Law reports

AGENCY

Commercial agents – compensation – goodwill – principals – termination
Graham Lonsdale v Howard & Hallam Ltd: CA (Civ Div) (Lords Justice Jacob, Moore-Bick, Lady Justice Hallett): 8 February 2006

The appellant (L) appealed against a decision determining the amount of compensation payable by the respondent (H) following the termination of an agency agreement. L had been a commercial agent for H. The agency had lasted for more than 13 years until it was terminated after a period of notice as a result of the closure of H’s business. It was accepted that L was entitled to compensation under the Commercial Agents (Council Directive) Regulations 1993, which implemented Council Directive 86/653.
However, there was a dispute as to the amount of compensation that was payable. L claimed that, where an agency had persisted over a reasonable period of time and the agent had performed his functions competently throughout that period, as a general rule he should receive by way of compensation under regulation 17 an amount equal to two years’ gross commission.

The judge held that L was entitled to be compensated for the value of the agency of which he had been deprived. He found that at the time the agency was terminated, H’s business had been in serious decline and that the agency was producing a modest and falling income in a deteriorating environment. The judge doubted whether anyone in the circumstances would have been willing to pay as much as two years’ gross commission and assessed compensation at £5,000. L argued that the judge failed to apply the two years’ commission guideline and that he failed to give sufficient weight to the duration of the agency or the fact that L had performed satisfactorily.

Philip Moser (instructed by Morgan Cole) for the claimant; Oliver Segal (instructed by Harvey Ingram) for the defendant.

Held, the damage suffered by the agent as a result of the termination of his relations with his principal was normally the loss of the agency business, including whatever goodwill attached to it, King v T Tunnock Ltd, Times, 12 May 2000 and Light v Ty Europe Ltd [2004] 1 Lloyd’s Rep 693 considered. That was the correct interpretation of regulation 17(6) and therefore the compensation that the agent was entitled to receive in such cases should reflect the value of the business at the date of termination.

Once that was recognised, the task of assessing the amount of compensation in any given case was made easier because the court could compensate on the facts and matters that had a bearing on the value of the business to the exclusion of those that did not. The two years’ compensation rule could not be supported, since there was no basis for construing the directive or the regulations in a way that entitled the court to award an amount of compensation unrelated to the damage that the agent had actually suffered. It was not possible to accept that there should be a guideline as suggested by the two years’ compensation rule advanced by L; nor were the duration of the agency or the quality of the agent’s performance necessarily important factors.

The judge’s decision could not be faulted. He directed himself correctly on the principles to be applied and was correct to take into account the fact that the business of H was in serious decline at the time of the termination of the agency, since that inevitably affected the value of the goodwill attaching to it.

Appeal dismissed.

CRIMINAL EVIDENCE

Control – electronic mail – interception of communications
R v Clifford Stanford: CA (Crim Div) (Lord Chief Justice, Lord Phillips, Mr Justice Cresswell, Mr Justice Openshaw): 1 February 2006

The applicant (S) applied to appeal against his conviction for unlawful and unauthorised interception of electronic mail communications to a public company contrary to section 1(2) of the Regulation of Investigatory Powers Act 2000.
S had pleaded guilty to the offence following a ruling by the trial judge on the construction of section 1(6)(a). The ruling was relevant to the facts that S had intended to advance by way of defence, which were in conflict with facts advanced by the prosecution. The facts that were in common were that S had been deputy chairman of a company (C) but had resigned from that position following a falling-out with another director. S had plotted to discredit the other director in order to force his resignation by making use of e-mail communications sent within C’s mail server.

The facts that S sought to advance at trial were that an employee of C (X) had been granted administrator access to user names and passwords of the e-mail server, and had set up a mirroring rule whereby e-mails of particular members of C would be automatically copied to a separate e-mail server accessible by X and S. S’s case was that X had been lawfully given those user names and passwords by a senior member of staff (Y). It was S’s case that because X, through Y’s authorisation, had been placed in a position to control the use of the system, he was a person with a right to control the operation or use of the system under section 1(6)(a).

The judge, interpreting section 1(6)(a), found that ‘right to control’ meant more than merely the right to access or to operate the system, and meant the right to authorise or forbid the operation of the system. The effect of the judge’s ruling was that the facts sought to have been advanced by S would not have amounted to a defence at law, and on that basis S entered a plea of guilty.

S argued that the judge’s interpretation of section 1(6)(a) was wrong because the effect of the judge’s ruling was to criminalise X, even though the username and password X had been given gave him the ability to control the operation and use of the system and also the right to do so, since they had been knowingly given without any restrictions on use.

T Owen QC and A Bailin for the applicant; S Whitehouse for the Crown.

Held, the judge had been correct to hold that ‘control’ meant ‘authorise or forbid’. That accorded with the verbal context in which control was set and produced a sensible result. The ‘right to control the operation or use of the system’, as provided by section 1(6)(a), was wider than the right to operate or use the system. The concept of control in this context extended to controlling how the system was used and operated by others. Further, the objective of section 1 was to protect the privacy of private telecommunications, and it would have undermined that objective if anyone with unrestricted ability to operate and use a telecommunications system was exempt from criminal liability for intercepting communications. Accordingly, the judge’s ruling was plainly correct and permission to appeal was refused.

Application refused.

CIVIL PROCEDURE

Conditional fee agreements – detailed assessment – disbursements – fixed costs – indemnity principle – road traffic accidents
Mohammed Butt v Christi Nizami; Mohammed Butt v Cadhar Kamuluden: QBD (Simon J, Master Hurst, Jason Rowley): 9 February 2006

The appellant (B) appealed against the costs judge’s decision that the entitlement to fixed recoverable costs under rule 45.9 of the Civil Procedure Rules (CPR) and a success fee under rule 45.11 did not depend on the existence of a valid and enforceable conditional fee agreement (CFA).
The respondents (N) had both sustained whiplash injuries when the car they were in was struck from behind by a vehicle driven by B. They had instructed solicitors and entered into CFAs in relation to the claims. The claims had been settled, but costs could not be agreed. N started costs-only proceedings claiming fixed recoverable costs, disbursements and a success fee. B’s solicitors were concerned that N’s solicitors had failed to make appropriate enquiries about the availability of before-the-event insurance, and sought a direction for N’s solicitors to certify compliance with the Conditional Fee Agreements Regulations 2000.

The costs judge refused to make that direction, holding that, although disbursements were subject to assessment, the indemnity principle did not apply to the entitlement to fixed recoverable costs under rule 45.9 and the success fee under rule 45.11, so that it did not matter whether the CFA was valid and enforceable.

B argued that the indemnity principle was fundamental to orders for the recovery of costs and should only be disregarded if absolutely necessary; that regardless of the indemnity principle, a CFA had to be lawful before recovery was permitted; and that, although rules 45.9 and 45.11 provided for a fixed sum to be paid, that was always subject to the validity of the retainer, including the CFA. N argued that CPR part 45(II) provided for a self-contained scheme for the recovery of costs in litigation involving road traffic accidents, and that the indemnity principle did not apply so that those costs were recoverable whether or not they had actually been incurred.

Roger Mallalieu (instructed by McCullagh & Co) for the appellants; Nicholas Bacon (instructed by Colman Coyle) for the respondents.

Held, the intention underlying part 45(II) was to provide an agreed scheme of recovery that was certain and easily calculated by providing fixed levels of remuneration, which might over-reward in some cases and under-reward in others, but which were regarded as fair when taken as a whole. It was clear that the indemnity principle should not apply to the figures that were recoverable, and accordingly there was little reason why the indemnity principle should have any application to rules 45.9 and 45.11, and good reasons why it should not, since the overriding objective of the CPR included saving expense and dealing with cases in ways that were proportionate to the amount of money involved, and the whole idea underlying part 45(II) was that it should be possible to ascertain the appropriate costs payable without the need for further recourse to the court.

There was no overriding need to enable the paying party to satisfy itself that the CFA was compliant with the regulations. Further, there was no anomaly in rule 45.10 calling for a different approach in relation to disbursements, since there were no fixed figures for disbursements. In cases falling under part 45(II), the receiving party did not have to demonstrate that there was a valid retainer between the solicitor and client, merely that the conditions laid down under the rules had been complied with.

Appeal dismissed. See also [2006] Gazette, 16 February, 1.

NEGLIGENCE

Limitations – professional negligence – solicitors – striking out
Josselyne Cohen v Kingsley Napley & Another (A Firm): CA (Civ Div) (Lords Justice Pill, Sedley, Scott Baker): 10 February 2006

The appellant (C) appealed against the decision ([2005] EWHC 899 (QB)) giving judgment for the respondent solicitors (K) in respect of most of C’s professional negligence claim against them.
C had retained K in relation to proceedings brought by architects in 1992 to recover their fees from C. C’s counter-claim had been struck out in 1998 as an abuse of process for failure to pursue it. In November 2002, C began proceedings alleging negligence in relation to K’s conduct of the counter-claim between December 1995 and November 1996, six years before the proceedings against K had been issued. K sought to strike out the claim on the basis that it was statute-barred in respect of damage suffered before November 1996.

The judge held that the claim could only survive in so far as it related to the alleged negligence of K in failing to make a claim against the architects based on alleged inadequate design of the waterproofing and tanking of the basement of the claimant’s premises. The judge held that, apart from the basement counter-claim, the counter-claim had no value in November 1996 because it would have been struck out if an application had been made at that time or soon afterwards.

C submitted that if a step in the action had been taken before November 1996 by C, there was a real prospect that the architects would not have applied to strike out the counter-claim for want of prosecution, so that the claim retained value.

R Tager QC (instructed by M&S Solicitors) for the appellant; I Gatt QC (solicitor-advocate) for the respondent.

Held, while, in many cases, it could readily be assumed that an application to strike out would have been made on service of a notice of intention to proceed, it was certainly arguable that there would be cases in which a factual inquiry was appropriate. Whether a cause of action had value at the material time would depend first on whether it would have been struck out if an application had been made. However, even if the answer to that question was in the affirmative, as it was in the instant case, the claim would continue to have value if, on a consideration of the facts, an application to strike out might not have been made. If there was a substantial chance that, on a notice to proceed in November 1996, the architects would not have applied to strike out, the claim retained a value.

The hypothetical question as to whether the architects would have applied to strike out had to be confronted, Allied Maples v Simmons & Simmons [1995] 1 WLR 1602 considered. On the material before the court, it was arguable that, if a factual analysis were to be undertaken, it might be established that they would not have applied to strike out if notice of intention to proceed had been given in November 1996. There was material from which it could be inferred that the architects would not then have applied to strike out, since, for example, they had indicated a wish to preserve their claim at the end of 1995 and there was nothing to suggest any change of attitude in the course of 1996, and when notice of intention to proceed had been given, they had not immediately applied to strike out. The appeal was to that extent allowed.

Appeal allowed in part.

PUBLIC LIABILTY

Accident – asbestos – local authorities – mesothelioma – public liability insurance
Bolton Metropolitan Borough Council v (1) Municipal Mutual Insurance Ltd (2) Commercial Union Assurance Co Ltd: CA (Civ Div) (Lords Justice Auld, Longmore, Lady Justice Hallett): 6 February 2006

The appellant insurance company (M) appealed against the decision that it was liable in respect of the onset of mesothelioma when that occurred during the currency of a public liability insurance policy that it had issued, and the claimant local authority appealed on the question of costs.
M was the public liability insurer of a local authority that had settled a claim against it in respect of a building worker (G) who had been exposed to asbestos while working on a local authority site in the 1960s and had later contracted mesothelioma. The local authority sought to recover from M as its public liability insurer at the time when the mesothelioma later occurred. M denied liability and claimed that if any insurer was liable, it was the public liability insurer (C) which provided cover at the time when G was exposed to asbestos.

The judge held that M was liable to indemnify the local authority since the mesothelioma was an accidental bodily injury which occurred during the period of cover, and that C was not liable since the mesothelioma had not occurred during the currency of C’s cover and because the local authority had not notified C of a claim against it in accordance with the policy wording.

M submitted that ‘accidental injury’ for the purposes of the policy occurred on or soon after the inhalation of asbestos fibres rather than when mesothelioma occurred; and as a matter of policy C should also be made liable to the local authority. The local authority submitted that the judge had erred in making the local authority pay C’s costs save to the extent that 25% of those costs could be recovered by the local authority from M in addition to its costs against M.

Edward Bartley-Jones QC, Digby Jess (instructed by Forbes) for the claimant; Howard Palmer QC, Sonia Nolten (instructed by Watmores) for the first defendant; Michael Harvey QC, Tim Smith (instructed by Halliwells) for the second defendant.

Held, as a matter of principle and authority, it was clear that ‘injury’ for the purposes of the policy wording was not the first exposure of the body to asbestos or initial bodily changes that were not actionable. The injury had to occur within the currency of the policy and be caused accidentally. On the proper construction of the policy, M was liable to indemnify the local authority.

C’s policy did not cover the local authority’s claim because it applied during the period when G was exposed to asbestos fibres and not when malignancies probably occurred and when symptoms of mesothelioma manifested themselves. The English court declined to make C liable for policy reasons. Therefore, when the local authority’s liability to G arose, there was no other applicable insurance. M’s appeal was dismissed.

In any event, C had not waived its entitlement to rely on late notification, which was a condition precedent to its liability. The doctrine of election did not apply because C was not facing inconsistent or mutually exclusive choices in denying liability on coverage grounds and by reason of late notification. If an insurer rejected a claim on the ground of lack of cover, it did not thereby waive the possibility of pleading a breach of condition at a later stage, if that breach occurred prior to the rejection of the claim.

The most important issue in the case was which public liability policy should respond and M lost on that issue. It had also lost its contribution claim against C. The judge had erred in principle in requiring the local authority to pay 75% of C’s overall costs. The local authority should recover its costs of proceeding against M but not of proceeding against C. M should not be entitled to recover its costs from anybody. M should pay C’s costs but could recover 20% of those costs from the local authority.

Judgment accordingly.

ROAD TRAFFIC

Documents – pre-trial disclosure – proof – real evidence – speeding
Director of Public Prosecutions v Thornley: DC (Lady Justice Hallett, Mr Justice Owen): 3 February 2006

The appellant DPP appealed by way of case stated against the decision of a magistrates’ court that the respondent (T) had no case to answer to a charge of speeding.
At T’s trial, the DPP had sought to rely, pursuant to section 20(1) of the Road Traffic Offenders Act 1988, on a document that was a record produced by a device prescribed under the Road Traffic Offenders (Prescribed Devices) Order 1999. The record purported to show images taken of T’s car travelling at excessive speed. The DPP failed to comply with the requirement in section 20(8) of the 1988 Act to serve the document on T not less than seven days before his trial. The DPP further sought to rely on a certificate, signed by a police officer, as to the circumstances in which the record had been produced.

The magistrates’ court acceded to a submission by T of no case to answer on the basis that the record was inadmissible because the service requirements in section 20(8) had not been complied with and because the police officer who had signed the certificate could not give direct evidence of the speeding offence. An issue arose as to whether production of the record was analogous to the production, under section 10 of the Road Traffic Act 1972, of a record from an intoximeter so that the record in instant case was admissible as real evidence.

David Potter (instructed by the Crown Prosecution Service) for the appellant; the respondent in person.

Held, section 20(8) was permissive and did not prevent the record from being adduced as real evidence in the usual way. The purpose and effect of section 20(8) was precisely the same as section 10 of the 1972 Act, namely to enable the record to be adduced as evidence without the need to call a witness to prove it. Accordingly the matter was remitted. Garner v CPS, Independent, 1 May 1989 applied.

Appeal allowed.

TAX

Advance corporation tax – compensation – dividends – EC law – freedom of establishment – groups of companies – tax credits – withholding tax
Pirelli Cable Holding NV & Others v Inland Revenue Commissioners: HL (Lord Nicholls of Birkenhead, Lord Hope of Craighead, Lord Scott of Foscote, Lord Walker of Gestingthorpe, Lord Brown of Eaton-under-Heywood): 8 February 2006

The appellant Inland Revenue Commissioners appealed against the decision ([2003] EWCA Civ 1849) that if groups of companies (P) with parent companies resident in other EU states had been entitled to make and had made group income elections under section 247 of the Income and Corporation Taxes Act 1988, so that their UK resident subsidiaries would not have incurred a liability to pay and would not have paid advance corporation tax (ACT), nonetheless P would still have been entitled to tax credits pursuant to the relevant articles of the respective UK/Italy and UK/Netherlands double-tax agreements.
UK subsidiaries of EU parent companies had paid ACT and had not been permitted under the UK legislation to make a group income election, the effect of which would have been that dividends paid by the subsidiary to its parent while the election was in force would not have triggered a liability to pay ACT and that the parent would not have been entitled to a corresponding tax credit under section 231 of the 1988 Act. The European Court of Justice (ECJ) had then ruled that denying the right to make an election where the parent companies were not resident in the UK was contrary to the freedom of establishment and held that P were entitled to compensation for loss of the use of the money paid as ACT.

However, under double-taxation conventions made between the UK and Italy and the Netherlands, P had been entitled to tax credits of a reduced amount calculated as set out in those conventions, and the Revenue took the view that allowance should be made for those convention tax credits when calculating the compensation due to P, because P would not have received those credits if they had made a group income election.

P submitted that on the wording of the domestic legislation and the conventions, they would have been entitled to the convention tax credits on a dividend paid by a UK subsidiary to its EU parent while a group income election was in force; even if the parent companies would not have been entitled to the convention tax credits, they should be left out of account in assessing compensation because a subsidiary and its parent were separate legal entities; and the question whether ACT was contrary to EC law as a withholding tax within article 5 of Council Directive 90/435 should be referred to the ECJ.

Ian Glick QC, David Ewart, Kelyn Bacon (instructed by the Solicitor, Revenue and Customs) for the appellants; Graham Aaronson QC, David Cavender, Paul Farmer (instructed by Dorsey & Whitney) for the respondents.

Held, the judge and Court of Appeal had been wrong to conclude that if P had been entitled to make and had made a group income election under section 247(1), so that they would not have incurred a liability to pay and would not have paid ACT, nonetheless the parent companies would still have been entitled to tax credits pursuant to the relevant articles of the respective double-tax agreements. The relevant articles had to be interpreted purposively as not applying to dividends paid when a group income election was in force.

Reading sections 231 and 247 together, it was clear that the prerequisite for the giving of a tax credit was the making of a qualifying distribution that was liable to ACT. A group income election extinguished that liability and with it the right to the tax credit that was the counterpart of the liability. It followed that, if the same system had been available to them and a group election had been made, no ACT would have been payable on the distributions to the EU parent companies. So there would have been no entitlement to a tax credit with respect to those distributions under section 788(3)(d) of the 1988 Act, which gave effect to the tax conventions in UK law in respect of tax credits.

The loss sustained by the subsidiary could not fairly be assessed in isolation. Assessment of the compensation had to take into account any countervailing fiscal benefit received by the parent, such as the convention tax credits, which would not have been available had a group income election been made. The tax credits that had been received had to be brought into account in assessing the compensation.

The essence of a withholding tax within the meaning of article 5.1 was that it was a tax on the income of the parent company. It was clear that ACT fell within the article 7.1 exception and was not a withholding tax and no reference to the ECJ was necessary, Athinaiki Zithopiia v Elleniko Dimosio (Case C-294/99) [2001] ECR I-6797 and Océ van der Grinten NV v Inland Revenue Commissioners (Case C-58/01) [2003] ECR I-9809 applied.

Appeal allowed.

SOCIAL SECURITY

Benefits Agency – bias – disability appeal tribunals – doctors – members
Gillies v Secretary of State for Work & Pensions: HL (Lord Nicholls of Birkenhead, Lord Hope of Craighead, Lord Walker of Gestingthorpe, Baroness Hale of Richmond, Lord Rodger of Earlsferry): 26 January 2006

The appellant (G) appealed against a decision allowing the secretary of state’s appeal against the grant of G’s claim for disability living allowance. G had alleged that there was a reasonable apprehension that the medical member of the disability appeal tribunal (X) had been biased since she was serving as a panel member while continuing to provide reports for the Benefits Agency.
For a number of years, X had provided reports for the Benefits Agency as an examining medical practitioner (EMP). The agency had then contracted out the provision of certain types of EMP reports to a company (S) that had employed a number of doctors, including X, on a part-time sessional fee-paid basis. It was in that capacity that X had continued to carry out examinations of claimants in their homes and provided reports in disability allowance and incapacity benefit cases. Some of the reports involved an ‘all work’ test that was carried out at a Benefits Agency medical centre. Medical members who prepared reports in ‘all work’ cases were advised that, to avoid any suggestion of bias, they should not sit on a tribunal hearing ‘all work’ test appeals.

X frequently sat as a tribunal member hearing appeals relating to benefits other than those in ‘all work’ test cases. The tribunal had had before it medical evidence from G’s cardiologist, who accepted G’s claim, but it preferred the evidence of the EMP and G’s general practitioner, who both took the view that G’s condition was better than he had claimed. The tribunal of commissioners had considered that where EMP reports were in competition with other evidence, an ordinary member of the public would have a real concern that doctors who prepare EMP reports would tend to lean in favour of accepting reports from other doctors in that group.

The Court of Session disagreed and stated that a reasonable observer would have known that X and other EMPs were independent expert advisers when examining and reporting for the Benefits Agency. The court had considered that the fact the tribunal had been required to consider and assess reports by other doctors who acted for the agency did not raise concerns of impartiality. The issue to be determined was whether or not the test for apparent bias was satisfied.

Jonathan Mitchell QC, Simon Collins (solicitor-advocate) (instructed by Drummond Miller WS) for the appellant; Colin Campbell QC, Jonathan Brodie (solicitor-advocate) (instructed by the Solicitor to the Advocate-General) for the respondent.

Held, the common law test to be applied was whether the fair-minded and informed observer, having considered the facts, would have concluded that there was a real possibility that the tribunal was biased, Magill v Weeks [2001] UKHL 67, [2002] LGR 51 applied. The facts did not support the argument that X was to be seen as a Benefits Agency doctor or that she was in some other way aligned with the Benefits Agency.

Her relationship with the Benefits Agency was as an independent expert adviser and there was no basis for a finding of reasonable apprehension of bias on the ground that X had a predisposition to favour the agency. A fair-minded and informed observer would have appreciated that professional detachment and an ability to exercise her own judgment on medical issues were at the centre of her relationship with the agency, and that X was just as capable of exercising those qualities when sitting as the medical member of a disability appeal tribunal.

Neither was there any basis on the evidence for the contention that X was likely to be unconsciously biased in favour of the report of the EMP simply because she had a special interest in and experience of the preparation of EMP reports. X’s experience of working as an EMP was likely to have benefited her and the other tribunal members when she was evaluating the EMP report, R (on the application of PD) v West Midlands and North West Mental Health Review Tribunal [2003] EWHC 2469 (Admin), Times, 31 October 2003 applied.

Appeal dismissed.