Judgments - Investors Compensation Scheme v. West Bromwich Building Society  continued

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      If one applies these principles, it seems to me that the judge must be right and, as we are dealing with one badly drafted clause which is happily no longer in use, there is little advantage in my repeating his reasons at greater length. The only remark of his which I would respectfully question is when he said that he was "doing violence" to the natural meaning of the words. This is an over-energetic way to describe the process of interpretation. Many people, including politicians, celebrities and Mrs. Malaprop, mangle meanings and syntax but nevertheless communicate tolerably clearly what they are using the words to mean. If anyone is doing violence to natural meanings, it is they rather than their listeners.

      I shall, however, make four points supplemental to those of the learned judge. First, the Claim Form was obviously intended to be read by lawyers and the explanatory note by laymen. It is the terms of the Claim Form which govern the legal relationship between the parties. But in construing the form, I think that one should start with the assumption that a layman who read the explanatory note and did not venture into the Claim Form itself was being given an accurate account of the effect of the transaction. It is therefore significant that paragraph 4 of the note says categorically and without qualification that the investor gives up all his rights against anyone else and transfers them to I.C.S. If the effect of the Claim Form was that the investor retained his claim against the Building Society, paragraph 4 of the note was very misleading. Secondly, this leads to the conclusion that Section 3(b) was intended only to deal with the possibility that a lawyer might argue that some right was a "claim" when it would not be regarded as a claim by a layman. This is a fair description of the possibility of a reduction of the mortgage debt as part of the equitable taking of accounts upon rescission, which would not result in the investor receiving any money but merely having to pay less to W.B.B.S. Thirdly, any lawyer would think it extremely odd for I.C.S. to take an assignment of the investor's claim for damages against the solicitors and leave the investor with a claim for the same damages against W.B.B.S. He would be likely to wonder whether this was conceptually possible and, as I shall explain, I think that his doubts would be well founded. The investor and I.C.S. could not between them recover more than the loss which the investor had actually suffered. As a matter of common sense, one would therefore expect that I.C.S. either had a right to the damages or it did not. It would seem eccentric to leave this question to be decided (if such a thing were possible) by a race to judgment. Fourthly, no lawyer in his right mind who intended simply to say that all claims against the W.B.B.S. were reserved to the investor would have used the parenthesis. Nor, unless he intended to limit the reservation to the amount, if any, which happened to be outstanding on the mortgage, would he have described them as claims "in which you claim an abatement of the sums which you would otherwise have to repay." And it is difficult to think of any reason for such an arbitrary limitation.

      Finally, on this part of the case, I must make some comments upon the judgment of the Court of Appeal. Leggatt L.J. said that his construction was "the natural and ordinary meaning of the words used." I do not think that the concept of natural and ordinary meaning is very helpful when, on any view, the words have not been used in a natural and ordinary way. In a case like this, the court is inevitably engaged in chosing between competing unnatural meanings. Secondly, Leggatt L.J. said that the judge's construction was not an "available meaning" of the words. If this means that judges cannot, short of rectification, decide that the parties must have made mistakes of meaning or syntax, I respectfully think he was wrong. The proposition is not, I would suggest, borne out by his citation from Alice Through the Looking Glass. Alice and Humpty Dumpty were agreed that the word "glory" did not mean "a nice knock-down argument." Anyone with a dictionary could see that. Humpty Dumpty's point was that "a nice knock-down argument" was what he meant by using the word "glory." He very fairly acknowledged that Alice, as a reasonable young woman, could not have realised this until he told her, but once he had told her, or if, without being expressly told, she could have inferred it from the background, she would have had no difficulty in understanding what he meant.

      The next question is whether, given the reservation of rights in section 3(b), the assignment of claims to compensation and damages against W.B.B.S. was valid. As we have seen, the judge and the Court of Appeal thought that they were not. Evans-Lombe J. said that the "fundamental problem" was that one could assign a chose in action but not a particular remedy by which that chose in action was enforced. He said:

     "However what was here sought to be assigned was not the chose in action but part of the remedies which the original holder of the chose in action, the Investor, held prior to the purported assignment. It follows . . . that what was purportedly assigned was not a chose in action and accordingly any attempted assignment is void."

      In the Court of Appeal Leggatt L.J. accepted the submission of Mr. Oliver Q.C. that:

     ". . . the assignment for which the I.C.S. contends attempts to divide the indivisible. Whatever else can be assigned, one remedy cannot be assigned whilst retaining a potentially alternative remedy. Since the purpose of Section 3(b) is to procure a reduction in sums payable in respect of a mortgage, it is capable of constituting an alternative to rescission."

      (I should say that, as a matter of construction of the judgment, I think that by using the word "rescission" the learned Lord Justice meant "damages.")

      My Lords, I agree that a chose in action is property, something capable of being turned into money. Snell's Equity 29th ed. (1990), p. 71 defines choses in action as "all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession." At common law, for reasons into which it is unnecessary to discuss, choses in action could not be assigned. In equity, they could. Assignment of a "debt or other legal thing in action" was made possible at law by section 136 of the Law of Property Act 1925. In each case, however, what is assignable is the debt or other personal right of property. It is recoverable by action, but what is assigned is the chose, the thing, the debt or damages to which the assignor is entitled. The existence of a remedy or remedies is an essential condition for the existence of the chose in action but that does not mean that the remedies are property in themselves, capable of assignment separately from the chose. So, for example, there may be joint and several liability; a remedy for the recovery of a debt or damages may be available against more than one person. But this does not mean that there is more than one chose in action. The assignee either acquires the right to the money (or part of the money) or he does not. If he does, he necessarily acquires whatever remedies are available to recover the money or the part which has been assigned to him. So far, therefore, I am in complete agreement with the learned judge and the Court of Appeal.

      It is in applying these principles to the agreement constituted by the Claim Form that I respectfully differ. Let us consider what rights the investor might have had when he signed the form. He may have had a claim for damages in respect of the loss which he had suffered on account of entering into the transaction. This may have included money which he had lost on the ill-advised investment in an equity-linked bond, fees which he paid to advisers to extricate himself from his predicament, high rates of interest paid to the building society, possibly even money spent under the impression that he could afford to do so. The persons liable for this loss might have been the financial adviser, the building society and his solicitor. The building society, for example, might have been liable for participating in misrepresentations made by the financial adviser in the course of a joint scheme for marketing Home Improvement Plans, or in breach of its duties under the Act of 1986. I am not suggesting that any building society was actually liable on this basis, but only that the Claim Form contemplates this as a possibility. This right of damages would have been a chose in action, a right to recover money, which was capable of assignment in equity and under section 136 of the Law of Property Act 1925.

      The investor might in addition have had a right against the building society to rescission of his mortgage. Or he might have such a right without having any claim for damages. For example, he might have been able to show that the building society had actual or constructive knowledge of undue influence exercised by the financial adviser: compare Barclays Bank Plc v. O'Brien [1994] 1 A.C. 180. This would entitle him to rescission but not damages. By itself, the right to rescission would have done little to solve the investor's problems because it would have been a condition of rescission that the investor should restore the benefits which he had received in return for the mortgage: the building society's advance and a reasonable rate of interest for having the use of the money. His real complaint was not merely that his house was mortgaged but that he no longer had the money to pay back to the building society. Until he had obtained compensation or damages, he would usually be unable to do so. Nevertheless, one can imagine reasons why it would be more advantageous to the investor, even after obtaining his compensation, to claim rescission of the mortgage rather than simply paying it off. For example, the reasonable rate of interest which a court might fix as a condition of rescission might be less than the higher rate due under the contract (some of which he had already paid) and so, on the taking of accounts for the purposes of rescission, there might be an abatement of what he would otherwise have to repay.

      Now it is important to notice that a claim to rescission is a right of action but can in no way be described as a chose in action or part of a chose in action. It is a claim to be relieved of a mortgage, and such a claim can be made only by the owner of the mortgaged property. The owner cannot assign a right to rescission separately from his property because it would make no sense to acquire a right to have someone else's property relieved of a mortgage. Likewise, the possibility of an abatement of the debt as part of the process of rescission is not a chose in action which can be assigned. It is simply part of the process of rescission, which is a right attached to the ownership of the house itself.

      It can therefore be seen that in reserving to the investor any claim to an abatement of the mortgage debt consequent upon rescission, Section 3(b) was not cutting down the scope of the chose in action which was assigned to I.C.S. The possibility of an abatement could never have formed part of that chose in action and could never have been assigned separately from the house itself. One might therefore ask: what was the point of Section 3(b)? The answer, I would suggest, is lawyerly caution. The draftsman wanted to make it clear that if, for example, the investor brought an action for rescission, any abatement of the debt which he secured was not something for which he would be accountable to the I.C.S. In my view, it was a mistake. The draftsman muddled up two separate questions. One is the extent of the assignment to I.C.S. and the other is the extent to which the investor is accountable to I.C.S. for any benefit he may receive. The two are not necessarily the same.

       As this case shows, a right of action such as a claim for rescission of a mortgage may be unassignable as a chose in action, but there is no reason why the parties cannot agree that the investor is to be accountable to I.C.S. for all or part of the improvement in his financial position as a result of exercising his right to rescission. The words "the benefits of such claim shall enure to you absolutely" in section 3(b) show that the draftsman's concern was with accountability for benefits. He wanted to make it clear that the investor would not be accountable for benefits derived from a claim for rescission. But the language he used referred to the extent of the assignment, for which purpose the exception in section 3(b) was unnecessary. Hence all the litigation: if you say something which is unnecessary, people suspect that you must mean something else. However, there was one thing which section 3(b) was not and could not be, and that was a reservation of a remedy which would ordinarily form part of the chose in action assigned by I.C.S.

      It is of course true that there are other links between the claim for damages and the claim for rescission. The facts giving rise to liability would have a great deal in common, so that if both claims were being made, by I.C.S. in the one case and the investor in the other, it would be sensible to try both cases together. But this can often happen when the same facts give rise to claims by different people and there are procedural means for dealing with the possibility of duplicated evidence and conflicting decisions. For example, in Wilson v. United Counties Bank Ltd. [1920] A.C. 102 the breach by a bank of its contract to supervise Major Wilson's business while he was fighting in France gave rise to a claim for financial loss to the business and to general damages for injury to his credit and reputation. The House of Lords held that upon his bankruptcy the former claim was statutorily assigned to his trustee while the latter remained vested in him. He and the trustee joined as plaintiffs in the action and, if they had not done so, the bank would have been entitled to have their actions consolidated.

      In addition, the damages recoverable by I.C.S. as assignee may be affected by whether or not the mortgage has been rescinded. If there has been no rescission, the damages may be calculated on the basis that the transaction has involved the investor in liability to pay a high rate of interest. If there has been rescission, the damages will be on the footing that the investor has only had to pay a reasonable rate. If the building society is to pay on the former basis, it is entitled to require that the investor affirm the mortgage and if I.C.S. cannot procure this, it may be necessary to assess damages on the footing that rescission will take place. If there is a dispute over the matter, the investor may have to be joined as a plaintiff, to avoid a situation in which the building society both resists a claim to rescission and has damages assessed on the basis that rescission has taken place. But these again are problems capable of solution by procedural means.

      The fact that the exercise by the investor of a right to rescission may affect the quantum of the damages recoverable by virtue of the assignment to I.C.S. does not, however, mean that the investor has attempted to assign different remedies in respect of the same chose in action. What was assigned was the right to damages, whatever the quantum might be. It is not unusual for the quantum of damages to be affected by other proceedings which the person injured may bring, whether against a person liable for damages or someone else. For example, if one assumes that the financial adviser was solvent and that the investor had no cause of action whatever against the building society for damages but the possibility of rescission of the mortgage on the basis of constructive notice, the quantum of damages recoverable from the financial adviser by the investor, or by I.C.S. as his assignee, would be affected by whether or not the investor took successful proceedings for rescission. No one would think this an odd state of affairs and in principle I do not see that it makes any difference that the claim for damages and the claim for rescission are both against the building society.

      My Lords, I think that if the rights of the investor are properly analysed, it will become clear that clause 6 of Section 4 of the Claim Form is a complete and effectual assignment of the whole of the investor's claim to compensation and damages to I.C.S. Section 3(b) may well have been unnecessary, but this conclusion seems to me preferable to attributing to the parties an intention, as, in their different ways, the judge and the Court of Appeal have done, to do six impossible things before breakfast and then regretfully saying that they could not be done. I would therefore allow the appeal. The first two questions which the judge directed to be tried as preliminary issues and the answers I suggest your Lordships should give are as follows:

Question 1: (a) Whether, upon the true construction of the express and (if any) implied terms of the I.C.S. Claim Form, any (and if so which and to what extent) of the claims which the Alford and Armitage investors advance in the actions numbered Ch. 1995--A--2266 and 3129 have been assigned to the I.C.S. and (b) if so, whether such assignment is valid and effective and what consequences (if any) does it have as to the ability of those investors to maintain the actions.

Answer: Upon the true construction of the I.C.S. Claim Form, all claims for damages and compensation have been validly assigned to I.C.S. and such claims cannot be maintained by the investors in their actions. The investors retain the right to claim rescission of their mortgages upon such terms as the court may consider just.

Question 2: (a) Whether, upon the true construction of the express and (if any) implied terms of the I.C.S. Claim Form and in the light of the answer to issue 1, any (and if so which and which parts thereof) of the claims which the I.C.S. advances in the actions numbered CH 1995--I--7087 and 8106 have been assigned to the I.C.S. and (b) if so, is such assignment valid and effective and does it enable I.C.S. to maintain the actions.

Answer: (a) All (b) Yes.

      The remaining questions do not arise.


My Lords,

      I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Hoffmann. For the reasons he gives I also would allow the appeal and would answer the questions which the judge directed to be tried as preliminary issues in the way he has suggested.


My Lords,

      I have had the advantage of reading a draft of the speech of my noble and learned friend, Lord Hoffmann. For the reasons he has given, I too would allow the appeal.


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