England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(Mr Justice Lloyd)

		Royal Courts of Justice Strand London WC2
		14th November 2001

1. LORD JUSTICE WARD: Jonathan Parker LJ will give the first judgment.
2. LORD JUSTICE JONATHAN PARKER: This is an appeal by Mr Philip Kirk, the defendant in the action, against an order made by Lloyd J on 2 February 2001 dismissing his appeal against an order made by His Honour Judge Knight QC, sitting in the Central London County Court, on 15th August 2000. By the latter order Judge Knight QC acceded to an application by Legal & General Assurance Ltd, the claimant in the action, to strike out paragraphs 17A to 17L inclusive of the appellant's Amended Defence and Counterclaim. Permission to appeal to this court was initially refused on the papers by Robert Walker LJ but was granted by Aldous and Rix LJJ on a renewed application by way of oral hearing.
3. The appellant appears on this appeal by Mr Witold Pawlak of counsel (who appeared before Lloyd J but not before Judge Knight QC); the respondent appears by Mr Nigel Jones QC and Mr Peter Kirby of counsel. Mr Jones QC did not appear below. Mr Kirby appeared both before Lloyd J and before Judge Knight QC.
4. Prior to the termination of his employment by notice dated 31 July 1990, the appellant was employed by the respondent as a financial consultant, under the terms of a Financial Consultancy Services Agency Agreement made between them and dated 30 May 1989 ("the Agreement"). In October 1990 the respondent demanded payment by the appellant of approximately £7,500 as being monies allegedly due to it from the appellant under the terms of the Agreement. Payment was not made, and on 24 January 1991 the respondent issued the writ in the present action claiming a sum of £7,826.32. By his Defence and Counterclaim, which was served in or about December 1992, the appellant denied that he owed the respondent any sum and counterclaimed for sums allegedly due to him from the respondent representing commission which he had earned.
5. In 1996, following the instruction of Mr Pawlak as counsel for Mr Kirk, the Defence and Counterclaim was amended. A large number of amendments were made, but, as already noted, the appeal relates only to paragraphs 17A to 17L inclusive of the amended pleading. In summary, these paragraphs claim damages against the respondent for breach of an alleged duty of care in making false and negligent statements to the effect that the appellant owed it money (referred as to an "industry debt"), on the footing that such statements had the effect of preventing the appellant from obtaining other employment as a salesman of life assurance and other financial products, thereby causing him loss and damage.
6. The respondent applied to strike out the paragraphs in question under rule 3.4 of the Civil Procedure Rules, on the footing that they disclose no reasonable grounds for a claim; alternatively it sought summary judgment in its favour in relation to those paragraphs under Part 24 of the Civil Procedure Rules.
7. Judge Knight QC acceded to that application, and his decision was upheld on appeal by Lloyd J. Hence the appellant's appeal to this court. By a Respondent's Notice dated 19 July 2001 the respondent seeks to uphold the decision of Lloyd J on an additional ground, the nature of which will appear.
8. I turn next to the paragraphs in question: paragraphs 17A-17L of the Amended Defence and Counterclaim.
9. The pleaded basis for the existence of a duty of care is the allegation (in paragraph 17H) that at all material times the appellant knew or ought to have known that any assertion by the respondent that the appellant was indebted to it (that is to say that he owed it an "industry debt") would inevitably prevent or damage the appellant's prospects of obtaining other employment as a salesman of life assurance or other financial products in the United Kingdom. In support of this allegation, the appellant pleads (in paragraph 17D) that from September 1991 onwards the rules of the Life Assurance and Unit Trust Organisation ("LAUTRO") and of its successor, the Personal Investment Authority ("PIA"), required (among other things) that before appointing a person as a company representative or appointed representative a member should receive appropriate references; that a member asked for a reference should provide a reference making full and frank disclosure of all relevant matters which the member had reasonable grounds for believing to be true; and that a member should not appoint any person as a company or appointed representative unless the member was satisfied on reasonable grounds that the person in question did not owe an "industry debt" in excess of £1,000. It is further pleaded (in paragraph (d) of the Particulars of loss and damage pleaded under paragraph 17L) that although prior to September 1991 those rules were not in force, nevertheless

"... the intentions of LAUTRO were well known and by virtue of the contention of the [respondent] that the [appellant] owed in aggregate [to] the [respondent] more than £1,000, the [appellant] would not have obtained an appointment or employment in the financial services industry whether before or after September 1991."

10. Paragraph 17I is in the following terms (so far as material):

"In all the circumstances, the [respondent] ... owed to the [appellant] a duty of care in tort, alternatively assumed a responsibility to him to the like effect, in the preparation and provision of any reference or of any statement relating thereto, to exercise all due skill and care to ensure that any such reference or statement or material was fair and not misleading about the [appellant]."

11. Paragraph 17K alleges that the respondent's statement that the appellant owed it an "industry debt" was false and was made negligently, and constituted a breach of the respondent's duty of care.
12. Paragraph 17L contains particulars of the loss and damage which it is alleged to have resulted from the respondent's breach of duty. Paragraph (a) of the particulars pleads that in 1991 the respondent obtained judgment in default and presented a bankruptcy petition against the appellant based on that judgment, but that the judgment was subsequently set aside. Paragraph (b) pleads that in 1990 an associate company of the respondent repossessed the appellant's home due to his inability to keep up the mortgage repayments. Paragraph (c) reads as follows:

"In or about October 1990 the [appellant] applied to Norwich Union which required completion of an application form disclosing, inter alia, whether the [appellant] had ever been the subject of a Court judgment for an outstanding debt, whether the [appellant] had ever been declared bankrupt or was subject of any such proceedings and whether he had any outstanding debt with an insurance company which remained unpaid. In the circumstances the [appellant] was unable to continue with his application in view of the fact that he would inevitably be rejected."

13. Paragraph (d) of the Particulars I have already referred to. The remaining paragraphs of the Particulars (paragraphs (e) to (h)) plead damage to the appellant's prospects of future earnings, expenditure which he would otherwise not have incurred, and that he has been deprived of the opportunity to make pension contributions.
14. It is of significance, in the context of the arguments which have been addressed to us on this appeal, to note that the appellant does not found his pleaded case for damages on any reference given by the respondent or on any statement made by the respondent to any third party. In fact, as is common ground, the only reference which the respondent gave concerning the appellant was a reference to a company called Sherwood Financial Services ("Sherwood") which it gave in about January 1991 - that is to say some four months after the appellant's approach to Norwich Union referred to in paragraph (c) of the Particulars of loss and damage. In the event, Sherwood employed the appellant. However, the appellant asserts that because of the respondent's assertion of an "industry debt" he cannot act as a salesman of life assurance and other financial products, and that his responsibilities with Sherwood are accordingly limited to the less lucrative area of general insurance business.
15. I can now turn to the judgments below.
16. According to the agreed note of his judgment which is before us, Judge Knight QC struck out the paragraphs in question because in his judgment they were "based on an application [i.e. a reference] which was never made and never would be made". Thus, Judge Knight QC plainly regarded the making of a statement, or the giving of a reference, to a third party as an essential element of any cause of action based on the assertion of an "industry debt". Lloyd J took essentially the same view. After noting the decision of the House of Lords in Spring v Guardian Assurance Plc [1995] 2 AC 296 to the effect that an employer giving a reference in respect of a former employee owes the former employee a duty to take reasonable care in its preparation, Lloyd J continued:

"I have to consider, as it seems to me, whether the judge is right in saying that in essence this claim, which seeks to go one step further - Mr Kirkby would say several steps further - from Spring to a case in which a reference is not in fact given or asked for but it is known by virtue of what is said between the parties themselves what would be said to a third party, that that gives rise, at least arguably, to a duty of care so that the matter should be allowed to go to trial.

Having considered the matter with the benefit of the citation of authority to some of which I have referred, and with the benefit of counsel's admirably succinct submissions, I am of the same view as Judge Knight. It seem to me that Mr Pawlak is seeking to extend the law as regards liability for negligent statements in a way which is simply not permissible. So far as statements between the parties are concerned, it seems to me that [the respondent] no doubt owed [the appellant] duties to try to get the position right, and certainly owed him duties as regards the accounting and so on, and if it does owe him money then it clearly owes him a duty to account for that money. But it seems to me impossible and inarguable to say that ... it owes him such a duty of care as is alleged in making an assertion or a statement to him following the termination of the relationship, that he owes them a certain amount of money. I do not accept that it even arguably owes a duty to him as regards his reliance, in a sense, on that statement, not for its accuracy, because of course he has always disputed its accuracy, but his reliance on it in not applying to another life company or other financial services company for appointment as an appointed or company representative. That seems to me to be an untenable contention and therefore I think Judge Knight was right to strike out those paragraphs of the counterclaim and I would therefore dismiss the appeal."

17. I turn next to the arguments on this appeal.
18. Mr Pawlak contends, as he contended before Lloyd J, that on the facts pleaded the appellant has a cause of action for negligent misstatement, by virtue of the application of the principles established in Hedley Byrne & Co Ltd v Heller & Partners [1964] AC 465. He submits that in identifying a duty of care in relation to the preparation of a reference for a former employee the Court of Appeal in Spring was doing no more than applying Hedley Byrne. In support of this submission he relies on the speech of Lord Goff in Spring. He also relies on passages from the speeches of Lords Bridge, Roskill and Oliver of Aylmerton in Caparo Industries Plc v Dickman [1990] 2 AC 605 in which they discuss the concept of a "relationship of proximity" in the context of the tort of negligence. At page 633 D, Lord Oliver concludes that "proximity" is in that context:

"...not a definable concept but merely a description of circumstances from which, pragmatically, the courts conclude that a duty of care exists".

19. See also page 633 F, where Lord Oliver said:

"... for my part, I think that it has to be recognised that to search for any single formula which will serve as a general test of liability is to pursue a will-o'-the wisp."

20. Mr Pawlak stresses that in the peculiar circumstances of the instant case there is no need for there to be an actual reference provided by the employer to another member of LAUTRO.
21. He further submits that the absence of any request to the respondent to provide a reference to the Norwich Union is irrelevant to the success of the appellant's claim.
22. He submits that on the facts pleaded there can be no doubt that the respondent's assertion of an "industry debt" would have prevented the appellant from obtaining any appointment in the financial services industry; that if the respondent's claim in the action is defeated that assertion will have been shown to be false; and that the issue whether the assertion was made negligently is one which can only be resolved at a trial.
23. Mr Pawlak submits that for the appellant's claim for damages for negligent misstatement to succeed it is not necessary to demonstrate that a particular reference containing the misstatement was supplied to a particular potential employer and had the result that that particular employer refused employment or an appointment which it would otherwise have given to the prospective employee or appointee. He accepts that the appellant must prove on the balance of probabilities that he would have applied for a post as a company representative or appointed representative had he been free to do so, without facing the insuperable hurdle of the respondent's assertion of an "industry debt". However, he submits that on the admitted facts it is highly unlikely that a court would conclude that he would not have applied for such a post had the respondent's assertion not been made. He submits that the appellant relied upon the assertion in the sense identified by Lloyd J in the passage from his judgment which I have just read, namely that he relied on it in the sense that in consequence of it he forebore to make any application for a reference in the knowledge that the reference would inevitably have led to his rejection as a candidate for an appointment.
24. Mr Pawlak also seeks to rely on Article 1 of Protocol 1 to the European Convention on Human Rights ("the Protocol"). This was not an argument which was raised before Lloyd J, but no objection was taken by Mr Jones QC to this argument being raised on the appeal and accordingly we allowed Mr Pawlak to raise it.
25. Article 1 of the Protocol is in the following terms:

"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest to secure the payment of taxes or other contributions or penalties."

26. Mr Pawlak submits that the relevant "possession" of the appellant is his right to trade as a company or appointed representative. In support of the submission he relies on Pudas v Sweden (1987) 10 EHRR 380 and Tre Traktorer Aktiebolag v Sweden (1989) 13 EHRR 309.
27. In Pudas the applicant complained to the Commission, and subsequently to the European Court of Human Rights, that a licence granted to him by a public authority to drive taxis on certain specified routes had been wrongly revoked. He alleged primarily a breach of Article 6(1) of the Convention (the right to a fair trial), but he also alleged a breach of Article 1 of the Protocol. The Commission found that the revocation of the licence breached Article 6(1) but it declared the alternative complaint of a breach of Article 1 of the Protocol to be inadmissible and accordingly did not consider it. The Court took the same view as the Commission. Hence in that case the issue under Article 1 of the Protocol was not considered either by the Commission or by the Court. In Traktorer the applicant complained of the wrongful revocation of a licence granted by a public authority to sell alcoholic beverages at a restaurant, alleging a breach of Article 1 of the Protocol. The Commission concluded that the applicant's economic interests in running the restaurant were "possessions" for the purposes of the Article, but that the revocation of the licence was justified under the second paragraph of the Article quoted earlier. The Court reached the same conclusion, taking the view that:

"... the economic interests connected with the running of [the restaurant] were `possessions' for the purposes of Article 1 of the Protocol." (See paragraph 53 of the Court's judgment.)

28. Mr Pawlak submits that, by analogy, the appellant's economic interests in being free to seek employment as an insurance salesman also constitute "possessions" for that purpose. He further submits that the conduct of the respondent in, in effect, preventing the appellant from obtaining the employment as company representative or appointed representative effectively deprived the appellant of the peaceful enjoyment of those possessions. He submits that to leave the appellant without a remedy would, in the circumstances pleaded, be incompatible with the appellant's Convention right, and consequently unlawful by virtue of section 6(1) of the Human Rights Act 1998.
29. In his helpful written skeleton argument Mr Jones QC points out that at the hearing before Judge Knight QC the appellant's case was presented on the basis that the duty of care relied on was a duty owed to the appellant by the respondent in respect of statements made to third parties: it was not contended at that stage that liability extended to statements made to the appellant himself. That contention was raised for the first time by Mr Pawlak before Lloyd J. Mr Jones submits that in any event the contention is contrary to principle.
30. Mr Jones accepts (as he must) that, on the authority of the House of Lords' decision in Spring, a duty of care exists on the part of a former employer in preparing a reference for a former employee, and that that duty is owed to the former employee as the subject-matter of the reference (as distinct from the duty of care established by Hedley Byrne, which is owed to the recipient of the negligent reference). But he submits that the instant case does not fall within the principle established by Spring in that (as already noted) the appellant's pleaded case is not based on the giving of any reference by the respondent. Rather, what is pleaded is that if a reference had been sought from the respondent in connection with an application by the appellant for the post of company representative or appointed representative, the reference would have led inevitably to the appellant's application being rejected. That, submits Mr Jones, does not bring the case within the principle established in Spring. Equally, submits Mr Jones, the instant case does not fall within Hedley Byrne principles, since the appellant is not the actual or prospective recipient of a reference but rather the prospective subject-matter of a reference.
31. Mr Jones further submits (and this is the additional ground raised by the Respondent's Notice to which I referred earlier) that for Hedley Byrne principles to apply there must have been reliance on the negligent misstatement, causing loss to the claimant. He points out that in the instant case that element is missing, since, far from relying on the respondent's assertion that he owes it money, the appellant has throughout disputed that assertion. Mr Jones submits that a mere assertion by the respondent that the appellant is indebted to it, which assertion is disputed by the appellant, cannot possibly found a claim in negligent misstatement.
32. Mr Jones further submits that until a reference is given it is impossible to be certain as to what it will say, and in particular whether and in what respect it may be unfair or misleading; and that in consequence it cannot be predicated with any certainty whether a reference given by the respondent would have led to the rejection of the appellant's application.
33. As to Mr Pawlak's new argument based on Article 1 of the Protocol, Mr Jones submits that the argument is misconceived. He submits that the instant case is distinguishable from a case in which a public authority grants a licence to conduct a trading activity. In the instant case, he points out, no public authority is involved and no licence of any sort has been granted. In the instant case the courts are simply concerned to determine private law rights and obligations.
34. I can now state my conclusions. I turn first to negligent misstatement.
35. In my judgment Lloyd J was correct to reject Mr Pawlak's submission that the appellant's pleaded case based on negligent misstatement gives rise to a cause of action by virtue of the application of established Hedley Byrne principles. True it is that in Spring Lord Goff, who was one of the majority (the only dissenting speech being that of Lord Keith) rested his decision in that case on established Hedley Byrne principles, but Lord Slynn and Lord Woolf plainly regarded the decision as involving an extension of the common law so as to recognise a duty of care owed to the subject-matter of a reference, in addition to the duty of care owed to the recipient of the reference (as in Hedley Byrne). Moreover, as Lord Goff pointed out (at page 317A in Spring) it had not been argued by the appellant in Spring that the case could be determined merely by the application of established Hedley Byrne principles.
36. In any event, I also agree with Lloyd J that the appellant's pleaded case in relation to negligent misstatement involves an extension of the principle established in Spring to cover a situation in which no negligent reference has in fact been given. So even if the decision in Spring is, as Lord Goff suggested, no more than an application of Hedley Byrne principles, for the claim in the instant case to succeed a further step is required.
37. In Spring a reference was given (and was relied on by the recipient of the reference) and the damage that resulted there- from was damage suffered by the subject-matter of the reference. In the instant case, as already pointed out, no reference has been given. Hence no reliance on any reference; and hence no damage resulting from such reliance.
38. In my judgment, therefore, neither Hedley Byrne nor Spring provides any basis for the submission that the facts pleaded in the paragraphs in question, if established, give rise to a cause of action for negligent misstatement. It follows that, since no other cause of action is suggested, that the paragraphs in question disclose in my judgment no cause of action.
39. I turn then to Article 1 of the Protocol.
40. As to Mr Pawlak's new argument based on Article 1 of the Protocol, I accept Mr Jones' submission in his skeleton argument that Mr Pawlak's argument is misconceived.
41. In my judgment, the instant case is clearly distinguishable from a case in which a public authority has granted a licence to carry on a particular trade. One can readily see why, in such a case, the economic interests which derive from the grant of such a licence may fall to be treated as, in effect, rights of property. But that element is not present in the instant case. Accordingly I cannot accept that the appellant's right to seek a particular type of employment (assuming such a right can be said to exist) can constitute a "possession" within the meaning of the Article.
42. As Mr Jones rightly submits, the instant case involve no more than the determination of private law rights, and no Convention right is in my judgment engaged.
43. In the result it follows, in my judgment, that as the law stands the case pleaded in paragraphs 17A-L of the appellant's Amended Defence and Counterclaim is bound to fail; that Judge Knight QC was right to strike those paragraphs out; and that Lloyd J was right to dismiss the appellant's appeal from Judge Knight QC's decision.
44. I would accordingly dismiss this appeal.
45. MR JUSTICE HARRISON: I agree.
46. LORD JUSTICE WARD: I also agree.
Order: Appeal dismissed. Order as minuted by counsel.