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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Smith v Henniker-Major & Co [2001] EWHC 484 (Ch) (17 October 2001) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2001/484.html Cite as: [2002] BCC 544, [2001] EWHC 484 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice The Strand London WC2A 2LL
		17 October 2001

MR JUSTICE RIMER: This is an application by the defendant under Part 24 of the CPR for summary judgment. The defendant is a firm of solicitors called Henniker-Major & Co ("HM"). It appears by Mr Alan Steinfeld QC and Mr Daniel Gerrans. The claimant is Geoffrey Smith, who appears by Mr David Mabb QC and Mr Julian Gun Cuninghame. The case has a considerable background, but for the purposes of this application it is not necessary to go into much of it.

On 28 September 1999, Mr Smith issued a claim form against HM in the Queen's Bench Division, although the action has since been transferred to the Chancery Division. He served Particulars of Claim on 9 August 2000. The claim is one for damages or compensation for alleged negligence, breach of contract and breach of fiduciary duty. The essence of the case is that Mr Smith says that in 1993 HM accepted a retainer from Saxon Petroleum Limited ("SPL") in respect of a proposed acquisition of land in Cleveland by SPL in circumstances which put HM in conflict with the duty it is said to have owed to Saxon Petroleum Developments Limited ("SPDL"). Mr Smith asserts that, but for that breach of duty, SPDL would have purchased the land. Instead, SPL exchanged contracts for its purchase on 20 October 1993 at a price of £275,000. The benefit of its contract was later assigned to another company, Hillgrove Homes Limited, which completed the purchase on 9 February 1994.

Mr Smith's claim against HM is for damages for the lost opportunity to purchase the land. The land was regarded as ripe for profitable development. SPDL's plan would have been to resell it at a profit. Mr Smith's evidence is that at some uncertain point, which I take to be in late 1993 or early 1994, the board of SPDL estimated the potential profit SPDL might have achieved from the land as about £800,000. However, the Particulars of Claim do not particularise the damages claimed against HM and I am told that no expert evidence on that has yet been obtained. The best evidence as to what the recoverable damages might be is a tentative view expressed by Mr Smith's former solicitor, Mr Lloyd, that they "may be in the region of £200,000 to £800,000".

The point which immediately arises is how it can be Mr Smith rather than SPDL who is suing HM. The predictable answer is that, as he pleads in his Particulars of Claim, Mr Smith claims to be the assignee of SPDL's causes of action against HM. He relies on a written assignment dated 12 August 1999, but apparently signed on 14 August 1998. HM has its doubts about the true date of its execution, but for the purposes of this application it accepts that it was executed on 14 August 1998, which is Mr Smith's case. The first point taken by HM on this application is that the assignment was invalid so that it did not give Mr Smith any right to sue HM at all.

Was the assignment valid?

The brief relevant facts are that at all material times the issued share capital of SPDL was held as to 30% by Mr Smith, 33% by Mr McCall, 33% by Mr Bickers and 4% by Mr Meynell. Originally all four were also directors, but by 12 August 1998 Mr Smith and Mr McCall were the sole directors.

Mr Smith convened a board meeting of SPDL for 12 August 1998. He gave notice of it to Mr McCall by a letter of 9 August 1998. Mr McCall replied on 10 August, saying that he was unable to attend the meeting, and nor did he. The meeting was attended by Mr Smith alone. Its minutes record that he was authorised to sign two assignments which were before the meeting. One of them was that with which this action is concerned, namely an assignment of certain of SPDL's alleged claims to Mr Smith himself.

The assignment was executed two days later on 14 August. It was signed by Mr Smith on behalf of SPDL. He did not sign it separately on his own behalf as assignee. It recited that SPDL considered that it was entitled to sue HM for negligence and/or breach of contract, that Mr Smith wanted to acquire that right and that SPDL had agreed to assign it to him. It made no express reference to any claim against HM for breach of fiduciary duty, although that is one of the claims which Mr Smith subsequently made against HM. It recorded that Mr Smith was to indemnify SPDL against costs, although it is difficult to see against what costs that indemnity could operate: if Mr Smith was going to sue as an assignee, SPDL would be at no risk as to costs. It also recited that Mr Smith was the only creditor. That was incorrect. Mr Smith now admits that SPDL had total liabilities of about £80,000, including a liability of about £17,000 to Mr Meynell. He claims that all its other liabilities were to him and, in part, also to his wife, Mrs Smith.

I record that HM asserts that SPDL also had liabilities of about £7,000 to Barclays Bank Plc, £5,000 to Mr Kitchen and £58,000 to Mr Bickers and Mr McCall. However, Mr Smith disputes these alleged liabilities.

The consideration for the assignment was expressed in clause 6 to be:

"an undertaking that, whilst the pursuit of any entitlements against [HM] [Mr Smith] shall hold off any action to recover the acknowledged indebtedness sum due to him, in the order of £45,000 (plus any interest due) until all efforts to recover this sum elsewhere are exhausted."

The £45,000 is an imprecise reference to part of SPDL's liabilities to Mr Smith and it appears that it is in fact a reference to an admitted liability of £40,438.88, plus an approximate sum in respect of interest. That debt was owed to Mr and Mrs Smith jointly. It arose because they were joint guarantors of SPDL's liabilities to Barclays, but they discharged those liabilities in the sum of £40,438.88, so giving rise to a claim for an indemnity from SPDL.

Clause 6 is obscurely worded, but Mr Mabb submitted that its sense was that Mr Smith was undertaking: (1) that during the currency of the claim against HM he would not sue SPDL for payment and, impliedly, would also procure Mrs Smith to refrain from doing so; and (2) that if he made a recovery from HM, then to the extent that that recovery satisfied his debt, it would be finally released and he would prevent Mrs Smith from bringing any action in respect of it. The implied references to the position of Mrs Smith are glosses which Mr Mabb suggests should be put upon the language of clause 6 in order to give it proper efficacy, although I understand that at the time Mr Smith had simply overlooked Mrs Smith's interest.

Mr Steinfeld and Mr Gerrans, who conducted HM's reply, did not accept that clause 6 did any more than amount to a temporary suspension of any claim against SPDL. Nor did they accept that there was any justification for reading in the implied provisions relating to Mrs Smith. I do not think that I need to decide the correct construction of the clause for the purposes of this application, nor do I propose to do so, but I regard Mr Mabb's construction as at least an arguable one.

Clause 7 asserted that the assignment had been "approved and agreed at a properly convened meeting of the Board of Directors of [SPDL]" on 12 August 1998. Clause 8 recorded that Mr Smith, the signatory, was chairman of SPDL which was to be bound by "the terms of this agreement save by prior mutual consent between [SPDL] and [Mr Smith]".

On the face of it, the assignment was a beneficial one from Mr Smith's viewpoint, even accepting that clause 6 bears the interpretation that Mr Mabb invited me to put on it. At best, it only purported, in certain events, to release the £40,438.88 debt owed by SPDL to Mr and Mrs Smith. It did not release SPDL from the other debts it owed to Mr Smith. The best evidence from Mr Smith is that the claim against HM may be between £200,000 and £800,000. It is accepted by Mr Mabb that that claim was SPDL's major asset, indeed it seems it had no other assets at all. The assignment made no provision for SPDL's admitted liability to Mr Meynell and its effect was to give the entirety of what was potentially a valuable asset to a mere 30% shareholder. Moreover, it was not even as if Mr Smith was going to carry any personal risk as to the costs of the action. He intended to pursue it with the benefit of a legal aid certificate, as indeed he is. I record, however, that his evidence is that there was no question of SPDL being able to finance any action itself or of he or the other shareholders being in a position to finance the bringing of an action by SPDL.

Mr Steinfeld's first point was that the assignment was a nullity because it was executed without the authority of SPDL. That is because the board meeting was inquorate. SPDL's Articles of Association incorporated Table A to the Companies Act 1985, save as they otherwise provided. The relevant provision is regulation 89 in Table A which, so far as material, provides that:

"The quorum for the transaction of the business of the directors may be fixed by the directors and unless so fixed at any other number shall be two...."

It is not suggested that it ever was fixed at any number other than two, and so two was the quorum for the purposes of the meeting of 12 August 1998. But as only Mr Smith attended, there was no quorum. It followed, said Mr Steinfeld, that the resolution then purportedly passed was invalid, it was not a resolution of the board at all, and so Mr Smith had no authority to sign the assignment. Mr Steinfeld submitted that it necessarily also followed that SPDL's claim against HM was not assigned to Mr Smith at all, and that he had no title to sue when he issued his claim form against HM. Only SPDL could sue, and its cause of action became statute barred at the latest in February 2000 (six years from the completion of the sale of the land), and perhaps even earlier. There is no question of time being extended under any of the provisions of the Limitation Act 1980, since all material facts were known to everyone by the end of 1993. As to this, in December 1993 Mr Smith presented a petition against two of his co-directors of SPDL under section 459 of the Companies Act 1985, his complaint being about the diversion of the purchase of the land to SPL. Mr Steinfeld submitted that, by February 2000, HM had an accrued limitation defence to any claim by SPDL. Mr Mabb did not expressly admit that, but he advanced no contrary argument. I find that any claim by SPDL was statute barred by, at the latest, February 2000.

Mr Mabb sought to meet Mr Steinfeld's argument by relying on section 35A of the Companies Act 1985. That provides as follows:

"35A Power of directors to bind the company

(1) In favour of a person dealing with a company in good faith, the power of the board of directors to bind the company, or authorise others to do so, shall be deemed to be free of any limitation under the company's constitution.

(2) For this purpose --

(a) a person 'deals with' a company if he is a party to any transaction or other act to which the company is a party;

(b) a person shall not be regarded as acting in bad faith by reason only of his knowing that an act is beyond the powers of the directors under the company's constitution; and

(c) a person shall be presumed to have acted in good faith unless the contrary is proved.

(3) The references above to limitations on the directors' powers under the company's constitution include limitations deriving --

(a) from a resolution of the company in general meeting or a meeting of any class of shareholders, or

(b) from any agreement between the members of the company or of any class of shareholders.

(4) Subsection (1) does not affect any right of a member of the company to bring proceedings to restrain the doing of an act which is beyond the powers of the directors; but no such proceedings shall lie in respect of an act to be done in fulfilment of a legal obligation arising from a previous act of the company.

(5) Nor does that subsection affect any liability incurred by the directors, or, any other person, by reason of the directors exceeding their powers.

(6) The operation of this section is restricted by section 65(1) of the Charities Act 1993 and section 112(3) of the Companies Act 1989 in relation to companies which are charities; and section 322A below (invalidity of certain transactions to which directors or their associates are parties) has effect notwithstanding this section."

Section 35A is the second legislative attempt in this jurisdiction to give effect to Article 9(2) of Council Directive 68/151/EEC. The first was contained in section 9(1) of the European Communities Act 1972. Article 9(2) provides that:

"The limits on the powers of the organs of the company, arising under the statutes or from a decision of the competent organs, may never be relied on as against third parties, even if they have been disclosed."

It is common ground between counsel that a typical example of a case to which section 35A would apply would be one in which the articles provided that the board could not authorise a borrowing by the company above a certain limit without the prior authority of the company in general meeting. An inspection of the company's articles would inform the third party of such limitation on the directors' powers and the third party may even know of it. However, section 35A provides that he will not, by that fact alone, be regarded as acting otherwise than "in good faith" for the purposes of section 35A(1), and he will be entitled to claim that any resolution of the board authorising a borrowing in excess of the relevant amount would be valid despite the infringement of the articles. That is because the relevant provision in the articles is a "limitation" on the board's power, of which section 35A deems it to be free.

Mr Mabb's submission was that, upon the true construction of section 35A, the quorum provisions in regulation 89 are also to be regarded as a "limitation" under SPDL's constitution on the power of the board of directors to bind the company, with the consequence that, in favour of Mr Smith, those quorum provisions are deemed not to apply. An inspection of the company's articles would disclose to the third party the quorum provisions, but the scheme of section 35A appears to be that the third party is not required to consider either the articles or any other public documents in order to ascertain whether there are any such limitations in them. That being so, Mr Mabb submitted that it would be odd if section 35A did not similarly excuse the third party from enquiring as to the quorum provisions in the articles. He invited me to consider two examples. One was a straight restriction in the articles limiting the directors' borrowing powers, a case to which it is accepted that section 35A would apply. The other was a provision in the articles that, although the quorum for directors' meetings was ordinarily two, it is three for the purposes of the exercise of the directors' borrowing powers. He submitted that it would be odd if section 35A applied to the first example but not to the second.

Mr Mabb advanced his arguments very persuasively, but I feel unable to accept his submission, which I consider involves a misinterpretation of section 35A. I regard its meaning as clear. All that section 35A does is to deem the board of directors to be free of any limitation on its powers which the company's constitution imposes. In this context, the reference in section 35A to the power of the "board of directors to bind the company" can sensibly only be to powers exercisable by the directors when they gather together and act as a board. It is only possible to ascertain how they can so act -- and whether in any particular case they have done so -- by examining the articles relating to their proceedings. If the articles provide that a quorum for their meetings is three, then a meeting of only two of them will not be a meeting of "the board" at all, or at any rate it will not be a meeting at which the board can transact business. If, despite this, such a meeting purports to resolve to bind the company to a transaction, it will not be an exercise of the board's power at all, it will be a nullity. In that example, the point of inquiry as to whether section 35A has any application has simply not been reached. It is irrelevant to inquire whether a particular power is free of a particular limitation in a case in which the power has not been exercised at all.

In short, the section is directed at validating transactions that the board of directors purport to authorise, but which are beyond their powers by reason of some restriction in the company's constitution. It is not directed at validating transactions which the board of directors have not purported to authorise at all. The present case is an example of the latter kind. That is because the meeting of 12 August 1998 was not a valid board meeting at all and no resolution of the board was capable of being, or was, passed at it. There was no exercise of the board's powers at all.

Quite apart from these general points, I have two particular difficulties with Mr Mabb's argument. The first is that I do not understand on what basis the quorum provisions for the proceedings of directors can be regarded as a "limitation" on their powers. Their powers are the same whether or not there is a quorum provision, or whatever it may be, and even if the articles require a special quorum for the purposes of the exercise of particular powers. The second is that if regulation 89 is a "limitation" on the board's powers for the purpose of section 35A, so that those powers are deemed to be free of it, what is the practical consequence? Is regulation 89 deemed to be struck out of SPDL's articles? If so, what, if anything, is impliedly substituted for it? The possible alternatives would seem to be the common law rules or something else. The argument on this was inconclusive and I do not propose to speculate on it. It merely underlines the difficulties inherent in Mr Mabb's argument.

I was referred to TCB Ltd v Gray [1986] Ch 621. One issue there was whether a debenture granted by a company was valid. The point was that the company's articles incorporated regulation 113 of Table A to the Companies Act 1948, which provided that every instrument to which the company's seal was affixed was to be signed by a director. The debenture had been signed by an attorney for a director, but there was no power in the articles for a director so to act. Sir Nicolas Browne-Wilkinson V-C rejected the argument that it followed that the debenture was invalid. He held that it was saved by section 9(1) of the European Communities Act 1972 which was, in part, a predecessor of section 35A. That subsection reads:

"In favour of a person dealing with a company in good faith, any transaction decided on by the directors shall be deemed to be one which it is within the capacity of the company to enter into, and the power of the directors to bind the company shall be deemed to be free of any limitation under the memorandum or articles of association; and a party to a transaction so decided on shall not be bound to inquire as to the capacity of the company to enter into it or as to any such limitation on the powers of the directors, and shall be presumed to have acted in good faith unless the contrary is proved."

The importance of the case for present purposes is that, as appears from page 636G-637E of the judgment, the Vice-Chancellor accepted that it was essential to the operation of section 9(1) that the relevant transaction was one which had been, in the words of the subsection, "decided on by the directors". He concluded that a minute of a board meeting of the company provided irrefutable evidence that the debenture was such a transaction and that therefore "the necessary basis for section 9(1) of the Act of 1972 to apply .... exists".

Section 35A is not in language identical to the former section 9(1), which was concerned both with questions of the company's capacity as well as with directors' powers. But as regards the latter point, it is plainly directed at the same general end. Section 9(1) was concerned with transactions "decided on by the directors" and I interpret the Vice-Chancellor as interpreting that as meaning "decided on by the board of directors". Section 35A is in terms focused on the "power of the board of directors to bind the company". Just as the Vice-Chancellor held that it was necessary to be able to show that the relevant transaction had been decided on by the board before section 9(1) could come into play, I also consider it clear that it is necessary to be able to show a transaction decided on by the board before section 35A can operate. In this case there was no such transaction. I regard the decision in that case as supporting the conclusion to which I have come in this one.

I conclude, therefore, that section 35A has no application to this case. I accept Mr Steinfeld's submissions. The assignment which Mr Smith purportedly signed on behalf of SPDL was one which he had no authority from SPDL to sign. There is no suggestion that he was SPDL's managing director or had any other authority to sign it. The purported assignment did not bind or in any way affect SPDL. It was simply a worthless piece of paper which did not assign or transfer any rights to him at all. I add that Mr Mabb disclaimed any suggestion that Mr Smith, who is of course a director of SPDL, might be able to rely on the so-called indoor management principle explained in Royal British Bank v Turquand (1856) 6 E&B 327.

Mr Steinfeld also questioned whether Mr Smith was dealing with SPDL "in good faith" for the purposes of section 35A. He accepted, at least for present purposes, that Mr Smith did not appreciate that there was no quorum at the meeting. This is because Mr Smith claims he believed he was entitled to act as sole director of the meeting in reliance on article 8 of SPDL's articles, but I need not refer further to that since it is conceded that he was mistaken. Mr Steinfeld's main point was that the purported assignment amounted to the attempted transfer to Mr Smith of the company's major asset for an illusory consideration, or at any rate at a gross undervalue, and so amounted to a disguised and unlawful distribution of capital. Mr Mabb, by contrast, submitted that any inquiry as to whether the requirement of "good faith" was satisfied was one which fell to be conducted within a much smaller circumference. Having reached the conclusion which I have on the assignment, I find it unnecessary to consider this issue further.

Has the assignment been ratified so as to make good Mr Smith's title to sue?

The consequence of my conclusion so far is that Mr Smith had no title to sue HM and that his action as it was originally, and still is, constituted was and is bound to fail. HM took the point on the validity of the assignment in the defence it served on 13 September 2000. On 9 November 2000, HM issued the application notice seeking summary judgment under Part 24. After an exchange of evidence and a leisurely lapse of time, it dawned on Mr Smith that he might be in difficulties in defending HM's attack on the purported assignment. With a view to putting matters right, he sought to procure SPDL's board to ratify the 1998 assignment. By August 2001 he was the sole director of SPDL and so that was, in theory, relatively easy.

The ratification was attempted by a deed executed on 31 August 2001. It was between SPDL and each of Mr and Mrs Smith. It was signed on behalf of SPDL by Mr Smith and its sole director, and by Mr Gunstone as secretary. Mr and Mrs Smith also executed it in their personal capacity. By clause 1, SPDL purported to ratify the 1998 assignment "to the fullest extent possible and, for the avoidance of doubt, retrospectively". Without prejudice to that, by clause 2, SPDL confirmed and repeated the assignment to Mr Smith of "all claims against [HM] including for the avoidance of doubt all claims now pleaded in the" current action. As to that, I have already noted that the 1998 assignment did not expressly purport to assign the claim for breach of fiduciary duty, which forms part of Mr Smith's claims in that action. By clause 3, Mrs Smith assigned to Mr Smith all her claims against SPDL. Clause 4 altered the consideration for the 1998 assignment by providing for the unconditional release of all Mr and Mrs Smith's claims against SPDL, and then contained certain qualifications on that to which I do not need to refer. By clause 5, Mr Smith declared that he held all claims against HM on trust to apply up to 24% of their fruits in indemnifying SPDL against any claim Mr Meynell might have against it arising out of an order made in the section 459 proceedings to which I have referred, and to hold the balance for himself. The purpose of that last provision was to provide for SPDL's liability to Mr Meynell, which Mr Smith had belatedly recognised. It is obvious that the main function of that document was, apart from its attempts to ratify the 1998 assignment, to make the terms of that assignment appear a little more respectable and a little less one-sided.

The issue which arises under that document is as to whether it was in fact a true ratification of the 1998 transaction. If it was, then at least for certain purposes its effect would have been retrospective and the 1998 transaction would be regarded as having always been a valid one. Mr Steinfeld submitted, however, that it was not a true ratification at all. If it was not, then the 1998 transaction would remain the unauthorised transaction which it has always been, and the 2001 transaction would have operated for the first time -- and only as from 31 August 2001 -- to assign to Mr Smith SPDL's causes of action against HM.

Mr Steinfeld's submission was that it makes no difference to Mr Smith's plight whether or not the 2001 deed was a true ratification. He said that either way Mr Smith's procedural problems are insoluble. His primary argument, however, was that the deed did not effect the true ratification. He referred to Bowstead and Reynolds on Agency 16th edition, and in particular to Article 17 on page 80. That indicates that the ratification of the transaction can be effected expressly or by conduct; that an "express ratification is a clear manifestation by one on whose behalf an unauthorised act has been done that he treats the act as authorised and becomes a party to the transaction in question"; that ratification "will be implied whenever the conduct of the person in whose name or on whose behalf the act or transaction is done or entered into is such as to show that he adopts or recognises such act or transaction in whole or in part"; and that the "adoption of part of a transaction operates as a ratification of the whole". Mr Steinfeld referred me also to page 84, which asserts that a true ratification involves the adoption of a transaction as a whole. It is not open to the principal to purport to adopt its favourable parts and to reject the unfavourable ones. That principle is supported by the observations of Pennycuick J in In Re Mawcon Ltd [1969] 1 WLR 78, 83.

Mr Steinfeld said that the sense and effect of the 2001 deed must be ascertained by looking at the transaction it effected as a whole. If it is so scrutinised, he said that it is plain that its effect was not simply a ratification by SPDL of the 1998 assignment. It reflected a new contract between SPDL and Mr Smith whereby the relevant rights were assigned to Mr Smith in exchange for a consideration different and more valuable from that which purported to move from Mr Smith under the 1998 assignment. In short, the true analysis of the document of August 2001 was not that SPDL was ratifying the earlier transaction at all, it was making a fresh assignment in exchange for new and different consideration.

Mr Steinfeld submitted that this was not just a matter of form, it was one of important substance. He illustrated his point by the example of an agent who, without authority from his principal, purports to sell an asset of his principal on 4 April for £100,000. On 6 April, the principal indicates to the purchaser that he is willing, despite the agent's lack of authority on 4 April, to ratify the sale, provided that the price is increased to £120,000. The purchaser agrees. Mr Steinfeld submitted that, despite the purported ratification of the transaction of 4 April, there would be no true ratification of the prior unauthorised contract at all. Its true effect would be to make a new contract on 6 April for a sale at £120,000 and the events of 4 April, which were writ in water at the time, would remain so. If relevant for capital gains tax purposes, there would have been no disposal on 4 April. The disposal would be on 6 April. Mr Steinfeld submitted that the deed of 2001 had the like effect as the transaction of 6 April in that example.

Mr Mabb's submission was that clause 1 of the 2001 deed made it plain that the 1998 transaction was being ratified. He accepted that the subsequent provisions of the deed showed that new and different consideration was to move from Mr Smith to SPDL for that assignment, but he said that that feature did not detract from its quality as a true ratification. His argument came down to the proposition that the 2001 deed operated as an unqualified ratification of the 1998 transaction, but that by it Mr Smith also, and in effect gratuitously, offered additional consideration to SPDL. That consideration was enforceable against him because the document was executed as a deed.

I do not accept Mr Mabb's analysis of the 2001 deed. My task is to identify the substance of the transaction which it was intending to effect. The mere fact that clause 1 proclaimed in terms that the deed was ratifying the 1998 transaction retrospectively is not conclusive that that that was the true effect of the deed any more than a statement that a document is a licence rather than a lease is conclusive as to its legal effect. The point about a ratification is that the principal is thereby adopting the whole of the earlier unauthorised transaction. Any true ratification in this case would therefore have required SPDL to manifest an intention to adopt the 1998 transaction in its entirety, including the modest consideration to be found in clause 6 of the 1998 assignment. But it is obvious from a reading of the 2001 deed that SPDL was not doing that. It is, in my view, absurd to regard SPDL as agreeing to adopt the consideration provided for in clause 6 of the 1998 transaction when the rest of the 2001 deed shows that it was requiring Mr Smith to give it consideration which was not merely additional to the consideration contained in clause 6, but was also in certain respects fundamentally inconsistent with it.

In my view, the substance of the 2001 deed was that SPDL was agreeing to recognise that the causes of action should be treated as having been assigned to Mr Smith in 1998, but only on terms that Mr Smith provided it with the new and additional consideration set out in the 2001 deed. That being so, I hold that the 2001 deed did not effect an unqualified adoption or ratification of the 1998 transaction and that therefore the attempt to give retrospective validity to that transaction wholly failed. In those circumstances, I find that its only effect was to assign SPDL's causes of action to Mr Smith afresh -- an assignment which did not take place any earlier than 31 August 2001.

Where does that leave Mr Smith's action?

The result is, therefore, that at the time he commenced his action Mr Smith had no title to sue HM. Nor did the deed of 2001 retrospectively validate his action. Paragraph 29 of Mr Smith's particulars of claim pleads that his title to sue derives from "a written assignment made on 12 August 1998", an inaccurate reference to the 1998 assignment. That plea cannot succeed and therefore, as matters stand at present, and absent any curative amendments, Mr Smith's action is bound to fail.

There is no application to amend before me. The only amendment Mr Smith might be able to make with a view to curing his problems is to plead the 2001 assignment. The case was implicitly argued on the basis that, should I reach the conclusions I have so far, that was his only hope of escape. I have in effect dealt with the application as if an application for permission to amend to plead the 2001 deed were before the court.

Mr Steinfeld levelled two main arguments against any suggestion that such an amendment might be allowed. The first was that, as Mr Smith had no title to sue when he issued his claim form, that defect in his title was wholly fatal to his case and could not be subsequently cured. He said that that was the applicable principle, even if the 2001 deed had effected a true ratification. But as, so I have found, it did not, he submitted that it was (if I may be forgiven the Latin) an a fortiori case. He said that if a claimant has no title to sue when he issues his claim form, he cannot maintain the action on the basis of a title he only acquires later. Mr Steinfeld's second point was that in any event it cannot be right to allow Mr Smith to amend his case to plead a title to sue based on the 2001 deed. That is because by 30 August 2001 (a) SPDL could not have sued HM to judgment because its action was statute-barred; and (b) nor did Mr Smith have any title to sue. An assignment by SPDL made on the following day cannot have given Mr Smith a right to sue when the day before neither of them had any such right. Those points, or at least the second, looked on their face to be formidable ones. But in a very attractive argument, Mr Mabb advanced a cogent response to both.

Dealing with the first point, Mr Steinfeld took me on a tour through the authorities, referring to various cases decided between 1931 and 1998. I propose to refer to only the last of them in any detail, but record that they were Eshelby v Federated European Bank Ltd [1932] 1 KB 254, Ingall v Moran [1944] KB 160, Hilton v Sutton Steam Laundry [1946] KB 65, Pontin and Another v Wood [1962] 1 QB 594, Roban Jig & Tool Co Ltd and Elkadart Ltd v Taylor and Others [1979] FSR 130, Vax Appliances Limited v Hover Plc [1990] RPC 656, and Hendry v Chartsearch Ltd [1998] CLC 1382.

Those cases can be said to reflect a developing practice in the courts with regard to the allowing of amendments to plead matters post-dating the claim form. Whatever principles as to the practice of the courts are capable of being derived from the earlier cases, Chartsearch provides recent Court of Appeal authority for the proposition that if A sues C for a breach of contract between B and C, the court will, or may in an appropriate case, permit A to plead by an amendment an assignment of the relevant cause of action to him which is only effected after the commencement of the action. The judge in that case had refused permission to amend, since he concluded that the Eshelby and Roban Jig cases showed that the court either could not or should not give permission to amend to plead a post-writ assignment. The Court of Appeal reversed his decision. Evans LJ said this in paragraphs 23 and 24 of his judgment:

"23. .... The scope of the Rules of the Supreme Court has been extended since the days when Eshelby was decided in 1932. In accordance with modern practice generally, the court has a general discretion which should not be restricted by hard-and-fast rules of practice, if not of law, such as that which is suggested here. The judge therefore was wrong to consider that the court had no power to give leave to make the re-amendment. In my view, he was wrong also to consider that the discretion was somehow restricted by what he called 'the principle set out in Eshelby and in Roban'. It is a general power which in modern parlance has to be exercised in accordance with the justice of the case.

24. I therefore proceed to consider whether leave should be granted in the present case. The statement of claim in its original and amended form contains a clear statement of the causes of action relied upon under the exploitation agreement. The claims are made in the name of the plaintiff, although it is also pleaded that the contracting party was Interface. The purpose of the re-amendment is to specify the reason why the plaintiff alleges that he is entitled to bring the claim. The cause of action remains the same: the additional facts cause no prejudice or embarrassment to the defendants. I cannot see any ground for refusing leave to make the re-amendment, and as the exploitation agreement does not contain an assignment clause, there is no contractual basis for objecting to the amendment...."

That case was decided in the dying days of the Rules of the Supreme Court, but neither Mr Steinfeld nor Mr Gerrans suggested that the approach reflected in the Court of Appeal's decision was not equally applicable under the CPR. In principle, therefore, an application by Mr Smith for permission to amend his Particulars of Claim to plead the 2001 deed as giving him a title to sue is one which the court can entertain. The mere fact that the deed post-dated the claim form would, by itself, be no answer to the application.

It is, however, important to notice that no question under the Limitation Act 1980 arose in Chartsearch. The claimant was not there seeking to plead a new cause of action which was statute-barred by the time of the application. By contrast, Mr Steinfeld submits that the present case does raise that problem. Chartsearch itself provides no direct guidance on how to deal with it.

Mr Mabb's submissions on this fell into two parts. His first submission can, I think, be summarised as follows: (1) Chartsearch shows that in principle it is open to Mr Smith to plead and rely on an assignment which post-dates the claim form; (2) the re-pleading of Mr Smith's case by pleading that assignment will not involve the making of a new cause of action; (3) there can, therefore, be no question of any such pleading involving the making of a new case which can be said to be statute barred; and (4) it follows that permission to amend can and, as a matter of discretion, should be given.

When he outlined his submission to me, Mr Mabb's second proposition shook me somewhat. Brett J famously described a cause of action in Cooke v Gill (1873) LR 8 CP 107, 116, as meaning "every fact which is material to be proved to entitle the claimant to succeed". Perhaps even more famously, Diplock LJ, in Letang v Cooper [1965] 1 QB 232, 242, described it as "simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person". In my view, it is obvious from those definitions that if A purports to sue C on the basis of an alleged breach of the contract between B and C, then, unless A pleads the factual basis on which he is entitled to bring the action, his claim will be struck out as disclosing no cause of action. His title to sue is a fundamental fact forming part of his cause of action and unless he pleads it and it is either proved or admitted, his action will fail.

Mr Mabb, however, cited the decision of the Court of Appeal in Robinson and Others v Unicos Property Corporation Ltd [1962] 1 WLR 520 as supporting his second proposition. In that case, three plaintiffs sued the defendant for breach of an alleged contract. The Statement of Claim pleaded that the third plaintiff, C, had made the contract in 1938 acting on behalf of himself and the two other plaintiffs. That was put in issue in the defence. The cause of action became statute-barred in 1961, after which the plaintiffs sought to amend to allege that the 1938 contract had been made by C and W as partners, and that the three plaintiffs as succeeding partners were the equitable assignees of the benefit of the contract. C was of course a party to the original contract and the main purpose of the amendment was to correct the basis on which the two other plaintiffs were suing. It was argued by the defendant that the proposed amendment involved pleading a new cause of action which was barred by limitation. The judge allowed the amendment and the Court of Appeal upheld his decision. The argument depended on the application of the principle explained by Lord Esher MR in Weldon v Neal (1887) 19 QBD 394. Holroyd Pearce LJ cited the relevant passage from Lord Esher's judgment at [1962] 1 WLR 525. It reads as follows:

"We must act on the settled rule of practice, which is that amendments are not admissible when they prejudice the rights of the opposite party as existing at the date of such amendments. If an amendment were allowed setting up a cause of action, which, if the writ were issued in respect thereof at the date of the amendment, would be barred by the Statute of Limitations, it would be allowing the plaintiff to take advantage of her former writ to defeat the statute and taking away an existing right from the defendant, a proceeding which, as a general rule, would be, in my opinion, improper and unjust. Under very peculiar circumstances the court might perhaps have power to allow such an amendment, but certainly as a general rule it will not do so."

That principle showed that, under the practice still prevailing in 1962 when the Robinson was decided, the courts were faced with little discretion on an application to amend to plead a new statute-barred cause of action. The principle was that, unless the case was a "very peculiar" one of the type referred to in the last sentence of the quotation, the court had to refuse the application. Holroyd Pearce LJ then continued with his judgment, at page 525, as follows:

"Mr Whitworth then referred us to Cooke v Gill, where Brett J said: '"Cause of action" has been held from the earliest time to mean every fact which is material to be proved to entitle the plaintiff to succeed -- every fact which the defendant would have a right to traverse.' He contends that it was in that sense that Lord Esher MR in Weldon v Neal said that no amendment could be allowed setting up a cause of action. If that argument is right, it follows that no material fact could ever be amended or added after the period of limitation has expired. Such a narrow meaning was certainly not put on Lord Esher's words in such cases as Collins v Hertfordshire County Council and Dornan v J W Ellis & Co Ltd.

In my view the dictum of Lord Esher was not intended to lay down a rule that no material averment could ever be amended or added to after the period of limitation had expired. When he said "a cause of action" he was, I think, referring to what is popularly known as a cause of action, namely, a claim made on a certain basis. By "a new cause of action" he meant a new claim made on a new basis. Here the plaintiffs' original claim was for damages for breach of a contract made by the third plaintiff with the defendants and they claimed that it had been made on behalf of the first and second plaintiffs. By their amendment the plaintiffs still wish to claim the same damages in respect of the same contract made with the defendants through the person of the third plaintiff, but they wish to claim as equitable assignees of the benefit which the then principals had in 1938. Thus they are claiming the same relief, but they are amending their title, namely, the intervening facts which entitle them to benefit of the contract. In no sense is the nature of the action altered. The plaintiffs still wish to claim that which they claimed in the beginning. Nor are they suing in a different capacity. Although they now wish to claim by virtue of their right as equitable assignees of the benefits of the principal to the original contract, they still sue in their personal capacity as principals through the same agency on the contract albeit through an assignment of the benefit to them."

Harman and Davies LLJ added short concurring judgments.

Mr Mabb derived from that authority that a pleading by Mr Smith of the 2001 deed would not involve the pleading by him of a new cause of action and therefore no question of depriving HM of an accrued limitation defence can arise. He relied also on the passage I have read from paragraph 24 of Evans LJ's judgment in Chartsearch to the effect that, even after the pleading of the post- writ assignment, "The cause of action remains the same; the additional facts cause no prejudice or embarrassment to the defendants". He says that here too the cause of action will remain the same, namely a claim for damages for negligence, breach of contract or breach of fiduciary duty by HM in relation to the land transaction in 1993.

I fully recognise that if the Court of Appeal in either of those cases can be regarded as deciding a point of principle relevant to the decision I have to make in this particular context, it is my duty loyally to apply it. I do not, however, regard either case as deciding such a point of principle.

First, Evans LJ's observations were not made in the context of an objection by the defendant to the raising of an allegedly new statute-barred cause of action. He was not addressing himself to the question which arises in this case. His point was merely directed to the question of whether there could be said to be any prejudice in allowing the amendment.

Secondly, I also do not regard the Robinson case as laying down a principle which is decisive as to how I should approach this case. The Court of Appeal approached the question then before it on the basis that the governing principle to the problem was that contained in the passage cited from Weldon v Neal. The decision pre-dated the provisions of the former RSC Order 20, rule 5(5), which was later to provide the basis for dealing with applications to plead what were claimed to be new statute-barred causes of action and which provided a more flexible approach to the problem than did Weldon v Neal. The modern successor to RSC Order 20, rule 5(5) is now contained in Part 17.4(1) and (2) of the CPR which provides, so far as material, as follows:

"(1) This rule applies where --

(a) a party applies to amend his statement of case in one of the ways mentioned in this rule; and

(b) a period of limitation has expired under

(i) the Limitation Act 1980....

(2) The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings."

That rule, like its predecessor in the Rules of the Supreme Court, is one made under the provisions of section 35(3) to (5) of the Limitation Act 1980. In my judgment, it is clear that, because of the relatively restrictive approach of the principle established by Weldon v Neal, the Court of Appeal felt compelled to adopt what was, at least on the face of it, a more robust and broad-brush approach to the identification of a cause of action than is strictly justified by the familiar definitions of that concept. Holroyd Pearce LJ's observations on page 525 show that he considered that any other approach would prevent any material averment being added to the claim after the limitation period had expired. But the provisions of RSC Order 20, rule 5(5), and now those of CPR Part 17.4(2), show that that has for long not been the case. I am of course referring to the court's power to permit the raising of statute-barred claims, provided that they arise out of "the same facts or substantially the same facts" as a claim which is already being made. In short, I respectfully regard the decision in the Robinson case as made against a background of principle which is no longer the governing one and which plainly coloured the court's approach to whether or not a new cause of action was in fact being pleaded. I would regard it as unsafe to derive from that case the principle that a pleading by Mr Smith of the 2001 assignment did not involve the pleading by him of a new cause of action. That would, in my judgment, be to depart from what I would regard as the application of long-accepted principle, including by the Court of Appeal. In Paragon Finance Plc v D B Thakerar & Co (a Firm) [1999] 1 All ER 400, 405, Millett LJ referred both to Brett J's and Diplock LJ's definitions of a "cause of action" as reflecting what is still the modern interpretation of the concept and observed:

"The selection of the material facts to define the cause of action must be made at the highest level of abstraction."

The Court of Appeal in the Robinson case did not engage in any such exercise.

I therefore approach the present case on the basis that any bid by Mr Smith to plead a title to sue based on the 2001 deed will involve the pleading of a new cause of action. I therefore do not accept Mr Mabb's first argument. His second argument was that, if so, then the new claim is one which, for the purposes of CPR Part 17.4(2) "arises out of the same facts or substantially the same facts as a claim" already made in the action. The claim for damages against HM of course remains the same as it has always been. The proposed change to the pleaded case is to allege that, instead of acquiring a title to sue under the assignment made a year before the action was started, Mr Smith only acquired his title two years later and in fact at a time when any action by SPDL was statute-barred. That new allegation is a vital one since, unless he is allowed to make it, Mr Smith cannot prove his case: he cannot establish his cause of action.

Does the making of a new allegation of that sort result in the pleading of a case which meets the test set by Part 17.4(2)? To answer that question involves performing an exercise which, in Welsh Development Agency v Redpath Dorman Long Ltd [1994] 1 WLR 1409, at 1418D, the Court of Appeal described as "substantially a matter of impression", an approach which the same court endorsed as correct in Darlington Building Society and Abbey National Plc v O'Rourke James Scourfield McCarthy [1999] 1 Lloyd's Rep PN 33. The exercise is often quite a difficult one to perform and I do not find its performance in this case particularly straightforward. Mr Smith has in his favour the fact that, if he is allowed to make the amendment, any trial will be all about HM's alleged shortcomings as regards SPDL's interests and that aspect of the case will remain essentially the same as it has always been. However, the special feature of Mr Smith's case is that it is not just a claim for damages; it is a claim for damages by someone claiming to be entitled to sue as an assignee. Proof of Mr Smith's title so to sue is just as essential to success in the action as proof of each of the other vital ingredients of his case. What he now wants to do is to jettison his current pleading as to his title and to prove a wholly different one. Moreover, the new case is not simply, as in the Robinson case, one which will correctly describe a status he always had; it will be to plead a brand new title which he only acquired after he had issued his claim form. As matters stand at present, he is in effect suing as an impostor. What he wants to do is to plead a post-claim form event which will actually give him a title to sue. In my view, those features of his proposed amendments are so fundamental that they cannot fairly justify the new claim as one which can be regarded as arising out of "substantially the same facts" as the current claim, let alone out of the same facts.

In my judgment, therefore, Mr Smith's action can only be saved if he can be given permission to plead the 2001 deed. Were he to seek permission to do so, I would refuse it on the grounds that that would be to deprive HM of an accrued limitation defence and that there is no basis under Part 17.4(2) justifying giving permission to amend.

If I am wrong on the application of Part 17.4(2), Mr Mabb accepts that I would still have a discretion to refuse permission to Mr Smith to amend. The premise on which I would have to consider whether or not to refuse permission would therefore be one in which I had first concluded the proposed new claim would be one arising out of the same facts, or substantially the same facts, as those of the current claim. That situation does not arise, but I propose to indicate that, if it had, I would in the very unusual circumstances of this case have exercised my discretion against giving permission to amend. When Mr Smith started this action he had no title to sue at all. SPDL had a title to sue but had not done so. The 2001 assignment was effected at a time when any claim by SPDL was statute-barred. Mr Smith's position is, therefore, that he should be given permission to sue based on a title to do so given to him by a company whose own claim was statute-barred. I find it difficult to accept that a situation such as that can have been contemplated as being within the spirit of Part 17.4(2) and its predecessor provisions, not least because it is only very recently that the courts have recognised that as a matter of principle it is permissible to plead post-claim events as part of the claimant's cause of action.

It follows that I conclude that this action cannot succeed and that it should be struck out and dismissed. I also heard quite extensive arguments on both sides as to whether the 1998 and/or the 2001 assignments involved an unlawful and ultra vires disguised distribution of capital to Mr Smith and as to whether they were champertous and so contrary to public policy. Mr Steinfeld raised these points as further reasons why Mr Smith was not entitled to rely on either assignment in support of his action against HM. The arguments focused mainly on the 1998 transaction, although, in the light of my conclusions, the only relevant one is the 2001 assignment. I find it unnecessary to express any view on those further arguments and do not do so.

The result is that HM's application succeeds. I will hear counsel on the form of the order.

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