Notes Of Cases

Date01 March 1981
Publication Date01 March 1981
DOIhttp://doi.org/10.1111/j.1468-2230.1981.tb02747.x
NOTES
OF
CASES
DERIVATIVE
ACTIONS
AND
Foss
v.
HARBOTTLE
SIXTY-NIN,E
days of argument preceded the judgment of Vinelott
J.
in
Prudential Assurance Ltd.
v.
Navnzan Industries Ltd.
(No.
2)
which touches the most delicate areas of company law and is
a
special feast for devotees of the Rule in
Foss
v.
Harbottle.2
The very facts of the case argue the need for
a
Companies Com-
mi~sion.~ Deceptive malpractices were organised by B and
L,
both
senior directors of two companies, TPG and
N.
B
and TPG held
shares (though not a majority) in
N.
Another company
S
(of which
B
and
L
owned all the shares) held
a
substantial shareholding in
TPG-the company
at the centre of the spider’s web ”-which
was in financial difficulties. B and
L
arranged to sell its main assets
to
N
at a gross over-valuation. In accordance with Stock Exchange
requirements, the consent of the shareholders of
N
was obtained,
but by a
misleading and tricky
circular. The plaintiff company,
P,
a minority shareholder in
N,
suing in
representative
form
[i.e.
on behalf of itself and all the other shareholders
of
N,
except the
defendants] claimed damages or compensation against B,
L,
and
TPG.
B,
L
and TPG were found to be liable to
N
and its share-
holders by reason of this deceitful conspiracy to injure them.
Personal and Derivative Actions
For decades company law has suffered the ambiguity of the share-
holder’s
representative action.” It may be a
true representative
,,
claim-a direct, personal claim by the shareholder to enforce his
rights and those of others of his class. But it may denote the very
different
derivative
action where the company is joined as a
nominal defendant and the member sues to enforce not his rights but
the company’s rights, and holds the fruits of success not for himself
but for his ~ompany.~ The derivative action is clarified perceptively
by Vinelott
J.
in this case; but it remains in sore need of further
clarification by those who control the Rules of the Supreme
Co~rt.~
1
[I9801
2
All E.R.
841;
also in [I9801 3 W.L.R.
543.
2
(1843) 2 Hare
461.
3
See [19801
2
All E.R.
PP.
846-855; 878-880, where Vinelott
J.
himself made
proposals for changes in the Stock Exchange “Yellow Book.”
Cf.
T.
Hadden,
Fraud in the City: Enforcing the Rules
(1980) 1
Company Lawyer
9.
4
Counsel conceded that the knowledge of the fraud of
B
and L, its directors,
must be “imputed” to TPG: [19801 2 All E.R. 878; compare
Belmonr Finance
Corpn.
V.
Williams
[19791
1
Ch. 250, and
ibid.
(No.
2) [I9801
1
All E.R. 393.
5
Gower
Modern Company Law
(4th ed., 19791, pp. 647-652 for the general
requirements for a derivative action; and
Wallersteiner
v.
Moir
(No.
2) [I9751 Q.B.
373, when the Court of Appeal adopted the essential characteristics as described by
Gower
op.
cit.
(3rd ed., 1979). For confusion concerning the nature of a plaintiff‘s
claims, see
Pennell
V.
Venida Znvestments Ltd.
(unreported 1974) discussed by
S.
Burridge
Wrongful Rights Issues” (1980)
44
M.L.R. 40, 54-57.
6
A
‘‘
derivative action
should be denoted by a special description as such on
the writ. It should not be
‘‘
representative
of the members under R.S.C., Ord. 15,
202
Mar.
19811
NOTES
OF
CASES
203
Vinelott
J.
rejected at a previous stage of the litigation the defen-
dants’ argument that
a
truly representative action could not be
joined to
a
derivative action, as
P.
here wished to do. He took
a
liberal view
as
to whether shareholders had or might have separate
interests, rather than the
same
interest in the action,
as
Ord.
15,
r.
12
req~ires.~ This liberalisation in procedure concerning represen-
tative plaintiffs matches an expansion in actions in tort of the role
of representative defendants.’
But the liberalisation gave rise to problems. The defendants were
liable to
P.
in both its capacities
(as
and for the shareholders; and
as the
derivative
of
N).
But the Shareholders at the date of the
action might not be the same
as
those at the date of the commission
of the fraud; and here the plaintiff shareholders also had
a
direct
action exceptionally against
B
and
L
in tort for the conspiracy.9
If
compensation were awarded to
P
both
derivatively for
N’s
loss
and
directly for the loss by it as shareholder, an element
of
double-com-
pensation might creep in. Vinelott
J.,
therefore, gave judgment for
the plaintiff (as derivative) for the loss suffered by
N
(difference
between the price paid and the value of the assets if there had been
no fraud); assessed the
personal
damage of the shareholders (by
reference to the values
of
N’s
shares); but directed that no further
proceedings in the personal or truly representative claims be taken
without leave of the court,’O-altogether
a
skilful solution.
Double-compensation, however, is only one of the problems posed
by permitting
a
plaintiff to sue in two, or even three capacities (a
personal; a
truly representative
”;
and a
derivative action). It
was once thought that such duplication would not be permitted
ll;
but the more modern view is to the contrary, provided the claims
arise out
of
the same transaction.”
l2
This is a sensible develop-
ment, especially now that the minority shareholder may hope to
r.
12
(a
hangover from partnership); and it should be subject to clear rules con-
cerning costs, compromises, control
of
the action, and the exercise
of
judicial dis-
cretion, etc. Since our company law has known
of
‘I
derivative
actions since at
least
Afwool
V.
Merryweather (1867)
L.R.
5
Eq.
464n.
(although they were given
the American name by the judges only in the
Wallersfeiner
case) this reform is
hardly premature.
7
Prudential Assurance
Co.
Ltd.
V.
Newman Industries Ltd. 119791 3
All E.R.
507.
Contrast the
formalism
of
EETPU
v.
Times Newspapers
C19801
Q.B.
585.
8
See
Winder
v.
Ward, The Times,
February
27, 1957
(C.A.).
9
Directors
of
coursc
are
normally liable for breach of fiduciary duties only to the
company. But the judge suggested that there
was
here a duty in tort to shareholders
to
act honestly and with due care
in giving advice:
[I9801 2
All E.R.
853 (cf.
Gething
V.
Kilner [1972]
1
All
E.R.
1166; Allen
V.
Hyaft
(1914)
30
T.L.R.
444),
an additional ground to that
of
conspiracy.
10
This bald account
of
the result does scant justice to the ingenuity
of
the
judgment at pp.
855-860,
and
pp.
877-878.
11
Sfrooud
v.
Lawson 118981 2
Q.B.
44;
Wedderburn
119571
C.L.J. p.
206;
Gore
Browne,
Companies
(43rd
ed.), para.
28.6.
12
119801 2
All
E.R.
p.
860;
A.
L.
Smith L.J.
118981 2
Q.B.
p.
49;
S.
Beck
(1974)
52
Can.B.R.
p.
182;
Hogg
V
Cramphorn 119671
Ch.
254;
Gower,
op. cit.
p.
655,
note
99.
204
THE
MODERN
LAW REVIEW
[Vol.
44
recover costs from the coffers of the compan~.‘~ For the derivative
action is certainly not rendered unnecessary by the new section
75
of the Companies Act
1980.
It offers the minority shareholder more
scope than that section.’“ Joining
a
personal
to
a
derivative
action, however, adds new importance to difficulties attendant upon
the Rule
in
Fuss
v.
Narbottle
(especially if
a
shareholder’s
per-
sonal” rights do include the right to have the company’s constitu-
tion and procedures ob~erved).’~ For example, if (as is usual) the
company has articles delegating management
of
the business to the
directors (such
as
Art.
80
of Table A), which is the appropriate organ
of the company to decide about litigation by the company. The
directors or the general meeting? The clash of the old principle that
the members are
proprietors
with the modern principle that they
have contracted away their powers to the board, is
in
this area of
law Vinelott
J.
gave no answer to the problem; but its
importance is accentuated, as he acknowledged, by his liberalisation
of company law procedure.”
Fraudulent Controllers
Having cleared the ground procedurally, he faced, in
a
legal sense,
a
simple case. The conspiracy to use
tricky and misleading
circu-
lars and devices was abundantly proved-a category of malfeasance
well recognised by equity as within its broad concept of
fraud
which allows the minority shareholder to bring
a
derivative action,ls
so
long
QS
the wrongdoers were in
control
of the company.
Con-
l3
Wallersfeiner
v.
Moir
(No.
2) [1975]
Q.B.
373
(C.A.);
A.
Boyle
[1976]
J.B.L.
18.
14
There must be an
act
or
omission
by
or
on behalf of tho company,
or
conduct
of
its “affairs” which is “prejudicial” to members including tho
applicant. Only in those circumstances may the court authorise civil proceedings
in the name
of
the company:
s.
75 (4)
(c).
Moreover, he must apparently be
a
mem-
ber at the time of the prejudicial act; contrast the derivative action:
Seaton
v.
Grant
(1867) 2
Ch.App.
459;
BIoxam
v.
Mefro. Ry.
(1868) 3
Ch.App.
337.
See too
S.
Burridge
Wrongful Rights Issues
(1980) 44
M.L.R.
40, 54-67.
15
A
much debated issue: see Gower,
op.
cif.
pp.
315-320;
Wedderburn
Share-
holders Rights and the Rule in
Foss
V.
Harboffle”
[1957]
C.L.J.
194
and
[1958]
C.L.J.
93
;
G.
Prentice
The
Enforcement
of
Outsider Rights
(1980)
1
Company
Lawyer
179;
D.
$Idberg
The
Enforcement
of
Outsider-Rights
(1972)
35
M.L.R.
362;
R. Smith Minority Shareholders and Corporate Irregularities
(1978) 41
M.L.R.
147;
N.
Bastin “Enforcing a Member’s Rights”
[1977]
J.B.L.
17;
R.
Gregory
(1981) 44
M.L.R. (forthcoming).
16
See Megarry
J.’s
refusal
to decide the point:
Re
Argenfum
[I9751
1
All
E.R.
608, 610;
Alexander Ward Lfd.
V.
Samyang Navigation
[19751 2
All
E.R.
424
(H.L.);
and Wedderburn
(1976) 39
M.L.R.
327;
Gowcr,
op.
cif.
pp.
147-148,
on the conact
of
authority.
1‘
See
[1980] 2
All E.R. at
875;
see
also
pp.
877-878,
where (expressing no
conclusion) he raised the question of what happens if the majority
members
of
N,
after full disclosure, resolve not to take advantage of the judgment for the company;
and speaks of the
general meeting
releasing
the
company’s cause of action in
a
compromise. Suppose by that time
N
had acqured
a
new majority of honest directors
who took a different view. Who would in law prevail? When would P’s “direct”
action come into its own for execution?
18
See in addition to the cases referred to by Vinelott
J.,
the
tricky circular”
cases:
Baillie
V.
Orienral Telephone
Co.
119151
1
Ch.
503;
Tiessen
V.
Hendersen
[1899]
1
Ch.
861;
and
Spokes
v.
Grosvenor Hotel
Co.
[1897]
2
Q.B.
124.
Mar.
19811
NOTES
OF
CASES
205
fro1
must be alleged and proved.19 English courts have been very
conservative in their approach to
control,” usually requiring proof
that the defendants control
a
majority of the voting shares,*’ an
absurdly narrow view in times when
de facto
control can often be
achieved with
a
much smaller shareholding.
Here-in the
ratio decidendi;
the
central issue
21-Vinelott
J.
advanced boldly on to new ground. The defendants did not have
voting control. But
a
close analysis of the authoritiesz2 disclosed
that
control
did not after all demand such a maj~rity.’~
Con-
trol
exists if it would be
futile
to call
a
general meeting because
the wrongdoers would
directly or indirectly
exercise
a
decisive
influence over the result.
It
is today
uncommon
for large num-
bers of shareholders to attend the meeting of
a
large public com-
pany. Control of voting can be achieved in many ways (the most
obvious, proxies). The exception to
Foss
v.
Harbottle
applies, Vine
lott
J.
insisted, wherever the defendants are shown to be able “by
any
means of manipulation
of their position in the company to
ensure that the action is not brought by the company.” (Echoes can
surely be heard here of the famous American Rule
10
(b)
(51.)
2J
To
this recognition of corporate realities, Vinelott
J.
added the force
of
a
thin stream of legal authority (as old as the Rule itself) that the
Rule in
Foss
v.
Harbottle
should not be allowed to defeat “the
claims of justice.”
25
It would be unjust not to interpret
control
in
a
modern way. For that breakthrough, Vinelott
J.
must be respect-
fully congratulated. It was enough to decide the action.
Fraud
Unhappily he also embarked upon an unnecessary excursion into
the wide concept of equitable
fraud
in derivative actions.
It
is
quite clear that mere
negligence
by directors
is
not included
26
but direct misappropriation of corporate assets clearly is.” The
19
Birch
v.
Sullivan
119581
1
All
E.R. 56.
20
Seo Gower,
op. Lit.
&.
649-651.
Sec especially Danckwerts
J.
in
Pavlides
v.
21
[1980] 2
All
E.R.
p.
869.
On what follows concerning “control,” see pp.
870-
Jensen
C19561
Ch.
565, 577.
878
-,
-.
22
Especially
Atwool
v.
Merryweafher
(1867) L.R.
5
Eq.
464;
East
Point
Du
Lead Mine
v.
Merryweafher
(1864)
2
Hem.
&
M. 254.
23
He
also decided that “control” was not an issue going to jurisdiction.
Cf.
Heyting
V.
Dupont
[I9641 2
All
E.R. 273;
Boyle
(1964) 27 M.L.R.
603.
24
Scc the discussion
of
r.
10
(b)
(5)
(forbidding any “manipulativo
or
deceptive
device
or
contrivance,” etc.) by
L. Loss (1970) 33 M.L.R. 34.
25
Wigram
V.-C.,
Foss
V.
Harbotile
(1843) 2
Hare
at
492;
Edwards
v.
Halliwell
[I9501 2
All
E.R.
at
1067;
Russell
V.
Wakefield Waterworks
(1875) L.R. 20
Eq.
at
pp.
480
and
482.
See
too
Heyting
V.
Dupont, supra,
and
Hodgson
v.
NALGO
[1972]
1
All
E.R.
15
(where the principle was one of the
rationes decidendi).
26
[I9801 2
All
E.R.
at
866;
Turquand
V.
Marshall
(1869) L.R. 4
Ch.App.
376,
386;
Pavlides
V.
Jensen, supra.
27
Menier
V.
Hoopers Telegraph
(1874) L.R. 9
Ch.App.
350;
Steen
v.
Law
119641
A.C.
287.
Both
Daniels
v.
Daniels
[I9781
Ch.
406
and
Wallersteiner
v.
Moir
119741
1
W.L.R.
991,
and
(No.
2) [I9751
Q.B.
737,
fall under this heading
of
benefits
obtained by misappropriation
of
corporate assets (see Wedderburn
(1976) 39 M.L.R.
330; (19783 41 M.L.R. 569).
Contrast the interpretations
of
D.
Prentice
(1976) 41
206
THE MODERN LAW REVIEW
[Vol.
44
problem arises because (a) not all breaches of fiduciary duty by
directors in between these two points are “fraud
”;
and (b) some
such breaches can be ratified by the shareholders in general meeting
and some cannot.
Precedent suggests that the line should be drawn for
both
(a)
and
(b) where the directors act
mala fide
or where some “property”
(legal or equitable) of the company
has
been misappropriated directly
or indirectly. In such
cases,
ratification is disallowed. Actions to
recover corporate property are more than an action to account
brought
in personam
against the director (as in the case of
a
breach
of an ordinary fiduciary duty, for which, it is ‘‘ trite law,” he can
gain ‘‘ absolution
by ratification).28 But corporate property includes
‘‘ money, property or
advantages
which belong to the company or in
which the other shareholders are entitled to participate.”
2o
In
Cook
v.
Deeks
Jo
directors who diverted contractual
opportunities
into
their private business, were held to possess the resulting benefits
‘‘
on
behalf of the company,” notwithstanding a resolution to the contrary
passed in
a
general meeting. The basis of the decision was the nature
of the misappropriation,
not
the fact that the directors voted as
shareholders in the fruitless attempt to ratify the wrong. The
derivative action lies where the directors act
mala fine
(as in the
‘‘ tricky circular
cases) or misappropriate corporate
‘‘
property
or “opportunities”; and in neither case is the transaction in its
nature ratifiable.
Adherents-some reluctant-to this ‘‘ traditional
line for defining
fraud
31
have had to face the difficulty of explaining
‘‘
advan-
tages,”
opportunities
or ‘‘ information
as
the
company’s
‘‘ property.” The directors in the
Regal
case used corporate
‘‘ information
in one sense to make their secret profit, albeit bona
fide; but their breach
could
have been validated by ratification.32
Other writers, therefore, have sought
a
different boundary line; for
example, a test resting largely on
‘‘
bona fides
or
‘‘
reasonable-
Conv.(N.s.) 51
;
D.
Sugarman (1975) 91 L.Q.R. 482. This liability
for
misappropriation
of corporate assets has never been limited to
conscious and
deliberate
wrongdoing,”
as
Vinelott J. seemed to think: [1980] 2 All E.R. 866, 869.
28
Bamford
v.
Barnford
C19701
Ch.
212, 328,
per
Harman
L.J.;
cf.
New Zealand
Netherlands SOC. Oranje
V.
Kuys
t‘19731
1
W.L.?; 1126, P.C. This explains why
recovery of
a
bribe
is
not
recovery
of
corporate property
:
Metropolitan Bank
v.
Heiron
(1880)
5
Ex.D. 319.
Lister
V.
Sfubbs
(1895) 45 Ch.D.
1,
C.A.
29
Lord Davey,
Burland
v.
Earle
[1902] A.C. 83, 93
(P.C.)
(emphasis supplied).
30
[1916]
1
A.C. 554 (P.C.).
31
See Wedderburn “Shareholders Rights and the Rule in
Foss
V.
Harbottle”
[1957] C.L.J. 194 and [1958] C.L.J. 93; A Boyle “Minority Shareholders’
Suits’’
[1980] 1
Company Lawyer
3
;
B. Rider
Amiable Lunatics and rhe Rule in
Foss
v.
Harbottle”
[1978] C.L.J. 270. See too Gower,
op. cir.
pp. 616-620; 647-649.
32
See
Regal (Hustings) Ltd.
V.
Gulliver
[1942],,1 All ,FR. 378; 382; 388-389;
393-394. It is clear that
information
can
be an asset owned by the company:
Bell
Houses
Lfd.
v.
City
Wall
Properfies Ltd.
C19661 2 Q.B. 656.
On
corporate
I‘
information
and
opportunities
see
Gower
op. cit.
pp. 593-599; especially
Phipps
v.
Boardman
[1967] 2 A.C. 46 (H.L.); but
for
a critical approach, see
S.
Beck Chap.
5
in
Studies in Canadian Company
Lav,
Vol.
2 (ed.
J.
Ziegel 1973).
Mar.
19811
NOTES
OF
CASES
207
ness”
on
the part of the controller~.~~ The view has
also
been
advanced that refusal by the directors to call
a
general meeting might
by itself be such
bad faith
as
to permit a derivative action
34
but
the court might then grant
a
remedy only to ensure the meeting is
held, not against the alleged underlying malfeasan~e.~~ Proponents
of the traditional test have perhaps failed to insist recently upon both
the historical and the logical bases of
it;
and to the very language of
the courts which upholds it; for example, in
Cook
v.
Deek~.~~
Vinelott
J.
would have none of all this. For him,
a
derivative
action lies whenever directors (albeit bona fide) “are guilty of
a
breach of duty to the company (including their duty to exercise
proper care) and as a result of that breach obtain some benefit.”
37
But that would include each and every breach of fiduciary duty,
including those open to ratification by shareholders’ general meeting.
Is
there no limit?
Vinelott
J.
takes up the position that all
fraud
by directors can
be ratilied; but it is
unconscionable
for the majority to
use
their voting power in general meeting to prevent an action being
brought against them. The fraud lies in their
use
of
their voting
power not
in
the character
of
the act
or
transaction
giving rise to
the cause of action.”
38
Later in his judgment, he does say that fraud
can be judged by reference to the character of the act; but insists
there must be included not only misappropriation cases but
more
generally
cases where directors benefit, however bona fide, from
any
breach
of
duty.39 This of course again raises the issue of ratifi-
cation.
On
that:
. .
.there
is
no
obvious limit to the power of the
majority to authorise or ratify any act or transaction whatever its
character,
provided
that it is not
ultra vires
or unlawful and
that the
majority does not have an interest which conflicts with that
of
the
company.”
40
This last phrase lets the first of two, difficult cats out
of the bag. Whereas a majority decision not to pursue proceedings
might normally be acceptable, he insists:
in ascertaining the view
33
See especially
S.
Beck, whose fascinating contributions to the debate, in the
light of Canadian legislation, are mainly: Chap.
18
in Vol.
1
Studies in Canadian
Company Law
(ed.
J.
Ziegel 1967); and Vol. 2,
ibid.
(1973) Chap. 5 (where
on
pp.
237-238 he advances
a
view not dissimilar to that of Vinelott
J.
though more
cautious);
The Shareholders’ Derivative Action
(1974) 52 Can.B.R. 159;
The
Quickening
of
the Fiduciary Obligation
(1975) 53 Can.B.R. 771
;
see too
D.
Prentice
(1972) 50 Can.B.R. 623; (1976) 41 ConV.(N.S.) 51;
cf.
Clurkson
v.
White
(1980) 102
D.L.R.
(3d)
403.
34
Gower,
op.
cif.
pp.
650-651.
35
Pennington
Company Law
(4th
ed., 1979),
p.
597.
36
C19161
1
A.C. at
p.
564; the contracts
belonged in equify
fo
fhe cornpony.
37
[I9801 2
All
E.R. at
p.
869.
38
Zbid.
at
p.
862 (emphasis supplied).
39
Zbid.
p.
869 (emphasis supplied).
40
Zbid.
p.
862 (emphasis supplied). There
is
surely no previous judgment which
asserts that (apart from illegality and
ulrra vires)
shareholders can ratify
any
wrongful
act by directors. Ratification is available to release them from normal fiduciary
duties
or
to excuse
a
breach:
Granf
v.
U.K.
Swifchbock Ry.
(1888) 40 Ch.D. 135;
Boulfing
v.
ACTT 119631 2
Q.B.
606; but it has never been available for
a
fraud
’’
or
mala fides: Re Roifh
[I9671
1
W.L.R. 432;
Mason
V.
Harris
(1879)
11
Ch.D. 97.
208
THE
MODERN
LAW
REVIEW
[Vol.
44
of
the majority whether it is in the
interests
of
the company
that
the claim be pursued,
the court will disregard votes cast or capable
of
being cast by shareholders who have an interest which conflicts with
the interests
of
the company.”
41
In
practice, this would mean doing
what a century ago James L.J. concluded English courts could
not
do:
submit the issue to
a
meeting at which only independent or “dis-
interested
shareholders may vote.4z Such
a
course would not only
be contrary to basic principles; it would be impracticable. How is a
court to know which of the thousands of shareholders in ICI Ltd.
sent in
a
proxy vote because they had a particular “interest
”?
What are votes
capable of being cast
”?
Most important of all,
how
is
the
conflict
to be judged? Because of
a
failure to confront
the definition of
the interests of the company,” the new principles
are, in truth, internally inconsistent. The “interests of the
com-
pany
are
those of the
present and future members
(plus, now,
employees and possibly creditor~).~~ It is not unknown for the
majority and the
company
to benefit, where the minority lose
out.
If
majority shareholders are to benefit from
a
transaction to be
approved in general meeting, when are they forbidden to vote? Are
they hamstrung if the minority rejects the deal? How does one judge
a
conflict
between the interests of the majority and the interests
of
the company,” setting aside
the character of the transaction
(for
that,
Vinelott
J.
insists, is
not
the test to
use)?
The second difficulty goes even deeper.
A
vote attached to a share
is
the property of the holder and can be voted at general meetings
44
as he wishes.45 Except for special situations (such as altering the
41
Ibid.
p. 874 (emphasis supplied), where he appears to state the
principle which
underlies the exception” to
Foss
v.
Harbortle
on both aspects, “fraud” and
control.”
42
Mason
v.
Harris
(1879)
11
Ch.D. 97, 109. This did not happen in
Hogg
V.
Cramphorn
[1967] Ch. 254,
or
Bamford
v.
Bamford
[1970] Ch. 212 because the
shares not voted were only those
of
which the issue was disputed. See now
s.
14
Companies Act 1980, which supplements the policy of those cases, shareholder
control
of
new issues, especially
s.
14
(6).
43
See
Gower,
op.
cit.
pp. 577-578; and now
s.
46, Companies Act 1980. The
alternative formulation by R. Instone [1979] J.B.L.
:?I
(even
if
correct) would not
solve this problem.
If
majority shareholders cannot benefit” at the expense
of
a
minority how can
Greenhalgh
V.
Arderne Cinemas
[I9511 Ch. 286 (C.A.) be correct?
And there, the received wisdom is that there was an exceptional duty not to com-
mit a “fraud
on
the minority” in changing articles. (Such cases do not,
of
course,
involve derivative actions; the plaint8 sues to protect his
own
rights. They should
not be classified with other
fraud
cases:
contra
Gower,
op.
cit.
Chap.
25.)
44
Class meetings involve different considerations
:
British America Nickel Corpn.
v.
O’Brien
[1927] A.C. 369 (P.C.);
Re Holder Znvesfment Trust
[1971]
1
W.L.R.
583
;
Pennington
Company Law
(4th ed.), p. 580.
45
Pender
v.
Lushington
(1877) 6 Ch.D. 70;
Carruth
v.
ICI
[I9371 A.C. 707,
765;
Rights and Issues Investment Lfd.
V.
Sfyle Shoes
[1965] Ch. 250: and
Phillips
v.
Manufncmrers Securities
(1917) 116 L.T. 290, 296.
Kerry
V.
Maori Dream Gold
Mines (1898) 14 T.L.R. 402 does not detract from that principle.
Cf.
Wotherspoon
v.
C.P.R.
(1979) 92 D.L.R. (3d) 595, 697-714 (ratification
of
transfer
of
assets
to
subsidiary of dominant shareholder); and
Clemens
V.
Clemens
[I9761
2
All
E.R.
268, rightly criticised by
V.
Joffe (1977) 40 M.L.R. 71. Even
the
principle suggested
by
Gower,
op.
cit.
p. 629 based on that decision, does not go as far as Vielott
J.
The complexities of introducing fiduciary duties for majority towards minority share
holders are much greater, as was seen
in
1887 (see:
12
App.Cas. at p. 600), and
as
Mar.
19811
NOTES
OF
CASES
209
articles of association), the majority shareholders owe no fiduciary
duties to other members; they can even vote deliberately to place
their company in contempt of court
46;
they can trade their votes and
arrange to vote entirely in their own interest~.“~ Such principles are
paralleled in the common law of Commonwealth j~risdictions.~~
The shareholder may vote to ratify
a
wrong which he committed in
another capacity
(e.g.
a
breach
of
duty as director); and he may
so
vote even if he is the controlling ~hareholder.~’
Vinelott
J.
swept
all
this aside, asserting that the
fons et origo
of
this line of authority, the
Beatty
case (where the director used con-
trolling votes to confirm
a
sale by him to the company), is
not
authority (as had been thought for nine decades) for the proposition
that
a controlling shareholder who is also
a
director can by using
his votes in general meeting confirm or ratify an act or transaction
(not being of a fraudulent character or ultra vires) which was
a
breach
of
his duty as
a
director and thereby prevent the minority
from bringing a derivative action.” Between
1887
and
1980
the
Beatty
case has been universally thought to decide just that.51 More-
over, in delivering the judgment of the Judicial Committee, Sir
Richard Baggallay overruled the declaration by the Canadian
Supreme Court:
if the transaction and act of the director are to be
confirmed, it should be
by the impartial, independent and intelligent
judgment of the disinterested shareholders and not by the interested
director
who should never have departed from his duty.”
s2
No
doubt
can be judged by
Perltnan
v.
Feldtnan
219
F.2d.
173 (1955)
and
Jones
v.
Ahtnanson
460
P.2d.
464 (1969).
On the special facts
of
Pennell
v.
Venida Investments
(unreported
1974)
see
S.
Burridge
(1980) 44
M.L.R.
40.
46
Northern Counties Securities Ltd.
v.
Jackson and Steeple Ltd.
[I9741 2
All
E.R.
625.
47
Greenwell
v.
Porter
[I9021
1
Ch.
530;
Puddephatf
v.
Leith
[I9161
1
Ch.
200;
Dominion Cotton Mills Ltd.
v.
Amyot
[I9121
A.C.
546;
Ving
V.
Robertson and
Woodcock
(1912) 56
S.J.
412;
Burland
V.
Earle
119021
A.C.
83
(P.C.);
Musselwhite
V.
Musselwhite Ltd.
119621
Ch.
964.
45
See on Canada,
S.
Beck, Chap.
15,
Vol.
1,
Studies in Canadian Company Law
(1967);
and
Vol.
2
ibid.
(1973)
Chap.
5;
on Australia and other jurisdictions, A.
Afternian
Company Direcfors and Controllers
(1970),
especially Chap.
111
;
cf.
Queensland Mines
v.
Hudson
(1978) 52
A.L.J.R.
399.
They
were
accepted with
various limitations in some jurisdictions in the Unted StdteS: see
Smith
v.
Brown
Borhek
414
Pa.
325 (1964);
Boss
v.
Boss
200
A.
2d.
231 (1964);
and generally
Ballantine on
Corporations
(1946)
pp.
176-179, 401-402.
49
North West Transportation Co.
V.
Beatty
(1887) 12
App.Cas
589
(P.C.);
Harris
v.
Harris,
1936
S.C.
183;
Baird
v.
Baird,
1949
S.L.T.
368.
Sec too
Mason
V.
Harris, supra;
note
42.
50
[1980] 2
All E.R. at
864.
51
See
e.g.
in England, in various decades,
Lindley
on
Companies
(1902
ed.),
Vol.
1,
p.
428
(stating the principle in this relatively new decision
“as
a matter of
law
as
distinguished from conscience
”);
Stiebel’s
Company
Law
and Precedents
(1929),
Vol.
1,
p.
242;
Gower,
op. cir.
p.
615;
Gore Browne on
Cotnpanies
(42nd
ed.),
p.
312;
Pennington,
op.
cit.
p.
580.
52
Beatfy
v.
North Wesf Transportation Co.
(1887)
12
S.C.R.
598. 604
(Ritchie
C.J.
;
emphasis supplied). When Sir Richard Baggallay said it
may
be quite right
’’
that
a
minority member
“should
be able” to challenge such a transaction
as
improper
(1887)
12
App.Cas.
589, 600,
he clearly spoke
de
lege
ferenda;
not, as
Vinelott
I.
suggests (p.
864),
adding
a
new doctrine
of
law. He clearly rejected the
principle of the Supreme Court (pp.
599-6011,
and unequivocally, at p.
593,
stated
the principle in
the
text (emphasis supplied).
210
THE
MODERN
LAW
REVIEW
[Vol.
44
Vinelott
J.
would agree with that. But the Privy Council overruled
it, because
:
every shareholder has
a
perfect right to vote upon any
such question, although he may have a personal interest in the
sub-
ject-matter opposed to, or diflerent from the general or particular
interests
of
the cmpany.”
Consequences
of
the
New
Principles?
Once he had weakened the very foundation stone, Vinelott
J.
was
forced to rebuild much
of
the rest of the law.
He
cannot be criticised
for
not rewriting a textbook on company law; but the impact of his
new principles, if adopted, on various areas must be considered.
When, for example, can
a
director vote
at
a
general meeting on a
resolution under section
184
of
the
1948
Act to remove him from
the board?
Do
the new principles have any effect upon articles giving
to
such a director
weighted votes
”?
j3
As
for
earlier cases, the
detailed reconsideration of
Burland
v.
Earle
54---apart from a re-
pudiation of one
of
Lord Davey’s three propositions-is
a
relatively
minor matter. But the
secret profit
case of
Regal (Hastings)
Ltd.
v.
Gulliver
55
is crucial. Had not the Law Lords there held that
the directors’ breach of fiduciary duty could have been set right by
ratification? And had not everyone assumed that the directors pro-
bably had voting control? Or if they had not, that they would not
have been debarred from voting on
a
motion to ratify their
secret
protfits
made bona fide but in breach of duty?
The escape route chosen by Vinelott
J.
is ingenious but astonishing.
When Lord Russell of Killowen said that the directors could
have
protected themselves by
a
resolution (either antecedent or subse
quent)
of
the Regal shareholders in general meeting,”
5G
Vinelott
J.
asserts that he
contemplated
this might be done
precisely
because they had
not
control of the majority of the votes.” The
decision would
otherwise conflict
with
Cook
v.
Deek~.~~
But,
whoever held voting control in the
Regal
case, are we now being
asked to believe that Viscount Sankey, Lord Wright, and Lord
Russell (with whom Lords Porter and MacMillan agreed) in making
it clear that the directors would have been absolved by
a
share-
holders’ resolution, actually forgot to add the rider:
provided, of
course, none of you votes as
a
shareholder
”?
Or:
but not
if
your
shares control the outcome of the vote
”?
The action was, it is true,
53
See
nushell
v.
Fairh
[I9701 A.C.
1099
(H.L.).
54
The revision ([1980] 2 All E.R. pp. 862-864) of Lord Davey’s famous three
tests 119021 A.C. 83, 93,
is
unconvincing. The “minor claims
in
Burland
v.
Earle
do not, it is suggested, support Vinelott
J.
(at pp.
864-865);
they were orders
that he should account for funds and moneys owned by
or
owed to the company,
within the
corporate property
heading.
55
[1942]
1
All
E.R.
378; [I9671
2
A.C. 13411
(H.L.).
See
supra,
note 32. The
Editor
of
the law report stated that the directors doubtless controlled the majority
of
voting shares
:
p. 379.
56
Ibid.
p.
389;
p,
150.
57
[I9801 2 All E.R. 862: (emphasis supplied).
Mar.
19811
NOTES
OF
CASES
21
1
concerned with
a
secret prolfit of only
E7,010
8s.
4d.; but the point
of principle was of critical importance; and the eminent Law Lords
did not approach their task in
a
slip-shod manner.
If
Lord Russell
had meant to add the “Vinelott-rider,” he would have done
so
explicitly.
Finally, what would be the practical effects of the new principles?
In large companies with hundreds of shareholders all with conflicting
interests, their application would demand intellectual gymnastics of
Olympic quality. But take
a
simple family company:
H
and W (the
directors) own
1,000
voting shares each; and
S
and
D
100
each.
H
inadvertently makes a secret profit
in
the course of his directorship
and buys W
a
present with part of the proceeds. In general meeting,
a
resolution to ratify
Hs
peccadillo is objected to by
S
and
D,
who
claim neither he nor W can vote
as
they are
interested
parties.
S
and
D
also move
a
resolution that the company should bring suit
against
H
and W. Who can vote on what? Vinelott
J.
himself
accepted that it would not be
easy,” on his view of the law, to see
where the lines should be drawn. Should an action proceed against
a
director “liable for negligence” which resulted in a benefit to
his wife or
a
friend
”?
58
He also left unanswered more fundamen-
tal questions. When
do
shareholders’ interests
conflict
with those
of the company?
If
H
had used his secret profit on
a
present for his
mistress, would W be entitled to vote even though she cared little for
the commercial interests of the company but found it
a
useful vehicle
of vengeance against
H?
Would we
always
need to inquire into the
subjective motives of each of the shareholders voting? Moreover,
can
the
articles of association still adjust the scope of directors’ and
shareholders’ duties
so
as to displace, in whole
or
part, the new prin-
ciples? Vinelott
J.
was obviously concerned about this, as shown in
his adverse reaction to the notorious Article
84
of Table A.59
Conclusion
It
is
true that for decades attempts to carve a path through the
thickets of
Foss
v.
Harbottle
have met with obstacles.Ga One reason
Ibid.
p.
869.
See too B. Rider,
op.
cif.
[I9781
C.L.J. at
p.
286.
39
Ibid.
pp.
879-880.
Compare heterodox concern about Table
A
by C. Baker
[I9751
J.B.L.
181,
and
J.
Birds
(1976) 39
M.L.R.
394,
with the orthodox presenta-
tion in Gower,
op. cif.
pp.
584-591.
If
the new principles were to sweep aside
‘‘
authorisation
in thc
very
articles of the company, what
is
left
of
the existing
law? Consider
e.g. Cosfa Rica
Ry.
v.
Forwood
[19011
1
Ch.
146;
Imperial Mer-
canfile Credif Assoc.
v.
Coleman
(1873)
L.R.
6
H.L.
189.
60
For
instance, cases like
Alexander
v.
Aufomafic Telephone
Co.
[1900] 2
Ch.
56.
Otherwise, the major stumbling block is whether the
Regal
case did not entail
use by the directors
of
corporate
property,”
i.e.
informarion.”
This problem,
posed in Wedderburn,
op.
cif.
119571
C.L.J.
194,
C19581
ibid.
93,
is
still not
settled: see Gower,
op.
cif.
pp.
591-599, 616-619;
Prentice,
op. cit.
and especially
Beck,
op.
cif.
(supra,
note
33).
The present writer now leans towards the view that
more stress should be laid upon
a
business
opportunity
than on
information
as corporate property. The
Cook
case involved the former;
Regal
the latter. But
the standard of the fiduciary’s obligation to account must surely, in times when
the machinery
for
malpractice
is
extending, be sustained: see
S.
Beck,
Vol
2
212
THE
MODERN
LAW REVIEW
[Vol.
44
is that this is not just an obscure RuIe with
a
Dickensian name
(as
was once thought); its tentacles creep into every part of company
law. Surely it is better for judges to develop existing principles,
especially (in the case
of
derivative actions) the
corporate oppor-
tunity
principle, rather than take on the task of legislative recon-
struction of the whole edifice. Laskin
J.
(as
he then was) in the
O’A4alley
case illustrated the way in which such developments can
combine reasonable certainty with progressive evolution, in the best
tradition of the common law.R1
By contrast, the new principles advanced by Vinelott
J.
are
replete with uncertainty; an invitation to costly litigation; and
not
necessarily more likely to bring rogue directors to book. We must
hope that
Prudential
(No.
2)
will be remembered for its skilful
deveIopment of procedure; for its
ratio decidendi;
but
not for its
obiter dicta
which seem, with respect, to be wrong in law and in
But at the end of the day, that is all rather technical. The litiga-
tion in
PrudentiaZ
(No.
1)
and
(No.
2),
with
four silks and seven
juniors engaged in court for
80
days, must have incurred costs of at
least
€500,000.
That money would surely have been better spent on
a small Companies Commission dedicated (in co-operation with the
voluntary
bodies in the City) to exposing and stamping out
company fraud.62
policy.
W.
INJUNCTIONS
AND
THE
PUBLIC
INTEREST
THE recent decision of the Court of Appeal in
Kennaway
v.
Thomp-
son
raises a number of points
of
interest concerning the award of
injunctions in cases of nuisance. The defendants, representatives of
the Cotswold Motor Boat Racing Club, had been held liable in
nuisance, by Mais
J.
at first instance, for noise emanating from
motor-boat race meetings which had been held on a man-made lake
situated close to the pIaintifT‘s house near Fairford in Gloucestershire.
Studies in Canadian Company Law
(1973), Chap. 5, replying to
G.
Jones (1968) 84
L.Q.R. 472. See too
supra,
notes
31
to 33.
61
Canadian Aero Services
Ltd.
v.
O’Malley
(1973) 40 D.L.R.
3d.
371, especially
391
;
an
clement of reasonableness
in
use
of
such
opportunity
by the director
is
introduced by Laskin J.
See
too
Consul Developmeni- Property Ltd.
V.
DPC Ltd.
(1975) 49 A.L.J.R. 74;
Industrial Development Consultants Ltd.
V.
Cooley
[1972]
2
All
B.K. 162 (Roskill
J.
blending “opportunity” concepts with the rule about
conflict of interest and duty);
Abbey Glen Property Corpn.
v.
Stumborg
(1978) 85
D.L.R.
3d.
35 (W. Braithwaite (1978) Can.Bus.L.J. 210), and
S.
Beck (1975) 52
Can.B.R 771 (who probes incisively into the relationship of the
O’Malley
decision
to various earlier authorities).
62
Contrast the
Wilson
Committee’s failure to appreciate the necd for such
a
body:
Report
(Cmnd. 7937) Chap. 22, with the compelling case made by T. Hadden,
op.
cit. supra,
note
3.
The Government’s Companies
Bill,
1981,
will
provide
inspectors with powers (to demand assistance, documents, bank accounts, etc.
:
clause
44)
which arguably should be
in
the
hands
of
persons
for
whom
some
public
accountability exists or even,
of
a
company
quango.
1
[1980]
3
W.L.R.
361.
Mar.
19811
NOTES
OF
CASES
213
Mais
J.
had described the nuisance
as
quite intolerable and wholly
unreasonable
and awarded the plaintiff $15,000 damages for
future interference. But his lordship had refused to grant an injunc-
tion actually to restrain the holding of the races, largely because of
the
considerable public interest
which existed in the Club and
the fact that members of the public attended its meetings
in large
numbers.” The defendants accepted the Ending of liability against
them but the plaintiff appealed against refusal of an injunction. The
Court of Appeal, in
a
single judgment of the courtY3 allowed the
appeal and granted an injunction, albeit one which was carefully
limited in its terms.
In the earlier case of
Miller
v.
JacksonY4
which concerned the
escape of balls from
a
village cricket pitch to the detriment of house-
holders living nearby, Lord Denning M.R. had suggested that the
court should attach greater weight than formerly to the public
interest, as against the private interest of the plaintiff, in resolving
nuisance cases.5
In
the case itself the Court of Appeal, by a
majority, refused an injunction to close the cricket club, because
of the interest in it of the inhabitants of the village, and confined the
plaintiffs
to
damages for the nuisance which they would continue to
suffer.
In
Kennaway
v.
Thompson,
however, the Court of Appeal
treated Lord Denning’s observations in the earlier case about the
priority of the public interest as
obiter
and decided not to follow
them. It is respectfully submitted that they were right to do
so.
Although the public interest has always been
a
relevant factor in
injunction casesY6 the traditional approach seems to have been to
regard it as
one
which could only very rarely be allowed to deprive
the plaintiff of an effective remedy.‘ The balancing of public and
private interests
on
a broad basis involves the making of policy
decisions for which the courts are not equippcd. Legislative protec-
tion should be sought where essential activities are involved.s
The precise reasoning of the Court of Appeal in
Kennaway
v.
Thompson
is not, however, free from difficulty.
In
awarding damages
at first instance Mais
J.
had exercised the jurisdiction originally con-
~~
2
Quoted in the judgment of the Court of Appeal: [I9801
3
W.L.R. at p. 364D.
3
Lawton and Waller LJJ. and Sir David Cairns.
4
[1977]
Q.B.
966. Noted by the prcsent writer in (1978) 41 M.L.R. 334.
5
See 119771 Q.B. at
pp.
981G-982B.
6
See Spry,
Equitable Remedies
(1971) at
pp.
364-365.
7
See
Art.-Gen.
V.
Birmingham Corporafion
(1858)
4
I<.>
&
J. 528. See
also
BeNew
v.
Cement Ltd.
[19481
I.R.
61.
Cf.
Raphael
v.
Thames VaIley Railway Co.
(1867) L.R. 2 Ch.App. 147 (specific performance). Injunctions against proven
nuisances wcre refused, largely on grounds of public interest, in
Lillywhife
v.
Trimmer
(1867) 36 L.J.Ch. 525 and
Wandsworth Board of Works
v.
London
‘G
South Western Ry.
(1862)
31
L.J.Ch. 854, but in both cases the degree
of
inter-
ference was relativcly trivial. It
is
possible that more weight is given to the public
interest in Canada: sce
Boftom
v.
Ontario Leaf Tobacco
Co.
[I9351 2 D.L.R. 699
(injunction refused against
a
factory on the ground that its closure would increase
unemployment).
8
See
Att.-Gen.
v.
Birmingham Corporation
(1858) 4
K.
&
J. at
p.
541,
per
Page-Wood V.-C.
214
THE
MODERN LAW REVIEW
LVOl.
44
ferred upon the court by the Chancery Amendment Act 1858 (popu-
larly known as Lord Cairns’ Act) to award damages in lieu of
an
injunction. In the well-known case of
Shelfer
v.
City
of
London
Electric Lighting CO.
,g
however, the Court of Appeal emphasised
that the jurisdiction conferred by the Act was to be invoked spar-
ingly and should not be used lightly to deprive plaintiffs
of
effective
vindication of their legal rights by way of injunction. The restrictive
principles laid down in
Shelfer’s
case, which appeared to confine the
jurisdiction largely to
trivial and occasional nuisances,”
lo
had not
been satisfied in the instant case and the Court of Appeal held that
it necessarily followed that the plaintiff was entitled to an injunc-
tion.” It is submitted that this was
a
non
sequitur.
It is wrong to
suppose that, wherever the
Shelfer
conditions are not satisfied, the
plaintiff may expect to be awarded an injunction virtually as of right.
A
plaintiff may still be deprived of an injunction in such a case
on
general equitable principles
l2
under which factors such as the public
interest may, in an appropriate case, be relevant. It is
of
interest to
note, in this connection, that it has not always been regarded
as
altogether beyond doubt whether
a
plaintiff who does thus fail to
substantiate
a
claim for equitable relief could be awarded damages
under Lord Cairns’ Act
in lieu
of an injunction for which he
would not have q~a1ified.I~ But it now seems to be clear that proof
of a mere cause of action (or, in
quia timet
cases, potential cause of
action) at common law for nuisance will be sufficient to bring the
powers of the court under the Act into play.14
If
this is correct, the
limiting conditions laid down in the
Shelfer
case must be confined
to situations in which, but for the statutory jurisdiction, the plaintiff
would have enjoyed
a
clear and legitimate expectation that equitable
relief would be granted to him. The conditions are not a comprehen-
sive statement of the situations in which the jurisdiction to award
damages under the Act can be exercised.15 Mais
J.
must have
assumed that this was the position and, on this point, the reasoning
underlying his judgment is to be welcomed.
The final point upon which
Kennaway
v.
Thompson
is of interest
concerns the form of the order itself. Although in granting an in-
junction the court is free to make its order in whatever form it
considers appropriate it is usual in nuisance cases for fairly general
language to be used, and for the order to conclude with a phrase
9
118951
1
Ch. 287.
10-[189j]
1
Ch. at pp. 316-317,
per
Lindley L.J.
See
also
per
A.
L.
Smith L.J.
at
DD.
322-323.
rC.
-~~
11
See [1980] 3 W.L.R. at 366B.
12
See
Redland Bricks
v.
Morris
[1970] A.C. 652.
13
See
Proctor
v.
Bayley
(1889) 42 Ch.D. 390, 401,
per
Fry L.J. See
also
Lavery
v.
Pursell
(1888) 39 Ch.D. 508, 519,
per
Chitty J. (specific performance).
14
Cf.
dicta
per
Goff
and Buckley L.JJ., dealing with the analagous case of specific
performance, in
Price
V.
Sfrange
[19781 Ch. 337. See
also
Spry,
Equitable Reme-
dies
(1971) at
p.
534; Jolowicz,
Damages in Equity-A Study
of
Lord Cairns’ Act
(1975) 34 C.L.J. 224, 241
ef
seq.
16
See
per
Ronier L.J. in
Fishenden
V.
Higgs and Hill
(1935) 153 L.T. 128, 141.
Mar.
19811
NOTES
OF
CASES
215
simply enjoining the defendant
not to cause
a
nuisance
or with
similar words to the same effect.16
In
part this apparent vagueness is
to avoid oppression against the defendant, but an injunction in
specific terms could also be inconvenient to the plaintiff
if
it
enabled
a
scheming defendant, acting in bad faith, to claim that he
had complied with the letter of such an order while ignoring its
spirit.17
In
Kennaway
v.
Thompson,
however, one
of
the factors
which induced Mais
J.
to refuse an injunction was that the vagueness
of an order in the usual form “would only lead to further litiga-
tion.”
la
Cases of this kind invariably raise difficult questions of
degree, and it was assumed that a certain level of activity could be
permitted to the Club which would not interfere with the plaintiff to
such an extent as to constitute an actionable nuisance.
In
formulating
the injunction the Court of Appeal attempted to lay down the permis-
sible level in specific terms. The number of events which could be
held, the number of weekends per season that could be used, the
noise level in decibels of the boats employed and, for water-skiing,
the number of boats which could be used at any one time, were all
carefully regulated.19 The case therefore provides an unusual
illustration of the wide scope and utility of the injunction
as
a
remedy
in nuisance cases.
R.
A.
BUCKLEY
DAMAGES
FOR
FAILED
ABORTION
CAN the birth of
a
healthy, normal child ever give rise to a successful
claim for damages at the instance of its mother against a medical
practitioner? The recent decision in
Sciuriaga
v.
Powell
gives an
unequivocally affirmative answer to this novel question, and in
so
doing is the first case in this country
in
which
a
court has awarded
damages in respect of a negligent act giving rise to the birth of a
child.2
In
1972
the plaintiff, a young unmarried girl, became pregnant
and was referred to the defendant,
a
general practitioner with parti-
cular experience in gynaecology, with
a
view to having the pregnancy
16
See
per
Lord Evershed M.R. in
Thompson-Schwab
v.
Costaki
[1956] 1 W.L.R.
355, 340 (interlocutory injunction).
See
also
per
Donaldson J. in
Shoreham-By-Sea
U.D.C.
v.
Dolphin
Canadian
Proteins
(1972) 71 L.G.R. 261, 268.
17
Cf.
Soltau
v.
De Held
(1851) 2 Sim.N.S. 133, 152-153,
per
Kindersley
V.-C.
18
See [1980]
3
W.L.R. at p.
3648.
19
See
119801
3 W.L.R. at
p.
367.
1
Queen’s Bench Division, May 18, 1979, Transcript No. 1978/NJ/262; (1979)
76 L.S.Gaz. 567. The defendant’s appeal, confined to the issue
of
quantum,
was
upheld in part by the Court of Appeal on July 24, 1980, damages being reduced to
E14,OOO-see Court
of
Appeal Transcript No. 1980/597.
2
At least two other cases involving a claim for damages for causing the birth
of
tho plaintiff‘s child have reached the courts, but in each case the plaintiff failed to
establish liability-see
Waters
V.
Park,
The Times,
July 15, 1961. Annual Report
for 1977 of the Medical Protection Society, at p.
34.
The Medical Defence Union
reports having dealt with 40 claims involving pregnancy following unsuccessful
sterilisation operations, many of which were settled out of court-see 1980 Annual
Report, at p. 17.
216
THE
MODERN
LAW
REVIEW
[Vol.
44
terminated. The defendant agreed to perform
a
legal abortion for
a
fee of €150 and the operation was subsequently carried out, at which
time the plaintiff was approximately seven weeks pregnant. Un-
fortunately the abortion operation proved to be unsuccessful, preg-
nancy continued, and the plaintiff eventually gave birth to a healthy
child. Nearly four years after the operation, the plaintiff raised an
action against the defendant for breach of contract, claiming dam-
ages for the alleged breach of an implied term to exercise reasonable
skill and care in the performance of the operation and of post-opera-
tive procedures. The plaintiff’s claim was successful and she was
awarded damages totalling E18,750, representing loss of earnings
(actual and prospective), pain and suffering, mental anxiety and
distres~,~ and impairment of marriage prospects. The defendant’s
appeal, which was confined to the issue of quantum, was partially
successful, the Court of Appeal reducing the award of damages to
€14,000.4
The trial court held that the failure of the operation was due to
the defendant’s failure to exercise reasonable care; instead of per-
forming a proper abortion, the defendant had negligently perforated
tissues surrounding the womb or passages outside the womb and had
removed non-foetal material. The court also held that the defendant
had failed to exercise reasonable care in that, on realising that the
tissue which had been aspirated was non-foetal, he failed to inform
the plaintiff of this fact and to perform, or even recommend, further
examination of the plaintiff for the possibility
of
a continuing
pregnancy.
It was argued on behalf of the defendant that, since the plaintiff
had become aware of her continuing pregnancy by the end of June
1972 at the latest, her claim was time barred as proceedings had not
been initiated until February 1976.5 The court resolved this issue in
the plaintiff‘s favour, concluding that, under section
2A
(6)
(b)
of
the Limitation Act 1939, the limitation period had begun when the
plaintiff acquired knowledge, not merely
of
the failure of the opera-
tion, but also of the specific negligent acts of the defendant which
had resulted in the continuance of the pregnancy.6 Since the plaintiff
had not acquired such knowledge until 1975, her action was not
time barred. Watkins
J.
also observed that, even if the plaintiff‘s
action had been time barred under section 2A of the Act, he would
3
Although it is not expressly stated in the judgment of the court, it seems from
the facts
of
the case that the legal ground on which the abortion was performed was
that continuation of the pregnancy involved
a
risk
to
the mental health of the plain-
tiff
(Abortion Act
1967,
s.
1
(1)
(a)).
In view of this it
is
perhaps surprising that
the plaintiff was awarded only
f750
in damages for mental anxiety and distress. The
court’s observation that
in the later stages of pregnancy [the plaintiff] found con-
tentment, if
not
more-ease
of
mind” (Official Transcript, p.
37)
indicates that it
was satisfied that the perceived risk
to
the plaintiff’s mental health had not materia-
lised by the date of the trial.
4
Court of Appeal, July 24,
1980,
Transcript
No.
1980/597.
5
Limitation Act
1939,
s.
2A,
as
substituted by the Limitation Act
1975,
s.
1.
6
See Official Transcript at p.
17.
Mar. 19811
NOTES
OF
CASES
217
have
without hesitation
exercised
his
discretion under section 2D
of
the Act and allowed the action to proceed. This decision was
based, in part, on the fact that the defendant had wilfully deceived
the plaintiff in his explanation for the failure of the operation.
One further argument advanced on behalf of the defendant was
that the effective cause of the plaintiff’s continuing pregnancy was,
not the failure of the abortion operation, but rather her own decision
not to undergo a repeat operation. Watkins
J.,
in dismissing this
submission, concluded that the plaintiff had remained willing to
submit to
a
second operation up until the fourteenth week of preg-
nancy. However, the court did not then
go
on to consider the fact
that the plaintiff had refused the offer
of
a repeat abortion during the
twenty-second week of pregnancy. It seems to be implied, however,
in an earlier part
of
the judgment that, since an abortion operation
at that later stage of pregnancy would have involved
a
much greater
risk to the plaintiff’s health, she had not acted unreasonably in
declining
a
second operation.8 It is regrettable that the court did not
discuss this issue in greater detail since it has a direct bearing on the
question of mitigation of loss. The judgment provides no indication
of the degree of risk to maternal health involved in an abortion
operation performed during the twenty-second week
of
pregnancy,
nor does it mention the fact that such an operation would be legal
under the Abortion Act
1967.
One point which was not raised relates to the plaintiff‘s decision
not to offer the child
for
adoption. Could this decision be regarded as
constituting
a
failure on the plaintiff’s part to mitigate her loss, in
particular her
Ioss
of
earnings and impairment of marriage
prospects? This argument has been canvassed by defence counsel in
several cases in the United States but has been firmly rejected by the
courts.g The basis for such rejection has been the view that the plain-
tiff
is only required to take
reasonable
steps to mitigate her
loss
and
that to oblige her, under threat of reduction of damages, to offer the
child for adoption would not be reasonable. It is thought that, had
the point been raised in the instant case, Watkins
J.
would have
reached the same conclusion.
The most interesting aspect of the case lies in the court’s treat-
ment of the question of public policy. It was argued by defence
counsel that it was
repugnant to people’s sensibilities and wholly
wrong
for damages to be awarded in such
a
case. The court dis-
missed this argument
on
the grounds that, although public policy
could in some cases be used to deny recovery of damages, no
authority existed for the proposition that this could be done in a
7
As
substituted
by
the Limitation Act
1975,
s.
1.
See
Official Transcript at p.
9.
See
Troppi
v.
Scarf,
31
Mich.App.
240, 187
N.W.
2d
511 (1972);
Martineau
V.
Nelson,
247
N.W.
2d
409
(Minn.
1976);
Sherlock
v.
Stillwater
Clinic,
260
N.W.
2d
169
(Minn.
1977);
Ziemba
v.
Sternberg,
45
App.Div. 2d
230, 357
N.Y.S.
2d
265
(1974).
218
,
THE MODERN LAW REVIEW
[Vol.
44
case of breach of contract in which the contract itself was not con-
trary to public policy.l0 Once again it is regretable that the court
did not discuss this issue in greater detail and give more consideration
to the policy issues involved. One has only to consider the plight of
a plaintiff suing
a
solicitorjadvocate for breach of
an
implied con-
tractual term to conduct litigation with reasonable care, to realise
that contractual damages can in fact be denied on grounds of public
policy notwithstanding that the contract itself is unirnpeachab1e.l’
The issue of public policy has frequently been at the centre of
discussion in the cases which have arisen in other common law juris-
dictions, involving this type of claim for damages. Such cases have
originated almost exclusively in the United States. Although there
have been relatively few American cases dealing with unsuccessful
abortion operations,12 damages have been claimed in over
100
cases
involving analagous situations. Most frequently, these cases have
stemmed from unsuccessful sterilisation operations, although failure
of other forms of contraception due to the alleged negligence of the
defendant have occasionally given rise to 1itigati0n.l~
The one feature that forms
a
marked contrast between the instant
case and many of its American counterparts is the relative ease with
which the court dismissed the public policy argument. The action for
wrongful birth ”-as it is termed in the United States-has had to
contend with many public policy barriers erected by courts convinced
of the
overriding benefits of parenthood.” This attitude is epito-
mised in the majority judgment in
Terrell
v.
Garcia
in
1973
[Tlhe satisfaction, joy, and companionship which normal
parents have in rearing
a
child make such economic loss
worthwhile. These intangible benefits, while impossible to value
in dollars and cents, are undoubtedly the things that make life
worthwhile. Who can place
a
price tag on
a
child’s smile or the
parental pride in a child’s achievement?.
. .
Rather than
attempt to value these intangible benefits,
our
courts have
simply determined that public sentiment recognizes that these
benefits to the parents outweigh their economic loss..
.
.”
It
is submitted that at least two reasons can be advanced to explain
this contrast. First, although the American courts were at first
reluctant to hold that damages could be recovered in this context,
this attitude has gradually changed and now it is widely accepted
that such claims do not contravene public policy. This change in
10
See Official Transcript at p. 33.
11
See the
obiter dicta
of the House of Lords in
Saif
Ali
v.
Sidney Mitchell
&
Co.
[1980] A.C. 198 and in
Rondel
v.
Worsley
[1969]
1
A.C. 191.
12
See
e.g.
Stills
V.
Grarfon,
55 Cal.App.
2d
698 (1976);
Wilczynski
v.
Goodman,
391
N.E.
2d
479
(ILI.
App.Ct. 1979);
Koehler
v.
Schwartz.
413
N.Y.S.
2d 462
(Sup.Ct.App.Div. 1979);
Olson
V.
Molzen,
558 S.W. 2d 429 (Tenn. 1977).
13
See
generally Annot., “Tort Liability for Wrongfully Causing One
to
be
Born,” 83 A.L.R. 3d 15 (1978); Mark, “Liability
for
Failure of Birth Control
Methods
(1976) 76 Colurn.L.Rev. 1187.
14
496 S.W. 2d 124 at
p.
128 (Tex.Ct.Civ.App. 1973).
Mar.
19811
NOTES
OF
CASES
219
attitude is undoubtedly attributable in part to
a
growing acceptance
of
contraception and abortion and to an awareness that the birth of
a
child is not necessarily
a
“blessing
for the parents. Thus,
although the instant case is one of the few of its kind to have reached
the courts in this country, the climate of public policy has changed
considerably since the days when such cases were kst beginning to
appear in the American ~0urts.l~
Secondly, many of the public policy arguments that have been
raised in this context by courts in other jurisdictions have related to
one particular item in the plaintiff’s claim for damages, namely, a
claim for the economic cost of raising the child to the age of
majority. Once again, although American courts were at first
reluctant to admit such a claim, substantial sums
are
now being
awarded under this head
of
damages.
The plaintiff in the instant case did not claim damages for the
economic cost
of
raising the child, notwithstanding that such cost
is, of course, considerable. One can only speculate as to the court’s
reaction had such
a
claim been submitted. There is, however, an
indication in the Court of Appeal’s consideration of the case that
public policy may well have a role to play in determining the out-
come of future “wrongful birth” cases. In the course of his judg-
ment Waller
L.J.
observed that
l6
:
[counsel] for the plaintiff (respondent) concluded her sub-
mission by reminding the court that it should ignore policy
considerations when dealing with this case, and in agreeing the
figures proposed by my Lord
I
have ignored those considera-
tions. In doing
so
I
must not be taken as assenting to the view
that they would be irrelevant in every case.”
In the present writer’s view, it is likely that courts in this country
will be attracted to the conclusion, at least in the foreseeable future,
that public policy considerations prevent
a
plaintiff in the present
context from recovering damages for the economic cost of raising
the child. In all probability we shall not have long to wait before
discovering the judicial attitude to such
a
claim, since the decision
in the instant case may well generate further litigation in this novel
area of the law.
GERALD
ROBERTSON
THE
CHECK-OFF
AND
THE
PROBLEM
OF
THE
POLITICAL LEVY
MANY
trade unions now collect dues by means
of
the check-off; in
other words employers agree to deduct the dues from their employees’
15
See, however,
Doiron
v.
Orr
(1978)
86
D.L.R.
(3d)
718
(Ont. High
Ct.),
one
of
the few Canadian cases to have considered a claim for damages arising from the
birth
of
a child. Th?‘court described the plaintiff’s claim for the economic cost
of
raising the child as grotesque.”
Cf.
Cufaford
v.
Moreau,
discussed in (1979) 57
Can. Bar. Rev.
88.
16
Court of Appeal Transcript
No.
1980/597, at p.
21.
220
THE MODERN LAW
REVIEW
[Vol.
44
wages and transfer the money to the union
of
which these employees
are members.
As
the Donovan Commission recognised, this method
of collection has obvious advantages for trade unions, providing them
with
a steady and assured income
and eliminating
the need
for personal collection of subscriptions, which is often a time-
consuming task, unpopular among the voluntary workers who do
it.
. . .”
However, many employers are only willing to extend check-
off
facilities where the dues of union members are fixed and regular.
In most unions the political and general contributions are compounded
in a single levy, and in many cases the political element is not a
fixed weekly or monthly sum; rather, it may be a portion of the first
or
the last contribution in each quarter.
Because employers are generally unwilling to programme their
computers
so
that, in the weeks when the political contribution is
due, a smaller sum may
be
deducted from the wages of an employee
who is exempt from paying the political levy of his union,2 many
unions have responded by requiring contracted out members to
have the political levy deducted from their wages; the unions then
arrange for the money to be refunded to the members concerned.
In
Reeves
v.
TGWU?
in an appeal from the Certification Officer, the
EAT
was faced with the argument that this practice of rebates was
in breach of the union’s political fund rules, first because the exempt
member was not thereby relieved from payment within terms of the
rules, and secondly because the exempt member was placed at a
disadvantage contrary to the rules. By the union’s rule 24.7,
an
exempt
member is relieved from payment
of
8p of the first weekly contribu-
tion in each quarter; the rule also provides that
such relief shall
be given as far as possible to all members who are exempt
on
the
occasion of the same periodical payment.” Rule
24.8
provides,
so
far as relevant, that exempt members shall not be excluded from
any benefits of the union, “or placed in any respect either directly
or indirectly under any disability or disadvantage as compared with
other members of the union.”
In his decision the
C.O.
distinguished between rebates paid in
arrears and those paid in advance, and held that only the latter were
la~ful.~ The
EAT
went further than this and not only rejected Reeves’
appeal that rebates in advance were unlawful, but upheld a cross-
appeal by the union that rebates in arrears might also be permitted
1
Report
of
the Royal Commission on Trade Unions and Employers’ Associations
1965-68, Cmnd. 3623, para. 719
.
2
The right to contract out
of
paying the political levy is provided by the Trade
Union Act 1913. A union which adopts the political objects regulated by that Act
(see
s.
3 (3)
)
must
also
adopt political fund rules which comply with the terms of
the Act. The Certification Officer maintains model rules for this purpose which are
generally adopted by unions with political funds.
3
[1980] I.R.L.R. 307.
4
Similar provisions are to
be
found
in
the political fund rules of
all
other unions
which have such
rules.
These two rules comply with the terms
of
ss.
6 and 3
(1)
(b)
respectively of the T.U.A. 1913.
5
[19791 I.R.L.R. 290. See also
McCarthy
v.
APEX
C19791 I.R.L.R.
255,
and
CZeminson
V.
POEU
C19801 I.R.L.R.
1.
Mar.
19813
NOTES
OF
CASES
22
1
under the rules.6 The EAT construed rule
24.7
to mean that for each
periodical payment to the union, relief must be given as far as possible
in respect of the political contribution when the periodical payment
is made. But in cases where
this
is not possible, for example because
of the operation of the check-off, it was held that the rule did not
preclude the use of rebates, although the tribunal expressed the view
that these should only be paid in arrears if for some reason it was
not possible to do
so
in advance. The
EAT
also held that neither
method of rebating placed exempt members at a disadvantage in
breach of rule
24.8.,
concluding that a disadvantage must be
material
to be in breach of the rule. It was held that money paid
in advance would
not
be regarded by the ordinary man as a material
or substantial disadvantage; it was also held that rebates in arrears
involve
no
disadvantage
if
the money is repaid to the exempt
member as soon as reasonably possible, even though such practice
requires the exempt member
to
pay over money to the union con-
trary to his wishes.‘
The flexibility which the decision of the EAT brings to this
question, in allowing the rebate to be paid in arrears in some circum-
stances, is a welcome development. Although it is generally true that
there seems no reason why rebates should not be paid in advance,
there are several circumstances in which this would be difficult. The
political fund rules of most unions provide
:
On
giving [notice
of
exemption],
a
member shall be exempt,
so long as his notice is not withdrawn, from contributing to the
political fund as from the first day of January next after the
notice is given, or, in the case of
a
notice given within one
month after the date on which a new member is admitted to
the organisation is supplied with a copy of those rules under
Rule
12
hereof, as from the date on which the member’s notice
is given.”
One difficulty which arises here relates to the member who gives
notice towards the end of the fourth week of his membership of the
union. He may already have given his consent to the check-off which,
moreover, may already be operating in his case. Yet he will be en-
titled to be relieved from payment of the political levy immediately
even though, depending
on
its administrative practices, the union
6
It should
also
be noted that another, much different point was raised before
the EAT which had not arisen before the C.O. This
was
the argument that the
practice
of
rebates contravened the Truck Act 1831,
ss.
2,
3. The EAT concluded
that this was
a
matter for the courts,
not
for
them. However, it
is
difficult
to
anticipate how any action on this ground would succeed. See
Heivlett
V.
Allen
[1894] A.C.
383,
and
Williams
v.
Burlers
Lrd.
119751 I.C.R. 208.
7
It
should be noted that this decision was based on the assumption that the union
would pay the rebate without the member having to claim the repayment. The EAT
said that it was the duty
of
the union to relieve the member
of
payment and it
was not right that the member should have to apply
for
a
repayment. The EAT
said that
if
this practice prevailed then this
might wholly change the position.”
8
This provision is contained
in
the Certification Officer’s Model
rule
6.
See note
2
supra.
Rule 12 provides that new members should be supplied with a copy
of
the
rules
forthwith
following their admission to membership.
222
THE MODERN LAW REVIEW
[Vol.
44
cannot possibly arrange for a rebate at such short notice. Another
problem with rebates in advance relates to notices of exemption given
after the four week period has elapsed. The rules of most unions
provide that notices given after the first month of membership
become operative from the following January. Yet, it may be difficult
for a union to arrange for a rebate in time
if
the exemption notice is
not given until the end of December; in some unions the rules provide
that a portion of the first contribution of each quarter is a contri-
bution to the political fund.g
It could be argued, of course, that these difficulties are not fatal
to the effective operation of a system of rebates in advance. Unions
could respond to the first problem by postponing the implementation
of the check-off in the case of new members for a period of about
six weeks from the commencement
of
employment.10 In relation to
the second problem, unions could change their rules
so
that the
political contribution is deducted from the
last
rather than the first
quarterly contribution.’l But while the
C.0.3
view could thus have
been upheld without any substantial inconvenience to the unions,
it is perhaps difficult to justify any requirement that unions should
alter their existing arrangements. Thus, even if the exempt member
insisted on paying his dues
by
means of the check-off, and even if he
was required
Po
receive a rebate in arrears, it is important to note that
the practice of the union in this case,
as
with other unions, was to
place all contributions into the general fund until the end of each
quarter when money would then be allocated to the various funds
for which it was collected. Thus, the exempt member would never
make a contribution to the political fund and would never be in the
position of financing his union’s political activities: he would get his
money back, and would have an effective remedy via the
C.O.
if
the union was difficult or dilatory in the matter.
KEITH
EWING
DEDUCTING
BENEFITS
FROM
DAMAGES:
THE
ONLY
CONSISTENTLY
LOGICAL
CONCLIJSION
GUHULAM
NABI
was injured at work in
an
accident caused by a
breach of statutory duty on the part
of
his
employers. Smith
J.
assessed
as
€4,724
his
loss
of earnings up to the date of trial but
deducted from that figure
€1,062,
the sum which Mr. Nabi had re-
ceived by way of unemployment benefit. The issue for the Court of
9
See
e.g. EETPU,
r. 28 (8); TGWU,
r.
24.7;
TSSA,
r.
45
(7).
10
It may be noted that some check-off agreements provide that the check-off
will not apply to
a
new employee until the beginning
of
the first quarter from
the
commencement
of
his employment.
See
e.g.
AUEW (Engineering Section) Model
Agreement on the Deduction
of
Trade Union Contributions.
11
This
is
already provided for
in
some
unions.
See
e.g.
GMWU,
r.
56
(7);
NATSOPA, r.
40
(7);
NUR,
r.
16
(7). Another way
of
responding
to
both
of
these
problems would be to enable local offices to pay the refund.
Mar.
19811
NOTES
OF
CASES
223
Appeal in
Nabi
v.
British Leylund
(U.K.)
Ltd.l
was whether that
deduction was rightly made.
The relationship between the compensation for personal injuries
'
provided by the law of tort and that provided
by
the social security
system has always been a
far
from happy one. Beveridge recognised
the problem of overlap and the Monckton Committee was speci-
fically established to offer suggestions for rationalisation.
In
the
event that Committee was split
:
a
majority, following Beveridge,
advocated the full deductibility
of
social security beneiit from per-
sonal injuries awards;
a
minority advocated that such state benefits
be ignored when the courts make their calculations. Parliament
enacted by way of compromise section
2
(1)
of the Law Reform
(Personal Injuries) Act
1948
which requires that one half of certain
benefits paid
or
payable over a period
of
five years be deducted.
The benefits now covered by this provision are sickness benefit,
invalidity benefit, non-contributory invalidity benefit and injury and
disablement benefits. All these are specifically designed to compen-
sate a sick
or
injured person for loss
of
income and are commonly
claimed by those who obtain
an
award of damages. But other benefits
are also occasionally claimed by such persons: in particular
a
person
may lose his job (perhaps
on
grounds of his lower efficiency) after
suffering an injury while retaining
or
later regaining fitness for
employment-in which case he may be entitled to unemployment
benefit. Many, especially those who are the victims of long-term
unemployment, must rely on supplementary benefit (though the
introduction of benefits like non-contributory invalidity benefit has
hopefully obviated this reliance
in
some cases
of
persons who are
sick
or
have been injured).
In
addition mobility and attendance
allowances have been especially designed to help the disabled
of
whom some at least are accident victims.
No
legislative provision
has been made concerning the deductibility of these
or
other
benefits.
In
the present case the Court of Appeal was concerned with the
problem only in
so
far as it relates to unemployment benefit,
though many of the relevant arguments bear
also
on
the position of
other benefits.
A
number
of
points may be (and have been) made
against the deductibility of unemployment benefit of which the
following
are
among the more obvious. A first argument is that this
benefit is essentially
a
proceed of insurance and forms part of the
provision made by the injured person at his own expense for the
sort
1
[1980]
1
W.L.R. 529.
2
This note is concerned only whh cases
of
personal injury:
s.
4 of
the Fatal
Accidents Act 1976 provides that no social security benefits are deductible from
awards
under that Act.
3
Report on Social Insurance and Allied Services, 1942 (Crnd.
6404).
4
Departmental Committee on Alternative Remedies.
5
Final Report, 1946 (Cmd.
6860).
0
The original provision has been amended by Sched.
5,
para. 1,
of
the National
Insurance Act 1971 and by Sched.
2,
para.
8,
of
the Social Security (Consequential
Provisions) Act 1975.
224
THE
MODERN
LAW
REVIEW
[Vol.
44
of
mishap which has occurred:
as
such, it is argued, it should not
go to reduce his award of damages. The proceeds
of
first party insur-
ance are indeed not taken into account in the assessment of dam-
age~,~ but surely national insurance contributions are incorrectly
viewed
as a
form of personal insurance: employees’ contributions
(which in any case are only one source
of
the fund’s income) are best
seen as but one variety of general taxation.
A
second point made is
that unemployment benefit is a form of State benevolence and that
the non-deductibility
of
the proceeds of charity
or
benevolence
was
stressed by the House
of
Lords in
Parry
v.
Cleaver.8
But provided
that one fulfils the entitlement conditions one has a right to State
benefits: can they really be viewed as the proceeds of collective
munificence?
A
third argument asserts that a tortfeasor should not
stand to benefit from the fact that social security benefits are paid to
his victim. This ignores the very basic principle that the object of the
law of tort is primarily compensatory and not punitive: moreover,
few tortfeasors have to pay an award of damages personally.
Fourthly it has been argued that Parliament may well have intended
benefits to be payable in addition to any award of damages. Here the
answer
is
surely that Parliament’s intention (if it ever had one) is
impossible to divine.
A
fifth (and extremely weak) proposition is that
the payment of benefit and the tortious act are not causally con-
nected
:
this view, which is based
on
the discredited distinction
between
a
causa causans
and
causa
sine
qua
non
and bears
no
philosophical scrutiny is often advanced alongside the insurance and
benevolence points. It is also claimed that the amount of deduction
would prove difficult to assess, especially in times of inflation when
future levels of benefit are unclear.
In
the case of unemployment
benefit, however, since entitlement ceases after one year the amount
paid is almost bound to be exactly available before the stage
of
settlement, let alone trial. This objection may, however, carry more
weight in respect of certain other benefits.
A
further argument
advanced (only to be countered) by the Pearson Commission
lo
claims that deductibility would favour the single and childless as
against the married parent
:
the Commission shows clearly that this
effect is illusory rather than real.
In the present case only the first two arguments were discussed
and
no
concluded opinion on them was expressed. Brightman
L.J.
7
Bradburn
v.
Grear
Western
Railway Co.
(1874) L.R.
10
Ex.
1. The Pearson
Commission (Royal Commission on Civil Liability and Compensation for Personal
Injury 1978, Cmnd. 7054) recommended that this continue to be the law: see
Vol.
1,
paras. 513-516.
8
[I9701
A.C.
1,
e.g.
by Lord Reid at p.
14.
The fact that benevolence
is
from a
public rather than a private source does not militate against its non-deductibility
:
see
Daish
v.
Wauron
C19721
2
Q.B. 262
(N.H.S.
provision). The Pearson Commission
advocated that the proceeds
of
private benevolence continue to be left out of account
(Vol.
1,
paras.
531-532) but favoured overruling
Daish
v.
Wauron
(para. 510).
9
In
Parry
v.
Cleaver,
Lord Reid (at
p.
19) expressed the view that national insur-
ance benefits could be regarded as a combination of insurance and benevolence.
10
Vol.
1,
para. 280.
Mar. 19811
NOTES
OF
CASES
225
who gave the Court of Appeal judgment was content to observe that
he recognised the force of the points but that the court had no
grounds upon which to depart from the decision in
Parsons
V.
B.N.M.
Laboratories
Ltd.
l1
where unemployment benefit had been
held deductible from damages awarded for wrongful dismissal. This
decision had been applied to the personal injuries setting in
Foxley
v.
Olton
and subsequently deductibility had been treated as the
norm in a number of other personal injuries cases at first instance.13
Brightman L.
J.
did, however, feel that given the arguable incon-
sistency between the decision in
Parsons
and the spirit if not the
ratio
of
the decision
of
the House
of
Lords in
Parry
v.
Cleaver
the
Parsoizs
case should be reviewed either by the Lords or the Legisla-
ture.14 It is respectfully submitted that legislative review would be
the better course of action since
a
full review
of
the law should
include
a
reappraisal of section
2
(1)
of the 1948 Act
as
well as a
consideration of the full range of state benefits.
As
regards unemployment benefit, the Court of Appeal would
seem in
Nabi
to have stated correctly the legal position. In favour of
deductibility is the simple argument that damages are awarded to
cover the victim's loss.
If
a victim has received benefit to compen-
sate him for being unemployed
as
the result of his injury then his
loss
is
reduced to that extent.
To
allow double recovery places an
unnecessary as well as an unjustified strain on the resources of
society.
After the present decision, however, one must still wonder
whether a more generalised solution to the problem
of
overlapping
benefits might not have been attempted. In the case of mobility and
attendance allowances, the Court of Appeal has decided against
ded~ctibi1ity.l~ As to supplementary benefit, Latey
J.,
following
Nabi,
has recently made a deduction
16:
earlier decisions, however,
had gone both ways.I7 h4any of the points made in respect of unem-
ployment benefit apply here too, though there are some different and
some
additional considerations. Supplementary benefits are payable
while need continues, though once made the award may often
constitute resources at a level which will operate
to
disentitle the
victim from benefit. Future payments of supplementary benefits
.-
'I
119641
1
Q.B.
95.
12
[19651 2
Q.B.
306 (John Stephenson
J.).
13
e.g.
Cackett
V.
Earl. The Times,
October
15,
1976 (Milmo J.);
Shaw
v.
In-
sulation
Co.
Ltd.
(unrep.) July
18,
1977 (Hollings
J.).
The Court
of
Appeal applied
the deductibility rule in
Cheeseman
V.
Boivaters United Kingdom Paper Mills Ltd.
119711
1
W.L.R. 1773.
l4
Indeed leave
was
given
for
an appeal to the Lords though this was not
subse-
quently pursued.
1s
Bowker
V.
Rose,
The
Times,
February
2,
1978.
16
Plurnnzer
v.
P.
W.
Wilkins and
Son
Ltd.
C19811
1
All
E.R. 91.
17
In
Cackett
v.
Earl, supra
cit.
Milmo
J. deducted and this was the view taken
(again by
Milmo
J.)
in
Sanger
v.
Kent and Callow
119781 C.L.Y. 788. In favour
of
non-deductibility are
Basnett
v.
Jackson
[19761 I.C.R. 63 (Crichton J.) and
Rufley
v.
Frisby Jurvis Ltd.
(unrep.) May 18, 1972 (Willis
J.)
as
well
as
Foxley
v.
Oltotz,
supra
cit.
VOL.
44
(2)
4.
(1)
226
THE
MODERN
LAW REVIEW
[Vol.
44
could, therefore, probably be left out of account and the process of
deductibility could be very similar to th,at applied in cases involving
recipients of unemployment benefit.
Is
Although mobility and atten-
dance allowances are not incomereplacement benefits they may still
overlap with
a
tort award in that damages may be awarded for trans-
port or nursing expenses. Surely,
if
such
an
item is included in the
award of damages, full deduction of these benefits should be made.
Such
is
the view of the Pearson Commission,19 which advocates
full deductibility of benefits from the head of damages with which
there is an overlap. The Law Commission,
on
the other hand, has
advocated both the extension of section
2
(1)
of the
1948
Act to cover
all social security benefits
2o
and leaving out of account all benefits
not presently covered by the Act.21 The Law Commission’s view was
that no acceptable solution would be entirely logical since
the only
consistently logical solution would be to take into account all bene-
fits which would not have been received but for the accident.”
22
Such
a
solution is, in the present writer’s view, perfectly acceptable
as
well as logical. Since it will involve the repeal of section
2
(1)
of
the
1948
Act
23
it is, however, a solution which can come only from
the legislature.
P.
J.
DAVIES
1s
Williams
(1974) ‘37
M.L.R.
281
argues, at p.
298,
that given deductibility delay
by the plaintif€ casts part of the burden
on
to the State. But if the rule is one of
non-deductibility, surely an undue burden
is
placed
on
the State in any event?
1‘J
See
Vol.
1,
Chap.
13.
The suggested solution in respect
of
mobility and atten-
dance allowances
is
advocated by a majority of the Pearson Commission
(Vol.
1,
para.
490).
On
this point, however, a minority go further and suggest that in the
absence
of
a specific provision
for
such expenses in the award the allowance receiv-
able should be set against the award of non-pecuniary damages as going to ameliorate
the victim’s condition.
20
Law Commission Working Paper on Personal Injury Litigation and Assessment
21
Law Commission Report
on
that subject,
1973
(Report
No.
56).
of Damages,
1971
(W.P.
No.
41).
22
Working Paper, para.
128.
23
There
is
nothing to be said in favour of the illogical compromise contained in
this section: see Atiyah,
Accidents, Compensation and the
Law
(3rd ed.,
1980)
pp.
462-466.

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