Carl Zeiss Stiftung v Herbert Smith & Company (No. 2)
| Jurisdiction | England & Wales |
| Judgment Date | 1969 |
| Date | 1969 |
| Court | Court of Appeal (Civil Division) |
Account - Action for - Preliminary point - Solicitor - Solicitor acting for defendant in action - Plaintiff's claim that defendant's property held on trust for plaintiff - Defendant's solicitor paid money on account of costs - Whether knowledge of claim notice of trust - Whether solicitor liable to account to plaintiff for money received. - Solicitor - Costs - Trust - Solicitor acting for defendant in action - Plaintiff's action claiming that defendant's property held on trust for plaintiff - Moneys paid by defendant to solicitor on account of costs - Whether knowledge of claim notice of trust - Whether solicitor duty to inquire into validity of claim of trust.
The plaintiffs, the East German foundation of Carl Zeiss, alleged by their re-amended statement of claim in the main action, that all the assets and property of a defendant, the West German foundation of the same name, belonged to the plaintiffs or were held on trust for them. At a time when there had been and were pending interlocutory proceedings but before the trial of the main action, the plaintiffs brought these proceedings for an account against the West German foundation's solicitors alleging that they had received money from their clients and, by reason of so acting, they knew all the facts and matters averred and proved or to be proved in the main action and they had notice that their clients' money belonged to the plaintiffs. The plaintiffs made no allegation against the defendant solicitors' integrity and honesty and at all times emphasised that no such allegation could or was being made. The defendant solicitors admitted receiving moneys from the West German foundation on account of fees, costs and disbursements incurred or to be incurred in the main action and that they knew from time to time the averments made by the plaintiffs. On the hearing of a preliminary issue as to whether the statement of claim disclosed a cause of action, Pennycuick J. held that the nature of the plaintiffs' action was such that it obstructed the course of justice and was thus contrary to public policy; he made a declaration that, irrespective of the decision in the main action, the defendant solicitors would not be accountable to the plaintiffs for any fees, costs or disbursements received from their clients so long as they acted honestly as solicitors and received those moneys in their capacity of solicitors, and he dismissed the action. On appeal by the plaintiffs:—
Held, dismissing the appeal, (1) that a solicitor acting honestly in his capacity as a solicitor for his client was in no different position from any other agent acting for his principal and was not to be imputed with knowledge of a trust merely because, in acting for his client, he knew that it was claimed against his client that there was a trust and such knowledge could not be notice of a trust or notice of misapplication of trust funds. Accordingly, since the defendant solicitors had no notice of a trust or that they had received trust funds from their clients, they were not accountable to the plaintiffs for the moneys which had come to their hands on account of costs, fees and disbursements.
(2) Per Danckwerts and Sachs L.J. That a solicitor had no duty to assume that facts averred against his client were true and no duty to make inquiries as to whether such facts were true (post, pp. 437A–D, 441C).
Per Sachs L.J. It seems that negligent if innocent failure to make inquiry would be insufficient to attract constructive trusteeship (post, p. 441F, G).
Per Edmund Davies L.J. The concept “want of probity” appears to provide a useful touchstone in considering circumstances said to give rise to a constructive trust (post, pp. 444D–445D).
Decision of Pennycuick J. affirmed on different grounds.
The following cases are referred to in the judgments:
Barnes v. Addy (
Blundell, In re, Blundell v. Blundell (
Blyth v. Fladgate [
Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2) [
Foxton v. Manchester and Liverpool District Banking Co. (
La Roche v. Armstrong [
Lee v. Sankey (
Maw v. Pearson (
Mildred, Goyeneche & Co. v. Maspons (
Morgan v. Stephens (
Myler v. Fitzpatrick (
Nelson v. Larholt [
Nickolson v. Knowles (
Parker v. Brooke (
Quistclose Investments Ltd. v. Rolls Razor Ltd. [
Selangor United Rubber Estates Ltd. v. Cradock (No. 3) [
Williams v. Williams (
The following additional cases were cited in argument:
Baker (G. L.) Ltd. v. Medway Building and Supplies Ltd. [
Becke, In re (
Cordwell v. Mackrill (
Diplock, In re, Diplock v. Wintle [
Emma Silver Mining Co., In re (
Mara v. Browne [
Ministry of Health v. Simpson [
Rondel v. Worsley [
Soar v. Ashwell [
Spencer, In re, Spencer v. Hart (
Williams-Ashman v. Price and Williams [
APPEAL from Pennycuick J.
By a writ issued on October 20, 1955, the plaintiffs, Carl Zeiss Stiftung of Jena (the East German foundation), brought the main action, 1955 C. No. 4445, against three defendants, Rayner & Keeler Ltd., Degenhardt & Co. Ltd. and Carl Zeiss Stiftung of Heidenheim on Brenz (referred to as the West German foundation). By the statement of claim, the plaintiffs alleged that the defendants were passing off goods manufactured by the West German foundation as the plaintiffs' goods under the name of Carl Zeiss and they claimed, inter alia, an injunction restraining them from advertising. offering for sale or selling any optical instruments or any article containing or consisting of glass under or by reference to the name “Carl Zeiss” unless such goods be those of the plaintiffs. In March, 1960, the plaintiffs amended their statement of claim and the amendments included a claim for an injunction against the West German foundation restraining them from using the name “Carl Zeiss Stiftung” or “Carl Zeiss” or any name containing “Zeiss” in relation to their business or goods.
In October, 1967, the plaintiffs reamended their statement of claim to allege, inter alia, that the business of the West German foundation had always been the plaintiffs' property or, alternatively, that the West German foundation's assets and property were held in trust for the plaintiffs, and they claimed, inter alia, a declaration that all the West German foundation's assets in the United Kingdom were the property of the plaintiffs, an order that all the defendants should assign to them that property and an account of all moneys come to their hands arising out of any use or from any dealing in the property.
On March 18, 1968, the plaintiffs issued the writ in this action against two firms of solicitors, Herbert Smith & Co. and Dehn & Lauderdale (both firms referred to as the defendant solicitors), claiming that Dehn & Lauderdale had acted for the West German foundation in the main action until May, 1964, and thereafter Herbert Smith & Co. had so acted and that, in the course of so acting, they received moneys in the United Kingdom from the West German foundation and that by reason of their acting in the main action they knew all the facts and matters averred and proved or to be proved therein and thus had notice that that money belonged to the plaintiffs; they claimed an account of all moneys come to the hands of the defendant solicitors being the plaintiffs' property and payment of all sums found due upon taking such account. The defendant solicitors admitted they had so acted for the West German foundation and that in the course of so acting they had been paid by their clients sums on account of fees, costs and disbursements incurred or to be incurred in the main action and they knew from time to time the averments made by the plaintiffs; they claimed that the statement of claim disclosed no cause of action against them.
On May 8, 1968, the defendant solicitors unsuccessfully applied to Pennycuick J. for an order for the trial of a preliminary issue whether they would be accountable in respect of fees, costs and disbursements received by them as alleged in the statement of claim and admitted in the defence. They appealed and, on May 23, 1968, the Court of Appeal [
On June 26, 1968, Pennycuick J. held that the nature of the plaintiffs' claim was such that it obstructed the course of justice and was thus contrary to public policy. He made the following declaration:
“That irrespective of the decision upon any issue in the action 1955 C.
No. 4445 referred to in the pleadings herein, neither of the [defendant solicitors] would be accountable to the plaintiffs in respect of any fees, costs or disbursements received by them from or on behalf of the [West German...
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