Month: December 2023

In this post, David McKie, Partner, and Dany Bitar, Associate in the litigation team at CMS, preview the decision awaited from the Supreme Court in Argentum Exploration Ltd (Respondent) v Republic of South Africa (Appellant).

Factual Background

In 1942, a commercial vessel, SS TILAWA, chartered for the carriage of a cargo of 2,364 bars of silver (the “Silver”) for use by the South African Mint to produce coinage in Egypt and South Africa, was torpedoed and sank in international waters in the Indian Ocean at a depth of some 2½ kilometres. The cargo was regarded as unsalvageable, but in 2017 it was recovered by the Respondent (“Argentum”), a UK company formed for the purpose of the location and salvage of valuable shipwrecks at depth, and brought to the UK (in a mistaken belief that it was UK government property). In October 2017, Argentum declared the Silver to the Receiver of Wreck and it was subsequently held to the order of the Receiver pursuant to section 236 Merchant Shipping Act 1995 (“MSA”). The Silver was valued at around USD 43 million.

In September 2018, the Government of the Republic of South Africa (“RSA”) claimed ownership of the Silver. In October 2019, Argentum commenced an action in rem in the Admiralty Court for a declaration that it was the owner of the Silver, alternatively that it was entitled to a salvage reward against the owners.  RSA entered an acknowledgment of service, and applied to strike out or set aside the claim, or have it permanently stayed, on the grounds that the proceedings attracted State immunity pursuant to the State Immunity Act 1978 (“SIA”) and the International Convention on Salvage 1989, art 25.  RSA also resisted paying salvage in the event that it was not entitled to immunity.  Argentum subsequently accepted RSA’s ownership of the Silver at all material times.

Argentum also commenced a claim for salvage against RSA in personam, for which it was granted permission to serve out of the jurisdiction on a without notice application. The validity of the claim form in that action was extended without it yet having been served or expired.

The High Court Decision

In the words of Sir Nigel Teare (sitting as a judge of the High Court), RSA’s application engaged “two conflicting interests, the interest of the Claimant in access to justice and the interest of the RSA in being immune from the jurisdiction of this court. Those two interests are to be balanced by application of the State Immunity Act 1978.”

The SIA, s 1, sets down the general principle that a State is immune from the jurisdiction of the courts of the UK subject to certain exceptions, including those in SIA, s 10. The relevant exception considered by the court was contained in section 10(4)(a) which provides that a State is not immune in respect of, “an action in rem against a cargo belonging to that State if both the cargo and the ship carrying it were, at the time when the cause of action arose, in use or intended for use for commercial purposes.”

The SIA, s 17, defines commercial purposes as meaning purposes of such transactions or activities as mentioned in s 3(3), which in turn states that commercial transaction means:

“a) any contract for the supply of goods or services… and c) any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a State enters or in which it engages otherwise than in the exercise of sovereign authority”. 

Consequently, it fell to the court to assess whether the Silver and the SS TILAWA, as the vessel carrying the Silver, were, “in use, or intended for use, for commercial purposes” in 2017, being the time at which Argentum’s cause of action arose against RSA.

RSA argued that neither the SS TILAWA nor the Silver were in use or intended for use for any commercial purpose since both were at the bottom of the Indian Ocean and had been for over 70 years and were not being used at all.  Argentum argued that both the SS TILAWA and the Silver retained the same status that they had when sunk in 1942.  RSA responded that the position in 1942 was irrelevant but if it was, the Silver was not in use by RSA’s predecessor but intended for use by the then government for the production of coinage which was a governmental purpose. 

The court had no difficulty in finding that the SS TILAWA had been used for commercial purposes, this being the purpose for which it had been built.  As regards the use of the Silver, although the determination was not an easy feat, the court also found that the Silver had been in use for commercial purposes because the use to which it was being put was being carried on a merchant ship, being carried pursuant to a contract of sale with the Government of India and a contract of carriage with the shipowner. In particular, the court considered that:

“If a state contracts for its goods to be carried by sea, a classic example of a commercial contract, there is no reason, pursuant to the restrictive theory of state immunity, why it should not be exposed to the same liability in salvage as a private owner of goods”. 

It was unnecessary to decide whether in 1942 the Silver was intended for use for commercial purposes, but its partial use for Egyptian coinage was a commercial purpose and its more substantial use for South African coinage was a sovereign purpose, such that the court would have held that it was intended to be used substantially for a sovereign purpose.

The court also found that there was no reason to conclude that the character or status of the Silver in 1942 had changed by 2017, when the cause of action in salvage had accrued. This was because the contract of carriage of the Silver had ended because the Vessel and Silver sunk to a depth at which salvage had not been practicable at that time. These events did not affect the circumstances in which RSA could claim immunity pursuant to the SIA, s 10(4)(a).

The court concluded that RSA was not immune in respect of the claim in rem against the Silver. This conclusion was “consonant with justice” because “it enables the Claimant to have access to justice whilst ensuring that the RSA’s immunity […] is consistent with the restrictive theory of sovereign immunity to which the SIA gives effect.”

The Court of Appeal decision

RSA appealed the High Court decision to the Court of Appeal. 

The arguments raised by RSA were largely the same as at first instance.  However the parties agreed that in 1942 SS TILAWA was being used for commercial purposes, and that in 1942 the Silver was intended for a predominantly sovereign use. 

By a majority, the Court of Appeal dismissed RSA’s appeal.

The majority held that RSA had chosen to have its cargo carried by sea pursuant to a commercial contract of carriage just like any private owner of cargo and had therefore exposed itself to claims for salvage like any private owner of cargo.  When a cargo is purchased under a FOB contract and shipped pursuant to a commercial contract of carriage contained in or evidenced by a bill of lading, the cargo is used for commercial purposes.  That was the ordinary and natural meaning of the phrase “in use … for commercial purposes” when regard was had both to the context of cargoes on board ships and to the restrictive theory of state immunity which is the background against which the SIA is to be interpreted.

As an aside, the Secretary of State for Transport and the Receiver of Wreck intervened at the Court of Appeal stage to seek rulings on whether the Receiver has the power to determine the amount of salvage, and has an obligation only to release property against a payment of salvage or provision of security, even if the owner can invoke state immunity in court proceedings.  The Court of Appeal held unanimously that the relevant provisions of the legislation do not confer any power on the Receiver to decide whether salvage is due, or how much salvage is due, and do not require the Receiver to continue to detain a wreck if a State successfully invokes state immunity in response to a claim for salvage.

RSA appealed the state immunity issue to the Supreme Court. The hearing took place on 28 and 29 November 2023 and a decision is now awaited.

Comments

As technology develops, it becomes increasingly practicable and economic to salvage previously inaccessible historic wrecks and valuable cargoes, many of which will have been government owned.  Where the vessel or cargo is the property of a State questions arise as to how the law of State immunity interacts with admiralty law principles of salvage and wreck. 

This is believed to be the first case to consider the meaning and scope of SIA, s 10(4)(a).  The case is significant in the marine context because it means that a State is not immune from an action in rem for salvage in respect of its cargo, or from an action in personam, just because the vessel carrying the cargo has become a wreck. Subject to the Supreme Court’s judgment, State property which is on board commercial vessels, and sinks, may result in a loss of immunity from salvage and other maritime claims. 

The drafting of the SIA is not without difficulties. The restrictive theory of state immunity from jurisdiction has its critics. The exception for commercial activity is well recognised but there is often a tension as to where to draw the line on the facts of each case between commercial and governmental activities and, as this case shows, as to what constitutes use.  The case therefore has potentially wider implications and it will be interesting to see the extent to which the Supreme Court addresses these.

In this post, Madison Ingram, Trainee Solicitor in the ICE Disputes team at CMS previews the decision awaited from the Supreme Court in Potanina v Potanin. The appeal was heard by the Supreme Court on 31 October – 1 November 2023.

The Facts

Natalia Potanina (“Wife”) and Vladimir Potanin (“Husband”) are two Russian nationals who were married from 1983 to 2014. They spent their entire marriage living in Russia.

Husband claims that the couple began to live separate lives from 2007, whereas Wife claims they did not separate until 2013 when Husband told her that he wanted a divorce.

Throughout their marriage, Husband accrued substantial wealth, becoming a multi billionaire. In 2007, Husband transferred assets to Wife of approximately USD$76 million. This is acknowledged as being a small portion of Husband’s wealth – of which is mostly located in shares in companies or other business entities which were not registered in his name, but instead were held in trusts or corporate vehicles.

Upon the granting of their divorce in early 2014, Wife commenced a wave of litigation in Russia, the USA and Cyprus to obtain further financial relief from Husband’s assets. She was unsuccessful in all claims. She then decided to bring a claim for financial relief under English law on the basis that she had purchased a property in England in 2014 and, since 2017, had been living in England permanently. This was done by way of a without notice application for leave under rule 8.25 of the Family Procedure Rules 2010 (“the 2010 Rules”).

On 25 January 2019, Wife was granted leave to apply for financial relief pursuant to Part III of the Matrimonial and Family Proceedings Act 1984 (“the 1984 Act”) at an ex parte hearing.

Husband then applied under rule 18.11 of the 2010 Rules to set aside Wife’s application for financial relief on the basis that the judge had been misled as to the facts of the case, the issues of Russian law and the applicable principles of English law. His application was heard in the High Court in October 2019.

With the High Court finding in Husband’s favour, Wife then appealed to the Court of Appeal which overturned the High Court’s decision in a hearing in January 2021.

Husband has now appealed the decision to the Supreme Court, and judgment is awaited.

The Law

1984 Act:

S. 13 states that leave cannot be granted unless there is “substantial ground” for awarding the application.

S. 15 provides the requisite connection of an applicant to England and Wales. Since Wife was habitually resident in England for more than one year prior to the date of her application, this requirement appeared to be met.

S. 16 outlines several requirements for the court to ‘have regard to’ in determining whether England and Wales is the pertinent location for the matter to be dealt with.

S. 17 considers whether an order should be made.

S. 18 outlines several requirements for the court to “have regard to” in exercising its powers under s. 17.

2010 Rules:

Chapter 6 sets out the procedure to be followed when making an application for leave under the 1984 Act.

Relevant case law:

Agbaje v Agbaje [2010] UKSC 13:

This case provides important guidance on the application of Part III of the 1984 Act as to the test for granting leave and the correct approach to an application to set aside. The principles are as follows:

“The test is not high for the grant of leave but there must be a ‘solid’ case to be tried;

The power to set aside may only be exercised where there is some compelling reason to do so. In practice it will only be exercised where a decisive authority is overlooked or the court has been misled;

Unless the applicant can deliver a ‘knock-out blow’, an application to set aside should be adjourned to be heard with the substantive application.”

Traversa v Freddi [2011] EWCA Civ 81:

This case provides some key context to Agbaje v Agbaje in how the test ought to be applied. Specifically, it details that a hearing for application for leave should be considered rather quickly, and that if a case meets the s. 13 requirement under the 1984 Act, there is not to be “a rigorous evaluation of all the circumstances”.

Ex Parte Application

Wife was granted leave to make a without notice application under Part III of the 1984 Act, whereby the judge granted her ex parte leave to apply for financial relief. The judge had initially wished to order an inter partes hearing, however he was persuaded by Wife’s counsel with reference to Traversa v Freddi to grant leave.

Husband then applied to set aside said grant of leave, mainly on the basis that the judge was misled on the facts, aspects of Russian law, and the relevant principles of English law. This application was heard by the High Court.

Decision of the High Court

The High Court granted Husband’s application to set aside Wife’s application for financial relief on the basis that she did not meet the requirements under the 1984 Act.

Mr Justice Cohen (who was also the judge at the first hearing) stated that he did have the extent of the material that he was presented with at this stage at the ex parte hearing; and had such material been available to him at that time, he would not have granted leave to Wife to apply for financial relief.

Therefore, he made the order on 8 November 2019 to set aside the leave on the grounds that he had been misled at the ex parte hearing.

Wife then appealed such order to the Court of Appeal.

Decision of the Court of Appeal

The Court of Appeal set aside the High Court’s decision and allowed Wife’s appeal.

The Court of Appeal referred to Traversa v Freddi, in which it was established that a court ought to defer an application to set aside to be heard alongside the substantive application, unless the respondent can produce a “knock-out blow”. The Court of Appeal explained that where a court has been misled and the leave should be set aside, that is often a sign that the issue should be considered at trial as there is not an obvious “knock-out blow”. The Court of Appeal criticised the High Court’s diversion from this approach.

Further, the Court of Appeal criticised the High Court for undertaking a review of the application of s. 16 of the 1984 Act and making factual conclusions based on no oral submissions of which would have otherwise been available in a final hearing.

The Court of Appeal were therefore of the opinion that a hearing with oral evidence should have instead been conducted, and that the judge had indeed not been misled and that the issues which he identified were in fact not material enough to justify setting aside the application for leave.

Nevertheless, the Court of Appeal was sympathetic to the judge and understood that the situation had perhaps commenced on the wrong foot in respect of the lengthy and complicated nature of the initial leave hearing in January 2019, which had made subsequent legislation rather convoluted.

Husband appealed this decision to the Supreme Court.

Issues before the Supreme Court

It is now for the Supreme Court to consider whether the Court of Appeal was correct in its decision to grant Wife permission to apply for financial relief under Part III of the 1984 Act.

Comment

It is clear from the differing approaches taken in the High Court and the Court of Appeal that this area of the law requires clarification, of which it is hoped that the Supreme Court will provide. As the Court of Appeal stated at the conclusion of its judgment, the complexities do not end in respect of the leave application and possible setting aside, but rather extend also to the “approach and balance to be taken in relation to s. 16” of the 1984 Act. Additionally, despite the Law Commission undertaking a review of the law surrounding financial remedy on divorce, this specifically excludes the consideration of Part III of the 1984 Act. Therefore, the Supreme Court shall hopefully provide much needed guidance on this topic.

This case has already received attention in the media, with many stating that this could become the highest-value divorce case in English legal history. Indeed, if the Supreme Court uphold the Court of Appeal’s decision and grant Wife permission to apply for financial relief, it is not unlikely that this will encourage others to go down the same route.

In this post, Charlotte Sanderson, Trainee Solicitor at CMS, previews the decision awaited from the Supreme Court in the case of  George v Cannell and Anor.  The Supreme Court heard the appeal on 17 and 18 October 2023.

Overview

This case is concerned with what a respondent needs to demonstrate to take advantage of the Defamation Act 1952 (the “1952 Act”), s 3(1), in a claim for malicious falsehood and avoid the need to prove special damage.

Ms Linda Cannell owned a recruitment agency called LCA Jobs Ltd (“LCA”). Ms Fiona George, previously worked as a recruitment consultant at LCA, before leaving in November 2018 to take a new job at a different agency, Fawkes and Reece.

Ms Cannell alleged that in her new role Ms George had undertaken work for a client of LCA, Balgores Property Services. Subsequently, Ms Cannell called Balgores and emailed Ms George and her new employer alleging that she was in breach of restrictive covenants in her contract with LCA which prevented her from approaching LCA’s clients.

Ms George sued Ms Cannell and LCA for libel, slander, and malicious falsehood.

The trial judge dismissed the claim for malicious falsehood as Ms George had not proved special damage as required by the common law, or demonstrated that her case fell within an exception to that requirement contained in the 1952 Act, s 3(1).

The Court of Appeal disagreed, and found in favour of Ms George. The Court of Appeal found that it is enough for a claimant to prove the publication by the defendant of a false and malicious statement of such a nature that, viewed objectively in context at the time of publication, financial loss is an inherently probable consequence.

Ms Cannell and LCA have appealed to the Supreme Court.

Factual Background

On 3 January 2019, Ms George began working at Fawkes and Reece. Ms George then undertook a search for staff for Balgores Property, who had also been a longstanding client of LCA. Upon learning of this information, Ms Cannell sent Ms George an email accusing her of being in breach of the “post-employment obligations under the terms of your employment, not to solicit business from LCA clients and candidates.”

On 19 January 2019, Mr Butler of Balgores Property sent Ms George an email stating that he had spoken with Ms Cannell and that she advised that as part of Ms George’s terms she should not be approaching LCA’s clients.  Ms George was asked to pause her search for staff for them, and to not undertake any further work until a resolution with LCA had been reached.

Ms George set out an inferential case based on this email that Ms Cannell had called Mr Butler and said the following words (or words to that effect):

“The Claimant signed a contract with the Defendants by which she agreed not to contact companies for whom the Defendants had worked. By searching for new staff for Balgores she had breached that contract. Therefore, Balgores should stop using the Claimant to find candidates.”

Ms Canell and LCA admitted that there had been a conversation between Ms Cannell and Mr Butler but denied that any such statement had been made.

On 21 January 2019, Ms Cannell then sent an email to Ms George’s new manager, Mr Lingenfelder, explaining that she was in breach of her post employment obligations, and threatened legal action if she did not immediately cease to deal with Balgores Property.

The preliminary issues trial before Richard Spearman QC, sitting as a Deputy Judge of the High Court

At a trial of preliminary issues, the court determined the natural and ordinary meaning of the words used during the call to Mr Butler and the email to Mr Lingenfelder as follows:

“[Ms George], in breach of the restriction contained in her contract of employment with [LCA], and contrary to her express assurances that she would never do this and thus disloyally and contrary to her word, had been approaching [LCA’s] clients to solicit business from them as well as contacting [LCA’s] job applicants.”

The subsequent trial before Saini J

At trial, the Judge held that the statements complained of were false, that the allegation that she had acted in breach of contract was false, and that Ms George and LCA had published that allegation without any honest belief in its truth.

However, the Judge held that the libel and slander claims failed because Ms George had not established that either publication caused serious harm to her reputation as required by the Defamation Act 2013 (the “2013 Act”), s 1(1). The malicious falsehood claims were dismissed on the grounds that Ms George had not proved special damage as required by the common law, nor had she shown that her case fell within the exception to that requirement contained in the 1952 Act, s 3(1).

The Court of Appeal’s Decision

The main issue before the Court of Appeal was what a claimant must prove to take advantage of the 1952 Act, s 3(1).

Lord Justice Warby held that the trial judge had erred in his interpretation of the 1952 Act, s 3 (1). He stated that the aim, purpose, and effect of s 3(1) was to relieve a claimant of the need to plead or prove any actual loss on the balance of probabilities as a matter of historical fact.

The 1952 Act, s 3(1) provides:-

“In an action for slander of goods, slander of title or other malicious falsehood it shall not be necessary to allege or prove special damage

(a) if the words upon which the action is founded are calculated to cause pecuniary damage to the plaintiff and are published in writing or other permanent form; or

(b) if the said words are calculated to cause pecuniary damage to the plaintiff in respect of any office, profession, calling, trade or business held or carried on by him at the time of the publication.”

The trial Judge’s decision was based on various authorities, from Fielding v Variety Inc [1967] 2 QB 841 (CA) to BHX v GRX [2021] EWHC 770 (QB), and the lower court ultimately dismissed the libel and slander claims for want of serious harm. Lord Justice Warby commented that Saini J had not been taken to:

“other interpretative aids which the claimant has cited on this appeal and which I consider significant, including the 1948 report of the Committee on the Law of Defamation (“the Porter Committee”) Cmd. 7536 which led to the introduction of s 3(1); s 2 of the 1952 Act, a comparison with which has been undertaken in the course of this appeal; or the legislative history”.

Therefore, Lord Justice Warby disagreed with Saini J’s interpretation of the exception under the 1952 Act , s 3(1), that to fall under the exception, the loss suffered would need to be a “direct and natural result” of the malicious words. Instead, considering the original 1952 Act, and the Port Committee Report which preceded it, Lord Justice Warby concluded that the statutory test used to interpret the 1952 Act, s 3(1), is forward-looking.  This approach asks whether financial loss is an inherently probable consequence of publishing the allegations.

Lord Justice Warby went on to apply the ‘ordinary and natural meaning’ of s 3 to the facts of the case, and concluded that the publication of the words and email satisfied the requirements of the section. Ms Cannell and LCA had put forward allegations to Ms George’s new employer and one of her customers that Ms George had broken her contractual commitments. Such an allegation has a natural tendency to cause financial loss to someone whose income is commission-based.

Therefore, the Court of Appeal’s judgment held that it is enough for a claimant to prove the publication by a defendant of a false and malicious statement of such a nature that, viewed objectively in context at the time of publication, financial loss is an inherently probable consequence. The threshold of 1952 Act, s 3(1) would be met even though no actual financial loss resulted from the malicious words.

Lord Justice Warby allowed the appeal, and restored the Judge’s initial decision to enter judgment for Ms George for damages, including compensation for injured feelings, to be assessed, and the case was remitted for that assessment to be carried out.

Ms Cannell and LCA appealed. Permission to appeal was granted by the Supreme Court in December 2022, and the hearing occurred on 17 and 18 October 2023.

<![CDATA[Blockchain litigation lead, Matt Green will be hosting our latest podcast series, ‘In Early – The Crypto Podcast’ – Listen to episode 21.

This week Matt speaks to Jennifer Zegel a trust and estate practitioner, member of STEP’s Digital Assets Special Interest Group’s Steering Committee, an attorney at Kleinbard LLC, author of “Digital Asset Entanglement: Unravelling the Intersection of Estate Laws & Technology” and creator and host of the Digital Planning Podcast.

Matt and Jennifer speak about digital assets beyond crypto and the role STEP is playing to educate and drive policy worldwide, how they do it, and what the market looks like as the technology continues to be vital infrastructure.

Listen to the podcast below and send your thoughts to matt.green@shoosmiths.co.uk.

 

]]>

In this post, Christiane Sungu, Associate at CMS, previews the decision awaited from the Supreme Court in the case of Stephen Hilland for Judicial Review (Northern Ireland).

Overview

Following a decision by the Department of Justice (“DoJ”) to recall a prisoner Stephen Hilland (“Mr Hilland”), questions were raised to the courts as to whether it was (a) discriminatory and (b) a breach of human rights to apply a lower threshold test to a prisoner on licence subject to a determinate custodial sentence, in comparison to the threshold used on prisoners subject to a different type of sentence.

The Facts

In this case, Mr Hilland was convicted of two offences and sentenced on 26 May 2015 to two determinate custodial sentences (“DCS”) with his two sentences to run concurrently, combined to be one year in custody, and one year on licence.

In the second year of his sentence, Mr Hilland was released from prison on licence. During his time on licence, Mr Hilland was arrested on suspicion of involvement in a number of driving related offences and in breach of his licence conditions. It follows that prisoners who spend their licence periods in the community are subject to recall.

As a result, the Probation Board for Northern Ireland wrote to the Parole Commissioners seeking that they provide a recommendation to the DoJ for Mr Hilland’s recall on the basis that he was a prolific offender who was likely to re-offend and presented as a danger to the public given his continued disregard of the law. Despite the initial recall decision being quashed, and after a series of legal proceedings, Mr Hilland was recalled on 21 October 2016 and remained in prison until 3 February 2017, when he was released.

In response to this, Mr Hilland decided to raise a challenge that the recall had the effect of breaching his human rights on the basis of the combined effects of ECHR, art 5 (the right to liberty and security), read with ECHR art 14 (the prohibition of discrimination), as incorporated by the Human Rights Act 1998. This argument was based on the fact that prisoners on Indeterminate Custodial Sentences (“ICS”) and Extended Custodial Sentences (“ECS”) were treated differently to Mr Hilland (who had a DCS).

The Thresholds for Recall

The recall process is governed by the Criminal Justice (Northern Ireland) Order 2008 (“the 2008 Order”), art 28; and it provides the framework for the range of recalls and the conditions for the DoJ to prove. Once recalled by the DoJ, the DoJ must refer this to the Parole Commissioners whose role is to decide whether they are satisfied for the protection of the public that the prisoner should be confined.

When considering prisoners under DCS who have a fixed term, a decision to recall will likely only arise if it is believed that there is an increase in the risk of harm to the public.

On the other hand, looking at those under an ICS, the key question will be whether they are within the category of a dangerous offender by reference to the 2008 Order, art 15. Someone under an ICS after an initial release on licence, may be in and out of prison during periods on licence.

For prisoners under an ECS, similarly they will be judged on a finding of dangerousness and will be given a custodial term along with an extension period subject to licence. A prisoner under an ECS can be recalled under the 2008 Order, art 28, and will be released administratively when the aggregate sentence is completed.

The wording of the two tests applied under art 28(6) contains a slight change in language between the two subsections. DCS prisoners are tested against it being no longer necessary for the protection of the public that the prisoner should be confined (art 28(6)(b)) whereas for ICS or ECS, the assessment is of there no longer being a risk of protection of the public from “serious harm” as per art 28(6)(a).

Therefore, Mr Hilland argued that the assessment of his risk under a DCS was harsher than that applied to prisoners serving under an ICS or DCS and that this difference in treatment amounted to unlawful discrimination.

Decision of the Lower Court

In considering this, Colton J decided that art 28 generally provided the DoJ with a broad discretion when dealing with recall cases and that recall usually occurred when there has been an increase in the risk represented by the prisoner.

Using Lady Black’s four-part test established in the case of R (Stott) v Secretary of State for Justice [2018] 3 WLR 1831 (“Stott”), Colton J found that Mr Hilland’s circumstances did in fact (1) fall within the ambit of  ECHR, art 5; (2) meet the criteria of “other status” and was protected under ECHR, art 14; however (3) could not be found to be in an analogous situation as his comparators under an ICS or DCS and; (4) even if it was analogous, the difference in treatment could be justified. The slight difference in language between the two sub-sections indicated that two separate and distinct regimes were in contemplation, and rightly so as there was a clear difference between the position of a standard form of offender, a DCS prisoner, and that of a dangerous offender.

The Appeal

Mr Hilland appealed on the basis that the decisions of recall, application of the 2008 Order, art  28 and the DoJ’s policies which underpinned their decision-making breached his human rights and that Colton J’s judgment should be set aside as he had erred in dismissing the  case.

The Court of Appeal considered the same case law as the lower courts, with the addition of SC, CB and 8 children v Secretary of State for Work and Pensions and others [2021] UKSC 26. The court accepted the findings by Colton J and added that there must be flexibility in application. The court considered that Colton J did not act wrongly or illegally in approaching this matter in the way that he did regarding the four-part test established in the case of Stott.

It was further established that there had been no evidence of substance to show that prisoners under an ECS or ICS had been treated more favourably than those under a DCS historically. There was no evidence of discrimination or arbitrary treatment.

The court stated along with other justifications that the case was evidentially weak, that the instrument under consideration was the product of a democratic legislature, and a wide margin of appreciation had to be considered.

The court dismissed the appeal and affirmed Colton J’s judgment that the situation was in fact not analogous to his ICS and ECS comparators. The court ultimately agreed with the Colton J’s conclusion that the arrangements at issue served a legitimate aim and were proportionate and justifiable for public protection.

Comment

The case demonstrates the importance that judges will place in interpreting statutory provisions with the draftsperson’s intentions in mind. It showed that the slight change of wording between the thresholds of the 2008 Order, arts 28(6)(a) and 28(6)(b) was clearly deliberate to distinguish between the different prisoner groups, and that it was right to treat it as such without it being a cause for discrimination. Furthermore, the appeal demonstrated the importance that appeal judges will place in awarding flexibility to the manner in which trial judges interpret and apply case law without much interference or push for a more stringent applications at appeal.

The Supreme Court will now consider whether applying a different threshold test for the recall of prisoners on licence who are subject to a DCS is discriminatory and a breach of a prisoner’s rights under ECHR, arts 5 and 14.

In this post, Liz Jackson, Trainee Solicitor, and Max Wiktorsson, Associate, in the Employment Team at CMS preview the decision awaited from the Supreme Court in Secretary of State for Business and Trade v Mercer. The appeal is due to be heard by the Supreme Court on 12-13 December 2023.

Under the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”), s. 146, workers are protected against detriments falling short of dismissal related to taking part in the activities of an independent trade union at an appropriate time. The scope of “trade union activities” in that provision has been interpreted as not including industrial action.

Issues before the Supreme Court

The issues before the Supreme Court are:

whether taking part in industrial action is an activity protected by TULRCA, s. 146;

if it is not, whether that is a breach of ECHR, art 11 (freedom of assembly and association);

if a breach of ECHR, art 11 is established, whether TULRCA, s.146 can be interpreted under the Human Rights Act 1998 (“HRA”), s. 3, in a way that is compatible with the ECHR;

if it cannot, whether the Supreme Court should make a declaration of incompatibility pursuant to the HRA, s.4.

The Facts

Fiona Mercer (“Mrs Mercer”), a support worker at Alternative Future Group Ltd (“the Company”), was at the relevant time a workplace representative for her trade union, UNISON. Mrs Mercer helped plan and organise strike action between 2 March and 14 May 2019 regarding a pay dispute. The Company suspended her on 26 March 2019. The Company said that the reasons for her suspension were that she had abandoned her shifts on two occasions and spoken to the press without authorisation and in a manner that conveyed confidential information and was considered likely to bring the Company into disrepute.

In her complaint to the Employment Tribunal, Mrs Mercer claimed that in breach of s. 146, she had been subjected to a detriment by the Company when it suspended her. The Company’s response form asserted that the suspension and disciplinary proceedings were unrelated to any trade union activities, but also that taking part in industrial action could not be an activity protected by s. 146.

The issues before the Supreme Court, and the lower courts, are divorced from the underlying facts of this case. There have been no findings of facts in this case, this section is included for contextual background.

The Law

TULRCA

Part III of TULRCA concerns rights in relation to union membership and activities.

S.146 states that a worker has the right not to be subjected to any detriment by their employer for the sole or main purpose of preventing or deterring the worker from taking part in the activities of an independent trade union at an appropriate time. “An appropriate time” means a time outside the worker’s working hours or a time within the worker’s working hours if the employer has consented to it.

S. 152, provides corresponding protection against dismissal (as opposed to detriment short of dismissal). S.152 gives employees the ability to claim automatic unfair dismissal if the principal reason for their dismissal was that they had taken part or proposed to take part in the activities of an independent trade union at an appropriate time.

Part V of TULRCA deals with industrial action more broadly, and also contains provisions about unfair dismissal complaints where industrial action is taken. Dismissals due to taking part in official industrial action, is dealt with under ss. 238 and 238A, as opposed to dismissals due to taking part in the activities of an independent trade union, which, as set out above, are dealt with under s. 152.

ECHR

Art 11 states that everyone has the right to freedom of peaceful assembly and to freedom of association with others, including the right to form and to join trade unions for the protection of their interests. No restrictions can be imposed on this right other than those necessary in a democratic society.

Decision of the Employment Appeal Tribunal (“EAT”)

The EAT held that the Employment Tribunal was correct in finding that as a matter of ordinary construction, s. 146 does not provide protection to workers engaged in industrial action and thus s.146 as currently construed violates art. 11.

However, the EAT disagreed with the Employment Tribunal that a wider interpretation of s. 146 would go against the grain of TULRCA. The EAT held that there is nothing to suggest the grain of the legislation is to exclude protection against detriment for those participating in industrial action. The EAT suggested that the very fact that dismissal for participation in industrial action is protected under s.238 whilst those taking part in official strikes have no equivalent protection for detriment short of dismissal, is an anomaly in the legislation.

The EAT held that it was possible to construe s. 146 compatibly with art 11 by adding an additional limb to the definition of “appropriate time” in section 146(2), namely “(c) a time within working hours when he is taking part in industrial action”.

Decision of the Court of Appeal

The Court of Appeal agreed with the lower courts that s. 146 does not provide protection to workers engaged in industrial action. It held that the failure to give legislative protection against any sanction short of dismissal for official industrial action against the employees who take it may put the UK in breach of art. 11 if the sanction is one which strikes at the core of trade union activity.

However, the Court of Appeal disagreed with the EAT and held that the effect of the attempt to interpret s. 146 by adding an additional sub-clause would result in impermissible judicial legislation and not interpretation as sanctioned by s. 3. Noting that this is a sensitive issue and one for Parliament to address, the Court of Appeal restored the original decision by the Employment Tribunal.

The Court of Appeal also found that it would not be appropriate to grant a declaration of incompatibility in this case where there is a lacuna in the law rather than a specific statutory provision which is incompatible, noting that the extent of the incompatibility is unclear and the legislative choices are far from being binary questions.

Comment

Until the EAT’s decision in this case, s. 146 was widely interpreted as not extending to workers who go on strike, meaning that employers could consider taking action short of dismissal against striking employees. Overturning the EAT’s decision, the decision of the Court of Appeal returns to that previous legal position. However, it is noteworthy that the Court of Appeal agreed with both the Employment Tribunal and the EAT that the current level of protection for employees is unsatisfactory and potentially breaches their human rights under the ECHR.

The Supreme Court’s decision is eagerly awaited by trade unions and employers with trade union relationships. It is hoped that the decision will provide clarity on this important issue.

It also worth noting that the appeal to the Court of Appeal in Ryanair DCA v Morais EA-2021-000275 (“Ryanair”) has been stayed pending the judgment of the Supreme Court. Ryanair involves similar issues to Secretary of State for Business and Trade v Mercer but also includes related claims under the Employment Relations Act 1999 (Blacklists) Regulations 2010 (SI 2010/493).

In this post, Phil Woodfield and Elizabeth Lombardo of CMS comment on the Supreme Court’s decision in Canada Square Operations Ltd v Potter [2023] UKSC 41, which was handed down on 15 November 2023. The issue before the Supreme Court was the meaning of “deliberately concealed” for the purpose of the Limitation Act 1980 (“LA 1980”), s 32(1)(b) and of “deliberate commission of a breach of duty” for the purpose of s 32(2) of that act.

Background

In 2006, Mrs Potter entered into a regulated loan agreement with Egg Banking plc (later known as Canada Square Operations Ltd, “Canada Square”). Part of the loan was a payment protection insurance policy (the “PPI Policy”) taken out with an insurer in the AXA group. Canada Square acted as the insurance intermediary and retained 95.24% of the policy premium as its commission for the sale of the PPI Policy. Mrs Potter was not informed that Canada Square would receive commission.

In April 2018, Mrs Potter complained to Canada Square that the PPI Policy had been mis-sold to her and was paid partial redress. Mrs Potter issued proceedings against Canada Square on 14 December 2018 to recover the balance of the sums paid under the PPI Policy. The claim was based on the provisions of the Consumer Credit Act 1974 (“CCA 1974”), ss 140 A-D, alleging that the failure to disclose commission had rendered the credit relationship between the parties unfair.

Canada Square accepted that it had failed to disclose the commission but argued that the claim was time-barred as it had been issued more than six years after the loan agreement had terminated.

In turn, Mrs Potter claimed that Canada Square had deliberately concealed the commission within the meaning of the LA 1980, s 32, such that time did not start to run until the commission had been discovered in November 2018. Mrs Potter pleaded reliance on both deliberate concealment pursuant to the LA 1980, s 32(1)(b), and deliberate concealment of a breach of duty within the meaning of the LA 1980, s 32(2).

Decision of the lower courts

Recorder Murray Rosen QC heard the matter at first instance. Canada Square accepted that the relationship between the parties was unfair pursuant to the CCA 1974, s 140(1), as Mrs Potter had not been made aware of the commission and its amount. Accordingly, the only issue to be determined at first instance was limitation.

Canada Square offered no evidence. Mrs Potter, on the other hand, made a witness statement that was not challenged. The Recorder accepted Mrs Potter’s evidence that Canada Square had not disclosed the existence or amount of commission at the time the PPI Policy was sold to her and that she only become aware of the existence of excessive commissions on receipt of advice from her solicitors in November 2018 (so that she could not with reasonable diligence have ascertained the position earlier).

The Recorder also held that the non-disclosure of commission “was intentional or at least reckless” and involved a breach of duty on the part of Canada Square.

Canada Square’s appeal to the High Court was heard by Mr Justice Jay.

In dismissing the appeal, Mr Justice Jay held that Mrs Potter could not rely on the LA 1980, s 32(1)(b) by itself (as there was no duty to disclose the commission under the general law) but could rely on the LA 1980, s 32(2). In particular, Mr Justice Jay found that Canada Square’s continued non-disclosure of the excessive commission it received constituted a breach of duty and that this breach of duty was deliberate for the period between the CCA 1974, ss 140 A-C coming into force on 6 April 2007 and the end of the loan in March 2010.

Canada Square’s deliberate decision not to disclose commission in that period “in circumstances where it was obvious that the existence of the commission would not be discovered for some time” meant that there was “some degree of blameworthiness” and “unconscionable conduct”.

In determining the nature of the mental element required, Mr Justice Jay concluded that “conduct which is reckless is sufficient”.

Decision of the Court of Appeal

Canada Square appealed the decision to the Court of Appeal, again unsuccessfully.

The Court of Appeal gave judgment on three issues.

First it considered whether Canada Square’s failure to disclose the existence and amount of the commission amounted to a “concealment of a fact” within the meaning of the LA 1980, s 32(1)(b). The Court of Appeal found it was inherent in the concept of “concealing” something that there exists some obligation to disclose it but there was no requirement to show “a free-standing contractual, tortious or fiduciary duty” to disclose. It held that the obligations to act fairly imposed on Canada Square by the CCA 1974, s 140A was“sufficient to mean that their failure to disclose the commission amounted to concealment of that commission within the meaning of section 32(1)(b)”. The Court of Appeal therefore disagreed with Mr Justice Jay’s finding that Mrs Potter could not rely on the LA 1980, s 32(1)(b).

Secondly it agreed with Mr Justice Jay that the creation of an unfair relationship pursuant to the CCA 1974, s 140A amounted to a “breach of duty” for the purposes of the LA 1980, s 32(2).

Thirdly, the Court of Appeal considered the mental element required to establish that the concealment for the purposes of both s 32(1)(b) and s 32(2) had been “deliberate”. The court considered four different tests of mental element: 1) Canada Square’s subjective knowledge or actual awareness that it was concealing a relevant fact or committing a wrongful act; 2) subjective knowledge in a wider sense; 3) recklessness with both a subjective and objective element; and 4) recklessness in a purely subjective sense.

Having decided that there was no sufficing natural meaning for “deliberate”, the Court of Appeal reviewed the relevant case law and Parliamentary materials to assist in its interpretation of the meaning of deliberate. The Court of Appeal construed “deliberately” as including “recklessly” and so found that recklessness with both a subjective and objective element, as described in R v G and Anor [2003] UKHL 50, would be sufficient to establish that concealment was deliberate.

The Court of Appeal therefore held that Mrs Potter could rely on s 32(1)(b) if she could show that Canada Square realised there was a risk that it had a duty to tell her about the commission, such that its failure to do so meant that it deliberately concealed that fact. While accepting that there was no duty to disclose commission, the Court of Appeal also held that Mrs Potter could, further, rely on the LA 1980, s 32(2) if she could show that Canada Square “must have appreciated that… there was a risk at least after April 2008 that the credit relationship … would be regarded as unfair” as a result of the failure to disclose the commission and there was “no reason why a reasonable person, apprehending [that] risk …, would have decided not to disclose the commission”.

Decision of the Supreme Court

The Supreme Court considered in turn the meaning of “deliberately concealed” for the purposes of the LA 1980, s 32(1)(b) and of “deliberate commission of a breach of duty” for the purposes of the LA 1980, s 32(2). First, though, it conducted a detailed examination of the legal background to the LA 1980, s 32 following its development through statute and case law.

Legal Background

Starting with the doctrine of concealed fraud, the Supreme Court noted that the courts of equity had longtime permitted an action to proceed after the expiry of the statutory limitation where the cause of action was founded on or concealed by fraud (Booth v Earl of Warrington [1714] 4 Bro PC 163). That doctrine was developed in Bulli Coal Mining Co v Osborne [1899] AC 351 which found that limitation would not be applied “in the case of concealed fraud, so long as the party defrauded remains in ignorance without any fault of his own” and also rejected the idea that “active concealment was essential”.

The scope of the rules on concealed fraud were reviewed in the Report of the Law Revision Committee of 1934, following which the Limitation Act 1939 (“LA 1939”), s 26 introduced express wording on the “postponement of limitation period in case of fraud or mistake”. This section formed the basis of what would subsequently become the LA 1980, s 32.

The meaning of the LA 1939, s 26 was developed in case law. The case of Beaman v ARTS Ltd [1949] 1 KB 550 explored the question of whether fraud was a necessary allegation in order to constitute a cause of action under the LA 1939, s 26, holding that fraudulent concealment “may acquire its character as such from the very manner in which that act is performed”. In that case, “the defendants had knowingly acted in breach of their duties [and] … had ensured that [the claimant] remained in ignorance of what they had done. That amounted to fraudulent concealment”. The case of King v Victor Parsons & Co [1973] 1 WLR 29 examined the situation where a person acted recklessly “like the man who turns a blind eye” determining that a person who “refrained from further inquiry lest awareness of a risk should prove to be correct, was said to be in the same position as a person who acted knowingly”.

Commenting that the courts’ approach to the LA 1939, s 26 had “strained the language of the provision”, the Supreme Court then followed the development of the law of limitation through the report of the Law Reform Committee of 1977 and the Limitation Amendment Act 1980 to the LA 1980 which introduced s 32 and the express wording “deliberately concealed” and “deliberate commission of a breach of duty”.

Further case law had arisen from interpreting that legislation. The case of Sheldon v RHM Outhwaite [1996] AC 102 emphasized the importance of “giving the language of section 32(1)(b) its ordinary meaning, rather than reading it as a continuation of the pre-1980 law”, save where there was any “real difficulty or ambiguity incapable of being resolved by classical methods of construction”.

The meaning of “deliberately concealed” and “deliberate commission of a breach of duty” were examined in the case of Cave v Robinson Jarvis & Rolf [2002] UKHL 18. In that case, Lord Millett found that “concealment and non-disclosure are different concepts” and so drew a binary distinction between the LA 1980, s 32(1)(b) for cases of active concealment and the LA 1980, s 32(2) for cases of non-disclosure. Lord Scott, however, disagreed with this approach (as did the Supreme Court in Potter).  Lord Scott affirmed that “as a matter of ordinary English, the verb “to conceal” means to keep something secret, either by taking active steps to hide it, or by failing to disclose it”; accordingly, for the purposes of the LA 1980, s 32(1)(b), Lord Scott held that “concealed” can encompass “both active concealment and concealment by non-disclosure”. Lord Scott further found that “deliberately concealed”, whether by positive action to conceal or by a withholding of information, must be “an intended concealment”. The wording “deliberate commission of a breach of duty” for the purposes of the LA 1980, s 32(2) was equally clear, with a distinction to be drawn “between the case where the actor knows he is committing a breach of duty and where he does not”.

The Supreme Court then turned to address more recent case law, starting with Williams which, it noted, had“began a process in which the Court of Appeal has moved progressively further away from the clear language of the provisions”.

The case of Williams v Fanshaw Porter & Hazelhurst [2004] EWCA Civ 157 confirmed that “deliberate commission of a breach of duty” pursuant to the LA 1980, s 32(2) “involves knowledge of wrongdoing”, and that the concealment for the purposes of the LA 1980, s 32(1)(b) “must be an intended result”. Williams had, however, also introduced the question of whether it was necessary to show that there had been a duty to disclose, in order to establish a deliberate concealment of a relevant fact for the LA 1980, s 32(1)(b). The Supreme Court commented that this “has no basis in the terms of s 32(1)(b)”. The judgment in Williams further considered whether it was necessary to show that the defendant was aware of a duty to disclose a relevant fact and knowingly breached it.

The Supreme Court followed the “process of embellishment of s 32(1)(b)” through to the case of AIC Ltd v ITS Testing Services (UK) Ltd (The Kriti Palm) [2006] EWCA Civ 1601 which “brought together (1) the distinction between active concealment and concealment by non-disclosure, drawn by Lord Millett in Cave and discussed by Mance LJ in Williams, (2) the requirement of a duty to disclose, which had been introduced in Williams, and (3) a requirement of knowledge of that duty, following Mance LJ’s lead in Williams”. The Kriti Palm was held as authority by Mr Justice Jay in the High Court appeal of Potter that “absent positive concealment, there must be a duty of disclosure under the general law”, whereas Rose LJ in the Court of Appeal found that it was sufficient that there be a “duty in Limitation Act terms”, such duty arising “from a combination of utility and morality”.

The Supreme Court finally examined how the case law, in particular Williams and The Kriti Palm, had influenced the Court of Appeal’s decision in Potter. As detailed above, the Court of Appeal held that the creation of an unfair relationship pursuant to the CCA 1974, s 140A amounted to a “breach of duty” for the purposes of the LA 1980, s 32(2) and that the failure to disclose the existence and amount of the commission amounted to a “concealment of a fact” within the meaning of the LA 1980, s 32(1)(b). The Court of Appeal also construed “deliberately” as including “recklessly” to conclude that Canada Square had deliberately concealed the commission “since it must have known that there was a risk that non-disclosure of the commission would make the parties’ relationship unfair within the meaning of section 140A of the 1974 Act and it was not objectively reasonable for it to have taken that risk”.

Deliberately concealed – the LA 1980, s 32(1)(b)

The Supreme Court found that the progressive embellishments in case law to the concept of deliberate concealment for the purpose of the LA 1980, s 32(1)(b) had resulted in a strained interpretation that“reads far more into the provision than Parliament enacted”. This was not only unnecessary but also “wholly inconsistent with the emphasis … on giving clear language its ordinary meaning” set out in Sheldon and Cave.

S 32(1)(b) requires the defendant to have deliberately concealed “a fact relevant to the plaintiff’s right of action”. The Supreme Court disagreed with the Court of Appeal’s assertion that “inherent in the concept of ‘concealing’ something is the existence of some obligation to disclose it” finding that it was a departure from the ordinary meaning of “concealment”. To support this the Supreme Court provided examples of facts being concealed (by intentional hiding or by withholding information) where there was no inherent obligation to disclose the concealed fact. For instance, an elderly lady concealing her pearls would be under no obligation to leave them in plain sight, nor would anyone diagnosed with cancer be under an obligation to share that information.

The Supreme Court disagreed with the Court of Appeal’s finding that, in addition to acting in breach of duty giving rise to the right of action, a defendant must also have acted in breach of a duty to disclose that first breach. This had the effect of reducing the scope of s 32(1)(b). Rose LJ had sought to address this issue by finding that “something less than a legal duty would suffice” (“a combination of utility and morality”) but the Supreme Court considered that this solution was not acceptable as it “raises serious problems of justiciability and legal certainty. The courts are courts of law, not of moral or social norms”. Rejecting the reasoning in Williams and The Kriti Palm, the Supreme Court therefore held that there is no requirement under the LA 1980, s 32(1)(b) for the concealment to be in breach of either a legal duty, or a duty arising from a combination of utility and morality.

The Supreme Court also rejected the suggestion in Williams and The Kriti Palm that a defendant must know that the concealed fact was relevant to the right of action or was reckless as to that possibility. Instead, the Supreme Court held that it was sufficient that the defendant “deliberately ensures that the claimant does not know about the facts in question and therefore cannot bring proceedings within the ordinary time limit”.

Turning to the meaning of “deliberate” in the LA 1980, s 32(1)(b), the Supreme Court rejected the Court of Appeal’s finding that “deliberately” included “recklessly” and that it was sufficient for the claimant to show that the defendant “realised that there was a risk that it was under a duty to disclose the information about the commission, and took that risk in circumstances where it was unreasonable for it to do so”. Instead, the Supreme Court reaffirmed the need for the concealment to be “an intended result” (as per Lord Scott’s findings in Cave) and the need for the defendant to “have considered whether to inform the claimant of the relevant fact and decided not to” (Williams). This approach balanced the interest of both claimant and defendant which the Supreme Court deemed had been the intention of Parliament.

Summarising the requirements for “deliberately concealed” in the LA 1980, s 32(1)(b), the Supreme Court affirmed that there needs to be (1) a fact relevant to the claimant’s right of action, (2) the concealment of that fact (by positive act or withholding information), and (3) an intention by the defendant to conceal that fact.

Deliberate commission of a breach of duty – the LA 1980, s 32(2)

The Supreme Court rejected the Court of Appeal’s interpretation that “deliberate” includes “reckless” for the purposes of the LA 1980, s 32. Instead, it reiterated the distinction between the two terms.

The Supreme Court found a distinction between “deliberate” and “reckless” in the ordinary use of language and as defined in the dictionary.

It also found there to be a distinction in the legal context, noting that there was no evidence in either legislation or case law of “recklessness” being a synonym of “deliberate”. In support of this, the Supreme Court observed that “deliberate” and “reckless” are treated as distinct in the drafting of legislation. It referred to case law which had similarly found those terms to be different in meaning, such as the case of Burnett or Grant v International Insurance Co of Hanover Ltd [2021] UKSC 12 (which held that a deliberate act “involves a different state of mind to recklessness”).

Applying the interpretation of “deliberate” to the LA 1980, s 32, the Supreme Court reiterated that “recklessness is insufficient”. A number of examples from case law were listed as confirmation of this approach, including Cave (“there must be an intentional breach of duty”), Grace v Black Horse Ltd [2014] EWCA Civ 1413 (the defendant had “[to know] that what he was doing was a breach of duty” for the purpose of the LA 1980, s 32(2)), and Primeo Fund v Bank of Bermuda (Cayman) Ltd [2019] CICA JO613-1 (“recklessness did not suffice” to render a breach of duty “deliberate” within the meaning of the LA 1980, s 32(2)).

The Supreme Court also examined whether the LA 1980, s 32 should be construed as a restatement of the old law of concealed fraud. Having considered examples of previous cases and Parliamentary materials, the Supreme Court held that these did not “elucidate the mental element required for deliberate concealment or a deliberate breach of duty”.

The Supreme Court rejected the approach favoured by the Court of Appeal (that “deliberate” includes “awareness that the defendant is exposed to a claim”) stating this could result in practical problems, not least for professional people. By the nature of their work, professionals often know that they are exposed to claims. The Court of Appeal approach would leave those professionals exposed to claims for the indefinite future, well after their indemnity insurance had expired, defeating the object of the LA 1980 to protect defendants from having to litigate stale claims.

Conclusion

The Supreme Court held that there had been “deliberate concealment” pursuant to the LA 1980, s 32(1)(b). In particular, it found that (1) the existence and amount of commission were facts relevant to Mrs Potter’s right of action; (2) Canada Square deliberately concealed those facts by consciously deciding not to disclose the commission to Mrs Potter (even after the CCA 1974, s 140A had come into effect); and (3) Mrs Potter did not discover the concealment until November 2018 (no argument having been advanced that she could have discovered the concealment before then with reasonable diligence).

Disagreeing with the Court of Appeal’s judgment, the Supreme Court found that the requirements for the LA 1980, s 32(2) had not been met as it had not been proven that Canada Square “knew [it] was committing a breach of duty, or intended to commit the breach of duty”.

By rejecting the complexity and embellishments of recent case law, the Supreme Court has returned to a simpler test for “deliberate concealment” and “deliberate commission of a breach of duty”, founded on the ordinary meaning of the words and on a reaffirming of the long-established distinction between the concepts of “deliberate” and “recklessness”.

In doing so, the Supreme Court’s judgment strikes a balance between the interests of both claimants and defendants. On the one hand, it has removed the need to establish a duty to disclose the facts (be it a legal duty or a combination of utility and morality) which will assist the claimant in satisfying the requirements of the LA 1980, s 32(1)(b). On the other, it has confirmed the need for the defendant’s breach of duty to be intentional (not merely reckless) for the purpose of the LA 1980, s 32(2), thereby making it more difficult for the claimant to meet the necessary threshold for “deliberate” and restricting the potential application of that provision.

As acknowledged by the Supreme Court, its decision in Canada Square v Potter will directly impact a substantial number of active PPI claims. Its findings, however, have the potential for much wider application well beyond the scope of unfair relationship claims under the CCA 1974, s 140A. The judgment (in particular, the mental element required for a concealment to be deliberate) will be particularly welcomed by professionals who, as defendants, could otherwise be at risk of being exposed indefinitely to stale claims.

While not considered in detail (as not in issue in this case), the Supreme Court accepted that “if the claimant can plead a claim without needing to know the fact in question, there would appear to be no good reason why the limitation period should not run”. This is significant in the context of PPI cases as, in practice, claimants have not considered it necessary to know the precise amount of commissions to issue their claims. Instead, claims have been routinely issued on standard templates in which claimants allege that commissions were substantial in relation to the PPI premia without providing case specific particulars.        

The Supreme Court’s judgment did not directly address the question of when the claimant discovered (or could with reasonable diligence have discovered) the concealment. In the present case, the Recorder had already accepted Mrs Potter’s evidence at first instance that she had not become aware of commission until November 2018, so the point was not in issue in the appeal. The provision, however, remains relevant in determining limitation, and evidence on the point can be determinative of the outcome of the LA 1980, s 32 challenge. In the sphere of PPI, for instance, it will likely be increasingly difficult for claimants to discharge the burden of proof of showing that they could not, with reasonable diligence, have discovered the concealment of commission earlier in the light of (amongst other things) the widespread media coverage of the existence and amounts of PPI commissions following the Competition Commission reports on its market investigation of PPI in 2008/9, the Supreme Court judgment in Plevin v Paragon Personal Finance Ltd [2014] UKSC 61 and the subsequent advertising campaign conducted by the Financial Conduct Authority following the publication of its Policy Statement 17/3 in 2017.

Finally, it is worth noting that the judgment in this case follows shortly after another Supreme Court judgment in respect of a PPI claim in the case of Smith & Anor v Royal Bank of Scotland plc [2023] UKSC 34. That case was not concerned with s 32 deliberate concealment but with limitation under the LA 1980, s 9, which the Supreme Court found would not start to run until the credit agreement had terminated. That said, in Smith,the Supreme Court also affirmed the court’s unfettered discretion to make an order under the CCA 1974, s 140B, stating that “it would be […] inconceivable that a court would think it just” to make such an order where the claimant had delayed issuing the claim and “[sat] on his or her hands in knowledge of the relevant facts”. In the context of unfair relationships, it would be unwise of claimants to measure delay by reference to the same time periods which run for limitation purposes. On the basis that delay is operative for as long as a claimant sits on his or her hands in knowledge of the relevant facts, in the absence of a persuasive explanation of the reason for the delay, a claim issued before the expiry of the limitation period could still be regarded as stale and dismissed accordingly.