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Case No: CHANI 1999/1322/A3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(MR IAN HUNTER QC SITTING AS A DEPUTY JUDGE OF
THE HIGH COURT)
Royal Courts of Justice
Strand, London, WC2A 2LL
Friday 19 May 2000
B e f o r e :
LORD JUSTICE CHADWICK
and
LORD JUSTICE ROBERT WALKER
SIR ROY BELDAM
- - - - - - - - - - - - - - - - - - - - -
|
ANC
LIMITED
|
Appellant
|
|
-
and -
|
|
(1)
(2)
|
CLARK
GOLDRING & PAGE LIMITED
RODNEY J GRIFFITHS
|
Respondents
|
- - - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
Miss Clare Hoffmann (instructed by Dibb Lupton Alsop for the
Appellant)
Mr Robert Hantusch (instructed by Bristows for the first Respondent)
Mr Christopher Boardman (instructed by Latchams Montague Niblett & Coof for
the second Respondent
- - - - - - - - - - - - - - - - - - - - -
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE ROBERT WALKER:
This is an appeal with the permission of Peter Gibson LJ from an order
made on 6 September 1999 by Mr Ian Hunter QC, sitting as a deputy judge of the
High Court, Chancery Division. He had heard two applications made in two
different actions but raising substantially the same issues, as to the validity
of assignments of causes of action in connection with a franchise agreement.
The deputy judge held that the assignments were valid. The assigned causes of
action are said to subsist against a company called ANC Limited ("ANC"), the
appellant in this court.
ANC acted as a road haulage contractor and also as the franchisor of a parcel
collection and delivery service within a network covering the whole country,
but with each franchisee being appointed to operate within an identified
locality. The contractual documents by which a franchisee was appointed
consisted of a very short written agreement with annexed particulars and
special provisions, and a lengthy set of standard terms and conditions.
The main issue turns on clause 16 of the standard terms and conditions (headed
`Assignment, transfer and beneficial owners'), although that clause must of
course be read in the context of the agreement as a whole, and also in its
general commercial context. Clause 16 was in the following terms:
"16.1 The Agreement shall be fully transferable and assignable by ANC and shall
enure to the benefit of any assignee, transferee or other legal successor to
the interests of ANC herein
16.2 The Franchisee agrees that the Agreement is personal to the Franchisee and
that neither the Agreement, nor the beneficial rights of the Franchisee may be
voluntarily, involuntarily, directly or indirectly assigned or otherwise
transferred by the Franchisee, without the prior written consent of ANC as
hereinafter provided and any such attempted or purported assignment or transfer
shall constitute a breach hereof and be void. ANC agrees not unreasonably to
withhold its consent to any proposed assignment or transfer provided that the
Franchisee is then in compliance with all provisions of the Agreement and the
proposed assignee or transferee shall execute a written acceptance of and
undertaking to be bound by the Agreement, the then current edition of the
Operators' Manual and all supplemental agreements to the Agreement signed by
the Franchisee and to comply with all requirements imposed thereunder and
shall:-
16.2.1 have procured that such persons as ANC shall reasonably require shall
have signed Specified Persons' Undertakings
16.2.2 reimburse such administrative and professional costs and expenses
incurred by ANC in processing the application for transfer as have previously
been agreed by the Franchisee
16.3 It shall not be unreasonable for ANC to withhold its consent to an
assignment or transfer by the Franchisee where the proposed assignee or
transferee or any person required to sign a Specified Persons' Undertaking
pursuant to this clause is in competition with ANC or where in the reasonable
opinion of ANC such assignment will prejudice the interests of ANC, any Group
Company or the Network."
It will be necessary to come back to various different parts of this clause on
which submissions have been based. But it is convenient to note at once that
"Specified Persons" are defined as "the persons firms and companies so
described in the Particulars and any other person properly required by ANC to
sign a Specified Persons' Undertaking" (that is, a further standard-form
document containing restrictive covenants and similar provisions protecting
ANC). In practice, the "Specified Persons" named in the particulars were the
directors and principal shareholders of companies appointed as franchisees.
The two actions arose out of two appointments of franchisees. On 28 March
1991 ANC appointed Compass Express Limited ("Compass") as a franchisee for the
locality defined as Bristol-Area 17. The specified persons were Mr and Mrs
Griffiths, the directors and shareholders of Compass. On 1st
September 1992 ANC appointed Rapid Services Limited ("Rapid") as a franchisee
for the locality defined as Exeter-Area 15. The specified persons were Mr and
Mrs Stewart, the directors and shareholders of Rapid.
Neither franchise proved harmonious. In 1995 ANC sued Compass and Mr
Griffiths for damages for breach of contract and also sought injunctions to
restrain passing off and trademark infringement. The action was defended and
there was a counterclaim for sums due from ANC (for alleged failure to observe
its central billing procedure, a complex issue which it is unnecessary to
explore further) and for other relief. In 1997 Rapid (which had ceased to
trade in 1995) sued ANC for damages for substantial losses which Rapid claimed
to have suffered as a result of misrepresentations made by ANC as to the
increased profits which Rapid could expect to make from the expansion of its
franchise operations.
What the two actions had in common (apart from ANC's standard-form terms and
conditions) was, as the judge noted, that in both cases the franchise agreement
had been terminated and in both there had been an assignment of the
franchisee's causes of action against ANC. On 7 March 1998 Compass (which was
then subject to a company voluntary arrangement) assigned its interest in the
counterclaim to Mr Griffiths. This was done by a short deed which recited that
a creditors' meeting had resolved on the assignment "for a consideration of 50
per cent of all net proceeds received that are not charged to the Royal Bank of
Scotland". The consideration was not further explained, nor was it referred to
in the operative part of the deed, the entirety of which was as follows,
"The Company hereby assigns and transfers to Mr Griffiths absolutely and
irrevocably all rights of whatsoever nature which it may have against ANC
Limited including all rights in the Legal Action [as previously defined]."
On 15 August 1997 Rapid, then in creditors' voluntary liquidation, assigned
its cause of action to a company called Clark Goldring & Page Limited
("CGP"). This deed was more carefully drafted, clause 1 being in the following
terms,
"In consideration of the payment by the Assignee to the Assignor of £1
(receipt whereof by the Assignor is hereby acknowledged) and in consideration
of the Assignee pursuing the causes of action herein assigned and paying to the
Assignor from sums recovered by the Assignee from ANC Limited, 60% of those
sums recovered by the Assignee net of all costs (excluding the time costs of
the Assignee) and other disbursements pursuant to the causes of action
assigned herein, the Assignor hereby assigns and transfers to the Assignee
absolutely and irrevocably:
(1) each and every cause of action of the Assignor against ANC Limited
howsoever arising and whether or not comprised within the pleading in the
action numbered 1997 R No.112 as hereinbefore recited and the sole and total
benefit thereof and all forms of relief thereunder whether expressly pleaded or
not in the said action and the right to prosecute the same;
(2) the right to prosecute such causes of action in the name of the Assignor or
otherwise but at the expense and risk of the Assignee to sue thereon and to
enforce judgment thereon; and
(3) all sums that may be recovered by any such action subject to the
consideration payable above.
TO HOLD the same unto the Assignee absolutely."
By clause 2 CGP agreed to indemnify Rapid (in liquidation) in respect of costs,
and by clause 3 Rapid (in liquidation) agreed to cooperate with CGP and to
provide it with such assistance as CGP might reasonably request. These are the
two assignments whose validity was in issue before the deputy judge.
Miss Clare Hoffmann (appearing in this court, as below, for ANC) identified
three issues raised on the appeal. The first is the correct construction and
effect of the prohibition (in clause 16.2 of the standard terms and conditions)
on assignment by the franchisee without ANC's consent. On that issue Miss
Hoffmann has relied strongly on the decision of the House of Lords in Linden
Gardens Trust v Lenesta Sludge Disposals [1994] 1 AC 85. The second and
third issues (which do not arise if ANC fails on the first issue) are the
assignability of any right of action which Rapid had under the
Misrepresentation Act 1967, and the allegedly champertous nature of the
assignment by Compass, so far as it affected causes of action relied on in the
counterclaim other than the claim for sums due under, or damages for breach of,
the franchise agreement (that is, claims for trespass, conversion, and wilful
injury to the goodwill of Compass's business occasioned by steps taken by ANC
in November 1995).
The deputy judge found what he described as a short and straightforward answer
to the first issue. He said,
"The quality of any franchise operation is crucially dependent upon the quality
and effectiveness of each individual franchisee. It is for that reason that
clause 16.2 provides that the agreement is `personal' to the franchisee."
But after termination of the franchise there was no need for the prohibition on
assignment to continue and on the proper construction of clause 16.2 it did not
survive termination. The deputy judge said that the argument had ranged
widely, but in reaching that conclusion he seems to have relied on much the
same submissions as have been made in this court (and as are summarized later).
There was no separate issue below as to the Misrepresentation Act 1967. On the
third issue the deputy judge accepted the submission that Mr Griffiths had a
sufficiently direct financial and commercial interest in the whole of Compass's
counterclaim, without the need to differentiate between the different causes of
action.
In the Linden Gardens case the House of Lords heard two appeals
concerned with JCT contracts in similar but not identical form. Each contract
contained (in clause 17) a prohibition on assignment. In the first appeal
clause 17 was in the following terms:
"(1) The employer shall not without the written consent of the contractor
assign this contract. (2) The contractor shall not without the written
consent of the employer assign this contract, and shall not without the written
consent of the architect (which consent shall not be unreasonably withheld to
the prejudice of the contractor) sublet any portion of the works. Provided
that it shall be a condition in any subletting which may occur that the
employment of the subcontractor under the subcontract shall determine
immediately upon the determination (for any reason) of the contractor's
employment under this contract."
In the second appeal it was in essentially the same terms. In each case the
employer under the JCT contract had made an assignment to a successor in title
of its cause of action against the building contractor, and the essential issue
was whether the assignments were effective.
The leading speech was given by Lord Browne-Wilkinson. The whole speech calls
for careful study, but for present purposes the crucial passage is at [1994] 1
AC pp.103-5. Lord Browne-Wilkinson referred to the distinction (drawn by the
Court of Appeal) between the assignment of the right to require future
performance of a contract and an assignment of benefits arising under the
contract (notably the right to receive a payment or to enforce an accrued right
of action). He referred to a case note by Professor Roy Goode ((1979) 42 MLR
55) on Helstan Securities v Hertfordshire CC [1978] 3 AER 262. Then he
said (p.105 C-E),
"However, although I do not think that Professor Goode's article throws any
light on the true construction of clause 17, I accept that it is at least
hypothetically possible that there might be a case in which the contractual
prohibitory term is so expressed as to render invalid the assignment of rights
to future performance but not so as to render invalid assignments of the fruits
of performance. The question in each case must turn on the terms of the
contract in question.
The question is to what extent does clause 17 on its true construction
restrict rights of assignment which would otherwise exist? In the context of a
complicated building contract, I find it impossible to construe clause 17 as
prohibiting only the assignment of rights to future performance, leaving each
party free to assign the fruits of the contract. The reason for including the
contractual prohibition viewed from the contractor's point of view must be that
the contractor wishes to ensure that he deals, and deals only, with the
particular employer with whom he has chosen to enter into a contract. Building
contracts are pregnant with disputes: some employers are much more reasonable
than others in dealing with such disputes."
The House of Lords held, in the result, that both assignments were ineffective,
that that result was not contrary to public policy, but that the purported
assignor in the second appeal (which was a party to the action) could recover
substantial damages.
On this appeal both sides (Miss Hoffmann for ANC, and Mr Robert Hantusch and
Mr Christopher Boardman making common cause for CGP and Mr Griffiths
respectively) agree that the first issue is essentially one of construction of
the particular language of clause 16 of the standard terms and conditions, read
in its particular commercial context. Both sides acknowledge that the language
of clause 17 of the two JCT contracts was very different, not least because it
contained a prohibition on either party assigning without the other's consent.
Miss Hoffmann submitted that the language of clause 16, although open to
criticism if closely analysed, evinced an intention to impose a single, wide
prohibition on any assignment of rights under the franchise agreement. On that
point she referred to the speech of Lord Hoffmann in Investors Compensation
Scheme v West Bromwich Building Society [1998] 1 WLR 896, 912-3. The fact
that each of the franchise agreements had for most purposes come to end did not
prevent ancillary provisions (such as clause 16) continuing to have effect:
Heyman v Darwins [1942] AC 356, 362-4; Yasuda Fire & Marine
Insurance Co of Europe v Orion Marine Insurance Underwriting Agency [1995]
QB 174; Hendry v Chartsearch (23 July 1998, CA, especially paragraph 37
of the judgment of Evans LJ).
Against that Mr Hantusch focused on the reference in clause 16.2 to the
"beneficial rights" of the franchisee. That expression referred, he submitted,
to the special provisions relating to Specified Persons' Undertakings. So
understood it provided the key to the whole of clause 16.2 and 16.3. These
elaborate provisions were intended to give a franchisee freedom to assign his
franchise, provided that ANC was protected (against unfair competition as well
as incompetence on the part of the assignee) by new enforceable undertakings
being put in place. But once the agreement had come to an end, a prohibition
on assignment of outstanding rights was unnecessary and served no useful
purpose. Where any provision of the agreement was intended to continue in
force after its termination, it said so expressly (clause 15.3 being in point).
Mr Boardman added some further linguistic points. He drew attention to clause
15.4, emphasising the words "expressly or by implication":
"The expiration or termination of the Agreement, howsoever caused, shall be
without prejudice to any obligation or rights on the part of either party which
have accrued prior to such expiration or termination and shall not affect or
prejudice any provision of the Agreement which is expressly or by implication
provided to come into effect on, or to continue in effect after, such
expiration or termination PROVIDED THAT in no circumstances shall the Franchise
Fee be repayable by ANC to the Franchisee."
He pointed out that the provisions for ANC not unreasonably to withhold its
consent provide a full and comprehensive code (foreshadowed by "as hereinafter
provided" in the first sentence of clause 16.2) but that those provisions are
simply incapable of being satisfied after termination of the franchise. The
whole of clause 16.2 and 16.3 must be directed, Mr Boardman submitted,
exclusively to the period when the franchise is a going concern.
These arguments were skilfully developed on both sides but, like the deputy
judge, I find the arguments against the survival of clause 16.2 more powerful.
Clause 16 comes immediately after clause 15.4, which states that terms shall
continue after termination only if that is provided expressly or by
implication. There is no express provision for continuation in clause 16.2,
and the submissions made by Mr Hantusch and Mr Boardman persuade me that the
implication of such a provision would be contrary to the commercial purpose of
the clause. There is nothing in the Linden Gardens case laying down any
inflexible rule. On the contrary Lord Browne-Wilkinson (with whom all their
Lordships agreed on this point) emphasised, in the passage already cited, that
in each case the issue must turn on the terms of the contract in question.
It is common ground that that is sufficient to dispose of this appeal and in
those circumstances I think it best to say nothing about the second issue (on
which there seems to be no relevant authority) and very little on the third
issue. However counsel on both sides have made helpful submissions about a
passage in the judgment of Lightman J in Grovewood Holdings v James
Capel [1995] Ch 80, 87 (on which I ventured to comment in Re Oasis
Merchandising [1995] 2 BCLC 493, 504-5, and on which this court also
commented on an appeal from my decision, [1998] Ch 170, 179-80). Miss Hoffmann
has in a supplementary skeleton argument sought to demonstrate that there is in
fact no inconsistency between these passages, and that even if an assignment of
the fruits of an action is a sale of property (within the meaning of section
436 of the Insolvency Act 1986) the sale is not within or even relevant to the
exemption from champerty afforded to a liquidator. Her argument proceeds by
the following steps:
"(1) The exemption from the rules of champerty arises from the liquidator's
statutory power of sale under Schedule 4 to sell property as defined in Section
436 Insolvency Act 1986.
(2) A legal assignment of a cause of action consists of the right to prosecute
the action, to be named as the proper party to the action and to give good
discharge to the judgement debtor: Section 136 Law of Property Act 1925.
(3) By contrast, an assignment of the fruits of an action is an equitable
assignment being an agreement to assign such fruits if and when they are
recovered in the future: Tailby v Official Receiver (1888) 13 App Cas
523. Such an agreement does not give the assignee any rights to prosecute or
conduct the action and the assignee does not acquire any beneficial interest in
the action itself: Glegg v Bromley [1912] 3 KB 474 at 484.
(4) Since the assignment of the fruits of an action does not include any rights
in the action itself nor any right to prosecute the action no question of
champerty arises, nor does the scope of the liquidator's statutory exemption
therefrom.
(5) Any agreement that an equitable assignee of the fruits should also have
conduct of the action is entirely separate from and independent of the
assignment of the fruits and nothing more than a funding agreement. It is
subject to the usual rules on champertous agreements. It is entirely
unconnected with the liquidator's exemption arising from the statutory power to
sell property and is subject to the usual rules on champertous agreements."
Whether or not the fifth step is correct (as to which I express no view) this
analysis is to my mind a valuable aid to clarification of the position.
I would dismiss this appeal.
SIR ROY BELDAM:
For the reasons stated by Lord Justice Robert Walker I agree this appeal
should be dismissed.
LORD JUSTICE CHADWICK:
I also agree.
Order: Appeal dismissed (Both)
Cost agreed £7,800- Goldring
Cost agreed £5,500 - Griffths
To be paid by 2/6/00
(Order does not form part of the approved judgment)
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