detention on remand when they lodged their Article 5 complaint with this Court. Consequently, the Court rejects the Government’s objections under this head.
19. Moreover, the Court notes that this part of the application is not manifestly ill‑founded within the meaning of Article 35 § 3 of the Convention. No other grounds for declaring it inadmissible have been established. It must therefore be declared admissible.
B. Merits
1. The parties’ submissions
20. The Government maintained that the seriousness of the crime and the existence of a genuine public interest justified the applicants’ continued detention. In this connection they maintained that the aim was to avoid the risk that the accused would abscond or reoffend. The Government submitted that the custodial measure had been reviewed periodically by the competent authority in accordance with the requirements laid down by the applicable law at the relevant time, and that the applicants had had the opportunity to object every time the court had continued their pre-trial detention.
21. The applicants disputed the Government’s arguments. In particular, they submitted that they had contested not the decision to remand them in custody, but the continuation of their remand in custody when it had exceeded the reasonable time requirement of Article 5 § 3. In this respect, the applicants submitted that the compilation of the evidence in the criminal proceedings against them had been completed at the end of 1998 and that, therefore, their continued detention after this date had not had any bearing on the proper administration of justice. They pointed out that throughout the criminal proceedings the court, irrespective of whether the applicants had requested it or it had examined the matter of its own motion, had always used identical reasoning when prolonging their detention.
2. The Court’s assessment
22. The Court reiterates the basic principles laid down in its judgments concerning Article 5 § 3 (see, in particular, Sevgin and İnce v. Turkey, no. 46262/99, § 61, 20 September 2005, Ilijkov v. Bulgaria, no. 33977/96, § 77, 26 July 2001, Labita v. Italy [GC], no. 26772/95, §§ 152-153, ECHR 2000-IV, Kudła v. Poland [GC], no. 30210/96, § 110, ECHR 2000-XI, Smirnova v. Russia, nos. 46133/99 and 48183/99, § 59, ECHR 2003‑IX (extracts)), and Letellier v. France, judgment of 26 June 1991, Series A no. 207, § 43). It will examine the present case in the light of these principles.
23. In the instant case the first applicant’s detention began on 5 May 1993, when he was arrested and taken into police custody, and ended on 24 February 2004, when he was convicted by the first-instance court. It thus lasted over ten years and nine months. The other applicants’ detention began on 10 February 1994 with their arrest and ended on 4 November 2002 when the first-instance court ordered their release pending trial. It thus lasted approximately eight years and nine months. During this time, the first-instance court considered the applicants’ continued detention at the end of each hearing either of its own motion or at the request of the applicant. However, the Court notes from the material in the case file that the State Security Court ordered the applicants’ continued detention using identical, stereotyped terms, such as “having regard to the nature of the offence and the state of the evidence”.
24. The Court has frequently found violations of Article 5 § 3 of the Convention in cases raising similar issues to those in the present application (see, for example, Dereci v. Turkey, no. 77845/01, 24 May 2005, Teslim Töre v. Turkey (no. 2), no. 13244/02, 11 July 2006, Taciroğlu v. Turkey, no. 25324/02, 2 February 2006, and Çarkçı v. Turkey, no. 7940/05, 26 June 2007).
25. Having examined all the material submitted to it, the Court considers that the Government have not put forward any fact or convincing argument capable of persuading it to reach a different conclusion in the present case. In this respect, even assuming that a certain period of the applicants’ detention should be deducted in the assessment of the “reasonable time” requirement under Article 5 § 3 of the Convention because they had not specifically asked to be released before 28 January 1997 and 5 August 1998 respectively, the Court considers that, having regard to its case‑law on the subject, in the instant case, the length of the applicants’ detention during these criminal proceedings was excessive and contravened Article 5 § 3 of the Convention.
26. There has accordingly been a violation of this provision.
II. APPLICATION OF ARTICLE 41 OF THE CONVENTION
27. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
A. Damage
28. Mr Ayhan claimed 20,000 euros (EUR), and Mr Akkurt and Mr Töre each requested EUR 15,000 in respect of non-pecuniary damage.
29. The Government contested the amounts.
30. The Court considers that the applicants must have suffered some non-pecuniary damage which cannot be sufficiently compensated by the finding of a violation alone. Taking into account the particular circumstances of the case and having regard to its case-law, it awards Mr Ayhan EUR 6,000, and Mr Akkurt and Mr Töre EUR 4,000 each, for non‑pecuniary damage.
B. Costs and expenses
31. The applicants also claimed, in total, 10,210 new Turkish liras [TRY] (approximately EUR 5,900) for the costs and expenses incurred before the Court. In support of their claims they submitted a legal fees agreement and a time sheet prepared by their legal representatives.
32. The Government contested the amount.
33. According to the Court’s case-law, an applicant is entitled to the reimbursement of costs and expenses only in so far as it has been shown that these have been actually and necessarily incurred and were reasonable as to quantum. In the present case, regard being had to the information in its possession and ruling on an equitable basis, the Court awards the applicants, jointly, EUR 1,000 under this head.
C. Default interest
34. The Court considers it appropriate that the default interest should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT UNANIMOUSLY
1. Declares the application admissible;
2. Holds that there has been a violation of Article 5 § 3 of the Convention;
3. Holds
(a) that the respondent State is to pay within three months from the date on which the judgment becomes final according to Article 44 § 2 of the Convention, the following amounts to be converted into new Turkish liras at the rate applicable at the date of settlement:
(i) EUR 6,000 (six thousand euros) to Mr Ayhan, and EUR 4,000 (four thousand euros), each, to Mr Akkurt and Mr Töre, plus any tax that may be chargeable, in respect of non-pecuniary damage;
(ii) EUR 1,000 (one thousand euros) to the applicants, jointly, plus any tax that may be chargeable to the applicants, in respect of costs and expenses;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;
4. Dismisses the remainder of the applicants’ claim for just satisfaction.
Done in English, and notified in writing on 14 October 2008, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Sally DolléFrançoise TulkensRegistrarPresident
| 0 |
COURT OF APPEAL FOR ONTARIO
CITATION: R. v. Penzes, 2021 ONCA 7
DATE: 20210108
DOCKET: C66895
Doherty, Zarnett and Coroza
JJ.A.
BETWEEN
Her Majesty the Queen
Respondent
and
Kevin Penzes
Appellant
Amy J. Ohler, for the appellant
Manasvin Goswami, for the respondent
Heard: January 4, 2021 by
video conference
On appeal from the sentence imposed by
Justice A. Letourneau of the Ontario Court of Justice on October 11, 2018.
REASONS FOR DECISION
[1]
The appellant pled guilty to bank robbery. The
trial judge imposed a sentence of four years, the sentence requested by the
appellant and the Crown. The appellant now appeals seeking a three-year
sentence. We dismiss the appeal.
[2]
The appellant pled guilty and was sentenced on
his first appearance only a couple of days after his arrest. Counsel for the
appellant does not challenge the guilty plea. She acknowledges the trial judge
made the appropriate inquiries and that the plea was voluntary and informed.
Counsel does, however, submit the sentencing hearing was fundamentally unfair.
She contends the trial judge should have adjourned the hearing, despite the
appellants strong objection to any adjournment, and ordered a presentence report
for the purpose of receiving additional information relevant to sentencing.
[3]
We do not agree the appellant was treated
unfairly. The appellant made it clear he wanted to be sentenced immediately. He
was no stranger to the criminal justice system. The appellant also readily acknowledged
his guilt and expressed strong concerns about spending any time in the local
jail.
[4]
The appellant told the trial judge he had been
sexually assaulted several years earlier while in jail and had experienced
serious emotional and mental problems as a result. He explained to the trial
judge he had received help for those problems during his last stay in the penitentiary,
but had been released on his mandatory release date before he was prepared to function
effectively outside of the prison setting. The appellant was anxious to return
to the federal correctional system in the hope he could re-enter the programs
that had assisted him during his last incarceration.
[5]
The appellant knew the Crown was seeking a
four-year sentence. The appellant told the trial judge that, having regard to
his criminal record, which included two prior bank robberies and a five-year
penitentiary sentence on another charge, he believed the Crowns position was
reasonable. Indeed, the appellant thought he might get more than four years.
[6]
Duty counsel spoke with the appellant. She told
the trial judge that, while she was reluctant to support a guilty plea on a
first appearance involving the imposition of a significant penitentiary term,
she had been persuaded by the appellant that his request to be sentenced
immediately and his agreement to a four-year sentence was appropriate in the
circumstances.
[7]
The trial judge had the information necessary to
fashion an appropriate sentence. Given the appellants record and the nature of
the offence which involved a threat of violence against a teller, a significant
penitentiary term was necessary. The four-year sentence suggested by the Crown,
supported by the appellant, and ultimately imposed by the trial judge, did
reflect various mitigating factors, including the appellants early guilty plea
and the emotional and mental health issues the appellant had described to the
trial judge. In fact, the sentence imposed was intended to enhance the
appellants rehabilitative prospects by providing for access to the treatments
and programs that had assisted the appellant on a previous occasion. At the
same time, however, the four years imposed reflected the seriousness of the
crime and the appellants significant criminal record.
[8]
The trial judge made no error in concluding four
years was a fit sentence.
[9]
The court has considered the fresh evidence
offered by both the appellant and the Crown. We need not detail that evidence.
It is sufficient to say the evidence tends to confirm the appropriateness of
the four-year sentence imposed by the trial judge. The medical records show the
appellant has received the help he hoped to get in the federal correctional system.
According to the medical reports, he has shown progress and continues to show
progress. The appellant is scheduled for release in June 2021. Hopefully, his
progress will continue and when he is released this time he will be able to
effectively adapt to life outside of the penitentiary.
[10]
Leave to appeal sentence is granted, but the
appeal is dismissed.
Doherty
J.A.
B.
Zarnett J.A.
S.
Coroza J.A.
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OPINION OF ADVOCATE GENERAL KOKOTT delivered on 29 April 2010 1(1)
Case C‑550/07 P Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v European Commission (Appeal – Competition – Administrative procedure – Commission’s powers of investigation – Documents copied in the course of an investigation and later placed on the file – Protection of confidentiality of communications between lawyers and their clients (‘legal professional privilege’) – Internal group correspondence with an in-house lawyer – In-house lawyer admitted to a Bar or Law Society – Article 14 of Regulation (EEC) No 17 – Regulation (EC) No 1/2003)
I – Introduction 1. Does the protection of communications between lawyers and their clients (‘legal professional privilege’), (2) guaranteed as a fundamental right under the law of the European Union, also extend to internal exchanges of opinions and information between the management of an undertaking and an ‘enrolled in-house lawyer’ employed by that undertaking? (3) That, in essence, is the question which the Court has been asked to resolve in this appeal. (4) It has a practical significance for the future application and implementation of European competition law which cannot be underestimated and has lost none of its relevance even after the modernisation of the law governing antitrust proceedings carried out by Council Regulation (EC) No 1/2003. (5)
2. The background to this case is formed by a search (an ‘investigation’ or ‘inspection’) conducted by the European Commission, as competition authority, in February 2003 at the business premises of Akzo Nobel Chemicals Ltd (Akzo) and Akcros Chemicals Ltd (Akcros) in the United Kingdom. (6) In the course of that search, the Commission officials took photocopies of certain documents which the representatives of Akzo and Akcros regarded as being exempt from seizure because, in their view, they were covered by legal professional privilege.
3. This gave rise to a legal dispute between the two companies concerned and the Commission. Akzo and Akcros brought proceedings before the Court of First Instance (now: ‘the General Court’) against, on the one hand, the Commission’s decision ordering the investigation and, on the other hand, the Commission’s decision to place a number of disputed documents on the file. By judgment of 17 September 2007 (7) (‘the judgment under appeal’), the General Court dismissed the first action as inadmissible and the second action as unfounded.
4. This appeal is concerned exclusively with the question whether the General Court was justified in dismissing the second action as unfounded. At this stage of the proceedings, only two of the disputed documents remain of interest. These are printouts of emails between the general manager of Akcros and an employee of Akzo’s in-house legal department who was also a member of the Netherlands Bar.
II – Legal context 5. The legal context of this case is defined by Regulation No 17, (8) Article 14 of which reads as follows:
‘(1) In carrying out the duties assigned to it by Article [105 TFEU] and by provisions adopted under Article [103 TFEU], the Commission may undertake all necessary investigations into undertakings and associations of undertakings.
To this end the officials authorised by the Commission are empowered: (a) to examine the books and other business records; (b) to take copies of or extracts from the books or business records; (c) to ask for oral explanations on the spot; (d) to enter any premises, land and means of transport of undertakings. (2) The officials of the Commission authorised for the purpose of these investigations shall exercise their powers upon production of an authorisation in writing …
(3) Undertakings and associations of undertakings shall submit to investigations ordered by decision of the Commission. The decision shall specify the subject matter and purpose of the investigation …
…’ 6. Regulation No 1/2003, which modernised the European law on antitrust proceedings and replaced Regulation No 17, is not applicable to this case, since the material facts took place before 1 May 2004. (9)
III – Background to the dispute A – The investigations conducted by the Commission and their administrative consequences 7. As the General Court’s findings of fact show, (10) the background to this dispute is an investigation conducted by the European Commission in its capacity as competition authority. In early 2003, the Commission, by a decision (11) under Article 14(3) of Regulation No 17, ordered an investigation to be carried out at the premises of Akzo and Akcros as well as at their subsidiaries in order to safeguard evidence of possible anti-competitive practices (‘the decision ordering the investigation’). The companies concerned were required by that decision to submit to those investigations.
8. On the basis of the decision ordering the investigation, on 12 and 13 February 2003, Commission officials, assisted by representatives of the Office of Fair Trading (OFT), (12) carried out an investigation at the premises of Akzo and Akcros in Eccles, Manchester (United Kingdom). (13) During the investigation, the Commission officials took photocopies of a considerable number of documents.
9. In the course of those operations, the representatives of Akzo and Akcros informed the Commission officials that certain documents were likely to be covered by the protection of confidentiality of communications between lawyers and their clients. The Commission officials replied that it was necessary for them to examine briefly the documents in question so that they could form their own opinion as to whether the documents should be privileged. Following a long discussion, and after the Commission officials and the OFT officials had reminded the representatives of Akzo and Akcros of the consequences of obstructing investigations, it was decided that the leader of the investigating team would briefly examine the documents in question, with a representative of Akzo and Akcros at her side.
10. During the examination of the documents in question, a dispute arose in relation to various documents which the General Court – on the basis of the submissions advanced by Akzo and Akcros – classified into two categories of documents (‘Set A’ and ‘Set B’).
11. Set A consists of two documents. The first of those two documents is a two-page, typewritten memorandum dated 16 February 2000 from the general manager of Akcros to one of his superiors. According to the appellants, this memorandum contains information gathered by the general manager in the course of internal discussions with other employees. The information was gathered for the purpose of obtaining outside legal advice in connection with the competition law compliance programme put in place by Akzo. The second document is another copy of the memorandum, but bears manuscript notes referring to contacts with a lawyer used by Akzo and Akcros, including, in particular, mention of his name.
12. After obtaining the appellants’ observations concerning those first two documents, the Commission officials were not in a position to reach a final conclusion on the spot as to whether the documents should be privileged. They therefore took copies of them and placed them in a sealed envelope which they took away on completion of the investigation.
13. Set B likewise comprises several documents. These are, on the one hand, a number of handwritten notes made by Akcros’ general manager, which are said by the appellants to have been written during discussions with employees and used for the purpose of preparing the typewritten memorandum in Set A and, on the other hand, two emails exchanged between Akcros’ general manager and Mr S., Akzo’s coordinator for competition law. The latter is enrolled as an Advocaat of the Netherlands Bar and, at the material time, was a member of the Akzo group’s legal department and was therefore employed by that group on a permanent basis.
14. After examining the documents in Set B and obtaining the observations of Akzo and Akcros, the head of the investigating team took the view that they were definitely not privileged. Consequently, she took copies of them and placed the copies with the rest of the file, without isolating them in a sealed envelope.
15. On 17 February 2003, Akzo and Akcros sent the Commission a letter setting out the reasons why, in their view, the documents in Set A and Set B were protected by legal professional privilege. By letter of 1 April 2003, the Commission informed the undertakings concerned that the arguments put forward by them in their letter of 17 February 2003 were insufficient to show that the documents in question were covered by legal professional privilege. However, the Commission gave them the opportunity to submit observations on those provisional conclusions within two weeks, after which it would adopt a final decision.
16. By decision of 8 May 2003, (14) the Commission refused to recognise the claim of Akzo and Akcros to legal professional privilege in respect of the documents in dispute (‘the rejection decision’). In Article 1 of that decision, the Commission rejects the request by Akzo and Akcros that the documents in Set A and Set B be returned and that the Commission confirm that all copies of those documents in its possession had been destroyed. In Article 2 of the rejection decision, the Commission announces its intention to open the sealed envelope containing the documents in Set A and to add them to file, although it points out that it will not undertake this before expiry of the time-limit for bringing an action against the decision.
B – The court proceedings 1. The proceedings at first instance 17. Akzo and Akcros together brought two actions for annulment before the General Court, one against the decision ordering the investigation (15) (Case T‑125/03) and the other against the rejection decision (16) (Case T‑253/03). In respect of both decisions, they also lodged an application for interim relief under Article 242 EC and Article 243 EC (now: Article 278 TFEU and Article 279 TFEU) (Joined Cases T‑125/03 R and T‑253/03 R).
18. On 8 September 2003, in connection with the proceedings for interim relief, the Commission complied with the request of the President of the General Court and sent the President, under confidential cover, a copy of the Set B documents and the sealed envelope containing the Set A documents.
19. On 30 October 2003, the President of the General Court dismissed the application for interim relief in Case T-125/03 R, (17) but granted in part the application for interim relief in Case T‑253/03 R. Accordingly, the President suspended the operation of the rejection decision of 8 May 2003 in so far as, in that decision, the Commission had decided to open the sealed envelope containing the Set A documents; he also ordered those documents to be kept by the Registry of the General Court pending the Court’s decision in the main action. Similarly, the President took formal note of the Commission’s statement that it would not permit third parties access to the Set B documents until judgment was given in Case T-253/03.
20. On appeal by the Commission, the order of the President of the General Court of 30 October 2003 in the proceedings for interim relief was set aside by the President of the Court of Justice on 27 September 2004, (18) in so far as the former had suspended the operation of the rejection decision of 8 May 2003 and ordered the Set A documents to be kept by the Registry of the General Court. In addition, the President of the Court of Justice took formal note of the Commission’s statement that it would not allow third parties to have access to the Set A documents until judgment was given in Case T‑253/03.
21. The Registry of the General Court subsequently returned the sealed envelope containing the Set A documents to the Commission by letter of 15 October 2004.
22. In the main proceedings, the General Court gave the judgment under appeal on 17 September 2007. In that judgment, it dismissed the action for annulment brought by Akzo and Akcros against the decision ordering the investigation (Case T‑125/03) as inadmissible and their action for annulment of the rejection decision (Case T‑253/03) as unfounded.
2. The appeal proceedings against the judgment under appeal 23. By document of 30 November 2007, (19) Akzo and Akcros together lodged this appeal against the judgment of 17 September 2007. This appeal is concerned solely with the question whether or not the two emails exchanged between Mr S. and Akcros’ general manager were covered by legal professional privilege. The appellants claim that the Court should:
– set aside the judgment under appeal in so far as it rejected the claim for legal professional privilege in respect of communications with Akzo Nobel’s in-house lawyer;
– annul the Commission’s rejection decision of 8 May 2003 in so far as it refuses to return the email correspondence with Akzo Nobel’s in-house lawyer;
– order the Commission to pay the costs of this appeal and of the proceedings before the General Court in so far as they concern the plea raised in the present appeal.
24. The Commission contends that the Court should:
– dismiss the appeal; and – order the appellants to pay the costs. 25. Before the Court of Justice, the parties presented, first, written submissions and then, on 9 February 2010, oral argument on the appeal.
3. Other parties to the proceedings at first instance and new interveners 26. In the proceedings at first instance, the General Court granted leave to intervene in support of the forms of order sought by Akzo and Akcros in Joined Cases T-125/03 and T-253/03 to the following associations: (20) the Council of the Bars and Law Societies of the European Union (CCBE), the Algemene Raad van de Nederlandse Orde van Advocaten (General Council of the Netherlands Bar) (ARNOVA), the European Company Lawyers Association (ECLA), the American Corporate Counsel Association – European Chapter (ACCA) and the International Bar Association (IBA). Those associations are also taking part in these appeal proceedings as other parties to the proceedings, in support of Akzo and Akcros.
27. Furthermore, in accordance with the first paragraph of Article 40 of the Statute and Article 93(1) in conjunction with Article 123 of the Rules of Procedure of the Court, the President of the Court of Justice has granted leave to intervene in support of the forms of order sought by Akzo and Akcros on appeal to the following Member States: (21) Ireland, the Kingdom of the Netherlands and the United Kingdom of Great Britain and Northern Ireland.
28. However, the President of the Court of Justice refused to grant leave to intervene in support of the forms of order sought by Akzo and Akcros on appeal to the following associations, on the ground that they have not established a legitimate interest in the result of the case (second paragraph of Article 40 of the Statute of the Court): (22) the Association of General Counsel and Company Secretaries of the FTSE 100 (GC 100), the Chamber of Commerce of the United States of America (CCUSA), the International Chamber of Commerce (ICC), the American Bar Association (ABA), the Law Society of England and Wales (LSEW) and the United States Council for International Business (USCIB).
29. At first instance, the General Court itself had refused to grant leave to intervene in support of the forms of order sought by Akzo and Akcros in Joined Cases T-125/03 and T-253/03 to two further associations: (23) the European Council on Legal Affairs and the Section on Business Law of the International Bar Association.
C – The Commission’s interim completion of the administrative procedure 30. As the Commission informed the Court of Justice at the end of the written stage of the appeal proceedings, the administrative procedure of which the investigation carried out at the premises of Akzo and Akcros in 2003 formed part has now closed. By decision of 11 November 2009, the Commission, on the basis of Article 81 EC in conjunction with Articles 7 and 23(2) of Regulation No 1/2003, imposed fines totalling EUR 173 860 400 on 24 plastic additives producers. (24) The addressees of that decision included not only Akros Chemicals Ltd but also, among others, several companies of the Akzo Nobel group, although not Akzo Nobel Chemicals Ltd.
31. According to its unchallenged submission, the Commission did not rely on the two disputed emails in the abovementioned decision imposing fines of 11 November 2009.
IV – Legal assessment 32. In their appeal, Akzo and Akcros do not pursue all the issues which formed the subject-matter of the proceedings at first instance. On appeal, the legal debate is instead confined to only some of the documents in ‘Set B’, more specifically the two emails exchanged between Mr S. and Akcros’ general manager, copies of which the Commission placed on the file following the investigation.
A – Interest in bringing proceedings 33. Before assessing the merits of the appeal, it is necessary to consider whether Akzo and Akcros are entitled to claim an interest in bringing these proceedings.
34. The requirement for an interest in bringing proceedings ensures at a procedural level that the courts are not asked to give expert opinions on purely hypothetical questions of law. Accordingly, the existence of an interest is a mandatory condition of admissibility which must be examined by the Court of its own motion and which may be relevant at various stages of the proceedings. Thus, there is no doubt that an interest must exist at the time when an action or an appeal is first brought; however, it must also continue to exist beyond that time and up to the Court’s decision in the case. (25)
35. For a person to have an interest in bringing appeal proceedings the appeal must be likely, if successful, to procure an advantage for that party. (26)
36. The Commission doubts that such an interest exists in this case, for two reasons. First, the two emails to which the dispute is now confined are automatically excluded from the scope of legal professional privilege because they were not drafted in connection with the exercise of the rights of defence. Second, in the main proceedings, the Commission has since issued the decision imposing fines of 11 November 2009, in which it did not rely on those two emails; consequently, the interest of Akzo and Akcros in bringing proceedings has by now ceased to exist, if it had not done so already.
37. Neither of the Commission’s two objections is valid.
38. With regard to the first argument, the question whether the General Court was justified in denying the claim for legal professional privilege in respect of the two documents concerned is not an issue of admissibility; it goes to the merits of the appeal. The appellants would have no interest in bringing proceedings only if it were manifest that the content of the two emails exchanged between Mr S. and Akcros’ general manager indisputably did not fall in any respect within the scope of legal professional privilege. However, the judgment under appeal does not contain any findings of fact in relation to the content of those emails or the context in which they were sent because those factors were not relevant to the adjudication given by the General Court. Accordingly, the existence of an interest in bringing proceedings cannot automatically be ruled out in this appeal. At this stage of the proceedings, any more detailed examination of the content and context of the emails in question would inevitably raise issues of both admissibility and substance and would also be inappropriate for reasons of procedural economy.
39. The second argument advanced by the Commission, to the effect that the appellants’ interest in pursuing these appeal proceedings ceased to exist when the decision imposing fines of 11 November 2009 was given, is equally inconclusive.
40. Thus, in response to a question put at the hearing, the Commission was forced to concede that one of the two appellants in these proceedings, namely Akzo Nobel Chemicals Ltd, was not an addressee of the decision imposing fines of 11 November 2009 in the first place. Consequently, that company’s interest in bringing proceedings could certainly not be called into question by the abovementioned decision imposing fines. This fact alone is sufficient to support the conclusion that there is no further need to consider whether Akros Chemicals Ltd, the second appellant, has an interest in bringing proceedings either since this is a joint appeal. (27)
41. In any event, the interest of the undertakings concerned in bringing proceedings against investigative measures cannot be made dependent on whether or not the Commission relied on a document which may be covered by legal professional privilege in a subsequent decision imposing fines. Any breach of legal professional privilege during an investigation represents a serious interference with a fundamental right which is committed not when the Commission actually relies on a document exempt from seizure in a substantive decision but as soon as a Commission official removes a document or takes a copy of it. By extension, therefore, such interference with a fundamental right is not remedied or ‘made good’ by the fact that the Commission does not in the end adduce the document in question as evidence. The interference continues in being at least for as long as the Commission has the document or a copy of it in its possession. The undertaking concerned retains its interest in bringing legal proceedings against that measure for the same length of time. (28)
42. Reference must be made in this connection to the principle of effective judicial protection, which is recognised in settled case-law as a general principle of European Union law (‘EU law’) (29) and stems from the constitutional traditions common to the Member States as well as from Articles 6 and 13 of the ECHR. (30) This principle has now also found its way into the first paragraph of Article 47 of the Charter of Fundamental Rights of the European Union; (31) the Charter has been legally binding since the entry into force of the Treaty of Lisbon (Article 6(1) TEU), and is therefore, at the present stage of these proceedings, the criterion for assessing whether the appellants currently still have an interest in bringing proceedings.
43. Undertakings in whose premises the Commission conducts an investigation must be given the opportunity to seek a comprehensive and effective judicial review of the legality of both the decision ordering that investigation and the individual steps taken during the investigation.
44. Commission officials regularly remove many documents (or copies of them) in the course of investigations. It is in the nature of such investigations that documents which at first sight appear to be relevant prove not to be admissible as evidence on closer examination. Similarly, antitrust proceedings initially brought against certain undertakings may be discontinued for lack of evidence after the findings of an investigation have been evaluated. An ‘area devoid of legal protection’ would be created if, in such circumstances, the undertakings concerned were denied access to the Courts of the European Union for the purpose of challenging the legality of an investigation, or individual measures connected with an investigation, conducted by Commission officials.
45. The appellants therefore continue to have an interest in pursuing the proceedings. Their appeal is admissible.
B – Substantive analysis of the appeal 46. The appeal lodged by Akzo and Akcros is based on three pleas in law which are directed against paragraphs 165 to 185 of the judgment under appeal. The appellants claim, in essence, that the General Court was wrong to refuse their claim for legal professional privilege in respect of internal correspondence with the Akzo group’s enrolled in-house lawyer.
47. In EU law, the protection of legal professional privilege has the status of a general legal principle in the nature of a fundamental right. This follows, on the one hand, from the principles common to the legal systems of the Member States: (32) legal professional privilege is currently recognised in all 27 Member States of the European Union, in some of which its protection is enshrined in case-law alone, (33) but in most of which it is provided for at least by statute if not by the constitution itself. (34) On the other hand, the protection of legal professional privilege also derives from Article 8(1) of the ECHR (protection of correspondence) in conjunction with Article 6(1) and (3)(c) of the ECHR (35) (right to a fair trial) as well as from Article 7 of the Charter of Fundamental Rights of the European Union (36) (respect for communications) in conjunction with Article 47(1), the second sentence of Article 47(2) and Article 48(2) of that Charter (right to be advised, defended and represented, respect for rights of the defence).
48. Legal professional privilege serves to protect communications between a client and a lawyer who is independent of that client. On the one hand, it is the essential corollary to the client’s rights of defence (37) and, on the other hand, it is based on the specific role of the lawyer as ‘collaborating in the interests of justice’ (38) and as being required to provide, in full independence, and in the overriding interests of justice, such legal assistance as the client needs. (39)
49. Lawyers would be unable to carry out satisfactorily their task of advising, defending and representing their clients, who would in consequence be deprived of the rights conferred on them by Article 6 of the ECHR and by Articles 47 and 48 of the Charter of Fundamental Rights, if lawyers were obliged, in the context of judicial proceedings or the preparation for such proceedings, to cooperate with the authorities by passing them information obtained in the course of related legal consultations. (40)
50. Neither side in these proceedings is seriously calling into question the existence of legal professional privilege as such. However, the scope of the protection afforded by legal professional privilege is fiercely disputed. More specifically, the issue is whether and, if so, to what extent internal company or group communications with enrolled in-house lawyers are covered by the protective scope of legal professional privilege. It is the answer to this question which will ultimately determine the extent of the Commission’s powers of investigation in antitrust proceedings under Article 14 of Regulation No 17 (for future cases: Articles 20 and 21 of Regulation No 1/2003). (41)
1. The scope of legal professional privilege and the alleged infringement of the principle of equality (first plea in law) 51. The appellants rely primarily on their first plea in law. In that plea, Akzo and Akcros accuse the General Court of having misinterpreted the principle of legal professional privilege as defined by the Court of Justice in AM & S, (42) and of having thereby infringed the principle of equality.
(a) The scope of legal professional privilege in accordance with AM & S (first part of the first plea in law)
52. In the first part of the first plea in law, (43) Akzo and Akcros, supported by several other parties to the proceedings, submit that the General Court erred in adopting a purely ‘literal’ interpretation of the judgment of the Court of Justice in AM & S instead of interpreting and applying it in accordance with its spirit and purpose. The appellants take the view that, on a ‘teleological interpretation’ of AM & S, the Court would have had to conclude that the disputed email exchange with Akzo’s enrolled in-house lawyer, Mr S., was covered by legal professional privilege.
53. First of all, the United Kingdom is right to point out that the Court’s judgment in AM & S is not a statute. This immediately casts doubt on whether the appellants’ reference to methods of interpretation such as the literal and purposive approaches has any bearing here. Ultimately, however, this issue can be left unresolved. What Akzo and Akcros actually contend is that the General Court misconstrued the scope of legal professional privilege as established in AM & S. I shall examine that contention below.
54. In AM & S, the Court recognised that ‘the confidentiality of written communications between lawyer and client’ must also be protected at Community level (now, at European Union level). For the purposes of reliance on that protection, the Court identified two cumulative conditions (‘criteria’) which it had drawn from a combination of the laws of all the Member States at that time: (44)
– First, the communication with the lawyer must have a connection with the exercise of the client’s rights of defence: it must be a ‘communication’ made ‘for the purposes and in the interests of the client’s rights of defence’ (connection with the rights of defence).
– Second, it must be a communication with an independent lawyer, that is to say with a lawyer who is ‘not bound to the client by a relationship of employment’ (independence of the lawyer).
55. The parties to the proceedings all share the view that, at its current stage, the dispute between them is now concerned only with the second of these criteria, that is to say the independence of the lawyer with whom communications were exchanged. (45) There is, however, a fierce dispute between them as to how that criterion of independence is to be understood. At the hearing in particular, each side accused the other of adopting an excessively formalistic approach and of losing sight of the principles underlying the criterion of independence.
56. Unlike the Commission, the appellants, the parties intervening in support of them and the other parties to the proceedings take the view that the criterion of the independence of the lawyer concerned must not be interpreted negatively so as to exclude enrolled in-house lawyers but positively, by reference to the professional and ethical obligations to which lawyers admitted to a Bar or Law Society are generally subject. (46) They submit that because of the professional ethical obligations applicable to him an in-house lawyer who is also a member of a Bar or Law Society automatically enjoys the same independence as an external lawyer who pursues his profession on a self-employed basis or as an employee of a law firm. The guarantees as to the independence of an advocaat in dienstbetrekking under Netherlands law (47) (also referred to as a ‘Cohen advocaat’ (48)) which were applicable to Mr S. in this case are in fact particularly extensive.
57. I do not find this line of argument convincing.
58. In AM & S, the requirement of independence is unequivocally linked to the fact that the lawyer in question must not be in a relationship of employment with his client. The explicit reference to this fact at two points in the grounds of the judgment (49) would have been redundant if the Court had intended that the formal act of admission to a Bar or Law Society and the professional ethical obligations associated with such admission would alone be sufficient to guarantee the independence of an in-house lawyer.
59. In AM & S, the Court therefore deliberately interpreted legal professional privilege as meaning that the protection which it affords does not extend to internal company or group communications with enrolled in-house lawyers. This becomes particularly apparent when the judgment is compared with the Opinion of Advocate General Sir Gordon Slynn. The Advocate General referred to the detailed discussion of the position of in-house lawyers which had taken place in that case and pronounced himself resolutely in favour of the proposition that legal professional privilege should also be granted to lawyers who are ‘professionally qualified and subject to professional discipline’ and are ‘employed full time … in the legal departments of private undertakings’. (50) The Court did not concur with that view in its judgment in AM & S.
60. In the judgment in AM & S, the concept of the independence of lawyers is instead determined not only positively – by reference to professional ethical obligations (51) – but also negatively – by reference to the absence of an employment relationship. (52) (53) It is only where an in-house lawyer is subject, as a member of a Bar or Law Society, to the professional ethical obligations commonly applicable in the European Union and, furthermore, is not in an employment relationship with his client that communications between the two are protected by legal professional privilege under EU law.
61. The reasoning behind this is that an enrolled in-house lawyer, despite his membership of a Bar or Law Society and the professional ethical obligations associated with such membership, does not enjoy the same degree of independence from his employer as a lawyer working in an external law firm does in relation to his clients. Consequently, an enrolled in-house lawyer is less able to deal effectively with any conflicts of interest between his professional obligations and the aims and wishes of his client than an external lawyer.
62. Militating against the proposition that an enrolled in-house lawyer is sufficiently independent is, first, the fact that, as an employee, such a lawyer is often required to follow work-related instructions issued by his employer and is in any event part and parcel of the structures of the company or group by which he is employed. In the words of the General Court, an enrolled in-house lawyer is ‘structurally, hierarchically and functionally’ (54) dependent on his employer, whereas this is not true of an external lawyer in relation to his clients.
63. The appellants and some of the other parties to the proceedings raise the objection that, under Netherlands law, an advocaat in dienstbetrekking such as Mr S. is expressly exempt from the instructions of his employer in the context of the provision of legal advice. Indeed, the undertaking and its enrolled in-house lawyers conclude a separate agreement to that effect (55) which is regulated by the Netherlands Bar Association. Differences of opinion relating to the nature and substance of legal advice provided by an enrolled in-house lawyer do not entitle the employer to take disciplinary measures against the enrolled in-house lawyer and certainly not to terminate the employment relationship. Disputes may be referred either to the Raad van Toezicht (Supervisory Council) set up by the Bar Association to oversee professional ethics, or to the national courts.
64. There is no doubt that such schemes are exemplary. They strengthen the position of enrolled in-house lawyers within the undertaking in which they are employed. Nevertheless, they are not capable of guaranteeing that enrolled in-house lawyers enjoy a degree of independence equal to that of external lawyers. After all, extensive protection given in a document is not necessarily effective in practice. Thus, even if an undertaking has a contractual obligation not to issue instructions to its enrolled in-house lawyers on matters of substance, this does not guarantee that the relationship between an enrolled in-house lawyer and his employer will be genuinely free from direct or indirect pressure and influence in the course of day-to-day business. The question whether an enrolled in-house lawyer is in fact able to give independent legal advice is determined rather by the conduct and attitude adopted by his employer on each individual occasion.
65. That aside, it is doubtful whether it is really possible in practice to impose a penalty every time an employer intentionally or unintentionally calls into question the independence of one of its enrolled in-house lawyers. After all, the persons concerned are likely to be reluctant to allow every single dispute to be escalated and thus to keep calling into question the basis for the continuation of their working relationship. There is also a real danger that, in eagerness to show obedience to their employer, enrolled in-house lawyers will ‘choose’ to give legal advice the substance of which will be acceptable to that employer.
66. However, even if it were to be assumed, as the appellants do, that schemes such as those provided for under Netherlands law can be effective, this in no way alters the fact that enrolled in-house lawyers are for the most part economically dependent on their employer; this issue was the subject of heated debate between the parties to the proceedings both in the written procedure and also, and in particular, at the hearing. (56)
67. It is true that an external lawyer is also economically dependent to some extent on his clients. If a client is not satisfied with the legal advice or defence provided by his external lawyer, the client may withdraw the instruction or, as the case may be, refrain from engaging his services in the future. It should be noted in this regard that, unlike enrolled in-house lawyers and other corporate jurisconsults, external lawyers do not have any protection against dismissal. For lawyers who make their living largely from giving advice to and acting in legal proceedings on behalf of one or a small number of large clients, this may come to pose a serious threat to their independence.
68. However, for external lawyers, such a threat is and remains more of an exception and is not consistent with the typical role of a lawyer in private practice or of an independent law firm. A self-employed lawyer usually works for a large number of clients, which, in the event of a conflict of interests between his professional ethics and the aims and wishes of a client, makes it easier for him, if necessary, to withdraw his services of his own accord in order to safeguard his independence.
69. In the case of an enrolled in-house lawyer, the situation is different. As an employed person, an enrolled in-house lawyer is typically – rather than only exceptionally – characterised by complete economic dependence on his employer, who alone provides him with most of his income in the form of a salary. In so far as the relevant national rules of professional ethics contain any provision at all allowing enrolled in-house lawyers to take on external instructions alongside their activities as employees of the undertaking for which they work, (57) such instructions will generally be of only minor financial significance to them and will in no way alter their economic dependence on their employer. The degree to which enrolled in-house lawyers are economically dependent on their employer is therefore usually far greater than the degree to which external lawyers are dependent on their clients. The fact, raised by a number of the parties to the proceedings, that enrolled in-house lawyers are protected against dismissal under employment law likewise does nothing to alter their economic dependence.
70. In addition to their economic dependence on their employer, enrolled in-house lawyers usually exhibit a considerably stronger personal identification with the undertaking for which they work, as well as with its corporate policy and corporate strategy than would be true of external lawyers in relation to the business activities of their clients.
71. Both their considerably greater economic dependence and their much stronger identification with the client – their employer – militate against the proposition that enrolled in-house lawyers should enjoy the protection afforded by legal professional privilege in respect of internal company or group communications. (58)
72. Consequently, the line of argument advanced to that effect by the appellants and the other parties supporting them must be rejected.
73. Some of the parties to the proceedings, in particular the Netherlands and ARNOVA, raise the objection that it is disproportionate to refuse to extend the protection afforded by legal professional privilege to internal company communications with enrolled in-house lawyers as a general principle. They argue that the Commission could take a ‘more lenient approach’, so to speak, by ascertaining on a case-by-case basis whether a given in-house lawyer satisfies the requirement of independence; to that end, they could contact the national authorities. The Netherlands and ARNOVA apparently assume that general information about the provisions governing the profession of lawyer in a particular Member State would itself be sufficient to make it possible to determine conclusively whether an in-house lawyer is independent.
74. This argument is also untenable, however. As I have already said, the question whether an enrolled in-house lawyer is able to give independent legal advice or is exposed to pressure and influence is determined definitively by the practice actually adopted by an undertaking in its day-to-day business. In this regard, an abstract assessment of the legal provisions governing the status of enrolled in-house lawyers in a particular Member State is not significant in itself since it sheds no light either on the reality of the working relationships within the undertaking in question or on the economic dependence of an enrolled in-house lawyer and the extent to which he identifies personally with his employer.
75. The first part of the first plea in law is therefore unfounded.
(b) The alleged infringement of the principle of equality (the second part of the first plea in law) 76. In the second part of the first plea in law, Akzo and Akcros, as well as most of the parties intervening in support of them at both instances, claim that the General Court infringed the principle of equality by treating in-house lawyers differently from external lawyers in relation to legal professional privilege. (59)
77. The principle of equal treatment and non-discrimination is a general legal principle of EU law (60) which has now also found expression in Articles 20 and 21 of the Charter of Fundamental Rights. The same principle is also laid down in Article 14 of the ECHR and in Protocol No 12 to the ECHR, to which some of the parties to the proceedings have made incidental reference. (61)
78. According to settled case-law, the general principle of equal treatment or non-discrimination requires that comparable situations must not be treated differently and that different situations must not be treated in the same way unless such treatment is objectively justified. (62)
79. In this connection, the elements which characterise different situations, and hence their comparability, must in particular be determined and assessed in the light of the subject-matter and purpose of the provision which makes the distinction in question. The principles and objectives of the field to which the act relates must also be taken into account. (63)
80. As mentioned above, (64) legal professional privilege serves to protect communications between a client and a lawyer who is independent of that client. It is, on the one hand, the essential corollary to the client’s rights of defence and, on the other hand, is based on the specific role of the lawyer in ‘collaborating in the interests of justice’ and as being required to provide, in full independence, and in the overriding interests of justice, such legal assistance as the client needs.
81. Contrary to the submission made by ECLA, employment as an in-house lawyer is a highly relevant factor in the assessment of a lawyer’s independence. For, as discussed in detail above, (65) a salaried in-house lawyer – notwithstanding his membership, if any, of a Bar or Law Society and the professional ethical obligations associated with such membership – does not enjoy the same degree of independence from his employer as a lawyer working in an external law firm does in relation to his clients. In most cases, enrolled in-house lawyers work exclusively, or in any event primarily, for a single ‘client’ – their employer – whereas a lawyer in private practice tends to have a much larger and evolving client base and to give legal advice to ‘all those in need of it’. (66)
82. With regard to their respective degrees of independence when giving legal advice or providing representation in legal proceedings, there is therefore usually a significant difference between a lawyer in private practice or employed by a law firm, on the one hand, and an enrolled in-house lawyer, on the other. The fact that they are significantly less independent makes it more difficult for enrolled in-house lawyers to deal effectively with a conflict of interests between their professional obligations and the aims and wishes of their undertaking.
83. Contrary to the view taken by ARNOVA, that difference is not irrelevant solely because the national legislature – in this case, the Netherlands legislature – accorded the same treatment in law to external lawyers and enrolled in-house lawyers (advocaten in dienstbetrekking). After all, such equal treatment relates only to the formal act of admitting an in-house lawyer to a Bar or Law Society and the professional ethical obligations incumbent on him as a result of such admission. On the other hand, that legislative framework does nothing to alter the economic dependence of an enrolled in-house lawyer and the far greater extent to which he identifies personally with his client, (67) who is also his employer. Consequently, irrespective of any legal equivalence, the fact remains that there is a significant difference between lawyers in private practice or employed in law firms and enrolled in-house lawyers in relation to their degree of independence.
84. It was on the basis of that very difference that the General Court concluded, without erring in law, that it is not appropriate to extend legal professional privilege to internal company or group communications with enrolled in-house lawyers. Consequently, it cannot be concluded that the principle of equal treatment has been infringed.
85. The second part of the first plea in law is therefore also unfounded.
(c) Interim conclusion 86. Since the first plea in law is unfounded in its entirety, consideration must now be given to the second plea in law, advanced in the alternative.
2. The alleged need to extend the scope of legal professional privilege (second plea in law) 87. By their second plea in law, Akzo and Akcros claim that, in its determination of the scope of legal professional privilege, the General Court failed to take account of significant developments in the ‘legal landscape’ which made it necessary to reconsider the case-law in AM & S, in order in particular to avert the risk of infringement of the rights of defence and the principle of legal certainty. They are supported in this submission by many of the interveners at first and second instance.
(a) The alleged changes ‘in the legal landscape’ (the first part of the second plea in law) 88. The changes in the ‘legal landscape’ referred to by the appellants relate, on the one hand, to the status of enrolled in-house lawyers in the legal systems of the Member States and, on the other hand, to the modernisation of the law governing antitrust proceedings carried out by Regulation No 1/2003.
(i) The status of enrolled in-house lawyers in the national legal systems 89. With regard, first, to the status under the national legal systems of corporate jurisconsults in general and enrolled in-house lawyers in particular, it is common ground between the parties to the proceedings that the relevant provisions in the now 27 Member States of the European Union vary greatly; in relation to legal professional privilege in particular, there is no discernible general trend towards treating enrolled in-house lawyers in the same way as lawyers in private practice. ECLA makes this point very succinctly when it says that ‘there is no uniform answer to the question of privilege of in-house lawyers in all Member States’. (68) In the same vein, the appellants themselves refer to a ‘lack of uniform tendency at national level’. (69)
90. The General Court concurs with that assessment. It holds that ‘it is not possible … to identify tendencies which are uniform or have clear majority support … in the laws of the Member States’. On the basis inter alia of that finding, the General Court refuses to pave the way for an ‘extension of the personal scope of protection of [legal professional privilege] beyond the limits laid down by the Court of Justice in AM & S’. (70)
91. The appellants and numerous other parties to the proceedings, on the other hand, take the view that even the changes in the laws of a small number of Member States towards an extension of legal professional privilege to enrolled in-house lawyers are reason enough to reverse the case-law in AM & S at European Union level. They are of the opinion that the General Court was wrong to make the development of that case-law contingent on a majority trend among the Member States.
92. In responding to this claim, it must be remembered first that the Court of Justice of the European Union – consisting of the Court of Justice, the General Court and specialised courts – is to ensure that in the interpretation and application of the Treaties the law is observed (Article 19(1) TEU (71)). At an early stage, the Court of Justice inferred from the character of the Community (now: the European Union) as a community governed by the rule of law that, within its jurisdiction, certain principles based on the rule of law must apply and fundamental rights must be protected, even if they have not, or not yet, been laid down in writing. (72)
93. Where the Court of Justice answers questions concerning the existence or non-existence of a general legal principle by reference to the laws of the Member States, it generally draws on the constitutional traditions (73) or legal principles common to the Member States. (74)
94. Such recourse to common constitutional traditions or legal principles is not necessarily subject to the precondition that the practice in question should constitute a tendency which is uniform or has clear majority support. It depends rather on an evaluative comparison of the legal systems which must take due account, in particular, not only of the aims and tasks of the European Union but also of the special nature of European integration and of EU law. (75)
95. Accordingly, it is by no means inconceivable that even a legal principle which is recognised or even firmly established in only a minority of national legal systems will be identified by the Courts of the European Union as forming part of EU law. This is the case in particular where, in view of the special characteristics of EU law, the aims and tasks of the Union and the activities of its institutions, such a legal principle is of particular significance, (76) or where it constitutes a growing trend.
96. Thus, only recently, the Court held the prohibition of discrimination on grounds of age to be a general principle of EU law, (77) even though, at that time, that prohibition did not appear to constitute a tendency which was uniform or had clear majority support in the national legal systems or even in the constitutional law of the Member States. (78) However, that principle was consistent with a specific task incumbent on the European Union in combating discrimination (Article 19 TFEU, formerly Article 13 EC) and had also been given specific expression by the Union legislature in the form of a directive; (79) moreover, it mirrored a more recent trend in the protection of fundamental rights at Union level, to which the European Parliament, the Council and the Commission had jointly given expression on the occasion of the solemn proclamation of the Charter of Fundamental Rights (see, in particular, Article 21 thereof), (80) the Heads of State and Government of the Member States having previously given their endorsement at the Biarritz European Council (October 2008).
97. The right of access to the file referred to by some of the parties to the proceedings at the hearing, as recognised by the Courts of the European Union in the context of antitrust proceedings conducted by the Commission in its capacity as competition authority, (81) may likewise not have been recognised in this form in all the Member States. This might have been because some Member States did not previously have competition authorities of their own and, in others, because the competition authorities appeared only as prosecutor in court proceedings. The Commission, on the other hand, is entrusted with both the investigation and the decision concluding the proceedings; in administrative proceedings of this kind, the right of access to the file is an essential component of the rights of defence and, therefore, the expression of a basic procedural guarantee based on the rule of law. It was therefore logical that the Courts of the European Union should recognise the right of access to documents at European level.
98. With respect to the legal professional privilege at issue here, however, there are no comparable circumstances apparent which would support the proposition that EU law should be brought into line with the legal position in a minority of Member States. The extension of the protection afforded by legal professional privilege to internal company or group communications with enrolled in-house lawyers is not justified on grounds of any special characteristics exhibited by the tasks and activities of the European Commission as competition authority and it does not currently constitute a growing trend among the Member States, be it in the area of competition law or in any other field.
99. First, the tasks, powers and activities in general of the European Commission as competition authority are essentially no different in the context of antitrust proceedings from those of the Member States’ competition authorities; more specifically, the Commission’s search powers for the purposes of investigations are in fact even less extensive than those of many national authorities. (82) Consequently, if the vast majority of the Member States have no need to deny the competition authorities access to communications between an undertaking and its enrolled in-house lawyers, it is safe to assume that there is no compelling need to extend the scope of legal professional privilege at European Union level either.
100. Next, as far as the recent developments in the national legal systems are concerned, there is still no evidence of a clear – let alone growing – trend towards the protection of internal company and group communications with enrolled in-house lawyers.
101. Of the now 27 Member States of the European Union a significant number continue to prohibit in-house lawyers from becoming members of a Bar or Law Society at all; (83) in the vast majority of those Member States, this automatically means that internal company communications with in-house lawyers do not benefit from the protection afforded by legal professional privilege. (84)
102. In a number of other Member States, the legal position in relation to legal professional privilege for enrolled in-house lawyers cannot be considered sufficiently established, either because there are no specific legal provisions on the matter or there is as yet no settled case-law or administrative practice. (85) As a result, national legislation, administrative practice and case-law sometimes seem to draw on the solutions applied at European Union level rather than the other way round. (86)
103. Only in a small minority of the 27 Member States does the protection afforded by legal professional privilege currently apply also to internal company or group communications with in-house lawyers. This phenomenon is restricted to the common-law area (87) and to a small number of other Member States – inter alia the Netherlands – (88) but it is certainly not a more recent development which constitutes a growing trend among the Member States. The changes in the law at national level since AM & S, (89) geared towards extending legal professional privilege to certain in-house lawyers, likewise seem to me to be too isolated to be regarded as a clear trend.
104. Accordingly, I take the view that the legal position in the now 27 Member States of the European Union, even some 28 years after AM & S, has not developed in such a way as would require – today or in the foreseeable future – the case-law at European Union level to be changed so as to recognise enrolled in-house lawyers as benefiting from legal professional privilege.
105. Furthermore, it should be noted that the European Union legislature has also recently signalled that it is more opposed to than in favour of the idea of treating lawyers in private practice and enrolled in-house lawyers in the same way in relation to legal professional privilege. Those signals were discussed at length with the parties to the proceedings at the hearing.
106. Thus, although, during the process of drawing up legislation to modernise European law governing antistrust proceedings (Regulation No 1/2003) and to revise the EC Merger Regulation (Regulation No 139/2004), members of the European Parliament tabled proposals aimed at extending legal professional privilege to in-house lawyers, (90) those proposals were ultimately not adopted by the legislature. (91)
107. Contrary to the view of ECLA, representations made in this way by the European Union legislature are not irrelevant solely because they are – at least in part – prompted by ‘legislative policy considerations’. (92) On the contrary, it is precisely when called upon to develop EU law by recognising general legal principles that the Court cannot disregard the opinions of the European Union institutions motivated by legislative policy.
108. Moreover, contrary to the view taken by the appellants and some of the other parties to the proceedings, the two directives which seek to facilitate practice of the profession of lawyer contain nothing which would provide compelling support for the proposition that self-employed lawyers and enrolled in-house lawyers should be treated in the same way in relation to legal professional privilege.
109. It is true that Directive 98/5, (93) as Article 1(3) thereof makes clear, applies to both self-employed and salaried lawyers. Article 8 of that directive provides that a lawyer registered in a host Member State under his home-country professional title may practise as a salaried lawyer in the employ of another lawyer, an association or firm of lawyers, or a public or private enterprise to the extent that the host Member State so permits for lawyers registered under the professional title used in that State. However, that article makes clear only that a Member State whose legal system recognises enrolled in-house lawyers must not refuse to allow lawyers from other Member States to practise their profession in this way. It in no way implies that the Union legislature regards self-employed lawyers and enrolled in-house lawyers as enjoying the same degree of independence.
110. Furthermore, Directive 77/249 (94) had already contained a reference to ‘lawyers who are in the salaried employment of a public or private undertaking’. Indeed, the Court made express reference to that directive in AM & S, but it did not infer from it that enrolled in-house lawyers also benefit from legal professional privilege. (95)
111. In short, neither of the two directives relating to the profession of lawyer militates in favour of extending legal professional privilege to enrolled in-house lawyers.
112. Finally, the provisions of EU law on the combating of money laundering and terrorist financing, which expressly recognise professional privilege for ‘independent legal professionals’, were discussed at the hearing before the Court of Justice. (96) Akzo interprets that provision as also covering enrolled in-house lawyers. Such an interpretation might at first sight be supported by the preamble to Directive 2005/60, which refers to ‘legal professionals, as defined by the Member States’. (97) It is, however, contradicted by the recommendations of the Financial Action Task Force (‘FATF’) cited by the Commission, (98) which are to be relied on for the purposes of interpreting that directive; those recommendations expressly exclude salaried in-house lawyers from the category of persons subject to their requirements. (99) It is true that these proceedings are not the appropriate forum in which to take a definitive view on the interpretation of Directive 2005/60. For our purposes here, however, it is sufficient to conclude that the provisions of EU law on money laundering and terrorist financing certainly cannot be construed as providing a clear signal in favour of the proposition that legal professional privilege should be extended to enrolled in-house lawyers.
113. For all these reasons, the line of argument advanced by the appellants and the other parties to the proceedings supporting them to the effect that there has been a shift in the ‘legal landscape’ in relation to the status of enrolled in-house lawyers must be rejected.
(ii) Modernisation of the law governing antitrust proceedings under Regulation No 1/2003 114. With reference to paragraphs 172 and 173 of the judgment under appeal, the appellants cite a further ground by way of justification for extending legal professional privilege to internal company or group communications with enrolled in-house lawyers. They submit that the modernisation of the law governing antitrust proceedings carried out by Regulation No 1/2003 leads to an increasing need for internal corporate legal advice, the role of which in preventing infringements of competition law cannot be underestimated. The legal advice given by enrolled in-house lawyers is particularly valuable in day-to-day business because it can be obtained more quickly and more economically and because it is based on an intimate knowledge of the undertaking concerned and its business. In addition, a number of parties to the proceedings have made reference to the growing importance of ‘compliance programmes’ within undertakings, which serve to ensure that the undertaking conducts itself in accordance with the law and the relevant rules and regulations.
115. In the view of many of the parties to the proceedings, the effective provision of internal corporate legal advice and a successful compliance programme are dependent on the possibility of free and faithful internal company or group communications with enrolled in-house lawyers. Otherwise, they submit, the company’s management will be averse to disclosing sensitive information to an enrolled in-house lawyer and the enrolled in-house lawyer will be inclined to give advice orally rather than in writing, thus compromising the quality and usefulness of the legal advice in question.
116. It should be pointed out first of all in this regard that the changes made to the rules governing the scope of the Commission’s powers of investigation as part of the modernisation of the law governing antitrust proceedings were not applicable to the search, at issue here, of Akzo’s and Akros’ business premises. The investigation started in early 2003 and did not therefore fall within the scope ratione temporis of Regulation No 1/2003, which entered into force on 1 May 2004 (see in this regard Article 45(2) of that regulation). Nevertheless, the argument based on the new law governing antitrust proceedings should not be dismissed solely on grounds of the scope ratione temporis of Regulation No 1/2003. After all, the volume of internal company or group legal advice may have increased just in the run-up to the introduction of the new system.
117. In substance, however, neither the increased importance of enrolled in-house lawyers nor the indisputable usefulness of their legal advice – including under the scheme of Regulation No 1/2003 at issue here – supports the proposition that internal company or group communications should be placed under the protection of legal professional privilege. Nor can an extension of legal professional privilege to enrolled in-house lawyers be justified simply by reference to their in-depth knowledge of the undertaking concerned and its business.
118. On the contrary, the reference made by a number of parties to the proceedings to the enrolled in-house lawyer’s closeness to his employer proves to be a double-edged sword. On the one hand, such closeness saves an enrolled in-house lawyer the job of having to spend an extensive amount of time familiarising himself afresh with the facts of a particular case each time his advice is sought and enables him to build up a basis of trust with his in-house interlocutors. On the other hand, it is precisely that special proximity to the undertaking concerned and its business which calls the independence of the enrolled in-house lawyer seriously into question. (100) He lacks the necessary distance from the client – his employer – that would characterise genuinely independent legal advice.
119. When an undertaking calls on the services of one of its enrolled in-house lawyers, it is not ultimately communicating with a neutral third party but with a person who is a member of its own staff, despite all the professional ethical obligations to which that person is subject by virtue of his membership of a Bar or Law Society. Such ‘in-house’ communications do not merit the protection afforded by legal professional privilege, no matter how often they are made, how highly significant they are or how useful they are to the undertaking.
120. Nor does the reference made by many of the parties to the proceedings to the compliance programmes operated by undertakings lead to a different conclusion. As the Commission has submitted without being contradicted, much of the internal corporate legal advice given under compliance programmes is general in nature and has no specific connection with the current or future exercise of the rights of defence. For this reason alone, therefore, communications exchanged between an undertaking and its enrolled in-house lawyer ‘for compliance purposes’ do not generally fulfil the first condition laid down in AM & S. (101) Consequently, the General Court was right to find that this kind of internal corporate legal advice is ‘not directly relevant’ to the issue of legal professional privilege. (102)
121. All things considered, therefore, a departure from the case-law in AM & S likewise cannot ultimately be justified by reference to the advantages and significance of internal corporate legal advice or to the procedural-law reform carried out by Regulation No 1/2003.
(b) The alleged infringement of the rights of defence and the principle of legal certainty (second part of the second plea in law)
122. The appellants and a number of the interveners supporting them at first and second instance submit that it is an infringement of the rights of defence to exclude internal company or group communications with an enrolled in-house lawyer. Such a practice, they submit, is also contrary to the principle of legal certainty.
(i) The principle of legal certainty in relation to the rights of defence 123. Akzo and Akcros base their claim in this regard on the rights of defence in conjunction with the principle of legal certainty. They refer to the fact that, in European competition law, Article 81 EC (now Article 101 TFEU) is often applicable in combination with corresponding provisions of national law (see in this regard Article 3 of Regulation No 1/2003). They submit that it is unacceptable that the protection of communications with enrolled in-house lawyers should depend on whether investigations are conducted by the Commission or by a national competition authority.
124. The principle of legal certainty is a fundamental principle of EU law. (103) This principle requires in particular that rules involving negative consequences for individuals should be clear and precise and their application predictable for those subject to them. (104) In other words, individuals must know their rights and obligations precisely and be able to rely on them. (105)
125. Transposed to this context, the foregoing means that an undertaking whose premises are searched by a competition authority as part of an antitrust investigation must know for certain whether it can rely on legal professional privilege in respect of internal company or group communications with enrolled in-house lawyers.
126. The relevant EU law satisfies those requirements. As interpreted by the existing case-law in AM & S, (106) it provides that internal company or group communications with enrolled in-house lawyers do not fall within the scope of the protection afforded by legal professional privilege. There is no legal uncertainty in this regard.
127. With regard to the relationship between investigations conducted by the European Commission and investigations conducted at national level, Regulation No 17, like Regulation No 1/2003, is based on a clear delimitation of the respective competences of the competition authorities. A search is ordered and carried out either by the Commission or by a national competition authority. It is always clear from the decision ordering the investigation (investigation authorisation), which must be presented to the undertaking in writing, which authority has ordered the search (Article 14(2) and (3) of Regulation No 17 or Article 20(3) and (4) of Regulation No 1/2003).
128. If the Commission conducts an investigation, the rules governing that investigation are determined by EU law; if a national authority conducts an investigation, the rules governing that investigation are determined by national law (see expressly to this effect now Article 22(2) of Regulation No 1/2003 (107)). This also includes the corresponding rules on legal professional privilege.
129. It is true that officials from the national competition authority may assist the Commission in an investigation which it is conducting (Article 14(5) and (6) of Regulation No 17 or Article 20(5) and (6) of Regulation No 1/2003), just as, conversely, Commission officials may take part in investigations conducted by the national competition authorities by lending support to the latter (Article 13(2) of Regulation No 17 or the second subparagraph of Article 22(2) of Regulation No 1/2003). However, this does nothing to change the division of competences relating to the ordering and conduct of investigations or the legal provisions applicable, including the rules on legal professional privilege.
130. Consequently, the principle of legal certainty in relation to the rights of defence, in particular in relation to the rules of legal professional privilege applicable to a particular search, is satisfied.
131. The appellants raise the objection that it is unacceptable that the fate of the self-same internal company document should depend on whether it is a national competition authority or the Commission which attempts to take it away in the course of a search.
132. Although that objection expresses an entirely understandable concern, it is none the less untenable from a legal point of view.
133. Neither the principle of legal certainty nor the rights of defence require that EU law and national law should apply the same standards in their respective spheres of application and thus ensure the same protection by way of legal professional privilege. The general legal principles of EU law and the protection afforded to fundamental rights at European Union level are applicable only within the scope of application of EU law. (108) Conversely, national legal principles and the protection of fundamental rights at national level may not extend beyond national spheres of competence.
134. It would certainly simplify the legal position if the procedural provisions applicable to searches conducted under competition law and the associated rules on legal professional privilege were harmonised throughout the European Union. As EU law currently stands, however, such total harmonisation does not exist. Whether it should be introduced is a question of legislative policy which it is for the European Union legislature alone to decide; the undertakings concerned certainly cannot bring about such harmonisation themselves by reference to the rights of defence and the principle of legal certainty. (109)
135. Finally, the appellants, supported inter alia by Ireland, submit that a legal professional privilege applicable at national level to internal company or group communications with enrolled in-house lawyers could be eroded through the system for the exchange of information between European competition authorities under Article 12 of Regulation No 1/2003.
136. As the Commission contends, without being contradicted in this regard, there was no exchange of information between the competition authorities in this case. The argument based on Article 12 of Regulation No 1/2003 is therefore nugatory.
137. The question of whether and, if so, to what extent Article 12 of Regulation No 1/2003 is even capable of giving rise to an exchange of documents and information which fall within the scope of legal professional privilege can therefore be left unanswered for the purposes of this appeal. At this point, I would merely note in passing that that provision – in particular its reference to ‘confidential information’ – is indeed open to an interpretation which, on the one hand, is compatible with fundamental rights and, on the other hand, for the purposes of sincere cooperation (Article 4(3) TEU), does not require any competition authority involved to do anything which would be at odds with the provisions applicable to it in respect of legal professional privilege. (110)
138. All things considered, the claim that the General Court infringed the principle of legal certainty in relation to the rights of defence is therefore unfounded.
(ii) The right to unimpeded advice, defence and representation 139. The alleged infringement of the rights of defence is also said to exist – in particular by Ireland, ACCA and ECLA – in the fact that it is less attractive for undertakings to seek legal advice from an enrolled in-house lawyer if internal company or group communications with that lawyer are not protected by legal professional privilege. These parties to the proceedings consider that this constitutes, in particular, an infringement of Article 6(3)(b) and (c) of the ECHR, according to which everyone charged with a criminal offence has the right to have adequate time and the facilities for the preparation of his defence and to defend himself in person or through legal assistance of his choosing. (111) Some of the parties to the proceedings also refer incidentally in this regard to Article 8 of the ECHR as well as to Articles 47 and 48 of the Charter of Fundamental Rights.
140. That submission does not hold water.
141. With regard first of all to the ECHR, the European Court of Human Rights does not as yet appear to have expressed support for the recognition of legal professional privilege in respect of internal company or group communications with enrolled in-house lawyers. On the contrary, the findings of the ECtHR in its judgment in André and Otherv.France, concerning the role of the lawyer as an organ of the administration of justice (‘auxiliaire de justice’) and as an intermediary between the courts and individuals subject to the law (‘intermédiaire’) point to an understanding of the independence of lawyers which is not dissimilar to that on which the Court of Justice of the European Union based its judgment in AM & S. (112)
142. In those circumstances, EU law as it currently stands does not afford a lower level of protection than the ECHR in restricting legal professional privilege to communications with external lawyers. Consequently, the requirement of consistency in the first sentence of Article 52(3) of the Charter of Fundamental Rights likewise does not necessitate an extension of the protection afforded by legal professional privilege under EU law to internal company or group communications with enrolled in-house lawyers.
143. It is true that, with respect to the protection of fundamental rights, the ECHR merely guarantees a minimum standard which EU law is at liberty to exceed at any time (the second sentence of Article 52(3) of the Charter of Fundamental Rights). Ireland has rightly referred to this fact. None the less, for the reasons that follow, it would not be appropriate to extend the scope of the protection afforded by legal professional privilege under EU law to internal company or group communications with enrolled in-house lawyers.
144. First of all, it is doubtful to begin with whether the second sentence of the second paragraph of Article 47 of the Charter of Fundamental Rights (in conjunction, where appropriate, with Article 48(2)) is even open to the interpretation that it guarantees for undertakings a right to be advised, defended and represented by their own salaried enrolled in-house lawyers.
145. However, even assuming that the right to be advised, defended and represented under the Charter of Fundamental Rights also extends to the consultation of a company’s or a group’s own enrolled in-house lawyers, this by no means rules out the possibility that certain objectively justified restrictions may apply when the services of enrolled in-house lawyers are used. After all, the degree of protection offered by a fundamental right may vary depending on the circumstances. (113)
146. For example, in-house lawyers are not always allowed to represent their own employer – that is to say the undertaking in whose legal department they work – in court. (114) Moreover, the fact that not all lawyers are permitted to appear before all national courts does not constitute an infringement of a fundamental right, (115) although it undoubtedly restricts the choice available to potential clients when searching for the most suitable counsel.
147. In the same vein, the extent of the protection afforded to communications between a client and his lawyer may vary depending on whether or not there is a relationship of employment between the two of them. This does not mean that communications between an undertaking and its enrolled in-house lawyers are entirely unprotected. Like any normal communication between private individuals, the former fall within the scope of the protection afforded to the general confidentiality of written correspondence and communications provided for in Article 7 of the Charter of Fundamental Rights (Article 8 of the ECHR). The dispute revolves around whether internal company or group communications with enrolled in-house lawyers also attract, in addition, the special protection against seizure provided by legal professional privilege for the purpose of facilitating the exercise of the rights of defence and ensuring the proper administration of justice.
148. ECLA rightly submits in this regard that, in the light of their crucial importance, the fundamental rights at issue here must in principle be interpreted extensively. However, even on an extensive interpretation, the legal professional privilege inferred from those rights must not be extended beyond the scope of its actual spirit and purpose. Legal professional privilege not only serves to ensure the rights of defence of the client but is also an expression of the lawyer’s status as an independent legal adviser and ‘collaborat[or] in the administration of justice’ who gives legal advice ‘to all those who need it’. (116) Consequently, the freedom to engage in unimpeded and reliable communications with his client which legal professional privilege creates for a lawyer must be exercised by him in such a way as to ensure the proper administration of justice. In order to be able to avoid conflicts of interest between his professional obligations and the aims and wishes of his client, a lawyer must not enter into a relationship of dependence with his client. (117)
149. An enrolled in-house lawyer, however, is in just such a relationship of dependence. As I have already said, an enrolled in-house lawyer is not only part and parcel of the structures of the undertaking in whose legal department he works as an employee but is also more economically dependent on and identifies much more strongly with that undertaking than an external lawyer would. (118) There is therefore a structural danger that an enrolled in-house lawyer – even if, as is usually the case, he is himself of good character and has the best intentions – will encounter a conflict of interests between his professional obligations and the aims and wishes of his company.
150. The susceptibility of an enrolled in-house lawyer to conflicts of interest also makes it difficult for him to raise an effective opposition to any abuses of legal professional privilege. Such abuse may, for example, consist in handing over evidence and information to an undertaking’s legal department, under cover of a request for legal advice, for the sole or primary purpose, ultimately, of preventing the competition authorities from gaining access to that evidence and information. At worst, the functional departments of an undertaking may be tempted to misuse the company’s or group’s internal legal department as a place for storing illegal documents such as cartel agreements and records of meetings between the parties to those cartels and of the modus operandi of a cartel.
151. In view of the specific conflicts of interest and risks of abuse which may arise within an undertaking or a group of undertakings, it seems appropriate to me not to extend the protection afforded by legal professional privilege to internal company or group communications with enrolled in-house lawyers. The same arguments which I articulated above in connection with the Charter of Fundamental Rights are also applicable, in my view, to the corresponding provisions of the ECHR.
152. By reference to the case-law of the ECtHR, Ireland submits that the confidentiality of the relationship between a client and his lawyer outweighs the mere possibility of abuse. (119) In this regard, however, Ireland overlooks the fact that the case-law which it cites relates to the conventional communications between a client and his external lawyer, in which the aforementioned risks of abuse specifically linked to internal company or group communications with enrolled in-house lawyers do not generally arise and there is as a rule no fear of conflicts of interest in any other regard either.
153. ECLA raises the objection that the independence of an enrolled in-house lawyer should not be assessed in the abstract by reference to his status as an employee but must be examined specifically on a case-by-case basis, taking into account in particular his ethical obligations as a member of a Bar or Law Society. That argument must be dismissed for the reasons already given. (120) Ethical obligations alone are not sufficient to secure for enrolled in-house lawyers an independence comparable to that of self-employed lawyers, since they provide no information on the practices actually employed by an undertaking in its day-to-day business. Furthermore, ECLA disregards the fact that enrolled in-house lawyers are usually far more economically dependent on and identify personally much more strongly with their employer than a self-employed lawyer typically does in relation to his client. In the light of those fundamental differences, there are objective grounds for making a generalisation and drawing a distinction between enrolled in-house lawyers and external lawyers in relation to legal professional privilege.
154. The claim relating to infringement of the right to unimpeded advice, defence and representation is therefore unfounded.
(iii) Further fundamental rights 155. Certain parties to the proceedings, in particular Ireland and ECLA, claim that other fundamental rights have also been infringed, namely the fundamental right to property and the freedom to choose an occupation. (121) Ireland and ECLA submit that the freedom to choose an occupation is affected because the lack of legal professional privilege for internal company or group communications makes it difficult for an enrolled in-house lawyer to pursue his profession and puts him at a disadvantage in relation to self-employed lawyers. ECLA takes the view that the fundamental right to property is affected because the refusal to grant legal professional privilege to internal communications with enrolled in-house lawyers forces undertakings to seek external legal advice in certain circumstances and thus to incur considerable additional expenditure.
– Admissibility of the claims 156. In so far as Ireland, as intervener, submits that the freedom to choose an occupation has been infringed, that claim is inadmissible from the outset. It is settled case-law that an intervener is not prohibited from using arguments different from those used by the party it is supporting, provided that he thereby seeks to support the forms of order sought by that party. (122) It may not, however, raise submissions different from those of the party which it is supporting. (123) Since Akzo and Akcros, as appellants, have not made any claim as to infringement of the right to property and the right to choose an occupation, Ireland, as intervener, is precluded from claiming infringement of those fundamental rights in these appeal proceedings.
157. It is true that ECLA, as an intervener in the proceedings at first instance, and unlike Ireland, has the status of ‘another party to the proceedings’ in the appeal, and, as a result, is no longer subject to the specific restrictions applicable to interveners (Articles 115 and 116(1) of the Rules of Procedure). However, ECLA too must not, in its response, go beyond the subject-matter of the proceedings at first instance (Article 116(2) of the Rules of Procedure). As the infringement of the right to property and the right to choose an occupation alleged by ECLA was not introduced into the subject-matter of the proceedings at first instance either by Azko and Akros or by ECLA itself, the raising of these claims now, on appeal, is inadmissible. (124)
– Merits of the claims 158. The claims raised by Ireland and ECLA are unfounded in substance also.
159. With regard first of all to the freedom to choose an occupation, it cannot be assumed that the fact that legal professional privilege does not afford protection to internal company or group communications makes it excessively difficult or indeed impossible for enrolled in-house lawyers to pursue their occupation. First, as many parties to these appeal proceedings have submitted, the importance of internal company legal advice in the European Union has grown steadily in recent years, even though, in most Member States, in-house lawyers cannot rely on legal professional privilege. Secondly, the principal field of activity for in-house lawyers – including those who are members of a Bar or Law Society – is not advising and representing their employer in judicial and quasi-judicial proceedings but giving general legal advice without specific reference to the exercise of the rights of defence.
160. With regard next to the right to property, it is not clear how the law governing legal professional privilege at European Union level can have the effect of infringing that fundamental right. The refusal to grant legal professional privilege to internal company or group communications with enrolled in-house lawyers does not lead to the restriction or removal of proprietary rights by the organs of the European Union. If an undertaking decides to spend money on external legal advice, it does so of its own motion. It is true that the framework of legislation on legal professional privilege may have some bearing on that decision. However, the connection with the undertaking’s proprietary interests is far too indirect and remote for it to be possible to speak of an interference with that fundamental right.
161. The claims relating to fundamental rights raised by Ireland and ECLA must therefore be dismissed as inadmissible per se and, in any event, as unfounded.
(c) Interim conclusion 162. Since, then, the second plea in law is also unfounded, the third plea in law, raised very much in the alternative, must be considered.
3. The principles of conferral and national procedural autonomy (third plea in law) 163. By their third plea in law, Akzo and Akros, supported by a number of interveners at first and second instance, argue that the Member States alone are competent to determine the precise scope of legal professional privilege. In this regard, they rely in particular on the national procedural autonomy of the Member States. They also rely on the competence of the Member States to lay down the rules governing the profession of lawyer as well as on the principle of conferral.
(a) The principle of the procedural autonomy of the Member States and the alleged renvoi of EU law to national law
164. It is submitted first of all that legal professional privilege falls within the scope of the rights of defence and is therefore part of procedural law. In the absence of any rules in this regard under EU law, it is left to the Member States, by virtue of their procedural autonomy, to determine the scope of legal professional privilege. To the same effect, other parties to the proceedings, in particular ECLA and CCBE, maintain that, with respect to legal professional privilege, EU law contains a renvoi to the national law governing the profession of lawyer. EU law does lay down the requirement that lawyers should be independent. However, it is left to the provisions of national law to define which lawyers in the Member State concerned are to be regarded as independent lawyers for the purposes of legal professional privilege.
165. That submission is not convincing.
166. Neither Article 14(1) to (3) of Regulation No 17 nor the general principle of the protection of legal professional privilege contains any form of renvoi to national law. It is true that, in AM & S, the Court refers to the legal systems of the Member States. It does so, however, with the declared aim of developing uniform standards across the European Union for the protection of legal professional privilege, despite all the differences between the national provisions on this matter. (125)
167. Indeed, the interpretation and application of legal professional privilege in a uniform manner across the European Union is essential for the purposes of investigations conducted by the Commission in antitrust proceedings.
168. The uniform application of EU law would be adversely affected if decisions on the lawfulness of acts adopted by the organs of the Union were made by reference to provisions or principles of national law; the lawfulness of such acts – in this case, the lawfulness of search measures carried out by the Commission as European competition authority – can be judged only in the light of EU law. (126) The introduction of special criteria stemming from the legislation or constitutional law of a particular Member State would damage the substantive unity and efficacy of EU law as well as of the internal market. (127)
169. Differences in the substance and scope of legal professional privilege depending on the Member State in which the Commission conducts an investigation would ultimately lead to a legal patchwork which would not be compatible with the principle of the internal market. The very purpose of making the Commission the supranational competition authority was to subject all undertakings in the European Union to uniform rules in the field of competition law and to create equal conditions of competition (a ‘level playing field’) for them in the internal market.
170. The fact that legal professional privilege under EU law is in the nature of a fundamental right also supports the proposition that its scope of application should be interpreted in a uniform manner. The fundamental rights applicable within the ambit of EU law must be substantively the same for all citizens of the European Union and for all undertakings affected by EU law. In antitrust proceedings, all undertakings in regard to which the Commission conducts an investigation must enjoy the same protection in relation to their fundamental rights under EU law irrespective of the place in which a search is carried out.
171. Contrary to the view of the CCBE, the determination of the substance and scope of legal professional privilege in proceedings under competition law cannot be left to the Member States in accordance with the principle of subsidiarity. For, on the one hand, the law governing antitrust proceedings (Regulation No 17 or Regulation No 1/2003) forms part of the competition rules necessary for the functioning of the internal market, the determination of which falls within the exclusive competence of the European Union (Article 3(1)(b) TFEU); the principle of subsidiarity is therefore not applicable in this field (Article 5(3) TEU). On the other hand, exercise of the rights conferred on an individual by the Treaty – in this case, reliance on legal professional privilege – must not be dependent on considerations of subsidiarity. (128)
172. National law is applicable in the context of investigations conducted by the Commission as European competition authority only in so far as the authorities of the Member States lend their assistance, in particular with a view to overcoming opposition by the undertakings concerned through the use of direct coercion (Article 14(6) of Regulation No 17 or Article 20(6) of Regulation No 1/2003). However, the question of which documents and business records the Commission may examine and copy as part of its searches under antitrust legislation is determined exclusively in accordance with EU law.
173. All things considered, the argument advanced by the appellants and the parties to the proceedings intervening in their support to the effect that the substance and scope of legal professional privilege are dictated by national law must therefore be dismissed.
(b) The principle of conferral 174. The appellants and some of the parties intervening in their support, in particular ECLA, rely incidentally on the principle of conferral. They submit that the European Union does not have competence to determine which lawyers are to benefit from legal professional privilege in respect of communications with their clients.
175. Under the principle of conferral, the European Union is to act only within the limits of the competences conferred upon it by the Member States in the Treaties to attain the objectives set out therein (first sentence of Article 5(2) in conjunction with the first sentence of Article 5(1) TEU, formerly Article 5(1) EC). (129) All competences not conferred upon the European Union in the Treaties remain with the Member States (Article 4(1) and the second sentence of Article 5(2) TEU).
176. There is no foundation for the assertion that the European Union does not have competence to determine the scope of legal professional privilege in relation to investigations conducted by the Commission in antitrust proceedings.
177. Article 14 of Regulation No 17, which lays down the Commission’s powers of investigation in antitrust proceedings, is based on Article 87 of the EEC Treaty (now Article 103 TFEU). (130) Indeed, as Article 3(1)(b) TFEU now makes clear, the competence of the European Union is exclusive in nature.
178. Legal professional privilege, which sets limits on the Commission’s powers of investigation, (131) is itself based, as I have already said, on a general legal principle of EU law which is in the nature of a fundamental right. (132) The determination of its substance and its scope is one of the essential tasks of the Court of Justice of the European Union, which has jurisdiction to ensure that in the interpretation and application of the Treaties the law is observed (second sentence of Article 19(1) TEU).
179. The line of argument put forward by the appellants and a number of the parties supporting them to the effect that the European Union lacks competence must therefore be rejected.
180. ECLA, together with a number of other parties to the proceedings, submits incidentally that it would be an encroachment upon the competence of each Member State to regulate the profession of lawyer if EU law were not guided by the relevant national rules on the protection afforded by legal professional privilege to communications with in-house lawyers.
181. That objection does not hold water either. It is certainly indisputable that, as EU law currently stands, Member States are competent to regulate the exercise of the profession of lawyer. (133) In exercising that competence, however, they must, here as in other areas of law, (134) take into account the relevant provisions of EU law and respect the competences of the European Union. (135)
182. As I said earlier, it falls within the – exclusive – competence of the European Union to lay down the competition rules necessary for the functioning of the internal market and the substance and limits of the powers of investigation available to the Commission as European competition authority. The latter measures are not specifically in the nature of rules governing the exercise of a profession, either by virtue of their subject-matter or by virtue of the objectives they pursue. They may at most have indirect effects on the activities of the undertakings concerned as well as on those of the lawyers instructed by them. However, such effects are only general and have an impact in the same way as numerous other rules applied by the European Union and the Member States in a wide variety of legal fields – tax law, criminal law, balance sheet law and public procurement law spring immediately to mind – may periodically affect the day-to-day business of undertakings and lawyers. This cannot be regarded as an encroachment upon the competence of each Member State to regulate the exercise of the profession of lawyer.
183. In short, the submissions advanced by a number of parties to the proceedings with respect to the division of competences are therefore unfounded.
(c) Further arguments 184. Finally, I shall turn to a further two arguments which have been raised against the judgment under appeal.
185. First of all, ECLA argues that EU law must not ‘withdraw’ or ‘erode’ the protection afforded by legal professional privilege to communications with in-house lawyers under national law.
186. It should be noted in this regard that national law may grant such protection only within its corresponding scope of application, that is to say, in particular, in relation to investigations conducted by national competition authorities in antitrust proceedings initiated by them. In the context of such national proceedings and search measures, any protection afforded by legal professional privilege is neither ‘withdrawn’ nor ‘eroded’ by EU law; on the contrary, it continues to apply without restriction. The case-law in AM & S applies only to competition proceedings and investigations conducted by the Commission; it does not affect the law governing national proceedings.
187. Generally speaking, it is inherent in multi-level structures such as the European Union that rules which are substantively different may exist at local, regional, national and supranational level, although their spheres of application will differ. As I have already said, harmonisation of the legal position at European Union level and at national level must remain a matter for the European Union legislature alone. (136)
188. Secondly, ACCA submits that EU law must extend the protection afforded by legal professional privilege even to communications with in-house lawyers who are members of a Bar or Law Society in a third country.
189. That claim must be rejected. Even if – contrary to the solution which I have proposed – legal professional privilege were to be extended to internal company or group communications with in-house lawyers who are members of a Bar or Law Society within the European Economic Area, the inclusion, in addition, of lawyers from third countries would not under any circumstances be justified.
190. For, unlike in the relationship between the Member States, in the relationship with third countries there is, generally speaking, no adequate basis for the mutual recognition of legal qualifications and professional ethical obligations to which lawyers are subject in the exercise of their profession. In many cases, it would not even be possible to ensure that the third country in question has a sufficiently established rule-of-law tradition which would enable lawyers to exercise their profession in the independent manner required and thus to perform their role as collaborators in the administration of justice. It cannot be the task of the Commission or the Courts of the European Union to verify, at considerable expense, that this is the case on each occasion by reference to the rules and practices in force in the third country concerned, particularly since there is no guarantee that there will be an efficient system of administrative cooperation with the authorities of the third country on every occasion.
(d) Interim conclusion 191. The third plea in law is therefore also unfounded.
4. Summary 192. Since none of the pleas in law raised by Akzo and Akros is well founded and none of the arguments advanced by the interveners can be upheld, the appeal must be dismissed in its entirety.
193. If, however, the Court were to come to the conclusion that internal company or group communications with enrolled in-house lawyers are covered by legal professional privilege, it would have to set aside the judgment under appeal and then refer the case back to the General Court for further clarification of the facts (Article 61 of the Statute of the Court of Justice). It would then be necessary to establish whether, on the basis of their content and context, the two emails at issue served the exercise of the rights of defence.
V – Costs 194. If, as I propose in this case, the appeal is dismissed, the Court will make a decision as to costs (first paragraph of Article 122 of the Rules of Procedure) the details of which are set out in Article 69 in conjunction with Article 118 of the Rules of Procedure.
195. It follows from the first subparagraph of Article 69(2) in conjunction with Article 118 of the Rules of Procedure that the unsuccessful party is to be ordered to pay the costs if they have been applied for. The second subparagraph of Article 69(2) of the Rules of Procedure provides that, where there are several unsuccessful parties, the Court is to decide how the costs are to be shared. As the Commission has applied for costs and the appellants have been unsuccessful in their submissions, the latter must be ordered to bear the costs; they must pay these costs jointly and severally since they brought the appeal jointly. (137)
196. Ireland, the Kingdom of the Netherlands and the United Kingdom of Great Britain and Northern Ireland, on the other hand, must each bear their own costs, in accordance with the first subparagraph of Article 69(4) of the Rules of Procedure.
197. Other parties to the proceedings who support an appeal by making submissions to the Court may also be ordered to bear their own costs, by analogous application of the third subparagraph of Article 69(4) of the Rules of Procedure. (138) As CCBE, ARNOVA, ECLA, ACCA and IBA have made submissions in support of the appeal brought by Akzo and Akros and those submissions have been unsuccessful, it seems appropriate – in derogation from what was said in point 195 – that they should each be ordered to pay their own costs.
VI – Conclusion 198. In the light of the foregoing considerations, I propose that the Court should rule as follows:
(1) The appeal is dismissed. (2) Ireland, the Kingdom of the Netherlands and the United Kingdom of Great Britain and Northern Ireland shall each bear their own costs.
(3) The Conseil des barreaux européens, the Algemene Raad van de Nederlandse Orde van Advocaten, the European Company Lawyers Association, the American Corporate Counsel Association (European Chapter) and the International Bar Association shall each bear their own costs.
(4) The remainder of the costs of the proceedings shall be borne jointly and severally by Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd.
1 – Original language: German.
2 – The term used in the language of the case.
3 – I use the term ‘enrolled in-house lawyer’ here and hereafter to mean a lawyer who works as an employee in the legal department of a company or group of companies and who has also been admitted to a Bar or Law Society in accordance with the applicable provisions of national law.
4 – This case has generated keen interest in the legal profession (see, inter alia, Gray, M., ‘The Akzo Nobel Judgment of the Court of First Instance’, Irish Journal of European Law 14 (2007), p. 229-242; Prieto, C., ‘Pouvoirs de vérification de la Commission et protection de la confidentialité des communications entre avocats et clients’, La semaine juridique – édition générale 2007, II-10201, p. 35-37; Cheynel, B., ‘Heurs et malheurs du‚ “legal privilege” devant les juridictions communautaires’, Revue Lamy de la Concurrence – Droit, Économie, Régulation 2008, No 14, p. 89-93; Mykolaitis, D., ‘Developments of Legal Professional Privilege under the Akzo/Akcros Judgment’, International Trade Law and Regulation 2008, p. 1-6; Weiß, W., ‘Neues zum legal professional privilege’, Europarecht 2008, p. 546-557). The anticipation of a final decision seems to have been so intense in certain quarters that legal commentators were writing on what they took to be a Court judgment as early as last year (Brüssow, R., ‘Das Anwaltsprivileg des Syndikus im Wirtschaftsstrafverfahren’, in: Arbeitsgemeinschaft Strafrecht des Deutschen Anwaltvereins [ed.], Strafverteidigung im Rechtsstaat, Baden-Baden 2009, p. 91-106; in this regard, see also Huff, M., ‘Recht und Spiel’, in: Frankfurter Allgemeine Zeitung No 183, 10 August 2009, p. 28).
5 – Regulation of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (OJ 2003 L 1, p. 1).
6 – ‘The appellants’.
7 – Joined Cases T‑125/03 and T‑253/03 Akzo Nobel Chemicals and Akcros Chemicals v Commission [2007] ECR II‑3523.
8 – Council Regulation (EEC) No 17 of 6 February 1962: First Regulation implementing Articles 85 and 86 of the Treaty (OJ, English Special Edition 1959‑1962, p. 87).
9 – On the replacement of Regulation No 17 by Regulation No 1/2003, see Article 43(1) in conjunction with Article 45 of Regulation No 1/2003.
10 – In this regard and in relation to the following points, see paragraphs 1 to 14 of the judgment under appeal.
11 – Commission Decision C (2003) 85/4 of 30 January 2003, as amended by Commission Decision C (2003) 559/4 of 10 February 2003.
12 – The UK competition authority.
13 – The investigation took place in the context of antitrust case COMP/38.589 concerning plastic additives, in particular heat stabilisers; for further information in this regard, see the statement published by the Commission on 14 February 2003 (MEMO/03/33).
14 – C(2003) 1533 final.
15 – See point 7 of this Opinion, above.
16 – See point 16 of this Opinion, above.
17 – Order of the President in Joined Cases T-125/03 R and T-253/03 R Akzo Nobel Chemicals and Akcros Chemicals v Commission [2003] ECR II-4771.
18 – Order of the President in Case C-7/04 P[R] Commission v Akzo and Akcros [2004] ECR I-8739.
19 – The original of the appeal, initially sent by fax, was lodged at the Registry of the Court of Justice on 8 December 2007.
20 – Orders of the President of the Fifth Chamber of the General Court of 4 November 2003 and of 10 March 2004, and of the President of the First Chamber of the General Court of 26 February 2007.
21 – Order of the President of 8 July 2008 in Case C-550/07 P Akzo Nobel Chemicals and Akcros Chemicals v Commission and Others.
22 – See the six orders of the President of 5 February 2009 in Case C-550/07 P Akzo NobelChemicals and Akcros Chemicals v Commission and Others and – in relation to the second application by the LSEW – the order of the President of 17 November 2009 in Case C‑550/07 P Akzo Nobel Chemicals and Akcros Chemicals v Commission and Others.
23 – Orders of the Court of First Instance (now: the General Court) (Fifth Chamber) of 28 May 2004.
24 – Antitrust case COMP/38.589 – ‘Heat stabilisers’; see in this regard the Commission’s press release of 11 November 2009 (IP/09/1695).
25 – With regard to the requirement of an interest in bringing appeal proceedings, see Case C‑19/93 P Rendo and Others v Commission [1995] ECR I-3319, paragraph 13, and my Opinion in Case C‑413/06 P Bertelsmann & Sony v Impala [2008] ECR I‑4951, point 74.
26 – Rendo and Others v Commission (cited in footnote 25, paragraph 13); Case C‑174/99 P Parliament v Richard [2000] ECR I-6189, paragraph 33; Case C‑50/00 P Unión de Pequeños Agricultores v Council [2002] ECR I‑6677, paragraph 21; Case C‑277/01 P Parliament v Samper [2003] ECR I‑3019, paragraph 28; Case C‑97/08 P Akzo Nobel and Others v Commission [2009] ECR I‑00000, paragraph 33; and Case C‑519/07 P Commission v Koninklijke Friesland Campina [2009] ECR I-00000, paragraph 63.
27 – See to this effect Case C‑313/90 CIRFS and Others v Commission [1993] ECR I‑1125, paragraphs 30 and 31.
28 – If Commission officials have taken note of the content of the document, the interference with a fundamental right may go on after the document has been returned or destroyed. In those circumstances, the interest in bringing proceedings likewise continues in being.
29 – Case 222/84 Johnston [1986] ECR 1651, paragraphs 18 and 19; Unión de Pequeños Agricultores v Council (cited in footnote 26, paragraph 39); Case C‑432/05 Unibet [2007] ECR I‑2271, paragraph 37; and Joined Cases C‑402/05 P and C‑415/05 P Kadi and Al Barakaat International Foundation v Council and Commission [2008] ECR I‑6351, paragraph 335.
30 – European Convention for the Protection of Human Rights and Fundamental Freedoms (‘ECHR’, signed in Rome on 4 November 1950). The Court has consistently held that the ECHR has special significance in determining the standard of fundamental rights which the European Union must observe; see, inter alia, Case C‑305/05 Ordre des barreaux francophones et germanophone and Others [2007] ECR I‑5305, paragraph 29, with further references); see also Article 6(3) TEU.
31 – The Charter of Fundamental Rights of the European Union was solemnly proclaimed first in Nice on 7 December 2000 (OJ 2000 C 364, p. 1) and then again in Strasbourg on 12 December 2007 (OJ 2007 C 303, p. 1).
32 – See, for example, Case 155/79 AM & S v Commission [1982] ECR 1575, in particular paragraph 18. See also the Opinion of Advocate General Léger in Case C‑309/99 Wouters and Others [2002] ECR I‑1577, point 182; and the Opinion of Advocate General Poiares Maduro in Ordre des barreaux francophones et germanophone and Others (cited in footnote 30, point 39). In addition, see the order in Case T‑30/89 Hilti v Commission [1990] ECR II‑163, paragraphs 13 and 14.
33 – This is the case in the United Kingdom and Ireland, which operate ‘common law’ legal systems.
34 – Legal professional privilege is enshrined in constitutional law in particular in Bulgaria (Article 30(5) of the Bulgarian Constitution) and Spain (Article 24(2) of the Spanish Constitution); furthermore, legal professional privilege is also based on constitutional provisions in Italy, Portugal and Romania, among others, and on statutory provisions with the status of constitutional law in Sweden.
35 – It is true that the case-law of the European Court of Human Rights (ECtHR) usually refers only to Article 8 of the ECHR; in this regard, see, for example, Campbell v the United Kingdom, 25 March 1992, Series A No. 233; Niemietz v.Germany, 16 December 1992, Series A No. 251-B; Foxleyv.the United Kingdom, No. 33274/96, 20 September 2000; Smirnovv.Russia, No. 71362/01, 7 June 2007, ECHR 2007-VII; and André and Otherv.France, No. 18603/03, 24 July 2008. However, mention is sometimes also made of Article 6 of the ECHR (see, for example, Niemietzv.Germany, op. cit., § 37, and Foxleyv.the United Kingdom, op. cit., § 50).
36 – It is true that, at the time when the Commission decisions at issue were adopted, the Charter of Fundamental Rights did not yet produce binding legal effects comparable to primary law. However, as a material legal source, it shed light even then on the fundamental rights which are guaranteed by EU law (see, inter alia, Case C‑432/05 Unibet [2007] ECR I‑2271, paragraph 37; Case C‑540/03 Parliament v Council [2006] ECR I‑5769, paragraph 38; and point 108 of my Opinion in the latter case.
37 – AM & S (cited in footnote 32, paragraphs 20 and 23); see to the same effect the judgment of the ECtHR in André and Otherv.France (cited in footnote 35, § 41).
38 – A lawyer is more commonly described in German legal terminology as ‘Organ der Rechtspflege’ (organ of the administration of justice); however, in so far as is relevant here, there is no substantive difference between that term and the phrase ‘collaborating in the interests of justice’ used by the Court of Justice in AM & S.
39 – AM & S (cited in footnote 32, paragraphs 20, 23 and 24); similarly, the judgment of the ECtHR in Niemietzv.Germany (cited in footnote 35, § 37).
40 – Ordre des barreaux francophones et germanophone and Others (cited in footnote 30, paragraph 32).
41 – The Commission’s powers of investigation in reviewing mergers of European companies under Article 13 of Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation, OJ 2004 L 24, p. 1) are similar to, and only slightly less extensive than, those under Article 20 of Regulation No 1/2003.
42 – Cited in footnote 32.
43 – I am referring to paragraphs 10 to 43 of the appeal here.
44 – AM & S (cited in footnote 32, paragraphs 21 and 22).
45 – In so far as the Commission calls into question the connection with the rights of defence in this case, it does so only in the context of the appellants’ interest in bringing proceedings; see in this regard points 33 to 45 of this Opinion, above.
46 – Ireland goes further than this, in that it seems to want to extend the protection afforded by legal professional privilege even to in-house lawyers whose ‘independence’ is guaranteed by provisions of employment law alone (paragraph 12 of the statement in intervention).
47 – A Netherlands enrolled in-house lawyer.
48 – The term ‘Cohen advocaat’ refers to the name of the president of a working group set up ahead of the reform of the Netherlands rules governing professional ethics.
49 – AM & S (cited in footnote 32, paragraphs 21 and 27).
50 – Opinion of Advocate General Sir Gordon Slynn in AM & S (cited in footnote 32, at p. 1655).
51 – AM & S (cited in footnote 32, paragraph 24).
52 – AM & S (cited in footnote 32, paragraphs 21 and 27).
53 – See also the Opinion of Advocate General Léger in Wouters and Others (cited in footnote 32, point 181): ‘[The independence of lawyers] must also be demonstrated vis-à-vis the client, who may not become his lawyer’s employer.’
54 – Paragraph 168 of the judgment under appeal.
55 – Namely the professioneel statuut voor de advocaat in dienstbetrekking (rules of professional practice applicable to enrolled in-house lawyers).
56 – The background to this discussion was the differing views of the parties on the ‘incentive structure’ for the activities of enrolled in-house lawyers and external lawyers.
57 – This is the case in particular in Germany. In the Netherlands, too, according to information provided to the Court at the hearing, an advocaat in dienstbetrekking is permitted to work for external clients.
58 – The situation is different only where an enrolled in-house lawyer, in addition to his work in the legal department of an undertaking or group of undertakings, also works for external clients unconnected with his employer. His communications with such external clients are protected by legal professional privilege because he is independent of them.
59 – Paragraphs 44 to 48 of the appeal.
60 – Case C‑334/03 Commission v Portugal [2005] ECR I‑8911, paragraph 24; and Case C‑300/04 Eman and Sevinger [2006] ECR I‑8055, paragraph 57; see to similar effect, previously, Joined Cases 117/76 and 16/77 Ruckdeschel and Others [1977] ECR 1753, paragraph 7; Case 215/85 Raiffeisen Hauptgenossenschaft [1987] ECR 1279, paragraph 23; and Case C‑85/97 SFI [1998] ECR I‑7447, paragraph 30.
61 – Protocol No 12 to the ECHR was opened for signature in Rome on 4 November 2000 and entered into force on 1 April 2005. It has not as yet been signed by all the Member States of the European Union and has been ratified by only a small number of them (Spain, Luxembourg, the Netherlands, Romania, Cyprus and Finland); see in this regard the status of ratifications published on the Council of Europe’s website at http:conventions.coe.int (last visited on 21 February 2010). This low level of commitment moderates the significance of the protocol for the purposes of the resolution of this case.
62 – Case C‑344/04 IATA and ELFAA [2006] ECR I‑403, paragraph 95; Case C‑303/05 Advocaten voor de Wereld [2007] ECR I‑3633, paragraph 56; Case C‑127/07 Arcelor Atlantique et Lorraine and Others (‘Arcelor’) [2008] ECR I‑9895, paragraph 23; and Case C‑558/07 S.P.C.M and Others [2009] ECR I-0000, paragraph 74.
63 – See to this effect Arcelor (cited in footnote 62, paragraph 26).
64 – See points 48 and 49 of this Opinion, above.
65 – See the comments made on the first part of the first plea in law, in particular points 61 to 72 of this Opinion.
66 – AM & S (cited in footnote 32, paragraph 18).
67 – See once again in this regard the comments made on the first part of the first plea in law, in particular points 66 to 71 of this Opinion.
68 – Paragraph 52 of ECLA’s response.
69 – Paragraph 52 of the Akzo and Akcros’ appeal.
70 – Paragraph 170 in conjunction with paragraph 177 of the judgment under appeal.
71 – See to the same effect the first paragraph of Article 220 EC and Article 164 of the EEC Treaty.
72 – See for example – in relation to the withdrawal of administrative measures giving rise to individual rights – Joined Cases 7/56 and 3/57 to 7/57 Algera and Others v Common Assembly of the ECSC (‘Algera’) [1957] ECR 39, at p. 55, and – in relation to the protection of fundamental rights at European Union level – Case 11/70 Internationale Handelsgesellschaft [1970] ECR 1125, paragraph 4.
73 – See, for example, Internationale Handelsgesellschaft (cited in footnote 72, paragraph 4); Case 4/73 Nold v Commission [1974] ECR 491, paragraph 13; Case 44/79 Hauer [1979] ECR 3727, paragraph 15; Joined Cases 46/87 and 227/88 Hoechst v Commission [1989] ECR 2859, paragraph 13; Joined Cases C-387/02, C‑391/02 and C-403/02 Berlusconi and Others [2005] ECR I-3565, paragraphs 68 and 69; Advocaten voor de Wereld (cited in footnote 62, paragraph 45); and Case C‑555/07 Kücükdeveci [2010] ECR I-0000, paragraph 20.
74 – See, for example, Algera (cited in footnote 72, at p. 56); AM & S (cited in footnote 32, paragraphs 18 to 21); and Joined Cases C‑120/06 P and C‑121/06 P FIAMM and FIAMM Technologies v Council and Commission (‘FIAMM’) [2008] ECR I‑6513, paragraphs 170, 171 and 176.
75 – See to this effect, for example, Internationale Handelsgesellschaft (cited in footnote 72, paragraph 4) and the Opinions of Advocate General Roemer in Case 5/71 Zuckerfabrik Schöppenstedt v Council [1971] ECR 975, at p. 989, and of Advocate General Poiares Maduro in FIAMM (cited in footnote 74, points 55 and 56).
76 – See to this effect the Opinions of Advocate General Roemer in Zuckerfabrik Schöppenstedt v Council (cited in footnote 75, at p.1989) and of Advocate General Poiares Maduro in FIAMM (cited in footnote 74, points 55 and 56).
77 – Case C‑144/04 Mangold [2005] ECR I‑9981, paragraph 75, and Kücükdeveci (cited in footnote 73, paragraph 21).
78 – The prohibition of age discrimination is enshrined in particular in Article 6 of the Finnish Constitution and – specifically in relation to employment – in Article 59(1) of the Portuguese Constitution.
79 – Council Directive 2000/78/EC of 27 November 2000 establishing a general framework for equal treatment in employment and occupation (OJ 2000 L 303 p. 16); see in this regard Kücükdeveci (cited in footnote 73, paragraph 21).
80 – Again, see expressly to this express effect now Kücükdeveci (cited in footnote 73, paragraph 22).
81 – Fundamental in this regard are Case T‑7/89 Hercules Chemicals v Commission [1991] ECR II‑1711, paragraph 54; Joined Cases T‑10/92 to T‑12/92 and T‑15/92 Cimenteries CBR and Others v Commission [1992] ECR II‑2667, paragraph 38; and Case T‑65/89 BPB Industries and British Gypsum v Commission [1993] ECR II‑389, paragraphs 29 and 30, the latter confirmed in Case C‑310/93 P BPB Industries and British Gypsum v Commission [1995] ECR I‑865.
82 – In particular, as was discussed at the hearing, the Commission has no power to use direct force under Article 14 of Regulation No 17 or Articles 20 and 21 of Regulation No 1/2003.
83 – This is the case in particular in Bulgaria, the Czech Republic, Estonia, Greece, France, Italy, Cyprus, Luxembourg, Hungary, Austria, Romania, Slovenia, the Slovak Republic, Finland and Sweden. With specific regard to the legal position in Cyprus, it should also be noted that, while practising advocates may be members of an undertaking’s board of directors, they may not work as employees or managing directors of that undertaking.
84 – Although German law allows in-house lawyers to be members of a Bar or Law Society (Syndikusanwälte), it does not grant them legal professional privilege in respect of internal company communications with their employer. In-house lawyers in Greece, on the other hand, despite being unable to become members of a Bar or Law Society, appear in certain circumstances to enjoy a comparatively extensive professional privilege.
85 – Denmark, Spain, Latvia, Lithuania, Malta and Romania fall into this category. Moreover, the legal position in Belgium is at present extremely unclear. It is true that specific legal provisions on the professional status of juristes d’entreprise (society of in-house lawyers), who are subject to particular professional ethical obligations if registered with the Institut des juristes d’entreprise (bar association for in-house lawyers) (IJE), have been in force since the year 2000. However, the professional privilege applicable to Belgian juristes d’entreprise appears – not least because Article 5 of the Law of 1 March 2000 makes no reference to Article 456 of the Belgian Code pénal (Criminal Code) – to be less extensive than that applicable to avocats (lawyers) and, furthermore, does not currently appear to be recognised by the Belgian competition authority (Auditoriat du Conseil de la concurrence) as covering internal company communications with in-house lawyers (see in this regard Marchandise, P., and Sabbe, S., ‘Akzo‚ “op zijn Belgisch”: de renaissance van het surrealisme?’, TBM-RCB 2009, p. 54; Cattaruzza, J., ‘Reactie IBJ op het gewijzigd standpunt van het Auditoriaat inzake vertrouwelijkheid adviezen bedrijfsjurist’, TBM-RCB 2008, p. 42); the matter awaits clarification by the Belgian courts.
86 – This appears to be the case, for example, in Finland and Slovenia. In Belgium also, the position currently adopted by the competition authorities (see footnote 85 above) can ultimately be explained by their having drawn on the case-law of the courts of the Union, in particular the judgment, under appeal here, in Joined Cases T‑125/03 and T‑253/03.
87 – This includes the United Kingdom and Ireland, but not Cyprus (see footnote 83 above); the legal position in Malta seems unclear. It must be noted incidentally that, in some non-Member States from the common-law area, in particular the United States of America, the protection afforded by legal professional privilege can also in certain circumstances be extended to in-house lawyers (see in this regard, fundamentally, the judgment of the US Supreme Court in Upjohn v United States, 449 U.S. 383 (1981); see also Walkowiak, V.S., ‘Attorney-client privilege in civil litigation’, American Bar Association, Illinois, 2008, p. 7). This does not, however, appear to be an unbroken trend in the common-law world; thus, for example, the Australian Federal Court, despite its essential recognition of ‘legal professional privilege for in-house counsel’, seems to have been subjecting the independence of in-house lawyers to increasing scrutiny of late (see the decisions of the Federal Court of Australia in Telstra v Minister for Communications, Information Technology and the Arts [No 2] [2007] FCA 1445 and Rich v Harrington [2007] FCA 1987).
88 – The other Member States are, more specifically, Greece, Portugal and Poland. With respect to Poland, it must be pointed out that Polish law recognises the separate profession of radcowie prawni (legal adviser), whose members are subject to similar professional ethical obligations as adwokaci (lawyers); when employed as salaried in-house lawyers, they are covered by a professional privilege similar to legal professional privilege.
89 – See in particular the Netherlands and Poland. The current legal position in Belgium is also based on a more recent law, although, as I have already mentioned, the substance of that position is at present unclear (see footnote 85 above). In France, a ‘réforme des professions du droit’ (reform of the legal professions) is under discussion (see in this regard inter alia the report of the Darrois-Kommission, presented to the French President on 8 April 2009), although this does not yet appear to have led to a change in the current law relating to legal professional privilege, nor even to a draft law with regard to that specific question; draft Law No 2383 on the modernisation of the legal professions (projet de la loi de modernisation des professions judiciaries et juridiques réglementées), introduced in March 2010, in any event concerns only some other partial aspects of that reform and does not concern legal professional privilege.
90 – With regard to Regulation No 1/2003, see Parliamentary Document A5‑0229/2001 final (Evans Report), specifically Amendment 10 relating to Article 14(3) of the Commission’s proposal for a regulation COM(2000) 582 final; with regard to Regulation No 139/2004, see Parliamentary Document A5‑0257/2003 final (Della Vedova Report), specifically Amendment 5 relating to the 34th recital and Amendment 25 relating to Article 13(1) of the Commission’s proposal for a regulation COM(2002) 711 final.
91 – In the case of Regulation No 1/2003, the Parliament as a whole did not itself support the amendments proposed by its own members. With regard to Regulation No 139/2004, while the amendments were approved by the Parliament, the Council did not include them in the Regulation.
92 – The term used in the language of the case.
93 – Directive 98/5/EC of the European Parliament and of the Council of 16 February 1998 to facilitate practice of the profession of lawyer on a permanent basis in a Member State other than that in which the qualification was obtained (OJ 1998 L 77, p. 36).
94 – See in particular Articles 2 and 6 of Council Directive 77/249/EEC of 22 March 1977 to facilitate the effective exercise by lawyers of freedom to provide services (OJ 1977 L 78, p. 17).
95 – AM & S (cited in footnote 32, paragraph 26).
96 – Article 23(2) in conjunction with Article 2(1)(3)(b) of Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (OJ 2005 L 309, p. 15); see to the same effect Article 6(3)(2) in conjunction with Article 2a(5) of the earlier Council Directive 91/308/EEC of 10 June 1991 on prevention of the use of the financial system for the purpose of money laundering (OJ 1991 L 166, p. 77), as amended by Directive 2001/97/EC (OJ 2001 L 344, p. 76); see also in this regard Ordre des barreaux francophones et germanophone and Others, cited in footnote 30.
97 – Recital 19 in the preamble to Directive 2005/60.
98 – The FATF (or Groupe d’action financière, GAFI) is an inter-governmental body which was established in Paris in 1989 by the then ‘G 7’ countries and now has 35 members, including the European Commission.
99 – The interpretative notes are contained in the ‘40 Recommendations’ which the FATF published in 2003 (available at http://www.fatf-gafi.org, last visited on 10 February 2010). Under point (e) of the glossary to those recommendations, employees are excluded from the meaning of ‘[d]esignated non-financial businesses and professions’.
100 – On the question of independence, see, in addition, my comments on the first plea in law, in particular points 61 to 72 of this Opinion.
101 – AM&S (cited in footnote 32, paragraphs 21 and 22); see also Ordre des barreaux francophones et germanophone and Others (cited in footnote 30, paragraphs 32 and 35), where the Court makes clear the link between legal professional privilege and judicial proceedings or the preparation for such proceedings; see in addition my comments on the first plea in law (point 54 of this Opinion, above).
102 – Paragraph 172 (in fine) of the judgment under appeal.
103 – Case C‑110/03 Belgium v Commission [2005] ECR I-2801, paragraph 30; Case C‑2/06 Kempter [2008] ECR I‑411, paragraph 37; and Case C‑201/08 Plantanol [2009] ECR I-00000, paragraphs 43 and 44.
104 – Case C‑226/08 Stadt Papenburg [2010] ECR I-00000, paragraph 45; similarly, see Case C‑63/93 Duff and Others [1996] ECR I-569, paragraph 20; and Case C‑76/06 P Britannia Alloys & Chemicals v Commission [2007] ECR I-4405, paragraph 79.
105 – Case C‑158/06 ROM-projecten [2007] ECR I-5103, paragraph 25; and Case C‑345/06 Heinrich [2009] ECR I-00000, paragraph 44.
106 – AM&S (cited in footnote 32); see in this regard my comments on the first plea in law (points 52 to 75 of this Opinion, above).
107 – See, incidentally, recital 5 in the preamble to Regulation No 1/2003, which states that proof of an infringement of Articles 81(1) and 82 EC (now Articles 101(1) and 102 TFEU) must be furnished ‘to the requisite legal standard’, without prejudice to the national legal provisions on the standard of proof.
108 – See to this effect Article 51 of the Charter of Fundamental Rights, as well as Case C‑442/00 Rodríguez Caballero [2002] ECR I‑11915, paragraph 31; Mangold (cited in footnote 77, paragraph 75); and Case C‑427/06 Bartsch [2008] ECR I‑7245, paragraphs 15 and 25.
109 – In any event, reliance on the rights of defence would not on its own be capable of harmonising the legal position in every case. On the contrary, for most Member States, whose national law currently does not extend the protection of legal professional privilege to internal company or group communications, any change in the case-law established in AM & S would lead to a compartmentalisation of the legal position at national and EU levels.
110 – On the interpretation of acts of the European Union in a manner compatible with the fundamental freedoms, see, for example, Ordre des barreaux francophones et germanophone and Others (cited in footnote 30, paragraph 28) and Joined Cases C‑402/07 and C‑432/07 Sturgeon and Others [2009] ECR I-00000, paragraphs 47 and 48; see to similar effect Case C-413/06 P Bertelsmann & Sony v Impala [2008] ECR I-4951, paragraph 174.
111 – It is true that the European Union, as the Commission rightly objects, is not directly bound by Article 6 of the ECHR because it has not as yet acceded to that convention. None the less, that provision is the expression of fundamental principles based on the rule of law which are also recognised as general legal principles in Union law (see inter alia Case C‑185/95 P Baustahlgewebe v Commission [1998] ECR I‑8417, paragraph 21; and Joined Cases C‑204/00 P, C‑205/00 P, C‑211/00 P, C‑213/00 P, C‑217/00 P and C‑219/00 P Aalborg Portland and Others v Commission [2004] ECR I‑123, paragraph 68. In addition, rights contained in the Charter of Fundamental Rights which correspond to rights guaranteed by the ECHR have the same meaning and scope as those laid down in the ECHR (first sentence of Article 52(3) of the Charter of Fundamental Rights).
112 – Judgment in André and Otherv. France (cited in footnote 35, § 42 in fine); indeed, at the beginning of that judgment (§ 15), the ECtHR, under the heading ‘5. Le droit communautaire’ (5. Community Law) cites extracts inter alia from AM & S (cited in footnote 32, paragraphs 18 to 24).
113 – Thus, for example, the ECtHR extends the protection of Article 8 of the ECHR to business premises but at the same time points out that that protection need not necessarily be as extensive as it would in the case of private premises (the judgment in Niemietzv.Germany, cited in footnote 35, § 31, final clause, reads: ‘[the entitlement of Contracting States to interfere] might well be more far-reaching where professional or business activities or premises were involved than would otherwise be the case’; see, similarly, the phrase ‘to a certain degree’ in § 29 of the same judgment; see also ECtHR, Société ColasEstand Others v. France, judgment of 16 April 2002, No. 3791/97, ECHR 2002-III, §§ 41 and 49). Similarly, the German Bundesverfassungsgericht (Federal Constitutional Court) has held, with regard to protection of the right to a private life, that the public authorities have access to all but ‘the core of a person’s private life’ (Order of 14 September 1989, BVerfGE 80, 367, which contains a detailed definition of the protection afforded to personal diary records against seizure by the prosecution services).
114 – In Germany, for example, Paragraph 46(1) of the Bundesrechtsanwaltsordnung (Rules governing the profession of lawyer in the Federal Republic of Germany) prohibits a Syndikusanwalt from representing his employer in his capacity as lawyer before courts and tribunals; a Syndikusanwalt may therefore appear only before courts not subject to the statutory requirement of representation by a lawyer, as may everyone – including non-lawyers. The Courts of the European Union apply a similar practice: with regard to applications signed by directors of the applicants who are members of a Bar or Law Society, see the orders in Case T‑79/99 Euro-Lex v OHIM [1999] ECR II‑3555, paragraphs 28 and 29; Case T‑184/04 Sulvida v Commission [2005] ECR II‑85, paragraphs 9 and 10; and Case T-40/08 EREF v Commission [2009] ECR II-00000, paragraphs 25 and 26, against which an appeal is pending (Case C‑75/10 P EREF v Commission); with regard to an appeal signed by the applicant himself, see also the order in Case C‑174/96 P Lopes v Court of Justice [1996] ECR I‑6401, paragraph 11.
115 – ECtHR Meftah and Others v. France, judgment of 26 July 2002 (Application No 32911/96, ECHR 2002-VII, §§ 45 to 48 and the case-law cited there).
116 – AM&S (cited in footnote 32, paragraph 18).
117 – See also the Opinion of Advocate General Léger in Wouters and Others (cited in footnote 32, point 181).
118 – See my comments on the first part of the first plea in law, in particular points 61 to 72 of this Opinion.
119 – ‘The mere possibility of abuse is outweighed by the need to respect the confidentiality attached to the lawyer-client relationship’ (ECtHR, Campbell v. United Kingdom, cited in footnote 35, § 52 in fine).
120 – See in this regard my comments on the first plea in law in points 64 to 71 of this Opinion.
121 – Ireland relies in this regard on Article 15 of the Charter of Fundamental Rights, ECLA on Article 1 of the First Additional Protocol to the ECHR.
122 – Case 30/59 De Gezamenlijke Steenkolenmijnen in Limburg v High Authority [1961] ECR 1, at p. 18; Case C‑185/00 Commission v Finland [2003] ECR I‑14189, paragraph 91; and Case C‑113/07 P Selex Sistemi Integrati v Commission andEurocontrol [2009] ECR I-00000, paragraph 54.
123 – Case C‑155/91 Commission v Council [1993] ECR I‑939, paragraphs 23 and 24; and Case T‑114/02 Babyliss v Commission [2003] ECR II‑1279, paragraph 417; see also, to much the same effect, Case C‑301/06 Ireland v Parliament [2009] ECR I-00000, paragraph 34 in conjunction with paragraph 57, in which the Court did not consider the submission in respect of fundamental rights put forward by the Slovak Republic in its capacity as intervener.
124 – Settled case-law; see, more recently, Case C‑202/07 P France Télécom v Commission [2009] ECR I-00000, paragraphs 59 and 60; Case C‑97/08 P Akzo Nobel and Others v Commission, cited in footnote 26, paragraph 38; and Case C‑554/08 P Carbone-Lorraine v Commission [2009] ECR I-00000, paragraph 32.
125 – AM & S (cited in footnote 32, in particular paragraphs 18 to 22, especially paragraph 21); to the same effect, see also the Opinion of Advocate General Warner in that case (pp. 1630 and 1631) See in addition the settled case-law on the autonomous interpretation of Community- or Union-law concepts, for example Case 327/82 Ekro [1984] ECR 107, paragraph 11; Case C‑195/06 Österreichischer Rundfunk [2007] ECR I‑8817, paragraph 24; and Case C‑66/08 Kozlowski [2008] ECR I‑6041, paragraph 42.
126 – Internationale Handelsgesellschaft (cited in footnote 72, paragraph 3) and Hauer (cited in footnote 73, paragraph 14).
127 – Hauer (cited in footnote 73, paragraph 14).
128 – See to this effect, in relation to the exercise of the fundamental freedoms of the internal market, Case C‑415/93 Bosman [1995] ECR I‑4921, paragraph 81.
129 – See also Opinion 2/94 (‘ECHR accession’) [1996] ECR I‑1759, paragraphs 23 and 24; and Case C‑403/05 Parliament v Commission [2007] ECR I‑9045, paragraph 49.
130 – Articles 20 and 21 of Regulation No 1/2003, which will apply to future cases, also have a basis in the Treaties, that is to say Article 83 EC (now Article 103 TFEU).
131 – AM & S (cited in footnote 32, in particular paragraphs 18 and 22).
132 – See point 47 of this Opinion, above.
133 – Case 107/83 Klopp [1984] ECR 2971, paragraph 17; and Case C‑309/99 Wouters and Others [2002] ECR I‑1577, paragraph 99.
134 – See inter alia Case C‑279/93 Schumacker [1995] ECR I‑225, paragraph 21, concerning direct taxation; Joined Cases C‑11/06 and C‑12/06 Morgan and Bucher [2007] ECR I‑9161, paragraph 24, concerning the organisation of education systems and the content of teaching; and Case C‑169/07 Hartlauer [2009] ECR I‑00000, paragraph 29, concerning the organisation of social security systems.
135 – See to that effect Klopp (cited in footnote 133, paragraphs 17 and 18); see also the Opinion of Advocate General Poiares Maduro in Joined Cases C‑94/04 and C‑202/04 Cipolla and Others [2006] ECR I‑11421, point 82.
136 – See in this regard points 133 and 134 of this Opinion, above.
137 – See to the same effect Joined Cases C‑122/99 P and C‑125/99 P D and Sweden v Council [2001] ECR I‑4319, paragraph 65; in that case, D and the Kingdom of Sweden had in fact brought two separate appeals but were none the less ordered to pay the costs jointly and severally.
138 – See to that effect, for example, Case C‑23/00 P Council v Boehringer [2002] ECR I‑1873, paragraph 56; Joined Cases C‑172/01 P, C‑175/01 P, C‑176/01 P and C‑180/01 P International Power and Others v NALOO [2003] ECR I‑11421, paragraph 187; and Case C‑141/08 P Foshan Shunde Yongjian Housewares & Hardware v Council [2009] ECR I-00000, paragraph 118. | 6 |
W I T H A. No. 8453 of 1997 B. SINHA, J These two appeals involving companymon questions of law and fact were taken up for hearing together and are being disposed of by this companymon judgment. FACTS The parties hereto entered into a companytract dated 20th August, 1964 for the purpose of companystruction of Obra dam, Power house, structures and appurtenant works. Disputes and differences having arisen between the parties as regard supply of extra quantity of earth and rock, the matter was referred to an arbitrator. As far back as on 23.8.1972, the appellant herein invoked the arbitration agreement companytained in Clause 17 of the companytract in companynection with earthfill and rockfill which was recorded from 53rd running bill upto the 88th running bill. One Shri J.S. Pujji was appointed as an arbitrator by the appellant. As the respondent did number appoint any arbitrator the appellant requested the said arbitrator to proceed in the matter as a sole arbitrator whereupon he entered into a reference. The respondent herein filed application before the Court of District Judge purported to be in terms of Sections 33 and 9 of the Arbitration Act, 1940 which was allowed. Being aggrieved by and dissatisfied with the judgment of the District Judge, the appellant filed appeal before the High Court of Allahabad. The High Court by an order dated 17.4.1980 directed that both the companytractor and the State Government shall numberinate their respective arbitrators for resolving the disputes with regard to the claim for extra charges for earth and rock work made by the companytractor for the period subsequent to 28.12.1967 and 15.6.1968 respectively. The parties thereafter filed their respective statements of claim, statements of defence and replications before the arbitrators. However, numberaward companyld be made by the learned arbitrator within the statutory period as the disputes and differences were referred to the Umpire in accordance with the arbitration agreement. The Umpire was appointed by the Court of Civil Judge, Sonebhadra with the companysent of the parties. The appellant herein filed a statement of claim for a sum of Rs. 43,50,958.48 on extra quantity of 8,45,319.471 cu. m. of earthfill excavated from the external sources obtained from borrow areas at the rate of Rs. 880.91 per 100 cu.m. It also made a claim of Rs. 26,47,746.34 for extra quantity of 1,66,524.927 cu.m. of rock excavated from the external sources quarries at the rate of Rs. 1590/- per 100 cu.m. The Umpire appointed for determination of disputes between the parties who was a retired Engineer-in-chief of the respondent herein awarded a sum of Rs. 7,29,764.00 in respect of the claim for extra quantity of earthfill and a sum of Rs. 8,74,256.00 in relation to its claim for rockfill. The appellant herein filed applications for making the said awards as rule of the Court. Respondent, however, filed objections thereto in terms of Section 30 of the Arbitration Act, 1940. By reason of an order dated 23.8.1995 the said applications of the respondent were allowed and the awards were set aside by the Civil Judge, Senior Division Mirzapur. The appellant herein preferred appeals thereagainst which were dismissed by the High Court inter alia on the ground that in terms of the provisions of the companytract the appellant herein companyld number make any extra claim for supply of earth or rock. SUBMISSIONS Mr. Shiv Kumar Suri, the learned companynsel appearing on behalf of the appellant would inter alia submit that the question as to whether the claim as regards extra item of earth and rock work can be claimed or number was companysidered by the Allahabad High Court in FAFO No. 155 of 1975 M s. Continental Construction P. Ltd. Vs. State of Uttar Pradesh and Others disposed of on 17th April, 1980 holding that such claim is maintainable. It was companytended that the award being a number-speaking one, the learned Civil Judge, Mirzapur and the High Court must be held to have acted illegally and without jurisdiction in entering into the merit of the matter. The learned companynsel would urge that the arbitrator had the requisite jurisdiction to companystrue the companytract independently and in absence of any finding to the effect that the awards ex facie were perverse, the same companyld number have been set aside by reason of the impugned judgments. Our attention has been drawn to the fact that even before the Umpire the respondent admitted that the appellant herein is entitled for the extra items of admitted total quantity of earth and rock to the extent of 8,45,319.471 cu.m. and 1,66,524.927 cu.m. respectively and only in terms of such admission the awards have been passed. The learned companynsel would companytend that from the awards it would appear that although the claims of the appellant were for a sum of Rs. 43,50,958.48 and Rs. 26,47,746.34 the learned Umpire awarded only a sum of Rs. 7,29,764.00 and Rs. 8,74,256.00 in its favour. Mr. Subodh Markandeya, learned senior companynsel appearing on behalf of the respondents, on the other hand, would submit that the umpire was bound by the terms of the companytract and companyld number have travelled beyond the same. The learned companynsel would companytend that before the Civil Judge, Mirzapur an affidavit was filed to the effect that the Department has number admitted any claim of the opposite party. In support of the said companytention, the learned companynsel has produced before us the affidavit of one Shri Uma Nath Misra filed in Case No. 91 of 1993 and 92 of 1993 in the Court of Civil Judge, Mirzapur. FINDINGS There is numberdispute that there existed an arbitration agreement between the parties as would appear from the fact of the matter, as referred to hereinbefore, that the learned umpire passed a number-speaking award. The Umpire in his award has recorded Claim No. 1 amounting to Rs. 43,50,958.48 plus interest and companyts on account of the work of earthfill in Dam Embankment from the 53rd running bill upto the 88th running bill, involving a quantity of 10,33,702.306 cum of earthfill with earth obtained from borrow area. Against the said quantity, the Respondents admitted the quantity of 8,45,319.471 cu.m. for this claim and this was accepted by the Claimants. The Claimants have claimed a rate of Rs. 420.91 per 100 cu.m. over and above the rate of Rs. 460.00 per 100 cu.m. provided in item No. 64 of the schedule, and have furnished analysis of rates for earthfill in Dam Embankment after borrowing material from borrow areas and sources other than the excavations of the Dam, Power House, Spillway, Approach and Tail Race Channels. Against this, I award Rs. 7,29,764.00 Rs. Seven lacs twenty nine thousand, seven hundred and sixty four only. A similar award has been passed in respect of claim of the appellant relating to rock fill. A bare perusal of the said awards would clearly go to show that the respondent herein admitted a part of the claim of the appellant which in turn was accepted by it. Such an admission presumably was made having regard to the documents which were filed by the parties before the Umpire as also decisions of the Allahabad High Court in The respondent did number raise any question as regard the said admission of part of the quantity of earth fill and rock fill before the Umpire. A vague statement was made that the claim of the appellant was number admitted while dealing with the question as to whether the award should have been a reasoned one or number. The submission that numbersuch admission is made is number borne out from the records. On the other hand, such admission must have been made in view of the documents maintained by the respondent as otherwise the exact figure of earthfill or rockfill was number possible to be mentioned in the awards. In view of the order of the High Court dated 17.4.1980 the Umpire was required to adjudicate upon the claim of the appellant. For the said purpose he was required to take into companysideration the terms and companyditions of companytract vis--vis the companyduct of the parties. It is number a case where the learned Umpire has travelled beyond the companytract. The matter relating to companystruction of the companytract and or application thereof fell for companysideration before the arbitrators. According to the appellant, the work in question did number fall within the purview of the excepted matter. Determination of the said question was, thus, clearly within the jurisdiction of the Umpire. The award is a number-speaking one. It is trite that the Court while exercising its jurisdiction under Section 30 of the Arbitration Act, 1940 can interfere with the award only in the event the arbitrator has misconducted himself or the proceeding or there exists an error apparent on the face of the award. The learned Civil Judge and the High Court have number found that the Umpire acted arbitrarily, irrationally, capriciously or independent on the companytract. No finding has been arrived at that the Umpire has made companyscious disregard of the companytract which was manifest on the fact of the award. The companyrt exercises a very limited jurisdiction while adjudicating upon an objection to the award in terms of Section 30 of the Arbitration Act, 1940. In the instant case, the Umpire has merely set out the claims, given the history of the claims and awarded certain amount. He has number disclosed his mind indicating as to why he had done so or what was done. The Courts, therefore, companyld number interfere with the award merely on ipse dixit. In M s. Sudarsan Trading Co. Vs. Government of Kerala and Another 1989 2 SCC 38 this Court has laid down the law in the following terms But, in the instant case the companyrt had examined the different claims number to find out whether these claims were within the disputes referable to the arbitrator, but to find out whether in arriving at the decision, the arbitrator had acted companyrectly or incorrectly. This, in our opinion, the companyrt had numberjurisdiction to do, namely, substitution of its own evaluation of the companyclusion of law or fact to companye to the companyclusion that the arbitrator had acted companytrary to the bargain between the parties. Whether a particular amount was liable to be paid or damages liable to be sustained, was a decision within the companypetency of the arbitrator in this case. By purporting to companystrue the companytract the companyrt companyld number take upon itself the burden of saying that this was companytrary to the companytract and, as such, beyond jurisdiction. It has to be determined that there is a distinction between disputes as to the jurisdiction of the arbitrator and the disputes as to in what way that jurisdiction should be exercised. There may be a companyflict as to the power of the arbitrator to grant a particular remedy. The question again came up for companysideration before a three-Judge Bench of this Court recently in State of U.P. Vs. Allied Constructions 2003 6 SCALE 265. This Court held Any award made by an arbitrator can be set aside only if one or the other term specified in Sections 30 and 33 of the Arbitration Act, 1940 is attracted. It is number a case where it can be said that the arbitrator has misconducted the proceedings. It was within his jurisdiction to interpret Clause 47 of the Agreement having regard to the fact-situation obtaining therein. sic It is submitted that an award made by an arbitrator may be wrong either on law or on fact and error of law on the face of it companyld number nullify an award. The award is a speaking one. The arbitrator has assigned sufficient and companyent reasons in support thereof. Interpretation of a companytract, it is trite, is a matter for arbitrator to determine see M s. Sudarsan Trading Co. versus The Government of Kerala, AIR 1989 SC 890 . Section 30 of the Arbitration Act, 1940 providing for setting aside an award is restrictive in its operation. Unless one or the other companydition companytained in Section 30 is satisfied, an award cannot be set aside. The arbitrator is a Judge chosen by the parties and his decision is final. The Court is precluded from reappraising the evidence. Even in a case where the award companytains reasons, the interference therewith would still be number available within the jurisdiction of the Court unless, of companyrse, the reasons are totally perverse or the judgment is based on a wrong proposition of law. As error apparent on the face of the records would number imply closer scrutiny of the merits of documents and materials on record. Once it is found that the view of the arbitrator is a plausible one, the Court will refrain itself from interfering. The aforementioned decisions companystitute binding precedents. For the reasons aforementioned, we are of the opinion that the impugned judgments cannot be sustained. | 1 |
MR. JUSTICE COULSON:
A INTRODUCTION
The Defendant ("Countrywide") provides residential surveying services. On 25th May 2008 Countrywide took out a professional indemnity policy of insurance ("the Policy") in respect of which the Claimant ("Travelers") was the lead underwriter. Issues have arisen in connection with claims made against Countrywide arising out of surveys carried out by one of the former surveyors, a Mr. Morley. It now appears that hundreds of potentially fraudulent valuations may have been carried out both by Mr. Morley and two of his colleagues. Many of these were for the same commercial client. As a result, there is now a possibility that Travelers will seek to avoid the policy for misrepresentation and/or non-disclosure.
In order to reach a concluded view on that important question, Travelers have been seeking documentation from Countrywide. These documents concern the extent to which the possibility of fraud on the part of Mr Morley, as opposed to allegations of incompetence, was known to Countrywide at the time that the policy was agreed on 25th May 2008. They also relate to the circumstances surrounding Mr. Morley's dismissal. The documents would allow Travellers to reach a view as to whether or not there had been fraudulent intent which, as we shall see in a moment, formed the critical part of the relevant exclusion clause in the policy. Travellers threatened to make an application for pre-action disclosure pursuant to CPR 31.16 in relation to this material and it appears that, as a result of the threatened application and other letters written by Travelers' solicitors, Countrywide have provided a large number of documents relating to this topic. However, Travelers maintain that there are still numerous documents relevant to this issues with which they have yet to be provided.
Accordingly, on 5th August 2010 Travelers issued an application pursuant to CPR 31.16 for pre-action disclosure. This application was made after receipt and study of the documents sent by Countrywide's solicitors on 29th July 2010. In response to the application Countrywide submit that the court does not have the necessary jurisdiction to make the order sought, because the court's power to order pre-action disclosure does not extend to the situation where the dispute between the parties will be determined in arbitration rather than in court. They also submit that, even if the court had the appropriate jurisdiction, the necessary test under CPR 31.16 has not been made out in any event.
I propose to deal with the issues as follows. I identify the relevant terms of the policy in section B below; thereafter at section C, I deal with Travellers' threshold response on this issue which is that, as a matter of construction of the policy, the dispute between the parties will inevitably be litigated rather than arbitrated. Then, at sections D and E, I address Travelers' submissions to the effect that, even if they were wrong on that threshold point, the court does have the necessary jurisdiction to make the order sought. There is a short summary of my conclusions at section F below. I am very grateful to both leading counsel for the typical economy and skill with which their submissions have been advanced.
B THE RELEVANT TERMS OF THE POLICY
What was called the Special Institution Condition within the Policy provided as follows:
"Underwriters will not exercise any right to avoid this insurance where it is alleged that there has been non-disclosure or misrepresentation of facts or untrue statements in the proposal forms, provided always that the assured shall establish to Underwriters' satisfaction that such alleged non-disclosure, misrepresentation or untrue statement was free of any fraudulent intent …
In the event of any dispute or disagreement between the Assured and Underwriters regarding the application of the Special Institution Conditions, such dispute or disagreement shall be referred by either party for arbitration to any person nominated by the President for the time being of the Royal Institution of Chartered Surveyors or the Financial Ombudsman Service as appropriate."
I accept the submission that the overall purpose of the Condition was to ensure that the policy was not avoided because of an inadvertent misrepresentation or non-disclosure. As to the arbitration agreement within the Condition, it is to be contrasted with the general provisions in the policy which make plain, in two separate places, that all other disputes under the policy will be dealt with in the English courts.
For the purposes of this application, I accept that there may well be a legitimate issue between the parties as to whether or not there was a fraudulent intent on the part of Countrywide at the time of the inception of the policy. I have been shown documents which indicate that, prior to 25th May 2008, various individuals at Countrywide were aware that the scope of Mr. Morley's default went beyond the two particular valuations which formed the basis of his dismissal, and which were the only two potential claims notified to Travelers at the time of the inception of the policy. Of course, whether or not that demonstrates a fraudulent intent for the purposes of the Special Institution Condition is an entirely separate question, and not one that I can begin to answer on this application. On the basis of the material, all I can say is that, if fraud was asserted, such an assertion could not be regarded as fanciful.
C THE CONSTRUCTION OF THE SPECIAL INSTITUTION CONDITION
The first question for me is, if Travelers seek to avoid the policy on the ground of fraudulent intent, and that course was challenged by Countrywide, in what forum would such a dispute be determined? Mr. Soole maintains that, in accordance with the Special Institution Condition, such a dispute would centre on whether the Condition applied on the particular facts or not, and would therefore have to be referred to arbitration in accordance with its express provisions. Mr. Brannigan, on behalf of Countrywide, argues that this confuses the application of the Condition with its effect. He says that, whilst there is no dispute here that the Condition applied, and therefore nothing to be referred to arbitration, there is a dispute about the effect of the Condition which is not caught by the arbitration clause and would therefore have to be dealt with in court. In those circumstances he says that the court's power to order pre-action disclosure would be clear.
Mr. Brannigan also has an alternative submission on this aspect of the case, which is that, on a proper construction of the Special Institution Condition, the arbitrator would have jurisdiction, but it would be limited to the second issue, namely whether or not any misrepresentation or non-disclosure was fraudulent or not. He maintains that the first issue, namely whether or not there was misrepresentation or non-disclosure in the first place, fell outside the arbitration clause and would have to be determined in court in any event.
Although Mr. Brannigan's submissions on the construction of the Condition were put forward with his customary skill, I do not accept that either element of it is correct. The issue between the parties will be whether or not the Condition bites in all the circumstances of this case; whether or not the Condition, and in particular the condition precedent of fraudulent intent, applies on the facts which are found. That, so it seems to me on a proper construction of the Condition itself, was precisely the sort of dispute which the parties agreed would be referred to arbitration.
It seems to me that it would be in very rare circumstances that there could ever be a dispute about the simple application of the Condition, as opposed to a dispute about its effect. Mr. Brannigan maintained that there might be a dispute as to whether this particular Condition met the RICS minimum term in relation to non-disclosure and misrepresentation, but it seems to me that such a dispute is manifestly unlikely. I accept Mr. Soole's submission that, in this case, the Condition plainly 'applied' because it was in the agreed written contract of insurance, so that the only likely dispute to arise out of the Condition was whether or not, on the facts, Travelers were entitled to avoid the policy because of the express provisions of this Condition. Any distinction, so it seems to me, between application and effect in such circumstances would be artificial and, so it seems to me, impossible to police sensibly.
Further, the agreement to arbitrate any disputes about the application of the Condition must be construed in a sensible way so as to give effect to the commercial purpose of the clause (see paragraphs 6 and 8 of the judgment of Lord Hoffmann in Fiona Trust Cor v. Yuri Privalov [2007] UKHL 40). In this case, I have no doubt that the commercial purpose of the arbitration agreement within the Special Institution Condition was to ensure that all allegations involving misrepresentation, non-disclosure and possible fraud were dealt with in a confidential forum. That was why it was only disputes under this Condition which were to be referred to arbitration and not other disputes as to the operation of the policy generally.
Mr. Brannigan's alternative submission on the construction of the Condition was that, whilst an arbitrator might be necessary for stage two, the issue of fraud, he would not have jurisdiction to deal with stage one, namely whether or not there was a misrepresentation or non-disclosure in the first place. Again, that seems to me to be a strained construction of this Condition which would not honour the commercial agreement between the parties. In truth, it would lead to a very unsatisfactory result in which two rounds of proceedings would be inevitable. The court would deal first with whether or not there had been a misrepresentation or non-disclosure, but scrupulously avoid questions of fraud or inadvertence. The arbitrator would then come in for round two and, despite the considerable overlap between the areas of fact under consideration, would be obliged to address all questions of fraud. The potential for confusion and conflict would be very great. Moreover, the purpose of confidentiality would, so it seems to me, be largely lost because the court would have already dealt openly with all issues of misrepresentation and non-disclosure.
In my judgment, it would need very clear wording for me to conclude that the parties had agreed to such a cumbersome two stage process. In my view, there is nothing in the Condition which could lead to the conclusion that such a process was, in fact, what the parties had intended or agreed.
For those reasons, therefore, I reject Travelers' submissions that the underlying dispute between the parties falls outside the arbitration agreement. On the contrary, it seems to me that the application or otherwise of the Condition, in particular the existence or otherwise of fraudulent intent which lies at the heart of the dispute between the parties, is a dispute which they have agreed to arbitrate. The court must therefore enforce that agreement. The next question is whether, in such circumstances, the court's powers under CPR 31.16 are available.
D CAN PRE-ACTION DISCLOSURE BE ORDERED CPR 31.16 IN A SITUATION WHETHER THE UNDERLYING DISPUTE WILL BE DECIDED IN ARBITRATION NOT IN THE HIGH COURT?
In its amended form, Section 33(2) of the Senior Courts Act 1981 (as we must now call it) provides as follows:
"On the application in accordance with rules of court of a person who appears to the High Court to be likely to be a party to subsequent proceedings in that court the High Court shall, in such circumstances as may be specified in the rules, have power to order a person who appears to the court to be likely to be a party to the proceedings and to be likely to have, or to have had, in his possession, custody or power any documents which are relevant to an issue arising, or likely to arise, out of that claim:
(a) to disclose whether those documents are in his possession, custody or power; and
(b) to produce such of those documents as are in his possession, custody or power to the applicant, or on such conditions as may be specified in the order …"
CPR 31.16 provides a detailed set of rules relating to applications for pre-action disclosure. The operation of those rules has been explained in detail by Rix LJ in Black and Others v. Sumitomo Corporation [2002] 1 WLR 1562. The power to order pre-action disclosure is now wide-ranging and applies to all civil litigation, and is not limited (as once it was) to those claims relating to personal injury or death.
As a matter of statutory construction, it is plain that the power to order pre-action disclosure in accordance with s.33(2) can only be invoked by an applicant who "appears to the High Court [to be] likely to be a party to subsequent proceedings in that court". That must mean litigation in the High Court. If the subsequent proceedings between the parties are to be referred to arbitration, the applicant would not be a party to subsequent proceedings in the High Court. As a matter of construction, therefore, it seems to me that s.33(2), and thus CPR 31.16, does not apply if the underlying dispute is to be referred to arbitration.
There are a number of subsidiary matters which, in my judgment, support that construction. First, the courts have repeatedly said that arbitration pursuant to the 1996 Arbitration Act is an entirely separate dispute resolution process in respect of which the courts have extremely limited powers of intervention and control. For example, in Cetelem SA v. Roust Holdings Ltd [2005] 1 WLR 3555, Clarke LJ (as he then was) said at para.61:
"I entirely accept the submission that a central and important purpose of the 1996 Act was to emphasise the importance of party autonomy and to restrict the role of the courts in the arbitral process. In particular, the Act was intended to ensure that the powers of the court should be limited to assisting the arbitral process and should not usurp or interfere with it."
In my judgment, it would be contrary to that policy to find that, in the absence of clear words, the court had the jurisdiction to make an order for potentially wide-ranging pre-action disclosure in an arbitration case.
Secondly, the policy behind the Arbitration Act 1996 provides an answer to the argument that, because technically the dispute could be dealt with in the High Court (because, for example, both sides subsequently waived their right to rely on the arbitration agreement), the court has the jurisdiction to make the order sought. On the basis of the papers it is plain that, if Travelers avoided the policy, Countrywide would make their claim in arbitration, and Mr. Soole has confirmed that if Travellers sought a declaration in court that their avoidance was valid, Countrywide would seek a stay of that claim for arbitration. It would, I think, be contrary to the policy of the Act to allow Travelers to invoke CPR 31.16 simply for a purpose which was ancillary to the arbitration.
Thirdly, although there is no authority on this issue which is binding on me, I note that in EDO Corporation v. Ultra Electronics Limited [2009] EWHC 682 (Ch) Bernard Livesey QC (sitting as a Deputy Judge of the High Court) reached precisely the same conclusion, to the effect that a claim for pre-action disclosure could not be entertained where the underlying dispute was going to be referred to arbitration.
It was also submitted by Mr. Brannigan that s.37(1) of the Senior Courts Act gave the court the necessary jurisdiction because that provision operated as a kind of sweep-up arrangement. The section provides that:
"The High Court may by order, whether interlocutory or final, grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so."
I do not consider that s.37 can be invoked in circumstances where there is otherwise no express jurisdiction. In Elektrim SA v. Vivendi Universal SA and Others [2007] EWHC 571 (Comm), Aikens J (as he then was) was considering the operation of the section in respect of a claim for an injunction. He said:
"67 Arbitrations that fall within the 1996 Act are the result of agreements between two (or possibly more) parties to resolve legal disputes through a private impartial tribunal. Such arbitrations are, by definition, consensual. As s.1(b) of the 1996 Act states, 'the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest'. I have already noted that under the pre – 1996 Act regime, it was well established that the courts did not have a general supervisory power to intervene in arbitrations before an award was made, either by injunction or some other method. That remains the position. Section 1(c) of the Act is an express statutory warning to the courts not to intervene except as provided in Part 1 of the 1996 Act. That reflects the underlying principles of the 1996 Act of party autonomy and the minimum of interference in the arbitral process by the courts, at least before an award is made.
68 In my view the whole structure of Part 1 also suggests that the scope for the court to intervene by injunction before an award is made by arbitrators is very limited."
In my judgment, the same approach is applicable to an application for pre-action disclosure in an arbitration case. There is no difference in principle between the two. For the same reasons as Aikens J refused to apply s.37 in Elektrim, I would refuse to apply it here.
For all those reasons, I conclude that the existence of the arbitration agreement would, as a matter of construction of s.33 of the Senior Courts Act 1981, deprive the court of the power to make under CPR 31.16. But that is not an end of the matter, because Travelers say that the court has the appropriate power as a result of section 44(3) of the Arbitration Act 1996. I therefore turn to deal with that final issue on jurisdiction.
E SECTION 44(3) OF THE 1996 ACT
Section 44 of the 1996 Act is in the following terms:
"(1) Unless otherwise agreed by the parties the court has, for the purposes of and in relation to arbitral proceedings, the same power of making orders about the matters listed below as it has for the purposes of and in relation to legal proceedings.
(2) Those matters are:
(a) the taking of the evidence of witnesses;
(b) the preservation of evidence;
(c) making orders relating to property which is the subject of the proceedings or as to which any question arises in the proceedings:
(i) for the inspection, photographing, preservation, custody or detention of the property; or
(ii) ordering that samples be taken from or any observation be made or experiment conducted upon the property and for that purpose authorising any person to enter any premises in the possession or control of a party to the arbitration;
(d) the sale of any goods the subject of the proceedings;
(e) the granting of an interim injunction or the appointment of a receiver.
(3) If the case is one of urgency the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets."
In my judgment, s.44(3) is intended to be invoked in exceptional circumstances where, for example, the critical evidence is about to be lost forever or there is a risk that it will be destroyed or otherwise tampered with, such as to make it of no probative value. On the face of it, it should not be used in the standard case where, once arbitration proceedings start, the arbitrator can make precisely the same order for disclosure as the court could, in accordance with his express powers under s.44(2).
Mr. Brannigan suggested that there was urgency here because of the need to process the underlying claims being made against Countrywide and which were being passed on to Travelers. In addition, he said that there was a risk that documents would be lost, in particular because the papers show that the hard drive of one of Countrywide's employees has apparently crashed, with the result that some documents had already been lost. In reality, it seems to me that this application for pre-action disclosure is no different to the run-of-the-mill application for early disclosure which arbitrators are well-versed in addressing. There is the usual need for the matter to be progressed with reasonable speed, and of course, as time goes on, there is always a risk that documents may be mislaid or their electronic storage may be adversely affected and documents may be lost. But in the present case, in the absence of any express evidence as to a particular risk of lost documents, or an imminent threat to the preservation of the evidence or the assets (and I accept that the claim is an asset for this purpose), there is no urgency, and therefore the court has no power to make an order under s.44(3). In the absence of real urgency, the provision is not engaged.
I note for completeness that, in the case of EDO, to which I have already made reference, Bernard Livesey QC came to the same conclusion on the non-application of s.44(2) in such circumstances. He said this:
"18. I also take the view that, had it been the intention of the legislature to grant to those who are likely to be parties to arbitral proceedings similar ancillary assistance to that provided by s.33(2), it would have made express provision to that effect either within the Supreme Court Act or more probably within s.44(2) of the Arbitration Act 1996 …
20. … the powers with which the High Court has been endowed for the purpose of providing ancillary assistance in support of arbitral proceedings are, for present purposes, listed in s.44(2) of the Arbitration Act 1996, and I note, where the case is one of urgency, include a power 'for the purpose of preserving evidence or assets' pursuant to s.44(3). An application for pre-action disclosure does not come within the powers given to the court by ss.44(2) and (3), and, as The Tasman Spirit [2005] 1 Lloyd's Rep 525 also shows, where the power is not expressly given by the section, the court does not have a residual power to grant the relief sought."
F CONCLUSIONS
For the reasons set out above, I conclude that:
(a) The underlying dispute as to the possible misrepresentation and/or fraudulent intent as at May 2008 is the subject of a binding arbitration agreement;
(b) In those circumstances the court's powers to order pre-action disclosure are not exercisable. There is no jurisdiction.
Although, in the light of those conclusions, it is unnecessary for me to deal with the merits of the underlying application under CPR 31.16, I should say that, had I had the power to order pre-action disclosure in this case under that part of the rules, I probably would have done so. It seems to me that this is a case where, in accordance with the principles noted by Rix LJ in Black, an order pursuant to CPR 31.16 would have been appropriate.
In particular, it seems to me that the documents now sought, particularly those relating to the decision as to what information to provide to Travelers in May 2008 and what information not to provide, would be disclosable on standard disclosure if and when this dispute comes to be determined in arbitration. The early provision of that documentation would plainly narrow the issues and reduce costs. Indeed, there must be a real chance that, if all the information sought was provided, Travelers would take the view that there had not been fraudulent intent, so that the issue would never even arise. In any event, the early production of information would allow Travelers to make an informed decision as soon as possible, on the basis of the fullest available information. I would have thought that such a result was in everybody's interests. In the exercise of my discretion I would have made the order for those reasons, and because my instinct is, on the basis of the papers that I have seen, that such an order would have been beneficial. I would have made the order notwithstanding the warning given by Rix LJ at para.54 and following of Black about fraud cases.
None of that should be taken as a particular criticism of Countrywide's solicitors, who I acknowledge have endeavoured to provide a good deal of the documents sought by Travellers on a voluntary basis. I also accept that the focus of Travelers' inquiries has shifted slightly and that, notwithstanding that, Countrywide's solicitors have promised to carry out further searches for this documentation. I trust that, despite my views as to jurisdiction, the voluntary disclosure of those documents will continue for the reasons that I have given. I accept, therefore, the general submission made by Travelers that there are likely to be other documents which exist and which should be provided sooner rather than later. I would be very hopeful that those documents are provided well in advance of the proposed mediation in November 2010.
For those reasons, therefore, I refuse the application with a certain amount of regret. However, the court's want of jurisdiction is the direct effect of the parties' original agreement to arbitrate this dispute. It is that agreement which the court must now enforce. On the basis of the authorities which I have set out above, that inevitably means that this application for pre-action disclosure must be dismissed. | 2 |
Opinion of Mr Advocate General La Pergola delivered on 9 September 1999. - Entidad de Gestión de Derechos de los Productores Audiovisuales (Egeda) v Hostelería Asturiana SA (Hoasa). - Reference for a preliminary ruling: Juzgado de Primera Instancia e Instrucción de Oviedo - Spain. - Copyright - Satellite broadcasting and cable retransmission. - Case C-293/98.
European Court reports 2000 Page I-00629
Opinion of the Advocate-General
I - The factual and legal background of the main action and the questions referred
1 Hostelería Asturiana SA (hereinafter `HOASA'), the defendant in the main action, owns Hotel de la Reconquista (hereinafter `the Hotel') in which it installed a system for receiving terrestrial and satellite television programmes which it then retransmits internally to the clients occupying its rooms. Once received, the programme signals are amplified and sent down coaxial cables to the televisions in the Hotel bedrooms. Before internal retransmission of the received satellite programmes alone, the frequencies carrying the signals are modified (from very high to lower frequencies) to allow the televisions in clients' rooms to be tuned into the correct channel settings. The Entidad de Gestión de Derechos de los Productores Audiovisuales (Collecting Society for Audio-Visual Producers, hereinafter `EGEDA'), the plaintiff in this case, manages, represents and protects the interests and rights of the producers of audio-visual works and recordings. Taking the view that the service of retransmitting audio-visual recordings and other works contained in the television programmes provided to the Hotel's guests infringes the consolidated law on intellectual property (hereinafter the `Consolidated law'), (1) EGEDA brought an application before the Juzgado de Primera Instancia e Instrucción n. 5 de Oviedo seeking that: (i) HOASA be required to suspend all provision of the said service with immediate effect and be prohibited from resuming it without the plaintiff's specific authority, and (ii) the defendant be ordered to compensate the plaintiff in accordance with the latter's general scale of royalties and on the basis of the number of rooms occupied by the Hotel's clients over the period (unspecified in the referral order) in which the activities contested in the action took place.
2 The referring court considers that the outcome of the main action depends on whether the reception of television signals and their subsequent cable retransmission to the various rooms of a hotel, such as that owned by the defendant, constitutes an act of communication to the public of works covered by intellectual property rights. The right of communication to the public (comunicación pública) falls under the rights of utilisation that are vested in the author alone (Article 17 of the Consolidated law). According to Article 20(1), `communication to the public' is any act whereby a work is made accessible to more than one person without previous transmission of examples of that work to them, unless the communication is of a private nature because it has taken place within a strictly domestic context that does not form part of, and is not connected with, a retransmission network of any kind. Article 122 - which comes under Book II(III) (on intellectual property rights other than copyright) of the Consolidated law - states that the right to authorise communication to the public of audio-visual recordings lies with the producer. Furthermore, the users of audio-visual recordings used in acts of communication to the public mentioned in Article 20(2)(f) and (g) of this Law (see below) must pay a fair one-off fee to the producers of those recordings and to the artists that interpreted or performed them. Intellectual property right management bodies are entitled to exercise the right to this remuneration (Article 122(3) of the Consolidated law).
Article 20(2)(f) and (g) of the Consolidated law also makes clear that acts of communication to the public include in particular: (i) the retransmission of any work broadcast by any body other than the original broadcaster, via any of the means listed under (a) to (e) (2) (Article 20(2)(f)), and (ii) the broadcast or transmission of the transmitted work in a place that is open to the public, by any appropriate means (Article 20(2)(g)). For the purposes of the main action, cable transmission (Article 20(2)(e); footnote 2 above) should be included among the means of retransmission referred to in Article 20(2)(f) of the Consolidated law.
3 The order making the reference shows that the Spanish legislator has literally transposed into the Consolidated law (3) the definitions of `communication to the public by satellite' and `cable retransmission' given in Article 1(2)(a) and (3) of Council Directive 93/83/EEC of 27 September 1993 on the coordination of certain rules concerning copyright and rights related to copyright applicable to satellite broadcasting and cable retransmission (hereinafter `the Directive'). (4) Article 1 of the Directive states in the section that is relevant to this Opinion:
`...
2. (a) For the purposes of this Directive, "communication to the public by satellite" means the act of introducing, under the control and responsibility of the broadcasting organisation, the programme-carrying signals intended for reception by the public into an uninterrupted chain of communication leading to the satellite and down towards the earth.
...
3. For the purposes of this Directive, "cable retransmission" means the simultaneous, unaltered and unabridged retransmission by a cable or microwave system for reception by the public of an initial transmission from another Member State, by wire or over the air, including that by satellite, of television or radio programmes intended for reception by the public' (my italics).
4 Consequently, it is the view of the referring court that if the service HOASA provides to its clients were to be described as the retransmission of broadcast works, the defendant - as the user of audio-visual recordings used for the acts of communication to the public mentioned in Article 20(2)(f) and (g) of the Consolidated law - would have to pay to EGEDA, which acts in the name and on behalf of the producers and the artists who interpreted or performed the works concerned, a fair one-off fee. On 1 June 1998 the court decided, in accordance with Article 177 of the EC Treaty (now Article 234 EC), to refer the following question for a preliminary ruling:
`Is Article 1(2)(a) and (3) of Directive 93/83/EEC to be interpreted as meaning that reception by a hotel establishment of satellite or terrestrial television signals and their cable retransmission to the various rooms of that hotel constitutes an "act of communication to the public" or "reception by the public"?' (5)
5 To conclude that description of the legal background to the main action, I would point out that in accordance with Protocol 28(5) on Intellectual Property in the European Economic Area (hereinafter `Protocol 28'), (6) Spain, like all other Member States, was required to adhere to the Berne Convention for the Protection of Literary and Artistic Works (Paris Act of 24 July 1971 as amended on 28 September 1979; hereinafter `the Convention') by 1 January 1995 and to ensure that its national legislation conformed to the substantive provisions of the Convention by 1 January 1994. (7)
6 Article 11bis(1) of the Convention - concerning (inter alia) the communication to the public of a work broadcast by wire (cable transmission) or rebroadcast (by loudspeaker or analogous instruments) - states that `Authors of literary and artistic works shall enjoy the exclusive right of authorising: ... (ii) any communication to the public by wire or by rebroadcasting of the broadcast of the work, when this communication is made by an organisation other than the original one; (iii) the public communication by loudspeaker or any other analogous instrument transmitting, by signs, sounds or images, the broadcast of the work.'
7 Like the other substantive provisions of the Convention (with the sole exception of Article 6bis which concerns the author's moral rights), Article 11bis is deemed to be an integral part of the Agreement on Trade-Related Aspects of Intellectual Property Rights (hereinafter the `TRIPS Agreement') (8) that forms Annex 1C to the Agreement establishing the World Trade Organisation (hereinafter the `WTO Agreement'), approved on behalf of the Community, in respect of those areas for which it has jurisdiction, by Council Decision 94/800/EC of 22 December 1994. (9) The main aim of the TRIPS Agreement is to strengthen and harmonise the protection of intellectual property internationally. For this purpose it not only refers to international agreements already widely accepted (10) but includes also substantive provisions that refer specifically to those areas of intellectual property that the contracting parties believed were in greatest immediate need of protection. Article 9 of the TRIPS Agreement - in Section 1 (Copyright and Related Rights), Part II (Standards concerning the Availability, Scope and Use of Intellectual Property Rights), which requires WTO members to establish minimum levels of protection - states that `Members shall comply with Articles 1 through 21 of the Berne Convention (1971) and the Appendix thereto'.
II - The arguments of the parties and the observations submitted to the Court by the Member States who have `intervened' and by the Commission
8 In the observations submitted to the Court, EGEDA asserted, primarily, that the reference for a preliminary ruling is inadmissible. In particular, the case does not involve transborder satellite broadcasts or the cable retransmission of programmes that originated in other Member States. Since there is therefore no connection between the parties to the case and Community law, no reference to the latter can be made. (11) Moreover, EGEDA claims that the facts of the case do not fall within the scope of the Directive and consequently the main action must be decided on the basis of national law alone. In the alternative, it requests the Court to declare that activities of the kind involved in this dispute constitute an act of public communication as defined in the Directive.
9 The German, United Kingdom and French Governments have also asserted that the matter raised by the national court should be resolved by application of the relevant national law, (12) because there is nothing in either the order for reference or the Directive (or any other directive on intellectual property) which enables the Court to provide the national court with the interpretation requested.
10 HOASA argues that the service it provided to the hotel clients does not fall under either of the two definitions given in this reference for a preliminary ruling. The defendant claims that it is unclear how the Directive's regulation of communication to the public via satellite, can apply to a completely different area, such as the mere reception and internal retransmission of signals broadcast by third parties. From when the television signals are received by the satellite dish until the moment they are received in the hotel rooms there is no interruption whatever of transmission. Furthermore, as regards the term `reception by the public' as used in Article 1(3) of the Directive, the reference - in Article 8(1) (13) - to cable operators as normal or necessary parties to licencing agreements together with rights holders shows that the cable retransmission of programmes from other Member States, as provided for and regulated by the Directive, must be for a profit-making purpose and must constitute the sole or main purpose of the undertaking. These criteria are not met if retransmission is merely internal, as in this case, where a reception-only `passive' cable system is used. HOASA therefore maintains that the Court should answer the question referred in the negative.
11 The Spanish Government shares that view and states that the main purpose of the Community legislature in adopting the Directive was to remove existing discrepancies between national copyright laws which expose rights holders `to the threat of seeing their works exploited without payment of remuneration' (recital 5). While the provision of transborder television programmes - like other additional services, such as telephone, fax, minibar or an individual bathroom - by a hotel can affect the price at which it rents its rooms, companies like the defendant do not engage in the independent financial exploitation of copyright for profit. Moreover, the hotel's clients are still part of the public, which is entitled to receive the television transmission of the protected work if it has been duly authorised by the copyright holders. The latter will therefore have already received all the remuneration to which they are respectively entitled, the figure probably having been calculated on the basis of the number of potential viewers of the work broadcast to the satellite catchment area. However, the Spanish authorities further argue that there is no communication to the public of protected works if the recipients constitute a closed or restricted group (for example because, as in the case of hotel guests, they are connected by links of personal trust or may enter into mutual relationships), even if the group is a large one.
12 Finally, the Commission denies that there is `communication to the public by satellite' within the meaning of Article 1(2)(a) of the Directive in this case. It maintains that - notwithstanding the basic principle of the Directive (see below, paragraph 14) - the retransmission to the hotel rooms of the television programmes in question after their satellite reception involves interruption of the flow of communication. However, the supply of this service by the defendant could fall within the scope of Article 1(3) of the Directive if the reception of transborder television programmes and their internal cable retransmission by a hotel constitutes reception by the public. According to the Commission, it is the Court's duty to ensure that this provision is uniformly implemented throughout the Community on the basis of its own interpretation, in order to prevent undue distortion in the free provision of services and in free competition within the single market. The Commission asserts that the provisions of the Convention, which contains numerous references to the term `communication to the public', have formed an integral part of Community law since the Agreement on the European Economic Area (hereinafter the `EEA Agreement') came into force. This is because Article 5 of Protocol 28 states that Spain and the other Member States undertake to ensure that the Convention is implemented correctly. At the same time, the Commission has also referred to the case-law to the effect that primary and secondary Community legislation must be interpreted in the light of international public law. The Directive should therefore be interpreted in the light of the substantive provisions of the Convention, even though this may not yet have been `communitarised'. The Commission considers that the uniform interpretation that the Court is asked to give in this case must be based on the term `communication to the public of a received broadcast programme' as this is described in the Glossary of Terms of the Law of Copyright and Neighbouring Rights (14) and in the Guide to the Berne Convention, (15) published by the World Intellectual Property Organisation (WIPO; hereinafter the `Glossary' and the `Guide' respectively). Clients using the televisions in hotel bedrooms constitute a different public from that (the hotel) originally considered by the author at the time the broadcast of the protected work was authorised. Consequently the answer to the question referred should be that - under Article 1(3) of the Directive, interpreted in the light of the Convention - the cable retransmission by a hotel to rooms occupied by its clients of television signals received either by satellite or by cable constitutes not the ordinary reception of programmes but an independent act of retransmission to the public, as a result of which a protected work is transmitted to a new public and therefore requires separate authorisation by the rights holders.
III - Legal analysis
13 I shall commence by examining the foundation for the Commission's assertions. The latter relies on both Article 5 of Protocol 28 and the case-law of the Court concerning the duty to interpret secondary Community law in the light of international law in suggesting that the Court should interpret the provisions of the Directive mentioned by the referring court - in particular Article 1(3) - so that they conform as closely as possible to the relevant substantive provisions of the Convention (see paragraph 12 above). The fact that the Convention is not mentioned in the order for reference clearly does not prevent the following analysis. According to the settled case-law of the Court, when giving a preliminary ruling under Article 177 of the EC Treaty the Court may consider provisions of Community law - which may have been brought to its attention by the Commission (16) - that are not referred to in the request for a preliminary ruling from the national court, so long as they are relevant to the main action. (17)
14 The Directive was adopted on the basis of Article 57 of the EC Treaty (now, after amendment, Article 47 EC), paragraph 2, and Article 66 of the EC Treaty (now Article 55 EC) and aims to remove obstacles to the free movement of television programmes within the Community so far as copyright is concerned. As the preamble to the Directive makes clear, the Community legislator merely set minimum requirements which the Commission and the European Parliament originally intended should be included within the scope of the `Television without Frontiers' Directive. (18) Adoption of the Directive, furthermore, does not prejudice `further harmonisation in the field of copyright and rights related thereto' and protects the right of `Member States to supplement the general provisions needed to achieve the objectives of this Directive by taking legislative and administrative measures in their domestic law' (recitals 33 to 35).
It should also be remembered that Article 1(2)(a) - as indicated in sub-paragraph (b) and recital 14 of the Directive - is intended essentially to prevent the cumulative application of two or more sets of national legislation to a single act of satellite broadcasting of copyright-protected works. In order to remove the legal uncertainties surrounding the rights that would need to be acquired and the resulting obstacles to the transnational transmission of programmes, the Council therefore defined the term satellite communication to the public within the Community. (19) Since the act of communication is deemed to have taken place in the Member State of origin, the author will exercise his exclusive right to authorise broadcast of the work by contract under the law of that Member State. (20) The Directive therefore requires Member States to introduce provisions covering satellite broadcasting rights into their domestic law (see Article 2). (21)
However, a different solution has been adopted in the case of cable retransmission: as the United Kingdom authorities have observed, the Directive does not in this case require the introduction of an analogous exclusive right but assumes that other rights exist in national law (`copyright and related rights') which have not been harmonised or defined, but observance of which the Member States must ensure (Article 8). I would therefore observe that for the purpose of this Opinion, the subject-matter of the main action - the interpretation of broadcasting rights as regards communication to the public by cable of a protected work that has already been broadcast - lies outside the material scope of the Directive, which merely states that this right may be exercised only through a collecting society (Article 9).
15 As the scope for such co-ordination by the Community legislature is of course limited, it is clear why the Directive - which devotes all of Article 1 (Definitions) to clarification of the meaning of a number of fundamental terms used in the rest of the Directive, for the purposes of ensuring the application of its substantive provisions, (`for the purpose of this Directive') - does not define `retransmission', `cable system', `public', `communication to the public' or `reception by the public' (see footnote 5, above). The definitions simply did not seem to be necessary. However, their meaning may be elicited from the international agreements on this subject, including of course the Berne Convention, which, as the Commission has stated, is the original source of many of the terms subsequently used in the Directive. I therefore agree with the applicant and the German, French and United Kingdom Governments that even if we admit that the main action concerns television programmes from other Member States, (22) the preliminary ruling requested by the Juzgado de Primera Instancia e Instrucción n. 5 de Oviedo cannot be given on the basis of the Directive.
16 I have another reason for disagreeing with the Commission's view that a preliminary ruling on this question will require the Directive to be interpreted in the light of the Convention. The case-law of the Court referred to by the Commission in its observations concerns only those international agreements that have been made with the Community. They have formed an integral part of Community law since they came into force and are `acts of the institutions of the Community' within the meaning of Article 177(1)(b) of the EC Treaty. (23) Their provisions also take precedence over secondary Community legislation. `[T]he priority of international agreements concluded by the Community over secondary Community legislation [the Court has held] means that whenever possible the latter should be interpreted in conformity with the agreements,' just as `when secondary Community legislation is open to more than one interpretation, priority should be given to the interpretation under which the legislation conforms to the Treaty'. (24) I believe however that this principle cannot apply to international agreements between Member States that do not bind the Community, as in the case of the Convention. (25)
17 The conclusion to which I have come does not, however, exclude the possibility that the Convention may yet provide a basis for the preliminary ruling to be given to the referring court. During the proceedings before the Court, EGEDA and the Commission have, using different arguments, advanced the theory that the Convention has been `communitarised' and that the Court must therefore ensure that it is uniformly applied throughout the Community. While the Commission refers to Article 5 of Protocol 28 (see paragraph 12 above), (26) the applicant refers, albeit merely incidentally, (27) to the commitments given by the Community when it adhered to the TRIPS Agreement. It is the second argument that convinces me. Article 5 of Protocol 28 imposes on the Member States (and all the EFTA States) (28) an obligation to legislate (adherence to the Convention and adapting national legislation). It is obvious that only when these obligations are fulfilled will the national laws concerned include current laws that conform with the Convention. This, however, is quite different from claiming that the introduction of these obligations will of itself bring the Convention into immediate and full effect under Community law.
18 I find EGEDA's arguments more convincing. The applicant claims that the provisions of the Convention have been subsumed into the TRIPS Agreement, although only for such matters as have been legislated on by Community law at Community level. (29) Consequently, while the Community has not formally adhered to the Convention (and cannot do so, see above, footnote 28), it must comply with Articles 1 to 21 thereof. In the Hermès case the Court decided that it was competent to interpret Article 50 of the TRIPS Agreement. This, you will recall, involved a provision of the Agreement concerning `measures to prevent infringement of any intellectual property right' that, according to the governments who `intervened' in the case, fell within the jurisdiction of the Member States. (30) A similar approach would seem to be even more appropriate here. It is my belief that a decision in the main action is dependent upon interpretation of a substantive provision of the Convention that has been incorporated into the TRIPS Agreement through formal reference and aims to protect the right of communication to the public in the event of the secondary use of works originally broadcast from another Member State. Copyright protection is an area in which the Community has already exercised its authority internally. (31) I therefore believe that there can be no doubt that the Court is competent to give a preliminary ruling on the interpretation of the Convention provisions to which Article 9 of the TRIPS Agreement refers. That is not contradicted by the fact that Article 11bis of the Convention, incorporated into the TRIPS Agreement through Article 9 of the Agreement itself, applies both to situations regulated by national law and to situations regulated by Community law. Here too, `the Community has a certain interest in ensuring that, in order to prevent future differences in interpretation, this provision is given a uniform interpretation, whatever the conditions under which it will be applied'. (32)
19 I believe, however, that the Court's interpretation of Article 11bis of the Convention can apply to the legal position of the applicant in the main action - and therefore to the Court's power to consider that rule during its examination of this referral for a preliminary ruling - only if Article 9 of the TRIPS Agreement has direct effect. I would here note that - although the Court has not been asked to rule on whether Article 9 has direct effect, but only to resolve the question of interpretation referred to it by the Spanish court so that the latter may interpret the relevant national law in the light of the Convention as referred to in the TRIPS Agreement (33) - the provision in question does establish a clear and unconditional principle that the national court can apply. This would thus appear capable of regulating the legal status of individuals (34) provided that the Court finds nothing to contradict that in its examination of the purpose, nature and context of the agreement to which the provision relates. (35)
20 I shall now analyse the question of whether, on the basis of the Convention, the retransmission of broadcast works to hotel rooms via the televisions located in them can be described as a simple act of reception or of broadcast (communication to the public). I must point out first that the approach of national legislators to this problem varies, as does the case-law, often within the same country. It cannot be denied that there is a need for the Court to assume general responsibility for interpreting the substantive provisions of the Convention for the whole Community legal order, as the Commission has said. A useful basis for the interpretation of Article 11bis(1) of the Convention (see above, paragraph 6) is the interpretation developed by the WIPO International Office. (36) With regard to the provision in question here, the Glossary defines the notion of `communication to the public of the reception of a broadcast programme' as follows: `the use of television reception equipment (loudspeakers and reception tubes) outside private rooms, so as to provide access to the transmitted programme to anyone that might be present for whatever reason in the place of reception. Reception equipment is often used in restaurants, shops and similar places to attract the public. The right to broadcast and to receive programmes does not necessarily include the right to give the public access to the programmes. This also applies to programmes received via cable. The necessary authority must generally be requested from the authors' organisations or other bodies responsible for copyright management'. (37) As the Guide observes, `So far as implementation [of Article 11bis(1)(2)] is concerned, we need to know if and how a mediator intervenes in the retransmission of the programme and performs an act of communication to the public. ... The criteria for distinguishing between this form of communication and the simple reception of programmes that are not subject to copyright shall be decided by national legislators'. (38) However, under the Convention, the grant of a television broadcast licence to a broadcaster does not cover any other use of the work - for example, communication to the public of the transmitted programme via loudspeakers or analogous instruments (in this case via television) - by third parties, particularly if this is for profit. This form of communication enables a new public to be reached which differs from the public the author had in mind when he first authorised broadcast in the exercise of his own exclusive right. `In effect, although by definition a broadcast can reach an unlimited number of people, when the author authorises this method of use for his work, he considers only direct users, that is, the owners of reception equipment who, either personally or within their own private or family circles, receive the programme. If reception is for a larger audience, possibly for profit, a new section of the receiving public hears [or sees] the work and the communication of the programme via a loudspeaker (or analogous instrument) no longer constitutes simple reception of the programme itself but is an independent act through which the broadcast work is communicated to a new public. Such public reception is subject to the author's exclusive authorisation right.' (39)
21 On the basis of the abovementioned observations in the Guide, I believe that the provision that theoretically applies in this case is not sub-section 2 but the special provision in Article 11(1)(3). (40) The retransmission of the broadcast work to the hotel guests is made technically possible by the fact that the hotel rooms are each equipped with a television set, that is, an `instrument transmitting by sounds or images, analogous to a loudspeaker'. (41) Nevertheless, I would point out that a decision that denies the need for specific authorisation from the copyright holder in such cases would be primarily based on the view that rooms occupied by hotel guests do not constitute places with public access, at least in the strict sense of the term. (42) As the Spanish Government has told the Court (see point 11 above), the cable retransmission of television signals to individual television sets is here an act of communication in a strictly domestic sphere and therefore is reception and not transmission. Furthermore, the increased public criterion to which the Convention, as the Guide itself says, makes subject any act of public communication that must be licensed by the author, is not satisfied here; this is because - if the hotel retransmitting the signals it receives to the various rooms lies within the catchment area of the original transmission - the viewers/guests would in any case have been able to receive the original broadcast of the work using reception equipment located in their own homes, if at the time the hotel was retransmitting the work they had been in their homes. Finally, there is no communication to the public on the other hand because effective reception of the broadcast work depends on an act personally performed by the hotel guest (switching on the television set and tuning in to the original broadcaster). (43)
22 This last conclusion cannot be allowed to stand because it contradicts one of the fundamental principles of copyright: copyright holders are remunerated on the basis not of the actual enjoyment of the work but of a legal possibility of that enjoyment. For example, publishers must pay royalties to authors for their novels on the basis of the number of copies sold, whether or not they are ever read by their purchasers. Similarly, hotels that are responsible for the - simultaneous, uncut and unchanged - internal cable retransmission of an original satellite broadcast cannot refuse to pay the author the remuneration due to him by maintaining that the broadcast work was not actually received by the potential viewers who have access to the televisions in their rooms. (44) On the other hand it is all too clear - given that such retransmission is not just a technical means to ensure or improve reception of the original broadcast in the catchment area, as in the case, for example, of the installation and use of transceivers - that HOASA gave the hotel guests access to the protected work. If the defendant had not made secondary use of the broadcasts, the clients - although physically within the satellite catchment area - would not have been able to enjoy the broadcast work in any other way; they therefore constitute, in this sense, a `new' public that differs from the primary broadcast public.
23 However, I believe it is also necessary to remove from the analysis an obvious misunderstanding concerning the private nature of the retransmission of primary television broadcasts to hotel rooms. I certainly do not dispute the fact that, so far as the protection of the personal rights guaranteed by the constitutions not only of Member States but also of all democratic States is concerned, a hotel room forms part of the purely private or domestic sphere of a person and his family. Nevertheless, the legal boundary between the private and the public is not necessarily the same in the area of copyright protection. (45) It is no chance that the criterion for establishing the public or private nature of a room is foreign not just to the letter but also to the spirit of Article 11bis of the Convention, which requires authorisation by the author not for retransmission to places that are public or are open to the public but for acts of communication in which the work is made accessible to the public. For this purpose the term `public' is not of fundamental importance in defining an act of communication as public, because it traditionally means the absence of special personal relationships between members of a group of persons or between group members and the organiser. (46)
24 What criterion do I therefore suggest that the Court should adopt in the matter before it to distinguish between communications that are to the public and those that are not? In my opinion, the Convention lays down the principle that the author must authorise all secondary use of the broadcast work if this gives rise to independent economic exploitation for financial profit by the person responsible (47) and also relates to the economic importance of the new public (paragraph 22 above), which is the group of persons to whom the particular act of communication via the television is addressed. The criterion I have indicated gives us, for example, a cogent explanation for there being no communication to the public if the protected work is made accessible by the direct user of the television to his family circle or friends: in such cases there is no secondary use of the broadcast work by a third party but instead the equipment for receiving the primary transmission is shared, at no financial profit to the interested party.
25 The Spanish authorities have denied that an undertaking in HOASA's position would be seeking financial profit when making the broadcast works accessible to its clients. Its arguments do not convince me however. Even if there is no extra charge to guests (in the form of a supplementary charge or an extra charge included in the cost of the overall service provided) for the internal retransmission service to rooms, there can be no doubt that this constitutes an economically quantifiable benefit to the hotel responsible for the secondary use as a client facility. Furthermore, it is common knowledge that the inclusion of a cable television retransmission service in the services a hotel offers its clients, together with the number of channels available, is one of the normal criteria used to classify hotels by category and thus affects the prices they can charge. (48) Broadcast third party works therefore undeniably contribute to the general level of hotel services offered by a company such as the defendant.
26 In this case it is perhaps the second matter I have raised (paragraph 24) that is hardest to prove. It could be argued that the economic weight of the guests of a hotel room is so slight that they cannot constitute a `new' public that differs from the primary transmission public. Consequently the retransmission of the broadcast work by television does not have the economic importance necessary to constitute an independent act of communication. This rigid approach appears to be changing, however, under the influence of recent national court rulings that are based on the `spatial accumulation' (räumliche Kumulation) view. (49) This holds that all the clients in a hotel at a given time constitute the `public' within the meaning and for the purpose of copyright. (50) In other words the `spatial discontinuity' of the individuals involved, who constitute the circle of addressees to which the work is made accessible by the person responsible for each act of secondary use, is not large enough to negate the economic importance of the new public reached (if only potentially, in the sense of a mere legal possibility; see paragraph 22 above).
27 Since the original broadcaster and the persons effecting the communication via television of an already broadcast work engage in acts of economic exploitation that are different and independent of each other, the bases for the claims advanced by copyright holders in both cases will also be completely separate. (51) This consequently overturns the argument that authors cannot lawfully claim dual remuneration for `the same act' of broadcast of a protected work (paragraph 11 above). I therefore believe that when deciding the main action, the court which made the reference for a preliminary ruling must apply the principle whereby the retransmission by a hotel of a work broadcast by satellite or terrestrial television signals from another Member State to its guests via the televisions in each of its rooms constitutes communication to the public and therefore must be separately authorised by the copyright holders of the protected work.
Conclusion
For the reasons given above, I propose that the Court should answer the question referred for a preliminary ruling by the Juzgado de Primera Instancia e Instrucción n. 5 de Oviedo as follows:
(1) The question of whether the reception by a hotel of protected works broadcast by satellite or terrestrial television signals from another Member State and the subsequent retransmission by cable of the programme signals received to the televisions located in the bedrooms of the same hotel constitutes an act of communication to the public cannot be resolved on the basis of Council Directive 93/83/EEC of 27 September 1993 on the co-ordination of certain rules concerning copyright and rights related to copyright applicable to satellite broadcasting and cable retransmission.
(2) The reception by a hotel of protected works broadcast by satellite or terrestrial television signals from another Member State and the subsequent retransmission by cable of the programme signals received to the televisions located in the bedrooms of the same hotel constitutes an act of communication to the public within the meaning of Article 11bis of the Berne Convention for the Protection of Literary and Artistic Works (Paris Act of 24 July 1971, as amended on 28 September 1979), as referred to by Article 9 of the Agreement on Trade-Related Aspects of Intellectual Property Rights.
(1) - Real Decreto Legislativo 1/1996, de 12 de abril, por el que se aprueba el texto refundido de la Ley de Propiedad Intelectual, regularizando, aclarando y armonizando las disposiciones legales vigentes sobre la materia (BOE no 97 of 22 April 1996, p. 14369).
(2) - Article 20(2)(a) to (e) of the Consolidated Law concerns: (a) theatre productions, recitals, presentations and public performances of dramatic or musical dramatic works, by whatever means or procedure, (b) the public projection or showing of cinema or other audio-visual works, (c) the broadcast of any work or the broadcast by any other means of signals, sounds or images transmitted by wireless, (d) the broadcast or communication to the public via satellite of any work, and (e) the transmission to the public of any work by wire, cable, optical fibre or analogous method, whether for a consideration or otherwise.
(3) - Article 20(2)(d) and (f) respectively.
(4) - OJ 1993 L 248, p. 15.
(5) - The reference in the question referred for a preliminary ruling to the term `reception by the public' becomes clear if we refer to the Spanish version of Article 1(3) of the Directive (`... la retransmisión por medio de cable o micoroondas para su recepción por el público, de emisiones primarias desde otro Estado miembro ...') or, for example, to the French version, (`retransmission ... pour la réception par le public') and the English version (`retransmission ... for reception by the public'). It has been translated into Italian as `ritrasmissione ... destinata al pubblico' (my emphasis).
(6) - OJ 1994 L 1, p. 194.
(7) - Footnote 26 below. In the case of Ireland alone, Article 5 set the date for compliance by national legislation with the substantive provisions of the Convention as 1 January 1995. All the Member States have adhered to the Convention (140 countries have so to date) and particularly to the version adopted under the Paris Act; only Belgium and Ireland still apply the previous Brussels version (26 June 1948). The Commission has therefore informed the Court that it has commenced proceedings against these two Member States under Article 169 of the EC Treaty (now Article 226 EC).
(8) - OJ 1994 L 336, p. 213.
(9) - OJ L 336, p. 1. Article 65 of the TRIPS Agreement states: ... `no Member shall be obliged to apply the provisions of this Agreement before the expiry of a general period of one year following the date of entry into force of the WTO Agreement'. Since the WTO Agreement came into force on 1 January 1995, the provisions of the TRIPS Agreement became binding on the contracting parties by 1 January 1996 at the latest. I would point out that the WTO Agreement was concluded by the Community and ratified by its Member States, without their respective obligations towards the other contracting parties being apportioned among them. In accordance with the principle of joint competence, as supported by Opinion 1/94 of 15 November 1994 on the `Competence of the Community to conclude international agreements concerning services and the protection of intellectual property' (issued pursuant to Article 228 of the EC Treaty (now Article 300 EC), subparagraph 6; [1994] ECR I-5267, paragraphs 54 to 71 and 102 to 105), both the Community and its Member States have adhered to the TRIPS Agreement. In that Opinion the Court recognised that the Community's competence in the area of intellectual property had so far been exercised to only a limited degree internally through the adoption of common rules upon which international obligations can have an effect. Consequently, there was as yet no basis for exclusive external competence of the Community. Furthermore, the Court stated that the sector relating to the measures to be adopted to secure the effective protection of intellectual property rights was not one within the exclusive competence of the Member States because the Community was certainly competent to harmonise national rules on those matters, in so far as they `affect the establishment or functioning of the common market'.
(10) - In addition to the Berne Convention, see also the Paris Convention for the Protection of Industrial Property (Stockholm Act 14 July 1967, as amended on 2 October 1979).
(11) - See, ex multis, Case C-60/91 Batista Morais [1992] ECR I-2085, concerning the rules in the Treaty on the free movement of people and services.
(12) - France has stated that as Community law now stands, the national courts must interpret and apply the relevant national laws in accordance with Articles 11 and 11bis of the Convention.
(13) - See also recital 27 of the Directive.
(14) - G. Boytha, WIPO Glossary of Terms of the Law of Copyright and Neighbouring Rights - OMPI Glossaire du droit d'auteur et des droits voisins - OMPI Glosario de derecho de autor y derechos connexos, Geneva, 1980.
(15) - C. Masouyé, Guide de la Convention de Berne pour la protection des oeuvres littéraires et artistiques (Acte de Paris, 1971), Geneva, 1978.
(16) - See, inter alia, Case C-280/91 Viessmann [1993] ECR I-971, paragraph 15.
(17) - See, inter alia, Joined Cases 73/63 and 74/63 Handelsvereniging Rotterdam v Minister van Landbouw [1964] ECR 1; Case 70/77 Simmenthal v Amministrazione delle finanze dello Stato [1978] ECR 1453; Case 35/85 Procureur de la République v Tissier [1986] ECR 1207; and Case C-114/91 Claeys [1992] ECR I-6559.
(18) - Council Directive 89/552/EEC of 3 October 1989 on the co-ordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities (OJ 1989 L 298, p. 23), as amended by Directive 97/36/EC of the European Parliament and of the Council of 30 June 1997 (OJ 1997 L 202, p. 60). The `Television without Frontiers' Directive was adopted likewise on the basis of Articles 57(2) and 66 of the EC Treaty. See J.C. Erdozain López, Las Retransmisiones por Cable y el Concepto de Público en el Derecho de Autor, Pamplona, 1997, p. 321.
(19) - As Erdozain López has observed, the connection between an act of satellite broadcasting or communication to the public via satellite and a given set of legislation is more a question for public international law than for copyright law in the strict sense (op. cit., footnote 18, pp. 330 and 331).
(20) - See Articles 1(2)(b), (2) and (3)(1) of the Directive. As a consequence of the principle referred to therein, the Directive has rejected `Bogsch's theory', according to which the broadcasting rights of protected works must be acquired for all receiving countries (see recital 7).
(21) - It has been observed that `minimum harmonisation' of the substantive provisions governing copyright has been made necessary by the fundamental decision, on which the Directive is based, to apply only the law of the State in which the broadcaster is established. `Otherwise there could be ... "distorted use" of the freedom to provide services: a broadcaster transmitting from a State in which no authorisation is required for satellite transmission because no voluntary licensing system exists would be able to direct its signal to all the other Member States of the Community, including those in which the same transmission may only be authorised by the author. Such a situation, in addition to leading to unreasonable damage (including financial) to the authors' rights ... would also clearly distort competition. Broadcasters established in States "offering" them more attractive legislation would enjoy an advantage' (see R. Mastroianni, La protezione dei diritti d'autore e dei diritti connessi nelle trasmissioni televisive via satellite e via cavo in Europa, in Rapporto '93 sui problemi giuridici della radiotelevisione in Italia (P. Barile, R. Zaccaria (eds.), Turin, 1994, p. 363, particularly pp. 381 and 382).
(22) - I would point out that according to the Court's case-law on co-operation between the Court and national judges under Article 177 of the EC Treaty, the question of whether all parts of the activity considered in the main action are located within a single Member State will depend on the findings of fact which can be made only by the national court (see inter alia Case 52/79 Procureur du Roi v Debauve [1980] ECR 833, paragraph 9).
(23) - The Court therefore has jurisdiction to give preliminary rulings on the interpretation of such agreements (see inter alia Case 181/73 Haegeman v Belgian State [1974] ECR 449, paragraphs 3 to 6; Case 104/81 Hauptzollamt Mainz v Kupferberg [1982] ECR 3641, paragraphs 12 to 14, and Case C-321/97 Andersson and Wåkerås-Andersson v Swedish State [1999] ECR 3551, paragraph 26.
(24) - Case C-61/94 Commission v Germany [1996] ECR I-3989, paragraph 52. See also Case 92/71 Interfood v Hauptzollamt Hamburg Ericus [1972] ECR 231 at point 6.
(25) - Where the Court, ruling on the interpretation or validity of Community law, has referred to international conventions to which the Community is not a signatory, it has relied on international customary law principles as codified in these conventions. J.-P- Puissochet, La place du droit international dans la jurisprudence de la Cour de justice des Communautés européennes, in Scritti in onore di Giuseppe Federico Mancini, Milan, 1998, vol II. p. 779.
(26) - Article 5 states: `1. The Contracting Parties shall undertake to obtain their adherence before 1 January 1995 to the following multilateral conventions on industrial, intellectual and commercial property:
...
(b) Berne Convention for the Protection of Literary and Artistic Works (Paris Act, 1971);
...
3. Upon entry into force of this Protocol, the Contracting Parties shall comply in their internal legislation with the substantive provisions of the Conventions listed in paragraph 1(a) to (c).'
(27) - According to EGEDA, the Convention has no relevance to the main action because it nowhere refers to the matter raised in this case.
(28) - Although the Community has formally adhered to the EEA Agreement and the active obligations stated in the Agreement specifically refer to the `Contracting Parties', they do not concern the Community as such. Article 2 of the Agreement states that the term `Contracting Parties' as used in the Agreement means in each case, so far as the Community and the Member States are concerned: (i) the Community together with the Member States, (ii) the Community alone, or (iii) the Member States alone, depending on context and jurisdiction, as stated in and regulated by the Treaty. The Community cannot adhere to the Convention since, as in previous versions of the Convention, the Paris Act refers only to the `countries of the Union' [i.e. the States; see guide (op. cit., footnote 15), p. 8] and thus does not appear to allow membership by international organisations. See also the proposed Council decision on Member States' adherence to the Berne Convention that was initially proposed by the Commission [COM(90) 582 def.; OJ 1991 C 24, p. 5] and then withdrawn when not approved as a result of the extraordinary transfer of jurisdiction that a decision of this nature would have entailed. From the logical and semantic viewpoints too the Community cannot be the recipient of an order to `conform respective national legislations'.
(29) - See above, footnote 9. R. Mastroianni, Diritto internazionale e diritto d'autore, Milan, 1997, pp. 174-177; also A. Bercovtiz, Copyright and Related Rights, in C.M. Correa, A.A. Yusuf (eds.), Intellectual Property and International Trade: The TRIPS Agreement, London, 1998, pp. 148 and 149.
(30) - Case C-53/96 Hermès International v FHT Marketing Choice [1998] ECR I-3603, paragraphs 22 to 29. The Court based its jurisdiction on two facts: firstly, Article 50 requires the judicial authorities of the Contracting States to be empowered to adopt `provisional measures' to protect the interests of the holders of the trade-mark rights conferred under the law of the said States, and secondly under Article 99 of Regulation No 40/94 on the Community trade mark, which came into effect when the WTO Charter was signed, the rights arising from the Community trade mark can be protected by adopting `provisional and protective measures'. While the measures referred to in this provision and the associated procedural rules are those established under the national law of the Member State concerned, so far as this covers national trademarks, since the Community is a contracting party to the TRIPS Agreement which concerns the Community trade mark, the courts referred to in Article 99 must apply national law when issuing provisional measures to protect the rights arising from a Community trade mark and must do so, so far as this is possible, in the light of the letter and the purpose of Article 50 of the TRIPS Agreement. Furthermore, in that case Advocate General Tesauro concluded that the Court had jurisdiction to give a preliminary ruling on all the provisions of the TRIPS Agreement to ensure that they are uniformly interpreted and implemented. The Advocate General noted that: (i) the provisions of a single agreement may be interconnected; (ii) it is in the Community's interest to avoid any international liability incurred as a result of infringements by one or more Member States; (iii) Member States and the Community institutions are under an obligation to co-operate not only when negotiating and drawing up convention provisions in this area but also where their implementation is concerned; (iv) the Treaty provides for a judicial review mechanism to operate as a guarantee that relies on the simultaneous support of the Community court and the national courts, so that the Community legal system appears as essentially a unified one whilst being characterised by the simultaneous application of provisions of diverse origins (international, Community and national); see Opinion of Advocate General Tesauro of 13 November 1997 in Hermès, cited above, at points 20 and 21).
(31) - In addition to Directive 93/83, to which this request for a preliminary ruling refers, the Council has also adopted a number of other directives on the subject of copyright and related rights (Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programmes (OJ 1991 L 122, p. 42); Council Directive 92/100/EEC of 19 November 1992 on the rental right and lending right and on certain rights related to copyright in the field of intellectual property (OJ 1992 L 346, p. 61); Council Directive 93/98/EEC of 29 October 1993 on harmonising the term of protection of copyright and certain related rights (OJ 1993 L 290, p. 9). See also Council Directive 96/9/EC of 11 March 1996, on the legal protection of databases (OJ 1996 L 77, p. 20); and the amended draft directive proposed by the European Parliament and the Council on the harmonisation of certain aspects of copyright and related rights in the information society (COM(99) 250 def., OJ 1999 C 180, p. 6)). In its request for an opinion on the Community's jurisdiction to stipulate international service and intellectual property protection agreements (see above, footnote 9, I-5333 to 5335), the Commission stated that the TRIPS Agreement in its entirety agrees internally with a number of secondary Community legislation provisions, and in particular that these directives concern the areas regulated by Articles 10 to 14 of the Agreement. As Mastroianni has pointed out (cf. op. cit., footnote 29 above, p. 175), `by giving as an example a number of the matters included in the TRIPS Agreement on which the Community has not yet regulated in full, the Court referred [in Opinion 1/94] to the partial harmonisation of the laws on trade marks, patents, drawings and models and the protection of confidential technical information but did not refer to copyright, an area in which, as the Commission has exhaustively demonstrated, Community law has already made significant steps. This indicates that, at least in those areas in which harmonisation has already occurred, through its adhesion to the TRIPS Agreement, the Community's commitments to third countries are independent of the commitments assumed by the Member States' (footnote omitted).
(32) - See, as regards Article 50 of the TRIPS Agreement, Hermès (cit. supra, footnote 30), paragraph 32.
(33) - See, as regards Article 50 of the TRIPS Agreement, Hermès (cit. supra, footnote 30), paragraph 35.
(34) - According to the consistent case-law of the Court, a provision in any Community agreement with third countries will have direct effect if its wording and the purpose and nature of the agreement itself imply a clear and specific obligation whose execution and effect are not subject to the adoption of any further acts (see inter alia Case 12/86 Demirel v Stadt Schwäbisch Gmünd [1987] ECR 3719, paragraph 14; Case C-18/90 Office national de l'emploi v Kziber [1991] ECR I-199, paragraph 15; Case C-162/96 Racke v Hauptzollamt Mainz [1998] ECR I-3655, paragraph 31; Case C-262/96 Sürül [1999] ECR I-2685, paragraph 60). Article 9 of the TRIPS Agreement clearly and specifically requires WTO members to implement the substantive provisions of Articles 1 to 21 of the Convention and its Annexes in their national laws. This therefore constitutes an obligation to achieve a specific result and consequently can be relied on by individuals before the national courts without the need for any implementing legislation. I need hardly point out that there is here no question of Article 11bis of the Convention being relied on before the national court in this case because the applicant's claim is based on the relevant provisions of Spanish law. Article 11bis is merely a Community parameter for interpreting the term `communication to the public' domestic law, and does not provide immediate protection for the asserted rights of individuals which arise directly from the Convention.
(35) - Advocates General Cosmas and Tesauro have different views on the direct effect of the WTO Charter. The former believes that the provisions of the Charter - particularly those concerning objections and provisions that can be adopted in the event of extraordinary difficulties, together with the settlement of disputes between contracting parties - remain extremely flexible and therefore have no direct effect (Opinion in Case C-183/95 Affish v Rijksdienst [1997] ECR I-4317, paragraph 119). In the more recent Hermès case, Advocate General Tesauro stated on the contrary that the changes in the WTO system which now differentiate it from the General Agreement on Tariffs and Trade (GATT) system - particularly the changes in its size and scope (with reversal of the relationship between rules and objections) and the changes in the nature and effectiveness of the system for settling disputes (in terms of the binding nature of settlements) - would appear to justify an interpretation that, unlike the interpretation of the GATT Agreement, recognises the direct effect of the WTO Charter and the TRIPS Agreement. This also takes account of the fact that the Court has for some time admitted the direct effect of other agreements signed by the Community which, in terms of flexibility and their negotiated settlement approach to disputes, are essentially analogous to the WTO Charter (Opinion in Hermès, cited above in footnote 30, paragraphs 26 to 30).
(36) - S. Ricketson, The Berne Convention for the Protection of Literary and Artistic Works: 1886-1986, London, 1987, p. 140.
(37) - Boytha (op. cit., footnote 14), p. 44.
(38) - Masouyé (op. cit., footnote 15), pp. 79 and 80 (my translation).
(39) - Ibid. (my translation).
(40) - As Erdozain López observes (op. cit., footnote 18, at p. 210), any other interpretation would imply that subparagraph 3 of the rule cited in the text is superfluous, since communication to the public by loudspeaker or analogous instruments by definition involves a body other than the original body.
(41) - I do not believe, however, that, for the purpose of ruling out the applicability of Article 11(1)(2) of the Convention, it is important that the defendant does not hold a broadcasting licence or is not a cable retransmission company. This is not a requirement under the Convention, which only requires communication to the public of a protected work by a third party mediating between the original television broadcaster and the public. See the judgment of 24 December 1993 of the Netherlands Hoge Raad, Centraal Antennensysteem Pastor Schelstraeteweg v Vereniging BUMA (Eur. Com. Cases, 1995, p. 537, and Revue Internationale du droit d'auteur, 1994, No 162, p. 404), where it was decided that an association of owners or tenants that manages a system for receiving wireless broadcast television programmes which are then retransmitted by cable to subscribers falls under the scope ratione personae of Article 11(1)(2) of the Convention, whatever the size of the cable network involved and whatever the nature, purpose or organisation of the management body.
(42) - As Erdozain López has observed (op. cit., footnote 18, at p. 419, footnote 185), it would seem nevertheless that the definition of a place with public access in the widest sense can apply if access to hotel rooms by the public is interpreted not in the strict sense (whereby a person has already rented the room and is inside it) but in the wider sense, whereby anyone can at any time occupy the room in question and exclude everyone else from it.
(43) - This final criterion has recently been allowed (with others) by the Austrian Oberster Gerichtshof (Judgment 146 of 16 June 1998, GACM v Franz Stoisser Gesellschaft & Co.) to distinguish between the retransmission to televisions located in the general reception areas of hotels and retransmissions to individual hotel bedrooms; the term communication to the public has been limited to the former.
(44) - See the judgment of the Cour d'Appel, Paris, of 20 September 1995, Cable News Network v Novotel (Revue internationale du droit d'auteur, 1996, No 167, p. 277 and Eur. Comm. Cases, 1996, p. 370); also Erdozain López (op. cit., footnote 18 above) p. 155.
(45) - Juzgado de Primera Instancia n. 26 de Madrid, judgment 627 of 12 November 1996, EGEDA v CIGA Internacional Hotels Corporation.
(46) - Erdozain López, (op. cit., footnote 18 above), at pp. 196 and 420.
(47) - S. Abada, too (La transmission par satellite et la distribution par câble et le droit d'auteur in Droit d'auteur, 1989, p. 307, especially pp. 310 and 311), accepts that the financial profit criterion distinguishes between retransmission and ordinary reception of the broadcast work. As the Guide (paragraph 20 above) also indicates, the financial profit criterion is an interpretative tool provided for by Article 11bis(1)(3), since it originally covered communications to the public in bars, restaurants, trains and shops for the purpose of attracting custom.
(48) - GACM (cited above, footnote 43).
(49) - G. Schricker, Videovorführungen in Hotels in urheberrechtlicher Sicht in Festschrift für Walter Oppenhoff zum 80. Geburtstag, 1985, p. 367, in particular pp. 370 and 375.
(50) - French Cour de Cassation, judgment of 6 April 1994, Cable News Network v Novotel Paris (Eur. Comm. Cases, 1994, p. 530); Cour d'Appel de Paris, judgment of 20 September 1995 (cited above, footnote 44), and Audiencia Provincial de Barcelona, judgment of 20 May 1996 (cited by Erdozain López, op. cit. above, footnote 18, p. 414, footnote 169); also, on the matter of the simultaneous retransmission of broadcast sound works to hospital rooms via transmission equipment with built-in listening devices, Bundesgerichtshof, decision of 9 June 1994, GEMA v L. Hospital in A. (Revue internationale du droit d'auteur, 1995, No 165, p. 302). A somewhat different view forms the basis for case-law that interprets the term communication to the public as being related to time, holding that the requirement that the broadcast work must be accessible to more than one person can be met by different guests using the same room at different times (`accumulation over time'; zeitliche Kumulation). As a result, the term `attendant public' must be replaced by `sequential public': M. Walter, Die Hotel-video-Systeme aus urheberrechtlicher Sicht, in Medien und Recht, 1984, Archiv 9; Spanish Supreme Court, judgment of 11 March 1996, Hotel Blanco don Juan v SGAE (RJ, 1996, 2413) and more recently Juzgado de Primera Instancia n. 5 de Santander, judgment 308 of 31 July 1998, EGEDA v Hotel Real. According to Erdozain López, the place and time components of the term `public' - for which an authoritative legal precedent exists in the 1976 US Copyright Act, Section 101 of which includes under the definition of `public performance or display of a work' the communication to the public of the performance or displayed work, whether or not the members of the public receive it in the same place or in separate places and at the same time or at different times [`...to perform or display a work 'publicly' means ... (2) to transmit or otherwise communicate a performance or display of the work to a place [open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered] or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times. ...'] is nothing but a formal legal instrument for adopting the idea of `economically important public' (op. cit., footnote 18 above, p. 419).
(51) - Spanish Supreme Court, judgment of 19 July 1993, SGAE v Olmos Fernandez (RJ, 1993, 6164), concerning communication to the public in a bar of broadcast works. To the opposite effect, see the judgment of 16 June 1998 (footnote 43 above), according to which cable retransmission to hotel rooms constitutes a use of the primary broadcast that is in accordance with its purpose. | 6 |
Judgment of the Court of First Instance (First Chamber) of 10 March 1992. - Montedipe SpA v Commission of the European Communities. - Competition - Concepts of agreement and concerted practice - Collective responsibility. - Case T-14/89.
European Court reports 1992 Page II-01155
Summary
Parties
Grounds
Decision on costs
Operative part
Keywords
++++
1. Competition - Administrative procedure - Hearings - Obligation to disclose the hearing officer' s report to the Advisory Committee and to the Commission - None
2. Competition - Cartels - Agreements between undertakings - Meaning - Common purpose as to conduct to be adopted on the market
(EEC Treaty, Art. 83(1))
3. Competition - Cartels - Prohibition - Agreements continuing to produce their effects after they have formally ceased to be in force - Application of Article 85 of the Treaty
(EEC Treaty, Art. 85)
4. Competition - Cartels - Concerted practice - Meaning - Coordination and cooperation incompatible with the requirement for each undertaking to determine independently its conduct on the market - Meetings between competitors having as their purpose the exchange of information decisive for the formation of the participants' marketing strategy
(EEC Treaty, Art. 85(1))
5. Competition - Cartels - Complex infringement involving elements of agreements and elements of concerted practices - A single characterization as "an agreement and a concerted practice" - Whether permissible - Consequences as regards the proof to be adduced
(EEC Treaty, Art. 85(1))
6. Competition - Cartels - Concerted practice - Effect on trade between Member States - To be assessed generally and not with regard to each of the participants
(EEC Treaty, Art. 85(1))
7. Acts of the institutions - Reasoning - Duty to state reasons - Scope - Decision implementing the competition rules
(EEC Treaty, Art. 190)
8. Competition - Fines - Amount - Determination - Criteria - Gravity of the infringement - Assessment factors - Raising of the general level of fines - Whether permissible - Conditions
(Regulation No 17 of the Council, Art. 50(2))
9. Acts of the institutions - Presumption of validity - Challenge - Conditions
Summary
1. An undertaking challenging a decision applying the competition rules may not rely on the fact that the hearing officer' s report was not sent to the members of the Advisory Committee on Restrictive Practices and Dominant Positions or to members of the Commission. Disclosure of that report to those two bodies is not provided for in any provision. Moreover, the report is in the nature of an opinion for the Commission, which is in no way bound to follow it. Finally, respect for the rights of the defence is ensured to the requisite legal standard if the various bodies involved in drawing up the final decision have been properly informed of the arguments put forward by the undertakings in response to the objections notified to them by the Commission and to the evidence presented by the Commission in support of those objections.
2. In order for there to be an agreement within the meaning of Article 85(1) of the EEC Treaty it is sufficient that the undertakings in question should have expressed their joint intention to conduct themselves on the market in a specific way. Such is the case where there were common intentions between undertakings to achieve price and sales volume targets.
3. Article 85 of the EEC Treaty is applicable to agreements between undertakings which are no longer in force but which continue to produce their effects after they have formally ceased to be in force.
4. The criteria of coordination and cooperation enabling the concept of concerted practice to be defined must be understood in the light of the concept inherent in the competition provisions of the EEC Treaty according to which each economic operator must determine independently the policy which he intends to adopt on the common market. Although this requirement of independence does not deprive economic operators of the right to adapt themselves intelligently to the existing and anticipated conduct of their competitors, it does, however, strictly preclude any direct or indirect conduct between such operators the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market.
Participation in meetings concerning the fixing of price and sales volume targets during which information is exchanged between competitors about the prices which they intend to charge, their profitability thresholds, the sales volume restrictions they judge to be necessary or their sales figures constitutes a concerted practice since the participant undertakings cannot fail to take account of the information thus disclosed in determining their conduct on the market.
5. Since Article 85(1) of the Treaty lays down no specific category for a complex infringement which is nevertheless a single infringement because it consists of continuous conduct, characterized by a single purpose and involving at one and the same time factual elements to be characterized as "agreements" and elements to be characterized as "concerted practices", such an infringement may be characterized as "an agreement and a concerted practice" and proof that each of those factual elements presents the constituent elements both of an agreement and of a concerted practice is not simultaneously and cumulatively required.
6. An undertaking must be regarded as having participated in an agreement or a concerted practice capable of affecting trade between Member States and as having thus infringed Article 85(1) of the Treaty if this could have been the result of the conduct of all the participating undertakings, irrespective of the effect of its individual participation.
7. Although under Article 190 of the EEC Treaty the Commission is obliged to state the reasons on which its decisions are based, mentioning the factual and legal elements which provide the legal basis for the measure and the considerations which led it to adopt its decision, it is not required, in the case of a decision applying the competition rules, to discuss all the issues of fact and of law raised by every party during the administrative proceedings.
8. In assessing the gravity of an infringement for the purpose of fixing the amount of the fine the Commission must take into consideration not only the particular circumstances of the case but also the context in which the infringement occurs and must ensure that its action has the necessary deterrent effect, especially as regards those types of infringement which are particularly harmful to the attainment of the objectives of the Community.
The fact that in the past the Commission has imposed fines of a certain level for certain types of infringement does not mean that it is estopped from raising that level within the limits indicated in Regulation No 17 if that is necessary to ensure the implementation of Community competition policy. In particular, it is open to the Commission to raise the level of fines in order to strengthen their deterrent effect when, although infringements of a specific type have been established as being unlawful at the outset of Community competition policy, they are still relatively frequent on account of the profit that some of the undertakings concerned are able to derive from them.
9. Since a measure which has been notified and published must be presumed to be valid, it is for a person who seeks to allege the lack of formal validity or the inexistence of a measure to provide the Court with grounds enabling it to look behind the apparent validity of the measure in question.
Parties
In Case T-14/89,
Montedipe SpA, a company incorporated under Italian law, having its registered office in Milan (Italy), represented by G. Celona, a lawyer with right of audience before the Corte di Cassazione della Repubblica Italiana, P.M. Ferrari, of the Rome Bar, and by G. Aghina and F. Capelli, of the Milan Bar, with an address for service in Luxembourg at the Chambers of G. Margue, 20 Rue Philippe II,
applicant,
v
Commission of the European Communities, represented by Anthony McClellan, Principal Legal Adviser, and Giuliano Marenco, a member of its Legal Service, acting as Agents, with an address for service in Luxembourg at the office of R. Hayder, a representative of its Legal Service, Wagner Centre, Kirchberg,
defendant,
APPLICATION for the annulment of the Commission' s decision of 23 April 1986 relating to a proceeding under Article 85 of the EEC Treaty (IV/31.149-Polypropylene, Official Journal 1986 L 230, p. 1),
THE COURT OF FIRST INSTANCE OF THE EUROPEAN COMMUNITIES
(First Chamber),
composed of: J.L. Cruz Vilaça, President, R. Schintgen, D.A.O. Edward, H. Kirschner and K. Lenaerts, Judges,
Advocate General: B. Vesterdorf,
Registrar: H. Jung,
having regard to the written procedure and further to the hearing held from 10 to 15 December 1990,
after hearing the Opinion of the Advocate General at the sitting on 10 July 1991,
gives the following
Judgment
Grounds
Facts and background to the action
1 This case concerns a Commission decision fining 15 producers of polypropylene for infringing Article 85(1) of the EEC Treaty. The product which is the subject-matter of the contested decision (hereinafter referred to as "the Decision"), polypropylene, is one of the principal bulk thermoplastic polymers. It is sold by the producers to processors for conversion into finished or semi-finished products. The largest producers of polypropylene have a range of more than 100 different grades covering a wide range of end uses. The major basic grades of polypropylene are raffia, homopolymer injection moulding, copolymer injection moulding, high-impact copolymer and film. The undertakings to which the Decision is addressed are all major petrochemical producers.
2 The west European market for polypropylene is supplied almost exclusively from European-based production facilities. Before 1977, that market was supplied by ten producers, namely Montedison (subsequently Montepolimeri SpA and now Montedipe SpA), Hoechst AG, Imperial Chemical Industries PLC and Shell International Chemical Company Limited (called "the big four"), which together account for 64% of the market, Enichem Anic SpA in Italy, Rhône-Poulenc SA in France, Alcudia in Spain, Chemische Werke Huels and BASF AG in Germany and Chemie Linz AG in Austria. Following the expiry of the controlling patents held by Montedison, seven new producers came on stream in western Europe in 1977: Amoco and Hercules Chemicals NV in Belgium, ATO Chimie SA and Solvay et Cie SA in France, SIR in Italy, DSM NV in the Netherlands and Taqsa in Spain. Saga Petrokjemi AS & Co, a Norwegian producer, came on stream in the middle of 1978, and Petrofina SA in 1980. The arrival of the new producers, with nameplate capacity of some 480 000 tonnes, brought a substantial increase in installed capacity in western Europe which for several years was not matched by the increase in demand in that market. This led to low rates of utilization of production capacity, which, however, rose progressively between 1977 and 1983, increasing from 60% to 90%. According to the Decision, supply and demand were roughly in balance from 1982. However, during most of the period covered by the investigation (1977-1983), the polypropylene market was reported to be characterized by either low profitability or substantial losses, owing in particular to the extent of the fixed costs and to the increase in the cost of the raw material, propylene. According to the Decision (point 8), in 1983 Montepolimeri SpA, after taking over the business of Enichem Anic SpA, held 18% of the European polypropylene market, Imperial Chemical Industries PLC, Shell International Chemical Company Limited and Hoechst AG each held 11%, Hercules Chemicals NV slightly below 6%, ATO Chimie SA, BASF AG, DSM NV, Chemische Werke Huels, Chemie Linz AG, Solvay et Cie SA and Saga Petrokjemi AS & Co from 3 to 5% and Petrofina SA about 2%. The Decision states that there was a substantial trade in polypropylene between Member States because each of the EEC producers operating at that time supplied the product in most, if not all, Member States.
3 Montedipe SpA was one of the producers supplying the polypropylene market before 1977 and held controlling patents which expired in most European countries between 1976 and 1978. It was the main producer of polypropylene and its market share was between about 14.2 and 15%.
4 On 13 and 14 October 1983, Commission officials, acting pursuant to Article 14(3) of Council Regulation No 17 of 6 February 1962, the first regulation implementing Articles 85 and 86 of the Treaty (Official Journal, English Special Edition 1959-1962, p. 87, hereinafter referred to as "Regulation No 17"), carried out simultaneous investigations at the premises of the following undertakings, producers of polypropylene supplying the Community market:
- ATO Chimie SA, now Atochem ("ATO"),
- BASF AG ("BASF"),
- DSM NV ("DSM"),
- Hercules Chemicals NV ("Hercules"),
- Hoechst AG ("Hoechst"),
- Chemische Werke Huels ("Huels"),
- Imperial Chemical Industries PLC ("ICI"),
- Montepolimeri SpA, now Montedipe ("Monte"),
- Shell International Chemical Company Limited ("Shell"),
- Solvay et Cie SA ("Solvay"),
- BP Chimie ("BP").
No investigations were carried out at the premises of Rhône-Poulenc SA ("Rhône-Poulenc") or at the premises of Enichem Anic SpA.
5 Following the investigations, the Commission addressed requests for information under Article 11 of Regulation No 17 (hereinafter referred to as "the request for information"), not only to the undertakings mentioned above but also to the following undertakings:
Amoco,
Chemie Linz AG ("Linz"),
Saga Petrokjemi AS & Co, which is now part of Statoil ("Statoil"),
Petrofina SA ("Petrofina"),
Enichem Anic SpA ("Anic").
Linz, which is an Austrian undertaking, contested the Commission' s jurisdiction and declined to reply to the request for information. In accordance with Article 14(2) of Regulation No 17, the Commission officials then carried out investigations at the premises of Anic and Saga Petrochemicals UK Ltd, the United Kingdom subsidiary of Saga, and of the selling agents of Linz established in the United Kingdom and in the Federal Republic of Germany. No request for information was sent to Rhône-Poulenc.
6 The evidence obtained during the course of those investigations and pursuant to the requests for information led the Commission to form the view that between 1977 and 1983 the producers concerned had, in contravention of Article 85 of the EEC Treaty, by a series of price initiatives, regularly set target prices and developed a system of annual volume control to share out the available market between them according to agreed percentage or tonnage targets. On 30 April 1984, the Commission therefore decided to open the proceedings provided for by Article 3(1) of Regulation No 17 and in May 1984 sent a written statement of objections to the undertakings mentioned above with the exception of Anic and Rhône-Poulenc. All the addressees submitted written answers.
7 On 24 October 1984, the hearing officer appointed by the Commission met the legal advisers of the addressees of the statements of objections in order to agree certain procedural arrangements for the hearing provided for as a part of the administrative procedure, which was to begin on 12 November 1984. At that meeting the Commission announced, as a result of the arguments advanced by the undertakings in their replies to the statement of objections, that it would shortly send them further material complementing the evidence already served on them regarding the implementation of price initiatives. On 31 October 1984, the Commission sent to the legal advisers of the undertakings a bundle of documents consisting of copies of the price instructions given by the producers to their sales offices together with tables summarizing those documents. In order to ensure the protection of business secrets, the sending of that material was made subject to certain conditions; in particular, the documents were not to be made known to the commercial services of the undertakings. The lawyers of a number of undertakings refused to accept those conditions and returned the documentation before the oral hearing.
8 In view of the information supplied in the written replies to the statement of objections, the Commission decided to extend the proceedings to Anic and Rhône-Poulenc. To that end, a statement of objections, similar to the statement of objections addressed to the other fifteen undertakings, was sent to those two undertakings on 25 October 1984.
9 The first session of the oral hearing took place from 12 to 20 November 1984. During that session all the undertakings were heard, with the exception of Shell (which refused to take part in any hearing) and Anic, ICI and Rhône-Poulenc (which considered that they had not had sufficient opportunity to prepare their case).
10 At that session, several undertakings refused to deal with the matters raised in the documentation sent to them on 31 October 1984, asserting that the Commission had completely changed the direction of its case and that at the very least they should have the opportunity to make written observations. Other undertakings claimed that they had had insufficient time to examine the documents in question before the hearing. A joint letter to that effect was sent to the Commission on 28 November 1984 by the lawyers of BASF, DSM, Hercules, Hoechst, ICI, Linz, Monte, Petrofina and Solvay. In a letter of 4 December 1984, Huels associated itself with the view taken in the joint letter.
11 Consequently, on 29 March 1985 the Commission sent to the undertakings a new set of documentation, setting out price instructions given by the undertakings to their sales offices, accompanied by price tables, as well as a summary of the evidence relating to each price initiative for which documents were available. It requested the undertakings to reply both in writing and at further sessions of the oral hearing and stated that it was removing the original restrictions on disclosure to commercial departments.
12 By another letter of the same date the Commission replied to the argument raised by the lawyers that it had not clearly defined the legal nature of the alleged cartel under Article 85(1) and invited the undertakings to submit written and oral observations.
13 A second session of the oral hearing took place from 8 to 11 July 1985 and on 25 July 1985. Anic, ICI and Rhône-Poulenc submitted their observations and the other undertakings (with the exception of Shell) commented on the matters raised in the Commission' s two letters of 29 March 1985.
14 The preliminary draft of the minutes of the oral hearing, together with all other relevant documentation, was given to the Members of the Advisory Committee on Restrictive Practices and Dominant Positions (hereinafter referred to as "the Advisory Committee") on 19 November 1985 and sent to the applicants on 25 November 1985. The Advisory Committee gave its opinion at its 170th meeting on 5 and 6 December 1985.
15 At the end of that procedure, the Commission adopted the contested decision of 23 April 1986, which has the following operative part:
"Article 1
ANIC SpA, ATO Chemie SA (now Atochem), BASF AG, DSM NV, Hercules Chemicals NV, Hoechst AG, Chemische Werke Huels (now Huels AG), ICI PLC, Chemische Werke LINZ, Montepolimeri SpA (now Montedipe), Petrofina SA, Rhône-Poulenc SA, Shell International Chemical Co. Ltd, Solvay & Cie and SAGA Petrokjemi AG & Co. (now part of Statoil) have infringed Article 85(1) of the EEC Treaty, by participating:
- in the case of ANIC, from about November 1977 until a date in late 1982 or early 1983,
- in the case of Rhône-Poulenc, from about November 1977 until the end of 1980,
- in the case of Petrofina, from 1980 until at least November 1983,
- in the case of Hoechst, ICI, Montepolimeri and Shell from about mid-1977 until at least November 1983,
- in the case of Hercules, LINZ and SAGA and Solvay from about November 1977 until at least November 1983,
- in the case of ATO, from at least 1978 until at least November 1983,
- in the case of BASF, DSM and Huels, from some time between 1977 and 1979 until at least November 1983,
in an agreement and concerted practice originating in mid-1977 by which the producers supplying polypropylene in the territory of the EEC:
(a) contacted each other and met regularly (from the beginning of 1981, twice each month) in a series of secret meetings so as to discuss and determine their commercial policies;
(b) set 'target' (or minimum) prices from time to time for the sale of the product in each Member State of the EEC;
(c) agreed various measures designed to facilitate the implementation of such target prices, including (principally) temporary restrictions on output, the exchange of detailed information on their deliveries, the holding of local meetings and from late 1982 a system of 'account management' designed to implement price rises to individual customers;
(d) introduced simultaneous price increase implementing the said targets;
(e) shared the market by allocating to each producer an annual sales target or 'quota' (1979, 1980 and for at least part of 1983) or in default of a definitive agreement covering the whole year by requiring producers to limit their sales in each month by reference to some previous period (1981, 1982).
Article 2
The undertakings named in Article 1 shall forthwith bring the said infringement to an end (if they have not already done so) and shall henceforth refrain in relation to their polypropylene operations from any agreement or concerted practice which may have the same or similar object or effect, including any exchange of information of the kind normally covered by business secrecy by which the participants are directly or indirectly informed of the output, deliveries, stock levels, selling prices, costs or investment plans of other individual producers, or by which they might be able to monitor adherence to any express or tacit agreement or to any concerned practice covering prices or market sharing inside the EEC. Any scheme for the exchange of general information to which the producers subscribe (such as Fides) shall be so conducted as to exclude any information from which the behaviour of individual producers can be identified and in particular the undertakings shall refrain from exchanging between themselves any additional information of competitive significance not covered by such a system.
Article 3
The following fines are hereby imposed on the undertakings named herein in respect of the infringement found in Article 1:
(i) ANIC SpA, a fine of 750 000 ECU, or Lit 1 103 692 500;
(ii) Atochem, a fine of 1 750 000 ECU, or FF 11 973 325;
(iii) BASF AG, a fine of 2 500 000 ECU, or DM 5 362 225;
(iv) DSM NV, a fine of 2 750 000 ECU, or Fl 6 657 640;
(v) Hercules Chemicals NV, a fine of 2 750 000 ECU, or Bfrs 120 569 620;
(vi) Hoechst AG, a fine of 9 000 000 ECU, or DM 19 304 010;
(vii) Huels AG, a fine of 2 750 000 ECU, or DM 5 898 447.50;
(viii) ICI PLC, a fine of 10 000 000 ECU, or 6 447 970;
(ix) Chemische Werke LINZ, a fine of 1 000 000 ECU, or Lit 1 471 590 000;
(x) Montedipe, a fine of 11 000 000 ECU, or Lit 16 187 490 000;
(xi) Petrofina SA, a fine of 600 000 ECU, or Bfrs 26 306 100;
(xii) Rhône-Poulenc SA, a fine of 500 000 ECU, or FF 3 420 950;
(xiii) Shell International Chemical Co. Ltd, a fine of 9 000 000 ECU, or 5 803 173;
(xiv) Solvay & Cie, a fine of 2 500 000 ECU, or Bfrs 109 608 750;
(xv) Statoil Den Norske Stats Oljeselskap AS (now incorporating SAGA Petrokjemi), a fine of 1 000 000 ECU or 644 797.
Article 4
...
Article 5
..."
16 On 8 July 1986, the definitive minutes of the hearings, incorporating the textual corrections, additions and deletions requested by the applicants, was sent to them.
Procedure
17 These are the circumstances in which, by application lodged at the Registry of the Court of Justice on 6 August 1986, the applicant brought this action seeking annulment of the Decision. Thirteen of the fourteen other addressees of the Decision have also brought actions for its annulment (Cases T-1/89 to T-4/89, T-6/89 to T-13/89 and T-15/89).
18 By a separate document lodged on the same day, Montedipe requested the President of the Court of Justice, under Article 83 of the Rules of Procedure of the Court of Justice, to order the suspension of the operation of the Decision pursuant to Article 185 of the EEC Treaty. By Order of 24 September 1986 the President of the Court of Justice upheld that application on condition that the applicant, within 15 days of the date of notification of the Order, entered into a bank guarantee accepted by the Commission for the payment of the fine imposed by Article 3 of the Decision and any interest for late payment, and reserved the costs (Case 213/86 R Montedipe v Commission [1986] ECR 2623).
19 The written procedure took place entirely before the Court of Justice.
20 By order of 15 November 1989, the Court of Justice referred this case and the 13 other cases to the Court of First Instance, pursuant to Article 14 of the Council Decision of 24 October 1988 establishing a Court of First Instance of the European Communities (hereinafter referred to as "the Council Decision of 24 October 1988").
21 Pursuant to Article 2(3) of the Council Decision of 24 October 1988, an Advocate General was designated by the President of the Court of First Instance.
22 By letter of 3 May 1990, the Registrar of the Court of First Instance invited the parties to an informal meeting in order to determine the arrangements for the oral procedure. That meeting took place on 28 June 1990.
23 By letter of 9 July 1990, the Registrar of the Court of First Instance requested the parties to submit their observations on the possible joinder of Cases T-1/89 to T-4/89 and T-6/89 to T-15/89 for the purposes of the oral procedure. No party had any objection on this point.
24 By order of 25 September 1990, the Court joined the abovementioned cases for the purposes of the oral procedure, on account of the connection between them, in accordance with Article 43 of the Rules of Procedure, then applicable mutatis mutandis to the procedure before the Court of First Instance by virtue of the third paragraph of Article 11 of the Council Decision of 24 October 1988.
25 By order of 15 November 1990 the Court adjudicated on the requests for confidential treatment lodged by the applicants in Cases T-2/89, T-3/89, T-9/89, T-11/89, T-12/89 and T-13/89 and granted them in part.
26 By letters lodged at the Registry of the Court between 9 October and 29 November 1990, the parties replied to the questions put to them by the Court in a letter sent to them by the Registrar on 19 July 1990.
27 In the light of the answers provided to its questions, on hearing the report of the Judge Rapporteur and after hearing the views of the Advocate General the Court decided to open the oral procedure without any preparatory inquiry.
28 The parties presented oral argument and answered questions from the Court at the hearing which took place from 10 to 15 December 1990.
29 The Advocate General delivered his Opinion at the sitting on 10 July 1991.
Forms of order sought by the parties
30 Montedipe claims that the Court should:
(i) annul the Commission' s decision of 23 April 1986 (IV/31.149 - Polypropylene) in so far as it is addressed to the applicant;
(ii) in the alternative, annul the Commission' s decision of 23 April 1986 in so far as it imposes a fine on the applicant;
(iii) in the further alternative, annul the decision of 23 April 1986 in so far as it imposes on the applicant a fine of ECU 11 000 and reduce the fine to a nominal or in any event fair amount, or one which at least takes account of the rules on limitation of actions;
(iv) in any event:
- order the Commission to pay all the costs;
- order the Commission to reimburse the applicant for all the costs incurred during the administrative procedure;
- order the Commission to pay compensation for all the harm associated with the implementation of the contested decision or the establishment of a bank guarantee for its implementation, including interest and an allowance for inflation on the sums paid in implementation or for the establishment of the guarantee.
As a preliminary matter, the applicant requests that by way of measures of inquiry witnesses be heard to establish the accuracy of the accounting data submitted by the applicant in the attached tables concerning its losses on polypropylene production.
Witnesses:
- Montepolimeri' s financial controller during the material period,
- Montepolimeri' s chief accountant during the material period;
- the members of Montepolimeri' s audit committee during the material period.
The Commission claims that the Court should:
(i) dismiss the application;
(ii) order the applicant to pay the costs.
Substance
31 It is necessary to examine, first, the applicant' s grounds of challenge relating to a breach of the rights of the defence allegedly committed by the Commission in so far as it (1) lacked impartiality in its preparation of the Decision, (2) altered its original objections and (3) based the Decision on documents which were not part of the proceedings; secondly, the grounds of challenge relating to proof of the infringement concerning (1) the findings of fact made by the Commission and (2) the application to those facts of Article 85(1) of the EEC Treaty whereby it is contended that the Commission (A) did not correctly define the infringement, (B) did not correctly assess the anti-competitive effect, (C) did not correctly assess how trade between Member States was affected and (D) failed to take into account a number of elements of justification; thirdly, the grounds of challenge based on a breach of the principle of freedom of assembly; fourthly, the grounds of challenge relating to the reasoning of the Decision; and, fifthly, the grounds of challenge relating to the determination of the fine, which is alleged to be (1) partially time-barred, (2) disproportionate to the duration of the alleged infringement and (3) disproportionate to the gravity of the alleged infringement.
The rights of the defence
1. Lack of impartiality in the preparation of the Decision
32 The applicant contends that the Commission failed in its duty to act objectively and displayed pre-conceived ideas in this case. The Commission refused from the start to contemplate the possibility that the meetings of polypropylene producers could have had a purpose other than the implementation of a cartel. Accordingly, it took into account only the factors which supported that view and disregarded those which opposed it or did not support it. That is confirmed by the fact that before the formal adoption of the Decision the Commission had already given the press information on it.
33 It adds that a comparison of the minutes of the hearings with the Decision shows clearly that significant statements made by the hearing officer and the Commission' s representatives are not mentioned in the Decision. That is true with regard to the clarity with which the Commission formulated its objections, the possibility that the Commission might abandon certain of them, the role of the target prices and the existence of vigorous competition during the period under examination. It is for that reason that in its reply the applicant asks the Court to examine the hearing officer' s report in order to determine whether the Commission intentionally disregarded the factors which told against its view.
34 The applicant concludes that the Commission' s lack of objectivity is further confirmed by the fact that it was only on a second reading that the draft decision submitted by the Member of the Commission responsible for competition matters could be adopted by the Commission.
35 The Commission denies that it approached the case with preconceived ideas and displayed partiality in selecting the evidence favourable to its argument. It states that it is not true that it divulged the contents of the Decision in advance, and points out that the information which appeared in the press could just as well have been provided by the undertakings themselves. It considers that in any event that is not a ground for annulment of the Decision (judgments of the Court of Justice in Case 27/76 UBC v Commission [1978] ECR 207, paragraph 286, and Joined Cases 40 to 48, 50, 54 to 56, 111, 113 and 114/73 Suiker Unie v Commission [1975] ECR 1663, paragraphs 91 and 103).
36 As regards the remarks made by the hearing officer, it argues that the Decision need not reflect the views expressed by each of the Commission' s officials during the administrative procedure. It adds that the application for production of the hearing officer' s report was rejected by the Court of Justice in its order of 11 December 1986 in Case 212/86 R ICI v Commission (not published in the Reports of Cases). It adds that in any event this plea is inadmissible since it was raised for the first time at the stage of the reply.
37 Finally, the Commission states that the fact that the Decision was not adopted by the Commission at its fist reading cannot in any event constitute evidence of lack of objectivity on the part of the Commission or the lack of foundation for the Decision.
38 The Court notes first of all that the request made by the applicant to the Court at the stage of the reply that it should examine the hearing officer' s report constitutes a new application which must be declared inadmissible under Article 44(1) of the Rules of Procedure of the Court of First Instance and Article 40(1) of the Rules of Procedure of the Court of Justice.
39 The Court points out, in relation to the hearing officer, that the relevant provisions of his terms of reference, which are appended to the Thirteenth Report on Competition Policy, are as follows:
"Article 2
The Hearing Officer shall ensure that the hearing is properly conducted and thus contribute to the objectivity of the hearing itself and of any decision taken subsequently. He shall seek to ensure in particular that in the preparation of draft Commission decisions in competition cases due account is taken of all the relevant facts, whether favourable or unfavourable to the parties concerned.
In performing his duties he shall see to it that the rights of the defence are respected, while taking account of the need for effective application of the competition rules in accordance with the regulations in force and the principles laid down by the Court of Justice.
Article 5
The Hearing Officer shall report to the Director-General for Competition on the hearing and the conclusions he draws from it. He may make observations on the further progress of the proceedings. Such observations may relate among other things to the need for further information, the withdrawal of certain objections, or the formulation of further objections.
Article 6
In performing the duties defined in Article 2 above, the Hearing Officer may, if he deems it appropriate, refer his observations direct to the Member of the Commission with special responsibility for competition, at the time when the preliminary draft decision is submitted to the latter for reference to the Advisory Committee on Restrictive Practices and Dominant Positions.
Article 7
Where appropriate, the Member of the Commission with special responsibility for competition may decide, at the Hearing Officer' s request, to attach the Hearing Officer' s final report to the draft decision submitted to the Commission, in order to ensure that when it reaches a decision on an individual case it is fully apprised of all relevant information."
40 It is clear from the very wording of the hearing officer' s terms of reference that it is not mandatory for his report to be passed on to either the Advisory Committee or the Commission. There is no provision which provides for the report to be forwarded to the Advisory Committee. Although it is true that the hearing officer must report to the Director-General for Competition (Article 5) and that he may, if he deems it appropriate, refer his observations direct to the Member of the Commission with special responsibility for competition (Article 6), who himself may, at the hearing officer' s request, attach the hearing officer' s final report to the draft decision submitted to the Commission (Article 7), there is no provision requiring the hearing officer, the Director-General for Competition or the Member of the Commission with special responsibility for competition to forward the hearing officer' s report to the Commission.
41 Consequently, the applicant cannot derive an argument from the fact that the hearing officer' s report was not transmitted to the members of the Advisory Committee or those of the Commission. On this question the Court of Justice has held that the hearing officer' s report is in the nature of an opinion for the Commission, which is in no way bound to follow it, and that the report does not therefore constitute a decisive factor which must be taken into account by the Community court in performing its judicial review (order of 11 December 1986 in Case 212/86-R, cited above, paragraphs 5 to 8). Respect for the rights of the defence is ensured to the requisite legal standard if the various bodies involved in drawing up the final decision have been properly informed of the arguments put forward by the undertakings in response to the objections notified to them by the Commission and to the evidence presented by the Commission in support of those objections (judgment of the Court of Justice in Case 322/81 Nederlandsche Banden-Industrie-Michelin NV v Commission [1983] ECR 3461, paragraph 7 at p. 3498).
42 Since the hearing officer' s report has no decisive nature which the Community courts must take into account in exercising their review jurisdiction, a fortiori the Commission is in no way obliged to align itself with the observations which may have been made by the hearing officer or other representatives of the Commission at the hearing and which the Members of the Commission may have been informed of through the minutes of the hearing.
43 Furthermore, it should be observed that even if the information concerning the Decision which was divulged before its adoption was provided to the press by the Commission there is nothing to justify the conclusion that the content of the Decision would have been different if that information had not been made public.
44 Moreover, the fact that the Decision was not adopted on its first reading cannot in any event be regarded as evidence of any lack of objectivity on the part of the Commission.
45 Finally, the Court considers that the question whether the Commission arrived at a premature judgment on the basis of preconceived ideas is indissociable from the question whether the findings of fact made by the Commission in the Decision are supported by the evidence which it has produced. Since this is a question of substance related to proof of the infringement, it must be examined at a later stage together with the other questions relating to proof of the infringement.
2. Alteration of the original objections
46 The applicant maintains that in the Decision the Commission upheld objections which were not made in the statements of objections notified to it. In the latter the Commission proceeded on the basis that the addressees had fixed and observed prices on which they had agreed or had implemented a concerted practice. In the letter which it sent on 29 March 1985 to the addressees of the statement of objections the Commission then stated, in reliance on the judgments of the Court of Justice in Case 41/69 ACF Chemiefarma v Commission [1970] ECR 661, paragraphs 111 to 114, and Joined Cases 209 to 215 and 218/78 Heintz van Landewyck v Commission [1980] ECR 3125, paragraph 86, that it was not necessary to define the objections legally as concerning agreements or concerted practices. Finally, in the Decision the Commission now states that the conduct of the undertakings in question contained the elements making up a true "agreement" within the meaning of Article 85, except as regards certain marginal aspects, which have the character of a "concerted practice".
47 The Commission replies that it is clear from the case-law of the Court of Justice (judgments in Case 41/69, cited above, at paragraphs 91 to 93, and Joined Cases 209 to 215 and 218/78, cited above, at paragraph 68) that the Decision is not required to be a replica of the statement of objections and that it was entitled to re-draft or supplement its arguments. It states, however, that in the Decision it did not change its assessment of the nature of the cartel.
48 This Court finds that the legal assessment made by the Commission in the Decision, as interpreted by the applicant, is in no way new since it was already contained in the general statement of objections addressed to the applicant and the other undertakings to which the Decision was addressed, in particular in points 1 and 128. Point 1 is worded as follows:
"The present statement of objections concerns the application of Article 85(1) of the EEC Treaty to a complex of agreements and/or concerted practices by which from about 1977 to October 1983 the producers supplying the bulk thermoplastic polypropylene in the Common market co-ordinated their sales and pricing policy on a continuing and regular basis by setting and implementing 'target' and/or minimum prices, controlling the tonnages supplied to the market by means of agreed 'targets' and/or quotas and meeting regularly in order to monitor the progress of the said restrictive arrangements"
and point 128 states that:
"To the extent that the continuing collaboration between the parties in the framework of the meetings may, in relation to some questions and at some periods, have lacked the degree of precision required to constitute an 'agreement' properly called, there was still a concerted practice."
49 That view was repeated in the letter sent by the Commission to the addressees of the statement of objections on 29 March 1985, which states that:
"The measure of consensus on pricing and volume ... leads to the conclusion that the unlawful collusion between the participants in the meetings can properly be categorized as 'agreement' or 'agreements' in the sense of Article 85(1), which had both the object and the effect of restricting competition. ... There may be cases ... where there are elements of both 'agreements' and 'concerted practices' . ... Thus in the present case some of the arrangements of the producers attending meetings may have fallen short of actual detailed 'agreement' but they nevertheless still took certain steps with the intention of co-ordinating their commercial policies. ... [T]he particular manifestation of collusion might be considered a concerted practice. ... The Commission is of the opinion that in substance little turns on the precise form which the alleged collusion took, and that the producers participated in a prohibited cartel which presents the aspects of both 'agreements' and 'concerted practices' ."
The purpose of the letter of 29 March 1985 was to supplement the general statement of objections as regards the legal classification of the infringement, since it states:
"By letter dated 28 September 1984 the legal representatives of a number of the polypropylene producers involved in the present proceedings maintained that in its objections the Commission had not clearly expressed the legal position against which the producers had to defend themselves and had exacerbated the situation by shifting its position during the hearing. ... I do not accept that argument. The facts were treated in extenso in the objections and the legal issues, although succinctly expressed, were clearly delineated. ... [F]or the avoidance of any doubt, and at the risk of repetition, I will set out the following matters for your consideration" (this is followed by eight pages of explanation, including two on the legal classification of the infringement)
and the letter closes in the following terms:
"You may submit your written observations on the matters covered by this letter within six weeks from the date of receipt. A further oral hearing is foreseen in the near future for three undertakings which were not in a position to make their presentation in November, and if you wish to attend, the opportunity may be given for you then to expand your written comments not only on this matter but also on my separate letter to you of today' s date dealing with certain other issues."
50 Consequently, the Commission at most re-drafted and supplemented its arguments in the Decision, but did not alter its original objections.
51 This ground of challenge must therefore be dismissed.
3. Allegation that the Decision was based on material extraneous to the proceedings
52 The applicant observes in its reply that at a press conference representatives of the Commission justified the Decision and the amount of the fine on the basis that during the material period the undertakings had benefited from an increase in prices of between 15 and 40%. The applicant concludes from that that the Decision was adopted on that basis, on the grounds of factors which did not appear in the statement of objections, the case file or the Decision itself. It considers that in the absence of those factors at least the amount of the fines should have been lower.
53 The Commission considers that that is a new plea in law raised for the first time at the stage of the reply, and adds that in any event that argument has already been rejected by the Court of Justice in its order of 11 December 1986 (Case 212/86 R ICI v Commission, not published in the Reports of Cases), in which it refused to order production of the Commission' s file.
54 This Court considers that the statements made at the press conference following the adoption of the Decision, to the effect that the infringement resulted in an increase of between 15 and 40% in the general level of prices, contradict the grounds set out in the Decision itself. Accordingly, they may be used only in order to show that the Decision is based in reality on grounds other than those stated, which would constitute a misuse of powers (see the order of the Court of Justice in Case 212/86 R ICI v Commission, cited above). The only way in which this Court can determine whether there was a misuse of powers in this case is to examine whether the grounds stated for the Decision support its operative part, in particular as regards the amount of the fine. This plea must therefore be considered with the other questions relating to the proof of the infringement and the determination of the fine.
Proof of the infringement
55 According to the Decision (point 80, first paragraph), from 1977 onwards the polypropylene producers supplying the EEC had been party to a whole complex of schemes, arrangements and measures decided on in the framework of a system of regular meetings and continuous contact. The Decision (point 80, second paragraph) goes on to state that the overall plan of the producers was to meet and reach agreement upon specific matters.
56 It is therefore necessary to verify first of all whether the Commission has established to the requisite legal standard its findings of fact relating to (A) the floor-price agreement, (B) the system of regular meetings, (C) the price initiatives, (D) the measures designed to facilitate the implementation of the price initiatives and (E) the fixing of target tonnages and quotas, taking into account (a) the contested decision and (b) the arguments of the parties, before going on to (c) an assessment of them; it will then be necessary to review the application of Article 85(1) of the EEC Treaty to those facts.
1. The findings of fact
A. The floor-price agreement
(a) The contested decision
57 The Decision (point 16, first, second and third paragraphs; see also point 67, first paragraph) states that during 1977, after seven new polypropylene producers came on stream in western Europe, the established producers initiated discussions with a view to avoiding a substantial drop in price levels and attendant losses. As part of those discussions the major producers, Monte, Hoechst, ICI and Shell, initiated a "floor-price agreement" which was to be in operation by 1 August 1977. The original arrangement did not involve volume control but if it proved successful tonnage restrictions were envisaged for 1978. That agreement was to run for an initial period of four months and details of it were communicated to other producers, including Hercules, whose marketing director noted as the basis for floor prices for the major grades for each Member State a raffia grade market price of DM 1.25/kg.
58 According to the Decision (point 16, fifth paragraph), ICI and Shell admit that there were contacts with other producers as to how the price slide could be checked. According to ICI, a price level may have been suggested below which prices should not be permitted to fall. It is confirmed by ICI and Shell that discussions were not limited to the "big four". Precise details of the operation of the floor-price agreement could not be ascertained. However, by November 1977, when the raffia price was reported as having fallen to around DM 1.00/kg, Monte announced an increase to DM 1.30/kg due to take effect on 1 December, and on 25 November the trade press quoted the other three majors as expressing their support for the move, with similar increases planned from the same date or later in December.
59 According to the Decision (point 17, first and second paragraphs), it was at about this time that the system of regular meetings of the polypropylene producers began, and ICI claims that meetings were not held until December 1977 but has admitted that contact was occurring between producers before that date, probably by telephone and on an ad hoc basis. Shell says that its executives "may have had discussions concerning price with Montedison in or about November 1977 and Montepolimeri may have suggested the possibility of increasing prices and may have sought (Shell' s) views on its reactions to any increase". In the third paragraph of point 17 of the Decision it is stated that while there is no direct evidence of any group meetings being held to fix prices before December 1977, the producers were already informing meetings of a trade association of customers, the EATP, held in May and November of 1977, of the perceived need for common action to be taken to improve price levels. In May 1977 Hercules had stressed that the "traditional industry leaders" should take the initiative, while Hoechst had indicated its belief that prices needed to rise by 30 to 40%.
60 It is in that context that the complaint is made (Decision, point 17, fourth paragraph; point 78, third paragraph; and point 104, second paragraph) that ICI, Hercules, Hoechst, Linz, Rhône-Poulenc, Saga and Solvay stated that they would be supporting the announcement made by Monte in an article appearing in the trade press (European Chemical News, hereinafter referred to as "ECN") on 18 November 1977 of its intention to raise the price of raffia to DM 1.30/kg as from 1 December. The various statements made in this regard at the EATP meeting held on 22 November 1977, as recorded in the minutes, show that the DM 1.30/kg level set by Monte had been accepted by the other producers as a general industry "target".
(b) Arguments of the parties
61 The applicant maintains that the Commission puts forward only one piece of evidence to support the allegation that an agreement on floor prices was concluded in 1977, namely a handwritten note made by Hercules' s marketing director (main statement of objections, Appendix 2). That document shows at most that there were contacts between six or seven producers concerning the determination of a price level which could cover production and sales costs so as to attenuate the serious financial difficulties faced by those undertakings at the time.
62 Those contacts cannot, it says, be regarded as proof of the existence of a structured and detailed agreement, and certainly not of a plan setting out in detail the tasks allocated to each participant in the agreement.
63 The applicant adds that those contacts cannot be linked to the meetings which subsequently took place since the concept of floor prices which was discussed in the course of those contacts was not taken up in the later meetings.
64 The applicant derives further support from the fact that the prices discussed during the 1977 contacts were never achieved on the market.
65 The Commission replies that the applicant has put forward no arguments challenging the content of the Hercules note, which, describing the floor-price agreement (main statement of objections, Appendix 2), states that the "major producers made agreement".
66 It adds that that note must be viewed in the context of the contacts maintained by the producers at the time, of which Shell and ICI have acknowledged the existence.
67 The Commission further states that the producers were each able to determine their own profitability threshold and therefore had no reason to consult each other on that issue.
(c) Assessment by the Court
68 The Court observes that the text of the note made by the Hercules employee to which the Commission refers is clear and unambiguous. It states:
"Major producers have made agreement (Mont., Hoechst, Shell, ICI) 1. No tonnage control; 2. System floor prices - DOM less for importers; 3. Floor prices from July 1. definitely Aug. 1st when present contracts expire; 4. Importers restrict to 20% for 1000 tonnes; 5. Floor prices for 4 month period only - alternative is for existing; 6. Com.[panies] to meet Oct. to review progress; 7. Subject [of the] scheme working - Tonnage restrictions would operate next year."
[There then follows a list of prices for three grades of polypropylene in four national currencies, including DM 1.25/kg for raffia.]
69 It is to be observed that, faced with that evidence, the applicant has put forward nothing to weaken the evidentiary value given by the Commission to that note. Although the word "agreement" may in some cases refer to an identity of views it should be observed that in the note it is part of the expression "made agreement", which can only mean "concluded an agreement" and thus refers to something more than identity of views, a common intention among the applicant and three other producers on floor prices.
70 Nor does the fact that the agreed floor prices could not be achieved tell against the applicant' s participation in the floor-price agreement, since even if that fact is assumed to be established, it would at the most tend to show that the floor prices were not implemented, not that they were not agreed. However, far from asserting that the floor prices were achieved, the Decision (point 16, last paragraph) states that the price of raffia had fallen to around DM 1.00/kg in November 1977.
71 Moreover, the Court considers that floor prices are no different in nature from price targets, which, according to the Decision, were subsequently fixed by the polypropylene producers.
72 It follows that the Commission has established to the requisite legal standard that in mid-1977 a common purpose emerged among several polypropylene producers, including the applicant, concerning the fixing of floor prices.
B. The system of regular meetings
(a) The contested decision
73 The Decision (point 17) states that the system of regular meetings of polypropylene producers began at about the end of November 1977. It goes on to state that ICI claims that meetings were not held until December 1977 (that is to say, after Monte' s announcement) but admitted that contact was occurring between producers before that date.
74 According to the Decision (point 18, first paragraph), at least six meetings were held during 1978 between senior managers responsible for the overall direction of the polypropylene business of some of the producers ("bosses"). This system soon evolved to include a lower tier of meetings attended by managers possessing more detailed marketing knowledge ("experts") (ICI' s reply to the request for information under Article 11 of Regulation No 17, main statement of objections, Appendix 8). The Decision asserts that the applicant was a regular participant at those meetings at least until the end of September 1983 (point 105, fourth paragraph) and that it held the chairmanship until August 1982 (point 19, second paragraph).
75 In point 21 the Decision states that the purposes of these regular meetings were, in particular, the setting of target prices and sales volumes and the monitoring of their observance by the producers.
76 According to the Decision (point 68, second and third paragraphs), at the end of 1982 the "big four" began to meet in restricted session the day before each bosses' meeting. These so-called "pre-meetings" provided a forum in which the four major producers could agree a position between themselves prior to the full meeting in order to encourage moves towards price stability by adopting a united approach. ICI admitted that the topics discussed in pre-meetings were the same as those dealt with by the bosses' meetings which followed, but Shell denied that the "big four" meetings were in any sense preparatory to a plenary meeting or involved coordination on a common stance before the next meeting. The Decision states, however, that the records of some of those meetings (in October 1982 and May 1983) disprove this claim of Shell.
(b) Arguments of the parties
77 The applicant does not deny having participated in the periodic meetings of polypropylene producers. However, it argues that the Commission has misrepresented the scope of the meetings by regarding them as evidence of an agreement or concerted practice. It states that the sole purpose of the meetings was to discuss the catastrophic state of the market.
78 The applicant asserts that the Commission based itself blindly on ICI' s notes of the producers' meetings in order to support its view that price and quota agreements were concluded during the meetings. These, however, were internal notes containing the personal remarks and assessments of their author, which were neither known to nor approved by the other participants.
79 The Commission, for its part, states that the meetings in which the applicant took part formed part of a system which became more rigidly structured as time went on.
80 It states that the purpose of the meetings was to decide on price initiatives, to agree on sales volume targets, to compare market shares and to adopt accompanying measures such as the "account leadership" system. The purpose was thus to agree on the harmonization of the sales strategies of the participants in the meetings.
81 The Commission adds that the applicant puts forward no valid reason to doubt the reliability of the documents produced by the Commission, in particular the notes of meetings drawn up by employees of ICI.
(c) Assessment by the Court
82 The Court notes that the applicant does not deny its participation in the periodic meetings of polypropylene producers and that it must therefore be held that it participated in all the meetings which the Commission alleges to have been held. GROUNDS CONTINUED UNDER DOC.NUM : 689A0014.1
83 In this regard, the Court considers that the Commission was fully entitled to take the view, based on the information which was provided by ICI in its reply to the request for information (main statement of objections, Appendix 8) and was borne out by numerous meeting notes, that the purpose of the meetings was, in particular, to fix target prices and sales volumes. That reply contains the following passages:
"Generally speaking however, the concept of recommending 'Target Prices' was developed during the early meetings which took place in 1978"; "' Target prices' for the basic grade of each principal category of polypropylene as proposed by producers from time to time since 1 January 1979 are set forth in Schedule ...";
and
"A number of proposals for the volume of individual producers were discussed at meetings."
84 The Court observes that the contents of the notes obtained from ICI are confirmed by various documents, such as a number of tables relating to the sales volumes of the various producers and price instructions broadly corresponding in their amount and date of entry into force to the target prices mentioned in those meeting notes. Similarly, the replies of the various producers to the requests for information addressed to them by the Commission bear out in the aggregate the contents of those notes.
85 Consequently, the Commission was able to take the view that the meeting notes found at the premises of ICI reflected fairly objectively what went on at those meetings which were chaired, from August 1982 onwards, by different members of ICI' s staff, which increased the need for them properly to inform those members of ICI' s staff who did not attend particular meetings about what had transpired at them by making notes of them.
86 In those circumstances it is for the applicant to provide another explanation of the subject-matter of the meetings in which it participated, by putting forward specific evidence such as notes taken by its own employees at meetings which they attended or the testimony of those persons. It must be observed that the applicant has not put forward or offered to put forward such material before the Court.
87 In addition, in explaining the organization of marketing "experts' " meetings as well as "bosses' " meetings from the end of 1978 or the beginning of 1979, ICI' s reply to the request for information reveals that the discussions about the fixing of target prices and sales volumes became increasingly concrete and precise, whereas in 1978 the "bosses" had confined themselves to developing the actual concept of target prices.
88 Besides the passages set forth above, the following statement appears in ICI' s reply to the request for information: "Only 'Bosses' and 'Experts' meetings came to be held on a monthly basis". The Commission was fully entitled to deduce from that reply, as well as from the identical nature and purpose of the meetings, that they were part of a system of regular meetings.
89 As regards the particular role played by the "big four" in the system of meetings, it must be noted that Monte does not deny that meetings between the "big four" took place on 15 June 1981 in the absence of Hoechst, on 13 October and 20 December 1982, and on 12 January, 15 February, 13 April, 19 May and 22 August 1983 (Decision, Table 5, and main statement of objections, Appendix 64).
90 After December 1982, those meetings of the "big four" took place the day before the "bosses' " meetings, and their purpose was to determine the steps which they could take together in order to bring about a rise in prices, as is shown by the summary note prepared by an ICI employee in order to inform one of his colleagues about what had transpired at a pre-meeting on 19 May 1983 which the "big four" had attended (main statement of objections, Appendix 101). That note mentions a proposal to be submitted to the "bosses' " meeting on 20 May.
91 It follows that the Commission has established to the requisite legal standard that the applicant participated regularly in the regular meetings of polypropylene producers between the end of 1977 and September 1983, that until August 1982 the meetings were chaired by members of the applicant' s staff, that the purpose of those meetings was, in particular, to set price and sales volume targets and that they were part of a system.
C. The price initiatives
(a) The contested decision
92 According to the Decision (points 28 to 51), a system for fixing price targets was implemented through price initiatives of which six could be identified, the first lasting from July to December 1979, the second from January to May 1981, the third from August to December 1981, the fourth from June to July 1982, the fifth from September to November 1982 and the sixth from July to November 1983.
93 With regard to the first of those price initiatives, the Commission (Decision, point 29) states that it has no detailed evidence of any meetings held or price initiatives undertaken in the first part of 1979. However, a note of a meeting held on 26 and 27 September 1979 shows that a price initiative had been planned based on a raffia grade price of DM 1.90/kg applicable from 1 July and DM 2.05/kg from 1 September. The Commission has price instructions from certain producers, including Monte, showing that those producers had given orders to their sales offices to apply this price level or its equivalent in national currencies from 1 September, in most cases before the planned price increase was announced in the trade press (Decision, point 30).
94 However, since it was difficult to get further price increases, the producers decided at the meeting held on 26 and 27 September 1979 to postpone the date for implementing the target by several months until 1 December 1979, the new plan being to "hold" the existing levels over October with the possibility of an immediate step increase to 1.90 or DM 1.95/kg in November (Decision, point 31, first and second paragraphs).
95 As regards the second price initiative, the Commission, whilst admitting (in point 32 of the Decision) that no meeting notes were found for 1980, states that at least seven producers' meetings were held in that year (reference is made to Table 3 of the Decision). Although at the beginning of the year producers were reported in the trade press as favouring a strong price push during 1980, a substantial fall occurred in market prices to a level of DM 1.20/kg or less before they began to stabilize in about September of that year. Price instructions issued by a number of producers - DSM, Hoechst, Linz, Monte, Saga and ICI - indicated that in order to re-establish price levels targets were set for December 1980 - January 1981 based on raffia at DM 1.50/kg, homopolymer at DM 1.70/kg and copolymer DM 1.95 to 2.00/kg. A Solvay internal document includes a table comparing "achieved prices" for October and November 1980 with what are referred to as "list prices" for January 1981 of DM 1.50/1.70/2.00. The original plan was to apply these levels from 1 December 1980 (a meeting was held in Zurich on 13 to 15 October) but this initiative was postponed to 1 January 1981.
96 The Decision (point 33) then refers to Monte' s participation in two meetings in January 1981, at which it was decided that a price increase, fixed in December 1980 for 1 February 1981, was required in two stages on the basis of DM 1.75/kg for raffia: the 1 February target was to remain at DM 1.75/kg and a target of DM 2.00/kg was to be introduced "without exception" from 1 March. A table was drawn up in six national currencies of the target prices for six principal grades, to come into effect on 1 February and 1 March 1981.
97 According to the Decision (point 34), the plan to move to DM 2.00/kg on 1 March not, however, appear to have succeeded. The producers modified their expectations and now hoped to reach the DM 1.75/kg level by March. An experts' meeting, of which no record survives, was held in Amsterdam on 25 March 1981 but immediately afterwards at least BASF, DSM, ICI, Monte and Shell gave instructions to raise target (or "list") prices to the equivalent of DM 2.15/kg for raffia, effective on 1 May. Hoechst gave identical instructions for 1 May but was some four weeks behind the others in doing so. Some of the producers allowed their sales offices flexibility to apply "minimum" or "rock bottom" prices somewhat below the agreed targets. During the first part of 1981 there was a strong upward movement in prices, but despite the fact that the 1 May increase was strongly promoted by the producers momentum was not maintained. By mid-year the producers anticipated either a stabilizing of price levels or even some downward movement as demand fell during the summer.
98 As regards the third price initiative, the Decision (point 35) states that Shell and ICI had already foreseen a further price initiative in September/October 1981 in June of that year when the slowing down of the first-quarter price rise had become apparent. Shell, ICI and Monte met on 15 June 1981 to discuss methods of implementing higher prices in the market. Within a few days of this meeting both ICI and Shell instructed their sales offices to prepare the market place for a major rise in September based on a plan to move the raffia price to DM 2.30/kg. Solvay also reminded its Benelux sales office on 17 July 1981 to warn customers of a substantial price increase due to take effect on 1 September, the exact amount of which was to be decided in the last week of July, when an experts' meeting was planned for 28 July 1981. The original plan to go for DM 2.30/kg in September 1981 was revised, probably at this meeting, with the planned level for August back to DM 2.00/kg for raffia. The September price was to be DM 2.20/kg. A handwritten note obtained at the premises of Hercules and dated 29 July 1981 (the day after the meeting, which Hercules probably did not attend) lists these prices as the "official" prices for August and September and refers in cryptic terms to the source of the information. More meetings were held in Geneva on 4 August and in Vienna on 21 August 1981. Following these sessions, new instructions were given by producers to go for a price of DM 2.30 /kg on 1 October. BASF, DSM, Hoechst, ICI, Monte and Shell gave virtually identical price instructions to implement these prices in September and October.
99 According to the Decision (point 36), the plan now was to move during September and October 1981 to a "base price" level of DM 2.20 to 2.30/kg for raffia. A Shell document indicates that originally a further step increase to DM 2.50/kg on 1 November had been mooted but was abandoned. Reports from the various producers showed that during September prices increased and the initiative continued into October 1981 reaching achieved market prices of some DM 2.00 to 2.10/kg for raffia. A Hercules note shows that during December 1981 the target of DM 2.30/kg was revised downwards to a more realistic DM 2.15/kg, but reports that "general determination got prices up to DM 2.05, the closest ever to published (sic) target prices". By the end of 1981, the trade press was reporting polypropylene market prices as raffia DM 1.95 to 2.10/kg, some 20 pfennig below the producers' targets. Capacity utilization was said to be running at a "healthy" 80%.
100 The fourth price initiative of June to July 1982 took place as supply and demand returned into balance on the market. That initiative was decided upon at the producers' meeting of 13 May 1982 at which Monte participated and during which a detailed table of price targets for 1 June was drawn up for various grades of polypropylene in various national currencies (DM 2.00/kg for raffia) (Decision, points 37, 38 and 39, first paragraph).
101 The meeting of 13 May 1982 was followed by price instructions from ATO, BASF, Hoechst, Hercules, Huels, ICI, Linz, Monte and Shell, corresponding, with a few insignificant exceptions, to the target prices set at the meeting (Decision, point 39, second paragraph). At the meeting on 9 June 1982, the producers were able to announce only modest increases.
102 According to the Decision (paragraph 40), the applicant also participated in the fifth price initiative of September-November 1982 decided upon at the meeting on 20 and 21 July 1982, the aim of which was to achieve a price of DM 2.00/kg by 1 September and DM 2.10/kg by 1 October, since it was present at the majority if not all of the meetings held between July and November 1982 in which this initiative was planned and monitored (Decision, point 45). At the meeting on 20 August 1982, the increase planned for 1 September was postponed until 1 October, and that decision was confirmed at the meeting on 2 September 1982 (Decision, point 41).
103 Following the meetings of 20 August and 2 September 1982, ATO, DSM, Hercules, Hoechst, Huels, ICI, Linz, Monte and Shell gave price instructions in accordance with the price target set at those meetings (Decision, point 43).
104 According to the Decision (point 44), at the meeting on 21 September 1982, in which the applicant participated, an examination of the measures taken to achieve the target previously set was undertaken and the undertakings expressed general support for a proposal to raise the price to DM 2.10/kg by November-December 1982. That increase was confirmed at the meeting on 6 October 1982.
105 Following the meeting on 6 October 1982, BASF, DSM, Hercules, Hoechst, Huels, ICI, Linz, Monte, Shell and Saga gave price instructions applying the increase decided upon (Decision, point 44, second paragraph).
106 Like ATO, BASF, DSM, Hercules, Hoechst, Huels, ICI, Linz, and Saga, the applicant supplied the Commission with price instructions issued to its local sales offices, which corresponded not only with each other in terms of amount and timing but also with the target-price table attached to ICI' s account of the "experts' " meeting held on 2 September 1982 (Decision, point 45, second paragraph).
107 According to the Decision (point 46, second paragraph), the December 1982 meeting resulted in an agreement that the level planned for November-December was to be established by the end of January 1983.
108 Finally, according to the Decision (point 47), the applicant participated in the sixth price initiative of July-November 1983. At the meeting on 3 May 1983, it was agreed that the producers would try to apply a price target of DM 2.00/kg in June 1983. However, at the meeting on 20 May 1983, the target previously set was postponed until September and an intermediate target was fixed for 1 July (DM 1.85/kg). Subsequently, at a meeting on 1 June 1983, the producers present, including Monte, reaffirmed complete commitment to the DM 1.85/kg increase. On that occasion, it was agreed that Shell would lead publicly in European Chemical News (ECN).
109 The Decision (point 49) states that after the meeting of 20 May 1983, ICI, DSM, BASF, Hoechst, Linz, Shell, Hercules, ATO, Petrofina and Solvay issued instructions to their sales offices to apply from 1 July a price table based on DM 1.85/kg for raffia. It goes on to state that only fragmented price instructions were obtained from ATO and Petrofina but these confirmed that these producers were implementing the new price levels, somewhat belatedly in the case of Petrofina and Solvay. Monte, on the other hand, had already on 17 May instructed its sales offices to apply an increase to come into force in June and to be carried on in July. The Decision concludes that, with the exception of Huels, for which the Commission found no price instructions for July 1983, all the producers which had attended the meetings or had promised support for the new price target of DM 1.85/kg are shown to have given instructions to implement the new price.
110 The Decision (point 50) also points out that further meetings, in which all the regular participants took part, took place on 16 June, 6 and 21 July, 10 and 23 August and 5, 15 and 29 September 1983. At the end of July and beginning of August 1983, BASF, DSM, Hercules, Hoechst, Huels, ICI, Linz, Solvay, Monte and Saga all issued price instructions to their various national sales offices for application from 1 September based on raffia at DM 2.00/kg, whilst a Shell internal note of 11 August, relating to its prices in the United Kingdom, indicated that its United Kingdom subsidiary was "promoting" basic prices to be in force on 1 September corresponding to the targets fixed by the other producers. By the end of the month, however, Shell was instructing the United Kingdom sales office to postpone the full increase until the other producers had established the desired basic level. The Decision states that, with minor exceptions, those instructions were identical by grade and currency.
111 According to the Decision (point 50, last paragraph), the instructions obtained from the producers show that it was later decided to maintain the impetus of the September move with further steps based on raffia at DM 2.10/kg on 1 October, rising to DM 2.25/kg on 1 November. It is further stated (point 51, first paragraph) that BASF, Hoechst, Huels, ICI, Linz, Monte and Solvay each sent instructions to their sales offices setting identical prices for October and November, with Hercules initially fixing slightly lower prices.
112 The Decision (point 51, third paragraph) states that an internal note obtained at the premises of ATO and dated 28 September 1983 shows a table headed "Rappel du prix de cota (sic)" giving for various countries prices for September and October for the three main grades of polypropylene which are identical to those of BASF, DSM, Hoechst, Huels, ICI, Linz, Monte and Solvay. During the investigation at the premises of ATO in October 1983 the representatives of the undertaking confirmed that these prices were communicated to sales offices.
113 According to the Decision (point 105, fourth paragraph), whatever the date of the last meeting, the infringement lasted until November 1983, since the agreement continued to produce its effects at least until that time, November being the last month for which it is known that target prices were agreed and price instructions issued.
114 Finally, the Decision (point 51, last paragraph) points out that, according to the trade press, by the end of 1983 polypropylene prices had "firmed" to reach a raffia market price of DM 2.08 to 2.15/kg (compared with the reported target of DM 2.25/kg).
(b) Arguments of the parties
115 The applicant comprehensively denies participating in all the price initiatives mentioned in the Decision.
116 It states first of all that ICI' s notes of the meetings cannot be sufficient to prove the existence of agreements within the meaning of Article 85(1) of the EEC Treaty and that in any event those notes contain frequent allusions to the absence of consensus between the producers present, as in the case of the notes of the meetings of 2 September, 21 September and 2 November 1982 or the meetings of 27 May and 15 June 1981, or the notes of the bilateral meetings between certain producers (main statement of objections, Appendices 29, 30, 32, 64, 95 and 99 respectively).
117 The applicant goes on to state that the absence of price agreements is confirmed by the fact, established by an audit carried out by Coopers & Lybrand, an independent firm of accountants, that almost all the sales of the different producers, in particular the applicant, were made at prices significantly below both the target prices alleged to have been agreed upon by the producers and the applicant' s price instructions, which were internal theoretical objectives intended for its own sales offices.
118 It asserts that it has thus set out an impressive set of facts which show that it never considered itself bound by the results or proposals arrived at in the meetings and that it determined its own conduct on the market in complete independence.
119 The applicant considers that by inferring from the fact that new price objectives were sent out after the meetings that those objectives had been set in the meetings the Commission applied "post hoc" reasoning and disregarded the case-law of the Court of Justice (Joined Cases 29 and 30/83 CRAM and Rheinzink v Commission [1984] ECR 1679). In so doing it also disregarded basic concepts of economics, such as the fact that the prices contemplated by the producers could differ only slightly because of the constant - and virtually identical for all of them - increase in production costs or the fact that smaller undertakings follow the prices of the leading undertaking.
120 It argues that the price initiatives were the result not of the meetings but of the actual situation which the producers faced. The sole objective was a balance between costs and revenues, and it could be achieved only by attempting to increase prices. If those attempts were repeated, it was because on each occasion they were rejected by movements in the market. None of the undertakings had any interest in increasing its market share, since that merely increased its losses. In those circumstances there was no longer any competition on the market and the rules intended to safeguard competition under normal circumstances could no longer apply.
121 It adds that although each undertaking must determine its own conduct independently, that does not mean that independence must necessarily entail diversity. It therefore denies that the parallelism in the internal price instructions issued by the producers has any probative value.
122 Finally, it submits that the producers were conscious of their complete inability to control market forces, which led them to assess the possibilities offered by the market in an identical manner.
123 The Commission points out that it was on the basis of conclusive documents that it established the existence of the producers' commitment to the price initiatives and Monte' s participation in that commitment. The allusions to the absence of consensus concern producers other than Monte and mention recriminations directed at them show the existence of commitments and prove in particular Monte' s commitment.
124 It adds that the fact that the prices obtained were different from the target prices is not conclusive inasmuch as a common strategy for negotiation with customers itself restricts competition, because even if it does not guarantee that the prices actually invoiced will be identical it defines the point of departure for negotiations and thus indirectly affects their result.
125 The Commission observes that it is not true to say that the Decision is based on the simultaneity and similarity of price instructions among themselves and with the target prices. That similarity in fact merely confirms the documentary evidence. The "price leadership" argument raised by the applicant is worthless for the same reason.
126 It disputes the argument by which Monte seeks to show that the conduct of the undertakings can be attributed to the market situation and was not the result of the meetings between competing producers. If, in a situation of over-production, a single undertaking increases its prices it will make no sales and will be obliged to reverse its decision. Accordingly, it can hope to increase its prices only if it ensures that its competitors will try to do the same.
127 The Commission does not deny that the target price was different from the price which customers were actually charged or that the situation of the market influenced negotiations with customers. The fact that remains that mutual agreement to take a certain price as the point of departure for negotiations sets the framework for those negotiations and results in actual prices which are different from those which would have resulted from negotiations without any prior commitment.
(c) Assessment by the Court
128 The Court finds that the records of the regular meetings of polypropylene producers show that the producers which participated in those meetings agreed to the price initiatives mentioned in the Decision. For example, the note of the meeting on 13 May 1982 (main statement of objections, Appendix 24) states:
"everyone felt that there was a very good opportunity to get a price rise through before the holidays + after some debate settled on DM 2.00 from 1st June (UK 14th June). Individual country figures are shown in the attached table".
129 Since it has been established to the requisite legal standard that the applicant participated in those meetings, it cannot assert that it did not support the price initiatives which were decided on, planned and monitored at those meetings, without providing any evidence to corroborate that assertion. In the absence of such evidence, there is no reason to believe that the applicant did not subscribe to those initiatives, unlike other participants at the meetings.
130 In this regard, it must be noted that the applicant has raised two arguments to show that it did not, at the regular meetings of polypropylene producers, subscribe to the price initiatives agreed upon. It argues first that it took no account of the outcome of the meetings in determining its conduct on the market as regards prices, the entirely competitive nature of which is clear from the Coopers & Lybrand audit, and, secondly, that the economic context in which its price instructions were issued explains their correspondence to those of the other producers.
131 Neither of those arguments can be accepted as evidence capable of corroborating the applicant' s assertion that it did not subscribe to the agreed price initiatives. Even if the first argument were supported by the facts it would not gainsay the applicant' s participation in the fixing of price targets at the meetings but would at most tend to show that the applicant did not put into effect the results of those meetings. Indeed, the Decision in no way asserts that the applicant charged prices which always corresponded to the price targets agreed upon at the meetings, which shows that the contested decision does not rely on the applicant' s implementation of the outcome of meetings in order to establish that it participated in the fixing of those price targets.
132 In any event, the applicant cannot effectively argue that its price instructions were purely internal since, although they were indeed purely internal inasmuch as they were sent by headquarters to the sales offices, they were nevertheless sent with a view to their being carried out and therefore in order to produce directly or indirectly external effects, which negates their internal character.
133 As regards the second argument put forward by the applicant, the Court considers that the economic context of the price initiatives cannot explain the manner in which the price instructions issued by the different producers correspond to each other and to the price targets set at the producers' meetings. The identical nature of the constraints faced by the various producers and the situation of market crisis cannot explain the fact that their price instructions, expressed in different national currencies, were identical, since the identical nature of those constraints was restricted to certain factors of production, such as the price of raw materials, and did not relate to general expenses, wage costs or tax rates, which meant that the profitability threshold for the various producers was significantly different. That is shown, for example, by the note of the meeting of the "European Association for Textile Polyolefins" of 22 November 1977 (main statement of objections, Appendix 6), according to which in order to reach the profitability threshold Hoechst sought a price of DM 1.85/kg, ICI a price of DM 1.60/kg, Rhône-Poulenc a price of FF 3.50 and Shell a price of DM 1.50/kg.
134 Nor can the identical nature of those constraints explain the virtual simultaneity of the price instructions issued by the applicant and by the other producers.
135 Moreover, there can be no question of any form of "price leadership" on the part of a producer, since the Commission has proved to the requisite legal standard that this producer participated with others in consultation on prices.
136 It should be added that the Commission was fully entitled to deduce from ICI' s reply to the request for information (main statement of objections, Appendix 8), in which it is stated that:
"' Target prices' for the basic grade of each principal category of polypropylene as proposed by producers from time to time since 1 January 1979 are set forth in Schedule ..."
that those initiatives were part of a system of fixing target prices.
137 It follows that the Commission has established to the requisite legal standard that the applicant was one of the polypropylene producers amongst whom there emerged common intentions concerning the price initiatives mentioned in the Decision, that those initiatives were part of a system and that the effects of those price initiatives continued until November 1983.
D. The measures designed to facilitate the implementation of the price initiatives
(a) The contested decision
138 In the Decision (Article 1(c) and point 27; see also point 42) the Commission asserts that the applicant agreed with the other producers various measures designed to facilitate the implementation of target prices, such as temporary restrictions on output, exchanges of detailed information on their deliveries, the holding of local meetings and, from the end of September 1982, a system of "account management" designed to implement price rises to individual customers.
139 As regards the system of "account management", whose later more refined form, "account leadership", dates from December 1982, the applicant, like all the producers, was nominated coordinator or "leader" for at least one major customer, in respect of whom it was charged with secretly coordinating its dealings with suppliers. Under that system, customers were identified in Belgium, Italy, Germany and the United Kingdom and a "coordinator" was nominated for each of them. In December 1982, a more general adoption of the system was proposed, with an account leader named for each major customer who would guide, discuss and organize price moves. Other producers which had regular dealings with the customer were known as "contenders" and would cooperate with the account leader in quoting prices to the customer in question. In order to "protect" the account leader and the contenders, any other producers approached by the customers were to quote prices higher than the desired target. Despite ICI' s assertions, according to which the scheme collapsed after only a few months of partial and ineffective operation, the Commission states in the Decision that a full note of the meeting held on 3 May 1983 shows that at that time detailed discussions took place on individual customers, on the prices offered or to be offered to them by each producer, and on the volumes supplied or on order.
140 The Decision (point 20) also asserts that Monte attended local meetings held to discuss implementation on a national level of arrangements agreed in the full sessions.
(b) Arguments of the parties
141 The applicant submits that it did not participate in the "account leadership" system and that no such system was ever implemented, even if it was discussed. On the basis of a study drawing on the notes of the meetings of 2 September and 2 December 1982 (main statement of objections, Appendices 29 and 33) it states that its sales to customers which are mentioned in those notes, whose "account leader" it is said to have been, accounted for only 0 to 18% of their purchases. In those circumstances it would have been impossible for it to play the role of "account leader" in relation to those customers.
142 The Commission refers to the evidence mentioned in the Decision in order to assert that the participants in the meetings agreed on the establishment of the "account leadership" system, and even if it is true that the system was only imperfectly implemented the fact remains that it was adopted at the meetings.
(c) Assessment by the Court
143 The Court considers that point 27 of the Decision is to be interpreted in the light of the second paragraph of point 26, not as contending that each of the producers committed itself individually to adopt all the measures mentioned there but as asserting that at various times those producers adopted at those meetings together with the other producers a set of measures mentioned in the Decision and designed to bring about conditions favourable to an increase in prices, in particular by artificially reducing the supply of polypropylene, and that the implementation of the various measures involved was by common agreement shared between the various producers according to their specific situation.
144 It must be concluded that in participating in the meetings during which that set of measures was adopted (in particular those of 13 May, 2 and 21 September 1982 (main statement of objections, Appendices 24, 29, 30)), the applicant subscribed to it, since it has not adduced any evidence to prove the contrary. In this regard, the adoption of the system of "account leadership" is clear from the following passage appearing in the record of the meeting of 2 September 1982:
"about the dangers of everyone quoting exactly DM 2.00 A.' s point was accepted but rather than go below DM 2.00 it was suggested & generally agreed that others than the major producers at individual accounts should quote a few pfs higher. Whilst customer tourism was clearly to be avoided for the next month or two it was accepted that it would be very difficult for companies to refuse to quote at all when, as was likely, customers tried to avoid paying higher prices to the regular suppliers. In such cases producers would quote but at above the minimum levels for October".
Similarly, at the meeting of 21 September 1982, in which the applicant participated, it was stated: "In support of the move, BASF, Hercules and Hoechst said they would be taking plant off line temporarily" and at the meeting of 13 May 1982 Fina stated: "Plant will be shut down for 20 days in August".
145 As regards the question of "account leadership", the Court finds that it is clear from the notes of the meetings of 2 September 1982 (main statement of objections, Appendix 29), 2 December 1982 (main statement of objections, Appendix 33) and of spring 1983 (main statement of objections, Appendix 37), which were all attended by the applicant, that during those meetings the producers present at them agreed to that system.
146 It should be added that the study produced by the applicant concerns only seven customers for which the Commission alleges that Monte was designated "account leader", Eurofil, Seal, Sisal, T. Radici, Polymekon, Its Artea and Seeber, although its name appears alongside those of nine other customers, that is to say, in the table attached to the note of the meeting of 2 September 1982, Baumhueter, De Magistris, Uco, Bexer, Alfa and Bellotex and, in the table attached to the note of the meeting of 2 December 1982, Sekisni, Campanini, De Magistris and Sergal. Consequently, the Court considers that the excessively limited scope of the study means that the conclusions which the applicant seeks to draw from it cannot be supported.
147 The implementation, at least in part, of this system is evidenced by the note of the meeting of 3 May 1983 (main statement of objections, Appendix 38), in which it is stated inter alia:
"Belgium. A long discussion took place on the 5 Belgian A/Cs. (...) Generally speaking raffia prices appeared to be from [BFr] 32.50 to 34.50 and fibre prices from 37 to 37.50. The point was made that some other accounts were lower than the target customers. It was agreed that contenders would quote BFr 36 in May with non-contenders offering 38".
"Denmark. A long discussion took place on Jacob Holm who is asking for quotations for the 3rd quarter. It was agreed not to do this and to restrict offers to the end of June. April/May levels were at Dkr 6.30 (DM 1.72). Hercules were definitely in and should not have been so. To protect BASF, it was agreed that CWH[uels] + ICI would quote Dkr 6.75 from now to end June (DM 1.85)..."
Such implementation is confirmed by ICI' s reply to the request for information (main statement of objections, Appendix 8), in which it is stated in relation to the latter passage:
"In the Spring of 1983 there was a partial attempt by some producers to operate the 'Account Leadership' scheme ... Since Hercules had not declared to the 'Account Leader' its interest in supplying Jacob Holm, the statement was made at this meeting in relation to Jacob Holm that 'Hercules were definitely in and should not have been so' . It should be made clear that this statement refers only to the Jacob Holm account and not to the Danish market. It was because of such action by Hercules and others that the 'Account Leadership' scheme collapsed after at most two months of partial and ineffective operation. The method by which Huels and ICI should have protected BASF was by quoting a price of DK 6.75 for the supply of raffia grade polypropylene to Jacob Holm until the end of June."
148 That implementation is further corroborated by the note of a meeting in spring 1983 (main statement of objections, Appendix 37) which includes, under the heading "Key Accounts", figures for the applicant' s deliveries to various undertakings for which it had been designated "account leader" either at the meeting of 2 September 1982 or at that of 2 December 1982, such as Baumhueter, Campanini, Polymekon, Eurofil and Bellotex.
149 The Court further observes that the applicant does not specifically deny having taken part in the decision to adopt other measures designed to facilitate the implementation of the price initiatives.
150 It follows from the foregoing that the Commission has established to the requisite legal standard that the applicant was one of the polypropylene producers amongst whom there emerged common intentions concerning the measures designed to facilitate the implementation of the price initiatives mentioned in the Decision.
E. Target tonnages and quotas
(a) The contested decision
151 According to the Decision (point 31, third paragraph), it was "recognized that a tight quota system [was] essential" at the meeting held on 26 and 27 September 1979, the note of which refers to a scheme proposed or agreed in Zurich to limit monthly sales to 80% of the average achieved during the first eight months of the year.
152 The Decision (point 52) further points out that before August 1982 various schemes for sharing the market were applied. While percentage shares of the estimated available business had been allocated to each producer, there was not at this stage any systematic limitation in advance of overall production. Thus, estimates of the total market had to be revised on a rolling basis and the sales (in tonnes) of each producer had to be adjusted to fit the percentage entitlement.
153 Volume targets (in tonnes) were set for 1979 based in part at least on sales in the preceding three years. Tables found at the premises of ICI show the "revised target" for each producer for 1979 compared with actual tonnage sales achieved during that period in Western Europe (Decision, point 54).
154 By the end of February 1980, volume targets - again expressed in tonnage terms - had been agreed for 1980 by the producers, based on an expected market of 1 390 000 tonnes. According to the Decision (point 55), a number of tables showing the "agreed targets" for each producer for 1980 were found at the premises of ATO and ICI. The original estimated total market available proved over-optimistic and the quota of each producer had to be revised downwards to fit total consumption during the year of only 1 200 000 tonnes. Except for ICI and DSM, the sales achieved by the various producers were largely in line with their targets.
155 According to the Decision (point 56), the sharing of the market for 1981 was the subject of prolonged and complex negotiations. At the meetings in January 1981, it was agreed that as a temporary measure to help to achieve the February/March price initiative each producer would restrict monthly sales to one-twelfth of 85% of the 1980 "target". In preparation for a more permanent scheme, each producer communicated to the meeting the tonnage it hoped to sell during 1981. However, added together, those "aspirations" largely exceeded total forecast demand. In spite of various compromise schemes put forward by Shell and ICI, no definitive quota agreement was reached for 1981. As a stopgap measure the producers took the previous year' s quota of each producer as a theoretical entitlement and reported their actual sales each month to the meeting. In this way actual sales were monitored against a notional split of the available market based on the 1980 quota (Decision, point 57).
156 The Decision (point 58) states that for a 1982 scheme complicated quota proposals were advanced which attempted to reconcile divergent factors such as previous achievements, market aspirations and available capacity. The total market to be divided was estimated at 1 450 000 tonnes. Some producers submitted detailed plans for market sharing while others were content to communicate only their own tonnage aspirations. At the meeting on 10 March 1982 Monte and ICI tried to reach an agreement. The Decision (point 58, last paragraph) states, however, that, as in 1981, no definitive agreement was reached and for the first half of the year the monthly sales for each producer were communicated during the meetings and monitored against its achieved percentage share in the previous year. According to the Decision (point 59), in the August 1982 meeting, negotiations for an agreement on quotas for 1983 were held and ICI held bilateral discussions with each of the producers on the new system. However, pending the introduction of such a quota scheme, producers were required in the second part of 1982 to aim to restrict their monthly sales to the same percentage of the overall market which each of them had achieved in the first six months of 1982. Thus, in 1982, the market shares had reached a relative equilibrium described by ATO as a "quasi-consensus" and, among the majors, ICI and Shell remained at about 11% with Hoechst slightly below at 10.5%. Monte, always the largest producer, had advanced slightly to take a 15% market share compared with 14.2% the previous year.
157 According to the Decision (point 60), for 1983, ICI invited each producer to indicate its own quota ambitions and suggestions for what percentage each of the others should be allowed. Monte, Anic, ATO, DSM, Linz, Saga and Solvay, as well as the German producers via BASF, submitted their own detailed proposals. The various proposals were then processed by computer to obtain an average which was compared with the individual percentage "aspirations" of each producer. Those steps enabled ICI to propose guidelines for a new framework agreement for 1983. ICI considered it crucial to the success of any new plan that the "big four" should present a united front to the other producers. Shell' s view as communicated to ICI was that Shell, ICI and Hoechst ought each to have a quota of 11%. The ICI proposal for 1983 would have given the Italian producers 19.8%, Hoechst and Shell 10.9% each and ICI itself 11.1% (Decision, point 62). Those proposals were discussed at the meetings of November and December 1982. A proposal initially restricted to the first quarter of the year was discussed at the meeting on 2 December 1982. The note of that meeting drawn up by ICI shows that ATO, DSM, Hoechst, Huels, ICI, Monte and Solvay, as well as Hercules, found their allocated quota "acceptable" (Decision, point 63). Those facts are borne out by the ICI note of a telephone conversation with Hercules of 3 December 1982.
158 The Decision (point 63, third paragraph) states that a document found at the premises of Shell confirms that an agreement was made, since it endeavoured not to exceed its quota. That document also confirms that a volume control scheme was continued into the second quarter of 1983 since, in order to keep its market share in the second quarter close to 11%, national sales companies in the Shell group were ordered to reduce their sales. The existence of that agreement is confirmed by the note of the meeting on 1 June 1983, which, although not mentioning quotas, relates to exchanges of details of the tonnages sold by each producer in the previous month, which would indicate that some quota system was in operation (Decision, point 64).
159 The Decision (point 65) states that although no system of penalties for exceeding quotas was ever instituted, the system under which each producer reported in the meetings the tonnage which it had sold in the previous months, with the risk of facing criticism from the other producers if it was considered unruly, provided an inducement to observe its allocated target.
(b) Arguments of the parties
160 The applicant acknowledges that discussions took place on several occasions concerning various proposals for the introduction of target prices. However, there was no agreement but only exchanges of information, and even these were not checked and were often untrue, as is shown by the differences between the figures made available through the FIDES data exchange system and the statistics drawn up subsequently. The producers always pursued their individual interests and never regarded themselves as bound. The Commission itself attached numerous reservations to the Decision, recognizing that the allocation of target quotas was not accompanied by any penalty mechanism in the event of non-compliance with the alleged quotas, but it nevertheless concludes, wrongly, that a quota system existed.
161 It submits that the Commission has not proved that the alleged cartel had any effect on the market. In fact there were significant differences between the target quotas allegedly allocated to Monte and its market share as subsequently calculated. Similar differences, sometimes greater, may be observed in respect of the other producers as well (main statement of objections, Appendix 17).
162 The applicant goes on to state that the market share of each producer fluctuated significantly during this period, which shows that they were all pursuing independent policies.
163 Finally, it points out that the Commission is neglecting the fact that in a situation of stagnant demand and excessive supply every producer knows that if it wishes to increase prices it must give up some of its sales.
164 The Commission, on the other hand, maintains that quota agreements were concluded for 1979, 1980 and 1983. For 1981 and 1982 it considers that no final agreement was reached but that provisional solutions were adopted.
165 As regards 1979, the Commission considers that it is clear beyond doubt from the table headed "Producers' Sales to West Europe" (main statement of objections, Appendix 55) that Monte participated in a quota system. That table sets out for the various producers the sales in 1976, 1977 and 1978 which were used as the basis for the allocation of market shares for 1979. The table also contains a column showing a "revised target" for that year. The Commission thinks that the target quotas for 1979 were drawn up in 1979, not in 1980. That document is also corroborated by a note of a producers' meeting held on 26 and 27 September 1979 (main statement of objections, Appendix 12) which shows that the question of target tonnages was discussed and that the participants recognized that a strict quota system was essential.
166 As regards 1980, the Commission contends that an agreement on quotas was made. It bases this contention essentially on a table dated 26 February 1980 found at the premises of ATO (main statement of objections, Appendix 60) and headed "Polypropylene - Sales target 1980 (kt)", which compares for all the producers of western Europe a "1980 target", "opening suggestions", "proposed adjustments" and "agreed targets 1980". That document shows the process whereby quotas were drawn up. This analysis is confirmed, in the Commission' s view, by the note of the two January 1981 meetings (main statement of objections, Appendix 17) at which sales volume targets were compared with the quantities actually sold by the producers. It emphasizes that the aim of the quota system was to stabilize market shares. That is why, in its view, the agreements related to market shares, which were then converted into tonnages for use as reference figures, since if they were not converted it would not have been possible to determine from which point in time a participant in the cartel had to restrain his sales in order to comply with the agreements. For that purpose, it was essential to forecast the total volume of sales. Since the initial forecasts for 1980 proved to be too optimistic, the total volume of sales originally anticipated had to be adjusted several times, leading to adjustments in the tonnages allocated to each of the undertakings. According to the Commission, that constitutes proof of a quota agreement for 1980.
167 The Commission recognizes that there was no quota agreement covering the whole of 1981. It states, however, that the producers agreed as a temporary measure to limit their monthly sales for February and March to one twelfth of 85% of the targets which had been agreed for the previous year, as is shown by the note of the two January 1981 meetings. During the rest of the year there was a system of continuous monitoring of the volumes placed on the market by the producers.
168 In 1982 the situation was the same as in 1981. Although no quota agreement was reached, the producers' market shares were monitored at the meetings on 9 June and 20 August 1982 (main statement of objections, Appendices 25 and 28) and at the meetings in October, November and December 1982 (main statement of objections, Appendices 31 to 33). The Commission maintains that market shares were relatively stable during that period. That is made clear in an ATO document (main statement of objections, Appendix 72) which describes the situation as one of "quasi-consensus". The Commission also refers to the findings made in points 58 and 59 of the Decision. GROUNDS CONTINUED UNDER DOC.NUM : 689A0014.2
169 The Commission goes on to assert that it has the sales figures which the various producers sought to achieve and their proposals in that respect for themselves and other producers which they prepared at ICI' s request and provided to it with a view to the conclusion of an agreement on quotas for 1983 (main statement of objections, Appendices 74 to 76 and 78 to 84). The various proposals were then processed by computer to obtain an average which was compared with the aspirations of each producer (main statement of objections, Appendix 85). To those documents the Commission adds an ICI internal note headed "Polypropylene framework 1983" in which ICI outlines a future agreement on quotas and another ICI internal note headed "Polypropylene framework" (main statement of objections, Appendix 87), which show that that company considered a quota agreement indispensable.
170 The Commission submits that there are several consistent indications of the existence of an agreement for the first quarter. In that regard it refers first of all to table 2 attached to the note of the meeting of 2 December 1982 (main statement of objections, Appendix 33). That table indicates a quota for each producer, marked, in most cases, with an asterisk referring to the note "acceptable" at the foot of the table. It may be inferred that an important step had been taken in the direction of an agreement on quotas since all the producers had approved the principle of such an agreement and most of them had accepted the individual quota allocated to them. It also appears from an ICI internal note of December 1982 (main statement of objections, Appendix 35) that from the beginning of 1983 an agreement on quotas was regarded by ICI as indispensable for the proper functioning of the cartel. Those documents show that considerable efforts were made in order to reach agreement on quotas for the first quarter of 1983.
171 The Commission maintains that those proposals resulted in an agreement; in respect of the first quarter it bases its assertions on a Shell internal document (main statement of objections, Appendix 90) which shows that the latter subscribed to a quota agreement for 1983 since it instructed its subsidiaries to reduce their sales in order to comply with its quota ("This compares with W.E. sales in 1Q of 43 kt: and would lead to a market share of approaching 12% and well above the agreed Shell target of 11%"). In order to function and to obtain the agreement of all the undertakings concerned such a quota agreement must, says the Commission, apply to all the undertakings in a sector. Consequently, Monte must necessarily have participated in the agreement.
172 The same reasoning also applies in respect of the second quarter of 1983, and is corroborated by the note of the meeting of 1 June 1983 (main statement of objections, Appendix 40) and by a table setting out "1983 aspirations" on the basis of sales figures for the first half of 1982 (main statement of objections, Appendix 84), which, in the Commission' s view, shows that the exchange of information on quantities sold was used to monitor quotas.
173 The Commission argues that failure to comply with the quotas laid down does not negate the infringement and that those quotas had at least a restraining effect on sales. The Commission' s conclusion that there were agreements on quotas was based not on abstract economic deductions but above all on the voluminous documentary evidence which it has submitted. It adds that the setting of quotas was a mechanism which made it possible to increase the effectiveness of the price cartel since it encouraged the various parties to adhere to the agreed price and restrict supply.
174 It adds that the fact that the undertakings exchanged untrue information confirms rather than undermines the conclusion that the figures were intended to provide the basis for quotas, since otherwise the manipulation of those figures would have been pointless.
(c) Assessment by the Court
175 It has already been found that the applicant participated from the outset in the periodic meetings of polypropylene producers at which discussions relating to the sales volumes of the various producers were held and information exchanged on that subject.
176 Along with Monte' s participation in the meetings, its name appears in various tables (main statement of objections, Appendices 55 to 61) whose contents clearly show that the tables were drawn up for the purpose of determining sales volume targets. Most of the applicants have admitted in their replies to a written question from the Court that it would not have been possible to draw up the tables found at the premises of ICI, ATO and Hercules on the basis of the statistics available under the Fides system. In fact, in its reply to the request for information (main statement of objections, Appendix 8) ICI stated with reference to one of those tables that "the source of information for actual historic figures in this table would have been the producers themselves". The Commission was therefore entitled to take the view that the data contained in those tables had, as far as Monte is concerned, been provided by it in the course of the meetings in which it participated.
177 With regard to the assertion that that information was untrue, as is alleged to be shown in particular by the differences between the figures in the tables and those included in the FIDES system, it should be pointed out first that it is in part undermined by the reference in the table entitled "Producers' Sales to West Europe" (main statement of objections, Appendix 55) to a comparison between the figures provided by certain undertakings and the FIDES figures. Secondly, it may be noted that the fact that it may have been untrue would tend to confirm that it was intended to be used as the basis for a decision following negotiations whose purpose was to reconcile interests which were individually opposed but in overall terms convergent.
178 The terms used in the tables relating to the years 1979 and 1980 (such as "revised target", "opening suggestions", "proposed adjustments", "agreed targets") justify the conclusion that the producers had arrived at a common purpose.
179 As regards the year 1979 in particular, having regard both to the whole of the note of the meeting of 26 and 27 September 1979 (main statement of objections, Appendix 12) and to the undated table taken from the premises of ICI (main statement of objections, Appendix 55) headed "Producers' Sales to West Europe", which sets out for all the polypropylene producers of western Europe the sales figures in kilotonnes for 1976, 1977 and 1978 and figures under the headings "1979 actual", "revised target" and "79", it is apparent that the need to tighten the quota system agreed for 1979 for the last three months of that year was recognized at that meeting. The term "tight", read in conjunction with the restriction to 80% of one-twelfth of planned annual sales, indicates that the scheme originally planned for 1979 had to be made tighter for those last three months. That interpretation of the note is borne out by the abovementioned table because it contains, under the heading "79" in the last column to the right of the column headed "revised target", figures which must correspond to the quotas initially fixed. These had to be circumscribed because they had been drawn up on the basis of an over-optimistic market evaluation, as was also the case in 1980. The reference in the third paragraph of point 31 of the Decision, to a scheme "proposed or agreed in Zurich to limit monthly sales to 80% of the average achieved during the first eight months of the year" does not tell against these findings. That reference, read in conjunction with point 54 of the Decision, is to be taken as meaning that sales volume targets had already been set initially for the monthly sales of the first eight months of 1979.
180 As regards the year 1980, the Court finds that it is clear from the table dated 26 February 1980 found at the premises of ATO (main statement of objections, Appendix 60), which contains a column headed "agreed targets 1980" and from the note of the January 1981 meetings (main statement of objections, Appendix 17) at which producers, not including the applicant, compared the quantities actually sold ("Actual kt") with the targets set ("Target kt"), that sales volume targets were set for the whole of the year. The fact that the figures representing the applicant' s 1980 target differ between the table of 26 February 1980, where that target is 205 kilotonnes, and the note of the meetings in January 1981, where it is 177.6 kilotonnes, does not invalidate that finding since in the course of 1980 the producers' forecasts of market volume for that year had to be revised downwards, which entailed a proportionate downwards revision in quotas allocated to the applicant and the other producers. In February 1980 the quotas were fixed on the basis of a market of 1390 kilotonnes in the column "agreed targets 1980", whereas in January 1981 it was apparent that the market amounted only to 1200 kilotonnes.
181 It should be added that it appears from the same note of the meetings in January 1981 that Monte provided its sales figures for 1980 so that they could be compared with the sales volume targets fixed and accepted for 1980.
182 As regards the year 1981, the complaint against the producers is that they took part in negotiations in order to reach a quota agreement for that year and that in that context they communicated their "aspirations" and, pending such an agreement, agreed as a temporary measure to restrict their monthly sales to one-twelfth of 85% of the "target" agreed for 1980 during February and March 1981, that they took the previous year' s quota as a theoretical entitlement for the rest of the year, that they reported their sales each month to the meetings and, finally, that they monitored whether the sales matched their theoretical quota allocated to them.
183 The existence of negotiations between the producers in order to achieve the establishment of a quota system and the communication of their "aspirations" during those negotiations are attested by various pieces of evidence such as tables setting out, for each producer, its "actual" figures and "targets" for the years 1979 and 1980 and its "aspirations" for 1981 (main statement of objections, Appendices 59 and 61); a table written in Italian (main statement of objections, Appendix 62) setting out, for each producer, its quota for 1980, the proposals of other producers as to the quota to be allocated to it for 1981 and its own "aspirations" for 1981, and an ICI internal note (main statement of objections, Appendix 63) describing the progress of those negotiations in which it is stated:
"Taking the various alternatives discussed at yesterday' s meeting we would prefer to limit the volume to be shared to no more than the market is expected to reach in 1981, say 1.35 million tonnes. Although there has been no further discussion with Shell, the four majors could set the lead by accepting a reduction in their 1980 target market share of about 0.35% provided the more ambitious smaller producers such as Solvay, Saga, DSM, Chemie Linz, Anic/SIR also tempered their demands. Provided the majors are in agreement the anomalies could be best handled by individual discussions at Senior level, if possible before the meeting in Zurich."
That document is accompanied by a compromise proposal, supported by figures, which compares the result obtained for each producer in relation to 1980 ("% of 1980 target").
184 The adoption of temporary measures consisting in a reduction of monthly sales to one-twelfth of 85% of the target agreed for the previous year during February and March 1981 is apparent from the note of the meetings of January 1981, in which it is stated:
"In the meantime [February-March] monthly volume would be restricted to 1/12 of 85% of the 1980 target with a freeze on customers."
185 The fact that the producers each took their previous year' s quota as a theoretical entitlement for the rest of the year and monitored whether sales matched that quota by exchanging their sales figures each month is established by the combination of three documents: first, a table dated 21 December 1981 (main statement of objections, Appendix 67) setting out for each producer its sales broken down by month, the last three columns, relating to the months of November and December and the annual total, having been added by hand; secondly, an undated table written in Italian entitled "Scarti per società" ("Differences company by company") and found at the premises of ICI (main statement of objections, Appendix 65), comparing for each producer for the period January-December 1981 the "actual" sales figures with the "theoretic" figures; and finally, an undated table found at the premises of ICI (main statement of objections, Appendix 68) comparing for each producer for the period January-November 1981 sales figures and market shares with those for 1979 and 1980 and making a forward projection to the end of the year.
186 The first table shows that the producers exchanged their monthly sales figures. Combined with the comparisons made between those figures and the figures achieved in 1980 (comparisons made in two other tables covering the same period) such an exchange information which an independent operator would keep strictly secret as confidential business information corroborates the conclusions reached in the Decision.
187 The applicant' s participation in those various activities is apparent, first, from its participation in the meetings at which those activities took place, in particular the January 1981 meetings, and, secondly, from the fact that its name appears in the various documents mentioned above. Furthermore, in those documents are set out figures with regard to which ICI stated in its reply to a written question from the Court - to which other applicants refer in their own reply - that it would not have been possible to ascertain them on the basis of the statistical data available under the Fides system.
188 As regards 1982, the complaint against the producers is that they took part in negotiations in order to reach an agreement on quotas for that year; that in that connection they communicated their tonnage aspirations; that, failing a definitive agreement, they communicated at meetings their monthly sales figures during the first half of the year, comparing them with the percentage achieved during the previous year and, during the second half of the year, attempting to restrict their monthly sales to the same percentage of the overall market achieved in the first six months of that year.
189 The existence of negotiations between the producers with a view to introducing a quota system and the communication of their aspirations during those negotiations are evidenced, firstly, by a document entitled "Scheme for discussions 'quota system 1982' " (main statement of objections, Annex 69), which contains, for all the addressees of the Decision with the exception of Hercules, the tonnage to which each producer considered itself entitled and, in addition, for some of them (all the producers except Anic, Linz, Petrofina, Shell and Solvay), the tonnage which in their own view had to be allocated to the other producers; secondly, by an ICI note entitled "Polypropylene 1982, Guidelines" (main statement of objections, Appendix 70(a) ), in which ICI analyses the negotiations in progress; thirdly, by a table dated 17 February 1982 (main statement of objections, Appendix 70(b) ), in which various sale-sharing proposals are compared - one of which, entitled "ICI Original Scheme", has undergone, in another handwritten table, minor adjustments made by Monte in a column entitled "Milliavacca 27/1/82" (the name is that of a Monte employee) (main statement of objections, Appendix 70(c) ) - and, lastly, by a table written in Italian (main statement of objections, Appendix 71) which is a complex proposal (mentioned in the second paragraph in fine of point 58 of the Decision).
190 The measures adopted for the first half of the year are established by the note of the meeting on 13 May 1982 (main statement of objections, Appendix 24), which states inter alia:
"To support the move a number of other actions are needed (a) limit sales volume to some agreed prop. of normal sales."
Moreover, the applicant itself stated at that meeting that
"Now taking 10% of Feluy output but no problems as strikes in Italy have restricted output & they have increased overseas sales. Stocks low with particular problems on copolymer. Could be further industrial trouble in July when Government announces decisions on Enoxy/MP."
191 The implementation of those measures is evidenced by the note of the meeting of 9 June 1982 (main statement of objections, Appendix 25) to which is attached a table setting out for each producer the "actual" figure for its sales for the months from January to April 1982 compared with a figure representing the "theoretical based on 1981 av[erage] market share", and by the note of the meeting held on 20 and 21 July 1982 (main statement of objections, Appendix 26) as regards the period January-May 1982 and by that of 20 August 1982 (main statement of objections, Appendix 28) as regards the period from January to July 1982.
192 The measures adopted for the second half are proved by the note of the meeting of 6 October 1982 (main statement of objections, Appendix 31), which states: "In October this would also mean restraining sales to the Jan/June achieved market share of a market estimated at 100 kt" and then "Performance against target in September was reviewed". Attached to that note is a table entitled "September provisional sales versus target (based on Jan-June market share applied to demand est[imated] at 120 Kt)". The continuation of those measures is confirmed by the note of the meeting of 2 December 1982 (main statement of objections, Appendix 33) to which is attached a table comparing, for November 1982, the "Actual" sales with the "Theoretical" figures calculated from the "J-June % of 125 Kt".
193 The Court finds that, as regards the year 1981 and the two halves of 1982, the Commission was entitled to conclude from the mutual monitoring, conducted at the regular meetings, of the implementation of a system for restricting monthly sales by reference to a previous period that that system had been adopted by the participants at the meetings.
194 As regards 1983, the Court finds that it is clear from the documents produced by the Commission (main statement of objections, Appendices 33, 85 and 87) that at the end of 1982 and the beginning of 1983 the polypropylene producers discussed a quota system for 1983, that the applicant participated in the meetings at which those discussions took place, that on those occasions it supplied data relating to its sales and that in table 2 attached to the note of the meeting of 2 December 1982 (main statement of objections, Appendix 33) the note "acceptable" appears beside the quota assigned to the applicant' s name.
195 It follows that the applicant participated in the negotiations held with a view to arriving at a quota system for 1983.
196 As regards the question whether those negotiations actually succeeded as far as the first two quarters of 1983 are concerned, as is asserted in the Decision (point 63, third paragraph, and point 64), it is clear from the note of the meeting on 1 June 1983 (main statement of objections, Appendix 40) that the applicant indicated at that meeting its sales figures for May, as did nine other undertakings. Moreover, the following passage appears in the record of an internal meeting of the Shell group on 17 March 1983 (main statement of objections, Appendix 90):
"... and would lead to a market share of approaching 12% and well above the agreed Shell target of 11%. Accordingly the following reduced sales targets were set and agreed by the integrated companies".
The new tonnages are given, after which it is noted that:
"this would be 11.2 Pct of a market of 395 kt. The situation will be monitored carefully and any change from this agreed plan would need to be discussed beforehand with the other PIMS members".
197 The Court finds in this regard that the Commission was entitled to conclude from the combination of those two documents that the negotiations between the producers had led to the introduction of a quota system. The internal note of the Shell group shows that that undertaking was asking its national sales companies to reduce their sales, not in order to reduce the overall sales volume of the Shell group, but in order to restrict the group' s share of the overall market to 11%. Such a restriction expressed in terms of market share can be explained only in connection with a quota system. Furthermore, the note of the meeting on 1 June 1983 constitutes additional evidence of the existence of such a system, since an exchange of information on the monthly sales of the various producers has the primary purpose of monitoring compliance with the commitments made.
198 Finally, the 11% figure for Shell' s market share appears not only in the Shell internal note but also in two other documents, namely an ICI internal note in which ICI states that Shell is proposing this figure for itself, Hoechst and ICI (main statement of objections, Appendix 87) and the note drawn up by ICI of a meeting held on 29 November 1982 between ICI and Shell at which the previous proposal was referred to (main statement of objections, Appendix 99).
199 Moreover, the fact that the applicant' s sales did not always correspond to the quotas allocated to it is irrelevant, since the contested decision does not rely on the actual implementation by the applicant of the quota system on the market in order to prove its participation in that system.
200 Owing to the identical aim of the various measures for restricting sales volumes - namely to reduce the pressure exerted on prices by excess supply - the Commission was entitled to conclude that those measures were part of a quota system.
201 Having regard to the foregoing considerations, it must be concluded that the Commission has established to the requisite legal standard that the applicant was one of the polypropylene producers amongst whom common purposes emerged in relation to sales volume targets for 1979, 1980 and the first half of 1983 and to the restriction of their monthly sales by reference to a previous period for the years 1981 and 1982 which are mentioned in the Decision and which formed part of a quota system.
F. Conclusion
202 It follows that the Commission has proved, to the requisite legal standard, that all the findings of fact which it made in the contested decision against the applicant are correct and that, consequently, contrary to the applicant' s contention, it did not come to a premature judgment on the basis of preconceived ideas.
2. The application of Article 85(1) of the EEC Treaty
A. Legal characterization
(a) The contested decision
203 According to the Decision (point 81, first paragraph), the whole complex of schemes and arrangements decided on in the context of a system of regular and institutionalized meetings constituted a single continuing "agreement" within the meaning of Article 85(1).
204 In the present case, the producers, by subscribing to a common plan to regulate prices and supply on the polypropylene market, participated in an overall framework agreement which was manifested in a series of more detailed sub-agreements worked out from time to time (Decision, point 81, third paragraph).
205 The Decision (point 82, first paragraph) goes on to state that in the detailed working out of the overall plan express agreement was reached in many areas, such as individual price initiatives and annual quota schemes. In some cases the producers may not have reached a consensus on a definitive scheme, such as quotas for 1981 and 1982. However, their adoption of stopgap measures including exchange of information and the monitoring of actual monthly sales against achievements in some previous reference period not only involved an express agreement to set up and operate such measures but also indicated an implied agreement to maintain as far as possible the respective positions of the producers.
206 The conclusion that there was one continuing agreement was not altered by the fact that some producers inevitably were not present at every meeting. Any "initiative" took several months to plan and to implement and it would make little difference to the involvement of a producer if it was absent on occasion (Decision, point 83, first paragraph).
207 According to the Decision (point 86, first paragraph), the operation of the cartel, being based on a common and detailed plan, constituted an "agreement" within the meaning of Article 85(1) of the EEC Treaty.
208 The Decision states (in point 86, second paragraph) that the concepts of "agreements" and "concerted practices" are distinct, but cases may arise where collusion presents some of the elements of both forms of prohibited cooperation.
209 A concerted practice relates to a form of cooperation between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation for the risks of competition (Decision, point 86, third paragraph).
210 According to the Decision (point 87, first paragraph), the object of the Treaty in creating a separate concept of concerted practice was to forestall the possibility of undertakings evading the application of Article 85(1) by colluding in an anti-competitive manner falling short of a definite agreement by, for example, informing each other in advance of the attitude each intends to adopt, so that each could regulate its commercial conduct in the knowledge that its competitors would behave in the same way (see the judgment of the Court of Justice in Case 48/69 Imperial Chemical Industries Ltd v Commission [1972] ECR 619).
211 In its judgment in Joined Cases 40 to 48, 50, 54 to 56, 111, 113 and 114/73 (Suiker Unie v Commission, cited above) the Court of Justice held that the criteria of coordination and cooperation laid down by its case-law, which in no way require the working out of an actual plan, must be understood in the light of the concept inherent in the competition provisions of the Treaty according to which each economic operator must determine independently the commercial policy which he intends to adopt in the common market. This requirement of independence does not deprive undertakings of the right to adapt themselves intelligently to the existing or anticipated conduct of their competitors but it does strictly preclude any direct or indirect contact between them the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market (Decision, point 87, second paragraph). Such conduct may fall under Article 85(1) as a "concerted practice" even where the parties have not reached agreement in advance on a common plan defining their action in the market but adopt or adhere to collusive devices which facilitate the coordination of their commercial behaviour (Decision, point 87, third paragraph, first sentence).
212 The Decision also points out (point 87, third paragraph, third sentence) that, in a complex cartel, some producers at one time or another might not express their definite assent to a particular course of action agreed by the others but nevertheless indicate their general support for the scheme in question and conduct themselves accordingly. In certain respects, therefore, the continuing cooperation and collusion of the producers in the implementation of the overall agreement may display the characteristics of a concerted practice (Decision, point 87, fourth paragraph, second sentence).
213 According to the Decision (point 87, fifth paragraph), the importance of the concept of a concerted practice does not thus result so much from the distinction between it and an "agreement" as from the distinction between forms of collusion falling under Article 85(1) and mere parallel behaviour with no element of concertation. Nothing therefore turns in the present case upon the precise form taken by the collusive arrangements.
214 In the Decision (paragraph 88, first and second paragraphs) it is stated that most of the producers, having argued during the administrative procedure that their conduct in relation to alleged price initiatives did not result from any "agreement" within the meaning of Article 85 (see the Decision, point 82), went on to assert that it could not form the basis of a finding of concerted practice either. The latter concept, they argued, required some "overt act" in the market, which was claimed to be wholly absent from the present case: no price-lists or "target prices" were ever communicated to customers. This argument is rejected in the Decision: were it necessary in the present case to rely on proof of a concerted practice, the requirement for some steps to be taken by the participants to realise their common object was fully met. The various price initiatives were a matter of record. It was also undeniable that the individual producers took parallel action to implement them. The steps taken by the producers both individually and collectively were apparent from the documentary evidence: meeting reports, internal memoranda, instructions and circulars to sales offices and letters to customers. It was wholly irrelevant whether or not they "published" price lists. The price instructions themselves provided not only the best available evidence of the action taken by each producer to implement the common object but also by their content and timing reinforced the evidence of collusion.
(b) Arguments of the parties
215 The applicant submits that the Commission has not proved the existence of an "agreement" between the producers within the meaning of Article 85(1) of the EEC Treaty. Although it accepts that in order for there to be an "agreement" it is not necessary that there should be a legally binding contract, it nevertheless considers that the parties must unequivocally demonstrate their intention to be bound and any action actually taken by them must accurately reflect that intention (judgment of the Court of Justice in Case 41/69 ACF Chemiefarma NV v Commission, cited above, paragraphs 111 to 114). According to the most authoritative legal literature and the literal meaning of the words of the EEC Treaty, both an "agreement" and a "concerted practice" require consensus, and thus some expression of intention. Accordingly, any collusion agreed in writing must be placed in the former category, while the expression "concerted practice" is more appropriately applied to measures carried out tacitly on the basis of an agreement in principle. Once the existence of a written or oral agreement, detailed or in principle, has been proved, it is sufficient, in order for it to be capable of giving rise to prosecution, that its object should be prohibited by Article 85.
216 It argues, however, that the existence of a practice whose effects are of the kind which Article 85 seeks to prevent is not sufficient in order to make its perpetrators liable to penalties if it is not proven that that practice is the result of prior collusion.
217 The applicant states that the Commission instead asserts that there is an "agreement" as soon as an undertaking is in a situation in which it may hesitate to pursue a line of conduct which is favourable to its own interests because of a prior commitment, regardless of whether it is a legal, social or moral commitment, and that a "concerted practice" exists where there is practical cooperation on as purely factual level, which thus need not necessarily result from a plan or from a collusive arrangement properly so-called.
218 Finally, it considers that if the Commission refuses to draw a distinction between the two concepts it is in order to disguise its own failure to adduce adequate evidence, by asserting successively that where there is no proof of a practice, "no matter, there is an agreement", and where there is no proof of an agreement, "no matter, there is factual conduct".
219 According to the Commission, on the other hand, the question whether collusion or a cartel is to be described for legal purposes as an agreement or concerted practice within the meaning of Article 85 or whether the collusion has elements of both is of negligible importance. In its view, the terms "agreement" and "concerted practice" subsume the various types of arrangements by which competitors, instead of determining their future competitive conduct in complete independence, mutually accept a limitation of their freedom of action on the market as a result of direct or indirect contacts between them.
220 The Commission submits that the purpose of using the various terms found in Article 85 is to prohibit the whole gamut of collusive devices and not to prescribe a different treatment for each of them. It is therefore irrelevant where the line of demarcation is to be drawn between terms designed to encompass the whole range of prohibited behaviour. The ratio legis of the inclusion in Article 85 of the term "concerted practice" is to cover, besides agreements, those types of collusion which merely reflect a form of de facto coordination or practical cooperation but which are nevertheless capable of distorting competition (judgment in Case 48/69 ICI v Commission, cited above, paragraphs 64 to 66).
221 It states that, according to the case-law of the Court of Justice (judgment in Joined Cases 40 to 48, 50, 54 to 56, 111, 113 and 114/73 Suiker Unie v Commission, cited above, paragraphs 173 and 174), it is a matter of precluding any direct or indirect contact between operators, the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt, or contemplate adopting, on the market. A concerted practice therefore exists wherever there is contact between competitors prior to their behaviour on the market.
222 In the Commission' s view, there is a concerted practice as soon as there is concerted action having as its purpose the restriction of the autonomy of the undertakings in relation to one another, even if no actual conduct has been found on the market. In its view, the argument revolves around the meaning of the word "practice". It opposes the argument that the word has the narrow meaning of "conduct on the market". In its view, the word can cover the mere act of participating in contacts, provided that they have as their purpose the restriction of the undertakings' autonomy.
223 It goes on to argue that if the two requirements - concerted action and conduct on the market - were required for the existence of a concerted practice, a whole gamut of practices having as their purpose, but not necessarily as their effect, the distortion of competition on the common market would not be caught by Article 85. Part of the purpose of Article 85 would thus be frustrated. Furthermore, that view is not in accordance with the case-law of the Court of Justice concerning the concept of concerted practice (judgment in Case 48/69 ICI v Commission, cited above, paragraph 66; judgment in Joined Cases 40 to 48, 50, 54 to 56, 111, 113 and 114/73 Suiker Unie v Commission, cited above, paragraph 26; and judgment in Case 172/80 Zuechner v Bayerische Vereinsbank AG [1981] ECR 2021, paragraph 14). Although those judgments each mention practices on the market, they are not mentioned as an element constituting the infringement, as the applicant maintains, but as a factual element from which the concerted action may be deduced. According to that case-law, no actual conduct on the market is required. All that is required is contact between economic operators, characteristic of their abandonment of their necessary autonomy.
224 In the Commission' s view, it is not therefore necessary, in order for there to be an infringement of Article 85, for the undertakings to have put into practice that which they have discussed together. The offence under Article 85(1) exists in full once the intention to substitute cooperation for the risks of competition has materialized in cooperation, without there necessarily being, after the event, conduct on the market which may be found.
225 From this the Commission concludes that, as far as the question of evidence is concerned, the agreement and the concerted practice may be proved by means of both direct evidence and circumstantial evidence. In the present case, it had no need to use circumstantial evidence, such as parallelism of conduct on the market, since it possessed direct evidence of the collusion consisting in particular of the meeting notes.
226 The Commission asserts that it is clear from the grounds of the Decision that it found that there was a framework agreement accompanied by factors characteristic of individual agreements and concerted practices, all of which made up a complex situation described in Article 1 of the Decision by the terms "agreement" and "concerted practice".
227 The Commission concludes by stating that it was entitled to describe the infringement found in the present case primarily as an agreement and, alternatively and in so far as is necessary, as a concerted practice.
(c) Assessment by the Court
228 The Commission characterized each factual element found against the applicant as either an agreement or a concerted practice for the purposes of Article 85(1) of the EEC Treaty. It is apparent from the second paragraph of point 80, the third paragraph of point 81 and the first paragraph of point 82 of the Decision, read together, that the Commission characterized each of those different elements primarily as an "agreement".
229 It is likewise apparent from the second and third paragraphs of point 86, the third paragraph of point 87 and point 88 of the Decision, read together, that the Commission in the alternative characterized the elements of the infringement as "concerted practices" where those elements either did not enable the conclusion to be drawn that the parties had reached agreement in advance on a common plan defining their action on the market but had adopted or adhered to collusive devices which facilitated the coordination of their commercial behaviour, or did not, owing to the complexity of the cartel, make it possible to establish that some producers had expressed their definite assent to a particular course of action agreed by the others, although they had indicated their general support for the scheme in question and conducted themselves accordingly. The Decision thus concludes that in certain respects the continuing cooperation and collusion of the producers in the implementation of an overall agreement may display the characteristics of a concerted practice.
230 Since it is clear from the case-law of the Court of Justice that in order for there to be an agreement within the meaning of Article 85(1) of the EEC Treaty it is sufficient that the undertakings in question should have expressed their joint intention to conduct themselves on the market in a specific way (see the judgment in Case 41/69 ACF Chemiefarma v Commission, cited above, paragraph 112, and the judgment in Joined Cases 209 to 215 and 218/78 Van Landewyck v Commission, cited above, paragraph 86), this Court holds that the Commission was entitled to treat the common intentions existing between the applicant and the other polypropylene producers, which the Commission has proved to the requisite legal standard and which related to floor prices in 1977, price initiatives, measures designed to facilitate the implementation of the price initiatives, sales volume targets for the years 1979 and 1980 and the first half of 1983 and measures for restricting monthly sales by reference to a previous period for 1981 and 1982, as agreements within the meaning of Article 85(1) of the EEC Treaty.
231 Furthermore, having established to the requisite legal standard that the effects of the price initiatives continued to last until November 1983, the Commission was fully entitled to take the view that the infringement continued until at least November 1983. It is indeed clear from the case-law of the Court of Justice that Article 85 is also applicable to agreements which are no longer in force but which continue to produce their effects after they have formally ceased to be in force (judgment in Case 243/83 Binon & Cie SA v Agence et Messagerie de la Presse SA [1985] ECR 2015, paragraph 17).
232 For a definition of the concept of concerted practice, reference must be made to the case-law of the Court of Justice, which shows that the criteria of coordination and cooperation previously laid down by that Court must be understood in the light of the concept inherent in the competition provisions of the EEC Treaty according to which each economic operator must determine independently the policy which he intends to adopt on the common market. Although this requirement of independence does not deprive economic operators of the right to adapt themselves intelligently to the existing and anticipated conduct of their competitors, it does, however, strictly preclude any direct or indirect contact between such operators the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market (judgment in Joined Cases 40 to 48, 50, 54 to 56, 111, 113 and 114/73 Suiker Unie v Commission, cited above, paragraphs 173 and 174).
233 In the present case, the applicant participated in meetings concerning the fixing of price and sales volume targets during which information was exchanged between competitors about the prices they wished to see charged on the market, the prices they intended to charge, their profitability thresholds, the sales volume restrictions they judged to be necessary, their sales figures or the identity of their customers. Through its participation in those meetings, it took part, together with its competitors, in concerted action the purpose of which was to influence their conduct on the market and to disclose to each other the course of conduct which each of the producers itself contemplated adopting on the market.
234 Accordingly, not only did the applicant pursue the aim of eliminating in advance uncertainty about the future conduct of its competitors but also, in determining the policy which it intended to follow on the market, it could not fail to take account, directly or indirectly, of the information obtained during the course of those meetings. Similarly, in determining the policy which they intended to follow, its competitors were bound to take into account, directly or indirectly, the information disclosed to them by the applicant about the course of conduct which the applicant itself had decided upon or which it contemplated adopting on the market.
235 The Commission was therefore justified, in the alternative, having regard to their purpose, in categorizing the regular meetings of polypropylene producers in which the applicant participated between the end of 1977 and September 1983 as concerted practices within the meaning of Article 85(1) of the EEC Treaty.
236 As regards the question whether the Commission was entitled to find that there was a single infringement, described in Article 1 of the Decision as "an agreement and concerted practice", the Court points out that, in view of their identical purpose, the various concerted practices followed and agreements concluded formed part of schemes of regular meetings, target-price fixing and quota fixing.
237 Those schemes were part of a series of efforts made by the undertakings in question, in pursuit of a single economic aim, namely to distort the normal movement of prices on the market in polypropylene. It would thus be artificial to split up such continuous conduct, characterized by a single purpose, by treating it as consisting of a number of separate infringements. The fact is that the applicant took part - over a period of years - in an integrated set of schemes constituting a single infringement, which progressively manifested itself in both unlawful agreements and unlawful concerted practices.
238 The Commission was also entitled to characterize that single infringement as "an agreement and a concerted practice", since the infringement involved at one and the same time factual elements to be characterized as "agreements" and factual elements to be characterized as "concerted practices". Given such a complex infringement, the dual characterization by the Commission in Article 1 of the Decision must be understood not as requiring, simultaneously and cumulatively, proof that each of those factual elements presents the constituent elements both of an agreement and of a concerted practice, but rather as referring to a complex whole comprising a number of factual elements some of which were characterized as agreements and others as concerted practices for the purposes of Article 85(1) of the EEC Treaty, which lays down no specific category for a complex infringement of this type.
239 Consequently, the applicant' s ground of challenge must be dismissed.
B. Restrictive effect on competition
(a) The contested decision
240 The Decision states (in point 90, first and second paragraphs) that it is not strictly necessary, for the application of Article 85(1), given the overtly anti-competitive object of the agreement, for an adverse effect upon competition to be demonstrated. However, in the present case, the evidence shows that the agreement did in fact produce an appreciable effect upon competitive conditions.
(b) Arguments of the parties
241 The applicant maintains that the various studies which it has submitted show that the alleged agreements and concerted practices had no effect on competition, which operated in an entirely normal manner throughout their duration, and that its own conduct on the market was competitive.
242 The Commission denies that the polypropylene producers which participated in the cartel did not adjust their conduct on the market in accordance with the agreements and contacts between them and that these had no effect on competition. All the price instructions available for the applicant correspond perfectly to the agreements made at the meetings, and there is no indication that the situation was different during the periods for which it has no such instructions. That conduct may not always have had the intended result, but even when it did not the producers based their negotiations with customers on the agreed prices.
243 It concludes that the essential factor is not so much the success of the initiatives agreed upon as the objective of restricting competition which those initiatives were intended to help achieve. The same is true of the quota agreements, as is shown by table 8 of the Decision. Although the Commission acknowledges that the cartel did not always have the effect of restricting competition, it points out that that is of little relevance to the application of Article 85(1) of the EEC Treaty, since it is sufficient that the cartel should have had the purpose of restricting competition.
(c) Assessment by the Court
244 The applicant' s line of argument seeks essentially to demonstrate that its participation in the regular meetings of polypropylene producers was not caught by Article 85(1) of the EEC Treaty since both its own conduct on the market and that of the other producers showed that that participation had no anti-competitive effect.
245 Article 85(1) of the EEC Treaty prohibits as incompatible with the common market all agreements between undertakings or concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which consist in directly or indirectly fixing purchase or selling prices or any other trading conditions and in sharing markets or sources of supply.
246 The Court points out that it is clear from its assessments relating to the findings of fact made by the Commission that the purpose of the regular meetings which the applicant attended together with competitors was to restrict competition within the common market, in particular by fixing price and sales volume targets, and that its participation in those meetings was therefore not free of anti-competitive purpose within the meaning of Article 85(1) of the EEC Treaty.
247 It follows that this ground of challenge must be dismissed.
C. Effect on trade between Member States
(a) The contested decision
248 The Decision states (point 93, first paragraph) that the agreement between the producers was apt to have an appreciable effect upon trade between Member States.
249 In the present case, the pervasive nature of the collusive agreement, which covered virtually all trade throughout the EEC (and other western European countries) in a major industrial product, must automatically have resulted in the diversion of trade from the channels which would have developed in the absence of such an agreement (Decision, point 93, third paragraph). Fixing prices at an artificial level by agreement rather than by leaving the market to find its own balance impaired the structure of competition throughout the Community. The undertakings were relieved of the immediate need to respond to market forces and deal with the claimed excess capacity problem (Decision, point 93, fourth paragraph).
250 In point 94 of the Decision the Commission finds that the fixing of target prices for each Member State, although needing to take some account of the prevailing local conditions - discussed in detail in national meetings - must have distorted the pattern of trade and the effect on price levels of differences in efficiency between producers. The system of account leadership, in directing customers to particular named producers, aggravated the effect of the pricing arrangements. The Commission acknowledges that in setting quotas or targets the producers did not break the allocation down by Member State or by region. However, the very existence of a quota or target would operate to restrict the opportunities open to a producer.
(b) Arguments of the parties GROUNDS CONTINUED UNDER DOC.NUM : 689A0014.3
251 The applicant states that there was no detrimental effect on trade between Member States and that the Commission completely failed to consider this point, which is nevertheless important in the light of the case-law of the Court of Justice (see in particular Joined Cases 100 to 103/80 Pioneer v Commission [1983] ECR 1825, paragraphs 86 et seq.).
252 The Commission states that it considered the condition of harm to trade between Member States in points 93 and 94 of the Decision and verified that that condition was in fact met in this case.
(c) Assessment by the Court
253 Contrary to the applicant' s assertions, the Commission was not required to demonstrate that its participation in an agreement and a concerted practice had had an appreciable effect on trade between Member States. All that is required by Article 85(1) of the EEC Treaty is that anti-competitive agreements and concerted practices should be capable of having an effect on trade between Member States. In this regard, it must be concluded that the restrictions on competition found to exist were likely to distort trade patterns from the course which they would otherwise have followed (see the judgment of the Court of Justice in Joined Cases 209 to 215 and 218/78 Van Landewyck and Others v Commission, cited above, paragraph 172).
254 It follows that the Commission has established to the requisite legal standard, in points 93 and 94 of its Decision, that the infringement in which the applicant participated was apt to affect trade between Member States, and it was not necessary for it to demonstrate that the applicant' s individual participation affected trade between Member States.
255 The applicant' s ground of challenge cannot therefore be upheld.
D. Justifying factors
256 The applicant submits that Article 85(1) of the EEC Treaty should not apply in this case because of the circumstances in which the undertakings to which the Decision was addressed were obliged to act.
(1) The critical economic situation
257 The applicant submits that the Commission should have examined the agreements in relation to their economic context, that is to say the fact that all the polypropylene producers were operating at a loss. The Commission, it says, displayed an entirely formalistic view of the law of competition, as if the rule in Article 85(1) of the EEC Treaty was self-sufficient and should be applied and interpreted per se, instead of regarding it as an instrumental provision intended to achieve the objectives set out in the preamble to the EEC Treaty and give effect to the principles laid down in the first part of the Treaty.
258 In its reply it states that even if the interpretation of certain rules of the EEC Treaty for repressive purposes were not incompatible with the objectives and general principles set out in the preamble and the first part of the Treaty, it would in any event be necessary to apply the rule of reason according to which the real criterion of the lawfulness of a restrictive practice is whether the restriction which it entails merely regulates competition, or even encourages it, or whether it has the effect of suppressing competition. In order to resolve that question a court must normally examine the facts specific to the sector of activities concerned by the restriction, its situation before and after the restriction was imposed, the nature of the restriction and its actual or probable effects.
259 The applicant submits that if the Commission had applied the rule of reason in this case it would necessarily have concluded that the attempt by producers to survive in a situation of market collapse has the effect of safeguarding competition, not restricting it. On the basis of an analysis of the case-law of the Supreme Court of the United States and of the Court of Justice the applicant asserts that the prohibitions laid down in Article 85 of the EEC Treaty cannot be defined in the abstract but must be appraised in relation to their economic context. Consequently, the Commission must gather information to show that the structure of the market has in fact been altered, that benefits to consumers have been reduced and that effective competition in the common market and intra-Community trade have been affected.
260 The Commission replies that reliance on the rule of reason constitutes a new plea in law; it leaves the question of its admissibility to the Court' s discretion.
261 On the substance of the plea, it disputes the applicant' s analysis of the American and Community case-law on the rule of reason. It accepts that the application of Article 85(1) requires examination of the cartel' s economic context and its probable or actual effects. In this case that examination is contained in points 2 to 13 and 89 to 94 of the Decision.
262 The Commission nevertheless adds that a cartel which, like the one in issue in this case, concerns the prices which each of the undertakings charge on the sale of their own products constitutes an infringement per se of the EEC Treaty, even on a very broad interpretation of the rule of reason.
263 The Court considers that in view of the economic and teleological nature of the arguments set out in the application, reliance on the rule of reason at the stage of the reply does not constitute a new plea, but merely an extension of the argument contained in the application.
264 It should be recalled that the Commission has proved to the requisite legal standard that the agreements and concerted practices held to have existed had an anti-competitive object for the purposes of Article 85(1) of the EEC Treaty. The question whether they were anti -competitive in effect is therefore relevant only to assessment of the amount of the fine, and must accordingly be examined along with that issue.
265 Furthermore, the fact that the infringement of Article 85(1) of the EEC Treaty, in particular subparagraphs (a), (b) and (c), is a clear one precludes the application of a rule of reason, assuming such a rule to be applicable in Community competition law, since in that case it must be regarded as an infringement per se of the competition rules.
266 Accordingly, this ground of challenge cannot be upheld.
(2) The application of Article 85(3) of the EEC Treaty
267 The applicant points out in its reply that, as is shown by Decision 84/387 of 19 July 1984, concerning a restructuring agreement between ICI and BP (IV/30.863 - BPCL/ICI, Official Journal 1984 L 212, p. 1), the Commission was well aware of the critical situation in the petrochemical industry, which, faced with over-capacity and strong competition from outside the Community, was suffering heavy losses and was obliged to reduce production capacity.
268 It argues that the polypropylene sector had the same characteristics and was facing the same difficulties, as the Commission indicated in its Decision (points 6 to 11). It goes on to state that from 1973-74 to 1983-84 its prices remained the same despite inflation. Those characteristics were regarded as sufficient to justify the conclusion of an agreement in the Synthetic Fibres case (Decision of 4 July 1984, IV/30.810 - Synthetic fibres, Official Journal 1984 L 207, p. 17) and in the BPCL/ICI case. The remedies which the Commission authorized the undertakings to implement in those two cases are in reality similar to those envisaged by the polypropylene producers (production restrictions subject to verification). The applicant concludes that since the facts which led the Commission to approve the agreements entered into in those cases were identical to the facts of the present case it should have adopted the same attitude.
269 The Commission argues that the argument alleging discrimination in relation to other cartels entered into in situations of crisis constitutes a new plea in law; it leaves the question of its admissibility to the Court' s discretion.
270 On the substantive issue it argues that the applicant cannot claim the benefit of exemption under Article 85(3) of the EEC Treaty since the agreement was not notified to the Commission. Indeed, it was not notified precisely because it was clear that the cartel had features which distinguished it fundamentally from the agreements cited by Monte and precluded any possibility of obtaining exemption from the Commission. One such feature was the fixing of prices, which the Commission had said in previous decisions that it could not accept in any circumstances.
271 The Court observes that the applicant cannot assert that Article 85(3) of the EEC Treaty should have been applied to the agreements which it entered into and the concerted practices in which it participated. Article 4(1) of Regulation No 17 states that "agreements, decisions and concerted practices of the kind described in Article 85(1) of the Treaty which come into existence after the entry into force of this Regulation and in respect of which the parties seek application of Article 85(3) must be notified to the Commission. Until they have been notified, no decision in application of Article 85(3) may be taken." The applicant did not notify the agreements and concerted practices found to have existed.
272 Accordingly, the applicant cannot assert that it is the victim of discrimination in relation to undertakings whose agreements have been exempted under Article 85(1) of the EEC Treaty.
273 It follows that this ground of challenge must be dismissed.
(3) The beneficial effects of the measures taken by the producers
274 The applicant states that the extraordinarily beneficial effects of the measures taken by the producers have been acknowledged by the Commission itself. There were an increase in sales within and outside Europe, an increase in production and a decrease in imports. Those effects were achieved at the price of very heavy losses for the producers, which shows that their conduct had neither the object nor the effect of restricting or distorting competition. It infers from that that the function attributed to price competition by the Court of Justice in the ICI judgment (Case 48/69, cited above) was entirely fulfilled, although it points out that the Court of Justice has stated that price competition should not be allowed to become a fetish (judgments in Case 26/76 Metro SB-Grossmaerkte v Commission [1977] ECR 1875 and Case 107/82 AEG-Telefunken v Commission [1983] ECR 3151). Where a price has become impossible because it does not cover costs there can no longer be any question of protection of competition.
275 It argues that if the cartel had really been intended, as the Commission asserts, to channel the entry into the market of the new producers, there would not have been any anti-competitive conduct on the part of the undertakings. On the contrary, they could easily have barred the way to the new producers. Accordingly, the undertakings' conduct must be considered to have been very competitive.
276 The Commission observes first of all that the agreements cannot have had the beneficial effects which Monte ascribes to them and that if the market developed in a positive manner it was not because of but in spite of the agreements.
277 It goes on to point out that the Court of Justice has held any agreement restricting inter-brand price competition to be unlawful (judgment in Case 48/69 ICI v Commission, cited above) and that the judgments cited by Monte concern vertical agreements and intra-brand competition.
278 Finally, it states that one purpose of the cartel was to channel the massive arrival on the market of the new producers and minimize the price consequences of the resulting over-capacity.
279 The Court observes that even assuming that the positive market trend described by the applicant must be considered to have been proved and assuming that such a trend has any relevance in this case, the applicant has not in any event proved that that trend was attributable to the agreements which it entered into and the concerted practices in which it participated.
280 The applicant' s argument to the effect that the established producers could have blocked the entry onto the market of the newcomers fails to take into account the fact that those newcomers were large undertakings which could afford to incur losses, even heavy losses, for several years in order to penetrate the polypropylene market, since they had other areas of business from which they could cover their losses.
281 Consequently, this ground of challenge must be dismissed.
(4) The principle of solidarity and burden-sharing
282 The applicant disputes the Commission' s right to assert that the situation of necessity does not justify the conduct of the undertakings. In this case the undertakings applied the principle of solidarity and burden-sharing. That principle, which is accepted in relation to steel makers under the ECSC Treaty (Article 58), should be accepted in the context of the EEC Treaty. In the absence of any provision in the EEC Treaty corresponding to Article 58 of the ECSC Treaty it is necessary for undertakings to take such measures of self-discipline.
283 It submits that the manner in which the Commission regards competition as the opposite of solidarity is contrary to the judgment of the Court of Justice in CRAM and Rheinzink (Joined Cases 29 and 30/83, cited above). In the light of that judgment the applicant considers that even if - quod non - the polypropylene producers had sat down around a table and entered into a contract under which they undertook to do all that was possible to sell their goods at prices covering their costs, and once that objective was attained they had each gone their own way, their conduct would have been beyond reproach from the point of view of Article 85 of the EEC Treaty.
284 The Commission replies that the EEC Treaty does not contain any provision analogous to Article 58 of the ECSC Treaty does not mean that the Community legislator left it to undertakings to give concrete form to the principle of solidarity and burden-sharing.
285 It submits that the applicant' s reading of the judgment of the Court of Justice in CRAM and Rheinzink (Joined Cases 29 and 30/83, cited above) is almost the reverse of what that judgment in fact says. That judgment confirmed the illegality of a reciprocal assistance contract, even though the Court suggested that it might take a different view of assistance agreements restricted to cases of force majeure. That possibility is irrelevant in this case. The Commission maintains that solidarity and competition are mutually antagonistic and that only the authorities may occasionally take action to reconcile them.
286 The Court observes that the principle of burden-sharing among undertakings by common agreement is contrary to the concept of competition which Article 85 of the EEC Treaty is intended to uphold. Accordingly, it is not for undertakings but for the Community authorities alone, where appropriate at the request of undertakings, to reconcile them in exceptional circumstances and in accordance with the procedures laid down for that purpose in the EEC Treaty.
287 Consequently, undertakings may not put that principle into operation without referring to the competent authority and observing the procedures laid down for that purpose. In that regard it must be pointed out in particular that in July 1982 the applicant and eight other polypropylene producers were invited by the Commission to attend a meeting on the problem of restructuring in the plastics industry, that a working group was formed and a report prepared, and that following that report the undertakings considered that a crisis cartel was not justified.
288 It follows that this ground of challenge must be dismissed.
(5) Unfair competition
289 The applicant submits that Article 85 of the EEC Treaty is aimed at maintaining effective competition between undertakings (judgment of the Court of Justice in Joined Cases 177 and 178/82 Van de Haar and Kaveka de Meern [1984] ECR 1797) and cannot have the effect of forcing undertakings to institute or maintain among themselves a situation of unfair competition.
290 It states that the conduct of undertakings which systematically sell goods at a price below cost in order to preserve their market share or at least survive amounts to reciprocal unfair competition, according to the principles upheld in all the Member States, inasmuch as unfair competition tends to eliminate the very conditions necessary for competition. Such a situation of sales at a loss constitutes predatory pricing, according to the applicant. There can thus be no restriction of competition within the meaning of Article 85(1) where the limitations on competition are made necessary by the principle of fair trading or, a fortiori, where the purpose of the alleged infringement is to make possible the very existence of the undertaking or of one of its businesses (judgment of the Court of Justice in Case 56/65 STM v Maschinenbau Ulm [1966] ECR 235). By using its powers to oppose the restructuring of an industry, thus running the risk of causing its destruction, the Commission manifestly committed a misuse of its powers.
291 The applicant considers that in this case the reasons which led the polypropylene producers to meet so often were the same as those which led them to enter into voluntary restraint agreements. Those reasons are acceptable from the point of view of Article 85(1) of the EEC Treaty and flowed from their desire to replace the law of the jungle with economic rationality and business fair play. In this case undertakings which were in a situation of chronic losses and found themselves obliged to charge self-destructive prices tried gradually to reduce their liabilities and did not commit themselves to specific conduct in the present or the future. Article 85 is intended to ensure the continuation of normal market conditions, not competition which would completely disrupt such conditions (judgment of the Court of Justice in Case 172/80, cited above).
292 The Commission is ready to accept that an agreement under which businesses undertake not to pursue forms of unfair competition is not prohibited by Article 85, on condition, however, that it does not have the effect of restricting competition altogether. The problem lies in the definition of unfair competition. It is not true that the sale of goods below cost price is in itself a form of unfair competition.
293 It points out that there is a distinction to be drawn between sales below cost price as a means of acquiring a monopoly (which alone may be described as "predatory pricing") and sales below cost price caused by an unexpected change in the market situation. Since the latter phenomenon is not a form of unfair competition, a cartel which seeks to eliminate it does not lie outside the prohibition laid down in Article 85. Accordingly, the applicant' s assertion that the arrangements seeking to prevent sales below cost price were lawful is clearly unfounded, as is its comparison with voluntary restraint codes.
294 The Commission ads that it is not correct to say that Article 85 does not protect competition when supply and demand are not in balance. Accordingly, the reference in the Zuechner case (judgment of the Court of Justice in Case 172/80, cited above) to the "normal conditions of the market" must be understood not in the sense of a market which is "in balance" but in the sense of a market which is not "artificially" distorted.
295 The Court observes that the sale of goods below cost price may constitute a form of unfair competition where it is intended to reinforce the competitive position of an undertaking to the detriment of its competitors. There can be no question of unfair competition where sale below cost price results from the operation of supply and demand, which was the case here, as the applicant acknowledges.
296 Consequently, participants in a cartel which seeks to raise prices from a level below cost to a level at or above cost cannot argue, in justification of their conduct, that the cartel sought to eliminate unfair competition.
297 It follows that this ground of challenge must be dismissed.
(6) The analogy with lawful raw materials cartels
298 The applicant refers to the associations of producers or consumers of raw materials which, with unfortunate exceptions such as OPEC, have played a valuable role of market stabilization and have never been prosecuted under competition legislation. Indeed, the Community is a party to some of those agreements.
299 It submits that the need for constant exchange of information and frequent consultations between polypropylene producers was a typical characteristic of that product, which is a quasi-raw material. The disastrous situation of the industry was thus not the only factor behind that need.
300 The Commission observes that the international agreements to which Monte refers are matters of public regulation of the market, not initiatives of undertakings.
301 The Court considers that the analogy drawn by the applicant is entirely baseless, since the agreements to which it refers are public measures regulating the market which cannot be compared to the agreements entered into in this case by the polypropylene producers.
302 It follows that this ground of challenge must be rejected.
(7) The Italian legal, political and social context
303 The applicant argues that States may impose constraints on the market in such a manner that competition itself is subverted (judgment of the Court of Justice in Joined Cases 40 to 48, 54 to 56, 111, 113 and 14/73 Suiker Unie, cited above) and that to speak of the normal conduct of undertakings is meaningless. In this case, for example, Monte was bound by a collective agreement preserving jobs and subject to Law No 675 of 12 August 1977 on "measures for the coordination of industrial policy", with the result inter alia that it was prevented from carrying out the job cuts which it had planned.
304 It adds in its reply that it was the victim of blackmail by the "Red Brigades", which said that they wanted to "put the restructuring project on trial and demonstrate its disastrous consequences for the working class".
305 According to the applicant, it thus faced the following alternatives: pursue the conduct complained of by the Commission or carry out a restructuring of the undertaking, with the risks which that entailed, having regard to the attacks by the "Red Brigades" (two Monte executives had been assassinated by them because they were responsible for the restructuring projects).
306 The Commission does not accept the applicant' s argument that it was unable to avoid entering into arrangements with other polypropylene producers because it was forced to do so by the Italian legal system. Obligations imposed by national law cannot in any event prevail over those which flow from Article 85 (judgments of the Court of Justice in Case 13/77 INNO v ATAB [1977] ECR 2115, paragraphs 34 and 35, and Joined Cases 43 and 63/82 VBVB and VBBB v Commission [1984] ECR 19, paragraph 40).
307 The Commission argues, first, that the obligations allegedly placed on Monte by Italian law came into existence only in 1981, while the cartel began in 1977, and, secondly, that Monte voluntarily undertook those obligations, as regards both the collective agreement and Law No 675, which made the grant of subsidies subject to the preservation of jobs.
308 It observes in that regard that in the Fedetab and SSI judgments (Joined Cases 209 to 215 and 218/78, cited above, and Joined Cases 240 to 242, 261, 262, 268 and 269/82 Stichting Sigarettenindustrie v Commission [1985] ECR 3831) the Court of Justice held that restrictions on competition were all the more serious where competition was already reduced by public legislation.
309 The Commission submits that the "Red Brigades" argument constitutes a new plea in law, but leaves the issue of its admissibility to the discretion of the Court. It adds that if the Decision does not address that question it is because the matter was not raised during the administrative procedure. Finally, it points out that the assassination of Monte' s director-general took place in 1981, while the cartel began in 1977.
310 The Court observes that the obligations to which the applicant says it was subject under Italian law all came into existence more than three years after the conclusion of the floor-price agreement. The collective agreement preventing the applicant from making job cuts was concluded on 19 February 1981 and the applicant was declared to be in a critical situation on 26 March 1981, enabling it to benefit from the aid paid in connection with the application of Law No 675 of 12 August 1977, in return for which it was required to preserve jobs.
311 Moreover, both the collective agreement and the declaration by the Italian government that the applicant was in a critical situation were measures to which the applicant consented in order to obtain the benefits which corresponded to the commitments it entered into.
312 Consequently, the applicant cannot assert that the obligations which it incurred as a result under Italian law placed it in a position which made its participation in agreements and concerted practices contrary to Article 85(1) of the EEC Treaty inevitable.
313 Finally, the Court considers that the argument based on the applicant' s alleged blackmail by the "Red Brigades" is a new plea in law within the meaning of Article 48(2) of the Rules of Procedure of the Court of First Instance and Article 42(2) of the Rules of Procedure of the Court of Justice, and must therefore be declared inadmissible. That plea in law is based on a fact which came to light in 1981, well before the beginning of these proceedings.
314 The applicant' s grounds of challenge cannot therefore be upheld.
3. Conclusion
315 It follows from all the foregoing that the proof of the infringement is based solely on the grounds set out in the Decision and that all the applicant' s grounds of challenge relating to the findings of fact and to the application of Article 85(1) of the EEC Treaty by the Commission in the contested decision must be dismissed.
Freedom of association
316 The applicant points out that the Commission considers meetings of producers, the exchange of information and the creation of an informal association are harmful for competition, whatever the purposes of those activities. Having established the purpose of one of those meetings or one of those contacts the Commission concludes that all the contacts and meetings had the same purpose. In that regard Monte argues that the Commission defined the purpose of the meetings on the basis of ICI' s reply to the request for information (main statement of objections, Appendix 8), but distorting it completely. Furthermore, it described the meetings as "secret" simply because they had not been authorized beforehand by any competent authority.
317 According to the applicant, that is an infringement of the right enjoyed by undertakings under the constitutions of all the Member States to meet and exchange opinions and information. That is true a fortiori where the survival of an industry and the possibility of meeting employment commitments made to government authorities depend on those activities.
318 The Commission replies that the issue is not whether there has been an infringement of the liberties relied on by the applicant but whether there has been a breach of Article 85. The applicant cannot deny that the purpose of the meetings of the polypropylene producers was that indicated by the Commission. That much is clear from the voluminous documentary evidence and from ICI' s reply to the request for information (main statement of objections, Appendix 8), which the Commission has in no way distorted. It adds that the secret nature of the meetings has been clearly established.
319 The Court observes that the purpose of the freedom of association is to allow persons to meet freely. Its purpose is not to justify every infringement which may be committed in the course of meetings or as a result of them.
320 During the meetings complained of in the Decision Article 85(1) of the EEC Treaty was infringed by the participants inasmuch as they entered into price and quota agreements, inter alia.
321 This ground of challenge cannot therefore be upheld.
The statement of reasons
322 The applicant argues that the Commission, without stating adequate reasons, rejected all the evidence submitted by the parties to show that the alleged cartel had no effects on the market; the evidence in question is the Coopers & Lybrand audit, an econometric study of the German market by Professor Albach of Bonn University and various documents describing the divergent conduct of the undertakings.
323 The Commission notes that on the points raised by Monte the reasoning set out in the Decision is clear and explicit (Decision, points 72 to 74 and 90 to 94) and that the applicant has not stated in what respect it is inadequate.
324 This Court observes that the Court of Justice has consistently held (see in particular its judgment in Joined Cases 209 to 215 and 218/78 Van Landewyck, cited above, paragraph 66, and its judgment in Joined Cases 240 to 242, 261, 262, 268 and 269/82 Stichting Sigarettenindustrie, cited above, paragraph 88) that, although under Article 190 of the EEC Treaty the Commission is obliged to state the reasons on which its decisions are based, mentioning the factual and legal elements which provide the legal basis for the measure and the considerations which have led it to adopt its decision, it is not required to discuss all the issues of fact and of law raised by every party during the administrative proceedings. It follows that the Commission is not obliged to answer those points of fact and law which it considers irrelevant.
325 It is clear from the assessments of this Court relating to the findings of fact and the application of Article 85(1) of the EEC Treaty made by the Commission in the contested measure that the Commission took full account of the applicant' s arguments regarding the effects of the cartel on the market and that it stated conclusively in the Decision (points 72 to 74 and 89 to 92) the reasons which led it to consider that the conclusions drawn by the applicant from the Coopers & Lybrand audit and Professor Albach' s study were unfounded.
326 Consequently, this ground of complaint must be dismissed.
The fine
327 The applicant complains that the Commission infringed Article 15 of Regulation No 17 by not properly assessing in the Decision the duration and gravity of the infringement it was found to have committed.
1. The limitation period
328 The applicant maintains that, even if there was a floor-price agreement in 1977, it is covered by the five-year limitation period laid down by Regulation (EEC) No 2988/74 of the Council of 26 November 1974 concerning limitation periods in proceedings and the enforcement of sanctions under the rules of the European Economic Community relating to transport and competition (Official Journal 1974 No L 319, p. 1) since, owing to the different nature of the floor-price agreement and the meetings which, as the Commission acknowledges, were held after December 1977, the Commission cannot presume that the infringement was of a continuing or repeated character within the meaning of Article 1(2) of that regulation.
329 The Commission maintains that the 1977 agreement is not covered by the limitation rule since there is a clear factual link between all the arrangements agreed to throughout the period of the cartel; consequently, this was a single, continuous infringement. There is no difference between the concepts of "floor prices" and those of "minimum prices" or "target prices".
330 The Court notes that under Article 1(2) of Regulation No 2988/74 the five-year limitation period applying to the Commission' s power to impose fines begins to run, in the case of continuing or repeated infringements, on the day on which the infringement ceases.
331 In the present case, it follows from the Court' s assessments relating to proof of the infringement that the applicant participated without interruption in a single and continuous infringement from the conclusion of the floor-price agreement in mid-1977 until November 1983.
332 Consequently, the applicant cannot rely on the limitation period relating to the imposition of fines.
2. Duration of the infringement
333 The applicant argues that the Commission is unable to ascertain the date of the commencement of the infringement or the date on which it came to an end, and cannot therefore maintain that the infringement lasted for a period of seven years.
334 The Commission states that the relatively long duration of the infringement - which continued from mid-1977 until at least November 1983 - justifies heavy penalties.
335 It states that it has evidence of meetings before 1979 and of the continuation of the effects of the cartel until November 1983, since price instructions were issued in September for October and November.
336 The Court would point out that it has already found that the Commission properly assessed the duration of the period during which the applicant infringed Article 85(1) of the EEC Treaty.
337 It follows that this ground of challenge must be dismissed.
3. The gravity of the infringement
A. The Commission' s new policy on fines
338 The applicant accepts that the Commission has a discretion in assessing the amount of the fines to be imposed, but states that it cannot exercise that discretion in an arbitrary manner (judgments of the Court of Justice in Case 188/82 Thyssen v Commission [1983] ECR 3721 and Case 15/83 Denkavit Nederland [1984] ECR 2171). In the exercise of that discretion the Commission must assess not only the existence of the infringement but also its context.
339 It considers that the Commission is wrong to assert that it is best placed to assess all the relevant factors. As evidence it cites the great number of cases in which the Court of Justice has annulled or reduced the fines imposed on undertakings (judgments in Joined Cases 8 to 11/66 Cimenteries CBR v Commission [1967] ECR 75, Case 85/76 Hoffmann - La Roche v Commission [1979] ECR 461 and Joined Cases 240 to 242, 261, 262, 268 and 269/82, cited above).
340 The applicant argues that the deterrent function of the fine is not one of the factors to be taken into account in determining the amount of the fine under Article 15(2) of Regulation No 17. Accordingly, the Commission' s "main duty" is not "at all times and in all cases to impose effective penalties in order to ensure application of competition law", as it affirms on the basis of its unacceptable "per se" theory, which disregards the objectives and context of the conduct and does not take account of the seriousness of the circumstances.
341 It goes on to argue that the Decision is clearly discriminatory by comparison with previous decisions of the Commission, in particular that given in the Meldoc case on the diary industry in the Netherlands (Decision of 26 November 1986, IV/31.204 - Meldoc, Official Journal 1986 L 348, p. 50). It considers that this discrimination is particularly blatant inasmuch as there were a multiplicity of reasons in this case which should have prompted the Commission to avoid imposing a fine, such as the justifying factors of the situation of necessity and self-defence, the undertakings made to the Italian State not to reduce the work-force, the absence of any negative effect, the existence of considerable benefits for the market and the undeniable lacunae in the evidence.
342 The Commission states that in imposing sanctions in this case it acted in accordance with its established policy and with the principles laid down by the Court of Justice in relation to fines. It states that since 1979 it has pursued a policy of ensuring observance of the competition rules by imposing heavier penalties, especially for well established categories of infringements of competition law and for particularly serious infringements, such as that in issue here, inter alia so as to increase the deterrent effect of penalties. That policy has been approved by the Court of Justice (judgment in Joined Cases 100 to 103/80 Pioneer, cited above, paragraphs 106 to 109), which has also held on several occasions that the imposition of penalties entails the assessment of a complex set of factors (judgments in Joined Cases 100 to 103/80 Pioneer, cited above, paragraph 120, and in Joined Cases 96 to 102, 104, 105, 108 and 110/82 IAZ v Commission [1983] ECR 3369, paragraph 52).
343 The Commission states that it is in a particularly good position to make such an assessment, which it claims cannot be overturned except in the case of material error of fact or law. The Court of Justice has also held that the Commission may, depending on the particular case, arrive at a different view of the appropriate penalties even if the cases concern comparable circumstances (judgments in Joined Cases 32 and 36 to 82/78 BMW v Commission [1979] ECR 2435, paragraph 53, and in Case 322/81 Michelin v Commission, cited above, paragraphs 111 et seq.).
344 The Commission observes that the fundamental aspect of its new fines policy is the adoption of a stricter approach in assessing the seriousness of the infringements committed and in determining the degree of deterrence necessary to prevent repeated infringements by the same or other undertakings. It states that in its Thirteenth Report on Competition Policy it clearly signalled its intention to reinforce the deterrent effect of fines by increasing their general level in cases of serious infringements and defined in detail the types of infringements which would be regarded as particularly serious and the factors that would be taken into account in determining the amount of fines.
345 Finally, the Commission submits that the applicant' s arguments concerning discrimination in comparison with previous cases seeks to compare things which are not comparable. For example, the Meldoc case was entirely different from this one since it concerned a regional cartel between small undertakings involving an agricultural product.
346 This Court holds that it is clear from the case-law of the Court of Justice that the Commission' s power to impose fines on undertakings which intentionally or negligently commit an infringement of Article 85(1) of the EEC Treaty is one of the means conferred on the Commission in order to enable it to carry out the supervisory task conferred on it by Community law. That task certainly includes the duty to investigate and punish individual infringements, but it also encompasses the duty to pursue a general policy designed to apply, in competition matters, the principles laid down by the EEC Treaty and to guide the conduct of undertakings in the light of those principles. It was for that reason that the Court of Justice held that in assessing the gravity of an infringement for the purpose of fixing the amount of the fine the Commission must take into consideration not only the particular circumstances of the case but also the context in which the infringement occurs and must ensure that its action has the necessary deterrent effect, especially as regards those types of infringement which are particularly harmful to the attainment of the objectives of the Community. The Court went on to state that it was open to the Commission to have regard to the fact that, although infringements of a specific type were established as being unlawful at the outset of Community competition policy, they were still relatively frequent on account of the profit that some of the undertakings concerned are able to derive from them and, consequently, it was open to the Commission to raise the level of fines so as to reinforce their deterrent effect. The Court concluded that the fact that in the past the Commission had imposed fines of a certain level for certain types of infringement did not mean that it was estopped from raising that level within the limits indicated in Regulation No 17 if that was necessary to ensure the implementation of Community competition policy (judgment in Joined Cases 100 to 103/80 Pioneer, cited above, paragraphs 105 to 109).
347 In view of those considerations, the Court finds that the Commission rightly described the fixing of target prices and of sales volumes as well as the adoption of measures designed to facilitate the implementation of target prices as a particularly grave and clear infringement, intended to distort the normal formation of prices on the polypropylene market.
348 This ground of challenge must therefore be dismissed.
B. The statement of the reasons for the fine
349 The applicant submits that there is no sufficient statement of reasons in the Decision as regards the fine. The Commission may have correctly defined the principles which govern the determination of fines, but it has completely neglected to state how those principles were applied in this case. It adds that the Court of Justice has held (judgments in Case 73/74 Papiers Peints [1975] ECR 1491 and in Joined Cases 8 to 11/66 Cimenteries CBR, cited above) that where the Commission' s competition decisions do not fit into a well-established line of decisions particular care is necessary in stating the reasons for them. The Commission itself has admitted that this is such a decision.
350 The Commission argues that points 107 et seq. of the Decision contain a sufficient statement of the reasons for the amount of the fine.
351 The Court notes that in order to determine the amount of the fine imposed on the applicant the Commission first defined the criteria for setting the general level of the fines imposed on the undertakings to which the Decision is addressed (point 108 of the Decision) and then defined the criteria for achieving a fair balance between the fines imposed on each of those undertakings (point 109 of the Decision).
352 The Court considers that the criteria set out in point 108 of the Decision amply justify the general level of the fines imposed on the undertakings to which the Decision is addressed. In this regard, particular emphasis must be placed on the clear nature of the infringement of Article 85(1) of the Treaty and in particular of points (a), (b) and (c) of that provision, whose terms were known to the polypropylene producers, which acted intentionally and in the greatest secrecy.
353 The Court also considers that the four criteria mentioned in point 109 of the Decision are relevant and sufficient for the purpose of achieving a fair balance between the fines imposed on each undertaking.
354 As regards the first two criteria mentioned in point 109 of the Decision - the role played by each of the undertakings in the collusive arrangements and the period of time during which they participated in the infringement -, it must be noted that, since the statement of reasons relating to the determination of the amount of the fine must be interpreted with reference to all the reasons stated in the Decision, the Commission sufficiently individualized the way in which it took account of those criteria in the applicant' s case.
355 As regards the last two criteria - the respective deliveries of the various polypropylene producers to the Community and the total turnover of each of the undertakings -, the Court finds, on the basis of the figures which it requested from the Commission, the accuracy of which has not been challenged by the applicant, that those criteria were not applied unfairly when the fine imposed on the applicant was determined in relation to the fines imposed on other producers.
356 It follows that this ground of challenge must be dismissed.
C. The intrinsic gravity of the infringement
357 The applicant considers that the "intentional" nature of an infringement of Article 85 cannot constitute an aggravating factor in the determination of the fine since it is in fact a fundamental precondition for the imposition of a fine. Furthermore, it is not the conduct but the infringement that must be intentional; that is to say, there must be a deliberate breach of Community law (judgment of the Court of Justice in Case 26/75 General Motors v Commission [1975] ECR 1367).
358 In that regard it submits that the Commission cannot rely on the secret nature of the meetings as an indication of the intentional nature of the producers' actions, since the target prices were published in the trade press, there were contacts between the undertakings and the Commission to discuss the state of the market and the first meetings took place at the general meeting of EATP. It submits that the allegedly "flagrant" nature of the infringement cannot constitute a ground for increasing the fine either.
359 The Commission asserts that the breach of Article 85(1) was a calculated and deliberate one and that horizontal price-fixing and horizontal market-sharing have long been counted among the most serious types of infringement of competition law. Moreover, the infringement was a flagrant one inasmuch as it was clear and manifest. The undertakings acted intentionally, and it is irrelevant, according to the Court of Justice, whether the infringement was committed by carelessness and whether or not the applicant was aware of infringing the prohibition laid down in Article 85 (judgment in Case 19/77 Miller International v Commission [1978] ECR 131; the Commission states that the Opinion of Advocate General Mayras in Case 26/75 General Motors, cited above, is to the same effect, contrary to what the applicant has asserted). The agreements were secret and were known neither to the trade press nor to the Commission, since only the prices were published and in their contacts with the Commission the undertakings did not mention their agreements.
360 It adds that the seriousness of the infringement was increased by the fact that virtually all the polypropylene manufacturers in the Community were involved and that consequently the size, the economic power and the total market share of the participants were exceptionally large.
361 The Court finds that it is clear from its assessments relating to proof of the infringement that the Commission has correctly established the role played by the applicant in the infringement throughout the duration of its participation and that the Commission was thus entitled to take account of that role in determining the amount of the fine.
362 The Court also finds that the facts established show, by their intrinsic gravity - in particular the fixing of price and sales volume targets - that the applicant did not act rashly or even through lack of care but intentionally.
363 It should be observed in that regard that the undertakings which participated in the infringement held in the Decision to have been committed account for virtually the whole of the market concerned, which shows clearly that the infringement which they committed together may have restricted competition.
364 Consequently, this ground of challenge must be dismissed.
D. The alleged failure to take proper account of the effects of the infringement
365 The applicant argues that the Commission should have taken into account Monte' s actual conduct on the market as regards both price and volume and the cartel' s total lack of effect on the market and on trade between Member States.
366 It adds that the conduct objected to caused no harm to customers, who made no protest or complaint. Moreover, those customers displayed very positive results during the period in question, unlike the polypropylene producers, whose industry was devastated and most of whom would have gone out of business if they had not taken the initiatives now in issue.
367 The Commission observes that Monte' s protestations about the cartel' s lack of effect are to no avail, since the cartel had a real effect on prices and the Commission took account, in determining the amount of the fines, of the fact that the price initiatives generally did not achieve their objective in full (Decision, point 108). This was already more than the Commission was obliged to do, since not only arrangements which have anti-competitive effects but also those which have anti-competitive objects are caught by Article 85. For the rest, it refers to its findings of fact and its arguments regarding the effect of the infringement on competition and on trade between Member States.
368 The Commission states that the applicant cannot, without contradicting itself, assert that the cartel had no effect on prices and at the same time argue that it had beneficial consequences for the whole polypropylene industry, which it made it possible to save.
369 The Court notes that the Commission distinguished two types of effect produced by the infringement. The first type of effect consisted in the fact that following the agreement in meetings of target prices the producers all instructed their sales offices to implement that price level; the "targets" thus served as the basis for the negotiation of prices with customers. This led the Commission to conclude that in the present case the evidence showed that the agreement did in fact produce an appreciable effect upon competitive conditions (Decision, point 74, second paragraph, with a reference to point 90). The second type of effect consisted in the fact that movements in prices charged to individual customers as compared with the target prices set in the course of particular price initiatives were consistent with the account given in the documentation found at the premises of ICI and other producers concerning the implementation of the price initiatives (Decision, point 74, sixth paragraph).
370 The first type of effect has been proved to the requisite legal standard by the Commission from the many price instructions given by the various producers which are consistent with one another as well as with the target prices fixed at the meetings, which were manifestly meant to serve as the basis for the negotiation of prices with customers.
371 As regards effects of the second type, the Commission indicated in the last indent of point 108 of the Decision that it took into account, in mitigation of the penalties, the fact that price initiatives generally had not achieved their objective in full and that in the last resort there were no measures of constraint to ensure compliance with quotas or other measures.
372 Since the grounds of the Decision relating to the determination of the amount of the fines must be read in the light of the other grounds of the Decision, it must be concluded that the Commission rightly took full account of the first type of effect and that it took account of the limited character of the second type of effect. In this regard, it must be noted that the applicant has not indicated in what way the limited character of the second type of effect was not sufficiently taken into account in mitigation of the amount of the fines.
373 It follows from the foregoing that the statement of the grounds for the Decision supports its conclusion both as regards the proof of the infringement in relation to the applicant and the extent of the effects of the infringement which were taken into account in determining the amount of the fine. Consequently, there is nothing to indicate that the Commission based its Decision on consideration of more far-reaching effects than those set out in the statement of grounds, contrary to what the applicant has asserted, in reliance on comments made by officials of the Commission at a press conference concerning the Decision. It follows that the Decision was not adopted on grounds other than those set out in it and there can therefore be no question of any misuse of powers.
374 Consequently, this ground of challenge must be dismissed.
E. The claim that insufficient account was taken of the situation of economic crisis
375 The applicant maintains that the Commission did not take into account the situation of manifest crisis affecting the polypropylene industry at the time or the substantial losses which were its result. As regards the scope of those losses, the applicant asks that witnesses be called to demonstrate the truth of the accounting figures which it submitted. It considers that the Commission should have taken account of those losses, at least as a mitigating factor (judgment of the Court of Justice in Case 27/76 United Brands, cited above)
376 It adds that in pointing out that the fine did not exceed the limit of 10% of turnover laid down in Article 15(2) of Regulation No 17 the Commission failed to consider that that theoretical limit cannot apply to undertakings which have suffered substantial losses.
377 The Commission replies that it accepted, in mitigation of the amount of the fines, that the undertakings concerned had incurred substantial losses on their polypropylene operations over a very long period, although it takes the view that it was under no obligation to take those losses into account.
378 It considers that penalties may be proportionate to turnover not only where the undertakings have made profits but also where they have incurred losses.
379 The Court finds that the Commission expressly indicated in the last indent of point 108 of the Decision that it took account of the fact that the undertakings had incurred substantial losses on their polypropylene operations over a considerable period, which demonstrates not only that the Commission took account of the losses but also that it thereby took account of the unfavourable economic conditions prevailing in the sector (judgment of the Court of Justice in Case 322/81 Michelin, cited above, paragraph 111 et seq.) with a view to determining, having regard also to the other criteria mentioned in point 108, the general level of the fines.
380 Moreover, the limit of 10% of turnover laid down in Article 15(2) of Regulation No 17 is not a criterion to be used in fixing the amount of fines but a maximum limit which applies as such in all circumstances.
381 Finally, the Court considers that the applicant' s request that witnesses be called to establish the truth of the accounting figures which it has submitted is nugatory inasmuch as the Court holds that the Commission took sufficient account of those figures, whose accuracy it did not dispute.
382 It follows that this ground of challenge must be dismissed.
F. The failure to take into account mitigating circumstances
383 The applicant argues that the various factors of justification raised by it, which relate in particular to the national political and social context or the beneficial effects of the cartel, should have been taken into account as mitigating circumstances.
384 As regards the Italian national context, the Commission points out that the factors relied on by the applicant are mainly subsequent to the beginning of the cartel and are irrelevant from the legal point of view.
385 The Court observes that the various facts put forward by the applicant as justification are not such as to efface the unlawful nature of its conduct, since it cannot be accepted that participation in an unlawful cartel constitutes a legitimate form of self-defence. Consequently, it was at most in determining the amount of the fine that the Commission could have taken account of those facts as mitigating circumstance, without being obliged to do so.
386 In so far as the applicant appeals to the exercise by the Court of its unlimited jurisdiction, the Court observes that the criteria set out in point 108 of the Decision entirely justify the general level of the fines imposed on the undertakings to which the Decision is addressed, having regard in particular to the particularly manifest nature of the infringement committed.
387 Consequently, this ground of challenge must be dismissed.
G. Conclusion
388 It follows from all the foregoing considerations that the fine imposed on the applicant is appropriate having regard to the gravity and duration of the breach of the Community competition rules found to have been committed. Since the Commission' s Decision is not unlawful or defective in any way, the Commission cannot incur liability.
The reopening of the oral procedure
389 By a letter lodged at the Court Registry on 6 March 1992 the applicant asked the Court to reopen the oral procedure and order measures of inquiry as a result of the statements made by the Commission at the press conference held by it following the delivery of judgment in Cases T-79/89, T-84/89 to T-86/89, T-89/89, T-91/89, T-92/89, T-94/89, T-96/89, T-98/89, T-102/89 and T-104/89.
390 After hearing the views of the Advocate General once again, the Court considers that it is not necessary to order the reopening of the oral procedure in accordance with Article 62 of the Rules of Procedure or to order measures of inquiry as requested by the applicant.
391 It must be stated that the judgment delivered in the abovementioned cases (judgement of 27 February 1992 in Cases T-79/89, T-84/89 to T-86/89, T-89/89, T-91/89, T-92/89, T-94/89, T-96/89, T-98/89, T-102/89 and T-104/89 BASF and Others v Commission [1992] ECR II-315) does not in itself justify the reopening of the oral procedure in this case. The Court observes that a measure which has been notified and published must be presumed to be valid. It is thus for a person who seeks to allege the lack of formal validity or the inexistence of a measure to provide the Court with grounds enabling it to look behind the apparent validity of the measure which has been formally notified and published. In this case the applicants have not put forward any evidence to suggest that the measure notified and published had not been approved or adopted by the members of the Commission acting as a college. In particular, in contrast to the PVC cases (judgement in Cases T-79/89, T-84/89 to T-86/89, T-89/89, T-91/89, T-92/89, T-94/89, T-96/89, T-98/89, T-102/89 and T-104/89, cited above, paragraphs 32 et seq.), the applicants have not put forward any evidence that the principle of the inalterability of the adopted measure was infringed by a change to the text of the Decision after the meeting of the college of Commissioners at which it was adopted.
Decision on costs
Costs
392 Under Article 87(2) of the Rules of Procedure of the Court of First Instance, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party' s pleadings. Since the application has been unsuccessful and the Commission has applied for costs to be awarded against the applicant, the latter must be ordered to pay the costs, including those of the proceedings brought before the Court of Justice under Article 83 of the Rules of Procedure of the Court of Justice.
Operative part
On those grounds,
THE COURT OF FIRST INSTANCE (First Chamber)
hereby:
1. Dismisses the application;
2. Orders the applicant to pay the costs, including the costs of the proceedings brought before the Court of Justice under Article 83 of the Rules of Procedure of the Court of Justice. | 6 |
Mr Justice Beatson :
I. Introduction
The claimant, Meritz Fire and Marine Insurance Co Ltd ("Meritz"), seeks a declaration that it is not liable under Advance Payment Guarantees ("APGs") it issued to the defendants guaranteeing the repayment of payments made by the defendants under three shipbuilding contracts and is discharged as a surety. The defendants are dredging companies. Jan de Nul NV, the first defendant, is a Belgian company. Codralux SA, the second defendant, a Luxembourg company, is its subsidiary. In respect of two of the contracts the sum guaranteed is US$6.3 million per contract. In respect of the third contract it is €15.05 million. The payments made by the defendants to the shipbuilder exceed these sums. The defendants maintain the claimant is liable to pay them the sums guaranteed and contractually specified interest. There are three issues for decision. First, are the APGs performance bonds or classic contracts of suretyship? If the latter, has Meritz been discharged from liability under them as a result of material variations in the shipbuilding contracts and changes in the corporate identity of the shipbuilder. The third issue arises whether or not the APGs are performance bonds. It is whether, as a result of the corporate changes, the defendants were unable to make a contractual demand which triggered liability under the APGs.
Two of the APGs were issued to the first defendant, in respect of payments under two shipbuilding contracts ("HS1005" and "HS1006") both dated 10 August 2006 with a Korean shipbuilding company, Huen Woo Steel Co Ltd ("HWS"). The third APG was issued to the second defendant in respect of payments under a shipbuilding contract ("HS1007") with HWS entered into on 4 April 2007. Save as will be explained, the terms of the three shipbuilding contracts are materially the same. They provide (clauses 5 and 19, and Annex 3) that APGs in a specified form be given to the first and second defendants and that "no instalment will be paid" by them to the builder until they receive an APG in the specified form.
On 1 September 2006 Meritz agreed with HWS that it would provide APGs for contracts HS1005 and HS1006. This was a commercial transaction for a fee. Clauses 5.11 and 5.12 of their agreement, the "Basic Agreement", provided that HWS pay Meritz "all costs, fees, taxes, charges and expenses" incurred in connection with the negotiation, preparation and execution of the APGs and any enforcement costs. Clauses 5.9 and 5.10 provided that, without Meritz's consent, HWS should not merge or consolidate with another corporation, that there be no change in its ownership, and that named persons be maintained as officers of HWS during the period of the APGs. By clauses 3(d) and 4(g) HWS warranted that financial information it was required to provide to Meritz was true. On the same day Meritz executed the APGs in respect of those two contracts. On 13 October 2006, HWS's shareholders entered into a share pledge agreement with Meritz. Some five months later, on 22 February 2007 Meritz entered a 70% reinsurance contract with Exporters Insurance Company (EIC). Contract HS1007 was signed on 4 April 2007, the APG in respect of that contract was executed on 27 April 2007, and Meritz took out reinsurance on 26 July 2007.
On 26 April 2007 HWS agreed to merge with Xxien Environmental Company ("Jacksien"). The shareholders' resolution approving the merger was passed on 27 April, and notice to the public was given on 7 May 2007. With effect from 8 June, the company was re-named Buyoung Heavy Industries Co Ltd ("Buyoung"). On 16 June Buyoung advised Meritz that "as of" 31 May HWS "has been merged" with Jacksien. On 18 June Buyoung informed the defendants of the merger. It stated that it replaced HWS "as of 1 June" and that all HWS's rights and obligations under the three shipbuilding contracts "are to be transferred".
A few months later, on 10 December 2007 Buyoung's board resolved that its shipbuilding business and its blockbuilding be partitioned. Buyoung was to continue to undertake the blockbuilding business but the shipbuilding business was to be transferred to a newly incorporated company, Asia Heavy Industries Co Ltd ("Asia Heavy"). The proposal was approved by the shareholders on 28 December 2007 and was registered at the court on 5 February 2008. The partitioning became effective on registration and Asia Heavy informed the defendants of it on 21 March.
Not long afterwards it became apparent to Meritz and the defendants that Asia Heavy was in financial difficulties. At that time its only shipbuilding projects were under the three contracts with the defendants. Between April 2008 and early March 2009 there were numerous communications between Asia Heavy, the first defendant, and Meritz about the partitioning, delays in the construction, and Asia Heavy's financial position. These are summarised at [27] – [47].
In letters dated 26 November and 4 December 2008 the defendants served notice of default under contracts HS1007 and HS1005 on Asia Heavy, stating they reserved their rights to terminate the contracts. In a letter dated 9 March 2009 the first defendant terminated HS1005 and demanded that Asia Heavy repay the money paid by it under the contract with interest. In a letter dated 10 March 2009 the second defendant terminated HS1007 and demanded the repayment of all money paid and the return of items it had supplied to the shipbuilder. In a letter dated 2 April 2009 the first defendant terminated HS1006 on the ground that an item had been seized by a third party creditor. This letter stated it had been informed steel plates intended for use in construction of HS1006 had been sold. It also required the repayment of monies paid with interest. Asia Heavy Industries did not pay any of these demands. On 9 April, the first and second defendants demanded payment from Meritz under the three APGs. They also wrote to Buyoung claiming that Buyoung was under a joint and several liability in respect of the shipbuilder's' obligations to repay under the three contracts.
These proceedings were issued on 17 April 2009. On 16 June Asia Heavy was declared bankrupt. The defendants sent further termination letters both before and after that date relying on alternative grounds. On 19 May the first defendant purported to terminate HS1006 on the ground of a delay of 150 days after the due date for launching, Milestone 3 under the contract. They also wrote on 18 and 19 June terminating the contracts on the ground of Asia Heavy's bankruptcy.
I have referred to the three issues that fall for decision. The claimant's case is that it is not liable under the three guarantees. Its primary case is that it guaranteed the obligations of HWS and not those of its corporate successors. Alternatively, its position is that, if it guaranteed the obligations of Asia Heavy, it has been discharged from liability as a result of material variations to the shipbuilding contracts by reason of the changes in the corporate identity and extensions of the delivery time of the vessels which it claims were agreed between Asia Heavy and the defendants. It also maintains that when HWS ceased to exist once the merger with Jacksien was complete and Buyoung came into existence, it was not possible, within the terms of the shipbuilding contracts and the APGs for a contractual demand to be made which triggered Meritz's liability under the APGs.
The defendants' case is that the APGs are unconditional performance bonds and it is irrelevant which corporate entity failed to make the refund or whether there have been material variations to the shipbuilding contracts. Its alternative position is that, if the APGs are classic contracts of suretyship, in the language of Lord Diplock in Moschi v Lep Air Services Ltd [1973] AC 331 at 348, "see to it" guarantees, in which Meritz's obligation as guarantor is secondary to the primary obligation of the principal debtor there were no material variations in the shipbuilding contracts because those contracts provided for changes in the delivery time of the vessels.
II. The Evidence
There were no witnesses of fact. Statements had been produced but shortly before the hearing the parties agreed to withdraw them on terms. They agreed that:
1) Neither of the defendants knew of the existence of the Basic Agreement, the share pledges, the personal guarantees, or the reinsurance contracts on the dates when the APGs were issued;
2) Neither of the defendants was aware of the proposal to merge HWS into Buyoung Heavy Industries Co Ltd or to partition Asia Heavy Industries from Buyoung until after those events respectively had occurred; and
3) The defendants were free to rely on the documents as evidence in support of their contention that Meritz affirmed the APGs.
Two expert witnesses gave evidence on Korean law. Professor Joongi Kim of Yonsei Law School, Seoul, gave evidence on behalf of the claimant. His report is dated 1 July 2010. Professor Kon Sik Kim of the School of Law, Seoul National University, gave evidence on behalf of the defendants. His report is dated 27 May 2010. The joint statement by the experts is dated 21 July 2010. Supplemental reports by each dealt with Korean law as to the effect on the APGs of the changes in the corporate structure of the shipbuilder. It was, however, common ground between Mr Milligan QC and Mr Oliver QC that, because the APGs are governed by English law, the evidence of the experts as to the impact of the reorganisation on them is irrelevant.
It was also common ground that, under Korean law, on merger, Buyoung succeeded to all the rights and obligations of HWS. Professor Joongi Kim's report referred to three exceptions to what he agreed was a general rule. Those concerning employment contracts and criminal liability (see paragraphs 24 and 27 of his report) do not apply. As to the exception in the case of obligations that are tied to the "exclusive characteristics" of a dissolved company, there was a difference between the experts as to whether this exception was confined to public law rights and obligations. Professor Joongi Kim stated it was unclear whether this was so. There was, however, no challenge to Professor Kon Sik Kim's evidence that it was so confined. In any event, since there is no case advanced by the claimant that Buyoung's creditworthiness was inferior to that of HWS, the circumstances which might bring the suggested exception into play if it has any application to private law rights and obligations do not apply. As to the evidence concerning the effectiveness of the merger, it was common ground that, since the claimant was informed of the merger on 16 June, it had an opportunity to annul it under Article 529(1) of the Korean Commercial Code. As it did not do so within the specified six month period, it was too late to do so, the merger was effective and the claimant was deemed to have consented to it.
As far as the partitioning is concerned, the experts agreed that, if Buyoung succeeded to all the rights and obligations of HWS under the shipbuilding contracts, Asia Heavy in turn also succeeded to those rights and obligations. They also agreed, in the light of the partitioning and the merger plan, that Buyoung remained jointly and severally liable in respect of those obligations. The consequence of the expert evidence and the relevant English conflict of laws rule is that English law recognises that HWS was succeeded as "the Builder" under the shipbuilding contracts, first by Buyoung, and then by Asia Heavy: see National Bank of Greece v Metliss [1958] AC 509, 525 and 528-9.
III. The three Shipbuilding Contracts
HS/1005 and HS/1006 were made between Jan de Nul NV, referred to in the contracts as the "Owner" and HWS, referred to in the contracts as the "Builder". HS1007 was made between HWS, as the "Builder", and Codralux SA, as the "Owner". Clause 24.1 of each of the contracts provides that it will "be governed by and construed under English law". Clause 24.2(c) provides for arbitration in London.
The APG provision is contained in clause 19.1 of the contracts. It provides:
"As soon as possible after the signature of this Contract, the Builder shall at his expense provide to the Owner through a First-Class Bank a guarantee in the form as per Annex 3 to guarantee the faithful and timely performance of the Builder's obligations under the Contract."
The pro forma in Annex 3 is headed "Advance Payment Guarantee (Letter of Guarantee)".
Clause 5 deals with payment of the price. By clause 5.1, with the exceptions of the last two instalments due upon the delivery of the vessel, payment "shall be made in full by the owner into [an] escrow account by several instalments as per the instalment table in Annex 2". Clause 5.1 also provides that "no instalment will be paid by the owner and the owner shall be entitled to defer any payment that may fall due under the contract until…receipt by the owner of the original of the APG in the form as per Annex 3".
Annex 2 also contains the "Milestone Programme" for each contract, identifying the milestones and the dates for their completion. For HS1005 and HS1006 there are four; commencement of the steel cutting works for the vessel, completion of the first block of the vessel, launching/floating of the vessel, and delivery of the vessel. In the case of HS1007 there is an additional Milestone 3, the time the main engines have been integrated into the hull so that the launch is Milestone 4 and delivery of the vessel is Milestone 5. Clause 10.1 provides that "the design, construction, completion and trials of the vessel shall proceed strictly in accordance with the Milestone Programme; as such programme may be adjusted from time to time in accordance with the terms of this contract". It also provides that "strict compliance with the Milestone Programme and timely delivery of the vessel are of the essence under the contract".
In the case of HS1005 the delivery date is 31 August 2008; in HS1006 it is 30 November 2008; and in HS1007 it is 15 December 2008. The definition clause of the three contracts defines "Take Over Date" as the specified delivery date for each of the contracts "or such other date as may become applicable pursuant to the contract". Clause 5.1 provides that "in the event the completion of a Milestone is delayed by more than fifteen (15) Days, the dates in the instalment table in Annex 2 shall automatically accordingly be postponed".
Clause 5.5 provides that the use of the instalments paid into the escrow account "shall be limited only to the purchase of services, goods…and [other] expenses…for the purpose of constructing the vessel". The builder is required to make a written report to the owner about the use of sums disbursed from the account.
Clause 13.1 makes provision for the time for delivery to be extended by the total accumulated time of the delays caused by the contingencies (including war, requisition, strikes and other force majeure) listed. Clause 13.2 defines those delays as "permissible delays" and provides for other "permissible delays", including (clause 13.2(c)) "extensions of the Take Over Date as shall be agreed by the parties in writing".
Clause 17 deals with defaults by the Builder. In contracts HS1005 and 1006 its material parts are:
"17.1 The Owner may immediately terminate the Contract by notice to the Builder if at any time before takeover of the Vessel:
(a) The Owner demonstrates that the Builder is in delay on any one of the Milestones…by more than one hundred and fifty (150) Days; or
…
(d) The Builder has a receiver, administrator or administrative receiver, trustee, liquidator or like person appointed over any substantial part of its assets under any jurisdiction or law relating to the reorganisation, arrangement or adjustment of debts or the dissolution, administration or liquidation of corporation.
17.2 In the event of such termination of the Contract the Owner shall have the option – at its discretion – either (i) to take possession of the Vessel as it is constructed and to take over all the materials, equipments, design and services purchased by the Builder for this project and have it completed by a third party, whereby the Builders shall promptly repay the Owner all sums not used in the construction of the Vessel plus the extra costs incurred in the completion thereof up to the amount guaranteed under the [APG], [or] (ii) the Builder shall refund to the Owner the amount of all monies paid by the Owner under the Contract together with interest…
In the event the Owner opts for scenario (ii) under the previous paragraph, the builder shall…either return to the Owner such Owner-Supplied Items as indicated by the Owner, at the Builder's cost and expense, or reimburse the purchase and delivery value thereof to the Owner. If and when any Owner-Supplied Item has not been returned under this provision to the Owner within sixty (60) Days from termination of the Contract or the Owner – as applicable – has not received repayment under this provision within ten (10) Days from termination of the contract, the Owner shall be entitled to draw on the [APG] provided by the Builder and be reimbursed all monies remaining on the escrow account without prejudice to any other remedy at law or otherwise.
17. 3 The refund as provided in the foregoing paragraph 17.2 by the Builder to the Owner shall forthwith discharge all the obligations, duties and liabilities of each of the parties thereto to the other, without prejudice however to any obligations, duties and liabilities under Common Law. … "
Clause 17 in HS1007 is structured differently. The Owner, that is the second defendant, is given the right immediately to terminate the contract if inter alia (17.1(a)) it demonstrates that the Builder "is in delay on any one of the milestones (except Milestone 3…)…by more than one hundred and fifty (150) days" or the Builder has a receiver, administrator or other like person appointed (17.1(d)). Milestone 3 is the point in time when the main engines have been integrated into the hull. By clause 17.2, in the event of a termination under clause 17.1 before the achievement by the Builder of Milestone 3, the Owner has discretion to remove all Owner-Supplied Items from the Builder's possession (items principally relating to the dredging equipment), to take possession of the Vessel and "to draw on the full amount of the [APGs] that were provided by the Builder to the Owner" under the Contract, or to remove all Owner-Supplied Items from the Builder's possession and "to draw on the full amount of the [APGs]". By clause 17.3, in the event of a termination after the achievement of Milestone 3 the Vessel, designs and documents concerning the design and construction shall belong to the Owner. Clause 17.3 also provides that the Builder shall return to the Owner such Owner-Supplied Items as indicated by the Owner and "reimburse all monies remaining in the escrow account". Additionally, "the Owner shall be able to draw on the replacement guarantee provided by the Builder". Clause 19.1 provides that, after transfer of title to the vessel to the second defendant, the APGs are to be returned to the shipbuilder provided the shipbuilder provides the second defendant with a "replacement guarantee" with a value of 5% of the contract price in the form set out in Annex 8 to the contract.
IV. The Advance Payment Guarantees
Again these, all, as I have stated, headed "Advance Payment Guarantee (Letter of Guarantee)", are in materially the same terms. The two in respect of HS 1005 and HS 1006 were issued by Meritz to Jan de Nul. That in respect of HS1007 was issued to Codralux. Their material terms (with paragraph numbers in square brackets added for ease of reference) are:
"[1] We hereby issue the irrevocable Advance Payment Guarantee (Letter of Guarantee Number…) in favor of [Jan de Nul NV/Codralux SA]…(hereinafter called "the Buyer") for the account of Heun Woo Steel Co., Ltd., a shipyard organized and existing under the laws of the Republic of Korea…(hereinafter called "the Builder") in connection with the shipbuilding contract…(hereinafter called "the Shipbuilding Contract") made by and between the Buyer and the Builder for the construction [the Vessel is then identified by description and its Builder's Hull number]…(hereinafter called "the Vessel").
[2] If, in connection with the terms of the Contract, the Buyer shall become entitled to a refund of advance payments made to the Builder prior to the delivery of the Vessel, we hereby irrevocably and unconditionally guarantee the repayment of the same to the Buyer within Thirty (30) days after demand is made not exceeding the sum [specified[1]]…together with interest…
[3] Under no circumstances shall the amount of this Advance Payment Guarantee (Letter of Guarantee) exceed [the specified sum, being an amount equal to 20% of the total Contract Price in the case of HS1005 and HS1006 and 70% of the total Contract Price in the case of HS1007] plus interest thereon at the rate of Six percent (6%) per annum…
[4] The Buyer's demand for payment under this Advance Payment Guarantee (Letter of Guarantee) is payable upon our receipt of the Buyer's signed statement certifying that the Buyer's demand for refund is made in conformity with Clause 17 of the Contract and that the Builder has failed to make the refund.
…
[6] Notwithstanding the provisions hereinabove, in the event that within Thirty (30) days from the date of your claim to the Builder referred to above, we receive written notification from either you or the Builder stating that your claim for refund hereunder is disputed by the Builder and has been referred to arbitration in accordance with the provision of the Contract, we shall, under this Advance Payment Guarantee (Letter of Guarantee), refund to you the sum as per the award issued under such arbitration immediately upon receipt from you of a demand for the sum so adjudged together with a copy of the arbitration award, and not before.
[7] This Advance Payment Guarantee (Letter of Guarantee) [shall] become null and void upon receipt by the Buyer of the sum guaranteed hereby or upon acceptance by the Buyer of the delivery of the Vessel in accordance with the terms of the Contract…
[8] This Advance Payment Guarantee (Letter of Guarantee) is valid from the date herein stated below until such time that the Vessel is delivered by the Builder to the Buyer in accordance with the provisions of the Contract.
[9] This Advance Payment Guarantee (Letter of Guarantee) shall be governed by and construed under the substantive law of England and the undersigned hereby submits to the non-exclusive jurisdiction of the courts of England.
[10] ***** This Advance Payment Guarantee (Letter of Guarantee) is subject to the Uniform Rules for Demand Guarantee of the International Chamber of Commerce (ICC), ICC Publication No. 458."
V. Post-Contractual exchanges concerning the Shipbuilding Contracts:
These fall into four categories. Three are communications about the corporate reorganisation and partitioning, and the delays in construction between; (a) the shipbuilder and the claimant; (b) the defendants and the claimant; and (c) the defendants and the shipbuilder. The fourth category is communications between the claimant and Continental Insurance Brokers Ltd and Marsh Korea, respectively its reinsurance and insurance brokers. The case proceeds on an agreed factual basis (see [11]) that the defendants did not know of the existence of the reinsurance contracts on the dates the APGs were issued, and that the defendants did not see the claimant's correspondence with the shipbuilder and the claimant's reinsurance and insurance brokers.
(a) Communications between the shipbuilder and the claimant about the corporate reorganisations
I have referred (see [4]) to the fact that Buyoung advised Meritz of the merger between HWS and Jacksien on 16 June 2007. This was (see [3]) almost four months after Meritz entered into its reinsurance contracts for HS1005 and HS1006 and a month before that for HS1007. A memorandum dated 8 April 2008 from Asia Heavy to Meritz referred to a discussion in mid-January in which it had informed Meritz of the partitioning of Buyoung. The memorandum mentioned that the defendants had asked for confirmation by Meritz that the existing refund guarantees applied to Asia Heavy and requested that Meritz issue such a letter. In a memorandum to Asia Heavy dated 20 October 2008, Meritz stated that due to the spin-offs, the merger and a change of the CEO without the written consent of Meritz "Meritz reserves the right to cancel the RG".
(b) Communications between the defendants and the claimant about the delays and the corporate reorganisations
By the spring of 2008 the defendants were aware of delays in the construction of the vessels. By the end of April so was Meritz: see [44] – [45]. In the autumn of 2008 the first defendant informed Meritz that "the current situation at the yard is very critical": see letter dated 7 October referring to a meeting in Seoul on 18 September. The letter stated construction was more than three months behind the contractually scheduled milestones; the shipyard seemed to lack the resources to execute and complete critical parts of the construction; and Asia Heavy's financial situation was so weak that unless additional funding was found it would run out of cash and risked bankruptcy. The letter also stated:
"We have understood that Meritz is aware of and, in view of its commitment under the advance payment guarantees, very concerned by the current situation."
and
"…To better assess the range of options available, we would very much appreciate if Meritz could indicate us what type of additional financial support it would be ready to provide in order to cover any advance payment acceleration or extra financial resources needed to finalise the vessels".
Meritz was sent a copy of a letter to Asia Heavy dated 16 October: it is summarised at [36]. Meritz thus knew that the first defendant considered that a "hard reality check" was needed on timing as a result of the delays, and that a suggested revised schedule was stated to be sent without prejudice and was not a waiver of the first defendant's rights under the contract. In December 2008 there were further communications between the first defendant's Korean lawyers and Meritz. In an email dated 9 December the defendant's lawyer records that Mr Cho of Meritz had asked whether a newly issued repayment guarantee "in addition to the existing R/Gs from Meritz remaining in place" would be acceptable to the defendants. Meritz's Executive Vice-President and a colleague met the first defendant's lawyers on 16 December. A note of the meeting states:
"1) Meritz will exert its best efforts within its business scope to come up with a solution so that the loan can be facilitated to [Asia Heavy] with the goal of completing the construction and delivery the three vessels…
2) In this regard, Meritz would like to ask [Jan de Nul] to wait in making any claims for pay-out on the R/Gs issued by Meritz until such options have been attempted.
3) In reply to this, Meritz was advised that there is not much time left to pursue other options since [Asia Heavy] is currently insolvent with no money to continue its operations, so it is uncertain how much longer [Jan de Nul] would be able to wait in pursuing its own courses of action, such as making claims for pay-out on the R/Gs. …"
Meritz wrote to the first defendant on 19 December stating it was making its best efforts to issue "additional refund guarantees". Its letter also referred to what it described as the first defendant's "delivery bonus of US$1 million per vessel" and asked the first defendant to confirm that the contract price for the vessels will be increased by that amount "subject to our refund guarantee". There is no suggestion by Meritz that the reorganisation and the delays put the enforceability of the APGs into question. The reference to the "delivery bonus" is to an offer made by the defendants to Asia Heavy at a meeting on 23 and 24 October and in faxes dated 3 December 2008, on which see [37] and [39].
The first defendant responded on the same day, stating that Meritz's proposal was unacceptable. It also reiterated its position "stated many times in our previous meetings and correspondence [that] we are not prepared to amend the contract terms of the shipbuilding contracts with [Asia Heavy]", and that "an increase of the contract price as such is unacceptable". In a further letter, dated 8 January 2009, it stated that in the absence of "a conclusive proposal from Meritz" it would have no option other than to terminate the contracts. On about 2 February the first defendant's Korean lawyers informed it that Meritz's reinsurer had queried the applicability of the repayment guarantees to Asia Heavy because they were issued when HWS was the shipbuilder.
Representatives of Meritz and the first defendant met on 17 February 2009. The minutes record that Asia Heavy's organisation was collapsing and that there were important technical and financial problems. In response to a point made by Meritz the first defendant is recorded as denying that it agreed to any postponement of the delivery dates of the contracts. The discussion of ways to address the difficulties included assigning the contracts to a third party shipyard with Meritz bearing part of the additional costs and executing new repayment guarantees. The minutes (paragraphs 2.6) state Meritz would bear one third of additional costs and the refund guarantees "shall remain in place" (emphasis added). They also state (paragraph 3) that Meritz confirmed that all parties recognised that at worst the damage might be higher than the amounts covered "under the Refund Guarantees". Not long after this meeting, a letter dated 4 March 2009 from Meritz to the first defendant, after referring to the meeting in February, stated:
"in our view Jan de Nul has agreed to extend the captioned contracts with Asia Heavy Industries without our consent. Therefore please understand that we reserve the right to take necessary actions to preserve our legal rights".
Five days later, on 9 March the first defendant terminated HS1005. The next day it terminated HS1007 and, on 2 April it terminated HS1006: see [7]. On 11 March Mr Min of Meritz e-mailed the first defendant asking for a draft of its refund guarantee claim which its lawyers were anxious to see. On 9 April the defendants wrote to the claimant demanding payment under the APGs and certifying that the demands for payment are "made in conformity with clause 17 of the contract whereby the Builder has failed to make the refund". The claimant issued these proceedings on 17 April
(c) Communications between the defendants and shipbuilder about the corporate reorganisations and the delays
On 18 June 2007, the day Buyoung informed the defendants of the merger of HWS and Jacksien, the first defendant replied stating:
"Could you please confirm our understanding that this name change procedure implies that only the name of the legal entity that is currently building the vessels has changed and not that Buyoung Shipbuilding Co Ltd is a wholly new legal entity existing separately from [HWS] to which all the contracts need to be transferred".
After Asia Heavy informed the defendants of the partitioning (see [5]), the first defendant (in a letter dated 2 April 2008) expressed its concern that this occurred without prior submission of proper documentation to and consultation with the defendants. It asked for information to enable it to assess the consequences for the contractual obligations. It also asked for "written confirmation by [Meritz] that the Performance Bond on the contracts HS1005-1006-1007 effectively covers Asia Heavy Industries Co Ltd". Twelve days after this (see [44]) Meritz asked Marsh Korea to obtain its reinsurers' agreement to the amendment so that it could issue its "endorsement to the assured".
I have referred to the delays which became evident over the spring and summer of 2008. In a letter to Asia Heavy dated 2 September 2008 the first defendant stated that HS1005 should have been launched on 30 June 2008 and stated that "strict compliance with the Milestone Programme is of the essence". The letter also asked that there be no additional delays and that everything should be done to make up arrears. Letters dated 19 September and 13 October stated inter alia that "progress on the vessels under construction is still insufficient", the APGs provided by Meritz should reflect the change of name to Asia Heavy, that timely delivery is of the essence, and liquidated damages are payable for delay.
I have also referred ([28]) to the first defendant's letter dated 16 October to Asia Heavy (and copied to Meritz). This letter stated that the projects "require[d] a hard reality check on timing of completion and required resources" because the contractual Take Over Date for HS1005 had passed and there was no firm Take Over Date in sight. It enclosed a draft of a detailed schedule of completion prepared by the first defendant on the basis of Asia Heavy's progress and past track record. The result of the exercise was stated to be "very sobering" and the revised earliest Take Over Dates produced were "of course unacceptable". After setting out the problems and the information and action the first defendant required from Asia Heavy, the letter stated it was "sent without prejudice and does not constitute any waiver in respect of our rights under the contract".
The defendants and Asia Heavy met in Busan on 23 and 24 October 2008. The minutes of the meetings state:
"Actions, decisions, considerations, etc by [Jan de Nul] in the frame of the meetings are undertaken for purpose of having the vessels completed – circumstances permitting – and cannot in any whatsoever way be interpreted as waiver of its rights and title under the contracts."
The minutes also state that Asia Heavy submitted new milestone dates earlier than those in the dates estimated in the schedule in the first defendant's "reality check" letter and record discussion about the various matters in that letter. Item 10 recorded:
"As an incentive for timely completion according to the revised delivery dates offered by [Asia Heavy], a bonus system of 1 million USD for each vessel is tabled. A thirty days grace period would apply with respect to these dates. In the event without prejudice to its continuing right to terminate the contract for reason of [Asia Heavy's] default as originally agreed in the contract, [Jan de Nul]would also postpone its claim for liquidated damages and link application thereof to the new delivery dates…" (emphasis added)
The first defendant reiterated its concern about the halting of engineering works for HS1005-1006 on 28 October. There was another meeting between the parties on 25 November. Asia Heavy asked for an early payment of the next instalment. On 26 November the second defendant informed Asia Heavy that 150 days had passed beyond Milestone 3 and required strict compliance with the contract including doing everything to make up the arrears.
The first defendant's letter dated 3 December stated:
"[Jan de Nul] is not willing to alter the terms of the shipbuilding contracts and as a result is not willing to make an early payment of next instalment. As [Asia Heavy] is well aware, this was clearly agreed and accepted by [Asia Heavy] last week."
There are other letters dated 3 December faxed by the first and second defendants to Asia Heavy. These confirmed an agreement with Asia Heavy that, if it successfully completed and delivered the vessels before new delivery dates specified in the letter, "no penalties will be levied on [Asia Heavy] and a delivery bonus of 1,000,000 USD shall be paid to [Asia Heavy]". The new delivery dates specified were 30 August 2009 for HS1005, 28 February 2010 for HS1006, and 30 November 2009 for HS1007. The next day, the first defendant wrote stating that the letter is "to clarify" that the letters dated 3 December were sent on a "without prejudice" basis and, referring inter alia to the meetings on 23 and 24 October. This letter asked Asia Heavy to note again "that the shipbuilding contracts that we have signed…are not amended in any whatsoever way by this correspondence and the Owner does not waive any whatsoever rights, remedies etc. under the provisions of these contracts that continue to have full legal standing". The second defendant wrote in identical terms about HS1007.
On 4 December 2008 and 12 February 2009 the defendants respectively informed Asia Heavy that 150 days had passed since the launch date milestones for HS 1005 and HS1007 (milestones 3 and 4 respectively) and reserved their rights under clause 17 of the contracts. On 9 December 2008 the first defendant had again refused a request by Asia Heavy for early payment of the next instalment and stated that it "is not willing to alter the terms of the shipbuilding contracts".
In a letter dated 2 March 2009 Asia Heavy made proposals for additional payments into the escrow account by its shareholders and submitted revised delivery dates. The letter stated this was Asia Heavy's "best proposal". On 9 March the first defendant wrote to Asia Heavy terminating HS 1005 pursuant to clause 17.1 on the ground of a delay of more than 150 days of Milestone 3. The letter also stated:
"We … require (i) in accordance with clause 17.2(ii)…[Asia Heavy] to refund to the Owner the amount of all monies paid by the Owner under the contract together with interest at the interest rate; and (ii) to return to us, at your cost and expense, all owner-supplied items as listed in the schedule to this letter."
On 10 March the second defendant wrote terminating HS 1007 pursuant to clause 17.1. The letter mistakenly referred to delay by more than 150 days of Milestone 2, when the default in fact specified in the second defendant's letter dated 12 February (see [39])) was Milestone 4. The mistake was corrected in a letter dated 26 March. The letter of 10 March also stated that it required "in accordance with clause 17.2(ii), the Builder to return to the Owner the owner-supplied items listed in the schedule to this letter and to refund the owner the amount of all monies paid by the Owner under the contract together with interest at the interest rate". Subsequently (see [8]) the defendants sent further termination letters on other grounds including Asia Heavy's bankruptcy. Asia Heavy stated (see letter dated 6 April 2009) it could not agree on the reasons for the termination because the parties had agreed to new delivery dates for all three vessels at their meeting on 23 and 24 October 2008. Accordingly, the milestones for HS1005 and HS1007 had not been delayed by more than 150 days.
(d) The correspondence between the claimant and the reinsurance and insurance brokers
Since there was no reinsurance concerning HS1005 and HS1006 before the APGs about payments under those contracts had been issued, this correspondence all occurred after those APGs were issued, and the defendants did not know of the existence of the reinsurance contracts, this can be dealt with briefly. In summary, in January 2007 Mr Zhao, an account manager at Continental Insurance Brokers, informed Meritz that EIC, the reinsurers, did not write "on demand financial guarantees" but would offer cover on standard terms and conditions for failure to return advance payments in the event of failure to deliver the vessels. EIC also informed Mr Zhao and through him the claimant that it could not "simply insure Meritz against a call on their guarantee".
Thereafter Mertiz, in the light of the defendants' request for a statement that the APGs effectively covered Asia Heavy, asked the reinsurers to consent to the APGs being amended to show this: emails dated 14 April and 11 August 2008 from Meritz to Mr Zhao and to Marsh Korea. Through the brokers, the reinsurers requested information about the corporate reorganisations and asked whether the shipbuilding schedules were being maintained (email 25 April 2008). Meritz replied (email 6 May 2008) that due to a delay in obtaining building materials for HS1005 it would take "two or more months longer than anticipated to complete".
Meritz later asked for an extension to the reinsurance in view of the delays in the delivery dates (email dated 30 July 2008 from Meritz to Marsh Korea) and in an email dated 1 August 2008 stated it had been advised by Asia Heavy that Asia Heavy had obtained consent from the buyers for the extension of the delivery date of HS1007. During September and early October 2008 the reinsurers asked further questions about the partitioning. They also asked why, since Meritz had originally underwritten the business before it had reinsurance in place, it was not extending the APGs without reinsurance support.
In an e-mail dated 12 December 2008 Meritz informed Marsh Korea that there was no agreement in place between it and the defendants about amending the APGs to cover Asia Heavy. It reiterated this in a letter dated 28 January 2008 which, it was common ground, should be 2009 and stated it would not agree to this without confirmation from the reinsurers. These communications also set out Meritz's understanding of the effect of the corporate reorganisations. This was (12 December 2008) "the newly spun-off company is required to guarantee the obligations of the residual company and vice-versa under Korean law" and "the RG [repayment guarantee] is irrevocable so long as the shipbuilding contract remains valid", and (28 January 2009) Asia Heavy "would be regarded as a matter of Korean law as being the same legal entity as HWS" and that the contractual rights and obligations of HWS "should be treated as continuing".
Meritz's letter also responded to a question about written confirmation from the first defendant that the delivery dates had been extended. It stated that "last December [it] received the documents from Asia Heavy in which the Owner [Jan de Nul] confirmed their agreement with AHI regarding the rescheduling of delivery dates…". There is, however, no document which states this. Meritz appears to have been referring to the revised schedule the first defendant sent Asia Heavy in its "reality check" letter (see [36]) and its proposal that a bonus of US$1 million be paid for each vessel completed within the revised schedule. The communications about those matters, however, made it clear (see item 10 at [37]) that the schedule was sent and the proposal was made in order to get the vessels completed and that they did not constitute a waiver of the defendants' rights under the shipbuilding contracts.
VI. Discussion:
Issue 1: Are the APGs performance bonds?
It is common ground that, if the APGs are performance bonds or demand guarantees, absent fraud, the entity which issues them must honour them without regard to the relations between the party to whom the instrument is issued (here the defendants) and the counterparty to the underlying transaction (here the shipbuilder): see Edward Owen Ltd v Barclays Bank [1978] 1 QB 159, 171; Gold Coast Ltd v Caja de Ahorros del Mediterraneo [2002] 1 Lloyd's Rep 617 at [10].
It is also common ground that the terminology used in an instrument is not conclusive. So, although in Marubeni Hong Kong v Government of Mongolia [2005] 2 Lloyd's Rep 231 Carnwath LJ (at [20]) stated that in ordinary legal language a "guarantee" imposes a secondary liability, he also recognised (at [30]) that that terminology is not conclusive. In Gold Coast Ltd v Caja de Ahorros del Mediterreaneo at [21] Tuckey LJ stated that the fact that the instrument described itself as a "guarantee" was simply "a label" and that the language of the obligation imposed had all the appearances of a "first demand guarantee". It is necessary to look beyond the terminology to the substance of the instrument as a whole.
Mr Oliver's submissions as to the general approach to the construction of the APGs can be summarised as follows:-
(1) The APGs, as guarantees, are to be strictly construed so that no liability is imposed upon the guarantor which is not clearly and distinctly covered by their terms. He relied on Blest v Brown (1862) 4 De G, F & J 367 at 376 (Lord Campbell); Coghlan v SH Lock (Australia) Ltd (1987) 3 BCC 183, at 189 (Lord Oliver); and General Surety and Guarantee Co Ltd v Francis Parker Ltd (1977) 6 BLR 18, 21 (Donaldson J).
(2) Any ambiguity in the construction of an instrument should be construed in favour of the surety: Coghlan v SH Lock (Australia) Ltd at 189.
(3) It is the substance of an instrument and not the terminology it uses that determines its nature. The question thus is whether the obligation of the guarantor (Meritz) in the APGs is in substance secondary to the primary obligation of the principal debtor, the shipbuilder, or whether Meritz's obligation is a primary obligation.
(4) The APGs were not issued by a bank and are not banking instruments. Accordingly, the cases concerned with banking instruments issued by banks and described as or assumed to be performance bonds are of limited or little guidance: Marubeni Hong Kong v Government of Mongolia [2005] 2 Lloyds Rep 231 at [28]. Carnwath LJ stated those cases "provide no useful analogy for interpreting a document which was not issued by a bank and which contains no overt indication of an intention to create a performance bond or anything analogous to it".
(5) In a transaction outside the banking context, the absence of language either in the face of the instrument or in the supporting legal opinion letter describing the instrument as a "demand bond", although not conclusive, creates a strong presumption against the instrument being construed as a "demand bond" or "performance bond": Marubeni Hong Kong v Government of Mongolia at [30].
Mr Oliver's submissions on the wording of the APGs can be summarised as follows:-
(1) The APGs do not state that the claimant's obligation is that of a principal and not a surety as the guarantee in IIG Cpital LLC v Van der Merwe [2008] 2 Lloyds Rep 187 did. They were not issued by a bank and (see [50](5)) the strong presumption against them being performance bonds referred to by Carnwath LJ applies.
(2) The words "irrevocably and unconditionally" in paragraph [2] of the APGs do not suggest they are performance bonds. In Marubeni v Government of Mongolia at [31] the use of the terms "unconditionally pledges" and "simple demand" did not displace the presumption that the instrument was not a demand bond.
(3) The APGs do not contain a number of provisions which courts have regarded as indicating the obligation in an instrument to pay is an independent obligation. Thus, by contrast with the instruments considered in Bache & Co (London) Ltd. v Banque Vernes et Commerciale de Paris SA [1982] QB 84 and IIG Capital LLC v Van der Merwe [2008] 2 Lloyds Rep 187, the APGs do not provide that a bank certificate is the trigger to payment, that a refusal to refund the advance payments is to be conclusive evidence of default, or that the demand cannot be challenged.
(4) The word "if" in paragraph [2] of the APGs is a positive indication that points to the claimant's liability being secondary. A provision that, "if" the defendants become entitled to a refund of advance payments to the shipbuilder, the claimant guarantees repayment imposes liability on a contingency. The language is thus consistent with a "see to it" guarantee, that is secondary liability.
(5) The provision in paragraph [6] of the APGs is another positive indication that the liability of the claimant under the APGs is secondary. This is because, if the claim/demand for refund from the shipbuilder is challenged in arbitration, the liability of the claimant is dependent on the determination in the arbitration of the underlying obligations between the defendants and the shipbuilder. Additionally, payment under the APGs is stated to be "the sum as per the award issued under such arbitration". That sum may differ from the amount claimed/demanded from the shipbuilder in accordance with paragraph [4] of the APG. There are thus material differences from the position in the Gold Coast case, where a provision for arbitration did not preclude an instrument from being construed as a performance bond. In that case the sum was certain, and arbitration only provided an opportunity to change the date on which it was paid.
(6) The provision in paragraph [7] of the APGs that upon receipt by the defendants of the sum guaranteed or upon their acceptance of the vessel the APGs "shall become null and void" is also language consistent with a secondary rather than a primary obligation.
(7) The reference to the ICC's Uniform Rules for Demand Guarantees in paragraph [10] of the APGs cannot change the nature of the obligation in them. That is to be determined by the substance of the language in them: see [50(3)] above.
Mr Oliver also submitted the background to the APGs indicated that the liability imposed on the claimant was a secondary liability. He relied on the shipbuilding contracts, the Basic Agreement between the claimant and HWS, the share pledge agreement between it and HWS's shareholders, and the correspondence between the claimant and its reinsurers and reinsurance intermediaries. The Basic Agreement, he argued, showed the claimant attached importance to the financial status of HWS. The correspondence with the reinsurers showed that both the claimant and the reinsurers regarded the corporate changes as sufficiently material to warrant enquiry and the claimant did not agree that the APGs covered Asia Heavy.
The structure of clause 17 of the shipbuilding contracts and the relationship of that and the requirements in the APGs was at the centre of this part of Mr Oliver's submissions. He placed considerable reliance on the fact that clause 17 provides that the defendants' ability to make a demand depends upon two contingencies; the existence of the specified circumstances and the defendant not opting to take possession of the vessel. He submitted that the requirement (see paragraph [4] of the APGs) that the defendants certify that their demand for refund was made in conformity with clause 17 and that the shipbuilder had failed to make the refund can only be understood as proceeding on the basis that the shipbuilder is liable as principal and that the claimant's obligation under the APGs is a secondary liability. Liability under the APGs, he argued, also depends on a contingency, that is a demand for a refund in accordance with the shipbuilding contracts and a failure by the shipbuilder to make that refund.
Mr Oliver also relied on the form and the terms of the Defects Liability Guarantee in Annex 6 to HS1005 and HS1006, which requires the guarantee to be given by "an international bank rated at least BBB" and, in the case of HS1007, significant differences between the APG and the Replacement Guarantee required by clause 19.1. As to the former, the bank is required to pay on written demand "unconditionally and notwithstanding any objections that may be made by the builder" any sums the first defendant "declares to have claimable against the builder up to the amount of the guaranteed sums". As to the latter, the specified form of replacement guarantee in Annex 8, headed "Performance Guarantee". Mr Oliver submitted that the differences between these forms and the form set out in Annex 3 for the APGs is also a pointer to the APGs being a classic contract of suretyship with the liability of the guarantor being secondary.
As far as the general approach to the construction of the APGs is concerned, Andrews and Millett's Law of Guarantees (5th ed.) at 101-102 identifies two lines of authority. The first (primarily consisting of older and Commonwealth cases) is that contracts of guarantee should be strictly construed so that no liability is imposed on the surety "which is not clearly and distinctly covered by the terms of agreement". Lord Campbell's judgment in Blest v Brown in 1862, on which Mr Oliver relied, is an example of this approach. Suggestions, such as that by Lord Oliver in Coghlan v SH Lock (Australia Ltd) (1987) 3 BCC 183, at 189, that such contracts are to be construed in favour of the surety are probably reflections of the combined effect of a strict approach to construction and the application of the contra proferentem principle. Earlier in Lord Oliver's judgment he linked the two when stating that a guarantee "falls to be construed strictly; it is to be read contra proferentem; and, in the case of ambiguity, it is to be construed in favour of the surety": see ibid at 187, and see also Andrews and Millett, at 102.
The status of the contra proferentem principle has been discussed in a number of recent cases. Discussion of its status and role is not new: see Jessel MR's doubts in Taylor v Corporation of St Helens (1877) 6 Ch. D. 265. The recent discussion and reassessment is in the light of the approach of Lord Hoffmann in ICS Ltd v West Bromwich Building Society [1998] 1 WLR 1257 and the recognition that using the principle too early in the process of construing a contract can risk assuming an ambiguity where there is not one. While the principle may have a more limited role today, it survives and, where there is ambiguity or uncertainty about the intention of the parties, the approach reflected in it remains useful: see Whitecap Leisure Ltd v John H. Rundle Ltd [2008] 2 Lloyds Rep 216 at [20] per Moore-Bick LJ.
Subject to these caveats and the effect of the cases discussed in the next two paragraphs, it can be said that, in its classic formulation, the contra proferentem principle will generally apply in favour of a surety because the terms of most guarantees are drafted by the creditor for whose benefit they operate. This appears to be so in the present case. The form of the APGs was specified by Annex 3 to the shipbuilding contracts which were made, in the case of HS1005 and HS1006 three weeks before the relevant APGs, and, in the case of HS1007 over three months beforehand: see [2] – [3]. Meritz was not a party to those contracts and there are no indications that the specified form was either drafted by Meritz or provided to the shipbuilder (the debtors) or the defendants (the creditors) by Meritz.
The second line of authority identified by Andrews and Millett are cases which indicate that contracts of suretyship are to be construed in the same way as any other contract. For two examples, see the decisions of the Court of Appeal in Static Control Components (Europe) Ltd v Aegon [2004] 2 Lloyds Rep 429 and the decision of the majority in Kookmin Bank v Rainy Sky SA [2010] EWCA Civ 582 at [36]. Both cases rely on the approach of Lord Hoffmann in ICS Ltd v West Bromwich BS, that the words used should be construed in a way which gives them the meaning which the document would convey to a reasonable person knowing all the background knowledge which would have been available to the parties in the situation they were in at the time of the contract. Both cases state that the principles set out by Lord Hoffmann apply to the construction of a guarantee as well as to that of other types of contract.
In Static Control Components Holman J stated (at [19]) that the task of the court is "simply ascertainment of the meaning of the document by the objective approach described by the House of Lords" in ICS Ltd v West Bromwich BS and, "that being the task, it may be that the concept that a guarantee should be 'strictly construed' now adds nothing". Arden LJ stated ([37]) that, since the scope of the guarantee was a question which could be resolved by referring to relevant background evidence, the rule of contra proferentem has no place.
In the present case it is not necessary to resolve the differences in the two lines of authority. What does seem clear is that a guarantee has to be construed as a whole as a commercial document: see, for example, Stanley Burnton J in Barclays Bank v Kingston [2006] 2 Lloyds Rep 59. He stated (at [29]) that he did not approach the provisions of the guarantee "with the hostility traditionally shown to exemption clauses". As Andrews and Millett observe, op cit at 107-08, even in the line of Privy Council cases which deals with whether the liability of the principal debtor covered by the guarantee includes a contingent liability incurred by the debtor as a surety for a third party, and provides support for a "strict construction" can be found, the decisions were all in favour of the creditor, although in some of the lower courts, the application of the "strict construction" approach produced a different result. In Coghlan v SH Lock (Australia) Ltd this was so even though the guarantee was a personal guarantee given by two directors.
Moreover, in both Static Control Components and Kookmin Bank the court (albeit in the latter by a majority) considered that the language of the document (construed in the light of the principles set out by Lord Hoffmann) was not ambiguous: see [2004] 2 Lloyds Rep 429 at [18] and [37] and [2010] EWCA Civ 582 at [36], [41], [50] and [51]. Having found the language was not ambiguous, there was little scope for the operation of the "strict approach" which is generally used as a means of resolving ambiguities. In Coghlan v SH Lock (Australia) Ltd itself Lord Oliver referred to resolving ambiguity. He also made it clear (see 187 and 189) that the principle that a guarantee should be construed strictly did not mean that where parties have deliberately chosen "to adopt wording of the widest possible import" that wording is to be ignored or to "oust the principle that where wording is susceptible of more than one meaning regard may be had to the circumstances surrounding the execution of the document as an aid to construction".
Although generally only the creditor and the guarantor will be parties to a guarantee, the fact that a guarantee always also concerns the debtor, a third party, may justify a more cautious approach to the use of the surrounding circumstances as an aid to its construction. Lord Hoffmann's formulation requires the background to "have been reasonably available to the parties", but, as in the present case, not all those concerned may have in fact known of all the circumstances which constitute the background. The creditor may not know of all that has transpired between the debtor and the guarantor or between the guarantor and third parties, and the guarantor may not know all that has transpired between the debtor and the creditor. So, in this case, the defendants did not know of the Basic Agreement between HWS and Meritz, the share pledges, or the arrangements for reinsurance.
In the present case, as in the Gold Coast case, there are features in the APGs which favour each side's construction. The authorities show that the presence or absence of these features are factors which are indicative and not decisive. I have concluded that, for the reasons set out below, the APGs are performance bonds or demand guarantees.
Looking at the broad structure of the APGs and, at this stage standing back from an analysis of their particular wording, it is noteworthy that they have three of the four attributes which the editors of Paget's Law of Banking (13th ed. 2007) 34-4, at 865 state will lead an instrument "almost always [to] be construed as a demand guarantee": see also Andrews and Millett, op cit at 575-576. The three attributes are: (a) the underlying transactions, the shipbuilding contracts, are between parties in different jurisdictions; (b) the APGs do not contain clauses excluding or limiting the defences available to a surety in a classic guarantee where the surety's liability is secondary; and (c) the undertaking is to pay on demand, in this case, see paragraph [2], to pay "within thirty (30) days after demand is made".
The fourth of the attributes referred to by the editors of Paget and Andrews and Millett is that the instrument is issued by a bank. Meritz is not a bank. It is an insurance company. Mr Oliver placed considerable weight on this. He observed that insurance companies, unlike banks, are accustomed to pay if the insured event has occurred rather than against documents. He relied on the statements of Carnwath LJ in Marubeni Hong Kong v Government of Mongolia to which I referred when summarising his submissions: see [50(4) and (5)]. Carnwath LJ's statements, however, were made in the context of an instrument issued by the government of Mongolia, an entity which, as was submitted on its behalf ([17]) was "not in the business of providing irrevocable financial instruments in return for a fee or commission". His Lordship's approach and his statement must be seen in that context.
In the present case, while Meritz's primary business may have been as an insurance company, it was also providing financial instruments in return for a fee. The definition of a "demand guarantee" in Article 2(a) of the ICC Uniform Rules for Demand Guarantees provides that it "means any guarantee…by a bank, insurance company or other body…". Andrews and Millett, op cit at 577, state that "the fact the document is issued by a bank or other financial institution, or by an insurer or professional bond issuer" will, if it is conditioned on a demand, point to it being a performance guarantee" (emphasis added). While there may be a distinction to be made between an instrument issued by a bank and one issued by another commercial entity which provides financial instruments in return for a fee, it is much more nuanced than suggested by Mr Oliver.
I now turn to the particular terms of the APGs. I first observe that paragraph [10] provides that they are "subject to the Uniform Rules for Demand Guarantees of the International Chamber of Commerce". Subjecting the APGs to the Uniform Rules is an indication that the parties regarded them as "demand guarantees". Mr Oliver submitted that the reference to the Uniform Rules cannot change the nature of the instruments. He argued that has to be determined by the substance of the language in the remainder of the document. This approach, in effect asks that the remainder of the instrument be construed ignoring paragraph [10] and that, if the result of that process leads to the conclusion that the instrument is not a demand bond, paragraph [10] cannot have the effect of turning it into one.
Mr Oliver's approach has some similarity to the approach under the now long discredited doctrine of substantive fundamental breach under which the "core" of the contract was determined without regard to exemption and limitation clauses. But, while recognising that there may be an argument based on inconsistency between different provisions in an instrument, as in the context of fundamental breach the answer to the question must be that the instrument as a whole must be construed. If authority for this proposition is required, see Gold Coast Ltd v Caja de Ahorros del Mediterreaneo [2002] 1 Lloyds Rep 617 at [15] (Tuckey LJ) and IIG Capital LLC v Van der Merwe [2008] 2 Lloyds Rep 187 at [7] and [30] (Waller LJ). To do otherwise and to treat the incorporation of the Uniform Rules in the way that Mr Oliver submits it should be treated would, as Mr Milligan observed, allow the tail to wag the dog.
Is there inconsistency between the provisions of the Uniform Rules and paragraphs [1] – [9] of the APGs? By Article 2(a) the Uniform Rules a demand guarantee:
"[m]eans any guarantee, bond or other payment undertaking, however named or described, by a bank, insurance company or other body or person…given in writing for the payment of money on presentation in conformity with the terms of the undertaking of a written demand for payment and such other document(s) (for example, a certificate by an architect or engineer, a judgment or an arbitral award) as may be specified in the guarantee, such undertakings being given
(i) At the request or on the instructions and under the liability of a party…or
(ii) At the request or on the instructions and under the liability of a bank, insurance company or any other body or person…acting on the instructions of a principal to another party…"
It is clear that the provisions of the APGs satisfy the definition of "demand guarantee" in the Uniform Rules and there is no inconsistency between them and the Uniform Rules. The APGs are payment undertakings, issued by an insurance company, in writing, for the payment of money on presentation in conformity with the terms i.e. a written demand for payment: see (paragraphs [2] and [4]). The written demand must be accompanied by a statement certifying that it is made in conformity with clause 17 of the shipbuilding contract (paragraph [4]) or the arbitration award (paragraph [6]) and the buyer has failed to make the refund. The APGs were issued "for the account of" HWS in connection with the shipbuilding contracts: paragraph [1].
The obligation to pay under the APGs is triggered on the demand being made in the specified form. The fact that the obligation is (paragraph [2]) to pay within "30 days after demand is made" affects timing but not the nature of the obligation. The fact that the obligation to pay is (see paragraph [4]) conditioned by the presentation of a specified document rather than proof of the underlying facts is a pointer in favour of primary liability: see Gold Coast Ltd v Caja de Ahorros del Mediterreaneo at [17]. Moreover, it is clear from the authorities that the fact that an instrument makes reference to the contractual performance for which it is security and the circumstances which constitute default does not prevent it being a demand guarantee or performance bond: see Esal (Commodities) Ltd v Oriental Credit Ltd [1985] 2 Lloyds Rep 546, 549 per Ackner LJ referred to with approval by Tuckey LJ in Gold Coast Ltd v Caja de Ahorros del Mediterreaneo at [18]. This is also the position under the Uniform Rules. Article 2(b) provides that "guarantees by their nature are separate transactions from the contract(s) or tender conditions on which they may be based, and guarantors are in no way concerned with or bound by such contract(s)…despite the inclusion of a reference to them in the guarantee….".
A number of the factors, the absence of which were relied on by Mr Oliver as indicating that the APGs imposed a secondary obligation, are clearly not conclusive. So, the instrument in Gold Coast described itself as a "guarantee" but Tuckey LJ stated that was simply a label. The emphasis in IIG Capital on the fact that the instrument stated that the guarantor's obligation was "as principal obligor and not merely as surety" (at [31]) was in the context of considering whether the presumption that applied against the instruments in that case being demand bonds was rebutted. The Van der Merwes who provided the guarantees in that case were the owners of the business which was the debtor. They were not in the business of providing irrevocable financial instruments in return for a fee or commission. Whatever the difference between a bank and an insurance company issuing financial instruments for a fee as part of its business, the position of the claimant in the present case differs greatly from that of the Van der Merwes in IIG Capital.
Similarly, although Mr Oliver relied on the absence of third party certification, as is clear from the Gold Coast case, self-certification is not an obstacle. Tuckey LJ stated (at [22]) that "often it is simply the contracting party who has to state that he is entitled to be paid the amount guaranteed in order to trigger payment". And in IIG Capital the requirement of third party certification is the last factor mentioned by Waller LJ. While it was stated to put the matter beyond doubt, it was given less emphasis than other factors, in particular that the obligation was to pay "upon demand", "unconditionally" and as "principal obligor".
In the Marubeni case, apart from the strength of the presumption that an instrument not issued by a bank or financial institution operating for profit is not a demand guarantee, there were positive indications in the instrument which reinforced that presumption. The first was that the instrument provided that the government "pledge[d] the full and timely performance and observance by the buyer of all the terms and conditions of the agreement". It was not suggested (see [32]) that those words indicated anything other than a secondary obligation. Secondly, the government's obligation only arose if "the amounts payable under the agreement [are] not paid when the same becomes due". Although, in an instrument issued by a bank in Esal (Commodities) Ltd v Oriental Credit Ltd, similar wording was held insufficient to displace the ordinary effect of what was admittedly a performance bond, Carnwath LJ stated (at [31]) that the starting point in Marubeni – it not being an instrument issued by a bank – was different and there was no reason for reading the words in other than their ordinary meaning.
What of the factors relied on by Mr Oliver as positive indications of the secondary nature of the guarantor's liability? These are the conditionality in paragraph [2] and the particular way arbitration is dealt with in paragraph [6]. Mr Oliver's submissions on these matters, and in particular on the wording of paragraph [6], undoubtedly have force. However, in the light of all the other indications to which I have referred and their strength, these do not tip the balance against construing the APGs as demand guarantees. I refer in particular to the fact that (a) payment is triggered by a demand upon presentation of specified documents, (b) the guarantee is stated to be irrevocable and unconditional, and (c) it is stated to be subject to the Uniform Rules. The absence of any limitation to or exclusion of any of the defences which would be available to a surety is also a pointer to the instruments being demand guarantees or performance bonds.
As far as paragraph [2] is concerned, I accept Mr Milligan's submission that, although the word "if" means that it is a conditional provision, the condition is not default by the shipbuilder but the defendants' right to repayment. As I have observed, a reference to the contractual performance for which the instrument is a security does not necessarily point to the instrument being a "see to it" guarantee rather than a demand guarantee. As has been stated in the cases, the absence of such reference would remove an important safeguard from the guarantor. The editors of Paget observe (at 865) that "a bare promise to pay on demand without any reference to the principal's obligations would leave the principal even more exposed in the event of a fraudulent demand because there would be room for the principal to assert that the drawing was in respect of obligations which had not been guaranteed". That passage was approved in the Gold Coast case at [18]. Moreover, paragraph [2] of the APGs must be read together with paragraph [4]. Paragraph [4] makes it clear that it is self-certification and demand and not the fact of default which triggers the obligation to pay. The implication from that is reinforced by the provision in Article 2(b) of the Uniform Rules which I have set out and which, by paragraph [10], applies to the APGs.
As to paragraph [6], in the Gold Coast case reference to arbitration in the instrument did not preclude it from being a demand guarantee. But (see Gold Coast [23]) the reference to arbitration in that case was in the provision in the instrument which dealt with the duration of the obligation assumed by it and not with the obligation itself. In the light of the requirement of certification by a bank, the court considered it explicable as a necessary provision in the event of the bank deciding that it was unable to issue the certificate until after any dispute had been resolved by arbitration. In the present case, however, the provision refers to "the award issued under such arbitration" and that award may differ from the amount demanded by the defendants. Although the point is not without difficulty, I accept Mr Milligan's submission that this provision does not condition the obligation to pay on the default of the shipbuilder. The obligation to pay is triggered by the award and the sum stipulated in the award is the sum that the claimant is obliged to pay. Although that might be different from the sum demanded by the defendants pursuant to paragraph [2], the APGs enable certainty to be achieved either by self-certification in accordance with paragraph [4] or by the arbitrator's award. Certainty is thus achieved by one of two documents, neither of which involves a determination of whether the shipbuilder is in default.
I do not consider that the provisions of the Basic Agreement or the post-APG communications between the claimant and its reinsurers and reinsurance intermediaries are of assistance in determining whether the APGs are performance bonds or classic contracts of guarantee. The defendants knew nothing of these matters and the communications with the reinsurers and the intermediaries occurred after the first two APGs were issued.
As far as the shipbuilding contracts themselves are concerned, I do not consider that their terms support Mr Oliver's submissions on this issue. The absence of an express reference to recourse under the APGs in respect of the instalments paid was contrasted by Mr Oliver with the reference to the APGs in the context of claims in respect of owner-supplied items. I accept Mr Milligan's submission that, given the purpose of the APGs, it would be extraordinary to construe the failure expressly to refer to recourse to them in the material parts of clause 17 of the shipbuilding contracts as meaning that there is no ability to do so. That is what the pro forma set out in Annex 3 to the contract provides.
Mr Oliver is not, in my judgment, assisted by the contrast he makes between Annex 3 and Annex 6 to HS1005 and HS1006. The Defects Liability Guarantee in Annex 6 is not subject to the Uniform Rules. It also excludes the defences available to a surety, a factor which is one of the indications that it is a contract of suretyship rather than a performance bond. In the case of HS1007, Mr Oliver submitted that the Replacement Guarantee is more obviously a performance guarantee. However, although, unlike the APGs, it is described in the heading to Annex 8 as "performance guarantee" and its last paragraph subjects the performance guarantee to the Uniform Rules, its provisions differ from those in the APGs.
Finally, I do not consider that the provision that the advance payments be paid into an escrow account is material. Clause 5.5 of the shipbuilding contracts and Annex 1 provide the means by which such payments may be dispersed to the shipbuilder for the purposes of construction and, because the second paragraph of clause 5.1 identifies these payments as payments to be covered by the APGs, the fact that the defendants had some additional measure of protection from the escrow accounts is, in this context, not material.
Issue 2: If the APGs are contracts of suretyship, has the claimant been discharged from liability under them as a result of the changes in the corporate identity of the shipbuilder or material variations in the shipbuilding contracts?
The question here is whether there has been a material variation of the principal contracts. The submissions on behalf of the claimant that there has been such a variation and that it has been discharged from liability under the APGs have two strands. The first concerns the effect of the corporate reorganisations. The second concerns the claim that the defendants agreed with the shipbuilder to defer the delivery dates of the vessels and thus increased the period of the claimant's exposure under the APGs. What is important in this context is whether there was an agreement by the creditor, here the defendants, to vary the shipbuilding contracts and, if there was, whether the claimant, the guarantor, affirmed the APGs with knowledge of such variation.
I first deal with the changes in the corporate identity of the shipbuilder. The defendants did not agree to this. The changes in the identity of the shipbuilder occurred in the first place because of the unilateral action by HWS and its effect under Korean law, and then by the unilateral act of Buyoung and the effect of the partitioning under Korean law. Accordingly, absent a specific breach of duty by the defendants, which is not the way the claimant's case has been put, the principles set out in Holme v Brunskill (1877) 3 QBD 495; Commercial Bank of Tasmania v Jones [1893] AC 313; and First National Finance Corporation Ltd v Goodman [1983] BCLC 203 do not apply. In Holme v Brunskill Cotton LJ made it clear, at 505, that for the guarantor to be discharged there must be an "agreement between the principals with reference to the contract guaranteed".
The fact that the defendants did not enforce any rights they may have had against the various corporate iterations of the shipbuilder does not suffice to discharge the APGs. It is well established that the voluntary act of forbearance by a creditor against his counterparty will not discharge the guarantor: see Moschi v Lep Air Services Ltd [1973] AC 331 at 348G (albeit in the context of steps to obtain timeous performance by the debtor) and China and South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536 at 544A-C and 545E-G.
Moreover, in circumstances in which the claimant did not take the opportunity it had to challenge the merger in the Korean courts and so under Korean law is deemed to have agreed to it, it is unattractive for it now to contend that it has nevertheless been discharged from liability under the APGs because of the merger. This is so, even if, since the APGs are subject to English law, Korean law is not relevant to their construction. As to the subsequent partitioning, the evidence of the experts was that both Buyoung and Asia Heavy were jointly and severally liable to perform the obligations of the builder under the shipbuilding contracts. In the light of that, the partitioning could not have put Meritz in a worse position than it was in when Buyoung alone was liable.
Before leaving this issue, I add that Mr Oliver relied on Meritz's reservation of its right to cancel the repayment guarantees in its memorandum dated 20 October 2008 to Asia Heavy (see [26]). He also relied on the fact that the claimant did not reissue the APGs to make it clear that they applied in respect of Asia Heavy's position. However, the memorandum dated 20 October was not communicated to the defendants and is irrelevant to considering their position vis a vis the claimant. Moreover, the communications between the claimant and the defendants as they sought to address the problems caused by Asia Heavy's financial position did not at any stage include the claimant making it clear to the defendants that, in the light of the changes in the corporate identity of the shipbuilder, it reserved its rights under the APGs.
I turn to the claim that the defendants agreed to a postponement of the delivery dates of the vessels. Mr Oliver submitted that the agreement by the defendants was confirmed in the faxed letters from the defendants to Asia Heavy on 3 December 2008: see [39]. Mr Oliver submitted that the agreement to new delivery dates one year or more later than the contractual ones constituted a material variation to the shipbuilding contracts and thus engaged the rule in Holme v Brunskill. Although the faxed letters dated 3 December upon which Mr Oliver relied were unqualified, Mr Milligan submitted that when seen in the full context of the exchanges between the claimant and the defendants over the entire period (including the correction on the next day), it is clear that they are not agreements to extend the delivery dates. All the exchanges were in the context of the claimant's recognition that it was bound by the APGs, and very concerned about this in view of Asia Heavy's financial position. The communications by the defendants made it clear that the steps that they were willing to contemplate and the proposals they made were contemplated and made in a context in which they were not prepared to vary the shipbuilding contracts and were concerned to preserve their rights under them.
Mr Milligan submitted that, at worst, the letters dated 3 December were conditional offers of variation provided there was performance by the specified dates. Since there had been no such performance, that condition was not satisfied. There was, accordingly, no contractual variation. He relied on two old cases, Hollier v Eyre (1842) 9 C & F 1 at 57-58 (Lord Cottenham) and Clark v Birly (1889) 41 Ch D 433-4 (North J). He also submitted that the offers made by the defendants could only have been beneficial to the claimant because given Asia Heavy's financial position it was going to default and thus trigger the claimant's obligations under the APGs but the letters gave it an incentive to perform and, if the targets were met, to relieve the claimant of liability under the APGs. Moreover, Mr Milligan relied on the definition clause in the three shipbuilding contracts that defines "Take Over Dates" as the "specified delivery date" or alternatively "such other date as may become applicable pursuant to the contract" and the provision in clause 13.2(d) that "permissible delays" include extensions of time agreed by the parties in writing. He submitted that the shipbuilding contracts themselves provided for an extension and (see Andrews and Millett at 364) a variation expressly contemplated in a contract does not discharge the guarantor.
I have concluded that the claimant was not discharged from the APGs as a result of the communications about delivery dates. There is considerable force in Mr Milligan's submission that there was no contractual variation or that if there was it was subject to a condition which was not satisfied. But, in view of the unqualified nature of the letters dated 3 December on which Mr Oliver relied and the formulaic but not consistent use of "without prejudice", I rest this part of my decision on affirmation by the claimant of the APGs after 3 December 2008, rather than the absence of a variation or the presence only of a contemplated variation. By 3 December the claimant knew both about the merger and partitioning and about the proposed changes to the delivery dates. I accept Mr Milligan's submissions that acts of affirmation by the claimant are found in the request made by Mr Cho which was conveyed to the defendants by their Korean lawyers in the e-mail dated 9 December and at the meeting between the claimant and the first defendant's Korean lawyers on 16 December to which I have referred, see [28]. There is also the reference to "our refund guarantee" in the claimant's communication (see [31]) dated 19 December. Mr Milligan also relied on Mr Min's e-mail dated 11 March (see [32]) but that, standing on its own, is not an unequivocal affirmation of the contract as opposed to a request to see how the first defendant was putting its claim.
Issue 3: Once HWS ceased to exist were the defendants able to make a contractual demand which triggered liability under the APGs?
I have referred (see [7], [32], and [41] – [42]) to the notices of termination and demands for repayment made to Asia Heavy and, after Asia Heavy failed to pay the demands by the first and second defendant for payment by Meritz under the three APGs.
Mr Oliver submitted that because of the manner in which the definitions in the shipbuilding contract and the APGs interacted, after HWS ceased to exist it was impossible for a demand to be made on HWS and for it to satisfy it. His starting point is the definition in the shipbuilding contracts of the first and second defendant as "the Buyer" and HWS as "the Builder". He submitted that, in the light of the definition of "Builder" and the use of that term throughout the shipbuilding contracts, after HWS ceased to exist, the provisions of clause 17 ceased to be workable. Accordingly, a demand for repayment made to Asia Heavy could not be made "in conformity with clause 17". Since the same definitions are used in the APGs, with HWS being defined as "the Builder", the references to "the Builder" in paragraphs [2] and [4] are to be read accordingly. The consequence is that demands upon Asia Heavy could not trigger the obligation under the APGs.
There is a short answer to this point whether or not the APGs are performance bonds. Clause 17.1(d) of the shipbuilding contracts gives the defendants the right to terminate the contracts and demand repayment on an insolvency event including "the dissolution…or liquidation of" the Builder. The APGs give the defendants a guarantee of the repayment of the advance payments (paragraph [2]) upon a demand with a signed statement certifying that their demand for refund "is made in accordance with clause 17…and that the Builder has failed to make the refund". The contract thus expressly provides for payment under the APGs in the case of the dissolution of HWS, the shipbuilder. It cannot make any difference that HWS is dissolved as part of a reorganisation which puts a new corporate entity in its place as the shipbuilder. As Mr Milligan observed, if Mr Oliver is right, the APGs would not be available when they are most needed.
If, as I have decided, the APGs are performance bonds rather than classic contracts of suretyship, there is an additional reason. In the light of the evidence of Korean law, once the merger was effective, Buyoung succeeded to all of HWS's rights and obligations (save in immaterial respects). Asia Heavy in turn succeeded to all Buyoung's rights and obligations, although after the partitioning Buyoung remained jointly and severally liable. Accordingly, the defendants could honestly and validly self-certify in accordance with paragraph [4] of the APGs. They did so certify that the demand was in conformity with clause 17. In the absence of an allegation of fraud that is an end to the matter: see [51] above and Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159.
VII. Conclusion
For these reasons judgment is given in favour of the defendants for the sums counterclaimed and interest at 6% as stipulated in the three APGs. In the case the APGs in respect of HS1005 and 1006 the sums counterclaimed are US$6,300,000 per contract. In the case of HS1007 it is €15,050,000.
Note 1 In the case of HS1005 and 1006 the specified sum is US$6,300,000; in the case of HS1007 it is €15,050,000. [Back] | 2 |
ORIGINAL JURISDICTION Petitions Nos. 50, 145, 149, 150, 188, 243, 261, 266 and 362 of 1955 and 205 of 1956. Petitions under Article 32 of the Constitution of India for the enforcement of fundamental rights. M. Tiwari and K. R. Choudhry, for the petitioners in Petitions Nos. 50, 150, 243, 261, 266 and 362 of 1955. Ganpat Rai, for petitioners in Petitions Nos. 145, 149, 188 of 1955 and 205 of 1956. Porus A. Mehta and T. M. Sen, for the State of Rajasthan and Board of Revenue in all the Petitions. Udhai Bhan Chaudhry, for respondents Nos. 2 and 3 in Petition No. 145 of 1955. P. Gupta, for respondents Nos. 4 to 6 in Petit ion No. 149 of 1955. Tarachand Brijmohan Lal, for respondents Nos. 3 to 9 in Petition No. 243 of 1955. Bhawani Lal and P. C. Aggarwal, for respondents Nos. 3 to 5 in Petition No. 261 of 1955. S. Shukla, for respondent No. 4 in Petition No. 266 of 1955. N. Anand, for respondent No. 3 in Petition No. 362 of 1955. L. Mehta, for respondent No. 2 in Petition No. 205 of 1956. 1957. February 8. The Judgment of the Court was delivered by VENKATARAMA AYYAR J.-These are petitions filed under Art. 32 of the Constitution by proprietors of lands in the State of Rajasthan, challenging the vires of The Rajasthan Protection of Tenants Ordinance, 1949, Ordinance No. IX of 1949, hereinafter referred to as the Ordinance, of numberifications dated June 14, 1951 and June 20, 1953, issued thereunder and of the Rajasthan Protection of Tenants Amendment Act No. X of 1954. It will be useful at the outset to state briefly the facts relating to the companystitution of the legislative authority, in the exercise of which the impugned Ordinance and numberifications were issued. When the British were the Rulers of this Country, Rajputana, as the State was then known, companysisted of 18 principalities claiming sovereign status. After independence, a movement was set afoot for the integration of all the principalities into a single State, and the process was companypleted on May 5, 1949, when all of them became merged in a Union called the United State of Rajasthan. The companystitution of the State was settled in a Covenant, to which all the Rulers agreed. Under Art 11 of the Covenant, the States agreed to unite and integrate their territories in one State with a companymon executive, legislature and judiciary by the name of the United State of Rajasthan. Under Art. VI 2 , the Rulers made over all their rights, authorities and jurisdiction to the new State which shall thereafter be exercisable only as provided by this Covenant or by the Constitution to be framed thereunder. Article X 3 provides that, Until a Constitution so framed companyes into operation after receiving the assent of the Rajpramukh, the legislative authority of the United State shall vest in the Rajpramukh, who may make and promulgate Ordinances for the peace and good government of the State or any part thereof, and any Ordinance so made shall have the like force of law as an Act passed by the legislature of the United State. Article X 3 was subsequently modified by substituting for the words Until a Constitution so framed companyes into operation after receiving the assent of the Rajpramukh, the words Until the Legislative Assembly of Rajasthan has been duly companystituted and summoned to meet for the first session under the pro. visions of the Constitution of India. Reference may also be made to Art. 385 of the Constitution of India, which runs as follows Until the House or Houses of the Legislature of a State specified in Part B of the First Schedule has or have been duly companystituted-and summoned to meet for the first session under the provisions of the Constitution, the body or authority functioning immediately before the companymencement of this Constitution as the Legislature of the companyresponding Indian State shall exercise the powers and perform the duties companyferred by the provisions of this Constitution on the House or Houses of the Legislature of the State so specified It may be mentioned that the Legislative Assembly of Rajasthan was companystituted and came into being on March 29, 1952, and until then, it was the Rajpramukh in whom the Legislative authority of the State was vested. On June 21, 1949, the Rajpramukh promulgated the impugned legislation, the Rajasthan Protection of Tenants Ordinance No. IX of 1949. The preamble to the Ordinance runs as follows Whereas with a view to putting a check on the growing tendency of landholders to eject or dispossess tenants from their holdings, and in the wider national interest of increasing the production of foodgrains, it is expedient to make provisions for the protection of tenants in Rajasthan from ejectment or dispossession from their holdings. Section 4 of the Ordinance provides So long as the Ordinance is in force in any area of Rajasthan, numbertenant shall be liable to ejectment or dispossession from the whole or a part of his holding in such area on any ground whatsoever. Section 7 provides for reinstatement of tenants who had been in occupation on the first day of April, 1948, but had been subsequently dispossessed and by an Amendment Act No. XVII of 1952, this right was extended to tenants, who got into possession even after the first day of April. Section 3 1 of the Ordinance, which is very material for the present petitions, runs as follows It shall companye into force at once, and shall remain in force for a period of two years unless this period is further extended by the Rajpramukh by numberification in the Rajasthan Gazette. In exercise of the power companyferred by this section, the Rajpramukh issued a numberification on June 14, 195 1, providing that Ordinance No. IX of 1949 shall remain in force for a further period of two years with effect from June 21, 1951. On June 20, 1953, he issued a further numberification providing that the said Ordinance shall remain in force for a term of one year with effect from June 21, 1953. Doubts would appear to have been expressed about the validity of the numberification, dated June 20, 1953, on the around that as the State Legislature had companye into being on March 29, 1952, the power of the Rajpramukh to legislate under Art. 385 of the Constitution had companye to an end on that date. To resolve the doubt, the Rajpramukh issued on February 15, 1954, an Ordinance under Art. 238 of the Constitution,, No. III of 1954, substituting for s. 3 the following It shall companye into force at once and shall remain in force for a period of five years That would have given operation to Ordinance No. IX of 1949 up to June 21, 1954. Then the Legislature of the State repealed Ordinance No. III of 1954, and enacted the Rajasthan Protection of Tenants Amendment Act No. X of 1954, and that came into force on April 17, 1954. Under this Act, a. 3 of Ordinance No. IX of 1949 was re-enacted as follows It shall companye into force at once and shall remain in force for a period of seven years. The petitioners question the validity of Ordinance No. IX of 1949, of the numberifications dated June 14, 1951, and June 20,1953, and of Act No. X of 1954. It appears that on October 15, 1955, a new enactment, the Rajasthan Tenancy Act No. III of 1955, came into force, and the relationship between landlords and tenants is number governed by this Act. But as a large number of petitions filed by the tenants under Ordinance No. IX of 1949 are still undisposed of by reason of stay orders obtained by the petitioners herein, it is necessary for the purpose of granting relief to them on these petitions, to decide whether the impugned Ordinance and numberifications are bad on any of the grounds put forward by the petitioners. We accordingly proceed to a companysideration of the present petitions on their merits. Counsel for petitioners urged the following companytentions in support of the petitions The numberifications dated June 14, 1951, and June 20, 1953, are bad, as s. 3 of the Ordinance under which they were issued is ultra vires, as companystituting delegation of legislative power. The numberification dated June 20,1953, is further bad, because the Legislature of Rajasthan had been companystituted on March 29, 1952, and the authority of the Rajpramukh to legislate companyferred by Art. 385 of the Constitution had, on that date, companye to an end. Act No. X of 1954 is bad, as it purports to extend the life of Ordinance No. IX of 1949 after the said Ordinance had already become dead. The impugned Ordinance is bad as being repugnant to Art. 14 of the Constitution and The Ordinance also companytravenes Art. 19 1 g of the Constitution in that it imposes unreasonable restrictions on the right of the petitioners to hold property. In logical sequence, it is the third companytention that should first be companysidered, because if Act No. X of 1954 is upheld, that must validate Ordinance No. IX of 1949 for the periods companyered by the impugned, numberifi. cations dated June 14, 195 1, and June 20, 1953, and in that event, the first two companytentions will number survive for determination. The argument of the petitioners in support, of this companytention is that even if either of the two numberifications aforesaid is held to be bad, then the impugned Ordinance would have expired at least on June 21, 1953, if number earlier on June 21, 195 1 and that neither Act No. X of 1954 which came into force on April 17, 1954, number even Ordinance No. III of 1954 which was promulgated on February 15, 1954, companyld give life to what was already dead. It is companyceded that a legislation might be retrospective but it is companytended that Act No. X of 1954 was number an independent legislation enacting a companye of provisions which were to-operate retroactively but an amendment of Ordinance No. IX of 1949, and as that Ordinance had expired by efflux of time on June 21, 1951, if the numberifications dated June 14, 1951 , and June 20, 1953, were bad, then there was, when Act No. X of 1954 was passed, numberOrdinance in existence on which the amendment, companyld operate, and that it was therefore ineffective. Some support for this companytention might be found in the observations of Kania C.J. in Jatindra Nath Gupta v. The Province of Bihar 1 at page 606, of Mahajan J. at pages 627-628 and of Mukherjea J. at pages 643-644. There is, however, numberneed to discuss the matter further, as we are of opinion that the petitioners must fail in their companytentions on the first two questions. Taking the first question as to whether s. 3 of the Ordinance is bad, in so far as it authorised the Rajpramukh to extend the life of the Act, the companytention of the petitioners is that it is essentially a matter for legislative determination as to how long a statute should operate, that s. 3 having provided that the Ordinance should be in force for a period of two years, any extension of that period companyld only be made by the Legislature and number by an outside authority, and that Accordingly the power companyferred by that section on the Rajpramukh to extend the period fixed therein is an unconstitutional delegation of legislative power. Reliance is placed in support of this companytention on the decision in Jatindra Nath Gupta v. The Province of Bihar 1 . There, the question was as to the validity of a numberification issued by the Government of Bihar on March 7, 1949, extending the operation of the Bihar Maintenance of Public Order Act V of 1947 to Chota Nagpur Division and the Santhal Parganas District with retrospective effect from March 16, 1948, Section 1 1949 F.C.R. 595. 1 3 of the Act had provided that it shall remain in force for a period of one year from its companymencement, but that was subject to a proviso, which ran as follows Provided that the Provincial Government may, by numberification, on a resolution passed by the Bihar Legislative Assembly and agreed to by the Bihar Legislative Council, direct that this Act shall remain in force for a further period of one year with such modifications, if any, as may be prescribed in the numberification. The numberification in question was issued in exercise of the power companyferred under this proviso, and it was held by the majority of the Court that the proviso was unconstitutional as it amounted to delegation of legislative authority, and that, therefore the numberification issued pursuant thereto was bad. Three of the learned Judges expressed the view that the power to extend the operation of an Act was purely a legislative function, and that it companyld number be delegated to an outside authority. Thus, Kania C. J. observed at pages 604-605 The power to extend the operation of the Act beyond the period mentioned in the Act prima facie is a legislative power. It is for the Legislature to state how long a particular legislation will be in operation. That cannot be left to the discretion of some other body Even keeping apart the power to modify the Act, I am unable to companystrue the proviso worded, as it is, as companyditional legislation by the Provincial Government. Section 1 3 and the proviso read together cannot be properly interpreted to mean that the Government of Bihar in the performance of its legislative functions had prescribed the life of the Act beyond one year. For its companytinued existence beyond the period of one year it had number exercised its volition or judgment but left the same to another authority, which was number the legislative authority of the Province. Mahajan J. dealing with this question observed at page 623 I am further of the opinion that the power given to extend the life of the Act for another year in the companytext of the language of s. 1 3 also amounts to an act of legislation and does number fall under the rule laid down in The Queen v. Burah 1 . The Actin a mandatory form stated that it shall be in force for one year only That being so, the power given in the proviso to reenact it for another year is legislative power and does number amount to companyditional legislation. Mukherjea J. was of the opinion that if the legislation was to take effect on the determination of some fact or companydition by an extraneous authority, it would be companyditional legislation, and that would be valid on the authority of the decision in The Queen v. Burah 1 , but that it would number be valid if it was left to an outside authority to determine at some future date whether the Act should be extended for one year further with or without modifications. Fazl Ali J. took the companytrary view. He observed -at page 646 So far as the extension of the Act is companycerned, I am number prepared to hold that it amounts to legislation or exercise of legislative power. From the Act, it is clear that, though it was in the first instance to remain in force for a period of one year, the Legislature did companytemplate that it might have to be extended for a further period of one year. Having decided that it might have to be extended, it left the matter of the extension to the discretion of the Provincial Government. It seems to me that the Legislature having exercised its judgment as to the period for which the Act was or might have to remain in force, there was numberhing wrong in its legislating companyditionally and leaving it to the discretion of the executive authority whether the Act should be extended for a further period of one year or number. It would be taking a somewhat narrow view of the decision in Burahs case 1 to hold that all that the Legislature can do when legislating companyditionally, is to leave merely the time and the manner of carrying its legislation in to effect to the discretion of the executive authority and that it cannot leave any other matter to its discretion. The extension of the Act for a further period of one year does number amount to its reenactment. It merely amounts to a companytinuance of the Act for the maximum period companytemplated by the Legislature when enacting it. 1 1878 L.R. 5 I.A. 178. It will be numbericed that the authority companyferred on the Bihar Government by the proviso to s. 3 was one number merely to extend the life of the Act as in the present case, but also to extend it with such modifications as might be specified in the numberification. It is this latter clause that came in principally for attack in the judgments of the majority, and the decision that the proviso as a whole was bad was based primarily on the view that that clause was ultra vires. Kania C. J. numberdoubt observed that the power to extend the operation of the Act was, even apart from the power to modify it, a legislative function. But he also added that the power companyferred by the proviso was a single one and that the power to extend the life of the Act companyld number be severed from the power to modify it. The matter was made even more plain by Mukherjea J. in his judgment in State of Bombay v. Narothamdas Jethabai 1 . There, the Bombay High Court had held, relying on the decision in Jatindra Nath Gupta v. The, Province of Bihar 2 , that s. 4 of the Bombay City Civil Courts Act, 1948 which companyferred authority on the State to invest Civil Courts by numberification with jurisdiction to try suits number exceeding Rs. 25,000 was bad. In disagreeing with this companyclusion, Mukherjea J. observed The learned Judges of the Bombay High Court in companying to their decision on the point seem to have been influenced to some extent by the pronouncement of the, Federal Court in Jatindranath Gupta v. Province of Bihar 2 , and the learned Counsel for the respondents naturally placed reliance upon it Mr. Seervai would have been probably right in invoking the decision in that case as an authority in,his favour if the proviso simply empowered the Provincial Government, upon companypliance with the companyditions prescribed therein, to extend the duration of the Act for a further period of one year, the maximum period being fixed by the Legislature itself. The proviso, however, went further and authorised the Provincial Government to decide at the end of the year number merely whether the Act should be companytinued for another year but whether the Act itself was to be modified in any 1 1951 S.C.R. 51. 2 1949 F.C.R. 595. way or number. It was companyceded by the learned Counsel appearing for the Province of Bihar that to authorise another body to modify a statute amounts to investing that body with legislative powers. What the learned Counsel companytended for was that the power of modification was severable from the power of extending the duration of the Statute and the invalidity of one part of the proviso should number affect its other part. To this companytention my answer was that the two provisions were inter-related in such manner in the statute that one companyld number be severed from the other. The decision in Jatindra Nath Gupta v. The Province of Bihar 1 cannot therefore be regarded as a clear and direct pronouncement that a statutory provision authorising an outside authority to extend the life of a statute is per se bad. We must number refer to the decision in In re The Delhi Laws Act, 1912 2 , wherein the law relating to delegated legislation was exhaustively reviewed by this Court That was a reference under Art. 143 of the Constitution stating a number of questions for the opinion of this Court. Due to companysiderable divergence of views expressed in the several judgments as to the limits of permissible delegation, numberunanimity companyld be reached in,the answers to the questions referred. But it can be said of certain propositions of law that they had the support of the majority of the learned Judges, and one such proposition is that when an appropriate Legislature enacts a law and authorises an outside authority to bring it into force in such area or at such time as it may decide, that is companyditional and -not delegated legislation, and that such legislation is valid. In our opinion,, s. 3 of the Ordinance in so far as it authorises the Rajpramukh to extend the life of the Act falls within the category of companyditional legislation, and is, in companysequence, intra vires. The leading authority on the question is the decision of the Privy Council in The, Queen Burah s . There, the question was as to the validity of a numberification issued by the Lieutenant-Governor of-- Bengal 1 1949 F.C.R. 595 3 1878 5 I.A, 178. 2 1951 S.C.R. 747. on October 14, 1871, extending the provisions of Act No. XXII of 1869 to a territory known as the Jaintia and Khasi Hills in exercise of a power companyferred by s. 9 of that Act, which was as follows The said Lieutenant-Governor may from time to time, by numberification in the Calcutta Gazette extend mutatis mutandis all or any of the provisions companytained in the other sections of this Act to the Jaintia Hills, the Naga Hills, and to such portion of the Khasi Hills ,as for the time being forms part of British India. The High Court had held by a majority that that section was ultra vires, as amounting to delegation of legislative authority. But that decision was reversed on appeal to the Privy Council, which held that it was companyditional legislation, and was valid. Lord Selborne stated the law thus Their Lordships agree that the Governor-General in Council companyld number, by any form of enactment, create in India, and arm with general legislative authority, a new legislative power, number created or authorised by the Councils Act. Nothing of that kind has, in their Lordships opinion, been done or attempted in the present case. What has been done is this. The Governor-General in Council has determined, in the due and ordinary companyrse of legislation, to remove a particular district from the jurisdiction of the ordinary Courts and offices, and to place it under new Courts and offices, to be appointed by and responsible to the Lieutenant-Governor of Bengal leaving it to the Lieutenant- Governor to say at what time that change shall take place The Legislature determined that, so far, a certain change should take place but that it was expedient to leave the time, and the manner, of carrying it into effect to the discretion of the Lieutenant-Governor The proper Legislature has exercised its judgment as to placeperson, laws, powers and the result of that, judgment has been to legislate companyditionally as to all these things. The companyditions having been fulfilled, the legislation is number absolute. Where plenary powers of legislation exist as to particular subjects, whether in an Imperial or in a provincial Legislature, they may in their, Lordships judgment be well exercised, either absolutely or companyditionally. Legislation, companyditional on the use of particular powers, or on the exercise of a limited discretion, entrusted by the Legislature to persons in whom it places companyfidence, is numberuncommon thing and, in many circumstances, it may be highly companyvenient. The British Statute Book abounds with examples of it and it cannot be supposed that the Imperial Parliament did number, when companystituting the Indian Legislature, companytemplate this kind of companyditional legislation as within the scope of the legislative powers which it from time to time companyferred. This is clear authority that s provision in a statute companyferring a power on an outside authority to bring it into force at such time as it might, in its own discretion, determine, is companyditional and number delegated legislation, and that it will be valid, unless there is in the Constitution Act any limitation on its power to enact such a legislation. The petitioners do number dispute this. What they companytend is that while it may be companypetent to the Legislature to leave it to an outside authority to decide when an enactment might be brought into force, it is number companypetent to it to authorise that authority to extend the life of the Act beyond the period fixed therein. On principle , it is difficult to see why if the one is companypetent, the other is number. The reason for upholding a legislative provision authorising an outside authority to bring an Act into force at such time a it may determine is that it must depend on the facts as they may exist at a given point of time whether the law should then be made to operate, and that the decision of such an issue is best left to an executive authority. Such legislation is termed companyditional, because the Legislature has itself made the law in all its companypleteness as regards place, person, laws, powers,,, leaving numberhing for an outside authority to legislate on, the only function assigned to it being to bring the law into operation at such time as it might decide,. And it can ma numberdifference in the character of a legistation as -a companyditional one that the legislature, after itself enacting the law and fixing, on a companysideration of the facts as they might have then existed, the period of its duration, companyfers a power on an outside authority to extend its operation for a further period if it is satisfied that the state of facts which called forth the legislation companytinues to subsist. In the present case, the preamble to the Ordinance clearly recites the state of facts which necessitated the enactment of the law in question, and s. 3 fixed the duration of the Act as two years, on an understanding of the situation as it then existed. At the same time, it companyferred a power on the Rajpramukh to extend the life of the Ordinance beyond that period, if the state of affairs then should require it. When such extension is decided by the Rajpramukh and numberified, the law that will operate is the law which was enacted by the legislative authority in respect of place, person, laws, powers , and it is clearly companyditional and number delegated legislation as laid down in The Queen v. Burah 1 , and must, in companysequence, be held to be valid. It follows that we are unable to agree with the statement of the law in Jatindra Nath Gupta v. The, State of Bihar 2 that a power to extend the life of an enactment cannot validly be companyferred on an outside authority. In this view, the question as to the permissible limits of delegation of legislative authority on which the judgments in In re The Delhi Laws Act, 1912 3 , reveal a sharp companyflict of opinion does number arise for companysideration, and we reserve our opinion thereon. It is next companytended that the numberification dated June 20, 1953, is bad, because after the Constitution came into force, the Rajpramukh derived his authority to legislate from Art. 385, and that under that Article his authority ceased when the Legislature of the State was companystituted, which was in the present case, on March 29, 1952. This argument proceeds on a misconception as to the true character of a numberification issued under s. 3 of the Ordinance. It was number an independent piece of legislation such as companyld be enacted only by the then companypetent legislative 1 1878 5 I.A. 178. 3 1951 S.C.R. 747. 2 1949 F.C.R. 595. authority of the State, but merely an exercise of a power companyferred by a statute which had been previously enacted by the appropriate legislative authority. The exercise of such a power is referable number to the legislative companypetence of the Rajpramukh but to Ordinance No- IX of 1949, and provided s. 3 is valid, the validity of the numberification is company extensive with that of the Ordinance. If the Ordinance did number companye to an end by reason of the fact that the authority of the Rajpramukh to legislate came to an end-and that is number and cannot be disputed-neither did the power to issue a numberification which is companyferred therein. The true position is that it is in his character as the authority on whom power was companyferred under s. 3 of the Ordinance that the Rajpramukh issued the impugned numberification, and number as the legislative authority of the State. This objection should accordingly be overruled. We shall next companysider the companytention that the provisions of the Ordinance are repugnant to Art. 14 of the Constitution, and that it must therefore be held to have become void. In the argument before us, the attack was mainly directed against ss. 7 1 and 15 of the Ordinance. The companytention with reference to s. 7 1 is that under that section landlords who had tenants on their lands on April 1, 1948, were subjected to various restrictions in the enjoyment of their rights as owners, while other landlords were free from similar restrictions. There is numbersubstance in this companytention. The preamble to the Ordinance recites that there was a growing tendency on the part of the landholders to eject tenants, and that it was therefore expedient to enact a law for giving them protection and for granting relief to them, the Legislature had necessarily to decide from what date the law should be given operation, and it decided that it should be from April 1, 1948. That is a matter exclusively for the Legislature to determine, and the propriety of that determination is number open to question in Courts. We should add that the petitioners sought to dispute the companyrectness of the recitals in the preamble. This they clearly cannot do. Vide the observations of Holmes J. in Block v. Hirsh 1 . 1 1920256 U.S. 135 65 L. Ed. 865. A more substantial companytention is the one based or a. 15, which authorises the Government to exempt any person or class of persons from the operation of the Act. It is argued that that section does number lay down the principles on which exemption companyld be granted, and that the decision of the matter is left to the unfettered and uncanalised discretion of the Government, and is therefore repugnant to Art. 14. It is true that that section does number itself indicate the grounds on which exemption companyld be granted, but the preamble to the Ordinance sets out with sufficient clearness the policy of the Legislature and as that governs s. 15 of the Ordinance, the decision of the Government thereunder cannot be said to be unguided. Vide Harishanker Bagla v. The State of Madhya Pradesh 1 . But even if s. 15 were to be held to be bad, that does number affect the rest of the legislation, as the matter dealt with in that section is clearly severable. In fact, s. 15 was number in the Ordinance as it was originally enacted, and was only introduced later by Ordinance, No. XII of 1949. We must accordingly hold that the impugned Ordinance cannot be held to be bad under Art. 14. It is finally companytended that the provisions of the Act are repugnant to Art. 19 1 f in that they oblige the landowners to keep tenants on their lands, thereby preventing them from themselves cultivating the same. The object of the Ordinance, as set out in the preamble, is clearly number to put a restriction on the right of an owner to himself cultivate the lands, but to prevent him when he had inducted a tenant on the land from getting rid of him without sufficient cause. A law which requires that an owner who is number himself a tiller of the soil should assure to the actual tiller some fixity of tenure, cannot on that ground alone be said to be unreasonable. Legislation of this character has been upheld in America as number infringing any Constitutional guarantee. Thus, in Block v. Hirsh 2 , a statute which gave a right to tenants to companytinue in possession even after the expiry of the lease, was held to be valid, Holmes J. observing, 1 1955 1 S.C.R. 380, 388. 2 1920 256. U.S. 135 65 Ed. 865. The main point against the law is that tenants are allowed to remain in possession at the same rent that they have been paying, unless modified by the companymission established by the Act, and that thus the use of the land and the right of the owner to do what he will with his own and to make what companytracts he pleases are cut down. But if the public interest be established, the regulation of rates is one of the first forms in which it is asserted, and the validity of such regulation has been settled since Munn v. People of Illinois 1 The preference given to the tenant in possession is an almost necessary ingredient of the policy, and is traditional in English law. If the tenant remained subject to the landlords power to evict, the attempt to limit the landlords demands would fail. | 4 |
Mr Justice Cranston:
Introduction
This is a claim for fatal asbestos-related injury by the claimant, Margaret Jolly, acting as widow and executrix of the estate of her late husband, Stephen Arthur Jolly. Liability has now been agreed by the defendant, Harsco Infrastructure Services Ltd. The issue before the court is whether the claimant is entitled to have judgment entered for damages to be assessed, in accordance with the agreed apportionment following the defendant's acceptance of the claimant's CPR, Part 36 offer on liability. The claimant contends that judgment on these lines should be entered in what is said to be the ordinary way. That would generally lead to the favourable consequences for costs and interest under CPR 36.14, in particular indemnity costs. The defendant contends that the judgment should not be entered but that there should be a consent order in line with CPR 36.10-36.11 covering further directions for disposal of the claim.
Background
The claimant's late husband, Stephen Jolly, contracted mesothelioma as a result of being exposed to asbestos when he worked for the defendant between 1975 and 1976. Mr Jolly died on 8 July 2008 aged 54. The claim form was issued on 29 June last year. The defendant denied liability. The defence, in December, made few admissions. The court invoked the show-cause procedure under the Practice Direction to CPR 3. The first show-cause hearing was listed for 21 February this year. Two days before that date, the defendant served a witness statement and resisted judgment on that basis. A hearing was adjourned because of the lack of time. At the resumed hearing on 19 April, the defendant resisted judgment and was given permission to defend the claim. Master McCloud ordered a split trial, with the issue of liability being set down for hearing last week.
On 27 April 2012, the claimant made a Part 36 offer to settle the issue of liability 99 percent in her favour. The offer read, in part:
"The claimant offers to settle the issue of liability in accordance with Part 36 of the CPR. This offer is intended to have the consequences of Section 1 of Part 36. If the offer is accepted within 21 days of the date of receipt the Defendant will be liable for the Claimant's costs in accordance with Rule 36.10".
The defendant did not accept the offer within the 21 days of service specified in CPR 36.2(2)(c) and CPR 36.3(1)(c)(i)). In a letter early this month, the defendant made a without prejudice offer to apportion liability on an 80/20 basis in the claimant's favour. The claimant rejected that offer. A week later the defendant accepted the claimant's 99 percent offer. The claimant wrote in reply:
"We will take our client's instructions on an interim payment of damages. CPR 36.14 applies. We will draft an appropriate order for your consideration. If we are able to agree terms as to costs then we will be able to vacate the trial hearing."
The following day the claimant sent a draft order which stated:
"Judgment on the issue of liability be entered 99 percent in favour of the claimant."
The draft order continued that, pursuant to CPR Part 36.14(3)(a), the defendant would pay the claimant interest on damages at 10 percent above the base rate from the date on which the relevant period expired, until damages were paid in full, upon the unpaid part of the damages. The draft order also stated:
"Pursuant to CPR Part 36.14(3)(b) the defendant shall within 28 days pay the claimant her costs on the issue of liability such to be assessed:
on the Standard Basis up to the date the relevant period expired;
on the Indemnity Basis thereafter."
There was also a provision pursuant to CPR Part 36.14(3)(c) for the defendants to pay the interest on costs on the issue of liability. The defendant replied by email:
"CPR 36.14 doesn't bite – your client has not received judgment so the provisions you have put in do not apply."
Part 36
Part 36 of the CPR is designed to facilitate settlement. It provides that offers to settle in accordance with its provisions produce the consequences set out in the rules: CPR 36.1(1). Parties are not prevented from making an offer to settle in whatever way they choose but, if the offer is not made in accordance with rule 36.2, it will not have the consequences specified in rules 36.10, 36.11 and 36.14: CPR 36.1(2). The formalities of a Part 36 offer are set out in CPR 36.2. In particular, CPR 36.2(2)(c) states:
"(2) A Part 36 offer must …
(c) specify a period of not less than 21 days within which the defendant will be liable for the claimant's costs in accordance with rule 36.10 if the offer is accepted …"
Acceptance of a Part 36 offer is dealt with in CPR 36.9. It is effected by serving written notice of the acceptance: CPR 36.9(1). The offer may be accepted at any time:
"(2) Subject to rule 36.9(3), a Part 36 offer may be accepted at any time (whether or not the offeree has subsequently made a different offer) unless the offeror serves notice of withdrawal on the offeree."
CPR 36.10 sets out "The costs consequences of acceptance of a Part 36 offer." Where a Part 36 offer is accepted within the relevant period the claimant is entitled to costs of the proceedings up to the date on which notice of acceptance was served on the offeror: CPR 36.10(1). CPR 36.10(4)(b) deals with costs where a Part 36 offer is accepted after the relevant period.
"(4) Where –
…
(b) a Part 36 offer is accepted after expiry of the relevant period,
if the parties do not agree the liability for costs, the court will make an order as to costs."
CPR 36.10(5) continues that, where paragraph (4)(b) applies, unless the court orders otherwise, the claimant is entitled to costs of the proceedings up to the date on which the relevant period expire; and the offeree is liable for the offeror's costs for the period from the date of expiry of the relevant period to the date of acceptance.
CPR 36.11 then address "The effect of acceptance of a Part 36 Offer". Under CPR 36.11(1) the action is stayed. Any stay does not affect the power of the court to deal with any question of costs (including interest on costs) relating to the proceedings: CPR 36.11(5)(b).
CPR 36.14 is entitled "Costs consequences following judgment". It applies, inter alia, where judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant's Part 36 offer: CPR 36.14(1)(b). In that event CPR 36.14(3) provides:
"Subject to paragraph (6), where rule 36.14(1)(b) applies, the court will, unless it considers it unjust to do so, order that the claimant is entitled to –
(a) interest on the whole or part of any sum of money (excluding interest) awarded at a rate not
exceeding 10% above base rate(GL) for some or all of the period starting with the date on which
the relevant period expired;
(b) his costs on the indemnity basis from the date on which the relevant period expired; and
(c) interest on those costs at a rate not exceeding 10% above base rate."
CPR 36.14(6) covers situations where a Part 36 offer has been withdrawn; has been changed so that its terms are less advantageous to the offeree, and the offeree has beaten the less advantageous offer; or is made less than 21 days before trial (unless the court has abridged the relevant period).
The claimant's submissions
The claimant contended that I should enter judgment for her damages to be assessed by the court in accordance with the parties' agreement on liability, i.e. that the defendant pay 99 percent of the value of the claim. The claimant accepts, however, that apart from that the court cannot determine matters at present because of the possible effect of global Part 36 offers: see Beasley v Alexander [2012] EWHC 2715 (QB).
In advancing this submission, Mr Steinberg for the claimant did not point to any specific power conferred on the court to enter judgment in the present circumstances. He did highlight the counterpart to CPR 36.14 in the 1998 version of Part 36, CPR 36.21, and that it applied to situations, where the claimant did better than proposed in the Part 36 offer "at trial". The present CPR 36.14 applies when "upon judgment" the situation is at least as advantageous to the claimant as the proposals in the Part 36 offer. That suggests, he submitted, that CPR 36.14 has purchase in situations much wider than previously.
Moreover, Mr Steinberg submitted that judgment along the lines proposed has been entered in countless cases. He acknowledged that there may be situations where it would not be appropriate to enter judgment following acceptance of a Part 36 offer. For instance, the parties might have compromised a claim with a money offer, without acceptance of liability. Here there did not appear to be any valid reason not to implement the agreed liability apportionment by entering judgment for damages to be assessed. CPR 36.11, as to the staying of an action, did not preclude the court from entering judgment. In this case, submitted Mr Steinberg, the defendant had denied liability for a considerable period, accepted liability at the last moment, and now sought to escape the costs consequences in CPR 36.14.
Discussion
In Gibbon v Manchester City Council [2010] EWCA Civ 726; [2010] 1 WLR 2081 the Court of Appeal rejected the contention that implied withdrawal, a concept from contract law, was applicable to Part 36 offers. In giving the court's judgment (with which Sir Anthony May P and Carnwarth LJ agreed), Moore-Bick LJ held that CPR Part 36 is drafted as a self-contained code. Basic concepts of offer and acceptance clearly underpin Part 36, and are part of the landscape in which everyone conducts their daily life, but it did not follow that Part 36 should be understood as incorporating all the rules of law governing the formation of contracts, some of which were quite technical in nature: [5]. Moore-Bick LJ said:
"4. It can be seen from Part 36 as a whole, as well as from the extracts cited above, that it contains a carefully structured and highly prescriptive set of rules … In seeking to settle the proceedings, therefore, parties are not bound to make use of the mechanism provided by Part 36, but if they wish to take advantage of the particular consequences for costs and other matters that flow from making a Part 36 offer, in relation to which the court's discretion is much more confined, they must follow its requirements."
If Part 36 is a self-contained code, and the claimant wishes to take advantage of its provisions, it seems to me that she is confined by its terms. The defendant has accepted the claimant's Part 36 offer outside the period of 21 days specified in CPR 36.2(2)(c), but before its withdrawal. The applicable regime is therefore CPR 36.10, "Costs consequences of acceptance of a Part 36 Offer" and CPR 36.11, "The effect of acceptance of a Part 36 offer". As we have seen CPR 36.10(5) provides for certain costs consequences where paragraph (4)(b) applies, unless the court orders otherwise.
In principle CPR Part 36.10(5) would appear to apply in this case but the claimant is entitled to argue for a different order and the court may agree. CPR 36.11 provides that a stay operates. As we have seen under CPR 36.11(5)(b) the stay does not affect the power of the court to order costs. Nothing in the self contained code which is Part 36 provides for judgment to be entered in this situation. Mr Steinberg could point to no specific power in the CPR. To my mind the change in terminology from the 1998 version of Part 36 does not fill the gap. What has happened in this case is that the issue of liability has been compromised by the late acceptance of a Part 36 offer. The defendant has not consented to judgment being entered. There is no power for me to enter judgment under Part 36. In my judgment the appropriate order should follow CPR 36.10 and 36.11, and CPR 36.14 is not applicable. The issue of liability should be stayed upon the terms of the claimant's offer and the question of the costs relating to that issue (including the basis of the assessment of those costs) should be postponed to be dealt with under CPR 36.10(4) and (5) or under the general discretion under CPR 44.3. | 5 |
Lord Justice Moore-Bick :
This is an appeal against the order of the Asylum and Immigration Tribunal made on the reconsideration of the appellant's appeal pursuant to the order of Blake J. By its order the tribunal dismissed the appellant's appeal against the decision of the Secretary of State to deport him to Pakistan.
The appellant is a citizen of Pakistan, now aged 38, who entered the United Kingdom in September 1999 pursuant to leave to enter as a spouse of a person settled here. In September 2000 he was granted indefinite leave to remain. The appellant and his wife had three children, but their marriage failed and in late 2003 or early 2004 the couple separated. In early 2006 they were divorced. The children, a son now aged a little under 15 and twin daughters now aged 9, live with their maternal grandparents.
Between 5th April 2007 and 3rd December 2008 the appellant was convicted of a number of offences. He was also warned on two separate occasions by the Secretary of State that further offending might lead to his deportation, but neither was sufficient to deter him from offending again. Since they are important for the proper understanding of the tribunal's decision, it is necessary to set out the appellant's convictions and the warnings he was given:
(i) on 5th April 2007 at Camberwell Green Magistrates' Court he was convicted of three offences of theft (shoplifting), two offences of failing to surrender to custody and breach of conditional discharge, for which he was sentenced to four months' imprisonment suspended, with a condition that he perform 100 hours of unpaid work, undertake a drug rehabilitation programme for 9 months and be under supervision for a period of 28 months;
(ii) on 9th May 2007 at the South Western Magistrates' Court he was convicted of possessing a Class A drug, for which he was fined £75;
(iii) on 9th August 2007 at Camberwell Green Magistrates' Court he was convicted of another offence of shoplifting. He was sentenced to one month's imprisonment and the suspended sentence passed on 5th April was activated, the two sentences to be served concurrently;
(iv) on 26th September 2007 at Sutton Magistrates' Court he was convicted of an offence of theft in respect of which he was sentenced to 14 days' imprisonment;
(v) on 17th October 2007 at the South Western Magistrates' Court he was convicted of an offence of theft and was sentenced to 6 weeks' imprisonment;
(vi) on 25th September 2007 the Secretary of State wrote to the appellant while he was in prison informing him that he had considered his immigration status and warning him that there was power to deport him, if that should be deemed conducive to the public good. He was warned quite explicitly that, if he should come to the notice of the Secretary of State again, further consideration would be given to his deportation;
(vii) on 19th December 2007 at Kingston-upon-Thames Magistrates' Court the appellant was convicted of an offence of theft and sentenced to 8 weeks' imprisonment;
(viii) on 11th April 2008 at the South Western Magistrates' Court he was convicted of three offences of shoplifting and was sentenced to 12 weeks' imprisonment;
(ix) on 22nd May 2008 the Secretary of State wrote to the appellant again in terms similar to those of his previous letter;
(x) on 3rd July 2008 at Wimbledon Magistrates' Court the appellant was convicted of two further offences of shoplifting and sentenced to a Community Order with a supervision requirement and a requirement to undertake a drug rehabilitation programme for 6 months;
(xi) on 11th September 2008 at the South Western Magistrates' Court he was convicted of another offence of shoplifting and sentenced to 5 months' imprisonment;
(xii) on 3rd December 2008 at Camberwell Green Magistrates' Court he was convicted of theft and sentenced to 14 days' imprisonment.
On 20th January 2009 the Secretary of State wrote to the appellant informing him that he would be deported to Pakistan. The appellant lodged an appeal against that decision which was heard by the tribunal in March 2009. The tribunal heard evidence from the appellant, his brother and his former mother-in-law and considered the statement of another witness who was not called in person. It also considered various reports relating to the appellant's son, who suffers from behavioural difficulties and has special education needs. The tribunal found that the appellant enjoyed private and family life with his children in this country which could not be maintained if he were to be returned to Pakistan, but having considered the nature and extent of that family life it concluded that, having regard to all the circumstances of the case, it would not be disproportionate to deport him. It therefore dismissed his appeal.
Blake J. ordered the tribunal to reconsider the appeal because he was concerned that the panel might not have given sufficient weight to the interests of the appellant's children and to the principles embodied in the United Nations Convention on the Rights of the Child. However, on reconsideration of the appeal a differently constituted tribunal held that the panel had made no material error of law and likewise dismissed the appeal.
On behalf of the appellant Mr. Malik submitted that, contrary to the view taken on reconsideration, the original panel had made four errors of law in reaching its conclusion. His first submission was that it had approached the issue of proportionality in the wrong way as a result of failing to appreciate that where children and their parents enjoy family life together in this country deportation which would have the effect of severing the relationship between parent and child will be disproportionate in all but rare cases. He submitted that it would not be possible in this case for the appellant's children to move to Pakistan and although the appellant could maintain a degree of contact with his daughters by modern means of communication, because of his son's disabilities it would not be possible to maintain contact with him in that way. In support of his argument Mr. Malik relied on a passage in paragraph 12 of the speech of Lord Bingham of Cornhill in EB (Kosovo) v Secretary of State for the Home Department [2008] UKHL 41, [2009] AC 1159, in which his Lordship observed that it will rarely be proportionate for the tribunal to uphold an order for removal if its effect is to sever a genuine and subsisting relationship between parent and child.
Two points may be made about that observation and Mr. Malik's submission based on it. First, as Mr. Malik reminded us, the ultimate question in cases of this kind, where family life cannot reasonably be expected to be enjoyed elsewhere, is whether, taking full account of all considerations weighing in favour of removal or deportation, as the case may be, it would prejudice family life in a manner sufficiently serious to amount to a breach of the fundamental right protected by Article 8 of the European Convention on Human Rights: Huang v Secretary of State for the Home Department [2007] UKHL 11, [2007] 2 AC 167, 187 paragraph 20. In other words, the question is whether in all the circumstances removal or deportation would be disproportionate. Following the use of the expression "exceptional" by Lord Bingham in R (Razgar) v Secretary of State for the Home Department [2004] UKHL 27, [2004] 2 AC 368 there was a tendency in some quarters to treat that epithet, contrary to his Lordship's intention, as if it embodied the principle itself. In Huang their Lordships made it clear that it did not. I detect in Mr. Malik's argument a tendency to the treat the word "rarely" in the same way. The test is and remains whether removal (or in this case deportation) would be disproportionate in all the circumstances.
The second point to make is that the present case is concerned with deportation rather than removal. Whereas in cases of removal the state has an interest in maintaining effective and fair immigration control, in deportation cases the state has other, no less important, interests, in the protection of the public through the prevention of disorder and crime. As Richards L.J. pointed out in KB (Trinidad and Tobago) v Secretary of State for the Home Department [2010] EWCA Civ 11, paragraph 17, that difference in aim and therefore of relevant considerations has to be factored into the analysis and may lead to a conclusion different from that which would have been reached if the issue were one of removal.
In the present case the original panel was, in my view, well aware that it was required to have regard to all the relevant considerations, in particular, since the appellant was seeking to rely on Article 8, the nature of the family life that he and his children enjoyed in this country as well as the nature and circumstances of his offending. It was accepted by all concerned that the children could not move to Pakistan and that if the appellant were deported his son could not maintain effective contact with him, as might have been possible but for his disability. The panel also took into account the particular nature and degree of that disability and the extent to which the appellant had been in contact with his children and had provided parental support. In my view there are no grounds for holding that the panel erred in law by adopting the wrong approach.
Mr. Malik's second submission was that the original panel wrongly considered that the public interest in deportation was overwhelming, despite the fact that the offences were all of a relatively trivial nature. This part of his argument seemed to straddle two rather different propositions: that the panel applied the wrong test and that, if it did not, its conclusion was irrational and therefore unlawful.
As to the first, Mr. Malik submitted that the correct test is not simply whether the public interest in deportation is overwhelming, but whether taking into account all the circumstances of the case deportation is "virtually inevitable". In support of that proposition he drew our attention to paragraph 28 of the judgment of Sir Scott Baker in HK (Turkey) v Secretary of State for the Home Department [2010] EWCA Civ 583 where he said:
"But, it seems to me, when it comes to the proportionality exercise it is necessary to form a view where on the scale of seriousness the respondent's conduct comes so that the Article 8 considerations can properly be balanced against the Rule 364 presumption. In some cases the seriousness of the offence is so overwhelming as to trump all else. This, however, was not a case, serious as it was, where the gravity was such that deportation was virtually inevitable albeit there would have to be compelling reasons to allow the respondent to remain here."
In using the expression "virtually inevitable" Sir Scott was adverting to the fact that in some cases the nature of the offending is so serious that almost no countervailing considerations will be sufficient to outweigh the public interest in deportation. He was not seeking to lay down any general principle. Indeed, Mr. Malik himself drew our attention to the authorities, already mentioned, which make it clear that the assessment of whether removal or deportation is proportionate requires the decision-maker to take into account and weigh up all the circumstances of the case.
When the panel in the present case expressed the view that the public interest in deporting the appellant was overwhelming it was not looking at the matter solely from the point of view of the Secretary of State; it was explaining its decision on the ultimate question. It used those words to emphasise the fact that in its view the public interest in deportation was very great and sufficient to override the limited family life enjoyed by the appellant and his children. None of these expressions is intended to encapsulate the test, however. The use of expressions such as "virtually inevitable" and "overwhelming" may in some cases help to explain why the considerations in favour of deportation outweigh strong factors pointing the other way, but that is all. Richards L.J. made this very point in paragraph 23 of his judgment in JO (Uganda) [2010] EWCA Civ 10, [2010] 1 WLR 1607 when he drew attention to the importance of distinguishing between the criteria themselves and phrases used in the course of applying them. There is nothing to support the argument that the panel failed to apply the correct principle. It is convenient to consider Mr. Malik's argument that the panel's conclusion was irrational when I come to consider his fourth submission.
Mr. Malik's third submission was that the panel failed to have proper regard to the interests of the appellant's children, which, he submitted, were paramount. He submitted that whenever a person at risk of deportation has children who live with him his deportation must be considered disproportionate if it would not be in the best interests of the children.
This submission involves a synthesis of the rights under Article 8 of the person at risk of deportation and his children to enjoy family life and the principles of the United Nations Convention on the Rights of the Child. Mr. Malik drew our attention to Articles 3.1 and 9 in particular and submitted that it was time to recognise that in cases of this kind the child's right to family life overrides all other considerations where the preservation of that family life is in its best interests.
That argument, buttressed by references to Üner v The Netherlands [2006] EHRR 873 and Boultif v Switzerland (2001) 33 EHRR 1179, was considered by this court in DS (India) v Secretary of State for the Home Department [2009] EWCA Civ 544, [2010] Imm AR 81, also a case concerning deportation. In paragraph 35 of his judgment Rix L.J., with whom Mummery and Moses L.JJ. agreed, said:
"In this connection, Mr Vaughan submits that other instruments which he cited speak of the best interests of the child being "a primary consideration". Indeed, he went so far as to submit that they amounted to the primary consideration. In my judgment, however, there is no support for that approach in Üner. Of course, in other situations, the welfare of a child might be the paramount concern of a court. In the present situation, however, conflicting public interests have to be balanced."
The reference to "a primary consideration" may reflect the fact that counsel in that case had relied on Article 3.1 of the Convention, as Mr. Malik did before us. Article 3.1 provides as follows:
"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."
However, as Rix L.J. observed, in cases such as the present conflicting interests have to be balanced. It would be contrary to principle to hold that the child's interests must always take precedence over the wider public interest where the two are in conflict. Mr Malik relied on Article 9.1, which deals with the separation of a child from its parents, but as Mr. Slater pointed out, Article 9.4 expressly contemplates the possibility that separation may come about as a result of deportation, even though that may not be in the best interests of the child.
In my view, therefore, one comes back to the question whether deportation is proportionate, giving due weight to the public interest and to the right to family life. In this case the original panel gave careful and detailed consideration to the effect of deportation on the appellant's children, as it was bound to. The panel did not err in law by failing to treat the interests of the children as paramount.
Finally, Mr. Malik submitted that the panel's decision was irrational in the sense that it fell outside the range of decisions properly open to it on the evidence before it. Two aspects of the case in particular fall to be considered: the nature of the appellant's offending and the effect of his deportation on his children.
Mr. Malik submitted that none of the offences of which the appellant was convicted was very serious. Taken individually that may be true, but there were many of them: ten convictions involving seventeen offences; he was a persistent offender over a period of almost two years. It should not be forgotten that persistent offending of that kind imposes burdens not only on the victims but also on the state in the form of providing resources for the prosecution and conviction of offenders, their punishment and rehabilitation. The requirement on two occasions to undergo drug rehabilitation treatment suggests that the appellant was stealing, mainly from shops, in order to fund an addiction. That of itself is not uncommon and such offences on their own might not in many cases justify deportation, but in the present case the appellant had received two written warnings of the risk he was running by continuing to offend. He received the first letter in September 2007 when he was in prison, but it did not cause him to change his ways because he continued to offend and was convicted again in December 2007 and April 2008. He received a second warning in May 2008 but went on to commit further offences of which he was convicted in July, August and December of that year. That and his failure to respond to drug treatment programmes suggests that he was unwilling or unable to change his behaviour.
The appellant has been in custody awaiting deportation since he completed the sentence imposed on him in December 2008. In his evidence to the panel he said that he had learnt his lesson and was now drug-free, but given his record and his failure to respond either to disposals intended to help him or to the warnings he received, the panel was entitled to find that there was no indication (by which I understand it to mean no reliable indication) that he would remain drug-free and obtain useful employment in the future. In making that comment the panel was not speculating or taking into account an impermissible factor. If the appellant were to abandon a life of drugs and crime, there was no reason to think that he would not be able to support himself. The prospects of his making such a change in his way of life was a factor the panel was entitled to take into account.
The panel considered the appellant's relationship with his children with great care. It noted that he had not been involved with the professionals seeking to help his son and came to the conclusion that although he had previously been involved in a close way with their life, the current pattern of his contact with them, disrupted as it had been by a prolonged period of offending and intermittent custodial sentences, was not of such a kind as to outweigh the public interest in his deportation.
The task of deciding whether deportation is or is not proportionate typically involves weighing up conflicting factors, as it did in this case. That is a task for the tribunal, whose decision can be challenged only if it can be shown that it made an error of law. Whether the members of this court, individually or collectively, would have come to the same conclusion as did the panel in this case is irrelevant. In my view the panel considered the relevant factors, it did not take into account factors that it should have disregarded and I do not think that its decision can be regarded as one that was not properly open to it on the material before it.
For these reasons I would dismiss the appeal.
Lord Justice Jackson:
I agree.
The Chancellor:
I also agree. | 5 |
HTML VERSION OF JUDGMENT : APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)
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Crown Copyright ©
Lord Justice Pill:
On 16th August 2002 in the Crown Court at Chester before His Honour Judge Dutton and a jury, Steven David Tobin was convicted on two accounts of indecent assault. On 13 September 2002, he was sentenced to 12 months imprisonment on each count concurrent. He was required to comply with section 2 of the Sex Offenders Act 1997 for 10 years. He appeals against conviction on ground 1 of his grounds of appeal by leave of the single judge. He renews his application for leave to appeal on two other grounds following refusal by the single judge.
The complainant DK alleges that she was indecently assaulted by the appellant in his motor car on 27 February 2002 when she was just 16. The complainant had been drinking at public houses in Winsford, Cheshire, finally at the Brighton Belle, with a female friend of her father's. They had a good deal to drink and the complainant was sick. The landlady asked them to leave and the appellant offered them a lift.
The complainant gave evidence that, in the car, she sat in the front passenger seat and the friend sat in the back and fell asleep straight away. The complainant asked if the appellant could drop her off at her boyfriend's house. According to the complainant, the appellant took one hand off the steering wheel during the journey, unzipped his trousers, grabbed her hair and pulled her head down towards his erect penis. He was not wearing underwear and his penis touched her mouth. When she tried to pull her head back, the appellant forced it down. He then put his hand down her trousers and knickers and put his fingers inside her vagina. He then pulled her head down again and his penis touched her mouth.
On arrival at her boyfriend's house the boyfriend was not at home but his brother was. The complainant was crying and could not explain what had happened. She was again sick. When her boyfriend came home, he took her to her father's flat and her father took her inside and "grounded" her. The boy friend, very responsibly, reported the complainant's condition to her mother, who had separated from her father and remarried.
In cross-examination, the complainant accepted that she had had too much to drink. The appellant had said he was doing the landlady a favour in offering the friend and her a lift. She denied that she had initiated sexual conduct in the car and denied that she had made everything up because she regretted what she had done.
The boyfriend's brother gave evidence that the complainant burst into tears on arrival at the house. They approached the appellant's car which was nearby and the appellant asked how old the complainant was. A woman was asleep in the back of the car and the appellant asked what he should do with her. The complainant said "I didn't mean to do it. He asked me for a blowy, he forced me to do it". The boyfriend's mother, who was also in the house, said that the complainant was in an hysterical state and a similar comment was made to her. The appellant came to the door and asked her "How old is the girl?" He said he just wanted to know. He also wanted to know what to do with the woman in the car.
The boyfriend said that when he arrived home, the complainant made similar comments to him. He said that the complainant was still stuttering and shaking a week after the incident.
The appellant gave evidence that he was a 36 year old married man with three children and worked as a weekend shift manager. He admitted convictions, including burglaries and, more recently, assault occasioning actual bodily harm in 1994 and being drunk and disorderly in 1999. He was in the Brighton Belle, on 27 February having drunk about 2 ½ pints of cider and a pint of lager, and the complainant and her older friend arrived and were unwell in the public house. When the friend wanted a taxi, he offered them a lift. The complainant said she was going to Nixon Drive which was about a mile and a half from where he lived. He offered a lift as an act of helpfulness, as he often did.
In the car, the friend was very bubbly and chatty and flung her arms around the seats. The complainant said nothing. He knocked on the door of a flat in Nixon Drive, where the complainant was living, but there was no reply and the complainant asked him to take them to her boyfriend's house in Cambridge Avenue. He asked the complainant "Who is going to put petrol in the car after doing this?" He said that the complainant replied that she would give him a "blowy" instead. He thought she was joking but she rubbed his penis, undid his jeans and performed oral sex on him. He was flattered and did not stop her. The complainant lay right across him and he put his hands over her buttocks and between her legs.
The appellant said he continued to drive during the act and he ejaculated in her mouth. He pulled up his zip and drove to Cambridge Avenue where the complainant directed him to a house and got out. A young lad came out of the house and spoke to the complainant. He asked the boy what he should do with the woman in the back seat and the boy replied that it was nothing to do with him. He asked how old the complainant was, having noticed that the boy was in school uniform. When the boy told him she was 16, he was "gobsmacked".
The appellant said he took the older woman in the car back to Nixon Drive but there was still no one there so he returned to Cambridge Avenue and spoke to a woman who came out of the house [the boyfriend's mother]. She told him that the complainant was very upset. In evidence he denied that he forced the complainant to do anything. It was the women who decided where to sit in the car. He had given a similar account in interview.
Under cross-examination, the appellant said that both women were awake during the journey to Nixon Drive but the elder woman was unconscious when they arrived there. He denied inventing the story about first going to Nixon Drive. He denied forcing the complainant to perform oral sex on him or catching her on her face with his hand. She had offered to perform the act and had done it. She was not distressed when she got out of the car.
Five character witnesses were called on behalf of the appellant. They described him as being decent, trustworthy, hard working and honest.
The ground of appeal on which leave had been granted is that the prosecution were wrongly allowed to call evidence to bolster the evidence of the complainant. Objection was taken to the prosecution calling evidence from the complainant's mother, JB, about aspects of the complainant's life. The judge ruled that a part of JB's statement was admissible. By agreement between counsel, the evidence was given by prosecuting council putting leading questions to the witness with her giving short affirmative answers.
The substance of the evidence was:
(i) "I have never had any problems with D throughout her childhood. She has always done really well at school. At home she gets on well with her brother and sisters. I would say that she is very polite and quiet. She has been brought up to respect people."
(ii) A few days before 27 February, following an argument, the complainant had left home and had gone to live at her father's flat in Nixon Drive. Her mother, on receiving the boyfriend's report, went there and found the complainant extremely distressed. "I could smell alcohol on D and I was shocked by this."
(iii) "I am shocked by the incident that happened with D and the way it has affected her. She is still very tearful. She will not discuss what had happened to her. She is very quiet and I can hear that she has developed a 'slow' speech. In addition. she trembles and shakes a lot."
Particular objection is taken to paragraph (i). Mr Unsworth, for the appellant, submits that allowing the evidence amounted to "oath-helping", that is, seeking to boost the credibility of the complainant by reference to her good character. In Robinson (1994) 98 Cr App R 370, it was held in this Court, Lord Taylor CJ presiding, that the prosecution could not call a witness of fact and then, without more, call a psychologist or psychiatrist to give reasons why the jury should regard that witness as reliable. Evidence of the complainant's background, it is submitted, her attitude to alcohol and her reaction to the incident went to her credibility and supported her character. Reference is made by Mr Unsworth to R v Kyselka [1962] 133 CCC 103. Giving the judgment of the Ontario Court of Appeal Porter CJO stated at p 107:
"While the credit of any witness may be impeached by the opposite party (R v Gunewardene [1951] 2 KB 600 at 609), there is no warrant or authority for such oath-helping as occurred in the circumstances of this case reminiscent as it is of the method before the Norman Conquest by which a defendant in a civil suit or an accused person proved his case by calling witness to swear that the oath of the party was true."
It is claimed that the reference to respecting people is unacceptable in a case where the issue was whether the complainant did, or may have, initiated sexual conduct in the presence of the older woman in the back of the car.
In R v Hamilton (Times Law Reports 25 July 1998) it was held in this Court, Buxton LJ presiding, that evidence of good character proposed to be called by the prosecution to bolster the testimony of prosecution witnesses had no probative value in relation to any issue in the case and was to be excluded on the ground of collaterality. It was not suggested in the present case that the complainant had a general reputation for untruthfulness so as to permit her reputation to be reinstated by evidence that she is worthy of credit, under the principle in Toohey v Metropolitan Police Commissioner [1965] AC 595 per Lord Pearce at p 606E.
For the prosecution, Mr Scholz accepts that it is not generally permissible to call evidence that a witness is truthful. He submits that evidence is permitted which is relevant to an issue in the case or goes to the likelihood of whether the events claimed by the witness to have occurred did occur. The issue in this case was whether the sexual conduct in the car was initiated by the complainant or by the appellant. Evidence of her attitude, towards her family and other people, threw light on the issue and was likely to help the jury to decide whether she is the type of person who would do what the appellant said she did.
In R v Funderburk [1990] 1 WLR 587 (Watkins LJ, Henry and Morland JJ), the complainant, a 13 year old complainant in a case where unlawful sexual intercourse was alleged, gave evidence which amounted to an account of the loss of her virginity. The judge refused an application by the defence to call evidence that the complainant had admitted to a potential witness that she had had intercourse with two other men. The Court held that the evidence should have been admitted but applied the then existing proviso to section 2(1) of the Criminal Appeal Act 1968 and upheld the conviction. The decision of course pre-dates the provisions of the Youth Justice and Criminal Evidence Act 1999.
Giving the judgment of the Court, Henry J referred to the defence submission that the challenge to the claimant's virginity did not go "merely to credit but that the disputed questions go directly to the issue and not merely to a collateral fact". Henry J stated:
"We are disposed to agree with the editors of Cross on Evidence, 6th ed. (1985), p. 295 that where the disputed issue is a sexual one between two persons in private the difference between questions going to credit and questions going to the issue is reduced to vanishing point. I read from that work:
'It has also been remarked that sexual intercourse, whether or not consensual, most often takes place in private, and leaves few visible traces of having occurred. Evidence is often effectively limited to that of the parties, and much is likely to depend on the balance of credibility between them. This has important effects for the law of evidence since it is capable of reducing the difference between questions going to credit and questions going to the issue to vanishing point.'"
Henry J referred to the test posed by Pollock CB in Attorney-General v Hitchcock (1847) 1 Exch 91 at 99:
"The test whether the matter is collateral or not is this: if the answer of a witness is a matter which you would be allowed on your own part to prove in evidence – if it has such a connection with the issues, that you would be allowed to give it in evidence – then it is a matter on which you may contradict him."
Henry J continued:
"The difficulty we have in applying that celebrated test is that it seems to us to be circular. If a fact is not collateral then clearly you can call evidence to contradict it, but the so-called test is silent on how you decide whether that fact is collateral. The utility of the test may lie in the fact that the answer is an instinctive one based on the prosecutor's and the court's sense of fair play rather than any philosophic or analytic process."
The prosecution in that case accepted that the defence would have been able to call evidence that the child was a virgin before the date of the alleged offence. The Court thought that concession inevitable stating "Otherwise there would be the danger that the jury would make their decision as to credit on an account of the original incident in which the most emotive, memorable and potentially persuasive fact was, to the knowledge of all in the case save the jury, false."
In R v Amado-Taylor, 2001 EWCA Crim 1898, it was held in this Court, Keene LJ presiding, that evidence about a complainant's lack of sexual experience and about her attitude and religious belief that intercourse before marriage was wrong is capable of relating to the issue of consent, and, if it does, is capable of being relevant and admissible, even though it may at the same time go to bolster her credibility. The defence to the charge of rape in that case was not just consent but enthusiastic participation with a person hardly known to the complainant. Funderburk is not cited in the judgment.
The Court accepted the proposition that in criminal trials generally evidence is not admissible simply to show that a prosecution witness has a good character, in the sense that he or she is generally a truthful person who should be believed but went on to hold that cases may arise where evidence of the victim's disposition or character may well be relevant to an issue in the case. The Court concluded:
"… at common law evidence about the lack of previous sexual experience of a complainant, and about her attitudes and religious beliefs that intercourse before marriage was wrong, can relate to the issue of consent, and, if it does, is capable of being relevant and therefore admissible, even though it may at the same time go to bolster credibility."
In his ruling on admissibility in the present case, the judge referred to the issue: "The stark way in which it is put is this 16 year old is a liar and I do not see why in this very limited way the jury should not have some assistance on that issue". This ruling, which in form comes close to approval of oath-helping, was not of course before the jury. In the course of his summing-up, the judge stated:
"The credibility of [the complainant] and the credibility of the defendant are important matters and you know a little bit more about the two individuals. You have heard character references and witnesses talking about Mr Tobin. You have also been told his position in the round, warts and all, that he has got convictions, he has been before the Court before some time ago, nothing like this. That is in order you should know the entire picture."
The judge went on, and no complaint is made of it, to describe the limited relevance of the convictions, which had been admitted at the initiative of the defence. The judge referred to the defence "presenting his character in the round for you".
Complaint is however made about the judge's reference to the complainant:
"Well, picture [the complainant] now, look back to the way she presented herself, what you know about her, what her mother said about her both before the 27th February and also perhaps afterwards. Has she told you the truth?"
The jury were plainly invited, it is submitted, to treat the mother's evidence as evidence that the complainant was a truthful witness.
There was a stark conflict of evidence between the complainant and the appellant. The dispute in this case was not merely as to whether the complainant had consented to sexual conduct. The appellant's case was that, under the influence of drink, she initiated the oral sex in circumstances which were bizarre in that the appellant was driving a motor car at the time. Her complaint was that he took the initiative and used a modest amount of force to achieve his purpose. Plainly the jury's view of the credibility of the complainant and the appellant was crucial to the outcome of the trial.
Before expressing our conclusions on ground 1 we deal briefly with the second and third grounds so as to include a further reference to the evidence. It is submitted that, the mother having been called to give evidence, the defence should have been allowed an adjournment to investigate the complainant's character. Sight would have been sought of the complainant's medical records. She had missed an appointment for a contraceptive injection on the afternoon of the incident. She claimed that it was the first such appointment and she had never had sexual intercourse. That evidence appeared in her video interview with the police which served as her evidence-in-chief. It would have been checked and other enquiries made about her character, it is submitted.
The interview was of course disclosed prior to the hearing. On behalf of the appellant it was sought neither to delete those references from her interview which was to be presented to the jury nor to seek disclosure of medical records. It was clear, at that stage, what the issues at the trial were likely to be. Having failed to seek directions at that stage, we see no merit in the suggestion that the judge ought to have granted an adjournment as a result of limited evidence from the mother being admitted at the hearing.
A third ground of appeal is that the judge's questioning of the appellant when the appellant had otherwise completed his evidence amounted to an undesirable entry into the arena. It is submitted that the series of questions posed by the judge may have suggested to the jury that the judge had formed an adverse view of the appellant.
Having seen the series of questions and answers, we reject that submission. The judge elicited two pieces of evidence although we do not know the extent to which, if at all, the subjects had been canvassed in cross-examination. The appellant agreed that what the complainant had done to him had been a pleasurable experience and also asserted that there was nothing wrong with the complainant when she left his motor car. She left it quietly. The line of questioning was relevant to issues before the jury and we see no valid objection either to the manner of questioning or to the admission of the answers elicited.
We return to ground 1. Mr Scholz's extreme position was that evidence is admissible which goes to establish that the complainant is not the type of person who would conduct herself in the manner alleged by the defendant. As a general proposition, that is not acceptable. It could amount to oath-helping. The approach could lead to evidence of a lack of propensity being admissible whenever allegations of unacceptable behaviour are made against a prosecution witness. Moreover, in this case, the complainant was plainly seriously under the influence of drink, a disinhibitor, and the possibility of behaviour in drink which may be out of character is not excluded by evidence of normal behaviour when sober.
We do however, respectfully, recognise the force of the observation of Henry J in Funderburk, adopting Cross on Evidence, that in sexual cases such as these much is likely to depend on the balance of credibility between the parties and that the difference between questions going to credit and questions going to the issue may be reduced to vanishing point. Moreover, in such a situation, as Henry J stated in Funderburk, the answer to the question whether evidence of the type to which objection is taken in the present case is admissible is "an instinctive one based on the prosecutor's and the Court's sense of fair play".
In Amado-Taylor, evidence of the complainant's opinions was admissible as relevant to the issue whether intercourse was consensual. The present case is different, on its facts and the offence alleged, and, secondly, the disputed evidence does not involve the complainant's opinions but what may be described as her attitude to other people. However, the approach of the Court in Amado-Taylor, as in Funderburk, points clearly in the direction that, in sexual cases, prosecution evidence of the complainant's background and characteristics is not inevitably excluded.
This was a case in which very full evidence was given about the background and character of the appellant. His character was put in, as the judge put it, "In the round". In the circumstances, our sense of fair play is not offended but rather affirmed by the admission of the very limited evidence about the complainant's characteristics and conduct which occurred. The evidence may have been of very little value and indeed objection could be taken on the separate ground that it was irrelevant because the complainant was admittedly affected by alcohol and not behaving normally. Moreover, the suggestion by the prosecution that she would not have acted as she is alleged to have acted in the presence of a friend of her father's, because she respects people, has little relevance if her evidence that her older friend was insensible was true. It may be added that the evidence that the complainant had very recently left home is potentially relevant as background to the events of the day and was unlikely to assist the prosecution case.
We have come to the conclusion that the mother's evidence was admissible. The limited evidence that the complainant gets on well with her brothers and sisters, did well at school, is very polite and quiet, respects people and had left home does not render the trial unfair or offend the rule against oath-helping. It was not necessary to achieve fairness to prevent the jury from having that limited information about her. Moreover, as the case was argued, it was not to be excluded for lack of relevance. Given the jury's vital task of deciding the issue whether the events were as described by the complainant or as described by the appellant, the prosecution were entitled to adduce the evidence they did in the circumstances of this case.
We see no merit in the complaint about the admission of the mother's evidence as to the complainant's condition after the incident. The point was hardly pursued on the appellant's behalf. Such evidence is often fairly admitted and the fact that it covered a longer post-incident period than is usual did not, in this case, render it inadmissible. Evidence from her boyfriend as to the complainant's condition for over a week after the incident was given without objection from the defence.
In our judgment, the trial was fair and the conviction safe. The appeal is dismissed on ground 1 and leave to appeal is refused on grounds 2 and 3. | 7 |
FIFTH SECTION
CASE OF HADZHIEVA v. BULGARIA
(Application no. 45285/12)
JUDGMENT
STRASBOURG
1 February 2018
FINAL
02/07/2018
This judgment has become final under Article 44 § 2 of the Convention. It may be subject to editorial revision.
In the case of Hadzhieva v. Bulgaria,
The European Court of Human Rights (Fifth Section), sitting as a Chamber composed of:
Angelika Nußberger, President,Erik Møse,Nona Tsotsoria,Síofra O’Leary,Mārtiņš Mits,Gabriele Kucsko-Stadlmayer, judges,Maiia Rousseva, ad hoc judge,and Claudia Westerdiek, Section Registrar,
Having deliberated in private on 5 December 2017,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 45285/12) against the Republic of Bulgaria lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a Turkmen and Russian national, Ms Dzheren Annadurdievna Hadzhieva (“the applicant”), on 27 June 2012.
2. The applicant was represented by Mr K. Kanev, head of the Bulgarian Helsinki Committee. The Bulgarian Government (“the Government”) were represented by their Agent, Ms M. Dimova, of the Ministry of Justice.
3. The applicant alleged, in particular, a breach of Articles 8 and 13 as a result of the failure by the authorities to provide her with assistance following her parents’ arrest in December 2002, and the absence of an effective remedy in this connection.
4. On 8 December 2014 these complaints were communicated to the Government and the remainder of the application was declared inadmissible pursuant to Rule 54 § 3 of the Rules of Court.
5. Mr Yonko Grozev, the judge elected in respect of Bulgaria, withdrew from sitting in the case (Rule 28 § 3). Accordingly, the President of the Fifth Section appointed Ms Maiia Rousseva to sit as an ad hoc judge (Article 26 § 4 of the Convention and Rule 29 § 1).
6. On 17 December 2014, the Russian Government were informed of their right to intervene in the proceedings in accordance with Article 36 § 1 of the Convention and Rule 44 § 1. They chose not to avail themselves of this right.
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
7. The applicant was born in 1988 and lives in Varna.
A. Background
8. As is apparent from the documents in the file, the applicant moved from Turkmenistan to Bulgaria in late 2001 together with her parents. In the summer of 2002 she obtained temporary residency status. Before the move, the applicant’s father had been the deputy chair of the Central Bank of Turkmenistan and later a member of a political movement which was critical of the domestic political regime. It appears that, because of her father’s political activity, members of her family were subjected to persecution in Turkmenistan and that in 2006 the applicant’s aunt was tortured and murdered in prison.
9. The applicant started studying at a secondary school with an intensive foreign languages curriculum in the autumn of 2002. Her father opened his own construction business in Bulgaria.
10. On 22 October 2002 the Turkmen authorities charged both of the applicant’s parents with aggravated embezzlement of public funds amounting to 40,000,000 United States dollars, allegedly committed between 25 July 2002 and 3 September 2002. The Turkmen prosecutor ordered their detention in relation to those charges and filed a request for their extradition with the Bulgarian authorities.
B. The arrest and detention of the applicant’s parents
11. The following circumstances are undisputed between the parties.
12. On 4 December 2002 the applicant, aged fourteen at the time, was alone at home. At around 11 a.m. about ten police officers arrived at the family apartment. On entering the apartment the officers informed the applicant that they had come to arrest her parents. She called her parents on the telephone. It appears from the documents before the domestic courts that at that time, the parents were out shopping accompanied by their legal representative, who returned home with them. This took some time because of heavy traffic. In the meantime the officers prohibited the applicant from moving around the apartment and interrogated her in the absence of a social worker and a psychologist, despite having seen her identity document, which indicated her age.
13. The applicant’s parents were arrested as soon as they arrived home. The record of a court hearing in the domestic proceedings for damages (see paragraphs 27-41 below) indicates that the parents’ legal representative was present during the arrest. The lawyer stated that the police officers had not allowed the parents to collect personal belongings from the flat but that, as far as he could recall, they had allowed the applicant to hand them some personal items from the flat. He did not know where the police officers had taken the applicant’s parents but said that he thought that they had been taken to the Regional Investigation Office. In any event, he had visited them the following day but could not remember exactly where. The legal representative also stated that during the next few days his task had been to circulate between the two different prisons where the applicant’s parents were detained in order to organise their defence. He stated that he could not describe the state of the applicant at the time of the arrest, his task having been to defend her parents. He did not know what had happened to the applicant and had not seen her after her parents’ arrest.
14. An order for the applicant’s parents’ detention for twenty-four hours was issued by the police on 4 December 2002 and they were placed in police custody for that period. Upon their application for judicial review of that detention order, the Varna Regional Court set it aside the following day, finding it flawed as it did not indicate any legal grounds for the detention. Immediately upon their release from police custody the applicant’s parents were served with a prosecutor’s order for their detention for seventy-two hours in connection with the extradition request (see paragraph 10 above). They were detained on the spot.
15. On 6 December 2002, at two separate hearings, the Varna Regional Court extended their detention for a period of thirty days. The applicant’s father was taken to Varna Prison and her mother to Sliven Prison.
16. During and after the court hearings on 6 December 2002 the applicant’s parents were represented by the same lawyer who had been present during their arrest and was a friend and neighbour of the family.
17. The parties dispute what took place at the hearing when the judge enquired about the care measures in place in relation to the applicant. According to the latter, when her mother was asked by the judge through an interpreter whether there was anyone who could take care of her child, her mother replied by shaking her head. In Bulgaria nodding one’s head signifies “no” and shaking it means “yes”. According to the applicant, the judge, having interpreted the mother’s response as “yes”, noted in the record of the hearing: “The child has someone to take care of her”.
18. The Government, in contrast, pointed to the record of the hearing, which indicated that the applicant’s mother had replied that there was someone who could take care of her child. In their view, this was evidence of the mother’s reply. In addition, they cited an excerpt of the court’s record where the applicant’s mother had addressed the court in the following terms: “I am very surprised as I have worked as an associate professor, with a doctorate in science, for ten years, and for some reason, they want to accuse me of something that happened out there, and I’ve been living here for a whole year. We came here so that my children could study in Varna, in a democratic country, because Turkmenistan is a dictatorship; a fascist regime has begun. There is someone to take care of my child.” According to the court record of the hearing, the mother’s statement had been preceded by an intervention by the prosecutor, who had indicated that it was necessary to comply with the requirements of Article 152 § 6 of the Code of Criminal Procedure, so that if the family had no relatives or friends to care for the child, the municipality had to be informed with a view to placing her in a child-care centre, kindergarten or boarding facility (интернат).
C. The applicant’s parents’ release and the decision on their extradition
19. On an appeal by the applicant’s parents, the Varna Court of Appeal lifted the detention orders in two separate decisions on 17 December 2002. The applicant’s parents were released on bail and returned home to the applicant the same day.
20. The request for their extradition to Turkmenistan was ultimately refused on 22 May 2003 by the Varna Regional Court. During those proceedings they were represented by the same lawyer. The refusal became final on 30 May 2003 as it had not been appealed against. The court found that the criminal proceedings against the applicants’ parents were connected to the father’s political activities and that the extradition request had been made with the aim of persecuting and punishing him for his political beliefs.
D. The circumstances of the applicant during her parents’ detention
21. It is alleged that the applicant’s parents were arrested so rapidly that they did not manage to leave any money for her, or to give her any instructions as to whom to turn to or how to go about caring for herself. The officers did not tell the applicant for how long they were taking her parents away, where they would be taken or for what reason. According to the applicant, they indicated that they would either lock her parents in prison or deport them to Turkmenistan. Both prospects caused the applicant anguish as she had heard that prisons were horrible both in Turkmenistan and in Bulgaria. She also feared that her parents might be subject to the same treatment in Bulgaria that members of her family had endured in Turkmenistan.
22. According to the applicant, no one took care of her after her parents’ arrest. She only found 15 levs (about 7 euros (EUR)) in the apartment, which she used for bus tickets to go to school and for food. The money ran out fast and during the last days of her parents’ absence she did not have anything to eat. She suffered insomnia and, when she could sleep, had nightmares. Before her parents’ arrest, her mother had been the one to wake her up in the morning.
23. She permanently dreaded being herself sent back to Turkmenistan, where her relatives were in prison and her grandparents had been made homeless for having opposed the regime.
24. She alleged that she had gone several times to the police’s office for foreigners, looking for her parents. She had also tried to telephone people in Turkmenistan to ask for help. Both steps proved unsuccessful.
25. The applicant had to ask people in the street how to reach her school as, before the arrest, her father had always taken her there. At some stage during her parents’ detention a stray dog bit the applicant on the leg. She did not know what to do or how to seek help. Her mother took her to hospital on 18 December 2002, the day after she was released from detention, fearing that the wound might have become infected.
26. The Government alleged that it had not been proven that the applicant had been left alone, without an adult carer, during the period in question. The Government stressed that the applicant’s parents had been represented throughout by the same legal representative, who was, moreover, a neighbour and friend. When questioned in the context of the domestic proceedings in the applicant’s case about the exchanges in court on 6 December 2002, the lawyer indicated that he had no recollection of them (see paragraph 35 below).
E. The applicant’s claim for damages
1. Proceedings before the Varna Regional Court
27. On 7 March 2006 the applicant, with her parents’ agreement, brought proceedings for damages under section 45 of the Contracts and Obligations Act before the Varna Regional Court. She directed her claim against the Varna regional office of the Ministry of the Interior, the Prosecution Service, the Ministry of Justice and the Supreme Judicial Council, and sought to establish the responsibility of the authorities that had left her unattended during her parents’ detention in December 2002, in breach of the Child Protection Act.
28. In a decision of 27 March 2006 the court invited her to specify the grounds of her claim and to indicate the specific actions, the particular respondent and the type of damage caused to her. She specified that she was seeking compensation for non-pecuniary damage stemming from the authorities’ failure to organise support and care for her during her parents’ detention.
29. On 10 April 2006 the court reclassified her claim under section 49 of the Contracts and Obligations Act. It further invited her to specify the names of the officials against whom she had directed her claim, and to show that she had paid the court fees of about EUR 10,000, corresponding to 4% of the total amount of damages sought. The applicant lowered the value of her claim on 9 May 2006, paid the corresponding court fees in the amount of about EUR 6,135 and submitted additional proof to the court.
30. On 15 May 2006 the Varna Regional Court terminated the proceedings as it found that the applicant had failed to correct the irregularities in her claim as directed by the court on 10 April 2006.
2. Proceedings before the Varna Court of Appeal and the Supreme Court of Cassation
31. The applicant appealed on 12 May 2006 to the Varna Court of Appeal, submitting that the respondents were the legal entities specified in her legal claim of 7 March 2006 as amended, given that they had been represented by different individuals at different points in time. The appellate court upheld the lower court’s decision on 4 October 2006.
32. The applicant lodged an appeal on points of law, submitting that her claim was directed against the different institutions as legal persons, as she could not know the names of the individual officials who had failed to provide her with care. She also described her condition after her parents’ detention. On 14 February 2007 the Supreme Court of Cassation quashed the lower court’s decision, finding that it had wrongly instructed the applicant to specify individual respondents. It remitted the case to the first-instance court, the Varna Regional Court, for a fresh examination.
3. New examination by the Varna Regional Court
33. On 25 October 2007 the applicant further specified her claim before the Varna Regional Court, in particular describing her circumstances in the immediate aftermath of her parents’ arrest and the continuing psychological trauma which she had suffered as a result. She submitted that during the hearing on 6 December 2002 on the extension of her parents’ detention, the judge had wrongly interpreted her mother’s response to the question posed regarding her care.
34. A psychiatric and psychological report was prepared in the context of the court proceedings in 2008. The report established that the applicant was depressed and at times aggressive. This was attributed to the shock she had experienced in relation to her parents’ detention and the ensuing uncertainty. She showed signs of accumulated tension, fear, worries, disappointment and anger towards the officials who had abandoned her to her own devices following her parents’ arrest. She had no interest in her daily life or in the future and had become withdrawn as a result of her loss of confidence in the justice system. Two additional medical expert reports were prepared in 2008. They found that the applicant was suffering from post-traumatic stress disorder, which was probably the result of what she had gone through after her parents’ arrest. The doctors stated in court that no improvement was likely in her case and that her condition was expected to become chronic. Another medical report ordered by the court in 2009 confirmed that the applicant was suffering from post-traumatic stress disorder and that, while she had been a healthy and energetic child prior to her parents’ arrest, she had experienced frequent bouts of depression thereafter and had succumbed to overwhelming feelings of self-pity, insecurity and futility of effort and engagement.
35. The applicant’s parents’ lawyer, who had attended the hearings relating to their detention in 2002, testified on 22 February 2008 that he did not know what had happened to the applicant during her parents’ arrest; nor could he remember anything about the circumstances relating to the question and answer in court on 6 December 2002 concerning her care. On 24 October 2008, during the same proceedings, the applicant’s teacher testified that she could not remember the applicant being absent from or having gone hungry at school. The girl had not complained to her about anything at the time.
36. The Varna Regional Court rejected the applicant’s claim on 27 July 2009, finding that it had not been proven that she had been left alone while her parents had been detained in December 2002. The court also held that, in the three days following the court hearing on 6 December 2002, the applicant’s mother had not sought to have the record of the hearing rectified, even though it was legally possible to do so.
37. Furthermore, the court held that on 6 December 2002 the Varna Regional Court had accepted that the mother had replied in the affirmative to the judge’s question regarding whether there had been anyone to care for the applicant. That question had been transmitted to the applicant’s mother with the assistance of an interpreter. Consequently, the court concluded that it had not been incumbent on the criminal justice system to act in any other way in order to protect the applicant.
38. The court further accepted fully the conclusions of the psychological reports on the applicant’s state of chronic post-traumatic stress disorder after the December 2002 events. However, it found that the only evidence supporting the applicant’s claim that she had been left alone in December 2002 was her parents’ testimony and that there were no other pieces of evidence in support of this assertion. Given that the mother had stated during the hearing on her detention that someone had been taking care of the child, the conditions set out in Article 152 of the Code of Criminal Procedure had not been met and, therefore, the institutions involved in the criminal proceedings had not been obliged to pursue steps towards taking the applicant into care.
4. New appeal before the Varna Court of Appeal and the Supreme Court of Cassation
39. The applicant appealed to the Varna Court of Appeal. She again challenged the findings of the lower court about her mother’s reply during the court hearing on 6 December 2002. She also submitted that her mother had not been in a position to see the record of the hearing, given that she had been taken back immediately to the remand prison. She further asserted that the authorities had been under an obligation to verify at the time of the arrest on 4 December 2002 and immediately afterwards whether care had been available to her, and that in any event they should not have waited two days to enquire about her situation for the first time during the court hearing. She submitted that her current state of health was the direct result of the shock and stress she had endured in connection with the arrest and the lack of provision of care. She paid about EUR 3,000 in court fees.
40. The appellate court confirmed the lower court’s decision on 10 December 2010. It found that, even if the applicant had been left alone after the arrest, responsibility for that could not be attributed to the police, the prosecuting authorities or the court, given that her mother had stated that there had been someone to take care of her. In addition, the post-traumatic stress disorder from which it had been established that she suffered could have been the result of additional factors not directly related to her parents’ arrest.
41. The Supreme Court of Cassation rejected an appeal on points of law by the applicant in a final decision of 18 January 2012, finding no grounds for allowing the appeal to be pursued.
F. Further developments
42. The applicant was granted humanitarian status on 10 March 2004 and refugee status on 15 September 2007.
II. RELEVANT INTERNATIONAL TEXTS
United Nations Convention on the Rights of the Child 1989
43. This treaty (hereinafter “the UN Convention”), adopted by the General Assembly of the United Nations on 20 November 1989, has binding force under international law on the Contracting States, including all of the member States of the Council of Europe. Article 3(i) of the UN Convention states:
“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.”
III. RELEVANT DOMESTIC LAW AND PRACTICE
A. The authorities’ duties in respect of child care
44. Section 4 of the Child Protection Act (“the Act”) provided at the time of the events that child protection had to be carried out through: (1) assistance, support and services rendered in the child’s family environment; (2) placement of the child with relatives or close family members; (3) placement of the child with a foster family; (4) placement of the child in a specialised institution; or (5) police protection. Pursuant to section 6 of the Act as in force at the time, child protection had to be implemented by the State Agency for Child Protection and the Social Assistance Offices.
45. Subsection 2 of section 7 of the Act provided at the material time that any person who had knowledge that a child was in need of protection, where this knowledge had been obtained in the course of the fulfilment of his or her professional duties, had an obligation to report the case to the nearest Social Assistance Offices.
46. Article 152 of the Code of Criminal Procedure as in force at the time of the events regulated the taking of suspects into police custody. Paragraph 6 of that Article provided that a detained person’s children were to be taken into care, via the respective municipality, if they had no relatives able to look after them.
B. Claims for damages
47. Section 49 of the Obligations and Contracts Act 1951 provides that a person who has entrusted another with carrying out a job is liable for the damage caused by that other person in the course of or in connection with the performance of the job. Liability under that provision – as, indeed, under all provisions governing tort – is premised upon the wrongfulness of the impugned conduct (реш. № 567 от 24 ноември 1997 г. по гр. д. № 775/1996 г., ВС, петчленен състав). In accordance with section 110 of the Obligations and Contracts Act, the limitation period for tort claims is five years.
THE LAW
I. ALLEGED VIOLATION OF ARTICLE 8 OF THE CONVENTION
48. The applicant complained that the failure of the authorities to provide her with assistance, despite the fact that she was a minor left alone after her parents’ arrest in December 2002, had provoked serious stress and suffering, in breach of Article 8 of the Convention, which reads as follows:
“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.”
49. The Government contested that argument.
A. Admissibility
50. The Court notes that this complaint is not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention. It further notes that it is not inadmissible on any other grounds. It must therefore be declared admissible.
B. Merits
1. The Government’s submissions
51. The Government considered the complaint to be unconvincing and reiterated that it had not been proven that the applicant had been left alone during her parents’ detention. They emphasised that, as the applicant’s mother had told the court that there had been someone to care for her daughter, neither the institutions involved in the preliminary criminal proceedings against her parents nor the court had been under an obligation to examine any further whether it was necessary to provide assistance to the applicant.
52. They pointed out that the applicant’s parents’ lawyer had been present at the hearing of 6 December 2002 and that he had later testified in the proceedings for damages brought by the applicant that he had not known what had happened to her during her parents’ detention. His statement had led to the conclusion that the applicant had been adequately cared for during her parents’ detention. Also, the applicant’s class teacher had testified during the same proceedings that she had not remembered the applicant having gone hungry or being cold or upset at school during the period in question.
53. Furthermore, as the family had been living in Bulgaria for about a year before the parents’ arrest, it had been plausible that they had a circle of friends and acquaintances to whom they could have entrusted the care of their child in their absence, if they had preferred not to seek assistance from the authorities. Similarly, the applicant’s mother, during her stay in Sliven Prison, could have alerted the authorities to the fact that it was possible that her daughter had been left alone, or could have asked for the record of the hearing to be corrected.
2. The applicant’s submissions
54. The applicant stated that the police had not provided any opportunity to her parents to arrange for her care at the time of their arrest. According to the applicant, they had been unaware of the criminal charges against them in Turkmenistan, which had been fabricated as the subsequent related judicial proceedings had demonstrated. They had not expected to be detained and could not have known that they would not see the applicant for thirteen days.
55. The applicant’s parents had been separated and held in two different detention facilities, about 200 kilometres from each other. Her mother had been unaware of the applicant’s situation as she believed that during the hearing on 6 December 2002 she had informed the court that no one had been available to care for her daughter.
56. The applicant submitted that the authorities’ positive obligations under Article 8 of the Convention were activated immediately when the situation of a child at risk was brought to their attention. In her case, this had applied from the moment the police had entered her home to arrest her parents. The police had questioned the applicant and had seen her identity document, from which it had been clear that she was a minor. When her parents had been arrested, there had been no one else in the apartment who could have been asked to inform the competent authorities to arrange for the applicant’s care.
57. The applicant’s mother could not have asked for the record of the hearing to be corrected as she had been taken from the hearing room directly to Sliven Prison, where, according to the applicant, she had had no access to the record, to a lawyer or to an interpreter. She had also been extremely stressed about her life and safety. As a foreigner who had arrived in the country less than a year earlier she had not known how the Bulgarian child-protection system worked. In particular, given that she had believed she had told the court that no care had been in place for the applicant, she had had no reason to assume that the competent agencies had failed to fulfil their duties.
3. The Court’s assessment
(a) General principles
58. The Court has held in cases involving complaints examined under Article 8 that respect for private life includes a person’s physical and psychological integrity (see Bevacqua and S. v. Bulgaria, no. 71127/01, § 65, 12 June 2008, and Mubilanzila Mayeka and Kaniki Mitunga v. Belgium, no. 13178/03, § 83, ECHR 2006-XI). Furthermore, although the object of Article 8 is essentially that of protecting the individual against arbitrary interference by the public authorities, it does not merely compel the State to abstain from such interference: in addition to this primarily negative undertaking, there may be positive obligations inherent in effective respect for private or family life (see X and Y v. the Netherlands, 26 March 1985, § 23, Series A no. 91). The Court has also held that the cumulative effect of the domestic authorities’ failure to adopt measures, including but not limited to interim court measures, as required in a situation which adversely affected the applicants amounted to a failure to assist them, in breach of the State’s positive obligations under Article 8 to secure respect for their private and family life (see Bevacqua and S., cited above, § 84). The Court has also found, albeit in the context of a complaint made under Article 3 of the Convention, that the failure of the authorities to organise care for an applicant, who was aged twelve when his parents were arrested and held at a police station for several hours, or to explain the situation to him, reached the threshold required by Article 3 and constituted degrading treatment (see Ioan Pop and Others v. Romania, no. 52924/09, § 65, 6 December 2016).
59. The obligations incurred by the State under Article 8 of the Convention as regards the protection of minors require that the best interests of the child be respected (see, for example, in the context of taking children in public care, Haase v. Germany, no. 11057/02, § 80, ECHR 2004-III (extracts)).
(b) Application of these principles to the present case
60. In the present case, the situation clearly presented risks for the applicant’s well-being, given that she was fourteen years of age when her parents were arrested.
61. In the Court’s view, the relevant domestic legal provisions (see paragraphs 44-46 above) were designed to protect children but there is nothing to suggest that they were applied in the present case. In particular, the Government have not demonstrated that, at the time of the arrest, the police notified the relevant authorities that the applicant’s parents were being taken into custody and that she was being left unattended. As is apparent from the Government’s observations, the first time an authority enquired into whether the child had a carer was during the court hearing which took place two days later.
62. Consequently, the authorities had a responsibility either to place the applicant’s parents in a position to arrange for her care at the time they were taken into custody, or to enquire into the applicant’s situation of their own motion. Once the authorities had established the circumstances relating to the applicant’s care in her parents’ absence, if it appeared necessary, they had an obligation under domestic law to provide her with assistance, support and services as needed, either in her own home, in a foster family or at a specialised institution. This obligation, pursuant to domestic law, appeared to arise from the moment her parents were taken into custody (see paragraphs 45-46 above). The Government have not submitted that any of this was done by the relevant authorities at any point in time before the hearing on 6 December 2002, which was two days after the arrest of the applicant’s parents. The Court thus finds that, as regards the period between the applicant’s parents’ arrest and the hearing on extending their detention, the authorities failed to comply with their positive obligation under Article 8 of the Convention to act in order to ensure that the applicant, who was a minor left without parental care, was protected and provided for in her parents’ absence.
63. The Government did not submit that the authorities had checked on the applicant’s situation in the days that followed, that is to say between 6 December 2002, the date of the first hearing, and 17 December 2002, the date of the appellate hearing and the release of the applicant’s parents. The Court considers that it is not its task to specify which authority could have done what exactly and when in order to prevent the applicant’s potential exposure to suffering provoked by the uncertainty about her own fate and that of her parents after their arrest. However, it notes that the Government have not argued that at any point in time did any relevant authority visit the applicant, verify that she was not in fact alone following her parents’ arrest, inform her about her parents’ situation, clarify her own situation to her, or – given her age – take her to visit either or both of them in prison.
64. The Government emphasised that it had not been proven by the applicant that she had indeed been left alone and uncared for throughout her parents’ absence. They submitted that it was plausible that the applicant’s parents would have had a circle of friends and acquaintances to whom their daughter could have turned in their absence. In addition, the Government pointed out that the applicant’s parents’ own lawyer had been present during the hearing on extending their detention and had stated during the subsequent proceedings for damages brought by the applicant that he did not know what had happened to her. Similarly, the applicant’s teacher had testified that she had no memory of the applicant having been hungry, cold or distressed at the time (see paragraph 35 above). Finally, the Government submitted that the applicant’s mother could have alerted the authorities to her daughter’s situation while she had been in prison and that she could have asked that the record of the court hearing be corrected in respect of the availability of care to the applicant.
65. The Court observes the following. The applicant’s parents were educated persons from a prominent background with high-level professional experience, were apparently of means and not lacking in skills, and cared for their daughter (see paragraphs 8, 9, 18 and 25 above). They were legally represented during the extradition proceedings by a lawyer of their own choosing. That lawyer had taken part in the court hearing when the judge had enquired into the applicant’s care in the absence of her parents (see paragraph 17 above); he had continued to represent the applicant’s parents throughout their subsequent detention and had, moreover, been a neighbour to the applicant’s family (ibid.). Furthermore, in addition to being recorded as stating in court that there was someone to care for her daughter, the applicant’s mother did not at any point in time – either before or after that hearing, at the time of her arrest or later from prison – raise with any authority the question of the applicant’s care during her detention. Neither did her father, who had been arrested at the same time and together with the mother, notify any authority at any point in time that his daughter had been left alone or that he had any concerns about her care in his absence.
66. In the circumstances, the Court finds that the competent authorities had no reason to assume, or suspect, after the court hearing on 6 December 2002 that the applicant had been left alone and not provided for in her parents’ absence. Consequently, their obligation under domestic law to take detained persons’ children into care, if no care was available to them, was not relevant after the hearing on 6 December 2002. Accordingly, in the absence of any steps by or on behalf of the parents at the time of the events, the Court finds that, in the subsequent proceedings for damages brought by the applicant, the domestic courts’ reliance on the record of the detention hearing and their conclusion that neither the police, nor the prosecution, nor the courts had needed to enquire any further about the applicant’s situation did not amount to a failure to act appropriately in the context of their Article 8 obligations.
67. The foregoing considerations are sufficient to enable the Court to conclude that there has been a violation of Article 8 of the Convention as regards the period before 6 December 2002, and no violation as regards the period after that date.
II. ALLEGED VIOLATION OF ARTICLE 13 IN CONJUNCTION WITH ARTICLE 8 OF THE CONVENTION
68. The applicant complained under Article 13 in conjunction with Article 8 that she did not have an effective domestic remedy in relation to her complaints. Article 13 reads as follows:
“Everyone whose rights and freedoms as set forth in [the] Convention are violated shall have an effective remedy before a national authority ...”
69. The applicant submitted that in the proceedings for damages which she had brought, the courts at all levels had completely disregarded her assertion that the police officers had failed to comply with their statutory duties to protect her physical and psychological well-being by seeking to verify at the time of the arrest that appropriate arrangements were in place for her care. Similarly, her assertion that the judge at the hearing on 6 December 2002 had failed to verify the existence of such arrangements had been considered unfounded solely on the basis that the record of that hearing had indicated that her mother had informed the court that care was available.
70. The Government submitted that in the proceedings for damages the courts had correctly concluded that, while it had been established unequivocally that the applicant suffered from post-traumatic stress disorder, there had been no causal link between the authorities’ actions and the applicant’s state.
71. The Court notes that this complaint is linked to the one examined above and must therefore likewise be declared admissible.
72. Having regard to the finding of a violation under Article 8 as a result of the lack of action by the authorities to ensure effective protection of the applicant during the first two days after her parents’ arrest, the Court considers that it is not necessary to examine whether, in this case, there has also been a violation of Article 13 (see, among other authorities, M.D. and Others v. Malta, no. 64791/10, § 84, 17 July 2012, and Prezhdarovi v. Bulgaria, no. 8429/05, § 56, 30 September 2014).
III. APPLICATION OF ARTICLE 41 OF THE CONVENTION
73. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
A. Damage
74. The applicant claimed 50,000 euros (EUR) in respect of non‑pecuniary damage.
75. The Government considered this amount unfounded and excessive.
76. The Court considers that the uncertainty created when the applicant, aged fourteen at the time, was suddenly deprived of her parents’ presence and care during the first two days after their arrest caused her anxiety and suffering. Accordingly, it awards the applicant EUR 3,600 in respect of non-pecuniary damage.
B. Costs and expenses
77. The applicant also claimed EUR 12,031.81 for the costs and expenses incurred both before the domestic courts and before the Court. Of this amount EUR 6,135 corresponded to the court fees paid in the proceedings for damages (see paragraph 29 above), EUR 160 to costs for expert reports prepared in the context of the same proceedings, EUR 3,000 to the court fees paid in the second examination of her claim for damages by the appellate court (see paragraph 39 above), EUR 1,189 to her lawyer’s fees in those proceedings, EUR 107.81 for costs and expenses related to the cassation proceedings, and EUR 1,440 for her lawyer’s fees for the proceedings before the Court. She indicated that the sum for her lawyer’s fees for the proceedings before the Court should be paid into the bank account of the Bulgarian Helsinki Committee.
78. The Government stated that the claim for an award of costs incurred by the applicant before the national courts was unjustified.
79. According to the Court’s case-law, an applicant is entitled to the reimbursement of costs and expenses only in so far as it has been shown that these have been actually and necessarily incurred and are reasonable as to quantum. In the present case, as regards the domestic costs and expenses, the Court reiterates that it will uphold such claims only in so far as they relate to the violations it has found. It then notes that the applicant incurred EUR 10,591.81 in costs and expenses before the domestic courts in seeking redress in connection with the violation of the Convention found in the present case. This amount covers the elements described in paragraph 77 above, other than the amount sought for legal fees incurred before the Court. Regard being had to the fact that the Court has found a violation of Article 8 of the Convention only as regards part of the period complained about, the Court considers it reasonable to grant this claim in part and accordingly awards EUR 4,000 under this head.
80. Furthermore, the Court awards the applicant EUR 1,260 in respect of legal fees for the proceedings before it and holds that this amount is to be paid into the bank account of the Bulgarian Helsinki Committee. This amount has been determined with reference to the hourly rate of EUR 70 applied in respect of applicants’ lawyers’ fees in recent cases against Bulgaria of comparable complexity (see Bulves AD v. Bulgaria, no. 3991/03, § 85, 22 January 2009; Mutishev and Others v. Bulgaria, no. 18967/03, § 160, 3 December 2009; and Penchevi v. Bulgaria, no. 77818/12, § 88, 10 February 2015).
C. Default interest
81. The Court considers it appropriate that the default interest rate should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT
1. Declares, unanimously, the application admissible;
2. Holds, by four votes to three, that there has been a violation of Article 8 of the Convention as regards the period before 6 December 2002;
3. Holds, unanimously, that there has been no violation as regards the period after that date;
4. Holds, unanimously, that there is no need to examine the complaint under Article 13 of the Convention;
5. Holds, by four votes to three,
(a) that the respondent State is to pay the applicant, within three months from the date on which the judgment becomes final in accordance with Article 44 § 2 of the Convention, the following amounts, to be converted into Bulgarian levs at the rate applicable at the date of settlement:
(i) EUR 3,600 (three thousand six hundred euros), plus any tax that may be chargeable, in respect of non-pecuniary damage;
(ii) EUR 5,260 (five thousand two hundred and sixty euros), plus any tax that may be chargeable to the applicant, in respect of costs and expenses, of which EUR 1,260 is to be paid directly into the bank account of the Bulgarian Helsinki Committee;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;
6. Dismisses, unanimously, the remainder of the applicant’s claim for just satisfaction.
Done in English, and notified in writing on 1 February 2018, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Claudia WesterdiekAngelika NußbergerRegistrarPresident
In accordance with Article 45 § 2 of the Convention and Rule 74 § 2 of the Rules of Court, the joint dissenting opinion of Judges Møse, O’Leary and Rousseva is annexed to this judgment.
A.N.C.W.
JOINT DISSENTING OPINION OF JUDGES MØSE, O’LEARY AND ROUSSEVA
1. The majority of the Chamber have found a violation of the Convention due to the Bulgarian authorities’ failure, pursuant to their positive obligations under Article 8 of the Convention, to arrange for the applicant’s care immediately after the arrest of her parents and during the first two days of their detention.
2. In concluding that the Chamber should have found no violation of Article 8 in the particular circumstances of this case, we do not ignore or seek to undermine the Court’s well-established case-law regarding the nature and scope of States’ positive obligations under this Article and, in particular, their duty to protect the best interests of minors (see §§ 58 and 59 of the majority judgment).
3. However, we do not think that the facts of this case, as clearly reflected in the decisions of the domestic courts, support the finding of a violation.
4. Firstly, as regards the facts, it is uncontested that the parents of the applicant, the latter aged 14 at the time of their arrest on 4 December 2002, were taken from their apartment and placed in detention for two days before two separate court hearings on their prolonged detention took place on 6 December 2002. On that date questions were raised, at the initiative of the public prosecutor, regarding the provision of care for the applicant while her parents were detained. The parties disagreed regarding the manner in which the applicant’s mother responded to the judge’s question relating to care for her daughter. Her response was noted in the record of the hearing as indicating that the child (the applicant) had been taken care of (see §§ 17 and 18 of the majority judgment); a record which the parents never sought to check or subsequently rectify (see further below).
5. It is also uncontested that when they had been initially informed by telephone by their daughter that the police had come to the family apartment to arrest them, the parents were accompanied by their lawyer and that it took some time for the party of three to return home. The lawyer, who was both a friend and a neighbour, was present during their arrest and was in contact with them between the time of the arrest and the court hearing two days later. When in court, the applicant’s parents were assisted by that same lawyer and by a court-appointed interpreter. Moreover, when in prison, before and after the key court hearing on 6 December, there is no record of the parents enquiring into the care provided for their daughter in their absence or checking the court record according to which the mother had been understood – mistakenly it is argued – to have confirmed that the applicant had been taken care of.[1]
6. Secondly, as regards the decisions of the domestic courts, the applicant claimed that she had been left alone, without money or instructions regarding her care, during her parents’ absence. Before this Court, the Government relied on the fact that it had not been proven before the domestic courts that the applicant had been left alone, without an adult carer, during the period in question. A psychiatric and psychological report and medical reports ordered in the context of the domestic proceedings had established that the applicant was suffering from post-traumatic stress disorder but the domestic courts found themselves unable to establish the cause. The lawyer of the applicant’s parents, who had attended the hearings relating to their detention on 4 December 2002, testified in those proceedings in February 2008 that he had not known what had happened to the applicant during her parents’ arrest, nor could he remember anything about the circumstances relating to the question and answer of the mother in court.
7. The Varna Regional Court rejected the applicant’s claim on 27 July 2009, finding that it had not been proven that she had been left alone while her parents had been detained in December 2002. The only evidence supporting the applicant’s claim was the testimony of her parents and there were no other pieces of evidence in support of it. The court accepted that the mother had replied in the affirmative to the judge’s question whether there had been someone to care for the applicant. Consequently, it concluded that it had not been incumbent on the criminal justice system to act in any other way in order to protect the applicant. Finally, the Varna Regional Court held that the applicant’s mother had never sought to check the record of the hearing and have it rectified, despite a possibility in law for her to do so (see §§ 36-38 of the majority judgment).
8. On 10 December 2010 the Varna Court of Appeal confirmed the lower court’s decision, finding that, even if the applicant had been left alone after the arrest, responsibility for that could not be attributed to the police, the prosecuting authorities or the court, given that her mother had stated that “the child had someone to care for her” (see § 40 of the majority judgment). The Supreme Court of Cassation rejected an appeal on points of law by the applicant in a final decision of 18 January 2012, finding no grounds for allowing the appeal to go forward (see § 41 of the majority judgment).
9. The legal questions raised by the instant case relate to whether, firstly, there is a positive obligation on the domestic authorities pursuant to Article 8 of the Convention to protect the situation of a child who may be at risk (specifically when his or her parents are taken into custody) and, secondly, whether such a positive obligation is activated, regardless of when, how and if the situation is brought to the attention of those authorities and, in particular, regardless of the passivity of the child’s parents or their legal counsel.
10. In our view, the answer to the first question, relating to the existence of a positive obligation in respect of children at risk or potentially at risk must clearly be answered in the affirmative.[2]
11. In contrast, the second question – when and in what circumstances a State may be found wanting as regards compliance with such a positive obligation – may be a more complex one, as the circumstances of the present case demonstrate.
12. As mentioned in the Chamber judgment (see §§ 44-46) there were relevant domestic legal provisions in place designed to protect children in need of care but the majority assume, without more, that an obligation of protection arose from the moment the applicant’s parents were taken into custody (§ 62), regardless of the circumstances of the arrest, those present or the behaviour of the parents then and subsequently. Crucially, in this case, the parties differed on the question whether the applicant had actually fallen into the category of a child in need, namely whether she had been effectively left unattended in her parents’ absence so as to require (automatic or immediate) protection by the authorities. Despite extensive judicial proceedings at the domestic level, it was not proven that the applicant had indeed been left alone and without care during her parents’ detention. There is, it must be conceded, no proof that the police notified the relevant competent authorities at the time of the arrest of the applicant’s parents, alerting those authorities to the presence of a minor. However, neither is there anything in the file to suggest that her parents raised with the police the issue of her being left alone at the time of their arrest, that they brought up the question of her care in the immediate aftermath, or that they instructed their lawyer, who was present during the arrest and subsequently accessible to them, to do so. We note, in particular, that under domestic law the record of the hearing carries evidential force of the circumstances recorded therein. When answering that question at the hearing the applicant’s mother had been legally represented and assisted by an interpreter. Moreover, it is noteworthy that from the first hearing on 6 December 2002 until 17 December 2002, the date of the appellate hearing and the release of the applicant’s parents, neither of them signalled to any authority that there might have been a problem with the applicant’s care or that they were worried about their daughter’s well-being in their absence.
13. Detained persons can be considered, to some degree at least, to be in a vulnerable position. However, the applicant’s parents were educated persons of prominent background, with high-level professional experience, of apparent means, did not lack skills and they cared for their daughter (see § 65 of the majority judgment). In addition, they were legally represented by counsel who had been with them when informed by their daughter of the possibility of their arrest and during their arrest and who had continued to represent the parents throughout their subsequent detention.
14. In these circumstances, we consider that, faced with what would appear to be the parents’ and indeed their legal representative’s passivity in relation to the situation of the applicant prior to and following the arrest and detention, the competent authorities had no reason to assume that the applicant had been left alone and that she was unprovided for during her parents’ absence. The domestic courts did not find that the applicant had discharged the evidentiary burden incumbent on her relating to events during and following her parents’ arrest. It was not established that she had been left alone and the authorities had thus not been found to have failed to fulfil their obligations pursuant to domestic law in the circumstances of the present case.
15. It is also noteworthy that the majority judgment refers to no precedent in support of the activation in the manner suggested and in circumstances similar to the present case of the State’s positive obligations under Article 8. The authorities mentioned in the recapitulation of the general principles (see § 58 of the majority judgment) are clearly distinguishable.[3] For instance, reference is made to a recent judgment of another chamber of the Court – Ioan Pop v. Romania. In that case, a majority of 6 to 1 found that the failure to ensure that a twelve-year-old child was looked after by an adult while his parents were held in police custody for approximately 9 to 12 hours constituted inhuman and degrading treatment contrary to Article 3 of the Convention.[4] However, even if one were to consider that judgment a binding and persuasive precedent, several points distinguish the Ioan Pop case from the present one. The child, aged twelve at the time of the arrest of his parents, had witnessed scenes of considerable violence during the latter, including the forced sedation of his father; the Article 3 threshold was found to have been met because the competent domestic authorities had not taken measures to entrust the third applicant to an adult while his parents were at the police station or to explain to him his situation or that of his parents; and crucially, while the Court had also been confronted by divergent accounts of what had happened to the child after the arrest, it found that the domestic courts had not examined his complaint or established the relevant facts. In these circumstances and faced with diverging accounts, the Court found it sufficiently established that the applicant child had been left alone for several hours without adult supervision and it therefore went on to examine the authorities’ positive obligations under Article 3 of the Convention, finding a violation of the latter.[5] However, as pointed out previously, in the present case the majority appear to reverse this sequence of reasoning ‒ finding a violation of Article 8 of the Convention due to the authorities’ failure to respect their positive obligation towards the applicant despite the domestic courts’ extensive examination of the facts alleged by her and its rejection of her version of events between the day of the arrest and the court hearing.
16. Given the circumstances of this case and the extensive and careful findings of the domestic courts we are unable to concur with the majority that the domestic authorities failed in the present case to discharge their positive obligations under Article 8 of the Convention. While we recognise the distress which the applicant must have felt at the time of the arrest and thereafter, we do not consider that it is appropriate for an international court which adheres to the principle of subsidiarity to interfere with or ignore, in the manner just described, the facts as established by the domestic courts. We also see no basis, in the Court’s own jurisprudence, for finding a violation of Article 8 in the circumstances of the present case.
[1] Note that, on appeal by the applicant’s parents, the detention orders were lifted in two separate decisions of 17 December 2002, following which the applicant’s parents were released on bail and returned home the same day. The request for their extradition to Turkmenistan was refused on 22 May 2003 in proceedings before the Varna Regional Court at which they were represented by the same lawyer.
[2] See, for example, Eremia v. the Republic of Moldova, no. 3564/11, 28 May 2013 (failure of authorities to take adequate measures to protect daughters traumatised as a result of witnessing their father’s violent assaults on their mother).
[3] One illustration provided is the case of Mubilanzila Mayeka and Kaniki Mitunga v. Belgium, no. 13178/03, ECHR 2006-XI (a case involving the detention, alone, of a five-year-old girl in Belgium following her illegal entry into the country, where the Court found, inter alia, violations of Articles 3 and 8 of the Convention). The circumstances of the present case are markedly different.
[4] No. 52920/09, 6 December 2016.
[5] See Ioan Pop, cited above, §§ 31-34 and §§ 56-60. See, however, the dissent by Judge Sajó, who, correctly in our view, highlights the fact that the chamber judgment even in that case showed a distinct disregard for the facts which had been established by the domestic courts.
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THE DEPUTY JUDGE:
This is a claim for judicial review, brought with the permission of His Honour Judge Stephen Davies on 16th May 2013. At issue in the claim is the lawfulness of a remission warrant, made for the Secretary of State by Mr Buckle in the relevant department at the Ministry of Justice, and issued on the 15th October 2012 under section 50(1) of the Mental Health Act 1983. The warrant of remission directs that the claimant be remitted from Rampton Hospital to HMP Albany on the Isle of Wight.
Section 50(1)(a) empowers the Secretary of State to direct by warrant remission, to any prison or other institution in which the individual might have been detained had he not been removed to hospital, in circumstances prescribed by Parliament. There must have been a notification, from: the responsible clinician (a term that is defined in the statute), or an approved clinician, or the appropriate Tribunal (which I interpose is the First-tier Tribunal).
The statutorily required notification to the Secretary of State can be on one or both of two bases. Firstly, that the person (being a person in respect of whom a transfer direction has been given) no longer requires treatment in hospital for mental disorder. Secondly, that no effective treatment for his disorder can be given in the hospital to which he has been removed.
The claimant is a tariff-expired life sentence prisoner who in November 1979 was imprisoned under the sentence of the court having been convicted of manslaughter (on the grounds of diminished responsibility), rape and burglary. In September 2004 he was assessed as having a psychopathic disorder, within the meaning of the 1983 Act.
In February 2005 the Secretary of State exercised the power conferred in section 47(1) of the 1983 Act and directed that the claimant be transferred by warrant to hospital. The trigger for that transfer from prison to hospital was that the requisite "at least two registered medical practitioners" had concluded in reports: that the claimant was a person suffering from mental disorder, that the mental disorder from which he was suffering is of a nature or degree which makes it appropriate to be detained in a hospital for medical treatment, and that appropriate medical treatment was available for him. In those circumstances the Secretary of State had a discretion to direct transfer to hospital, if the Secretary of State was of the opinion, having regard to the public interest and in all the circumstances, that it was expedient so to do. The Secretary of State was satisfied and the claimant was duly transferred and took up a place in the DSPD unit (that is Dangerous and Severe Personality Disorder Unit) at Rampton Hospital.
In 2008 the claimant's care team had raised the question of transfer from high security hospital placement at Rampton, to a lower security hospital placement. That question of transfer, from higher to lower security hospitals - through what is sometimes described as a gate or gateway – came to be pursued further in 2011. That was the context in which the claimant's case came before the First-tier Tribunal, Health Education and Social Care Chamber at an oral hearing on 20th and 22nd March 2012. There had been previous determinations in his case by the Tribunal.
In this case the trigger for a section 50 remission warrant was a notification under section 50(1) by the responsible clinician, Dr Matambike. His request, originally dated 11th January 2012, recorded that in his view both of the two statutory conditions for remission were satisfied, that is to say treatment in hospital for mental disorder was no longer required by the claimant and in any event effective treatment for his mental disorder could not be given in the hospital to which he had been removed.
Transfer of the claimant back to prison was opposed by the claimant and on his behalf by his representatives. On his behalf what was put forward was a transfer through the gateway from higher to lower security hospital placement and treatment in a medium secure unit. But, in any event, what was opposed by him and on his behalf was transfer back to prison.
Many clinicians have considered the claimant's case over the years. Some of them have modified their positions over time and there are several respects in which there has been and remains disagreement between them.
In essence the claimant's case, as it seems to me, is as follows. He says, ably represented before me by Amanda Weston and Leonie Hirst together with their very experienced instructing solicitors: that there was a cogent case of necessity of treatment of the claimant in hospital; that there was a cogent case as to the appropriateness of such treatment; that such treatment continued to be required by him; and that effective treatment continued to be available to him. It is submitted on his behalf that those questions were conscientiously and independently evaluated by the Tribunal, at its two day oral hearing, preceded by two examinations by the Tribunal medical member and with detailed consideration of all relevant available written evidence. That included the evidence of the relevant clinicians who had assessed the claimant, and of others who could comment in relevant ways as to his position. It included oral evidence from the responsible clinician, Dr Mathambike, but also other expert clinicians including Dr Bradley and Professor Maguire. The claimant submits that the Tribunal's closely reasoned determination strongly vindicates the points that were advanced on his behalf and arrived at powerfully reasoned findings: as to the appropriateness and need for continued treatment in hospital for mental disorder, which could effectively be provided in hospital, and which undermined the responsible clinician's provisional conclusions (as they then were) as to the conditions for a section 50(1) remission warrant.
The claimant submits that in circumstances where the Tribunal had made its clear and conscientious findings, the Secretary of State acted unlawfully and unreasonably and contrary the claimant's human rights under ECHR Articles 3 and 5: in departing from the Tribunal's findings; in relying on the views of the responsible clinician which disagreed with the Tribunal's findings; and in doing so in circumstances where there were no very weighty reasons, indeed no good reasons, for doing other than accepting the findings of the Tribunal.
The claimant says the Secretary of State ought not to have taken action which was inconsistent with those findings absent very weighty reasons or at least good reason, and absent material new evidence.
What flows from the claimant's submissions is that the warrant was, he says, unlawful. It was unreasonable. It violated ECHR Article 5(1)(e) in depriving him of a suitable therapeutic environment. It violated his ECHR Article 3 rights in depriving him of requisite medical assistance. It also denied him a real prospect of progress and in turn of effective ongoing review under ECHR Article 5(4). Because of the particular risks of harm, it exposed him to ECHR Article 3 harm including avoidable distress and hardship not inherent in a deprivation of liberty.
The Secretary of State's decision, says the claimant, is one which would not be justified and one which rested on reasons which cannot withstand scrutiny as being legally adequate.
I am unable to accept those submissions in the circumstances of this case. I am satisfied, with the assistance of counsel and solicitors for the claimant and counsel Miss Wheeler for the Secretary of State, having endeavoured with their assistance to give this case the most anxious scrutiny: that the warrant and the reasons for it and the process which preceded it were in the circumstances of this case lawful; and that there is no basis on which I can, in the exercise of my supervisory jurisdiction, interfere with the Secretary of State's decision.
In giving my reasons for that conclusion, I will analyse the case by looking at the sequence of events and considering the submissions that arise out of them.
The original request for a section 50 remission warrant to prison had, as I have already said, been contained in Dr Matambike's 11th January 2012 request document. That request was itself supported by a report which accompanied it. The report, described as an "addendum report" was dated 20th December 2011. It extended over 40 pages and set out the background. It considered progress at Rampton and the ongoing treatment which had been focused, in conjunction with the 2005 transfer, on offending related treatment. It considered progress since admission and set out opinions and recommendations including as to appropriateness of detention. Giving his opinion as the responsible clinician, the report said that the claimant's mental disorder was not of a nature or degree that made it appropriate for him to continue to be detained in hospital for treatment, on the basis of the completion of treatment which he had undergone, and the opinion that further sex offender treatment was very unlikely to have a positive influence on his risk of re-offending. The report expressed the opinion that the claimant did require ongoing support for his anxiety levels from time to time, but expressed the view that that level of support was available within a prison setting. It addressed questions of harm and self-harm and the nature of the risks and ways in which they were being addressed including by reference to what is known as a section 117 meeting.
As at that stage, Dr Swinton, who is known as the medium security unit gate-keeper, had in conjunction with a relevant team, produced a report. That was a report, dated 10th June 2010, of the Personality Disorder Assessment and Liaison Team – an assessment report on the claimant. Identified in that report were conclusions in which the key opinion of team was:
"We do not support plans for the claimant to be treated in a psychiatric hospital."
That report also addressed the treatment that had taken place and considered its purpose or purposes, and the question of progress. It ultimately focused on the question of whether the claimant was a person who should be in a psychiatric hospital for treatment, reaching the conclusion that the team could not recommend transfer through the gate to the medium security hospital because it did not think hospital treatment was appropriate for his condition. They did not, and indeed said that they could not, speak for the clinicians at Rampton.
The request for a section 51 warrant was then deferred pending the upcoming hearing before the First-tier Tribunal. Whether or not it was necessary to defer the question of a warrant, it was certainly, in my judgment, proper and sensible to do so and so the Tribunal became seized of the case and considered the evidence and reached the conclusions which it set out in its reasoned determination.
The Tribunal reached the clear conclusion that the claimant ought not to be transferred to prison. It reached that conclusion by reference to treatment options which it considered were appropriate for the claimant's needs and which it felt needed appropriately to be delivered in a hospital setting. It also identified questions of risk and harm, including self-harm to the claimant, which it regarded as arising from the proposed transfer. In reaching its determination the Tribunal analysed in detail the written evidence from various individuals including several clinicians and their oral evidence.
I shall not prolong this judgment by quoting from the Tribunal's determination or seeking to paraphrase it. What, in my judgment, is of greatest significance in the Tribunal's analysis of the claimant's case was the Tribunal's recognition that two clinicians who had reported and were giving oral evidence to Tribunal - namely Professor Maguire and Dr Bradley – were both describing forms of therapy which they considered to be appropriate for the claimant and which went beyond the offence-related therapy which he had hitherto been undergoing at Rampton. These further therapies involved what was described as treatment of the claimant's personality disorder which had been overlooked in favour of offence-related therapy. They included what was described as schema therapy or dialectical behaviour therapy (DBT), cognitive analysis therapy (CAT) and international reconstructive therapy. There was evidently some controversy before the Tribunal as to whether treatment at Rampton had been received for personality disorder. That was plainly raised by Dr Matambike and also Dr Howling and the Tribunal analysed in some detail.
In its findings and reasons the Tribunal explained why it was satisfied that the claimant suffers from mental disorder, explained the diagnosis which it accepted and gave reasons why it preferred the evidence of Dr Bradley and Professor Maguire to the views of Dr Matambike, all of whom had given oral evidence before the Tribunal. Those reasons included the experience of the clinicians and inconsistencies which the Tribunal identified in the responsible clinician Dr Mathambike's evidence.
The Tribunal then dealt with the question of risk and harm and the question of appropriate treatment, finding specifically that appropriate treatment - consisting of schema therapy, DBT and CAT - whilst currently available in Rampton Hospital could be provided to meet the patient's complex clinical needs in medium secure units experienced in treating patients like him.
The Tribunal concluded that the claimant suffers from a mental disorder of a nature and degree that makes his continued detention in hospital for treatment appropriate and that appropriate treatment is available for him in hospital and that his continued detention was necessary for his own health and safety and for the protection of others and went on to endorse Professor Maguire's view that returning him to prison would be "calamitous".
Finally, the Tribunal acknowledged that the Secretary of State had the function of issuing a section 50 warrant but urged the Secretary of State to prefer its assessment of the patients clinical needs and treatability in preference to those of Dr Matambike and to allow the claimant to continue to receive treatment for his mental disorder in hospital.
It is common ground in this case that the Tribunal had no statutory function of making a binding recommendation and no statutory function of making a binding decision as to remission. The furthest that the statute goes, in relation to remission is to provide that the Tribunal is one of the three bodies empowered to provide the statutory notification for a remission warrant transferring from hospital.
Miss Weston, for the claimant, accepts and in my judgment plainly rightly, that the Secretary of State retained the power to issue a remission warrant. Her submission is that the Secretary of State could only do so in these circumstances for good and cogent reasons, she submits very weighty reasons, and in particular - she submits - a need for fresh new materials or new information.
Hotly controversial between the parties is the question whether the Tribunal had any statutory function at all in the represent context. In the end I am not sure it matters but the arguments are these. The Secretary of State submits that any question of a recommendation, and in particular any question of a recommendation from high security hospital to lower security hospital, is not a matter in relation to which any statutory function would be exercised at all. She relies on the decision of the Court of Appeal in a case called C and F [2013] EWCA Civ 701, at paragraph 12 in particular. For the claimant Miss Weston replies that whatever the position in relation to recommendations, the Tribunal does have a statutory function of notifying under section 50 if it considers it appropriate to do so. It can therefore be taken that questions as to whether the section 50 notification conditions are met are proper considerations for the Tribunal to address. She further submits that by reference to sections 72 and 73 of the Mental Health Act 1983, the Tribunal has the statutory function of addressing all questions which are relevant to the individual's detention and she submits that that position is endorsed by paragraph 19 of the Court of Appeal's judgment in the C and F case.
The first question of law that arises out of the exchanges is as to whether the approach identified by Lord Bingham for the House of Lords in Brandenburg [2003] UKHL 58 in particular at paragraphs 8, 10 and 12, is applicable in the present case. Brandenburg was subsequently followed in IT [2008] EWHC 1707 (see paragraphs 12 to 14). It identified a general proposition that under the rule of law effect should be loyally given to decisions of legally constituted Tribunals in accordance with what is decided. Lord Bingham also identified what would be necessary for an executive body to decide to take action inconsistent with what the Tribunal had determined. He described what was necessary for such a course to be adopted in this way. There would need to have been a reasonable and bona fide opinion, based on information not known to the Tribunal, which put a significantly different complexion on the case as compared with that which was before the Tribunal. He explained that the test was not one of change of circumstances but rather whether there was new information on which the decision to adopt a different course was based.
In my judgment, even if Miss Weston is right that the Tribunal was exercising a statutory function when making its findings in the present case, the test in Brandenburg is nevertheless not one which is applicable. In my judgment Brandenburg is specifically a case in which the Tribunal has the function, as primary decision maker, of reaching the conclusion as to what should happen to the individual. It is a case where the question of discharge, that is to say liberty as opposed to incarceration or a deprivation of liberty, is entrusted to Tribunal. It is in that context, in my judgment, that the House of Lords concluded that it could not be lawful for executive bodies to decide to proceed to deprive someone of their liberty, where the Tribunal had exercised its statutory function of deciding that the individual should be discharged. That, in my judgment, explains why the test carefully formulated by the House of Lords was put in the way that it was.
Parliament in various contexts has entrusted the determination of what should happen to an individual to Tribunals. But section 50 transfer is not such a situation. The statute specifically identifies that whilst a Tribunal may notify that it considers the preconditions are satisfied, it is not the sole relevant body who can give such a notification, it has no power to veto transfer if notified by somebody else, and the ultimate decision as to whether the individual should or should not be transferred lies very clearly in the hands of the Secretary of State.
In my judgment, the decision of Bean J in IT does not compel any different conclusion. That was a case where a separate decision, namely recall, had been reached. However, the application of the Brandenberg test there, in my judgment, is clearly explicable by the fact that the Tribunal had decided the question of discharge, that is to say liberty as against deprivation of liberty in hospital. To follow that discharge decision with a decision to recall, and therefore re-incarcerate, is in my judgment directly analogous to Brandenburg, where the Tribunal's decision as to discharge had been followed by a further decision to redetain.
The inappropriateness, in my judgment, of the Brandenburg test is supported and reinforced by other authorities which serve to emphasise the importance of the Secretary of State's discretion in relation to matters of transfer. See for example the decision of Munby J in IR [2003] EWHC 3022 (Admin) and the analysis of the Court of Appeal in the case of Morley [2002] EWCA Civ 1728.
Miss Weston, in my judgment, is on much stronger ground when she makes the submission that even if Brandenburg is not directly applicable it is nevertheless the case that, if the Secretary of State's action involves departing from an adjudicative finding of an independent Tribunal and particularly when reached on the basis of oral evidence, it is incumbent on the Secretary of State to have a good reason, identified by the Secretary of State, for proceeding.
The difficulty Miss Weston faces in this case, in my judgment, is that even if that is correct - and even on the basis that she is right that the Tribunal did have a statutory function when considering the issues and making findings and arriving at its conclusions - in the circumstances of this case I am quite satisfied that Miss Wheeler is able to make good her submission: that the Secretary of State, if he needed good reason (which she does not accept), had good reason.
To return to the sequence of events, in the light of the Tribunal's determination, the Secretary of State was not asked to proceed on the basis of the existing request and issue the warrant without more.
The responsible clinician Dr Mathambike had responded in a response report dated 30th January 2012 to points raised by Dr Bradley, and had reached the view set out in that response that the treatment being suggested (schema, focus therapy and DVT) was not necessarily applicable for every single individual who suffered from borderline personality disorder and specifically that it was inappropriate to institute such treatment in the claimant's case. He had therefore in my judgment already considered the sorts of therapies that it was being suggested ought to have been but had not been made available to the claimant at Rampton.
He plainly reflected on the position in the light of Tribunal's determination. He decided that it would be good practice to ask Dr Swinton also to reconsider in the light of the Tribunal's determination. He therefore wrote to Dr Swinton on 21st June 2012, referring to the Tribunal's hearing and the views advanced by Dr Bradley and Professor Maguire and the opinion they had put forward. He explained that the Tribunal had reached the conclusion that the claimant should continue to be detained in hospital, on the basis of that evidence. He said this:
"Suffice it to say that this was not an opinion that I agreed with. I have attached both a recent decision by the Tribunal, as well as our Trust's solicitors narration of the proceedings. Whilst the Tribunal have no authority to block a warrant under section 50, they have made a strong representation to the Secretary of State requesting the Secretary of State does not issue a warrant.
Given the Tribunal decision I consider it good practice to seek another opinion from you [the claimant's] suitability for admission to a medium secure bed regardless of my personal views on the matter..."
He then explained he had attached an up-to-date psychology report. Again, leaving aside the question of whether it was necessary to take such a further step, in my judgment it is plain that it was sensible to do so.
What then happened was that there was something described as a peer review of the case, which was a meeting of three northwest personality disorder teams at which a presentation was made by Dr Swinton. He reported back to Dr Mathambike on 10th July 2012, in a detailed letter, which addressed the peer review explaining that nobody present at that review suggested that further hospital treatment was appropriate; there was agreement all round that the claimant should not be treated in hospital at all. Then there followed a description of Department of Health policy guidance, and analysis of the opinions of Professor Maguire, including differences over time, the opinion of Dr Bradley, a reference to NIC guidelines, the further psychology report, a conclusion and opinion.
It is fair to say that that letter forcibly expresses views previously reached by Dr Swinton, which were unswayed in the light of what he had been asked to consider. I do not, however, accept that that document is to be taken as lacking in objectivity or as constituting a closed mind or unwillingness to reconsider. Nor do I accept that the views expressed in that letter can be said to be distorted or tainted by improper reference to policy or, still less, resources.
More to the point, in my judgment, there is no basis on which it can be said that the Secretary of State acted unlawfully, in proceeding to issue the warrant in this case, in the light of the further steps undertaken including the obtaining of this second opinion and including the way in which it was decided to proceed with the peer review, notwithstanding that it was not remotely the exercise in a fresh overview by a fresh pair of overviewing eyes, for which the claimant's representatives were contending and still contend ought to have been undertaken.
Included in the many points made in that detailed letter was a response by Dr Swinton to what I have described as the high watermark of the case on the merits, namely there were therapies – namely schema, DBT and interpersonal reconstructive therapies - which had been put forward as therapies which were appropriate and required and effective and which justified the claimant's remaining in a hospital environment.
That suggestion was specifically confronted, in my judgment, in the reasoned letter of Dr Swinton. He simply disagreed, for reasons that he gave, as to whether that treatment was appropriate and needed and effective in the claimant's case, observing that in his view it was suggested treatment outside the main consensus view of psychiatrists in the field and treatment very considerably out of the range of normal professional opinion, whereas, he said, in the claimant's case there was simply no case to support this.
Finally there was the section 117 meeting on or about the 6th September 2012, which addressed questions including: therapeutic community placement; arrangements made in respect of the claimant's mental health following return to prison; arrangements to ensure transfer carried out safely with minimum risks and maintaining prior treatment gains and including addressing needs, such as maintaining treatment gains from sex offender group and core treatment of his personality disorder.
It is clear, in my judgment, that: there was a conscientious re-evaluation in the light of the Tribunal's determination; that the responsible clinician Dr Mathambike addressed and decided to maintain the clinical conclusions which had underpinned and continued to underpin his request; that there was reconsideration in the light of the new suggested therapies by Dr Swinton; and that the question of risk on transfer was considered.
The warrant refers to the views of the responsible clinician which are the statutory precondition and which the Court of Appeal in the Morley case explained was the crucial clinical judgment for the purposes of a section 50 decision.
The amplified reasons of 31st October 2012 explained in terms that the Secretary of State had taken the opinion expressed by the Tribunal very seriously and had considered it alongside the clinical evidence both for remission and against it, especially the view presented by Dr Mathambike. It then explained that having evaluated all the evidence to hand including the claimant's progress in respect of the offending treatment behaviour programme, the need for detention in hospital, the availability of supporting care in prison evidenced by the section 117 meeting, the Secretary of State had concluded that remission was appropriate in this case.
I have no function to arrive at my view of the competing merits. My function is limited to considering whether the Secretary of State has acted lawfully in this case, in the substantive decision that was taken, and in the reasons that were given for it, and whether the Secretary of State could lawfully proceed with that decision in the light of the steps which had been taken and in the light of the absence of other steps which might have been taken.
In my judgment, as I have already explained, there is no basis on which the Secretary of State's decision, nor the reasons given for the decision can be impugned in this case, and in the circumstances of this case, as being unlawful. The decision was preceded by proper and legally sufficient steps, was taken on the basis of legally sufficient materials, was taken for legally adequate reasons and cannot be characterised as a decision beyond the bounds of reasonable judgment.
I have had regard to the various further criticisms which are made in this case. They do not alter the conclusion which I have described. I will not go through every single point in detail. I will however address some of the key further matters that were raised.
The claimants submitted that the sole lawful way forward was for the fresh overview that I have described to be undertaken. This was a point addressed contemporaneously in an electronic minute sheet on the 10th April 2012, where various matters are considered including inviting Dr Mathambike to set out, with regard to the Tribunal's decision why he remains of the view that the criteria for remission are satisfied. It refers also to the possibility of requesting "a report of our own", but the comment is as to the "value" of that "given the number of experienced professionals who have already been involved".
As I have already explained I am satisfied that the steps that were taken did not rob the Secretary of State's decision of its rationality, that it was proper to ask Dr Swinton whether in the light of what Tribunal had said he would express any different view and if not why not.
In my judgment, there was no legal duty on the Secretary of State to insist on a more detailed response either from the responsible clinician or nor to commission some further or different per se.
It is said that the Tribunal had identified an inconsistency in the written in the written and oral position of Dr Mathambike. That is because on the one hand he was supporting prison over hospital. But on the other hand he said that he would have been supporting hospital over liberty (discharge).
I am not satisfied that there is there is anything in that point that required the Secretary of State, as a matter of legal obligation, to require more from Dr Mathambike. He had responded, as I have explained, to the merits of the treatments being suggested. He had explained his view as to whether those treatments were appropriate, required and effective for claimant and he had given reasons why they were not. Whether or not his hypothetical answer about supporting hospital over liberty was wrongly influenced by questions of risk rather than clinical need, whether it was explicable by reference to other treatment which was ongoing support and therapy that could be provided in a prison environment, in my judgment whatever the position: that point was not of sufficient moment to undermine his ability properly to maintain his request for a warrant, nor the Secretary of State's ability lawfully to issue one.
In the judgment of Munby J in IR, to which I have already referred, there is a helpful description of three key questions which arise in the context of section 50, although the first of them needs to be modified in a case in which both limbs of section 50(1) are in play, as they were in the present case. The three questions are firstly section 50(1) question: does the claimant any longer require treatment in hospital for mental disorder? Or: is there any longer effective treatment for his disorder that can be given in hospital? Question 2: does the claimant's mental condition continue to be such as to warrant his compulsory confinement in a suitable therapeutic environment other than a prison? The article 5 question. Question 3: if the claimant is remitted to prison, is it more likely than not that he will suffer treatment at the hands of the prison authorities so damaging to him as to amount to inhuman or degrading treatment within the meaning of Article 3? The Article 3 question.
In my judgment, those three questions have been adequately asked and answered by the materials that were put before the Secretary of State. But, just as did Munby J in paragraph 76 of that case IR, I have revisited those questions myself in the light of the material that was before the Secretary of State, so as anxiously to scrutinise whether this is a decision which is consistent both with domestic and ECHR standards. I am satisfied that this is a lawful decision, supported by proper evidence which answers all three of those questions in a way which justifies the warrant for remission that was made in this case. The Secretary of State had objective justification, in my judgment, for the conclusion that the claimant did not any longer require treatment in hospital for mental disorder, that there was no effective treatment for his disorder which could be given in the hospital. I interpose that, as the authorities make very clear, it is the primary function of the responsible clinician to exercise that clinical judgment as, in my judgment, occurred in this case and occurred properly in this case. Then, as to the other questions, the Secretary of State reached a justified conclusion and decision that the claimant's mental condition was not such as to warrant a suitable therapeutic environment in a hospital and that if the claimant were remitted to prison it was not more likely than not that he would suffer treatment so damaging as to amount to inhuman or degrading treatment within the meaning of ECHR Article 3.
Miss Weston very fairly accepted that the various passages in key Strasbourg authorities on which she relied served to populate that same threefold set of questions and, in those circumstances, I do not propose to proceed separately to address the Strasbourg authorities.
For those reasons I uphold, as lawful, the decision of the Secretary of State.
It is not necessary for me to proceed to deal further with such matters as: the distinction between "appropriate" in section 47 and "required" in section 50; the question of whether the Tribunal was addressing a relevantly different set of criteria, by reference to section 74(1)A of the Act, than would be the relevant ones to section 50; questions as to the difference between mental illness and mental disorder; questions as to whether there could or ought to have been judicial review challenges directed to Dr Swinton or the Commissioners, or for that matter the responsible clinician. I am quite satisfied that, interesting though all of those questions no doubt are, they do not materially affect the conclusion which I have reached in the circumstances of this case as to the lawfulness of the Secretary of State's action.
For those reasons I cannot grant judicial review and this claim will be dismissed.
1. MISS WESTON: I am grateful. I am wondering whether the court might be willing to extend time for any application to this court for permission to appeal to the Court of Appeal until say 7 days after the court's written judgment?
2. THE DEPUTY JUDGE: What have you in mind?
3. MISS WESTON: I am because I am just almost washing over me now, I am wondering whether notwithstanding this court's approach to the facts, there still remains a question relating to if, as effectively happened in this case, the Secretary of State can, whether in the manner adopted or any other manner, simply summarise the conclusions. The question arises what is the function of an appeal where the Tribunal has no power to order discharge. Because in those circumstances, it seems to me although I am resolved with the issue of the opportunity to take some instructions.
4. THE DEPUTY JUDGE: It is only permission to appeal, you are not forced to appeal, you can reflect on it. We know what the issue would be, it would be the test for departing from the Tribunal. I have found that, even assuming you were right on the middle position, this was a lawful decision. So you would have to get home on Brandenburg. That would be the arguable point.
5. MISS WESTON: Yes, but I would not have to get home on it, my submission on the Brandenburg if you looked at perhaps a continuum of –
6. THE DEPUTY JUDGE: You might say something a bit less Brandenburg.
7. MISS WESTON: But we would say that what the court.
8. THE DEPUTY JUDGE: You want to have the opportunity to be able to appeal if on reflection you think it is justified.
9. MISS WESTON: Yes.
10. THE DEPUTY JUDGE: I think I know what the point is, I think rather than defer it I can deal with it. I am not going to give you permission to appeal. I am confident enough in my conclusion on Brandenburg that I do not think you have a realistic prospect of success and I have decided this case on the basis of assuming the most favourable alternative. It does not stop you going elsewhere, but it deals now with my position on permission to appeal. That avoids delaying the agony in relation to that. Is there anything else?
11. MISS WESTON: I anticipate that my learned friend has an application for costs.
12. MISS WHEELER: I am instructed to apply for an order for costs in this case.
13. THE DEPUTY JUDGE: Yes.
14. MISS WESTON: The claimant is legally aided. The court would be filling the form of order.
15. THE DEPUTY JUDGE: Do not ask me to say what it is. I do not know whether you can say what it is. You cannot resist costs on the usual legal aid terms. The defendant's costs on the usually legal aid terms, permission to appeal refused.
16. It is 6.05. It has been a long day.
17. MISS WESTON: May I raise two other matters?
18. THE DEPUTY JUDGE: Yes of course.
19. MISS WESTON: One is might we ask for an expedited transcript?
20. THE DEPUTY JUDGE: What do I do?
21. MISS WESTON: We are funded. That means the court then gets someone from Lexmark or whoever it –
22. THE DEPUTY JUDGE: They do it quicker. Yes, I will give you a direction for an expedited transcript. I have not given you much today but I give you that.
23. MISS WESTON: You have given us my Lord's attention which is good enough. Then that leaves the issue of detailed assessment.
24. THE DEPUTY JUDGE: Of the costs.
25. MISS WESTON: Yes.
26. THE DEPUTY JUDGE: It is legal aid.
27. MISS WESTON: We have to get a separate order for detailed assessment.
28. THE DEPUTY JUDGE: Detailed assessment of the claimant's costs.
29. MISS WESTON: Indeed. Would the court like me to draw up an order, agree it with my learned friend and forward it?
THE DEPUTY JUDGE: Yes, we would like that. | 3 |
CIVIL APPELLATE JURISDICTION Civil Appeal No. 2406 of 1968. From the Judgment and Order dated 13-2-1968 of the High Court of Mysore at Bangalore in R.S.A. No. 477 of 1962. S. K. Sastri and M. S. Narasimhan for the Appellant. D. Bal, R. B. Datar and Rajan Yashpal for the respondents 1, 5, 6,10, 11, 17, 19, 23, 25, 26, 27, 35, 36 and 50. The Judgment of the Court was delivered by BHAGWATI, J. This appeal by special leave raises two questions relating to the interpretation of certain provisions of the Bombay Municipal Boroughs Act, 1925. The facts giving rise to the appeal are few and may be briefly stated as follows The respondents are rate-payers liable to pay property tax in respect of their lands and buildings situate within the limits of the erstwhile Municipal Borough of Dharwar number companyverted into the Hubli Dharwar Municipal Corporation. The Municipal Borough of Dharwar hereinafter referred to as the Municipal Borough was at the material time governed by the provisions of the Bombay Municipal Boroughs Act, 1925 hereinafter referred to as the Act . The Chief Officer of the Municipal Borough prepared an assessment list for the official year 1951-52 companytaining revised valuation and assessment of the lands and buildings situated within the limits of the Municipal Borough and published it on 1st May, 1951 in accordance with the provisions of the Act. The respondents and several other rate-payers filed their objections against the valuation and assessment in the assessment list and companysequent on the decisions on the objections, modifications were made in the assessment list and the assessment list so finalised was authenticated on 24th July, 1952. Since the authentication of the assessment list was made after the expiry of the official year, the respondents and other rate-payers took the view that the assessment list was void and inoperative and the Municipal Borough was number entitled to recover property tax at the revised rates which were higher than the rates charged in the previous official years. It seems, however, that from a few persons, whose names do number appear in the record property tax in accordance with the revised rates was companylected by the Municipal Borough. There was companysequently an agitation amongst the rate-payers and a body called the Citizens Welfare Association championing the causes of the rate-payers addressed a companymunication dated 30th November, 1952 to the Director of Local Authorities requesting him to direct the Municipal Borough to refund the excess amount of property tax companylected from the rate-payers, because according to them the levy and companylection of property tax at the revised rates was illegal in view of the fact that the assessment list was authenticated only on 24th July, 1952 beyond the expiration of the official year for which the property tax was sought to be levied. The Director of Local Authorities by his reply dated 16th December, 1952 informed the Citizens Welfare Association that the levy of property tax under the authenticated assessment list was, according to him, perfectly valid. The President of the Municipal Borough thereafter issued a public numberice dated 10th November, 1954 calling upon the rate-payers to pay immediately all the tax still due from them and extend their full companyperation to the Municipal Borough. Since the Municipal Borough was determined to recover the amount of property tax from the rate-payers at the enhanced rates appearing in the assessment list, the respondents, acting for and on behalf of themselves and other rate-payers, filed a suit against the Municipal Borough on 6th June, 1955. after giving numberice dated 1st April, 1955 on the hypothesis that such numberice was required to be given under s 206A of the Act. The main reliefs claimed in the suit were, firstly, a declaration that the Municipal Borough was number entitled to recover property tax from the rate-payers at the revised rates since the assessment list was authenticated beyond the expiration of the official year and secondly, an order directing the Municipal Borough to refund the excess property tax recovered by it from the rate-payers. The Municipal Borough in its written statement raised a preliminary objection that the suit was barred by limitation since it was number filed within six months of the accrual of the cause of action as required by s. 206A of the Act and it also disputed the claim of the rate-payers on merits on the ground that there was numberhing in the Act which required that the assessment list should be authenticated before the expiration of the official year and that even if the assessment list was authenticated beyond the expiration of the official year, it did number have the effect of invalidating the assessment list. The Trial Court negatived the plea of limitation based on s. 206A of the Act and so far as the merits were companycerned, held that since the authentication of the assessment list was admittedly made beyond the expiry of the official year, the assessment list was void and inoperative and the Municipal Borough was number entitled to levy and companylect property tax at the revised rates on the strength of such assessment list. The Municipal Borough, being aggrieved by this decision, filed an appeal to the District Court, but the appeal was unsuccessful and a second appeal to the High Court also failed. Hence the present appeal by the Municipal Borough with special leave obtained from this Court. The principal companytention that was urged before us on behalf of the Municipal Borough was that on a true companystruction of the relevant provisions of the Act, the authentication of the assessment list, in client to impose liability to tax for the official year even if it is made the official year to which the assessment list relates and it is sufficient to impose liability to tax for the official year even if it is made at any time after the expiry of the official year and, therefore, in the present case, though the authentication of the assessment list for the official year 1951-52 was made on 24th July, 1952 after the expiry of the official year, it was valid and effective and operated to create liability on the tax payers for payment of tax at the revised rates. In order to appreciate this companytention it is necessary to examine briefly the scheme of the Act in regard to assessment and levy of property tax. The tascicunus or section from 78 to 89 deals with assessment of and liability to rates of buildings and lands. These sections set out the procedure which must be followed for levy of rates on buildings and lands. Section 78, sub-s. 1 requires the Chief Officer to cause an assessment list of all lands and buildings in the Municipal Borough to be prepared companytaining various particulars set out in the section. When the preparation of the assessment list is companypleted, the Chief Officer is required under s. 80 to give public numberice of the list and of the place where the list or a companyy thereof companyld be inspected. Simultaneously the Chief Officer has also to give public numberice under sub s. 1 of s. 81 of a date number less than one month after such publication before which objections to the valuation or assessment in such list shall be made. Sub-s. 2 provides for the mode in which the objections must be made and sub-s. 3 provides for the hearing and disposal of the objections by the Standing Committee and the proviso to this subsection permits the powers and duties of the Standing Committee to be transferred to another companymittee or to any officer of the government. This sub-section provides that before the objections are investigated and disposed of, the objector shall be given an opportunity of being heard in person or by an agent and it is only after the hearing the objectors that the objections can be disposed of. When the objections are thus companysidered and disposed of, the assessment list with the modifications which may have been made companysequent upon the decisions on the objections has to be authenticated in the manner set out in sub-s. 4 . Subsection 5 provides that the list so authenticated shall be deposited in the Municipal office and shall be open for inspection during office hours to all rate payers. The companypletion of this procedure leads to certain important companysequences and they are set out in sub-s. 6 which reads as follows Subject to such alterations as may be made therein under the provisions of section 82 and to the result of any appeal or revision made under sec. 110, the entries in the assessment-list so authenticated and deposited and the entries, if any, inserted in the said list under the provisions of sec. 82 shall be accepted as companyclusive evidence- 1 . . . . . for the purposes of the rate for which such assessment-list has been prepared, of the amount of the rate liable on such buildings or lands or both buildings and land in any official year in which such list is in force. section 82 then provides for amendment of assessment list in certain cases. This section is rather material and it may be reproduced in full 82. 1 The standing companymittee may at any time alter the assessment-list by inserting or altering an entry in respect of any property, such entry having been omitted from or erroneously made in the assessment-list through fraud, accident or mistake or in respect of any building companystructed altered, added to or reconstructed in whole or in part, where such companystruction, alteration, addition or reconstruction had been companypleted after the preparation of the assessment-list, after giving numberice to any person interested in the alteration of the list of a date, number less than one month from the date of service of such numberice, before which any objection to the alteration should be made. An objection made by any person interested in any such alteration, before the time fixed in such numberice, and in the manner provided by sub-section 2 of section 81, shall be dealt with in all respects as if it were an application under the said section. An entry or alteration made under this section shall subject to the provisions of section 110, have the same effect as if it had been made in the case of a building companystructed altered, added to or reconstructed on the day on which such companystruction, alteration, addition or reconstruction was companypleted or on the day on which the new companystruction, alteration, addition or reconstruction was first occupied, whichever first occurs, or in other cases, on the earliest day in the current official year on which the circumstances justifying the entry or alteration existed and the tax or the enhanced tax as the case may be shall be levied in such year in the proportion which the remainder of the year after such day bears to the whole year. The next important section is s. 84 which provides for the adoption of valuation and assessment companytained in the assessment list of any particular year for the year immediately following. That section is in the following terms 84. 1 It shall number be necessary to prepare a new assessment list every year. Subject to the companydition that every part of the assessment list shall be companypletely revised number less than once in every four years, the Chief Officer may adopt the valuation and assessment companytained in the list for any year, with such alterations as may be deemed necessary, for the year immediately following. But the provisions of sections 80, 81 and 82 shall be applicable every year as if a new assessment list had been companypleted at the companymencement of the official year. The other sections in this group are number material and it is number necessary to refer to them. It is clear from the scheme of these provisions that the official year is the unit of time for the levy of the tax. The provisional assessment list is prepared for the official year. This may be done before the companymencement of the official year or even thereafter in the companyrse of the official year. Then objections are invited and when made, they are disposed of and amendments companysequential upon the decisions on the objections are carried out in the assessment list. The assessment list is then authenticated. The process of assessment and levy of the tax which begins with the preparation of the provisional assessment list is thus companypleted when the assessment list is authenticated. The assessment list, when authenticated, becomes effective from the first day of the official year and gives rise to the liability to pay tax. It is on the authentication of the assessment list that the liability of the rate-payers to pay tax arises and the tax is levied on the rate-payers. This position would seem to be clear as a matter of plain interpretation and in any event there is a long line of decisions of the Bombay High Court companymencing from Sholapur Municipality v. Governor General 1 and ending has Sholapur Municipal Corporation v. Ramchandra 2 which has companysistently accepted this position and the learned companynsel appearing on behalf of the Municipal Borough did number dispute the companyrectness of these decisions. The only companytention raised by him was as to within what time the assessment list must be authenticated, if it is to be a valid and effective assessment list. It is to this companytention that we must number address ourselves. Now, once we take the view that the process of levying the tax is companyplete only when the assessment list is authenticated and it is only then that the tax is levied on the rate-payers, it is difficult to resist the companyclusion that the authentication must be made within the official year. The tax, being a tax for the official year, must obviously be levied during the official year and since the levy of the tax is companyplete only when the assessment list is authenticated, it must follow a fortiori that the authentication on the making of which alone the levy of the tax is effected, must take place in the official year. Any other view would result in an anomalous and rather absurd situation, namely, that the tax for an official year would be leviable at any time, even years after the expiration of the official year. That companyld number possibly have been intended by the legislature. That would indeed be a strange companysequence in case of a tax which is annual in its structure and organisation and which is intended to be levied for each official year. But, apart from this companysideration, there is inherent evidence in the sections themselves which shows that the authentication was intended by the legislature to be a step which must be taken before the close of the official year. Section 84 provides that it shall number be necessary to prepare a new assessment list every year but, subject to the companyditions that every part of the assessment list shall be companypletely revised number less than once in every four years, the Chief Officer may adopt the valuation and assessment companytained in the list for any year, with such alterations as may be deemed necessary, for the year immediately following. This provision postulates that there would be an assessment list for each official year at the close of that official year, so that the valuation and assessment companytained in it can be adopted by the Chief Officer for the immediately following year. Now clearly the assessment list which can be adopted for the immediately following year is the authenticated assessment list and it would, therefore, seem that the legislative assumption underlying this provision is that in respect or each official year, there would be an authenticated assessment list before the close of that official year, so that the valuation and assessment companytained in it can be adopted by the Chief Officer for the immediately following year. Otherwise, it would number be possible for the Chief Officer to adopt the valuation and assessment of the preceding official year and he would have to prepare a new provisional assessment list every time when the assessment list for the preceding year is number finalised and authenticated and this might lead to the rather startling result of there being several provisional assessment lists for different official years in the process of finalisation at the same time. We should be slow to accept an interpretation which might lead to such a strange companysequence. Then again companysiderable light on this question is thrown by the provision enacted in s. 82. It is a well settled rule of interpretation that the Court is entitled and indeed bound, when companystruing the terms of any provision found in a statute, to companysider any other parts of the Act which throw light on the intention of the legislature, and which may serve to show that the particular provision ought number to be companystrued as it would be alone and apart from the rest of the Act. The statute must be read as a whole and every provision in the statute must be companystrued with reference to the companytext and other clauses in the statute so as, as far as possible, to make a companysistent enactment of the whole statute. Obviously, therefore, section 78 to 81 must be so companystrued as to harmonise with s. 82. They must be read together so as to form part of a companynected whole. Section 82, sub-s. 1 provides for making of an amendment in the assessment list by insertion or alteration of an entry in certain events after hearing objections which may be made by any person interested in opposing the amendment. Sub-section 3 of s. 82 makes the amendment effective from the earliest day in the current official year on which the circumstances justifying the entry or alteration existed. The expression current official year in the companytext in which it occurs in s. 82, sub-s. 3 clearly signifies the earliest day in the official year which is current when the amendment in the assessment list takes place and that expression refers only to the official year which is running at the time when the amendment is made by insertion or alteration of an entry under sub-s. 1 of s. 82. It would, therefore, seem clear, on a companybined reading of sub-ss. 1 and 3 of s. 82, that an amendment, in order to be effective in levying tax for an official year, must be made during the currency of the official year. That is number well settled as a result of several decisions of the Bombay High Court culminating in the Full Bench decision in Sholapur Municipal Corporation v. Ramchandra supra and we do number see any reason to take a different view. Now the scheme of ss. 78 to 81 is identical with that of s. 82 and in both cases what is companytemplated first is a proposal to which objections are invited and after the objections are investigated and disposed of, the assessment list in the one case and the altered entry in the other are authenticated giving rise to liability in the rate-payer. It must follow a fortiori that if an alteration in the assessment list, in order to fasten liability on the rate-payer, is required to be made during the currency of the official year, equally, on a parity of reasoning, the assessment list, in order to give rise to liability in the rate-payer, must also be authenticated before the expiry of the official year. Moreover, it is difficult to behave that the legislature did number intend that there should be any time limit in regard to the levy of tax for an official year and that the tax should be legally leviable at any time after the close of the official year. There is, in our opinion, sufficient indication in the various provisions of the Act to show that the authentication of the assessment list, in order to be valid and effective, must be made within the official year, though the tax so levied may be companylected and recovered even after the expiry of the official year. We may point out that the Karnataka High Court is number alone in taking this view the present case. This view has been companysistently taken by the Bombay High Court in a series of decisions over the years and it has also been followed by the Gujarat High Court. When we find that three High Courts having jurisdiction over the territories in which the Act is in force have all taken this view over a companyrse of years, we do number think we would be justified in departing from it, merely on the ground that a different view is possible. This Court is ordinarily loathe to interfere with the interpretation of a State statute which has prevailed in the State for a long number of years and which the State Legislature has chosen number to disturb by legislative amendment. As a matter of fact, we find that, in the present case, the Bombay Legislature accepted this interpretation of ss. 78 to 81 and gave legislative recognition to it by introducing s. 84A by Bombay Act 53 of 1954. That section provides that where in any year a new assessment list is prepared, or a list is revised, or the valuation and assessment companytained in the list for the year immediately preceding is adopted with or without alteration, such new, revised or adopted assessment list shall be authenticated in the manner provided by section 81 at any time number later than the thirty-first day of July of the official year to which the list relates, and if it is number so authenticated, then the State Government shall appoint such person or persons as it thinks fit to prepare, revise or adopt and authenticate the assessment list, and thereupon such person or persons shall duly authenticate such list at any time before the last day of the official year to which such list relates, and sections 78 to 81 or section 84 shall, as far as may be, apply to the preparation, revision or adoption of the list, as the case may be, by the person or persons appointed by the State Government. It is clear from this provision that the Legislature number only did number amend the Act for the purpose of removing the time limit of the official year or enlarging such time limit, but on the companytrary, made the time limit more stringent by providing that the authentication shall be made by the Municipal Borough number later than 31st July of the official year and if the authentication is number made within that time, the State Government shall be entitled to appoint a person for the purpose of authenticating the assessment list and the authentication by such person shall number. in any event, be later than the last day of the official year. We are, therefore, of the view that the assessment list, in order to be effective in levying the tax, number be authenticated before the expiry of the official year and if it is number, the assessment list would be void and inoperative and number give rise to liability in the rate-payers to pay tax. That takes us to the second companytention urged on behalf of the Municipal Borough based on s. 206A. That section provides inter alia that numbersuit shall lie against a municipality or against any officer or servant of any municipality in respect of any act done in pursuance or execution or intended execution of the Act, or in respect of any alleged neglect or default in the execution of the Act, unless it is companymenced within six months next after the accrual of the cause of action. The argument of the Municipal Borough was that the cause of action for the suit arose in favour of the respondents and other rate-payers on 24th July, 1952 when the assessment list was authenticated and since the suit was number filed within six months from that date, it was barred by limitation under s.206A. This argument is plainly unsustainable. The assessment list being authenticated on 24th July, 1952, after the expiry of the official year 1951-52, was void and inoperative and the respondents and other rate-payers were entitled to ignore it as a nullity. It is only when the Municipal Borough sought to recover the amount of tax from them on the strength of the assessment list, that it became necessary for them to challenge the validity of the assessment list with a view to resisting the demand of the Municipal Borough. Then and then only companyld a cause of action be said to have accrued to them which they were required to enforce within a period of six months. Now, in the present case, there is numbermaterial to show as to when numberices of demand requiring the respondents and other rate-payers to pay the amount of tax were issued by the Municipal Borough or which rate-payers paid the amount of tax and when. It is number possible to say, in the absence of such material, as to when the cause of action for filing the suit arose to the respondents and other ratepayers and whether it arose within six months before the filing of the suit or at a point of time earlier than that. The Municipal Borough cannot, in the circumstances, be held to have established that the suit was number companymenced by the respondents and other rate-payers within six months after the accrual of the cause of action and the plea of limitation based on s. 206A must fail. We are, therefore, of the view that there is numbersubstance in the appeal and it must be dismissed, but in the peculiar circumstances of the case, we make numberorder as to companyts. | 4 |
COURT OF APPEAL FOR BRITISH COLUMBIA
Citation:
R. v. Brown,
2018 BCCA 17
Date:
20180108
Docket:
CA43822
Between
Regina
Respondent
And
Viola Helen Brown
Appellant
Before:
The Honourable Mr. Justice Lowry
The Honourable Mr. Justice Willcock
The Honourable Mr. Justice Savage
On appeal from: An order
of the Provincial Court of British Columbia, dated
January 19, 2016 (
R. v. Brown
, Vancouver Registry 236359).
Oral Reasons for Judgment
Counsel for the Appellant:
V.L. Hartney
Counsel for the Respondent:
M.A. Street
Place and Date of Hearing:
Vancouver, British
Columbia
January 8, 2018
Place and Date of Judgment:
Vancouver, British
Columbia
January 8, 2018
Summary:
The appellant challenges her conviction for
breaking and entering a dwelling house and committing theft therein. She argues
the trial judge misapprehended the evidence and failed to properly assess the
evidence in accordance with R. v. W.(D.). Held: Appeal dismissed. The judge did
not err in apprehending the substance of the evidence; evidence existed which
reasonably supported her findings. Further, the alleged error with respect to
the evidence surrounding the identification of the owner of the stolen items is
immaterial. While the reasons may be brief, the judge clearly considered the
relevant evidence surrounding the appellants mens rea. R. v. W.(D.) does not
mandate a specific form of analysis. Importantly, the trial judge did not
compromise the Crowns burden of proof and the conviction was not based solely
on a rejection of the appellants evidence.
[1]
WILLCOCK J.A.
: Viola Brown was convicted of breaking and entering
a dwelling house and commission of an indictable offence, theft, therein,
contrary to s. 348(1)(d) of the
Criminal Code
, R.S.C. 1985,
c. C‑46, by Judge Bagnall on 11 December 2015. She appeals her
conviction and seeks an acquittal on the grounds that the trial judge erred in
misapprehending the evidence and by failing to properly assess the evidence in
accordance with the principles of
R. v. W.(D.)
, [1991] 1
S.C.R. 742.
[2]
On 16 August 2014, Caitlyn Pantherbone and her friend returned to Ms. Pantherbones
apartment to find the appellant and her two dogs there. They confronted the
appellant, who insisted the apartment was hers. Ms. Pantherbones friend
called the police, at which point the appellant began to leave. As she did so,
a male friend of Ms. Pantherbones arrived. The appellant then asserted the
apartment was his. It was not.
[3]
Two police officers arrived a few minutes later. After locating the
appellant on the street nearby, one police officer questioned, arrested, and
searched her. She was wearing sunglasses on her head and had some make‑up
in her pocket. At the same time, the other officer spoke with Ms. Pantherbone.
He testified that she noted these items were missing from her apartment and
described them accurately. When they were taken from the appellant and
presented to the complainant she identified them as hers. The police also found
many items in Ms. Pantherbones apartment had been moved and put into bags
and small suitcases.
[4]
At trial, the appellant testified in her own defence. She did not recall
being arrested, being in Ms. Pantherbones apartment, or where she had
been before the events described above. She also said she had mental health
issues in the past, following her sons murder.
[5]
On that basis, defence counsel argued that the judge should have
reasonable doubt as to Ms. Browns
mens rea
.
[6]
The trial judge found no basis for an inference that Ms. Brown
didnt know what she was doing as the events unfolded. She found her behaviour
purposeful and responsive to her surroundings. She did not accept the
appellants assertion that the appellant did not recall the events. The
appellants ongoing distress over her sons death, in the view of the trial
judge, did not provide an explanation for her distraction and inability to
recall the night in question.
[7]
In the judges view, the only rational inference that could be drawn
from the evidence was that the appellant committed both offences charged.
[8]
The appellant says the trial judge erred:
a)
In misapprehending the evidence, resulting in a verdict that is
unreasonable, unsupported by the evidence, and a miscarriage of justice; and
b)
In failing to
properly assess the evidence in accordance with the principles of
R. v. W.(D.).
[9]
The misapprehensions alleged and the evidence said to have been
overlooked are set out in paras. 72‑73 of the factum:
72. It is respectfully submitted that the trial judge
misapprehended the following material evidence;
i. finding
that the Appellant left the apartment in response to being told that the police
were being called. The evidence was that even after the police were called, the
Appellant refused to leave, and it took some time for Ms. Pantherbone to
get her to leave. It was not until sometime after Ms. Pantherbone was
screaming profanities at her that she left;
ii. finding
that the sunglasses and make-up belonged to Ms. Pantherbone. The method of
identification was problematic, and the officers may well have influenced
that identification by showing Ms. Pantherbone the items prior to her
determining whether anything was actually missing. Ms. Pantherbone had
other sunglasses and make-up and the evidence was not sufficient to prove
beyond a reasonable doubt that the items actually belonged to her.
iii. the
trial judge overlooked other problems with Ms. Pantherbones testimony,
including that:
a. that she
could not recall and indeed denied, screaming obscenities at the Appellant; (TS,
p. 34, ll. 26-32)
b. she did
not remember a tape recording of the incident; (TS, p. 35, ll. 6-8)
c. she could
not recall where the sunglasses had been in the apartment; (TS, p. 23,
ll. 46‑47)
d. she did
not remember the make of the sunglasses (TS, p. 39, ll. 13 and ll. 39)
e. her very
clear memory of locking the patio door, was contradicted by what was told to
the police officers at the time about being unsure.
vi. the
trial judge did not address the Admission of Fact regarding the cost and
availability of the Marcelle make-up. This Admission supported the Appellants
evidence, and was contrary to Ms. Pantherbones testimony;
vii. the
trial judge misapprehended the evidence as to the Appellants behaviour and
confused mental state. There was extensive evidence about the Appellant
behaviour being non-sensical and unrational, which was not considered by the
trial judge.
73. The trial judge also
overlooked and did not address other evidence including:
i. that
it would make no sense to commit a break and enter and theft with two little
off-leash barking dogs in tow;
ii. the
Appellant did not attempt to flee or evade police;
iii. she
was opening wearing the allegedly stolen sunglasses;
iv. when being questioned by the
officer, her responses were non-responsive and focused on her dogs.
[10]
T
his Court, in
R. v. Mann
,
2014
BCCA 231, described the
legal standard for determining when a
conviction will be set aside based on a misapprehension of evidence:
[
138
] The
legal standard for determining when a conviction will be set aside based on a
misapprehension of evidence was articulated by Justice Doherty in
R. v. Morrissey
(1995),
97 C.C.C. (3d)
193 (O.C.A.)
. He described a misapprehension of evidence as a failure
to consider evidence relevant to a material issue, a mistake as to the
substance of the evidence, or a failure to give proper effect to evidence
(at 218), and concluded that an appellate court has statutory authority
under s. 686(1) of the
Code
to quash a conviction where a
misapprehension of evidence results in a miscarriage of justice (at 219).
[11]
The
appellant alleges both:
a failure to consider evidence relevant
to a material issue; and a mistake as to the substance of the evidence
.
[12]
I
will deal first with the alleged mistakes as to the
substance
of the
evidence.
[13]
The
appellant says the trial judge found that the she left the apartment in
response to being told the police were being called but that the evidence was
that even after the police were called, she refused to leave. The Crown,
correctly in my opinion, points to evidence, particularly the evidence of the
complainant, that the appellant started to leave when she was advised the
police were being called. There does not appear to have been a misapprehension.
There was evidence upon which the judge could reasonably have concluded the
appellant was acting purposively in this regard.
[14]
Second,
the appellant alleges the judge erred in finding the appellant was arrested in
possession of the complainants sunglasses and make‑up. She argues the
method of identification was problematic, and the officers may well have
influenced that identification by showing Ms. Pantherbone the items before
she knew what was missing. In my view, it is not clear that there was a
misapprehension in the trial judges appreciation of the evidence as to
identification of these items. There was evidence (the testimony of Cst. Kim)
consistent with the judges description of events. In any event, there was
other reliable evidence as to the identity of the owner of these items. The
alleged error is not, in my view, material.
[15]
The
alleged failures to consider evidence relate to inconsistencies or shortcomings
in the complainants evidence and the appellants irrational and inexplicable
behaviour.
[16]
In
part, these are complaints with respect to the adequacy of the reasons for
judgment. In substance, both complaints are founded upon the assertion that the
trial judge did not adequately come to grips with the defence that the
appellant did not have the requisite
mens rea
.
[17]
In
my opinion, the inconsistencies or shortcomings in the complainants evidence
were not such as to require explicit reference in the reasons because the
essential facts were not in dispute,.
[18]
Despite the brevity of the reasons, it is apparent that the trial judge
considered the defence submissions with respect to mental health issues (para. 10),
the appellants limited recollection of events (paras. 11‑12), and
her emotional state (para. 13). Having considered those, she held:
[20] Ms. Hartney
submitted on behalf of the accused that I ought to have a reasonable doubt as
to her
mens rea.
There is, on the evidence, no basis for an
inference that Ms. Brown didn't know what she was doing while the events
unfolded. She was found in another persons dwelling, without permission to be
there, and items owned by the resident and her friend had been packed into
bags. Her behaviour at the time, according to the complainant and her friend
and the investigating officers, was purposeful and responsive to her
surroundings. The only rational inferences that arise on the evidence are that Ms. Brown
committed both of the offences with which she was charged.
[19]
The
appellant has not established that the trial judge failed to appreciate the
effect of the evidence or failed to consider relevant evidence.
[20]
Turning to the argument that the judge failed to engage in the
analysis prescribed by
R. v. W.(D.)
: the appellant argues that
the trial judge made an error of the type described in
R. v. T.(S.)
,
2015 MBCA 36. In that case, the Manitoba Court of Appeal dealt with an
appeal from a judgment described by
Mainella J.A. as follows:
[
3
] While making reference to the decision in
R. v. W.(D.)
,
[1991] 1 S.C.R. 742
, the judge then immediately
stated his task in assessing the credibility of the two witnesses in this way:
The question is, whose evidence does the Court prefer?
[
4
] The judge then gave a page and
a half of reasons. He did not undertake a meaningful analysis of the evidence
and the contradictions regarding both witnesses. He simply made the conclusory
statement that he found the accuseds evidence to be unreliable,
untrustworthy, and thus not credible. He then described the complainant to be
compelling, reliable and credible. He briefly addressed deficiencies in her
evidence as to the timing of the incidents and found that they were not
material to her credibility.
[21]
The
case at bar, unlike
R. v. T.(S.)
and
R. v. W.(D.)
,
does not involve diametrically competing versions of events. There was, in
fact, little conflicting evidence. The trial judges conclusion, at para. 20,
that the only rational inferences that can arise on the evidence are that Ms. Brown
committed both of the offences with which she was charged is clearly
not
founded solely upon rejection of the appellants evidence but upon acceptance
of the compelling evidence with respect to the
actus reus
and weighing
of the evidence of
mens rea
.
[22]
As
both the appellant and the Crown have observed,
R. v.
W.(D.)
does not mandate a specific form or
sequence of analysis. As the Supreme Court of Canada noted in
R. v. J.H.S.,
2008 SCC 30,
and this Court noted in
R. v. Mann
,
2010 BCCA 569 at para. 31, not proceeding with the analysis in the
sequence followed in
R. v. W.(D.)
may increase the risk of
error, [but] it is not appropriate for [appellate courts] to instruct trial
judges on how to undertake
W.(D.)
analyses. At the end of the day, this
Court must be satisfied that the analysis was done and that there was no
compromise of the burden of proof that remains throughout on the Crown.
[23]
I
cannot say the burden of proof on the Crown was compromised in this case,
accordingly, I would not accede to the second ground of appeal.
[24]
I would dismiss the appeal.
[25]
LOWRY J.A.
: I agree.
[26]
SAVAGE J.A.
: I agree.
[27]
LOWRY
J.A.
: The appeal is dismissed.
The Honourable Mr. Justice Willcock
| 7 |
WARNING
The President of the panel hearing this appeal directs
that the following should be attached to the file:
An order restricting publication in this proceeding
under ss. 486.4(1), (2), (3) or (4) or 486.6(1) or (2) of the
Criminal Code
shall continue. These sections of
the Criminal Code
provide:
486.4(1) Subject to subsection (2), the
presiding judge or justice may make an order directing that any information
that could identify the complainant or a witness shall not be published in any
document or broadcast or transmitted in any way, in proceedings in respect of
(a) any of the following offences;
(i) an offence under section 151, 152, 153,
153.1, 155, 159, 160, 162, 163.1, 170, 171, 172, 172.1, 173, 210, 211, 212,
213, 271, 272, 273, 279.01, 279.02, 279.03, 346 or 347,
(ii) an offence under section 144 (rape), 145
(attempt to commit rape), 149 (indecent assault on female), 156 (indecent
assault on male) or 245 (common assault) or subsection 246(1) (assault with
intent) of the
Criminal Code
, chapter C-34 of the Revised Statutes of
Canada, 1970, as it read immediately before January 4, 1983, or
(iii) an offence under subsection 146(1)
(sexual intercourse with a female under 14) or (2) (sexual intercourse with a
female between 14 and 16) or section 151 (seduction of a female between 16 and
18), 153 (sexual intercourse with step-daughter), 155 (buggery or bestiality),
157 (gross indecency), 166 (parent or guardian procuring defilement) or 167
(householder permitting defilement) of the
Criminal Code
, chapter C-34
of the Revised Statutes of Canada, 1970, as it read immediately before January
1, 1988; or
(b) two or more offences
being dealt with in the same proceeding, at least one of which is an offence
referred to in any of subparagraphs (a)(i) to (iii).
(2) In proceedings in respect of the offences
referred to in paragraph (1)(a) or (b), the presiding judge or justice shall
(a) at the first reasonable opportunity,
inform any witness under the age of eighteen years and the complainant of the
right to make an application for the order; and
(b) on application made by the complainant,
the prosecutor or any such witness, make the order.
(3) In proceedings in respect of an offence under
section 163.1, a judge or justice shall make an order directing that any
information that could identify a witness who is under the age of eighteen
years, or any person who is the subject of a representation, written material
or a recording that constitutes child pornography within the meaning of that
section, shall not be published in any document or broadcast or transmitted in
any way.
(4) An order made under this section does not
apply in respect of the disclosure of information in the course of the
administration of justice when it is not the purpose of the disclosure to make
the information known in the community. 2005, c. 32, s. 15; 2005, c. 43, s.
8(3)(b).
486.6(1) Every person who fails to comply with
an order made under subsection 486.4(1), (2) or (3) or 486.5(1) or (2) is
guilty of an offence punishable on summary conviction.
(2) For greater certainty, an order referred to
in subsection (1) applies to prohibit, in relation to proceedings taken against
any person who fails to comply with the order, the publication in any document
or the broadcasting or transmission in any way of information that could
identify a victim, witness or justice system participant whose identity is
protected by the order. 2005, c. 32, s. 15.
COURT OF APPEAL FOR ONTARIO
CITATION: R. v. T.H.,
2014 ONCA 906
DATE: 20141217
DOCKET: C56068
Weiler, Feldman and Benotto JJ.A.
BETWEEN
Her Majesty the Queen
Respondent
and
T.H.
Appellant
Timothy E. Breen, for the appellant
Mabel Lai, for the respondent
Heard and released orally: December 10, 2014
On appeal from the conviction entered on July 20, 2012 by
Justice Barry Matheson of the Superior Court of Justice, sitting without a jury.
ENDORSEMENT
[1]
The appellant was convicted of sexual assault, sexual interference and
invitation to sexual touching in relation to two of his nieces, D. and H. He
was also found guilty of making and possessing child pornography. He was
acquitted of all charges relating to his son and his nieces C. and B. He was
sentenced to four years in prison.
[2]
The appellant raises the following grounds of appeal:
(1)
The reasons for judgment are insufficient;
(2)
The separate counts should not have been considered similar fact evidence;
(3)
The trial judge effectively reversed the burden of proof; and
(4)
The trial judge misapprehended the evidence.
[3]
On appeal, the appellant concedes that there is no issue that H. was
sexually assaulted. Her evidence is supported by the circumstantial evidence of
a picture of H. with an adult male penis between her legs on the appellants
computer. There was also an inappropriate picture of H. that had been downloaded
from a camera belonging to the appellant. The images had been deleted and would
not have been accessible to the average user.
[4]
The appellant submits that in relation to H. the issue is the identity
of the adult perpetrator. In this regard, the overarching position of the
appellant is that the identification of the appellant by D. and H. was tainted
by discussion within the family suggesting he was a child molester. These discussions
took place between Christmas Eve 2008, when an inappropriate image of the
complainant D., age 13, was found on the appellants camera and January 8, 2009
when H., age 6, identified the appellant as the perpetrator. The appellant
submits that the evidence of H. and D. (who disclosed about a week later) is
suspect because of the tainting influence of discussions within the family
after Christmas Eve. He further submits that because the children also used his
camera, and other adults had access to his computer, the identification of the
appellant as the perpetrator was not proven beyond a reasonable doubt.
[5]
We reject these submissions. Although this was the position of the
defence at trial, in submissions we note that H. was never confronted in cross-examination
with the suggestion that she had misidentified the appellant. Nor was the
suggestion put to her that she may have felt pressured into identifying the
appellant because of the discussions that took place within the family. Nor
were any such questions put to D. We now propose to deal with the specific
grounds of appeal seriatim.
(1)
Were the reasons for judgment sufficient?
[6]
[R]easons are reviewed for their functionality, not their eloquence,
and must be examined in the context of the entire proceeding, especially the
nature of the evidence heard and the arguments advanced:
R. v. J.J.B.
,
2013 ONCA 268, at paras. 20 and 32.
[7]
Though the trial judges reasons are not a model of clarity, his reasons
adequately explained, in the context of the record as a whole, why he acquitted
the appellant in respect of L., B. and C. and why he convicted the appellant in
respect of H. and D. Regarding the first three complainants, the trial judge
pointed out numerous inconsistencies. Conversely, he found H.s evidence consistent.
There was photographic corroboration of her abuse and she was steadfast in her
assertion that the appellant was the perpetrator. H. was not shaken on
cross-examination. Regarding D., though her evidence was inconsistent in
several respects that did not impact the main issues, the trial judge did not
find that to be unexpected, based on his self-instruction on the approach to
childrens evidence mandated by the Supreme Court:
R. v. B.(G.)
,
[1990] 2 S.C.R. 30. Though
D. denied that the appellant took
inappropriate pictures of her, she did testify that he took pictures of her
almost every time he saw her on a silver digital camera. Rachels evidence as
to the photograph and the camera supported D.s testimony.
[8]
The reasons are adequate. They are capable of appellate review.
(2)
Did the trial judge err by considering the evidence of the complainants
as similar fact evidence?
[9]
Although the appellant suggests that the similar fact application was
abandoned, the Crown simply acknowledged that caution was advisable given the
potential for tainting. The appellant submits that similar fact reasoning was
not available on the cross-counts respecting H. and D. We disagree. H. and D.
described sexual offences with similar characteristics that strongly supported
the improbability of coincidence. These similarities included their
relationship to the appellant, using family events to provide opportunity,
using his bedroom as a venue, having the girls touch his penis, and taking
photographs of them on his camera. H. and D. also said that the appellant
touched their vaginas and on more than one occasion touched his penis to their
vaginas. Although the trial judge erred when he included as a circumstance that
the appellant sometimes licked his finger in relation to touching their
vaginas, this error does not detract from his finding that the appellant
touched their vaginas. This was a judge-alone trial on a multi-count
indictment. Moral and reasoning prejudice was minimal. The Crown established on
a balance of probabilities, that the evidence was probative of live issues at
trial and that its probative value outweighed its prejudicial effect.
[10]
This
ground of appeal is dismissed.
(3)
Did the trial judge effectively reverse the burden of proof and
misapprehend the evidence?
[11]
The
appellant submits that, after instructing himself on the
R. v. W.(D.)
,
[1991] 1 S.C.R. 742,
analysis, the trial
judge skipped the second step of that analysis. We are satisfied that, read as
a whole, the trial judges reasons indicate that although he rejected the
appellants evidence, it also did not raise a reasonable doubt.
(4)
Did the trial judge misapprehend the evidence?
[12]
The appellant submits that the trial judge misapprehended the evidence when
he stated in his reasons, It is not a criminal offence to possess adult
pornography yet apparently it was erased and was only retrievable by the police
using their special equipment. The erasure of these pictures by Travis is an
indication of his state of mind. The appellant submits that the trial judge is
saying that Travis admitted erasing the pictures.
[13]
We
disagree that this is the import of the trial judges comment. The trial judge was
making a finding in the context of all of the evidence, including the evidence
of the expert, that the appellant was the person who had erased the images.
[14]
The appellant also asserts that the trial judge misapprehended an
inconsistency in his attitude towards the children. The appellant says he was
consistent on the point that he avoided the children at family gatherings because
they were undisciplined. We do not agree. The appellant acknowledged that he
would be in his room with the female children playing and dancing and that he
would go into L.s room when the other children were there. The trial judge did
not misapprehend the evidence in any significant way.
[15]
Accordingly,
for the reasons given, the appeal is dismissed.
K.M. Weiler J.A.
K. Feldman J.A.
M.L. Benotto J.A.
| 0 |
Leave granted. In view of the explanation given in the application for restoration of special leave petitions dismissed on 11th December, 1996 for default of number appearance of the companynsel, although the case was called out twice, the order is recalled. We have heard the companynsel on merit. The appellant Association claims promotions of pollution Level Test Inspectors on par with Motor Vehicles Inspectors under the Motor Vehicles Act. Pursuant to a representation made by the appellant to open a channel of promotion to them , the Tribunal by order dated April 24, 1992 had directed the respondents to create posts and provided suitable promotional avenues and to set time for the said purpose. In the meanwhile, when the junior Motor Vehicles Inspectors were being companysidered for promotion by the D.P.C. as Motor Vehicle Inspectors, the appellant filed a petition in the Tribunal for implementation of the judgement and pointing out the companytempt. Since the respondents, in the meanwhile, promoted motor Vehicle Inspectors, the appellant filed the application stating that the respondents had violated the order of the Tribunal. In the meanwhile, the Government have turned down the proposal for creation of the avenues for promotion of Anti-Pollution Level Test Inspectors. The appellant again filed a petition for companytempt which was dismissed. Thus this appeal by special leave. It would been seen that, admittedly, members of the appellant-Association are Technical Anti-Pollution Level Test Inspectors. Under the Motor Vehicles Act, the cadre of Motor Vehicle Inspectors has statutory base and, therefor, the Motor Vehicle Inspectors are distinct from T.A.P.L.T. Inspectors represented through the appellant-Association. When we had put a question to Shri Krishnamani, learned senior companynsel, whether the appellants are entitled to claim under the statutory rules, to be on par with junior Motor Vehicle Inspectors, he admitted that they are number members of the same cadre or service and are number governed by the Rules. Therefore, they cannot have any parity with a statutory cadre officers. It would be for the appropriate Government to take policy decision. The Tribunal is number companypetent to give directions to lay down the policy or to issue directions to create promotional avenues. | 7 |
Peter Smith J:
INTRODUCTION
This judgment arises out of a final determination of an application by Order made by Rimer J on 12 January 2005 being an application by the Claimant ("Fusion") to restrain the Defendant, Venture Investment Placement Limited, ("Pertemps") from appointing receivers in respect of the Fusion Debenture dated 5th September 2003 entered into between Fusion and Pertemps.
This is but one of several skirmishes between the parties. I have on a number of occasions expressed my dismay at the inability or unwillingness of the parties to address the various issues which currently affect their relationship. I went so far as ordering a stay for a three-week period on 25th February 2005 for the purpose of mediation. That was not successful. On 23rd March 2005 when this matter went part heard to the 19th April 2005 in circumstances which I set out below I further indicated that the parties really ought to resolve their disputes by mediation or settlement. That too appeared to be unsuccessful. I, of course, do not know whether and to what extent the mediations took place and to what extent and why they failed as those matters are not properly within my domain.
Nevertheless, the position remains that the resolution of this application by Order does not begin to address all the issues between the parties. Pertemps have issued two petitions for winding up of Fusion (Petition No 3072 of 2004 presented on 10th November 2004 in Birmingham and Petition No 7481 of 2004 presented on 6th December 2004 in London). In either of those petitions it would have been open to Pertemps to seek to appoint a provisional liquidator if there was any doubt about the way in which Fusion was currently operated or any serious doubts about its true insolvency. Further neither petition was a creditors petition yet neither petition contained an averment that Fusion was solvent and that there would be a surplus for shareholders. In the Birmingham petition a just and equitable dissolution was being sought because of deadlock. Technically Fusion still remains deadlocked because under the terms of a shareholders agreement dated 15th January 2003 a Mr Seear and Mr Hopkins who are the B Directors and B Shareholders and who have conducted this litigation on behalf of Fusion (to which more below) only have a 50% representation at shareholder and board level. The other 50% representation is controlled by Pertemps and they seek to deadlock matters. Thus they have not authorised the present proceedings on behalf of Fusion.
Although the second petition sought buyout orders or orders for sale it also sought an alternative just and equitable winding up and the appointment of an interim manager or alternatively independent non-executive chairman to the Board. No interim application was made to sustain that which is surprising if there is serious doubt about the financial position of Fusion and its continued de facto control by Messrs Seear and Hopkins. That failure on the part of Pertemps in my view is significant. Equally in the London petition Pertemps consented to the standard form of order under section 127IA 1986 permitting Fusion to continue making payments in the ordinary course of its business. Once again if there was any doubt about the financial position of Fusion one would have expected Pertemps not to give such consent but rather raise that and force a section 127 application.
Not to be outdone Fusion itself issued its own proceedings on 9th November 2004. The present application is a satellite part of those proceedings. The claim form issued on 9th November 2004 was wide ranging. Of immediate significance in this part are the Management Services Agreement dated on about 15th January 2003 whereby Pertemps, in exchange for a monthly fee, provided various management services to Fusion and the claim by Fusion to restrain action on the Debenture.
The Management Services Agreement is equally relevant in that the disputes which I have to determine flow from the allegation (which Pertemps deny) that Pertemps committed repudiatory breaches of that agreement which Fusion alleges it accepted thereby absolving itself from further performance thereunder. That acceptance thereby turning the repudiatory breach from being a thing in the water to an accepted repudiatory breach allegedly occurring with the issue of these proceedings.
The Board representatives of Pertemps not unsurprisingly did not consent to proceedings being brought against Pertemps. Accordingly on 3rd December 2004 Gateley Wareing LLP Pertemps' solicitors issued an application for the issue to be struck out or stayed and Messrs Seear and Hopkins be joined as defendants for the purpose of paying costs. The application was based on a contention that the proceedings were not authorised by the Board of Fusion but had been commenced by Messrs Seear and Hopkins who had instructed Maxwell Batley solicitors without authority of the Board so that the actions were not properly constituted and that they therefore pay personally the costs of all the proceedings. On 10th December 2004 Mr Gabriel Moss QC sitting as a Deputy Judge of the High Court acceded to that application and stayed the proceedings save for service of evidence but gave either party on two clear days notice permission to come back before the Applications Court for hearing or further directions. The judge also expressed the strong view, as I understand it, that the parties should resolve their disputes otherwise than in Court. On the same day Mr Moss QC made an order transferring the Birmingham petition to London and adjourned that petition and the transferred petition generally but directed service of points of claim and defence. None of those proceedings is before me.
SUBSEQUENT PROCEDURAL MATTERS
On 12th January 2005 Maxwell Batley on behalf of Fusion issued an application lifting the stay to restrain Pertemps from appointing administrative receivers as threatened in its solicitors letter dated 31st December 2004. That came to be heard by Rimer J on 12th January 2005 and he made directions lifting the stay (limited to permission to make the application and up to the effective hearing of the application) and gave directions for the service of evidence with the application stood over to 20th January 2005 on a supposition that it was capable of being disposed of within two hours including pre-reading. By the time the matter came on before Rimer J on 20th January 2005 it was clear that the two-hour estimate was an optimistic one to put it mildly. Accordingly on that date he stood over the application to be an application by order with a direction for expedition. In so doing Rimer J also delivered a judgment on various issues to which I shall refer further in this judgment.
The adjourned application by order came on before me on 25th February 2005. By that time the issues that remained live ("the Issues") were:(
(a) whether payment of the sum of £23,500 referred to the evidence was tendered and/or made by cheque prior to 31st December 2004; and
(b) whether time for payment of the same was in any event extended to 4th January 2005.
That was on the basis that all other arguments for the grant of the injunction had failed.
In addition it was clear that the question of authority on the part of Messrs Seear and Hopkins to bring the present proceedings was also capable of being argued. A residual matter as to the balance of convenience and adequacy of damages as a remedy was also reserved but in the events that will not arise because there is no question of the Issues not being finally determined. If they are finally determined in favour of Fusion then there is no question of it having an interim injunction; it will be granted a final injunction as regards the Issues. If there are other bases for the appointment of a receiver then that will be covered by any further application that is made in respect of those Issues.
On 25th February 2005 I directed that the Issues be adjourned to 22nd March 2005 with a time estimate of two days and for the service of further evidence with all the deponents to attend for cross-examination. In the interim Pertemps was restrained from appointing or seeking to appoint an administrative or other receiver in respect of Fusion over the final determination of those applications.
The matter accordingly came on to be heard by me on 22nd and 23rd March. During the course of closing submissions I indicated to Mr Collings, who represented Fusion, that it seemed to me his case was in great difficulty as regard the Issues given the fact that on his evidence both Mr Hopkins and an accountant employed by Fusion (a Mr Bennett) were the only people who were able to give direct evidence of the Issue in respect of the £23,500 cheque. The evidence relied on by Fusion at that stage was that of Mr Seear and his evidence was hearsay evidence based on what he had been told by Mr Bennett and Mr Hopkins. This was somewhat bizarre especially in the context of Mr Hopkins who had been present throughout the 2 days hearing. Accordingly Mr Collings applied for an adjournment to lead evidence of those first-hand witnesses. I granted that application but on severe financial terms. The Issues were therefore adjourned part-heard for me to consider the matters finally on 19th April 2005.
This judgment is the judgment in respect of the Issues and the evidence I heard over 22nd, 23rd March and 19th April 2005.
BACKGROUND
I have already set out above shortly the shareholding structure of Fusion. In addition to the shareholding structure and the shareholders agreement and the Management Services Agreement monies were advanced by Pertemps to Fusion under a loan agreement also dated January 2003.
In addition to the loan agreement, of course, Pertemps were entitled to remuneration under the Management Services Agreement (Clause 4) which provided for a base figure of £230,000 per annum exclusive of VAT, charged on a monthly basis. The dispute in respect of the Issues relates to payment of a sum of £23,500 (being £20,000 plus VAT) for management services provided by Pertemps to Fusion for the month of October 2004. Under Clause 4 Pertemps is required to issue an invoice on the last day of each month in respect of the service charge due for the previous month and such invoice is to be paid by Fusion within 28 days of receipt. Initially that would mean that the payment for the October services would fall due on 30th November 2004. In fact a practice developed which meant that the services were not actually payable for the month thereafter. It is accepted for the purposes of the satellite issues that the date of payment, in accordance with Clause 4, for the October services was 31st December 2004.
Merely by looking at the Management Services Agreement no calamitous failure would impact on Fusion if it failed to pay its monthly instalment in accordance with Clause 4. There is a disputes procedure in the Management Services Agreement but Fusion has not disputed that it is liable to pay for the management services of October 2004.
In this context I should say that there is a further potentially wasteful dispute between these parties in respect of the services that were provided for November 2004. Pertemps has already issued an invoice for 2004 services which ought to have been paid by 31st January 2005. It has not been paid. Fusion contends that in respect of November the Management Services Agreement had no effect because by the commencement of these proceedings on 9th November 2004 it had accepted a repudiatory breach. Pertemps denies there has been any repudiatory breach by it and, therefore, the November services were performed by it under the Management Services Agreement. Non-payment (which is accepted) will have the same consequences as non-payment of the October 2004 invoice. It concedes, of course, it performed no services on 29th and 30th November 2004. It contends that the reason it provided no services on those days is because wrongfully and in breach of the Management Services Agreement Fusion required its employees to vacate that part of Fusion's offices in Leeds that it occupied for the purposes of providing services. Mr Tamlyn for Pertemps contends that the failure to provide those two days arises from a breach (not accepted) by Fusion so that the liability for payment remains or alternatively that the failure to provide two days is de minimis. Alive to this difficulty Fusion has now requested a "quantum meruit" invoice for that period. It recognised belatedly that it could not seriously continue to take the benefit of Pertemps' services without having to pay for them in some way. It contends, however, that it has rights of set-off against any such quantum meruit claim.
This issue is not before me, but I view with dismay the fact that whatever the result of the present application there will be a further wasteful round of litigation between these parties over another invoice.
One would not ordinarily expect the invoice for £23,500 to attract such detailed litigation. The reason why it does is because of the wording of the Debenture. Clause 1 of the Debenture secures all present and future indebtedness of Fusion to Pertemps and without limitation all sums payable pursuant to the Loan Agreement. It also secures all other liabilities whatsoever of Fusion to Pertemps whether future, actual or contingent.
Under Clause 2 all monies secured are payable on demand unless otherwise agreed in writing from time to time. Thus under the Management Services Agreement monies due thereunder are secured but cannot be demanded under the debenture provided payment is made in accordance with the Management Services Agreement.
Under Clause 8 of the Debenture all of the monies due thereunder become forthwith payable and all rights of Fusion to deal with any asset cease upon (inter-alia) Fusion making defaults in payment on the due date of any money which may become due under the debenture or under any deed or document supplemental hereto or thereto. There are other provisions enabling payment to be made if there is inability to pay debts or threatening to cease carrying on business. For the purpose of the Issues the only point was the consequence of failure to make payment on a due date. Finally Clause 16 of the Debenture provides:
"the monies hereby secured shall be paid and this Debenture shall be transferable without regard to any set off cost claim or equities between the Company and the original or any intermediate holder of this Debenture and the receipt of the sole holder or of joint holders shall be a good discharge to the Company."
I determined that Clause 16 of the Debenture referred to above meant that sums due under the Management Service Agreement were secured, payable on demand if not paid in accordance with any other agreement and that there was no right of set-off in respect of the management services payments for example in the case of breach allegedly committed by Pertemps.
It follows therefore that if the monthly instalment for October 2004 was not paid by 31st December 2004 all of the monies at the election of Pertemps secured under the Loan Agreement became payable. That would mean that (apart from allowing a short period for Fusion to obtain the finance to redeem the Debenture) it would have to repay all the indebtedness to avoid the appointment of receivers.
DEMAND
On 30th December 2004 Fusion received a demand from J E Baring & Co solicitors on behalf of Pertemps Investment Ltd demanding £129,407.78. That included the sums due for the services provided in October 2004. This letter was referred to by Mr Seear in his fourth witness statement dated 18th February 2005 (paragraph 20) but not exhibited. It was produced for the hearing on 19th April 2005. Upon receipt of that demand Fusion's accounts personnel checked to see (inter-alia) whether the £23,500 cheque had cleared its bank account with The Royal Bank of Scotland. It had not. Accordingly the Directors authorised a payment on 31st December 2004 which was transferred to Pertemps bank account on 4th January 2005, the next working day.
The J E Baring letter says:(
"We have been given instructions to write to you to give your (sic) four working days notice that unless our clients overdue account in the sum mentioned above is paid to them within that period then we have instructions to proceed with the presentation of a petition for the compulsory winding-up of your company which step we do not wish to take if it can possibly be avoided. "
This letter goes to the second issue, namely whether an extension of time was given. If that letter is a valid extension of time for the payment, then payment on the 4th of January 2005 (on the unchallenged evidence that the letter was only received on 30th December 2004) is within time.
FURTHER DEMAND
On 31st December 2004 Gateley Wareing on behalf of Venture Investment Placement Limited (formerly known as Pertemps Group Limited) served a detailed and comprehensive letter seeking £53,392.74 being a balance said to be due of a sum of £96,958.47 giving credit for a payment of £40,825.25. Once again that figure includes the £23,500 for the October services.
However, in this case the letter carried on "our clients therefore take the view that on the terms of Clause 8 of the Debenture having become effective your clients are now due to repay forthwith the entire amount outstanding to VIPL both under the terms of the Loan Agreement and otherwise. The loan now stands at £1,071,000 and that together with the amount due in (i) above constitutes the amounts due for payment.
Unless this payment is received no later than close of business on Tuesday 4th January 2005 our clients will take steps to secure the appointment of administrative receivers."
It is accepted that for the purpose of this demand, as I have set out above, the only issue is as to the sum of £23,500. According to the Management Services Agreement, as varied, that should have been paid on 31st December 2004. The Loan Agreement monies are only triggered by reason of that non-payment by 31st December 2004. As I have set out above payment was only effectively made on 4th January 2005. Accordingly, Pertemps argue that the loan agreements have become due and that they had to be paid by 4th January 2005 to avoid the appointment of receivers. No such payment has, of course, been paid (as Fusion cannot at this stage repay the Loan Agreement) so that Pertemps submit that it is entitled to appoint in the absence repayment of the entirety of the indebtedness secured by the Debenture.
The collapse of the house of cards flows entirely from the non-payment of the sum of £23,500 accordingly.
RIMER J's JUDGMENT 20TH JANUARY 2005
In paragraph 9 of the judgment Rimer J made the (regrettably) oft repeated cri de coeur from judges in this Division dealing with interim applications in respect of the late delivery of skeleton arguments. The authority point was taken late by Pertemps without notice either to Fusion or the Judge. That sabotaged the hearing date. Rimer J expressed a provisional view (paragraph 15) that Maxwell Batley had authority to act for Fusion for the purposes of the present proceedings. He also expressed a provisional view (paragraph 16) that no event of default was established under 8.4 and 8.6. That has been the position further as the result of the hearing before me.
Finally he addressed the question as to whether or not there was an acceleration under Clause 8.1. In paragraph 20 he expressed the view that he doubted the correctness of Mr Collings' argument about the inter-relation between Clause 1 and Clause 16 but was not prepared to say there was not at least an arguable case on construction that Mr Collings was correct. He accordingly granted the injunctive relief.
Both parties accepted that Rimer J's views were provisional. I determine the construction issue against Mr Collings on the 23rd February 2005 despite Rimer J's tentative view. The authority issue remains open and I determine that further in this judgment below.
THE ISSUES
There are, as I have said, in effect three issues to be determined:(
1. Did Pertemps receive the payment of £23,500?
2. Was time for payment extended to 4th January 2005?
3. Are the present proceedings on behalf of Fusion authorised?
By far the most difficult issue to determine is 1. That is where the bulk of the evidence and the submissions were concentrated. I will deal with that last in this judgment.
ISSUE 2 ... EXTENSION OF TIME
I do not accept that the letter of 31st December 2004 can be construed as giving Fusion time to make the £23,500 payment until close of business on 4th January 2005. It is quite clear in my view that the phrase "unless this payment is received …" refers to the sums due under the preceding paragraph. All of those sums are sums where the payment is accelerated by reason of the failure to make the payments due under other arrangements. If one refers back to item (i) that refers (by implication) to the £23,500 sum due on 31st December 2004. The letter after the three enumerated claims then said that Clause 8 had become effective and they are due to repay forthwith the entire amount. That is only correct, as regards the Loan Agreement, if the 31st December 2004 deadline in respect of the £23,500 passes without payment. It seems to me plain that the letter is giving notice that the money has to be paid on that day, in events that have happened, and if it is not so paid then the trigger will bring into play the Loan Agreement and that sum, and all other outstanding sums, are not paid by 4th January 2005 then the receivers can be appointed.
Conversely, in the events that have happened, if the sum of £23,500 has been paid it is plain there can be no residual entitlement to appoint receivers as the £23,500 debt has been paid on its due date and there can, therefore, be no acceleration.
I therefore reject the contention on the part of Fusion that the letter of 31st December 2004 gave an indulgence to the 4th of January 2005.
The J E Bearing letter, however, is an entirely different matter. Although it is addressed as coming from a different company in the Pertemps Group it makes a claim in respect of the same debt. Equally as Mr Tamlyn pointed out in his closing submissions it referred to the threat to present a winding-up petition. However, the winding-up petition is clear on the face of the letter as only being presented on the basis that the monies have not been paid by 4th January 2005. It follows that that letter, upon its receipt, could only have given the impression that provided the monies the subject matter of that demand are paid by the 4th of January 2005 no further action would be taken. As I have said that included the sum of £23,500. If Fusion is given until 4th January to make the payment of £23,500 and it does so, I do not see it can be said to be an event of default for the purposes of the Debenture. It would be bizarre in the extreme, in my view, if Pertemps gave with one hand and took away with the other. It does not work when one looks at the Debenture. Under Clause 2 of the Debenture all monies secured thereunder (including the Management Services Agreement as I have set out above) are due and payable on demand unless otherwise agreed in writing from time-to-time. It is plain to me that the letter of J E Baring is an agreement in writing enabling Fusion to have until four working days from the service of that letter to make the payment. Having made that payment there is no right to make that sum payable on demand on 31st December 2004. Upon the sum being paid in accordance with the letter there is no default under the Management Services Agreement and there is, therefore, no right to make any accelerated demands for any other sums secured under the Debenture.
It follows, therefore, that I am of the view that Fusion had four working days to make that payment from 30th December 2004 and they did so.
This in my view is a just result. The parties were in extensive dispute prior to the demands. Fusion's application to restrain the appointment of a receiver was stayed by the Order of Mr Moss QC. The service of a demand of the complicated nature set out in the letter of 31st December 2004 was plainly an oppressive exercise designed to cause the maximum amount of confusion and put pressure on Fusion. There was no urgency at the time to justify the appointment because, as I have said earlier in this judgment, if Pertemps had any serious doubts about the financial standing of Fusion it has ample scope to make protective applications in the existing proceedings. This was a device designed to pressurise Fusion not in the expectation of obtaining any payment but on creating a false acceleration of the loan and thereby bring about a precipitous receivership. This would of course be beneficial to Pertemps because it would be in a position, presumably, to seek the acquisition of Fusion's assets at a proper price, of course, but it would not have to pay anything for Fusion shares because Fusion shares would have plummeted in value given the receivership. One cannot feel but despair at such tactics. By 31st December 2004 Fusion was faced with two previous petitions, a threat for another one, a stay on its protective application to prevent enforcement of the Debenture and finally two late delivered demands from different solicitors, in respect of differing amounts, with a threat of a further petition or receivership. All of these latter items occurred in the Christmas holiday when it would be expected by those serving the documents that people would be on holiday and access to the Courts would be restricted. This is not the kind of stance that people in the modern world of litigation should take.
Accordingly, I determine Issue 2 in favour of Fusion namely that by the wording of the letter from J E Baring Fusion was given four working days from the 30th of December 2004 to make its payment and such payment was made in accordance with that letter so there was no breach of the Management Services Agreement and no consequential acceleration of the Loan Agreement and no right to appoint receivers under the Debenture.
That is enough to dispose of the issues but it is essential, given the willingness of these parties to lock horns, that I also determine as many issues as possible.
ISSUE 3 ... AUTHORITY
There is no doubt that Fusion's Board did not expressly authorise the commencement of proceedings.
Fusion's shares are owned 55% by managing director Mr Seear, (45%) Mr Hopkins (5%) and a Mr Butcher (5%). These are all "B shares". The remaining 45% "A shares" are held by Pertemps. The B shareholders are entitled to appoint, and have appointed, two directors (Messrs Seear and Hopkins, "B Directors"). The A shareholder (Pertemps) is entitled to appoint two directors and has appointed Tim Watts and Nigel Bacon ("A Directors"). There is no provision for appointment of a chairman or any director with a casting vote. The rights of the shareholders are governed by the Shareholders Agreement.
It is therefore clear that only the Board may resolve to commence proceedings in the absence of any delegation of authority. (See Mitchell & Hobbs (UK) Ltd v Mill [1996] 2 BCLC 102). Nor does Mr Seear as managing director have authority in the absence of any delegation to commence such proceedings (see ibid).
There has been no Board resolution and self-evidently Messrs Bacon and Watts will not agree to commence any action against their company Pertemps.
This is of course bizarre. If Pertemps have behaved wrongly their appointed directors prevent Fusion from rectifying the wrong it will suffer caused by two of its own directors. There are of course ways to circumvent this. First the other shareholders and directors Messrs Seear, Hopkins and Butcher could present a section 459 petition and seek relief to protect Fusion's position in that petition. It could have been done by counter-application in existing petitions. Second they could have brought a Foss v Harbottle application and sought appropriately a Wallersteiner v Moir order to protect the costs. I adverted to this in the two previous hearings and suggested this was a matter of resolving the authority issue. No such applications have been made and Mr Collings boldly in his final submissions before me on 19th April 2005 said "Fusion stands on its position on authority" (albeit reserving the right if the draft judgment was against him to try and cure the position afterwards).
It must be borne in mind, in my view, that blocking of a legitimate cause of action Fusion might bring by Messrs Bacon and Watts given their conflict would in my view be a breach of the fiduciary duty of directors that they owe to Fusion. It cannot be right that they take advantage of their own breach of duty in blocking a legitimate challenge against a company in which they are also interested. The Courts will not allow such a position to happen.
It seems to me plain that Pertemps acknowledged there would be people who would represent Fusion defensively in the proceedings that it brought. That was despite there being no Board resolution.
For the present proceedings equally it seems to me clear that it was contemplated that somebody would represent Fusion to fight the issues. This much is plain for example from the letter of 31st December 2004 which has given rise to the issues. It is not sent to Fusion; it is sent to Maxwell Batley. In that letter Fusion is described as "Your clients". In the final paragraph the letter goes on to refer to the position if payment wasn't made and a challenge was to be made to the power to appoint. The letter says:(
"In view of the Christmas period, we propose to extend the period of notice to 10 am on Tuesday 11th January 2005 [i.e. the notice to keep the appointment]. Should you advise your clients that they are in a position to seek to prevent our clients exercising their rights, we believe this gives you sufficient time to take whatever steps you deem appropriate. Please note however that any application to injunct our clients from exercising their rights should be issued on notice to us as we require to be in attendance before the Court on the hearing of any such application."
In my judgment nothing could be clearer. The indulgence granted there is in contrast, as I have said above, to the indulgence not given in respect of the payments. Nevertheless, the recipient of that letter could only conclude that Pertemps' solicitors expected a response (if necessary) by litigation by Maxwell Batley's clients i.e. Fusion.
On the hearing before Rimer on 20th January 2005, as I have set out above, the question of authority was tentatively considered by him in favour of Fusion. Whilst there was a consent order made on 12th January 2005 dealing with a lifting of the stay (paragraph 2) I do not see that as being a general acknowledgement on the part of Pertemps that the authority issue was by that consent a dead letter. It is the type of consent on an interlocutory basis that is not contractual as set out in the well-known decision of the Court of Appeal in Siebe Gorman & Co Ltd –v- Pneupac Ltd [1982] 1 WLR 185 at page 189 per Lord Denning MR.
Nevertheless in addition to the letter of 31st December 2004 there are significant matters in the correspondence which show that it was plainly contemplated that Maxwell Batley should be allowed to receive instructions to raise a point on behalf of Fusion. As Rimer J observed it cannot be right to allow Pertemps to blow hot and cold on the issue. Having considered that Maxwell Batley were Fusion's solicitors for the purpose of the letter of 31st December 2004 and that letter itself having contemplated an injunctive application to prevent it being implemented, it can only have been on the basis that they well know that Fusion would continue to instruct Maxwell Batley, through the instructions of Messrs Seear and Hopkins, to ensure Fusion was given a fair opportunity to challenge Pertemps' actions.
This is demonstrated by the fact that I have determined against Pertemps the extension of time issue. Had Messrs Seear and Hopkins not instructed Maxwell Batley and had the present application to restrain action on the letter not been taken Fusion would now be in administrative receivership when it would be quite wrong for it to be in that state of affairs. As such state of affairs would have been procured by breaches of fiduciary duty of two of its directors blocking any action it cannot be right that Pertemps should be advantaged by such actions. I cannot believe, therefore, that Pertemps did not expect Fusion to be able through Maxwell Batley to fight this issue.
I therefore accept Mr Collings' submission that proceedings were properly authorised as against Pertemps to challenge to the letter of 31st December 2004.
As regards to the future it seems to me that Pertemps' points are well met from a procedural point of view but should not be used as obstacles to prevent legitimate claims that can and should be brought on behalf of Fusion. The way forward, in my view, hereafter is for Messrs Seear and Hopkins to seek to bring either a derivative action or 459 or other relief complaining about the actions of Messrs Bacon and Watts in blocking legitimate challenges to issues raised by Pertemps.
Accordingly issue (3) is also determined in favour of Fusion.
ISSUE 1 ... PAYMENT
As I have said above this took up the bulk of the time at the hearings before me.
Its resolution involves a consideration of the procedure for paying of bills. Under the Management Services Agreement amongst other things the paying of bills (including the sums due for the services themselves provided) fell to the team provided by Pertemps to Fusion. That team was headed up by Stephen Mogano who was the finance director designate for Fusion under the terms of the Management Services Agreement until the dispute over the termination of that agreement arose in November 2004. That team occupied part of the open plan offices of Fusion's Leeds premises until their vacation on 29th November 2004. On that day one member of staff attended for one hour (Mr Neil Packer). Working under and reporting to Mr Mogano were Neil Packer and Robert Daniel. In respect of Pertemps' invoices its head office in Meriden would raise invoices for monies due to Pertemps from Fusion and post them to Fusion's offices at Leeds. Prior to September 2004 Mr Mogano personally raised the invoices for management services only, thereafter (in effect in September and October invoices only) they were raised by Meridan.
The procedure for raising cheques was the same for all creditors (including Pertemps) as follows:(
1. Invoices from all suppliers received by Fusion were entered on the purchase ledger which was maintained in an alphabetical account.
2. Towards the end of the month following the month in which the invoices were received cheques and remittance advices were raised mostly by Robert Daniel in alphabetical order, as per the purchase ledger. However Mr Mogano would deal with the Pertemps Monthly Services Agreement payments. All the cheques would be filled in either by Mr Daniel or Mr Mogano and the cheque stub filled in at the same time and sent to Fusion's office in Horsham on the same day or perhaps later depending on the number of cheques and the number of envelopes.
When Mr Mogano raised a cheque he would write on the invoice the words "Pay" or "Paid" along with the cheque number and the date of the cheque to avoid the cheque being raised for the same invoice a second time. It is clear, however, that he did not necessarily put on the cheque stub the date he was filling out the cheque but rather put the date he expected the cheque to be paid. Thus the £23,500 due for the October 2004 services the invoice in question for the October 2004 services is No SIJ/052. A number of copies were in the papers before me. One copy had handwritten on it "pd chq 12396 30.11.04". As Mr Mogano said in his evidence he wrote that on that copy invoice when he raised the cheque. Confusingly a further copy of the invoice was also produced. That had the words "paid 28/10/04" on it but crossed through and instead "paid 4/1/05". Mr Mogano's evidence at the trial of the issues showed that he wrote these on these invoices for the purpose of the proceedings. Mistakenly he put 28/10/04 as part of a sequence of marking invoices for the purpose of the hearing but corrected his mistake on 4th January 2005 being the date when the final payment was received. The cheque was signed by Mr Seear and Mr Hopkins but it was completed by Mr Mogano and dated by him 30th November 2004. He filled it in and dated it either on 22nd or 23rd November in anticipation of being absent on the 24th and following for surgery. He therefore anticipated that the cheque would come back from Horsham duly signed for sending out on 30th November 2004. The cheque number is No 12396.
This cheque was never presented. The dispute between the parties was as to why this cheque was never presented. It was Fusion's case that the cheque was duly completed by the signatures of Mr Seear and Mr Hopkins and returned to Fusion's offices in Leeds for processing by the Pertemps staff no later than 26th November. It was Fusion's case that after the termination of the occupation by Pertemps of that part of the offices on Monday 29th November 2004 they found that part of Fusion's offices to be in a shambolic state. I will refer to this in more detail below. As part of that exercise they found this cheque in a bundle of papers behind Mr Daniel's desk on 7th January 2005. It is their case that they did not realise that the cheque had not been presented until late December following the receipt of the solicitors demands referred to above.
Pertemps' case is that the cheque was either never received back from Horsham before 29th November 2004 or if it was and was left there it was not sent out at the time but was deliberately held back by Fusion because they did not wish to make that payment to Pertemps.
The only possible reason put forward by Pertemps as to why Fusion would not make this payment which was admittedly due was because Fusion had issued proceedings on 9th November 2004 claiming (inter-alia) damages for breach of the Management Services Agreement and repayment of a sum in excess of £400,000. In those circumstances Pertemps suggest that Mr Seear (and it can only be Mr Seear in the light of the evidence) had made a deliberate decision to withhold the payment because he did not wish to make any more payments to Pertemps because he believed that in fact Pertemps in fact owed Fusion money even taking into account sums over which there was no dispute. Thus Pertemps say a set-off was proposed to be exercised in respect of this payment in ignorance of the no set-off provision contained in the Debenture.
The flaw in this argument is how Fusion dealt with claims for monies from Pertemps after November 2004. In a course of increasingly acrimonious e-mails passing between Messrs Seear and Hopkins on the one part and Nigel Bacon on the other Mr Seear in his e-mail of 15th December 2004 confirmed the stance taken in an earlier letter that they would pay for services other than those disputed and asked for the documentation supporting such entitlement which he would then expedite. Mr Bacon replied by e-mail dated 16th December 2004 enclosing a schedule of outstanding invoices with the words "if you have any issues, please let me know otherwise can you please ensure that payment is made by return".
The total sought in this schedule was £112,671.80 including the October services invoice. On 17th December 2004 Mr Bacon requested a date by which payment could be expected as Pertemps had engaged solicitors and were not prepared to wait. On 20th December 2004 he returned to that theme (no payments having been made) with the statement at the end of his e-mail "I have not been advised that we received any money this morning, so non payment may end up determining matters".
Mr Seear passed the statement on to Mr Bennett. He was an accountant engaged on a temporary basis by Fusion to sort out their accounting procedures following the removal of the Pertemps staff. He had no real connection with Fusion although it is true he knew Mr Seear from the past. Mr Tamlyn attempted to make much of the fact that when Mr Bennett attended Fusion's offices in Leeds on 29th and 30th November 2004 he stayed at Mr Seear's flat in Leeds. I can see nothing in this point. Mr Bennett would have been paid £20 an hour plus expenses and staying in the flat is clearly a way of avoiding expenses of hotel accommodation which otherwise would be payable. There is nothing significant in the point.
Mr Bennett then examined the schedule having received it from Mr Hopkins on 21st December 2004. He telephoned Pertemps accounts department seeking copies of the invoices and later on that day he telephoned Mr Seear to discuss the queries. In the light of the queries they decided that a payment of £40,825.25 should be paid to Pertemps by bank transfer, and that was done. Mr Watts (the other "A" Director) was notified of that payment by an e-mail from Mr Hopkins dated 22nd December 2004.
The simple point is that if it was Fusion's position that it did not wish to pay the £23,500 because it believed it had extant set-offs substantially in excess of that it would not have paid the £40,825.25 either. I should also say that it is not suggested that non-payment arose out of an inability of Fusion to make the payment. If it wanted to make the payment it had sufficient funds so to do and did so on 31st December 2004 as soon as it discovered the cheque had not cleared.
It was suggested that the non-payment of the £23,500 arose from Mr Seear's letter of 26th November 2004. In that letter he referred to the particulars of claim issued on 9th November 2004. By the letter he stated that he regarded the Management Services Agreement as at an end and that no further payments would be made by Fusion to Pertemps in that regard although the letter made it clear that in addition to requiring Pertemps staff to leave Fusion's premises by close of play on 1st December 2004 various payments would be made under the Management Services Agreement. In the light of that letter Pertemps removed the staff as I said on 29th November 2004 as set out in Mr Bacon's letter of that date.
There is force in that observation. There are also other oddities about Fusion's stance in respect of the cheque payment. First, whilst the cheque stub showed a cheque having been issued on 30th November 2004 an examination of Fusion's bank accounts with Bank of Scotland for December 2004 would show that cheque had never been presented. I should say that Fusion received daily bank statements. The evidence of Mr Bennett explained the Sage accounting system which operated. When a cheque was raised and allocated and sent out the cheque would be entered in the relevant ledger for the relevant customer with the date it was sent out. The Sage entry when looking at that part does not necessarily show that the cheque has cleared. The bank statement is checked daily and the Sage updated accordingly. As part of that exercise it would be necessary to enter a different part of the Sage programme to look at the reconciliation of the customer invoice register against the reconciliation with the bank statement. It is not a difficult exercise to do and as I have said, on a daily basis, anybody checking the reconciliation with the bank statement would see that the cheque purportedly issued for the October services had not cleared Fusion's bank account.
Mr Bennett in his evidence says that he told Mr Seear on 21st December 2004 that the October invoice had been paid. He deduced this from looking at the cheque stub and the Sage entry but did not perform a reconciliation exercise. His excuse for that was that that would not be normal to do when faced with a large number of invoices. That is a surprising observation given the clear significance of this particular series of invoices as between Fusion and Pertemps. It might well be that he was not aware of the potential significance but he appears to have wrongly told Mr Seear the account had been paid.
However, doubts do not remain there. A surprising point is that if Fusion believed the bill had been charged that they did not tell Pertemps that that was their stance. Even the detailed letter from Maxwell Batley dated 7th January 2005 failed to make that point (although by that time Mr Bennett had discovered on 31st December 2004 that the cheque had not cleared Fusion's bank account). It is a surprising omission as it would have presented Fusion with a perfect opportunity to demonstrate the inadequacy of Pertemps services when they make a claim for a bill which has already been paid. Equally surprising is the fact that Mr Bennett on 22nd December 2004 raised queries over two other items but never explained that the October invoice was not being paid because it had already been paid.
Mr Seear on 1st December 2004 wrote a letter complaining about the state of the part of the premises occupied by the Pertemps employees. In that he stated that Fusion cheques totalling approximately £100,000 which had been returned for distribution some days ago were found stuffed in a filing cabinet buried by other papers. He also asserted that they had since received a complaint from a key client concerning late payment. The latter related to a customer Newsquest. In fact the Newsquest issue had been raised on 25th November 2004 over the telephone while Mr Seear was travelling by train up to Leeds. It did not occur then (ie "since" as said by Mr Seear) as it already had happened. His explanation was "since" was used in a different way when he wrote letters which is hardly an explanation. Equally the number of clients' cheques not paid was one for £110,000 for Preciado. In fact the arrangements were for this cheque at the request of that client to be paid in to the bank. That would have occurred on 29th November 2004 but for the exclusion of the Pertemps staff. Both Mr Packer and Mr Daniel referred to this in their evidence and I accept their evidence. Mr Bennett's evidence contradicted Mr Seear's evidence because he said there were no signed cheques found in a filing cabinet.
Mr Seear gave evidence at the first part of the Issue trial and, as I have said, he had no direct evidence as to the circumstance of the finding of the cheque. His letter of 1st December 2004 was plainly inaccurate and an exaggeration of the state of the premises in my view. It was put to him by Mr Tamlyn that he was lying and that the whole finding of the cheque story was made up for the purpose of the case. With the arrival of Mr Bennett on the second stage of the hearing Mr Tamlyn was forced to make the same point to him. He and Mr Seear denied that.
MR BENNETT
Mr Bennett gave evidence before me on 19th April 2005. He was forced to acknowledge his inadequacy in not checking the reconciliation with the bank statement on 21st December 2004. He was forced in cross-examination to retract his statement in paragraph 7 that the Newsquest cheque had evidently never been sent to Newsquest. It was plainly sent to Newsquest as the unchallenged evidence of Mr Lester and Miss Jennifer Taft-Kirkhope employees of Newsquest shows. Their evidence is that the Newsquest cheque was received on 1st December 2004. However, as a bank transfer had already been agreed with Mr Seear on 29th November 2004 the cheque was returned on 1st December 2004. She drew two lines across the cheque and wrote "void" on it. It follows also that the cheque from Newsquest could not have been bundled up by Mr Bennett when he was at Fusion's Leeds offices on 29th and 30th November 2004 because by then it had not arrived at those offices. Mr Bennett finished his work around mid-day on 1st December 2004. At best he could lamely say the cheque must have arrived in later paper work.
The key point in Mr Bennett's evidence, however, is in respect of the October services cheque. Mr Hopkins in his evidence said that on 6th January 2005 (having been absent for most of the time from early December) returned to Fusion's Leeds offices. He noticed behind Mr Daniel's desk a pile of paper work. How this had been overlooked in the previous four weeks nobody on behalf of Fusion was able to explain satisfactorily. He packaged the documentation up and sent it down to Horsham. It might be because it was underneath an empty box which had previously contained photocopy paper and was thus missed. He noticed there was at least one Bank of Scotland cheque but did not investigate it, nor was he able to explain why he did not notice that when he went to the Leeds premises immediately before Christmas. That package was opened by Mr Bennett the next day and he found the Pertemps cheque No 12396. As I have said he previously on 31st December 2004 told Mr Seear (having for the first time done a bank reconciliation) that the cheque did not appear to have been paid. No mention was made of this in the letter of 7th January 2005 from Maxwell Batley but once again that is an issue as to timing.
At that time Mr Bennett crossed the cheque void. He had done a similar operation earlier to the cheque stub and he realised the cheque had not been paid. Somewhat surprisingly he took no steps to countermand the cheque on 31st December 2004 something he also admitted was an oversight.
There are therefore some unsatisfactory aspects of Mr Bennett's evidence. It must be borne in mind that it is not being said that Mr Bennett made a mistake. In his evidence he frankly admitted to mistakes as to his practise and his submission of facts. He was however quite firm in his evidence that he found the cheque on 7th January 2005. In effect he was being accused of perjury. I found no reason why he would come to Court to lie on this matter. He has no significant interest in the matter and faces considerable risks is he is disbelieved. No convincing reason was put forward by Mr Tamlyn either. I remind myself of the need to approach evidence carefully and not to penalise witnesses when they make mistakes and to avoid applying hindsight on a careful analysis of documented events at trial when the reality is matters can be explained by mistakes. In this context I refer to my summary of the treatment of witnesses in the Case of EPI v Symphony [2004] EWHC 2946 (Ch) and in particular paragraphs 66 and following. I also remind myself of the observations of Lord Nicholls in Re H (Minors) [1996] AC 563 at 586-587 referred to in paragraph 71 of that judgment. I cannot see any reason why I should disbelieve Mr Bennett. He may have made mistakes but I found him credible on the key point about finding the cheque.
I accordingly accept Mr Bennett's evidence that he found the cheque for the October services on 7th January 2005.
PERTEMPS WITNESSES
Of the witnesses called by Pertemps by the time the issue was finalised the only relevant evidence was that of Mr Packer and that of Mr Daniel. Mr Mogano was not on the scene at the time.
It is clear that there was time for the cheque to have been sent to Horsham and returned in the post on 25th November 2004. Mr Tamlyn by reference to an analysis of some of the invoices for the various cheque runs in November when compared with the dates that the cheques cleared suggests that an inference could be drawn that cheques for the latter period (including the Pertemps cheque) might well not have been sent out by 26th November 2004 which was the last day that Pertemps employees worked. I did not find the analysis reliable, as there are so many imponderables. The first of those is that it would not be right to start it by reference to the date stamp on the invoice. Mr Mogano himself dated the Pertemps invoice with the date 30th November 2004 on the 22nd or 23rd. Mr Daniel in his evidence showed that he date stamped all the invoices he received on the 26th with the date 25th November 2004 by mistake. Cheques might well all have been sent out on 26th November 2004 but attempting to draw an inference from the date that cheques cleared the bank account is dependant on the post and the clearing system of a different number of banks. I can see no clear conclusion can be drawn from this pattern to suggest that the Pertemps cheque with others of the latter part of the run remained at Horsham.
Mr Packer's evidence was to the effect that he did not recall any cheques left in Fusion's offices but he did not usually deal with the cheques. As Mr Daniel had to leave early, he sent out all the cheques which had been prepared by Mr Daniel. Not surprisingly he did not recall seeing the Pertemps cheque but believed that had it been received it would have been sent to Pertemps. Significantly, however, Mr Packer had no role in that task and was performing the mechanical task of sending out the paperwork Mr Daniel had prepared. Nevertheless he acknowledged in cross-examination that he did not check what Mr Daniel did and if Mr Daniel had not given him the cheque he would not have processed it or seen it.
Mr Packer's evidence, therefore, provides me with no assistance in reality as to whether or not the October services cheque had found its way into the hands of Mr Daniel.
Mr Daniel's evidence was slightly confused. He changed paragraph 5 of his witness statement and acknowledged he could have received a mix of cheques on 26th November 2004 beyond the creditor letter K or L. It was possible, therefore, that he could have received the Pertemps cheque. In his witness statement he said he did not recall seeing the cheque but said that if it had been received it would have been sent to Pertemps. He would also have date stamped it 25th November 2004. On it being pointed out to him that that would be very odd because the invoice already had "paid 30th November" on it and the cheque was dated 30th November 2004, he said he most probably would have left it until Monday. On further re-examination by Mr Tamlyn he then said that he never saw the invoice and the cheque and if he had have done he would have sent it out. He said he was 100% sure that it did not come in on Friday. This of course contradicted his earlier stance. I found his evidence, therefore, unsatisfactory and unclear on this vital aspect. I do not accept that he would routinely have stamped this invoice with 25th November and sent it out on the 26th. Had he done so it would have been received. However, I do not accept that he did not necessarily receive it. I believe that he has no clear recollection of that invoice but having seen it with Mr Mogano's date handling on it in all probability left it on the floor for treatment on the following Monday. It was then overlooked and found by Mr Bennett. I do not criticise Mr Daniel because when he processed this document it had no significance whatever. His instinctive reaction on being reminded of the date seems to me to be the more probable one, namely that he would have left it for Mr Mogano (who usually dealt with these invoices) to consider in the following week. Mr Daniel's evidence therefore does not contradict Mr Bennett's.
It is not suggested that Mr Bennett was set up by Mr Seear or Mr Hopkins to "find" the document.
Accordingly I conclude on the balance of probabilities that the October invoice cheque was signed by Mr Seear and Mr Hopkins and returned so that it was at Fusion's Leeds office no later than 26th November 2004.
LEGAL CONSEQUENCES IN RESPECT OF CHEQUE FINDING
Mr Tamlyn in his written submission for the hearing on 22nd March 2005 (paragraph 11) submitted that even if the cheque was sent by Fusion before Pertemps staff were removed on 29th November 2004, nevertheless, that was not a sufficient discharge of the October services invoice.
He supplemented this by a further note. The position, to my mind, is relatively clear. First, payment by cheque is generally regarded as being the equivalent to cash (see Nova (Jersey)Knit v Kammgarn [1977] 2 All ER 463 HL).
Acceptance of a cheque by a creditor is not a final acceptance; it is a conditional acceptance on the basis that the underlying debt is suspended until the cheque is either honoured upon payment or dishonoured (see generally Chitty on Contracts, 29th Edition, paragraph 21-704). This does not with respect to Mr Tamlyn seem to address the point. The cheque was, on my finding, in the possession of Pertemps employees. There was nothing more for Fusion to do as it was received by the Pertemps staff for the purpose of processing and onward transmission. If it was not due to be paid Mr Seear would not have signed the cheque and it would not have been returned for the processing. On the evidence I have found that Fusion were not aware that the cheque had not been sent until 7th January 2005. It follows, therefore, that the only reason why the cheque was not paid in was because, on 29th November 2004, when the Pertemps employees vacated the premises they did not take the cheque with them. Mr Packer, for reasons which I have set out in this judgment, may well have overlooked it. Mr Daniel was not there on 29th January 2005 nor was Mr Mogano. Nevertheless, the cheque had been in the possession of Pertemps employees and the only reason, on my findings, why the cheque was not presented was because they left it behind. In those circumstances it seems to me that the suspension implied by the acceptance of a cheque continues until the cheque is presented for payment. Fusion believed, on reasonable grounds, that the cheque was in the possession of Pertemps. It left Pertemps possession because they left it behind in the premises. The suspension therefore continued right up until the alternative method of payment made on 31st December 2004.
To allow Pertemps to rely on that is to take advantage of the failure of their own employees to take the cheque away. If the issue of the cheque had been raised with Fusion there is no doubt in my mind that Fusion would have said that the cheque was to be taken.
It follows therefore that I conclude the first Issue in favour of Fusion.
CONCLUSION
I therefore conclude that there is no basis for appointing receivers in respect of the cheque for the October services. As there is no issue to be tried I will grant a final injunction against Pertemps restraining it from purporting to appoint receivers by reason of the dispute over the October services invoice. The reason is self evident, namely that the debt has been paid within time so that no entitlement to appoint arises and there is no consequential acceleration of the loan monies.
I reiterate again the need for these parties to sit down and resolve the disputes. This exercise has been costly and any further litigation is, in my view, to be firmly resisted. I have already directed mediation and that apparently has been unsuccessful. There is little else I can do except to record my disappointment (to put it mildly) that these parties seem to be intent on fighting issues unnecessarily in the Courts. | 2 |
1. LORD JUSTICE PETER GIBSON: These two appeals raise the question whether an employee who is to be employed on different terms on the transfer of an undertaking to a new employer can claim to have been constructively dismissed by reason of a substantial change in his working conditions to his detriment even if the employer's actions complained of do not constitute a breach of contract. In Rossiter v Pendragon Plc ("the Rossiter case") that is the main point in the appeal. In Crosby-Clarke v Air Foyle Ltd ("the Crosby-Clarke case") other questions turning on the particular circumstances of the case are also raised.
2. In the Rossiter case Norman Rossiter had been employed in Maidenhead as a car salesman from March 1992, first by Target Ford, and, when that company was taken over by Lex Service, later by Lex Ford. In January 1997 Mr Rossiter was promoted to New Car Sales Team Leader. His annual salary in April 1997 was £17,500 and he benefited from a commission scheme which his employer introduced that year, but the employer reserved the right to amend or withdraw the scheme at any time without notice. On 1st October 1997 Lex Ford was acquired by Pendragon Plc ("Pendragon") and it is not in dispute that the Transfer of Undertakings (Protection of Employment) Regulations 1981 ("TUPE") applied to the acquisition.
3. After the transfer Mr Rossiter's title became New Car Sales Executive, but there was no material change in his role or responsibilities or his basic pay. In March 1998 Pendragon revised the commission scheme. The revised scheme was substantially less beneficial to employees like Mr Rossiter. Mr Rossiter refused to sign a new agreement incorporating revised terms of employment which it issued in March 1998 but, nevertheless, Pendragon implemented the terms of that agreement. Mr Rossiter complained that there were a number of changes in his working conditions of which the most significant was the loss of commission amounting to about £3,000 a year. After correspondence between his solicitors and Pendragon in January 1999 and a meeting between Mr Rossiter and a senior manager, on 15th February 1999 Mr Rossiter handed the senior manager a letter, saying that his position had become untenable and he was tendering his resignation.
4. Mr Rossiter applied to an Employment Tribunal ("ET") on 7th May 1999 complaining of unfair dismissal. In his originating application he alleged a fundamental breach of contract by Pendragon which repudiation he accepted. He said that the dismissal was connected with the transfer of Target Ford's undertaking and therefore automatically unfair. Pendragon opposed the application, saying that Mr Rossiter had resigned voluntarily.
5. The ET sitting at Reading, by a decision sent to the parties on 10th February 1999, agreed with Pendragon. They held that Mr Rossiter was not constructively dismissed under the Employment Rights Act 1996 ("the Act") or under TUPE but had resigned voluntarily. They held that the right to claim constructive dismissal could only arise if there had been a dismissal following upon breaches of contract and expressed the view that if there had been no breaches of contract, no cause of action could arise in respect of constructive dismissal under the Act, nor could there be an automatically unfair dismissal under Regulation 8(1) of TUPE. They said that in respect of unfair dismissal under the Act and dismissal under TUPE it must be a condition precedent that there should be a dismissal. They pointed out that 16 months had elapsed since the transfer and before the cessation of employment. They found that Pendragon had not committed any breach of contract and that nothing was done by Pendragon that could not have been done quite properly by Lex Ford. They also found that the changes made did not amount to substantial changes in Mr Rossiter's working conditions to his detriment. They further found that Mr Rossiter clearly affirmed the contract by continuing to work after 1st March 1998. They also considered whether Pendragon's actions cumulatively amounted to a breach of its implied obligation of trust and confidence, but they held that they did not. They concluded that there was no repudiation by Pendragon of the contract and no constructive dismissal.
6. Mr Rossiter appealed to the Employment Appeal Tribunal ("the EAT"). The EAT (His Honour Judge Wilkie QC presiding) in a judgment now reported at [2001] IRLR 256 disagreed with the ET on one point of law, holding that under TUPE in the context of a transfer of an undertaking there is no requirement that there be a breach of contract in order to give rise to an entitlement to resign and claim constructive dismissal. The EAT said that in the case of a transfer of an undertaking, an employee who suffers a substantial change in his working conditions to his detriment has a right to claim constructive dismissal, even if the employer's actions, the subject of complaint, do not constitute a breach of contract. But they dismissed Mr Rossiter's appeal against the findings of the ET that there had been no breaches of contract. The EAT remitted the case to a differently constituted ET to consider the matter on the test which they had indicated was the correct basis under TUPE. In so doing the EAT did not address the fact that the ET had expressly found that the changes did not amount to substantial changes in Mr Rossiter's working conditions to his detriment. Nor did they address the finding that Mr Rossiter had clearly affirmed the contract.
7. The EAT refused permission to appeal to this court, but Sir Philip Otton, considering the application on paper, granted permission. After skeleton arguments had been filed by both sides, Mr Rossiter indicated through his solicitors that he had reluctantly decided to abandon his defence of Pendragon's appeal, and so he has taken no part at the hearing of the appeal. We gave Mr Ian Wright, appearing for Pendragon, permission to amend his grounds of appeal to raise the points not addressed by the EAT to which I have already referred.
8. In the Crosby-Clarke case, David Crosby-Clarke was employed by Air Foyle Ltd ("Air Foyle") as an airline pilot on 21st November 1988 until his resignation on 30th April 2000. Air Foyle carried on business as an air operator and air cargo charter broker, operating first from Luton Airport and later from Stansted Airport. The vast majority of its business involved flying freight for TNT Express Worldwide (UK) Ltd ("TNT UK"), which in 1998 decided to move the hub of its European operations from Germany to Liege in Belgium and to set up a Belgian company, TNT Airways SA ("TNT SA"), which would operate from Liege and take over the operation run by Air Foyle. This involved TNT obtaining an air operator's certificate in Belgium and taking over the planes and those pilots who flew the planes and who wished their employment to be transferred.
9. Mr Crosby-Clarke was born on 5th June 1941. By the end of his employment he had been promoted to Captain and was earning approximately £69,000 per annum. He had a written contract of employment into which he entered on 5th November 1988 and which contained detailed provisions, governing, amongst other things, mobility, hours of duty and flight time limitations ("FTLs").
10. At the end of 1998 Air Foyle knew that TNT UK would not be renewing its contract expiring on 3rd May 2000 with Air Foyle. All pilots were sent a memorandum stating that there would be a transfer on 1st May 2000 of the TNT UK operation under TUPE. Thereafter, considerable information was passed to the pilots concerning the proposed transfer. There was also correspondence between Mr Crosby-Clarke and Air Foyle over a number of concerns of his. TNT SA intended to put transferring pilots under new contracts, and the final version of the draft contract was sent to Mr Crosby-Clarke on 22nd March 2000. This differed from Mr Crosby-Clarke's existing contract in a number of respects including the FTLs which accorded with the requirements of Belgian law. In particular, whereas under the FTLs applicable to Air Foyle, with its principal base of business in the UK, not more than three consecutive flight duties could be imposed by the employer of the employees, nor more than four such duties in any seven consecutive days, under the Belgian FTLs the maximum period of time without a day off was 11 days.
11. On 7th April 2000 Mr Crosby-Clarke wrote to Air Foyle stating that the proposed changes to his contract were substantially to his detriment, and that he was entitled to treat the compulsory transfer of his contract on 1st May 2000 as constructive dismissal. After correspondence and a meeting, Mr Crosby-Clarke on 29th April 2000 wrote to Air Foyle stating that it was totally out of the question that he would be prepared to operate the Belgian FTLs. He would treat his contract as at an end from 30th April 2000, and he confirmed his intentions to claim for constructive dismissal. On 2nd May 2000 Air Foyle wrote to Mr Crosby-Clarke accepting his resignation.
12. Mr Crosby-Clarke applied to an ET on 19th June 2000, complaining of "unfair dismissal/breach of contract" (i.e. complaining in the alternative of wrongful dismissal) and claiming compensation for unfair constructive dismissal and/or damages for breach of contract. Air Foyle resisted the application, asserting that any changes in the terms of Mr Crosby-Clarke's employment by the proposed new contract of TNT SA were permitted by his existing contract and were not a substantial change in his working conditions to his detriment and that he was not dismissed, whether constructively or otherwise.
13. An ET, sitting at Stratford, by a decision sent to the parties on 7th March 2001 held that Mr Crosby-Clarke was wrongfully and unfairly dismissed. They rejected Mr Crosby-Clarke's complaints that some changes were detrimental changes to his working conditions, but in relation to FTLs they agreed that there was a substantial change in his working conditions to his detriment, and they held that this entitled him to resign in circumstances where he could be required to fly on more than three times as many consecutive nights as before. They further concluded that this change amounted to a significant breach, going to the root of the contract.
14. On appeal by Air Foyle to the EAT, the EAT (Her Honour Judge Anne Wakefield presiding) on 3rd October 2001 at a preliminary hearing dismissed the appeal without, we are told, giving a judgment, though granting permission to appeal to this court. The reason for this unusual way of dealing with an appeal would appear from the written reason given by the judge for the EAT's decision to grant permission:
"This appeal would have been allowed to proceed to a full hearing but for the decision in Rossiter v Pendragon [EAT] currently listed for hearing in the [Court of Appeal]".
15. I feel bound to comment that it would have been more helpful to have had a clearer indication of the views of the EAT, when it was not necessarily bound to follow the decision of the earlier EAT and when the point decided by the earlier EAT was not the only point in the appeal.
16. I turn now to the applicable law.
17. In Part X of the Act, section 94 gives an employee the right not to be unfairly dismissed by his employer.
18. In section 95(1) the only three methods of dismissal of an employee by his employer which apply for the purposes of Part X of the Act include:
"(c) the employee terminates the contract under which he is employed (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer's conduct."
19. It is well established that an employee is entitled to terminate his contract of employment without notice by reason of the employer's conduct if:
(1) the employer has acted in repudiatory breach of the contract;
(2)the employee accepts the repudiation; and
(3)the employee has not elected to affirm the contract by continuing for any length of time without leaving his employment (see Western Excavating (ECC) Ltd v Sharp [1978] ICR 221).
20. Council Directive 77/187 ("the Directive") was promulgated for the purpose indicated in one of its preambles:
"... to provide for the protection of employees in the event of a change of employer, in particular, to ensure that their rights are safeguarded."
21. In Section II, headed "Safeguarding of Employees' Rights", Articles 3 and 4 are to be found. Article 3 provides:
"1.The transferor's rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee."
22. Article 4 provides, so far as material:
"1.The transfer of the undertaking, business or part of the undertaking or business shall not in itself constitute grounds for dismissal by the transferor or the transferee. ...
2.If the contract of employment or the employment relationship is terminated because the transfer involves a substantial change in working conditions to the detriment of the employee, the employer shall be regarded as having been responsible for termination of the contract of employment or of the employment relationship."
23. By TUPE the United Kingdom implemented the Directive. A transfer from one person to another of an undertaking situated immediately before the transfer in the UK falls within the scope of TUPE. Regulation 5 prescribed the effect of a relevant transfer on contracts of employment:
"(1)Except where objection is made under paragraph 4A below, a relevant transfer shall not operate so as to terminate the contract of employment of any person employed by the transferor in the undertaking or part transferred but any such contract which would otherwise have been terminated by the transfer shall have effect after the transfer as if originally made between the person so employed and the transferee.
(2)Without prejudice to paragraph (1) above, but subject to paragraph 4A below, on the completion of a relevant transfer-
(a) all the transferor's rights, powers, duties and liabilities under or in connection with any such contract shall be transferred by virtue of this Regulation to the transferee; and
(b)anything done before the transfer is completed by or in relation to the transferor in respect of that contract or a person employed in that undertaking or part, shall be deemed to have been done by or in relation to the transferee.
...
(4A) Paragraphs (1) and 2 above shall not operate to transfer his contract of employment and the rights, powers, duties and liabilities under or in connection with it if the employee informs the transferor or the transferee that he objects to becoming employed by the transferee.
(4B) Where an employee so objects the transfer of the undertaking or part in which he is employed shall operate so as to terminate his contract of employment with the transferor but he shall not be treated, for any purpose, as having been dismissed by the transferor.
(5) Paragraphs (1) and (4A) above are without prejudice to any right of an employee arising apart from these Regulations to terminate his contract of employment without notice if a substantial change is made in his working conditions to his detriment; but no such right shall arise by reason only that, under that paragraph, the identity of his employer changes unless the employee shows that, in all the circumstances, the change is a significant change and is to his detriment."
24. Regulation 8(1) provides that:
"Where either before or after a relevant transfer, any employee of the transferor or transferee is dismissed, that employee shall be treated for the purposes of what is Part X of the Act ... as unfairly dismissed if the transfer or a reason connected with it is the reason or principal reason for his dismissal."
25. The first point that falls for consideration in the Rossiter case is the point on which the EAT allowed the appeal from the ET, that is to say whether in cases involving a transfer of an undertaking an employee can establish a constructive dismissal by reason of a substantial change in his working conditions to his detriment, even in the absence of a repudiatory or other breach of contract. That point is also relevant to the Crosby-Clarke case, because it is contended by Mr Clayton QC for Mr Crosby-Clarke that if the Tribunal erred in finding that there was constructive dismissal, he was entitled to resign on the basis of a substantial change in his working conditions, even if Air Foyle had not acted in repudiatory breach of contract.
26. Mr Wright for Pendragon and Mr Paul Nicholls for Air Foyle submit that the EAT in the Rossiter case erred. They say that on the true construction of Regulation 5(5) no new right to claim constructive dismissal was created and there is no reason why the test for constructive dismissal should vary depending on whether or not the transfer of an undertaking is involved.
27. It is not in dispute that, where a Directive imposes an obligation on Member States to implement its provisions, the implementing measures must be construed, so far as possible purposively, to give effect to the Directive. The proper starting point for construing Regulation 5(5) is the Directive. In construing the Directive the guidance given by the European Court of Justice in Rask v ISS Kantineservice [1993] IRLR 133, is relevant. The European Court of Justice said at page 136, paragraph 27:
"... the Directive is intended to achieve only partial harmonisation, essentially extending the protection guaranteed to workers independently by the laws of the individual Member States to cover the case where an undertaking is transferred. It is not intended to establish a uniform level of protection throughout the Community on the basis of common criteria. Thus the Directive can be relied on only to ensure that the employee concerned is protected in his relations with the transferee to the same extent as he was in his relations with the transferor under the legal rules of the Member State concerned."
28. So too in Collino v Telecom Italia SpA [2002] ICR 38. Advocate General Alber said at page 61, paragraph 93:
"... according to the court's case law the terms of employment may be altered, even to the disadvantage of an employee, if that would have been possible for the transferor too under national law, irrespective of the transfer of the undertaking. Directive 77/187 is intended to protect the employee in his legal relationship with the transferee only to the extent to which he was protected vis-a-vis the transferor under the rules of the member state. It follows that an alteration of the employee's rights by the new employer is permissible to the extent that such an alteration by the transferor would have been possible: Rask ... paras 27 et seq. For if it was possible for the transferor to alter the employee's rights, that possibility cannot be excluded for the future solely by reason of the transfer of the undertaking. The Directive is merely seeking to prevent the transfer as such from being treated as a pretext to worsen the employee's existing position, by reducing or ceasing to grant entitlements already acquired."
29. That guidance strongly suggests that it is unlikely that Article 4(2) is the source of a new right for employees. The structure of Article 4(2) is that if the condition specified in the first part of the Article is satisfied, responsibility for the termination of the contract of employment, or the employment relationship, is allocated to the employer. The wording of the specified condition appears to recognise that a transfer involving a substantial change in working conditions to the detriment of the employee may or may not cause a termination of a contract of employment or employment relationship. That would depend on the domestic law of the Member State. But if it does, the responsibility is imposed on the employer. Mr Clayton submits that Article 4(2) went further. But he in effect rewrites the condition in the Article to provide that a contract of employment or employment relationship is terminable by the employer if the transfer involves a substantial change in working conditions to the detriment of the employee. That is not what the Article says, and if it did it would go beyond safeguarding the rights of employees by conferring a new right.
30. Mr Clayton relies, as did the EAT, on the European Court of Justice's decision in Merckx v Ford Motor Company (Belgium) SA [1997] ICR 352, and in particular the passage at page 370, paragraphs 38 and 39. In paragraph 39 the court said:
"... where the contract of employment or the employment relationship is terminated on account of a change in the level of remuneration awarded to the employee, article 4(2) of the Directive requires the member states to provide that the employer is to be regarded as having been responsible for the termination."
31. The EAT regarded Merckx as justifying reading section 95(1)(c) in a purposive way to comply with the Directive. The EAT said ([2001] IRLR at page 260, paragraph 27):
"The decision of the European Court of Justice in Merckx, in our judgment, is implicitly on the basis that Article 4(2) of the Directive is concerned to place responsibility for termination of a contract of employment or employment relationship on the employer if a transfer of undertakings involves a substantial change in working conditions to the detriment of the employee, and that this is so regardless of whether that change constitutes a breach of contract."
32. Thereby the EAT acknowledges that that was not expressed to be the basis of the decision in Merckx, being only implicit. In my judgment the EAT went too far. Merckx was a case where the whole complaint was of a breach of contract and the remarks of the court must be read in that context. The court said at page 370, paragraph 38, that a change in the level of remuneration awarded to an employee is a substantial change in working conditions within the meaning of Article 4(2), and the court appears to have assumed that such a change would have caused a termination of the contract of employment or employment relationship.
33. When one turns to the language of Regulation 5(5), in my judgment it is made quite clear that no new right was thereby intended to be created. The Regulation preserves rights which arise "apart from these Regulations". The only right to claim constructive dismissal which arises apart from TUPE is the right of the employee to resign when faced with a repudiatory breach of contract by the employer. If there were to be a right to claim constructive dismissal by reason only of a substantial change in working conditions to the employer's detriment, without there being a breach of contract, that would be a new right. That right would not arise apart from TUPE, but only by reason of TUPE. The language of Regulation 5(5) was plainly chosen so as to implement Article 4(2) of the Directive. It was also, in my judgment, intended to be consistent with section 95(1)(c) of the Act. Only conduct by the employer amounting to a repudiation of the contract would entitle the employee to terminate the contract "without notice".
34. The EAT referred to the decision of this court in Humphreys v University of Oxford [2001] ICR 405 as a decision by this court that, where a transfer of an undertaking would involve a substantial and detrimental change in an employee's terms and conditions of employment within the meaning of Regulation 5(5), the employee is entitled to treat his contract as terminated by the employer. With respect, that description of the decision fails to recognise that this court in Humphreys repeatedly said that Regulation 5(5) preserves the common law rights of an employee in respect of a constructive dismissal. There is no acceptance by this court that a new right, additional to the common law right which already existed, was created by TUPE or Article 4(2). On the contrary, as Potter LJ said at page 418, paragraph 31:
"Paragraph 5 [that is of Regulation 5] dealt with article 4 by preserving the rights of an employee arising from the regulation (i.e., all existing common law and statutory rights) to terminate his contract of employment without notice if a substantial change was made in his working conditions to his detriment (i.e., constructive dismissal)."
35. The EAT placed reliance on what was said by this court in Berriman v Delabole Slate Ltd [1985] ICR 546 at page 549, where Browne-Wilkinson LJ said:
"On the transfer of a business, the employees of the transferor become the employees of the transferee. An employee has the right to treat himself as constructively dismissed by any detrimental change in his working conditions (regulation 5(5))."
36. There the Lord Justice was giving by way of background a brief overview of TUPE and the statutory provisions governing constructive dismissal. But there was no issue before the court of constructive dismissal. What the Lord Justice said formed no part of the reasoning for the court's decision on the only point in issue, which was quite different from anything material to the present case.
37. Reliance was also placed by the EAT on remarks made in two unreported EAT cases. In Servicepoint Ltd v Clynes (14th March 1989), Wood J observed obiter, in relation to what Browne-Wilkinson LJ had said in Berriman, that it was interesting to note that reference had been made both to constructive dismissal and Regulation 5(5). Wood J continued:
"It was not necessary for either the decision in Berriman or the decision in this case to equate the wording in Regulation 5(5) with constructive dismissal. It may be that the Regulations should be read as a whole and that where the Regulations have clear wording, then they should be applied, without necessary reference to the principles of constructive dismissal."
38. That is on its face only a tentative expression of opinion. The case is noted in Harvey on Industrial Relations D1/2266, where the editors say of that case that the EAT thought that Regulation 5(5) widened the circumstances in which an employee could leave and claim constructive dismissal. The editors comment:
"It is not clear why that should be so."
39. The EAT, Pill J presiding, in Dabell v Nofotec Ltd (20th February 1992), referred to the obiter remarks of Wood J in the Servicepoint case to Regulation 5(5) and to the remarks of Browne-Wilkinson LJ in Berriman, and expressed themselves as following what they call "the guidance" given by the Lord Justice. The EAT said that the finding of the ET in that case that there was no fundamental breach by the employer entitling the employer to resign suggested that the ET misunderstood the test to be applied under TUPE. I respectfully doubt if Browne-Wilkinson LJ was laying down guidance on the test to be satisfied for Regulation 5(5) to apply, and on this point, in my judgment, Dabell was wrongly decided.
40. The cases therefore relied on by the EAT in the Rossiter case give insubstantial support for the view which they reached. I conclude, after consideration of the Directive and TUPE and section 95(1)(c), as well as the authorities, that the EAT did err in holding that section 95(1)(c) should be construed in a way that enables an employee to claim constructive dismissal where there has been no repudiatory conduct by the employer.
41. In my judgment the test in the Western Excavating case still continues to apply as much to a case involving the transfer of an undertaking as when it does not. In my judgment, therefore, the EAT were wrong to allow the appeal on the ground which they did.
42. I feel bound to add, in acceptance of Mr Wright's additional grounds of appeal, that on the facts found in the case, even if I were wrong about the point of law, it is hard to see how Mr Rossiter could succeed or what purpose was served by remitting the case for a further hearing. The ET's finding that there was no substantial detrimental change to Mr Rossiter's working conditions seems to me one to which in the particular circumstances the ET was entitled to come. Further, the ET was entitled to find on the particular facts that Mr Rossiter had affirmed the contract by remaining in Pendragon's employment 16 months after the transfer.
43. For these reasons, therefore, I for my part would allow Pendragon's appeal, set aside the order of the EAT and restore the decision of the ET.
44. I turn next to the Crosby-Clarke case.
45. Mr Nicholls submits that the ET erred in two respects in holding that Mr Crosby-Clarke had been constructively dismissed:
(1) The ET did not apply the test whether there had been a repudiatory breach of contract, but instead asked the question whether the change in the FTLs was a substantial change in Mr Crosby-Clarke's working conditions to his detriment: see paragraph 30 of the Extended Reasons.
(2) The ET misconstrued the contract.
46. I have already expressed my view of the right test. There is no doubt that the ET did concentrate on the question of a substantial detrimental change to Mr Crosby-Clarke's working conditions. But as I have also noted, the ET concluded in paragraph 31 that the change amounted to a significant breach, going to the root of the contract. True it is that there was no elaboration of that conclusion; but I find it difficult to say that, having considered the changes in working conditions by reference to the terms of the Air Foyle contract and the TNT SA contract, if the ET was right to say that there was a change from what the Air Foyle contract had provided, the ET could not properly conclude that the change amounted to a repudiatory breach.
47. The real question, as it seems to me, is whether the second error for which Mr Nicholls argues is correct. He says that if the ET had applied the right test and asked whether the new contract involved a repudiatory breach, it would have had to conclude that there was no such breach, as otherwise it would have misconstrued the contract. He submits that, just as the Air Foyle contract provides that hours of work are governed by Regulations contained in the Operations Manual and the legislation in force - and that manual sets out provisions derived from the rules laid down by the Civil Aviation Authority in this country - so in the TNT SA contract the hours of duty are governed by regulations contained in the Operations Manual and the legislation applicable to TNT SA; and that manual sets out the minimum legal requirements regarding flight periods and the effect of the governing Belgian rules. He points out that under both contracts the hours are governed by the legislation and the aviation authority rules applicable to the employer, those rules varying according to the principal place of business of the employer air operator. He submits that the relevant contractual terms are the same in both contracts and remain the same even if there are changes in the underlying rules which the contracts impose. Thus, he says, if the Civil Aviation Authority chose or was required by EU law to alter the FTLs to make them the same as the Belgian requirements, Mr Crosby-Clarke would not be able to complain.
48. Mr Nicholls sought to derive assistance from clause 4 of the Air Foyle contract. This was in this form:
"4.1Whilst you will normally be based at Luton International Airport [that was changed to Stansted Airport], the Company reserves the right at any time during the course of your employment to require you:
a.To work in any place overseas subject to negotiation.
b.To serve any holding associated or subsidiary company of the Company.
c.To serve any company, firm or person to which the Company is under contract.
...
4.3In the event of any of the matters referred to in Clause 4.1 applying you will nevertheless remain employed by the Company under the terms herein..."
49. Then some exceptions are provided.
50. The TNT SA contract was in similar form, save for substituting "Stansted" for "Luton" and omitting the words "subject to negotiation" in paragraph 4.1(a). Mr Nicholls pointed out that the "company" or "firm" or "person" referred to in clause 4.1(b) and (c) might be based in a country outside the UK and that the applicable FTLs might be different from those for Air Foyle, with its principal place of business in this country. But Mr Crosby-Clarke has not in fact been required to serve any such company, firm or person. It seems to me that this issue must be determined by reference to whether Air Foyle itself could, within its contract with Mr Crosby-Clarke, have required observance of the Belgian FTLs. It is not in dispute that if it could have so required, it cannot have been in breach of contract that Mr Crosby-Clarke should have been required to observe the Belgian FTLs under the TNT SA contract.
51. The point in question turns on the provisions of clause 6.1 of the Air Foyle contract:
"Your hours of duty are governed by:
a.The regulations contained in Part 1 - General of the Company's Operations Manual
b. The Government legislation in force."
52. This is to be compared with clause 6.1 of the TNT SA contract, which is in the same terms, that is to say that paragraph (b) is worded:
"Legislation applicable to TNT SA."
53. Mr Nicholls submits that "the Government legislation in force" means the governmental legislation which is from time to time in force, that being legislation applicable to Air Foyle, wherever it was based, and was not necessarily confined to UK governmental legislation. Thus he says that if Air Foyle chose to base itself in Belgium, in order to be able to operate it would have needed a Belgian air operator's licence and would have been obliged to comply with Belgian FTLs. The hours of duty compliant with the Belgian FTLs would, he submits, be covered by clause 6.1(b). He argues that it must be open to every company carrying on business to choose where it should carry on business and where it should be based, and that an employment contract is not one apt to contain a fetter on such business choice. He, of course, accepts that an employment contract is likely to cover such matters as whether an employee could be required to work abroad. It is not in dispute that Mr Crosby-Clarke could not have been required to serve overseas without prior negotiations (see clause 4.1(a)), which appears to imply that his consent would have been needed for such requirement to be implemented. But that is not a problem in the present case, the TNT SA contract providing, as I have noted, for Mr Crosby-Clarke to be based at Stansted.
54. Mr Clayton submits that in the context of a UK company operating from the UK, the reference to "the Government legislation in force" must be construed as a reference to UK legislation. Moreover, he says that it means the UK legislation in force at the time of the contract.
55. I prefer Mr Nicholls' submissions. I have no hesitation in rejecting Mr Clayton's submission that in clause 6.1(b) "the Government legislation in force" means that legislation in force at the time of the contract so that it is immutably set in stone. That would be absurd in a commercial contract against the background that the operations of an air operator based in a country are heavily regulated by that country so as to ensure compliance with safety standards which from time to time are seen to be appropriate. There could be no point in providing that, even if the relevant regulations had changed, the hours of duty were to be governed by the obsolete regulations.
56. Mr Clayton accepts that there is no obligation under the Air Foyle contract that Air Foyle would not move its base abroad. He concedes that it was open to Air Foyle to base itself wherever in the world it chose. In my judgment he was right so to concede. It must be open to every company to choose the place where it wishes to carry on business. In the case of a company like Air Foyle, carrying on an international freight business, that must have been obvious to pilots and Air Foyle alike. But that has the consequence that, if Air Foyle chose to move its principal place of business abroad, different legislation of the country to which it moves may well become applicable, with consequent changes in the FTLs which then become applicable. In these circumstances it seems to me improbable in the extreme that in this commercial contract Air Foyle should have promised to its employee that its employee would only serve hours which conform to the UK legislation and, in particular, the FTLs applicable to a UK operator.
57. In clause 3.5 the employee was required at all times during his employment to comply with all requirements of law and/or governmental or other competent authority. That must mean the requirements from time to time applicable during the employment, the requirements being the legal or regulatory requirements which pertain; and again it does not make sense to limit the requirements to UK requirements if the company is free to choose to move its base abroad so that the requirements of the foreign country become applicable. It is pertinent to note that the possibility of FTLs changing, whether in a way more or less onerously for the pilot, is always present under the Air Foyle contract, even while Air Foyle is based in the United Kingdom. Indeed, harmonisation of FTLs may well be occurring soon so as to eliminate any difference between English and Belgian FTLs.
58. In my judgment, because it is essential for an air operator to comply with the legislation applicable to it, clause 6.1(b) should not be read in the way Mr Clayton submits, as Air Foyle could at any time choose to move its principal place of business abroad, such as to Belgium, with the consequence that the Belgian legislation and FTLs would become applicable. Clause 6.1 does not permit Mr Crosby-Clarke in that event to refuse to accept that his duty hours would be those prescribed by the Belgian legislation in force, nor to object to the Belgian FTLs.
59. I conclude that the ET was wrong to find a breach of contract in Mr Crosby-Clarke being required to enter the TNT SA contract incorporating reference to Belgian requirements. I confess that I reach this conclusion with some regret, as I can well understand and sympathise with Mr Crosby-Clarke's reluctance at his age to commit himself to a contract under which, at least in theory, he could be required to work up to 11 consecutive duty days at a time. But for the reasons which I have given, there is no breach of contract in a contractual provision which permits of that possibility. Still less is there a repudiatory breach.
60. Accordingly, in my judgment there was no constructive dismissal by Air Foyle. I would, therefore, allow the appeal, set aside the EAT's and the ET's orders and dismiss Mr Crosby-Clarke's originating application.
61. LORD JUSTICE JONATHAN PARKER: I agree with the orders which my Lord has proposed in each of the two cases, for the reasons he has given.
62. SIR CHRISTOPHER SLADE: I also agree.
Order:
(1) We allow Pendragon's appeal, set aside the order of the EAT and restore the decision of the ET. No order as to costs. Application for permission to appeal refused.
(2) We allow Air Foyle's appeal, set aside the EAT's and the ET's order and dismiss Mr Crosby-Clarke's originating application with costs.
(Order does not form part of approved judgment) | 2 |
SECOND SECTION
CASE OF APEH ÜLDÖZÖTTEINEK SZÖVETSÉGE AND OTHERS v. HUNGARY
(Application no. 32367/96)
JUDGMENT
STRASBOURG
5 October 2000
FINAL
05/01/2001
In the case of APEH Üldözötteinek Szövetsége and Others v. Hungary,
The European Court of Human Rights (Second Section), sitting as a Chamber composed of:
MrC.L. Rozakis, President,MrA.B. Baka,MrB. Conforti,MrG. Bonello,MrsV. Strážnická,MrsM. Tsatsa-Nikolovska,MrE. Levits, judges,and Mr E. Fribergh, Section Registrar,
Having deliberated in private on 14 September 2000,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 32367/96) against the Republic of Hungary lodged with the European Commission of Human Rights (“the Commission”) under former Article 25 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by an unregistered association, APEH Üldözötteinek Szövetsége, and three Hungarian nationals, Mr Péter Iványi, Mr Miklós Róth and Mr Szabolcs Szerdahelyi (“the applicants”), on 29 April 1996.
2. The applicant association was represented by Mr M. Róth (the third applicant), a lawyer practising in Budapest. The Hungarian Government (“the Government”) were represented by their Agent, Mr L. Höltzl, Deputy Secretary of State at the Ministry of Justice.
3. The applicants alleged, in particular, that proceedings concerning the applicant association's registration were unfair, in breach of Article 6 § 1 of the Convention.
4. The application was transmitted to the Court on 1 November 1998, when Protocol No. 11 to the Convention came into force (Article 5 § 2 of Protocol No. 11).
5. The application was allocated to the Second Section of the Court (Rule 52 § 1 of the Rules of Court). Within that Section, the Chamber that would consider the case (Article 27 § 1 of the Convention) was constituted as provided in Rule 26 § 1.
6. By a decision of 31 August 1999, the Court declared the application partly admissible [Note by the Registry. The Court's decision is obtainable from the Registry.].
7. The applicants and the Government each filed observations on the merits (Rule 59 § 1).
THE FACTS
I.THE CIRCUMSTANCES OF THE CASE
8. APEH Üldözötteinek Szövetsége (Alliance of APEH's Persecutees) is an unregistered association with its head office in Budapest. APEH is the commonly used abbreviation for the Hungarian Tax Authority (Adó- és Pénzügyi Ellenőrzési Hivatal – “APEH”).
Mr Iványi, born in 1950 and residing in Nyíregyháza, Hungary, is a manager and a vice-president of the applicant association. Mr Róth, born in 1943 and residing in Budapest, is a lawyer and a vice-president of the applicant association. Mr Szerdahelyi, born in 1943 and residing in Budapest, is a free-lance writer and the president of the applicant association.
9. In May 1993 several private persons, among others Mr Iványi, Mr Róth and Mr Szerdahelyi, founded the applicant association. Its articles of association, dated 28 May 1993, state that the purpose of the association is, in particular, to promote the general interests of Hungarian taxpayers.
10. On 3 June 1993 the President of APEH, having learnt about the founding of the applicant association from the press, complained to the Budapest public prosecutor and the President of the Budapest Regional Court that the choice of name was defamatory for APEH. He requested that particular attention be paid to the proceedings concerning the association's registration and that his office have access to the documents relating to the proceedings. These letters of the President of APEH reached the addressees on 7 June 1993, but were not communicated to the applicants in the subsequent non-contentious proceedings aiming at the applicant association's registration.
11. On 18 June 1993 Mr Szerdahelyi requested the Budapest Regional Court to register the applicant association.
12. On 28 June 1993 the Regional Court returned the request for registration, ordering that APEH's approval for the use of its name be obtained, that the expression “persecutees” in the applicant association's name be altered to a neutral term and that provisions regulating the method of voting within the applicant association's bodies be added to its articles of association.
APEH obtained a copy of this order from the Regional Court before it was served on the applicants and, in a television programme on 9 August 1993, its spokesman presented it.
13. By a letter dated 2 July 1993 the public prosecutor's office intervened in the registration proceedings under Article 2/A § 1 of Law no. 3 of 1952 on the Code of Civil Procedure (“the Code of Civil Procedure”). The Regional Court received this letter on 8 July 1993. The applicants were not notified of this intervention.
14. Following some delays in the service of the order of 28 June 1993, the applicants submitted their reply to the Regional Court on 17 September 1993. They refused to obtain APEH's approval for the use of its name or to alter the impugned expression. Moreover, they stated that the information on the method of voting by the applicant association's bodies was available from their original submissions requesting the registration.
Simultaneously, the applicants challenged the judge in charge of the case, as well as the entire Regional Court, for bias on the ground that, inter alia, they had not been informed about the intervention by the public prosecutor's office in the registration proceedings.
15. On 13 December 1993 the Supreme Court dismissed the applicants' challenge for bias. The Supreme Court found that the Regional Court's procedure had been in compliance with the relevant legal provisions and there was nothing to support the applicants' allegations as to any bias on the part of the Regional Court.
16. On 24 January 1994 the public prosecutor's office proposed to the Regional Court that the applicant association's request for registration be rejected, as the association had not met the requirements in the court order of 28 June 1993. This submission was received by the Regional Court on 25 January and was ordered to be sent to the applicants on 28 January 1994.
17. In their submissions dated 7 January, but filed with the Regional Court only on 8 February 1994, the applicants confirmed that they had meanwhile adopted an amendment to the articles of association, reflecting the Regional Court's requirements as to the voting methods. Moreover, they argued that the requirement that they seek APEH's approval for the use of its name was legally “absurd”.
18. On 10 February 1994 the Regional Court rejected the applicant association's request for registration. It observed that the applicants had not obtained APEH's approval for the use of its name. In this respect, the Regional Court relied on section 7(1) of Law no. 2 of 1989 on freedom of association (“the Associations Act 1989”), according to which the name of an association should not give the impression that the association in question carries on its activities in a manner linked to those of another legal person, unless approved by the latter. Moreover, it held that the expression “persecutees” was defamatory for APEH as a State organ and was contrary to the standards of naming an association, as laid down by the Supreme Court in its Administrative College's Legal Opinion no. 1. Finally, the Regional Court found that the applicant association had only partly met the requirements as to the method of voting by its bodies.
19. The applicants appealed to the Supreme Court. Simultaneously, they complained about the dismissal of their challenge for bias.
20. On 7 July 1994 the Attorney-General's Office intervened in the appeal proceedings and proposed that the Supreme Court uphold the refusal of the request for registration. The applicants did not receive a copy of these submissions.
21. On 2 October 1995 the Supreme Court dismissed the applicant association's appeal. In addition to the reasons given by the Regional Court, it held that the applicant association's name did not correspond to its objectives, namely to reform the Hungarian taxation system, and that it could therefore not be registered under that name. The decision did not deal with the applicants' complaint about the dismissal of their challenge for bias.
The applicants lodged a petition for review by the Supreme Court.
22. On 21 February 1996 the Attorney-General's Office requested that the Supreme Court uphold the second-instance decision.
23. On 14 May 1996 the Supreme Court dismissed the petition for review. The decision was served on the applicants on 20 June 1996.
The review bench of the Supreme Court held that the association's intended name was contrary to Article 77 § 1 of the Civil Code guaranteeing the right to bear a name. It held this provision to imply that a legal person's name should not give the false impression that its activity was linked to that of another legal person, namely, to that of APEH in the instant case. It also found that the unauthorised use of APEH's name contravened Article 77 § 4 of the Civil Code, according to which it was a breach of the right to bear a name if anyone used, without authorisation, a name identical with or similar to another person's name. Moreover, it considered that the expression “persecutees”, used in association with APEH's name, was contrary to Article 78 § 1 of the Civil Code protecting one's good reputation.
Furthermore, the Supreme Court held that any procedural shortcomings committed by the lower courts, in particular those concerning the handling of the submissions of APEH and of the public prosecutor's office, had not influenced the courts' decisions on the merits of the case. It also stated that, throughout the proceedings, the applicants had been in a position to exercise their rights effectively and, in the course of the second-instance and the review proceedings, they could have made any comments which they had not been able to advance previously.
Finally, the Supreme Court pointed out that the applicants' complaint about the dismissal of their challenge for bias could not be examined in review proceedings.
II. RELEVANT DOMESTIC LAW
24. Section 1 of the Associations Act 1989 provides that freedom of association is a fundamental freedom for everyone. It guarantees that everyone shall have the right to form, together with other persons, organisations and communities or to participate in the activities of such associations.
Section 2(2) provides that the exercise of the right to freedom of association may not violate the rights and freedoms of others.
Section 2(3) prohibits the founding of associations primarily for economic or business purposes.
According to section 4(1), as in force when the applicant association's request for registration was examined, subsequent to the founding of an association, its registration must be requested before a court. Registration must not be denied unless the founders have failed to comply with the conditions specified in the Act; associations acquire legal capacity through registration.
Section 7(1) provides that the name and the objectives of an association must not create the impression that the activity it carries on is linked to the activity of another legal person, unless consent thereto is given by that legal person.
According to section 15(3), the courts must decide on requests for registration in non-contentious proceedings; such requests must be given priority. The courts' decisions must also be served on the public prosecutor's office.
25. Article 13 § 3 of Government Decree no. 105/1952 (28 December) provides that in non-contentious proceedings the provisions of the Code of Civil Procedure must be applied, mutatis mutandis, unless the legal provisions governing certain non-contentious proceedings provide otherwise or the non-contentious nature of the proceedings excludes that.
26. Article 77 §§ 1 and 4 of Law no. 4 of 1959 on the Civil Code provide that everyone shall have the right to bear a name; it is a violation of this right if anyone unlawfully uses a name identical with or similar to the name of another person.
According to Article 78 §§ 1 and 2, protection of personality rights includes protection of the right to a good reputation; making or disseminating false or defamatory allegations against other persons or portraying real facts in a false way is deemed to be an infringement of the right to a good reputation.
27. Article 2/A § 1 of the Code of Civil Procedure, as in force in the relevant period, provides that, to ensure compliance with the law, the public prosecutor may intervene in civil proceedings at any stage.
According to Article 2/A § 3, when intervening in civil proceedings, the public prosecutor enjoys all the procedural rights which the parties enjoy, save the rights to negotiate settlements, to waive rights or to acknowledge rights.
28. An extract from Supreme Court (Administrative College) Legal Opinion no. 1 reads as follows: “Before a decision is taken on the registration of an association, it must be examined whether the association's choice of name meets the requirements of the exclusivity, genuineness and correctness of names.”
THE LAW
I.ALLEGED VIOLATION OF ARTICLE 6 OF THE CONVENTION
29. The applicants complained under Article 6 § 1 that the proceedings concerning the applicant association's registration were unfair.
The relevant parts of Article 6 § 1 of the Convention provide:
“In the determination of his civil rights and obligations ..., everyone is entitled to a fair and public hearing ... by an independent and impartial tribunal established by law. ...”
A. Applicability of Article 6 § 1
30. Referring to section 4(1) of the Associations Act 1989, the applicants contended that although the registration proceedings were characterised by domestic law as non-contentious, their outcome had been decisive for the applicant association's capacity to become the subject of rights and obligations – a consideration bringing the case clearly within the ambit of Article 6 § 1. This was even more so since the registration proceedings also involved a genuine dispute with the public prosecutor's office and, at least indirectly, with APEH as to the applicant association's choice of name.
31. For their part, the Government emphasised, relying essentially on sections 1 and 2(3) of the Associations Act 1989, that under Hungarian law the right of association as such was an issue of a public-law character. In any event, according to section 4(1), associations come into existence only through their registration, prior to which they do not have any legal existence at all, this being a circumstance excluding any civil-law implications of the registration proceedings themselves. As to the dispute about the choice of name, the Government were of the view that the domestic courts' decisions in this respect only concerned the public-law question whether or not the name at issue had been in compliance with the public interest, rather than the civil right to bear a name.
32. The Court reiterates that for Article 6 § 1, in its “civil” limb, to be applicable there must be a dispute (contestation) over a “right” that can be said, at least on arguable grounds, to be recognised under domestic law. 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. Moreover, the outcome of the proceedings must be directly decisive for the civil right in question (see Frydlender v. France [GC], no. 30979/96, § 27, ECHR 2000-VII).
33. In the present case, the “right” in dispute was the right to register an association for the purposes of section 4(1) of the Associations Act 1989. The Court observes that this right as such was recognised under Hungarian law, namely under section 1 of the same Act. The proceedings undoubtedly concerned a genuine and serious dispute as to the existence and exercise of that right.
34. As to whether this right is a “civil” one, the Court reiterates that the concept of “civil rights and obligations” is not to be interpreted solely by reference to the respondent State's domestic law. Article 6 § 1 applies irrespective of the status of the parties, the nature of the legislation which governs the manner in which the dispute is to be determined and the character of the authority which has jurisdiction in the matter; it is enough that the outcome of the proceedings should be decisive for private rights and obligations (see, among many other authorities, the Stran Greek Refineries and Stratis Andreadis v. Greece judgment of 9 December 1994, Series A no. 301-B, p. 78, § 39).
35. The Court notes that, for the purposes of domestic legislation, the matter of the right of association itself primarily belongs to the field of public law. On the other hand, the dispute in the present case essentially arose over the application of rules which are contained in Article 77 and 78 of the Civil Code. In any event, these considerations alone are not decisive for the applicability of Article 6 of the Convention in the instant case.
36. The Court observes that, according to section 4(1) of the Associations Act 1989, associations obtain their legal existence only by virtue of their court registration. It follows from this rule that an unregistered association constitutes only a group of individuals whose position in any civil-law dealings with third parties is very different from that of a legal entity. For the applicants, it was consequently the applicant association's very capacity to become a subject of civil rights and obligations under Hungarian law that was at stake in the registration proceedings.
In these circumstances, the Court finds that the proceedings complained of concerned the applicant association's civil rights and that Article 6 was thus applicable in the instant case.
B.Compliance with Article 6 § 1
37. The applicants submitted that their case had involved a genuine dispute with the public prosecutor's office and, indirectly, with the Tax Authority. In such a dispute the domestic courts should have observed the principle of equality of arms. Since, however, the Regional Court had not informed them either of the letter written by the President of APEH or of the submissions filed by the public prosecutor's office at first and second instance and, moreover, had sent a copy of its order of 28 June 1993 to APEH before it had been served on them, the proceedings fell short of the basic requirements of Article 6 § 1 of the Convention. In that connection, they pointed out that the impugned procedure had enabled APEH's spokesman to present the court order in a television programme and, furthermore, that they had never received a copy of the important submissions of 24 January 1994 by the public prosecutor's office. The fact that their complaint about the Supreme Court's dismissal of their challenge for bias had remained unexamined aggravated the unfair nature of the proceedings.
38. The Government asserted that the letter by the President of APEH had reached the Regional Court prior to the introduction of the applicant association's request for registration and had not, therefore, constituted part of the case file.
Furthermore, the Government pointed out that the submissions by the public prosecutor's office dated 24 January 1994 – in fact its only reasoned submission with any bearing on the substance of the case – had been available to the applicants for comment. As regards submissions by the prosecution at second instance and during the review proceedings, the Government explained that these had only reiterated the prosecution's earlier position and that the failure to notify the applicants thereof had been of little importance.
In sum, the Government argued that neither the prosecution's intervention itself nor the courts' handling of their submissions had been such as to render the proceedings unfair as a whole.
39. The Court recalls that under the principle of equality of arms, as one of the features of the wider concept of a fair trial, each party must be afforded a reasonable opportunity to present his case under conditions that do not place him at a disadvantage vis-à-vis his opponent (see the Dombo Beheer B.V. v. the Netherlands judgment of 27 October 1993, Series A no. 274, p. 19, § 33). In this context, importance is attached to appearances (see, mutatis mutandis, the Borgers v. Belgium judgment of 30 October 1991, Series A no. 214-B, p. 31, § 24, and the authorities cited therein).
Article 6 § 1 guarantees in principle the opportunity for the parties to a criminal or civil trial to have knowledge of and comment on all evidence adduced or observations filed, even by an independent member of the national legal service, with a view to influencing the court's decision (see, among other authorities and mutatis mutandis, the following judgments: McMichael v. the United Kingdom, 24 February 1995, Series A no. 307-B, pp. 53-54, § 80; Kerojärvi v. Finland, 19 July 1995, Series A no. 322, p. 16, § 42; and Lobo Machado v. Portugal, 20 February 1996, Reports of Judgments and Decisions 1996-I, pp. 206-07, § 31).
40. The Court notes that the public prosecutor's office and the Attorney-General's Office intervened in the proceedings under Article 2/A of the Code of Civil Procedure. That being so, the Court finds that, notwithstanding the non-contentious nature of the proceedings, the rights in Article 6 § 1 should have been respected.
41. While the Court finds it improbable that the letter from the President of APEH to the President of the Regional Court which arrived well before the introduction of the registration request had any repercussion on the conduct of the judge in charge of the case, the same is not true of the intervention by the public prosecutor's office, of which the Regional Court failed to notify the applicants. Furthermore, the fact that a copy of the order of 28 June 1993 was in APEH's possession before its service on the applicants – enabling APEH's spokesman to present it in a television programme – casts doubt on the fairness of the proceedings.
42. As regards the failure to notify the applicants of the submissions by the Attorney-General's Office at second instance, the Court notes the Government's assertion that these submissions had no bearing on the merits of the case. However, it is to be recalled that the principle of equality of arms does not depend on further, quantifiable unfairness flowing from a procedural inequality. It is a matter for the parties to assess whether a submission deserves a reaction and it is inadmissible for one party to make submissions to a court without the knowledge of the other and on which the latter has no opportunity to comment. It was therefore unfair that the applicants were not notified of the submissions made to the Supreme Court by the Attorney-General's Office (see, mutatis mutandis, the Bulut v. Austria judgment of 22 February 1996, Reports 1996-II, pp. 359-60, § 49 in fine).
43. In view of the above, the Court concludes that the principle of equality of arms has not been respected. It does not find it necessary to examine also the question whether or not the applicants were notified of the submissions of the public prosecutor's office dated 24 January 1994 or whether the Hungarian courts were under a further obligation to examine the applicants' complaint about the Supreme Court's dismissal of their challenge for bias.
44. Accordingly, there has been a violation of Article 6 § 1 of the Convention.
II.APPLICATION OF ARTICLE 41 OF THE CONVENTION
45. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
46. When submitting their application, the applicants claimed in general terms compensation for non-pecuniary damage and costs and expenses. However, subsequently they did not give particulars of these claims, as required by Rule 60 of the Rules of Court, although they were invited to do so.
47. The Court considers that the finding of a violation constitutes in itself sufficient compensation for any non-pecuniary damage suffered by the applicants. That being so, the Court finds that it is not appropriate to make any award under Article 41.
FOR THESE REASONS, THE COURT UNANIMOUSLY
1. Holds that there has been a violation of Article 6 § 1 of the Convention;
2. Dismisses the applicants' claims for just satisfaction.
Done in English, and notified in writing on 5 October 2000, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Erik FriberghChristos RozakisRegistrarPresident
| 1 |
with C.A. Nos. 7259-7261/2003 P. MATHUR, J. These appeals by special leave have been preferred by the Commissioner of Central Excise, Jaipur II, against the judgment and order dated 20.8.2002 of Customs, Excise Gold Control Appellate Tribunal, New Delhi for short CEGAT by which the appeal preferred by the appellant against the order of Commissioner Appeals allowing CENVAT Credit to the respondent M s. J.K. Udaipur Udyog Ltd., on explosives used in mines was dismissed. The assessee carries on the business of manufacturing cement falling under Chapter 25 of the Schedule to the Central Excise Tariff Act, 1985. The assessee has been granted a mining lease by the Government of Rajasthan and the limestone excavated from the mines is used for manufacture of cement. The mining area is at a distance of few kilometers from the plant where the cement is manufactured. Explosives are used for blasting purpose in the mines. During the period April to August 2000, the assessee took CENVAT Credit under Rule 57AB of the Central Excise Rules for short Rules on the explosives used in mines. The Assistant Commissioner, Central Excise, issued a numberice to the assessee on 18.4.2001 on the ground, inter alia, that the explosives used for blasting purpose in the mines had number been used in the factory premises for production or in relation to the manufacture of final product i.e. cement that as per Rule 57AB, the input must be used within the factory of production and, therefore, the explosives do number qualify to be inputs for the manufacture of excisable goods in terms of the aforesaid rule. The assessee was required to show cause why the aforesaid credit taken by him in companytravention of Rule 57AB should number be disallowed and recovered from him under the provisions of Rule 57AH read with section 11A of Central Excise Act and further, why penal action should number be taken under Rule 173 Q 1 bb . The assessee gave a reply to the numberice on the ground, inter alia, that the mining area as well as the cement factory, are number only interdependent, but have a direct nexus with each other that the mining activity and the manufacturing activity cannot be companysidered as isolated events as without mining limestone, the cement plant cannot be run and that for all practical purposes the mining area is an extension of the factory area. The Assistant Commissioner, Central Excise, by his order dated 29.8.2001 disallowed the CENVAT Credit taken by the assessee, but did number impose any penalty. The assessee preferred an appeal, which was allowed by the Commissioner Appeals on the finding that the explosives are inputs in terms of Rule 57AB and CENVAT Credit was allowed. Feeling aggrieved by the order of the Commissioner Appeals , the Revenue preferred an appeal before the CEGAT, but the same was dismissed. The main question to be companysidered is whether explosives used in the mines for blasting purpose can be held to be inputs so as to qualify for taking CENVAT Credit under Rule 57AB. The relevant part of Rule 57AB under which CENVAT Credit can be taken reads as under 57AB. CENVAT credit. 1 A manufacturer or producer of final products shall be allowed to take credit hereinafter referred to as the CENVAT credit of, - the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985 5 of 1986 hereinafter referred to as the said First Schedule , leviable under the Act the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985, leviable under the Central Excise Act, 1944 in relation to the goods falling under sub-heading Nos. 2401.90, 2404.99, 5402.20, 5402.32, 5402.42, 5402.43, 5402.52, 5402.62, 8415.00, 8702.10, 8703.90, 8706.21 and 8706.39 of the said First Schedule the additional duty of excise leviable under section 3 of the Additional Duties of Excise Textile and Textile Articles Act, 1978 40 of 1978 the additional duty of excise leviable under section 3 of the Additional Duties of Excise Goods of Special Importance Act, 1957 58 of 1957 and the additional duty leviable under section 3 of the Customs Tariff Act, 1975, equivalent to the duty of excise specified under clauses i , ii , iii and iv above, paid on any inputs or capital goods received in the factory on or after the first day of April, 2000. Explanation . -- Rule 57AC of the Rules deals with Conditions for allowing CENVAT Credit and sub-rule 1 thereof reads as under 1 . - The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer. Rule 57AA gives the definitions and sub-rule d thereof reads as under d input means all goods, except high speed diesel oil and motor spirit, companymonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether companytained in the final product or number, and includes accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used for manufacture of final products or for any other purpose, within the factory of production, and also includes lubricating oils, greases, cutting oils and companylants. Explanation. the high speed diesel oil or motor spirit, companymonly known as petrol, shall number be treated as an input for any purpose whatsoever. The expression used for manufacture of final products or for any other purpose, within the factory of production in the definition of input is important and it clearly indicates that in order to satisfy the requirement of this sub-rule, the article or goods must be used within the factory of production. If the article is number used within the factory of production, it will number be input within the meaning of sub-rule d of Rule 57AA and CENVAT Credit will number be admissible under Rule 57AB. Rule 57AC deals with Conditions for allowing CENVAT Credit and under sub-rule 1 thereof such credit can be taken immediately on receipt of the inputs in the factory of manufacture. This provision also shows that actual receipt and use of the input within the factory of production is essential for availing CENVAT Credit. It is the admitted case of the assessee that the explosives have been used for blasting purpose in the mines and number in the factory where cement is produced and companysequently on the plain language of subrule d of Rule 57AA and Rule 57AC it will number qualify to be input for which CENVAT Credit may be taken under Rule 57AB. The CEGAT has relied upon a three judge bench decision of this Court rendered in Jaypee Rewa Cement vs. Commissioner of Central Excise, Raipur, 2001 133 ELT 3 for holding that even if inputs are number used within the factory of production, CENVAT Credit would be admissible. Shri Lakshmikumaran, learned companynsel for the assessee has also placed strong reliance on the aforesaid decision and has submitted that it has been clearly held therein that the Rule does number require that the inputs should be used within the factory premises and, therefore, the assessee was fully entitled to take CENVAT Credit for the explosives used in the mining area . In view of the companytention raised, it becomes necessary to examine the said decision in a little detail. The assessee in the said case Jaypee Rewa Cement claimed MODVAT Credit under Rule 57A of the Central Excise Rules. Rule 57A under which MODVAT Credit companyld be taken read as under Rule 57A. Applicability. 1 The provisions of this section shall apply to such finished excisable goods hereinafter referred to as the final products , as the Central Government may, by numberification in the Official Gazette, specify in this behalf, for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 51 of 1975 , as may be specified in the said numberification hereinafter referred to as the specified duty paid on the goods used in or in relation to the manufacture of the said final products whether directly or indirectly and whether companytained in the final product or number hereinafter referred to as the inputs and for utilizing the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said numberification, subject to the provisions of this section and the companyditions and restrictions that may be specified in the numberification Provided that Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted. Explanation - For the purposes of this rule, inputs includes- a inputs which are manufactured and used within the factory of production, in or in relation to the manufacture of final products, b paints and packaging materials, c inputs used as fuel, d inputs used for generation of electricity, used within the factory of production for manufacture of final products or for any other purpose, and e accessories of the final product cleared along with such final product, the value of which is included in the assessable value of the final product, but does number include - i omitted as number relevant ii omitted as number relevant iii omitted as number relevant iv omitted as number relevant It will be seen that the definition of input as given in sub-rule d of Rule 57AA which is material for the present case, is entirely different from the manner in which the said word has been expounded in explanation to Rule 57A reproduced above. Under sub-rule d of Rule 57AA only such articles or goods which are used for manufacture of final product or for any other purpose within the factory of production can qualify to be input. However, numbersuch restriction or companydition was imposed in the main part of Rule 57A. Explanation a numberdoubt provided that for the purpose of Rule 57A, input would include inputs which are manufactured and used within the factory of production, or in relation to the manufacture of final products. But this explanation companyld number in any manner curtail or restrict the scope of the substantive provision companytained in sub-rule 1 . In fact, this view has been expressed by the Bench also which will be clear from paragraph 10 of the reports, which reads as under Reading of Rule 57A clearly shows that the numberification is to specify the goods used in or in relation to the manufacture of the final product whether directly or indirectly. In the present case, inputs, which are used in relation to the manufacture even directly, would be regarded as an input for the purpose of Rule 57A. Sub-rule 1 of Rule 57A does number, in any way, specify that the inputs have to be utilized within the factory premises. The explanation companytained in Rule 57A is merely meant to enlarge the meaning of the word input and does number in any way restrict the use of the input within the factory premises number does the said Rule 57A require the inputs to be brought into the factory premises at any point of time. Further under the Scheme for MODVAT the relevant portion of Rule 57F provided as follows 57-F. Manner of utilization of the inputs and the credit allowed in respect of duty paid thereon. 1 The inputs in respect of which a credit of duty has been allowed under Rule 57-A may be used in, or in relation to, the manufacture of final products for which such inputs have been brought into factory ---------------------------------------- ---------------------------------------- However, Rule 57J of the MODVAT Scheme read as follows 57-J. Credit of duty in respect of inputs used in an intermediate product. - Notwithstanding anything companytained in these Rules, the Central Government may, by numberification in the Official Gazette, specify the inputs used in the manufacture of intermediate products received by a manufacturer for use in or in relation to the manufacture of final products, in respect of which the specified duty paid on the said inputs shall, subject to the companyditions and restrictions that may be specified in the numberification, be allowed as credit under Rule 57-A. The Bench then took numbere of the Notification issued under Rule 57A on 1st March, 1994 and held as follows in paras 12 to 14 of the reports As we have already numbericed, the Tribunal has relied upon Rule 57-F in companying to the companyclusion that the inputs in respect of which a credit of duty is claimed must be those which are used in or brought into the factory premises. The Tribunal, however, has number referred to the provisions of Rule 57-J, the opening portion of which makes it clear that the said Rule will be applicable numberwithstanding anything companytained in the other Rules. According to Rule 57-J, when the Central Government by numberification specified the inputs used in the manufacture of intermediate products received by the manufacturer for use in or in relation to the manufacture of final product, then all such products on which duty has been paid credit will be allowed. Pursuant to this Rule 57-J, numberification was issued on 20.6.1986 which was amended from time to time. The relevant part of the numberification is as follows S. No. Description of Inputs Description of intermediate products Description of final Products 1 2 3 4 1. All goods falling within the Schedule to the Central Excise Tariff Act, 1985 5 of 1986 , other than the following, namely, - goods classifiable under any heading of Chapter 24 of the Schedule to the said Act goods classifiable under Heading 36.05 or 37.06 of the Schedule to the said Act goods classifiable under Sub-Heading 2710.11, 2710.12, 2710.13, or 2710.19 except natural gasoline liquid of the Schedule to the said Act high-speed diesel oil classifiable under Heading 27.10 of the Schedule to the said Act. All goods falling within the Schedule to the Central Excise Tariff Act, 1985 5 of 1986 , other than the following, namely, - goods classifiable under any heading of Chapter 24 of the Schedule to the said Act goods classifiable under Heading 36.05 or 37.06 of the Schedule to the said Act goods classifiable under Sub-Heading 2710.11, 2710.12, 2710.13, 2710.19 except natural gasoline liquid of the Schedule to the said Act high-speed diesel oil classifiable under Heading 27.10 of the Schedule to the said Act. All goods falling within the Schedule to the Central Excise Tariff Act, 1985 5 of 1986 , other than the following namely,- goods classifiable under any heading of Chapter 24 of the Schedule to the said Act goods classifiable under Heading 36.05 or 37.06 of the Schedule to the said Act woven fabrics classifiable under Chapter 52 or Chapter 54 or Chapter 55 of the Schedule to the said Act Explosives would fall under companyumn 2 being a tariff item in Chapter 36 the intermediate product, namely, limestone would fall under companyumn 3 being companyered by Chapter 25 and the final product, namely, cement would also fall under Chapter 25 and would fall under companyumn 4 . The reading of Rule 57-J along with the aforesaid numberification can leave numbermanner of doubt that even in respect of inputs used in the manufacture of intermediate product which product is then used for the manufacture of a final product, the manufacturer would be allowed credit on the duty paid in respect of the input. On the explosives a duty had been paid and the appellants would be entitled to claim credit because the explosives were used for the manufacture of the intermediate product, namely, limestone which, in turn, was used for the manufacture of cement. We are, therefore, in agreement with the learned companynsel for the appellants that the wide language used in Rule 57-A entitles the appellants to claim the benefit when the said Rule is read along with Rule 57-J. It is to be numbericed that under the CENVAT Scheme there is numberprovision similar to Rule 57J of the MODVAT Scheme. The schemes for MODVAT and CENVAT Credits being different and in view of the definition of input given in sub-rule d of Rule 57AA of the Rules and the omission of a Rule similar to Rule 57J, the ratio of Jaypee Rewa Cement supra can have numberapplication here. Shri Lakshmikumaran, learned companynsel for the assessee has submitted that the limestone is brought from the mines to the factory by a ropeway and, therefore, the mining area is an extension of the factory area. It is difficult to accept the submission made. Ropeway is merely a device or mechanism for transporting limestone. Merely because a ropeway companynects the factory with the mines, the mine itself will number become a part of the factory where cement is produced. On that logic, even if the mine is situate hundreds of miles away but is companynected with the factory by a railway line for transporting mineral or raw material, the said mine will become a part of the factory of production. Factory has been defined in section 2 e of the Central Excise Act, 1944 and it reads as under factory means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process companynected with the production of these goods is being carried on or is ordinarily carried on. In view of this definition, a mine from where the raw material is extracted and is situate at some distance, but numbermanufacturing process is carried on, cannot qualify to be a factory. Learned companynsel for the assessee has lastly submitted that CENVAT scheme was introduced on 1.4.2000, but Rule 57AB was amended on 29.8.2000 and was given retrospective effect from 1.4.2000, and it is this amended Rule which will govern the situation. This plea was number taken by the assessee in reply to the show cause numberice, number was it raised before any of the Excise authorities. A new plea cannot be allowed to be raised for the first time in this Court. However, even if the amended Rule is taken into companysideration, the assessee can get numberadvantage. The amended Rule 57AB reads as under A manufacturer or producer of final products shall be allowed to take credit hereinafter referred to as the CENVAT credit of, -- the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985 5 of 1986 hereinafter referred to as the said First Schedule , leviable under the Act the duty of excise specified in the Second Schedule to the Central Excise Tariff Act, 1985, leviable under the Central Excise Act, 1944 in relation to the goods falling under sub-heading Nos. 2401.90, 2404.40, 2404.50, 2404.99 5402.20, 5402.32, 5402.42, 5402.43, 5402.52, 5402.62, 5703.90, 8415.00, 8702.10, 8703.90, 8706.21, 8706.39 and 8711.20 of the said First Schedule the additional duty of excise leviable under section 3 of the Additional Duties of Excise Textile and Textile Articles Act, 1978 40 of 1978 the additional duty of excise leviable under section 3 of the Additional Duties of Excise Goods of Special Importance Act, 1957 58 of 1957 and the additional duty leviable under section 3 of the Customs Tariff Act, 1975, equivalent to the duty of excise specified under clauses i , ii , iii and above, paid on any inputs or capital goods received in the factory on or after the first day of April, 2000, including, the said duties paid on any inputs or capital goods used in the manufacture of intermediate products, by a job-worker availing the benefit of exemption companytained in the numberification of the Government of India in the Ministry of Finance Department of Revenue No. 214/86 - Central Excise, dated 25th March, 1986 vide GSR No. 547 E , dated 25th March, 1986, and received by the manufacturer for use in or in relation to the manufacture of final products, on or after the first day of April, 2000. This provision shows that a manufacturer or producer shall be allowed to take CENVAT credit paid on any inputs used in the manufacture of intermediate products by a job-worker availing the benefit of exemption companytained in the numberification No. 214/86 dated 25th March, 1986 and received by the manufacturer for use in or in relation to the manufacture of final products. Explanation I of Notification No. 214/86 reads as under Explanation I. For the purposes of this numberification, the expression job work means processing or working upon of raw materials or semi-finished goods supplied to the job worker, so as to companyplete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for the aforesaid process. A manufacturer or producer himself cannot be a job worker. Here the mines are operated by the assessee itself. Therefore, in terms of the amended Rule 57AB also, the assessee cannot take CENVAT Credit for the explosives used for the blasting purposes in the mining area. In view of the discussion made above, the appeals are allowed with companyts. The orders passed by the CEGAT and also the Commissioner Appeals are set aside. A. Nos. | 4 |
COURT OF APPEAL FOR ONTARIO
CITATION: Fontenelle v. Canada (Attorney General), 2018 ONCA
475
DATE: 20180523
DOCKET: C64634
Lauwers, Benotto and Nordheimer JJ.A.
BETWEEN
James
Fontenelle Jr., Tanya Brown, James Fontenelle Sr.
and Margina Fontenelle
Plaintiffs (Respondents)
and
The Attorney General of Canada
, Leonard Ballantyne, Terrance
Bent
and Nickoma Cottrelle
Defendants (
Appellant
)
M. Sean Gaudet and Joel Levine, for the appellant
Doug Wright, for the respondents
Heard: May 17, 2018
On appeal from the judgment of Justice David Price of the
Superior Court of Justice, dated November 2, 2017, with reasons reported at
2017 ONSC 6604.
REASONS FOR DECISION
[1]
The Attorney General of Canada appeals from the summary judgment granted
by the motion judge who found in favour of the plaintiffs on the issue of
liability but ordered the issue of damages to proceed to trial.
[2]
The action arises out of an assault that was committed on the
respondent,
James Fontenelle Jr., (who we will
refer to as the respondent) by the three named individual defendants, none of
whom defended the underlying action. The assault occurred while the respondent
and the three individual defendants, were all inmates at Millhaven Institution,
which is a maximum security penitentiary located in Bath, Ontario. The
respondent was seriously injured.
[3]
The underlying action alleged that the Attorney
General of Canada, as the representative of the Federal Crown, was negligent and
breached a statutory duty of care by failing to keep the respondent reasonably
safe while he was an inmate of the penitentiary.
[4]
The background facts can be stated fairly briefly. At the time of the
assault on October 8, 2013, the inmates in the unit in which the respondent was
housed, were on strike in protest over the transfer of inmates from Kingston
Penitentiary, which was being closed. This strike had been ongoing for approximately
a month.
[5]
As a consequence of the strike, the inmates were not being allowed
outside into the yard or the gym. Rather, they were only allowed outside of
their cells for limited range activities, and then only at limited times. There
are surveillance cameras that cover the range but the cameras do not cover the
insides of any of the cells. Further, each cell is equipped with an alarm. As
part of the protest, inmates, including the respondent, would press the alarm
even though there was no emergency. Inmates would also cover their cell door windows
and prop open the doors of their cells when out on the range. Prison staff were
obligated to respond to any alarm.
[6]
On the evening of October 8, the respondent activated his cell alarm
even though there was no emergency. Prison staff attended and reset the
alarm. A few minutes later, six cell alarms were pressed at the same time,
including the respondents. Apparently this was to show the displeasure of the
inmates that they had not, as yet, been allowed out of their cells. Prison
staff again attended and reset three of the six alarms. They did not reset the
respondents cell alarm. There was no evidence why only three alarms were
reset.
[7]
A few minutes later, the cell doors were opened to allow the inmates out
onto the range. For the next 30 minutes or so, the inmates on the range engaged
in various activities. During this time, the respondent passed the defendant, Ballantyne,
on the range a number of times, without incident.
[8]
At the end of this period, Ballantyne entered the respondents cell and
left 14 seconds later. A couple of minutes later, the respondent popped his
head out of his cell and appeared to speak to Ballantyne. The respondent tried
to kick away the object propping open his door, but Ballantyne appeared to
lunge to keep it open. Ballantyne then entered the respondents cell. The
defendants, Cottrelle and Bent, stood outside the door. Ballantyne left a few
minutes later. The motion judge found that the assault occurred at this time.
The assault was not observed by prison staff because none of the staff are on
the range when the inmates are out of their cells. Rather, prison staff
observe the activities on the range through the surveillance cameras.
[9]
About 15 minutes later, the prison staff and the inmate range
representative reached an agreement by which the inmates returned to their
cells. At this point, the prison staff reset the other three cell alarms,
including the respondents. About an hour later, staff conducted a patrol but
did not observe any issues with the respondent. About a further hour later,
staff entered the range and observed that the respondent was in apparent
distress. An ambulance was called and he was taken to Kingston General Hospital.
[10]
In
his statement of claim, the respondent asserts negligence on behalf of the
appellant, the particulars of which are pleaded as follows:
(a)
It failed to take reasonable care for the Plaintiffs safety;
(b)
It allowed the assailants to gain access to the Plaintiffs cell;
(c)
It failed to monitor the Plaintiffs cell properly to ensure that
persons did not gain access to it;
(d)
It knew or ought to have known that an assault was occurring and it
failed to intervene in a timely manner, or at all;
(e)
It failed to supervise the other Defendants properly, or at all;
(f)
It failed to have adequate policies in place to ensure the prisoners
safety;
(g)
In the alternative, it failed to enforce its policies;
(h)
It failed to instruct its staff properly or at [
sic
] on safety
matters;
(i)
It knew or ought to have known that the Plaintiffs safety was at risk
and it did nothing to minimize the risk; and
(j)
It failed to make any reasonable assessment of the risk to the Plaintiff
of being housed close to the other Defendants.
[11]
The
appellant brought a motion for summary judgment seeking to have the action
dismissed on the ground that there was no genuine issue requiring a trial. In
the alternative, the appellant sought an order bifurcating the action as
between liability and damages. There was no cross-motion by the respondent for
summary judgment.
Analysis
[12]
In
our view, the motion judge greatly exceeded his authority in granting summary
judgment in this case in favour of the respondent. In doing so, he made
unjustified findings of fact. The appellant also submits, with some warrant,
that the motion judge proceeded contrary to the principles in
Rodaro v.
Royal Bank of Canada
(2002), 59 O.R. (3d) 74 (C.A.), at paras.
61-63. What is clear, given the factual issues that are in issue in this case, is
that a trial is required to resolve whether the appellant is liable for the
injuries sustained by the respondent.
[13]
In
awarding summary judgment, the motion judge found, at para. 11 of his reasons,
that the evidence leads to the inescapable conclusion that [Correctional Service
Canada] was negligent, and that, but for its negligence, the injuries to [the
respondent] would not have occurred.
[14]
The
motion judge correctly cited the law that applies to summary judgment motions,
particularly the decision in
Hryniak v. Mauldin
, 2014 SCC 7, [2014] 1
S.C.R. 87. More specifically, the motion judge quoted from
Hryniak
,
at para. 49, where Karakatsanis J. said:
There will be no genuine issue requiring a trial when the judge
is able to reach a fair and just determination on the merits on a motion for
summary judgment. This will be the case when the process (1) allows the judge
to make the necessary findings of fact, (2) allows the judge to apply the law
to the facts, and (3) is a proportionate, more expeditious and less expensive means
to achieve a just result.
However, he failed to properly apply that law in
reaching his decision.
[15]
After
this quotation, the motion judge said, at para. 56, that
I am satisfied on
the evidence tendered in the motion, that I have a full appreciation of the
facts and am able to reach a fair and just determination on the merits
While
the decision to exercise summary judgment powers is discretionary, deference is
not owed to that decision where the motion judge comes to a decision that is
so clearly wrong that it resulted in an injustice:
Hryniak
,
at para. 83. That is what occurred in
this case.
[16]
The
motion judge made the following liability findings, at para. 70:
For the reasons that follow, I find that there was a
foreseeable risk of harm to Mr. Fontenelle arising from CSCs placement of him
in a tough unit within a maximum-security prison, among inmates, including
Mr. Ballantyne, who had a known history of institutional violence against other
inmates. That risk was heightened when CSC failed to dis-arm and re-arm Mr.
Fontenelles call alarm, and permitted inmates, including Mr. Ballantyne, to
enter Mr. Fontenelles cell, outside the range of surveillance cameras. I find
that CSC failed to meet the standard of conduct that applied to it, that served
to deter such violence and enable its staff to respond promptly and effectively
if it occurred. In particular, CSC:
1.
Failed to
install and maintain proper surveillance of the cell interiors;
2.
Failed to
respond promptly and effectively to the activation of Mr. Fontenelles cell
alarm;
3.
Failed to
respond effectively to Inmates' propping open cell doors, and thereby allowed
dangerous inmates to enter Mr. Fontenelles cell outside the range of security
cameras;
4.
Failed to
ascertain Mr. Fontenelles condition promptly following the assault and secure
timely medical treatment for his injuries.
[17]
It
is readily apparent from the nature of the allegations made in this case, and
the factual findings made by the motion judge, that the evidentiary record was
woefully inadequate to make a proper determination whether any duty of care
owed by the appellant to the respondent in this case had been breached. The
motion judge erred in a number of respects in concluding otherwise. It is not
necessary to review each of those errors. The following will suffice.
[18]
Regarding
the placement of the respondent in the tough unit, the motion judge
acknowledged that he did not have evidence respecting available institutional
resources or whether there were alternative placements available to the
appellant that would have been more appropriate for the respondent, given his
inmate profile. He should not have proceeded to make a finding on this issue.
[19]
The
motion judge also found that the appellant had been negligent because it failed
to ensure that doors to the cells were kept closed while inmates were on the
range (para. 93). He found that this failure contributed substantially to
the injuries that the respondent sustained. In reaching this conclusion, the
motion judge does not appear to have given any consideration to the fact that
there was an inmate strike, that the inmates (including the respondent) were blocking
their cell doors from being closed, and the safety risk posed to prison staff if
they were to enter the range while the inmates were out of their cells. Given those
factors, the motion judge does not explain how the prison staff could
reasonably be expected to ensure that the cell doors were kept locked.
[20]
The
same factors ought to have been taken into account when the motion judge found
that the appellant was negligent in not resetting the respondents cell alarm.
There was no evidence why only three of the six alarms were reset. The absence
of that evidence ought to have concerned the motion judge in respect of any
conclusion he might make about this issue. In any event, given that at the
time of the assault, the alarms still had not been reset, and yet the inmates
were out on the range, it is not clear how the motion judge thought the prison
staff were supposed to be able to then reset the alarms. We repeat that the
other three alarms had been reset prior to the inmates being allowed out on the
range.
[21]
The
motion judge also criticized the appellant for the failure to have surveillance
cameras in each of the cells so that the authorities could monitor the
activities in each cell. The motion judge made this criticism without there
being any evidence on this issue, including the costs associated with installing
all of those cameras and the privacy concerns that the installation of such
cameras would give rise to.
[22]
The
motion judge also faulted the appellant for the delay that occurred in
ascertaining the condition of the respondent after the assault. On this point,
it should be noted that the motion judge did not have any evidence from the two
staff members who observed the respondent about an hour after the assault. He
also did not have any evidence from the respondent on this point. Still
further, the motion judge did not have any evidence that any delay in treatment
had any impact on the respondents injuries.
[23]
Further,
on more than one occasion, in the course of his reasons, the motion judge said
that, but for a failing he identified on the part of the appellant, the assault
would likely not have occurred. That is not the correct legal standard for
finding negligence. Rather, the correct legal standard is that but for the
negligence of the defendant the injuries would not have occurred. As McLachlin
C.J.C. said in
Clements (Litigation Guardian of) v. Clements
, 2012 SCC
32, [2012] 2 S.C.R. 181, at para. 8:
The plaintiff must show on a balance of probabilities that but
for the defendant's negligent act, the injury
would not
have occurred.
[Emphasis added.]
[24]
In
the end result, the motion judge concluded that a trial was not necessary to
determine liability in this case. Rather, he determined that the appellant was
liable to the respondent. We note that he reached that conclusion
notwithstanding that the respondents position on the summary judgment motion
was that a trial was necessary. In reaching his conclusion, the motion judge
pointed to the lack of evidence from certain staff members who had been
involved in the incident and the failure of the three individual defendants to
defend the action. It is not clear what the significance of the latter is to
the issue. If the concern was that their evidence was not before the court, then
that was another reason to send the matter to trial. Whether or not the
individual defendants defended the action, they are still subject to being
called as witnesses at the trial.
[25]
The
motion judges conclusion that a trial on liability was unnecessary cannot be
sustained. The evidentiary record before the motion judge was insufficient to
reach a fair and just determination that any duty of care owed by the appellant
to the respondent had been breached. There was a need for much more evidence
than the motion judge had on a variety of issues, such as the impact of the
actions of the inmates on the ability of the prison staff to take certain steps,
the actions surrounding the cell alarms, the liability consequences of finding
that individual cells should have surveillance cameras, and so on.
[26]
It
follows from that conclusion that the appellant was not entitled to summary
judgment either. This is an action that will have to proceed to trial absent
the parties reaching any other resolution. On that point, we do not see any
reason to bifurcate the liability issues from the damages issues. It would
seem that the factual findings in the liability phase will assist in
determining what, if any, damages are appropriate.
Conclusion
[27]
The
appeal is allowed. The summary judgment granted by the motion judge is set
aside. The appellants motion for summary judgment is dismissed. The action
is ordered to proceed in accordance with the
Rules of Civil Procedure
,
R.R.O, 1990, Reg. 194. The appellant is awarded its costs of the appeal, fixed
in the agreed amount of $20,000, in the cause as also agreed between the
parties. The motion judges order reserving the costs of the motion to the
trial judge remains.
P. Lauwers J.A.
M.L. Benotto J.A.
I.V.B. Nordheimer J.A.
| 0 |
The Judgment of the Court was delivered by P. JEEVAN REDDY, J.-On February 1, 1993, we granted leave to appeal in the special leave petition and allowed the civil appeal setting aside the judgment and order of the Allahabad High Court dated August 12, 1993 in Writ Petition No. 12911 M B of 1990. We indicated that the reasons for our order will be given later. The following are the relevant facts and reasons for our order. First respondent, Ram Niwas Agrawal was the President of the Nagar Palika, Sultanpur in the State of Uttar Pradesh. A motion expressing want of companyfidence in him was moved by the requisite number of members. A meeting of the Nagar Palika was companyvened on December 14, 1990 to companysider the motion. As required by Section 87-A 4 of the U.P. Municipalities Act, 1916, the District Judge, Sultanpur numberinated Shri Vishram Singh, First Additional Civil Judge, Sultanpur to preside over the meeting. The minutes of the meeting recite the following facts. When the meeting companymenced, sixteen members including the President were present besides, Shri Ram Dular Yadav, MLC, who claimed to be an ex-officio member of the Nagar Palika. His claim was companysidered and rejected by the Presiding Officer. Three women, numberinated as members by the Government on the previous day, presented themselves and sought participation in the meeting. A dispute was raised with respect to their right to participate in the meeting on the ground that by that date they had number taken the oath of allegiance. The Presiding Officer allowed the said numberinated members to participate in the meeting and to vote on the motion. The voting figures were seventeen including three votes of three numberinated members in favour of the motion and only one, viz., that of the President himself against the motion. The Presiding Officer declared the motion to have been passed by the majority inasmuch as the total membership of the Board Nagar Palika was twentyseven. He opined that even if the total membership is taken as twenty-eight including the membership of aforesaid MLC still the motion must be deemed to have been passed. | 5 |
FOURTH SECTION
CASE OF MŁYNARCZYK v. POLAND
(Application no. 51768/99)
JUDGMENT
STRASBOURG
14 December 2004
FINAL
14/03/2005
This judgment will become final in the circumstances set out in Article 44 § 2 of the Convention. It may be subject to editorial revision.
In the case of Młynarczyk v. Poland,
The European Court of Human Rights (Fourth Section), sitting as a Chamber composed of:
SirNicolas Bratza, President,MrJ. Casadevall,MrM. Pellonpää,MrR. Maruste,MrS. Pavlovschi,MrL. Garlicki,MrJ. Borrego Borrego, judges,and Mr M. O'Boyle, Section Registrar,
Having deliberated in private on 23 November 2004,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 51768/99) against the Republic of Poland lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a Polish national, Mr Jan Młynarczyk (“the applicant”), on 9 April 1999.
2. The applicant was represented by Ms B. Słupska-Uczkiewicz, a lawyer practising in Wrocław.
3. The Polish Government (“the Government”) were represented by their Agents, Mr K. Drzewicki, and subsequently, Mr. J. Wołąsiewicz of the Ministry of Foreign Affairs.
4. The applicant alleged, in particular, that the length of civil proceedings in his case had been excessive.
5. The application was allocated to the Fourth Section of the Court (Rule 52 § 1 of the Rules of Court). Within that Section, the Chamber that would consider the case (Article 27 § 1 of the Convention) was constituted as provided in Rule 26 § 1.
6. By a decision of 3 February 2004 the Court declared the application admissible.
THE FACTS
7. The applicant was born in 1950 and lives in Wrocław, Poland.
A. Facts prior to 1 May 1993
8. The applicant, who is a trombone player and since 1969 has been playing with the jazz band “Sami Swoi”, became its leader after a split in 1990. Mr Z.C. who had left the band in the same year, started playing with a new band using the name “The New Sami Swoi Orchestra”.
9. On 30 October 1990 the applicant lodged with the Wrocław Regional Court (Sąd Wojewódzki) an action for protection of his personal rights against Z.C. The applicant contended that the defendant had infringed his personal rights by having used the name “Sami Swoi” without his consent. He requested the court, inter alia, to order the defendant not to use that name in the future.
10. On 17 July 1992 the trial court dismissed his action.
11. The applicant appealed against that judgment.
B. Facts after 30 April 1993
12. On 9 December 1993 the Wrocław Court of Appeal (Sąd Apelacyjny) quashed the first-instance judgment and remitted the case to the trial court.
13. On 12 June and 5 September 1995 the court held hearings. Both parties applied for an expert opinion. The applicant made a friendly settlement proposal but the defendant did not agree to it.
14. On 13 February 1996 the applicant requested the court not to order an expert opinion and argued that such opinion would be unnecessary.
15. On 15 February 1996 the trial court, sitting in camera, ordered preparation of an expert opinion.
16. In March 1996 the applicant asked for exemption from the costs of the expert opinion and appealed against the decision of 15 February 1996. On 1 April and 23 May 1996 the court dismissed his applications.
17. In August 1996 the court-appointed expert refused to prepare his opinion. Subsequently, the trial court twice requested the Katowice University Musical Academy to indicate an expert.
18. On 12 March 1997 the court ordered a new expert, Mr A.Z., to prepare an opinion. However, that expert failed to prepare the requested opinion.
19. In June 1997 the court appointed another expert, Mr K.K., to write an opinion in the case. However, due to his illness, the expert failed to prepare the opinion.
20. On 9 March 1998 the trial court ordered Mr H.M. to prepare an expert opinion. The expert did not prepare the opinion and in December 1998 he returned the case-file to the court.
21. On 6 January 1999 the trial court fined the expert for non‑compliance with the court's order.
22. On 15 February 1999 the court ordered another expert, Mr T.T., to prepare an opinion.
23. On 2 July 1999 the expert submitted his opinion to the court.
24. Between 6 September 1995 and 24 November 1999 no hearings were held.
25. Subsequently, the trial court held hearings on 25 November and 17 December 1999.
26. On 14 January 2000 the Chorzów District Court heard a witness.
27. The next hearings were held on 23 May, 13 July, 18 September, 3 November and 17 November 2000.
28. On 1 December 2000 the Wrocław Regional Court gave judgment and ordered the defendant to publish a press statement that the applicant was solely entitled to use the name “Sami Swoi” for his band. It dismissed the remainder of the applicant's action.
29. The defendant appealed against that judgment to the Wrocław Court of Appeal.
30. On 18 May 2001 the Wrocław Court of Appeal gave judgment in which it dismissed the defendant's appeal.
THE LAW
I. ALLEGED VIOLATION OF ARTICLE 6 § 1 OF THE CONVENTION
31. The applicant complained that the length of the proceedings in his case exceeded a “reasonable time” within the meaning of Article 6 § 1 of the Convention, which reads in so far as relevant:
“In the determination of his civil rights and obligations..., everyone is entitled to a ... hearing within a reasonable time by [a] ... tribunal...”
32. The Government contested this view.
A. Period to be taken into consideration.
33. The period to be taken into consideration began on 30 October 1990 and ended on 18 May 2001. They therefore lasted over ten years and six months out of which the period of eight years and eighteen days falls within the Court's jurisdiction ratione temporis.
B. Reasonableness of the length of the proceedings
1. The Government's submissions.
34. The Government contended that the case was complex as it concerned personal rights.
35. As regards the conduct of the authorities the Government submitted that the courts acted diligently and that “a certain prolongation of the proceedings was caused by the difficulties in preparing an expert opinion and this cannot entirely be attributed to the judicial authorities”. The Government argued that the court had properly supervised the experts.
2. The applicant's submissions
36. The applicant disagreed with the Government's submissions and argued that the proceedings exceeded reasonable time.
37. Moreover, he argued that the case was of significant importance for him and that the protracted length of the proceedings caused a situation of legal uncertainty as to who could profit from the legacy of the “Sami Swoi” jazz band, which was very famous in the 1970s. That was of benefit to the defendant and confused the public.
3. The Court's assessment
38. The Court reiterates that the reasonableness of the length of proceedings must be assessed in the light of the circumstances of the case and with reference to the criteria established by its case-law, particularly the complexity of the case, the conduct of the applicant and of the relevant authorities and what was at stake for the applicant in the dispute (see, among many other authorities, Frydlender v. France [GC], no. 30979/96, § 43, ECHR 2000-VII, Humen v. Poland [GC], § 60, no. 26614/95, 15 October 1999).
39. As regards the conduct of the domestic authorities the Court observes that several substantial periods of inactivity occurred in the course of the proceedings. In particular, no hearings were held between September 1995 and November 1999. While it is true that during this period the domestic court took some actions and waited for an expert opinion to be prepared, the Court notes that the expert's work in the context of judicial proceedings is supervised by a judge, who remains responsible for the preparation and speedy conduct of proceedings (see, the Proszak v. Poland judgment of 16 December 1997, Reports of Judgments and Decisions 1997‑VIII, § 44). Finally, the Court observes that eighteen months elapsed between the quashing of the first-instance judgment by the Court of Appeal on 9 December 1993 and the date on which the trial court held the first hearing. The Court notes that the Government did not provide any explanation for this delay.
40. The Court has frequently found violations of Article 6 § 1 of the Convention in cases raising issues similar to the one in the present case (see Frydlender, cited above.
41. Having examined all the material submitted to it, the Court considers that the Government have not put forward any fact or argument capable of persuading it to reach a different conclusion in the present case. Having regard to its case-law on the subject, the Court considers that in the instant case the length of the proceedings was excessive and failed to meet the “reasonable time” requirement.
42. There has accordingly been a violation of Article 6 § 1 of the Convention.
II. APPLICATION OF ARTICLE 41 OF THE CONVENTION
43. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
A. Damage
44. The applicant claimed 600,000 Polish zlotys (PLN) in respect of pecuniary and in respect of non-pecuniary damage.
45. The Government submitted that the applicant's claims were exorbitant.
46. As regards the pecuniary damage, the Court's conclusion, on the evidence before it, is that the applicant has failed to demonstrate that the pecuniary damage pleaded was actually caused by the unreasonable length of the impugned proceedings. Consequently, there is no justification for making any award to him under that head (see, mutatis mutandis, Kudła v. Poland [GC], no. 30210/96, § 164, ECHR 2000-XI).
47. On the other hand, the Court is of the view that the applicant suffered damage of non-pecuniary nature, such as distress and frustration on account of the protracted length of the proceedings. Accordingly, the Court considers that, in the particular circumstances of the instant case and deciding on an equitable basis, the applicant should be awarded 4,500 euros (EUR) in respect of non-pecuniary damage.
B. Costs and expenses
48. The applicant also claimed PLN 23,000 by way of legal costs incurred before the Court and costs and expenses incurred before the domestic courts.
49. The Government submitted that they could not bear any responsibility for the costs and expenses incurred by the applicant during the proceedings before the domestic courts.
50. According to the Court's case-law, an applicant is entitled to reimbursement of his costs and expenses only in so far as it has been shown that these have been actually and necessarily incurred and were reasonable as to quantum. In the present case, regard being had to the above criteria and the nature of the issues before it, the Court considers it reasonable to award the applicant the sum of EUR 1,500 covering costs and expenses for the proceedings before the Court.
C. Default interest
51. The Court considers it appropriate that the default interest should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT UNANIMOUSLY
1. Holds that there has been a violation of Article 6 § 1 of the Convention;
2. Holds
(a) that the respondent State is to pay the applicant, within three months from the date on which the judgment becomes final according to Article 44 § 2 of the Convention, the following amounts to be converted into Polish zlotys at the rate applicable at the date of settlement:
(i) EUR 4,500 (four thousand five hundred euros) in respect of non‑pecuniary damage;
(ii) EUR 1,500 (one thousand five hundred euros) in respect of costs and expenses;
(iii) any tax that may be chargeable on the above amounts;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;
3. Dismisses the remainder of the applicant's claim for just satisfaction.
Done in English, and notified in writing on 14 December 2004, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Michael O'BoyleNicolas BratzaRegistrarPresident
| 0 |
SMT. RANJANA PRAKASH DESAI, J. Leave granted. This appeal, by grant of special leave, is directed against the judgment and order dated 03/08/2010 passed by the High Court of Madhya Pradesh, Bench at Indore allowing Second Appeal No. 756 of 2004 filed by the respondent. Briefly put, the facts are that the appellant-landlady purchased House No. 1/2, Street No. 6, Parsi Mohallah, Indore the said building from M s. Pyare Mohan Khar, Hari Mohan Khar, Shayam Sunder Khar and Anil Khar predecessors-in-title of the appellant by a registered sale deed dated 26/9/1991 for a companysideration of Rs. 1,70,000/-. At the time of purchase of the said building, the respondent-tenant was occupying one room suit premises situated on the rear side of the said building as tenant. The respondent was informed by the predecessors-in-title of the appellant that the appellant is the new landlady of the said building and he should pay the rent to her. The respondent agreed to pay the rent but failed to pay it. Failure of the respondent to pay the rent resulted in a numberice being sent by the appellant to him on 23/11/2002, but despite the numberice the respondent did number pay the rent. On 06/1/2003, the appellant filed a suit for eviction of the respondent under the M.P. Accommodation Control Act, 1961 the M.P. Act on grounds of number-payment of rent, denial of the appellants title by the respondent, bona fide need for residential purpose and reconstruction of the said building as it had become unsafe for human habitation. It was specifically averred in the plaint that the appellant had purchased the said building vide a registered document on 26/9/1991. The respondent companytested the said suit and filed a written statement denying the title of the appellant as well as the grounds on which his eviction from the suit premises was sought. The respondent denied that there was any attornement between the parties and that there was a landlordtenant relationship between him and the appellant. He claimed to be tenant of the earlier landlord Shri Khar. He companytended that he had never paid any rent to the appellant. He denied the genuineness of the registered sale deed dated 26/9/1991. The trial companyrt decreed the suit under Section 12 1 c of the M.P. Act. The suit was dismissed so far as the other grounds are companycerned. The trial companyrts judgment was companyfirmed by the first appellate companyrt. The High Court by the impugned order set aside the eviction decree passed by the companyrts below holding that in the facts of the case numberdecree under Section 12 1 c of the M.P. Act companyld be passed. The companytroversy, therefore, revolves around Section 12 1 c of the M.P. Act in the companytext of the facts of this case. Shri Ardhendumauli Kumar Prasad, learned companynsel for the appellant, submitted that both the companyrts having companycurrently found that the landlord was entitled to a decree of eviction under Section 12 1 c of the M.P. Act and since there was numberperversity attached to the said finding, the High Court ought number to have interfered with it while dealing with a second appeal, particularly, when there was numbersubstantial question of law involved in the matter. In this companynection, he relied on Deep Chandra Juneja v. Lajwanti Kathuria dead through LRs.1, Yash Pal v. Ram Lal Ors.2 and Firojuddin Anr. v. Babu Singh3. Mr. Prasad submitted that it is clearly established from the evidence on record that the respondent had denied the title of the appellant and, therefore, the case clearly falls within the ambit of Section 12 1 c of the M.P. Act. The eviction decree was, therefore, companyrectly passed by the trial companyrt and companyfirmed by the first appellate companyrt. In this companynection he relied on Devasahyam v. P. Savithramma4, State of Andgra Pradesh Ors. v. D. Raghukul Pershad dead by LRs. Ors.5 and Bhogadi Kannababu Ors. v. Vuggina Pydamma Ors.6. Counsel submitted that in the circumstances the impugned order be set aside. Shri Amit Pawan, learned companynsel for the respondent, on the other hand submitted that attornment of tenancy to the appellant is number proved. Counsel submitted that the respondent had numberknowledge about the sale transaction that allegedly took place between the appellant and Shri Khar, under which the appellant is said to have purchased the suit premises. This is a case of derivative title which the tenant can deny if he had numberknowledge of the sale transaction. Counsel submitted that the trial companyrt and lower appellate companyrt ignored this vital legal position and, therefore, the High Court rightly set aside the eviction decree. Counsel relied on Mohd. Nooman Ors. v. Mohd. Jabed Alam Ors.7 in support of his submission that the issue regarding title can be decided in an eviction suit and, therefore, it was companyrectly raised by the respondent. It is well settled by a long line of judgments of this Court that the High Court should number interfere with a companycurrent finding of fact unless it is perverse. See Deep Chandra Juneja, Yash Pal Firojuddin . In this case, for the reasons which we shall soon record, we are unable to find any such perversity in the companycurrent finding of fact returned by the companyrts below warranting the High Courts interference. The trial companyrt passed the decree under Section 12 1 c of the M.P. Act on the ground that the respondent-tenant denied the title of the appellant-landlady. It was companyfirmed by the first appellate companyrt. It is, therefore, necessary to reproduce Section 12 1 c of the M.P. Act. It reads as under Restriction on eviction of tenants. 1 Notwithstanding anything to the companytrary companytained in any other law or companytract, numbersuit shall be filed in any civil companyrt against a tenant for his eviction from any accommodation except on one or more of the following grounds only, namely a xxx b xxx c that the tenant or any person residing with him has created nuisance or has done any act which is inconsistent with the purpose for which he was admitted to the tenancy of the accommodation, or which is likely to affect adversely and substantially the interest of the landlord therein Provided that the use by a tenant of a portion of the accommodation as his office shall number be deemed to be an act inconsistent with the purpose for which he was admitted to the tenancy The first question that arises is how denial of title falls within the ambit of Section 12 1 c of the M.P. Act. Under Section 111 g of the Transfer of Property Act, 1882, the lease is determined by forfeiture, if the lessee denies the lessors title. While dealing with eviction suit, arising out of the M.P. Act, in Devasahayam, this Court has held that so just is the above rule that in various rent companytrol legislations such a ground is recognized and incorporated as a ground for eviction of a tenant either expressly or impliedly within the net of an act injurious to the interest of the landlord. It is further held that denial of landlords title or disclaimer of tenancy by tenant is an act which is likely to affect adversely and substantially the interest of the landlord. It is, therefore, companyered by Section 12 1 c of the M.P. Act. The following observations of this Court in Devasahayam are relevant In Sheela v. Prahlad Rai Prem Prakash8 whereupon Mr. Nageswara Rao placed strong reliance, Lahoti, J., as the learned Chief Justice then was, while companystruing the provisions of clause c of sub-section 1 of Section 12 of the M.P. Accommodation Control Act, 1961 observed The law as to tenancy being determined by forfeiture by denial of the lessors title or disclaimer of the tenancy has been adopted in India from the law of England where it originated as a principle in companysonance with justice, equity and good companyscience. On enactment of the Transfer of Property Act, 1882, the same was incorporated into clause g of Section 111. So just is the rule that it has been held applicable even in the areas where the Transfer of Property Act does number apply. See Raja Mohammad Amir Ahmad Khan v. Municipal Board of Sitapur9. The principle of determination of tenancy by forfeiture companysequent upon denial of the lessors title may number be applicable where rent companytrol legislation intervenes and such legislation while extending protection to tenants from eviction does number recognise such denial or disclaimer as a ground for termination of tenancy and eviction of tenant. However, in various rent companytrol legislations such a ground is recognised and incorporated as a ground for eviction of tenant either expressly or impliedly by bringing it within the net of an act injurious to the interest of the landlord on account of its mischievous companytent to prejudice adversely and substantially the interest of the landlord. In our opinion, denial of landlords title or disclaimer of tenancy by tenant is an act which is likely to affect adversely and substantially the interest of the landlord and hence is a ground for eviction of tenant within the meaning of clause c of sub-section 1 of Section 12 of the M.P. Accommodation Control Act, 1961. To amount to such denial or disclaimer, as would entail forfeiture of tenancy rights and incur the liability to be evicted, the tenant should have renounced his character as tenant and in clear and unequivocal terms set up title of the landlord in himself or in a third party. A tenant bona fide calling upon the landlord to prove his ownership or putting the landlord to proof of his title so as to protect himself i.e. the tenant or to earn a protection made available to him by the rent companytrol law but without disowning his character of possession over the tenancy premises as tenant cannot be said to have denied the title of landlord or disclaimed the tenancy. Such an act of the tenant does number attract applicability of Section 12 1 c abovesaid. It is the intention of the tenant, as culled out from the nature of the plea raised by him, which is determinative of its vulnerability. Having ascertained the legal position we will number state why we feel that the High Court is number right in disturbing the companycurrent finding of fact that the respondent-tenant denied the title of the appellant-landlady. There is a specific reference to the registered document under which the appellant purchased the suit building from the earlier landlord in the plaint. Yet, in the written statement the respondent denied the title of the appellant. We numberice that there are several documents on record relating to the ownership of the appellant, apart from the registered sale deed, such as municipal tax receipts, ration card etc. Yet, the respondent refused to acknowledge the appellants title. He denied it in his evidence. This is number a simple case of denial of derivative title by a person who did number know about the purchase of the building by the landlord. Even after going through the relevant documents relating to the appellants title the respondent feigned ignorance about it. The High Court has accepted that in his cross-examination the respondent has stated that he was number accepting the appellant as his landlady. The High Court has, however, gone on to say that by this piece of evidence numberdecree of eviction can be passed against the respondent under Section 12 1 c of the P. Act because the respondent will have numberoccasion to establish in what circumstances he denied the title of the appellant. The High Court has further held that the respondent was within permissible limit in asking the appellant to produce documentary evidence about his title as a landlord. The High Court, in our opinion, fell into a grave error in drawing such a companyclusion. Even denial of a landlords title in the written statement can provide a ground for eviction of a tenant. It is also settled position in law that it is number necessary that the denial of title by the landlord should be anterior to the institution of eviction proceedings. This is so stated by this Court in Majati Subbarao v. P.V.K. Krishnarao deceased by LRs.10. The High Court has expressed that the respondent was justified in asking the appellant to produce the documents. Implicit in this observation is the High Courts view that the respondent companyld have in an eviction suit got the title of the appellant finally adjudicated upon. There is a fallacy in this reasoning. In eviction proceedings the question of title to the properties in question may be incidentally gone into, but cannot be decided finally. Similar question fell for companysideration of this Court in Bhagadi Kannabalu. In that case it was argued that the landlady was number entitled to inherit the properties in question and hence companyld number maintain the application for eviction on the ground of default and subletting under the A.P. Tenancy Act. This Court referred to its decision in Tej Bhan Madan v. II Additional District Judge and Ors.11 in which it was held that a tenant was precluded from denying the title of the landlady on the general principle of estoppel between landlord and tenant and that this principle, in its basic foundations, means numbermore than that under certain circumstances law companysiders it unjust to allow a person to approbate and reprobate. Section 116 of the Evidence Act is clearly applicable to such a situation. This Court held that even if the landlady was number entitled to inherit the properties in question, she companyld still maintain the application for eviction and the finding of fact recorded by the companyrts below in favour of the landlady was number liable to be disturbed. The position on law was stated by this Court as under In this companynection, we may also point out that in an eviction petition filed on the ground of sub-letting and default, the companyrt needs to decide whether relationship of landlord and tenant exists and number the question of title to the properties in question, which may be incidentally gone into, but cannot be decided finally in the eviction proceeding. Reliance placed by learned companynsel for the respondent on Mohd. Nooman is misplaced. In that case, the landlord had filed an eviction suit described as Title Suit No.36 of 1973 to evict the tenant. The trial companyrt held that the relationship of landlord and tenant had number been proved and since the tenant had raised the question of title the proper companyrse would be to dismiss the suit and number to companyvert it into a declaratory suit because the suit was neither for declaration of title number had the plaintiff paid ad valorem companyrt fee. The trial companyrt dismissed the suit as there was numberlandlord and tenant relationship, but, upheld the plaintiffs claim of title. In the appeal, the first appellate companyrt observed that by filing a suit for eviction and paying companyrt fee on twelve months alleged rent, the plaintiff had adopted a tricky way of getting the title decided. The plaintiff, then, filed a suit on title. The trial companyrt decreed the suit. The first appellate companyrt allowed the appeal and dismissed the suit. In the second appeal before the High Court the question was whether the judgment and decree regarding title passed in the earlier suit shall operate as res judicata between the parties on the question of title. The High Court observed that pleas taken by both parties regarding title in both the title suits are the same and answered the question in affirmative. This Court endorsed the High Courts view and held that the issue of title was directly and substantially an issue between the parties in the earlier eviction suit, hence, the High Court was right in holding that the finding of title recorded in the earlier suit would operate as res judicata in the subsequent suit. This view was expressly restricted by this Court to the facts before it. This Court clarified that ordinarily it is true that in a suit for eviction even if the companyrt goes into the question of title it examines the issue in an ancillary manner and in such cases which companystitute a very large majority any observation or finding on the question of title would certainly number be binding in any subsequent suit on the dispute of title. This Court further clarified that the case with which it was dealing fell in an exceptional category of very limited number of cases. Thus, in our opinion, numberparallel can be drawn from Mohd. Nooman. In that case issue of title was framed. In the instant case issue of title was number even framed. Mohd. Nooman arose out of exceptional facts and must be restricted to those facts. In view of the above, we are of the opinion that the High Court was wrong in setting aside the companycurrent finding of fact recorded by the companyrts below that the respondent had denied the title of the appellant. We are of the view that the present case is companyered by Section 12 1 c of the P. Act. It is, therefore, necessary to restore the decree of eviction. In the circumstances, we allow the appeal. The impugned judgment of the High Court is set aside and eviction decree passed by the trial companyrt and companyfirmed by the first appellate companyrt under Section 12 1 c of the M.P. Act is restored. The appeal is disposed of in the afore-stated terms. J. Ranjana Prakash Desai J. Chelameswar New Delhi, January 7, 2014. ITEM NO.1A COURT NO.12 SECTION IVA For Judgment S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS Civil Appeal No.106 of 2014 arising out of Petition s for Special Leave to Appeal C No.5126/2011 From the judgement and order dated 03/08/2010 in SA No.756/2004 of The HIGH COURT OF M.P AT INDORE KESHAR BAI Petitioner s VERSUS CHHUNULAL Respondent s Date 07/01/2014 This Petition was called on for pronouncement of judgment today. For Petitioner s Mr. Ardhendumauli Kumar Prasad, Adv. Mr. A. Shukla, Adv. | 0 |
Case C-537/07 Evangelina Gómez-Limón Sánchez-Camacho v Instituto Nacional de la Seguridad Social (INSS) and Others (Reference for a preliminary ruling from the Juzgado de lo Social nº 30 de Madrid) (Directive 96/34/EC – Framework agreement on parental leave – Entitlements acquired or being acquired at the start of the leave – Continued receipt of social security benefits during the leave – Directive 79/7/EEC – Principle of equal treatment for men and women in matters of social security – Acquisition of entitlements to permanent invalidity pension acquired during parental leave) Summary of the Judgment 1. Social policy – Male and female workers – Access to employment and working conditions – Equal treatment – Directive implementing the framework agreement on parental leave (Council Directive 96/34, Annex, Clause 2(6)) 2. Social policy – Male and female workers – Access to employment and working conditions – Equal treatment – Directive implementing the framework agreement on parental leave (Council Directive 96/34, Annex, Clause 2(6) and (8)) 3. Social policy – Male and female workers – Access to employment and working conditions – Equal treatment – Directive implementing the framework agreement on parental leave (Council Directive 96/34, Annex, Clause 2(8)) 4. Social policy – Equal treatment for men and women in matters of social security –Directive 79/7 (Council Directive 79/7, Art. 7(1)(b)) 1. Clause 2(6) of the framework agreement on parental leave, annexed to Directive 96/34 on the framework agreement on parental leave concluded by UNICE, CEEP and the ETUC, can be relied on by individuals before a national court. That clause lays down an obligation to maintain rights acquired or in the process of being acquired by the worker on the date on which parental leave starts as they stand until the end of parental leave, including any changes arising in the meantime. The clause, which is intended to avoid any detriment to the rights of employees who have opted to take parental leave, thus requires, generally and in unequivocal terms, both national authorities and employers to recognise rights already acquired and those being acquired at the start of such leave and to guarantee that, at the end of the leave, employees will be able to continue to acquire rights as if that leave had not taken place. Accordingly, the content of that clause is thus sufficiently precise for that provision to be relied on by an individual and applied by courts.
(see paras 35-37, operative part 1) 2. Clause 2(6) and (8) of the framework agreement on parental leave, annexed to Directive 96/34 on the framework agreement on parental leave concluded by UNICE, CEEP and the ETUC, does not preclude the taking into account, in the calculation of an employee’s permanent invalidity pension, of the fact that he has taken a period of part-time parental leave during which he made contributions and acquired pension entitlements in proportion to the salary received.
On the one hand, Clause 2(6) of that framework agreement does not govern the entitlements and obligations derived from an employment relationship during parental leave, but refers to national legislation and to collective agreements in order to determine the regime governing the contract or employment relationship, including the extent to which the employee, during that leave, continues to acquire entitlements vis-à-vis his employer and under occupational social security schemes. On the other hand, Clause 2(8) of that framework agreement refers to maintenance of social security benefits during the period of an employee’s parental leave, without however imposing a specific obligation on Member States in that regard. Consequently, those provisions do not require the Member States to give workers a guarantee that, during the period of their part-time parental leave, they will continue to acquire entitlements to future social security benefits to the same extent as if they had continued to work on a full-time basis.
(see paras 40, 42-44, operative part 2) 3. Clause 2(8) of the framework agreement on parental leave, annexed to Directive 96/34 on the framework agreement on parental leave concluded by UNICE, CEEP and the ETUC, does not impose obligations on the Member States, apart from that of examining and determining social security questions related to that framework agreement in accordance with national legislation. In particular, it does not require them to ensure that during parental leave employees continue to receive social security benefits. Clause 2(8) thereof cannot be relied on by individuals before a national court against public authorities.
(see para. 51, operative part 3) 4. The principle of equal treatment for men and women and, in particular, the principle of equal treatment for men and women in matters of social security, within the meaning of Directive 79/7 on the progressive implementation of the principle of equal treatment for men and women in matters of social security, does not preclude an employee, during part-time parental leave, from acquiring entitlements to a permanent invalidity pension according to the time worked and the salary received and not as if he had worked on a full-time basis.
The purpose of that directive is only the progressive implementation of the principle of equal treatment for men and women in matters of social security and, pursuant to Article 7(1)(b) thereof, Member States may exclude from its scope the acquisition of entitlements to social security benefits under statutory schemes following periods of interruption of employment due to the bringing up of children. It follows that the acquisition of entitlement to social security benefits following periods of interruption of employment due to the bringing up of children is still a matter for the Member States to regulate.
(see paras 60-61, 63, operative part 4)
JUDGMENT OF THE COURT (Third Chamber) 16 July 2009 (*)
(Directive 96/34/EC – Framework agreement on parental leave – Entitlements acquired or being acquired at the start of the leave – Continued receipt of social security benefits during the leave – Directive 79/7/EEC – Principle of equal treatment for men and women in matters of social security – Acquisition of entitlements to permanent invalidity pension acquired during parental leave) In Case C‑537/07, REFERENCE for a preliminary ruling under Article 234 EC from the Juzgado de lo Social n° 30 de Madrid (Spain), made by decision of 20 November 2007, received at the Court on 3 December 2007, in the proceedings
Evangelina Gómez-Limón Sánchez-Camacho v Instituto Nacional de la Seguridad Social (INSS), Tesorería General de la Seguridad Social (TGSS), Alcampo SA, THE COURT (Third Chamber), composed of A. Rosas, President of the Chamber, J.N. Cunha Rodrigues, J. Klučka, U. Lõhmus (Rapporteur) and A. Arabadjiev, Judges,
Advocate General: E. Sharpston, Registrar: R. Grass, having regard to the written procedure, after considering the observations submitted on behalf of: – Instituto Nacional de la Seguridad Social (INSS), by A. Álvarez Moreno and J. I. del Valle de Joz, acting as Agents, – the Spanish Government, by B. Plaza Cruz, acting as Agent, – the United Kingdom Government, by T. Harris, acting as Agent, – the Commission of the European Communities, by M. van Beek and L. Lozano Palacios, acting as Agents, after hearing the Opinion of the Advocate General at the sitting on 4 December 2008, gives the following Judgment 1 This reference for a preliminary ruling relates to the interpretation of Clause 2(6) and (8) of the framework agreement on parental leave concluded on 14 December 1995, annexed to Council Directive 96/34/EC of 3 June 1996 on the framework agreement on parental leave concluded by UNICE, CEEP and the ETUC (OJ 1996 L 145, p. 4; ‘the framework agreement on parental leave’), and of Council Directive 79/7/EEC of 19 December 1978 on the progressive implementation of the principle of equal treatment for men and women in matters of social security (OJ 1979 L 6, p. 24).
2 The reference has been made in proceedings between Ms Gómez‑Limón Sánchez‑Camacho and the Instituto Nacional de la Seguridad Social, the managing body for social security (‘the INSS’), the Tesoreria General de la Seguridad Social and her former employer, Alcampo SA, concerning entitlements to permanent invalidity pension acquired during parental leave.
Legal context Community legislation 3 The first recital in the preamble to Directive 79/7 states:
‘Whereas Article 1(2) of Council Directive 76/207/EEC of 9 February 1976 on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions [(OJ 1976 L 39, p. 40)] provides that, with a view to ensuring the progressive implementation of the principle of equal treatment in matters of social security, the Council … will adopt provisions defining its substance[,] its scope and the arrangements for its application …’
4 Article 7 of Directive 79/7 provides:
‘1. This Directive shall be without prejudice to the right of Member States to exclude from its scope: (a) … (b) advantages in respect of old-age pension schemes granted to persons who have brought up children; the acquisition of benefit entitlements following periods of interruption of employment due to the bringing up of children;
…’ 5 Article 2 of Council Directive 86/378/EEC of 24 July 1986 on the implementation of the principle of equal treatment for men and women in occupational social security schemes (OJ 1986 L 225, p. 40), as amended by Council Directive 96/97/EC of 20 November 1996 (OJ 1996 L 46, p. 20; ‘Directive 86/378’), provides:
‘1. “Occupational social security schemes” means schemes not governed by Directive 79/7 … whose purpose is to provide workers, whether employees or self-employed, in an undertaking or group of undertakings, area of economic activity or occupational sector or group of such sectors with benefits intended to supplement the benefits provided by statutory social security schemes or to replace them, whether membership of such schemes is compulsory or optional.
…’ 6 Directive 96/34 seeks to implement the framework agreement on parental leave annexed thereto.
7 Under Article 2 thereof, the Member States were to bring into force the laws, regulations and administrative provisions necessary to comply with that directive by 3 June 1998 at the latest.
8 The recitals in the preamble to the framework agreement on parental leave state:
‘… 10. Whereas Member States should provide for the maintenance of entitlements to benefits in kind under sickness insurance during the minimum period of parental leave;
11. Whereas Member States should also, where appropriate under national conditions and taking into account the budgetary situation, consider the maintenance of entitlements to relevant social security benefits as they stand during the minimum period of parental leave;
…’ 9 Clause 2 of the framework agreement on parental leave provides:
‘1. This agreement grants, subject to clause 2.2, men and women workers an individual right to parental leave on the grounds of the birth or adoption of a child to enable them to take care of that child, for at least three months, until a given age up to 8 years to be defined by Member States and/or management and labour.
… 3. The conditions of access and detailed rules for applying parental leave shall be defined by law and/or collective agreement in the Member States, as long as the minimum requirements of this agreement are respected.
… 6. Rights acquired or in the process of being acquired by the worker on the date on which parental leave starts shall be maintained as they stand until the end of parental leave. At the end of parental leave, these rights, including any changes arising from national law, collective agreements or practice, shall apply.
7. Member States and/or management and labour shall define the status of the employment contract or employment relationship for the period of parental leave.
8. All matters relating to social security in relation to this agreement are for consideration and determination by Member States according to national law, taking into account the importance of the continuity of the entitlements to social security cover under the different schemes, in particular health care.’
National legislation 10 Article 37(5) of the consolidated Law on the status of workers (texto refundido de la Ley del Estatuto de los Trabajadores), adopted under Royal Legislative Decree 1/1995 of 24 March 1995 (BOE No 75 of 29 March 1995, p. 9 654), as amended by Law 39/1999 for the promotion of harmonisation between the private life and professional life of workers (Ley 39/1999 para promover la conciliación de la vida familiar y laboral de las personas trabajadoras) (BOE No 266 of 6 November 1999, p. 38 934), provided that any person who has legal custody and takes direct care of a child under the age of six is entitled to a reduction in his working day, with a proportionate reduction in salary, of a minimum of one third and a maximum of a half of the duration of that working day.
11 Under Article 139(2) of the General social security law (Ley General de la Seguridad Social), adopted by Royal Legislative Decree l/1994 of 20 June 1994 (BOE No 154 of 29 June 1994, p. 20 658; ‘the LGSS’), the financial benefit received by an employee who suffers from a permanent invalidity which renders him or her incapable of working in his or her usual occupation consists of a life pension. That pension is fixed in Article 140(1) of the LGSS at 55% of a basis of assessment arrived at by dividing by 112 the employee’s contribution bases during the 96 months before the event giving rise to the entitlement.
12 Pursuant to Article 109(1) of the LGSS, the basis of assessment for all risks and situations covered by the general system, including occupational accidents and occupational diseases, is made up of the total remuneration, irrespective of the form it takes or its designation, which the worker is entitled to receive per month, or of that which the worker actually receives, if that is greater, in respect of the work which he or she carries out as an employee.
13 In order to determine the contribution base in the event of reduced working time applicable to workers who have legal custody and who are taking care of a child under the age of six, Royal Decree 2064/1995 on the contributions and settlement of other social security entitlements (Reglamento General sobre cotización y liquidación de otros derechos de la Seguridad Social) of 22 December 1995 (BOE No 22 of 25 January 1996, p. 2 295) refers to the system of contributions laid down in respect of contracts of part-time employment. Article 65 of that Royal Decree provides that, with regard to employees who have concluded part-time work contracts and relief contracts, the contribution base for all risks and situations covered by the scheme in question is determined on the basis of the remuneration received for the hours worked.
14 Article 14 of the Order of 18 July 1991 regulating the special agreement within the social security system, (Orden por que se regula el convenio especial en el Sistema de la Seguridad Social (BOE of 30 July 1991, p. 25 114)) which is applicable to persons who have legal custody of a minor, provides that workers who, by virtue of Article 37(5) of the consolidated text of the Law on the status of workers, as amended by Law 39/1999, benefit from a reduction in their working time because they are taking direct care of a child under the age of six, accompanied by a proportionate reduction in salary, may conclude a special agreement to preserve the same contribution bases as before the reduction in their working time. The contributions paid by virtue of that special agreement cover the following risks and situations: retirement, permanent invalidity and death and survival resulting from an ordinary disease or an accident other than an occupational accident.
The dispute in the main proceedings and the questions referred for a preliminary ruling 15 It is apparent from the decision for reference that, from 17 December 1986, Ms Gómez-Limón Sánchez‑Camacho worked full-time as an administrative assistant for Alcampo SA, an undertaking active in the hypermarket sector.
16 With effect from 6 December 2001, it was agreed with that undertaking that Ms Gómez‑Limón Sánchez‑Camacho would benefit from the system of reduction of working time applicable to workers with legal custody of a child under six years old, in accordance with the legislation in force at that time, and, accordingly, her daily working time was reduced by a third.
17 Ms Gómez‑Limón Sánchez‑Camacho’s remuneration and, since no special agreement had been concluded, the amount of contributions paid both by the undertaking and by the employee to the general social security scheme were accordingly reduced in the same proportion, that amount corresponding to a percentage of the remuneration received.
18 As a result of an illness unrelated to her work, Ms Gómez-Limón Sánchez‑Camacho initiated, because of her physical and functional difficulties, administrative proceedings culminating in an INSS decision of 30 June 2004, which found that she suffered from permanent total invalidity rendering her incapable of working in her usual occupation and entitling her to a pension of 55% of a basis of assessment of EUR 920.33 per month.
19 That base was calculated using the amount of contributions actually paid to the public social security scheme during the period to be taken into account pursuant to the legislation governing the benefits, namely between 1 November 1998 and November 2004. That amount included the total contributions paid by Ms Gómez‑Limón Sánchez‑Camacho and by her employer.
20 Ms Gómez-Limón Sánchez Camacho has brought an action before the Juzgado de lo Social No 30 de Madrid, before which she submitted that, although the calculation made does take into account the contributions actually paid, those calculations were decreased in proportion to the reduction in her pay following the reduction in her working day during the period of parental leave granted to her to care for a minor, whereas her pension ought to have been calculated on the basis of the amount of contributions corresponding to full-time work. She argues that the calculation applied to her in practice negates the effectiveness of a measure intended to promote equality before the law and to eliminate discrimination on grounds of sex.
21 Under those circumstances the Juzgado de lo Social No 30 de Madrid decided to stay the proceedings and refer the following questions to the Court for a preliminary ruling:
‘1. Bearing in mind that the granting of parental leave must be a measure intended to promote equality, in the manner and to the extent freely fixed by each Member State within the minimum limits imposed by Directive 96/34 …, is it possible that the enjoyment of that period of parental leave, in the case of a reduction in the working day and in salary by reason of taking care of children, should affect entitlements in the process of being acquired by the worker, male or female, taking such parental leave and may individuals rely before the public institutions of a State on the principle of the protection of entitlements acquired or in the process of being acquired?
2. In particular, does the expression “entitlements acquired or in the process of being acquired” in Clause 2(6) of [the framework agreement on parental leave] include only entitlements related to working conditions and affect only the contractual relationship with the employer or, on the contrary, does it also affect the maintenance of entitlements acquired or in the process of being acquired in matters of social security, and is the requirement for “continuity of the entitlements to social security cover under the different schemes” in Clause 2(8) of the [framework agreement on parental leave] satisfied by the formulation under consideration and applied by the national authorities and, if applicable, is the right to continuity of entitlements to social security cover sufficiently certain and precise to be relied upon before the public authorities of a Member State?
3. Are the provisions of Community law compatible with national legislation which, during the period of reduction in the working day by reason of parental leave, reduces the amount of invalidity pension to be paid in relation to what it would have been before that leave and reduces the accrual and consolidation of future benefits in proportion to the reduction in working hours and in salary?
4. Given the duty of the national courts to interpret national law in the light of the obligations imposed by the Directive, in order to enable the objectives of the Community legislation to be achieved to the greatest possible extent, must that requirement apply equally to the continuity of social security entitlements during the period of parental leave and, specifically, in the circumstances of the case to a form of part-time leave or reduction in the working day such as was used on this occasion?
5. In the specific circumstances of the case, does the reduction in the grant and accrual of social security entitlements during the period of parental leave constitute direct or indirect discrimination contrary to the provisions of Directive 79/7 … and is it contrary to the requirements of equality and non-discrimination between men and women, in accordance with the tradition common to all the Member States, to the extent that this principle must apply not only to conditions of employment but also to the public activity of social protection of workers?’
The questions referred for a preliminary ruling Admissibility 22 The INSS and the Spanish Government take the view that the first question must be declared inadmissible.
23 They submit that that question, formulated in purely hypothetical and general terms, lacks precision. The exact potential situation which could affect the entitlements being acquired by workers on parental leave is not described.
24 In that regard, it should be recalled that, in proceedings under Article 234 EC, which are based on a clear separation of functions between the national courts and the Court of Justice, any assessment of the facts in the case is a matter for the national court. Similarly, it is solely for the national court, before which the dispute has been brought and which must assume responsibility for the forthcoming judicial decision, to determine in the light of the particular circumstances of the case both the need for a preliminary ruling in order to enable it to deliver judgment and the relevance of the questions which it submits to the Court. Consequently, where the questions submitted concern the interpretation of Community law, the Court is in principle bound to give a ruling (see, inter alia, Case C‑326/00 IKA [2003] ECR I‑1703, paragraph 27; Case C‑145/03 Keller [2005] ECR I‑2529, paragraph 33; and Case C‑419/04 Conseil générale de la Vienne [2006] ECR I‑5645, paragraph 19).
25 However, the Court has held that, in exceptional circumstances, it can examine the conditions in which the case was referred to it by the national court, in order to assess whether it has jurisdiction (see, to that effect, Case 244/80 Foglia [1981] ECR 3045, paragraph 21). The Court may refuse to rule on a question referred for a preliminary ruling by a national court only where it is quite obvious that the interpretation of Community law that is sought bears no relation to the actual facts of the main action or its purpose, where the problem is hypothetical, or where the Court does not have before it the factual or legal material necessary to give a useful answer to the questions submitted to it (see, inter alia, Case C‑379/98 PreussenElektra [2001] ECR I‑2099, paragraph 39 and Case C‑390/99 Canal Satélite Digital [2002] ECR I‑607, paragraph 19).
26 In the present case, the dispute in the main proceedings concerns the entitlement to a permanent invalidity pension acquired by a worker during her part-time parental leave, that is to say, on the basis of a period during which the contributions to the statutory social security scheme of which she was a member were paid in proportion to the salary she received, which situation led to her being granted a pension lower than that to which she would have been entitled if she had continued to work full-time.
27 It follows that, by its first question, the national court essentially asks, firstly, whether, with regard to the period of parental leave, Clause 2(6) of the framework agreement on parental leave precludes the taking into account, in the calculation of a worker’s permanent invalidity pension, of contributions paid which were decreased in proportion to the salary received during that period, and requires the taking into account of contributions corresponding to remuneration at the full rate. Secondly, it asks whether that clause can be relied on by individuals before a national court against public bodies.
28 Accordingly, it appears that the first question referred does relate to the subject-matter of the dispute in the main proceedings, as defined by the national court, and that the ruling to be given is likely to be useful to that court in deciding whether the framework agreement on parental leave precludes such a result.
29 It follows that the first question referred is admissible.
The first to fourth questions 30 In order to give a useful ruling which enables the national court to resolve the dispute in the main proceedings, it is necessary to reformulate the first, second and fourth questions, which each have two parts, and to examine the four questions on the basis of the queries which they raise, taking them in a different order from that in which they have been referred.
31 The first part of the second question is closely related to the first question, as pointed out in paragraph 27 of the present judgment, and it is appropriate to examine it in relation, in particular, with the first part of the first question, the third question and the second part of the fourth question.
The second part of the first question 32 By the second part of its first question, the national court asks, essentially, whether Clause 2(6) of the framework agreement on parental leave can be relied on by individuals before a national court against public authorities.
33 The Court has consistently held in that regard that, whenever the provisions of a directive appear, so far as their subject-matter is concerned, to be unconditional and sufficiently precise, they may be relied upon by individuals as against the State, particularly in its capacity as an employer (see, in particular, to that effect, Case 152/84 Marshall [1986] ECR 723, paragraphs 46 and 49; Case C‑187/00 Kutz-Bauer [2003] ECR I‑2741, paragraphs 69 and 71; and Case C‑268/06 Impact [2008] ECR I‑2483, paragraph 57).
34 As the Court has held, that case-law can be applied to agreements which, like the framework agreement on parental leave, are the product of a dialogue, based on Article 139(1) EC, between management and labour at Community level and which have been implemented in accordance with Article 139(2) EC by a directive of the Council of the European Union, of which they are thus an integral component (see Impact, paragraph 58, and Joined Cases C‑378/07 to C‑380/07 Angelidaki and Others [2009] ECR I‑0000, paragraph 195).
35 Clause 2(6) of the framework agreement on parental leave lays down an obligation to maintain rights acquired or in the process of being acquired by the worker on the date on which parental leave starts as they stand until the end of parental leave, including any changes arising in the meantime.
36 Clause 2(6) of that framework agreement, which is intended to avoid any detriment to the rights of employees who have opted to take parental leave, requires, generally and in unequivocal terms, both national authorities and employers to recognise rights already acquired and those being acquired at the start of such leave and to guarantee that, at the end of the leave, employees will be able to continue to acquire rights as if that leave had not taken place. Accordingly, the content of Clause 2(6) of the framework agreement on parental leave thus is sufficiently precise for that provision to be relied on by an individual and applied by courts (see, by analogy, Marshall, paragraph 52).
37 Consequently, the answer to the second part of the first question is that Clause 2(6) of the framework agreement on parental leave can be relied on by individuals before a national court.
The first part of the first question, the first part of the second question, the third question and the second part of the fourth question
38 By the first part of the first question, the first part of the second question, the third question and the second part of the fourth question, which it is appropriate to examine together, the national court asks, essentially, whether Clause 2(6) and (8) of the framework agreement on parental leave precludes the taking into account, in the calculation of an employee’s permanent invalidity pension, of the fact that he has taken a period of part-time parental leave during which he made contributions and acquired pension entitlements in proportion to the salary received, as a result of which the pension granted to him is lower than that which would have been paid to him had he continued to work on a full-time basis.
39 It is apparent both from the wording of Clause 2(6) of the framework agreement on parental leave and its context that that provision is intended to avoid the loss of entitlements derived from an employment relationship, acquired or being acquired, which the employee already has when he starts parental leave, and to ensure that, at the end of that leave, with regard to those entitlements, he will find himself in the same situation as that in which he was before that leave. Those entitlements derived from an employment relationship are those which the employee had at the date when the leave commenced.
40 Clause 2(6) of the framework agreement on parental leave does not, however, govern the entitlements and obligations derived from an employment relationship during parental leave, which are defined, pursuant to Clause 2(7), by the Member States and/or by management and labour. Thus, that clause refers to national legislation and to collective agreements in order to determine the regime governing the contract or employment relationship, including the extent to which the employee, during that leave, continues to acquire entitlements vis-à-vis his employer and under occupational social security schemes.
41 Nor is the continued acquisition of future entitlements under the statutory social security schemes during periods of parental leave explicitly regulated in the framework agreement on parental leave. Nevertheless, Clause 2(8) of that framework agreement refers to national legislation for consideration and determination of all questions of social security related to that agreement. Accordingly, the extent to which an employee will be able to continue to acquire social security entitlements while on part-time parental leave must be determined by the Member States.
42 In any event, although it is true that both recital 10 and recital 11 in the preamble to the framework agreement on parental leave and Clause 2(8) thereof refer to maintenance of social security benefits during the period of an employee’s parental leave, without however imposing a specific obligation on Member States in that regard, the fact remains that the acquisition of entitlements to future social security benefits by the employee during that period is not mentioned in the framework agreement.
43 It follows that Clause 2(6) and (8) of that framework agreement does not require the Member States to give workers a guarantee that, during the period of their part-time parental leave, they will continue to acquire entitlements to future social security benefits to the same extent as if they had continued to work on a full-time basis.
44 Consequently, the answer to the first part of the first question, the first part of the second question, the third question and the second part of the fourth question is that Clause 2(6) and (8) of the framework agreement on parental leave does not preclude the taking into account, in the calculation of an employee’s permanent invalidity pension, of the fact that he has taken a period of part-time parental leave during which he made contributions and acquired pension entitlements in proportion to the salary received.
The first part of the fourth question and the second part of the second question 45 By the first part of the fourth question and the second part of the second question, which it is appropriate to examine together, the national court asks, essentially, whether Clause 2(8) of the framework agreement on parental leave is to be interpreted as meaning that it requires Member States to provide for employees to continue to receive social security benefits during parental leave, and whether that clause can be relied on by individuals before a national court against public authorities.
46 In that regard, it must be pointed out, firstly, that Clause 2(3) of the framework agreement on parental leave refers to the law and/or to collective agreements in the Member States for definition of the conditions of access and detailed rules for applying parental leave. Nevertheless, those conditions and rules must be defined in compliance with the minimum requirements laid down by the framework agreement on parental leave.
47 Secondly, although Clause 2(8) of the framework agreement on parental leave also refers to the Member States’ legislation with regard to consideration and determination of all matters relating to social security questions in relation to that agreement, it merely recommends that they take into account the importance of the continuity of the entitlements to social security cover under the different schemes, in particular health care, during parental leave.
48 In addition, both the wording of Clause 2(8) of the framework agreement on parental leave and the fact that that framework agreement was concluded by management and labour represented by joint trade bodies shows that it could not impose obligations on the national social security organisations, which were not party to that agreement.
49 Furthermore, in accordance with point 11 of the general considerations of the framework agreement on parental leave, Member States should, where appropriate under national conditions and taking into account the budgetary situation, consider the maintenance of entitlements to relevant social security benefits as they stand during the minimum period of parental leave.
50 It follows from the foregoing that Clause 2(8) of the framework agreement on parental leave does not impose any obligation on the Member States to ensure, during parental leave, that employees continue to receive social security benefits and does not establish entitlements for employees. Accordingly, Clause 2(8) of the framework agreement cannot be relied on by individuals before a national court against public authorities and there is no need to examine whether it contains provisions which are unconditional and sufficiently precise.
51 Consequently, the answer to the first part of the fourth question and to the second part of the second question must be that Clause 2(8) of the framework agreement on parental leave does not impose obligations on the Member States, apart from that of considering and determining social security questions related to that framework agreement in accordance with national legislation. In particular, it does not require them to ensure that during parental leave employees continue to receive social security benefits. Clause 2(8) thereof cannot be relied on by individuals before a national court against public authorities.
The fifth question 52 By its fifth question, the national court asks, essentially, whether the principle of equal treatment for men and women and, in particular, the principle of equal treatment for men and women in matters of social security, within the meaning of Directive 79/7, precludes an employee, during part-time parental leave, from acquiring entitlements to a permanent invalidity pension according to the time worked and the salary received and not as if he had worked on a full-time basis.
53 From the outset it must be noted that national legislation such as that at issue in the main proceedings is not directly discriminatory, since it applies without distinction to both male and female workers. It is therefore necessary to ascertain whether it may constitute indirect discrimination.
54 According to settled case-law, indirect discrimination arises where a national measure, albeit formulated in neutral terms, works to the disadvantage of far more women than men (see, in particular, Case C‑411/96 Boyle and Others [1998] ECR I‑6401, paragraph 76, and Case C‑333/97 Lewen [1999] ECR I‑7243, paragraph 34).
55 In that regard, it must be noted, as the national court has pointed out, that, in order to devote themselves to bringing up their children, women opt much more frequently than men for periods of reduced working time and a proportional reduction in salary, resulting in a reduction in social security entitlements derived from the employment relationship.
56 Nevertheless, according to established case-law, discrimination consists in the application of different rules to comparable situations or the application of the same rule to different situations (see, in particular, Boyle, paragraph 39, and Lewen, paragraph 36).
57 An employee benefiting from parental leave, to which she is entitled under Directive 96/34 implementing the framework agreement on parental leave, in a manner defined by national law or by collective agreement, who works only part-time as is the case in the main proceedings, is in a specific situation which cannot be compared to that of a man or woman who works on a full-time basis (see, to that effect, Lewen, paragraph 37).
58 The national rules at issue in the main proceedings provide that the amount of the permanent invalidity pension is calculated on the basis of the contributions actually paid by the employer and by the employee during the reference period, in the present case the eight years preceding the event giving rise to entitlement to that pension. Since, during periods of part-time parental leave, an employee receives a lower salary because of the reduction in his working time, the contributions, which constitute a percentage of the salary, were also reduced and there is a resulting difference in the acquisition of entitlements to future social security benefits between employees working on a full-time basis and those on part-time parental leave.
59 It must be borne in mind, in that regard, that the Court has already held that Community law does not preclude a retirement pension being calculated pro rata temporis in the case of part-time employment. The fact that, in addition to the number of years spent working in the civil service, an official’s actual period of service during those years, as compared with the actual period of service of an official who has worked on a full-time basis throughout his career, is also taken into account is an objective criterion unrelated to any discrimination on grounds of sex, allowing his pension entitlement to be reduced proportionately (see, regarding officials, Joined Cases C‑4/02 and C‑5/02 Schönheit and Becker [2003] ECR I‑12575, paragraphs 90 and 91).
60 With regard to Directive 79/7, according to the first recital of the preamble thereto and Article 1 thereof, the purpose of the directive is only the progressive implementation of the principle of equal treatment for men and women in matters of social security. Thus, pursuant to Article 7(1)(b) of that directive, Member States may exclude from its scope the acquisition of entitlements to social security benefits under statutory schemes following periods of interruption of employment due to the bringing up of children
61 It follows that the acquisition of entitlement to social security benefits following periods of interruption of employment due to the bringing up of children is still a matter for the Member States to regulate (see Case C‑31/90 Johnson [1991] ECR I‑3723, paragraph 25).
62 It is apparent from case-law that Directive 79/7 in no way obliges the Member States to grant advantages in respect of social security to persons who have brought up children or to provide benefit entitlements where employment has been interrupted in order to bring up children (see, by analogy, Case C‑297/93 Grau-Hupka [1994] ECR I‑5535, paragraph 27).
63 Consequently, the answer to the fifth question is that the principle of equal treatment for men and women and, in particular, the principle of equal treatment for men and women in matters of social security, within the meaning of Directive 79/7, does not preclude an employee, during part-time parental leave, from acquiring entitlements to a permanent invalidity pension according to the time worked and the salary received and not as if he had worked on a full-time basis.
Costs 64 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.
On those grounds, the Court (Third Chamber) hereby rules: 1. Clause 2(6) of the framework agreement on parental leave concluded on 14 December 1995, annexed to Council Directive 96/34/EC of 3 June 1996 on the framework agreement on parental leave concluded by UNICE, CEEP and the ETUC can be relied on by individuals before a national court. 2. Clause 2(6) and (8) of the framework agreement on parental leave does not preclude the taking into account, in the calculation of an employee’s permanent invalidity pension, of the fact that he has taken a period of part-time parental leave during which he made contributions and acquired pension entitlements in proportion to the salary received. 3. Clause 2(8) of the framework agreement on parental leave does not impose obligations on the Member States, apart from that of examining and determining social security questions related to that framework agreement in accordance with national legislation. In particular, it does not require them to ensure that during parental leave employees continue to receive social security benefits. Clause 2(8) thereof cannot be relied on by individuals before a national court against public authorities. 4. The principle of equal treatment for men and women and, in particular, the principle of equal treatment for men and women in matters of social security, within the meaning of Council Directive 79/7/EEC of 19 December 1978 on the progressive implementation of the principle of equal treatment for men and women in matters of social security, does not preclude an employee, during part-time parental leave, from acquiring entitlements to a permanent invalidity pension according to the time worked and the salary received and not as if he had worked on a full-time basis. [Signatures]
* Language of the case: Spanish. | 6 |
JUDGMENT OF THE GENERAL COURT (Third Chamber)
27 February 2014 ( *1 )
‛Common foreign and security policy — Restrictive measures directed against certain persons and entities in view of the situation in Egypt — Freezing of funds — Legal basis — Obligation to state reasons — Error of fact — Rights of the defence — Right to effective judicial protection — Right to property — Freedom to conduct a business’
In Case T‑256/11,
Ahmed Abdelaziz Ezz, residing in Giza (Egypt),
Abla Mohammed Fawzi Ali Ahmed, residing in London (United Kingdom),
Khadiga Ahmed Ahmed Kamel Yassin, residing in London,
Shahinaz Abdel Azizabdel Wahab Al Naggar, residing in Giza,
represented initially by M. Lester, Barrister, and J. Binns, Solicitor, and subsequently by J. Binns, J. Lewis QC, B. Kennelly, Barrister, and I. Burton, Solicitor,
applicants,
v
Council of the European Union, represented by M. Bishop and I. Gurov, acting as Agents,
defendant,
supported by
European Commission, represented by F. Erlbacher, M. Konstantinidis and A. Bordes, acting as Agents,
intervener,
APPLICATION for annulment, first, of Council Decision 2011/172/CFSP of 21 March 2011 concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Egypt (OJ 2011 L 76, p. 63) and, secondly, of Council Regulation (EU) No 270/2011 of 21 March 2011 concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Egypt (OJ 2011 L 76, p. 4), in so far as those acts concern the applicants,
THE GENERAL COURT (Third Chamber),
composed of O. Czúcz, President, I. Labucka and D. Gratsias (Rapporteur), Judges,
Registrar: S. Spyropoulos, Administrator,
having regard to the written procedure and further to the hearing on 12 March 2013,
gives the following
Judgment
Background to the dispute
In the wake of the political events which took place in Egypt in and after January 2011, the Council of the European Union adopted, on 21 March 2011, citing Article 29 TEU, Decision 2011/172/CFSP concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Egypt (OJ 2011 L 76, p. 63) (‘Decision 2011/172’).
Recitals 1 and 2 in the preamble to Decision 2011/172 state:
‘(1)
On 21 February 2011, the European Union declared its readiness to support the peaceful and orderly transition to a civilian and democratic government in Egypt based on the rule of law, with full respect for human rights and fundamental freedoms and to support efforts to create an economy which enhances social cohesion and promotes growth.
(2)
In this context, restrictive measures should be imposed against persons having been identified as responsible for misappropriation of Egyptian State funds and who are thus depriving the Egyptian people of the benefits of the sustainable development of their economy and society and undermining the development of democracy in the country.’
Article 1 of Decision 2011/172 provides:
‘1. All funds and economic resources belonging to, owned, held or controlled by persons having been identified as responsible for misappropriation of Egyptian State funds, and natural or legal persons, entities or bodies associated with them, as listed in the Annex, shall be frozen.
2. No funds or economic resources shall be made available, directly or indirectly, to or for the benefit of, natural or legal persons, entities or bodies listed in the Annex.
3. The competent authority of a Member State may authorise the release of certain frozen funds or economic resources, or the making available of certain funds or economic resources, under such conditions as it deems appropriate, after having determined that the funds or economic resources concerned are:
(a)
necessary to satisfy the basic needs of the natural persons listed in the Annex and their dependent family members, including payments for foodstuffs, rent or mortgage, medicines and medical treatment, taxes, insurance premiums, and public utility charges;
(b)
intended exclusively for the payment of reasonable professional fees and the reimbursement of incurred expenses associated with the provision of legal services;
(c)
intended exclusively for the payment of fees or service charges for the routine holding or maintenance of frozen funds or economic resources; or
(d)
necessary for extraordinary expenses …
4. By way of derogation from paragraph 1, the competent authority of a Member State may authorise the release of certain frozen funds or economic resources, provided that the following conditions are met:
(a)
the funds or economic resources in question are the subject of a judicial, administrative or arbitral lien established prior to the date on which the natural or legal person, entity or body referred to in paragraph 1 was listed in the Annex, or of a judicial, administrative or arbitral judgment rendered prior to that date;
(b)
the funds or economic resources in question will be used exclusively to satisfy claims secured by such a lien or recognised as valid in such a judgment, within the limits set by applicable laws and regulations governing the rights of persons having such claims;
(c)
the lien or judgment is not for the benefit of a person, entity or body listed in the Annex; and
(d)
recognising the lien or judgement is not contrary to public policy in the Member State concerned.
…
5. Paragraph 1 shall not prevent a listed natural or legal person, entity or body from making a payment due under a contract entered into prior to the date on which such person, entity or body was listed in the Annex, provided that the Member State concerned has determined that the payment is not directly or indirectly received by a person, entity or body referred to in paragraph 1.
6. Paragraph 2 shall not apply to the addition to frozen accounts of:
(a)
interest or other earnings on those accounts; or
(b)
payments due under contracts, agreements or obligations that were concluded or arose prior to the date on which those accounts became subject to the measures provided for in paragraphs 1 and 2,
provided that any such interest, other earnings and payments remain subject to the measures provided for in paragraph 1.’
Article 2(1) of Decision 2011/172 provides:
‘The Council, acting upon a proposal by a Member State or the High Representative of the Union for Foreign Affairs and Security Policy, shall decide to establish and amend the list in the Annex.’
Article 3(1) of Decision 2011/172 provides:
‘The Annex shall include the grounds for listing the natural and legal persons, entities and bodies referred to in Article 1(1).’
Article 4 of Decision 2011/172 provides:
‘In order to maximise the impact of the measures referred to in Article 1(1) and (2), the Union shall encourage third States to adopt restrictive measures similar to those provided for in this Decision.’
Article 5 of Decision 2011/172 provides:
‘This Decision shall enter into force on the date of its adoption.
This Decision shall apply until 22 March 2012.
This Decision shall be kept under constant review. It shall be renewed, or amended as appropriate, if the Council deems that its objectives have not been met’.
Decision 2011/172 includes, as an annex, a ‘[l]ist of natural and legal persons, entities and bodies referred to in Article 1’.
The seventh item in that list contains the entry ‘Ahmed Abdelaziz Ezz’ in the first column, headed ‘Name’. In the second column, headed ‘Identifying information’, it is stated: ‘Former Member of the Parliament. Date of birth: 12.01.1959. Male’. Lastly, in the third column, the ‘[g]rounds for designation’ are stated.
The entry ‘Abla Mohamed Fawzi Ali Ahmed’ appears in the eighth item, in the first column, headed ‘Name’. In the second column, ‘Identifying information’, it is stated: ‘Spouse of Mr Ahmed Abdelaziz Ezz. Date of birth: 31.01.1963. Female.’ Lastly, in the third column the ‘[g]rounds for designation’ are stated.
The ninth item contains the entry ‘Khadiga Ahmed Ahmed Kamel Yassin’ in the first column, headed ‘Name’. In the second column, ‘Identifying information’, it is stated: ‘Spouse of Mr Ahmed Abdelaziz Ezz. Date of birth: 25.05.1959. Female.’ Lastly, in the third column the ‘[g]rounds for designation’ are stated.
The entry ‘Shahinaz Abdel Aziz Abdel Wahab Al Naggar’ appears in the tenth item, in the first column, headed ‘Name’. In the second column, headed ‘Identifying information’, it is stated: ‘Spouse of Mr Ahmed Abdelaziz Ezz. Date of birth: 09.10.1969. Female.’ Lastly, in the third column, the ‘[g]rounds for designation’ are stated.
Citing Article 215(2) TFEU and Decision 2011/172, the Council adopted Regulation (EU) No 270/2011 of 21 March 2011 concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Egypt (OJ 2011 L 76, p. 4) (‘Regulation No 270/2011’). Article 2(1) and (2) of that regulation repeats, in essence, the provisions of Article 1(1) and (2) of the Decision 2011/172. That regulation includes an ‘Annex I’, which is identical to the Annex to Decision 2011/172. As is apparent from recital 2 in the preamble to Regulation No 270/2011, that regulation was adopted because the measures imposed by Decision 2011/172 ‘f[ell] within the scope of the [TFEU with the result that] … regulatory action at the level of the Union [was] necessary in order to implement them’.
On 22 March 2011, a notice for the attention of the persons to which restrictive measures provided for in Decision 2011/172 and in Regulation No 270/2011 apply was published in the Official Journal of the European Union (OJ 2011 C 90, p. 3).
In the course of proceedings, the Council twice extended the application of the measures provided for in Decision 2011/172. First of all, by its Decision 2012/159/CFSP of 19 March 2012, amending Decision 2011/172 (OJ 2012 L 80, p. 18), it extended the application of those measures until 22 March 2013. Then, by its Decision 2013/144/CFSP of 21 March 2013, amending Decision 2011/172 (OJ 2013 L 82, p. 54), it extended the measures until 22 March 2014.
Procedure and forms of order sought
By application lodged at the Court Registry on 20 May 2011, Mr Ahmed Abdelaziz Ezz and his spouses, namely, Ms Abla Mohammed Fawzi Ali Ahmed, Ms Khadiga Ahmed Ahmed Kamel Yassin and Ms Shahinaz Abdel Azizabdel Wahab Al Naggar (‘the first applicant’, ‘the second applicant’, ‘the third applicant’ and ‘the fourth applicant’, respectively) brought the present action, by which they claim that the Court should:
—
annul Decision 2011/172 and Regulation No 270/2011, in so far as those acts apply to them;
—
order the Council to pay the costs.
On 29 July 2011, the Commission lodged its defence. It claims that the Court should:
—
dismiss the action;
—
order the applicants to pay the costs.
By document lodged at the Court Registry on 11 August 2011, the European Commission sought leave to intervene in support of the form of order sought by the Council.
The reply and the rejoinder were lodged, respectively, by the applicants on 29 September 2011 and by the Council on 23 November 2011.
By order of 14 October 2011, the President of the Third Chamber of the Court gave the Commission leave to intervene in support of the form of order sought by the Council.
By document lodged at the Court Registry on 25 November 2011, the Commission stated that it did not intend to submit a statement in intervention.
Acting upon a proposal of the Judge-Rapporteur, the Court (Third Chamber) decided to open the oral procedure. By way of a measure of organisation of procedure, it requested the applicants and the Council to produce various documents.
By documents lodged at the Court Registry on 19 and 20 February 2013 respectively, the Council and the applicants complied with that request.
By document lodged at the Court Registry on 5 March 2013, the applicants submitted further evidence.
At the hearing on 12 March 2013, the parties presented oral argument and replied to the questions put by the Court.
Law
Decision 2011/172, adopted on the basis of Article 29 TEU, establishes a freezing of assets, and comprises five articles. Article 1(1) lays down the criteria which a person must meet if he is to be subject to such a freezing of assets. Article 1(2), (5) and (6) makes clear the extent of that freeze, and Article 1(3) and (4) determines the circumstances in which it is possible to derogate from it. Article 2 states the competent authority for designating persons meeting the criteria laid down in Article 1(1) and also lays down, in particular, the procedural rules applicable during such a designation. Article 3 lays down the formal requirements to be complied with when a person is designated as meeting the criteria laid down in Article 1(1). Article 4, which does not have binding force, encourages third States to adopt similar measures. Lastly, Article 5 sets out the period in which the decision in question is applicable. In short, Articles 1 to 3 and 5 of Decision 2011/172 apply to objectively determined situations and produce binding legal effects with respect to categories of persons envisaged in general and in the abstract. The Annex to Decision 2011/172 lists by name the 19 natural persons which the Council regards as meeting the criteria laid down in Article 1(1). Consequently, that annex constitutes a series of individual measures intended to implement Article 1.
Regulation No 270/2011 has a similar structure to Decision 2011/172. It is important to note, in particular, that Annex I to Regulation No 270/2011, which is identical to the Annex to Decision 2011/172, is a measure which implements Article 2(1) of that regulation, which is worded in similar fashion to Article 1(1) of Decision 2011/172.
In the present case, the applicants seek the annulment of Decision 2011/172 and Regulation No 270/2011 in so far as those acts concern them. More specifically, they seek the annulment of the Annex to Decision 2011/172 and Annex I to Regulation No 270/2011 in so far as they are listed in those annexes. They put forward eight pleas in law in support of their action.
1. The first plea in law, alleging that Decision 2011/172 and Regulation No 270/2011 have no legal basis
The applicants submitted, in the reply, that Decision 2011/172 and Regulation No 270/2011 had no legal basis.
In their view, the ‘Treaty provides no legal basis for a measure which imposes a total and indefinite freeze on the assets of individuals in the European Union with the sole aim of assisting the authorities of a country outside the European Union with recovering assets at the end of a set of judicial proceedings’. In addition, the applicants submit that it is apparent from the case-law on Articles 60 EC and 301 EC that Article 215 TFEU only authorises the Council to impose restrictive measures on individuals where there is a sufficient link between the individual and a third country government, namely rulers or their associates. However, in the present case, the Council did not even allege that, as at the date of the contested acts, the applicants were rulers or members of the government of Egypt, or associates of such persons.
As regards the scope of the applicants’ arguments
As stated in paragraph 28 above, the applicants seek the annulment only of the Annex to Decision 2011/172 and Annex I to Regulation No 270/2011. However, those annexes were not adopted directly on the basis of a provision of the Treaties, but pursuant to Article 1(1) of Decision 2011/172 and Article 2(1) of Regulation No 270/2011, respectively. Consequently, in pleading an infringement of the Treaties, the applicants in fact raise two pleas of illegality for the purpose of Article 277 TFEU: they challenge the legality of Article 1(1) of Decision 2011/172 and of Article 2(1) of Regulation No 270/2011 in the light of the Treaties.
It follows from the considerations set out in paragraph 30 above that the applicants put forward specific arguments in support of both pleas of illegality: in support of the plea of illegality raised against Article 1(1) of Decision 2011/172, the applicants submitted, in essence, that that article could not have been adopted on the basis of Article 29 TEU since the sole aim of the freeze on assets which it imposed was to assist the Egyptian authorities with recovering assets at the end of various judicial proceedings; in addition, in support of the plea of illegality raised against Article 2(1) of Regulation No 270/2011, the applicants referred to the case-law on Articles 60 EC and 301 EC and submitted that Article 215 TFEU authorised the Council to impose restrictive measures on individuals only where – which was not the applicants’ case – there is a sufficient link between the individual and a third country government.
As regards the plea of illegality raised against Article 1(1) of Decision 2011/172
Before examining the plea of illegality raised against Article 1(1) of Decision 2011/172, the meaning and scope of Article 29 TEU must first of all be determined.
Meaning and scope of Article 29 TEU
Title V of the EU Treaty consists of two chapters. The first contains the ‘general provisions on the Union’s external action’ and the second ‘specific provisions on the common foreign and security policy’.
Article 23 TEU, which falls within Chapter 2 of Title V, provides:
‘The Union’s action on the international scene, pursuant to this Chapter, shall be guided by the principles, shall pursue the objectives of, and be conducted in accordance with, the general provisions laid down in Chapter 1.’
Article 21 TEU, which falls within Chapter 1 of Title V, provides:
‘1. The Union’s action on the international scene shall be guided by the principles which have inspired its own creation, development and enlargement, and which it seeks to advance in the wider world: democracy, the rule of law, the universality and indivisibility of human rights and fundamental freedoms, respect for human dignity, the principles of equality and solidarity, and respect for the principles of the United Nations Charter and international law.
…
2. The Union shall define and pursue common policies and actions, and shall work for a high degree of cooperation in all fields of international relations, in order to:
…
(b)
consolidate and support democracy, the rule of law, human rights and the principles of international law;
…
(d)
foster the sustainable economic, social and environmental development of developing countries, with the primary aim of eradicating poverty …
3. The Union shall respect the principles and pursue the objectives set out in paragraphs 1 and 2 in the development and implementation of the different areas of the Union’s external action covered by this Title and by Part Five of the Treaty on the Functioning of the European Union [on the Union’s external action] …’
Article 24(1) TEU provides:
‘The Union’s competence in matters of common foreign and security policy shall cover all areas of foreign policy and all questions relating to the Union’s security, including the progressive framing of a common defence policy that might lead to a common defence. …’
Article 25 TEU provides:
‘The Union shall conduct the common foreign and security policy by:
…
(b)
adopting decisions defining:
(i)
actions to be undertaken by the Union;
(ii)
positions to be taken by the Union;
(iii)
arrangements for the implementation of the decisions referred to in points (i) and (ii) …’
The first subparagraph of Article 28(1) TEU provides:
‘Where the international situation requires operational action by the Union, the Council shall adopt the necessary decisions. They shall lay down their objectives, scope, the means to be made available to the Union, if necessary their duration, and the conditions for their implementation.
...’
Article 29 TEU provides:
‘The Council shall adopt decisions which shall define the approach of the Union to a particular matter of a geographical or thematic nature …’
The combined effect of those provisions is that decisions which (i) come within the framework of the common foreign and security policy (CFSP), as defined in Article 24(1) TEU, (ii) relate to a ‘a particular matter of a geographical or thematic nature’ and (iii) are not in the nature of ‘operational action’ within the meaning of Article 28 TEU constitute ‘approaches of the Union’ within the meaning of Article 29 TEU.
The concept of ‘approach of the Union’ therefore lends itself to a broad interpretation, so that, provided that the conditions set out in paragraph 41 above are met, not only acts programmatic in nature or mere declarations of intent, but also, in particular, decisions providing for measures capable of directly affecting the legal position of individuals may be adopted on the basis of Article 29 TEU. That is moreover confirmed by the wording of the second paragraph of Article 275 TFEU.
The applicants do not challenge directly the conclusion drawn in the two preceding paragraphs. They simply claim that a decision seeking to assist foreign authorities with recovering assets at the end of various judicial proceedings cannot be adopted on the basis of Article 29 TEU. However and in any event, the Court cannot a priori rule out that a decision of that kind may meet the three criteria set out in paragraph 41 above and, in particular, come within the CFSP framework.
Compliance with the provisions of Article 29 TEU
In the present case, first, as is apparent from recital 1 in the preamble thereto, Decision 2011/172 seeks, firstly, ‘to support the peaceful and orderly transition to a civilian and democratic government in Egypt based on the rule of law, with full respect for human rights and fundamental freedoms’ and, secondly, to support ‘efforts to create an economy which enhances social cohesion and promotes growth’. In so doing, that decision forms part of a policy of supporting the new Egyptian authorities, intended to promote both the economic and political stability of Egypt and, in particular, to assist the authorities of that country in their fight against the misappropriation of State funds. It is therefore fully based on the CFSP and satisfies the objectives referred to in Article 21(2)(b) and (d) TEU.
Secondly, given its subject-matter, Decision 2011/172 relates to a ‘particular matter of a geographical or thematic nature’. Indeed, both its title and recitals show that it was adopted in view of the ‘situation’ in a third country, namely the Arab Republic of Egypt.
Thirdly, Decision 2011/172 is not in the nature of ‘operational action’ within the meaning of Article 28 TEU, since it does not entail any operation, whether civil or military, led by one or more Member States, outside the European Union.
It follows from all the foregoing that Article 1 of Decision 2011/172 meets the three criteria set out in paragraph 41 above, so that it could be lawfully adopted on the basis of Article 29 TEU.
As regards the plea of illegality raised against Article 2(1) of Regulation No 270/2011
Article 215 TFEU provides:
‘1. Where a decision, adopted in accordance with Chapter 2 of Title V of the Treaty on European Union, provides for the interruption or reduction, in part or completely, of economic and financial relations with one or more third countries, the Council, acting by a qualified majority on a joint proposal from the High Representative of the Union for Foreign Affairs and Security Policy and the Commission, shall adopt the necessary measures. It shall inform the European Parliament thereof.
2. Where a decision adopted in accordance with Chapter 2 of Title V of the Treaty on European Union so provides, the Council may adopt restrictive measures under the procedure referred to in paragraph 1 against natural or legal persons and groups or non-State entities.
3. The acts referred to in this Article shall include necessary provisions on legal safeguards.’
In the present case, Regulation No 270/2011 was adopted citing Article 215(2) TFEU and Decision 2011/172. Contrary to the applicants’ claims, Article 215(2) TFEU does not restrict its scope to decisions directed at rulers of third States or their associates. It may serve as a legal basis for adopting restrictive measures against any person, irrespective of status, on condition that those measures have been provided for by a decision taken under the CFSP.
In the present case, it must be stated that the wording of Article 2(1) of Regulation No 270/2011, which defines the scope of the freezing of assets established by that regulation, reproduces the provisions of Article 1(1) of Decision 2011/172. Consequently, the freezing of assets established by it was provided for by a decision taken under the CFSP and satisfies the conditions laid down by Article 215(2) TFEU.
That conclusion cannot moreover be called in question by relying on the case-law on Articles 60 EC and 301 EC.
Admittedly, according to the case-law, Articles 60 EC and 301 EC, applicable prior to the entry into force of the Treaty of Lisbon, do not provide for any express or implied powers of action to impose restrictive measures on persons or entities in no way linked to the governing regime of a third country (Joined Cases C-402/05 P and C-415/05 P Kadi and Al Barakaat International Foundation v Council and Commission [2008] ECR I-6351, paragraph 216). Consequently, in order to adopt such measures, before the Treaty of Lisbon entered into force, Articles 60 EC, 301 EC and 308 EC had to be relied on jointly (Kadi and Al Barakaat International Foundation v Council and Commission, paragraph 216, and Case C‑130/10 Parliament v Council [2012] ECR, paragraph 53).
However, the Treaty of Lisbon changed the law as it stood by inserting a new Article 215 TFEU. While the first paragraph of that article covers the areas previously within the ambit of Articles 60 EC and 301 EC (Parliament v Council, cited at paragraph 52 above, paragraph 52), the second paragraph thereof, on which Regulation No 270/2011 is based, enables the Council to adopt, by an act laid down in Article 288 TFEU, restrictive measures against any ‘natural or legal person’, ‘non-State entity’ or any ‘group’ on the sole condition that a decision adopted in accordance with Chapter 2 of Title V of the Treaty on European Union provides for such measures. In other words, if that latter condition is satisfied, Article 215(2) TFEU enables the Council to adopt in particular, as noted in paragraph 49 above, acts imposing restrictive measures against addressees in no way linked to the governing regime of a third country.
The first plea must therefore be rejected in any event without the need to rule on whether its submission, in the reply, was out of time (see, by analogy, judgment of 28 July 2011 in Case C‑403/10 P Mediaset v Commission, not published in the ECR, paragraph 51; Joined Cases T-125/96 and T-152/96 Boehringer v Council and Commission [1999] ECR II-3427, paragraph 143).
2. The second plea in law, alleging the failure to observe the criteria whereby certain persons may be listed in the annexes to Decision 2011/172 and Regulation No 270/2011
The applicants state that the ground for listing them in the Annex to Decision 2011/172 is not one of those laid down in Article 1 of that decision. They also state that the ground for listing them in Annex I to Regulation No 270/2011 is not one of those laid down in Article 2 of that regulation.
In order to respond to the present plea, the Court must first of all determine the criteria which the Council must observe when it decides to list the persons or entities in the Annex to Decision 2011/172 and identify the ground for listing the applicants in that annex.
As regards the criteria for listing in the Annex to Decision 2011/172
The English-language version of Article 1(1) of Decision 2011/172 – English being the language of the present case – provides that the assets of ‘persons having been identified as responsible for misappropriation of Egyptian State funds, and natural or legal persons, entities or bodies associated with them, as listed in the Annex’ must be frozen. In other words, in that language version of Decision 2011/172, reference is made, first, to persons having been ‘identified’ as responsible for misappropriation of Egyptian State funds and, secondly, to their associates.
However, as the applicants noted in a letter dated 13 May 2011 to the Council, the French-language version of Decision 2011/172 refers to the persons ‘reconnues’ (‘found/recognised as’) responsible for misappropriating Egyptian State funds and not, as in the English-language version, to the persons ‘identified’ as responsible for such offending conduct.
That is an appreciable difference between the two language versions.
The French-language version seems to require a strict interpretation of the wording of Article 1(1) of Decision 2011/172. The use of the verb ‘reconnaître’ (‘to find/recognise as’), commonly used in legal language alongside the adjective ‘coupable’ (‘guilty’), tends to indicate that the persons referred to in Article 1(1) have been formally ‘found’ guilty of misappropriating Egyptian State funds or of being a party to such misappropriation, such a finding of guilt having as a rule to be made by a criminal court.
By contrast, the English-language version permits a broad interpretation of Article 1(1) of Decision 2011/172. In that language version, the use of the verb ‘to identify’, more imprecise than the verb ‘to find/recognise as’, suggests that, on the basis of consistent information, the Council itself ‘identifies’ the persons which may be considered ‘responsible’ for misappropriating Egyptian State funds and also their associates.
As to the need to interpret Article 1(1) of Decision 2011/172
According to settled case-law, the need for a uniform interpretation of European Union acts makes it impossible, in case of doubt, for the text of a provision to be considered in isolation but requires, on the contrary, that it should be interpreted and applied in the light of the versions existing in the other official languages (see Case C-412/10 Homawoo [2011] ECR I-11603, paragraph 28 and the case-law cited).
In addition, where there is divergence between language versions of a European Union legal text, the provision in question must be interpreted by reference to the purpose and general scheme of the rules of which it forms part (see Case C‑510/10 DR and TV2 Danmark [2012] ECR, paragraph 45 and the case-law cited).
In the present case, if only because of the disparities between the English-language and French-language versions, it is necessary to interpret Article 1(1) of Decision 2011/172 in the light of all the language versions. That interpretation must take into account the purpose and general scheme of the rules of which those provisions form part.
As to the interpretation of Article 1(1) of Decision 2011/172
First of all, it must be stated that, in most of the language versions other than English and French, the wording of Article 1(1) of Decision 2011/172 is similar to that of the English-language version.
Next, as noted in paragraph 44 above, Decision 2011/172 seeks, in particular, to assist the Egyptian authorities with fighting against the misappropriation of State funds, by freezing the assets of persons who according to the English-language version may be ‘identified’ as responsible for the offending conduct, or according to the French-language version be ‘found/recognised as’‘responsible’ for such conduct. However, if the Council had to wait until those persons had been convicted in the Egyptian courts, the effectiveness of Decision 2011/172 would be seriously undermined. In such a case, the persons concerned would, during the criminal proceedings, have enough time to transfer their assets to States having no form of cooperation with the Egyptian authorities.
In those circumstances, Article 1(1) of Decision 2011/172 must be interpreted broadly. That provision must therefore be interpreted as being directed at five separate categories of person. The first category comprises those who, at the end of judicial proceedings, have been found guilty of the ‘misappropriation of Egyptian State funds’. The second category comprises the ‘associates’ of such persons in the strict sense, namely those who have been found to be their accomplices by a criminal court. The third category comprises those persons being prosecuted for the ‘misappropriation of Egyptian State funds’. The fourth category encompasses those persons being prosecuted for being their associates (that is their accomplices). The fifth category corresponds to all those persons the subject of judicial proceedings connected to criminal proceedings for ‘misappropriation of Egyptian State funds’ who may on that basis be described as persons associated with the individuals the subject of those criminal proceedings. That fifth category of persons groups together, in particular, those persons who, possibly without their knowledge, may have benefited from the proceeds of the ‘misappropriation of Egyptian State funds’ and on that basis are subject to protective measures, prescribed in a judicial context, intended to preserve the assets arising from such misappropriation.
Whether the interpretation of Decision 2011/172 is compatible with principles or legal rules of a higher order
According to settled case-law, when the wording of secondary law is open to more than one interpretation, preference should be given to the interpretation which renders the provision consistent with the Treaties and other rules having the same legal status (Case C-61/94 Commission v Germany [1996] ECR I-3989, paragraph 52, and Case T-576/08 Germany v Commission [2011] ECR II-1578, paragraph 103).
In this particular case, it is important to ascertain whether the broad interpretation of Article 1(1) of Decision 2011/172, which is given in paragraph 67 above, is compatible with the principle that provisions laying down administrative penalties must be interpreted strictly and with the principle of the presumption of innocence.
– As regards the principle that provisions laying down administrative penalties must be interpreted strictly
According to the case-law, the principle of legality in relation to crime and punishment, enshrined in the first sentence of Article 49(1) of the Charter of Fundamental Rights of the European Union, requires that a provision of the criminal law may not be applied extensively to the detriment of the defendant (Joined Cases C-74/95 and C-129/95 X [1996] ECR I-6609, paragraph 25).
That principle may be relied on not only against decisions imposing criminal penalties in the strict sense, but also against those imposing administrative ones (see, to that effect, Case C-352/09 P ThyssenKrupp Nirosta v Commission [2011] ECR I-2359, paragraph 80).
Accordingly, the principle of legality in relation to crime and punishment requires that provisions laying down administrative penalties may not be applied extensively to the detriment of the person concerned.
Consequently, if Decision 2011/172 laid down administrative penalties and, therefore, came within the scope of the first sentence of Article 49(1) of the Charter of Fundamental Rights, it would have to be interpreted strictly.
That, however, is not the position.
The provisions of the first sentence of Article 49(1) of the Charter of Fundamental Rights are identical those of the first sentence of Article 7(1) of the Convention for the Protection of Human Rights and Fundamental Freedoms, signed in Rome on 4 November 1950. In accordance with Article 52(3) of the Charter of Fundamental Rights, those provisions must be interpreted in the light of the case-law of the European Court of Human Rights (‘the ECHR’).
According to that case-law, Article 7 of that convention may be properly relied upon only for the purposes of challenging a ‘penalty’. The starting-point in any assessment of the existence of a ‘penalty’ is whether the measure in question is imposed following conviction for a ‘criminal offence’. Other relevant factors in that regard are the characterisation of the measure under the applicable law, its nature and purpose, the procedures involved in its making and implementation, and its severity. The severity of the measure is not, however, decisive, since, for instance, many non-penal measures of a preventive nature may have a substantial impact on the person concerned (M. v. Germany, no. 19359/04, § 120, ECHR 2009).
In the present case, first, no provision of EU law confers a criminal-law aspect on the freezing of assets established by Article 1 of Decision 2011/172.
Secondly, the provisions establishing the scheme for that asset-freezing seek neither to punish, nor to prevent the repetition of any conduct. Their sole purpose is to preserve the assets held by the persons, entities and bodies referred to in Article 1 of Decision 2011/172 in accordance with the objectives referred to in Article 21(2)(b) and (d) TEU (see paragraph 44 above) (see, to that effect and by analogy, the judgment of 11 July 2007 in Case T‑47/03 Sison v Council, not published in the ECR, paragraph 101, and Case T-49/07 Fahas v Council [2010] ECR II-5555, paragraph 67).
Thirdly, the effects of those provisions are limited in time and reversible: the freezing of assets provided for in them must be applied, in accordance with Article 5 of Decision 2011/172, during a specified period, and the Council, which keeps it under constant review, may at any time bring it to an end.
Accordingly, that freezing of assets does not constitute an administrative penalty nor does it come within the scope of the first sentence of Article 49(1) of the Charter of Fundamental Rights.
It follows that the principle that provisions imposing administrative penalties must be interpreted strictly does not preclude the Court from interpreting Article 1(1) of Decision 2011/172 broadly as in paragraph 67 above.
– As regards the principle of the presumption of innocence
It is indeed true that the presumption of innocence is enshrined, in the European Union legal order, in Article 48(1) of the Charter of Fundamental Rights. That principle, which, in accordance with Article 52(3) of that charter, must be interpreted in the light of the ECHR’s case-law, requires that no representative of an official authority may declare a person guilty of a criminal offence before he has been proved guilty by a court (see Allenet de Ribemont v. France, 10 February 1995, §§ 35-36, Series A no. 308, and Lizaso Azconobieta v. Spain no. 28834/08, § 37, 28 June 2011). In addition, the presumption of innocence is breached by statements or decisions which reflect the sentiment that the person is guilty, which encourage the public to believe in his guilt or which prejudge the assessment of the facts by the competent court (see Pandy v. Belgium, no. 13583/02, § 42, 21 September 2006, and Pavalache v. Romania, no. 38746/03, § 116, 18 October 2011).
However, in adopting Decision 2011/172, the Council did not itself declare the persons referred to in Article 1(1) thereof guilty of conduct punished under Egyptian criminal law or the law of an EU Member State. In addition, it did not encourage the ‘public’ to believe incorrectly in the guilt of those persons. Lastly, it did not prejudge the assessment of the facts by the competent court, in Egypt. The Council simply specified that the various categories of person referred to in paragraph 67 above were to have their assets frozen, which, as made clear in paragraph 77 above, does not itself have any criminal-law aspect.
It follows from this that the principle of the presumption of innocence does not preclude the interpretation of Article 1(1) of Decision 2011/172 set out in paragraph 67 above (see, to that effect and by analogy, the judgment of 2 September 2009 in Joined Cases T‑37/07 and T‑323/07 El Morabit v Council, not published in the ECR, paragraph 40).
As regards the ground for listing the applicants in the Annex to Decision 2011/172
As regards the need to interpret the ground for listing the applicants in the Annex to Decision 2011/172
It must be noted that listing the applicants in the Annex to Decision 2011/172 had the effect of freezing their assets under the scheme laid down in Articles 1, 2, 3 and 5 of that decision. In addition, it must be pointed out that the Annex to Decision 2011/172 was published in all the official languages of the European Union.
The English-language version of that annex states that the applicants’ assets were frozen on the ground that they were each subject to ‘judicial proceedings by the Egyptian authorities in respect of the misappropriation of State Funds on the basis of the United Nations Convention against Corruption’. That language version therefore refers simply to judicial ‘proceedings’ concerning the applicants. In the absence of any clarification in that regard, those proceedings can be proceedings merely connected to criminal proceedings for ‘misappropriation of Egyptian State funds’.
By contrast, the French-language version of the Annex to Decision 2011/172 which, as noted in paragraph 58 above, was relied on by the applicants in a letter dated 13 May 2011 to the Council, states that the applicants were ‘[prosecuted] by the Egyptian authorities for the misappropriation of State Funds on the basis of the United Nations Convention against Corruption’. It seems from reading that version that it was because there was a ‘prosecution’, which by its nature relates to the criminal law, brought against them for misappropriation of State funds, that the applicants had their assets frozen.
Consequently, there are significant disparities between the French-language and English-language versions of the Annex to Decision 2011/172.
Where there are differences between certain language versions of an individual measure addressed to a person subject to the jurisdiction of a non-member country, that act must be interpreted in the light, first, of the other language versions and, secondly, of the purpose and general scheme of the legislation on the basis of which it was adopted.
In addition, the Court has consistently held that an implementing measure must be given, if possible, an interpretation consistent with the provisions of the basic act (see, to that effect, Case C‑61/94 Commission v Germany, cited at paragraph 68 above, paragraph 52 and the case-law cited).
In the present case, as was stated in paragraph 26 above, the Annex to Decision 2011/172 constitutes a series of individual measures intended to implement Article 1(1) of that decision. The ground on which the applicants’ assets were frozen, set out in that annex, must therefore be interpreted in accordance with the principles identified in the two preceding paragraphs.
As to the interpretation of the ground for listing the applicants in the Annex to Decision 2011/172
First of all, it must be noted that the different language versions of the Annex to Decision 2011/172 may be divided into two groups of comparable size: in certain official languages of the European Union, that annex is drafted in a manner analogous to the English-language version, whereas, in other official language versions, the wording is close to the French-language version. The comparison of the language versions of that annex is therefore of no assistance: it neither shows the intention of those drafting the measure nor reveals a possible clerical mistake affecting one or more language versions.
Next, it is apparent that, whichever language version is taken, the ground on which the applicants’ assets were frozen, set out in the Annex to Decision 2011/172, is consistent with Article 1(1) of that decision, as interpreted in paragraph 67 above. That article lays down that not only the assets of those ‘prosecuted’ in their personal capacity, in Egypt, for misappropriating State funds are to be frozen, but also, in particular, those of persons concerned, in that country, simply by ‘judicial proceedings’ connected to criminal proceedings for the ‘misappropriation of Egyptian State funds’.
Lastly, it must be noted that Article 1(1) of Decision 2011/172 enables the assets of five categories of person to be frozen (see paragraph 67 above). However, the French-language version of the Annex to that decision enables only one of those categories to be targeted, namely persons being prosecuted for ‘misappropriation of Egyptian State funds’ (see paragraph 87 above). The English-language version of that annex covers three categories of person, that is, in addition to persons being prosecuted for ‘misappropriation of Egyptian State funds’, those prosecuted as a party to that misappropriation and those subject to judicial proceedings connected to criminal proceedings for ‘misappropriation of Egyptian State funds’ (see paragraph 86 above). Consequently, under the English-language version, the ground for listing the applicants in the Annex to Decision 2011/172 has a meaning and scope that encompasses the scope of Article 1(1) of that decision more extensively. It is therefore more consonant with the objective pursued by that article.
In accordance with the wording of the English-language version, it must therefore be found that the Council intended to freeze the applicants’ assets on the ground that they were subject to judicial proceedings in Egypt linked, in whatever form, to investigations concerning the misappropriation of State funds.
As regards compliance with the criteria laid down in Article 1(1) of Decision 2011/172
According to the criteria laid down in Article 1(1) of Decision 2011/172, the persons falling within the five categories set out in paragraph 67 above could be listed in the Annex to Decision 2011/172.
In the present case, as stated in paragraph 95 above, the Council listed the applicants in the Annex to Decision 2011/172 on the sole ground that they were subject to judicial proceedings linked to investigations concerning the misappropriation of State funds.
As noted in paragraphs 94 and 95 above, such a ground is among those laid down in Article 1(1) of that decision. Indeed, it refers to three of the five cases envisaged by that article.
It follows that, in listing the applicants in the Annex to Decision 2011/172, the Council did not infringe the criteria which it had itself laid down in Article 1(1) of that decision.
As regards compliance with the criteria laid down in Article 2(1) of Regulation No 270/2011
First of all, it must be noted that the structure of Regulation No 270/2011 is similar to that of Decision 2011/172, so that the considerations set out in paragraph 26 above are to be applied, as noted in paragraph 27 above, mutatis mutandis as regards Regulation No 270/2011 and Annex I thereto. Consequently, the persons referred to in Annex I must meet the criteria laid down in Article 2(1) of Regulation No 270/2011.
Next, it must be noted that those criteria are identical to those laid down in Article 1(1) of Decision 2011/172. In that regard, Article 2(1) of Regulation No 270/2011 is drafted in similar terms to Article 1(1) to Decision 2011/172, to which it indeed refers.
Lastly, the grounds for listing the applicants in Annex I to Regulation No 270/2011 are identical to those for listing them in the Annex to Decision 2011/172.
Accordingly, for the reasons set out above, it must be concluded that the criteria laid down in Article 2(1) of Regulation No 270/2011 have been complied with in the present case.
It follows from all the foregoing that the second plea in law must be rejected.
3. The third plea in law, alleging breach of the obligation to state reasons
As provided in the second paragraph of Article 296 TFEU: ‘Legal acts shall state the reasons on which they are based …’
Under Article 41(2)(c) of the Charter of Fundamental Rights, the right to good administration includes, in particular, ‘the obligation of the administration to give reasons for its decisions’.
It has consistently been held that the statement of reasons required by Article 296 TFEU and Article 41(2)(c) of the Charter of Fundamental Rights must be appropriate to the contested act and to the context in which it was adopted. It must disclose in a clear and unequivocal fashion the reasoning followed by the institution which adopted the measure in such a way as to enable the person concerned to ascertain the reasons for the measure and to enable the court having jurisdiction to exercise its power of review. The requirements to be satisfied by the statement of reasons depend on the circumstances of each case (see Case C‑417/11 P Council v Bamba [2012] ECR, paragraphs 50 and 53 and the case-law cited).
It is not necessary for the reasoning to go into all the relevant facts and points of law, since the question whether the statement of reasons meets the requirements of Article 296 TFEU and Article 41(2)(c) of the Charter of Fundamental Rights must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question. Thus, first, the reasons given for a measure adversely affecting a person are sufficient if that measure was adopted in a context which was known to the person concerned and which enables him to understand the scope of the measure concerning him (see Council v Bamba, cited at paragraph 107 above, paragraphs 53 and 54 and the case-law cited). Secondly, the degree of precision of the statement of the reasons for a measure must be weighed against practical realities and the time and technical facilities available for taking the measure (see Case T-228/02 Organisation des Modjahedines du peuple d’Iran v Council [2006] ECR II-4665, paragraph 141 and the case-law cited).
In particular, the statement of reasons for a measure freezing assets cannot, as a rule, consist merely of a general, stereotypical formulation (see, to that effect, Organisation des Modjahedines du peuple d’Iran v Council, cited at paragraph 108 above, paragraph 143). Subject to the reservations set out in paragraph 108 above, such a measure must, on the contrary, indicate the actual and specific reasons why the Council considers that the relevant rules are applicable to the party concerned (see Organisation des Modjahedines du peuple d’Iran v Council, cited at paragraph 108 above, paragraph 143 and the case-law cited; see, to that effect, Council v Bamba, cited at paragraph 107 above, paragraph 52).
In the present case, the applicants submit that the reasons given in Decision 2011/172 and Regulation No 270/2011 are insufficient.
In support of that plea, the applicants state, first, that the Council has failed to demonstrate in a clear manner why it considered that they met the criterion set out in Article 1 of Decision 2011/172.
Secondly, the applicants submit that the reasons given in the Annex to Decision 2011/172 are not detailed enough. Indeed, that annex mentions a ‘vague allegation relating to judicial proceedings under a Convention unknown to the Applicants’. In any event, the statements in that annex do not, in their view, make it possible to know why the Council considers that the imposition of restrictive measures remains justified.
However, it is apparent that Decision 2011/172 refers clearly to Article 29 TEU, on the basis of which it was adopted. Next, it is apparent from the title of the Annex to Decision 2011/172 that that annex comprises a ‘[l]ist of natural and legal persons, entities and bodies referred to in Article 1’. Lastly, Regulation No 270/2011 cites Article 215(2) TFEU. As to Annex I to that regulation, it states clearly that it comprises a ‘[l]ist of natural and legal persons, entities and bodies referred to in Article 2(1)’. Consequently, the Council has shown in an unequivocal manner what, in its view, was the legal basis of Decision 2011/172, Regulation No 270/2011 and the annexes to those acts.
In addition, it is apparent from Decision 2011/172 and Regulation No 270/2011 that the applicants were made subject to restrictive measures ‘in view of the situation in Egypt’ on the ground that they were subject to judicial proceedings in Egypt linked to investigations concerning the misappropriation of State funds (see paragraph 86 above). The considerations of fact that were the basis for the Council’s view that the applicants had to have their assets frozen as provided for by Article 1(1) of Decision 2011/172 are sufficiently detailed to enable the applicants to challenge their correctness before the Council and then before the Courts of the European Union. Moreover, in English, the language used by the applicants in their correspondence with the Council and during the present proceedings, those considerations are unequivocal.
Moreover, the considerations are not stereotypical in nature. They do not just copy the wording of a general provision. It is true that they are the same as those on the basis of which the other natural persons mentioned in the Annex to Decision 2011/172 and in Annex I to Regulation No 270/2011 had their assets frozen. However, they seek to describe the particular situation of the applicants who, like others, have, in the Council’s view, been subject to judicial proceedings linked to investigations concerning the misappropriation of State funds.
It follows from this that the contested acts contain a statement of the points of law and facts on which, according to the Council, those acts are based. Consequently, their wording discloses in a clear fashion the Council’s reasoning.
In those circumstances, the third plea must be rejected.
4. The fourth plea in law, alleging errors of fact and in the legal characterisation of the facts
As stated above, it is apparent from the Annex to Decision 2011/172 and from Annex I to Regulation No 270/2011 that the applicants have each had their assets frozen solely on the ground that they were subject to judicial proceedings in Egypt linked to investigations concerning the misappropriation of State funds.
The applicants submit, in essence, that that ground is vitiated by errors of fact and in the legal characterisation of the facts. That plea is divided into two parts.
By the first part, the applicants submit that the second, third and fourth applicants are not subject to any judicial proceedings in Egypt.
By the second part, the applicants submit that, while the first applicant ‘is currently subject to judicial proceedings’, those proceedings do not relate to misappropriation of State funds as referred to in the Annex to Decision 2011/172.
As regards the first part of the plea
By letter of 1 April 2011, the applicants informed the Council that they assumed that the first applicant had been listed in the Annex to Decision 2011/172 and Annex I to Regulation No 270/2011 because of a request from a person or body within Egypt. They also asked the Council to confirm who that person or body was and provide a copy of that request and supporting documentation.
By letter of 7 June 2011, the Council explained to the applicants’ lawyers that it had received a ‘letter dated 13 February 2011 from the Egyptian Ministry of Foreign Affairs with a request by the Egyptian Prosecutor General to freeze the assets of certain former Ministers and officials’, which included the first applicant. A copy of a document dated 13 February 2011 on the headed notepaper of the Office of the Egyptian Minister of Foreign Affairs was enclosed with that letter from the Council. In that unsigned document, reference was made to a request from the Egyptian Prosecutor General to freeze the assets of ‘former [Egyptian] Ministers, officials and nationals’. The first applicant was one of the persons the subject of that request, but not the second, third and fourth applicants.
In the meantime, the applicants’ lawyers asked the Council, by letter of 13 May 2011, to provide them, in particular, with all the evidence on the basis of which it had frozen their clients’ assets. Those lawyers subsequently sent two other letters to the Council on 9 June and 15 July respectively.
By letter of 29 July 2011, the Council replied to the letters from the applicants’ lawyers dated 13 May, 9 June and 15 July 2011. In that reply, no reference is made to possible court proceedings against the second, third and fourth applicants. Only the following is stated:
‘[They] appear on the list of persons subject to the above-mentioned request for judicial assistance by the Egyptian authorities (they appear under nos. 2, 3 and 4 on the enclosed list). The request states that orders have been issued by the Egyptian Prosecutor General for the seizure of the assets of all the persons on the list, and that this order was endorsed by the criminal court.’
The Council’s letter of 29 July 2011 included in annex a note dated 24 February 2011 (Ref NV93/11/ms), by which the Embassy of the Arab Republic of Egypt in Brussels (Belgium) requested the High Representative of the Union for Foreign Affairs and Security Policy to transmit to the ‘competent [judicial] authorities’ a request for judicial assistance from the Office of the Egyptian Prosecutor General.
Three documents were included in annex to that note.
The first document was the undated and unsigned text of the request for judicial assistance. That request, drafted in English, sought to ‘freeze, confiscate and return assets of some former ministers and officials’. It referred to ‘the investigation carried out by the Egyptian Prosecution General in the [Cases Nos] 162 and 234 for the year 2010 ...; 34, 36, 38, 39, 55 and 70 for the year 2011 ... and [in Case No] 137/2011 ... regarding crimes of corruption, usurping of public assets, and money laundering crimes committed by former ministers and officials’ and listed fifteen individuals, including the four applicants. The request went on to state, first, that the Egyptian Prosecutor General had decided to seize the assets of the persons thus listed and, secondly, that that seizure had been ‘endorsed by the criminal court’.
The second document annexed to the note of 24 February 2011 was a ‘list of former officials, [their] wives and children’ in which the second, third and fourth applicants appeared second, third and fourth, respectively.
The third document annexed to the note of 24 February 2011 was presented as a summary of the allegations against the first applicant in ‘[Case No] 38 for the year 2011’, a case referred to in the request for judicial assistance referred to in paragraph 128 above. That document was undated, and was not on headed notepaper or signed. However, as with the note of 24 February 2011 and all the other documents annexed thereto, it bore the stamp of the Embassy of the Arab Republic of Egypt in Brussels.
In short, none of the above-mentioned documents suggests that the second, third and fourth applicants have been prosecuted in Egypt for the misappropriation of State funds.
On the other hand, the request for judicial assistance referred to in paragraph 128 above shows, unequivocally, that, on 24 February 2011, less than one month before Decision 2011/172 and Regulation No 270/2011 were adopted, all the applicants were the subject of an order of the Egyptian Prosecutor General seeking to seize their assets, which had been endorsed by a criminal court and was linked to investigations concerning misappropriation of State funds.
The applicants have not moreover produced any evidence to cast doubt on the accuracy of the information entered on that request for judicial assistance. On the contrary, a decision of the Egyptian courts, a translation of which was lodged at the Court Registry on 5 March 2013, confirms that the second applicant still had her assets frozen on 30 January 2013. In addition, the applicants did not dispute, at the hearing, that the above-mentioned order for seizure existed.
As they were the subject of the above-mentioned order of the Egyptian Prosecutor General, the second, third and fourth applicants were persons subject to judicial proceedings in Egypt linked to investigations concerning misappropriation of State funds. In describing them in that manner in the Annex to Decision 2011/172, the Council did not therefore err in fact or in its legal characterisation of the facts.
The first part of the plea must accordingly be rejected.
As regards the second part of the plea
In support of the second part of the plea, the applicants submit that the first applicant is only alleged to have been complicit in conduct which may be categorised as the improper grant of licences.
However, it is clear from the document referred to in paragraph 130 above that, in ‘[Case No] 38 for the year 2011’, the first applicant was ‘accused’ first of ‘usurping the assets’ of a ‘public sector company with State-owned shares’ and, secondly, of ‘committing crimes of profiteering and [intentionally] harming public assets, as well as usurping and … facilitating the usurpation of [such] assets’.
More specifically, in that document, the first applicant was accused of:
—
using his influence, as Chief Executive Officer of a ‘public-sector company with State-owned shares’, in order, first, to exchange shares for the benefit of a ‘private company’ which he controlled, secondly, to enable that private company to achieve commercial success at the expense of the ‘public-sector company’ in question and, thirdly, to increase unlawfully the shares of the ‘private company’ in question in the capital of the above-mentioned ‘public-sector company’;
—
and failing to pay his debts to that company and the banks.
Consequently, the first applicant was prosecuted in Egypt for what the Egyptian public prosecutor categorised as the ‘usurping of public assets’.
The Court finds that that categorisation corresponds, in essence, to the ‘misappropriation of … State funds’ found in Decision 2011/172 and Regulation No 270/2011.
In those circumstances, the Council did not err in fact or in the categorisation of the facts by listing the first applicant in the annexes to the contested acts.
In seeking to challenge that conclusion, the applicants submitted, in the reply, that neither the request for judicial assistance described in paragraph 128 above nor the documents annexed thereto enabled them to be identified as people ‘responsible for misappropriation of Egyptian State funds’, who were thus depriving the Egyptian people of the benefits of the sustainable development of their economy and society and undermining the development of democracy in the country, or as people associated with them.
However, in any event, such a fact cannot render the contested acts unlawful. In that regard, it must be noted that Article 1(1) of Decision 2011/172, which sets out the criteria for listing in the Annex to that decision, is directed only at the categories of person referred to in paragraph 67 above. Admittedly, the second recital in the preamble to Decision 2011/172 states that those persons are ‘thus depriving the Egyptian people of the benefits of the sustainable development of their economy and society and undermining the development of democracy in the country’. However, that statement does not constitute an additional condition which must be met when a new person is listed in the Annex to Decision 2011/172. It is only a clarification of the ultimate objective of that decision. That recital simply explains that the persons referred to in Article 1(1) of Decision 2011/172 are in a position to deprive ‘the Egyptian people of the benefits of the sustainable development of their economy and society and [of hindering] the development of democracy in the country’.
In addition, it must be noted that none of the five arguments put forward by the applicants in support of the complaint referred to in paragraph 142 above is well founded.
First, the applicants submitted that the documents annexed to the request for judicial assistance described in paragraph 128 above did not ‘refer to any conviction for any offence’ or to an indictment. Those documents simply ‘summarise[d] certain complaints made against the first applicant’ and ultimately give ‘no indication of whether any or all of the complaints [referred to in them] gave rise to judicial proceedings … for misappropriating State funds’.
It is true that the documents annexed to the request for judicial assistance referred to in paragraph 128 above do not refer to any criminal conviction. However, that is irrelevant. The persons targeted in Article 1(1) of Decision 2011/172 are not only those convicted for the misappropriation of State funds but also, in particular, those concerned by judicial proceedings linked to investigations concerning such misappropriation (see paragraph 67 above).
In addition, it is incorrect to claim that none of the documents annexed to the request for judicial assistance concerned an indictment for misappropriation of State funds. As noted in paragraphs 139 and 140 above, the document described in paragraph 130 above referred to a criminal prosecution, in Egypt, of the first applicant for conduct which may be characterised as misappropriation of State funds.
Secondly, the applicants stated that the application for judicial assistance described in paragraph 128 above ‘g[ave] no indication of the quantum of funds frozen or what kind of judicial assistance it requests, from which court, or why such assistance [was] necessary’.
However, that fact that the evidence relied on by the Council contains no such information has no effect on the outcome of the dispute. It cannot, in any event, show that it made an error of fact in taking the view that the applicants were subject to judicial proceedings linked to investigations concerning the misappropriation of State funds.
Thirdly, the applicants stated that the application for judicial assistance described in paragraph 128 above ‘d[id] not even suggest legislative action by the European Union’.
However, that argument is based on the incorrect premiss that the Council could freeze the assets of an applicant only if it had received a request to that effect from the Egyptian authorities. On the contrary, the Council had the authority to freeze the assets of all those persons meeting the criteria laid down in Article 1(1) of Decision 2011/172, regardless of whether the situation of those persons was made known by the Egyptian authorities or by other sources.
Fourthly, the applicants submitted that the application for judicial assistance described in paragraph 128 above was inaccurate. First of all, there was a reference in the documents annexed to that request to debts of 7 billion Egyptian pounds, when this related to a complaint which the authorities investigated and did not proceed with. Next, the ‘other complaints’ do not relate to misappropriation of public funds, but instead to acts concerning a company in which the Egyptian State held only a minority stake. Those other complaints have also been brought without any supporting evidence. Lastly, those complaints relate to acts committed not by the first applicant but by companies in which he held a majority shareholding.
It is true that in the document referred to in paragraph 130 above, it was stated, in the description of the only case concerning the first applicant, namely ‘[Case No] 38 for the year 2011’, that he had refrained from paying his debts amounting to 7 billion Egyptian pounds. However, the applicants fail to produce any evidence to show that that statement is inaccurate. In any event, any inaccuracy in that statement could not in any way affect the outcome of the proceedings. In the light of the considerations set out in paragraphs 137 to 140 above, such an inaccuracy would not be sufficient of its own to prove that, on the basis of the document referred to in paragraph 130 above, the Council was not entitled to characterise the first applicant as being subject to judicial proceedings linked to investigations for misappropriation of State funds.
As to the other contentions in paragraph 152 above, these relate, in the applicants’ view, to ‘complaints’ other than that relating to the debt of 7 billion Egyptian pounds mentioned in paragraph 153 above. They thus relate to cases other than ‘[Case No] 38 for the year 2011’ referred to in the document mentioned in paragraph 130 above, cases which the Council did not rely on in order to draw up the contested acts.
Fifthly, the applicants submitted that the documents in support of the request for judicial assistance described in paragraph 128 above were incomplete. They argued that the United Kingdom authorities had refused to grant a request seeking to freeze the applicants’ assets, because the Egyptian authorities had given the United Kingdom authorities insufficient information to justify such a measure.
However, as has been noted, it must be found that the information provided in the request for judicial assistance and the annexes thereto supports the conclusion that the applicants were subject to judicial proceedings linked to investigations concerning the misappropriation of State funds. In addition, it is important to note that the claim concerning the conduct of the United Kingdom authorities concerns facts extraneous to the present dispute. Such facts are therefore irrelevant to its outcome, all the more so since the applicants do not specify which documents had been sent by the Egyptian authorities to the United Kingdom authorities.
The second part of the plea must therefore be rejected in its entirety, with the result that the plea cannot be upheld.
5. The fifth plea, alleging that the rights of the defence and the right to effective judicial protection have been infringed
The applicants submit that the rights of the defence and the right to effective judicial protection have been infringed. This plea is in three parts.
As regards the first part
The applicants state that the evidence on the basis of which their assets were frozen was not communicated to them.
Such an argument has no basis in fact.
According to the case-law, it is only on the request of the party concerned that the Council is required to provide access to the evidence on the basis of which it froze assets. It would be excessive to require spontaneous communication of such evidence (see, to that effect Case T-390/08 Bank Melli Iran v Council [2009] ECR II-3967, paragraph 97).
In the present case, the applicants requested the Council to provide them with the evidence on the basis of which Decision 2011/172 and Regulation No 270/2011 had been formulated. As was noted in paragraph 122 above, the applicants’ lawyers stated, by letter of 1 April 2011, that they assumed that Decision 2011/172 and Regulation No 270/2011 had been adopted because of a ‘request [to that effect] from a person or body within Egypt’ and asked the Council to ‘provide a copy of [that] request and supporting documentation’. In addition, it is apparent from paragraph 124 above that, by letter of 13 May 2011, those same lawyers noted that the applicants ‘need[ed] evidence and information [in order to be in a position] to refute the case against them which is said to justify their listing [in the Annex to Decision 2011/172]’.
However, it must be stated that the Council complied fully with the applicants’ requests.
First, the documents in the file before the Court show that, by a letter of 7 June 2011 referred to in paragraph 123 above, the Council replied to the request of 1 April 2011, stating that it was referring the applicants to a document ‘dated 13 February 2011 from the Egyptian Ministry of Foreign Affairs with a request by the Egyptian Prosecutor General to freeze the assets of certain former Ministers and officials, based on the United Nations Convention against Corruption, and which includes [the first applicant] on the list of persons concerned’. That document dated 13 February 2011 was enclosed with the Council’s letter.
Secondly, by a letter of 29 July 2011 referred to in paragraph 125 above, the Council replied, inter alia, to the letter of 13 May 2011. In the letter of 29 July 2011 it referred the applicants’ lawyers not only to the ‘information … already communicated … in the Council’s previous letter of 7 June 2011’, but also to a ‘communication … from the Egyptian Mission to the E[uropean] U[nion] dated 24 February 2011, enclosing a request for judicial assistance from the Egyptian Prosecutor General’. That communication together with the request for judicial assistance, described in paragraphs 126 and 128 above respectively, were enclosed with the Council’s letter of 29 July 2011.
Accordingly, the first part of the plea must be rejected.
As regards the second part
The applicants submit, in their application, that the ground on which their assets were frozen is too vague. In addition, they submit, in their reply, that it was only in the defence that the Council gave the true ground for freezing their assets. Therefore, they were not given an opportunity to challenge that ground properly at the time when Decision 2011/172 and Regulation No 270/2011 were adopted.
However, those arguments are based, in any event, on an incorrect premiss.
Contrary to the applicants’ arguments, Decision 2011/172 and Regulation No 270/2011 are sufficiently reasoned (see paragraph 116 above). Their reasoning was indeed reproduced by the applicants in their letter of 13 May 2011 to the Council.
The second part of the plea must therefore be rejected.
As regards the third part
First, the applicants state that although they sent the Council various comments by letter of 13 May 2011, the Council failed to respond, in its letter of 29 July 2011, to all of the arguments put forward in their letter. The applicants submit that the Council failed to respond, in particular, either to the comments concerning the political motivation of the prosecution, in Egypt, of the first applicant or to those concerning the breach of the rights of the defence during that prosecution.
Secondly, the applicants submit that neither Decision 2011/172 nor Regulation No 270/2011 specify the grounds for the individual freezing measures concerning them and the evidence on which those measures are based must be communicated to them. They add that those acts fail to state that the persons whose assets are frozen must be heard and their views taken into account. Lastly, they submit that Decision 2011/172 and Regulation No 270/2011 ‘provide no procedure for communicating the evidence on which the decision to include the Applicants was based, nor for hearing their response and properly testing the allegations and evidence justifying the decision to list and continue to list the Applicants’.
Thirdly, the applicants submit that the grounds for the freezing measures against them were not communicated to them in advance of publication of Decision 2011/172 and Regulation No 270/2011. They also state that they had no prior notice of being the subject of freezing measures.
Those arguments cannot succeed.
First, neither Decision 2011/172, Regulation No 270/2011 nor any other text or principle requires the Council to respond to each of the submissions made to it by the applicants after Decision 2011/172 and Regulation No 270/2011 were adopted, failing which the individual asset-freezing measures adopted on the basis of the provisions of general scope of those acts are rendered unlawful. Consequently, the mere fact that the Council did not respond specifically to the applicants’ claims that the prosecution, in Egypt, of the first applicant was politically motivated and breached the rights of the defence cannot affect the lawfulness of the proceedings after Decision 2011/172 and Regulation No 270/2011 were adopted, regardless of whether those claims are well founded.
Secondly, an initial decision to freeze funds, such as that taken against the applicants by means of the Annex to Decision 2011/172 and Annex I to Regulation No 270/2011, must be able to take advantage of a surprise effect. Accordingly, the Council cannot be required to communicate the grounds for that measure to the person concerned before such a measure is adopted (Kadi and Al Barakaat International Foundation v Council and Commission, cited at paragraph 52 above, paragraph 338). Similarly, the Council is not under an obligation to inform the persons concerned by a measure of that kind of its imminent adoption.
Thirdly, as is apparent from the two preceding paragraphs, no provision or principle requires that the EU measures defining the set of rules to be followed by individual asset-freezing measures must include provisions or establish procedures such as those described in paragraph 172 above.
Moreover, even if by the arguments in paragraphs 171 to 173 above the applicants also intended to argue, first, that neither the evidence on the basis of which their assets were frozen nor the grounds for that freezing were communicated to them after Decision 2011/172 and Regulation No 270/2011 were adopted, and, secondly, that the Council has not heard the applicants, such a line of argument must be rejected.
Firstly, the argument to the effect that the Council failed to communicate the evidence on which it relied must be rejected on the grounds set out in paragraphs 161 to 165 above.
Secondly, the principle of the observance of the rights of the defence and the right to an effective remedy guaranteed by the first paragraph of Article 47(1) of the Charter of Fundamental Rights require, as a rule, that the European Union authority which adopts an act imposing restrictive measures in respect of a person or entity communicate the grounds for that act, at least as swiftly as possible after it was adopted, in order to enable those persons or entities to defend their interests or exercise their right to bring an action (see, to that effect, Kadi and Al Barakaat International Foundation v Council and Commission, cited at paragraph 52 above, paragraphs 335 and 336, and Bank Melli Iran v Council, cited at paragraph 161 above, paragraph 92). The Council is, as a rule, required to communicate a decision individually to satisfy that obligation (Case C-548/09 P Bank Melli Iran v Council [2011] ECR I-11381, paragraphs 52 and 55).
None the less, the fact that the Council has not itself communicated the grounds for an act imposing restrictive measures is not capable of affecting the validity of that act when such a failure did not have the effect of depriving the person or entity concerned of an opportunity of knowing, in good time, the reasons for that act or of assessing its validity (see, to that effect, the judgment in Case C‑548/09 P, Bank Melli Iran v Council, cited at paragraph 180 above, paragraph 55).
In the present case, in any event, it is apparent from the wording of the above-mentioned letter from the applicants’ lawyers to the Council on 13 May 2011, and from the application, that the applicants were able to have access to the grounds of Decision 2011/172 and Regulation No 270/2011 in sufficient time in order to be in a position to challenge those acts. In particular they reproduced, on the third page of that letter, part of the grounds of those acts.
Thirdly, the natural or legal persons to which an initial decision to freeze their funds applies have the right to be heard by the Council after that decision has been adopted. However, the Council is not required automatically to conduct a hearing (Kadi and Al Barakaat International Foundation v Council and Commission, cited at paragraph 52 above, paragraph 341, and judgment in Case T‑390/08, Bank Melli Iran v Council, cited at paragraph 161 above, paragraph 98).
In the present case, it is not apparent from any of the documents in the file before the Court that the applicants, who submitted – in particular by letters of 1 April and 13 May 2011 – their written observations regarding Decision 2011/172 and Regulation No 270/2011, asked to be heard by the Council after those acts were adopted. In those circumstances, the applicants, who did not in any event have any right to be heard before Decision 2011/172 and Regulation No 270/2011 were adopted (Kadi and Al Barakaat International Foundation v Council and Commission, cited at paragraph 52 above, paragraph 341), have no ground for their complaint that they were not heard by the Council.
The third part of the fifth plea must be rejected, so that the plea cannot be upheld.
6. The sixth plea in law, alleging infringement of the right to property
The applicants allege that the right to property has been infringed. They put forward four sets of arguments in support of that plea.
Firstly, they submit that the Council has not demonstrated that a total asset freeze was the least onerous means of ensuring the objective pursued by Decision 2011/172 and Regulation No 270/2011. In the applicants’ view, the freezing of their assets by the Council is therefore disproportionate. In support of their assertion, they add, first of all, that no indication was given of the quantum of assets they were said to have misappropriated. Next, they assert that the freezing of their assets in Egypt is sufficient, since it relates to assets far greater in value than those which they are alleged to have misappropriated.
Secondly, the applicants state, in their reply, that the prevention of third parties making economic resources available to them, under Article 1(2) of Decision 2011/172, is illogical, disproportionate and counterproductive to the objective pursued by the Council, namely the recovery, at the end of judicial proceedings in Egypt, of the public funds which may have been misappropriated.
Thirdly, the applicants submit that Decision 2011/172 and Regulation No 270/2011 have a marked and long-lasting impact on their reputation, since their effect is not only to freeze all of their assets within the European Union but also to ‘brand’ them as people who have stolen Egyptian assets and are thus enemies of the Egyptian people.
Fourthly, the applicants submit that the Council has not demonstrated that a ‘travel ban’ was justified and proportionate.
In that regard, the Court finds at the outset that the third set of arguments, stated in paragraph 189 above must, in any event, be rejected. The importance of the aims pursued by Decision 2011/172 and Regulation No 270/2011 is such as to justify their possible - even substantial - negative consequences for the applicants without that affecting their lawfulness (see, to that effect, Case C-84/95 Bosphorus [1996] ECR I-3953, paragraph 26, and Case T‑390/08 Bank Melli Iran v Council, cited at paragraph 161 above, paragraph 70).
In addition, the fourth set of arguments, stated in paragraph 190 above, is unfounded. Neither Decision 2011/172 nor Regulation No 270/2011 imposes a travel ban on the applicants.
In short, only the first two sets of arguments, stated in paragraphs 187 and 188 above, are capable of supporting the plea alleging breach of the right to property. They will therefore be examined below in turn.
As regards the first set of arguments
Article 17(1) of the Charter of Fundamental Rights provides:
‘Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated by law in so far as is necessary for the general interest.’
In the present case, the Council froze, by Decision 2011/172 and Regulation No 270/2011, during a definite period, the assets held, inter alia, by the applicants. Consequently, the Council must be regarded as having limited the exercise, by the applicants, of the right referred to in Article 17(1) of the Charter of Fundamental Rights (see, to that effect, Kadi and Al Barakaat International Foundation v Council and Commission, cited at paragraph 52 above, paragraph 358). However, the right to property, as protected by that article, does not constitute an unfettered prerogative (see, to that effect, Case 4/73 Nold v Commission [1974] ECR 491, paragraph 14, and Kadi and Al Barakaat International Foundation v Council and Commission, cited at paragraph 52 above, paragraph 355) and may therefore be limited, under the conditions laid down in Article 52(1) of the Charter of Fundamental Rights.
Article 52(1) of the Charter of Fundamental Rights provides, first, that ‘[an]y limitation on the exercise of the rights and freedoms recognised by [the Charter of Fundamental Rights] must be provided for by law and respect the essence of those rights and freedoms’, and, secondly, that ‘[s]ubject to the principle of proportionality, limitations may be made only if they are necessary and genuinely meet objectives of general interest recognised by the [European] Union or the need to protect the rights and freedoms of others’.
Consequently, in order to comply with EU law, a limitation on the exercise of the right to property must, in any event, satisfy three conditions.
First, the limitation must be ‘provided for by law’ (see, to that effect, Case C-407/08 P Knauf Gips v Commission [2010] ECR I-6375, paragraph 91). In other words, the measure in question must have a legal basis.
Secondly, the limitation must refer to an objective of general interest, recognised as such by the European Union. Those objectives include those pursued under the CFSP, and referred to in Article 21(2)(b) and (d) TEU, namely supporting democracy, the rule of law and human rights as well as sustainable development of developing countries with the essential objective of eradicating poverty.
Thirdly, the limitation may not be excessive: it must be necessary and proportional to the aim sought (see, to that effect, Bosphorus, cited at paragraph 191 above, paragraph 26, and Kadi and Al Barakaat International Foundation v Council and Commission, cited at paragraph 52 above, paragraphs 355 and 360) and the ‘essential content’, that is, the substance, of the right or freedom at issue must not be impaired (see, to that effect, Nold v Commission, cited at paragraph 195 above, paragraph 14, and Kadi and Al Barakaat International Foundation v Council and Commission, cited at paragraph 52 above, paragraph 355).
In the present case, each of these conditions is met.
First, the limitation on the exercise of the right to property in question must be regarded as ‘provided for by law’, within the meaning of Article 52(1) of the Charter of Fundamental Rights, given that the criteria laid down in Article 1(1) of Decision 2011/172 and in Article 2(1) of Regulation No 270/2011 have been complied with (see paragraphs 99 and 103 above).
Secondly, as noted in paragraph 44 above, Decision 2011/172 and the Annex thereto contribute to the attainment of the general interest objectives referred to in Article 21(2)(b) and (d) TEU. The same is true with regard to Regulation No 270/2011 and Annex I thereto, in so far as they reflect the provisions of Decision 2011/172.
Thirdly, contrary to the applicants’ claims (see paragraph 187 above), the restriction on their exercise of the right to property is not disproportionate.
The principle of proportionality, as one of the general principles of EU law, requires that measures adopted by the EU institutions do not exceed the limits of what is appropriate and necessary in order to attain the objectives pursued by the legislation in question. Consequently, when there is a choice between several appropriate measures, recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued (see Case C-189/01 Jippes and Others [2001] ECR I-5689, paragraph 81, and the judgment of 6 May 2010 in Case T‑388/07 Comune di Napoli v Commission, not published in the ECR, paragraph 143).
The measures which the Council took on the basis of Article 1(1) of Decision 2011/172 and Article 2(1) of Regulation No 270/2011 are appropriate in order to achieve the objectives referred to in paragraph 203 above. Those measures assist effectively with establishing misappropriation of State funds to the detriment of the Egyptian authorities and make it easier for those authorities to obtain the restitution of the proceeds of such misappropriation. As is apparent from paragraphs 139 to 141 above, the documents in the file before the Court show that the first applicant was prosecuted in Egypt for conduct which could be categorised as ‘misappropriation of State funds’.
In addition, the applicants have not proved that the Council could envisage adopting measures that are less onerous than but equally appropriate as those provided for in Decision 2011/172 and Regulation No 270/2011.
In the absence of a judicial decision concerning the merits of the court proceedings in Egypt, the Council could not, when Decision 2011/172 and Regulation No 270/2011 were adopted, know the nature, or itself state the quantum, of any possible misappropriation of Egyptian State funds by the first applicant. It was not therefore in a position to distinguish between, first, the assets likely to have become part of the applicants’ estates following such misappropriation and, secondly, the remainder of the goods comprising their estates. In those circumstances, nothing enabled the Council to assume that the seizure of the applicants’ assets by the Egyptian authorities (see paragraph 132 above) was sufficient to cover any future conviction of the first applicant.
Lastly, the disadvantages caused by the asset-freezing measures at issue are not disproportionate to the objectives pursued. In that regard, it must in particular be noted, first, that those measures are by nature temporary and reversible (see paragraph 79 above) and do not therefore infringe the ‘essential content’ of the right to property, and, secondly, that, in accordance with Article 1(3) of Decision 2011/172, they may be derogated from in order to cover ‘basic needs’, legal costs or even the ‘extraordinary expenses’ of the persons concerned.
As regards the second set of arguments
By the argument referred to in paragraph 188 above, set out for the first time in the reply, the applicants essentially put forward a plea of illegality for the purpose of Article 277 TFEU, to the effect that the prevention of third parties making additional economic resources available to them, pursuant to Article 1(2) of Decision 2011/172, amounts to a disproportionate interference with the right to property.
First, in accordance with Article 52(3) of the Charter of Fundamental Rights, Article 17(1) of that charter, which enshrines the right to property, must be interpreted in the light of the ECHR’s case-law on Article 1 of Protocol No 1 to the Convention for the Protection of Human Rights and Fundamental Freedoms, which guarantees the right to the peaceful enjoyment of ‘possessions’.
Secondly, according to the ECHR’s case-law, Article 1 of Protocol No 1 does not guarantee the right to acquire ‘property’. An applicant can allege a violation of that article only in so far as the impugned decisions relate to his ‘possessions’ within the meaning of that provision. ‘Possessions’ can be either ‘existing possessions’ or ‘assets’, including claims, in respect of which the applicant can argue that he or she has at least a ‘legitimate expectation’ of obtaining effective enjoyment of a property right. Where the proprietary interest is in the nature of a claim it may be regarded as an ‘asset’ only where it has a sufficient basis in law (see Kopecký v. Slovakia [GC], no. 44912/98, §§ 35 and 52 and the case-law cited therein, ECHR 2004–IX).
In the present case, it is apparent from Article 1(6) of Decision 2011/172 that Article 1(2) of that decision does not preclude the addition to frozen accounts of interest or other earnings on those accounts or prohibit payments due under contracts, agreements or obligations that were concluded or arose prior to the date on which those accounts were frozen. Consequently, only new payments of funds by third parties which, at the date on which that decision entered into force, were not provided for by a legal act are prohibited by Article 1(2) of Decision 2011/172.
If, however, by claiming that that provision was unlawful, the applicants sought to argue that it prevented third parties from making payments due under legal acts predating the entry into force of the freezing of their assets, it must therefore be found that, to that extent, their plea of illegality is based on an incorrect premiss.
As to future payments which, when the freezing of assets entered into force, were not provided for by any legal act, the applicants are incorrect to take the view that those payments fall within the scope of Article 17(1) of the Charter of Fundamental Rights. By preventing third parties from making such payments, the Council did not deprive the applicants of any ‘possession’, within the meaning of the ECHR’s case-law referred to in paragraph 212 above.
Without having to rule on whether the submission, in the reply, of the argument referred to in paragraph 188 above was out of time (see paragraph 54 above), the Court must therefore reject that argument.
Consequently, having also found that the fifth plea in law, alleging infringement of the rights of the defence and of the right to effective judicial protection, had to be rejected, the Court must conclude that the sixth plea in law must also be rejected in its entirety.
7. The seventh plea in law, alleging breach of the freedom to conduct a business
Under Article 16 of the Charter of Fundamental Rights, ‘[t]he freedom to conduct a business in accordance with Union law and national laws and practices is recognised’.
In the present case, the applicants allege, implicitly, a breach of that provision. In support of that plea, they state that Decision 2011/172 and Regulation No 270/2011 completely prevent them from conducting any business in the European Union.
It must be found that the immediate aim of those acts is not to preclude the applicants from conducting such business.
In those circumstances, it must be found that, by the arguments referred to in paragraph 218 above, the applicants submit that, in freezing the assets which they had within the territory of the European Union and in preventing third parties from making additional economic resources available to them within the European Union, an indirect consequence of Decision 2011/172 and Regulation No 270/2011 is to prevent them, in practice, from conducting any business in the Union.
Even if interpreted in that manner, the seventh plea in law cannot be upheld.
As has just been noted, in support of the present plea in law the applicants have not argued that the various prohibitions laid down by Decision 2011/172 and Regulation No 270/2011 prevented them from carrying out business with natural and legal persons situated in the territory of the European Union, while they are resident outside that territory.
They have merely alleged that those acts prevented them, in practice, from conducting any business within the European Union.
However, the applicants, who are all Egyptian nationals, fail even to establish that they were authorised, before Decision 2011/172 and Regulation No 270/2011 were adopted, to conduct a business in the territory of a Member State as third-country nationals.
Consequently, they have no grounds for claiming that Decision 2011/172 and Regulation No 270/2011 had the effect of preventing them from conducting a business in the European Union.
Even if the applicants intended to advance the argument referred to in paragraph 223 above, the plea in law would in any event have to have been rejected.
It is true that, pursuant to Article 1(2) of Decision 2011/172, third parties are prohibited from making additional economic resources available to the applicants and that that prohibition has indirectly restricted their capacity to enter a business relationship with natural or legal persons resident or having their seat within the European Union.
However, first, that restriction, provided for by a provision of general scope of Decision 2011/172, is, as noted in paragraph 202 above, provided for by law.
Secondly, that restriction responds to the same general interest objective as that pursued by the freezing of the applicants’ pre-existing assets (see paragraph 203 above).
Thirdly, the restriction at issue is not disproportionate.
That prohibition is appropriate in the light of the purpose of the contested acts, which is to assist the Egyptian authorities with establishing and recovering the assets from possible misappropriation of State funds. Any change to the asset situation of the applicants stemming from legal acts after Decision 2011/172 is liable to make it more complex, if not impossible, to distinguish between, on the one hand, the assets likely to stem from misappropriation of Egyptian State funds and, on the other, the remainder of the assets making up the applicants’ estates. Consequently, the fact the applicants’ estates cannot be increased by payments arising from matters after Decision 2011/172 is liable to assist with the identification and restitution to the Egyptian authorities of the Egyptian State funds which may have been misappropriated to the benefit of the applicants.
Moreover, there are no less onerous measures than the prohibition laid down in Article 1(2) of Decision 2011/172, coupled with the asset-freeze provided for in Article 1(1) of that decision, for freezing the applicants’ estates within the European Union and thereby assisting with the establishment and restitution to the Egyptian authorities of the proceeds of any misappropriation of State funds to the benefit of the applicants.
8. The eighth plea in law, alleging a ‘manifest error of assessment’
The applicants allege that there has been a ‘manifest error of assessment’. They put forward two arguments in support of that plea.
By a first argument, they submit that, by listing them in the Annex to Decision 2011/172, the Council did not comply with the criteria set out in Article 1 of that decision and thus made a ‘manifest error of assessment’.
However, the fact remains that, although that argument is put forward in support of the present plea, it is identical to the second plea in law, alleging, in particular, the failure to comply with the criteria laid down in Article 1(1) of Decision 2011/172. It must therefore be rejected on the grounds set out in paragraphs 57 to 99 above.
By a second argument, the applicants submit that the Council did not apparently seek to ‘assess’ whether they were ‘actually’‘responsible’ for misappropriating Egyptian State funds. In so doing, they presuppose that it was for the Council to ascertain whether they were criminally liable for misappropriation of Egyptian State funds.
However, as is apparent from paragraph 67 above, such an argument is based on the incorrect premiss that only persons who have been convicted of such offences could be the subject of the freezing of assets in question.
The eighth plea in law can therefore only be rejected.
It follows from all the foregoing that the action must be dismissed.
Costs
Under Article 87(2) of the Rules of Procedure of the General Court, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings.
Under Article 87(4) of the Rules of Procedure, Member States and institutions which have intervened in the proceedings are to bear their own costs.
In the present case, since the applicants have been unsuccessful, they must be ordered to pay the costs. In addition, as an intervening institution, the Commission must bear its own costs.
On those grounds,
THE GENERAL COURT (Third Chamber)
hereby:
1.
Dismisses the action;
2.
Orders Mr Ahmed Abdelaziz Ezz, Ms Abla Mohammed Fawzi Ali Ahmed, Ms Khadiga Ahmed Ahmed Kamel Yassin and Ms Shahinaz Abdel Azizabdel Wahab Al Naggar to bear their own costs and, in addition, to pay the costs incurred by the Council of the European Union;
3.
Orders the European Commission to bear its own costs.
Czúcz
Labucka
Gratsias
Delivered in open court in Luxembourg on 27 February 2014.
[Signatures]
Table of contents
Background to the dispute
Procedure and forms of order sought
Law
1. The first plea in law, alleging that Decision 2011/172 and Regulation No 270/2011 have no legal basis
As regards the scope of the applicants’ arguments
As regards the plea of illegality raised against Article 1(1) of Decision 2011/172
Meaning and scope of Article 29 TEU
Compliance with the provisions of Article 29 TEU
As regards the plea of illegality raised against Article 2(1) of Regulation No 270/2011
2. The second plea in law, alleging the failure to observe the criteria whereby certain persons may be listed in the annexes to Decision 2011/172 and Regulation No 270/2011
As regards the criteria for listing in the Annex to Decision 2011/172
As to the need to interpret Article 1(1) of Decision 2011/172
As to the interpretation of Article 1(1) of Decision 2011/172
Whether the interpretation of Decision 2011/172 is compatible with principles or legal rules of a higher order
– As regards the principle that provisions laying down administrative penalties must be interpreted strictly
– As regards the principle of the presumption of innocence
As regards the ground for listing the applicants in the Annex to Decision 2011/172
As regards the need to interpret the ground for listing the applicants in the Annex to Decision 2011/172
As to the interpretation of the ground for listing the applicants in the Annex to Decision 2011/172
As regards compliance with the criteria laid down in Article 1(1) of Decision 2011/172
As regards compliance with the criteria laid down in Article 2(1) of Regulation No 270/2011
3. The third plea in law, alleging breach of the obligation to state reasons
4. The fourth plea in law, alleging errors of fact and in the legal characterisation of the facts
As regards the first part of the plea
As regards the second part of the plea
5. The fifth plea, alleging that the rights of the defence and the right to effective judicial protection have been infringed
As regards the first part
As regards the second part
As regards the third part
6. The sixth plea in law, alleging infringement of the right to property
As regards the first set of arguments
As regards the second set of arguments
7. The seventh plea in law, alleging breach of the freedom to conduct a business
8. The eighth plea in law, alleging a ‘manifest error of assessment’
Costs
( *1 ) Language of the case: English.
Parties
Grounds
Operative part
Parties In Case T‑256/11,
Ahmed Abdelaziz Ezz, residing in Giza (Egypt),
Abla Mohammed Fawzi Ali Ahmed, residing in London (United Kingdom),
Khadiga Ahmed Ahmed Kamel Yassin, residing in London,
Shahinaz Abdel Azizabdel Wahab Al Naggar, residing in Giza,
represented initially by M. Lester, Barrister, and J. Binns, Solicitor, and subsequently by J. Binns, J. Lewis QC, B. Kennelly, Barrister, and I. Burton, Solicitor,
applicants,
v
Council of the European Union, represented by M. Bishop and I. Gurov, acting as Agents,
defendant,
supported by
European Commission, represented by F. Erlbacher, M. Konstantinidis and A. Bordes, acting as Agents,
intervener,
APPLICATION for annulment, first, of Council Decision 2011/172/CFSP of 21 March 2011 concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Egypt (OJ 2011 L 76, p. 63) and, secondly, of Council Regulation (EU) No 270/2011 of 21 March 2011 concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Egypt (OJ 2011 L 76, p. 4), in so far as those acts concern the applicants,
THE GENERAL COURT (Third Chamber),
composed of O. Czúcz, President, I. Labucka and D. Gratsias (Rapporteur), Judges,
Registrar: S. Spyropoulos, Administrator,
having regard to the written procedure and further to the hearing on 12 March 2013,
gives the following
Judgment
Grounds Background to the dispute
1. In the wake of the political events which took place in Egypt in and after January 2011, the Council of the European Union adopted, on 21 March 2011, citing Article 29 TEU, Decision 2011/172/CFSP concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Egypt (OJ 2011 L 76, p. 63) (‘Decision 2011/172’).
2. Recitals 1 and 2 in the preamble to Decision 2011/172 state:
‘(1) On 21 February 2011, the European Union declared its readiness to support the peaceful and orderly transition to a civilian and democratic government in Egypt based on the rule of law, with full respect for human rights and fundamental freedoms and to support efforts to create an economy which enhances social cohesion and promotes growth.
(2) In this context, restrictive measures should be imposed against persons having been identified as responsible for misappropriation of Egyptian State funds and who are thus depriving the Egyptian people of the benefits of the sustainable development of their economy and society and undermining the development of democracy in the country.’
3. Article 1 of Decision 2011/172 provides:
‘1. All funds and economic resources belonging to, owned, held or controlled by persons having been identified as responsible for misappropriation of Egyptian State funds, and natural or legal persons, entities or bodies associated with them, as listed in the Annex, shall be frozen.
2. No funds or economic resources shall be made available, directly or indirectly, to or for the benefit of, natural or legal persons, entities or bodies listed in the Annex.
3. The competent authority of a Member State may authorise the release of certain frozen funds or economic resources, or the making available of certain funds or economic resources, under such conditions as it deems appropriate, after having determined that the funds or economic resources concerned are:
(a) necessary to satisfy the basic needs of the natural persons listed in the Annex and their dependent family members, including payments for foodstuffs, rent or mortgage, medicines and medical treatment, taxes, insurance premiums, and public utility charges;
(b) intended exclusively for the payment of reasonable professional fees and the reimbursement of incurred expenses associated with the provision of legal services;
(c) intended exclusively for the payment of fees or service charges for the routine holding or maintenance of frozen funds or economic resources; or
(d) necessary for extraordinary expenses …
4. By way of derogation from paragraph 1, the competent authority of a Member State may authorise the release of certain frozen funds or economic resources, provided that the following conditions are met:
(a) the funds or economic resources in question are the subject of a judicial, administrative or arbitral lien established prior to the date on which the natural or legal person, entity or body referred to in paragraph 1 was listed in the Annex, or of a judicial, administrative or arbitral judgment rendered prior to that date;
(b) the funds or economic resources in question will be used exclusively to satisfy claims secured by such a lien or recognised as valid in such a judgment, within the limits set by applicable laws and regulations governing the rights of persons having such claims;
(c) the lien or judgment is not for the benefit of a person, entity or body listed in the Annex; and
(d) recognising the lien or judgement is not contrary to public policy in the Member State concerned.
…
5. Paragraph 1 shall not prevent a listed natural or legal person, entity or body from making a payment due under a contract entered into prior to the date on which such person, entity or body was listed in the Annex, provided that the Member State concerned has determined that the payment is not directly or indirectly received by a person, entity or body referred to in paragraph 1.
6. Paragraph 2 shall not apply to the addition to frozen accounts of:
(a) interest or other earnings on those accounts; or
(b) payments due under contracts, agreements or obligations that were concluded or arose prior to the date on which those accounts became subject to the measures provided for in paragraphs 1 and 2,
provided that any such interest, other earnings and payments remain subject to the measures provided for in paragraph 1.’
4. Article 2(1) of Decision 2011/172 provides:
‘The Council, acting upon a proposal by a Member State or the High Representative of the Union for Foreign Affairs and Security Policy, shall decide to establish and amend the list in the Annex.’
5. Article 3(1) of Decision 2011/172 provides:
‘The Annex shall include the grounds for listing the natural and legal persons, entities and bodies referred to in Article 1(1).’
6. Article 4 of Decision 2011/172 provides:
‘In order to maximise the impact of the measures referred to in Article 1(1) and (2), the Union shall encourage third States to adopt restrictive measures similar to those provided for in this Decision.’
7. Article 5 of Decision 2011/172 provides:
‘This Decision shall enter into force on the date of its adoption.
This Decision shall apply until 22 March 2012.
This Decision shall be kept under constant review. It shall be renewed, or amended as appropriate, if the Council deems that its objectives have not been met’.
8. Decision 2011/172 includes, as an annex, a ‘[l]ist of natural and legal persons, entities and bodies referred to in Article 1’.
9. The seventh item in that list contains the entry ‘Ahmed Abdelaziz Ezz’ in the first column, headed ‘Name’. In the second column, headed ‘Identifying information’, it is stated: ‘Former Member of the Parliament. Date of birth: 12.01.1959. Male’. Lastly, in the third column, the ‘[g]rounds for designation’ are stated.
10. The entry ‘Abla Mohamed Fawzi Ali Ahmed’ appears in the eighth item, in the first column, headed ‘Name’. In the second column, ‘Identifying information’, it is stated: ‘Spouse of Mr Ahmed Abdelaziz Ezz. Date of birth: 31.01.1963. Female.’ Lastly, in the third column the ‘[g]rounds for designation’ are stated.
11. The ninth item contains the entry ‘Khadiga Ahmed Ahmed Kamel Yassin’ in the first column, headed ‘Name’. In the second column, ‘Identifying information’, it is stated: ‘Spouse of Mr Ahmed Abdelaziz Ezz. Date of birth: 25.05.1959. Female.’ Lastly, in the third column the ‘[g]rounds for designation’ are stated.
12. The entry ‘Shahinaz Abdel Aziz Abdel Wahab Al Naggar’ appears in the tenth item, in the first column, headed ‘Name’. In the second column, headed ‘Identifying information’, it is stated: ‘Spouse of Mr Ahmed Abdelaziz Ezz. Date of birth: 09.10.1969. Female.’ Lastly, in the third column, the ‘[g]rounds for designation’ are stated.
13. Citing Article 215(2) TFEU and Decision 2011/172, the Council adopted Regulation (EU) No 270/2011 of 21 March 2011 concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Egypt (OJ 2011 L 76, p. 4) (‘Regulation No 270/2011’). Article 2(1) and (2) of that regulation repeats, in essence, the provisions of Article 1(1) and (2) of the Decision 2011/172. That regulation includes an ‘Annex I’, which is identical to the Annex to Decision 2011/172. As is apparent from recital 2 in the preamble to Regulation No 270/2011, that regulation was adopted because the measures imposed by Decision 2011/172 ‘f[ell] within the scope of the [TFEU with the result that] … regulatory action at the level of the Union [was] necessary in order to implement them’.
14. On 22 March 2011, a notice for the attention of the persons to which restrictive measures provided for in Decision 2011/172 and in Regulation No 270/2011 apply was published in the Official Journal of the European Union (OJ 2011 C 90, p. 3).
15. In the course of proceedings, the Council twice extended the application of the measures provided for in Decision 2011/172. First of all, by its Decision 2012/159/CFSP of 19 March 2012, amending Decision 2011/172 (OJ 2012 L 80, p. 18), it extended the application of those measures until 22 March 2013. Then, by its Decision 2013/144/CFSP of 21 March 2013, amending Decision 2011/172 (OJ 2013 L 82, p. 54), it extended the measures until 22 March 2014.
Procedure and forms of order sought
16. By application lodged at the Court Registry on 20 May 2011, Mr Ahmed Abdelaziz Ezz and his spouses, namely, Ms Abla Mohammed Fawzi Ali Ahmed, Ms Khadiga Ahmed Ahmed Kamel Yassin and Ms Shahinaz Abdel Azizabdel Wahab Al Naggar (‘the first applicant’, ‘the second applicant’, ‘the third applicant’ and ‘the fourth applicant’, respectively) brought the present action, by which they claim that the Court should:
– annul Decision 2011/172 and Regulation No 270/2011, in so far as those acts apply to them;
– order the Council to pay the costs.
17. On 29 July 2011, the Commission lodged its defence. It claims that the Court should:
– dismiss the action;
– order the applicants to pay the costs.
18. By document lodged at the Court Registry on 11 August 2011, the European Commission sought leave to intervene in support of the form of order sought by the Council.
19. The reply and the rejoinder were lodged, respectively, by the applicants on 29 September 2011 and by the Council on 23 November 2011.
20. By order of 14 October 2011, the President of the Third Chamber of the Court gave the Commission leave to intervene in support of the form of order sought by the Council.
21. By document lodged at the Court Registry on 25 November 2011, the Commission stated that it did not intend to submit a statement in intervention.
22. Acting upon a proposal of the Judge-Rapporteur, the Court (Third Chamber) decided to open the oral procedure. By way of a measure of organisation of procedure, it requested the applicants and the Council to produce various documents.
23. By documents lodged at the Court Registry on 19 and 20 February 2013 respectively, the Council and the applicants complied with that request.
24. By document lodged at the Court Registry on 5 March 2013, the applicants submitted further evidence.
25. At the hearing on 12 March 2013, the parties presented oral argument and replied to the questions put by the Court.
Law
26. Decision 2011/172, adopted on the basis of Article 29 TEU, establishes a freezing of assets, and comprises five articles. Article 1(1) lays down the criteria which a person must meet if he is t o be subject to such a freezing of assets. Article 1(2), (5) and (6) makes clear the extent of that freeze, and Article 1(3) and (4) determines the circumstances in which it is possible to derogate from it. Article 2 states the competent authority for designating persons meeting the criteria laid down in Article 1(1) and also lays down, in particular, the procedural rules applicable during such a designation. Article 3 lays down the formal requirements to be complied with when a person is designated as meeting the criteria laid down in Article 1(1). Article 4, which does not have binding force, encourages third States to adopt similar measures. Lastly, Article 5 sets out the period in which the decision in question is applicable. In short, Articles 1 to 3 and 5 of Decision 2011/172 apply to objectively determined situations and produce binding legal effects with respect to categories of persons envisaged in general and in the abstract. The Annex to Decision 2011/172 lists by name the 19 natural persons which the Council regards as meeting the criteria laid down in Article 1(1). Consequently, that annex constitutes a series of individual measures intended to implement Article 1.
27. Regulation No 270/2011 has a similar structure to Decision 2011/172. It is important to note, in particular, that Annex I to Regulation No 270/2011, which is identical to the Annex to Decision 2011/172, is a measure which implements Article 2(1) of that regulation, which is worded in similar fashion to Article 1(1) of Decision 2011/172.
28. In the present case, the applicants seek the annulment of Decision 2011/172 and Regulation No 270/2011 in so far as those acts concern them. More specifically, they seek the annulment of the Annex to Decision 2011/172 and Annex I to Regulation No 270/2011 in so far as they are listed in those annexes. They put forward eight pleas in law in support of their action.
1. The first plea in law, alleging that Decision 2011/172 and Regulation No 270/2011 have no legal basis
29. The applicants submitted, in the reply, that Decision 2011/172 and Regulation No 270/2011 had no legal basis.
30. In their view, the ‘Treaty provides no legal basis for a measure which imposes a total and indefinite freeze on the assets of individuals in the European Union with the sole aim of assisting the authorities of a country outside the European Union with recovering assets at the end of a set of judicial proceedings’. In addition, the applicants submit that it is apparent from the case-law on Articles 60 EC and 301 EC that Article 215 TFEU only authorises the Council to impose restrictive measures on individuals where there is a sufficient link between the individual and a third country government, namely rulers or their associates. However, in the present case, the Council did not even allege that, as at the date of the contested acts, the applicants were rulers or members of the government of Egypt, or associates of such persons.
As regards the scope of the applicants’ arguments
31. As stated in paragraph 28 above, the applicants seek the annulment only of the Annex to Decision 2011/172 and Annex I to Regulation No 270/2011. However, those annexes were not adopted directly on the basis of a provision of the Treaties, but pursuant to Article 1(1) of Decision 2011/172 and Article 2(1) of Regulation No 270/2011, respectively. Consequently, in pleading an infringement of the Treaties, the applicants in fact raise two pleas of illegality for the purpose of Article 277 TFEU: they challenge the legality of Article 1(1) of Decision 2011/172 and of Article 2(1) of Regulation No 270/2011 in the light of the Treaties.
32. It follows from the considerations set out in paragraph 30 above that the applicants put forward specific arguments in support of both pleas of illegality: in support of the plea of illegality raised against Article 1(1) of Decision 2011/172, the applicants submitted, in essence, that that article could not have been adopted on the basis of Article 29 TEU since the sole aim of the freeze on assets which it imposed was to assist the Egyptian authorities with recovering assets at the end of various judicial proceedings; in addition, in support of the plea of illegality raised against Article 2(1) of Regulation No 270/2011, the applicants referred to the case-law on Articles 60 EC and 301 EC and submitted that Article 215 TFEU authorised the Council to impose restrictive measures on individuals only where – which was not the applicants’ case – there is a sufficient link between the individual and a third country government.
As regards the plea of illegality raised against Article 1(1) of Decision 2011/172
33. Before examining the plea of illegality raised against Article 1(1) of Decision 2011/172, the meaning and scope of Article 29 TEU must first of all be determined.
Meaning and scope of Article 29 TEU
34. Title V of the EU Treaty consists of two chapters. The first contains the ‘general provisions on the Union’s external action’ and the second ‘specific provisions on the common foreign and security policy’.
35. Article 23 TEU, which falls within Chapter 2 of Title V, provides:
‘The Union’s action on the international scene, pursuant to this Chapter, shall be guided by the principles, shall pursue the objectives of, and be conducted in accordance with, the general provisions laid down in Chapter 1.’
36. Article 21 TEU, which falls within Chapter 1 of Title V, provides:
‘1. The Union’s action on the international scene shall be guided by the principles which have inspired its own creation, development and enlargement, and which it seeks to advance in the wider world: democracy, the rule of law, the universality and indivisibility of human rights and fundamental freedoms, respect for human dignity, the principles of equality and solidarity, and respect for the principles of the United Nations Charter and international law.
…
2. The Union shall define and pursue common policies and actions, and shall work for a high degree of cooperation in all fields of international relations, in order to:
…
(b) consolidate and support democracy, the rule of law, human rights and the principles of international law;
…
(d) foster the sustainable economic, social and environmental development of developing countries, with the primary aim of eradicating poverty …
3. The Union shall respect the principles and pursue the objectives set out in paragraphs 1 and 2 in the development and implementation of the different areas of the Union’s external action covered by this Title and by Part Five of the Treaty on the Functioning of the European Union [on the Union’s external action] …’
37. Article 24(1) TEU provides:
‘The Union’s competence in matters of common foreign and security policy shall cover all areas of foreign policy and all questions relating to the Union’s security, including the progressive framing of a common defence policy that might lead to a common defence. …’
38. Article 25 TEU provides:
‘The Union shall conduct the common foreign and security policy by:
…
(b) adopting decisions defining:
(i) actions to be undertaken by the Union;
(ii) positions to be taken by the Union;
(iii) arrangements for the implementation of the decisions referred to in points (i) and (ii) …’
39. The first subparagraph of Article 28(1) TEU provides:
‘Where the international situation requires operational action by the Union, the Council shall adopt the necessary decisions. They shall lay down their objectives, scope, the means to be made available to the Union, if necessary their duration, and the conditions for their implementation.
...’
40. Article 29 TEU provides:
‘The Council shall adopt decisions which shall define the approach of the Union to a particular matter of a geographical or thematic nature …’
41. The combined effect of those provisions is that decisions which (i) come within the framework of the common foreign and security policy (CFSP), as defined in Article 24(1) TEU, (ii) relate to a ‘a particular matter of a geographical or thematic nature’ and (iii) are not in the nature of ‘operational action’ within the meaning of Article 28 TEU constitute ‘approaches of the Union’ within the meaning of Article 29 TEU.
42. The concept of ‘approach of the Union’ therefore lends itself to a broad interpretation, so that, provided that the conditions set out in paragraph 41 above are met, not only acts programmatic in nature or mere declarations of intent, but also, in particular, decisions providing for measures capable of directly affecting the legal position of individuals may be adopted on the basis of Article 29 TEU. That is moreover confirmed by the wording of the second paragraph of Article 275 TFEU.
43. The applicants do not challenge directly the conclusion drawn in the two preceding paragraphs. They simply claim that a decision seeking to assist foreign authorities with recovering assets at the end of various judicial proceedings cannot be adopted on the basis of Article 29 TEU. However and in any event, the Court cannot a priori rule out that a decision of that kind may meet the three criteria set out in paragraph 41 above and, in particular, come within the CFSP framework.
Compliance with the provisions of Article 29 TEU
44. In the present case, first, as is apparent from recital 1 in the preamble thereto, Decision 2011/172 seeks, firstly, ‘to support the peaceful and orderly transition to a civilian and democratic government in Egypt based on the rule of law, with full respect for human rights and fundamental freedoms’ and, secondly, to support ‘efforts to create an economy which enhances social cohesion and promotes growth’. In so doing, that decision forms part of a policy of supporting the new Egyptian authorities, intended to promote both the economic and political stability of Egypt and, in particular, to assist the authorities of that country in their fight against the misappropriation of State funds. It is therefore fully based on the CFSP and satisfies the objectives referred to in Article 21(2)(b) and (d) TEU.
45. Secondly, given its subject-matter, Decision 2011/172 relates to a ‘particular matter of a geographical or thematic nature’. Indeed, both its title and recitals show that it was adopted in view of the ‘situation’ in a third country, namely the Arab Republic of Egypt.
46. Thirdly, Decision 2011/172 is not in the nature of ‘operational action’ within the meaning of Article 28 TEU, since it does not entail any operation, whether civil or military, led by one or more Member States, outside the European Union.
47. It follows from all the foregoing that Article 1 of Decision 2011/172 meets the three criteria set out in paragraph 41 above, so that it could be lawfully adopted on the basis of Article 29 TEU.
As regards the plea of illegality raised against Article 2(1) of Regulation No 270/2011
48. Article 215 TFEU provides:
‘1. Where a decision, adopted in accordance with Chapter 2 of Title V of the Treaty on European Union, provides for the interruption or reduction, in part or completely, of economic and financial relations with one or more third countries, the Council, acting by a qualified majority on a joint proposal from the High Representative of the Union for Foreign Affairs and Security Policy and the Commission, shall adopt the necessary measures. It shall inform the European Parliament thereof.
2. Where a decision adopted in accordance with Chapter 2 of Title V of the Treaty on European Union so provides, the Council may adopt restrictive measures under the procedure referred to in paragraph 1 against natural or legal persons and groups or non-State entities.
3. The acts referred to in this Article shall include necessary provisions on legal safeguards.’
49. In the present case, Regulation No 270/2011 was adopted citing Article 215(2) TFEU and Decision 2011/172. Contrary to the applicants’ claims, Article 215(2) TFEU does not restrict its scope to decisions directed at rulers of third States or their associates. It may serve as a legal basis for adopting restrictive measures against any person, irrespective of status, on condition that those measures have been provided for by a decision taken under the CFSP.
50. In the present case, it must be stated that the wording of Article 2(1) of Regulation No 270/2011, which defines the scope of the freezing of assets established by that regulation, reproduces the provisions of Article 1(1) of Decision 2011/172. Consequently, the freezing of assets established by it was provided for by a decision taken under the CFSP and satisfies the conditions laid down by Article 215(2) TFEU.
51. That conclusion cannot moreover be called in question by relying on the case-law on Articles 60 EC and 301 EC.
52. Admittedly, according to the case-law, Articles 60 EC and 301 EC, applicable prior to the entry into force of the Treaty of Lisbon, do not provide for any express or implied powers of action to impose restrictive measures on persons or entities in no way linked to the governing regime of a third country (Joined Cases C‑402/05 P and C‑415/05 P Kadi and Al Barakaat International Foundation v Council and Commission [2008] ECR I‑6351, paragraph 216). Consequently, in order to adopt such measures, before the Treaty of Lisbon entered into force, Articles 60 EC, 301 EC and 308 EC had to be relied on jointly ( Kadi and Al Barakaat International Foundation v Council and Commission , paragraph 216, and Case C‑130/10 Parliament v Council [2012] ECR, paragraph 53).
53. However, the Treaty of Lisbon changed the law as it stood by inserting a new Article 215 TFEU. While the first paragraph of that article covers the areas previously within the ambit of Articles 60 EC and 301 EC ( Parliament v Council , cited at paragraph 52 above, paragraph 52), the second paragraph thereof, on which Regulation No 270/2011 is based, enables the Council to adopt, by an act laid down in Article 288 TFEU, restrictive measures against any ‘natural or legal person’, ‘non-State entity’ or any ‘group’ on the sole condition that a decision adopted in accordance with Chapter 2 of Title V of the Treaty on European Union provides for such measures. In other words, if that latter condition is satisfied, Article 215(2) TFEU enables the Council to adopt in particular, as noted in paragraph 49 above, acts imposing restrictive measures against addressees in no way linked to the governing regime of a third country.
54. The first plea must therefore be rejected in any event without the need to rule on whether its submission, in the reply, was out of time (see, by analogy, judgment of 28 July 2011 in Case C‑403/10 P Mediaset v Commission , not published in the ECR, paragraph 51; Joined Cases T‑125/96 and T‑152/96 Boehringer v Council and Commission [1999] ECR II‑3427, paragraph 143).
2. The second plea in law, alleging the failure to observe the criteria whereby certain persons may be listed in the annexes to Decision 2011/172 and Regulation No 270/2011
55. The applicants state that the ground for listing them in the Annex to Decision 2011/172 is not one of those laid down in Article 1 of that decision. They also state that the ground for listing them in Annex I to Regulation No 270/2011 is not one of those laid down in Article 2 of that regulation.
56. In order to respond to the present plea, the Court must first of all determine the criteria which the Council must observe when it decides to list the persons or entities in the Annex to Decision 2011/172 and identify the ground for listing the applicants in that annex.
As regards the criteria for listing in the Annex to Decision 2011/172
57. The English-language version of Article 1(1) of Decision 2011/172 – English being the language of the present case – provides that the assets of ‘persons having been identified as responsible for misappropriation of Egyptian State funds, and natural or legal persons, entities or bodies associated with them, as listed in the Annex’ must be frozen. In other words, in that language version of Decision 2011/172, reference is made, first, to persons having been ‘identified’ as responsible for misappropriation of Egyptian State funds and, secondly, to their associates.
58. However, as the applicants noted in a letter dated 13 May 2011 to the Council, the French-language version of Decision 2011/172 refers to the persons ‘reconnues’ (‘found/recognised as’) responsible for misappropriating Egyptian State funds and not, as in the English-language version, to the persons ‘identified’ as responsible for such offending conduct.
59. That is an appreciable difference between the two language versions.
60. The French-language version seems to require a strict interpretation of the wording of Article 1(1) of Decision 2011/172. The use of the verb ‘reconnaître’ (‘to find/recognise as’), commonly used in legal language alongside the adjective ‘coupable’ (‘guilty’), tends to indicate that the persons referred to in Article 1(1) have been formally ‘found’ guilty of misappropriating Egyptian State funds or of being a party to such misappropriation, such a finding of guilt having as a rule to be made by a criminal court.
61. By contrast, the English-language version permits a broad interpretation of Article 1(1) of Decision 2011/172. In that language version, the use of the verb ‘to identify’, more imprecise than the verb ‘to find/recognise as’, suggests that, on the basis of consistent information, the Council itself ‘identifies’ the persons which may be considered ‘responsible’ for misappropriating Egyptian State funds and also their associates.
As to the need to interpret Article 1(1) of Decision 2011/172
62. According to settled case-law, the need for a uniform interpretation of European Union acts makes it impossible, in case of doubt, for the text of a provision to be considered in isolation but requires, on the contrary, that it should be interpreted and applied in the light of the versions existing in the other official languages (see Case C‑412/10 Homawoo [2011] ECR I‑11603, paragraph 28 and the case-law cited).
63. In addition, where there is divergence between language versions of a European Union legal text, the provision in question must be interpreted by reference to the purpose and general scheme of the rules of which it forms part (see Case C‑510/10 DR and TV2 Danmark [2012] ECR, paragraph 45 and the case-law cited).
64. In the present case, if only because of the disparities between the English-language and French-language versions, it is necessary to interpret Article 1(1) of Decision 2011/172 in the light of all the language versions. That interpretation must take into account the purpose and general scheme of the rules of which those provisions form part.
As to the interpretation of Article 1(1) of Decision 2011/172
65. First of all, it must be stated that, in most of the language versions other than English and French, the wording of Article 1(1) of Decision 2011/172 is similar to that of the English-language version.
66. Next, as noted in paragraph 44 above, Decision 2011/172 seeks, in particular, to assist the Egyptian authorities with fighting against the misappropriation of State funds, by freezing the assets of persons who according to the English-language version may be ‘identified’ as responsible for the offending conduct, or according to the French-language version be ‘found/recognised as’ ‘responsible’ for such conduct. However, if the Council had to wait until those persons had been convicted in the Egyptian courts, the effectiveness of Decision 2011/172 would be seriously undermined. In such a case, the persons concerned would, during the criminal proceedings, have enough time to transfer their assets to States having no form of cooperation with the Egyptian authorities.
67. In those circumstances, Article 1(1) of Decision 2011/172 must be interpreted broadly. That provision must therefore be interpreted as being directed at five separate categories of person. The first category comprises those who, at the end of judicial proceedings, have been found guilty of the ‘misappropriation of Egyptian State funds’. The second category comprises the ‘associates’ of such persons in the strict sense, namely those who have been found to be their accomplices by a criminal court. The third category comprises those persons being prosecuted for the ‘misappropriation of Egyptian State funds’. The fourth category encompasses those persons being prosecuted for being their associates (that is their accomplices). The fifth category corresponds to all those persons the subject of judicial proceedings connected to criminal proceedings for ‘misappropriation of Egyptian State funds’ who may on that basis be described as persons associated with the individuals the subject of those criminal proceedings. That fifth category of persons groups together, in particular, those persons who, possibly without their knowledge, may have benefited from the proceeds of the ‘misappropriation of Egyptian State funds’ and on that basis are subject to protective measures, prescribed in a judicial context, intended to preserve the assets arising from such misappropriation.
Whether the interpretation of Decision 2011/172 is compatible with principles or legal rules of a higher order
68. According to settled case-law, when the wording of secondary law is open to more than one interpretation, preference should be given to the interpretation which renders the provision consistent with the Treaties and other rules having the same legal status (Case C‑61/94 Commission v Germany [1996] ECR I‑3989, paragraph 52, and Case T‑576/08 Germany v Commission [2011] ECR II‑1578, paragraph 103).
69. In this particular case, it is important to ascertain whether the broad interpretation of Article 1(1) of Decision 2011/172, which is given in paragraph 67 above, is compatible with the principle that provisions laying down administrative penalties must be interpreted strictly and with the principle of the presumption of innocence.
– As regards the principle that provisions laying down administrative penalties must be interpreted strictly
70. According to the case-law, the principle of legality in relation to crime and punishment, enshrined in the first sentence of Article 49(1) of the Charter of Fundamental Rights of the European Union, requires that a provision of the criminal law may not be applied extensively to the detriment of the defendant (Joined Cases C‑74/95 and C‑129/95 X [1996] ECR I‑6609, paragraph 25).
71. That principle may be relied on not only against decisions imposing criminal penalties in the strict sense, but also against those imposing administrative ones (see, to that effect, Case C‑352/09 P ThyssenKrupp Nirosta v Commission [2011] ECR I‑2359, paragraph 80).
72. Accordingly, the principle of legality in relation to crime and punishment requires that provisions laying down administrative penalties may not be applied extensively to the detriment of the person concerned.
73. Consequently, if Decision 2011/172 laid down administrative penalties and, therefore, came within the scope of the first sentence of Article 49(1) of the Charter of Fundamental Rights, it would have to be interpreted strictly.
74. That, however, is not the position.
75. The provisions of the first sentence of Article 49(1) of the Charter of Fundamental Rights are identical those of the first sentence of Article 7(1) of the Convention for the Protection of Human Rights and Fundamental Freedoms, signed in Rome on 4 November 1950. In accordance with Article 52(3) of the Charter of Fundamental Rights, those provisions must be interpreted in the light of the case-law of the European Court of Human Rights (‘the ECHR’).
76. According to that case-law, Article 7 of that convention may be properly relied upon only for the purposes of challenging a ‘penalty’. The starting-point in any assessment of the existence of a ‘penalty’ is whether the measure in question is imposed following conviction for a ‘criminal offence’. Other relevant factors in that regard are the characterisation of the measure under the applicable law, its nature and purpose, the procedures involved in its making and implementation, and its severity. The severity of the measure is not, however, decisive, since, for instance, many non-penal measures of a preventive nature may have a substantial impact on the person concerned ( M. v. Germany , no. 19359/04, § 120, ECHR 2009).
77. In the present case, first, no provision of EU law confers a criminal-law aspect on the freezing of assets established by Article 1 of Decision 2011/172.
78. Secondly, the provisions establishing the scheme for that asset-freezing seek neither to punish, nor to prevent the repetition of any conduct. Their sole purpose is to preserve the assets held by the persons, entities and bodies referred to in Article 1 of Decision 2011/172 in accordance with the objectives referred to in Article 21(2)(b) and (d) TEU (see paragraph 44 above) (see, to that effect and by analogy, the judgment of 11 July 2007 in Case T‑47/03 Sison v Council , not published in the ECR, paragraph 101, and Case T‑49/07 Fahas v Council [2010] ECR II‑5555, paragraph 67).
79. Thirdly, the effects of those provisions are limited in time and reversible: the freezing of assets provided for in them must be applied, in accordance with Article 5 of Decision 2011/172, during a specified period, and the Council, which keeps it under constant review, may at any time bring it to an end.
80. Accordingly, that freezing of assets does not constitute an administrative penalty nor does it come within the scope of the first sentence of Article 49(1) of the Charter of Fundamental Rights.
81. It follows that the principle that provisions imposing administrative penalties must be interpreted strictly does not preclude the Court from interpreting Article 1(1) of Decision 2011/172 broadly as in paragraph 67 above.
– As regards the principle of the presumption of innocence
82. It is indeed true that the presumption of innocence is enshrined, in the European Union legal order, in Article 48(1) of the Charter of Fundamental Rights. That principle, which, in accordance with Article 52(3) of that charter, must be interpreted in the light of the ECHR’s case-law, requires that no representative of an official authority may declare a person guilty of a criminal offence before he has been proved guilty by a court (see Allenet de Ribemont v. France , 10 February 1995, §§ 35-36, Series A no. 308, and Lizaso Azconobieta v. Spain no. 28834/08, § 37, 28 June 2011). In addition, the presumption of innocence is breached by statements or decisions which reflect the sentiment that the person is guilty, which encourage the public to believe in his guilt or which prejudge the assessment of the facts by the competent court (see Pandy v. Belgium , no. 13583/02, § 42, 21 September 2006, and Pavalache v. Romania , no. 38746/03, § 116, 18 October 2011).
83. However, in adopting Decision 2011/172, the Council did not itself declare the persons referred to in Article 1(1) thereof guilty of conduct punished under Egyptian criminal law or the law of an EU Member State. In addition, it did not encourage the ‘public’ to believe incorrectly in the guilt of those persons. Lastly, it did not prejudge the assessment of the facts by the competent court, in Egypt. The Council simply specified that the various categories of person referred to in paragraph 67 above were to have their assets frozen, which, as made clear in paragraph 77 above, does not itself have any criminal-law aspect.
84. It follows from this that the principle of the presumption of innocence does not preclude the interpretation of Article 1(1) of Decision 2011/172 set out in paragraph 67 above (see, to that effect and by analogy, the judgment of 2 September 2009 in Joined Cases T‑37/07 and T‑323/07 El Morabit v Council , not published in the ECR, paragraph 40).
As regards the ground for listing the applicants in the Annex to Decision 2011/172
As regards the need to interpret the ground for listing the applicants in the Annex to Decision 2011/172
85. It must be noted that listing the applicants in the Annex to Decision 2011/172 had the effect of freezing their assets under the scheme laid down in Articles 1, 2, 3 and 5 of that decision. In addition, it must be pointed out that the Annex to Decision 2011/172 was published in all the official languages of the European Union.
86. The English-language version of that annex states that the applicants’ assets were frozen on the ground that they were each subject to ‘judicial proceedings by the Egyptian authorities in respect of the misappropriation of State Funds on the basis of the United Nations Convention against Corruption’. That language version therefore refers simply to judicial ‘proceedings’ concerning the applicants. In the absence of any clarification in that regard, those proceedings can be proceedings merely connected to criminal proceedings for ‘misappropriation of Egyptian State funds’.
87. By contrast, the French-language version of the Annex to Decision 2011/172 which, as noted in paragraph 58 above, was relied on by the applicants in a letter dated 13 May 2011 to the Council, states that the applicants were ‘[prosecuted] by the Egyptian authorities for the misappropriation of State Funds on the basis of the United Nations Convention against Corruption’. It seems from reading that version that it was because there was a ‘prosecution’, which by its nature relates to the criminal law, brought against them for misappropriation of State funds, that the applicants had their assets frozen.
88. Consequently, there are significant disparities between the French-language and English-language versions of the Annex to Decision 2011/172.
89. Where there are differences between certain language versions of an individual measure addressed to a person subject to the jurisdiction of a non-member country, that act must be interpreted in the light, first, of the other language versions and, secondly, of the purpose and general scheme of the legislation on the basis of which it was adopted.
90. In addition, the Court has consistently held that an implementing measure must be given, if possible, an interpretation consistent with the provisions of the basic act (see, to that effect, Case C‑61/94 Commission v Germany , cited at paragraph 68 above, paragraph 52 and the case-law cited).
91. In the present case, as was stated in paragraph 26 above, the Annex to Decision 2011/172 constitutes a series of individual measures intended to implement Article 1(1) of that decision. The ground on which the applicants’ assets were frozen, set out in that annex, must therefore be interpreted in accordance with the principles identified in the two preceding paragraphs.
As to the interpretation of the ground for listing the applicants in the Annex to Decision 2011/172
92. First of all, it must be noted that the different language versions of the Annex to Decision 2011/172 may be divided into two groups of comparable size: in certain official languages of the European Union, that annex is drafted in a manner analogous to the English-language version, whereas, in other official language versions, the wording is close to the French-language version. The comparison of the language versions of that annex is therefore of no assistance: it neither shows the intention of those drafting the measure nor reveals a possible clerical mistake affecting one or more language versions.
93. Next, it is apparent that, whichever language version is taken, the ground on which the applicants’ assets were frozen, set out in the Annex to Decision 2011/172, is consistent with Article 1(1) of that decision, as interpreted in paragraph 67 above. That article lays down that not only the assets of those ‘prosecuted’ in their personal capacity, in Egypt, for misappropriating State funds are to be frozen, but also, in particular, those of persons concerned, in that country, simply by ‘judicial proceedings’ connected to criminal proceedings for the ‘misappropriation of Egyptian State funds’.
94. Lastly, it must be noted that Article 1(1) of Decision 2011/172 enables the assets of five categories of person to be frozen (see paragraph 67 above). However, the French-language version of the Annex to that decision enables only one of those categories to be targeted, namely persons being prosecuted for ‘misappropriation of Egyptian State funds’ (see paragraph 87 above). The English-language version of that annex covers three categories of person, that is, in addition to persons being prosecuted for ‘misappropriation of Egyptian State funds’, those prosecuted as a party to that misappropriation and those subject to judicial proceedings connected to criminal proceedings for ‘misappropriation of Egyptian State funds’ (see paragraph 86 above). Consequently, under the English-language version, the ground for listing the applicants in the Annex to Decision 2011/172 has a meaning and scope that encompasses the scope of Article 1(1) of that decision more extensively. It is therefore more consonant with the objective pursued by that article.
95. In accordance with the wording of the English-language version, it must therefore be found that the Council intended to freeze the applicants’ assets on the ground that they were subject to judicial proceedings in Egypt linked, in whatever form, to investigations concerning the misappropriation of State funds.
As regards compliance with the criteria laid down in Article 1(1) of Decision 2011/172
96. According to the criteria laid down in Article 1(1) of Decision 2011/172, the persons falling within the five catego ries set out in paragraph 67 above could be listed in the Annex to Decision 2011/172.
97. In the present case, as stated in paragraph 95 above, the Council listed the applicants in the Annex to Decision 2011/172 on the sole ground that they were subject to judicial proceedings linked to investigations concerning the misappropriation of State funds.
98. As noted in paragraphs 94 and 95 above, such a ground is among those laid down in Article 1(1) of that decision. Indeed, it refers to three of the five cases envisaged by that article.
99. It follows that, in listing the applicants in the Annex to Decision 2011/172, the Council did not infringe the criteria which it had itself laid down in Article 1(1) of that decision.
As regards compliance with the criteria laid down in Article 2(1) of Regulation No 270/2011
100. First of all, it must be noted that the structure of Regulation No 270/2011 is similar to that of Decision 2011/172, so that the considerations set out in paragraph 26 above are to be applied, as noted in paragraph 27 above, mutatis mutandis as regards Regulation No 270/2011 and Annex I thereto. Consequently, the persons referred to in Annex I must meet the criteria laid down in Article 2(1) of Regulation No 270/2011.
101. Next, it must be noted that those criteria are identical to those laid down in Article 1(1) of Decision 2011/172. In that regard, Article 2(1) of Regulation No 270/2011 is drafted in similar terms to Article 1(1) to Decision 2011/172, to which it indeed refers.
102. Lastly, the grounds for listing the applicants in Annex I to Regulation No 270/2011 are identical to those for listing them in the Annex to Decision 2011/172.
103. Accordingly, for the reasons set out above, it must be concluded that the criteria laid down in Article 2(1) of Regulation No 270/2011 have been complied with in the present case.
104. It follows from all the foregoing that the second plea in law must be rejected.
3. The third plea in law, alleging breach of the obligation to state reasons
105. As provided in the second paragraph of Article 296 TFEU: ‘Legal acts shall state the reasons on which they are based …’
106. Under Article 41(2)(c) of the Charter of Fundamental Rights, the right to good administration includes, in particular, ‘the obligation of the administration to give reasons for its decisions’.
107. It has consistently been held that the statement of reasons required by Article 296 TFEU and Article 41(2)(c) of the Charter of Fundamental Rights must be appropriate to the contested act and to the context in which it was adopted. It must disclose in a clear and unequivocal fashion the reasoning followed by the institution which adopted the measure in such a way as to enable the person concerned to ascertain the reasons for the measure and to enable the court having jurisdiction to exercise its power of review. The requirements to be satisfied by the statement of reasons depend on the circumstances of each case (see Case C‑417/11 P Council v Bamba [2012] ECR, paragraphs 50 and 53 and the case-law cited).
108. It is not necessary for the reasoning to go into all the relevant facts and points of law, since the question whether the statement of reasons meets the requirements of Article 296 TFEU and Article 41(2)(c) of the Charter of Fundamental Rights must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question. Thus, first, the reasons given for a measure adversely affecting a person are sufficient if that measure was adopted in a context which was known to the person concerned and which enables him to understand the scope of the measure concerning him (see Council v Bamba , cited at paragraph 107 above, paragraphs 53 and 54 and the case-law cited). Secondly, the degree of precision of the statement of the reasons for a measure must be weighed against practical realities and the time and technical facilities available for taking the measure (see Case T‑228/02 Organisation des Modjahedines du peuple d’Iran v Council [2006] ECR II‑4665, paragraph 141 and the case-law cited).
109. In particular, the statement of reasons for a measure freezing assets cannot, as a rule, consist merely of a general, stereotypical formulation (see, to that effect, Organisation des Modjahedines du peuple d’Iran v Council , cited at paragraph 108 above, paragraph 143). Subject to the reservations set out in paragraph 108 above, such a measure must, on the contrary, indicate the actual and specific reasons why the Council considers that the relevant rules are applicable to the party concerned (see Organisation des Modjahedines du peuple d’Iran v Council , cited at paragraph 108 above, paragraph 143 and the case-law cited; see, to that effect, Council v Bamba , cited at paragraph 107 above, paragraph 52).
110. In the present case, the applicants submit that the reasons given in Decision 2011/172 and Regulation No 270/2011 are insufficient.
111. In support of that plea, the applicants state, first, that the Council has failed to demonstrate in a clear manner why it considered that they met the criterion set out in Article 1 of Decision 2011/172.
112. Secondly, the applicants submit that the reasons given in the Annex to Decision 2011/172 are not detailed enough. Indeed, that annex mentions a ‘vague allegation relating to judicial proceedings under a Convention unknown to the Applicants’. In any event, the statements in that annex do not, in their view, make it possible to know why the Council considers that the imposition of restrictive measures remains justified.
113. However, it is apparent that Decision 2011/172 refers clearly to Article 29 TEU, on the basis of which it was adopted. Next, it is apparent from the title of the Annex to Decision 2011/172 that that annex comprises a ‘[l]ist of natural and legal persons, entities and bodies referred to in Article 1’. Lastly, Regulation No 270/2011 cites Article 215(2) TFEU. As to Annex I to that regulation, it states clearly that it comprises a ‘[l]ist of natural and legal persons, entities and bodies referred to in Article 2(1)’. Consequently, the Council has shown in an unequivocal manner what, in its view, was the legal basis of Decision 2011/172, Regulation No 270/2011 and the annexes to those acts.
114. In addition, it is apparent from Decision 2011/172 and Regulation No 270/2011 that the applicants were made subject to restrictive measures ‘in view of the situation in Egypt’ on the ground that they were subject to judicial proceedings in Egypt linked to investigations concerning the misappropriation of State funds (see paragraph 86 above). The considerations of fact that were the basis for the Council’s view that the applicants had to have their assets frozen as provided for by Article 1(1) of Decision 2011/172 are sufficiently detailed to enable the applicants to challenge their correctness before the Council and then before the Courts of the European Union. Moreover, in English, the language used by the applicants in their correspondence with the Council and during the present proceedings, those considerations are unequivocal.
115. Moreover, the considerations are not stereotypical in nature. They do not just copy the wording of a general provision. It is true that they are the same as those on the basis of which the other natural persons mentioned in the Annex to Decision 2011/172 and in Annex I to Regulation No 270/2011 had their assets frozen. However, they seek to describe the particular situation of the applicants who, like others, have, in the Council’s view, been subject to judicial proceedings linked to investigations concerning the misappropriation of State funds.
116. It follows from this that the contested acts contain a statement of the points of law and facts on which, according to the Council, those acts are based. Consequently, their wording discloses in a clear fashion the Council’s reasoning.
117. In those circumstances, the third plea must be rejected.
4. The fourth plea in law, alleging errors of fact and in the legal characterisation of the facts
118. As stated above, it is apparent from the Annex to Decision 2011/172 and from Annex I to Regulation No 270/2011 that the applicants have each had their assets frozen solely on the ground that they were subject to judicial proceedings in Egypt linked to investigations concerning the misappropriation of State funds.
119. The applicants submit, in essence, that that ground is vitiated by errors of fact and in the legal characterisation of the facts. That plea is divided into two parts.
120. By the first part, the applicants submit that the second, third and fourth applicants are not subject to any judicial proceedings in Egypt.
121. By the second part, the applicants submit that, while the first applicant ‘is currently subject to judicial proceedings’, those proceedings do not relate to misappropriation of State funds as referred to in the Annex to Decision 2011/172.
As regards the first part of the plea
122. By letter of 1 April 2011, the applicants informed the Council that they assumed that the first applicant had been listed in the Annex to Decision 2011/172 and Annex I to Regulation No 270/2011 because of a request from a person or body within Egypt. They also asked the Council to confirm who that person or body was and provide a copy of that request and supporting documentation.
123. By letter of 7 June 2011, the Council explained to the applicants’ lawyers that it had received a ‘letter dated 13 February 2011 from the Egyptian Ministry of Foreign Affairs with a request by the Egyptian Prosecutor General to freeze the assets of certain former Ministers and officials’, which included the first applicant. A copy of a document dated 13 February 2011 on the headed notepaper of the Office of the Egyptian Minister of Foreign Affairs was enclosed with that letter from the Council. In that unsigned document, reference was made to a request from the Egyptian Prosecutor General to freeze the assets of ‘former [Egyptian] Ministers, officials and nationals’. The first applicant was one of the persons the subject of that request, but not the second, third and fourth applicants.
124. In the meantime, the applicants’ lawyers asked the Council, by letter of 13 May 2011, to provide them, in particular, with all the evidence on the basis of which it had frozen their clients’ assets. Those lawyers subsequently sent two other letters to the Council on 9 June and 15 July respectively.
125. By letter of 29 July 2011, the Council replied to the letters from the applicants’ lawyers dated 13 May, 9 June and 15 July 2011. In that reply, no reference is made to possible court proceedings against the second, third and fourth applicants. Only the following is stated:
‘[They] appear on the list of persons subject to the above-mentioned request for judicial assistance by the Egyptian authorities (they appear under nos. 2, 3 and 4 on the enclosed list). The request states that orders have been issued by the Egyptian Prosecutor General for the seizure of the assets of all the persons on the list, and that this order was endorsed by the criminal court.’
126. The Council’s letter of 29 July 2011 included in annex a note dated 24 February 2011 (Ref NV93/11/ms), by which the Embassy of the Arab Republic of Egypt in Brussels (Belgium) requested the High Representative of the Union for Foreign Affairs and Security Policy to transmit to the ‘competent [judicial] authorities’ a request for judicial assistance from the Office of the Egyptian Prosecutor General.
127. Three documents were included in annex to that note.
128. The first document was the undated and unsigned text of the request for judicial assistance. That request, drafted in English, sought to ‘freeze, confiscate and return assets of some former ministers and officials’. It referred to ‘the investigation carried out by the Egyptian Prosecution General in the [Cases Nos] 162 and 234 for the year 2010 ...; 34, 36, 38, 39, 55 and 70 for the year 2011 ... and [in Case No] 137/2011 ... regarding crimes of corruption, usurping of public assets, and money laundering crimes committed by former ministers and officials’ and listed fifteen individuals, including the four applicants. The request went on to state, first, that the Egyptian Prosecutor General had decided to seize the assets of the persons thus listed and, secondly, that that seizure had been ‘endorsed by the criminal court’.
129. The second document annexed to the note of 24 February 2011 was a ‘list of former officials, [their] wives and children’ in which the second, third and fourth applicants appeared second, third and fourth, respectively.
130. The third document annexed to the note of 24 February 2011 was presented as a summary of the allegations against the first applicant in ‘[Case No] 38 for the year 2011’, a case referred to in the request for judicial assistance referred to in paragraph 128 above. That document was undated, and was not on headed notepaper or signed. However, as with the note of 24 February 2011 and all the other documents annexed thereto, it bore the stamp of the Embassy of the Arab Republic of Egypt in Brussels.
131. In short, none of the above-mentioned documents suggests that the second, third and fourth applicants have been prosecuted in Egypt for the misappropriation of State funds.
132. On the other hand, the request for judicial assistance referred to in paragraph 128 above shows, unequivocally, that, on 24 February 2011, less than one month before Decision 2011/172 and Regulation No 270/2011 were adopted, all the applicants were the subject of an order of the Egyptian Prosecutor General seeking to seize their assets, which had been endorsed by a criminal court and was linked to investigations concerning misappropriation of State funds.
133. The applicants have not moreover produced any evidence to cast doubt on the accuracy of the information entered on that request for judicial assistance. On the contrary, a decision of the Egyptian courts, a translation of which was lodged at the Court Registry on 5 March 2013, confirms that the second applicant still had her assets frozen on 30 January 2013. In addition, the applicants did not dispute, at the hearing, that the above-mentioned order for seizure existed.
134. As they were the subject of the above-mentioned order of the Egyptian Prosecutor General, the second, third and fourth applicants were persons subject to judicial proceedings in Egypt linked to investigations concerning misappropriation of State funds. In describing them in that manner in the Annex to Decision 2011/172, the Council did not therefore err in fact or in its legal characterisation of the facts.
135. The first part of the plea must accordingly be rejected.
As regards the second part of the plea
136. In support of the second part of the plea, the applicants submit that the first applicant is only alleged to have been complicit in conduct which may be categorised as the improper grant of licences.
137. However, it is clear from the document referred to in paragraph 130 above that, in ‘[Case No] 38 for the year 2011’, the first applicant was ‘accused’ first of ‘usurping the assets’ of a ‘public sector company with State-owned shares’ and, secondly, of ‘committing crimes of profiteering and [intentionally] harming public assets, as well as usurping and … facilitating the usurpation of [such] assets’.
138. More specifically, in that document, the first applicant was accused of:
– using his influence, as Chief Executive Officer of a ‘public-sector company with State-owned shares’, in order, first, to exchange shares for the benefit of a ‘private company’ which he controlled, secondly, to enable that private company to achieve commercial success at the expense of the ‘public-sector company’ in question and, thirdly, to increase unlawfully the shares of the ‘private company’ in question in the capital of the above-mentioned ‘public-sector company’;
– and failing to pay his debts to that company and the banks.
139. Consequently, the first applicant was prosecuted in Egypt for what the Egyptian public prosecutor categorised as the ‘usurping of public assets’.
140. The Court finds that that categorisation corresponds, in essence, to the ‘misappropriation of … State funds’ found in Decision 2011/172 and Regulation No 270/2011.
141. In those circumstances, the Council did not err in fact or in the categorisation of the facts by listing the first applicant in the annexes to the contested acts.
142. In seeking to challenge that conclusion, the applicants submitted, in the reply, that neither the request for judicial assistance described in paragraph 128 above nor the documents annexed thereto enabled them to be identified as people ‘responsible for misappropriation of Egyptian State funds’, who were thus depriving the Egyptian people of the benefits of the sustainable development of their economy and society and undermining the development of democracy in the country, or as people associated with them.
143. However, in any event, such a fact cannot render the contested acts unlawful. In that regard, it must be noted that Article 1(1) of Decision 2011/172, which sets out the criteria for listing in the Annex to that decision, is directed only at the categories of person referred to in paragraph 67 above. Admittedly, the second recital in the preamble to Decision 2011/172 states that those persons are ‘thus depriving the Egyptian people of the benefits of the sustainable development of their economy and society and undermining the development of democracy in the country’. However, that statement does not constitute an additional condition which must be met when a new person is listed in the Annex to Decision 2011/172. It is only a clarification of the ultimate objective of that decision. That recital simply explains that the persons referred to in Article 1(1) of Decision 2011/172 are in a position to deprive ‘the Egyptian people of the benefits of the sustainable development of their economy and society and [of hindering] the development of democracy in the country’.
144. In addition, it must be noted that none of the five arguments put forward by the applicants in support of the complaint referred to in paragraph 142 above is well founded.
145. First, the applicants submitted that the documents annexed to the request for judicial assistance described in paragraph 128 above did not ‘refer to any conviction for any offence’ or to an indictment. Those documents simply ‘summarise[d] certain complaints made against the first applicant’ and ultimately give ‘no indication of whether any or all of the complaints [referred to in them] gave rise to judicial proceedings … for misappropriating State funds’.
146. It is true that the documents annexed to the request for judicial assistance referred to in paragraph 128 above do not refer to any criminal conviction. However, that is irrelevant. The persons targeted in Article 1(1) of Decision 2011/172 are not only those convicted for the misappropriation of State funds but also, in particular, those concerned by judicial proceedings linked to investigations concerning such misappropriation (see paragraph 67 above).
147. In addition, it is incorrect to claim that none of the documents annexed to the request for judicial assistance concerned an indictment for misappropriation of State funds. As noted in paragraphs 139 and 140 above, the document described in paragraph 130 above referred to a criminal prosecution, in Egypt, of the first applicant for conduct which may be characterised as misappropriation of State funds.
148. Secondly, the applicants stated that the application for judicial assistance described in paragraph 128 above ‘g[ave] no indication of the quantum of funds frozen or what kind of judicial assistance it requests, from which court, or why such assistance [was] necessary’.
149. However, that fact that the evidence relied on by the Council contains no such information has no effect on the outcome of the dispute. It cannot, in any event, show that it made an error of fact in taking the view that the applicants were subject to judicial proceedings linked to investigations concerning the misappropriation of State funds.
150. Thirdly, the applicants stated that the application for judicial assistance described in paragraph 128 above ‘d[id] not even suggest legislative action by the European Union’.
151. However, that argument is based on the incorrect premiss that the Council could freeze the assets of an applicant only if it had received a request to that effect from the Egyptian authorities. On the contrary, the Council had the authority to freeze the assets of all those persons meeting the criteria laid down in Article 1(1) of Decision 2011/172, regardless of whether the situation of those persons was made known by the Egyptian authorities or by other sources.
152. Fourthly, the applicants submitted that the application for judicial assistance described in paragraph 128 above was inaccurate. First of all, there was a reference in the documents annexed to that request to debts of 7 billion Egyptian pounds, when this related to a complaint which the authorities investigated and did not proceed with. Next, the ‘other complaints’ do not relate to misappropriation of public funds, but instead to acts concerning a company in which the Egyptian State held only a minority stake. Those other complaints have also been brought without any supporting evidence. Lastly, those complaints relate to acts committed not by the first applicant but by companies in which he held a majority shareholding.
153. It is true that in the document referred to in paragraph 130 above, it was stated, in the description of the only case concerning the first applicant, namely ‘[Case No] 38 for the year 2011’, that he had refrained from paying his debts amounting to 7 billion Egyptian pounds. However, the applicants fail to produce any evidence to show that that statement is inaccurate. In any event, any inaccuracy in that statement could not in any way affect the outcome of the proceedings. In the light of the considerations set out in paragraphs 137 to 140 above, such an inaccuracy would not be sufficient of its own to prove that, on the basis of the document referred to in paragraph 130 above, the Council was not entitled to characterise the first applicant as being subject to judicial proceedings linked to investigations for misappropriation of State funds.
154. As to the other contentions in paragraph 152 above, these relate, in the applicants’ view, to ‘complaints’ other than that relating to the debt of 7 billion Egyptian pounds mentioned in paragraph 153 above. They thus relate to cases other than ‘[Case No] 38 for the year 2011’ referred to in the document mentioned in paragraph 130 above, cases which the Council did not rely on in order to draw up the contested acts.
155. Fifthly, the applicants submitted that the documents in support of the request for judicial assistance described in paragraph 128 above were incomplete. They argued that the United Kingdom authorities had refused to grant a request seeking to freeze the applicants’ assets, because the Egyptian authorities had given the United Kingdom authorities insufficient information to justify such a measure.
156. However, as has been noted, it must be found that the information provided in the request for judicial assistance and the annexes thereto supports the conclusion that the applicants were subject to judicial proceedings linked to investigations concerning the misappropriation of State funds. In addition, it is important to note that the claim concerning the conduct of the United Kingdom authorities concerns facts extraneous to the present dispute. Such facts are therefore irrelevant to its outcome, all the more so since the applicants do not specify which documents had been sent by the Egyptian authorities to the United Kingdom authorities.
157. The second part of the plea must therefore be rejected in its entirety, with the result that the plea cannot be upheld.
5. The fifth plea, alleging that the rights of the defence and the right to effective judicial protection have been infringed
158. The applicants submit that the rights of the defence and the right to effective judicial protection have been infringed. This plea is in three parts.
As regards the first part
159. The applicants state that the evidence on the basis of which their assets were frozen was not communicated to them.
160. Such an argument has no basis in fact.
161. According to the case-law, it is only on the request of the party concerned that the Council is required to provide access to the evidence on the basis of which it froze assets. It would be excessive to require spontaneous communication of such evidence (see, to that effect Case T‑390/08 Bank Melli Iran v Council [2009] ECR II‑3967, paragraph 97).
162. In the present case, the applicants requested the Council to provide them with the evidence on the basis of which Decision 2011/172 and Regulation No 270/2011 had been formulated. As was noted in paragraph 122 above, the applicants’ lawyers stated, by letter of 1 April 2011, that they assumed that Decision 2011/172 and Regulation No 270/2011 had been adopted because of a ‘request [to that effect] from a person or body within Egypt’ and asked the Council to ‘provide a copy of [that] request and supporting documentation’. In addition, it is apparent from paragraph 124 above that, by letter of 13 May 2011, those same lawyers noted that the applicants ‘need[ed] evidence and information [in order to be in a position] to refute the case against them which is said to justify their listing [in the Annex to Decision 2011/172]’.
163. However, it must be stated that the Council complied fully with the applicants’ requests.
164. First, the documents in the file before the Court show that, by a letter of 7 June 2011 referred to in paragraph 123 above, the Council replied to the request of 1 April 2011, stating that it was referring the applicants to a document ‘dated 13 February 2011 from the Egyptian Ministry of Foreign Affairs with a request by the Egyptian Prosecutor General to freeze the assets of certain former Ministers and officials, based on the United Nations Convention against Corruption, and which includes [the first applicant] on the list of persons concerned’. That document dated 13 February 2011 was enclosed with the Council’s letter.
165. Secondly, by a letter of 29 July 2011 referred to in paragraph 125 above, the Council replied, inter alia, to the letter of 13 May 2011. In the letter of 29 July 2011 it referred the applicants’ lawyers not only to the ‘information … already communicated … in the Council’s previous letter of 7 June 2011’, but also to a ‘communication … from the Egyptian Mission to the E[uropean] U[nion] dated 24 February 2011, enclosing a request for judicial assistance from the Egyptian Prosecutor General’. That communication together with the request for judicial assistance, described in paragraphs 126 and 128 above respectively, were enclosed with the Council’s letter of 29 July 2011.
166. Accordingly, the first part of the plea must be rejected.
As regards the second part
167. The applicants submit, in their application, that the ground on which their assets were frozen is too vague. In addition, they submit, in their reply, that it was only in the defence that the Council gave the true ground for freezing their assets. Therefore, they were not given an opportunity to challenge that ground properly at the time when Decision 2011/172 and Regulation No 270/2011 were adopted.
168. However, those arguments are based, in any event, on an incorrect premiss.
169. Contrary to the applicants’ arguments, Decision 2011/172 and Regulation No 270/2011 are sufficiently reasoned (see paragraph 116 above). Their reasoning was indeed reproduced by the applicants in their letter of 13 May 2011 to the Council.
170. The second part of the plea must therefore be rejected.
As regards the third part
171. First, the applicants state that although they sent the Council various comments by letter of 13 May 2011, the Council failed to respond, in its letter of 29 July 2011, to all of the arguments put forward in their letter. The applicants submit that the Council failed to respond, in particular, either to the comments concerning the political motivation of the prosecution, in Egypt, of the first applicant or to those concerning the breach of the rights of the defence during that prosecution.
172. Secondly, the applicants submit that neither Decision 2011/172 nor Regulation No 270/2011 specify the grounds for the individual freezing measures concerning them and the evidence on which those measures are based must be communicated to them. They add that those acts fail to state that the persons whose assets are frozen must be heard and their views taken into account. Lastly, they submit that Decision 2011/172 and Regulation No 270/2011 ‘provide no procedure for communicating the evidence on which the decision to include the Applicants was based, nor for hearing their response and properly testing the allegations and evidence justifying the decision to list and continue to list the Applicants’.
173. Thirdly, the applicants submit that the grounds for the freezing measures against them were not communicated to them in advance of publication of Decision 2011/172 and Regulation No 270/2011. They also state that they had no prior notice of being the subject of freezing measures.
174. Those arguments cannot succeed.
175. First, neither Decision 2011/172, Regulation No 270/2011 nor any other text or principle requires the Council to respond to each of the submissions made to it by the applicants after Decision 2011/172 and Regulation No 270/2011 were adopted, failing which the individual asset-freezing measures adopted on the basis of the provisions of general scope of those acts are rendered unlawful. Consequently, the mere fact that the Council did not respond specifically to the applicants’ claims that the prosecution, in Egypt, of the first applicant was politically motivated and breached the rights of the defence cannot affect the lawfulness of the proceedings after Decision 2011/172 and Regulation No 270/2011 were adopted, regardless of whether those claims are well founded.
176. Secondly, an initial decision to freeze funds, such as that taken against the applicants by means of the Annex to Decision 2011/172 and Annex I to Regulation No 270/2011, must be able to take advantage of a surprise effect. Accordingly, the Council cannot be required to communicate the grounds for that measure to the person concerned before such a measure is adopted ( Kadi and Al Barakaat International Foundation v Council and Commission , cited at paragraph 52 above, paragraph 338). Similarly, the Council is not under an obligation to inform the persons concerned by a measure of that kind of its imminent adoption.
177. Thirdly, as is apparent from the two preceding paragraphs, no provision or principle requires that the EU measures defining the set of rules to be followed by individual asset-freezing measures must include provisions or establish procedures such as those described in paragraph 172 above.
178. Moreover, even if by the arguments in paragraphs 171 to 173 above the applicants also intended to argue, first, that neither the evidence on the basis of which their assets were frozen nor the grounds for that freezing were communicated to them after Decision 2011/172 and Regulation No 270/2011 were adopted, and, secondly, that the Council has not heard the applicants, such a line of argument must be rejected.
179. Firstly, the argument to the effect that the Council failed to communicate the evidence on which it relied must be rejected on the grounds set out in paragraphs 161 to 165 above.
180. Secondly, the principle of the observance of the rights of the defence and the right to an effective remedy guaranteed by the first paragraph of Article 47(1) of the Charter of Fundamental Rights require, as a rule, that the European Union authority which adopts an act imposing restrictive measures in respect of a person or entity communicate the grounds for that act, at least as swiftly as possible after it was adopted, in order to enable those persons or entities to defend their interests or exercise their right to bring an action (see, to that effect, Kadi and Al Barakaat International Foundation v Council and Commission , cited at paragraph 52 above, paragraphs 335 and 336, and Bank Melli Iran v Council , cited at paragraph 161 above, paragraph 92). The Council is, as a rule, required to communicate a decision individually to satisfy that obligation (Case C‑548/09 P Bank Melli Iran v Council [2011] ECR I‑11381, paragraphs 52 and 55).
181. None the less, the fact that the Council has not itself communicated the grounds for an act imposing restrictive measures is not capable of affecting the validity of that act when such a failure did not have the effect of depriving the person or entity concerned of an opportunity of knowing, in good time, the reasons for that act or of assessing its validity (see, to that effect, the judgment in Case C‑548/09 P, Bank Melli Iran v Council , cited at paragraph 180 above, paragraph 55).
182. In the present case, in any event, it is apparent from the wording of the above-mentioned letter from the applicants’ lawyers to the Council on 13 May 2011, and from the application, that the applicants were able to have access to the grounds of Decision 2011/172 and Regulation No 270/2011 in sufficient time in order to be in a position to challenge those acts. In particular they reproduced, on the third page of that letter, part of the grounds of those acts.
183. Thirdly, the natural or legal persons to which an initial decision to freeze their funds applies have the right to be heard by the Council after that decision has been adopted. However, the Council is not required automatically to conduct a hearing ( Kadi and Al Barakaat International Foundation v Council and Commission , cited at paragraph 52 above, paragraph 341, and judgment in Case T‑390/08, Bank Melli Iran v Council , cited at paragraph 161 above, paragraph 98).
184. In the present case, it is not apparent from any of the documents in the file before the Court that the applicants, who submitted – in particular by letters of 1 April and 13 May 2011 – their written observations regarding Decision 2011/172 and Regulation No 270/2011, asked to be heard by the Council after those acts were adopted. In those circumstances, the applicants, who did not in any event have any right to be heard before Decision 2011/172 and Regulation No 270/2011 were adopted ( Kadi and Al Barakaat International Foundation v Council and Commission , cited at paragraph 52 above, paragraph 341), have no ground for their complaint that they were not heard by the Council.
185. The third part of the fifth plea must be rejected, so that the plea cannot be upheld.
6. The sixth plea in law, alleging infringement of the right to property
186. The applicants allege that the right to property has been infringed. They put forward four sets of arguments in support of that plea.
187. Firstly, they submit that the Council has not demonstrated that a total asset freeze was the least onerous means of ensuring the objective pursued by Decision 2011/172 and Regulation No 270/2011. In the applicants’ view, the freezing of their assets by the Council is therefore disproportionate. In support of their assertion, they add, first of all, that no indication was given of the quantum of assets they were said to have misappropriated. Next, they assert that the freezing of their assets in Egypt is sufficient, since it relates to assets far greater in value than those which they are alleged to have misappropriated.
188. Secondly, the applicants state, in their reply, that the prevention of third parties making economic resources available to them, under Article 1(2) of Decision 2011/172, is illogical, disproportionate and counterproductive to the objective pursued by the Council, namely the recovery, at the end of judicial proceedings in Egypt, of the public funds which may have been misappropriated.
189. Thirdly, the applicants submit that Decision 2011/172 and Regulation No 270/2011 have a marked and long-lasting impact on their reputation, since their effect is not only to freeze all of their assets within the European Union but also to ‘brand’ them as people who have stolen Egyptian assets and are thus enemies of the Egyptian people.
190. Fourthly, the applicants submit that the Council has not demonstrated that a ‘travel ban’ was justified and proportionate.
191. In that regard, the Court finds at the outset that the third set of arguments, stated in paragraph 189 above must, in any event, be rejected. The importance of the aims pursued by Decision 2011/172 and Regulation No 270/2011 is such as to justify their possible – even substantial – negative consequences for the applicants without that affecting their lawfulness (see, to that effect, Case C‑84/95 Bosphorus [1996] ECR I‑3953, paragraph 26, and Case T‑390/08 Bank Melli Iran v Council , cited at paragraph 161 above, paragraph 70).
192. In addition, the fourth set of arguments, stated in paragraph 190 above, is unfounded. Neither Decision 2011/172 nor Regulation No 270/2011 imposes a travel ban on the applicants.
193. In short, only the first two sets of arguments, stated in paragraphs 187 and 188 above, are capable of supporting the plea alleging breach of the right to property. They will therefore be examined below in turn.
As regards the first set of arguments
194. Article 17(1) of the Charter of Fundamental Rights provides:
‘Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated by law in so far as is necessary for the general interest.’
195. In the present case, the Council froze, by Decision 2011/172 and Regulation No 270/2011, during a definite period, the assets held, inter alia, by the applicants. Consequently, the Council must be regarded as having limited the exercise, by the applicants, of the right referred to in Article 17(1) of the Charter of Fundamental Rights (see, to that effect, Kadi and Al Barakaat International Foundation v Council and Commission , cited at paragraph 52 above, paragraph 358). However, the right to property, as protected by that article, does not constitute an unfettered prerogative (see, to that effect, Case 4/73 Nold v Commission [1974] ECR 491, paragraph 14, and Kadi and Al Barakaat International Foundation v Council and Commission , cited at paragraph 52 above, paragraph 355) and may therefore be limited, under the conditions laid down in Article 52(1) of the Charter of Fundamental Rights.
196. Article 52(1) of the Charter of Fundamental Rights provides, first, that ‘[an]y limitation on the exercise of the rights and freedoms recognised by [the Charter of Fundamental Rights] must be provided for by law and respect the essence of those rights and freedoms’, and, secondly, that ‘[s]ubject to the principle of proportionality, limitations may be made only if they are necessary and genuinely meet objectives of general interest recognised by the [European] Union or the need to protect the rights and freedoms of others’.
197. Consequently, in order to comply with EU law, a limitation on the exercise of the right to property must, in any event, satisfy three conditions.
198. First, the limitation must be ‘provided for by law’ (see, to that effect, Case C‑407/08 P Knauf Gips v Commission [2010] ECR I‑6375, paragraph 91). In other words, the measure in question must have a legal basis.
199. Secondly, the limitation must refer to an objective of general interest, recognised as such by the European Union. Those objectives include those pursued under the CFSP, and referred to in Article 21(2)(b) and (d) TEU, namely supporting democracy, the rule of law and human rights as well as sustainable development of developing countries with the essential objective of eradicating poverty.
200. Thirdly, the limitation may not be excessive: it must be necessary and proportional to the aim sought (see, to that effect, Bosphorus , cited at paragraph 191 above, paragraph 26, and Kadi and Al Barakaat International Foundation v Council and Commission , cited at paragraph 52 above, paragraphs 355 and 360) and the ‘essential content’, that is, the substance, of the right or freedom at issue must not be impaired (see, to that effect, Nold v Commission , cited at paragraph 195 above, paragraph 14, and Kadi and Al Barakaat International Foundation v Council and Commission , cited at paragraph 52 above, paragraph 355).
201. In the present case, each of these conditions is met.
202. First, the limitation on the exercise of the right to property in question must be regarded as ‘provided for by law’, within the meaning of Article 52(1) of the Charter of Fundamental Rights, given that the criteria laid down in Article 1(1) of Decision 2011/172 and in Article 2(1) of Regulation No 270/2011 have been complied with (see paragraphs 99 and 103 above).
203. Secondly, as noted in paragraph 44 above, Decision 2011/172 and the Annex thereto contribute to the attainment of the general interest objectives referred to in Article 21(2)(b) and (d) TEU. The same is true with regard to Regulation No 270/2011 and Annex I thereto, in so far as they reflect the provisions of Decision 2011/172.
204. Thirdly, contrary to the applicants’ claims (see paragraph 187 above), the restriction on their exercise of the right to property is not disproportionate.
205. The principle of proportionality, as one of the general principles of EU law, requires that measures adopted by the EU institutions do not exceed the limits of what is appropriate and necessary in order to attain the objectives pursued by the legislation in question. Consequently, when there is a choice between several appropriate measures, recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued (see Case C‑189/01 Jippes and Others [2001] ECR I‑5689, paragraph 81, and the judgment of 6 May 2010 in Case T‑388/07 Comune di Napoli v Commission , not published in the ECR, paragraph 143).
206. The measures which the Council took on the basis of Article 1(1) of Decision 2011/172 and Article 2(1) of Regulation No 270/2011 are appropriate in order to achieve the objectives referred to in paragraph 203 above. Those measures assist effectively with establishing misappropriation of State funds to the detriment of the Egyptian authorities and make it easier for those authorities to obtain the restitution of the proceeds of such misappropriation. As is apparent from paragraphs 139 to 141 above, the documents in the file before the Court show that the first applicant was prosecuted in Egypt for conduct which could be categorised as ‘misappropriation of State funds’.
207. In addition, the applicants have not proved that the Council could envisage adopting measures that are less onerous than but equally appropriate as those provided for in Decision 2011/172 and Regulation No 270/2011.
208. In the absence of a judicial decision concerning the merits of the court proceedings in Egypt, the Council could not, when Decision 2011/172 and Regulation No 270/2011 were adopted, know the nature, or itself state the quantum, of any possible misappropriation of Egyptian State funds by the first applicant. It was not therefore in a position to distinguish between, first, the assets likely to have become part of the applicants’ estates following such misappropriation and, secondly, the remainder of the goods comprising their estates. In those circumstances, nothing enabled the Council to assume that the seizure of the applicants’ assets by the Egyptian authorities (see paragraph 132 above) was sufficient to cover any future conviction of the first applicant.
209. Lastly, the disadvantages caused by the asset-freezing measures at issue are not disproportionate to the objectives pursued. In that regard, it must in particular be noted, first, that those measures are by nature temporary and reversible (see paragraph 79 above) and do not therefore infringe the ‘essential content’ of the right to property, and, secondly, that, in accordance with Article 1(3) of Decision 2011/172, they may be derogated from in order to cover ‘basic needs’, legal costs or even the ‘extraordinary expenses’ of the persons concerned.
As regards the second set of arguments
210. By the argument referred to in paragraph 188 above, set out for the first time in the reply, the applicants essentially put forward a plea of illegality for the purpose of Article 277 TFEU, to the effect that the prevention of third parties making additional economic resources available to them, pursuant to Article 1(2) of Decision 2011/172, amounts to a disproportionate interference with the right to property.
211. First, in accordance with Article 52(3) of the Charter of Fundamental Rights, Article 17(1) of that charter, which enshrines the right to property, must be interpreted in the light of the ECHR’s case-law on Article 1 of Protocol No 1 to the Convention for the Protection of Human Rights and Fundamental Freedoms, which guarantees the right to the peaceful enjoyment of ‘possessions’.
212. Secondly, according to the ECHR’s case-law, Article 1 of Protocol No 1 does not guarantee the right to acquire ‘property’. An applicant can allege a violation of that article only in so far as the impugned decisions relate to his ‘possessions’ within the meaning of that provision. ‘Possessions’ can be either ‘existing possessions’ or ‘assets’, including claims, in respect of which the applicant can argue that he or she has at least a ‘legitimate expectation’ of obtaining effective enjoyment of a property right. Where the proprietary interest is in the nature of a claim it may be regarded as an ‘asset’ only where it has a sufficient basis in law (see Kopecký v. Slovakia [GC], no. 44912/98, §§ 35 and 52 and the case-law cited therein, ECHR 2004–IX).
213. In the present case, it is apparent from Article 1(6) of Decision 2011/172 that Article 1(2) of that decision does not preclude the addition to frozen accounts of interest or other earnings on those accounts or prohibit payments due under contracts, agreements or obligations that were concluded or arose prior to the date on which those accounts were frozen. Consequently, only new payments of funds by third parties which, at the date on which that decision entered into force, were not provided for by a legal act are prohibited by Article 1(2) of Decision 2011/172.
214. If, however, by claiming that that provision was unlawful, the applicants sought to argue that it prevented third parties from making payments due under legal acts predating the entry into force of the freezing of their assets, it must therefore be found that, to that extent, their plea of illegality is based on an incorrect premiss.
215. As to future payments which, when the freezing of assets entered into force, were not provided for by any legal act, the applicants are incorrect to take the view that those payments fall within the scope of Article 17(1) of the Charter of Fundamental Rights. By preventing third parties from making such payments, the Council did not deprive the applicants of any ‘possession’, within the meaning of the ECHR’s case-law referred to in paragraph 212 above.
216. Without having to rule on whether the submission, in the reply, of the argument referred to in paragraph 188 above was out of time (see paragraph 54 above), the Court must therefore reject that argument.
217. Consequently, having also found that the fifth plea in law, alleging infringement of the rights of the defence and of the right to effective judicial protection, had to be rejected, the Court must conclude that the sixth plea in law must also be rejected in its entirety.
7. The seventh plea in law, alleging breach of the freedom to conduct a business
218. Under Article 16 of the Charter of Fundamental Rights, ‘[t]he freedom to conduct a business in accordance with Union law and national laws and practices is recognised’.
219. In the present case, the applicants allege, implicitly, a breach of that provision. In support of that plea, they state that Decision 2011/172 and Regulation No 270/2011 completely prevent them from conducting any business in the European Union.
220. It must be found that the immediate aim of those acts is not to preclude the applicants from conducting such business.
221. In those circumstances, it must be found that, by the arguments referred to in paragraph 218 above, the applicants submit that, in freezing the assets which they had within the territory of the European Union and in preventing third parties from making additional economic resources available to them within the European Union, an indirect consequence of Decision 2011/172 and Regulation No 270/2011 is to prevent them, in practice, from conducting any business in the Union.
222. Even if interpreted in that manner, the seventh plea in law cannot be upheld.
223. As has just been noted, in support of the present plea in law the applicants have not argued that the various prohibitions laid down by Decision 2011/172 and Regulation No 270/2011 prevented them from carrying out business with natural and legal persons situated in the territory of the European Union, while they are resident outside that territory.
224. They have merely alleged that those acts prevented them, in practice, from conducting any business within the European Union.
225. However, the applicants, who are all Egyptian nationals, fail even to establish that they were authorised, before Decision 2011/172 and Regulation No 270/2011 were adopted, to conduct a business in the territory of a Member State as third-country nationals.
226. Consequently, they have no grounds for claiming that Decision 2011/172 and Regulation No 270/2011 had the effect of preventing them from conducting a business in the European Union.
227. Even if the applicants intended to advance the argument referred to in paragraph 223 above, the plea in law would in any event have to have been rejected.
228. It is true that, pursuant to Article 1(2) of Decision 2011/172, third parties are prohibited from making additional economic resources available to the applicants and that that prohibition has indirectly restricted their capacity to enter a business relationship with natural or legal persons resident or having their seat within the European Union.
229. However, first, that restriction, provided for by a provision of general scope of Decision 2011/172, is, as noted in paragraph 202 above, provided for by law.
230. Secondly, that restriction responds to the same general interest objective as that pursued by the freezing of the applicants’ pre-existing assets (see paragraph 203 above).
231. Thirdly, the restriction at issue is not disproportionate.
232. That prohibition is appropriate in the light of the purpose of the contested acts, which is to assist the Egyptian authorities with establishing and recovering the assets from possible misappropriation of State funds. Any change to the asset situation of the applicants stemming from legal acts after Decision 2011/172 is liable to make it more complex, if not impossible, to distinguish between, on the one hand, the assets likely to stem from misappropriation of Egyptian State funds and, on the other, the remainder of the assets making up the applicants’ estates. Consequently, the fact the applicants’ estates cannot be increased by payments arising from matters after Decision 2011/172 is liable to assist with the identification and restitution to the Egyptian authorities of the Egyptian State funds which may have been misappropriated to the benefit of the applicants.
233. Moreover, there are no less onerous measures than the prohibition laid down in Article 1(2) of Decision 2011/172, coupled with the asset-freeze provided for in Article 1(1) of that decision, for freezing the applicants’ estates within the European Union and thereby assisting with the establishment and restitution to the Egyptian authorities of the proceeds of any misappropriation of State funds to the benefit of the applicants.
8. The eighth plea in law, alleging a ‘manifest error of assessment’
234. The applicants allege that there has been a ‘manifest error of assessment’. They put forward two arguments in support of that plea.
235. By a first argument, they submit that, by listing them in the Annex to Decision 2011/172, the Council did not comply with the criteria set out in Article 1 of that decision and thus made a ‘manifest error of assessment’.
236. However, the fact remains that, although that argument is put forward in support of the present plea, it is identical to the second plea in law, alleging, in particular, the failure to comply with the criteria laid down in Article 1(1) of Decision 2011/172. It must therefore be rejected on the grounds set out in paragraphs 57 to 99 above.
237. By a second argument, the applicants submit that the Council did not apparently seek to ‘assess’ whether they were ‘actually’ ‘responsible’ for misappropriating Egyptian State funds. In so doing, they presuppose that it was for the Council to ascertain whether they were criminally liable for misappropriation of Egyptian State funds.
238. However, as is apparent from paragraph 67 above, such an argument is based on the incorrect premiss that only persons who have been convicted of such offences could be the subject of the freezing of assets in question.
239. The eighth plea in law can therefore only be rejected.
240. It follows from all the foregoing that the action must be dismissed.
Costs
241. Under Article 87(2) of the Rules of Procedure of the General Court, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings.
242. Under Article 87(4) of the Rules of Procedure, Member States and institutions which have intervened in the proceedings are to bear their own costs.
243. In the present case, since the applicants have been unsuccessful, they must be ordered to pay the costs. In addition, as an intervening institution, the Commission must bear its own costs.
Operative part On those grounds,
THE GENERAL COURT (Third Chamber)
hereby:
1. Dismisses the action;
2. Orders Mr Ahmed Abdelaziz Ezz, Ms Abla Mohammed Fawzi Ali Ahmed, Ms Khadiga Ahmed Ahmed Kamel Yassin and Ms Shahinaz Abdel Azizabdel Wahab Al Naggar to bear their own costs and, in addition, to pay the costs incurred by the Council of the European Union;
3. Orders the European Commission to bear its own costs. | 6 |
HHJ McKenna:
Introduction
The Claimant, Stratford-on-Avon District Council, seeks an injunction pursuant to section 187B of the Town and Country Planning Act 1990 "the Act" against the Defendant, Persimmon Homes Limited, in respect of a development at 42 Avon Crescent, north of Milestone Road, Stratford on Avon ("the Site") which was once agricultural land on the edge of Stratford on Avon
The Claimant is the relevant local planning authority with responsibility for the enforcement of planning control in respect of the Site whilst the Defendant is the owner of the Site (subject to the sale off of individual plots) and is responsible for its development.
The application is supported by witness statements made on 13 October and 11 November 2015 by Claire Louise Eynon, a planning manager, and dated 14 October 2015, by Ronald John Goodyer, a planning enforcement officer, both of whom are employed by the Claimant, and suggests that the injunction is necessary and proportionate having regard to what it characterises as the Defendant's flagrant and persistent breaches of planning control and having regard to what it submits is the underlying issue of safety and the need for a mechanism whereby enforcement can be pursued against the Defendant and not individual plot purchasers. Moreover, it is said that the terms of the relief sought are the least imposing terms commensurate with ensuring compliance with planning control. The application was preceded by the issue of a number of Breach of Condition Notices
The application is opposed by the Defendant with reliance being placed on witness statements from Joe Turner, Head of Technical at Persimmon Homes (South Midlands,) a division of the Defendant company, dated 6 and 17 November 2015 respectively, and Christopher Smith, a site manager with responsibility for the Site for Persimmon Homes (South Midlands), dated 6 November 2015.
The Defendant points out that the alleged breaches of planning control sought to be restrained are not the use of the Site for which no planning consent has been obtained and as such this is an unusual application of section 187B of the Act; that there is no suggestion that more conventional enforcement measures have been tried without success, nor that recourse to such enforcement measures is inappropriate given the need to avert an imminent risk of serious harm. Moreover, the court is entitled in an appropriate case to take into account points which might otherwise have been taken by the Defendant had it pursued judicial review in respect of the Breach of Condition Notices. The evidence does not justify the granting of injunctive relief and that the Defendant is, to quote counsel for the Defendant's skeleton argument "the luckless victim of a misguided attempt on the part of the Claimant's officers to appease the implacable hostility of a well connected and vociferous lobby of councillors and local residents".
Legal background
Section 187B of the Act states as follows: –
"(1) Where a local planning authority consider it necessary or expedient for any actual or apprehended breach of planning control to be restrained by injunction, they may apply to the Court for an injunction, whether or not they have exercised or are proposing to exercise any of their other powers under this Part.
(2) On an application under subsection (1) the Court may grant such an injunction as the court thinks appropriate for the purpose of restraining the breach.
(3) Rules of Court may provide for such an injunction to be issued against a person whose identity is unknown.
(4) In this section "the Court" means the High Court or the County Court.
The definition of "a breach of planning control" is to be found in section 171A of the Act which is in these terms: –
"(1) For the purposes of this Act –
(a) carrying out development without the required planning permission; or
(b) failing to comply with any condition or limitation subject to which planning permission has been granted, constitutes a breach of planning control."
It is right to record that although the Defendant has criticized the Claimant for failing to have recourse to other enforcement measures first, for example in the Magistrates Court for failure to comply with a Breach of Condition Notice, s187B of the Act makes it clear that such action is not a prerequisite for the granting of injunctive relief.
In Runnymede BC v Harwood [1994] 1 PLR 22, the court held that section 187B should be given a broad interpretation.
In South Bucks DC v Porter [2001] EWCA Civ 1549, Simon Brown LJ held as follows: –
"37. I propose now to state first my conclusions on the general point arising — the proper approach to the exercise of the court's power under s.187B — and secondly, how in my judgment that conclusion falls to be applied in each of the four appeals before us.
The approach to s.187B
38. I would unhesitatingly reject the more extreme submissions made on either side. It seems to me perfectly clear that the judge on a s.187B application is not required, nor even entitled, to reach his own independent view of the planning merits of the case. These he is required to take as decided within the planning process, the actual or anticipated breach of planning control being a given when he comes to exercise his discretion. But it seems to me no less plain that the judge should not grant injunctive relief unless he would be prepared if necessary to contemplate committing the defendant to prison for breach of the order, and that he would not be of this mind unless he had considered for himself all questions of hardship for the defendant and his family if required to move, necessarily including, therefore, the availability of suitable alternative sites. I cannot accept that the consideration of those matters is, as Burton J suggested was the case in the pre-1998 Act era, "entirely foreclosed" at the injunction stage. Questions of the family's health and education will inevitably be of relevance. But so too, of course, will countervailing considerations such as the need to enforce planning control in the general interest and, importantly therefore, the planning history of the site. The degree and flagrancy of the postulated breach of planning control may well prove critical. If conventional enforcement measures have failed over a prolonged period of time to remedy the breach, then the court would obviously be the readier to use its own, more coercive powers. Conversely, however, the court might well be reluctant to use its powers in a case where enforcement action had never been taken. On the other hand, there might be some urgency in the situation sufficient to justify the pre-emptive avoidance of an anticipated breach of planning control. Considerations of health and safety might arise. Preventing a gipsy moving onto the site might, indeed, involve him in less hardship than moving him out after a long period of occupation. Previous planning decisions will always be relevant; how relevant, however, will inevitably depend on a variety of matters, including not least how recent they are, the extent to which considerations of hardship and availability of alternative sites were taken into account, the strength of the conclusions reached on land use and environmental issues, and whether the defendant had and properly took the opportunity to make his case for at least a temporary personal planning permission.
39. Relevant too will be the local authority's decision under s.187B(1) to seek injunctive relief. They, after all, are the democratically elected and accountable body principally responsible for planning control in their area. Again, however, the relevance and weight of their decision will depend above all on the extent to which they can be shown to have had regard to all the material considerations and to have properly posed and approached the article 8(2) questions as to necessity and proportionality.
40. Whilst it is not for the court to question the correctness of the existing planning status of the land, the court in deciding whether or not to grant an injunction (and, if so, whether and for how long to suspend it) is bound to come to some broad view as to the degree of environmental damage resulting from the breach and the urgency or otherwise of bringing it to an end. In this regard the court need not shut its mind to the possibility of the planning authority itself coming to reach a different planning judgment in the case.
41. True it is, as Mr McCracken points out, that, once the planning decision is taken as final, the legitimate aim of preserving the environment is only achievable by removing the gipsies from site. That is not to say, however, that the achievement of that aim must always be accepted by the court to outweigh whatever countervailing rights the gipsies may have, still less that the court is bound to grant injunctive (least of all immediate injunctive) relief. Rather I prefer the approach suggested by the 1991 Circular: the court's discretion is absolute and injunctive relief is unlikely unless properly thought to be "commensurate" — in today's language, proportionate. The Hambleton approach seems to me difficult to reconcile with that Circular. However, whatever view one takes of the correctness of the Hambleton approach in the period prior to the coming into force of the Human Rights Act 1998, to my mind it cannot be thought consistent with the court's duty under s.6(1) to act compatibly with convention rights. Proportionality requires not only that the injunction be appropriate and necessary for the attainment of the public interest objective sought — here the safeguarding of the environment — but also that it does not impose an excessive burden on the individual whose private interests — here the gipsy's private life and home and the retention of his ethnic identity — are at stake.
42. I do not pretend that it will always be easy in any particular case to strike the necessary balance between these competing interests, interests of so different a character that weighing one against the other must inevitably be problematic. This, however, is the task to be undertaken by the court and, provided it is undertaken in a structured and articulated way, the appropriate conclusion should emerge."
The relationship between the Court's jurisdiction under this section where proceedings are also instituted for judicial review of the council's decision to commence such proceedings was considered by the High Court in R v Basildon DC ex p. Clarke [1996] JPL 866. Where the County Court had refused to adjourn proceedings on the injunction to allow the application for judicial review to be determined Mr Justice Carnwath, as he then was, said as follows:–
"If something had gone seriously wrong with the procedure, whether in the initiation of the injunction proceedings or in any other way, it was difficult to see why the County Court judge could not properly take it into account in the exercise of his discretion to grant or refuse the injunction. That was quite different from opening before the County Court the whole issue of the planning merits, which of course were a matter for the authorities. Conversely, if there was no substantial defect in the procedure, there was no reason why the County Court should grant an adjournment for a leave application for judicial review, nor why the application for judicial review should be successful. In West Glamorgan CC v Rafferty [1997] 1WLR 457 and Avon CC v Buscott [1998] 1QB 656, it was held at proceedings by a local authority possession of its own land could not be resisted by a Wednesbury challenge to the decision to initiate the proceedings. Whatever the position is possession proceedings, … The court's powers in respect of the grant of an injunction were inherently discretionary. If an authority seeking an injunction under section 178B were thought by the court to be acting (as in Rafferty) in a way that no reasonable authority should, he could see no reason why the court should not simply dismiss the application for an injunction as a matter of discretion."
I was also referred to the decisions in the Court of Appeal in O'Brien and Others v South Cambridgeshire District Council [2008] EWCA Civ 1159 at paragraphs 31 and 32 and to the decision of Mr Justice Gray in Aylesbury Vale District Council v Douglas Gwent and Others [2007] EWHC 724(QB) and have that guidance given in these cases very much in mind when considering the various submissions made in this case.
It is common ground that the legal burden is on the Defendant to prove that an injunction is not required.
Planning Practice Guidance
The following paragraph provides government guidance in respect of injunctions: –
"Paragraph: 050 reference ID:17b-050-20140306
How does a local authority decide whether seeking an injunction to restrain a breach of planning control is appropriate?
A local planning authority can where they consider it expedient for any actual or apprehended breach of planning control to be restrained, apply to the High Court or County Court for an injunction to restrain a breach of planning control (section 187B of the Town and Country Planning Act 1990).
In deciding whether it is necessary or expedient to seek an injunction, local planning authorities may find it helpful to consider whether:
they have taken account of what appear to be relevant considerations, including the personal circumstances of those concerned;
there is clear evidence that a breach of planning control has already occurred or is likely to occur;
injunctive relief is a proportionate remedy in the circumstances of the particular case;
in the case of an injunction sought against a person whose identity is unknown, it is practicable to serve the court's order on the person or persons to whom it will apply;
a local planning authority can apply for an injunction whether or not it has exercised, or proposes to exercise, any of their other powers to enforce planning control. However, proceedings for an injunction are the most serious enforcement action that a local planning authority can take because if a person fails to comply with an injunction they can be committed to prison for contempt of court. Additionally once an injunction has been granted, it cannot be discharged except where there has been a significant change of circumstances since the order was made. In these circumstances a local planning authority should generally only apply for an injunction as a last resort and only if there has been persistent breaches of planning control over long period and/or other enforcement options have been, or would be ineffective. The court is likely to expect the local planning authority to explain its reasons on this issue.
Revision date: 06 03 2014"
Factual background
On 30 April 2014 the Defendant secured planning permission (by way of a section 78 of the Act appeal) in respect of the Site for "demolition of the garage at 42 Avon Crescent and the erection of 85 dwellings, associated amenity space, access, car parking and ancillary development".
It is fair to record that the application for planning permission aroused strong local feeling and was met with strong local opposition which was championed by local councillors. Although the application was recommended for approval by the Claimant's planning officers, it was rejected by the relevant planning committee, hence the need for the ultimately successful appeal to the Planning Inspectorate.
A number of conditions were attached to the planning permission including the following: –
"5) Development shall not begin until full details of both hard and soft landscape works based on drawing no. JBA12/215-SK01 and the suggestions in the Phase 1 Habitat Survey by JBA dated January 2013, have been submitted to and approved in writing by the local planning authority. These details shall include, proposed finished ground and floor levels; all means of enclosures; vehicle and pedestrian access and circulation areas; hard surfacing materials; minor artefacts and structures, including street furniture, play equipment, refuse or other storage units, signs, lighting etc; proposed functional services above and below ground; and a programme for implementation and maintenance. All hard and soft landscape works shall be carried out in accordance with the approved details, and the implementation and maintenance programmes.
19) No development shall take place, including any works of demolition, until an Environmental Construction Statement has been submitted to and approved in writing by the local planning authority. The approved Statement shall be adhered to throughout the construction period and shall provide for:
i) the parking of vehicles of site operatives and visitors;
ii) the loading and unloading of plant and materials;
iii) the storage of plant and materials used in constructing the development;
iv) the erection and maintenance of security hoarding including any decorative displays and facilities for public viewing;
v) wheel washing facilities;
vi) measures to control the emission of dust and dirt during construction;
vii) a scheme for recycling/disposing of waste resulting from demolition construction work;
viii) a construction traffic management plan, to address the nature and size of the vehicles entering and leaving the site, the permitted times for deliveries and collections and any measures necessary to ensure safety on the highway and for neighbouring nearby residents."
The Defendant's Construction Ecological and Environment Management Plan Method (the "Method Statement") includes the following provisions material to the issues raised in this application: –
"1.1 Purpose
This Construction Environmental Management Plan (CEMP) has been prepared to provide an actively managed framework needed for the planning and implementation of Construction Works proposed at Milestone Road, Stratford in accordance with the environmental commitments required by the planning conditions and section 106 agreement in relation to the consented outline planning permissions (APP/J3720/A/13/2207830) dated 30.04.2014.
This document is to be read in conjunction with the MV Kelly Traffic Management Plan
The actions set out in this plan are intended as a tool for anticipating, recording and mitigating any impacts and it provides generic and specific actions to be undertaken whether prior to or during the Construction Works. Construction Works on site are to be undertaken with due regard to this EMP. The EMP is applicable to all staff and operatives working on the project, throughout the construction phase and aims to minimise disturbance to local residents.
1.3 Environmental Policy
The project recognises that its activities impact directly on the environment and is therefore committed to:
ensuring full compliance with any relevant statutory legislation or guidelines with the contract.
treating all legal obligations as the minimum standard;
identifying and assessing environmental aspect in advance and ensuring, where possible, that controls are implemented and maintained; and
putting measures in place to prevent and control pollution incidents.
1.4 Roles and Responsibilities
Project Manager/Director
The Project Director/Manager is responsible for the effective resourcing of staff to ensure that the environmental requirement identified in the EMP are undertaken and to check that construction activities comply with the requirements of the EMP.
Environmental Managers
The Environmental Manager will be responsible for coordinating and managing all the environmental activities during the construction phase. The Environmental Manager's responsibilities include:
monitor construction activities and performance to ensure compliance with the EMP and that identified and appropriate control measures are being effective;
ensure delivery of environmental training to personnel with the project team;
act as main point of contact between the regulatory authorities and the project on environmental issues;
develop and review the EMP and specialist procedures;
manage and coordinate work carried out by the environmental specialists;
lead the appointment of environmental specialists as appropriate.
Environmental Clerk of Works (EnviroCW)
The Contractor's ECW (EnviroCW) is responsible for advising on environmental activities on the project, report to the Environmental Manager. The EnviroCW's responsibilities include:
monitoring of construction activities and performance to ensure that appropriate environmental control measures are being implemented and are effective;
provision of advice and liaison with construction team to ensure that environmental risks are identified and appropriate controls are developed and included within Method Statements and Risk Assessments; and
in conjunction with the environmental specialists, overall monitoring of the programme for environmental works, and provision of status reports as necessary.
1.6 Method Statement
Method Statements will be completed by, or on behalf of, the Contractor or Subcontractor by trained engineers or other appropriately experienced personnel, in consultation with on-site environmental staff and environmental specialists from the LPA (where necessary). Their production will include a review of the environmental risks and commitments, as identified in the Environmental Risk Assessment, so that appropriate control measures are developed and included within the construction processes.
Method Statements will be reviewed and approved for use by the Environmental Manager and, where necessary, by an appropriate environmental specialist. Where appropriate, Method Statements will be submitted to the enforcement agencies (Environment Agency, Natural England, Stratford District Council's Environmental Health Officer etc). Method Statements shall contain as a minimum:
any permit or consent requirements;
work to be undertaken and methods of construction;
labour and supervision requirements;
health, safety and environmental considerations;
location of the activity and access/egress arrangements;
plant and materials to be used (including spill kits).
1.7 Environmental Risk Assessments
All activities undertaken on site will be subject to an Environmental Risk Assessment to be carried out by the Contractor or Subcontractor. Environmental Risk Assessment will be undertaken by trained staff following an approved procedure which will:
identify the significant environmental impacts that can be anticipated;
assess the environmental risks from these impacts;
allocate responsible person for actioning required control measures.
identify the control measures to be taken and re-calculate the risk;
report where an inappropriate level of residual risk is identified so that action can be taken through design changes, re-scheduling of work or alternative methods of working in order to reduce the risk to an acceptable level;
The results of an Environmental Risk Assessment and its residual risk are considered acceptable where using all reasonable endeavours, the severity of outcome is reduced to the lowest practical level; the number of risk exposures are minimised; all reasonably practical mitigating measure have been undertaken; and the residual risk is reduced to a minimum.
The findings of the Environmental Risk Assessment and, in particular the necessary controls, will be explained to all operatives before the commencement of the relevant tasks using an agreed instruction format.
…
1.10 Environmental Monitoring and Auditing
Audits
The purpose of environmental auditing is to provide and check that appropriate environmental supervision is taking place, in accordance with statutory requirements and the EMP. The Environmental Audit will also review the results of monitoring undertaken during construction, in order to identify the need for any additional environmental management or mitigation measures to be implemented.
Internal Audits/Inspections will be undertaken by the ECW to establish that procedures and actions highlighted in the EMP are being implemented and to confirm conformity with the Contract requirements. An Environmental Audit will be produced at regular intervals to be agreed between the ECW and the Project Manager, certifying compliance with the required standards, and identifying any areas of non-compliance, including remedial actions to be taken. The scope of the Environmental Audit will cover all of the environmental aspects and impacts relating to construction. The Audit will comprise of unspecified visits as appropriate. Non-conforming processes will initiate a Non-Conformance Report, which will identify the nature of the problem, the proposed corrective action taken to avert recurrence of the problem, and verification that the agreed actions have been carried out."
4.0Construction Traffic Management Plan
3.2 Those activities that may give rise to audible noise at the surrounding properties and heavy goods vehicle deliveries to the site will be limited to the hours of 08.00 to 18.00 Monday to Friday and on 08.00 to 13.00 on Saturdays. Deliverys [sic] are to be avoided during 8am-9am and 3pm-4pm.
Those activities that are unlikely to give rise to noise audible at the site boundary may continue outside of the stated hours.
3.3 Construction plant capable of generating significant noise and vibration levels will be operated in a manner to restrict the duration of the higher magnitude levels.
3.4 Vehicles and Plant on site will be maintained in accordance with Appendix A
3.5 Security hoarding/fencing will be erected around the boundary of the site in the form of herras fencing. The fencing will double up as tree/hedge protection on the site perimeter.
4.1 A Construction Traffic management plan addresses the following:
…
Gate person to be in place during site activites
…
The gate person will be responsible for policing the arrival/departure of goods vehicles ensuring that they are aware not to mount the pavements
3.2 Deliveries to the site will be outside of the peak hours to minimise the effect of congestion, noise and local air pollution.
Suppliers for deliveries and collections will be contacted and notes inserted on the order confirming that deliveries and collections are to be outside of the schools time.
The time frames for deliveries to be avoided are between 8am-9am and 3pm-4pm these have been included on the orders to our suppliers.
Safety to pedestrians/children accessing the play area is noted and at the site induction contractors/drivers etc will be made aware. Should offences take place on the public highway-Milestone Road Then appropriate action can be taken and the relevant authorities notified.
The approximate number of contractors expected on site at any one times is 40. 26 dedicated parking spaces are provided however over flow parking is allocated on the completed drives of the property under construction. Site management parking is provided in addition to this within the compound areas.
Plant and materials will be unloaded adjacent to the storage areas
Those activities that may give rise to audible noise at the surrounding properties and heavy goods vehicle deliveries to the site will be limited to the hours 08.00 to 18.00Monday-Friday and 08.00 to 13.00 on Saturdays. Deliverys [sic] are to be avoided during 8am-9am and 3pm-4pm.
Those activities that are unlikely to give rise to noise audible at the site boundary may continue outside the stated hours.
Vehicles associated with the site including workforce and deliveries are to include: Articulated Lorry, Rigid HGV Lorry, 7.5 tonne delivery vehicle, Light Commercial Goods Vehicle, Cars.
Articulated Lorry delivery drivers are to phone ahead to site, prior to making the necessary delivery. The contact with the site manager will control the traffic flow within Milestone Road.
3.3 …
Extra care will be taken, when deliveries arrive on site. All reversing will be kept to a minimum, delivery and site vehicles will be banked at all times.
…
The Defendant's Operational Phase Ecological Development includes the following provisions: –
"To ensure that the existing trees/hedges continue to thrive in the new environment
The implementation of landscaping work shall be carried out concurrently with that phase of development and shall be completed within one year of substantial completion of that phase of development
Creation of new areas of public open space that incorporates and enhance the setting of existing trees, and the younger specimen trees
the retention and enhancement of existing boundary trees and hedges (where included on the site)"
During the course of July and October 2014 the Claimant became aware of complaints received from residents who live in close proximity to the Site that the Defendant was breaching various planning conditions.
The Claimant served five Breach of Condition Notices on the Defendant between January and July 2015, three of which related to non-compliance with condition 19 and one related to non-compliance with condition 5. The Defendant did not challenge any of these notices by way of judicial review. Needless to say, the time limit for pursuing a challenge by way of judicial review has passed.
By a signed letter of undertaking dated 12 August 2015 the Defendant made the following undertaking: –
"Please accept this letter as Persimmon Homes South Midlands' undertaking to take reasonable measures for as long as it remains in control of the Development to ensure that its employees contractors and suppliers will comply with Condition 19 of the planning permission (reference 13/01342/FUL) for the Development, the approved Environment Construction Management Plan and Traffic Management Plan, as far as is reasonably practicable."
The allegations
In this application the Claimant alleges a number of breaches of planning control which it is convenient to group under the following broad headings:
1. Delivery hours
2. Banking
3. Gate person
4. Landscaping
What is sought by the Claimant is an order that the Defendant must:
"i Avoid any deliveries to the [Site] between the following hours [as specified in section 4.2 on pages 13-14 of the approved Construction, Ecological and Environmental Management plan pursuant to condition 19]:
08:00-09:00.
15:00-16:00.
ii Throughout the construction period all deliveries and site vehicles will be banked at all times, in accordance with section 3.1 of the Construction Phase Health and Safety Plan (dated 20 September 2014) approved in writing by the Local Planning Authority of 10 November 2014.
iii Provide a gate person throughout the construction period, who shall be responsible for policing the arrival/departure of goods vehicles and shall use all reasonable endeavours to ensure that they are not to mount the pavements (section 4.1 of Construction, Ecological and Environmental Management Plan]
iv Implement the soft landscape works in accordance with the programme approved in writing by the Claimant on 10 December 2015".
I now turn to deal with these respective allegations in detail.
Delivery hours
What is said on behalf of the Claimant is that breaches occurred in respect of delivery hours on the following dates; the last three alleged breaches therefore occurring after the Defendant's undertaking referred to above:
9 January 2015
9 February 2015
9 March 2015
2 June 2015
15 June 2015
22 June 2015
23 June 2015
29 June 2015
8 July 2015
10 July 2015
1 September 2015
2 September 2015
14 September 2015
The Defendant for its part asserts that upon a proper construction of the Method Statement it has fully discharged its obligations and is not in breach. Alternatively, it submitted on the Defendant's behalf that the court ought to exercise its discretion to refuse to grant the injunction sought in all the circumstances of the case.
There is a dispute between the parties as to the proper construction of paragraph 3.2 and paragraph 4.2 of the Method Statement. The Claimant submits that they mean that deliveries should not take place between the stipulated hours which I will refer to as the "prohibited hours" and that by deliveries what is plainly meant as a matter of common sense is both incoming and outgoing delivery vehicles. Moreover it does not matter whether the delivery took place 11 minutes or 30 minutes into the prohibited hours. In the alternative the Claimant relies on the use of the word "cease" in the Breach of Condition Notice dated 24 June 2015, and in any event on the Defendant's own evidence the Claimant asserts that there have been three breaches since the undertaking was given (namely on 1, 2 and 14 September 2015) which are sufficient of themselves to warrant the granting of injunctive relief. It was also submitted that it mattered not whether the alleged breaches were by sub-contractors over whom the Defendant had no effective control, nor that the numbers of breaches were small, compared with the total number of traffic movements to and from the Site.
The Defendant for its part, points out that neither in its pleaded case nor in its evidence is there a single allegation of breach between 8am-9am and therefore this aspect of the proposed injunctive relief should be dismissed without more.
More generally, the Defendant also submits that on a proper construction of the wording of the Method Statement deliveries between the prohibited hours are merely to be avoided in the sense of being discouraged insofar as that is reasonably practicable and adopting that construction, the Defendant submits that it cannot sensibly be regarded as having breached its obligations in circumstances where the number of deliveries made between the prohibited hours is so small, the only such breaches being on 9 January, 9 March, 15 June, 22 June and 8 July.
In support of its construction of the relevant provisions of the Method Statement, the Defendant relies upon the following matters of which it submits the parties would have been well aware:
i that thousands of deliveries were likely to be made to the Site during the course of the three year construction period.
ii that the Defendant would not be a party to many of the agreements pursuant to which deliveries would be made since they would be arranged by its contractors and their sub-contractors.
iii that deliveries were bound to arrive early or late from time to time.
iv that exceptionally, it might not be reasonably practicable to avoid arranging for a delivery to be made between the prohibited hours.
v in certain circumstances, common sense might demand that a delivery vehicle be admitted between the prohibited hours rather than wait.
Moreover it was submitted that the Method Statement fell to be construed as a whole and in that context reliance was placed on its expressed purpose namely to provide an actively managed framework needed for the planning and implementation of the construction works, the inference being that it was intended to provide a framework rather than a straightjacket: that it was expressly stated to be intended as a tool for anticipating, recording and mitigating any impacts, the inference being that it was a means to an end rather than an end in itself; that it was envisaged that it would be kept under review and revised as appropriate, the inference being that both parties expected that the Method Statement would be refined if necessary to address particular problems; and that both parties contemplated the application of "all reasonable endeavours" and the taking of "all reasonably practical mitigating measures".
To my mind there is considerable force in the submissions made on the Defendant's behalf on this issue and the better view is that the phrase "to be avoided" is to be understood in the sense that deliveries are to be discouraged, not that they are in all circumstances prohibited. For the avoidance of doubt, however, I do construe the term deliveries as extending to both incoming and outgoing delivery vehicles. On this construction it does not seem to me that the Defendant can sensibly be regarded as having breached its obligations on the evidence relied on.
Even if I were to be wrong as to the construction of the relevant provisions of the Method Statement and to take account of the Claimant's submission based on the wording of the Breach of Condition Notice it does not seem to me that it is appropriate in this case to grant injunctive relief on the basis of this allegation considered in isolation since there is no reason to suppose that the deliveries will be made to this Site in the future within the prohibited hours and there is no reason to suppose that conventional enforcement measures would be ineffective.
To my mind, the Defendant has gone to great lengths to seek to ensure observation on the relevant provisions of the Method Statement made by sub-contractors as is apparent from the witness evidence of Mr Turner and equally the Defendant's site manager has conscientiously sought to avoid such deliveries. I have no doubt that the Defendant will continue to ensure that the terms of the Method Statement and the relevant Breach of Conditions of Notice, will be complied with. As things currently stand, the Defendant will be liable to criminal conviction should a delivery be made in the prohibited hours and that sanction is one which, I am satisfied, on the evidence, the Defendant takes very seriously and will continue to take very seriously in the future until this development has been completed.
To my mind the weight to be attached to the evidence filed in support of the Claimant's decision to pursue injunctive relief is relatively low in this case, particularly in circumstances when there was no objective evidence to suggest that prosecution for non compliance with a Breach of Condition Notice would not be effective and it's difficult to see that it could sensibly be concluded that the only means of securing compliance was by way of injunctive relief.
In all the circumstances of this case, the grant of injunctive relief on this ground is simply not proportionate.
Banking
Reliance is placed on section 3.1 of the Construction Health and Safety Plan which states as follows:
"Extra care will be taken when deliveries arrive on site. All reversing will be kept to a minimum, delivery and site vehicles will be banked at all times."
Banking is an expression used in the construction industry to describe what happens when a person known as a "Banksman" stands behind a vehicle better to guide the driver during a reversing manoeuvre.
What is alleged by the Claimant is that the Defendant has failed on its own evidence to comply with an obligation for site vehicles to be banked at all time. Reliance is placed on the evidence of Mr Goodyer, identifying alleged breaches on 17 December 2014, 6 January, 7 January, 14 January, 21 January, 22 January, 6 February and 25 June 2015, notwithstanding that these alleged breaches are not specifically mentioned in the Grounds of Claim. Moreover the Claimant also submits that since the provision of the undertaking by the Defendant, a further breach took place on 16 September 2015, the only breaches formally pleaded.
The Defendant for its part submitted that there had been no breach of the obligation notwithstanding the issue of a Breach of Condition Notice, and that specifically so far as the complaint relating to 16 September 2015 was concerned, it was said that it was without foundation since there was no evidence that the vehicle in question was even reversing. The evidence relied upon by the Claimant related to its mere presence and in those circumstances the Claimant could not prove to the required standard that the Defendant had breached the obligation regarding banking.
I accept the force of that submission, accepting as I do the evidence of the Defendant's witnesses both as to the absence of evidence of breach in respect of the incident on 16 September 2015 and as to the alleged earlier incidents. In that regard, it is to my mind unsatisfactory for a local planning authority seeking to pursue injunctive relief of the type pursued here to seek to rely on matters which are not specifically pleaded and not appropriately covered in the evidence filed in support.
To my mind, the application for injunctive relief in this regard is disproportionate and verging on the oppressive.
Gate Person
The Claimant's complaint is not that the Defendant failed to provide a gate person, ( the Claimant accepts that it did) rather it is that such a person was to be "responsible for policing the arrival/departure of goods vehicles, ensuring that they are aware not to mount the pavement" and that he/she was located in the wrong place, coupled with the numerous occasions when it is said vehicles mounted the pavement as set out at paragraphs 7.15 and 7.16 of the Grounds of Claim from which it could be inferred that the gate person had not been performing his/her duties adequately.
To my mind this allegation is without foundation. The Claimant appears to have proceeded on the basis that the Defendant's obligation was to ensure that the gate person performed his duties at the entrance to the site and nowhere else and to prevent delivery vehicles mounting the pavement; whereas in fact the obligation was to ensure that the drivers of such vehicles were aware of the need not to do so.
It is plain that there is some evidence of lorries mounting kerbs on occasions. On the evidence, I am satisfied on the balance of probabilities that that problem arose because of work carried out in Milestone Road in January 2015 by a utility company. It is plain that upon receipt of the first complaint on 12 January the Defendant offered to provide an extra man, even though that was not provided for in the Method Statement, and that at a meeting on 27 February the Defendant's Managing Director offered to erect barriers to prevent drivers mounting the kerb on Milestone Road, an offer which the Claimant declined. Both these matters are illustrative of the lengths to which the Defendant has gone to allay any legitimate concerns of the Claimant.
Moreover, it is not without significance that at an inspection of the Site on 5 March 2015, Warwickshire County Council's Highways Department's Inspector entered "all good" in the site diary.
So far as the post undertaking allegations of breach are concerned, it is not even alleged that a gateman was not on site on 25 September and 13 October. Rather, what is said is that the Planning Enforcement Officer saw no evidence that he was present. In fact, he was there to be seen, as is evidenced by the relevant timesheets produced by Mr Turner.
It follows in my judgment that the application for injunctive relief is both disproportionate and oppressive.
Landscaping
I can deal with this aspect very shortly. As I understand the position, the Claimant was initially pursuing this aspect of the claim in order to ensure that the Defendant provided the Claimant with a programme for the implementation and maintenance of soft landscaping works, in accordance with Condition 5. In fact the Defendant submitted a programme for implementation on 1 October 2015 which the Claimant deemed insufficient. A further programme was submitted on 6 November 2015, which was approved in writing by the Claimant on 10 November 2015, and accordingly that aspect of the claim for injunctive relief is no longer pursued.
The Claimant does, however, pursue its claim requiring the Defendant to implement the scheme in accordance with the approved programme, it being submitted that, to date, the Defendant has failed to implement the soft landscape works correctly in that they have applied a buffer zone that does not accord with the approved landscape drawings. Further it is said that the injunction is necessary to ensure that the Claimant can enforce as against the Defendant, as opposed to having to pursue purchasers of individual plots.
It emerged during the course of the hearing that the Defendant was labouring under a misapprehension as to what constituted implementation of the soft landscaping works, and in particular as to the size of the buffer zone. Now that that misapprehension has been laid to rest I have no doubt that the Defendant will complete the landscaping work in accordance with the approved scheme. Had there been, as there ought to have been, more effective dialogue between the Claimant's officers and the Defendant, this misapprehension would undoubtedly have been identified and rectified at an early stage. The Defendant has demonstrated by its actions that it is anxious to comply with its obligations, and but for the misunderstanding, considered that it has done so.
In the circumstances, the granting of injunctive relief at this stage is unnecessary and disproportionate. Of course, the position might be different in the future, and notwithstanding the confidence I have expressed in the Defendant's desire to comply with its obligations in this regard, if in fact the Defendant does not comply with the approved programme.
Conclusion
It follows in my judgment that the Claimant's application for injunctive relief should be dismissed.
I trust that the parties will be able to agree the terms of an order which reflects the substance of this judgment and deals with costs. If the parties are unable to agree on any matter, then they should each file and serve by noon on Friday 18th December 2015 a short skeleton argument identifying the difference(s) between them and setting out their respective submissions on those areas of difference which can then be resolved on paper and without the need for either party's attendance when this judgment is formally handed down.
Finally I would like to take this opportunity to thank both counsel for their helpful and comprehensive submissions. | 2 |
MR JUSTICE MORGAN:
This is an application by Pressdram Limited. It is made in proceedings which had been brought under the Company Directors Disqualification Act 1986. The proceedings under the 1986 Act were brought by the Secretary of State for Trade and Industry by an originating summons filed on 20th October 1998 and resulted in an order being made by Mr Registrar Simmonds on 13th June 2000. This application, of course, is being made many years after those events, that is in May 2012. The reason for the interest, some 12 years or so after the earlier events is that the order made on 13th June 2000 in relation to a Mr Craig Whyte was that he be disqualified as a director for a period of seven years. The evidence which is before me shows that Mr Whyte's connection with limited companies and their financial arrangements has become a matter of public interest and public concern in more recent times.
Pressdram Limited, as is well known, is the name of the company responsible for publishing Private Eye. Essentially this application is made by Private Eye to obtain access to documents on the court file, principally relating to Mr Whyte in the Directors Disqualification Proceedings.
The nature of the proceedings under the Company Directors Disqualification Act 1986 is well known. The statute sets out the grounds on which a director may be disqualified. Proceedings are brought by the Secretary of State. They are based on the fact that there is a matter of public concern and interest in relation to certain individuals continuing to be directors of limited companies. The public element is also emphasised by Section 18 of the 1986 Act which provides for there to be a register of disqualification orders which is available to be consulted.
The application before the court today is made under the Civil Procedure Rules, Rule 5.4C (2). That provides, in short, for a non-party, such as Pressdram Limited, to obtain from the records of the court a copy of certain documents filed by a party to the relevant proceedings or a communication between the court and a party or another person. Rule 5.4C has been amended since the directors disqualification proceedings in this case and the earlier form of Rule 5.4C is set out in the Practice Direction 5A – Court Documents. However, it is not necessary to compare the former and the present versions of Rule 5.4C because the power which I have under 5.4C (2) appears to apply to the records of the court whether they relate to a recent court proceeding or a court proceeding which is further in the past.
Staying with the nature of the court's power to give permission under the relevant rule, the power is further dealt with in the Practice Direction to which I have referred. In paragraph 4.3 of that Practice Direction it is provided that an application under, amongst other things, Rule 5.4C (2) for permission to obtain a copy of a document must be made under Part 23 and the application notice must identify the document or class of document in respect of which permission is sought and the grounds relied upon. The notes in The White Book indicate that that provision in the Practice Direction was considered in an earlier decision of the court. The White Book refers to the decision of Mr Justice
Moore-Bick, as he then was, in Dian AO v Davis, Frankel & Mead [2005] 1 WLR 2951. Indeed reported next to it in the Weekly Law Reports is the decision of Mr Justice Park in Chan U Seek v Alvis Vehicles Limited (Guardian Newspapers Limited intervening) [2005] 1 WLR 2965. Both of those cases appear to have some bearing on the way the court should go about identifying documents for which permission is given under the relevant rule.
I have not been taken to those cases in any detail but I see that in the first of them, that the court disallowed an application where the applicant sought an order entitling it to inspect the file and take from the file documents in which the applicant turned out to be interested. Instead it was held that the right thing to do was for the applicant to identify the documents it sought with reasonable precision and then the court would grant or withhold permission in relation to specified documents. In that case it was made clear, at paragraph 34, that the degree of specification required could be satisfied by specifying a class of documents where there would not be difficulty on the facts in holding whether a document did, or did not, come within the relevant class.
The approach that the court should adopt to an application under this rule is considered in some detail in the notes to The White Book, in particular, at pages 144 to 145. There is a lengthy note under the heading, Open justice - availability of documents to non-parties, which provides helpful guidance. I have taken into account what is said in that note.
On the application before me I have been also asked to take account of a very recent decision of the Court of Appeal which is the R (on the application of the Guardian News and Media Limited) v City of Westminster Magistrates' Court & The Government of the United States of America and Article 19. The neutral citation number is [2012] EWCA Civ 420. That case did not concern an application under the Civil Procedure Rules; it related to extradition proceedings which are, of course, not governed by those Rules. There had been a difference of view between the Divisional Court, which withheld the order sought by The Guardian newspaper and the Court of Appeal as to whether the Court had power to permit a newspaper to inspect certain documents and obtain copies of them, in relation to the extradition proceedings. The important statement of principle which seems to me to apply to the present jurisdiction also is stated in paragraph 85 of the judgment of Lord Justice Toulson in these terms:
'In a case where documents have been placed before a judge and referred to in the course of proceedings, in my judgment the default position should be that access should be permitted on the open justice principle. Where access is sought for a proper journalistic purpose the case for allowing it will be particularly strong. However, there may be countervailing reasons. In company with the US Court of Appeals second circuit and the Constitutional Court of South Africa I do not think that it is sensible or practical to look for a standard formula for determining how strong the grounds for opposition need to be in order to outweigh the merits of the application. The Court has to carry out a proportionality exercise which will be fact specific. Central to the Court's evaluation will be the purpose of the open justice principle, the potential value of the material in advancing that purpose, and conversely any risk of harm which access to the documents may cause to the legitimate interests of others.'
Before leaving that case I draw attention to the documents which were being sought in that case. The documents are summarised in paragraph 10 of the judgment of Lord Justice Toulson, they included opening notes and skeleton arguments, affidavits or witness statements presented by various persons, and then further extended to certain defined classes of correspondence. There did not appear to be any issue raised before the Court of Appeal as to that manner of specifying the documents in that case. At paragraph 91 of his judgment Lord Justice Toulson directed that The Guardian should be allowed access to the documents which it sought.
As to the documents which are sought in the present case, the application notice sought the following order: First that the applicant be provided with a copy of the originating summons in the directors disqualification proceedings and any order made by the court in those proceedings and further that the applicant be permitted to inspect the court file in the proceedings and to obtain a copy of any document which it requests following inspection of that file. At an early stage in the argument I raised with Counsel for Pressdram Limited the question as to whether it was appropriate to make an application in that form and whether further it was appropriate for me to make an order in those terms, having regard to the terms of the Practice Direction and the authorities to which I have referred. Counsel, in the light of that question, stated that Pressdram Limited would be content to have an order from the court which specified more precisely the documents which were sought and which would fall short of an order entitling Pressdram Limited to inspect the file generally. The documents that were specified in that way were as follows: One, the originating summons in the directors disqualification proceedings; Two, the evidence filed by the Secretary of State in support of its application pursuant to Rule 3 of the Insolvent Companies (Disqualification of Unfit Directors) Proceedings Rules 1987; Three, the evidence, if any, filed by Mr Craig Whyte under Rule 6 of those rules; Four, the evidence, if any, filed by a second defendant to the directors disqualification proceedings, namely a Mr David Anderson, filed by him under Rule 6 of those rules; Five, any further evidence together with exhibits filed by the Secretary of State or Mr Whyte or Mr Anderson in readiness for the substantive hearing which led to the order being made by Mr Registrar Simmonds on 13th June 2000; and finally any skeleton arguments or written submissions, whether by way of opening or closing submissions, relied upon by any of the parties to the directors disqualification proceedings, provided that those skeleton arguments are written submissions relating to the substantive hearing which led to the order of 13th June 2000.
It seems to me that that description or degree of specification of the documents which are sought will suffice for the purposes of the Practice Direction and for the purposes of the order which I am asked to make. Having identified the documents, which are to be the subject of any order, I now must apply paragraph 85 of the Guardian case to which I have referred. The default position is that access should be permitted to the documents to which I have referred. I am satisfied in this case that access is sought for a proper journalistic purpose and so Lord Justice Toulson would say the case for allowing access is particularly strong. I must take into account any countervailing reasons. Mr Craig Whyte and Mr David Anderson have been served with these proceedings and have chosen, as is their right, not to participate in this hearing. They have not written to the court identifying countervailing reasons, they have not put in any evidence for that purpose. They have therefore not suggested to the court that there are any countervailing reasons. On examination of the material before me, I am not myself able to see that there any countervailing reasons, in all the circumstances of the case. That means that I am not troubled by the need to carry out a balancing exercise between factors that go one way and factors that go another way. The only factors in play are those which are in favour of the making of the order which is sought.
For those reasons I will make an order, a minute will have to be lodged by counsel for the applicant, but the order will provide for the applicant to be provided with copies of the documents which have been specified. The application before me accepts that the applicant should pay the costs of copying any document so identified. That seems to me to be appropriate. I think that no further directions or orders are needed and that is the order I will make.
Is there anything else that needs to provided for?
MR D LEMER: My Lord, I am asked to make an application for costs in this matter against Mr Whyte, the reasons for that is as follows: Whilst accepting that the applicant did need the permission of the Court to this matter, considerable effort has been made by the applicant in terms of production of evidence and research in light of Mr Whyte's failure to respond to any correspondence and concerns that at a very late stage objections may be raised, the matter could have been dealt with in a significantly more cost effective way had he at any earlier point indicated as indeed Mr Anderson has done, that he wasn't going to be actively participating in the proceedings. It was on that basis that an application for costs has been made.
JUSTICE MORGAN: Is there any precedent for costs being made that you aware of or can draw my attention to?
MR D LEMER: My Lord, no. I am unable to draw your attention to any.
JUSTICE MORGAN: My reaction is that you have to come here to get an order.
MR D LEMER: My Lord, yes.
JUSTICE MORGAN: You are not entitled to it as of right; you have to satisfy the Court that the Court should make it. If you ask Mr Whyte or you tell him you are going to apply for the order, I think he is entitled to say, well he will leave it to you to satisfy the Court that that is what should happen. Plainly if he had turned up and this had turned into a three-day hearing, I might have taken the view that any extra costs should be paid by him, if he were to fail. However, he has not turned up so you have an unopposed application. I think in those circumstances that it is just part of the costs of running your magazine.
MR D LEMER: My Lord [that is my?] application.
JUSTICE MORGAN: I hope you sell more copies as a result and you will benefit accordingly. Right then I think that is all I will do. I will rise.
Court rises. | 5 |
Lord Justice Hooper:
Late afternoon on 20 November 2002 in the Crown Court at Newcastle-upon-Tyne before His Honour Judge Lancaster the appellant changed his plea to guilty, albeit on a limited basis, to two counts of being knowingly concerned in the fraudulent evasion of duty charged on cigarettes being counts 1 and 3 of the indictment. He pleaded not guilty to count 2 and a verdict of not guilty was entered. There were 3 co-defendants; Robert Graham, indicted on count 1 only to which he also pleaded guilty. The two other defendants were John Foster indicted on counts 1 and 3 and Jerzy Snioszek indicted on count 3. Following the pleas by the appellant and Graham, a jury was empanelled to try the co-defendants. On the following day, counsel for HM Customs and Excise, Mr Simon Jackson, without giving any reasons or explanation in open court, offered no evidence against Foster and Snioszek and verdicts of not guilty were recorded. The appellant, who was on bail waiting sentence for the two offences to which he pleaded guilty, was not present and the hearing was not adjourned for him to be present.
The appellant naturally felt aggrieved. He had pleaded guilty. His co-defendants, Foster and Snioszek, had pleaded not guilty. The day after the he had pleaded guilty, the case was dropped against his co-defendants without any reason being given in public. Not unnaturally the appellant wanted to know why. Was he not told something which he ought to have been told before he pleaded guilty? Why had the case also not been dropped against him? Given the recent well-publicised history of problems relating to disclosure by the Customs and Excise, had he been misled into pleading guilty?
The appellant made an application to vacate his plea of guilty. That application was heard and rejected on 23 January 2003.
We turn to he facts. In 2001 a person fitting the description of the appellant approached the directors of a company called Sign Co. UK Ltd with a view to renting a unit adjacent to their commercial premises in Seaham, County Durham. The man, known to them as Steve, agreed to rent the unit for £600 per month stating that he was in the second hand furniture business.
On 6 September 2001 a trailer arrived at Harwich Port and was collected by a tractor belonging to John Foster Freight Services. Although a firm of builder's merchants were the nominated recipients of the load, armchairs, they had no knowledge of the consignment. The delivery address for the trailer was the unit in Station Road Seaham, rented, so the prosecution said, by the appellant. There was evidence that two of the armchairs were hollow and, on the prosecution's case, had been used to conceal the importation of cigarettes by the appellant. This formed part of count 1.
On 22 September 2001 a trailer arrived a Harwich containing furniture consigned to G&A Furniture. When examined by Customs officers it was found to contain two million cigarettes concealed in the three-piece suites. A George Tweddell arrived to collect the trailer on the orders of John Foster, the co-defendant and a haulier. Tweddell produced a fax from G&A Furniture given to him by John Foster requesting delivery of sofas "to the same spot as last time". Tweddell was given a note by customs asking Foster to contact them. This note was subsequently found in the pocket of a coat at the appellant's home. Scientific analysis showed that fabric samples from the armchairs delivered on 6 September and on these suites were identical. This also formed part of count 1.
Count 2, no longer relevant, related to the events of 13 September when Customs officers searched the appellant's yard and found large amounts of vodka and cigarettes on which duty had, according to the prosecution, not been paid.
We turn to count 3. On 23 October 2001 the appellant in a white van met up on the A1 with Snioszek, a Polish national, driving an articulated lorry. The van and the lorry were then driven to a warehouse in Leadgate near Consett rented by the co-defendant and haulier, Foster. Some three hours later, Customs and Excise entered the warehouse. The appellant, Foster and Snioszek were in the process of getting access into the roof of the trailer in which officers found concealed 392,800 cigarettes. The revenue due and evaded on the consignment was some £66,000.
The total amount of duty evaded on counts 1 and 3 was, according to the prosecution, £400,000.
Following his arrest, the appellant made no comment in interview.
On 17 October 2002, solicitors for the appellant served, on his behalf, a defence statement. Paragraph 1 stated that the nature of his defence was that he had been the subject of entrapment. It also claimed that there had been a participating informant involved in the offences.
On 11 November 2002, there was a pre-trial hearing concerned with, amongst other things, the issue of disclosure. During the course of the hearing Mr Jackson invited counsel for the appellant to make clear with more precision what the appellant's defence statement meant, so that the prosecution could consider the question of secondary disclosure. Counsel for the appellant, Mr Daneshyar, said that the appellant's defence was "entrapment", "in other words it was an agent provocateur who had gone beyond merely investigating and in fact had actively undertaken control deliveries certainly in relation to the delivery of 23 October..." (page 5 of transcript of 11 November, volume 1, tab 5). Counsel said that the appellant was unable to identify who it was although the appellant knew him and "there are suspicions". The person concerned was "under the pay of the Customs and Excise". Reference was made by counsel to Foster having being approached by two officers for Customs and Excise on 21 October and upon him declining to make a statement "two days later a lorry load of cigarettes arrived".
Following the 11 November hearing a further defence statement was sent which arrived with the Customs and Excise on the 15 November. Paragraph 1 stated that it superseded the previous statement submitted on behalf of the defendant on 17 October 2002. The statement continues:
"2. It is submitted that the Defendant is a victim of a setup by a participating informant who had gone beyond the role of an investigating officer and had induced the defendant to participate in the commission of the offence which he otherwise would not have committed. In the circumstances it is the defendant's case that he was at all times acting under the influence of an agent provocateur." (page 144 of volume 1)
In paragraph 3 the defence statement enlarged upon the background to the seizure on 23 October 2002. It referred to Foster's alleged refusal to cooperate and continued:
"It is submitted that the delivery was a controlled delivery and that the defendant was set up by a participating informant that had gone beyond the role of a passive informant."
The Crown then made further disclosure which included material relating to four earlier operations which the Customs and Excise had undertook against the appellant. The prosecution also gave disclosure of aspects of a current operation involving the surveillance of the appellant.
The trial had been due to start on 18 November but was put back by one day. On the Tuesday there was a PII hearing. That hearing is not relevant to the issues under consideration in this case. No order for disclosure was made. The Crown however indicated in open court that it would no longer rely on the evidence of the witness Sydney. The Crown offered to tender him for cross examination but no longer regarded him as a witness of truth. Following negotiations between counsel for the appellant, now Mr Metzger, and Mr Jackson, the appellant pleaded on a written and agreed basis which had been the subject of negotiation. Although the prosecution had placed the appellant as the ringleader, the effect of the written basis of plea was to put the appellant in the position of a facilitator who would be rewarded by receiving an unspecified proportion of the cigarettes smuggled.
The basis of plea read:
"The Defendant, Stephen Christopher Makin, proposes to plead guilty to Counts 1 and 3 of the Indictment before the Court on the following basis:-
The Defendant was approached by person, or persons, unknown none of whom have been arrested or charged in these proceedings, and asked to provide transport and storage facilities for the relevant containers on 22nd September and 23rd October 2001.
He was provided with funds to facilitate the arrangements and received separate payment for his services through receiving a proportion of the cigarettes from each load.
He was asked to arrange for the containers to be taken to the storage facility (yard) from where as far as he knew the goods were to be transported onwards. The arrangements for onward transportation were to be made by other parties.
The Defendant had no direct link with parties in Europe and was not concerned with that aspect of the transportation of the containers to the United Kingdom."
On the next day, there was a PII hearing and, following it, no evidence was offered against the haulier, Foster, on Counts 1 and 3 and the lorry driver, Snioszek, on count 3. As we have already said, this was done in the absence of the appellant and no explanation at all was given by the prosecution in open court for what, on the face of it and in the light of the evidence, was an extraordinary thing to do.
We turn to the ruling on the application to vacate. HHJ Lancaster set out the history of the proceedings and continued:
"On the third day of the trial, the Crown made a further PII application in the light of what I was told was new material then in its possession, and of course Mr Jackson, quite properly, was aware of his obligation which continued about disclosure. The defendants, Mr Foster and Mr. Snioszek, knew about the application. Mr Makin and Mr Graham didn't. The Crown's view was that it was not necessary to give them notice as their position was not affected by the application in the light of the Defence statements and the basis of plea. When that application was made, again I did not order disclosure of any material. The Crown considered the situation generally, as I understand it, and decided not to proceed against Mr Foster and Mr Snioszek and offered no evidence against them. By that time, if my memory is right, I think they had been put in charge of the jury, and in the light of the Crown's position I directed the jury to enter not guilty verdicts in respect of the two defendants, Mr Foster and Mr Snioszek. The effect of that procedure and that process has brought the current applications in front of me now.
Essentially, on behalf of both defendants, it has been submitted that it looks rather suspicious because, particularly in the case of Mr Graham, it is said that his position was not so different from Mr Foster's, with whom he was closely bound up, submits Mr Duffield, and he says that the reality is that the defendant Mr Graham should be allowed to vacate his plea. Mr Metzger, in effect, takes his view. His client essentially does not trust the Customs and Excise and the way in which they conduct investigations. He doesn't trust that they are always open about disclosure. Mr Metzger is aware of past cases where there have been some disclosure difficulties which have resulted in trials collapsing, and he submits that whatever the Crown, whatever the information the Crown had in relation to Mr Foster and Mr Snioszek should accrue to his benefit so that he can reconsider his position, be properly advised as to whether or not he wants to be tried on the indictment by a change of plea or whether the Defence can properly say to the court that the court's process has been abused, and he says because one is dealing here with information that the Defence don't know the court has to be extra vigilant when considering matters such as this.
I start with this point. First of all, the process of the court is important. The principle of open justice is a principle which has to be honoured in the public interest. Often in cases such as this, as the Court of Appeal observed in the case of Doubtfire, there are conflicting public interests which compete against the principle of open justice, and often a court has to deal with matters which the defendant is not fully aware of beyond the fact that an application has been made to a Judge about some material which it is thought it is in the public interest he should not see. I am very conscious that whenever the Court has to look at such material it has to bear in mind the interests of a defendant at all times and keep reviewing the defendant's interests in the light of any information which a Judge receives which the defendant is not privy to, and in looking at this application, as I have said, I am fully aware of that.
In the course of their submissions, counsel for both defendants referred me to the case of Early, and the head note, as I have got in front of me now, makes this point; that "It is a matter of crucial importance to the administration of justice that prosecuting 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 was sought to be supported by dishonest prosecution evidence then the Court of Appeal would not be slow to set aside the pleas of guilty following such events. I see the force of that point and of course honour it in full.
But there was an earlier decision of the Court of Appeal made in two cases called Mullen and Toher, where this general principle was enunciated by the Lord Chief Justice, Lord Woolf, that "freely entered pleas of guilty would not be interfered with by the Court of Appeal unless the Prosecution's misconduct was of a category that justified this, that a plea of guilty was binding unless the defendant was ignorant of evidence going to innocence or guilt and that ignorance of material which went merely to credibility of a Prosecution witness did not justify reopening a plea of guilty."
Now, pausing there, a number of questions seem to arise. Firstly in this: was the Prosecution guilty of any misconduct? In my view the Prosecution has not been guilty of any misconduct. Secondly, was there evidence which was not disclosed which went to innocence or guilt? In my view there is no material that would go to those matters in relation to these defendants, and of course it is not suggested here that any Prosecution witness has been guilty of perjury, and I bear that in mind. So, it seems to me that, looking at those matters, and bearing in mind the general considerations that I have already alluded to, that these pleas were freely entered on the basis on which they were entered and there is nothing in the Prosecution's conduct which would cause those to be doubted, and in those circumstances it seems to me that the applications to vacate the pleas should be refused and accordingly I refuse to allow the defendants to vacate their pleas of guilty. I would add this: that there is ample material to show that they are both guilty of the offences to which they have pleaded guilty."
Following the ruling, Mr Jackson was asked by counsel to say whether, if the appellant and Graham had not pleaded, the prosecution would have dropped the case against them as it did against the other two. Mr Jackson said:
"The Crown doesn't want to get drawn into answering hypothetical questions, and I don't see, with respect, that there is an obligation on the Crown to do.
HHJ Lancaster did not require him to answer the question. Before this court, Mr Jackson made it clear that the decision would not necessarily have been the same. The appellant was, in its view, the ring-leader and it did not follow that the prosecution would have offered no evidence against him.
The appellant sought leave to appeal. When the matter first came before this court, Potter LJ presiding, on 13 February 2004 on referral from Cox J, the appellant and his advisers were no wiser. Having been told that a man by the name of Grzegorz Wach had been convicted of Customs offences in July 2003, the court invited Mr Simon Jackson QC, as he now is, to consider granting disclosure to the appellant if the reasons said to support the earlier non-disclosure were no longer applicable.
Disclosure was subsequently made, the effect of which was that before the appellant had pleaded, Customs and Excise received information a man called "Gregor" was actively involved in smuggling. Customs and Excise proceeded on the assumption that the man Gregor was or could well be Grzegorz Wach, who was a prosecution witness in the case against the appellant and whose attendance at trial had been required by the appellant to give oral evidence. At the time the prosecution appear to have proceeded on the assumption that he was required to give oral evidence only by the other three co-defendants (as he was) but not by the appellant.
No importation took place over the weekend. Mr Jackson was informed about the "question mark" about Wach on the Monday. He did not, at that stage, tell the judge nor did he say anything to the defendants' counsel. Although it was not known at this time whether the information was sufficiently dependable for reliance to be placed on it, that in our view does not affect the outcome of this appeal on the facts of this case. If there were concerns about Wach and if there was an obligation to "warn" the appellant and Graham before plea that (at the least) there were unspecified "problems", the fact that the information was not at that stage deemed necessarily dependable or accurate, does not affect the outcome of the appeal. It seems to us that the solution to the issue is not dependant upon the nature of the uncertainty of the information but whether, given the information, there was an obligation to give some warning to the appellant before he pleaded.
Mr Metzger submitted, that if such a warning had been given, the appellant would not have pleaded at that stage. We proceed on that assumption.
By Wednesday 21 November, when Mr Jackson was due to open the case against Foster and Snioszek, the concerns about Wach were now such that the prosecution had decided that he could not be relied upon as a witness of truth. Given that by now that Wach was being investigated, the prosecution took the view that it could not adopt the course which it had adopted in the case of Sidney namely, simply to tell the defence that the prosecution did not intend to rely on Wach. Faced by this dilemma , the prosecution went to the judge in a PII hearing to explain the problems. With the approval of the judge, the prosecution then dropped the case against Foster and Snioszek without, as we have said, giving any explanation in open court.
For the hearing of the appeal, the appellant has been given almost full disclosure of what had happened. A few minor details irrelevant to the appeal were withheld, with our approval. During the course of the oral hearing on 17 May, transcripts of the PII hearings of 21 November and 23 January were also disclosed with some minor editing (blanking-out of the portions not to be disclosed), which we approved. Mr Metzger did not submit that he was handicapped by the editing.
When we asked Mr Metzger why the witness Wach was fully bound along with 29 other witnesses, he said that there was no challenge to the evidence and frankly stated that any cross-examination would be a "fishing exercise".
The thrust of the appellant's case is that prior to the defendant pleading to counts one and three on Wednesday 20 November, the prosecution, at the least, should have warned the appellant that there were problems with a witness or, alternatively, at the least, gone to the judge to seek a direction as to what to do.
We have looked at the statement made by Wach with care. He worked for G&A and was involved as such in the two importations with which we are concerned. We accept Mr Jackson's submission that the case against the appellant was not dependent upon his evidence. Mr Metzger did not argue to the contrary. Not calling him as a witness would not have undermined the prosecution's case against the appellant.
Mr Jackson invited us to apply the disclosure test imposed upon the prosecution in a liberal manner and we so do. With this in mind and for the purposes of this case, it is sufficient to say that there is an obligation to disclose material if it assists the defence by allowing the defendant to put forward a tenable case in the best possible light or if the material could assist the defence to make further enquiries and those enquiries might assist in showing the defendant's innocence or avoid a miscarriage of justice (see the authorities set out in Archbold, 2004, paragraph 12-44C). If the material falls to be disclosed but is subject to PII, then the prosecution must seeks a ruling from the judge. We apply that test, as we must in this case and as Mr Jackson invites us to do, with the second defence statement referred to in paragraph 13 above very much in mind.
Mr Jackson considered the issue of disclosure at the time as the following passage from the transcript of the PII hearing on 21 November shows:
"In the context of Mr. Makin's pleas, the Crown were obviously acutely conscious of the timing of the receipt of the information and looked carefully at his plea and what he was saying, and the Crown concluded that in the light of what he was saying in terms of his plea, an issue of disclosure did not arise in respect of Makin or Graham."
Mr Metzger was unable to show how the application of the test would have resulted in an obligation to disclose the question mark over Mr Wach or the existence of problems.
We have no doubt that there was no obligation to disclose that question mark, on the facts of this case, to the defence nor to warn the defence, before plea, that there were unspecified problems.
It is submitted that the learned judge ought to have allowed the appellant to withdraw his plea and it is submitted that at the hearing of 23 January he did not apply the correct test. Further it is submitted that without the defence being informed as to why no evidence had been offered against the two co-defendants without them being informed as to what information the prosecution had before the plea, the defence were not in a position to properly argue in favour of the application for the pleas to be withdrawn.
In our view the principle issue which we have to decide is whether or not the prosecution had a duty to disclose that which they knew before the appellant pleaded guilty. We have found no such duty. In the absence of any other reason to permit him to vacate his plea, and there is none, there was no basis on which it would have been an appropriate exercise of judicial discretion to permit the appellant to vacate his plea. On that basis, the submission that the defence had not been able properly to argue the matter has no substance.
For these reasons we dismiss the appeal. We add only this. The duty of disclosure continues as long as proceedings remain whether at first instance or on appeal. In our view, as soon as there was no longer a reason for concealing the identity of Wach, the prosecution should have given an explanation as to why the case was dropped against the co-defendants and why it was felt that there had been no obligation to make at least some disclosure before the appellant pleaded guilty. It may well be that there was no reason to conceal his identity after he had been arrested and charged in June 2003. PII still attached to the identity of Wach when the PII hearing took place on 23 January 2003. The appellant has had to come to this court to obtain disclosure and much time and money has been spent investigating the circumstances which led to the appellant to feel understandably aggrieved. | 3 |
Dr. D Y CHANDRACHUD, J. Leave granted. 2 A judgment of the High Court of Delhi dated 11 February 2015 has given rise to these proceedings. The High Court dismissed a petition instituted under Section 482 of the Code of Criminal Procedure 1973 and affirmed an order dated 7 July 2014 of the Additional Sessions Judge01 Patiala House Courts, New Delhi, in a Criminal Revision. 3 On 2 October 2012, a First Information Report FIR was registered at P.S. Crime Branch New Delhi, on a companyplaint made by Rajiv Bhadauria of Jindal Steel Company Private Limited. Briefly stated, the allegation in the FIR FIR 240 of 2012 is that the Appellants demanded a sum of money to refrain from telecasting programmes on a television channel pertaining to the alleged involvement of a companyporate entity in a wrongful activity pertaining to the allocation of companyl blocks. The FIR was registered against the Appellants for offences under Sections 384, 511, 420 and 120B of the Penal companye. The Appellants were arrested on 27 November 2012. 4 On 10 December 2012, an application was moved by the Investigating officer in the Crime Branch before the Additional Chief Metropolitan Magistrate South , when the Appellants were in police custody in pursuance of an order of remand, requesting the companyrt to seek the companysent of the Appellants for obtaining their voice samples at the Central Forensic Science Laboratory, CBI CFSL-CBI for the purpose of companyparing it with a recording which had been made in the companyrse of a sting operation. In their replies to the application the Appellants furnished their companysent for tendering their voice samples. Consequently, on 13 December 2012 the Metropolitan Magistrate disposed of the application by directing that the Investigating officer may move an appropriate application for the visit of the accused to the place or office where he proposes to companylect the voice samples with a specification of time, date and place. The Appellants were required by the Investigating officer to furnish their voice samples on 21 December 2012. When they reported at the police station, the Investigating officer directed them to read out from a paper. 5 The grievance of the Appellants was that they were being made to read out inculpatory material drawn from an audio recording of the alleged sting operation. The Appellants objected to do so and moved an application under the Code of Criminal Procedure, 1973 for monitoring the investigation and for a direction to the Investigating officer to provide material for the purpose of a voice sample which does number companytain any inculpatory statement in the presence of a judicial magistrate. The Additional Chief Metropolitan Magistrate for brevity ACMM dismissed the application on 4 February 2013, observing that while it was open to the accused to decide whether or number to grant their companysent, once companysent was granted the accused would have to abide by the instructions of the Investigating officer and cannot dictate the terms on which the voice sample has to be given. 6 A Criminal Revision was filed against the order of the ACMM. The Revision was heard and decided by an order dated 7 July 2014. During the companyrse of the proceedings before the ACMM, the State agreed to provide a text which was number an exact reproduction of the earlier text given to the accused but which was stated to be a mixture of some sentences drawn from the inculpatory material, besides some general statements. After perusing the draft text, the Appellants objected to the text stating that it companytained portions of the audio recording. Before the ACMM an opinion furnished by the CFSL expert was produced. The opinion, inter alia, stated that It is number mandatory to have vis--vis same text to be read by a suspect. However, sufficient companymon sentences words should be present in the sample voice recording with respect to the questioned voice recording for spectrographic examination. In case there are sufficient companymon sentences words in between questioned specimen voice recording, then a companyplete opinion companyld be offered. However, in case of companyplete different text and sufficient companymon sentences words are number available opinion companyld be offered based on auditory examination only. For auditory companyparison, the whole recording text is used. For spectrographic examination, some selected sentences words are taken for companyparison. 7 The ACMM by an order dated 7 July 2014, came to the companyclusion that it will number be appropriate if the accused are required to read out a transcript of the questioned text. At the same time, the ACMM took the view that in the interest of a proper investigation it would number be proper to direct that a text companypletely different from the questioned text is used for drawing a voice sample. The ACMM issued a direction in the following terms .it will be appropriate if the CFSL experts at CBI Laboratory are directed to prepare a text inter-mixed with sufficient sentences from the questioned text which may facilitate the examination of voice sample identification by them. The said text shall be prepared by the CFSL experts themselves only after the investigating agency first provides them with the questioned recording. The companylection of voice sample of the accused persons shall also be done in the CFSL Laboratory in presence of the experts as number only it will provide them a companytrolled environment to suitably companylect the samples but it will also clear the apprehension of the accused persons that the investigating agency may play some mischievous role while companylecting the voice samples. 8 The order of the ACMM was questioned before the Delhi High Court. By a judgment and order dated 11 February 2015, a learned Single Judge held that the purpose of a voice sample is to facilitate the process of companyparing it with a recorded companyversation. The voice sample is number a testimony in itself since it only companystitutes what was described as identification data. A voice sample, in the view of the High Court is number a substantive piece of evidence. The High Court rejected the submission that the direction to furnish a voice sample was in violation of the fundamental right under Article 20 3 of the Constitution since firstly, the Appellants had number been forced or companyrced into furnishing such a sample since it was they who had furnished their companysent secondly, a voice sample is number evidence since its purpose is only to companypare it with the questioned text. In the view of the High Court, once the Appellants had furnished their companysent to furnishing their voice samples, it was number open to them to dictate the companyrse of investigation. This order is called into question. 9 Learned senior companynsel appearing on behalf of the Appellants submitted that while it is true that the Appellants have companysented to the drawing of their voice samples a companycession which was reiterated before this Court in the companyrse of the submissions yet the process of drawing the samples must be fair, so as to be companysistent with the right of the Appellants under Article 21 of the Constitution. The requirement of a fair investigation, it was urged, is implicit in Article 21 and the procedure which is adopted for drawing a voice sample must be fair and reasonable. 10 The Appellants expressly companysented to a voice sample being drawn, in their response to the application that was filed by the Investigating officer before the Court of Metropolitan Magistrate. This was reiterated before the High Court. In the submissions which have been urged in these proceedings, learned companynsel has specifically stated that the Appellants would abide by the companysent which they had furnished to their voice samples being drawn. That being the position, the only surviving issue for this Court is to ensure that the underlying process for drawing the voice samples is fair and reasonable, having due regard to the mandate of Article On the one hand, it is number open to the accused to dictate the companyrse of investigation. Hence, we do number find substance in the submission that the text which is to be read by the Appellants in the companyrse of drawing their voice samples should companytain numberpart of the inculpatory words which are a part of the disputed companyversation. A companymonality of words is necessary to facilitate a spectrographic examination. 11 By our order dated 17 November 2015, this Court allowed an adjournment to the Respondent to seek instructions from the expert companycerned whether or number a sample of words in such number as the expert may suggest would suffice for the experts to give their opinion by scientific voice sampling methods. Accordingly, a brief numbere has been filed on the record stating that That the experts of the Central Forensic Science Laboratory CFSL have informed that two separate texts scripts have been prepared in the laboratory from each Speaker Accused, which are different from the received transcripts. That the text script prepared by the CFSL experts cannot be provided to the petitioners in advance as there is apprehension that the petitioner may practice the texts scripts thereby adversely affecting the voice sampling examination. Accordingly it is submitted that the sample modal text script can only be supplied to the speakers Accused if this Honble Court deems it appropriate. 12 By an Order of this Court dated 1 July 2016, the Investigating officer was directed to file a transcript of the disputed companyversation in a sealed companyer. The Director CFSL-CBI, was called upon to file in a sealed companyer a proposed passage of a written text which the Appellants shall be required to read out for the purpose of giving their voice samples using words, but number the sentences, appearing in the disputed companyversation in such number as the Director Scientific Officer may companysider necessary for the purpose of companyparison. 13 We are of the view that the aforesaid directions which have been issued by this Court would allay the apprehension of the Appellants in regard to the fairness of the process involved in drawing the voice sample. Our directions ensure that the text which the Appellants would be called upon to read out for the purpose of drawing their voice samples will number have sentences from the inculpatory text. Similarly, permitting the text to companytain words drawn from the disputed companyversation would meet the legitimate companycern of the investigating authorities for making a fair companyparison. 14 In pursuance of the directions issued by this Court the Investigating officer has filed in sealed companyer i transcripts of the disputed companyversations and ii a proposed passage of a written text required to be read out by the Appellants for the purpose of giving their voice samples. The passage companytains words but number the sentences appearing in the disputed companyversation. | 7 |
Opinion of Mr Advocate General Alber delivered on 25 October 2001. - Commission of the European Communities v Grand Duchy of Luxemburg. - Failure by a Member State to fulfil obligations - Incomplete transposition of Directive 97/11/EC. - Case C-366/00.
European Court reports 2002 Page I-01749
Opinion of the Advocate-General
1. The action is directed against the failure to transpose, within the prescribed period, Council Directive 97/11/EC of 3 March 1997 amending Directive 85/337/EEC on the assessment of the effects of certain public and private projects on the environment (Directive 97/11).
2. Article 10 of Directive 97/11 provides that the directive was to be incorporated into national law by 14 March 1999 at the latest. The Commission has brought an action seeking a declaration that, by failing to transpose Directive 97/11 within the prescribed period or, in the alternative, by failing to inform the Commission that it has done so, the Grand Duchy of Luxembourg has failed to fulfil its obligations under the EC Treaty.
3. Luxembourg does not dispute the claim. On 23 November 1999, it sent the Commission a draft regulation. The Commission found this to be inadequate and therefore, by reasoned opinion dated 26 January 2000, required the Grand Duchy to comply with its obligations within two months. By letter of 17 April 2000, Luxembourg expressed the view that the Grand-Ducal regulation intended to transpose the directive would probably be adopted in the second half of 2000.
4. It is settled case-law that the merits of an action are not affected by the fact that the default concerned may have been remedied after the expiry of the time-limit prescribed by the reasoned opinion. The subject-matter of the action is the Commission's reasoned opinion. Even when the default is remedied after the time-limit prescribed by Article 226(2) EC has expired, there is still an interest in pursuing the action, in order to establish the basis of liability which a Member State may incur, as a result of its default towards other Member States, the Community or individuals.
5. The Grand Duchy does not dispute the fact that it has failed to transpose Directive 97/11 within the prescribed period. Consequently, it is appropriate to uphold the Commission's application.
6. The Commission has also sought an order requiring Luxembourg to pay the costs. Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings.
Conclusion
7. For the reasons set out above, I propose that the Court declare that:
(1) by failing to adopt, within the prescribed period, the laws, regulations and administrative provisions necessary to transpose Council Directive 97/11/EC of 3 March 1997 amending Directive 85/337/EEC on the assessment of the effects of certain public and private projects on the environment, the Grand Duchy of Luxembourg has failed to fulfil its obligations under the EC Treaty;
(2) the Grand Duchy of Luxembourg is to pay the costs. | 5 |
JUDGMENT OF THE COURT (Third Chamber)
4 July 2013 ( *1 )
‛Appeals — Agreements, decisions and concerted practices — European market — Copper and copper alloy fittings sector — Commission decision — Finding of an infringement of Article 101 TFEU — Fines — Single, complex and continuous infringement — Cessation of the infringement — Continuation of the infringement by certain participants — Repeated infringement’
In Case C-287/11 P,
APPEAL under Article 56 of the Statute of the Court of Justice of the European Union, brought on 6 June 2011,
European Commission, represented by F. Castillo de la Torre, V. Bottka and R. Sauer, acting as Agents, with an address for service in Luxembourg,
appellant,
the other parties to the proceedings being:
Aalberts Industries NV, established in Utrecht (Netherlands), represented by R. Wesseling, advocaat,
Comap SA, formerly Aquatis France SAS, established in Lyon (France), represented by R. Wesseling, advocaat,
Simplex Armaturen + Fittings GmbH & Co. KG, established in Argenbühl-Eisenharz (Germany), represented by R. Wesseling, advocaat,
applicants at first instance,
THE COURT (Third Chamber),
composed of K. Lenaerts, acting as President of the Third Chamber, E. Juhász (Rapporteur), G. Arestis, T. von Danwitz and D. Šváby, Judges,
Advocate General: P. Mengozzi,
Registrar: A. Impellizzeri, Administrator,
having regard to the written procedure and further to the hearing on 27 September 2012,
after hearing the Opinion of the Advocate General at the sitting on 28 February 2013,
gives the following
Judgment
By its appeal, the European Commission seeks to have set aside the judgment of the General Court in Case T-385/06 Aalberts Industries and Others v Commission [2011] ECR II-1223 (‘the judgment under appeal’) by which the General Court annulled Article 1 and Article 2(a) and (b)(2) of Commission Decision C(2006) 4180 of 20 September 2006 relating to a proceeding under Article 81 [EC] and Article 53 of the EEA Agreement (Case COMP/F 1/38.121 – Fittings), (OJ 2007 L 283, p. 63; ‘the contested decision’) in so far as it finds that Aalberts Industries NV (‘Aalberts’), Comap SA (‘Comap’), formerly Aquatis France SAS (‘Aquatis’), and Simplex Armaturen + Fittings GmbH & Co. KG (‘Simplex’) participated in an unlawful cartel during the period from 25 June 2003 to 1 April 2004 and imposed a fine of EUR 100.8 million on Aalberts, EUR 55.15 million of which was imposed jointly and severally with its subsidiaries, Aquatis and Simplex, and an additional fine imposed jointly and severally on each of those two companies.
By their cross-appeal, Aalberts, Aquatis and Simplex seek, in the event that the Court grants the Commission’s appeal, the annulment of Articles 1, 2(a) and (b)(2) and 3 of the contested decision, so far as Aalberts, Comap (‘Aquatis’) and Simplex are concerned.
In the alternative, the respondents seek to have the judgment under appeal set aside in so far as it finds that there was a single, complex and continuous infringement, which was continued after the inspections carried out by the Commission in March 2001, and the annulment of Articles 1, 2(a) and (b)(2) and 3 of the contested decision inasmuch as it concerns those companies or, in the further alternative, the annulment or significant reduction of the amount of the fine imposed upon them.
Background to the dispute and the contested decision
The General Court made the following findings:
‘1
…The infringement consisted in fixing prices, agreeing on price lists, agreeing on discounts and rebates, agreeing on implementation mechanisms for introducing price increases, allocating national markets, allocating customers and exchanging other commercial information and also in participating in regular meetings and in maintaining other contacts intended to facilitate the infringement.
[Aalberts, Aquatis and Simplex] are among the addressees of the contested decision.
Aalberts is the parent company of an international industrial group listed on the Euronext Securities Market in Amsterdam (Netherlands). It controls, directly or indirectly, a number of undertakings active in the fittings production or distribution sector. On 30 August 2002 Aalberts acquired the entire fittings production and distribution business of IMI plc [“IMI”], although the business was collectively known as “Yorkshire Fittings Group”. That transaction consisted in particular of the acquisition of the totality of the shares in Raccord Orléanais SA [“Raccord Orléanais”] (which later became Aquatis) and R. Woeste & Co. Yorkshire GmbH [“Woeste & Co”] (which later became Simplex). Those two undertakings were integrated within one of the two main businesses of the Aalberts group, Flow Control.
In March 2006, Comap, an addressee of the contested decision by virtue of its participation in the infringement under the control of Legris Industries SA and the applicant in Case T-377/06, was transferred to the Aalberts group. By email of 16 April 2007, the Court was informed that all of Aquatis’ assets and liabilities had been transferred to Comap and that Aquatis had ceased to exist as a legal entity. …
On 9 January 2001, Mueller Industries Inc., another producer of copper fittings, informed the Commission of the existence of a cartel in the fittings sector and in other related industries in the copper tubes market, and expressed its willingness to cooperate with the Commission under the terms of the Commission Notice on the non-imposition or reduction of fines in cartel cases (OJ 1996 C 207, p. 4; “the 1996 Leniency Notice”) (recital 114 to the contested decision).
On 22 and 23 March 2001, in the framework of an investigation concerning copper tubes and fittings, the Commission, pursuant to Article 14(3) of Council Regulation No 17 of 6 February 1962, First Regulation implementing Articles [81 EC] and [82 EC] (OJ, English Special Edition 1959-1962, p. 87), carried out unannounced inspections at the premises of a number of undertakings, including IMI which was the parent company of Raccord Orléanais and [Woeste & Co.] at that time (recital 119 to the contested decision).
Following those first inspections, the Commission, in April 2001, split the investigation relating to copper tubes into three different proceedings, namely the proceedings relating to Case COMP/E-1/38.069 (Copper Plumbing Tubes), Case COMP/F-1/38.121 (Fittings) and Case COMP/E-1/38.240 (Industrial Tubes), respectively (recital 120 to the contested decision).
…
From February/March 2002, the Commission sent the parties concerned a number of requests for information pursuant to Article 11 of Regulation No 17, and then pursuant to Article 18 of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 [EC] and 82 [EC] (OJ 2003 L 1, p. 1) (recital 122 to the contested decision).
In September 2003, IMI submitted an application for leniency under the 1996 Leniency Notice. That application was followed by applications from the Delta group (March 2004) and FRA.BO SpA [“FRA.BO”] (July 2004). The final leniency application was submitted in May 2005 by Advanced Fluid Connections plc (“AFC”). FRA.BO provided, inter alia, information drawing the Commission’s attention to the fact that the infringement had continued during the period from 2001 to 2004, that is to say, after the Commission’s inspections (recitals 115 to 118 to the contested decision).
On 22 September 2005, the Commission initiated an infringement proceeding in the framework of Case COMP/F-1/38.121 (Fittings) and adopted a statement of objections, which was then notified to the [respondents] (recitals 123 and 124 to the contested decision).
On 20 September 2006, the Commission adopted the contested decision.
In Article 1 of the contested decision, the Commission found that the [respondents] had participated in the infringement for the following periods:
—
from 25 June 2003 to 1 April 2004, as regards Aalberts;
—
from 31 January 1991 to 22 March 2001, as members of the IMI group, and from 25 June 2003 to 1 April 2004, as members of the Aalberts group, as regards Aquatis and Simplex.
For that infringement, the Commission imposed the following fines on the [respondents] in Article 2(a) and (b) of the contested decision:
“(a)
[Aalberts]: EUR 100.80 million;
of which jointly and severally with:
[Aquatis]: EUR 55.15 million; and
[Simplex]: EUR 55.15 million;
(b)
1.
[IMI], jointly and severally with IMI Kynoch Ltd: EUR 48.30 million;
of which jointly and severally with:
…
[Aquatis]: EUR 48.30 million; and
[Simplex]: EUR 48.30 million;
2.
[Aquatis] and [Simplex] are jointly and severally liable for the additional amount of EUR 2.04 million.”
Under Article 3 of the contested decision, the undertakings referred to in Article 1 were required immediately to bring to an end the infringement in so far as they had not already done so, and to refrain from any act or conduct described in Article 1 and from any act or conduct having the same or similar object or effect.
For the purposes of setting the amount of the fine imposed on each undertaking, the Commission applied, in the contested decision, the method set out in the Guidelines on the method of setting fines imposed pursuant to Article 15(2) of Regulation No 17 and Article 65(5) [CS] (OJ 1998 C 9, p. 3; “the 1998 Guidelines”).
As regards, first of all, the fixing of the starting amount of the fine by reference to the gravity of the infringement, the Commission characterised the infringement as very serious, on account of its nature and its geographic scope (recital 755 to the contested decision).
Taking the view, next, that there was considerable disparity between the undertakings concerned, the Commission applied differentiated treatment, taking as its basis their relative importance on the relevant market as determined by their market. On that basis, the Commission divided the undertakings concerned into six categories, relying on the respective turnover – in the EEA [European Economic Area] in the year 2000 – of each of the undertakings with the product concerned by the present proceedings, except in regard to Aalberts and AFC, for which the year 2003 was taken into consideration (recital 758 to the contested decision).
Aalberts was placed in the first category, for which the starting amount was set at EUR 60 million, while IMI was placed in the second category, for which the starting amount was set at EUR 46 million (recital 765 to the contested decision).
Next, the Commission increased the starting amount of the fine imposed on each of the undertakings in question by 10% per annum of participation in the cartel and, where appropriate, by 5% for each period of between six months and one year. As regards the period between 31 December 1988 and 31 January 1991, the Commission considered it appropriate, on account of the limited geographic scope of the cartel at that time, to increase the fine by 5% per annum (recital 775 to the contested decision).
Finally, the fact that participation in the infringement continued after the Commission’s inspections, that is during the period between 21 June 2003 and 25 April 2004, was regarded as an aggravating circumstance for which an increase of 60% of the basic amount of the fine imposed on the [respondents] was justified (recitals 779 and 782 to the contested decision).’
The action before the General Court and the judgment under appeal
By application lodged on 14 September 2006, the respondents claimed that the General Court should:
—
annul Articles 1, 2(a) and (b)(2) and 3 of the contested decision, in so far as those measures concern them;
—
in the alternative, significantly reduce the amount of the fine imposed on them.
In support of the action before the General Court, the respondents put forward five pleas in law, alleging, respectively, the unlawfulness of imputing liability for the infringement to Aalberts as the parent company, that there was no infringement of Article 81 EC, that the respondents did not participate in the single, complex, and continuous infringement referred to in Article 1 of the contested decision, breach of Article 23(2) of Regulation No 1/2003 and of the 1998 Guidelines and, finally, breach of Article 2 of Regulation No 1/2003 and of Article 11(2) of Commission Regulation (EC) No 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 [EC] and 82 [EC] (OJ 2004 L 123, p. 18).
The General Court considered it appropriate to begin by examining the second and third pleas in law.
The General Court pointed out, in paragraph 48 of the judgment under appeal, that it was undisputed that the respondents’ conduct alleged by the Commission, namely the participation in the meetings of the Fédération Française des Négociants en Appareils Sanitaires, Chauffage, Climatisation et Canalisations (FNAS), held between 25 June 2003 and 20 January 2004, and a telephone conference on 16 February 2004 which also took place within the context of FNAS, the contact between an employee of one of the respondents and a representative of FRA.BO, and the contacts made at the trade fair in Essen (Germany) on 18 March 2004, occurred. However the respondents contested the anti-competitive nature of that conduct, which is a prerequisite for a finding of an infringement of Article 81 EC.
The General Court examined the evidence and concluded, in paragraph 68 of the judgment under appeal, that Simplex’s participation in an infringement of Article 81 EC during the period at issue had not been proved to the requisite legal standard. It deduced therefrom, in paragraph 69 of the judgment under appeal, that Article 1 of the contested decision had to be annulled in so far as the Commission found that Simplex had participated in a single, complex and continuous infringement during the period at issue.
As regards the participation of Aquatis in the infringement, the General Court found, in paragraph 119 of the judgment under appeal, that it had not been established that Aquatis was aware of the fact that it had, through its conduct, joined a cartel made up of different parts having a common purpose or the cartel in which it had already participated prior to March 2001 and which was ongoing.
The General Court thus annulled Article 1 of the contested decision, not only with regard to Aquatis and Simplex but also with regard to Aalberts, to whom the contested decision had imputed the liability for its subsidiaries, ,in so far as the Commission found that they had participated, during the period at issue, in a single, complex and continuous infringement by taking part in a complex of agreements and concerted practices in the market for copper and copper alloy fittings.
The General Court held that it was not necessary to rule on the other pleas and annulled the fine in the amount of EUR 100.8 million imposed on Aalberts, of which it was jointly and severally liable with Aquatis and Simplex for EUR 55.15 million, in addition to the amount of EUR 2.04 million for which Aquatis and Simplex were separately held jointly and severally liable for.
Procedure before the Court of Justice and the forms of order sought by the parties
The Commission advances three grounds of appeal, seeking to have the judgment under appeal set aside.
By its first ground of appeal, the Commission submits that the General Court infringed various rules on the burden of proof and procedural rules on evidence, distorted certain pieces of evidence and did not provide reasons for its factual assessment. By its second ground of appeal, raised in the alternative, the Commission alleges that the General Court wrongfully annulled the contested decision in its entirety. By its third ground of appeal, raised in the further alternative should the Court reject the first two grounds, the Commission submits that the General Court failed to state sufficient reasons for its annulment of Article 2(b)(2) of the contested decision, that it ruled ultra petita and infringed the adversarial principle.
The first ground of appeal
Arguments of the parties
The first ground of appeal is divided into three parts.
– The assessment in isolation of the participation of Simplex and Aquatis in the continuous infringement
According to the Commission, the General Court did not assess the participation in the continuous infringement by Aalberts but instead carried out a separate and individual examination for the two subsidiaries, Simplex on the one hand, and Aquatis on the other. The judgment under appeal therefore disregarded the very premiss on which the evidence had been assessed in the contested decision, namely that Simplex and Aquatis formed part of one economic entity and thus one undertaking within the meaning of Article 101 TFEU and Articles 7 and 23(2) of Regulation No 1/2003. In that regard, the General Court should have first dealt with the plea which claimed that Aalberts and its subsidiaries constituted a single undertaking; a plea which was not examined in the judgment under appeal.
– The failure to take into account the overall body of evidence, in particular the various links among the individual elements of the evidence
The Commission submits that the General Court failed to consider the overall body of evidence presented to it in the contested decision and during the proceedings at first instance, by, on the one hand, disregarding, without adequate grounds, certain elements of the evidence and, on the other, by not examining all such pieces of evidence together, and thereby ignoring the links among them.
By so acting, the General Court ignored the links between various elements of the evidence which were helpful to a correct assessment of the collusive conduct. According to the Commission, the General Court erred in law by adopting a selective and compartmentalised approach to the analysis, failing to take into account, on the one hand, the similarities between the cartel activities in the first period of the cartel (before the inspections carried out by the Commission) and the later contacts for which Aalberts is held liable, and on the other, the obvious links between the various collusive contacts in 2003/2004.
– The distortion of evidence and the lack of reasons
The Commission submits that the General Court failed to give sufficient reasons for the rejection of the handwritten notes of Ms P. (FRA.BO) of 25 February 2004 and the explanations given in relation thereto. In paragraph 60 of the judgment under appeal, the General Court states that ‘it is conceivable that it was Simplex’s independent importer (Mr D.) who had decided to increase his prices’, but there is no explanation of why that statement would be relevant, or any other explanation as to the conclusion the General Court might draw from it.
In addition, the Commission claims that the General Court distorted both the content of the agenda entry and FRA.BO’s submissions. In the Commission’s view, based on an analysis of the second FRA.BO submission and the agenda entry itself, the General Court could only conclude that FRA.BO was informed by Simplex of a 5% price increase in Greece, which was logically in relation to Mr D., the distributor.
Furthermore, the Commission claims that the General Court disregarded parts of the evidence concerning the involvement of Simplex representatives (Messrs Be. and H.) in a collusive meeting with a representative from IBP (Mr Ha.) at the Essen trade fair on 18 March 2004. The General Court distorted the statements of various participants in the cartel at issue during that event, which gave rise to collusive meetings.
Finally, the Commission submits that the General Court disregards once again the overall body of evidence and misrepresents the facts, in its assessment of the participation of Aalberts (Aquatis) in the FNAS meetings. Furthermore, the General Court does not explain the relevance of the finding made in paragraph 60 of the judgment under appeal, that it is conceivable that it was Simplex’s independent importer (Mr D.) who had decided to increase his prices by 5% from 1 March 2004. Moreover, the General Court provides contradictory reasoning, in that, in the present case, it concludes that the participation of Aalberts in the FNAS meetings presents no ‘obvious’ link with the overall cartel, whereas, in a parallel case, it found that participation in those meetings was a link sufficient to establish the overall infringement in relation to IBP (Case T-384/06 IBP and International Building Products France v Commission [2011] ECR II-1177).
The respondents submit that the alleged infringements of Aquatis and Simplex are based on four events, of which two concern Aquatis, namely the participation of representatives of Aquatis in five meetings of the FNAS Logistics Committee and a telephone conference in the context of FNAS, and two concern Simplex, namely a telephone conversation between a representative of FRA.BO and of Simplex, and a meeting at the Essen trade fair on 18 March 2004. The respondents contend that those events do not mutually corroborate each other, and the General Court, logically, first assessed the alleged participation of those two companies, and then examined the entire body of evidence in its context.
Findings of the Court
It is apparent from paragraph 3 of the judgment under appeal that Raccord Orléanais and Woeste & Co were subsidiaries of Aalberts. All the shares in those subsidiaries were bought by Aalberts on 30 August 2002. Both subsidiaries were integrated into one of the activities of the Aalberts group, namely fluid control.
It must also be borne in mind that, in recitals 649 to 656 to the contested decision, the respondents were regarded as a single undertaking within the meaning of Article 81 EC. It is for that reason that, in Article 1 of the contested decision, the Commission imputed the alleged infringements by Aquatis and Simplex to their parent company, Aalberts.
It is settled case-law that the conduct of a subsidiary may be imputed to the parent company in particular where, although having a separate legal personality, that subsidiary does not decide independently upon its own conduct on the market, but carries out, in all material respects, the instructions given to it by the parent company, having regard in particular to the economic, organisational and legal links between those two legal entities (see Case C-97/08 P Akzo Nobel and Others v Commission [2009] ECR I-8237, paragraph 58 and the case-law cited).
It is apparent from the judgment under appeal that, in the first plea in law in their application before the General Court, the respondents disputed the classification of Aalberts and its subsidiaries, Aquatis and Simplex, as a single undertaking within the meaning of Article 81 EC.
However, the General Court did not examine that plea in law in the judgment under appeal. It examined only the second and third pleas of the application, in particular whether Aquatis and Simplex, on the basis of an assessment of the evidence of each of those subsidiaries, could be regarded as having participated separately in the infringement stated in Article 1 of the contested decision.
By proceeding in that manner, the General Court erred in law in that it disregarded the very premiss of the contested decision, namely that Aalberts, Aquatis and Simplex formed a single economic entity and therefore a single undertaking within the meaning of Article 81 EC.
The first part of this ground of appeal is therefore well founded.
In those circumstances, it must be examined whether, in the light of that error, the judgment under appeal must be set aside.
In that regard, it is apparent from the case-law of the Court of Justice that an error of law committed by the General Court does not invalidate the judgment under appeal if the operative part of that judgment appears to be well founded on other legal grounds (see, to that effect, Case C-367/95 P Commission v Sytraval and Brink’s France [1998] ECR I-1719, paragraph 47, and Case C-352/09 P ThyssenKrupp Nirosta v Commission [2011] ECR I-2359, paragraph 136).
In the action before the General Court, an examination of the first plea in law of the application could have given rise to two results.
If the General Court had reached the conclusion that the three companies concerned did not form a single undertaking for the purpose of European Union competition law, the criticism made by the Commission in connection with the present ground of appeal, concerning the examination carried out by the General Court, would be unfounded.
If, however, one undertaking, for the purpose of European Union competition law, had been identified, such a finding could, in principle, have given rise to an operative part different from that of the judgment under appeal.
That second scenario must be examined by the Court of Justice.
It is not in dispute that the Commission, in the contested decision, examined and assessed the cartel in two stages, which were interrupted by unannounced inspections by the Commission during the month of March 2001 on the premises of several undertakings. The inquiry concerning the Aalberts group was conducted in the second stage, in particular during the period from 15 June 2003 and 1 April 2004. In that regard, the Commission itself uses the expression ‘second period’ in its appeal.
In paragraph 570 of the contested decision, the Commission accepts that IMI, the predecessor of Aalberts and parent company of Aquatis and Simplex, in March 2001, ceased its involvement in the cartel immediately after the unannounced inspections carried out by the Commission. Furthermore, paragraph 80 of the judgment under appeal contains the statement of the applicants at first instance that when Aalberts acquired the whole of the fittings production and distribution business from IMI, it satisfied itself that IMI and its subsidiaries, including Raccord Orléanais and Woeste & Co., had effectively ceased to participate in the infringement. This is not disputed by the Commission. With regard specifically to Aquatis, in paragraph 114 of the judgment under appeal, it is the General Court which points out that, when it was controlled by IMI, Aquatis had ended its participation in the infringement immediately after the Commission’s inspections in March 2001.
In any event, the Commission does not allege that, during the period from March 2001 to 25 June 2003, there is anything in the conduct of Aalberts or its subsidiaries which could be regarded as an infringement. Consequently, it must be considered established that, during that reference period, no member of the Aalberts group was involved in the cartel at issue.
In those circumstances, even if the view were to be taken that Aalberts, Aquatis and Simplex formed one undertaking for the purposes of European Union competition law, in order for it to be possible to impute the liability for the cartel at issue to that undertaking, it would be necessary for one member at least of that group to have rejoined the cartel (see, to that effect, Case C-286/11 P Commission v Tomkins [2013] ECR, paragraph 37).
Thus, the General Court acted correctly when it examined all the incriminating evidence referred to in the contested decision which could have proved that one of the subsidiaries of Aalberts had rejoined the cartel.
In that regard, the General Court held, firstly, in paragraph 68 of the judgment under appeal, that ‘Simplex’s participation in an infringement of Article 81 EC during the period at issue has not been proved to the requisite legal standard’ and, in paragraph 119 of that judgment, that ‘it has not been established that Aquatis was aware of the fact that it had, by its conduct, joined a cartel made up of different parts that had a common purpose or the cartel in which it had already participated before March 2001 and which was ongoing’.
There is nothing to suggest that the General Court would have found that there was an infringement of the European Union competition rules by one or several of the companies in question if it had previously found that those companies formed a single undertaking for the purpose of European Union competition law.
Furthermore, it must be noted that the General Court has carried out its assessments of the facts in light of the evidence in the file put before it, in particular as regards the links between Aalberts, Aquatis and Simplex.
In those circumstances, the error in law found in paragraph 29 of the present judgment cannot lead to the setting aside of the judgment under appeal.
With regard, next, to the second part of the first ground of appeal, in essence the Commission complains that the General Court examined separately the incriminating evidence for each of the subsidiaries without taking into account the links between all the elements of evidence, in order to assess whether the conduct of each subsidiary amounted to an infringement,.
In that regard, it should be recalled that it is clear from Article 256 TFEU and the first paragraph of Article 58 of the Statute of the Court of Justice of the European Union that the General Court has exclusive jurisdiction, first, to find the facts, except where the substantive inaccuracy of its findings is apparent from the documents submitted to it and, second, to assess those facts. When the General Court has established or assessed the facts, the Court of Justice has jurisdiction under Article 256 TFEU to review the legal characterisation of those facts by the General Court and the legal conclusions it has drawn from them (see Case C-445/11 P Bavaria v Commission [2012] ECR, paragraph 23 and the case-law cited).
Clearly, by that line of argument, the Commission is requesting the Court of Justice to carry out a fresh assessment of the facts. The assessment of the evidence called into question by the Commission thus relates to an assessment of the facts which, save where the evidence adduced before the General Court has been distorted, cannot be reviewed by the Court of Justice (see Bavaria v Commission, paragraph 24 and the case-law cited).
It follows that the second part of the first ground of appeal is inadmissible.
With regard to the third part of the first ground of appeal, where a party alleges distortion of the evidence by the General Court, it should be borne in mind that, under the second subparagraph of Article 256(1) TFEU, the first paragraph of Article 51 of the Statute of the Court of Justice and point (d) of the first subparagraph of Article 168(1) of the Rules of Procedure of the Court of Justice, the appellant must indicate precisely the evidence alleged to have been distorted by the General Court and show the errors of appraisal which, in its view, led to that distortion (see, to that effect, Joined Cases C-204/00 P, C-205/00 P, C-211/00 P, C-213/00 P, C-217/00 P and C-219/00 P Aalborg Portland and Others v Commission [2004] ECR I-123, paragraph 50).
There is such distortion where, without recourse to new evidence, the assessment of the existing evidence appears to be clearly incorrect (Case C-229/05 P PKK and KNK v Council [2007] ECR I-439, paragraph 37, and Case C-413/08 P Lafarge v Commission [2010] ECR I-5361, paragraph 17).
However, by the third part of the first ground of appeal, the Commission merely suggests a reading different from that adopted by the General Court of the various elements of evidence relating to Simplex’s alleged participation in the cartel at issue, in particular, Ms P.’s handwritten notes of 25 February 2004 concerning a telephone conversation with Mr W. and the statements of Messrs Be., H. and Ha. concerning an allegedly collusive meeting which took place at the Essen trade fair on 18 March 2004. The arguments raised in the present case by the Commission do not, however, permit the conclusion that the General Court manifestly exceeded the limits of a reasonable assessment of the evidence (see, by analogy, Case C-260/09 P Activision Blizzard Germany v Commission [2011] ECR I-419, paragraph 57).
Finally, as regards the alleged lack of reasoning, the Commission’s argument relates in essence to the assessment of those handwritten notes of 25 February 2004. Although the General Court does not explain the relevance of the finding which it makes in paragraph 60 of the judgment under appeal, it states, in paragraph 61 of that judgment, that the note in question ‘is not sufficient in itself to prove that Simplex participated in the infringement alleged in the present case [since it] is conceivable that that contact could be regarded as an isolated incident [and, furthermore], … that single handwritten note could not demonstrate Simplex’s involvement in the cartel in 2003 either’. Nor can the complaint relating to alleged contradictory reasoning be accepted. While, in its judgment in IBP and International Building Products France v Commission, the General Court held that the evidence showed, to the requisite legal standard, that the applicants concerned participated in the infringement referred to in Article 1 of the contested decision, the assessment of the evidence relating to Aalberts, Aquatis and Simplex, in the judgment under appeal, did not give the General Court grounds for such a finding as regards the alleged undertaking formed by those companies.
In the light of the foregoing, the third part of the first ground of appeal is unfounded.
Consequently, the first ground of appeal raised by the Commission in support of its appeal must be rejected.
The second ground of appeal
Arguments of the parties
The Commission claims, in its second ground of appeal, alleging an error of law, that the General Court committed a manifest error by annulling in full the contested decision as regards the subsidiary Aquatis and the parent company Aalberts, despite the fact that the General Court confirmed the participation of Aquatis in cartel activities related to the French market. The judgment under appeal contains at least two errors of law.
The first error of law lies in the fact that the General Court annulled the contested decision on the ground that Aquatis had a different degree of awareness of the cartel compared to the other companies participating in the FNAS meetings in France.
The second error of law is characterised by the General Court’s exceeding its powers by annulling in full the decision concerning Aalberts and its two subsidiaries, when annulment in part would have been a more appropriate solution. The Commission argues that, if there were two separate infringements concerning Aquatis during the two reference periods of the cartel, the General Court erred in law by annulling in full the amount of the fine instead of merely reducing it to reflect the infringement consisting of its participation in the FNAS meetings during the second period of the cartel.
The respondents submit that the second ground of appeal must be rejected as partly inadmissible on the ground that, in reality, it is an application for a re-examination of the facts already put forward at first instance. In the alternative, the second ground must be rejected as it is based on an incorrect reading of the judgment under appeal and an incorrect application of the concept of the single, complex, and continuous infringement.
Findings of the Court
It must be noted that, in paragraph 108 of the judgment under appeal, the General Court recalled that, in the contested decision, the Commission claimed that Aquatis had participated during the period at issue in a single, complex and continuous infringement described in Article 1 of the decision and covering the entire ‘pan-European’ market.
After having recalled, in paragraph 109 of the judgment under appeal, that the constituent elements of the single, complex and continuous infringement post March 2001 were bilateral contacts, contacts at a trade fair and contacts in the context of FNAS meetings to coordinate pricing, the General Court found, in paragraph 110 of that judgment, that, during the period in question, Aquatis participated only in FNAS meetings and not in the two other parts of the infringement. However, in finding, in paragraph 119 of the judgment under appeal, that it had not been established that Aquatis was aware of the fact that it had, through its conduct, joined a cartel made up of different parts that had a common purpose or the cartel in which it had already participated before March 2001 and which was ongoing, the General Court annulled Article 1 of the contested decision in its entirety as regards the defendants.
As regards the alleged error in law referred to in paragraph 57 of the present judgment, it must be pointed out that, even if the conduct of Aquatis at the FNAS meetings could be classified as anti-competitive in itself, it is clear that the criteria established by the case-law of the Court of Justice on the basis of which that conduct can be regarded as part of a single, complex and continuous infringement are not met.
In accordance with the case-law, it must be established that the undertaking intended to contribute by its own conduct to the common objectives pursued by all the participants and that it was aware of the conduct planned or put into effect by other undertakings in pursuit of those same objectives, or that it could reasonably have foreseen it, and that it was prepared to take the risk (see, to that effect, Case C-441/11 P Commission v Verhuizingen Coppens [2012] ECR, paragraph 42 and the case-law cited). The findings made by the General Court in paragraphs 112 and 119 of the judgment under appeal exclude that possibility.
As regards whether, as the Commission claims, the General Court ought in any event to have annulled Article 1 of the contested decision in part in respect of the respondents since the undertaking concerned participated in a constituent element of the single, complex and continuous infringement, namely the FNAS meetings, the Court of Justice has previously held that partial annulment of an act of European Union law is possible only if the elements which it is sought to have annulled can be severed from the remainder of the act (see Commission v Verhuizingen Coppens, paragraph 38 and the case-law cited).
Nevertheless, it must be noted that the contested decision complains only that the respondents participated in a single, complex and continuous infringement. Thus, that decision does not qualify the participation of Aquatis in the FNAS meetings as an infringement of Article 81 EC. On the contrary, recital 546 to the contested decision, which lists the anti-competitive conduct which that decision covers, does not contain any reference to the FNAS meetings. Furthermore, recital 590 to the contested decision expressly confirms that the Commission took the view that it would be ‘artificial to split up continuous conduct [by the undertakings concerned], characterised by a single purpose, by treating it as consisting of several separate infringements, when what was involved was a single infringement’.
In those circumstances, even if the FNAS meetings had had an anti-competitive purpose or effects, that constituent element of the single, complex and continuous infringement could not be severed from the remainder of the measure within the meaning of the case-law cited in paragraph 64 of the present judgment.
Thus the General Court was correct, after having found that the undertaking did not participate in the single, complex and continuous infringement, in annulling Article 1 of the contested decision as regards the respondents.
In consequence, the second ground of appeal must be rejected.
The third ground of appeal
Arguments of the parties
The Commission submits that the General Court did not give sufficient reasons for the annulment of Article 2(b)(2) of the contested decision. As regards the 10% cap under Article 23(2) of Regulation No 1/2003, calculated on the combined turnover of Aquatis and Simplex only, the General Court’s ruling was ultra petita since the respondents had not raised such a plea.
Moreover, the infringement of Article 23(2) of Regulation No 1/2003 was not raised by the respondents in either the written submissions or at the oral hearing at first instance. The Commission claims that, consequently, the General Court violated the adversarial principle and the principle of the right to a fair hearing. Therefore, the judgment under appeal could not lawfully find any error in the calculation of the portion of the fine in Article 2(b)(2) of the contested decision and should be set aside in that respect also.
The respondents contest the Commission’s arguments and seek the rejection of this ground of appeal.
Findings of the Court
In paragraphs 123 and 124 of the judgment under appeal, the General Court explained the method of calculation used to reach the amount of EUR 2.04 million for the fine imposed on Aquatis and Simplex and referred to in Article 2(b)(2) of the contested decision.
It is apparent from paragraph 123 of the judgment under appeal that the amount of EUR 100.8 million for the fine imposed on Aalberts by the Commission in its contested decision constituted an important factor in that calculation. The removal of that amount by the annulment of the fine imposed on Aalberts renders the amount referred to in Article 2(b)(2) of the contested decision necessarily incorrect, which justifies its annulment.
The reference by the General Court, in paragraph 125 of the judgment under appeal, to the fact that IMI had been divided into two separate entities at the time when the decision was adopted is superfluous and cannot alter the conclusion reached in the preceding paragraph.
Consequently the third ground of appeal must be rejected.
Given that all the grounds of the appeal have been rejected, the appeal must be dismissed in its entirety.
The cross-appeal
It must be noted that the cross-appeal was raised by the respondents to the appeal in the event that the Court of Justice granted that appeal. It is clear from paragraph 76 of the present judgment that the Court has dismissed the Commission’s appeal.
In those circumstances, there is no need to examine the cross-appeal.
Costs
Under Article 184(2) of the Rules of Procedure of the Court of Justice, where the appeal is unfounded, the Court is to make a decision as to costs.
Under Article 138(1) of those Rules, which apply to the procedure on appeal by virtue of Article 184(1) thereof, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since the Commission has been unsuccessful, and Aalberts, Aquatis have Simplex have applied for costs, the Commission must be ordered to pay the costs of this appeal.
On those grounds, the Court (Third Chamber) hereby:
1.
Dismisses the appeal;
2.
Declares that there is no need to examine the cross-appeal;
3.
Orders the European Commission to pay the costs.
[Signatures]
( *1 ) Language of the case: English. | 6 |
Lord Justice Mummery :
All the members of the court have contributed to the writing of this judgment.
A. AN OVERVIEW
The principal issue in this unusual case stems from the finding of the trial judge (Lightman J) that the respondents irregularly obtained a court order from Peter Smith J on 13 December 2002. The order was for the amendment of a writ of sequestration. As a result of the amendment the sequestration applied not only to assets held in the name of the individual (Mr Nicholas van Hoogstraten), against whom it was originally issued for his alleged contempt of court, but also to his assets held in the name of Tombstone Limited (Tombstone). The appellant Tombstone was not a party to the litigation. It was not alleged to be in contempt of any court order. No notice of the application to the court was given to it. It was given no opportunity to object to the amendment on the ground that it owned the assets held in its name.
As fully explained in the judgment below ([2007] EWHC 1743 (Ch)) the writ of sequestration was issued on the respondents' application against the assets of Mr Nicholas van Hoogstraten as the first defendant in an action being pursued against him by the respondents. He was the sole director of Tombstone, a substantial property company. It was controlled by him at all relevant times. He made decisions and gave instructions on its behalf.
Mr van Hoogstraten had been found guilty by Peter Smith J on 11 October 2002 of contempt of court for not complying with an order for the disclosure of his assets. Disclosure was required by a freezing order obtained by the respondents from Rimer J in August 2002. The respondents obtained leave for the issue of a writ of sequestration against him to enforce obedience to the court order. Then they obtained the order for the Tombstone amendment. Tombstone claimed that, as the order for the amendment was irregularly obtained against it as a non-party, innocent of any contempt and without prior notice, it was entitled, as of right, to have the order set aside as a nullity. The effect of setting the order aside as a nullity would be to render the respondents liable to compensate it for the loss and damage inflicted by alleged tortious acts of trespass to, and conversion of, its assets. Although the acts were committed by the sequestrators, the respondents were liable to Tombstone in damages by reason of having procured and authorised the sequestration by irregularly obtaining the amendment order.
The finding of procedural irregularity meant that Lightman J had to determine the nature of the court's power to set aside the 13 December order. He also had to consider, in the context of Tombstone's tort claims, the effect of setting it aside on the lawfulness of acts done by the respondents while the court order was in force, and on the availability of the respondents' pleaded defence of judicial authority.
In his judgment of 26 July 2007 Lightman J upheld the respondents' defence of judicial authority. They were not liable for the torts of trespass and conversion. He dismissed Tombstone's claims against them for damages, as set out in Section G of its Particulars of Claim.
Tombstone now appeals with permission given by Rimer LJ on 21 November 2007. The respondents to the appeal are (1) the estate of the late Mr Mohammed Raja, who was the original claimant in the action against Mr van Hoogstraten, but ceased to be so in the criminal circumstances described later, and (2) Healys, the firm of solicitors who acted for Mr Raja's estate (the Estate) in obtaining both the original writ of sequestration and the order for the amendment of it. At that time the sequestrators also instructed Healys.
It is common ground that sequestrators, as officers of the court who act under the order of the court, are entitled to immunity from suit (see Gosset v. Howard (1845) 10 QB 359 at 453-4). The respondents do not enjoy the same immunity. The pleading in their defence was that the conduct complained of by Tombstone as tortious was authorised by an order of the High Court i.e. the order of Peter Smith J dated 13 December 2002. They denied that the order was a nullity or that, on being set aside, it should be treated as having been a nullity. They asserted that, while it was in force, it was a valid order providing legal protection to those who had obtained it and acted upon it: see Williams v. Smith (1863) 14 CB (NS) 596 at 621-622, 623-4 and 625; Smith v. Sydney (1871) QB 203 at 206-207 (distinguishing between acts of the court and acts of the parties); and Clerk & Lindsell on Torts (19th ed paras 15-44 to 15-46. (It is not alleged that the respondents are legally liable in damages to Tombstone simply for having obtained the issue of the writ of sequestration, or for otherwise irregularly issuing execution or legal proceedings, or for taking enforcement measures through the court.)
In this appeal Tombstone says that Lightman J's approach to the irregularly obtained order and its legal consequences was wrong. He relied on discretionary powers in the Civil Procedure Rules (CPR). He exercised the discretion under the CPR so as to preserve to the respondents the protection of the court order for acts done pursuant to it. Tombstone contends that the relevant power to set aside the order was that available under the inherent jurisdiction of the court. In the exercise of the inherent jurisdiction the irregular order could and should be set aside as of right (ex debito justitiae). It should be treated as a nullity, as never having had a legal existence. The respondents would thereby lose all protection afforded by the court order. There would be no defence of judicial authority for tortious acts to Tombstone's assets procured and authorised by them.
On the appeal Mr Nigel Jones QC appeared for Tombstone. Mr Andrew Onslow QC presented the case for Healys. The Estate, appearing by its solicitor, adopted Mr Onslow's submissions. Mr van Hoogstraten neither appeared nor was he represented.
There is also a costs appeal against an order of Lightman J. The respondents appeal and Tombstone's cross appeals against Lightman J's order dated 9 November 2007 that Tombstone pay 60% of the costs of the Section G claims in the re-amended particulars of claim incurred by the respondents.
B. BACKGROUND DETAIL
Mr Raja was a property developer. On 8 October 1993 he began an action for damages against Mr van Hoogstraten. In April 1999 he obtained the leave of the court to amend his particulars of claim to plead fraud.
On 2 July 1999 Mr Raja was shot dead. Arrests and criminal charges followed in September 2001. Mr van Hoogstraten was accused of engaging 2 men to murder Mr Raja. On 22 July 2002 the two gunmen were convicted of Mr Raja's murder. Mr van Hoogstraten was acquitted of murder. He was convicted of manslaughter and sentenced to 10 years imprisonment. The Court of Appeal quashed his manslaughter conviction in July 2003 and gave directions leading to his re-indictment. Mr van Hoogstraten remained in prison until December 2003 when the fresh indictment was quashed. He was then released from prison.
In the civil proceedings Lightman J gave a series of judgments culminating in a judgment of 19 December 2005 in which he held that Mr van Hoogstraten had hired two thugs to murder Mr Raja in order to halt the prosecution of his claim. The Court of Appeal refused permission to appeal against that judgment.
The civil proceedings continued while Mr van Hoogstraten was in prison. Mr Raja's son Asgar Sabir Raja (Asgar) had been appointed to represent the Estate in the action. He was later replaced by his mother, who was the widow and executrix of Mr Raja. Asgar was authorised to represent the Estate at the hearing of this part of the case before Lightman J.
The relevant events in this part of the civil proceedings date from August 2002 when the Estate applied to the court for permission to re-amend the particulars of claim, plead the criminal conviction and obtain judgment against Mr van Hoogstraten by reason of the conviction. On 27 August 2002, without notice, the Estate applied to the court for a freezing order over the assets which Mr van Hoogstraten owned or controlled. Rimer J granted a freezing order over all his assets. Orders were made for the provision of information within 1 week of the service of the order in an affidavit of all Mr van Hoogstraten's assets worldwide exceeding £10,000 in value, whether in his own name or not (paragraph 9). Schedule E to the freezing order listed, as subject to the order, various properties that were registered in the name of Tombstone. Mr van Hoogstraten was believed to have a beneficial interest in the properties. In Schedule F to the order Tombstone itself appeared in the list of businesses and enterprises owned or controlled by Mr van Hoogstraten, or in which he had a beneficial interest. The return date was fixed for 10 September 2002. The order was served on Mr van Hoogstraten and his solicitors. A copy of it was served by post at Tombstone's registered office.
On 3 September 2002 Mr van Hoogstraten gave notice of his intention to act in person. This was a decision that he made at various crucial stages in the civil proceedings. While accepting that he was entitled to do this for his own reasons, Lightman J commented that the decision "played a large part in giving rise to the difficulties, confusion and mistakes which later arose." The result was that Peter Smith J, who made the orders that have led to these claims, did not have at critical stages of the litigation the assistance of counsel on behalf of Mr van Hoogstraten.
An account of the unfolding procedural events and the conduct of the parties and their advisers is unavoidable. They are highly relevant to the fact-sensitive considerations affecting the exercise of a judicial discretion. Reference can be made to Lightman J's judgment for the full details, but, without highlighting significant detail in this judgment, it is impossible to explain the arguments advanced on this appeal against the decision of Lightman J to exercise his discretion against removing from the respondents the protection of the court order for what they did pursuant to it. Tombstone's tort claims against the respondents are based on procedural events and on the conduct of the parties, as are the submissions of the respondents and the judge's exercise of the discretion, which he held existed under the CPR, to preserve the protection of judicial authority to Tombstone's tort claims. We summarise and comment on the main events year by year. Unfortunately, this adds considerably to the length of a judgment on what is, at the end of the day, quite a short point.
2002
For reasons beyond his control (he was still in prison following conviction and sentence) Mr van Hoogstraten was unable to attend court on the September return date set by Rimer J on making the freezing and disclosure orders. Mr van Hoogstraten complained at the time that he was prevented from attending court and said that the orders ought to be set aside. He was informed by the court, when continuing the freezing order, that he needed to make a formal application to set it aside. His formal application on 25 September 2002 was lost by the court. On 26 September Engleharts, acting as solicitors for Tombstone, wrote to Healys requesting the removal of Tombstone from Schedule F to the order on the grounds that the order interfered with its business. No complaint was made about the inclusion of Tombstone's assets in Schedule E. Healys refused the request, stating that there was significant evidence that shares in Tombstone were held by nominees for Mr van Hoogstraten and that he had substantial beneficial interests in the shares and in the underlying assets. In a letter of 1 October 2002 Healys wrote to Engleharts stating that Mr van Hoogstraten exercised considerable control over Tombstone through shareholdings held by a public company Willoughbys Consolidated PLC (Willoughbys), that assets registered in the name of Tombstone were assets in which Mr van Hoogstraten had a significant interest, that Tombstone was a company which held his assets, or over which he exercised control, and that they had now applied for the appointment of a sequestrator to remedy his contempt in failing to comply with his duty of disclosure.
Lightman J observed that the obvious and proper course to be taken by the Estate was to join Tombstone as a defendant. That would have avoided the problems that arose subsequently. There was no sufficient reason for not taking that step, but the Estate never took it.
On 2 October 2002 the Estate applied to commit Mr van Hoogstraten for contempt in not complying with the disclosure order in paragraph 9 of the freezing order. The hearing of the application on 11 October 2002 was not attended by Mr van Hoogstraten. In his absence Peter Smith J found the contempt proved and imposed a £200,000 fine suspended for 28 days pending compliance with paragraph 9. The judge ordered him to pay the costs of the hearing. The judge said that he was not prepared to entertain any application by him until he complied with paragraph 9 of the freezing order.
In further correspondence Healys invited Engleharts to proceed with any application by them at the next hearing in respect of the freezing order. When Mr van Hoogstraten wrote to the court protesting that he was being denied his legal right to defend the action, he was informed that he should comply with paragraph 9. He was unable to attend a hearing on 24 October for reasons beyond his control. On 31 October 2002 Mr van Hoogstraten attended before Peter Smith J. He applied to discharge the freezing order. The judge refused to entertain the application until he had complied with paragraph 9. He adjourned to a Case Management Conference an application by the Estate to strike out Mr van Hoogstraten's defence and counterclaim.
On 13 November 2002 the Case Management Conference took place. Mr van Hoogstraten attended. The judge rejected his application to set aside the freezing order and all subsequent orders against him. He repeated his position about refusing to entertain it until Mr van Hoogstraten complied with paragraph 9. Time for compliance was extended to 20 November 2002 with a default provision that the defence and counterclaim would be struck out and judgment entered for the Estate. He gave leave to the Estate to apply for permission to issue a writ of sequestration of the assets of Mr van Hoogstraten. The hearing was adjourned to 27 November 2002.
On 15 November 2002 the estate issued an application for permission to issue a writ of sequestration of the assets of Mr van Hoogstraten. Permission to issue the writ was granted by Peter Smith J on 12 December 2002 following the adjourned hearing on 9 and 10 December at which it was submitted that the affidavit of assets made by Mr van Hoogstraten was meagre and untrue. Affidavit evidence from the Estate referred to what were alleged to be his extensive property interests, an art collection and numerous bank accounts in his name or in company names.
Peter Smith J gave judgment on 12 December striking out the defence and counterclaim and barring Mr van Hoogstraten from defending the case. He entered judgment for the Estate with directions for all necessary accounts and inquiries. He held that Mr van Hoogstraten was in breach of paragraph 9 of the freezing order, that he was in contempt of court for failing to comply with the freezing order and that he had failed to purge his contempt because his affidavits were not true.
In the course of his judgment Peter Smith J stated that Mr van Hoogstraten had failed to provide in his affidavit any information about the assets of Tombstone. The conclusion drawn by him from the absence of explanation of identified matters was that "ultimately he is the beneficial owner of Tombstone Limited", noting that this was disputed by Mr van Hoogstraten (paragraph 26). The judge repeated that Tombstone belonged beneficially to Mr van Hoogstraten (paragraph 40). He added that he had assets which he had not disclosed in his two affidavits, that he had wilfully concealed his interest in other significant assets, that he had chosen "to be portrayed as a man of considerably less worth because it suits him to do so", and that his affidavit evidence was rejected as "completely untrue and incredible." The judge said that he was unable to determine fully what his other assets were, save in relation to Tombstone Limited, Hamilton Palace, the antique collection, as yet unidentified bank accounts and the hotels in Brighton and Hove (paragraphs 98 and 99). The judge did not make any formal declaration as to the ownership of any of those assets.
On the same day the sequestrators instructed Healys. They expressed concern to Healys that the existing form of the writ issued by the court did not give them sufficient power to seize the assets of Mr van Hoogstraten held in the name of Tombstone. As they thought that the judge intended them to have this power, they gave instructions to obtain clarification. Healys made preparations for counsel to apply to the court to amend the writ.
On Friday 13 December 2002 a very brief oral hearing took place before Peter Smith J. He was sitting as Applications Judge hearing urgent applications. He gave permission to issue a writ in an amended form, which was supplied to the court by counsel in support of an application to amend. He made the application on behalf of the Estate and the sequestrators.
The application was made without notice to either Mr van Hoogstraten or Tombstone. The judge was not supplied ahead of the hearing with any skeleton argument, draft order or other papers. The matter proceeded as if it were nothing more than a formality following, as a matter of course, from the previous day's judgment. According to the transcript counsel told the judge, in response to a query or comment by him, that he had determined that "Tombstone belonged to him [Mr van Hoogstraten] beneficially," as well as that he was a director in control of it. The writ stated (paragraph (c) of the recitals) that the court had expressly declared in paragraph 26 of his judgment on 12 December 2002 that Mr van Hoogstraten "is the beneficial owner of Tombstone Limited and its assets" and "accordingly for the purposes of this Writ of Sequestration the assets held by Tombstone Limited are to be treated as part of the real and personal estate of the First Defendant [Mr van Hoogstraten]." Healys served the amended writ on Mr van Hoogstraten.
Tombstone's case is quite simply that the 13 December order and the amended writ of sequestration were nullities and should be treated as such on having been set aside. They were made without notice to Tombstone, which was not party to the case or accused of any contempt of court.
Lightman J observed at this point that, as confirmed in evidence by Mr Englehart, who acted as solicitor for Tombstone, there was no obstacle to Tombstone making thereafter an immediate application for the discharge of the order of 13 December and with it the amended writ. For his own reasons Mr van Hoogstraten was content that Tombstone should live with the order and the amended writ.
The respondents' case is also simple: that the order and the amended writ were made and authorised by a judge of the High Court in the exercise of his discretion and that they were valid and effective until they were set aside for procedural irregularity, such as that Tombstone was not a party to the litigation, or by reason of breaches of duty owed to the court by the respondents and their advisers. The court order protected the respondents from personal liability for acts done under the order unless and until the court exercised its discretion to deprive them of the protection.
The respondents add that Tombstone was entitled to apply to the court to discharge or vary the order. It could, in particular, have applied to correct the reference in the body of the amended writ to paragraph 26 of the judgment of 12 December. It could also have applied for an immediate stay on the sequestration affecting what it claimed were its own assets pending the decision of the court or of any appeal.
Further, there was no reason to suppose that the judge would have refused to allow Tombstone's intervention in the action, which, as it knew, would not have met with any opposition from the respondents, who had served notice of the original application for an order for sequestration on Tombstone in September 2002.
Mr van Hoogstraten was in possession of the amended writ by the evening of 17 December. The sequestrators had sent a copy of it to Engleharts (Tombstone's solicitors) on 16 December. As the judge also found (see below) Mr van Hoogstraten knew that the 13 December Order was wrongly made and would be set aside on appeal, but he decided not to challenge the sequestration of Tombstone's assets at that time.
Further, the respondents submit that Tombstone could and should have applied to have the amended writ set aside for various other procedural flaws at the latest by the time that Mr van Hoogstraten, who made decisions on Tombstone's behalf, was himself applying to set aside the amended writ on the grounds of procedural error.
At a further hearing on 18 December 2002 to work out the terms of the order Mr van Hoogstraten was represented by counsel (Mr Reza), as was the Estate. Mr van Hoogstraten's application for a stay of the sequestration was refused, as was his application for permission to appeal. Time was extended for filing a notice of appeal. At the hearing on 18 December no reference was made at all to the application to amend or to the amendment order made by the same judge only five days previously. No attempt was made by Mr van Hoogstraten or Tombstone to take advantage of the opportunity to apply to set aside the amended writ. In the course of the hearing the judge made it clear that his findings were that Mr van Hoogstraten was the beneficial owner of Tombstone, Hamilton Place, eight hotels and £200m worth of antiques. In letters of 20 and 23 December Engleharts, on behalf of Tombstone, stated that the sequestration covered only the assets of Mr van Hoogstraten and Tombstone and did not extend to property which was believed to belong to Tombstone but did not in fact do so.
2003
On 10 January 2003 the solicitors for Tombstone and Mr van Hoogstraten wrote to the sequestrators requesting payment by them of corporation tax and trade debts owed by Tombstone. They wrote again on 27 January 2003. On 31 January the sequestrators' solicitors, Dechert, issued and served an application for directions, including permission to sell certain properties held in the name of Tombstone. On 4 February the Estate issued and served an application relating to a property at Brook Terrace, Bilston which was registered in the name of Tombstone. On 7 February Mr Englehart wrote to Healys and Dechert saying that whilst he had acted in the past for Tombstone he was not instructed to represent it, but that he would be acting without any conflict for Willoughbys as an interested party. As it claimed to own 50% of the shares in Tombstone it was concerned about the effect of the sequestration order upon its shareholding.
It was at about this time that Mr van Hoogstraten changed his mind on the need to take action about the amended writ in the light of the sequestrators' application for permission to realise Tombstone's assets. In addition to an application by the sequestrators to sell properties held in the name of Tombstone, there was an application by the Estate, consequent on having struck out Mr van Hoogstraten's defence and having obtained a judgment against him, for the transfer of the Brook Terrace property. Instead of taking the obvious step of applying to join Tombstone, Mr van Hoogstraten decided that Tombstone would not attend the directions hearing or intervene. Instead, Willoughbys, who claimed to hold 50% of the shares in Tombstone, would attend and apply to intervene. Engleharts would act for them rather than for Tombstone.
On 10 February 2003 the directions hearing was heard by Peter Smith J. The Estate, the sequestrators, Mr van Hoogstraten and Willoughbys were all represented by counsel. Tombstone did not appear and was not represented. The judge made an order conferring power on the sequestrators to sell assets in the name of Tombstone to realise £1.25m. He also directed that steps should be taken to effect a transfer of Brook Terrace to the Estate. During the course of the hearing the judge said that the sequestrators had been appointed over the assets of Tombstone to realise them, as he had found as a fact that Tombstone belonged beneficially to Mr van Hoogstraten. On 27 February the judge refused an application by Mr van Hoogstraten for permission to appeal against the order of 10 February authorising sales.
On 17 February Willoughbys had made an application to be joined as a defendant for the purpose of preventing the sale of the Tombstone properties, to have the question of Mr van Hoogstraten's interest in the properties determined by the court and to have Tombstone's assets discharged from the sequestration. The application was supported by a witness statement of Mr Englehart. Willoughbys wanted the earlier orders of Peter Smith J cancelled so far as they affected Tombstone and to prevent sales and transfers of properties owned by Tombstone. The judge directed the application to be heard on 19 March. He ordered that no contract of the sale of Tombstone properties should be exchanged until after the determination of Willoughbys' application.
On 14 March Ms Rosemary Hamilton, who is Mr van Hoogstraten's former partner, mother of one of his sons and holder of 30% of the shares in Tombstone, made an application to be joined as a defendant for the purpose of protecting the assets of Tombstone. A week previously she had been appointed by Mr van Hoogstraten as an additional director of Tombstone. She wished to challenge the finding that Mr van Hoogstraten beneficially owned the assets or shares in Tombstone. She asked to be permitted to represent the interests of Tombstone and all of its shareholders other than Mr van Hoogstraten. She objected to the sale of Tombstone's assets to pay off his debts.
Both of the applications for joinder (Willoughbys and Ms Hamilton's) were heard by Peter Smith J on 19 March 2003. On 3 April he gave judgment dismissing both applications. During the hearing the judge pressed each counsel for the applicants and counsel for Mr van Hoogstraten for an explanation why Tombstone had not applied to be joined and made clear his view that, in the absence of an explanation, the decision not to bring in Tombstone as a party was deliberate. He drew attention to this in his judgment. He was not given an explanation. He referred to "lifting the corporate veil" and to Mr van Hoogstraten and Tombstone as being "the same thing." He held that Willoughbys and Ms Hamilton did not own shares in Tombstone and that, even if they did, the ultimate beneficial owner of the shares was Mr van Hoogstraten.
On 4 April 2003 Tombstone's board passed a resolution to instruct Turner & Debenhams to act as its solicitors and to start proceedings to protect its assets and to intervene in the main action, but nothing was done about it until June 2003.
On 13 June 2003 the Court of Appeal heard a number of applications. It granted Mr van Hoogstraten permission to appeal from the finding of contempt and the ensuing orders extending from the freezing order to the sequestration orders (12 December 2002 and 10 February and 3 April 2003). The Court refused a stay on the proposed sales by the sequestrators and dismissed Willoughbys' application for permission to appeal from the dismissal of its application to be joined. During the hearing the court asked for, but was not given, an explanation as to why Tombstone had not made the application for joinder. An application for joinder, for a declaration that it was the sole beneficial owner of named properties and for a stay of sales was issued on 25 June returnable on 26 June 2003.
On 27 June 2003 the Court of Appeal granted Tombstone, represented by Engleharts, permission to appeal against the dismissal by Peter Smith J earlier the same day of its application to be joined. The judge had held that it was an abuse of process. Chadwick LJ refused an application for a stay on the sale of properties on the ground that a deliberate decision had been made in February 2003 that the intervention should be made by Willoughbys and Ms Hamilton, and that the current application could have been made by Tombstone many months previously. There was no explanation for the last minute application.
On 4 July 2003 the Court of Appeal refused to grant permission to Ms Hamilton to appeal against the order of Peter Smith J refusing her application to intervene in the proceedings.
2004
The appeals were not heard until the summer of 2004, having been adjourned on 12 November 2003 on terms that no claim would be made for the diminution in the assets of Tombstone over the period of the adjournment. On 21 July 2004 the Court of Appeal allowed, with costs, Mr van Hoogstraten's appeal against Peter Smith J's finding of contempt on the ground that the finding had been wrongly made. The Court set aside the sequestration order, along with the order and amended writ of 13 December 2002. The Court of Appeal did not consider whether the amended writ could be challenged on any other ground, such as procedural irregularity. The writ and the amendment order were set aside consequential on the finding of contempt being set aside. Tombstone's appeal fell away with those orders. The court remitted to the Chancery Division the question whether Mr van Hoogstraten or Tombstone were entitled to damages arising out of the making of the orders.
2005
Tombstone began these proceedings against the Estate in August 2005. The claims for compensation for sequestration and management costs were based on the cross undertaking in the freezing order and on the alleged implied cross undertaking in the sequestration order. At that stage it was not alleged that the 13 December order and the amended writ were irregularly made or issued. Indeed, the alleged liability on the cross undertakings appears to assume the validity of the orders and other steps in question.
The respondents' position was that, throughout all of the proceedings, everybody (they, the sequestrators, the van Hoogstraten parties and their respective advisers and, indeed, the courts themselves) proceeded on the basis that (a) Peter Smith J had decided that Tombstone's assets were owned by Mr van Hoogstraten; (b) he had intended to include them within the scope of the van Hoogstraten sequestration; and (c) the 13 December order and amended writ were validly (albeit, on the Hoogstraten parties' case, wrongly) made and issued.
Mr van Hoogstraten resigned as a director of Tombstone on 11 November 2005. He subsequently abandoned his claim for compensation.
2006
In March 2006 Tombstone amended its particulars of claim. It introduced the claim that the initial order appointing sequestrators and the amendment order were nullities, or were irregularly obtained, with the result that the Estate was liable for the torts of trespass and conversion. Healys were joined as an additional defendant by order of Lightman J. The claims for damages for trespass and conversion were set out in section G of the Particulars of Claim. Lightman J gave directions for trial of the issue of liability as the first stage of the proceedings for damages pursuant to the Court of Appeal remission and the re-amended particulars of claim.
C. LIABILITY
Findings
Tombstone does not appeal against the findings of fact made by Lightman J after hearing evidence at a trial lasting 10 days. The witnesses for Tombstone included Mr van Hoogstraten and Mr Englehart. He also heard oral evidence from the son of Mr Raja responsible for the conduct of the litigation
Lightman J found as a fact that Mr van Hoogstraten knew that the 13 December order and the amended writ were wrongly made and issued and that they would be set aside by the Court of Appeal. The judge also found that Mr van Hoogstraten did not regard the order and the amended writ as very important. He was content for them to continue in force unchallenged. As he saw it, the orders preserved the assets sequestered and did not interfere with the conduct of Tombstone's business. His attitude towards the freezing order itself was similar. He was not anxious to retrieve either his or Tombstone's assets from the sequestrators until he learnt that the sequestrators intended to sell assets and recoup their expenditure, remuneration and costs out of the proceeds.
Although Lightman J did not regard Mr van Hoogstraten as a witness of truth he concluded that this evidence was credible and that he should accept it. He thought that the view taken by Mr van Hoogstraten was plainly correct. He said that Mr van Hoogstraten was an intelligent and very experienced litigant. He was in a position to appreciate the injustice of the procedure adopted to obtain the order of December 13. The judge noted that in his evidence Mr Englehart took the same view of the unimportance of that order.
The judge found that at all times Mr van Hoogstraten had access to legal advice and representation for himself and for Tombstone, in particular from Mr Englehart. There was more than ample funding available to obtain both. The judge found that Engleharts had standing instructions to act for Tombstone. All of Mr Englehart's instructions came from Mr van Hoogstraten. There was never an occasion when Mr van Hoogstraten could not obtain legal representation if he wanted it. He used different firms of solicitors on other occasions: Minaides Robson acted in the freezing order and sequestration and he arranged for Turner & Debenhams to act for Ms Hamilton. Lightman J concluded that he always gave anxious consideration to whether it suited his and Tombstone's interests and whether it was tactically advantageous to be legally represented and decided accordingly.
Lightman J found as a fact that the attitude adopted by the Estate in the litigation against Mr van Hoogstraten, and, in particular, in respect of the application for the amended writ, was one of caution. If there had been any appreciation of a risk that the 13 December order might be challenged on any grounds the Estate would immediately have sought the guidance of the court and taken all necessary steps to eliminate risk of any personal liability.
Rulings
On the basis of his findings Lightman J made rulings which can be conveniently summarised as follows-.
(1) In favour of Tombstone he found potential secondary legal liability on the part of the respondents. They could be held legally responsible for any acts of trespass and conversion by the sequestrators, even though the sequestrators themselves were personally immune from liability.
(2) Although the 13 December 2002 order and the amended writ were not nullities, the process by which the amended writ was issued was seriously flawed by reason of irregularities.
(3) The irregularities took the form of the respondents' misrepresentations, non-disclosures and breaches of duty to the court which exposed the order and the amended writ to challenge.
(4) The court had a discretion under the CPR to withdraw retrospectively the protection otherwise afforded to the respondents by the court order.
(5) Tombstone was not precluded from making an application for damages against the respondents by reason only of the fact that the order of December 13 and the amended writ had not been set aside on grounds of irregularity. The Court of Appeal had set aside the amended writ consequent on reversing Peter Smith J's finding of contempt against Mr van Hoogstraten.
(6) The court ought not to exercise its discretion in favour of withdrawing the protection of the court order and the defence of judicial authority. The judge's reasoning is fully set out below.
(7) The tort claims must accordingly fail. The court order protected the respondents from liability for acts committed while the order was in force.
(8) Tombstone's tort claims against the respondents were also an abuse of process and should be struck out.
(9) The claims against the respondents also failed on the ground that Tombstone had no arguable case that it had suffered recoverable loss and damage.
Discretion
At the heart of this appeal is Tombstone's attack on the judge's exercise of the discretion not to set aside the 13 December Order and the amended writ under the CPR. The judge gave concise reasons for the exercise of the discretion. As they have been extensively analysed in Tombstone's written and oral submissions they should be quoted in full.
"79. I have no doubt that in the quite exceptional circumstances of this case in the exercise of my discretion I should decline to withdraw the protection. My reasons for so deciding can be shortly stated as follows: (1) it should have been plain to any competent lawyer, with any knowledge or experience of litigation (and accordingly any such lawyer instructed by Tombstone) that: (a) the December 13th Order had been irregularly obtained, for it had been obtained for no apparent or sufficient reason on a without notice application against a non-party to the proceedings against whom there had never been any application of contempt and in contravention of RSC Order 46,5(2), and accordingly the order would practically as a matter of course on any prompt application be set aside on this ground; and (b) in any event at any time, since the order was made on a without notice application, Tombstone could apply for its discharge on the merits, on a full hearing; (2) Tombstone (through Mr van Hoogstraten) at all times knew (but the Defendants did not know) that the December 13th Order could and would be set aside by the Court of Appeal. If Tombstone had challenged the Order forthwith (as any ordinary litigant would have done) there would have been an early finality in this litigation: the December 13th Order and the Amended Writ would have occasioned Tombstone no damage or loss. Instead, not merely was Tombstone content that the December 13th Order and the Amended Writ should remain in force until the Sequestrators applied for power to sell the Properties, but through Engleharts Tombstone requested the Sequestrators to pay tax and trade debts owed by Tombstone. When the Sequestrators did apply to sell the Properties, instead of making any challenge, for no good or sufficient reason, Tombstone left the making any challenge to others who had no locus standi to make it. Tombstone was accordingly in a very real sense the author of the loss in respect of which it seeks the lifting of the protection afforded to the Defendants by the orders and for which it claims relief in this action; (3) an application to discharge the December 13th Order and set aside the Amended Writ and (in default) for permission to appeal could and should have been made at the hearing on 18th December 2002. At that hearing at which Mr van Hoogstraten was represented by Mr Reza, matters arising from the December 2002 Judgment including the form of order and the grant of permission to appeal were on the agenda and dealt with. Tombstone however of which Mr van Hoogstraten was the "corporate embodiment", for its own reasons absented itself and took no action: (4) though the Sequestrators did their best in early February 2003 to prompt Tombstone to be represented at the first hearing of their application for power to sell properties in the name of Tombstone and though Mr van Hoogstraten was represented by counsel Tombstone for their own reasons declined to be represented. The (ultimately successful) application by the Sequestrators for directions authorising the sale of the Properties was the occasion (if not earlier made) for a challenge to the December 13th Order on this ground; for the claim to relief sought by the Sequestrators proceeded on the basis that the December 13th Order was valid and regularly made. Tombstone stood by whilst futile applications to intervene were made at the instance of Mr van Hoogstraten by Ms Hamilton and Willoughbys and made no application at all to the court until the 25th June 2003 and no application on the ground of irregularity until March 2006. So far as reliance as an excuse for this and other actions and delays is placed on the alleged hostility of the Judge to Mr van Hoogstraten and his identification of Tombstone with Mr van Hoogstraten, it is appropriate to have in mind the words of Lord Hoffmann in Arthur S Hall v. Simons [2002] 1 AC at 699:
"Whatever may have been the foibles of the Judge who heard the case it cannot be assumed that he would have behaved irrationally. If he did it would have been corrected on appeal."
(5) the application by Tombstone to the Court of Appeal for permission to appeal against the Judge's refusal of permission to intervene was again the occasion to raise any allegation of irregularity, but the allegation of irregularity was only advanced as late as March 2006; and (6) throughout the intervening period the Defendants proceeded on the basis that, whether or not on its merits the December 13th Order should have been made, there was no question of any irregularity which might defeat the protection otherwise afforded to those who procured the Order and secured compliance with it. As Amjad told me in his evidence and I fully accept, any hint of irregularity would have prompted the Estate to make an application to the court for resolution of the issue.
80. In a word I am firmly of the view that in all the circumstances of this case it would be unjust and indeed oppressive to the Defendants to accede to Tombstone's last minute and surprise application to spring upon the Defendants an order depriving them of the protection on which they could reasonably rely over the protracted period since 13th December 2002."
CPR discretion or inherent jurisdiction?
The primary issue of law on the appeal is whether the judge was wrong in concluding that he had a discretion under the CPR to decide whether or not the respondents should lose the protection of the order of 13 December for alleged tortious acts committed while the order was in force.
Could Tombstone have made an application under the CPR to set aside the order made by Peter Smith J on 13 December 2002? In our view, such an application could have been made under rule 23.10. In interpreting the CPR, the court "must seek to give effect to the overriding objective [of enabling the court to deal with cases justly]": see rule 1.2(b).
Rules 23.9 and 23.10 must be read together. Rule 23.9 provides:
"23.9 (1) This rule applies where the court has disposed of an application which it permitted to be made without service of a copy of the application notice.
(2) Where the court makes an order, whether granting or dismissing the application, a copy of the application notice and any evidence in support must, unless the court orders otherwise, be served with the order on any party or other person –
(a) against whom the order was made; and
(b) against whom the order was sought.
(3) The order must contain a statement of the right to make an application to set aside or vary the order under rule 23.10."
Rule 23.10 provides:
"23.10 (1) A person who was not served with a copy of the application notice before an order was made under rule 23.9, may apply to have the order set aside or varied.
(2) An application under this rule must be made within 7 days after the date on which the order was served on the person making the application."
Mr Nigel Jones QC submits on behalf of Tombstone that an application could not have been made by Tombstone to set aside the order of 13 December under rule 23.10, because the order had not been made in response to an application supported by an application notice. He says that an order pursuant to rule 23.9 can only be made where an application notice has been issued, but not served, before the order is made and that rule 23.10(1) only applies in relation to an application notice made pursuant to rule 23.9 before the order is made: note the words "a copy of the application notice" in rule 23.10(1) (emphasis added).
On a literal interpretation of the rules, we can see some force in this argument. But we cannot accept it, because it does not give effect to the overriding objective of enabling the court to deal with cases justly. Mr Jones has suggested no reason why the rules should provide that an application to set aside an order made without notice can be made if the order is made pursuant to an application notice; but that an application to set aside cannot be made if the order is made pursuant to an application which is not supported by an application notice. Such a distinction makes no sense. The purpose of rule 23.9 is to require a party affected by an order made without notice to be made aware of the order so that he can comply with it or (as the case may be) apply to have it set aside. No doubt, in most cases, such an application will be made pursuant to a written application notice. But sometimes, for example in cases of urgency, an application is made orally unsupported by a notice.
As the headings make clear, the subject-matter of rules 23.9 and 23.10 is applications made without notice. We accept the submission of Mr Andrew Onslow QC on behalf of Healys, that these rules assume, but do not require, that the order is made pursuant to an application notice. The core element of the rules is that the party affected by the order made without notice should be notified of the order that has been made. In our view, rules 23.9 and 23.10 should be construed as applying whether or not an application notice has been issued.
In these circumstances, we do not have to decide whether, if there is a lacuna in rules 23.9 and 23.10, resort can be had to rule 3.1(2). This provides that "Except where these Rules provide otherwise, the court may……..(m) take any other step or make any other order for the purpose of managing the case and furthering the overriding objective". We are in no doubt that the court has power under rule 3.1(2)(m) to make an order without notice affecting a party to the litigation where an application is made unsupported by an application notice. Mr Jones submits, however, that Tombstone could not have applied to the court to invoke this power because on 13 December Tombstone was not a party to the litigation. He contends that rule 3.1(2)(m) is concerned with the case management of litigation by taking steps and making orders that affect the parties to the litigation: it cannot be invoked to take steps or make orders in relation to non-parties. We see force in this submission, but it is unnecessary to decide the point.
We conclude, therefore, that Tombstone could have applied to have the order made on 13 December set aside under rule 23.10. In dealing with such an application, the court would have been required to give effect to the overriding objective. We explain at paragraph 81 below what that entails by reference to Nelson v Clearsprings (Management) Ltd [2006] EWCA Civ 1252, [2007] 1 WLR 962. But, before we come to that decision, we need to deal with the submission of Mr Jones that, whatever the position may be under the CPR, where an order is made without notice, the party affected is entitled as of right (ex debito justitiae) to have the order set aside under the inherent jurisdiction of the court.
He submits as follows. The position pre-CPR was that a person affected by an order made without notice was entitled as of right to have the order set aside under the inherent jurisdiction of the court. No exercise of discretion was involved. He cited a number of authorities to us. We do not propose to refer to them all. In Isaacs v Robertson [1985] 1 AC 97, giving the judgment of the Privy Council, Lord Diplock said at p 103C that there is a category of orders of a court of unlimited jurisdiction which a person affected
"..is entitled to apply to have set aside ex debito justitiae in the exercise of the inherent jurisdiction of the court without his needing to have recourse to the rules that deal expressly with proceedings to set aside orders for irregularity and give to the judge a discretion as to the order he will make."
Lord Diplock noted that judges had refrained from laying down a comprehensive definition of defects that bring an order into the category "that attracts ex debito justitiae the right to have it set aside, save that specifically it includes orders that have been obtained in breach of rules of natural justice."
In St George's Healthcare NHS Trust v S [1998] 1 WLR 936, hospital authorities applied ex parte and were granted a declaration which dispensed with the applicant's consent to medical treatment. Her appeal was allowed. This court said (p 965F) that a declaration (especially one affecting an individual's personal autonomy) ought not to be made on an ex parte basis, not least because it would be ineffective to achieve its purpose of protecting the doctor or doctors who administered the treatment from claims. The court cited the passage from the judgment in Isaacs v Robertson to which we have referred and said of the declaration that it was an order which the applicant
"..is entitled to have set aside ex debito justitiae. That may involve some unfairness to the doctors and nurses at St George's……But the unfairness (indeed injustice) to M.S. would be much greater if the order were not set aside."
In In re Pritchard, deceased [1963] Ch 502, 520-521 Upjohn LJ said that the phrase ex debito justitiae meant that "the plaintiff is entitled as a matter of right to have it set aside". He then explained what this meant in the following way:
"….. Let me quote an analogy. The right to wind up a company is by statute a discretionary right. Yet the books and authorities point out that in many cases as against the company an unpaid creditor on a winding-up petition is entitled to a winding-up order ex debito justitiae. This means no more than that, in accordance with settled practice, the court can only exercise its discretion in one way, namely, by granting the order sought. So in many of the cases where there are defects of procedure, even if the defects are mere irregularities for the purposes of Ord. 70 so that the court has a discretion, it must follow that the applicant, if he is in no wise estopped by conduct or waiver, is entitled to say: I am entitled under Ord. 70 to have the order made upon me set aside ex debito justitiae. Indeed, the only difference between a nullity and an irregularity, to which such a principle applies, is where, being a nullity, it is too late to start again."
We accept the submission of Mr Onslow that the right to apply to have an order set aside (for whatever reason) can be lost, for example, by waiver or estoppel. But subject to that, we are content to proceed on the basis that in the pre-CPR era, a party affected by an order made without notice was entitled to have the order set aside in the sense explained by Upjohn LJ. That is to say, it was an exercise of discretion by the court in accordance with settled practice which had to be exercised in favour of setting the order aside unless the right was lost. It was not an exercise of discretion which involved a more general consideration of what was required by the interests of justice, having regard to all the circumstances of the case.
The relationship between the inherent powers of the court to control proceedings and the Rules of the Supreme Court was considered by Sir Jack Jacob in his Hamlyn lecture "The inherent jurisdiction of the court": Current Legal Problems 1970 p 23, 50-51. He said that the powers of the court under its inherent jurisdiction "are complementary to its powers under Rules of Court; one set of powers supplements and reinforces the other…..where the usefulness of the powers under the Rules ends, the usefulness of the powers under inherent jurisdiction begins." In an illuminating article entitled "The inherent jurisdiction to regulate civil proceedings" [1997] LQR 120, the late Professor Martin Dockray said at p 128 that the Rules of the Supreme Court may limit the inherent powers of the court where there is a conflict between them. Thus "the inherent jurisdiction may supplement but cannot be used to lay down procedure which is contrary to or inconsistent with a valid Rule of the Supreme Court". In our judgment, this last statement was correct in law, being supported by the authorities cited in the article which included Moore v Assignment Courier Ltd [1977] 1 WLR 644F-645B and Langley v North West Water Authority [1991] 1 WLR 697, 709D.
In our view, the correctness of this view is not put in doubt by the authorities relied on by Mr Jones. We do not consider that in Isaacs v Robertson, Lord Diplock was intending to say that the inherent jurisdiction of the court could be invoked to make an order which was inconsistent with the rules. In any event, the ratio of the decision was that an order made by a court of unlimited jurisdiction had to be obeyed until and unless it was set aside. What Lord Diplock said about the relationship between the court's inherent jurisdiction and its powers under the rules was not necessary for the decision and was obiter dictum. It is true that in the St George's Healthcare case, reference was made to what Lord Diplock said in Isaacs v Robertson. But there are two reasons why that decision cannot bear the weight placed on it by Mr Jones. First, one of the reasons why the court concluded that the order should be set aside ex debito justitiae was that it was an interim declaration which was of no effect. Secondly, there was no consideration of the question whether the order should be set aside under the rules rather than in the exercise of the court's inherent jurisdiction. No doubt, the result would have been the same whether under the rules or under the inherent jurisdiction of the court.
The position pre-CPR, therefore, was that the inherent powers of the court could not be invoked to do something which was inconsistent with a rule. Thus, if a rule gave a wide discretion to the court to decide whether or not to make a particular order, the court could not exercise its inherent powers to make such an order ex debito justitiae as if it had no discretion, or a discretion which could only be exercised one way in accordance with the rules.
The same position has obtained since the introduction of the CPR. The CPR are a "new procedural code with the overriding objective of enabling the court to deal with cases justly" (rule 1.1(1)). There is no doubt that the court continues to have the inherent jurisdiction to regulate the conduct of civil litigation: see section 19(2)(b) of the Supreme Court Act 1981. The existence of the inherent jurisdiction is also implicitly acknowledged by CPR 3.1(1) which provides that the list of powers in that rule "is in addition to….any powers it may otherwise have".
In our judgment, therefore, where the subject-matter of an application is governed by rules in the CPR, it should be dealt with by the court in accordance with the rules and not by exercising the court's inherent jurisdiction. There is no point in exercising the court's inherent jurisdiction if that would involve adopting the same approach and would lead to the same result as an application of the rules. And it would be wrong to exercise the inherent jurisdiction of the court to adopt a different approach and arrive at a different outcome from that which would result from an application of the rules.
This approach is consistent with, if not dictated by, what this court said in Nelson. In that case, a possession order was obtained without notice to the defendant. The defendant applied to have the order set aside on the grounds that the claim form had not been served on it and it was unaware of the proceedings. The district judge held that the defendant was not entitled to have the judgment set aside as of right, but had to establish pursuant to rule 39.3(5) that it had a reasonable prospect of success at trial. The judge allowed the defendant's appeal, holding that rule 39.3(5) had no application and that, applying the guidance in White v Weston [1968] 2 QB 647, the defendant was entitled to have the judgment set aside as of right. The claimant appealed to the Court of Appeal.
Giving the judgment of the court, at [42] Sir Anthony Clarke MR agreed with the judge that rule 39.3(5) did not apply and said that "the appeal must be dismissed on this basis". He said that it did not, however, follow that under the CPR the defendant "was entitled to have the judgment set aside as of right, ex debito justitiae or indeed that, if there is a discretion, it can be exercised in only one way" [43]. Later, he said:
"48 …..While it is perhaps possible that there is no rule of the CPR which governs an application to set aside such a judgment and that the court's power to do so stems from some more general power to set aside a judgment ex debito justitiae, it seems unlikely that such a comprehensive code does not cover such a situation. We would hold that the attempted service at the wrong address was an error of procedure within the meaning of rule 3.10. The court is therefore empowered to make an order to remedy the error, and if rule 3.10 (b) was not thought strong enough to give the court power to make an order to the effect that an irregular judgment should be set aside, the necessary power is available under rule 3.1(2)(m). We do not consider it necessary to consider the vexed question whether the word order is wide enough to include judgment in rule 3.1(7): for the problems created by the distinctions between judgments and orders in the CPR see volume 1 of the White Book 2006 at paragraph 40.1.1.
49. On such an application, in construing the CPR, it is not in our judgment appropriate to hold, on the true construction of the wide and unfettered discretion given by those two rules, that the discretion to set aside an irregular judgment can only be exercised in one way, namely by setting aside the judgment. There may be circumstances in which the overriding objective of dealing with cases justly, which of course expressly includes, by rule 1.1(2), saving expense and dealing with the case in ways which are proportionate, requires the discretion to be exercised differently.
50. That is not to say that on an application to set aside a judgment in a case of this kind the just order will not almost always be to set aside the judgment.
…..
However, each case depends upon its own facts and there may be circumstances in which it will not be appropriate to set aside the judgment, or at any rate, the whole judgment, as for instance when the defendant has delayed inexcusably in making his application to the court after learning that the judgment had been entered against him."
We do not accept the submission of Mr Jones that what the court said from [43] to the end of the judgment is obiter. Having agreed with the judge that rule 39.3(5) did not apply, the court went on to consider whether the judge was right to set aside the judgment. They concluded that he was. But what they said in support of that conclusion forms part of the reasoning of the decision.
That reasoning is relevant to the present appeal in two respects. First, it is implicit in [48] that, if there is a rule of the CPR which governs an application to set aside such a judgment, the application should be dealt with pursuant to the rule and not by exercising "some more general power to set aside a judgment ex debito justitiae". Secondly, an application under the rules to set aside a judgment obtained without notice involves an exercise of a discretion to produce a just result. Although an application to set aside such an order will almost always succeed, each case depends on its own facts. The crucial point is that the court should arrive at a just result.
It may well be that in the pre-CPR era, an application to set aside a judgment (or similarly crucial order) made without notice would have succeeded in all cases, unless the right was lost by waiver or estoppel. This was because a defendant who was the subject of a judgment of which he had no notice was entitled to have it set aside as of right on the basis that the defect was so fundamental: see White v Weston p 659.
Since the introduction of the CPR, however, the position is that applications for the setting aside of orders made without notice are governed by rule 23.10. They are determined by the court exercising the discretion given by that rule in accordance with the overriding objective. Where the order is one which affects the rights of the affected party in an important respect (a judgment is the most obvious example), it will only be in exceptional circumstances that the discretion will not be exercised to set aside the order.
We would add that if, contrary to the view we have expressed above, Tonbstone's application to set aside fell outside the scope of the CPR and had to be dealt with under the inherent jurisdiction of the court, we would have held that the jurisdiction should be exercised conformably with the CPR. The CPR introduced a new code. It was intended to be comprehensive. If there is a lacuna, the omission should be made good in a way which is consistent with the rules. Our procedural regime would be incoherent if an application to set aside a judgment pursuant to the CPR involved the exercise of a discretion in accordance with the overriding objective, but an application outside the rule involved the exercise of a narrower discretion or no discretion at all.
Exercise of CPR discretion
The next question is whether the judge properly exercised his discretion under the CPR by declining to deprive the respondents of the protection of the 13 December order.
Tombstone submits that the exercise of discretion by this very experienced judge was flawed in a number of respects. No precedent authority is needed for the proposition that this court will only interfere with the exercise of a judicial discretion if it is contrary to legal principle, or if it has been reached by ignoring relevant factors or influenced by irrelevant factors, or if for some other reason it is plainly wrong.
Mr Nigel Jones QC submits that the reasons given by Lightman J do not justify the exercise of his discretion not to remove from the respondents the legal protection of the 13 December order. Although we shall deal separately with each point in turn as advanced by Tombstone and answered by the respondents, it is important not to lose sight of the overall picture that emerges from the combination of the judge's findings of fact, which are not challenged on appeal, and the indisputable chronological sequence of events set out earlier.
Knowledge of 13 December order
Mr Jones submits that the judge was wrong to hold that, from a time shortly after 13 December 2002, Tombstone (through Mr van Hoogstraten) knew that there had been a hearing on that date and knew of the specific procedural defects in obtaining the amended writ.
The position is that Healys had in fact informed Mr van Hoogstraten in a letter of 13 December 2002 that the judge had approved the amended writ. What Lightman J found as a fact and has not been appealed is that Mr van Hoogstraten, on his own evidence, was aware that, without notice to Tombstone, the sequestrators had been appointed over his assets held in the name of Tombstone. He knew, as he said in evidence, that the appointment was wrong and that it would be reversed on appeal. Although Mr van Hoogstraten may not have known the details of what happened on 13 December or of the specific procedural errors, he (and therefore Tombstone) was aware of the substance of the outcome of the application to amend the writ.
Knowledge of defects in 13 December order
Mr Jones submits that the judge was wrong to hold that Tombstone should have known of the defects in the procedure by which the amended writ was obtained and that they should have been obvious to any competent lawyer. He points out that none of the lawyers involved actually appreciated the procedural defects at the time.
As already mentioned what Lightman J found was that Mr van Hoogstraten knew that the December 13 order was wrong and that it would be set aside on appeal. As passages in the transcript make clear Mr van Hoogstraten said that he knew that, on the facts of the case, Tombstone would eventually succeed. He said that what Peter Smith J had done on 13 December was illegal and that he had made a judgment that would not stand up in the Court of Appeal.
Because of the irregular procedure, Tombstone had a right to apply to discharge the order which had been made at a hearing not notified to Tombstone and at which it was not present. In our judgment, it is irrelevant to Mr van Hoogstraten's relevant state of knowledge and belief about the 13 December order and Tombstone's failure to apply to the court that the respondents' lawyers believed that the 13 December order was valid. They believed that, as the judge held, Mr van Hoogstraten was in contempt of court and that the amended writ reflected the judge's intention to include within the sequestration order assets which he had said were Mr van Hoogstraten's, even though held in the name of Tombstone.
Respondents' responsibility
Lightman J is criticised for not taking sufficient account of the respondents' responsibility for the defects in the procedure followed on 13 December.
In our judgment, this is simply not the case. The judge was highly critical of the respondents' conduct and the procedure that was followed on the application for the amendment and he clearly took that factor into account in deciding that Tombstone should not have to pay all of the respondents' legal costs.
Earlier application by Tombstone
Fourthly, it is submitted that the judge was wrong to hold that Tombstone could and should have applied to the court earlier in relation to the 13 December order and that, by not doing so, it was the author of its own misfortune in respect of the sequestration.
In our judgment, that was a highly relevant factor. The point is that there was no good reason for Tombstone not to make the application in December 2002 or in early 2003. There were no difficulties in Tombstone funding an application and it had access to legal advice and representation. Unsuccessful applications to the court were made by Willoughbys and Ms Hamilton. There was no satisfactory explanation for Tombstone's failure to make an earlier application.
Judicial treatment
Fifthly, Mr Jones submits that the judge failed to take account of all the relevant circumstances, in particular Peter Smith J's previous treatment of Mr Hoogstraten and the other applicants and the explanation for Tombstone's conduct in not making the application earlier provided by that judge's attitude. It is submitted that these matters led Mr van Hoogstraten to believe that Tombstone would not get fair treatment from the judge and so he had not acted earlier.
In our judgment, Lightman J addressed this point and dealt with it correctly. Even if it is assumed in Mr van Hoogstraten's favour that he believed that Tombstone would not get a fair hearing, that was not a satisfactory excuse for failing to make an application to the court earlier. If the application was made and it was considered that the hearing was unfair there was the possibility of an appeal.
It is also contended that the judge failed to take account of Mr van Hoogstraten's ignorance of the effect of the sequestrator's lien as his reason for not acting earlier on the amended writ. Mr Onslow's comment is that this is a new excuse relied on for not having acted earlier. We agree. It was not mentioned by Mr van Hoogstraten in his evidence and he had not said that he would have acted differently had he known.
Relevant factors mis-stated
Sixthly, it is submitted that the judge incorrectly stated relevant factors.
This general criticism overlapped with other aspects of the judge's reasons for the exercise of his discretion, such as his finding that any competent lawyer would have appreciated that Tombstone could apply to the court to set aside the 13 December order. The submission repeated the points that Mr van Hoogstraten was not aware of the details of what happened on 13 December and that none of the lawyers appreciated the procedural defects at the time, acting in the belief that Peter Smith J had found that Mr van Hoogstraten owned Tombstone's assets and intended to include them in the sequestration. We have already dealt with these points.
Prejudice to respondents
Seventhly, Mr Jones submits that the judge was not justified in the finding of prejudice to the respondents. It was emphasised that the damage was suffered by Tombstone at an early stage of the making of the order.
In our judgment, the judge was entitled to find that, until March 2006, the respondents proceeded on the basis that there was no question of any irregularity in the obtaining of the 13 December order which might defeat their protection. The judge expressly accepted evidence on behalf of the Estate that any hint of irregularity would have prompted the Estate to apply to the Court for resolution of the issue. It was reasonable for the respondents to rely on the order, which they believed had been regularly made and reflected the judge's intentions. The fact that any damage suffered by Tombstone was at an early stage was not relevant to the oppression of or prejudice to the respondents, who could have been liable for a substantial sum even if the irregularity had been raised earlier.
In our judgment, it was reasonable for the respondents to rely on the 13 December order and to believe that it was valid and would not lead to them being personally liable. Mr van Hoogstraten had himself treated the amended writ, which is now said to have been a nullity, as valid by applying to the sequestrators early in 2003 for payment of debts and taxes.
Other points
Abuse of process
Lightman J said that, in view of his decision on the discretion point, it was unnecessary for him to decide whether Tombstone was also precluded from obtaining relief on the ground that its application was an abuse of process. He said (paragraph 81) that it was sufficient to say that (if necessary) he would hold that Tombstone's application to remove the protection was an abuse of process.
In view of our decision on the CPR discretion point it is unnecessary for the court to express a concluded view on abuse of process.
Recoverable loss
The same comment applies to the judge's conclusions on recoverable loss. He held that Tombstone also failed because on no basis could Tombstone be entitled to the relief by way of damages. No arguable case was made out in the pleadings for more than nominal damages for trespass and conversion (paragraph 83). Tombstone did not have possession of the properties sold by order of the court and there was no case of damage to the reversions. So there was no recoverable damage which would justify the court proceeding with the matter to an assessment. As Lightman J held that the respondents had a complete defence to the claims for trespass or conversion, it is unnecessary for the court to comment on Tombstone's criticisms of his judgment on the issues relating to pleading and proof of recoverable damage to Tombstone's assets.
Respondents' non-disclosure and breaches of duty
In the respondents' notice there is a challenge to Lightman J's conclusions on the circumstances in which the application was made for the 13 December order and the finding that there had been breaches of duty on the part of the respondents. Mr Onslow accepts that (a) there is a high duty on parties and their advocates in making a without notice application to the court and (b) errors of procedure were made on 13 December 2002. He submitted, however, that Lightman J was wrong in holding that there had been material non-disclosure or misrepresentation by the Estate to Peter Smith J and that Healys and counsel had been in breach of their duties to the court.
The court's attention has been drawn to "the reality of the situation" which, it is argued, was not taken into account by Lightman J. There was no failure of full and frank disclosure and Peter Smith J was not misled in circumstances in which he had or could properly be taken to have full knowledge of all the material facts. It is true that Peter Smith J had dealt with the case since 10 September 2002. He had gone into the detail of it and given judgments, including a judgment on 12 December on the issue of a writ of sequestration. He knew that Tombstone was not a party to the proceedings and it was proper to assume that he knew what he intended when he gave permission to issue a writ of sequestration. The application of 13 December was for clarification of what he had intended to be included in the writ in the light of his judgment on the previous day. The sequestrators wanted to know what was to be expressly included in the writ following his judgment on the relationship between Mr van Hoogstraten and Tombstone. He found as a fact that Tombstone belonged beneficially to Mr van Hoogstraten and that its assets should be treated as his assets. The situation on 13 December was not the same as an ex parte application for an interim injunction or a freezing order or a search and seize order. Peter Smith J was shown the draft amended writ, read it and made the order. It was reasonable for the respondents and their advisers to believe that he must have had all the material points in mind when he made the order. He had not suggested at any later stage in the proceedings that there had been any misrepresentation or non-disclosure to him on 13 December or any breach of duty.
In our judgment the respondents and their advisers are not relieved from their obligation to observe their high duties to the court by a belief that the judge "must have had knowledge of all the material facts" of a case because of his judicial involvement in the earlier stages of the litigation. Although counsel may often use, as a matter of courtesy, expressions like "As your Lordship knows" or "As you will recall", it must not be assumed by parties and their advisers that judges know all about the case before them without being told what they need to know on each occasion. Judges are immersed on a daily basis, both in and out of court, in the detailed facts of many cases and those facts will not be at the forefront of their minds when they are busy attending to other cases, as Peter Smith J was when he was Applications Judge on 13 December. In the case of all without notice applications it is essential that full disclosure should be made to the judge and that in all but the most urgent cases the relevant documents are submitted to him in advance of the hearing.
Lightman J was fully entitled to reach the conclusions that he did about the circumstances in which the application was made for the December 13 order.
D. COSTS APPEAL
Judgment on costs
In a separate judgment the judge dealt with the dispute about who should pay the costs of the trial of the Section G claims. As the judge dismissed Tombstone's claim, the respondents asked for an order for Tombstone to pay all the costs. They also sought an order for their assessment on an indemnity basis. Tombstone submitted that there should be no order as to costs, as the respondents had raised various issues in the action on which they had been unsuccessful, such as the question whether there had been a material breach of duty in obtaining the 13 December order. The judge's order that Tombstone should pay 60% of the costs did not satisfy either side. Hence an appeal and a cross appeal by Healy's on the ground that the judge ought not to have found such a material breach of duty.
The judge referred to the relevant legal principles in CPR Part 44. In the exercise of his discretion he took account of the issues on which the parties succeeded. Tombstone had succeeded in its contentions that the respondents could be held legally responsible for the acts of the sequestrators, that the 13 December order had been obtained irregularly by the respondents and that Tombstone was not affected by the fact that that order was set aside by the Court of Appeal on different grounds. The respondents succeeded on the points that the 13 December order was not a nullity, that it was liable to be set aside under the CPR rather than as of right under the inherent jurisdiction, that the discretion under the CPR should be exercised so as not to deprive the respondents of the protection of the court order for what had been done pursuant to the order and that no recoverable loss had been pleaded by Tombstone.
The judge took the conduct of the parties into account, in particular the "reprehensible and indeed disgraceful behaviour" of the respondents in irregularly obtaining the order of 13 December and the "extraordinary delay" of Tombstone in taking steps to apply to set aside the order.
Tombstone's submissions on costs
Tombstone submits that there should be no order for costs of the trial of the Section G claims principally on the ground that Tombstone had succeeded on most of the issues in the Section G claim which had incurred the majority of the costs. The respondents had, for example, unsuccessfully and unreasonably contested the question whether they were guilty of misrepresentation and non-disclosure and in breach of their duties in the application for the 13 December order. Although their conduct was strongly criticised by the judge, this was not adequately reflected in the costs order. Their conduct on the application on 13 December, which they unsuccessfully sought to justify, was far more serious than, and was different in kind from, Tombstone's conduct in subsequent delay in an application to the court
In holding that the respondents had succeeded on three of the five essential issues, as against the two issues on which Tombstone had succeeded, the judge had failed to consider the proportion of time and costs given or caused by each of those issues or the extent to which they overlapped.
Respondents' submissions on costs
The respondents submit that Lightman J had not exercised his discretion correctly. The respondents had successfully defended Tombstone's claims and should have been awarded all their costs of the action. They repeated their submissions that Lightman J was wrong to hold that there had been misrepresentation and non-disclosure on their part and breaches of duties to the court by their advisers and the judge ought not to have reduced the recoverable costs by taking those matters into account. The respondent accepted that, if there was a material breach of duty, the judge had exercised his discretion correctly.
Costs: discussion and conclusions
This court will not interfere with the wide discretion of the judge on costs, unless there was some error of principle or if for some other reason his decision was plainly wrong. In our judgment, this case comes nowhere near to justify upsetting the judge's exercise of discretion on costs. He directed himself in accordance with the correct legal principles and took proper account of the fact that the respondents had won the action, but had, on the way to success, lost a number of issues and had, in obtaining the 13 December Order, acted in a way which he was fully entitled to criticise. Tombstone's conduct was also relevant to the reason why it lost the case and thus relevant to the discretion on costs.
There are no grounds for interfering with the judge's costs order and we dismiss the appeal and the cross appeal against it.
E. RESULT
For the above reasons we dismiss the appeal against both the order on liability and the costs order. The judge correctly applied the relevant provisions of law and practice to his clear and unchallenged findings of fact. There are no grounds for interfering with his exercise of discretion under the CPR either in relation to the irregularly obtained order of 13 December 2002 or in respect of costs.
F. SKELETON ARGUMENTS
We end this judgment with a criticism of the excessive length and complexity of Tombstone's skeleton argument. It has 110 pages of text plus 64 pages of Appendices. Although its authors set out to assist the court, as well as the client, by a very thorough presentation of Tombstone's case, it is sensible to set reasonable limits to its length.
Mr Onslow described it "as an extremely long document" for a case that, while unusual, was not unduly complex. The appeal was from a judgment of modest length (27 pages). It was very hard, he said, to see what justified such voluminous arguments. Most of the legal issues have been settled by existing authority. No primary findings of fact are challenged on the appeal. He added that, from Healys' perspective, this had added to the length of their skeleton argument (56 pages), which they had tried to keep as short as possible. It had also added considerably to the cost and length of the appeal.
The length of Tombstone's skeleton did not assist the court. In fact, it tended to detract from Tombstone's case, which was accurately and far more succinctly stated by Mr Onslow in his written and oral responses to it. His team adopted the technique of briefly stating the points taken by Tombstone and then concisely commenting on them.
Practitioners who ignore practice directions on skeleton arguments (see CPR 52PD paras 5.10 "Each point should be stated as concisely as the nature of the case allows") and do so without the imposition of any formal penalty are well advised to note the risk of the court's negative reaction to unnecessarily long written submissions. The skeleton argument procedure was introduced to assist the court, as well as the parties, by improving preparations for, and the efficiency of, adversarial oral hearings, which remain central to this court's public role.
We remind practitioners that skeleton arguments should not be prepared as verbatim scripts to be read out in public or as footnoted theses to be read in private. Good skeleton arguments are tools with practical uses: an agenda for the hearing, a summary of the main points, propositions and arguments to be developed orally, a useful way of noting citations and references, a convenient place for making cross references, a time-saving means of avoiding unnecessary dictation to the court and laborious and pointless note-taking by the court.
Skeleton arguments are aids to oral advocacy. They are not written briefs which are used in some jurisdictions as substitutes for oral advocacy. An unintended and unfortunate side effect of the growth in written advocacy (written opening and closing submissions and "speaking notes", as well as skeleton arguments) has been that too many practitioners, at increased cost to their clients and diminishing assistance to the court, burden their opponents and the court with written briefs. They are anything but brief. The result is that there is no real saving of legal costs, or of precious hearing, reading and writing time. As has happened in this case, the opponent's skeleton argument becomes longer and the judgment reflecting the lengthy written submissions tends to be longer than is really necessary to explain to the parties why they have won or lost an appeal.
The skeletal nature of written advocacy is in danger of being overlooked. In some cases we are weighed down by the skeleton arguments and when we dare to complain about the time they take up, we are sometimes told that we can read them "in our own time" after the hearing. In our judgment, this is not what appellate advocacy is about, or ought to be about, in this court. | 3 |
Judgment of the Court of 15 October 1985. - Krupp Stahl AG and Thyssen Stahl AG v Commission of the European Communities. - Steel industry: allocation of additional quotas. - Joined cases 211 and 212/83, 77 and 78/84.
European Court reports 1985 Page 03409
Summary
Parties
Subject of the case
Grounds
Decision on costs
Operative part
Keywords
ECSC - PRODUCTION - STEEL PRODUCTION QUOTA SYSTEM - ALLOCATION OF ADDITIONAL QUOTAS - CONDITIONS - REDUCTIONS IN PRODUCTION CAPACITY EFFECTED AFTER THE REFERENCE DATE IN ACCORDANCE WITH A RESTRUCTURING PLAN OR AS REQUIRED BY THE COMMISSION IN ITS DECISIONS CONCERNING AID TO THE STEEL INDUSTRY - REFERENCE CRITERIA - ARBITRARY OR DISCRIMINATORY NATURE - NONE
( ECSC TREATY , ART . 58 ; DECISION NO 2177/83 , ART . 14 B , AND DECISION NO 234/84 , ART . 14 B )
Summary
BY PROVIDING THAT THE COMMISSION MAY ALLOCATE , WITHIN THE FRAMEWORK OF THE SYSTEM OF STEEL PRODUCTION QUOTAS , ADDITIONAL QUOTAS TO AN UNDERTAKING IF THAT UNDERTAKING HAS , SINCE 1 JANUARY 1980 , EFFECTED THE REDUCTION IN ITS PRODUCTION CAPACITY PROVIDED FOR IN ITS RESTRUCTURING PLAN OR REQUIRED BY THE COMMISSION IN ITS DECISIONS CONCERNING AID TO THE STEEL INDUSTRY , ARTICLE 14 B OF DECISION NO 2177/83 , AS AMENDED BY DECISION NO 3280/83 , AND ARTICLE 14 B OF DECISION NO 234/84 DO NOT LAY DOWN ARBITRARY OR DISCRIMINATORY CRITERIA .
IN THE FIRST PLACE , THE CHOICE OF THE REFERENCE DATE IS NEITHER ARBITRARY NOR DISCRIMINATORY . IT FORMS PART OF A SET OF RULES COMPRISING SEVERAL ELEMENTS , RELATING IN PARTICULAR TO THE LIMITATION OF PRODUCTION AND THE REDUCTION OF PRODUCTION CAPACITY IN THE STEEL SECTOR , AND IT IS IN HARMONY WITH THE OTHER ELEMENTS OF THOSE RULES , WHICH THEMSELVES FORM PART OF THE STEEL POLICY GRADUALLY DEVELOPED BY THE COMMISSION AND THE COUNCIL . THE FACT THAT THE COMMISSION MADE IT POSSIBLE TO INCREASE THE REFERENCE PRODUCTION FIGURES IN ORDER TO TAKE ACCOUNT OF RESTRUCTURING EFFORTS COMPLETED BEFORE 1980 AND THE FACT THAT IT PROVIDED FOR THE ALLOCATION OF ADDITIONAL QUOTAS IN ORDER TO COMPENSATE FOR CAPACITY REDUCTIONS EFFECTED SINCE THE BEGINNING OF 1980 CLEARLY INDICATE THAT THE COMMISSION DID NOT SEEK TO FAVOUR CERTAIN UNDERTAKINGS OR CATEGORIES OF UNDERTAKING ; THAT VIEW IS , MOREOVER , CONFIRMED BY THE MANNER IN WHICH THE SYSTEM HAS BEEN APPLIED .
IN THE SECOND PLACE , WITH REGARD TO THE REQUIREMENT OF A RESTRUCTURING PLAN , IT MUST BE ACKNOWLEDGED THAT THE COMMISSION IS QUITE CORRECT , IN VIEW OF THE SERIOUSNESS OF THE CRISIS IN THE STEEL INDUSTRY AND OF THE MEASURES NEEDED TO OVERCOME IT , TO REGULATE THE PROCESS OF RESTRUCTURING BY A SERIES OF MEASURES OF WHICH THE QUOTA SYSTEM FORMS PART . CONSEQUENTLY , IT IS NOT ARBITRARY TO REQUIRE THAT THE CAPACITY REDUCTIONS CONFERRING THE RIGHT TO THE ALLOCATION OF ADDITIONAL QUOTAS SHOULD FORM A COHERENT WHOLE AND BE IN CONFORMITY WITH THE REQUIREMENTS LAID DOWN BY THE COMMISSION IN ITS DECISIONS CONCERNING AID TO THE STEEL INDUSTRY OR WITH A RESTRUCTURING PLAN WHICH WAS ADOPTED BY THE UNDERTAKING BUT WHICH IS COMPATIBLE WITH THE GENERAL RESTRUCTURING OBJECTIVES LAID DOWN BY THE COMMUNITY INSTITUTIONS .
FINALLY , THERE ARE NO GROUNDS FOR OBJECTING TO THE INCLUSION IN THE SYSTEM OF PRODUCTION QUOTAS OF CRITERIA WHICH FORM PART OF THE SYSTEM OF AID TO THE STEEL INDUSTRY , SINCE THE OBJECTIVE OF BOTH SYSTEMS , DESPITE THE DIFFERENCES IN THEIR LEGAL BASIS AND THE CRITERIA FOR THEIR APPLICATION , IS RESTRUCTURING . IT IS THEREFORE NEITHER ARBITRARY NOR DISCRIMINATORY IF FACTORS RESULTING FROM THE APPLICATION OF ONE OF THE SYSTEMS ARE USED AS A POINT OF REFERENCE IN THE OTHER .
Parties
IN JOINED CASES 211 AND 212/83 , 77 AND 78/84
( 1 ) KRUPP STAHL AG , WHOSE REGISTERED OFFICE IS AT BOCHUM , REPRESENTED BY K . PFEIFFER , K . H . BIEDENKOPF AND P . OSSENBACH , RECHTSANWALTE , COLOGNE , WITH AN ADDRESS FOR SERVICE IN LUXEMBOURG AT THE CHAMBERS OF J.-C . WOLTER ,
APPLICANT IN CASES 211/83 AND 78/84 ,
( 2)THYSSEN STAHL AG , WHOSE REGISTERED OFFICE IS AT DUISBURG , REPRESENTED BY DERINGER , TESSIN , HERRMANN AND SEDEMUND , RECHTSANWALTE , COLOGNE , WITH AN ADDRESS FOR SERVICE IN LUXEMBOURG AT THE CHAMBERS OF J . LOESCH ,
APPLICANT IN CASES 212/83 AND 77/84 ,
BOTH SUPPORTED BY :
FEDERAL REPUBLIC OF GERMANY , REPRESENTED BY M . SEIDEL , MINISTERIALRAT ( PRINCIPAL ) AT THE FEDERAL MINISTRY OF THE ECONOMY , BONN , ACTING AS AGENT , ASSISTED BY PROFESSOR M . ZULEEG , OF THE UNIVERSITY OF FRANKFURT , WITH AN ADDRESS FOR SERVICE IN LUXEMBOURG AT THE GERMAN EMBASSY ,
INTERVENER IN CASES 211 AND 212/83 , 77 AND 78/84 ,
V
COMMISSION OF THE EUROPEAN COMMUNITIES , REPRESENTED BY ITS LEGAL ADVISER , R . WAGENBAUR , ASSISTED BY PROFESSOR E . GRABITZ , OF THE UNIVERSITY OF BERLIN , WITH AN ADDRESS FOR SERVICE AT THE OFFICE OF G . KREMLIS , JEAN MONNET BUILDING , KIRCHBERG ,
DEFENDANT ,
Subject of the case
APPLICATIONS FOR THE PARTIAL ANNULMENT OF ARTICLE 14B OF GENERAL COMMISSION DECISION NO 2177/83/ECSC OF 28 JULY 1983 AND ARTICLE 14B OF GENERAL COMMISSION DECISION NO 234/84/ECSC OF 31 JANUARY 1984 , EACH OF WHICH EXTENDS THE SYSTEM OF PRODUCTION QUOTAS FOR CERTAIN PRODUCTS OF UNDERTAKINGS IN THE STEEL INDUSTRY ( OFFICIAL JOURNAL 1983 , L 208 , P . 1 , AND 1984 , L 29 , P . 1 ),
Grounds
1 BY APPLICATIONS LODGED AT THE COURT REGISTRY ON 20 SEPTEMBER 1983 ( CASE 211/83 ) AND 21 MARCH 1984 ( CASE 78/84 ) KRUPP STAHL AG , BOCHUM , BROUGHT TWO ACTIONS UNDER THE SECOND PARAGRAPH OF ARTICLE 33 OF THE ECSC TREATY FOR THE PARTIAL ANNULMENT OF ARTICLE 14B OF GENERAL COMMISSION DECISION NO 2177/83 OF 28 JULY 1983 ON THE EXTENSION OF THE SYSTEM OF MONITORING PRODUCTION QUOTAS FOR CERTAIN PRODUCTS OF UNDERTAKINGS IN THE STEEL INDUSTRY ( OFFICIAL JOURNAL 1983 , L 208 , P . 1 ), AS AMENDED BY GENERAL COMMISSION DECISION NO 3280/83 OF 8 NOVEMBER 1983 ( OFFICIAL JOURNAL 1983 , L 322 , P . 35 ), AND OF ARTICLE 14B OF GENERAL COMMISSION DECISION NO 234/84 OF 31 JANUARY 1984 ON THE EXTENSION OF THE SYSTEM OF MONITORING AND PRODUCTION QUOTAS FOR CERTAIN PRODUCTS OF UNDERTAKINGS IN THE STEEL INDUSTRY ( OFFICIAL JOURNAL 1984 , NO L 29 , P . 1 ).
2 BY APPLICATIONS LODGED AT THE COURT REGISTRY ON 20 SEPTEMBER 1983 ( CASE 212/84 ) AND 21 MARCH 1984 ( CASE 77/84 ) THYSSEN STAHL AG , DUISBURG , BROUGHT TWO ACTIONS UNDER THE FIRST AND SECOND PARAGRAPHS OF ARTICLE 33 OF THE ECSC TREATY FOR THE PARTIAL ANNULMENT OF ARTICLE 14B OF DECISION NO 2177/83 , AS AMENDED BY DECISION NO 3280/83 , AND ARTICLE 14B OF DECISION NO 234/84 .
3 BY ORDER OF 28 NOVEMBER 1984 THE COURT DECIDED TO JOIN THE FOUR CASES FOR THE PURPOSES OF THE ORAL PROCEDURE AND JUDGMENT BECAUSE THEY WERE CONNECTED . THE FEDERAL REPUBLIC OF GERMANY WAS ALLOWED TO INTERVENE IN ALL FOUR CASES IN SUPPORT OF THE APPLICANTS ' CONCLUSIONS .
A - THE SUBJECT-MATTER OF THE ACTIONS
4 THE SYSTEM OF PRODUCTION QUOTAS FOR STEEL PRODUCERS WAS ESTABLISHED IN 1980 , ON THE BASIS OF ARTICLE 58 OF THE ECSC TREATY , BY COMMISSION DECISION NO 2794/80 OF 31 OCTOBER 1980 ESTABLISHING A SYSTEM OF STEEL PRODUCTION QUOTAS FOR UNDERTAKINGS IN THE IRON AND STEEL INDUSTRY ( OFFICIAL JOURNAL 1980 , L 291 , P . 1 ). THAT SYSTEM WAS EXTENDED ON VARIOUS OCCASIONS , INTER ALIA , BY DECISIONS NOS 2177/83 AND 234/84 , WHICH ARE THE SUBJECT OF THESE ACTIONS . BOTH DECISIONS CONTAIN A PROVISION CONCERNING THE ALLOCATION OF ADDITIONAL QUOTAS TO UNDERTAKINGS WHICH HAVE CARRIED OUT A SUBSTANTIAL PROGRAMME FOR THE REDUCTION OF THEIR PRODUCTION CAPACITY SINCE 1 JANUARY 1980 .
5 ARTICLE 14 B OF DECISION NO 2177/83 AND ARTICLE 14B OF DECISION NO 234/84 DEAL WITH THE ALLOCATION OF ADDITIONAL QUOTAS . THE FORMER PROVISION , AS AMENDED BY DECISION NO 3280/83 , PROVIDES THAT THE COMMISSION :
' MAY ALLOCATE ADDITIONAL QUOTAS TO UNDERTAKINGS WHERE , UNDER A RESTRUCTURING PLAN SUBMITTED TO THE COMMISSION , THEY HAVE CARRIED OUT SINCE 1 JANUARY 1980 AT LEAST THREE-QUARTERS OF THE CAPACITY CLOSURES PROVIDED FOR IN THE UNDERTAKING ' S RESTRUCTURING PLAN AND THOSE DEMANDED , WHERE REQUIRED , BY THE COMMISSION IN ITS DECISIONS OF 29 JUNE 1983 CONCERNING AIDS TO THE STEEL INDUSTRY . '
IN ESSENCE ARTICLE 14 B OF DECISION NO 234/84 IS THE SAME AS THAT PROVISION EXCEPT THAT HENCEFORTH THE UNDERTAKING CONCERNED MUST , IN ORDER TO BE ELIGIBLE FOR THE ALLOCATION OF ADDITIONAL QUOTAS UNDER THAT PROVISION , HAVE CARRIED OUT , SINCE 1 JANUARY 1980 , AT LEAST 85% OF THE TOTAL CAPACITY REDUCTIONS PROVIDED FOR IN ITS RESTRUCTURING PLAN AND OF ANY REDUCTIONS REQUIRED BY THE COMMISSION IN ITS DECISIONS CONCERNING AID TO THE STEEL INDUSTRY .
6 THE DECISIONS OF 29 JUNE 1983 TO WHICH ARTICLE 14 B OF DECISION NO 2177/83 REFERS ARE THE NINE DECISIONS ADDRESSED TO THE BELGIAN , FRENCH , GERMAN , GREEK , IRISH , ITALIAN , LUXEMBOURG , NETHERLANDS AND UNITED KINGDOM GOVERNMENTS AUTHORIZING THE GRANT OF AID TOTALLING 21.9 THOUSAND MILLION ECU IN THE MEMBER STATES CONCERNED ( OFFICIAL JOURNAL 1983 , L 227 , P . 1 ET SEQ .). THE DECISIONS AT ISSUE WERE ADOPTED UNDER GENERAL COMMISSION DECISION NO 2320/81/ECSC OF 7 AUGUST 1981 ESTABLISHING COMMUNITY RULES FOR AIDS TO THE STEEL INDUSTRY ( OFFICIAL JOURNAL 1981 , L 228 , P . 14 ), HEREINAFTER REFERRED TO AS ' THE SECOND AIDS CODE ' .
7 THE APPLICANTS DO NOT DISPUTE THAT ADDITIONAL QUOTAS MAY BE ALLOCATED TO CERTAIN STEEL PRODUCERS IN CONSIDERATION OF THEIR EFFORTS TO REDUCE THEIR PRODUCTION CAPACITY . NEVERTHELESS , THEY CONSIDER THAT THE CONDITIONS TO WHICH THE COMMISSION HAS SUBJECTED THE ALLOCATION OF THOSE ADDITIONAL QUOTAS WERE FIXED SO AS TO FAVOUR UNDERTAKINGS WHICH DELAYED THEIR RESTRUCTURING AND SO AS TO PREJUDICE PRODUCERS SUCH AS KRUPP AND THYSSEN WHO ADOPTED RESTRUCTURING MEASURES AS SOON AS THE CRISIS IN THE STEEL INDUSTRY AROSE IN 1974 .
8 THYSSEN SEEKS THE ANNULMENT OF THE TWO PROVISIONS AT ISSUE IN SO FAR AS THEY SUBJECT THE ALLOCATION OF ADDITIONAL QUOTAS TO CONDITIONS WHICH DO NOT ALLOW FOR REDUCTIONS IN PRODUCTION CAPACITY EFFECTED BEFORE 1980 . KRUPP SEEKS THEIR ANNULMENT IN SO FAR AS THEIR EFFECT IS TO RESERVE THE ALLOCATION OF ADDITIONAL QUOTAS TO UNDERTAKINGS WHICH HAVE CARRIED OUT SINCE 1 JANUARY 1980 A GIVEN PERCENTAGE ( 75% AND 85% , RESPECTIVELY ) OF THE REDUCTIONS IN PRODUCTION CAPACITY LAID DOWN IN A RESTRUCTURING PLAN AND IN SO FAR AS THEY SUBJECT THE ALLOCATION OF THOSE QUOTAS TO THE REQUIREMENT THAT THE UNDERTAKINGS HAVE CARRIED OUT A GIVEN PERCENTAGE OF THE CAPACITY REDUCTIONS REQUIRED BY THE COMMISSION IN ITS DECISIONS CONCERNING AID TO THE STEEL INDUSTRY .
9 BOTH APPLICANTS RELY ON THE SECOND PARAGRAPH OF ARTICLE 33 OF THE ECSC TREATY , WHICH ENABLES UNDERTAKINGS TO INSTITUTE PROCEEDINGS AGAINST GENERAL DECISIONS WHICH THEY CONSIDER INVOLVE A MISUSE OF POWERS AFFECTING THEM . IN THIS CASE THE MISUSE OF POWERS ARISES , ACCORDING TO THE APPLICANTS AND THE INTERVENER , FROM THE ARBITRARY AND DISCRIMINATORY NATURE OF THREE ELEMENTS OF THE CONTESTED PROVISIONS , NAMELY :
THE REFERENCE TO 1 JANUARY 1980 ;
THE REFERENCE TO A RESTRUCTURING PLAN ;
THE REFERENCE TO THE DECISIONS CONCERNING AID TO THE STEEL INDUSTRY .
THE PURPOSE OR EFFECT OF THOSE THREE ELEMENTS IS , THEY CONTEND , TO FAVOUR THOSE UNDERTAKINGS WHICH WERE ABLE TO DELAY THE REDUCTION OF THEIR PRODUCTION CAPACITY BECAUSE THEY RECEIVED PUBLIC SUBSIDIES OF QUESTIONABLE LEGALITY .
10 THYSSEN ALSO BASES ITS APPLICATIONS ON THE FIRST AND SECOND PARAGRAPHS OF ARTICLE 33 AND ARGUES THAT THE DECISIONS AT ISSUE CONSTITUTE INDIVIDUAL DECISIONS CONCERNING IT , SINCE THE REFERENCE DATE CHOSEN PERMITTED THE IDENTIFICATION OF A GIVEN NUMBER OF UNDERTAKINGS , KNOWN TO THE COMMISSION , WHICH WOULD BE RECIPIENTS OF ADDITIONAL QUOTAS . THYSSEN CLAIMS THAT IT MAY THEREFORE RELY ON GROUNDS OTHER THAN MISUSE OF POWERS ; THUS IT MAINTAINS THAT INSUFFICIENT REASONS WERE GIVEN FOR THE DECISIONS AND THAT THEY WERE UNLAWFUL BECAUSE THEY INFRINGED ESSENTIAL PROCEDURAL REQUIREMENTS .
11 THE COMMISSION CONTENDS THAT THE APPLICATIONS ARE INADMISSIBLE IN SO FAR AS THEY ARE BASED ON BREACH OF ESSENTIAL PROCEDURAL REQUIREMENTS , SINCE THE DECISIONS IN QUESTION ARE GENERAL DECISIONS AND DO NOT CONSTITUTE INDIVIDUAL DECISIONS CONCERNING THYSSEN ; FOR THE REST IT CONSIDERS THEM UNFOUNDED . IN ADDITION , THE COMMISSION OBSERVES THAT A PARTIAL ANNULMENT OF THE TWO PROVISIONS , AS SOUGHT BY THE APPLICANTS , WOULD IN FACT AMOUNT TO A TOTAL ANNULMENT THEREOF , SINCE IT IS DIFFICULT OR EVEN IMPOSSIBLE TO DETERMINE WHICH PARTS WOULD REMAIN AFTER A PARTIAL ANNULMENT .
B - THE REFERENCE DATE
12 THE APPLICANTS AND THE GERMAN GOVERNMENT MAINTAIN FIRST OF ALL THAT THE CHOICE OF 1 JANUARY 1980 AS THE REFERENCE DATE IS ARBITRARY SINCE THE NEED FOR RADICAL RESTRUCTURING OF THE STEEL SECTOR BECAME APPARENT LONG BEFORE THAT DATE . AS EARLY AS 1977 THE COMMISSION ITSELF ANNOUNCED INITIATIVES FOR THE ELIMINATION OF THE SURPLUS PRODUCTION CAPACITY EXISTING WITHIN THE COMMUNITY . THE SYSTEM OF ADDITIONAL QUOTAS COULD THEREFORE ONLY HAVE CONTRIBUTED EFFECTIVELY TO THE EFFORTS TO ALLEVIATE THE CRISIS IF THE REFERENCE DATE HAD BEEN FIXED AT 1 JANUARY 1978 . THIS WOULD HAVE HAD THE EFFECT OF MAKING THE ALLOCATION OF ADDITIONAL QUOTAS A JUST RECOMPENSE FOR THOSE UNDERTAKINGS WHICH , IN ACCORDANCE WITH THE OBJECTIVES LAID DOWN BY THE COMMISSION , RESPONDED TO THE STEEL CRISIS IN GOOD TIME AND REDUCED THEIR PRODUCTION CAPACITY AS SOON AS THE NEED TO DO SO BECAME APPARENT .
13 THE APPLICANTS AND THE GERMAN GOVERNMENT CONTEND SECONDLY THAT THE CHOICE OF 1 JANUARY 1980 IS DISCRIMINATORY . THEY STATE THAT BEFORE 1980 THE APPLICANTS ENDEAVOURED TO REDUCE THEIR SURPLUS CAPACITY BY THEIR OWN MEANS WHEREAS OTHER STEEL PRODUCERS , ESPECIALLY THOSE ESTABLISHED IN BELGIUM , FRANCE , ITALY AND THE UNITED KINGDOM , MAINTAINED UNPROFITABLE OR EVEN OBSOLETE PLANT , OFTEN WITH THE HELP OF PUBLIC SUBSIDIES . AS A RESULT OF THE CHOICE OF REFERENCE DATE , THE CONTESTED PROVISIONS MAKE IT IMPOSSIBLE FOR RESTRUCTURING MEASURES EFFECTED BEFORE 1 JANUARY 1980 TO BE TAKEN INTO ACCOUNT ; THEIR EFFECT , THEREFORE , IS TO BENEFIT UNDERTAKINGS WHICH DELAYED THEIR CAPACITY REDUCTIONS AT THE EXPENSE OF UNDERTAKINGS WHICH CONTRIBUTED IN GOOD TIME TO THE RESOLUTION OF THE STEEL CRISIS .
14 THE COMMISSION CONSIDERS THAT THE APPLICANTS AND THE GERMAN GOVERNMENT HAVE GRASPED NEITHER THE FUNCTION OF THE CONTESTED PROVISIONS WITHIN THE FRAMEWORK OF THE RESTRUCTURING POLICY NOR THE SCOPE OF THE CRITERIA GOVERNING THE IMPLEMENTATION OF THE SYSTEM OF ADDITIONAL QUOTAS . IT OBSERVES THAT THE RESTRUCTURING MEASURES CARRIED OUT BEFORE 1980 HAD ALREADY BEEN TAKEN INTO ACCOUNT AT THE TIME OF THE ESTABLISHMENT OF THE PRODUCTION QUOTA SYSTEM IN 1980 BY GENERAL DECISION NO 2794/80 ; ARTICLE 4 OF THAT DECISION CONTAINS , IN PARAGRAPHS ( 4 ) AND ( 5 ), SPECIFIC PROVISIONS RELATING TO THE ADJUSTMENT OF THE REFERENCE PRODUCTION FIGURES IN THE LIGHT OF RESTRUCTURING MEASURES ALREADY CARRIED OUT . SINCE PRODUCTION QUOTAS WERE CALCULATED ON THE BASIS OF THE REFERENCE PRODUCTION FIGURES OF EACH UNDERTAKING BY THE APPLICATION TO THOSE FIGURES OF ABATEMENT RATES , THE BENEFIT OF AN INCREASE IN THE REFERENCE PRODUCTION FIGURES WAS PASSED ON IN THE CALCULATION OF PRODUCTION QUOTAS UNDER SUBSEQUENT DECISIONS WHICH EXTENDED THE QUOTA SYSTEM , SUCH AS THE DECISIONS AT ISSUE . CONSEQUENTLY , IT WAS NECESSARY TO SELECT 1 JANUARY 1980 AS THE REFERENCE DATE IN ORDER TO PREVENT CLOSURES CARRIED OUT BEFORE 1980 FROM BEING RECOMPENSED A SECOND TIME BY AN INCREASE IN THE QUOTA AND TO PREVENT THE CREATION OF INEQUALITIES IN THAT MANNER .
15 THE COMMISSION ADDS THAT A FURTHER REASON FOR CHOOSING 1 JANUARY 1980 WAS THAT IN 1980 THE QUOTA SYSTEM WAS ESTABLISHED AND THE FIRST AIDS CODE INTRODUCED , AND THAT , IN THAT CONTEXT , THE ' GENERAL OBJECTIVES FOR STEEL ' WERE LAID DOWN FOR THE PERIOD FROM 1980 TO 1985 . IT WAS STATED IN THOSE OBJECTIVES THAT THE SURPLUS CAPACITY IN HOT-ROLLED PRODUCTS IN THE COMMUNITY WOULD , IN THE ABSENCE OF RADICAL RESTRUCTURING MEASURES , AMOUNT TO APPROXIMATELY 47.9 MILLION TONNES IN 1985 ON THE BASIS OF PRODUCTION CAPACITY IN 1980 . IN SUCH CIRCUMSTANCES THE COMMISSION CONSIDERED ITSELF OBLIGED IN 1983 TO PROVIDE FURTHER INDUCEMENT FOR RAPID RESTRUCTURING . SINCE THAT WAS TO OCCUR WITHIN THE FRAMEWORK OF THE OBJECTIVES FOR 1980 TO 1985 THE CHOICE OF 1 JANUARY 1980 AS THE REFERENCE DATE WAS COMPLETELY LOGICAL .
16 THE COURT CONSIDERS FIRST OF ALL THAT IT IS CLEAR FROM THE EXPLANATIONS GIVEN BY THE COMMISSION THAT THE CHOICE OF THE REFERENCE DATE FOR THE ALLOCATION OF ADDITIONAL QUOTAS WAS NOT ARBITRARY ; IT FORMS PART OF A SET OF RULES COMPRISING SEVERAL ELEMENTS , RELATING IN PARTICULAR TO THE LIMITATION OF PRODUCTION AND THE REDUCTION OF PRODUCTION CAPACITY IN THE STEEL SECTOR , AND IT IS IN HARMONY WITH THE OTHER ELEMENTS OF THOSE RULES , WHICH THEMSELVES FORM PART OF THE STEEL POLICY GRADUALLY DEVELOPED BY THE COMMISSION AND THE COUNCIL .
17 IT MUST ALSO BE STATED THAT THE COMMISSION ENDEAVOURED TO TAKE ACCOUNT OF RESTRUCTURING CARRIED OUT BEFORE 1980 BY INCORPORATING WITHIN THE QUOTA SYSTEM ESTABLISHED IN 1980 A METHOD OF ADJUSTING THE REFERENCE PRODUCTION FIGURES ; THE QUESTION WHETHER OR NOT THAT METHOD IS ADEQUATE IS NOT AT ISSUE IN THESE PROCEEDINGS . THE FACT THAT THE COMMISSION THEREBY MADE IT POSSIBLE TO INCREASE THE REFERENCE PRODUCTION FIGURES IN ORDER TO TAKE ACCOUNT OF RESTRUCTURING COMPLETED BEFORE 1980 AND THE FACT THAT IT PROVIDED FOR THE ALLOCATION OF ADDITIONAL QUOTAS IN ORDER TO COMPENSATE FOR CAPACITY REDUCTIONS EFFECTED SINCE THE BEGINNING OF 1980 CLEARLY INDICATE THAT THE COMMISSION DID NOT SEEK TO FAVOUR CERTAIN UNDERTAKINGS OR CATEGORIES OF UNDERTAKING . CONSEQUENTLY , THE COURT ' S INVESTIGATION MUST BE LIMITED TO THE QUESTION WHETHER THE SYSTEM ESTABLISHED NEVERTHELESS HAD DISCRIMINATORY EFFECTS .
18 IN THAT CONNECTION IT MUST BE EMPHASIZED INITIALLY THAT THE APPLICANTS HAVE RELIED THROUGHOUT THE PROCEEDINGS ON A COMPARISON BETWEEN , ON THE ONE HAND , UNDERTAKINGS - SUCH AS THE APPLICANTS - WHICH CARRIED OUT THE NECESSARY CLOSURES OF UNPROFITABLE PLANT IN GOOD TIME WITHOUT BENEFITING FROM PUBLIC AID AND , ON THE OTHER , UNDERTAKINGS - IN MEMBER STATES OTHER THAN THE FEDERAL REPUBLIC OF GERMANY - WHICH SURVIVED ONLY BY VIRTUE OF SUBSIDIES WITHOUT SHOWING ANY CONCERN FOR RESTRUCTURING UNTIL THEY WERE COMPELLED TO DO SO BY THE COMMISSION . HOWEVER , SUCH A CLASSIFICATION OF STEEL UNDERTAKINGS DOES NOT CORRESPOND TO THE FACTS : SOME STEEL UNDERTAKINGS IN RECEIPT OF SUBSTANTIAL SUBSIDIES CLOSED SOME OF THEIR PLANT OR FACTORIES VERY QUICKLY , WHILST OTHERS NEITHER RECEIVED ANY AID NOR REDUCED THEIR CAPACITY . IN ADDITION , THE CLASSIFICATION INTO TWO CATEGORIES IS INAPPOSITE SINCE IT OVERLOOKS THE DIFFERENCES BETWEEN INDIVIDUAL UNDERTAKINGS , WHETHER SUBSIDIZED OR NOT , IN PARTICULAR FROM THE POINT OF VIEW OF THE EFFECT OF RESTRUCTURING ON EMPLOYMENT , ON TECHNICAL MODERNIZATION AND ON THE REGIONAL ECONOMY .
19 THAT BEING SO , THE COMPLAINT OF DISCRIMINATORY TREATMENT MIGHT BE JUSTIFIED ONLY IF IT WERE APPARENT FROM THE DOCUMENTS BEFORE THE COURT THAT THERE WAS A CLEAR DIFFERENCE BETWEEN THE QUOTAS ALLOCATED TO THE APPLICANTS AND THOSE ALLOCATED TO OTHER COMPARABLE UNDERTAKINGS WHICH HAD NOT CARRIED OUT RESTRUCTURING BEFORE 1980 AND IF THAT DIFFERENCE WERE CAUSED BY THE OPERATION OF THE CONTESTED PROVISIONS . NEITHER THE WRITTEN NOR THE ORAL EVIDENCE BEFORE THE COURT PERMIT SUCH A CONCLUSION . INSTEAD IT APPEARS THAT IN 1983 AND 1984 ADDITIONAL QUOTAS BASED ON THE PROVISIONS AT ISSUE WERE ALLOCATED TO A BRITISH UNDERTAKING , THE BRITISH STEEL CORPORATION , TO FIVE GERMAN UNDERTAKINGS , NAMELY HOESCH , KRUPP , PEINE-SALZGITTER , KLOCKNER AND MAXHUTTE , AND TO AN ITALIAN UNDERTAKING , ITALSIDER ; THE APPLICANTS ' ALLEGATIONS ARE THEREFORE NOT SUPPORTED BY THE FACTS .
20 IT FOLLOWS FROM THE FOREGOING CONSIDERATIONS THAT THE COMPLAINT THAT THE REFERENCE DATE IS ARBITRARY AND DISCRIMINATORY MUST BE REJECTED .
C - THE RESTRUCTURING PLAN
21 ACCORDING TO THE APPLICANTS AND THE GERMAN GOVERNMENT , IT IS ARBITRARY TO SUBJECT THE ALLOCATION OF ADDITIONAL QUOTAS TO A REQUIREMENT THAT THE CAPACITY REDUCTIONS MUST BE EFFECTED WITHIN THE FRAMEWORK OF A RESTRUCTURING PLAN APPROVED BY THE COMMISSION . IN THEIR VIEW PLANT CLOSURES EFFECTED OUTSIDE SUCH PLANS ALSO CONTRIBUTED TO AN EQUAL EXTENT TO THE INTENDED RADICAL RESTRUCTURING OF THE STEEL INDUSTRY .
22 THEY MAINTAIN FURTHER THAT THE REQUIREMENT THAT UNDERTAKINGS SHOULD POSSESS A RESTRUCTURING PLAN HAS A DISCRIMINATORY EFFECT , SINCE SUCH PLANS WERE DRAWN UP SOLELY IN ORDER TO RECEIVE AID ON THE BASIS OF THE FIRST AND SECOND AIDS CODES . AS IT WAS NOT NECESSARY FOR THE APPLICANTS TO REQUEST SUCH AID UNTIL 1983 , THEY HAD NO RESTRUCTURING PLAN AT THE TIME OF THE ADOPTION OF THE CONTESTED PROVISIONS AND WERE THEREFORE AUTOMATICALLY EXCLUDED FROM THE BENEFIT THEREOF .
23 THE COMMISSION REPLIES THAT THE USE OF THE TERM ' RESTRUCTURING PLAN ' IN THE TWO CONTESTED PROVISIONS DOES NOT IMPLY THAT THE UNDERTAKING IN QUESTION MUST HAVE DRAWN UP A RESTRUCTURING PLAN WITHIN THE MEANING OF THE AIDS CODES . A RESTRUCTURING PLAN WITHIN THE MEANING OF THE CONTESTED PROVISIONS EXISTS WHENEVER AN UNDERTAKING IS IN A POSITION TO PRODUCE DOCUMENTS SHOWING THAT THE NECESSARY REDUCTIONS HAVE BEEN EFFECTED . SUCH A CONCLUSION FOLLOWS CLEARLY FROM ARTICLE 14 B ( 2 ) OF DECISION NO 2177/83 AND ARTICLE 14 B ( 2 ) OF DECISION NO 234/84 , ACCORDING TO WHICH THE UNDERTAKING CONCERNED MUST ATTACH ' SUPPORTING DOCUMENTS ' TO ITS APPLICATION FOR THE ALLOCATION OF ADDITIONAL QUOTAS .
24 IN REPLY TO A QUESTION PUT BY THE COURT REQUESTING AN EXPLANATION OF WHAT WOULD CONSTITUTE A ' RESTRUCTURING PLAN ' IN THE CASE OF AN UNDERTAKING WHICH EFFECTED CAPACITY REDUCTIONS BEFORE 1 JANUARY 1980 AND WHICH HAS NOT RECEIVED ANY AID , THE COMMISSION STATED THAT SUCH AN UNDERTAKING MUST SUBMIT A PLAN SHOWING THAT THE UNDERTAKING IS PREPARED TO CONTRIBUTE TO THE ACHIEVEMENT OF THE GENERAL STEEL OBJECTIVES FOR THE PERIOD FROM 1980 TO 1985 BY NET REDUCTIONS IN ITS PRODUCTION CAPACITY .
25 THE COURT CONSIDERS FIRST OF ALL THAT THE COMMISSION IS QUITE CORRECT , IN VIEW OF THE SERIOUSNESS OF THE CRISIS IN THE STEEL INDUSTRY AND OF THE MEASURES NEEDED TO OVERCOME IT , TO REGULATE THE PROCESS OF RESTRUCTURING BY A SERIES OF MEASURES OF WHICH THE QUOTA SYSTEM FORMS PART . IT IS NOT ARBITRARY TO REQUIRE , WITHIN THAT CONTEXT , THAT THE CAPACITY REDUCTIONS CONFERRING THE RIGHT TO THE ALLOCATION OF ADDITIONAL QUOTAS SHOULD FORM A COHERENT WHOLE AND BE IN CONFORMITY WITH A RE STRUCTURING PLAN DRAWN UP BY THE UNDERTAKING WHICH IS COMPATIBLE WITH THE GENERAL RESTRUCTURING OBJECTIVES LAID DOWN BY THE COMMUNITY INSTITUTIONS .
26 IN ADDITION , IT FOLLOWS FROM THE WORDING OF THE PROVISIONS AT ISSUE THAT THE RESTRUCTURING PLAN REQUIRED FOR THE ALLOCATION OF ADDITIONAL QUOTAS NEED NOT NECESSARILY BE THE SAME AS THAT REFERRED TO IN THE AIDS CODES . THE PROVISIONS IN FACT MAKE IT CLEAR THAT THE CAPACITY REDUCTIONS MUST EITHER BE PROVIDED FOR IN THE UNDERTAKING ' S RESTRUCTURING PLAN OR BE REQUIRED BY THE COMMISSION IN ITS DECISIONS CONCERNING AID TO THE STEEL INDUSTRY .
27 CONSEQUENTLY , IT HAS NOT BEEN ESTABLISHED THAT THE REFERENCE TO A RESTRUCTURING PLAN IS ARBITRARY OR DISCRIMINATORY .
D - THE LINK WITH THE DECISIONS CONCERNING AID
28 IT MUST BE STATED AS A PRELIMINARY POINT THAT THE APPLICANTS HAVE EXPRESSED DOUBTS WITH REGARD TO THE LEGALITY OF THE COMMISSION ' S POLICY ON AID TO THE STEEL INDUSTRY . THEY MAINTAIN THAT BY ITS DECISIONS IN THAT AREA THE COMMISSION HAS INFRINGED ARTICLE 4 OF THE ECSC TREATY AND HAS CREATED UNCERTAINTY WITH REGARD TO THE CAPACITY REDUCTIONS IMPOSED ON INDIVIDUAL UNDERTAKINGS . HOWEVER , THESE PROCEEDINGS DO NOT RELATE TO THE LEGALITY OF THE COMMISSION ' S DECISIONS CONCERNING AID BUT TO THE REFERENCE MADE TO THOSE DECISIONS IN ARTICLE 14 B OF DECISION NO 2177/83 , AS AMENDED BY DECISION NO 3280/83 , AND ARTICLE 14 B OF DECISION NO 234/84 .
29 IN THAT CONNECTION THE APPLICANTS AND THE GERMAN GOVERNMENT CONTEND THAT THE RULES ON AID AND THE QUOTA SYSTEM PURSUE DIFFERENT OBJECTIVES AND THAT THE ALLOCATION OF QUOTAS CANNOT THEREFORE DEPEND ON RECEIPT OF PUBLIC SUBSIDIES . THE COMMISSION IS ABLE TO AUTHORIZE AID ON THE BASIS OF CRITERIA WHICH ARE ENTIRELY DIFFERENT FROM THOSE WHICH MAY BE USED WITHIN THE FRAMEWORK OF THE QUOTA SYSTEM . CONSEQUENTLY , THE INCORPORATION OF THE TERMS OF THE AID DECISIONS IN THE OPERATION OF THE QUOTA SYSTEM CAN ONLY HAVE BEEN INTENDED , THEY CONTEND , TO FAVOUR SUBSIDIZED UNDERTAKINGS .
30 TO ILLUSTRATE THAT POINT , KRUPP POINTS OUT THAT , WHILST THE COMMISSION REJECTED ITS APPLICATION FOR THE ALLOCATION OF ADDITIONAL QUOTAS IN 1983 ON THE GROUND THAT ITS RESTRUCTURING PLAN WAS INADEQUATE , IT OBTAINED THE ALLOCATION IN QUESTION WHEN IT DECIDED TO APPLY FOR THE GRANT OF AID .
31 THE COMMISSION FIRST OF ALL DEFENDS ITS AID POLICY AND THEN STATES THAT NEITHER THE APPLICANTS NOR GERMAN UNDERTAKINGS IN GENERAL SUFFERED DISCRIMINATION AS A RESULT OF THE DISTRIBUTION OF THE BURDEN OF RESTRUCTURING WITHIN THE FRAMEWORK OF THE AID SCHEME .
32 WITH REGARD TO THE CASE REFERRED TO BY KRUPP , THE COMMISSION OBSERVES THAT THE INITIAL APPLICATION FOR THE ALLOCATION OF ADDITIONAL QUOTAS WAS REJECTED BECAUSE THE VOLUME OF THE PROPOSED REDUCTION IN PRODUCTION CAPACITY WAS INSUFFICIENT WHEREAS SUBSEQUENTLY , IN THE CONTEXT OF THE AID RULES , THE COMMISSION WAS ABLE TO REQUIRE A MORE SUBSTANTIAL REDUCTION . IN THE COMMISSION ' S VIEW , THE CASE IN FACT DEMONSTRATES THE RELEVANCE OF THE REFERENCE TO THE DECISIONS CONCERNING AID IN THE PROVISIONS AT ISSUE .
33 THE COMPLAINT OF THE APPLICANTS AND THE GERMAN GOVERNMENT CONCERNS THE INTRODUCTION INTO THE QUOTA SYSTEM OF CRITERIA WHICH FORM PART OF A DIFFERENT SET OF RULES , NAMELY THE RULES ON AID . HOWEVER , THE COURT POINTS OUT THAT AID TO THE STEEL INDUSTRY IS PROVIDED FOR BY THE AIDS CODES ONLY IN SO FAR AS SUCH AID IS ESSENTIAL FOR THE SURVIVAL OF THE INDUSTRY AND IN SO FAR AS ITS PURPOSE IS TO CONTRIBUTE TO THE RESTRUCTURING OF THE INDUSTRY . WITH REGARD TO THE QUOTA SYSTEM , ALTHOUGH IT WAS ESTABLISHED IN 1980 AS A TEMPORARY CRISIS MEASURE , THE EFFECT OF THE INTENSIFICATION OF THAT CRISIS AND DEVELOPMENTS IN THE COMMUNITY STEEL POLICY WAS TO SUBORDINATE THE CONTINUATION OF THAT SYSTEM TO RESTRUCTURING EFFORTS . THAT IS PARTICULARLY TRUE OF THE CONTESTED PROVISIONS , SINCE THEY ARE INTENDED TO ENCOURAGE UNDERTAKINGS TO EFFECT CAPACITY REDUCTIONS .
34 CONSEQUENTLY , DESPITE THE DIFFERENCES IN THEIR LEGAL BASIS AND THE CRITERIA FOR THEIR APPLICATION , THE OBJECTIVE OF BOTH SYSTEMS IS RESTRUCTURING . IT IS THEREFORE NEITHER ARBITRARY NOR DISCRIMINATORY IF FACTORS RESULTING FROM THE APPLICATION OF ONE OF THE SYSTEMS ARE USED AS A POINT OF REFERENCE IN THE OTHER .
35 IT MUST THEREFORE BE CONCLUDED THAT THE FACT THAT THE TWO PROVISIONS AT ISSUE REFER , IN ORDER TO DEFINE THE NECESSARY RESTRUCTURING ENDEAVOURS , TO THE COMMISSION ' S DECISIONS CONCERNING AID TO THE STEEL INDUSTRY DOES NOT CONSTITUTE A MISUSE OF POWERS WITHIN THE MEANING OF ARTICLE 33 OF THE ECSC TREATY .
E - CONCLUSIONS
36 IT FOLLOWS FROM THE FOREGOING CONSIDERATIONS THAT THE COMPLAINT OF A MISUSE OF POWERS MUST BE DISMISSED .
37 IT ALSO FOLLOWS FROM THOSE CONSIDERATIONS THAT THE CHOICE OF 1 JANUARY 1980 AS THE REFERENCE DATE IN THE PROVISIONS AT ISSUE HAS NEITHER THE PURPOSE NOR THE EFFECT OF IDENTIFYING A GIVEN NUMBER OF UNDERTAKINGS , KNOWN TO THE COMMISSION , WHICH WOULD BE RECIPIENTS OF ADDITIONAL QUOTAS . THYSSEN ' S ARGUMENT THAT THE TWO GENERAL DECISIONS AT ISSUE MUST BE REGARDED AS INDIVIDUAL DECISIONS CONCERNING IT CANNOT THEREFORE BE ACCEPTED .
38 CONSEQUENTLY , THE COMPLAINTS BASED ON THE FIRST PARAGRAPH OF ARTICLE 33 OF THE ECSC TREATY , THAT IS TO SAY THOSE CONCERNING THE INFRINGEMENT OF ESSENTIAL PROCEDURAL REQUIREMENTS , CANNOT BE EXAMINED BY THE COURT .
39 FOR ALL THOSE REASONS THE APPLICATIONS MUST BE DISMISSED IN THEIR ENTIRETY .
Decision on costs
COSTS
40 ACCCORDING TO ARTICLE 69 ( 2 ) OF THE RULES OF PROCEDURE , THE UNSUCCESSFUL PARTY IS TO BE ORDERED TO PAY THE COSTS . SINCE THE APPLICANTS HAVE FAILED IN THEIR SUBMISSIONS , THEY MUST BE ORDERED TO PAY THE COSTS . THE INTERVENER MUST BEAR ITS OWN COSTS .
Operative part
ON THOSE GROUNDS ,
THE COURT
HEREBY :
( 1 ) DISMISSES THE APPLICATIONS ;
( 2)ORDERS THE APPLICANTS TO PAY THE COSTS EXCEPT THOSE OF THE INTERVENER , WHICH MUST BE BORNE BY THE LATTER . | 6 |
FIRST SECTION
CASE OF CLUCHER v. ITALY
(Application no. 36268/97)
JUDGMENT
STRASBOURG
17 April 2003
FINAL
24/09/2003
This judgment will become final in the circumstances set out in Article 44 § 2 of the Convention. It may be subject to editorial revision.
In the case of Clucher v. Italy,
The European Court of Human Rights (First Section), sitting as a Chamber composed of:
MrC.L. Rozakis, President,MrsF. Tulkens,MrP. Lorenzen,MrsN. Vajić,MrE. Levits,MrA. Kovler, judges,MrsM. del Tufo, ad hoc judge,and Mr S. nielsen, Deputy Section Registrar,
Having deliberated in private on 27 March 2003,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 36268/97) against the Italian Republic lodged with the European Commission of Human Rights (“the Commission”) under former Article 25 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by three Italian nationals, Mr Pier Luigi Clucher, Mr Gian Guido Clucher and Mrs Loredana Clucher (“the applicants”), on 1 August 1996.
2. The applicants were represented by Mr B. Tempesta, a lawyer practising in Rome. The Italian Government (“the Government”) were represented by their Agent, Mr U. Leanza, and by their successive co‑agents, respectively Mr V. Esposito an Mr F. Crisafulli.
3. The applicants complained under Article 1 of Protocol No. 1 that they had been unable to recover possession of their flat within a reasonable time. Invoking Article 6 § 1 of the Convention, they further complained about the length of the eviction proceedings.
4. The application was transmitted to the Court on 1 November 1998, when Protocol No. 11 to the Convention came into force (Article 5 § 2 of Protocol No. 11).
5. The application was allocated to the Second Section of the Court (Rule 52 § 1 of the Rules of Court). Within that Section, the Chamber that would consider the case (Article 27 § 1 of the Convention) was constituted as provided in Rule 26 § 1 of the Rules of Court. Mr V. Zagrebelsky, the judge elected in respect of Italy, withdrew from sitting in the case. The Government appointed Ms M. del Tufo as ad hoc judge to sit in his place (Article 27 § 2 of the Convention and Rule 29 § 2).
6. On 4 October 2001 the Court declared the application admissible.
7. On 1 November 2001 the Court changed the composition of its Sections (Rule 25 § 1). This case was assigned to the newly composed First Section.
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
8. The applicants were born in 1954, 1956 and 1952 respectively and live in Rome.
9. The applicants are the owners of a flat in Rome, which they had let to G.D.
10. In a writ served on the tenant on 19 May 1984, the applicants communicated their intention to terminate the lease and summoned the tenant to appear before the Rome Magistrate.
11. By a decision of 15 October 1984, which was made enforceable on the same day, the Rome Magistrate upheld the validity of the notice to quit and ordered that the premises must be vacated by 31 May 1987.
12. On 17 June 1987, the applicants served notice on the tenant requiring her to vacate the premises.
13. On 30 July 1987, they served notice on the tenant informing her that the order for possession would be enforced by a bailiff on 14 September 1987.
14. Between 14 September 1987 and 29 February 2000, the bailiff made thirty attempts to recover possession.
15. Each attempt proved unsuccessful as, under the statutory provisions providing for the suspension or the staggering of evictions, the applicants were not entitled to police assistance in enforcing the order for possession.
16. On 3 July 2000, the applicants recovered possession of their flat.
II. RELEVANT DOMESTIC LAW
17. The relevant domestic law is described in the Court’s judgment in the case of Immobiliare Saffi v. Italy [GC], no. 22774/93, §§ 18-35, ECHR 1999-V.
THE LAW
I.ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL No. 1 AND ARTICLE 6 § 1 OF THE CONVENTION
18. The applicants complained that they had been unable to recover possession of their flat within a reasonable time owing to the lack of police assistance. They alleged a violation of Article 1 of Protocol No. 1 to the Convention, which provides:
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”
19. The applicants also alleged a breach of Article 6 § 1 of the Convention, the relevant part of which provides:
“In the determination of his civil rights and obligations ..., everyone is entitled to a ... hearing within a reasonable time by [a] ... tribunal...”
20. The Court has on several previous occasions decided cases raising similar issues as in the present case and found a violation of Article 1 of Protocol No. 1 and Article 6 § 1 of the Convention (see Immobiliare Saffi, cited above, §§ 46-66; Lunari v. Italy, no. 21463/93, 11 January 2001, §§ 34-46; Palumbo v. Italy, no. 15919/89, 30 November 2000, §§ 33-47).
21. The Court has examined the present case and finds that there are no facts or arguments from the Government, which would lead to any different conclusion in this case. The Court refers to its detailed reasons in the judgments cited above and notes that in this case the applicants had to wait for approximately thirteen years after the first attempt of the bailiff before repossessing the flat.
22. Consequently, there has been a violation of Article 1 of Protocol No. 1 and of Article 6 § 1 of the Convention in the present case.
II. APPLICATION OF ARTICLE 41 OF THE CONVENTION
23. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
A. Pecuniary damage
24. The applicants sought reparation for the pecuniary damage they had sustained, which they put at 78,006,483 Italian lire (ITL) [40,286.99 euros (EUR)], being the loss of rent for the period from 1 January 1994, under the legislation relaxing restrictions on rent levels, to 30 June 2000, and 3,194,764 ITL [1,649.96 EUR] for the costs of executing the possession order.
25. The Government stressed that the applicants had failed to adduce evidence of the pecuniary damage sustained as a result of the alleged violation. As regards the costs incurred in the domestic proceedings, the Government argued that the costs of the proceedings on the merits were not related to the alleged violations and that the costs incurred during the enforcement stage were due only for the period that was regarded as being a disproportionate interference with the applicants’ right of property.
26. The Court considers that the applicants must be awarded compensation for the pecuniary damage resulting from the loss of rent (see Immobiliare Saffi cited above, § 79). Having regard to the means of calculation proposed by the applicants, the Court, in the light of the evidence before it and the period concerned, decides to award on an equitable basis EUR 40,000. As regards the costs of the enforcement proceedings, the Court considers that they must be reimbursed in part (see the Scollo v. Italy judgment of 28 September 1995, Series A no. 315-C, p. 56, § 50). Accordingly, it decides to award on an equitable basis EUR 1,500.
The Court awards a total sum of EUR 41,500 for pecuniary damage, that corresponds to EUR 13,833.33 for each applicant.
B.Non-pecuniary damage
27. Each applicant claimed ITL 7,200,000 [EUR 3,718.49] for non-pecuniary damage.
28. The Government stressed that the applicants had failed to adduce evidence of non-pecuniary damage sustained as a result of the alleged violation.
29. The Court considers that the applicants must have sustained some non-pecuniary damage, which the mere finding of a violation cannot adequately compensate. Therefore, the Court decides, on an equitable basis, to award each applicant EUR 3,000 under this head.
C. Costs and expenses
30. The applicants sought reimbursement of their legal costs, which they put at ITL 1,787,040 [922.93 EUR] for their costs and expenses before the Court.
31. According to the Court’s case-law, an award can be made in respect of costs and expenses only in so far as they have been actually and necessarily incurred by the applicants and are reasonable as to quantum (Bottazzi v. Italy, no. 34884/97, Reports of Judgments and Decisions 1999-V, § 30). In the present case, on the basis of the information in its possession and the above-mentioned criteria, the Court considers that EUR 900 is a reasonable sum and awards each applicant EUR 300 under this head.
D. Default interest
32. The Court considers it appropriate that the default interest should be based on the marginal lending rate of the European Central Bank to which should be added three percentage points.
FOR THESE REASONS, THE COURT UNANIMOUSLY
1. Holds that there has been a violation of Article 1 of Protocol No. 1 to the Convention;
2. Holds that there has been a violation of Article 6 § 1 of the Convention;
3. Holds
(a) that the respondent State is to pay each applicant, within three months from the date on which the judgment becomes final according to Article 44 § 2 of the Convention, the following amounts:
(i) 13,833.33 EUR (thirteen thousand eight hundred thirty-three euros and thirty-three cents) for pecuniary damage;
(ii) 3,000 EUR (three thousand euros) for non-pecuniary damage;
(iii) 300 EUR (three hundred euros) for legal costs and expenses;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;
4. Dismisses the remainder of the applicants’ claim for just satisfaction.
Done in English, and notified in writing on 17 April 2003, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Søren NielsenChristos Rozakis Deputy RegistrarPresident
| 0 |
Leave granted. This appeal by special leave arises from the order dated November 19, 1990 made in O.A. No. 641/88 by the Central Administrative Tribunal, Madras Bench. Undisputed facts are that the appellant is an I.P.S. direct recruit cadre officer 1966 in the Tamil Nadu Police Service. At the relevant time he was Addl. Inspector General of Police. On the basis of recommendation by the Review Committee on June 12, 1986 for companysidering his case for promotion, the Government of India had called for a special report and the State Government had submitted its report on June 12, 1987. Therein it was stated that since his posting as Deputy Inspector General of Police, Coimbatore, there were persistent reports of his acquiring large assets and of his getting money from his subordinates. While numberspecific evidence of receiving money from his subordinates was forthcoming, he himself had companye up with a request for permission to acquire a companyfee estate in the name of his wife for Rs.25 lakhs on the basis that he would pay Rs.5 lakhs by mortgaging his house and rest of the amount by bank loans. Formal enquiries indicated that the estate would be worth about at least Rs.60 lakhs. As the transaction appeared to be highly suspicious, companyfidential preliminary enquiries were made by the Directorate of Vigilance and Anti-Corruption into the source for this large amount. It was stated that in the C.Rs. of the period from April 1, 1985 to September 30, 1985, it has been recorded that his work as Managing Director, Tamil Nadu Police Housing Corporation, Madras, was number satisfactory. It has also been recorded that his integrity during this period companyld number be certified, as he came out with a proposal about purchase of an estate by his wife and son valued at a few lakhs. An officer with number much of patrimony to boast about, the transaction is full of suspicion. Government have been requested to have this further verified through the Vigilance Agency. It was also numbered that pending further the reports, the entries on verification of the integrity was awaited. On companysideration of the above report, the Government of India in its proceedings dated August 20, 1987 recorded thus The undersigned is directed to enclose companyies of briefs regarding a proposal to retire Shri K. Kandaswamy, I.P.S. TN1966 from Indian Police Service under rule 16 3 of AIS DCRB Rules, 1958, with the request that it may kindly be placed before the Central Establishment Board Appointments Committee of the Cabinet Secretariat for companysideration and orders. Pursuant thereto, decision was taken to companypulsorily retire the appellant from service and order was passed to companypulsorily retire to appellant from service under the impugned order dated February 9, 1988. Shri S. Sivasubramaniam, the learned Senior companynsel for the appellant, companytended that the appellant had all through unblemished record of service. The assets with regard to the poultry business companyducted by his wife and son were enquired and found accounted for, there was numberfurther evidence to companyclude that the appellant is having any disproportionate assets. When a crime was registered against him, after recommendation for his retention in the service, the order of companypulsory retirement is number a bona fide exercise of power. There is numberreport submitted by the Vigilance or the Anti-Corruption Department regarding the alleged disproportionate assets. His admission was only of having Rs.5 lakhs worth house. Therefore, the view taken by the Government to companypulsorily retire the appellant from service is clearly arbitrary and untenable. We find numberforce in the companytention. It is seen that the Government of India had requested the State Government to send special report on the integrity of the appellant. As stated earlier, the Government had sent the report. The report thus companytained specific averment, namely, that the appellant himself had companye forword seeking permission to purchase Coffee Estate worth Rs.25 lakhs, which on enquiry was found to be worth Rs.60 lakhs. The authorities also had information of the alleged unauthorised companylections made by the appellant through subordinates. That may be an assumption. But the fact remains that the appellant himself had companye forward to purchase a companyfee estate worth Rs.25 lakhs, he admitted that a poultry farm is run by his wife and son and he claims that he had home worth Rs. 5 lakhs and he would obtain loans from the Bank for the purchase of the huge Estate worth Rs.25 lakhs. The question, therefore, is whether the Government of India was number justified in doubting the integrity and whether it is based on numberevidence. As seen in the light of documents and in the light of the specific permission sought by the appellant himself on the basis of the special report submitted by the State Government, the Government of India through its appropriate Committee reached the companyclusion that in view of the doubtful integrity it would number be desirable in the public interest to retain the appellant in service. Accordingly, they have companypulsorily retired the appellant from service. Compulsory retirement does number amount to dismissal or removal from service within the meaning of Article 311 of the Constitution. It is neither punishment number visits with loss of retiral benefits number does it cast stigma. The officer would be entitled to the pension that he has actually earned and there is numberdiminution of the accrued benefits. The object of companypulsory retirement of the Government employee is public interest. If the appropriate authority bona fide forms that opinion, the companyrectness thereof on merits cannot be challenged before companyrts, though it may be open to the aggrieved employee to impugn it. But the same may be challenged on the ground that requisite opinion is based on numberevidence or has number been formed or the decision is based for companylateral grounds or that it is an arbitrary decision. While exercising the power under Rule 56 j of the Fundamental Rules, the appropriate authority has to weigh several circumstances in arriving at the companyclusion that the employee requires to be companypulsorily retired in public interest. The Government is given power to energise its machinery by weeding out dead wood, inefficient, companyrupt and people of doubtful integrity by companypulsorily retiring them from service, when the appropriate authority forms bona fide opinion that companypulsory retirement of the Government employee is in the public interest, companyrt would number interfere with the order. In S. Ramachandra Raju vs. State of Orissa 1994 3 SCC 424, a Bench of this Court to which one of us K. Ramaswamy, J. was a member, companysidered the entire case law and held that the Government must exercise its power only in the public interest to effectuate the efficiency of the service. The dead wood needs to be removed to augment efficiency. Integrity in public service needs to be maintained. The exercise of power of companypulsory retirement must number be a haunt on public servant but must act as a check and reasonable measure to ensure efficiency of service and free from companyruption and incompetence. The officer would live by reputation built around him. In an appropriate case, there may number be sufficient evidence to take punitive disciplinary action of removal from service. But his companyduct and reputation is such that his companytinuance in service would be a menace to public service and injurious to public interest. The entire service record or character rolls or companyfidential reports maintained would furnish the backdrop material for companysideration by the Government or the Review Committee or the appropriate authority. On companysideration of the totality of the facts and circumstances alone the Government should form the opinion that the Government officer needs to be companypulsorily retired from service. Therefore, the entire record more particularly, the latest, would form the foundation for the opinion and furnish the base to exercise the power under the relevant rule to companypulsorily retire a Government officer. Higher the ladder the officer scales in the echolons of service, greater should be the transperancy of integrity, honesty, character and dedication to duty. Work culture and self-discipline augment his experience. Security of service gives fillip to accelerate assiduity to stay in line and measure up to the expected standards of efficiency by the Government employee. Thereby, they ultimately aid to achieve excellence in public service. The security of service provided by Article 311 of the Constitution and the statutory rules made under proviso to Article 309 would thus ensure to remove deficiency and incompetence and augment efficiency of public administration. The rights - companystitutional or statutory - carry with them companyollary duty to maintain efficiency, integrity and dedication to public service. Unfortunately, the latter is being overlooked and neglected and the former unduly gets emphasised. The appropriate Government or the authority would, therefore, need to companysider the totality of the facts and circumstances appropriate in each case and would form the opinion whether companypulsory retirement of a Government employee would be in the public interest. The opinion must be based on the material on record otherwise it would amount to arbitrary or companyourable exercise of power. Considered from this perspective and the material on record, we are of the companysidered view that the decision taken by the Government of India cannot be held to be arbitrary, unjustified or based on numberevidence. | 7 |
COURT OF APPEAL FOR ONTARIO
CITATION: Austin v. Bell Canada, 2020 ONCA 142
DATE: 20200221
DOCKET: C67404
MacPherson, Sharpe and Jamal JJ.A.
BETWEEN
Leslie Austin
Plaintiff (Appellant)
and
Bell Canada, Bell Media Inc., Expertech Network
Installation Inc., and Bell Mobility Inc.
Defendants (Respondents)
Mark Zigler, Jonathan Ptak, and Garth Myers, for the
appellant
Dana Peebles, for the respondents
Heard: February 5, 2020
On appeal from the judgment of Justice E.M. Morgan of the
Superior Court of Justice, dated August 12, 2019, with reasons reported at 2019
ONSC 4757, 147 O.R. (3d) 198.
By the Court:
[1]
The appellant is the representative plaintiff in a
class action brought on behalf of retirees who are beneficiaries of the
respondents (Bell) Pension Plan.
[2]
The sole issue for this court to decide is the proper
calculation of the cost-of-living adjustment under the Plan for 2017. That
turns on the interpretation of the Plans definition of the Pension Index and
how that definition works together with the provisions in the plan governing
the calculation of the amount of the cost-of-living adjustment. The appellant
argues that the motion judge erred by finding that Bell was entitled to round
up the annual percentage increase in the Consumer Price Index, mathematically
calculated as 1.49371%, to two decimal points, or 1.49%. The appellant says
that, properly interpreted, the Plan requires Bell to follow Statistics
Canadas policy of rounding to only one decimal point, or 1.5%. The difference
is significant. Another provision in the Plan provides that to determine the
annual pension increase for the appellant and most other Bell Pensioners, the
Pension Index is to be rounded to the nearest whole number. If the appellant is
right, 1.5% is rounded to 2%. If Bell is right, 1.49% is rounded to 1%. The difference
to the class members between a 2% and a 1% increase in the 2017 pension is over
$10 million for the first year and, over the long-term, over $100 million.
Background
[3]
The appellant, a longtime Bell Canada employee,
brings this class proceeding on behalf of approximately 35,000 pensioners who
are all beneficiaries of the common Pension Plan administered by the
respondents which are all part of the Bell corporate family.
[4]
The motion judge certified the proceeding under
the
Class Proceedings Act
, 1992,
S.O. 1992, c. 6
. It was common ground that the
matter was suitable for summary judgment. As we explain below, the motion judge
concluded that Bell was entitled to round the Pension Index to two decimal
points and accordingly granted summary judgment dismissing the action.
The Bell Pension Plan
[5]
The motion judges ruling and this appeal turn
on two provisions in the plan dealing with the annual indexing of benefits.
[6]
The first is the definition of Pension Index in
s. 1.29 of the Plan:
1.29
Pension Index means
the annual percentage increase of the Consumer Price Index, as determined by
Statistics Canada, during the period of November 1 to October 31 immediately
preceding the date of the pension increase;
[7]
The second key provision is s. 8.7, which governs the calculation of the
annual indexation increase. The case turns on how s. 1.29 and the determination
of the Pension Index works in conjunction with the rounding provision in s.
8.7(iv):
8.7
On every first day of January, the retirement
benefits payable to a Member, the surviving Spouse or the Beneficiary under the
DB Provisions shall be augmented by a percentage determined as follows:
(i) If, on the date of the increase, the Member has not reached
65 years of age, or would not have reached 65 years of age in the case of a
surviving Spouse or Beneficiary, the Pension Index, limited to a maximum of 2%
and calculated on a compounded basis.
(ii) If, on the date of the increase, the Member has reached 65
years of age, or would have reached 65 years of age in the case of a surviving
Spouse or Beneficiary, the percentage shall be the greater of:
(a) 60% of the Pension Index,
limited to a maximum of 4% and calculated on a compounded basis; or
(b) the percentage determined
under paragraph (i) above.
(iii) For the purpose of any increase applicable to a Member,
the surviving Spouse or the Beneficiary within the first year of retirement,
the applicable percentage shall be prorated, taking into account the number of
full calendar months of retirement in the calendar year preceding the date of
the increase.
(vi) All percentage increases
shall be rounded to the nearest 2 decimal points, except for the percentage
increase under paragraph (i) above which shall be rounded to the nearest whole
number.
[8]
It is common ground that for the relevant
period, the Consumer Price Index rose from 127.2 to 129.1 and, as a matter of
simple mathematics, that represented a 1.49371 % increase. It is also
undisputed that Statistics Canada has a policy of rounding the annual percentage
increase to one decimal point. Accordingly, Statistics Canada published the
annual percentage increase for the relevant period as 1.5%. Section 8.7(iv)
provides that percentage increase for all pensioners other than those who are
in their first year of retirement (s. 8.7(iii)), is to be rounded to the
nearest whole number. Accordingly, if, as the appellant argues, the Statistics
Canada policy governs, the Pension index of 1.5% should be rounded to 2%. On
the other hand, Bell asserts that the words of s. 8.7(iv) apply: All percentage
increases shall be rounded to the nearest 2 decimal points. If s. 8.7(iv) does
apply to s. 1.29, the Pension Index is 1.49% which, when rounded to the nearest
whole number, becomes 1%.
The Motion Judges Reasons
[9]
The motion judge turned first to s. 1.29. He
held that the proper interpretation of that provision depended upon the
importance to be ascribed to the comma after the words Consumer Price Index.
He reviewed in some detail case law and academic writing, both Canadian and
American, dealing with the significance to be attached to commas that follow a
sequence of items. Ordinarily, if there is no comma, the last antecedent rule
states that the phrase at the end of the list will modify only the last item.
If there is a comma, the series qualifying rule states that the phrase will
modify all items on the list: Ruth Sullivan,
Sullivan on the
Construction of Statutes
, 6th ed. (Markham: LexisNexis
Canada, 2014), at p. 470. Here, there is not a list but there are two items:
(1) the annual percentage increase, and (2) the Consumer Price Index.
Accordingly, the comma after Consumer Price Index suggests that the phrase
as determined by Statistics Canada modifies both items.
[10]
The motion judge appears to have accepted that
interpretation but found that it was rebutted by the need to read the Plan as a
whole. He focused on the s. 8.7(iv) provision that [a]
ll
percentage increases shall be rounded to the nearest 2 decimal points. There
was uncontradicted expert evidence that the calculation required under s.
8.7(ii)(a) for pensioners aged 65 or older 60% of the Pension Index will
never yield more than a two-decimal place figure if the Statistics Canada one-decimal
place increase is used. The motion judge found, at para. 61, that as using
Statistics Canadas one-decimal rounding of the Pension Index would eliminate
the need for any further rounding as set out in s. 8.7(ii), it would render
meaningless the provision in s. 8.7(iv) that all rounding be to two decimal
places. He added that the expert evidence indicated that following Bells
policy of rounding the Pension Index to two decimal places would often yield a
three-decimal place figure in the s. 8.7(ii)(a) calculation. The Bell
two-decimal point rounding of the Pension Index would therefore give s. 8.7(iv)
meaning.
[11]
The motion judge concluded that while Statistics Canada uses the
one-decimal place approach to rounding for its own purposes, that method did
not govern the Plan when read as a whole. The key passage in his reasons is
para. 65:
Section 8.7 of the Plan is a precisely drafted, mathematically
crafted section that is dependent on rounding being part and parcel of the
calculations it prescribes. It is not possible to surmise that the drafters of
the Plan went to all of that trouble and detail only to have the entire
exercise rendered meaningless by a deferral to Statistics Canadas method of
rounding when doing the initial Pension Index calculation under s. 1.29 of the
Plan.
[12]
At para. 64, the motion judge referred to the
contra proferentem
rule that would favour the pensioners as the non-drafting party, but stated
that there is no rule of interpretation that would implement a version of the
Plan that renders it partly meaningless or effectively gut a key aspect of
the method of calculation.
ANALYSIS
[13]
The appellant accepts that as the issue in this
appeal turns upon the interpretation of a contract, the standard of review is
that laid down by
Sattva
Capital Corp. v. Creston Moly
Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633 and
Housen
v. Nikolaisen
, 2002 SCC 33, [2002] 2 S.C.R. 235
. To
succeed, the appellant must establish either a palpable and overriding error of
fact or an extricable error of law.
[14]
The appellant argues that this appeal turns on
the plain and ordinary meaning of s. 1.29. The appellant accepts that s. 1.29
must be read in the light of the Plan as a whole. The appellant argues,
however, that the definition in s. 1.29 is unaffected by s. 8.7(iv) which deals
only with percentage increase in pensions under s. 8.7. The appellant submits
that the motion judge made a foundational error by finding that unless s.
8.7(iv) applies to the definition of Pension Index, s. 8.7(iv) would be
meaningless. The motion judge failed to take into account the uncontradicted
evidence regarding the calculation under s. 8.7(iii) of the annual percentage
increase of pensioners who retired during the current year. Those pensioners
are not entitled to the full years cost-of-living increase and their annual
percentage increase is prorated according to the number of months of
retirement. The expert evidence established that by reason of the prorating,
using a Pension Index rounded to one decimal place will often yield an annual
percentage increase with three or more decimal places. Therefore, resort must
be had to the s. 8.7(iv) two-decimal place rounding rule. That, in turn, means
that using the Statistics Canada one-decimal point rounding to determine the
Pension Index does not render s. 8.7(iv) meaningless and the whole foundation
for the motion judges interpretation collapses.
[15]
Bell argues that the motion judge did not err.
The evidence regarding the calculations and need to round or not round was
uncontradicted and the argument that the motion judge made a palpable and
overriding error of fact should be rejected. Bell has used the two-decimal
rounding policy since 1998 with no complaint from the pensioners. The motion
judge did not err by finding that the Statistics Canada one-decimal policy
would render s. 8.7(iv) meaningless in relation to s. 8.7(ii) which governs the
annual percentage increase for all but a very small number of pensioners.
[16]
For the following reasons, we conclude that the
appeal should be allowed.
[17]
Our starting point is the language of s. 1.29.
We agree with the appellant and the motion judge that, on its face, s. 1.29
states that
both
the
annual percentage increase and the Consumer Price Index are to be determined by
Statistics Canada. That conclusion is supported by the comma following the
phrase Consumer Price Index and the series qualifying rule referred to by
the motion judge.
[18]
We add here that the appellant led evidence to
explain the reason for the Statistics Canada one-decimal point rounding policy.
An expert testified that the Consumer Price Index cannot be accurately measured
to two decimal points and to publish more than one decimal point would convey
a message about the precision and accuracy of the index that would not be
justified. The one-decimal point rounding is also the convention among most
statistical agencies.
[19]
We do not accept Bells submission that adhering
to the one-decimal rounding policy is undermined by the experts admission on
cross-examination that Statistics Canada follows the one-decimal rounding
policy for its own purposes and is not in the business of telling people how
to use [its] data. As the expert explained, the policy Bell adopts for the
Plan is matter for negotiation between Bell and its employees. In our view this
simply states the obvious. Statistics Canada determines and publishes the
annual percentage increase in the Consumer Price Index using what it regards as
sound statistical practices. Statistics Canada has no authority to dictate how
pensions are to be adjusted for inflation and parties are free to adopt
whatever method they wish. However, the question before the motion judge and
before us is whether the words in the Plan require the parties to adopt the
Statistics Canada approach.
[20]
We agree with the motion judge that the language
the parties have adopted in s. 1.29 points in the direction of applying
Statistics Canadas calculation of the annual percentage increase of the
Consumer Price Index. That interpretation is supported by use of the comma
indicating that the phrase as determined by Statistics Canada modifies both
the phrases
Consumer Price Index and annual
percentage increase.
It is also supported by the evidence of
sound statistical methodology supporting the one-decimal rounding policy.
[21]
In our view, having regard to the grammatical
meaning of s. 1.29 and the evidence regarding accepted statistical conventions
for rounding, a strained interpretation of s. 1.29 would be required to make it
mean that Statistics Canada determines only the increase in the Consumer Price
Index and leaves it to Bell to adopt a different rounding policy to determine
the Pension Index.
[22]
This brings us to the next stage, namely reading
s. 1.29 in the context of the Plan as a whole. We agree with the motion judge
that this is an important part of the interpretive exercise. We also agree that
when a pension scheme should be interpreted as a whole and that the meaning of
a particular clause should be considered in conjunction with other relevant
clauses:
Dinney v. Great-West Life Assurance Co.
, 2009 MBCA 29, 236 Man. R., 299, at paras. 61-2; Geoff R. Hall,
Canadian
Contractual Interpretation Law
(3rd ed.) (Toronto: LexisNexis
Canada, 2016), at p. 256. There can be no doubt that the crucial point for the
motion judge was his conclusion that accepting the Statistics Canada
one-decimal rounding policy would render s. 8.7(iv) meaningless or partly
meaningless. In our view, that conclusion rests on either (or both) a palpable
and overriding error of fact or an extricable error of law.
[23]
The palpable and overriding error of fact is
that the motion judges conclusion ignores the uncontradicted evidence that
using the Statistics Canada one-decimal rounding policy will frequently produce
a three-decimal figure in the calculation of the annual percentage increase for
recently retired pensioners under s. 8.7(iii), and that the two-decimal
rounding provision on s. 8.7(iv) applies and therefore has meaning.
[24]
Bell argues that as the evidence was
uncontradicted, the motion judge could not have misunderstood or mistaken its
effect. However, even if the motion judge understood and did not mistake the
effect of the evidence, we have no explanation for why he failed to take it
into account in reaching the conclusion that s. 8.7(iv) would be rendered
meaningless. In our respectful view, the motions judges failure to apply the
evidence to the interpretation of the Plan amounts to a palpable and overriding
error of fact. In the words of
Waxman v. Waxman
(2004)
, 186 O.A.C. 201,
at paras. 296-7, his finding was made in conflict with accepted evidence and
is plain to see and therefore palpable. The error is also overriding as
it determined the result.
[25]
If we were to accept Bells submission that the
motion judge only meant meaningless in relation to s. 8.7(ii), we are left
with his conclusion that s. 8.7(iv) would be rendered partly meaningless. In
our view, that reflects an extricable error of law.
[26]
It is not apparent what partly meaningless
means. A contractual provision either has a meaning or it does not. Courts will
strive to give all provisions in a contract meaning and to avoid an
interpretation of one provision that would render another provision meaningless
or redundant. The redundancy rule relied upon by the motion judge was explained
by this court in
Scanlon v. Castlepoint Development Corp
. (1992), O.R. (3d) 744, at para. 88 (leave to appeal refused, [1993]
S.C.C.A. No. 62).
To the extent that it is possible
to do so, [a contact] should be construed as a whole and effect should be given
to all of its provisions. The provisions should be read, not as standing alone,
but in light of the agreement as a whole and the other provisions thereof:
Hillis
Oil & Sales Ltd. v. Wynn's Canada Ltd
., [1986] 1 S.C.R. 57 at p. 66, 25
D.L.R. (4th) 649 at p. 655. The court should strive to give meaning to the
agreement and "reject an interpretation that would render one of its terms
ineffective":
National Trust Co. v. Mead
, [1990] 2 S.C.R. 410 at p.
425, 71 D.L.R. (4th) 488 at p. 499.
[27]
In this case, as we have explained, the rounding
provision in s. 8.7(iv) would not be rendered ineffective by giving s. 1.29 its
plain grammatical meaning. It will be frequently necessary to round to two
decimal points to determine the annual percentage increase for recently retired
pensioners.
[28]
Bell asks us to ignore that fact as the recently
retired pensioners represent only between 4% and 5% of the class. That number
amounts to hundreds of pensioners each year. We fail to see why that category
of pensioners should be ignored in the interpretation of the Plan.
[29]
Adhering to the Statistics Canada one-decimal
rounding policy for the purpose of determining the Pension Index pursuant to s.
1.29 does not strip s. 8.7(iv) of meaning. The plain grammatical reading
of s. 1.29 is readily reconcilable with the rounding method specified by s.
8.7(iv) with respect to the other provisions of s. 8.7 and it follows that the
plain grammatical meaning should be followed.
[30]
Alternatively, the motion judge made an extricable error of law by
failing to consider the
contra proferentem
rule. The motion judge
found the wording of the Plan to be awkward (para. 69). He referred briefly
to the appellants
contra proferentem
argument but did not explain why
the doctrine should not apply.
[31]
The Plan was drafted by Bell without meaningful participation by the
pensioners who are a vulnerable group in relation to Bell. The
contra proferentem
rule of interpretation applies to contracts
on the simple theory that any
ambiguity
must be resolve against the author if the choice is between him and
the other party to the contract who did not participate in its drafting:
McClelland
& Stewart Ltd. v. Mutual Life
, [1981] 2 S.C.R. 6, at p. 15.
Contra
proferentem
is regularly applied to resolve ambiguities in pension
documents in favour of pensioners: see
ONeill v. General Motors of Canada
Ltd
., 2013 ONSC 4654, 6 C.C.P.B. (2nd) 257, at paras. 21-2.
[32]
In our view, the Plan is not ambiguous and, for the reasons above, the
appellants interpretation is the correct one. We therefore do not find it
necessary to resort to
contra proferentem
. However, it is a very short
step to take from the motion judges observation that the wording of the Plan
is awkward to finding that the wording is ambiguous. Having found the wording
to be awkward, the motion judge should have taken that step, applied the
contra
proferentem
doctrine, and ruled that given the ambiguity, the
interpretation favouring the pensioners should prevail. His failure to do so
represents an extricable error of law reviewable by this court under the
Saatva
standard of review.
DISPOSITION
[33]
Accordingly, we allow the appeal, set aside the
summary judgment dismissing the action and in its place award summary judgment
in favour of the appellant. The matter is remitted to the motion judge for any
ancillary or consequential matters that may arise from our judgment.
[34]
The appellant is entitled to costs fixed in the
amount agreed to by the parties, namely $22,500 inclusive of taxes and
disbursements.
Released: February 21, 2020
JCM
J.C. MacPherson
J.A.
Robert J. Sharpe
J.A.
M. Jamal J.A.
| 5 |
SECOND SECTION
CASE OF MILIĆ v. MONTENEGRO AND SERBIA
(Application no. 28359/05)
JUDGMENT
STRASBOURG
11 December 2012
FINAL
11/03/2013
This judgment has become final under Article 44 § 2 of the Convention. It may be subject to editorial revision.
In the case of Milić v. Montenegro and Serbia,
The European Court of Human Rights (Second Section), sitting as a Chamber composed of:
Guido Raimondi, President,Peer Lorenzen,Dragoljub Popović,András Sajó,Nebojša Vučinić,Paulo Pinto de Albuquerque,Helen Keller, judges,and Stanley Naismith, Section Registrar,
Having deliberated in private on 20 November 2012,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 28359/05) against Montenegro and Serbia lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a Serbian national, Mr Ivan Milić (“the applicant”), on 19 July 2005.
2. The applicant, who had been granted legal aid, was represented by Ms G. Ćušić, a lawyer practising in Belgrade. The Montenegrin Government were represented by their Agent, Mr Z. Pažin. The Serbian Government were represented by their Agent, Mr. S. Carić.
3. The applicant complained about non-enforcement of a final judgment ordering his reinstatement and a lack of an effective domestic remedy in that regard.
4. On 15 March 2010 the application was communicated to the Governments of Montenegro and Serbia. It was also decided to rule on the admissibility and merits of the application at the same time (Article 29 § 1).
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
5. The applicant, Mr Ivan Milić, was born in 1966 and lives in Belgrade, Serbia.
A. The first set of civil proceedings and the ensuing enforcement proceedings
6. On 20 June 2002 the Court of First Instance (Osnovni sud) in Podgorica ordered that the applicant be reinstated by the Clinical Centre of Montenegro (Kliničko bolnički Centar Crne Gore), a State-run medical institution.
7. On 4 February 2003 this judgment became final, and on 16 December 2003 it was confirmed by the Supreme Court (Vrhovni sud) in Podgorica at third instance.
8. On 23 April 2003 the Clinical Centre of Montenegro informed the applicant that it could not comply with the judgment in question, but would rather seek an alternative solution.
9. On 22 May 2003 the Court of First Instance issued an enforcement order, which decision was confirmed on 26 June 2003.
10. On 19 August 2003 the Clinical Centre of Montenegro concluded an agreement with the Special Hospital in Risan, also a State-run medical institution, whereby the latter accepted the applicant as its employee.
11. On 30 September 2003 the applicant informed the State Prosecutor that he did not approve of this arrangement.
12. On 17 October 2003 the Special Hospital in Risan issued a decision to the effect that the applicant would become its employee as of 30 October 2003.
13. On 20 October 2003 the applicant received this decision.
14. On 21 October 2009, as submitted by the Montenegrin Government, the applicant concluded an Agreement on Termination of Employment with the Clinical Centre of Montenegro whereby his employment had been terminated as from 3 February 2003 and both parties waived any further claims in this regard.
15. On 26 October 2009 the applicant withdrew his enforcement request.
16. On 5 November 2009 the Court of First Instance terminated the enforcement proceedings and all the enforcement activities which had been carried out in that regard. On 17 November 2009 this decision became final.
B. Other relevant facts
17. On 6 May 2004, upon the applicant’s separate claim, the Court of First Instance in Podgorica ordered the Clinical Centre of Montenegro to pay the applicant 4,456 euros (“EUR”) for salary arrears for the period between September 2001 and 3 February 2003. This judgment was upheld by the High Court on 5 October 2004. It would appear from the case file that this judgment was enforced on an unspecified date thereafter.
18. On 3 February 2003 the applicant started to work in the Clinical Centre of Serbia for a period of nine months. It would appear from the case file that on an unspecified date thereafter his temporary employment was transformed into a permanent one.
II. RELEVANT DOMESTIC LAW
A. Constitution of Montenegro 2007 (Ustav Crne Gore; published in the Official Gazette of Montenegro - OGM - no. 1/07)
19. Article 149 of the Constitution provides that the Constitutional Court shall rule on a constitutional appeal lodged in respect of an alleged violation of a human right or freedom guaranteed by the Constitution, after all other effective legal remedies have been exhausted.
20. The Constitution entered into force on 22 October 2007.
B. Montenegro Constitutional Court Act (Zakon o Ustavnom sudu Crne Gore; published in OGM no. 64/08)
21. Section 48 provides that a constitutional appeal may be lodged against an individual decision of a state body, an administrative body, a local self-government body or a legal person exercising public authority, for violations of human rights and freedoms guaranteed by the Constitution, after all other effective domestic remedies have been exhausted.
22. Sections 49-59 provide additional details as regards the processing of constitutional appeals. In particular, section 56 provides that when the Constitutional Court finds a violation of a human right or freedom, it shall quash the impugned decision, entirely or partially, and order that the case be re-examined by the same body which rendered the quashed decision.
23. The Act entered into force in November 2008.
C. Right to a Trial within a Reasonable Time Act (Zakon o zaštiti prava na suđenje u razumnom roku; published in OGM no. 11/07)
24. This Act provides, under certain circumstances, the possibility to have lengthy proceedings expedited by means of a request for review (kontrolni zahtjev), as well as an opportunity for claimants to be awarded compensation by means of an action for fair redress (tužba za pravično zadovoljenje).
25. Section 9 § 2 provides that a request for review can be filed with the court which is dealing with the case at the relevant time.
26. Section 33 § 3 provides that an action for fair redress shall be filed with the Supreme Court no later than six months after the date of receipt of the final decision rendered in the impugned proceedings or, within the enforcement procedure, no later than six months after the date of receipt of the final decision issued upon the request for review.
27. Section 44 further provides that this Act shall be applied retroactively to all proceedings from 3 March 2004, but that the duration of proceedings before that date shall also be taken into account.
28. The Act entered into force on 21 December 2007, but contained no reference to applications involving procedural delay already lodged with the Court.
D. Enforcement Procedure Act 2000 (Zakon o izvršnom postupku; published in the Official Gazette of the Federal Republic of Yugoslavia nos. 28/00, 73/00 and 71/01)
29. Section 4 § 1 provided that enforcement proceedings were urgent.
30. Sections 211-214 set out details as regards enforcement in cases of reinstatement.
E. Enforcement Procedure Act 2004 (Zakon o izvršnom postupku; published in the Official Gazette of the Republic of Montenegro - OG RM - no. 23/04)
31. The Act entered into force on 13 July 2004, thereby repealing the Enforcement Procedure Act 2000. In accordance with section 286 of this Act, however, all enforcement proceedings instituted prior to 13 July 2004 were to be concluded pursuant to the Enforcement Procedure Act 2000.
F. Labour Act 2003 (Zakon o radu; published in OG RM nos. 43/03, 79/04, 24/06 and 25/06; and in the Official Gazette of Montenegro no. 16/07)
32. Section 33 required an employee’s consent in order for him to be transferred to another employer.
G. Labour Act 2008 (Zakon o radu; published in OGM nos. 49/08, 26/09 and 88/09)
33. The Labour Act 2008 entered into force on 19 August 2008 thereby repealing the Labour Act 2003. Section 42 § 2 of the former, however, also requires the employee’s consent for his transfer to another employer.
H. Relevant domestic case-law
34. Between 1 January 2008 and 30 September 2009 twenty-two actions for fair redress were submitted, of which sixteen were dealt with and six were still being examined. In one case the courts awarded the plaintiff compensation for non-pecuniary damage in respect of the length of civil proceedings. Between 1 January 2010 and 30 April 2011 an additional fifteen actions for fair redress were examined, in three of which the courts awarded damages.
THE LAW
35. The applicant complained under various Articles of the Convention against both Montenegro and Serbia about the non-enforcement of the judgment issued by the Court of First Instance in Podgorica ordering his reinstatement, which became final on 4 February 2003, as well as about the lack of an effective domestic remedy in that respect.
36. The Court considers that these complaints all fall to be examined under Articles 6 § 1 and 13 of the Convention (see Akdeniz v. Turkey, no. 25165/94, § 88, 31 May 2005), which, in their relevant parts, read as follows:
Article 6 § 1
“In the determination of his civil rights and obligations ... everyone is entitled to a ... hearing within a reasonable time by [a] ... tribunal ...”
Article 13
“Everyone whose rights and freedoms...are violated shall have an effective remedy before a national authority...”
I. ALLEGED VIOLATION OF ARTICLE 6 § 1 OF THE CONVENTION
A. Admissibility
1. Compatibility ratione personae
(a) As regards the respondent States
37. The Montenegrin Government made no comment in this regard.
38. The Serbian Government submitted that the application was incompatible ratione personae with regard to Serbia. They referred, in particular, to Bijelić v. Montenegro and Serbia, no. 11890/05, §§ 67-70, 28 April 2009.
39. The applicant complained against both Montenegro and Serbia.
40. Given the fact that the entire enforcement proceedings have been conducted solely by the Montenegrin authorities, which also had the exclusive competence to deal with the subject matter, the Court, without prejudging the merits of the case, finds the applicant’s complaints in respect of Montenegro compatible ratione personae with the provisions of the Convention. For the same reason, however, the applicant’s complaints in respect of Serbia are incompatible ratione personae within the meaning of Article 35 § 3(a), and must be rejected pursuant to Article 35 § 4 of the Convention (see, also, Lakićević and Others v. Montenegro and Serbia, nos. 27458/06, 37205/06, 37207/06 and 33604/07, § 41, 13 December 2011).
(b) As regards the applicant
41. The Montenegrin Government submitted that the applicant could no longer claim to be a “victim” as he had concluded the Agreement on Termination of Employment on 21 October 2009, waived any further claims in this regard and had withdrawn his enforcement request. The Agreement had effect as from 3 February 2003, which was before the Convention entered into force in respect of Montenegro and before the applicant lodged his application with the Court. They also maintained that the applicant’s submission that he had been forced to conclude the said Agreement was unsubstantiated.
42. The applicant contested these submissions. In particular, he maintained that by the time he had concluded the Agreement the enforcement proceedings had been already ongoing for more than five years but to no avail. He had been forced to conclude the said Agreement and to withdraw the enforcement request as he needed to verify his employment in another institution. His withdrawal of the enforcement request was therefore irrelevant and his rights had been breached.
43. The Court reiterates that, in order to be able to lodge a petition by virtue of Article 34, a person, non-governmental organisation or a group of individuals must be able to claim to be the victim of a violation of the rights set forth in the Convention.
44. Turning to the present case, the Court notes that the domestic proceedings were settled in that the applicant concluded the Agreement on Termination of Employment and thus consented to discontinue to insist that the relevant court judgment be enforced. He withdrew his enforcement request on 26 October 2009, after which the enforcement proceedings were terminated.
45. The Court also notes, however, that the said agreement did not address the issue of the length of the said non-enforcement, which the applicant alleges constituted a violation of the Convention. In view of that, and without prejudice to the merits of the case, the Court considers that the applicant’s Convention complaint still persists and that the applicant’s status as a “victim” within the meaning of Article 34 of the Convention remained unaffected by the agreement. The Government’s objection in this regard must, therefore, be dismissed.
2. Exhaustion of domestic remedies
(a) Arguments of the parties
46. The Montenegrin Government submitted that the applicant had not exhausted all effective domestic remedies available to him. In particular, he had failed to lodge a request for review and an action for fair redress provided by the Right to a Trial within a Reasonable Time Act (see paragraph 24 above). He had also failed to make use of a constitutional appeal (see paragraphs 19-23 above).
47. The applicant contested these submissions. In particular, he maintained that the remedies referred to by the Government had not existed at the time when he had lodged his application with the Court and that therefore he had not been obliged to make use of them later. He also submitted that in any event these remedies were not effective.
(b) Relevant principles
48. The Court recalls that, according to its established case-law, the purpose of the domestic remedies rule in Article 35 § 1 of the Convention is to afford the Contracting States the opportunity of preventing or putting right the alleged violations before they are submitted to the Court.
49. However, the only remedies which the Convention requires to be exhausted are those which relate to the breaches alleged and at the same time are available and sufficient (see Selmouni v. France [GC], no. 25803/94, § 75, ECHR 1999 V, McFarlane v. Ireland [GC], no. 31333/06, § 107, ECHR 2010-...). The existence of such remedies must be sufficiently certain not only in theory but also in practice, failing which they will lack the requisite accessibility and effectiveness; it falls to the respondent State to establish that these various conditions are satisfied (see Vernillo v. France, 20 February 1991, § 27, Series A no. 198; and Dalia v. France, 19 February 1998, § 38, Reports 1998-I).
50. Once this burden of proof has been satisfied, it falls to the applicant to establish that the remedy advanced by the Government had in fact been used, or was for some reason inadequate and ineffective in the particular circumstances of the case, or that there existed special circumstances absolving him or her from that requirement (see Dankevich v. Ukraine, no. 40679/98, § 107, 29 April 2003).
51. The Court reiterates that the effectiveness of a particular remedy is normally assessed with reference to the date on which the application was lodged (see, for example, Baumann v. France, no. 33592/96, § 47, ECHR 2001-V (extracts)), this rule, however, being subject to exceptions which may be justified by the specific circumstances of each case (see Nogolica v. Croatia (dec.), no. 77784/01, 5 September 2002).
(c) The Court’s assessment
(i) As regards the request for review
52. The Court has already held that it would be unreasonable to require an applicant to try a request for review on the basis of the Right to a Trial within a Reasonable Time Act in a case where the domestic proceedings had been pending for a number of years before the introduction of this legislation and where no conclusions could be drawn from the Government’s submissions about its effectiveness (see, mutatis mutandis, Boucke v. Montenegro, no. 26945/06, §§ 72-74, 21 February 2012; as well as Živaljević v Montenegro, no. 17229/04, §§ 60-65, 8 March 2011). The Court, however, reserved its right to reconsider its view if the Government demonstrated, with reference to specific cases, the efficacy of this remedy (see Boucke, cited above § 71, and Živaljević, cited above, § 66).
53. In view of the fact that the enforcement proceedings here at issue had been pending for more than four years and six months before the Right to a Trial within a Reasonable Time Act entered into force, of which more than three years and nine months had elapsed after the Convention entered into force in respect of the respondent State, and that no recent case-law concerning the efficacy of this particular remedy has been submitted, the Court sees no reason to depart from its previous finding and concludes, therefore, that the Government’s objection must be dismissed.
(ii) As regards the action for fair redress
54. The Court notes that the applicant lodged his application on 19 July 2005, which was more than two years and five months before an action for fair redress was introduced by the Right to a Trial within a Reasonable Time Act (see paragraphs 1 and 28 above). Therefore, at the time when the applicant lodged his application with this Court, there was no available domestic remedy which would have enabled him to obtain redress for the past delay, the effectiveness of a particular remedy being assessed with reference to the date on which the application was lodged (see Baumann v. France, cited above, § 47).
55. While the Court has allowed for an exception to this rule, this was usually in cases where specific national legislation as regards the length of proceedings had been passed in response to a great number of applications already pending before the Court indicating a systemic problem in these States. These laws also contained transitional provisions bringing within the jurisdiction of domestic courts the cases already pending before this Court (see Grzinčič v. Slovenia, no. 26867/02, § 48, 3 May 2007; Charzyński v. Poland (dec.), no. 15212/03, § 20, ECHR 2005-V; and Brusco v. Italy (dec.), no. 69789/01, ECHR 2001-IX). Having regard to those considerations, the Court was of the opinion that these States should be afforded an opportunity to prevent or put right the alleged violation themselves and therefore allowed for an exception to the above rule.
56. Unlike in the above mentioned cases, the relevant legislation in Montenegro had not been passed in response to numerous applications pending before this Court, nor does it contain any transitional provision whatsoever with regard to applications already pending before this Court (see paragraph 28 above). Therefore, it is unclear whether the domestic courts would have ruled at all on the merits of the applicant’s action for fair redress had he lodged one.
57. The Court also notes that the applicant cannot be required to avail himself of this avenue of redress at this stage, as its use had long become time-barred in his case (see paragraphs 26, 25 and 16 above, in that order).
58. Having regard to the particular circumstances of the instant case as set out above, the Court considers that the applicant was not obliged to exhaust this particular avenue of redress (see, mutatis mutandis, Novović v. Montenegro, 13210/05, §§ 40-44, 23 October 2012 (not yet final); Vinčić and Others v. Serbia, no. 44698/06 et seq. § 51, 1 December 2009, as well as Cvetković v. Serbia, no. 17271/04, § 41, 10 June 2008). The Government’s objection must, therefore, be dismissed.
(iii) As regards the constitutional appeal
59. The Court has also already found that a constitutional appeal cannot be considered an effective domestic remedy in respect of length of proceedings (see Boucke, cited above, § 79; see, also, Mijušković v. Montenegro, cited above, §§ 73-74). It sees no reason to hold otherwise in the present case. The Government’s objection in this regard must, therefore, be dismissed.
3. Conclusion
60. The Court notes that the applicant’s complaint is not manifestly ill‑founded within the meaning of Article 35 § 3 (a) of the Convention. It further notes that it is not inadmissible on any other grounds. It must therefore be declared admissible.
B. Merits
61. The Montenegrin Government made no comment in this regard.
62. The applicant reaffirmed his complaint.
63. The Court recalls that Article 6 § 1 of the Convention, inter alia, protects the implementation of final, binding judicial decisions, which, in States that accept the rule of law, cannot remain inoperative to the detriment of one party. Accordingly, the execution of a judicial decision cannot be prevented, invalidated or unduly delayed (see, among other authorities, Hornsby v. Greece, 19 March 1997, § 40, Reports of Judgments and Decisions 1997‑II). The State has an obligation to organise a system of enforcement of judgments that is effective both in law and in practice (see Fuklev v. Ukraine, no. 71186/01, § 84, 7 June 2005).
64. Lastly, the Court reiterates that enforcement proceedings by their very nature need to be dealt with expeditiously (see Comingersoll S.A. v. Portugal [GC], no. 35382/97, § 23, ECHR 2000-IV).
65. Turning to the present case, the Court notes that the period to be taken into account began on 3 March 2004, which is when the Convention entered into force in respect of Montenegro (see Bijelić v. Montenegro and Serbia, no. 11890/05, § 69, 28 April 2009) and ended on 26 October 2009, when the applicant withdrew the enforcement request. The impugned enforcement proceedings had thus been within the Court’s competence ratione temporis for a period of more than five years and seven months, more than another nine months having already elapsed before that date (see Mikulić v. Croatia, no. 53176/99, § 37, ECHR 2002‑I, Styranowski v. Poland, 30 October 1998, § 46, Reports of Judgments and Decisions 1998‑VIII).
66. The impugned enforcement proceedings concerned the applicant’s reinstatement. While it can be accepted that some such cases may be more complex than others, the Court does not consider the present one to be of such complexity as to justify enforcement proceedings of this length. The issue was clearly of great importance to the applicant, the Convention itself requiring exceptional diligence in employment disputes (see, mutatis mutandis, Guzicka v. Poland, no. 55383/00, § 30, 13 July 2004, Borgese v. Italy, 26 February 1992, § 18, Series A no. 228‑B, and Georgi Georgiev v. Bulgaria, no. 22381/05, § 18 in fine, 27 May 2010).
67. As to the conduct of the parties, the Court observes that after the Convention had entered into force in respect of the respondent State and prior to 26 October 2009 the authorities failed to make any attempt whatsoever in order to enforce the judgment in question. The Montenegrin Government did not provide any explanation in that regard. It is further noted that even before the ratification of the Convention the Clinical Centre of Montenegro had merely informed the applicant that the impugned decision could not be enforced, but that they would rather seek an alternative solution. To that end it was agreed with the Special Hospital in Risan to take over the applicant, an option explicitly requiring the applicant’s consent, which was clearly lacking in the present case (see paragraphs 32-33 and 10-11 above). The applicant, for his part, would not appear to have contributed in any way to the delay complained of.
68. Having regard to its case-law on the subject (see, mutatis mutandis, Boucke, cited above, § 89-94), what was at stake for the applicant and the failure of the domestic authorities to display adequate diligence, the Court considers that the non-enforcement at issue amounts to a violation of Article 6 § 1 of the Convention.
II. ALLEGED VIOLATION OF ARTICLE 13 OF THE CONVENTION
A. Admissibility
69. The Court considers that the applicant’s complaint in respect of Serbia is incompatible ratione personae, for the reasons already stated in paragraph 40 above.
70. The Court notes that the complaint in respect of Montenegro raises issues of fact and law under the Convention, the determination of which requires an examination of the merits. It also considers that the complaint is not manifestly ill-founded within the meaning of Article 35 § 3(a) of the Convention and that it cannot be rejected on any other grounds. The complaint must therefore be declared admissible.
B. Merits
71. The Court notes that Article 13 guarantees an effective remedy before a national authority for an alleged breach of all rights and freedoms guaranteed by the Convention, including the right to a hearing within a reasonable time under Articles 6 § 1 (see, inter alia, Kudła v. Poland [GC], no. 30210/96, § 156, ECHR 2000 XI).
72. It recalls, further, that a remedy concerning length is “effective” if it can be used either to expedite the proceedings before the courts dealing with the case, or to provide the litigant with adequate redress for delays which have already occurred (see Sürmeli v. Germany [GC], no. 75529/01, § 99, ECHR 2006 VII).
73. Finally, the Court emphasises that the best solution in absolute terms is indisputably, as in many spheres, prevention. Where the judicial system is deficient with regard to the reasonable-time requirement in Article 6 § 1 of the Convention, a remedy designed to expedite the proceedings in order to prevent them from becoming excessively lengthy is the most effective solution. Such a remedy offers an undeniable advantage over a remedy affording only compensation since it also prevents a finding of successive violations in respect of the same set of proceedings and does not merely repair the breach a posteriori, as does a compensatory remedy.
74. However, as noted above, the existence of such remedies must be sufficiently certain not only in theory but also in practice, failing which they will lack the requisite accessibility and effectiveness (see paragraph 49 above).
75. Turning to the present case, the Court notes that the Montenegrin Government averred in their preliminary observations that there were remedies available for the applicant’s complaint about the length of the enforcement proceedings made under Article 6 § 1, which objections were rejected on the grounds described at paragraphs 52-59 above.
76. The Court concludes, for the same reasons, that there has been a violation of Article 13 taken together with Article 6 § 1 of the Convention on account of the lack of an effective remedy under domestic law for the applicant’s complaint concerning the length of non-enforcement at issue (see Stakić v. Montenegro, no. 49320/07, §§ 55-60, 2 October 2012 (not yet final); see, also, Stevanović v. Serbia, no. 26642/05, §§ 67-68, 9 October 2007; and, mutatis mutandis, Rodić and Others v. Bosnia and Herzegovina, no. 22893/05, §§ 84-85, 27 May 2008).
77. The Court would again observe that it might reconsider its view in this regard if the Government are able to demonstrate in future such applications, with reference to specific cases, the efficacy of the said remedies (see paragraph 52 above, in fine).
III. OTHER ALLEGED VIOLATIONS OF THE CONVENTION
78. The applicant also complained: (a) under Article 1 of Protocol No. 1 to the Convention, that his right to peacefully enjoy his property had been violated in that he had been forced to change the place of residence to search for another job and thus had to leave his property in Montenegro; and (b) under Article 14 of the Convention and Article 1 of Protocol No. 12 thereto, about having been discriminated against.
79. The Court considers that the applicant’s complaints in respect of Serbia are incompatible ratione personae for the reasons already stated in paragraph 40 above.
80. In the light of all the material in its possession, in particular in view of the fact that the applicant submitted no evidence that Montenegro deprived him of his property in its territory or interfered with it in any way, the Court finds that the complaint in this respect is unsubstantiated and must be rejected in accordance with Article 35 §§ 3 (a) and 4 of the Convention.
81. Quite apart from the fact that the applicant does not seem to have raised this issue before the domestic courts, the Court, in any event, notes that there is no evidence in the case file that there has been any discrimination against the applicant on any grounds. It follows that this complaint is also manifestly ill-founded and must be rejected in accordance with Article 35 §§ 3 (a) and 4 of the Convention.
IV. APPLICATION OF ARTICLE 41 OF THE CONVENTION
82. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
A. Damage
83. The applicant claimed the damages but maintained that the exact amount was difficult to specify as it was “an enormous figure”. He did not submit a properly itemised claim or any documentary evidence in that regard.
84. The Montenegrin Government made no comment in this regard.
85. Pursuant to Rule 60 §§ 2 and 3 of the Rules of Court, the Court requires specific claims supported by appropriate documentary evidence, failing which it may make no award (see the Rules of Court as well as paragraph 5 of the Practice Direction on Just Satisfaction Claims). As regards pecuniary damage, in particular, it is for the applicant to show that pecuniary damage has resulted from the violation alleged. The applicant should submit relevant documents to prove, as far as possible, not only the existence but also the amount or value of the damage (see paragraph 11 of the said Practice Direction). Given that the applicant did not submit a properly itemised claim in respect of the pecuniary damage nor any documentary evidence in that regard and thus failed to comply with Rule 60 §§ 2 and 3 of the Rules of Court, the Court makes no award under this head.
86. On the other hand, it is clear that the applicant sustained some non‑pecuniary damage arising from the breaches of his rights under Articles 6 § 1 and 13 of the Convention, for which he should be compensated. Making its assessment on an equitable basis, the Court awards the applicant EUR 7,000 in this regard.
B. Costs and expenses
87. The applicant maintained that he had incurred “significant” costs and expenses, but he had submitted no invoice.
88. The Montenegrin Government did not make any comment in this respect.
89. According to the Court’s case-law, an applicant is entitled to the reimbursement of costs and expenses only in so far as it has been shown that these have been actually and necessarily incurred and are reasonable as to quantum (see, for example, Iatridis v. Greece (just satisfaction) [GC], no. 31107/96, § 54, ECHR 2000-XI).
90. In the present case, regard being had to the above criteria, as well as to the EUR 850 already granted to the applicant under the Council of Europe’s legal aid scheme, the Court rejects the applicant’s claim in this regard for lack of substantiation.
C. Default interest
91. The Court considers it appropriate that the default interest rate should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT UNANIMOUSLY
1. Declares admissible the applicant’s complaints under Articles 6 § 1 and 13 of the Convention in respect of Montenegro;
2. Declares the remainder of the application inadmissible;
3. Holds that there has been a violation of Article 6 § 1 of the Convention;
4. Holds that there has been a violation of Article 13 of the Convention;
5. Holds
(a) that the respondent State is to pay the applicant, within three months from the date on which the judgment becomes final in accordance with Article 44 § 2 of the Convention, 7,000 EUR (seven thousand euros) in respect of non-pecuniary damage, plus any tax that may be chargeable;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amount at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;
6. Dismisses remainder of the applicant’s just satisfaction claim.
Done in English, and notified in writing on 11 December 2012, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Stanley NaismithGuido RaimondiRegistrarPresident
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FOURTH SECTION
CASE OF KANKOWSKI v. POLAND
(Application no. 10268/03)
JUDGMENT
STRASBOURG
4 October 2005
FINAL
04/01/2006
This judgment will become final in the circumstances set out in Article 44 § 2 of the Convention. It may be subject to editorial revision.
In the case of Kankowski v. Poland,
The European Court of Human Rights (Fourth Section), sitting as a Chamber composed of:
SirNicolas Bratza, President,MrJ. Casadevall,MrG. Bonello,MrR. Maruste,MrS. Pavlovschi,MrL. Garlicki,MrJ. Borrego Borrego, judges,and Mr M. O'Boyle, Section Registrar,
Having deliberated in private on 13 September 2005,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 10268/03) against the Republic of Poland lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a Polish national, Mr Adam Kankowski (“the applicant”), on 20 March 2003.
2. The applicant, who had been granted legal aid, was represented by Mr W. Hermeliński, a lawyer practising in Warsaw. The Polish Government (“the Government”) were represented by their Agent, Mr J. Wołąsiewicz, of the Ministry of Foreign Affairs.
3. On 4 May 2004 the Court declared the application partly inadmissible and decided to communicate the complaint concerning the excessive length of pre-trial detention to the Government. Under the provisions of Article 29 § 3 of the Convention, it decided to examine the merits of the application at the same time as its admissibility.
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
A. The pre-trial detention
4. The applicant was born in 1974 and lives in Reda, Poland.
5. On 27 January 1999 the applicant was arrested by the police on suspicion of having committed armed robbery. On 29 January 1999 the Tczew District Court (Sąd Rejonowy) ordered that he be detained on remand in view of the reasonable suspicion that he had committed the offence in question, the severity of the anticipated penalty and the fear that he might tamper with evidence. The court also observed that other measures designed to secure the proper conduct of the proceedings would be insufficient, given the fact that at the time of the commission of the offence the applicant had already been released under police supervision in another case. That, in the court's opinion, convincingly showed that only detention could prevent him from committing another offence.
6. On 20 April 1999 the Gdańsk Regional Court prolonged the applicant's detention. It reiterated the grounds originally given for his detention. Referring to the fact that more lenient preventive measures had not prevented the applicant from having committed another offence, the court considered that there was a reasonable risk that the applicant would abscond. Furthermore, it considered that since the applicant had not admitted the charge and that there had been other persons involved in the offence who had remained at large, there was a reasonable risk of collusion.
7. In the course of the investigation, the applicant's detention was several times prolonged by the Gdańsk Court of Appeal (Sąd Apelacyjny). The court reiterated the grounds originally given for his detention and stressed that keeping him in custody was necessary to secure the process of obtaining evidence. The relevant decisions were given on 21 July 1999 (prolonging the applicant's detention until 31 December 1999) and 8 December 1999 (prolonging his detention until 27 January 2000). The applicant's appeals against those decisions – in which he contested the reasonableness of the charge against him – were rejected by the Supreme Court (Sąd Najwyższy).
8. On 21 January 2000 the Supreme Court prolonged the applicant's detention – which had meanwhile exceeded the 1 year's time-limit set for detention pending the investigation under Article 263 § 2 of the Code of Criminal Procedure – until 30 April 2000. It considered that the case was “particularly complex” within the meaning of Article 263 § 4 of the Code.
9. On 30 March 2000 the Supreme Court prolonged his detention until 30 June 2000. On 24 May 2000 the Supreme Court ordered that that term should further be prolonged until 15 December 2000. The court reiterated the previous grounds given for the applicant's detention and added that the case was very complex, given that 6 further suspects had in the meantime been charged and detained in the case and that several other potential suspects were still being searched for.
10. In the meantime, new charges were laid against the applicant.
11. Further prolongation of the applicant's detention pending the investigation were ordered by the Gdańsk Court of Appeal on 13 December 2000 (up to 31 March 2001) and on 7 March 2001 (up to 31 May 2001). In its decision of 13 December 2000, the Court of Appeal relied on the reasonable suspicion that the applicant had committed the offences with which he had been charged and the severity of anticipated penalty. It also considered that there was a reasonable risk that the applicant and the other 8 detained co-suspects, if released, might obstruct the proceedings or attempt to evade justice, having regard to the nature and the scale of the offences with which they had been charged (numerous counts of armed robberies) and the number of suspects involved. In its decision of 7 March 2001, the Court of Appeal added that the prolongation of detention was justified by the need to obtain DNA evidence.
12. On 15 May 2001 the Gdańsk Regional Prosecutor (Prokurator Okręgowy) indicted the applicant on 48 charges comprising, among other things, numerous counts of armed robbery before the Gdańsk Regional Court (Sąd Okręgowy). The bill of indictment listed 120 charges brought against 19 accused, who were all remanded in custody. The case-file comprised 114 volumes. The prosecution asked the court to hear evidence from 366 witnesses. It appears that the principal witness was a certain A.Ł., who had been indicted together with all the defendants but gave evidence against them.
13. The trial began on 28 December 2001. However, as at April 2002 the reading out of the bill of indictment by the prosecution was still continuing.
14. During the trial, the Gdańsk Court of Appeal prolonged the applicant's detention several times. The relevant decisions were given on 23 May 2001 (extending his detention up to 31 October 2001), on 24 October 2001 (ordering his continued detention until 31 March 2002), on 13 March 2002 (prolonging that period until 30 September 2002), 11 September 2002 (extending his detention until 31 December 2002), on 18 December 2002 (prolonging his detention until 30 June 2003), on 25 June 2003 (prolonging his detention until 31 December 2003), on 17 December 2003 (extending that term until 30 June 2004), on 23 June 2004 (extending that term until 31 December 2004), on 15 December 2004 (ordering his continued detention until 31 March 2005) and on 30 March 2005 (extending that period until 30 June 2005). As at the latter date, 8 of the 19 accused were still detained on remand and the trial court had heard most of the prosecution witnesses.
15. In all those decisions the Court of Appeal considered that the original grounds given for the applicant's detention were still valid. It stressed that keeping him in custody was necessary in order to prevent him – and his co-defendants – from evading justice or tampering with evidence.
16. In its decision of 13 March 2002, the Court of Appeal found that holding the applicant and his 7 co-defendants in custody was the only measure which would prevent them from obstructing the trial, having regard to the nature of the offences in question, the severity of the anticipated penalty and the fact that such attempts had been made in the course of the investigation. It also instructed the trial court to increase the number of hearings held per month.
17. In its decision of 11 September 2002, the Court of Appeal considered that the applicant's detention was justified under Article 258 § 2 of the Code of Criminal Procedure since that provision established a presumption to the effect that the likelihood of a severe penalty being imposed on the applicant might induce him to obstruct the proceedings.
18. In its decision of 23 June 2004, the Court of Appeal observed that up to April 2003 the main reason for the delays in the trial was the obstructiveness of the defendants and the abuse of the rights of the defence.
19. On 21 March 2005 the trial court made a severance order with a view to expediting the proceedings, and thereafter four defendants (J.N., G.P., Z.S. and Z.C.), who in the meantime had been released from detention, were to be tried separately from other defendants.
20. The applicant repeatedly, but unsuccessfully, asked for release and appealed against the decisions prolonging his detention. He maintained that the length of his detention was unreasonable and contested the charges against him, stressing that they were based on unreliable evidence from A.Ł.
21. It appears that the applicant is still in detention pending trial.
B. The prison term
22. From 9 March 2000 to 15 April 2002 and from 21 June 2002 to 31 July 2002 (i.e. for 2 years, 2 months and 17 days) the applicant served a sentence of imprisonment imposed in other criminal proceedings. He was, however, simultaneously remanded in custody in the present case.
II. RELEVANT DOMESTIC LAW
23. The Code of Criminal Procedure of 1997, which entered into force on 1 September 1998, defines detention on remand as one of the so-called “preventive measures” (środki zapobiegawcze). The other measures are bail (poręczenie majątkowe), police supervision (dozór policji), guarantee by a responsible person (poręczenie osoby godnej zaufania), guarantee by a social entity (poręczenie społeczne), temporary ban on engaging in a given activity (zawieszenie oskarżonego w określonej działalności) and prohibition to leave the country (zakaz opuszczania kraju).
24. Article 249 § 1 sets out the general grounds for imposition of the preventive measures. That provision reads:
“1. Preventive measures may be imposed in order to ensure the proper conduct of proceedings and, exceptionally, also in order to prevent an accused's committing another, serious offence; they may be imposed only if the evidence gathered shows a significant probability that an accused has committed an offence.”
25. Article 258 lists grounds for detention on remand. It provides, in so far as relevant:
“1. Detention on remand may be imposed if:
(1) there is a reasonable risk that an accused will abscond or go into hiding, in particular when his identity cannot be established or when he has no permanent abode [in Poland];
(2) there is a reasonable risk that an accused will attempt to induce [witnesses or co-defendants] to give false testimony or to obstruct the proper course of proceedings by any other unlawful means;
2. If an accused has been charged with a serious offence or an offence for the commission of which he may be liable to a statutory maximum sentence of at least 8 years' imprisonment, or if a court of first instance has sentenced him to at least 3 years' imprisonment, the need to continue detention to ensure the proper conduct of proceedings may be based on the likelihood that a severe penalty will be imposed.”
26. The Code sets out the margin of discretion as to the continuation of a specific preventive measure. Article 257 reads, in so far as relevant:
“1. Detention on remand shall not be imposed if another preventive measure is sufficient.”
27. Article 259, in its relevant part, reads:
“1. If there are no special reasons to the contrary, detention on remand shall be lifted, in particular if depriving an accused of his liberty would:
(1) seriously jeopardise his life or health; or
(2) entail excessively harsh consequences for the accused or his family.”
28. The 1997 Code not only sets out maximum statutory time-limits for detention on remand but also, in Article 252 § 2, lays down that the relevant court – within those time-limits – must in each detention decision determine the exact time for which detention shall continue.
29. Article 263 sets out time-limits for detention. In the version applicable up to 20 July 2000 it provided:
“1. Imposing detention in the course of an investigation, the court shall determine its term for a period not exceeding 3 months.
2. If, due to the particular circumstances of the case, an investigation cannot be terminated within the term referred to in paragraph 1, the court of first instance competent to deal with the case may – if need be and on the application made by the [relevant] prosecutor – prolong detention for a period [or periods] which as a whole may not exceed 12 months.
3. The whole period of detention on remand until the date on which the first conviction at first instance is imposed may not exceed 2 years.
4. Only the Supreme Court may, on application made by the court before which the case is pending or, at the investigation stage, on application made by the Prosecutor General, prolong detention on remand for a further fixed period exceeding the periods referred to in paragraphs 2 and 3, when it is necessary in connection with a stay of the proceedings, for the purpose of a prolonged psychiatric observation of the accused or a prolonged preparation of an expert report, when evidence needs to be obtained in a particularly complex case or from abroad or when the accused has deliberately prolonged the proceedings, as well as on account of other significant obstacles that could not be overcome.”
30. On 20 July 2000 paragraph 4 was amended and since then the competence to prolong detention beyond the time-limits set out in paragraphs 2 and 3 has been vested with the court of appeal within whose jurisdiction the offence in question has been committed.
THE LAW
I. ALLEGED VIOLATION OF ARTICLE 5 § 3 OF THE CONVENTION
31. The applicant complained that the length of his detention on remand had been excessive. He relied on Article 5 § 3 of the Convention, which reads as follows:
“Everyone arrested or detained in accordance with the provisions of paragraph 1 (c) of this Article shall be ... entitled to trial within a reasonable time or to release pending trial. Release may be conditioned by guarantees to appear for trial.”
32. The Government contested that argument.
A. Admissibility
33. The Court notes that the application is not manifestly ill-founded within the meaning of Article 35 § 3 of the Convention. It further notes that it is not inadmissible on any other grounds. It must therefore be declared admissible.
B. Merits
1. Period to be taken into consideration
34. The Court observes that the applicant was arrested on 27 January 1999 and detained on remand on 29 January 1999. He is still in detention pending trial before the first-instance court. Accordingly, the total period of his detention in the present case has exceeded 6 years and 7 months.
35. However, the Court notes that from 9 March 2000 to 15 April 2002 and from 21 June 2002 to 31 July 2002 the applicant served a sentence of imprisonment imposed in other criminal proceedings. It recalls that in view of the essential link between Article 5 § 3 of the Convention and paragraph 1 (c) of that Article, a person convicted at first instance cannot be regarded as being detained “for the purpose of bringing him before the competent legal authority on reasonable suspicion of having committed an offence”, as specified in the latter provision, but is in the position provided for by Article 5 § 1 (a), which authorises deprivation of liberty “after conviction by a competent court” (see, for example, B. v Austria, judgment of 28 March 1990, Series A no. 175, pp. 14-16, §§ 36-39). Thus, the period of the applicant's detention from 9 March 2000 to 15 April 2002 and from 21 June 2002 to 31 July 2002 must be subtracted from the total period of the applicant's detention since during that time was serving a prison sentence resulting from another conviction.
36. Accordingly, the period of the applicant's detention on remand to be considered under Article 5 § 3 amounts to over 4 years and 5 months.
2. The reasonableness of the length of detention
(a) The parties' arguments
37. The Government argued that the length of the applicant's detention had been reasonable and duly justified in its entire period. They relied firstly on the existence of serious suspicion that the applicant had committed the offences in question.
38. Furthermore, the Government referred to the gravity of the charges against the applicant and the severity of anticipated penalty. They argued that the likelihood that a severe penalty would be imposed could induce the applicant to interfere with the proper conduct of the proceedings. They also submitted that the risk of the defendants' obstructing the proceedings or tampering with evidence was increased by the fact that they had been charged with having acted in an organised group. The Government pointed out that one of the suspects had attempted to influence the testimonies of witnesses prior to his arrest. Thus, the domestic courts had considered it indispensable to keep the applicant and his co-defendants in custody until the trial court had heard all relevant witnesses.
39. Furthermore, the Government referred to the findings of the domestic court which had held that more lenient preventive measures imposed on the applicant in another set of criminal proceedings against him had failed to prevent him from obstructing the proceedings and committing other offences.
40. The Government underlined that that the serious nature of the charges brought against the applicant as well as the fact that there were 19 defendants, and that the case concerned a significant number of offences committed in an organised group between 1991 and 1999 in different parts of Poland, required that the applicant be held in custody in order to secure the proper conduct of the proceedings. They also submitted that the prolongation of the detention beyond the statutory time-limit of 2 years had been justified under Article 263 § 4 of the Code of Criminal Procedure by the particular complexity of the case and the need to obtain extensive evidence.
41. The Government maintained that the defendants had repeatedly requested the trial court to adjourn the trial (including on health grounds), to return the case to the prosecution authorities for additional investigation or to transfer the case to another court. They submitted that at the hearing held on 23 September 2002 the applicant had declared that he was unable to follow the hearing due to the dizziness; however the doctor who had examined the applicant, considered that there had been no obstacle to the applicant's participation in the hearing.
42. The Government stressed that due to the obstructive attitude of the defendants, the trial court could only begin to hear evidence in April 2003. They referred in that respect to the decision of the Court of Appeal of 23 June 2004 which had observed that the main reason for the delays in the proceedings until April 2003 had been the obstructiveness of the defendants and the abuse of the rights of the defence. The Government also submitted that the defendants had made numerous applications to challenge the trial court. In the Government's view the defendants' actions justified the conclusion that they had resorted to delaying tactics.
43. Lastly, they argued that both the prosecuting authorities and the courts had displayed the requisite diligence in the present case.
44. The applicant submitted that his detention had been inordinately lengthy. He argued that an excessive period of detention, as in the present case, was in itself incompatible with Article 5 § 3 of the Convention, given the principle of the presumption of innocence.
45. The applicant maintained that, however strong had been the suspicion against him, it could suffice as a basis for holding him in custody only at an early stage of the proceedings. He accepted that the need to secure the proper conduct of the proceedings had justified his detention as long as the evidence had not been obtained. However, he added that with the passage of time that ground became less and less relevant.
46. The applicant emphasised that, during the entire period of his detention, the authorities had not considered the possibility of imposing on him other preventive measures, such as bail or police supervision.
47. As regards the risk of absconding, the applicant submitted that it had not been based on any reliable evidence, and that with the passage of time, it had become irrelevant from the point of view of the proper conduct of the trial.
(b) The Court's assessment
(i) Principles established under the Court's case-law
48. The Court reiterates that the question of whether or not a period of detention is reasonable cannot be assessed in the abstract. Whether it is reasonable for an accused to remain in detention must be assessed in each case according to its special features. Continued detention can be justified in a given case only if there are specific indications of a genuine requirement of public interest which, notwithstanding the presumption of innocence, outweighs the rule of respect for individual liberty laid down in Article 5 of the Convention (see, among other authorities, Kudła v. Poland [GC], no. 30210/96, §§ 110-111 with further references, ECHR 2000-XI).
49. It falls in the first place to the national judicial authorities to ensure that, in a given case, the pre-trial detention of an accused person does not exceed a reasonable time. To this end they must, paying due regard to the principle of the presumption of innocence, examine all the facts arguing for or against the existence of the above-mentioned requirement of public interest justifying a departure from the rule in Article 5 and must set them out in their decisions on the applications for release. It is essentially on the basis of the reasons given in these decisions and of the well-documented facts stated by the applicant in his appeals that the Court is called upon to decide whether or not there has been a violation of Article 5 § 3 (see, for example, Labita v. Italy [GC], no. 26772/95, § 152, ECHR 2000-IV, and Kudła, cited above, § 110).
50. The persistence of reasonable suspicion that the person arrested has committed an offence is a condition sine qua non for the lawfulness of the continued detention, but after a certain lapse of time it no longer suffices. The Court must then establish whether the other grounds given by the judicial authorities continued to justify the deprivation of liberty. Where such grounds were “relevant” and “sufficient”, the Court must also be satisfied that the national authorities displayed “special diligence” in the conduct of the proceedings. The complexity and special characteristics of the investigation are factors to be considered in this respect (see, for example, Scott v. Spain, judgment of 18 December 1996, Reports 1996-VI, pp. 2399-2400, § 74, and I.A. v. France, judgment of 23 September 1998, Reports 1998-VII, p. 2978, § 102).
(ii) Application of the principles to the circumstances of the present case
51. The Court observes that the judicial authorities relied, in addition to the reasonable suspicion against the applicant, on four principal grounds, namely (1) the severity of penalty to which he was liable, (2) the serious nature of the offences with which he had been charged, (3) the risk of absconding and tampering with evidence and (4) the complexity of the case and the need to obtain extensive evidence (see paragraphs 5-9, 11, 15-17 above). Additionally, the Gdańsk Regional Court in its decision of 20 April 1999 had relied on the reasonable risk of collusion (see paragraph 6 above).
52. The Court accepts that the reasonable suspicion against the applicant of having committed the serious offences may initially have warranted his detention. In addition, it considers that the authorities were faced with a difficult task of determining the facts and the degree of alleged responsibility of each of the defendants, who had been charged with acting in an organised criminal group. In these circumstances, the Court also accepts that the need to obtain voluminous evidence from many sources together with the complexity of the investigation, constituted relevant and sufficient grounds for the applicant's detention during the time necessary to terminate the investigation, to draw the bill of indictment and to hear evidence from the accused.
53. However, with the passage of time those grounds inevitably became less and less relevant. In particular, even if the Court were to accept that the defendants, including the applicant, had contributed to certain delays at the trial by making use of their procedural rights, the Court considers that those grounds could not justify the entire period of the applicant's detention. The Court is of the view that this conclusion remains valid, despite the Government's argument that the applicant had attempted to obstruct the trial hearing held on 23 September 2002 (see paragraph 41 above). It must then establish whether the other grounds advanced by the judicial authorities were “relevant” and “sufficient” to continue to justify the deprivation of liberty.
54. The Court notes that the judicial authorities also relied on the likelihood that a severe sentence might have been imposed on the applicant given the serious nature of the offences at issue (see paragraphs 5, 11, 16 and 17 above). In this respect, the Court recalls that the severity of the sentence faced is a relevant element in the assessment of the risk of absconding or re-offending. It acknowledges that in view of the seriousness of the accusations against the applicant the authorities could justifiably consider that such an initial risk was established. However, the Court has repeatedly held that the gravity of the charges cannot by itself serve to justify long periods of detention on remand (see Ilijkov v. Bulgaria, no. 33977/96, §§ 80-81, 26 July 2001). In the circumstances of the present case, the Court finds that the severity of the anticipated penalty alone, or in conjunction with the other grounds relied on by the authorities, cannot constitute a “relevant and sufficient ground” for holding the applicant in detention for a considerably long period of over 4 years and 5 months.
55. As regards the risk of absconding and tampering with evidence, the Court cannot accept that they constituted relevant and sufficient grounds for the entire length of the applicant's detention.
56. Firstly, it observes that at a very early stage of the investigation the judicial authorities considered that the imposition of detention had been necessary in order to prevent the applicant from tampering with evidence, absconding and re-offending. They had relied on the fact that the more lenient preventive measure (police supervision) imposed on the applicant in another case against him had been inadequate (see paragraphs 5 and 6 above). The Court accepts that at the relevant time the authorities had a valid reason to consider that the risk relied on could materialise. However, it cannot but note that in their decisions, following the decision of the Gdańsk Regional Court of 20 April 1999, the judicial authorities did not refer to the fact that the applicant had breached the preventive measure imposed on him in another set of proceedings. Thus, the Court concludes that the risk of absconding and tampering with evidence could not be justified by reference to that latter fact.
57. In respect of the subsequent period, the Court observes that the judicial authorities appeared to presume the risk of absconding and tampering with evidence on account of the likelihood of a severe penalty being imposed on the applicant and the nature of the offences in question (see paragraph 17 above). It notes however that the decisions referring thereto did not put forward any argument capable of showing that these fears were well-founded. The Court considers that such a generally formulated risk flowing from the nature of the offences with which the applicant had been charged may possibly be accepted as the basis for his detention at the initial stages of the proceedings. Nevertheless, in the absence of any other factor capable of showing that the risk relied on actually existed, the Court cannot accept those grounds as a justification for holding the applicant in custody for the entire relevant period.
58. Lastly, as regards the risk of collusion the Court notes that the judicial authorities relied on that risk only in the decision of the Regional Court of 20 April 1999. Thus, the Court cannot see how that risk could justify the entire length of the applicant's detention.
59. The Court would also emphasise that under Article 5 § 3 the authorities, when deciding whether a person should be released or detained, are obliged to consider alternative measures of ensuring his appearance at trial. Indeed, that provision proclaims not only the right to “trial within a reasonable time or to release pending trial” but also lays down that “release may be conditioned by guarantees to appear for trial” (see Neumeister v. Austria, judgment of 27 June 1968, Series A no. 8, p. 3, § 3; and Jabłoński v. Poland, no. 33492/96, § 83, 21 December 2000).
60. In the present case the Court notes that during the entire period of the applicant's detention, except for the initial period covered by the decisions of the Tczew District Court of 29 January 1999 and the Gdańsk Regional Court of 20 April 1999, and despite his applications for release, the authorities never envisaged any other guarantees of his appearance at trial. Nor did they give any consideration to the possibility of ensuring his presence at trial by imposing on him other “preventive measures” expressly foreseen by Polish law to secure the proper conduct of criminal proceedings (see paragraph 23 above).
61. What is more, it is not apparent from the relevant decisions given after 20 April 1999 why the authorities considered that those other measures would not have ensured the applicant's appearance before the court or in what way the applicant, had he been released, would have obstructed the course of the trial. Nor did they mention any factor indicating that there was a real risk of his absconding or obstructing the proceedings. In that regard the Court would also point out that although such a potential danger may exist where an accused is charged with a serious offence and where the sentence faced is a long term of imprisonment, the degree of that risk cannot be gauged solely on the basis of the severity of the offence and anticipated sentence (see Muller v. France, judgment of 17 March 1997, Reports of Judgments and Decisions 1997-II, p. 388,, § 43).
62. The foregoing considerations are sufficient to enable the Court to conclude that the grounds given for the applicant's pre-trial detention were not “sufficient” and “relevant” to justify holding him in custody for over 4 years and 5 months.
63. There has accordingly been a violation of Article 5 § 3 of the Convention.
II. APPLICATION OF ARTICLE 41 OF THE CONVENTION
64. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
A. Damage
65. The applicant claimed 15,000 euros (EUR) in respect of non-pecuniary damage and an unspecified amount in respect of pecuniary damage.
66. The Government argued that the applicant's claims should be rejected as excessive.
67. The Court does not discern any causal link between the violation found and the pecuniary damage alleged; it therefore rejects this claim. On the other hand, it considers that the applicant has suffered non-pecuniary damage – such as distress resulting from the protracted length of his detention – which is not sufficiently compensated by the finding of a violation of the Convention. Considering the circumstances of the case and making its assessment on an equitable basis, the Court awards the applicant EUR 1,000 under this head.
B. Costs and expenses
68. The applicant, who had been granted legal aid, also claimed EUR 1,500 for the costs and expenses incurred before the Court.
69. The Government argued that any award under this head should be limited to those costs and expenses that have been actually and necessarily incurred and are reasonable as to quantum.
70. According to the Court's case-law, an applicant is entitled to reimbursement of his costs and expenses only in so far as it has been shown that these have been actually and necessarily incurred and are reasonable as to quantum. In the present case, regard being had to the information in its possession and the above criteria, the Court considers it reasonable to award the sum of EUR 500 for the proceedings before the Court.
C. Default interest
71. The Court considers it appropriate that the default interest should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT UNANIMOUSLY
1. Declares the application admissible;
2. Holds that there has been a violation of Article 5 § 3 of the Convention;
3. Holds
(a) that the respondent State is to pay the applicant, within three months from the date on which the judgment becomes final in accordance with Article 44 § 2 of the Convention, EUR 1,000 (one thousand euros) in respect of non-pecuniary damage and EUR 500 (five hundred) in respect of costs and expenses, to be converted into Polish zlotys at the rate applicable at the date of settlement, plus any tax that may be chargeable;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;
4. Dismisses the remainder of the applicant's claim for just satisfaction.
Done in English, and notified in writing on 4 October 2005, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Michael O'BoyleNicolas BratzaRegistrarPresident
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Leave granted. We have heard the companynsel on both sides. The appeal by special leave arises from the judgment dated July 2. 1992 of the Division Bench of the Madras High Court rendered in LPA No.161 of 1988. The appellants are the alienness from Sellathachi, widow of Somasundaram Pillai who had executed a will, Ex-A3 on 16.7.1950 bequeathing the suit properties to his wife and his companysins widow Janakathache mentioning thereunder as follows Whereas I have numbermale or female issues and my wife 1 Sellathachi and 2 Janaka Thathachi, wife of my senior paternal uncles son Thabasuya Pillai are living with me and in my family and other than the other 2 persons, there is numbere else in my family. Amongst the aforesaid persons, the aforesaid Janaka Thachi have got only maintenance relationship and numbere else in my family have any right in the share or have maintenance relationship. I am duty bound to provide maintenance for the aforesaid two persons and I have numberother duty to be performed. Therefore, after my lifetime, the under mentioned A Schedule property valued at Rs.2000/shall be got by the aforesaid two persons and shall be enjoyed in equal shares without any right to alienate the same and perform the charities as per their wish and after the lifetime of both the aforesaid persons, Govindasrasan Pillai, s o Peria Pillai, of the aforesaid Eduvankudi Village shall be the Trustee of A Schedule property and with the income derived from the under mentioned land shall perform the Pooja to the idol at Swamimalai Sri Swaminatha Swami Devasthanam, Kumbekonam Taluk, every month on the Krithigai Satar Day and also do the charity of power feeding on the aforesaid day, and also shall put up the lamps every day at the Subramania Swamiar Temple of the aforesaid Edavankudi village and perform the Pooja and the Charity of poor feeding every month on the Krithigai Star Day. Further in respect of the under mentioned B Schedule property valued at Rs.1000/-, after my lifetime, the aforesaid Govinda Rajan Pillai himself shall be the trustee and from the revenue derived from the aforesaid property shall perform the Pooja and the charity of poor feeding as detailed above to the aforesaid Swami Natha Swami and the aforesaid Subramania Swamy. Amongst the aforesaid Sellathachi and Janaka Thachi, if one of the persons were to doe survived by another, the surviving Member shall have the right to enjoy the A Schedule property in its entirety. This Deed of will shall companye into force only after my lifetime, and I shall have the right and authority to change or cancel this Deed of Will during my lifetime. Somasundaram Pillai died in September 1950. The legatees Sellathachi and another had companye into possession of the properties. Janaka Thathachi died in the year 1960. In 1970, Sellathachi had appointed a power of attorneyholder who had alienated the suit properties and the appellants had purchased them under registered sale deed. The suit was filed for declaration that the legatees having succeeded to limited estate under the will, the alienations made by Sellathachi were illegal. The trial Court decreed the suit. The learned single Judge allowed the appeal and dismissed the suit and in LPA No.161/88 dated July 2, 1992, the Division Bench of the High Court has set aside the decree of the single Judge holding that the legatees had succeeded to restricted estate under subsection 2 or Section 14 of the Hindu Succession Act, 1956 for short, the Act and that, therefore, their rights have number blossomed into absolute estate. Thus this appeal by special leave. The question, therefore, is whether Sellathachi, the widow of Somasundaram Pillai, had become the absolute owner, by operation or Section 14 1 of the Act? Recital of the Will clearly indicates that the testator was companyscious of the pre-existing legal position, namely, he was under an obligation to maintain his wife and also moral obligation to maintain his companysins wife. He stated that I am duty bound to provide maintenance for the aforesaid two persons and I have numberother duty to be performed. He had stated that after his lifetime the two legatees would be entitled to take possession of the properties and enjoy the same in equal share without any right to alienate and to perform the charities as per his last wish. He also mentioned that if one of the legatees pre-deceases, the other surviving member would have the right to enjoy the properties mentioned in the will. The right to maintenance and a charge on her husbands properties are pre-existing legal rights available to her Section 14 of the Act reads thus 14 1 Any property possessed by a female Hindu, whether acquired before or after the companymencement of this Act, shall be held by her as full owner thereof and number as a limited owner. Explanation.-In this sub-section, property includes both movable and immovable property acquired by a female Hindu by inheritance or device, or at a partition, or in lieu of maintenance of arrears of maintenance, or by gift from any person, whether a relative or number, before, at or after her marriage, or by her own skill or exertion, or by purchase or by prescription, or in any other manner whatever, and also any such property held by her as stridharas immediately before the companymencement of this Act. Nothing companytained in subsection 1 shall apply to any property acquired by way of gift or under a will or any other instrument or under a decree or order of a civil companyrt or under an award where the terms of the gift, will or other instrument or the decree, order or award prescribe a restricted estate in such property. In Tulasamma vs. V.Sesha Reddi 1977 3 SCR 261, a Bench of three Judges of this Court had companysidered the right acquired under the will and held at page 268 thus Whatever be the kind of property, movable or immovable, and whichever be the mode of acquisition, it would be companyered by sub-section 1 of Section 14, the object of the Legislature being to wipe out the disabilities from which a Hindu female suffered in regard to ownership of property under the old Sastric law, to abridge the stringent provisions against propriety rights which were often regarded as evidence of her perpetual tutelage and to recognize her status as an independent and absolute owner of property. At page 269, it was further held that Sub-section 2 must, therefore, be read in the companytext of subsection 1 so as to leave as large a scope for operation as possible to sub-section 1 and so read, it must be companyfined to cases where property is acquired by a female Hindu for the first time as a grant without any pre-existing right, under a gift, will, instrument, decree, order or award, the terms of which prescribe a restricted estate in the property. Thota Sesharathamma vs. Thota Manikyamma 1991 3 SCR 717 1991 4 SCC 312 is also a case under which the legatee had obtained under a will a limited estate known as widows estate, prior to the Act came into force. When the suit was laid for declaration that she became only a limited owner, this Court had companysidered the companytroversy and held thus Devolution of the property under the will would take effect after the demise of the testator and the legatee would be bound by the terms of gift over etc. The stranger legatee cannot take shelter under subsequent change of law to enlarge the operation of restrictive companyenant to claim absolute ownership in the property bequeathed to her. But socioeconomic amelioration under the Act engulfs an instrument under the sweep of Section 14 1 thereof it extinguishes the pre-existing limited estate or restrictive companydition and companyfers absolute and full ownership of the property possessed by a Hindu female as on the date when the Act had companye into force, namely, June 17, 1956. The companyrts are number giving retrospective operation to Section 14 1 or to the instrument. The companyrts only would be applying the law to the facts found as on the date when the question arose to find whether legatee has pre-existing vestige of title under law and the nature of possession of the property held by her and whether the legatee would get the benefit of Section 149 1 of the Act. In Mangat Mal vs.Punni Devi 1995 6 SCC 88, another Bench of two Judges companysidered the right acquired by the female under an award and held that Maintenance, as we see it, necessarily must encompass a provision for residence. Maintenance is given so that the lady can live in the manner, more or less, to which she was accustomed. The companycept of maintenance must, therefore, include provision for food and clothing and the like and take into account the basic need of a roof over the head. Provision for residence may be made either by giving a lump sum in money, or property in lieu thereof. It may also be made by providing, for the companyrse of the ladys life, a residence and money for other necessary expenditure. Where provision is made in this manner, by giving a life interest in property for the purposes of residence, that provision is made in lieu of a preexisting right to maintenance and the Hindu lady acquires far more than the vestige of title which is deemed sufficient to attract Section 14 1 . Under the award provision was made, in lieu of Sukh Devis pre-existing right to maintenance, of money and interest of life in the Bidasar property. Sukh Devi, therefore, acquired limited ownership rights in the Bidasar property in recognition of her pre-existing right to maintenance. Upon the companying into force of the Act, the limited rights acquired by Sukh Devi in 1934 blossomed into full ownership of the Sidasar property, and she became entitled to sell its numberra. In our view, therefore, the High Court was in error in the view that it took. This Court thus held that the view taken by the High Court was wrong in holding that she acquired a limited estate and sub-section 2 of Section 14 became applicable to the right acquired by her under the award. Accordingly, this Court had held that her right acquired under the award was in recognition of her pre existing right to maintenance and that, therefore, it had blossomed into an absolute right under Section 14 1 of the Act. It is true, as rightly companytended by Shri Rangam, the learned companynsel for the respondent, that a Bench of two Judges of this Court in Gumpha vs. Jaibai 1994 2 SCC 511 companysidered the effect of the will and had held that property acquired under will does number fall under Section 14 1 . In that case, the will was executed in the year 1941 and the testator died in 1958 after the Act had companye into force. Therefore, this Court had held that she acquired right to maintenance under the will as a restricted estate and by operation of Section 30 of the Act read with Section 14 2 , she acquired a limited estate. The learned Judges appear to have companystrued the operation of sub-section 2 of Section 14 in the light of the language mentioned in the Will. It would be seen that the Will was executed in the year 1941. As per pre-existing law in 1941, she had only a right to maintenance. The learned Judges proceeded on the premise that a Hindu males power to dispose of his property being absolute, it includes right to create limited or restricted estate in favour of a female. By operation of Section 30 of the Act the restricted estate under the Will companyes under sub-section 2 of Section 14 as it is number a device under which she acquired the property under sub-section 1 thereof. However, the learned judges numbered that if the maintenance was given in recognition of a preexisting right, such an acquisition of property was taken out of sub-section 2 to promote the object of Section 14. The manner of acquisition under sub-section 1 includes inheritance etc. specifically mentioned in subsection 1 before the companymencement of the Act. Therefore, it was held that it does number include acquisition by will. The companystruction of subsections 2 and 1 being companysistent with Section 30 of the Act led to that companyclusion. in the view of the learned Judges, that the words in lieu of or arrears of for maintenance appeared to be significant. In Seth Badri Prasad v. Srimati Kanso Devi 1969 2 SCC 586 the question of the companystruction of sub-section 2 and sub-section 1 of Section 14 had companye up before a three-Judge Bench of this Court. The facts therein were that the respondent got certain properties under an award as a widows estate. Suit was filed by the appellant to restrain respondent from companymitting acts of waste or alienating the properties on the ground that she was only limited owner of the property. The respondent companytended that under Section 14 1 she became full owner of the property which was found favour with the companyrts below. In interpreting Section 14 1 and 2, this Court held that the words acquired and possessed have been used in their widest companynotation. Possession must be companystructive or actual or in any form recognized by law. In the language of Explanation the word acquired must also be given the widest possible meaning. Sub-section 2 of Section 14 would companye into operation only if acquisition in any of the matters indicated therein does number companye under Section 14 1 and was made for the first time, without there being any pre-existing right in the Hindu female who is in possession of the property. It was held that since she was in possession of the property as a widows estate, her limited right was enlarged into an absolute right under Section 14 1 . In Mangal Singh Ors. v. Shrimati Rattno Anr. 1967 3 SCR 454, another three-Judge Bench was to companysider the question whether a Hindu female who was dispossessed from the property in her possession before the Act had companye into force became an absolute owner under Section 14 1. This Court held that the words possessed by instead of the expression in possession of in Section 14 1 was intended to enlarge the meaning of the expression possession by to companyer cases of possession in law. Even though the Hindu female was number in actual, physical or companystructive possession of the property Section 14 1 stands attracted. It is seen that if after the Constitution came into force the right to equality and dignity of person enshrined in the Preamble of the Constitution, Fundamental Rights and Directive Principles which are a Trinity intended to remove discrimination or disability on grounds only of social status or gender, removed the pre-existing impediments that stood in the way of female or weaker segments or the society. In S.R. Bommai v. Union of India 1995 1 SCC this Court held that the Preamble is part of the basic structure of the Constitution. Handicaps should be removed only under rule of law to enliven the Trinity of justices equality and liberty with dignity of person. The basic structure permeates equality to status and opportunity. The personal laws companyferring inferior status on women is anathema to equality. Personal laws are derived number from the Constitution but from the religious scriptures. The laws thus derived must be companysistent with the Constitution lest they became void under Article 13 if they violated fundamental rights. Right to equality is a fundamental right. Parliament, therefore, has enacted Section 14 to remove pre-existing disabilities fastened on the Hindu female limiting her right to property without full ownership thereof. The discrimination is sought to be remedied by Section 14 1 enlarging the scope of acquisition of the property by a Hindu female appending an explanation with it. The General Assembly of the United Nations adopted a declaration on December 4, 1986 on The Development of the Right to Development to which India played a crusading role for its adoption and ratified the same. Its preamble companynises that all human rights and fundamental freedoms are indivisible and interdependent. All Nation States are companycerned at the existence of serious obstacles to development and companyplete fulfillment of human beings, denial of civil, political, economic, social and cultural rights. In order to promote development, equal attention should be given to the implementation, promotion and protection of civil, political, economic, social and political rights. Article 1 1 assures right to development an inalienable human right, by virtue of which every person and all people are entitled to participate in, companytribute to, and enjoy economic, social, cultural and political development in which all human rights and fundamental freedoms can be fully realized. Article 6 1 obligates the state to observance of all human rights and fundamental freedoms for all without any discrimination as to race, sex, language or religion. Sub-Article 2 enjoins that equal attention and urgent companysideration should be given to implement, promotion and protection of civil, political, economic, social and political rights. Subarticle 3 thereof enjoins that estate should take steps to eliminate obstacle to development, resulting from failure to observe civil and political rights as well as economic, social and economic rights. Article 8 castes duty on the State to undertake, necessary measures for he realization of right to development and ensure, inter alia, equality of opportunity for all in their access to basic resources and distribution of income. Effective measures should be undertaken to ensure that women have an active role in the development process. Appropriate economic and social reforms should be carried out with a view to eradicate all social injustice. Human Rights are derived from the dignity and worth inherent in the human person. Human Rights and fundamental freedom have been reiterated by the Universal Declaration of Human Rights. Democracy, development and respect for human rights and fundamental freedoms are inter-dependent and have mutual reinforcement. The human rights for woman, including girl child are, therefore, inalienable, integral and indivisible part of universal human rights. The full development of personality and fundamental freedoms and equal participation by women in political, social, economic and cultural life are companycomitants for national development, social and family stability and growth, culturally, socially and economically. All forms of discrimination on grounds of gender is violative of fundamental freedoms and human rights. Vienna declaration on the elimination of all forms of discrimination against women for short CEDAW was ratified by the U.N.O. on December 18, 1979. The Government of India who was an active participant to CEDAW ratified it on June 19, 1993 and acceded to CEDAW on August 8, 1993 with reservation on Articles 5 e , 16 1 , 16 2 and 29 of CEDAW. The Preamble of CEDAW reiterates that discrimination against women, violates the principles of equality of rights and respect for human dignity is an obstacle to the participation on equal terms with men in the political, social, economic and cultural life of their companyntry hampers the growth of the personality from society and family and makes more difficult for the full development of potentialities of women in the service of their companyntries and of humanity Poverty of women is a handicap. Establishment of new international economic order based on equality and justice will companytribute significantly towards the promotion of equality between men and women etc. Article 1 defines discrimination against women to mean many distinctions exclusion or restriction made on the basis of sex which has the effect or purpose on impairing or nullifying the recognized enjoyment or exercise by women, irrespective of their marital status, on a basis of equality of men and women all human rights and fundamental freedoms in the political, economic, social, cultural, civil or any other field. Article 2 b enjoins the State parties while companydemning discrimination against women in all its forms to pursue by appropriate means without delay, elimination of discrimination against women by adopting appropriate legislative and other measures including sanctions where appropriate, prohibiting all discriminations against women. To take all appropriate measures including legislation, to modify or abolish existing laws, regulations, customs and practices which companystitute discrimination against women. Clause C enjoins to ensure legal protection of the rights of women on equal basis with men through companystituted national tribunals and other public institutions against any act of discrimination to provide effective protection to women. Article 3 enjoins state parties that it shall take, in all fields, in particular, in the political, social, economic and cultural fields, all appropriate measures including legislation to ensure full development and advancement of women for the purpose of guaranteeing them the exercise and enjoyment of human rights and fundamental freedoms on the basis of equality with men. Article 13 states that the state parties shall take all appropriate measures to eliminate discrimination against women in other areas of economic and social life in order to ensure, on a basis of equality of men and women, in particular Article 14 laid emphasis to eliminate discrimination on the problems faced by rural women so as to enable them to play in the economic survival of their families including their work in the number-monetized sectors of the economy and shall take all appropriate measures Participation in and benefit from rural development and, in particular, shall ensure to such women the right to participate in the development programme to organize self groups and companyperatives to obtain equal access to economic opportunities through employment or self-employment etc. Article 15 2 enjoins to accord to women in equality with men before the law, in particular, to administer property The Parliament made the Protection of Human Rights Act, 1993. Section 2 b defines human rights means the rights relating to life, liberty, equality and dignity of the individual guaranteed by the Constitution, embodied in the international companyventions and enforceable by companyrts in India. Thereby the principles embodied in CEDAW and the companycomitant right to development became integral parts of the Indian Constitution and the Human Rights Act and became enforceable. Section 12 of Protection of Human Rights Act charges the companymission with duty for proper implementation as well as prevention of violation of the human rights and fundamental freedoms. Article 5 a of CEDAW to which the Government of India expressed reservation does number stand in its way and in fact Article 2 f denudes its effect and enjoin to implement Article 2 f read with its obligation undertaken under Articles 3, 14 and 15 of the Convention vis-a-vis Articles 1, 3, 6 and 8 of the Convention of Right to Development. The directive principles and fundamental rights, though provided the matrix for development of human personality and elimination of discrimination, these companyventions add urgently and teeth for immediate implementation. It is, therefore, imperative of the State to eliminate obstacles, prohibit all gender based discriminations as mandated by Articles 14 and 15 of the Constitution of India. By operation of Article 2 f and other related articles of CEDAW, the State should take all appropriate measures including legislation to modify or abolish gender based discrimination in the existing laws, regulations, customs and practices which companystitute discrimination against women. Article 15 3 of the Constitution of India positively protects such Acts or actions. Article 21 of the Constitution of India reinforces fright to life. Equality, dignity of person and right to development are inherent rights in every human being. Life in its expanded horizon includes all that give meaning to a persons life including culture, heritage and tradition with dignity of person. The fulfillment of that heritage in full measure would encompass the right to life. For its meaningfulness and purpose every woman is entitled to elimination of obstacles and discrimination based on gender for human development, women are entitled to enjoy economic, social, cultural and political rights without discrimination and on footing of equality. Equally in order to effectuate fundamental duty to develop scientific temper, humanism and the spirit of enquiry and to strive towards excellence in all spheres of individual and companylective activities as enjoined in Article 51A h and J of the Constitution of India, facilities and opportunities number only are to be provided for, but also all forms of gender based discrimination should be eliminated. It is a mandate to the State to do these acts. Property is one of the important endowments or natural assets to accord opportunity, source to develop personality, to be independent, right to equal status and dignity of person. Therefore, the State should create companyditions and facilities companyducive for women to realize the right to economic development including social and cultural rights. Bharat Ratna Dr. B.R. Ambedkar stated, on the floor of the Constituent Assembly that in future both the legislature and the executive should number pay mere lip service to the directive principles but they should be made the bastion of all executive and legislative action. Legislative and executive actions must be companyformable to and effectuation of the fundamental rights guaranteed in Part III and the directive principles enshrined in part IV and the Preamble of the Constitution who companystitutes companyscience of the Constitution. Covenants of the United Nation add impetus and urgency to eliminate gender based obstacles and discrimination. Legislative action should be devised suitably to companystallate economic empowerment of women in socio-economic restructure for establishing egalitarian social order. Law is an instrument of social change as well as the defender for social change. Article 2 e of CEDAW enjoins that this Court to breath life into the dry bones of the Constitution, international companyvictions and the Protection of Human Rights Act and the Act to prevent gender based discrimination and to effectuate right to life including empowerment of economic, social and cultural rights to women. As per the U.N. Report 1980 woman companystitute half the world population, perform nearly two thirds of work hours, receive one tenth of the worlds income and own less than one hundred per cent of worlds property. Half of the Indian population too are women. Women have always been discriminated and have suffered and are suffering discriminated in silence. Self sacrifice and self denial are their numberility and fortitude and yet they have been subjected to all inequities, indignities inequality and discrimination. Articles 13, 14, 15 and 16 of the Constitution of India and other related articles prohibit discrimination on the ground of sex. Social and economic democracy is the companynerstone for success of political democracy. In Mrs. Valsamma Paul v. Cochin University Ors. JT 1996 1 SC 57 this Court has held thus Human rights are derived from the dignity and worth inherent in the human person. Human rights and fundamental freedoms have been reiterated in the Universal Declaration of Human Rights. Democracy, development and respect for human rights and fundamental freedoms are inter-dependent and have mutual reinforcement. The human rights for women, including girl child are, therefore, inalienable, integral and indivisible part of universal human rights. The full development of personality and fundamental freedoms and equal participation by women in political, social, economic and cultural life are companycomitants for national development, social and family stability and growth-cultural, social and economical. All forms of discrimination on grounds of gender is violative of fundamental freedoms and human rights. Convention for Elimination of all forms of Discrimination Against Women for short, CEDAW was ratified by the U.N.O. on December 18, 1979 and the Government of India had ratified as an active participant on June 19, 1993 acceded to CEDAW and reiterated that discrimination against women violates the principles of equality of rights and respect for human dignity and it is an obstacle to the participation on equal terms with men in the political, social, economic and cultural life of their companyntry it hampers the growth of the personality from society and family, making more difficult for the full development of potentialities of women in the service of the respective companyntries and of humanity. Establishment of new international economic order based on equality and justice will companytribute significantly towards the promotion of equality between men and women etc. Article 1 defines discrimination against women to mean any distinction, exclusion or restriction made on the basis of sex which has the effect or purpose of impairing or nullifying the recognized enjoyment or exercise by women, irrespective of their marital status, on the basis of equality of men and women, all human rights and fundamental freedoms in the political, economic, social, cultural, civil or any other field. Article 2 b enjoins upon the State parties, while companydemning discrimination against women in all its forms, to pursue, by appropriate means, without delay, elimination of discrimination against women by adopting appropriate legislative and other measures including sanctions where appropriate, prohibiting all discriminations against women to take all appropriate measures including legislation, to modify or abolish existing laws, regulations, customs and practices which companystitute discrimination against women. Clause C enjoins upon the State to ensure legal protection of the rights of women on equal basis with men through companystituted national tribunals and other public institutions against any act of discrimination to provide effective protection to women. Article 3 enjoins upon the State parties that it shall take, in all fields, in particular, in the political, social, economic and cultural fields, all appropriate measures including legislation to ensure full development and advancement of women for the purpose of guaranteeing them the exercise and enjoyment of human rights and fundamental freedoms on the basis of equality with men. Article 13 states that the State parties shall take all appropriate measures to eliminate discrimination against women in other areas of economic and social life in order to ensure, on a basis of equality of men and women. The Parliament has enacted the Protection of Human Rights Act, 1993. Section 2 b defines human rights to mean the rights relating to life, liberty, equality and dignity of the individual guaranteed by the Constitution, embodied in the international companyventions and enforceable by companyrts in India. Thereby, the principles embodied in CEDAW and the companycomitant right to development became integral part of the Constitution of India and the Human Rights Act and became enforceable. Section 12 of the Protection of Human Rights Act charges the companymission with duty for proper implementation as well as prevention of violation of the human rights and fundamental freedoms. Though the Government of India kept its reservations on Articles 5 e, 16 1, 16 2 and 29 of CIDAW, they bear little companysequence in view of the fundamental rights in Article 15 1 and 3 and Article 21 and the directive principles of the Constitution. It is true that Section 30 of the Act and the relevant provisions of the Act relating to the execution of the wills need to be given full effect and the right to disposition of a Hindu male derives full measure thereunder. But the right to equality removing handicaps and discrimination against a Hindu female by reason of operation of existing law should be in companyformity with the right to equality enshrined in the Constitution and the personal law also needs to be in companyformity with the Constitutional goal. Harmonious interpretation, therefore, is required to be adopted in giving effect to the relevant provisions companysistent with the companystitutional animation to remove gender-based discrimination in matters of marriage, succession etc. Cognizant to these companystitutional goals, Hindu Marriage Act, Hindu Adoption and Maintenance Act, Hindu Succession Act etc. have been brought on statute removing the impediments which stood in the way under the Sastric law. Explanation I to Section 14 1 gives wide amplitude to the acquisition of property in the widest terms. It is merely illustrative and number exhaustive. The only companydition precedent is whether Hindu female has a pre-existing right under the personal law or any other law to hold the property or the right to property. Any instrument, document, device etc. under which Hindu female came to possess the property - movable or immovable - in recognition of her pre-existing right, though such instrument, document or device is worded with a restrictive estate, which received the companyour of preexisting restrictive estate possession by a Hindu female. the operation of sub-section 1 of Section 14 read with Explanation I, remove the fetters and the limited right blossoms into an absolute right. As held by this Court, if the acquisition of the property attracts sub-section 1 of Section 14, sub-section 2 does number companye into play. If the acquisition is for the first times, without any vestige of pre-existing right under the instrument, document or device etc. then sub-section 2 of Section 14 gets attracted. Sub-section 2 being in the nature of an exception, it does number engulf and wipe out the operation of sub-section 1. Sub-section 2 of Section 14 independently operates in its own sphere. The right to disposition of property by a Hindu under Section 30 is required to be understood in this perspective and if any attempt is made to put restriction upon the property possessed by a Hindu female under an instrument, document or device, though executed after the Act had companye into force, it must be interpreted in the light of the facts and circumstances in each case and to companystrue whether Hindu female acquired or possessed the property in recognition of her pre-existing right or she gets the rights for the first time under the instrument without any vestige of preexisting right. If the answer is in the positive, subsection 1 of Section 14 gets attracted. Thus companystrued, both subsections 1 and 2 of Section 14 will be given their full play without rendering either as otios or aids as means of avoidance. In Gumphas case supral though the will was executed in 1941 and the executor died in 1958 after the Act had companye into force, the companycept of limited right in lieu of maintenance was very much in the mind of the executor when will was executed in 1941 but after the Act came into force, the will became operative. The restrictive companyenant would have enlarged it into an absolute estate but unfortunately the Bench had put a restrictive interpretation which in our companysidered view does number appear to be sound in law. The legatee Sellathachi had right to maintenance under the Hindu Adoption and Maintenance Act when the property was given to her for maintenance. It must be in lieu of her preexisting right to maintenance and the property given under the will, therefore, must be companystrued to have been acquired by the legatee under the will in lieu of her right to maintenance. That right to maintenance to a Hindu female received statutory recognition under the Hindu Adoption and Maintenance Act, 1956. She is entitled to realise maintenance from property of her husband and even in the hands of strangers except the bona purchasers for value whether numberice af her right. She is equally entitled under Section 37 of the Transfer of Property Act to have charge created over the property for realization of her maintenance. On the demise of the testator, she being the class-I heir but for the bequeath, is entitled to succeed as an absolute owner. In either of those circumstances, the question emerges whether she acquires a limited right under Section 14 2 for the first time under the Will. In the light of the facts and circumstances of the case and the legal setting, we are of the companysidered view that she having had under Sastric law, as envisaged in the Will, the properties in recognition of her pre-existing right to maintenance, it is number a right acquired for the first time under the instrument will, but it is a reflection of the pre-existing right under the Sastric law, which was blossomed into an absolute ownership after 1956 under Section 14 1 of the Act. Under these circumstances, it cannot be held that Sellathachi acquired the right to maintenance for the first time under the instrument will. The Division Bench, therefore, does number appear to have approached the problem in the companyrect perspective. In view of the settled legal position right from Tulasammas case supra the right acquired under the Will is in recognition of the pre-existing right to maintenance known under the Sastric law and was transformed into an absolute right under Section 14 1 wiped out the restrictive estate given under the Sastric law and Sellathachi as absolute owner of the property. The Division bench of the High Court, therefore, was number companyrect in holding that Sellathachi has acquired only a limited estate under the Will and Section 14 2 attracts to the restrictive companyenants companytained in the will limiting her right to maintenance for life time and, thereafter, the right to enjoy the income from the lands and on her demise, the income should go to the temples as mentioned in the will is number companyrect in law. Shri Rangam then companytended that when the testator has thought of providing only maintenance, to the two widows, the properties being more than 10 acres, the maintenance must be only proportionate to the needs of the widow and to that extent the widow acquires an absolute right but number the entire property. We find numberforce in that companytention. It is to be seen that under the pre-existing law, she is entitled to remain in possession of the whole estate known as widows estate and after the Act has companye into force that widows estate was blossomed into an absolute estate by operation of Section 14 1 Even in the Will Ex-A1, numbersuch restrictive companyenant was engrafted giving reasonable proportion of income companysistent with her needs for maintenance. | 4 |
Ranganath Misra, J. This appeal is by special leave and the affirming judgment of the Punjab Haryana High Court upholding the companyvictions and sentences of the appellant under Section 5 2 of the Prevention of Corruption Act and Section 161 of the Indian Penal Code is sought to be set aside. The appellant was a clerk in the Personnel Branch of the Divisional Superintendent, Northern Railway at Firozpur. One Gurcharan Ram, a fitter in the railway establishment had become liable to penal rent in respect of the official residence occupied by him The prosecution alleged that the appellant demanded a bribe of Rs. 100/- from Gurcharan Ram to obtain an order of waiver of the penal rent Gurcharan Ram pleaded that he was number in a position to pay the amount demanded and it was ultimately settled that the sum of Rs. 100/- would be paid in five instalments of Rs. 20/- each. With reference to the payment of the first instalment a trap was arranged and soon after the bribe of Rs. 20/- had been received, the trap party recovered the amount. The defence was one of the total denial. Two outsider witnesses had been examined in the case being Khazan Singh as numbericed by the High Court, did number speak as to what transpired in the companyversation between the bribe giver and the appellant. The other witness too was number very clear as to what talk preceded the passing of the two currency numberes. The High Court took the view that even if the prosecution had number indicated what exactly the companyversation was, once the passing of the two currency numberes was accepted it was for the appellant to explain the circumstance under which the same had been received. Another companytention which had been raised before the High Court was that the total penal rent due from Gurcharan Ram was Rs. 102/- and to obtain waiver of this it was unlikely that Gurcharan would to find have agreed to pay a sum of Rs. 100/- as bribe. We wanted to find out exactly how much of penal rent was due and, therefore, sent for the record. From the record it is apparent that the demand was of Rs. 102/- which Gurcharan Ram wanted to be waived. There is numbermaterial to show whether there was likelihood of any additional demand to b3e raised against him. Taking the unsatisfactory character of the prosecution evidence in regard to the companyversation preceding the passing of the currency numberes and the feature that for waiver of Rs. 102/-, the bribe of Rs. | 7 |
Santosh Hegde, J. Leave granted. This appeal is filed directly to this Court against the judgment and order of the 10th Additional City Civil Judge, Bangalore made in Misc. Appeal No. 6 of 2002 dated 18th April, 2002. The appeal before City Civil Judge was against an interim order made by the arbitral tribunal and that appeal was filed under Section 37 2 b of the Arbitration and Conciliation Act, 1996 the Act . The learned Civil Judge dismissed the said appeal. The principal question that arises for our companysideration is whether a revision petition under Section 115 of the Civil Procedure Code the Code lies to the High Court as against an order made by a civil companyrt in an appeal preferred under Section 37 of the Act. If so, whether on the facts and circumstances of this case, such a remedy by way of revision is an alternate and efficacious remedy or number. Mr. K. Parasaran, learned senior companynsel appearing for the appellants submitted that the right of second appeal is specifically taken away under Section 37 2 of the Act. Therefore, by implication it should be held that even a revision is number maintainable under Section 115 of the Act. He pointed out that under Section 5 of the Act, there is a bar against judicial intervention by any judicial authority unless the same is specifically provided under Part I of the Act. It is his companytention that since a revision is number specifically provided for and the Code number being made applicable to proceedings arising under the Act, a revision to the High Court does number lie. Therefore, he companytends that the appellants only remedy is to approach this Court by way of this appeal. He sought to take support from a decision of the Privy Council in the case of R.M.A.R.A. Adaikappa Chettiar and Anr. v. R. Chandrasekhara Thevar and two decisions of this Court in the case of Shankar Ramchandra Abhyankar v. Krishnaji Dattatreya Bapat and Central Coal Fields Ltd. and Anr. v. Jaiswal Coal Co. and Ors. Mr. P. Chidambaram, learned companynsel appearing for the respondent in reply companytended that under Section 37 of the Act an appeal is provided to a civil companyrt as defined under Section 2 e of the Act. He pointed out that though there is numberspecific reference as to the application of the Code to the proceedings arising under Section 37, there is numberexpress exclusion of the Code either. Therefore, in the absence of any such express exclusion, the appeal being provided to a civil companyrt, the Code should apply to the proceedings before the civil companyrt. He also argues that this question of availability of an alternate remedy by way of revision to the High Court is numbermore res integra because the same is companycluded by a recent order of this Court though rendered at SLP stage in the case of Nirma Ltd. v. Lurgi Lentjes Energietechnik GMBH and Anr. made in SLP ??? No. 22106 of 2001 -- dated 14.1.2002. Mr. K. Parasarans reliance on the case of Adaikappa Chettiar supra is misplaced because the judgment does number support the case of the appellant, what was held by the Privy Council in that case was when an appeal lies under Section 96 of the Code of Civil Procedure the High Court cannot entertain an application for revision under Section 115 of the Code because the High Court has numberjurisdiction to entertain a revision where an appeal lies. In the said case, the Privy Council overruling an earlier Full Bench judgment of the Madras High Court held that an appeal against an order made by the civil companyrt under the Madras Agriculturists Relief Act, 1938 is maintainable, therefore, the High Court companyld number have entertained a revision under Section 115 of the Act which finding, in our opinion, does number help the appellant in the present case. Mr. Parasaran has also relied on a judgment of this Court in Shankar Ramchandra Abhyankar supra wherein this Court held that a revision in effect is in the nature of an appeal. Mr. Parasaran relying on this judgment argued that if revision is in effect an appeal then the Act having prohibited a second appeal, any proceeding which is in the nature of an appeal will also be barred. We think this observation of this Court in the case of Abhyankar supra also does number apply to the facts of the present appeal before us. In the case of Abhyankar, this Court numbericed that the trial companyrt had granted a decree for possession of certain rooms in the petition scheduled premises which order of eviction was companyfirmed by the appellate companyrt on the ground of equity. Against the said judgment of the appellate companyrt, the aggrieved party had preferred a revision petition before the High Court which came to be dismissed by a Single Judge. Having suffered an adverse order in the revision the aggrieved party then filed a writ petition under Articles 226 and 227 of the Constitution of Indian challenging the very same appellate order which was companyfirmed in revision. On those facts, this Court held that a writ petition ought number to have been entertained by the High Court when the party had already chosen the remedy of filing a revision before the High Court under Section 115 of of Code. In these circumstances, this Court held that if there are two modes for invoking jurisdiction of the High Court and one of those modes having been chosen and exhausted, it would number be proper for the High Court to entertain another proceeding in respect of the same impugned order under Articles 226 and 227. It is while discussing the propriety of entertaining a writ petition this Court had held that the aggrieved party had already exhausted a remedy by way of revision which is in the nature of an appeal. We do number think the observations made by this Court in the case of Abhyankar supra can be usefully applied to the facts of this case. The question still remains as to whether when a second appeal is statutorily barred under the Act and when the Code is number specifically made applicable, can it be said that a right of revision before the High Court would still be available to an aggrieved party ? As pointed out by Mr. Chidambaram, this Court in the case of Nirma Ltd. supra while dismissing an SLP by a reasoned judgment has held In our opinion, an efficacious alternate remedy is available to the petitioner by way of filing a revision in the High Court under Section 115 of the Code of Civil Procedure. Merely because a second appeal against an appellate order is barred by the provisions of Sub-section 3 of Section 37, the remedy of revision does number cease to be available to the petitioner, for the City Civil Court deciding an appeal under Sub-section 2 of Section 37 remains a companyrt subordinate to the High Court within the meaning of Section 115 of the C.P.C. But Mr. Parasaran companytended that the said order is based on an earlier reported judgment of this Court in the case of Shyam Sunder Agarwal Co. v. Union of India . According to Mr. Parasaran, the Court in the case of Nirma Ltd. supra has erroneously founded its companyclusion on the said judgment in Shyam Sunder Agarwals case. Learned companynsel argued that the case of Shyam Sunder Agarwal supra arose under the Arbitration Act, 1940 which Act had made the provisions of the Code specifically applicable to proceedings arising under the said Act in the civil companyrt whereas in the present Act such provision making the Code applicable is number found. Therefore, there is a substantial difference in law between the cases of Shyam Sunder Agarwal supra and Nirma Ltd. supra . Therefore, the order of this Court in Nirma Ltd. supra is number a good law, hence, requires reconsideration. We do number agree with this submission of the learned companynsel. It is true in the present Act application of the Code is number specifically provided for but what is to be numbered is Is there an express prohibition against the application of the Code to a proceeding arising out of the Act before a civil companyrt? We find numbersuch specific exclusion of the Code in the present Act. When there is numberexpress exclusion, we cannot by inference hold that the Code is number applicable. It has been held by this Court in more than one case that the jurisdiction of the civil companyrt to which a right to decide a lis between the parties has been companyferred can only be taken by a statute in specific terms and such exclusion of right cannot be easily inferred because there is always a strong presumption that the civil companyrts have the jurisdiction to decide all questions of civil nature, therefore, if at all there has to be an inference the same should be in favour of the jurisdiction of the companyrt rather than the exclusion of such jurisdiction and there being numbersuch exclusion of the Code in specific terms except to the extent stated in Section 37 2 , we cannot draw an inference that merely because the Act has number provided the CPC to be applicable, by inference it should be held that the Code is inapplicable. This general principle apart, this issue is number settled by the judgment of a 3-Judge Bench of this Court in the case of Bhatia International v. Bulk Trading S.A. and Anr. in C.A. | 5 |
By an order dated 28-10-1986 the appeal has been limited to two questions, namely, whether the case is companyered by Rule 96-YYY and the impact of Ground VIII of the Memo of Appeal. We may state that in the order by mistake it has been mentioned as Section 96 NNN , but there is numberdispute that it should be read as Rule 96-YYY. That Rule reads as under Nothing companytained in this Section shall apply to a manufacturer who employs, or had at any time during the calendar year proceeding the date of application, employed, more than five workers. The submission of the learned Counsel for the appellant was that paragraphs 7 and 8 of the Tribunals judgment would show that one extra workman doing packing work was numbericed on 23-6-1978, 26-6-1978, 14-1-1980 and 21-3-1981 and for this casual presence the benefit has been denied to the appellant. Our attention was also drawn to the Collectors order wherein it is stated that he was satisfied that on 23-6-1978 and 26-6-1978 six workers were engaged and on 14-1-1980 also six workers were engaged. Consequently, the benefit to the assessee was restricted to 1978-79 since during that year it was number shown that more than five workers were employed. The learned Counsel for the appellant submitted that under Rule 96YYY such casual presence on one or two days in a calendar year should number be interpreted to deny the appellant the benifit of liability for rebate. The learned Additional Solicitor General, however, drew our pointed attention to the observations in paragraph 9 of the Tribunals judgment and pointed out that it is number companyrect to assume that more than five workers were employed only on the aforesaid dates as the evidence clearly indicated that there were statements of workers to the effect that more than five persons were regularly engaged in the factory. It may be stated that the wifes factory was in the same building and the workmen of the wifes factory used to companye and work at this factory as the wifes factory was on the upper floor. The Manager for both the factories was companymon. This evidence, if taken into companysideration, would go to show that the workers of the wifes factory worked in the appellants factory without their presence being marked in the factory except on the aforesaid dates. This being a question of fact and the view taken number being perverse we see numberreason to interfere on that companynt. The learned Counsel for the appellant, however, is on a firmer ground when he states that the Collector refused the benefit for the years 1979-80 and 1980-81 whereas he allowed the benefit under 1978-79. That is indeed companyrect. He, therefore, submitted that his appeal was companyfined to the years 1979-80 and 1980-81 and yet the Tribunal while disposing of his appeal denied him the benefit for the year 1978-79. It appears that this is a mistake apparent on the face of the record. Instead of mentioning the years 1979-80 and 1980-81 the Tribunal has, in paragraph 16 of the judgment, mentioned the years 1978-79 and 1979-80. This mistake needs to be companyrected. We, therefore, companyrect the same and hold that the benefit granted for the year 1978-79 was number the subject matter of the appeal which the Tribunal disposed of on 30th of June, 1986. To that extent, the order of the Tribunal will have to be companyrected and modified. It may number be mentioned that for the year 1978-79 since the Collector had granted the benefit the Revenue carried the matter in appeal to the Tribunal. When the Revenues appeal came up for hearing before the Tribunal all that the Tribunal did was to say that in view of its judgment dated 30th June, 1986 in Appeal No. 588 of 1984 the Revenues appeal must be allowed and the benefit for the year 1978-79 would number be available to the assessee. That has required the assessee to companye in appeal, being Appeal No. 8456/95. This was clearly based on the error in the Tribunals judgment dated 30th June, 1986. Since we have companyrected the error this appeal by the assessee must be allowed and the matter must go back to the Tribunal for disposal on merits. The next grievance of the learned Counsel for the appellant was based on the Notification No. 80/80-C.E., dated 19-6-1980. He companytends that for the year 1980-81 he ought to have been allowed the benefit of rebate on the sum exceeding five lakhs under Clause b of the said Notification. He has been allowed the benefit on the first five lakhs but he has been denied the benefit on the next ten lakhs under Clause b of the Notification. The learned Additional Solicitor General also agrees that this aspect of the matter needs to be looked into by the Tribunal. To that limited extent the appeal for the year 1980-81 will have to be allowed. In the result, we pass the following order. Re C.A. No. 3419/86 - The appeal is partly allowed insofar as the assessment year 1980-81 is companycerned for the limited purpose of application of the Notification No. 80/80-C.E., dated 19-6-1980 to determine whether or number the assessee is entitled to the benefit under Clause b for the next ten lakhs of rupees and, if yes, to allow the same. Except for this limited purpose so far as the year 1980-81 is companycerned, numberother question survives. So far as the order of the Tribunal in relation to the year 1978-79 is companycerned, for reasons which we have indicated earlier we are satisfied that there has been an error on the face of the record, in that, in paragraph 16 of the Tribunals judgment the year 1978-79 has been wrongly mentioned and it should be companyfined to 1979-80 and 1980-81 only. | 4 |
Judgment of the Court (Second Chamber) of 15 January 1998. - Hartmut Simon v Hauptzollamt Frankfurt am Main. - Reference for a preliminary ruling: Hessisches Finanzgericht, Kassel - Germany. - Additional milk levy - Date on which it becomes payable - Article 15(4) of Regulation (EEC) No 1546/88 - Meaning of 'any levy amount due'. - Case C-125/96.
European Court reports 1998 Page I-00145
Summary
Parties
Grounds
Decision on costs
Operative part
Keywords
Agriculture - Common organisation of the markets - Milk and milk products - Additional milk levy - Choice of Formula A - Levy amount due - Meaning - Amount objectively payable by a producer by reason of the fact that he has actually exceeded his reference quantity - Date on which it becomes payable
(Commission Regulation No 1546/88, Art. 15(4))
Summary
Article 15(4) of Regulation No 1546/88 laying down detailed rules for the application of the additional milk levy, under which purchasers of milk are required to pay to the competent agency any levy amount due, must be construed as meaning that this amount refers, within the context of Formula A providing for the levy to be collected from each milk producer by the purchaser, to the amount objectively payable by a producer by reason of the fact that he has actually exceeded his reference quantity, even where the exact amount can be established only after verification of the quantities delivered, and becomes payable on the date laid down in that provision, that is to say, not more than three months following the end of each 12-month period, namely on the following 30 June.
Parties
In Case C-125/96,
REFERENCE to the Court under Article 177 of the EC Treaty by the Hessisches Finanzgericht, Kassel (Germany), for a preliminary ruling in the proceedings pending before that court between
Hartmut Simon
and
Hauptzollamt Frankfurt am Main
on the interpretation of Article 15(4) of Commission Regulation (EEC) No 1546/88 of 3 June 1988 laying down detailed rules for the application of the additional levy referred to in Article 5c of Regulation (EEC) No 804/68 (OJ 1988 L 139, p. 12),
THE COURT
(Second Chamber),
composed of: R. Schintgen, President of the Chamber, H. Ragnemalm and G.F. Mancini (Rapporteur), Judges,
Advocate General: M.B. Elmer,
Registrar: H. von Holstein, Deputy Registrar,
after considering the written observations submitted on behalf of:
- Mr Simon, by Frank Schulze, Rechtsanwalt, Münster,
- the Commission of the European Communities, by Klaus-Dieter Borchardt, of its Legal Service, acting as Agent,
having regard to the Report for the Hearing,
after hearing the oral observations of Mr Simon and the Commission at the hearing on 1 July 1997,
after hearing the Opinion of the Advocate General at the sitting on 17 July 1997,
gives the following
Judgment
Grounds
1 By order of 26 March 1996, received at the Court on 18 April 1996, the Hessisches Finanzgericht (Finance Court, Hesse), Kassel, referred for a preliminary ruling under Article 177 of the EC Treaty two questions on the interpretation of Article 15(4) of Commission Regulation (EEC) No 1546/88 of 3 June 1988 laying down detailed rules for the application of the additional levy referred to in Article 5c of Regulation (EEC) No 804/68 (OJ 1988 L 139, p. 12).
2 Those questions have arisen in a dispute between Mr Simon, a milk producer, and the Hauptzollamt (Principal Customs Office) Frankfurt am Main (`the Hauptzollamt') concerning payment of interest on an amount due in respect of an additional levy and, more particularly, the date on which that amount becomes payable.
3 Article 5c of Regulation (EEC) No 804/68 of the Council of 27 June 1968 on the common organization of the market in milk and milk products (OJ, English Special Edition 1968 (I), p. 176), inserted by Council Regulation (EEC) No 856/84 of 31 March 1984 (OJ 1984 L 90, p. 10), provides that an additional levy is payable, pursuant to Formula A which is applicable in Germany, by every milk producer on the quantities of milk and/or milk equivalent which he has delivered to a purchaser and which, for the 12 months concerned, exceed a reference quantity to be determined.
4 Article 5c(1) of Regulation No 804/68 is worded in this regard as follows:
`1. ... an additional levy payable by producers ... of cows' milk shall be introduced'.
5 With regard to the collection of amounts due in respect of the additional levy, Article 4a(3a) and the third paragraph of Article 10 of Council Regulation (EEC) No 857/84 of 31 March 1984 adopting general rules for the application of the levy referred to in Article 5c of Regulation No 804/68 (OJ 1984 L 90, p. 13), as amended by Council Regulation (EEC) No 774/87 of 16 March 1987 (OJ 1987 L 78, p. 3), provide that `The levy shall be charged on all quantities in excess of the individual reference quantities, after any corrections have been made'.
6 Article 9 of Regulation No 857/84, as amended by Council Regulation (EEC) No 1305/85 of 23 May 1985 (OJ 1985 L 137, p. 12), provides as follows:
`1. Where formulas A and B are applied, the levy shall be collected by means of annual payments. To this end there shall be adopted, for each person liable, an account after the end of the 12-month period concerned, on the basis of actual excess during this same period beyond his annual reference quantity ...
2. Where Formula A is applied, the levy shall be collected from each producer by the purchaser.'
7 Article 15(2) and (4) of Regulation No 1546/88 provides as follows:
`1. ...
2. Purchasers shall, within 45 days following the end of each 12-month period, transmit to the competent agency a statement indicating:
- in cases where formula A is applied, and separately for each producer concerned:
- the total quantity of milk or milk equivalent delivered during the 12-month period concerned,
- the quantities, if any, of milk or milk equivalent which exceed the buyer's annual reference quantity of the producer concerned,
...
4. The purchasers referred to in paragraphs 1, 2 and 3 shall pay any levy amount due to the competent agency within three months following the end of each 12-month period.
...'
8 Administrative inquiries revealed that Mr Simon had delivered 14 619 kg of milk in excess of his reference quantity over the 12-month period 1988/1989. This fact was not indicated in the purchaser's statements.
9 By decision of 12 November 1993, the Hauptzollamt accordingly fixed the amount due in respect of the additional levy at DM 9 709.94, which Mr Simon paid on 20 December 1993.
10 By decision of 21 June 1994, the Hauptzollamt requested payment of DM 4 274.63 in respect of interest calculated pursuant to Paragraph 14 of the Marktordnungsgesetz (Law on the Common Organization of the Market). For the purpose of that calculation, the Hauptzollamt fixed the period for which interest was due as running from 1 July 1989 to 20 December 1993, the date on which Mr Simon paid the additional levy.
11 Before the Hessisches Finanzgericht, Mr Simon argued that the request that he pay interest was unlawful in the light of the judgment of the Bundesfinanzhof (Federal Finance Court) of 17 August 1993, according to which on 30 June of each year following the end of the preceding milk-marketing year only the amount of additional levy on milk indicated in the purchaser's statement can be regarded as payable, but not that which is the subject of subsequent recovery.
12 Since it formed the view that the resolution of the dispute depended on the interpretation of Article 15(4) of Regulation No 1546/88, the Hessisches Finanzgericht stayed the proceedings and referred the following questions to the Court for a preliminary ruling:
`1. In Article 15(4) of Commission Regulation (EEC) No 1546/88 of 3 June 1988 is "levy amount due" to be interpreted as the amount of additional levy on milk that would be payable if the figures used to determine the levies payable on deliveries in excess of the delivery reference quantity had been compiled correctly and had formed the basis of the purchaser's calculation of the additional levy
or
does that phrase refer only to the amount derived from the figures, whether correct or not, declared by the purchaser and forming the basis of the calculation of the additional levy?
2. If the first interpretation is correct, is the entire amount of additional levy lawfully due payable on the date specified in the Regulation - at that time 30 June -, so that, in the event of part payment resulting from the purchaser's figures being too low, the person liable to pay the additional levy (in Germany the milk producer) must pay from 1 July of that year interest charged under national law on the balance?'
13 According to the order for reference, the Hessisches Finanzgericht interpreted the judgment of the Court of Justice in Case C-352/92 Milchwerke Köln/Wuppertal v Hauptzollamt Köln-Rheinau [1994] ECR I-3385 as meaning that the `amount due' under Article 15(4) of Regulation No 1546/88 must be interpreted as meaning the amount objectively payable by the producer no more than three months after the end of each 12-month period, namely by the following 30 June; the Hessisches Finanzgericht therefore takes the view that this date is also that on which amounts of the levy subsequently claimed fall due.
Admissibility
14 As a preliminary point, Mr Simon takes the view that the request for a preliminary ruling is inadmissible since the national court has failed to demonstrate that an interpretation of Article 15(4) of Regulation No 1546/88 is necessary in order to decide when a milk producer becomes liable to pay the additional levy. He argues that, according to its wording, Article 15(4) refers only to the obligation to pay imposed on the purchaser.
15 Suffice it to note in this regard that it is settled case-law that, where the questions submitted by the national court concern the interpretation of a provision of Community law, the Court of Justice is in principle bound to give a ruling (Case C-134/94 Esso Española v Comunidad Autónoma de Canarias [1995] ECR I-4223 and Case C-125/94 Aprile v Amministrazione delle Finanze dello Stato [1995] ECR I-2919, paragraph 17). A request for a preliminary ruling from a national court may be rejected only if it is quite obvious that the interpretation of Community law sought by that court bears no relation to the actual nature of the case or the subject-matter of the main action (Case C-129/94 Ruiz Bernáldez [1996] ECR I-1829, paragraph 7).
16 It is indisputable that Article 15(4) of Regulation No 1546/88 forms part of the Community rules on the additional levy and that it lays down the detailed rules for determining the amount payable in that regard by the person who is liable.
17 The questions referred should for that reason be answered.
Substance
18 By its two questions, which should be examined together, the Hessisches Finanzgericht is essentially asking whether Article 15(4) of Regulation No 1546/88 must be construed as meaning that the levy amount due relates, within the context of Formula A, to the amount objectively payable by a milk producer by reason of the fact that he has actually exceeded his reference quantity, even though the exact amount is established only after verification of the quantities delivered, and becomes payable on the date specified by that provision, that is to say, at the latest on 30 June of each year following a given 12-month period.
19 It should first be noted that, within the context of Formula A of the additional levy scheme, Article 5c(1) of Regulation No 804/68 lays down the principle that the milk producer alone is responsible if the reference quantity is exceeded and is for that reason solely liable for payment of the additional levy.
20 In contrast, as the Court stated in paragraphs 15 and 16 of its judgment in Milchwerke Köln/Wuppertal, cited above, a milk purchaser is not liable to pay the additional levy and cannot be held liable for payment of that levy under, in particular, Article 15(4) of Regulation No 1546/88, which requires purchasers to pay over to the competent agency the amount of levy collected from each producer. In this regard, it follows from Article 9 of Regulation No 857/84 that the purchaser is required to draw up an account prior to collection.
21 With regard to the exact amount payable by the producer, Article 9(1) of Regulation No 857/84, along with Article 4a(3a) thereof concerning only the quantities which have been unused and, for that reason, reallocated, sets out the principle that the quantity of milk actually delivered by the producer during the last 12-month period forms the basis for calculating the amount by which the reference quantity has been exceeded; this first quantity of milk is then compared with the individual reference quantity and taken into account in so far as it actually exceeds the latter.
22 This principle is not undermined by the fact that the detailed rules for collection do not include rules governing the case in which the quantity of milk actually delivered does not correspond to that considered by the purchaser for the purposes of the account under Article 9(1) of Regulation No 857/84.
23 The Commission was able to base itself on the premiss that the quantities considered by the purchaser for the purposes of the account under Article 9(1) of Regulation No 857/84 and notified to the competent authority under Article 15(2) of Regulation No 1546/88 would be equivalent to the quantities actually delivered by the producer.
24 However, where there is a discrepancy between the two quantities, nothing can justify a derogation from the principle that only the quantities actually delivered may be taken into consideration.
25 This interpretation is corroborated by Article 15(2) of Regulation No 1546/88, which requires the purchaser to notify the competent authority of the total quantities delivered and of those which exceed the reference quantities. This obligation would be meaningless if the calculation of the amount had to take into account only those quantities indicated by the purchaser. Were such the case, it would be the purchaser, not the competent agency, who would be ultimately responsible for correct payment of the amount due in respect of the additional levy.
26 Under Article 15(4) of Regulation No 1546/88, therefore, the amount due is that which corresponds to the quantities actually delivered by the producer in so far as they do in fact exceed his reference quantity.
27 With regard, finally, to the date on which the amount becomes payable, the rules contain no express information in that regard.
28 Under Article 15(4) of Regulation No 1546/88, however, the purchaser is required to pay to the competent agency the amount of the levy objectively due within three months following the end of the preceding milk-marketing year. The purchaser can comply with his duty under Article 15(4) of Regulation No 1546/88 only after he has himself received that amount from the producer. The latter is therefore required to pay that amount no later than 30 June following the end of the preceding milk-marketing year.
29 In accordance with the views expressed by the national court and the Commission, only an interpretation to the effect that the period within which the producer must pay expires at the latest on 30 June following the end of the preceding milk-marketing year can guarantee that producers will be treated equally in regard to the financial burden in cases where reference quantities have been exceeded. Thus, producers from whom part of the amount objectively due has in fact, because of a miscalculation, been collected through subsequent recovery are unable to benefit from the delay in payment in so far as, after the date on which the period set in Article 15(4) of Regulation No 1546/88 has expired, they are subject to default interest.
30 In the light of the foregoing, the answer to the questions submitted must be that Article 15(4) of Regulation No 1546/88 must be construed as meaning that the amount of levy due refers, within the context of Formula A, to the amount objectively payable by a milk producer by reason of the fact that he has actually exceeded his reference quantity even where the exact amount can be established only after verification of the quantities delivered, and becomes payable on the date laid down in that provision, that is to say, not more than three months following the end of each 12-month period, namely on the following 30 June.
Decision on costs
Costs
31 The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court.
Operative part
On those grounds,
THE COURT
(Second Chamber),
in answer to the questions referred to it by the Hessisches Finanzgericht, Kassel, by order of 26 March 1996, hereby rules:
Article 15(4) of Commission Regulation (EEC) No 1546/88 of 3 June 1988 laying down detailed rules for the application of the additional levy referred to in Article 5c of Regulation (EEC) No 804/68 must be construed as meaning that the amount of levy due refers, within the context of Formula A, to the amount objectively payable by a milk producer by reason of the fact that he has actually exceeded his reference quantity even where the exact amount can be established only after verification of the quantities delivered, and becomes payable on the date laid down in that provision, that is to say, not more than three months following the end of each 12-month period, namely on the following 30 June. | 5 |
C. Gupta, J. This appeal by special leave is by a defendant in a suit for declaration of title and recovery of possession. The property in dispute companysists of two survey plotes, 2677/5782 measuring Order, 18 acres and 2677/5783 measuring Order 10 acres, the total area being Order 20 acres, in Tetanga Basti, House Sahchi, Police Station Colmuri in Pargana Dhalbhum, District Singhbhum. The suit was dismissed by the trial companyrt, companycerned by the first appellate companyrt, and the Patna High Court on second appeal affirmed the decision of the lower appellate companyrt decreeing the suit. The relevant facts are as follows The fourth respondent Tata Iron and Steel Co. Limited hereinafter referred to as TISCO were the proprietors of the disputed plots of land which formed part of the area acquired under the Land Acquisition Act by the local government for TISCO. In 1924 these two plots of land along with other lands were leased out by TISCO to the plaintiff, the Indian Cable Co. Limited hereinafter referred to as the plaintiff Co. . TISCO also settled another area measuring about 5 bighas 17 kathas with one Rajdeo, predecessor in interest of the present appellant. There is some dispute as to whether this settlement was in 1924 or 1928 but that is number of any great importance in the present companytroversy between the parties. According to the plaintiff Co. Rajdeo trespassed into the two disputed plots of land in November 1932 It appears that in a proceeding under Section 87 of the Chhota Nagpur Tenancy Act, 1908 referred to hereinafter as the Act initiated by Rajdeo it was held that the disputed plots were outside the area settled out by TISCO with Rajdeo and were part of the land leased out by TISCO to the plaintiff Co. . It was further held that Rajdeo had been in forcible possession of the plots for about five years since 1932 from which he companyld be removed only by legal process. There after the plaintiff Co. instituted title suit No. 116 of 1938 in the Court of the Munsif at Jamshedpur for Rajdeos eviction from the land on which he had trespassed which was roughly 1.70 acres in area and included the two disputed plots. It was again found in that suit that the disputed plots were number part of the 5 bighas and 17 kathas of land settled by TISCO with Rajdeo has it was held that Rajdeo had required kathas rights in the portion of the disputed plots in his occupation and therefore he was protected against eviction in view of the provisions of Section 78 of the Act. That suit was accordingly dismissed Later, on March 25, 1945, TISCO recovered under Section 50 of the Act prosecution of the entire holding of 5 Bighas 17 kathas settled by them with Rajdeo. The plaintiff Co. on July 27, 1954 filed title suit No. 280 of 1954 out of which their appeal arises for Rajdeos eviction from the two disputed plots in the companyrt of the Munsif at Jamshedpur. The Munsif held that Rajdeo was number disposses from the entire holding under Section 50 of the Act, but retained possession of 1,1/2 bighas, that Rajdeo was a numberejectable korkar riayat in respect of his holding under TISCO and was therefore protected from eviction under Section 78 of the Act in respect of his homestead that he built on the disputed plots. It was further held that in view of the Bihar Land Reforms Act, 1950 the intermediary rights of both TISCO and their lessees, the plaintiff Co. , had vested in the State of Bihar and it was the State of Bihar alone that companyld maintain an action for ejectment against Rajdeo. The trial companyrt was also of opinion that the findings recorded in the earlier suit,title suit No. 116of 1938, were res judicate in the present suit and therefore Rajdeos character as a korkar riayat in respect of his homestead on the disputed plots companyld number be reopened. It may be stated here that Rajdeo died during the pendency of the suit and was substituted by his heirs and legal representatives. On appeal by the plaintiff Co. , the first appellate companyrt reversed the Munsifs decision and dismissed the suit. The appellate companyrt found that the entire agricultural land held by Rajdeo under TISCO had been taken away from him under Section 50 and companysequently he ceased to be a raiyat in respect of the portion of land on which his homestead stood and thus lost the protection given by Section 78 of the Act. The appellate companyrt held that the findings recorded in title suit No. 116 of 1938 companyld number be res judicate because of the changed circumstances that number the question of Rajdeos title to the two disputed plots on which his homestead stood was to be companysidered independently from whatever his interest in the said plots was when they formed part of the agricultural land from which he had been dispossessed under Section 50. It is however a little difficult to understand the relevance of the proceeding under Section 50 to which the trial companyrt and the first appellate companyrt both referred. It that proceeding related to a holding under a different landlord, and was number part of the land belonging to the plaintiff number in dispute, Rajdeos dispossession under Section 50 companyld possibly have numberbearing on the nature of bis interest in the disputed plots. However, as it appears that all the companyrts including the High Court as well as the parties to the litigation proceeded on the footing as if the homestead plots and the agricultural land companystituted one holding, we do number propose to pursue the matter further, The High Court in second appeal preferred by the defendants affirmed the decision of the first appellate companyrt. The High Court also held that the findings in title suit No. 116 of 1938 were number res judicates, that the protection of Section 79 of the Act was number available to the defendants after they were dispossessed from the agricultural lands under Section 50 and companysequently Rajdeos homestead become subject to the ordinary incidents of a tendency governed by the Transfer of Property Act. On the point that after the Bihar Land Reforms Act, 1950 came into force the plaintiff Co. and their lessor TISCO ceased to have any interest in the disputed land therefore this suit for recovery of possession at their instance was number maintainable, the High Court was of opinion that as the tenancy of the two disputed plots was governed by the provisions of the Transfer of Property Act and number the Chhota Nagpur Tenancy Act, the vesting of estates under the Bihar Land Reforms Act had numberhing to do with the present suit for eviction of the defendant. As regards res judicate, if the nature of the defendants interest in the disputed plots changed after TISCO recovered possession of Rajdeos agricultural lands under Section 50 of the Act, the reason given dy the first appellate companyrt why the Rule of res judicata should number apply would be sound calling for numberinference. A test to find out if the right that the defendants had in the disputed plots had undergone a change companysequent on their dispossession from the agricultural lands is whether the protection of Section 78 was still available to them. Section 78 reads Homesteads, when a raiyat holds his homestead otherwise than as part of his holding as a raiyat, the incidents of his tenancy of the homestead shall be regulated by local customs or usage, and, subject to local customs or usage by the provisions of this Act applicable to land held by a R raiyat. Mr. S. Chaudhury appearing for the first respondent, the plaintiff Co., referred to two decisions of the Patna High Court on Section 78. In Joy Chand Vs. Bhutnath Khan, 1 a Division Bench of the High Court held that Section 78 will apply so long as the tenant of the homestead companytinues to be a raiyat in respect of the other land but numberlonger. In Secretary of State us Babu Ben Prasad. 2 another Division bench held that Section 78 was enacted as a protection to the cultivating tenant, so that he may number be turned out of his homestead as long as he holds his raiyati land. If he paris with the raiyati land, his tenancy of the homestead becomes subject to the ordinary incidence and does number suffice to keep up his status as raiyat This appears to he the companysistent view taken by the Patna High Court on the point, and we find numberreason, at last numbere has been pointed out, inducing us to take a different view. It follows therefore that the defendants tenancy is governed by the provisions of the Transfer of Property Act, and, on the facts found, the plaintiff Co. would be entitled to a decree for recovery of possession unless, companysequent on the vesting of the estates and tenures under the Bihar Land Reforms Act, 1950 it ceased to have any interest in the subject matter of the suit. The trial companyrt held that the land had vested in the State, the first appellate companyrt did number advert to the question, and the High Court thought it was number relevant. The High Court apparently failed to see that the question was relevant in order to find out if the suit was maintainable at the instance of the plaintiff Co. . We, therefore, send the matter back to the High Court. The High Court will record a finding as to whether the land forming the subject matter of the suit hod vested in the State and the plaintiff Co.ceased to have any interest in the land companysequent on the vesting. If the High Court finds that the land had vested and the plaintiff Co. had numbersubsisting interest therein, it will dismiss the suit. | 1 |
COURT
OF APPEAL FOR BRITISH COLUMBIA
Citation:
Lau v. Rai,
2010 BCCA 26
Date: 20100120
Docket:
CA035667
Between:
Yen Ping Lau
Appellant
(
Plaintiff
)
And
Gurnek Rai and Manjit Rai
Respondents
(
Defendants
)
Before:
The Honourable Mr. Justice Lowry
The Honourable Mr. Justice Frankel
The Honourable Madam Justice Neilson
On appeal from: Supreme Court of British Columbia, December 3, 2007
(
Lau v. Rai
, 2007 BCSC 1746, Vancouver Registry No. S042178)
Acting on his own behalf:
Y.P.
Lau
Counsel for the Respondents:
A.J.
Roberts
Place and Date of Hearing:
Vancouver,
British Columbia
December 7, 2009
Place and Date of Judgment:
Vancouver
, British Columbia
January
20, 2010
Written Reasons by
:
The Honourable Mr. Justice Frankel
Concurred in by:
The Honourable Mr. Justice Lowry
The Honourable Madam Justice Neilson
Reasons for
Judgment of the Honourable Mr. Justice Frankel:
Introduction
[1]
This litigation involves an action in trespass
between owners of two neighbouring residential properties. Yen Ping Lau
purchased his home in 1994. Gurnek Rai and Manjit Rai purchased the vacant lot
next door in 2002. The Rai property is lower than the Lau property. Excavation
work on the Rai property removed lateral support for the Lau property. This
caused a portion of the Lau property to collapse, resulting in damage to some
of Mr. Laus flowerbeds and a portion of his fence. To address this
problem, the Rais built a retaining wall abutting the line between the two
properties. A large quantity of gravel was permanently placed behind the wall,
on the Lau property. Mr. Lau sued, seeking general, special, punitive,
and aggravated damages.
[2]
Following a trial, Mr. Justice Powers of
the Supreme Court of British Columbia found that Mr. and Mrs. Rai had
trespassed on Mr. Laus property. He awarded Mr. Lau $7,243.12 to
restore his property to its original condition, and a further $2,000.00 as
aggravated damages. However, the trial judge declined to award punitive
damages. His reasons for judgment are indexed as 2007 BCSC 1746.
[3]
Mr. Lau contends that the trial judge made
a number of errors in fact and in law, and made an inadequate damages award. Mr. Laus
key assertion is that the trial judge should have found that Mr. and Mrs. Rai
committed a pre-planned intentional trespass on his property in order to
maximize the footprint of the house they were building. Mr. Lau is firmly
of the belief that this is what occurred and that, because of this, he is
entitled to significant punitive damages. To support his case, Mr. Lau
seeks to file, as fresh evidence, the affidavit of his son, to which is
attached the report of a geotechnical engineer.
[4]
The determination of this appeal is hampered by
the fact that Mr. Lau did not file a complete transcript of the evidence
at trial. He filed only the evidence given by three defence witnesses: two
geotechnical engineers and the operator of the excavation equipment. In
addition, the last 50 pages of his appeal book consist of documents that were
not before the trial judge and are, therefore, not properly before this Court.
[5]
For the reasons that follow, I would dismiss
this appeal.
Factual
Background
[6]
Mr. Laus property is located at 6708 Mason
Court, Burnaby, British Columbia. Mr. and Mrs. Rais property is
located at 7922 Mayfield Street. The Rais plans called for their house to be
constructed five feet from the property line, the closest allowed by building
by-laws.
[7]
In mid-May 2003, excavation began on the Rai
property. As a portion of the bank created by the excavation at the property
line between the Rai and Lau properties was saturated with water and appeared
ready to give way, it became apparent that some form of retaining wall was needed.
[8]
On Friday, May 23, 2003, Mr. Rai retained Paullus
Yeung, a geotechnical engineer. Mr. Yeung attended at the building site that
afternoon, and met with Mr. Rai and his structural engineer, Cesar
Parayno. After examining the site, Mr. Yeung prepared a Field Inspection
Report recommending that a two lock-block high retaining wall back-filled with
drain rock (i.e., gravel) be used to prevent further subsidence. He also prepared
a sketch indicating that both the lock-blocks and gravel were to be placed entirely
on the Rai property. That same day, the Rais asked Mr. Lau for permission
to remove a portion of his fence to facilitate construction of the retaining
wall. Mr. Lau refused.
[9]
Excavation relating to the installation of the
retaining wall took place on Saturday, May 24, 2003. This caused a 16-foot
section of Mr. Laus fence to fall. When Mr. Lau learned of this, he
and his family became very upset. They believed the fence had been pulled down
deliberately. The trial judge, however, accepted the excavator operators
evidence that he did not intentionally tear down any portion of the fence. On
that day, Mr. Rai told Mr. Lau that he would pay for any damage to
his property, and would restore it to its original condition.
[10]
Mr. Lau confronted the workers and demanded
that they stop. A heated argument developed between members of the Lau and Rai
families. Eventually, the police were called. No further work took place that
day, or on the following day.
[11]
On Monday, May 26, 2003, Burnaby building
inspectors visited the Rai property and attempted, unsuccessfully, to mediate
the dispute. Mr. Rai again said that he would pay for any damages to the Lau
property and restore it to its original condition. Mr. Lau doubted Mr. and
Mrs. Rais sincerity.
[12]
Mr. Yeung returned to the building site on
the morning of May 26, 2003. He found that the excavation and the retaining
wall practically were completed. The retaining wall that had been installed
was four lock-blocks high. Mr. Yeung prepared another Field Inspection
Report together with a sketch showing the lock-blocks abutting the line
between the two properties and back-filled with gravel. The gravel was entirely
on the Lau property. Because Mr. Yeung did not want to be involved in the
dispute between Mr. and Mrs. Rai and Mr. Lau, he resigned from
any further involvement in the project. Mr. Rai then retained another
geotechnical engineer, Edward C.C. Yip. Mr. Yip first visited the building
site on Wednesday, May 28, 2003.
[13]
The retaining wall was completed on May 28,
2003. It is approximately ten feet high and 40 feet long. It is back-filled
with approximately 1260 cubic feet (i.e., 60 tons) of gravel. During
construction of the wall, approximately 42 feet of Mr. Laus fence was damaged,
and a considerable amount of soil was removed from his property. A number of
his flower beds and rose bushes were also destroyed.
[14]
Mr. Yip provided Mr. Rai with a report
containing a number of recommendations with respect to the construction of the
residence on his property. That report deals with the retaining wall as a
completed installation.
Trial
Judges Decision
[15]
As mentioned above, the trial judge found that
the removal of the first section of fence that was damaged was not deliberate.
He also found that it was not the Rais intention at the outset to encroach on Mr. Laus
property, and that when subsidence occurred during the initial stages of the
excavation, building a retaining wall was a reasonable and acceptable way of
addressing the problem. In this connection he noted that there was a danger
of further subsidence if there were heavy rains.
[16]
In finding that Mr. and Mrs. Rai
trespassed, the trial judge said:
[20] I find
that the defendants have commit[ted] trespass on the plaintiffs property.
Actionable trespass occurs when a party enters onto lands without the
permission of the occupier. (Linden, Allen M.,
Canadian Tort Law
7th
ed. (Toronto: Butterworths, 2001) at 639.) It does not depend upon fault,
negligence or consequential damage. (Klar, Linden et al.
Remedies in Tort
at 23-11.) The defendants acknowledge that they committed trespass on the
plaintiffs property when their actions resulted in the subsidence of the
plaintiffs property and subsequent encroachment in order to build a retaining
wall.
[17]
The trial judge then assessed damages. He held
that Mr. Lau was entitled to recover the costs of restoring his property to
its original condition. With respect to the fence, the trial judge held that
the entire 92 feet along the property line should be replaced and painted, not
just the 42 feet that had been damaged. However, he denied compensation for an
additional 50-foot section of undamaged side-fencing. He also made an award
for the cost of replacing the top soil that had been removed, and for
replanting rose bushes and other plants. Based on the estimates before him,
the trial judge assessed compensatory damages at $7,243.12. In arriving at
this figure, the trial judge rejected Mr. Laus contention that general
damages should be assessed at approximately $50,000.00. Mr. Lau had
arrived at this figure based on his estimate that the excavator had trespassed
on his property approximately 256 times to either remove earth or deposit
gravel, and that he should receive $200.00 for each time.
[18]
The trial judge also held that Mr. Lau was
entitled to aggravated damages to reflect the upset and distress he suffered as
a result of the damage to and encroachment onto his property. Those damages
were assessed at $2,000.00.
Grounds
of Appeal
[19]
There is a lack of precision in how Mr. Lau
has stated his grounds. On the basis of his factum and his oral submissions, I
take his grounds to be that the trial judge erred in:
(a) not finding that it was the Rais intention from the outset
to trespass on his property;
(b) not finding that the removal of the fence was deliberate;
(c) not finding that the deposit of 60 tons of gravel on his
property constitutes a continuing trespass;
(d) misapprehending certain evidence;
(e) disallowing certain questions in his cross-examination of Mr. Yeung
and Mr. Yip;
(f) failing to take into account that construction of the
retaining wall continued after he had refused to permit any further
encroachment onto his property;
(g) calculating the cost of restoring his property; and
(h) failing
to award punitive damages.
[20]
In Part 4 of his factumnature of order soughtMr. Lau
seeks an increase in compensatory damages to $27,948.56, and $30,000.00 in
punitive damages. The compensatory damages include the cost of removing the
gravel and a charge relating to the use of his property from May 2003, until
the removal of the gravel.
Analysis
Fresh
Evidence
[21]
Mr. Lau seeks to tender the affidavit of
his son, Eric Lau. That affidavit contains a detailed recitation of the
construction of the retaining wall and the dispute that arose between the two
families, all from Eric Laus perspective. It also contains references to
aspects of the trial, including the testimony of witnesses, and rulings made by
the trial judge.
[22]
Attached as an exhibit to the affidavit is a
report prepared by Sean Riley, a geotechnical engineer. That report is dated
November 6, 2009, i.e., one month before the hearing of this appeal. Mr. Riley
takes issue with the efficacy of the lock-block retaining wall that was
installed. He also opines that, over time, the earth underneath the Lau
property could migrate into the void spaces in the gravel, resulting in
settlement or collapse of a portion of that property. He suggests steps that
could have been taken during the construction of the retaining wall to prevent
this migration.
[23]
Eric Laus account of what occurred in 2003 and
at the trial is clearly not fresh evidence. All of this is part of the trial
record that Mr. Lau has chosen not to file.
[24]
Mr. Lau says that he retained Mr. Riley
prior to the trial, with a view to calling him as a witness. He further
says that, because he did not have a written report from Mr. Riley, the
trial judge, on two occasions, refused to permit Mr. Riley to testify. Mr. Lau
has not included those rulings in his material.
[25]
It would appear that the trial judges rulings
are grounded in Rule 40A of the
Rules of Court
, B.C. Reg. 221/90, which
deals with Evidence of Experts. In particular, Rule 40A(3) requires that,
before a party can call an expert witness, a written statement setting out the
experts opinion must be served on the opposing party 60 days before the expert
testifies.
[26]
Mr. Rileys report is not fresh evidence.
It is, in written form, the very evidence Mr. Lau unsuccessfully attempted
to call at trial. That evidence cannot now be received unless Mr. Lau
establishes that the trial judge erred in not permitting Mr. Riley to
testify. Mr. Lau has neither provided those rulings, nor challenged their
correctness.
[27]
I would refuse the application to admit Eric
Laus affidavit on this appeal.
Challenges
to Findings of Fact / Misapprehension of Evidence
[28]
A substantial portion of Mr. Laus factum
and his oral submissions are directed at challenging findings of fact made by
the trial judge. For example, Mr. Lau contends, as he did at trial, that
his fence was intentionally pulled down, and that the Rais intention from the
outset was to encroach on his property, because it was less expensive to build a
lock-block retaining wall than to use other means to provide lateral support
along their shared property line.
[29]
The limits on appellate review of findings of fact are
well known. Recently, in
Manjit International Development Ltd. v. Ng
,
2009 BCCA 429, Mr. Justice Tysoe said this:
[10] The role of this Court is not to
retry the case. This Court is a court of review and of error correction. It
does not receive evidence or hear witnesses. That is the role of the trial
court. Consequently, this Court will not interfere with findings of fact by a
trial judge, absent palpable and overriding error plainly seen:
Housen v.
Nikolaisen
, 2002 SCC 33, [2002] 2 S.C.R. 235. As stated by the majority in
that case:
[22]
[Although] it is open to an appellate court to find that an inference of fact
made by the trial judge is clearly wrong, we would add the caution that where
evidence exists to support this inference, an appellate court will be hard
pressed to find a palpable and overriding error. As stated above, trial courts
are in an advantageous position when it comes to assessing and weighing vast
quantities of evidence. In making a factual inference, the trial judge must
sift through the relevant facts, decide on their weight, and draw a factual
conclusion. Thus, where evidence exists which supports this conclusion,
interference with this conclusion entails interference with the weight assigned
by the trial judge to the pieces of evidence.
[11] That is the same standard of
review applicable to a trial judges findings of fact based on the credibility
of a witness. In
Lu v. Mao
, 2007 BCCA 609, Madam Justice Saunders
stated as follows:
[12]
this
Court does not interfere lightly with findings of credibility. It is the trial
judge who is in the best position to assess credibility. Only if the
assessment of credibility is based upon a significant misapprehension of
evidence or displays an error in principle will this Court interfere.
Hence, this
Court cannot interfere with the trial judges findings on credibility and
findings of fact unless it is demonstrated that she made an obvious error that
affected the outcome of the decision.
[30]
The trial judge had before him a great deal of conflicting evidence. He
analyzed that evidence, assessed the credibility of the witnesses, and made
findings of fact. Given that Mr. Lau has not provided all of the evidence
that was before the trial judge, it is not possible for this Court to generally
reconsider those findings. It is, however, possible to consider Mr. Laus
contention that the trial judge misapprehended one piece of evidence.
[31]
At paragraph 11 of his reasons, the trial judge states
that the plan approved by the Rais engineer was to place lock-blocks near the
bank with gravel filling the space behind the blocks. The trial judge then
refers to Mr. and Mrs. Rai having testified that when they began to
remove the soil for this purpose, the bank gave way and some soil from Mr. Laus
property caved in, causing the fence to fall. The Rais further testified that
they moved quickly to put the lock-blocks in place to prevent further
subsidence.
[32]
Mr. Lau submits that in paragraph 13 of his
reasons, the trial judge made an error with respect to the order in which
events occurred:
[13]
The defendants did retain an
engineer to give them advice as to how to proceed once the subsidence occurred.
The engineer recommended the placement of the lock blocks and gravel backing. The
engineer noted that the soil was of fairly high moisture content where it had
subsided and was concerned that the retaining wall be put into place as soon as
possible.
This resulted in the blocks being placed closer to the plaintiffs
property line or just on the plaintiffs property line than originally
anticipated.
I am not satisfied that the defendants proceeded in this
fashion intentionally for the purposes of making it easier to construct their
house within 5 feet of the property line. The placing of gravel behind the
lock blocks has aided in the drainage of any moisture that may accumulate
against the retaining wall from the plaintiffs property as well as any seepage
that may have passed through the defendants property from other locations.
[Emphasis
added.]
[33]
It is clear that the trial judges reference to
an engineer is to Mr. Yeung. Mr. Lau contends that in this
paragraph the trial judge erroneously refers to Mr. Yeung as having
recommended the retaining wall be placed right at the property line, with the
gravel on the Lau property.
[34]
Mr. Yeungs evidence is that he was
consulted before any significant subsidence occurred. When he first visited
the building site on May 23, 2003, he was advised by Mr. Rai and Mr. Parayno
that they had encountered some soft ground and were concerned about the
stability of the excavation. Mr. Yeung testified that when he looked at
the bank it appeared to be stable, but when he examined it more closely, he
found a layer of sand with groundwater in it. Based on this observation, he
recommended the erection of a lock-block retaining wall with gravel filling the
space behind the wall. Mr. Yeung prepared a sketch showing both the wall
and the gravel on the Rais side of the property line. When Mr. Yeung
returned on Monday, May 26, 2003, he found that the retaining wall had been
placed at the property line, with the gravel on the Lau property. How and why
the wall came to be in that location is not discussed in the transcripts filed
on this appeal.
[35]
I do not agree that paragraph 13 evinces a
misapprehension of the evidence. The trial judge is not saying that the
retaining wall was built in the location recommended by Mr. Yeung. What
the judge is saying is that the unstable soil conditions noted by Mr. Yeung
resulted in the wall being placed closer to the property line than originally
anticipated, which I take to be a reference to Mr. Yeungs recommended
location. In other words, the trial judge found that circumstances
necessitated the wall being built closer to the Lau property than Mr. Yeung
had recommended because of what occurred on Saturday, May 24, 2003. As the
judge stated in paragraph 19 of his reasons, [t]he subsidence of soil occurred
on [Mr. Laus] side of the property line and required that the loose soil
be removed and the gap between the lock block and the remaining soil be back
filled with gravel.
Disallowance
of Questions In Cross-Examination
[36]
Mr. and Mrs. Rai called both Mr. Yeung
and Mr. Yip as witnesses. Mr. Lau attempted to cross-examine them
with a view to establishing that alternative methods of supporting the bank
created by the excavation could have been used, and that the Rais chose the
least expensive method. It would appear that Mr. Lau sought to elicit
that evidence to support his contention that it was always the Rais intention
to trespass on his property.
[37]
In response to the first questions asked of him
in-chief, Mr. Yeung said that he is a professional engineer, specializing
in geotechnical engineering. He then answered questions designed to bring out
what he had done on his two visits to the building site. During Mr. Yeungs
examination in-chief his two Field Inspection Reports and sketches were
marked as exhibits. Those reports are written on the letterhead of a
geotechnical engineering firm. As for Mr. Yip, the first question asked
of him in-chief elicited that he is a geotechnical engineer. During his
examination in-chief, Mr. Yip referred to two reports he had written setting
out his observations and recommendations. One report includes a sketch of the
building site and retaining wall. Those reports had previously been marked as
exhibits. Both are written on the letterhead of a geotechnical engineering
firm and bear Mr. Yips seal as a professional engineer.
[38]
During Mr. Laus cross-examination of Mr. Yeung,
counsel for Mr. and Mrs. Rai objected to the witness being asked
hypothetical questions regarding alternate methods that could have been used to
shore up the bank. Counsel submitted that Mr. Yeung had been called as a
lay witness to testify as to what he heard, what he said, what he did, and
that it was improper for Mr. Lau to attempt to elicit expert opinion
evidence from him, as no notice had been given. Although not specifically
mentioned, it is apparent that counsel was referring to the notice requirements
in Rule 40A. In sustaining that objection, the trial judge stated:
I will not allow
this line of questioning. It is trying to put in expert opinion evidence when
there has been no notice given, and it would be unfair and contrary to the
rules of court if I allowed that to occur.
[39]
The same objection was raised during Mr. Yips
cross-examination. Once again, Mr. and Mrs. Rais counsel successfully
argued that Mr. Laus questions should be limited to what was done,
said, or heard by Mr. Yip, and could not extend to matters involving Mr. Yips
professional opinion.
[40]
Mr. Laus complaint regarding the
restrictions placed on his cross-examination of Mr. Yeung and Mr. Yip
raises the issue of whether, and if so to what extent, the requirements of Rule
40A apply when one party seeks to elicit an opinion that is within the
expertise of a witness called by the other party, when that opinion did not
form part of the witnesss evidence in-chief. However, I do not propose to deal
with this issue for two reasons.
[41]
The first reason is that neither party addressed
the interpretation and application of Rule 40A in their respective arguments.
The second is that I am unable to see how Mr. Laus case could have been
improved had he obtained the sought-after opinions. Even if both Mr. Yeung
and Mr. Yip had testified that there were more costly alternative methods
of addressing the subsidence problem that did not involve encroaching on Mr. Laus
property, that evidence would not have advanced Mr. Laus position that Mr. and
Mrs. Rai always intended to encroach. It is clear that Mr. Yeung was
consulted shortly after the first subsidence occurred, and that he recommended
constructing the retaining wall on the Rais side of the property line. There
is nothing to suggest this was not a reasonable way of dealing with the problem
that had arisen. There is also nothing in the limited transcripts that have
been filed that supports Mr. Laus contention that the final placement of
the wall was premeditated on the part of the Rais.
Assessment
of Damages
[42]
Mr. Lau submits that damages awarded do not
adequately compensate him. He further submits that the trial judge erred in not
awarding punitive damages.
[43]
With respect to the cost of replacing and
painting his fence, Mr. Lau says that the trial judge erred in not
including the 50-foot section of side-fencing that is continuous with, and
perpendicular to, the fence that separates his property from the Rais. In
deciding not to include that section, the trial judge stated that it had not
[been] affected. As it has not been shown that the judge erred in that
finding, there is no basis on which to increase this aspect of the award.
[44]
As he did at trial, Mr. Lau argued that he
should be awarded damages for each time the excavator encroached on his
property to either remove soil, or to deposit gravel. There is no merit in that
argument. I agree with the trial judge that what occurred is essentially one
trespass.
[45]
Mr. Lau next submits that he is entitled to
compensation based on the fact that the gravel placed behind the retaining wall
remains on his property. He says that the gravel should be removed and that
the trial judge erred in not addressing this question.
[46]
That the trial judge did not address the removal
of the gravel is explained by the fact that he was not asked to consider this
question. There is nothing in Mr. Laus statement of claim (prepared by a
solicitor) seeking removal of the gravel. Further, there is nothing in that
portion of the trial record that has been filed indicating that this point was
taken before the trial judge.
[47]
While it is true that the gravel remains behind
the retaining wall, there is no evidence that its presence has, or will have,
any detrimental effect on Mr. Laus property. The trial judge awarded
compensatory damages based on the cost of restoring Mr. Laus property to
its original state. That award includes the cost of new fencing and the cost
of replacing the top soil and plants that were removed. There is nothing to
indicate that the condition of Mr. Laus property is now different from
what it would have been had the area behind the wall been returned to its
original state by putting in the same substances removed during the excavation,
i.e., layers of topsoil, fill, silt, and sand. The case at bar is, therefore,
unlike
Epstein v. Cressey Development Corp.
(1992), 65 B.C.L.R. (2d) 52
(C.A.), where the plaintiff was awarded damages as compensation for the decrease
in the value of her property caused by a continuing trespass, i.e., remnants
from improperly installed anchor rods that had been removed remained beneath
the surface of her property. Rather, it is comparable to
Vancouver Block
Ltd. v. Empire Realty Company Ltd.
(19 June 1979), No. CA780018 (B.C.C.A.),
wherein a compensatory damages award for a continuing trespass was set aside
because anchor rods left beneath the surface of the plaintiff property had no affect
on the use or value of that property.
[48]
Mr. Lau submits that he is entitled to
punitive damages because Mr. and Mrs. Rais conduct was arrogant and
high-handed. That description is, however, not supported by the trial judges
findings. The trial judge found Mr. and Mrs. Rai to be credible
witnesses. More specifically, in declining to award punitive damages, the
judge said:
[28] I do
not award anything for punitive damages. I accept that the defendants were
acting reasonably when they immediately offered to be responsible for restoring
the plaintiffs property to its original condition. They provided a letter of
apology which was delivered through city hall, who was also trying to mediate
this dispute. I am satisfied that they were willing to pay reasonable
compensation to restore the plaintiffs property to its original condition. The
parties may have disagreed as to what was reasonable, but I am satisfied the
defendants were genuine in their efforts to try and resolve the dispute. I am
also satisfied that the defendants did not simply ignore the plaintiffs wishes
and encroach on their property in order to save money or to allow them to
improve their view from their home by building closer to the plaintiffs
property.
[49]
As recently discussed in
Bowen Contracting
Ltd. v. B.C. Log Spill Recovery Co-operative Assn.
, 2009 BCCA 457, not
every act of trespass warrants an award of punitive damages. What is required before
such an award can be made is extreme or exceptional conduct deserving of
punishment and disapprobation. No such conduct was proven in the case at bar
and Mr. Lau has not been able to show that the trial judge erred in coming
to the conclusions he did.
Conclusion
[50]
I would dismiss this appeal.
The Honourable Mr. Justice Frankel
I agree:
The Honourable
Mr. Justice Lowry
I agree:
The
Honourable Madam Justice Neilson
| 5 |
Judgment of the Court (Third Chamber) of 16 April 1991. - Freistaat Bayern v Eurim-Pharm GmbH. - Reference for a preliminary ruling: Bundesverwaltungsgericht - Germany. - Interpretation of Articles 30 and 36 of the EEC Treaty - Importation of medicinal products. - Case C-347/89.
European Court reports 1991 Page I-01747
Summary
Parties
Grounds
Decision on costs
Operative part
Keywords
++++
Free movement of goods - Quantitative restrictions - Measures having equivalent effect - Prohibition on the importation of proprietary medicinal products not packaged in accordance with national law - Intention of the importer, who has been issued with the necessary authorization, to carry out that packaging - Not permissible - Protection of health secured by the relevant Community rules
(EEC Treaty, Arts 30 and 36; Council Directives 65/65 and 75/319)
Summary
Articles 30 and 36 of the EEC Treaty preclude national legislation from prohibiting the importation from another Member State of proprietary medicinal products legally marketed in that State for which a marketing authorization has been granted in the importing Member State, simply because they have not been labelled and provided with a package leaflet in accordance with the legal requirements of the importing Member State, although the importer in fact intends to repackage them so as to bring them into line with those requirements with a view to marketing them in the importing Member State and has the manufacturing permit required to that end.
Such a measure is not necessary for the effective protection of human health and life, since the manufacturing and marketing permits issued in accordance with Directives 75/319 and 65/65, which are the only ones required under the Community rules, enable the public authorities to make sure, first, that proprietary medicinal products imported by a parallel importer are identical in point of their composition to products the marketing of which has already been authorized in the national territory and, secondly, that the requirements laid down by national law in relation to the packaging of such products are complied with. The importer holding the manufacturing permit is responsible for ensuring that the imported product complies with the marketing requirements laid down by the law.
Parties
In Case C-347/89,
REFERENCE to the Court under Article 177 of the EEC Treaty by the Bundesverwaltungsgericht (Federal Administrative Court) for a preliminary ruling in the proceedings pending before that court between
The Free State of Bavaria
and
Eurim-Pharm GmbH,
on the interpretation of Articles 30 and 36 of the EEC Treaty,
THE COURT (Third Chamber),
composed of: J.C. Moitinho de Almeida, President of the Chamber, F. Grévisse and M. Zuleeg, Judges,
Advocate General: W. Van Gerven,
Registrar: J.A. Pompe, Deputy Registrar,
after considering the written observations submitted on behalf of:
the Free State of Bavaria, by Ulrich Luhmann, Rechtsanwalt, Munich,
Eurim-Pharm, by Wolfgang A. Rehmann, Rechtsanwalt, Munich,
the Commission of the European Communities, by Goetz zur Hausen, Legal Adviser, acting as Agent,
having regard to the Report for the Hearing,
having heard oral argument at the hearing on 12 December 1990 from the appellant in the main proceedings, the respondent in the main proceedings, represented by Wolfgang A. Rehmann, Rechtsanwalt, Munich, and Dietrich Mueller-Roemer, Rechtsanwalt, Bergisch-Gladbach, and the Commission of the European Communities,
after hearing the Opinion of the Advocate General delivered at the sitting on 5 February 1991,
gives the following
Judgment
Grounds
1 By order dated 3 August 1989 which was received at the Court on 10 November 1989, the Bundesverwaltungsgericht referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty a question on the interpretation of Articles 30 and 36 of the EEC Treaty.
2 The question was raised in proceedings between the Free State of Bavaria and Eurim-Pharm GmbH concerning the importation by the latter into the Federal Republic of Germany of medicinal products which it purchases in other Member States.
3 Eurim-Pharm imports into the Federal Republic of Germany proprietary medicinal products which are lawfully marketed in other Member States but whose packaging does not satisfy the requirements of the State in which they are purchased. It then repackages them so as to comply with the requirements of the German law of 24 August 1976 on medicinal products (Arzneimittelgesetz, hereinafter referred to as "the AMG", Bundesgesetzblatt 1976, p. 2445) and to provide them with a package leaflet required by that law.
4 The customs authorities required Eurim-Pharm to obtain the import certificate required under Paragraph 73 of the AMG before it could carry out those import operations.
5 Paragraph 73(1) of the AMG provides as follows:
"Medicines subject to authorization or registration may be imported into the territory in which this law is applicable
- with the exception of tax-free areas other than the island of Helgoland - only if they have been authorized or registered for circulation in the territory or if they have been exempted from authorization or registration, provided that
(1) if the product is imported from a Member State of the European Community, the recipient must be a pharmaceutical company, a wholesaler, a veterinary surgeon or a pharmacist;
...".
6 In order to enable checks to be carried out to make sure that those requirements are met in the case of the medicinal products being imported, Paragraph 73(6) provides that:
"For the purposes of customs clearance for free circulation, in the case of subparagraph 1 a certificate of the authority responsible for the recipient must be submitted, indicating the type and quantity of the medicinal product and certifying that the conditions set out in subparagraph 1 are met. The competent customs office shall forward the certificate at the declarant' s expense to the authority which drew it up."
7 Eurim-Pharm argued that it was not necessary for it to obtain such a certificate. In its view, only "finished medicinal products" (Fertigarzneimittel) needed a marketing permit within the meaning of Paragraph 4(1) of the AMG. The medicinal products which it imported could not be described as such as they lacked packaging and a package leaflet satisfying the requirements of the AMG, under which it was prohibited to market them in that state in the territory in which that law applied.
8 Eurim-Pharma was successful before the Bayerisches Verwaltungsgericht (Bavarian Administrative Court) and before the Bayerischer Verwaltungsgerichtshof (Bavarian Higher Administrative Court). The Free State of Bavaria, however, appealed on a point of law to the Bundesverwaltungsgericht.
9 The Bundesverwaltungsgericht considered that the medicinal products imported by Eurim-Pharm had to be regarded as being "finished medicinal products" and, as such, subject to the authorization provided for in Paragraph 73 of the AMG. However, the certificate laid down in Paragraph 73(6) could not be issued since, as the medicinal products were packaged and provided with a package leaflet which complied only with the requirements of the exporting Member State, they could not be lawfully imported and marketed in the territory in which the AMG applied.
10 According to the Bundesverwaltungsgericht' s interpretation, medicinal products for which a marketing permit must be obtained according to the AMG may not be imported unless they satisfy in all respects the requirements of the permit issued by the competent authorities. However, a permit may be granted only if the packaging is marked in German with certain particulars laid down in Paragraph 10 of the AMG and the package contains a leaflet, also in German, satisfying the requirements of Paragraph 11 of the Law.
11 Observing that, as a result, the combined provisions of Paragraphs 10, 11, 25 and 73 of the AMG absolutely precluded a pharmaceutical undertaking from importing from other Member States proprietary medicinal products lawfully marketed there in order to repackage them for sale on the German market, the Bundesverwaltungsgericht questioned whether that prohibition on importation was compatible with Articles 30 and 36 of the EEC Treaty.
12 In those circumstances, it referred the following question to the Court for a preliminary ruling:
"Do Articles 30 and 36 of the EEC Treaty preclude provisions which make it impossible for an undertaking in one Member State to import from another Member State finished medicinal products in order to label them locally and provide them with package leaflets in accordance with domestic provisions pursuant to a national manufacturing permit?"
13 Reference is made to the Report for the Hearing for a fuller account of the facts of the case, the course of the procedure and the written observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court.
14 The Free State of Bavaria considers that the AMG does not preclude the importation of proprietary pharmaceutical products solely because they are not packaged in accordance with the requirements of Paragraphs 10 and 11 of that law. Once a marketing permit covering the territory in which the Law applies has been issued pursuant to Paragraph 21 of the AMG in respect of the product itself, a parallel importer is entitled to import it with a view to providing it with packaging and a package leaflet which satisfy the requirements of the Law, and then to market it.
15. That view cannot be accepted in view of the Bundesverwaltungsgericht' s interpretation of the Law.
16 The Bundesverwaltungsgericht held, as has already been mentioned, that medicinal products not provided with packaging and a package leaflet satisfying the requirements of the AMG were nevertheless "finished medicinal products" subject to the authorization provided for in Paragraph 73 and that, in the case of such medicinal products, neither that authorization nor a certificate to the effect that authorization had been obtained could be lawfully issued. However, as the Court has consistently held, in proceedings under Article 177 of the EEC Treaty, it may not rule on the interpretation of national laws or regulations (Case 16/83 Prantl [1984] ECR 1299 and Joined Cases 91 and 127/83 Heineken Brouwerijen [1984] ECR 3435) or assess whether questions referred to it by a national court are relevant (see, in particular, Case 52/77 Cayrol v Rivoira [1977] ECR 2261).
17 The Court must therefore answer the Bundesverwaltungsgericht' s question. That court asks whether a national measure is contrary to Articles 30 and 36 of the EEC Treaty in the following circumstances. The measure constitutes an absolute bar to the importation into a Member State of proprietary medicinal products lawfully put into circulation in the Member State of exportation which are the subject in the importing Member State of a marketing authorization, simply because the products in question are not provided with packaging and a package leaflet complying with statutory requirements in the importing Member State, and the importer intends in fact to repackage the products in line with those requirements with a view to selling them on the market of the importing Member State and has the necessary authorizations to do so.
18 In the view of the Free State of Bavaria (which, it is observed, develops its argument in the context of its own interpretation of the AMG which, as has been mentioned above, does not coincide with that of the Bundesverwaltungsgericht), the provisions of the AMG governing authorization to import medicinal products are necessary for the protection of public health. It maintains in particular that parallel imports of proprietary medicinal products entail risks for public health owing to the differences which may exist in respect of a given product depending on the Member State of importation. It follows that checks at the frontier to ascertain that the product being imported is the same as the product for which marketing authorization has been granted in the Federal Republic of Germany are necessary and cannot effectively be replaced by the intermittent checks carried out on the importing pharmaceutical undertaking' s repackaging process pursuant to the manufacturing permit which it has been granted under Paragraph 64 of the AMG. Moreover, the Commission itself has acknowledged that this view is
well-founded, since it abandoned proceedings brought against the Federal Republic of Germany in this connection for failure to fulfil its obligations.
19 The respondent in the main proceedings and Commission maintain that the AMG, as interpreted by the Bundesverwaltungsgericht, constitutes an absolute bar on the importation of proprietary medicinal products which have already been authorized on the German market where the packaging and package leaflet do not satisfy the requirements of Paragraphs 10 and 11 of the AMG, and that this is an excessive restriction in intra-Community trade.
20 They point out that, in any event, the products in question may not be marketed directly in the territory in which the AMG applies but have to be repackaged. Under Paragraph 4(14) of the AMG, repackaging is a manufacturing operation for which authorization is required in accordance with the provisions of Chapter IV of Council Directive 75/319/EEC of 20 May 1975 on the approximation of provisions laid down by law, regulation or administrative action relating to proprietary medicinal products (Official Journal 1975 L 147, p. 13) and on the terms laid down in Paragraphs 13 to 20 of the AMG.
21 As a manufacturer, the importing pharmaceutical undertaking is subject to checks carried out by the competent administrative authorities and is responsible for ensuring that not only the packaging but also the content of the medicinal product is in conformity with the AMG and with the marketing authorization. It would be liable to incur severe criminal sanctions if it were to break the provisions of the Law.
22 Eurim-Pharm also argues that the AMG, as interpreted by the Bundesverwaltungsgericht would oblige undertakings to move their packaging process to each of the States from which they import proprietary medicinal products so as to make their packaging satisfy the requirements of the AMG even before they enter the territory in which that law applies.
22 Article 30 of the EEC Treaty prohibits in trade between Member States quantitative restrictions on imports and all measures having equivalent effect. As the Court has consistently held, all trading rules enacted by a Member State which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade are to be considered as measures having an effect equivalent to quantitative restrictions.
24 A requirement laid down in national legislation for authorization to import certain products constitutes a measure having an effect equivalent to a quantitative restriction on imports.
25 It must therefore be considered whether the measure in question can be justified in the light of Article 36 of the Treaty.
26 On the one hand, the Court has consistently held that the health and the life of humans rank foremost among the property or interests protected by Article 36 and it is for the Member States, within the limits imposed by the Treaty, to decide what degree of protection they intend to assure and in particular how strict the checks to be carried out are to be. On the other hand, Article 36 remains applicable where harmonization of national legislation on the manufacture and marketing of proprietary medicinal products has not been fully achieved (judgment in Case 215/87 Schumacher [1989] ECR 617, paragraph 15).
27 However, it follows from Article 36 that national rules or practices which restrict imports of pharmaceutical products or are capable of doing so are compatible with the Treaty only to the extent to which they are necessary for the effective protection of the health and life of humans. National rules or practices do not qualify for a derogation under Article 36 if the health and life of humans can be protected as effectively using measures which are less restrictive of intra-Community trade.
28 On the view taken by the national court, the importer has a manufacturing permit issued in accordance with the requirements both of Directive 75/319 and of Paragraph 13 of the AMG under which he is authorized to carry on manufacturing operations in respect of the product in question. It is common ground that it needs such a permit in order to carry out operations relating to the packaging of pharmaceutical products, since such operations are covered by the manufacturing of such products under both Article 16(2) of Directive 75/319 and under Paragraph 4(14) of the AMG.
29 As a result, the importing undertaking is subjected, by the competent authorities, to checks provided for in Directive 75/319 and the AMG, the procedures for which are defined in Paragraph 64 of the AMG. If it breaks the law, the undertaking makes itself liable to administrative or criminal sanctions.
30 An undertaking which imports pharmaceutical products from another Member State in order to repackage them must also have, in order to market them, a marketing permit issued under the provisions of Council Directive 65/65/EEC of 26 January 1965 on the approximation of provisions laid down by law, regulation or administrative action relating to proprietary medicinal products (Official Journal, English Special Edition 1965-1966, p. 20), Directive 75/319 and Paragraph 21 of the AMG.
31 It is common ground that in the Federal Republic of Germany such a permit is an authorization which, simplified in order to take account of the Court' s case-law (judgments in Case 104/75 De Peijper [1976] ECR 613 and in Case 32/80 Officier van Justitie v Kortmann [1981] ECR 251), is issued to the parallel importer in respect of a proprietary medicinal product which has already been placed on the market by the manufacturer or the duly appointed importer.
32 One of the purposes of that permit is to make sure that the composition of proprietary medicinal products imported by a parallel importer is identical to that of products for which a marketing permit has already been issued.
33 The two manufacturing and marketing permits are the only ones required under the Community rules on the free movement of proprietary medicinal products, the aim of which, according to the third and fourth recitals in the preamble to Directive 65/65, is to remove the barriers to trade in proprietary medicinal products within the Community which result from disparities between national provisions. In particular, it must be observed that Directive 75/319 provides, in Article 16(3), for an import permit only in respect of proprietary medicinal products coming from non-member countries.
34 Those two permits enable the public authorities to make sure, first, that proprietary medicinal products imported by a parallel importer are identical in point of their composition to products the marketing of which has already been authorized in the national territory and, secondly, that the requirements laid down by national law in regard to the packaging of such products are complied with. The importer holding the manufacturing permit is responsible for ensuring that the imported product complies with the marketing requirements laid down by the law.
35 Accordingly, the prohibition on the importation of the products in question which according to the national court results from Paragraph 73(1) of the AMG is not necessary for the effective protection of human health and life.
36 It follows that the answer to the question referred by the Bundesverwaltungsgericht must be that Articles 30 and 36 of the EEC Treaty preclude national legislation from prohibiting the importation from another Member State of proprietary medicinal products legally marketed in that State when those products are subject to marketing authorization in the importing Member State and the importer holds a manufacturing permit for the purpose of labelling them and providing them with a package leaflet in accordance with the legislation of the importing Member State.
Decision on costs
Costs
37 The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable. Since these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the proceedings pending before the national court, the decision on costs is a matter for that court.
Operative part
On those grounds,
THE COURT (Third Chamber),
in reply to the question submitted to it by the Bundesverwaltungsgericht, by order of 3 August 1989, hereby rules:
Articles 30 and 36 of the EEC Treaty preclude national legislation from prohibiting the importation from another Member State of proprietary medicinal products legally marketed in that State when those products are subject to marketing authorization in the importing Member State and the importer holds a manufacturing permit for the purpose of labelling them and providing them with a package leaflet in accordance with the legislation of the importing Member State. | 5 |
LORD JUSTICE STANLEY BURNTON :
Introduction
This is an appeal from the decision of the Divisional Court (Scott Baker LJ and David Clarke J) dismissing the appeal of Amritpal Singh Virdi from the findings and order of the Solicitors Disciplinary Tribunal ("the Tribunal") finding him guilty of serious professional misconduct and suspending him from practice for a period of 3 years. Following a 15-day hearing between May and October 2007, the Tribunal announced its decision, gave its findings in summary form, and made its order on the last day of the hearing, on 26 October 2007. Its written findings were not given until a year later, but that delay is not the subject of any issue in this appeal.
The appeal raises issues as to the lawfulness of the part played by the clerk to the Tribunal. The clerk is an employee of the Law Society. In the present case, she retired with the members of the Tribunal when they considered their decision. Following the announcement of the Tribunal's decision, she assisted in drafting their written findings. I shall set out more fully the part she played later in my judgment.
In summary, on behalf of the Appellant, Mr Beaumont submits:
(1) It was ultra vires the Tribunal for the clerk to retire with them or to assist in drafting their findings.
(2) The clerk's role led to the appearance of bias and an infringement of the Appellant's Convention right to a fair trial under Article 6.
On these grounds, the Appellant seeks an order quashing the decision of the Tribunal.
Since the conduct of the clerk in the present case was no different from the ordinary practice of the Tribunal, the issues are of general importance.
The statutory and regulatory framework
The Tribunal is constituted under section 46 of the Solicitors Act 1974. It consists of practising solicitors of not less than 10 years' standing and lay members who are neither solicitors nor barristers. Subsection (9) confers power on the Tribunal to make rules "about the procedure and practice to be followed in relation to the making, hearing and determination of applications and complaints". Subsection (11) provides that the Tribunal may administer oaths, and enables the issue of writs of subpoena ad testificandum and duces tecum; otherwise, the Act in its original form did not expressly confer any administrative or procedural powers. The Act was amended with effect from 30 June 2008 (i.e., after the decision of the Tribunal in this case) by the Legal Services Act 2007, and a new subsection (5A) inserted:
(5A) The Tribunal may do anything calculated to facilitate, or incidental or conducive to, the carrying out of any of its functions.
The procedural rules in force at the time of the Appellants' hearing were the Solicitors (Disciplinary Proceedings) Rules 1994. They require the clerk to be a solicitor. The functions of the clerk under the Rules are principally administrative: to receive notice of applications (see rule 4(7)), to serve notice of the hearing on the parties (rule 6), to conduct a pre-hearing review to facilitate the hearing (rule 8), to receive the bundles of documents for the hearing, to be notified of applications for a hearing in private (rule 13) and to file and to keep the documents used at a hearing (rule 26). Rule 23 was as follows:
23. Upon the conclusion of the hearing or determination of any Application the Tribunal may announce its Order while still sitting in which case the Order may be filed immediately with the Society, and the Findings shall be filed later as if judgment had been reserved, or it may reserve judgment in which case it shall announce its Findings and Order in public at a later date notice whereof shall be given to the parties by the Clerk. The Clerk shall on the day of pronouncement file the Order, or the Findings, or both, with the Society. The Clerk shall supply a copy of the Findings and Order to each party to the proceedings and to any other person present at the pronouncement who requests one.
Rule 31(a) provided:
(a) Subject to the provisions of these Rules the Tribunal may regulate its own procedure.
The 1994 Rules were replaced by the Solicitors (Disciplinary Proceedings) Rules 2007 with effect from 14 January 2008. The 2007 Rules are more prescriptive of the functions of the clerk. Rule 3 includes the following paragraphs:
(6) The Tribunal may also appoint other clerks, including clerks appointed to deal with a particular case or cases.
(7) A clerk appointed by the Tribunal under this rule shall be a solicitor or barrister of not less than 10 years standing
(8) A clerk shall vacate his office if—
(a) in the Tribunal's opinion (with which the Master of the Rolls agrees) he is physically or mentally incapable of performing his duties; or
(b) he retires; or
(c) he is removed from office by a resolution of the Tribunal approved by the Master of the Rolls.
(9) The Clerk shall be responsible to the Tribunal for the administration of the Tribunal in an efficient manner and, for so long as he shall be remunerated by the Law Society, shall be regarded as seconded to the Tribunal.
(10) The services of a clerk may be provided to the Tribunal through a body independent of the Law Society and that body may employ him on such terms (including remuneration and pension provision) as the Tribunal shall think fit.
(11) The Tribunal may prescribe the duties to be performed by the clerks or for which they shall be responsible and those duties shall include arrangements for—
(a) the submission of applications for certification of a case to answer;
(b) making pre-listing arrangements including directions of an administrative nature;
(c) listing of and attendance at hearings;
(d) securing a record of hearings (by tape recording or other means);
(e) advising the Tribunal on matters of law or procedure as may be necessary or expedient;
(f) preparing summaries of allegations, evidence and submissions for inclusion in the Tribunal's detailed findings;
(g) drawing orders and findings and filing them with the Law Society;
(h) the general supervision of other clerks and the Tribunal's administration and staff; and
(i) maintaining records and collecting statistics required by the Tribunal.
Following Sir David Clementi's 2004 Report on his Review of the Regulatory Framework for Legal Services in England and Wales, the government made it clear that it considered that the regulatory functions of the Law Society should be separated from its representative role. In 2007, this division was reflected in the Legal Services Act. However, in anticipation of that legislation, the Law Society delegated its disciplinary functions to a Regulation Board, later to be called the Solicitors Regulation Authority Board, which administers the Solicitors Regulation Authority, universally referred to as the SRA. The Regulation Board was created by the Law Society's General Regulations January 2006, which came into force on 1 January 2006. Regulation 20(5) prescribed the membership of the Board:
a) a Chair, who shall be a solicitor but not a Council member, appointed by the Council following an open recruitment process taking into account Guidelines issued by the Commissioner for Public Appointments;
b) seven non-Council members who shall not be solicitors, appointed in the manner described in (a); and
c) eight non-Council members, who shall be solicitors, appointed in the manner described in (a).
The terms of office of the chairs and members of the Board were the subject of regulation 22:
22(1) Subject to (3), the chairs of the subsidiary boards serve for a single period of three years, and shall not be eligible for re-election at the end of that period.
(2) Subject to (3), the other members of subsidiary boards (including Council members) serve for three years, being eligible for re-election or re-appointment, as the case may be, for one further period of three years only.
(3) As a transitional provision, the members of subsidiary boards elected or appointed to serve for initial periods of four years shall serve for the period for which they were originally elected and shall thereafter be eligible to be re-elected or re-appointed for one further period of three years only.
(4) A member elected or appointed to fill a casual vacancy on a subsidiary board serves until the end of his or her predecessor's term, and shall thereafter be eligible for re-election or re-appointment for one further period of three years only.
(5) The terms of office of the chair and members of the Consumer Complaints Board shall be two years, running from the date of appointment, and they shall be eligible for re-appointment for two further terms of two years only.
(6) The terms of office of the chair and members of the Regulation Board shall be four years, running from the date of appointment, and they shall be eligible for re-appointment for one further term of four years only.
The terms of reference of the Board were in regulation 31:
31 The terms of reference of the Regulation Board are –
(1) To exercise all monitoring, regulatory, investigative, adjudication, disciplinary, intervention, prosecution, enforcement, civil litigation and cost recovery powers vested in the Society or the Council under –
(a) the Act
…..
(2) To deal with any actual or forthcoming litigation arising from the exercise of its functions under this Regulation in relation to individual casework matters and other regulatory decisions relating to individuals and particular recognised bodies.
…..
(11) To deal with all proceedings before the Solicitors Disciplinary Tribunal, and all litigation arising from such proceedings.
The General Regulations January 2006 were updated in July 2007 and the updated Regulations came into force on 19 July 2007. The membership of the SRA Board was prescribed by regulation 21(6):
(6) The Solicitors Regulation Authority Board shall consist of –
(a) a Chair, who shall be a solicitor but not a Council member, appointed by the Council following an open recruitment process taking into account Guidelines issued by the Commissioner for Public Appointments;
(b) seven non-Council members, who shall not be solicitors, appointed in the manner described in (a), and
(c) eight non-Council members, who shall be solicitors, appointed in the manner described in (a).
The terms of office of its chair and members were set out in regulation 23(4), which was in the same terms as regulation 22(6) of the 2006 Regulations.
The hearings of the allegations against the Appellant began in May 2007, and were continued in July and completed in October 2007. Thus they began when the 2006 Regulations were in force and were completed when the 2007 Regulations had come into force. There is no significant difference for present purposes between the 2006 and the 2007 Regulations, and it has not been suggested that anything turns on the difference between them.
In 2003 a memorandum of understanding was drawn up between the Master of the Rolls, the Law Society and the Tribunal. It was not a published document. The first paragraph was as follows:
This memorandum of understanding records an interim arrangement between the Law Society and the Solicitors Disciplinary Tribunal ('the Tribunal'). It is the objective of both parties to work as soon as possible towards a situation where the Tribunal becomes wholly independent of the Law Society in the operation and administration of its function. It is recognised in any event that the Tribunal is wholly independent of the Law Society in the exercise of its judicial functions.
The italics are mine.
In addition, the memorandum records:
The overriding obligation of the [Tribunal] is to do justice as a judicial body.
The [Tribunal's] budget is proposed by the Clerk and submitted to the Society for approval.
The Clerk is appointed by the Tribunal to hold office in accordance with the Solicitors (Disciplinary Proceedings) Rules 1994.
The remuneration (including pension provision) of the Clerk shall be determined by the Society in accordance with scales and other rates of pay considered by the Society to be appropriate for a person holding such office and with responsibilities comparable to those of similar employees of the Society.
The Society cannot withdraw or impede the services provided for the proper performance of the Clerk's office.
The Clerk shall be regarded as seconded to the SDT. The staff of the SDT will continue to be employees of the Society and will report to the Clerk as their line manager.
The facts
The facts of the disciplinary charges faced by the Appellant before the Tribunal are irrelevant to the issues on this appeal, and it is unnecessary to set them out. The Appellant makes no complaint about the independence of the Tribunal apart from his allegations concerning the clerk, or as to the conduct of the hearing of the charges against him until the completion of the evidence and closing speeches. Furthermore, he made no complaint as to the independence of the Tribunal or as to its procedures at the time, i.e., when its findings and its decision on sanction were announced. He appealed to the Administrative Court against the findings of and the sentence imposed by the Tribunal on numerous grounds, only one of which is relevant to this appeal:
It is understood that the judgment of the Tribunal was drafted in whole or in part by the Clerk to the Tribunal and not by the Tribunal members. This is understood to be the current practice of the Tribunal. The Clerk had no statutory authority or other legal power to take part in the decision-making process, still less to draft all or part of the Tribunal's judgment. The Appellant was entitled to be tried by a "Tribunal established by law" – (ECHR Art 6(1). If the Clerk drafted any part of the judgment, that was a breach of natural justice: the Appellant thought he was being tried by the Tribunal members and by no-one else. The Appellant asked the Tribunal to confirm what part the Clerk played in the drafting of the Findings. If she played any part, the decision must be regarded as a nullity and should be quashed.
In response to this ground of appeal, the Tribunal served and filed witness statements of Susan Elson, the clerk to the Tribunal, Sheila Whitfield, a deputy clerk who acted as the clerk to the panel that heard and determined the charges against the Appellant, and Jacqueline Devonish, the solicitor member of the Tribunal who chaired the proceedings against him. Mrs Elson described the clerk's role in a routine case, and confirmed that it included attending the hearing, and giving advice on law and procedure if called upon to do so. In addition, she said:
.. the clerk:
…
retires with the Tribunal, hears its discussion and decision, and takes a note. The clerk plays no part in the decision-making process but might, for example, seek clarification of the reasons for a particular decision for the purposes of the note. As will be explained, the clerk will have the initial responsibility for producing the written record of the Tribunal's decisions and reasons and, as discussion may have been wide ranging and time consuming, will wish to ensure that he or she has captured and summarised the members' decisions and reasons accurately, and that nothing has been overlooked;
draws to the attention of the Tribunal similar past cases and, if appropriate, the sanctions imposed. Although the Tribunal is not formally bound by precedent in relation to its own decision information of this kind might be sought in the interests of maintaining consistency;
draws up the Tribunal's order on a pro forma, which is then typed and signed by the chairman and handed down to the parties on the day of the hearing. The practice is that the chairman gives brief oral reasons before the orders are handed down, and confirms to the parties that the detailed written Findings will be prepared and distributed subsequently. The chairman's brief oral extempore 'judgment' is prepared and written by the chairman, with input from the other two members;
prepares an initial draft of the Findings.
Mrs Elson enlarged on the last matter in paragraphs 8 and 9 of her witness statement:
8. The first draft is then circulated amongst the members who consider it and make any adjustments or amendments they see fit. This is not in any sense a process limited to the parts of the Findings recording the rulings and findings of the members. Whole sections may be rewritten entirely. The initial draft is the clerk's minute of the proceedings, in the courtroom and in the retiring room. It is a record of events committed to paper by an experienced professional, which is then fully reviewed and amended as necessary by the members. The Findings, particularly in a complex case, may go through many draft stages before the members are all agreed on the final record. Unless the members specifically ask for further assistance (such as a reminder of words used, from the digital record) the clerk has no further contribution to make after the first draft is with the members. Successive amendments are handled by the Tribunal staff as matters for the typists.
9. When all the members are agreed the Findings are signed by the chairman, distributed to the parties and filed with the Law Society.
Mrs Whitfield confirmed that she had retired with the members of the Tribunal when they considered their decisions. She stated:
3. Usually the clerk will produce the first draft [of the Findings] as a complete document. In this case the chairman and other members played a part as the draft progressed. This was primarily due to the number and extent of the applications and objections raised in the course of the hearing, as recorded in section 4 of the Findings, and the length and complexity of the proceedings. Having made a note of the full reasons as provided by the members at the time, in retirement, and in the light of the oral reasons given as recorded in the transcript, I took the view that this part of the Findings could be set out in relatively short and summary form. I also provided the summaries of the evidence of witnesses and submissions, but I circulated the draft to the members at a preliminary stage to check that they were happy with the approach I had adopted.
4. There was also a departure from the normal process in that the chairman drafted, in the sense that she dictated, some of the decisions of the Tribunal in section 4 of the Findings.
5. My notes from the 26th October 2007 indicate that the members were in retirement discussing their final decision in relation to liability for approximately six and a half hours. Once a consensus was reached the chairman drafted, with the assistance of the other members, a rather longer set of oral reasons to be read in open court than is normally the case. My contribution was to remind them, from my note, of comments and reasons made and given during the course of the lengthy discussion. It was this set of reasons, as should be apparent from the transcript, which formed the basis of my first draft of section 7 of the Findings. After hearing submissions in mitigation and also costs the members spent a further period of just under two hours considering penalty and costs.
Miss Devonish agreed with Mrs Elson and Mrs Whitfield, and added:
5. The one matter with which it may be appropriate for me to deal is that there may be an implication that the decision was in substance that of the clerk rather than of the members, wholly or in part, or that the clerk contributed inappropriately to the decision-making process. If there is an allegation or implication that the decisions, orders and reasons were not wholly those of the members of the Tribunal as duly constituted, I refute it. The decisions, orders and reasons recorded in the Findings are the findings of the members of the Tribunal. I signed the Findings on 13 October 2008 to record that fact.
Until shortly before the hearing of his appeal by the Administrative Court, the Appellant and his counsel were unaware that the clerk to the Tribunal was an employee of the Law Society. It seems that one of them accessed the Tribunal website, and discovered this statement:
The staff of the Tribunal are employees of the Law Society. The Clerk and Deputy Clerks are formally seconded to the Tribunal by the Law Society. The full complement of staff consists of a full time Clerk, two part-time Deputy Clerks, all of whom are solicitors of no less than ten years' standing; a full-time Assistant Clerk (also a solicitor) and two part-time Assistant Clerks.
There are other facts that are relevant and are set out in the judgment of Scott Baker J in the Divisional Court:
1. The Tribunal uses a building not used by the Law Society.
2. The Law Society has no control over and does not interfere with the routine management or operation of the Tribunal.
3. None of the clerks has ever been employed by the Law Society for any purpose other than as clerk to the Tribunal. They have never served the Law Society in any other capacity.
4. The clerks have no routine contact with the Law Society other than as a nominal employer.
5. There is no link between results of cases in the Tribunal and career development of clerks.
The grounds of appeal
The discovery that the clerk to the Tribunal was employed by the Law Society led Mr Beaumont to seek, and to obtain, from the Divisional Court permission to amend the grounds of appeal to add the following paragraphs:
(b) The retirement of the clerk with the panel members of the STD on 26th October 2007 when they considered their final verdict and sentence was unlawful at common law because, according to the evidence of Mrs Elson, the clerk is an employee of the Law Society (seconded to the SDT). She therefore had, or appears objectively to have had, a common interest with, or partiality towards, her employer, the Law Society, the body prosecuting Mr Virdi before the Tribunal;
(c) The involvement of the clerk in retiring with the panel when they considered their final verdict and sentence and/or in drafting the findings on 26th October 2007, was unlawful at common law, because her employer was party to the proceedings and for her to have played any part in the retirement and/or drafting processes, was, or was tantamount to, the Law Society being a judge in its own cause;
(d) The involvement of the clerk in drafting the detailed findings after 26th October 2007, was unlawful at common law, because her employer was a party to the proceedings and for her to have played any part in the drafting process was, or was tantamount to, the Law Society being a judge in its own cause.
The decision of the Divisional Court
The Divisional Court held that the Tribunal had power to permit the clerk to retire with them when they considered their decision and to assist them by drafting part of the formal findings by virtue of rule 31(a) of the Solicitors (Disciplinary Proceedings) Rules 1994: i.e., these matters were part of the procedure of the Tribunal. In relation to the contention that the clerk's involvement gave an appearance of bias and led to a breach of Article 6, Scott Baker LJ came to the following conclusions, with which David Clarke J agreed:
1. The SDT is entirely independent of the Law Society. The historical and financial connections are well documented as are the steps that have been taken to keep the two bodies separate.
2. The independence of the Tribunal is well established on the authorities.
3. The attack in the present case is not directly on the Tribunal but on the clerk, it being alleged that because she was employed by the Law Society that this in some way tainted the Tribunal's decision because the Law Society was the prosecutor and neither party should have any connection with the Tribunal. Examination of the clerk's position however shows that her employment by the Law Society (as with all Tribunal clerks) is not employment in the ordinary sense of the word but very much technical employment for remuneration purposes.
4. The clerk was not the decision maker, either by virtue of her position or on the particular facts of this case. Even taking the broadest view of what the independent and informed observer might think, I can see no basis for concluding that the Tribunal's decision could be considered to be biased against the appellant.
5. Nothing the clerk did was improper. She was not in any way a party to the decision. She followed the ordinary administrative procedures adopted in other cases. She was entitled to assist in drafting the findings document which, in the event, was not in any way inconsistent with the extempore reasons give by the Chair on 26th October 2007.
The contentions of the parties on this appeal
On behalf of the appellant, Mr Beaumont repeated the submission he had made below, that the Tribunal did not have power to invite its clerk to join it when they retired to consider their decisions. He submitted that this was not part of the "procedure" of the Tribunal for the purposes of rule 31(a): the rule is concerned with formal matters such as the service of documents by the parties setting out their respective cases and the disclosure of documents. Mr McLaren and Mr Hopper submitted that the conclusion of the Divisional Court had been correct. However, during the course of argument, the Court suggested that the Tribunal might have implied power to retire with their clerk. This led the Tribunal to serve a Respondent's Notice, with the permission of the Court. Mr Beaumont was able to address this issue orally, and was given time to provide any authorities he relied upon.
On the question whether the proceedings of the Tribunal were marred by apparent bias, Mr Beaumont accepted that someone who knew all the facts concerning the role of the clerk in the proceedings against the appellant would appreciate that there had been neither bias nor an appearance of bias. However, he contended that the hypothetical fair-minded and informed observer would not have access to all the information now before the Court, but would be restricted to information that was publicly available. He submitted that the retirement of the clerk with the Tribunal gave the impression that one party, namely the prosecutor, had access to the Tribunal that was unavailable to the appellant, and there was therefore an inequality of arms, or at least an appearance of such inequality. Furthermore, the participation of the clerk in the drafting of the findings of the Tribunal meant that the case against the Appellant had not been determined by the Tribunal appointed by the law. Although the prosecution of the Appellant had been conducted by the SRA, it was an agent of the Law Society, and the participation of an employee of the Law Society in the decision of the Tribunal gave the appearance of bias. The Appellant's rights under Article 6 of the Convention had been breached and the decision of the Tribunal had to be quashed.
Mr McLaren and Mr Hopper submitted that the restriction contended for by Mr Beaumont on the information available to the informed observer is inconsistent with authority and reason. On the information before the Court and that which would have been available to the Appellant had he challenged the part played by the clerk in the Tribunal while it was sitting, there was no bias or appearance of it. The clerk was employed by the Law Society, but the prosecuting authority was the SRA, which, although not a separate legal entity from the Law Society, enjoyed sufficient constitutional independence. The clerk's employment and any decisions as to its continuance or her pay were not within the power of the Law Society or the SRA. As to the drafting by the clerk of parts of the written findings of the Tribunal, that had occurred after the decision had been announced and filed with the Law Society. On the authority of the decision of the Divisional Court in Baxendale-Walker v. the Law Society [2006] EWHC 643 (Admin) the Tribunal was functus officio once its decisions had been announced.
Discussion
(a) Was the retirement of the clerk with the members of the Tribunal ultra vires?
A statutory body, such as the Tribunal, has only such powers as Parliament has conferred on it. However, it may not be confined to the powers expressly conferred. It is lawful for it to do what the law expressly or impliedly authorises: see, for example, Sir Thomas Bingham MR in R (Fewings) v Somerset CC [1995] 1 WLR 1037, 1042H. Generally, a body created by statute must have powers given to it if its acts are to have legal effects. It must therefore have powers conferred if it is to enter into contracts, and the power to enter into contracts may be circumscribed by reference to its authorised functions. In the case of a disciplinary tribunal, it must have powers conferred on it if it is to make legally binding decisions, including rulings as to its procedure which, if not complied with, may have legal consequences. But it does not need to have powers conferred for acts that have no direct legal effect. Indeed, the word "power" is strictly inaccurate. When a tribunal invites its clerk to advise it, or to remind it of evidence, whether in plenary session or in private, it is not exercising a power, but rather a liberty. Its act may have an indirect legal effect, if, for example, it renders the proceedings unfair, but not otherwise. So I doubt whether there is really an issue of vires in this case at all. We are, rather, concerned as to whether there was, impliedly (since there was no express restriction), a prohibition on the Tribunal acting as it did.
It is, I think, significant that the role of the legal adviser to justices in magistrates' courts, including the circumstances in which he or she may retire with the bench, is the subject of a Practice Direction (the Practice Direction (Criminal Consolidated) [2002] 1 WLR 2870 [2002] 3 All ER 904 at paragraph 55). A practice direction could not confer power on a magistrates' court to do that which was otherwise ultra vires. It has never been suggested that the retirement of a clerk or legal adviser with a bench of justices is ultra vires or prohibited, other than when it gives an appearance of bias or unfairness, as in R (McCarthy) v Sussex Justices [1924] 1 KB 256, where the clerk who retired with the justices was a member of the firm of solicitors acting for the person seeking damages from the defendant in relation to the traffic accident that was the subject of the trial. It is to be noted that the conviction was quashed in that case not because the clerk had retired with the justices, but because, as Lord Hewart CJ said:
It is clear that the deputy clerk was a member of the firm of solicitors engaged in the conduct of proceedings for damages against the applicant in respect of the same collision as that which gave rise to the charge that the justices were considering.
This decision, relied upon by Mr Beaumont, is inconsistent with any implied general prohibition on a clerk retiring with the justices. Furthermore, there is no suggestion in the judgment that the retirement of a clerk with the justices was the subject of, or required, any express provision of the then Magistrates' Court Rules.
However, if there is an issue of vires, it must be remembered that a statutory body does not require express conferment of specific powers in order to perform its functions. Parliament is taken to have impliedly conferred powers ancillary to the discharge of their functions. In Attorney-General v. Great Eastern Railway Co. (1880) 5 App Cas 473, Lord Selborne L.C. said, at p. 478, that the doctrine of ultra vires: "ought to be reasonably, and not unreasonably, understood and applied, and that whatever may fairly be regarded as incidental to, or consequential upon, those things which the legislature has authorised, ought not (unless expressly prohibited) to be held, by judicial construction, to be ultra vires." In the case of local authorities, that principle was enacted in section 111 of the Local Government Act 1972: see Woolf LJ in Hazell v Hammersmith and Fulham LBC [1990] 2 QB 697 at 722, and the speech of Lord Templeman in that case in the House of Lords at [1992] 2 AC 1, 29. Of course, that implied conferment of powers is subject to any express or implied statutory restriction.
Thus, if Parliament creates a tribunal and says nothing about its procedure and administration, it will have implied powers incidental to the exercise of its jurisdiction: power to regulate its procedure and to make such administrative arrangements as are appropriate for it to discharge its functions. Provided it has a budget, it may hire staff, including a clerk, give them instructions, arrange accommodation for its hearings, purchase stationery, and so on. In my judgment, therefore, the new section 46(5A) of the Solicitors Act 1974 only confers expressly what had previously been conferred impliedly.
These considerations lead me to think that Mr Beaumont is in a "Catch 22" situation. Either when the Tribunal instructed or invited their clerk to retire with them and to assist them they were regulating their own "procedure" within the meaning of rule 31(a), or what was done was no more than an administrative arrangement within the implied incidental powers of the Tribunal. Indeed, Mr Beaumont's case is that the Tribunal's action in permitting the clerk to retire with them was an administrative arrangement, not part of the procedure. Of course, if what was done rendered the proceedings unfair, different considerations would arise: the proceedings would be unlawful not because of a lack of vires but because the effect of the exercise of the power was unfair. But any unfairness in the procedure is the subject of the bias challenge. If the Tribunal lacked the power to invite their clerk to join them when they retired, and to seek her assistance on procedural and other matters, as they did, the fact that the consequence was innocuous would be irrelevant.
In my judgment, the procedure of the Tribunal included their withdrawing to consider their decision in private with their clerk and her role in this case. Mr Beaumont submitted that the procedure of the Tribunal within the meaning of rule 31(a) is confined to the trial process. There is no basis for so limiting the rule. The procedure of the Tribunal did not come to an end when they retired to consider their decision. As was held in Baxendale-Walker [2006] EWHC 643, once they had announced their decisions, both on whether the Appellant had been guilty of serious professional misconduct and on sanction, they were functus officio in that they could not reconsider or change those decisions; but they retained the power and the duty to provide adequate written findings. The provision of formal written findings is as much part of the procedure of the Tribunal as the trial process and the announcement of their decisions. But if I am wrong about this, I have no doubt that the Tribunal had implied power, if power was required, to permit or to invite their clerk to retire with them and to assist them in the manner she did in this case.
The assistance of the clerk in drafting the formal written Findings of the Tribunal occurred and occurs after the decision of the Tribunal has been given orally and its formal order filed with the Law Society. At that point the decision is effective, and the Tribunal has no power to reconsider it: Baxendale-Walker at paragraphs 23 to 28. It follows that what occurs subsequently cannot in general give rise to a ground of appeal against the decision.
After the hearing of this appeal, we were provided with copies of the judgments of the Hong Kong Court of Appeal in Au Wing Lun v the Solicitors Disciplinary Tribunal CACV 4154/2001 and A (Solicitor) and B (Solicitor) v the Law Society of Hong Kong CACV 269/2004. The appeals in those cases concerned the costs orders made by a Solicitors Disciplinary Tribunal. The court made observations on the role of the clerk to the tribunal, whose fees had been included in the costs which the appellants had been ordered to pay. In Au Wing Lun, the clerk had retired with the tribunal and drafted its findings before it had given its decision and made its order. The Court considered that there was a grave suspicion that justice had not been done, in that it was unclear whether the reasons for the decision of the Tribunal were in fact its reasons rather than the clerk's. In the second case, the clerk had drafted the findings and the order of the tribunal, including its order for costs, which included his fees. Again, it was not clear that the order and findings were those of the tribunal itself, or were the result of suggestions made by the clerk in the absence of the parties. The facts of those cases differed from the present, in which it is conceded that on the basis of the facts as now known, nothing untoward occurred. The Findings of the Tribunal are clearly their findings. In these circumstances, it is inappropriate to consider issues that could conceivably arise in other cases, particularly since the rules of the Tribunal now make express and specific provision on the role of the clerk.
It follows that I would reject this ground of appeal.
Bias and apparent bias
The essential issue raised by Mr Beaumont is whether the hypothetical informed observer posited by the authorities, in the House of Lords in Porter v Magill [2001] UKHL 67 [2002] 2 WLR 37, is in possession of all the facts when he decides whether there appears to be a real risk of bias, or whether he is restricted to publicly available information. In the present case, the information that led to this ground of challenge being put forward was that discovered by the Appellant or on his behalf on the Internet.
Quite apart from authority, there are four reasons why I would reject Mr Beaumont's contention. The first is that the informed observer is not a real person. He is not referred to in Article 6. He is only a construct, a tool, a hypothetical conception posited in order to assist the Court in deciding whether the proceedings in question were and were seen to be fair, as required by Article 6 and common law. I am reminded of what Lord Radcliffe said of the reasonable man, in a different context, in Fareham UDC v Davis Contractors Ltd [1956] AC 696, [1956] UKHL 3.
… the spokesman of the fair and reasonable man, who represents after all no more than the anthropomorphic conception of justice, is and must be
the Court itself.
Similarly, in Locabail v Bayfield Properties Ltd [2000] QB 451, 477 the Court of Appeal referred to the court "personifying the reasonable man". The ultimate question is whether the proceedings in question were and were seen to be fair. If on examination of all the relevant facts, there was no unfairness or any appearance of unfairness, there is no good reason for the imaginary observer to be used to reach a different conclusion.
My second reason is that the imaginary observer is fair-minded. A fair-minded person would not reach a conclusion that a tribunal was biased or appeared to be so, without seeking to obtain the full facts and any explanation put forward by the tribunal.
My third reason is that if the challenge to the impartiality of the tribunal had been made at the time, i.e. to the Tribunal, it would have been able to and would in fact have put the full facts before the Appellant. There is no good reason why the Appellant should be in a different, and better, position to challenge the Tribunal before an appellate court after the Tribunal has given its decision.
My fourth reason is that Mr Beaumont has suggested no sensible criterion to distinguish between the facts that may, on his submission, be considered in determining whether the Tribunal was apparently biased and the full facts. He suggested that the restriction is to facts that are publicly available, and in the present case included only the facts on the Tribunal's website stating that the clerk to the Tribunal is an employee of the Law Society seconded to the Tribunal. But the relevant facts cannot be restricted to what the Law Society, which on the Appellant's case is a party to the disciplinary proceedings, or indeed anyone else, chooses to put on its website. Facts that point to bias (for example, that the clerk was a former employee of a victim of alleged professional misconduct) may not be publicly available; once such facts are disclosed, so must other facts relevant to the relationship between the clerk and the victim. Moreover, what is publicly available? Are facts that would be obtained on inquiry of the Law Society "publicly available"? In my judgment, for present purposes they are, and I have no doubt that all the facts now before the Court would have been disclosed by the Tribunal if asked. An obvious example is the memorandum of understanding with the Master of the Rolls to which I have referred. It is not a secret or confidential document, but it has not hitherto been available on the Internet. The document is held by the Tribunal, and if it had been challenged, I have no doubt it would have been produced,
Lastly, Mr Beaumont's submission is inconsistent with authority, including authorities binding on this Court, and which bear out the above considerations. In Porter v Magill the House of Lords approved the test formulated by Lord Phillips of Worth Matravers MR in In re Medicaments and Related Classes of Goods (No 2) [2001] 1 WLR 700 at 726-7:
The court must first ascertain all the circumstances which have a bearing on the suggestion that the judge was biased. It must then ask whether those circumstances would lead a fair-minded and informed observer to conclude that there was a real possibility, or a real danger, the two being the same, that the tribunal was biased.
The first sentence is inconsistent with any limitation on the circumstances that should be taken into account. See too R v Gough [1993] AC 646 at 670. Similarly, in Medicaments the Court of Appeal said, at paragraph 83:
The material facts are not limited to those which were apparent to the applicant. They are those which are ascertained upon investigation by the court.
Parenthetically, in the present case the Appellant did not perceive any apparent bias during the Tribunal's proceedings. More recently, in Helow v Home Secretary [2008] UKHL 62 [2008] 1 WLR 2416, Lord Hope, with whom Lords Rodger, Walker and Cullen expressly agreed, said:
1. The fair-minded and informed observer is a relative newcomer among the select group of personalities who inhabit our legal village and are available to be called upon when a problem arises that needs to be solved objectively. Like the reasonable man whose attributes have been explored so often in the context of the law of negligence, the fair-minded observer is a creature of fiction. Gender-neutral (as this is a case where the complainer and the person complained about are both women, I shall avoid using the word "he"), she has attributes which many of us might struggle to attain to.
2. The observer who is fair-minded is the sort of person who always reserves judgment on every point until she has seen and fully understood both sides of the argument. She is not unduly sensitive or suspicious, as Kirby J observed in Johnson v Johnson (2000) 201 CLR 488, 509, para 53. Her approach must not be confused with that of the person who has brought the complaint. The "real possibility" test ensures that there is this measure of detachment. The assumptions that the complainer makes are not to be attributed to the observer unless they can be justified objectively. But she is not complacent either. She knows that fairness requires that a judge must be, and must be seen to be, unbiased. She knows that judges, like anybody else, have their weaknesses. She will not shrink from the conclusion, if it can be justified objectively, that things that they have said or done or associations that they have formed may make it difficult for them to judge the case before them impartially.
3. Then there is the attribute that the observer is "informed". It makes the point that, before she takes a balanced approach to any information she is given, she will take the trouble to inform herself on all matters that are relevant. She is the sort of person who takes the trouble to read the text of an article as well as the headlines. She is able to put whatever she has read or seen into its overall social, political or geographical context. She is fair-minded, so she will appreciate that the context forms an important part of the material which she must consider before passing judgment.
I do not detect any difference of substance between the speech of Lord Hope and that of Lord Mance. Paragraph 3 of Lord Hope's speech is of obvious relevance, and is inconsistent with the Appellant's case.
It is true that in Locabail the Court of Appeal said, at 477:
Provided that the court, personifying the reasonable man, takes an approach which is based on broad common sense, without inappropriate reliance on special knowledge, the minutiae of court procedure or other matters outside the ken of the ordinary, reasonably well informed member of the public, there should be no risk that the courts will not ensure both that justice is done and that it is perceived by the public to be done.
However, in Gough, the Court considered evidence from the juror whose impartiality was in issue. In Locabail itself, the Court considered facts that were not publicly available (see, for example, paragraph 105), and gave guidance as to how evidence from an impugned judge, lay justice or juror should be considered. In Re Medicaments, the relevant facts were not publicly available. In Whitefield v the General Medical Council [2002] UKPC 62, the Privy Council considered a witness statement made subsequent to the hearing in question and on its basis rejected the allegation of bias. We have not been referred to any authority explaining what the Court in Locabail meant by special knowledge, but I have no doubt that the present case does not turn on any such knowledge, or the minutiae of tribunal procedure or other matters outside the ken of the ordinary, reasonably well-informed observer.
For these reasons, I do not consider that the statement of Colman J and his fellow Visitors to the Inns of Court in Re P., a barrister [2005] 1 WLR 3019, a copy of which was put before us, that "the perception of impartiality is to be based on that which is open to view and not on facts which would be hidden from an outside fair observer", can be taken at its face value. Just as facts that are not open to view may, once discovered, give rise to a perception of partiality, so an explanation of them may show that perception to be unfounded. Significantly, we have not been referred to any other case in which information relevant to the issue of bias or an appearance of bias has been excluded from consideration.
Looking at the matter on the basis of the information before us, I have no doubt that the Tribunal was impartial and independent and appeared to be so. In Pine v the Law Society (unreported, 13 November 2000, CO/1385/2000) the appellant contended that the Tribunal was not an independent and impartial tribunal, so that its determination against him violated his rights under Article 6. Crane J said, in a judgment with which Lord Woolf LCJ and Rafferty J agreed:
23. Standing back, and bearing in mind the statutory scheme for the Disciplinary Tribunal, I see no reason to doubt its independence or impartiality. It is independent of the Law Society. There is no indication that the Law Society can influence its decisions, except in the sense of making submissions to the Tribunal as a party before the Tribunal. No evidence or suggestion has been made that the particular Tribunal demonstrated any partiality in any way. In my judgment, the submission that the Solicitors Disciplinary Tribunal does not meet the test of being an independent and impartial tribunal is not made out. ….
The same conclusion was reached in Holder v the Law Society [2005] EWHC 2023 (Admin), at paragraphs 20 to 27.
The Tribunal is even more independent now. The prosecuting authority is the SRA, not the Law Society. Although the SRA is not a separate legal body, it has effective independence. The members of the board determining its activities are not and cannot be members of the Council of the Law Society, and they include lay members who have no professional affiliation to the Law Society. It is not in any relevant sense an agent of the Law Society: the Law Society cannot direct its activities and its decisions do not bind the Law Society. Thus the fact that the clerk to the Tribunal was in this case, and generally is, an employee of the Law Society, takes the Appellant nowhere. Nor does the fact that the SRA exercised disciplinary and prosecution functions vested by statute in the Society: those functions have been effectively delegated to the SRA. It cannot sensibly be said that the prosecutor has access to the members of the Tribunal that is unavailable to the Appellant, or that an employee of the prosecutor was the clerk to the Tribunal. Lastly, the fact that an order for costs was made in favour of the Law Society is irrelevant. It was the Law Society that funded the SRA and the Tribunal, so that any order for costs had to be made payable to it.
For these reasons, which are in substance the same as those of the Divisional Court, I would reject the contention that there was any appearance of bias or partiality on the part of the Tribunal. It follows that I would dismiss the appeal.
LORD JUSTICE LLOYD:
I agree.
LORD JUSTICE JACOB:
I also agree. | 3 |
Leave granted. This is a petition for special leave to appeal under Article 136 of the Constitution from the judgment and order dated 12.7.2007 of the High Court of Judicature at Patna in L.P.A. No. 521 of 2007. By the impugned judgment, the High Court has dismissed the appeal. The relevant facts are, the appellant is the wife of deceased Bhrigu Ashram Prasad. While he was alive, he was working as an Assistant in Bihar School Examination Board. Sometime in the year 1976, the appellants husband was kept under suspension on account of initiation of criminal proceedings against the appellants husband and other employees of the Board for tempering with the Marks Sheets of several candidates who had appeared in the Annual Secondary School Examination. On the companyplaint filed by the Board, the jurisdictional police authorities had filed charge sheet against the appellants husband and other employees of the Board under Section 420, 467, 471, 458 and 120-B of the I.P.C. before Judicial Magistrate, Patna. After the trial, the Judicial Magistrate had companyvicted the appellants husband and other employees of the Board for the offences alleged in the charge sheet and sentenced them to undergo rigorous imprisonment for two years for each of the offences under Section 467, 468, 471 and 120-B of the I.P.C. by his order dated 7.2.1989. The appellants husband and other charge sheeted employees had filed Criminal Appeals before the Additional Sessions Judge, Patna, being aggrieved by the order passed by the Judicial Magistrate, Patna. While the appeals were pending for companysideration, the Bihar School Examination Committee, Patna, by its order dated 4th August, 1992, terminated the services of the appellants husband, since he had been companyvicted by the learned Chief Judicial Magistrate, Patna, for offences under I.P.C. in Crime Case No. 18/7/TR No. 121/1998 of Police Station Kotwali, Patna. The appellants husband expired during the pendency of the appeal before the Sessions Court, Patna. With the permission of the companyrt, the appellant herein had companytinued to prosecute the criminal appeal. The learned Sessions Judge, Patna, has allowed the appeals and thereby has acquitted the appellants husband and others. After disposal of the criminal appeal, the appellant had approached the Bihar School Examination Committee by filing representations, inter alia representing, that, since her husband has been honourably acquitted by the Sessions Court in the criminal appeal filed by him against the order of companyviction passed by the Judicial Magistrate, the appellants husband is deemed to have remained in service till the date of retirement from service and, therefore, she is entitled for all the retiral benefits of her late husband. Since her representations were rejected by the Board Committee , the appellant was companystrained to file the writ petition before High Court of Judicature at Patna in W.J.C. No. 14536 of 2005, inter alia seeking a writ in the nature of mandamus to the Bihar School Examination Board to settle all the monetary and service benefits payable to her late husband. During the pendency of the writ petition, appellant had filed I.A. No. 1256 of 2007, inter alia requesting the companyrt to issue a writ in the nature of certiorari to quash the order passed by the Board Committee dated 4th August, 1992, terminating the services of the appellant on the ground that he has been companyvicted in a criminal case. The companyrt has rejected the writ petition, primarily on the ground that, since the appellants husband had number questioned the order of termination dated 4.8.1992, while he was alive and at this belated stage the appellant cannot be permitted to question the order of termination of services passed by the Board Committee . According to the learned Judge, the delay and laches on the part of the appellant in questioning the said order by filing application on 26.2.2007 is fatal and the same cannot be companydoned. It is also observed in the order, since the appellants husband was terminated from service, in view of the order of companyviction passed by a criminal companyrt and since that order is neither modified number annulled by any superior forum, the appellant is number entitled to the relief sought for in the writ petition. The Letters Patent Appeal filed by the appellant is rejected by the High Court on the ground, that, the appellants husband had number questioned the order of termination passed by the Board Committee , while he was alive and, therefore, the appellant is number entitled for any relief, since according to them, it appears to be a case of acquiescence. The companyrt has also observed, that, numberhing prevented the appellants husband while he was alive to challenge the order of dismissal passed by the Board before the companypetent forum. The appellant is before us in this appeal, being aggrieved by the aforesaid finding and the companyclusion reached by the companyrt in L.P.A. No. 521 of 2007 dated 12.7.2007. The learned companynsel for the appellant would companytend, that, the deceased employee while he was in service, did number challenge the order of dismissal passed by the Board Committee , since the dismissal order was the direct result of his companyviction by the learned Magistrate for the offences punishable under the provisions of Indian Penal Code. Assuming even he had questioned it before any superior forum, it would number have yielded any better result, since Bihar Service Code authorizes the employer to terminate the services of government employee, if he is companyvicted for offences punishable under Indian Penal Code by a companypetent criminal companyrt, and since the result of the appeal was obvious, the appellants husband had number questioned the order, terminating his services by the Board. Further, the learned companynsel would submit, even if he had filed Writ Petition under Article 226 and 227 of the Constitution, he would number have been successful, since the Bihar Service Code authorizes the employer to severe the relationship of employer and employee, if for any reason, an employee is companyvicted for offences under the Indian Penal Code. It is also submitted, that the delinquent employee companyld number have kept the petition alive before the High Court, on the ground, that, his criminal appeal is pending before the Sessions Court against the order of companyviction passed by Judicial Magistrate. Therefore, it is pointed out by the learned companynsel, that, the High Court has companymitted an error in rejecting the relief sought by the appellant only on the ground, that, in the petition filed in the year 2005, the appellant companyld number have called in question the order of dismissal passed by the Board Committee against her husband in the year 1992. It is further argued by the learned companynsel for the appellant that during the pendency of the criminal appeal filed before the Sessions Court against the order of companyviction passed by the learned Magistrate, the appellants husband companyld number have sought for any relief from any other forum, since the order of dismissal was staring at the appellant and the cause of action for the appellant did arise only after disposal of the criminal appeal, wherein the Sessions Court has acquitted the appellants husband and other employees of the Board. The learned companynsel for the respondent in the companyrse of his argument would submit that, since the deceased employee did number challenge his order of dismissal from service during his life time, the High Court was justified in rejecting the appeal on the ground of acquiescence, estoppel and delay. It is further companytended, that, since the appellants husband has expired, the Board Committee cannot initiate any disciplinary proceedings in which charges alleged against the appellants husband companyld have been proved and established. It is further submitted by the learned companynsel for the respondent, that, the High Court was justified in rejecting the application filed by the appellant for amendment of the prayers made in the Writ Petition, by making an application seeking additional relief in the year 2007. Lastly, it is submitted merely because, the appellants husband was acquitted of all the criminal charges by the Sessions Court, it does number ipso facto would entitle the appellant for all the reliefs claimed in the writ petition and, at any rate, the appellant is number entitled to arrears of salary from the date of termination till the employee is deemed to have retired from service on attaining the age of superannuation. In aid of submission, the learned companynsel brings to our numberice the observations made by this Court in the case of G.M. Tank vs. State of Gujarat, 2006 5 SCC 446. Before the High Court, the principal question for companysideration was whether the appellant should be number-suited only on the ground that she had belatedly questioned the order of dismissal passed against her late husband in the year 1992 in a petition filed in the year 2005 and the other incidental issue was, whether the appellant is entitled for monetary and service benefits in view of the order passed by the Sessions Court acquitting the appellants husband from the offences alleged against him under Indian Penal Code by setting aside the order passed by the Judicial Magistrate who had companyvicted him for those offences after a full fledge trial. In the numbermal companyrse, we would number have taken exception to the order passed by the High Court. They are justified in saying that a delinquent employee should number be permitted to revive the stale claim and the High Court in exercise of its discretion would number ordinarily assist the tardy and indolent person. This is the traditional view and is well supported by plethora of decisions of this Court. This Court also has taken the view, that, there is numberinviolable rule, that, whenever there is delay the companyrt must refuse to entertain a petition. This Court has stated that the writ companyrt in exercise of its extraordinary jurisdiction under Article 226 of the Constitution may companydom the delay in filing the petition, if the delay is satisfactorily explained Reference may be made at this stage to the decisions of this companyrt in the case of Moon Mills Ltd. vs. M.R. Mehar, President, Industrial Court, AIR 1967 SC 1450 and Maharashtra State Road Transport Corporation vs. Balwant Regular Motor Service, 1969 1 SCR 808, wherein this companyrt has approved the view expressed by the Privy Council in the case of Lindsay Petroleum Co. vs. Prosper Armstrong Hurd Abram Farewall and John Kemp 1874 5 PC 221. The companyrt had observed - Now the doctrine of laches in Courts of Equity is number an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because the party has, by his companyduct, done that which might fairly be regarded as equivalent to a waiver of it, or where by his companyduct and neglect he has, though perhaps number waiving that remedy, yet put the other party in a situation in which it would number be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases, lapse of time and delay are most material. But in every case, if an argument against relief, which otherwise would be just, is founded upon mere delay, that delay of companyrse number amounting to a bar by any statute of limitations, the validity of that defence must be tried upon principles substantially equitable. Two circumstances, always important in such cases, are, the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one companyrse or the other, so far as relates to the remedy. In State of Madhya Pradesh Vs. Nandlal Jaiswal 1986 4 SCC 566, it was held as under - There can be doubt that the petitioners were guilty of gross delay in filing the writ petitions with the result that by the time the writ petitions came to be filed. If there is inordinate delay on the part of the petitioner in filing a writ petition and such delay is number satisfactorily explained, the High Court may decline to intervene and grant relief in the exercise of its writ jurisdiction. The evolution of this rule of laches or delay is premised upon a number of factors. Of Course, this rule of laches or delay is number a rigid rule which can be cast in a strait jacket formula, for there may be cases where despite delay and creation of third party rights the High Court may still in the exercise of its discretion interfere and grant relief to the petitioner. But, such cases where the demand of justice is so companypelling that the High Court would be inclined to interfere in spite of delay or creation of third party rights would by their very nature be few and far between. Ultimately it would be a matter within the discretion of the companyrt ex hypothesi every discretion must be exercised fairly and justly so as to promote justice and number to defeat it. In Shri Vallabh GlassWorks Ltd. Vs. Union of India 1984 3 SCC 362, it was observed While there are different periods of limitation prescribed for the institution of different kinds of suits by the Limitation Act, 1963, there is numbersuch period prescribed by law in respect of petitions filed under Article 226 of the Constitution. Whether relief should be granted to a petitioner under Article 226 of the Constitution where the cause of action had arisen in the remote past is a matter of sound judicial discretion governed by the doctrine of laches. Where a petitioner who companyld have availed of the alternative remedy by way of suit approaches the High Court under Article 226 of the Constitution, it is appropriate ordinarily to companystrue any unexplained delay in the filing of the writ petition after the expiry of the period of limitation prescribed for filing a suit as unreasonable. This rule, however, cannot be a rigid formula. There may be cases where even a delay of a shorter period may be companysidered to be sufficient to refuse relief in a petition under Article 226 of the Constitution. There may also be cases where there may be circumstances which may persuade the companyrt to grant relief even though the petition may have been filed beyond the period of limitation prescribed for a suit. Each case has to be judged on its own facts and circumstances touching the companyduct of the parties, the change in situation, the prejudice which is likely to be caused to the opposite party or to the general public etc. We do number think it necessary to burden this judgment with reference to various decisions of this Court, where it has been emphasized time and again, that, where there is inordinate and unexplained delay and third party rights are created in the intervening period, the High Court would decline to interfere. However, if the delay is properly explained, and if the third party rights is number going to be effected, the High Court may entertain the petition and companysider the case of the aggrieved person on merits. Now reverting back to the facts of this case, The services of the appellants husband was terminated only on the ground, that he was companyvicted by a Judicial Magistrate for certain offences under the provisions of Indian Penal Code. It is number a case where the delinquent employee was dismissed from service on the ground that he was charge sheeted by the police for certain offences under Indian Penal Code after holding a departmental enquiry. In the later circumstances, the delinquent employee companyld number have been heard to say that he did number question the order within a reasonable time, since the order of companyviction passed by the Judicial Magistrate has numberhing to do with the order passed by disciplinary authority. As we have already numbericed, the dismissal was in view of the order of companyviction passed by the Magistrate, till that order is set aside by a superior forum, the appellants husband or the appellant companyld number have questioned the same till he was acquitted by the Sessions Court. In view of these peculiar circumstances, in our view, the High Court was number justified in rejecting the prayer of the appellant primarily on the ground of delay and laches on the part of the appellant in questioning the order of termination passed on 4.8.1992 in a petition filed in the year 2005. In the present case, we are of the opinion that there is numbersuch negligence or laches or acquiescence on the part of the appellant as may disentitle her for grant of a writ. Having said so, the matter requires to be remanded back to the High Court for taking a decision on the merits of the case. But taking into companysideration the pendency of the litigation between the parties from last one decade and taking also into companysideration the plight of the poor widow who is fighting the litigation before various forums with limited resources, we desist from remanding the matter and we intend to decide the matter on merits here itself in order to give quietus to this litigation. What relief the appellant is entitled to is the main issue that falls for companysideration. The facts are number in dispute. The services of the appellants husband was terminated only on the ground that he was companyvicted by a Judicial Magistrate for the offences under Indian Penal Code. That only means, numberindependent departmental enquiry was held against the delinquent employee. In the appeal filed before the Sessions Court against the order of companyviction, the appellant has succeeded. Since, the punishment imposed was based on an order of companyviction and since the same is set aside by an order passed by a superior forum and that order having become final for various reasons, including the death of the appellants husband, as natural companyollary, the request of the appellant requires to be redressed by the employer and since that was done, a writ companyrt ought to have companye exercised its extraordinary jurisdiction by companymanding the respondents to redress the grievance of the appellant without resorting to a hypertechnical approach. In view of the above, the order passed by the respondents terminating the services of the appellant requires to be set aside and we do so. It is argued by the learned companynsel for the respondent that if the delay is companydoned and relief is granted to the appellant, the respondent had to bear the brunt of paying huge arrears of salary and other monetary benefits and, secondly, direction to pay arrears of wages is number automatic and it depends on several factors. The learned companynsel has drawn our attention to the observation made by this companyrt in the case of G.M. Tank vs. State of Gujarat, wherein this companyrt has stated - In the instant case, the appellant joined the respondent in the year 1953. He was suspended from service on 8-2-1979 and got subsistence allowance of Rs 700 p.m. i.e. 50 of the salary. On 15-10-1982 dismissal order was passed. The appellant had put in 26 years of service with the respondent i.e. from 1953-1979. The appellant would number superannuate in February 1986. On the basis of the same charges and the evidence, the department passed an order of dismissal on 21-10-1982 whereas the criminal companyrt acquitted him on 30-1-2002. However, as the criminal companyrt acquitted the appellant on 30-1-2002 and until such acquittal, there was numberreason or ground to hold the dismissal to be erroneous, any relief monetarily can be only w.e.f. 30-1-2002. | 7 |
FOURTH SECTION
CASE OF SERGEY SMIRNOV v. UKRAINE
(Application no. 36853/09)
JUDGMENT
STRASBOURG
18 December 2018
This judgment is final but it may be subject to editorial revision.
In the case of Sergey Smirnov v. Ukraine,
The European Court of Human Rights (Fourth Section), sitting as a Committee composed of:
Paulo Pinto de Albuquerque, President,Egidijus Kūris,Iulia Antoanella Motoc, judges,and Andrea Tamietti, Deputy Section Registrar,
Having deliberated in private on 27 November 2018,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 36853/09) against Ukraine lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a Ukrainian national, Mr Sergey Aleksandrovich Smirnov (“the applicant”), on 14 June 2009.
2. The applicant, who had been granted legal aid, was represented by Ms O. Ashchenko and G. Tokarev, lawyers practicing in Kharkiv, and Mr Y. Boychenko, a lawyer practising in Strasbourg. The Ukrainian Government (“the Government”) were represented by their Agent, most recently Mr I. Lishchyna.
3. On 9 November 2016 the applicant’s complaints concerning the conditions of his detention at the Slovyanoserbsk Correctional Colony, the allegedly inadequate medical assistance that he had received while in detention, the alleged interception and monitoring of his correspondence in detention and the alleged lack of an effective domestic remedy were communicated to the Government. The remainder of the application was declared inadmissible, pursuant to Rule 54 § 3 of the Rules of Court.
4. The Government objected to the examination of the application by a Committee, but provided no reasons. After having considered the Government’s objection, the Court rejects it (see, for a similar approach, Nedilenko and Others v. Ukraine [Committee], no. 43104/04, § 5, 18 January 2018, and Lada v. Ukraine [Committee], no. 32392/07, § 4, 6 February 2018).
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
5. The applicant was born in 1965 and lives in Kharkiv.
A. The applicant’s detention – general information
6. On 3 April 2008 the applicant shot a person, causing a serious injury. He was arrested at the scene of the crime. He remained in detention throughout the criminal proceedings against him, primarily at the Kharkiv pre-trial detention centre (SIZO).
7. On 14 April 2009 the Kharkiv Court of Appeal sentenced him to ten years and six months’ imprisonment and the confiscation of all his property. On 29 December 2009 the Supreme Court upheld that judgment.
8. The applicant served his sentence in a number of correctional colonies, including, from 11 May 2010 until 7 April 2011, the Slovyanoserbsk Correctional Colony in the Luhansk Region (hereinafter, “the colony”).
9. On 27 May 2015 the applicant was transferred to a semi-open correctional institution.
10. On 25 December 2015 the applicant was released.
B. Conditions in the Slovyanoserbsk Correctional Colony
11. On 13 May 2010, the applicant was placed in a single-occupancy cell at his request, as he feared an attack on his life and health by other inmates. Decisions on his placement in isolation from the general prison population were taken in July and August 2010.
12. According to a report by a prison guard dated 10 September 2010, the applicant refused to move from the single-occupancy cell to a dormitory, claiming that he feared violence from other inmates. Similar reports were filed monthly from October 2010 until February 2011.
13. In his application form of 8 November 2010 the applicant described the conditions of his detention in the following fashion: since 13 May 2010 he had been held in an isolation cell, which measured 4.5 sq. m as a whole (including the toilet and the washbasin), with the living space proper measuring 1 sq. m.
14. Following the communication of the application to the respondent Government, the applicant submitted that the average living space per inmate in the dormitory cells of the colony was 2.8 sq. m. He referred in this respect to the report (dated 23 November 2011) of the European Committee for the Prevention of Torture and Inhuman or Degrading Treatment or Punishment (hereinafter, “the CPT”) on its visit to Ukraine from 9 until 21 September 2009 (CPT/Inf (2011) 29), which mentioned overcrowding in respect of most of the colony’s dormitories.
C. Correspondence
15. The applicant alleged that in the course of his detention all of his correspondence had been systematically monitored by the prison authorities. He submitted in particular that on 22 July and 9 September 2009 the prison administration had handed him two letters from the Court and on 18 December 2010 a letter from the parliamentary secretariat, all of which had been opened by the administration.
16. The applicant submitted copies of registers compiled by prison authorities of his outgoing mail. They show that in the period from 22 July 2009 until December 2010 the applicant sent at least forty-seven letters to various public entities – correspondence which, under domestic law (see paragraph 40 below), was subject to monitoring by the prison authorities – most notably various domestic courts, the High Council of Justice, the Department for the Execution of Sentences (the executive agency in charge of prisons) and Parliament. However, the same register records that the applicant also addressed a number of letters to the Court and a letter to his lawyer, correspondence exempt from such monitoring. The letters to non-exempt addresses are accompanied by brief summaries of their content (for example, in respect of the letter of 18 February 2010 addressed to a domestic court it is noted that it concerned “study of the file, presence at a hearing”) or are marked in the register as “application”, “petition” or “complaint” (“звернення”, “клопотання” or “complaint”, respectively), while letters to the Court and the lawyer are marked as “sealed letter”.
D. The applicant’s state of health and medical assistance in detention
1. Conditions of the digestive system
17. According to the applicant, in November 2009, while he was in the Kyiv SIZO, somebody poisoned him; as a result, he developed gastroduodentitis (inflammation of the stomach and duodenum), which became chronic.
18. The applicant’s prison records contain no information in respect of the period from his arrest until 26 January 2010 (see paragraph 46 below).
19. On 26 January 2010 the Kharkiv SIZO medical officer noted that the applicant was suffering from chronic gastroduodentitis that was in unstable remission (хронічний гастродуоденіт у стадії загострення). He prescribed a number of medications. The applicant alleges that he was not actually given those medications.
20. On 18 March 2010 the applicant underwent a radiological examination of his intestinal tract, as a result of which the SIZO general practitioner confirmed the diagnosis of chronic gastroduodentitis.
21. From 6 until 19 April 2010 the applicant was hospitalised in the medical unit of the Kharkiv SIZO and treated for his gastroduodentitis.
22. On 15 February 2011 he was examined by a general practitioner at the colony, who confirmed the diagnosis of chronic gastroduodentitis, which he noted was in a state of exacerbation (хронічний гастродуоденіт у стадії загострення). The general practitioner recommended the applicant’s transfer to the hospital at Luhansk SIZO for examination and treatment. No transfer followed.
23. On 4 October 2011 the applicant was examined at a civilian hospital in Kharkiv. He underwent an ultrasound examination and a biochemical blood test, which included aspartate aminotransferase (AST) and alanine aminotransferase (ALT) markers for liver function. He was diagnosed with acute pancreatitis, congestive duodenopathy, gastric stasis (reduced stomach functioning), inflammation of the oesophagus and chronic hepatitis (with diffuse changes in the liver). A number of medications and a special diet were prescribed.
24. The next day a general practitioner at the correctional colony at which the applicant was being held at the time recommended hospitalisation in the prison hospital at Temnivka, a specialist prison hospital for the Kharkiv region. On 11 October 2011 the applicant was taken there. The applicant refused hospitalisation because he mistrusted the prison doctors and preferred to be treated in a civilian institution.
25. On 17 October 2011 the applicant was examined by a general practitioner, who diagnosed chronic pancreatitis in the acute stage and prescribed treatment.
26. On 1 August 2012 a general practitioner diagnosed biliary dyskinesia (a disorder in which bile has difficulty in moving normally through the biliary tract) and prescribed medication. The applicant alleges that he was not given this medication.
27. From 25 until 31 January 2013 the applicant was treated for hepatitis – specifically, he received antispasmodic and hepatoprotective medicine – as an inpatient in the prison’s medical unit. Upon his discharge it was recommended that he abstain from spicy and fried foods. The applicant alleges that the prison authorities did not comply with this recommendation.
28. Beginning on 15 February 2014 the applicant received medical care in civilian institutions.
2. Back conditions
29. The applicant had been suffering from osteochondrosis of the lumbar spine since 1998. He was hospitalised and treated for that condition from 28 February until 5 March 2008, prior to his arrest.
30. From 24 April until 4 May 2012 the applicant was treated in the medical unit of the colony in which he was detained at the time for his osteochondrosis and disk protrusion.
31. On 17 May 2012 the applicant underwent an MRI (magnetic resonance imaging) scan of the spine in a civilian hospital.
32. On 31 May 2012 a surgeon examined the applicant and recommended that he undergo examination and treatment in a specialist neurology ward. The applicant alleges that the recommendation was not implemented.
33. From 13 until 23 July 2012 the applicant was hospitalised in the colony’s medical unit and treated for osteochondrosis and multiple Schmorl’s nodes (protrusions of the intervertebral disc).
34. On 20 March 2013 the applicant was examined by a traumatologist. The previous diagnoses were confirmed. The traumatologist prescribed painkillers and anti-inflammatory medication and the use of a back-support device. The applicant alleges that the recommendations were not implemented.
35. From 13 August until 4 September 2015 he was hospitalised in a civilian institution specialising in spinal conditions. On 3 September 2015 the applicant underwent spinal surgery. The doctors explained that surgery was needed in view of the ineffectiveness of the conservative care that he had received and the increase in pain that he was suffering.
36. On 11 November 2015, owing to his back condition, the applicant was recognised as a person suffering from Category 2 disability. The second category is the intermediary one, the first constituting the severest level of disability and the third the least severe.
3. Other medical information
37. In the course of his detention the applicant also underwent several chest X-rays (which revealed no abnormality), and was diagnosed with bronchitis and a fungal infection of the nails; he was prescribed treatment for that infection. He was also examined by a dentist and an ophtalmologist.
38. Beginning in October 2011 the applicant was also diagnosed with a number of heart-related conditions, notably coronary heart disease. This diagnosis was subsequently confirmed on a number of occasions. No specific treatment was indicated.
II. RELEVANT DOMESTIC LAW AND PRACTICE
39. Under the 1993 Pre-Trial Detention Act (hereinafter, “the Act”) and the 2003 Code on the Enforcement of Sentences (hereinafter, “the Code”), the status of remand prisoners changed to that of prisoners who are serving their sentences after their convictions are upheld on appeal. The former category of prisoners is governed by the Act; the latter category is governed by the Code. However, the rules governing prisoners’ correspondence remain largely the same in both cases.
40. Section 13 of the Act and Article 113 of the Code stipulate that prisoners are allowed to correspond with relatives, other persons and organisations. All such correspondence, unless it is specifically exempted, is subject to automatic monitoring and censorship by the administration of the prison. Under the rules in effect when the applicant was first detained, correspondence addressed by prisoners to the Parliamentary Commissioner for Human Rights, the Court and other international institutions of which Ukraine was a member and to prosecutors was exempt from such monitoring. In addition, rules issued by the Department for the Enforcement of Sentences on 25 January 2006 (order no. 13) also exempted from such monitoring correspondence sent by those entities to prisoners.
The law of 21 January 2010 (in force from 9 February 2010) added to the list of exemptions prisoners’ correspondence addressed to and received from their lawyers.
THE LAW
I. SCOPE OF THE CASE
41. In his observations in response to those of the Government the applicant complained that at the Slovyanoserbsk Colony he had been placed in solitary confinement without justification. However, in his original submissions the applicant did not complain about this and stressed that he had been placed in isolation from other prisoners at his own request.
42. The Court considers that this complaint cannot be considered as constituting an elaboration of the applicant’s original complaints, on which the Government have already commented. The Court considers, therefore, that it is not appropriate at this time to take up this matter within the context of the present case (see, for example and mutatis mutandis, Khamroev and Others v. Ukraine, no. 41651/10, § 62, 15 September 2016).
II. ALLEGED VIOLATION OF ARTICLE 3 OF THE CONVENTION
43. The applicant complained that the medical assistance he had received in detention in various penitentiary establishments and the physical conditions of his detention in the colony had been so inadequate as to breach Article 3 of the Convention, which reads as follows:
“No one shall be subjected to torture or to inhuman or degrading treatment or punishment.”
A. Allegedly inadequate medical care in detention
1. Admissibility
44. The Court notes that this complaint is not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention. It furthermore notes that it is not inadmissible on any other grounds. It must therefore be declared admissible.
2. Merits
(a) The parties’ submissions
i. The applicant
45. The applicant pointed to the alleged failure of the prison authorities to implement medical recommendations, as referred to in paragraphs 19, 22, 26, 27, 32 and 34 above. In addition, the authorities had failed to determine the type of hepatitis (B or C) from which he had been suffering or to provide the applicant with the prescribed diet, even though he had needed it in view of his poor physical condition.
ii. The Government
46. The Government submitted that there was no information in the applicant’s medical records for the period from his arrest in 2008 until 26 January 2010 – that is to say until his arrival, for the second time, at the Kharkiv SIZO. The applicant had received adequate medical care and treatment, which had ensured that his health had remained stable; indeed, it had partially improved. The authorities could not be held responsible for the delay caused by the applicant’s refusal to be hospitalised (see paragraph 24 above).
(b) The Court’s assessment
47. Article 3 imposes an obligation on the State to protect the physical well-being of persons deprived of their liberty by, inter alia, providing them with the requisite medical care (see Blokhin v. Russia [GC], no. 47152/06, § 136, 23 March 2016). In this connection, the “adequacy” of medical assistance remains the most difficult element to determine. The Court reiterates that the mere fact that a detainee is seen by a doctor and prescribed a certain form of treatment cannot automatically lead to the conclusion that the medical assistance received was adequate. The authorities must also ensure that a comprehensive record is kept concerning the detainee’s state of health and his or her treatment while in detention, that diagnosis and care are prompt and accurate, and that where necessitated by the nature of a medical condition supervision is regular and systematic and involves a comprehensive therapeutic strategy aimed at adequately treating the detainee’s health problems or preventing their aggravation, rather than addressing them on a symptomatic basis. The authorities must also show that the necessary conditions were created in order for the prescribed treatment to be actually followed through. Furthermore, medical treatment provided within prison facilities must be appropriate, that is, at a level comparable to that which the State authorities have committed themselves to provide to the population as a whole. Nevertheless, this does not mean that every detainee must be guaranteed the same level of medical treatment that is available in the best health establishments outside prison facilities (ibid., § 137).
48. It is for the Government to provide credible and convincing evidence that an applicant received comprehensive and adequate medical care in detention (see, for example, Savinov v. Ukraine, no. 5212/13, § 50, 22 October 2015).
49. The applicant pointed to a number of failings in the implementation of recommendations made in respect of him. The Government failed to rebut those allegations. The situation is further aggravated by the loss of the applicant’s health records for the period prior to January 2010 (see paragraph 46 above).
50. The Court is particularly struck by the fact that, even though the applicant was diagnosed with hepatitis (see paragraph 23 above), the authorities apparently took no steps even to determine the type of hepatitis he was suffering from.
51. The Government have not argued that the applicant’s state of health, because of its nature, did not require any particular treatment (see, mutatis mutandis, Pivovarnik v. Ukraine, no. 29070/15, § 42, 6 October 2016). It is also relevant that there is no indication that the applicant had suffered from diseases of the digestive organs prior to his detention. The applicant’s allegation that he had acquired those diseases in detention has not been rebutted.
52. What is more, in the course of the applicant’s detention the condition of his spine deteriorated considerably, eventually leading to a disability (see paragraph 36 above; see also, mutatis mutandis, Pokhlebin v. Ukraine, no. 35581/06, § 66, 20 May 2010). The Government have not shown that his deterioration occurred as a result of the natural development of disease, aging or other factors outside their control rather than their failure duly to make provision for the appropriate care of the applicant.
53. It follows that the Government failed to discharge their burden of proof; doing so would have allowed the Court to consider that the applicant received adequate medical care for his hepatitis and other diseases of the digestive organs and for his back condition.
54. These considerations are sufficient for the Court to find that there has been a violation of Article 3 of the Convention on account of the inadequacy of the medical care that he received in detention.
55. However, the Court accepts the Government’s argument that they cannot be held responsible for the delay in the affording of care caused by the applicant’s refusal to be hospitalised (see paragraphs 24 and 46 above).
56. In view of these findings, the Court considers that there is no need to examine the remainder of the applicant’s submissions concerning the alleged inadequacy of the medical assistance that he received in detention (see, mutatis mutandis, Konovalchuk v. Ukraine, no. 31928/15, § 63, 13 October 2016).
B. Physical conditions of detention in the Slovyanoserbsk Correctional Colony
57. In addition to the inadequacy of the medical care that he had received, the applicant also complained that the physical conditions of his detention in the colony had been inadequate. In particular, in his initial submissions he complained of the small size of his single-occupancy cell, which according to him measured 4.5 sq. m (see paragraph 13 above). In this respect, the Court cannot but reiterate that in cases where a detainee disposed of more than 4 sq. m of personal space, in principle no issue with regard to the question of personal space arises (see Muršić v. Croatia [GC], no. 7334/13, § 140, 20 October 2016) Following communication of the application, the applicant made submissions (summarised in paragraph 14 above) concerning alleged overcrowding in the colony’s dormitories..
58. The Government submitted that they had a limited range of information about the applicant’s detention as the colony in question was located in territory that the Government no longer controlled following the events of 2014 and 2015 described in Khlebik v. Ukraine (no. 2945/16, §§ 9-12, 25 July 2017).
59. The Court notes that in his initial submissions the applicant described the size of his single-occupancy cell in the colony. He did not describe the regime governing his detention in any detail: he did not explain how much time he had had to spend inside and outside the cell, did not refer to the availability or otherwise of any out-of-cell activities and, indeed, did not say exactly how long he had been kept in the single-occupancy cell.
60. Moreover, even as far as the size of the cell was concerned, he abandoned his initial account after communication of the application: while prior to the communication the applicant stated that he had been placed in isolation at his own request and appeared to complain of the size of his single-occupancy cell (see paragraph 13 above), after communication he discussed conditions in the colony’s multi-occupancy dormitories rather than single-occupancy cells. According to the post-communication allegations, the average personal space per inmate at the colony was 2.8 sq. m, which does not match any of the numbers the applicant himself cited in his original submissions (compare paragraphs 13 and 14 above).
61. In this context the Court reiterates that information regarding the physical conditions of detention falls within the knowledge of the domestic authorities. Accordingly, applicants might experience certain difficulties in procuring evidence to substantiate a complaint in that connection. Still, in such cases applicants may well be expected to submit at least a detailed account of the facts complained of and to provide – to the greatest possible extent – some evidence in support of their complaints (see, for example, Visloguzov v. Ukraine, no. 32362/02, § 45, 20 May 2010).
62. In view of the above considerations the Court concludes that the applicant has failed to provide a coherent and sufficiently detailed account of the physical conditions of his detention in the colony.
63. The Court concludes that this part of the application is manifestly ill-founded and should be rejected, pursuant to Article 35 §§ 3 (a) and 4 of the Convention.
III. ALLEGED VIOLATION OF ARTICLE 8 OF THE CONVENTION
64. The applicant complained of a violation of his right to respect for his correspondence on account of the prison authorities’ monitoring of and interception of his correspondence. He relied on Article 8 of the Convention, which, in so far as relevant, reads as follows:
“1. Everyone has the right to respect for ... 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.”
A. The parties’ submissions
65. The applicant submitted that:
(i) all of his correspondence had been systematically monitored by the prison authorities;
(ii) in the course of his detention a number of his letters and letters addressed to him had been withheld and delayed by the prison authorities;
(iii) the prison authorities failed to forward, in a timely manner, to his home address a letter informing him of the communication of his application to the respondent Government and of the Government’s observations.
66. The Government submitted that the applicant had failed to exhaust available domestic remedies in that he had not complained to the prosecutors or the courts of the alleged violations. They also submitted that all of the applicant’s correspondence had been duly sent out and delivered to him.
B. The Court’s assessment
1. Admissibility
(a) Withholding and delaying letters during the detention and after release
67. There is no evidence before the Court showing that the prison authorities withheld or delayed the applicant’s correspondence during his detention.
68. As to the post-detention period, his allegations are equally manifestly ill-founded. The applicant last informed the Court of his address at the Dergachivsk Correctional Colony on 20 March 2014. He did not inform the Court of his new address after his release. Accordingly, the Court’s subsequent correspondence in respect of the communication of his application was sent to the applicant’s last known address at the Dergachivsk Colony. The applicant has not shown that any difficulty he might have had in receiving that correspondence was caused by any omission on the part of the authorities rather than by his own failure to provide information about the changes in his address.
69. It follows that these complaints are manifestly ill-founded and must be rejected, pursuant to Article 35 §§ 3 (a) and 4 of the Convention.
(b) Monitoring of the applicant’s correspondence by prison authorities
(i) Exempt entities
70. To the extent that the applicant complained that his correspondence with the exempted entities – notably the Court – had been monitored, in contravention of the domestic law prohibiting such monitoring (see paragraph 40 above), there is no material before the Court that would corroborate the applicant’s allegations. In any event, it appears that the applicant did not initiate any proceedings in that respect before the domestic courts, as was his right (see Chaykovskiy v. Ukraine, no. 2295/06, §§ 72 and 73, 15 October 2009).
71. The Court finds, therefore, that this part of the application should be rejected for failure to exhaust domestic remedies, pursuant to Article 35 §§ 1 and 4 of the Convention.
(ii) Non-exempt entities
72. The Government raised an objection in respect of the applicant’s failure to exhaust domestic remedies.
73. The Court found in Glinov v. Ukraine (no. 13693/05, §§ 45-47, 19 November 2009) that, to the extent that the monitoring was based on the domestic law, any complaint to the prosecutor or to the court in this connection would have had no prospect of success, given that neither of those authorities was empowered to overrule the legal provisions underpinning the monitoring.
74. The Court sees no reason to find otherwise in the present case and dismisses the Government’s objection of non-exhaustion of domestic remedies.
75. Moreover, this part of the complaint is not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention. It is not inadmissible on any other grounds. It must therefore be declared admissible.
2. Merits
76. The Court notes that the Government did not specifically contest the applicant’s submission that his correspondence with non-exempt entities, including the Court, had been routinely monitored by the prison administration, pursuant to the applicable domestic law (see, for a similar situation, Vintman v. Ukraine, no. 28403/05, § 126, 23 October 2014). The registers of correspondence submitted by the applicant, the authenticity of which the Government did not contest, demonstrate that the authorities did in fact engage in such monitoring (see paragraph 16 above).
77. That monitoring constituted an interference with the exercise of the applicant’s right to respect for his correspondence under Article 8 § 1. Such interference will contravene Article 8 § 1 unless, among other conditions, it is “in accordance with the law” (see Enea v. Italy [GC], no. 74912/01, § 140, ECHR 2009).
78. The Court has already found in Belyaev and Digtyar v. Ukraine (nos. 16984/04 and 9947/05, §§ 53 and 54, 16 February 2012) and Vintman v. Ukraine (no. 28403/05, §§ 126, 129-33, 23 October 2014) that, since the Ukrainian legislation required, in a blanket fashion, the monitoring of all correspondence with non-exempt addresses in the absence of appropriate safeguards, monitoring conducted under those domestic legal provisions had not been “in accordance with the law” for the purposes of Article 8 of the Convention. The Court reached the same conclusion in respect of rules governing the monitoring of correspondence of remand prisoners in the case of Sergey Volosyuk v. Ukraine (no. 1291/03, §§ 84-86, 12 March 2009).
79. As far as correspondence with non-exempt addressees is concerned, the Court sees no reason to reach a different conclusion in the present case.
80. It follows that the interference complained of was not “in accordance with the law”. The Court therefore does not consider it necessary in the instant case to ascertain whether the other requirements of paragraph 2 of Article 8 of the Convention were complied with, and holds that there has been a violation of that provision.
IV. ALLEGED VIOLATION OF ARTICLE 13 OF THE CONVENTION
81. The applicant alleged that he did not have at his disposal an effective domestic remedy for his Convention complaints under Article 3, as required by Article 13 of the Convention. That provision reads as follows:
“Everyone whose rights and freedoms as set forth in [the] Convention are violated shall have an effective remedy before a national authority notwithstanding that the violation has been committed by persons acting in an official capacity.”
82. The Government contested that argument.
83. The Court, having declared inadmissible the applicant’s complaint under Article 3 in respect of the physical conditions of detention in the colony (see paragraph 63 above) concludes that there is no arguable claim for the purposes of Article 13 in respect of that complaint (see, for example, Valeriy Fuklev v. Ukraine, no. 6318/03, § 98, 16 January 2014); therefore, the complaint under Article 13 in that part must be rejected as being incompatible ratione materiae with the provisions of the Convention, pursuant to Article 35 §§ 3 (a) and 4.
84. As far as lack of adequate medical care in detention is concerned, the Court in its previous judgments has already found that there is no effective and accessible domestic remedy in respect of such complaints in Ukraine (see, amongst many other authorities, Ukhan v. Ukraine, no. 30628/02, §§ 91 and 92, 18 December 2008, and Sergey Antonov v. Ukraine, no. 40512/13, §§ 96 and 97, 22 October 2015). The Court finds no reason to reach a different conclusion in the present case.
85. There has, therefore, been a violation of Article 13 of the Convention on account of the lack of an effective domestic remedy in respect of the applicant’s complaint regarding inadequate medical care in detention.
V. ALLEGED VIOLATION OF ARTICLE 34 OF THE CONVENTION
86. The applicant complained that the authorities had monitored and intercepted correspondence between him and the Court. He relied on Article 34 of the Convention, which provides:
“The Court may receive applications from any person, non-governmental organisation or group of individuals claiming to be the victim of a violation by one of the High Contracting Parties of the rights set forth in the Convention or the Protocols thereto. The High Contracting Parties undertake not to hinder in any way the effective exercise of this right.”
87. The applicant’s allegations in this respect are unsubstantiated. In particular, he has not shown that any monitoring and/or alleged interception of his correspondence with the Court has in any way prevented the latter from carrying out a proper and effective examination of his application.
88. The Court concludes that the respondent State has not failed to comply with its obligations under Article 34 of the Convention.
VI. APPLICATION OF ARTICLE 41 OF THE CONVENTION
89. Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
A. Damage
90. The applicant claimed 50,000 euros (EUR) in respect of non-pecuniary damage.
91. The Government maintained that there has been no violation of the applicant’s rights.
92. The Court, ruling on an equitable basis, awards the applicant EUR 4,000 in respect of non-pecuniary damage.
B. Costs and expenses
93. The applicant also claimed EUR 850 for the costs and expenses incurred before the Court.
94. Regard being had to the documents in its possession and to its case-law, the Court considers it reasonable to award, in addition to the sum already received by way of legal aid (see paragraph 2 above), the amount claimed, EUR 850, in respect of the proceedings before the Court.
C. Default interest
95. The Court considers it appropriate that the default interest rate should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT, UNANIMOUSLY,
1. Declares admissible the applicant’s complaints under Articles 3 and 13 of the Convention concerning inadequate medical care in detention and lack of an effective remedy in this regard; as well as under Article 8 of the Convention concerning the monitoring of the applicant’s correspondence with entities not exempted from monitoring under domestic law;
2. Holds that the respondent State has not failed to comply with its obligations under Article 34 of the Convention;
3. Declares the remainder of the application inadmissible;
4. Holds that there has been a violation of Article 3 of the Convention on account of inadequate medical care in detention;
5. Holds that there has been a violation of Article 8 of the Convention on account of the monitoring of the applicant’s correspondence with entities not exempted from monitoring under domestic law;
6. Holds that there has been a violation of Article 13 of the Convention on account of the lack of an effective domestic remedy in respect of the applicant’s complaint regarding inadequate medical care in detention;
7. Holds
(a) that the respondent State is to pay the applicant, within three months, the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement:
(i) EUR 4,000 (four thousand euros), plus any tax that may be chargeable, in respect of non-pecuniary damage;
(ii) EUR 850 (eight hundred and fifty euros), plus any tax that may be chargeable to the applicant, in respect of costs and expenses;
(b) that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period, plus three percentage points;
8. Dismisses the remainder of the applicant’s claim for just satisfaction.
Done in English, and notified in writing on 18 December 2018, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Andrea TamiettiPaulo Pinto de AlbuquerqueDeputy RegistrarPresident
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Judgment of the Court of 28 May 1998. - European Parliament v Council of the European Union. - Council Decision 95/468/EC - IDA - Telematic networks - Legal basis. - Case C-22/96.
European Court reports 1998 Page I-03231
Summary
Parties
Grounds
Decision on costs
Operative part
Keywords
Trans-European networks - Establishment of guidelines - Measures needed in order to ensure the interoperability of networks - Financial support - Council decision on a Community contribution for telematic interchange of data between administrations in the Community - Legal basis - Article 129d of the Treaty - Annulment on the ground of recourse to Article 235 - Temporal effects
(EC Treaty, Arts 129b, 129c, 129d, 174 and 235; Council Decision 95/468)
Summary
Not only does the objective of Decision 95/468 on a Community contribution for telematic interchange of data between administrations in the Community (IDA) serve a purpose which falls within Article 129b of the Treaty, concerning the establishment and development of trans-European networks: its very content falls within the ambit of such development. Moreover, since the measures for which it provides fall within the first, second and third indents of Article 129c(1) of the Treaty, relating respectively to the establishment of guidelines in the field in question, the interoperability of the networks and the provision of financial support by the Community, the decision should have been adopted in accordance with Article 129d. Since it was wrongly adopted on the basis of Article 235, the use of which as the legal basis for a measure is justified only where no other provision of the Treaty gives the Community institutions the necessary power to adopt the measure in question, Decision 95/468 must be annulled.
However, in order to avoid discontinuity in the measures commenced, and for important reasons of legal certainty, comparable to those which arise where certain regulations are annulled, there appears to be justification for the Court to exercise the power expressly conferred upon it by the second paragraph of Article 174 of the Treaty where a regulation is annulled and to decide that the effects of the implementing measures already taken by the Commission on the basis of the annulled decision should be maintained.
Parties
In Case C-22/96,
European Parliament, represented by Johann Schoo and José Luis Rufas Quintana, respectively Head of Division and Principal Administrator in its Legal Service, acting as Agents, with an address for service in Luxembourg at the General Secretariat of the European Parliament, Kirchberg,
applicant,
supported by
Commission of the European Communities, represented by Claudia Schmidt and Pieter van Nuffel, of its Legal Service, acting as Agents, with an address for service in Luxembourg at the office of Carlos Gómez de la Cruz, of its Legal Service, Wagner Centre, Kirchberg,
intervener,
v
Council of the European Union, represented by Antonio Sacchettini and Amadeu Lopes Sabino, respectively Director and Adviser in its Legal Service, acting as Agents, with an address for service in Luxembourg at the office of Alessandro Morbilli, Director-General of the Legal Affairs Directorate of the European Investment Bank, 100 Boulevard Konrad Adenauer,
defendant,
APPLICATION for annulment of Council Decision 95/468/EC of 6 November 1995 on a Community contribution for telematic interchange of data between administrations in the Community (IDA) (OJ 1995 L 269, p. 23),
THE COURT,
composed of: G.C. Rodríguez Iglesias, President, C. Gulmann (President of Chamber), G.F. Mancini, J.L. Murray, D.A.O. Edward, J.-P. Puissochet, G. Hirsch, P. Jann and L. Sevón (Rapporteur), Judges,
Advocate General: A. La Pergola,
Registrar: R. Grass,
having regard to the report of the Judge-Rapporteur,
after hearing the Opinion of the Advocate General at the sitting on 23 September 1997,
gives the following
Judgment
Grounds
1 By application lodged at the Court Registry on 25 January 1996, the European Parliament brought an action under Article 173 of the EC Treaty for annulment of Council Decision 95/468/EC of 6 November 1995 on a Community contribution for telematic interchange of data between administrations in the Community (IDA) (OJ 1995 L 269, p. 23, hereinafter `the contested decision').
2 Article 1 of the contested decision provides as follows:
`The purpose of this Decision is to determine the Community contribution to certain projects in the field of telematic interchange of data between administrations with a view to facilitating cooperation between them. For this purpose, a list of projects is laid down for 1995, 1996 and 1997 for which a specific need is hereby recognised along with the need for a Community contribution to render them operational throughout the Community.'
3 Article 2(1) of the contested decision lists the projects recognised as projects for telematic exchange of data between administrations requiring Community support.
4 Article 2(2) of the contested decision is in the following terms:
`2. The Community may support, within the framework of this Decision and in particular Article 4 thereof, other projects to meet the need for telematic interchange of data between administrations in accordance with Article 1 in so far as such need has been identified in another Council Decision.'
5 Articles 3 to 5 of the contested decision lay down the conditions governing the grant of the Community contribution. In particular, Article 4 prescribes the procedure to be followed for the implementation of the contested decision. Article 5(1) specifies the types of action which the Community contribution may encompass, namely: presentation of technical network solutions to enable communication between the administrations' autonomous information systems; preparation and validation of common rules for a communications architecture; examination of any possible impact on users; contribution to laying down a legal framework, in particular by drawing up specimen agreements; and consultation and coordination of all parties concerned in the national administrations and Community institutions as well as of network operators, service providers and industrial companies. Article 5(2) lays down the framework conditions which must be fulfilled in the case of Community contributions.
6 According to Article 6, the contested decision is to apply until 31 December 1997.
7 The recitals in the preamble to the contested decision refer inter alia to:
- the fact that the functioning of the internal market involves close cooperation between the competent administrations in the Member States and between them and the Community institutions (first recital);
- the need in certain cases to have recourse to the use of telematic techniques (second recital);
- the need, with regard to the Member States' internal telematic systems, for compliance with rules governing architecture, management, responsibility and maintenance, in order to ensure the interoperability of those systems (third recital);
- the need, in certain cases, to secure a Community contribution (fifth and seventh recitals);
- the establishment of the conditions under which the implementation of certain specific projects may be eligible for Community support (sixth recital);
- the fact that the Treaty does not provide for powers other than those in Article 235 of the EC Treaty for the adoption of the contested decision, the main purpose of which is to facilitate cooperation between administrations (ninth recital).
8 The documents before the Court show that on 12 March 1993 the Commission submitted to the Parliament and the Council a communication (COM(93) 69 final) on trans-European telematic networks between administrations (OJ 1993 C 105, pp. 10 and 12). That communication contained two proposals for Council decisions based on Article 235 of the EEC Treaty, which merely provides for the Parliament to be consulted. The first of those proposals concerned a series of guidelines for trans-European data communications networks between administrations (`the guidelines proposal'), whilst the second established a multiannual Community programme to support the implementation of trans-European networks for the interchange of data between administrations (IDA) (`the IDA proposal').
9 Following the entry into force of the Treaty on European Union, the Commission altered the legal basis for those two proposals by substituting Article 129d of the EC Treaty for Article 235 of the EEC Treaty (citing the first paragraph of Article 129d in the guidelines proposal and the third paragraph of that article in the IDA proposal).
10 The first paragraph of Article 129d of the Treaty provides that the guidelines referred to in Article 129c(1), covering the objectives, priorities and broad lines of measures envisaged in the sphere of trans-European networks and identifying projects of common interest, are to be adopted by the Council, acting in accordance with the co-decision procedure referred to in Article 189b. The third paragraph of Article 129d provides that the Council, acting in accordance with the cooperation procedure referred to in Article 189c, is to adopt the other measures provided for in Article 129c(1), namely those relating to the interoperability of the networks and financial support for projects of common interest. Article 129d also provides for the Economic and Social Committee and the Committee of the Regions to be consulted.
11 On 17 November 1994 the Parliament approved the two proposals for decisions, subject to certain amendments not relating to the legal basis (OJ 1994 C 341, p. 121).
12 By letter of 29 March 1995 the Council consulted the Parliament with a view to replacing the legal basis by Article 235 of the Treaty. The measure to which that letter related was entitled `Proposal for a Council Decision on support for telematic exchange of data between administrations in the Community (IDA)'. The Council stated in its letter that, `for the purposes of a measure concerning specific projects falling outside a general frame of reference, the only applicable powers were those referred to in Article 235'.
13 On 21 September 1995, in the context of that fresh consultation, the Parliament adopted a resolution in which it disputed the legal basis proposed by the Council and considered that the Commission proposal should be based on the third paragraph of Article 129d of the Treaty (OJ 1995 C 269, p. 153).
14 Since the Council nevertheless adopted the contested decision on the basis of Article 235 of the Treaty, the Parliament has brought this action for its annulment.
15 By order of the President of the Court of 27 September 1996, the Commission was given leave to intervene in support of the form of order sought by the Parliament.
16 In support of its claim, the Parliament, supported by the Commission, maintains that, despite the amendments made, the contested decision falls within the ambit of the two initial Commission proposals, which concerned the guidelines and the IDA programme. According to those institutions, the contested decision defines, at least implicitly, the guidelines identifying projects of common interest within the meaning of the first indent of Article 129c(1) of the Treaty, and thereby justifies reliance on the first paragraph of Article 129d as its legal basis. In addition, there are numerous aspects of the contested decision which relate to interoperability within the meaning of the second indent of Article 129c(1), and it is therefore appropriate to use the third paragraph of Article 129d as the legal basis. Lastly, since the contested decision identifies projects of common interest, the Community contribution for which it provides falls within the third indent of Article 129c(1) and the correct legal basis is the third paragraph of Article 129d.
17 The Parliament and the Commission further assert that, even if the contested decision must be regarded as not containing guidelines within the meaning of the first indent of Article 129c(1), the measures relating to the interoperability of the networks justify recourse to the third paragraph of Article 129d. They refer in that regard to Case C-271/94 Parliament v Council [1996] ECR I-1689 (the `Edicom' judgment), which established the autonomy of the second indent of Article 129c(1) in relation to the first indent thereof.
18 In addition to advancing that plea alleging an incorrect choice of legal basis, the Parliament maintains that the contested decision should be annulled, at least in part, on the grounds of lack of competence and misuse of powers as regards the adoption of Article 2(2) thereof. According to the Parliament, the scope of that provision is too wide, with the result that it confers residual powers on the Council in disregard of the Parliament's right to intervene in the legislative procedure.
19 The Commission states in addition that, if the contested decision is found nevertheless to fall outside the ambit of Community action in relation to trans-European networks, it must be regarded as unlawful by virtue of having infringed Article 189a(1) of the EC Treaty. In those circumstances, the alterations made by the Council could no longer be regarded as amendments to the Commission proposal within the meaning of that provision.
20 For its part, the Council considers that Article 129d was not capable of forming the basis of the decision and that, in the absence of specific powers, Article 235 was the only appropriate legal basis. It points out in that regard that it altered the initial Commission proposals with a view to adopting a measure allocating, for 1995, 1996 and 1997, a specific financial contribution to certain projects in the field of the telematic transmission of data between administrations, without any guidelines identifying projects of common interest having been established beforehand within the meaning of the first indent of Article 129c(1). Since the establishment of such guidelines is an essential precondition for the Community financing provided for in the third indent of Article 129c(1), the contested decision could not have been based on Article 129d.
21 According to the Council, the absence of a series of guidelines also meant that the contested decision could not be categorised as a measure relating to the interoperability of the networks within the meaning of the second indent of Article 129c(1). The Council maintains that the fact that such a measure must be preceded by the establishment of guidelines is not affected by the Edicom judgment, since the Court took account, in paragraph 26 of that judgment, of the fact that several Community measures, adopted before the Treaty on European Union entered into force, had already defined the guidelines encompassing the decision annulled by that judgment. The Council also disputes the Parliament's argument concerning the unlawfulness of Article 2(2) of the contested decision. Lastly, it considers that the alterations which it made to the Commission proposals fall within the limits prescribed by Article 189a(1).
The merits of the action
22 It should be noted in limine that, according to settled case-law, the use of Article 235 of the Treaty as the legal basis for a measure is justified only where no other provision of the Treaty gives the Community institutions the necessary power to adopt the measure in question (see, in particular, Case 45/86 Commission v Council [1987] ECR 1493, paragraph 13, the Edicom judgment, cited above, paragraph 13, and Case C-268/94 Portugal v Council [1996] ECR I-6177, paragraph 21).
23 It should also be noted that, in the context of the organisation of the powers of the Community, the choice of the legal basis for a measure must be based on objective factors which are amenable to judicial review. Those factors include in particular the aim and content of the measure (see Case C-300/89 Commission v Council [1991] ECR I-2867, paragraph 10, the Edicom judgment, cited above, paragraph 14, and Portugal v Council, cited above, paragraph 22).
24 It is therefore necessary to consider whether the contested decision should have been based on the first or third paragraphs of Article 129d of the Treaty.
25 First, as regards the objective of the contested decision, according to the first, second and ninth recitals in its preamble it contributes, by the use of telematic techniques for the exchange of information, towards close cooperation between the competent administrations in the Member States and between them and the Community institutions. In that regard, the third recital in the preamble underlines the importance of ensuring the interoperability of the Member States' internal telematic systems. According to the fifth recital, a Community contribution is necessary in certain cases. The sixth recital states that the conditions should be laid down under which the implementation of certain specific projects is eligible for Community support.
26 The objective of the contested decision therefore serves a purpose which falls within Article 129b. That article, which sets out the objectives to be achieved by the Community measures provided for in Article 129c, states in paragraph (1) that `the Community shall contribute to the establishment and development of trans-European networks' and, in paragraph (2), that `action by the Community shall aim at promoting the interconnection and interoperability of national networks as well as access to such networks'.
27 The very content of the contested decision confirms that it is designed to further the establishment and development of trans-European telematic networks between administrations. According to Article 1 of the contested decision, its purpose is to determine the Community contribution to certain projects in the field of telematic interchange of data between administrations. The list of projects set out in Article 2, the types of action defined in Article 5(1) and the framework conditions laid down in Article 5(2) clearly show that the content of the contested decision falls within the ambit of the development of trans-European networks.
28 Next, it is necessary to consider whether the Community action provided for by the contested decision comprises measures falling within Article 129c(1). The first indent of Article 129c(1) provides for the establishment by the Community of a series of guidelines covering the objectives, priorities and broad lines of the measures envisaged and identifying projects of common interest. The second indent concerns the implementation by the Community of any measures that may prove necessary to ensure the interoperability of the networks, in particular in the field of technical standardisation. Lastly, the third indent relates to participation by the Community in the financial efforts made by the Member States for projects of common interest which are identified in the framework of the guidelines referred to in the first indent.
29 Although the Council does not deny that the contested decision provides for the Community to make a financial contribution to projects concerning telematic networks, that contribution cannot, in its view, be based on the third indent of Article 129c(1), since no projects of common interest identified pursuant to the guidelines referred to in the first indent of that provision were established beforehand.
30 The Council's arguments in that regard are not, however, borne out by an examination of the contested decision.
31 That decision shows, as the Advocate General observes in point 7 of his Opinion, that the objectives of the Community action are defined by the recitals in its preamble. As regards priorities, the relationship between intervention by the Community and action by the Member Sates is defined, in particular, by the fifth and seventh recitals. The broad lines of the measures envisaged are dealt with in Article 5 of the contested decision. Lastly, the projects of common interest are identified in Article 2 of the contested decision.
32 That finding is borne out by the fact, noted by the Advocate General in point 7 of his Opinion, that several of the projects provided for in Article 2(1) of the contested decision correspond to aspects of the guidelines proposal which was to be adopted on the basis of the first paragraph of Article 129d.
33 Consequently, as is apparent from the foregoing examination, the contested decision establishes a series of guidelines within the meaning of the first indent of Article 129c(1) and provides, in relation to projects of common interest identified in those guidelines, for a financial contribution within the meaning of the third indent of that provision.
34 It is immaterial in that regard whether the guidelines are established in the same measure as that providing for the financial contribution or in a separate measure adopted beforehand. In either case, the requirement that projects of common interest must be identified is fulfilled.
35 Furthermore, certain aspects of the contested decision concern the interoperability of networks within the meaning of the second indent of Article 129c(1). First, the third recital in the preamble to that decision emphasises the need to ensure the interoperability of national telematic systems. Second, the fourth indent of Article 4(3)(a) of the contested decision provides that the special procedure laid down by Article 4 is applicable to the `adoption of common rules and procedures for bringing about technical and administrative interoperability'. Moreover, according to Article 5(1), the types of action which the Community contribution may encompass include, in particular, measures relating to interoperability. Indeed, interoperability is specified as one of the framework conditions laid down in Article 5(2).
36 Although the establishment and development of trans-European telecommunications networks between administrations entail, in themselves, the interconnection and interoperability of national networks as well as access to such networks, the content of the contested decision shows that it covers measures falling specifically within the second indent of Article 129c(1).
37 It follows from the foregoing that the contested decision comprises measures falling within the first, second and third indents of Article 129c(1) of the Treaty, the procedure for the adoption of which is fixed by Article 129d. The Council was not entitled, therefore, to adopt the contested decision on the basis of Article 235.
38 Consequently, the contested decision must be annulled, so that it is unnecessary to examine the pleas alleging the illegality of Article 2(2) thereof and infringement of Article 189a(1) of the Treaty.
Maintenance of the effects of the decision
39 In its defence, the Council asked the Court to order, in the event of annulment of the contested decision, that its effects should be maintained. The Commission joined in making that request, stating by way of qualification that, at the very least, the effects of legal relationships which have already come into existence on the basis of the contested decision should be maintained. In support of its request, the Commission asserts that cooperation between the administrations in the Member States and between them and the Community institutions requires an intensive interchange necessitating the continued use of telematic media. It maintains, by way of example, that networks such as that used to monitor intra-Community commercial trade for the purposes of value added tax declarations and that serving as a medium for veterinary controls on arrival and in combating illegal movements of cattle would cease to exist if the effects of the contested decision were not maintained.
40 In its observations on the Commission's statement in intervention, the Parliament expresses doubts as to the compatibility of the Commission's request with the fourth paragraph of Article 37 of the EC Statute of the Court of Justice, since the Parliament did not seek in its application an order that the effects of the contested decision be maintained. It further states that, in the event of a ruling that the effects of the contested decision should be maintained, that ruling should be limited to the implementing measures already taken on the basis of the contested decision, as in the case of the Edicom judgment.
41 It appears from the information provided by the Commission that, in order to avoid discontinuity in the measures commenced, and for important reasons of legal certainty, the effects of the measures already taken to implement the contested decision and based thereon should be maintained. By contrast, as regards the other effects of the decision, neither the Council nor the Commission has explained the difficulties which annulment of the contested decision would entail in that regard. In the absence of such explanation, the Court is unable to assess the degree and extent of those difficulties and to accede to that aspect of the request. Furthermore, it should be noted that, under Article 6, the contested decision was to apply until 31 December 1997.
42 In view of the particular circumstances of the case and for reasons of legal certainty, comparable to those which arise where certain regulations are annulled, there appears to be justification for the Court to exercise the power expressly conferred upon it by the second paragraph of Article 174 of the EC Treaty where a regulation is annulled and to state the effects of the annulled decision which must be maintained. Consequently, the effects of the implementing measures already taken by the Commission on the basis of the contested decision should be maintained.
Decision on costs
Costs
43 Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings. The Parliament has asked that the Council be ordered to pay the costs. Since the Council has been unsuccessful, it must be ordered to pay the costs. In accordance with the first subparagraph of Article 69(4), the Commission must be ordered to bear its own costs.
Operative part
On those grounds,
THE COURT
hereby:
1. Annuls Council Decision 95/468/EC of 6 November 1995 on a Community contribution for telematic interchange of data between administrations in the Community (IDA);
2. Maintains the effects of the implementing measures already taken by the Commission of the European Communities on the basis of that decision;
3. Orders the Council of the European Union to pay the costs;
4. Orders the Commission of the European Communities to bear its own costs. | 6 |
COURT OF APPEAL FOR ONTARIO
CITATION:
Amaral v. Kennedy, 2012
ONCA 517
DATE: 20120726
DOCKET: M41377 (M41182)
Simmons, Juriansz and Epstein JJ.A.
BETWEEN
Arnaldo Amaral
Applicant
(Appellant/Responding Party)
and
Angela Kennedy
and Barbara Poplawski
Respondents
(Respondent in Appeal/Moving Party)
Maureen L. Whelton and Colin P. Stevenson, for the
moving party
Peter R. Jervis, for the responding party
Heard: July 20, 2012
On a motion to quash the motion for leave to appeal from
the order of the Divisional Court (Aston, MacKinnon and Moore JJ.), dated March
5, 2012.
ENDORSEMENT
[1]
The moving party requests an order quashing a
motion for leave to appeal from a decision of the Divisional Court. The
Divisional Court set aside an order finding that the responding party violated
the
Municipal Conflicts of Interest Act,
R.S.O. 1990, c. M50, and dismissed the moving party's application under that
Act.
[2]
The issue of whether a right of appeal to this
court exists from the decision of the Divisional Court is governed by the
Municipal
Conflicts of Interest Act
and not the
Courts
of Justice Act
, R.S.O. 1990, c. C43: s. 15 of the
Municipal
Conflicts of Interest Act
. See also
Ruffolo v.
Jackson,
[2010] O.J. No. 2840, at para. 14.
[3]
Section 11(2) of the
Municipal
Conflicts of Interest Act
provides that, on an appeal
from any order made under s. 10 of the
Municipal Conflicts of
Interest Act
, "[t]he Divisional Court may give any
judgment that ought to have been pronounced,
in which case its decision is
final
(emphasis added)".
[4]
Given s. 15, this court's decision in
Ruffolo
v. Jackson
and the clear language of s. 11(2) of the
Municipal
Conflicts of Interest Act
, we conclude that there is no
right of appeal to this court from the Divisional Court's decision. The motion
for leave to appeal is therefore quashed.
[5]
Costs of the motion are to the moving party on a partial indemnity scale
fixed in the amount of $3,000.00 inclusive of disbursements and applicable
taxes.
| 0 |
CIVIL. APPELLATE JURISDICTION Civil Appeal No. 982 NT of 1975. From the Judgment and order dated 10.10.1974 of the Gujarat High Court in Gift Tax Reference No. 1 of 1973. Dr. V. Gauri Shanker, K.C. Dua, C.V. Subha Rao and Miss Subhashini for the Appellant. A. Ramachandran, Sonet P. Mehta. D.N. Misra and Ms. Sunita Narhari for the Respondent. The Judgment of the Court was delivered by VENKATACHALIAH, J. This appeal, by certificate, by the Commissioner of Income-Tax, Gujarat, directed against the order dated, 10.10.1974 of the Gujarat High Court in Gift Tax Ref. No. 1 of 1973 raises a question touching the companyrect principles of valuation of certain shares companystituting the subject-matter of a gift, held in a companypany incorporated in the United Kingdom analogous to a private limited companypany in India. Shri Ambalal Sarabhai, since deceased, held 480 shares in an English Company M s. Bakubhai Ambalal Ltd., London, the share-capital of which companysisted of 2000 shares of 10 each. On 17.10.1964, under eight deeds of gift, the said Ambalal Sarabhai made gifts of the said 480 shares to certain members of his family. In the proceedings of the assessment to gift-tax respecting said gifts the question of the proper basis for determination of the value of the gifts having arisen, the assessee companytended that, as the shares were number quoted in the stock-exchange, their value be determined on the average of break-up value indicated by the balance-sheets of the Company as on 31.3.1964 and 31.3.1965. The former figure was Rs.507 and the latter Rs.333 per share the average of the two being Rs.420 per share. The assessee also companytended that in view of the decision of the General Body of the companypany, dated, 4.10.1961 to increase its share-capital by issue of additional 2000 shares at 10 each, the value of the shares companystituting the subject-matter of the gifts which were transferred ex-right would stand depreciated. The Gift Tax Officer did number accept the companytentions of the asses see. He proceeded to value the shares at Rs.507 per share on the basis of the break-up value yielded by and deducible from the balance-sheet as on 31.3.1964. The Appellate Assistant Commissioner dismissed the assessees appeal. In the further appeal before the Income Tax Appellate late Tribunal, the Tribunal, placing reliance on what it companysidered to be the principles of valuation appropriate to such cases said to be companytained in Lynal Anr. v. I.R. C. H.L. , 83 ITR 563 , valued the shares at Rs.450 each said to represent the break-up value on the basis of the balance-sheet of 31.3.1963. The Tribunal held that it companyld number take into companysideration any other document except the published in formation which, in this case, was the balance-sheet as on 31.3.1963. The Tribunal, at the instance of both the revenue and the assessee stated a case and referred three questions of law for the opinion of the High Court-the first two at the instance of the revenue and the third at the instance of the assessee. The assessee, it must be observed did number press the question referred at his instance and the High Court, accordingly, did number express any opinion on it. The two questions referred for the opinion of the High Court at the instance of the Revenue were Whether on the facts and in circumstances of the case. the finding of the Tribunal based on the ratio of the case decided by the House of Lords in Lynall and Another v. Inland Revenue Commissioner, 83 l.T.R. 563 and basing the valuation of the shares of Bakubhai and Ambalal Ltd., London, on its balance sheet as at 31.3.63 instead of 31.3.64 is bad in law? Whether on the facts and in the circumstances of the case, the Tribunal was right in law in accepting the valuation of the shares as returned by the assessee and deleting Rs.27,360 added by the Gift-Tax officer under Section 15 3 of the Act? The High Court by its order, number under appeal, answered the questions against the revenue. It held The only information which was available as on October, 17, 1964 was in the form of the balancesheet as of March 31, 1963 and hence the Tribunal was right when it took into companysideration for the purpose of arriving at the value of the shares by the break-up method, the balance sheet as at March 31, 1963 and number as the revenue was companytending for the balance sheet as of March 31. 1964. Dr. Gauri Shanker, Learned Senior Counsel urged in support of the appeal, that the entire exercise of valuation before the High Court rested on a case which had numberapplication to the matter that the case was governed squarely by the pronouncements of this Court in Commissioner of Wealth Tax, Assam v. Mahadeo Jalan Ors., 86 ITR 621 and, more particularly, in Commissioner of Gift-tax, Bombay Smt. Kusumben D. Mahadevia, 122 ITR 38 and that the erroneous view of the High Court as to the principles of valuation should, therefore, number remain uncorrected. Shri Ramchandran, learned senior companynsel for the assessee, in the. light of the aforesaid pronouncements to this companyrt, found it difficult to support the principles on which the determination of the value of the shares proceeded before the authorities as well as before the Tribunal and the igh Court. He, however, invited our attention to the following observations of the High Court As a matter of fact it may be pointed out that before the Tribunal it was companymon ground that the value of the shares should be ascertained by following the break-up value method and the only difference was as to with reference to balance sheet of what date the total value of the assets has to be ascertained and urged that in view of the companysensus between the parties as to the basis of valuation it was number number open to the Revenue to turn around and urge the application of an altogether different principle. We are afraid, the basis adopted by the High Court is clearly unsustainable in the light of the pronouncements of this companyrt referred to earlier. The reference to and reliance upon the Lynall principle was somewhat in-apposite and misplaced. That case principally dealt with the impermissibility of reliance on classified information companysidered companyfidential and privileged from disclosure. Pointing out the inadequacy of the break-up-value method this companyrt in Mahadeo Jalans case referred with approval to the following observations of Williams J in Mc. Cathie v. Federal Commissioners of Taxation 69 C.L.R. 1 the real value of the shares will depend more on the profits which the companypany has been making and should be capable of making, having regard to the nature of its business than upon the amounts which the shares would be likely to realise upon liquidation In Kusumbens case referring to the principles of valuation relevant to the matter, this companyrt said But where the shares in a public limited companypany are number quoted on the stock exchange or the shares are in a private-limited companypany the proper method of valuation to be adopted would be the profit earning method. This method may he applied by taking the dividends as reflecting the profit earning capacity of the companypany on a reason able companymercial basis but if it is found that the dividends do number companyrectly reflect the profit earning capacity because only a small proportion of the profits is distributed by way of dividends and a large amount of profits is systematically accumulated in the form of reserves, the dividend method of valuation may be rejected and the valuation may be made by reference to the profits. The profit-earning method takes into account the profits which the companypany has been making and should be capable of making and the valuation, according to this method is based on the average maintainable profits. Of companyrse, for the purpose of such valuation, the taxing authority is number bound by the figure of profits shown in the profit and loss account because it is possible that the amount of profits may have suffered diminution on account of unreasonable expenditure or the directors having chosen to take away a part of the profits in the form of remuneration rather than dividends. The figure of profits in such a case would have to be adjusted in order to arrive at the real profit earning capacity of the companypany The view of the High Court cannot, therefore, be said to reflect the position in law companyrectly. The companyrect principle of valuation applicable to a given case Is a question of law. The parties can agree upon a principle permissible under and recognised by law. If two or more alternative principles ar equally valid and available, it might be permissible for the parties to agree upon one of the alternative modes of valuation in preference to another. In this case, the revenue cannot be said to be precluded from urging the companyrect legal position. In the ultimate analysis, it requires to be held that the view of the High Court as to the principle of valuation in determining the value of the kind of shares companycerned in this case cannot be held to be companyrect. The first question of law referred for its opinion would otherwise, require to be answered in the affirmative and the second in the negative both against the assessee. As a logical companysequence, the Tribunal would have to go through, over again, the exercise of determination of the value of the shares adopting the companyrect principle. But the matter is already two and a half decades old. The gift was in the year 1964. The total Gift-Tax as number assessed is Rs.5661. Upon a fresh determination of the value of the shares adopting the somewhat intricate processes inherent in the profit-method of valuation the difference in the quantum of the tax might, perhaps, number be substantial. The magnitude of the mechanism for refixation of the value of the gifts and the difference in the quantum of the tax it might result-in, do number bear a reasonable or sensible proportion. Having regard to the pecuniary involvement in the case which is obviously small we think we should number expose the parties to a fresh round of litigation. In this view of the matter, we think appellant should be companytent with the declaration of the law on the matter, without disturbing the valuation made by the Tribunal and approved by the High Court. though the principle adopted is number supportable in law. We therefore decline to interfere in the matter. The valuation is therefore left undisturbed . The appeal is disposed of accordingly. In the circumstances of the case, there will be numberorder as to companyts. | 1 |
Lord Justice Mummery :
The dispute
This dispute is between a tenant, Mr Aynsley Munt, and his landlord, Mr Richard Beasley. They are neighbours living in a two storey freehold house converted into two separate self-contained flats. Mr Munt is the current owner of a long lease of the first floor flat. Mr Beasley lives directly underneath in the ground floor flat. He is the freehold owner of the house.
The main disagreement is about the loft at the top of the house. At his own expense Mr Munt has converted the loft to provide himself with additional accommodation. In his defence to the action for trespass, for forfeiture of the lease and damages for breach of covenant brought by Mr Beasley Mr Munt asserted that the loft
(a) was included in the lease of the first floor flat (the construction issue); or
(b) ought to have been included in the lease (the rectification claim); or
(c) ought now to be treated as if it were included in the lease (the proprietary estoppel claim)
Although the relevant facts are short, the legal arguments are not: they have ranged over a wide field covering the construction of the lease, rectification, proprietary estoppel, forfeiture for breach of covenant, waiver of breach and damages for trespass in lieu of injunction.
The appeal
Unfortunately, the first instance judgment is defective: it fails to make clear findings of fact on issues that were fully pleaded and argued and inadequate reasons are given for key rulings against Mr Munt. The overall outcome of the action is unsatisfactory for both parties. The result is neither just nor practical. Criticisms of case management aspects of the case are also made by Scott Baker LJ, with whose judgment I agree.
The appeal is from the order of Mr Recorder NJ Murphy (who is also a District Judge) dated 7 September 2005, the trial having taken place on 10 and 11 February and 23 May 2005. He heard evidence from 7 witnesses in addition to the parties. There was a written report on valuation questions from a joint expert (Mr Shaun Woolford, a surveyor). His evidence was that incorporating the loft into the first floor flat had added about £7,500 to its value. That amount was exceeded by his estimate of the cost of converting the loft.
The recorder's reserved judgment is dated 20 July 2005, but, as explained by Scott Baker LJ, it was not delivered to the parties until 8 September 2005. He gave judgment for Mr Beasley for a total sum of £9,000 (£7,500 for trespass and £1,500 for noise) and dismissed Mr Munt's counterclaim for rectification and damages, but he granted relief from forfeiture. By an order of 9 December 2005 (following an application under the liberty to apply in the earlier order) he ordered Mr Munt to pay 50% of Mr Beasley's costs.
Outline facts
Mr Beasley is the owner of the freehold of 5 Hilton Road, Gurnard in the Isle of Wight (the Property). Immediately prior to March 1991 Mr Beasley converted the Property into a ground floor flat (called No 5), and a first floor flat (called No 5A).
By a lease dated 18 March 1991 (the Lease) Mr Beasley granted to Mr Munt's predecessors in title, Mr & Mrs Rowley, a term of 99 years from 1 March 1991 in No 5A at a premium of £38,450 and at an annual ground rent of £25. The sales particulars of the estate agents (Crockers of Cowes, IOW) described the landing in No 5A as having "Access into loft space," but the Lease itself made no express mention of the loft space nor is it shown on the plans attached.
In their evidence for Mr Munt at the trial Mr & Mrs Rowley said that they believed that the Lease included the loft area beneath the roof of the Property, to which access could only be gained through an opening in the ceiling of the landing of No 5A leading into the loft. Although they only used the loft for storage purposes, they contemplated extending the living space of No 5A into the loft. They understood from conversations with Mr Beasley that he was at one with them about the extent of the premises included in the Lease and that he would have no objection to extending the living space within No 5A if they embarked on it. The estate agents particulars prepared by Marvins (of Cowes IOW) on their behalf when they came to sell No 5A in 1997 mirrored their genuinely held belief about the loft. The sale particulars of the first floor flat described the landing in No 5A as having "Access to large roof space with possibility of loft conversion to form extra accommodation."
Although the recorder made adverse findings about the credibility of Mr Munt's evidence at trial, he made no adverse findings about the credibility of the Rowleys and does not appear to have rejected any of their evidence.
In December 1997 Mr & Mrs Rowley assigned the Lease to Mr Munt for £32,500. He lived there until 2004. Mr Beasley lived down stairs in No 5 throughout. Between 1999 and 2003 Mr Munt converted the loft into living accommodation, including the construction in 2001 of a permanent staircase to the loft on the landing of No 5A.
Although Mr Beasley's evidence was that "Mr Munt made his life miserable with his constant DIY projects" and that he was aware that he had put some flooring in the loft, there was no evidence that he objected to Mr Munt about the loft works before February/March 2003.
The solicitors' correspondence shows that there were "subject to contract" negotiations between the parties from December 2002 for the sale of the Property to Mr Munt for just under £75,000. Mr Beasley was looking for suitable rented accommodation, but later decided not to proceed with the sale.
Mr Beasley first raised objections to the conversion in February/March 2003. On 20 March 2003 a mediation meeting between the parties was held at the Newport Law Centre arranged by IOW Independent Housing Advice, but no agreement was reached settling the dispute about the past and future works to the loft. According to the notes of the meeting concerning the loft Mr Beasley admitted that he had given verbal permission for the loft conversion and the staircase, but after the event and under duress. The first solicitor's letter alleging that the conversion of the loft was without permission and alleging trespass and breaches of covenant was sent on 23 April 2003. The proceedings were issued on 5 April 2004. Mr Munt went on doing works to the loft after receiving letters of protest from Mr Beasley's solicitors.
The judgment
The recorder held Mr Munt liable for trespass and breach of covenant and decided that Mr Beasley was entitled to substantial damages and to forfeiture of the Lease, but granted relief against forfeiture on payment by Mr Munt of the total of £9,000 damages awarded to Mr Beasley.
The main issues argued before him were whether the loft was included in the Lease, what Mr Munt did when he carried out the conversion; and whether Mr Munt acted in breach of covenant in converting the loft. There were other disputes as to the manner in which Mr Munt used No 5A, whether Mr Beasley knew of the works carried out by Mr Munt and whether he had waived his rights in respect of them. There was also a dispute as whether there was a breach of covenant by Mr Beasley in respect of exterior repairs and what Mr Munt spent on guttering and fascia work done by him.
In his judgment the recorder found that the conversion of the loft by Mr Munt involved maiming, injuring structural parts, roofs or walls and making structural alterations and additions. He found that Mr Beasley gradually became more and more aware that there was an extension, or that extension was being continued, and he would have seen evidence of it when he visited No 5A.
The recorder concluded, however, that the loft was not included in the Lease, that no case had been established for rectification of the Lease so as to include the loft, and that Mr Beasley had not waived, and was not estopped from enforcing, his right to claim trespass and breach of covenant by Mr Munt.
Permission to appeal
On 14 October 2005 and 31 January 2006 Lloyd LJ granted permission to appeal on numerous grounds. As they are an indication of the extent of the concern about the recorder's judgment I will list all the main grounds before dealing with them individually.
1) Credibility of the parties. The recorder preferred the evidence of Mr Beasley, but it is contended that the reasons given by him are so inadequate that Mr Munt is unable to understand why he was regarded as a less credible witness.
2) Assessment of damages in lieu of an injunction. The recorder awarded Mr Beasley £7,500 for trespass and breach of covenant. The amount was related to the increase in value of the Lease if the loft was incorporated in it. It is contended that the recorder erred in his assessment of quantum.
3) Construction of the Lease. The recorder held that the loft was not included in the Lease. It is contended that the roofspace and/or the roof were included in the Lease and that the conversion of it by Mr Munt was not a trespass.
4) Rectification. The recorder refused rectification of the Lease on the ground that there was no convincing proof of an "outward expression of accord" that No 5A should include the loft. It is contended that this conclusion was not open to him on the evidence and involved an error of law.
5) Adverse possession. The recorder held that the use of the loft by the Rowleys "for storage purposes" between 1991 and 1997 did not show the required intention to possess the loft exclusively. It is contended that the Rowleys were in possession of the loft and that their possession was sufficient to count and could be relied on by Mr Munt for the purposes of the Limitation Act 1980.
6) Forfeiture. The recorder held that Mr Beasley was entitled to forfeit the Lease for breach of covenant pursuant to the section 146 notice served on 12 September 2003, but relief against forfeiture should be granted on condition of the payment by Mr Munt of damages totalling £9,000. It is contended that Mr Beasley had waived the right to forfeit and that, in rejecting waiver, the recorder overlooked material evidence and misdirected himself as to the terms of the Lease.
7) Acquiescence and proprietary estoppel. The recorder held that Mr Munt failed to establish reliance on anything done by Mr Beasley. The marketing particulars were prepared on the instructions of the Rowleys, not by Mr Beasley. The recorder held that the elements required for proprietary estoppel were not established by the evidence. It is contended that the rejection of Mr Munt's case on proprietary estoppel was inconsistent with the findings of fact and was unsupported by adequate reasons.
8) Damages for nuisance by noise. The judge awarded £1,500 for noise in the form of audible music between 11pm and 8am over a long period and from the floor of the flat being uncarpeted. It is contended that the award was wrong in law, was arithmetically inaccurate and was unsupported by evidence.
9) As to the future use of the loft, the recorder, having ordered substantial damages in lieu of an injunction, left uncertain the legal basis of Mr Munt's continuing beneficial use of the loft. He failed to clarify the nature of Mr Munt's proprietary interest, if any, in the loft and whether the loft was to be treated as incorporated in the Lease or was occupied by Mr Munt on a purely personal basis. This uncertainty affected the value and marketability of the Lease.
A. Credibility
Mr Morshead, who appeared for Mr Munt, put his criticisms of the recorder's treatment of the parties' credibility at the forefront of his grounds and his detailed written submissions, but he rightly recognised that it is not the crucial point on this appeal.
The recorder had treated credibility of the evidence given by the parties as "overriding all the issues" and as going to the heart of the case. That is an exaggeration. Credibility is not in fact equally relevant to all the issues, in particular the construction issue and the rectification issue. The recorder then held that the evidence of Mr Beasley was to be preferred to that of Mr Munt. Mr Morshead argued by reference to the trial transcripts that in no less than 8 respects the recorder failed to use, or had misused, his advantage of having seen and heard the witnesses and had failed to stand back and weigh the overall probabilities of the situation. The disruptions and delays in the trial and the preparation of the judgment may have contributed to the recorder's failure to deal properly with material evidence. This was, he submitted, one of those exceptional cases in which an appellate court would be justified in interfering with the trial judge's evaluation of, and conclusion on, the primary facts. There were demonstrable errors and oversights in his judgment, which undermined his finding on credibility of the parties. The finding was unsupported by adequate reasons and was plainly wrong: Assiccurazioni Generali Spa v. Arab Insurance Group [2003] 1 WLR 577 at paragraph 12.
The problem with this ground of appeal is not its lack of substance. Indeed, I think that Mr Morshead's detailed criticisms of the finding on credibility are well founded, but they raise the appalling possibility of a re-trial of the entire case. If credibility of the parties on certain issues really affected the overall outcome of the case, it would be impossible to avoid a re-trial. This court could not make different findings of fact based on a different view of the credibility of the parties.
A re-trial is not, however, a realistic proposition. The costs position is already so grave that a serious doubt exists as whether a re-trial would, if ordered, ever take place. Mr Munt's costs are in excess of £40,000. I am not surprised to learn from his counsel that he cannot afford a re-trial. He has been ordered to pay 50% of the costs of Mr Beasley, who is publicly funded.
In these circumstances I should examine all the other grounds of appeal in order to see if it is possible to avoid a re-trial.
B. Construction of Lease
Mr Morshead submitted that the recorder should have construed the Lease to include the loft and/or the roof. If that is correct, Mr Munt would not have been liable for trespass or breach of covenant in relation to conversion works in the loft and in No 5A.
No 5A is described in clause 1 as including (among other things) all internal non-load bearing walls and all the floors and ceilings of the Flat and in the First Part of the First Schedule to the Lease as the
"Flat Number 5A being on the first floor of Number 5 Hilton Road…TOGETHER with the entrance door and stair case on the ground floor and leading to the first floor more particularly delineated and shown in and by plans 1a and 1b annexed hereto and thereon edged red.."
Although the roof of the building is mentioned both in the tenant's covenants and in the landlord's covenants, the loft situated between the roof of the house and the ceiling of No 5A is not mentioned in the Lease nor on the annexed plans prepared by Mr Beasley.
A lease should be construed on the principle that the extent of the parcels depends on the wording of the lease read in the context of the circumstances of the property. The circumstances include evidence of the state and condition of the property at the date of the grant of the Lease: see Vol 27(1) Halsbury's Laws of England (4th edition Reissue) paragraph 133. Background knowledge reasonably available to the parties would be relevant to ascertaining the extent of the premises demised.
In this case it was pointed out by Mr Morshead that access to the loft via the hatch opening in the ceiling of No 5A dated from the time before the Property was converted. The only means of access to the loft was then included in the upper floor flat on the grant of the Lease. In those circumstances it was extremely improbable that the intentions of Mr Beasley and the Rowleys were that Mr Beasley should retain beneficial ownership of a loft, to which he could only gain access via the landing and ceiling of No 5A. He might wish to retain a limited right of access to the loft for certain purposes, such as inspection of and repair to the roof, but there was no sensible reason for his retaining beneficial ownership of the loft: see Graystone Property Investments Ltd v. Margulies (1983) 47P & CR 472 at 478 per Lord Griffiths.
In addition to this powerful pragmatic point Mr Morshead relied on evidence from the Rowleys and from Mr Beasley himself that, at the time of the grant of the Lease, they all believed that the loft was included in the Lease of No 5A. This was reinforced by the estate agent's particulars. Mr Beasley continued to believe that the loft was included in the lease until he sought his solicitor's advice about the dispute with Mr Munt. His solicitors Robinson, Jarvis & Rolf, sent a letter to Mr Munt dated 7 May 2003 objecting to Mr Munt's work on the loft space and asking him to desist from carrying out further work and from making any use of it, saying that he had "no right whatsoever to use the loft space", that Mr Beasley had never given him any permission to carry out work in the loft space or to use it for any purpose and that
" ..until we advised him of such, our client tells us that he was not aware that the loft space did not form part of the premises demised to you under the Lease. Therefore, he had no reason for believing you needed his permission to use the loft space."
The evidence of their belief is significant in the case, but it is, in my view, probably more relevant to the claim for rectification of the Lease than to the construction of it.
The construction question is not an easy one. Common sense supports Mr Munt. The language of the Lease supports Mr Beasley. On balance I think that the recorder was legally correct in holding that the Lease did not include the loft. The Lease was of the flat "on the first floor." While I would agree that the expression is not a term of art, the fact is that the loft was not on the first floor where No 5A was situated. It was above the ceiling of No 5A. It is true that the plans of the flats drawn by Mr Beasley refer to the "upstairs flat" and to "the upper and lower flat" rather than to the "first floor flat", but the loft is not shown or mentioned on them nor is the roof. I very much doubt whether the omission of the loft was deliberate. It is more probable that the omission was the result of a mistake or oversight in documenting the agreement of the parties. If the latter, the availability of rectification of the Lease, to which I now turn, is all important.
C. Rectification
Mr Munt counterclaimed for rectification of the Lease by the addition of the words "(including the loft space immediately below the roof)"after the words "Isle of Wight" in the First Part of the First Schedule to the Lease. It was pleaded that the initial agreement between Mr Beasley and the Rowleys for the grant of the Lease included the loft, that they intended and believed that the Lease subsequently executed should and did so provide, that it was their common intention and belief continuing up to the grant of the Lease that No 5A should include the loft and that if, on its true construction, the Lease did not include the loft then the Lease should be rectified. In the defence to counterclaim it was pleaded that there had not been any relevant mistake which would entitle Mr Munt to an order for rectification of the Lease.
The recorder referred to the elements of a claim for rectification stated in Swainland Builders Ltd v. Freeland Properties Ltd (2002) 2 EGLR at 74 paragraph 33. The recorder concluded that Mr Munt had not discharged the burden of proving the elements necessary to show that the Lease did not reflect the mutual intention of Mr Beasley and Mr & Mrs Rowley. He said
"The proof of outward expression of accord needs to be convincing and I do not find that it is. The particulars refer to "Access into loft space" but loft space is not accorded a place in the particulars such [as] landing, lounge etc, nor is it put in capital letters as one might expect if a distinct part [is] being let or included. Mr and Mrs Rowley assert they understood and believed that the Claimant similarly understood that the loft space was included but there is no evidence of any actual expression of accord at the time that the instrument was executed and Mr and Mrs Rowley did nothing about having the lease rectified while they were living at 5A for many years. The belief of the Claimant (set out in the letter of [7] May 2003) is no more than an expression of belief (he now says mistaken) but is not reflected in any outward expression of accord preceding or contemporaneous with the lease."
I am unable to accept this reasoning as justifying the rejection of Mr Munt's rectification claim. "Access into loft space" is expressly mentioned in the part of the sales particulars relating to the landing in No 5A. The sale particulars, which were prepared by Mr Beasley's agents and relied on by the Rowleys, are, in my judgment, sufficient to satisfy any legal requirement of an "outward expression of accord" to include the loft in the Lease of the first floor flat. On Mr Beasley's own evidence his belief was that the Lease included the loft. The Rowleys gave evidence of their belief that the loft was included. The fact that they did not seek rectification is neither here nor there. They had no reason for seeking rectification of a Lease which both they and Mr Beasley believed included the loft space to which access could only be gained through the opening in the ceiling of No 5A.
I would also accept Mr Morshead's submission that the recorder was wrong to treat "an outward expression of accord" as a strict legal requirement for rectification in a case such as this, where the party resisting rectification has in fact admitted (see the solicitors' letter of 7 May 2003) that his true state of belief when he entered into the transaction was the same as that of the other party and there was therefore a continuing common intention which, by mistake, was not given effect in the relevant legal document. I agree with the trend in recent cases to treat the expression "outward expression of accord" more as an evidential factor rather than a strict legal requirement in all cases of rectification: see Gallaher v. Gallaher Pensions Ltd [2005] EWHC 42 (Ch) at paragraphs 116-118; Westland Savings Bank v. Hancock [1987] 2 NZLR 21 at 29, 30; and JIS (1974) Ltd v. MCP Investment Nominees Ltd [2003] EWCA Civ 721 at paragraphs 33-34;cf Frederick E Rose (London) Ltd v. Wm Pim & Co Ltd [1953] 2 QB 450 at 462 per Denning LJ and Swainland Builders Ltd v. Freeland Properties Ltd [2002] 2 EGLR at 74.
In my judgment the case for an order for rectification is clearly established. I would order rectification of the Lease as sought by Mr Munt (see paragraph 30 above). The order will have retrospective effect so that the Lease will be read as if it had always included the loft.
D. Proprietary estoppel
Mr Munt alleged in his defence that he acquired the unexpired term of the Lease on 19 December 1997 in reliance on the marketing particulars mentioned above and that, soon after acquiring No 5A, he did various works to and in connection with the loft: installing a velux roof light in 1998 to give light to the loft, buying and fitting a loft hatch ladder, completing decking of the loft's floor area, building stud walls in the loft, and installing sound insulation below the loft and installing electric power points and spot lights. He also removed the cold water storage tank (which served only No 5A) from the loft as part of the installation of central heating in the flat in March 2000. In 2001 he substituted a wooden staircase on the landing of No 5A for the loft hatch ladder. He pleaded that Mr Beasley knew or ought to have known of the works, as throughout their duration he was living immediately below No 5A and he was informed by Mr Munt that he had moved his main music playing equipment into the loft and put insulation below the loft flooring area. This lowered the noise levels for which Mr Beasley expressed gratitude and raised no objection. Mr Beasley had also visited No 5A sometime before 2003 to discuss a water leak and had seen the staircase to the loft added in 2001, but had raised no objection.
Mr Munt also alleged that in late March 2003 he informed Mr Beasley of his proposals to undertake further works to strengthen the ceiling/loft floor area, install soffit vents and to install 2 further roof lights in November 2003. According to Mr Munt Mr Beasley raised no objection and said he should get on with them as soon as possible. Mr Munt completed the conversion works by the end of the year.
The defence and counterclaim pleaded that it would be inequitable for Mr Beasley to deny that the loft formed part of No 5A, in view of his words, conduct and omissions which represented to Mr Munt and his predecessors that the loft formed part of the flat, that he had acquiesced in the use of the flat by Mr Munt and his predecessors and that Mr Munt had relied on the representations and acquiescence to his detriment in undertaking the works.
In his judgment the recorder dismissed the pleaded proprietary estoppel claim by simply saying that he was "unable to discern from the evidence any aspects which would establish the required elements for the purpose of the rule set out by Mr Justice Oliver in Taylor Fashions Ltd v. Liverpool Victoria Trustee Company Ltd .."
There is considerable force in Mr Morshead's complaint that the recorder rejected the pleaded claim without making relevant findings of fact, without giving adequate reasons and without explaining the effect on the right to occupy the loft of his decision awarding substantial damages for trespass in lieu of an injunction. He made no detailed findings as to the various stages in which the conversion works were done nor did he attempt to explain why the requisite elements of the doctrine were not established.
Fortunately, from the viewpoint of avoiding a re-trial, there were sufficient, though scattered, findings of fact which, taken together with the Rowleys' evidence, establish, contrary to his view, a case of proprietary estoppel. As I pointed out earlier, the recorder made no adverse finding about the Rowleys' credibility when summarising their evidence that, as reflected in the estate agent's particulars, they genuinely believed that the Lease included the loft, that they used it for storage when they lived in No 5A and that they understood from conversations with Mr Beasley that he had no objection to extending living space within the loft of they embarked on it He found that Mr Munt carried out " invasive work" in the loft before, as well as after, 20 March 2003 when the mediation meeting took place. Mr Beasley "did gradually become more and more aware that there was an "extension" or extension was being continued." (One of Mr Beasley's complaints against Mr Munt was his DIY work in No 5A from the start of his occupation.) Mr Beasley would have seen evidence of such when he visited No 5A. Though living next door under the same roof Mr Beasley made no complaint about the works until February/March 2003. The recorder noted that Mr Beasley "believed that the loft space was included in No 5A." He found that Mr Beasley was "made aware that the Defendant had moved his music system from the 1st floor to the loft space." He found that Mr Beasley hoped for "a quiet life" and "was likely to have indicated concurrence about matters when in fact he did not concur or agree at all." It was unconscionable of Mr Beasley to leave it until February/ March 2003 to assert that the Lease did not include the loft and that Mr Munt's conversion and use of the loft was a trespass and breach of covenant .
The application of the proprietary estoppel doctrine as expounded in Taylor's Fashions and as summarised in Snell's Principles of Equity (31st edition) paragraphs 10-16 to 10-27 resolves the problems both about the effect of the award of damages in lieu of an injunction and about the future continued beneficial use of the loft. The doctrine applies even though Mr Beasley did not realise that the loft was his before he took legal advice in the Spring of 2003. Such knowledge is not required if the circumstances are such that it would be unconscionable for Mr Beasley to rely on his legal rights to the loft. It would be unconscionable in this case, as Mr Beasley acquiesced in the works and Mr Munt suffered detriment in executing them in the belief that the loft was included in the Lease.
In my judgment, if I am wrong on the rectification issue, Mr Beasley is estopped from denying that the loft area is subject to the lease and that the lease is to be treated as if it included the converted loft, so that Mr Munt and his successors in title are entitled to it as part of the demised premises on this ground, quite apart from an order for rectification of the Lease. That relief is proportionate to the detriment suffered by Mr Munt. The suggestion by Mr Garrood that Mr Munt ought on payment of the damages (without deduction of the costs of conversion) to enjoy only a personal right of immovability from the loft and the status of a "tolerated trespasser" akin to a non-transferable licence to occupy is not proportionate to the expenditure of money and time on the conversion.
As explained below, the claims for trespass and breach of covenant cannot stand if, in the light of the order for rectification and/or the application of proprietary estoppel, the loft is subject to the Lease of No 5A and Mr Beasley is estopped from objecting to the works of conversion to and use of the loft.
E. Adverse possession
The recorder rejected Mr Munt's defence of adverse possession of the loft since 1991 on the ground that the acts relied on were insufficient for the purposes of the Limitation Act 1980 as interpreted in JA Pye (Oxford) Ltd v. Graham [2003] 1 AC 419 at paragraph 41. Between 1991 and 1997 the Rowleys only used the loft "for storage purposes." He said that he did not find that that use
"constituted dealing with the loft space in such a manner befitting of an occupying owner nor did it show the required intention to possess the loft space exclusively."
The recorder was criticised by Mr Morshead for not applying the correct legal test for factual possession, which was whether the use of the loft was "as an occupying owner might be expected to use it while no-one else has done so": see Wretham v. Ross [2005] EWHC 1259 (Ch) at paragraph 22. The point was that, while the loft was in its unconverted state, it was only suitable for storage and that was how it would be commonly used by its legal owner. The acts of the Rowleys could amount to exclusive legal possession of the loft without them having to go to the lengths of converting it as Mr Munt did. Mr Morshead challenged Mr Garrood's submission that the Rowleys' use of the loft should be attributed to an easement of storage
Further, he submitted that it was not necessary, as the recorder said, for Mr Munt to establish an intention to possess the loft exclusively. It was sufficient to show that there was factual possession and the necessary intention to possess for more than 12 years before Mr Beasley began proceedings on 5 April 2004.
In view of the conclusions I have reached on the rectification and proprietary estoppel issues it is unnecessary to express a concluded view on the recorder's reasons for rejecting the defence of adverse possession.
F. Breach of covenant
In my judgment the claims for forfeiture and breach of covenant are not maintainable if, as I would hold, the Lease should be rectified so that it was always included the loft and/or the court holds that Mr Beasley is estopped by his conduct from denying that Mr Munt was entitled to do the works that he did. For the reasons already given Mr Beasley was estopped by March 2003 from denying that the loft was part of No 5A and of relying on the works already done and acquiesced in as breaches of covenant giving rise to a claim for damages or forfeiture.
As for works done by Mr Munt after that date despite Mr Beasley's objections, they were mainly done to the roof, for example the installations of the two additional velux windows. Mr Morshead correctly submitted that such works were not a breach of clause 3(7) relied on by Mr Beasley, as that covenant was confined to works to the flat No 5A and the works in question were to parts of the Property not included in the first floor flat. No findings were made by the recorder as to any other un-remedied breaches.
As to any further works done to the loft after March 2003 I would hold that Mr Beasley's claims cannot be maintained by reason of rectification of the Lease. I would also hold that his acquiescence down to that date, as a result of which it was unconscionable for him to deny that the loft was part of No 5A, means that it is too late for him to object to loft conversion works by Mr Munt.
G. Damages
Mr Morshead criticised the award of £7,500 damages in lieu of an injunction on the basis that the recorder had simply taken the figure from the expert's report without taking account of the costs of the works or of the fact Mr Munt had made no profit from the conversion and without regard to the price which might reasonably be demanded by Mr Beasley for granting permission for the conversion works: Jaggard v. Sawyer [1995] 1 WLR 269 at 281-282.The sum awarded bore no relation, he submitted, to the losses suffered by Mr Beasley or to the net gain made by Mr Munt.
In view of my conclusions in Mr Munt's favour on the rectification and proprietary issue it is unnecessary to express a final view on this point save to say that the arguments are cogent.
Counterclaim relating to exterior repairs
The recorder dismissed Mr Munt's counterclaim for £283.50 in respect of the balance of expenditure for exterior repair works undertaken by him to guttering and fascia work. Mr Munt alleged that the works were the responsibility of Mr Beasley under the repairing and re-decoration covenant in clause 5(1) of the Lease, but, as he had done the works, Mr Beasley was liable to contribute ½ the cost. Mr Beasley had only paid him £600. According to Mr Munt the total cost of the work was £2067, but he had reduced the figure to £1767, making Mr Beasley's share £883.50. Liability was denied by Mr Beasley and he put Mr Munt to proof of the need for exterior works.
The recorder dismissed the counterclaim on the ground that a breach of covenant by Mr Beasley had not been proved and that there was no satisfactory evidence of expenditure by Mr Munt on guttering and fascia work (ie appropriate vouchers or paid invoices) "beyond £1200."Mr Morshead criticised the recorder for failing to take into account relevant evidence.
I would not interfere with the recorder's dismissal of this counterclaim. He was entitled to take the view that there was a lack of documentary evidence from Mr Munt proving expenditure of the full amount claimed by him.
Conclusion
The question of remitting the case to the county court for a re-trial does not arise. There are sufficient findings of fact in the recorder's judgment, which are unaffected by his finding on credibility, to enable this court to allow Mr Munt's appeal on the rectification issue and the proprietary estoppel issue. That disposes of the issues of breach of covenant, forfeiture and damages in lieu of an injunction.
I would allow the appeal to the extent of setting aside the order for damages for trespass and forfeiture and ordering the Lease to be rectified in the manner referred to in paragraph 30 above.
Noise
As for the award of damages for noise I have nothing to add to the judgment of Scott Baker LJ on that point. Mr Munt's appeal against the award of damages for noise is allowed only to the extent of substituting the sum of £1250 for the sum of £1,500.
Lord Justice Scott Baker:
I agree that this appeal should be allowed for the reasons given by Mummery L.J. I wish to add something on two matters.
Noise nuisance
In his particulars of claim Mr Beasley alleges that throughout Mr Munt's occupation of the flat he played music and/or otherwise caused unreasonable amounts of noise to emanate from the flat. There is a further claim that Mr Munt has failed to lay suitable floor covering and that this has caused noise, on a daily basis, to be transmitted into Mr Beasley's premises. The claim is made concurrently for breach of covenants in the Lease and in nuisance at common law.
The relevant covenants appear in the Third Schedule to the Lease. They are:
1. "No act or thing which shall or may be or become a nuisance damage or annoyance inconvenience to the Landlord or any occupier of the Building or the neighbourhood shall be done or suffered to be done in the Flat or any part thereof….."
2. "No music or singing whether by instrument voices wireless gramophone television or other means nor any dancing shall be allowed in the Flat or the Building so as to be audible outside the Flat between 11pm and 8am.
6. "No person shall reside in the Flat unless the floor thereof is covered with carpet rugs or other similar materials except that the same may be removed for cleaning repairing or redecorating or for some similar temporary purpose."
The judge's findings are at page 15 of his judgment under the heading: "In what manner did (Mr Munt) use 5A". He begins by referring to his previous conclusion that where there is a variance between the evidence of the Mr Munt and Mr Beasley he prefers that of Mr Beasley. Then he said:
"I find that the (Mr Munt) engaged in playing music so that it was audible to the (Mr Beasley) and did so after the time when the restrictions under the lease started. Further, whilst I accept that this was not done extensively – the (Mr Munt) was away for working periods – the suggestion by the (Mr Munt) that if there was any music or social gathering with music being played it was but occasional, I reject. As for the matter of carpets and floor coverings what was likely and the (Mr Munt's) attitude to his obligations is indicated by 20 March mediation notes where it records one of the (Mr Munt's) responses as "No carpets for some time –why raise now" and before that: "Floors sanded" The first of those responses is clear in its import, the second makes plain that the (Mr Munt's) preference was to have exposed floor boarding which necessarily would create noise and the provision of some rugs was never going to provide on its own, the "covering" of the floor.
The judge expressed his conclusion on the value of the claim in economical terms. He said:
"As for the noise nuisance in fixing on a figure of damages. I take into account those factors (i) – (iv) set out in paragraph 16 of Mr Garrood's skeleton argument which are all pertinent. I assess the damages in this regard, at £1500 being 5 x £250."
The first problem is that the judge's mathematics were awry because 5 x £250 = £1250 and not £1500. The second problem is that the judge gives no explanation why he has taken a multiplier of 5 or indeed any multiplier.
The points made in Mr Garrood's skeleton argument were these:
i) The noise nuisance was not the most serious but was significant and interfered with the respondent's use of his home.
ii) It was not continuous but was frequent and often at unsocial hours.
iii) It did not arise from normal or lawful user particularly given the breach of covenant as to the floor covering.
iv) It had continued since 1998 notwithstanding Mr Beasley's complaints.
Mr Garrood suggests, and this appears to be correct, that the multiplier of 5 represents a period between 1998 and 2002 when Mr Beasley sold his flat.
Like Mummery LJ I do not think the judge's preference for the credibility of the Mr Beasley as against Mr Munt – a finding reached without any explained rational basis – is sustainable. But in my judgment his conclusion on credibility is irrelevant to the noise nuisance claim because he made clear that the basis of his assessment was the four points set out in Mr Garrood's skeleton argument. It seems to me that those points broadly reflect the situation admitted by Mr Munt, albeit he denied there were any complaints.
Mr Munt's admissions in evidence included that he had taken part of the carpet up, sanded the floor and replaced it with part covering by rugs; that he was a disc jockey and had decks and amplifiers and that he had a few friends round from time to time. Also, he practised using the music he would use in night clubs although he did not play techno blast music. He practised mainly on a Saturday afternoon but sometimes in the evenings between 7pm and 9pm. It was louder than television but not a great deal. Further, he had an interest in doing D.I.Y work. The judge made no specific findings about complaints by Mr Beasley, other than that, by accepting the point in paragraph 16 (iv) of Mr Garrood's skeleton argument, there had been some.
In my judgment the judge was entitled, on the admitted admissions made by Mr Munt in his evidence, to conclude that he was in breach of the covenants of his Lease relating to noise. Bearing in mind the nuisance was intermittent rather than continuous and that it was significant rather than in any more serious category a modest award was called for. On the basis that the conduct of which complaint is made occurred over a period of approximately 5 years I do not consider £1250 was outside the appropriate range. Subject to the mathematical correction I would not therefore disturb the judge's award on this aspect of the case.
Case management
This case reveals an unsatisfactory state of affairs which in my view is a poor advertisement for civil justice and it is to be hoped that it will not recur.
The trial started at noon on 10 February 2005 in the Southampton County Court before a district judge sitting as a recorder, (Mr Recorder Murphy). The case continued on the following day, 11 February. It was then adjourned part heard. Mr Beasley had given his evidence and Mr Munt was in the witness box part way through cross-examination. The trial did not resume for over 3 months until 23 May when two further days were set aside. In the event the second day was not required.
On inquiry we were told that the cause of the delay was not due to counsels' unavailability but due to the administration's inability to provide a court and the recorder. We were told that the Mr Recorder Murphy normally sits as a district judge in Winchester and that 23 May was the first date on which a court could be found. That date was given to the parties on 25 February. Worse, we were told by the Respondent's counsel that in his experience delays of this kind were "par for the course". If that is correct, there is something seriously wrong with the administration. I suspect that the fact that the recorder ordinarily sat as a district judge in Winchester whereas this case was initially heard in Southampton may not have been unconnected with the difficulties.
Be that as it may, delays of this kind during the course of a trial are inherently unsatisfactory especially when one side's evidence has been completed and the main witness for the other side is part way through his evidence. It is no answer that the district judge was booked to hear other cases or that court time or space was not available. The completion of this case should have been given priority and in my view it was up to the recorder to ensure that this occurred. In the event of apparently insuperable obstacles he should have taken the matter up with the Presiding Judge of his circuit.
Unfortunately the unsatisfactory state of affairs did not end on 23 May for the parties were not provided with a copy of the recorder's judgment until 8 September 2005, almost 7 months after the hearing had began and this in a case that had taken a little over 2 ½ days of court time. The recorder's typewritten judgment that is signed by him bears the date 20 July 2005. The judgment was accompanied by an order from the Winchester County Court bearing two dates, 20 July 2005 and 7 September 2005. There was also another order of the latter date transferring the proceedings to Newport (I.O.W.) County Court, the court in which they had began. It is not clear why, if he signed the completed judgment on 20 July, the court order bears the date 7 September 2005 and the parties did not receive a copy until 8 September. The appellant's counsel told us that there were regular chasing telephone calls to the court until the judgment was eventually received. Following receipt of the judgment the appellant on 23 September applied to the court under the liberty to apply in respect of the costs order. This was eventually heard by the recorder, sitting in Winchester on 6 December 2005 when he varied the order he had previously made.
In my judgment bearing in mind the long delay prior to the adjourned hearing in May the recorder should have taken steps to ensure that the Court Service give him sufficient time to produce his reserved judgment much more promptly after the hearing was concluded and it should have been handed to the parties and the order drawn up straight away.
Sir Charles Mantell:
I agree that this appeal should be allowed for the reasons given by Mummery LJ. I also wish to associate myself with the comments made by Scott Baker LJ. | 3 |
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