Chancery law

Appealing cases and the automatic stayLa Baguette Ltd v Audergon, Court of Appeal [2002] EWCA CIV 10; Woodhouse v Consignia and Steliou v Compton, Court of Appeal [2002] EWCA CIV 275

The Court of Appeal has recently adopted conflicting approaches to applications to lift the automatic stay imposed by part 51 of the Civil Procedure Rules (CPR) and for relief from other sanctions under the CPRs.

CPR part 51 provided that if existing proceedings did not come before a judge between 26 April 1999 and 25 April 2000 then they would be subject to an automatic stay.

Neither the CPR part 51 nor the practice directions contain any express guidance on the approach the court is to adopt when faced with an application to lift the stay, although CPR part 3.9 lists various factors to be taken into account when a court is granting relief from sanctions.

In La Baguette it was held that the automatic stay was a sanction 'imposed for a failure to comply with any rule, practice direction, or court order' within the meaning of CPR part 3.9.

However, Lord Justice Jonathan Parker also held that so long as sufficiently clear reasons are given by a court, then it is not necessary for a judge to refer specifically to the provisions of the CPR part 3.9.

He stated that 'the rule does not require the court to adopt such an artificial and mechanistic approach', not least because the rule requires consideration of 'all relevant circumstances' which will necessarily include the specific matters listed in CPR 3.9.

He also doubted the general value of the type of additional judicially created checklist which had been formulated by Mr Justice Neuberger in Annodeus Entertainment Ltd v Gibson (unreported 2/2/00).

The robust approach taken by the Court of Appeal in La Baguette is a hurdle to those parties who try to challenge procedural decisions by relying on technicalities and formalities, and it highlights the appellate courts' reluctance to interfere with first-instance judges' discretion on procedural matters.

This approach was reconsidered in the Court of Appeal's judgment in the Woodhouse and Steliou appeals.

There, Lord Justice Brooke stated that 'judges, particularly less experienced judges, should submit themselves to the discipline of considering each of the matters listed in CPR 3.9 which appear to them to be relevant to the case they have to decide.

If they fail to do so, there may be a serious danger that an appeal court may overturn their decision for omitting to take a material consideration into account'.

Lord Justice Brooke made clear that judges should not simply latch on to one or two considerations (such as the length of delay) to the exclusion of all others, but must 'carry out the necessary balancing exercise methodically and explain how they reached their ultimate decision'.

To avoid inviting an appeal, it is therefore important for advocates and those drafting applications for relief from sanction to ensure that the court's attention is specifically drawn to each of the matters set out in CPR 3.9.

In La Baguette, Mr Justice Rimer had exercised the discretion conferred by CPR part 52.11(1)(b) to hold a 'rehearing' rather then a review of the first instance decision, not least because the master had not had sufficient time to consider all the evidence.

The master had dealt with the case in less than half a day, while the rehearing in front of Mr Justice Rimer took three days.

The Court of Appeal in La Baguette held that Mr Justice Rimer had been wrong to allow a rehearing.

No criteria were provided for when a judge should hold are hearing, but it was said that 'the mere assertion by an appellant that had he had more time to develop his case the lower court might have been persuaded to reach a different result cannot justify holding a rehearing'.

Therefore, another lesson from these cases is the importance of ensuring that cases are properly prepared and fully argued at the first hearing, as there is unlikely to be a subsequent opportunity to put in additional evidence orre-argue the case at an appeal.

IndemnitiesEastern Counties Leather Plc v Easter Counties Leather Group Ltd [2002] EWHC 494 (Ch)

This case deals with an important question in relation to the implied terms of indemnity agreements.

There was a sale of shares in the claimant company.

The claimant had faced statutory claims resulting from its pollution of the water supply, and the vendors of the shares provided an indemnity to the company in respect of pollution claims which had been notified to the vendors prior to an expiry date.

The vendors alleged that the claimant was in breach of an implied term of the indemnity agreement that the company would do nothing to incite or encourage the Environmental Agency to make a pollution claim.

On the facts of the case it was clear that there had been no such incitement or encouragement.

Nevertheless, Mr Justice Blackburne expressed the view that he could not see why 'once it became likely that a pollution claim will be made, [the claimant] should be compelled to stand silently and altruistically by and lose its chance of indemnification because the expiry date is fast approaching.

I have difficulty in seeing why, in order to give business efficacy to the [indemnity] agreement, it is necessary to imply such a vow of silence'.

Therefore, this case should provide some reassurance to indemnity holders who are concerned that silence may simply postpone the making of a claim until after the expiry of their indemnity.

Dishonesty and willfully shutting ones eyesTwinsectra Ltd v Yardley

A solicitor was not necessarily dishonest and liable for assisting in a breach of trust although he had deliberately shut his eyes to the implications of a transaction.

Since Royal Brunei Airlines v Tan [1995] 2 AC 378, it has been clear that dishonesty is a necessary and sufficient ingredient of accessory liability in equity.

However, there has been controversy as to what amounts to dishonesty for the purposes of civil claims.

In a majority judgment, the House of Lords overturned the Court of Appeal, and held that 'dishonesty requires knowledge by the defendant that what he was doing would be regarded as dishonest by honest people, although he should not escape a finding of dishonesty because he sets his own standards of honesty and does not regard as dishonest what he knows would offend the normally accepted standards of honest conduct'.

The majority of the House of Lords rejected Lord Millet's view that for civil liability there should be no need to prove any subjective dishonesty.

Consciousness of wrongdoing therefore needs to be proved in cases of knowing assistance of breach of trust.