Conversion
Cases
Shield Life Insurance Co. Ltd. v. Ulster Bank Ltd.
[1995] IEHC 3; [1995] 3 IR 225
Costello P.
Introduction
1. This judgment relates to two actions in which the liability of the Ulster Bank Ltd. (“the bank”) to the Shield Insurance Company Ltd. (now Eagle Star Insurance Company (Ireland) Limited and hereinafter referred to as “the plaintiff’) is to be determined. Substantial issues in both cases are the same, but they differ on some important points, as outlined later.
2. The plaintiff carries on an insurance business and has its head office in Cork. A Mr. James O’Callaghan carried on an insurance broker’s business in that city through a company he owned called T.J. O’Callaghan Life and Pensions Ltd. He was a customer of the bank in its South Mall branch in Cork City. He was also an accomplished forger and, up to a point, a successful fraudster and it is his wrongdoing which has led to these proceedings. He defrauded the plaintiff (and others) on six occasions, two of which are the subject of the litigation before me. The first action relates to a transaction in which he was involved with a Mrs. Catherine Murphy. On the 14th January, 1988, Mrs. Murphy drew a cheque for £30,000 on Allied Irish Banks plc naming the plaintiff as the payee, and she gave it to Mr. O’Callaghan for transmission to the plaintiff for what she thought was an investment bond which it had issued in her favour. The bond given to her by Mr. O’Callaghan was, in fact, a forgery and the plaintiff was at that time completely unaware of this transaction and never issued a bond to Mrs. Murphy. Mr. O’Callaghan, either himself or on his direction, had Mrs. Murphy’s cheque endorsed with the words “John Dorgan O’Callaghan L.P.” and either himself or Mr. Dorgan (an employee of his company) lodged the cheque in the bank’s South Mall branch for collection. The broker had two accounts in the branch in the name of his company, one designated an “office account” and the other designated a “clients’ account”. On the instructions of the broker or Mr. Dorgan the lodgement of £30,000 was split and £25,000 was lodged to the credit of the clients account and £5,000 to the office account. On the following day £23,000 was drawn out of the clients’ account by the broker. The fraud was not detected until the following year as a result of which on the 19th April, 1989, the plaintiff’s contract with the broker was terminated. Later, the plaintiff issued a bond to Mrs. Murphy in the same terms as that forged by the broker and has sued the bank in these proceedings as payee of the cheque claiming to be its true owner and that the bank had, as a matter of law, wrongly converted it.
3. Before the broker’s wrongdoing had been discovered he had engaged in another fraud a year later. This time one of his victims was a Mr. Cornelius O’Callaghan. An insurance policy, which Mr. C. O’Callaghan owned, matured and the proceeds were paid to him by cheque for the sum of £19,828.80 by the Standard Life Assurance Company. The cheque was drawn on the Ulster Bank and Mr. C. O’Callaghan was the payee named on it. The cheque was crossed and the words “not negotiable” were added. Mr. C. O’Callaghan arranged with the broker that he would invest £20,000 in an investment bond to be issued by the plaintiff and on the 15th January, 1989, the broker delivered to him a forged bond purporting to be a bond issued by the plaintiff. In return Mr. C. O’Callaghan signed the cheque on the reverse side (in circumstances to be considered in greater detail later) and gave it to the broker together with the sum of £172 to make up the sum of £20,000. The broker lodged this cheque with the bank and on his instructions the sum of £20,000 was paid into his office account, a sum of £17,500 was paid into his clients’ account and a sum of £500 was given to the broker in cash. Later the plaintiff issued a bond to Mr. C. O’Callaghan in the same terms as those contained in the forged bond and in the second action it has sued the bank on the same basis as that pleaded in the first action.
Mr. C. O’Callaghan’s cheque
29. The plaintiff’s claim in the second action relates to a cheque dated the 15th January, 1989, in favour of Mr. Cornelius O’Callaghan. As pointed out already Mr. C. O’Callaghan owned a life policy which had matured and its proceeds were paid to him by a cheque drawn by the Standard Life Assurance Company on its account in the Ulster Bank for the sum of £19,828.80 in which he was named as payee. This cheque is significantly different to Mrs. Murphy’s cheque. Mr. O’Callaghan’s cheque was crossed with the words “and Co.” and was also marked “not negotiable”. The cheque had the following words printed on the back:
“This Receipt is not required to be signed if the letter ‘R’ on the reverse side has been cancelled by computer overprinting.
Received from the Standard Life Assurance Company the sum shown on the face hereof, being the amount payable to me/us in respect of the certificate number stated on the face hereof in accordance with the conditions of the said policies.
Signed by or on behalf of the payee.
Date
Signature”
30. This “Receipt” was signed by Mr. Cornelius O’Callaghan and was dated the 19th January, 1989. But the letter “R” on the face of the cheque had been cancelled by computer overprinting. This meant that the signature on the cheque was ambiguous as it might have been signed by Mr. C. O’Callaghan as a receipt (who may have ignored the “R” cancellation) or he may have intended his signature as an endorsement for the purpose of negotiating it.
31. Mr. C. O’Callaghan is an elderly person and found it difficult to attend the hearing at the time the court could have taken his evidence. In the circumstances counsel agreed with my suggestion to accept the statement on his behalf which had been made by his solicitor in the course of correspondence to the effect that Mr. C. O’Callaghan signed the cheque as an endorsement and gave it to the broker together with a sum of £172 in payment to the Shield Insurance Company of a premium for an investment bond purportedly issued by that company in his favour and which had been handed to him by the broker.
32. I approach, therefore, the issues in this case on the basis that although this was a non-negotiable cheque it had in fact been endorsed by its payee, Mr. Cornelius O’Callaghan, and given by him to the broker for delivery to the plaintiff.
33. This transaction was a fraudulent one. The broker issued a forged investment bond, then lodged the cheque to his “clients account” in the defendant bank and then drew out in his own favour a sum of £23,000 on the following day and never paid any money to the plaintiff. The broker had, it is clear, no title to this cheque.
34. Quite clearly s. 81 of the Bills of Exchange Act, 1882, applies. This provides:-
“Where a person takes a crossed cheque which bears on it the words ‘not negotiable’, he shall not have and shall not be capable of giving a better title to the cheque than that which the person from whom he took it had.”
35. As the broker had no title to this cheque, the bank got no title to it and in the light of the evidence I am satisfied that the “true owner” of this cheque was the plaintiff and that the bank owed a duty of care to the plaintiff in relation to it.
36. The acceptance from a person other than the payee of a crossed non-negotiable cheque without making enquiries is not in itself conclusive evidence of negligence on the part of a banker should the payee have been defrauded. It is, however, a matter to be taken into consideration together with all the other relevant circumstances when deciding whether the banker was guilty of breach of duty to the true owner. (See Crumplin v. London Joint Stock Bank [1911-13]Ltd. All E.R. 647.)
37. It has been agreed that I can accept for the purposes of this case the evidence adduced in the case of Mrs. Murphy’s cheque. The bank has failed to displace the inference of possible impropriety involved in the transfers between the broker’s accounts which that evidence raised. A prudent banker in January, 1989, should have been mindful of this inference when presented with a non-negotiable cheque for collection by a customer which had an ambiguous signature which might or might not be an attempt to endorse it in his customer’s favour. In addition he would notice that this transaction related to client’s money but £2,000 was to be transferred to the broker’s office account and £500 to be given to him in cash. In these circumstances a prudent banker would, in my opinion, have concerned himself with the propriety of this transaction and have made enquiries of his customer before accepting it. This, too, was the opinion of Mr. Crean, and I must conclude that the bank has failed to establish that it was not negligent.
38. The plaintiff, the true owner, was not in any way negligent in relation to this particular transaction nor generally, for the reasons already given, in relation to the broker. A plea of contributory negligence therefore fails.
Level of damages
39. The defendant’s final submission related to the level of the damages recoverable if the defendant’s liability is established. The plaintiff had entered into a written contract with the broker on the 1st April, 1988, (referred to as a “tied agency” agreement), which, inter alia, regulated the terms on which commission was payable and also the circumstances in which it could be terminated. The right to termination arose when the fraud was discovered (and this is not contested) but it is said that after it was terminated the plaintiff became entitled to the commission which otherwise it would have had to pay to the broker on the renewal of annual premiums (a sum which the defendant calculates amounted to approximately £7,000) and this benefit should be set off against the loss recoverable from the defendants.
40. I cannot agree with this submission. In respect of Mrs. Murphy’s cheque the bank has established that the tort of conversion occurred in January, 1988. The damages recoverable are the value of the cheque. The sums recoverable from a third party under a contract entered into between the plaintiff and the third party cannot be set-off against those damages. The same considerations apply in relation to the damages payable for the tort of conversion which occurred in January, 1989, and which is the subject of the second action.
41. There will be judgment in favour of the plaintiff in both actions for the amounts claimed i.e. £19,828.80 in 1990 No. 17396P, and £30,000 in 1990 No. 17395P.
White v (Withers LLP & Anor
[2009] EWCA Civ 1122
“Wrongful interference with goods” is the generic name now given to a series of torts including conversion of goods and trespass to goods: see the definition in section 1 of the Torts (Interference with Goods) Act 1977. These torts are different. Thus, as we shall see, A may commit trespass to goods by removing them from the claimant’s possession and if he then passes the documents to B who takes possession with the intention of asserting some right or dominion over them or dealing with them in a manner inconsistent with the right of the true owner, then B may be guilty of conversion. Assuming for the moment that B is not himself guilty of trespass, he may be liable for A’s acts if he is a joint and several tortfeasor. Thus, to quote Clerk and Lindsell on Torts 19th edition at 4-04:
“Where one person instigates another to commit a tort they are joint tortfeasors; so are persons whose respective shares in the commission of a tort are done in furtherance of a common design. “All persons in trespass who aid or counsel, direct or join, are joint trespassers.’ [per Tindal C.J. in Petrie v Lamont (1842) CAR. Marsh. 93 at 96].”
So the first question is whether or not the claim sufficiently pleads a case of joint and several responsibility and if so whether there is no real prospect of it succeeding. Paragraph 5 of the claim (set out in paragraph [16] above ) directly alleges that Mr Dearle told Mrs White to take the claimant’s mail. Paragraph 9 of the claim expressly pleads joint and several liability. In response to a request for clarification and further information, the claimant made clear that he was still pursuing the allegation that the first and second defendants told the third defendant to take the claimant’s mail. The claim cannot be struck out for any failure to plead the cause of action.
The judge, however, summarily dismissed that part of the claim. He concluded in paragraph 15 of his judgment set out at [22] above that the evidence was all one way and that both solicitor and his client denied giving advice or encouragement to the interception of the claimant’s mail. That ignores, however, what the claimant said his wife had told him. The claimant may well have an uphill battle in proving his case. But is it a fanciful assertion? Sadly Mr Dearle is shown on the papers before us not to be entirely reliable in the way he has presented his evidence (which is a long way short of saying he is not to be believed). He has made mistakes. In responding to the claimant’s request for further information the defendants pleaded that they came into possession of the Hildebrand documents on various dates between August and December 2007 and those facts were stated by Mr Dearle to be true. In his witness statement of 11th November 2008 he had to correct that. He acknowledged that documents were received between July 2006 and December 2007. In his witness statement of 1st October 2008 Mr Dearle set out the advice he gave to the effect that Mrs White was only entitled to take copies of documents that she found in the matrimonial home provided she did not break into any of the claimant’s property in order to obtain access. He attached his attendance note of 3rd May 2007 “which records the advice that I gave her”. Subject to claims of professional privilege, Mr Dearle may legitimately be asked what advice, if any, he gave prior to or at least on receipt of documents which may have come in on different occasions between July 2006 and December 2007. On those facts there is, it seems to me, a case for the defendants to answer and the claimant’s sworn assertion that his wife informed him that she had been told to take his documents cannot be summarily dismissed. I repeat that the claimant may well not succeed in establishing that case on the balance of probabilities but that is a far cry from shutting him out from his right to a fair trial of the issue.
Trespass to goods
Trespass to goods is an ancient tort. Clerk & Lindsell at 17-123 describes the nature of trespass to goods in these terms:
“The action of trespass to goods, de bonis asportatis, has always been concerned with the direct, immediate interference with the claimant’s possession of a chattel. Though the reference to asportation suggests perhaps what is the most common feature of this form of trespass that is, the taking away or removal out of the claimant’s possession, the wrong of trespass includes any unpermitted contact with or impact on another’s chattel. The interference must, it seems, be of a direct nature and involve some kind of physical contact or affectation. “Thus, to lock the room in which the claimant has his goods is not a trespass to them”. [Hartley v Moxham (1842) 3 Q.B. 701]. But a mere touching is enough for liability, at least if damage is caused.”
Counsel’s researches have produced little modern authority. Mr Crystal relies on the dictum of Lord Diplock in Inland Revenue Commissioners v Rossminster Ltd [1980] AC 952, 1011 that “the act of handling a man’s goods without his permission is prima facie tortious.” In Bentley v Gaisford [1997] Q.B. 627, 635 Sir Richard Scott V-Cobserved in a passage in his judgment which may be obiter but nonetheless persuasive:
“The clandestine removal or some other unauthorised handling of the documents would, however, constitute a tortious interference with the solicitor’s possession of the documents and, accordingly, would constitute a trespass to goods for which damages could be claimed.”
Mr Sherborne draws attention to this passage in the judgment of Atkin L.J. in Sanderson v Marsden and Jones (1922) 10 Lloyds Rep. 467, 472:
“… an act of conversion differs from a mere trespass in as much as the former must amount to a deprivation of possession to such an extent as to be inconsistent with the right of an owner and evidence and intention to deprive him of that right, whereas the latter includes every direct forcible injury or act disturbing the position of the owner, however slight the act may be.”
It is not in dispute that the original documents are chattels. And it is not in dispute that Mrs White removed them and that (perhaps with the exception of the P&O contract where the solicitors seem to have received a facsimile copy, not the original document) she passed all that she had taken into the possession of her solicitors. The claim sufficiently pleads the taking or interception by Mrs White and the receipt by the solicitors. So is that enough? In my judgment a good cause of action is sufficiently pleaded at least in respect of the claim against Mrs White. Hers was a direct and immediate interference with the claimant’s possession of the documents. It does not seem to me to matter whether she “took” documents which the husband had left “lying around” or whether he “intercepted” them before the husband had had the chance to receive them into his actual possession. It is a classic case of asportation. If the case of joint and several responsibility is established, the solicitors will also be liable for her tortious conduct.
The position of the defendants standing alone is more complicated. Mr Sherborne relies on Clerk & Lindsell 17-128to the effect that
“Though the right to possession, without actual possession, may enable a claimant in conversion to maintain a claim, in trespass the claimant must be in possession at the time of the interference.”
He submits accordingly that because possession had passed from Mr White to Mrs White when she removed the documents, the documents were no longer in his possession at the vital moment when she passed them to the defendants and they began to handle them.
There seems little readily available learning on this question which I confess I have found to be difficult. The authority cited by Clerk & Lindsell is Ward v Macauley (1791) 4 T.R. 489 at 490 where Lord Kenyon C.J. said:
“The distinction between actions of trespass and trover is well settled: the former is founded on possession: the latter on property. Here the plaintiff had no possession; his remedy was by an action of trover founded on his property in the goods taken.”
Although not in our bundle of authorities, I have looked at that case. The plaintiff was the landlord of a house let furnished to Lord Montford. An execution was issued against Lord Montford under which the defendant, the Sheriff of Middlesex, seized part of the furniture, notwithstanding that the officer had noticed that it was the property of the plaintiff. He brought an action of trespass to goods. It is, in my judgment, important to observe that he had let Lord Montford into possession as his tenant with exclusive right to the use of the furniture and thus he no longer had any immediate right to possession himself, nor any actual possession. Similarly the bailor may have no right of action in trespass. That case provides no answer to the case where possession is not surrendered voluntarily but wrongfully usurped as when the possessor of goods is deprived of his possession without his consent and by a trespass for which there is no justification.
No authority was cited to us on this point. I note in Halsbury’s Laws of England 4th Edition Reissue vol. 35, para 1216 that:
“The right to have legal and de facto possession is a normal but not necessary incident of ownership. Such a right may exist with, or apart from, de facto or legal possession, and in different persons at the same time in virtue of different proprietary rights. Thus, when an owner has been wrongfully dispossessed of his goods by theft, or has lost them, he retains the right to possess them; but, where he has bailed them for a term or by way of pledge, this right is temporarily suspended. Similarly, an executor immediately on the testator’s death and before probate has constructive possession of the testator’s goods.
Where de facto possession is undermined, as, for example, where it is equally consistent with the facts that possession may be in one person or another, legal possession attaches to the right to possess.”
It seems to me to be arguable that when Mrs White removed Mr White’s documents she may have assumed actual possession of them but the right to legal possession remained in Mr White. The great treatise on the subject is Wright and Pollock’s Possession in the Common Law which I have not researched and insufficient argument has been addressed to us for me to be able confidently to express a view on the nature of the possession required to found the claim, “possession” being a word of notoriously ambiguous meaning. If it is established that the defendants took possession from Mrs White knowing that she was a trespasser, then their taking possession and handling the documents may be as trespassory as hers. For present purposes it may not in any event be necessary to determine this question finally. Too much depends upon the facts as they emerge at the trial and the precise findings of the judge and, because the answers are not clear cut, summary judgment is an inappropriate vehicle for determining the issue. I would certainly not be prepared to strike the claim out at this stage.
In conclusion on this aspect, I am clear that there is a good cause of action maintained against Mrs White and that the cause of action against the defendants cannot be struck out as having no real prospect of success. Even if the claim against Withers and Mr Dearle cannot be directly established, it may be that they are liable as joint and several tortfeasors with Mrs White.
The claim in conversion
Here there is good modern authority. In Kuwait Airways Corp v Iraqi Airways Co. (Nos 4 and 5) [2002] UKHL 19, [2002] 2 AC 883, Lord Nicholls established these propositions.
“39. … I need not repeat the journey through the textbooks and authorities on which your Lordships were taken. Conversion of goods can occur in so many different circumstances that framing a precise definition of universal application is well nigh impossible. In general, the basic features of the tort are threefold. First, the defendant’s conduct was inconsistent with the rights of the owner (or other person entitled to possession). Second, the conduct was deliberate, not accidental. Third, the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods. The contrast is with lesser acts of interference. If these cause damage they may give rise to claims for trespass or in negligence, but they do not constitute conversion.
40. The judicially approved description of the tort in Clerk & Lindsell encapsulates, in different language, these basic ingredients. The flaw in IAC’s argument lies in its failure to appreciate what is meant in this context by ‘depriving’ the owner of possession. This is not to be understood as meaning that the wrongdoer must himself actually take the goods from the possession of the owner. This will often be the case, but not always. It is not so in a case of successive conversions. For the purposes of this tort an owner is equally deprived of possession when he is excluded from possession, or possession is withheld from him by the wrongdoer.
41. Whether the owner is excluded from possession may sometimes depend upon whether the wrongdoer exercised dominion over the goods. Then the intention with which acts were done may be material. The ferryman who turned the plaintiff’s horses off the Birkenhead to Liverpool ferry was guilty of conversion if he intended to exercise dominion over them, but not otherwise: see Fouldes v Willoughby (1841) 8 M & W 540.
42. Similarly, mere unauthorised retention of another’s goods is not conversion of them. Mere possession of another’s goods without title is not necessarily inconsistent with the rights of the owner. To constitute conversion detention must be adverse to the owner, excluding him from the goods. It must be accompanied by an intention to keep the goods. Whether the existence of this intention can properly be inferred depends on the circumstances of the case. A demand and refusal to deliver up the goods are the usual way of proving an intention to keep goods adverse to the owner, but this is not the only way.”
In the context of this case it is important to note that it is a tort of strict liability. In a classic statement, Diplock L.J. said in Marfani & Co Ltd v Midland Bank Ltd [1968] 1 W.L.R. 956, 970/1:
“At common law, one’s duty to one’s neighbour who is the owner, or entitled to possession, of any goods is to refrain from doing any voluntary act in relation to his goods which is a usurpation of his proprietary or possessory rights in them. Subject to some exceptions which are irrelevant for the purposes of the present case, it matters not that the doer of the act of usurpation did not know, and could not by the exercise of any reasonable care have known, of his neighbour’s interest in the goods. The duty is absolute; he acts at his peril.”
See, to similar effect, Lord Hoffmann in OBG Ltd v Allan [2007] UKHL 21, [2008] 1 AC 1, paragraph [95]. Here it is beyond dispute that each of the defendants knew full well that they were dealing with the claimant’s documents.
The claim includes allegations of the defendants’ using the documents and the response to the request for further information refers to the “receipt and custody of each document inevitably involving copying” and “reading and noting the contents of the documents”. Mr Sherborne submits that that is insufficient to establish the exercise of dominion over the documents. I do not agree. What is required is some conduct inconsistent with the rights of the owner. The owner can control who reads his documents or who copies them and keeps them. Here the case against the defendants is that they have done that without the claimant’s knowledge or consent, they have acted inconsistently with the rights of the owner. In my judgment the claim does disclose a good cause of action.
Are the Hildebrand rules a good defence as giving a lawful excuse or legitimate justification or as being in the public interest?
On the facts which seem to be beyond dispute, some of the claimant’s documents were intercepted and many, if not all were retained by Withers for months. To that extent at least the Hildebrand rules as I summarised them at [37] above were not complied with and Hildebrand can afford the defendants no defence. Although, therefore, it may not strictly be necessary to determine these issues, it may assist the court to express some tentative views in the event that it is found that some documents were taken, copied but returned forthwith in a manner compliant with Hildebrand.
Lawful excuse: self-help: The Hildebrand rules stem from acts of self-help. Self-help cannot of itself be a good defence. There are alternative means of obtaining protection which would not necessitate the wrongful interference with another’s goods. The court can grant orders for the detention, custody or preservation or for the inspection of relevant property. Within limits – see T v T set out at [33] above – the Family Division tolerates self-help as a way of ensuring that evidence can be placed before the court of the true financial position so that the court can discharge its duty under section 25 of the Matrimonial Proceedings Act 1973. At its heart the question is one of the admissibility of evidence if it is wrongfully obtained. A similar dilemma faces other divisions of the High Court: see for example Jones v University of Warwick [2003] EWCA Civ 151 where the issue was whether, and if so when, a defendant to a personal injury claim is entitled to use as evidence a video of the claimant which was obtained by filming the claimant in her home without her knowledge after the person taking the film had obtained access to her home by deception. This called for a balance between conflicting public interests, the right to a fair trial and the invasion of privacy after the trespass to the claimant’s home. Admitting the evidence, Lord Phillips of Worth Matravers added, “…it is appropriate to make clear that the conduct of the insurers was improper and not justified.” It is, therefore, one thing to balance wrong-doing against the interests of justice in order to ensure a proper fair trial but quite another to admit self-help as a defence to the tortious activity in so garnering that evidence.
In that regard the bounds of self-help are narrow indeed. In Southwark LBC v Williams [1971] 1 Ch. 734, Lord Denning M.R. said at p. 744:
“If homelessness were once admitted as a defence to trespass, no one’s house could be safe. Necessity would open a door no man could shut. It would not only be those in extreme need who would enter. There would be others who would imagine they were in need or would invent a need, so as to gain entry. The plea would be an excuse for all sorts of wrongdoing. So the courts must refuse to admit the plea of necessity to the hungry and the homeless: and trust that their distress will be relieved by the charitable and good.”
Edmund Davies L.J. said at p. 745:
“But when and how far is the plea of necessity available to one who is prima facie guilty of tort? Well, one thing emerges with clarity from the decisions and that is that the law regards with the deepest suspicion any remedies of self-help and permits those remedies to be resorted to only in very special circumstances. The reason for such circumspection is clear – necessity can very easily become simply a mask for anarchy.”
Public interest: Nor is there much scope for public interest serving as a defence to trespass: see Monsanto v Tilley & ors [2000] Env LR 313 where it did not avail the environmental group who entered on the land and uprooted genetically modified crops. Here there is no public interest in taking another’s documents: the public interest in so far as it prevails, is in the need for a fair trial of the ancillary relief claim with all relevant facts before the court and this could be achieved by resort either to the court’s search and seizure warrants or to a Hildebrand plea to admit the documents in evidence no matter how they were procured. The Matrimonial Causes Act 1973 can be invoked to justify admitting the evidence contained in the documents: but one cannot construe the Act as authorising the commission of the torts of trespass or conversion. Thus it seems to me to resort to self-help is to take a risk.
Legitimate justification: If, as I hold, the removal, use and retention of documents can amount to the tort of interference with property and as such be a civil wrong, then the justification for the wife’s actions, namely, to prevent the husband’s wrongfully withholding them, cannot be legitimate. In the words of the old adage: “Two wrongs don’t make a right”. At most the Hildebrand rules, and the extent to which they are observed or broken, may have an impact upon damages and therefore upon whether or not the court should allow a civil claim to go to trial. That is essentially an abuse of process argument with which I will deal shortly. But first I must deal with a tricky point.
The de minimis non curat lex argument: This gives rise to a question that does trouble me, but which was not addressed in argument in any detail (if at all), namely whether an action will lie when minimal, trivial or insignificant harm has been done to the right of the claimant in all the circumstances of the case, e.g. where a wife removes a document, copies it on a machine in the home, then immediately replaces it, or where she takes it to her solicitors who copy it and it is then returned forthwith. What is the legal position where the interference is de minimis? Clerk & Lindsell say this at 17-123:
“This does not mean, however, that all intentional touching of another’s goods should amount to trespass. On the contrary, the theatre-goer who moves someone else’s coat in the cloakroom in order to retrieve his own should not be liable in trespass, nor should the pedestrian who brushes past a car parked in a crowded street, perhaps breaking off an ornamental mascot in the process. It is submitted that an analogy should be drawn here with trespass to the person where Goff L.J. has said that there is not trespass where the actor has not in the circumstances “gone beyond generally acceptable standards of conduct”. The theatre-goer and the pedestrian have not; and that is the ground on which they ought to be excused.”
That dictum of Robert Goff L.J. appears in Collins v Wilcock [1984] 1 W.L.R. 1172, 1178, a case in the Divisional Court where the defendant woman police officer had had taken hold of a suspect’s arm to restrain her. His Lordship held:
“Although such cases [jostling which is inevitable from one’s presence in a busy street] are regarded as examples of implied consent, it is more common nowadays to treat them as falling within a general exception embracing all physical contact which is generally acceptable in the ordinary conduct of daily life.”
That was referred to in Wilson v Pringle [1987] QB 237 where Croom-Johnson L.J., giving the judgment of the Court of Appeal, said at p. 252/3:
“Robert Goff L.J.’s judgment is illustrative of the considerations which underlie such an action, but it is not practicable to define battery in terms of “physical contact which is not generally acceptable in the ordinary conduct of daily life.”
In our view, the authorities lead one to the conclusion that in battery there must be an intentional touching or contact in one form or another of the plaintiff by the defendant. That touching must be proved to be a hostile touching. That still leaves unanswered the question “when is a touching to be called hostile?” Hostility cannot be equated with ill-will or malevolence. It cannot be governed by the obvious intention shown in acts like punching, stabbing or shooting. It cannot be solely governed by an expressed intention, although that may be strong evidence. But the element of hostility, in the sense in which it is now to be considered, must be a question of fact for the tribunal of fact. “
Quite how that translates to trespass to goods is uncertain.
Nor is the position with regard to conversion any clearer. Paragraph 17-11 in Clerk & Lindsell states that:
“A mere transitory exercise of dominion, such as unlawfully “borrowing” or using goods, may still amount to conversion. If a man takes my horse and rides it and then redelivers it to me nevertheless I may have an action against him, for this is a conversion, and the redelivery is no bar to the action but shall be merely a mitigation of damages.”
On the other hand Fleming’s Law of Torts, 8th edition, refers to Fouldes v Willoughby (1841) M&W 540 where the plaintiff, after embarking his horses on the ferry, got involved in a dispute with the boatman. The latter requested him to get off and remove his horses but when the passenger refused to comply he put them ashore himself. They were conveyed to an hotel kept by the defendant’s brother. The plaintiff again declined to leave the boat and was then carried across the river. It was held that the defendant by merely turning out the horses had not committed a conversion. The commentary suggests that:
“The wrong was not so serious as to make it proper to require him to pay the full value. His possession was for a short time only, no damage was done to the horses and, far from disputing the owner’s title, his conduct throughout emphasised that he did not want any part of them. On the other hand, had the horses been destroyed, lost or injured, he would surely have been treated as a converter. “The controlling factor therefore seems to be not necessarily the defendant’s act viewed in isolation, but whether it has resulted in a substantial interference with the owner’s rights so serious as to warrant a false sale. Hence, a particular type of intermeddling is probably not, under any and all circumstances, necessarily a conversion. What may be decisive are such additional factors as the extent and duration of the interference, the harm done to the chattel and, not least, the defendant’s intent”, citing Prosser, Nature of Conversion, 42 Corn L.R. 168 (1957).”
There is a great deal of common sense in those observations and I can well understand why they could be applied in the circumstances I am postulating. However, others read Fouldes differently and see it as a case turning simply on whether or not there was an interference with dominion. I am inclined to agree with that view since it more accurately reflects the judgment of Lord Abinger C.B.:
“The judge was wrong to direct the jury that the simple fact of putting the horses on shore amounted to conversion. He should have added that it was for them to consider what was the intention of the defendant in so doing. If the object, and whether rightly or wrongfully entertained is immaterial, simply was to induce the plaintiff to go on shore himself and the defendant, in furtherance of that object did the act in question, it was not exercising over the horses any right inconsistent with, or adverse to, the rights which the plaintiff had in them.”
What conclusions am I to draw from that? It seems to me to still be moot whether or not a slight interference will amount to either trespass or conversion. Common sense suggests that minor infractions especially in this fraught field of divorce should not lead to claims in tort being brought where the action would not be censured by the Family Division judge if it were considered to be, adapting the approach of Robert Goff L.J. in Collins v Wilcock, “acceptable in the ordinary conduct of everyday life [in the Divorce Courts].” Minor misconduct may be best regulated by the Family Division and should not become the source of satellite litigation in the Queen’s Bench Division. The final determination of the question of liability in tort for a minor trespass or conversion must depend upon the facts and circumstances of the particular case and it is, I am rather relieved to say, not a matter which it is appropriate for us to decide on an application to strike out a claim. It must await a decision at a trial when the facts are clear.
If such a trivial claim is brought, it is difficult to see anything more than nominal damages being suffered and I would encourage and expect such a claim to be struck out for being an abuse of the process.
Where does that leave the Hildebrand rules? The deviousness of one of the parties and the need for the court to have full and frank disclosure to fulfil the court’s statutory duty will justify the admitting the documents in evidence but, subject to the possibility of de minimis infractions being overlooked for the reasons I have just discussed above, it cannot justify or excuse the commission of the wrongful interference with property. Nothing in this judgment is intended to cast doubt upon the Family Division’s practice to admit all relevant evidence in the search for truth or to impose sanctions where there has been improper conduct.
Kuwait Airways Corp v Iraqi Airways Co & Anor
[2002] UKHL 19 [2002] 2 WLR 1353, [2002] 1 All ER (Comm) 843, [2002] UKHL 19, [2002] 3 All ER 209, [2003] 1 CLC 183, [2002] 2 AC 883
Lord Nicholls
Double actionability: conversion
37. I turn, then, to apply the double actionability rule on the footing that the transfer of title purportedly made by RCC resolution 369 is to be disregarded. IAC submitted that its acts would not have been tortious if done in this country. The relevant tort is conversion. But, so it was submitted, the acts done by IAC post-17 September 1990 did not constitute conversion. IAC did not take the aircraft. The aircraft had already been taken from KAC by the government of Iraq in the exercise of sovereign authority, before the crucial date of 17 September 1990. IAC did not dispose of the aircraft. KAC does not rely upon the removal of the Iran six from Baghdad to Iran, which occurred after the issue of the writ on 11 January 1991, as an act of conversion. Nor is this a case of wrongfully keeping the aircraft. IAC had possession of the aircraft, but mere unauthorised possession or detention is not an act of conversion. Demand and refusal to deliver up are required, as under the old tort of detinue, which did not occur here. Anyway, such a demand would have been unreal: KAC could not have required delivery other than in Iraq and that would have been impossible.
38. Nor, it was submitted, do the acts done by IAC after 17 September 1990 suffice, even if they constituted a denial of KAC’s title. Denial of title is not of itself conversion: see section 11(3) of the Torts (Interference with Goods) Act 1977. To constitute conversion there must be a concomitant deprivation of use and possession. In support of this submission Mr Donaldson fastened upon a statement in Clerk & Lindsell on Torts, 17th ed (1995), p 636, paragraph 13-12:
‘conversion is an act of deliberate dealing with a chattel in a manner inconsistent with another’s right whereby that other is deprived of the use and possession of it.’ (Emphasis added)
A similar passage appears in Salmond and Heuston on the Law of Torts, 21st ed (1996), pages 97-98. In the present case, it was said, none of the acts of IAC deprived KAC of use or possession of the aircraft. Some of IAC’s acts were entirely abstract, such as applying for certificates of airworthiness. Even the physical acts, such as repainting or flying the aircraft, had no impact on KAC’s possession.
39. In my view this line of argument was misconceived. I need not repeat the journey through the textbooks and authorities on which your Lordships were taken. Conversion of goods can occur in so many different circumstances that framing a precise definition of universal application is well nigh impossible. In general, the basic features of the tort are threefold. First, the defendant’s conduct was inconsistent with the rights of the owner (or other person entitled to possession). Second, the conduct was deliberate, not accidental. Third, the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods. The contrast is with lesser acts of interference. If these cause damage they may give rise to claims for trespass or in negligence, but they do not constitute conversion.
40. The judicially approved description of the tort in Clerk and Lindsell encapsulates, in different language, these basic ingredients. The flaw in IAC’s argument lies in its failure to appreciate what is meant in this context by ‘depriving’ the owner of possession. This is not to be understood as meaning that the wrongdoer must himself actually take the goods from the possession of the owner. This will often be the case, but not always. It is not so in a case of successive conversions. For the purposes of this tort an owner is equally deprived of possession when he is excluded from possession, or possession is withheld from him by the wrongdoer.
41. Whether the owner is excluded from possession may sometimes depend upon whether the wrongdoer exercised dominion over the goods. Then the intention with which acts were done may be material. The ferryman who turned the plaintiff’s horses off the Birkenhead to Liverpool ferry was guilty of conversion if he intended to exercise dominion over them, but not otherwise: see Fouldes v Willoughby (1841) 8 M & W 540.
42. Similarly, mere unauthorised retention of another’s goods is not conversion of them. Mere possession of another’s goods without title is not necessarily inconsistent with the rights of the owner. To constitute conversion detention must be adverse to the owner, excluding him from the goods. It must be accompanied by an intention to keep the goods. Whether the existence of this intention can properly be inferred depends on the circumstances of the case. A demand and refusal to deliver up the goods are the usual way of proving an intention to keep goods adverse to the owner, but this is not the only way.
43. Here, on and after 17 September 1990 IAC was in possession and control of the ten aircraft. This possession was adverse to KAC. IAC believed the aircraft were now its property, just as much as the other aircraft in its fleet, and it acted accordingly. It intended to keep the goods as its own. It treated them as its own. It made such use of them as it could in the prevailing circumstances, although this was very limited because of the hostilities. In so conducting itself IAC was asserting rights inconsistent with KAC’s rights as owner. This assertion was evidenced in several ways. In particular, in September 1990 the board of IAC passed a resolution to the effect that all aircraft belonging to the (dissolved) KAC should be registered in the name of IAC and that a number of ancillary steps should be taken in relation to the aircraft. In respect of nine aircraft IAC then applied to the Iraqi Directorate of Air Safety for certificates of airworthiness and reregistration in IAC’s name. IAC effected insurance cover in respect of five aircraft, and a further four after the issue of the writ. Six of the aircraft were overpainted in IAC’s livery. IAC used one aircraft on internal commercial flights between Baghdad and Basra and for training flights. The two Boeing 767s were flown from Basra to Mosul in mid-November 1990.
44. Mance J concluded that in these circumstances IAC had wrongfully interfered with all ten aircraft. In the Court of Appeal Brooke LJ said, at p 1146, paragraph 74:
‘The board resolution makes it completely clear that as soon as RCC resolution 369 came into effect IAC resolved to treat these ten aircraft as their own and to exercise dominion over them in denial of KAC’s rights, and this continuing usurpation and conversion of KAC’s aircraft subsisted right up to the issue of the writ in this action by which KAC demanded the return of all these aircraft.’
I agree. IAC’s acts would have been tortious if done in this country.
Double actionability: usurpation
45. I turn now to consider whether IAC’s acts were civilly actionable in Iraq. Again, this is on the footing that RCC resolution 369 was ineffective to divest KAC of its title. Articles 192 to 201 of the Iraqi Civil Code provide remedies for the civil wrong of usurpation, or misappropriation. The Code contains no definition of usurpation. Mance J held that under Iraqi law a usurper need not actually take the asset from the possession or control of its owner. Property can be usurped by keeping. Whether keeping amounts to usurpation depends on a combination of factors, including whether the alleged usurper has conducted himself in a manner showing that he was ‘keeping’ the asset as his own.
46. The Court of Appeal upheld this finding of Iraqi law. The Court of Appeal also decided that Mance J was entitled to hold that, ignoring RCC resolution 369, as a matter of Iraqi law IAC had wrongfully usurped KAC’s aircraft by acting as it did: see pages 1223-1224, paragraphs 399 to 402. These conclusions were not challenged in your Lordships’ House.
….
67. I have no hesitation in preferring and adopting this view of the present state of the law. The aim of the law, in respect of the wrongful interference with goods, is to provide a just remedy. Despite its proprietary base, this tort does not stand apart and command awards of damages measured by some special and artificial standard of its own. The fundamental object of an award of damages in respect of this tort, as with all wrongs, is to award just compensation for loss suffered. Normally (‘prima facie’) the measure of damages is the market value of the goods at the time the defendant expropriated them. This is the general rule, because generally this measure represents the amount of the basic loss suffered by the plaintiff owner. He has been dispossessed of his goods by the defendant. Depending on the circumstances some other measure, yielding a higher or lower amount, may be appropriate. The plaintiff may have suffered additional damage consequential on the loss of his goods. Or the goods may have been returned.
68. This approach accords with the conclusion of the Law Reform Committee in its 18th report (1971) (Cmnd 4774) that the general rule as respects the measure of damages for wrongful interference should be that the plaintiff is entitled to recover the loss he has suffered. The committee considered this conclusion was ‘right in principle’, and added, in paragraph 91:
‘In many cases the value of the chattel itself will either represent this loss or form an important element in its calculation; but consideration of the value of the chattel should not be allowed to obscure the principle that what the plaintiff is entitled to recover is his true loss.’
This committee had a distinguished membership including, among others, Lord Pearson and Lord Diplock.
69. How, then, does one identify a plaintiff’s ‘true loss’ in cases of tort? This question has generated a vast amount of legal literature. I take as my starting point the commonly accepted approach that the extent of a defendant’s liability for the plaintiff’s loss calls for a twofold inquiry: whether the wrongful conduct causally contributed to the loss and, if it did, what is the extent of the loss for which the defendant ought to be held liable. The first of these enquiries, widely undertaken as a simple ‘but for’ test, is predominantly a factual inquiry. The application of this test in cases of conversion is the matter now under consideration. I shall return to this in a moment.
70. The second inquiry, although this is not always openly acknowledged by the courts, involves a value judgment (‘ .. ought to be held liable..’). Written large, the second inquiry concerns the extent of the loss for which the defendant ought fairly or reasonably or justly to be held liable (the epithets are interchangeable). To adapt the language of Jane Stapleton in her article ‘Unpacking “Causation”‘ in Cane and Gardner (ed) Relating to Responsibility (2001), page 168, the inquiry is whether the plaintiff’s harm or loss should be within the scope of the defendant’s liability, given the reasons why the law has recognised the cause of action in question. The law has to set a limit to the causally connected losses for which a defendant is to be held responsible. In the ordinary language of lawyers, losses outside the limit may bear one of several labels. They may be described as too remote because the wrongful conduct was not a substantial or proximate cause, or because the loss was the product of an intervening cause. The defendant’s responsibility may be excluded because the plaintiff failed to mitigate his loss. Familiar principles, such as foreseeability, assist in promoting some consistency of general approach. These are guidelines, some more helpful than others, but they are never more than this.
71. In most cases, how far the responsibility of the defendant ought fairly to extend evokes an immediate intuitive response. This is informed common sense by another name. Usually, there is no difficulty in selecting, from the sequence of events leading to the plaintiff’s loss, the happening which should be regarded as the cause of the loss for the purpose of allocating responsibility. In other cases, when the outcome of the second inquiry is not obvious, it is of crucial importance to identify the purpose of the relevant cause of action and the nature and scope of the defendant’s obligation in the particular circumstances. What was the ambit of the defendant’s duty? In respect of what risks or damage does the law seek to afford protection by means of the particular tort? Recent decisions of this House have highlighted the point. When evaluating the extent of the losses for which a negligent valuer should be responsible the scope of the valuer’s duty must first be identified: see Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191. In Reeves v Commissioner of Police of the Metropolis [2000] 1 AC 360 the free, deliberate and informed act of a human being, there committing suicide, did not negative responsibility to his dependants when the defendant’s duty was to guard against that very act.
72. The need to have in mind the purpose of the relevant cause of action is not confined to the second, evaluative stage of the twofold inquiry. It may also arise at the earlier stage of the ‘but for’ test, to which I now return. This guideline principle is concerned to identify and exclude losses lacking a causal connection with the wrongful conduct. Expressed in its simplest form, the principle poses the question whether the plaintiff would have suffered the loss without (‘but for’) the defendant’s wrongdoing. If he would not, the wrongful conduct was a cause of the loss. If the loss would have arisen even without the defendant’s wrongdoing, normally it does not give rise to legal liability. In Barnett v Chelsea and Kensington Hospital Management Committee [1969] 1 QB 428 the night watchman’s death did not pass this test. He would have died from arsenic poisoning even if the hospital casualty department had treated him properly. Of course, even if the plaintiff’s loss passes this exclusionary threshold test, it by no means follows that the defendant should be legally responsible for the loss.
73. This threshold ‘but for’ test is based on the presence or absence of one particular type of causal connection: whether the wrongful conduct was a necessary condition of the occurrence of the harm or loss. In the Barnett case the hospital’s negligence was not a necessary element in the conditions which led to the watchman’s death. He would have died anyway. In very many cases this test operates satisfactorily, but it is not always a reliable guide. Academic writers have drawn attention to its limitations: see, for example, the late Professor Fleming’s The Law of Torts, 9th ed (1998), pp 222-230, and Markesinis & Deacon Tort Law, 4th ed (1999), pp 178-191. Torts cover a wide field and may be committed in an infinite variety of situations. Even the sophisticated variants of the ‘but for’ test cannot be expected to set out a formula whose mechanical application will provide infallible threshold guidance on causal connection for every tort in every circumstance. In particular, the ‘but for’ test can be over-exclusionary.
74. This may occur where more than one wrongdoer is involved. The classic example is where two persons independently search for the source of a gas leak with the aid of lighted candles. According to the simple ‘but for’ test, neither would be liable for damage caused by the resultant explosion. In this type of case, involving multiple wrongdoers, the court may treat wrongful conduct as having sufficient causal connection with the loss for the purpose of attracting responsibility even though the simple ‘but for’ test is not satisfied. In so deciding the court is primarily making a value judgment on responsibility. In making this judgment the court will have regard to the purpose sought to be achieved by the relevant tort, as applied to the particular circumstances.
75. One situation where the courts have had to grapple with the multiple wrongdoers’ conundrum concerns how far the liability of one wrongdoer should be diminished by loss flowing from the conduct of another wrongdoer. This has arisen particularly in the context of personal injuries, where the plaintiff was first injured by one wrongdoer and later by another, and in the context of a ship suffering successive collisions at sea. Another situation is where the defendant’s wrongful act caused damage to the plaintiff, but even if he had acted lawfully the same or similar damage would have been produced by the wrongful act of someone else.
76. Elements of both these situations are present in the instant case. The government of Iraq had already seized KAC’s aircraft before IAC wrongfully converted them. And even if IAC had not converted them in autumn 1990, presumably the government of Iraq or some other emanation of the state would have wrongfully retained possession of the aircraft.
77. I turn therefore to consider the purpose sought to be achieved by the tort of conversion. Conversion is the principal means whereby English law protects the ownership of goods. Misappropriation of another’s goods constitutes conversion. Committing this tort gives rise to an obligation to pay damages. Payment of damages may have proprietary consequences. Payment of damages assessed on the footing that the plaintiff is being compensated for the whole of his interest in the goods extinguishes his title: see section 5 of the Torts (Interference with Goods) Act 1977. Further, when the defendant is in possession of the plaintiff’s goods the remedies available to the plaintiff include a court order that the goods be delivered up: see section 3.
78. Consistently with its purpose of providing a remedy for the misappropriation of goods, liability is strict. As Diplock LJ said in Marfani & Co Ltd v Midland Bank Ltd [1968] 1 WLR 956, 970-971, one’s duty to one’s neighbour is to refrain from doing any voluntary act in relation to his goods which is a usurpation of his property or possessory rights in them. Whether the defendant still has the goods or their proceeds matters not. Nor does it matter whether the defendant was a thief or acted in the genuine and reasonable belief the goods were his. Baron Cleasby’s aphorism, uttered in 1872 in Fowler v Hollins LR 7 QB 616, 639, still represents the law: ‘persons deal with the property in chattels or exercise acts of ownership over them at their peril’. This, he observed, was regarded as a salutary rule for the protection of property.
79. Some aspects of this rule have attracted criticism. Vindication of a plaintiff’s proprietary interests requires that, in general, all those who convert his goods should be accountable for benefits they receive. They must make restitution to the extent they are unjustly enriched. The goods are his, and he is entitled to reclaim them and any benefits others have derived from them. Liability in this regard should be strict subject to defences available to restitutionary claims such as change of position: see Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. Additionally, those who act dishonestly should be liable to make good any losses caused by their wrongful conduct. Whether those who act innocently should also be liable to make good the plaintiff’s losses is a different matter. A radical re-appraisal of the tort of conversion along these lines was not pursued on these appeals. So I shall say nothing more about it.
80. The existing principle of strict liability as described above is deeply ingrained in the common law. It has survived at least since the days of Lord Mansfield in Cooper v Chitty (1756) 1 Burr 20. The hardship it may cause to those who deal innocently with a person in possession of goods has long been recognised. Blackburn J noted this in the leading case of Hollins v Fowler (1875) LR 7 HL 757, 764. The hardship arises especially for innocent persons who no longer have the goods. There has been some statutory amelioration of the principle, in the Factors Acts and elsewhere, but in general the principle endures.
81. Consistently with this principle, every person through whose hands goods pass in a series of conversions is himself guilty of conversion and liable to the owner for the loss caused by his misappropriation of the owner’s goods. His liability is not diminished by reason, for instance, of his having acquired the goods from a thief as distinct from the owner himself. In such a case, it may be said, looking at the successive conversions overall, the owner is no worse off as a result of the acts of the person who acquired the goods from the thief. Such a person has not ’caused’ the owner any additional loss.
82. In one sense this is undoubtedly correct. The owner had already lost his goods. But that is really nothing to the point for the purposes of assessing damages for conversion. By definition, each person in a series of conversions wrongfully excludes the owner from possession of his goods. This is the basis on which each is liable to the owner. That is the nature of the tort of conversion. The wrongful acts of a previous possessor do not therefore diminish the plaintiff’s claim in respect of the wrongful acts of a later possessor. Nor, for a different reason, is it anything to the point that, absent the defendant’s conversion, someone else would wrongfully have converted the goods. The likelihood that, had the defendant not wronged the plaintiff, somebody would have done so is no reason for diminishing the defendant’s liability and responsibility for the loss he brought upon the plaintiff.
83. Where, then, does this leave the simple ‘but for’ test in cases of successive conversion? I suggest that, if the test is to be applied at all, the answer lies in keeping in mind, as I have said, that each person in a series of conversions wrongfully excludes the owner from possession of his goods. The exclusionary threshold test is to be applied on this footing. Thus the test calls for consideration of whether the plaintiff would have suffered the loss in question had he retained his goods and not been unlawfully deprived of them by the defendant. The test calls for a comparison between the owner’s position had he retained his goods and his position having been deprived of his goods by the defendant. Loss which the owner would have suffered even if he had retained the goods is not loss ’caused’ by the conversion. The defendant is not liable for such loss.
84. The Court of Appeal decision in Hiort v London and North Western Railway Co (1879) 4 Exch Div 188, mentioned above, can be analysed in this way. Hiort would equally have received no payment for his goods if, instead of misdelivering the goods, the railway company had delivered them in accordance with his instructions. Hiort’s case was not a case of successive conversions. But the like comparison can equally be made in such a case.
85. For these reasons I consider KAC’s claims in respect of the Iran six do not fail at the threshold stage. Had KAC not been unlawfully deprived of its goods by IAC KAC would not have suffered any of the heads of loss it is now claiming. Had KAC retained possession of the Iran six, the aircraft would not have been evacuated to Iran.
86. Furthermore, contrary to IAC’s submission, it would not be right to award damages by reference to the (insignificant) losses caused to KAC by the individual acts evidencing conversion, such as overpainting and using one aircraft for commercial flights. The wrongful conduct lay in unlawfully depriving KAC of its aircraft.
The Iran six: ‘user damages’
87. I have noted that the fundamental object of an award of damages for conversion is to award just compensation for loss suffered. Sometimes, when the goods or their equivalent are returned, the owner suffers no financial loss. But the wrongdoer may well have benefited from his temporary use of the owner’s goods. It would not be right that he should be able to keep this benefit. The court may order him to pay damages assessed by reference to the value of the benefit he derived from his wrongdoing. I considered this principle in Attorney General v Blake [2001] 1 AC 268, 278-280. In an appropriate case the court may award damages on this ‘user principle’ in addition to compensation for loss suffered. For instance, if the goods are returned damaged, the court may award damages assessed by reference to the benefit obtained by the wrongdoer as well as the cost of repair.
88. Recognition that damages may be awarded on this principle may assist in making some awards of damages in conversion cases more coherent. For example, I respectfully think this is the preferable basis for the award of damages in Solloway v McLaughlin [1938] AC 247 in respect of Solloway’s misappropriation of the 14,000 shares deposited with him by McLaughlin. McLaughlin suffered no financial loss from the misappropriation, because equivalent shares were returned to McLaughlin when he closed his account. But Solloway profited by the fall in the value of the shares by selling them when they were deposited with him and repurchasing them at the lower market price obtaining when McLaughlin closed his account.
89. A similar observation may be made regarding the outcome in BBMB Finance (Hong Kong) Ltd v Eda Holdings Ltd [1990] 1 WLR 409. The owner recovered all his shares or their equivalent. The wrongdoer’s misuse of the shares caused the owner no financial loss. But, on the face of the transactions (the facts relating to the unpresented cheque are obscure), the defendant benefited by selling the owner’s shares at a high price and replacing them with shares bought at a lower price.
90. In the present case no claim for an award of ‘user damages’ has ever been pleaded or formally formulated. Mr Vos sought to advance such a claim before your Lordships’ House regarding the Iran six. I consider it is much too late in these protracted proceedings for KAC now to advance this new claim for the first time.
The Iran six: intervening acts, and the costs of recovery and repair
91. The Iran six were sent to Iran on the orders of the government of Iraq. They were impounded there by the government of Iran until their eventual return.
92. These facts do not excuse IAC from liability for the adverse financial consequences of the detention of the aircraft in Iran. A person who misappropriates another’s goods does so at his own risk. That is the nature of the wrong. He takes upon himself the risk of being unable to return the goods to their rightful owner. It matters not that he may be prevented from returning the goods due to unforeseen circumstances beyond his control. The reason for his non-return of the goods, or his delay in returning the goods, is neither here nor there so far as his liability to the owner is concerned. If the goods are eventually returned, thereby diminishing the financial loss suffered by the owner, this must be taken into account. But the wrongdoer’s liability ought fairly to extend to compensating the owner for the loss he sustains by virtueof his temporary loss of his goods, regardless of the impact any unforeseen circumstances may have had on the wrongdoer. The loss flowing from the unforeseen circumstances should be borne by the wrongdoer, not the innocent owner of the goods. Additionally, provided the amount is not out of proportion to the value of the goods, the wrongdoer ought to reimburse the owner for any money spent on recovering the goods or carrying out necessary repairs.
93. Here, after much negotiation, in July 1992 the Iranian government notified the Kuwaiti government of its willingness to release the Iran six. The aircraft were flown back to Kuwait in July and August 1992 on the understanding that payment would be agreed subsequently. In March 1994 KAC agreed to pay $20 million to the government of Iran for the costs and expenses of keeping, sheltering and maintaining the Iran six. The payment was made in four tranches and was completed by the end of September 1994. Had the Iranian government insisted on this payment being made before releasing the aircraft, there could be no room for doubt that KAC was fairly entitled to recover this expenditure from IAC. It was the cost incurred by KAC in regaining its aircraft. I do not think the precise sequence of events which occurred, with the aircraft released before the amount payable was agreed or the payment was made, alters the position. If KAC had not adhered to the arrangements made at the time of the release it would have placed itself in an impossible position for the future, if only in terms of over-flying and landing rights in relation to Iran.
94. Nor is there any room for doubt that, in principle, IAC is responsible for the reasonable costs incurred by KAC in overhauling and repairing the aircraft when they were returned.
The Iran six: consequential losses
95. KAC was an operating airline. The ten aircraft seized in the invasion were the major part of its fleet. When the hostilities ended KAC found itself without most of its aircraft It was eminently to be expected that until the missing aircraft were replaced, KAC would need to hire substitute aircraft capacity, both for passengers and cargo. Furthermore, it was eminently to be expected that until substitute capacity was obtained KAC would suffer losses of business and might suffer loss of profits. I see no reason to question that IAC’s liability to KAC ought to extend to meeting the reasonable costs of chartering substitute aircraft and making good any loss of profits.
96. The other head of consequential loss claimed by KAC comprises finance costs associated with buying replacement aircraft. This claim is more difficult. The basis of this claim is as follows. Faced with the destruction of the Mosul four and the detention of the Iran six, KAC decided to buy new rather than second hand replacements. As Kuwait’s flag carrier, KAC customarily bought new aircraft rather than used aircraft. In the normal course KAC replaced its aircraft on a 15-year cycle. Its practice was to accumulate funds needed to buy replacement aircraft over this 15-year cycle. Since KAC’s aircraft were seized broadly in the middle of their 15-year life cycles, KAC had to borrow money to buy replacement aircraft between 1991 and 1995. KAC calculated that the additional cost of replacing the ten aircraft in the middle rather than at the end of their 15-year cycles was about $290 million. KAC gives credit for the sale prices obtained for the Iran six and for the scrap value of the Mosul four.
97. Had the matter rested there KAC’s claim might have been supportable, due allowance being made for the betterment resulting from the early replacement of the fleet. But there is more to the story. The new aircraft bought by KAC were not mere replacements for the ten aircraft misappropriated by IAC. Having lost most of its fleet, KAC used the occasion to carry out a fundamental reappraisal of its aircraft requirements in the light of changing market conditions. These requirements dictated that the composition of KAC’s fleet should be significantly different from its existing fleet. Different aircraft, with different specifications, were called for. Accordingly, in the early 1990s KAC did not seek to restore the airline to the position which would have existed if the Mosul four had survived intact and the Iran six had not become temporarily unavailable. KAC did not set out to replace the aircraft it had lost with the same models, or the closest available. It did not just buy new for old. The ten aircraft seized included five Airbus A310-200s. New aircraft of this model were still available for purchase from Airbus, but KAC chose to buy different aircraft.
98. This was not an unreasonable course for KAC to take. Indeed, it would have made no commercial sense for KAC to replace the ten aircraft without regard to its current and anticipated aircraft requirements. KAC was forced to review its aircraft requirements, and it seized the opportunity to make significant changes in the composition of its fleet. This may well have been a commercially wise decision. But I do not think it would be right to saddle IAC with the finance costs associated with this substantial restructuring of KAC’s fleet. In agreement with the Court of Appeal and with the view expressed by Aikens J on this point, although not for precisely the same reasons, I would not allow this head of claim.
99. The parties presented to the House extensive written and oral arguments on whether the test for liability for consequential loss in cases of conversion is reasonable foreseeability as distinct from whether the loss arises naturally and directly from the wrong. By consequential loss I mean loss beyond that represented by the value of the goods. The route I have followed in reaching my conclusions on KAC’s claims under this head makes it strictly unnecessary to express any opinion on this point. Nevertheless, in the absence of clear authority, I ought to state my view briefly.
100. Expressed in terms of the traditional guideline principles, the choice is between confining liability for consequential loss to damage which is ‘foreseeable’, as distinct from damage flowing ‘directly and naturally’ from the wrongful conduct. In practice, these two tests usually yield the same result. Where they do not, the foreseeability test is likely to be the more restrictive. The prevalent view is that the more restrictive test of foreseeability is applicable to the torts of negligence, nuisance and Rylands v Fletcher: see the two Waggon Mound cases ([1961] AC 388 and [1967] 1 AC 617) and Cambridge Water Co v Eastern Counties Leather Plc [1994] 2 AC 264. The Court of Appeal recently applied this test to the tort of conversion, apparently without any contrary argument, in Saleslease Ltd v Davis [1999] 1 WLR 1664, although the members of the court differed in the application of the principle to the facts of the case.
101. In contrast, the less restrictive test is applicable in deceit. The more culpable the defendant the wider the area of loss for which he can fairly be held responsible: see the discussion by my noble and learned friend Lord Steyn in Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254, 279-285.
102. This bifurcation causes difficulty with the tort of conversion. Dishonesty is not an essential ingredient of this wrong. The defendant may be a thief, or he may have acted wholly innocently. Both are strictly liable. But it seems to me inappropriate they should be treated alike when determining their liability for consequential loss. Parliament, indeed, has recognised that for some purposes different considerations should apply to persons who steal goods, or knowingly receive stolen goods, and persons who can show they bought the goods in good faith. In respect of the tort of conversion the Limitation Act 1980 prescribes different limitation provisions for these two types of cases: see sections 3 and 4.
103. I have already mentioned that, as the law now stands, the tort of conversion may cause hardship for innocent persons. This suggests that foreseeability, as the more restrictive test, is appropriate for those who act in good faith. Liability remains strict, but liability for consequential loss is confined to types of damage which can be expected to arise from the wrongful conduct. You deal with goods at the risk of discovering later that, unbeknown to you, you have not acquired a good title. That is the strict common law principle. The risk is that, should you not have acquired title, you will be liable to the owner for the losses he can expect to have suffered as a result of your misappropriation of his goods. That seems the preferable approach, in the case of a person who can prove he acted in the genuine belief the goods were his. A person in possession of goods knows where and how he acquired them. It is up to him to establish he was innocent of any knowing wrongdoing. This is the approach Parliament has taken in section 4 of the Limitation Act 1980.
104. Persons who knowingly convert another’s goods stand differently. Such persons are acting dishonestly. I can see no good reason why the remoteness test of ‘directly and naturally’ applied in cases of deceit should not apply in cases of conversion where the defendant acted dishonestly.
105. I would dismiss both appeals, and pay tribute to the meticulous care and thoroughness of Mance J, Aikens J and the Court of Appeal in their treatment of the factual and legal complexities in these proceedings.
LORD STEYN
My Lords,
106. The subject-matter of this action was 10 commercial passenger aircraft belonging to Kuwait Airways Corporation (“KAC”) which were at KuwaitInternational Airport on 2 August 1990 when Iraq invaded Kuwait. Iraq completed its occupation of Kuwait within three days and proclaimed the integration of Kuwait into Iraq. Iraq systematically set about plundering the assets of Kuwait. On 9 September 1990 the Government of Iraq (called the Revolutionary Command Council) promulgated Resolution 369. It read as follows:
“I.(1) That the Kuwait Airways Corporation be dissolved and all its fixed and liquid assets, rights and liabilities be transferred to the Iraqi Airways Co, who will register all assets in accordance with domestic and international laws. (2) All assets belonging to Kuwait Airways are to be transferred to the IraqiAirways Co, as soon as this resolution comes into effect.”
“II. All activities of Kuwait Airways offices abroad must cease and all their assets are to be transferred to the Iraqi Airways Co, in accordance with clause I of this resolution.
“III. The board of Iraqi Airways is to conduct a complete survey of all Kuwait Airways personnel and determine the level of the workforce in the light of current needs and central directives.
IV. All withdrawal authorisations granted to Kuwait Airways employees are cancelled from the date this resolution comes into effect . . .”
On 17 September 1990 Resolution 369 came into effect. On the same day Iraq Airways Co (“IAC”) implemented Resolution 369. Previously, and on various dates in August 1990, IAC pilots had flown the 10 aircraft to Iraq. At the time of the promulgation and coming into effect of Resolution 369 the 10 aircraft were in Iraq.
107. The international response to Iraq’s flagrant breach of international law was prompt and comprehensive. On 2 August 1990 the United Nations Security Council adopted Resolution 660 which condemned the invasion of Kuwait as a breach of international peace and security. This was followed by a series of supplementary Security Council Resolutions which decreed that the annexation of Kuwait was null and void; called on member states to give no recognition directly or indirectly to any aspect of the annexation; and required all states to impose sanctions on Iraq. These measures were duly taken under Chapter VII of the United Nations Charter.
Robot Arenas Ltd & Anor v Waterf1eld & Anor
[2010] EWHC 115
Edelmann QC
The Law
This is a case in which, before analysing the facts and evidence, it is necessary to set the legal landscape.
On behalf of the Claimants, Mr Ashfield put his case on the basis that NNL had become the involuntary bailee of the equipment in Building 29 and as involuntary bailees were not, in the circumstances, entitled to destroy the equipment with the result that NNL and Mr Waterfield, who gave instructions for the removal and destruction of the equipment, were liable for conversion. On behalf of the Defendants, Mr Beresford asserted that the equipment had been abandoned by the Claimants but that even if it had not been and NNL was accordingly in possession of the Claimants’ goods, it was entitled in the circumstances to remove the equipment from Building 29 and destroy it. Such being the cases advanced by the parties, it is necessary to consider when, as a matter of law, goods can be treated as having been abandoned and the circumstances in which someone who is in possession of chattels which in fact belong to a third party is entitled to destroy them.
In addition, the Defendants’ pleaded defence of contributory negligence raises the question as to the extent to which, if at all, contributory negligence can be relevant as a defence in circumstances where the Claimants’ primary case is that the Defendants are liable in conversion.
Finally, there are issues as to the approach I should take to the assessment of quantum of the Claimants’ claim, in the event that I should hold the Defendants liable.
Before I embark on consideration of the issues of law I ought to express my indebtedness to the analysis of the law on abandonment and the rights and duties of unwitting and involuntary bailees contained in the 3 edition of Palmer on Bailment. In large measure, the analysis and conclusions contained in Palmer on Bailment were adopted by Counsel in the submissions before me.
(a) Abandonment
At paragraph 26-0121 of Palmer on Bailment, the meaning of “abandonment” is analysed in the following terms:
“The notion of abandonment may apply in two different senses to objects found by a non-owner: one colloquial and one juristic. In the first sense, a loser may abandon the search for a lost object, whether by reason of other claims on his time, or a belief that the place where the object has been lost is one where others are likely to find it and return it. The loser in that position does not resign any proprietary or possessory claims to the chattel, and when the chattel is found the ordinary rules apply: the law recognises the paramount claim of the owner and, subject to that, normally awards the goods to the person first in possession.
The second and more important is that of a divesting abandonment, where the fmder comes upon a chattel that the owner has previously left or cast away with the intention of divesting himself not only of possession but also of ownership.”
The Defendants’ case on abandonment is and must necessarily be that there has been a divesting abandonment.
After a full analysis of the relevant authorities, the conclusion in paragraph 26-030 of Palmer on Bailment as to when chattels will be treated as having been abandoned for the purposes of conversion is expressed in the following terms:
“Despite some surviving doubt, the better opinion appears to be that divesting abandonment is a defence to conversion provided that a party entitled to do so has renounced possession and the immediate right to possession of the chattels in question. Clear evidence both of intention to abandon and of some physical act of relinquishment will be required and, given the element of strict liability in conversion as contrasted with the need for mens rea in crime, it would seem that a mere reasonable belief that abandonment had taken place would not suffice as a defence. …”
Neither Mr Ashfield nor Mr Beresford sought to challenge this conclusion which is supported by the preceding text (and by the earlier paragraphs 13-044 and 13-045). Accordingly, the test that I will apply for the purposes of ascertaining whether there has been abandonment in this case is whether there has been both an intention to abandon and some physical act of relinquishment.
(b) Destruction of goods belonging to another
Ordinarily, if A is in possession of goods belonging to B and A deliberately destroys those goods without B’s permission, A will be liable to B for conversion. The position of an involuntary bailee is considered at paragraphs 13-25-13-059 of Palmer on Bailment. Those paragraphs include reference to the statutory procedures for the disposal of uncollected goods under Sections 12 and 13 of and Schedule 1 to the Torts (Interference with Goods) Act 1977 and deal with the possibility of an involuntary bailee being entitled to destroy goods in the event of an emergency or commercial necessity. Ordinarily though, an involuntary bailee is not entitled to destroy goods just because they have become a nuisance to the bailee and the learned authors of Palmer on Bailment described the difficulties of the involuntary bailee’s position as remaining “a blot on the law” (paragraph 13-026) and as giving rise to a situation “in which the common law is incapable of supplying a satisfactory solution” (paragraph 13-050).
However, Mr Beresford did not seek to justify the Defendants’ destruction of the equipment by reference to the general position of an involuntary bailee but rather he relied on what was said by Staughton J. in AVX Limited v. EGM Solders Limited, The Times, 7 July 1982. That authority is dealt with in Palmer on Bailment under the general heading of “Duties of the Unwitting Possessor” at paragraphs 6-004-6-022. The position in that case is summarised in paragraph 6-020 of Palmer on Bailment in the following terms:
“… The position of the possessor who erroneously believes that he is the owner of the chattel was examined by Staughton J. in AVX Limited v. EGM Solders Limited. There, the plaintiffs had rejected a consignment of solder spheres which had been supplied to them by the defendants. It was agreed that the spheres should be returned to the defendants and the plaintiffs engaged, for this purpose, carriers named Sayer. The plaintiffs delivered to Sayer not only a box containing the rejected spheres but 21 other boxes containing various capacitors. These capacitors were the property of AVX and were to be transported by Sayer to AVX’s distribution centre at Aldershot. They were, of course, sharply distinguishable in appearance from the rejected spheres, which were individually “miniscule”.
Regrettably, Sayer made out a delivery order which, in addition to other inaccuracies, stated that all of the packages were to be delivered to the defendants, EGM. Their driver carried out this instruction and the goods were received in due course at EGM’s premises. EGM’s staff assuming that all 22 boxes contained rejected and defective goods, instructed two of their employees to scrap the entire consignment. They did this by emptying them into rubbish skips. In the case of the capacitors, this involved unreeling and severing the paper strips upon which the goods were packaged. The result was to render AVX’s goods practically valueless for commercial purposes. Whereas they might with great effort, have been separated and retrieved from the skips, the task would have remained of regrouping them into their different categories, and this was “vastly more difficult”. The case could therefore be regarded, for practical purposes, as one where the unwitting possessor had deliberately (albeit bona fide) destroyed the goods.”
Staughton J. held the Defendants liable for the loss on the basis that an “unconscious bailee” in the position of the Defendants owed a duty “before dealing with the goods” to “use what is in all the circumstances of the case a sufficient standard of care to ascertain that they are truly his own goods”. He held that the Defendants had broken that duty and were accordingly liable for their destruction of the Plaintiffs’ goods.
The learned authors of Palmer on Bailment seek to explain this decision as being to the effect that a possessor who should reasonably have been alerted by the condition of the goods or the circumstances of his reception of them to the fact that they were not his own should be characterised not as a mere “unconscious” bailee but as an informed and involuntary bailee, thereby owing a duty not wilfully to destroy the goods, save in exceptional circumstances. Specifically, as regards liability in conversion, the learned authors of Palmer on Bailment, whilst acknowledging the difficulty of the question, state as follows:
“… on balance we submit that a possessor who is wholly and blamelessly unaware of the fact that goods in his possession belong to another should not be liable for intentionally destroying those goods. To phrase the matter another way, his liability for conversion by destruction should be conditional, like the involuntary bailee’s liability for conversion by mis-delivery, upon his failure to establish that, in performing the act, he exercised reasonable care. That obligation would be broken if the possessor should reasonably have become aware of the true ownership of the goods when he committed the act of destruction, but it is difficult to see how it could be broken otherwise. It may, of course, be objected that this approach creates an irrational distinction between conversion by destruction and conversion by subsequent sale. Against this, it can only be pleaded that the solution proposed offers a roughly equitable distribution of rights and immunities, which enable the original circumstances of the Defendant’s possession to be brought into account as a mitigation of his duty without excessively prejudicing the owner’s interests.”
In AVX v. EGM Solders, the position was that the goods destroyed were goods which the defendants mistakenly believed were goods which they were entitled to receive and destroy. The position that arises in this case is different in that NNL did not come into possession of the goods in Building 29 as a result of being given them but merely found the goods in the building when the property was acquired. The circumstances of this case do not fall within the category of “lost” goods as the issue for NNL was whether or not the goods that were found in Building 29 had been abandoned. If goods are abandoned on the land of a property owner, the property owner is entitled to dispose of them. If the goods have not in fact been abandoned by the true owner, the result is that the person on whose property the goods are found is in fact a possessor of someone else’s goods. It does not seem to me that, in principle, the approach to the liability of a possessor of goods in such circumstances ought to be any different from that of a possessor in a situation such as that which arose in AVX v. EGM Solders. On that basis, the possessor’s liability for conversion by destruction should be conditional upon his failure to establish that he was not aware and should not reasonably have become aware of the true ownership of the goods when he committed the act of destruction.
There is still, though, the question of the status of the person who has found goods on his property which he might or might not belong to someone else, from the date of discovery of the goods until the conclusion of the reasonable enquiries (whether as a result of the collection of or a claim to the goods or the lapse of a reasonable period of time without the goods having been collected or claimed). The premise of this situation arising is that the possessor is and is reasonably in a state of uncertainty as to whether or not the goods in question have been abandoned and so it would be inappropriate to classify such a person as being an involuntary bailee at that stage. The more appropriate classification of such a person, in my judgement, is that of an “unconscious” bailee but to treat such a person as not being immune from liability in conversion if he deliberately destroys or disposes of the goods prior to becoming reasonably entitled to treat the goods as having been abandoned (i.e. as being at this stage in the same position as an involuntary bailee).
Applying the approach outlined above, whether and for how long someone remains an unwitting possessor/unconscious bailee and what enquiries, if any, such a person ought reasonably to make will depend on the circumstances of each particular case. For example, upon the purchase of a house and garden with vacant possession, the purchaser may find a rusty bicycle at the back of the garden. The true position might be that the vendors had forgotten about the bicycle but had not abandoned it, notwithstanding its dilapidated condition. The purchaser would therefore in fact be an unwitting possessor/unconscious bailee but might reasonably be entitled to conclude, from the condition and location of the bicycle that it had been abandoned by the vendors and could be thrown away without making any prior enquiry of the vendors. At the other extreme, the purchaser might find something of obvious value that had been left on the premises. In the course of submissions, the example of finding that a vintage Rolls Royce had been left in the garage was cited but perhaps a more realistic example is finding apiece of jewellery at the back of a cupboard. The purchaser, on finding that piece of jewellery, would not need to make any enquiries to reach the conclusion that the piece of jewellery had been left behind by mistake and would immediately become an involuntary bailee of the piece of jewellery.
In between those two examples, however, lie a multitude of factual scenarios. If the circumstances ought to put the purchaser on notice that the property might not have been abandoned, an enquiry of the vendor or the vendor’s agents or solicitors as to whether the property had been abandoned would be appropriate and, of course, if the presence of the property is causing inconvenience to the purchaser, the purchaser would be entitled to make the enquiry by way of a complaint as to the failure to give vacant possession. Whether the purchaser is obliged to wait for a response to the enquiry before doing anything with the property would depend upon the circumstances. The more valuable (whether in monetary terms or as a personal item) the property might possibly be, the more the purchaser might reasonably be required to await a response before treating the property as if it had been abandoned. The less valuable the property appears to be, and in particular if its continued presence on the property is causing inconvenience to the purchaser, the more reasonable it might be for the purchaser to treat the property as having been abandoned if it has not been collected or claimed within a reasonable period of time. I have used an example of residential premises but of course in the case of commercial premises the variety of circumstances that might arise is almost limitless. Although at least, in the case of commercial premises, there would be a diminished prospect of finding property which was merely of personal, sentimental value.
Neither Mr Beresford nor Mr Ashfield sought to challenge any of the analysis in Palmer on Bailment, for the good, practical reason that they both recognised, rightly, that in reality this case was primarily going to turn on my conclusion as to what it was that remained in Building 29 in early March 2005 and was destroyed on the instructions of the Defendants. Mr Beresford, realistically, recognised that if what was in the building comprised the full Robot Wars Set, unless he could prove abandonment, he would be in difficulty in challenging a conclusion that the Defendants should reasonably have been alerted to the fact that the equipment was not something which the Defendants could treat as if it was their own. On the other hand, if, as was the Defendants’ case, a substantial proportion of the Robot Wars Set had been removed in late August 2004 leaving only a limited quantity of equipment in Building 29, the Claimants’ claim, even if successful, could not be proved to be for more than a relatively nominal amount. Accordingly, for the purposes of this Judgment I will proceed on the basis of the analysis contained in Palmer on Bailment, although I would add that having read the section entitled “Duties of the Unwitting Possessor”, the approach suggested by the learned authors would seem to me to be an appropriate one in the light of the authorities and to do justice as between the true owner of the goods and the unwitting possessor.
(c) Contributory Negligence
Section 11(1) of the Torts (Interference with Goods) Act 1977 provides as follows:
“Contributory negligence is no defence in proceedings founded on conversion, or on intention of trespass to goods.”
Mr Beresford sought to get round that sub-section by contending that the case was pleaded against both Defendants in negligence as well as in conversion, the true basis of liability, if it existed, was in negligence and that if Mr Waterfield was to be liable, his liability would be in negligence. Mr Beresford relied on the suggestion by Tuckey L.J. in Marcq v.Christie Manson & Woods Limited [2004] QB 286 (at paragraphs 51-52) that in AVX v EGM Solders “there would have been no difficulty in establishing negligence without invoking any relationship of bailor and bailee”. There is also support for Mr Beresford’s approach to be found in paragraph 607 of Vol. 45(2) of Halsbury’s Laws of England (4th Ed, Reissue), to which he referred, and which suggests that the liability of an unwitting bailee would be in negligence and not in conversion. However, it seems to me that on the basis of the analysis in Palmer on Bailment, if the circumstances were such as to alert the Defendants to the fact that what was in Building 29 could not be treated as if it belonged to NNL, NNL would thereupon become or fall to be treated as being in the same position as an involuntary bailee and if NNL destroyed the goods, it would ordinarily be liable in conversion. Whether Mr Waterfield, as the person who gave instructions for the destruction of the goods, could be liable for conversion when it was not him but his company that would, on this hypothesis, be the involuntary bailee, was not explored in submissions before me and is probably academic in the light of the fact that, if NNL is liable, it will be liable in conversion for which no defence of contributory negligence is available, and there is nothing to suggest that NNL would be unable to satisfy any judgment.
If the status of NNL when it destroyed the goods was that of an “unconscious” bailee and NNL had not yet become entitled to treat the goods as having been abandoned because the enquiry into the goods ought reasonably to have been treated as ongoing, it would, likewise, seem to me to be artificial to treat the liability of NNL for the destruction of the goods as being a liability in negligence when the negligence does not relate to the care of the goods but to the establishment of whether they have or have not been abandoned. The natural basis of liability in such circumstances would be in conversion on the grounds that NNL was not at that time entitled to treat the goods as if they belonged to NNL.
(d) Damages
The Claimants claim the replacement cost of the equipment destroyed by the Defendants and Mr Ashfield submitted that that was the appropriate approach to adopt to the assessment of damages in this case in the light of the decision of the Court of Appeal in Dominium Mosaics & Tile Co Limited v. Trafalgar Trucking Co Limited [1990] 2 All ER 246. Mr Ashfield also relied on paragraph 1108 in Vol. 12.1 of Halsbury’s Laws of England (4th Ed., Reissue), which includes the following statement:
“Where, by reason of a bailee’s actual or presumed fault, a bailor cannot recover the value of goods lost or destroyed, the highest possible value is presumed against the bailee.”
Mr Beresford relied on Voaden v. Champion [2002] EWCA Civ 89; [2002] 1 Lloyd’s Rep 623. In that case, at paragraphs 62-92, Rix LJ reviewed the authorities on the approach to be taken to the assessment of damages in circumstances where the replacement cost is claimed and is said by the defendant to represent more than the loss sustained by the claimant. In his conclusion on the approach to damages, with which Hale and Schiemann LJJ agreed, Rix LJ emphasised that where in the case of a second-hand chattel there is no market to replace what has been lost, the proper approach would appear from the authorities to be to make a fact specific review of what the claimant has lost and then attempt to put a financial figure on it as best one can. He also drew attention to passages in the relevant authorities which emphasised that damages ought to be reasonable as between claimant and defendant. Amongst the passages that he cited were the following:
(i) From the judgment of Gorell Barnes J. in The Harmonides [1903] P 1 at 6:
“So that the real test, where there is no market is, as counsel on both sides agree, what is the value to the owners as a going concern, at the time the vessel was sunk? You cannot get at this with any great certainty, for you cannot get at it from the market value. Possibly, for such a ship at such a time there would be no buyers and she would have to be sold for old iron. You cannot deal with it like an ordinary commodity being sold every day. You must look at it and see what is the loss to the owners. It has been pointed out that you may look at the original cost, plus the money expended on her, and so forth. That is of assistance, but it is not complete assistance, because it is a rough, and ready method. You may look and see also how the ship is paying. That, however, is not a complete test, because you cannot be sure that the way she has been paying will continue. But one tiling is absolutely certain – you cannot say the test is per market value.”
(ii) From the judgment of Stocker L.J. in The Dominium Mosaics case at 255j-256a:
“The cases cited seem to me clearly to point the distinction between a situation in which the proper and reasonable compensation for the plaintiff is diminution of the value of the building destroyed as damages on the one hand or reinstatement on the other, a distinction which, in most cases, will depend on whether or not the building destroyed is a profit-making asset. Since in almost any other case if the plaintiff recovers as damages the diminution in value he will have been restored to his original position, reinstatement, or its equivalent, is only appropriate where such is the only reasonable method of compensating a plaintiff for future loss of profits derived from the asset destroyed.”
(iii) From the judgment speech of Lord Jauncey in Ruxley Electronics & Construction Limited v. Forsyth [1996] AC 344 at 357E:
“Damages are designed to compensate for an established loss and not to provide a gratuitous benefit to the aggrieved party from which it follows that the reasonableness of an award of damages is to be linked directly to the loss sustained. If it is unreasonable in a particular case to award the cost of reinstatement it must be because the loss sustained does not extend to the need to reinstate.”
(iv) From the speech of Lord Lloyd in Ruxley Electronics at 367B:
“… the cost of reinstatement is not the appropriate measure of damages if the expenditure would be out of all proportion to the benefit to be obtained, and, secondly, the appropriate measure of damages in such a case is the difference in value even though it would result in a nominal award.”
(v) From the speech of Lord Lloyd in Ruxley Electronics at 371G-372B, in which passage he approved the decision in Sealace Shipping Co Limited v. Oceanvoice Limited [1991] 1Lloyd’s Rep 120 in the following terms:
“I have confined my citation of authority to building cases, since that is the subject matter of the present dispute. But the principle that a plaintiff cannot always insist on being placed in the same psychical position as if the contract had been performed, where to do so would be unreasonable, is not confined to building cases. In Sealace Shipping Company Limited v. Oceanvoice Limited [1991] 1 Lloyd’s Rep 120, there was a contract for the sale of a ship, including a spare propeller. When the ship was delivered there was no spare propeller. It was common ground that there was no market for second-hand propellers. So the only way of providing a spare propeller would have been to commission the manufacture of a new propeller at great expense. The arbitrator held that this would be unreasonable. Instead he awarded the scrap value of the propeller, since that was all the buyer had actually lost by reason of the seller’s breach. The arbitrator’s decision was upheld in the Court of Appeal. Neill L.J. said, at p. 125:
“I can only read this award as meaning that he asked the question: what did these buyers really suffer as a result of the non-delivery of this spare propeller with this vessel? and he gave the answer: they lost its scrap value which in circumstances was the only value which it had for them.””
Mr Ashfield submitted that as he was not claiming for loss of profits from the use of the Robot Wars Set, the question as to whether or not the Robot Wars Set would have been put to profitable use was not relevant to the recoverability of the replacement cost. I reject that submission. In the context of commercial goods, the purpose of which is to earn profit, the assessment of what the Claimant has lost and of the damages that would be reasonable as between the Claimant and the Defendant must take into account the commercial usefulness of the goods to the Claimant. If the reality is that what was destroyed was commercially useless to the Claimant, that cannot be ignored in the assessment of damages. Indeed, it would indicate that in financial terms the Claimant’s loss was nominal only (e.g. scrap value) and that to award more than such a nominal value would be unreasonable as between the Claimant and Defendants.
I also reject the submission that the principle cited in paragraph 1108 of Vol. 12(1) of Halsbury’s Laws is applicable to the question of whether the replacement cost ought to be awarded. That principle is applicable where the value of the goods lost or destroyed as a result of the bailee’s actual or presumed fault cannot reasonably be ascertained. In such circumstances, “justice” as between the bailor and bailee dictates that from the range of possible assessments of the value of the goods, the value most favourable to the bailor should be presumed. Where, however, the Court is able to reach a decision on the correct approach to valuation of the goods lost or destroyed, it would not be just to apply a presumption which gives rise to a higher sum of damages being awarded. Justice in such cases requires the Court’s assessment of the damag
Douglas & Ors v. Hello! Ltd & Ors
[2007] UKHL 21 [2008] 1 All ER (Comm) 1, [2007] EMLR 325, [2008] 1 AC 1, [2007] 19 EG 165, [2007] 2 WLR 920, [2007] IRLR 608, [2007] Bus LR 1600, [2007] BPIR 746, [2007] 4 All ER 545, [2008] AC 1, [2007] EMLR 12, [2007] 2 WLR 0920
Lord Hoffman
Conversion
The case in conversion was unanimously rejected by all the judges who heard the OBG case and it might therefore be sufficient to say that I agree with them. But the claim was given considerable prominence in argument, with a good deal of reference to North American authorities, and I shall therefore deal with it at greater length.
Everyone agrees that conversion is historically a tort against a person’s interest in a chattel, being derived from the action for trover, which included a fictitious allegation that the plaintiff had lost the chattel and that the defendant had found it. Secondly, and consistently with its ancient origin, conversion is a tort of strict liability. Anyone who converts a chattel, that is to say, does an act inconsistent with the rights of the owner, however innocent he may be, is liable for the loss caused which, if the chattel has not been recovered by the owner, will usually be the value of the goods. Fowler v Hollins (1872) LR 7 QB 616 was a claim for conversion of bales of cotton bought in good faith through a broker in Liverpool. The purchasers were nevertheless held strictly liable. Cleasby J said robustly, at p 639, that:
“the liability under it is founded upon what has been regarded as a salutary rule for the protection of property, namely, that persons deal with the property in chattels or exercise acts of ownership over them at their peril.”
Advising the House of Lords on appeal from this decision, Blackburn J was more sympathetic. He said (Hollins v Fowler (1875) LR 7 HL 757, 765) that the result was hard on the innocent purchasers but added:
“If, as is quite possible, the changes in the course of business since the principles of law were established make them cause great hardships or inconvenience, it is the province of the Legislature to alter the law.”
Parliament has responded with legislation such as the Factors Act 1889, section 4 of the Cheques Act 1957 (which protects a collecting bank against liability for conversion of a cheque to which its customer had no title) and section 234(3) of the Insolvency Act, which, in the absence of negligence, protects an administrative receiver who “seizes or disposes of any property which is not property of the company” against liability. But there are no such protective provisions in relation to anything other than chattels. Why not? Obviously because Parliament thought them to be unnecessary. It would never have occurred to Parliament that strict liability for conversion could exist for anything other than chattels. The whole of the statutory modification of the law of conversion has been on the assumption that it applies only to chattels. There has been no discussion of the question of whether an extension of conversion to choses in action would require a corresponding or even greater degree of protection for people acting in good faith.
Mr Randall, who appeared for OBG, drew attention to paragraphs 829 and 830 of the Report of the Review Committee on Insolvency Law and Practice (the Cork Committee) (1982) Cmnd 8558, which endorsed a recommendation of the Jenkins Committee that the court should be given power to relieve an invalidly appointed receiver from liability for acts which would have been lawful if the appointment had been valid. Parliament has not given effect to this recommendation. He suggested that this omission should be regarded as somehow justifying a drastic extension of the liability of such receivers for conversion. The fallacy in this reasoning does not need to be underlined.
By contrast with the approving attitude of Cleasby J to the protection of rights of property in chattels, it is a commonplace that the law has always been verywary of imposing any kind of liability for purely economic loss. The economic torts which I have discussed at length are highly restricted in their application by the requirement of an intention to procure a breach of contract or to cause loss by unlawful means. Even liability for causing economic loss by negligence is very limited. Against this background, I suggest to your Lordships that it would be an extraordinary step suddenly to extend the old tort of conversion to impose strict liability for pure economic loss on receivers who were appointed and acted in good faith. Furthermore, the effects of such a change in the law would of course not stop there. Hunter v Canary Wharf Ltd [1997] AC 655, 694 contains a warning from Lord Goff of Chieveley (and other of their Lordships) against making fundamental changes to the law of tort in order to provide remedies which, if they are to exist at all, are properly the function of other parts of the law.
As to authority for such a change, it hardly needs to be said that in English law there is none. I need go no further than Halsbury’s Laws of England, 4th ed reissue (1999) vol 45(2), para 547, which says “The subject matter of conversion or trover must be specific personal property, whether goods or chattels.” The Law Revision Committee was invited, in 1967, to consider “whether any changes are desirable in the law relating to conversion and detinue.” In its 18th Report in 1971 (Cmnd 4774) the Committee treated them both as confined to wrongful interference with chattels. They made various recommendations for changes in the law but none for the extension of conversion to intangible choses in action. On the contrary, the Torts (Interference with Goods) Act 1977, which was passed as a result of their recommendations, defined “wrongful interference with goods” to include “conversion of goods” (section 1) and defined “goods” in section 14(1) to include “all chattels personal other than things in action and money.”
Mr Randall relied upon authorities in Canada and the United States. I can find no discussion in the Canadian cases of whether a claim for conversion can be made in respect of a chose in action. These cases are analysed by Peter Gibson LJ in his judgment in the Court of Appeal ([2005] QB at pp. 777-778) and I do not think that I should lengthen this judgment by adding to his comments. For the reasons which he gives, I derive no assistance from them. There are certainly cases in the United States which support Mr Randall’s submission and which form part of the profligate extension of tort law which has occurred in that country. Perhaps the most remarkable is the decision of the Federal Court of Appeals (9th Circuit) in Kremen v Online Classifieds Inc (2003) 337 F 3rd 1024, in which it was held that a publicly-funded company which provided gratuitous registration of internet domain names could be liable in conversion, on a footing of strict liability, for transferring a registered name to a third party, having acted in good faith on the authority of a forged letter. The court held that the domain name was intangible property which could be converted in the same way as a chattel and that the registration company could be liable for its value. I have no difficulty with the proposition that a domain name may be intangible property, like a copyright or trade mark, but the notion that a registrar of such property can be strictly liable for the common law tort of conversion is, I think, foreign to English law.
The American cases make a good deal of the line of authority, which in England goes back to the beginning of the 19th century or earlier, by which a person who misappropriates a document which constitutes or evidences title to a debt can be liable in conversion for the face value of the document. Surely, it was said, in such cases the action is in substance for conversion of the debt, a chose in action, and if that is right, then why not have conversion of any chose in action?
But the document cases have been recognised to be an anomaly created by the judges to solve a particular problem, namely that a person who wrongfully secures payment of money due to another cannot be sued by the true creditor for money had and received to his use. That is because the creditor is not the owner of the money. The wrongful payment was treated as a matter between the paying party and the recipient which did not affect the creditor’s position. Thus in Rogers vKelly (1809) 2 Camp 123 a bank had mistakenly paid the defendant some money which the plaintiff had deposited. Lord Ellenborough said:
“There is no privity between the parties to this suit. The plaintiff’s claim is on the bankers, and they must seek their remedy against the defendant the best way they can.”
But in cases in which the title to the debt was evidenced by a negotiable instrument, or even in some cases where it was not negotiable, the wrongful misappropriation of the document could cause actual loss to the true creditor, who might not be able to recover the debt. That left a gap in the law. The judges filled it by treating the misappropriation as a conversion of a chattel equal in value to the debt which it evidenced. In Morison v London County and Westminster Bank Ltd [1914] 3 KB 356, 379 Phillimore LJ was not altogether confident about explaining the basis of the rule:
“The defendant bank was the holder of the cheques…and …collected the proceeds in its own right… Therefore the defendant bank converted the cheques. That the damages for such conversion are (at any rate where the drawer has sufficient funds to his credit and the drawee bank is solvent) the face value of the cheques is established in a series of cases: … so well established that it is not necessary to inquire into the principle which may underlie the authority. But the principle probably is that, though the plaintiff might at any moment destroy the cheques while they remained in his possession, they are potential instruments whereby the sums which they represent may be drawn from his bankers, and, if they get into other hands than his, he will be the loser to the extent of the sums which they represent. It may also be that anyone who has obtained its value by presenting a cheque is estopped from asserting that it has only a nominal value.”
In Lloyds Bank Ltd v The Chartered Bank of India, Australia and China [1929] 1 KB 40, 55-56, Scrutton LJ recognised the anomalous and limited nature of the principle:
“Conversion primarily is conversion of chattels, and the relation of bank to customer is that of debtor and creditor. As no specific coins in a bank are the property of any specific customer there might appear to be some difficulty in holding that a bank, which paid part of what it owed its customer to some other person not authorised to receive it, had converted its customer’s chattels; but a series of decisions binding on this Court, culminating in Morison’s case and Underwood’s case [[1924] 1 KB 775] have surmounted the difficulty by treating the conversion as of the chattel, the piece of paper, the cheque under which the money was collected, and the value of the chattel converted as the money received under it: see the explanation of Phillimore LJ in Morison’s case [cited above]”
There do not appear to be any judicial statements offering a better explanation. It is in my opinion an insecure base on which to erect a comprehensive system of strict liability for interference with choses in action.
The only point on which I would differ from Peter Gibson LJ in his admirable judgment in the Court of Appeal is in his expression of regret (in paragraph 58) that the liquidator had no cause of action. This is not a case in which a wrongful appointment of receivers caused damage to a solvent company. The judge found that the company was inevitably headed for insolvent liquidation. The liquidator sought immediate advice on the legality of the appointment of the receivers and then stood back for over three years, leaving the receivers to negotiate with NWW. The receivers acted in good faith throughout and the liquidator concurred in the settlement they reached. The liquidator then put his case on the basis of an allegation of strict liability which precluded any investigation into his own conduct or whether he could have produced a better result. I can see no reason why such a claim should have succeeded. I would therefore dismiss the liquidator’s appeal.
Douglas v Hello! Ltd.
Northern & Shell plc publishes OK! magazine and I shall refer to it as OK!. In November 2000 OK! entered into a contract with Michael Douglas and Catherine Zeta-Jones, whom I shall call “the Douglases”, for the exclusive right to publish photographs of their forthcoming wedding on 18 November 2000 at the Plaza Hotel, New York. The Douglases dealt with OK!, who paid them £1m for the rights, in preference to the rival magazine Hello!, published by the respondent. The Douglases agreed to engage a photographer and to supply OK! with pictures they had chosen. By clause 6 of the agreement they agreed to use their best efforts to ensure that no one else would take any photographs.
The Douglases went to some lengths to comply with this obligation and no criticism is made of their security precautions, but a freelance photographer named Rupert Thorpe infiltrated the wedding and took photographs which he sold to Hello!. OK! obtained an ex parte injunction restraining publication by Hello! but on 23 November 2000 the injunction was discharged by the Court of Appeal and the photographs were published on the following day. A few hours earlier on the same day OK! published its own photographs, having brought forward its date of publication on account of what it knew to be the imminent publication by Hello! Also on the same day, some of the unauthorized pictures were, without objection by Hello!, published in national daily newspapers.
OK! sued Hello! for breach of confidence and for the tort of causing loss by unlawful means. (The Douglases brought separate proceedings against Hello! and recovered modest damages, but these are not in issue in this appeal, to which the Douglases are not parties.)
Lindsay J held Hello! liable for breach of confidence. He applied the well-known criteria summarized by Megarry J in Coco v AN Clark (Engineers) Ltd [1969] RPC 41, 47:
“First, the information itself…must ‘have the necessary quality of confidence about it. Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use of that information to the detriment of the party communicating it.”
For this purpose the judge identified the information as being photographic images of the wedding. Not information about the wedding generally; anyone was free to communicate the information that the Douglases had been married, describe what the bride wore and so forth. The claim was only that there had been a breach of an obligation of confidence in respect of photographic images.
Lindsay J held that the three conditions were satisfied. As for the first, photographs of the wedding were confidential information in the sense that none were publicly available. As to the second, the Douglases had made it clear that anyone admitted to the wedding was not to make or communicate photographic images. They allowed people to witness their marriage, but only on the basis that the information which the spectators thereby obtained was not communicated in the form of a photographic image. The judge said (at para 197):
“the very facts that Hello! and OK! competed for exclusivity as they did and that each was ready to pay so much for it points to the commercial confidentiality of coverage of the event. The event was private in character and the elaborate steps to exclude the uninvited, to include only the invited, to preclude unauthorized photography, to control the authorized photography and to have had the claimants’ intentions in that regard made clear all conduce to that conclusion. Such images as were, so to speak, radiated by the event were imparted to those present, including Mr Thorpe and his camera, in circumstances importing an obligation of confidence. Everyone there knew that was so.”
Furthermore, everyone knew that the obligation of confidence was imposed for the benefit of OK! as well as the Douglases. To no one could this have been clearer than to Mr Thorpe. The judge then went on to make findings about the circumstances in which Hello! had acquired his photographs:
“198. As for the Hello! defendants, their consciences were, in my view, tainted; they were not acting in good faith nor by way of fair dealing. Whilst their position might have been worse had I held that the taking of unauthorised pictures for use by them had been truly commissioned in advance, even without that there is in my view enough to afflict their conscience. They knew that OK! had an exclusive contract; as persons long engaged in the relevant trade, they knew what sort of provisions any such contract would include and that it would include provisions intended to preclude intrusion and unauthorised photography. Particularly would that be so where, as they knew, a very considerable sum would have had to have been paid for the exclusive rights which had been obtained. … The surrounding facts were such that a duty of confidence should be inferred from them. The Hello! defendants had indicated to paparazzi in advance that they would pay well for photographs and they knew the reputation of the paparazzi for being able to intrude. The unauthorised pictures themselves plainly indicated they were taken surreptitiously. Yet these defendants firmly kept their eyes shut lest they might see what they undeniably knew would have become apparent to them.”
The obligation of confidence was therefore binding upon Hello! and the third Coco requirement of use to the detriment of OK! was plainly satisfied. Lindsay J therefore decided that Hello! was liable to OK! for the loss caused by the publication, which he later assessed at £1,033,156.
The Court of Appeal (Lord Phillips of Worth Matravers MR, Clarke and Neuberger LJJ) reversed the judge’s decision on the ground that the obligation of confidence for the benefit of OK! attached only to the photographs which the Douglases authorized them to publish. They did not have the benefit of an obligation of confidence in respect of any other photographs. Their publication may have invaded a residual right of privacy retained by the Douglases but did not infringe any right of OK!
In my opinion Lindsay J was right. The point of which one should never lose sight is that OK! had paid £1m for the benefit of the obligation of confidence imposed upon all those present at the wedding in respect of any photographs of the wedding. That was quite clear. Unless there is some conceptual or policy reason why they should not have the benefit of that obligation, I cannot see why they were not entitled to enforce it. And in my opinion there are no such reasons. Provided that one keeps one’s eye firmly on the money and why it was paid, the case is, as Lindsay J held, quite straightforward.
It is first necessary to avoid being distracted by the concepts of privacy and personal information. In recent years, English law has adapted the action for breach of confidence to provide a remedy for the unauthorized disclosure of personal information: see Campbell v MGN Ltd [2004] 2 AC 457. This development has been mediated by the analogy of the right to privacy conferred by article 8 of the European Convention on Human Rights and has required a balancing of that right against the right to freedom of expression conferred by article 10. But this appeal is not concerned with the protection of privacy. Whatever may have been the position of the Douglases, who, as I mentioned, recovered damages for an invasion of their privacy, OK!’s claim is to protect commercially confidential information and nothing more. So your Lordships need not be concerned with Convention rights. OK! has no claim to privacy under article 8 nor can it make a claim which is parasitic upon the Douglases’ right to privacy. The fact that the information happens to have been about the personal life of the Douglases is irrelevant. It could have been information about anything that a newspaper was willing to pay for. What matters is that the Douglases, by the way they arranged their wedding, were in a position to impose an obligation of confidence. They were in control of the information.
Is there any conceptual problem about the fact that the obligation of confidence was imposed only in respect of a particular form of information, namely, photographic images? I do not see why there should be. If OK! was willing to pay for the right to be the only source of that particular form of information and did not mind that others were free to communicate other forms of information about the wedding, then I think the Douglases should be able to impose a suitably limited obligation of confidence.
My noble and learned friends, Lord Nicholls of Birkenhead and Lord Walker of Gestingthorpe, are troubled by the fact that the information in the photographic images was not intended to be kept secret but to be published to the world by OK! and was so published at much the same time as the unauthorised photographs in Hello!. But I see no reason why there should not be an obligation of confidence for the purpose of enabling someone to be the only source of publication if that is something worth paying for. Why should a newspaper not be entitled to impose confidentiality on its journalists, sub-editors and so forth to whom it communicates information about some scoop which it intends to publish next day? That does not of course prevent publication by someone who receives the information otherwise than under an obligation of confidence. And I say nothing about cases in which there is a public interest in communicating the information to others or the public at large. But otherwise it is simply information of commercial value.
My noble and learned friend, Lord Nicholls, is also of opinion that once the approved photographs were published, the publication of the unauthorised photographs was not a breach of confidence. I cannot understand this. Mr Thorpe was subject to an obligation of confidence in respect of the pictures which he took. Hello!, by reason of the circumstances in which they acquired the pictures, were subject to the same obligation. How could it be destroyed by OK!’s publication of other photographs a few hours earlier? He says that the differences between the photographs were “insufficiently significant to call for legal protection”; “the unapproved pictures contained nothing not included in the approved pictures”.
My Lords, it is certainly the case that once information gets into the public domain, it can no longer be the subject of confidence. Whatever the circumstances in which it was obtained, there is no point in the law providing protection. But whether this is the case or not depends on the nature of the information. Whether there is still a point in enforcing the obligation of confidence depends on the facts. If the purpose of publishing the pictures was simply to convey the information that the Douglases had married, the bride wore a wedding dress and so forth, then the publication of any photographs would have put that information in the public domain. So would a description of the event. In this case, however, the point of the transaction was that each picture would be treated as a separate piece of information which OK! would have the exclusive right to publish. The pictures published by OK! were put into the public domain and it would have had to rely on the law of copyright, not the law of confidence, to prevent their reproduction. But no other pictures were in the public domain and they did not enter the public domain merely because they resembled other pictures which had. Why was Hello! willing to pay Mr Thorpe so much money for information which was already in the public domain? Why did the judge find that the publication of information which did not, in Lord Nicholls’s words, “call for legal protection”, had caused substantial financial loss to OK!? My Lords, this seems to me a point on which theory is in danger of losing touch with reality.
The Court of Appeal’s analysis, which treats the obligation of confidence as having been imposed in favour of OK! only in respect of the photographs with which it was supplied by the Douglases, also seems to me to make no commercial sense. The essential purpose of the security arrangements and the prohibition of unauthorised photography were to impose an obligation of confidence in respect of any pictures of the wedding. Only in that way could the commercial interests of OK! be protected. And it was clear to everyone, Mr Thorpe and Senor Sanchez Junco in particular, that this obligation was imposed for the benefit of OK! as well as the Douglases. As the Court of Appeal put it when stating OK’s argument, ([2006] QB at para 138) “the photographs published by Hello! fell within a generic class of commercially confidential information…which OK! were entitled to protect”.
Is there any reason of public policy why the law of confidence should not protect information of this form and subject-matter? There is in my opinion no question of creating an “image right” or any other unorthodox form of intellectual property. The information in this case was capable of being protected, not because it concerned the Douglases’ image any more than because it concerned their private life, but simply because it was information of commercial value over which the Douglases had sufficient control to enable them to impose an obligation of confidence. Some may view with distaste a world in which information about the events of a wedding, which Warren and Brandeis in their famous article on privacy in (1890) 4 Harvard LR 193 regarded as a paradigm private occasion, should be sold in the market in the same way as information about how to make a better mousetrap. But being a celebrity or publishing a celebrity magazine are lawful trades and I see no reason why they should be outlawed from such protection as the law of confidence may offer.
I therefore think that the Court of Appeal was wrong to reverse the judge on this point. Mr Price QC, who appeared for Hello!, also relied upon two other arguments. First, he said that to hold that participants in a “celebrity event” can impose a duty of confidence upon those who attend would give rise to inconsistency with the “carefully constructed” scheme of statutory performing rights in Part II of the Copyright, Designs and Patents Act 1988. I cannot see how there can be a conflict between such statutory rights and any additional rights which may exist under the common law. One might as well say that the law of contract is inconsistent because it allows for the possibility of a performer bargaining for greater rights than he would have under the statute.
Secondly, Mr Price submitted that under the law of New York Mr Thorpe owed no obligation to keep the information confidential. The Statement of Facts and Issues records that under New York law “there would have been no inhibition upon Mr Thorpe publishing the photographs which he had taken”. We are not told the basis of this statement. The judge found that Mr Thorpe must have been “at least a trespasser” by the law of New York. It may be that, under the First Amendment, he was entitled to publish in New York notwithstanding the circumstances in which the photographs were obtained. But that does not mean that he or anyone deriving title from him is entitled to publish in England. There is nothing to suggest that an obligation of confidence cannot be imposed in New York, even though it may be overridden by a constitutional right to freedom of expression. But the question of whether that obligation of confidence can entitle the beneficiary to restrain publication in England is a matter of English law.
I would therefore allow the appeal of OK! and restore the order of the judge. Mr Price submitted that the award of damages should not be allowed in full because, on the evidence, a substantial part of the loss was caused by the publication of the unauthorized photographs in national daily newspapers rather than in Hello! But the judge considered this point in his supplemental judgment on damages and came to the conclusion that the full losses were “sufficiently consequential upon the breach and sufficiently foreseeable as to make Hello! liable for them in the ordinary way” (paragraph 48). Further, in paragraph 53 he said that —
“I do not regard the newspaper publications of the pictures as so remote a consequence of Hello!’s publication as not to be laid at Hello!’s door and plainly the newspaper publications would not have occurred as they did but for Hello!’s publication of the unauthorized photographs.”
In the light of these findings of fact I would not disturb the judge’s award.
In view of my conclusion that OK! was entitled to sue for breach of an obligation of confidentiality to itself, it is a little artificial to discuss the alternative claim on the footing that the obligation was owed solely to the Douglases. I would have considerable difficulty in reconciling such a hypothetical claim with RCA Corporation v Pollard [1983] Ch 135 and Isaac Oren v Red Box Toy Factory Ltd [1999] FSR 785. Neither Mr Thorpe nor Hello! did anything to interfere with the liberty of the Douglases to deal with OK! or perform their obligations under their contract. All they did was to make OK!’s contractual rights less profitable than they would otherwise have been.
On the other hand, I should make it clear that in my opinion such a claim should not have failed for the reasons given by the judge and the Court of Appeal, namely that Hello! did not intend to cause loss to OK!.
Their conclusion was based upon the evidence of Senor Sanchez Junor, the controlling shareholder of Hello!’s Spanish holding company, who had made the decision to publish. The judge set out this evidence at paragraphs 245-249 of his judgment, from which I shall quote extracts. First, there was his written evidence:
“I want to state categorically that there was never an intention to cause damage to any of the claimants…because we have always treated them in Hello! with deference and sympathy, in accordance with the magazine style. In our 60-year history we have never tried to damage anyone. Therefore, we would not want to do it to people whom we have always treated fairly and objectively in our reports portraying them in the best possible light. With respect to OK! we took it for granted that, without a doubt, they would have a great editorial success, as they had a great exclusive and consequently, the magazine would be sold under excellent conditions as was the case. Our main purpose was to inform our readers about an event which had been publicised all over the media for weeks before the wedding, which shows that this wedding was of interest for the United Kingdom. We did not wish to disappoint our readers. It was never our aim or intention to damage the third claimant, our prime motivation was only to give our readers information on the wedding of two celebrities, about whom, without doubt, our readers expected to read in Hello!…”
Then there was his oral evidence, summarized by the judge:
“Senor Sanchez Junco disavowed having acted in revenge against the Douglases for his not getting the exclusive he so wished; rather he wanted, despite losing the exclusive, to publish an edition that would interest his readers, the event being one which had captured the imagination of the public. His act, he said, was not of revenge but of salvage. He denied having the intention of spoiling OK!’s sales adding … ‘my motive was never to spoil the exclusive of OK!. I repeat, I wanted to defend as far as I could my publication … My priority was to save my publication after having, in the light of a very important big loss, and that is that of the exclusive, and I didn’t think of the possible damage that I could inflict on Hello! or the Douglases…'”
The judge concluded:
“I…accept the evidence [Senor Sanchez Junco gave on this subject.] Whilst I recognise that for a defendant to act out of self-interest does not, of itself, disprove that he had no intent to injure another, here I find on the evidence that there was no intent to injure by unlawful means because there was no intent to injure at all.”
Thus the position of Senor Sanchez Junco was that he wished to defend his publication against the damage it might suffer on account of having lost the exclusive. But that, it seems to me, is precisely the position of every competitor who steps over the line and uses unlawful means. The injury which he inflicted on OK! in order to achieve the end of keeping up his sales was simply the other side of the same coin. His position was no different from Mr Gye saying that he had no wish to injure Mr Lumley and had the greatest respect for Her Majesty’s Theatre but his intention was to improve attendance at his own theatre, or the master of the Othello saying that his intention was to buy more palm oil. Lord Sumner made this point pungently in Sorrell v Smith [1925] AC 700, 742:
“How any definite line is to be drawn between acts, whose real purpose is to advance the defendants’ interests, and acts, whose real purpose is to injure the plaintiff in his trade, is a thing which I feel at present beyond my power. When the whole object of the defendants’ action is to capture the plaintiff’s business, their gain must be his loss. How stands the matter then? The difference disappears.”
The injury to OK! was the means of attaining Senor Sanchez Junor’s desired end and not merely a foreseeable consequence of having done so.
The analysis of intention by the Court of Appeal in my opinion illustrates the danger of giving a wide meaning to the concept of unlawful means and then attempting to restrict the ambit of the tort by giving a narrow meaning to the concept of intention. The effect is to enable virtually anyone who really has used unlawful means against a third party in order to injure the plaintiff to say that he intended only to enrich himself, or protect himself from loss. The way to keep the tort within reasonable bounds is not to extend the concept of unlawful means beyond what was contemplated in Allen v Flood, rather than to give an artificially narrow meaning to the concept of intention.
I would therefore have held that Hello! had the necessary intention to cause loss but not that they interfered by unlawful means with the actions of the Douglases.
MCC Proceeds Inc v. Lehman Brothers International (Europe)
[1997] EWCA Civ 3068 [1998] 4 All ER 675, [1997] EWCA Civ 3068
Lord Hobhouse
: Like Harman J, I would dismiss this action on the ground that the claim made is bound to fail. My reasons for coming to this conclusion are substantially the same as those given by Harman J. I would have been willing to adopt his succinct reasons, already quoted by Mummery LJ, why the conversion claim is misconceived. However, in view of the elegant argument advanced before us by Sir Patrick (now Lord) Neill QC, it is right that I should, like my Lords, give my own reasons why I have not been persuaded by his argument. This conclusion suffices for the dismissal of the appeal. Had the position been otherwise and I had concluded that the Plaintiffs had a reasonable prospect of success in the claim they seek to make against Lehman Bros, the present Defendants, I would not have been willing to dismiss this action on the ground that it was an objectionable attempt to re-litigate matters which were, or ought to have been, litigated in the first action.
This is an exceptional case with an exceptional history. Macmillan Inc, with whom the Plaintiffs are to be identified and between whom there is no need to make any distinction, accept in the present case all the findings of fact and, it seems, conclusions of law of Millett J and the Court of Appeal in the previous case (the 1991 action). As stated in paragraph 76 of their skeleton argument and reconfirmed in oral argument before us,
“The appellant is not seeking, in this action, to attack Millett J’s decision in the previous action.”
Thus they do not dispute that Bishopsgate Investment Trust (BIT) obtained the legal title to the 10.5 million Berlitz shares as trustee for Macmillan. Nor do they dispute that Lehman Bros acquired the legal title to 1.9 million of those shares for value in good faith and without notice of the equitable interest of Macmillan. They also accept, as held by Millett J, that they were entitled to no proprietary or personal remedy against Shearson Lehman who acquired the 1.9 million shares from Lehman Bros. What the Plaintiffs say in the present action is that Macmillan had, notwithstanding, and the Plaintiffs have a cause of action in the tort of conversion against Lehman Bros in respect of their dealings with five share certificates (Nos.234, 243, 245, 246 and 347) which, at the various times when BIT transferred Berlitz shares to Lehman Bros, were delivered to LehmanBros. The shares, being choses in action, cannot themselves be the subject matter of a claim in the tort of conversion but the share certificates, the pieces of paper, can be. (S.14 of the Torts (Interference with Goods) Act 1977: BBMB Finance v Eda Holdings [1990] 1 WLR 409). The damages recoverable can include the value of the rights to which the documents relate. If Lehman Bros dealt with the share certificates which they acquired from BIT, even by mere receipt (s.11(2)), inconsistently with the rights of Macmillan, Lehman Bros converted their certificates and it is no defence for Lehman Brothers to say that they dealt with the certificates in good faith and without notice of the interest of Macmillan. (Hollins v Fowler (1875) LR 7 HoL 757)
The question is whether the Plaintiffs have on this basis a realistic chance of succeeding in this action. With the concurrence of the Plaintiffs, this question is not being addressed as a question of the formal sufficiency of the Plaintiffs’ pleading but rather, on the basis of the facts admitted or accepted by the Plaintiffs, whether it is right that this action should be allowed to proceed. The essence of the matter is that the Plaintiffs do not seek to make any contested allegations of fact but rather to draw a conclusion from facts which are now undisputed. If the facts do not have any realistic prospect of justifying the conclusion, the court should say so and bring the action to an end.
The Conversion Point:
The Plaintiffs put their case in three alternative ways: first they say that an equitable title suffices to support an action for conversion; secondly they say that a reversionary title suffices (s.1(d) of the 1977 Act); thirdly they say that they were the bailors of the five certificates and that BIT were their bailees.
Thus it was the Plaintiffs’ primary submission that “a person with an equitable interest in goods can sue for conversion as having an immediate right to possession”; or, to put it another way, Macmillan had “a good cause of action against Lehman Brothers for damage to its reversionary interest in the share certificates” – the “reversionary interest” referred to being the equitable interest. The second basis for their case thus added nothing to the first. This argument was advanced relying on Healey v Healey [1915] 1 KB 938 and what Sir David Cairns had said in International Factors v Rodriguez [1979] 1 QB 351 at 357-8 with the concurrence of Bridge LJ.
Healey v Healey is not authority for the cited proposition, indeed it is authority against it as appears from what Shearman J said at p.940. The furniture and household effects in question had been removed from the house where she was living by the trustee, her husband. She claimed in detinue for their return.
“Now the only title which it is necessary for a plaintiff to allege in order to maintain an action in detinue is a title to the immediate possession of the goods. I am of opinion that the plaintiff has a title to the immediate possession of the chattels claimed by her because the trustees of the settlement only hold them in trust to be used by her and it is impossible for them to be used by her unless she has an immediate right to claim the possession of them from the trustees.”
The basis of the cause of action was the wrongful deprivation of legal possession, not the fact that she was the beneficiary of the trust.
In Rodriguez, Sir David Cairns recognised that contractual rights which fall short of an immediate right to possession do not suffice. (Jarvis v Williams [1955] 1 WLR 71) But he thought that since the fusion of law and equity the equitable interest could support the legal cause of action.
In my judgment, in agreement with Mummery LJ, this opinion was both unnecessary and wrong. Buckley LJ decided the case on the basis of a common law possessory title as bailee giving the immediate right to possession similar to the decision in Marquess of Bute v Barclays Bank [1955] 1 QB 202. Buckley LJ expressly rejected the trust argument at p.360.
However the view of Sir David Cairns was also contrary to earlier authority binding on him as it is on us. Mummery LJ has already referred to these authorities. I will refer to only one. In Joseph v Lyons 15 QBD 280, arguments were advanced which are indistinguishable from those advanced by Sir Patrick before us: see p.282. They were rejected by the Court of Appeal. Brett MR said at p.285:
“He pledged the jewellery with the defendant. He thereby transferred to the defendant a legal and not merely an equitable right: the plaintiff has only an equitable interest and the defendant has a legal interest. The plaintiff cannot maintain a legal remedy like conversion or detinue.”
But the matter is now covered by House of Lords authority and the statement of the law by Lord Brandon in Leigh v Aliakmon [1986] 1 AC 785 at 812. In the Aliakmon case it was necessary to consider whether an equitable title to or interest in goods would suffice to support a claim in tort for the loss of or damage to those goods. The first proposition advanced by counsel for the claimant was that a person who has the equitable ownership of goods is entitled to sue in tort for negligence anyone who by want of reasonable care causes them to be lost or damaged, without joining the legal owner as a party to the action. Both Rodriguez and Healey were cited in argument. (p.803) Lord Brandon (with whose speech the other members of the House agreed) said:
“In my view, the first proposition cannot be supported. There may be cases where a person who is the equitable owner of certain goods has also a possessory title to them. In such a case he is entitled, by virtue of his possessory title rather than his equitable ownership, to sue in tort for negligence anyone whose want of care has caused loss of or damage to the goods without joining the legal owner as a party to the action: see for instance Healey v Healey [1915] 1 KB 938. If however, the person is the equitable owner of the goods and no more, then he must join the legal owner as a party to the action, either as co-plaintiff if he is willing or as a co-defendant if he is not. This has always been the law in the field of equitable ownership of land and I see no reason why it should not also be so in the field of equitable ownership of goods.”
This passage makes it clear that the equitable title or interest does not found the cause of action: it is the possessory title. For a plaintiff to succeed in an action in conversion he must show that in law he had the requisite possessory title, either actual possession or the right to immediate possession. Where a plaintiff is the legal owner of the relevant chattel he will normally be entitled to sue in conversion even if he was not at the relevant time in possession of the chattel. But where there is a person who has a subsisting right to the immediate possession of the chattel, he may sue even the owner of the chattel for wrongfully interfering with his right.
It became apparent from the way in which the Plaintiffs’ argument was developed orally in this Court by Sir Patrick that the Plaintiffs now recognise that they must (at least in this Court) accept this statement of the law by Lord Brandon.
This conclusion is not a quirk of history. The distinction drawn by Maitland in the passage quoted by Mummery LJ stems from an understanding of the different legal concepts involved. It is of the character of legal remedies that they derive from legal rights. That is one reason why they are not discretionary and may impose strict liabilities upon innocent parties. Equitable rights are of a different character and are recognised by the grant of equitable remedies which too have a different character. There may be aspects of the law such as restitution where the principles applied have a hybrid character and where greater assimilation should take place, for example in the treatment of mistake. But, in the present case, what the Plaintiffs are impermissibly seeking to do is to combine a strict legal remedy with a mere equitable right. In the context of the law of conversion, the failure to make the distinction produces anomalies and absurdities as the present case illustrates. How can a sale of a legal title by a person entitled to sell it to another who thereby acquires a good legal title be tortious? The way in which equity works is to say that the purchaser takes subject to the same equities as the vendor unless the purchaser can show that he was a bona fide purchaser for value without notice of those equities; if he cannot he is open to the same equitable remedies as was the vendor. The common law acts in a different way, as can be illustrated by the rule that a person paying damages in conversion thereby acquires the title of the plaintiff. (See now s.5 of the Act.) If the defendant’s title is already complete in law and in equity, how is this principle to operate?
Sir Patrick sought in the alternative to avoid this objection by basing his case on the law of bailment. As will be appreciated from the authorities, this is a legitimate approach if he can make it good on the facts of this case. He submitted that the relevant certificates, including the five the subject matter of this action were held by BIT as the bailees of Macmillan Inc and that this was the effect of the Nominee Agreement of 5th November 1990, in particular, clause 3 of that Agreement by which BIT agreed that
“on written demand of Macmillan it will immediately transfer the Berlitz shares to Macmillan or such other party or parties as Macmillan shall designate in writing ad will cause its authorised officers to execute each and every document required to effectuate such transfer.”
This argument and this clause do not assist him for several reasons.
First, the clause is no more than a statement of the obligation of a bare trustee to comply with the instructions of the beneficiary. It is not a description of a bailment. The Agreement transferred the legal title in the shares to BIT. BIT received the share certificates as the owner of the shares not as the bailee of shares belonging to a bailor. A relationship of beneficiary and trustee is not that of bailor and bailee. It is in law the antithesis of that: the bailor has the legal property as does the trustee, not the beneficiary. It is also a confusion to refer to the language of bailment which talks of the bailor entrusting the goods to the bailee and to equate that with a declaration of trust. The one is, despite the language, a legal relationship (cf The Albazero [1977] AC 774 per Lord Diplock at pp.845-6); the other is purely equitable.
Secondly, documents of title can be treated separately from the rights or property to which they relate. But their primary function is as an incident of legal title. Where the legal (or equitable) title is transferred, the title to the relevant deeds is prima facie transferred as well. It is as an extension of this reasoning that dealings with the deeds can confer equitable rights over the relevant property. (eg In re Richardson 30 Ch Div 396 at 403) Here BIT received the certificates as, and because it had become, the owner of the shares. There was no evidence of any distinct transaction covering the certificates to alter this position. The entire relationship was that of trustee and beneficiary. There is no evidence of any transaction which created a bailment. Clause 3 certainly does not suffice to have this effect. It is part of a document which creates a trust of the shares. It relates to those shares. Any share certificates only enter into the matter consequentially. Just as BIT had the legal title enabling it in law to deal with the shares, so, they could in law deal with the certificates as an incident of that legal title. This point carries over into an objection to treating the receipt by Lehman Bros of the certificates as an act of conversion. They had dealt with the legal owner of the shares (BIT) and they acquired the certificates as part of that transaction giving them the right to be registered as the legal owners of the shares. Dealings which do not infringe the legal rights of others cannot give rise to legal liabilities. The legality of the dealing with the shares covers the legality of the dealing with the certificates.
Thirdly, the argument broke down on the facts. The certificates which covered the shares at the time the 10.6 million shares were transferred to BIT were the 9 certificates issued to Macmillan in October 1990. When the shares had been transferred to Macmillan on 5th November 1990, BIT surrendered those 9 certificates and received in exchange the 21 certificates which they held thereafter and among which were the presently relevant certificates Nos.234, 243, 245 and 246. The fifth, certificate No.347, was a certificate which was issued to Lehman Bros in July 1991 after the shares to which certificates Nos.243, 245 and 246 related had been put into the DTC paperless system and those three certificates had ceased to exist. No.347 was delivered to BIT by Lehman Bros when they returned 130,000 shares to BIT on 22 August 1991. No.347 re-entered the story when 630,000 shares were transferred by BIT to Lehman Bros on 27 September 1991 together with certificates Nos. 234 and 347.
Thus it is not possible for the Plaintiffs to argue that, as regards the material certificates, there was any delivery of those pieces of paper by them to BIT and with regard to No. 347 this is even clearer since that certificate was delivered to BIT by Lehman Bros themselves. It may be that, if the Plaintiffs’ other arguments were valid, a way round these factual difficulties might be found. But what it does undoubtedly demonstrate is that the Plaintiffs have to make good their argument on the wording of the Nominee Agreement alone and that they cannot point to any other part of the transaction which supports a bailment.
The other cases cited by the Plaintiffs did not alter this picture. Sir Patrick sought to gain support from such cases as Union Transport Finance v British Car Auctions [1978] 2 AER 385 where wrongful conduct of the person in possession is recognised as bringing to an end the right of the person in possession to continue in possession as against the owner (or bailor), thus entitling the owner to assert an immediate right to possession and sue in tort. This principle derives from the law of bailment. If the Plaintiffs had made out their case of a bailor-bailee relationship, they could rely upon the tortious disposal by the bailee as founding a right to sue in tort. But where the act complained of is an act of a trustee with the legal title which the trustee is in law empowered to do, the act does not alter the legal position, nor can it be characterised in the relevant sense as unlawful. The remedy of the beneficiary against the trustee (and any other person involved) is equitable only.
The attempt to introduce a tort of interference with reversionary interests encounters a similar fundamental difficulty. What is the right or interest which is being interfered with? If the Plaintiffs can establish a legal interest, this concept becomes relevant. But so long as it remains a mere equitable interest, it comes up against the same difficulties and objections to the primary way of putting their case and is inconsistent with binding authority.
Accordingly on this part of the case, I agree with the judgment of Mummery LJ and with that of Harman J. My reasons are substantially the same as theirs. I should also mention that I have found the Articles published by Professor Tettenborn of particular assistance in my consideration of this topic.
The Res Judicata Point:
I will take this point shortly. The hypothesis upon which it has to be considered is that (contrary to my view) the Plaintiffs have a realistic chance of succeeding in an action against Lehman Bros on a claim for the conversion of share certificates Nos.243, 243, 245, 246 and 347. Lehman Bros were not a party to the previous action. An application could have been made to join them by either side. They were not joined because, for the subject matter of that action, it was unnecessary to do so and Shearson Lehman had agreed to give discovery of all documents regardless of whose custody they were in. The previous action was (in the relevant respect) concerned with the legal and equitable title to the 1.9 million Berlitz shares registered in the name of Shearson Lehman. These shares were covered in the hands of Shearson Lehman
Islamic Republic of Iran v The Barakat Galleries Ltd
[2007] EWCA Civ 1374 [2007] 2 CLC 994, [2009] QB 22, [2008] 2 All ER (Comm) 225, [2008] 3 WLR 486, [2008] 1 All ER 1177, [2007] EWCA Civ 1374
Lord Phillips
Controversy exists as to the position where “A” who is in possession of a chattel, or who is entitled to immediate possession of the chattel, agrees that another (“B”) may enter into possession of the chattel. Can B rely upon his contractual right to immediate possession to found an action in conversion against C who wrongly interferes with the chattel? If by the agreement A has transferred to B not merely the right to enter into possession, but the ownership that A enjoyed, so that B enjoys both proprietary title and an immediate right to possession, he will be entitled to sue in conversion. If, however, A has retained his proprietary title, it is not clear that B can rely on his contractual right to enter into immediate possession to found a claim in conversion. It is Iran’s case that he can; it is Barakat’s case that he cannot.
The reissue of the 4th edition of Halsbury’s Laws of England, volume 45 (2) states:
“559. Right of possession and property. To sue in conversion a claimant must show that he had either possession, or an immediate right to possession, of the chattel at the time of the act in question. Either relationship with the chattel affords the necessary possessory title to sustain a claim for conversion. If either is shown, the claimant need not be the owner of the chattel in order to succeed in conversion; indeed an owner can be liable in conversion to a person who had either possession or the immediate right of possession at the time of the owner’s act.
…
560. Contractual right of possession. It appears that a mere contractual right to possess will suffice to sue in conversion, and that the claimant’s right of possession need not derive from a proprietary interest in the chattel.”
These propositions receive support from the following statements in textbooks covering the subject:
(1) Salmond, Law of Torts, 21st ed. 1996, p. 108: “Whenever goods have been converted, an action will lie at the suit of any person in actual possession or entitled at the time of conversion to the immediate possession of them.”
(2) Winfield and Jolowicz, Tort, 17th ed. 2006, at p. 762 states that a claimant can maintain conversion if at the time of the defendant’s act he had an immediate right to possess the goods “without either ownership or actual possession”.
(3) Markesinis and Deakin, Tort Law, 5th ed. 2003, at p.436: “[i]n order to be able to sue [in conversion] the plaintiff must have the right to any one of ownership, possession, or the immediate right to possess”.
(4) F. H. Lawson, Remedies of English Law, 2nd ed. 1980, at p. 122: “In ejectment and conversion [the claimant] must prove his title, that is to say that he has a right to the immediate possession of the land or chattel.”
These unqualified statements that an immediate right to possession will suffice to found a cause of action in conversion are to be contrasted with the view of the editors of the 19th edition of Clerk & Lindsell, Torts (para 17-59:
“Claimant’s right must be proprietary. For these purposes, it seems that the immediate right to possession on which the owner relies must be a proprietary right; a mere contractual right will not do.”
Two authorities are cited in support of this proposition, Jarvis v Williams [1955] 1 WLR 71; International Factors v Rodriguez [1979] 1 QB 351. The judge considered these authorities and held that they supported the passage in Clerk and Lindsell. He concluded (at para 71):
“For these reasons I am satisfied that Iran is required in the present case to establish the proprietary nature of its right to possession of the antiquities which is required in order for an action in conversion or for wrongful interference with goods to succeed. For the reasons which I have already given, this is something which Iran is unable to do.”
Jarvis v Williams [1955] 1 WLR 71 involved a claim in detinue. Paterson ordered some bathroom fittings from the plaintiff, Jarvis. At his request Jarvis delivered them to the premises of the defendant Williams. Paterson did not pay for the goods and agreed that Jarvis could take them back. Williams refused to permit Jarvis to collect the fittings and Jarvis brought an action against him. The judge held that he had a good claim. The Court of Appeal reversed this finding.
After reference to the relevant part of the judgment at first instance, Lord Evershed MR held (at 74):
“I take that to mean that the contractual right which the plaintiff had vis-à-vis Paterson to go and collect these goods from Paterson’s agent was a right of a sufficient character to enable the plaintiff to bring an action in detinue against the agent of the owner of the property in these goods. But, with all respect to the county court judge, I am unable to accept that as a good proposition of law. Certain classes of persons, as for example bailees, have, no doubt, a special right to sustain actions in trover and detinue, but the general rule is, I think, correctly stated in the text of Halsbury’s Laws of England, 2nd ed., vol.33 at p. 62, para. 98. ‘In order to maintain an action of trover or detinue a person must have the right of possession and a right of property in the goods at the time of the conversion or detention; and he cannot sue if he has parted with the property in the goods at the time of the alleged conversion, or if at the time of the alleged conversion his title to the goods has been divested by a disposition which is valid under the Factors Act, 1889.’ “
After reference to authority, Lord Evershed continued (at 75):
“Although it is, no doubt, true in a sense, and certainly in its original medieval conception, that when speaking of property in chattels there is in mind the right to their immediate possession, nevertheless the sense of property in chattels is now well understood. It is involved in the Sale of Goods Act, 1893, itself. Even though, by contract between himself and Paterson, the plaintiff may have had a right which, if infringed, could form the subject-matter of an action for breach of contract, and though he had a right to go and possess himself of these goods, nevertheless, until he has done so, there was in him according to my construction of the arrangement, no proprietary interest in the goods, in the sense in which that term is now, as I think, commonly understood. It seems to me therefore, that he had not, on the authorities which I have mentioned, the necessary foundation on which to sustain an action for detinue against the defendant. He, no doubt, could sue Paterson either for the price of goods or for damages for breach of this arrangement for the return of the goods when the defendant refused to deliver them over. But I think that the rights of the plaintiff as regards these goods were not such as entitled him to bring an action in detinue against the defendant, in whose possession they were, as agent, at the time, of the person in whom the property in the goods was then vested.”
In their skeleton argument, counsel for Iran sought to distinguish this case on the basis that it referred to a claim in detinue, not a claim in conversion. Lord Evershed’s citation from Halsbury suggests that he was drawing no such distinction. Jarvis v Williams is a difficult case to analyse. Both the County Court Judge and the Court of Appeal were prepared to proceed on the basis that the plaintiff had a contractual right to collect the goods from the defendant, but the precise nature of the contract is not spelt out. If a contractual analysis is appropriate, we think that the contract was a conditional contract under which it was agreed that, if the plaintiff recovered possession of the goods, he would receive them in discharge of Paterson’s obligation to pay for them. It was not a contract under which Paterson purported to transfer to the plaintiff his immediate right to the possession of the goods. While the passage that we have quoted from the judgment of Lord Evershed certainly supports Barakat’s case, we do not consider that, when the facts of the case are considered, it can safely be treated as binding precedent for the proposition that a contractual right to immediate possession can never found a claim in conversion.
Iran’s skeleton argues that, in so far as Lord Evershed’s reasoning extended to the tort of conversion, it should not be followed because it is in conflict with more recent authorities. We turn to consider some of these.
Sir David Cairns purported to follow Jarvis v Williams when giving the leading judgment in International Factors v Rodriguez [1979] 1 QB 351. That case involved a factoring agreement under which the plaintiffs had purchased the book debts of a company of which the defendant was a director. The agreement provided that if any cheque was paid to the company rather than to the plaintiffs, it should be held in trust for the plaintiffs and transferred to them. In breach of this agreement the defendant caused four such cheques to be paid into the company’s bank account. The plaintiffs’ action in conversion succeeded. Sir David held that Jarvis v Williams established that a claimant in conversion had to show not merely an immediate right to possession but a proprietary interest in the subject matter of the claim. This requirement was, however, satisfied by the plaintiffs’ equitable interest in the cheques. Bridge LJ stated that he agreed. Buckley LJ held, however, that the contractual right of the plaintiffs to demand immediate delivery of the cheques sufficed to found a claim in conversion, whether or not an immediate trust attached to the cheques.
International Factors v Rodriguez received consideration by all three members of the Court of Appeal in MCC Proceeds Inc v Lehman Brothers International (Europe) [1998] 4 All ER 675. The relevant issue was whether an equitable title in share certificates could found a claim in conversion. The court held that it could not, and disapproved the significance that Sir David Cairns appeared to have attached to the plaintiffs’ equitable interest in the cheques in that case. Mummery LJ expressed the view that this was not necessary to the decision. Pill and Hobhouse LJJ agreed. The latter observed (at 700 and 701):
“Buckley LJ decided the case on the basis of a common law possessory title as bailee giving the immediate right to possession…For a plaintiff to succeed in an action in conversion he must show that in law he had the requisite possessory title, either actual possession or the right to immediate possession. Where a plaintiff is the legal owner of the relevant chattel he will normally be entitled to sue in conversion even if he was not at the relevant time in possession of the chattel. But where there is a person who has a subsisting right to the immediate possession of the chattel, he may sue even the owner of the chattel for wrongfully interfering with his right.”
There is thus a conflict between Jarvis v Williams and International Factors v Rodriguez, as explained in MCC Proceeds v Lehman Brothers. Where the owner of goods who has an immediate right to possession of them, albeit that they are in the possession of a third party, by agreement transfers his title to a new owner, the new owner can bring a claim in conversion against the person in whose possession they are. Where the owner of goods with an immediate right to possession of them by contract transfers the latter right to another, so that he no longer has an immediate right to possession, but retains ownership, it would seem right in principle that the transferee should be entitled to sue in conversion. A fortiori if the contract provides that when the transferee enters into possession, ownership will be transferred to him. We consider that this accords with the weight of academic opinion and can be reconciled with the facts of Jarvis v Williams.
Contractual transfer of rights is far removed from the facts of this case. The judge concluded, on the strength of Jarvis v Williams, that a claimant in conversion must demonstrate some proprietary right in the goods and that Iran could not do so. We now turn to consider whether Iran has any interest in the antiquities and, if so, the nature of such interest.
Uzinterimpex JSC v Standard Bank Plc
[2008] EWCA Civ 819 [2008] Bus LR 1762
MooreBix LJ
c) Claim to the proceeds of sale
There was no dispute that in some, if not all, of those cases in which AMJ had obtained delivery of parcels of cotton without taking up and paying for the documents it had remitted the proceeds of the sub-sale to the Bank. Mr. Gruder submitted that in those circumstances Uzinterimpex was entitled to recover from the Bank the funds received from AMJ which had been derived from those sources or an amount equal to them. He put the case in two ways: that the funds were Uzinterimpex’s property and could be recovered as such; alternatively that the Bank was liable by virtue of its knowing receipt of funds which were impressed with a trust in favour of Uzinterimpex.
(i) The funds as Uzinterimpex’s property
In his written skeleton argument Mr. Gruder submitted that in cases where AMJ obtained delivery of the cotton without taking up the documents it did not obtain title to the goods which remained in Uzinterimpex. For the reasons given above I think that is correct. He then submitted that the proceeds of sale remained the property of Uzinterimpex which it was entitled to recover from the Bank. Although this argument found a place in Uzinterimpex’s written closing submissions at trial, it had not been pleaded and the judge did not deal with it in his judgment, all of which leads me to think that it may not have been developed very fully in oral argument. The judge did not give permission to appeal on this point and in the event Mr. Gruder did not seek to develop it in oral argument, preferring to concentrate on the claim based on knowing receipt. In these circumstances I am doubtful whether it is appropriate for us to entertain the point at all. Nonetheless, I propose to explain as briefly as I can why I am persuaded that it is not sound.
Mr. Gruder’s argument was based on the decision in Trustee of the Property of F.C. Jones v Jones [1997] 1 Ch 159. In that case the wife of a bankrupt used money drawn from his bank account to trade in potato futures. She made a profit in doing so and placed the resulting funds to the credit of a deposit account opened in her own name with another bank. It appears that no other funds were paid into that account. Her husband’s trustee in bankruptcy claimed title to the funds and the bank interpleaded. The court held that the trustee could recover the money as his own property. On the adjudication of bankruptcy the effect of the Bankruptcy Act 1914 was to divest the bankrupt retrospectively of any title to the money that had been used by his wife for her trading. She acquired no title to it, nor did she acquire any title to the proceeds of their use and therefore the funds standing to the credit of the deposit account were to be regarded as the property of the trustee. As is clear from the judgment of Millett L.J., the decision in that case turned on the fact that the wife acquired no legal or beneficial interest in the money taken from the bankrupt’s account with which the funds in the deposit account could be identified. She was not a constructive trustee of the funds because she acquired no legal title to them.
The decision in Trustee of the Property of F.C. Jones v Jones has been the subject of some criticism and also of some approbation, but in any event we are bound by it for what it decides. However, the present case differs in two important respects. AMJ obtained control over some of Uzinterimpex’s goods and sold them to third parties. The common law rules governing the passing of property normally prevent a seller from giving a better title than he has himself (‘nemo dat quod non habet’) but they do not prevent him from obtaining title to the proceeds of the sale even though he does not himself give a good title. When the seller pays the proceeds of sale into his bank, he becomes the owner of the debt represented by the credit balance on his account. In my view, therefore, when AMJ sold to its customers cotton over which it had obtained control but to which it had not acquired title, the legal title to the proceeds of sale vested in AMJ itself, but it held them in trust for Uzinterimpex for the reasons explained by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at page 716C-D.
The Transaction Account into which the proceeds of sale were paid in this case was not a deposit account opened to receive a single sum of money, nor was it a simple current account in the name of AMJ. It was an account established primarily for the purpose of repaying the debt due under the Facility Agreement. It will be necessary to consider at a later stage the precise character in which the Bank received the funds remitted to it, but for reasons which will become apparent later I consider that the overriding intention was to transfer the beneficial, if not the legal, interest in the bulk of the funds to the Syndicate. Moreover, the funds paid into the account were derived from different sources – some from the sale of cotton to which AMJ had acquired title and some from the sale of cotton to which it had not – and in most cases were distributed within a few days of their receipt. It is doubtful, to say the least, whether it would have been possible at any stage to identify the whole of the funds standing to the credit of the account as being the proceeds of one or more wrongful sales of cotton, but in any event no attempt was made to do so. It is not possible, therefore, as it was in Trustee of the Property of F.C. Jones v Jones, to identify the amount standing to the credit of the account with misappropriated cotton from which it had been derived. For all these reasons I do not think that that it is possible to bring this case within the principles applied in that case.
(ii) Knowing receipt of trust property
Uzinterimpex’s alternative ground of claim against the Bank arising out of what is said to be double recovery is that the Bank is bound to account as a constructive trustee for the proceeds of the sale of goods which were misappropriated and sold by AMJ. The Bank accepted in argument that AMJ had received the proceeds of sale as a constructive trustee for Uzinterimpex, but submitted that it had not itself acted in such a capacity or with such knowledge as to render it liable to account as a constructive trustee.
Liability to account as a constructive trustee on the grounds of knowing receipt of trust property depends on receipt by the defendant of trust property otherwise than in a ministerial capacity with the necessary degree of knowledge. Each of these elements of liability was in dispute in the present case. Mr. Phillips Q.C. submitted that although the proceeds of sale were paid into the Transaction Account, the Bank did not receive them in a capacity which rendered it liable to account as a knowing recipient, even if it was aware of the source from which they had been derived. His argument was based on the well-known passage in the judgment of Millett J. in Agip (Africa) Ltd v Jackson in which the judge drew a distinction between a bank collecting money for a customer whose account is in credit and a bank collecting money for a customer whose account is overdrawn so that it receives the money for its own benefit: see page 292A-B. He submitted that in the present case the Bank received the funds as agent for the Syndicate and not in any beneficial capacity.
It has long been recognised that a distinction is to be drawn between one who receives trust property merely as agent and one who receives it in a beneficial capacity: see Snell’s Equity, 31st ed. §28-46 which is supported by the dictum of Sir James Bacon V.-C. in Lee v Sankey (1873) 15 L.R. Eq. 204, 211 and the decision of Bennett J. in Williams-Ashman v Price & Williams [1942] 1 Ch. 219. The ground of distinction, as I understand it, is that a person who receives property merely as an agent has no interest of any kind in it himself and must simply account to his principal for it. Receipt by him is the equivalent of receipt by the principal. When a person opens a current account at a bank he authorises the bank to receive payments from third parties on his behalf and therefore payment by a third party to the customer’s account at the bank is payment to the customer. However, it has long been established that the relationship between banker and customer is one of creditor and debtor: see Foley v Hill (1848) 11 H.L.C. 28. The customer whose account is in credit lends the money to the bank for use by it in its business. The distinction drawn in Agip v Jackson between receipt by a bank into an account that is in credit and receipt into an account that is overdrawn has been criticised on the grounds that the nature of the relationship between banker and customer is such that the bank always has the benefit of using the customer’s money for its own purposes until such time as it is called upon to repay the debt: see in particular Bryan, Recovering Misdirected Money from Banks: Ministerial Receipt at Law and in Equity published in Restitution and Banking Law (1998), ed. Rose. Mr. Gruder adopted the arguments in that paper as the basis for challenging the judge’s decision in this case.
In my view there is a good deal of force in Dr. Bryan’s criticism of the decision in Agip v Jackson, but it is unnecessary for the purposes of this appeal to decide whether it is well-founded because whatever may be the position with regard to money paid into an ordinary current account which is in credit, the Transaction Account was not of that kind. It was an account opened specifically for the purposes of receiving the proceeds of the sale of cotton purchased by AMJ and as such was an integral part of the machinery for the repayment of the loan. As such it was, in effect, a blocked account out of which the Bank was to pay its own fees and expenses, the amounts due the members of the Syndicate (including itself) from time to time in repayment of the loan and an amount to AMJ in respect of profits generated by the sub-sales.
The Bank was described in the Facility Agreement as “the Agent” acting in the capacity as “agent and security agent” for the Syndicate. It is clear from the reference in the definition section of the agreement to the guarantee itself and NBU as the guarantor that the parties understood that the guarantee was made in favour of the Bank as security agent and trustee for the Syndicate. Clause 15 of the Facility Agreement governed the relationship between the Bank and the other members of the Syndicate. The material parts provided as follows:
“15.1.1 Each Bank and the Issuing Bank hereby irrevocably appoints the Agent to act as its agent in connection with the administration of the Facility and to act as its agent and trustee in connection with the Security Documents and for such purposes irrevocably authorises the Agent to take such action and to exercise and carry out all the discretions, authorities, rights, powers and duties as are specifically delegated to the Agent in this Agreement and each Security Document together with such powers and discretions as are incidental thereto.
15.2.1 The Agent will promptly account to the Issuing Bank or the Lending Office of each Bank for the Issuing Bank’s or such Bank’s due proportion of all sums received by the Agent for the Issuing Bank or such Bank’s account, whether by way of repayment or prepayment of principal or payment of interest, fees or otherwise.
15.9.1 In performing its functions and duties under this Agreement, the Agent shall act solely as the agent for Issuing Bank and the Banks and save as expressly provided herein and in the Security Documents shall not be deemed to be acting as trustee for the Issuing Bank or any Bank and shall not assume or be deemed to have assumed any obligation as agent or trustee for, or any relationship of agency or trust with the Borrower.”
Mr. Phillips submitted that the Bank’s relationship with the other members of the Syndicate was one of pure agency, relying principally on clause 15.9.1 of the Facility Agreement, but it is difficult to reconcile that with the terms of clause 7 which deals with the operation of the Transaction Account. Funds paid into that account were held by the Bank for distribution in accordance with a complicated formula which provided in certain events for part of them to be paid out to AMJ. Moreover, the Bank held the security documents (which included the guarantee) as trustee for itself and the other members of the Syndicate and in those circumstances I find it difficult to accept that the Bank did not also hold any proceeds of the guarantee as a trustee. Mr. Phillips submitted that the Bank received any funds remitted to the Transaction Account merely as agent for the Syndicate. For the reasons given earlier, I do not think that can have been the position in relation to the funds received under the guarantee (which were also paid into the Transaction Account) and I very much doubt that it was in fact the position in relation to any funds remitted to the Transaction Account by AMJ, which I think were held by the Bank on trust to be distributed in accordance with clause 7. However, if Mr. Phillips’ argument is correct, the funds in the Transaction Account were received and held jointly by all the members of the Syndicate as principals of the Bank for the purposes set out in the Facility Agreement and it cannot be said that prior to their distribution the Bank had no beneficial interest in them. In my view, whether the Bank received funds paid into the Transaction Account as a trustee or simply as agent for the Syndicate, it received them in a capacity which gave it a sufficient interest to render it liable as a constructive trustee if it had the required degree of knowledge.
In Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437 Nourse L.J., with whom Ward and Sedley L.JJ. agreed, concluded after an examination of authorities both in this country and abroad that there is a single test of knowledge for knowing receipt, namely, that the recipient’s state of mind must be such as to make it unconscionable for him to retain the benefit of the property. At the trial Uzinterimpex’s primary case was that the Bank had acted dishonestly when making its demand under the guarantee and for that reason attention was directed primarily to the state of its knowledge at that time. It was to be expected that the amounts paid into the Transaction Account would exceed the amount by which the guarantee had been reduced because everyone contemplated that AMJ would sell the cotton at a price sufficient not only to cover the purchase price and the interest on the loan but also to provide an element of profit. However, Mr. Gruder was able to point to passages in the documents and the evidence of the witnesses which tended to show that in late September or early October 1998, shortly before the demand was made under the guarantee, the Bank was aware that the funds paid into the Transaction Account by AMJ exceeded the amount by which the guarantee had been reduced by far more than could have been expected. The Bank already knew that at an early stage in the performance of the sale contract AMJ had contrived to obtain possession of cotton for which it held no documents of title; indeed the Bank itself had been party to arrangements enabling it to do so. In the light of its previous experience, he submitted, the Bank had every reason to think that AMJ had continued to act in the same way, obtaining control over goods for which it had not paid and to which it had no title and selling them on to its customers, as was indeed the case.
The judge rejected all the allegations of dishonesty made against the Bank and in doing so rejected any suggestion that it had become aware that AMJ was selling goods to which it had no title. He recorded that it was common ground that it was necessary for Uzinterimpex to establish at least that the Bank entertained a clear suspicion that AMJ was not entitled to the proceeds of sale in order to render it unconscionable for it to retain them, but noted that no such case had been advanced other than in relation to the proceeds of the sale of cotton in respect of which the Bank itself had countersigned letters of indemnity or provided releases. Those cargoes had by then ceased to be of any relevance because all claims in respect of them had been settled. In addition he made a finding in paragraph 177(v) that even if there had been grounds for suspicion the Bank “was not in a position to carry out a reconciliation of such proceeds as were not matched by a reduction in [the guarantee]”, by which I understand him to mean that the Bank was unable to match the proceeds of sale to the documents presented by Uzinterimpex in order to identify which particular goods had been sold. The difficulties of carrying out any such reconciliation were compounded by the fact that in many cases documents were presented and accepted long after the goods to which they related had been sold.
Mr. Gruder challenged the judge’s observation that Uzinterimpex had not sought to argue that the Bank entertained a clear suspicion that AMJ was not entitled to the proceeds of sale, but I think he misunderstood what the judge was saying in paragraph 177(v). Uzinterimpex did argue that by October 1998 the Bank realised that AMJ had sold goods to which it had no title, but, except in those cases where it had countersigned letters of indemnity or issued releases, it did not seek to show that at the time the Bank received any particular remittance of funds from AMJ it had grounds for suspecting that they had been derived from a tainted source and the finding in paragraph 177(v) is inconsistent with any such conclusion. Funds flowed into the Transaction Account in various amounts at irregular intervals and in general were distributed within a few days of receipt. The Bank’s understanding of the position no doubt developed over the course of time and I would accept that it must have been aware that AMJ was willing to resort to improper means to obtain control over consignments of cotton so as to enable it to sell them on to its own buyers. However, for the purposes of this argument it is necessary to consider its state of mind at the time of each receipt of funds and if the judge’s finding stands, it is fatal to the suggestion that the Bank had grounds for suspicion that any particular remittance represented the fruits of an unlawful transaction.
Mr. Gruder sought to persuade us that the judge’s finding was wrong, but the main difficulty facing him is the fact that the evidence at trial was not directed to the Bank’s state of mind at any time other than that at which it made its call under the guarantee. The documents may show that by October 1998 the Bank had some grounds for thinking that things might have gone awry and consistently with that its witnesses were cross-examined in general terms about the propriety of making a demand in circumstances where there might be a double recovery, but no attempt was made to investigate the state of mind of the relevant employees at the time of any particular receipt of funds. That is perhaps not surprising given the nature of Uzinterimpex’s primary case, but it means that there is no evidential basis for asking this court to find that the Bank received any particular funds paid into the Transaction Account with knowledge of a kind that would make its retention of them unconscionable. Nor is there any evidential basis for a finding that it acquired such knowledge before they were distributed. For this reason the claim based on knowing receipt of trust property must fail. For the same reasons the submission that the Bank dishonestly assisted in a breach of trust by AMJ cannot succeed either.
(c) The claim in conversion – mitigation
The judge held that, although by refusing to release the documents of title to cotton still held in warehouses in various ports in Europe and the Middle East the Bank had converted the goods, Uzinterimpex had acted unreasonably and in breach of its duty to mitigate by refusing to agree to the sale of the goods and the payment of the proceeds of sale into a joint account to abide the resolution of the dispute. He therefore held that that it was not entitled to recover damages in respect of any loss incurred after mid-September 2000 when it should have agreed to the Bank’s proposal.
In seeking to challenge that aspect of the judge’s decision Mr. Gruder submitted that there was no duty on Uzinterimpex to co-operate with the Bank in the disposal of its own property. He submitted that Uzinterimpex was entitled to maintain its demand for the return of the goods and that the Bank failed to comply with it at its peril. He also submitted that the judge was wrong to find that it had acted unreasonably having regard to the circumstances then existing and the nature of the relationship between the parties.
(i) Did Uzinterimpex fail to act reasonably?
It is convenient to dispose of the second of these two arguments first. As a general rule the victim of an unlawful act has a duty to take reasonable steps to ensure that any damage he suffers as a result is kept to a minimum. This is described in McGregor on Damages, 17th ed. paragraph 7-015 as ‘the rule as to avoidable loss’, for which the well-known passage in the speech of Viscount Haldane L.C. in British Westinghouse Co. v Underground Railway [1912] AC 673 at 689 is cited as authority. Whether any duty to mitigate arose in the present case is a question of law to which I shall return, but if it does, whether Uzinterimpex acted reasonably to avoid loss depends on the circumstances of the case and is therefore a matter of fact. Thus in Payzu Ltd v Saunders [1919] 2 K.B. 581 Bankes L.J. said at page 588
“It is plain that the question what is reasonable for a person to do in mitigation of his damages cannot be a question of law but must be one of fact in the circumstances of each particular case.”
and Scrutton L.J. said at page 589
“Mr. Matthews has contended that in considering what steps should be taken to mitigate the damage all contractual relations with the party in default must be excluded. That is contrary to my experience. In certain cases of personal service it may be unreasonable to expect a plaintiff to consider an offer from the other party who has grossly injured him; but in commercial contracts it is generally reasonable to accept an offer from the party in default. However, it is always a question of fact. About the law there is no difficulty.”
In the present case the cotton was held in warehouses where it was incurring storage charges and was also at risk of deterioration. It was a commercial commodity, Uzinterimpex’sonly interest in it being to realise its value on the open market, and as in the case of all such commodities, fluctuations in the market could also be expected to affect its value. The present dispute as to ownership of the goods arose in a purely commercial context and is of a kind that is often encountered in international trade. It most commonly takes the form of a dispute between buyer and seller as to whether goods or documents tendered under a contract conform to its terms. The solution frequently adopted is to sell the goods ‘for the account of whom it may concern’ and for the parties or their legal representatives to hold the proceeds in a secure manner pending the resolution of the dispute. In the present case the dispute lay between the seller and the bank financing the purchase, but in substance it was of the same kind and amenable to the same solution. Whether it was unreasonable for Uzinterimpex to refuse to agree to a sale of the cotton was a matter of judgment based on an evaluation of all the evidence and on a matter of that kind an appellate court cannot properly interfere with the judge’s decision unless it is satisfied that it was plainly wrong.
There was a suggestion in Mr. Gruder’s submissions that the judge had placed too high a burden on Uzinterimpex when considering whether it had acted reasonably in all the circumstances. It is trite law, however, that the burden on the victim of a wrongful act to take steps to minimise his loss is not a heavy one – see the well-known passage in the speech of Lord MacMillan in Banco do Portugal v Waterlow [1932] AC 452 at page 506 – and I am confident that the judge had the principle well in mind. He thought that the question whether the Bank had a proprietary interest of some kind in the cotton was not straightforward. I am not sure I would agree with that. Having rejected the documents, the Bank could only hold them for Uzinterimpex’s account, as the arbitrators subsequently held, and therefore Uzinterimpex had some justification for thinking that the Bank had embarked on a cynical attempt to improve its own position. It had, after all, adopted contradictory positions, first insisting that it had no interest in the cotton, then at the last minute asserting that it had. However, I do not think that significantly affects the matter. Self-interested conduct of that kind, though unattractive, is not unknown in the world of commerce and rarely justifies a complete breakdown in relations. Commercial institutions, including banks and those who trade in commodities, are in business to make money and in the absence of fraud generally find it more rewarding to maximise their profits and minimise their losses in whatever way is open to them rather than to stand on principle.
Equally, I do not think that there is much force in the argument that it was unreasonable to expect Uzinterimpex to enter into negotiations with a thief (to use Mr. Gruder’s own expression). However badly the Bank may be thought to have behaved, it was asserting an interest in the goods, had not permanently deprived Uzinterimpex of them and was not seeking to extort money from it as the price of their release. It was merely suggesting that the goods be converted into money so as to preserve their value for the benefit of whichever party should ultimately prove to be entitled to them. The cotton itself had no intrinsic quality other than that of a commodity whose value could be realised by sale in the open market and it is unlikely that the court would have granted an order for specific delivery in any event. The fact that the Bank had made a claim under the guarantee to recover the price paid in advance seems to me to be neither here nor there when it came to deciding how best to preserve the value of the cotton as a commercial asset.
The judge found that Uzinterimpex’s attitude to the Bank was coloured by a lack of faith and confidence and one can see why that should have been so. I can understand, moreover, why Mr. Gruder submitted that the relationship was further soured by the tone of the correspondence emanating from the Bank’s solicitors. Nonetheless, it would have been a simple matter to arrange for the proceeds of sale to be paid into an account over which neither party had independent control, thereby ensuring that Uzinterimpex’s position was fully protected. Similarly, Uzinterimpex’s concern about the manner and timing of any sale need not have prevented the disposal of the cotton if the parties had been willing to co-operate in a sensible way. In the end the judge had to decide whether objections based on practical considerations of that kind were strong enough, taken in conjunction with Uzinterimpex’s other objections, to justify its refusal to accede to the disposal of the goods. He came to the clear conclusion that they were not, and I am not persuaded that on the evidence before him his decision was wrong.
(ii) Does conversion give rise to a duty to mitigate?
Although there was a dispute about the date on which the Bank had converted the goods, the judge accepted Uzinterimpex’s argument that the wrongful act had occurred on 17th April 2000 when the injunction was discharged and the Bank first asserted a right over them. He therefore took their value on that date as the starting point for calculating the loss which took two forms: the direct loss arising from the interference with Uzinterimpex’s rights in the goods themselves and consequential losses in the form of deterioration, market losses and the storage charges which continued to accrue while Uzinterimpex was prevented from dealing with them.
Mr. Gruder’s primary argument was that Uzinterimpex was under no duty to mitigate its loss in this case because of the nature of the wrongful act on which the claim is based. If that is right, it can only be because there is a special rule applicable to the tort of conversion or because the nature of the loss is not capable of being reduced by any subsequent actions of the victim. To say that a person whose goods have been wrongfully seized by another is not obliged to negotiate with the person who has taken them, which is one way in which Mr. Gruder put the submission, has some attraction, but only because in many cases it will be unreasonable to expect him to do so. That is particularly true if one takes as an example the person whose property is stolen by a thief. Is he obliged to negotiate with the thief to purchase its return? Probably not, because it would be offensive to ordinary notions of morality to expect him to do so, but, if he had the chance to recapture his property without risk to himself, he might reasonably be expected to take it. All this indicates that arguments of the kind under consideration are not really directed at the existence of a duty to mitigate but at the nature of the duty and the kind of action that the victim can reasonably be expected to take to avoid or reduce his loss.
There was a certain amount of debate in the course of argument about whether mitigation should be understood in terms of causation. For my own part I accept that it can be viewed in that way, but I am not sure that to do so adds greatly to one’s understanding of the principles. If one analyses a failure to mitigate in terms of a new event which breaks the chain of causation between the wrongful act and the subsequent loss, it is necessary to recognise that the way in which the test of a new supervening cause has traditionally been formulated must be adapted or applied so as to take into account the relatively undemanding level of the duty to mitigate which the law imposes on the victim of a wrongful act. It may be that in this case it sharpens one’s appreciation of the issues to view mitigation through the prism of causation, but Mr. Gruder’s primary purpose in doing so was to provide him with a way in to an argument based on section 11 of the Torts (Interference with Goods) Act 1977.
Section 11 of the Torts (Interference with Goods) Act 1977 provides that contributory negligence is no defence in proceedings founded on conversion. Approaching the question as one of causation, therefore, Mr. Gruder sought to draw a distinction between cases in which the wrongdoer’s action remains a cause of continuing loss and cases where the victim’s failure to mitigate represents the sole cause of the continuing loss. He submitted that in this case the conversion was a continuing act and that therefore while the Bank retained the documents its action remained a continuing and effective cause of loss, even if Uzinterimpex’s refusal to agree to a sale of the goods also had some causative effect. He therefore submitted that any failure on the part of Uzinterimpex to act reasonably in response to the Bank’s action is therefore properly to be categorised as negligence which contributes to the damage rather than a new intervening cause, but since section 11 requires the court in an action for conversion to ignore negligence which merely contributes to the eventual loss, it must therefore disregard any failure to mitigate.
That is an ingenious argument, but one that I am unable to accept. In my view the primary purpose of section 11 was to settle any doubt as to whether a claimant’s failure to take care of his own property provides a partial defence to a claim in conversion against a person who appropriates it without any right to do so. A classic example might be the person who carelessly leaves his bicycle unlocked, thereby enabling a thief to steal it. However, whether that is right or not, I do not think that section 11 can have any bearing on the existence of a duty to mitigate. If one analyses mitigation in terms of causation, a failure to mitigate must be viewed as a new intervening cause which breaks the link between the wrongful act and the continuing loss, thereby releasing the wrongdoer from liability for subsequent loss. The concept of contributory negligence, on the other hand, rests on the assumption that the fault of the original wrongdoer and the fault of the victim both contribute to the loss and are both causally related to it. Contributory negligence and the failure to mitigate are therefore mutually inconsistent concepts as regards the same loss.
An important plank in Mr. Gruder’s argument was his submission that a person whose property is converted is not bound to relinquish his title to the property in mitigation of his loss, in support of which he drew our attention to the case of Strutt v Whitnell [1975] 1 W.L.R. 870. That case concerned the sale of a house under a contract providing for vacant possession on completion, notwithstanding that it was in fact occupied by a protected tenant who in the event declined to leave. The vendor offered to accept a reconveyance of the house, but that offer was refused by the purchaser who brought an action for breach of contract. The vendor contended that the purchaser had failed to mitigate by refusing his offer to accept a reconveyance, but the court rejected that argument on the grounds that where the purchaser’s only remedy was to recover damages for breach of contract he was not bound to take steps that would deprive him of his right to retain the property and recover damages for the breach of contract.
The decision in Strutt v Whitnell was criticised by this court in Sotiros Shipping Inc. and Aeco Maritime S.A. v Sameiet Solholt (The ‘Solholt’) [1983] 1 Lloyd’s Rep. 605 which regarded it as “a decision which turned on reasonableness and its own special facts.” It cannot, therefore, be regarded as authority for any general proposition of law, simply as an example of the operation in particular circumstances of the general duty on the claimant to take reasonable steps to mitigate his loss. Nonetheless, it is worth noting that the vendors’ offer, if accepted (and assuming that it was an offer to accept a reconveyance at the market price), would not truly have reduced the purchaser’s loss at all; it would merely have provided him with a remedy of equal value in a different form by giving the him the full value of the house with vacant possession in cash instead of leaving him with the property subject to a protected tenancy and the difference in cash. Cairns L.J. made the point in the following way at page 873B-D:
“The circumstances here were that the only remedy in law which the plaintiff initially had for the breach of contract was a right of action in damages. If it be said that an alternative remedy was offered to him by the defendants of selling the house back to them I would say that the plaintiff was not bound to choose between the two remedies. It seems to me that if Mr. Scrivener’s contentions were right it would logically follow that if the offer that had been made by the defendants had been not “We will take the house back” but “We will pay you £1,900 damages” and the plaintiff had then, for some reason, refused that offer and had brought an action for damages it could be said that he ought to have accepted the offer and thereby mitigated his damages and therefore he was entitled to nothing at all. That cannot be. Clearly what would happen in those circumstances would be that the defendants, if they were wise, would make a payment into court of the £1,900 and the plaintiff would suffer in respect of costs. But it could not possibly be suggested that the refusal to accept the offer, even if such refusal were wholly capricious, was something that deprived the plaintiff of his right to substantial damages altogether.”
For the same reason I would accept Mr. Gruder’s submission that a person whose property has been stolen is not bound in the exercise of his duty to mitigate to accept an offer from the thief to pay him the value of the property, since such an offer does not mitigate the loss; it merely involves an acknowledgment of the thief’s liability and an offer to pay damages accordingly. Even in a case where the claimant seeks an order for delivery up of the property, it does no more than offer an alternative remedy of the same monetary value. The claimant is not bound to choose between these two remedies because to do so would not reduce his loss, though as Cairns L.J. pointed out, he might well incur liability for the costs of any proceedings if the outcome was not more advantageous than that which he had been offered. However, considerations of that kind do not arise in this case and in my view little assistance can be derived from Strutt v Whitnell.
In General and Finance Facilities Ltd v Cooks Cars (Romford) Ltd [1963] 1 W.L.R. 644 at pages 648-651 Diplock L.J. described the distinctions between the causes of action at common law in detinue and conversion. He described conversion as a personal action based on a single wrongful act which gave rise to a judgment for damages normally assessed by reference to the value of the goods at the date of the conversion. A claim in detinue, on the other hand, gave rise to an order for delivery up of the goods or payment of their value and might eventually lead to an order for specific delivery in a case where damages were not an adequate remedy. However, it would be unusual for the court to make such an order in respect of goods whose only value is as a commercial commodity.
If that description of the position remained correct, notwithstanding the abolition of detinue and the extension of the remedies for conversion brought about by sections 2 and 3 of the Torts (Interference with Goods) Act, it might be argued that following the conversion of his goods the claimant came under no duty to mitigate the proprietary element of his loss since he is to be regarded as having been deprived of his property once and for all at the time of the conversion, a consequence that no subsequent action on his part could undo. However, that would be to ignore the fact that in many cases (of which the present is an example) the claimant is deprived of his property temporarily rather than permanently. It has long been recognised that if the claimant in conversion recovers his property or any part of it, he must give credit for the value of what he has recovered. That being the case, it is difficult to see why a person who has been deprived of his property should not be expected to take reasonable steps to recover it, thereby reducing the loss that he would otherwise suffer. Moreover, in the light of sections 2 and 3 of the Act it may now be more appropriate to regard a temporary interference with goods of the kind that occurred in this case as a new form of continuing conversion. As a matter of principle, therefore, there would seem to be no reason why a duty to mitigate the proprietary element of the loss should not arise whenever property is converted, although in many cases there will be little that the claimant can or can reasonably be expected to do to recover his property or ensure that its value is not diminished if and when he is able to recover it. The position in relation to consequential loss is even clearer: there is no reason in principle why the claimant should not take all reasonable steps to ensure that the losses he suffers as a result of being deprived of his property, whether permanently or temporarily, are kept to a minimum and every reason why he should.
Quite apart from that, however, developments in the law relating to the assessment of damages for conversion have rendered any argument based on a strict proprietary view of the nature of the cause of action unsustainable. The changes brought about by the Torts (Interference with Goods) Act added weight to the view that had been expressed in earlier authorities that damages for proprietary torts should reflect the loss suffered by the claimant as a result of the wrong and should not be subject to artificial rules based on the value of the goods at any particular date. In IBL v Coussens [1991] 2 All E.R. 133 the claimant sought to recover from the defendant two cars which had been provided for his use while he was employed as its managing director. Following the termination of his employment he failed to return the cars to the company which sued him in conversion seeking to recover the vehicles. The claimant contended that damages should be assessed by reference to the value of the vehicles at the date of judgment; the defendant contended that they should be assessed by reference to their value at the date of conversion, being the date on which he first refused to redeliver them to the company. Neill L.J. considering the effect of the Act said at page 139:
“An examination of the provisions of the 1977 Act in the light of the existing rules of the common law indicates that when making an award of damages under s 3 of the 1977 Act the court is faced with a number of competing considerations. These considerations include: (a) the fact that the tort of detinue has been abolished, (b) the fact that the remedies now available for the tort of conversion (hitherto a purely personal action) have in effect extended the scope of the tort so that a proprietary claim can be asserted; (c) the general rule that where goods have been irreversibly converted their value is assessed at the date of conversion. It may be noted, however, that even where goods are articles of ordinary commerce the damages may be assessed by reference to the cost of replacement goods if the cost has increased between the date of conversion and the date when the plaintiff, acting reasonably, ought to have obtained the replacement: cf Emp Exportadora de Azucar v Industria Azucarera Nacional SA, The Playa Larga and Marble Islands [1983] 2 Lloyd’s Rep 171; (d) the former general rule that in detinue the value of the goods detained was assessed at the date of judgment; (e) the fact that after conversion the value of goods may fall instead of rise.
I have come to the conclusion that if one takes account of all these considerations and the fact that several different remedies are available under s 3 of the 1977 Act it is not possible, or indeed appropriate, to attempt to lay down any rule which is intended to be of universal application as to the date by reference to which the value of goods is to be assessed. The method of valuation and the date of valuation will depend on the circumstances.”
Nicholls L.J. expressed himself in similar terms as follows at page 144:
“Once it is kept in mind that there is no absolute rule regarding the date as to which the goods are to be valued, the difficulties in the interpretation and application of s.3 substantially disappear. The sum to be specified in the present case as payable by the defendant as the alternative to returning the two cars is to be calculated by reference to the value of the cars at such date as will fairly compensate the plaintiff for its loss if the defendant chooses to pay the sum and keep the cars.
This conclusion involves interpreting the references in s 3 to ‘damages by reference to the value of the goods’ as not compelling the court always to assess such damages by reference to the up-to-date value of the goods. In other words, for it comes to much the same, the statute leaves at large the date as at which the value of the goods is to be determined. In my view that is the proper construction of this section. Nowhere does the Act expressly state a date as at which the value of the goods is to be assessed. To construe the references to the value of goods as being by implication references only to the up-to-date value would fly in the face of the need for damages to be assessed in a sum which represents the true loss suffered by the plaintiff by reason of the defendant’s act.”
When the matter arose for consideration by the House of Lords in Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 & 5) [2002] 2 AC 883 Lord Nicholls (with whom Lord Hoffmann and Lord Hope agreed), having referred to IBL v Coussens, affirmed the approach taken in that case to the assessment of damages for conversion in these terms:
“67. I have no hesitation in preferring and adopting this view of the present state of the law. The aim of the law, in respect of the wrongful interference with goods, is to provide a just remedy. Despite its proprietary base, this tort does not stand apart and command awards of damages measured by some special and artificial standard of its own. The fundamental object of an award of damages in respect of this tort, as with all wrongs, is to award just compensation for loss suffered. Normally (“prima facie”) the measure of damages is the market value of the goods at the time the defendant expropriated them. This is the general rule, because generally this measure represents the amount of the basic loss suffered by the plaintiff owner. He has been dispossessed of his goods by the defendant. Depending on the circumstances some other measure, yielding a higher or lower amount, may be appropriate. The plaintiff may have suffered additional damage consequential on the loss of his goods. Or the goods may have been returned.”
Once it is accepted that the correct measure of damages in a case of conversion is that which will provide just compensation for loss suffered by the claimant having regard to the particular circumstances of the case, it is impossible to ignore the claimant’s own conduct in relation to that loss, since, if he has failed to take advantage of an opportunity reasonably available to him to avoid it in whole or in part, it will be difficult for him to justify requiring the defendant to pay compensation for a loss that could not fairly be attributed to his wrongful act.
Finally, it should be noted that Mr. Gruder’s argument assumes that a claimant in conversion has an inalienable right to recover the property in question, but in fact that is generally not the case. As Diplock L.J. pointed out in his judgment in General and Finance Facilities Ltd v Cooks Cars (Romford) Ltd, to which I referred earlier, historically the cause of action in conversion was a claim in personam which gave rise to a money judgment only, and although the remedies for conversion now include an order for specific delivery, it would be unusual for the court to make such an order in respect of goods whose only value is as a commercial commodity. Even a successful claim in detinue would not necessarily lead to a judgment for delivery up of the goods. In general the law provides a monetary remedy in the form of damages, except in those cases where the nature of the property in issue renders that inadequate.
For these reasons I have reached the conclusion that in principle a duty to avoid or minimise loss arises when goods are converted in the same way as in the case of other legal wrongs. Whether it will be possible to achieve that end will depend on the circumstances of the case and the nature of the loss flowing from the wrongful act, but the person whose goods have been wrongfully interfered with must do what he reasonably can to keep the loss to a minimum. The duty to avoid or minimise, where possible, the loss flowing from a wrongful act is an important principle of the common law and I can see no reason why it should be subject to an exception in this case.
For these reasons I would dismiss the appeal.
Lord Justice Laws:
I agree.
Sir Anthony Clarke MR:
I also agree.
Smith & Anor v Lloyds Bank TSB
[2000] EWCA Civ 240 [2001] 1 All ER 424, [2000] 2 All ER (Comm) 693, [2001] QB 541, [2000] EWCA Civ 240, [2000] 3 WLR 1725, [2000] Lloyd’s Rep Bank 334 Potter LJ
Potter LJ:
I agree with the judgment of Pill LJ and there is little I can usefully add.
I too have had difficulty in understanding that part of the judgment of Scrutton LJ in Slingsby -v- District Bank Limited at p.558 in which he asserted that he could not understand a passage which he had quoted from the judgment of Finlay J in Slingsby -v- Westminster Bank, which Scrutton LJ appeared to regard as invalidated by the decision in Morison’s case and the subsequent line of authority stemming from it. It may be that, in expressing himself as he did, Scrutton LJ had fastened upon the last sentence which he quoted from the judgment of Finlay J to the effect that:
“They have not dealt either with a cheque or the money of the plaintiffs, and on this short ground I think this action must fail.”
Taken alone, that sentence might have appeared inconsistent with Morison’s case by not recognising the legal fiction which equates the value of the cheque as a chattel or piece of paper with its face value as representing the monies due and/or received under it for the purpose of a claim for damages in conversion.
Whether or not that is so, it is plain, as Pill LJ has pointed out, that Scrutton LJ was in no doubt as to the effect of a material alteration rendering a cheque a `worthless’ and `null and void’ piece of paper, to which the fiction as to value for the purposes of a claim in conversion would be inappropriate and inapplicable (c.f. the view expressed in Brindle & Cox: the Law of Bank Payments (2nd ed.) at paras 7-200).
In my view, the arguments of Miss Simmons and the reasoning adopted by HH Judge Hallgarten QC in order to avoid this otherwise insuperable difficulty are not effective for that purpose. The judge held that, had the claimants immediately realised that the draft had been stolen and notified Woolwich accordingly, they would have had the right to make claims against Woolwich under sections 69 and 70 of the 1882 Act. S.69 allows the holder of a bill which has been lost before it is overdue to apply to the drawer to give him another bill of the same tenor, giving security to the drawer if required to indemnify him against all persons in case the bill is found again. If the drawer refuses to give such a duplicate bill he may be compelled to do so. S.70 provides that in any action upon a bill, the court may order that the loss of the instrument shall not be set up, provided an indemnity is given to the satisfaction of the court against the claims of any other person upon the instrument in question.
The judge observed that, in those circumstances, it struck him as perverse to say that the draft had no value save as a piece of paper and that the only thing which might be said to have served to destroy the draft’s value was the defendant’s own conduct in purporting to discharge it by paying such value to Nat West Bank i.e. the very act of conversion relied on. However, this does not seem to me to meet the point that the claim for conversion was in respect of a specific cheque or draft which at the date of conversion (which is the relevant date at which to assess the value of the chattel) had no value as a piece of paper and no value as a chose in action, because it had earlier been robbed of such value as at the date it was materially altered. The fact that, at any time before the draft was presented to and converted by the Woolwich, the plaintiffs might have had a legal or moral right to its replacement by a new draft did not render the altered draft of value in the sense appropriate to a claim in conversion, the damages for which conventionally relate to the intrinsic value of the specific chattel converted.
I too would allow the appeal in the Woolwich action and dismiss the appeal in the Lloyds action.
Sir Murray Stuart-Smith:
I agree.
Order: appeal dismissed in the case of Smith & Hayward with costs; appeal allowed in the case of Harvey Jones Ltd v Woolwich plc with costs here and below, without reduction.
Pill LJ
Conversion is an interference with goods inconsistent with the owner’s right to possession. Cheques are goods for this purpose. Both defendant banks admit that they converted the relevant piece of paper, the cheque form.
By a legal fiction, a valid cheque is deemed to have a value equal to its face amount. This rule was explained by Scrutton LJ in Lloyds Bank v The Chartered Bank of India, Australia and China [1929] 1 KB 40 at 55:
“Conversion primarily is conversion of chattels, and the relation of bank to customer is that of debtor and creditor. As no specific coins in a bank are the property of any specific customer there might be some difficulty in holding that a bank which paid part of what it owed its customer to some other person not authorised to receive it had converted its customer’s chattels: but a series of decisions … culminating in Morison’s case and Underwood’s case [1924] 1 KB 775, have surmounted the difficulty by treating the conversion as of the chattel, the piece of paper, the cheque under which the money was collected, and the value of the chattel converted as the money received under it: see the explanation of Phillimore LJ in Morison’s case …”.
In Morison v London County and Westminster Bank [1914] 3 KB 356, Phillimore LJ stated, at p 379:
“That the damages for such conversion are (at any rate where the drawer has sufficient funds to his credit and the drawee bank is solvent) the face value of the cheques is … so well established that it is not necessary to enquire into the principle which may underlie the authority. But the principle probably is that, though the plaintiff might at any moment destroy the cheques while they remained in his possession, they are potential instruments whereby the sums they represent may be drawn from his bankers, and, if they get into any other hands than his, he will be the loser to the extent of the sums which they represent. It may be also that anyone who has obtained its value by presenting a cheque is estopped from asserting that it has only a nominal value …”.
The submissions
For the claimants in the Lloyds action, Miss Simmons QC submits that, even if the materially altered instrument ceases to be valid as a cheque, it retains its face value for the purposes of a claim in conversion, as evidenced by the fact that Lloyds, the collecting bank, obtained that face value . No distinction should be drawn between the unauthorised drawing of a cheque and the forging of an indorsement on the one hand and the material alteration of a cheque on the other.
Alternatively, once a valid instrument is created, there should be no distinction between a subsequent abuse of authority by an agent (as in the Morison line of cases) and a fraudulent indorsement on the one hand and a material alteration on the other. A unifying principle is needed to cover those situations, it is submitted. The proceeds are diverted from the true payee and the collecting bank is liable to compensate for the loss.
Miss Simmons also submits that policy requires that the true owner of the cheque should be compensated where a wrongdoer has used it to the detriment of the true owner. The risk should be borne by the banks rather than the customer. It is insufficient protection that the drawer can claim against the paying bank. It may not be the drawer who suffers the loss, as for example in the case of the bankers draft in the Woolwich action, or the bank may become insolvent. Moreover, the law often recognises that a wronged party may have alternative remedies and that more than one party can be liable for the same loss.
It is submitted that section 64 of the 1882 Act was intended to protect the drawer of a cheque and should not be construed so as to deprive the true owner of compensation. Moreover the word “avoided” is used in the section by way of contrast with the words “nullity” or “discharged” used elsewhere in the Act. The instrument is “avoided” as against any party to it but, if payment is made upon a conversion, the value remains the face value. It is further submitted that Lloyds, having obtained the face value of the cheque, are estopped from asserting that the cheque has only a nominal value.
In the Woolwich action, Mr Slade adopts the submissions of Miss Simmons, adding that the relevant instruments, unlike those in the cases of forged cheque forms, represented genuine choses in action. He submits that it would be perverse to hold that the altered draft was a valueless piece of paper. Woolwich has accepted that, at any time before it converted the draft, it would have issued the claimants with a replacement draft in the same face value as the altered draft. Woolwich cannot in those circumstances be heard to say that the altered draft had no value to the claimants.
Mr Slade also submits that Judge Hallgarten QC was correct in finding that sections 69 and 70 of the 1882 Act were relevant. Those sections confer rights on the holder of an instrument which is lost. There is also a common law right to sue under a destroyed instrument. Those provisions support the principle that, had the claimants discovered the alteration prior to the conversion by Woolwich, they would have had a valuable instrument. Since it was only the conversion by Woolwich which deprived it of that value, the damages for such conversion should be the full amount of that value.
The parties are in dispute as to the effect of the decision of the Court of Appeal in Slingsby v District Bank Ltd [1932] 1 KB 544 but, before turning to that decision, I refer to the scheme of the 1882 Act, described in its short title as “an Act to codify the law relating to bills of exchange, cheques and promissory notes”. Mr Hapgood invites the court to consider the effect of section 64 in the context of the scheme of the Act. It imposes, he submits, an elaborate and complex allocation of risk where there has been dishonesty. Because there are potentially four affected parties with a single instrument, (drawer, paying bank, payee, collecting bank), there are many potential lines of liability. The impact of dishonest conduct depends on the nature of the dishonest act and the person who perpetrates it, as appears, for example, from section 23 to 25, dealing with signatures on bills. With respect to certain kinds of fraud, sections 60 and 80 provide protection for a paying bank and section 82, now section 4 of the Cheques Act 1957, for a collecting bank, as already mentioned..
Section 64 provides that an instrument which is materially altered is avoided in the sense that it avoids all rights to sue and discharges all liabilities to pay upon the instrument as from the moment of alteration. Thus, Mr Hapgood submits that the effect is that, before the instrument reached Lloyds, it was a worthless piece of paper, as found by Blofeld J. The fact that a payment was made under a mistake of fact does not render the instrument valid; its value has completely and irrevocably gone. That result provided protection for both drawer and payee. The risk of a material alteration was upon the paying bank. It cannot debit its customer’s account and the claimants in the Lloyds action had the right to have their account with the Bank of England credited. As between the parties, the instrument had no value at all, save as a piece of paper, and there were no contractual rights to sue upon it. The payee could go back to the drawer for a fresh instrument. The material alteration has the effect of avoiding all contracts then in existence upon the instrument.
No claim could be made against Lloyds upon an estoppel. Lloyds merely went through the process of collecting and presenting the instrument. By presenting it, Lloyds cannot be said to have represented it as valid. The possibility of an estoppel raised by Phillimore LJ in Morison has not been followed in subsequent cases.
In replying to the submissions of Mr Slade, Mr Wolfson, for Woolwich, submits that, by virtue of section 64, the bankers draft was avoided when materially altered. Reliance upon provisions for replacing lost or destroyed instruments depends upon there being a valid instrument in existence at the time of loss or destruction. The claimant could not be in a better position after destruction than he had been before destruction. It was by virtue of the material alteration that the instrument was avoided and not by virtue of the subsequent conversion. It did not follow from the fact that Woolwich would have provided a replacement draft, had the alteration been discovered before conversion, that the materially altered draft retained its face value.
Slingsby
Each side contends that an authoritative ruling in its favour emerges from the judgment of Scrutton LJ in Slingsby. That was the last of three actions by the executors of an estate who wished to invest £5,000 in war stock and employed a firm of stockbrokers John Prust and Co. The executors drew a cheque on their account at a branch of the District Bank, the payees being expressed to be “John Prust & Co or order”. It was duly signed by the executors and left with a solicitor Cumberbirch, a partner in the firm, Cumberbirch and Potts. Cumberbirch fraudulently added the words “per Cumberbirch and Potts” in the space between the words John Prust & Co and the words “or order”. He then endorsed the cheque “Cumberbirch and Potts” and paid it into the account, at a branch of Westminster Bank, of a company in which he had an interest. The cheque was dealt with in the usual way in that the account of the company with the Westminster Bank was credited and the account of the executors with the District Bank was debited.
The executors failed in their first action against the Westminster Bank ([1931] 1 KB 173), which is not material for present purposes, on the ground that the bank was protected by section 82 of the 1882 Act. They failed in a second action against Westminster Bank, the collecting bank, also heard by Finlay J ([1931] 2 KB 583), on the ground that there had been a material alteration by Cumberbirch of the cheque, which had therefore ceased to be a valid cheque and there had been no conversion of any money of the executors. An action against District Bank, the paying bank, succeeded, the Court of Appeal ([1932] 1 KB 544) upholding a decision of Wright J ([1931] 2 KB 588). The parties are in issue as to the grounds upon which the court found against District Bank and as to the effect of the court’s decision upon the judgment of Finlay J in the earlier action.
Finlay J stated that the facts were simple and not really in dispute. Both sides agreed that the alteration to the cheque was a material alteration with the result that, under section 64 of the Bills of Exchange Act 1882, the cheque was avoided. The judge accepted the submission that the cheque was by reason of the alteration a mere valueless piece of paper. He stated, at p 586:
“I have come to the conclusion that [the bank’s] submission is right and ought to prevail. It seems clear that the document, when it came into the hands of the defendant bank, was not a valid cheque at all. It had been avoided by the material alteration made in it. This being so, it seems to me that no action can be brought upon it against the defendants. They have not dealt either with a cheque or the money of the plaintiffs, and on this short ground I think this action must fail.”
Miss Simmons accepts that, if that is a correct statement of the law, the claim against Lloyds fails.
Finlay J twice stated in his judgment that, if that view was correct, the question of negligence did not arise but he nonetheless considered the conduct of the collecting bank in detail and concluded that there was no negligence and the bank was entitled to the protection of section 82 of the 1882 Act. There was nothing to suggest that further enquiry ought to have been made. It was not disputed that the indorsement was a proper one.
Wright J tried the action against the paying bank in the following year. In the District Bank action the validity of the indorsement was not admitted. Wright J held that the indorsement was an improper indorsement. Wright J went on to consider and reject several distinct claims that defences arose. Defences were claimed under section 60 of the 1882 Act, the proviso to section 64(1), section 80, as well as defences by reason of the conduct of the executors and by reason of the liability of Cumberbirch’s employers for his fraud. The effect of section 64 does not appear to have been in issue and was stated briefly by the judge. Having held that the alteration was a material alteration within the meaning of section 64(1) Wright J stated:
“But under the section just cited, the alteration avoids the cheque, subject to the proviso. The defendants cannot charge the plaintiffs with a payment made, however innocently, on a voidinstrument, or a payment for which they cannot show a mandate from the plaintiffs to pay; the only mandate by the plaintiffs was to pay John Prust & Co simpliciter, whereas the defendants paid on the simple indorsement of Cumberbirch & Potts, and in any case on an apparent mandate deviating in respect of the description of the payee.”
That view of the effect of section 64 is consistent with the view expressed by Finlay J in the earlier case.
Delivering the leading judgment in the Court of Appeal, Scrutton LJ considered three issues, whether Westminster Bank had been negligent, the effect of the indorsement and the effect of section 64. He dealt with them in that order, though it would appear that it was Finlay J who took the logical course of dealing with section 64 first because, if the cheque was a worthless piece of paper, the claim against Westminster Bank was bound to fail and that against District Bank, for debiting its customer’s account, was bound to succeed. Scrutton LJ expressed, in strong terms, his disagreement with the finding of Finlay J in the earlier action that Westminster Bank had not been negligent. It was when dealing with the second issue, that is whether the indorsement was a proper one, that Scrutton LJ cited in full the view of Finlay J on the effect of section 64. However, the statement by Finlay J had nothing to do with the point Scrutton LJ was then considering, the propriety of the indorsement. That point had not been in issue before Finlay J. Having cited the passage, Scrutton LJ stated at p 558:
“I cannot understand this. There are, of course, difficulties as to how in law you should deal with money claimed by a customer from a bank because the bank has collected it from the customer’s bank on a document which does not authorize such collection, but I thought that all those difficulties had been settled by the decision in Morison’s case, followed by this Court in Underwood’s case; in the Lloyds Bank case; and in Reckitt v Midland Bank, lately affirmed in the House of Lords (1932) 48 Times LR 271. Slingsby v Westminster Bank is, in my opinion, wrongly decided and should not be followed by any Court in preference to these decisions of the Court of Appeal.”
Only then did Scrutton LJ consider the effect of section 64. He stated at p 559:
“But the legal result of these facts begins earlier than indorsement. This cheque, having been signed by the executors in a form which gave Cumberbirch no rights, was fraudulently altered by Cumberbirch before it was issued and, it was not in dispute, altered in a material particular, by the addition of the words `per Cumberbirch & Potts.’ The cheque was thereby avoided under s. 64 of the Bills of Exchange Act. A holder in due course might not be affected by an alteration not apparent, such as this alteration. But counsel for the District Bank did not contend that the Westminster Bank were holders in due course, and I am clear they were not. They could not therefore justifiably claim on the District Bank, and the cheque when presented to the District Bank was invalid, avoided, a worthless bit of paper, which the District Bank was under no duty to pay. This invalidity comes before any question of indorsement.”
Scrutton LJ went on the repeat his conclusion that the cheque was not properly indorsed and concluded this section of his judgment, stating at p 559:
“The protection given by sections 80 and 82 is excluded in my opinion by the fact that the alteration has made the paper a null and void document, no longer a cheque.”
Scrutton LJ concluded his judgment by stating that he might have been content to adopt the careful judgment of Wright J, with which he substantially agreed.
Greer LJ also stated that “under the provisions of section 64 of the Act the cheque was rendered void except as therein stated”. The defect in the cheque which rendered it invalid was on the face of the cheque and not merely in the indorsement. Romer LJ listed the six questions which appeared to him to arise from the appeal and expressed his agreement with the conclusions of Wright J. I find it significant that Romer LJ did not identify the effect of section 64 as being an issue in the appeal.
Miss Simmons understandably relies strongly upon the apparent rejection by Scrutton LJ of Finlay J’s statement in the Westminster Bank case of the effect of section 64. However I have come to the conclusion that the apparent disapproval was based upon a wholly uncharacteristic and, with great respect, most unexpected misreading by Scrutton LJ of the judgment of Finlay J in the earlier action. Scrutton LJ expressed in strong terms his disagreement with Finlay J on the negligence issue. He then dealt with the indorsement issue, which had first been raised only in the District Bank case, but cited from Finlay J’s judgment in the Westminster case a passage dealing not with indorsement, but with section 64. That Scrutton LJ was dealing with the indorsement issue at that stage and not section 64 is illustrated by his reference to the Morison line of cases which deals with other types of dishonesty and not material alteration which is covered by section 64. When going on to deal specifically with the effect of section 64, Scrutton LJ expressed views entirely consistent with those of Finlay J.
It is submitted that, when stating at p 559 that Westminster Bank could not claim against District Bank, Scrutton LJ was distinguishing between the position of the banks as against each other and the position of the customer of the paying bank as against the collecting bank. It is also submitted that Judge Hallgarten QC was right to find that, underlying Scrutton LJ’s approach, was the feature that, so far as the claimants in the Woolwich action, as owners, were concerned, the cheque continued to have its face value. In my judgment Scrutton LJ’s reasoning upon section 64 is not susceptible to those interpretations.
The effect of section 64 was in my view not seriously in issue in the District Bank action. Wright J dealt with it briefly and in conformity with the view of Finlay J. All members of the Court of Appeal expressed agreement with Wright J, Greer LJ stating that under the provisions of section 64 the cheque was rendered void and Romer LJ setting out the questions arising upon the appeal without mentioning a question on section 64.
Conclusion
My conclusions can in the event be stated briefly. In my judgment the effect of the presence of the word “avoided” in section 64(1) of the 1882 Act is that the materially altered cheque or draft is, subject to the qualifications in the section, a worthless piece of paper. The words of Scrutton LJ when dealing with the legal effect of the material alteration of the cheque in that case are to be taken at face value. The piece of paper is no longer a cheque and no action can be brought upon it as a cheque. The cheque is invalidated and no distinction can be drawn between parties who, but for the material alteration, would have had contractual rights based on the cheque. No party can bring an action for damages in conversion for its face valuebecause it no longer represents a chose in action for that amount.
Haggan v Paisley
Queen’s Bench Division.
8 November 1878
[1879] 13 I.L.T.R 27
May C.J., O’Brien, Barry JJ.
Feb. 8, Nov. 8, 1878
Trespass for seizure of a pianoforte, and trover for converson of same. Traverses of causes of action, and of plaintiff’s property in the pianoforte; and justification of seizure under a distress for rent. Replication to last plea, that the pianoforte was wrongfully placed on the demised premises by the defendant.
At the trial, which was had before Barry, J., and a jury, at the Antrim Summer Assizes, 1877, the facts *27 appearing were as follow:—Hanna held premises as tenant to the defendant, Paisley, at the rent of £18 per annum, and a year’s rent was due Feb. 1, 1876. In 1874, Hanna assigned the furniture in the premises (including the piano) to Cavanagh, under a bill of sale, by way of mortgage security for a debt due to him, containing a clause for re-assignment on re-payment within 24 hours after demand, and a proviso that, until default, Hanna should retain the possession and use of the furniture without interruption, and a power of sale to Cavanagh on default of payment. Hanna remained in possession till July, 1876, when, being applied to by the plaintiff, Mrs. Haggan, for payment of £37 19s. owing to her, he proposed to transfer to her some of his furniture in liquidation of the debt, to which she assented, whereupon he transferred and delivered to her the piano, the subject of the action, and she removed same to a shed belonging to Mrs. Hamilton. Paisley caused the piano to be taken and replaced in Hanna’s house. Mrs. Haggan, the plaintiff, then asked Paisley, the defendant, why he had removed her piano; and Paisley replied that he did not know she had one, but that he had put Hanna’s piano back into his house for the benefit of his creditors, as he was a bankrupt. It did not appear that there had been any demand of the piano by Mrs. Haggan, and refusal to deliver by Paisley; nor was it suggested that Cavanagh knew of the removal by Paisley. The next day Paisley distrained upon the demised premises for the year’s rent due by Hanna, and posted a notice of distress on the window of the house; whereupon Cavanagh claimed the goods distrained (including the piano) as his under his bill of sale, notwithstanding which (Cavanagh having apparently not controverted the right of distress, and it not being suggested that until then the defendant knew of Cavanagh’s claim) they were afterwards sold under the distress. At the sale Cavanagh bought the piano for £16, and a carpet for £9. He handed over to the defendant the amount of the rent due, with costs of distress, &c., retained the balance of the purchase-money, and gave the defendant a receipt for such balance, as if it had been paid to him and repaid by him to Cavanagh; and the piano was delivered to Cavanagh under the sale to him. The jury, in answer to questions left to them, found that the sale of the piano by Hanna to Mrs. Haggan, the plaintiff, was bona fide ; that at the time of the removal of the piano to Hanna’s house by Paisley, the defendant, the latter was not aware of the sale to the plaintiff; and that the value of the piano was £27. Upon those findings the learned Judge directed a verdict to be entered for the defendant; reserving leave to the plaintiff to move to have it changed into a verdict for her, with £27 damages, or with nominal damages, as the Court might think fit—the Court to be at liberty to draw inferences of fact not inconsistent with the findings of the jury.
A conditional order having been obtained by the defendant, pursuant to the leave reserved:—
Representation
M’Mahon, Q.C. (with him, Frazer), for the plaintiff, showed cause.
James Orr, for the defendant, contra.
They cited Fenn v. Bittlestone, 7 Ex. 159 ; Brierley v. Kendall, 17 Q. B. 937 ; Leake v. Loveday, 4 M. & G. 972 ; Newnham v. Stevenson, 10 C. B. 713; Gadsden v. Barrow, 9 Ex. 514; Jeffries v. The G. W. Ry. Co., 5 E. & B. 806 ; Jones v. Davis, 6 Exch. 663; Biddle v. Bond, 6 B. & S. 225; Thorne v. Tilbury, 3 H. & N. 534; Bourne v. Fosbrooke, 34 L. J. C. P. 164 ; Powell v. Hoyland, 6 Ex. 67 ; Jones v. Chapman, 2 Ex. 803 ; Jones v. Powell, 5 B. & C. 649.
Cur. adv. vult.
May, C.J.
The facts of this case appear to be as follow:—A person called Hanna held some premises in Carrickfergus, as tenant to the defendant, Paisley, at the annual rent of £18 one year’s rent was due the 1st February, 1876. Hanna, in the year 1874, by a bill of sale assigned his furniture then in these premises (including the piano, the subject of the action) to Cavanagh, by way of mortgage, to secure a debt due to him. This instrument contained a clause that, if Hanna within twenty-four hours after demand paid to Cavanagh all sums due on foot of the security, the latter should re-assign, provided that until default Hanna should remain in possession and use of the furniture without interruption by Cavanagh; in case of default in payment there was a power of sale to Cavanagh. Hanna remained in possession of the furniture until the month of July, 1876, being at the time indebted to the plaintiff in the sum of £37 19s. Being applied to for the money, he proposed to transfer to her some of his furniture in liquidation of the debt; she assented to this proposal, and a certain amount of the furniture, as ascertained by the valuation of an auctioneer to be equivalent to the amount due, and including the piano, was handed over to her by Hanna. The plaintiff caused the furniture which she thus acquired to be removed, and the piano was placed in some premises belonging to a Mrs. Hamilton. Paisley, the defendant, having heard of the removal of the piano, but not being aware, apparently, of the sale to the plaintiff, caused it to be taken and placed in Hanna’s house. The plaintiff asked him why he had removed her piano—the defendant replied that he did not know she had one, but he had put Hanna’s piano back into his house for the benefit of his creditors, as he was a bankrupt. It does not appear, however, that there was any demand of the piano by the plaintiff, and refusal to deliver by the defendant. The next day the defendant distrained upon the demised premises for the year’s rent in arrear, putting up a notice of distress on the window of the house. Cavanagh thereupon called upon the defendant, and claimed the goods distrained as his under the bill of sale, which was produced. The piano and a carpet were afterwards sold under the distress. Cavanagh bought the piano for £16, and the carpet for £9; handed over to the defendant the amount of the rent due to him, with costs of distress, &c., and retained the balance of the purchase-money; and gave to the defendant a receipt for such balance as if it had been paid to him, and repaid by him to Cavanagh. Subsequently, the plaintiff brought the present action against the defendant.
The summons and plaint contained one count in trespass, for seizing and carrying away the piano; and a second in trover, for conversion of the piano. The defendant pleaded defences by way of traverse, and denying that the goods were the goods of the plaintiff; also, a special defence that he distrained the goods for rent due, to which there was a replication that the goods were wrongfully placed upon the demised premises by the defendant. The case was tried before Mr. Justice Barry, at the Summer Assizes, 1877, for the County Antrim. At the trial the above facts were substantially proved. The Judge left the following questions to the jury:—1. Was the sale of the piano to Mrs. Haggan a real sale, or a sham sale? The jury found that it was a real sale. 2. Had the defendant notice of that sale, when he removed the piano from Hamilton’s premises to those of Hanna? The jury found he had not. 3. What was the value of the piano? The jury found £27. Upon those findings the Judge directed a verdict to be entered for the defendant; reserving leave to the plaintiff to move to have that verdict changed into one for her, with £27 damages, or with nominal damages, as the Court might consider right—the Court to be at liberty to draw inferences of fact not inconsistent with the findings of the jury. Counsel for the defendant has accordingly moved, pursuant to the leave reserved, and has contended that the plaintiff is entitled to have the verdict entered for her, and not for nominal damages only, but for the value of the piano.
It is, I think, clear that the sale of the piano in question by Hanna to the plaintiff was wrongful as against Cavanagh, the mortgagee, and determined the right of user *28 and possession conferred on Hanna by the bill of sale of 1874, and that Cavanagh might upon the sale to, and removal of the goods by the plaintiff have at once maintained an action of trover against her: Fenn v. Bittlesone, 7 Exch. p. 159. But the defendant, Paisley, did not seize the piano by virtue of any right vested in Cavanagh, but for his own benefit, and in order that it might be subject to his distress as landlord—it being admitted that in that capacity he was not justified in seizing the piano. The case of fraudulent removal of goods in order to avoid a distress, so far from being proved, appears to have been negatived by the finding of the jury that the sale to the plaintiff was bona fide. It follows that the defendant as between himself and the plaintiff was a wrongdoer in seizing and removing this piano, and that being so, I do not think he is in a position to set up any right or title of Cavanagh in answer to the action of the plaintiff, as grounded upon the original seizure by him; and the plaintiff is entitled to have the verdict entered for her. But a further question remains to be considered, whether this verdict should be entered for nominal damages or for the value of the piano. It appears that after the seizure by the defendant, but before the sale under the distress, Cavanagh claimed the piano by virtue of his bill of sale, and at that time as against him the possessory right of Hanna was determined, and he had the absolute present right to the goods. He asserted that right, but apparently seems to have then conceded or not controverted the landlord’s right of distress for rent. The piano was afterwards sold under the distress, that is to say, a nominal sale is made to Cavanagh, who paid the defendant the amount of the rent and retained the balance of the purchase money to which he was entitled as owner of the goods.
Under such circumstances, can the plaintiff recover the value of the piano against the defendant? If the defendant had seized and converted the goods before any intervention on the part of Cavanagh, it is possible that, notwithstanding the precarious nature of her right in them, she might have been entitled to recover their value in trover against the defendant, a wrongdoer. In that view the conversion would have taken place at a time when Cavanagh had not interfered, and while it was uncertain whether he would ever interfere; and, as against a stranger and wrongdoer, it would seem that the value of the goods may be recovered by a plaintiff who has a mere right of possession, though as against the real owner the case would be different: Brierley v. Kendall, 17 Q. B. 937. But I do not think the removal of the goods by the defendant, and the placing of them by him on the premises of Hanna, constituted a conversion by the defendant. It appears to me that no conversion took place until the sale under the distress, prior to which the title of the plaintiff had determined by the assertion by Cavanagh of his title, and I think that under the circumstances the case should be regarded as a sale by the defendant of Cavanagh’s goods, not of the goods of the plaintiff. In truth, the person really damnified by the act of the defendant in removing the piano and placing it on the demised premises, appears to have been Cavanagh. The goods removed, not fraudulently, but bona fide, were relieved from the defendant’s right of distress, and so discharged from any right of the landlord’s they were the property of Cavanagh, who, it would seem, might maintain an action against the defendant and recover substantial damages in respect of this transaction. On the other hand, I do not think that the plaintiff, if allowed to recover the value of the piano, could be regarded as a trustee of the amount for Cavanagh, no privity existing between these parties and the plaintiff, as against Cavanagh, being a wrongdoer. The plaintiff has not been substantially injured, as she had no real title to the goods, and I think the justice of the case will be met by entering a verdict for the plaintiff for nominal damages, leaving Cavanagh, if he think it proper, to bring an action against the defendant.
Barry, J.
I, also, am of opinion that the verdict should be entered for the plaintiff, but do not concur in the view of my Lord that the damages should be merely nominal. It was not disputed at the trial that the piano, having been delivered to the plaintiff and placed by her for safe keeping in the shed, was at the time of its removal by the defendant in her possession. It was further conceded that the act of the defendant in removing it from the shed to the demised premises was wrongful, and the only defence ultimately relied on was the jus tertii, or title of Cavanagh under the bill of sale. The general rule of law I understand to be that, where a person is in possession of chattels, though having no other title than such possession, and a wrongdoer seizes and converts these chattels, such wrongdoer is liable to such person in an action, in which the measure of damages is, generally speaking, the value of the goods, and the wrongdoer is not permitted to set up as a defence, or in mitigation of damages, the jus tertii, or, in other words, the superior title of the real owner of the property. Mr. Orr, for the defendant, contended and cited cases to show that when the rightful owner comes forward and, as it were, ratifies and adopts the wrongful seizing, the title of the owner may be set up as a defence. That contention might possibly prevail (I do not say it would) if the defendant here had at once recognised the title of Cavanagh, and given up the goods to him without any further claim or interference for his own benefit. But the conduct of the defendant was quite the reverse. He never recognised the title of Cavanagh, save as subject and subservient to his own wrongful claim under the alleged distress. It was not suggested that Cavanagh knew of the removal of the piano from the shed at all, so it seems difficult to regard him as ratifying an act of which he was ignorant. So far from the defendant’s adopting or sheltering himself under the title of Cavanagh, the conduct of the defendant was adverse to and inconsistent with that title. He persevered in the wrongful distress, he caused the piano to be sold under that distress, he retained out of the proceeds the arrear of rent and expenses, and only recognised Cavanagh to the extent of handing him the surplus. My Lord is of opinion that previous to the intervention of Cavanagh there was only a mere asportavit of the piano by the defendant, and that the conversion by sale must be referred to Cavanagh’s title; but it seems to me that, even assuming that the removal of the piano, followed by the wrongful distress, did not constitute a conversion, the sale under the distress and the appropriation of the proceeds to the rent and expenses must be regarded as the completion of a conversion commenced or originating in the wrongful asportavit. Possibly, the law and justice of the case might best be met by awarding as damages the amount of the proceeds appropriated by the defendant, but there is some difficulty in that course, and the reservation by consent was that the damages, if substantial, were to be the value of the piano. I may add that at the trial little stress was laid, on the part of the plaintiff, upon the mode and circumstances of the sale. I offered a verdict for nominal damages, but the contention of the plaintiff’s counsel was that she should be permitted to obtain from the jury damages of an exemplary amount, as for a high-handed act of oppression—a view in which I did not concur.
O’Brien, J.
I concur with my brother Barry in opinion that, pursuant to the liberty reserved at the trial, the verdict should be entered for the plaintiff with £27 damages, which sum was admitted to have been the value of the piano.
The first question is as to plaintiff’s right to any verdict; the second is as to the amount of the damages to which she is entitled. With respect to the first question, the defendant’s counsel contended that, as the piano at the time of the seizure and alleged conversion was, in fact, the property of Cavanagh under his bill of sale, there should have been a finding for defendant on the issue whether or not it was the property of the plaintiff; and that defendant was entitled to rely on Cavanagh’s right of property as an answer to plaintiff’s claim. In my opinion, however, the defendant was not entitled to do so. It is clear upon the evidence that the original taking of the piano by the defendant was a wrongful act upon his part, as the piano was then in the actual possession of the plaintiff, who had bona fide bought it on the preceding day from Hanna, the former owner, and *29 placed it in a shed, from which it was taken by the defendant and put back by him into Hanna’s house for the purpose of defendant seizing it under a distress for a year’s rent due to him out of Hanna’s house. The jury found that the sale by Hanna to the plaintiff was a bona fide sale. They, also, found that when the defendant took the piano out of the shed and put it back into Hanna’s house, he was not aware of the fact that it had been sold by Hanna to the plaintiff. It appears, however, that defendant, after he was aware of plaintiff having bought the piano, declined to give it back to her, and retained it in his possession as having been distrained for rent, and that he posted on Hanna’s house a notice of the distress. It appears, also, that after such notice of distress was posted, Cavanagh claimed the piano under his bill of sale, but it was not suggested that until Cavanagh did so, the defendant was aware or had heard of Cavanagh’s claim. My brother Barry states in his report what took place at the sale, not that defendant gave back the piano to Cavanagh on the ground of his right to it under the bill of sale, but he states that it was actually set up for sale under the distress, and was then purchased and paid for by Cavanagh. It was then, of course, given to Cavanagh, as it would have been to any other purchaser.
Plaintiff’s counsel relied on his argument upon the decision in Leake v. Loveday, 4 M. & G. 972, in which it was held that, under the circumstances of that case, the defendants were entitled to rely upon the jus tertii as a defence to the plaintiff’s claim to the property of the goods which were the subject of the action; but, in the subsequent case of Newnham v. Stevenson, 10 C. B. 724, Jervis, C.J., in delivering the judgment of the court, rested the decision in Leake v. Loveday upon a ground which does not apply to the case now before us—namely, that the goods for which the action in Leake v. Loveday was brought were not in the actual possession of the plaintiff at the time of the conversion, and it was, therefore, necessary for the plaintiff to prove his title to the goods independent of possession, which he failed to do. In the present case, however, the plaintiff was in actual possession of the piano at the time of the seizure.
It is also to be abserved that the seizure by defendant was not on behalf of Cavanagh, as in assertion of his title (of which defendant was ignorant at the time), and which he subsequently disregarded, when he became aware of it. And it is clear, on authority, that, under such circumstances, the defendant could have no right to set up the jus tertii.
In Jeffries v. The Great Western Railway Co., 5 El. & B. 806, it appeared that one Owen had been in possession of some trucks which were his property; that he had assigned them to the plaintiff, but was allowed by plaintiff to remain in possession of them; that while Owen was in possession, and before plaintiff took possession, Owen assigned them also to the defendants, and that after the plaintiff took possession, the defendants; claiming to be entitled under the assignment to them, seized the trucks. For that seizure an action of trover was brought, and at the trial, before Pollock, C.B., defendants’ counsel offered evidence to show that while Owen was in possession with plaintiff’s consent, he had become a bankrupt; that the bankrupt court had made an order for sale of the trucks, and that, therefore, they were not the property of the plaintiff at the time of the conversion, and the defendants, if responsible at all, were responsible only to the assignees of Owen in the bankruptcy. The Chief Baron, however, stated that, unless some evidence was given that the defendant claimed under the assignees, he would reject the evidence of their title, upon the ground that the defendants, if wrongdoers, could not set up the jus tertii as a defence. The plaintiff obtained a verdict, and the Chief Baron’s ruling was confirmed by the Court, on the ground (as stated by Lord Campbell) that the defendants were strangers to the title which they proposed to set up. In the argument before us other cases were cited to the same effect, but I do not think it necessary to refer to them.
With respect to the question as to the amount of damages, I see no sufficient reason for holding that the plaintiff is not entitled to the £27, being the admitted value of the piano. Defendant’s counsel, in the argument before us, relied upon the decision in Brierly v. Kendall, 17 Q. B., p. 937. In that case plaintiff had assigned certain goods to defendant by bill of sale for securing the payment of the principal sum of £370 15s., with interest, and it was thereby provided that the principal and interest should be paid at any time the defendant might appoint by notice served on plaintiff, at least twenty-four hours before the time so appointed, that in case of such payment not being then made, the defendants might seize and sell the goods, but that until such default, the plaintiff might remain in possession of the goods, notwithstanding being disturbed by the defendants. The defendants afterwards seized the goods, having served a notice requiring payment of said principal and interest. It was admitted, however, that the notice was bad, not having been served twenty-fours before the time fixed in it for such payment, and that the plaintiff was entitled to a verdict. The question before the court was whether the plaintiff (in respect of such of the goods seized as had been comprised in the bill of sale) was entitled as damages to the full value of those goods, and the court held that the value was not the proper measure of the damages. In that case, however, it is to be observed that the defendants under the bill of sale would have been entitled to seize the goods on the day after that in which the seizure was actually made, and it would, therefore, have been manifestly unjust to have given the full value of the goods as the damages for the defendant’s act, which was wrongful only because the seizure was made a day too soon. Lord Campbell, however, stated in his judgment (p. 943) that the case would be different if the action had been brought against a third party. The decision in Brierly v. Kendall does not, therefore, govern the present case, as the defendant had no right to seize the piano, either on the day he took it, or at any subsequent time, and his act was altogether unlawful. From the observations of Mr. Justice Crompton in Jeffries v. The Great Western Railway Company, 5 E. & B. 806 (which was decided some years after Brierly v. Kendall), it would appear that in his opinion the general question we are now considering had not been yet decided; and I think that, under the circumstances of this case, we should hold that the value of the piano is the amount of damages to which the plaintiff is entitled.