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Volume 124 July 2008

NOTES

Charities and public benefit 347Regis tered land, fraud and human r ights 351The methodology and extra-territorial

appl ica tion o f the Human Righ ts Act 355Marrying financial provision and insolvency

avoidance 361 Foakes v Beer : reform of common law at the

expense of equity 364

Apparent gifts: re-examining the equitable presumption 369

Termination and the third term: discharge and repudiation 373

Clearing houses and insolvency in Australia 379The Inn of the Outer Temple 384

ARTICLESInternational Law in Domestic Courts: the Developing Framework 388

Family Property Today 422

Justifying the Remedies for Dishonest Assistance 445

Something Old, Something New, Something Borrowed: an Analysis of the New

Derivative Action under the Companies Act 2006 469

REVIEWS AND NOTICES

Goold and Lazarus (eds): Security and HumanRights 501

O’Keefe: The Protection of Cultural Property inArmed Conflict 504

Sparkes: European Land Law 510McCrudden: Buying Social Justice 513

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Volume 124 July 2008

International Law in Domestic Courts: the Developing Framework

PHILIP SALES Q.C. AND JOANNE CLEMENT

Family Property Today

SIMON GARDNER

Justifying the Remedies for Dishonest Assistance

PAULING R IDGE

Something Old, Something New, Something Borrowed: an Analysis of

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THE LAWQUARTERLY

REVIEWVolume 124 July 2008

NOTES

CHARITIES AND PUBLIC BENEFIT

IT is widely believed, not least, it seems, by the Charity Commission, that

the Charities Act 2006 heralds a new dawn not only in the administration

of charities, but also in the substantive content of the law. It is far from

clear that the Act justifies such a confident assumption. The lynch-pin of

the reform appears to be s.3 of the Act, which reads:

“3 The ‘public benefit’ test

(1) This section applies in connection with the requirement in section

2(1)(b) that a purpose falling within section 2(2) must be for the

public benefit if it is to be a charitable purpose.

(2) In determining whether that requirement is satisfied in relation

to any such purpose, it is not to be presumed that a purpose of

a particular description is for the public benefit.(3) In this Part any reference to the public benefit is a reference to

the public benefit as that term is understood for the purposes of

the law relating to charities in England and Wales.

(4) Subsection (3) applies subject to subsection (2).”

On one reading, this section effects no change at all and the Commission’s

evident confidence that it has power to declare new substantive law must

be found elsewhere. A search for that other authority is equally fruitless.

The starting point for modern charity law is Pemsel’s case (Commis-sioner for the Special Purposes of the Income Tax v Pemsel [1891] 1

A.C. 531). In this case the Revenue sought to disallow fiscal privileges

for a trust the purposes of which included, in Lord Bramwell’s words,

“the conversion of heathens and heathen nations to Christianity” (at 563).

The issue turned into a debate about whether legal charity, with all its

privileges, was to be confined to its more popular meaning, limited to

347



348 Law Quarterly Review [Vol. 124

eleemosynary objects, the relief of the poor. In a momentous split deci-sion, the House held that legal charity was different, and the speech of

Lord Macnaghten has been the starting point for the modern law. He was

evidently somewhat irritated by what he regarded as an attempt by “an

administrative department” to change the law (at 591) and, having sur-

veyed the authorities, concluded that “trusts for the relief of poverty; trusts

for the advancement of education; trusts for the advancement of religion;

and trusts for other purposes beneficial to the community, not falling under

any of the preceding heads” were accepted by the law as charitable. This

sentence, which summarises the 1891 law, is wholly about the “benefit”requirement of charity law. The first three purposes were now incontro-

vertibly charitably beneficial and came within the spirit and intendment

of the Statute of Charitable Uses 1601. This was not the operation of

a presumption; it was a dogmatic assumption which could not be chal-

lenged. One was henceforth not permitted to argue in court that the relief

of poverty, and the advancement of education and religion were not ben-

eficial for the purposes of charity law. The courts were to retain control

of the law by reserving to themselves the right to declare the definition

of what constituted the “relief” of “poverty” and the “advancement” of “religion” and “education”, and the many cases on the first three heads

have seen extensive elaboration of these concepts. But there is no trace of

argument that, for example (whatever the empirical evidence to the con-

trary) the advancement of education is not beneficial, nor perhaps more

politically sensitive, that the relief of poverty is not beneficial because it

discouraged thrift (a live issue in 1891: see Lord Herschell at 572). There

was no “rebutting” this assumption. The only area for discussion after

Pemsel itself for instance was whether a particular belief constituted a

religion or if it was, whether the disposition in issue was advancing it.Lord Macnaghten’s fourth “catch-all” category contained other pur-

poses which he at that time was unable to classify into general headings,

and the courts have treated this category as the one where the changing

perceptions of charity were be accommodated. By an administrative pro-

cess of analogy, the courts multiplied the cases in this fourth head, and in

time some of these purposes became grouped together into classes, and

though the language of the books does not always adequately reflect it,

other “heads” came into analytical existence. So, for instance, prior to

this Act, the cure of the sick, the prevention of cruelty to animals and theprotection of the environment had become heads in their own right. In

matters of proof of benefit, they were indistinguishable from education,

religion and poverty: it was no longer needed. One could argue that a

disposition did not affect the environment, or that if it did, it was not

protecting it, but one could no longer deny that environmental protection

was beneficial in the meaning that term had in charity law. The heads

(2008) 124 L.Q.R., JULY © SWEET & MAXWELL AND CONTRIBUTORS



JULY 2008] Notes 349

which existed prior to the Act are substantially listed in s.2(2). A thir-teenth head repeats Lord Macnaghten’s “open door” fourth head, with

explicit provision for bringing it up to date by analogy with the existing

law in the fourth head. There is no provision in s.2 for new definitions

of these purposes and s.2(1) simply says the purposes listed in s.2(2) are

charitable purposes if they are “for the public benefit (see section 3)”.

These purposes were undoubtedly seen to be beneficial prior to the Act.

Section 3(3) explicitly states that to find the meaning of public benefit

“in this Part”, “reference is to be had to the law of charities”. Under the

law relating to charities, this list of purposes in s.2(2) is therefore a list of

charitable benefits. A gift “for the advancement of education” tout court

will be conclusively a charitable gift and effect will have to be given to

it by way of a scheme.

Section 3(2) states that it will not henceforth be presumed that “a

purpose of a particular description” is for the public benefit. This

subsection carries much of the political weight of this Part of the Act.

Since there has never been a presumption of benefit, this provision, if

it means anything, may be taken to be no more than a restatement of

the old law that benefactors cannot themselves declare a purpose to be,

for example, educational within the meaning of charity law. But this isa commonplace: there never was a presumption that benefactors were so

empowered. It is therefore hard to see how these three sections have in any

way altered the meaning of “benefit” (apart perhaps for minor tweaking

in s.2(2)) or helped in the search for it. There seems no warrant for the

assumption that, for instance, the Commission may now declare that the

advancement of religion is not charitably beneficial. A claimant may say

that if the disposition advances religion within the meaning of those words

in charity law, it promotes a charitable benefit. There is no need to prove

benefit in any different way after the coming into force of the Act thanwas true before: proving it falls within one of the first 12 categories will

do it. It will indeed be bizarre if is held that a disposition simply to give

effect to one of the new statutory purposes, without more, is not to be

beneficial. Even existing dispositions in the residuary thirteenth head will

see no change. And those seeking admission to this last category will have

to demonstrate charitable benefit just as they always have. Section 3(3)

makes it clear that if you seek the meaning of “public benefit” in this Part

of the Act, you look at the “law relating to charities”. The fact that by

s.3(4) this search is not to take into account any “presumption” does notaffect the search one way or the other.

Lord Macnaghten was not however addressing the “public” element

needed for the establishment of a charity and this element was not in

dispute in Pemsel. It is to be greatly regretted that the Act and many of

the commentaries on it do not keep this element quite distinct from that of

benefit: it has had a quite different history and present role. The modern







REGISTERED LAND, FRAUD, AND HUMAN RIGHTS

LAST year there was a lot in the news about frauds committed against

property owners through forgery of signatures on land transfer forms.

Until very recently the technique was laughably simple. I would do a

search on the—public—Land Register (it cost me £2) and obtain details

of your registered property, I would download a form TR1 from the Land

Registry’s website (free), type in your name and details of the property,

and my name as transferee, and then forge your signature at the bottom.

I would send in the form, and, within a few weeks, receive confirmation

that I was now the registered proprietor. Under the Land Registration

Act 2002 s.58, the mere fact of registration makes me legal owner, so-

called “statutory magic”. Having applied to a bank for a loan secured

on the property, I granted a charge to the bank, which charge was then

registered, the bank paid me the money, and I disappeared into the sunset,

leaving no forwarding address. My name was probably not my real name,

either. The result was that one of two innocent people had to suffer: either

the bank (which relied on the Land Register) or you (who knew nothing

about it). Not very satisfactory.

Such cases occurred with increasing frequency in recent years. So muchso that, on November 5, 2007, the Land Registry somewhat belatedly

removed from its website copies of original documents bearing signatures

which could be copied for forgery purposes. And, on November 7, 2007,

an adjournment debate was held in the House of Commons on this subject,

on the initiative of Peter Lilley MP, one of whose constituents was the

victim of such a fraud (see Hansard , HC cols 238–246 (November 7,

2007)). The concerns of the MP were responded to by the Minister of

State at the Ministry of Justice, Michael Wills.

Mr Lilley set out the details of the fraud practised on his constituent,and the difficulties his constituent had then encountered, both with the

Land Registry and with the police. In the end the Land Registry accepted

liability, under the statutory indemnity system (Land Registration Act

2002 Sch.8) which law students are taught is one of the three pillars of

the land registration system in this country. He also mentioned concern

over the availability of personal information over the internet.

In replying, the Minister said the Government accepted that the problem

did exist, and that, in the context of 21 million registered titles, in the three

years to 2007 the Land Registry had paid out £12.5 million, on some 70claims (col. 242). However, whereas the problem of fraud in the past

was largely domestic, it was now more professional. The Registry was

introducing new measures to deal with the growing problem.

Dealing with specific points raised by Mr Lilley, the Minister acknowl-

edged (col. 244) that there had been “recent public and media concern

about the public availability of information from the Land Registry over





the internet”. The Government evidently considers that removing originaldeeds from the website will in some way serve to prevent frauds of the

kind discussed here. But, in a case where the rogue has taken a lease of

the target property, he or she will already have a document (the lease)

signed by the registered proprietor (the landlord) whose signature can then

be copied for the purposes of the transfer form. And, if it is not on the

lease, then simply writing a letter to the landlord will usually elicit a letter

in reply bearing the signature.

What this illustrates is that taking these documents off the website in

order to prevent rogues having access to signatures is simply beside thepoint. What we need is a system which does not rely on someone in the

Land Registry comparing a signature on the TR1 Form with a signature

which they have in the registry for some other purpose. What is needed is

a proper system for the verification of identity. I return to this issue below.

The Minister also said (col. 244):

“It is important that the public have a legal right to inspect the register

of any title, and any documents that are filed in the Land Registry

in relation to any title.”

That is nonsense. The only people who need to inspect the register are

those who intend to deal with the registered proprietor and thus to rely

on the register. The Minister said that such inspection assisted the buying

and selling of houses. This is true, but the benefit is marginal; there was

never any real problem in buying, mortgaging and selling houses before

the register became public. You just needed the proprietor’s permission

to have access to the register. On the other hand, this requirement helped

to keep eccentrics, busybodies and incipient fraudsters out.

Secondly, the Minister said that the open register enabled anyone “tofind out who owns a piece of land, which can be invaluable in, for

example, cases of nuisance or neighbour disputes”. But if anyone wishes

to conceal their ownership of a piece of land they buy it in the name of an

offshore company, or through the medium of trustees. And many people

do.

Thirdly the Minister said that the open register could itself be “a

safeguard against fraud because it is transparent”; “no one can represent

themselves as owning a property that is registered to someone else”.

Again, this is simply not true. Even if people do go and look on the LandRegister, and they discover that the seller is not the registered proprietor,

it is the simplest thing in the world for the fraudster to inform the other

party that the registered proprietor is simply a nominee or a trustee for

him or her, or is a company which he or she beneficially owns. There is no

reason why people should not believe such stories, because (as mentioned

above) they are so often true.





The Minister also said that “in many other countries in the EuropeanUnion and beyond, land registers have been open for much longer than

they have in England and Wales” and “in fact, an open register is the norm

in countries with a land registration system”. But there are different kinds

of registration system; some are open and some are not. And the fact that

other systems have a cadastral approach, and have had it for longer, is

irrelevant. Those systems were invented to enable the state to tax property

owners. In England and Wales there was no need for this, largely as a

result of the feudal system. Moreover, the Minister is ignoring the fact

that, in other European countries, with civil law systems, all transactions

involving land have to be carried out in person in front of a notary,

whose first task is to verify the identities of the persons attending. So the

risks of identity fraud are minimised, albeit at the considerable expense

of notarisation. The Minister is thus not comparing like with like.

But perhaps the most serious thing to be noted about Mr Wills’s speech

is that he made no mention of a very important change that was made

to the law of registered land by the Land Registration Act 2002. Under

s.64 of the Land Registration Act 1925 it was simply not possible to

carry out any registered transaction with a registered estate in land unless

the Land Certificate or the Charge Certificate (a document issued to theproprietor on first registration or the proprietor of a first legal charge on

the property) was first produced to the Land Registry. This document

was therefore a very valuable one, equivalent in functional terms to the

deeds of title under the old unregistered system. In the 2002 Act, this

requirement to have a Land (or Charge) Certificate and produce it to the

Land Registry on the occasion of a transaction simply disappeared, in

order (it is said) to pave the way for “electronic conveyancing”. With the

“dematerialisation” of registered land ownership, an important safeguard

against fraud was simply dispensed with. Indeed, this was pointed out bymany practitioners at the time. It is surprising that the Minister did not

think it worth mentioning this. It would certainly have prevented the fraud

in the case of Peter Lilley’s constituent. It would do so in other cases in

the future, too.

The question accordingly was what to do now. Plainly, simply taking

deeds off the Land Registry website was not going to stop fraudsters.

They would obtain the signatures they needed some other way. What was

therefore necessary now was something that should have been thought of

earlier, i.e. a system of proper checks to make sure that the person whoclaimed to be the proprietor in making a disposition of registered land

actually was the proprietor.

One way of doing this was the old land certificate system. Plainly, the

old rule could have been reinstated. But there is no evidence that the Land

Registry was or is interested in this, much less that the Government was

or is prepared to make parliamentary time for any such legislative change





as would be needed. But if the Land Registry and the Government werenot prepared to go back to that system, then another would have to be

found.

Another way of dealing with the problem would be to insist that parties

to a land transaction must attend in person, much as they do before a notary

in the civil law systems. At that stage their identities could, and would,

be verified. However, this would be expensive, and also time-consuming.

Consequently, it might seem disproportionate, a sledgehammer to crack a

nut. This is particularly so when one considers that the existing rules on

money laundering do require verification of identity to take place in most

cases well before this point in the transaction.

Thus a better system would build upon the existing (anti-money

laundering) requirements to introduce a rule that the identity of the

transferor must be verified in all cases. In those cases where the transferor

is acting through solicitors, this is a very simple matter. The solicitors will

already have carried out the relevant money laundering checks on identity

and address in order to be able to act lawfully for the transferor. It would

therefore be possible to certify (for example on the form TR1) the fact

that the verification has taken place, and for the Land Registry not to

register the transfer without such a certificate.As it happens, the Land Registry has now consulted on just such

a rule change. But, in advance of the change, the Registry has since

March 3, 2008—without any apparent statutory sanction—insisted on

satisfactory evidence being provided of the identity of non-legally

represented applicants in relation to transfers, leases, mortgages, and

discharges of mortgages, and (even when represented) applicants for

first registration where the deeds have been lost: see Land Registry

Public Guide No.20. Although the Guide in the relevant crossheading

refers to the unrepresented applicant for registration, instead of theunrepresented disponor , it seems from the text itself that this—so far

unstatutory—requirement is to apply to both. The identity verification

is carried out either by a solicitor or a licensed conveyancer (who will

probably charge a fee), or by attendance at a Land Registry customer

information centre.

However, a serious problem with the Registry’s interim solution is that

it considers that it must make the contents of the new Forms ID1 and 2

available to anyone who asks to see them, since “any person may inspect

and make copies of . . .

any other document kept by the registrar whichrelates to an application to him” (Land Registration Act 2002 s.66(1)(c)).

Yet the information in these forms is exactly the sort of thing that an

identity fraudster is looking for.

The Land Registry is a public authority within the meaning of the

Human Rights Act 1998, and by s.6(1) must not act incompatibly with the

European Convention on Human Rights (ECHR), Art.8 of which confers





the right to respect for private life. There is undoubtedly an interest inthe Registry having this personal information, in order to prevent fraud.

On the other hand, there is none whatever in making it public. This

seems a clear violation of Art.8. Unfortunately primary legislation (Land

Registration Act s.66(1)(c)) on its face compels making the completed

(non-statutory) forms available to the public, and that—if upheld—is a

defence for the Registry (Human Rights Act 1998 s.6(2)(a)). If s.66 cannot

be “read down” under s.3 of the Human Rights Act 1998, it is a case for

a declaration of incompatibility (Human Rights Act 1998 s.4).

However, and paradoxically, no legislation whatever compels anyone

to use these forms at all, since the consulted-on rule change has not yet

occurred. Thus, if an applicant refused to provide the form ID 1 or 2

unless guaranteed “no publicity” for it, which the Registry refused to

give, it is hard to see on what basis the Registry could refuse to process

the application, as (1) there is no current statutory requirement to provide

the form, and (2) the Registry would be refusing to respect Art.8 ECHR,

which is unlawful under s.6 of the Human Rights Act.

Quite apart from these human rights issues, however, there is the

problem that arises because the rogue’s first way on to the Register has

been apparently blocked. There must surely be some kind of counter-

check in order to deal with the case where the rogue, thwarted in

forging the disponor’s signature, instead simply forges the signature of

the solicitor who has apparently carried out the identity check. Yet on

this the Land Registry Public Guide is entirely silent. It appears that

there is no crosscheck. But without that in place, the new system of

certificates (even when given statutory sanction) will simply not prevent

Land Registry fraud, and we may expect to see more of it in future.

PAUL MATTHEWS.*

THE METHODOLOGY AND EXTRA-TERRITORIAL APPLICATION OF THE HUMAN

RIGHTS ACT 1998

In Al-Skeini v Secretary of State for Defence [2007] UKHL 26; [2008] 1

A.C. 153, the House of Lords held (with the exception of Lord Bingham

of Cornhill, who adopted a narrower view) that the Human Rights Act

1998 can apply on an extra-territorial basis to the extent that signatory

states are required by Art.1 of the European Convention on Human Rights

(ECHR) to “secure to everyone within their jurisdiction” the protection

of Convention rights. Lord Rodger of Earlsferry, Baroness Hale, Lord

Carswell and Lord Brown of Eaton-under-Heywood concluded that five

of the six claimants failed in their attempts, based on the Art.2 right to life

* Solicitor-Advocate, London; Visiting Professor, King’s College London.

Forgery; Land registration; Right to respect for private and family life; Transfer of land





and s.6(1) of the Act, to obtain judicial review of the Secretary of State’srefusal to hold an inquiry into the killing of their relatives by British

forces in Iraq; Lord Bingham concluded that all six claimants failed.

However, given that each judgment focused on two questions—whether

s.6(1) applies to acts of a UK public authority committed outside the

country’s territory; and if so whether the claimants’ relatives were within

the country’s jurisdiction for Art.1 purposes when they were killed— Al-

Skeini contains important analyses of the operation of the Act and its

relationship with the Convention as well as of the arguably inconsistent

Court of Human Rights Art.1 case law. As such, the decision says as muchabout the methodology of decision-making in Human Rights Act cases as

it does about the extra-territorial application of s.6(1) and Convention

rights.

The main judgments were given by Lord Bingham (with whose analysis

of s.6(1) Lord Brown partly agreed), Lord Rodger and Lord Brown.

Although Baroness Hale and Lord Carswell agreed with Lord Rodger

and Lord Brown, it is perhaps best to see Baroness Hale as specifically

supporting Lord Rodger’s analysis of s.6(1) and Lord Brown’s analysis

of Art.1. Although Lord Bingham differed from Lord Rodger and LordBrown in his treatment of and conclusions concerning s.6(1), all three

treated the Act as providing the key to the role of Strasbourg case law at

domestic level, thus embodying a strongly dualistic approach.

Lord Bingham’s analysis rested on the view that the extent to which

Convention rights are protected in domestic law depended on the drafting

of the Act, echoing Re McKerr [2004] UKHL 12, [2004] 1 W.L.R. 807.

The court’s initial focus had to be on “the extent of the rights arising

under the Act, not those arising under the Convention” (at [10]), while

“Parliament intended the effect of the Act to be governed by its termsand not, save by reference, the Convention” (at [14]). A claim “may

in some circumstances fall within the scope of the Convention but not

within the scope of the Act” (at [4]), although not vice versa, and to be

successful it needed to fall within both. Lord Bingham could not discern

from the Act’s drafting any clear indication that Parliament had intended

to trump the orthodox presumption that legislation does not extend outside

UK territory, and could find no support for such an inference in the

parliamentary debates preceding the Act’s passage. The claimants were

also not assisted by Diplock L.J.’s noted assertion from Salomon vCommissioners of Customs and Excise [1967] 2 Q.B. 116 at 143–144, that

where the terms of legislation bringing a treaty into domestic law were

unclear, the relevant treaty became relevant in interpreting the legislation:

for there had been no international law obligation to give effect to the

Convention in domestic law (see, e.g. James v United Kingdom (1986) 8

E.H.R.R. 123 at [84]; Observer and Guardian v United Kingdom (1991)





14 E.H.R.R. 153 at [76]). In consequence, Lord Bingham concluded thatthe Act had no extra-territorial application.

Lord Rodger similarly placed no reliance on relevant Parliamentary

debates, but unlike Lord Bingham concluded—via an analysis focusing

on the purposes of the Act in addition to its drafting—that s.6(1) applied

where a public authority acted outside the territory of the United Kingdom

but within its jurisdiction for Art.1 purposes. The presumption against

extra-territorial application was driven by practicality and concern for

international comity. States are bound in international law to respect one

another’s territorial sovereignty, so Parliament could be assumed not to

intend to legislate to regulate the conduct of British citizens overseas.

However, this did not prevent Parliament from doing so: the key question

was whether, “on a fair interpretation, the statute in question is intended to

apply to [citizens] only in the United Kingdom” (at [47]). It was therefore

necessary, when determining whether public authorities fell within s.6(1)

when acting abroad, to have regard to the “overall nature and purpose”

(at [52]) of the Act. Here, Lord Rodger observed that if the Act’s central

purpose was to allow claimants to obtain remedies before domestic courts

rather than having to go to Strasbourg when Convention rights had been

breached (also advancing the right to an effective remedy guaranteed byArt.13), it made sense to allow the Act extra-territorial application in line

with Art.1. It was also sensible—in the absence of any contrary indication

in the legislation—to treat public authorities consistently whether they

carried out their functions at home or abroad. Furthermore, the provision

of remedies for actions overseas would not be offensive to the sovereignty

of other states. Turning to the nature of the Act, Lord Rodger pointed

out that there was no danger that extra-territorial application, if tied to

the drafting of the Act and to the Art.1 case law, could “confer rights

on people all over the world with little or no real connexion with theUnited Kingdom” (at [55]). Under s.7(1), only “victims” (as defined in

Art.34 ECHR) of the unlawful actions of public authorities could bring

proceedings under s.6(1). To sue, a claimant would therefore first have to

be “within the jurisdiction” of the United Kingdom for the purposes of

Art.1. In consequence, while Lord Rodger interpreted s.6(1) more widely

than did Lord Bingham and reasoned in a more purposive fashion, his

judgment accorded an equally strong role to the Act as the key to the

domestic application of Convention rights, and was just as dualist in its

approach.Lord Brown agreed with Lord Bingham that there was “a distinction

between rights arising under the Convention and rights created by the

Act by reference to the Convention” (at [134]), and that neither the text

of the Act nor statements made during its passage were sufficient to

rebut the presumption against extra-territorial application. Nonetheless,

he followed Lord Rodger in emphasising the importance of the “object,





subject-matter and history of this Act . . .

its very purpose being toensure that . . . it would no longer be necessary for victims to complain

about alleged violations of the Convention internationally in Strasbourg

instead of domestically in the UK” (at [138]). It was not therefore obvious

that Parliament intended to exclude claimants from the Act’s protection

in cases where the Strasbourg case law recognised Convention rights

as having extra-territorial application. Furthermore, Lord Brown took a

different view from Lord Bingham concerning the relevance of Diplock

L.J.’s assertion in Salomon, stating that while the United Kingdom had

undertaken no specific treaty obligation to incorporate the Convention

into domestic law, it was nonetheless obliged by Art.13 (enforceable

before the Strasbourg Court) to grant an effective remedy, an obligation

which would be breached if the Act was held not to apply to the sixth

claimant’s case. In consequence, s.6(1) applied on an extra-territorial basis

to the extent required by Art.1. However, Lord Brown was also clear

(supported by Baroness Hale) that domestic courts should not construe

Art.1 as reaching any further than was clearly specified in Court of Human

Rights case law. Lord Bingham’s suggestion in R. (on the application of

Ullah) v Special Adjudicator [2004] UKHL 26; [2004] 2 A.C. 323 at [20]

that the duty of national courts was to keep pace with the Strasbourg jurisprudence, “no more, but certainly no less”, could equally well have

ended “no less, but certainly no more”: for, while aggrieved individuals

could always complain to the Strasbourg Court if their Convention rights

were interpreted too narrowly by national courts, public authorities could

not do so where an unduly broad interpretation was adopted.

It followed from Lord Bingham’s treatment of s.6(1) that analysis of

the Art.1 case law was unnecessary. Whether the claimants’ deceased

relatives fell within the United Kingdom’s jurisdiction under Art.1 was

a matter for the Court of Human Rights. Lord Rodger and Lord Brown,by contrast, gave detailed consideration to the jurisdiction question. As

Lord Rodger noted, the “problem which the House ha[d] to face” under

this heading was “quite squarely . . . that the judgments and decisions

of the European Court do not speak with one voice . . . and so present

considerable difficulties for national courts” (at [67]). Both adopted a

narrow view of the ambit of state jurisdiction under Art.1, and in doing

so arguably underlined the dualist nature of their approach.

The key inconsistencies in the Strasbourg case law are between

Bankovic v United Kingdom (2007) 44 E.H.R.R. SE5, decided in 2001and concerning Britain’s responsibility under Art.2 for deaths resulting

from the country’s bombing of former Yugoslavia, and later decisions. In

Bankovic, the Grand Chamber stated that Art.1 “must be considered to

reflect [an] ordinary and essentially territorial notion of jurisdiction” (at

[59]), that “only in exceptional cases” could “acts of the contracting states

performed, or producing effects, outside their territories . . . constitute an





exercise of jurisdiction by them” (at [65]), and that “special justificationin the particular circumstances of each case” (at [59]) was necessary

to bring an exceptional situation within Art.1. Recognised exceptions

included cases where a state had effective control of territory and its

inhabitants due to military occupation or through the consent, invitation or

acquiescence of the government of that territory (Cyprus v Turkey (2002)

35 E.H.R.R. 30), and the activities of diplomatic or consular agents abroad.

The Grand Chamber accepted that bombing Yugoslavia did not fall within

the United Kingdom’s jurisdiction, given that the Convention operated “in

an essentially regional context and notably in the legal space . . . of the

contracting states” (at [78]), Yugoslavia falling outside that space.

However, in Issa v Turkey (2005) 41 E.H.R.R. 27, the Court reiterated

the Bankovic formula but did not “exclude the possibility” that, as a

consequence of extensive cross-border raids into Iraq by Turkish troops

over a six week period, Turkey “could be considered to have exercised,

temporarily, effective overall control of a particular portion of the territory

of northern Iraq” (at [74]), causing the troops’ killing of a group of

Iraqis to fall within Turkey’s jurisdiction. The court reiterated—building

on Cyprus v Turkey —that it was not necessary, in order for a state to

have “effective control”, for it actually to exercise “detailed control overthe policies and actions of the authorities in the area situated outside its

national territory, since even overall control of the area may engage [its]

responsibility” (at [70]). A state could exercise “authority and control”

over another state’s territory through “its agents operating—whether

lawfully or unlawfully—in the latter State . . .. Accountability in such

situations stems from the fact that [Art.1] cannot be interpreted so as

to allow a state party to perpetrate violations of the Convention on

the territory of another state, which it could not perpetrate on its own

territory” (at [71]). While Bankovic and Issa both employed a territorialnotion of jurisdiction, the application of that notion in Issa appeared to

be considerably more generous than that in Bankovic.

Lord Rodger and Lord Brown treated Bankovic as the stronger

authority. Lord Rodger declared Issa to be irreconcilable with Bankovic.

The Court of Human Rights had not explained how its statement in Issa

concerning authority and control fitted in with Bankovic, not least since

it appeared to focus on the “activity of the contracting state, rather than

on the requirement that the victim should be within its jurisdiction” (at

[75]). The Issa court’s more generous territorial notion of jurisdictionconstituted another “major unresolved difficulty” (at [76]) when compared

with the Grand Chamber’s “essentially regional” characterisation of the

Convention in Bankovic. Furthermore, the Issa notion of temporary

effective overall control of an area did not provide “workable guidance”

(at [80]) for national courts. Lord Brown suggested that in so far as the

authority and control statement in Issa referred to cases which fell within





one of the exceptions recognised in Bankovic, it was unexceptionable.However, there was no basis for adopting a wider notion of jurisdiction:

“It is one thing to recognise as exceptional the specific narrow categories

of cases” set out in Bankovic, but “quite another to accept that whenever

a contracting state acts (militarily or otherwise) through its agents abroad,

those affected by such activities fall within its Article 1 jurisdiction” (at

[127]). Such a contention would make nonsense of the notion that the

Convention operated in an essentially regional context.

Lord Rodger also invoked the Bankovic characterisation of the Conven-

tion as essentially regional in suggesting that it “may reflect the values

of the contracting states”, but “does not reflect those in many other parts

of the world. So the idea that the United Kingdom was obliged to secure

observance of all the [Convention] rights and freedoms . . . in the utterly

different society of southern Iraq is manifestly absurd” (at [78]). Fur-

thermore, the obligation arising under Art.1 could arise “only where the

contracting state has such effective control of the territory of another state

that it could secure to everyone in the territory all the [Convention] rights

and freedoms”, as required by Art.1 (at [79])—a point reiterated by Lord

Brown, who asserted that Issa “should not be read as detracting in any

way from the clear—and clearly restrictive—approach to article 1 juris-diction adopted in Bankovic” (at [131]). Lord Rodger and Lord Brown

thus concluded that the first five claimants in Al-Skeini, whose relatives

had been killed by troops operating in the field or on patrol, had no claim

under Art.1, while the case of the sixth claimant, whose relative had died

in British military custody, should be remitted to the Divisional Court

(Lord Brown drawing an analogy to the diplomatic or consular exception

recognised in Bankovic).

Their Lordships’ treatment of Issa may not resolve, at national level, the

problematical relationship between the Art.1 cases. Both Lord Rodger andLord Brown stressed that, unlike Bankovic, Issa was not a decision of the

Grand Chamber and so carried less weight. However, the relative weight

of the decisions may in fact be harder to determine given that Bankovic

merely concerned admissibility rather than—as in Issa—the actual merits.

As is evident from the Al-Skeini judgments, alternative grounds for

preferring Bankovic would need either to be policy-driven or based on

the nature of the Convention. However, given that Lord Rodger justified

his wide interpretation of s.6(1) on the basis that it promoted consistency

in public authority liability and did not undermine national sovereignty,one might reasonably ask how he could simultaneously deploy a narrow

approach to Art.1. The answer, presumably, lies in the strongly dualist

nature of his (and the other Law Lords’) approach: if Convention rights

differ from rights brought into domestic law under the Act, then different

policy arguments can plausibly apply to each group. Given the many

competing views in play concerning the constitutional status and role





of the Human Rights Act, however, an explicit judicial defence of thisposition—not offered in Al-Skeini —may yet be needed.

NICHOLAS BAMFORTH.*

MARRYING FINANCIAL PROVISION AND INSOLVENCY AVOIDANCE

AT the beginning of his judgment in Haines v Hill [2007] EWCA Civ

1284; [2007] 3 F.C.R. 785 Thorpe L.J. said (at [43]):

“There is an obvious tension between the statutory scheme for the

protection of a bankrupt’s creditors and the statutory scheme for

the financial protection of the bankrupt’s former wife and child.

Bankruptcy Acts and Matrimonial Causes Acts may be said to

compete for shares in the fund which will always be incapable of

satisfying both. Clearly if the act of bankruptcy precedes an order

made under the Matrimonial Causes Act the legal and practical

outcome is straightforward. Difficulties arise when the order under

the Matrimonial Causes Act precedes the bankruptcy.”

The competition between the bankrupt’s creditors and his former wife and

child came about in this case in the following circumstances. Upon divorcethe husband was ordered to transfer his half share in a farm to the wife.

About three months later the husband was adjudicated bankrupt on his

own petition. Just over a year later the husband’s trustees in bankruptcy

applied to set aside the transfer on the ground that it was a transaction at

an undervalue under s.339 of the Insolvency Act 1986. The District Judge

dismissed the trustees’ application but H.H. Judge Pelling Q.C., sitting as

a Deputy High Court Judge, allowed their appeal. The Court of Appeal

correctly restored the District Judge’s decision.

Section 339 allows for the setting aside of transactions entered into

by a bankrupt prior to entering bankruptcy where they are made for

no consideration or a consideration significantly less than that provided.

The period of time before bankruptcy (the “relevant time”) during which

a transaction is potentially vulnerable is five years (s.341(1)(a)). Under

s.341(2) it has to be shown that the bankrupt was insolvent at the time

of the transaction or became so as a result of it, unless the transaction

occurred within two years of entering bankruptcy. Also under s.341(2)

the bankrupt will be rebuttably presumed insolvent at the time of the

transaction where it is in favour of an associate. Section 435(2)(a) includes

a spouse within the definition of “associate” although it is not completelyclear whether former spouse comes within this definition. There are

obviously strong arguments that in the context of challenging financial

* The Queen’s College, Oxford.

Extraterritoriality; Human rights; Iraq; Public authorities; Right to life; Territorial application;

Yugoslavia





provision orders on divorce as transactions at an undervalue the formerspouse should be treated as an “associate”. One other statutory provision

that must be referred to at this stage is s.39 of the Matrimonial Causes

Act 1973, which provides that the fact that a transfer of property is made

to comply with a property adjustment order does not prevent it being a

transaction at an undervalue or a preference under s.340.

H.H. Judge Pelling Q.C., founding himself on several decisions about

the meaning of consideration in entirely different contexts, had decided

that the property adjustment order made in this case was a transaction

at an undervalue because the wife had provided no consideration for

it. He rejected as inapplicable two previous decisions on the effect of

legislative provisions that preceded s.339. Re Pope [1908] 2 K.B. 169

concerned a post-nuptial settlement made by a husband in favour of his

wife and children within two years of his bankruptcy. Section 47 of the

Bankruptcy Act 1883 made such a provision void against the trustee in

bankruptcy unless made “. . . in favour of a purchaser . . . and for valuable

consideration”. A majority of the Court of Appeal held that the wife was

a purchaser for valuable consideration because she promised in exchange

for the settlement to refrain from taking proceedings for dissolution of

marriage and a permanent maintenance allowance on the ground of thehusband’s past misconduct. Re Abbott [1983] Ch. 45 concerned a property

adjustment order made in favour of a wife upon divorce. The claim was

compromised and embodied in a court order. The husband’s trustee in

bankruptcy challenged it under s.42 of the Bankruptcy Act 1914 which

invalidated settlements made by bankrupts within two years of bankruptcy

unless made in favour of a purchaser in good faith and for valuable

consideration. Peter Gibson J. (as he then was) held that a bona fide

claim for ancillary relief upon divorce satisfied this test. Judge Pelling

Q.C. regarded these decisions as no guide to s.339 in part because of theadvice of Millett J. (as he then was) in Re MC Bacon Ltd [1990] B.C.L.C.

324 that decisions under previous legislation should not be cited in cases

concerning the avoidance provisions of the Insolvency Act 1986.

Judge Pelling Q.C.’s decision was clearly wrong because it produced the

absurd result that every property adjustment order made within five years

of the transferor’s bankruptcy was liable to be voided. This consequence

follows from a holding that the wife provided no consideration for the

transfer. There was no issue in the case as to whether the consideration she

provided was “significantly less” than that received because, as ThorpeL.J. pointed out, this case was a very ordinary one and there was no

evidence of any overvalue in the calculation of the wife’s share in the

“fund”.

Despite this eminently sensible result and its accompanying relief of the

consternation in the profession caused by Judge Pelling Q.C.’s decision

(see [2007] EWCA Civ 1284; [2007] 3 F.C.R. 785 at [50] per Thorpe L.J.),





all tension between insolvency and matrimonial legislation has not beenrelieved. This is because s.339 is different from its predecessors in one

very significant way. Section 47 of the 1883 Act and s.42 of the 1914 Act

provided that good faith valuable consideration was a complete defence

to the trustee’s claim. Section 339 requires the provision of consideration

which is not “significantly less” than comes from the transferor. The Court

of Appeal held that the property adjustment order in Haines v Hill was

unimpeachable because there was no evidence of any collusion between

the parties. This would negative any challenge to a property adjustment

order made under s.423 (transactions defrauding creditors) but is not a

complete defence under s.339 because this provision does not require

proof of any mens rea. In light of s.39 of the Matrimonial Causes Act

1973 it cannot be argued that s.339 proceedings are barred on the ground

of collateral challenge to the decision of the family court, whether made

after a contested hearing or door of the court settlement. (This was one of

the grounds barring a negligence action against a barrister who advised

on the terms of an ancillary relief settlement made an order of the court

in Kelley v Corston [1998] Q.B. 686). Realistically there is no prospect

of a successful s.339 challenge to a property adjustment order after what

Thorpe L.J. called a “hard fought trial” ([2007] EWCA Civ 1284; [2007]3 F.C.R. 785 at [48]). But this is not because there is no collusion between

the parties; it is because the judge may be presumed to have given careful

thought to the fairness of the order. It could well be different where the

parties settle the matrimonial proceedings and then submit a draft order

to the judge for approval. Although Thorpe L.J. was at pains to point out

that the judge’s role in such situations was quasi-inquisitorial, required an

investigation of what is fair to the parties, and in rare cases could result in

a decision to order more or less ([2007] EWCA Civ 1284; [2007] 3 F.C.R.

785 at [54]), nothing like as much thought will be given by the judge to thebalance of consideration provided in this case. It is quite conceivable that

without any collusion between the parties the consideration provided by

the recipient of a property adjustment order may come to “significantly

less” than what she receives. This is especially so in the “big money”

divorce cases (see Miller v Miller; McFarlane v McFarlane [2006] UKHL

24; [2006] 2 A.C. 618) where the principles involved and their application

still require much refinement. Adequacy of consideration generally does

not matter but it is key to the statutory test in these situations. Given the

need to protect the recipient’s legitimate expectations in the security of her receipt it is not thought likely that a settlement given judicial approval

could often be attacked under s.339, but the door appears to be open to

this possibility. After the abolition of advocate’s immunity in Arthur JS

Hall & Co v Simons [2002] 1 A.C. 615, another solution to this problem

may be found in an action brought against the adviser responsible for the

unbalanced settlement on behalf of the bankrupt’s creditors. That would





not involve taking anything back from the innocent recipient but wouldcompensate the true victims and make the person truly responsible for

their loss pay for it.

DAVID CAPPER.*

F OAKES V B EER: REFORM OF COMMON LAW AT THE EXPENSE OF EQUITY

THE House of Lords decision in Foakes v Beer (1884) L.R. 9 App. Cas.

605 elevated to the status of a common law rule an ancient obiter dictum

by Sir Edward Coke in Pinnell’s Case (1602) 5 Co. Rep. 117a which states

that absent agreement under seal or fresh consideration acceptance by thecreditor of part payment of a debt does not in law discharge the whole

debt. Pinnell’s Case suggested that a common law defence of accord and

satisfaction could not be pleaded on part payment of a debt because “it

appears to the Judges that by no possibility a lesser sum can be satisfaction

to the plaintiff for a greater sum”. Even as the House of Lords reluctantly

affirmed the rule on the basis of its respectable old age, powerful dissent

was voiced by Lord Blackburn who criticised the courts for failing to

recognise the benefit to the creditor of prompt if only partial payment.

Since then, the rule seems to have been criticised in almost every case inwhich it was applied and the modern approach of the courts is one of reluc-

tant application due to compulsion of authority (see, e.g. Re Selectmove

Ltd [1995] 1 W.L.R. 474). Lord Denning, emboldened by a recommen-

dation for the abolition of the rule made by Lord Wright’s Law Revision

Committee in 1937 (Sixth Interim Report (Statute of Frauds and the Doc-

trine of Consideration, Cmnd 5449), attempted to create a way round it on

the basis of what came to be known as promissory estoppel. His judgment

in Central London Property Trust v High Trees House [1947] K.B. 130

opened the door to applying the equitable doctrine in Hughes v Metropoli-

tan Railway Co (1876–77) L.R. 2 App. Cas. 439 to estop the creditor from

attempting to recover the unpaid part of the debt after the agreed part had

been paid by the debtor. In D & C Builders v Rees [1966] 2 Q.B. 617

Lord Denning referred to such application of the doctrine as an already

established practice, and stated a substantive rule which barred recovery

by the creditor in the face of an executed agreement to accept part of the

debt. Now, in Collier v P & MJ Wright (Holdings) Ltd [2007] EWCA Civ

1329 the Court of Appeal has sought to apply the proposition in Rees to

override definitively the notoriously rigid and artificial common law rule

by putting forward an equally rigid and artificial rule to the opposite effect.On the facts of the case, Mr Collier, jointly with two partners, took out

a loan from Wrights. Dealings between the parties resulted in a consent

* School of Law, Queen’s University Belfast.

Financial provision; Matrimonial property; Setting aside; Transactions at an undervalue; Transfer

of property orders





judgment whereby the three partners were jointly liable to pay the debtby monthly instalments. The debt was initially serviced out of a joint

partnership account, and after the partnership came to an end each debtor

was servicing his share of the debt individually. After the other two debtors

stopped making the payments, Mr Collier had a meeting with his creditor.

There was a conflict of evidence as to what was said at the meeting but

it was Mr Collier’s case that in response to his query he was told by

Wrights to continue making his payments as before and that they would

chase the other two debtors. Five years later, after Mr Collier had made

the payments which totalled exactly one-third of the debt, Wrights served

on him a statutory demand for the balance of the debt. He set up the

meeting five years earlier in defence, claiming that what he was then told

amounted to a promise on the part of Wrights to treat him as a several

debtor in relation to one-third of the debt. Now that he had paid the one-

third part of the debt, he argued, his obligation had been satisfied and he

was not liable for the outstanding balance.

Since the case originated as an application by Mr Collier under the

Insolvency Rules to set aside the statutory demand, the court only had to

decide whether Mr Collier succeeded in showing that there was a “genuine

triable issue” in which case the court would set aside the demand. The trial judge dismissed the application. He held that although there was a genuine

triable issue as to whether the alleged promise by Wrights had been made

in terms contended for, it was beyond any issue that such promise would

not be enforceable at law, for reason of absence of consideration, nor

in equity, for reason of absence of change of position. The Court of

Appeal upheld the judgment below on the first point, holding that no

consideration was given by Mr Collier to Wrights to support their alleged

promise. Attempts by counsel for Mr Collier to find consideration in the

form of Mr Collier ceasing to be a joint debtor were rejected. It was said(at [27(iii)]) that Mr Collier did not communicate any intention to release

the benefits that he had as a joint debtor and therefore “no meeting of

minds can be established on these matters”. Further, the supposed loss

of benefit came about as “legal consequences that attached to the offer

by Wrights and flowed from it”, so there was no consideration moving

from Mr Collier. (It must be said that at least on the part concerning

absence of communication of intention the Court of Appeal was rather

less generous to Mr Collier than it had been only three weeks earlier

to the appellants in Pitts v Jones [2007] EWCA Civ 1301. There theCourt of Appeal found consideration to have been given by shareholder

appellants in the form of attending a meeting of shareholders convened

at short notice; consent to short notice and attendance were held to be

good consideration “notwithstanding the fact that the appellants did not

consciously realise that by signing [the consents] they were subjecting

themselves to a detriment and were giving consideration” (at [18]).)





The Court of Appeal reversed the judgment below on the promissoryestoppel point. Restating Lord Denning’s words from Rees, Arden L.J.

pronounced (at [42]) nothing less than an absolute rule that once a debtor’s

offer to pay a part of the debt is voluntarily accepted by the creditor and

in reliance on the creditor’s acceptance the debtor pays the agreed part

of the debt, the promissory estoppel will operate to bind the creditor

to accept the part payment in satisfaction of the whole debt which will

then be extinguished. On the same authority, Arden L.J. also held that

payment of the part of the debt constitutes sufficient reliance to found the

estoppel. Once the amount is paid, the equity is created and nothing more

is required. For the creditor then to resile from the agreement “would

of itself be inequitable” (at [42]). Therefore, the issue of whether or not

there was a promise made by Wrights as argued by Mr Collier was a

“genuine triable issue” because were the promise to be shown, the rule

would operate without more to give relief. Having so stated the rule, her

Ladyship finished off her judgment to the effect that the reform called

for by Lord Wright’s Committee in 1937 and set in motion by Lord

Denning’s “brilliant dictum” in High Trees was now complete. A sceptical

Longmore L.J., however, showed much less enthusiasm over the fashion

in which Arden L.J. proposed to make legal history by completing the longcalled–for reform of the rule in Foakes. He agreed with Arden L.J. on the

point of reliance (at [47]) which for him, though not established on the

facts of Collier , “seemed” to have been decided as a matter of law by Rees.

He said however that, although arguable, it was not a foregone conclusion

that it would have been inequitable for Wrights to resile from the alleged

agreement and that this was an issue for the trial. He also stressed the

need to examine the exchanges of the parties in order to discover whether

they did result in a true accord for the complete discharge of the debt (as

opposed to an accord for temporarily suspending enforcement), addingthat if the High Trees jurisprudence were to have the result advocated for

by Arden L.J., it is “perhaps all the more important that agreements which

are said to forgo a creditor’s rights on a permanent basis should not be

too benevolently construed” (at [48]).

The modern formulation of the rule offered by Arden L.J. is striking

in that, although put forward as application of an equitable doctrine, it is

based entirely on a straightforward offer and acceptance approach. The

debtor tenders part payment which the creditor agrees to accept. Payment

by the debtor then of itself constitutes reliance and crystallises the equityso that it is “of itself inequitable” for the creditor to resile from the

agreement. Acceptance as a statement of authority of Lord Denning’s

obiter proposition in Rees that payment of the agreed part of the debt

constitutes reliance makes redundant any element of, as Longmore L.J.

put it (at [46]), “meaningful reliance”, and forces the equitable doctrine

to operate as an automatic consequence of an offer and acceptance. The





requirement to show substantive inequitability is treated as satisfied of itself and any further element of unconscionability which alone could

justify equity’s intervention is openly dismissed. Equitable doctrine is used

with the sole purpose of getting the inconvenient rule in Foakes out of the

way; there is really no investigation whether its intervention is justified

on its own terms. (This is very unlike the approach of Lord Denning

himself who would famously select his law to give effect to the practical

justice of the case. In Rees, no sooner had Lord Denning formulated the

propositions on which Arden L.J. relied than he disapplied them all in

favour of the builder creditors who had been coerced into accepting part

payment.) In the end what is left is a complete and executed agreement

in which the lender is content to accept the practical benefit of prompt

recovery of part of a debt and which the courts agree to enforce despite

their insistence that no consideration supports the agreement. That may

indeed get over the Foakes stumbling block, but an attempt to support this

result by the reasoning employed in Collier appears rather less satisfactory

than an outright abolition of the rule in Foakes, because of the violence

that it does to the equitable doctrine developed in Hughes v Metropolitan

Railway Co (1876–77) L.R. 2 App. Cas. 439.

The decision in Hughes is a classic case of operation of the equitabledoctrine. Mr Hughes was not allowed to insist on his right at law to forfeit

the lease for breach of a repair covenant because of an indication he had

given (or rather was taken to have given) to the railway that the operation

of the covenant would be suspended while negotiation went on. To the

extent that the railway did not carry repairs in reliance on that indication

and thereby laid itself open to forfeiture, it was unconscionable for Mr

Hughes to forfeit. The decision was not reached on the basis of operation

of hard and fast rules; it was the overall effect of the conduct of the

parties in the factual circumstances of the case that gave rise to an equityin favour of the lessee. Collier replaces this approach with a rigid rule

which drags equity to intervene in circumstances where there is nothing

really to warrant that intervention other than the openly proclaimed desire

to escape the application of the rule in Foakes v Beer . Both law and equity

insist that they do not enforce gratuitous promises. In the case of the law

the convention is to accept the fiction of clothing bare promises with a fig

leaf of nominal consideration. Collier is the beginning of the reduction of

the equitable doctrine to the same fiction-based position. It is not axiomatic

that the case of agreement to accept part payment of itself falls within the jurisdiction of equity, certainly not if the existing obligation of the debtor

to pay the debt is not to be overlooked. To give the debtor special credit

for making payment by treating such payment as a change of position

in reliance on the creditor’s promise is equivalent to saying that absent

such promise the debtor is free to decide whether he pays or not. Absent

a genuine change of position (the need for which would be obviated by





Arden L.J. in Collier on the basis of Lord Denning’s statement in Rees ),if the creditor resiles from his promise, the debtor is not affected beyond

a certain frustration to his expectations. That has never been sufficient

to found an equitable remedy. The traditional view is that a detrimental

change of position by the debtor in reliance on the creditor’s promise is

required to satisfy the test for equitable relief. This was the preferred view

of Longmore L.J. in Collier which he felt was superseded by Rees. This

was the view of Danckwerts L.J. in Rees itself when he said that absent

detrimental alteration of position by the debtors it was not inequitable

for the creditor to insist on payment of the balance after accepting part

payment and giving receipt for it in “completion of the account”. This

view was the basis for a line of cases to which Lord St Leonards referred

to in his dissenting judgment in Jordan v Money (1854) 5 H.L. Cas. 185.

In those cases the equity in favour of those who sought it was no less

than irresistible, since there was a genuine change of position on the faith

of a promise, such as marriage settlement of property in reliance on a

promise not to enforce a debt against the groom, or expenditure of funds

on the land in reliance on a promise of a grant of lease of that land. The

proposition Lord St Leonards was advancing with support of those cases

was that equity should give relief for change of position notwithstanding

the technical distinction that a statement which brought about the change

was not a representation of fact but a promise of future conduct; although

he was overruled in Jordan, the proposition later found vindication in

the Hughes doctrine. Collier should not be allowed to throw away the

requirement of a genuine change of position which lies at the heart of that

doctrine.

Even as the House of Lords delivered its decision in Foakes, it

openly acknowledged that the rule was liable to produce injustice and

that judges were anxious to relieve its effect by finding all sorts of “artificial consideration” (per Lord Fitzgerald). Collier is a case where,

despite all attempts, no such consideration could be found, and the court

contemplated giving equitable relief in a manner which accepts a similar

degree of artificiality. This is not a welcome development. Longmore L.J.

was clearly uneasy about it and his reservations give ground for resisting

further erosion of equitable principles by reference to the authority of

Collier . Equity gives relief where justice requires relief to be given but

none can be obtained under the common law. It is no function of equity

to lend its doctrines to plug holes in the common law.

ALEXANDER TRUKHTANOV.*

* Solicitor, London.

Common law; Consideration; Debts; Promises; Promissory estoppel





APPARENT GIFTS: RE-EXAMINING THE EQUITABLE PRESUMPTIONS

IT is trite law that apparent gifts trigger one of two equitable presump-

tions—either the presumption of resulting trust or the presumption of

advancement. It was suggested in these pages ((2007) 123 L.Q.R. 347)

that the two main difficulties that modern courts face is that of explaining

the continued relevance of a counterintuitive presumption of resulting trust

and of fashioning appropriate presumptions of advancement to serve as

a counterbalance in an increasingly heterogeneous society. Despite being

judicially questioned by senior members of the Bench in both Australia

(Calverley v Green (1984) 155 C.L.R. 242 at 248 per Gibbs C.J., at

264–265 per Murphy J. and at 265–266 per Deane J.; Nelson v Nelson

(1995) 184 C.L.R. 538 at 602 per McHugh J.) and Canada (Pecore v

Pecore (2007) 279 D.L.R. (4th) 513 at 539–541 per Abella J.), the courts

seem reluctant to abandon the presumption of resulting trust. In Lau Siew

Kim v Terence Yeo Guan Chye [2007] SGCA 54; [2008] 2 S.L.R. 108,

the Singapore Court of Appeal agreed that the presumption of resulting

trust is “out of step with reality and the expectations of the public”, but

felt obliged to retain it. It has long been considered that an outright judi-

cial abolition of the presumption of resulting trust would be too radical astep for the courts (Calverley v Green (1984) 155 C.L.R. 242 at 266 per

Deane J.). However, the Singapore Court of Appeal considered that the

more moderate suggestion ((2007) 123 L.Q.R. 347) that the presumption

of resulting trust could be downgraded from a presumption of law to a dis-

cretionary presumption of fact was itself too radical. The court preferred

instead to accord varying weight to the presumption of resulting trust

depending on the particular context (at [52]) and treat the injustice which

would result from a mechanical application of the presumption of resulting

trust with the “antidote” of the presumption of advancement (at [56]).Less than a year ago, in Low Gim Siah v Low Geok Khim [2007] 1 S.L.R.

795, the Singapore Court of Appeal appeared to favour “tradition over

reform” (see McInnes (2007) 123 L.Q.R. 528). A differently constituted

Court of Appeal has since clarified the position. Lau Siew Kim v Terence

Yeo Guan Chye [2007] SGCA 54 is, like many cases involving the

presumptions, a curious case. It involved a dispute over the estate of

a deceased person, in this case one Yeo Hock Seng. Thrice married, Yeo

Hock Seng died intestate as a result of the statutory revocation of his

will by his third marriage. The statutory revocation, via s.13(1) of theWills Act (Cap. 352, 1996 Rev. Ed.), operated strictly even though he

had named his third wife, Lau Siew Kim, as sole beneficiary under his

revoked will, executed before his marriage. As the Court of Appeal noted,

this ironically defeated the objective underpinning s.13(1). This allowed

his two estranged sons, Terence Yeo and Theodore Yeo, both from his

first marriage, to claim an interest in his estate via intestacy. The dispute





was concerned with whether two pieces of real estate, both held in the joint names of Yeo Hock Seng and Lau Siew Kim, formed part of his

estate. His sons argued that although the two held the properties jointly

at law, their father held a larger share of both properties in equity as a

result of the presumption of resulting trust because Yeo Hock Seng and

Lau Siew Kim had contributed unequally to their purchase. Seizing on

comments by the Court of Appeal in Low Gim Siah, counsel sought to

suggest that any presumption of advancement which arose on the facts

was a weak one and easily rebutted because Lau Siew Kim had been

financially independent. It was further argued that the properties had been

put in the couple’s joint names merely for commercial convenience—as

involving the younger Lau Siew Kim in the transaction permitted the

couple to obtain favourable credit terms.

In a wide-ranging judgment, the Singapore Court of Appeal sought to

clarify the modern role of both the presumptions of resulting trust and

advancement. At a fundamental level, the court agreed with Chambers,

Resulting Trusts (1997) at p.32, that resulting trusts respond, not to an

intention to create a trust, presumed or imputed, but to a lack of intention

to benefit the donee (at [35]). In doing so, however, they do not seem to

have endorsed Chambers’ wider thesis that the resulting trust is thereforean appropriate vehicle of proprietary restitution of unjust enrichment. This

understanding of how resulting trusts operate is very similar to that of

Lord Millett’s in Air Jamaica Ltd v Charlton [1999] 1 W.L.R. 1399, PC.

However, without supporting Chambers’ wider thesis, which was built

upon the similar suggestion by the late Professor Birks in Goldstein (ed.),

Equity and Contemporary Legal Developments (1992) at pp.335–373, the

latter having been rejected in Westdeutsche Landesbank Girozentrale v

Islington LBC [1996] A.C. 669, this new understanding of the operation

of the resulting trust is not of dramatic practical significance.The court also disagreed with the view expressed by the Supreme Court

of Canada in Pecore v Pecore (noted by McInnes (2007) 123 L.Q.R. 528)

that any given set of facts would only trigger one or the other presumption

(at [56]–[57]). According to this view, if the relationship between the

parties fell within the categories of the presumption of advancement, the

presumption of advancement would apply from the outset. Otherwise, the

presumption of resulting trust would apply. The court considered that,

instead of displacing the presumption of resulting trust from the outset,

the presumption of advancement operated to remedy an unjust operationof the presumption of resulting trust, which must first be found to apply.

Assuming this view to be preferable, it is difficult to see what practical

difference follows and it is not self-evident why the court felt obliged to

labour the point.

At a conceptual level, Lau Siew Kim departs from the view expressed in

Low Gim Siah that the presumption of advancement responds to a moral or





equitable obligation on the part of a husband or father to advance his wifeor child respectively. Although the “obligation” view of the presumption

of advancement was not rejected, it was considered to co-exist with the

view that the presumption serves to deduce the intentions of the donor on

the basis of inherent probabilities (at [78]). This vacillation between the

two different rationales of the presumption of resulting trust by the court

vindicates Freedman’s view in (2006) 25 E.T.P.J. 174 at 190 that the

“rationale of the advancement rule is somewhat difficult to pin down”.

By tying the presumption of advancement at least in part to inherent

probabilities as to a donor’s intentions, the court acknowledged that the

presumptions had to be refined to respond to changes in the social fabric.

It agreed, therefore, that in the modern context, the presumption of

advancement applied to gratuitous transfers from either parent to a

child and not simply from father to child, following the lead of the

Australian and Canadian courts. However, it disagreed with the view

of the majority of the Supreme Court of Canada in Pecore v Pecore

that the presumption of advancement did not apply to cases of adult

children. The Singapore Court of Appeal was also steadfastly conservative

as far as the presumption of advancement from husband to wife was

concerned. Although they agreed with the extension of the presumption of advancement to couples engaged to be married, following Moate v Moate

[1948] 2 All E.R. 486 and Wirth v Wirth (1956) 98 C.L.R. 228, they felt

unable to extend the presumption to cohabitees (at [74]). It was stressed

that the strength of both the presumption of resulting trust (at [52]–[55])

and that of advancement (at [78]) varied with the facts. It was also clarified

that although financial dependence was relevant to the strength of the

latter presumption, it was but one factor to be considered by the court.

Whereas financial dependence, together with a legal, moral or other duty,

informed the court as to the “nature” of the relationship between theparties, the “state” of the parties’ relationship (whether the parties were

close and caring or merely in a relationship of formal convenience) was

also relevant (at [78]).

This view of the law poses a number of difficulties. First, it is

difficult to grasp the distinction between the “nature” and the “state”

of a relationship beyond the simple point that most relationships that

may trigger a presumption of advancement are complex and multifaceted

with the result that all aspects of the relationship must be considered to

ascertain the strength of the presumption. It does not seem helpful todivide the various aspects of a relationship between the “state” and the

“nature” of a relationship.

Secondly, by ascribing two very different rationales to the presumption

of advancement, the Singapore Court of Appeal sets the stage for the

presumption of advancement to be pulled in two opposing directions

by the two in some cases. For example, should the presumption of





advancement be regarded as strong in the case of an abusive fatherwith a paraplegic and dependent child who is a minor? The “obligation”

aspect of the presumption suggests that it should whereas the “inherent

probabilities” aspect of the presumption suggests that it should not. Which

aspect of the rule is to prevail? One possible view is that the “obligation”

rationale of the presumption of advancement is itself merely one aspect

of the “inherent probabilities” rationale of the presumption in that the

law presumes that people are inherently more likely to perform their

obligations than not. However, neither Lau Siew Kim nor any of the cases

emphasising the “obligations” aspect of the presumption of advancement

explicitly support this view.

Thirdly, whilst supporting the presumption of resulting trust upon the

basis that it is well-entrenched may not ultimately be convincing to the

man on the Clapham omnibus, the courts have almost certainly set upon

themselves an impossible task in attempting to fashion acceptable limits

to the presumption of advancement. As previously noted in these pages

((2007) 123 L.Q.R. 347 at 350), societies are becoming increasingly

diverse and it is increasingly difficult to appeal to any norms of behaviour

in particular relationships upon which a presumption of advancement is to

operate, a view accepted by the Singapore court (at [50]). It must now beincreasingly difficult for the courts to discern which views are sufficiently

predominant as to justify the judicial imposition of a particular brand of

presumption of advancement, especially since the courts do not require

evidence of social norms to be presented to them. It is perhaps telling

that whereas the Court of Appeal in Lau Siew Kim commented on the

continued relevance of the presumption of advancement from husband to

wife by appealing to the perceived strength of the spousal relationship,

the logical step of extending the presumption of advancement to apparent

gifts from a wife to her husband was not taken.The appeal to modifying and extending the categories of relationship

to which the presumption of advancement applies also suggests that this

patchwork remedying of the presumption of advancement is unsustainable.

The social climate does not change suddenly and abruptly but incre-

mentally over time. Furthermore, the changes do not equally pervade all

branches of society. Yet any presumption crafted by the courts must apply

universally to all cases. It is not easy to comprehend why the same pre-

sumption should apply to married couples in their 20s as much as those

in their 40s or even their 80s or 90s. In the circumstances, it may be thatif the courts are minded to retain the presumption of resulting trust in

its full vigour, they ought to accept that it is often inappropriate in the

circumstances, regardless of the relationship between donor and donee.

This is equally true of any presumption of advancement, however care-

fully crafted. It may therefore be preferable for the retained presumption

of resulting trust to be rebutted on the particular facts of each case rather





than encourage creative lawyers to bicker over the precise ambits of thepresumption of advancement. No great advantage seems to come from

operating a complex regime of twin interacting equitable presumptions

since most cases will almost inevitably be decided upon their facts.

A final point of note concerns the resolution of the case. Quite apart

from considering the loving relationship between the parties, the Singapore

Court of Appeal considered that whereas the presumption of advancement

from Yeo Hock Seng to Lau Siew Kim may have been rebutted as to the

life interest, it clearly was not rebutted as to the remainder. The case

therefore mirrors the Canadian case of Pecore v Pecore in result and

confirms that the evidence may rebut the relevant presumptions only

in part. It is pertinent that although the scope of the presumption of

advancement featured prominently in both cases, both cases would in

all likelihood have been decided in exactly the same fashion whether the

presumption applied (as it did in Lau Siew Kim) or not (as was the case

in Pecore v Pecore according to the majority).

It has probably been implicitly accepted as much for some time now

but Lau Siew Kim helpfully articulates that, as much as the strength of

a presumption of resulting trust depends on the facts and circumstances

giving rise to it, so too the strength of a presumption of advancement. It

is perhaps more accurate to suggest that both presumptions are themselves

very weak, but that the facts of a particular case may sometimes support,

rather than rebut, the relevant presumption. Inasmuch as both equitable

presumptions are to be retained, there will always be room for argument

as to whether the courts have accurately delimited the scope of the

presumption of advancement. However, as long as the courts feel obliged

to begin their analysis with these equitable presumptions, these difficulties

will always remain. It is by now probably a forlorn hope that the courts

will abandon the equitable presumptions in favour of making a finding of fact on the evidence, however circumstantial. The only logical role for a

presumption must be where there is an absence of any useful evidence,

a rare case perhaps only encountered in cases of illegality, and there the

only logical presumption must be that a gift must, actually as apparently,

have been intended.

KELVIN F.K LOW.*

TERMINATION AND THE THIRD TERM: DISCHARGE AND REPUDIATION

IN Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007]

HCA 61; (2007) 82 A.L.J.R. 345, the majority of the High Court of

* Assistant Professor, Faculty of Law, University of Hong Kong.

Advancement; Gifts; Intestacy; Presumptions; Resulting trusts; Singapore





Australia (Gleeson C.J., Gummow, Heydon and Crennan JJ.) formallyaccepted, for the first time, the concept of intermediate terms (of the type

described in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd

[1962] 2 Q.B. 26) for Australian law, while Kirby J. dissented on the

point. A number of points were also made concerning the language of

repudiation and other organising principles of contract law.

Koompahtoo Local Aboriginal Land Council was a land council that

owned land in New South Wales. In July 1997 it entered into a joint

venture agreement for the development of the land with Sanpine Pty Ltd,

which would be manager of the project. The agreement required Sanpineto keep proper books of account and financial records for the joint venture.

In February 2003 an administrator was appointed to the Land Council and

began making attempts to obtain information as to the financial position

of the venture from Sanpine, who had never kept proper books of account

or financial records. In December 2003, the administrator terminated the

agreement on behalf of Koompahtoo by letter to Sanpine.

At first instance (Sanpine Pty Ltd v Koompahtoo Local Aboriginal

Land Council [2005] NSWSC 3650), Campbell J. held that Sanpine had

grossly departed from the terms of the contract with Koompahtoo andhad totally failed to perform its accounting obligations under the contract.

Having regard to the nature of the agreement and the consequences of

such breaches, it was held that the breaches were sufficiently serious to

give Koompahtoo a right to terminate. Campbell J. denied Sanpine the

declaration it sought that the termination by Koompahtoo was invalid.

By majority, the New South Wales Court of Appeal allowed an appeal

by Sanpine: Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council

[2006] NSWCA 291. Giles J.A. said that Campbell J. could have decided

the case on the basis of “termination for sufficiently serious breachesof intermediate terms” or “termination because Sanpine had shown a

repudiatory intention”, and should have chosen the latter. This was

because this was seen as a case of Sanpine’s alleged unwillingness,

not inability, to perform the contract. He decided that although Sanpine

had breached the joint venture contract, the breaches did not justify

termination. Bryson J.A.’s dissent, in apparent conformity with Campbell

J.’s decision, focused on the importance of Sanpine’s reporting obligations

to Koompahtoo’s entitlements under the agreement.

The High Court unanimously allowed the appeal. The majority empha-sised the difference between renunciation of a contract, where a party

evinces an inability or unwillingness to render substantial performance of

a contract, and repudiation in the form of a breach justifying termina-

tion. Kirby J., in a separate judgment, agreed with the majority in most

respects, apart from the tripartite categorisation of contractual terms and

recognition of the intermediate term, discussed below.





The meaning of the word repudiation was considered. Two meaningswere identified: (1) conduct evidencing an unwillingness to render

substantial performance of the contract (this, it was said, could be termed

renunciation); and (2) breach of contract which justifies termination (at

[44]). The overlap between renunciation and failure of performance was

recognised as “conceptually untidy”, and there was a mild warning against

the use of the term “repudiation” to refer to the conduct of the party relying

upon another’s default. This is a little surprising for a court previously

unattracted to taxonomies.

The majority then accepted what is often said to be the taxonomy from

Hongkong Fir , recognising flexibility, limitations on the right to rescind,

and just outcomes where an inessential term was breached, as desirable

consequences of such a taxonomy (at [51]–[53]). There is a difficulty in

ascribing the terminology of intermediate term to Hongkong Fir . The title

“intermediate term” was chosen by the majority (at [51]–[52]), although

it is a phrase that none of the judgments in Hongkong Fir ever used,

was first employed in the catchwords of the headnote for the Queen’s

Bench report of Hongkong Fir and can probably be attributed to the

commentators who brought it into vogue at that time (see, for a discussion

of this, Carter, Tolhurst and Peden, “Developing the Intermediate termConcept” (2006) 22 J.C.L. 268 at 271 naming Furmston, (1962) 25 M.L.R.

584 as the originator of the phrase.) Without descending into excessive

detail, however, the majority adopted the “hybrid model”, combining the

“condition-warranty” distinction as a starting point, with the flexibility of

Hongkong Fir . And to decide if a breach of a non-essential term went to

the root of the contract, it is possible to examine the seriousness of the

breach and the adequacy of damages as a remedy (after considering the

benefit to which the injured party is entitled under the contract).

While the majority distinguished between the combined intention of theparties at the time of contracting and the intention exhibited by one of

the parties at the time of breach (at [56]), for the purpose of assessing

the seriousness of the breach, there was a curious absence of reference

to principles of interpretation. Reference was made to it being “. . . a

question of construction of the contract to be decided in the light of its

commercial purpose and the business relationship it established” (at [68]),

with nothing more before a close analysis of the facts of the instant case.

The use of Jordan C.J.’s exposition in Tramways Advertising Pty Ltd v

Luna Park (NSW) Ltd (1938) 38 S.R. (N.S.W.) 632 at 641–642 to delineateessentiality of terms disguises what Kirby J. made plain: the ascertainment

of common intention, by use of subjective considerations, in an effort to

isolate essential conditions ignores the objective significance of breach in

the circumstances (see [101]).

Campbell J.’s judgment was read by the majority as resting on the

seriousness of the breaches rather than on questions of intention or





renunciation. This is not how the majority in the Court of Appeal readthe judgment. The majority in the High Court went to great lengths to

explain the differences in interpretation of the judgment at first instance.

The extent that appellate judges could take a different view as to what

was decided reflects adversely on both the terminology employed in this

area of the law and the lack of clarity as to the applicable tests.

The majority thought that Campbell J., on the basis that he was not

dealing with renunciation, was correct in his ultimate result. The court’s

analysis as to the breaches and their consequences at [68]–[69] reveals that

the majority, in construing the contract to discover the parties’ intentionsas to the consequences of non-compliance with a term, ended up finding

that the obligation to keep the books and accounts in proper order was

“essential”. The word “essential” was used, despite the possibility of

confusing it with an “essential term” or condition. Perhaps it would have

been better to say “essential in the circumstances”, linking the term to

the circumstances as the Hongkong Fir approach requires. The court held

that the breaches were numerous, gross, and deprived Koompahtoo of a

substantial part of the benefit of the contract so as to justify termination

for breach of the intermediate term relating to keeping proper books of

account. This test of “a substantial part of the benefit of the contract” is

different to Diplock L.J.’s “deprived of substantially the whole benefit”

( Hongkong Fir at 69–70, emphasis added).

Kirby J. however saw this as a case to make some important

doctrinal changes to the categories of terms in the law of contract. His

Honour emphasised the importance of rationalising groups of cases and

taxonomies in the law of obligations. As a single sentence, His Honour

commented “Doctrine matters” (at [78]). His model saw the existence

only of conditions and warranties (for clarity), with a rule that “unless

otherwise agreed, a breach that substantially deprives the other party of

the benefit of a contract should entitle that party to terminate it, no matter

whether the term in question is essential, intermediate, or inessential”

(at [113]). Kirby J. disposed of the case by holding that the objective

significance of the breach in all the circumstances was such as to validate

termination.

But it is Kirby J.’s rejection of the intermediate term that is most

striking. His Honour makes an important point forcibly (at [107]):

“Respectfully, I disagree with this [the majority] approach. If theclassification of a contractual term as ‘intermediate’ is nothing more

than a function of ex post facto evaluation of the seriousness of

the breach in all of the circumstances, then the label itself is

meaningless. It is not assigned on the basis of characteristics internal

to, or inherent in, a particular term, as the joint reasons themselves

acknowledge. Rather, it is imposed retrospectively, in consequence





of the application of the judicial process. Effectively, there is nobasis, and certainly no clear or predictable basis, for separating

‘intermediate’ terms from the general corpus of ‘non-essential’ terms

of ‘warranties’ prior to adjudication in a court. This throws into sharp

relief the extreme vagueness of the Hong Kong Fir parties and those

advising them. It has the potential to encourage a proliferation of

detailed but disputable evidence in trial courts and consideration

of such evidence in intermediate courts. It renders uncertain the

distinctions between the several categories said to provide a legal

justification for the very significant step of terminating an otherwisevalid contract.”

The majority’s acceptance of intermediate terms necessarily involves a

court considering more of the surrounding circumstances of a transaction.

A court will do this to determine the parties’ intentions for assessing

the seriousness of the breaches. But this exercise sits uneasily with the

exclusion of parol evidence and the notion of the primacy of the written

contract. Especially in commercial cases, the parties have written contracts

operating to the exclusion of everything else which the parties did not

record. Expanding the scope of what is relevant to the interpretationquestion makes it difficult for a lawyer simply to advise on the contract

itself with a little background from the client (mentioned in Berg (2006)

122 L.Q.R. 354 at 356).

It is submitted respectfully that Kirby J.’s view is preferable. It is in

conformity with the suggestion by Ormrod L.J. in Cehave NV v Bremer

Handelsgesellschaft mbH (The Hansa Nord) [1976] Q.B. 44 at 84 that

rather than worrying about a third category of stipulation, focus should

fix on whether there has been the de facto destruction of the consideration

for a promise to reveal if there can be discharge. This was noted asa preferable view more than 30 years ago (Reynolds (1976) 92 L.Q.R.

17 at 20). The issue has, therefore, been a live one for some time and

Koompahtoo does not necessarily answer all the difficulties.

The test stated in leading text books for the right to terminate (see,

e.g. Peel, Treitel’s The Law of Contract , 12th edn (2007), at para.18.23;

Carter, Peden and Tolhurst, Contract Law in Australia, 5th edn (2007), at

p.687; Seddon and Ellinghaus, Cheshire and Fifoot’s Law of Contract , 9th

Australian edn (2008), at paras 21.11 and 21.12; Fridman, Law of Contract

in Canada, 4th edn (1999), at pp.516–532) is to focus on whether thebreach was sufficiently serious. The prospect of such breaches giving rise

to intentions not to be bound is mentioned, and the “admittedly subtle”

(in the words of Carter et al. at p.695) distinction is problematic but the

merger of the concepts of absence of willingness to perform, and serious

failures to perform, does not appear to have diminished the enthusiasm

for the application of both tests in the cases.





The use of a third category creates many difficulties of application. Thepoint is well made that a breach that substantially deprives another party

of the benefit of a contract should entitle that party to terminate it, no

matter whether the term is essential, intermediate, or inessential. To try to

ascertain the effect of a breach by reference to the categorisation of the

term which has been breached may lead to circularity of reasoning (see

Cheshire and Fifoot at p.1032). The task of identifying a third category

of term, with its own sophisticated terminology, can only exacerbate

the potential for circularity. A lawyer called to advise a client whether

to terminate faces a difficult problem, especially if terminology and

concepts overlap, with any error proving expensive. Sir Jack Beatson

has commented that in many cases an innocent party “. . . may have to

‘wait and see’ whether the consequences of the breach turn out to have so

serious an effect” ( Anson’s Law of Contract , 28th edn (2002), at p.141),

although Peel and Sir Guenter Treitel both appear to accept the need for

intermediate terms (see Peel at para.18.048 and Treitel, 11th edn (2003)

at p.797) on the basis of practicality.

Despite the definition of repudiation and the suggested use of the word

“renunciation” offered by the majority, there was no detailed discussion

of how intermediate terms interact with concepts of, and tests for,renunciation. The majority said a serious breach of an intermediate term

can justify “termination” (at [71]). There is room for overlap. Professor

Carter has observed that termination for breach of an intermediate term

and termination for repudiation may overlap, but they are conceptually

different as “the focus of the repudiation doctrine is on the intention and

acts of the promisor, whereas under the Hongkong Fir doctrine the focus

is on the consequences of the breach” ( Breach of Contract (1991), at

para.643). Guidance as to what amounts to repudiation in the sense of

renunciation may well be found in authorities dealing with anticipatorybreach (and issues of construction in the context of anti-technicality

clauses) such as The Afovos [1983] 1 W.L.R. 195 at 203 per Lord Diplock,

whose focus was on

“whether the threatened non-performance would have the effect of

depriving that other party of substantially the whole benefit which

it was the intention of the parties that he should obtain from the

primary obligations of the parties under the contract then remaining

unperformed.”

There are practical difficulties for such refined and sometimes inconsis-

tently used terminology, and the application of the test as to conduct

validating termination remains difficult. The first applications of the prin-

ciples in Koompahtoo are in the sale of land case Vella v Ayshan [2008]

NSWSC 84 and the partnership dispute in Corporate Systems Publish-

ing Pty Ltd v Lingard (No.4) [2008] WASC 21. They demonstrate some





reductionism in application. However, it may be said that both Vella andCorporate Systems were easy cases. The issue in Vella was the last one

dealt with in the judgment, seemingly as a matter of completeness to

dismiss a weak and less relevant argument. Indeed, a few missing trees

and some minor defects in a property the subject of the transaction in

Vella could not amount to so serious a breach of a non-essential term

as to mandate termination. The same could almost be said of Corporate

Systems. However, in Corporate Systems it was the lateness of delivery

of fee collections to a partner after the partners had signed an agreement

attempting to settle a dispute about alleged fraudulent breaches of trust

pending the sale of the accounting practice that fell “. . .

well short of

being of a sufficiently serious character . . .” (at [316]). This is a little

problematic. That the plaintiff never complained about his fee collections

entitlements and his partners had always intended to give him his money,

are matters that would be considered by the majority as admissible. But

if one focuses only on the contract objectively, as Kirby J. would urge,

then breaching an obligation to make payment of fees under this type of

contract, within a month of the agreement, could be viewed as serious.

Other applications of the principles in Koompahtoo may prove instructive.

While they have now been formally accepted as law in Australia, thereare still jurists and commentators who do not believe intermediate terms

should be recognised in a hybrid structure of three types of terms. That

point of divergence between the majority and Kirby J., and particularly

how common intention is to be determined, is likely to surface again in

the future.

KANAGA DHARMANANDA.*

ANTHONY PAPAMATHEOS.**

CLEARING HOUSES AND INSOLVENCY IN AUSTRALIA

SUPPOSE that A and B supply services or goods to each other at intervals.

If these are provided on credit, a sensible and economical approach to the

settlement of their mutual indebtedness is to treat their relationship as one

of running account and periodically to have the balance paid, whether

in favour of A or of B. A and B might be engaged in a network of

supply with others. Looking first at the bilateral relationship of A and

B, A may be a creditor of B at the end of the agreed period. In relation

to all members of the network (including B), however, A may be a netcreditor for a different amount or even a net debtor. In that case, the

aggregate bilateral running account relationships can be consolidated with

* Barrister, Western Australia.** Solicitor, Western Australia.

Australia; Contract terms; Development; Joint ventures; Repudiation; Termination





the aid of a clearing house. Instead of a series of bilateral net settlements,all members of the network can be taken together in a multilateral net

settlement, with consequent savings in the cost of settlement. In this way,

all net debtors will pay the sum of their indebtedness to a clearing house,

which in turn will pay the sums received over to net creditors according

to their individual entitlements. The gross amounts paid in and out will

of course be identical, even though payments in by individual net debtors

will not match payments out to individual net creditors.

Thus stated, the clearing house serves only as a device to facilitate

and abbreviate the flow of cross-remittances needed to discharge all therelevant debts. It is not the provider of goods or services, nor does it

at any point incur any obligation for the provision of those goods and

services. In the event of the insolvency of one of its members, the simple

settlement system outlined above will be disrupted in two respects. First,

amounts owed to the insolvent over the relevant period will be embraced

by a notional trust for the benefit of all creditors of the insolvent ( Ayerst

v C & K Construction Ltd [1976] A.C. 167), and not just those who

are members of the network, and may not otherwise be divested by the

insolvent ( Re Jeavons Ex p. Mackay (1872–73) L.R. 8 Ch. App. 643).Amounts owed by the insolvent will be the subject of a proof lodged in

its insolvency by those members of the network who have provided goods

or services to the insolvent. Secondly, a decision will have to be taken

about recalculating the amounts owed to solvent members inter se under

the clearing house arrangement. Should these amounts remain unchanged,

as though the insolvent were still an active member of the clearing house,

or should the insolvent member be removed from the clearing house

arrangement over the relevant period, so that net credits and debits of the

remaining members have to be recalculated? The only feasible approach isthe latter, for otherwise the clearing house itself would inherit the shortfall

representing the difference between claims made against the insolvent

and dividends received in respect of those claims. The clearing house is

designed to be a conduit and not a reservoir of debt or credit.

In securities and money markets, where the amounts at stake are

colossal, the taking of margin deposits, marked to market at intervals,

provides partial protection against the domino effect of successive

insolvencies that might otherwise be caused if one of the market entities

becomes insolvent. To be fully effective, however, this measure mustbe supplemented by other means permitting the multipartite clearance of

debts, unimpeded by the process of insolvent liquidation of the affected

market entity. Multipartite clearance in this way might be accomplished by

a statutory exemption from the normal processes of insolvent liquidation

(e.g. Part VII of the Companies Act 1989). Alternatively, a contractual

structure might be devised that strikes at the roots of indebtedness and





brings in the clearing house itself as a contractual counterparty by novationor by other means.

The contractual solution to the insolvency problem was the subject

of the Australian High Court’s decision in International Air Transport

Association v Ansett Australia Holdings Ltd [2008] HCA 3, reversing

(2006) 53 A.S.C.R. 501. No Australian legislative exemption from the

normal insolvency processes applied to the clearing arrangements in the

present case. The contract between the various members of the appellant

organisation, IATA, and IATA itself, was contained in an agreement (the

Multilateral Interline Traffic Agreement) that incorporated IATA Clearing

House Regulations. It was the same contract that had been struck down

by the House of Lords in British Eagle International Air Lines Ltd v

Compagnie Nationale Air France [1975] 1 W.L.R. 758, apart from an

amendment in reg.9(a), introduced after British Eagle, which stated that

“no liability for payment and no right of action to recover payment

shall accrue between members of the Clearing House. In lieu thereof

members shall have liabilities to the Clearing House for balances

due by them resulting from a clearance or rights of action against

the Clearing House for balances in their favour resulting from aclearance and collected by the Clearing House from debtor members

in such clearance.”

It was common ground between the parties that this amendment was

introduced to overcome the effect of the decision in British Eagle. The

former version of the Regulations had provided for “debits and credits

arising in respect of” clearance transactions to be referred to clearing

((2006) 53 A.S.C.R. 501 at [57] (Maxwell P.)).

IATA clearance comprised mainly the on-carriage costs of an airline

carrying other airlines’ passengers and their luggage. In British Eagle,Air France’s defence to a claim brought by the insolvent British Eagle

was that, as a result of the clearing house agreement, it owed nothing

to British Eagle for the carriage of its passengers and their luggage

by the latter. The claim in the Ansett case, however, was not brought

by one airline against another but by the IATA clearing house itself

against a net debtor airline, Ansett, which had been made the subject

of a deed of company arrangement, executed after Ansett had been put

into administration (Corporations Act 2001 ss.439A and 444A). Ansett

therefore posed in an even more direct way than British Eagle the questionwhether the clearing house agreement was compatible with insolvency

law. It was contended by Ansett that the clearing house agreement for the

settlement of claims was (a) repugnant to statutory provisions allowing

only the administrator to deal with a company’s property (Corporations

Act 2001 s.437D) and providing for a set-off of mutual credits and mutual

debts (Corporations Act 2001 s.553C); and (b) more generally, contrary





to public policy inherent in insolvency legislation. Reversing the majoritydecision of the Victoria Court of Appeal, the High Court by a majority

(Kirby J. dissenting) ruled that the change in reg.9(a) was sufficient to

preserve the clearing house agreement from being struck down on either

of the above grounds.

The repugnancy argument turned upon an analysis of the indebtedness

that arose whenever goods or services were supplied by Ansett. Was a debt

for these services at any time owed by one airline to another, or was there

from the outset only the obligation of a net debtor airline to pay the sum

of its indebtedness to the clearing house, and the right of a net creditor

airline to receive from the clearing house the sum of its entitlement?

This question was treated throughout these proceedings as dependent

on the construction of the clearing house agreement. In the Victoria

Court of Appeal, the majority held that the agreement gave rise to debts

between the airline issuing tickets and the airline carrying passengers,

and these debts remained in existence until cleared. Regulation 9(a) could

not be read in isolation from other provisions of the agreement and

Regulations. Numerous indicators pointed to a continuing indebtedness

between member airlines. These included provisions: excluding garnished

debts from the clearance process, which recognised that there were debtsbetween individual airlines that could be garnished; treating clearance

(as opposed to notification of claims for clearance) as constituting a

satisfaction and discharge of all claims dealt with in clearance; and

deeming all debts in clearing to be “mutual debts of the parties involved”.

The arguments of the majority in the Victoria Court of Appeal were

accepted by the lone dissentient in the High Court, Kirby J., who went

on to add that under the Regulations there was “no novation to IATA

of the debts originally incurred” between airlines. IATA never at any

time became a central counterparty but acted only as a clearing agent([2008] AHC 3 at [137]). Furthermore, according to Kirby J., there were

various contingencies, whose occurrence could not be known at the time

of the on-carriage arrangements, which if eventuating would require direct

enforcement by the carrying airline against the ticket issuing airline (at

[142]).

On the construction of the agreement, the arguments of the majority in

the High Court lack the power of Kirby J. and the majority of the Victoria

Court of Appeal. With respect to Gleeson C.J., Ansett’s claim is not

satisfactorily disposed of by a finding that reg.9(a) was IATA’s responseto the British Eagle decision and a simple statement that the regulation

was not incompatible with the rest of the agreement (at [22]). The other

majority judgment (Gummow, Hayne, Heydon, Crennan and Kelfel JJ.)

throws little more light on the reasons why reg.9(a) was compatible with

the rest of the agreement. This judgment also lays heavy emphasis on

reg.9(a) itself, so that “the only debt or credit which arises is that between





IATA and the member airline in relation to a final, single balance of allitems for the relevant clearance” (at [60]). There may have been rights

and obligations arising between airlines, but they were not associated with

a debtor-creditor relationship, and there was certainly no question of any

debt between airlines being “annihilated” (the language of the majority

in the court below) and “replaced” by a debt between an airline and the

IATA clearing house (at [62]). Given the complexity of the agreement and

the Regulations, however, it is inherently unlikely that their fundamental

character could be altered solely by means of the amendment made to

reg.9(a).There remained the issue of public policy, which fell away in the

Victoria Court of Appeal once the majority reached its decision in favour

of Ansett on the construction of the agreement. Three points may be

made here. First, it was not a contentious matter in this case that the

rules on pari passu distribution and the orderly disposition of insolvents’

estates applied just as much to a deed of company arrangement executed

after a company went into administration as they did to other forms of

insolvency distribution. The deed of company arrangement was binding

on all creditors (Corporations Act 2001 s.444D). Ansett’s objection to theagreement was that it allowed individual airlines to benefit from payments

made by Ansett when they were not making a claim under the deed of

company arrangement and when, if they had not received services from

Ansett, they could not have used set-off to recover the value of services

given to Ansett (at [92]).

Secondly, Kirby J. implies that if debts that, in his opinion, were

owed by one airline to another had been transferred (the word he uses

is “novated”) subsequently to the IATA clearing house, instead of merely

being dealt with by the clearing house as a clearing agent, this would nothave been repugnant to insolvency legislation (at [137]). Nevertheless, he

then goes on to recite an argument that might be used to strike down

such transfers, namely, the absence of mutuality between the relevant

debtor airline and the IATA clearing house (at [138]). As stated, this is

an application of the principle in Re Jeavons Ex p. Mackay that assets

may not be divested on insolvency so as to shrink the estate available

for insolvency distribution. This principle poses a threat to novation

arrangements but it is important to note its limitations. The position of

IATA, in relation to executed on-carriage arrangements and accrued debts,is quite different from the position of a clearing house in securities and

financial markets. The latter clearing house is novated to executory future

and forward contractual obligations incurred in market conditions, where

mutuality at all times is present. If there had been a subsequent transfer

to IATA of Ansett’s rights against other airlines, it would not be easy to

identify matching benefits transferred by IATA to Ansett.





Thirdly, the arguments of Ansett on public policy were more broadlypresented in the High Court and indeed appeared to challenge contractual

agreements “which purport to circumvent or dislocate the order of

priorities” that would arise on insolvency distribution, specifically, in this

case, the distribution provided for in a deed of company arrangement

and given statutory effect by the Corporations Act (at [72]). Ansett’s

public policy position, as expressed, is too extravagant to be acceptable.

There already exist statutory provisions dealing with unlawful preferences,

undervalue transactions and fraudulent conveyances that are designed to

shore up an estate so as to preserve value for creditors on an insolvency

distribution. The introduction alongside these provisions of a public policy

principle of uncertain scope would render the limitations of these statutory

provisions otiose. Furthermore, Ansett’s public policy principle would

require very little extension to strike at the very roots of secured credit,

given that in equity a promise to grant security is as good as security.

The High Court decision in International Air Transport Association

v Ansett Australia Holdings Ltd gives some comfort for the view that

clearing house arrangements can be rendered proof against insolvency

distribution rules if appropriately drafted. In the end, however, it is all a

matter of contractual construction, and cases on contractual constructionare of limited effect outside their immediate spheres. Legislation rendering

clearing immune from insolvency procedures is likely to be a surer path

than contract, and contract that creates a debt owed in the first instance to

the clearing house, or novation that transfers both rights and duties under

an executory contract, are likely to be more effective than a mere transfer

of indebtedness under an executed contract.

MICHAEL BRIDGE.*

THE

INN OF THE

OUTER

TEMPLE

IN 1973 Professor Simpson announced the discovery of a puzzling

reference to the Outer Temple in a manuscript year-book account of the

serjeants’ call of 1425.1 In addition to two new serjeants from the Inner

Temple and one from the Middle Temple, one new graduand (William

Halle) is described as being of the Outer or Utter Temple (“de exteriori

Templo”).2 Simpson posed the question whether this last was merely

a geographical address or the name of a hitherto unknown institution,

and concluded that it was most likely to have indicated an institution. It

was presumably established within the bounds of the Temple but outside

* London School of Economics.

Australia; Insolvency; Multi-party disputes; Recognised clearing houses1The full French text is printed in Baker, The Order of Serjeants at Law (1984), at p.260.2Simpson, “The Outer Temple as a Legal Inn” (1973) 89 L.Q.R. 32–35. The term “Outer Temple”

was resurrected in Victorian times and is still in use; but in the 15th- and 16th-century vernacular the

preferred adjective seems to be “Utter”, as in the case of utter-barristers.





the city bars, and might perhaps be the same as “lostel du Templebar”mentioned in a letter of 1426.3 The present writer, while cautiously

treating the mystery as unresolved, has been inclined until now to favour

the mere-address theory.4 Only two other references had been found to

individuals described as “of the Outer Temple”: one of them a John Brown

(not certainly identifiable) in 1480, and the other Anthony Wood in 1535.

Now, Wood was a member of the Middle Temple, where he read in 1540,

and so by his time the Outer Temple can only have been an address. It

is evident from the records of the two existing societies in the Temple

that the place was inhabited in the early 16th century by members of both

those societies. In 1510 and 1517, the Inner Temple assigned chambers in

a tower or “bastelle” in the Outer Temple (“in exteriori templo”), 5 though

no one is very sure what this was or what title the Inner Temple had

in it. In 1517, however, the Inner Temple was also complaining to the

Middle Temple about a latrine in “le utter Inne” which was a nuisance

to its members there, a complaint which seems to show that the Middle

Temple had control over at least part of the place, or over its members

living there.6 There are no references to the Outer or Utter Temple in

either inn’s records after 1521.7 By the early 17th century it was not even

wholly clear where it had been.8 But none of this disproves the possibility

that the Outer Temple had once been deemed an inn.

A recent discovery in the King’s Bench plea rolls has placed it

beyond doubt that Professor Simpson was right, as far as the earlier

15th century is concerned.9 In Michaelmas term 1448 an action upon the

statute of maintenance was brought by Thomas Tewe and William Horne

of Daventry, Northamptonshire, gentlemen, against William Catesby

3Letter from Prior John Paston to “les courtesans demorans en lostel du Temple-bar en la cite de

Londres”, January 23, 1426, informing them of the excommunication of William Paston, serjeant at law:

Brit. Lib. MS. Add. 27443, fo. 79; printed in N. Davis (ed.), Paston Letters and Papers of the Fifteenth

Century, pt II (1976), p.507, no.868. As Professor Simpson pointed out, “courtesans” here means menof court. It is possible, of course, that the reference is to the whole of the Temple.

4“The Inner, Middle and Outer Temple” in Baker, An Inner Temple Miscellany (2004), at pp.24–31;reprinted with some alterations from The Common Law Tradition (2000), at pp.29–36.

5Inner Temple Archives, PAR 1/1, fo. 25 (“Robertus Pett et Audele assingnantur in cameram ubiEdwardus Halys jacet in le Bastelle in exteriori templo”). There is another reference to the Bastille in

PAR 1/1, fo. 39 (“Thomas Newton assignatur in camera cum Hassall in ulteriori templo in le bastellesalvo jure cujuslibet”). There is another assignment to chambers (undescribed) in 1517: PAR 1/1, fo. 38v

(“Thomas Denny admittitur cum Johanne Chapnes uno secundario de London. in exteriori templo ubiChedley nuper jacuit”).

6PAR 1/1, fo. 42v (“Item ordinatum fuit ad istud parliamentum quod M. Wye et ego communicaremus

cum Tresorario medii Templi pro reformacione unius latrini facti in le utter Inne ad nocumentum sociorumnostrorum ibidem”).

7PAR 1/1, fo. 78v (“Sydenam admissus est in camera in exteriori templo ubi Swyllyngton prius jacuit

. . .”).8Sir George Buc, “The Third Universitie”, appended to Stow, Annales (1615 edn), col. 971, identified

it as Exeter House, which once belonged to the bishops of Exeter and lay between the Middle Temple,

Exeter Street and the Strand.9KB 27/750, m. 105. The discovery was made by Professor Jonathan Rose of Arizona State University,

who very generously furnished the writer with a copy of the roll.





of Ashby St Leger, esquire, Robert Catesby of Newnham, gentleman,Richard Scoter of Daventry, butcher, Thomas Willoughby of “Berughby”

[?Barrowby], gentleman, and Thomas Nayleston of Buckby, yeoman, for

supporting an appeal of robbery brought against them and others in the

King’s Bench by Richard Warde. William Catesby pleaded that he was a

fellow of the Inn of the Inner Temple, which was an inn of men of court

and of counsellors of the law (“unus sociorum hospicii interioris Templi

London . . . quod quidem hospicium est quoddam hospicium hominum

de curia legis temporalis et hominum consiliariorum legis predicte”), and

that he was retained in the appeal as counsel learned in the law. This

is interesting as showing that Sir William Catesby (d. 1479), as he later

became, was of the same society as his better known son of the same

name, who was chancellor of the Exchequer and a bencher of the Inner

Temple in Edward IV’s reign. It is also interesting as being the earliest

example so far found of a lawyer explicitly pleading membership of an

inn of court as a professional qualification, using a formula which has

hitherto been known from an undated Lincoln’s Inn precedent printed by

Rastell.10 A third point of interest is the subsequent pleading, in which

the plaintiffs replied that Catesby had given his own money to support

the appeal, and Catesby rejoined that he had lent it to the appellor in hispoverty; this shows that it was considered professionally appropriate, or

at least legally permissible, for counsel to lend money to their clients to

enable them to litigate.

More interesting still, however, is Thomas Willoughby’s plea, which is

identical to Catesby’s except that he claimed to be a fellow of the Inn of

the Utter Temple (“unus sociorum hospicii exterioris Templi”), which he

accorded the same status as an “inn of men of court and of counsellors

of the law”. We do not know much about this Thomas Willoughby, save

that he was escheator for Northamptonshire and Rutland in 1453–54. Butwe can no longer doubt that what he belonged to was an institution or

society. Moreover, his plea shows that in 1448 some considered even

lesser inns to be “inns of men of court”, as indeed in a non-technical

sense they were; this is confirmed by a Clement’s Inn precedent, using

the same formula, supposedly dating from 1479.11 Yet Sir John Fortescue,

who was himself a prominent member of Lincoln’s Inn in the 1420s and

1430s, and in whose court (as chief justice) the 1448 case was brought,

wrote that there were four inns of court (hospicia curiae), and this number

cannot have included the Utter Temple. It must therefore have been oneof the hospicia minora or inns of chancery.12 By the end of the century

10W. Rastell, Colleccion of Entrees (1566), fo. 396, pl. 16. This pleading, which may be later, alsoalleges that the inns were immemorial; but this allegation is not made in the 1448 case.

11W. Rastell, A Colleccion of Entrees (1566), fo. 107; 78 Selden Soc. 218. It has not been found in

the roll cited (Mich. 19 Edw. IV, ro. 61).12Chrimes (ed.), De Laudibus Legum Angliae, 2nd edn (1949), at p.116.





it would be unthinkable to call a serjeant from an inn of chancery, sincethose lesser inns had become associated with students and attorneys. But

a serjeant is said to have been called from Clifford’s Inn in 1396,13 and

although this was unusual enough to be recorded in the hall window there,

it was also a proof that there had once been no very precise professional

distinction between the greater and lesser societies. Fortescue said there

were ten inns of chancery. Since only nine survived in the early Tudor

period, the Outer Temple may well have been the tenth.14 But it cannot

have been a viable independent institution if it lacked a hall, and that is

doubtless the principal reason why it did not survive. By the 16th century

we have reports of moots in the inns of chancery, and tables of mooting

days in each of them, but no mention is ever made of the Outer Temple.

As a separate entity it had ceased to exist.

J.H. BAKER.*

13William Skrene: Baker, Order of Serjeants (1984), at p.159, fn.7.14The only other candidate so far is an even more obscure institution called the Long Entry. Thomas

Swan, as “pensionarius hospicii vocati Le Longentre”, brought a suit for dues in 1476 (CP 40/859, m.439). This was probably the messuage in St George’s Lane in the parish of St Sepulchre’s “cum longo

et stricto ingressu” left by John de Tamworth (a Chancery clerk who died in 1374) and which is thought

to have been part of an inn of chancery called St George’s Inn: Williams, Early Holborn (1927), i. 146,149, 157. This house was occupied by Bryan C.J., who also owned Thavies Inn. Since Swan was himself sued for dues by Thavies Inn in 1477, it is possible that the Long Entry was an outpost of Thavies Inn.

* St Catharine’s College, Cambridge.

Court of King’s Bench; Inns of Court; Legal history




INTERNATIONAL LAW IN DOMESTIC COURTS:THE DEVELOPING FRAMEWORK

INTRODUCTION

TO an extent almost unimaginable even 30 years ago, national courts

are called upon to consider and resolve issues turning on the correct

understanding and application of international law.1 Increasing reference

to international law in the English courts has put pressure on established

doctrines of English constitutional law. In this article, we attempt an

evaluation of the current position, and suggest ways in which the influence

of international law upon domestic law should be mediated by our

constitutional law.

In a dualist state such as the United Kingdom, international law and

domestic law are regarded as separate legal systems, operating on different

planes.2 International law does not, as such, form part of the domestic legal

system. While in particular instances rules of international law may applyin domestic law, they do so by virtue of their adoption by the internal law

of the state.

On the traditional view, international law was concerned almost entirely

with the relations and activities of states. This situation began to change

particularly in the years following the First World War, when the Covenant

of the League of Nations was drawn up, together with Minorities Treaties.

In the years since the end of the Second World War, international law has

been transformed. Significant changes in the form, content and sources of

international law have occurred, as well as the appearance of new areas of international law. The idea of universal human rights gathered momentum

and legal obligations owed by states to individuals were created.3

States may confer upon individuals the right of direct access to

international tribunals. The right of individual petition to the European

Court of Human Rights in relation to the European Convention on Human

Rights (ECHR) was accepted by the United Kingdom from January 14,

1966. Similar mechanisms of complaint in other treaties are not obligatory

(for example, the Optional Protocol to the International Covenant on Civil

and Political Rights—ICCPR), and have not been accepted by the UnitedKingdom.

1Compare, e.g. Brierly, “International Law in England” (1935) 51 L.Q.R. 24, with Lord Bingham of Cornhill in the foreword to Fatima, Using International Law in Domestic Courts (2005).

2Jennings and Watts, Oppenheim’s International Law, Volume 1: Peace, 9th edn (1992), at pp.54–55.3Jennings, “An International Lawyer Takes Stock” (1990) 39 I.C.L.Q. 513; Brownlie, Principles of

Public International Law, 6th edn (2003), at p.536.

388



JULY 2008] International Law in Domestic Courts 389

Important areas of international law have appeared or been substantiallydeveloped in recent decades through treaties relating to, for example, the

protection of the environment, international criminal law, exploitation of

resources and raw materials, energy, trade, etc. International law in the

form of binding customary rules (customary international law—CIL) has

also expanded and come to be perceived as a dynamic human artefact

which changes and may be consciously developed over time.4

THE CONSTITUTIONAL CONTEXT

Since the effect of international law in domestic law depends on domesticconstitutional arrangements, it is necessary to recall certain fundamental

constitutional principles. The primary principle is that of the sovereignty

of Parliament in the making of laws.5

This principle has a long history and a powerful modern underlying

rationale, in the form of the primacy to be accorded democratic decision-

making in laying down the general law.6 Democratic decision-making

presupposes a political community constituting a constituency to be

governed by defined representative institutions, typically provided by

the nation state.7

The principle of parliamentary sovereignty has beensubjected to criticism in certain respects. We do not propose to address

these debates in this article, since as Lord Steyn has said, even if

one subscribes to the view that parliamentary sovereignty may be

qualified: “Nevertheless, the supremacy of Parliament is still the general

principle of our constitution.”8 Moreover, whatever may be the limits

(if any) to parliamentary sovereignty and the democratic principle, there

is little doubt that in the modern world, at least in the West, the

democratic principle is in general terms the primary source of legitimacy

for authoritative decision-making, particularly in making laws.

9

It is aprinciple which is itself well recognised in modern case law.10 Therefore,

it seems inevitable that an analysis of the extent to which international

law is incorporated into English domestic law will have to grapple with

how to deal with norms which are binding in international law (generated

4See, e.g. Dunworth, “The Rising Tide of Customary International Law: Will New Zealand Sink or

Swim?” (2004) 15 Public Law Review 36; Byers, Custom, Power and the Power of Rules: International

Relations and Customary International Law (1999).5“The Bedrock of the British Constitution”: R. (on the application of Jackson) v Attorney-General

[2005] UKHL 56; [2006] 1 A.C. 262 at [9] (Lord Bingham).

6Goldsworthy, The Sovereignty of Parliament: History and Philosophy (1999).7Canovan, Nationhood and Political Theory (2002); Miller, Citizenship and National Identity (2000);

Scruton, A Political Philosophy (2006), Ch.1; Hobsbawm, Globalisation, Democracy and Terrorism

(2007), at pp.97–98. For discussion of the difficulties of transposing the related practices of democracyand citizenship from the nation state to transnational organisations, see Miller, esp. Ch.5; Hobsbawm,

p.118.8 Jackson [2005] UKHL 56 at [102], emphasis in original.9See, e.g. Dunn, Setting the People Free: the Story of Democracy (2006).10See, e.g. Hatton v United Kingdom (2003) 37 E.H.R.R. 28, GC, at [97].





by modes of production external to the democratic procedures whichoperate within the constitution) but which have not been endorsed under

the principal mode of production of binding norms in domestic law (by

enactment by Parliament), and which may not be consistent with or

reflected in ordinary domestic law.

The second principle is that of the separation of powers, between the

legislature, the executive and the courts. The legislature makes new laws

and the executive governs within the framework created by those laws.

It is established that the Crown (the executive) cannot change the law

by the exercise of its prerogative powers. Even before the Civil War,

this principle was judicially recognised in the Case on Proclamations 11:

“. . . the King by his proclamation or other ways cannot change any part

of the common law, or statute law, or the customs of the realm”. The

proposition is further underwritten by more than 300 years of history,

including the Civil War itself. Another aspect of the separation of powers

doctrine is the way in which it distributes legitimacy of decision-making

as between the judiciary, the executive and the legislature. The courts

recognise the limits of their judicial expertise and that there are aspects

of executive behaviour that they are ill equipped to decide for themselves

(the deployment of the armed forces and the conduct of foreign affairs are

paradigm examples). Where decisions require legitimacy as the product

of the democratic process, the courts will accord respect to the judgments

of the legislature and executive. The courts also recognise that while they

may develop the common law as cases present themselves, in accordance

with its underlying values and principles, they are ill suited to determine

questions of social policy or administrative feasibility. These principles are

deeply rooted in the modern polity in notions of democratic legitimacy,

that it is for those representing the people in Parliament, and not the

executive or the unelected judiciary, to make the law.Care should be taken, when articulating the rules which govern the

acceptance of norms of international law into domestic law, not to

undermine these fundamental domestic constitutional principles. Within

our legal and political system, potential dissonance between domestic

law and international law is the price which is paid for the benefits of

self-governance via a democratic system within the nation state. Whilst

there may sometimes be a desire to see rules of international law which

are thought, perhaps, to be more progressive than ordinary domestic law

incorporated by judicial adoption into domestic law,12 this is a pathwhich would in our submission undermine these domestic constitutional

principles to an unacceptable degree.

11(1611) 12 Co. Rep. 74 at 75.12See, e.g. Re McKerr [2004] UKHL 12; [2004] 1 W.L.R. 807 at [48]–[50] (Lord Steyn).





There are two particular risks which should be mentioned, which flowfrom the very different political processes involved in, on the one hand,

seeking to negotiate compromises which take account of the competing

interests of a range of states at the international level and, on the other,

seeking to work out solutions to problems through the domestic political

process, taking detailed account of the competing interests internal to a

state to produce a result which is politically acceptable within that state.

First, the negotiation of a treaty or the development of a practice which

may come to contribute to the development of a rule of CIL, where it

takes place without the detailed internal political debate and compromiseappropriate for hammering out detailed rules of law for application in

the domestic legal order, leads to the risk of political gestures, (often

deliberate) ambiguity13 and insufficiently focused and detailed treaty

provisions or practices on the plane of international relations being

translated too readily into binding domestic legal rules.14 This is a risk

which is magnified by changes which have occurred since the 19th century

in the form of legal scholarship in the field of international law. The

indeterminate and highly contestable nature of many treaty provisions

and practices of states leaves it open to legal commentators to seek to

press for particular interpretations of such provisions or acceptance of

such practices as founding rules of CIL (or supporting interpretations of

treaty provisions15) which they regard as desirable, blurring the boundary

between interpretation and political advocacy. This has been contrasted

with the more rigorous, positivist, “scientific” approach to identification

of rules of international law in the sort of cataloguing treatises on the

subject produced in earlier times.16 Domestic courts are largely dependent

on commentaries to identify rules of international law and to assist in their

interpretation (it is rare that any evidence in the usual form is adduced in

proceedings).

13cf. R. v Secretary of State for the Home Department Ex p. Adan [2001] 2 A.C. 477 at 495–496.14This is the other side of the coin from the obiter comment by Cooke P. in Tavita v Minister of

Immigration [1994] 2 N.Z.L.R. 257 at 266, about the unattractiveness of an argument that a treatyhad no effect in the domestic legal system. For illustration of the problems which can arise throughthe dissonance between the international political process and the domestic, constitution-bound political

process, see Charlesworth, Chiam, Hovell and Williams, “Deep Anxieties: Australia and the InternationalLegal Order” (2003) 25 Sydney Law Review 423, esp. 435–436. Australian and New Zealand jurisprudence

in this area has proved more receptive to international law than that in England and the US, but at the costof apparently growing unease at the constitutional implications: see, e.g. Charlesworth et al.; Dunworth,“The Rising Tide of Customary International Law” (2004) 15 Public Law Review 36; Dunworth, “Hidden

Anxieties: Customary International Law in New Zealand” (2004) 2 New Zealand Journal of Public &

International Law 67.15State practice is admissible as an aid to the interpretation of treaty provisions: see Art.31(3)(b) of

the Vienna Convention on the Law of Treaties (1969).16Flores v Southern Peru Copper Corp 343 F.3d 140 (2d Cir, 2003), at fn.26, noting that contemporary

international law scholarship is “characterised by normative rather than positive argument, and by idealism

and advocacy”. Compare also West Rand Central Gold Mining Corp v The King [1905] 2 K.B. 391 at

402 and 407 per Alverstone C.J.





Secondly, there is a risk of domestic law being determined directly andwithout any sufficient mediating process at the domestic constitutional

level by the play of power relations between states at the international

level. It is those power relations which ultimately condition the state of

international law at any given point in time. Despite some shift in focus

since the Second World War as referred to above, international law remains

primarily a system of law for the regulation of relations between states,

and reflects the values which states choose to adopt in the course of those

relations.17 Any given international development may be regarded as good

or bad, depending on one’s political point of view; the point, however, is

that it is a development which to some degree may be outside the domestic

political controls which usually govern the adoption of new laws.

In the context of the United Kingdom, it should be noted that with

the development of the domestic constitution through the devolution

settlements in relation to Scotland, Wales and Northern Ireland and the

distribution of law-making powers to their respective legislative bodies,

the argument from the principle of separation of powers for maintaining

a significant distinction between domestic law and international law has

become stronger. The United Kingdom has moved towards increasingly

federal constitutional arrangements. The devolved institutions have still

less control over the assumption of obligations in international law

than does the Westminster Parliament, yet within their designated areas

of competence it is they which have democratic legitimacy and full

legislative power. That power should not lightly be treated as limited

or influenced by actions of the executive government in London, in

relation to the international obligations of the United Kingdom; nor does

it appear attractive to develop fragmented rules of interpretation which

differ depending upon whether one is looking at the legislation of the

Westminster Parliament or the legislation of the other legislatures.Also, given the sensitivity of the question of reception of international

law into domestic law to the particular constitutional arrangements

and understandings within each state, and the development of those

arrangements and understandings over time, it can no longer be assumed

that countries in the Commonwealth will necessarily adopt the same

solutions.18 Indeed, it is becoming apparent that they do not, and that

the law of (say) England, Australia and New Zealand in this area has

17See, e.g. Byers, Custom, Power and the Power of Rules (1999); Knop, “Here and There: International

Law in Domestic Courts” (1999-2000) 32 New York University Journal of International Law & Politics

501 at 503–504; Hobsbawm, Globalisation, Democracy and Terrorism (2007), at p.8 (“The defaultposition of any state is to pursue its interests”).

18cf. Tushnet, “The Possibilities of Comparative Constitutional Law” (1999) 108 Yale Law Journal

1225; Saunders, “The Use and Misuse of Comparative Constitutional Law” (2006) 13 Indiana Journal

of Global Legal Studies 37; Re Minister for Immigration and Multicultural Affairs Ex p. Lam (2003)

214 C.L.R. 1 at [65]–[77] per McHugh and Gummow JJ.; and discussion of the different constitutional

contexts in the UK and New Zealand in Hansen v The Queen [2007] NZSC 7.





developed in recent years in different ways. The point may be illustratedby reference to the seminal case in New Zealand of Tavita v Minister of

Immigration,19 in which Cooke P. emphasised that the relevant law in

New Zealand was in a state of evolution and relied on the fact that New

Zealand had acceded to the Optional Protocol to the ICCPR, providing

for individual petition to the UN Human Rights Committee, to suggest

that statutory administrative discretions in New Zealand law should be

exercised in accordance with international human rights norms. That has

led to a much increased readiness on the part of the courts in New Zealand

to accept direct impact of international law upon domestic law in other

ways too, such as by reference to an especially strong presumption that

New Zealand statutes should be interpreted compatibly with international

law: Sellers v Maritime Safety Inspector .20 But English law has developed

very differently. The United Kingdom has not acceded to the Optional

Protocol, but the relevant analogue is the United Kingdom’s acceptance

in 1966 of the right of individual access to the European Court of

Human Rights (ECtHR) under the ECHR. That did not lead to the

transformation of the relationship of English law to international law

which has occurred in New Zealand. On the contrary, prior to the Human

Rights Act 1998, English law had arrived at a settled understanding

that the ECHR did not apply directly in domestic law to govern the

exercise of administrative discretion or to provide the strong form of

interpretative obligation in respect of statutes which New Zealand law

has come to accept.21 Tavita has not been followed in England.22 In

English law, it was necessary for legislation to be passed, in the form of

the Human Rights Act 1998, to make compliance with Convention rights

mandatory for administrators (s.6(1)) and to create a similar strong rule of

compatible statutory interpretation (s.3(1)).23 The implication is that in the

United Kingdom the constitutional understanding is that, without statutory

19[1994] 2 N.Z.L.R. 257; see Geiringer, “Tavita and All That: Confronting the Confusion SurroundingUnincorporated Treaties and Administrative Law” (2004) 21 New Zealand Universities Law Review 66.

20[1999] 2 N.Z.L.R. 44, CA. See Gobbi, “Making Sense of Ambiguity: Some Reflections on the Use of

Treaties to Interpret Legislation in New Zealand” (2002) 23 Stat. L.R. 47. Cf. Hansen v The Queen [2007]NZSC 7, in which the New Zealand Supreme Court held that the interpretative obligation contained in s.6

of the New Zealand Bill of Rights Act 1990 is not as strong as that contained in s.3(1) of the UK HumanRights Act: see [57]–[62] (Blanchard J.), [149]–[158] (Tipping J.), [235]–[254] (McGrath J.). This maysuggest by analogy that the interpretative obligation in Sellers, although strong, is not as strong as that

under s.3(1) of the Human Rights Act.21See in particular R. v Secretary of State for the Home Department Ex p. Brind [1991] 1 A.C. 696; R. v

Secretary of State for the Environment Ex p. NALGO (1992) 5 Admin. L.R. 785; R. v Ministry of Defence

Ex p. Smith [1996] Q.B. 517; R. v Secretary of State for the Home Department Ex p. Launder [1997] 1W.L.R. 839, HL; R. (on the application of Hurst) v London Northern District Coroner [2007] UKHL 13;

[2007] 2 A.C. 189; and see Geiringer, “Tavita and All That” (2004) 21 New Zealand Universities Law

Review 66 at 75–76, noting the difference between English and New Zealand law on the approach tostatutory interpretation.

22See, e.g. R. v DPP Ex p. Kebilene [2000] 2 A.C. 326 at 353–356 per Laws L.J. in the Divisional

Court.23See Rights Brought Home. 1997. Cm 3782, para.2.7.





intervention, similar rules do not apply in relation to other internationalobligations.24 The constitutional understanding in the United Kingdom,

by contrast with New Zealand, has been that development of the law in

this area is primarily for Parliament rather than the courts.25

As is usual with comparative law, therefore, considerable and increasing

caution has to be exercised when reference is made to the case law of such

other jurisdictions, and it cannot be simply and straightforwardly applied

in the English context.

INTERNATIONAL

TREATIES

In the United Kingdom, the power to make treaties is an aspect of the

royal prerogative. It vests in the Crown, which acts on the advice of the

Secretary of State for Foreign and Commonwealth Affairs. There is no

requirement for parliamentary approval before a treaty is signed or ratified

by the Secretary of State on behalf of the Crown. The rules established

by such international treaties to which the United Kingdom is party, and

the obligations to which they give rise, are legally binding in international

law, but only in international law.

Unincorporated treaties

There is no general obligation in international law that a treaty must be

incorporated into domestic law.26 The executive has no power to alter

domestic law, and that limitation applies equally to the executive act of

signing and ratifying an international treaty.27 If the performance of treaty

obligations requires the alteration of existing domestic law, legislation

is required. The significance of unincorporated treaties in relation to

domestic law was thoroughly examined in JH Rayner (Mincing Lane

Ltd) v Department of Trade and Industry (“the International Tin Council

case”).28 The House of Lords reaffirmed that international treaties do

not form part of English law and that, in general, English courts have

24Also, compare cases concerning the inappropriateness of developing and changing the common lawin a field regulated in a more limited way by Parliament: Johnson v Unisys Ltd [2001] UKHL 13;

[2003] 1 A.C. 518 at [56]–[59]; Wainwright v Home Office [2003] UKHL 53; [2004] 2 A.C. 406 at[34]; McKerr [2004] UKHL 12 at [32], [51], [71], [91]; Cullen v Chief Constable of the Royal Ulster

Constabulary [2003] UKHL 39; [2003] 1 W.L.R. 1763 at [75]–[84]; Watkins v Secretary of State for the

Home Department [2006] UKHL 17; [2006] 2 A.C. 395 at [26], [32], [64].25For Australia, see Charlesworth et al., “Deep Anxieties” (2003) 25 Sydney Law Review 423;

Cranwell, “Treaties and Australian Law—Administrative Discretions, Statutes and the Common Law”(2001) Queensland University Technology Law & Justice Journal 49.

26See, e.g. Matadeen v Pointu [1999] 1 A.C. 98 at 116A–D; Observer v United Kingdom (1991) 14

E.H.R.R. 153 at [76].27See Maitland, The Constitutional History of England (1908), at p.424; The Parlement Belge (1879)

4 P.D. 129 at 149–155 (cf. (1880) 5 P.D. 197 at 204); Att-Gen (Canada) v Att-Gen (Ontario) [1937] A.C.

326, PC, at 347–348; JH Rayner (Mincing Lane) Ltd v Department of Trade and Industry [1990] 2 A.C.

418 at 476–477, 483 (Lord Templeman), 500B–C (Lord Oliver of Aylmerton).28[1990] 2 A.C. 418.





no jurisdiction to interpret or apply them. The two governing principlesidentified in the leading speech of Lord Oliver of Aylmerton were those

of non-justiciability and no direct effect.

Non-justiciability

In International Tin Council, Lord Oliver observed that domestic courts

have no competence in respect of the legal relations between sovereign

states. Also, the exercise of the royal prerogative in making treaties and

the performance of the obligations created by them are not reviewable

by the domestic courts. Traditionally, the exercise of the vast majority of

the Crown’s prerogative powers was non-justiciable. However, the courts

no longer refuse, in principle, to review the exercise of the prerogative

power, and the source of executive power is no longer determinative of its

amenability to judicial review. It is the subject-matter of the power, and

suitability for review in a particular case, that is determinative.29 Making

and breaking treaties,30 the conduct of foreign affairs and the deployment

of the armed forces are still “forbidden areas” for the courts.31

In R. (on the application of Campaign for Nuclear Disarmament) v

Prime Minister 32 the claimants sought an advisory declaration as to the

true meaning of UN Security Council Resolution 1441 and, in particular,a declaration as to whether Resolution 1441 authorised states to take

military action in the event of non-compliance by Iraq with its terms. The

question arose whether the application was justiciable. The court held

that domestic courts will not determine the meaning of an international

instrument operating purely on the plane of international law. The only

cases in which the court will pronounce on an issue of international law

are cases where it is necessary to do so in order to determine rights and

obligations under domestic law, so as to “draw the court into the field of

international law”.33 If there is no point of reference in domestic law towhich the international law issue can be said to go, the courts will not

examine the international instrument. The domestic courts do not have

responsibility or authority at the international level for interpreting and

applying international instruments, and there is a real risk of them reaching

conclusions which would not be accepted by those international organs

29Council of Civil Service Unions v Minister for the Civil Service [1985] A.C. 374; R. v Secretary of

State for Foreign and Commonwealth Affairs Ex p. Abbasi [2002] EWCA Civ 1598; [2003] U.K.H.R.R.

76 at [85].30 International Tin Council [1990] 2 A.C. 418 at 499–500; Att Gen v Nissan [1970] A.C. 179;

Blackburn v Att-Gen [1971] 1 W.L.R. 1037 at 1040B; R. v HM Treasury Ex p. Smedley [1985] Q.B.

657; Lewis v Att-Gen (Jamaica) [2001] 2 A.C. 50, PC, at 77B.31 Abbasi [2002] EWCA Civ 1598 at [106(iii)]; R. (on the application of Al Rawi) v Secretary of State

for Foreign and Commonwealth Affairs [2006] EWCA Civ 1279; [2007] 2 W.L.R. 1219.32[2002] EWHC 2759.33At [36]–[40], [47(i)] (Simon Brown L.J.). See, e.g. Adan [2001] 2 A.C. 477; Oppenheimer v

Cattermole [1976] A.C. 249; Abbasi [2002] EWCA Civ 1598; Kuwait Airways Corp v Iraqi Airways

Co (Nos 4 and 5) [2002] UKHL 19; [2002] 2 A.C. 883; see also Launder [1997] 1 W.L.R. 839.





which are in fact given that responsibility. This suggests that domesticcourts should proceed with caution, and only venture to give rulings on the

meaning and application of such instruments if there is some compelling

reason of domestic law that requires them to do so.34

In addition, the courts will not embark upon the determination of

an issue if to do so would be damaging to the public interest in the

field of international relations, national security or defence, as a matter

of the recognition of the limits of judicial expertise, and of the proper

demarcation between the respective responsibilities of the courts and the

executive under domestic constitutional law.35

In Occidental Exploration & Production Co v Ecuador 36 and R. (on the

application of Al-Jedda) v Secretary of State for Defence 37 the courts have

recently considered the question of whether the necessary “foothold” in

domestic law had been established. In Occidental, arbitrators had made

an award in Occidental’s favour under a bilateral investment treaty made

between the United States of America and Ecuador. Ecuador wished

to have that award set aside under s.67 of the Arbitration Act 1996.

Occidental raised the preliminary objection that the challenge required the

English courts to interpret provisions of a treaty, in contravention of the

rule against non-justiciability. In determining whether the interpretationwas necessary, account had to be taken of the “special character” of

a bilateral investment treaty and the agreement to arbitrate, which was

recognised under English private international law and was subject to the

Arbitration Act 1996. The Court of Appeal held that it was the intention

of the parties to the bilateral investment treaty to create rights in favour of

private investors capable of enforcement in consensual arbitration against

one or other of the signatory states, which was an aim “national courts

should aspire to give effect to because it had been agreed by states at an

international level”.38

The Court of Appeal relied upon the agreement toarbitrate which was itself recognised under the rules of English private

international law. The courts were being asked to interpret the scope of

this agreement, which provided the necessary “foothold” in domestic law

so as to make the claim justiciable. The result appears to represent a

34As there was in Adan [2001] 2 A.C. 477. Cf. International Tin Council [1990] 2 A.C. 418 at500–501 per Lord Oliver; British Airways v Laker Airways [1985] A.C. 58 at 85 per Lord Diplock;

Smith [1996] Q.B. 517 at 558–559 per Sir Thomas Bingham M.R., 564 per Henry L.J.; Briggs v Baptiste

[2000] 2 A.C. 40, PC; R. (on the application of Gentle) v The Prime Minister [2008] UKHL 20 at [8(2)],

[58]. Contracting states may attach considerable importance to the identity of the body with authority

to rule upon treaty provisions: see Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, Report of the Study Group of the International Law

Commission, Finalised by Martii Koskenniemi (April 13, 2006; A/CN.4/L.682), paras 123–137. For this

reason also, domestic courts should be slow to assume jurisdiction to do so themselves.35At [41]–[45], [47(ii)] (Simon Brown L.J.), [50] (Maurice Kay J.), [59] (Richards J.); Al Rawi [2006]

EWCA Civ 1279 at [147]–[148].36[2005] EWCA Civ 1116; [2006] Q.B. 432.37[2006] EWCA Civ 327; [2007] Q.B. 621; [2007] UKHL 58; [2008] 2 W.L.R. 31.38At [32], [37].





modest extension of an established orthodox approach, since it has longbeen recognised that where parties have entered into a domestic contract

in which they have chosen to incorporate the terms of a treaty, the court

may be called upon to interpret the treaty for the purposes of ascertaining

the rights and obligations of the parties under their contract.39

In Al-Jedda, the claimant alleged that his detention in Iraq by British

forces was in breach of Art.5(1) ECHR. The claimant was detained on the

basis that his internment was necessary for imperative reasons of security

in Iraq, and was authorised under UN Security Council Resolution 1546.

The defendant contended that the Resolution qualified the rights contained

in the ECHR through the operation of Art.103 of the UN Charter, and

that the Human Rights Act 1998 afforded the claimant only those rights

that would be acknowledged by the ECtHR. The necessary “foothold” in

domestic law came from Art.5(1) ECHR, as set out in the Human Rights

Act. Under the Act, Convention rights are only applicable to the extent that

they would be recognised on the international law plane as having effect

in relation to the United Kingdom.40 Therefore, as a matter of domestic

law, the courts were required to examine the effect in international law

of the Resolution on the rights under the ECHR.

No direct effect

The second principle identified in International Tin Council is that of no

direct effect.41 As set out above, a treaty is not part of domestic law

unless and until it has been incorporated into that law by legislation. As a

source of rights and obligations, an unincorporated treaty is irrelevant.42

Treaties, made by exercise of the royal prerogative, cannot create directly

enforceable rights in domestic law43; nor can they deprive individuals of

existing domestic law rights.

44

This principle was reaffirmed by the House of Lords in R. v Secretary of

State for the Home Department Ex p. Brind 45 and, more recently, in R. v

39 International Tin Council [1990] 2 A.C. 418 at 500F; Phillipson v Imperial Airways Ltd [1939] A.C.332.

40Compare R. (on the application of Quark Fishing Ltd) v Secretary of State for Foreign and

Commonwealth Affairs [2005] UKHL 57; [2006] 1 A.C. 529 at [25], [33]–[34], [88]. This point hadbecome common ground by the time the case reached the House of Lords: see [2007] UKHL 58; [2008]2 W.L.R. 31 at [51]–[55] (Lord Rodger of Earlsferry).

41We leave aside special cases, such as treaties of peace and cession of territory, which may in certain

situations produce domestic legal effects.42 International Tin Council [1990] 2 A.C. 418 at 499–500; also e.g. Att-Gen (Canada) v Att-Gen

(Ontario) [1937] A.C. 326 at 347–348; Hoani Te Heuheu Tukino v Aotea District Maori Land Board

[1941] A.C. 308, PC, at 324–325; British Airways v Laker Airways [1984] Q.B. 142 at 192; Winfat v

Att-Gen (Hong Kong) [1985] A.C. 733, PC, at 746.43e.g. Rustomjee v The Queen (1876) L.R. 2 Q.B.D. 69.44e.g. Walker v Baird [1892] A.C. 491.45[1991] 1 A.C. 696 at 747–748 (Lord Bridge of Harwich), 762B–D (Lord Ackner); NALGO (1992)

5 Admin. L.R. 785 at 798.





Lyons46

and Re McKerr.47

In Brind and McKerr , the House of Lords held(for the period before the Human Rights Act 1998) that the ECHR could

not be a source of rights and obligations in domestic law. The courts

had no power to enforce Convention rights binding under international

law directly in domestic law. In Lyons, both Lord Bingham of Cornhill

and Lord Hoffmann expressly held that rules of international law not

incorporated into national law confer no rights on individuals directly

enforceable in national courts.48 Consequently, judgments of international

tribunals declaring the United Kingdom to be in breach of its international

obligations are also of no direct effect in domestic law. Lord Hoffmanndismissed the argument that, as the courts are an organ of the state, they

were obliged to give effect to the state’s international obligations. He

observed that international law does not ordinarily take account of the

internal distribution of power within a state, i.e. its constitutional rules. A

rule of international law may be infringed by any state organ, including by

the actions of the Crown, Parliament or the courts. However, the domestic

constitution is based upon the separation of powers. In domestic law, the

courts are obliged to give effect to the law as enacted by Parliament. This

obligation under domestic law is unaffected by international law.49

No separate treatment of unincorporated human rights treaties

In Re McKerr 50 Lord Steyn cast doubt on the applicability of the

fundamental principles set out in International Tin Council so far as

they governed the position in relation to human rights treaties. While

acknowledging that the point had not been the subject of argument, Lord

Steyn referred to some academic criticism of International Tin Council

and highlighted what he termed “growing support for the view that human

rights treaties enjoy a special status”, citing the views of Murray Hunt51

and extra-judicial comments of Lawrence Collins J.52

Contrary to these views, with respect, there is no basis in authority or

principle for a distinction between “human rights” treaties, however they

46[2002] UKHL 44; [2003] 1 A.C. 976. See also Fisher v Minister of Public Safety and Immigration

(No.2) [2000] 1 A.C. 434, PC, at 445, and Higgs v Minister of National Security [2000] 2 A.C. 228, PC,at 241. The rule was also implicitly reaffirmed by the House of Lords in its decisions in Launder [1997]1 W.L.R. 839 at 866–867 (reference to the ECHR was relevant only because the Secretary of State had

chosen to direct himself by reference to it) and Kebilene [2000] 2 A.C. 326 at 567 (Lord Steyn), 375–376(Lord Hope), approving the application of Launder by Lord Bingham C.J. (at 340–342) and Laws L.J.

(at 352) in the Divisional Court.47[2004] UKHL 12; [2004] 1 W.L.R. 807: see at [25] (Lord Nicholls of Birkenhead), [48] (Lord

Steyn), [63] (Lord Hoffmann), [80] (Lord Rodger) and [90] (Lord Brown of Eaton-under-Heywood).48 Lyons [2002] UKHL 44 at [13] and [27], respectively.49 Lyons [2002] UKHL 44 at [40].50[2004] UKHL 12; [2004] 1 W.L.R. 807 at [49]–[50].51Using Human Rights Law in English Courts (1998), at pp.26–28.52In “Foreign Relations and the Judiciary” (2002) 51 I.C.L.Q. 485 at 496; also see his comments in

R. (on the application of Lika) v Secretary of State for the Home Department [2002] EWCA Civ 1855

at [31]. Lord Steyn’s suggestion is not compatible with the views of the other members of the appellate

committee in McKerr [2004] UKHL 12.





are to be defined,53

and all other treaties in terms of their legal effect asa matter of English law. The formulation of the relevant principle in the

authorities cited above does not draw, and the constitutional rationale for

that principle does not justify, any distinction between treaties conferring

rights on individuals and other treaties. International Tin Council was

itself about an attempt to assert rights of persons under a treaty against

a government department. Moreover, the principle has been consistently

applied to human rights treaties, in particular the ECHR, both before and

after International Tin Council.54 Lord Steyn in Re McKerr suggested

that the relevant rule was that “enunciated by the House of Lords inthe International Tin Council case”, which might itself be reviewed; but

International Tin Council merely reaffirmed an already well-established

rule of domestic constitutional law.

As to the rationale for that rule, Lord Steyn gives no good reason for

saying it does not apply in relation to human rights treaties. A number of

points should be made in response to Lord Steyn’s proposed modification

of the usual rule. First, with respect, at [50], Lord Steyn misstates the

rationale for the dualist theory which underpins International Tin Council.

He identified the rationale as being

“that any inroad on it would risk abuses by the executive to

the detriment of citizens. It is, however, difficult to see what

relevance this has to international human rights treaties which create

fundamental rights for individuals against the state.”

But this is not the rationale for the dualist theory. The true rationale is that

the Crown cannot change domestic law by the exercise of its powers under

the prerogative, which is a rule reflecting and supporting the sovereignty

of Parliament and its primacy as the domestic law-making institution in

our constitution. Rights, powers and duties may not be legislated for and

treated as conferred or imposed on anyone (private citizens or public

bodies) on whom Parliament has not chosen to confer or impose them.

Secondly, Lord Steyn suggests that the recognition of human rights

treaties as directly enforceable in domestic law would impose no

detriment on citizens, only benefits. But rights are accompanied by duties.

Respecting human rights imposes costs, both financial and in terms of

other public interests which are subordinated to them, that others in society

will have to bear. Laws L.J. expressed this point succinctly in the Court

53It is not obvious that there is any clear, workable test to identify which treaties would qualify forspecial treatment.

54See Haoni Te Heuheu Tukino v Aotea District Maori Land Board [1941] A.C. 308, PC, at 324–325; Malone v Metropolitan Police Commissioner [1979] Ch. 344 at 378–379; Re H and M (Minors) [1990]1 A.C. 686 at 721–2; Brind [1991] 1 A.C. 696 at 747H; Smith [1996] Q.B. 517; R. v Khan [1997] A.C.

558 at 579–582; Lyons [2002] UKHL 44 at [13], [27], [39]–[40], [104]; and McKerr [2004] UKHL 12

at [25], [63], [66], [80] and [96].





of Appeal in R. (on the application of European Roma Rights Centre)v Immigration Officer at Prague Airport (“ Roma Rights”)55: “the rule

[in International Tin Council] applies no less where the treaty under

consideration confers advantages; advantages here are burdens there.”

Discharging positive obligations is not cost free. Similarly, negative

obligations impose costs in the form of curtailing freedom to pursue other

goals. The costs in question may be justified in a general, political sense,

but the choices to be made are frequently controversial, as the protracted

gestation of, and debates about, the Human Rights Act 1998 illustrate.

Thirdly, in many cases Lord Steyn’s suggestion would have the effect of

creating a charge on the public purse, which the courts have consistently

held cannot be done by treaty alone.56 By another well-established

constitutional principle, it is for Parliament alone to authorise expenditure

of public monies.57 If introduction of human rights laws into domestic law

will involve financial costs to be met out of the public purse and taxation

(as it will), it is again necessary that the decision to assume those burdens

should be by the relevant representative institution, namely Parliament.

Finally, making all human rights treaties enforceable as a matter of

domestic law in the courts would involve an illegitimate exercise of a

legislative function by the courts. Different international treaties havedifferent mechanisms for enforcement, some of which have been accepted

by the United Kingdom as a matter of international law. However, for the

courts to determine that all human rights treaties are directly enforceable

in the courts of this country would result in the courts themselves

determining whether, to what extent and how rights embodied in or arising

from treaties should be justiciable and enforceable.

Incorporated treaty provisions

There is a rising trend in the extent to which domestic legislation

incorporates international treaties and makes them part of domestic law.58

In constitutional terms, this is unexceptionable and we can deal with

it shortly. As Lord Steyn emphasised in Roma Rights, there is no rule

specifying the precise legislative method of incorporation.59 Treaties may

be incorporated into domestic law by a variety of means.

For example, a statute may set out treaty terms and provide that

they are to apply in domestic law, or may include a provision with

55[2003] EWCA Civ 666; [2004] Q.B. 811 at [97].56See Halsbury’s Laws of England , 4th edn reissue, Vol. 8(2), Constitutional Law and Human Rights,

para.228.57See Dicey, Introduction to the Study of the Law of the Constitution , 10th edn (1959), at pp.315–318;

Erskine May, Parliamentary Practice, 22nd edn (1997), pp.732–737; Steele Ford & Newton v Crown

Prosecution Service (No.2) [1994] 1 A.C. 22 at 33D–G and 41C (Lord Bridge).58Fatima, Using International Law in Domestic Courts (2005), Ch.3.59[2004] UKHL 55; [2005] 2 A.C. 1 at [42].





an “autonomous” meaning taken from the treaty itself. In R. (on theapplication of Mullen) v Secretary of State for the Home Department ,60

the statutory provision in question was enacted to give effect in domestic

law to the United Kingdom’s obligations under Art.14(6) ICCPR. The

expression “miscarriage of justice” in the statute was drawn directly from

the English language text of Art.14(6), and incorporated the autonomous

treaty meaning of that expression. The key to the interpretation of

the statute was therefore a correct understanding of Art.14(6).61 Where

Parliament has clearly drawn upon a treaty when formulating domestic

legislation, a provision in the treaty may be a particularly strong guideto the meaning which Parliament intended the domestic provision to

bear.

Warning has been given that the metaphor of “incorporation” may be

misleading, for it is not the international treaty, but the Act of Parliament,

that forms part of domestic law.62 What is important from the perspective

of constitutional law is that Parliament has indicated, in domestic

legislation, that the courts should give effect to international treaty

provisions. Once Parliament has chosen to give effect to international

treaty obligations in domestic law, the courts must apply the provisionsof domestic legislation interpreted in the light of those treaty obligations.63

60[2004] UKHL 18; [2005] 1 A.C. 1.61 Mullen [2004] UKHL 18 at [5] and [9] (Lord Bingham), [35]–[36] (Lord Steyn). See also R. (on

the application of G) v Barnet LBC [2003] UKHL 57; [2004] 2 A.C. 208 at [68].62 Lyons [2002] UKHL 44 at [27] (Lord Hoffmann).63The courts are then required to look for the autonomous international meaning of the treaty, rather

than to apply domestic rules of interpretation: Adan [2001] 2 A.C. 477 at 517; Re H [1998] A.C. 72 at

87D–G; Roma Rights [2004] UKHL 55; [2005] 2 A.C. 1 at [11]–[19], [43], [57]–[71]. Some treaties areregarded as “living instruments”, which must be interpreted in the light of present day conditions: see,e.g. Brown v Stott [2003] 1 A.C. 681 at 727E–F (Lord Hope); Roma Rights at [43] (Lord Steyn). There isa similar, but (it would seem) much narrower rule (see Bennion, Statutory Interpretation 4th edn (2002).,

pp.762 et seq.), that statutes are regarded as “always speaking”, which enables their application to be

varied to some extent as conditions change over time. If the content of the international obligation changesover time, an important issue may arise whether the usual, narrow rule permitting modification of the

meaning of a statute is to be treated as including reference to the changing content of the internationalprovision. This may depend upon indications of the extent to which Parliament intended the statutedirectly to reflect the relevant international provision, or intended to establish a clear and determinate

(and essentially unchanging) rule in the domestic legal order. Where a treaty is incorporated by someform of direct reference, the usual expectation is that the content of the statutory rule changes in line with

changes in the content of the international obligation: see, e.g. Morris v KLM Dutch Airlines [2002] UKHL7; [2002] 2 A.C. 628; R. v Immigration Appeal Tribunal Ex p. Shah [1999] 2 A.C. 629; and compare

Boyce v The Queen [2004] UKPC 32; [2005] 1 A.C. 400, at [25]–[26]. In relation to the interpretationof constitutions, there may be wider scope for reference to changing international obligations: Boyce v

The Queen at [25]–[26], [55]; Matthew v Trinidad and Tobago [2004] UKPC 33; [2005] 1 A.C. 433 and

Watson v The Queen [2004] UKPC 34; [2005] 1 A.C. 472. The position is likely to be different from boththese cases where Parliament has not demonstrated an intention to give direct effect to those obligations in

the statute in question: see R. v Brown [1994] 1 A.C. 212 at 256E–F; and compare R. (on the application

of Middleton) v West Somerset Coroner [2004] UKHL 10; [2004] 2 A.C. 182; Hurst [2007] UKHL 13;

and Jordan v Lord Chancellor [2007] UKHL 14,;[2007] 2 A.C. 226; also see Abdirahman v Secretary of

State for Work and Pensions [2007] EWCA Civ 657; [2008] 1 W.L.R. 254 and Boake Allen Ltd v Revenue

and Customs Commissioners [2007] UKHL 25; [2007] 1 W.L.R. 1386 at [51] (Lord Neuberger).





Unincorporated treaties as an aid to statutory interpretation

When the courts are concerned with the interpretation of a statute in a field

where the United Kingdom is bound by international treaty obligations,64

where a provision of the statute is ambiguous there is a presumption

(which may operate alongside, and have to be weighed against, other

presumptions) that Parliament intended to legislate in a manner which does

not involve breach of those treaty obligations. In New Zealand, a different

and especially strong principle of statutory interpretation is applied, more

akin to the approach applicable in the United Kingdom under s.3(1) of

the Human Rights Act, according to which general words in legislationwhich is not ambiguous may be “read down”, or additional words read

into such legislation, in order to produce compatibility with obligations

under international law: see Sellers v Maritime Safety Inspector .65 But

in English law, the requirement of ambiguity in the legislation as the

pre-condition for application of the presumption of compatibility is well

established.66 It is a further reflection of the underlying concern in English

constitutional law (subject to legislative modification) to protect and

respect the sovereignty of Parliament: Parliament should be taken to mean

what it says in unambiguous terms, and the construction of clear legislationshould not be modified by the courts in light of the United Kingdom’s

international obligations.

Unincorporated treaties and the development of the common law

The common law is a living system of law, reacting to new circumstances

and new ideas. The courts may develop the common law in the perceived

interests of justice, although they must

“act within the confines of the doctrine of precedent . . .

the changeso made must be seen as a development, usually a very modest

development, of existing principle and so can take its place as a

congruent part of the common law web as a whole.” 67

64The same approach would apply in relation to obligations under CIL (at least, to the extent that they

were clearly established and perceived to be obligations at the time when Parliament legislated).65[1999] 2 N.Z.L.R. 44, CA.66The classic statement is that by Diplock L.J. in Salomon v Commissioners of Customs and Excise

[1967] 2 Q.B. 116 at 143E–G. See also, among many authorities, Collco Dealings Ltd v Inland Revenue

Commissioners [1962] A.C. 1 at 19; Quazi v Quazi [1980] A.C. 744 at 808D–E; International Tin Council[1990] 2 A.C. 418 at 481F–H, 500E; Brind [1991] 1 A.C. 696 at 747–749, 760D–G; Brown [1994] 1

A.C. 212 at 256E–F; JA Pye (Oxford) Ltd v Graham [2002] UKHL 30; [2003] 1 A.C. 419 at [65]; Lyons

[2002] UKHL 44 at [13]; Boyce [2004] UKPC 32 at [25] and [81]; Abdirahman [2007] EWCA Civ657 at [35]–[40]. It does not appear that Lord Diplock, in using a somewhat different formulation of the

principle in Garland v British Rail Engineering Ltd [1983] 2 A.C. 751 at 771, intended to depart from

the established substantive law on this point. Similarly, in Lyons, at [27], Lord Hoffmann referred, obiter,to the presumption as a “strong presumption”, but it does not appear that he intended thereby to weaken

the threshold condition for application of the presumption of ambiguity in the provisions to be construed.67Kleinwort Benson v Lincoln City Council [1999] 2 A.C. 349 at 377–378.





Unincorporated treaties (and obligations arising under CIL) may have abearing upon the process of development of the common law.68 If and

to the extent that development of the common law is called for, such

development should ordinarily be in harmony with the United Kingdom’s

international obligations and not antithetical to them: A v Secretary of

State for the Home Department (No.2).69 The courts are under a duty,

when free to do so, to interpret the common law in accordance with the

international law obligations of the state.70 Treaties may also be used

to resolve uncertainties in the common law.71 This may be regarded

as a principle analogous to the use of unincorporated treaties as an aid

to the construction of ambiguous legislation, save that in this context

the limit upon the courts’ powers is that inherent in the common law

itself as distinct from being derived from the principle of parliamentary

sovereignty.

A treaty is only relevant to the extent that it may provide guidance in

relation to a capacity for development already inherent in the common law

itself. In that role, a treaty may (when weighed along with other factors)

provide a perspective or a formulation of values capable of informing the

general assessment of justice which the courts struggle to achieve when

seeking a direction for development of the common law.72

However, the common law cannot be used to achieve a “backdoor

incorporation” of international treaties.73 Nor is it permissible for the

courts to develop the common law in a direction which is contrary

to legislation,74 or in a field in which Parliament has itself already

intervened to strike the relevant balance between competing interests75 or

where Parliament has abstained from legislating in a complex area where

development of the law ought appropriately to be left for the legislature

(notwithstanding the existence of relevant treaty obligations).76 In short,

68 Lyons [2002] UKHL 44 at [13] (Lord Bingham).69[2005] UKHL 71; [2006] 2 A.C. 221 at [27] (Lord Bingham).70 Att-Gen v Guardian Newspapers (No.2) [1990] 1 A.C. 109 at 238. It was on the basis of a legitimate

development of the common law that the Court of Appeal explained its decision to limit jury awards in

defamation cases by reference to Art.10 ECHR in Rantzen v Mirror Group Newspapers Ltd [1994] Q.B.670 at 692.

71 Derbyshire CC v Times Newspapers Ltd [1993] A.C. 534. See also DPP v Jones [1999] 2 A.C. 240

at 265D–F (Lord Slynn), 277E–278F (Lord Hope): reference to the ECHR for guidance was found to beinappropriate in context as there was no doubt about the content of the common law.

72See D v East Berkshire Community NHS Trust [2005] UKHL 23; [2005] 2 A.C. 373; Kay v Lambeth

LBC [2006] UKHL 10; [2006] 2 A.C. 465 at [45]. Cf. R. v G [2003] UKHL 50; [2004] 1 A.C. 1034 at

[53].73See A v Secretary of State for the Home Department (No.2) [2004] EWCA Civ 1123; [2005] 1 W.L.R.

414 at [266]–[267] (Laws L.J.), [434] (Neuberger L.J.).74 R. v Chief Constable of the Royal Ulster Constabulary Ex p. Begley [1971] 1 W.L.R. 1475, HL, at

1480 (Lord Browne-Wilkinson).75Wainwright v Home Office [2003] UKHL 53 at [34]; McKerr [2004] UKHL 12 at [32], [51], [71],

[91]; Cullen v Chief Constable of the Royal Ulster Constabulary [2003] UKHL 39 at [75]–[84]; Watkins

v Secretary of State for the Home Department [2006] UKHL 17 at [26], [32], [64].76 Malone [1979] Ch. 344 at 372–381; Wainwright [2003] UKHL 53.





all the usual restrictions upon the ability of the courts to develop thecommon law apply equally here.

Unincorporated treaties and the exercise of administrative discretion

The general position in English law is that administrative decision-

makers who have a discretion conferred upon them by statute are

not obliged to comply with or have regard to the United Kingdom’s

international law obligations when exercising their discretion, but that

they may lawfully at their own choice elect to do so.77 Put another

way, the general position is that in relation to the exercise of a

statutory discretion such international obligations are neither mandatory

relevant considerations, nor mandatory irrelevant considerations, but are

considerations which may be taken into account and treated as relevant

at the option of the decision-maker (i.e. are considerations which fall

within the class of optional relevant considerations identified by Cooke

J. in CREEDNZ v Governor General 78). However, it is always a matter

of construction of the relevant statute whether any consideration is to

be treated as a mandatory relevant consideration, a mandatory irrelevant

consideration or an optional consideration for the exercise of the discretionin question, so this general position may be departed from in particular

contexts.79

If decision-makers do choose to have regard to the United Kingdom’s

international law obligations when exercising their discretion, there is

authority that they will be required by the courts to interpret them cor-

rectly—and the courts will therefore construe and apply treaty provisions

themselves in such a case: see Launder, in which this approach was justi-

fied by reference to the domestic law anxious scrutiny principle in a case

concerning an individual’s human rights and to Art.13 ECHR regardingthe obligation to provide an effective remedy in the domestic legal order

(which was presumably relevant on the basis that this was an example

of the proper approach under the common law being influenced by an

77 Brind [1991] 1 A.C. 696; Smith [1996] Q.B. 517 at 558; Launder [1997] 1 W.L.R. 839; Hurst

[2007] UKHL 13. It was observed by Lord Denning M.R. in R. v Chief Immigration Officer, Heathrow

Airport Ex p. Salamat Bibi [1976] 1 W.L.R. 979 at 985A, that it is not realistic to expect administrativedecision-makers to know and apply all of the UK’s international obligations which might be relevant to

their decisions.78

[1981] 1 N.Z.L.R. 172 at 183; Re Findlay [1985] A.C. 318 at 334; Hurst [2007] UKHL 13 at[57]–[59]; and Al Rawi [2006] EWCA Civ 1279 at [131] (in relation to the exercise of discretions which

exist under the prerogative).79International obligations may in a particular context be mandatory relevant considerations: see, e.g.

R. v Secretary of State for the Home Department Ex p. Norney, unreported, Dyson J., September 28, 1995,

at pp.13–14 of the transcript; R. v Secretary of State for the Home Department Ex p. Fininvest SpA [1997]1 W.L.R. 743; Hurst [2007] UKHL 13 at [57]–[58]. In another context, they may be mandatory irrelevantconsiderations, if Parliament has specified clearly what the decision-maker may and may not have regard

to: see, e.g. R. (on the application of Marchiori) v Environment Agency [2002] EWCA Civ 3; [2002] Eu.

L.R. 225 at [48].





international obligation: see above).80

It is unclear to what extent theapproach in Launder may be applied in other cases where decision-makers

refer to international obligations but these factors are not applicable and

to what extent the non-justiciability principle referred to in International

Tin Council and other established constitutional principles might limit

the operation of the rule in Launder . For example, if Ministers decide

that military action should be taken abroad (an area in which the domes-

tic courts have traditionally declined to exercise any substantive powers

of review81), and (as will almost inevitably be the case) they take legal

advice about the legality of that course in international law when tak-ing related decisions under domestic law discretionary powers, does that

provide a sufficient basis for the domestic courts to rule upon that ques-

tion of international law, so that (if a court considers that the advice

received by Ministers is wrong) the court may compel them to recon-

sider whether such action may be taken or such discretionary powers be

exercised in support of it? Such a result might be thought surprising—-

particularly when one also takes into account the international political

dimension, in which sensitive diplomacy in the national interest seeking

to attract international support for the action in question might be badly

undermined by a legal ruling on the point adverse to the government.82

Such considerations led the Divisional Court in Campaign for Nuclear

Disarmament to decline to rule on the meaning of UN Security Council

Resolution 1441 at a point in time when diplomatic negotiations were

proceeding, but the degree to which its reasoning might be extended to

displace the rule in Launder once other forms of action are to be taken

by the executive is uncertain. Part of the problem here is that the exec-

utive may not have any practical option but to direct itself by reference

to international law, and if the rule in Launder is treated as unlimited it

will lead to very extensive direct application of treaties and internationallaw in the domestic courts, thereby for practical purposes undermining the

basic constitutional principle about non-enforceability of unincorporated

treaties. One solution might be for the domestic courts, in recognition of

the limits of their competence to provide a fully authoritative ruling on

80[1997] 1 W.L.R. 839 at 867C–F (Lord Hope); and see Kebilene [2000] 2 A.C. 326 at 367D–G (Lord

Steyn), 375F–376A (Lord Hope); R. (on the application of Mahmood) v Secretary of State for the Home

Department [2001] 1 W.L.R. 840, CA, at [36] (Lord Phillips M.R.); Gentle [2008] UKHL 20 at [26]

(Lord Hope); R. (on the application of Corner House Research) v Director of the SFO [2008] EWHC 714(Admin) at [113] et seq. The approach in Launder represents a major in-road upon the non-justiciabilityprinciple, and does not appear to have been the subject of significant debate in that case or subsequently.

For central government in particular, where Ministers may often seek advice about and direct themselvesby reference to the UK’s international obligations, the practical effect of Launder in making international

law the subject of domestic legal proceedings is potentially considerable.81Council of Civil Service Unions [1985] A.C. 374.82Which ruling might itself be overturned later on appeal, but after the damage has been done. On

the inevitable interconnection between the stance adopted on disputed questions of international law and

international diplomacy and politics, see Campaign for Nuclear Disarmament [2002] EWHC 2759 at

[11]–[12], [37]–[39], [41] and [43].





the point, the limits of their competence under domestic constitutionalarrangements to rule on the subject-matter in question and the dangers

posed to the national interest by them ruling definitively on the point at

all,83 either to decline to rule or to allow the executive a form of “margin

of appreciation” on the legal question, and to examine only whether a

tenable view has been adopted on the point of international law (rather

than ruling on it themselves, as if it were a hard-edged point of domestic

law). This is the approach which has been adopted by the ECtHR, when

it has to examine questions of international law which it does not have

jurisdiction to determine authoritatively itself.84 Adoption of a “tenable

view” approach would be a way—under circumstances where the proper

interpretation of international law is uncertain, the domestic courts have

no authority under international law to resolve the issue and the execu-

tive has responsibility within the domestic legal order for management

of the United Kingdom’s international affairs (including the adoption of

positions to promote particular outcomes on doubtful points of interna-

tional law)—to allow space to the executive to seek to press for legal

interpretations on the international plane to favour the United Kingdom’s

national interest, while also providing a degree of judicial control to ensure

that the positions adopted are not beyond what is reasonable. Where therelevant issue of international law affects many states, adoption of such

an approach might also provide a method for domestic courts to afford

respect to the principle of comity85 while retaining a power of review on

this basis over domestic public authorities. How criteria to limit applica-

tion of the rule in Launder might be spelled out is difficult to predict.

Perhaps the choice between the English courts seeking to adjudicate the

point of international law, or allowing the executive a “margin of appreci-

ation”, or not examining the issue at all, should depend upon the intensity

of judicial scrutiny judged appropriate in domestic law terms in the partic-ular context. In Campaign for Nuclear Disarmament the court discussed

the rule in Launder without directly qualifying it86; but at the same time

it was observed that “any future decision to take military action would

be beyond the court’s purview”.87 It would appear that this firm state-

ment could only be correct if the rule in Launder is indeed to be treated

83Since foreign states may in some contexts consider the adoption by the UK of a particularinterpretation of international law to be a hostile act, and are unlikely to distinguish between the executive

and judicial arms of government in that regard: cf. Campaign for Nuclear Disarmament [2002] EWHC

2759 at [37], [41] and [43].84See Behrami v France (2007) 45 E.H.R.R. SE10 at [122]; cf. Brannigan and McBride v United

Kingdom (1994) 17 E.H.R.R. 539 at [72].85Seeking not to rule upon legal positions adopted by other states, cf. Campaign for Nuclear

Disarmament [2002] EWHC 2759 at [37]–[39]; Gentle [2008] UKHL 20 at [8(2)], [58].86[2002] EWHC 2759 at [33]–[34] (Simon Brown L.J.); [61(iv)] (Richards J.).87[2002] EWHC 2759 at [15] (Simon Brown L.J., also at [47(iii)]); [50] (Maurice Kay J.); [59(ii)]

(Richards J.). See also Chandler v DPP [1964] A.C. 763 at 790–791, 796, 798–799, 800, 807, 809–810;

Council of Civil Service Unions [1985] A.C. 374 at 398, 407, 411, 418; Marchiori [2002] EWCA Civ 3;[2002] Eu. L.R. 225 at [38]; R. (on the application of Gentle) v Prime Minister [2006] EWCA Civ 1689





as limited by reference to more general principles of domestic consti-tutional law, which limit the potential role of the courts in this area.

So the simple proposition in Launder should be regarded as potentially

problematic, and as requiring fuller examination at some point in the

future.

Unincorporated treaties and legitimate expectations

A decision-maker exercising discretionary power in the area of public law

may create a legitimate expectation on the part of a person affected by

the exercise of that power as to the manner in which the power will beexercised. This may occur on the basis of a promise or representation

made by the decision-maker. Typical examples are a policy statement

issued by the decision-maker as to the procedures to be adopted before

the power is exercised, or as to the way in which the power will be

exercised, or a specific assurance to a particular individual how its power

will be used. The legitimate expectation fostered may be as to a benefit

which the decision-maker will in fact confer when it comes to exercise

its discretionary power (a substantive expectation) or as to the procedure

which the decision-maker will adopt before taking the decision how toexercise its discretionary power (a procedural expectation).88

The courts have considered whether the ratification of an unincorporated

treaty can generate a legitimate expectation that future executive decision-

making would be compatible with unincorporated treaty obligations. In

Chundawadra v Immigration Appeal Tribunal 89 it was argued that every

citizen had a legitimate expectation that, if the ECHR was relevant to a

matter under consideration, the Minister would take it into account when

deciding how to exercise his powers. The Court of Appeal refused to

accept this argument, holding that it was not appropriate to introduce the

Convention into domestic law by the back door of legitimate expectation

when the front door was firmly barred.

Following the decision of the High Court of Australia in Minister of

State for Immigration v Teoh,90 arguments about legitimate expectation

and unincorporated treaties in the English courts were given renewed

vigour. A majority of the High Court in Teoh held that ratification of

the UN Convention on the Rights of the Child by the Executive could

give rise to a legitimate expectation that the Minister would act in

conformity with it. The High Court rearticulated the orthodox position in

at [26] et seq.; R. (on the application of Bancoult) v Secretary of State for Foreign and Commonwealth

Affairs (No.2) [2007] EWCA Civ 498; [2007] 3 W.L.R. 768 at [102] (Waller L.J.); [117]–[118] (SirAnthony Clarke M.R.); cf. [46] (Sedley L.J.).

88see P. Sales and K. Steyn, “Legitimate Expectations in English Public Law: an Analysis” [2004]P.L. 564 at 565.

89[1998] Imm. A.R. 161.90(1995) 183 C.L.R. 273





respect of unincorporated treaties in domestic law. However, the majorityemployed the concept of legitimate expectation to extend the law, taking

the view that ratification of a treaty should not be dismissed as a “merely

platitudinous or ineffectual” act.91 The majority expressed the view that

ratification of an international treaty was a positive statement by the

Executive government to the world and to the Australian people that the

Executive government and its agencies will act in accordance with the

treaty. Mason C.J. and Deane J. jointly held92 that that positive statement

was an adequate foundation for a legitimate expectation—absent statutory

or executive indications to the contrary—that administrative decision-

makers would act in conformity with the international treaty.93 The High

Court denied that it was giving the provisions of a treaty the domestic legal

status of a rule of law, as it was not compelling a decision-maker to act

in accordance with the treaty. Rather, the effect of its judgment was that a

procedural legitimate expectation had been generated by the ratification:

i.e. if a decision-maker proposed to make a decision that was inconsistent

with the expectation, procedural fairness required that the persons affected

be given notice and an adequate opportunity of presenting a case against

that course of action.

Arguments based on Teoh were considered by the Court of Appealin England in Behluli v Secretary of State for the Home Department .94

The Court of Appeal expressly declined to follow Teoh, opting instead to

reaffirm orthodox domestic constitutional principles. Mere ratification of

a treaty could not generate a legitimate expectation that the treaty would

be followed.

However, two months later, a different division of the Court of

Appeal indicated a willingness to adopt and follow Teoh in relation to

decisions taken under the royal prerogative. In R. v Secretary of State

for the Home Department Ex p. Ahmed and Patel,95

the Court of Appealheld that the entering into a treaty by the Crown could give rise to a

legitimate expectation on which the public in general were entitled to rely

because, subject to any indication to the contrary, ratification amounted

to a representation that the Crown would act in accordance with any

91Per Mason C.J. and Deane J. at 291, citing Tavita [1994] 2 N.Z.L.R. 257 (see text at fn.19 above).But clearly, at the level of international law, the ratification of a treaty is not a platitudinous or ineffectual

act, since it creates rights and obligations under international law: see, Ex p. Lam (2003) 214 C.L.R. 1at [98] (McHugh and Gummow JJ.). However, since the Crown has no power to change domestic law,

the orthodox position is indeed that the ratification of a treaty does not create rights or obligations under

domestic law and hence is “ineffectual” at that level. Further, as Tavita has not been followed in Englishlaw, the authority of Teoh in England is questionable on that ground, among others.

92Toohey J. gave a concurring judgment, also relying upon Tavita [1994] 2 N.Z.L.R. 257 as authorityfor his view (at 300–301); Gummow J. reached the same result by a different route; McHugh J. gave astrong dissenting judgment.

93For discussion of ‘statutory or executive indications to the contrary’, see e.g. Wendy Lacey, “In theWake of Teoh: Finding an Appropriate Government Response” [2001] Fed.L.Rev. 9.

94[1998] Imm. A.R. 407 at 41595[1998] I.N.L.R. 570





obligations it accepted under the relevant treaty. The Divisional Courtfollowed this approach in R. v Uxbridge Magistrates’ Court Ex p. Adimi, to

produce the remarkable result that offences defined by statute were treated

as unprosecutable because of the terms of an unincorporated treaty.96

We respectfully submit that—to the extent that they adopt the approach

in Teoh— Ahmed and Adimi are wrongly decided in English law, both for

reasons of principle, and because they cannot be reconciled with decisions

of the House of Lords and the Privy Council. Indeed, subsequent decisions

of the Australian courts, in particular that of the High Court in Re Minister

for Immigration and Multicultural Affairs Ex p. Lam,97 have recognised

that the decision in Teoh is inconsistent with other authorities and is itself

doubtful. The decision of the Court of Appeal in Behluli, declining to

follow Teoh in English law, should be preferred.

Ratification of an unincorporated treaty does not give rise to a legitimate

expectation enforceable in domestic law for the following reasons. First,

the concept of a legitimate expectation is inapt to apply in the context of

English public law to the assumption of obligations under a treaty by the

United Kingdom. The first question to ask in any legitimate expectation

case is precisely to what the relevant decision-maker (whose discretion is

to be exercised) has committed itself.98 Ratification of a treaty involvesthe acceptance by one state of obligations on the plane of international

law. However, ratification is not intended to operate other than on that

plane. When and how those undertakings will be given effect in the United

Kingdom is essentially a matter for Parliament. Precisely because under

English law it is established that a treaty has no force in domestic law

and is incapable of operating as a direct source of rights or obligations,

ratification does not constitute a representation or undertaking operating

on the plane of domestic law to perform obligations under the treaty.

In the Divisional Court in R. v DPP Ex p. Kebilene Lord Bingham C.J.rejected an attempt to base a legitimate expectation on the ratification of

the ECHR, observing that ratification took place nearly half a century ago

at a time when it was generally assumed that ratification would have no

practical effect on British law or practice.99 In light of basic constitutional

principle, it is difficult to see why any different approach should apply in

96[2001] Q.B. 667, DC, at 686 (Simon Brown L.J.), 690–691 (Newman J.). It does not appear that

there was full argument on the point, and neither Chandawadra nor Behluli were cited to the court.Simon Brown L.J. sounded a note of caution about Adimi in Roma Rights in the Court of Appeal, [2003]

EWCA Civ 666 at [51], where he described his views in Adimi as “at best superficial” and “suspect”.97(2003) 214 C.L.R. 1, per McHugh and Gummow J. at [98]–[102], Hayne J. at [120]–[122], Callinan

J. at [139]–[140], [145], [147], [152]; the decision in Teoh is now perceived to be difficult to reconcile with

basic ideas of the separation of powers in Australian law: see esp. at [102], [147]. See also Application

of O and P [2005] NSWCC 1297 at [66]–[77]. For Ireland, compare Kavanagh v Governor of Mountjoy

Prison [2002] 3 I.R. 97, esp. at [43].98 R (Bibi) v Newham London Borough Council [2002] 1 W.L.R. 237, CA, at [21].99[2000] 2 A.C. 326, at 338D; the rejection of the legitimate expectation argument in that case was

endorsed by the House of Lords: see 368D–E.





relation to more recent treaties (and it would be very difficult to identifyany clear and workable dividing line between different treaties in this

regard).

Secondly, if ratification of an international treaty were to give rise

to a legitimate expectation that the treaty would be applied in the

United Kingdom, the executive would have effectively amended the law

of this country, contrary to constitutional principle. When a legitimate

expectation is created, decision-makers’ discretion under domestic law is

curtailed and they come under an obligation to honour it unless there is

some compelling consideration of the public interest which overrides it.

Accordingly, in Thomas v Baptiste,100 a claim to a legitimate expectation

of substantive protection founded on an unincorporated treaty was held

by the Privy Council to face an “insurmountable” obstacle, namely that

it would be tantamount to the indirect enforcement in domestic law

of an unincorporated treaty. For this reason, such a claim has been

described by Laws L.J. in the Court of Appeal in Roma Rights as a

“constitutional solecism”.101 Moreover, such a claim is contrary to the

decisions of the House of Lords in Brind , Launder and Hurst , for if there

is a legitimate expectation that the decision-maker will act in accordance

with the unincorporated treaty, that treaty will have become a mandatoryconsideration for the decision-maker.102

These points are not confined to claims for substantive legitimate

expectations. A procedural legitimate expectation also creates binding

obligations for the decision-maker in question, and on orthodox analy-

sis in England the making of an unincorporated treaty should not change

domestic law in any way. In Teoh, the High Court held that only a proce-

dural legitimate expectation was created, but this was sufficient to cause

an unincorporated treaty to have a legal impact under domestic law.103

Thirdly, in terms of settled principles of English public law, it is notfeasible to translate the obligation undertaken by the United Kingdom

on the plane of international law into an obligation in domestic law

imposed by way of legitimate expectation in relation to the conduct

of a particular decision-maker. Statements or promises made by one

100[2000] 2 A.C. 1 at 25; also see 20E and 23A–C; and see Lewis v Attorney-General of Jamaica [2001]2 A.C. 50, PC, at 83–84; Briggs v Baptiste, fn.34 above, at 54A–C. Thomas and Lewis contemplate, butdo not decide, that ratification of a treaty might give rise to some form of procedural expectation as was

found in Teoh.101[2003] EWCA Civ 666 at [99], and see [100]–[101]. Laws L.J. also pointed out that the Court of

Appeal was bound by Chundawadra and Behluli, and that these judgments had not been cited in Ahmed

and Adimi. The legitimate expectation argument was not considered by the House of Lords in Roma

Rights [2004] UKHL 55.102See also McHugh and Gummow JJ. in Ex p. Lam (2003) 214 C.L.R. 1.103The High Court of Australia has for Australian constitutional reasons declined to recognise the

concept of a substantive legitimate expectation: see Ex p. Lam (2003) 214 C.L.R. 1. This point in itself should give pause for thought before adoption of the Teoh analysis into English law, where attempts

are made to rely upon treaties as creating enforceable substantive legitimate expectations—an effect in

English law which goes far beyond the effect on Australian domestic law contemplated in Teoh itself.





public body cannot create any binding legitimate expectation in relationto another decision-making public authority, unless made with the latter’s

actual or (possibly) ostensible authority. In R. (on the application of Bloggs

61) v Secretary of State for the Home Department the Court of Appeal

held that a legitimate expectation can only be created on the basis of

statements, promises or practices of the relevant decision-maker itself.104

But the Crown does not enter into treaties on the basis of any actual or

ostensible authority provided by other decision-makers, in their capacity

as such. Therefore, any expectations that ratification might create cannot

bind Ministers exercising statutory powers vested in them nor other public

bodies (such as a local authorities, immigration officers, etc.) discharging

their own statutory functions, as enforceable legitimate expectations. This

analysis marries up with other established principles in English public

law. The basic reason why discretions are conferred by Parliament upon

decision-makers is to ensure that there should be flexibility in the decision-

making system,105 whereby decision-makers can adjust their responses to

take account of unforeseen circumstances or to allow scope for different

evaluations to be made of how to act.106 Statutory discretionary powers

are conferred upon a particular decision-making body because Parliament

intends that body to exercise its own judgment in the light of the particular

circumstances of a case. Parliament leaves it as a matter of discretion and

does not prescribe the outcome, because it has not felt able or thought

it desirable to determine in advance how the decision-maker should act.

Discretionary decision-makers designated by statute cannot lawfully act

at the dictation of another, and must exercise their own judgment how the

discretion should be used, without fettering it or delegating the decision

to another. Thus in Lavender (H) & Son Ltd v Minister for Housing and

Local Government ,107 it was held that the Minister of Agriculture could

not discharge the statutory functions of another Minister, the Ministerof Housing, who was obliged to give his own genuine and unfettered

consideration to the question before him. Ministers cannot delegate a

decision which is properly their own to another Minister, nor can they

act at the dictation of another Minister.108 Even if the Crown has entered

104[2003] EWCA Civ 686; [2003] 1 W.L.R. 2724 at [38]–[41]; see also, e.g. R. v Education Secretary

Ex p. Begbie [2000] 1 W.L.R. 1115, CA, at 1125G–H; R (Reprotech (Pebsham) Ltd) v East Sussex

County Council [2002] UKHL 8; [2003] 1 W.L.R. 348, HL; Kebilene [2000] 2 A.C. 326 at 339D–F

(Lord Bingham C.J.).105P. Sales and K. Steyn, “Legitimate Expectations” [2004] P.L. 564 at 567–570.106The same point is equally applicable where it is the residual, flexible governmental decision-making

power represented by the Crown’s powers under common law and Crown prerogative which is in issue.107[1970] 1 W.L.R. 1231.108See also Launder [1997] 1 W.L.R. 839, where one basis of challenge to the Secretary of State’s

decision to allow the extradition of the applicant was that the Secretary of State had had undue regard tothe views of the Cabinet rather than forming his own judgment. This argument was unsuccessful on the

facts, but the House of Lords did not doubt that it would have been a good ground of challenge if true:

see 858B–C, 867D–G.





into a treaty obligation on the advice of the Cabinet, it is incompatible withthe obligations of Ministers with respect to discretionary decision-making

powers conferred on them by statute for them to treat themselves as bound

(either absolutely or presumptively) by that treaty. English law does not

employ a concept of the State or the Government as a legal person: public

decision-makers are identified persons or bodies, each with their own

distinct responsibilities.109 The difficulties associated with transplanting

Teoh into English law become yet more pronounced when one considers

a claim that Ministers should be bound by the ratification of a treaty

entered into during the time when a different government held office, or

by the current government prior to them becoming Ministers.110

Thus far, we have focused upon discretionary powers conferred by

statute. Should the position be analysed differently where the decision-

maker is acting pursuant to the Crown’s common law and prerogative

powers, rather than exercising a statutory discretionary power? Might it

be said that when the Crown enters into a treaty, it creates a legitimate

expectation as to how it itself might behave when the common law and

prerogative powers of the Crown fall to be exercised subsequently?111 In

Ahmed and Patel,112 leave was given by the Court of Appeal to allow

consideration of this issue. It was in this context that the court wasprepared to accept, obiter, that the Teoh analysis might be applied in

English law so that the ratification of a treaty could give rise to a legitimate

expectation affecting the exercise of the Crown’s powers. However, the

answer to these questions ought to depend upon whether the reasoning in

relation to the Crown’s prerogative powers can be distinguished from the

arguments identified above in relation to the exercise of statutory powers.

We suggest that there is no proper point of distinction, and that the Teoh

analysis should be rejected in this context just as it should be in relation to

statutory powers. For the Crown’s prerogative powers, it is the commonlaw rather than statute which defines the extent of the discretion available

to the decision-maker, but it remains the case that for the decision-maker

to be bound by a treaty on the basis of legitimate expectation would

be to endorse the view that the making of the treaty has changed legal

rights and obligations in domestic law, contrary to orthodox constitutional

principle. Furthermore, the conceptual step made in English law to bring

109There is a revealing divide between the majority in Teoh and McHugh J., who dissented. Themajority judgments proceed on the basis of an assumption that the Australian government was somehow

to be treated as a single entity operating through a number of agents (see 291 per Mason C.J. and Deane J.;298–299 and 301 per Toohey J.); whereas McHugh J. emphasised the distinct nature and responsibilities

of different decision-makers within the executive branch (see 316–318). It is the view of McHugh J.which corresponds most closely with basic doctrine in English law.

110Cf Kebilene [2000] 2 A.C. 326.111See H.W.R Wade and C.R. Forsyth, Administrative Law, 9th edn, pp.45–47: in practice, the exercise

of the Crown’s common law and prerogative powers are controlled by ministers, since convention requires

that the Crown should act as its ministers advise.112[1998] I.N.L.R. 570; see 572e–f.





the Crown’s prerogative powers increasingly under effective review bythe courts involves focusing on the actions of the Minister responsible for

the exercise of the prerogative power rather than on the actions of the

Crown itself 113—i.e. emphasising the distinction between the effective

decision-maker (the Minister charged with responsibility for that aspect

of exercise of the Crown’s powers) and the purely formal decision-maker

(the monarch). By this means, the position of Ministers in relation to

the exercise of the Crown’s powers is equiparated with their position in

relation to the exercise of statutory powers. But this same conceptual logic

suggests that the reasoning in Teoh should not be applied in relation to

the exercise by Ministers of the Crown’s prerogative powers any more

than it is applicable in relation to the exercise of statutory powers by

Ministers. At a time when the trend in judicial review is not to draw

sharp distinctions between these two types of case, the rejection of Teoh

would also have the benefit of avoiding an awkward distinction between

them being reintroduced into the law.

CUSTOMARY INTERNATIONAL LAW

In recent years, parties to domestic court proceedings have sought to placeincreasing reliance on rules of CIL. We now turn to examine the difficult

question of the extent to which CIL forms part of domestic law.

There was a simple traditional view114 that CIL is automatically

incorporated into the common law of England. However, as Lord Bingham

has recently observed in R. v Jones (Margaret),115 this simple view

requires significant qualification. CIL is a source for the development of

domestic common law, rather than being directly incorporated into it.116

The better view—and the view that accords with constitutional principle

113See e.g. Council of Civil Service Unions [1985] A.C. 374; R v Secretary of State for the Home

Department Ex p. Bentley [1994] Q.B. 349; R v Criminal Injuries Compensation Board Ex p. P [1995]

1 W.L.R. 845, CA; R v Ministry of Defence Ex p. Walker [2000] 1 W.L.R. 806, HL; R (Association of

British Civilian Internees: Far East Region) v Secretary of State for Defence [2003] EWCA Civ 473;[2003] Q.B. 1397; Bancoult (No.2) [2007] EWCA Civ 498 at [31]–[36], [87] et seq., [114] et seq. This

pattern, treating Ministers as decision-makers distinct from the Crown itself and amenable to review intheir capacity as Ministers, is the same as that adopted historically so as to make Ministers liable for

torts committed in their capacity as Ministers: see M v Home Office [1994] 1 A.C. 377; Wade (1991) 107L.Q.R. 4.

114See, e.g. Triquet v Bath (1764) 3 Burr. 1478 at 1481; Blackstone’s Commentaries, Bk IV, Ch.5,

p.67; Duke of Brunswick v King of Hanover (1844) 6 Beav. 1 at 51–52; Emperor of Austria v Day (1861)2 Giff. 628 at 678; and, more recently, JH Rayner (Mincing Lane) Ltd v Department of Trade and Industry

[1989] Ch. 72 at 207. This simple approach was adapted by the Court of Appeal in Trendtex Trading

Corp v Central Bank of Nigeria [1977] Q.B. 529 into a rather more complex version.115[2006] UKHL 16; [2007] 1 A.C. 136 at [11].116Picciotto, The Relation of International Law to the Law of England and of the United States of

America: a Study ( 1915), at pp.105–106; Brierly, “International Law in England” (1935) 51 L.Q.R. 24at 31; Collier, “Is International Law Really Part of the Law of England?” (1989) 38 I.C.L.Q. 924 at 935.“There seems to be truth in Brierly’s contention . . . that [customary] international law is not a part, but

is one of the sources of, English law”: Jones (Margaret) [2006] UKHL 16; [2007] 1 A.C. 136 at [11]

(Lord Bingham).





in modern conditions—is that domestic constitutional law operates as afilter governing the extent to which the domestic courts should recognise

norms taken from CIL and treat them as forming part of the common

law and hence as directly enforceable in domestic law. The importance

of recognising this filter is emphasised by consideration of the nature of

CIL in its modern form and of the pace at which and processes by which

it may change:

“the new CIL differs from traditional CIL in several fundamental

ways. It is less tied to state practice, it can develop rapidly, and

it increasingly purports to regulate a state’s treatment of its owncitizens.”117

One may compare the position in Ireland, with its written constitution,

where it is explicitly recognised that the reception of CIL into domestic

law only operates to the extent that CIL is consistent with the constitu-

tion.118 Yet the United Kingdom, with a largely unwritten constitution,

equally has constitutional rules governing such matters (even if they may

be less precise and harder to identify), and the basic approach to the recep-

tion of CIL norms into domestic law should be mediated in a similar way.

As Lord Bingham observed in R. v Jones (Margaret):

“It is, I think, true that ‘customary international law is applicable in

the English courts only where the constitution permits’.”119

We suggest that the true legal position in English law has also been

obscured by the antiquity of the authorities usually relied upon to support

the proposition that CIL forms part of the common law120 (combined with

a dearth in many later cases of detailed argument to the contrary, even

though the nature of CIL has changed in modern times and comes more

directly into conflict with democratic principle in its modern form). The

position set out by Blackstone in his Commentaries related to CIL which

was established and long standing even at the time he wrote, concerning

piracy, protection of diplomats and sovereign immunity. The international

rules governing these areas could be regarded as part of the natural legal

117Bradley and Goldsmith, “Customary International Law as Federal Common Law: a Critique of theModern Position” (1997) 110 Harvard Law Review 815 at 842.

118See Horgan v An Taoiseach, the Minister for Foreign Affairs [2003] 2 I.R. 468 at 505–508. The

position in the US is complex, but Bradley and Goldsmith similarly argue in light of the US constitutionalposition that CIL should not automatically be treated as US federal law: (1997) 110 Harvard Law Review

815 at 857.119[2006] UKHL 16; [2007] 1 A.C. 136 at [23], citing O’Keefe, “Customary International Crimes in

English Courts” (2001) B.Y.I.L. 293 at 335.120 Buvot v Barbut (1736) 3 Burr. 1481, 4 Burr. 2016; Triquet v Bath (1764) 3 Burr. 1478 at 1481;

Blackstone’s Commentaries, Bk. IV, Ch.5, p.67; Duke of Brunswick v King of Hanover (1844) 6 Beav. 1

at 51–52.





order.121

Blackstone was not confronted with a legal world in which theserules were being changed or added to by processes external to the law-

making arrangements set out in the constitution of the state. Further, he

was writing at a time before the full development of democratic legal

theory in the 19th and 20th centuries, and before the full development of

credible democratic credentials of Parliament with the expansion of the

franchise over that period. These twin developments call into question

whether Blackstone’s position can continue to be accepted in modern

times.122

Not only does recognition of the dynamic and changing nature of CILin modern times in itself call into question whether it can be treated

automatically as part of domestic law123; the tension with domestic

constitutional law is heightened by consideration of the processes by

which CIL may come to be established. Two points should be emphasised

here. First, it is possible that a state may become bound by a rule of

CIL without having assented to it in any way, since under the modern

statement of the relevant principle all that is required in practice is that a

large majority of states accept the binding force of the rule in question124;

and, more generally, the legitimacy of the law-making process in relation

to the formation of CIL is itself open to question.125 Secondly, a rule

of CIL is identified by reference to the practice of states, which may

consist in the actions of the executive arm of a state without reference to

legislative involvement.126 But where, in the case of the United Kingdom,

the practice relied upon in support of a relevant rule of CIL is that of the

executive (as in many cases it will be), the same constitutional objection

applies as applies in relation to the applicability of unincorporated treaties

into domestic law: the Crown has no power to change English law. Since

the Crown cannot change domestic law by means of entering into an

international treaty with other states, still less should it be capable of

doing so by the mere adoption of practices which may at some point come

121See, e.g. Picciotto, The Relation of International Law to the Law of England and of the US ( 1915),at pp.75–76, 93–94, 107–108.

122Compare Milsom, “The Past and the Future of Judge-Made Law” (1981–82) 8 Monash University

Law Review 1, esp. at 12–13.123See also Dunworth, “Hidden Anxieties: Customary International Law in New Zealand” (2004) 2

New Zealand Journal of Public & International Law 67 at 71.124See North Sea Continental Shelf Cases (1969) 41 I.L.R. 29, discussed in Mendelson, “Formation

of Customary International Law” (1999) 272 Hague Recueil 159; Roma Rights [2004] UKHL 55 at [23];Bradley and Goldsmith, “Customary International Law” (1997) 110 Harvard Law Review 815 at 838–842

and 857.125See, e.g. Kelly, “The Twilight of Customary International Law” (1999) 40 Virginia Journal of

International Law 449; Young, “Sorting Out the Debate Over Customary International Law” (2001) 42

Virginia Journal of International Law 365 at 372–374, 385–390; Byers, Custom, Power and the Power

of Rules (1999); Knop, “Here and There” (1999-2000) 32 New York University Journal of International

Law & Politics 501.126From the perspective of international law and practice, a state is a single unified entity, and no

relevant distinction is to be drawn between the constituent parts of its government or constitution.





to coincide with those of other states.127

Also, the process of formationof a rule of CIL will typically be gradual, uncertain and without the

transparency and determinacy associated with the negotiation of a treaty,

and hence even less amenable to being influenced by domestic political

processes—so one might expect the argument against automatic reception

of such a rule into domestic law to be especially strong.128

A further reason why it is not persuasive, from the point of view

of domestic law, to distinguish CIL from treaties, arises from the

relationship between the two under international law. Treaty provisions

override CIL.129

A theory of direct incorporation of CIL into domesticlaw would therefore either involve accepting—contrary to constitutional

principle—that the Crown can change domestic law by making a treaty,

or that a rule of CIL which has become domestic law cannot be affected

at the level of domestic law by the making of a treaty, albeit that that rule

would no longer apply on the plane of international law—which might be

thought to be the worst of all worlds.

The House of Lords in R. v Jones (Margaret)130 makes it clear that one

rule of constitutional law (that a new criminal offence can only be created

by Parliament) operates as a filter to prevent reception into domestic lawof offences specified under CIL.131 But this was taken to be but one

illustration of a wider principle, namely that the reception of CIL into

domestic law is always subject to that process being compatible with

domestic constitutional law.132 There are other examples at the highest

level of adoption of such an approach. In International Tin Council,

the House of Lords rejected the argument that an alleged rule of CIL

regarding the liability of states parties to a treaty creating a commercial

organisation for its debts should be given effect in English law on the

basis of the incorporation doctrine, since to do so would undermine the

127Also, in some cases, the practice relevant to the creation of a CIL norm may itself simply be themaking of a treaty by the executive: see the discussion in North Sea Continental Shelf Cases (1969) 41I.L.R. 29. The existence of this class of case underlines the difficulty involved in differentiating sharply

between reception of unincorporated treaties and reception of CIL into domestic law.128Bradley and Goldsmith, “Customary International Law” (1997) 110 Harvard Law Review 815 at

858–859; see also Dunworth, “Hidden Anxieties: Customary International Law in New Zealand” (2004)

2 New Zealand Journal of Public & International Law 67 at 68.129See, e.g. Oppenheim’s International Law, Volume 1: Peace, 9th edn (1992), at p.1249; Koskenniemi

(April 13, 2006; A/CN.4/L.682), paras 78–81. This does not apply where the rule of CIL is in the highly

exceptional category of ius cogens.130[2006] UKHL 16; [2007] 1 A.C. 136.131 Jones (Margaret) [2006] UKHL 16 at [23], [30] (Lord Bingham), [60] (Lord Hoffmann), [102]

(Lord Mance).132See in particular at [11], [23] (Lord Bingham) and [65]–[66] (Lord Hoffmann). See also statements

in some of the older authorities: R. v Keyn (1876) 2 Ex. D. 63 at 202–203 (Cockburn C.J.); West Rand

Central Gold Mining Corp [1905] 2 K.B. 391 at 408 (Lord Alverstone C.J.); Chung Chi Cheung v The

King [1939] A.C. 160 at 167–168 (Lord Atkin); also R. v Secretary of State for the Home Department Ex

p. Thakrar [1974] Q.B. 684 at 701–702 (Lord Denning M.R.).





rule of constitutional law that unincorporated treaties do not create rightsor obligations in domestic law.133

The decision of the US Supreme Court in Sosa v Alvarez-Machin 134

provides an interesting parallel, calling into question the extent to which

US courts should enforce norms of CIL under the Alien Tort Statute of

1789. The court held that, notwithstanding the effect of that statute to

allow US domestic courts to recognise private causes of action for torts

in violation of the law of nations, the torts so recognised should be limited

to violations of

“a norm of international character accepted by the civilized worldand defined with a specificity comparable to the features of the 18 th

century paradigms [sc. safe conducts, infringements of the rights of

ambassadors and piracy].”135

The court’s reasons for this conclusion emphasised the domestic constitu-

tional reasons for limiting law-making by the courts and external forces,

and for the courts to avoid taking decisions with potential implications

for the foreign relations of the United States (an area assigned by the

Constitution to the executive and legislative branches).136

The task now facing courts in the United Kingdom is to articulate a set

of criteria by reference to which relevant rules of CIL can be identified as

properly applicable by those courts.137 What is called for is a principled

debate about what the relationship should be between CIL and domestic

law,138 and the expression that relationship should be given in the form

of a detailed rule.

In Trendtex ,139 Lord Denning recognised the dynamic nature of CIL,

and reacted to that in the particular context he was dealing with by

133See [1990] 2 A.C. 418 at 498C–D, 498G–499B and 512D–G (Lord Oliver); also 480B–E (Lord

Templeman). Also see Lyons [2002] UKHL 44 at [39]–[40] (Lord Hoffmann).134542 U.S. 692 (2004).135542 U.S. 692 (2004) at 724–725.136542 U.S. 692 (2004) at 725–728. Scalia J., joined by Rehnquist C.J. and Thomas J., delivered a

concurring opinion, but emphasising still more strongly the domestic constitutional reasons for rejecting

the reception into domestic law of any development of CIL after the framing of the Constitution in the18th century: see esp. 750–751.

137It was just such an issue which divided the minority led by Scalia J. and the majority in Sosa v

Alvarez-Machin. It should be noted that both sides of that debate adopted narrow and stringent tests of what would be acceptable: according to Scalia J., it should only be those rules of CIL recognised by

Blackstone and those who framed the Constitution; according to the majority, additional rules could beaccepted, but only if they were similar in character to the rules recognised by Blackstone. We wouldsuggest that it is neither helpful nor accurate simply to say that the reception of CIL by the courts

represents the exercise of a discretionary law-making power vested in them (cf. Capps, “The Court asGatekeeper: Customary International Law in English Courts” (2007) 70 M.L.R. 458 at 664): the courts’

own decision-making power is itself circumscribed by rules of constitutional law.138See also Dunworth, “Hidden Anxieties: Customary International Law in New Zealand” (2004) 2

New Zealand Journal of Public & International Law 67.139[1977] Q.B. 529. For discussion of Trendtex and cases after it, see Cunningham, “The European

Convention on Human Rights, Customary International Law and the Constitution” (1994) 43 I.C.L.Q.

537.





articulation of a common law rule adopting into domestic law a relevantrule of CIL, whatever that CIL rule might be at any given point in time.140

This interpretation of the law was preferred to adoption of an approach

that changes in a rule of CIL should be recognised in the domestic courts

only if incorporated into domestic law by legislation.141 But he did not

consider an approach lying between these two extremes, whereby CIL

might be applied by the domestic courts, but only to the extent that it

does not conflict with principles of our domestic constitutional law. It

is the possibility of development of such an approach that is opened

up by reflection on the underlying rationale for constitutional rules in

place to protect the democratic principle within the United Kingdom, the

approach adopted by the House of Lords in R. v Jones (Margaret ) and

comparison with the approach to reception of CIL in other jurisdictions

in the common law tradition, particularly Ireland and the United States.

If such an approach is to be adopted, how should the filter rule be stated?

Writing about the reception of CIL into the law of New Zealand,142

Treasa Dunworth notes a number of principled concerns in that regard,143

and suggests that a possible way to achieve a balance between the

internationalist impulse and self-governance would be to adopt a rule

whereby some CIL may be received into domestic law, but some CIL

rules, perceived to be less legitimate, are excluded. So far as English

law is concerned, we submit that the relevant filter should be developed

more by reference to domestic constitutional principles about the proper

locus of law-making and decision-making power in our parliamentary

democracy than by reference to an approach which would require the

domestic courts to attempt to judge the legitimacy or pedigree of rules

of CIL. The first set of issues are already the appropriate subject area

for decision by domestic courts (and are readily amenable to domestic

judicial expertise and reasoning); they are not well-placed to make thesort of over-arching judgments about CIL suggested under the alternative

approach.

There is a choice to be made about how hospitable English law should

be in relation to the reception of CIL norms into domestic law. One

approach might be to say that the default position is that such norms are

to be treated as capable of being applied, subject only to it being shown

140This solution to the problem of the dynamic nature of CIL suggests that to say that CIL is

“incorporated into” the common law is slightly misleading; it would be more accurate to speak of the common law defining the conditions under which a rule of CIL may be pleaded in (received by)

domestic courts and enforced by them in the same way as the rules of common law.141[1977] Q.B. 529 at 553–554. If the prior rule of CIL had actually become part of the common law,

the logic whereby legislation was required to change it to bring it into line with the new (changed) ruleof CIL would have been strong.

142Dunworth, “Hidden Anxieties” (2004) 2 New Zealand Journal of Public & International Law 67.143The tension with self-government and parliamentary sovereignty, the instability and expanding

boundaries of CIL, the undemocratic methods by which it is created.





that some specific principle of constitutional law (such as that identifiedin R. v Jones (Margaret )) clearly overrides that process. But we would

suggest that the basic constitutional arguments set out above against direct

reception of, in particular, the new kind of expansive and dynamic CIL are

of such weight that such a comparatively open approach to the reception

of CIL should not be adopted.

Rather, the presumption should be against direct reception of CIL

into domestic law, unless a more specific set of positive criteria calling

for its adoption can be satisfied. This suggestion is in line with the

approach of the majority of the US Supreme Court when faced with the

analogous issue in Sosa v Alvarez-Machin, where they were unwilling to

exclude the possibility of direct enforcement of norms of CIL not known

to the Framers of the Constitution, but considered that (for domestic

constitutional reasons, including the importance of self-government)

enforcement should be confined to a very narrow class of such norms.

In the English context, the particular criteria chosen by the Supreme

Court are not directly appropriate. However, at this early point in the

development of the law in this field, we suggest that an appropriate set

of criteria for reception of a CIL rule into English domestic law might

be along the following lines: (1) the area in which the rule applies is one

which plainly calls for co-ordination and reciprocity between states and an

international approach, such that it is already accepted144 or is otherwise

appropriate that the common law should look outwards to the wider world

to identify appropriate norms to govern the facts arising before the court

(the traditional areas of incorporation identified by Blackstone arose in this

sort of context, as did the rules of sovereign immunity in Trendtex ); (2)

it is possible to identify clearly within the domestic arena which public

authority should have legal responsibility for giving effect to the CIL

rule145; (3) the area in which the rule applies is one in which Parliamenthas abstained from legislative control and is not one in which statutory

intervention to create or modify rights or obligations is normally to be

expected—thus allowing the inference that the courts have been left with

a particularly wide margin of judgment for themselves how to develop

the law in the cases before them; (4) the area is one which international

law has for an extended period treated as governed by general customary

norms, even if (as in Trendtex ) those norms have been subject to change

(so that it may be said that Parliament has been sufficiently on notice of

the general, customary nature of the regulation of the area in question, and

144Sovereign immunity, for example, only becomes a matter which the courts have to deal with because

there are international norms on the subject which the courts have traditionally accepted as applicable.145Otherwise, the courts are required to adopt the role of legislator in creating legal obligations within

the domestic legal order. Many rules of CIL simply impose obligations upon the state, without specifying

who within the state has domestic responsibility for complying with them: cf. Lyons [2002] UKHL 44

at [40]; McKerr [2004] UKHL 12 at [63].





has had—and implicitly declined—a full opportunity to intervene itself;and to minimise the problems which would arise in domestic constitutional

terms from modification of CIL by treaties); and (5) enforcement of the

rule would not infringe any important principle of domestic constitutional

law, nor offend against any important public interest requiring protection

by the courts.

The first four criteria are proposed in order to demarcate the param-

eters within which recognition and enforcement of rules not having a

parliamentary source may be regarded as acceptable in our parliamentary

democracy. The fifth is proposed to ensure that the domestic constitutional

distribution of power, authority and responsibility is respected. Thus, for

example, there is now a CIL rule that force may not be used between

states unless in self-defence or under the authority of a resolution of the

UN Security Council. But in English domestic terms the disposition of

the armed forces and decisions as to their use are matters for the decision

of the executive government (subject to political control through Parlia-

ment), and in view of the subject-matter are not amenable to control by

the courts.146 If all norms of CIL were directly incorporated into domestic

law, there would be scope for applications to be made to the courts for

mandatory orders to prevent military action in breach of this norm. Butthere is no sign that the courts would entertain a challenge to such a deci-

sion in an area central to the executive’s own responsibility for national

security. The conduct of foreign affairs is similarly regarded as a clas-

sic area for judicial non-intervention.147 R. v Jones (Margaret) provides

another example of this limitation in operation. Similarly, the constitu-

tional rule requiring parliamentary control of public expenditure148 may

represent another example, limiting the direct reception into domestic law

of customary norms with significant implications for public expenditure.

An example of the public interest limiting reception of CIL in a givencase would include avoidance of interfering with the effective conduct of

international relations.149

CONCLUSION

Since the Second World War, the pace of change in the development of

international law has increased, both by way of the making of treaties and

through evolving and expanding norms of customary law. Through the

146See, e.g. Council of Civil Service Unions [1985] A.C. 374; Campaign for Nuclear Disarmament

[2002] EWHC 2759 at [15], [47(iii)], [50] and [59(ii)]; Marchiori [2002] EWCA Civ 3 at [38]–[41];Chandler v DPP [1964] A.C. 763; Jones (Margaret) [2006] UKHL 16; Gentle [2006] EWCA Civ 1689at [26] et seq.; Bancoult (No.2) [2007] EWCA Civ 498 at [102], [117]–[118].

147See, e.g. Abbasi [2002] EWCA Civ 1598 at [106]; Al Rawi [2006] EWCA Civ 1279.148See, e.g. Steele Ford & Newton v Crown Prosecution Service (No.2) [1994] 1 A.C. 22.149cf. Campaign for Nuclear Disarmament [2002] EWHC 2759 at [38]–[40], [47(ii)]; Sosa v Alvarez-

Machin 542 U.S. 692 (2004) at 727–728, 747.





proliferation of international rules, and the expansion of their coverageof subject-matter, the scope for dissonance between English domestic

law and international law has increased. This has led to a degree of

pressure for the domestic courts to afford greater recognition in domestic

law to unincorporated treaties, and to new life being breathed into very

old doctrines about the incorporation of CIL into domestic law, but by

reference to new, and different, types of CIL. It is important that these

pressures be examined in the light of domestic constitutional principles

and constrained within acceptable bounds by being filtered through

domestic constitutional law. Constitutional considerations continue to lead

to the conclusion that reception in domestic law of norms of international

law in unincorporated treaties and CIL should be limited. The risk of

some degree of dissonance between domestic law and international law is

the natural consequence of self-government by states and of parliamentary

sovereignty as the primary constitutional principle of government within

the state,150 and its elimination is a matter for the political process. It is

not the proper function of the domestic courts to change domestic legal

principles to eliminate such dissonance.

PHILIP

SALES

.

*

JOANNE CLEMENT.**

150These factors may be regarded as one of the reasons underlying the more general phenomenon,noted by Hobsbawm, Globalisation, Democracy and Terrorism (2007), at p.38, that the state and politics

represent the predominant area which has remained resistant to forces of globalisation and globalstandardisation.

* Q.C., First Treasury Counsel, Common Law.** Barrister. We are grateful to Christopher Greenwood, C.M.G., Q.C., who commented on a draft of

this article. Any errors which remain are, of course, our responsibility.

Common law; Customary law; Discretion; Legitimate expectation; Parliamentary sovereignty;

Separation of powers; Statutory interpretation; Treaties




FAMILY PROPERTY TODAY

THE House of Lords and Privy Council have recently revisited the common

law rules regarding family property, principally the common intention

constructive trust. This article offers a critical assessment of where we

now stand.

THE CONTEXT

The broad context is that in which a person claims a beneficial interest in

a house under an implied trust. Of course there are various ways in which

this might be done. We are concerned with that addressed by the line of

authority which includes the House of Lords’ earlier decisions in Pettitt v

Pettitt ,1 Gissing v Gissing 2 and Lloyds Bank Plc v Rosset ,3 together with

the more recent decisions of the House of Lords in Stack v Dowden 4

and of the Privy Council in Abbott v Abbott .5 These decisions apply most

familiarly to the case, which we will call the “single name” scenario,where legal title6 to a house is held by D alone; there is no express trust

in favour of C7; but C nonetheless claims a beneficial interest: either the

entire beneficial ownership (i.e. D holds the house on trust for C, full stop),

or a share alongside D (i.e. D holds the house on trust for himself 8 and

C).9 They also apply to another case, the “joint names” scenario, where

1[1970] A.C. 777.2

[1971] A.C. 886.3[1990] A.C. 107.4[2007] UKHL 17; [2007] 2 A.C. 432.5[2007] UKPC 53.6In fact, the position would be the same—or very nearly—if D himself had only an equitable interest

in the house, such as an estate contract: he might hold this in turn on trust for (himself and) C, under therules to be discussed. For simplicity, the account in the text will refer solely to the situation where D is

the legal owner.7If there is a express trust in favour of C, that is conclusive as to the existence and extent of C’s

beneficial interest: Goodman v Gallant [1986] Fam. 106. Or so it is generally thought. In fact, that

decision may hold only that a different contention cannot be made on the basis of circumstances existing

at the time of the declaration (e.g. on the basis of C’s having contributed more, or less, than half the price

paid when the house was transferred into D’s name). There is every reason why such an argument shouldbe prevented by the express declaration; but less (though not no) reason why the interests established bythe declaration should not be varied by subsequent events.

8In this article, the masculine pronoun is used to denote both D and C, but is intended to includethe feminine. In practice, D is usually male, and C usually female, and that can matter; but it is alsoimportant to remain sensitive to the converse possibility, and of course to same-sex scenarios.

9“C” might of course be more than one person: as where a house is registered in the sole name of afather, and his children claim shares in his house under these rules. Despite the “single name” label, too,“D” might also be more than one person: as where a house is registered in the joint names of a husband

and wife, and their child or children claim. The key thing is that “D” must not include “C”. If it does,

the case becomes one involving the “joint names” scenario.

422



JULY 2008] Family Property Today 423

the title is in the names of D and C; again without an express trust10

; andeither party claims a beneficial interest, whether to the exclusion of or in

conjunction with the other.11

THE PROBABLE RULES

Prior to the recent decisions in Stack v Dowden12 and Abbott v Abbott ,13

the law was certainly quite complex, but also difficult to state with

confidence. Those decisions have given it a substantial overhaul. It is very

possible to think that they have only left it more complex and uncertain:some arguments to this effect are identified below. But it is also possible

to think that they leave us with the following, rather simple, set of rules.

(i) In the single name scenario, C prima facie has no interest,

while in the joint names scenario C prima facie has a 50 per

cent interest (“equity follows the law”).14

(ii) But C can claim more if C and D had a common intention

(or shared intention, or understanding, or agreement) that this

should be the case.15 In the joint names scenario, this common

intention should be found only if the circumstances show Cand D, despite their joint transfer, to have chosen not to share

equally, or to have discarded their initial agreement to do so.

(iii) The question of quantum—i.e. the size of the interest that C can

claim—is also governed by the parties’ common intention.16

(iv) The “common intention” may be express, or implied, or

imputed.17 To find an implied or imputed common intention,

the court will draw upon the parties’ “whole course of

conduct in relation to [the property]”18; a “holistic approach”,

“undertaking a survey of the whole course of dealing betweenthe parties and taking account of all conduct which throws light

on what shares were intended”.19

10Or, presumably, a statutory trust (Law of Property Act 1925 ss.34(2) and (3), 36(1)). So if the house

is ostensibly transferred to D and C in certain proportions beneficially, D and C will hold it on trust forthemselves in those proportions.

11Likewise, again, there may be more than two people involved, as where a house is registered in the

joint names of two generations of family members. The essence of the joint names scenario is that anyclaimant is also one of two or more holders of the title.

12[2007] UKHL 17; [2007] 2 A.C. 432.

13[2007] UKPC 53.14Stack v Dowden [2007] UKHL 17; [2007] 2 A.C. 432 at [54], [56], [58].15 Abbott v Abbott [2007] UKPC 53 at [4].16[2007] UKPC 53 at [4].17[2007] UKPC 53 at [5], citing Stack v Dowden [2007] UKHL 17; [2007] 2 A.C. 432 at [25]; and at

[6], citing Stack v Dowden at [60].18[2007] UKPC 53 at [6], citing Stack v Dowden [2007] UKHL 17; [2007] 2 A.C. 432 at [60].19[2007] UKPC 53 at [6], citing Stack v Dowden [2007] UKHL 17; [2007] 2 A.C. 432 at [61], in turn

citing Law Commission Discussion Paper, Sharing Homes (Law Com. No.278, 2002), para.4.27.





It will be noted that this account makes no reference to two ruleswhich until recently would have required inclusion. These are the “direct

financial contributions” rule (that is, the rule that a non-express common

intention may be evidenced only by reference to C’s “direct contributions

to the purchase price”20), and the requirement that C should act in

reliance on the common intention, to his detriment.21 The latter attracts no

discussion at all in Stack v Dowden or Abbott v Abbott , but its demise is

understandable: if the common intention can now be imputed—i.e. need

not actually exist—it would be incoherent to expect C to rely on it. The

suppression of the “direct financial contributions” rule, however, is given

some prominence in Abbott v Abbott .22

The second sentence of proposition (ii) requires explanation. It is based

on the assertion in Stack v Dowden that it will, or should, be “very

unusual”23 to find a common intention that C in a joint names case

should have a greater than 50 per cent share. This assertion seems to

be not simply an empirical prediction, but intended to have normative

power—i.e. to operate as a signal to judges that they should be unusually

resistant to efforts to prove such a common intention.24 The opinions in

the decision do not clarify just why this should be, but the following may

be the answer. If C and D agree that they should have equal shares in

the property, regardless of the details of who paid how much for what,

etc., their agreement should in principle be respected, as a compromise of

the cross-claims that might otherwise arise. And the taking of a transfer

into joint names, even without an express declaration of trust, can be

seen as indicating that C and D probably did have such an agreement.25

However, this conclusion is not inevitable: it will be negatived if there

was something unusual in the circumstances prevailing at the time of the

transfer, or predictable at that time. And even if we think C and D did

initially have such an agreement, we might find them to have revoked it if subsequent events so indicate. Whether relied on to show the negativing or

the revocation of an initial agreement, however, the evidence will have to

be more than simply the sort of deviation from detailed all-round equality

that the initial agreement was meant to render irrelevant: something truly

20 Lloyds Bank Plc v Rosset [1991] 1 A.C. 107 at 133.21 Lloyds Bank Plc v Rosset [1991] 1 A.C. 107 at 132.22[2007] UKPC 53 at [5]–[6], [19].23[2007] UKHL 17; [2007] 2 A.C. 432 at [68], [69]; also [14].24This is put most clearly by Lord Walker of Gestingthorpe, [2007] UKHL 17; [2007] 2 A.C. 432

at [14]: “I am in full agreement with the observation in paragraph 68 of Lady Hale’s opinion, which Itake to be of central importance to her reasoning and conclusions, that in cases where a house or flathas been registered in the joint names of a married or cohabiting couple (but with no express declaration

of trust) there will be a considerable burden on whichever of them asserts that their beneficial interests

are uncertain, and do not follow the law”. It is also implicit in Lady Hale’s treatment of the Court of Appeal’s approach as flawed because it overlooked this point: at [66].

25Contrast the single name scenario, where C may not have been party to the decision that the transfer

should be to D alone, so that decision cannot be read as such a compromise agreement.





indicative that the parties mean to bring their inequalities into play afterall. This was (found to be) the position in Stack v Dowden 26 itself. The

house had been transferred into C’s and D’s joint names (and they had

had a 27-year relationship and four children together), so prima facie

they had agreed to take equal beneficial shares. Their contributions to the

purchase of the house were unequal, but this fact alone did not displace

the prima facie inference. The parties did however also keep their finances

very distinct—in particular, D was responsible for the interest payments

on the mortgage, while C made capital repayments, and everything else

was done in separate names—and this indicated an agreement not to share

equally after all.

SOME DIFFICULTIES

At any rate on the surface, the account of the law proposed above is

one that can be easily grasped and applied. There are however difficulties

with it.

Issues of authority

In two ways, the account may be incompatible with rules of legal

authority.27

First, while the account may reflect what was said in Stack v Dowden

and Abbott v Abbott , it may not do proper justice to earlier, but arguably

still extant, House of Lords authority. In allowing common intentions

to be imputed, it is probably at variance with the statement in Gissing v

Gissing28 that a common intention must be real, and cannot be invented by

the court (though the exact significance of “imputed” is discussed below).

And, as already noted, in allowing common intentions to be proved

“holistically”, it is at variance with the “direct financial contributions” rule,

which was stated in Lloyds Bank Plc v Rosset .29 These variances would

be of no concern if the earlier statements had actually been overruled in

the newer decisions, but this is not the case: the new decisions merely

assert that the law has “moved on”.30

26[2007] UKHL 17; [2007] 2 A.C. 432: see at [87]–[92].27See further Swadling, “The Common Intention Constructive Trust in the House of Lords: An

Opportunity Missed” (2007) 123 L.Q.R. 511; Lee, “Stack v Dowden : A Sequel” (2008) 124 L.Q.R.209.

28[1971] A.C. 886 at 904.29[1990] A.C. 107 at 133.30 Abbott v Abbott [2007] UKPC 53 at [3], [5] (citing Lord Walker in Stack v Dowden [2007] UKHL

17; [2007] 2 A.C. 432 at [26]), [6] (citing Lady Hale in Stack v Dowden at [60]), [19]. The assertions

are in a sense correct: the “direct financial contributions” rule had been side-stepped in the county courtdecision Le Foe v Le Foe [2001] 2 F.L.R. 970, aspersed by the Law Commission (Discussion Paper,

Sharing Homes (Law Com. No.278, 2002), para.4.23), and implicitly shunned by the Court of Appeal in

Oxley v Hiscock [2004] EWCA Civ 546; [2005] Fam. 211 at [40], [68]. But none of these, of course,

could deprive the rule of its technical authority.





Secondly, while our account closely follows statements made inespecially Abbott v Abbott , which in turn refer to statements made in

Stack v Dowden, it may not be quite reconcilable with a careful reading

of the latter decision. Some of the passages quoted from Stack v Dowden

represented the view of only one judge.31 Others are taken out of their

original context, where they appeared to be directed at issues narrower

than the propositions for which they are now cited.32 Others again are

contradicted by further passages in the same opinion.33 Even Abbott v

Abbott itself is not as clear as it might be. While containing passages

supportive of a “holistic approach” across the board,34 the advice also

refers to the question whether, in a single name case, C should have a

share in the house, as “separate” from the question of the size of that

interest.35 This suggests that there is a distinction to be made: that the

two questions are to be treated in different ways. If so—but it is probably

not so, as the difference is never explained, and the result would be

incoherence—we should have to conclude that at least one of the two

questions is not governed by an express, implied or imputed common

intention, established by the “holistic approach”, after all.36

We may however doubt whether these problems will be allowed to

matter. The desirability of being able to use the simple account stated

above, rather than having to perform feats of legal archaeology, will surely

31 Abbott v Abbott [2007] UKPC 53 at [4], [5] relies on the opinion of Lord Walker in Stack v Dowden

[2007] UKHL 17; [2007] 2 A.C. 432 at [26], [31], when that opinion was concurred in by none of hisbrethren.

32While the majority opinion in Stack v Dowden [2007] UKHL 17; [2007] 2 A.C. 432 certainlycontains support for the “holistic approach” (at [69]–[70]), on a close reading this appears to be only asregards the question whether, in the joint names scenario, C can go past the prima facie implication of

the transfer into joint names, so as to claim a greater than 50% interest. This question is distinguished

from that whether, in the single name scenario, C can claim an interest at all (see at [63], noting that

that question is affected by the old “direct financial contributions” rule; querying this rule; but passingon with “that does not concern us now”). It is also distinguished from the question what size of interestC can then claim (see at [66]); there is no discussion of how this latter question should be approached.

33 Abbott v Abbott [2007] UKPC 53 at [5], [6] accepts imputed as well as express and implied common

intentions. It does so on the strength of Stack v Dowden [2007] UKHL 17; [2007] 2 A.C. 432 at [25], [60].But this reading involves a conflict with statements, in the majority opinion in that decision, requiringproof of the parties’ “true intentions” (at [69]), and asserting that the search is not for “the result which

the court itself considers fair” (at [61]).34[2007] UKPC 53 at [4], [6].35[2007] UKPC 53 at [4]. Apparently redundant distinctions are to be found in Stack v Dowden [2007]

UKHL 17; [2007] 2 A.C. 432 too; it is possible to view the difficulties referred to in fn.32 above in this

way.36This was certainly the position immediately before Stack v Dowden [2007] UKHL 17; [2007] 2 A.C.

432. The question whether C had an interest at all depended (in theory) on whether the parties had agenuine common intention, express or implied, though an implied common intention was provable onlyby C’s having made direct financial contributions to the acquisition of the house; and then on whether C

had acted in detrimental reliance on this common intention (Gissing v Gissing [1971] A.C. 886; Lloyds

Bank Plc v Rosset [1991] 1 A.C. 107). The size of C’s interest, however, was governed by a yardstick

of fairness (Oxley v Hiscock [2004] EWCA Civ 546; [2005] Fam. 211). The Law Commission seemsto believe that there are still two such questions, answered by different analyses: Cohabitation: The

Financial Consequences of Relationship Breakdown (Law Com. No.307, 2007), paras A.30–A.41. This

reading was however apparently arrived at without the benefit of Abbott v Abbott [2007] UKPC 53, which

summarises Stack v Dowden in a way that assists the simpler reading adopted in this article.





overwhelm such technical objections.37

We turn now, however, to certainfurther problems, which may well start to appear, for they are immanent

in some of our account’s own key concepts.

The meaning of “imputed”

Stack v Dowden38 and Abbott v Abbott 39 have declared it possible to

proceed on the basis of an “imputed” common intention, but there is a

lurking imprecision about this idea.40

The cleanest understanding of it, and of express and implied common

intention, must be as follows. An express common intention is to befound where C and D have actually discussed and reached agreement on

the matter. An implied common intention is to be found where C and D

have not actually discussed the matter, but have proceeded on the basis

of a shared assumption which the court infers from their behaviour.41

An imputed common intention, by contrast, is one found—that is,

invented—by the court where C and D neither discussed the matter nor

proceeded on the basis of a shared assumption, but the court deals with

the case as though they had done so.42

It is no surprise that the law should accept implied as well as expresscommon intentions; in referring to a genuine consensus between the

parties, they are substantively synonymous; absent a formality issue,

there is no reason to differentiate them by reference to the extent to

which this consensus is articulated. According to the apparent argument

in the recent cases,43 implied and imputed common intentions are to be

37The more recent decisions in Holman v Howes [2007] EWCA Civ 877; [2007] B.P.I.R. 1085; Kali

and Burlay v Chawla [2007] EWHC 2357 (Ch); James v Thomas [2007] EWCA Civ 1212; [2007] 3F.C.R. 696; Laskar v Laskar [2008] EWCA Civ 347 and Morris v Morris [2008] EWCA Civ 257 all seem

to assume that the “holistic approach” applies across the board, as suggested here. See further Dixon,“The Never-Ending Story—Co-ownership after Stack v Dowden” [2007] Conv. 456 at 458.

38[2007] UKHL 17; [2007] 2 A.C. 432 at [60]; also [18]–[25].39[2007] UKPC 53 at [5], [6].40See further Piska, “Intention, Fairness and the Presumption of Resulting Trust after Stack v Dowden”

(2008) 71 M.L.R. 120, esp. at 126–129.41To be exact, finding such an agreement/shared assumption does not necessarily mean that it actually

existed. For the matter is seen through the eyes of a reasonable onlooker: Gissing v Gissing [1971] A.C.886 at 906. The key point, however, is that an agreement/shared assumption is found only where thereasonable onlooker would think it genuinely existed.

42This account echoes the analysis of Lord Neuberger in his dissenting opinion, rejecting imputation, in

Stack v Dowden [2007] UKHL 17; [2007] 2 A.C. 432 at [124]–[127]. Note also his Lordship’s discussion,at [127], of the question whether the agreement to be imputed is that which would have been made by

reasonable parties, or by the actual parties.43See Stack v Dowden [2007] UKHL 17; [2007] 2 A.C. 432 at [25] (Lord Walker), adopted in Abbott

v Abbott [2007] UKPC 53 at [5]. Lord Walker paves the way for this position by seeking to counter

the general understanding that earlier authority ruled out imputation: see especially [2007] UKHL 17;[2007] 2 A.C. 432 at [20]. This argument depends, however, on the assumption that when Lord Diplock

in Gissing v Gissing [1971] A.C. 886 at 906–910 substituted “infer” for his earlier (Pettitt v Pettitt [1970]A.C. 777 at 822–825) “impute”, he meant the same thing. This is surely dubious, not least for reason of Lord Diplock’s own acknowledgement ([1971] A.C. 886 at 904) that his earlier approach put him in a

minority, and that he had now to follow the different majority position, requiring the common intention

to be real, not invented. Cf. Lord Neuberger, dissenting, [2007] UKHL 17; [2007] 2 A.C. 432 at [125].





bracketed because they are likewise substantively synonymous: they sharethe characteristic of being found “when there was no evidence of an actual

agreement”: so if we accept the one, we are bound also to accept the other.

To make sense of this argument, however, “actual agreement” must

be read as meaning an articulated understanding. It then emerges that

the argument trades on an ambiguity. The reason for the absence of

“actual agreement” is in the one case (implication) that an understanding

exists but is not articulated; while in the other (imputation), the reason is

that no understanding exists. The argument’s reliance on this ambiguity

means that the law can be taken in two different ways. If we read “no

actual agreement” as extending only to a genuine understanding that is not

articulated, the rule, even if labelled “imputation”, remains that common

intentions are to be found only in that circumstance. But if we read

“no actual agreement” as extending to an absence of understanding, the

imputation rule allows common intentions to be found in that case too,

i.e. invented.

The latter version of the rule, which alone involves a change in the

law,44 is presumably the one intended by the House of Lords and Privy

Council, else why have the discussion at all? But the ambiguity of

the underlying argument could result in different judges taking differ-

ent approaches. Perhaps, even, the same judge will veer between the one

approach and the other, choosing whichever yields the outcome he or she

favours for extraneous reasons. All of which will not make for consistent

justice.

The content of the imputed common intention

Under Stack v Dowden and Abbott v Abbott , the outcome—the interest,

if any, with which C emerges—is determined by the common intention.If there is a genuine common intention, its content will be whatever the

parties have agreed. But if, in the absence of a genuine common intention,

one is imputed by the court, how is its content determined?

The advice in Abbott v Abbott 45 requires reference to be made to the

parties’ “whole course of conduct in relation to [the property]”,46 and to

“the whole course of dealings between the parties . . . taking account

44A tendency in this direction was visible in earlier material. Direct financial contributions have beentreated not as evidence from which a common intention may be inferred, or may not, but as automaticallyestablishing such an intention: as in Midland Bank Plc v Cooke [1995] 4 All E.R. 562. An express common

intention has been discovered though the facts seemed less than probative of it: as in Hammond v Mitchell

[1991] 1 W.L.R. 1127; Stokes v Anderson [1991] 1 F.L.R. 391; Abbey National Bank Plc v Stringer [2006]

EWCA Civ 338; [2006] 2 P. & C.R. DG15. And an express common intention has been discovered also

where the facts seemed actually inconsistent with it: as in Eves v Eves [1975] 1 W.L.R. 1338; Grant v

Edwards [1986] Ch. 638. But this material could not authoritatively displace the extant House of Lordsruling against the invention of common intention: Gissing v Gissing [1971] A.C. 886 at 904.

45[2007] UKPC 53 at [6].46Drawn from Stack v Dowden [2007] UKHL 17; [2007] 2 A.C. 432 at [60].





of all conduct which throws light on the question what shares wereintended”.47 If this was the sum total of the courts’ guidance on the

matter, we should be thoroughly at sea: the import of especially the latter

remark is decidedly in the eye of the beholder. But Lady Hale’s opinion

in Stack v Dowden48 (representing the majority view, for Lord Hoffmann,

Lord Hope of Craighead and Lord Walker of Gesthingthorpe concurred in

it) contains a more extensive passage, presumably meant to be congruent

with the headline statements:

“Each case will turn on its own facts. Many more factors than

financial contribution may be relevant to divining the parties’ trueintentions. These include: any advice or discussions at the time

of the transfer which cast light upon [the parties’] intentions then;

the reasons why the home was acquired in their joint names; the

reasons why (if it be the case) the survivor was authorized to give a

receipt for the capital monies; the purpose for which the home was

acquired; the nature of the parties’ relationship; whether they had

children for whom they both had responsibility to provide a home;

how the purchase was financed, both initially and subsequently; how

the parties arranged their finances, whether separately or together ora bit of both; how they discharged the outgoings on the property

and their other household expenses. When a couple are joint owners

of the home and jointly liable for the mortgage, the inference to

be drawn from who pays for what may be very different from

the inferences to be drawn when only one is the owner of the

home. The arithmetical calculation of how much was paid by each

is also likely to be less important. It will be easier to draw the

inference that they intended that each should contribute as much to

the household as they reasonably could and that they would share the

eventual benefit or burden equally. The parties’ individual characters

and personalities may also be a factor in deciding where their true

intentions lay. In the cohabitation context, mercenary considerations

may be more to the fore than they would be in marriage, but it

should not be assumed that they always take pride of place over

natural love and affection. . .. This is not . . . an exhaustive list.

There may also be reason to conclude that, whatever the parties’

intentions at the outset, these have now changed. An example might

be where one party has financed (or constructed himself) an extension

or substantial improvement to the property, so that what they havenow is significantly different from what they had then.”

47Drawn from Law Commission Discussion Paper, Sharing Homes (Law Com. No.278, 2002),

para.4.27, approved in Stack v Dowden [2007] UKHL 17; [2007] 2 A.C. 432 at [61].48[2007] UKHL 17; [2007] 2 A.C. 432 at [69]–[70]. Note the references to the parties’ “true intentions”,

in apparent contradiction of the rule allowing common intention to be invented: cf. fn.33 above. Or perhaps

“true” means “true in a transcendent sense, even if unsuspected by the parties themselves”.





The significance of this passage is made clearer by comparing it with onein the opinion of Lord Neuberger49:

“The fact that the parties operated their day-to-day financial affairs

through a joint bank account, into which both their wages were paid

and from which all family outgoings were paid, could fairly be said to

be strong evidence that they intended the sums in that account to be

owned equally. Accordingly, it would normally be easy to justify the

contention that a home acquired with money from that account (often

together with a mortgage in joint names) should be treated as acquired

with jointly owned money and therefore as beneficially owned jointly. However, I am unhappy with the suggestion that, because

parties share or pool their regular income and outgoings, it can be

assumed that they intended that the beneficial interest in their home,

acquired in joint names but with significantly different contributions,

should be shared equally. There is a substantial difference, in law,

in commercial terms, in practice, and almost always in terms of

value and importance, between the ownership of a home and the

ownership of a bank account or, indeed, furniture, furnishings and

other chattels.”The majority evidently accepts a wider frame of reference than Lord

Neuberger. Lord Neuberger looks only to C’s and D’s behaviour bearing

directly on the acquisition of the house, separating this from the question

of how they organised their lives and affairs more generally. But the

majority demurs, holding that there need be no such separation: that the

parties’ overall organisation of their lives and affairs probably will indicate

the shape of their common intention regarding the house. This difference

is important. Under Lord Neuberger’s approach, the law would in effect

respond only to the claims of those who have a relatively high profile intheir family’s financial dealings: it is only they who will make the clearly

identifiable contribution to the acquisition of the house that his approach

demands. Those who earn little or nothing, or whose income is spent on

ephemerals while their partner’s covers the mortgage repayments, would

not qualify. So profiled, the law would offer the least support to those

who, from a wider perspective, most need and deserve it.50 The majority

approach, allowing a common intention to share the house to be read

off from all forms of participation in the family’s economy, avoids this

weakness. On the other hand, its lack of sharp focus entails a great dealof latitude as to the content of the common intention to be imputed.51

49[2007] UKHL 17; [2007] 2 A.C. 432 at [133]; see further at [143]–[145]. Lord Neuberger rejectsimputation (see at [125]–[127]), so he is describing the material from which he thinks a genuine commonintention may be inferred; but there is no reason why this should yield the difference between the passages.

50Lord Neuberger is aware of this: [2007] UKHL 17; [2007] 2 A.C. 432 at [142].51See further Dixon, “The Never-Ending Story” [2007] Conv. 456.





An insight into the way in which the courts themselves are usingthis tool can be had from looking at the actual facts and outcomes in

Stack v Dowden and Abbott v Abbott . In Abbott v Abbott ,52 the parties

emerged with equal shares. The house comprised a plot of land given to

the parties equally (though transferred into D’s name alone), together with

a building upon it, financed by a mortgage loan. The parties undertook

joint liability for the loan. The repayments originated largely in D’s

earnings, which were higher than C’s, but the parties routed their income

and outgoings through a joint bank account. They were also married. In

Stack v Dowden,53 by contrast, although the house had been transferred

into joint names, suggesting equal entitlements, C won a share larger than

D’s,54 reflecting the parties’ individual financial contributions to acquiring

the house. The parties were not only unmarried (though their relationship

lasted many years, and they had four children together): they also kept

their material affairs very separate, pooling their resources only in respect

of the house purchase.55

The following thesis is suggested as capturing all this.

Essentially, the common intention imputed to parties having a materially

communal relationship will give them equal shares in the house, as

in Abbott v Abbott ; while that imputed to parties not having such a

relationship, as in Stack v Dowden, will give them shares proportionate

to their individual contributions to the acquisition of the house, though

indirect contributions will count as much as direct ones.

A “materially communal” relationship is one in which C and D in

practical terms56 pool all their material resources (including money,

other assets, and labour), rather than keeping separate tallies. The

presence of a joint bank account will strongly, almost conclusively,

suggest a materially communal relationship, but its absence will not

particularly prove the opposite. The parties’ having, or not having, asexual relationship will prove nothing either way; likewise even their

having children together, though in this event it is probably commoner

for their relationship to be materially communal. If they are married or

civil partners, their relationship will necessarily be regarded as materially

52[2007] UKPC 53 at [12]–[19].53[2007] UKHL 17; [2007] 2 A.C. 432 at [86]–[92].54C won 65%. This was in fact the level at which she herself capped her claim; on the court’s reasoning,

she might in principle have claimed more. See [2007] UKHL 17; [2007] 2 A.C. 432 at [86]–[92].55In Oxley v Hiscock [2004] EWCA Civ 546; [2005] Fam. 211 (an earlier Court of Appeal decision

largely aligned with the more recent authorities) the house was acquired using a down payment and amortgage loan. The proportion acquired by the loan was divided equally between the parties: while notmarried or using a joint bank account, they had lived on the basis of “a classic pooling of resources”

(see at [19], [74]). But the proportion acquired by the down payment was divided pro rata to the parties’

individual contributions to that payment (so that C emerged with 40% overall). Quaere why the downpayment was regarded as outside the “classic pooling of resources”.

56That is, regardless of technical title. It is the mismatch between technical title and some other

perspective that gives rise to the issues under discussion.





communal, regardless of the nature and scale of their contributions tothe family economy: that is the basis on which the law proceeds under

the Matrimonial Causes Act 1973.57 But an unmarried couple could

operate likewise, once again regardless of their contributions to the family

economy; though if D is the sole wage-earner, while C keeps house

and perhaps looks after their children, it is hard to see their relationship

otherwise than as materially communal.58

A non-materially communal relationship is one without this profile. That

is not to say that it may not be close in other respects; the parties may

even pool their material resources in one or more areas, as where a couple

both shop for groceries or maybe even buy a car together; but it lacks the

key characteristic of a practical pooling of their material resources across

the board.59 For present purposes, however, the parties must at least both

contribute to the acquisition of the house (albeit that their contributions

may be indirect, as where C meets the household bills while D pays off the

mortgage): for in the case of a non-materially communal relationship, it

is these contributions that generate the imputed common intention, giving

the parties shares in the house in proportion to them.

More recent decisions appear broadly sympathetic to the thesis outlined,

but they cannot be said to give it unequivocal support. They have tended toproceed on non-materially communal lines: that is, to have been arrived at

by reference to the parties’ contributions. Given their facts, this has usually

been unsurprising,60 but occasionally more of a difficulty. In James v

Thomas,61 particularly, the court proceeded by reference to contributions,

despite the parties’ relationship appearing a materially communal one:

though they had not married, C and D had lived together for 15 years

as man and wife. This case also took an unexpected approach to the

57Matrimonial Causes Act 1973 s.24: see White v White [2001] 1 A.C. 596; Miller v Miller, McFarlanev McFarlane [2006] UKHL 24, [2006] 2 A.C. 618. The decision in Midland Bank Plc v Cooke [1995]4 All E.R. 562 follows this pattern. But Pettitt v Pettitt [1970] A.C. 777, Gissing v Gissing [1971] A.C.886 and Lloyds Bank Plc v Rosset [1991] 1 A.C. 107 would all be decided differently now, in each case

to give C a 50% interest: a dramatic change of direction.58So the decision in Burns v Burns [1984] Ch. 317 would likewise be reversed, again giving C a 50%

interest.59The decision in Drake v Whipp [1996] 2 F.C.R. 296 would therefore stand: the parties there kept

their affairs in general separate, while collaborating on the acquisition and improvement of the house,and emerged with shares reflecting their individual contributions to that collaboration.

60As in Laskar v Laskar [2008] EWCA Civ 347, where a mother (D) got her daughter (C) to join

her in buying the house, in order to obtain a larger mortgage loan than she could have had on her own.Their shares corresponded to their respective contributions to the price. (D contributed a “right to buy”

discount, and appeared alone to have repaid the loan. But the repayments were funded by income gainedby renting the house out, which income was due partly to C.)61[2007] EWCA Civ 1212; [2007] 3 F.C.R. 696. In some other cases, the parties had been married, but

for a variety of reasons this, very arguably, did not merit a “materially communal” approach. In Holman

v Howes [2007] EWCA Civ 877; [2007] B.P.I.R. 1085, the parties were already divorced when they

bought the house, doing so in an (abortive) attempt at reconciliation. In Kali and Burlay v Chawla [2007]EWHC 2357, the parties were married when they acquired the house, but soon separated and divorced,only the husband continuing to live there and to meet the outgoings. In Morris v Morris [2008] EWCA

Civ 257, although the parties were married, C was claiming a share not in the family home but in D’s

farming enterprise, in which she was little involved.





recognition of contributions. D paid his mortgage instalments on the housefrom the proceeds of his business as an agricultural contractor. C had given

D significant help in this business, eventually entering into partnership

with him; but she was not seen as having thereby contributed to the

acquisition of the house, only as having helped with their other costs.

In the context, however, and since the demise of the “direct financial

contributions” rule, this reasoning seems inexplicable.62

Even with this degree of support from the more recent decisions, the

sample of cases on which the thesis draws is very small, and their

judgments certainly do not speak in the thesis’s own terms. So the

suggested account remains speculative, and may readily be challenged. It

is even possible that no explication at all is possible, or even permissible,

leaving or requiring judges to attend simply to the headline statements

with which we began this section.63 In this respect too, then, we find that

the rules established by the recent decisions lack the clarity necessary for

doing consistent justice in future cases.

The jurisdiction’s driver

Finally, a deeper-lying difficulty.64 Even if the thesis just sketched isan accurate portrayal of the way the courts (should) now operate this

jurisdiction, it is hard to say what is the jurisdiction’s driver: that is, its

basis of principle, entailing that cases should be decided in the manner

described. Stack v Dowden and Abbott v Abbott tell us nothing explicit

about this (and no more did their predecessors); any answer will have

to be gleaned inferentially, from a scrutiny of the set of rules they have

established. If no satisfactory answer can be found, we have a problem.

It will mean that this jurisdiction lacks a justification; and also that

uncertainties and injustices will occur when cases arise at the boundarybetween this jurisdiction and another.

In the next section, we shall explore some of the drivers that might

characterise a jurisdiction addressed at the kind of case under discussion,

and compare them with the jurisdiction as it seems to be. “The kind

of case under discussion” means a case in which a house is nominally

owned by D (or by D and C together); D is usually in some sort of family

relationship with C; C may believe—perhaps with D’s agreement—that

62 Holman v Howes [2007] EWCA Civ 877; [2007] B.P.I.R. 1085 is also difficult as regards the

assessment of contributions. The parties’ shares were set by reference to their broadly equal initialcontributions to the acquisition of the house. But C alone had used the house, making disproportionate

contributions over time. The court held—surely incorrectly—that this could not give her a greater interest,

as interests had to be fixed by the parties’ common intention at the time of acquisition.63This is the view taken by Dixon, “The Never-Ending Story” [2007] Conv. 456 at 460. If it is adopted

by the appellate courts, the effect (and perhaps the intention) will be that first instance decisions will

rarely be appealable, for there will be scant basis on which to say that they have been wrongly arrived at.64See further Lee, “Stack v Dowden: a Sequel” (2008) 124 L.Q.R. 209.





he has or will acquire a beneficial share (or a greater beneficial share thanhe already has) in the house; and C generally suffers some loss, often of a

kind that simultaneously confers a benefit on D (as where C meets some

of D’s mortgage liabilities).

SOME POSSIBLE DRIVERS

Four possible drivers will be considered. First, effectuating the parties’

intentions; second, redressing C’s reliance loss; third, redressing C’s unjust

enrichment of D; and fourth, effectuating the implications of the parties’

relationship.Before embarking on this discussion, let us dispose of the suggestion

that might be made, that this jurisdiction has a basis akin to that of

proprietary estoppel.65 This suggestion does not itself name a possible

driver, but refers us to whatever driver(s) may underlie proprietary

estoppel. This would be nonetheless helpful if it were clear what does

drive the latter doctrine: but that is notoriously not the case. It may be

possible tentatively to identify certain themes in the case law, but these

seem not to take us beyond the suggestions considered above regarding the

constructive trust jurisdiction,66 so even then we are no further forward.The suggestion will not, therefore, be pursued further.

Effectuating intentions

If the owner of property purports intentionally to bestow it on another, the

law should in principle recognise him as having done so. This response

is driven by very familiar libertarian considerations. So in our situation,

if D, being wholly (as in the single name scenario) or partly (as in the

joint names scenario) beneficially entitled to property, voluntarily acts to

confer some or all of his entitlement on C—as where D and C have a

genuine common intention on these lines—the law should give effect to

that act.

This analysis plainly cannot explain the normative force that the

jurisdiction accords to an invented common intention. At first sight,

however, it does seem to explain the force attaching to a genuine common

intention. (From this perspective, the demand for a common intention is

65

The suggestion has been made a number of times, including judicially in Grant v Edwards [1986]Ch. 638 at 656; Re Basham [1986] 1 W.L.R. 1498 at 1504; Austin v Keele (1987) A.J.L.R. 605 at 609;

Lloyds Bank Plc v Rosset [1991] 1 A.C. 107 at 132–133; Yaxley v Gotts [2000] Ch. 162 at 176–177.It has however been controverted by Lord Walker in Stack v Dowden [2007] UKHL 17; [2007] 2 A.C.432 at [37], on the ground that an estoppel claim is a “mere equity”, satisfied by the minimum award

necessary to do justice, sometimes only a monetary award, whilst a constructive trust claim is about the

true beneficial ownership. This argument has two difficulties. First, the “mere equity” point is contraryto the Land Registration Act 2002 s.116. Secondly, speaking of “the minimum necessary to do justice”

merely begs the question what that is.66See Gardner, An Introduction to Land Law (2007), pp.112–122.





mistaken: we should be concerned only to discover whether D intendeda transfer to C: but we might forgive this, especially as in our context

C is highly likely to be privy to any intention that D might have.) But

a moment’s reflection shows that even cases involving genuine common

intentions cannot be accounted for in this way.

In our context, seen in this way, D’s act of conferment will constitute

either a declaration of an express trust of land (in the single name

scenario), or a disposition of a subsisting beneficial interest (in the joint

names scenario). The law requires that acts taking these particular forms

must be done in writing.67 Writing is characteristically missing from the

cases in which we are interested. If we take the writing requirement

seriously—as we must—we cannot argue that the law should give effect

to D’s act nonetheless, and that doing so is a proper mission for the

jurisdiction under discussion, without more.

Such a lack of writing can be obviated if we are within the territory of

the doctrine “equity will not permit a statute to be used as an instrument

of fraud”. If D’s purported conferral of an interest on C is circumstanced

in such a way that not to effectuate it would be to countenance a

fraud, a legal response is called for after all. And it has been argued

that this is the thrust of our jurisdiction: that if C is aware of D’s act(“common intention”), and relies on it, D will commit a fraud if he does

not hold to it. This way of viewing our jurisdiction was suggested by

Glass J.A. in Allen v Snyder ,68 drawing an analogy with Rochefoucauld v

Boustead .69

One can see the point. But this suggestion too does not quite fit

our jurisdiction. Under the suggestion, C needs to rely on the common

intention. This was a requirement of earlier decisions,70 but was omitted

from the account given in Stack v Dowden and Abbott v Abbott . Moreover,

the suggestion is problematic in itself. It is not easy to explain (whetherin our context or that of Rochefoucauld v Boustead ) why C’s awareness

of and reliance on D’s act makes it right to give effect to that act despite

the want of writing. It is certainly possible to see in such facts a reliance

loss on C’s part meriting redress. This redress can be depicted as equity’s

counteraction of the “fraud” represented by the loss, but that label should

not skew our understanding of what is actually involved. As a matter of

principle, the redress should track C’s actual loss, rather than necessarily

extending to the whole interest that D purported to confer.71 We shall

consider a reliance loss perspective in its own terms next.

67Law of Property Act 1925 s.53(1)(b), (c).68[1977] 2 N.S.W.L.R. 685 at 692–693.69[1897] 1 Ch. 196.70Especially Lloyds Bank Plc v Rosset [1991] 1 A.C. 107 at 132.71It is arguable that in a case like Rochefoucauld v Boustead [1897] 1 Ch. 196, the reliance loss is

the lost opportunity to establish the intended beneficial interest securely, so that redressing the relianceloss involves conferring that interest. (See further Gardner, An Introduction to the Law of Trusts, 2nd edn





Redressing C’s reliance loss

If C suffers a loss for which D is to be held responsible, C will look to D

to redress that loss. Affording such redress is a proper and familiar driver

for a legal claim, and the law does indeed operate a project on these lines,

most especially in the form of tort claims.

One way in which C might suffer such a loss is by acting to his

detriment in reasonable reliance on a belief induced by D. The law should

provide C with redress against D for that loss. This pattern can often be

found in the kind of case with which we are concerned. But there are

some disparities between it and the rules under discussion.First, our jurisdiction talks not of C’s belief, induced by D, but of C’s

and D’s common intention. Strictly, the two are different (a plausible but

insincere assurance on D’s part should suffice to make him liable for C’s

reliance loss, but would negate a common intention), but this might be

overlooked as a mere infelicity of expression. Then, as we have seen,

Stack v Dowden and Abbott v Abbott (in contrast to their predecessors)

omit any demand that C should act in reliance on the common intention;

but we might think that such reliance can almost be taken as read.

More important, however, C cannot claim to have suffered reliance lossunless he genuinely held the belief on which he claims to have relied: there

is no room, as there is in our jurisdiction, for an invented intention. We

might, though, continue to consider whether those cases that do involve a

genuine belief—alias common intention—can be explained in terms of a

project of redressing reliance loss. But we find that even in such cases, this

project does not fully map onto our jurisdiction. The main gap between

them is in respect of outcome. Under our jurisdiction, a genuine common

intention that C should have such-and-such a beneficial interest will result

in his gaining that interest. If the project were to redress C’s reliance loss,this would be a surprising result.

Say C, reasonably relying on his belief engendered by D that he shall

have a 50 per cent beneficial interest in D’s house, expends £10,000 in

renovating that house or indeed helping to acquire it, but in fact no such

interest is conferred. His reliance loss is £10,000, not a 50 per cent or any

other beneficial interest. It would equally be £10,000 if he had incurred

it in reliance on a disappointed belief that he would have any other size

of beneficial interest in the house, or that he would be reimbursed for his

outlay, or that D would marry him, or whatever. The redress for it should

be, not the award of 50 per cent interest in D’s house, but an in personam

award of £10,000 against D.

(2003), at pp.159–160. For an alternative argument, see McFarlane, “Constructive Trusts Arising on aReceipt of Property Sub Conditione” (2004) 120 L.Q.R. 667.) The possibility that that may be true also

of our situation is considered below, in the course of discussing whether the family property jurisdiction

should be viewed as aimed at redressing reliance loss.





It is true to say that, sometimes, C’s reliance loss will itself take theshape of the promised beneficial interest. This will be the case where

his reliance consists in foregoing the opportunity to acquire the promised

interest in some other way. Say C, once again reasonably relying on

his belief engendered by D that he shall have a 50 per cent beneficial

interest in D’s house, decides to move in with D straight away, when he

could have held out for the promised share in D’s house before doing

so—and again, no such interest is in fact conferred. The loss C incurs as

a result of his reliance is now the loss of the beneficial interest he should

otherwise have had, and obliging D to make good this loss will properly

take the form of granting C the promised interest.72 To this extent, then,

our jurisdiction might be reconciled with the notion that its mission (where

genuine common intentions are concerned) is to redress reliance losses.

We should however expect greater care than the cases seem to display

to ensure that C is awarded his expected beneficial interest only where

his loss does indeed take this form: as we have seen, the mere fact that

he was promised such an interest does not by any means automatically

entail this. Where his loss takes another form, such as the £10,000 in our

original example, it would need to be redressed correspondingly.

Redressing C’s unjust enrichment of D

Unjust enrichment is another well established driver for a legal response.

If C enriches D in circumstances rendering it unjust that D should retain

the enrichment, D should be obliged to restore it.

The kind of facts with which we are concerned might well disclose

a case of unjust enrichment. Suppose that C confers a benefit on D:

maybe, by directly or indirectly contributing to the mortgage payments,

or by working for D, or by picking up some of D’s responsibilities. Dis enriched, at C’s expense.73 Suppose too that C confers this benefit

not as a gift or loan to D, nor as a speculation, but on the basis of a

belief either that he has an interest in a house ostensibly owned by D, or

else—receiving a promise by D to this effect—that he will be given such

an interest. If this belief is falsified (i.e. if C was mistaken in his belief

as to his existing rights, or D does not deliver on his promise to confer

new rights), the basis on which C enriched D disappears, and it is unjust

for D to retain that enrichment: he should restore it to C.

72At first sight, it is not quite the same if, but for his reliance, C would have “got on the propertyladder” in a house of his own. Here, although his loss is of a beneficial interest, it is not of an interest

that was otherwise D’s. However, the only way of having D make such a loss good is by granting C anequivalent interest against D. So in the end it comes to the same thing, or close enough to it.

73Where C works for D, or picks up some of D’s responsibilities, it cannot automatically be said that

D is enriched; but on the kind of facts with which we are concerned, that will typically be the conclusion.

See Birks, Unjust Enrichment (2003), at pp.48–49, 50–51.





Facts of this kind, disclosing a mistake or a failure of consideration,would occur only if C held such a belief when enriching D. Very possibly,

though, D’s enrichment at C’s expense will be unjust also if C acted with

no particular thoughts at all: as where C takes care of some of his and

D’s expenses, thus indirectly helping D repay the mortgage, and does

so without any clear idea of whether he should be reimbursed, or get

something in return, or whatever: a very common phenomenon among

those in emotional relationships. Absence of thought has not traditionally

been regarded as making an enrichment unjust, but Birks has argued that

the true test is not whether C can point to some recognised “unjust factor”,

such as mistake or failure of consideration, but whether C enriched D

without basis.74 To enrich another with no particular thoughts at all seems

ipso facto to do so without basis.

Some care may be needed here. Where C and D are strangers, we are

disinclined to perceive a transaction between them as having no basis in

this way, which is perhaps why we have traditionally sought the more

concrete ground of a basis which exists but is in some way wanting,

i.e. an unjust factor. Their being strangers makes us expect C to have

been more alert; we are unsympathetic, both empirically and normatively,

to the assertion that he had no particular thoughts as he enriched D.But in a context like ours, characterised by an emotional relationship

between C and D, it is different. Here, we find it unsurprising if C lets

his guard down, and so behaves towards D with no particular thoughts;

indeed, especially if his behaviour is generous, we find it commendable

that he does so. Ideally, the legal significance of C’s behaviour will lie

below the surface. This will be the position where D reciprocates, himself

taking no particular position as regards the ownership of the ensuing

enrichment; treating it as, if not necessarily something that he and C are

to share equally (as would be the case if their relationship was materiallycommunal), at any rate not his to walk away with as his own. But if this

reciprocity breaks down, the question of entitlement does come to the

surface. Then, the appropriateness of C’s having acted with no particular

thoughts in enriching D makes it right to regard this as a legitimate case

of want of basis, i.e. to regard D’s enrichment as unjust.

If this is right, we are quite a long way towards establishing a fit between

a mission of redressing unjust enrichment and our jurisdiction. There is

an initial difficulty: Stack v Dowden and Abbott v Abbott do not require

C to have enriched D: but C will commonly have done so in practice, if not directly then indirectly. Beyond that, the case where D’s enrichment

is unjust because C acts on the basis of a mistaken belief that he already

has an interest, or of a disappointed understanding that he will gain one,

is quite a good match for our jurisdiction’s genuine common intention.

74Birks, Unjust Enrichment (2003), Ch.6.





(Strictly, to establish unjust enrichment a mistake need not be bilateral;but in our context, it is in reality likely to have been shared, if not induced

by D.) And the case where D’s enrichment is unjust because C acts with

no particular thoughts at all chimes with our jurisdiction’s preparedness

to impute a common intention, i.e. to give relief where the parties had not

consciously addressed the question of their entitlements.

The fit is patchier, however, when we consider relief. A claim based

on unjust enrichment would aim to restore to C the amount by which he

enriched D. For example, if C unjustly enriches D by contributing a third

of what it costs D to acquire his house, C should get a third of the house’svalue. According to the argument made above, this should indeed be the

outcome under our jurisdiction where the required common intention is

imputed rather than genuine, and the parties’ relationship is not materially

communal: as we have seen, the common intention—and thus the relief

it indicates—is then shaped by the parties’ relative contributions.75 But it

should be otherwise in the case of an imputed common intention between

parties whose relationship is materially communal, where the outcome will

be equal shares.76 It should also be otherwise in the case where the parties

have a genuine common intention, where the outcome will be shaped by

that intention, rather than by the value of any contributions they may have

made: so if C contributes a third of the price of the house, but C and D

agree that C should have a half share, an unjust enrichment claim would

give C a third of its value, but our jurisdiction would yield a half share.

(There is a possible further difficulty as regards relief. Under our

jurisdiction, C is invariably awarded a beneficial interest. It is not clear

that an unjust enrichment claim should elicit such a proprietary response,

as opposed to an in personam money liability. But this is one of the most

difficult, and certainly unsettled, issues in the law of restitution,77 so the

latter cannot necessarily be declared at odds with our jurisdiction on this

account.78)

75As in Stack v Dowden [2007] UKHL 17; [2007] 2 A.C. 432.76As in Abbott v Abbott [2007] UKPC 53.77See the widely differing treatments in Burrows, The Law of Restitution, 2nd edn (2002), at pp.60–75,

Goff and Jones, The Law of Restitution, 7th edn (2006), Ch.2; Worthington, Equity (2003), Ch.9; Birks,

Unjust Enrichment (2003), Ch.8. For judicial discussion, see the Canadian decisions Pettkus v Becker

[1980] 2 SCR 834; (1980) 117 D.L.R. (3d) 257; Sorochan v Sorochan [1986] 2 SCR 38; (1986) 29 D.L.R.

(4th) 1; Peter v Beblow [1993] 1 SCR 980; (1993) 101 D.L.R. (4th) 621. These decisions display botha greater acceptance of proprietary relief than many would think right—though on a discretionary basis,

which may facilitate that position—and the slipperiness of the ideas by which it is decided whether suchrelief shall be available.

78According to the powerful argument advanced in Birks, Unjust Enrichment (2003), Ch.8, unjust

enrichment relief should be proprietary where the claim involves an initial failure of basis, as where Cmistakenly believes that he already has an interest in the house; but personal where the claim involvesa subsequent failure of basis, as where D fails to perform his promise to give C such an interest. In

practice, applying this distinction would often be difficult in our situation, given the rather unfocused

quality of the typical facts.





Effectuating the implications of the parties’ relationship

In the kind of situation with which we are concerned, C and D will

generally be in some sort of family relationship. It may be right to give C

an (enlarged) interest because that is what the relationship itself requires.

Say C and D are married or civil partners. Their relationship generates

at any rate a moral obligation on each of them to share their resources

with the other. The resources in question here are of many different kinds,

but one kind is material wealth. (“With all my goods I thee endow . . .

for richer, for poorer . . ..”) There are of course various ways in which

the obligation to share material wealth can be understood, but a centralcandidate is that such wealth should simply belong equally (during the

currency of the relationship jointly) to the parties. It is this understanding

that has in recent years been translated into a legal rule that, in the event of

the relationship’s dissolution, such of the parties’ assets as are not required

for more specific needs should be divided equally.79 This rule does not

itself bite before dissolution, but its underlying logic clearly applies at that

stage too, so it is right to expect a sister rule working on the same lines

from the outset. (A law lacking such a rule, moreover, would perversely

present an incentive to divorce.) In the absence of statutory provision, thislatter rule would naturally operate via a constructive trust over the assets

of the wealthier party.

Outside marriage or civil partnership, an essentially similar argument

can in principle be made, but its precise import will depend on the

implications of the individual relationship in question. If the parties

are committed to sharing their material wealth, the upshot will be just

as though they were married or civil partners. But there will no such

outcome if, while committed in other ways (for example, in respect of

sexual fidelity), they keep their material affairs quite separate. Intermediatepositions are also possible. In practice, however, it will often be difficult

to say what a particular relationship’s implications might be; especially in

respect of material wealth, a topic to which the parties themselves may not

devote focused attention. So it would be unsurprising if the law baulked

at attempting to effectuate such relationships’ implications.80

How does our jurisdiction compare with such a project? Plainly, there

is a very good fit where C and D have no genuine common intention, but

do have what we have termed a materially communal relationship. Then,

according to the account suggested above, a common intention will be

imputed that they should have equal shares (as in Abbott v Abbott ): which

79White v White [2001] 1 A.C. 596 and Miller v Miller, McFarlane v McFarlane [2006] UKHL 24;[2006] 2 A.C. 618; applying the Matrimonial Causes Act 1973 s.24.

80For consideration of further difficulties in the way of basing claims on the implications of

relationships, see the outstanding essay by Bottomley, in Bright and Dewar (eds), Land Law—Themes

and Perspectives (1998), Ch.8.





is exactly the outcome the present approach would deliver in such cases,though it would not proceed via an imputed common intention. In these

terms, too, it is unsurprising that where the parties have a non-materially

communal relationship, our jurisdiction should take a different direction,

reflecting instead the parties’ individual contributions (as in Stack v

Dowden). A non-materially communal relationship is one in which, by

definition, the parties stick with separate accounting. Effectuating its

implications means respecting that, and therefore applying legal redress,

if at all, only on an individualistic basis—as we have seen the law does in

such cases, taking what is in effect a restitutionary approach to relief, as it

would between strangers. On this view, too, the primacy given to a genuine

common intention can be understood, as a facility allowing the parties,

even in what would otherwise be a materially communal relationship, to

opt out of the treatment the law would otherwise mete out to them on

that account—though this does not quite explain why they should then be

treated in accordance with their intentions, when as we have seen there is

a formality problem with that.

CONCLUSIONS

The single name scenario

This article began with the observation that under our jurisdiction, C

can claim whatever interest in D’s house C and D commonly intended he

should have. We noted that one difficulty with this jurisdiction is its lack of

declared basis. We have been investigating whether it can nonetheless be

seen as having a defensible basis, by considering whether the results it gen-

erates would also be generated by one or more recognisable legal drivers.

The short answer is that this is sometimes, but not always, the case.From this point of view, our jurisdiction has three separate aspects.

The first applies to the situation where C and D have no genuine

intention that C should have an interest, but have a materially communal

relationship. Here, the result yielded by our jurisdiction (via an imputed

common intention, shaped by that relationship) is that C gets a half share

in the house. A project of effectuating the implications of the parties’

relationship would give the same result. So this aspect of the jurisdiction

may be accounted for in these terms.

The jurisdiction’s second aspect applies to the situation where, again, Cand D have no genuine intention that C should have an interest, but have a

non-materially communal relationship. Under the jurisdiction (proceeding

via a common intention imputed on the basis of the parties’ contributions;

the relationship itself having no relevant message), C can claim a share in

the house corresponding to the value of any contributions he has made,

directly or indirectly, to its acquisition. This reproduces the position in





unjust enrichment, which may therefore be regarded as the basis of thisaspect of the jurisdiction.

The jurisdiction’s third aspect applies to the situation where, whatever

the nature of their relationship, C and D genuinely intend that C should

have a particular interest in the house. The jurisdiction apparently gives

C that share. This outcome cannot be routinely reproduced using any of

our alternative analyses (though it involves no conflict with them, for

it is natural that the parties’ genuine common intention should override

such solutions as the alternative analyses would otherwise impose). It

is true that sometimes—where C, relying on the intention, has lost the

opportunity to acquire the same or an equivalent beneficial interest in

another way—the outcome under discussion may be that required to

redress a reliance loss. But the outcome certainly cannot be justified in

terms of effectuating the parties’ intention as such: that would require the

intention to have been expressed in writing.

The joint names scenario

This summary has so far focused on the single name scenario: the situation

where the house’s title is in D’s name, and C tries to claim a beneficialinterest in it. But remember the joint names scenario, where the title

belongs to both C and D, and prima facie C and D have equal beneficial

interests. C can claim a larger share if that was the parties’ common

intention . . . though to show this, C must do more than point to disparities

in their contributions: he must first show a common intention that such

disparities should indeed feature in the reckoning. How should we see

this rule in terms of the analysis we have developed?

If the case is one where C and D have no genuine intention that C should

have an interest, but have a materially communal relationship, the questionshould not arise: in the context of such a relationship, by definition the

parties’ shares are equal, so there is no reason to depart from the prima

facie position. At the other extreme, if C and D genuinely intend that C’s

share in the house should be greater than 50 per cent, this intention should

suffice to displace the prima facie inference en route to giving C the share

in question . . . except that, as we have seen, in principle it cannot operate

at all, lacking the necessary formality. As regards those two cases, then,

the rule makes no difference.

That leaves the case where C and D have no genuine intention that Cshould have an interest, and have a non-materially communal relationship.

This is where the rule under discussion makes a difference. The basic

approach to such a case is to give C whatever share corresponds to his

contributions to the acquisition of the house, nominally on the strength of

an imputed common intention to this effect, but (as we have seen) actually

on unjust enrichment grounds. In these terms, the rule under discussion





makes the point that, by taking the transfer into their joint names, C andD appear to agree to compromise this unjust enrichment claim: so that the

claim cannot arise unless this appearance is negatived, or the compromise

agreement later abandoned. This should occur only if the parties genuinely

agree that it should. Such an agreement should not, however, require

writing. It does not in itself transfer beneficial entitlement from one to the

other: it merely exposes the parties’ vested entitlements to the possibility

of reallocation by the law, on grounds of unjust enrichment.

LessonsSo in two out of its three aspects—those not involving a genuine common

intention—our jurisdiction can be seen as in truth well-founded: its effects

can be ascribed to the parties’ relationship, or to the unjust enrichment

significance of their contributions to the acquisition of the house (as

modified by a compromise agreement, in some cases). But in proceeding

not overtly on the basis of these drivers, but via a fictitious common

intention tacitly reflecting them, the jurisdiction is distracted and opaque.81

By dropping the fiction, the law would escape the difficulties in regard

to the meaning of imputation, and the content of the imputed agreement,that we noted earlier.

As regards its third aspect—that concerned with genuine common

intentions—however, the jurisdiction lacks a defensible basis, and needs

reconsideration. Since effectuation of the common intention is prevented

by the want of formality, situations of this kind need to be handled instead,

like the other two kinds, with reference to the parties’ relationship, where

this is materially communal, or otherwise to their respective contributions

to the acquisition of the house.

The law would do well to get this practically important jurisdictionproperly sorted out. Even if the Law Commission’s proposals on the finan-

cial consequences of the breakdown of quasi-matrimonial relationships82

are implemented, there will remain a considerable space in which we must

continue to look to the common law83: in particular, breakdown cases

81The fiction certainly serves no useful purpose where the true driver is unjust enrichment. Where the

true driver is the implications of the parties’ relationship, however, the fiction may allow the law to avoidappearing to proceed on such a basis without statutory cover. Evidence of such thinking appears in Stack

v Dowden [2007] UKHL 17; [2007] 2 A.C. 432 at [61]. But in truth there should be no such concern,for the project is already embedded in the law: see text at fn.76 above.

82Cohabitation: The Financial Consequences of Relationship Breakdown (Law Com. No.307, 2007).

The Government has recently (March 6, 2008) announced that it will not seek to legislate on the basisof this report until it has discovered and considered the impact of the loosely analogous Family Law(Scotland) Act 2006. (See http://www.justice.gov.uk/news/announcement060308a.htm [Accessed April 11,

2008].)83Note the assumption that the common law will not apply in the space that is covered by the

Commission’s proposals. The Commission recommends a rule to this effect: Law Com. No.307, paras

4.132–4.146 (and see too para.5.64). The recommendation may make sense in terms of reducing the

complexity and cost of disputes (para.4.135), but at the level of principle it is more troublesome. The





involving relationships not covered by those proposals84

or by the Matri-monial Causes Act 1973, and pre-breakdown cases involving relationships

of all kinds, including marriage and civil partnership (as where D, being

the sole legal owner of a house, mortgages it, only for C later to claim that

some proportion of the beneficial entitlement was not D’s to dispose of).85

As we have seen, the sorting out would not in fact involve an enormous

change in direction. Outcomes in cases that are presently handled via

an imputed common intention are already sustainable in principle; only

the rhetoric would need to change, to something more transparent and

so potentially less confusing. Genuine but unwritten common intentionswould no longer be effectuated, but the treatment of such cases would

simply assimilate to that of cases with no such intentions.

SIMON GARDNER.*

common law jurisdiction should be superseded by the new scheme only if the latter addresses, albeit ina necessarily modified way, the same claims as the former. The new scheme focuses (though not in the

precisest possible way: para.4.38) on the relief of some, though not all, instances of reliance loss and

unjust enrichment (paras 4.33–4.36). In so far as C has a claim against D to which this scheme is not

addressed, that claim should in principle remain available. The Commission does not discuss this issue. Todo so would require an exposure of all the sorts of claim that the common law does and should recognisein this area, something which the Commission does not undertake. (The Commission draws an analogywith matrimonial ancillary relief claims, which are understood to eclipse all other proceedings between the

parties: para.4.146. The analogy is however unsound, as matrimonial ancillary relief proceedings—underthe Matrimonial Causes Act 1973 s.24—are calculated to effect an all-things-considered rearrangement

of the parties’ entire assets: something to which the proposed scheme for cohabitants does not aspire.)84Which are limited to (with certain detailed qualifications) persons who are “neither married to each

other nor civil partners” but who “[live] as a couple in a joint household” (Law Com. No.307, para.3.13),

and who either have a child (para.3.31) or have lived together in this way for a minimum qualifyingperiod, which might be fixed somewhere between two and five years (para.3.45). The words “as a couple”are aimed at excluding those who are “blood relatives or [in] ‘caring’ relationships and ‘commercial’

relationships” (para.1.19).85In Stack v Dowden [2007] UKHL 17; [2007] 2 A.C. 432 at [52], Lady Hale suggests that these

cases might in future be dealt with on an express trust basis, if transferees were required to declare

their interests on a Land Registry form (thus providing the necessary formality) as a precondition tobeing registered as proprietors. (In fact, there may already be such a requirement: see Moran, “Anything

to Declare? Express Declaration of Trusts in Land Registry Form TR1: The Doubts Raised in Stack v

Dowden” [2007] Conv. 364.) But this expedient cannot cover the whole ground. In particular, it cannotapply to a case where D acquires the house before ever becoming involved with C.

* Fellow of Lincoln College, Oxford.

Authority; Beneficial interests; Common law; Constructive trusts; Family property; Implied

trusts; Intention




JUSTIFYING THE REMEDIES FOR DISHONESTASSISTANCE

I. INTRODUCTION

DETERMINING when a third party accessory to a breach of trust or breach

of fiduciary duty should be liable in equity has preoccupied judges and

commentators since the advantages of such liability in relation to corporatemismanagement and fraud became apparent in the late 1960s.1 It is now

settled that dishonesty is the test for such liability (apart from where the

basis of the claim is that the third party has received trust property). 2 The

third party’s conduct must breach the standards of an honest person with

his or her attributes and in those circumstances.3 Hence, it is an opportune

time to consider a topic that has not received as much attention: the remedy

for the “dishonest assistance” claim. If a third party (D) dishonestly assists

in a breach of duty by a trustee or other fiduciary (F), what remedies should

be available to the claimant beneficiary or claimant principal (C)?Little attention has been given in the case law to this question, other

than to debate whether the liability is appropriately described as being that

of a “constructive trustee”.4 Generally, it is assumed that the remedy is

compensatory. Surprisingly, given the volume of case law, the possibility

of gain-based remedies has arisen only recently in England, and only

at first instance5; however, scenarios in which a gain-based remedy for

dishonest assistance may be appropriate can readily be envisaged. When,

for example, if ever, will D who, at F’s invitation, exploits a business

opportunity that should first have been offered to C, be liable to accountfor a resulting profit? And, if both F and D share the resulting profits, can

D be liable for F’s profits as well? And, more controversially, can that

1See, e.g. Selangor United Rubber Estates Ltd v Cradock (No.3) [1968] 1 W.L.R. 1555. “Accessory”encompasses a third party who procures, participates or assists in the breach of duty. Breach of trust, aswell as breach of fiduciary duty, is referred to in order to emphasise that a misapplication of property

need not be involved.2 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 A.C. 378 (“Royal Brunei Airlines”); Twinsectra Ltd v

Yardley [2002] UKHL 12; [2002] A.C. 164; Barlow Clowes International Ltd v Eurotrust International Ltd

[2005] UKPC 37; [2006] 1 W.L.R. 1476. The position in Australia remains unsettled: Farah Constructions

Pty Ltd v Say-Dee Pty Ltd (2007) 230 C.L.R. 89 at 159–161, per Gleeson C.J., Gummow, Callinan,

Heydon and Crennan JJ.3 Royal Brunei Airlines [1995] 2 A.C. 378; Barlow Clowes International [2005] UKPC 37; [2006] 1

W.L.R. 1476.4See, e.g. Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48; [2003] 2 A.C. 366 at [140]–[142] per

Lord Millett; Giumelli v Giumelli (1999) 196 C.L.R. 101 at 112, per Gleeson C.J., McHugh, Gummowand Callinan JJ.

5Fyffes Group Ltd v Templeman [2000] 2 Lloyd’s Rep. 643; Ultraframe (UK) Ltd v Fielding [2005]

EWHC 1638; [2006] F.S.R. 17; Sinclair Investment Holdings SA v Versailles Trade Finance Ltd [2007]

EWHC 915; [2007] 2 All E.R. (Comm) 993.

445




gain-based liability ever be proprietary in nature? Nor has much attentionbeen given, until recently, to the relationship between the nature of liability

and the appropriate remedy.6 Yet I argue that the remedy available against

a dishonest assistant should depend upon the justification for awarding a

remedy at all. Answering the question, why is a remedy warranted, will,

in large measure, suggest the appropriate remedy and how it is to be

assessed.

II. THE RATIONALES AND NATURE OF DISHONEST ASSISTANCE LIABILITY

(a) The principled and pragmatic rationales

The rationale for dishonest assistance liability has both principled and

pragmatic features.7 The principled basis of the rationale is that Equity

intervenes because there is “wrongful conduct”. The relevance of this for

determining the remedy, including whose wrongful conduct is in issue,

that of F or D, will be discussed more fully below. There are also two

pragmatic reasons why Equity imposes liability upon dishonest assistants:

(i) to provide C with an alternative means of recourse thereby

increasing C’s chances of a successful claim in the event thatF is impecunious or has absconded; and

(ii) to deter third party participation in breach of trust or fiduciary

duty, thereby restricting the opportunities for wrongdoing by

trustees and fiduciaries.8

These pragmatic features of the rationale for liability reflect the strongly

prophylactic nature of the fiduciary obligation and the high value placed

on the rights of principals. In short, this form of third party liability is used

to bolster the protection given to the principals of fiduciary relationships.

How, then, might these pragmatic grounds for dishonest assistanceliability influence the available remedies? One could argue that they justify

the same remedies being available against the dishonest assistant as are

available against a defaulting trustee or other fiduciary; that is, both loss-

based and gain-based remedies. This would ensure that C is fully protected

in the event of breach and would provide a strong deterrence to third

parties. Relying on the pragmatic rationale alone to justify a range of

remedies, however, requires an expansive view to be taken of the rights

of beneficiaries and principals. There is no doubt that, historically, trust

beneficiaries and the principals of other fiduciary relationships were very

6The leading commentary is Elliott and Mitchell, “Remedies for Dishonest Assistance” (2004) 67

M.L.R. 16.7 Royal Brunei Airlines [1995] 2 A.C. 378 at 386–387, per Lord Nicholls of Birkenhead; Consul

Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 C.L.R. 373 at 397, per Gibbs J.8 Royal Brunei Airlines [1995] 2 A.C. 378 at 386–387, per Lord Nicholls of Birkenhead; Consul

Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 C.L.R. 373 at 397, per Gibbs J.




JULY 2008] Justifying the Remedies for Dishonest Assistance 447

well protected by Equity.9

Thus, it is not inconsistent with the doctrinalhistory of trusts and other fiduciary relationships that the rights of C

would be favoured over third parties. But given that there are other checks

and balances on both fiduciaries and third parties nowadays (through

the evolution of negligence law and through legislative regulation, for

example), and that there are clear signs of judicial disquiet with the

stringency of some principal-favouring rules in fiduciary law,10 a sound

basis for justifying any remedy for dishonest assistance should address

more directly the balance of the rights of C with those of D, and therefore

should be found in the principled (wrong-based) aspect of the rationale.The remedy available, in other words, should depend upon the nature of

the wrongdoing that Equity intervenes to address.

This is not to say that the pragmatic aspect of the rationale will

never be of assistance with respect to remedy. It is of relevance in,

first, strengthening any justification given by the principled rationale; and

secondly, in settling the bounds of any remedy justified by the principled

rationale. So if the principled aspect of the rationale justifies a loss-

based remedy (compensation) being available, the pragmatic aspect of the

rationale may influence how compensation is to be assessed. For example,

the pragmatic rationale would support a generous, claimant-favouring,

approach to determining the limits of liability for losses flowing, as a

matter of fact, from the dishonest assistance.11 Thus, it is necessary to

consider the principled, wrong-based, aspect of the rationale and this raises

the question of the nature of the liability: is it primary or secondary or,

in other words, whose wrongdoing grounds the liability?

(b) Primary or secondary liability?

Two models of dishonest assistance liability can be drawn out of thesubstantial body of recent commentary and case law concerning dishonest

assistance. Each model links the nature of the liability to the remedies

consequently available. Model A is taken from an influential Modern

Law Review article by Steven Elliott and Charles Mitchell.12 Model B is

9Finn, “The Liability of Third Parties for Knowing Receipt or Assistance” in Waters (ed.), Equity,

Fiduciaries and Trusts (1993), p.195 at 197.10See, e.g. Murad v Al-Saraj [2005] EWCA Civ 959; [2005] W.T.L.R. 1573.11

Such as applies to breach of fiduciary duty claims: Re Dawson (1966) 84 W.N. (Pt I) (N.S.W.) 399;Target Holdings Ltd v Redferns [1996] A.C. 421.12Elliott and Mitchell, “Remedies for Dishonest Assistance” (2004) 67 M.L.R. 16. The seminal work

applying the notion of secondary civil liability to equitable third party liability is Sales, “The Tort of Conspiracy and Civil Secondary Liability” [1990] C.L.J. 491. Sales’ thesis was adopted by Charles

Harpum although Harpum does not discuss its implications with respect to remedy: see, e.g. Harpum,“The Basis of Equitable Liability” in Birks (ed.), The Frontiers of Liability, Vol.1, (1994), at p.9. Themost comprehensive discussion of Sales’ thesis in relation to the remedies for dishonest assistance is

given by Elliott and Mitchell. See also Mitchell, “Assistance” in Birks and Pretto (eds), Breach of Trust

(2002), at p.139.





implicit in much of the English case law and commentary on dishonestassistance.

According to Model A, D’s liability is a form of civil secondary liability

analogous to common law (and even criminal law) secondary liability, the

tort of interference with contract being an example of the same form of

liability13:

(i) D becomes liable for the breach of a duty owed by F by reason

of D’s involvement (dishonest assistance) in the breach. The

“wrongful conduct” which grounds the principled rationale for

equitable intervention is the breach of trust or fiduciary dutyitself; D thus assumes the same liability in relation to the same

wrong as F.

(ii) Liability is triggered if D’s conduct was dishonest.14

(iii) Because D’s liability is secondarily linked to F’s wrong it

duplicates the liability of F. This suggests that both loss-based

and gain-based remedies (including those in proprietary form)

are available; however, the remedy can be only whatever is

actually available against F.

Conversely, Model B focuses directly upon D’s conduct

15

:(i) D’s liability is a primary liability. The relevant “wrongful

conduct”, therefore, is D’s own conduct in procuring or

assisting with the breach of trust or fiduciary duty.

(ii) Liability is triggered if D’s conduct was dishonest.

(iii) The remedy is loss-based. D must compensate C for losses

resulting from the breach of trust or fiduciary duty.

Models A and B are two extremes; there are, of course, permutations

of these models and not all commentators necessarily adhere to each

element as presented here. For example, one permutation would besecondary liability (Model A, element 1) with equitable compensation

as the only remedy (Model B, element 3).16 Conversely, Lord Nicholls of

13Sales, “The Tort of Conspiracy” [1990] C.L.J. 491 at 492, fn.4; Elliott and Mitchell, “Remedies

for Dishonest Assistance” (2004) 67 M.L.R. 16 at 17. For arguments against a general theory of civilsecondary liability see Carty, “Joint Tortfeasance and Assistance Liability” (1999) 19 L.S. 489; Gardner,

“Knowing Assistance and Knowing Receipt: Taking Stock” (1996) 112 L.Q.R. 56 at 73.14This form of civil secondary liability is to be distinguished from vicarious liability: Sales, fn.12

above, at 502.15See, e.g. Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 A.C. 164 at 194, 200–201, per Lord

Millett; Carty, “Joint Tortfeasance” (1999) 19 L.S. 489. Sarah Worthington may endorse Model B as sherefers to the liability as a civil wrong analogous to the tort of inducing breach of contract and the remedy

as “compensation for harm resulting from trust breaches”. Equity, 2nd edn (2006), at pp.189–191. Seealso Loughlin, “Liability for Assistance in a Breach of Fiduciary Duty” (1989) 9 O.J.L.S. 260. PatriciaLoughlin does not use the terminology of tort and does not accept element 2 of Model B. And see Elliott

and Mitchell, “Remedies for Dishonest Assistance” (2004) 67 M.L.R. 16 at 46.16This is more consistent with common law forms of secondary liability. It may be that the English

case law’s focus upon equitable compensation as the only remedy for dishonest assistance has obscured

the full implications of Sales’ thesis; indeed, this is what Elliott and Mitchell argue in “Remedies for

Dishonest Assistance” (2004) 67 M.L.R. 16.





Birkenhead, writing extra-judicially, appears to accept primary liability,with the remedy of account of profits being available in appropriate

cases.17 Nonetheless, Models A and B represent two extreme versions of

the equitable liability that are clearly presented in the current commentary

and/or implicit in the case law.18

(c) Model A (secondary liability)

The secondary liability model does not withstand close scrutiny. The

problem is in understanding why a dishonest third party’s conduct should

not be characterised as wrongful in itself; that is, why is it not a justiciablewrong, and therefore a primary liability, in and of itself, to procure or assist

in another’s breach of a legal duty? Primary liability appears to be the most

straightforward analysis of the equitable claim; D’s conduct is wrongful

and leads to a primary liability which is joint and several with that of

F.19 Patricia Loughlin explains the wrongfulness of D’s conduct as D’s

exploitation of C’s vulnerability resulting from the fiduciary relationship;

that is, there is “an increased risk of improper advantage-taking by the

third person by reason of the initial fiduciary relationship”.20 Similarly,

the High Court of Australia in several cases has referred to the inequitablecharacter of a third party with knowledge of the breach of trust or fiduciary

duty retaining a benefit resulting from that breach of duty.21 Again, the

reasoning is that it is wrongful in equity to exploit the vulnerability of C

(on the High Court’s formulation, by making a gain from the breach of

F’s duty). This can be seen as the expression of a tort theme in equity;

equity intervenes here “to protect persons in positions of vulnerability

from exploitation or manipulation at the hands of another with whom

the former is in a close ‘neighbourhood’ relationship”.22 On all these

approaches, D’s wrongdoing is in his or her exploitation of the fiduciary

relationship.

There are other reasons why Model A’s characterisation of the liability

as secondary is not compelling. If D’s liability is secondary to F’s liability,

17“Knowing Receipt: the Need for a New Landmark” in Cornish, Nolan, O’Sullivan and Virgo (eds),

Restitution: Past Present and Future (1998), p.231 at 244.18It is misleading, however, to take at face value references in the case law to “primary” or “secondary”

liability as there are few, if any, substantive discussions of the point. For example, Elliott and Mitchell,

“Remedies for Dishonest Assistance” (2004) 67 M.L.R. 16 at 20 cite two Australian cases for theproposition that “liability for dishonest assistance is a secondary, derivative liability”. The cases cited

are Australian Securities Commission v AS Nominees Ltd (1995) 62 F.C.R. 504 and Capital Investments

Corp Pty Ltd v Classic Trading Pty Ltd [2001] FCA 1385 at [330], per Weinberg J. With respect, neithercase provides unequivocal support for their position.

19Cowper v Stoneham (1893) 68 L.T. 18. The reasons for imposing joint and several liability arediscussed in Part III.

20Loughlin, fn.15 above, at 263.21Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 C.L.R. 373 at 397, per Gibbs J;

Zhu v Treasurer (NSW) (2004) 218 C.L.R. 530 at 571, per Gleeson C.J., Gummow, Kirby, Callinan and

Heydon JJ.22Finn, “Equitable Doctrine and Discretion in Remedies” in Cornish et al., fn.17 above, p.17 at 259.





this logically entails that D cannot be liable where F is not liable; butwhat of a breach of trust by an honest trustee who is able to rely on an

exclusion of liability clause in the trust deed; that is, a trustee who never

incurs liability? There is no reason why a dishonest D should be able to

avoid liability because he or she dealt with an honest trustee yet Model A

suggests this outcome. Similar questions arise in relation to fiduciaries. 23

The secondary liability model downplays D’s role in the breach of F’s

duty yet D may be the instigator of the breach and F merely D’s innocent

tool in that enterprise. Given that the extent of wrongdoing by F and D can

vary greatly it is preferable to consider D’s conduct directly rather than

through the lens of F’s wrongdoing. A model of liability is needed that

can differentiate between the two; and Model A does not do this. Thus,

whilst D’s liability is “secondary” in the weak sense that one element of

the liability is proof of another’s breach of trust or other fiduciary duty,

D’s liability should not depend upon a remedy being available against F:

D is liable because of his or her own independently wrongful conduct and,

hence, the liability is primary in nature as suggested by Model B. In Lord

Nicholls’ words, writing extrajudicially, “breach of trust and dishonest

participation in a breach of trust are two species of equitable wrongs”.24

(d) Model B (primary liability leading only to compensatory remedy)

Under Model B the remedy for dishonest assistance is limited to equitable

compensation on the basis that the equitable claim is analogous to the

common law tort of interference with contract.25 It is assumed that the

nature of D’s wrongdoing, exploitation of C’s vulnerability, is adequately

addressed by awarding compensation for any resulting harm.26 It is

fallacious, the argument goes, to equate D’s wrongdoing with that of

F, and therefore as warranting gain-based remedies, because D has notundertaken the same loyalty obligation as F and does not owe a fiduciary

duty. Accordingly, it is said that gain-based remedies are only warranted

in relation to a trustee or fiduciary because they have undertaken not to

profit from their positions without the informed consent of C. The third

party who profits from his or her involvement in the breach of trust or

fiduciary duty has not breached any such undertaking.27 Thus, according

to Model B, the primary liability of D is different in kind to the primary

liability of F, and warrants less extensive remedies.

23See, e.g. Yeshiva Properties No.1 Pty Ltd v Marshall (2005) 219 A.L.R. 112 (F secured waiver of

liability from C who then sued D).24fn.17 above, at p.244.25See, e.g. Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 A.C. 164 at 200–201, per Lord Millett.26Loughlin, “Liability for Assistance” (1989) 9 O.J.L.S. 260.27See, e.g. the defendant’s argument in Fyffes Group Ltd v Templeman [2000] 2 Lloyd’s Rep. 643

at 669, per Toulson J. See also Sinclair Investment Holdings SA v Versailles Trade Finance Ltd [2007]

EWHC 915; [2007] 2 All ER (Comm) 993 at [124]–[125], per Rimer J.





Of course, a loss-based remedy for dishonest assistance is easily justified given the principled rationale for liability. At the very least, D

should compensate C for loss resulting from D’s wrongful conduct. If

any further support is needed for this proposition it can be found in the

remedy available for the common law tort of interference with contract. It

must be at least as wrongful to interfere with a fiduciary relationship as it

is to interfere with a contractual relationship.28 There is a separate issue

regarding how that loss should be quantified; as will be discussed below,

the current rules for assessing equitable compensation in relation to third

parties mean that the loss-based remedy can be onerous. Nonetheless, the

availability of a loss-based remedy, in principle, is uncontroversial.

However, if the liability is considered primary in nature, is a gain-

based remedy equally justifiable? The proposition that so long as C is

compensated for loss then D may keep any additional profits resulting

from his or her wrongful conduct is not self-evident.29 It is true that D

has not given an undertaking of loyalty; but nonetheless, if he or she has

dishonestly interfered with the trust or fiduciary relationship for profit,

thereby exploiting C’s vulnerability, this constitutes significant equitable

wrongdoing for which a gain-based remedy might be available. Gibbs J.

in Consul Development Pty Ltd v DPC Estates Pty Ltd took this approach:

“If . . . the [fiduciary conflict of interest] rule is to be explained

simply because it would be contrary to equitable principles to allow

a person to retain a benefit that he had gained from a breach of

his fiduciary duty, it would appear equally inequitable that one who

knowingly took part in the breach should retain a benefit that resulted

therefrom.”30

On this approach, the wrongdoing of F and D, whilst separate and

distinct, are equally unmeritorious and exploitative of the vulnerable; and,arguably, both warrant a gain-based remedy when appropriate.

Nonetheless, does the similarity of equitable dishonest assistance

liability with the common law tort of interference with contract warrant

confining the equitable remedy to compensation as Model B suggests?

A problem with Model B is that in seeking consistency with the tort of

interference with contract insufficient attention is given to the differences

between the equitable liability and the common law liability. Under the

equitable liability D exploits a duty of undivided loyalty rather than the

duty to perform a contract; there is a qualitative difference between thesetwo duties which justifies a greater range of remedies being available

28Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 A.C. 164 at 201, per Lord Millett.29Lord Nicholls fn.17 above, at p.244.30(1975) 132 C.L.R. 373 at 397. See also Zhu v Treasurer (NSW) (2004) 218 C.L.R. 530 at 571, per

Gleeson C.J., Gummow, Kirby, Callinan and Heydon JJ. See also Lord Nicholls fn.17 above.





in relation to interference with the former duty. The duty to performone’s contractual obligations is qualified in several ways in order to

accommodate, for example, the efficient operation of the market and the

protection of the contracting parties’ respective autonomies. Therefore, it

will not necessarily be regarded as wrongful for a third party to retain an

economic benefit resulting from the wrongful interference with another’s

contractual obligations, so long as the innocent party is compensated for

any loss. Conversely, the liability of a fiduciary is strict; F can only escape

liability if C gives fully informed consent to the breach. The function of

the fiduciary obligation is to ensure that F is loyal to C in a relationship of

inequality; there are no competing economic or autonomy considerations

to be balanced with this obligation and which might justify D retaining

benefits resulting from dishonest assistance in the breach of fiduciary

duty.31

In any event, it is a mistake to assume that the common law necessarily

has “got it right” in relation to its remedial scheme. The debate over

whether gain-based remedies should be available in relation to breach of

some common law duties shows that the need for equitable wrongs to

be remedially consistent with common law wrongs has to be carefully

thought through.32

(e) Further justifying gain-based remedies

The pragmatic aspects of the rationale for dishonest assistance liability,

particularly the second ground of deterrence, add weight to allowing gain-

based remedies. If third party liability is effectively to deter breaches of

trust and fiduciary obligation then it must be possible to require D to give

up profits derived from the dishonest assistance. The pragmatic rationale is

especially weighty where F and D are not independent actors; for example,

if both are likely to derive benefit from the gain regardless of who receives

it. So, for example, if D is closely related to F, or is a company controlled

by F, or vice versa, it makes little sense to limit the availability of gain-

based remedies to F. An early authority illustrating this point is the Privy

Council case of Cook v Deeks.33 D was a company formed by F to take

over the contract entered into by F in breach of fiduciary duty to C. Lord

Buckmaster L.C., on behalf of the Privy Council, held that as D had full

31A similar argument is made by Worthington, “Reconsidering Disgorgement for Wrongs” (1999) 62M.L.R. 218 at 236–237. Worthington argues gain-based remedies are justified in relation to breach of

fiduciary duty because of the social value attached to the fiduciary relationship; and thus the object of

the remedies is to prevent breaches occurring at all, rather than simply to remedy resulting harm. Herarguments apply equally to third parties.

32See, e.g. Att-Gen v Blake [2001] 1 A.C. 268; McInnes, “Account of Profits for Common Law

Wrongs” in Degeling and Edelman (eds), Equity in Commercial Law (2005), at p.405.33[1916] A.C. 554.





knowledge of the breach of duty (F was D’s controlling mind and will),an account must be directed against it.

It might be argued that such cases are simply instances of piercing the

corporate veil; that is, the fiduciary and corporate third party are treated as

interchangeable entities where the former is the controlling mind and will

of the latter.34 On this interpretation of the cases, gain-based remedies

are not necessarily available for dishonest assistance per se but will be

available where D is treated as indistinguishable from F. But such an

interpretation does not explain all of the authorities where a gain-based

remedy against D has been recognised. For instance, several Australian

cases have involved fiduciaries poaching business from their respective

employers with the dishonest assistance of their wives or friends as well

as, or instead of, companies created to conduct the new businesses; and

gain-based remedies have been awarded against the third parties whether

or not controlled by F.35

There are also Australian authorities where a gain-based remedy was

awarded (or would have been available had all the elements of the

action been found) against a completely independent third party. In

Consul Development Pty Ltd v DPC Estates Pty Ltd , for example, the

relationship between F and the controlling mind of D (Clowes) was thatof fellow employees of C (Clowes as an articled clerk and F as a real

estate adviser and manager).36 F and D were independent actors and

not likely to benefit from each other’s separate and distinct profit; thus

there was no implication that they were being treated interchangeably for

the purposes of remedy. And in United States Surgical Corp v Hospital

Products International Pty Ltd , overturned on appeal on other grounds, a

constructive trust was imposed over the assets of D, a public company

unrelated to F.37 Similarly, in the English case of Fyffes Group Ltd v

Templeman, D was an independent company, seeking to do businesswith C, who bribed F in order to secure contracts with C.38 Toulson

J. held that, in principle, a gain-based remedy was available against

C. These authorities, from Cook v Deeks onwards, suggest that D’s

liability, although separate and distinct from that of F, warrants gain-based

remedies.

The strongest case for a gain-based remedy being available is where

the gain is one that could have been made by C; for example, where D

34See, e.g. Sinclair Investment Holdings SA v Versailles Trade Finance Ltd [2007] EWHC 915; [2007]2 All ER (Comm) 993 at [104] and [132]–[133], per Rimer J. Such an argument (made in relation to

Cook v Deeks [1916] 1 A.C. 554) was rejected in Fyffes Group Ltd v Templeman [2000] 2 Lloyd’s Rep.

643 at 669–670, per Toulson J.35Timber Engineering Co Pty Ltd v Anderson [1980] 2 N.S.W.L.R. 488; Colour Control Centre Pty

Ltd v Ty NSWSC (Eq. Div.) July 24, 1995.36(1975) 132 C.L.R. 373.37[1983] 2 N.S.W.L.R. 157.38[2000] 2 Lloyd’s Rep. 643.





exploits a business opportunity that should have been offered by F to C.In a very loose sense there is a causal nexus between D’s gain and C’s

loss, even if the two are not identical, and even though it is not possible

to trace from C to D. C has missed out on the opportunity to exploit the

business opportunity which D has exploited; and in that sense, assuming

that C would have exploited the opportunity at least as well as D, then C’s

loss can be equated with D’s gain. Indeed, it may be that the distinction

in such cases between a gain-based, and loss-based, remedy is sometimes

overlooked and “compensation” equating with the third party’s gain is

awarded.

The New South Wales Supreme Court decision of Colour Control

Centre Pty Ltd v Ty explicitly recognised the distinction between the

loss-based and gain-based remedy for D’s exploitation of a business

opportunity that should have been offered to C; and provides a helpful

model for assessing a gain-based remedy in loss of business opportunity

cases.39 In that case, Santow J. assessed C’s losses resulting from the

breach of fiduciary duty as

“the profits [C] would have made if [C] had secured and retained

the [business opportunity]. . .

multiplied by the chance that the work would have been obtained, which I have estimated at 30%.”40

And he assessed Ds’ profits for which they should account as being the

total profit made from the business opportunity discounted by 20 per

cent to reflect D’s “time, energy, skill, and financial contribution”.41 He

assumed that C would elect the latter, higher, sum.

Is it possible to go further, however, and argue that a gain-based remedy

against D is justifiable, given the primary nature of D’s liability, even

where C has suffered no loss at all? Clearly, a fiduciary is liable to account

for profits resulting from a breach of fiduciary duty, regardless of whetherC suffered a loss42; but does the nature of D’s separate wrongdoing

(dishonest exploitation of C’s vulnerability) justify the same approach

being taken? Would that be to cast D as a fiduciary even though he or she

has undertaken no obligation of loyalty? To some extent this question is

obscured by the fact that the rules for assessing equitable compensation

are so favourable to principals that it is only in extreme cases that C

will be unable to demonstrate any loss; nonetheless, circumstances can be

envisaged where D should still account for his or her gains. One example

is where D actively encourages F to make certain investments, knowingthat this will constitute a breach of the trust or fiduciary duties (due to

39NSWSC (Eq. Div.) July 24, 1995.40At 22.41At 24.42 Boardman v Phipps [1967] 2 A.C. 46.





a conflict of interest, say) and where D’s conduct is motivated by thereceipt of generous commissions for securing these investments. Even if,

fortuitously, C suffers no loss from the investments, it seems perfectly

appropriate that D be made to account for his or her gain (assuming all

other conditions for liability are met). Such a result can be justified by

the principled aspect of the rationale (D’s wrongdoing) and is further

strengthened by the pragmatic aspect: requiring third parties to disgorge

wrongfully acquired gains has a deterrent effect on such conduct, thereby

preventing potential breaches of the fiduciary obligation by other trustees

and fiduciaries.

(f) Limitations on gain-based remedies

To argue that the principled aspect of the rationale for third party liability

justifies a gain-based remedy, however, does not mean that D’s liability

must be synonymous with that of F; in other words, D need not be treated

as though he or she were a trustee or fiduciary.43 The fact that F has

given an undertaking of loyalty whereas D has not is still relevant. Nor

is the argument that in all cases where D makes a gain from dishonest

assistance in a breach of trust or fiduciary duty, but C suffers no loss,

a gain-based remedy should be awarded; simply that this should be an

available remedial option where the degree of D’s culpability, or close

relationship with F, warrants it. In the example given above, D actively

and deliberately encouraged the breach of duty by F in order to secure the

investment commission; the remedial scope might be different where D

was approached for investment advice and gave it in circumstances that

still constituted dishonest conduct but not of the same degree of culpability

(for example, if D behaved recklessly rather than fraudulently).

This helps to explain the decision not to award a gain-based remedy inFyffes Group Ltd v Templeman.44 In that case D bribed F in order to secure

contracts with C. Whilst Toulson J. held that the profits made by D on the

resulting contracts were recoverable in principle, on the facts of the case,

no profit remedy was awarded because it was found that C still would

have entered the contracts with D absent any wrongdoing. The profits that

D made from the contracts were “not caused by the bribery” but were an

“ ‘ordinary’ profit element” that would have been earned irrespective of

the breach of duty.45 D was liable simply to compensate C for losses

resulting from the bribery (including, but not limited to, the amount of the bribes). Thus, compensation was awarded to reflect the extent to which

43The terminology of constructive trusts to describe D’s liability is inappropriate for this reason.Contra, Elliott and Mitchell, “Remedies for Dishonest Assistance” (2004) 67 M.L.R. 16.

44[2000] 2 Lloyd’s Rep. 643.45[2000] 2 Lloyd’s Rep. 643 at 672.





the agreed contractual terms were more favourable to D than would havebeen the case without the breach of duty by F.

Whilst Toulson J. in Fyffes Group Ltd v Templeman apparently saw

his reasoning as applying equally to fiduciaries,46 the Court of Appeal in

Murad v Al-Saraj disagreed.47 In that case, a fiduciary was not permitted

to argue that because C would have entered the impugned transaction even

if there had been no breach of fiduciary duty, and hence, F would have

legitimately earned at least some profits, he should only be liable for a

proportion of the profits resulting from the transaction. That is, the same

argument, used successfully by a dishonest assistant in Fyffes Group Ltd

v Templeman, failed when used by a fiduciary in Murad v Al-Saraj.

The decision in Murad v Al-Saraj is consistent with established

principles of fiduciary law.48 Arden and Jonathon Parker L.JJ., in the

majority, apparently assumed that the liability of a fiduciary and a

dishonest assistant are based upon the same principles and on this basis

expressed doubt as to the correctness of Toulson J.’s decision in Fyffes

Group Ltd v Templeman. With respect, the two decisions are consistent

if one accepts that the nature of D’s wrongdoing (exploitation of C’s

vulnerability) and the nature of F’s wrongdoing (breaching an undertaking

of loyalty) are different; F’s duties are of a more absolute, prophylactic,nature and warrant more stringent remedies.

(g) Case law support for “Model C”

There are some cases to support a model of primary liability leading to

both loss-based and gain-based remedies and which I will call “Model C”.

As well as the early decision of Cook v Deeks, and the later Australian

cases, most recently in Fyffes Group Ltd v Templeman, Toulson J. rejected

the defendants’ Model B argument and preferred the approaches of GibbsJ. in Consul Development Pty Ltd v DPC Estates Pty Ltd and the Privy

Council in Cook v Deeks.49 He concluded that a dishonest assistant was

personally liable to account due to his or her implication in F’s fraud and

if, in fact, extra profits resulting from the bribe alone could be identified

(they could not). Toulson J.’s reasoning was confirmed by Lewison J.

in Ultraframe (UK) Ltd v Fielding as applying wherever a dishonest

assistant makes a personal gain resulting from the dishonest assistance

or consequent breach of trust or fiduciary duty; that is, the finding in

46He cited the leading Australian authority on account of profits for breach of fiduciary duty: Warman

International Ltd v Dwyer (1995) 182 C.L.R. 544 at 561, per Mason C.J., Brennan, Deane, Dawson andGaudron JJ.

47 Murad v Al-Saraj [2005] EWCA 959, [2005] W.T.L.R. 1573; McInnes, “Account of Profits forBreach of Fiduciary Duty” (2006) 122 L.Q.R. 11.

48 Boardman v Phipps [1967] 2 A.C. 46; Regal (Hastings) Ltd v Gulliver [1967] 2 A.C. 134.49[2000] 2 Lloyd’s Rep. 643 at 670. Toulson J. also drew support from the analogous position of a

third party procuring or assisting in a breach of confidence.





Fyffes Group Ltd v Templeman did not depend upon special public policyconcerns with respect to bribes.50

III. JOINT AND SEVERAL LIABILITY

Having justified, in broad terms, a model of primary liability for the

equitable wrong of dishonest assistance that allows both loss-based and

gain-based remedies, Model C, does this help in answering two subsidiary

questions concerning the remedy; namely:

(i) should D and F be jointly and severally liable for C’s losses;

and,(ii) should D and F be jointly and severally liable for their gains?

(a) Joint and several liability for losses51

If D’s liability is to be characterised as a primary liability, as argued

above, it follows in principle that D should be liable only for losses

“caused” by D’s own wrongdoing; that is, once D’s dishonest assistance

is determined to be a cause-in-fact of C’s losses, the court should consider,

as a normative question, the appropriate scope of D’s liability for those

losses.52 In fact, however, once D is found to have dishonestly assisted F

in the breach of trust or other fiduciary duty, D is held jointly and severally

liable with F for all of C’s losses for which F is liable and which result

from the breach of duty.53 That is, D takes on F’s liability for C’s losses.

Thus, in relation to C’s claim, there is no separate inquiry as to the scope

of D’s liability.54 This can result in D being liable to compensate for

extensive losses suffered by C even though D’s contribution to the breach

of trust or fiduciary duty was relatively minor when compared with that

of F (and vice versa).

50[2005] EWHC 1638; [2006] F.S.R. 17 at [598]–[594]. See also Prentice and Payne, “Directors’Fiduciary Duties” (2006) 122 L.Q.R. 558 at 563.

51 An issue that will not be dealt with here is whether the assessment of equitable compensation fordishonest assistance should be the same for all breaches of trust, whether breach of a fiduciary duty ornot. See Bristol & West Building Society v Mothew [1998] Ch. 1; Youyang Pty Ltd v Minter Ellison Morris

Fletcher (2003) 212 C.L.R. 484. See also Conaglen, “The Nature and Function of Fiduciary Loyalty”(2005) 121 L.Q.R. 452 at 479.

52“Under both systems [common law and equity] liability is fault-based: the defendant is only liable

for the consequences of the legal wrong he has done to the plaintiff and to make good the damage causedby such wrong.” Target Holdings Ltd v Redferns [1996] 1 A.C. 421 at 432, per Lord Browne-Wilkinson.

The terminology of “cause-in-fact” and “appropriate scope of liability” is taken from Stapleton, “Cause-in-fact and the Scope of Liability for Consequences” (2003) 119 L.Q.R. 388. It was adopted by the Courtof Appeal in Corr v IBC Vehicles Ltd [2006] EWCA Civ 331; [2007] Q.B. 46 at [15], per Ward L.J. and

by the House of Lords in Kuwait Airways Corp v Iraqi Airways Co (No.3) [2002] UKHL 19; [2002] 3All E.R. 209 at 228, per Lord Nicholls.

53Cowper v Stoneham (1893) 68 L.T. 18; Trustor AB v Smallbone (No.3), unreported, May 9, 2000,

CA, at [97], per Scott V.C.; Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638; [2006] F.S.R. 17 at[600], per Lewison J. See also the authorities cited in Mitchell, “Apportioning Liability for Trust Losses”

in Birks and Rose (eds), Restitution and Equity, Vol I: Resulting Trusts and Equitable Compensation

(2000), at p.211 and Mitchell, fn.12 above, at p.157.54Elliott and Mitchell, “Remedies for Dishonest Assistance” (2004) 67 M.L.R. 16 at 18–20.





The absence of a separate inquiry into the scope of D’s liability for C’slosses appears to favour Model A (secondary liability); indeed, the few

authorities that specifically address the question of causation in relation to

dishonest assistance are relied upon by Elliott and Mitchell as conclusive

evidence that the English courts support a secondary liability model of

dishonest assistance.55 If the relevant wrongdoing is that of F, D becoming

liable for that wrongdoing through accessorial conduct, then the remedial

focus must be on the consequences of that primary wrongdoing. On this

analysis, the scope of liability inquiry concerns F’s breach of duty, rather

than D’s accessorial conduct. Indeed, according to Elliott and Mitchell,

on the secondary liability, Model A, approach, all that is necessary is that

D’s “acts or omissions have at least made the commission of the breach

easier than it would otherwise have been . . .”.56 D’s dishonest assistance

constitutes a “complicity nexus” which substitutes for the scope of liability

inquiry.57

There are two alternative justifications for the joint and several liability

of F and D which are compatible with a primary liability analysis of

dishonest assistance. First, the courts take a generous, claimant-favouring,

approach to the scope of F’s liability when assessing compensation for

losses caused by a fiduciary.58 This is consistent with the prophylacticcharacteristics of fiduciary law generally. The pragmatic aspects of the

rationale for third party liability (particularly that of providing C with an

alternative means of recourse) suggest that the same approach be taken

when assessing D’s liability for C’s losses. Thus, whilst as a matter of

principle, a normative inquiry should be conducted in relation to D’s

wrongdoing and the consequent scope of D’s liability, because such issues

can be complex, even on equity’s more claimant-favouring rules, all that

C needs to establish is that loss was “caused” by F’s breach of trust or

fiduciary duty (that is, F’s conduct was a cause-in-fact of C’s losses andthe losses were within the scope of his or her liability); and secondly, that

D dishonestly assisted in the breach and was also a cause-in-fact of C’s

losses. Indeed, it can be argued that the far-reaching consequences of joint

and several liability have been a factor in the English courts’ endorsement

of a high threshold (dishonesty) for liability; that is, the sort of conduct

by a third party that would lead to a finding of dishonesty warrants that

party bearing the risk of full liability for the loss caused to C.

A second justification for the apparent anomaly of D being held

responsible for F’s liability to C is that it is only in relation to C that

55Elliott and Mitchell, “Remedies for Dishonest Assistance” (2004) 67 M.L.R. 16 at 18–20; Grupo

Torras SA v Al-Sabah (No.5) [1999] C.L.C. 1469; Casio Computer Ltd v Sayo (No.3) [2001] EWCA Civ661; [2001] I.L. Pr. 43.

56At 20.57At 17–18 quoting from Cooper, Secondary Liability for Civil Wrongs (Ph.D. thesis, University of

Cambridge, 1996). See also Sales, fn.12 above, at 510.58See, e.g. Re Dawson [1966] 2 N.S.W.L.R. 211; Target Holdings Ltd v Redferns [1996] A.C. 421.





questions of relative responsibility are ignored; as between D and F suchissues are relevant, and go to the question of contribution.59 The fact that F

is liable to pay contribution to D if D meets C’s claim for compensation

bears out the argument that the reasons for joint and several liability

are pragmatic and prophylactic rather than a logical consequence of D’s

liability being secondary to that of F. Thus, even on the model of primary

liability argued for in this paper, Model C, D’s joint and several liability

C’s losses can be justified.

(b) Joint and several liability for F’s gains

According to my proposed model of primary liability, Model C, the

remedy available against D should be directed towards D’s wrongdoing;

and therefore it follows that D should not be liable for gains made by

F. Nonetheless, it is possible to conceive of circumstances where liability

for F’s gains might be justified given the degree of D’s culpability. For

example, where F is simply the vehicle for D’s enrichment, and D is the

instigator of the breach of duty, such as where F is a company controlled

by D, it could be argued that D should account for the gains made by F. Of

course, such a claim would only be necessary where F was unable to meet

its liabilities and if it were not possible to trace F’s gains into D’s hands

(thereby activating either recipient liability or proprietary liability). On the

other hand, it may be that such scenarios can be accommodated in other

ways; for example in a corporate setting, where F is a company in which

D has a substantial interest, removing the gains of F may have the indirect

consequence of withholding or removing gains from D.60 Alternatively,

if F’s function is solely to be the vehicle for D’s enrichment then there

may be a case for piercing the corporate veil.61

Characterising D’s liability as secondary, under Model A, on the otherhand, would lead to D being liable for F’s gains because under this model

D assumes F’s liability to C. Conversely, if it is D who makes a gain from

the breach of trust or fiduciary duty, this gain would not be recoverable,

even from D, because it is not a gain for which F is accountable. Elliott

and Mitchell do not endorse these aspects of Model A. In particular, they

consider that holding D jointly and severally liable for gains made by

59See Finn, fn.9 above, at p.217; Mitchell, fn.53 above, and Mitchell, fn.12 above, at p.157; Gurr,

Beyond the Dishonesty Test: Accessory Liability and Contribution, Release and Apportionment (Honours

thesis, Australian National University, 2006).60See, e.g. Warman International Pty Ltd v Dwyer (1995) 182 C.L.R. 544 at 563–564, per Mason C.J.,

Brennan, Deane, Dawson and Gaudron JJ. The court noted that an account of profits directed against the

third party company would indirectly achieve a similar result to an account of profits, or constructivetrust, in relation to F’s shareholding in the company.

61See Trustor AB v Smallbone (No.2) [2001] 1 W.L.R. 1177; Gencor ACP Ltd v Dalby [2000] 2

B.C.L.C. 734; Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638; [2006] F.S.R. 17 at [561]–[576].

The discussion in these cases concerns the opposite scenario; that is, where D is the corporate entity.





F goes beyond what is necessary to fulfil the pragmatic and principledrationales of liability and thus amounts to a punitive measure.

There is a line of Canadian cases supporting joint and several liability

on D for F’s gains on the basis that D is to be treated as though he

or she were a co-trustee or fiduciary. Those cases, however, contain no

discussion of principle and the very difficult questions of law concerning

the contribution rules between co-trustees are not elaborated upon; that

is, whether or not co-trustees are always jointly and severally liable for

each others’ gains.62 Most recently, Lewison J. in Ultraframe (UK) Ltd v

Fielding adopted the view of Elliott and Mitchell and held that joint and

several liability for gains was not justified as a matter of principle and,

having penal consequences, it went beyond the court’s jurisdiction as a

court of equity.63 For the moment then, the English courts seem unlikely

to endorse joint and several liability for gains except where a case can be

made for piercing the corporate veil. Such an approach is consistent with

a model of primary liability.

IV. PROPRIETARY REMEDIES

If the arguments so far are accepted, then according to Model C, D shouldbe subject to a primary liability to C based upon D’s dishonest exploitation

of C’s vulnerability arising from the fiduciary relationship with F. D is

potentially liable for both loss-based and gain-based remedies; but can

this extend to a proprietary gain-based remedy? The remedies in question

are the constructive trust and the equitable lien. Model A and Model B

cannot accommodate these remedies; and, since these models have also

proved inadequate in relation to the remedies discussed so far, will not be

considered further.

(a) When is a proprietary remedy warranted?

A worthwhile exercise is to consider why a proprietary remedy in relation

to D’s profits would ever be warranted given that the pragmatic and

principled rationales of dishonest assistance liability (namely, deterrence

of other dishonest assistants, provision of alternative means of recourse to

62See, e.g. Canada Safeway Ltd v Thompson [1951] 3 D.L.R. 295 at 323, per Manson J; [1952] 2

D.L.R. 591 at 592 per Manson J; D’Amore v Macdonald (1973) 32 D.L.R. (3d) 543 at 549, per AddyJ; Abbey Glen Property Corp v Stumborg (1976) 65 D.L.R. (3d) 235; Macdonald v Hauer (1976) 72

D.L.R. (3d) 110 at 130 per Bayda J.A. Elliott and Mitchell, “Remedies for Dishonest Assistance” (2004)67 M.L.R. 16 at 40–41. In Australia, see United States Surgical Corp v Hospital Products International

Pty Ltd [1982] 2 N.S.W.L.R. 766 (McLelland J., at first instance, awarded an account of F’s profits

against D and F). Meagher, Heydon and Leeming, Meagher, Gummow and Lehane’s Equity: Doctrines

and Remedies, 4th edn (2002), at para.5-245, conclude that McLelland J.’s judgment is the only expressAustralian endorsement of D’s joint liability for F’s profits and is not supported by the tenor of other

leading authorities on the remedy of account of profits.63[2005] EWHC 1638; [2006] F.S.R. 17 at [598], [600].





C, and redress of D’s wrongdoing) all appear to be met by the personalremedies of equitable compensation and account of profits. A proprietary

remedy clearly bolsters the alternative means of recourse given to C,

most obviously by enabling C to secure priority over unsecured creditors

of D in the event of D’s insolvency. Prioritising C’s rights over those

of D’s unsecured creditors has no deterrent effect upon D, however,

nor upon other potential dishonest assistants.64 Furthermore, awarding

a proprietary remedy against an insolvent D disrupts the operation of

statutory insolvency regimes and disadvantages unsecured creditors not

implicated in the dishonest assistance.65 Thus, a proprietary remedy is

not warranted where D is unable to meet all of his liabilities. This may be

difficult to determine in practice, however, for the ability of D to satisfy

his or her unsecured liabilities does not necessarily correlate with D’s

insolvency.66

In fact, insolvency protection has not been a relevant factor in Australian

dishonest assistance cases that have contemplated or awarded a proprietary

remedy.67 In each instance, the remedy was directed towards effectively

redressing D’s wrong vis-a-vis C, rather than in ensuring C’s priority

in the event of an inadequate pool of assets. These cases demonstrate

that there are motivations, other than insolvency protection, as to whya proprietary remedy might be sought and these are consistent with the

principled rationale for liability.68

First, a proprietary remedy may be the most straightforward means of

ensuring that C is not disadvantaged by D’s wrongdoing. In other words,

although an accurate compensatory award will, in principle, achieve

the same result, a constructive trust will most effectively redress D’s

wrongdoing. An example is where D dishonestly uses non-confidential

information, imparted by F in breach of fiduciary duty, to exploit a

property redevelopment opportunity that should have been offered to C.69

A court may order D to account for his profits; however, this may not

reflect the gain that C could have made if given the opportunity by F to

exploit the information, particularly where the opportunity is not yet fully

64Worthington, Equity (2006), at p.125. Virgo, Principles of the Law of Restitution, 2nd edn (2006),p.534.

65 Re Polly Peck International Plc (No.2) [1998] 3 All E.R. 812.66Evans, “Defending Discretionary Remedialism” (2001) 23 Sydney L.Rev. 436 at 479.67Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 C.L.R. 373; Timber Engineering Co

Pty Ltd v Anderson [1980] 2 N.S.W.L.R. 488 (approved by Mason J. in Hospital Products Ltd v United

States Surgical Corp (1984) 156 C.L.R. 41 at 115–116); United States Surgical Corp v Hospital Products

International Pty Ltd [1983] 2 N.S.W.L.R. 157 (overturned on appeal on other grounds).68Further motivations for a proprietary remedy are given by Evans, “Defending Discretionary

Remedialism” (2001) 23 Sydney L.Rev. 436 at 474–475.69See, e.g. Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 C.L.R. 373 (proprietary

remedy sought but elements of claim not found). See also Say-Dee Pty Ltd v Farah Constructions Pty

Ltd [2005] NSWCA 309; where, on similar facts, the NSW Court of Appeal granted a constructive

trust for recipient liability. The finding of a breach of fiduciary duty was overturned on appeal: Farah

Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 C.L.R. 89.





realised by D. Similarly, C could seek equitable compensation for the lossof profits discounted by the possibility that C would not have taken up

the opportunity; however, C may be disadvantaged by the difficulty of

accurately assessing such compensation. If a constructive trust is imposed

over the property acquired by D, with appropriate allowances for D’s

expenditure and efforts to date, C can pursue the property development

opportunity. For example, in Consul Development Pty Ltd v DPC Estates

Pty Ltd C sought a constructive trust over the real properties acquired

through D’s exploitation of an opportunity which F should have disclosed

to C.70 The elements of the claim were not made out in the High Court

of Australia and so the remedy sought was not in issue; however, none

of the judges appeared concerned about the constructive trust order made

by the New South Wales Court of Appeal. Thus, if D has usurped C’s

commercial opportunity C should be able, by means of a constructive

trust, to step into D’s shoes and complete the venture.

Similarly, as in the New South Wales Supreme Court decision of Timber

Engineering Co Pty Ltd v Anderson, if company D is created in order

dishonestly to assist F (the manager of C) to divert C’s business to D,

the most effective remedy from C’s point of view may be a constructive

trust over the assets of D to reflect the fact that D’s business is whollyreferable to equitable wrongdoing by F and D.71 Just allowances can be

made for D’s expenses, efforts and skill.

In Ultraframe (UK) Ltd v Fielding Lewison J. held that Timber

Engineering Co Pty Ltd v Anderson was inconsistent with the Australian

High Court decision of Warman v Dwyer 72; with respect, however, this is

not so. A proprietary remedy is not as appropriate when, as in Warman v

Dwyer , although a competing business is set up by D and F in breach of

F’s fiduciary duties to C, the success of the endeavour substantially reflects

the skill and efforts of D and F, and the business opportunity would nothave been pursued by C. In Warman v Dwyer a constructive trust was not

sought because it was not a proportionate response to the degree of F and

D’s wrongdoing, not because it was unavailable as a remedial option. An

account of D’s profits for the first two years of operation, with appropriate

allowances, better reflected the extent to which D had gained by the breach

of fiduciary duty in that a large proportion of the continuing success of

70Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 C.L.R. 373.71

[1980] 2 N.S.W.L.R. 488 at 496–497, per Kearney J. A second fiduciary was involved as wellas the wives of the two fiduciaries. All third parties were found to have knowingly participated in a

dishonest and fraudulent scheme. One reading of Kearney J.’s decision is that he imposed an equitablelien over the shares in the third party companies: Meagher, Heydon and Leeming, fn.62 above at para.5-250; whereas, in Hospital Products Ltd v United States Surgical Corp (1984) 156 C.L.R. 41 at 115–116

Mason J. construed the remedy to be a constructive trust over the business of D. Whilst the judgment is

not clear, it is suggested that Kearney J. awarded both a constructive trust over the assets of the thirdparty companies and equitable liens over shares held in those companies for the “value injected into such

shares” by the breaches of fiduciary duties: at 49.72Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638; [2006] F.S.R. 17 at [542]–[545].





F and D’s enterprise was referable to F’s own skill and efforts.73

Timber Engineering Co Pty Ltd v Anderson and Warman v Dwyer are perfectly

consistent decisions that illustrate when a proprietary remedy is, or is

not, appropriate. In fact, the remedies awarded in Warman v Dwyer were

equitable charges over the assets of the two third party companies to

secure accounts of profits of the respective companies; that is a, lesser

proprietary remedy was still given.74

A further situation, again unrelated to D’s insolvency, where it might be

desirable for C to seek a constructive trust over property representing D’s

gain from dishonest assistance is if the property is no longer identifiable inD’s hands but the value inherent in it can be traced to property held by a

third party who is not a bona fides purchaser for value.75 C is limited to a

personal gain-based remedy against D, but also may assert his proprietary

interest in property held by the third party.

Thus, there are motivations other than insolvency protection for

considering a proprietary remedy for dishonest assistance. Such scenarios

occur where, as between C and D, C has the better claim to the assets held

by D; conversely, where D is insolvent, and the competition is between

C and D’s creditors, C does not have a superior claim. The difficulty

of determining whether the competition will be between C and D, or

C and D’s unsecured creditors, may be a practical obstacle to allowing

proprietary remedies; but leaving that to one side for the moment, are

there principled reasons for refusing a proprietary remedy even where D

is not insolvent or likely to become so? Here, an illuminating contrast can

be noted between the law in England and Australia.

(b) Proprietary remedies in England

According to orthodox principles of English law, a proprietary remedyis only available if C can assert a pre-existing proprietary interest in

D’s property (if necessary, by tracing the value inherent in C’s original

property into substitute property held by D)76; or, alternatively, if C can

establish an ‘institutional’ constructive trust over property held by D.77 An

institutional constructive trust arises automatically upon the occurrence

of specified events and does not involve the ex post facto exercise of

73 Hospital Products Ltd v United States Surgical Corp (1984) 156 C.L.R. 41 at 110, per Mason J.,

citing Re Jarvis [1958] 1 W.L.R. 815 at 820, per Upjohn J.74Warman International Ltd v Dwyer (1995) 182 C.L.R. 544 at 570 per Mason C.J., Brennan, Deane,

Dawson and Gaudron JJ.75An analogous example is Att-Gen (Hong Kong) v Reid [1994] 1 A.C. 324 (C claimed proprietary

rights to constructive trust property traced from F to D).76Foskett v McKeown [2001] 1 A.C. 102.77The third option of a resulting trust is not relevant in a dishonest assistance scenario. See

Westdeutsche Landesbank Girozentrale v Islington LBC [1996] A.C. 669 at 714, per Lord Browne-

Wilkinson.





judicial discretion.78

The former situation does not depend upon dishonestassistance liability, for C simply asserts pre-existing proprietary rights.

The question, then, is whether C can claim proprietary rights to property

in D’s hands purely on the basis of D’s dishonest assistance where there

is no proprietary “link”, through tracing, between C and D. The debate in

England has focused upon constructive trusts rather than equitable liens.

Accepting, for now, the terminology of “institutional” constructive

trusts, dishonest assistance is not a recognised category in which such

trusts arise in England.79 The closest analogy is that an institutional

constructive trust is said to arise when F acquires property in breachof trust or fiduciary duty.80 Pursuant to the equitable maxim that Equity

looks on that as done which ought to be done, Equity treats the property

as having been obtained for C, and thus, as belonging to C from the

moment it was received by F.81 Therefore, it is said, the court recognises

a proprietary interest rather than creating one.82 The same reasoning could

be used to justify an institutional constructive trust arising when, as a

result of F’s breach of duty, D acquires property that should have been

acquired, if at all, for C; however, this has not been the case. Furthermore,

the institutional constructive trust arising upon breach of fiduciary duty iscontroversial83; particularly where the subject-matter of the constructive

trust would never have been received legitimately by C (for example,

where F takes a bribe and converts it to property).84 Critics of the

institutional constructive trust in this context argue, inter alia, that there is

no principled justification for prioritising C’s rights over other unsecured

creditors of D where the property could never have been legitimately

received by C85 and that, in any event, proprietary relief is not necessary

in order to meet the rationale for F’s liability. Given the contested status

of the institutional constructive trust for breach of fiduciary duty, it is

unlikely to be extended by analogy to dishonest assistants.

78e.g. the constructive trust which arises upon a contract for the sale of land: Pettit, Equity and the

Law of Trusts, 10th edn (2006), at p.163.79 Re Polly Peck International Plc (No.2) [1998] 3 All E.R. 812. See also Dubai Aluminium Co Ltd v

Salaam [2002] UKHL 48; [2003] 2 A.C. 366 at 404, per Lord Millett.80Keech v Sandford (1726) Sel. Cas. Ch. 61; Boardman v Phipps [1967] 2 A.C. 46; Att-Gen (Hong

Kong) v Reid [1994] 1 A.C. 324.81 Att-Gen (Hong Kong) v Reid [1994] 1 A.C. 324 at 331, per Lord Templeman.82Millett, “Proprietary Restitution” in Degeling and Edelman (eds), Equity in Commercial Law (2005),

at p.324.83See, e.g. Burrows, “Proprietary Restitution: Unmasking Unjust Enrichment” (2001) 117 L.Q.R. 412;

Worthington, Equity (2006), at pp.134–138; Virgo, Principles of the Law of Restitution, 2nd edn (2006),

at pp.519–525, 607.84 Att-Gen (Hong Kong) v Reid [1994] 1 A.C. 324.85See, e.g. Goode, “Proprietary Restitutionary Claims” in Cornish et al., fn.17 above, at p.63; Virgo,

“Restitution Through the Looking Glass: Restitution Within Equity and Equity Within Restitution” in

Getzler (ed.), Rationalizing Property, Equity and Trusts: Essays in Honour of Edward Burn (2003), p.82

at 96–98.





A proprietary remedy for dishonest assistance is said to involve a“remedial” constructive trust and the English courts do not recognise such

trusts.86 A remedial constructive trust is “an order of the court granting,

by way of remedy, a proprietary right to someone who, beforehand, had

no proprietary right”; that is, it allows the court to vary proprietary rights

at the court’s discretion.87 The primary concerns of those who oppose

remedial constructive trusts are that they contravene the principles of

insolvency law, they violate the rule of law by allowing courts to create

proprietary rights, and they create uncertainty in the law.88

(c) Proprietary remedies in Australia

The institutional/remedial dichotomy is puzzling to an Australian lawyer.

As was recognised by Deane J. in Muchinski v Dodds, institutional

constructive trusts derive that status simply through repeated judicial

recognition; that is, all recognised trusts began life as remedial responses

to particular instances of equitable wrongdoing and became institutional

through repeated usage.89 There will always be some element of discretion

involved in recognising a constructive trust because such trusts, unlike

express and resulting trusts, are not referable to the parties’ intentionsand depend for their enforcement wholly upon the court’s recognition.90

Furthermore, although in a developing category of law greater judicial

discretion will be necessary to determine whether the remedy is warranted,

it is a constrained discretion; that is, the principles for its exercise can

be worked out. Whilst some categories of constructive trust are well-

established and require very little discretion on the court’s part, others are

still evolving. Thus, in Australia the notion that a legitimate constructive

trust involves no element of discretion has been rejected; and, furthermore,

the institutional/remedial distinction is seen as a connoting a remedial

spectrum rather than a remedial dichotomy.

In Australia, proprietary remedies for breach of fiduciary duty are

available at the court’s discretion91; and, as noted above, the constructive

trust and equitable lien have also been awarded for dishonest assistance.92

86 Re Polly Peck International Plc (No.2) [1998] 3 All E.R. 812 (dishonest assistance claim). But

see Westdeutsche Landesbank Girozentrale v Islington LBC [1996] A.C. 669 at 714, per Lord Browne-Wilkinson.

87 Re Polly Peck International Plc (No.2) fn.86 above, at 830, per Nourse L.J.88 Re Polly Peck International Plc (No.2) fn.86 above, at 830, per Nourse L.J. See also Jensen, “The

Rights and Wrongs of Discretionary Remedialism” (2003) Singapore J. Legal Studies 178.89(1985) 160 C.L.R. 583.90See also Grantham, “Doctrinal Bases for the Recognition of Proprietary Rights” (1996) 16 O.J.L.S.

561.91See, e.g. Chan v Zachariah (1984) 154 C.L.R. 178; Hospital Products Ltd v United States Surgical

Corp (1984) 156 C.L.R. 41 at 107–110, per Mason J. Meagher, Heydon and Leeming, fn.62 above, paras

5-250–5-255.92Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 C.L.R. 373; Timber Engineering Co






On the other hand, in one of its recent references to dishonest assistanceliability, the Australian High Court appeared to suggest that the remedy

is not proprietary: “Rather there is the imposition of a personal liability

to account in the same manner as that of an express trustee.”93 When

this passage is read in context, however, it seems that the court was

emphasising that the language of constructive trusteeship applies to

dishonest assistance liability regardless of whether any trust property is

involved. With respect, this obiter dictum was not directed to the separate

question of whether later acquired property may be impressed with a trust

or lien.

The case for the Australian approach to proprietary remedies, whilst

attractive, is not yet overwhelming, however, because there is uncertainty

as to how the court’s discretion may be exercised in relation to breach of

fiduciary duty and dishonest assistance, albeit that this uncertainty is due

to the evolving nature of the jurisdiction, rather than an unwillingness to

set boundaries to the remedial discretion.94 It is possible to glean from

the current authorities on discretionary proprietary remedies in Australia

the following, possibly overlapping, general principles:

(i) The least intrusive proprietary remedy should be awarded; that

is, the first question is “whether, having regard to the issues in

the litigation, there is an appropriate equitable remedy which

falls short of the imposition of a trust”.95

(ii) The interests of innocent third parties, including unsecured

creditors, must be protected.96 It is not clear how such exercise

is to be undertaken; although, where such interests are affected,

two options are to refuse a proprietary remedy altogether or to

award only future security.97

(iii) The court always has a residual discretion to withhold the

proprietary remedy on established grounds such as laches.98


International Pty Ltd [1983] 2 N.S.W.L.R. 157 (overturned on appeal on other grounds).93Giumelli v Guimelli (1999) 196 C.L.R. 101 at 112, per Gleeson C.J., McHugh, Gummow and

Callinan JJ.94See generally, Meagher, Heydon and Leeming, fn.62 above, at para.5-250; Heydon and Leeming,

Jacobs’ Law of Trusts in Australia, 7th edn (2006), at para.1332.95Giumelli v Guimelli (1999) 196 C.L.R. 101 at 113, per Gleeson C.J., McHugh, Gummow and

Callinan JJ. See also Bathurst City Council v PWC Properties Pty Ltd (1998) 195 C.L.R. 566.96 Muschinski v Dodds (1985) 160 C.L.R. 583; Guimelli v Guimelli (1999) 196 C.L.R. 101 at 113–114,

per Gleeson C.J., McHugh, Gummow and Callinan JJ.97Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 C.L.R. 373; Timber Engineering Co



International Pty Ltd [1983] 2 N.S.W.L.R. 157 (overturned on appeal on other grounds); Muschinski v

Dodds (1985) 160 C.L.R. 583 at 623, per Deane J.; Warman v Dwyer (1995) 182 C.L.R. 544.98See, e.g. Chan v Zacharia (1984) 154 C.L.R. 178 at 204–205, per Deane J. referring to “other

doctrines of equity such as laches and equitable estoppel”; Warman International Ltd v Dwyer (1995)

182 C.L.R. 544 at 559, per Mason C.J., Brennan, Deane, Dawson and Gaudron JJ: “estoppel, laches,

acquiescence and delay”.





With respect, the careful manner in which the Australian High Court has sofar viewed the discretion to award a constructive trust, and the absence of

glaring examples of injustice to third parties consequent on such remedies

being awarded, casts doubt on the claims of some commentators that a

discretionary imposition of proprietary remedies is always and intrinsically

“repugnant alike to legal certainty, the sanctity of property and the rule of

law”.99 Whilst the lack of certainty, as yet, makes the Australian model

less appealing, it has the virtue of explicitly confronting the normative

questions involved (particularly with respect to D’s insolvency).

A consideration of the Australian law suggests that a constructive trust

may be imposed, and should only be imposed, as a remedy for dishonest

assistance where

(i) A proprietary remedy will be the most effective way to redress

D’s wrongdoing and would not be otherwise available. This

will generally occur where the whole of D’s gain is referable

to D’s dishonest assistance, and either a constructive trust is

the best means of placing C in the position that C would have

been in had F’s breach of duty not occurred; and/or, where a

business opportunity can still be pursued to fruition by C.100

(ii) The proprietary remedy can be framed so as to protect the

interests of third parties.101 This means that if D is insolvent,

or unable to meet his liabilities so that the contest is really

between C and D’s unsecured creditors, a constructive trust

should not be awarded.

Alternatively, even where an account of profits is deemed more suitable,

and so long as condition (ii) can be met, an equitable lien may be imposed

to secure the future payment by D of the account of profits.102

V. CONCLUSION

Although early cases awarding gain-based remedies did not explicitly

distinguish F and D’s liability, dishonest assistance is best seen as a

primary liability based upon D’s exploitation of C’s vulnerability (Model

C). The nature of D’s wrongdoing is distinct from that of F who breaches

an obligation of loyalty. The rationale for dishonest assistance liability has

both pragmatic and principled features; these support the availability of

gain-based remedies as well as loss-based remedies. Thus, neither of the

models for dishonest assistance liability that are currently predominant inthe case law and/or commentaries is satisfactory.

99Birks, “Property and Unjust Enrichment: Categorical Truths” [1997] N.Z.L.Rev. 623 at 641 (quoted

with approval in Virgo, Principles of the Law of Restitution (2006), at p.615).100See also Goode, “Proprietary Restitutionary Claims” in Cornish et al., fn.17 above, at p.74.101 Muschinski v Dodds (1985) C.L.R. 583 at 623, per Deane J.102Warman International Ltd v Dwyer (1995) 182 C.L.R. 544.





In most cases the remedy for dishonest assistance will be equitablecompensation (breach of fiduciary duty most often resulting in loss rather

than gain); however, this does not preclude the court awarding an account

of profits when appropriate. D’s joint and several liability for C’s losses

resulting from F’s breach of duty is compatible with a model of primary

liability if resort is had to the pragmatic rationales for liability; however,

joint and several liability for F’s gains generally is not.

A proprietary remedy for dishonest assistance is justifiable only where

D’s solvency is not in question. The Australian discretionary approach to

awarding proprietary remedies can only be countenanced if it is accepted

that, in equity, courts have a controlled remedial discretion. If this is

accepted then a proprietary remedy may be awarded where it does not

create injustice for innocent third parties and so as to allow C the most

effective remedy. The scenario of D’s dishonest assistance in F’s diversion

of a business opportunity from C shows that a proprietary remedy is

sometimes the most appropriate means of redressing D’s wrongdoing.

The Australian cases suggest a way forward in this regard.

PAULINE RIDGE.*

* Australian National University. I thank Jane Stapleton, Peter Cane, Joachim Dietrich and MichaelBryan for their constructive criticism of earlier drafts. A version of this article was presented at the

Obligations III conference, Brisbane, July 2006.

Australia; Breach of duty of care; Dishonest assistance; Joint and several liability; Proprietary

rights; Remedies; Third party acts




SOMETHING OLD, SOMETHING NEW, SOMETHINGBORROWED: AN ANALYSIS OF THE NEW

DERIVATIVE ACTION UNDER THE COMPANIESACT 2006

I. INTRODUCTION

THE statutory derivative action, which replaced the common law actionfrom October 1, 2007,1 has been amongst the most publicised and debated

reforms introduced by the Companies Act 2006 (“the Act”).2 The aim

behind this innovation, which is largely based upon the recommendations

of the Law Commission, is the simplification and modernisation of the

law in order to improve its accessibility.3 To achieve this, the arcane

rule in Foss v Harbottle, and the concepts of “fraud on the minority”

and “wrongdoer control”, have been discarded and replaced by a judicial

discretion to grant permission, which is to be exercised by reference to

statutory criteria set out in ss.261–263 of the Act. These reforms havebeen controversial, with practitioners voicing fears that they will lead

to increased litigation against directors by activist shareholders.4 This is

because, in a change to the existing law, shareholders can now bring a

derivative action against directors for negligence from which they do not

benefit, as well as for other breaches of duty. Lawyers are concerned that,

when married with the new duty imposed on directors under s.172 of

the Act, which requires directors to promote the success of the company,

this will result in shareholders bringing derivative actions alleging that

directors have negligently failed to have regard to one of the factors ins.172, or placed undue weight on others.5

However, the real ramifications of the action are unclear. Much depends

upon the approach the courts take to determining whether to grant

1Department of Trade and Industry Implementation Timetable (issued February 28, 2007).2Companies Act 2006 s.260.3Law Commission, Shareholder Remedies: Report on a Reference under Section 3(1)(e) of the

Law Commissions Act 1965 (Law Com. No.246, Cm. 3769, 1997), at p.7. There have been someadjustments to the original recommendations—in England and Wales, for example, the Law Commission’s

recommendation that a member be required to give 28 days’ notice to the company before initiatingproceedings was not adopted: Shareholder Remedies, at p.91.

4Milner Moore and Lewis, Herbert Smith, In the Line of Fire—Directors Duties under the

Companies Act 2006 , at p 4, http://www.herbertsmith.com/NR/rdonlyres/B65D78B4-23E8-463E-8D51-

9E893A0705E7/3831/IntheLineofFire.pdf [Accessed April 11, 2008]; Mills and Reeve, Briefing (October2006), http://www.mills-reeve.com/lawbaseupdates.asp?practicearea=1&industry=&date=all [Accessed

April 11, 2008]; Clifford Chance, The Companies Act 2006 (November 2006), at pp.3–4.5Herbert Smith, In the Line of Fire, at p.3; Norton Rose, Shareholder Rights,

http://www.nortonrose.com/knowledge/publications/2006/pub6097.aspx?page=11332 [Accessed April

11, 2008]; Freshfields Bruckhaus Deringer, Companies Act 2006: Directors Duties (November 2006), at

p.11; Clifford Chance, The Companies Act 2006 , p.4.

469




permission to proceed with the action. If they adopt a restrictive approach,few actions may survive the application for permission, which must be

sought early, after issue of proceedings. This application for permission

is a two-stage process. First a shareholder must establish a prima facie

case that he should be granted permission, failing which the claim will be

dismissed.6 If he succeeds, the application proceeds to the second stage,

which is contested. Here, the courts have a discretion as to whether to

allow the claim to proceed.7 In exercising this discretion they must take

account of the following: whether the shareholder is acting in good faith;

the importance which a person under a duty to promote the success of the

company would attach to continuing the action; whether the wrong could

be ratified or authorised; whether the company has decided not to bring

a claim; the availability of an alternative remedy; and the views of the

independent members of the company.8

The availability of the derivative action, its utility as a shareholder

remedy, and its potential for abuse, will depend on how courts assess

whether a prima facie case exists, and on how they exercise their

discretion. The aim of this article is to consider how the courts could

approach this task. Because the new action replaces the common law, and

there is a lack of judicial precedent on how the criteria should be applied,in the first years of the Act, legal representatives and the courts will look

for guidance to potentially relevant pre-existing domestic cases, as well

as to analogous jurisprudence in other Commonwealth jurisdictions. This

article will examine this domestic case law, and focus on Australian case

law dealing with actions under its statutory derivative action process, to

ascertain how these might assist the UK courts to determine the meaning

and operation of the new provisions.

There are two bodies of domestic case law which could be influential.

The first relates to applications for permission to bring a derivative actionat common law, while the second relates to the exercise of judicial

discretion in the context of interim injunction applications. Both required

an applicant to establish a prima facie case, and so may provide an

indication of what a shareholder must do to establish a prima facie

case under the Act, and how easy this will be.9 Again, other criteria

which shareholders had to satisfy in order to obtain permission to bring a

derivative action at common law are very similar to the criteria in the Act.

As a result this case law could well influence the courts’ interpretation of

the statutory criteria.

6Companies Act 2006 s.261(2).7The company can be directed to file evidence opposing the application: Companies Act 2006 s.261(3).8Companies Act 2006 s.263(3) and (4). However permission must be refused if the court considers

that a person under a duty to promote the success of the company would not continue the action, or if

the alleged wrong has been authorised or ratified: Companies Act 2006 s.263(2).9There is an alternative test for the grant of an injunction being whether there is a serious question to

be tried: see American Cyanamid v Ethicon Ltd [1975] A.C. 396.




JULY 2008] An Analysis of the New Derivative Action 471

Meanwhile Australia has introduced a statutory derivative actionscheme to replace the common law. The scheme, now found in Part

2F1A of the Corporations Act 2001, was introduced with effect from

March 13, 2000.10 In a number of material respects the provisions in

the Corporations Act 2001 are similar to those in the Act. In particular

a claimant must obtain leave of the court to prosecute an action on the

company’s behalf, though this must be obtained prior to the initiation of

proceedings.11 Again, the criteria upon which the court will grant leave,

set out at s.237 of the Corporations Act, bear similarities to the criteria

in the Act. Finally, over the past seven years, the Australian courts have

established a reasonably settled body of rules and principles to guide

them in the exercise of their discretion in leave applications. For these

reasons, Australian cases may constitute useful and persuasive authorities

in relation to how domestic courts might exercise their discretion, and in

relation to certain other matters, such as the impact of the Act on causes

of action which have arisen prior to its coming into effect.

There are, of course, dissimilarities between the Australian and UK

legislation. Unlike the position in the United Kingdom, ratification is not

a bar to a derivative claim.12 In addition, while the Act provides that a

derivative claim can only be brought for a breach of duty by a director, 13

the Corporations Act does not imposes any such limitation either on the

cause of action, or the identity of the defendant.14 Again, while only

members of the company can bring a claim in the United Kingdom,

officers, former officers and members of related bodies corporate are

permitted to do so in Australia.15 There is, nevertheless, a sufficient

degree of similarity between the two regimes and, in particular, the criteria

governing the exercise of the court’s discretion to grant permission to

warrant a comparative analysis.

The article is organised as follows. Part II deals with some preliminaryobjections to a UK/ Australian comparison. Part III provides an overview

of the procedure and criteria for permission at common law, under the

Act and under the relevant provisions of the Australian legislation. Part IV

addresses the critical question of how the courts could interpret the criteria

for the grant of permission in the Act, focusing on the domestic case law

10The legislation followed many law reform recommendations, including Corporate Law EconomicReform Program Proposals for Reform, “Directors’ Duties and Corporate Governance,” Paper No.3, 1997

and was finally introduced by the Corporate Law Economic Reform Program Act 1999.

11Corporations Act 2001 s.236. There is an exception when the claimant is seeking to intervene inproceedings already commenced by the company, when leave can be sought after proceedings have

commenced.12Though ratification is a factor which the courts may take into account: Corporations Act 2001

s.239(2).13Corporations Act 2001 s.260(2).14Though it is more difficult to bring a claim against third parties—see Corporations Act 2001 s.237(3)

and (4).15Corporations Act 2001 s.238.





on the common law derivative action, and the relevant Australian caselaw. Part V will draw further on the Australian experience to consider

how the courts will deal with some transitional issues. The article will

end by drawing tentative conclusions regarding the likely impact of the

codification of the derivative action and suggest that fears that litigation

against directors in the United Kingdom will increase significantly as a

result of codification, may be misplaced.

II. THE APPROACH OF THE UK AND AUSTRALIAN COURTS TO SHAREHOLDER

LITIGATION

A preliminary objection to comparing the Australian and UK positions is

that, despite similarities in the legislative regimes governing the grant of

leave to bring a derivative action, there is reason to doubt that the approach

of the UK courts to interpreting the criteria for the grant of permission will

resemble that of the Australian courts. A number of writers, particularly

Sealy, have described the UK courts as hostile to minority shareholder

litigation.16 In contrast, Australian courts are said to be more shareholder

friendly.17 If this is correct, then it is arguable that the manner in which

the Australian courts exercise their discretion when determining whether

to grant leave could be an unreliable guide to how the UK courts would

carry out the same exercise.

One of Sealy’s main criticisms was that the courts were too quick

to deny a shareholder standing to sue on the basis that the wrong

which gave rise to the cause of action was a wrong to the company,

rather than a wrong to the shareholder personally.18 The case law on

reflective loss demonstrates that this attitude persists, and continues to

cause shareholders considerable difficulty.19 However, this problem doesnot relate to the courts’ approach to derivative litigation, but rather to

shareholders’ personal actions.20 Furthermore, while the judicial climate

at the time Sealy made his criticisms did appear hostile to shareholders

16Sealy, “Problems of Standing, Pleading and Proof in Corporate Litigation” in Pettet (ed.), Company

Law in Change [1987] C.L.P. 1; Sealy, “The Rule in Foss v Harbottle: the Australian Experience”(1989) 10 Co. Law 52; Boyle, Minority Shareholders Remedies (2002), at pp.7–13. See also Reisberg,

“Theoretical Reflections on Derivative Actions in English Law: the Representative Problem” (2006) 3

E.C.F.R. 69 at 81–82, referring to Sealy’s research.17Ramsay and Saunders, “Litigation by Shareholders and Directors: an Empirical Study of the Statutory

Derivative Action” (2006) 6 J.C.L.S. 397 at 411–412; Sealy, “The Rule in Foss v Harbottle” (1989) 10Co. Law 52.

18Sealy,“The Rule in Foss v Harbottle” (1989) 10 Co. Law 52 at 54.19See, e.g. Gardner v Parker [2004] EWCA Civ 781; [2004] 2 B.C.L.C. 554.20However, other problems Sealy identified do still exist, such as shareholders’ lack of access to

insider information: Sealy, “Problems of Standing” [1987] C.L.P. 1 at 12. Others, such as the uncertainty

surrounding the meaning of “fraud on the minority” have been removed by the Act: at 10–11.





bringing derivative litigation,21

more recent case law does not seem todisplay a similar degree of anti-shareholder bias.

A search for decisions dating from 1994, when a leave requirement

was established in the Rules of Court, until July 2007, shows that, in

derivative action litigation, the courts granted permission, have been

prepared to grant permission, or the derivative action has progressed to

trial with no reported consideration of the permission stage, in 11 cases.22

Two other cases can be read as tolerant of derivative claims. In Lowe

v Fahey, the shareholder was allowed to pursue a derivative claim by

way of a s.459 petition

23

while Colin Gwyer & Associates Ltd v LondonWharf (Limehouse) Ltd , involved the trial of a counterclaim which was

a derivative action.24 On the other hand permission was refused in nine

cases.25 Thus, in 59 per cent of cases, the courts were willing to approve

derivative litigation by shareholders, in contrast to 41 per cent in which

permission to bring an action was refused. 26

It is interesting to compare this with the position in Australia. In

Ramsay and Saunders’ study of 31 leave applications heard in Australia

between March 13, 2000 and February 2006, 61.3 per cent (19 cases)

were successful, whilst 38.7 per cent (12 cases) were not.27 While direct

comparisons cannot be made between their statistics and the figures in

21See Devlin v Slough Estates Ltd [1983] B.C.L.C. 497; Prudential Assurance Co Ltd v Newman

Industries Ltd [1982] Ch. 204, particularly the Court of Appeal’s comments at 224; and Smith v Croft

(No.2) [1988] Ch. 114.22The cases can be categorised as follows: trials of derivative actions: Longstaff International Ltd

v Evans [2002] EWHC 1563 (Ch); Knight v Frost [1999] 1 B.C.L.C. 364; Gidman v Barron [2003]EWHC 153 (Ch). Cases pre-trial where leave had been granted: Halle v Trax BW Ltd [2000] B.C.C. 1020;

Qayoumi v Oakhouse Property Holdings Plc [2002] EWHC 2547 (Ch), [2003] 1 B.C.L.C. 352; Oystertec

Plc (Proposed Amendments) v Davidson [2004] EWHC 2225 (Ch), [2005] B.P.I.R. 389 (reference toleave being granted in previous application); Fansa v Alsibahie [2005] EWHC 271 (Ch). Court prepared

to grant leave but not necessary as company adopted the action: Fayers Legal Services Ltd v Day [2001]All E.R. (D) 121 (Apr.); Smalley v Bracken Partners Ltd [2003] EWHC 1064 (Ch); [2003] 2 B.C.L.C.84 at [61]–[62]. Other: Clark v Cutland [2003] EWCA Civ 810; [2004] 1 W.L.R. 783: derivative action

consolidated with s.459 petition-relief granted in latter; Bates v Microstar Ltd [2003] EWHC 661 (Ch);(2003) 100(22) L.S.G. 30: shareholder released from undertaking to enable him to bring derivative

proceedings in Jersey.23[1996] 1 B.C.L.C. 262. Section 459 was superseded by s.994 on October 1, 2007 when large parts

of the Act were put in force.24[2002] EWHC 2748 (Ch); [2003] 2 B.C.L.C. 153.25 Barrett v Duckett [1995] 1 B.C.L.C. 243; Cooke v Cooke [1997] 2 B.C.L.C. 28; Konamaneni v

Rolls-Royce Industrial Power (India) Ltd [2002] 1 W.L.R. 1269; SMAY Investments Ltd v Sachdev [2003]EWHC 474 (Ch); [2003] 1 W.L.R. 1973; Portfolios of Distinction Ltd v Laird [2004] EWHC 2071 (Ch);

[2005] B.C.C. 216—the case was adjourned but it was clear that the court would not grant permission;

Jafari-Fini v Skillglass Ltd [2005] EWCA Civ 356; [2005] B.C.C. 842; Mumbray v Lapper [2005]EWHC 1152 (Ch); [2005] B.C.C. 990; Harley Street Capital v Tchigirinsky (No.2) [2005] EWHC 1897

(Ch); [2006] B.C.C. 209; Reeves v Sprecher [2007] EWHC 117 (Ch); [2007] 2 B.C.L.C. 614.26The figure of 59% includes Lowe v Fahey [1996] 1 B.C.L.C. 262 and Colin Gwyer & Associates

Ltd v London Wharf (Limehouse) Ltd [2002] EWHC 2748 (Ch); [2003] 2 B.C.L.C. 153. However Airey v

Cordell [2006] EWHC 2728 (Ch); [2007] Bus. L.R. 391 has been omitted. It is difficult to classify. The judgment was, in many ways, shareholder friendly but the judge adjourned the application to see if the

parties could reach a settlement which protected the shareholders’ interests. If such a settlement could be

reached he would refuse permission: at 412.27Ramsay and Saunders, “Litigation by Shareholders and Directors” (2006) 6 J.C.L.S. 397 at 423–424.





this article,28

it is suggested that there is sufficient data to allow sometentative conclusions to be drawn. It is clear that shareholders in the United

Kingdom have been much less likely to resort to the derivative action than

Australian shareholders.29 However, when they do, the figures suggest

that they are not significantly less likely than Australian shareholders to

be refused permission to bring the action. It is true that the data could be

interpreted in quite a different way. Given the low number of derivative

actions in the United Kingdom compared to Australia, it cannot be ruled

out that there are a large number of unreported applications for permission,

in which permission has been refused. However, there is some supportfrom practitioners for the view that this is not the case, and that courts are

more willing to grant permission than to refuse it.30 In the light of this,

it is suggested that the UK courts, at least in the context of derivative

litigation, may not be significantly less shareholder friendly than their

Australian counterparts so as to undermine a comparative analysis.

Boyle argues that the hostility of UK courts towards shareholder

litigants does persist but, importantly, judicial attitudes vary with the size

and nature of the company. While he acknowledges that the derivative

action is used in private companies,31 he argues that the UK courts

demonstrate considerable antipathy towards shareholder litigants in public

companies.32 There has, however, been very little opportunity recently for

judicial attitudes to such litigation to be tested. Since 1994, most derivative

litigation has arisen in small, privately owned, companies. Only three cases

have involved public companies. In one, permission was refused, but the

action was vexatious and a clear abuse of process.33 In another, permission

was granted but the application for permission was unopposed, and the

company, whilst public, was a closely-held family company, the shares

being held in a 50:50 split between two brothers.34 In the third case the

application was adjourned, but again, the company was closely-held.35

Consequently, whilst there are many disincentives to shareholders in

public companies initiating derivative litigation,36 it is not known whether

28Because of (a) the different time periods involved, (b) the fact that not just leave applications werecounted in this article and (c) the comparison is between the common law position in the UK and thecase law on the statutory derivative action in Australia.

29The UK searches revealed 23 relevant cases in the period 1994–2007, whilst in Australia there were

31 leave applications between March 2000 and February 2006.30Reed, “Derivative Claims: The Application for Permission to Continue” (2000) 21 Co. Law 156 at

156–157 and 159.31Boyle, Minority Shareholders Remedies (2002), at p.24.32Boyle at pp.73–74. See, e.g. the comments in Prudential Assurance Co Ltd v Newman Industries Ltd

[1982] Ch. 204 at 224–225.33 Harley Street Capital Ltd v Tchigirinsky (No.2) [2005] EWHC 1897 (Ch); [2006] B.C.C. 209.34Qayoumi v Oakhouse Property Holdings Plc [2002] EWHC 2547 (Ch); [2003] 1 B.C.L.C. 352.35 Airey v Cordell [2006] EWHC 2728 (Ch); [2007] Bus. L.R. 391.36See overview by Stapledon, Institutional Investors and Corporate Governance (1996), at p.132.

The level of any kind of litigation in public companies in respect of breaches of directors’ duties has





the courts’ approach would remain a problem. It is notable, however, thatthe Law Commission, whose proposals for reform of the derivative action

were largely adopted by the Government and translated into the Act,

also displayed a hostility to derivative litigation in public companies37

and even in private companies considered that litigation should remain

“exceptional”.38 It does not seem, therefore, that codifying the action and

drafting the statutory criteria, was intended to encourage greater use of

derivative litigation in public companies.

However, even if the UK courts are more hostile to derivative litigation

in public companies than Australian courts, this would not be fatal

to a comparative study. In Australia, as in the United Kingdom, most

derivative actions are brought in small private companies.39 Consequently,

an analysis of how judicial discretion is exercised in Australia could

usefully be relied upon to indicate how it could be exercised here, at

least in the context of private companies. In relation to public companies,

the position is less clear.

Finally, in so far as the Australian courts do adopt a more shareholder-

friendly approach than the UK courts have done in the past, and despite

the Law Commission’s position, an examination of the Australian position

is warranted to cast light on how the courts could exercise their discretion

anew in the future. At the very least it reveals that there are no policy

reasons for refusing to follow the example of the Australian courts since,

as the Australian experience demonstrates, adopting a shareholder-friendly

approach causes neither widespread disruption in public companies, nor

does it open the litigation floodgates.

III. AN OVERVIEW OF THE REGULATION OF DERIVATIVE LITIGATION

The common law derivative action developed to provide a remedy for acompany where the company had suffered a wrong but the wrongdoers

were in control of the company, and preventing it from initiating an action

against them in respect of that wrong. In such circumstances, the courts

permitted individual shareholders to bring an action on the company’s

behalf. This constituted an exception to the rule that, where a wrong is

done to the company, the company, as a separate legal entity, is the proper

claimant in respect of that wrong. The courts tolerated the exception in

order to do justice to the company.

historically been very low: see Deakin and Hughes, Directors Duties: Empirical Findings (1999), Table4.

37fn.3 above, at p.7, fn.25.38At para.6.4.39Ramsay and Saunders found that 87.1% (27 cases) involved private companies and only 12.9% (4

cases) involved public companies: “Litigation by Shareholders and Directors” (2006) 6 J.C.L.S. 397 at

420.





However, the courts were wary of vexatious and disruptive litigationby minority shareholders. Consequently, even if the company had a

good claim against the alleged wrongdoers, an action brought on the

company’s behalf by a minority shareholder would not succeed unless

the shareholder could establish standing to sue on the company’s behalf.

The rules on standing were restrictive: the shareholder had to bring himself

within the exception to the rule in Foss v Harbottle,40 and demonstrate

that there was a prima facie case on the merits that there had been a

“fraud on the minority”, which could not be ratified by the shareholders

in general meeting, and also that the company was under wrongdoercontrol.41 Furthermore, because the minority shareholder’s ability to bring

the derivative action has been viewed by the courts “as a matter of

grace”,42 even if the shareholder managed to satisfy these requirements, he

would still be refused permission if the court took the view that permission

should not be granted to that particular shareholder because of attributes

which were personal to him.43 Thus, the courts would not permit the

shareholder to pursue the action if it was not being brought bona fide, or

there was another remedy available to him. In addition, in a somewhat

controversial development, in Smith v Croft (No.2), Knox J. held that

where an independent majority of the minority shareholders did not wish

a derivative action to proceed, the action would be barred.44

It was not, however, until Prudential Assurance Co Ltd v Newman

Industries Ltd 45 (“Prudential”) that it was established that the question

of the shareholder’s standing to sue had to be settled as a preliminary

matter.46 Then, in 1994, the Rules of Court were amended to require

shareholders to seek leave of the court to pursue a derivative action.47

So, the requirement in the Act for permission to continue an action is not

altogether new. At both common law and under the Act, leave must be

sought early, after issue of the claim form, and before taking any other

step in the proceedings48 although, in contrast to the procedure governing

the common law action, the new procedural rules governing the statutory

action do not set out a time limit within which the application must be

40(1843) 2 Hare 461; 67 E.R. 189.41Prudential Assurance Co Ltd v Newman Industries Ltd [1982] Ch. 204 at 221–22242 Mumbray v Lapper [2005] EWHC 1152 (Ch); [2005] B.C.C. 990 at [2] citing Gower, Modern

Company Law, 4th edn (1979), at p.652.43Payne, “Clean Hands in Derivative Actions” [2002] C.L.J. 76 at 81.44Smith v Croft (No.2) [1988] Ch. 114 at 184–185.45[1982] Ch. 204.46At 22147RSC Ord.15 r.12A.48RSC Ord.15 r.12A which required that the application had to be made within 21 days of intention

to defend being given. This was superseded by CPR r.19.9(3)). The common law procedure is discussed

in Reed, “Derivative Claims: The Application for Permission to Continue” (2000) 21 Co. Law 156.





issued.49

At common law this had to occur within the time period forservice of the claim form, being within four months of issue of the claim

form for service within the jurisdiction and six months without.50

The statutory derivative action completely replaces the common law.

Shareholders are no longer required to establish either wrongdoer control

or a fraud on the minority. Instead, they must satisfy the courts that the

permission criteria set out in the Act are met. The Act establishes a two

part process for obtaining permission.51 The courts first have to determine

if the claim discloses a prima facie case.52 If it does not then the claim

is dismissed. If it does, then the court may direct what evidence is to beprovided by the company. Whether or not such a direction is given, it

seems that s.263(2) requires a court, once it has determined that there is

a prima facie case for permission, to refuse permission if it is satisfied

that a person under a duty to promote the success of the company would

not continue the action or if the act forming the basis of the claim has

been authorised or ratified.53 If neither of these applies then the court has

a discretion as to whether to allow the claim to proceed. These factors,

set out in s.263(3)(4), will be considered by a court in exercising this

discretion: whether the shareholder is acting in good faith; the importance

which a person under a duty to promote the success of the companywould attach to continuing the action; whether the act could be ratified

or authorised; whether the company has decided not to bring a claim; the

availability of an alternative remedy for the shareholder; and the views of

the independent members of the company in relation to the action.

Although the courts must take these criteria into account when

determining whether to grant permission, these considerations are not

exhaustive and, it seems, the courts can take account of other relevant

considerations.54

In certain respects the criteria for the grant of permission under the Acthave parallels in the common law: in particular the requirement in s.261(2)

that an applicant must, at the first stage of the permission process, establish

a prima facie case that permission should be given; the requirement at the

second stage that the court must consider the applicant’s good faith; and

the requirement to consider whether an alternative remedy is available to

the applicant.55 In addition, although the common law had no equivalent

49Redrafted CPR r.19.9 and r.19.9A, which requires that the company be notified of the claim and

application as soon as reasonably practicable after issue of the claim form. http://www.justice.gov.uk/civil/

procrules fin/contents/frontmatter/si update45 preview.pdf [Accessed April 11, 2008]. This came intoeffect from October 27, 2007.

50CPR r.19.9(5); CPR r.7.5.51Explanatory Notes to the Companies Act 2006, para.492.52Companies Act 2006 s.261(2).53Companies Act 2006 s.263(2)54This follows from the wording of s.263(3) which states that the court must “in particular” have

regard to the listed factors. See also Law Commission, Shareholder Remedies, fn.3 above, at para.6.7355Companies Act 2006 s.263(3)(a) and (f).





to s.263(2)(a) or s.263(3)(b), which require courts to consider whether aperson acting in accordance with s.172 (the duty to promote the success

of the company) would continue with the claim, and the importance such

a person would attach to it, nevertheless, in a couple of recent decisions,

the test for the grant of leave at common law has been articulated as

whether an independent board would sanction proceedings.56 It seems at

least arguable that there is sufficient similarity between these tests that the

case law on the latter test could potentially be of use in interpreting the

former.

Turning to the Australian provisions, unlike the UK statutory scheme

the Australian scheme merely provides for one stage to the leave process.

The court must, according to s.237(2) of the Corporations Act, grant leave

if it is satisfied that:

“(a) it is probable that the company will not itself bring the

proceedings, or properly take responsibility for them, or for the

steps in them; and

(b) the applicant is acting in good faith; and

(c) it is in the best interests of the company that the applicant be

granted leave; and(d) if the applicant is applying for leave to bring proceedings–there

is a serious question to be tried; and

(e) either:

(i) at least 14 days before making the application, the applicant

gave written notice to the company of the intention to apply

for leave and of the reasons for applying; or

(ii) it is appropriate to grant leave even though subparagraph (i)

is not satisfied.”

We should mention that in Australia direct claims are allowed against thirdparties but it is more difficult to obtain permission in these cases than in

cases against directors because of a rebuttable presumption that granting

leave would not be in the company’s interests where the directors, acting

in good faith and rationally, have decided not to allow the company to

pursue the action.

The plaintiff has the onus of establishing a case for leave to be granted

under s.237,57 and he must establish all of the criteria mentioned.58 There

is no special standard of proof that is required.59 While the legislation

does not state that courts must not grant leave if any of the prescribedconditions are not satisfied, it has been held that the legislation effectively

56 Mumbray v Lapper [2005] EWHC 1152 (Ch), [2005] B.C.C. 990; Airey v Cordell [2006] EWHC

2728 (Ch); [2007] Bus. L.R. 391 at [56].57 Jeans v Deangrove Pty Ltd [2001] NSWSC 84 at [10].58Talisman Technologies Inc v Qld Electronic Switching Pty Ltd [2001] QSC 324.59Fiduciary Consultants Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442 at [15].





requires that result.60

Also, it has been held that, in contrast to the positionin the United Kingdom, if the prescribed conditions are satisfied the court

has no discretion and must give leave.61 It follows that the court cannot

entertain any other criteria besides the five that are listed in s.237(2). 62

There are several points of similarity between the UK and Australian

provisions, and these are matters on which we will focus in the next two

parts of the article, together with the common law principles. Importantly,

in both jurisdictions the court must be convinced that the applicant for

permission is acting in good faith. A second point is that both the UK and

Australian legislation abolish the right to bring derivative proceedings atcommon law. Another comparative point that is raised in Part IV is the

fact that the Australian provisions state that the courts must decide that

it is in the best interests of the company that leave be granted, and while

the UK legislation does not have an explicit requirement in that regard,

the courts are to take into account the importance that a person acting

under s.172 of the Act would attach to continuing the claim. This latter

requirement will, it is submitted, involve consideration of what is in the

interests of the company.

To summarise, it seems clear that, as a result of the similarities in the

common law and Australian leave criteria on the one hand, and the newstatutory derivative action provisions on the other, the former will be of

assistance in interpreting the latter and, in particular, the following: the

meaning of a prima facie case; the good faith of the applicant; when an

alternative remedy will be deemed preferable; and how the courts could

approach the task of assessing what view a person under a duty to promote

the success of the company would take of the action. The next Part will

now examine in detail the common law and Australian case law relevant

to each of these criteria, with a view to identifying how the courts might

apply these criteria and exercise their discretion under the Act.

IV. THE CRITERIA FOR DETERMINING WHETHER TO GRANT PERMISSION

Perhaps the first thing to note is that it seems that there are two

problems that beset a hearing for permission, both of which mirror those

applying in applications for interim injunctions.63 First, there is usually

60Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640; (2002) 42 A.C.S.R. 534 at

[27]; Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [12].61Charlton v Baber [2003] NSWSC 745; (2003) 47 A.C.S.R. 31 at [31]; Isak Constructions (Aust.)

Pty Ltd v Faress [2003] NSWSC 784 at [10]; McLean v Lake Como Venture Pty Ltd [2003] QCA 562 at

[2]; Carpenter v Pioneer Park Pty Ltd [2004] NSWSC 973; (2004) 186 F.L.R 104; (2004) 211 A.L.R.457 at [16], [31]; Fiduciary Consultants Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442 at [16];

Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [12].62 Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [13]; Magafas v

Carantinos [2006] NSWSC 1459 at [8].63The equivalent test in Australia is used in deciding interim injunction applications: Charlton v Baber

[2003] NSWSC 745, (2003) 47 A.C.S.R. 31 at [55]; Reale v Duncan Reale Pty Ltd [2005] NSWSC 174

at [11].





no oral evidence and no opportunity for cross-examination or discovery;inspection of documents has not taken place; and sometimes no statement

of claim or defence has been served,64 so that the judge does not have

before him, in many instances, the full story or, at least, a tested full story.

Secondly, a judge hearing an application for permission cannot devote the

same time to it as the trial judge can, if and when the case is finally heard

in full. Generally cases will be decided on the documentary evidence

presented to the court, as is the situation usually with interim injunction

applications but, on occasions, in Australia, courts have permitted oral

evidence to be given in leave applications, and they have permitted cross-

examination of the applicant.65 However, it must be noted that, in contrast

to applications for interim injunctions, the proceedings for leave are not

interlocutory, but final.66

(a) Prima facie case

Under the Act, the first stage that an applicant has to address is convincing

a court that he has a prima facie case. In requiring the applicant to establish

a prima facie case, the Act is focusing attention on the cause of action.

The prima facie test is familiar to lawyers and was the primary test inapplications for interim injunctions in most cases in the first three-quarters

of the last century,67 and is still invoked in some injunction hearings today.

At common law it was also the case that to be able to proceed with a

derivative action the claimant had to establish a prima facie case as a

preliminary matter.68 The Australian regime adopts a different test, that

of a serious question to be tried. This is also the test used in interim

injunction applications in Australia, and the Australian courts have used

the case law on interim injunctions to guide them in interpreting the

meaning of a serious question to be tried in the context of derivative

actions.

Despite the prima facie case test being well known, the meaning of

the concept is elusive.69 Neither in applications for leave at common law,

nor in injunction applications in the United Kingdom, have the courts

discussed in detail the meaning of the term, nor what exactly an applicant

must do to establish a prima facie case.70 It has been suggested that what is

64Bean, Injunctions, 5th edn (1991), at p.23.65See, e.g. Talisman Technologies Inc v Qld Electronic Switching Pty Ltd [2001] QSC 324 at [24].

66Swansson v Pratt [2002] NSWSC 583, (2002) 42 A.C.S.R. 313 at [24]; Reale v Duncan Reale Pty Ltd [2005] NSWSC 174 at [11]; Ehsman v Nucetime International Pty Ltd [2006] NSWSC 887 at [6].

67See, e.g. Hoffmann-La Roche & Co v Secretary of State for Trade and Industry [1975] A.C. 295at 338, 360; Cavendish House (Cheltenham) Ltd v Cavendish-Woodhouse Ltd [1970] R.P.C. 284, CA.Although the test was not applied across the board. In some cases the test was not employed as courts

wanted to retain flexibility. See Hubbard v Vosper [1972] 1 All E.R. 1023.68Prudential Assurance Co Ltd v Newman Industries Ltd (No.2) [1982] Ch. 204 at 221.69 American Cyanamid Co v Ethicon Ltd [1975] A.C. 396 at 404.70Gray, “Interim Injunctions since American Cyanamid ” [1981] C.L.J. 307 at 307.





required is that one can show that one has a substantial chance of successin the final hearing.71 This suggests that it is inevitable that there is some

consideration of the ultimate merits of the case. Certainly, in injunction

hearings, the application of the test led to a focus on the relative strengths

of the parties’ cases and, in many instances, meant a virtual trial within

a trial. In order to establish a prima facie case an applicant in injunction

applications had to establish a greater than 50 per cent chance of success.72

Therefore, if the courts adopt the same approach to interpreting a prima

facie case in the context of the statutory derivative action, it appears that,

to get past first base, the applicant would have to pass a stiff test, and

one that is far more difficult than is necessary in those applications for

interim injunctions where the prima facie test is not invoked.

However, the use of the injunction approach can be criticised. The

provision of a strict test might be all well and good for injunctions, but

the applications under consideration here are totally different. The danger

with the prima facie case criterion as applied in interim injunctions is that

it could lead to mini-trials,73 something that the Law Commission in its

Shareholder Remedies report was most concerned to avoid.74 The Law

Commission was concerned that a threshold test on the merits would lead

to fine distinctions being drawn as to whether a particular set of facts fell

on one side of a rigid line or not.75 It favoured the development of a

principled approach that was not tied to a particular rule.76 It is important

that permission applications are not lengthy, and equally important that the

substantive issues are not pre-judged, given the absence of evidence from

the company and the uncontested nature of the first stage, because even if

the judge directs the company to submit evidence, there is no suggestion

that the company will argue the substantive points at this juncture. The

company might wish “to keep its powder dry” at this point.

The Australian courts have established that the serious question to betried criterion only requires the applicant to show a greater than zero

per cent probability of success.77 All that is necessary is that the case

is not frivolous or vexatious,78 and the applicant has a real prospect of

succeeding on his claim.79 At first blush, therefore, in the light of what

has been said about the application of a prima facie test case in interim

71Heydon and Loughlan, Cases and Materials on Equity and Trusts, 5th edn (1997), at p.978.72 American Cyanamid Co v Ethicon Ltd [1975] A.C. 396 at 406–407.

73The Ramsay and Saunders study suggests that the leave criteria did not turn applications into mini-trials: “Litigation by Shareholders and Directors” (2006) 6 J.C.L.S. 397 at 30, 43.

74fn.3 above, at para.6.71.75At para.6.72.76At para.6.72.77Taylor and Wright, “Australian Broadcasting Corporation v Lenah Game Meats” (2002) 26

Melbourne U.L.Rev. 707 at fn.144.78 American Cyanamid Co v Ethicon Ltd [1975] A.C. 396 at 406–407.79 American Cyanamid Co v Ethicon Ltd [1975] A.C. 396 at 408.





injunctions, it would appear that in requiring an applicant to establish aprima face case, the UK legislation is demanding something more than

that applying under the Australian legislation, and it places a substantial

obstacle in the way of a UK applicant seeking permission to bring a

derivative action.

On the other hand, the application of a prima facie test in UK

cases involving derivative actions at common law suggests that such a

conclusion may be unwarranted. After all, the prima facie test in the Act

arguably does not involve a fresh approach, given that it was also applied

at common law. Although the common law cases give little guidance onhow to apply the test, in Prudential Assurance Co Ltd v Newman Industries

Ltd (No.2)80 the Court of Appeal indicated that, at the preliminary stage,

the court could not proceed on the basis that everything asserted in the

plaintiff’s case was true, but nor should the plaintiff be required to prove

fraud and wrongdoer control.81 The latter comment is important, as it

suggests that, in common law derivative actions, in order to establish a

prima facie case, there is no need for an applicant to show that he has a

more than a 50 per cent chance of success. Therefore, the test of a prima

facie case in common law derivative actions is likely to be less strict thanthat which applies in interim injunction applications.82

Furthermore, there is little evidence from the UK case law that the test

has presented a significant obstacle to minority shareholders. The number

of reported judgments on leave applications, and on derivative actions

more generally, is small but, of these, there are few in which a shareholder

has failed to establish a prima facie case. Where leave has been granted, in

three cases the applications were unopposed or the defendants conceded

that there was a prima facie case,83 in two the evidence against the

defendant was strong enough to support an application for summary judgment, and therefore more than satisfied the threshold test of a prima

80[1982] Ch. 204.81At 219.82There is some lack of clarity about this. The Court of Appeal stated that the plaintiff had to establish

a prima facie case both (1) that the company was entitled to the relief claimed, and (2) that the action fell

within the proper boundaries of the exception to the rule in Foss v Harbottle : Prudential Assurance Co

Ltd v Newman Industries Ltd (No.2) [1982] Ch. 204 at 222. However in Smith v Croft (No.2) [1988] Ch.

114 at 159, Knox J. stated that he would approach these questions differently. In relation to the former,which concerns whether the wrongs alleged occurred, he stated that he would only take a prima facie

view, since this was an issue which would be live at trial, but that he would determine the latter, since hisdecision on the issue would be final. This suggests that the burden of proof on the plaintiff with regardto establishing a prima facie case varied. In relation to the former question the plaintiff’s burden of proof

was less than the balance of probabilities, but in relation to the latter the plaintiff had to discharge the

balance of probabilities test. The better view is that the prima facie test was relevant only to the firstquestion. In relation to the second, the test was on the balance of probabilities, and not a prima facie test.

83 Halle v Trax BW Ltd [2000] B.C.C. 1020 at 1023; Fansa v Alsibahie [2005] EWHC 271 (Ch); Airey

v Cordell [2006] EWHC 2728 (Ch), [2007] Bus. L.R. 391 at [68].





facie case,84

while yet in others, such as reports of trials of derivativeactions, the grant of leave was referred to only in passing, if at all.85

Even where leave has been refused, a prima facie case on the merits—or

stronger—has frequently been established and the application has failed

for other reasons.86 Again, in the few instances in which shareholders

have failed to establish a prima facie case, this was not the sole reason

for the refusal of leave. One of these was Smith v Croft (No.2) in which

Knox J. found that in the majority of their allegations, the plaintiffs had

not got over the hurdle. The judge was influenced by a report from

the company’s auditors, which had been commissioned by the board toinvestigate the shareholders’ complaints, and which concluded that most

of the complaints were unfounded.87 Given this independent third party

expert evidence, it is unsurprising that the shareholder failed to establish a

prima facie case in relation to these allegations. However, there were other

allegations, particularly relating to the provision of financial assistance,

upon which the auditors’ report had expressed no view.88 In relation to

these Knox J. did accept that a prima facie case was made out, reaching

this conclusion by drawing inferences from undisputed facts.89

Similarly, in Harley Street Capital Ltd v Tchigirinsky (No.2),90 there

was independent third party evidence which refuted the shareholder’s

allegations. Here the company, on the directions of the court, had com-

missioned a report by an independent firm of solicitors into the minority

shareholder’s allegations of wrongdoing. No evidence of wrongdoing was

found and, furthermore, the shareholder was unable to advance evidence

of any.91 For these reasons, and because the shareholder lacked bona fides,

the action was struck out as an abuse of process.92

The point that courts appear not to have expected too much from

applicants is further bolstered by the fact that applicants for permission

have been required to submit only fairly rudimentary evidence to establish

84Fayers Legal Services Ltd v Day [2001] All E.R. (D) 121 (Apr.) at [4]; Bracken Partners Ltd v

Gutteridge [2003] EWHC 1064 (Ch); [2003] 2 B.C.L.C. 84.85Knight v Frost [1999] 1 B.C.L.C. 364; Qayoumi v Oakhouse Property Holdings Plc [2002] EWHC

2547 (Ch); [2003] 1 B.C.L.C. 352; Gidman v Barron [2003] EWHC 153 (Ch); Fraser v Oystertec Plc

[2003] EWHC 2787 (Ch); [2004] B.C.C. 233 at [20] (summary judgment application), though in a

subsequent application to amend the company’s claim, the court considered that permission should bewithdrawn as there no longer appeared to be wrongdoer control and the company had succeeded on much

of its claim: Fraser v Oystertec Plc (Proposed Amendments) [2004] EWHC 2225 (Ch); [2005] B.P.I.R.

389 at [32]–[33].86 Barrett v Duckett [1995] B.C.C. 362 at 364; Portfolios of Distinction Ltd v Laird [2004] EWHC

2071 (Ch); [2005] B.C.C. 216 at [64]; Mumbray v Lapper [2005] EWHC 1152 (Ch); [2005] B.C.C. 990at [21]–[24].

87[1988] Ch. 114 at 150–154. Jafari-Fini v Skillglass [2005] EWCA Civ 356; [2005] B.C.C. 842 maybe another such case, though this was not the expressed reason for the refusal of leave.

88At 153–154.89At 148 and 165. See also the judge’s comments at 163–164.90[2005] EWHC 1897 (Ch); [2006] B.C.C. 209.91At [116]–[118].92At [141].





a prima facie case. Reed has argued93

that CPR Part 19, r.9(4), whichprovided, in relation to the common law system, that the claimant needed

only to support the application for permission with written evidence, has

meant that in practice this supporting evidence has done little more than

verify the facts on which the claim and the entitlement to sue on behalf

of the company are based. Under the Act the first stage is decided on

the basis of the applicant’s written evidence only, (though the applicant

can request an oral hearing if the application is initially unsuccessful),94

and this suggests that the courts could adopt a similarly undemanding

approach to weighing that evidence and assessing whether there is a primafacie case. Perhaps all that the courts will require is for the applicant

to demonstrate: a credible case95; a substantive claim; a genuine triable

issue96; or that his case is worthy of being heard in full.

In summary, the need to show a prima facie case on the merits seems

to have been a low hurdle for shareholders to meet at common law.

They have only failed where there has been independent expert evidence

refuting their allegations or when the allegations have been wholly

unsubstantiated. If the courts adopt a similar approach to permission

applications under the Act then, assuming that the shareholder is not

advancing a clearly bogus claim, it is likely that it will be reasonably

easy to establish a prima facie case and progress to the second stage

of the permission process.97 This is because, at the initial stage, the

company plays no part, and the application is assessed on the basis of

the shareholder’s evidence alone. Therefore, at this point, there will be

no independent evidence available to the court to rebut the shareholder’s

claims. With regard to the need for the courts to give guidance on how

to assess whether a shareholder has met this criterion, the under-reasoned

common law derivative action cases are of little assistance. But because

there does not appear to be any sign that courts have regarded the primafacie test at common law as stricter than the Australian serious case to

be tried test, it is suggested that it is to the Australian decisions that

courts and litigants could usefully look for guidance, rather than the UK

case law on interim injunctions. The prima facie test in the context of

interim injunctions is more onerous than that which seems to have been

applied in the common law derivative action, and if that were applied

then it could lead to courts drawing fine distinctions regarding whether

93Reed, “Derivative Claims: The Application for Permission to Continue” (2000) 21 Co. Law 156 at156.

94Redrafted CPR r.19.9A(10).95We are indebted to this suggestion made by Professor Prentice.96This is employed in cases where a statutory demand has been served on an alleged debtor and the

alleged debtor claims to have a cross-demand against the creditor serving the demand. See Ashworth v

Newnote Ltd [2007] EWCA Civ 793; [2007] B.P.I.R. 1012.97As practitioners have predicted: Palmer and Milner Moore (Herbert Smith), “Derivative Actions: a

Step too Far?” March 2006 Plc Magazine 1.





a prima facie case was made out or not, something which, as noted, theLaw Commission wanted to avoid, and which the Australian courts, in

applying the test of serious question to be tried, have been at pains to

prevent.98

(b) Good faith

TURNING, then, to the second stage of the application process, the first

factor which courts must consider is the requirement of good faith. This

has been criticised as a rhetorical device that is “replete with uncertainty

in conception and highly unworkable in practice”.99 Nevertheless, thecourts are likely to derive some guidance from recent cases which have

addressed themselves to the requirement at common law.100 Besides these

cases, Payne,101 writing well before the drafting of the Act, suggested

that cases applying the “clean hands” doctrine102 could also be treated as

relevant to interpreting good faith. Under the old system in the United

Kingdom, if a shareholder did not have clean hands, applicants would

be denied permission to bring a derivative claim on the grounds that it

would be inequitable to allow them to succeed in the action. 103 Payne was

of the opinion that it is likely that the same approach will be employedunder a statutory derivative action, on the basis that the requirement that

the applicant was acting in good faith would mean that any bad faith

that the applicant exhibited would disqualify him.104 It will be interesting

to see whether the courts continue to apply that approach as a bar to

an applicant obtaining permission, or whether, with the new dispensation,

they will adopt a different view. Of note is the fact that the courts have not

disqualified applications under s.459 of the Companies Act 1985 on this

basis,105 and they might feel that they should not discriminate between

how the provisions are interpreted. On the other hand, it might be argued

that, with small family companies, there could be some justification for

a continuation of the former approach of the UK courts, and unless the

concept is interpreted too broadly, it could be a useful factor to ensure

that unjustified claims are not brought. Payne, however, argues that the

application of the clean hands doctrine is misconceived—the fact that an

applicant has not acted with all propriety should not end up penalising

98Ramsay and Saunders, “Litigation by Shareholders and Directors” (2006) 6 J.C.L.S. 397 at 41.99Reisberg, “Theoretical Reflections on Derivative Actions” (2006) 3 E.C.F.R. 69 at 101 and 103.

100Portfolios of Distinction Ltd v Laird [2004] EWHC 2071 (Ch); [2005] B.C.C. 216 at [63]; HarleyStreet Capital Ltd v Tchigirinsky (No.2) [2005] EWHC 1897 (Ch); [2006] B.C.C. 209 at [134]–[141].

101Payne, “‘Clean Hands’ in Derivative Actions” [2002] C.L.J. 76.102This is a well-established equitable concept and means that a person has acted, in the eyes of equity,

in such a way that it is unjust that a claim brought at his behest is successful. See Nurcombe v Nurcombe

[1985] 1 W.L.R. 370, CA.103e.g. Towers v African Tug Co [1904] 1 Ch. 558; Nurcombe v Nurcombe [1985] 1 W.L.R. 370, CA.104Payne, “‘Clean Hands’ in Derivative Actions” [2002] C.L.J. 76 at 80.105See, e.g. Re London School of Electronics Ltd [1986] Ch. 211.





the company and protecting those against whom proceedings shouldbe brought—and she maintains that the case law which is relied upon

as evidencing the application of the clean hands doctrine in derivative

litigation can be explained on other grounds.106

Payne places the common law cases into two categories. The first

is where the courts have been concerned to prevent the abuse of the

derivative action jurisdiction.107 Here, relief will be denied because the

shareholder is not the appropriate person to bring the action on the

company’s behalf. Examples include where the shareholder has brought

the action for a collateral purpose, rather than to achieve justice for thecompany, or where the shareholder has been involved in the commission

of the wrong (as opposed to only benefiting from it). Recent illustrations

include Portfolios of Distinction Ltd v Laird ,108 in which the minority

were alleged to have participated in the wrongdoing and benefited from

it, and had a collateral purpose in bringing the action, namely to deflect

attention away from their own wrongdoing, and Konamaneni v Rolls-

Royce Industrial Power (India) Ltd 109 where there was evidence that

the litigation was being used as a tactic in a struggle for control of

the company.110

Denying relief in these circumstances seems relativelyunproblematic. In Australia, also, the courts will consider whether the

applicant is seeking to act in a derivative capacity for such a collateral

purpose as will amount to an abuse of process.111 The courts are permitted

to determine whether applicants are complicit in the matters about which

they are complaining and examine whether the application really is about

the applicant pursuing private interests rather than the interests of the

company.112 If the applicant has a collateral purpose, that is, the derivative

claim is to achieve some private aims and the objective is to obtain some

advantage for which the action was not designed,113 such as forcing thedefendant to buy his shares, then he cannot be said to be acting in good

106Payne, “‘Clean Hands’ in Derivative Actions” [2002] C.L.J. 76 at 77, 80.107At 81–83.108[2004] EWHC 2071 (Ch); [2005] B.C.C. 216.109[2002] 1 W.L.R. 1269.110Portfolios of Distinction Ltd v Laird [2004] EWHC 2071 (Ch); [2005] B.C.C. 216 at [30]–[31], [63];

See also Re Portfolios of Distinction Ltd [2006] EWHC 782 (Ch); [2006] 2 B.C.L.C. 261 at [48]–[51];

Konamaneni v Rolls-Royce Industrial Power (India) Ltd [2002] 1 W.L.R. 1269 at [136]–[139].111Swansson v Pratt [2002] NSWSC 583; (2002) 42 A.C.S.R. 313 at [36]; Maher v Honeysett &

Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [30]; Ehsman v Nucetime International Pty

Ltd [2006] NSWSC 887 at [49]; Magafas v Carantinos [2006] NSWSC 1459 at [17].112Austin, Ford and Ramsay, Company Directors (2005), at p.753.113Swansson v Pratt [2002] NSWSC 583, (2002) 42 A.C.S.R. 313 at [37]; Cannon Street Pty Ltd v

Karediss [2004] QSC 104 at [165].





faith,114

because, on the basis of equity,115

the application should not begranted even if the company might benefit from it.116

The UK case of Barrett v Duckett 117 is more difficult, however. Here

permission was denied in part because the shareholder had a collateral

purpose in bringing the action, namely the litigation formed part of

a personal vendetta. This is problematic because, as the first instance

judge commented, if ill-feeling disqualified a shareholder from bringing

a derivative action, most derivative claims would be frustrated.118 Such

considerations have led the Australian courts to reject arguments that

the good faith requirement will not be satisfied where the applicant ismotivated by intense personal hostility or malice. As Palmer J. stated in

Swansson v Pratt , “it is not the law that only a plaintiff who feels goodwill

towards a defendant is entitled to sue”, though he did agree that where

the sole purpose of the action was a private vendetta, good faith would

not be present.119 However, distinguishing between an action motivated

by malice and one motivated by a personal vendetta is surely a difficult

task.

It is suggested that an alternative interpretation of Barrett v Duckett is

preferable. As the Australian courts have found, the issue of whether the

shareholder is acting in good faith on the company’s behalf is closely

connected with whether the action is, in fact, in the interests of the

company.120 Thus in Barrett v Duckett itself, the court’s conclusion that

Mrs Barrett was not litigating bona fide on the company’s behalf was not

based simply on evidence of her personal vendetta against the defendant.

Rather, it was because she was conducting litigation in a manner which

failed to advance or protect the company’s interests. In particular she

had failed to sue her daughter who was also involved in the wrongdoing,

and she had initiated the litigation even though there was little hope of

recovery for the company.121 In the light of this, it is suggested that it isnot necessary, nor is it desirable, for this case law to be interpreted in a

114Goozee v Graphic World Group Holdings Pty Ltd [2002] NSWSC 640, (2002) 42 A.C.S.R. 534

at 56. But it is not necessarily acting in bad faith if the applicant even admits to bearing malice to therespondent: Swansson v Pratt [2002] NSWSC 583, (2002) 42 A.C.S.R. 313.

115Fiduciary Consultants Ltd v Morningstar Research Pty Ltd [2005] NSWSC 442 at [31].116Austin, Ford and Ramsay, Company Directors (2005), at p.754.117[1995] B.C.C. 362.118 Barrett v Duckett [1995] B.C.C. 362 at 372.119Swansson v Pratt [2002] NSWSC 583; (2002) 42 A.C.S.R. 313 at [41]. See also Lewis v Nortex

Pty Ltd (in liq.) [2006] NSWSC 768 at [3]–[6].120See below, text to fnn.133–137.121[1995] B.C.C. 362 at 372–373. The court was also influenced by the fact that she had failed to

resort to her most obvious remedy being s.459, and had only commenced the action after the defendant

had attempted to put the company into liquidation: at 370. Furthermore, a preferable alternative remedywas available in the form of winding up: at 372. Reisberg also treats this case as one in which relief wasdenied as litigation was not in the company’s interests: “Theoretical Reflections on Derivative Actions”

(2006) E.C.F.R. 69 at 105. See also Payne, “‘Clean Hands’ in Derivative Actions” [2002] C.L.J. 76 at

82.





manner which would deny permission to a shareholder to bring an actionsimply because there was a high level of personal hostility between the

parties. Rather, in such circumstances, the court should consider closely

whether s.263(3)(b) is satisfied, that is whether a person under a duty to

promote the success of the company would support the action. If this, and

other, criteria are satisfied, it is difficult to see why litigation, which might

otherwise be in the company’s interests, should be barred because it also

serves the shareholder’s private purposes.122 When recommending the

need for courts to consider the issue of good faith, the Law Commission

also did not think that the fact that an applicant had some interest in

the outcome of the derivative claim, would prevent him or her being

granted leave.123 On the other hand, where the shareholder’s collateral

purpose gives rise to a conflict of interest between the shareholder and

the company, permission should be refused, either because the shareholder

lacks good faith or because s.263(3)(b) is not satisfied. This approach

would block actions pursued by a competitor of a company in order, for

example, to gain access to confidential corporate information through the

disclosure process, or to otherwise disrupt the company’s business.124

Payne’s second category of common law cases comprises those

decisions in which, even though the shareholder was not complicit inthe wrongdoing, and had no collateral purpose in bringing the litigation,

the courts have, nevertheless, denied the shareholder a remedy because

the shareholder benefited from the wrongdoing. Payne argues such

cases should be interpreted as situations where the minority is, in the

circumstances, estopped from suing the majority, rather than as an

illustration of “clean hands”.125

It is unclear whether the courts will interpret the good faith requirement

in the Act to deny standing to a shareholder who falls within this category,

but Payne’s criticism of the unthinking application of “clean hands” inthese cases is convincing.126 It is suggested, therefore, that the UK courts,

rather than following the common law on this point, could look to the lead

provided by the Australian courts which have taken the view that they are

not to examine whether the applicant has clean hands, nor that there are

matters that are prejudicial to the credit of the applicant.127

122See, e.g. the Australian case of Lewis v Nortex Pty Ltd (in liq.) [2006] NSWSC 768 at [3]–[6].123Above fn.3 at paras. 6.76.124See Harley Street Capital Ltd v Tchigirinski (No.2) [2005] EWHC 2471 (Ch); [2006] B.C.C. 209 at

[68] and (costs judgment) [5].125Payne, “‘Clean Hands’ in Derivative Actions” [2002] C.L.J. 76 at 85. Cases of this nature include:

Towers v African Tug Co [1904] 1 Ch. 558; Nurcombe v Nurcombe [1985] 1 W.L.R. 370. See also

Konamaneni v Rolls-Royce Industrial Power (India) Ltd [2002] 1 W.L.R. 1269 at 152; Portfolios of

Distinction Ltd v Laird [2004] EWHC 2071 (Ch); [2005] B.C.C. 216 at 63 and Mumbray v Lapper

[2005] EWHC 1152 (Ch); [2005] B.C.C. 990 at [21], though in all three the shareholders were alsoalleged to have participated in the wrongdoing and so would fall within the first category also.

126Payne, “‘Clean Hands’ in Derivative Actions” [2002] C.L.J. 76 at 83–85127 Magafas v Carantinos [2006] NSWSC 1459 at [23].







hearsay and therefore has little weight or utility. Hence, the objectivefacts are more important.136 It has been said that if there is no evidence

to support the applicant’s case the court will infer that there was no honest

belief, and hence no good faith.137

This approach is in line with the fact that both the Australian and UK

courts have said, in considering claims made against directors for breach

of their duty to act bona fide in the best interests of the company, that it

was a problem merely having a subjective test for determining whether a

director had breached the duty. As a result, objective considerations were

introduced by courts to supplement the subjective test. In Charterbridge

Corp Ltd v Lloyds Bank Ltd 138 Pennycuick J. said that the court had to

ask whether an intelligent and honest man in the position of a director

of the company involved, could, in the whole of the circumstances,

have reasonably believed that the transaction was for the benefit of

the company.139 It will be interesting to see if UK courts permit any

inferences to be drawn from the conduct of applicants and general

objective circumstances.

Finally, the Australian case law indicates that the onus of proof on

the applicant varies depending on his standing. In Swansson v Pratt 140

Palmer J. indicated that where the applicant is a current shareholderwith more than a token shareholding and the derivative claim is seeking

recovery of property that will increase the value of the applicant’s shares,

good faith will be relatively easy to establish. For example, in Magafas

v Carantinos,141 where the applicant was a current shareholder in the

company, holding 50 per cent of the shares, and the claim would enhance

the value of the company’s shares, the applicant was said to be acting in

good faith. The same goes for a director who is able to show a legitimate

interest in ensuring that the company is well-managed and the action is

to enhance the welfare of the company. A similar approach has beentaken at common law in the United Kingdom. In Harley Street Capital

v Tchigirinsky (No.2),142 for example, the court found that a shareholder

lacked bona fides when the shareholder held less than one per cent of

shares, which it had bought after the alleged wrongdoing had been made

public, and where the shareholder, which was a company, had failed

to explain who its funders were, who was providing instructions to its

lawyers and why it, and those who stood behind it, were interested

136 Magafas v Carantinos [2006] NSWSC 1459 at [19].137Carpenter v Pioneer Park Pty Ltd [2004] NSWSC 973; (2004) 186 F.L.R. 104; (2004) 211 A.L.R.

457 at [23].138[1970] Ch. 62.139[1970] Ch. 62 at 75.140[2002] NSWSC 583; (2002) 42 A.C.S.R. 313 at [38]. See also Magafas v Carantinos [2006]

NSWSC 1459 at [18].141[2006] NSWSC 1459 at [20].142[2005] EWHC 2471 (Ch); [2006] B.C.C. 209.





in bringing the litigation at all.143

Given the common approach of theAustralian and UK courts to this issue, it seems highly likely that, under

the Act, the courts will scrutinise the bona fides of a shareholder more

carefully where the shareholder has no financial interest in the action either

because, as in Harley Street Capital, the price at which the shareholder

purchased the shares already reflected the market’s response to the alleged

wrongdoing144 or where, as in Barrett v Duckett , the company may be

insolvent.145 In such cases the courts are likely to require additional

evidence as to bona fides. Again, under the Act, since it is up to the

shareholder to establish that it satisfies the permission criteria, someevidence must be led on this point if it is not otherwise obvious from

the facts.

(c) The best interests of the company

The Law Commission in its report on Shareholder Remedies 146 indicated

that a court should take into account the interests of the company in

deciding whether to permit a derivative claim to go ahead.147 However,

the legislation that was subsequently drafted did not refer,148 unlike its

Australian counterpart, to the need for the applicant to establish thatthe derivative claim would be in the best interests of the company.

Nevertheless, the UK legislation does instruct the court, in s.263(2)(a), and

s.263(3)(b) to consider the importance that a person acting in accordance

with s.172 (duty to promote the success of the company) would attach

to continuing the claim. The meaning of s.172 has been the subject of

interesting commentary from academics and practitioners,149 and we have

no judicial guidance at present as to the scope and interpretation of the

provision, but clearly the s.172 duty is tied up with the idea of acting in

the best interests of the company, and it is unlikely that a UK court would

grant permission unless it was convinced that the claim would be in the

best interests of the company. Thus, what the Australian courts have said

about the issue is of interest.

The inclusion of the requirement of best interests is a recognition in

Australia that a company might well have reasonable business reasons for

143[2005] EWHC 2471 (Ch); [2006] B.C.C. 209 at [135]–[140].144See Harley Street Capital Ltd v Tchigirinski (No.2) [2005] EWHC 2471 (Ch); [2006] B.C.C. 209 at

[135].145 Barrett v Duckett [1995] 1 B.C.C. 362 at 372. See also Konamaneni v Rolls-Royce Industrial Power

(India) Ltd [2002] 1 W.L.R. 1269 at [138].146fn.3 above, at paras 6.77–6.79.147However, the Law Commission did not think that the fact that the derivative action was not in the

interests of the company should mean that the court was bound to refuse leave: Shareholder Remedies,

at para.6.80.148This was the only criterion recommended by the Law Commission that was not adopted in the

legislation.149See, e.g. A. Keay, “Enlightened Shareholder Value, the Reform of the Duties of Company Directors

and the Corporate Objective” [2006] L.M.C.L.Q. 335.





not pursuing a cause of action.150

The Australian courts have emphasisedthe fact that the requirement is that the claim must be in the best interests

of the company, and an applicant cannot merely establish that the claim

appears to be or is likely to be in the best interests of the company. So the

court is not invited to enter into some form of “crystal ball gazing”—it

must be satisfied on the facts that the action would be in the company’s

best interests. To establish this involves an applicant doing more than

making out a prima facie case in this respect.151 It has been held that the

personal qualities of the applicant do not come into play in determining

this condition,

152

for the focus is on the company. The applicant is requiredto adduce evidence in relation to153: the character of the company (is it a

small or large company; is it a family company?); the business conducted

by the company, in order to ascertain the effects of the proposed litigation

on the proper conduct of the business; enabling a court to determine

whether the substance of the relief which the applicant is seeking can be

obtained without litigation; and the ability of the respondent to satisfy at

least a substantial part of any order made in favour of the company in the

proposed derivative action.

Whether or not the best interests of the company are fulfilled by

permitting a derivative action is an objective test.154 Although neither

the legislation nor the cases require it,155 it has been argued that this

assessment should involve a cost/benefit analysis.156 The court might want

the following kind of evidence to be adduced: how the proposed litigation

will affect the proper conduct of the company’s business; whether the

substance of the relief sought is available by some other means; and the

ability of the defendant to meet, at least, a substantial part of any judgment

made in favour of the company.157

In Australia it has been said that where the company is insolvent, and

even when it is in financial difficulties short of insolvency, the issue of best interests of the company really involves deciding whether the claim

would be in the interests of the creditors.158 This is consistent with the

fact that the common law in both the United Kingdom and Australia

provides that directors, in discharging their duties to their company, have

150Explanatory Memorandum to the Corporate Law Economic Reform Program Bill, at para.6.38.151Swansson v Pratt [2002] NSWSC 583; (2002) 42 A.C.S.R. 313 at [55]–[56].152 Maher v Honeysett & Maher Electrical Contractors Pty Ltd [2005] NSWSC 859 at [46]–[49].153Swansson v Pratt [2002] NSWSC 583; (2002) 42 A.C.S.R. 313 at [57]–[60].

154Talisman Technologies Inc v Qld Electronic Switching Pty Ltd [2001] QSC 324 at [31].155 Metyor Inc v Queensland Electronic Switching Pty Ltd [2002] QCA 269; (2002) 42 A.C.S.R. 398

at [19].156Prince, “Australia’s Statutory Derivative Action: Using the New Zealand Experience” (2000) 18

Company and Securities Law Journal 493 at 504.157Swansson v Pratt [2002] NSWSC 583; (2002) 42 A.C.S.R. 313 at [58]–[60].158See, e.g. Charlton v Baber [2003] NSWSC 745, (2003) 47 A.C.S.R. 31 at [53]; Chahwan v Euphoric

Pty Ltd [2006] NSWSC 1002 at [28]; Promaco Conventions Pty Ltd v Dedline Printing Pty Ltd [2007]

FCA 586 at [41].





to take into account creditors’ interests when their company is in financialdifficulty.159 UK courts might well consider creditor interests as part of

their assessment, because of the fact that they are required to refuse

permission to continue a derivative claim if a person acting in accordance

with s.172 (duty to promote the success of the company) would not seek

to continue the claim. Section 172 does provide in subs.(3) that the duty

imposed by s.172 has effect subject to any law that requires directors, in

certain circumstances, to consider the interests of creditors. In any event

“creditors” might well be covered by the s.172 duty, for s.172(1)(c) states

that directors must, when endeavouring to fulfil their duty to promote the

success of the company, have regard to, inter alia, the need to foster the

company’s business relationships with “suppliers, customers and others”.

Creditors might well fall within the “others” category.160 A court might

take the view that permitting the derivative claim is not in the best interests

of the company (creditors) as the cost of the action might reduce the

amount of money that is available for creditors ultimately.

(d) The views of an independent board

While the Australian cases could assist in identifying the factors whichthe UK courts could take into account in interpreting s.263(3)(b), recent

UK decisions raise the possibility that the courts may require very clear

evidence that a person under a duty to promote the success of the

company would not pursue the action, or would not consider it sufficiently

important to pursue, before refusing leave on this basis. To explain,

in Mumbray v Lapper 161 the test for the grant of permission to bring

derivative proceedings was said to be whether an independent board would

sanction the pursuit of the proceedings.162 This seems very similar to the

requirement in s.263(3)(b) of the Act. In Mumbray v Lapper itself thetest was not explored further: permission was refused because alternative

remedies existed, and the shareholder had participated in wrongdoing.163

However, in Airey v Cordell,164 the test was applied in a manner which

159 Liquidator of West Mercia Safetywear v Dodd (1988) 4 B.C.C. 30; Facia Footwear Ltd (in

administration) v Hinchliffe [1998] 1 B.C.L.C. 218; Re Pantone 485 Ltd [2002] 1 B.C.L.C. 266; Gwyer

v London Wharf (Limehouse) Ltd [2002] EWHC 2748 (Ch); [2003] 2 B.C.L.C. 153; Re MDA Investment

Management Ltd [2003] EWHC 2277 (Ch); [2004] B.P.I.R. 75; Kinsela v Russell Kinsela Pty Ltd

(1986) 4 A.C.L.C. 215; (1986) 10 A.C.L.R. 395; Jeffree v NCSC (1989) 7 A.C.L.C. 556; (1989) 15

ACLR 217; Spies v The Queen [2000] HCA 43; (2000) 201 C.L.R. 603. See Keay, Company Directors’

Responsibilities to Creditors (2007), at pp.153–220.160Keay, “Section 172(1): An Interpretation and Assessment” (2007) 28 Co. Law. 106.161[2005] EWHC 1152 (Ch); [2005] B.C.C. 990.162[2005] EWHC 1152 (Ch); [2005] B.C.C. 990 at [5]. The test is drawn from earlier case law dealing

with whether the court should order the company to indemnify the shareholder’s costs: see Wallersteiner

v Moir (No.2) [1975] Q.B. 373 at 404 (Buckley L.J.); Smith v Croft (No.1) [1986] 1 W.L.R. 580 at 590(Walton J.); Jaybird Group Ltd v Greenwood [1986] B.C.L.C. 319 at 321.

163[2005] EWHC 1152 (Ch); [2005] B.C.C. 990 at [21]–[23].164[2006] EWHC 2728 (Ch); [2007] Bus. L.R. 391.





could have significant implications if it were to be adopted by courtsinterpreting the Act.

In Airey v Cordell, Warren J. stated that “there is a range of reasonable

decisions” that a board might make, so that a reasonable board could take

a decision either way. 165 He went on to say that shareholders would fail

this test only if the court took the view that no board acting reasonably

would sanction the action. Provided that the shareholder’s decision was

one which a reasonable board could take, the court should give permission

to proceed even though another board could reasonably refuse to prosecute

the action.166 This was because it would not be

“right to shut out the minority shareholder on the basis of the court’s,

perhaps inadequate, assessment of what it would do rather than a test

which is easier to apply, which is whether any reasonable board could

take that decision.”167

This approach bears strong similarities to the range of reasonable

responses test which is familiar to employment lawyers. When assessing

a claim for unfair dismissal under s.98(4) of the Employment Rights Act

1996, the tribunal will exonerate an employer if the employer’s actions

fall within a range of responses which a reasonable employer might havetaken, albeit that the dismissal was a harsh decision falling at the extreme

end of a band of reasonable responses.168 The reason for this approach

is that the courts are reluctant to second guess and set aside management

decisions, but it has been criticised on the basis that employers’ decisions

will not be overturned unless they exhibit a standard of unreasonableness

which equates to perversity.169

If the courts were to adopt a similar approach when assessing what

a person under a duty to act in accordance with s.172 would do,

it would be relatively easy for shareholders to demonstrate that thehypothetical decision-maker would sanction the action. It would be rare

that a derivative action was so obviously undesirable that no reasonable

decision-maker acting in the company’s interests would sanction it.

However, it is not clear that the adoption of such an approach would

be defensible. While an interventionist approach in dismissal cases would

165[2006] EWHC 2728 (Ch); [2007] Bus. L.R. 391 at [69].166At [75]–[76].167At [75].168 Iceland Frozen Foods v Jones [1982] I.C.R. 17; Post Office v Liddiard [2001] EWCA Civ 940;

[2001] Emp. L.R. 784. Although the EAT in Beedell v West Ferry Printers Ltd [2000] I.C.R. 1263at 1278–1279 stated that this was not a test of perversity, equating it instead with the Bolam test( Bolam v Friern Hospital Management Committee [1957] 1 W.L.R. 582), which is the standard of care

test in professional negligence cases, this test has also been extensively criticised as causing courts to

adopt an unduly non-interventionist approach, and resulting in very few findings of negligence againstprofessionals.

169Freer “The Range of Reasonable Responses Test—From Guidelines to Statute” (1998) 27 I.L.J. 335

at 335–336.





lead to the courts interfering in management decisions, and so arguably justifies the range of reasonable responses test, this is not so in the case

of derivative actions. Here it is the shareholder, not management, whose

decision to sue is under scrutiny. Given that management has presumably

opposed the action, allowing it to proceed would constitute interference

with management’s judgment, and the litigation itself could interfere with

the running of the company’s business.

On the other hand, the use of such a test under the Act may be more

defensible than its use at common law. This is because it would apply

to only one of the criteria which the courts have to take into account

in determining whether to grant permission. Given that assessing the

importance a person under a duty to promote the success of the company

would attach to the action does involve the courts attempting to form a

view in relation to the commercial wisdom of the litigation, the test would

relieve them of carrying out a task which lies outside their normal role,

and which they are not well equipped to carry out.170 It would require

them to refuse permission on this basis only in the most clear-cut cases,

where, for example, pursuing the action “was wholly disproportionate and

cost-ineffective”.171 At the same time, applications could continue to be

screened out applying the other permission criteria.

(e) Alternative remedy

At both common law and under the Act the availability of an alternative

remedy is a relevant consideration in determining whether the court

should grant permission,172 but while the Act provides that the court

must consider whether there is an alternative cause of action which the

member could pursue in his own right,173 the common law is broader,

and all remedies are taken into account, including alternative avenues of redress for the company itself.174 This section of the article focuses on

the case law dealing with the availability of alternative personal remedies,

since this is of most relevance to courts interpreting the Act.

170Hirt, “The Company’s Decision to Litigate Against its Directors: Legal Strategies to Deal with theBoard of Directors’ Conflict of Interest” [2005] J.B.L. 159 at 165–166 and 195–196.

171 Airey v Cordell [2006] EWHC 2728 (Ch); [2007] Bus. L.R. 391 at [69] per Warren J., though

it should be noted that the judge was prepared to refuse leave if a suitable alternative remedy becameavailable: [2007] Bus. L.R. 391 at [83]–[86].

172There has been some lack of clarity regarding the relevance of an alternative remedy: compare

Konamaneni v Rolls-Royce Industrial Power (India) Ltd [2002] 1 W.L.R. 1269 at [29], where LawrenceCollins J. stated that it was not an independent consideration, with Mumbray v Lapper [2005] EWHC

1152 (Ch); [2005] B.C.C. 990 at [5] in which Robert Reid Q.C. thought it could be an extremely important

factor for the court to take into account.173Companies Act 2006 s.263(3)(f).174 Barrett v Duckett [1995] 1 B.C.L.C. 243 at 372. Again, if the company is in liquidation a derivative

action cannot be brought: Fargro v Godfroy [1986] 1 W.L.R. 1134, though this is probably better explained

as an absence of wrongdoer control.





In Mumbray v Lapper winding up on the just and equitable ground,175

ora s.459 petition176 were found to be preferable to a derivative action, and

permission was refused. The petitioner had participated in the wrongdoing,

the company was deadlocked and no longer trading and, if liquidation

was pursued, the liquidator could determine whether to take proceedings

in the company’s name against the alleged wrongdoers.177 It does not

seem, though, that the fact that a quasi-partnership is deadlocked can,

alone, lead to permission being refused on the basis that, for example,

winding-up is preferable. There are cases in which permission has been

granted despite the fact that the only two members of a company thatwas a quasi-partnership can no longer work together.178 In Mumbray v

Lapper, however, it was significant that the applicant was also an alleged

wrongdoer. It seems that the courts are more likely to prefer alternative

remedies where the applicant lacks good faith.179

In Jafari-Fini v Skillglass Ltd 180 permission to bring a derivative action

was refused because the shareholder had a personal cause of action arising

out of the same facts as gave rise to the derivative claim and, if the

shareholder succeeded in his personal claim he would retake control of

the company and could then cause it to bring proceedings, whereas if he

failed the company’s claim also fell away.181 While this approach could

have delayed any recovery to which the company was entitled, in this

case the only asset which could have been recovered was worthless. 182

In the circumstances, therefore, the company had nothing to gain from

litigation being brought on its behalf and it was not in its interests for

permission to be given. The Australian courts would probably adopt a

similar approach.183

The recent case of Airey v Cordell is notable because of the broad

interpretation given to the concept of an alternative remedy. The court

held that it included a settlement of the dispute which adequately protectedthe shareholder’s interests.184 The problem with this is that it risks

sanctioning “green-mailing,” the practice whereby shareholders bring

175Under Insolvency Act 1986 s.122(1)(g).176Under the Companies Act 1985, and now superseded by s.994 of the Companies Act 2006.177[2005] EWHC 1152 (Ch); [2005] B.C.C. 990 at [23]. Contrast the Australian case of Kandt Stening

Group Pty Ltd v Stening [2006] NSWSC 307 at [33]: company dormant and had no assets save what was

under dispute in the litigation—leave granted.178 Halle v Trax BW Ltd [2000] B.C.C. 1020; Qayoumi v Oakhouse Property Holdings Plc [2002]

EWHC 2547 (Ch); [2003] 1 B.C.L.C. 352; Fansa v Alsibahie [2005] EWHC 271 (Ch). With the exception

of the company in Halle v Trax , however, it is not clear that the companies in question were deadlocked.179 Barrett v Duckett [1995] 1 B.C.L.C. 243; Portfolios of Distinction Ltd v Laird [2004] EWHC 2071

(Ch); [2005] B.C.C. 216.180[2005] EWCA Civ 356; [2005] B.C.C. 842.181At [47], [52].182At [25], [52].183See, e.g. Swansson v Pratt [2002] NSWSC 583 at [63]–[69]; Promaco Conventions Pty Ltd v

Dedline Printing Pty Ltd [2007] FCA 586 at [46]–[52].184[2006] EWHC 2728 (Ch); [2007] Bus. L.R. 391 at [84]–[86].







common law situation, and to deny this effect to those whose rights hadaccrued before the legislation became enforceable would be to frustrate

the remedial purpose.190 Furthermore, the Victorian Supreme Court made

the point in Advent Investors Pty Ltd v Goldhirsch 191 that the intention

of the legislature was to promote certainty concerning the nature of the

derivative action and to avoid confusion because of divergence of common

law principles vis-a-vis the statutory provisions.192

The Australian approach does seem to sit well with the fact that the

Law Commission’s 1997 report recommended the complete replacement

of the common law procedure with the statutory derivative action on the

basis that if the former co-existed with a statutory scheme, there would

be confusion.193 However, the UK sections were said by the Explanatory

Notes to the Act not to formulate a substantive rule to replace the rule

in Foss v Harbottle, but rather to reflect the recommendation of the

Law Commission that there should be a “new derivative procedure with

more modern, flexible and accessible criteria for determining whether a

shareholder can pursue an action”.194 Arguably, though, the Notes were

merely pointing out that the statutory scheme introduced a new and

all-encompassing approach to addressing derivative actions. Secondary

legislation appears to support this latter interpretation of the Notes aspara.20(3) of Sch.3 to the Companies Act 2006 (Commencement No.3,

Consequential Amendments, Transitional Provisions and Savings) Order

2007195 indicates, although not as clearly as one would like, that a

derivative claim will only be allowed to proceed as a derivative claim,

where the act complained of occurred before October 1, 2007 (the date of

the commencement of Part 11) if it would have been able to do so under

the law in force immediately before Part 11 was put in force. Hence,

it would seem that where there is a cause of action that could be the

subject of a derivative action, and it occurred before October 1, 2007,shareholders can only obtain permission to bring proceedings if they meet

the requirements at common law.

A related issue that is of interest is what will happen to derivative

actions commenced prior to the time when the UK provisions were put in

force? This could well be a significant issue, as it was in the early days

following the enactment of the Australian legislation.196 Notwithstanding

the fact that Australian courts have said that the provisions enacting

190Karam v ANZ Banking Group Ltd [2000] NSWSC 596; (2000) 34 A.C.S.R. 545 at [27].191[2001] VSC 59.192The Australian courts are required by s.109H of the Corporations Act 2001 to have regard for any

remedial purpose in interpreting the Act.193fn.3 above, at paras 6.51–6.55.194At para 6.15 and quoted by the Explanatory Notes at para.491.195SI 2007/2194. The Order came into force as far as this matter is concerned on October 1, 2007.196It was said to be a difficult question: Shum Yip Properties Ltd v Chatswood Investment and

Development Co Pty Ltd [2002] NSWSC 13; (2002) 40 A.C.S.R. 619 at [17].





the derivative action process were intended to be remedial, Austin J.in Cadwallader v Bajco Pty Ltd 197 said that s.236(3) does not prevent

a court from hearing a matter under the common law where proceedings

were commenced before the enactment of the new scheme, for the

subsection has “nothing to say about the continuation of proceedings

properly bought at a previous time”.198 The UK courts will be compelled

to take the same approach, given para.20(2) of Sch.3 to the Companies Act

2006 (Commencement No.3, Consequential Amendments, Transitional

Provisions and Savings) Order 2007.

VI. CONCLUSION

It has been submitted in this article that the meaning and operation of

the new statutory derivative action provisions will be informed, until

the UK courts develop principles, by both the UK common law and the

cases handed down in Australia on its equivalent statutory procedure. We

take the view in this article that, in the light of this case law, the new

provisions need not be interpreted in a manner which is overly onerous to

applicants seeking permission to proceed with a derivative claim. This is

not necessarily a bad thing for either shareholders or companies. Although

there has been significant consideration as to whether or not the reforms

discussed here will precipitate a wave of US-style actions against directors,

it is not likely that we will see the same phenomenon in the United

Kingdom, for actions in the United States tend to be fostered by lawyers’

contingency fees and the absence, in most cases, of orders making the

losing party pay the costs of litigation.199 Furthermore, there have not

been a large numbers of cases in Australia. Ramsay and Saunders found

31 cases up until February 2006. We have found, up to July 1, 2007, eight

more cases. Overall this is not a large number of cases over seven years,although to have eight cases in the last 18 months suggests something of

an upsurge. Of course, the period of time is too short to base any general

comments on the statistics but, in general, we can say that the number of

cases is not large.

Given that, generally speaking, the UK provisions are narrower than the

Australian legislation it seems possible that even fewer applicants (taking

into account differences in the population) will be given permission to

bring cases in the United Kingdom compared with Australia and if the

197[2001] NSWSC 1193 at [238].198At [238]. Austin J. distinguished Karam on the basis that the claim in Karam, while initially

instituted before the enactment of the new provisions, was not properly constituted and amendment of the claim was sought post enactment. Austin J. held to the same view subsequently in Shum Yip Properties

Ltd v Chatswood Investment and Development Co Pty Ltd [2002] NSWSC 13; (2002) 40 A.C.S.R. 619

at [18].199Beale, “Directors Beware” (2007) 157 N.L.J. 1033.





trend in Australia were to apply in the United Kingdom, the concerns of many that we will see a wave of litigation may be without substance.

On the other hand, while a deluge of cases US-style is arguably both

undesirable and unlikely, if the derivative action is to fulfil its function as

a remedy for doing justice to the company in respect of wrongs committed

against it by those who control it, it is desirable that a respectable number

of actions should be initiated. It is also important that the courts are not

hostile to such actions nor interpret the permission criteria in such an

onerous manner that the efficacy of the derivative action is undermined.

As earlier noted, historically, the courts were accused of displaying a bias

against derivative litigation, emphasising the damage such litigation might

cause whilst disregarding the potential corporate governance benefits

of holding wrongdoing directors to account and of using the action to

articulate norms of corporate behaviour. It is to be hoped, therefore, that

the courts will exploit the opportunity presented by the introduction of the

new statutory derivative action to adopt a more balanced approach. The

Australian case law and recent UK common law decisions provide some

guidance as to how this might be achieved.

ANDREW

KEAY

.

*

JOAN LOUGHREY.**

* Professor of Corporate and Commercial Law, Centre for Business Law and Practice, School of Law,

University of Leeds.** Senior Lecturer in Law, Centre for Business Law and Practice, School of Law, University of Leeds.

The authors would like to thank Professor Dan Prentice for helpful suggestions on an earlier version of

this article.

Australia; Comparative law; Derivative actions; Discretion; Regulation; Statutory interpretation




REVIEWS AND NOTICES

Security and Human Rights. Edited by BENJAMIN J. GOOLD and LIORA

LAZARUS. [Oxford: Hart Publishing. 2007. xxxiii + 391 pp. Paper-

back: £30].

OVER the last year the political rhetoric about security and human rights

has undoubtedly been toned down. Prime Minister Gordon Brown and

his Home Secretary have rightly been congratulated for abandoning their

predecessors’ “tough talk” on terror. In the wake of last summer’s

attempted terror attacks in London and Glasgow, both avoided talk of

Britain being engaged in a “war on terror” and there was no dangerous

reference to the “rules of the game” having changed. Sadly, however, the

latest Counter-Terrorism Bill demonstrates that the political willingness

to sacrifice our basic rights and freedoms in the name of greater security

is not a thing of the past, even if the tone and language has changed. The

proposal in the Bill to allow the police to hold suspects without charge

for up to six weeks belies the calm and reasoned tone.

This collection of essays provides a broad range of perspectives

on the debate about security and human rights, covering legal theory,

criminology, criminal law, constitutional law, international law and

international relations. It explodes the over-simplified but prevalent mantra

that Western democracies are faced with a choice between security, on the

one hand, and human rights, on the other. A number of contributors also

examine the dangers of relying on the alternative language of “balance”.

While critiques of human rights talk will be familiar to many, this book

also discusses the contested nature of security talk. Sandra Fredman,

for example, refuses to stick to the dominant concept of “security” asprotection against the threat from terrorists. She instead sketches out a

positive right to security which comprises the right to demand from the

state the minimum necessary to fulfil one’s capabilities.

Ian Loader’s contribution to this volume provides a healthy reminder of

the political and lay vernacular of rights and security, too often overlooked

by liberal academics and human rights campaigners. He reminds us of

the powerful arguments used by political, professional and media actors

to “mobilise a populist appeal to the ideal of security, while presenting

rights claims as the concern of the remote special interest groups willingto play fast and loose with the safety of their citizens” (p.27). He examines

why there is such popular appeal in all-too-familiar refrains like “nothing

to hide, nothing to fear” and “no smoke without fire” and asks why

there is such popular distaste for human rights. While this might be

uncomfortable reading it does not serve the cause of human rights to close

one’s eyes to deeply held worries and anxieties about safety and change,

501



502 The Law Quarterly Review [Vol. 124

to visceral appetites for fear and to the “deep emotional satisfactions tobe obtained from fantasies of absolute security” and “strong, sovereign

authority”.

Benjamin Goold considers how personal privacy has been undermined

in the name of greater security. While the British Government has

never gone as far as outwardly advocating the kind of Total Information

Awareness (TIA) system discussed but ultimately abandoned in the United

States, there is no doubt that huge quantities of personal information

are being collated and shared by public and private bodies. It is now

technologically possible to trawl through these volumes of innocuous

personal data to identify characteristics or tendencies. This kind of “data

mining” or computerised fishing expedition is no longer the stuff of

science fiction. Today, it is a reality which has even been expressly

recognised in legislation (cf. s.73 of the Serious Crime Act 2007). Goold

explores how these processes can result in the creation of categorical

personal identities which increasingly conflict or compete with people’s

own narrative of themselves. He warns that categorical identities are

increasingly providing the basis for assessments of risk and pre-emptive

measures which, while aimed at greater security, are just as likely to

produce and justify repressive and discriminatory outcomes.The dangers of taking pre-emptive measures on the basis of a person’s

categorical identity or profile are also discussed by Lucia Zedner and

Bernard Harcourt. Zedner considers the move from criminal punishment to

pre-emption, a familiar legislative response to al-Qaida inspired terrorism

which has allowed measures such as control orders to side-step important

criminal fair trial standards. She believes this move to preventive measures

has been facilitated, in part, by an ability to make an actuarial assessment

of future risk. Her fear is that seriously restricting people’s freedoms on

the basis of an assessment of what they appear likely to do in the futuredisrespects the notion of the individual as a moral agent who could choose

to remain innocent. Harcourt considers the use of racial profiling as a way

to target limited police resources, a suggestion repeated by disparate voices

in recent years. He highlights the paucity of empirical evidence to support

the view that “profiling passengers based on proven security risk is just

smart law enforcement” and explains how profiling can, in fact, result in

substitution—the recruitment of individuals from non-profiled groups or

the use of new types of terror attack immune to profiling.

Harcourt’s chapter on profiling also questions the tactics used byhuman rights defenders such as Liberty—should we be willing to “get

our hands dirty” by participating in debates about the effectiveness of

such laws or practices or should we remain aloof and merely assert

the importance of rights as trumps? I agree with Harcourt’s conclusion

that “[t]he effectiveness issue is a threshold question: if the measures

are not credibly effective, there is nothing further to discuss” (p.76). Of




JULY 2008] Reviews and Notices 503

course, in practice, it is never quite possible to conduct political or legalarguments in such a clean and linear fashion. It becomes necessary to

engage simultaneously in a range of arguments about effectiveness, about

the long-term counter-productivity of injustice, about better alternatives

and, importantly, the societal and constitutional reason for the human right

in question.

This final argument—the why of human rights—is particularly impor-

tant in the United Kingdom where, unlike in the United States, there is lit-

tle public or political ownership, understanding and appreciation of human

rights. Outside the confines of the court room, asserting the fact of a human

right is not enough to trump competing claims or interests—especially

those as compelling as security. It is, therefore, vital to engage in nor-

mative arguments about human rights. Andrew Ashworth does just this.

His knowledge and understanding of the practical value of fair trial prin-

ciples is far more persuasive than, for example, abstract references to

the fact that Art.6 of the European Convention on Human Rights pro-

hibits self-incrimination. Given the constraints of a single short chapter

it might, however, have been more satisfying if he had focused on one

or two aspects of a fair trial in more detail rather than skating over eight

elements of a fair trial in an increasingly cursory way.In the legislative arena the powerful rhetoric of security has too

often succeeded in undermining basic rights protections with little real

scrutiny. The Prevention of Terrorism Act 2005, for example, was rushed

through Parliament in under two weeks. In this context David Dyzenhaus’

fascinating contribution to the volume is particularly welcome. He

propounds the idea of a culture of justification in which the elected

limbs of Government have to earn judicial deference on national security

matters. He argues persuasively that statutes affecting human rights

should be supported by reasons and that Parliament should demandfrom the Executive the information needed to enable proper scrutiny. He

acknowledges that this could require institutional change to, for example,

allow security sensitive information to be disclosed in such a way as

to allow parliamentary scrutiny of the nature and extent of the terror

threat.

Kent Roach provides a valuable reminder about why effective scrutiny

of legislative proposals is necessary—bad laws have a tendency to

reproduce themselves. He discusses the fads within post 9/11 UN

Security Council resolutions: first, for measures designed to control thefinancing of terrorism; then for measures which treat terrorism as a

matter of immigration control; and, most recently, for measures which

seek to regulate “terrorist speech”. The disturbing parallels in domestic

law are immediately apparent (e.g. Part IV Anti-Terrorism, Crime and

Security Act 2001, the nadir of British counter-terrorism policy and

the controversial “glorification of terrorism” offence in the Terrorism





Act 2006). As Roach points out, the United Kingdom has made itsown contribution to the ill-considered counter-terrorism laws reproduced

around the world—pre-charge detention for over a month would be a case

in point.

There can be no doubt about the very real threat to human safety posed

by al-Qaida inspired terrorism. However, as Ken Macdonald Q.C. explains

in his Foreword to this volume: “this new form of terrorism carries another

more subtle, perhaps equally pernicious risk: it might encourage a fear

driven and inappropriate response . . . it can tempt us to abandon our

values” (pp.v–vi). At least to some extent the terrorists have succeeded in

this purpose. The ill-named war on terror has left us with a raft of bad laws

making us less safe and less free. Liora Lazarus, however, highlights a

risk which is, perhaps, even more profound. In one of the most interesting

chapters of the book she considers how the

“rhetorical and political appeal of security and rights has within

it a potentially explosive combination, not only to erode the

protections of competing rights such as liberty, but also to undermine

accepted understandings of the foundations of fundamental rights

reasoning.”(p.344)For those of us who believe the founding principles of human rights are

human dignity, equality and respect, we should heed her warning against

the development of a meta-right to security, the ultimate right to trump

all others.

JAGO RUSSELL.*

The Protection of Cultural Property in Armed Conflict . By ROGER O’KEEFE.

[Cambridge: Cambridge University Press. 2006. xix + 404 pp.

Hardback: £55].

AMONG the saddest books on this reviewer’s shelves is a volume of 427

black and white plates, compiled shortly after the Second World War to

commemorate a handful of the thousands of destroyed churches, palaces,

public buildings, and fixtures, casualties all of that terrible war.

One response to such destruction, and to the theft of thousands of

boxcars of movables, was to initiate criminal charges against perpetrators.

Nazi chiefs Goering, Ribbentrop, Frank, Rosenberg, and others were

convicted at the first Nuremberg trial for, among much else, ordering

systematic looting and destruction of public and private collections andsites. Cultural property offences were also part of the Pohl, RuSHA, and

other Nuremberg trials, as well as cases against Erich Koch (Poland),

Eichmann (Israel) and his aide Karl Rahm (Czechoslovakia). But the

cases contain their own limitation: nearly everyone charged with such

* Legal Policy Officer, Liberty.





acts also committed mass murder or enslavement. Regardless of whattheorists say about the glory of art or the centrality of cultural production,

charges of looting or destruction were secondary, and sometimes barely

mentioned.

Prosecutions for theft or destruction of cultural property were soon

seen as more a parlour game or moot-court question than a realistic goal.

Even if there were to be prosecutions, where would liability end? Should

German leaders be tried for the Baedecker Raids, or destroying Coventry

Cathedral, the Chopin, Tolstoy, and Pushkin homes and graves, and tens

of thousands of synagogues? Would the same legal theory extend to Allied

commanders for the destruction of Monte Cassino, or Dresden? A statue

to honour “Bomber” Harris, or a posthumous indictment?

Eschewing such speculations, most victims of Second World War

cultural property violations preferred a second alternative, the tangible

goal of restitution. In the West, French, Italian, and other national

collections were largely returned. In western Germany, procedures were

put in place for restitution to individuals of their real and movable

property, including fine and decorative art, books, and ritual objects.

But evidentiary hurdles were immense for Jewish heirless and communal

property. Some German survivors won restitution, but most Holocaustvictims found avenues blocked by seemingly dispositive legal doctrines

that eased only in the 1990s. By then, the possessors were no longer

original takers or oily middlemen, but purchasers or heirs a few degrees

removed, or museums with no more sense of guilt or duty to a prewar

owner than they felt to an ancient Sumerian. In the East, the USSR began

with a rough policy of reparations-in-kind for cultural and other property,

with trophy commissions selecting objects. Having returned high-visibility

items such as the Pergamon Altar in the 1950s, the Soviets retained most

others, hostages to the Cold War. International and domestic private lawwere largely irrelevant, and the claims of not only German state museums

but of despoiled Jews or Polish monasteries found scant sympathy. Only

recently did the situation change: witness Ukraine’s return of its part of the

Koenigs collection. As for private individuals, few received compensation

for personal loss, never mind lost communal and cultural property, and

for most it is probably decades too late.

Given the difficulties with punishment and restitution, many placed

their hopes on a third option, using law to protect sites and objects. This

endeavour had very old roots, and culminated in the Hague Conventionand two Protocols on Cultural Property (1954 and 1999) and Additional

Geneva Protocols (1977). Yet recent conflicts have been characterised

by egregious assaults on art and sites: in the Iran–Iraq (1980–88)

and Kuwait (1990–91) wars, the shelling of Dubrovnik (1991) where

perpetrators have been prosecuted, the demolition of the Bamiyan Buddhas

(2001), the looting of the Baghdad museum (2003), and the bombing of





Samarra’s Golden Mosque (2006). This story of attempts to prevent andshield, of loopholes and atrocities, is the subject of Roger O’Keefe’s

thorough and timely study of the framework protecting cultural property

in war.

Behind O’Keefe’s study is the curious fact that to some extent, it

has not been written before. The law of cultural property in war, and

the scholarship about that law, has been pigeonholed. General studies of

the law of armed conflict or international criminal law tend to say little

about cultural property. Protection of sites tends to be subsumed under

the principle of distinction and the law of bombardment, whether by airor land. Protection of movable artifacts is pushed under the municipal

law of chattels and theft, statutes of limitation and restitution, and, when

involving a transnational claim, conflict of laws principles. Commentaries

on the Hague Convention and Protocols can be thorough, but largely

lack all historical context. Case studies usually arise from the burgeoning

scholarship about Second World War looted art treasures. For these

reasons, O’Keefe’s study is not only well researched and written, it is

also surprisingly innovative.

O’Keefe has also picked a good time for his study. As he rightlypoints out (p.360), the field of cultural property has been in flux, with

rules and approaches changing because of the 1999 Protocol and the

start of the International Criminal Court. Now the field seems to have

entered a period of consolidation, and the largely descriptive study that

O’Keefe intends (pp.1, 360) is precisely what researchers need. As an

added bonus, O’Keefe’s resolutely descriptive aim helps him avoid the

intellectual whiggishness that is the international lawyer’s occupational

hazard, a mindset wherein adherence to an alleged rule shows that it

exists, while a breach also proves the rule because of the condemnation itbrings. O’Keefe knows that his job is daunting enough just to summarise

the rules, place them in context, and critique them, leaving no time for the

praiseful tone often found in international law scholarship. The result here

is not only a very successful academic study, but a one-volume work so

thorough that it will be a vade-mecum for museum officials and diplomats

going on fact-finding or negotiating missions.

The book is chronologically arranged, and so the latter two-thirds of

the book, close to the present in coverage, consists largely of analyses

of the texts of the Conventions and Protocols. O’Keefe combines a closelegal reading with an immersion in the drafts, preparatory meetings, and

national positions that went into the final negotiation. This may sound

unremarkable, but most other works on the topic are syllogistic, marching

through conventions and protocols, reciting familiar key articles, and opin-

ing blandly that this or that modification was a response to the failure of a

previous governing text. O’Keefe offers much more in the way of context,





showing the principles at work across the texts and decades. His presenta-tion of the provisions for “special” and “enhanced protection” in the Con-

vention and Second Protocol (pp.140–156, 263–271) is helpful. More gen-

erally, his recurring discussions of the narrowing of the “necessity” excep-

tion, the change from the “military necessity” formula to “military objec-

tive”, and the continued development of the “common heritage” rhetoric

for art and sites, are nuanced and learned. This reviewer’s only complaint

was that O’Keefe might have shown how the common-heritage rhetoric,

however idealistic, can clash with the alternative conception of cultural

property as ethnic and national, a point made elsewhere by Geoffrey Best.

By contrast, in the first third of the book O’Keefe has a more complex

challenge. In the absence of codification or a dedicated convention, the

older law of cultural property has to be teased out from national practice

and codes and the writings of the publicists, in short, from a multitude

of examples, and O’Keefe does so skilfully. He surveys two obscure

Dutch proposals to protect cultural property after the First World War

(pp.41–43) and the late 1930s, after Guernica (pp.53–60), and offers

insight into Second World War bombing technology and the law (pp.2,

63). He explains the “republic of letters” rhetoric (pp.8–9) and the shift

from military restraint to “material protection” theories for site protection(p.42). O’Keefe has a good nose for detail, and it is a pleasure to learn from

him of the Newfoundland Prize Court (p.16), or the bombing of Ancona

and Venice and Whitby in the First World War (p.37), or of Roerich,

Diaghilev’s designer and activist who lobbied for the 1935 inter-American

agreement that bears his name (pp.40, 51–52).

Inevitably there are omissions. Why no mention of Grant for allegedly

targeting church steeples during his siege of Vicksburg, or of the origins of

the historic monuments movement not in Victorian statutes (pp.16–18), but

rather with the early 19th century romantic sensibility that found beauty inbare ruined choirs? Why no mention of the cult of reverence for memorials

and graveyards immediately after the American Civil War? But even the

recitation of these examples underscores O’Keefe’s observation (p.3) that

given the multitude of historical precedents he would collect examples

only to the extent needed to illustrate trends. And O’Keefe has a reader’s

gratitude for avoiding the fashionable practice of illustrating arguments in

this area with yet another example from Shakespeare’s Henry V.

There are also small errors of fact or implication in this historical

section. The later 12 Nuremberg trials were not military tribunals (p.89), asthe judges (all civilian), occupation zone officials, and federal courts back

home agreed. Alfred Rosenberg was not, as O’Keefe repeatedly implies

(pp.88–89, 336, 349, but see p.81), the only important Nazi convicted of

looting in the first Nuremberg trial. O’Keefe’s estimate of over a thousand

Germans sought for trial by the Allies after the First World War (p.44)

exceeds the conventional figure by a hundred and requires support.





O’Keefe’s historical survey, while far-ranging, can occasionally bemisleading. While thorough in describing Allied bombing of Italy

(pp.69–73) and its toll on cultural property, he is surprisingly cursory

about the most terrible theatre in the entire war, the Eastern Front, where

the genocidal war against Russians, Poles, and others, Jewish and non-

Jewish, very much involved the destruction of their cultural, religious,

and historic sites and objects. Add to this O’Keefe’s references to Jewish-

owned private collections (pp.62, 83) but not to the millions of non-

wealthy Jews whose synagogues or books or cemetries were destroyed;

his suggestion that German behaviour on the Southern and Western fronts

was largely acceptable (pp.79, 87), presumably excepting Jewish sites;

the non-judgmental passages about Field Marshal Kesselring (pp.76, 79),

condemned to death after a tolerably fair trial by a British military tribunal

and furtively given early release, as British historian Donald Bloxham

has shown; the anodyne description of the German destruction of Warsaw

that avoids associating it with the Ghetto uprising (p.82); and his hurried

conclusion that Nazi behaviour was “moral perversity” (p.62), no more,

and one leaves O’Keefe’s section on the Second World War with a sense

that it should have been edited one more time for tone at the least.

This reviewer would also have preferred a richer discussion of Alliedaerial bombing. O’Keefe rightly devotes time to this, given its importance,

relying on statements by Air Marshals Trenchard and Bomber Harris

and the writings of J.M. Spaight (pp.49–50, 62–68). These were leading

figures, but they ought to have been only the start of his inquiry. There

were divergent views even within British Bomber Command, between

Bomber and Fighter Commands, and certainly between them both and

some of the American commanders, whose planes, missions, and attitudes

were different. Equally, ever since Italian General Douhet had persuaded

strategists a generation earlier, it had been widely accepted that heavybombers would be the winning weapon in the looming next war. Many

commanders remained persuaded until the end of the war when strategic

bombing surveys showed otherwise, and General Curtis LeMay continued

to believe in heavy bombing during the Vietnam War. Game theorists, such

as George Quester, have mapped out what air commanders must have

intended, based not on their public statements (pp.65–67), but rather on

what they knew of and did in response to the other side’s behaviour, some

of it inadvertent or mistaken. Nor is it only Second World War bombing

that gets short shrift. O’Keefe has nothing to say about the Vietnam War,a remarkable omission given the tonnage of ordnance dropped and the toll

exacted on Buddhist sites; surely a monograph with three dozen references

(many of them reasonably balanced) to Israeli cases and General Assembly

condemnations thereof could devote a paragraph to the longest-running

war of the last 50 years and the enormous damage to cultural property. A

legal analysis of wartime bombing, one that seeks not only to document





what the military historians know (sorties and damage) but to bring whatwe lawyers can offer, an analysis of rules and norms, cannot rely so

heavily on a handful of theorists and commanders from World War II.

O’Keefe knows this, and at one point even curiously distinguishes between

UK policy and RAF policy (p.64), but a more developed discussion is

urgently needed about so important a topic as urban bombing.

The book might also have benefited from a discussion of medieval

canon law or canonists. To be sure, ordinarily one might be pleased at

the departure from the formulaic references to the Just War and Chivalry

traditions. But in this one area, cultural property, the canonists are highly

germane, having posited the immunity of the Church, its servants, and

church property relatively early. Of course the rules were frequently

ignored by barons or kings, occasionally by other churchmen, and during

the Reformation by iconoclastic protestants. The Renaissance fathers of

international law with whom O’Keefe begins were themselves part of a

context, and their rules about the deference to, if not full immunity of,

certain targets grew out of that medieval tradition of church protection in

ways that ought to have been discussed.

Lastly, O’Keefe might have devoted space to the European encounter

with indigenous peoples from the 16th to 19th centuries and its signif-icance for cultural property. To the white world, these encounters were

raids or trading missions or skirmishes and, soon enough, were upris-

ings by now-colonised subjects. They were rarely seen as international

armed conflicts, with rights on both sides. But that was only the white

view, made dogma by hindsight and the fact of conquest. To the Indian

or African or New World or Aboriginal peoples, these encounters when

violent were often wars, international armed conflicts if we must. Among

the many consequences of these encounters was the seizure and destruc-

tion of what are now recognised as indigenous cultural property, itemsthat today are occasionally made the subject of belated restitution (e.g.

the Native American Graves Protection and Repatriation Act, 25 U.S.C.S.

§3001 et seq.). The norms governing these encounters, while historically

only on the fringes of the Law of War tradition, surely require inclusion in

the evolving understandings of that body of law. Right now, the impetus

for such broadened scholarship comes not from international law schol-

ars, but from imaginative anthropologists and historians. Perhaps O’Keefe

could, in a later book, weave into his tale some of these asymmetric norms

from frontier and expansionist wars, one result of which was to stock themuseums and palaces of Europe.

Roger O’Keefe has written a superb book that will interest readers from

the scholarly and the museum, diplomatic, and military worlds. It is easily

the best book available today about cultural property in war. It is broad,

deep, and honest: he concludes for instance, with apparent regret, that the

destruction of the Bamiyan Buddhas was not illegal under international





law (pp.98–99, 339). To the degree that a few historical passages needsmoothing over, that can easily be done. Aside from that, we are all in

Dr O’Keefe’s debt.

JONATHAN A. BUSH.*

European Land Law. By PETER SPARKES. [Oxford: Hart Publishing. 2008.

634pp. Hardback: £55].

THIS is an original, important and wide-ranging book. Judged by its

cover, this book would appear to be addressing the question of the

feasibility or desirability of a uniform set of European land law rules.

Aside from, perhaps, Mattei’s Basic Principles of Property Law (2000)

or von Bar’s partial survey in Sachenrecht in Europa (2000), no such

exercise has been undertaken in recent times (though an addition to

the Ius Commune series by the same publisher is expected this year

on this very subject). As the author acknowledges, however, anyone

seeking to master the material in order to produce such a book faces

considerable practical difficulties. Aside from usual problems of language

and access to materials, there are also obvious conceptual differences (the

doctrine of estates, equitable interests, etc.) which can render comparisons

difficult. The author therefore contemplated, but ultimately rejected abroad comparative exercise (p.xii).

Technical difficulties aside, there has also been little practical demand

for comparative land law work. While the comparative law of contract

and torts has become a well-resourced and controversial industry kick-

started by the European Commission and Parliament, harmonisation of

substantive land law principles is a more remote prospect, and the practical

claims made for uniformity of private law are weakest in relation to land

(see, e.g. Bright and Bright, “Europe, the Nation State and Land” in

Bright and Dewar (eds), Modern Studies in Property Law (1998)). Theauthor himself finds it “unlikely that a substantive European land law will

emerge” (p.61). The author happily does not ignore that debate altogether

(see, e.g. pp.360–375, where he addresses the question of codification).

This is not, then, a comparative treatise on European principles relating

to land law, nor is it directly an investigation into the need for and

mechanics of harmonisation of land law. To that extent, the title does

not quite capture the substance of the book. Rather, the book’s primary

focus (Ch.1) is on the transactional law relating to transfers of land. This

falls into three broad categories: (1) European law on capital transferswhere the capital is in the shape of land; (2) the European regulatory

framework for contracts in so far as those contracts are for the disposition

of land; (3) conflicts rules applicable to land and contracts relating to

land. The author examines the formation, execution and enforcement of

* Washington DC.





land-related contracts. In so doing, the book illuminates areas of lawwhich English lawyers have had a tendency to overlook. It traces the

history of the regulation of capital movements, and more specifically

of land transactions, with a cross-border flavour (pp.23–25; also the

“momentous” decision in Konle v Austria (C-302/97 ) [1999] I E.C.R.

3099, discussed at p.26). It then considers a disparate range of legal

materials, the connecting factor between which is their specific impact

on parties to land transactions.

The author examines restrictions on acquisition of land by foreign

nationals (Ch.2). Thereafter, the author considers the question of conflicts

rules as they relate to land actions (Ch.4; conflicts rules relating to

contract and related actions are considered in Ch.10). He then turns to

the European regulation of marketing of land (Ch.5, which considers the

familiar European regulation of unfair contract terms, distance selling,

e-commerce, etc.) and the important but oft-overlooked regulation of

timeshares (Ch.6). There follows a chapter, “Conveyancing” (Ch.7),

which actually deals rather more with conveyancers, their qualifications

and regulation. The meat of the transactional side of land law is dealt

with in Ch.8, which deals with European contract regulations as they

affect contracts for the sale of land, and mortgages and debts includinginsolvency (Ch.9). Chapter 11 is perhaps more free-standing, dealing with,

amongst other matters, the European regulation of the law of trusts (an

area hitherto thought uniquely English, but which has nonetheless proven

susceptible to valuable comparative work) as well as family property

related matters including the proposed harmonisation of marriage, divorce

and family property (Rome III; the UK has opted out). The author’s case

for the importance of an understanding of the European dimension to

cross-border transactional law relating to land is compelling. His image

in the preface of “title deeds all over Europe” being reshuffled on a “giantMonopoly board” has a truthful ring to it, though the process is likely to

be a slower one than the image suggests. His book marshals such materials

as there are as expertly as is possible.

Although cross-border transactional aspects are in the foreground, the

author does not ignore the fact that European standards also play a part

in the internal working of national property systems. We have had a

recent reminder of this in the form of the decision of the Lands Tribunal

in Canary Riverside Pte Ltd v Schilling (LRX/65/2005). The author is

also alive to the impact of European legislation upon national legalsystems’ internal rules and standards, such as standards of fairness (see,

e.g. pp.347–354). Areas in which European law has infiltrated domestic

property law are dealt with chiefly in Ch.3 (“Towards a European Land

Law?”), in which the ostensible subject of this book—European land

law—is considered and rejected as a possibility. The author is right to

observe that the rules set out in Ch.3 have not “coalesced” into a coherent





body of property law. The rules are too scattered and too particular tofurnish the raw materials for a European land law. As of today, the author

is surely right that it cannot be argued with any realism that behind

this bulky but disparate collection of laws there hides a pan-European

conception of property awaiting discovery, as some have sought to argue

is the case so far as contracts are concerned (though the legitimacy

of the claim in relation to contracts is stronger (p.130)). To that one

might also add that the arguments for a uniform contract law do not

apply to land law with the same force. While there is at least a case

for harmonisation of contracts to enhance certainty and facilitate high-

volume, rapid trade between businesses or businesses and consumers, land

transactions ordinarily tend to be low-volume, slow, and will inevitably

involve the assistance of a local lawyer, through whom it is hoped that

the uncertainties of a foreign property law system will be mitigated. There

is presently no clear-cut “transaction costs” argument which justifies any

upheaval of settled principles of property law.

The question which remains open, however, is what the future will hold

for more limited harmonisation of specific areas of property law. There

appear to be two conceivable ways in which limited harmonisation of

parts of substantive property law might occur. First, there may be a needto look, not at property law as a whole, but at limited parts in isolation.

It may be that there is a “business case” for an optional European form

of real security or lease supplemental to national laws on the subject

(both areas are the subject of ongoing studies by the European University

Institute in Florence and the Common Core of European Private Law

Group (to name but two)).

Secondly, it may well be that the European contract project will have

consequential effects on aspects of the law of property. The underlying

premise of some of the work being carried out in relation to the Europeancontract project is that limited parts of national land law may not remain

unaffected, though the general trend in the literature has been to focus

only on movable property law, and to excluded immovables altogether (see

pp.367–372). It seems doubtful, however, that land law could be excluded

from a contract code altogether, were one ever to see the light of day.

The author is well aware of this potential for future development, though

in light of the uncertainties as to whether, and if so how, substantive

harmonisation of private law, or some part of it, might occur, he was

probably wise not to address such hypotheticals in detail. However it maywell be that the question will become sufficiently ripe to merit a chapter

in the next edition of this valuable volume.

OLIVER RADLEY-GARDNER.*

* Pembroke College, Oxford.





Buying Social Justice: Equality, Government Procurement, and LegalChange. By CHRISTOPHER McCRUDDEN. [Oxford: Oxford University

Press, 2007. lii + 680 pp. Paperback: £39.95].

IN Buying Social Justice: Equality, Government Procurement, and Legal

Change, Christopher McCrudden, Professor of Law at the University of

Oxford, continues and considerably extends his earlier well-received work

examining practices and governance of government procurement. It is

a lengthy book, covering over 600 pages in 18 chapters, chronicling

experiences from an admirably wide range of jurisdictions, not only

within Europe and North America, but also countries such as Malaysiaand South Africa. It is quite clearly the product of detailed and

painstaking research—both text-based and in some cases based on

interviews—across many aspects of the law and practice of government

procurement.

Large sections of the book are heavily descriptive, involving detailed

accounts of the content and evolution of government procurement

practices across the world. At its best, the descriptive content of the

book succeeds in conveying processes of legal evolution in their rich

historical and political context, and sensitively captures the deeperdynamics, as well as the ambiguities, of real-world experiences of different

government procurement regimes. Good examples include Chs 11 and

12, chronicling changes in procurement practice across a variety of

European jurisdictions from the 1990s onwards, which chronicle—the

account of the development of European corporate social responsibility

(CSR) initiatives is particularly striking for the way that it manages to

connect activities occurring in many different institutions across many

different levels of governance into a single story. The discussion in Ch.8

of OECD procurement reform efforts is also fascinating—the historicaland textual detail of this account will no doubt make it a useful

reference work for future interpretive work dealing with the WTO’s

Agreement on Government Procurement Agreement (GPA). Indeed, the

entire book works well as a reference text: the rich empirical detail

of each case study, as well as the sheer number of them, on their

own make this an important text for those interested in procurement

issues.

Not all descriptive passages, however, are equally successful. There are

some sections of Parts I and II which appear more as accumulations of facts than textured accounts of historical transformations. The material in

Chs 3 and 4 (especially when dealing with non-European contexts) too

often simply describes the content of important texts and their revisions.

Chapters 6 to 9 promise to chart the effects of the GPA model on its

members, but in the end the causal links between domestic change and

international agreements were not sufficiently spelled out, and the reader





was left with relatively unconnected accounts of change in procurementregimes in North America and elsewhere, and an account of the negoti-

ation and content of the GPA. More generally, it is hard to escape the

feeling that too great a proportion of the book consists of the recount-

ing of facts: the book would have been enriched by greater use of the

author’s own editorial voice, interrupting long discussions of the content

of texts and the progress of particular political debates with further criti-

cal reflection. The normative material set out in Ch.5, for example, could

have provided a strong foundation for criticism and reflection on some of

the more simplistic normative positions taken by actors within the kinds

of procurement debates described in subsequent chapters. In Ch.9, an

excellent discussion of Malaysia’s complex involvement in international

procurement negotiations prompts the reflection that “any theorizing about

the development of public procurement regulation [needs] to take into

account the development dimension in a way which accommodates this

complexity” (p.291). McCrudden is right, of course—but one cannot help

feeling disappointed that the reflection stops there, and that such theoris-

ing fails to eventuate from an author who is among the most qualified to

provide it.

There are also important arguments in the book which deserve furtherelaboration and exploration. In Ch.16 (at pp.522–531), McCrudden

takes on directly the claim that governments ought only to take into

account “economic” or “commercial” considerations in their procurement

decisions, and ought not to import “secondary” social concerns into

such decisions. In essence, his argument is a simple one: that social

concerns can be and sometimes are integrated into the very subject-

matter of the contract—that is to say, governments may choose to

purchase not “widgets” but “widgets made by a workforce drawn from the

unemployed”—and in such cases the rigid distinction between “economic”and “social” concerns is exposed as incoherent. This argument seems to

me to strike right at the heart of the matter. Debates about government

procurement are, in one aspect, about the proper behaviour of governments

as they enter markets as participants: should they act just as other market

participants act (that is, taking into account only “economic concerns”), or

should they be permitted to act on the basis of a broader set of concerns?

Such debates usually proceed on the basis of an unspoken model of how

“normal” market participants behave, and on the basis of an implicit set

of “economic” concerns which are presumed to guide such actors. Thesemodels, it should be added, are typically unrealistically narrow: is it really

true, for example, that the labour conditions in which a product is made

are (or should be) irrelevant to the purchasing decisions of the normal

market participant?

It follows, therefore, that debates over procurement are also about

defining and entrenching particular models of market behaviour more





generally, and establishing a narrow range of concerns to which marketparticipants ought to look, to guide their behaviour. By a process of mutual

constitution, therefore, debates about how governmental behaviour can

and ought to differ from private market behaviour tend to create and

disseminate images of what “normal” market behaviour looks like. Put

another way, public procurement becomes an arena in which struggles

over the redefinition and reconstitution of market behaviour are played

out. (Indeed, much the same can be said about the current anxieties

about sovereign wealth funds, which could be put alongside procurement

debates as another site in which such a struggle is occurring.) It is quite

clear that McCrudden understands this point—it is the logical extension

of the argument that he makes. But I would have preferred that it be

made more explicit, and its implications to penetrate more deeply into

the other sections of the book. Too often, in the remainder of the book,

McCrudden seems to deploy precisely the problematic distinction between

the “economic” and the “social” he so effectively undermines in Ch.16,

and thus obscures the contested nature of the line which divides one from

the other.

The final substantive Part of the book (other than the conclusion)

changes tack from the largely descriptive mode of much of the earlierchapters, and engages with detailed questions related to the interpretation

of particular provisions of international and European procurement law.

These are accomplished chapters, providing balanced and subtle analyses

both of the law and of the institutional contexts within which it is to

be applied. The typology of different conceptions of equal treatment in

Ch.16 (pp.512 et seq.) is particularly useful and clear. At the same time,

this Part could have done more than focus solely on questions of legal

interpretation. In its opening chapter, the book promises a reflection on

the role of law in the socio-political processes it describes. In the end,as the final chapter makes clear, the range of this reflection is narrowed

over the course of the book to three questions only: the extent to which

procurement linkages go beyond what is legally required, the extent to

which such linkages are legally permitted, and the extent to which law

facilitates such linkages (pp.574–575). This range of questions seems

unduly restricted, and does not seem to do justice to the rich empirical

material presented in earlier chapters, which could have formed the basis

for deeper reflection on (for example) the role of law in processes of

policy learning and diffusion, as a venue for political contestation, or asa vector of domestic institutional change.

There is to my knowledge no book on government procurement

practices which is as rich and comprehensive in descriptive detail, nor

which ranges over as many different jurisdictions as Buying Social Justice.

Even at that level, it is an interesting and informative read, and a useful

reference work for those wishing to pursue research in this area. Though





some readers may complain about the lack of a single thread tying theargument of the book together—and in a book of this length that is to some

extent inevitable—all will certainly find sections of great value within its

pages.

ANDREW LANG.*

Documents

The Law Quarterly Review July 2008, vol 124