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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Ondhia v Ondhia [2012] EWCA Civ 1927 (09 October 2012) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2012/1927.html Cite as: [2012] EWCA Civ 1927

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE ROTH)

		Royal Courts of Justice Strand, London, WC2A 2LL
		9th October 2012

Lord Justice Laws:

1. This is an appeal, with permission granted by Etherton LJ on 24 January 2012, against a judgment of Roth J by which he acceded to the respondents' application for a declaration by way of summary judgment as to the true construction of clause 23 of a written contract entered into by the appellant and the respondent on 9 November 2010. The contract, which I will call the "Settlement", was made in order to resolve a long-running dispute between the parties, who are brothers. The dispute had culminated in proceedings in the Chancery Division, which were compromised by the Settlement. The dispute concerned the assets of a business which operated retail and wholesale pharmacies and pharmaceutical product licences. The brothers, to whom I will refer if I may (as did the judge) by their family names, Chandra, the respondent in this court, claimant in the action, and Yashu, the appellant, defendant in the action, have built up the business since about 1979. The assets were held through a number of companies, one of which was Amulchem Limited, which sought to be added as a defendant in this action.
2. The brothers fell out over their respective interests in the business. In 2004, after their quarrel began, an agreement was reached with National Co-operative Chemists Limited for the latter to purchase five of the pharmacies, two of them held by Amulchem Limited. Chandra and Yashu jointly instructed a firm of solicitors, Mills & Reeve, to proceed with exchange and completion of the sale "notwithstanding the fact that the true ownership of the goodwill and assets is not agreed between us". Those words appeared in the Letter of Instruction to the solicitors dated 23 April 2004. The letter continued:

"We authorise Mills & Reeve to keep the net sale proceeds (after deduction of legal costs and disbursements) on an interest earning client account until such time as we give joint instructions concerning the release of monies or until such time as the matter has been resolved and you can rely upon a court order or an arbitrator's award."

The sale was duly completed. The proceeds were held in Mills & Reeve's general client account pursuant to the Letter of Authority of 23 April 2004.

3. The dispute between the brothers escalated, and in April 2009 Yashu commenced proceedings in the Chancery Division seeking a determination of his interests in the various businesses and assets and claiming an account. Chandra lodged a counter-claim. The case was due to come on for trial at the beginning of November 2010, but just before the trial, on 9 November, the Settlement was entered into. Its opening recital reads:

"The Parties wish to settle all disputes between them to the date thereof (including but not limited to the disputes in the claim, counterclaim and Part 20 claim in [then there is the reference to the High Court proceedings set out] and to separate their respective interests in various assets."

The Settlement made various provisions which were no doubt intended, as the judge observed and that recital indicates, to effect a clean break between the brothers.

4. The issues in this appeal concern clause 23 which reads (substituting the family names of the brothers):

"[Yashu and Chandra] forthwith will give instructions jointly in writing to Mills & Reeve that the monies held to their order in an escrow account are to be paid out as to £100,000 to [Yashu] and as to the balance to [Chandra]."

The "escrow account" there referred to means the account mentioned in the Letter of Authority of 23 April 2004. So much is common ground. It was not in fact an escrow account. That term came from the pleading in the Chancery action. The account was in fact, as I have indicated, the general client account of the solicitors. It is to be noted that this was not what is called a "designated client account", a form of account separately provided for in the Solicitors Accounts Rules.

5. The judge described the events which happened on 9 November 2010 as follows at paragraph 13:

"On the day the Settlement was signed Chandra's solicitors wrote to Mills & Reeve enclosing their client's authority to pay out £100,000 to Yashu and the balance to him. On 22 November, and after some exchanges regarding a claim on account of Amulchem..., Yashu wrote a letter in similar terms to Mills & Reeve stating:

'In relation to the monies held to our order in an escrow account with yourselves, please can you arrange for the following.

(1) £100,000 to be paid to me (I can collect from your offices in Norwich a cheque made payable to me for this sum. Please let me know when this is ready for collection).

(2) The balance of the funds in the above account (after accounting for the sums above) be paid to Chandra Ondhia.'"

6. As at 9 November 2010 there was a sum of £502,659 in Mills & Reeve's general account, entered in their books as being held for Chandra and Yashu. The judge found (paragraph 14), and it is not for present purposes disputed, that the brothers assumed that this figure included all sums that might be due by way of interest and that there was nothing else to come from Mills & Reeve. The judge referred (paragraph 15) to a letter from Chandra's solicitors to Yashu's solicitors dated 1 November 2010, written in the final stage of negotiations which led to the Settlement. Under the heading "M&R escrow account" it stated:

"M&R escrow account: Yashu, £100,000. Chandra, the balance (approx. £400,000)."

Yashu's solicitors replied by email the same day, saying "Agreed".

7. However, the distribution of the £502,000 was not the limit of Mills & Reeve's obligations. Rule 24(2) of the Solicitors' Accounts Rules provides:

"When a solicitor hold money in a general client account for a client...the solicitor must account to the client for a sum in lieu of interest calculated in accordance with Rule 25."

Rule 25 makes provision for the calculation of a fair sum in lieu of interest.

8. The £502,000 apparently included some money by way of interest. However shortly after the conclusion of the Settlement, Mills & Reeve calculated a figure of some £373,000 pursuant to rule 25 in respect of further interest over a timespan of six years or more relating to a large payment received from the Co-op. It is this sum which forms the subject of the present claim. The £373,000 was not held in the general client account at the time of the Settlement, though such a sum was paid in shortly afterwards. The interest actually earned on money held from time to time in a solicitor's client account is paid by the solicitor's bank and then credited to their office account (see Accounts Rules, paragraph 13(xi)(b)). Such money belongs to the solicitors, who may do with it as they choose, for their obligation is not to pay over to the client or clients the interest actually earned on sums held to his or their order in their client account; the solicitor's obligation is simply to fulfil Rules 24 and 25 of the Accounts Rules.
9. I should note that Amulchem assert a claim over some £185,000 out of the £373,000, which they sought to make good by their application to be joined in the action, an application to which the judge acceded, and as I understand it their claim has been accommodated or dealt with and there is no further dispute relating to it.
10. In these proceedings Chandra sought a declaration, in effect, that on its true construction the expression in clause 23 of the Settlement "the monies held to their order in the escrow account" included the sum of £373,000 calculated by the solicitors under Rule 25. Yashu for his part contended that it did not. The judge agreed with Chandra and gave summary judgment in his favour accordingly. The judge cited well-known authority on the construction of contracts, Chartbrook Ltd v Permission Homes Ltd [2009] 1 AC 1101 and Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2011] 1 AC 662. He said this at paragraph 18 of the judgment:

"Here, the starting point is the language of clause 23 on its ordinary meaning. As I said, it is not suggested by either side that anything turns on the absence of a discrete escrow account. But for Yashu it was submitted that 'monies held to their order' referred only to the £502,000 which was identified in Mills & Reeve's ledger and does not cover the sum [in] lieu of interest pursuant to the Solicitors Accounts Rules that was still to be calculated. I unhesitatingly reject that submission. The Settlement agreement has to be construed as a whole. It was clearly intended, as the recital expressly states, to achieve a full Settlement of all outstanding issues. If Mills & Reeve had opened a separate designated client account in which the monies were held and in which interest had accrued, the language of clause 23 would clearly have covered everything in that account irrespective of the amount. The fact that instead Mills & Reeve chose to hold the money in their general client account, with the monies referable to Chandra and Yashu recorded in Mills & Reeve's books, cannot alter the parties' clear intention in this clause, nor does the fact that instead of the amount for interest being recorded monthly or annually in Mills & Reeve's ledger it fell to be calculated separately as a payment in lieu whenever the client sought withdrawal of the fund. Mills & Reeve had an absolute obligation to pay that additional money in lieu of interest and, in my judgment, it is fanciful to suggest that therefore it is not monies held to Chandra and Yashu's order, albeit that the amount had to be ascertained before payment could be made."

Accordingly the judge considered (paragraph 19) that clause 23 in its ordinary meaning covered the £373,000. So far as Yashu contended for a meaning other than the ordinary meaning, the judge rejected it (paragraph 25).

11. In my judgment, with great respect, the judge fell into error. (1) The sum of £373,000 calculated by Mills & Reeve under Rule 25 was no part of any monies held to the brothers' order within the meaning of clause 23 of the Settlement. The expression in the clause "monies held to their order in an escrow account", as I have said, refers and can only refer to sums credited to the client account pursuant to the Letter of Authority dated 23 April 2004 and standing in that account to the order of the brothers as at 9 November 2010. The expression "monies held to their order" is, as Ms Smith QC submitted, a term of art; it is money held by the solicitor on a bare trust for the client. (2) By contrast, the sum of £373,000, once it had been calculated, was a statutory debt due to the brothers from the solicitor. No question of a trust enters into the matter. This sum was not part of any fund held in any account on the day the Settlement was entered into. Ms Hilliard QC for the respondent suggests that clause 23 should be read as if it stated:

"Yashu and Chandra forthwith will give instructions jointly in writing to Mills & Reeve that the monies held to their order in an escrow account [then these words added] or would be held to their order when Mills & Reeve discharge their obligation to make payment in lieu of interest are to be paid out as to £100,000 to Yashu and as to the balance to Chandra."

I see no warrant for any such reading. It is not within the purview of the reasoning in Chartbrook, to which I have referred in passing, nor is there any basis for implying a term to that effect. (3) The judge was clearly impressed (paragraph 18) by the fact that the Settlement was "intended to achieve a full settlement of all outstanding issues". This was undoubtedly the case, but the solicitors' debt of £373,000, as it was crystallised by their calculation, was an asset or a potential asset of which they were ignorant, and the Settlement on a fair reading did not cover it notwithstanding the parties' intention that it cover everything.

12. For those reasons I consider that the judge's construction of clause 23 so as, in effect, to include the Rule 25 sum was erroneous. No question of rectification advanced as an alternative recourse on behalf of Yashu therefore arises. A third argument based on the doctrine of estoppel by convention was refused permission to appeal by Etherton LJ, and Ms Smith does not seek to renew it.
13. Ms Hilliard takes a jurisdiction point. She submitted that this court has no power to declare the construction of clause 23 in a sense adverse to her client's case, for that would be to grant, as it were, a reverse summary judgment in circumstances where the defendant, Yashu, had made no cross-application for such relief. The point could, with respect, hardly be more arid. Even if we are entirely clear as to the meaning of the clause, Ms Hilliard would have us decline to rule to that effect, but instead let the matter go for trial. I can think of nothing more disproportionate or wasteful.
14. We are, however, not so constrained. In ICI Chemicals and Polymers Limited v TTE Training Limited [2007] EWCA Civ 725, Moore-Bick LJ said this at paragraph 12:

"In my view the judge should have followed his original instinct. It is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better."

Moore-Bick LJ was there speaking of the position arising in the first-instance court, but it is clear that this court has all the powers enjoyed by the court of first instance. Jackson LJ referred in the course of argument to CPR Rules 3.1(2)(l) and 3.3(1), which I need not with respect set out.

15. In these circumstances I would for my part allow the appeal, set aside the declaration granted by the learned judge and grant an appropriate declaration as to the true meaning of clause 23 of the Settlement. We have not heard argument as to the precise terms of such a declaration and will do so if necessary, and of course if my Lords are in agreement. It may be that no more is required than a declaration that the clause does not cover or include the sum paid or to be paid by Messrs Mills & Reeve in lieu of interest under Rule 25.
16. A further question arises: that is as to the resolution of what becomes an outstanding issue, namely the destiny of the £373,000. For my part, I would simply order that the matter be remitted to the Chancery Division in the anticipation that further directions may be given there as to this outstanding issue. I should make it clear that in my judgment it is very far from obvious that, had the parties known of the Rule 25 debt or expectation, they would necessarily have agreed that the resulting sum should be divided in the same manner as the £502,000. It may be that that will be the right outcome, but it seems to me, though I am in no position to make a finding, it is probable that had this dimension been in the minds of the parties, it would have been at the very least the subject of further negotiations.
17. For my part, then, I would make the order as I have indicated for the reasons I have given.

Lord Justice Lloyd:

18. I agree that the appeal should be allowed on the basis described by Laws LJ. The force of Ms Hilliard's submissions, as indeed that of the judge's judgment, lay principally in the tension between the recital to the Settlement agreement, which records the intention, an entirely understandable and commendable one, to settle all disputes between the parties that they are aware of, on the one hand, and on the other hand the situation resulting from the conclusion to which Laws LJ has come, and with which I agree, that the Settlement agreement does not, or at any rate does not necessarily, resolve all the issues between the parties, because it leaves outstanding this one asset, namely the sum payable in lieu of interest by Mills & Reeve.
19. But, in agreement with Laws LJ, it seems to me that that factor was given too much weight, with respect, by the learned judge and that it is impossible to construe clause 23, given the words used, as including money which was not at the time of the agreement held to the order of the brothers in any account by Mills & Reeve. To overcome that problem, Ms Hilliard submitted in the alternative that a term could and should be implied to extend the ambit of clause 23 to what I might call "the Rule 25 sum" on the basis that the officious bystander, if asked, would have said of course it is covered by clause 23. The difficulty about that, apart from anything else, is that it is plain that its existence was not known to the parties, and accordingly it seems to me that that addition to the words of clause 23 satisfies none of the tests established on a conventional basis for the implication of a term into a contract. Equally, I agree that it is impossible as a matter of pure construction to read into clause 23 the words submitted to us by Ms Hilliard or any equivalent words to make it clear that the phrase "monies held to their order in an escrow account" do not merely mean monies held at that date by the solicitors to the order of the brothers, but also money which might fall to be payable to the brothers or to be added to the account in pursuance of Rule 25 of the Solicitors Accounts Rules.
20. For those reasons, and in agreement with Laws LJ on all the points that he has covered, it seems to me that the appeal must be allowed.

Lord Justice Jackson:

21. I also agree, and only wish to add a few words on the issue of jurisdiction. Rule 3.1 of the Civil Procedure Rules provides:

"(1) The list of powers in this rule is in addition to any powers given to the court by any other rule or practice direction or by any other enactment or any powers it may otherwise have.

(2) Except where these Rules provide otherwise, the court may —

[...]

(l) dismiss or give judgment on a claim after a decision on a preliminary issue;

(m) take any other step or make any other order for the purpose of managing the case and furthering the overriding objective."

Rule 3.3 of the Civil Procedure Rules provides:

"(1) Except where a rule or some other enactment provides otherwise, the court may exercise its powers on an application or of its own initiative.

[...]

(4) The court may make an order of its own initiative without hearing the parties or giving them an opportunity to make representations."

These are very wide powers, only to be exercised by the court for good reason, and on proper grounds.

22. Having said that, the court clearly under the Rules has the power to resolve an issue in proceedings even if neither party has served an application notice asking the court to determine that issue. It will only rarely be both appropriate and fair for the court to take this course. Rule 52.10 of the Civil Procedure Rules provides:

"(1) In relation to an appeal the appeal court has all the powers of the lower court."

23. In the present case, in order to determine Yashu's appeal it is necessary for this court to construe clause 23 of the Settlement Agreement. We need to take that course in order to determine whether or not the judge arrived at the correct decision. Ms Smith for Yashu asks this court to set aside the order of the court below because, she says, the judge erred in the construction of clause 23. In the event that Ms Smith succeeds in that argument, she asks us to go on and grant a declaration that the proper construction of clause 23 is in accordance with her submissions. Ms Hilliard, for the claimant respondent, submits that this court should not grant any such declaration. She points out that there was in the court below no cross-application for summary judgment seeking a specific declaration as to the construction of clause 23. Therefore, says Ms Hilliard, the proper course is for this court to remit the case to the Chancery Division so that a judge at first instance can determine the construction issue.
24. I am not persuaded by this argument. We have before us all the necessary evidence and argument to enable this court to construe clause 23. Indeed, this material has been placed before the court in order to enable it to determine the appeal. It would be a huge waste of costs and resources if we remit this case to a lower court in order to determine a question to which the answer is clear. I readily accept that there was no cross-application by the defendant to the court below to grant a declaration as to the correct construction of clause 23. Despite that circumstance, the judge in this case had the power to grant such a declaration under the rules which I have previously read out. This court has the same power as the court below.
25. In the present case, it is both fair and appropriate for this court to exercise that power. The court is under a duty to promote the overriding objective set out in Part 1 of the Civil Procedure Rules. That part includes the following provisions:

"1.1(1) These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly.

(2) Dealing with a case justly includes, so far as is practicable—

[...]

(b) saving expense;

[...]

(d) ensuring that it is dealt with expeditiously and fairly.

[...]

1.2 The court must seek to give effect to the overriding objective when it—

(a) exercises any power given to it by the Rules; or

(b) interprets any rule,

subject to rules 76.2, 79.2 and 80.2."

26. In my view, having regard to Part 1 of the Civil Procedure Rules, it is clear that, in the circumstances of this case, the Court of Appeal should resolve the construction issue now. I entirely agree with the analysis of that provision set out in the judgments of Laws and Lloyd LJJ, and I consider that this court has the necessary jurisdiction.
27. Accordingly, such a declaration should be granted.

Order: Application granted. Appeal allowed.