NOTES OF CASES
| Date | 01 January 1972 |
| Published date | 01 January 1972 |
| DOI | http://doi.org/10.1111/j.1468-2230.1972.tb01320.x |
NOTES
OF
CASES
TAKE-OVER BIDS
:
THE
COMPULSORY
ACQUISITION
OF
DISSENTIENTS’ SHARES
MANY of the provisions of the Companies Act
1948
designed to
facilitate corporate structural alterations provide protection for
dissenting shareholders either by requiring that the reconstruction
be court supervised,l or alternatively, by affording an aggrieved
shareholder the right
to
petition the court for relief.” Even the most
stout hearted would be forced
to
concede that the courts in carrying
out their protective functions have not been overly solicitous
of
the welfare of dissenting
shareholder^.^
In exercising their discretion
the courts have normally adopted a posture which is both
“
legal-
istic
¶’
and
“
majoritarian
¶’;
legalistic in the sense that in deter-
mining whether
or
not dissenting shareholders have been fairly
treated undue attention has been paid to their strict legal rights and
inadequate consideration given to the underlying realities of cor-
porate constitutional modifications
4;
majoritarian in the sense that
the views of the majority have been treated as the most probative,
if not the dispositive, factor in determining the acceptability of the
alteration
in
question.’
Nowhere is the above philosophy more clearly exemplified than
in cases involving section
209
of the Companies Aat
1948.
Until the
recent decision of Brightman
J.
in
Re
Carlton
Holdings
Ltd.,6
there
have been only two reported cases in which
a
petitioner has been
successful in persuading the court to
“
order otherwise
”
and pro-
hibit the compulsory acquisition of dissentients’ shares under
209
(1).
In one of these cases,
Blue
Metal
Industries
Ltd.
v.
Dilley,?
the take-over did not fall within the terms
of
section
209,
and
in the other,
Re
Bugle
Press
Ltd.,s
in which the take-over bordered
on the fraudulent,
it
is also arguable that the takeover in question
did not constitute a
“
scheme or contract
”
within the terms of
1
See,
e.g.
Companies Act
1948,
ss.
5,
66
and
206.
2
See,
e.g.
Companies Act
1948,
6s.
72
and
209.
3
See the observations of Lord Cooper in the Court
of
Session in
Scottish
Insur-
ance Corporation Ltd.
v.
Wilsons
and Clyde Coal Co. Ltd.,
1948
S.C.
360,
375,
aff’d.
[1949]
A.C.
462.
4
Scottish. Insurance Corporation Ltd.
v.
Wilsons and Clyde Coal
Co.
Lid.,
ibid.;
Re
Saltdean Estates Ltd.
[19&3] 3
All
E.R. 829.
5
See,
e.g.
on
s.
209
Re
Hoare
&
Co.
Ltd.
(1933)
150
L.T.
354, 375;
Re
Buqle
Press Ltd.
[1961]
Ch.
270,
276;
Re
Greirson, Oldham
&
Adams Ltd.
[1967]
1
All
E.R. 192, 197.
On
s.
206
see
Re
London Chartered Bank
of
Australia
[1893] 3
Ch.
540;
Re
Paterson Laing
(1902)
1:
T.L.R. 515.
This,
of
conrse,
is
merely a variation
of
the English courts traditional deference
to
the
superior wisdom of businessmen where commercial matters are involved.
See,
e.g.
Lee
v.
Nezichatel Asphalte
Co.
(1889) 41
Ch.D.
1;
Shuttleworth
v.
Coz
&
CO.
rig271
2
X.B.
9.
23.
6
[197l]
1
W.6.R.
h8;
[1971]’
E.R.
1082.
7
[1970]
A.C.
827; [1969]
3
All
E.R.
439.
8
[196l]
Ch.
270;
[1960]
1
All
E.R. 768.
73
74
THE
MODERN
LAW REVIEW
VOL.
36
section
209.’
To be added to this meagre group of cases in which
petitioners have been successful under
209
(1)
is
Re
Carlton Holdings
Ltd.,
but anomalously
it
is
arguable that the dissenting shareholder
in that case was more preferentially treated than the shareholders
who accepted the offer.
In
Re
Carlton
Holdings
Ltd.,
Priam Investments Ltd. (Priam)
made through its merchant bankers Slater, Walker Ltd.,
a
take-over
offer, dated April
23, 1970,
for the shares in Carlton Holdings Ltd.
(Carlton). The consideration offered was seven Priam shares for
six Carlton shares. This placed a value of
70
shillings on the Carlton
shares which at the time
of
the offer were trading at
55
shillings.
The offer was to remain open until May
14, 1970,
with the usual
right being reserved to the offeror to extend the time during which
the offeree shareholders could tender their acceptances. Accom-
panying the offer
of
Priam there was also an offer from Slater,
Walker Ltd., to purchase for cash the shares in Priam which the
Carlton shareholders did not wish
to
retain.
It
was emphatically
stated that this cash offer would only remain open until May
14,
1970.
The offer of Priam was accepted by the holders of over
90
per cent.
of
the Carlton shares and Priam thereupon served a
notice of compulsory acquisition on the dissentients, among whom
was the petitioner.1° By the time this notice was served the
market value of Priam shares had declined; accordingly, it became
a matter of importance as to whether
or
not the cash alternative,”
offered
to
the Carlton shareholders by Slater, Walker Ltd., should
also be made available to the petitioner.12 The defendants argued
that
it
should not. First, because the cash alternative was offered
by Slater, Walker Ltd., not by Priam, and therefore
it
did not con-
stitute, within the wording of section
209
(1)
one
of
the
“
terms
on which, under the scheme
or
contract, the shares of the approving
shareholders are
to
be transferred to the transferee company
”;
9
This argument was not pursued in
Re
Bugle
Press Ltd.
,[1961] Ch. 270. It
is submitted that it !!aces
a
much too restrictive interpretation
on
the words
‘I
scheme or contract
Cf.,
however,
Blur:
Metal
Industries Ltd.
v.
Dilley
$[1970] A.C. 827, 849-850;
Re
Inteinational Petroleum
Co.
Ltd.
(1963)
37
D.L.R.
(2d) 598.
10
The petitioner in
Re
Cadton
Holdings
Ltd.
was the executor appointed
by
the
will of
a
shareholder in Carlton who died four months before the take-over bid
was made. The court found that t? reason why the petitioner failed to take
up the offer of Priarn was that
for
some unexplained,,reason the offer
document did not reach [him] until after the closing date and
it
was this
lack of knowledge
of
the facts
and
not lack
of
a
grant
of
representation which
led
to
the [petitioner’s] failure to accept the offers.”
[1971]
2 All E.R.
1082,
1085J.
11
This was
r:-d
to Brightman
J.
“
as
a
‘
put option
’
exercisable against a
third party [1971] 2 All E.R. 1082, 1087E.
12
The petitioner also served
a
counter-notice under
8.
209 (2). Consideration
of
the application
of
this subsection would
only
arise, as Brightman
J.
pointed
out, if the court “ordered otherwise” under
s.
209
(1)
and prohibited the
cornpulsory acquisition
of
the petitioners’ shares. Brightman
J.
acce ted the
prevailing view that under
8.
209
(1)
the
court
can
only prohibit t\e
com-
pulsory acquisition and has
no
power to alter the terms
on
which it
is
made.
[1971] 2 All E.R. 1082, 1087C.
in 209.
JAN.
1972
NOTES
OF
CASES
75
secondly, irrespective of who offered the cash option the time
for
exercising
it
had passed.
Both of the above defences were rejected by Brightman
J.
With
respect to the first he reasoned that
it
would be quite
“
unrealistic
”
to
ignore the existence of the cash alternative
in
determining the
terms
‘‘
on which the Carlton shares are
to
be transferred to
Priam.” In his opinion the cash alternative
“
was unquestionably
part
of
the terms on which, under the scheme, the approving share-
holders agreed to part with their shares in favour
of
Priam.”
l3
While this makes undoubted commercial sense
it
does do a certain
violence
to
the language of section
209
(1)
in that the cash alterna-
tive was not, strictly speaking, one of the
‘‘
terms on which, under
the scheme
or
contract, the shares of the approving shareholders
”
were to
be
transferred
to
Priam. The actual order made in
Re
Carlton Holdings Ltd.,
was that Priam should make available to
the petitioner
“
60
shillings instead of a share of Priam.” These,
however, were not the terms offered
to
the approving Carlton share-
holders. They had the option of either accepting Priam shares or of
selling these shares
to
Slater, Walker Ltd., and not the option of
Priam shares
or
60
shillings.
It
was not feasible, however, for the
court in
Re
Carlton Holdings Ltd.;
to
offer the former terms to the
petitioner as this would have involved Priam in purchasing its own
shares and would have run afoul of section
54
of the Companies Act
1948.14
As
a
resuk the terms offered to the petitioner had, of
necessity,
to
be slightly different from those offered to the approving
Carlton shareholders.
By far Ithe most significant aspect of
Re
Carlton Holdings Ltd.,
was the rejection of the second limb of the defendant’s defence,
namely, that as the time for acceptance of
the
cash alternative had
passed then
ips0
facto
it
could not be made available to the peti-
tioner. Section
209
(1)
is
unclear as to whether
or
not an offeror
company which offers alternative terms
to
offeree shareholders can
stipulate which of the terms is to prevail when shares are being
compulsorily acquired. The Jenkins Committee considered that the
section should be clarified
to
enable
“
the offeror company
.
. .
to
stipulate
. .
.
which of the alternative sets
of
terms is to apply,”
but that such right of election should be only permissible
“
in the
absence of an election by the dissentient within
a
period prescribed
in
the Act.”
l5
Weinberg, however, is
of
\the opinion that as section
209
(1)
presently stands
it
permits the offeror company
to
stipulate
which set of terms is to prevail in the case of compulsory acquisi-
13 [1971] 2 All E.R.
1082,
1087H.
14
It
is
arguable that even the ternis offered to the approving shareholders
violated
s.
54.
Particularly would this be
so
if Priam paid Slater, Walker
Ltd.
a
commission
for
their services
of
making the cash alternative available.
See
Jenkins
Committee
Report (Cmnd.
1749),
para.
175.
15 Cmnd. 1749, para. 289.
76
THE
MODERN
LAW REVIEW
VOL.
36
tion.16 Brightman
J.
rejected this proposition
on
the grounds that
as the approving shareholders were entitled to a cash alternative
then,’
“
A
dissentient shareholder is required by statute
to
receive the
same terms in the event that the transferee company chooses
to exercise its rights under section
209
(1).
Therefore the trans-
feree company
if
it wishes to exercise those rights, must make
or
procure a comparable cash offer.”
In reaching this conclusion, Brightman
J.
was guided by what he
considered to be the overall policy of the section ithat
a
dissenting
shareholder should receive
‘(
no less favourable treatment than an
approving shareholder.”
l8
The anomalous consequence of
his
de-
cision, however, is that the dissentient petitioner received more
favourable treatment bhan the approving shareholders. The approv-
ing shareholders were provided with the alternative of either paper
or
cash, but only the latter
if
they accepted before May
14,
1970.
On the other hand the dissentients were, as a result of the decision
of Brightman
J.
provided with
a
cash alternative up
to
the time
when the shares were compulsorily acquired.
Nor
will it be possible
to
distinguish
Re Carlton Holdings Ltd.
on the grounds that the
petitioner did not receive notice of the cash option until the time
for
exercising
it
had Whether
or
not
the
petitioner re-
ceived notice of the offer is irrelevant in determining his status as a
dissentient as section
209
(5)
defmes dissenting shareholder, for the
purpose
of
section
209,
as including
“
a
shareholder who has not
assented to the scheme
or
contract and any shareholder who has
failed
or
refused to transfer his shares to the transferee company in
accordance with the scheme
or
contract.”
The Carlton shareholders who approved the take-over and
accepted the Priam shares were also obviously prejudiced by the
subsequent decline in the market value
of
these shares,20 and this
raises the much broader issue of guaranteeing fairness to offeree
shareholders where the offeror offers securities instead
of
cash.
Recently the Panel on Take-overs and Mergers directed their atten-
tion lto this problem in the
Adepton Bid
for
William
Hudson
LtdZ1
Adepton Ltd. made an offer for the shares
of
Hudson Ltd. the
16
“Where the terms
of
the offer give the offeree the option
of
receiving shares
or cash (or, indeed, any other form
of
consideration)
it
is not possible to
tell
from the section whether the compulsory acquisition should be for one form of
consideration or the other, or indeed whether the option must remain avail-
able. The problem can
be
easily avoided by suitable drafting of the offer.”
Weinberg,
Take-overs
and
Mergers
(1971, 3rd ed.),
at
p.
197.
17
[1971] 2 All
E.R.
1082, 1088B.
I*
[1971]
2 All
E.R.
1082, 1088C.
19
See
supra,
note
10.
20
This appears
to
be quite
a
common phenomenon where the consideration
offered
is
in the form of securities
of
the offeror. The reasons for this are
two-
fold
:
(a) there is normally a dilution in the sharea
of
the offeror, and
(b)
the
market, after the take-over has been completed, will
normally
be faced with
a
large volume of the offeror’s securities. See Weinberg,
op.
cit.,
at
pp.
320-321.
21
Panel
relesse, April
2,
1971.
JAN.
1972
NOTES
OF
CASES
77
consideration being Adepton Ltd. securities.
As
the off eror company
was much larger than the offeree company this necessitated a
considerable increase in the share and loan capital of Adepton Ltd.
For
ten days after
it
had publicly announced its bid, Adepton
Ltd.
purchased Hudson
Ltd.
shares in the market. These market pur-
chases raised in a particularly acute form the application of
Principle
8
of the City Code on Take-overs and Mergers which
stipulates that
“
All
shareholderis of the same class of an offeree com-
pany shall be treated similarly by an offeror company.” While
theoretically in
Adepton
all the offeree
“
shareholders [had] a
similar chance to sell
”
for cash in the market this equality, as the
Panel pointed out, was chimerical in that
it
was the
‘‘
knowledge-
able shareholders
.
. .
close
to
the market, [who] have most of the
relevant information available
to
them and have an immediate
opportunity to jump at the chance of selling for cash.”
22
An
opportunity which would normally not be available
to
the
‘(
small
shareholder
’’
as by the time he receives the necessary professional
advice the market purchases will have ceased. Nonetheless, the
Panel did noit consider that Adepton
Ltd.
had violated the Code by
its market purchases in that Rule
29
of the Code, which is designed
to maintain a free and active market in the shares of the offeree
company, permits market trading by lthe offeror after its bid has
been made public. The Panel ruled, however, that as the capital
structure of Adepton Ltd. would be radically altered when the bid
was completed then the normal rules for determining the value of
securities, their market had no applicability. In these
circumstances all the offeree shareholders had to be offered cash in
order to guarantee parity of treatment.
The ruling in
Adepton
does not completely overcome the problem
of guaranteeing fairness to offeree shareholders in all cases involving
non-cash off e~s.~~ The Panel has on
a
number of occasions eschewed
any responsibility for adjudicating on the merits of a particular
bid,25 although the
Adepton
ruling indicates that in certain circum-
stances
it
will interfere where the non-cash consideration
is
valued
by the offeror at
a
figure which
it
considers (to be highly prob-
lematical.
It
may be that with the growth
of
take-overs involving
a
non-cash consideration, a trend which
Re
Carlton Holdings
Ltd.
will encourage, the Panel will be compelled to play
a
more activist
22
Ibid.
at
p.
7.
23
See
City Code
on
Take-overs and Mergers,
Rule
31.
24
It
does,
however, cover
one
of the most
diEcult
situations.
In
most other
cases,
presumably, the market will fulfill
its
function
of
valuing the securities
of the offeror.
25
See
United Draperies Offer for Swears
d
Wells
Ltd.,
Panel release, February
17, 1970
at
p.
2.
“
The Panel
has
consistently refused to value or
pass
judg-
ment
upon
the merits of particular
offers.”
See
also
J.
Coral Ltd.,
Panel
release,
June
18,
1971.
78
THE
MODERN
LAW
REVIEW
VOL.
35
At the minimum some modification needs
to
be made
to
the
rule which permits market trading once the bid has been announced
in order to guarantee the continued viability of Principle
8
of the
Code.
If
a complete suspension
of
trading was considered too
draconic then the offeror should, at least, be obliged to state in its
offer document that
it
intends to continue purchasing the shares of
the offeree for a stipulated period of time.27
D. D.
PRENTICE.
AN UNREMEDIED BREACH
OF
A
FIDUCIARY
DUTY
WUEN a claim arises under
a
policy of insurance, it has been the
practice of Lloyd’s underwriters to instruct the insurance broker
who placed the insurance to obtain an assessor’s report as
to
the
claim. Where the broker, before accepting instructions to place an
insurance, discloses this practice to his client and obtains his consent
to
it,
there appears
to
be
no
difficulty.’ Where, however, there
is
no such disclosure and consent, serious problems of breach of the
duty owed by the broker to his client arise. This practice of brokers
in acting for two principals was condemned by Megaw
J.
in
1969,2
but the consequences
of
the impropriety were not then direcftly at
issue. the
practice was again broughlt
to
the attention of the courts and
Donaldson
J.
made it clear that the propriety of the practice was
fundamental to his decision and that his views were
“
not
obiter
dicta.”
The facts were that the plaintiffs required insurance for goods in
transit in the customs warehouse at Buenos Aires on a voyage
from there to Paraguay. They requested Lloyd’s brokers to place
the insurance with Lloyd’s underwriters. Acting as the plaintiffs’
agent, the brokers placed the insurance with a syndicate, one of
whose members was the defendant. When a shortage in the goods
However, in
North
c$-
South Trust
Co.
v.
Berkeley
26
“
In
1964 cash formed more than half the total consideration in take-over bids,
by 19701 the cash proportion had fallen to 23 per cent.”
Annual Report
of
the
Panel on
Take-owers
and
Mergers
1971,
at p.
3.
The reasons for this are
predominantly fiscal. See Weinberg
op.
cit.,
Chap. 17. As the Code
now
stands the offeror must merely report such purchases
to
the Panel
and
the
Stock Exch,ange: Rille 29.
27
See also
Report
of
the
Committee
of
the Ontario Securities
Commission
on
the
Problems
of
Disclosure
Raised
for
Inuestors
by
Business
Combinutions,,and
Priuate
Placements
(1970), at
p.
94. the
offeror Company make the benefit of
any
heavy bu$ng programme available to
all
and sundry for
a
reasonable period
of
time.
Adepton,
Panel release,
April
2,
1971, at p.
6.
Obviously in view of
Adepton
this
is
not sufficient.
1
See,
e.~.,
Pulwood
v.
Hurley
[1928]
1
X.B.
498,
per
Lord Ranworth
M.R.,
at p. 502 and Scrotton
L.J.,
ibid.
2
Anolo-African Merchants Ltd.
v.
Bniilev
r19691
2
All
E.R.
421. 427-430.
The Panel already requires that
““L
2
3
[19?l]
ld
All
E.R.
980.
4
Ibid.
at
p. 987B. For the response of Lloyd’s
to
the
Bayley
dicta
and
affidavits from members seeking
to
establish the propriety
of
the practice, see
pp.
986-992.
JAN.
1972
NOTES
OF
CASES
79
was noticed, a claim was made
on
the insurance by the plaintiffs
acting through their brokers. The underwriters did not accept the
claim and instructed the brokers to obtain an assessor’s report.
The brokers obtained the report and, after taking
a
copy for their
own files, handed it to the underwriters. The underwriters rejected
the plaintiffs’ claim, whereupon the plaintiffs commenced proceed-
ings. The plaintiffs requested their brokers
to
show them the
assessor’s report, but the brokers refused on the ground that
it
had
been obtained on the defendant underwriter’s behalf. The brokers
then found themselves in the midst of proceedings by the plaintiffs
claiming declarations for possession and delivery
up
or inspection
of the documenits, and by the defendant seeking an injunction
restraining delivery or revelation of the contents of the same
documents. The brokers interpleaded and the issue was ordered to
be tried whether the plaintiffs were entitled
to
delivery up or
inspection of,
inter
alia,
the assessor’s report.
The plaintiffs conceded that they had no proprietary right to the
documents themselves, but merely to the information contained in
them.5 Their claim
to
this information lay in the alleged breach of
duty
on
the past
of
the broker in acting for the underwritem
to
procure the assessor’s report without the knowledge and consent of
the first principal. Such a breach of duty does not render the
agent’s acts for his second principal a nullity, but counsel argued,
and Donaldson
J.
seemed to accept,6 that the agent’s unlawful act
may found an action by the
first
principal against his agent for an
account of any benefit received during the course of the unlawful
agency. Counsel for the plaintiffs had stated
a
further proposition
that Donaldson
J.
admitted contained
‘‘
much that is sound.”
If
X
employs an agent for purposes which
X
knows are going to
involve that agent in acts inconsistent with a duty owed
to
a
prior
principal, then
“
X
acts at his peril
”
and the law resolves such a
conflict by preferring the interests of the first principal. However,
whilst accepting the statement as generally true,8 Donaldson
J.
rejected counsel’s particular application
of
it,
viz.
that any informa-
tion on documents relating to the first agency received by the
5
Clearly the plaintiffs were attempting to obtain the information without refer-
ence to the plea of privilege which would have arisen had they claimed
discovery in the action
on
the policies, but since
no
property in the documents
was being claimed it is doubtful whether interpleader prooeedings were the
appropriate procedure to adopt here in any event. This doubt seems to have
been shared by Donaldson
J.
(p. 992B). The. same result might have been
achieved more readily if the plaintiffs had commenced an action claiming
damages
for
breach of the duty owed to them by the brokers. Donaldson
J.
himself envisages such
an
action
for
damages (p. 993G). It is hard
to
see
how
the loss resulting from the breach could be quantified without disclosure
of
the
assessor’s report, which could be obtained this time from the underwriters by
>a
subpoena
dues
tecum.
*
at
p.
992G.
7
at
p. 9938.
*
Donaldson
J.
seemed to think that its application
was
confined to such circum-
stances
as
the avoidiug of any resulting contracts and accounting for any
commission paid
to
the agent (at p. 992G).
80
THE
MODERN
LAW
REVIEW
VOL.
35
agent from
X
may be passed on by the agent
to
the first principal
in
compliance with his duty
so
to
do, and
X
cannot complain unless
“
X
has first obtained the fully informed consent of [the first
principal to the agent] receiving that information
or
those docu-
ments exclusively on behalf of
X.”
Apart from problems of the
particular remedy available to the true principa1,’O
it
is hard to
understand Donaldson
J.’s
objection.
The learned judge criticised counsel’s argument on the ground
that
it
assumes the existence of a duty to pass on information to
the true principal where that information was obtained only on
terms that
it
be kept confidentia1.l’ He considered that the infor-
mation was “not a benefit
to
the agent for which he would be
accountable,” despite the earlier remarks
l2
to the effect that the
agent would be accountable for any commission which he received
from the second principal, and his subsequent comment
l3
that the
agent is liable to compensate his true principal for any quantifiable
loss caused by his breach of duty.14 This ignores the fact that the
information could only be acquired by the agent
in
the course
of
his
breach
of
duty.
By upholding the seal of confidentiality imposed
by the second agency, Donaldson
J.
is
surely preferring the interests
of the second principal to those of the first in a situation falling
9
at
p. 993B.
10
Counsel’s formulation of the proposition implies that it is the agent’s
duty
to
hand the information over.
If
such
a
duty exists, how is it to be enforced?
Perhaps it is
a
duty to which the principal has
no
corre1,ative right at all. If
the agent is
a
constructive trustee of the information,
one
would think that
the trustee-agent is under
an
immediate duty to transfer the property to his
principal and that the principal has
an
affirmative claim to have it traqfferred.
But
even if the,luty has
no
correlative right
(see
J.
W.
Harris, Trust,
Power
and
Duty (1971)
87
L.Q.R.
31), the prinoipal would still, presumably,
be able to obtain
a
declaration. See
infra.
11
It is hard to
see
why the wishes
of
the second principal that the information
should be confidentiah should affect the matter, given
an
anf:cedent breach
of
duty. acts
at
his own
peril
”
(at
p. 9938).
The second principal,
on
Donaldson
J.$
admission,
12
at p. 9926.
13
at
p. 9936.
14
Admittedly the information was not
a
benefit
to
fhe
agent
in the way that, sap,
commission would have been. The real problem lies in the fact that most
of
the claims by
a
first principal against his agent who has acted for
a
third
party are
claims
based
on
unjust
enrichment. The question is whether the
remedy
of
the principal
is
proprietary, enabling him to claim anything
reoeived by the agent, or only personal, in which case
he
is confined to the
profits made by the agent:
s?
Gareth
Jones,
‘‘
Unjust
Enrichment and the
Fiduciary’s Duty of
Lo
alty (1968)
84
L.Q.R.
473,
498
et
seq.
Cf.
the
American
Restatement
of
Agency
(2nd ed.), para.
381,
whlch, whllst imposing
a
duty to disclose
on
the agent, enter8 the important
caveat
that such dis-
closure must not be in breach of
a
duty to
a
third person. But where this
involves
a
conflict
of duties and, in spite of this, the agent proceeds to act for
the second principal, if the second principal has knowledge of the first agencv
then the second agreement is illegal
and
unenforceable (para. 391). This
“is
one
solution-to relieve the agent
of
his duty
af
confidentiality to the second
principal by making the second agency illegal and unenforceable. However,
Donaldson
J.,
whilst admitting that the second agency is illegal (p. 992F),
does not seem prepared to hold
it
unenforceable. This results in his upholding
the duty
of
confidentiality imposed by the second agency at the expense of the
duty
of
disclosure imposed by the first.
JAN.
1972
NOTES
OF
CASES
81
within the broad scope of counsel’s general proposition which the
learned judge had previously seemed prepared
to
accept.15
To the plaintiffs’ further submission that the information was
property
l6
which the brokers had wrongfully acquired in the
plaintiffs’ service, Donaldson
J.
thought that there were
‘‘
at least
three answers.”
l7
First, he doubted whether information is
property “in this context.”
His
words at this point bear
a
strong resemblance
to
a
passage from
Bowstead
on
Agency,lg
but
the important words are
‘‘
in this context.” The passage in Bow-
stead, commenhing on
Boardman
v.
Phipps,20
deals with the
situation in which a principal complains of his agent’s use of
information belonging to the principal to acquire a benefit for him-
self
(i.e.
the agent). The present case
is
hardly
“
in that context.”
For
one thing
the
information did not originally belong to the
plaintiffs
21
and
it
is not alleged that the brokers madd
a
profit out
of its use. Moreover, in
Boardman
v.
Phipps
itself the Court of
Appeal
22
had been clearly of the opinion that information was
property and at least three members of the House
of
Lords were
prepared to treat
it
as such in some
circumstance^.^^
Secondly, Donaldson
J.
attempted to demolish counsel’s argu-
ment in the alternative. Even
if
the information was property,
that property was merely in the custody of the brokers;
it
was not
‘‘
acquired
”
by them.24 This
is
a
more serious objection. How
can one be a constructive trustee of property one does not
own
in
law but of which one merely has custody?
25
This, of course,
suggests why many have argued that information is not property.
It
certainly does not easily
fit
into the classical analysis of property.
However,
it
is hard to see how one can have custody of information
(and for the purposes of this argument Donaldson
J.
assumes that
information is property), without acquiring
it.
Certainly one
can have custody of documents without knowledge of what they
contain, but once the information has been assimilated by the
agent, one surely cannot say to him:
“
That information you have
just read in that report has not been acquired by you; you merely
15
at p. 993A.
See
supra,
note
11.
16
See
supra,
note 5.
17
at p. 9931).
**
Ibid.
19
DonlaIdaon
J.
saitl;
“
.
.
,
it
is by
no
means clear that information is property
in
this context.
Bowstead
(13th ed., Reynolds and Davenport) states:
“
Since
Boardman
V.
Phipps
it is doubtful whether confidential information
can
in
this context technimlly be regarded as the property
of
the principal,
but there is
no
doubt that
if
an (agent uses confidential information acq6ired
as
a
result
of
the agency he
is
accountable
to
his principal1
for
any profits
derived from
it
”
(pp. 151-152).
2o
[1967] 2 A.C.
46.
21
See
infra.
z2
Sub
nom.
Phipps
v.
Boardman
[1965] Ch.
922.
23
See Lord
Hodson (p.
107).
Lord
Guest (p. 115) and Viscount Dilhorne
in
hi*
24
at p. 993D.
25
See
infra.
dissenting speech (pp. 89-90).
82
“HE
MODERN
LAW
REVIEW
VOL.
35
have custody of
it.”
Such an argument is to take mechanical
jurisprudence too far.
Thirdly, Donaldson
J.
argued that even though the information
had been acquired,
it
had not been acquired
in
the plaintiffs’
service.26 This is undeniable but since the information had been
wrongfully
acquired, and since the second principal’s rights are
supposed to be inferior to those of the true principal, why should
this be conclusive
?
Aflter all, Donaldson
J.
would not have refused
the true principal an account of commission on the ground that the
commission had been acquired in the service. of the second principal.
The judgment concludes
with
two curious statements. The
learned judge would have accepted counsel’s arguments
if
one could
have regarded the second principal’s knowledge of the first agency
as an implied waiver of the duty of confidence. This could only
be
so,
however,
if
“
knowledge is
to
be imputed
of
the impropriety of
the agency
to
the defendant and to [the brokers] as a matter
of
law, because neither in fact knew that they were acting in
a
wrongful manner.”
27
This seems remarkable. Both Megaw
J.
in
Anglo-African Merchants Ltd.
v.
Buyley
28
and Donaldson
J.
him-
self consider that the practice of brokers, who are already acting
for the insured, also acting for the underwriters, is a breach of duty
on the part of the brokers.
It
is
this breach of duty that is to be
imputed
‘‘
as
a
matter of law,” not the conduct that amounts to
the breach.
How
can the fact that the parties did not know that
what they were doing was wrong affect the legality of their conduct
?
They are presumed to know that their conduck was unlawful. Even
so,
Donaldson
J.
said that his rationale
“
will not, of course,
apply in future cases.”
29
After
Anglo-African Merchants
Ltd.
v.
Bayley,
should it apply, on his
own
reasoning, to the instant
decision
?
What is said
to
be
“
the fallacy underlying the plaintiffs’
claim
”
30
is then stated as being that the brokers, in acting
for
the
underwriters,
“
were undertaking duties which inhibited the proper
performance of their duties towards the plainltiffs, but
in
so
far as
they acted for the defendant they were not acting
in
discharge
of
any duty towards the plainti@”
31
Again, this is undeniable, but,
it
is respeotfully submitted, irrelevant. The plaintiffs’ claim arises
not from the discharging of a duty owed to them but from the
breach
of such a duty-a breach of which the defendants had
knowledge at the time when the information was procured for them
by the brokers.
T.here remains the problem of the remedy available
to
the plain-
tiffs. The fact that Donaldson
J.
admitted that his approach
‘‘
Will
26
at
p.
993D.
27
at
p.
993E-F.
28
rig691
2
AI~
E.R.
421.
29
at
p.
993F.
30
Ibid.
31
at
p.
993F
(writers’ italics).
JAN.
1972
NOTES
OF
CASES
83
not, of course, apply in future cases
”
suggests that
a
similar case
should go the other way in any event. Presumably future plaintiffs
should
rut
least obtain their declarations on the basis of the agent as
a constructive trustee of the information. Even
if
the information
is not regarded as property there seems no reason to suppose that
the equity which restrains the transmission of confidential informa-
tion in breach of some confidential relation~hip,~~ will not equally
compel
disclosure where the information has been obtained in breach
of the duty arising from such a relationship.
Finally, it is worth pointing out that the plaintiffs have not
appealed from Donaldson
J.’s
decision, notwithstanding the learned
judge’s enc~uragement.~~ This is a pity particularly in view of the
curious results that would follow from an application of Donaldson
J.’s
reasoning
to
other fadual situations where conflicting fiduciary
duties might arise. A trustee acquiring information pertaining to
the trust investments in his capacity as a company
or
a
director holding multiple directorships should surely not
be
able
to
remain silent where his second fiduciary position is clearly
subordinate to the first.
MAURICE
KAY.
DAVID YATES.
PRIVILEGE
AND
CONFIDENCE
6C
Tms
is a curious case
.
.
.”
said Cozens Hardy M.R. in beginning
his judgment in
Ashburton
v.
Pape.l
It
is still curious, and after
lying dormant for nearly sixty years has come into prominence
again in the light of its effect upon Goff
J.’s
reasoning in
Butler
v.
Board
of
Trade.2
The latter was a special case presented under
R.S.C., Ord.
33,
r.
3,
for
a
declaxation that a copy of a letter written
by
a
solicitor could not be produced in evidence
on
the trial of the
plaintiff on criminal charges to be brought under section
332
(3)
of
the Companies Act
1948.
This was by way of substitution for an
injunction which as interlocutory relief could not be brought against
a department of the Crown.
It
was assumed that the letter was written to the plaintiff by his
~olicitor.~ The defendants were seeking to tender the original in
evidence in the criminal proceedings if produced by the plaintiff,
or
the copy which had been innocently passed on to them by the
plaintiff’s solicitor, and oral evidence of the contents. The plaintiff
was going to claim legal professional privilege for the original,
32
See
Boardman
v.
Phipps
([1967]
2
A.C.
46,
especially
per
Lord Upjohn at
33
at
D.
99OD.
pp. 127-126.
34
A
instee
of
a company’s pension
fund,
for
example.
1
[1913]
2
Ch.
469, 471.
2
[1971]
Ch.
660.
3
at
p.
666D.
84
THE
MODERN
LAW
REVIEW
VOL.
36
and in these proceedings sought to restrain the defendants from
tendering the copy as secondary evidence.
One of the questions before the court was whether the letter
was
so
connected with any criminal designs of the plaintiff as to
come within the exception to the protection of legal professional
privilege affirmed
in
the leading case of
R.
v.
Cox
and
Railt~n,~
which was subjected to close and interesting examination. The
conclusion drawn by Goff
J.
was that it was not. This note will
not examine that aspect of the case. The question then arose of
whether even though the plaintiff could thus rely upon legal profes-
sional privilege to avoid producing the original, he had any equity
to restrain production of the copy by the defendants. Goff
J.
held that he had not, but on the extremely narrow ground that,5
‘(
it
would not be a right
or
permissible exercise
of
the equit-
able jurisdiction in confidence to make a declaration at the
suit of the accused in
a
public prosecution in effect restraining
the Crown from adducing admissible evidence relevant to the
crime with which he is charged.
It
is not necessary for me to
decide whether the same result would obtain in the case
of
a
private prosecution, and
I
expressly leave that point open.”
The last sentence emphasises the narrowness
of
the ground
upon which the judgment was given.
It
at once raises the question
of whether an injunction could be brought to restrain production
of a copy
of
a document protected by legal professional privilege
in an ordinary civil case. Indeed it prompts a wider question.
Goff
J.
accepted the plaintiff’s argument that if the original were
protected by legal professional privilege, then the copy must
necessarily be confidential.g Confidence, not privilege, was to be
the justification, if any, for restraining production of the copy.
Thus the remedy contended for far exceeds in scope and effect the
cramped limits of evidential privilege. In scope
it
encompasses
not only the relationship between solicitor and client which is
protected by privilege, but all other confidential relationships
whether
so
protected
or
not. Its effect is greater since privilege can
be used only as a shield to refuse disclosure of a document
or
information in one’s possession, but the injunction can be used,
if
not exactly as a sword, at least as a device to disarm one’s
opponent by preventing him from using evidence in his possession,
and if the burden of proof is against him, the effect is that
of
a
sword.
If
this reasoning is correct
it
seems that the advocates
of an extension of legal professional privilege to protect other
confidential relationships have been remiss in ignoring this potent
weapon which is already available to them. Why has
it
been left
to rust in the armoury of equity
?
4
(1884)
14
Q.B.D. 153.
5
at p.
690G.
6
It is interesting that the Law Reform Committee
in
its recent report
on
Privilege in Civil Proceedings distinguished legal professional privilege
from
privilege in aid
of
a confidential relation. Cmnd.
3472,
para.
7.
Jas.
1972
NOTES
OF
CASES
85
The best reason might seem to be the decision of the Court
of
Appeal in
Calcraft
v.
Guest.l
In that case the court unanimously
rejected a claim that because documents were covered by profes-
sional privilege as confidential documents, secondary evidence by
way
of
copies was inadmissible. The issue was regarded as closed
by the decision in
Lloyd
v.
illostyn.0
It
is interesting to note that
the unsuccessful argument in
Lloyd
v.
hlostyn
rested on the autho-
rity of a decision
10
of Bayley
J.
who had held that as
“
the attorney
could not give parol evidence of the contents
of
the deed which
had been intrusted to him;
so
neither could he furnish a copy.”
l1
This authority was treated very brusquely by Parke
B.
and Lord
Abinger during argument, and was not adverted to in the judgment.
Their view was endorsed in
Calcraft
v.
Guest,
and
it
is perhaps
significant that in
Butler
no equity seems
to
have been claimed to
restrain the oral evidence.
If
the authorities stopped there,
it
might
seem that there is no place for the equity in this connection.
But they do not. There is
Ashburton
v.
Pape,12
part of a
famous saga of litigation.
It
was an attempt by Lord Ashburton
to restrain the defendant from using copies of letters which he had
obtained dishonestly from Lord Ashburton’s solicitor, Nocton. At
fist instance, Neville
J.
granted the injunction, excepting the use
of the copies for the purpose of the pending proceedings in the
defendant’s bankruptcy. Lord Ashburton then appealed success-
fully against the exception, with the result that the injunction
restraining the use of the copies was unqualified by any reference
to their use in legal proceedings. This was the authority which
Goff
J.
was able to distinguish only
on
the basis that the defendants
before him were a department of the Crown seeking to use the
copies in a public prosecution.
Everything hinges on the correct interpretation of that decision.
It
is prima facie unlikely that Cozens Hardy
M.R.
would wittingly
have subverted
Calcraft
v.
Guest,
in which he had appeared as
leading counsel
for
the successful party, and undermined the whole
of the law of privilege in evidence. And,
if
his judgment as
reported in the law reports is read, it appears that he did not.
The relevant passage reads,13
‘‘
although Pape
has had
l4
the good luck to obtain a copy
of these documents which he can produce without a breach
of
this injunction, there is no ground whatever in principle
why we should decline to give the plaintiff the protection
which in my view is his right as between him and Pape.”
7
[1898]
1
Q.B.
759.
8
Lindley
M.R.
with whom Rigby and Vaughan Williams
L.JJ.
concurred.
9
(1842) 10
M.
&
W.
478.
19
Fishe7
v.
Heming,
Leicester Lent
Assizes
1809,
as
reported
in
1
Phill.Ev.
182
(8th
ed.).
11
(1842)
10
M.
&
W.
478, 481.
12
[1913] 2
Ch.
469.
l3
at
p.
473.
14
Italics supplied.
S6
THE
MODERN LAW REVIEW
VOL.
36
This suggests that although Lord Ashburton was entitled to the
injunction restraining Pape from using the copies without any
expressed qualification, nevertheless Pape could still use them in
the subsequent litigation as secondary evidence, presumably under
the doctrine of
Calcraft
v.
Guest,
and irrespective of how they had
been acquired.
Unfortunately this crucial passage is reported differently in the
only other reports which purport to reproduce
it
in
extenso,
and
as reported in them it gives exactly the opposite impression. Thus
in one,l5
"
If
Mr.
Pape
has
l4
the good luck to obtain a copy of
these documents which he can produce without a breach of this
injunction, there is no ground
.
. ."
and
l0
"
although,
if
Pape
has
l4
the good luck to obtain a copy of these documents which he
can produce without a breach of this injunction, he may do
so,
there is no ground
.
.
. ."
On this view the injunction would
operate to prevent the copies obtained in breach
of
confidence
from being used, and only if Pape got hold of further copies in
some completely innocent way could he use them as secondary
evidence. The other reports of the judgment do not reproduce
this passage, and are inconcl~sive.~~
Nor
do the other judges make
their position completely clear on this point. Counsel in
Pape
sought to distinguish
Calcraft
v.
Guest
on the basis that there was
no breach of confidence. But while there may not have been the
sort of collusion which seems to have been present in
Ashburton
v.
Pape,
the whole argument in
Calcraft
v.
Guest
assumes that there
was,
or
might have been, a breach of confidence.ls In his judgment
in
Ashburton
v.
Pape
Kennedy
L.J.
seems to argue that
if
the
injunction is granted before the-trial-it will prevent the copy from
being used, but if the objection is fist raised at the trial, the
court will be bound to apply the rule in
Calcraft
v.
Guest,
and
allow its use.19
It
appears -that no case on remotely similar facts
was cited to the court.
In fact in
Beer
v.
Ward
*O
Lord Eldon had refused to grant an
injunction to restrain
R
solicitor from giving evidence of what
had been passed on to him confidentially by a client. But this
was on the basis that legal professional privilege would apply,
and that the trial court could be expected to uphold
it.21
How-
ever in
Lewis
v.
Smith
Lord Cottenham did grant an injunction
to restrain a party from using in evidence in subsequent proceedings
23
(1891)
Jac.
77.
21
By contrast in Stockflclh
v.
De
Tastet (1814) 4 Camp.
10
Lord Ellenborough
suggested in a case where the breach of confidence fell outaide the limits
of
privilege that while
it
was too late for him to exclude the evidence at the
trial,
a
prior application to the Lord Chancellor might have been effective.
22
(1849)
1
Mac.
&
G.
417 decided very
soon
after his decision in Prince Albert
V.
Strange (1849)
1
Mac.
&
G.
25,
a leading authority
on
the equity to restrain
breach of confidence.
JAN.
1972
NOTES
OF
CASES
87
documents which had been passed on to him by his solicitor who
had obtained them in confidence when acting previously as solicitor
for the other party.
On balance then it seems that Goff J.’s caution in
Butler
was justified, and that the remedy of injunction may well be
available to restrain the use of confidential material in evidence
in subsequent civil proceedings.
It
seems that
it
can be used to
restrain not only parties to the confidence, but to those acquiring
through them.23
It
appears to extend to confidential relations
of
all kinds, and not to rest upon any particular proprietary interest
in the plaintiff, provided that some confidential relationship to
which he was a party has been breached. Goff
J.
seems to
suggest that the remedy applies only to restrain the use
of
docu-
ments in the hands
of
a party to the subsequent proceedings,
since a
subpoena duces tecum
would lie at the hands of such party
to compel production by some third party, which it is implied
could not be restrained. He cites for this purpose an
obiter dictum
of Bankes
L.J.
in the Court of Appeal in
Weld-Blundell
V.
Stephens.24
This cryptic passage is hardly conclusive since
it
suggests merely that the law will not imply a contract not to
disclose information in legal proceedings, but this envisages the
confidence arising out of the supposed obligation not to disclose,
and not independently of
it.25
It
is difficult to see how any of this
outweighs the general principle that the equity applies to restrain
anyone into whose hands the confidential information has come
whether parties to further litigation, or not. Indeed the injunction
granted in
Ashburton
v.
Pape
restrained not only Pape but Nocton
and a number of others who were certainly not party to Pape’s
bankruptcy proceedings. The only limitations seem that established
in
Butler
by Goff
J.
that
it
will not apply to public prosecutions,
and presumably others which apply to the equity generally such
as that it will not protect iniquity.28
The result then is a massive equitable bolster to the protection
afforded by privilege. This might prove not unwelcome to the
Law Reform Committee which was clearly uneasy about the effect
of the rule in
Calcraft
v.
Guest,
and the exclusion from privilege
of
some other confidential relationships.
It
seems though that
it
will come
as
a
surprise, since the doctrine is totally ignored in
its report.
COLIN
TAPPER
23
Lewis
v.
Smith
(1849)
1
Mac.
&
G.
417;
Ashburton
v.
Pape
[1913] 2
Ch.
469.
24
[1919]
1
K.B.
520,
527.
25
A
better authority might have been
Forbes
v.
Samuel
r19131 3
K.B.
706.
723, 724,
but there a-penal action was assimilated for ihese-purposes to
&
criminal one, and
in
any event involved privilege from production of a
con-
fidential document at the trial,
in
respect of which
no
injunction had been
obtained, and
not
whether an injunction could have been obtained, or what
the position would have been
if
it
had. It was thus like
Calcraft
V.
Guest,
not
Ashburton
v.
Pape.
26
Gartside
v.
Outram
(1856)
3
Jur.(N.s.)
39,
40;
Initial SerciCeS
Ltd.
v.
Putterill
[1968]
1
Q.B.
396,
405.
88
THE
MODERN
LAW
REVIEW
VOL.
3.5
GOVERNMENTAL
FACTORS
IN
CONTRACTS
OF
PUBLIC
AUTHORITIES
THE
facts of
Dowty
Boulton Paul Ltd.
v.
Wolverhampton
Corpora-
tion
l
raise the question of the extent to which
a
local authority may
be prevented by contract from exercising its statutory powers.
This
is,
of course, one aspect of the wider problem of the scope of
the doctrine of executive necessity as a defence to an action on
a
contract to which a public authority is a party. And this, in its
turn,
is
a
facet of the fundamental constitutional question of the
extent
to
which a public body may, in the discharge of its govern-
mental functions override a legal right that an individual could
have asserted against a private person. Unfortunately, the inter-
locutory nature of the proceedings in the instant case and the
manner in which counsel for the corporation framed his argument,
drcumscribed the court’s analysis of the relevant problems.
In
193G
the corporation had leased a plot of land to the com-
pany: the conveyance also provided that the company should have
access, for the purposes
of
flying and testing equipment incidental to
their business conducted on tihe demised land,
to
adjoining land
that was vested in the corporation and used as an aerodrome. The
right of access was to last for ninety-nine years
or
for
as long as
the airfield was maintained as a municipal aerodrome, whichever
should be the longer. The corporation now intended to use the
land for the development of a housing estate and the company
sought an interlocutory injunction to restrain the defendant cor-
poration from doing anything to cause the Board of Trade to deter-
mine the existing licence for the aerodrome and from preventing
the company from using the airfield for their lawful purposes. T.he
plaintiffs were not granted the remedy sought on the ground that
it
would have been in essence mandatory, and have involved the
supervision by the court of a continuing service contract of manag-
ing
the aerodrome.2 But, and this is the point with w,hich this note
deals, Pennycuick V.-C. thought that the plaintiffs had made out
a
prima facie case that they would be entitled to damages for breach
of contract
if
the defendants prevented the plaintiffs from exercising
the right of access granted to them in the conveyance.
Counsel for the corporation conceded the validity of the licence
granted
to
the company but argued that
it
should not be con-
strued
so
as to render the corporation liable for a later exercise of
their powers, as a housing authority,
to
build on their own land.3
[1971]
2
All
E.R.
277.
Any land belonging to
a
local authority and
not
required for the purposes for which
it
was acquired or
has since been appropriated ma be appropriated for
any
other purpose
approved by the Minister
for
w&ch the
IomB
authority are authorised
.to
acquire land.” The Housing Act 1957,
as.
96 and 97 empower
local
alfthorltlas
to acquire land for the erection
of
houses and
8.
99 provides that A
local
authority,may appropriate
.
.
.
land which may be for the time being vested
in them See
also
the
Local
Authorities
(Lana) Act 1963,
S.
2
(1)
(2).
2
Redland
Bricks
Ltd.
v.
Morris
[1969]
2
All
E.R.
5!6.
3
See the Local Government Act 1933,
8.
163
(1):
for the purpose
of
erecting houses.
JAN.
1972
NOTES
OF
CASES
89
In support of this contention,
it
was argued that the corporation’s
freedom of action was preserved by clause
5
of the conveyance which
provided
:
‘‘
Without prejudice to the corporation’s right
to
use dispose
of
or
deal with their lands
.
.
.
as and for such purposes as
they shall from time to time think
fit
the corporation shall not
in the exercise thereof unreasonably affect the rights of the use
of the airport hereby granted to the company.”
Pennycuick V.-C. held that this
“
very oddly-worded provision
”
gave no help to the corporation’s argument, but
a
possible use that
might be made of this resitriction on
‘‘
unreasonably affecting
”
the
company’s rights is considered later. The cases cited by counsel
to support his construction of the licence were distinguished by
Pennycuick V.-C. on the ground that they were
“.
.
.
concerned with
attempts to fetter in ‘advance the future exercise
of
statutory
powers otherwise than by the valid exercise of
a
statutory
power. The cases are not concerned with the position which arises
after a statutory power has been validly exercised.”
It
is, how-
ever, also fairly clear that his Lordship would have been unsyrn-
pathetic to an argument thalt the licence was granted
ultra
vires
the corporation.6
Accepting for the moment that these cases can
be
successfully
distinguished on this basis, reference might have been made to
the decision of the Court of Appeal in
Commissioners
of
Crown
Lands
v.
Page
where the issue was w,hether a lessee from the Crown
was justified in the non-payment of rent on the ground that the
Crown, requisitioning the premises through the Minister of Works
under the Defence Regulations
1939,
had evicted him. The deter-
mination of this question depended on whether the Crown had
entered the premises wrongfully in contravention of an implied
covenant in the lease granting the lessee quiet enjoyment. The
court unanimously held that no such covenant should be implied
which prevented the Crown from exercising its statutory powers.
Devlin
L.J.,
adopting the reasoning of Roche
J.
in
Board
of
Trade
v.
Temperley Steam Shipping
Co.
Ltd.s
distinguished between an
act done by the Crown that was directed towards non-performance
of
the contract, even
if
done
for
the public good, and
‘‘
an act done
Principally,
Ayr Harbour Trustees
v.
Oswald
(1883)
8
App.Cas. 623,
York
Corporation
v.
Henry Leetham
&.
Sons
Ltd.
[1924]
1
Ch.
557,
Southend-on-
Sea Corporation
v.
Hodwon
(Wickford)
Ltd.
r19621
1
O.B.
416.
..
---
5
Supra
at
p. 282.
6
See. in uarticular. his auproval of
Stourcliffe Estates
Co.
Ltd.
V.
Bourne-
mouth C&yoration’
[191Oj
>
Ch. 12, and Pinnycuick
V.-C.’s
statement at
p.
282 that, where
a
power is exercised in such
a
manner
as
to create
a,
ri ht
extending over
a
term
of
years, the existence of that right
pro tanto
excluges
the exercise of other statutory powers in respect of the same subject-matter,
but there
is
no authority and
I
can
see
no
principle on which that sort
of
exercise,,could be held to be invalid
as
a
fetter
on
the future exercise
of
powers.
[1960]
3
W.L.R.
446.
*
(1926)
26
L1.L.R.
76.
90
THE
MODERN
LAW REVIEW
VOL.
36
for a general executive purpose
”
which incidentally affected the
contract but which was not done
“
for the purpose of achieving a
particular result under the contract in question.” Moreover,
it
is clear from the judgment of Devlin
L.J.
that the principle applied
in
Page
was not conhed to transactions entered into by the Crown
that fettered the exercise of prerogative powers,1o for he stated that,
“
where the Crown, or
any other person,
is entrusted, whether by
virtue of the prerogative, or
by statute,
with discretionary powers
to
be exercised for the public good,
it
does not, when making a
private contract in general terms, undertake
.
.
.
to fetter itself in
the use of those powers, and in the exercise of its discretion.”
l1
Thus
it
might have been argued that the licence granted by the
defendants in the
Wolverhanzpton
case should have been construed
as subject to the exercise of the statutory powers vested in the
corporation
as
housing authority to appropriate and develop their
own
lands, with the Minister’s consent, for building purposes. The
difficulty with this argument, however, may be that there is
a
proviso to the Local Government Act
1933,
s.
163
(1)
l2
to the
effect that,
“
the appropriation of land by a local authority shall
be subject to any covenant or restriction affecting the use of the
land in their hands.”
It
has
so
far been assumed that Pennycuick
V.-C.
was correct in
drawing a clear distinction between the cases which assert that
a
public authority may nolt
invalidly
fetter the future exercise of its
statutory powers and the argument advanced by counsel that the
terms of the conveyance, which were conceded to be valid, should
not be construed as imposing fetters upon such a future exercise.
But, with respect, the distinction is not
so
clear. First, in
Page,
decided
on
the construction point, the count relied on cases that
were decided on,
inter alia,
the invalidity of the contractual terms,
e.g.,
Ayr Harbour Trustees
v.
Oswald,13
William Cory
4
Sons Ltd.
v.
City
of
London Corporation
l4
and the
Amphitrite
case.’j
Secondly, the formulations adopted for determining the invalidity
of a contract made by a public authority bear a close resemblance
to that adopted in
Page
in order
to
put
a
narrow construction upon
the implied covenant. Thus in
Coy,
Lord Asquith refused
to
imply
a term in
a
contract for the removal
of
refuse that the defendant
corporation would not exercise its statutory powers, as health
authority for the
Port
of London, in such a way as
to
make the
contract commercially impossible to perform, on the ground that
such a term would be an
ultra vires
fetter on the exercise and dis-
10
Lord Evershed
M.R.
and Ormerod
L.J.
do not expressly state the principle
so
generally, although Lord Evershed does treat
as
relevant the decision
in
Willinm
Cory
d
Sons Ltd.
v.
City
of
London Corporation
[1951]
2
K.B. 476.
11
Supra
at p. 458. Italics added.
12
See note 3,
supra.
The proviso was not discussed
in
the judgment.
13
(1883) 8 App.Cas. 623.
14
[1951]
2
K.B. 476.
15
[1921]
3 K.B.
500.
9
[1960]
3
W.L.R.
446, 460.
JAN.
1972
NOTES
OF
CASES
91
charge of the defendant's powers and duties. Similarly, the House
of Lords, whilst admitting the difficulty involved
in
reconciling all
the earlier authorities,16 held in
British Transport Commission
v.
Westmorland County Council
l7
that a conveyance by a railway
company
of
a right
of
way over land acquired under statutory
powers was
ultra vires
and invalid
it
would probably be incom-
patible with the primary purpose of the undertaking,
viz.
the running
of an effective railway system. Fourthly, the rationale underlying
all the cases is the same,
i.e.
a recognition that because the
legislature has conferred powers upon bodies as organs of govern-
ment
to
be exercised as they deem most likely to further the
public interest,
it
is inappropriate
to
apply,
simpliciter,
rules
regulating the liability of private individuals in transactions entered
into to advance their own private interests.
Although not cited by counsel, Pennycuick
V.-C.
relied on
Stour-
clioe Estates
Co.
Ltd.
v.
Bournemouth Corporation
l8
as
authority
for the proposition that the transaction was not
ultra vires
the cor-
poration.
.
. .
In that case the defendant corporation had purchased
from the plaintiffs land 'to be used as
a
pleasure ground, sub-
ject to a covenant restricting the type
of
buildings to be erected
on it. The statutory power
Is
under which the corporation
had acquired the land authorised them to build lavatories, which
they intended to
do,
but which fell within the ambit
of
the covenant.
The corporation's defence to an action for an injunction, that the
covenant was an
ultra vires
fetter on their statutory powers, was
rejected. At first instance Parker
J.
said,
'$.
. .
the covenant did not in any way preclude the corporation
from using the land for Ithe purposes
or
any of the purposes
for which it was in fact acquired, but merely precluded them
from exercising with regard
to
such land certain
ancillary and
subsidiary
powers with which they had been entrusted by the
The case
is
thus distinguishable from the
Wolverhampton
case in
that there the existence of the licence would prevent the cor-
poration from developing the land at all in the exercise of their
powers as
a
housing authoriity.
It
is also, perhaps, odd that
legislature.
.
. .
'Y
20
16
Thus the wide dicta of Jesse1
M.R.
in
Mulliner
v.
Midland Railway
Co.
(1879)
11
Ch.D.
611
that
a
railway company had capacity only
to
grant easements
over their land with a view to the traffic
of
their railway were rejected in
favour
of the test of whether such a grant was incompatible with the primary
purpose
of
the company. The
Ayr Harbour
case and
Paterson
v.
Provost
of
St.
Andrews
have proved difficult cases to fit into the incompatibility doctrine.
17
rim1
A.C.
12fi
~~...~
._._
18
[1910]
2
Ch.
12.
19
Public Health Act
1875,
s.
164
as
interpreted in
Att.-Gen.
v.
Sunderland
Corporation
(1876)
2
Ch.D.
634.
20
Supra
at
p.
15.
Italics supplied.
In
affirming the decision the Court
of
Appeal
distinguished
Avr Harbour Trustees
on
the ground that
in
that case the
coven&t restricted an essential
part
of the undg~aking for which the statutory
powers
had
been conferred,
viz.
to use any part
of
the land
for
the building of
warehouses
and
a
road.
92
THE
MODERN LAW REVIEW
VOL.
36
Pennycuick V.-C. regarded the
Bournemouth
case as relevant,
although like the others relied on by counsel for the corporation and
disltinguished in the judgment,
it
was argued on the basis
of
whether
the covenant was
ultra
vires.
If,
however, the doctrine of executive necessity is relevant on
the facts of
Wolverhampton,
either
to
invalidate the terms
of
the
conveyance
or,
as a principle of construction,
to
restrict their ambit,
should it have freed the corporation from liability
?
One difficulty
is
that statements can be found in the cases to support propositions
that the courts will allow no fettering at all
of
governmental
powers,21 whilst in others, the courts stress the importance to the
body
of
the power the exercise
of
which is affected by the con-
tract
22;
in addition, ‘the degree of the fetter, rather than the
importance of the power, may be relevant.23 Pennycuick V.-C.
pointed out that the widest statement of ithe principle would mean
that public authorities were never bound by their contracts
or
dis-
positions
of
land,“ except, presumably, where they stepped out-
side their governmental capacity by acting maliciously
or
in pursuit
of
some aspect of the public good
for
which they were not respon-
sible. The difficulty with the second View, as Lord Radcliffe
pointed out in
B.T.C.
v.
Westmorland
C.C.,25
is that there are
problems in selecting the more important
of
the statutory powers
and the point at which
a
fetter becomes unlawful. Pennycuick V.-C.
.did not define the precise scope
of
the corporation’s obligations
under the conveyance but they appeared
to
require not only that
the company should have access to the land but that the Corpora-
tion should ensure that the land was maintained as a licensed
airport.26 Had the Corporation merely been required to do nothing
that would have interfered with a simple right of access, then
it
21
e.g.
in
Ayr Harbour &?tees
v.
Oswald
(1883)
8
App.Cas.
623,
631, Lord
Blackburn said that,
.
. .
powers conferred
. . .
are intrusted to them
.
.
.
to be used for the furtherance of the object which the legislature
has
thought
sufficiently for the public good
to
justify
it
in intrusting them with such powers;
and, consequently, that
a
contract purporting to bind them and their successors
not to use those powers is void.” See also
York Corporation
v.
Henry Leetham
&
Sons Ltd.
[1924]
1
Ch.
557,
Commissioners
of
Crown Lands
v.
Page (supra).
22
See,
e.g.
Birkdale District Electric Supply
Co.
Ltd.
v.
Southport Corporation
[1926]
A.C. 355, especially the judgment of Lord Sumner.
In
the
Amphitrite
[1921] 3 K.B.
500
Rowlatt
J.
was clmrly influenced by the consideration that
the alleged contract purported to fetter the Crown’s discharge of its function of
national defence.
23
In
Cory,
the Court appears to emphasise the width of the scope
of
the fetter
in the corporation’s legislative function
as
port health authority. Conversely,
in
R.
v.
The
Inhabitants
of
Lealce
(1833)
5
B.
&
Ad.
467
it was held that the
remoteness of the possibility that the grant of
a
right of way would fetter
the actual exercise of the power rendered it valid.
24
The existence of
a
statutory power to dispose
of
property by lease may be
nonetheless construed
as
subject
to
the doctrine of executive necessity.
In
Cory,
the City of London Corporation made the contract under a statutory
power authorising them to enter into contracts that were necessary for the
discharge of their functions.
25
[l958] A.C.
126,
153.
26
For the relevant powers of regulation see Civil Aviation Act 1949,
SS.
8
(2).
19 (l), and Air Navigation Order
1966
(S.I.
1966 No. 1184), art.
64
(1)
(5).
JAN.
1972
NOTES
OF
CASES
93
might be argued that whilst the Corporation was entirely prevented
from exercising its powers as
a
housing authority with respect to
this piece
of
land,
it
could discharge its functions by acquiring
extra land
or
building
on
other land already vested in them.27 But
in
so
far as they were obliged
to
maintain the land as an airport,
that appears a complete fetter
on
a statutory power, and invalid.
It
might also be argued that the problem in
Wolverhampton
could be approached by using the principle that was considered in
Westminster Bank Ltd.
v.
Beverley B.C.28
where, at first instance,
Donaldson
J.
stated that an exercise of discretion was subject to
judicial review by the courts on the ground of unreasonableness:
“. . .
a
reasonable man faced with the need
to
restrict the freedom
of the individual for khe benefit
of
the community and faced with
two possible courses
of
action only one of which involves compen-
sating the individual, must surely adopt that course.”
29
Although
this principle,
as
stated, was subject to criticism on appeal and was
not applied
in
the statutory context
of
the case,
it
could, perhaps,
be applied here.
For
the Housing Act
1957
sets up machinery for
the compulsory acquisition of land and the payment
of
compen-
sation by local authorities for the purpose
of
providing housing
30
;
land, for the purpose
of
this Act
is
defined as including
cc
any right
over land,”
a
phrase arguably wide enough to cover a contractual
licence.31 Moreover, the fact that the general power contained in
the Local Government Act
1933
to
appropriate land for other statu-
tory purposes was passed before the more specific provisions of the
Housing Act
1957
affords a ground for distinguishing
Westminster
Bank.32
It
could also be maintained that this was the parties’
intention when they provided in clause
5
of the conveyance that
the corporation’s freedom of action should be preserved except in
so far as measures that unreasonably affected the company’s right
of
access.
It
is submitted, therefore, that the correct solution of
the problem is that the terms in the conveyance were ineffective to
prevent the corporation from exercising its powers
of
compulsory
acquisition and that the compensation payable should be assessed
on the statutory basis. And that the Housing Act
pro
tanto
27
In
Re
Staines
U.D.C.
Agreement
[l969]
1
Ch.
10
an agreement whereby
a
planning authority purported to fetter its exercise
of
statutory powers in
respect
of
one piece
of
land was held to be
ultra cires.
But
in
Rhyl
U.D.C.
v.
Rhyl
Amusements Ltd.
[1959]
1
All
E.R.
257 Harman
J.
might have been
willing to hold that the local authority had been in breach
of
contractual
duty to apply to the Minister for the consent necessary
for
a valid lease.
28
[1968]
2
All
E.R.
104.
29
Supra
at
.
114.
30
6s.
96 anf97.
31
8.
189
(1).
Quaere,
whether the company’s right
of
access
was
capable
of
existing as an easement. Compare the more comprehensive definition
in
the
Local Government Act 1933,
s.
305,
‘I
‘Land
’
includes any interest in land
and any easement and right in,
to
and over land.” See also
Bond
v.
Notting-
ham Corporation
[1940]
1
Ch. 429
and
Grimley
v.
Minister
of
Housing and
Local Government
[1971] 2 All
E.R.
431.
32
Note also the proviso to
L.G.A.
1933,
s.
163
(l),
supra
at
p.
90.
96
THE
MODERN
LAW
REVIEW
VOL.
35
restricted the corporation’s freedom to appropriate and develop
their own land for housing purposes without paying compensation
for the infringement of the company’s right.R3
J.
M.
EVANS.
ADMINISTRATIVE
LAW
AND
NATURAL
JUSTICE
JTJDICIAL
dicta denying the existence of administrative law are well
kn0wn.l
iilalloch
v.
Aberdeen Corporation
is therefore of interest
as providing judicial support for the view that administrative law
does exist. Three members of the House of Lords held on an
a.ppeal from Scotland that a teacher dismissed by a local authority
had the right to a hearing before dismissal. Of the three majority
speeches Lord Wilberforce’s is the most interesting. The appel-
lant’s challenge to the respondents’ action, he said,
“
raises a
question, in my opinion,
of
administrative law.” The considerations
in the case of an employee which determine whether he has been
validly dismissed are
“
to be tested broadly on arguments of public
policy and not to be resolved on narrow verbal distinctions
”
(p.
1293).
Twice again in his speech Lord Wilberforce referred to
“
principles of administrative law.” Judicial support for the exis-
tence of separate rules of administrative law had been demonstrated
before
Malloch.
Thus in
Breen
v.
A.E.U.3
Lord Denning had said,
perhaps a little over optimistically,
“
It
may truly now be said that
we have a developed system of administrative law.” Lord Diplock
has in even more general terms and at greater length asserted the
existence of a body of rules which he calls
“
public law.” In
Ranazveera
v.
Ramachandran
he dissented from the majority
view of the Privy Council, on an appeal from Ceylon, on the ground
that the question whether a body established by statute was a
servant of the Crown could not be settled by applying the tests
appropriate to the private law relationship of master and servant.
Referring to English law he said
‘‘
No one would suggest that except as respects her personal
staff there exists between Her Majesty as a natural person and
a
‘
servant of the Crown
’
a legal relationship which possesses
the characteristics of the relationship of master and servant at
common law, namely, that Her Majesty can give instructions
as to the manner
in
which the servant of the Crown performs
33
See
also
Att.-Gen.
v.
Homer
(1884) 14
Q.B.D.
245,
256
where Lord Esher
stated that, “It
is
a
proper rule of construction not to construe an
Act
of
Parliament as interfering with and injuring persons’ rights without
compensation,
unless
one
is obliged
so
to construe it.”
1
Ridge
v.
Baldwin
[1962]
A.C.
40
per
Lord Reid at
p.
72;
Re
Grosvenor
Hotel
(No.
2) [1965]
Ch.
1210,
per
Salmon
L.J.
at p.
1261
where, however,
the Lord Justice was concerned by refuting the existence of
droit
adminis-
tratif
to assert, not deny, the control
of
the courts over the executive.
See
further, de Smith,
Constitutional and Administrative Law,
at
p.
509.
2
[1971]
2
All E.R.
1278.
3
[1971]
2
W.L.R.
742, 749.
4
[1970]
54
W.L.R.
500.
JAN.
19’72
NOTES
OF
CASES
95
his work. On the contrary, Her Ministers, by their advice,
control the manner in which Her Majesty herself performs her
duties under public law. Yet
so
far as
I
am aware
it
has never
been suggested that Ministers of the Crown are not included in
the expression
‘
servants
of
the Crown
’
”
(p.
508).
Still more striking is the same judge’s lengthy analysis in
Dorset
Yacht
Co.
v.
Home Ofice
5
of
the basis of public authorities’
tortious liability. Lord Denning had in the Court of Appeal made
explicit the fact that talk
of
“
duty
”
or
“
no duty
”
is simply
a
way
of
limiting the Tange
of
liability for negligence which, at bottom
is a question
of
public policy. Lord Diplock in the House of Lords,
went further and emphasised a distinction between
“
the public
law concept of
ultra vires
”
and the
“
civil law concept of neg-
ligence
”
(p.
1067).6
To
the objection that resort to Lord Wilberforce’s broad public
policy approach will lead to uncertainty
it
can be replied that the
law relating to natural justice has already been described as being
endowed
‘‘
with a kaleidoscopic unpredictability.” In Lord
Wilberforce’s own words the existing case law appears,
“
illogical
and even bizarre,’’ a consultant for example being denied a right
to a hearing while a houseman is given such a right
8;
a professor
being denied the protection given to a student.O In
Malloch’s
case itself the narrow verbal approach produced an equal division
of opinion among the other four law lords. Lord Morris even
managed
to
quote, in support of his view that Malloch had no right
to
a
hearing, words of Lord Reid in
Ridge
v.
Baldwin
although
in the instant case Lord Reid held that there was a right to a
hearing.
In view
of
the public law element and the presence of statutory
provisions it may be dangerous to argue from Malloch to other
fact situations but the speeches raise two other matters of interest.
First, does the power
of
a master to dismiss at pleasure inevitably
entail the denial
of
a right to a hearing? Despite dicta to that
effect in
Ridge
v.
Baldwin
there is something to be said on the
grounds
of
reason and authority to the contrary.1° Lord Reid in
5
[1970]
A.C.
1004.
8
The
‘‘
remarkable case
”
(Zamir,
The Declaratory Judgment,
p.
146)
of
McCleZZand
v.
N.I.
General Health Service Board
[1957]
1
W.L.R.
594
might even be adduced as a decision
of
the House
of
Lords recognising
a
principle of public law-that a dismissal
of
a servant in breach
of
contract
may be not merely wrong but ineffective. Lord Guest in
MaZZoch
dissented
not
only
on
the question
of
a
right to a hearing but also
on
this very point
:
“If
reduction
is
competent
in
such
a
case [where the relationship
is
one
of
master a,yd servant]
it
would compel specific performance by the master
of
a
contract (p.
1293).
7
de Smith,
op.
cit.,
p.
557.
8
Barber
v.
Manchester Regional Hospital Board
[1958] 1
W.L.R.
181;
Paher
V.
Incerness Hospitals Board,
1963
S.C.
311.
9
Vidyodaya University
of
Ceylon
V.
Silva
[1965] 1
W.L.R.
77;
R.
v.
Aston
University Senate, ez
p.
Roffey
[1969] 2
Q.B.
538;
Glynn
v.
Kecle University
[1971]
1
W.L.R.
487.
10
Ganz
(1967) 30
M.L.R.
288, 292.
96
THE
MODERN
LAW
REVIEW
VOL.
36
Malloch
at least accepted that it was
“
perfectly sensible for
Parliament to say to a public body,
‘
you need not give formal
reasons but you must hear the man before you dismiss him
’
”
(p. 1282). Lord Wilberforce emphasised that
it
is the very possi-
bility
of
dismissal without reasons being given that may make
it all the more important for a person to be able to state his case
and if denied the right to do
so,
to be able to have his dismissal
declared void (at p. 1296). Secondly is
it
a good reason for
denying a hearing that the employer is bound to dismiss the
employee, for example as here because of the terms of a statutory
instrument? Again the majority thought not, on the ground that
the employee might convince the employer that the law was not
as the employer thought it to
be.11
Lord Simon reserved his
opinion on the position where a hearing could only be a useless
formality-but will the courts in the present climate of opinion
hold in any circumstances that the formality of
a
hearing would
be useless
?
TAUL
JACKSON.
THE
DUTY
TO
INQUIRE
AND
ESTOPPEL
Porter
v.
Porter
is
“
another case on the much argued problem of
estoppel in matrimonial causes
”
but
it
is of particular importance
since the wife’s application for maintenance fell
to
be dealt
with
under section
5
of the Matrimonial Proceedings and Property Act
1970.
The husband had been granted
a
decree nisi on the ground of
his wife’s desertion. At the hearing of her subsequent application
for maintenance, the wife wished
to
raise the allegations of cruelty
pleaded in her answer, as evidence of the conduct of the parties.
The husband’s solicitor maintained that the issue of cruelty was
res
judicata,
the registrar
so
held and the wife appealed from his
decision. and
Tumath
v.
Tumath.‘
It
was now settled that there was no rule of public policy which
inhibited parties from raising in maintenance proceedings allega-
tions relating
to
their conduct, even when those could have been,
11
A
view supported to some extent by cases such as
The
Queen
v.
Smith,
ex
p.
Harris
(1844)
5
Q.B.
614:
natural justice required
a
hearing even where
misconduct by parish clerk was committed in Vicar’s presence because of the
possibility of proving lack
of
mens
reu
or
pleading mitigating factors;
Ridge
v.
Baldwin
[1964]
A.C.
40;
chief constable entitled to be heard before
dismissal although he had by his evidence at earlier criminal proceedings
convicted himself out of
his
own mouth. But
Glynn
V.
Keele University
[1971
1
W.L.R.
487
shows that the
courts
may
not be prepared
to
award
a
reme
a
y for
a
breach
of
natural justice
in
such circumstances.
Ormrod
J.
followed
Porter
v.
Porter
1
[1971]
2
All
E.R. 1037.
2
Per
Ormrod
J.
at
p.
1039.
3
[1969] 3
All
E.R. 640.
4
[1970]
P.
78.
JAN.
1972
NOTES
OF
CASES
97
but were not, raised on the trial of the suit. But 'this was subject to
the general rules
of
res
judicata.
In
ancillary proceedings, estoppel
per
rem
judicatam
operated to prevent a party from challenging the
ground
on
which the decree was pronounced in the suit and from
attacking the express findings of fact of the trial judge. Conse-
quently, the wife could not be heard to deny that she had deserted
the husband as that was the basis of the decree: but, while she
could not attempt to set up just cause, there was
no
reason why,
in the circumstances, she could not raise any matters of complaint
against the husband by way of mitigation of her desertion.
It
is, however, a nice point whether this approach is still sound
now that the
1970
Act has come into operation. The wording of
section
5
(1)
is in marhd contrast to that of parallel provisions in
earlier legislation,5 and appears
to
invest the court in maintenance
proceedings with an inquisitorial function. of the court in
deciding whether to exercise its powers under section
2
or
4
of this
Act in relation to a party
to
the marriage and,
if
so,
in what manner,
to have regard to all the circumstances of the case
.
.
."
Contrast
for example,4 the Matrimonial Causes
Act
1965,
s.
16
(1)
(a)
7:
"
On
granting a decree of divorce
or
at
any time thereafter
. . .
the court
may,*
if
it
thinks fit
.
. .
make one
or
more of the following
orders-
(a)
an order requiring the husband to secure to the wife,
to
the
satisfaction of the court, such lump
or
annual sum for any
term not exceeding her life as the court thinks reasonable
having regard to her fortune (if any), his ability and the
conduct of the parties;
.
. ."
Both Sachs
J.9
and Wrangham
J.l0
have emphasised &hat one
must look
to
the phraseology of a statutory provision to see whether
the court
is
enjoined to inquire into all the circumstances of a case.
If
it
is correct that section
5
creates an inquisitorial function-and
the word
''
duty
"
in
particular suggests that this is so-the
court would then have a discretion to enforce the estoppel
or
allow
the parties a relitigation
of
the relevant facts." Denning
L.J.
put
it
thus in
Thompson
v.
Thompson
12:
''
If
the count is satisfied that there has already
been
a full
and proper inquiry in the previous litigation,
it
will often hold
that
it
is not necessary to hold another inquiry all over again:
but
if
the court is not
so
satisfied,
it
has
a
right and
a
duty
The section commences:
"
It
shall be the
duty
5
In
particular
8s.
15-24
of
the Matrimonial Causes
Act
1965.
6
My
italics.
7
The
section
is
now
repealed.
8
My
italics.
S
Hull
v.
Hull
[1960]
P.
118,
especially at pp. 124
et
seq.
10
Field
v.
Field
[1964]
P.
336,
especially
at
p.
350.
11
See,
generally, Spencer-Bower
and
Turner,
Res
Judkata
(2nd
d.),
pp.
303
12
[1957]
P.
19.
29.
et
seq.
VOL.
35
4
98
THE
MODERN
LAW
REVIEW
VOL.
36
to inquire into it afresh.
If
the court does decide to reopen
the matter, then there
is
no longer any estoppel
on
either party.
Each can go into the matter afresh.”
While frequent recourse to this power should be unlikely,13
nevertheless, exceptional cases can arise. An example of such was
discussed by Wrangham
J.
in
Warren
v.
Warren and
Rus~ell.’~
His
Lordship surmised
:
‘‘
It
is clear that the withdrawal of a triable case might well
result
in
injustice
if
the party withdrawing
it
were in any way
prevented from raising the same points
in
any later maintenance
proceedings. In
Field
v.
Field,lG
it
was held that the husband
whose prayer for dissolution on the ground of adultery had
been rejected after his wife had denied adultery on oath at the
trial of the suit, was estopped from alleging adultery in later
maintenance proceedings, This result might always occur
if
at
the trial of the suit in which one charge had been withdrawn,
the other party gave evidence in disproof of the withdrawn
charge.”
In such circumstances,
it
is
submitted, the power
to
waive
estoppel
per Tern judicatam
could be most useful.
JOSEPH
M.
THOMSON.
ADULTERY
AND
INTOLERABILITY
Goodrich
v.
Goodrich,l
the fist reported case on the Divorce
Reform Act
1969,
concerns the interpretation of section
2
(1)
(a)
of that Act. This reads:
“
The court
.
.
.
shall not hold the
marriage to have broken down irretrievably unless the petitioner
satisfies the court
. .
.m
that the respondent has committed
adultery and the petitioner hds
it
intolerable to live with the
respondent.
”
The facts of
Goodrich,
so
far as they may be elicited from a
rather sparse judgment
of
Lloyd-Jones
J.,
were that
‘LL
husband was
cross-petitioning for divorce under the
1969
Act in answer to the
wife’s petition for divorce, filed in
1970
and accordingly governed
by the old legislation. She alleged that the husband had treated
her with cruelty, allegations which were subsequently negated to
the court’s satisfaction, and which are
only
material in
so
far as
unfounded allegations of cruelty may constitute intolerable conduct
for the purposes of the husband’s petition. She had, furthermore,
committed adultery with, it seems, her nephew. The husband, who
13
For
example,
it
matters little to Mrs. Porter that she oannot plead just cause,
because evidence
of
her husband’s conduct can be led
to
mitigate her desertion.
But it might be important
if
her complaint
was
his adultery.
14
[1970]
2
All
E.R.
189.
l5
At p.
192.
16
Supra,
note
10.
1
[1971]
2
All
E.R.
1340.
JAN.
1972
NOTES
OF
CASES
99
wanted to keep the family (there were two children of school age)
together, had
‘‘
overlooked
’’
her misconduct and
“
when the case
was first called on
.
.
.
was still anxious to be reconciled
if
possible
to his wife.”
*
It
was when reconciliation attempts were
“
spurned
”
by the wife that the husband cross-petitioned. By
an accident of litigation the wife’s petition came up for hearing
at
a time when any cross-petition would be governed by the new
law. The case is thus complicated by the time factor. Any other
solution was rejected in
Willson
v.
Willson,2a
upon the basis that
a cross-petitioner should not have a choice of
“
laws.”
The sole ground of divorce upon which the husband could base
his petition was that the marriage had irretrievably broken down
(s.
1).
There was little doubt of this: both parties wanted a
divorce, the wife had refused reconciliation and she persisted in
making unfounded allegations about her husband. But this is
insufficient proof for the purposes of the Divorce Reform Act.
had argued that irretrievable breakdown was
to be pleaded generally and proved by inq~isition.~ But the Law
Commission eschewed inquisition as
“
not easily triable,” unpre-
dictable, vague, lengthy and expensi~e.~ The fallacy underlying
their fear is laid bare in
Goodrich,
a case which,
it
is thought, is
not untypical.
It
is difficult to see how breakdown would not have
been proved here without more ado. However, the Law Commis-
sion’s advice was heeded by those private members who piloted
the Act. And
so
the divorce legislation sweeps an unhappy course
between the Scylla of
Putting Asunder
and the Charybdis of
Field
of
Choice:
section
1,
making irretrievable breakdown the sole
ground of divorce, is faithful to
Putting Asunder’s
philosophy;
section
2,
which lays down sets of facts upon which breakdown is
presumed,
heeds the Law Commission’s pragmatism.
In retrospect the husband’s best course might have been to
allege that breakdown was due to the wife’s intolerable conduct
which was such that he could not
“
reasonably be expected to live
with her
”
(s.
2
(1)
(b)).
Clearly his counsel anticipated difficul-
ties in proving this and, rightly
so,
for reasons which will become
apparent in this note; and it was only during the course of the
proceedings that he sought leave
to
amend
so
as to allege further
the wife’s intolerable conduct. He relied, principally, therefore,
upon section
2
(1)
(a).
The wife had admitted her adultery, but
(1)
was the husband
required to find this intolerable
?
And,
if
so,
had he found
it
intoler-
able? Counsel for the wife attacked the husband’s conduct.
He
Putting Asunder
2
Ibid.
at p. 1341C.
22
[1971]
1
All
E.R.
465, 467,
per
Bagnall
J.
3
The
report
of
a group appointed by
the
Archbishop
of
Canterbury
in
1964
4
Cf.
the
new
Californian legislation, West’s
California
Statutes
1969,
pp.
766
5
In
Field
of
Choice,
Cmnd. 3123, para. 58.
which was published
in
1966.
et
seq.
and
see
Freeman
(1971)
C.L.P.
178, 185.
100
THE
MODERN
LAW
REVIEW
VQL.
36
had not found the adultery intolerable. He had in fact condoned
it. He was willing for reconciliation right up to the last moment.
But the judge took the ground from under counsel’s feet by holding
that section
2
(1)
(a)
did not require the petitioner to find the
adultery intolerable. Provided, he held, the wife had committed
adultery, the husband was
“
not debarred from coming
.
.
.
to the
court and alleging
.
.
.
that in fact having regard to the attitude
of
the wife in this court he found the idea of living with her again
intolerable.” The implications
of
this interpretation are strange
and far-reaching.
In
truth
he did not, but comforted himself with the authority of
Rayden,?
which was raised in authority to the status of at least another first
instance judge. And, who said we do not have
la doctrine
in this
country
!
The following passage appears in the latest edition of
Rayden:
. . .
while
it
would seem enough for a petitioner simply to
say.:
I
find
it
intolerable,’ some reason, explanation
or
just%-
cation for the assertion should be given,
so
that the Court
. . .
might see that the petitioner is genuine
in
asserting that he
or
she finds
it
intolerable to live with the respondent.
It
is not
clear whether the two phrases are to be read together
so
that
words such as in consequence
’
should be inferred after the
word and,’
or
whether there are two independent require-
ments; but
it
is submitted that the two phrases are, in the
context, independent of one another.”
This interpretation was supported to some extent by Lord Simon
in his Riddell Lecture,D and is found in Passingham,’O Tolstoy,ll
Bromley
l2
and, to a lesser extent, in
Mrs.
Levin’s arti~1e.l~ On
the other hand, the view that adultery and intolerability must be
causally linked finds the support of Barton
l4
and is pressed in
the author’s
Current
Legal
Pr0b1ern.l~
It
is submitted that the
Iahter view is the correct one and that Lloyd-Jones
J.’s
reliance on
Rayden
is misplaced.
On
Rayden’s
side one may admit that grammatical construction
dictates that “and”
in
section
2
(1)
(a)
performs
a
disjunctive
role. Further, that when amendments were moved to make
it
quite clear that there was a causative link between the two limbs,
How
did Lloyd-Jones
J.
substantiate his reasoning?
6b
6
p.
1343D.
7
On
Divorce
(11th
ed.)
p.
205.
*
Ibid.
9
See Rayden,
op.
cit.,
pp.
3227, 3234.
9i-m
There
is
a
summary
at 120
New
L.J.
10
!?g
Divorce Reform Act
1969
(1970),
para.
17.
[See
now
Law
and
Practice
In
11
Tolstou
on Divorce.
D.
54.
Matrimonial Causes
(1971),
p.
911
12
Fami&
Law
(3rd
A:),
2nd
Supplement, p.
19. [But
cf.
now
14th
ed.,
p.
209.1
13
(1970) 33
M.L.R.
632, 6344345.
14
(1970)
86
L.Q.R.
348, 349-350.
15
(1971)
C.L.P.
178, 187-189.
JAN.
1972
NOTES
OF
CASES
101
they were rejected by the sponsor of the Act.16 And yet the context,
both textual and social, and common sense cry out against this
interpretation.
Rayden
refers to the context but takes
a
narrow construction
of this. His reference to section
8 (8)
(a)
is not understood by
Lloyd-Jones
J.
What section
3
(3)
(a)
lays down is that post-
adultery cohabitation, provided the period does not exceed six
months, is
to
be
“
disregarded in determining
. . .
whether
the
petitioner finds
it
intolerable to live with the respondent.” NOW
it is difficult to see why the legislature would have found
it
neces-
sary to include this provision
if
living together after adultery was
not evidence that the petitioner did not find this intolerable: the
inference must be that
it
is the
adultery
which is int01erable.l~
Ray den’s
mistake, endorsed without argument by Lloyd-Jones
J.,
is impliedly to assume that the
“
reason, explanation
or
justifi-
cation
”
7
for asserting intolerability cannot be the adultery itself.
And even if, as
Rayden
goes on subsequently to suggest, the two
limbs of section 2
(1)
(a)
were
“
independent of one another,”
this would only mean that the petitioner was not obliged to find
the adultery intolerable, not that he was precluded from
so
doing.
But the
‘‘
disjunctive
”
or
“
independence
”
thesis cannot be
right.
For,
if the petitioner were allowed to plead that the respon-
dent had committed adultery and he found
it
intolerable to live
with her
for
some reason quite unconnected with the adultery,
then section
2
(1)
(a)
would become a handy peg upon which to
hang what, in truth, might be little more than incompatibility.
Can
it
be that Parliament intended petitioners to circumvent the
strietuTes of section
2
(1)
(b)
by using section 2
(1)
(a)?
This
would be the result of this thesis. Two illustrations will establish
this point.
(A)
R
has committed adultery.
P
does not find living with
R
as a result of this intolerable, but cannot tolerate life with
R
as
she has dyed her hair pink. explana-
tion for this particular petitioner.
It
is assumed that R’s conduct is
not sufficiently
“
grave and weighty
”
to constitute intolerable
conduct for the purpose of section
2
(1)
(b).
He takes
R2
to a
wife-swapping party. R2 succumbs and commits an adulterous
act. P2 may need to string together a few incidents
of
marital
disharmony but, remembering that connivance and conduct
conducing are no longer bars to divorce, he should secure
his
decree.
But assume that
R2’s
act of conjugal unkindness were not
adultery but some other act, and assume again that it
is
an act
encouraged by P2, can anyone think that a petition relying on
section 2
(1)
(b)
would succeed?
It
would certainly fail because,
16
See
H.C.
Official Report,
Standing
Committee
B,
cols.
20-26.
17
Cf.
Barton
(1970)
86
L.Q.R.
348, 349-350.
This may be a
‘‘
genuine
”
(B)
P2 would like to marry his secretary.
102
TE-IE
MODERN
LAW
REVIEW
VOL.
36
even
if
the act were
“
grave and weighty
”
it is difficult to see how
reasonable spouses in the position of
“
this man and this woman
”
could find R2’s behaviour such that P2 in these circumstances
could not tolerate cohabitation.
In other words,
P
and P2 might both succeed in a petition based
on section
2
(1)
(a),
provided
Rayden’s
independence thesis, con-
firmed in
Goodrich,
were followed.
Proponents of this thesis will doubtless point out that adultery
is a special case, it
is
not just another example of intolerable
conduct. They will maintain that the rationale of the retention
of
adultery as a separate category is that it is the matrimonial
‘‘
offence
”
par ex~ellence,~~
and, therefore, should not have to
satisfy the tests of section 2
(1)
(b);
they might even argue that
these are built into the concept itself. But in (A) should society’s
view of an act prevail over
P’s
view? The law’s concern is with
the breakdown of a particular marriage, not an objective state of
affairs. What Parliament has said is that breakdown may be
presumed from an adulterous act, but, surely, only where
it
has led
to the breakdown. And in
(B),
are we not indulging in a legalism
2o
even to call
R2’s
act adultery
?
To
return to
Goodrich,
Lloyd-Jones
J.
held that the marriage
had irreparably foundered (which was patent), that the wife had
committed adultery (which was admitted) and that the husband
found
it
intolerable to live with the wife
‘(
having regard to the
attitude
of
the wife in this court.” He thus found
it
unnecessary
to comment on the husband’s conduct in relation to the wife’s
adultery. The interesting question, thus rendered otiose, was
whether in relation to a
1971
petition alleging breakdown and
relying on a
1970
adultery, section
9
of the Divorce Reform Act
which abolishes condonation is to be applied retrospectively, and,
if so, whether section
3
(3)
of that Act is also to have retroactive
force. Lloyd-Jones
J.
seems to have assumed that both provisions
were retrospective.22
Is
this the proper solution?
In
so
far as
the Act improves the lot of the petitioner, by, for example, abolish-
ing
Herridge
v.
Herridg~,~~
the respondent is deprived of a defence
to
a
petition in existence at the time of resumption of cohabitation.
Further, in some cases it places the petitioner in a
worse
position
than he was under the old law.
So,
a wife who continues to live
with her husband for
seven
months after his adultery becomes
18
Per Lord Reid in
Gollins
V.
Gollins
[1964] A.C. 644,
660.
S.
2
(1)
(b)
subtly
synthesises
subjective and objective
tests.
[This
interpretation is confirmed in
Ash
v.
Ash, The Times,
November 27,1971.1
19
Cf.
Inglis
v.
Inglis
end Bezter [1967]
2
All E.R. 71. There were attempts
to delete the adultery provision from the Act.
See
H.C.
Official
Report,
Standing Committee
B,
cola.
E-19.
20
For
an
attack
on
our antediluvian and legalistic concept
of
adultery, see
Freeman (1971) C.L.P. 178, 188.
21
p.
1343D.
22
See
his
comments at p.
1343B
and c.
23
“661
1
All
E.R.
93.
JAN.
1972
NOTES
OF
CASES
103
known to her cannot use section
2
(1)
(a).
Yet, under the old law
she could even be sharing his bed and a petition for adultery could
not be ruled out, provided there was no forgiveness and no re-
in~tatement.~~
Thus
it
may be thought to cut both ways. None-
theless, an authoritative pronouncement on the temporal scope of
section
9
and section
3
(3)
(and, of course, section
3
(4)
and
(5))
would be welcome.25
The husband in
Goodrich
thus secured his divorce on the basis
of an adultery which he was prepared to overlook
plus
the rejection
of
an offer of reconciliation. In that the marriage had irretrievably
broken down and that the wife bore at least the majority of the
blame for this, the decision achieves a just result. But hard cases
make bad law. There are few better examples of this
old
adage
than
Goodrich.
It
is thought that, in the majority of cases, both
parties will want a divorce,
so
appeals will be rare. One must,
therefore, hope that first instance judges will
in
the future think
out the implications of their decisions and not merely follow
doctrine,
however eminent
or
authoritative.
M.
D.
A.
FREEMAN.
24
See,
e.g.
Ford
v.
Ford
and
Stanford
[1970]
3
All
E.R.
188.
25
An interesting comparison is
Garsm
v.
Carson
[1964]
1
W.L.R.
511.
The
Matrimonial Causes Act 1963 had provided: “Adultery which has been
condoned shall not be capable
of
being revived.” Scarman
J.
held that thin
effecte? a change
in
the substantive law snd since Parliament had neither
expressly nor by implication made it retrospective, it did not effect the revival
of adultery by desertion which took place before the Act came into
force.
Whilst Lloyd-Jones J.’s approach
is
plainly inconsistent, he may have thought
that there was little difference between condonation and the new bar created
by
8.
3
(3),
(4) and
(5).
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