Investors Compensation Scheme Ltd v West Bromwich Building Society

 
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[1997] UKHL J0619-2

HOUSE OF LORDS

Lord Goff of Chieveley

Lord Lloyd of Berwick

Lord Hoffmann

Lord Hope of Craighead

Lord Clyde

Investors Compensation Scheme Limited
(Appellants)
and
West Bromwich Building Society

and Others

(Respondents)

Session 1997-98

Publications on the Internet Judgments

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE

LORD GOFF OF CHIEVELEY

My Lords,

1

I have had the opportunity of reading in draft the speech of my noble and learned friend, Lord Hoffmann. I agree with the conclusion which he has reached as to the construction to be placed upon section 3(b) of the Investors Compensation Scheme Claim Form and, for the reasons given by him, I would answer the questions directed by Evans-Lombe J. to be tried as preliminary issues in the manner proposed by my noble and learned friend. I would therefore allow the appeal.

LORD LLOYD OF BERWICK

My Lords,

2

Background

3

This is the second occasion on which the House has had to consider the scheme for compensating investors set up under section 54 of the Financial Services Act 1986. On the first occasion I described the Rules made by the Securities and Investment Board under section 54(6) of the Act as being needlessly confusing and obscure. On this occasion it is not the Rules that are primarily in issue, but a single clause in the Claim Form which investors are required to sign when making a claim for compensation; and the problem arises not from any obscurity of the language (the meaning is, I think, tolerably clear) but from slovenly drafting.

4

The general background to the Home Income Plans, and the reasons why so many investors have come to grief, have already been described in the judgments in the earlier appeal, and need not be repeated here. The particular background to the present appeals are proceedings brought by two groups of investors against West Bromwich Building Society ("W.B.B.S.") for damages for negligence at common law and under section 2(1) of the Misrepresentation Act 1967. They also claim rescission of their mortgages on the ground of misrepresentation and undue influence, equitable compensation, damages in lieu of rescission under section 2(2) of the Act of 1967, and a variety of other remedies. Some of these remedies overlap.

5

The Investors Compensation Scheme Ltd. ("I.C.S.") have also commenced proceedings against W.B.B.S. in which they claim as assignees of the Investors' rights against W.B.B.S. They assert that all the investors' claims against W.B.B.S. have been validly assigned to I.C.S., with the exception of the investors' claim for rescission. It follows that there are competing claims against W.B.B.S. for the same damages, by the investors on the one hand and I.C.S. on the other. The resolution of the issue which thus arises indirectly between I.C.S. and the investors depends on the true construction of the Claim Form, and in particular on the scope of the provisions relating to the assignment of the investors' rights against third parties.

6

As between I.C.S. and W.B.B.S. there is a further issue. For W.B.B.S. allege in the alternative that if the question of construction is resolved in favour of I.C.S., and the investors have purported to assign their claims for damages against W.B.B.S., then the assignment is void or unenforceable on grounds of public policy.

7

In addition to their claim against W.B.B.S., I.C.S. have brought proceedings against numerous firms of solicitors, in which they claim damages for negligence in advising their clients in relation to the Home Income Plans. These proceedings are also brought as assignees under the Claim Form. But there are two important differences. In the first place, there is no issue as to the meaning or scope of the assignment in the case of claims against the solicitors. Secondly (and no doubt for the same reason) none of the investors have brought their own proceedings against the solicitors. So there is no underlying conflict between I.C.S. and the investors in relation to the I.C.S. claim against the solicitors. The solicitors' defence is the same as the alternative argument advanced by W.B.B.S., namely, that the assignment is void or unenforceable on grounds of public policy.

8

Before turning to the question of construction, it is convenient to set out the main provisions of the Claim Form. The form is addressed to the individual investor. In section 2 it sets out the amount of the compensation to which the recipient is entitled under the scheme. Section 3(a) sets out the claimants' declaration. It provides (in a typical case) as follows:

"I/we hereby claim compensation for losses amounting to £20,345 as a result of the default of Fisher Prew-Smith.

"I/we believe … that I/we have a claim against the firm in respect of negligent acts and/or advice given by Fisher Prew-Smith on or after 28 August 1988.

"I/we confirm that I/we have received no compensation of any kind in respect of amounts owed to me/us at the date of default by Fisher Prew-Smith or any other person….

"… I/we also confirm that I/we do not expect to receive any such compensation in the future …

"I/we understand that subject to section 3(b) below

1. I/we are not obliged to make a claim under this scheme.

2. Investors' Compensation Scheme Ltd…. will take over my/our rights and claims against Fisher Prew-Smith and other third parties on the payment of any compensation as described in the Transfer of Rights at section 4 of this form…."

9

The claimants' declaration is then signed by the investor.

10

Section 3(b) on which the present appeal turns, sets out a counter-declaration by I.C.S. It provides:

"I.C.S. agrees that the following claims shall not be treated as a 'Third Party Claim' [as defined in section 4 of this form] for the purposes of this agreement and that the benefits of such claims shall enure to you absolutely:

"Any claim (whether sounding in rescission for undue influence or otherwise) that you have or may have against the West Bromwich Building Society in which you claim an abatement of sums which you would otherwise have to repay to that Society in respect of sums borrowed by you from that Society in connection with the transaction and dealings giving rise to the claim (including interest on any such sums)."

11

Section 4 is headed "Investor's Agreement and Acknowledgment (Rights Against Participant Firm)." It provides as follows:

"1. I/we agree that my/our rights against the Participant Firm in respect of the Claim shall pass to Investors Compensation Scheme Ltd. ('I.C.S.') on payment of compensation pursuant to the Financial Services (Compensation of Investors) Rules 1990 ('the Rules')….

"3. I/we acknowledge that under the Rules on payment of the amount of £20,345.15 I/we will not longer have the right to make a claim against the Participant Firm in respect of the Claim and that any such right will be vested in I.C.S. pursuant to the Rules, and I/we further acknowledge that any sums which would otherwise be payable to me/us in respect of the Claim by the Participant Firm, or by any trustee appointed under the Financial Services Act 1986, shall be paid instead to I.C.S….

"5. I/we agree that in the event of my/our receiving any moneys or assets in respect of the Claim from the Participant Firm or from any trustee appointed under the Financial Services Act 1986 I/we will forthwith pay or transfer them to I.C.S.

"6. I/we hereby assign absolutely to I.C.S. each and every Third Party Claim and the benefit thereof.

"12. In this document, 'Third Party Claim' means any right, claim or cause of action which the claimant has or may have against any person other than the Participant Firm or against any fund or property in the hands of any person other than the Participant Firm and arising out of the circumstances giving rise to the Claim or otherwise relating to the Claim whether such claims shall arise in debt, breach of contract, tort, breach of trust or in any other manner whatsoever (and including all sums to which I/we may become entitled under sections 6 and 61 of the Financial Services Act 1986)."

12

Section 4 is then signed by the investor. There follows an Explanatory Note. Paragraphs 1, 2 and 3 are all concerned with the assignment of claims against the Participant Firm, in this case Fisher Prew-Smith. Paragraph 4 is concerned with the assignment of third party claims. It provides:

"4. You also agree that I.C.S. should be able to use any rights which you now have against anyone else in relation to the claim. Examples might be directors of the firm or other persons also responsible for causing the loss for which you are being compensated. You give up all those rights and transfer them to I.C.S. (paragraph 6)."

13

So much for the general shape of the Claim Form. I now return to section 3(b). It provides for an exception in respect of third party claims assigned under paragraph 6 of section 4. Mr. Vos on behalf of I.C.S. submits that the exception is confined to claims against W.B.B.S. for rescission. Mr. Oliver on behalf of W.B.B.S. and Mr. Strauss on behalf of the investors submit that the exception covers all claims against W.B.B.S. whether for rescission or not, in which the investor claims a reduction in the amount due under the mortgage loan.

14

This is not the first time the court has had to consider the meaning of section 3(b). The same question arose in proceedings brought by I.C.S. against Cheltenham and Gloucester P.l.c., formerly known as Cheltenham and Gloucester Building Society. In that case Evans-Lombe J., who has had overall charge of the litigation, ordered, and subsequently tried, a preliminary issue as to the construction of section 3(b). He held that the more natural meaning of the words was that for which the investors contend; in other words that the exception covers all possible claims against Cheltenham and Gloucester, and is not limited to claims for rescission. However, he went on to reject what he regarded as the more...

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