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 CHANCERY DIVISION
SIR ANDREW MORRITT (THE CHANCELLOR OF THE HIGH COURT OF JUSTICE)

		Royal Courts of Justice Strand London, WC2
		7th June 2006

1. LADY JUSTICE ARDEN: This is an appeal from the order of Sir Andrew Morritt, Chancellor dated 25 October 2005. The Chancellor came to the conclusion, which on the face of it is surprising, that a consent order discharging a receivership made by Henriques J on 23 January 2003 was to be interpreted as releasing the defendant receiver from all liability for any failure properly to manage the estate of the receivership during the period of the receivership. Very simply the position was that, pursuant to an order of Hidden J dated 17 November 1988 under the Criminal Justice Act 1998, the court appointed a receiver of the property of Mr Weston, the appellant. The receivership was discharged on 1 February 2003 pursuant to the order of Henriques J to which I have referred which was a consent order. Paragraph 10 of the order stated that the receiver was not to be liable for any failure by her to properly manage the estate of Mr Weston after her discharge.
2. Mr Weston alleged in these proceedings, which were commenced by claim form dated 15 November 2004, that the receiver had acted in breach of duty by failing to take proper care of a motor yacht called Poseidon. By order dated December 2003 Elias J gave permission for Mr Weston to commence these proceedings against the receiver. Since she had been appointed by the court, permission of the court was needed to commence those proceedings. The receiver put in a defence in the course of which, she relied on paragraph 10 of the order of 23 January 2003. She subsequently applied for summary judgment, and Master Bowles ordered a trial in preliminary issue. It was on that preliminary issue that the Chancellor gave the judgment to which I have referred. Mr Weston argued that the correct interpretation of paragraph 10 was that the receiver was released from liabilities properly to manage the estate which were incurred after the discharge of the receivership. The point at issue, therefore, was a short one, namely as to the meaning in paragraph 10 of the words "after the discharge of the receiver". There was a further question as to who should bear the costs of the application, and there is an appeal from that matter also. There is also before this court an application to vary the terms of the order of Henriques J in order to permit these proceedings to be commenced and pursued to trial.
3. This court has heard a helpful argument from Mr Warwick on behalf of Mr Weston and has had substantial skeleton arguments from the parties, for which I am most grateful. In my judgment, however, the appeal fails on the substantial point of construction. I have six major reasons for coming to this conclusion which I would like to summarise and then expand. First, a consent order is to be interpreted like a contract. Secondly, there is no rule that a contractual provision for a release from claims is to be interpreted differently from other provisions of a contract; but the court will be slow to conclude that unknown claims – that is, claims that were unknown to the parties at the date of the contract – are to be released by a contractual release. Thirdly, the reliance by the appellant, Mr Weston, in this appeal on the practice of the court as to general releases for receivers and as to the requirement for leave to commence proceedings does not assist him, because the order in the present case was an order made by consent. Fourthly, the relationship between clause 9 of the order, which I have yet to read and which deals with the maintenance and the insurance down to the date of the discharge of the receiver, and clause 10 which is the provision for release to which I have already referred, does not support the argument of the appellant that it would follow from clause 9 that the provision of clause 10 was to apply only to acts of management following discharge. Fifthly, there was in this case ground for inferring that there was a good reason for a general release of claims against the receiver. The order represented a settlement of claims between the receiver and Mr Weston. Sixthly, although the Chancellor held that a transposition of the words "after the discharge of the receiver" in clause 10 was permissible because there was an absurdity in the language and that transposition would avoid the absurdity, in my judgment the Chancellor was not suggesting any improper re-writing of the contract and his conclusion did not constitute such a re-writing. While it is not necessary that there should actually be such a transposition, this was a conclusion which does not invalidate the conclusion to which he came.
4. I have not at this stage set out the background, which I propose to do when I consider the first reason which I have set out above. I will now turn to the reasons in turn and amplify them.
5. First, as I have said, a consent order is to interpreted like a contract. The authority for this proposition may be found in the speech of Lord Steyn in Sirius International Insurance Co v FAI General Insurance Limited [2004] 1 WLR 3251. At paragraph 18 Lord Steyn said:

"The settlement contained in the Tomlin order must be construed as a commercial instrument. The aim of the enquiry is not to probe the real intentions of the parties but to ascertain the contextual meaning of the relevant contractual language. The inquiry is objective: the question is what a reasonable person, circumstanced as the actual parties were, would have understood the parties to have meant by the use of specific language. The answer to that question is to be gathered from the text under consideration and its relevant contextual scene".

6. As to the principles applying to the interpretation of contracts generally I would refer to the well-known passage from the speech of Lord Hoffmann in Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 898 at 912-3. It is sufficient to cite Lord Hoffmann's first and second propositions:

"1. Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

2. The background was famously referred to by Lord Wilberforce as the 'matrix of fact', but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man".

7. We have been taken to certain contemporary correspondence and to the application which the receiver made, her discharge which led to the order of Henriques J on 23 January 2003. I will summarise some of the material points that emerge, although I should say at the outset that not much of this background evidence is relevant or helpful because it does not in terms refer to the object or aim of paragraph 10. The background, so far as relevant, may be summarised thus. At the date of the receivership Mr Weston had in Spain a motor yacht, then called Poseidon. On her appointment the receiver took possession of the yacht and removed it to moorings in the United Kingdom. Another entity, namely Axholme Limited, which was a company associated with Mr Weston, claimed ownership of the yacht, as indeed did yet another entity called Abstract Holdings Limited. Mr Weston was tried for certain offences of which he was acquitted. On 15 November 2002 the receiver accordingly made an application for her release. On 9 December 2002 Axholme Limited gave its consent to the release of the yacht back to Mr Weston. On 17 December 2002 the receiver asserted a lien over the assets in receivership and said that she could not release funds until the question of her costs was dealt with.
8. There was then discussion in correspondence, and perhaps directly, between the receiver and Mr Weston's solicitors and that discussion was mainly about the costs and expenses of the receivership, the distribution of cash held by the receiver, and the release of some other assets including flats in Spain, and the discharge of a potential liability to capital gains tax. In the course of this correspondence, so far as this court has seen, there was no suggestion of any claim arising out of the management of the yacht. However, I should say that for security purposes the receiver had taken the yacht to a destination in the United Kingdom which was not revealed to Mr Weston, and accordingly Mr Weston did not have sight of the yacht until early February 2004. On 15 January 2003 the receiver asked for a consent to the release of the yacht from Abstract Holdings. In fact that consent had already been given, but nothing seems to turn on that. In the course of asking for that release the receiver made a point about the insurance of the yacht, saying that it was to expire on 15 February and that the underwriters were unwilling to extend cover since they were withdrawing from that market. So far as I can see, that is the only reference to any insurance over any of the assets in the receivership.
9. There was a witness statement in support of the application from the receiver. There was also one from Mr Henri Brandman, solicitor for Mr Weston. There was a further witness statement of 22 January 2003, also from the receiver. In the result the court was asked to make an order by consent. That is the order of Henriques J of 23 January 2003.

"1. The Receiver shall be at liberty to utilise the remaining monies being held in the account designated in the Order of 11 March 1999 as 'Mrs Weston's account' and the general receivership account for the purposes of discharging Receivership costs and expenses in accordance with the terms of the Receivership Order dated 17 November 1998 and paragraph 3 of this Order.

2. Upon satisfying paragraph 1 of this Order any remaining monies held by the Receiver shall be paid to Henry Milner and Co, solicitors for the Defendant, forthwith and immediately, to be held by them on their client account.

…

3. The costs of the Receiver in respect of this Order shall be a maximum of £59,010 in full and final settlement of her costs and without further taxation of any sums eceived on behalf of the Receiver through the course of the Receivership. Such agreement reflecting an agreed reduction in fees in relation to the closure costs of the Receivership of £19,000. (A further credit shall be paid to Henry Milner and Co and held on their client account subject to the conditions specified in this Order if the Receiver's legal fees fall below £15,000).

…

5. In the event of the Receiver having a liability, as foreshadowed in paragraph 4, then Henry Milner and Company shall pay to the Receiver such sums as necessary to discharge the Receivers liability (such sum not to exceed £150,000), and to then account equally to Mr and Mrs Weston for any balance, to be paid forthwith.

6. In the event of the Receiver having no liability as foreshadowed in paragraph 4, then Henry Milner shall pay equally to Mr and Mrs Weston the balance held with accrued interest forthewith.

7. That the Receivership be discharged at 12 noon on the 1^st day of February 2003.

8. The Receiver shall apply forthwith to remove cautions registered in her favour against any property in respect of which Mr and Mrs Weston have an interest.

9. All insurance premiums in existence at present to be continued for a period of seven days from today. Any insurance costs incurred to be drawn by the Receiver in addition to the sum agreed in paragraph 3.

10. The Receiver shall not be liable for any failure by her to properly manage the estate of the Defendant after the discharge of the Receiver.

…

13A. In relation to disbursements notified to Mr Weston since 1 January 2003, the Receiver undertakes to supply to Mr Weston, upon written specific request, a copy of said disbursement(s), on the condition Mr Weston makes payment to the Receiver for all costs in so providing in advance. This undertaking to expire within 28 days of this Order.

14. There be liberty to apply, expressly to include an application to this Court to set aside this Order in the event of the House of Lords reversing the Court of Appeal's decision in Hughes 2002 4 All ER 633".

10. I have not set out paragraphs 2A, 4, 11, 12 and 13, as these deal with matters to be done by persons other than the receiver and have no bearing on the issues before this court.
11. That, then, is the background against which the court must interpret paragraph 10 of the order and the order itself in which paragraph 10 refers. I would draw attention to the fact that at paragraph 14 of the order there is a reference to a decision of this court in Hughes v Customs and Excise. In that case it was held that under the Criminal Justice Act the receiver had the right to be paid costs and expenses out of the assets of the receivership, notwithstanding the acquittal of the person whose assets were being held; and moreover the court held that the receiver had a lien for costs and expenses over those assets even after discharge, that is after those costs and expenses were themselves discharged. So it is part of the background to the negotiation of the order that the parties had in mind the position of the receiver and her right to retain the assets in the receivership, pending the final settlement of costs and expenses.
12. I now move to the second reason which I set out above, namely that there was no rule that contractual releases are to be interpreted differently from other contractual provisions but that the court would be slow to conclude that parties intended to release claims of which they were then unaware. The authority for this proposition is to be found in the speech of Lord Bingham in BCCI v Ali [2002] 1 AC 251, and it is sufficient for my purposes to refer to paragraphs 10 and 17 of this speech. Paragraph 10 starts:

"10. But a long and in my view salutary line of authority shows that, in the absence of clear language, the court will be very slow to infer that a party intended to surrender rights and claims of which he was unaware and could not have been aware."

I need not read the rest of that paragraph. At paragraph 17 Lord Bingham held – again, I need not read all this paragraph:

"But I think that these authorities justify the proposition advanced in paragraph 10 above and provide not a rule of law but a cautionary principle which should inform the approach of the court to the construction of an incident such as this. I accept, as my noble and learned friend, Lord Hoffmann, forcefully points out, that authorities must be read in the context of their peculiar facts. But the judges I have quoted expressed themselves in terms more general than was necessary for decision of the instant case, and I share their reluctance to infer that a party intended to give up something which neither he, nor the other party knew, or could know that he had."

So, Lord Bingham there describes the point not as a rule of law but as a cautionary principle. I will turn later to consider how that applies in the circumstances of this case.

13. I now turn to deal with my third and fourth reasons, with two points made by the appellant with which I need to deal. The first is reflected in my third reason, namely that it is unhelpful to the case for the appellant to rely on the court's practice as regards general release for receivers and the court's practice as to the requirement for leave to commence proceedings against court appointed receivers. It goes without saying that a court appointed receiver is an officer of the court. The case of Inland Revenue Commissioners v Hoogstraten [1985] 1 QB 107 illustrates the practice of the court so far as sequestrators are concerned. In that case, court-appointed sequestrators were released by an order of the court which at the same time was amended to provided for a release of all claims against the sequestrators. In fact in the course of the sequestration claims had been made against the receivers by the person entitled to the property sequestrated. I need only read a short passage from the judgment of Dillon LJ with which Sir Roger Ormrod and Stephenson LJ agreed. He said this, at page 1092:

"In my judgment it would be wrong in principle for the court to grant a blanket release and discharge to a sequestrator, or anyone else, without first investigating and making provision for the investigation of claims against the sequestrator, or other person concerned, of which the court has notice."

14. Mr Warwick for Mr Weston submits that this principle applies to any claim which might be made against an officer of the court, not simply those of which the court already has notice. In my judgment this proposition must be too wide, since the court cannot possibly be under an obligation to investigate claims for which there is absolutely no basis. That would be a substantial exercise for the court to take, and not one which Dillon LJ had in mind. He clearly had in mind only claims of which the court had notice.
15. In any event, in this particular case the release was, as I have endeavoured to show, a contractual provision. It was not a provision in a court order which the court had in its discretion approved, for example on behalf of absent parties. Accordingly, in my judgment it was open to the parties to agree to that term of release without the court's discretion to require claims to be investigated being invoked.
16. The next matter peculiar to the practice of the court in relation to court officers, relied on by Mr Warwick, was the requirement that the permission of the court is sought before any proceedings are commenced against an officer of the court. The authority for this proposition is In Re Maidstone Palace of Varieties Limited [1909] 2 Ch 283. Mr Warwick submits that this is an important factor. In the present case, leave is required, so that in respect of claims made against the receiver as a receiver; the receiver already has protection and therefore does not need to have a release of claims against her. He submits that this is a matter which must be borne in mind when the court interprets clause 10. But in my judgment there is a large distinction between an absolute release, such as the respondent contends clause 10 confers, and simply a provision that the leave of the court is required before a claim is brought. It is established that, when the court considers an application for leave, it will give leave if a real prospect of success is shown. The authority for this is McGowan v Chadwick [2003] BPIR 647, cited by Mr Warwick in his skeleton argument.
17. I move now to my fourth point, which deals with the question of the relationship between clauses 9 and 10 of the order. This is a point about the insurance. The position was that the receiver had insurance down to the discharge date and therefore, Mr Warwick submits, it would be logical to have a release which operates in respect of the management of the assets after the release date. As I see it there are a number of answers to this point. First, unfortunately, there is no evidence as to the type of insurance which is referred to in clause 9. However, it seems to me that it is likely to have been cover against property damage, not therefore the receiver's own professional indemnity policy. If a claim was made for improper management of assets in receivership, the claim would be made against insurers under the professional indemnity policy and not under a property damage policy. In those circumstances there is no necessary link as contended for between clauses 9 and 10. In any event a policy against property damage would be an asset of the receivership and any claim under such a policy would constitute an asset of the receivership also which would have to be transferred back to Mr Weston on discharge of the receiver. By contrast a professional indemnity policy would belong to the receiver personally. It would not be an asset to the receivership and it would therefore not have to be transferred to Mr Weston on discharge of the receiver.
18. I now move to my fifth reason that there are grounds for taking the view that there was a good commercial reason for a general release in this case and that the order represented a settlement of various claims between the receiver and Mr Weston. Thus far my reasons have been largely negative. I have endeavoured to show that, equipped with relevant background facts, the court must ascertain the objective meaning of paragraph 10 of the order. The position now is this. Read literally, the appellant's case must be right because the words "after the discharge of the receiver" appear immediately after the reference to the failure properly to manage the assets. The words "after the discharge of the receiver" could qualify either liability, or failure to manage, or the management itself; but the most obvious literal interpretation of clause 10 is that those words qualify management, because those are the words next to which the phrase is placed. However, the receiver's skeleton argument says that that interpretation produces an absurdity. The receiver submits that the words are pointless because the receiver, as receiver, could not be liable for any acts of management following discharge. Following discharge the receiver has no management responsibility, and on the interpretation put forward by the appellant clause 10 covers only that sort of liability.
19. The appellant, for his part, puts forward a different type of absurdity argument. He contends that it would be an absurdity to have a blanket release of claims which Mr Weston could not know that he had, and which both parties knew that he could not know that he had, because he had not been able to inspect the yacht. The question then for the court is what value the court should place on an argument based on absurdity as opposed to literal interpretation. In my judgment the answer is to be found in the passage that I have read from the speech of Lord Steyn in the Sirius case. The court must evaluate any absurdity, and then the question is as Lord Steyn said: what would a reasonable person, circumstanced as the actual parties were, have understood the parties to have meant by the use of the language that the parties used? And of course in relation to absurdity a reasonable party must have intended to have avoided any such result.
20. The first enquiry is, of course, to see whether or not there really is a question of absurdity. The receiver, as I have said, says that the literal construction is absurd. The appellant accepts that after discharge the receiver could not incur liability as receiver but could incur liability, for example, as a bailee. In my judgment, to incur liability as a bailee would not be enough because clause 10 refers specifically to acts of the receiver and therefore acts, in my judgment, as receiver. As to the appellant's own absurdity argument, for my part I would not accept this. The words "after discharge of the receiver" have to have some meaning. On the basis on which I am now considering this point, those words cannot qualify management and therefore they cannot qualify the word "failure". They can only qualify the word "liable". Mr Warwick submits that what happens is that Mr Weston can put in a claim prior to discharge, but that it is in effect extinguished with retrospective effect by the arrival of the date of discharge. The words "after the date of discharge" must not only receive a meaning; in my judgment they must also be given a purposive construction. The Chancellor held in his judgment that they referred to the establishment of liability prior to determination of the receivership. That is certainly one approach, but it may be that on a clear interpretation of those words it would be sufficient for Mr Weston to appoint it to something less; but it is unnecessary to decide this point. Up to the moment of discharge, however, the receiver would still have possession of the assets. He could still therefore exercise a lien over the assets and therefore, if a claim were made against him, he could continue to retain the assets. After the date of discharge, however, he could not.
21. Whatever the precise meaning of this clause may be, it was not as I see it a blanket release. There was a window of opportunity for establishing claims prior to the discharge date, and therefore there was no blanket release in terms. I have also said that there were grounds for believing that there were good reasons for making this deal. The receiver, for her part, had a lien over the assets for her proper costs and expenses. These would have included costs of defending any ill-founded claim for mismanagement. The receiver could hold on to assets even after the date of the discharge: see the Hughes case. So far as Mr Weston was concerned, a person in his position would have been unlikely to have wanted the receiver to continue to remain in possession of the assets. In those circumstances it may reasonably be supposed that parties acting reasonably would have agreed for a release on discharge of the receiver, so that all the assets could be handed back to Mr Weston. There is evidence that the parties were compromising claims in paragraphs 3, 9 and 13A of the order which I have already read. In addition there is some support for the fact that there was a window of opportunity, as I have suggested, from the fact that there was no provision in the order for the physical delivering up of the yacht on discharge. In other words, the parties had left that to be dealt with outside the order, and that enabled them to see what claims were in fact made prior to discharge.
22. I now deal with the last point. In his judgment the Chancellor referred to the possibility of transposing the words "after the discharge of the receiver". He said this:

"The qualification 'after the discharge of the receiver' may refer grammatically to a failure of proper management, but the purpose of paragraph 10 is to preclude the establishment of liability at any time after the receivership has been determined. This is achieved by transposing that phrase to a position after the words 'the receiver shall not'. In my judgment, such a transposition is permissible to avoid the absurdities to which what might be thought to be the literal construction would otherwise lead".

23. Mr Warwick takes exception to this reason given by the Chancellor on the grounds that it is not proper in the interpretation of documents for the court to transpose words. The court, in his submission, must interpret the words exactly as they appear. In my judgment it is not actually necessary to transpose words literally, but it is clear that the words "after the discharge of the receiver" in paragraph 10 could, as I have already explained, qualify either management or failure or liability. If they qualify the liability, then of course they have become separated from the words they qualify, but there is at least one other example of that in the order. In paragraph 13A of the order it is stated:

"In relation to disbursements notified to Mr Weston since 1 January 2003, the Receiver undertakes to supply to Mr Weston, upon written specific request, a copy of the said disbursement(s), on the condition Mr Weston makes payment to the Receiver for all costs in so providing in advance".

The words "in advance" qualify "makes payment", and yet they have been separated from those words by the words "to the Receiver for all costs in so providing". That is another example of where words have been separated by other phrases. For all the reasons which I have given, I have therefore come to the conclusion that the interpretation of the Chancellor was correct and that his order in that respect should be confirmed.

24. I need to deal with the argument put forward on variation. This is based on the Civil Procedure Rules 3.1(7), which provide for the court to have power to make an order to vary or revoke an order and secondly, generally, on the liberty to apply. In relation to that matter Mr Warwick relies on the decision of Neuberger J, as he then was, in Ropac Ltd v Inntrepreneur Pub Co (CPC) Ltd [2001] L&TR 10. Neuberger J held in a nutshell that, even when parties have come to a consent order, in that case on an extension of time, there was an exceptional jurisdiction whereunder the court could still extend time. In my judgment, wherever the jurisdiction comes from – and it could come from the liberty to apply in this order – the court must be very careful in exercising a discretion to vary the terms of an order which represents a contract between the parties. Mr Warwick argues forcibly that this jurisdiction should be exercised so as to enable these proceedings to proceed to trial, because Elias J has already given permission, because it must surely be the policy of the court to allow proper claims to be brought against officers of the court in respect of mismanagement, and because the point was only taken by the receiver in her defence. It was not taken at the earlier stage, at which she was represented, when Elias J gave permission. In addition, of course, the damage to which he refers was not damage of which Mr Weston could have been aware at the date of the order.
25. I will proceed on the basis (without deciding the point) that CPR 3.1(7) applies to paragraph 10 of the order of 23 January 2003. I would accept that the court should accede to an application for variation where it is just to do, so but in my judgment one of the aspects of justice is that a bargain freely made should be upheld. Mr Weston clearly obtained benefits under the order of 23 January 2003. It may well be that those benefits are not as great as he thought, but that is not a matter for this court. In those circumstances I do not consider it would be right for this court to exercise its discretion to vary the order as sought. I should say that this application was not before the Chancellor.
26. I must finally deal briefly with the appeal on the question of costs. The Chancellor did not discount any part of the costs of the successful respondent before him; that is, the receiver. Mr Warwick submits that there is no explanation for the receiver not having taken the point earlier, and indeed for not having taken the point before Elias J. He seeks an order that his client pay the receiver's costs of the hearing before the Chancellor alone and not with costs of the action. The Chancellor held that the appellant could have raised the point himself before Elias J, but in any event the costs that were in issue were of a limited nature, and in addition that the respondent receiver should not be penalised because it was the court that had ordered the preliminary issue. So far as questions of costs are concerned, it is well established that these are a matter for the discretion of the court. In my judgment there was no error of principle in the way which the Chancellor dealt with this matter. It was open to him to take the view that Mr Weston himself could have raised this matter before Elias J. If the matter had not then been decided by Elias J, then Elias J could have set it down as a preliminary issue, a threshold issue, to his decision as to whether to give permission. In any event the costs of issuing the proceedings and of making an application to Elias J and of a hearing of the preliminary issue would necessarily all have been incurred on any basis whenever the point had been taken, and thus the costs thrown away by the taking of the point late are relatively limited.
27. For those circumstances I would dismiss the appeal also on that ground.
28. LORD JUSTICE WALL: I agree.
29. LORD JUSTICE BROOKE: I also agree. The appeal is therefore dismissed.

Order: Appeal dismissed.