The meaning of the language

      The objection to the plain meaning is the inclusion of the words "for undue influence" after "rescission"; for any lawyer would know that there are other grounds on which the investor might claim rescission, for example, on the ground of misrepresentation. Why, therefore, should the draftsman have specifically included one of the grounds on which the investor might claim rescission, but not others?

      We do not know the answer to this question. It may be that if one had access to the preliminary drafts of the Claim Form, or to the mind of the draftsman himself, the answer would emerge clearly enough. It may be that a claim for rescission on the ground of undue influence was, for some reason, uppermost in the draftsman's mind; so he put the words in. But we cannot go into the draftsman's mind. We having nothing to go on but the words he has used. The inclusion of undue influence is odd, but not so odd as to obscure the meaning. "Or otherwise" must relate back to "whether sounding in rescission." Any other construction would leave "whether" hanging in the air. So "or otherwise" covers claims in contract and tort. It is not limited to other grounds for claiming rescission. The drafting is slovenly. But I do not have any great difficulty with the meaning.

      It is said that the plain meaning would make the words in brackets otiose. So indeed it would. But words in brackets are often otiose, especially brackets in the format "(whether . . . or otherwise)." They show that the general words which precede the parenthesis are not limited to any particular kind of claim, but cover all claims so long as they are claims for reduction of sums due.

      What are the alternatives? Mr. Vos submits that section 3(b) means "any claims sounding in rescission (whether for undue influence or otherwise) in which you claim an abatement . . ." I agree with Evans-Lombe J. that such a construction does violence to the language. I know of no principle of construction (whether by reference to what Lord Wilberforce said in Prenn v. Simmons [1971] 1 W.L.R. 1381, 1384-1386 or otherwise) which would enable the court to take words from within the brackets, where they are clearly intended to underline the width of "any claim," and place them outside the brackets where they have the exact opposite effect. As Leggatt L.J. said in the Court of Appeal, such a construction is simply not an available meaning of the words used; and it is, after all, from the words used that one must ascertain what the parties meant. Purposive interpretation of a contract is a useful tool where the purpose can be identified with reasonable certainty. But creative interpretation is another thing altogether. The one must not be allowed to shade into the other.

      So with great respect to those taking a different view, I do not regard the present case as raising any question of ambiguity, or of choosing between two possible interpretations. The construction advocated by the investors, though it gives rise to the oddity which I have mentioned, is a permissible construction of the words used. The I.C.S.'s construction is not.

      Nor does the I.C.S. construction avoid one of the main objections which is raised against the investors' construction. If "whether sounding in rescission for undue influence or otherwise" is otiose on the investors' construction, so also is "whether for undue influence or otherwise" on the I.C.S.'s construction. Indeed the objection is all the greater, since a claim for rescission would necessarily result in an abatement, if by abatement is meant the financial adjustment which takes place in any event on rescission of a contract, and which would in this case be limited (if Mr. Vos's argument is correct) to repayment of W.B.B.S.'s charges and an adjustment in the rate of interest on the loan. On that view, clause 3(b) would be an elaborate way of saying very little indeed.

The legal and commercial consequences

      If Evans-Lombe J. is right that the investors' construction is the more natural meaning of section 3(b) and if, a fortiori, the Court of Appeal is right that the I.C.S.'s construction is not even a possible meaning of the language used, then it would take a very strong case indeed before I would reject the former meaning in favour of the latter. As Lord Mustill said in Charter Reinsurance Co. Ltd. v. Fagan [1996] 2 W.L.R. 726, 758-759:

 "If . . . the words 'actually paid' can only as a matter of language and context mean what the syndicates maintain, I would hesitate long before giving them any other meaning, just because the result would be extraordinary."

      What then are the consequences of the investors' construction which are said to be so extraordinary, or so "very unreasonable" (the expression used by Lord Reid in Wickman Machine Tool Sales Ltd. v. L. Schuler A.G. [1974] A.C. 235, 251), and which Evans-Lombe J. described as producing a ridiculous result? I start with the commercial consequences. It is said that I.C.S. would have wanted to take over the investors' claim against W.B.B.S., as well as their claim against Fisher Prew-Smith, since W.B.B.S. would be worth suing, whereas Fisher Prew-Smith, being insolvent, would not. Secondly it is said that the investors would have little incentive to sue W.B.B.S., once they had received compensation from I.C.S. A third objection was that the investors would not be entitled to claim on their own behalf, once they had accepted compensation. This third objection is now accepted as being wrong in law, and is no longer relied on.

      By way of answer to the second objection, Mr. Strauss pointed out that since, in the generality of cases, investors had received only between half and three-quarters of their losses by way of compensation, they would have every incentive to look elsewhere for a remedy. Over 500 investors have in fact done so, by bringing claims against Cheltenham and Gloucester, W.B.B.S. and other building societies. So it does not look as if the investors have been shy or backward in pursuing their rights.

      As to the first objection, the structure and language of the Claim Form, and the express provisions of section 54(2)(e) of the Act, do not suggest that claims against participant firms were expected to be valueless. (It is common ground that "person" in section 54(2)(e) means, and means only, the participant firm.) It is true that Fisher Prew-Smith are in liquidation. But other participant firms are not. Moreover the building societies are not the only third parties likely to be worth suing. It must not be forgotten that I.C.S. has brought proceedings against 197 firms of solvent solicitors. In any event it is not for the court to speculate on what the parties would have wanted. I accept, of course, as Mr. Vos observed, that I.C.S. is not a charity. But it is far from being an ordinary commercial organisation. Its raison d'etre is the compensation of investors.

      Even so, if I.C.S. had undertaken to compensate the investors in full then one might perhaps have expected I.C.S. to insist on a transfer of all third party rights. But that is not what has happened. It is common ground that investors have retained rights of some kind against W.B.B.S. That being so it would seem to me as likely as not, commercially, that the agreement would provide for the investors to retain the whole of their rights against W.B.B.S., including the right to claim damages in reduction of their loans. Such a consequence cannot be regarded as "ridiculous" or "extraordinary" or "very unreasonable."

      Various other so-called anomalies are mentioned in Mr. Vos's written submissions by way of reply. For example, a conscientious investor who had used his compensation to pay off his mortgage would lose his rights against W.B.B.S., since there would then be no sum to be abated, whereas a less conscientious investor who had spent his compensation on a holiday would retain his rights in full. I agree with Mr. Vos that there are theoretical anomalies on the investors' construction, though how likely they would be to arise in practice is another question. Where I disagree with him is in his evaluation of these anomalies. In my judgment they fall far short of the sort of absurdity which would justify the rejection of what I have called the plain meaning of section 3(b). They do not prompt the comment "whatever else the parties may have had in mind, they cannot have meant that."

      As for the legal consequences, the difficulties are all on the other side. Both Evans-Lombe J. and the Court of Appeal were of the view that the splitting of mutually inconsistent remedies in respect of a single cause of action against W.B.B.S. meant that the purported assignment was void for uncertainty, as well as being contrary to public policy. My noble and learned friend, Lord Hoffmann has found a way round that difficulty. But the difficulty does not arise at all on the investors' construction. If the whole of the investors' rights against W.B.B.S. are retained, the question of splitting remedies, and "dividing the indivisible" simply does not arise.

      For the above reasons I would hold that on the true construction of the Claim Form the investors' claims against W.B.B.S. have been retained by the investors, and have not been assigned to I.C.S. It follows that the question whether if there had been an assignment, it would have been valid or invalid does not call for an answer. In the result, therefore, I would uphold the reasoning of the Court of Appeal and dismiss the main appeal.

The claim against the solicitors

      I can deal with the remaining point quite briefly, since I agree with your Lordships that the investors' claims against their solicitors have been validly assigned to I.C.S., and that this part of the appeal should therefore be allowed. There can be no doubt that paragraph 6 of section 4 purports to transfer to I.C.S. the investors' rights against the solicitors. There is no issue as to the meaning of paragraph 6 in that connection. The only question is whether the assignment is effective in law. Evans-Lombe J. dealt with the point briefly at the end of his judgment. Having held that it was not possible in law to assign some but not all remedies in respect of a single cause of action, he went on to conclude that the same reasoning must also apply, logically, to the claim against the solicitors, since the solicitors might wish to bring in W.B.B.S. as third parties.

      Mr. Sumption supports the judge's conclusion. He submitted that the purported assignment is void, because it is legally impossible for the investors to assign their right to claim against the solicitors while retaining the right to claim against W.B.B.S. in respect of the same loss. Mr. Sumption was not able to point to any authority in support of this submission. He relies instead on the traditional antipathy of the courts to the assignment of bare rights to litigate. Alternatively he submits that if there can be an assignment at all in such circumstances, it will only be effective in law if the parties have agreed as to their respective priority. In the absence of agreement, the court has no means for deciding between competing claimants in regard to the same loss.

      Since the claims against W.B.B.S. and the solicitors give rise to separate causes of action, the problem of splitting remedies in respect of the same cause of action, which Evans-Lombe J. and the Court of Appeal regarded as insoluble, does not arise in so acute a form. I believe it could be solved satisfactorily by sensible case management. But I need not develop the matter further. For Mr. Sumption concedes that if the main appeal is allowed, as your Lordships propose, then the appeal in the solicitor's action must also be allowed.

LORD HOFFMANN

My Lords,

      The Investors Compensation Scheme was set up pursuant to section 54 of the Financial Services Act 1986 to provide a compensation fund for people who have unsatisfied claims against persons authorised under the Act to carry on investment business. The Rules under which the Scheme is administered provide that, on paying compensation, the company managing the Scheme is to take over the applicant's rights against the authorised person and also, if the management company so determines, any rights he may have against other persons relating to the subject-matter of his claim.

      In 1992 the management company, called Investors Compensation Scheme Ltd. ("I.C.S."), began to receive a large number of claims from home owners, mainly elderly retired people, who had been advised by authorised persons, independent financial advisers belonging to the Financial Intermediaries, Managers and Brokers Regulatory Association ("FIMBRA"), to enter into schemes called "Home Income Plans." These schemes had been marketed by the financial advisers in conjunction with certain building societies during the late 1980's and involved the owners mortgaging their homes to secure advances at enhanced rates of interest which they mainly invested in equity-linked bonds. The subsequent fall in equities and house prices and the rise in interest rates had caused the owners severe losses. They had claims against the financial advisers for negligence and breach of their statutory duties under the Act of 1986 as well as possible claims against the building societies and the solicitors who had acted in connection with the mortgages.

      I.C.S. drafted a Claim Form for the home owner claimants (whom I shall call "the investors") to sign. We shall have to examine it later in some detail. For the moment it is enough to say that it contained an assignment to I.C.S. of all the investor's rights arising out of the transaction against the financial advisers and anyone else, subject to a reservation of certain rights against the building society. This reservation, in section 3(b) of the form, has given rise to this litigation. Evans-Lombe J., who had to determine its meaning as a preliminary issue, thought that it was trying to reserve to the investor a part of his rights against the building society but that an assignment to I.C.S. of his remaining rights was legally impossible and invalid. An assignment of the investor's rights in respect of the same losses against the solicitors was also legally impossible and the whole assignment was therefore a failure. The Court of Appeal disagreed with the judge about the meaning of section 3(b). They thought it was intended to reserve to the investor the whole of his rights against the building society. But they agreed that if it had been intended to assign part, it would have been ineffective. They also agreed that the assignment of rights against the solicitors was invalid. The unanimous view of the judge and the Court of Appeal was therefore that I.C.S. had no title to claim against either the building societies or the solicitors. Against this decision I.C.S. appeals to your Lordships' House.

      My Lords, I must start by setting out the material provisions of section 54 of the Act of 1986, the Rules under which the Scheme is operated and the Claim Form which the investors signed. First, the Act:

 "54(1) The Secretary of State may by rules establish a scheme for compensating investors in cases where persons who are or have been authorised persons are unable, or likely to be unable, to satisfy claims in respect of any description of civil liability incurred by them in connection with their investment business.

(2) Without prejudice to the generality of subsection (1) above, rules under this section may--(a) provide for the administration of the scheme and, subject to the Rules, the determination and regulation of any matter relating to its operation by a body appearing to the Secretary of State to be representative of, or of any class of, authorised persons; (b) establish a fund out of which compensation is to be paid; (c) provide for the levying of contributions from, or from any class of, authorised persons and otherwise for financing the scheme and for the payment of contributions and other money into the fund; (d) specify the terms and conditions on which, and to the extent to which, compensation is to be payable and in any circumstances in which the right to compensation is to be excluded or modified; (e) provide for treating compensation payable under the scheme in respect of a claim against any person as extinguishing or reducing the liability of that person in respect of the claim and for conferring on the body administering the scheme a right of recovery against that person, being, in the event of his insolvency, a right not exceeding such right, if any, as the claimant would have had in that event; and (f) contain incidental and supplementary provisions."

      Next, the rules. They are called the Financial Services (Compensation of Investors) rules 1990 and were made by the Securities and Investment Board, exercising the powers under section 54 delegated by the Secretary of State. In these Rules, I.C.S. is called "the management company" and the financial advisers and other authorised persons are called "the participant firms." For present purposes it is necessary to refer only to the following rules:

      "2.02  Payment of Compensation

1.      The management company is responsible for paying compensation to investors in accordance with these rules.

2.      The management company may pay compensation where it is satisfied, on the basis of evidence provided by an investor or which is available to it from other sources, that: (a) an eligible investor has duly applied for compensation; (b) the investor has a claim against a participant firm in default . . . (c) the participant firm is unable or unlikely to be able to meet the claim within a reasonable period; and (d) the investor has agreed, to the satisfaction of the management company, that the whole or any part of his rights in the claim and, if the management company so determines, any rights of his in a claim against any other person which relate to the subject-matter of the claim, should pass to it.

      "2.10 Recoveries

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

      Finally we must look at the Claim Form. Various editions were produced in 1992 but for present purposes nothing turns on the differences. This case concerns a form used for claims in respect of a financial adviser called Fisher Prew-Smith Financial Services Ltd. ("F.P.S.") which had marketed its home income plan in conjunction with the West Bromwich Building Society ("W.B.B.S."). I shall refer to the one which was in use in July 1993.

      Sections 1 and 2 dealt with the personal details of the claimants and the amount of compensation payable. Section 3(a) was called "Claimant's Declaration" and contained the following statements:

 ". . . I/we confirm that we have received no compensation of any kind in respect of the amounts owed to us at the date of default by [F.P.S.] or any other person. I/we also confirm that I/we do not expect to receive any such compensation in the future. Any such compensation received by me/us, I/we will pay to [I.C.S.] in accordance with Section 4 attached hereto.