England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM Birmingham District Registry
His Honour Judge Cooke
9582 & 9583 of 2008

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/11/2012

Lord Justice Treacy:

1. This is an appeal from the order of His Honour Judge Cooke sitting as a High Court Judge in the Chancery Division at the Birmingham District Registry made on 19^th January 2012. The order which is appealed is paragraph 1 of his order. It states:

"1. The effect of the order described in the schedule to this order ("The Order") is to impose liability on Phoenix Insurance Management Limited ("Phoenix") and Market Balance Limited [sic] ("Market Balance") and not on the Respondent personally."

2. The order referred to in paragraph 1 of Judge Cooke's order was paragraph 1 of an order made by Judge Simon Brown QC sitting at the Mercantile Court in Birmingham on 27^th April 2010. Paragraph 1 of that order was in these terms:

"1. There shall be judgment on the Claimant's claim with damages to be assessed by a costs judge pursuant to s.70 Solicitors Act 1974."

3. This appeal is concerned with the question of whether Judge Cooke rightly held that Mr Duncan Morris, the Administrator of the two aforementioned companies, was not personally responsible under the order made by Judge Brown QC and whether Judge Brown's order should be interpreted as a judgment against the two insolvent companies.
4. In order to understand this matter it is necessary to recite a considerable degree of history. The Appellant is a firm of solicitors. Mr Morris is a licenced insolvency practitioner. At the material time he was a partner in the Redfern Partnership. In about October 2008 the Appellant and Mr Morris discussed the possibility of Mr Morris being appointed Administrator of the two named companies in circumstances where they were Defendants in existing proceedings brought by Haven Insurance Company Limited ("Haven") and subject to a freezing order. On 30^th October 2008 Mr Morris was appointed as Administrator of the companies.
5. The Appellant duly agreed to act for the companies on the basis of two Conditional Fee Agreements dated 6^th November 2008 in relation to the Haven litigation. The agreements were signed by Mr Morris in January 2009. Although the heading to the agreements made plain that the two companies were in administration, and the Appellant must have understood that Mr Morris was the Administrator, when he signed the agreements he did so without any qualification as to his personal position or reservation as to his personal liability. In due course Judge Brown QC was to find that Mr Morris signed the documents without reading them.
6. Subsequently, on 20^th January 2009 the Haven litigation was settled. We were told that about £194,000.00 was recovered for the two companies. Shortly afterwards the Appellant raised two invoices for its fees under the conditional fee agreements, totalling approximately £134,000.00. The invoices were directed to Mr Morris and a Mr Heaselgrave "together trading as the Redfern Partnership".
7. This led to correspondence between the parties which, in addition to raising a dispute as to quantum, raised the issue that the invoices had been incorrectly directed to Mr Morris and Mr Heaselgrave as members of the Redfern Partnership. It was said that they should have been addressed to Mr Morris as Administrator of each company. Despite this, the Appellant commenced proceedings against Mr Morris and Mr Heaselgrave trading as the Redfern Partnership for the recovery of the sum said to be due under the two invoices.
8. On 4^th May 2009 Mr Morris filed his Defence. At paragraph two he said that the Appellant solicitors had been retained by himself "in his capacity as Administrator of the Companies". Paragraph three stated "It is denied that the Claimants [sic] were retained by the Redfern Partnership or by the Second Defendant. The Claimant at all times acted for the Administrator of the Companies".
9. The consequence of this was that the original invoices were withdrawn by credit note, and fresh invoices issued to Mr Morris.
10. The Claim Form was amended by deleting any reference to Mr Heaselgrave and the Redfern Partnership. Mr Morris was now shown as the sole Defendant, namely, "Mr Duncan Roderick Morris, the Administrator of Marketbalance Limited and Phoenix Insurance Management Limited". The Amended Particulars of Claim are in these terms:

"The Claimant's claim is for work done and disbursements incurred as a solicitor on behalf of the Defendants [sic] at the Defendant's request being Mr Duncan Roderick Morris in his capacity as Administrator…"

11. On 15^th October 2009 an Amended Defence and Counterclaim was filed. The title of the action in this pleading now shows "Defendants" in the plural as being "1. Duncan Morris (as Administrator of Marketbalance Limited). 2. Duncan Morris (as Administrator of Phoenix Insurance Management Limited)." It appears that those defending the claim took it upon themselves to bifurcate the identity of the Defendant into two separate Defendants. The subsequent Reply appears to have adopted this.
12. Paragraph 1 puts in issue any personal liability on the part of Mr Morris. It is in these terms:

"1. Save that it is admitted that a retainer was entered into between the Claimant and Marketbalance Limited and Phoenix Insurance Management Limited ("The Defendants") for the reasons set out below it is denied that the Claimant is entitled to the sums claimed in the particulars of claim."

13. The pleading then goes on to raise a number of matters disputing liability to pay under the Conditional Fee Agreements including misrepresentation and/or non-disclosure by the Appellant. Quantum was also put in issue.
14. There was then a counterclaim alleging a failure by the Appellant to act with reasonable skill and care resulting in loss. The counterclaim is couched entirely in terms of breach of duty to and loss sustained by the companies rather than Mr Morris personally.
15. A Reply was filed. In that Reply the Appellant replicated the way in which the Defendant is described in the heading of the Amended Defence and Counterclaim. Paragraph 1 is a joinder of issue on the Amended Defence and Counterclaim. Paragraph 2 states:

"References herein to "Mr Morris" are used interchangeably with "the Defendants" where the context requires."

That practice appears to be adopted in the ensuing paragraphs. The Reply was filed on 13^th November 2009.

16. On 1^st April 2010 the Defendants discontinued their counterclaim. On 27^th April 2010 the case came on for trial before Judge Brown QC. We have seen the transcript of the hearing which takes the form of lengthy discussion between counsel for the parties and the judge. Both sides have relied on passages from the transcript. It is fair to say that there is no explicit discussion or argument at any stage of the issue raised in paragraph 1 of the Amended Defence and Counterclaim, namely that Mr Morris was disputing that he was personally liable to the Appellant and instead contending that only the two companies of which he was Administrator were liable.
17. It is clear that neither party focussed on that issue and there are passages where both sides appear to proceed on the basis that what is being considered is the liability of the companies. In truth, however, nobody at the hearing ever grappled with the issue raised as to whether Mr Morris as Administrator was personally liable. Equally all parties seem to have proceeded oblivious to the question of who was actually the Defendant before the court.
18. At the end of the hearing the judge found in favour of the Appellant. Paragraph 1 of his order is in the terms set out at paragraph 2 above.
19. It was this paragraph which formed the subject matter of the order made by Judge Cooke in subsequent proceedings, by which he directed that paragraph 1 of Judge Brown's order should be treated as having been made against the companies and not against Mr Morris personally.
20. Judge Brown also made an order for costs in the sum of £74,000.00. Despite Judge Brown QC's decision that they should be paid within 14 days, nothing was paid. Mr Morris was suggesting that the Appellant would be an expense creditor of the companies ranking pari passu with all other expense creditors and only time would tell if any payment would be made under the costs order.
21. Faced with non-payment the Appellant issued proceedings in the Chancery Division, from which this appeal is made, within the insolvency proceedings relating to the companies. It sought directions to the effect that the Appellant should be paid ahead of other expense creditors and other relief.
22. When the matter came before Judge Cooke he identified the question of whether Mr Morris was personally liable under paragraph 1 of Judge Brown QC's order as a threshold issue which, if determined in favour of the Appellant would obviate the need to determine the various other issues raised in the application. Accordingly, at the judge's invitation the parties made submissions on this point which resulted in his decision that Judge Brown QC's order had been made against the companies and not against Mr Morris personally.
23. There had been no appeal against the order of Judge Brown QC as Judge Cooke was fully aware. His function, as he recognised, was not to rehear or decide afresh the matters leading to Judge Brown QC's decision. His function was to decide the effect of Judge Brown QC's order.
24. The judge properly recognised that Judge Brown's judgment had not been appealed and also that a point already decided in litigation may not in general be re-litigated between the same parties in later proceedings.
25. At paragraph 17 of his judgment, Judge Cooke identified the matter for his decision. He said:

"All of this, it seems to me, turns on whether the starting point is correct and an order made against "Mr Duncan R Morris (Administrator for Marketbalance Limited and Phoenix Insurance Management Limited)" is an order against Mr Morris personally. If it is either because of the identification of the Defendant in that manner necessarily imports personal liability, or (if ambiguous as to whether it does so) the order was made on a common assumption between the parties or after a judicial finding as to personal responsibility, the remainder follows. If neither of these is the case the issue of personal liability has not been determined as between the parties and remains potentially open."

26. At paragraph 22 the judge said:

"It follows that where as here litigation is commenced against an Administrator arising out of contractual obligations said to have been entered into by him as Administrator of a company, the cause of action will in general be one lying against the company and not the Administrator. In such circumstances it seems to me that naming the Defendant as an individual "as administrator of X Limited" recognises that he is sued as agent rather than in a personal capacity, so that far from being by default an action against him in a personal capacity, as Mr Davies submits, [counsel for the Appellant], the implication is the other way and it would be necessary for a Claimant to plead specifically that personal liability was alleged if that be the case."

27. The judge went on to express his conclusion at paragraph 23:

"I conclude then that the description of the Defendant in this case in the claim and the order do not by necessary implication indicate personal liability under the order, either for the substantive relief (damages) or the costs of the action, and it is necessary to examine whether the making of the order resulted from a judicial finding of personal liability, express or implied, or was made on a common assumption by the parties that Mr Morris would be personally liable. I am entirely satisfied in this case that it did not."

The judge then went on to give reasons for those latter findings.

28. The Appellant challenges the findings and conclusion of Judge Cooke referred to in paragraph 22 and the first part of paragraph 23 of his judgment. The Appellant submits that contrary to the judge's finding, the identity of the Defendant does in this case import personal liability. It says that the manner in which Mr Morris was sued is determinative of this case. The mere fact that Mr Morris was being sued as Administrator of the companies did not mean that he is not personally liable. Whilst the general rule in contract is that an agent is not bound by a contract entered into on behalf of his principal, this is not conclusive. It depends on a construction of the terms of the contract to see whether in a particular case there is personal liability.
29. However, Mr Davies urged that it is neither the function of this court, nor was it the function of Judge Cooke to construe the contractual arrangements between the Appellant and Mr Morris. Our function and that of the court below was to interpret Judge Brown's order. The Appellant had not sued the companies. To do so it would have needed the consent of the Administrator or the permission of the court. What it had done was to elect to sue the Administrator rather than the companies.
30. Judge Cooke had wrongly assumed that by suing Mr Morris as Administrator, the Appellant was not suing him personally. The position was that the Appellant had sued the Administrator. In his Amended Defence he had raised the issue that liability was not his personal liability, but that of the companies. The effect of the Reply was to join issue with that part of the defence, and it was for the Respondent to make good that defence. The Appellant had succeeded in obtaining judgment against the Respondent and not against the companies even though the Respondent had raised in his pleading that it was the companies' liability and not his.
31. There had been no appeal against Judge Brown's order: nor had there been any application to vary or revoke the order or to seek to review or otherwise rectify it. If the terms of Judge Brown's judgment were against Mr Morris personally, he could indemnify himself out of the estate, but that would not limit the Appellant's rights against him.
32. Mr Davies said his fundamental point was that Judge Cooke's reasoning at paragraph 22 of the judgment was flawed by equating Morris (as Administrator) with the company. He submitted that a company continues to exist after administration and is capable of being sued in its own name if liability against it is sought. That was not the situation here.
33. Mr Khangure QC for the Respondent, took us to a large number of passages in the transcript of the hearing before Judge Brown. He contended that before Judge Brown personal liability on the part of Mr Morris was not a live issue. In reality he says that the litigation was between the Appellant and the companies.
34. He pointed out that the point had been specifically taken in correspondence before the Claim Form was amended and that paragraph 1 of the Amended Defence took the point afresh. Moreover, although the Reply had joined issue with the Amended Defence, the pleader of the Reply had adopted the nomenclature of the title of the Amended Defence and had expressly referred to Mr Morris as a Defendant interchangeably with the companies where the context required.
35. He drew attention to a passage from the hearing at page 380 of our bundle.

"Mr Burton [counsel instructed by Mr Morris]: The companies are going to discontinue their defence to this claim in the sense of challenging the limited CFAs.

Judge Brown: Hmm-mm.

Mr Burton: That is to expressly preserve and leave open all the other arguments, the construction clause in a construction of the success clause, the super priority point and the pre-admin cost point as my learned friend suggested to the judge dealing with the assessment. So none of those are being abandoned. My understanding is the court must really today just effectively be considering the validity of the CFAs and our client under misrepresentation. So that is being continued."

36. Mr Khangure submits that Judge Brown was being asked to determine whether a clause (4.3) of the Conditional Fee Agreements was contractually binding upon the parties irrespective of the priority provisions of the Insolvency Act and Rules. He says this was the issue the judge determined in favour of the Appellant, and submits that the judge did not make Mr Morris personally liable under the Conditional Fee Agreements.
37. In answer to a question from this court during argument, he appeared to concede that Mr Burton's words "that is to expressly preserve and leave open all the other arguments" did not expressly cover the point taken in paragraph 1 of the Amended Defence as to personal liability. Mr Khangure's stance was that by that stage of the proceedings that point had in reality fallen away, and that the matter was proceeding before the court as if the claim was against the companies in administration. He urged upon us that because of the way the pleadings had developed, the Appellant should be regarded as having accepted that the companies were the Defendants rather than Mr Morris personally.
38. Turning to the terms of Judge Brown QC's judgment, he submitted that the following passages from that judgment were merely descriptive in effect and not decisive of any issue as to the capacity in which Mr Morris was being sued. Those passages are:

At paragraph 8:

"In the next paragraph it is admitted that the Claimant undertook work on behalf of the Defendants pursuant to the CFAs. The issue therefore is squarely one of contract between Wright Hassall and Mr Morris of the Redfern Partnership as Mr Morris duly signed the CFAs."

Paragraph 11:

"The importance of this particular document, and it is the contractual document which governs Mr Morris and Wright Hassall is this; is that those references referred to is the definition of success."

At paragraph 12:

"Although this matter is not pleaded in the Defence, what is now being said is that there are some provisions in the Insolvency Act which takes some precedence here, but in my judgment these are really neither here nor there so far as the contractual arrangements are concerned between Wright Hassall and Mr Morris – he is the one who has agreed this particular matter. It may be that he will have difficulties in his administration, but frankly that is going to be his problem and not that of Wright Hassall."

39. Judge Brown concluded this part of his judgment by saying:

"13. In my judgment, the claim is made out and it falls for there to be judgment on liability on the claim, on the contract, and for the matter now to be referred to the costs judge for detailed assessment of damages under Section 70 of the Solicitors Act 1974."

40. That judgment, submitted Mr Khangure, should be regarded as a judgment against the companies and not Mr Morris. By the time the judge made his finding the Appellant should be regarded as having waived any pleading irregularity so that the basis of the judge's order should be regarded as being against the companies.
41. It seems to me that the difficulty is that at no stage was any order of the court made whereby the companies became the Defendants to the Appellant's claim. The Defendant in the action remained at all times Mr Morris as Administrator of the two companies. Whatever may or may not have been thought by the parties before Judge Brown (and each has sought to rely on parts of the transcript to support differing contentions), the fact is that the only Defendant before Judge Brown was Mr Morris, since the companies had never been joined as parties to this litigation.
42. I consider that Judge Brown could only make an order against a party to the action before him. It is impossible for there to be a judgment against a non-party. When Mr Khangure was pressed with this particular point, he acknowledged that he was unable to show how the companies had become a party to the action. It seems to me that he was right in this concession. Indeed, the very fact that Mr Morris pleaded, in effect, that he was not personally liable, (paragraph 1 of the Amended Defence and Counterclaim), shows that he understood that the claim had been brought against him personally.
43. Mr Khangure sought to meet it by saying that despite these circumstances Mr Morris was not personally having judgment entered against him. He argued that that had not been the intention of anyone before Judge Brown. This takes me back to Judge Cooke's order set out in paragraph 1 above. It states in terms that the effect of Judge Brown's order is "to impose liability on the companies and not on Mr Morris personally". The forgoing analysis shows that the first part of Judge Cooke's order simply cannot stand. Liability cannot be imposed on a party not before the court.
44. Notwithstanding this cutting away of an important part of Judge Cooke's order, was it possible for his judgment to be read as not amounting to an order against Mr Morris personally? I think not. This was an action arising out of a contract. Judgment was given based on the terms of the contract against the person who had signed it and who was before the court as the sole party. Liability under that contract cannot have been determined by the judge in a vacuum. Judgment had to be given against a party to the proceedings. The only Defendant before the court was Mr Morris and there has been no appeal against that order.
45. The matters reserved by Mr Burton in the concession quoted above did not cover the issue of personal liability raised in the Amended Defence. From that point onwards Mr Morris was exposed to the possibility of a personal judgment against him.
46. True it is that Mr Morris was sued as Administrator of the companies, but the combined researches of both leading counsel fail to unearth any authority which limits the liability of a Defendant sued in representative form so that he is not personally liable on a judgment against him. There is no authority on what suing someone as Administrator means in this context. The assertion by Judge Cooke that naming a Defendant as an individual "as Administrator of X Limited" recognises that he is sued as an agent rather than in a personal capacity is unsupported by any authority. Nor can I accept Judge Cooke's view that it would be necessary for a Claimant to plead specifically that personal liability was alleged, if that be the case. Paragraphs 8.1 and 8.2 of PD 16 do not require this, nor was there any obligation upon the Appellant to raise the matter in its Reply beyond joinder of issue. In my judgment, Judge Cooke was wrong to use these matters as a basis for his finding that Judge Brown's order was against the companies and not Mr Morris personally.
47. I will conclude by observing that the companies could only have been parties to the action before the court with the consent of the Administrator or by order of the court. Neither of those two steps was taken. Moreover, had the companies truly been Defendants in the proceedings, they should have been described as "Marketbalance Limited (in Administration) and Phoenix Insurance Management Limited (in Administration)".
48. The history of these proceedings is one of muddle and imprecision. The result, however, is that the order of His Honour Judge Cooke cannot be sustained. In these circumstances it is unnecessary for this court to examine alternative grounds of appeal based on Judge Cooke's findings of common assumption between the parties at the hearing before Judge Brown. For the reasons given the order made by His Honour Judge Brown QC imposed liability on Mr Morris personally. Accordingly, I would allow this appeal.

Lord Justice Patten:

49. I agree that the appeal should be allowed for the reasons given by Treacy LJ. The proceedings were issued against Mr Morris. The administrator of a company is not the company but the individual office holder named in the proceedings. As the companies were never substituted as Defendants to the action, the judgment cannot have been entered against them.
50. Judge Cooke's view that the reference to Mr Morris as the administrator of the companies meant that he was sued as agent rather than in a personal capacity is, with respect to him, difficult to follow. As a matter of law, an agent may sometimes be personally liable on a contract which he enters into for a disclosed principal. If Judge Brown had determined that Mr Morris had no personal liability under the contracts relied upon, he would simply have dismissed the claim. As it is he entered judgment against him.

Lord Justice Mummery:

51. I agree with both judgments.