England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE HART)

		Royal Courts of Justice Strand, London, WC2A 2LL
		10 February 2004

Lord Justice Chadwick :

1. This is an appeal from an order made on 28 February 2003 by Mr Justice Hart in proceedings brought by the appellant, a prisoner now serving a life sentence at Her Majesty's Prison, Full Sutton, against the governor of that prison and the Secretary of State for the Home Department, as the minister responsible for the Prison Service. The question raised by the appeal is whether the effect of rule 43(3) of the Prison Rules 1999 (SI 1999/728) is to impose a trust on monies paid into an account under the control of the governor pursuant to that rule.
2. It is accepted on behalf of the appellant that, in the present case, the monies which would be subject to a trust (if any) imposed by that rule are not large. Nevertheless, given the size of the prison population, the aggregate amount of what may be described as "prisoners' monies" – including monies within rule 43(3) – is substantial. The amount of prisoners' monies shown in the audited financial accounts of the Prison Service for the year ended 31 March 2003 is £4.7 million or thereabouts (2002 - £5.1m). The proceedings have been brought on the basis that the point is of importance to prisoners generally; and it was on that basis that permission to appeal was granted by this Court (Lord Justice Carnwath) on 22 July 2003.

The regulatory framework

3. Section 47(1) of the Prisons Act 1952 empowers the Secretary of State to make rules for the regulation and management of prisons and for the treatment and control of persons required to be detained therein. The Prison Rules 1999 are made under that power. Rule 43(3) is in these terms:

"43(3) Any cash which a prisoner has at a prison shall be paid into an account under the control of the governor and the prisoner shall be credited with the amount in the books of the prison."

4. Rule 43(3) of the 1999 Rules must be read in conjunction with rules 43(2), (4) and(5), which provide for a different treatment of property other than cash:

"43(2) Anything, other than cash, which a prisoner has at a prison and which he is not allowed to retain for his own use shall be taken into the governor's custody. An inventory of a prisoner's property shall be kept, and he shall be required to sign it, after having a proper opportunity to see that it is correct.

(3) . . .

(4) Any article belonging to a prisoner which remains unclaimed for a period of more than 3 years after he leaves prison, or dies, may be sold or otherwise disposed of; and the net proceeds of any sale shall be paid to the National Association for the Care and Resettlement of Offenders, for its general purposes.

(5) The governor may confiscate any unauthorised article found in the possession of a prisoner after his reception into prison, or concealed or deposited anywhere within a prison."

5. It is pertinent, also, to have in mind the provisions of rule 44, which govern the treatment of money and articles sent to a prisoner through the post:

"44(1) Any money or other article (other than a letter or other communication) sent to a convicted prisoner through the post office shall be dealt with in accordance with this rule, and the prisoner shall be informed of the manner in which it is dealt with.

(2) Any cash shall, at the discretion of the governor, be –

(a) dealt with in accordance with rule 43(3);

(b) returned to the sender; or

(c) in a case where the sender's name and address are not known, paid to the National Association for the Care and Resettlement of Offenders, for its general purposes:

Provided that in relation to a prisoner committed to prison in default of payment of any sum of money, the prisoner shall be informed of the receipt of the cash and, unless he objects to its being so applied, it shall be applied in or towards the satisfaction of the amount due from him.

(3) Any security for money shall, at the discretion of the governor, be –

(a) delivered to the prisoner or placed with his property at the prison;

(b) returned to the sender; or

(c) encashed and the cash dealt with in accordance with paragraph (2).

(4) Any other article to which this rule applies shall, at the discretion of the governor, be –

(a) delivered to the prisoner or placed with his property at the prison;

(b) returned to the sender; or

(c) in a case where the sender's name and address are not known or the article is of such a nature that it would be unreasonable to return it, sold or otherwise disposed of, and the net proceeds of any sale applied in accordance with paragraph (2)."

6. The Prison Rules 1999 revoked and re-enacted the Prison Rules 1964 (SI 1964/388) as amended over the years from 1968 to 1998. Rules 43(3) and 44(2), (3) and (4) of the 1999 Rules were formerly enacted as the corresponding paragraphs of rules 41 and 42 in the 1964 Rules.

Restriction of access to cash

7. It is common ground that the power conferred by the 1952 Act enabled the Secretary of State to make rules in relation to the property which prisoners may have with them in prison; and, in particular, in relation to the retention of, and the restriction of access to, cash. The need for control in relation to the use of cash and the means to make payments is explained by Mrs Irena Scaife, the finance manager employed at HMP Full Sutton, in a witness statement dated 29 January 2003:

"11. Inmates are not allowed to have cash or the means to make payments to other inmates. There is a concern that if inmates could make payments to each [other] these payments might be used for illicit purposes, bullying or other behaviour not in accord with the good order and discipline of the prison."

8. Subject to that restriction, however, a prisoner retains control over monies which are not brought into the prison. In particular, a prisoner can open, maintain and operate a bank or building society account; although there are checks in place which are intended to ensure that payments are not being made from that account for purposes which, in the context of the good order and discipline of the prison, are judged unacceptable. The position is described by Mrs Scaife in the following paragraphs of her witness statement:

"3. There is no requirement for approval by a Governor 1 or any staff at HMP Full Sutton for an inmate to open a bank or building society account.

. . .

7. Further, inmates who have a bank or building society account when they arrive at HMP Full Sutton, or who open one while at HMP Full Sutton, are allowed to manage their accounts.

. . .

10. An inmate is not allowed to keep a cheque book or savings account passbook in his own possession in his cell. Such documents are kept in the cashier's office. . . .

. . .

12. An inmate may send a cheque from the prison drawn on a bank or building society account. . . ."

9. Although a prisoner is not allowed to have cash in his possession while in prison there are arrangements which enable him to earn money from work and to spend that money (and, within limits, other money) within the prison itself. Arrangements which enable prisoners to spend the money which they earn are required by rule 8(1) of the 1999 Rules:

"There shall be established at every prison systems of privileges approved by the Secretary of State and appropriate to the classes of prisoners there, which shall include arrangements under which money earned by prisoners in prison may be spent by them within the prison".

The position at HMP Full Sutton is described by Mrs Scaife at paragraph 8 of her witness statement:

"8. Limits are imposed on how much money an inmate should have at his disposal for his own private daily use and enjoyment at any one time. An inmate is allowed to have for such use only the money he receives for work carried out at the prison each week – his earnings – and also an additional sum from monies he has in his private cash account . . ."

The private cash account

10. The "private cash account" to which Mrs Scaife refers in that paragraph is an account maintained in the prisoner's name in the books of the prison. The purpose of the private cash account is to hold to his credit cash which has been brought into the prison but which is not freely available for the prisoner's own use. Again, the position is described by Mrs Scaife in her witness statement:

"9. Money not available for an inmate's private use and enjoyment are held . . . in his private cash account and cannot be used for his own private daily use and enjoyment. There is no limit to the amount which an inmate can have to his credit in a private cash account."

11. Subject to checks intended to ensure that such payments are not made for purposes which, in the context of the good order and discipline of the prison, are unacceptable, a prisoner may use the amount standing to the credit of his private cash account to make payments outside the prison – including the transfer of that amount to a bank or building society account in his name. As Mrs Scaife explains:

"12. . . . An inmate may also ask for a cheque to be sent by the prison drawn on his credit . . . , exceptionally, in his private cash account. Monies paid from an inmate's private cash account should not be intended for his own daily private use and enjoyment."

12. As I have said, the purpose of the private cash account is to hold cash which has been brought into the prison but which is not freely available for the prisoner's own use. Cash which is to be credited to a prisoner's private cash account will comprise (i) cash which was in his possession when he was first admitted to the prison (or which subsequently comes into his possession), (ii) cash which is brought in by his visitors, (iii) cash sent to him through the post and (iv) cash which arises from the encashment of any security for money – or which is the proceeds of sale of any other article – sent to him through the post. Authority to apply cash from those sources to the credit of the prisoner's private cash account in the books of the prison is provided by rules 43(3) and 44(2), (3) and (4) of the 1999 Rules, to which I have already referred. Effect is given to those rules by non-statutory administrative instructions issued within the prison service.

Prison Service Instruction 79/97

13. The administrative instructions in force – at the date when the 1999 Rules were made and for the purposes of this appeal – are contained in Prison Service Instruction 79/97 issued on 27 November 1997. The purpose of the instruction was to set out "revised arrangements for prisoners' access to private cash". In that context "private cash" is defined as "money (cash cheques or postal orders) credited in the prison books and kept for prisoners while they are in custody" – paragraph 5. Paragraphs 6 and 7 of PSI 79/97 set out the underlying principles:

"6. MANDATORY: Prisoners may not keep cash with them while they are in prison and accounts are to be maintained on their behalf.

7. MANDATORY: Prisoners will be allowed to spend whatever they can earn from purposeful activity but access to private cash will be capped according to the weekly limits set by the level of the incentive scheme they are on. . . . "

14. Prisoners are able to "spend" money within the prison through a computer based recording system – the Prisoners Income and Expenditure System ("PIES") - maintained by each establishment. The amount which a prisoner can spend at any given time is the amount standing to the credit of his "spend account" within that system. As indicated in paragraph 7 of PSI 79/97, earnings may be transferred to the spend account without restriction – save that the amount which can be earned is itself restricted by the privilege status which the prisoner enjoys. The cap on access to private cash is enforced by restricting transfers from the private cash account to the spend account. The details, which are set out in PSI 79/97, are not material in the present context. What is material is that, subject to the checks to which I have already referred, money can be transferred from the private cash account maintained within the prison to the prisoner's own bank or building society account. That is made clear at paragraph 12 of Mrs Scaife's witness statement (to which I have already referred); and at paragraph 7 of the witness statement of Mrs Elizabeth Prior, a manager in the Prison Service with responsibility for prisoners' rights, where she states: "He [the prisoner] may also be allowed to transfer money standing to the credit of his account with the prison to outside sources (such as his own private bank account) . . ." .

Banking prisoners' monies

15. At paragraph 8 of her witness statement Mrs Prior explains that: "In practice, what happens when a prisoner hands money to the Governor pursuant to rule 43(3) is that it is paid into the general bank account of the establishment at which he is held". The governor does not open a separate bank account in respect of each prisoner. As Mrs Prior points out: "the administrative time and cost of doing so would be prohibitive, relative to the amounts of money involved". The internal accounting treatment is described at paragraph 9 of that witness statement: "These amounts, held pursuant to rule 43(3), are shown in a suspense account, separately from the establishment's general resources from public funds".
16. The use of a suspense account to record prisoners' private cash is authorised, within the prison service, by section 13.3 of Prison Service Order 7500. Mrs Prior explains, at paragraph 9 of her witness statement, that PSO 7500 was issued in November 1998, and reissued in June 2002, "with the intention of providing a standard authority for the Prison Service on financial management and accounting procedure". Paragraph 13.3.1 emphasises the underlying rule that prisoners must not be allowed to hold cash while in custody. Cash brought into the prison must be taken from the prisoner and recorded on PIES. Paragraph 13.3.2 requires that all monies taken from prisoners by the reception officer are passed to the cashier at the end of each day for banking. Similar provisions apply where money is received by post or brought in by a visitor (paragraph 13.3.2 (g), (i) and (j)). It is plain that there is no administrative requirement to keep the monies of one prisoner physically separate from the monies of another; or to maintain separate bank accounts in respect of individual prisoners. What there is, of course, is a requirement to credit the monies of each prisoner to a separate account (or accounts) in his name in the internal books of the prison (or within PIES); and a requirement to reconcile the total of all monies standing to the credit of prisoners' accounts to the amount held in a suspense account.
17. As I have said, it appears from Mrs Prior's witness statement that prisoners' monies passed to the cashier for banking are banked in the general bank account of the prison. Not only are there no separate bank accounts maintained in respect of individual prisoners; there is no separate account for prisoners' monies. In practice prisoners' monies are mixed with public monies in the same bank account.
18. Prima facie, at least, this treatment of prisoners' monies appears inconsistent with the guidelines issued by HM Treasury in a publication "Government Accounting 2000" – see, in particular, paragraph 28.5.19:

"Only public money should be paid into a public bank account and money should not be drawn from it except to meet payments properly chargeable to the account. . . ."

The guidelines require that balances of cleared funds in public bank accounts should be minimised; in particular, government departments should not agree to maintain balances on public bank accounts in return for reduced bank charges. Where cleared balances are held, the department should negotiate for the payment of interest; but interest received in respect of monies held in public bank accounts must be surrendered to the Consolidated Fund. Paragraph 28.5.30 of Government Accounting 2000 is in these terms:

"Any non-public monies managed by departments (for example where they hold private sector monies in trust while ownership is being resolved) should not be held in public bank accounts and a standing balance may be appropriate. This may be particularly so where the private sector monies cannot be debited to cover associated banking costs."

19. Mrs Prior acknowledges, at paragraph 18 of her witness statement, that "the Prison Service's practice of paying prisoners' monies into its own group account may be in breach of the requirements of Government Accounting". The same acknowledgement can be found at paragraph 18 of a witness statement made some three years earlier by one of her predecessors in post, Mr Richard Pickering, in proceedings brought by another prisoner, Mr Kenneth Harding, against the Home Office. Mr Pickering stated then that the Home Office was reviewing its practice in this respect. Mrs Prior goes further. She explains that the Prison Service has consulted with HM Treasury "to secure dispensation allowing it to continue with its current practice for the handling of non-exchequer monies on the grounds of efficiency, economy and effectiveness." A year has passed since that witness statement was made. Counsel for the Home Office was unable to tell us the outcome of such consultation as has taken place.
20. The effect of the practice which Mrs Prior describes is that there is no separate interest bearing bank account in which the governor of an individual prison, or the Prison Service generally, holds prisoners' monies. Further, very little interest (relative to the amounts involved) is earned on monies (including prisoners' monies) in the bank accounts which are maintained by individual prisons or by the Prison Service generally. By way of illustration, Mrs Prior points out that for the period April to December 2002 the Prison Service earned bank interest of £992.70 on a turnover of £1,548 million. The amount of that interest which could be attributed to prisoners' monies would be negligible. And, as she also points out, "the Home Office does not even keep that interest, as it is paid into the Consolidated Fund." Nevertheless, as she acknowledges, the practice needs to be addressed internally: it has the effect, as she puts it, that "the money received from prisoners and paid into the Prison Service's group account with [Royal Bank of Scotland] indirectly reduces, to a modest extent, the amount which needs to be drawn from the Prison Service's [own account at the office of the Paymaster General] each day in order to maintain that [RBS] account at nil". But, if that practice is objectionable, it can be the subject of a public law challenge. It is not open to challenge in these proceedings.

These proceedings

21. These proceedings were commenced by the issue of a claim form (under CPR Part 8) in the Liverpool County Court on 23 November 2001 seeking determination of the question "whether, upon the true construction of rules 43 and 44 [of the 1999 Rules] and in the events which have happened all sums of money (a) that the Claimant has had at prison or (b) that have been sent to the Claimant through the Post Office or (c) that result from the encashment of securities for money and sent to the Claimant since about 30 April 1999 and held by [the Home Office or the governor] pursuant to the said Rules . . ." have been and are held upon trust for the claimant. The significance of the date, 30 April 1999, is that it was on that date that the claimant was transferred to HMP Full Sutton.
22. The obligation imposed by the trust – as asserted in the claim form - was to pay those monies, or assets representing those monies, to the claimant upon his release from prison; and, in the meantime, "to invest the same under the provisions of the Trustee Investments Act 1961 alternatively the Trustee Act 2000"; but with power to pay sums out of those monies to the claimant "in accordance with the privilege systems established under rule 8 of the 1999 Rules". On the basis that a trust could be established, the claim sought an inquiry as to the interest or income which could have been earned by investment of the monies subject to the trust "but for the wilful default of the defendants or either of them in not investing the same in an interest bearing bank or building society account . . ."; alternatively, an account of profits made by the employment of the monies "in the course of the business of the Defendants or either of them as trustees". On 28 February 2002 the proceedings were transferred to the High Court.

The judge's reasons

23. The proceedings came before Mr Justice Hart on 30 January 2003. By an order made on 28 February 2003 he dismissed the claim. He did so for the reasons set out in a written judgment, [2003] EWHC 361(Ch), handed down on that day and now reported at [2003] 2 All ER 678. After identifying the central question in issue - "does Rule 43(3) impose a trust on the governor" - he went on to say this, at paragraphs 18 to 22 of his judgment ([2003] 2 All ER 678, 687):

"18. . . . Assuming for the sake of argument that the relationship envisaged by Rule 43(3) must be regarded as either a debtor/creditor or a trustee/beneficiary relationship, the argument for the former relies on the words "the prisoner shall be credited with the amount in the books of the prison", and the argument for the latter relies on the words ". . . shall be paid into an account under the control of the governor".

19. [Counsel for the claimant] submitted that it was a necessary implication of the requirement that the cash be paid into such an account that a trust was created in relation to the cash. He shrank from saying that the governor was obliged to open (or control) a separate account for each prisoner. Rather he suggested, the governor's obligation was to have, or control, an account in which the cash of his prisoners would be mixed and to which resort might be had whenever a prisoner "spent" money within the prison, or asked for reimbursement when leaving prison. The critical feature of the account was, he submitted, that it was intended to be separate from any account used by the prison for its own expenditure.

20. That seems to me to involve getting far more out of a few words than can sensibly be done. Furthermore, even if the sub-Rule does posit such a collective account as the nature of the account in contemplation, it is not clear to me why such an account should be assumed to be an interest-bearing account. The assumption that it is an interest bearing account can only be derived from the proposition that a trust to "invest" is implied.

21. If the draftsman of the rules had intended to create a trust, with a concomitant obligation to "invest", it would be relatively easy to say so. The language is, however, otherwise. The cash has simply to be "paid" into the account, and then "the prisoner shall be credited with the amount in the books of the prison". To the extent to which these words seek to create a relationship in private law it is clearly the relationship of debtor and creditor.

22. The requirement that the cash be paid into an account is simply there, in my judgment, because completeness and good order require that something be said about what is to happen to the cash. Rather than direct, as in the case of the prisoner's other property – see Rule 43(2) – that it simply be taken into the governor's custody, the provision is that it be paid into an account under his control. The prisoner loses his rights to the notes or coins thus taken from him in a way in which he does not lose his rights to his other property. For his right to "own" that cash, there is substituted a monetary credit. It may incidentally be noted that in relation to "securities for money" (see Rule 44(3)) amongst the options given to the governor are either to place them with the prisoner's property at the prison, or to encash them and deal with the cash under Rule 44(2) and thence under Rule 43(3). These are set out as apparently equivalent modes of treatment. This seems to me to emphasise how very far from the draftsman's mind was any thought that the purpose of Rule 43(3) was to impose a trust to invest cash on the prisoner's behalf in an interest bearing account."

24. The judge addressed rule 43(3) of the 1999 Rules on the assumption, as he makes clear at paragraph 18 of his judgment, that its effect could be analysed by reference to the familiar private law relationships of debtor/creditor or trustee/beneficiary. It had been submitted to him, on behalf of the defendants, that the relationship between the Prison Service (and the governor) and the prisoners in respect of prisoners' money is not amenable to analysis in terms of private law concepts. The judge recognised that the obligations of the Prison Service (and of the governor) in respect of prisoners' money might exist only in public law; but he found it unnecessary to decide the point. It was enough, as he observed, that the claimant had failed to make good his contention that rule 43(3) imposed a trust in the private law sense.

Did the judge adopt the correct approach?

25. It is common ground that, under English law, a convicted prisoner, in spite of his imprisonment, retains all civil rights which are not taken away expressly or by necessary implication. If authority be needed, it is found in the speech of Lord Wilberforce (with whom the other members of the House of Lords agreed) in Raymond v Honey [1983] AC 1, 10G. In his judgment in R v Secretary of State for the Home Department, Ex parte Simms and another [1999] QB 349, Lord Justice Judge observed (ibid, 367H) that "the starting point is to assume that a civil right is preserved unless it has been expressly removed or its loss is an inevitable consequence of lawful detention in custody". That that is the correct approach was recognised by Lord Steyn on the appeal in that case - [2000] 2 AC 115, 120H.
26. It is said on behalf of the appellant that, on reception into prison and subject to the implementation of rule 43(3) of the 1999 Rules, a prisoner has legal and beneficial ownership of the cash – that is to say, the currency notes or coins – then in his possession. Prima facie, at least, that is correct. It is said that the effect of rule 43(3) is to deprive the prisoner of his legal ownership of the cash. But it is submitted that there is nothing in rule 43(3) – either expressly or by necessary implication – which deprives the prisoner of his beneficial ownership of the cash. So, it is submitted, his beneficial ownership must persist in equity, notwithstanding the implementation of rule 43(3), and can be followed into the chose in action which arises when the cash is banked in an account under the control of the governor. Effect is given in equity to the prisoner's continuing beneficial ownership in the cash by treating the governor as trustee of the debt owed to him by the bank – or, to put the point another way, as trustee of the balance on the account. It was submitted that the judge had: "approached the question from the wrong direction. What he should have asked himself is whether there is anything in sub-rule 43(3) which (in contrast to eg sub-rule 43(2)) requires the prisoner to be deprived of the beneficial ownership of his property".
27. The fallacy upon which that submission is based was exposed by Lord Browne-Wilkinson (with whom Lord Slynn of Hadley and Lord Lloyd of Berwick agreed) in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669. The bank's claim was for repayment of monies paid to the local authority in 1987 pursuant to an interest swap agreement which – following the decision in Hazell v Hammersmith and Fulham London Borough Council [1992] 2 AC 1 – was accepted to have been ultra vires the local authority. It was submitted on behalf of the bank that, since the bank only intended to part with its beneficial ownership of the monies in performance of a valid contract, neither the legal nor the equitable title passed to the local authority at the date of payment. It was accepted that the legal title to the monies vested in the local authority by operation of law when the monies were mixed in its bank account; but it was said that, nevertheless, the bank had retained its equitable title. Lord Browne-Wilkinson rejected that submission. At [1996] AC 669, 706E-F, he said this:

"I think this argument is fallacious. A person solely entitled to the full beneficial ownership of money or property, both at law and in equity, does not enjoy an equitable interest in that property. The legal title carries with it all rights. Unless and until there is a separation of the legal and equitable estates, there is no separate equitable title. Therefore to talk of the bank "retaining" its equitable interest is meaningless. The only question is whether the circumstances under which the money was paid were such as, in equity, to impose a trust on the local authority. If so, an equitable interest arose for the first time under that trust."

28. The relevant question, therefore, is not whether rule 43(3) of the 1999 Rules is intended to deprive the prisoner of an existing equitable interest in the notes and coins which are taken from him on reception into prison. There was no existing equitable interest. The legal title carried with it all rights of ownership, both legal and beneficial. The relevant question is whether the circumstances under which the notes and coins were taken from the prisoner pursuant to rule 43(3) were such as, in equity, to impose a trust on the governor, or on the Prison Service. The approach of the judge to the issue which he had to decide was correct; he was right to identify the central question in the terms which he did.

Possession and ownership

29. In order to address that question it is, I think, pertinent to have in mind that rule 43 of the 1999 Rules is as much about possession as it is about ownership. In particular – contrary to the submission made on behalf of the appellant - rule 43(2) is all about possession and not at all about ownership. The effect of that rule is to require that a prisoner is deprived of possession of chattels without being deprived of ownership. If that rule is to be analysed by reference to private law concepts, the chattels are transferred into the custody of the governor by way of bailment. The treatment of unauthorised articles found in the possession of a prisoner after reception into prison reflects the same approach. The articles may be confiscated by the governor under rule 43(5) – so that the prisoner is deprived of possession - but there is nothing to suggest that the prisoner is thereby deprived of ownership. Deprivation of ownership is authorised only by rule 43(4) – which provides that any article "belonging to a prisoner which remains unclaimed for a period of more than three years after he leaves prison, or dies" may be sold and the proceeds of sale paid to NACRO for its general purposes.
30. Rule 43(3) of the 1999 Rules requires that the prisoner is deprived of the possession of the notes and coins which he has on reception into the prison. And, as the evidence shows, that is what happens – see paragraph 6 of PSI 79/97 and paragraph 13.3.3(a) of PSO 7500. Plainly, rule 43(3) is intended to - and, as implemented, does - deprive the prisoner of a civil right which he would otherwise have; namely, the right to possess notes and coins. No complaint is made about that. As I have said, it is accepted that it was a proper exercise of the power conferred by section 47(1) of the 1952 Act to regulate prisoners in relation to the retention of, and the restriction of access to, cash in prison. But notes and coins, although property in the nature of a chattel and capable of being owned, are fungibles; and have the particular feature that, in a case where the transferor was himself the full legal and beneficial owner, ownership (or title) to the notes or coins passes with possession – save, perhaps, where there is some clear intention to treat the notes and coins as non-fungible. And, in that context, there is no distinction between legal and beneficial ownership of the notes or coins. Cash deposited with another as banker is neither the subject of a bailment at law nor of a trust in equity.
31. It is, to my mind, reasonably clear that it is those particular features of cash – fungibility and the identity of possession and ownership – that has led to the difference in treatment under rules 43(2) and (3). It would have been possible to provide that the notes and coins taken from a prisoner on reception into prison be kept in an individual sealed bag, to be returned to the prisoner on discharge. In such a case there would be a bailment; ownership of the notes and coins would not pass to the prison authorities. But, plainly, that was not the intention of the rule-maker. The purpose of rule 43(3) is to transfer possession and ownership of the cash together, in the ordinary way. This is, in effect, acknowledged by the appellant who accepts that legal ownership of the notes and coins does pass to the prison authorities when the cash is taken from the prisoner on reception. But, as I have said, the passing of ownership carries with it both legal and beneficial rights unless there is something in the circumstances which should lead equity to impose a trust.
32. Cash credited to a prisoner's private cash account is not confined to cash which was in his possession when he was first admitted to prison (or which subsequently comes into his possession); it will include, also, cash which is brought into the prison by his visitors, cash sent to him through the post and cash which arise from the encashment of any security for money – or which is the proceeds of sale of any other article – sent to him through the post. The effect of rule 44(2) of the 1999 Rules, is to require that cash sent to a prisoner through the post does not come into his possession; and that requirement is implemented by the procedure described at paragraph 13.3.3(d) and (g) of PSO 7500. Similarly, cash brought into the prison by a visitor is taken by the prison authorities before it comes into the possession of the prisoner – paragraph 13.3.3(f) of PSO 7500. But cash from those sources does come into the possession of the governor; and, at the discretion of the governor, may be dealt with under rule 43(3) as if it were cash which had been in the possession of the prisoner. If the governor does decide to deal with cash from those sources in accordance with rule 43(3), ownership passes with possession. And, in these cases, also, the passing of ownership carries with it both legal and beneficial rights unless there is something in the circumstances which should lead equity to impose a trust.

Whether there is anything in the circumstances which should lead equity to impose a trust?

33. In my view there is nothing in the language of rule 43(3) of the 1999 Rules – or, more generally, in the circumstances in which cash is taken from a prisoner under that rule or dealt with under that rule pursuant to rule 44(2) – which should lead to the imposition of a trust on the monies when they come into the hands of the governor. There is no distinction, in this respect, between the period while the monies remain cash (whether or not mixed with cash taken from other prisoners on the same day) and the period after the monies have been paid into a bank account (when the relevant asset is the credit balance, if any, on that account).
34. I reach that conclusion for reasons which differ little (if at all) from those which attracted the judge. First, it seems to me impossible to find any clear intention to impose a trust in the language of rule 43(3) itself. The requirement that the cash "shall be paid into an account under the control of the governor" is, I think, essentially of an administrative nature. Given the object which underlies the rule – that is to say, the need to control a prisoner's access to cash within the prison – the choice is to require all prisoners' monies to be kept in a safe or strong room, or to require the monies to be paid into a bank account. There are obvious reasons for choosing the latter. Given the relatively small amounts of cash which are likely to be in the possession of each prisoner on reception into prison, the administrative costs of opening separate accounts in the name, and under the control, of each prisoner would be disproportionate. It would, perhaps, have been open to the rule maker to provide that cash taken from a prisoner be paid into an existing bank account in his name, if there were such an account. But not every prisoner will have an existing bank account in his name; and, as the evidence shows, a prisoner can transfer monies taken from him on reception – or received through the post or brought into the prison by his visitors - and credited to his private cash account within PIES to an existing (or newly opened) external account in his own name. There are, as it seems to me, obvious administrative reasons for providing, by rule 43(3), that the monies be paid into an account under the control of the governor. The rule itself, to my mind, sheds no light on the question whether the monies standing to the credit of that account are to be held upon a trust.
35. Second, the requirement in rule 43(3) that "the prisoner shall be credited with the amount in the books of the prison" – read with knowledge of the provisions in PSI 79/97 and PSO 7500 (which must have been in the mind of the rule maker when the 1999 Rules were made) – points to the relationship being that of banker/customer rather than that of trustee/beneficiary. The problem, as explained in the evidence, is how to give prisoners spending power within the prison – having regard, in particular, to the need to implement a system of privileges imposed by rule 8 – without allowing access to cash. That problem is met, under the provisions in PSI 79/97 and through PIES, by an internal prison credit system which may fairly be regarded as analogous to the provision of limited banking services. In that limited context the prison does have a role as banker to the prisoners detained within it. And it is trite law that the relationship between banker and customer is that of debtor/creditor, not that of trustee/beneficiary – see Joachimson v Swiss Bank Corporation [1921] 3 KB 110, 127.
36. Third, there is no reason to construe rule 43(3) of the 1999 Rules so as to imply a trust which has not been expressed. The construction for which the appellant contends would bring him little, if any, practical benefit, while imposing a disproportionate administrative burden on prison authorities who (on this hypothesis) would be subjected to the obligations of trusteeship. Notwithstanding the terms in which relief was sought in the claim form, the appellant accepted before the judge and in this Court that the obligation to invest, if monies were held for him in trust, did not extend beyond the placing of those monies on an interest bearing account. But the right to repayment (on discharge) from an interest bearing account with a commercial banker, which the governor holds on trust, is not said to be of more value to the prisoner than the right to be paid by the prison service the amount standing to the credit of his private cash account. It is not suggested that there is any credit risk if the prison service, rather than a commercial banker, is the debtor. Nor is it suggested that the prisoner does not need frequent access, on demand, to funds within PIES so that he can make purchases in prison; nor that that need could be met more conveniently through the medium of a trust than by the internal banking services provided under PSI 79/97. And any balance on his private cash account which is in excess of that need can be transferred to his own bank or building society account. So the prisoner is not denied the opportunity to earn interest on surplus funds. It is, as I have said, difficult to see any need, in practice, for a trustee/beneficiary relationship; or any reason to imply into rule 43(3) of the 1999 Rules words which the rule maker has not used.
37. Fourth, it is now accepted that rule 43(3) should not be construed so as to require the payment of monies into separate bank accounts in respect of each prisoner. It is said that the trust obligation imposed by the rule would be met if the monies taken from each prisoner were paid into a single account for each prison in which all prisoners' monies were mixed. And, of course, it is said that that is what the guidance in Government Accounting 2000 requires. But the guidance in Government Accounting 2000 requires separation of public monies from non-public monies – for reasons relating to bank charges which are explained - and is equally applicable whether or not the non-public monies are held on trust, as paragraph 28.5.30 makes clear. The difficulty which the appellant's submissions do not address is that if the rule maker had intended to impose a trust obligation in respect of prisoners' funds generally – an obligation to be met by keeping those funds in a single mixed account – it would have been easy for him to say so. And, because that would be a departure from the more usual obligation imposed on a trustee – to keep the trust monies separate not only from his own monies but also from the monies of others for whom he is trustee – the rule maker might have been expected to say so. It would, of course, be possible to impose a trust on prisoners' monies generally; with powers and obligations as to investment and liquidity which were to be exercised in the interests of prisoner beneficiaries generally rather than in the interests of any individual beneficiary – compare the Solicitors' Accounts Rules 1998, Part C – but there is nothing in rule 43(3), or elsewhere, which suggests that the rule maker had that in mind.

Conclusion

38. I would dismiss this appeal.

Keene LJ:

39. I agree. I also agree with the judgment of Peter Gibson LJ, which I have read in draft.

Peter Gibson L.J.:

40. I also agree that this appeal must be dismissed. I add a few words of my own in deference to the careful arguments of Mr. Smith Q.C. for the Appellant and Mr. Crow for the Respondents.
41. Mr. Smith's primary argument was that on the natural interpretation of r. 43 (3) of the Prison Rules 1999 the required payment of cash, which a prisoner has at a prison, into an account under the control of the governor creates a trust of that money of which the governor is a trustee. He sought to derive assistance from Lewin on Trusts 17^th ed. (2000) para. 1-01 where the editors cite with approval Art. 2 of the Convention on the Law Applicable to Trusts and on their Recognition:

"For the purposes of this Convention, the term "trust" refers to the legal relationship created – inter vivos or on death – by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose.

A trust has the following characteristics –

(a) the assets constitute a separate fund and are not a part of the trustee's own estate;

(b) title to the trust assets stands in the name of the trustee or in the name of another person on behalf of the trustee;

(c) the trustee has the power and the duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him by law."

42. But that begs the question whether the prisoner has placed the cash under the control of a trustee for the prisoner's benefit when the cash is paid into an account under the control of the governor. Mr. Crow rightly drew attention to the absence from r. 43 (3) of any words of trust. Mr. Smith said that there was a duty on the governor to put the cash into a separate account, but no duty to put it into an account separate from the account into which another prisoner's cash is put. R. 43 (3) is silent on that point, and in the absence of express authorisation to the contrary a trustee would normally have to keep trust monies separate not only from his own monies but also from other monies which the trustee holds for other beneficiaries. Mr. Smith further submitted that the governor as trustee had a duty to invest the cash paid into the account under his control. Again there is no indication in r. 43 (3) of such a duty.
43. On the other hand, r. 43 (3) refers to the prisoner being credited in the books of the prison with the amount of cash paid into the account. That suggests a creditor/debtor relationship between the prisoner and the governor. That also accords with the legal analysis that the payment of cash into an account with another does not reserve to the payer the beneficial interest in the money: it transfers the legal and beneficial ownership of the money but gives the payer the right to a corresponding credit. It also accords with the common sense of the factual situation. I find it impossible to believe that the legislature intended that the governor should owe fiduciary duties as trustee to each prisoner whose cash is paid into an account under his control, such duties including a duty to invest the trust monies and to give separate consideration to the needs and circumstances of each prisoner in respect of small amounts of cash.
44. Mr. Smith further argued that to treat the prisoner as losing the beneficial interest in his cash amounted to a disproportionate interference with the prisoner's human rights under Art. 1 of the First Protocol to the European Convention on Human Rights. I am not able to agree. I am prepared to accept that r. 43 (3) is an interference with the prisoner's rights to his possessions, but it is to my mind a justified and proportionate interference, given (i) the obvious undesirability of prisoners holding cash while in prison, (ii) the fact that the prisoner is entitled a credit corresponding to the cash paid into the account under the governor's control, and (iii) the ability of the prisoner to cause the transfer of credit to his own bank or building society account.
45. In my judgment the judge reached the right decision for the reasons which he gave. He did not find it necessary to deal with the argument of the Respondents that r. 43 (3) only gave rise to a public law relationship, namely a "trust in the higher sense", to use the language of Sir Robert Megarry V.-C. in Tito v Waddell (No. 2) [1977] Ch. 106 at pp. 211 – 219. Although by a Respondent's Notice the Respondents take that point again, we also have not found it necessary to consider that argument for the purpose of deciding this appeal.
46. For these reasons as well as the reasons given by Chadwick L.J. I would dismiss this appeal.
Order: Appeal dismissed; pursuant to section 11 of the Access to Justice Act 1999 the appellant will be ordered to pay the respondent's costs of the appeal (the amount of such costs are greater than nil), not to exceed the amount (if any) which is a reasonable one for the appellant to pay having regard to the matters referred to in subsection (1) of section 11 of the 1999 Act, to be determined by the costs judge on a detailed assessment if not agreed; assessment of the appellant's public-funded costs. (Order does not form part of the approved judgment)