England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand. London. WC2A 2LL
		30 April 2002

Mr Justice Laddie:

1. I have before me today an application for an order under ss 111 and 112 of the Financial Service and Markets Act 2002 ("FSMA") for the transfer of the banking business of CA Premier Banking Limited ("CAPBL") to Cater Allen Limited ("CAL") and for various ancillary orders under s 112 of the FSMA. CAPBL and CAL are both banking subsidiaries of the Abbey National group of companies and the court has power to make an order for transfer if certain technical requirements have been met, all of which have been met in this case. However, the sanction of the court for transfer of business under the FSMA is provided for in s 111 which is in the following terms:

"(1) This section sets out the conditions which must be satisfied before the court may make an order under this section sanctioning an insurance business transfer scheme or a banking business transfer scheme;

(2) The court must be satisfied that --

(a) the appropriate certificates have been obtained (as to which see Parts I and II of Schedule 12);

(b) the transferee has the authorisation required, if any, to enable the business, or part, which is to be transferred to be carried on in the place to which it is to be transferred (or will have it before the scheme takes effect).

(3) The court must consider that in all the circumstances of the case it is appropriate to sanction the scheme."

2. This section, which is in very wide terms, would appear to give the court power to sanction the transfer here. As I say, the requirements under section 111(2) have been met.
3. However, Mr. Martin Moore, Q.C., who appears before me on behalf of both the transferor and the transferee, very fairly draws my attention to the fact that identical words to those contained in section 111 are to be found in section 427 of the Companies Act and have been the subject of consideration by the House of Lords in Nokes v. Doncaster Amalgamated Collieries Ltd. [1940] A.C. 1014. The latter case concerned the transfer of a colliery from one company to another under a scheme of arrangement. In the more anti-employee environment which existed at that time, one of the employees of the transferred colliery was fined by Magistrates for non-attendance at work. He objected that the fine could only be levied if he was employed by the transferee company. He argued that the scheme of arrangement which had been sanctioned by Crossman J. in that case under the equivalent provisions of the then Companies Act was ineffective to transfer his contract of employment because a contract of employment was not transferable without the consent of the employee. At all stages up to the House of Lords the courts unanimously held that the equivalent words in the Companies Act which deal with schemes of arrangement entitled the court to sanction the transfer of all property and business and that included the benefits and duties under contracts including contracts of employment. But in the House of Lords by a majority of four to one, Lord Romer dissenting, a rather more narrow view was adopted.
4. Mr. Moore has suggested to me that Nokes can be seen to be limited in that it is really concerned with answering a very narrow question, that is to say whether or not contracts of employment can be transferred without the consent of the employee. It is undoubtedly true that that was the question which was put before the House of Lords and which it was necessary for the House of Lords to answer. It is also undoubtedly true that Viscount Simon restricted his speech to a consideration of that point. This is clear from the following passage:

"In short, s. 154" -- that is the equivalent to section 427 under the current Act --"when it provides for 'transfer' is providing in my opinion for the transfer of those rights which are not incapable of transfer and is not contemplating the transfer of rights which are in their nature incapable of being transferred. I must make it plain that my judgment is limited to contracts of personal service with which the present appeal is concerned. It may well be that current contracts for the supply and purchase of goods are subject to what I may call a statutory novation, except contracts for the supply of 'your requirements' or the like which, like contracts to obey 'your orders', do not seem to me capable of automatic transfer." (p. 1024)

5. Thus Viscount Simon clearly limited his speech to the question of transfer of contracts of employment. That would have no bearing in this case because the way in which CAPBL and CAL are run does not involve them having any relevant employees.
6. Mr. Moore says that the same underlying theme can be discerned in the speech of Lord Atkin. It is true that Lord Atkin's speech starts off with a vigorous and strongly worded defence of an employee's right not to have his contract of employment transferred to a new employer without his agreement. However, notwithstanding that, it seems to me that Lord Atkin construed the equivalent words in the then Companies Act rather more broadly than simply in relation to contracts of employment, see pp 1028, 1030 and 1033 of the report. In the end Lord Atkin summarised his conclusions in a terse sentence as follows:

"I am satisfied that this in the main procedural section should not be construed so as to transfer rights which in their nature are by law not transferable."

7. Lord Thankerton also appears to have approached the question before him rather more broadly than simply by reference to rights of employment and expresses himself accordingly. Similarly Lord Porter appears to have approached the question as one which had to be looked at as a matter of broad principle. He came to the conclusion, as Lord Atkin did, that the provisions in the Companies Act did not bestow upon the court a power to sanction the transfer of rights or duties which were expressly or implicitly not transferable.
8. Certainly the wider interpretation of the decision of the majority in Nokes appears to have been adopted by Utwood J. in Re 'L' Hotel Company Ltd. and Langham Hotel Company Ltd. [1946] 1 All E.R. 319 and by Sachs J. (as he then was) in Re Skinner [1958] 1 W.L.R. 1043.
9. In my view it would be difficult for me to come to a different conclusion on construction in relation to the identical words used in the FSMA. For reasons which will become apparent in a moment, I do not think it is necessary for me to do so.
10. One of the issues which was discussed at some length in the speeches in the House of Lords amongst the majority who came to the conclusion that non-transferrable rights could not be transferred under the scheme of arrangement provisions was the principle that, had the legislature intended to give the court power to sanction the transfer of property which was not transferable, it would need to do so in express terms. Mr. Moore says that even if Nokes is not limited to contracts of employment and even if the same approach should be adopted to the construction of the provisions of section 111 of the FMSA as had been applied by the House of Lords to the identical wording in the Companies Acts relating to schemes of arrangement, nevertheless under the FMSA the legislature has put in place express provisions to allow courts to sanction just those sorts of transfers which the House of Lords held were not transferable in Nokes. This arises under section 112(2) which provides so far as relevant as follows:

"(2) An order under subsection (1)(a) may --

(a) transfer property or liabilities whether or not the authorised person concerned otherwise has the capacity to effect the transfer in question; …"

11. Mr. Moore argues that the purpose of the FMSA was to avoid the necessity for passing a private Act of Parliament when there was to be a transfer of banking business. The FMSA is designed to achieve a more convenient mechanism for allowing such transfers to take place, and s 112(2) should be construed accordingly. It is for that reason that s 112(2)(a) makes it permissible for the order to include a provision for the transfer of property or liabilities even when the authorised person otherwise would have not power to do so. In other words, when the property or liabilities are otherwise non-transferable. He concedes that it is possible to read s 112(2)(a) as being concerned only with matters of constitutional capacity. But he argues that were that to be the case it would be odd for two reasons. First, it would appear to be addressing simply a matter of ultra vires, which is a very minor matter, if it exists at all, in these sort of cases. Second, it would mean that s 112(2) does not get round the problem created by the decision in Nokes with the result that in most cases transfers of banking business would continue to need to proceed either by private Act of Parliament as in the past or by the transferor and transferee having to engage in wholesale renegotiation of contracts.
12. In my view, Mr. Moore's points are good. S 112(2) should be construed widely and gives the court power to sanction, where it considers in all the circumstances that it is justified, the transfer of property or liabilities even in cases where those properties or liabilities might otherwise be non-transferable, for example by reason of express contractual provision. In my view section 112(2) does therefore provide a distinct and clear difference as between the provisions under the FMSA and the equivalent provisions under the Companies Act which were considered in Nokes. It bestows on the court the power to transfer just the sort of banking business which is at issue before me.
13. I have been taken with some care by Mr. Moore through this issue. He has been clearly aware of his duty to draw to the court's attention any matter which might be argued against the grant of the transfer. His skeleton argument has also clearly and helpfully taken me through the nature of the contractual arrangements in place between the two companies. I am satisfied that not only do I have power to sanction the transfer but that this is a case in which a transfer should be sanctioned.
14. In those circumstances I will make the order which Mr. Moore has requested on behalf of his clients.