Real property - assignment - contract terms - creditors - debts - interest - mortgages - priorities - proceeds of sale

Abdul Ghani El Ajou v (1) William George Stern (2) Dollarland (Manhattan) Ltd (3) Remile Ltd (4) Ilot 68 Development Ltd (a company incorporated in Jersey) (5) Channel Hotels & Properties Ltd: CA (Civ Div) (Lords Justice Laws, Carnwath, Wilson): 14 March 2006

The appellants appealed against the decision ([2005] EWHC 442 (Ch)) that the claim of the respondent (C) to proceeds of sale of a property ranked ahead of any outstanding liability in respect of obligations previously secured by mortgages that had been discharged.

C had been awarded substantial damages, interest and costs following judgment ([1994] BCC 143) in his favour against a company (D) but had not received any payment in satisfaction of that judgment.

D had been controlled by the first appellant (S). D's only worthwhile asset had been its shareholding in its subsidiary (M), the second appellant, which had owned a valuable development site in Brussels.

An assignment was executed by C, M, D and S that was designed to regulate the distribution of the proceeds of the sale of the Brussels property. It was intended to secure for C payment of part of the judgment debt against D.

M had granted certain mortgages over the Brussels property that were listed in a recital to the assignment. Before the property was sold, the mortgages were discharged, but the underlying obligations were to some extent preserved. Recital F provided that, on a sale, M would have a claim against the buyer for the purposes of the purchase price remaining after payment in full of the obligations secured by the mortgage on the property and by the assignment M assigned to C its claim on a sale of the property.

The appellants submitted that although the mortgages had been fully discharged, the underlying obligations had not been 'paid in full' and that the obligations ranked above any obligation to pay C; that the trial judge had implicitly decided in their favour on the issue of construction, as shown principally by his refusal to make a money judgment in C's favour; the specific relief ordered by the trial judge went beyond the relief claimed and pleaded by C in the particulars of claim; and that despite there being no claim for interest pleaded in the particulars, contrary to the requirements of rule 16.4 of the CPR, which were mandatory, a substantial sum was awarded by way of interest.

David Foskett QC, Jacques Algazy (instructed by Michael Conn Goldsobel) for the appellants; Sarah Harman (instructed by Zaiwalla & Co) for the respondent.

Held, the assignment had to be construed in its commercial context. The starting point was the long-unsatisfied debt to C. The Brussels property offered the opportunity to satisfy it in part, but only to the extent of any surplus over prior encumbrances. The assignment represented a compromise that recognised the potential value of the asset, and also its limitations.

In that context, it was not the obligations that mattered, but the extent to which they were secured on the property. A linguistic case could be made on the basis of recital F for distinguishing between the obligations and the mortgages, but that made no sense viewed in the commercial context of the agreement. In that context, the reasonable observer, alive to the background of the assignment, was unlikely to have contemplated a situation in which the obligations would survive detached from their securities.

The judge's refusal to make a money judgment in favour of C could not fairly be read as implying a final determination against him. It was equally consistent with the position that decisions on the issues before the judge were not sufficient in themselves to arrive at that point.

Section 35A of the Supreme Court Act 1981 undoubtedly gave the judge the power to award interest. The rules regulated the exercise of the power; they did not take it away. Had the pleading point been pressed before the trial judge, he could no doubt have given leave to amend and if necessary given the appellants time to prepare their response. As it was, the judge was fully entitled to proceed as he did.

Appeal dismissed.


Civil procedure - costs orders - discretion - part 36 offers - successful party - costs follow the event - offers to settle

Lilian Day v Philip John Day: CA (Civ Div) (Lord Justice Ward, Sir Martin Nourse): 14 March 2006

The appellant (L) appealed against a costs order made in proceedings in which she had claimed a beneficial interest in the proceeds of sale of a property previously owned by her mother-in-law (E) and left to the respondent (P) in E's will.

E had occupied the property as a council tenant and purchased it at a discount of 60% pursuant to her right to buy. L's late husband (J) provided the remaining 40%. On that basis, L claimed a beneficial interest in the property.

It was her case that E held the property on constructive trust for herself and J and that she was entitled to a share of the proceeds of sale. By his defence, P claimed that J's contribution to the purchase price was a gift and that accordingly E was entitled to leave the whole of the property to him. Both parties advanced an alternative fallback argument that E held the property upon a resulting trust for herself and J in the ratio of 60:40.

The trial judge rejected both primary arguments advanced by the parties and held that their identical fallback arguments were correct. On the issue of costs, the judge held that the result had effectively been a draw, and that neither party had sought to settle the matter based upon their fallback arguments. He accordingly made no order for costs, save that he awarded L her costs up to the close of pleadings.

L argued that the judge's decision on costs was wrong. She argued that the judge was wrong to have reached a conclusion that the result of the proceedings was effectively a draw, and that he was wrong to find that no effective offers to settle had been made by either party.

Adrian Davies (instructed by Fenwick & Co) for the appellant; Daniel Margolin (instructed by Turner & Debenhams (St Albans)) for the respondent.

Held, the question of who was the unsuccessful party or the successful party to an action could be determined by who ultimately wrote the cheque at the end. There was no question in this case that that party was P. P had failed in the action and L had succeeded, more so by the fact that P had refused to pay L any money notwithstanding his fallback position in the proceedings.

Accordingly, the ordinary rule that costs followed the event applied, and there was nothing in this case to depart from that ordinary rule. The judge had therefore erred in the exercise of his discretion by concluding in effect that neither party had won.

The judge had also erred in concluding that neither party had made any offers to settle. The valuable use of payments into court and part 36 offers placed an onus on the defendant. P had the ability to make a payment into court based on his fallback position, but he failed to protect his position. He had made an offer, but that offer had been substantially lower than the award made to L.

The judge had fallen into error by not taking that matter into account. In the circumstances, the judge's exercise of discretion was flawed and L was awarded her costs of the action.

Appeal allowed.


Damages - negligence - diagnosis - duty of care - dyslexia - general damages - learning difficulties - local education authorities - loss of earnings

Skipper v (1) Calderdale Metropolitan Borough Council (2) Crossley Heath School Governors: CA (Civ Div) (Sir Igor Judge (President QB), Lords Justice Latham, Hallett): 15 March 2006

The appellant (S) appealed against an order striking out her claim for damages against the local authority, as responsible for her primary school education, and against her secondary school for their failure to identify her dyslexia and take appropriate steps either to ameliorate her condition or to mitigate its consequences.

S had attended a junior and then a secondary school. M had left the secondary school after taking nine GSCEs. Her highest grade was B. She had subsequently attended a college where she had taken her A level examinations, attaining C, D and E grades. She had applied to join the RAF but had terminated her application. She had successfully completed the first year of a Higher National Diploma but had deferred the second year and accepted the position of a senior sales assistant in a computer games shop.

S's case was that her junior school had failed to diagnose her dyslexia and inform her secondary school of her literacy problems. She also alleged negligence against the secondary school for failing to appreciate her learning difficulties and act on a diagnosis of her dyslexia.

She claimed general damages for lost confidence and self-esteem, and for loss of future earning capacity on the basis that she could and would have achieved better examination results and had been deprived of a chance to follow a professional career with the attendant salary.

The judge struck out the claim, holding that it was impossible to conclude that S would be able to establish the loss claimed. S submitted that she was entitled to a sum for general damages on the basis that she had suffered considerable frustration and distress at school; the mere fact of her poor grades could properly found an argument to the effect that she was at a disadvantage on the labour market and was therefore entitled to a lump sum award for the loss of future earning capacity.

John Greenbourne (instructed by Mellor Small) for the appellant; Gillian Carrington (instructed by Hill Dickinson) for the first respondent; John Norman (instructed by Weightmans, Liverpool) for the second respondent.

Held, as a matter of principle, general damages could be awarded for the consequences of a failure to take appropriate steps to ameliorate dyslexia, including frustration, loss of self-confidence and loss of self-esteem. If it could be shown that S's disability had a real effect on her ability to cope with school and work, or otherwise interfered significantly with her enjoyment of life, that would be a loss of amenity for which damages could be awarded (Phelps v Hillingdon LBC [2000] LGR 651 applied).

In this case, S had expressly pleaded humiliation and lost confidence and self-esteem. On the evidence it would be extremely difficult to say that S would not be able to establish that the degree of humiliation and lost confidence and self-esteem that she might prove at trial would not be sufficient to justify an award of damages. Accordingly, S was entitled to pursue her claim for general damages.

The extent to which S's dyslexia could have been ameliorated or provided for would always remain uncertain, as would the extent to which that would have affected her performance in public examinations. Whether any improvement in her examination results would have led to her life taking a significantly different course would also be a matter of speculation.

However, it was not possible to say that S would be unable to put before a trial judge a case that at least established that she might have suffered some loss of earning capacity, though modest. A claim with a real prospect of success could not be struck out under rule 24.2 of the CPR just because the value of the claim in money terms was modest and the cost of pursuing it disproportionate.

Appeal allowed.


Landlord and tenant - assured shorthold tenancies - temporary accommodation - unintentional homelessness

Sharon Griffiths v St Helens Council: CA (Civ Div) (Lord Justices May, Rix, Mr Justice Coleridge): 7 March 2006

The appellant (G) appealed against the decision that the respondent local housing authority's duty to provide accommodation for G under section 193(2) of the Housing Act 1996 had ceased under section 193(5) of the 1996 Act because she had refused the offer of an assured shorthold tenancy of suitable accommodation from a private landlord which the local authority had secured for her.

G had been an assured housing association tenant. The housing association had obtained a possession order because of anti-social behaviour by two of her sons. G had applied to the local authority for assistance under part VII of the Housing Act 1996 and the local authority had accepted that it was under a duty under section 193(2) of the 1996 Act to secure suitable accommodation for G and her family.

The local authority had secured from a private landlord the offer of an assured shorthold tenancy with an initial fixed term of six months. The local authority informed G that if she refused the offer it would regard its duty under section 193(2) as discharged under section 193(5).

G initially accepted the offer but eventually refused to move into the property because she feared for her family's safety because of publicity that her case had received. In a review decision, the local authority maintained that it no longer had a duty to G under section 193 and the judge upheld that decision.

G submitted that the amendments made to section 193 of the 1996 Act by the Homelessness Act 2002 had removed assured shorthold tenancies entirely from the possible ambit of section 193(5) so that the refusal by a homeless person of an offer by a private landlord of an assured shorthold tenancy could never be sufficient to bring to an end the duty under section 193(2).

The local authority submitted that section 193(5) should be read as capable of embracing the refusal of an offer of any accommodation which was suitable, including an offer of what was or might become temporary accommodation under an assured shorthold tenancy from a private landlord, and that the effect of the 2002 amendments was that an applicant was free to refuse an assured shorthold tenancy from a private landlord offered as a permanent solution to their homelessness, but not an offer of an assured shorthold tenancy from a private landlord which was not put forward as a permanent solution.

Jan Luba QC, Adam Fullwood (instructed by Stephensons) for the appellant; Andrew Arden QC, Iain Colville (instructed by the local authority solicitor) for the respondent.

Held, the duty of a local housing authority under section 193(2) of the 1996 Act did not require it to secure that permanent accommodation was available for an applicant. The requirement was to secure suitable accommodation and that could be temporary accommodation. Section 193(5) was capable of embracing an offer of temporary accommodation.

Before the 2002 amendments, section193(5) was capable of embracing an offer of suitable accommodation to be let on an assured shorthold tenancy from a private landlord. Since the great majority of private lettings of residential property were on assured shorthold tenancies, it would have been singularly inept drafting not to omit them expressly from section 193(5), if that had been the intention in 2002. Section 193(5) related to the position where the applicant had refused accommodation whereas section 193(7B), introduced by amendment, related to the position where the applicant accepted accommodation and was also concerned with what was to be regarded as permanent accommodation.

The elaborate provisions for a qualifying offer of an assured shorthold tenancy from a private landlord in section 193(7B) were there to recognise that some homeless applicants might reasonably prefer to accept the offer of such a tenancy rather than remain in temporary accommodation for a long time until they might be offered secure accommodation under part VI of the 1996 Act. The 2002 amendments did not implicitly remove the refusal of an offer of an assured shorthold tenancy from a private landlord from the possible ambit of section 193(5). That section was capable of applying to any offer of suitable accommodation, including an offer of an assured shorthold tenancy from a private landlord, apart from a qualifying offer under section 193(7B). The subsection was neutral as to whether an offer to which it applied was of temporary or permanent accommodation, but it was much more likely in practice to apply to an offer of accommodation that was or might become temporary. If the applicant accepted the offer and the accommodation subsequently ceased to be available, the authority's duty would have to be performed again, assuming that the applicant's circumstances had not otherwise relevantly changed.

Appeal dismissed.


Criminal procedure - local authorities' powers and duties - police detention - secure accommodation - young offenders

R (on the application of M) v Gateshead Metropolitan Borough Council: CA (Civ Div) (Lords Justice Thorpe, Dyson, Moore-Bick): 14 March 2006

The applicant (M) applied for judicial review of the failure of the respondent local authority to provide her with secure accommodation as requested by the police under section 38(6) of the Police and Criminal Evidence Act 1984.

M, a juvenile, had been arrested and taken into police custody. A custody officer made a request under section 38(6) of the 1984 Act for secure accommodation at 12.20am on the basis that M would be expected to appear before the court at 10am on the same day. The local authority failed to provide secure accommodation; consequently, M was detained at the police station overnight.

M submitted that a section 21(2)(b) of the Children Act 1989 duty was imposed on any local authority that received a request from a police custody officer to provide accommodation for arrested juveniles under section 38(6). The local authority's duty under section 21(2)(b) was to use its best or reasonable endeavours to provide secure accommodation when requested to do so by the police pursuant to section 38(6).

Stephen Cragg (instructed by Ben Hoare Bell) for the appellant; Ian Kennerly (instructed by the local authority solicitor) for the respondent.

Held, the language of section 21(2)(b) was clear and the words should be given their plain and ordinary meaning. The language of the section compelled the conclusion that the duty to provide accommodation in response to the custody officer's request fell on the authority that received the request. The local authority for the area in which the police station was located might not be the most suitable authority to provide accommodation under section 21(2)(a) or 21(2)(b) and therefore Parliament might well have intended to give the police some flexibility in their choice of local authority from which to request accommodation when discharging their duties under section 38(6). The unqualified language of section 38(6) was apt to give the police a wide discretion when deciding which local authority to approach.

The object of section 21(2)(b) of the 1989 Act when read with section 38(6) of the 1984 Act was that children should not be detained in police cells if at all possible. Therefore, it was incumbent on all local authorities to have in place a reasonable system to enable them to respond to requests under section 38(6) for secure accommodation. It was clear that section 21(2)(b) imposed a duty on a local authority to provide accommodation for children whom they were requested to receive under section 38(6), but the section did not impose an absolute duty to provide secure accommodation. Having regard to the urgency with which such requests would usually have to be dealt, the comparative rarity of such requests, and the resource implications, it would be manifestly unreasonable to impose such a duty on local authorities. However, subject to section 25 of the 1989 Act, the local authority had a discretionary power to provide secure accommodation where it was requested (Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997 considered).

It was unrealistic to expect local authorities to be able to guarantee they would provide secure accommodation whenever a request was received under section 38(6). In this case, given the time when the request was made, it was wholly impracticable to consider providing accommodation and the local authority was not in breach of its duty in failing to provide secure accommodation.

Application refused.


Civil evidence - fraud - misrepresentation - admissibility - concealment - deceit - dishonesty - duty of disclosure

(1) Michael Ambrose Conlon (2) Roger Harris v Paul Francis Simms: Ch D (Mr Justice Lawrence Collins): 9 March 2006

The claimant partners claimed damages for fraudulent misrepresentation against the defendant former partner (S).

S and the first claimant (C), who were partners in a firm of solicitors, had entered into negotiations to form a new partnership. Before the partnership arrangements had been finalised, the Office for the Supervision of Solicitors (as was) commenced an investigation into various banking instrument transactions that S had been involved in. S had allegedly given numerous assurances to C that the transactions were bona fide and that the clients for which S had acted were substantial entities and would provide a valuable source of income.

S and C subsequently entered into a partnership; later, the second claimant joined the partnership. Thereafter, the Law Society intervened and suspended S. The partners entered into an agreement to deal with S's suspension.

The Solicitors' Disciplinary Tribunal ordered S to be struck off the roll of solicitors after finding, among other things, that S had been dishonest. S unsuccessfully appealed against that decision. S also sued under the agreement and the judge held that the findings of the tribunal were not admissible in those proceedings as evidence of the facts found by the tribunal.

The claimants submitted that C was not precluded by the judge's holding from relying on the findings of the disciplinary tribunal, since: the order of a professional disciplinary committee was admissible as prima facie evidence of the fact that S was struck from the roll of solicitors on the ground of his dishonesty; C had been induced to enter into the partnership on the basis of S's false representations that the companies for which S had acted were substantial entities and would provide a valuable source of income; and S was under a duty to make positive disclosure of any matters affecting his status as a solicitor and ability to enter into a partnership agreement and he had failed to disclose such matters.

Philip Engelman (instructed by Bower Cotton Partnership) for the claimants; the defendant in person.

Held, the instant court was not precluded from relying on the findings of the tribunal. The judge's holding that the findings of the tribunal were not admissible was obiter and had been tentatively expressed. The order of the tribunal was evidence of the fact that S had been struck from the roll of solicitors on the ground of dishonesty (Hill v Clifford (1907) 2 CH 236 and Hollington v Hewthorn Ltd [1943] KB 587 considered).

It would be unfair to require the claimants to prove dishonesty in numerous transactions to which they were not parties and in relation to which the only contemporary evidence was contained in material annexed to the Law Society complaint. It would bring the administration of justice into disrepute if, after a hearing before the tribunal and full appeal before another court, S could, in the absence of substantial fresh evidence, challenge those findings.

Although S's representations were untrue, the statements had not been made in the context of the future profitability of the firm and therefore C was not and could not have reasonably been induced to enter into the partnership by those representations.

The duty of a partner to display complete good faith towards his co-partners in all partnership dealings and to disclose material matters applied to persons who were negotiating their entry into partnership (Bell v Lever Brothers Ltd [1932] AC 161 applied).

S had fraudulently failed to disclose his dishonesty to C and had thereby induced C to enter into the partnership agreements. S's non-disclosure had not been based on a bona fide belief in his innocence but had been fraudulent. S had consistently given numerous false assurances to his partners that the transactions were not fraudulent. His evidence as to his involvement in the transactions was wholly unbelievable.

C was therefore entitled to damages to be assessed. S was also liable to the second claimant for the consequences of him having entered into the partnership.

Judgment for claimants.


Negligence - duty of care - prisoners - prisons - psychiatric harm - remand - suicide

Home Office v Robert Butchart: CA (Civ Div) (Lords Justice May, Latham, Longmore): 15 March 2006

The appellant (H) appealed against the decision refusing to strike out the claim of the respondent (B) in respect of psychiatric harm allegedly suffered by B while he was on remand in prison.

B had been referred to a psychiatrist and admitted to a mental health facility for depression. Eighteen months after his discharge, B arrived in prison on remand and spent the first six weeks in custody in the health centre. B was prescribed anti-depressants and tranquillisers and assessed as at risk of self-harm. He was transferred to a shared cell, which he shared with another prisoner (P), who was at risk of suicide.

After six weeks, P killed himself. B claimed that he had suffered psychiatric harm because of the stress created by being placed in the same cell as P, P's suicide, the fact that he had been blamed for P's death, and the fact that he had then been placed in a cell with another suicidal prisoner. H submitted that it did not owe any duty of care to B to prevent psychiatric damage to him consequent upon the suicide of P; in any event, the suicide of P was not foreseeable on the known facts.

Jeremy Johnson (instructed by the Treasury Solicitor) for the appellant; Heather Williams (instructed by Bhatt Murphy) for the respondent.

Held, B's claim was not one that was narrowly based on the effects of P's suicide and accordingly a nervous shock case, which would require B to have close ties with the victim, White v Chief Constable of South Yorkshire [1998] 3 WLR 1509 considered. B claimed not as a witness but on the basis that the psychiatric injury that he had allegedly suffered resulted from breach of a primary duty of care owed to him.

The question was whether the duty to take reasonable steps to ensure the health and safety of a prisoner encompassed taking reasonable steps to protect a prisoner from psychiatric harm (Commissioner of Police of the Metropolis v Reeves [1999] 3 WLR 363 and Orange v Chief Constable of West Yorkshire [2001] EWCA Civ 611, [2002] QB 347 considered).

The pleaded facts were sufficient, if proved, to establish that H knew or ought to have known that B was a prisoner vulnerable to psychiatric harm. In those circumstances it was inevitable that the duty of care that H owed to B included a duty to take reasonable steps to minimise the risk of psychiatric harm. On the pleaded facts, the decision to place B with P was capable of amounting to a breach of that duty. Therefore, the claim as pleaded disclosed a cause of action and the judge had been right not to strike it out.

It was arguable that P was known to be a suicide risk at the relevant time or should have been so considered.

Appeal dismissed.