Borders (UK) Ltd. & Ors v Commissioner of Police of the Metropolis & Anor

The appellant, Ronald Jordan, has been sued by eight major book retailers for their losses on tens, possibly hundreds, of thousands of new books stolen from them by shoplifters and sold by him from his market stalls. Since his overheads and outlays were somewhat less onerous than those of a legitimate bookseller, Mr Jordan made very considerable profits, of which over £600,000 were still in the bank when the criminal law finally caught up with him. Although his operation as a literary Fagin was never fully unravelled, and although one major prosecution failed, he was convicted of conspiracy to steal books and of handling stolen books between November 2001 and July 2003, and sentenced at Southwark Crown Court on 16 January 2004 to a total of 30 months' imprisonment.

An application was made in the criminal proceedings for a compensation order in favour of the booksellers under s.130 of the Powers of Criminal Courts Act 2000. In parallel the present civil action was brought, and while Mr Jordan was in gaol, judgment was entered on the claim for damages to be assessed. The assessment of damages by Master Leslie on 23 June 2004 took place in Mr Jordan’s absence because the Prison Service failed to produce him at court, but he had given evidence at a previous hearing and was represented throughout by counsel, so that nothing now turns on his absence. At that point the application for a compensation order was withdrawn.

As part of the criminal process, confiscation proceedings were initiated in the Crown Court under the Criminal Justice Act 1988. These stand adjourned pending the present appeal.

The claim was formulated in two parts. The first part was a claim for the losses incurred by the claimants on the books, approaching 50,000 in number, which had been retrieved from the defendant in the course of a series of raids arising from his unlicensed street trading and from suspected conspiracies to steal. The second part was a claim for exemplary damages. Master Leslie awarded the retailers, on top of compensatory damages under the first limb of £279,594.89, of a sum of £100,000 as exemplary damages. Rix LJ, giving permission to appeal against this award, refused Mr Jordan permission to appeal against the Master's award of indemnity costs, and the latter application is renewed now only as a function of the appeal on the principal issue.

Mr Jordan is a street trader. He has never, at least for present purposes, held a street trader’s licence and so was charged on a number of occasions with unlicensed street trading. On these occasions a total of 46,780 books were seized from his stall, his vehicle, his house and his lock-up garage. The claimants, a consortium of national and London booksellers, had begun marking their books, especially the children's books and travel guides in which Mr Jordan was noted to be specialising, and were eventually able by these means to identify themselves as the principal losers. But the books recovered were, as Master Leslie noted, only a fraction of those received and sold by the appellant. The claimants reckoned that they had lost something like a quarter of a million books to Mr Jordan's operation, which the Master took to have been functioning for at least three years into the late summer of 2003. The 2 or 3 per cent 'shrinkage' in shelf stock which is a fact of booksellers' life had risen in this period towards 15 per cent, a level of loss capable of being economically terminal.

The Master disbelieved Mr Jordan's evidence that the bulk of the books seized had been bought legitimately from the claimants' or other shops, but he adopted the investigating police officer's allowance that 5 per cent of them might have been. He also found that it was from the claimants collectively that all but 5 per cent of the books had been stolen. He therefore made a 10 per cent reduction (from 46,780 to 42,102), treating this as the number of books the claimants were entitled to retrieve.

The master assessed compensatory damages in the sum of £233,142.25. He arrived at this figure by discounting the retail value of the retrieved books at the time they were stolen by their resale value when recovered. In this exercise he accepted the entirety of the claimants' estimates, treating the margin of books which, had they not been stolen, would have remained unsold as cancelled out by the proportion of recovered books which would now prove unsaleable. The net loss, necesssarily an estimated one, put forward by the booksellers and accepted by the Master was £259,046.95. Discounted by 10 per cent, this yielded £233,142.25 as compensatory damages for the conversion of the books. To this was added the £46,452.64 claimed by the booksellers as the cost of marking and tracing their books, giving the total compensatory award set out earlier.

The Master then turned to the claim for exemplary damages. He noted that the claim which he had now quantified related only to the difference between the original net value of the books recovered by seizure and their residual value on recovery. This left out of account all the other books which Mr Jordan had received and sold over some three years. The particulars of claim said: "The claimants aver and believe that the second defendant [Mr Jordan] has profited to a greater extent from his selling of stolen books than the level of damages sought by the claimants." The Master found as a fact that it was so. He held that it was not an answer that Mr Jordan had already been punished for this by the criminal courts, because the punishment had left him with a cynically obtained profit at the expense of the claimants, for whom the recovery of exemplary damages would not be a windfall but a recompense for the shortfall in what they had recovered in compensatory damages. (I have paraphrased this part of the judgment because, as recorded, it contains one or two obscurities which it is not useful to spend time on.)

On this footing the Master considered and accepted the calculus put forward in evidence by PC Nicola Fairburn. Averaging the recommended retail price of the lost books at £10.00, and assuming that for each such book Mr Jordan was paying 60% of recommended retail price (£6) and selling it at 80% (£8), his estimated turnover of 700 books a week was yielding him, at £2 profit per book, £1,400 a week or £72,800 a year.

The master, for good reason, was highly sceptical of the assumption that the appellant was paying his thieves as much as 60% of RRP. He considered, too, that the claimants' losses, probably exceeding 250,000 volumes, were consistent with a higher turnover than PC Fairburn had assumed. But he took the appellant at his word, accepting that he had been running his racket for only three years, and he gave him credit for such overheads as maintaining his van and renting a lock-up garage. He then applied the same notional 10 per cent discount as before for legitimate books and those stolen from booksellers other than the claimants, and arrived at round figures of £20,000 as the net proceeds of crime in the first year, £30,000 in the second and £50,000 in the third. The total, £100,000, became the amount of exemplary damages.

The Master finally said this:

It is necessary first of all to say that the issue with which this court is confronted need never have arisen. The material paragraph of the particulars of claim, which were settled by the claimants’ solicitors, reads:

If this part of the claim had been framed as a further claim for compensatory damages, it is evident from the master’s findings that it would have succeeded. Indeed it is evident that while Master Leslie had no difficulty in quantifying this element of the claim as part of the claimants’ losses, he had rather more difficulty in characterising it as exemplary damages. But neither at the hearing, where the claimants were represented by counsel, nor before this court, was any application made to amend paragraph 36 of the claim so as to make it a further head of compensatory damages. Nor, however, did Mr Hellman at any stage demur to this part of the pleading as unsustainable in law. Mr Convey, consistently but hazardously, has stuck throughout to his argument that, albeit they were computed so as to reflect the claimants’ losses, these were in law punitive damages.

For Mr Jordan, Mr Hellman, unembarrassed by any merits, advanced in essence the following argument. The claimants, having made their bed out of the stuff of exemplary damages, must lie on it. But the punishment of the appellant, which is the sole legitimate object of exemplary damages, is being carried out by the Crown Court, which has gaoled him for a not inconsiderable time and is about to decide how much of his substantial assets it will now confiscate. Confiscation, while not in itself punishment, is today an integral part of the penal process, and it exhausts the law’s power to impose penalties on Mr Jordan. If the claimants had pursued their claim for compensation in the Crown Court, likewise as part of the criminal process, they might well have obtained it, for s.72(7) of the Criminal Justice Act 1988 gives compensation priority over confiscation. But to obtain, instead, an order of the present kind in civil proceedings is objectionable on two grounds of principle. Insofar as it is truly punitive – which is what it purports to be - it subjects the appellant to a double penalty. And it awards the claimants a sum which is neither compensatory (since it was pleaded as punitive) nor punitive (since it represents actual losses) and so lies outside the court’s powers. Moreover, s. 71(1C) of the Criminal Justice Act 1988 as amended, which permits the setting off against a defendant’s assets of sums recovered from him by civil process, does not require it, leaving the appellant at risk of losing the £100,000 twice.

Mr Convey’s response is, in essence, that s.71(1C) of the 1988 Act demonstrates precisely that civil and criminal proceedings arising out of the same offending are not regarded by Parliament as mutually exclusive. But confiscated assets go not to the victim but to the state, leaving the loser with the option of suing. There is no double jeopardy or double punishment here: the tortious conduct relied on includes but goes well beyond the subject-matter of the conspiracies of which Mr Jordan has been convicted (and, in one instance, acquitted). And there is no reason in principle, where the conditions for an exemplary award are met, to withhold it simply because it is capable of quantification.

Punishment is ordinarily the business of the criminal courts, and to the punitive powers of the criminal courts of England and Wales Parliament has now added powers, backed by drastic legal assumptions, for confiscating the proceeds of crime following conviction. The fact that s.71(1C) of the 1988 Act as amended recognises that civil remedies may coexist with criminal confiscation proceedings is inconclusive, because the subsection deals only with “civil proceedings … in respect of loss, injury or damage sustained in connection with” criminal conduct: it is far from clear that Parliament was thinking here of exemplary awards.

The argument from double jeopardy is not in my judgment a sound one. The convictions were a legitimate part of the evidence in support of the civil claim, but there is no duplication of penalty. If the £100,000 award of exemplary damages stands, the appellant’s available assets will be depleted by that amount by the time the matter returns to the Crown Court for completion of the confiscation proceedings. If confiscation does not reach all his assets, while this court cannot dictate what is to happen, it can confidently anticipate that Mr Jordan will not be mulcted in the same sum twice.

The key issue is therefore whether there is today any room within the concept of exemplary damages for quantified losses, or whether the two are mutually exclusive.

Exemplary damages are a recognised anomaly in a modern common law system. The decision in Rookes v Barnard [1964] AC 1129, where Lord Reid made explicit reference to the House’s inability to abolish the entire category, came only two years before the 1966 Practice Statement which would at least have put abolition on the agenda.

In Kuddus v Chief Constable of the Leicestershire Constabulary [2002] 2AC 122, Lord Nicholls said:

Lord Devlin’s second category was expressed in these terms:

This court, for its part, has therefore to approach the question on the footing that exemplary damages are legitimately available to a claimant wherever one of Lord Devlin’s categories is shown to be fulfilled. But it must also pay close regard to Lord Nicholls’ holding that exemplary damages “stand apart from awards of compensatory damages”; that they are “additional to” any compensatory award; and that their purpose is to punish and deter. This is, to all appearances, a doctrine of mutual exclusivity.

It is entirely possible to present the instant case in terms which match Lord Devlin’s second category. This was, as Mr Convey submits it was, tortious conduct persisted in with complete indifference to the harm it was causing and in defiance of repeated interventions by the law. It was calculated (in the sense, which I accept is the correct one, of likely) to make a profit beyond what would probably be recovered in cash or in kind by legal process. It was appropriate in this situation to deter such conduct, whether by Mr Jordan or by others, by penalising him beyond the amount of the net loss on those books which happened to have been recovered. To do so would not place him in jeopardy of double punishment when the confiscation proceedings were resumed.

But what then of the calculus on which the purportedly exemplary award was sought and made? To the historic distinctions of principle between exemplary and compensatory damages set out by Lord Nicholls, Mr Hellman adds Lord Scott’s remark in Kuddus at §109, citing the House’s recent decision in Blake v Attorney-General [2001] 1AC 268, that the growing availability of restitutionary damages means that “[t]he profit made by a wrongdoer can be extracted from him without the need to rely on the anomaly of exemplary damages”.

In the 17^th edition of his work on Damages Mr Harvey McGregor QC seeks to bring these approaches into a common perspective. “The key lies,” he suggests at §11-027,

“in recognising that the real purpose behind this second common law category is not the punishment of the defendant but the prevention of his unjust enrichment, and indeed Lord Diplock in Broome v Cassell and Co [1972] AC 1027, 1129, recognised this category as being ‘analogous to the civil law concept of enrichessement indue’.

He concludes at §11-028:

“It is true that the awarding of exemplary damages is a somewhat makeshift and arbitrary method of preventing a tortfeasor’s unjust enrichment, especially as it is dependent on the motivation of profit rather than its achievement. It may be that the emergence of restitutionary damages, particularly since Attorney General v Blake, will take us beyond waiver of tort and account of profits to allow claimants a more direct recovery without the need to resort to, in this context, the rather clumsy device of exemplary damages.”

While such prediction is not a source of present law, it helps to bring the two theories into a single frame by suggesting (as Lord Scott suggested in Kuddus) that a modern enhanced compensatory regime is capable of subsuming the need for punitive awards. When one recalls that the rationale of the second category of exemplary damages is, precisely, the confiscation of profits which cannot be got at through the ordinary compensatory mechanisms, this is an attractive synthesis. Exemplary damages fill a moral gap, and it has always been the principal moral objection to them that by handing the penal sum to whoever happens to be the claimant the law hands them a windfall.

It is this last consideration which persuades me that in this particular case the award was defensible. Far from handing the bookshops a windfall, the master’s award handed them a very moderately quantified version of sums they had lost over and above their losses on the recovered books. The two awards together will have left them still heavily out of pocket and the appellant still better off for his defalcations than he deserved to be.

Notwithstanding therefore that the second element could, and in my judgment should, have been pleaded before judgment as a second head of compensation, the fact that it bore a compensatory character did not prevent it from ranking within the second common law category of exemplary damages. My reason for so holding – that in the event it went to compensate, and not to over-compensate, the claimants – has to make up in justice what it lacks in logic; but the want of logic arises from a long-recognised anomaly in the law, and the justice of the outcome may assist in resolving it.

I would accordingly dismiss the appeal. I would not wish to do so, however, without recording my appreciation of the excellent arguments of counsel on both sides.

I agree, and gratefully adopt Lord Justice Sedley’s account of the facts.

As matters turned out, Master Leslie was satisfied that Mr Jordan was responsible for stealing or handling not only 90 per cent of the 46,780 seized books which were the subject matter of these proceedings, but also a much greater number of books which had, as it was to be inferred, found their way through Mr Jordan’s hands over the three years prior to his imprisonment and had not been seized for the very reason that they had already been sold by him. Nevertheless, at the outset of the proceedings the claimant consortium of booksellers obviously considered that there would have been very considerable difficulties in proving that greater loss. They decided to concentrate instead on a claim for exemplary damages, requesting the court to mark its distaste of Mr Jordan’s cynical persistence by the means of such an award.

In these circumstances, I have been persuaded by Mr Convey that the important thing to concentrate on is not whether the claimants could have proved a greater claim to compensatory damages, but whether Mr Jordan’s conduct measures up to what exemplary damages are designed to mark in the law, as Lord Devlin put it in Rookes v. Barnard [1964] AC 1129 at 1227:

“Exemplary damages can properly be awarded whenever it is necessary to teach a wrongdoer that tort does not pay.”

For these purposes I am satisfied that the award in this case comes within Lord Devlin’s second category (ibid at 1226), viz where

“the defendant’s conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the plaintiff.”

It seems to me that this category exactly provides for Mr Jordan’s conduct in this case. He had learned from experience that the profits of his trade were copious and ready to hand, whereas the process of law did little to halt, even if on occasions it inconvenienced or slowed, his progress. He obviously gambled that the immediate profits were worth the risk of what the future might bring in terms at any rate of recompense to the victims of his thefts. As Lord Morris of Borth-y-Gest said in Cassell & Co Ltd v. Broome [1972] AC 1027 at 1094C:

“I do not think that the word “calculated” was used to denote some precise balancing process. The situation contemplated is where someone faces up to the possibility of having to pay damages for doing something which may be held to have been wrong but where nevertheless he deliberately carries out his plan because he thinks that it will work out satisfactorily for him.”

I am also satisfied that Master Leslie’s award fits within Lord Devlin’s three additional considerations: first, that the claimant should be a victim; secondly, that the power (“weapon”) should be used with restraint; and thirdly, that “Everything which aggravates or mitigates the defendant’s conduct is relevant” (at 1227/8).

Lord Devlin went on, speaking particularly of the way in which a judge should direct a jury in a defamation case, to say this (at 1228):

“In a case in which exemplary damages are appropriate, a jury should be directed that if, but only if, the sum which they have in mind to award as compensation…is inadequate to punish him for his outrageous conduct, to mark their disapproval of such conduct and to deter him from repeating it, then it can award some larger sum.”

On behalf of Mr Jordan, Mr Hellman sought to focus on those words as preventing an award in this case, on the basis that the claimant booksellers could have extended their claim to recover compensatory damages for the books which had been stolen and sold, and so not seized and recovered. That, however, may have been more apparent in retrospect than at the outset of the proceedings. In any event, Lord Devlin was speaking of a case where, ex hypothesi, an award was “appropriate”, and was providing practical guidance as to the quantum, if any, of a single award, in defamation, where ordinary damages could of themselves have within them an element to mark a defendant’s outrageous conduct.

Those latter considerations, however, do not arise in this case. The basic award of damages made here was strictly compensatory and there was no danger that those damages already involved an element that would mark the outrageousness of Mr Jordan’s conduct. Thus, the danger of double counting with which Lord Devlin was concerned did not arise in this case.

It is true that Master Leslie’s judgment demonstrates that, in his calculations of what might be an appropriate award, he bore in mind considerations which might have been equally at home in the compensatory sphere, at any rate as extended in the context of the tort of conversion by restitutionary concepts: see Kuwait Airways Corpn v. Iraqi Airways Co (Nos 4 and 5) [2002] UKHL 19, [2002] 2 AC 883 at paras 79 and 87, per Lord Nicholls of Birkenhead. I do not think, however, that that delegitimises his award. On the contrary, it was inevitable that he should have regard to the overall scale of Mr Jordan’s wrongdoing, so as to assess his conduct in general and the extent to which he had acted in cynical persistence, preferring his own profit to any regard for his victims’ losses; and also so as to ensure that the court’s power was exercised with restraint.

It is also true that since the time when the power to award exemplary damages was established both the common law and statute law have developed other means to mark disapproval of and restraint on the calculating wrongdoer. As Lord Nicholls remarked in Kuddus v. Chief Constable of Leicestershire Constabulary [2001] 2 AC 122 at para 67, the law of unjust enrichment has developed apace in recent years. I think he was there suggesting that that jurisprudence could be seen as an alternative to the power to award exemplary damages. Lord Scott of Foscote put the point more explicitly (at para 109) and would on that ground have been receptive to a submission that exemplary damages should no longer be available in civil proceedings (at para 111). McGregor on Damages, 17^th ed, 2003, at para 11-027/028 suggests that the real purpose behind Lord Devlin’s second category should be recognised as being “not the punishment of the defendant but the prevention of his unjust enrichment”; and looks forward to the time when the emergence of restitutionary damages will replace “the clumsy device of exemplary damages”. However, Lord Scott himself recognised that his was a minority view (Kuddus at para 111), and Lord Nicholls put the overall considerations more positively (at paras 62/68), noting that the essence of the court’s discretionary jurisdiction to award exemplary damages is conduct in outrageous disregard of a claimant’s rights.

Statute law has come along in the last two decades with confiscation orders, whose purpose in taking from convicted criminals the proceeds of their crime is both deterrence and a sense of justice. Compensation orders may also be made, and are intended to take priority over confiscation: but in a complex case compensation will be left to the civil courts. It is arguable that the function of exemplary damages is nowadays better left to the confiscation regime, at any rate where there are parallel civil and criminal proceedings. However, the statutory regime has done nothing explicit to discourage the civil process, and I agree with what Sedley and May LJJ have said about the interrelationship of the Criminal Justice Act 1988 and Master Leslie’s award in this case. In my judgment there is no danger in practice that Mr Jordan will be required to pay the £100,000 twice.

Nevertheless, it might be said that the law looks upon exemplary damages with reluctance, and that Lord Nicholls in Kuddus speaks of them as “a remedy of last resort” to fill “what would otherwise be a regrettable lacuna” (at para 63). Therefore, as Mr Hellman has in effect submitted, where the claimants could have pleaded a more extensive claim for compensatory damages, and confiscation proceedings, which await the outcome of this appeal, could provide a more suitable criminal context for a penal exaction, the award was wrong in principle.

Exemplary damages no doubt remain a controversial topic (see McGregor at paras 11-001/8). In my judgment, however, Kuddus indicates, if anything, that, controversial as they are, they are not to be contained in a form of straight-jacket, but can be awarded, ultimately in the interests of justice, to punish and deter outrageous conduct on the part of a defendant. As long therefore as the power to award exemplary damages remains, it is not inappropriate in a case such as this, where the claimants have been persistently and cynically targeted, that they, rather than the state, should be the beneficiaries of the court’s judgment that a defendant’s outrageous conduct should be marked as it has been here. They are truly victims, and, for the reasons given by Master Leslie himself, there is no question at all of the award becoming a mere windfall in their hands.

I agree that this appeal should be dismissed for the reasons given by Sedley LJ, whose account of the facts and circumstances I gratefully adopt, and by Rix LJ.

I was at first attracted by Mr Hellman’s twin submissions, on behalf of Mr Jordan, (a) that the Master should not have awarded exemplary damages as a scarcely concealed substitute for additional compensatory damages which the claimants did not claim and did not attempt to quantify; and (b) that exemplary damages, being punitive, were quite inappropriate in this case, when Mr Jordan has been punished by imprisonment, and is very probably going to be punished further by a swingeing confiscation order under sections 71 and 72AA of the Criminal Justice Act 1988.

I am, however, persuaded by Mr Convey to the contrary. First, in my judgment, Part VI of the 1988 Act was not intended to negate a proper claim for exemplary damages in civil proceedings. Section 71(1C) may not literally prohibit the Crown Court from making a confiscation order which overlaps a claim by the victim in civil proceedings. But it plainly contemplates that the victim’s proper civil claims are to be preserved and is a strong indication that the Crown Court should usually avoid double counting – see also the discretionary safeguards in section 72AA. In addition, at least in a case in which the defendant’s benefit from criminal conduct exceeds his realisable assets, the amount of any judgment in civil proceedings will reduce the defendant’s realisable assets, and thus reduce the amount of the confiscation order – see section 71(6). As Sedley LJ has pointed out, the probable practical relevance of this appeal is to decide whether the £100,000 which the Master awarded goes to the claimant’s victims under the civil judgment or to the State under the confiscation order.

Second, I am persuaded that, if the conditions for making an award of exemplary damages are made out, neither the fact that the claimants could have claimed, but did not claim, additional compensatory damages, nor that they justified the award of exemplary damages by reference to facts which might have sustained an additional award of compensatory damages, are reasons for refusing to award exemplary damages. Indeed, as Sedley LJ has also pointed out, these facts show that there is no double recovery in this case. I am also persuaded that the conditions for making an award of exemplary damages were made out in this case. I so conclude, exercising, I trust, the restraint which an award of exemplary damages requires, and having regard to the dislike for exemplary damages which was expressed in Kuddos v Chief Constable of Leicestershire [2002] 2AC 122; [2001] UKHL 29. Exemplary damages were appropriate to punish Mr Jordan for his persistent cynical disregard for the criminal and civil law; to deter him and others; and to deprive him of some of the profit of his calculated indifference, which he may be taken to have reckoned would exceed any likely consequences to him of criminal or civil process. This, in my view, comes within Lord Devlin’s second category in Rookes v Barnard [1964] AC1129 at 1225, and does not transgress the three considerations which he discussed at page 1227.