England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE NEWCASTLE UPON TYNE COUNTY COURT
MR RECORDER ATHERTON
4XN00600

		Royal Courts of Justice Strand, London, WC2A 2LL
		29/01/2008

Lord Justice Mummery :

1. The short point on this appeal is whether a document dated 8 April 2002 is a valid assignment of a right of action or, as Mr Recorder Atherton held in his judgment of 7 September 2006 on a preliminary issue, an assignment of the fruits or proceeds of an action.
2. The decision turns on the meaning conveyed by the document to a reasonable person having all the background knowledge reasonably available to the parties in their situation at the time: Investors Compensation Scheme Ltd v. West Bromwich BS [1998] 1 WLR 896 at 912-913).
3. The document, which is relied on as an assignment of a right of action, must be construed in the context of its commercial purpose. The law does not require an assignment to be in any particular form. All that is required is a "sufficient expression of an intention to assign": Snell's Principles of Equity (31^st Ed) at page 34 paragraph 3-13. As Lord Macnaghten said in William Brandt's Sons & Co v. Dunlop Rubber Company Limited [1905] AC 454 at 462 " The language is immaterial if the meaning is plain."
4. The nature of the assignment originally affected the right of the appellant, Mr Barry Batey, to plead a set off and counterclaim in a county court action brought against him by the first respondent, Jewson Limited (Jewson) for the balance of a sum due for the supply of building materials. The court below struck out Mr Batey's defence, dismissed his counterclaim and entered judgment against him on the ground that there was no valid assignment to him of the right of action against Jewson pleaded by him. He was ordered to pay the costs of Jewson and of a Part 20 defendant in the action, including the costs of the preliminary issue. The moneys due from him have now, we were told, been paid, but the effect of the assignment remains in issue and it is relevant to the outstanding counterclaim.
5. Mr Batey sought to appeal against all of the orders, including the costs orders. Permission to appeal, an extension of time and a stay of execution were granted on 14 June 2007 by Sir Henry Brooke, who, fortunately for Mr Batey, took the trouble to inform him that it would be wise to seek the assistance of the Bar Pro Bono Unit.
6. The court is grateful to all counsel for their help in this case, especially to Mr Brent McDonald, who, in the best traditions of the English Bar, acted for Mr Batey through the Bar Pro Bono Unit and the RCJ Advice Bureau. At short notice he produced an excellent skeleton argument and made valuable oral submissions. His generous gift of his professional time and considerable skill was beneficial both to the client and this court.

Background facts

7. Mr Batey and his son Carl were shareholders in their house building company Starlcroft Limited. Mr Batey held 500 shares and his son 2000 shares.
8. In early 2000 Starlcroft placed an order with Jewson for roof trusses for 4 houses. Jewson acquired the trusses from the second respondent Palgrove Brown UK Limited (PB) and supplied them to Starlcroft at the end of March 2000.
9. Starlcroft alleged that the trusses supplied were defective. They did not allow for the chimneys. A complaint was registered by Mr Batey as early as May 2000. Jewson were notified of a claim for £20,050 damages. The details were given in a letter dated 28 September 2000. Jewson disputed the claim. The dispute dragged on for a long time. On 8 April 2002 Starlcroft, acting by the company secretary (Kaye Pollard) and using the firm notepaper, made an assignment to Mr Batey in the following terms-

"The company as beneficial owner Assigns to Barry Batey any sums of money recoverable from the dispute with Jewsons in lieu of wages owing."

10. The assignment was not notified to Jewson until 30 July 2004.
11. In September 2003 Mr Batey opened a credit account in his own name with Jewson and ordered building supplies at the price of £4,500.
12. The dispute about the roof trusses had still not been resolved when, on 30 March 2004, Starlcroft was struck off the Register of Companies. It was dissolved on 6 April 2004.
13. On 21 May 2004 Jewson began proceedings against Mr Batey claiming the balance of the purchase price plus interest (£2,148.19) for the goods sold and delivered to him. Mr Batey served a defence and counterclaim pleading the assignment by Starlcroft to him as the basis of a set off and a counterclaim for £20,050 damages for the defective roof trusses supplied by Jewson. Unfortunately attempts at ADR failed.
14. Jewson denied that Mr Batey had any cause of action against it. When Jewson and PB, which was joined as a Part 20 defendant, put Mr Batey to proof of "the genuineness, validity and effectiveness of the alleged assignment" a preliminary issue was directed on 29 April 2006 to be tried. This came before the Recorder. Mr Batey, who was acting in person, asked for an adjournment on the ground that he was applying to the Treasury Solicitor, the Registrar of Companies and the court for the Starlcroft to be re-instated to the register. His request for an adjournment was refused on the ground that the Recorder could not see how Starlcroft could "work its way into this action"-

" Mr Batey has ostensibly any cause of action available to Starlcroft. He is a party to this action and the restoration of Starlcroft to the register will not take this matter an inch forward, in my judgment…"

15. The hearing proceeded. The Recorder explained to Mr Batey that he was put to proof that his assignment was genuine. Mr Batey was cross examined on his witness statement. He also made some forthright submissions.
16. The Recorder concluded that the assignment was of the proceeds of Starlcroft's claims against Jewson and not of the right of action itself. It followed that Mr Batey was not entitled to rely on the assignment for the purposes of set off and counterclaim.
17. The amended reply and defence to counterclaim also alleged that the right of action was, in any event, not assignable by Starlcroft because of a provision to that effect in the sales documents issued by Jewson to Mr Batey in March 2000. Standard form printed conditions provided that the contract was personal to Starlcroft and could not be assigned. The Recorder made no finding on this point, although there was evidence on it before him. As the Recorder had decided that there was no assignment of the right of action, he understandably thought that it was probably unnecessary to rule on the point. Jewson, however, have raised the point in their respondent's notice
18. In giving judgment for Jewson on the preliminary issue the Recorder held that, on his interpretation of the assignment, it assigned only the fruits of any cause of action against Jewson and not the right of action itself. He referred to the dispute having gone to sleep and only being resurrected when set up by Mr Batey in opposition to claim against him. The assignment could not, he held, be used by way of set off and counterclaim in the manner proposed by Mr Batey. He dismissed the counterclaim and entered judgment against Mr Batey for £2,735.49. The costs which he ordered Mr Batey to pay were subsequently assessed at over £15,000.

Appellant's submissions

19. Mr McDonald stressed the importance of the commercial aim and the background facts when construing the 2002 assignment, which was not a professionally drafted document. He relied on evidence that Mr Batey had taken the assignment from Starlcroft as "a precautionary measure" to preserve recovery for him against Jewson in case Starlcroft "folded" before the dispute with Jewson was resolved. By April 2002 the dispute with Jewson had been going on for nearly 2 years. Starlcroft was intending to sell off its assets and to settle its debts and its claims prior to being wound up.
20. Read in that context, Mr McDonald submitted, the aim of the assignment was that Mr Batey would have the right to pursue Jewson for the unsatisfied claim made by Starlcroft and to recover from Jewson the sums due to Starlcroft in case it was not around to do so. It was not a matter of Mr Batey taking only the fruits of an action to be brought by Starlcroft. The transaction between him and his own company necessarily involved him acquiring the right to sue Jewson in case Starlcroft was wound up before doing so.

Discussion and conclusion on assignment point

21. The Recorder did not have the benefit of the full argument that this court has heard from three counsel (two of whom did not appear in the court below) on the law of assignment in general and on the genesis of this assignment in particular.
22. If the 8 April 2002 assignment is detached from its setting and is read in isolation from its background I can well understand why it might convey the impression that it was intended to deal only with the beneficial ownership of the proceeds of the company's dispute with Jewson. Starlcroft's rights or rights of action against Jewson are not mentioned. The document refers only to "any sums of money recoverable from the dispute with Jewsons." The subject matter of the assignment might appear to be sums of money recovered in the dispute rather than the dispute itself.
23. A different picture emerges from the document when the background facts are examined. The transaction between Starlcroft and Mr Batey obviously had a practical aim in a commercial setting. It was common ground that Starlcroft had a long standing dispute with Jewson about the defective roof trusses and that it had not come to litigation at the time of the assignment.
24. In early 2002 Starlcroft was in the process of selling its assets and settling its debts with a solvent winding up in view. Mr Batey was concerned that the company might be "folded" before the dispute with Jewson was resolved. He was owed wages by Starlcroft. As he explained in his witness statement of 14 May 2005

"13. The company in 2002 was in the process of selling its last asset Maritime buildings to the local council and being wound up without any outstanding debts.

14. The only outstanding issue was the claim against Jewsons and as a precautionary measure the defendant accepted an assignment from the company to accept any sums of money recoverable from the claimants in lieu of wages owing."

25. He was cross examined on his witness statement. He gave evidence that Starlcroft was going to be wound up and was selling its last property; that the assignment was a precaution against the dilatoriness of Jewson in avoiding payment or coming to the table about Starlcroft's claim, a claim which he expected would be settled with a customer which had paid cash in advance; that he was owed 4 years' wages by Starlcroft; and that he disputed the "narrow conclusion" put to him that his "intention was not to assign the dispute, just the proceeds that Starlcroft may recover from the dispute." The Recorder did not reject any of this evidence.
26. In his submissions Mr Batey made clear his case on the assignment; that it was purely protective, that there was some money to come in from Jewson and that he wanted to protect himself in case it didn't come in before Starlcroft "folded" and that Starlcroft "had folded owing nobody anything."
27. Some of the evidence given by Mr Batey about his subjective intentions and about his opinion on the effect of the assignment are not admissible on the construction question. However, other evidence given by him in his witness statement and in cross examination established objective circumstances about the assignment which would inform a reasonable person's understanding of the assignment and its practical purpose.
28. It is reasonably clear from the evidence that the purpose of the document was to ensure that Mr Batey was to have the benefit of Starlcroft's right of action against Jewson. If Starlcroft was to be wound up or "folded" there was no point in Starlcroft retaining the right of action. There was no sense in its retaining the right of action while transferring to Mr Batey the proceeds of a successful outcome to the action.
29. Mr Wheatley, who appeared for PB in this court and below, cited Glegg v. Bromley [1912] KB 474 for the distinction drawn in it between an assignment of a cause of action and one of the fruits of it and for the proposition that there is no necessary implication that an assignment of the latter encompasses the former. In that case it was held that the particular words used in a formal deed (set out on page 483) clearly and validly assigned property in the form of whatever sum of money came into the possession of the assignor in the future as the fruit of a specific action, in that case an action for slander: see page 489. That case is of limited assistance in deciding this case.
30. I agree that, by concentrating on the expression "sum of money", it is possible to read the assignment as applying only to the proceeds of Starlcroft's dispute with Jewson. The whole of the brief text of the assignment must, however, be read in context. On that approach the language of the assignment is, at the very least, capable of applying to the dispute with Jewson, in which Starlcroft has a right to a sum of money recoverable by action. The assignment is not so worded as to exclude its application to Starlcroft's right of action, by which the sum of money in dispute is recoverable.
31. In my judgment, the Recorder was wrong in construing this assignment so as to confine it to the fruits of an action by Starlcroft. I agree that it could be read in that way by simply looking at the wording of it. The Recorder reached the wrong decision because he construed the language of the assignment without sufficient regard to the evidence before him on the practical purpose for making it and on its relevant background.
32. I would accordingly allow the appeal.

Restriction on assignment

33. There was evidence from Mr Philip Elliman, who is employed by Jewson as General Manager, in the form of an invoice of 23 March 2000 for the roof trusses. On the back of it were printed the standard terms and conditions of the transaction. Condition 10.5 contained the prohibition on assignment by Starlcroft without consent. As to the ineffectiveness of an assignment made in breach of a prohibition against assignment without consent see Linden Gardens Trust v. Lenesta Sludge Disposals Ltd [1994] 1 AC 85.
34. The invoice was issued by Jewson to Starlcroft after Starlcroft had accepted the quote from Jewson (based on a price quoted by PB to Jewson) for the roof trusses. No evidence was called by Jewson to show that the printed terms were brought to the notice of Starlcroft before the formation of the contract.
35. It is clear from the transcript of the hearing that the point on prohibition of assignment was taken by Jewson's counsel, but he left it on one side pending the Recorder's ruling on the construction point. In the event this issue was never dealt with by the Recorder. He did not have to decide it. His ruling on construction made it unnecessary for him to do so. There is therefore no decision by him on an issue from which an appeal could have been brought to this court. This presents difficulties for this court, which is not a court of first instance deciding points of mixed law and fact for the first time.
36. The evidence on this point having been called, however, all that remains to be done at first instance is decide the facts about it and to decide the legal consequences. Mr McDonald submitted that there would be no point in remitting this to the county court, as the answer is plain. I have some sympathy with this, but the alternative would involve this court making a decision on the facts for the first time. Since this case must go back in any event, the better course is to let the point be argued along with the rest of the counterclaim.
37. The effect of allowing the appeal is that the orders of the Recorder will be set aside and the trial of the counterclaim can proceed. That is all that is left, as Mr Batey has paid Jewson the balance of the claim. It will be for the judge to give directions for the trial of the counterclaim. He may decide to do so on the basis that the court has already heard all the evidence that Jewson wished to adduce on the issue whether the terms and conditions of the transaction between Jewson and Starlcroft incorporated the prohibition on assignment in printed condition 10.5.

Result

38. I would allow the appeal, set aside the order of the Recorder, restore the counterclaim and remit the matter to the county court for the trial of the counterclaim.

Lord Justice Jacob:

39. I agree.

Mr Justice Mann:

40. I also agree.