Skip to Main Content

Find Case LawBeta

Judgments and decisions from 2001 onwards

Knox D'arcy Operations Ltd & Anor v Manches LLP

[2013] EWCA Civ 33

Neutral Citation Number: [2013] EWCA Civ 33
Case No: A3/2011/2357
IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Mr Robin Knowles CBE QC, sitting as a Deputy Judge of the High Court

Claim No: HC10C01361

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 07/02/2013

Before :

LORD JUSTICE PILL

LORD JUSTICE RIMER
and

LADY JUSTICE BLACK

Between :

(1) KNOX D’ARCY OPERATIONS LIMITED

(2) KNOX D’ARCY INVESTMENTS LIMITED

Claimants/Respondents

- and -

MANCHES LLP

Defendant/Appellant

Mr Clive Freedman QC and Mr Neil Mendoza (instructed by Manches LLP) for the Appellant, Manches LLP

Mr Mark Cannon QC (instructed by Nelsons Law) for the Respondents

Hearing dates: 17 July and 26 October 2012

Judgment

Lord Justice Rimer :

Introduction

1.

This is an appeal by Manches LLP, solicitors (‘Manches’), defendants to the claim. The claimants (now respondents) are two associated companies: (i) Knox D’Arcy Operations Limited (‘Operations’) and (ii) Knox D’Arcy Investments Limited (‘Investments’). Manches’ appeal is against the order made on 22 July 2011 by Mr Robin Knowles CBE QC, sitting as a Deputy High Court Judge in the Chancery Division, by which he, so far as material: (i) declared that Manches were liable to pay the claimants £246,151.39, including interest; (ii) ordered £242,509.28 paid into court pursuant to a consent order of 28 May 2010 to be paid out to the claimants in partial satisfaction of that declaration; (iii) ordered the interest earned on that sum to be paid to Manches; and (iv) ordered Manches to pay 75% of the claimants’ costs.

2.

The issue before the judge was whether, as Manches claimed, they were entitled to use money held in their client account in settlement of outstanding fees owed by Templeton Insurance Limited (‘Templeton’), a wholly-owned subsidiary of Operations. The claimants’ contrary case was that, before Manches received such money, they had been given notice of the assignment of the beneficial entitlement to it by Templeton (via Investments) to Operations so that it followed that, having received the money with notice of and subject to such assignment, they were not entitled to retain and use it in settlement of fees owed by Templeton.

3.

It was agreed before the judge that Manches’ claim so to retain and use the money turned exclusively on whether or not they had been given notice of the assignment before they received the money. There was a dispute as to that on the facts. The trial occupied three days, commencing on 23 May 2011. The outcome was that the judge held that Manches had been given such notice. It followed that the claimants’ claims succeeded.

4.

By their appeal, brought with the permission of Kitchin LJ, Manches challenge the judge’s conclusion that they had been given such notice. Manches’ application for permission to appeal on a related ground, and also against the judge’s costs order, was adjourned to be heard at the same time as their appeal. We heard argument on the appeal and application on 17 July 2012. Mr Clive Freedman QC (who did not appear below) and Mr Neil Mendoza (who did) represented Manches; and Mr Mark Cannon QC (who also appeared below) represented the claimants.

5.

The court reserved its judgment. Shortly after the hearing, the court raised with counsel whether the premise on which the case had been argued below and on the appeal was correct. The court drew counsel’s attention to authorities suggesting that it was arguable that Manches could not set up its own title to retain and use the money even if they had not received notice of the assignment before the money was paid to them: the basis for that being that they could not claim to exercise a lien over the money for fees owed by Templeton when, at the time they received the money, it was beneficially owned by Operations. Counsel submitted skeleton arguments reflecting that they were not agreed as to the correctness of such proposition. The outcome was that the court gave the claimants the option of taking the new point if they wished to, as they indicated they did, and gave directions to enable it to be argued at a further hearing. That took place on 26 October 2012, following which the court again reserved its judgment.

The facts

6.

Templeton (a company based in the Isle of Man), Investments and Operations are members of the same corporate group. In 2003, Oxus Gold Plc and Oxus Resources Corporation commenced proceedings against Templeton in the Commercial Court, which Templeton defended and in which it counterclaimed for damages. The litigation was known as ‘the Oxus Gold litigation’. Templeton was represented in it by Kingsley Napley, solicitors. In June 2006, whilst the Oxus Gold litigation was still pending, Templeton retained Manches to act for it in a claim against Ralph Brunswick, a former officer of Templeton. On 27 August 2006, judgment on liability in the Oxus Gold litigation was given in Templeton’s favour. Kingsley Napley continued to act for Templeton in relation to quantum issues following its successful counterclaim, and judgment on quantum was given on 4 April 2007. At some point, however, Templeton instructed Manches in place of Kingsley Napley to deal with the costs issues in the Oxus Gold litigation. Manches also acted for Templeton in relation to its dispute over Kingsley Napley’s fees.

7.

In August 2007, Manches received into their client account £925,834.67, being the fruits of Templeton’s counterclaim for damages and costs. Manches made various payments (as to which no questions arise) out of that money, including the payment of fees to Kingsley Napley, and were left as at March 2009 holding £242,117.08. Templeton owes Manches £248,520.53 in respect of fees for the various matters on which they acted for it. Manches claimed a right to use the money in its client account towards settlement of such fees. That gave rise to a dispute with Operations, which asserted a prior beneficial entitlement to the money.

8.

Operations’ claim rested on two assignments: (i) a deed of assignment made on an unidentified day in 2005 by which Templeton assigned to Investments (inter alia) ‘any damages payable to [Templeton]’ in the Oxus Gold litigation; and (ii) an oral agreement made on an uncertain date in 2006 by which Investments agreed to assign to Operations any damages and costs recovered by Templeton in the Oxus Gold litigation. The right to costs had not, on the face of it, been assigned by Templeton to Investments; but the judge, in paragraph 25 of his judgment, held that, on the true construction of the assignment to Investments, the costs were assigned to it, and Manches did not challenge this on their appeal.

9.

Manches received the damages and costs in August 2007. Written notice of the assignments was subsequently given to them on 12 April 2010; and also in evidence was a deed of assignment dated 16 February 2011 by which Investments assigned to Operations (inter alia) the benefit of any costs and damages payable to or recoverable by Templeton in the Oxus Gold litigation, an assignment of which written notice was given to Manches on the same day. The post-August 2007 documents are not, however, relevant to the issues: it was agreed at the trial that it was only if Manches received the money in August 2007 with prior notice of the assignment to Operations that they would have received it subject to Operations’ title to such money.

10.

Manches’ position was and is that they had been given no notice of any assignment before they received the money; and that they were entitled to use the money in settlement of the fees owed to them by Templeton. For that, they relied on a contractual entitlement conferred by their agreed terms of business with Templeton, set out in their letter to Templeton of 17 July 2006. I need refer only to part of the terms under the heading ‘Client Money’:

‘The Law Society has specific rules covering the way in which we handle client money and these are detailed and strict. We cannot usually pay out any money on your behalf until we are in possession of cleared funds. Any cheques must therefore be received by us at least seven days before any money is to be paid out on your behalf. Similarly, if we receive any cheques for you, these have to be cleared through our Bank before we can pay you. Where we hold funds on your behalf for any reason and you owe us money in any matter, we reserve the right to use such funds in settlement. (Emphases supplied)

11.

Manches’ alternative case for their right to retain the money as against Operations depended on the general lien they said arose in relation to the money by reason of the outstanding fees owed by Templeton.

The judge’s findings as to the giving of notice

12.

Mr Richard Steele had what the judge described as a ‘role across the [Knox D’Arcy] group’ of companies, a group owned by a Steele family trust. His role included the responsibility for the Oxus Gold litigation. Mr Kenneth Wells was the managing director of Templeton, the only group company that was a party to that litigation. Mr Clive Zietman was the partner at Manches with principal responsibility for the litigation on behalf of Templeton. The judge accepted Mr Steele’s evidence that the costs of the Oxus Gold litigation were originally funded by Investments and, later, by Operations. He said, in paragraph 11 of his judgment, that he also accepted: (i) Mr Steele’s evidence ‘that he informed Mr Zietman during the conduct of the Oxus Gold litigation that “Knox d’Arcy” funded the litigation and that it was “a Knox d’Arcy case”’; and (ii) Mr Wells’s evidence that he informed Mr Zietman on several occasions that he was not interested in discussing the Oxus Gold litigation as it was not of concern to Templeton; and that he told Mr Zietman of ‘the assignment’ on more than one occasion over the telephone, although he made it clear in his oral evidence that he did not think he would have used the word ‘assignment’.

13.

The judge referred to these passages in Mr Zietman’s witness statements:

‘I do not recall ever being told about any such assignments by Mr Steele or Mr Wells during my time at Manches. Had I been informed of the assignments, I am certain that I would have made a note of that conversation and/or detailed it in a confirmatory email or letter. Further, I would have told other people in my team, especially my partner, Keith Thomas, who had responsibility for the billing on the Templeton matters. I did not do so. …

I repeat that I do not recall being advised of the purported assignments by Mr Steele.’

14.

The judge, at paragraphs 13 and 14, set out part of Mr Zietman’s oral evidence in chief and in cross-examination. That reflected his acceptance that he was told that ‘Knox D’Arcy had some sort of interest or involvement in the Oxus Gold litigation’; that he ‘understood that Knox D’Arcy had an interest in it’; that he was told that it was a ‘Knox D’Arcy case’ and that he agreed that ‘Knox D’Arcy clearly had an interest in it, absolutely’; and that it was ‘conceivable that [Mr Steele] might have said that [the proceeds of the litigation were going to Knox D’Arcy], but as I say, you know 4, 5 years on…’.

15.

The judge, in paragraph 16, said that with the benefit of hearing and observing the witnesses, he had made the following findings:

‘(1) [Manches] acted in a whole range of matters variously for the Claimants and Templeton.

(2)

Mr Steele spoke for all companies in the group, including the Claimants and Templeton. Mr Wells spoke for Templeton alone.

(3)

The principal individuals concerned with the conduct of the Oxus Gold litigation were Mr Steele and Mr Zietman.

(4)

Mr Zietman’s recollection of some of the details is understandably diminished by the passage of time.

(5)

No reference was made to the word “assignment” between Mr Steele and Mr Zietman, or between Mr Wells and Mr Zietman.

(6)

It was made clear to Mr Zietman by Mr Steele and Mr Wells that the Oxus Gold litigation was a “a Knox d’Arcy case” and that Knox d’Arcy had “an interest” in that litigation.

(7)

This was Mr Steele’s and Mr Wells’ way of informing Mr Zietman that the Claimants and not Templeton would enjoy the benefit of the case; that the proceeds would be going to the Claimants by reason of the assignments.

(8)

Mr Zietman did not pause to consider what was meant by “a Knox d’Arcy case” or “an interest”. His focus was on the conduct of the litigation.

(9)

Had a lawyer paused to consider the position the lawyer would either have realised what Mr Steele and Mr Wells were trying to convey, or would have asked questions that would have led to that realisation.

(10)

Had Mr Zietman paused to consider the position and realised what Mr Steele and Mr Wells were trying to convey he would have been quite content; it was not at that stage material to [Manches] which company within the group would enjoy the fruits of any success in any of the various matters on which [Manches] was acting.’

16.

The judge, in paragraph 17, expressed his conclusions as follows:

‘(1) [Manches], by Mr Zietman, did receive an indication with sufficient certainty that the Claimants were entitled to be paid any proceeds of the Oxus Gold litigation when received and that the proceeds were not Templeton’s.

(2)

Mr Steele and Mr Wells did enough to convey an intelligent apprehension of the position such that it would operate upon the mind of a rational man of business and make him act with reference to the knowledge he had acquired.

(3)

Mr Zietman is a rational, intelligent man of business but the reason what Mr Steele and Mr Wells said did not cause him to apprehend the position in this instance was simply because, his mind being on other things, he did not apply his mind to the implications of what he was being told.

(4)

I am entitled to take into account to reinforce further the conclusions above the fact that the context in which the communication took place was that of solicitor and client. In that context I consider that there was no onus on the client to refer to the assignment in terms; it was instead open to the client (as happened here) to describe the effect of the assignments in lay terms; a solicitor could be expected to be particularly capable of reaching an appreciation of what its client was describing; it is open to the solicitor (as did not happen here) to enquire further about what its client was describing and advise its client accordingly.’

17.

The result was that the judge held that the balance of the money held by Manches in their client account was the money of Operations (it is unclear why his order provided for the money to be paid to both claimants). Whilst Manches claimed that Templeton owed it money in respect of unpaid fees, neither any retaining lien nor Manches’ terms of business entitled them to use the money of one client to pay fees due from another, even if the two clients are as closely connected as in this case.

18.

I should refer to what the judge said in paragraph 19:

‘I understood Mr Mendoza [for Manches] to make the argument that the assignment from Templeton to [Investments] was a legal assignment under the Law of Property Act 1925 requiring any notice to be in writing. Written notice was not given until 12 April 2010, when new solicitors Nelsons were retained by the Claimants, and that date was well after the receipt of the proceeds of the Oxus Gold litigation. The answer to this point is, in my judgment, that there is nothing to stop the assignment existing in equity and binding [Manches] when [Manches] had the earlier oral notice that I have found, through Mr Zietman, it had.’

19.

That reflects what I would regard as the judge’s correct assessment that the assignments in 2005/2006 were of a legal chose in action vested in Templeton and that until such time as they were perfected at law by the giving of notice in writing, they took effect as equitable assignments. I consider it must have followed that Templeton would in the meantime have remained the legal owner of the chose in action, which it held on trust for the equitable assignees.

20.

When Manches received the Oxus Gold money, they were owed fees by Templeton not just in respect of the Oxus Gold litigation but also in respect of other matters. Their case was and is that their contractual lien conferred by their terms of business entitled them to have recourse to such funds in settlement of all fees due to them from Templeton in respect of ‘any matter’ (see paragraph 10 above). The stark position is that they were claiming a right of recourse to money which belonged in equity to Operations in settlement of fees due not from Operations, but from Templeton.

The appeal

21.

The following questions arise for the court’s determination: (i) were Manches given notice of the assignment to Operations prior to their receipt of the Oxus Gold money; (ii) if not, did they upon the receipt of the money become entitled to use it in settlement of fees due to them from Templeton; (iii) how should the court deal with Manches’ application for permission to appeal against the judge’s costs order?

(i)

Were Manches given notice of the assignments prior to their receipt of the money?

22.

Manches’ position, as advanced to this court by Mr Freedman, is that the claimants’ case on the giving of notice was materially flawed; and the flaws were such that the judge was wrong to find that notice had been given. He said that the authorities relating to the giving of notice by an assignee to the relevant debtor or trustee establish the following propositions. First, the burden of proving the giving of notice was on the claimants. Second, whilst notice can be given orally, nothing less than actual notice of the interest must be given. Moreover, it must be given in a way that ‘distinctly and clearly’ brings the interest to the mind and attention of the debtor or trustee; it must be a formal notice that the recipient is bound to remember; and a mere casual conversation will not be sufficient to bind him. Third, as follows, it will not be enough for claimant to assert that he gave the debtor or trustee sufficient information to amount merely to constructive notice of his interest.

23.

Applying those principles to the present case (even though Manches were not the debtor or trustee, but claimed through the assignor), there was, said Mr Freedman, no basis upon which the judge could find that notice was given to them. No express, or actual, notice of any assignment was given to Mr Zietman. The assertions by Mr Wells (on behalf of Templeton) to Mr Zietman that the Oxus Gold litigation was not something he was interested in discussing because such litigation was not ‘of concern’ to Templeton did not amount to such notice. Nor did the statements to Mr Zietman by Mr Steele (on behalf of the group) that the Oxus Gold litigation was being funded by Knox D’Arcy and that it was a ‘Knox D’Arcy case’ convey to Mr Zietman that there had been an assignment. His language was too imprecise. There were at least four ‘Knox D’Arcy’ companies in the group and he did not identify to which company he was referring. Moreover, his statement that one or other Knox D’Arcy company had an interest in the litigation did not necessarily mean an interest under an assignment: he could have been referring to some different intra-group arrangement. It also appeared from the evidence that Mr Steele knew little of the oral assignment to Operations.

24.

The judge’s rationale for his decision in paragraphs 16 and 17 of his judgment was, said Mr Freedman, flawed. In paragraph 16(7) he wrongly focused on the subjective intentions of Mr Steele and Mr Wells, whereas the question was whether what they said, interpreted objectively, conveyed that there had been an assignment, which Mr Freedman said they did not. The judge’s findings in paragraph 17 fell short of any clear finding that actual notice of the assignments had been given. His overall approach was rather that Mr Wells and Mr Steele had said enough to Mr Zietman to give him constructive notice of the assignments, whereas nothing less than clear and distinct actual notice is required.

25.

Mr Freedman referred us to Re Tichener (1865) 35 Beavan 317; 55 ER 918, which concerned the alleged giving of notice of an incumbrance to the trustee of a trust fund. The case supports the need for such a notice to be distinct and clear and to be given in a formal manner; and it warns against the giving of notice in a casual conversation. So does Lloyd v. Banks [1868] 3 LR Ch. App 488. There, the trustee (a solicitor) saw an advertisement of the beneficiary’s insolvency and dealt with the trust fund accordingly. The issue was whether the beneficiary’s subsequent assignment of his life interest in the trust fund to Shephard gave the latter priority over the interest of the assignor’s insolvent estate, formal notice of the insolvency not having been given to the trustee until after the assignment to Shephard. It was held, on appeal, that the trustee had had notice of the insolvency and that therefore the assignee in insolvency took priority. Lord Cairns LC said, at 490:

‘Now there is not doubt, with regard to property of the kind in question here, that an equitable incumbrancer, if he has any regard for his own interests – any desire to make his position secure – will take very good care himself to give direct and distinct notice, and I will even go further and say, as Mr Jessel did, to give it in writing to the trustees of the property on which he has obtained his incumbrance; and if he does not do that, he will be at very great peril, because he will have to encounter, first, the danger of the trustee being left in entire ignorance of the security, and next, if he attempts to prove knowledge of the trustee aliunde, the difficulty which this Court will always feel in attending to what are called casual conversations, or in attending to any kind of intimation which will put the trustee in a less favourable position as regards his mode of action than he would have been in if he had got distinct and clear notice from the incumbrancer. At the same time I am bound to say that I do not think it would be consistent with the principles upon which this Court has always proceeded, or with the authorities which have been referred to, if I were to hold that under no circumstances could a trustee, without express notice from the incumbrancer, be fixed with knowledge of an incumbrance upon the fund of which he is the trustee so as to give the incumbrancer the same benefit which he would have had if he had himself given notice to the trustee. It must depend on the facts of the case; but I am quite prepared to say that I think the Court would expect to find that those who alleged that the trustee had knowledge of the incumbrance had made it out, not by any evidence of casual conversation, much less by any proof of what would only be constructive notice – but by proof that the mind of the trustee has in some way been brought to an intelligent apprehension of the nature of the incumbrance which has come upon the property, so that a reasonable man, or an ordinary man of business, would act upon the information and would regulate his conduct by it in the execution of the trust. If it can be shown that in any way the trustee has got knowledge of that kind – knowledge which would operate upon the mind of any rational man, or man of business, and make him act with reference to the knowledge he has so acquired – then I think the end is attained, and that there has been fixed upon the conscience of the trustee, and through that upon the trust fund, a security against its being parted with in any way that would be inconsistent with the incumbrance which has been created.’

26.

Although that passage can be said to support the view that constructive notice has no relevant role to play in the present context, Mr Freedman’s main support for his submission to that effect was (i) Eagle Trust PLC v. SBC Securities Ltd [1993] 1 WLR 484, in which Vinelott J, at 504, affirmed that the doctrine of constructive notice was confined in its application to land transactions and had no place in commercial ones, for which he referred to the observations of Lindley LJ in Manchester Trust v. Furness [1895] 2 QB 539, at 545; and (ii) Polly Peck International plc v. Nadir and others (No 2) [1992] 4 All ER 769, in which Scott LJ, in a judgment with which Stocker LJ and Sir John Donaldson MR agreed, agreed with the observations of both Lindley LJ and Vinelott J. This case, said Mr Freedman, falls on the commercial side of the line. The judge’s finding could not therefore be upheld on the basis that there was constructive notice; and he made no clear finding, nor could he have properly found, that actual notice of any assignment was given to Mr Zietman.

27.

Mr Freedman advanced his submissions with clarity and cogency, but whilst I admit that I have not found the case easy, I have concluded that I am unable to accept them. I agree that the burden of proving the giving of notice lay upon the claimants but I would accept the submissions of Mr Cannon, for the claimants, that the judge was entitled to find (as he did in paragraph 17) that they had discharged it. I would accept that, although the notice was not given as distinctly and clearly as, ideally, such notices should be given, the judge was entitled to find that Mr Zietman was told sufficient to inform him that a Knox D’Arcy company rather than Templeton was to be entitled to the benefit of the Oxus Gold claim, and therefore that there had been an assignment of such benefit. My reasons are as follows.

28.

I do not, with respect, find the judge’s expression of his findings and conclusions in paragraphs 16 and 17 as comprehensively clear as they might have been. I agree with Mr Freedman that paragraph 16(7) is not happily expressed and can perhaps be read as reflecting a finding as to what Mr Wells and Mr Steele subjectively intended to convey to Mr Zietman by what they said, whereas the relevant question is what, objectively interpreted, their language did convey to him. I do not, however, consider that, on a fair interpretation, the judge fell into an error of this nature in coming to his overall conclusion. In paragraphs 16(6) and (8), he correctly focused on the language that had been used and was clearly asking himself whether it had conveyed to Mr Zietman that there had been an assignment of the benefits of the Oxus Gold litigation. I regard it as perhaps a little surprising that, in paragraph 16, the judge did not refer again to what I would regard as his important finding in paragraph 11 that Mr Wells had on several occasions declined to discuss the Oxus Gold litigation with Mr Zietman because, as he told Mr Zietman, the case was not ‘of concern’ to Templeton, a finding that sharpens the focus that the judge applied in paragraph 16(6), namely that Mr Zietman was told that the litigation was a ‘Knox D’Arcy case’. The judge cannot, however, have ignored his paragraph 11 findings when he came to his conclusions. They must have played their part in his ultimate decision.

29.

The judge explains in paragraph 16(8) why Mr Zietman did not address any consideration to the sense of what Mr Wells and Mr Steele were saying to him. The critical question, however, is what that sense was. If it did amount to the giving of notice of an assignment, it cannot make any difference to the claimants’ position that Mr Zietman, with his mind on other things, did not pay sufficient attention to what was being said so as to pick the message up. The question, though, is whether what he was told did amount to such notice.

30.

In paragraph 16(9), the judge answered that question by saying that a lawyer would either have understood that there had been an assignment; or else would have asked questions that would have led to that understanding. That perhaps falls short of a clear finding that what was said gave actual notice of an assignment. The observations in paragraph 16(10) do not appear to me to be relevant one way or the other. Having said what he did in paragraph 16, the judge came to his conclusions in paragraph 17. Despite what might be regarded as the hesitancy of paragraph 16(9), the judge, as I read paragraph 17, did there find that what Mr Steele and Mr Wells had said to Mr Zietman indicated to him, with sufficient certainty, that there had been an assignment. Whilst they did not use that word, their language explained to him in lay terms the substantive effect of what had happened. The only reason he did not pick the message up was because he had his mind on other things.

31.

In my judgment, that is a finding by the judge of the giving of actual notice to Mr Zietman of the assignment to an unidentified Knox D’Arcy company of Templeton’s entitlement to the benefits of the Oxus Gold litigation. It does not matter that Mr Zietman was not told to which particular Knox D’Arcy company the benefit had been assigned. If, for example, a formal written notice had been given to Manches of an assignment of such benefits by Templeton to a ‘Knox D’Arcy company’, without saying which, I do not accept that Manches could have treated the notice as worthless paper that they could ignore: they would have been told enough to require them, if relevant, to ask for the identity of the assignee company.

32.

The question, therefore, is whether the judge was entitled to make the finding of fact that he did in paragraph 17, namely, a finding of actual notice. In my judgment, this court is in no position to say that he was not. The conversations between Mr Zietman, Mr Wells and Mr Steele were not casual conversations. They were conversations between (i) the solicitor acting for Templeton in major litigation and (ii) individuals speaking to him both on behalf of Templeton and other Knox D’Arcy group companies in relation to that litigation. As the judge explained in paragraph 16, he had the benefit of seeing and hearing the witnesses giving their evidence. He made the findings in paragraph 11 that he did; in paragraph 16(4), he noted that Mr Zietman’s recollection of the detail had diminished with the passage of time; in paragraph 16(6), he found that it had been ‘made clear’ to Mr Zietman by Mr Steele and Mr Wells that the Oxus Gold litigation was a ‘Knox D’Arcy case’; and his overall finding, summarised in paragraph 17(1), was that ‘Mr Zietman, did receive an indication with sufficient certainty that the Claimants were entitled to be paid any proceeds of the Oxus Gold litigation when received and that the proceeds were not Templeton’s.’ Manches’ appeal involves no challenge to the judge’s primary findings of fact, but merely to the factual inferences or conclusions he drew from them. It is possible that other judges might have come to a different conclusion, but I feel unable to hold that the judge’s evaluation was wrong; and, unless it was, there is no basis for this court to interfere with it.

33.

As, so I consider, the judge decided the case on the basis of a finding of actual notice, the question of constructive notice does not arise. We were told that that question was not argued before the judge: all that was argued before him was whether or not Mr Zietman had been given notice. In the circumstances, it is unnecessary to consider the question further, although I ought at least to record that Mr Cannon disputed Mr Freedman’s submission that constructive notice can have no role to play in the present context. His submission was that the circumstances in which a party will be fixed with constructive notice are no longer to be regarded as confined to cases concerned with the acquisitions of interests in land. He said that that frontier had been rolled back by Lord Browne-Wilkinson in Barclays Bank Plc v. O’Brien [1994] 1 AC 180, at 195 to 196, as Millett J explained in Macmillan Inc v. Bishopsgate Investment Trust Plc and Others (No 3) [1995] 1 WLR 978, at 1000 to 1001; and he also referred us to Sinclair Investments (UK) Ltd v. Versailles Trade Finance Ltd (in administrative receivership) and others [2011] EWCA Civ 347; [2011] 3 WLR 1153, per Lord Neuberger of Abbotsbury, at paragraphs 97 to 101, drawing particular attention to the last sentence of paragraph 101. I shall, however, express no view on the submissions addressed to us on constructive notice.

34.

The final matter that I must, however, deal with under this head of discussion is Manches’ renewed application for permission to appeal on the ground that the judge made no express finding that the notice of the assignment was given to Manches before they received the Oxus Gold money in 2007. It is true that the judge did not expressly refer to the timing of the relevant statements but it was not made clear to us that it was any part of Manches’ case at the trial that the relevant conversations post-dated the receipt of the money and it appears to me obviously implicit in the judge’s findings that he found that they pre-dated it. Mr Cannon expressly drew the judge’s attention at the beginning of the trial to the fact that the claimants needed to show that notice was given before Manches received the money in August 2007, and so the judge will have had this in mind when making his decision. In refusing permission to appeal on (inter alia) this ground, the judge said that it was ‘an issue driven by the oral evidence at the trial,’ which I take to mean that it was a question of fact that he had decided on the evidence, if only impliedly. I would refuse permission to appeal on this ground. I would also dismiss Manches’ appeal.

(ii)

If no pre-August 2007 notice was given, were Manches entitled to have recourse to the client account money in settlement of their fees?

35.

In view of my conclusions on issue (i), this question does not arise. As, however, the point was argued, I should deal with it. The authorities to which the court referred counsel, mentioned in paragraph 5 above, were Pelly v. Wathen 1 De G.M. & G 16; 42 ER 457; and Barratt v. Gough-Thomas [1951] Ch. 242. They were cases in which solicitors claimed unsuccessfully to exercise a lien for costs over title deeds to which their debtor client no longer had any right. The facts of both cases are relatively complicated and I shall refer to neither of them further because neither side invoked them as directly dispositive of the issue that arises on the factual premise of this part of my judgment.

36.

Mr Cannon’s submission was that even if no notice of the assignment had been given to Manches before they received the Oxus Gold money in August 2007, that could not improve their position. Manches’ claim to be entitled to recourse to such money in satisfaction of their unpaid costs was founded on the provisions of their terms of business quoted at paragraph 10 above. The critical words are ‘on your behalf’, which mean ‘on [Templeton’s] behalf’. Mr Cannon’s submission was that Manches did not so hold the money, which represented the fruits of what Templeton had earlier assigned to Operations (via Investments), to which the money therefore belonged beneficially. That meant that Manches did not hold the money on Templeton’s behalf, but on Operations’ behalf, albeit that they did not know that. I understood Mr Cannon to accept that if, in such ignorance, Manches had paid the money to Templeton, Operations could not have complained about such payment; nor, if Templeton had then re-paid the money to Manches in satisfaction of their fees, could Operations have made any claim against Manches in respect of the money paid to them. Mr Cannon’s point was, however, that the terms of business gave Manches no contractual right to recourse to the money held in their client account in settlement of their fees, nor could they have any general lien over money that did not belong beneficially to Templeton; and that, although there had been some dealings with the money in the meantime, which had ultimately been ordered to be paid into court, it should be regarded for present purposes as still held in the client account and so held exclusively for the benefit of Operations.

37.

I would not accept that argument, but prefer the contrary argument advanced by Mr Freedman. The terms of business are contained in a letter from Manches dated 17 July 2006 and addressed to Templeton. It opened by thanking Templeton for instructing Manches ‘to act on your behalf’ and continued by saying that Manches were pleased to do so in accordance with their letter and enclosed terms of business. Manches did thereafter act on Templeton’s behalf, and did so in relation to various matters, including the latter stages of the Oxus Gold matter, in which Templeton was the successful counterclaiming defendant and became entitled to damages and costs. When Manches received the payment of damages and costs in August 2007, and paid them into client account, they were in my view plainly holding them on trust for their client, Templeton; and were, therefore, holding them ‘on your [Templeton’s] behalf’. It may be that Templeton had by then become a trustee of it for the benefit of Operations as their ultimate assignee. But that did not prevent the terms of business from taking effect according to their terms, being terms under which, for valuable consideration, Templeton had conferred a contractual right upon Manches to have recourse to the money in settlement of their fees. That contractual right, negotiated between Manches and Templeton, was not affected by the assignment to Operations of which Manches were (on this premise) ignorant, nor could it be affected by any notice of such assignment given to Manches after they had received the money.

38.

Accordingly, had I been of the view that no notice of the assignment had been given to Manches before they received the money, I would have given an affirmative answer to the question asked by this part of my judgment. I record that I did not understand Mr Cannon to advance any more general submission that Operations’ prior right automatically trumped Manches’ claim even if he was wrong as to his submissions as to the terms of business.

(iii)

The application for permission to appeal against the judge’s costs order

39.

The judge ordered Manches to pay 75% of the claimants’ costs and to make an interim payment of £75,000 on account. Manches’ assertion is that the claimants should not have recovered any costs, or that they should at least have suffered a larger discount than 25%. Manches assert that it was only a day or so before the trial that the claimants served the key evidence upon which they relied on the notice issue, which they say eclipsed what had been served before. The claimants had also advanced a damages claim, which was dismissed, being one that shortly before the trial was inflated from the pleaded claim of about £70,000 to about £576,000. Manches also complain that the claimants produced a catalogue of late documents, as well as being responsible for late alterations and additions to the trial bundles. It is said that all these matters should have been reflected in the costs order but were not. It is said that, for the judge merely to deprive the claimants of 25% of their costs, was to make an order that was not reasonably open to him and was wrong.

40.

We have the benefit, albeit only in unapproved form, of the judge’s judgment on the post-trial arguments, including as to costs. It shows that the points made to us were also made to the judge by Mr Mendoza in support of his contention that the right costs order to make was no order. Having considered the arguments, the judge made the order that he did. It must be borne in mind that, whilst the claimants failed on their damages claim, they achieved overall a substantial measure of success. The judge was in the best possible position to decide what would be a fair order to make as to costs and there can be no doubt that he had in mind all the matters advanced to him by Mr Mendoza. Costs are pre-eminently matters for a trial judge’s discretion, and this court will not interfere with a trial judge’s order as to costs unless it can be shown that he made an error of principle in his approach to such question, or made an order that was obviously wrong. It is quite possible that other judges would have made a different order, but that is neither here nor there. I am not persuaded that the judge erred in principle in his approach to costs, or that the order he made was obviously wrong. In my judgment, no arguable basis for a challenge to his costs order has been shown. I would refuse permission to appeal against it.

Disposition

41.

I would refuse Manches permission to appeal on grounds 8 and 9 of their grounds of appeal. I would dismiss their appeal on the grounds that were permitted.

Lady Justice Black :

42.

I agree.

Lord Justice Pill :

43.

I also agree.

Knox D'arcy Operations Ltd & Anor v Manches LLP

[2013] EWCA Civ 33

Download options

Download this judgment as a PDF (347.4 KB)

The original format of the judgment as handed down by the court, for printing and downloading.

Download this judgment as XML

The judgment in machine-readable LegalDocML format for developers, data scientists and researchers.