Dranez & Ors v Hayek & Ors

The issue which I have to decide in this judgment is whether the receiving party have validly appropriated two payments into court made by the paying party as security for costs.

It is one of a number of preliminary issues which the parties have agreed I should resolve, prior to the detailed assessment of four bills, totalling approximately £1/2 million.

Zamir Hayek invented a piece of medical equipment called the Hayek Oscillator, and his brother Samuel set up a company to exploit it. However, the brothers fell out, and a number of proceedings between the parties followed.

The first action “the injunction proceedings” were brought by eight Claimants, the first named in the heading, five of whom were companies controlled by Samuel Hayek, and the remainder being investors in those companies.

The second action was started against Zamir Hayek, and his company Medivent alone “the patent action”.

The Defendants to the injunction proceedings were Dr Zamir Hayek, a company which he controlled Medivent. Kay De Bernardo (a former employee of Breasy Medical Equipment Ltd but subsequently becoming an employee of Medivent), and Andrew Higgs, who was employed by the Third Defendant, pursuant to a contract between him and his own service company, Ten Corporation.

The evidence before me was that the bills in respect of the injunction proceedings were, by arrangement, delivered to, and paid by, Medivent Ltd.

The injunction proceedings were tried by Mr Justice Evans-Lombe, who handed down his judgment on costs on 20 December 2001. In that judgment he dismissed the claims of the First to the Fourth and Eighth Claimants, the relevant paragraph of his Order reading:

“8.

The First, Second, Third, Fourth and Eighth Claimants do pay the Defendants costs of the non side letter issues; such costs to be the subject of a detailed assessment, in the case of the First and Second Defendants, on the standard basis, and in the case of the costs incurred in relation to the defences of the Third and Fourth Defendants, on an indemnity basis.”

Paragraph 4 of his Order read:

“The First and Second Defendants have permission to appeal in respect of the side letter issues, namely those relating to restraint of trade, estoppel and procurement of breach of contract.”

The question of the costs incurred by the Fifth, Sixth and Seventh Claimants was reserved.

On 19 March 2002 the Judge ordered the First, Second, Third, Fourth and Eighth Claimants to pay to the Defendants within 14 days the sum of £250,000, on account of the detailed assessment of the Defendants’ costs of the non side letter issues.

There were cross-appeals from the orders mentioned above, including the costs order in favour of the Third and Fourth Defendants, by the Claimants, and against the judgment on the side-letter issue by the First and Second Defendants. However, in the interval between the trial and the appeal, a number of the Claimant companies were declared insolvent, but a late application to adjourn the appeal hearing was dismissed by the Court of Appeal.

That Court went on to dismiss all the Claimants’ appeals, and to allow the First and Second Defendants’ appeal on the side-letter issue. Their judgment was handed down on 26 November 2002. Paragraph 3 of their Order reads:

“3.

The Appellants’ costs of and occasioned (a) by the appeal in this court and (b) by the issues relating to it in the court below, be paid by the Respondents in this appeal namely Fifth, Sixth and Seventh Claimants.”

The patent action against the First and Second Defendants alone was also dismissed with costs.

The Defendants therefore contend that, in principle, they had been entirely successful in their defence of these two sets of proceedings, but, there remained of course, the major problem of how to enforce those costs orders.

Some of the costs at first instance in the injunction proceedings were recovered by virtue of an order for security for costs, under which £178,871.75 (including accrued interest) had been paid by way of security. Some of the costs of the patent action were also recovered by virtue of a security for costs order, under which £36,916.80 (including accrued interest) had been paid by way of security.

On 21 June 2002 and 6 May 2005 applications were made on behalf of the First and Second Defendants, Zamir Hayek and Medivent Ltd, that Mr Samuel Hayek should be joined as a party, and should pay those Defendants’ costs in both sets of proceedings on the basis that he was in reality controlling and paying for the proceedings on the Claimants’ side.

Those proceedings were hard fought, but eventually Mr Samuel Hayek consented to an order, before Mr Justice Peter Smith, under which he was ordered to pay, on the standard basis, with credit to be given for costs received to date in either proceedings:

“(a)

the Defendants’ costs of the non side-letter issue in the injunction proceedings from 7 March 2001;

(b)

the Defendants’ costs of the two other hearings in the injunction proceedings;

(c)

the costs of the patent action proceedings including both claim and counterclaim from 7 March 2001;

(d)

50% of the Defendant’s costs in the patent action relating to an application for an interim payment of costs;

(e)

the Defendants’ costs of the Section 51 proceedings.”

The Defendants’ Solicitors accept that “the Defendants” in this context is restricted to the First and Second Defendants, Zamir Hayek and Medivent Ltd, because the Third and Fourth Defendants were not party to the Section 51 application.

These have been defined as follows:

“4.

Security for Costs in Action CH 1997 – D – 5132 (the Injunction Proceedings)

The Defendants have recovered a total of £178,871.75 from the Claimants in the action. Have the Defendants validly appropriated those funds or, if not, are they entitled to appropriate those funds:

a.

first in relation to costs incurred prior to 7 March 2001; or

b.

only against costs incurred after 7 March 2001; or

c.

partly in relation to costs incurred prior to 7 March 2001 and partly in relation to costs incurred post 7 March 2001 and, if so, in what proportion.

5.

Security for Costs in Action HC 002808 (the Patent Proceedings)

The Defendants have recovered a total of £36,916.80 from the Claimants in the action. Have the Defendants validly appropriated those funds or, if not, are they entitled to appropriate those funds:

a.

first in relation to costs incurred prior to 7 March 2001; or

b.

only against costs incurred after 7 March 2001; or

c.

partly in relation to costs incurred prior to 7 March 2001 and partly in relation to costs incurred post 7 March 2001 and, if so, in what proportion.”

Clearly, in the context of total bills of approximately £1/2 million, this issue, involving as it does the sum of £218,788.55, assumes a very great significance, and, understandably, both parties invested much time and energy into arguing their case and producing authorities.

Thus, I was presented with two large lever arch files of agreed documents, divided into 70 tags, and a bundle of authorities, which ranged from Clayton’s case in 1816, and Re: Colquhoun in 1854, down to two cases decided last year in both of which, as it happens, I sat as the assessor with the Judge, namely Dyson Technology Ltd v Strutt [2007] EWHC 1756, and Meretz Investments NV & Anor v ACP Ltd & Ors [2007] EWHC 2635.

In addition to these bundles, I also, of course, had bundles in relation to the bills themselves, and further documents and authorities were handed up to me during the course of the hearing, which was spread over two working days, and was conspicuously well argued by Mr James Fairbairn, a partner in Messrs Denton Wilde Sapte, and Mr Philip Bowden, a costs lawyer instructed by Messrs Mishcon de Reya.

Mr Fairbairn spent a considerable time, and referred to numerous documents in support of a contention that Samuel Hayek personally had not paid the costs pursuant to the Section 51 Order, but during the short adjournment the parties agreed to put this point to one side, because of its possible implications for a separate action, still ongoing in the Chancery Division, between Samuel Hayek as Claimant, and the estate of Zamir Hayek (who died in 2005), as to whether the Defendant is liable to the Claimant under a contract of guarantee.

I was shown the pleadings in that action, which apparently is listed for hearing in July of this year, and the parties were obviously anxious that no finding by me should complicate or prejudice those proceedings.

Accordingly, for the purposes of my decision, it was agreed between the parties that the Fourth Claimant, Breasy Medical Equipment Ltd, had effectively paid the sums of security for costs ordered against Samuel Hayek.

Both parties put in detailed and lengthy skeleton arguments, though these also deal with the other preliminary points, one of which I have decided, and three or four of which remain to be decided when this case resumes on 2 April.

Mr Bowden, in his skeleton on behalf of the Paying Party, formulates the issue as follows:

“2.

Security for Costs

The Defendants have recovered a total of £178,871.75 as security for costs paid out in the injunction proceedings and £36,916.80 in the patent proceedings. Have the Defendants validly appropriated those funds or, if not, how are they entitled to appropriate those funds, if at all?”

Mr Bowden then devotes 20 sub-paragraphs to this particular issue, and I will need to refer to some of those later in this judgment.

Mr Fairbairn, in his skeleton, devotes paragraphs 32 to 40 to his analysis of the facts and the appropriate law, on what he calls his primary contention, putting forward an alternative argument in paragraphs 41 to 51 thereof.

In Tab 29 of the authorities I was taken to extracts from the latest edition of Chitty on Contracts, which deal with appropriation of payments, in particular paragraphs 21-059 to 21-061, which I set out below:

“21-059 Rights to appropriate payments. Where several separate debts are due from the debtor to the creditor, the debtor may, when making a payment, appropriate the money paid to a particular debt or debts, and if the creditor accepts the payment so appropriated, he must apply it in the manner directed by the debtor; if, however, the debtor makes no appropriation when making the payment, the creditor may do so.

21-060 Debtor’s right to appropriate. It is essential that an appropriation by the debtor should take the form of a communication, express or implied, to the creditor of the debtor’s intention to appropriate the payment to a specified debt (or debts), so that the creditor may know that his rights of appropriation as creditor cannot arise. It is not essential that the debtor should expressly specify at the time of the payment, which debt or account he intended the payment to be applied to. His intention may be collected from other circumstances showing that he intended at the time of the payment to appropriate it to a specific debt or account. Thus, where at the date of the payment some of his debts are statute-barred and others are not, it will be inferred (in the absence of evidence to the contrary) that the debtor appropriated the payment to the debts that were not so barred.

21-061 Creditor’s right to appropriate. Where the debtor has not exercised his option, and the right to appropriate has therefore devolved upon the creditor, he may exercise it at any time “up to the very last moment” or until something happens which makes it inequitable for him to exercise it. What is “the very last moment” depends on the circumstances of each case. In one instance the creditor was held entitled, in the witness-box during the course of his action, to exercise his right to appropriate a payment by his debtor, as nothing had previously happened to determine his right of election. The creditor need not make his election in express terms. He may declare it by bringing an action or in any other way that makes his meaning and intention plain. An entry in the creditor’s books applying a payment to a particular debt does not constitute an election which will preclude the creditor from afterwards applying it to another debt.”

Both parties seem to be in agreement that the quotations above accurately set out the present state of the law, which in summary is that the debtor has the first right to appropriate, that there is no particular time limit within which such appropriation has to be made, but that unless he has unequivocally exercised that right of appropriation, then the creditor can do so, again at any time up to “the very last moment”.

The receiving party contends that, as creditor, they made an appropriation in their letter to Messrs Mishcon de Reya, on 7 November 2005, shortly after Samuel Hayek had agreed to pay costs, pursuant to the Section 51 proceedings.

Two paragraphs in particular in that letter are relied on:

“In relation to the patent action, the value of the costs claim is £107,764.15 against which we have credited payments received at £43,299.80 which gives rise to a balance due of £64,464.35.

In relation to the non side letter issue bills have been delivered in relation to the High Court and Court of Appeal of £194,361.11 and £39,053.22. It will be necessary to reallocate approximately £129,152.72 from the side letter to the non side letter issues. This gives rise to a potential claim of £362,567.05. After recoveries that have been made – as a result of money to be paid by way of security for costs – a balance of £183,695.30 remains.”

In a summary of the costs position annexed to that letter, Messrs Denton Wilde Sapte put the position as they see it, and I think it is important that I set this out in full:

Costs claimed

	Patent Action		Injunction
		Side letter	Non side letter	Both
Original claims High Court Court of Appeal	£107,764	£261,520.43 £108,773.11	£194,361.11 £39,053.22	£194,361.11 £39,053.22
Revised claims High Court Court of Appeal		£132,367.71 £108,773.11		£132,367.71 £108,773.11
Costs re-allocated from side letter claim			£129,152.72	£129,152.72
Claims before deduction of recoveries		£241,140.82	£362,567.05	£603,707.87
Payments on account (inc. accrued interest)	-£43,299.80	-£5,000.00	-£102,855.88 -£76,015.87	-£102,855.88 -£76,015.87 -£5,000.00
Recovered from 5th Defendant (net of interest)		-£163,443.24
TOTALS	£64,464.35	£72,697.58	£183,695.30	£419,836.12

Mishcon de Reya did not at the time, take issue with that letter, with the apportionments referred to therein at that stage, but first raised the apportionment issue in their Points of Dispute, following service by Messrs Denton Hall of the Notice of Commencement in April 2007. In the injunction proceedings the following paragraph appears in the Points of Dispute:

“The security for costs was paid into court by Samuel Hayek, on behalf of the other Claimants and should be available, in its entirety, to be set off against costs of the non side letter issues payable by Samuel Hayek. It is not accepted by DWS, or the Defendant, can unilaterally attribute the security for costs outside the scope of the order to be assessed and therefore recover these costs on a full solicitor client basis without any assessment or adjudication, therefore [sic I think this should read thereby] depriving the paying party of the ability to set off the security for costs paid into court for this purpose.

It is a paying party’s primary position that the full sum of £178,871.75, should be treated as a payment on account of costs included within the Defendants’ non side letter bill of costs payable by Samuel Hayek.”

Those Points of Dispute were dated and signed on 25 May 2007.

On 18 June 2007 Denton Wilde Sapte write to the corporate Claimants letters in identical form, reading as follows:

“Dear Sirs

Dr Zamir Hayek, deceased, and Medivent Limited

On behalf of our clients, Dr Zamir Hayek, (his estate) and Medivent Limited we are writing to confirm that our clients have appropriated sums paid into court as security for costs and subsequently paid out to them pursuant to orders of the court to the costs against the liability that you have to pay our clients for costs and have appropriated the money paid towards and against costs due from you for the period until 7 March 2001.”

On 16 August 2007 Mishcon de Reya wrote to DWS, the relevant paragraphs reading as follows:

“We are informed that you have served a Bill of Costs in the Chancery injunction proceedings upon Breasy Medical Equipment Ltd pursuant to the Order dated 23^rd January 2002. As you know we do not represent nor are we instructed by Breasy, however, we assume you have served this Bill of Costs in an attempt to buttress your claim for payment of the costs incurred pre 7^th March 2001 from the security for costs currently held by your firm. We also assume service of this Bill (and the Bill of Costs in the Patent proceedings for the period pre 7^th March 2001) represents your implicit acknowledgement that you cannot attribute any of the security for costs to the period pre 7^th March 2001 without first having those costs assessed and awarded from the security by way of an Order from the Court. Please confirm.

We confirm that, without prejudice to our primary position that the security for costs is first and foremost attributable to the liabilities of Samuel Hayek under the Order dated 23^rd March 2007, we will prepare Points of Dispute in respect of the costs incurred pre 7^th March 2001 in both the Patent and Chancery injunction proceedings following formal service upon us of the Bills of Costs. We do not, of course, accept any liability whatsoever for payment of those costs by Samuel Hayek personally.”

DWS responded the very next day to that letter, the relevant paragraph reading:

“We confirm that we have served a bill of costs in the injunction Proceedings on Breasy Medical Equipment Limited and the other Claimants (other than 5^th to 7^th Claimants). As requested we enclose a copy of that bill. You should not assume that this represents an implicit acknowledgement that we cannot attribute any of the security for costs for the period pre 7 March 2001 without having the costs assessed. That is clearly nonsense.”

Finally, as far as the correspondence is concerned, Mishcon de Reya responded, on 22 August, the relevant paragraph of which reads:

“We note your comments regarding our Points of Dispute in respect of the Chancery costs incurred prior to 7^th March 2001. However we refer you to our Points of Dispute in respect of these proceedings (page 7) where we state “If necessary, Points of Dispute will be prepared in respect of the costs incurred prior to 7^th March 2001”. These will be unnecessary if the Costs Judge accepts our primary position that the entirety of the security should be allocated to Samuel Hayek’s liability. No issue was taken with this in your Points of Reply. However, we understand from your comments that you now wish us to prepare these Points of Dispute whether or not they will ultimately be required. This appears disproportionate in light of the fact we have agreed that preliminary issues, including the treatment of the security for costs, are to be heard before the detailed assessment. However, at your insistence we will now prepare the same forthwith. Please confirm that you will take no issue with service of Points of Dispute for the period pre 7^th March 2001 within 21 days of today, namely 12 September 2007.”

The appropriate paragraphs of Mr Bowden’s skeleton read as follows:

“2.5

Appropriation can only occur where there is more than one or several debts (see Chitty on Contracts [21-059]). In this case there is only one current debt owed by the corporate Claimants to the Defendants and that is the interim payment ordered on account of costs in the sum of £250,000. It is accepted that an interim payment order does constitute a debt (see “Maxwell v Bishopsgate Investment Management Ltd (in liquidation) The Times February 11^th 1993). However, the interim payment is one “debt” only and therefore any payment made is not capable of appropriation. The payment out of the security for costs was on account generally of the larger interim payments ordered (in the injunction and patent proceedings respectively) which themselves were also general payments on account.

2.6

A single debt cannot be artificially “salami-sliced” into a series of smaller debts to allow for a manufactured appropriation which would be to the benefit of the creditor (D1 & D2 and/or DWS) but of prejudice to the paying party and third party (Samuel Hayek). The appropriation is invalid because there is not more than one debt which the payment made is capable of being attributed between. The security was paid out on account of NSLI in the injunction proceedings and generally on account of the patent costs and is not capable of any further appropriation.

2.7

The appropriation is also invalid in that appropriation can only be made in respect of a liquidated debt. An order for costs to be assessed is not a “debt” and only becomes a “debt” once the costs are quantified, assessed and certified (see “Chohan v Times Newspapers Ltd [2001] 1 Costs LR 127”). A claim which has not been quantified is not a real debt (see “Northern Aluminium Co v Inland Revenue Commissioners [1947] LJR 685). No such assessment has taken place nor has any default interim or final costs certificate been issued. The “debt” owed by the corporate Claimants is not liquidated, assessed or quantified and therefore no appropriation can be made. Furthermore, no appropriation, even if possible in any event, could occur until these costs have been assessed.

2.8

The Order for costs against the corporate Claimants was made on 23^rd January 2002 and the Order for the payment on account and payment out of the security was made on 19^th March 2002. No substantive steps have been undertaken in the assessment proceedings against the corporate Claimants although it is understood that Bills of Costs were prepared and served in 2004 and 2007. No request for hearing has been filed.

2.9

As a result there is no assessed figure for costs incurred pre 7^th March 2001 and, indeed, the Bills of Costs payable by the debtors are not even apportioned pre and post 7^th March 2001. It is not accepted that even, post assessment, this “salami-slicing” of a singular debt (the certified amount of assessed costs) would be a safe and valid basis for appropriation. Even if this proposition was arguable, it is irrelevant to the question of the validity of the purported appropriation made by the Defendants on 18^th June 2007 as no such assessment had taken place at that time or has taken place since.

2.10

The effect of the Defendants’ “appropriation”, if allowed, would be that they would recover 100% of the costs incurred pre 7^th March 2001 despite the fact that these costs were ordered to be assessed if not agreed and such an assessment has not been carried out. This is plainly inequitable and subverts the Orders of the Court.

2.11

DWS attempt to escape this inequity by suggesting that the costs incurred pre 7^th March 2001 payable by the corporate Claimants should also be assessed at this hearing (see witness statement of Mr Fairbairn dated 3^rd May 2007: “It may however be necessary for the Court to assess those costs because costs recovered through the security for costs payments have been appropriated to indemnify the paying party first against costs incurred prior to 7^th March 2001.”

2.12

It would be disproportionate and an unreasonable use of Court time for costs which fall outside the S 51 liability of the paying party to be assessed solely in order to quantify the effect of the manufactured appropriation, which is invalid in any event unless it relates to a liquidated sum and/or more than one debt. Although Bills of Costs, Points of Dispute and Points of Reply have been prepared for the period pre 7^th March 2001 (at the Defendants’ insistence) these are only required if the Defendant’s appropriation is held as valid by the Court. An appropriation which requires the Court’s indulgence, and use of the Court’s resources (ie assessment) in order to validate it, is plainly unsafe.

2.13

Appropriation can also only be valid once it is communicated to the debtor ie; the corporate Claimants (see Chitty on Contracts [21-060]). On the Defendants’ case the appropriation manoeuvre was only communicated to the debtors by letter dated 18^th June 2007. The appropriation therefore only occurred after these assessment proceedings had been commenced and Points of Dispute filed. The Defendants were on notice that the proposed appropriation was objected to before it was communicated.

2.14

It is ironic that the security for costs was, in fact, used by the Defendants to discharge outstanding invoices of DWS for the period post 7^th March 2001. Although use of the security is not definitive of the purpose of the payment it is indicative that the purported attribution is fictional and unlawful.

2.15

For all the above reasons the appropriation is invalid and must be set aside. The Court should find that there has been no appropriation in relation to the security for costs funds.

2.16

The Defendants’ alternative case is that the appropriation of the security for costs should reflect the sum claimed in the schedule for costs dated 13^th June 2001 which was before the Court when the second tranche of security (£100,000) was ordered to be paid. There is no logical rationale for this submission. Security was ordered on two occasions, in December 1999 and in June 2001 and was ordered to be paid out in March 2002. At all hearings varying schedules of costs were before the Court. None of these schedules apportioned costs between the side letter and NSLI. The payment out of security in the injunction proceedings was specifically on account of NSLI costs. These various schedules may well have been taken into account by the Judge(s) but the amounts of security ordered to be paid into and out of Court were lump sums only generally ordered on account of costs.

2.17

There is no reason (other than it suits the Defendants’ purposes) to use the schedule dated 13^th June 2001 as a basis for appropriation rather than any other schedule or, indeed, the detailed Bills of Costs which have now been prepared. Indeed, if the Schedule is used as the basis for any appropriation then such an exercise would be based on estimated costs incurred post 7^th March 2001 (including a 4 day trial) rather than the actual costs incurred which are being assessed (including a 14 day trial).

2.18

On the Defendants’ alternative case, the Court must undertake a series of complex calculations, based on an estimated schedule of costs, to quantify the costs incurred by previous solicitors and apportion costs between the side letter and NSLI in order to arrive at a sum which the Defendants may appropriate. There is no such requirement for the Court to intervene in this way. If the Defendants’ appropriation is found to be invalid then there has been no appropriation of funds. It is not necessary or proportionate for the Court to substitute its own appropriation (which cannot be communicated to the debtors) in place thereof.

2.19

If the Defendants’ appropriation is invalid, then the entirety of the security for costs remains available to be off-set against Samuel’s liability. In the absence of any appropriation and/or assessment of the costs payable by the corporate Claimants, then the security for costs should be off-set in its entirety against the quantified costs payable by Samuel.

2.20

Should the Court feel it appropriate to attribute or re-appropriate the security for costs between dates or costs incurred pre and post 7^th March 2001 the only equitable basis for such an apportionment (if Samuel’s claim does not have primacy) would be on a pro rata basis between the costs quantified in the detailed NSLI Bill of Costs – prepared pre and post 7^th March 2001 which have been apportioned between side letter and NSLI, particularly as the payment out was specifically Ordered to be on account of NSLI costs.”

Mr Fairbairn takes the preliminary point, in paragraph 37 of his skeleton, that the issue should have been raised in connection with Section 51 proceedings, saying:

“It was a factor that should have been taken into account by the court when exercising its discretion but was not raised. As a disputed factual issue the court could have been asked to make the appropriate findings. Samuel Hayek made no mention of the point and it is now too late to raise it as an issue on assessment.”

Mr Fairbairn did not pursue that point, and I think correctly so, because the authorities indicate that it is not inappropriate for such issues to be resolved at the detailed assessment stage.

In his detailed submissions, Mr Fairbairn submitted that the word “debt” can cover both liquidated and unliquidated debts, and there is nothing in the decision in Chohan v Times Newspapers Ltd [2001] 1 Costs LR 127 to contradict that. I referred the parties to the very recent Court of Appeal decision in Legal Services Commission v Rasool [2008] EWCA Civ 154, but neither party sought to rely on it.

In support of his argument Mr Fairbairn also referred to the case of Lockley v National Blood Transfusion Service [1992] 2 All ER 589, where the Court of Appeal held that a non legally aided party could set off against his legal aided opponent costs of an interlocutory order made in his favour, even though the set off would be against damages or costs which had not at that point been assessed.

He also suggested that a careful analysis of a decision of the House of Lords, in Cory Bros v Owners of the Steam Ship Mecca [1897] AC 286 supported his argument. He referred me in particular to the following extracts from the speech of Lord Macnaghten:

“Now, my Lords, there can be no doubt what the law of England is on this subject. When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he makes the payment the right of application devolves on the creditor. In 1816, when Clayton’s Case (1) was decided, there seems to have been authority for saying that the creditor was bound to make his election at once according to the rule of the civil law, or at any rate, within a reasonable time, whatever that expression in such a connection may be taken to mean. But it has long been held and it is now quite settled that the creditor has the right of election “up to the very last moment,” and he is not bound to declare his election in express terms. He may declare it by bringing an action or in any other way that makes his meaning and intention plain. Where the election is with the creditor, it is always his intention expressed or implied or presumed, and not any rigid rule of law that governs the application of the money. The presumed intention of the creditor may no doubt be gathered from a statement of account, or anything else which indicates an intention one way or the other and is communicated to the debtor, provided there are no circumstances pointing to an opposite direction. But so long as the election rests with the creditor, and he has not determined his choice, there is no room, as it seems to me, for the application of rules of law such as the rule of the civil law, reasonable as it is, that if the debts are equal the payment received is to be attributed to the debt first contracted. Now, Clayton’s Case (1) was this. Clayton had a current account with a firm of bankers. One of the firm died. Some time afterwards the bank failed. The customer’s account was kept from first to last as one unbroken account. At the date of the death of the deceased partner the customer had a large balance to his credit. Afterwards he drew out sums which in the aggregate exceeded that balance. On the other hand, moneys were paid in from time to time to his credit, and at the date of the failure the balance in his favour was rather larger than it was at the date of the death. He claimed to attribute his drawings after the death to subsequent payments in. But Sir W. Grant said, No. He distinguished the case from authorities which had been cited in favour of the claimant by saying: “They were all cases of distinct insulated debts between which a plain line of separation could be drawn; but this is the case of a banking account where all the sums paid in form one blended fund, parts of which have no longer any distinct existence; neither banker nor customer ever thinks of saying this draft is to be placed to the account of the 500/. paid in on Monday, and this other to the account of the 500/. paid in on Tuesday. There is a fund of 1000/. to draw upon, and that is enough. In such a case there is no room for any other appropriation than that which arises from the order in which the receipts and payments take place and are carried into the account. Presumably it is the sum first paid in that is first drawn out. It is the first item on the debit side of the account that is discharged or reduced by the first item on the credit side. The appropriation is made by the very act of setting the two items against each other. Upon that principle all accounts current are settled, and particularly cash accounts.”

As to the “more than one debt point”, if I can so describe it, Mr Fairbairn relied on the General of Berne decision, reported at [1998] 2 All ER 301. He submitted that that case was authority for suggesting that each item of costs, even prior to assessment, was a separate item which could amount to a debt for the purposes of appropriation.

Mr Fairbairn sought, by reference to the Insolvency Act 1986 and the Bankruptcy Rules, to show that the so called principle upon which Mr Bowden relied, derived from the Bishopsgate case [Maxwell v Bishopsgate Investment Management Ltd In Liquidation], were not the last word in this particular field, and could indeed be distinguished.

I am greatly indebted to both advocates for their clear and helpful submissions, but, at the end of the day, I have come to the unhesitating decision that Mr Bowden’s submissions should prevail.

In the first place I consider that he is right in his submission that there has to be more than one debt for appropriation to be permissible, and in this case that is not the case.

I also accept his submission that for appropriation to take place there needs to be a quantified debt, and of course, in this case, there was not such quantification prior to the alleged appropriation.

Thirdly, I accept, as I think indeed Mr Fairbairn does, that for the appropriation to be complete it has to be notified to the debtor, if it is the creditor who is exercising that appropriation.

In this case the alleged notification to the debtors was not made until after the Points of Dispute raised the issue, and in effect expressed the view that the proposed appropriation, as set out in DWS’s letter of 7 November 2005, could not be accepted by, and on behalf of, Dr Hayek.

Finally, I consider that the authorities to which I have been referred by the advocates favour the argument advanced by Mr Bowden, and Mr Fairbairn’s attempts to distinguish those cases have not been successful.

It follows from the above, that I find for the paying party in respect of the two connected, if not identical, apportionment questions put to me in the preliminary issues.