TRUSTS
Breach of trust - compensation - contribution - indemnities - knowing receipt - loss
City Index & ors v David Gawler & ors: CA (Civ Div) (Lords Justice Mummery, Carnwath, Lady Justice Arden): 21 December 2007
The appellant (C) appealed against a decision ([2006] EWHC 2508 (Ch)) dismissing its part 20 claim against the respondents (G) for contribution or indemnity under the Civil Liability (Contribution) Act 1978.
A company (X) had been defrauded of large sums by one of its employees, who had procured the transfer of the sums to an account of C. C had made a profit of about £3 million. X subsequently claimed against C, alleging that the sums had been received by C with knowledge of breach of trust or fiduciary duty by the employee and that it was unconscionable for C to use the funds. C settled X's claim for £5.5 million. Meanwhile, C had issued a part 20 claim against G, who were X's past and current directors and auditors, claiming a contribution or an indemnity from them under the 1978 Act on the ground that G's breaches of duty had caused the unauthorised transfers.
The judge summarily dismissed the proceedings, holding that, even accepting that C's liability was within the scope of the Act, there was no reasonable prospect of contribution being ordered. The judge held that the overriding cause of X's loss was that C, having received the money, instead of paying it back paid it to someone else, and that there was no reason of justice or equity why, in the general run of cases, negligent directors and auditors should contribute to the liability of the knowing recipient who had either retained the money so received or paid it away. C argued that, for the purposes of sections 1(1) and 6(1) of the Act, its liability to X as constructive trustee was liability to compensate based on breach of trust or otherwise. G argued that liability in knowing receipt was restitutionary, not compensatory, and, accordingly, liability for knowing receipt was not within the scope of the Act. C also argued that, although it was just and equitable for the loss suffered by X to be met out of any retained profits made, the remainder, namely £2.5 million that had been paid away, should be apportioned between those legally responsible.
Held: (1) C's liability to X did not depend solely on receipt of money paid in breach of trust, but on retaining it or paying it away in circumstances where it was unconscionable to do so, Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437 applied. Although G's legal responsibility arose at an earlier stage, it was only when C failed to return the money that X suffered loss. In ordinary language, adopting a wide view of the 1978 Act, C's liability to make good that loss could properly be referred to as liability to compensate, Friends Provident Life Office v Hillier Parker May & Rowden [1997] QB 85 applied, and Royal Brompton Hospital NHS Trust v Hammond (No3) [2002] UKHL 14, [2002] 1 WLR 1397 considered.
(2) A general principle, namely that a defendant who paid money away in bad faith, because he had the relevant knowledge, was to be treated in the same way as one who had received it with that knowledge and retained it, could not be supported, Niru Battery Manufacturing Co v Milestone Trading Ltd (No2) [2004] EWCA Civ 487, [2004] 2 All ER (Comm) 289 doubted, and Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48, [2003] 2 AC 366 and Cressman v Coys of Kensington (Sales) Ltd [2004] EWCA Civ 47, [2004] 1 WLR 2775 considered. Such a principle would impose a restriction on the wide scope of section 2 of the 1978 Act. If the money had been retained by the knowing recipient, he had to return it. That was not because of some wider principle of law, but simply as a matter of obvious equity. If on the other hand he had parted with the money, he would be out of pocket if the liability was enforced against him. Once the court was satisfied that the claim for indemnification or contribution from a third party was within the 1978 Act, it had the discretion conferred by section 2 of that Act to order such compensation as was just and equitable having regard to the responsibility for the damage in question of the person against whom contribution was sought. It was not fanciful to suppose that that discretion could be exercised in some circumstances and to some extent in C's favour. Accordingly, the case could not be struck out summarily: it had to go to trial.
Appeal allowed.
Anthony Boswood QC, Alan Maclean (instructed by Macfarlanes) for the appellants; Michael Brindle QC, Daniel Stilitz (instructed by Ashurst) for the first to twelfth respondents; Simon Salzedo (instructed by Barlow Lyde & Gilbert) for the thirteenth respondent.
FAMILY LAW
Adoption - foster carers - judicial decision-making - permission to issue
Re A sub nom TL (appellant) v (1) Coventry City Council (2) CC (respondents) & A (by her children's guardian) (intervener): CA (Civ Div) (Lords Justice Ward, Moore-Bick, Wilson): 21 December 2007
The appellant foster mother (M) appealed against the refusal of leave to apply for an adoption order in relation to a nine-month-old baby (X), who had been in M's care since she was six days old.
A placement order had been made in the family proceedings court authorising the local authority to place X for adoption. M had made it known before then to the respondent local authority that she wished to adopt X, but the local authority did not believe that M was an optimum long-term placement because she was a single mother, a smoker and because her household (which included four other children besides X) was too 'busy'. They were also concerned that the birth mother knew M and visited her home and they thought that X's origins would be quickly found out if she remained in the area. Both X's guardian and X's birth mother supported adoption by M. The magistrates had declined to order an adjournment for assessment of M as a potential adopter. The local authority approved a match with other proposed adopters.
M made an application for leave to apply for an adoption order pursuant to sections 42(4) and 42(6) of the Adoption and Children Act 2002. The order refusing leave to apply had been made in the county court three days before X was due to go and live with the prospective adopters. The judge, heavily influenced by the outcome in the family proceedings court, had read a note describing the stance of X's guardian, had studied the reasons why the local authority was adverse to M's candidacy and had found that the delay that the grant of leave would cause to the finalisation of X's adoption weighed against M. M submitted that the judge had erred in the exercise of his discretion.
Held: (1) There were no reported decisions referable to the grant of leave to apply for an adoption order under section 42(6) of the Act, but the legal principles relevant to the exercise of the discretion in each of the sub-sections of section 42 were identical, Warwickshire CC v M [2007] EWCA Civ 1084, [2007] 3 FCR 681 applied. Thus, the welfare of the child was a relevant consideration, but not the paramount consideration. Another relevant consideration was whether the proposed application had a real prospect of success.
(2) In exercising his discretion, the judge had paid attention to the guardian's views at a level below the requisite minimum, had failed to ask himself one of the highly relevant questions, namely whether M's proposed application had a real prospect of success before the court, and had given substantial weight to a perceived factor, namely the 'decision' of the magistrates that the optimum adoptive placement was a home other than M's home, which ought not to have carried any weight at all. On the facts, the magistrates had not indicated, let alone made such a finding; in hearing an application for a placement order, they had been required to consider whether, in principle, it was in X's best interests to be adopted, but they had not been required to determine the optimum adoptive home.
(3) The judge's consideration of the guardian's statement could not be satisfactorily undertaken from a study of an attendance note. It should, at the very least, have been collected from a report from the guardian or preferably from a brief attendance of the guardian in the witness box.
(4) The judge had undoubtedly been right to consider that delay caused by granting leave was relevant to the issue of discretion, but it would rarely be a proper exercise of discretion for questions of delay to precipitate a refusal of leave to make an application of the instant type.
(5) While it would be absurd to consider that suitability to foster equated to suitability to adopt, it was equally absurd to conclude that suitability to foster equated to unsuitability to adopt. The judge's approach had been insufficiently independent of the local authority's approach. Although the court had a duty to scrutinise local authority care plans very closely, such scrutiny did not, in principle, extend to an address of any issue as to the identity of the optimum adopter, Re S (Children) [2007] EWCA Civ 232, [2007] 2 FLR 275 considered. The judge's repeated references to the alleged facility for M and the guardian to have appealed against the placement order were misplaced.
(6) The judge's refusal of leave was set aside and M was granted leave to apply for an adoption order. Such leave was not to be misunderstood: the local authority's objections to her candidacy might be upheld and M would be unwise to let herself believe that X was already a permanent member of her family.
Appeal allowed.
Frances Judd QC, Nicholas Goodwin (instructed by Rotherham & Co) for the appellant; Stephen Cobb QC, Louise Potter (instructed by Local authority solicitor) for the first respondent; Sarah Gibbons (instructed by Jackson West) for the second respondent; Mark Wyatt (instructed by Bate Edmunds Snape) for the intervener.
SENTENCING
Cultivation of cannabis - sentence length
R v Xiong Xu & six ors: CA (Crim Div) (Lord Justice Latham, Mr Justice Jack, Mr Justice Cranston): 21 December 2007
The appellants (X, H, N, M and D), in conjoined appeals, appealed against their various sentences imposed following pleas of guilty to the cultivation and production of cannabis.
All the offences had involved cultivation that had taken place hydroponically under artificial light and requiring a high consumption of abstracted electricity. It was the prosecution's case against X, who was an illegal immigrant, that he was involved as a 'gardener' tending the plants. He was sentenced to four years' imprisonment. H had played a part in the setting up and management of two premises. He was sentenced to four years' imprisonment for the first offence and 18 months for the second, ordered to run consecutively. N was involved at one of the premises at a low level and was sentenced to four years' imprisonment. M had pleaded guilty on the basis that he had been involved in the purchase and setting up of cannabis growing systems. M was sentenced on the basis of being a 'worker' to five years and six months' imprisonment. D was sentenced to four years' imprisonment on the basis that he had been involved in putting foil on walls of premises and occasionally checking the plants.
Held: (1) Operations that involved the cultivation of cannabis were extremely profitable and the value of crops harvested was substantial. The costs were minimal because the electricity was usually unlawfully abstracted. The fact that operations involving the cultivation of cannabis were so remunerative meant that the court was bound to consider deterrent sentences. When cannabis was reclassified as a class C drug under the Misuse of Drugs Act 1971 (Modification) (No2) Order 2003, the maximum penalty for production of a class C drug was increased from five to 14 years' imprisonment. That signalled a clear intention on the part of Parliament that while reclassification might result in a review of sentences for personal use, commercial production should remain a serious offence.
(2) Although the instant court was not laying down guidelines, it indicated the bracket within which some consistency of sentencing could be achieved for those involved in the commercial cultivation or production of cannabis. For those involved at the lowest level, the starting point should be three years, before taking into account any plea of guilty and personal mitigation, R v Van Nguyen (Kuang) [2007] EWCA Crim 629 applied. For the organisers, who set up and controlled individual operations, the starting point should be six to seven years depending on the quantity of cannabis involved, and before taking into account guilty pleas and personal mitigation, R v Jubb (Alan James) [2001] EWCA Crim 2567, [2002] 2 Cr App R (S) 8 applied. The starting point for managers would be between three and seven years, depending on the level of their involvement and the value of the cannabis being produced. More severe sentences might be appropriate for those who controlled a larger number or network of such operations.
(3) Applying those principles, X and N's sentences were reduced to two years and four months' imprisonment. In relation to H, consecutive sentences were appropriate but were reduced to three years for the first offence and 12 months for the second offence. Neither M or D's sentences could be said to be manifestly excessive.
Judgment accordingly.
Avik Mukherjee (instructed by Norrie Waite & Slater) for the Crown; Matthew Scott QC (instructed by Knight Poulson) for the appellant Xiong Xu; MR Barradel (instructed by Norrie Waite & Slater) for the appellant Nguyen Van Minh; Mark Williams (instructed by Chartwell & Sadlers) for the applicant Ha Thi Pham; Russell Davies (instructed by Robinson & Fentons Roland) for the applicant Vin Van; Sukhdev Garcha (solicitor-advocate) (instructed by Salhan & Co) for the appellant Dai Van Nguyen: Kate Freemantle (instructed by Peach Grey & Co) for the appellant Hoang Nguyen; Miss Russell (instructed by Gammon Pirecy & Gaiger) for the appellant Hai Hung.
CRIMINAL PROCEDURE
F unding arrangements - restraint orders - right to fair trial - variation to provide legal funding
(1) AP (2) U Ltd v (1) Crown Prosecution Service (2) Revenue & Customs Prosecutions Office: CA (Crim Div) (Lord Justice Latham, Mr Justice Aikens, Mr Justice Grigson): 20 December 2007
The appellants (P and U) appealed against decisions refusing to vary restraint orders to permit the release of funds to meet their legal expenses for criminal proceedings. The Crown appealed against a decision allowing the variation of the restraint order in relation to U to permit the release of money to fund judicial review proceedings.
P had pleaded guilty to offences and a restraint order was made. Confiscation proceedings were initiated and P successfully applied for a representation order. P applied for the restraint order to be varied on the basis that the size and complexity of the confiscation proceedings required experienced senior counsel and, as the representation order restricted payment to counsel, no barrister of appropriate experience and ability was prepared to take on the case.
The judge held that he was unable to vary the restraint order because of section 41 of the Proceeds of Crime Act 2002.
U operated a money transmitting business. It transferred money on behalf of clients to the account of a banking company. The company made a disclosure report to the Serious Organised Crime Agency requesting consent to provide facilities to U. The consent was granted, but a further consent request was refused and the agency refused U's request to reconsider the refusal. U applied for judicial review of those decisions. The Crown applied for, and was granted, a restraint order. U applied to vary the order to allow them to make payments for the purpose of the proceedings in relation to the restraint order and judicial review. The judge held he was precluded by section 41(4) of the 2002 Act in relation to the restraint order proceedings, but that funds could be released for the judicial review proceedings.
The issue that arose was whether section 41(4) was compatible with P's and U's rights under article 1 the European Convention on Human Rights. In seeking a declaration of incompatibility under section 4(4) of the Human Rights Act 1998, P contended that section 41(4) was disproportionate in its effect and thus incompatible with the convention. U contended that if the effect of section 41(4) resulted in a litigant being prevented from having access to the courts, that result could only be justified by express words, and that the decision in Re S (Restraint Order: Release of Assets for Legal Representation) [2004] EWCA Crim 2374, [2005] 1 WLR 1338 was wrongly decided. The Crown contended, in relation to U, that the circumstances surrounding the disclosure reports were all connected with money laundering, which was the offence being investigated and, as a result, the judicial review proceedings 'relate to an offence' for the purpose of section 41(4)(a).
Held: (1) Parliament was entitled to take the view that funds that might have criminal origins should not be used to pay lawyers for the benefit of a defendant who was either suspected of, or had been found to be, a criminal. Parliament had provided other means for defendants to have legal representation by the provision of state aid. The fact that there might be hard cases as a result of a measure did not mean that that measure was incompatible with any convention rights, Poplar Housing & Regeneration Community Association Ltd v Donoghue [2001] EWCA Civ 595, [2002] QB 48 and Wilson v First County Trust Ltd (No2) [2003] UKHL 40, [2004] 1 AC 816 applied. Parliament was entitled to conclude that it would be wrong to permit, until the determination of whether those funds were the result of criminal activity or not, such funds to be used for the purposes of providing legal representation and that a defendant had to rely on the state instead. The mere fact that it was proving difficult for P to attract a barrister of appropriate standing did not mean Parliament was not entitled to make that choice. Accordingly, no declaration of incompatibility was made, Re S applied.
(2) In relation to U, although article 6(1) of the convention was engaged, U had so far been able fully to exercise their rights under article 6(1) in the litigation. The fact that state aid was not available to U because it was a company meant that questions could arise in the future as to whether the proceedings had to be stayed because of potential unfairness.
(3) The fact that the disclosure reports were triggered by transactions which were suspected of being part of a money laundering scheme meant the judicial review proceedings related to offences and the restraint order should not have been varied.
Judgment accordingly.
Anthony Shaw QC, Andrew Bodnar (instructed by Morgan Rose) for the first appellant; Paul Downes, Peter De Verneuil Smith, Helen Wolstenholme for the second appellant; Andrew Bird (instructed by Revenue & Customs) for the Crown; David Farrer QC, Sarah Moore (instructed by Treasury Solicitor) for the intervener; John Lofthouse (instructed by CPS) for the Organised Crime Division.
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