England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM OXFORD COUNTY COURT
HIS HONOUR JUDGE CHARLES HARRIS QC

		Royal Courts of Justice Strand, London, WC2A 2LL
		7th February 2012

Lord Justice Lewison:

1. On 28 September 1996 Mrs Clothier and Mr Brown, who was then married to Mrs Clothier's granddaughter, signed a written agreement which provided as follows:

"Loan Facility

This letter records the terms on which I, Douglas Watson Brown, have lent Phyllis Edna Clothier of 23 Parklands Ave, Groby, the sum of £200 per month on an ongoing basis.

Once signed, this letter will create a legally binding agreement between the parties. The terms are as set out below.

1. Douglas Brown will make payments of £200 per month to Phyllis Clothier.

2. This amount may be varied at any time without notice by Douglas Brown.

3. The loan is to be secured by way of Phyllis Clothier providing Douglas Brown with the title deeds of the property owned and occupied by her.

4. Should Phyllis Clothier sell her property the loan will be repaid in full as a condition of returning the title deeds, if repayment is not possible then the outstanding balance will form a charge against the property in favour of Douglas Brown

5. Should Phyllis Clothier die before the loan is repaid, then the estate shall repay the loan in full plus any interest up until the date of the repayment.

6. The loan shall attract interest of 0.75% every month on the outstanding balance. For the avoidance of doubt please see appendix 1."

2. Both parties signed the agreement, so it came into effect. Although the agreement contemplated that Mr Brown would make the payments, he in fact arranged for them to be made by a company that he and his then wife controlled. The payments appear to have been put through the company's books as wages, although it is common ground that Mrs Clothier was not employed by the company and had no entitlement to wages. For some reason Mrs Clothier was debited with PAYE on the gross sum of £200 and Mr Brown paid his own higher rate tax on the balance. This arrangement continued without complaint for some nine years.

3. By the time of Mrs Clothier's death she had received over £18,000 by way of monthly payments under this arrangement. On Mrs Clothier's death Mr Brown asked to be repaid the sum of £18,000, which he said was due to him as repayment of the loan. He was met with the defence that he had not himself lent Mrs Clothier the money and hence was not entitled to repayment. This defence was upheld by HHJ Charles Harris QC in the Oxford County Court. In essence the judge held that the contract required Mr Brown's contractual obligations to be performed by him personally and that he was not entitled to delegate performance.

4. It is common ground that the payments which were in fact made to Mrs Clothier were only referable to the agreement made between her and Mr Brown.

5. It seems probable that Mr Brown's action in procuring that the money came from the company in the guise of wages amounted to a breach by him of his fiduciary obligations as a director of the company. No doubt it is for that reason that it is common ground that if Mr Brown recovers from Mrs Clothier's estate he will be liable to account for the recovery. That is primarily a matter between Mr Brown and the company and is not a question raised in this case.

6. In the present case the contract was one for the provision of money. There can be no question but that if Mr Brown had instructed his bank to make payments to Mrs Clothier that would have been performance of the contract. Likewise if he had written her a monthly cheque. Why then should it make any difference that he directed the company to make the payments? The very essence of money is that it is a depersonalised medium of exchange. It is not therefore dependent on the personality of whoever provides it. Moreover, in the modern world the provision of money is not even a physical thing. As in this case, money is routinely transferred by electronic debits and credits in bank accounts. But in strictly legal terms even money in a bank account does not belong to the account holder; it belongs to the bank. The account holder is the banker's creditor to the extent of the credit balance in his account. So the transfer of money is in legal terms the assignment or partial assignment of a debt owed by the bank from one person to another. It is therefore the very essence of a contract to provide money that it will in most cases involve an assignment of the shows in action. In other words, the contract was one by which Mr Brown undertook to procure a result, namely the transfer of money to Mrs Clothier.

7. Mr George, appearing for Mrs Clothier's estate, also accepts that if Mr Brown had paid the money personally, in whatever sense that word is used, there would have been nothing to stop him from assigning the benefit of the debt to a third party with the result that Mrs Clothier might have been liable to make a repayment to somebody she did not know.

8. The judge decided the case against Mr Brown by holding that the contract did not permit vicarious performance, but the judge did not explain what he meant by vicarious performance and did not explain how Mr Brown could have performed the contract consistently with its terms. Moreover, in my judgment the judge did not clearly distinguish, as he should have done, between vicarious performance of a contract on the one hand and assignment or novation of a contract on the other. It is important to be clear about what vicarious performance is. It is a means by which one party to a contract performs his own obligations under that contract. It is not a means by which anyone else has rights under the contract, let alone becomes party to it. The distinction between vicarious performance of a contract and the assignment of the benefit of a contract is clear from the decision of the House of Lords in Nokes v Doncaster Amalgamated Collieries Ltd [1940] AC 1014.

9. The point for decision in the case was whether a scheme of arrangement made under the then Companies Act for the amalgamation of two companies had the effect of transferring the benefit of a contract of employment from the original employer to the new company. It was not a case of vicarious performance but of statutory assignment of the benefit of a contract.

10. In the course of his speech at page 1019 Viscount Simon LC said, in a passage quoted by the judge:

"The rules of law restricting the assignability of contracts are, however, by no means limited to contracts of personal service. In the case of contracts for the sale of goods, for example (unless the contract expressly or by implication covers the purchaser and his assigns), the seller is entitled to rely on the credit of the purchaser as to refuse to recognize any substitute. Similarly, the purchaser is entitled to rely upon the seller and hold him responsible for due performance."

11. The judge interpolated in his quotation of this passage to say that Viscount Simon used the word assignability to mean "performance other than by a contracting party personally". I respectfully disagree. The judge did not quote the immediately following passage from the speech of Viscount Simon in which he said:

"I may add that a possible confusion may arise from the use of the word 'assignability' in discussing some of the cases usually cited on this subject. Thus, in British Waggon Co and Parkgate Waggon Co v Lea the real point of the decision was that the contract which the Parkgate company had made with Lea for the repair of certain wagons did not call for the repairs being necessarily effected by the Parkgate company itself, but could be adequately performed by the Parkgate Company arranging with the British Waggon company that the latter should execute the repairs. Such a result was not dependent upon the assignment of contract at all. It depends on the view that the contract of repair was duly discharged by the Parkgate company by getting the repairs satisfactorily effected by a third party. In other words, the contract bound the Parkgate company to produce a result, not necessarily by its own efforts, but, if it preferred, by vicarious performance through a sub-contractor or otherwise."

12. As I have said, the point in the case was whether a new contracting party could be substituted for the original contracting party. It was therefore a case of true assignment of a contract; in that case a contract of employment. So what Viscount Simon was discussing were the rules about assignment of contracts; that is to say the substitution of one contracting party for another. That, in my judgment, is made clear by the second passage I have quoted in which Viscount Simon expressly distinguishes between assignment and vicarious performance. It is very unlikely that, having pointed out the possible confusion in the use of the word "assignability", Viscount Simon was himself guilty of the same confusion. Accordingly, in my judgment the judge was wrong to interpret the passage he quoted as bearing on vicarious performance rather than assignment.

13. The judge quoted from another passage in the case from the speech of Lord Atkin, in which again Lord Atkin was dealing with the freedom to choose a contracting party; he was not dealing with vicarious performance. Again the judge's reliance on this passage to support his view about vicarious performance was, in my judgment, misplaced.

14. The British Waggon Company and the Parkgate Waggon Company v Lea & Co [1879] LR 5 QBD 149 established the principle that where a person contracts with another to do work or perform service, and it can be inferred that the person employed has been selected with reference to his individual skill competency or other personal qualifications, then that precludes performance being carried out by third party, but there is no case that we have been referred to which applies that principle to a contract to pay money. Likewise in Davies v Collins [1954] 1 All ER 249 (CA) the contract in question was a contract to perform services, namely the cleaning of an army uniform.

15. The judge was impressed by the consideration that Mrs Clothier might have wanted nothing to do with the company, but in so doing he was, in my judgment, proceeding on the implicit assumption that the company had, or would become, a party to the contract of loan. But vicarious performance does not alter the contracting parties; it is a means by which one contracting party fulfils his own obligations under the contract. In my judgment the judge did not correctly distinguish between the assignment of the benefit of a contract and vicarious performance by the original contacting party of his own obligations under it. In my judgment there was nothing in the wording of the contract or in its nature that would have precluded Mr Brown from arranging that the payment made to Mrs Clothier came from a third party, whether his bank or his company. Indeed it is difficult to see how else he could have performed the contract except by making a monthly delivery of bank notes. I would allow the appeal.

Lord Justice Stanley Burnton:

16. I agree.

Lord Justice Maurice Kay:

17. I also agree.

Order: Appeal allowed