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FOURTH
SECTION
DECISION
AS TO
THE ADMISSIBILITY OF
Application no.
48407/07
by OBG Ltd and Others
against
the United Kingdom
The
European Court of Human Rights (Fourth Section),
sitting on 29 November 2011 as a Chamber
composed of:
Lech Garlicki, President,
David
Thór Björgvinsson,
Nicolas Bratza,
Päivi
Hirvelä,
George Nicolaou,
Ledi
Bianku,
Vincent A. De Gaetano, judges,
and
Lawrence Early,
Section Registrar,
Having
regard to the above application lodged on 30 October 2007,
Having
regard to the observations submitted by the respondent Government and
the observations in reply submitted by the applicants,
Having
deliberated, decides as follows:
THE FACTS
-
The first applicant, OBG Limited, is a limited company registered in
England. The second applicant, OBG (Plant and Transport Hire)
Limited, is also a limited company registered in England. They are
companies in liquidation. They are referred to throughout as “OBG”.
-
The third applicant, Ronald Robinson, is a British national who was
born in 1946 and lives in Manchester. The fourth applicant, Ric
Traynor, is a British national who was born in 1959 and lives in
Manchester. The third and fourth applicants were appointed as
liquidators of the first and second applicants in 1992.
-
The four applicants are represented before the Court by Mr J
Alderton, a lawyer practising in Leeds with Hammonds LLP, assisted by
Mr J. Randall QC and Mr M. Brown, counsel.
-
The United Kingdom Government (“the Government”) were
represented by their Agents, Ms H. Upton and Ms J. Neenan of the
Foreign and Commonwealth Office.
A. The circumstances of the case
1. Debentures and administrative receivership
- In
English law, a debenture is a document creating or acknowledging the
terms of a loan. It may be secured by a charge, which is an interest
in a company’s property that is created in favour of a
creditor. One type of charge is a “floating” charge,
which does not attach to any specific assets.
-
In English company law, administrative receivership is the process by
which administrative receivers are appointed in respect of a company
which is unable to meet its debts under a debenture. Administrative
receivers may be appointed by the holders of any debenture which is
secured by a charge (see section 29(2) of the Insolvency Act at
paragraph 58 below). Thus, administrative receivership is essentially
a debt enforcement mechanism for a debenture holder. When
administrative receivers are appointed, their primary duty is to the
debenture holder, and their function is to ensure that, through the
disposal of the company’s assets, they raise enough money to
pay the amount due to the debenture holder.
- Administrative
receivership is to be distinguished from two other processes which
may apply to a company which is experiencing financial difficulties:
liquidation and administration. Liquidation (or winding up) is the
process by which an insolvent company is dissolved and its assets
sold for the benefit of its creditors. Administration is a process
which allows for the appointment of an external manager to run a
company and manage its assets. It differs from administrative
receivership in that it is done for the benefit of the company and
its general creditors, not for a particular debenture holder. It is
also different from liquidation in that its goal is to ensure the
survival of the company.
-
The present case concerns the process of administrative receivership
which took place in respect of OBG, and the subsequent domestic
proceedings which it brought against the receivers. The circumstances
of the case may be summarised as follows.
2. The applicant companies’ background and RBS’s
debenture
9. OBG conducted a major utilities construction business in the early
1990s. Its major customer was North West Water Limited (“NWW”),
which accounted for at least 75% of its turnover.
- OBG’s
business with NWW was based on a series of contracts, each of which
contained a clause (clause 63) which meant that, if OBG went into
liquidation, NWW could expel OBG from its sites and employ another
contractor to do the work. Under clause 63, if the other contractor
did the work more cheaply than OBG, then the savings made by NWW
became due to OBG. If the other contractor cost more, then OBG had to
pay the excess to NWW.
-
On 6 March 1991, OBG mortgaged its assets and undertakings in favour
of the Royal Bank of Scotland PLC (“RBS”), by means of a
debenture. The debenture was secured by a floating charge over OBG’s
assets and undertakings.
3. The administrative receivership of OBG
-
In March 1992, a dispute arose between OBG and NWW, in which NWW
alleged that it had been overcharged by OBG. As a result, NWW
suspended payments to OBG and sought repayment of sums already paid
to OBG under the contracts. This suspension of payments meant that
OBG was unable to pay the debts which it owed to its sub-contractors,
suppliers and other creditors. This included its debts to one of its
major sub-contractors, Centriline Limited (“Centriline”),
of over GBP 1,000,000.
- Therefore,
to ensure the continued solvency of OBG and Centriline, OBG entered
into negotiations with Centriline for a secured loan. Those
negotiations were inconclusive and no loan agreement was concluded
between OBG and Centriline. However, in the course of the
negotiations Centriline’s solicitors, Penningtons, drew up
documents arranging for the transfer of the RBS debenture from RBS to
Centriline. The documents were only executed by RBS and Centriline.
-
The difficulty with these arrangements was that OBG had owed nothing
to RBS under the floating charge in the debenture. Consequently, no
secured debt was assigned to Centriline with the debenture.
Nonetheless, Centriline was advised by Penningtons that it could
attach OBG’s unsecured debts onto the debenture.
- Pursuant
to Penningtons’ advice, on 8 June 1992 Centriline appointed
administrative receivers over all of OBG’s assets and
undertakings. It did so in order to recover the money which it was
owed by OBG.
-
The applicants maintained that, because Centriline could not attach
its unsecured debts to the debenture, Centriline had no lawful
authority to take over the rights of RBS under the debenture.
Therefore, it had no right to appoint administrative receivers to
recover the money that it was owed by OBG.
-
The receivers also took legal advice from Penningtons and were told
by Penningtons that their appointments were valid. Pursuant to that
advice, on 9 June 1992, the receivers took possession of all OBG’s
assets and business. The receivers negotiated with NWW for the
release of funds owed by NWW to OBG, in order to fund future
activity. However, these negotiations were also unsuccessful.
Consequently, on 12 June 1992, the receivers instructed OBG’s
staff and contractors to cease all work due under the contracts
between NWW and OBG. On the same date, the receivers also terminated
the majority of the OBG’s contracts with its staff and
contractors.
-
The receivers then realised OBG’s assets. They did so by
selling its land, plant and equipment; negotiating the settlement of
its claims under its contracts with NWW; completing, assigning or
abandoning its contracts with other customers; collecting its book
debts; and taking the credit balance in its bank account. In so
doing, the receivers realised a total amount of GBP 1,087,000.
- The
negotiations with NWW resulted in an agreement that NWW would pay OBG
GBP 400,000 in full and final settlement of all claims under the
contracts. This agreement was signed in August 1997 by NWW and by the
receivers on behalf of OBG, with the concurrence of its liquidators.
The entire sum realised by the receivers was used to repay OBG’s
debt to Centriline and to pay the fees and expenses of the receivers.
-
Having no further assets with which to pay their remaining creditors,
OBG’s directors called a meeting with their creditors on 29
July 1992, at which resolutions were passed to wind up OBG and to
appoint liquidators. On that date, it is estimated that OBG owed its
creditors, excluding Centriline, approximately GBP 4,000,000.
4. OBG’s claim against Centriline and the receivers
-
OBG’s sole remaining asset was a claim against Centriline and
the receivers for the unlawful appointment of the receivers and the
receivers’ subsequent realisation of its assets.
-
Consequently, and with their creditors’ approval, OBG commenced
proceedings on 19 October 1995 against Centriline and the receivers,
claiming that the appointment of the receivers had been unlawful and
seeking damages.
- However,
by this date, Centriline was neither solvent nor trading, and went
into liquidation on 24 April 1996. It did not, therefore, take an
active part in the proceedings commenced by the applicants.
Penningtons were subsequently added as defendants in the proceedings.
a. The High Court’s judgment on the invalidity
of the receivers’ appointment
-
Prior to the first hearing in the High Court, Penningtons admitted
that their advice to the receivers, namely that their appointment had
been valid, had been negligent and that Penningtons were accordingly
liable to the receivers for any loss resulting from their advice.
-
By order dated 31 January 2001 and a written judgment of 27 April
2001, the High Court declared that the appointment of the receivers
was invalid. It ordered the receivers to pay damages to be assessed
at a later date.
b. The High Court’s judgment as to damages
26. At this stage of proceedings, OBG abandoned a claim it had made
for an “account”. This is a claim requiring a party to
account to another party for his dealing with property which has been
held under a “constructive trust”. (A constructive trust
exists, for example, in respect of the assets of a company in
receivership.)
-
Instead, OBG claimed damages inter alia for trespass and
wrongful interference with its property, and loss and damages
suffered as a result of the receivers’ invalid appointment.
- The
basis of OBG’s claim was that, but for the invalid appointment
of the receivers, OBG would have obtained orders for administration.
OBG further claimed that, if orders for administration had been
obtained, it would have survived as a business.
-
Alternatively, OBG claimed there would have been a better realisation
of its assets, particularly in relation to the value of its contracts
with NWW. This was because it had become apparent, through the
disclosure of previously undisclosed documents by NWW, that, in the
years after 1992, NWW had made substantial savings when it gave OBG’s
work to another contractor. Accordingly, by operation of clause 63 of
the contracts between OBG and NWW (see paragraph 9 above), the fact
that OBG had gone into receivership meant that the savings made by
NWW became due to OBG.
-
In later pleadings OBG also alleged that the receivers had committed
the tort of conversion (a tort involving the misappropriation of
property: see paragraph 59 below). OBG also alleged that this tort
had occurred in respect of both its “chattels” (tangible
assets other than freehold land) and its “choses in action”
(intangible assets such as contractual rights).
-
In the course of proceedings it was made clear by OBG that its claim
for damages was based on the valuation of the business at 9 June 1992
(the date on which the receivers took over). Its claim was not
that the receivers were in breach of the duties they would have owed
to OBG had they been validly appointed.
- OBG
also pleaded that these torts were committed on 9 June 1992. This had
the consequence that the damages which OBG sought were the difference
between the value of the business at that date and the amount
actually realised by the receivers. OBG did not, however, allege
negligence in the way the receivers had realised the assets or allege
that there had been any intention on the part of the receivers to
cause loss.
-
The High Court gave judgment for OBG on 18 February 2004. The trial
judge rejected OBG’s submission that, but for the receivers’
invalid appointment, it would have survived as a business. Instead,
he concluded that OBG’s liquidation or insolvency would have
occurred even if the receivers had not been appointed.
- The
trial judge also rejected OBG’s submission that the tort of
conversion could apply to intangible assets such as contractual
rights, finding that there was no basis in the common law for this
approach.
-
The trial judge found, however, that OBG could rely on the tort of
interference with contractual relations. This tort applied equally to
the receivers’ interference with OBG’s tangible assets
and to the receivers’ interference with OBG’s intangible
assets (such as the NWW contracts).
-
The trial judge accepted that liquidators would have realised a
larger sum than the receivers did, particularly in relation to the
value of the contracts with NWW. Approximately GBP 1,067,000 more
could have been realised from the contracts than the receivers had
achieved. Therefore, he assessed the total damages due to OBG at GBP
1,854,000 plus interest in the sum of GBP 1,180,579. The damages as
assessed included both OBG’s tangible assets and its intangible
assets, such as its rights under the NWW contracts.
c. The Court of Appeal’s judgment
-
The receivers and Penningtons appealed to the Court of Appeal. They
conceded that OBG could rely on the tort of trespass in respect of
OBG’s land, of which the receivers had taken control. They also
conceded that OBG could rely on the tort of conversion in respect
OBG’s tangible assets, of which the receivers had taken
control. However, the receivers and Penningtons argued that the torts
of conversion and wrongful interference with contractual relations
did not allow damages to be recovered in respect of intangible
assets.
-
On 9 February 2005 the Court of Appeal held unanimously that the tort
of conversion did not apply to intangible assets. It was not open to
the court to invent such a tort.
-
The Court of Appeal was, however, divided as to whether the tort of
wrongful interference with contractual relations allowed damages to
be recovered in respect of intangible assets. Lord Justice Peter
Gibson and Lord Justice Carnwath found that it did not; Lord Justice
Mance found that it did.
-
Lord Justice Peter Gibson considered that the issue was whether the
tort of wrongful interference with contractual relations should be
extended to cover situations where there was no intention by a third
party to procure a breach of a contract or to impede the performance
of a contract. He found that there was no authority for extending the
tort in this way. To do so would be to change the nature of the tort:
it had always required an intention to procure a breach of contract
or a breach of duty.
-
For Lord Justice Peter Gibson, the receivers had intended to manage
the contractual rights of OBG. There had been an intention to
interfere in OBG’s business (though no intention to cause loss
or damage). However, this did not amount to an interference with
contractual relations in any relevant sense. This conclusion meant
OBG’s claim had to be dismissed, a conclusion which he reached
“with regret”: the wrongful taking control of intangible
assets by an invalidly appointed receiver ought to have had
consequences in law. Other claims brought in equity or negligence
might have been successful, but OBG’s claim based on tort had
to fail.
-
Lord Justice Carnwath agreed with Lord Justice Peter Gibson. He found
that it would have been a significant extension of the tort if it
were to include cases where the interference was not directed at
hindering performance of contractual obligations. There was also no
policy reason for extending the tort to cases where negligence could
not be established (i.e. to impose strictly liability on the
receivers). The unusual facts of OBG’s case made it unsuitable
for such an extension.
- Lord Justice Mance, dissenting on this issue, found
that the receivers had directly interfered with OBG’s contracts
with NWW. The interference was not intended to cause loss but, in the
circumstances, this was not a pre requisite of liability for the
tort. The tort of wrongful interference with contractual relations
extended to any situation in which a person’s pre-existing
legal situation was altered, even if this did not involve any breach
or non-performance of an obligation to a third party. The receivers’
intervention had changed significantly the way in which OBG’s
rights under the NWW contracts had been ascertained and settled. For
Lord Justice Mance, this was sufficient for the purposes of the tort
of wrongful interference with OBG’s pre-existing legal
position. It was immaterial that the receivers did not realise that
they were acting without authority. It was also immaterial that they
had no intention to cause harm to OBG. It was appropriate to find
that an invalidly appointed receiver was strictly liable for
interference with tangible assets and that he or she was also
strictly liable for interference with contractual relations.
-
By order dated 21 February 2005, the Court of Appeal reduced the
amount of damages owed to the applicants to GBP 244,000 plus
interest. (The difference between the damages as assessed by the High
Court and those as assessed by the Court of Appeal is explained by
the finding by the majority of the Court of Appeal that the law of
tort did not provide for damages to the applicants in respect of
intangible assets, such as their bank account, sums due under
contracts, or other debts.)
d. The House of Lords’ judgment
-
OBG appealed to the House of Lords. By judgment of 2 May 2007, and by
a majority of three to two, the House of Lords upheld the Court of
Appeal’s judgment and dismissed the appeal.
i. Interference with contractual relations
-
The five Law Lords hearing the appeal unanimously rejected OBG’s
claim based on an interference with contractual relations. Lord
Hoffmann, who gave the lead speech, held that there were only two
possible causes of action: the tort of procuring a breach of contract
or the tort of causing loss by unlawful means. (Lord Nicholls,
concurring on this point, observed that there was no “hybrid
tort” of interfering with contractual relations.) It was plain
and obvious to Lord Hoffmann that the requirements for liability
under either of these torts were not satisfied.
47. For the first, the tort of procuring a breach of contract was a
tort of “accessory liability” (the principle that a
person who procures another to commit a wrong incurs liability as an
accessory). The tort required (i) intention to cause a breach of
contract and (ii) a breach of contract in fact to take place. In
OBG’s case, there had not been any breach or non performance
of a contract. Therefore, there was no wrong to which accessory
liability for procuring a breach of contract could attach.
48. For the second, the tort of causing loss by unlawful means
required (i) the use of unlawful means and (ii) an intention to cause
loss to the claimant. In OBG’s case the requirements of the
tort had not been met either. The receivers had neither used unlawful
means nor intended to cause the applicants any loss.
-
Lord Hoffmann added that Lord Justice Mance’s approach
(see paragraph 43 above) referred to the tort of causing loss by
unlawful means. Lord Hoffmann reiterated, however, that this tort
required both the use of unlawful means and an intention to cause
loss. Neither of these elements was present in the applicants’
case.
-
Lord Hoffmann disagreed with Lord Justice Peter Gibson’s
expression of regret that OBG did not have a remedy in law for the
acts of the invalidly appointed receivers. He noted that this was not
a case in which an invalid appointment of receivers had caused damage
to a solvent company. The trial judge had found that OBG would not
have survived as a business and that it had been heading for
liquidation or insolvency. The receivers had acted in good faith,
believing their appointment to be valid. Furthermore, OBG’s
liquidators had concurred in the agreement reached with NWW for the
full and final settlement of all claims arising under OBG’s
contracts with NWW. Therefore, it could not be said that, as a result
of the actions of the receivers, OBG had suffered a loss which it
would not otherwise have suffered.
ii. The tort of conversion
-
As to OBG’s claim in respect of the tort of conversion, the Law
Lords were divided three to two. The majority concluded that this
claim should also be rejected.
-
Lord Hoffmann, writing for the majority, noted that the tort of
conversion was historically a tort against a person’s interest
in a chattel (tangible asset). Consistent with its ancient origin, it
was a tort of strict liability (i.e. a tort which did not require the
claimant to prove that the defendant was at fault). The law had
always been very wary of imposing any kind of liability for “pure
economic loss” (loss which does not arise directly from
physical damage or injury).
-
Moreover, the torts of procuring a breach of contract and causing
loss by unlawful means were highly restricted in their application.
They were not torts of strict liability: as he had noted, the tort of
procuring a breach of contract required proof of an intention to
procure a breach of the contract; the tort of causing loss by
unlawful means required proof of an intention to cause loss (see
paragraphs 47 and 48 above) .
-
Against this background, it would be an extraordinary step suddenly
to extend the tort of conversion to impose strict liability for pure
economic loss on receivers who had been appointed and had acted in
good faith. Such a step would be for Parliament to take.
-
Lords Walker and Brown agreed with Lord Hoffmann. They both added
that the facts of OBG’s case made it singularly unsuitable for
such a major change in law.
56. Lord Nicholls and Baroness Hale dissented on this point.
Lord Nicholls argued that the tort of conversion had been
extended in the past to cover not only tangible assets but also
certain intangible assets which were embodied or recorded in a
document (such as share certificates). He saw no reason why the tort
of conversion could not be extended still further to encompass
intangible assets which were not so documented. This was a “modest
but principled extension” of the doctrine, which fully accorded
with the role of the courts in developing the common law and which
respected the intentions of Parliament.
-
Baroness Hale found that it made no sense for the receivers to be
strictly liable for what was lost on OBG’s tangible assets but
not for what was lost on its intangible assets. It would be
inconsistent with principle if the tort of conversion were not
extended to encompass both tangible and intangible assets.
B. Relevant domestic law and practice
1. Administrative receivership
58. Part III of the Insolvency Act 1986 deals with administrative
receivership. An “administrative receiver” is defined at
section 29(2)(a) as being:
“a receiver or manager of the whole (or
substantially the whole) of a company’s property appointed by
or on behalf of the holders of any debentures of the company secured
by a charge which, as created, was a floating charge, or by such a
charge and one or more other securities.”
Section
34 of the same Act provides that:
“Where the appointment of a person as the receiver
or manager of a company’s property under powers contained in an
instrument is discovered to be invalid (whether by virtue of the
invalidity of the instrument or otherwise), the court may order the
person by whom or on whose behalf the appointment was made to
indemnify the person appointed against any liability which arises
solely by reason of the invalidity of the appointment.”
Section
44 provides that:
“(1) The administrative receiver of a company –
is
deemed to be the company’s agent, unless and until the company
goes into liquidation;
is
personally liable on any contract entered into by him in the
carrying out of his functions (except in so far as the contract
otherwise provides) and on any contract of employment adopted by him
in the carrying out of those functions; and
is
entitled in respect of that liability to an indemnity out of the
assets of the company.
(2)
For the purposes of subsection (1) (b) the administrative receiver is
not to be taken to have adopted a contract of employment by reason of
anything done or omitted to be done within 14 days after his
appointment.
(3)
This section does not limit any right to indemnity which the
administrative receiver would have apart from it, nor limit his
liability on contracts entered into or adopted without authority, nor
confer any right to indemnity in respect of that liability.”
Section
232 provides:
“The acts of an individual as administrator,
administrative receiver, liquidator or provisional liquidator of a
company are valid notwithstanding any defect in his appointment,
nomination or qualifications.”
2. Conversion
59. The tort of conversion is based on the ancient tort of “trover”.
Historically, trover was based on the fictitious allegation that the
claimant had lost a chattel and that the defendant had found it. The
modern tort of conversion holds that anyone who “converts”
a chattel (that is, does an act inconsistent with the rights of the
owner) is liable for the loss caused, however innocent he may be.
Conversion is thus a tort of strict liability.
The
Torts (Interference with Goods) Act 1977 defines wrongful
interference with goods to include conversion of goods. “Goods”
is defined in section 14(1) to include “all chattels personal
other than things [choses] in action and money”. The Act thus
excludes intangible assets from the tort of conversion.
COMPLAINTS
-
The applicants complained of a violation of Article 1 of Protocol
No. 1 to the Convention. They argued that the United Kingdom was
in breach of its positive and negative obligations under that Article
to protect their contractual rights from unlawful interference of the
kind perpetrated by the receivers. They submitted that the legal
system should have allowed them to recover just compensation for the
losses suffered as a result of that interference. They also
complained that they did not have available to them an effective
domestic remedy as required by Article 13 of the Convention.
THE LAW
A. Article 1 of Protocol No. 1
-
Article 1 of Protocol No. 1 provides as follows:
“Every natural or legal person is entitled to the
peaceful enjoyment of his possessions. No one shall be deprived of
his possessions except in the public interest and subject to the
conditions provided for by law and by the general principles of
international law.
The preceding provisions shall not, however, in any way
impair the right of a State to enforce such laws as it deems
necessary to control the use of property in accordance with the
general interest or to secure the payment of taxes or other
contributions or penalties.”
1. The parties’ submissions
a. The Government
-
The Government raised two preliminary objections. First, they
submitted that the third and fourth applicants, as liquidators, were
not victims for the purposes of Article 34 of the Convention.
-
Second, the Government submitted that the applicants had not
exhausted domestic remedies. The applicants could have challenged the
receivers’ appointment and obtained a court declaration that
they had been invalidly appointed. They had five years to make such a
challenge between the appointment of the receivers in June 1992 and
alleged loss suffered by the settlement of the NWW contracts in 1997.
It was not sufficient to suggest, as the applicant’s had, that
they had been advised that the prospects of having the receivers
removed were not good, or that the freezing of their directors’
assets prevented them from making such a challenge.
-
The applicants had further failed to exhaust domestic remedies
because of the way in which they had pleaded their case against the
receivers. OBG had abandoned its claim for an account (see paragraph
26 above) and had refrained from making any claim which alleged
negligence on the part of the receivers. This had been a tactical
decision because it avoided having to plead or prove fault and
causation. Finally, the only reason OBG had not pursued its claim
against Centriline was because the latter had also gone into
liquidation, making the claim unprofitable.
-
As to the substance of the applicants’ complaint, the
Government made the following four submissions.
-
First, they submitted that loss which OBG claimed to have suffered
was not a possession within the meaning of Article 1 of Protocol No.
1. “Possessions” could include contractual rights but,
where an applicant sought to rely on a claim which had not been
pursued to judgment, the claim was not sufficiently established under
that Article (National & Provincial Building Society
and others, 23 October 1997, §§ 67-69, Reports of
Judgments and Decisions 1997 VII). The contractual claims
against NWW were insufficiently established on the date when the
receivers were appointed, 9 June 1992: they had not been pursued to
judgment at that stage. Indeed, OBG’s claims against NWW did
not materialise until much later when NWW made savings on the
contracts by giving OBG’s work to another contractor.
-
Second, the Government submitted that OBG had not been deprived of
its possessions. OBG had put its claim for damages in the domestic
proceedings based on the valuation of the business at 9 June 1992.
Therefore, no deprivation occurred at that date because all OBG’s
assets remained vested in it. There was also no interference with
OBG’s possessions. The receivers had asserted that they, not
the directors, were in control of the business. That assertion
involved an interference with the de facto ability of the
directors to manage OBG’s affairs, but not a legal or factual
interference with OBG’s property.
-
Third, there was no violation of the United Kingdom’s negative
obligations under Article 1 of Protocol No. 1. The receivers were not
State agents, but had been invalidly appointed by Centriline, a
private company. The receivers had not exercised any statutory powers
(they could not, given their invalid appointment). Even if they had,
this would not have turned them into State agents.
-
Fourth, there was no violation of the United Kingdom’s positive
obligations under Article 1 of Protocol No. 1. The applicants’
complaint was essentially that English law did not provide a
sufficiently valuable remedy for the cause of action they chose to
pursue. However, upholding this complaint would require the Court to
have no regard for the following factors:
- a
company could apply to the domestic courts to remove invalidly
appointed receivers (this demonstrated that domestic law provided a
suitably balanced regime to protect the rights of companies);
-
there had been potential causes of action against Centriline; and
-
there had been various other causes of action against the receivers
that, for tactical reasons (such as the need to prove fault and
causation), the applicants had chosen not to pursue.
-
The Government submitted that a violation of Article 1 of Protocol
No. 1 would, in effect, mean that a State would be positively
required to make invalidly appointed receivers strictly liable for
the entire value of the assets of the company. This would be
irrespective of the receivers’ state of knowledge, their
honesty and good faith. It would be irrespective of subsequent events
such as changes in value of the assets. It would also be without any
investigation of the causal connection between the acts of the
receivers and the alleged loss ultimately sustained by the company.
Article 1 of Protocol No. 1 could not be interpreted as imposing a
positive obligation to protect all forms of property with civil
remedies which were based on strict liability.
-
In respect of the torts relied on by the applicants, the Government
recalled that the claim relating to interference with contractual
relations had been dismissed by the House of Lords because the
applicants could not prove the necessary elements of the tort of
inducing breach of contract or the tort of causing loss by unlawful
means (see Lord Hoffmann at paragraphs 47 and 48). This could not
trigger State liability under the Convention. For the tort of
conversion, the 1977 Act (see paragraph 59 above) represented a
deliberate decision by Parliament not to extend the tort to
intangible assets.
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There were both principled and pragmatic reasons for not imposing
strict liability for pure economic loss and, in respect of the tort
of conversion, for restricting strict liability to tangible assets.
No Contracting State imposed strict liability for wrongful
interference with intangible assets. Moreover, strict liability would
provide a major disincentive to professional receivers accepting
appointments. Such receivers would not accept appointments because
they could not know the extent of their exposure. This was
particularly so when, as in this case, the higher value of the
intangible assets (the NWW contracts) was only discovered years after
the receivers’ actions. The imposition of strict liability
would also discourage company directors from promptly challenging
invalidly appointed receivers. Instead, it would encourage them to
bide their time until they saw the value of the intangible assets
which the receivers had realised.
b. The applicants
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The applicants indicated that, since the Government accepted that the
first and second applicants were victims, they would not press their
claim that the third and fourth applicants had distinct victim
status.
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The applicants contended that they had exhausted all effective
domestic remedies. None of the other courses of action identified by
the Government would have afforded them an adequate and effective
remedy for the taking of their intangible assets. It was irrelevant
that domestic law allowed for the removal of invalidly appointed
receivers; the freezing of their assets meant that they did not have
the effective ability to make such an application. Moreover, the
actions of the receivers had a virtually immediate effect on the
value of their possessions; it could be said that this would have
been put right by the receivers’ removal, or that this course
of action would have been any quicker than the proceedings the
applicants had in fact brought. An action against Centriline was not
possible: it was the very absence of a contract between Centriline
and OBG which made the appointment of the receivers under the
RBS/Centriline debenture invalid.
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As to the merits of their complaint, the applicants underlined that
their claim in the domestic proceedings was for the losses incurred
by the receivers on and after 9 June 1992 (i.e. not just losses
incurred on that date). In their reply to the Government’s
submissions, the applicants submitted the following.
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First, they submitted that OBG had a sufficiently established
acquired economic value in the NWW contracts and other intangible
property for this to qualify as “possessions” for the
purposes of Article 1 of Protocol No. 1. In contrast to National &
Provincial Building Society and others, cited above, OBG had an
enforceable claim under those contracts, which was principally based
on work it had already done under the NWW contracts. The only issue
was the quantification of that claim. The trial judge had found that
OBG’s intangible property, as reflected in the NWW contracts,
would have achieved a markedly higher value if it had been dealt with
by the liquidators and not by the invalidly appointed receivers. This
finding had not been the subject of appeal. Therefore, OBG’s
case had a much greater similarity to Pressos Compania Naviera
S.A. and Others v. Belgium, 20 November 1995, Series A no. 332,
where the Court had accepted that a tort claim was a possession for
the purposes of Article 1 of Protocol No. 1
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Second, the applicants submitted that the receivers’ taking
total and exclusive control of their business and assets was clearly
a deprivation of or interference with their possessions. It removed
the right of the applicants to use and enjoy their possessions and
bestowed that right on the receivers.
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Third, there had been a violation of the United Kingdom’s
negative obligations under Article 1 of Protocol No. 1 because
section 232 of the Insolvency Act (see paragraph 58 above) validated
the actions of the receivers, without provision for redress in the
event of the unlawfulness of the receivers’ actions.
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Fourth, there had been a violation of the United Kingdom’s
positive obligations under Article 1 of Protocol No. 1. The outcome
of the domestic proceedings was that domestic law afforded no remedy
for the unlawful taking of intangible assets. In this connection, the
United Kingdom Government could not rely on other remedies under
domestic law; as the applicants had submitted, there were no such
remedies which were effective in their case.
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The applicants further submitted that the absence of fault or
intention to harm on the part of the receivers was immaterial: there
had still been a deprivation of or interference with their
possessions, for which they were entitled to an adequate and
effective remedy. It was wrong in principle to require a company to
prove fault for the outright taking of possessions. In any event, the
receivers had clearly intended to take the applicants’ property
without having any right to do so. Therefore, it was erroneous to
suggest that the applicants’ case against the receivers was
based on pure “no fault” liability or that they sought to
be exonerated from the requirements of proving fault or causation.
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The applicants accepted that their case was unusual. However, the
crux of the problem was the irrational distinction which English law
made between tangible and intangible assets. Throughout the domestic
proceedings the courts had accepted that the applicants were entitled
to compensation for their tangible property (either under the tort of
trespass or the tort of conversion) but not their intangible
property. As the minority of the House of Lords had found, it made no
sense that the receivers should be strictly liable for what was lost
on the tangible assets but not for what was lost on the intangible
assets.
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Moreover, the trial judge had concluded that, if OBG’s
liquidation had not been inevitable, then the receivers would have
been strictly liable for the value of the whole of the business,
including both its tangible and its intangible assets. This served to
show that, despite the difficulties alleged by the Government, it was
possible to have strict liability in respect of intangible assets. As
it was, the current law of tort meant that there was less protection
for businesses which were based significantly on intangible property
(such as internet businesses) than those based on tangible assets.
The lack of logic in the distinction was further illustrated by the
legal fictions involved in the tort of conversion (see paragraph 59
above). These fictions meant, for example, that losses arising from
the taking of a company’s money would not be actionable, but
losses arising from the taking of a cheque would be actionable (see
also Lord Nicholls’ observations in respect of a share
certificate at paragraph 56 above).
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Finally, Parliament might have made a conscious decision not to
include intangible assets within the scope of the tort of conversion,
but this only meant that it was Parliament’s deliberate
decision to leave English law in a position that was incompatible
with Article 1 of Protocol No. 1. Moreover, the nature of business at
the time the 1977 Act was enacted was very different from now. Since
1977, the domestic courts had been left to apply an ancient rule of
law. This rule bore no relation to the realities of modern business
where intangible property was more important and valuable than ever
before.
2. The Court’s assessment
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The Court notes the Government’s preliminary objections as to
the victim status of the third and four applicants, and as to the
applicants’ alleged failure to exhaust domestic remedies.
However, the Court considers it unnecessary to rule on these
objections since, in any event, it considers this complaint to be
manifestly ill-founded.
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First, as to whether the loss suffered by OBG was a possession within
the meaning of Article 1 of Protocol No. 1, the Court notes that the
trial judge found that the value of the NWW contracts was in fact
higher than the value obtained by the receivers. The Court further
notes that, although members of the Court of Appeal and House of
Lords expressed doubts as to this conclusion, they refused to disturb
the trial judge’s findings. Therefore, the Court is prepared to
accept that, as a matter of fact, the actual value of the NWW
contracts was in fact higher than the value obtained by the
receivers. For this reason, and for the purposes of the present
decision, the Court is prepared to proceed on the basis that the
applicants’ submission is correct and that the actual value of
the NWW contracts was a “possession” within the meaning
of Article 1 of Protocol No. 1.
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Second, it is clear to the Court that, when the receivers assumed
exclusive control of the applicants’ business, the actions of
the receivers amounted to a control of the applicants’
possessions within the meaning of Article 1 of Protocol No. 1.
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Third, although the applicants maintain that there has been a breach
of the United Kingdom’s negative obligations under Article 1,
the Court cannot agree. The control of the applicants’ NWW
contracts was not the result of any direct State action but the acts
of private parties, the receivers. Moreover, OBG was not awarded
damages against the receivers by the domestic courts as a result of
those courts’ findings as to general applicable principles of
tort. This is essentially a matter of the State’s positive
obligation to protect private property under Article 1 of Protocol
No. 1 (see, inter alia, Sovtransavto Holding v.
Ukraine, no. 48553/99, § 96, ECHR 2002-VII and Matheus v.
France, no. 62740/00, §§ 68 et seq., 31 March 2005).
The Court recalls that, when that positive obligation arises, it is
for the State to ensure in its domestic legal system that property
rights are sufficiently protected by law and that adequate remedies
are provided whereby the victim of an interference can seek to
vindicate his rights, including, where appropriate, by claiming
damages in respect of any loss sustained (Blumberga v. Latvia,
no. 70930/01, § 67, 14 October 2008). Moreover, in disputes
between private parties, this positive obligation requires States to
afford judicial procedures that offer the necessary procedural
guarantees and therefore enable the domestic courts and tribunals to
adjudicate effectively and fairly any disputes between private
persons (Sovtransavto Holding, § 96, cited above;
Anheuser-Busch Inc. v. Portugal [GC], no. 73049/01, §
83, ECHR 2007 I; Freitag v. Germany, no. 71440/01, §
54, 19 July 2007).
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Fourth, it follows from these principles that the only issue in the
present case is whether the House of Lords’ refusal to develop
the law of tort to allow for an award of damages to the applicants in
respect of their intangible assets was compatible with the United
Kingdom’s positive obligations under Article 1 of Protocol No.
1. In determining that issue, the Court must examine first, whether
the House of Lords’ judgment pursued a legitimate aim in the
general interest and, if so, whether a fair balance was struck
between that general interest and the interest of the applicants
(see, inter alia, J.A. Pye (Oxford) Ltd and J.A. Pye
(Oxford) Land Ltd v. the United Kingdom [GC], no. 44302/02, §§
67-85, ECHR 2007 III).
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It does not appear to be in dispute that the House of Lords’
judgment pursued a legitimate aim in the general interest. The views
of the majority were clearly based on the need to maintain reasonable
limits on the liability in tort of third parties such as receivers.
Therefore, the only remaining question is whether the House of Lords’
judgment struck a fair balance between that general interest and the
interests of the applicants. Having regard in particular to the
extensive examination of the law of tort carried out by the House of
Lords, the Court has no doubt that it did.
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In respect of the first tort relied upon by OBG (wrongful
interference with contractual relations), the Court notes that the
House of Lords was unanimous in finding that no such hybrid tort
existed and that the OBG had not made out the necessary elements of
the separate torts of procuring a breach of contract and causing loss
by unlawful means. That conclusion was fully open to the House of
Lords to reach. It was not arbitrary or unreasonable (see,
Anheuser-Busch Inc, § 83, cited above). Indeed, if
anything, the House of Lords’ judgment provided substantial
clarification of the law which applied to these torts.
- Support
for this view can be found in the fact that, throughout the
proceedings, the applicants accepted that there was no negligence or
bad faith on the part of the receivers. It was well within the wide
margin of appreciation which the domestic authorities enjoy in such
cases for the House of Lords to decide that, because of this absence
of negligence or bad faith on the part of the receivers, the
applicants could not recover damages for the NWW contracts by relying
on the tort of procuring a breach of contract or the tort of causing
loss by unlawful means.
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The Court turns to the second tort relied upon before the House of
Lords, the tort of conversion. The Court notes that the House of
Lords was divided as to whether it would be a logical and practical
step to extend this tort to intangible assets. However, the Court
also notes that the difference of opinion between the majority and
minority was essentially whether it was for the courts to develop the
common law in this way or whether such a development was too great a
step for the courts to take and should instead be left to Parliament.
As a matter of domestic law, this was pre-eminently a judgment for
the House of Lords to make. There is nothing to indicate that the
view taken by the majority of their Lordships (that this was
ultimately a matter for Parliament) was arbitrary or manifestly
unreasonable. This conclusion is not altered by the applicants’
submission that the nature of contemporary business means that
intangible assets are more important than ever before. This was an
argument which was considered and rejected by the House of Lords. In
such a complex area of private law, it is not the role of this Court
to second guess the House of Lords’ conclusion, or indeed to
weigh the competing arguments for and against such a development of
the common law.
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In light of these factors, the Court concludes that Article 1 of
Protocol No. 1 cannot be interpreted as imposing a positive
obligation on the domestic courts to develop the common law of tort
simply because, in a particular case, a company either cannot show
negligence or bad faith, or because the greatest loss suffered by the
company has been in respect of intangible assets, the full value of
which only became apparent after it went into receivership. This
conclusion is reinforced by the unusual circumstances of the present
case. The Court of Appeal and the House of Lords were entitled to
find that the facts of OBG’s case made it singularly unsuitable
for an extension of the common law in this manner. This is even more
so when, as the trial judge found, OBG’s liquidation or
insolvency would have occurred even if the receivers had not been
appointed, a factor which led Lord Hoffmann to find that he had no
regret in dismissing the applicants’ appeal.
- For
substantially the same reasons, the Court is also not persuaded by
the applicants’ submission that, if the House of Lords was not
at fault for refusing to develop the common law of tort, then
Parliament, by not including intangible assets within the scope of
the tort of conversion as defined by the 1977 Act, was at fault for
having left the law in a position which was incompatible with Article
1 of Protocol No. 1. It must be for Parliament to decide whether the
business case for extending the tort of conversion to intangible
assets outweighs the difficulties which would inevitably be involved
in such an extension. Article 1 of Protocol No. 1 cannot however be
interpreted as requiring Parliament to make that extension.
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Finally, although the applicants have focused exclusively on the
outcome of their tort claims against the receivers, it would not be
appropriate for the Court to overlook the wider legal framework in
England and Wales governing the appointment of receivers as part of
its assessment under Article 1 of Protocol No. 1. As the Government
have shown, this legal framework includes the right of a company in
receivership to apply to the High Court for the removal of invalidly
appointed receivers. The Court is not persuaded that the freezing of
their assets prevented the applicants from making such an
application. The Court further notes that English law allowed for the
applicants to make several claims based in negligence against the
receivers and to pursue claims against Centriline. The domestic
authorities cannot be held responsible for the fact that the
applicants could not prove negligence on the part of the receivers or
for the fact that Centriline became insolvent. The Court therefore
considers that, seen as a whole, this legal framework provided proper
protection for the property rights of companies in administrative
receivership. Had OBG availed itself of the other remedies available
to it, the domestic courts would have been able to adjudicate
effectively and fairly any disputes between OBG, Centriline and the
receivers. The legal framework which was in place was wholly
compatible with the State’s positive obligations under Article
1 of Protocol No. 1.
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For the above reasons, the Court considers that a fair balance was
struck between the general interest and the interest of the
applicants. It therefore finds that the applicants’ complaints
under Article 1 of Protocol No. 1 are manifestly
ill-founded and must be rejected in accordance with Article 35 §§
3 and 4 of the Convention
B. Article 13 of the Convention
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Article 13 of the Convention guarantees the
availability at national level of a remedy where there is an
“arguable claim” of a violation of a substantive
Convention provision (see, as a recent authority, Knaggs
and Khachik (dec.), nos. 46559/06
and 22921/06, § 193, 30 August 2011 with further references
therein). In so far as the applicants’ complaint under Article
1 of Protocol No. 1 has been found by the Court to be manifestly
ill founded, no arguable claim arises under that Article.
Accordingly, Article 13 does not apply to that complaint. It follows
that the complaint under Article 13 is manifestly ill-founded and
must also be rejected in accordance with Article 35 §§ 3
and 4 of the Convention.
For these reasons, the Court by a majority
Declares the application inadmissible.
Lawrence Early Lech
Garlicki
Registrar President
