England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		31/07/2008

The Hon. Mr Justice David Richards:

Introduction

1. This is the trial of two preliminary issues in an action brought by Financial Services Compensation Scheme Limited (FSCS) against Abbey National Treasury Services Plc (ANTS). FSCS sues as legal assignee of the claims of some 1,800 retail investors whom it has compensated under the terms of the Financial Services Compensation Scheme (the scheme). The scheme was established by the Financial Services Authority (FSA) pursuant to Part XV of the Financial Services and Markets Act 2000 (FSMA). The compensation was paid in respect of misselling claims relating to financial products known as structured capital-at-risk products, in circumstances where the independent financial advisers (IFAs) through whom they were sold are, or are likely to be, unable to meet the claims.
2. ANTS is not an IFA, but it is alleged by FSCS to have collaborated in the development and promotion of the structured products with NDF Administration Limited (NDF) which marketed them through IFAs. The claims made by FSCS against ANTS are for negligence and misrepresentation and, jointly with NDF, for breach of statutory duty. FSCS has issued separate proceedings against NDF which are proceeding concurrently with the action against ANTS.
3. The legal assignment of claims against ANTS was effected pursuant to the express terms on which FSCS offered compensation to investors, in accordance with an express power in the scheme. ANTS submits that the inclusion of the express power in the scheme was ultra vires, being beyond the express or implied powers of the FSA under Part XV of FSMA, and that the assignments themselves are therefore void. If well-founded, these submissions determine the action in favour of ANTS. If not well-founded, ANTS submits that as assignee of investors' claims, FSCS must give credit for the sums received by the investors by way of compensation under the scheme, on grounds that such compensation reduced the investors' losses. If well-founded, this submission would have a very substantial effect on the amount claimed. The claim is for over £21.5 million and ANTS suggests that the effect would be to reduce it to less than £1 million. While not able to confirm the size of the reduction, FSCS accepts that the effect would be very substantial.
4. On the application of both parties, I ordered the following issues to be tried as preliminary issues:

"1. Whether the assignments of investors' claims against ANTS referred to in paragraphs 2 and 3 of the Particulars of Claim are void and ineffective on the ground that FSCS had no power to agree such assignments.

2. Whether the compensation paid by FSCS to investors is to be taken into account in the calculation of the loss recoverable by FSCS as assignee of the investors' claims against ANTS."

5. NDF has not participated in the trial of these issues and has not amended its defence to raise the points covered by them. However, FSCS and NDF have agreed in correspondence that if ANTS succeeds on either issue, the ruling on the issue will apply also as between FSCS and NDF.
6. As the first preliminary issue raises directly as an issue the extent of the FSA's powers to establish the terms of the scheme, it was given permission, by consent of the parties, to intervene. It has appeared by Mr Hochhauser QC and Mr Dhar, and confined its submissions to the ultra vires question.

Background

7. For the purposes of the preliminary issues, it is necessary to give only a brief summary of the claims and the facts giving rise to them.
8. The products in issue involved a lump sum investment which linked the return on maturity, by a pre-set formula, to the performance of a specified equity index. The return would be greater or less than the initial investment depending on the performance of the index, but it was geared in the case of most of the products, so that there might be a reduction of 2 per cent or more for every 1 per cent fall in the index. There are 14 types or series of such products in issue in the action.
9. FSCS has compensated approximately 1,800 retail investors in respect of losses suffered by them as a result of investing in one or more of the products between 1999 and 2002. All of the investors invested in the products after receiving a mailshot and/or tailored advice from an IFA, and they all suffered capital losses under the products when the products matured. The investors subsequently claimed compensation from FSCS for their losses on the grounds that the degree of risk under the products was not explained (or was misrepresented) to them by their IFA. FSCS determined that because of their financial circumstances, the IFAs were unable or were likely to be unable to meet the investors' claims, and accordingly FSCS declared the IFAs to be "in default". FSCS subsequently paid compensation to the investors, in return for which the investors assigned to FSCS their claims against their IFA and their claims against third parties such as ANTS and NDF.
10. The products were promoted by NDF, with which the investor contracted. The proceeds of the products were invested in shares in an investment company established for the purpose and listed on the Dublin Stock Exchange. ANTS did not deal directly with investors but it created the products. It was responsible for establishing the investment company, acted as its investment adviser and was the counterparty which entered into an index swap transaction or equity linked deposit transaction with the investment company.
11. NDF was subject, as regards its promotion of the products, to the relevant rules made first under the Financial Services Act 1986 (the 1986 Act) and, in relation to promotion after 1 December 2001, by the FSA under FSMA. FSCS contends that the marketing material for the products failed to make clear the risks associated with them and that investors were induced to invest in the products in reliance on misleading statements and material omissions. Its case is that if the marketing material had, as it puts it, fairly disclosed the degree of risk in the products, the investors would not have invested in them. It claims that NDF was in breach of the applicable rules regulating the contents of marketing material and its claims against NDF are for breach of statutory duty (section 62 of the FSA 1986 and section 150 of FSMA), negligence and misrepresentation.
12. The case against ANTS is that it collaborated with NDF in the development and promotion of the products and in marketing them to investors through IFAs. The claims are in negligence and misrepresentation and, by reason of a joint enterprise with NDF, breach of statutory duty. ANTS denies any liability. It pleads that the plans and promotional material were issued by NDF, and that it is a wholesale institution which has not given investment advice to retail investors or issued promotional material, whether as regards the products or otherwise.

Assignments

13. The facts pleaded in the particulars of claim against ANTS and NDF are alleged to give rise to claims which the investors could advance against those companies and which the investors have assigned to FSCS. The terms on which compensation was offered to investors required them to assign to FSCS their claims against their IFAs and against third parties, which, although not stated, would include claims (if any) against ANTS and NDF. Investors signed declarations which included the following:

"We/I confirm that we/I have received no offer or payment of compensation of any kind in respect of the losses for which compensation is sought herein whether from the firm or any other person. We/I also confirm that we/I do not expect to receive any such compensation in the future. Any such payment of compensation received by us/me, we/I will pay to the Financial Services Compensation Scheme Limited in accordance with Section 4 of this form." [Section 3.4]

"We/I understand that:

The Financial Services Compensation Scheme Limited in its capacity as the Scheme Manager (under Part XV of the Financial Services and Markets Act 2000) will, upon payment of compensation pursuant hereto, take over all our/my rights and claims whatsoever against the firm and against any other party ('Third Party Claim') in accordance with the terms of the investor's agreement and acknowledgment contained in Section 4 hereof.

Thereafter we/I will not be entitled to the benefit of any such rights and claims, save as provided in the said Section 4." [Section 3.8]

14. Section 4 of the form referred to in the passage quoted above included the following:

"4.2 That all our/my rights against the firm in respect of the Protected Claim shall pass to and be assigned to the Financial Services Compensation Scheme Limited absolutely on payment of compensation (or any part thereof) pursuant to the Rules and/or the Order.

4.3 That all our/my rights against any other person which constitute a 'Third Party Claim' as defined in paragraph 13 hereunder shall pass to and be assigned to the Financial Services Compensation Scheme Limited absolutely on payment of compensation (or any part thereof) pursuant to the Rules and/or the Order.

4.4 That upon payment of compensation (or any part thereof) we/I will no longer have the right to make any claim against the firm or any other such person in respect of the Protected Claim or any Third Party Claim, and that the right to make any such claims will be vested in the Financial Services Compensation Scheme Limited pursuant to the Rules and/or the Order. We/I further acknowledge that any such sums which would otherwise be payable to me in respect of the Protected Claim (including any dividend or other payment in any liquidation or compromise with creditors or scheme of arrangement) or any Third Party Claim shall be paid instead to the Financial Services Compensation Scheme Limited.

…

4.10 The Financial Services Compensation Scheme Limited will conduct all proceedings and settlement negotiations regarding claims assigned by me reasonably and with due regard to my interest as well as its own.

4.11 The Financial Services Compensation Scheme Limited will re-assign to me at my request any claim which it and, if relevant, its insurers decide at any time not to pursue further.

4.12 That we/I will provide such further assistance or authority as may be required by the Financial Services Compensation Scheme Limited from time to time to give full effect to the vesting in it of all rights and claims under and for the purpose of this agreement. Insofar as any assignment provided for herein is ineffective in law or equity to vest any rights or claims in the Financial Services Compensation Scheme Limited, the Financial Services Compensation Scheme Limited will be subrogated to those rights or claims, and will be entitled to the proceeds of the Protected Claim and any Third Party Claim. All such proceeds will be paid to the Financial Services Compensation Scheme Limited.

4.13 In this document, 'Third Party Claim' means any right, claim or cause of action which the claimant has or may have against any other person than the firm or against any fund or property in the hands of any person other than the firm and arising out of the circumstances giving rise to the Protected Claim or otherwise relating to that claim, whether such claims shall arise in debt, breach of contract, tort, breach of trust or in any other manner whatsoever."

Relevant terms of the compensation scheme

15. The inclusion of provisions for the assignment of claims against the IFAs and third parties is based on the terms of the scheme. The terms of the scheme are contained in the compensation sourcebook (or COMP) which is part of the FSA Handbook. It is divided into 14 chapters, with 6 schedules, and runs to over 140 pages. It contains both rules (denoted by the letter R) which have binding effect, and guidance (denoted by the letter G). There are in many cases limits set on the maximum amount of compensation payable under the scheme. The limit applicable to the claims in issue in the present case are 100 per cent of the first £30,000 and 90 per cent of the next £20,000, with an overall limit therefore of £48,000.
16. The COMP provisions relevant to the assignment of claims are as follows. COMP 3.2.1R under the heading "The qualifying conditions for paying compensation" provides so far as relevant:

"3.2.1 R The FSCS may pay compensation to an eligible claimant, subject to COMP 11 (Payment of compensation), if it is satisfied that:

(1) an eligible claimant has, for claims other than claims under a protected contract of insurance, made an application for compensation;

(2) the claim is in respect of a protected claim against a relevant person who is in default;

(3) where the FSCS so requires, the claimant has assigned the whole or any part of his rights against the relevant person or against any third party to the FSCS, on such terms as the FSCS thinks fit; and…"

It is not in dispute that in this case the investors who have received compensation were "eligible claimants" whose claims were "protected claims", both as defined in the rules. The "relevant persons who [are] in default" referred to in sub-paragraph (3) are in this case the IFAs.

17. COMP Chapter 7 deals with the assignment of rights to FSCS. Its purpose is described in 7.1.3G:

"The FSCS may make an offer of compensation conditional on the assignment of rights to it by a claimant. The purpose of this chapter is to make provision for and set out the consequences of an assignment of the claimant's rights."

18. The rules in COMP Chapter 7 so far as relevant to this case are as follows:

"7.2.1 R The FSCS may make any payment of compensation to a claimant in respect of a protected claim conditional on the claimant assigning the whole or any part of his rights against the relevant person, or against any third party, or both, to the FSCS on such terms as the FSCS thinks fit.

7.2.2 R If a claimant assigns the whole or any part of his rights against any person to the FSCS as a condition of payment, the effect of this is that any sum payable in relation to the rights so assigned will be payable to the FSCS and not the claimant.

7.2.3 R (1) Before taking assignment of rights from the claimant under COMP 7.2.1 R, the FSCS must inform the claimant that if, after taking assignment of rights, the FSCS decides not to pursue recoveries using those rights it will, if the claimant so requests in writing, reassign the assigned rights to the claimant. The FSCS must comply with such a request in such circumstances.

(2) If the FSCS takes assignment of rights from the claimant under COMP 7.2.1 R, it must pursue all and only such recoveries as it considers are likely to be both reasonably possible and cost effective to pursue.

(3) If the FSCS makes recoveries through rights assigned under COMP 7.2.1 R, it may deduct from any recoveries paid over to the claimant under COMP 7.2.4 R part or all of its reasonable costs of recovery and of distribution (if any).

7.2.4 R Unless compensation was paid under COMP 9.2.3R, if a claimant agrees to assign his rights to the FSCS and the FSCS subsequently makes recoveries through those rights, those recoveries must be paid to the claimant:

(1) to the extent that the amount recovered exceeds the amount of compensation (excluding interest paid under COMP 11.2.7R) received by the claimant in relation to the protected claim; or

(2) in circumstances where the amount recovered does not exceed the amount of compensation paid, to the extent that a failure to pay any sums recovered to the claimant would leave a claimant who had promptly accepted an offer of compensation at a disadvantage relative to a claimant who had delayed accepting an offer of compensation (see COMP 7.2.5 R)."

Issue 1: ultra vires

19. It is those parts of the rules 3.2.1(3) and 7.2.1 which provide for the assignment to FSCS of rights against third parties which ANTS submits are ultra vires the statutory powers of the FSA under Part XV of FSMA.
20. The primary question arising under the first preliminary issue is whether in making the rules for the scheme the FSA had power under FSMA to include provision for the assignment to FSCS of claims by investors against third parties, i.e. against parties other than the regulated person whose insolvency or likely insolvency has led to the claim for compensation. Although the terms of the first preliminary issue might suggest that it was concerned with the capacity of FSCS to take the assignments, this arises, if at all, only as a secondary issue if I hold that the provisions for the assignment of the third party claims were beyond the FSA's rule-making powers.
21. FSMA confers various functions on the FSA as the regulatory authority. These include its "general functions" as set out in section 2(4), of which paragraph (a) specifies "its function of making rules under this Act (considered as a whole)". One of its four regulatory objectives set out in section 2(2) is the protection of consumers.
22. Part XV containing the provisions relating specifically to the establishment of the scheme and the scheme manager comprises sections 212 to 224. The principal section as regards the scheme is section 213 which provides:

"213 (1)     The Authority must by rules establish a scheme for compensating persons in cases where relevant persons are unable, or are likely to be unable, to satisfy claims against them.

(2)     The rules are to be known as the Financial Services Compensation Scheme (but are referred to in this Act as "the compensation scheme").

(3)     The compensation scheme must, in particular, provide for the scheme manager—

(a) to assess and pay compensation, in accordance with the scheme, to claimants in respect of claims made in connection with regulated activities carried on (whether or not with permission) by relevant persons; and

(b)     to have power to impose levies on authorised persons, or any class of authorised person, for the purpose of meeting its expenses (including in particular expenses incurred, or expected to be incurred, in paying compensation, borrowing or insuring risks).

(4)     The compensation scheme may provide for the scheme manager to have power to impose levies on authorised persons, or any class of authorised person, for the purpose of recovering the cost (whenever incurred) of establishing the scheme.

(5)     In making any provision of the scheme by virtue of subsection (3)(b), the Authority must take account of the desirability of ensuring that the amount of the levies imposed on a particular class of authorised person reflects, so far as practicable, the amount of the claims made, or likely to be made, in respect of that class of person.

(6)     An amount payable to the scheme manager as a result of any provision of the scheme made by virtue of subsection (3)(b) or (4) may be recovered as a debt due to the scheme manager.

(7)     Sections 214 to 217 make further provision about the scheme but are not to be taken as limiting the power conferred on the Authority by subsection (1).

(8)     In those sections "specified" means specified in the scheme.

(9)     In this Part (except in sections 219, 220 or 224) "relevant person" means a person who was—

(a)     an authorised person at the time the act or omission giving rise to the claim against him took place; or

(b)     an appointed representative at that time.

(10)     But a person who, at that time—

(a)     qualified for authorisation under Schedule 3, and

(b)     fell within a prescribed category,

is not to be regarded as a relevant person in relation to any activities for which he had permission as a result of any provision of, or made under, that Schedule unless he had elected to participate in the scheme in relation to those activities at that time."

23. As provided by section 213(7), sections 214 to 217 make further provision about the scheme but are not to be taken as limiting the power conferred on the FSA by section 213(1). Sections 216 and 217 concern insurance and are not relevant to the present case. Section 214, omitting sub-sections (4) and (5), provides under the heading "General":

"214 (1) The compensation scheme may, in particular, make provision—

(a) as to the circumstances in which a relevant person is to be taken (for the purposes of the scheme) to be unable, or likely to be unable, to satisfy claims made against him;

(b) for the establishment of different funds for meeting different kinds of claim;

(c) for the imposition of different levies in different cases;

(d) limiting the levy payable by a person in respect of a specified period;

(e) for repayment of the whole or part of a levy in specified circumstances;

(f) for a claim to be entertained only if it is made by a specified kind of claimant;

(g) for a claim to be entertained only if it falls within a specified kind of claim;

(h) as to the procedure to be followed in making a claim;

(i) for the making of interim payments before a claim is finally determined;

(j) limiting the amount payable on a claim to a specified maximum amount or a maximum amount calculated in a specified manner;

(k) for payment to be made, in specified circumstances, to a person other than the claimant.

(2) Different provision may be made with respect to different kinds of claim.

(3) The scheme may provide for the determination and regulation of matters relating to the scheme by the scheme manager.

…

(6) The scheme may provide for the scheme manager to have power—

(a) in specified circumstances,

(b) but only if the scheme manager is satisfied that the claimant is entitled to receive a payment in respect of his claim—

(i) under a scheme which is comparable to the compensation scheme, or

(ii) as the result of a guarantee given by a government or other authority,

to make a full payment of compensation to the claimant and recover the whole or part of the amount of that payment from the other scheme or under that guarantee.

24. Section 215, dealing with "Rights of the Scheme in relevant person's insolvency", provides so far as relevant:

"215 (1)     The compensation scheme may, in particular, make provision—

(a) as to the effect of a payment of compensation under the scheme in relation to rights or obligations arising out of the claim against a relevant person in respect of which the payment was made;

(b) for conferring on the scheme manager a right of recovery against that person.

(2) Such a right of recovery conferred by the scheme does not, in the event of the relevant person's insolvency, exceed such right (if any) as the claimant would have had in that event.

(3) If a person other than the scheme manager [makes an administration application under Schedule B1 to the 1986 Act or [Schedule B1 to] the 1989 Order] in relation to a company or partnership which is a relevant person, the scheme manager has the same rights as are conferred on the Authority by section 362.

…

(6) Insolvency rules may be made for the purpose of integrating any procedure for which provision is made as a result of subsection (1) into the general procedure on the administration of a company or partnership or on a winding-up, bankruptcy or sequestration."

Insolvency rules as referred to in section 215(6) means rules made under sections 411 and 412 of the Insolvency Act 1986: section 215(8)(a).

25. As section 213(1) provides, the scheme is to be established by rules. Section 417(1) defines "rule" as a rule made by the FSA under FSMA. Chapter 1 of Part X contains provisions for the making of rules covering various topics and also contains "procedural provisions" (sections 152 to 156) as regards rules. By reason of their terms and the definition of rule, these procedural provisions apply generally to rules made by the FSA under FSMA, including those which establish and govern the scheme. Section 156(2) provides:

"Rules made by the Authority may contain such incidental, supplemental, consequential and transitional provision as the Authority considers appropriate."

26. The FSA submitted that the power to include provision in the scheme for the assignment to FSCS of claims against third parties was contained in either section 213(1) or section 156(2). It was supported in these submissions by FSCS. It relied on the broad scope of section 213(1), as emphasised by section 213(7) providing that section 214 to 217 "are not to be taken as limiting the power conferred" on the FSA by section 213(1). The power is limited by the express purpose of compensating persons in cases where relevant persons are unable, or are likely to be unable, to satisfy claims against them. Provided, however, that a provision is properly within the ambit of a scheme established for that purpose, it is within the rule-making power conferred by section 213(1). Why, asks Mr Hochhauser, should a rule that compensation for a loss caused by a relevant person is to be provided on terms that the investor assigns to the FSCS claims against third parties for the same loss not be within the proper ambit of the scheme?
27. The FSA relies on the decision of Evans-Lombe J at first instance in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 BCLC 493. In effect the same issue arose under the investors compensation schemes established pursuant to similar statutory powers in the Financial Services Act 1986 (the 1986 Act) and which was replaced by the present scheme. Evans-Lombe J held that a rule requiring the assignment of third party claims as a condition of compensation was intra vires the statutory rule-making power in section 54(1) which was in terms very similar to section 213(1). He said at p505:

"In my judgment it is plainly implicit in a statutory object to create a system for the compensation, of a class of members of the public, that there should also be established an efficient system for the compensating authority to be able to recover from all persons whose misconduct has led to such compensation being necessary, contributions or indemnity to cover the compensation paid."

There was no appeal against this part of his judgment and in the House of Lords, [1998] 1 WLR 896, Lord Hoffmann referred at pp 906–907 to the provision for the assignment of third party claims without adverse comment.

28. If section 213(1) did not itself empower the FSA to include a provision for the assignment of third party claims, the FSA and FSCS submitted that it was an incidental or supplemental provision within section 156(2).
29. On behalf of ANTS, Mr Crow rejected any suggestion that there was an express power to include a provision for the assignment of any claims, still less claims against third parties. If there was a power, it had to be an implied power of the sort recognised and restricted by a series of well-known cases starting in the 19^th century: A-G v Great Eastern Railway Co (1880) 5 App Cas 473, A-G Manchester Corporation [1906] 1 Ch 43, A-G v Mersey Railway Co [1907] AC 415 and Hazell v Hammersmith LBC [1992] 2 AC 1. Such implied powers are those which are by necessary implication conferred on a body, as being reasonably incidental to its express functions. The implication of powers cannot expand the functions of a statutory body, which are a matter for Parliament, and it is not enough if the suggested power would be convenient or desirable or profitable, or simply related to the function.
30. There is nothing to quarrel with in these propositions, and Mr Hochhauser did not do so. But two points should be made. First, in his submissions Mr Crow tended to elide "necessary implication" with "reasonably incidental", so as to produce a test that a power would be implied only if it were necessary to the fulfilment of express statutory purpose or performance of the express statutory function. This is not the test established by the authorities. The test is whether the power is reasonably incidental to the purpose or function. Secondly, as Mr Crow came to accept, it is not in this case a question of reliance on implied powers, because section 156(2) confers an express power to include such incidental or supplemental provisions in its rules as the FSA considers appropriate. This, as I see it, involves a two-part test. A provision must be, objectively, incidental or supplemental to the purpose of the rules in question and it must be, in the view of the FSA which must on ordinary principles be a reasonable view, an appropriate provision to be included.
31. The purpose of the rules for the scheme is to establish a scheme to compensate investors for the inability of relevant persons to meet their claims: section 213(1) and (3)(a). The FSA is not, as Mr Crow emphasised, required or authorised to establish a scheme to provide compensation in respect of claims against solvent third parties (or indeed, it might be added, insolvent third parties). This is fully reflected in a number of provisions in the scheme rules: 1.1.7G, 1.1.10G and 3.2.1R.
32. Mr Crow accepts that it at least might be reasonably incidental to the purpose of the rules to include a provision enabling the scheme manager to take assignments of claims by investors against the relevant person in question. Such a provision might be regarded as reasonably incidental to the purpose of providing compensation in relation to such claims. Because the purpose was not to provide compensation for claims against solvent third parties, Mr Crow submitted that it could not be reasonably incidental to the purpose of the scheme to provide for the assignment of claims against such third parties, even where the claims were for the same loss as the claims against the insolvent relevant person. Even if the provision of compensation for claims against solvent third parties could be characterised as incidental to the purpose of the scheme, a proposition for which no-one contends, a provision for the assignment of claims against the third parties would at best be incidental to the incidental and therefore not within either any implied power or the power under section 156(2): McCarthy & Stone (Developments) Ltd v Richmond upon Thames LBC [1992] 1 AC 48.
33. Mr Crow submitted that his conclusion was supported by subsections (3)(b),(4),(5) and (6) of section 213, empowering the scheme manager to impose and recover levies from authorised persons or classes of authorised persons, and in doing so to take account of the desirability of ensuring that the levies imposed on particular classes of authorised person reflected the actual or likely claims on such classes.
34. Mr Crow drew two conclusions from these provisions for levies. First, the purpose of the levy is to fund compensation for claims against insolvent relevant persons in a way which means that the relevant sector of the industry collectively shares the risk of insolvency of its own members. A power to take assignments of claims against third parties would result in such levies being applied not only in meeting compensation claims but also in funding litigation against third parties outside that sector. In my judgment, this is not a good point. Section 213(3)(b) states the purpose of the levies imposed by the scheme manager as "meeting its expenses (including in particular expenses incurred, or expected to be incurred, in paying compensation, borrowing or insuring risks)." The words in brackets are examples of expenses. If the scheme rules can properly include a power to take assignments of claims against third parties, it follows that the pursuit of such claims will be one of the scheme manager's legitimate expenses. The provisions for levies are dependent on the extent of the scheme manager's powers, not the other way round.
35. As to any concerns for the levy-payers that their payments would be frittered away in litigation, FSCS is bound by rule 2.2.3(2)R in relation to assigned rights to "pursue all and only such recoveries as it considers are likely to be both reasonably possible and cost effective to pursue". So restricted, the pursuit of assigned claims is likely to be welcomed by levy-payers as a means of recouping the compensation funded by the levies on them. They might reasonably take the view that compensation is more appropriately funded by guilty third parties than by innocent levy-payers.
36. The second conclusion drawn by Mr Crow from the provisions on levies was that the compensation fund was to be funded only from levies. I see no warrant for that restriction in the statutory provisions. A power to impose levies requires express provision in the statute, but I do not understand why the inclusion of such power precludes any other source of funding, and section 213(3)(b) itself refers to borrowing, and no reason why it should arise by necessary implication. The submission is somewhat at odds with the acceptance that it might be reasonably incidental to the scheme to include a provision for assignment of the claim against the insolvent third party, from which at least a partial recovery might be made.
37. Mr Crow further relied on various provisions in sections 214 and 215 as reinforcing ANTS' case that the rules made under section 213 are not intended to include provision for the assignment of third party claims. He accepts that, by reason of section 213(7), none of these provisions can be taken as limiting the power by rules to establish the scheme conferred by section 213(1), but he submits that they provide helpful pointers.
38. Section 214(6) provides for a particular situation in which the scheme manager is to have a right of recoupment against a third party. While accepting that it does not preclude the FSA from making provision for assignment of other third party claims, it is submitted for ANTS that it indicates that where it is intended to confer power to make provision for recoveries in order to recoup costs, the Act expressly so provides. In my judgment, no such principle can be deduced from this sub-section. I accept the submission of Mr Hochhauser for the FSA that it deals with a particular and isolated situation, enabling the scheme to provide for the payment of compensation for a claim which is not otherwise covered by the scheme but which is covered by a comparable scheme or by a guarantee given by a government or other authority.
39. Section 215 contains in sub-sections (1), (2) and (6) provisions for conferring on FSCS rights of recovery against the relevant person whose insolvency has led to claims for compensation. They are not provisions for the assignment of claims against the relevant person. They enable a direct right of recovery against the relevant person to be conferred on FSCS in place of the claim of the investor, without the need for any action or agreement by the investor. This is a procedure for which statutory authority is required, a point underlined by sub-section (6) which makes provision for appropriate insolvency rules to be made under sections 411-412 of the Insolvency Act 1986.
40. ANTS submits that section 215 strongly suggests that the FSA has no power at all to clothe the scheme manger with any power to take assignments of claims from claimants. Quite apart from the effect of section 213(7), it does not in my view carry this suggestion. It is not concerned with assignments but is dealing with a procedure for which express statutory authority is required. In my judgment, it has no bearing on the provisions, if any, for the assignment of claims which may be included in the scheme rules.
41. Mr Crow points to the provisions of sections 219, 220 and 224 conferring express powers on FSCS to require a relevant person to provide information and produce documents, or to require the liquidator or other office-holder of a relevant person, or the official receiver, to permit the inspection of documents. He submits that the absence of any such powers as regards third parties would produce an inexplicable discrepancy in powers as between relevant persons and third parties, if the scheme permitted the assignment of claims against third parties. In my judgment, the existence of these powers is explained by the imposition of a statutory duty to provide compensation for claims against relevant persons. Their purpose is to enable FSCS as scheme manager to perform that duty. It is common ground that there is no similar duty as regards claims against third parties and there is no reason why, if an assignment of third party claims is taken, FSCS should not be restricted to the ordinary processes of disclosure or why third parties should be subjected to additional duties of disclosure.
42. There are further considerations on which Mr Crow relies.
43. First, he suggested that a requirement for the assignment of third party claims had a seriously prejudicial effect on an eligible claimant. Such claimants were being required to assign their claims, even where they had not been fully compensated. Many needed a speedy resolution of their claims and were not therefore in a position to refuse compensation. It was suggested that this was an interference with property rights amounting in effect to expropriation, requiring a narrow approach to statutory construction "even without needing to invoke Article 1 of the First Protocol to the European Convention on Human Rights". This strikes me as being way off beam. The assignment is not expropriation but is a term on which compensation is paid to the claimant. If the claimant has not received compensation for the full amount of his claim, for example because it exceeds the maximum amount for which provision is made by the scheme, the claimant does not lose the benefit of the third party claim, except to the extent of the compensation paid to him and the reasonable costs of recovery and distribution: rules 7.2.3(3)R and 7.2.4R. If FSCS does not pursue the assigned rights, the claimant may require their reassignment to him: rule 7.2.3(1)R. These provisions in large part also deal with the suggestion that a provision for assignment is inconsistent with the immunity conferred on the scheme manager by section 222. The only risk is of a negligent final settlement by FSCS of an assigned claim, but it is not a significant consideration against provision for the assignment of claims.
44. Secondly, Mr Crow drew attention to the position of the insolvent relevant person. On paying compensation, FSCS would have a claim against the relevant person, either as a result of an assignment of the investor's claim or as a result of the provisions contemplated by section 215(1). FSCS would rank as an unsecured creditor, pari passu with the other unsecured creditors. Such a claim would or might be a claim in respect of which the relevant person by its liquidator could seek contribution from third parties under the Civil Liability (Contribution) Act 1978. Such a claim would be an asset of the estate of the relevant person which, if successful, would swell the assets available for distribution pari passu among the creditors. By taking an assignment of the investor's claims against third parties, FSCS is able to obtain the benefit of the claim to the exclusion of the other creditors of the relevant person. There is in my view no substance in this. The position is no different from that existing if there were no compensation scheme. The investor would have claims against the relevant person and the third parties. It might equally be said that by proceeding against third parties, the investor was avoiding the consequences of pari passu status in the insolvency of the relevant person. If and to the extent that he proved in the liquidation, the relevant person could by its liquidator seek contribution from third parties, but equally to the extent that the investor recovered from the third party, his claim in the liquidation would be reduced, to the benefit of other creditors except to the extent that his claim was replaced by a claim for contribution by the third party.
45. Thirdly, reference is made to the information-gathering powers of the FSA under section 165 of FSMA and the limited power of disclosure of such information to others, including FSCS for the purpose of performing its functions under Part XV: section 349 and the Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001 (SI 2001/2188). If the assignment of third party claims is permitted, information may be obtained by the FSA under powers with a much wider reach than those of FSCS and then passed to FSCS to enable it to consider and prepare assigned claims against third parties. It is correct that information may pass to FSCS by this means which it could not obtain directly itself. But the FSA's powers to require information and documents is limited to those reasonably required in connection with the exercise by it of functions conferred on it. It would not be a permissible use of its powers for the FSA to obtain documents or information for the purpose of passing them on to FSCS. If in certain circumstances FSCS is put in a better position than ordinary litigants, it occurs in the context of a statutory compensation scheme established and operated in the public interest, and provides in my view no ground for the argument that the scheme cannot provide for the assignment of third party claims.
46. Both ANTS and the FSA rely on the statutory history of the provisions for a compensation scheme. Part XV of FSMA superseded eight former compensation schemes: see the Financial Services and Markets Act 2000 (Transitional Provisions, Repeals and Savings) (Financial Services Compensation Scheme) Order 2001 (SI 2000/2967). These included the Policyholders Protection Scheme (PPS) and the Investors Compensation Scheme (ICS). The PPS was established and governed by primary legislation, rather than by rules made pursuant to statute. The ICS, like the FSCS, was established and governed by rules.
47. ANTS relied on the provisions of the Policyholders Protection Act 1975 establishing the Policyholders Protection Board which operated the PPS. Section 13(4) contained express authority for the assignment by a claimant to the Board of rights not only under his policy but also against third parties. It provided that the duty of the Board to assist a policyholder was subject to:

"compliance on his part with any conditions imposed by the Board with respect to the total or partial assignment to the Board of –

(a) his rights under or in respect of the policy;

(b) any rights he may have in respect of any payments made by him to the liquidator by way of premiums under the policy since the beginning of the liquidation; and

(c) any rights he may have against any other persons in respect of any event giving rise to any liability of the company under the policy."

Mr Crow relied on the absence of an equivalent provision in Part XV of FSMA, particularly as regards third party claims. It would have been easy to include and the fact that a decision must have been taken not to include such a provision was, he submitted, a clear indication that it was not intended that the FSA should have power to include provisions for assignment in the scheme rules.

48. The FSA relied on the precedent set by the rules for the ICS, which was established pursuant to provisions in the 1986 Act which, though shorter, have clear similarities to the relevant provisions of Part XV. Section 54(1) of the 1986 Act provided:

"The Secretary of State may by rules establish a scheme for compensating investors in cases where persons who are or have been authorised persons are unable, or likely to be unable, to satisfy claims in respect of any description of civil liability incurred by them in connection with their investment businesses.

(2) Without prejudice to the generality of subsection (1) above, rules under this section may—

(a) provide for the administration of the scheme and, subject to the rules, the determination and regulation of any matter relating to its operation by a body appearing to the Secretary of State to be representative of, or of any class of, authorised persons;

(b) establish a fund out of which compensation is to be paid;

(c) provide for the levying of contributions from, or from any class of, authorised persons and otherwise for financing the scheme and for the payment of contributions and other money into the fund;

(d) specify the terms and conditions on which, and the extent to which, compensation is to be payable and any circumstances in which the right to compensation is to be excluded or modified;

(e) provide for treating compensation payable under the scheme in respect of a claim against any person as extinguishing or reducing the liability of that person in respect of the claim and for conferring on the body administering the scheme a right of recovery against that person, being, in the event of his insolvency, a right not exceeding such right, if any, as the claimant would have had in that event; and

(f) contain incidental and supplementary provisions."

Like section 213 of FSMA, section 54 of the 1986 Act authorised rules to be made establishing the scheme, which might include provision for the establishment of a fund and levying contributions from authorised persons, or any class of them. Section 54(1)(e), with section 54(6) which provided for the making of insolvency rules, was substantially identical to section 215(1), (2) and (6) of FSMA. The equivalent of section 54(1)(f) is to be found in section 156(2) of FSMA.

49. As mentioned above, the vires of a rule dealing with the effect of assignments of third party claims was considered in ICS v West Bromwich BS, and Evans-Lombe J held that section 54(1) conferred the power to include such rules.
50. Part XV was therefore replacing compensation schemes which, either by direct statutory provision or by rules held to have been made within the statutory rule-making power under the 1986 Act, enabled the scheme managers to take assignments of third party claims. In Part XV there was adopted the approach taken in the 1986 Act, in terms which are similar in many important respects. Rather than thereby deliberately intending to exclude any power to make rules providing for the assignment of third party claims, it is in my view, as Mr Hochhauser submitted, a proper inference that it was intended to adopt and rely on a rule-making power which had been held to permit the making of such rules. In view of the provisions for assignment of third party claims under the schemes replaced by Part XV, a legislative intention to exclude such provisions would more likely have been evidenced by express provision in Part XV.
51. Mr Crow submitted that in ICS v West Bromwich BS Evans-Lombe J did not decide the issue as to the vires of the rules for the assignment of claims. The judge referred in [1996] 2 BCLC 493 at 505 to his earlier judgment in ICS v Cheltenham & Gloucester plc [1996] 2 BCLC 165, saying "I therefore adhere to the view expressed much more shortly in my judgment in the C&G case that Rules giving effect to the assignment of third party claims to a management company are intra vires the rule-making power contained in section 54(1) of the 1986 Act". Mr Crow submitted that on analysis the decision in the C&G case was restricted to deciding whether the assignments of third party claims there in issue took effect as legal or as equitable assignments, and this indicated the true scope of the later decision in the West Bromwich case.
52. The ICS rules made pursuant to section 54 of the 1986 Act included the following rules 2.02(2) and 2.10(1):

"2.02.(2) The Management Company may pay compensation where it is satisfied, on the basis of evidence provided by an investor or which is available to it from other sources, that: (a) an eligible investor has duly applied for compensation; (b) the investor has a claim against a participant firm in default which is both a scheme business claim and a compensatable claim; (c) the participant firm is unable or likely to be unable to meet the claim within a reasonable period; and (d) the investor has agreed, to the satisfaction of the Management Company, that the whole or any part of his rights in the claim against any other person which relate to the subject matter of the claim, should pass to it."

"2.10(1) Where in connection with the payment of compensation, an investor agrees that the whole or any part of his rights in a claim against any person are to pass to the Management Company, the payment of compensation extinguishes the liability of that person to the investor in respect of that claim or part and confers on the Management Company a right of recovery against that person which is otherwise identical to the investor's former rights in the claim or part thereof . . ."

The investors seeking compensation under the scheme submitted claim forms in standard terms which included a paragraph stating: "We hereby assign absolutely to ICS each and every Third Party Claim and the benefit thereof". It was the proper construction of the exclusion from that assignment of "any claim (whether sounding in rescission for undue influence or otherwise)" which went to the House of Lords in the West Bromwich case, and which occupied the major part of the judgments of Evans-Lombe in both cases.

53. In the C&G case at p 182 to 183 Evans-Lombe J stated:

"I turn to consider the final question namely whether the assignment comprised in the claim forms as so construed takes effect as a legal assignment or as an equitable assignment only. I do not understand it to be being submitted on behalf of C&G that the claim forms do not take effect as equitable assignments but this would make it necessary to join the assigning investors so that the court would be in a position at the final hearing to make orders which would bind them.

It is not contended that the assignments comprised in the claim forms were statutory assignments within s. 136 of the Law of Property Act 1925. It is contended on behalf of ICS, and I accept, that such assignments take effect as statutory assignments under the provisions of r. 2.10 of the Financial Services Act (Compensation of Investors) Rules 1990 and that, in consequence, the claims so assigned can be pursued by ICS without joining the investor assignors. I am not prepared to hold, as contended for by C&G, that r. 2.10, in so far as it constitutes the assignment of claims against third parties statutory assignments was ultra vires the rule making power contained in s. 54 of the Financial Services Act 1986. It seems to me that the words of s. 54(1) are sufficiently wide so as to empower the Secretary of State to make rules under it including r. 2.10. Even if the words 'any person' contained in s. 54(2)(e) must be read as referring to an authorised person (in the context of this case, Aylesbury) only subs. (2) is expressly without prejudice to the generality of subs. (1)"

54. In the West Bromwich case, as well as the issue of construction of the exclusion, the preliminary issues in terms raised the question as to whether the assignment was valid and effective. At p504 Evans-Lombe J recorded the submission of counsel for the third parties that if rule 2.10 was to be construed as capable of making effective against third parties assignments within its provisions, it was ultra vires the rule-making powers in section 54 of the 1986 Act. Evans-Lombe J continued:

"It is common ground that if a power to make rules providing for the assignment by investors of claims against third parties to a management company is to be found in s. 54, it must be found under the general power contained in s. 54(1). Mr Vos, in my judgment rightly conceded that s. 54(2)(e) could only apply to assignments of claims against authorised persons within the scheme. It was Mr Vos's contention that nonetheless the general power contained in subs. (1) was sufficient to empower the Secretary of State to make the appropriate rule notwithstanding that it contains no specific power to do so. Subsection (2) is expressly without prejudice to the generality of subs. (1)."

He concluded at p 505 by holding that rule 2.10 was within the terms of section 54(1), in the passages which I have earlier cited.

55. In my judgment it is clear that Evans-Lombe J was holding in the West Bromwich case, and it formed part of his reasoning in the C&G case, that provisions for the assignment of claims were within the rule-making power in section 54, contrary to the submissions of counsel for the West Bromwich Building Society. In substance, in my judgment, Evans-Lombe J decided the issue raised by ANTS on the present application albeit under earlier legislation.
56. I conclude therefore that ANTS derives no support for its case from the various submissions made on sections 214 and 215 and other sections of FSMA or on the various other considerations which it has raised. In some cases, they support the case made for the FSA and FSCS.
57. Against that background, I return to consider the basic issue as to whether by reason of sections 213(1) or 156(2) the FSA had power to include provision in the scheme rules for the assignment of third party claims. In my judgment it clearly did have such power. While such a provision is not an essential component of a compensation scheme, it is in my view an obvious provision and one which can properly be regarded as integral, rather than peripheral, to it. There is a clear connection between the payment of compensation where defendant A is unable to meet the claim and the assignment to the scheme manager not only of the claim against defendant A but also of claims for the same or largely the same loss against defendant B. It is, I would suggest, a provision which any reasonable person would regard as an obvious way in which the scheme could seek to recoup some or all of the compensation which it had been required to pay. I consider that the power to make such provision falls within section 213(1), but if I am wrong about that, it is in my view an incidental or supplemental matter within section 156(2).
58. The centrepiece of Mr Crow's submissions was set out in paragraph 19 of his written submissions which he called the most important paragraph. Its main point was that at best a provision for the assignment of third party claims would be incidental to a scheme for providing compensation against the inability of such third parties to pay the claims. That was not the purpose of the scheme, nor could it be in view of the terms of section 213 and, therefore, it was not incidental to the purpose of the scheme. But for the reasons given above I do not accept that it follows that it cannot be part of, or incidental to, a scheme established to give effect to section 213.
59. Mr Crow submitted, by reference to Hewison v Skegness UDC [1963] 1 QB 584, that the general approach to the imposition of conditions for the provision of benefits to members of the public under a statutory scheme is that they require express statutory authority. Mr Crow, however, accepted that it is always a question of statutory interpretation. For the reasons given in this judgment, the assignment of claims to FSCS as a term of paying compensation is permitted by FSMA. Much could depend on the nature of the condition. In the case of the assignments to FSCS, the investor is not in truth giving up any rights of value because FSCS will through the assigned claims recover at most the payments already paid in compensation, with any surplus going to the investor. By contrast, a condition which had the effect of materially reducing the value of the compensation paid to investors would raise different issues.
60. I conclude therefore that the FSA had power under FSMA to include the rules in the scheme which provide for the assignment of third party claims. It follows that FSCS had power to agree the assignments and I accordingly answer the first preliminary issue in the negative, holding that the assignments of investors' claims against ANTS were not void and ineffective on the grounds of a lack of such power.
61. This conclusion makes it unnecessary to consider in detail or reach a final conclusion on an alternative argument advanced by Mr Railton QC on behalf of FSCS. The essence of this argument was that as FSCS is a company incorporated under the Companies Acts, its acts are never void for want of authority in its memorandum of association, as a result of the operation of section 35 of the Companies Act 1985 (as substituted by the Companies Act 1989). Accordingly, the assignments cannot be impugned on the grounds that FSCS lacked the capacity or power to enter into them.
62. I need only say that I am far from persuaded that this alternative argument is well-founded. FSCS took the assignments as part of its operation of the scheme and pursuant to its express terms. Likewise the investors agreed the assignment of their third party claims as a condition laid down in the scheme. Without authority in the scheme rules, FSCS would not have been entitled or empowered to require the assignments, or to refuse compensation unless assignments were provided. In those circumstances, if I had held that the provisions in the rules were made by the FSA without authority and were therefore void, I doubt whether the assignments could stand as effective. Whether FSCS could have sought voluntary assignments from investors, and whether such assignments would have been effective, I need not consider.

Issue 2: deduction of compensation from the claim against ANTS

63. The second issue is whether the compensation paid by FSCS to investors is to be taken into account in the calculation of the loss recoverable by FSCS as assignee of the investors' claims against ANTS.
64. ANTS submits that the compensation should be taken into account and its case on this issue was argued by Mr David Foxton QC. Mr David Railton QC on behalf of FSCS submitted that it should not be, and the FSA adopted a neutral stance on the issue.
65. The starting point in ANTS' case is that as an assignee of claims from eligible claimants, FSCS can have no greater right of recovery than the claimants in the absence of the assignment, a proposition which is accepted by FSCS. ANTS next submits that in seeking damages in tort or for breach of statutory duty, the claimant is not entitled to recover more than his loss. As Lord Reid said in Parry v Cleaver [1970] AC1 at 13, "it is a universal rule that the plaintiff cannot recover more than he has lost", echoed by Lord Bridge of Harwich in Hunt v Severs [1994] 2 AC 350 at 357:

"The starting point for any inquiry into the measure of damages which an injured plaintiff is entitled to recover is the recognition that damages in the tort of negligence are purely compensatory. He should recover from the tortfeasor no more and no less than he has lost."

66. The third step in ANTS' case is that it follows that a claimant must deduct from his claim any payments, such as compensation from other sources, which go to reduce his loss and his claim is restricted to the net loss. Fourthly, there are very limited exceptions to this rule. While the category of exceptions may not be closed, only two have been established, payments under insurance policies for which the claimant has paid the premiums and gratuitous, benevolent payments by third parties: Hussain v New Taplow Paper Mills Ltd [1988] AC 514. Fifthly, compensation paid to investors by FSCS under the scheme do not fall within either of these exceptions nor should the exceptions be extended to cover such compensation: see Hodgson v Trapp [1989] AC 807 at 823. As an alternative argument to his main submissions, Mr Railton for FSCS submitted that compensation under the scheme should constitute an exception, but for the purposes of what follows I will assume that it does not do so.
67. The third step in ANTS' case, requiring the deduction of payments which go to reduce the claimant's loss subject only to the two established exceptions, gives effect to the underlying principle of confining the claimant to his loss and preventing double recovery by him. Where the deduction is not required to prevent double recovery, and where (as here) no issue of double jeopardy to the defendant arises, the deduction is not made. If, therefore, payments are made by a third party to a claimant on terms that he will reimburse the third party out of recoveries from the defendant, no deduction is required to prevent double recovery and a deduction is not therefore made.
68. This may be illustrated by two examples. In Berriello v Felixstowe Dock & Railway Co [1989] 1 WLR 695, an Italian seaman was injured by the negligent acts of the defendant. Under an Italian compensation scheme, the seaman received a payment and was due to receive a larger payment. Under the terms of the scheme, he was liable to repay the compensation out of damages recovered from the defendants. The Court of Appeal held that therefore the compensation did not fall to be deducted from his claim in the action. The claim did not involve any double recovery. Bingham LJ observed at p 698 that the decisions in Hussain v New Taplow Paper Mills Ltd and Hodgson v Trapp would have required deduction of the compensation "were it not that there appears in this case to be no risk of the plaintiff being paid twice." To the same effect, Dillon LJ said at p 700:

"But the reason why under the two decisions such sums would, in a general case, be deductible from damages is that otherwise a plaintiff would be compensated twice for the same loss, once by an award of damages and once by a welfare payment by a state authority. In the present case there has been a special factor that the plaintiff would not be compensated twice, even if two sums are not deductible from damages awarded against the defendants."

69. The second example is the claim by a person who has the benefit of indemnity insurance under which he has received a payment in respect of the loss for which he claims against the tortfeasor. By reason of subrogation, the insurer will be entitled to reimbursement of the payment made by it out of the damages recovered from the tortfeasor. There will therefore be no double recovery and the claim is not reduced by the amount paid by the insurer: see Bristol and West BS v May May & Merrimans [1998] 1 WLR 336 at 345-347 and Arab Bank plc v John D Wood Commercial Ltd [2000] 1 WLR 857 at paras 95 and 101.
70. The terms of the agreement whereby FSCS paid compensation to investors provides that investors should pay over to FSCS any recoveries from the defaulting firm or third parties. Section 3 of the agreement, headed "Your declaration", starts with the words "We/I hereby apply for compensation for the losses, as a result of the default of the firm – We/I understand that the compensation is based upon:" and there follow eight unnumbered paragraphs containing various confirmations. I have set out sections 3.4 and 3.8 earlier in this judgment.
71. Section 4, headed "Your agreement and acknowledgment", contains 14 numbered paragraphs, many but not all of which are concerned with the assignment of claims. Section 4.1 is an acceptance of the offer of compensation in full and final discharge of the obligations of FSCS as scheme manager under the scheme. Sections 4.2 and 4.3, which I have set out earlier in this judgment, provide for the assignment to FSCS of the investors' claims against the firm and third parties absolutely on payment of compensation. The marginal note states:

"What does 'assignment of rights' mean? When you assign this section, and we pay you compensation, we step into your shoes to try and recover what we pay out…"(emphasis added)

72. Section 4.6 provides:

"That in the event of our/my recovery of any monies or assets in respect of the Protected Claim or in respect of any Third Party Claim, we/I will forthwith pay or transfer them to the Financial Services Compensation Scheme Limited."

A marginal note reads:

"What if the firm offers me compensation? If the firm, its liquidators, a trustee of the firm, or anyone else pays you compensation, it should be sent to us, as you have asked us to pay your claim."

Section 4.10, which I have set out earlier, underlines that the purpose of the assignment is recoupment by FSCS, with any surplus recovery going to the investor. Sections 4.11 and 4.12, which I have also set out provide for the re-assignment of claims and for rights of subrogation if the assignment is ineffective.

73. Sections 3.4 and 4.6, as well as section 4.12 dealing with subrogation, provide that the investor must pay to FSCS any recoveries from the defaulting firm or third parties. Mr Foxton submitted that these provisions simply gave effect to the agreement to assign, without changing the nature or content of the right assigned which was necessarily a right to recover the loss net of the compensation received by the investor. He pointed to the closing words of section 3.4, "in accordance with section 4 of this form", which indicated, he submitted, that the obligation in section 3.4 to pay any compensation received from the firm or a third party to FSCS was no more than a consequence of the assignment for which section 4 provided. I do not consider that these provisions should be read in this restricted way. But for the closing words of section 3.4, it is an unqualified obligation to account to FSCS for any compensation received. The closing words do no more than refer to section 4 which is not concerned only with the consequences of assignments. Section 4.6 operates irrespective of an assignment, as both its terms and the marginal note make clear, and section 4.12 operates in the absence of an effective assignment. I do not see why effect should not be given to these provisions in accordance with their terms, so that as in Berriello the investors are liable to pay any compensation received from third parties to FSCS and therefore no question of double recovery arises. Mr Foxton submitted that these provisions would not apply to a claim which FSCS re-assigned to the investors under section 4.11. That would be right only if sections 3.4 and 4.6 were describing the consequences of assignment, but for the reasons given I reject that submission, and there is no reason why those sections should not apply to a re-assigned claim.
74. It is clear that sections 3.4, 4.6 and 4.12 are closely linked with the provisions for assignment. They all form part of a single agreement, the purpose of which is clear: to enable FSCS to be recouped out of recoveries from the defaulting firm or third parties. This purpose is clear from the terms of the agreement and the marginal notes. It is clear also from the scheme rules which require any surplus recoveries over and above the amount of compensation to be paid to the investor: rule 7.2.4 R. As Mr Railton submitted, the provisions for assignment are themselves made solely as a means whereby FSCS can recoup its outlay. To give effect to this purpose it is necessary that there is assigned the gross claim, as is clearly the intention from rule 7.2.4 R and sections 3.8, 4.4 and 4.10 of the agreement. The inclusion of provisions such as sections 3.4, 4.6 and 4.12 are necessarily part of a scheme designed to achieve that purpose. Mr Foxton submitted that there was no authority in the scheme rules for the inclusion of those sections in the agreement with investors. In my judgment authority existed to include those provisions which are a necessary part of the scheme. It would be an extraordinary position if the purpose of the assignment as set out in the scheme rules, both in terms of recouping FSCS and paying any surplus to the investors, would be defeated by an inability to include the provisions necessary to give effect to it. Mr Foxton pointed out that by their terms section 3.4 and 4.6 are not restricted to amounts equal to compensation paid by FSCS to the investor, but in my view it is both necessary and clear from the context that they are restricted to those amounts.
75. The technical nature of ANTS' argument is shown by its acceptance that if FSCS had paid compensation to investors on an interim basis, it could have required the investors to pay to it any third party recoveries and therefore any assignment of investors' claims to FSCS would have related to their gross, not net, claims. Rule 11.2.5 R of the scheme provides that:

"The FSCS may also decide to make a payment on account or to pay a lesser sum in final settlement if the claimant has any reasonable prospect for recovery in respect of the claim from any third party or by applying for compensation to any other person."

Mr Foxton submitted that it is implicit in the making of a payment on account that it can be recovered back and that by adopting this route FSCS would have been able to pay compensation and still claim the gross amount against ANTS.

76. There are no circumstances in which the pursuit of the assigned claims against ANTS for the gross loss suffered by investors will lead to double recovery. There is no reason in principle, on the terms of the scheme rules or agreements with investors, why the assigned claims should be restricted to the net loss, giving credit for the compensation already paid by FSCS to investors. The consequences of ANTS' argument can be simply illustrated. An investor who has suffered loss of £96,000 receives the maximum compensation of £48,000 from FSCS. FSCS sues as assignee of the investor's claim against ANTS. If ANTS is correct, the claim is reduced to £48,000 with the result that FSCS recoups itself but there is nothing available to pay the balance of the investor's loss. This would be an absurd result of a compensation scheme, but it does not in my judgment arise in the case of the present scheme.
77. Accordingly, on the second preliminary issue, I hold that compensation paid by FSCS to investors is not to be taken into account in the calculation of the loss recoverable by FSCS as assignee of the investors' claims against ANTS.