England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBENI 96/0951/G

(MR JUSTICE COLLINS )

Royal Courts of Justice

Strand

London WC2

Tuesday 29 July 1997

B e f o r e:

THE MASTER OF THE ROLLS

(LORD WOOLF)

LORD JUSTICE HUTCHISON

LORD JUSTICE MUMMERY

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1. BRIAN ARTHUR TAYLOR

2. MARGARET TAYLOR

Plaintiffs

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1. RIBBY HALL LEISURE LIMITED

2. NORTH WEST LEISURE HOLDINGS LIMITED

Defendants

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(Transcript of the handed-down judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 831 3183

Official Shorthand Writers to the Court)

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MR A RANKIN QC and MR O C MCEWAN (Instructed by Messrs Banks Wilson, Preston PR1 8AN) appeared on behalf of the Appellant/2nd Plaintiff.

MR C LINDSAY QC and MR J NORMAN (Instructed by Messrs Barlow Lyde & Gilbert, London EC3A 7NJ) appeared on behalf of the Respondents/Defendants.

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J U D G M E N T

(As approved by the Court)

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©Crown Copyright

JUDGMENT

LORD JUSTICE MUMMERY: This is the Judgment of the Court. The appeal is concerned with a novel point on the combined effect of three fundamental judicial powers developed to protect and promote the integrity of the orders, officers and processes of the Court -

(1) The punitive contempt power, exercisable against anyone in breach of a Court order or undertaking to the Court;

(2) The disciplinary supervisory power, exercisable against officers of the Court, including solicitors of the Supreme Court;

(3) The protective procedural power, exercisable against litigants for the prevention of misuse of the Court's process.

All three powers are invoked on a motion in these proceedings for breach of contract initiated as long ago as the 16 December 1988 by Mr Brian Taylor (who has since died) and his wife Margaret Taylor against the defendant companies - Ribby Hall Leisure Ltd (RHL) and NorthWest Leisure Holdings Ltd (NWHL).

This appeal is against the order of Mr Justice Collins dated the 6 June 1996 striking out, as an abuse of process, Mrs Taylor's motion dated the 11 May 1995 against the Respondent, Mr Christopher Young, a solicitor of the Supreme Court, for orders for committal and for payment of compensation under the inherent and supervisory jurisdiction of the court. The basis of the motion is an alleged contempt of court by Mr Young in aiding and abetting breaches of an order against RHL and NWHL and in acting in breach of a personal undertaking given by him as a solicitor to the Court on the 27 June 1989.

Background Facts

In November 1978 Mr & Mrs Taylor bought Ribby Hall, Kirkham, Lancashire to develop as a leisure complex. They later transferred Ribby Hall to RHL, their creature company incorporated on the 17 June 1980. By 1987 the property had been substantially developed. On 7 November 1987 a conditional agreement was entered into for the sale of Mr & Mrs Taylor's shares in RHL to NWHL for £360,000. Disagreements arising out of the contract led Mr & Mrs Taylor to issue a writ on 16 December 1988 against RHL and NWHL claiming £160,000 and to apply for and obtain on 19 December 1988 from Mr Justice Macpherson an ex parte injunction restraining the disposal of Ribby Hall and of the shares in RHL. Mr Young came into the picture in his capacity as solicitor to RHL and NWHL with full knowledge of the order of 19 December 1988 and of later orders in the action.

On the 5 June 1989 the Mareva injunction was varied by Mr Justice Pill on the application of RHL and NWHL, supported by an affidavit sworn by Mr Young.A proviso was added to allow negotiations with a view to sale of the shares and the land. A Scottish company called Titaghar PLC was interested in acquiring the shares in NWHL from RHL. It is claimed that Mr Young attended at the hearing; that his affidavit was misleading in failing to make disclosure of relevant matters (see a proposed re-amendment of the motion dated 10 July 1996); and that he made no disclosure to the Taylors or to their advisors of the existence of agreements entered on 6 June 1989 by RHL and NWHL granting options to Shireview Limited to acquire Ribby Hall for £6.5m and to acquire 51% of the share capital in RHL. On the 27 June 1989 the action was compromised on terms contained in a Tomlin order made by Mr Justice Ian Kennedy, before whom there was listed for hearing an application by RHL and NWHL to discharge or vary the Mareva injunction. The Mareva injunction was discharged on agreed terms, including the following-

" AND UPON the solicitors for the Defendants Christopher Young & Co of 35 Hill Street, London W1 undertaking by Counsel that they will hold the first £850,000 to be realised from the sale or realisation of Ribby Hall or any part or the shares of the First Defendant owned by the Second Defendant (the Shares) or any of them, after payment of existing mortgagees lawfully entitled, to be paid to the Plaintiffs in accordance with the terms of the Schedule

AND UPON the Defendants and each of them whether by themselves or their officers servants agents or otherwise howsoever undertaking

(1) That upon any sale or realisation at Ribby Hall or any part or the Shares, howsoever arising, the Plaintiffs shall receive the first £850,000

(2) Not without the written consent of the Plaintiffs or by leave of the Court to sell or realise or otherwise deal with Ribby Hall or the Shares or any part thereof so as to realise a sum less than £850,000 after payment of existing lawful mortgagees resulting therefrom after payment of the existing mortgagees lawfully entitled."

On those undertakings the Mareva order of 19 December 1988,as varied, was discharged and all further proceedings in the action were stayed on the terms set out in the schedule. The scheduled terms provided that the Defendants agreed to pay to the Plaintiffs the sum of £850,000 in full and final settlement of all claims existing between them; that the Defendants agreed to seek to negotiate sale or realisation of Ribby Hall or the shares to Titaghur Plc to be completed as soon as practicable; that in default of agreement for sale or realisation to Titaghur Plc the Defendants agreed to seek to sell or realise Ribby Hall or the shares as soon as reasonably practicable; and the Defendants agreed forthwith to give instructions to the firm of Christopher Young & Co to act for them in the sale or realisation of Ribby Hall or the shares, such instructions not to be withdrawn without the leave of the Court. It was further agreed by the Defendants that on any sale or realisation of Ribby Hall or the shares, whether to Titaghur Plc or otherwise, the Plaintiffs should be entitled to receive the first £850,000 realised therefrom after payment of existing mortgagees lawfully entitled. "Sale or realisation" was defined to mean realisation of money or like benefit from any dealing with Ribby Hall or any part or the shares unless and until the £850,000 is paid to the Plaintiffs. Alleged breaches of those orders and undertakings implicating Mr Young form the basis of a motion for committal served on Mr Young on the 12 May 1995. The notice of motion, as amended on the 12 March 1996, sought an order that Mr Young be committed to prison and/or ordered to pay to Mrs Taylor and,if and so far as should seem appropriate, be ordered to pay to the trustee for the insolvent estate of Mr Taylor all or such part of the sum of £850,000 or such other sum as the Court should think fit as compensation under the inherent and supervisory jurisdiction of the Court over the conduct of the solicitors. The contempt of court alleged against Mr Young was in causing or aiding and abetting or failing to prevent breaches of the Order of the 19 December 1988, as varied on 5 June 1989,and of the undertakings given to the Court on the 27 June 1989 by RHL and NWHL; and in himself acting in breach of his personal undertaking to the Court embodied in the order of the 27 June 1989. It is contended that the Taylors relied on the undertaking and the integrity of Mr Young as a solicitor in consenting to the Tomlin Order; that they would not have agreed to it otherwise;that they altered their position accordingly; and that they should be fully compensated for the loss of the opportunity to re-assess and evaluate their prospects. Reliance is placed on a legal charge executed on 10 August 1989 by RHL charging Ribby Hall to Persimmon Homes (North West) Limited to secure repayment of £225,000 paid by Persimmon as a deposit under the terms of a conditional contract dated 10 August 1989 for the sale of Ribby Hall. It is claimed that the £225,000 was disposed of to a person other than the Taylors. Reliance is also placed on further charges over Ribby Hall to Shireview on 28 November 1989 to secure repayment by RHL of £1.1m. These transactions are alleged to have been carried out without the knowledge of the Taylors or their solicitors and to have constituted breaches of the undertakings and orders of which Mr Young had knowledge as solicitor for RHL and NWHL; yet he failed to inform the Taylors or their solicitors of these matters or to take adequate or continuing steps to prevent them from so acting or to advise RHL or NWHL against those steps or to ensure that they acted in accordance with their obligations.

The detailed grounds of the application are set out in the ensuing 23 paragraphs of the Notice of Motion dated 11 May 1995. The motion was supported by an 18 page affidavit sworn by Mr Taylor as long ago as 8 October 1991.There was also a 71 page affidavit sworn by Mr Rawkins, the Taylors' then solicitor, on 23 December 1994.The affidavits also related to other applications for the committal of directors, officers and agents of the two companies. In his affidavit Mr Taylor explained (paragraph 35) why these matters were not brought before the Court "until now." (October 1991). He referred to the debilitating effect of his terminal illness and to proposals for repayment. He stated that he was of the view that, failing fulfilment of certain promises, "proceedings must be commenced." The affidavit of Mr Rawkins also gave reasons for the " passage of time which has occurred between the discovery of the facts and matters giving rise to these applications and the present day" (paragraph 158): correspondence between the parties and their solicitors in 1989 and 1990; taking the advice of Mr Rawkins and of Junior and Leading Counsel (who all gave" very firm advice" in December 1990 that "applications of the kind now before the Court should be made without delay"); applying for and obtaining legal aid (Full Certificates issued on 30 January 1991);instructions from Mr Taylor not to proceed on account of the strain to his declining health and his continuing hope of repayment; and the complications following Mr Taylor's death in January 1992-legal aid problems and dealing with the creditors of his insolvent estate. The explanations for delay were updated in a 23 page affidavit sworn by Ms Webster on 9 May 1996, which also replied to Mr Young's affidavit.

On 6 October 1995 an application was issued on behalf of Mr Young for an order that the motion-

"be struck out and/or dismissed as an abuse of process."

Mr Young swore an affidavit in support of his application,denying that he committed any breach of undertaking or other offence, asserting that he had acted in good faith and stating that he wished to deal with the substantive matters in further evidence, if the motion proceeded to a full hearing. He dealt in detail with the changes in the positions of the parties concerned in the events in 1989, with the loss of, and the difficulties in obtaining, documentary evidence; with the problems of identifying, tracing and obtaining the recollections of witnesses; and with himself recollecting the events of 6 years earlier in the absence of full contemporaneous notes. Threats of contempt proceedings were made against him as long ago as December 1990, when he was informed by the Taylors' solicitors that he would be served in January 1991 with process invoking the summary jurisdiction of the Court for breach of the undertaking. The threats were repeated in 1992 and again in 1994. He had made his position clear. He had regarded the matter as "effectively closed" and he had heard nothing more until mid-1995. No reason for any delay could be laid at his door, whereas the Taylors and their advisors had blown "hot and cold " over a long period.The delay was of their making and was such that, at this distance, it was impossible for the Court to deal with the motion justly. Mr Young amplified the prejudice occasioned by the delay in paragraph 10 of his second affidavit (14 May 1996): unavailability of key witnesses; loss of recollection; difficulties and costs in preparing a proper response; problems in quantifying the compensation claimed; and increased costs caused by the delay.

THE JUDGMENT

The strike out motion was heard by Mr Justice Collins on the 16/17 May 1996. He made an order on the 6 June 1996 in the terms of the motion.

In brief, the reasons given by the judge for that order were that-

(1) There had been "inordinate" and "inexcusable" delay. Mr & Mrs Taylor had been aware since 1990 of the breaches relied upon to have Mr Young committed to prison and ordered to pay compensation. They had taken legal advice. They had made threats to start committal proceedings, but they had not issued the motion until May 1995. The excuses for the delay were unacceptable.

(2) Mr Young had been seriously prejudiced by the delay.

(3) Although there was a prima facie case that Mr Young was in breach of his undertaking in respect of the creation of two charges post- dating the Tomlin order, the damage which Mrs Taylor claimed she has suffered could not be shown to have flowed from those breaches. In other words, she would not derive any benefit from the motion as she would not be awarded any compensation by the court.

An award of compensation against Mr Young is crucial to Mr Taylor. Neither she or her husband's estate, which is being administered as an insolvent estate, have any chance of recovery from the defendants in the action who are alleged to have broken the orders. On the 7 January 1991 a winding up order was made against RHL and in the same year NWHL was struck off the Register of Companies.It no longer exists. Ribby Hall was sold in circumstances which produced no money for Mrs Taylor or for the estate of Mr Taylor who died after a long illness on 4 January 1992. Ribby Hall was subject to a legal charge to a Danish bank (the KD Bank) dated the 9 December 1987. The indebtedness was in the region of £2.7m. In June 1990 KD obtained an order for possession of Ribby Hall. It was sold for less than £1m. There was no equity for Mr or Mrs Taylor, even before account was taken of the 2 further charges created after the Tomlin Order in alleged breach of its terms. Those charges were, as already noted, the charge dated 10 (or 11 ) August 1989 to Persimmon Homes (NorthWest) Ltd for about £225,000 and, secondly, the charge dated the 28 November 1989 to Shireview Ltd to secure a loan of £1.1m. Shireview had also acquired an option on the 6 June 1989 to purchase the property for £6.5m, but that option was never exercised.

In these circumstances, Mrs Taylor's only hope of obtaining compensation is against Mr Young. If the judge is right on the issue of causation, there is no prospect of Mr Young being ordered on this motion to make any payment of compensation in respect of the alleged breaches of undertaking.

Appellant's Submissions

On the strike out application, the affidavit evidence filed was almost as voluminous as the evidence would be on the substantive motion. The main submission of Mr Rankin QC, on behalf of Mrs Taylor, was that there was no power to strike out, as an abuse of process, proceedings brought either under the contempt or under the supervisory jurisdiction of the court. There was no limitation period for initiating such proceedings. The power to strike out proceedings for want of prosecution on the ground of prejudice resulting from inordinate and inexcusable delay was not available in such a case. The basis of Mr Young's application was the delay in initiating the proceedings against him, for which there was no limitation period. This is different from the case of proceedings, properly brought within the prescribed limitation period, but not prosecuted in accordance with the rules. Nor was this a case of contumelious default in compliance with rules.

On the application to strike out the motion, so far as it relies on the supervisory jurisdiction, Mr Rankin made the following detailed submissions-

(1) Delays should never be a procedural bar to the investigation by the Court of serious misconduct by one of its own officers.

(2) The Court had a regulatory role over its own officers and different considerations apply to that role than apply in ordinary litigation between private parties.

(3) Solicitors, as officers of the court, occupy an important position of trust. They are expected to conform to higher standards of conduct than those applied by the law generally. There is a public interest in maintaining confidence in solicitors. That interest is not diminished in importance by the occurrence of delay in bringing the misconduct to the attention of the Court.

(4) The delay in this case was not of a kind which could have constituted inordinate or inexcusable delay for the purpose of striking out a case for want of prosecution, because it was of a pre-writ quality, occurring before the institution of the proceedings.

(5) The abuse of process power exercised by the court in criminal proceedings was not analogous to supervisory proceedings. Criminal proceedings affected matters between the State and its citizens. This is a distinct and special jurisdiction exercisable by the Court only over its own officers.

(6) The proper stage at which to consider delay and its consequences, such as prejudice, was at the full hearing of the motion. The Court could then exercise its discretion with regard to all the relevant factors to be weighed in the balance. The Court would be in a position to protect the defendant from any prejudice or injustice.

(7) The special power to award compensation did not put the solicitor in a position of an ordinary litigant who could rely on delay as a procedural bar to a full hearing. It would be quite wrong for the Court to allow one of its officers, against whom there was a powerful case of misconduct to answer, to go scot-free on a procedural ground without explanation or investigation of his conduct.

In brief, there was no misuse of process preventing the court from investigating Mr Young's conduct and from considering the imposition of sanctions, including an award of compensation.

Mr Rankin made additional detailed submissions on the facts of the case and on the decision of Mr Justice Collins. He submitted as follows-

(1) The judge had found a substantial prima facie case of serious misconduct on the part of Mr Young in relation to breach of the undertaking given by him as a solicitor. On its face there was a powerful case against him, which, if established, was capable of amounting to contempt. The judge added that he would have given leave to amend the motion to make an allegation against Mr Young of lodging a misleading and untrue affidavit.

(2) The Court ought to carry out a full investigation into Mr Young's conduct and order him to pay compensation for loss which Mrs Taylor had suffered as a result of his actions.

(3) If, contrary to the primary submission, delay caused the court to decline jurisdiction to investigate Mr Young's contempt and serious misconduct, the judge had wrongly adopted the approach applicable in want of prosecution cases, particularly in his references to inexcusable and serious delay and prejudice to Mr Young. The want of prosecution cases were distinguishable.The delay here had occurred prior to the issue of the motion.It could not have been relied on in a Birkett v.James case. There was no limitation period in proceedings of the present kind. The law had not restricted the time within which an application for contempt or under the supervisory jurisdiction could be brought.

(4) If the analogy with the inherent power of the court to regulate its own procedure were to be applied at all, it should only operate in exceptional cases.

(5) This was not an exceptional case. The delay relied on by the judge were not such as to prevent or prejudice a fair investigation by the Court into the issues raised by the alleged contempt and misconduct. If the delay had any adverse consequences for Mr Young, the court could address those during the course of the investigation in the substantive proceedings.

POWER STRIKE OUT

Our conclusion is that there is an inherent discretionary power in the court to strike out both contempt or supervisory proceedings as an abuse of process. The points made by Mr Rankin against the existence of such a power are more relevant to the proper exercise of the judicial discretion, which we shall consider later in this Judgment.

The absence of the limitation period for initiating a proceeding does not preclude the power to strike out for abuse of process. There may exist a legal right to initiate proceedings at any time, but the exercise of that right must nevertheless be subject to the overriding power of the court to protect the integrity of its own processes.

Support for this approach is to be found in the cases of abuse of process relating to delay in the initiation of criminal proceedings for offences for which no limitation period is prescribed.Such criminal proceedings are not, for that reason, exempt from regulation by the court. The court has a residual discretion to prevent use of the process in a way which is unfair to a party to the proceedings. The power is most commonly exercised where there has been a lapse of time between the commission of an offence and the trial. The aim of criminal procedure is to secure a fair trial in the interests of both sides. Where it is no longer possible to have a fair trial because of unjustifiable delay, the court may exercise an exceptional power to stop the case. The power to stay a pending prosecution is very sparingly exercised.It is exercisable in a case where there has been such delay since the commission of the offence in instituting the proceedings that a fair trial is no longer possible. The longer the delay, the greater the risk of prejudice to a fair trial.

The proper approach to the exercise of this exceptional jurisdiction is explained by Lord Mustill in George Tan Soon Gin -v- Judge Cameron [1992] 2 AC 205 at 225.The question is-

"whether, in all the circumstances, the situation created by the delay is such as to make it an unfair employment of the powers of the court any longer to hold the defendant to account. This is a question to be considered in the round......"

This formulation of abuse of process in criminal proceedings is relevant to the contempt and supervisory powers of the court. Unlike most civil proceedings, contempt and supervisory proceedings are not subject to any limitation period ( as to contempt see Bray -v- Stuart A West & Co New Law Journal Law Reports 2 June 1989 Warner J ). The principal purpose of both the contempt power and criminal proceedings is punitive. Their aim is to secure obedience to the law and to punish a person who has acted in breach of the law. A breach of a court order or of an undertaking to the court or aiding and abetting such a breach is a very serious matter. In the exercise of its jurisdiction the court may impose either a sentence of imprisonment or a fine.

The supervisory power over solicitors is also stands comparison with criminal proceedings. The power is essentially a summary disciplinary one exercised by the court over its own officers to ensure their observance of an honourable standard of conduct and to punish derelictions of duty. The Court has the necessary powers of enforcement which extend, unlike the contempt power (cf Midland Marts Limited -v- Hobday [1989] 1 WLR 1134 at 1145C) to the payment of compensation for loss suffered in consequence of misconduct of a solicitor in failing to implement an undertaking given to the court. The award of compensation is not, however, dependent on an enforceable civil law right on the part of the person who has suffered loss: Re HA Grey [1992] 2 QB 440 at 443. Compensation is only available under this jurisdiction where the conduct of the solicitor is inexcusable and such as to merit reproof: Udall -v- Capri Lighting Ltd [1988] 1 QB 907 at 917 D,where Balcombe L.J. summarises the relevant principles and procedures.

The discretionary nature of the jurisdiction should be emphasised: See Myers -v- Elman [1948] A.C.282 at 318. The discretion extends both to procedure and substantive relief. It is flexible and unfettered by any absolute rules and is to be exercised according to the facts of the particular case.

In these circumstances it is relevant to consider, on a strike out application, the prospects of the Court exercising this exceptional power at the substantive hearing to grant coercive or compensatory relief. While lapse of time does not always provide a complete answer to a claim for breach of an undertaking ( Re Swan (1846) 15 L.J.Q.B. 402) it is a different matter when the circumstances of the particular case are such that the court is unlikely to exercise that power. In the exercise of the discretion the public interest is,of course,a factor to be taken into account. There is a real public interest in the maintenance and observance of honourable standards of conduct by officers of the court,in the efficient administration of justice and in compliance with court orders and undertakings. In Re: Manlon Tracking Ltd [1996] CH 136 169 the court regarded the public interest in relation to proceedings for the disqualification of directors as a consideration relevant to its discretion on an application to strike out for want of prosecution. The weight to be attached to public interest factors will depend on the facts of the particular case.

DISCRETION

Mr Rankin's submissions were made with force and clarity, but have not persuaded us that the judge was wrong to strike out the motion.

Our conclusions are as follows:-

(1) The court may exercise its discretion to strike out proceedings as an abuse of process, even though they are for contempt of court or invoke the supervisory power of a Court over its own officers.

(2) As the exercise of the power to strike out is discretionary this court will only interfere with the judge's exercise of discretion if there was an error of principle in the exercise of discretion or if the decision was plainly wrong.

(3) The judge took full and careful account of all the relevant factors; the length of the delay, the reasons for it, the special nature of the jurisdiction and the public interest.

(4) He was entitled to conclude that there was an abuse of the process in bringing the motion:there had been long and inexcusable delay and there was a genuine risk of prejudice to Mr Young. In those circumstances it would be an abuse of process for the motion to proceed to a substantive hearing, as there is no real prospect of the court exercising its discretion to grant the relief sought on the motion, either by way of committal or compensation.

In our judgment it is, in general, preferable to make submissions on delay, prejudice, potential injustice and other factors relevant to the Court's discretion in its contempt and supervisory powers at the substantive hearing rather than by a preliminary pre-emptive move to strike out. That procedure may be open to the objection that it increases the costs and delay that preliminary procedures are intended to avoid.

We add for future guidance that proceedings of this kind should, in the absence of a good reason, be initiated within a reasonable time of a party obtaining knowledge of a breach of a court order or undertaking or other misconduct. In most cases the Court is dependent on a party bringing a breach or a case of misconduct to its notice so that appropriate action can be taken.

In this case it was known as early as March 1990 that circumstances had occurred giving rise to a possible breach. By the end of January 1991 legal aid was available to take action, but no action was taken for over 4 years. No good reason has been advanced for failure to act at a much earlier stage. A deliberate decision had been taken not to proceed earlier, while the Taylors were attempting to improve their position by other means. To allow the motion now to proceed to a full hearing would serve no useful purpose, as it has no real prospect of success and would inflict serious prejudice on Mr Young without either serving the aspects of the public interest protected by the three judicial powers identified at the outset of this Judgment or conferring any real benefit on Mrs Taylor.

For all those reasons this appeal is dismissed.

ORDER: Appeal dismissed. Order for costs pursuant to Section 18 of the Legal Aid Act (nil contribution). Legal Aid Taxation of Plaintiffs' costs.