Schwarzschild v Harrods Ltd

This litigation commenced by the issue of proceedings on 21 September 2006. The Claimant is Ms Helga Schwarzschild, who alleges against Harrods Limited the tort of conversion in accordance with s.2(2) of the Torts (Interference with Goods) Act 1977. The claim relates to certain personal items (principally jewellery) which she inherited and which for many years remained in a safe deposit box on the Defendant’s premises. The Claimant’s affairs are now conducted by her accountant, Ms Kay Linnell, pursuant to a power of attorney.

The proceedings were served on 12 January 2007 and were met, on 30 April 2007, with an application that the claim be struck out, or alternatively that summary judgment be granted in the Defendant’s favour, on the basis that it was time-barred. Following a hearing on 18 June of last year, Master Yoxall handed down a reserved judgment on 9 October and granted the Defendant summary judgment. That outcome is now challenged by the Claimant by way of appeal, for which I granted permission on 21 December.

It is necessary to consider the factual background in a little detail. In 1955 the Claimant’s mother, Lea Schwarzschild, entered into an agreement with the Defendant for the rental of a safe deposit box. It was one of the terms of the contract that the annual rent should be payable in advance; in the event that it remained unpaid for five years, the Defendant would be entitled to open the deposit box and sell any contents, with a view to clearing the outstanding rent and any sale charges. The balance would be payable to the owner.

On 16 October 1970 the Claimant’s mother died. In accordance with her will, dated 12 June 1967, most of her jewellery was left to the Claimant, although some items were bequeathed to her brother Charles. When he died on 26 April 1988, his assets were left to the Claimant in accordance with his will of 3 October 1986. Thus the Claimant became entitled to all of the property contained in the safe deposit box.

Meanwhile, it seems that rental payments had ceased in about 1983. It is agreed between the parties that on 9 August 1988 the Defendant opened the box and removed the metal container stored inside. Once a list had been made of the contents (now before the Court in evidence) the items were replaced in the container, which the Defendant continued to store. It was opened again on about 8 August 1994, when a further inspection took place and another list was made. At that stage, it is said on the Defendant’s behalf that the items were mixed with the contents of other safe deposit boxes (in respect of which rental payments were owing) and stored with them.

It is part of the Claimant’s pleaded case, in paragraph 4 of the Reply, although not relied upon apparently as being an ingredient in her cause of action, that when the container was opened, in August 1994, “Mr Mohammed Al Fayed and his wife, Heini Al Fayed, were present. Mrs Al Fayed made a selection of items from the container for her own use which Mr Al Fayed directed to be sent up to his office”. The assertion appears to have originated with a disenchanted employee called Mr Loftus. At the material time Mr Al Fayed was the chairman of the Defendant company, although his wife was not an officer or employee. I shall need in due course to consider what bearing (if any) these events have upon the issues now before me.

By letter dated 31 August 1995 a private investigator acting on the Claimant’s behalf (Mr Nathan Dony) made enquiries of the Defendant as to the contents of the safe deposit box. There was sent in reply a letter of 5 September 1995, of which the contents have subsequently been admitted to be inaccurate (and indeed, at one stage, “dishonest”). While it was accepted that the Defendant had rented out a safe deposit box, it was also suggested that it had no idea as to the whereabouts of the contents. In truth, the Defendant was aware that the box had been opened in 1988 and again in 1994 and that the items had been mixed with other property. So much is clear from the evidence of Mr Thomas Coates, on the Defendant’s behalf, in his witness statements of 30 April and 11 June 2007.

Time went by and no further information was supplied. Against that background, there was a further letter from Mr Dony dated 13 December 1997, the contents of which are rather oddly worded and have led to disagreement between the parties as to its legal significance. The Master upheld the Defendant’s submissions in this regard and concluded that it contained an unequivocal demand for the delivery up of the jewellery. It is thus necessary to set out the relevant wording:

“I now make a formal demand for an immediate commencement of the process to return my client’s jewellery and you must now indicate in the clearest possible terms without delay, obfuscation or economy of truth whether:-

(i)

You have my client’s jewellery.

(ii)

You are prepared to let my client have it back.

(iii)

You will abide by my conditions as to its hand-over.

(iv)

You can indicate the time frame in which you will carry out the above points, if at all.

I must caution you that failure to deal with my letter and to reply in a meaningful fashion, will obviously be regarded in the only possible way, as intent to deprive permanently, i.e. theft.”

The letter had set out something of the background and contained the suggestion that Mr Dony had hitherto been given “interminable run-arounds” by a Ms Louisa Michelson. The letter has to be construed, therefore, against that background and that of the earlier exchange of correspondence.

What Mr Dony meant by his “conditions” was also set out. He was stipulating that the Claimant and he, together with a legal representative and an independent jeweller of their choice, would attend at Harrods or some other place of the Defendant’s choosing. He added:

“We do not simply want a package hand delivered or posted to anyone. As to the issue of any outstanding fee or rental arrears, if you let me know the amount in advance I will bring a Bankers Draft or cash.

You may think that I am being pre-emptive as to whether the jewellery exists or is in your hands.”

It is part of the Claimant’s case that this letter did not contain, when read in its proper context, an unequivocal demand for delivery up of her jewellery, but merely a demand for the “commencement of the process” to return it. It is pointed out that Mr Dony apparently had no idea what it was, specifically, that he was seeking, and the letter itself gave no particulars as to the individual items.

Even if, as the Master concluded, Mr Dony’s letter of 13 December 1997 should be construed as an unequivocal demand, other ingredients would be required to establish a cause of action in conversion dating back to the relevant time (i.e. more than six years prior to the issue of the claim form). It would be necessary (so the Claimant submits) to demonstrate that there had also been an unequivocal refusal by the Defendant to return the property demanded. Although it is accepted that the property was not in fact returned at any stage, reliance is placed on the absence of any response to Mr Dony’s letter which could be characterised as a refusal. There were three letters from the Defendant’s solicitors, dated respectively 18 December 1997, 19 January 1998 and 21 January 1998, which are said by the Claimant to be no more than requests for further information.

After further delay, there took place a meeting on 23 September 1998, which is said on the Claimant’s behalf to have been without prejudice, at which an inspection took place of various mixed items then in the Defendant’s possession. Those present included the Claimant and her accountant, Ms Kay Linnell, and, on the other side, representatives of the Defendant and its solicitors. Because it is suggested that no privilege has been waived in respect of the meeting, the Claimant contends that the Master was wrong to have received any evidence as to what took place on that occasion.

There is, in any event, a dispute as to what actually took place. The Master was not therefore in a position to come to a definitive conclusion about it. Yet he apparently attached significance to it in at least two respects. He seems, first, to have decided that because of the meeting there was no need any longer for it to be demonstrated that the Defendant had responded to Mr Dony’s demand with an unequivocal refusal. Secondly, he appears to have inferred that, at or after the meeting, the Claimant acquired knowledge that the jewellery had been lost (or at least some part of it) and that a cause of action in conversion had come about. He regarded that as important for limitation purposes. It is the Defendant’s case that time began to run from that point at the latest.

The Claimant, on the other hand, relies upon demands made within the six-year period; that is to say, by a solicitor’s letter of 4 September 2001, demanding delivery up of the items identified in the letter itself, and a letter from a different solicitor dated 13 September 2006 demanding delivery up of all the jewellery identified in the 1988 list.

The Claimant’s appeal is founded upon a number of criticisms of the Master’s judgment. One line of attack is that he, in effect, “jumped the gun” by making findings of fact in respect of contested matters without disclosure of documents or cross-examination of witnesses. It is said that he treated the application before him as though it were a preliminary issue on limitation – albeit without addressing the evidence which the parties would have wished to introduce for such a purpose. To this, the Defendant responded initially that the Master was merely proceeding on the basis of certain factual assumptions, consistent with the Claimant’s pleaded case, and that he arrived at the conclusion that she was bound to fail for reasons of limitation even on her own pleaded case. During the hearing, the rules applied by the Master were expressed on the Defendant’s behalf rather more broadly. It was said that he proceeded not only on the basis of facts assumed in the Claimant’s favour, but also of facts which were either agreed or not in contention. It now becomes necessary, therefore, to identify the parties’ respective claims and the legal background against which they are made.

The Claimant’s case is that the Defendant company was the bailee of the property in question and that it was in breach of the duty owed to take care of it, and to deliver it up upon demand. She does not rely upon any contractual claim. On the other hand, the Defendant’s case appears to be based on the proposition that there had been a demand for delivery up of the jewellery and that it was “not met” more than six years prior to the commencement of the action (i.e. prior to September 2000). The “demand” relied upon is Mr Dony’s letter of 13 December 1997, to which I have already referred. Mr Croxford QC, for the Defendant, does not accept the proposition that it is necessary for his client to demonstrate that there was an unequivocal “refusal”. This would merely be one evidential route by which to establish statutory conversion. In some circumstances, he argues, it would be sufficient to show that a defendant merely “neglected” to comply with a demand.

It is the Claimant’s case that the Master in his judgment seems to have misunderstood the nature of her claim and, in particular, the nature of the “conversion” on which she relies. In order to form a conclusion about the merits of that argument, it is appropriate to address the legal background to the 1977 Act.

Prior to that time, claims relating to the wrongful interference with goods were often founded upon two different causes of action. One was the tort of conversion, which consisted, in general terms, of wrongful interference with a claimant’s right of possession or ownership with regard to a chattel. The other cause of action was detinue, which consisted in the wrongful refusal to deliver up a chattel upon the claimant’s demand. Not surprisingly, there was considerable overlap between the elements of these torts and the circumstances in which it might be appropriate to rely upon them. There was, however, one clear example where only detinue was applicable; that is to say, where a bailee had, in breach of duty, permitted goods to be lost or destroyed. The tort of conversion, as understood at that time, would have no application in such circumstances.

Parliament abolished the tort of detinue by s.2(1) of the 1977 Act, but it was necessary to make provision for the circumstances I have just identified, where a bailee has wrongfully allowed the goods in his care to be lost or destroyed. That provision was made by the legislature in s.2(2) of the Act in these terms:

“An action lies in conversion for loss or destruction of goods which a bailee has allowed to happen in breach of his duty to his bailor (that is to say, it lies in a case which is not otherwise conversion but would have been detinue before detinue was abolished).”

It thus becomes clear that, following the enactment, “conversion” has to be defined and understood somewhat differently.

In this case, the Claimant relies upon the statutory tort of conversion, as it is now understood, but the elements of her cause of action correspond to those comprising detinue at common law. It is thus necessary, she submits, to establish both that the goods have been demanded from the Defendant and that there has been an unequivocal refusal. The problem about mere inaction is that it is often likely to be equivocal.

In this context, particular reliance was placed by the Claimant upon Clayton v. Le Roy [1911] 2 QB 1031, 1048, where Fletcher Moulton LJ explained:

“I come, therefore, at once to the other point; was there a cause of action in detinue at the date of the writ? The question as to the exact moment at which a cause of action arises may seem a very technical one, but in my opinion it is a point of substance in this case, and for the following reason. In an action of detinue, as in other actions of tort, the Statute of Limitations runs from the time when the cause of action arose; consequently, if nothing has happened to give rise to an action of detinue, there is no period of time which can operate to extinguish the title of the real owner. He may have been deprived of control over his chattel for a hundred years, but it still remains his property, and an action will lie to recover it, unless there have been a demand and a refusal which would be sufficient to give rise to a cause of action. If there is a demand by the owner from the person in possession of the chattel and a refusal on the part of the latter to give it up, then in six years the remedy of the owner is barred; it is therefore very important for the owner that the law should lay down the principle that some clear act of that kind is required to constitute a cause of action in detinue. It would be mulcting the real owner of his rights, if the law did not thus insist upon some definite act or deliberate withholding as being necessary preliminaries to the arising of this cause of action. If something less were sufficient, the Statute of Limitations might commence to run against the true owner without his knowledge.”

It is true that there are passing references in some authorities to “neglect” or “failure” (as alternatives to “refusal”): see e.g. Cullen Allen & Co v. Barclay (1881) 10 LR Ir 224, 233 (per FitzGibbon LJ); Alicia Hosiery Ltd v. Brown Shipley & Co Ltd [1970] 1 QB 195, 207 (Donaldson J). Yet these are not easy to reconcile with the much fuller reasoning of Fletcher Moulton LJ cited above. The answer may be to focus on the absence of equivocation. Inaction or neglect may perhaps in some circumstances be interpreted as an unequivocal response, but that is unlikely to be at all common. At all events, it is right that I should be guided by the Clayton decision in the Court of Appeal which, as it happens, was not cited to Donaldson J in Alicia Hosiery.

It is not an effective answer for a bailee merely to respond that the relevant goods have ceased to be in his possession: see e.g. Wilkinson v. Verity (1871) LR 6 CP 206, 211. In such circumstances, the bailee would have been prima facie liable in detinue: see e.g. the observations of Ormerod LJ in Houghland v. R R Low (Luxury Coaches) Limited [1962] 1 QB 694, 698.

A bailee would have to overcome his prima facie liability by demonstrating that the items had left his possession without negligence on his part: ibid at 699.

It is the Claimant’s case that there was neither an unequivocal demand nor an unequivocal refusal. Indeed, although the Master found that Mr Dony’s letter of 13 December 1997 represented an unequivocal demand, at no point in his judgment was an unequivocal refusal identified, whether before the critical date for limitation purposes or otherwise. Since one of the essential elements of the cause of action relied upon would appear, therefore, to be missing, it is important to establish on what basis the Master concluded that a limitation defence was bound to succeed so as to justify the granting of summary judgment.

One line of reasoning seems to have been that, at or shortly after the meeting on 23 September 1998, the Claimant became aware that the jewellery had gone missing and that time would begin to run from that point. There are a number of flaws relied upon by the Claimant in this argument. First, it is said that the Master should not have admitted evidence about what took place at that meeting because it was “without prejudice”; or rather, for present purposes, he could not have come to such a conclusion while one party was maintaining that the privilege applied. That is a matter which should have been left to trial to resolve.

Secondly, leaving aside that primary argument, the version of the meeting given in evidence on behalf of the Defendant is not accepted by the Claimant, and it would be necessary to resolve that conflict also at the conclusion of a trial.

Thirdly, even assuming that the relevant items had gone missing and that the Claimant acquired knowledge of that in or about September 1998, those propositions by themselves would not constitute the ingredients for the pleaded cause of action. Statutory conversion, corresponding to the common law tort of detinue, requires a demand for the goods to be returned and an unequivocal refusal, for the reasons identified by Fletcher Moulton LJ in the passage cited above.

Mr Croxford made the suggestion, after reflecting overnight, that it was possible to argue that a solicitor’s letter of 22 May 1998 demonstrated that the Claimant at that stage realised that the “demand” contained in the Dony letter of 13 December 1997 had been refused. That does not seem to have played a part in the Master’s reasoning; nor does it seem to me in itself to justify summary judgment. He expressly held that it did not in itself constitute “a valid demand”. Yet its contents would rather suggest that neither she nor her advisers had believed there was a cause of action already in existence. It was calling either for delivery to the solicitor’s offices or “a full and frank explanation as to what has become of the items”.

In the light of my conclusion, it is strictly not necessary for me to determine the question whether Mr Dony’s letter constituted an unequivocal demand. It is right, however, for me to state my conclusion in the light of the arguments addressed to me. It seems to me at least equivocal, since it is inviting comment on a proposed procedure and inviting the recipient “to reply in a meaningful fashion”. Nor is it specific as to the property being sought. It was not, for example, possible at that stage even to define the items compendiously, by reference to “the contents of the box”, since they had been removed and mixed with other property more than three years before.

An alternative line of reasoning emerging from the Master’s judgment is based upon the events said to have occurred in or about August 1994, which are described by Mr Isaacs QC on the Claimant’s behalf as simply “a red herring”. When the safe deposit box was opened and the contents inspected at that stage, there is evidence which suggests that the chairman of the Defendant company and his wife looked through them, and that she selected some items (but only some) “for personal use”. The Claimant has very little knowledge about these matters, and certainly does not rely upon them as giving rise to a cause of action. Nor was it the Defendant’s case that the taking of these items (whatever they were) was accompanied by an intention permanently to deprive the owner or was in any other way wrongful. It is necessary to remember that the burden lay upon the Defendant to establish clearly that a cause of action had arisen before 22 September 2000. Yet the Master seems independently to have concluded that the acts of the chairman and/or his wife constituted the tort of “conversion” (but in the sense connoted by that term prior to the enactment of the 1977 statute – rather than by statutory conversion). He found that there had been a “wrongful taking”. Furthermore, without any investigation (such as would take place at a trial), he decided that those acts gave rise to a cause of action against the Defendant company itself. (“The Defendant permitted the taking and/or was thus responsible for the loss of the jewellery”.) That is in my judgment questionable, to say the least, and not fit for summary determination.

It is true that there is brief reference to these happenings in paragraph 4 of the Claimant’s Reply, as I have said, but only by way of responding to the narrative description pleaded on the Defendant’s behalf of the opening of the box in 1994. No such allegation is made in the Particulars of Claim; nor would it be possible to construe the passing reference in the Reply as intended to constitute part of the claim in statutory conversion. It might be thought to be an immaterial averment. Be that as it may, it is quite apparent that the Claimant’s only case is founded upon demands made after September 2000 and a refusal or failure to return the property thereafter. The involvement of Mr and Mrs Al Fayed, therefore, is indeed no more than a “red herring” and should have played no part in the Master’s conclusions on limitation and summary judgment.

Another argument which appears to have found favour with the Master related to certain newspaper cuttings from ten years ago, in which reference was made to the possibility of the Claimant suing the Defendant for return of her jewellery. This again is said to show knowledge on her part which would go to support a defence of limitation. The Claimant does not accept, on the other hand, that these newspaper comments came from her or that they reveal any relevant knowledge on her part. It is by no means appropriate on a summary judgment application to draw the inference that the Claimant must have been a source for any of these allegations. It would appear from the articles themselves that there were other people contributing (for example, Mr Loftus and one or more police officers). What is more, the accuracy of the articles is not to be assumed. The Sunday Times, for example, was certainly wrong on one matter, namely in suggesting a “pending civil action” for recovery of the jewellery.

In any event, it is necessary to return yet again to the basic principle that the cause of action relied upon consists in a demand having been made and met by an unequivocal refusal. The newspaper articles, even if accepted as having emanated from the Claimant, would provide no support for these basic ingredients.

I have come to the conclusion that there was no sufficient basis for the Master to conclude that a limitation defence was bound to succeed. It cannot be said to be clear at this stage that a cause of action arose in 1994 or in 1998. According to CPR Part 24, it is right to ask whether the Claimant has a real (as opposed to fanciful) prospect of resisting the limitation defence on the evidence as it stands. In my view the answer is in the affirmative.

Since it is not possible to find an established cause of action in either of the years contended for, it is probably unnecessary to resolve the arguments addressed to me on s.3 of the Limitation Act 1980. It is in the following terms:

“Time limit in case of successive conversions and extinction of title of owner of converted goods

(1)

Where any cause of action in respect of the conversion of a chattel has accrued to any person and, before he recovers possession of the chattel, a further conversion takes place, no action shall be brought in respect of the further conversion after the expiration of six years from the accrual of the cause of action in respect of the original conversion.

(2)

Where any such cause of action has accrued to any person and the period prescribed for bringing that action has expired and he has not during that period recovered possession of the chattel, the title of that person to the chattel shall be extinguished.”

The principal bone of contention at the bar was whether the legislature should be taken as having intended to refer to “conversion” in the broader sense connoted by the 1977 Act, or whether it rather intended to hark back to the narrower common law definition. I consider it right to assume that the draftsman would have known about the changes in 1977 and used the term accordingly. Thus, if there had been established a common law conversion (in say 1994) or a statutory conversion (in say 1998), outside the limitation period, the Claimant would not be able to rely on a subsequent conversion of either kind. But, in the result, it makes no difference.

Reference was also made to s.4 of the Limitation Act, which provides a special time limit in cases of theft. This might have become relevant if the Master had been correct in his conclusion (which I regard as unsustainable) that the Defendant converted the property, or some of it, in 1994 through the acts of Mr and/or Mrs Al Fayed. It would be difficult to interpret such a finding as consistent with honesty, but I have already made it clear that the written evidence before the Master would not justify any such conclusion.

For all these reasons, I would allow the appeal and set aside the order for summary judgment.