OBG LTD. AND OTHERS v. THE UNITED KINGDOM

FOURTH SECTION

DECISION

AS TO THE ADMISSIBILITY OF

Application no. 48407/07
by OBG Ltd and Others
against the United Kingdom

The European Court of Human Rights (Fourth Section), sitting on 29 November 2011 as a Chamber composed of:

Lech Garlicki, President,
David Thór Björgvinsson,
Nicolas Bratza,
Päivi Hirvelä,
George Nicolaou,
Ledi Bianku,
Vincent A. De Gaetano, judges,
and Lawrence Early, Section Registrar,

Having regard to the above application lodged on 30 October 2007,

Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicants,

Having deliberated, decides as follows:

THE FACTS

1. The first applicant, OBG Limited, is a limited company registered in England. The second applicant, OBG (Plant and Transport Hire) Limited, is also a limited company registered in England. They are companies in liquidation. They are referred to throughout as “OBG”.

2. The third applicant, Ronald Robinson, is a British national who was born in 1946 and lives in Manchester. The fourth applicant, Ric Traynor, is a British national who was born in 1959 and lives in Manchester. The third and fourth applicants were appointed as liquidators of the first and second applicants in 1992.

3. The four applicants are represented before the Court by Mr J Alderton, a lawyer practising in Leeds with Hammonds LLP, assisted by Mr J. Randall QC and Mr M. Brown, counsel.

4. The United Kingdom Government (“the Government”) were represented by their Agents, Ms H. Upton and Ms J. Neenan of the Foreign and Commonwealth Office.

A. The circumstances of the case

1. Debentures and administrative receivership

5. In English law, a debenture is a document creating or acknowledging the terms of a loan. It may be secured by a charge, which is an interest in a company’s property that is created in favour of a creditor. One type of charge is a “floating” charge, which does not attach to any specific assets.

6. In English company law, administrative receivership is the process by which administrative receivers are appointed in respect of a company which is unable to meet its debts under a debenture. Administrative receivers may be appointed by the holders of any debenture which is secured by a charge (see section 29(2) of the Insolvency Act at paragraph 58 below). Thus, administrative receivership is essentially a debt enforcement mechanism for a debenture holder. When administrative receivers are appointed, their primary duty is to the debenture holder, and their function is to ensure that, through the disposal of the company’s assets, they raise enough money to pay the amount due to the debenture holder.

7. Administrative receivership is to be distinguished from two other processes which may apply to a company which is experiencing financial difficulties: liquidation and administration. Liquidation (or winding up) is the process by which an insolvent company is dissolved and its assets sold for the benefit of its creditors. Administration is a process which allows for the appointment of an external manager to run a company and manage its assets. It differs from administrative receivership in that it is done for the benefit of the company and its general creditors, not for a particular debenture holder. It is also different from liquidation in that its goal is to ensure the survival of the company.

8. The present case concerns the process of administrative receivership which took place in respect of OBG, and the subsequent domestic proceedings which it brought against the receivers. The circumstances of the case may be summarised as follows.

2. The applicant companies’ background and RBS’s debenture

9. OBG conducted a major utilities construction business in the early 1990s. Its major customer was North West Water Limited (“NWW”), which accounted for at least 75% of its turnover.

10. OBG’s business with NWW was based on a series of contracts, each of which contained a clause (clause 63) which meant that, if OBG went into liquidation, NWW could expel OBG from its sites and employ another contractor to do the work. Under clause 63, if the other contractor did the work more cheaply than OBG, then the savings made by NWW became due to OBG. If the other contractor cost more, then OBG had to pay the excess to NWW.

11. On 6 March 1991, OBG mortgaged its assets and undertakings in favour of the Royal Bank of Scotland PLC (“RBS”), by means of a debenture. The debenture was secured by a floating charge over OBG’s assets and undertakings.

3. The administrative receivership of OBG

12. In March 1992, a dispute arose between OBG and NWW, in which NWW alleged that it had been overcharged by OBG. As a result, NWW suspended payments to OBG and sought repayment of sums already paid to OBG under the contracts. This suspension of payments meant that OBG was unable to pay the debts which it owed to its sub-contractors, suppliers and other creditors. This included its debts to one of its major sub-contractors, Centriline Limited (“Centriline”), of over GBP 1,000,000.

13. Therefore, to ensure the continued solvency of OBG and Centriline, OBG entered into negotiations with Centriline for a secured loan. Those negotiations were inconclusive and no loan agreement was concluded between OBG and Centriline. However, in the course of the negotiations Centriline’s solicitors, Penningtons, drew up documents arranging for the transfer of the RBS debenture from RBS to Centriline. The documents were only executed by RBS and Centriline.

14. The difficulty with these arrangements was that OBG had owed nothing to RBS under the floating charge in the debenture. Consequently, no secured debt was assigned to Centriline with the debenture. Nonetheless, Centriline was advised by Penningtons that it could attach OBG’s unsecured debts onto the debenture.

15. Pursuant to Penningtons’ advice, on 8 June 1992 Centriline appointed administrative receivers over all of OBG’s assets and undertakings. It did so in order to recover the money which it was owed by OBG.

16. The applicants maintained that, because Centriline could not attach its unsecured debts to the debenture, Centriline had no lawful authority to take over the rights of RBS under the debenture. Therefore, it had no right to appoint administrative receivers to recover the money that it was owed by OBG.

17. The receivers also took legal advice from Penningtons and were told by Penningtons that their appointments were valid. Pursuant to that advice, on 9 June 1992, the receivers took possession of all OBG’s assets and business. The receivers negotiated with NWW for the release of funds owed by NWW to OBG, in order to fund future activity. However, these negotiations were also unsuccessful. Consequently, on 12 June 1992, the receivers instructed OBG’s staff and contractors to cease all work due under the contracts between NWW and OBG. On the same date, the receivers also terminated the majority of the OBG’s contracts with its staff and contractors.

18. The receivers then realised OBG’s assets. They did so by selling its land, plant and equipment; negotiating the settlement of its claims under its contracts with NWW; completing, assigning or abandoning its contracts with other customers; collecting its book debts; and taking the credit balance in its bank account. In so doing, the receivers realised a total amount of GBP 1,087,000.

19. The negotiations with NWW resulted in an agreement that NWW would pay OBG GBP 400,000 in full and final settlement of all claims under the contracts. This agreement was signed in August 1997 by NWW and by the receivers on behalf of OBG, with the concurrence of its liquidators. The entire sum realised by the receivers was used to repay OBG’s debt to Centriline and to pay the fees and expenses of the receivers.

20. Having no further assets with which to pay their remaining creditors, OBG’s directors called a meeting with their creditors on 29 July 1992, at which resolutions were passed to wind up OBG and to appoint liquidators. On that date, it is estimated that OBG owed its creditors, excluding Centriline, approximately GBP 4,000,000.

4. OBG’s claim against Centriline and the receivers

21. OBG’s sole remaining asset was a claim against Centriline and the receivers for the unlawful appointment of the receivers and the receivers’ subsequent realisation of its assets.

22. Consequently, and with their creditors’ approval, OBG commenced proceedings on 19 October 1995 against Centriline and the receivers, claiming that the appointment of the receivers had been unlawful and seeking damages.

23. However, by this date, Centriline was neither solvent nor trading, and went into liquidation on 24 April 1996. It did not, therefore, take an active part in the proceedings commenced by the applicants. Penningtons were subsequently added as defendants in the proceedings.

a. The High Court’s judgment on the invalidity of the receivers’ appointment

24. Prior to the first hearing in the High Court, Penningtons admitted that their advice to the receivers, namely that their appointment had been valid, had been negligent and that Penningtons were accordingly liable to the receivers for any loss resulting from their advice.

25. By order dated 31 January 2001 and a written judgment of 27 April 2001, the High Court declared that the appointment of the receivers was invalid. It ordered the receivers to pay damages to be assessed at a later date.

b. The High Court’s judgment as to damages

26. At this stage of proceedings, OBG abandoned a claim it had made for an “account”. This is a claim requiring a party to account to another party for his dealing with property which has been held under a “constructive trust”. (A constructive trust exists, for example, in respect of the assets of a company in receivership.)

27. Instead, OBG claimed damages inter alia for trespass and wrongful interference with its property, and loss and damages suffered as a result of the receivers’ invalid appointment.

28. The basis of OBG’s claim was that, but for the invalid appointment of the receivers, OBG would have obtained orders for administration. OBG further claimed that, if orders for administration had been obtained, it would have survived as a business.

29. Alternatively, OBG claimed there would have been a better realisation of its assets, particularly in relation to the value of its contracts with NWW. This was because it had become apparent, through the disclosure of previously undisclosed documents by NWW, that, in the years after 1992, NWW had made substantial savings when it gave OBG’s work to another contractor. Accordingly, by operation of clause 63 of the contracts between OBG and NWW (see paragraph 9 above), the fact that OBG had gone into receivership meant that the savings made by NWW became due to OBG.

30. In later pleadings OBG also alleged that the receivers had committed the tort of conversion (a tort involving the misappropriation of property: see paragraph 59 below). OBG also alleged that this tort had occurred in respect of both its “chattels” (tangible assets other than freehold land) and its “choses in action” (intangible assets such as contractual rights).

31. In the course of proceedings it was made clear by OBG that its claim for damages was based on the valuation of the business at 9 June 1992 (the date on which the receivers took over). Its claim was not that the receivers were in breach of the duties they would have owed to OBG had they been validly appointed.

32. OBG also pleaded that these torts were committed on 9 June 1992. This had the consequence that the damages which OBG sought were the difference between the value of the business at that date and the amount actually realised by the receivers. OBG did not, however, allege negligence in the way the receivers had realised the assets or allege that there had been any intention on the part of the receivers to cause loss.

33. The High Court gave judgment for OBG on 18 February 2004. The trial judge rejected OBG’s submission that, but for the receivers’ invalid appointment, it would have survived as a business. Instead, he concluded that OBG’s liquidation or insolvency would have occurred even if the receivers had not been appointed.

34. The trial judge also rejected OBG’s submission that the tort of conversion could apply to intangible assets such as contractual rights, finding that there was no basis in the common law for this approach.

35. The trial judge found, however, that OBG could rely on the tort of interference with contractual relations. This tort applied equally to the receivers’ interference with OBG’s tangible assets and to the receivers’ interference with OBG’s intangible assets (such as the NWW contracts).

36. The trial judge accepted that liquidators would have realised a larger sum than the receivers did, particularly in relation to the value of the contracts with NWW. Approximately GBP 1,067,000 more could have been realised from the contracts than the receivers had achieved. Therefore, he assessed the total damages due to OBG at GBP 1,854,000 plus interest in the sum of GBP 1,180,579. The damages as assessed included both OBG’s tangible assets and its intangible assets, such as its rights under the NWW contracts.

c. The Court of Appeal’s judgment

37. The receivers and Penningtons appealed to the Court of Appeal. They conceded that OBG could rely on the tort of trespass in respect of OBG’s land, of which the receivers had taken control. They also conceded that OBG could rely on the tort of conversion in respect OBG’s tangible assets, of which the receivers had taken control. However, the receivers and Penningtons argued that the torts of conversion and wrongful interference with contractual relations did not allow damages to be recovered in respect of intangible assets.

38. On 9 February 2005 the Court of Appeal held unanimously that the tort of conversion did not apply to intangible assets. It was not open to the court to invent such a tort.

39. The Court of Appeal was, however, divided as to whether the tort of wrongful interference with contractual relations allowed damages to be recovered in respect of intangible assets. Lord Justice Peter Gibson and Lord Justice Carnwath found that it did not; Lord Justice Mance found that it did.

40. Lord Justice Peter Gibson considered that the issue was whether the tort of wrongful interference with contractual relations should be extended to cover situations where there was no intention by a third party to procure a breach of a contract or to impede the performance of a contract. He found that there was no authority for extending the tort in this way. To do so would be to change the nature of the tort: it had always required an intention to procure a breach of contract or a breach of duty.

41. For Lord Justice Peter Gibson, the receivers had intended to manage the contractual rights of OBG. There had been an intention to interfere in OBG’s business (though no intention to cause loss or damage). However, this did not amount to an interference with contractual relations in any relevant sense. This conclusion meant OBG’s claim had to be dismissed, a conclusion which he reached “with regret”: the wrongful taking control of intangible assets by an invalidly appointed receiver ought to have had consequences in law. Other claims brought in equity or negligence might have been successful, but OBG’s claim based on tort had to fail.

42. Lord Justice Carnwath agreed with Lord Justice Peter Gibson. He found that it would have been a significant extension of the tort if it were to include cases where the interference was not directed at hindering performance of contractual obligations. There was also no policy reason for extending the tort to cases where negligence could not be established (i.e. to impose strictly liability on the receivers). The unusual facts of OBG’s case made it unsuitable for such an extension.

43. Lord Justice Mance, dissenting on this issue, found that the receivers had directly interfered with OBG’s contracts with NWW. The interference was not intended to cause loss but, in the circumstances, this was not a pre‑requisite of liability for the tort. The tort of wrongful interference with contractual relations extended to any situation in which a person’s pre-existing legal situation was altered, even if this did not involve any breach or non-performance of an obligation to a third party. The receivers’ intervention had changed significantly the way in which OBG’s rights under the NWW contracts had been ascertained and settled. For Lord Justice Mance, this was sufficient for the purposes of the tort of wrongful interference with OBG’s pre-existing legal position. It was immaterial that the receivers did not realise that they were acting without authority. It was also immaterial that they had no intention to cause harm to OBG. It was appropriate to find that an invalidly appointed receiver was strictly liable for interference with tangible assets and that he or she was also strictly liable for interference with contractual relations.

44. By order dated 21 February 2005, the Court of Appeal reduced the amount of damages owed to the applicants to GBP 244,000 plus interest. (The difference between the damages as assessed by the High Court and those as assessed by the Court of Appeal is explained by the finding by the majority of the Court of Appeal that the law of tort did not provide for damages to the applicants in respect of intangible assets, such as their bank account, sums due under contracts, or other debts.)

d. The House of Lords’ judgment

45. OBG appealed to the House of Lords. By judgment of 2 May 2007, and by a majority of three to two, the House of Lords upheld the Court of Appeal’s judgment and dismissed the appeal.

i. Interference with contractual relations

46. The five Law Lords hearing the appeal unanimously rejected OBG’s claim based on an interference with contractual relations. Lord Hoffmann, who gave the lead speech, held that there were only two possible causes of action: the tort of procuring a breach of contract or the tort of causing loss by unlawful means. (Lord Nicholls, concurring on this point, observed that there was no “hybrid tort” of interfering with contractual relations.) It was plain and obvious to Lord Hoffmann that the requirements for liability under either of these torts were not satisfied.

47. For the first, the tort of procuring a breach of contract was a tort of “accessory liability” (the principle that a person who procures another to commit a wrong incurs liability as an accessory). The tort required (i) intention to cause a breach of contract and (ii) a breach of contract in fact to take place. In OBG’s case, there had not been any breach or non‑performance of a contract. Therefore, there was no wrong to which accessory liability for procuring a breach of contract could attach.

48. For the second, the tort of causing loss by unlawful means required (i) the use of unlawful means and (ii) an intention to cause loss to the claimant. In OBG’s case the requirements of the tort had not been met either. The receivers had neither used unlawful means nor intended to cause the applicants any loss.

49. Lord Hoffmann added that Lord Justice Mance’s approach (see paragraph 43 above) referred to the tort of causing loss by unlawful means. Lord Hoffmann reiterated, however, that this tort required both the use of unlawful means and an intention to cause loss. Neither of these elements was present in the applicants’ case.

50. Lord Hoffmann disagreed with Lord Justice Peter Gibson’s expression of regret that OBG did not have a remedy in law for the acts of the invalidly appointed receivers. He noted that this was not a case in which an invalid appointment of receivers had caused damage to a solvent company. The trial judge had found that OBG would not have survived as a business and that it had been heading for liquidation or insolvency. The receivers had acted in good faith, believing their appointment to be valid. Furthermore, OBG’s liquidators had concurred in the agreement reached with NWW for the full and final settlement of all claims arising under OBG’s contracts with NWW. Therefore, it could not be said that, as a result of the actions of the receivers, OBG had suffered a loss which it would not otherwise have suffered.

ii. The tort of conversion

51. As to OBG’s claim in respect of the tort of conversion, the Law Lords were divided three to two. The majority concluded that this claim should also be rejected.

52. Lord Hoffmann, writing for the majority, noted that the tort of conversion was historically a tort against a person’s interest in a chattel (tangible asset). Consistent with its ancient origin, it was a tort of strict liability (i.e. a tort which did not require the claimant to prove that the defendant was at fault). The law had always been very wary of imposing any kind of liability for “pure economic loss” (loss which does not arise directly from physical damage or injury).

53. Moreover, the torts of procuring a breach of contract and causing loss by unlawful means were highly restricted in their application. They were not torts of strict liability: as he had noted, the tort of procuring a breach of contract required proof of an intention to procure a breach of the contract; the tort of causing loss by unlawful means required proof of an intention to cause loss (see paragraphs 47 and 48 above) .

54. Against this background, it would be an extraordinary step suddenly to extend the tort of conversion to impose strict liability for pure economic loss on receivers who had been appointed and had acted in good faith. Such a step would be for Parliament to take.

55. Lords Walker and Brown agreed with Lord Hoffmann. They both added that the facts of OBG’s case made it singularly unsuitable for such a major change in law.

56. Lord Nicholls and Baroness Hale dissented on this point. Lord Nicholls argued that the tort of conversion had been extended in the past to cover not only tangible assets but also certain intangible assets which were embodied or recorded in a document (such as share certificates). He saw no reason why the tort of conversion could not be extended still further to encompass intangible assets which were not so documented. This was a “modest but principled extension” of the doctrine, which fully accorded with the role of the courts in developing the common law and which respected the intentions of Parliament.

57. Baroness Hale found that it made no sense for the receivers to be strictly liable for what was lost on OBG’s tangible assets but not for what was lost on its intangible assets. It would be inconsistent with principle if the tort of conversion were not extended to encompass both tangible and intangible assets.

B. Relevant domestic law and practice

1. Administrative receivership

58. Part III of the Insolvency Act 1986 deals with administrative receivership. An “administrative receiver” is defined at section 29(2)(a) as being:

“a receiver or manager of the whole (or substantially the whole) of a company’s property appointed by or on behalf of the holders of any debentures of the company secured by a charge which, as created, was a floating charge, or by such a charge and one or more other securities.”

Section 34 of the same Act provides that:

“Where the appointment of a person as the receiver or manager of a company’s property under powers contained in an instrument is discovered to be invalid (whether by virtue of the invalidity of the instrument or otherwise), the court may order the person by whom or on whose behalf the appointment was made to indemnify the person appointed against any liability which arises solely by reason of the invalidity of the appointment.”

Section 44 provides that:

“(1) The administrative receiver of a company –

(a) is deemed to be the company’s agent, unless and until the company goes into liquidation;

(b) is personally liable on any contract entered into by him in the carrying out of his functions (except in so far as the contract otherwise provides) and on any contract of employment adopted by him in the carrying out of those functions; and

(c) is entitled in respect of that liability to an indemnity out of the assets of the company.

(2) For the purposes of subsection (1) (b) the administrative receiver is not to be taken to have adopted a contract of employment by reason of anything done or omitted to be done within 14 days after his appointment.

(3) This section does not limit any right to indemnity which the administrative receiver would have apart from it, nor limit his liability on contracts entered into or adopted without authority, nor confer any right to indemnity in respect of that liability.”

Section 232 provides:

“The acts of an individual as administrator, administrative receiver, liquidator or provisional liquidator of a company are valid notwithstanding any defect in his appointment, nomination or qualifications.”

2. Conversion

59. The tort of conversion is based on the ancient tort of “trover”. Historically, trover was based on the fictitious allegation that the claimant had lost a chattel and that the defendant had found it. The modern tort of conversion holds that anyone who “converts” a chattel (that is, does an act inconsistent with the rights of the owner) is liable for the loss caused, however innocent he may be. Conversion is thus a tort of strict liability.

The Torts (Interference with Goods) Act 1977 defines wrongful interference with goods to include conversion of goods. “Goods” is defined in section 14(1) to include “all chattels personal other than things [choses] in action and money”. The Act thus excludes intangible assets from the tort of conversion.

COMPLAINTS

60. The applicants complained of a violation of Article 1 of Protocol No. 1 to the Convention. They argued that the United Kingdom was in breach of its positive and negative obligations under that Article to protect their contractual rights from unlawful interference of the kind perpetrated by the receivers. They submitted that the legal system should have allowed them to recover just compensation for the losses suffered as a result of that interference. They also complained that they did not have available to them an effective domestic remedy as required by Article 13 of the Convention.

THE LAW

A. Article 1 of Protocol No. 1

61. Article 1 of Protocol No. 1 provides as follows:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

1. The parties’ submissions

a. The Government

62. The Government raised two preliminary objections. First, they submitted that the third and fourth applicants, as liquidators, were not victims for the purposes of Article 34 of the Convention.

63. Second, the Government submitted that the applicants had not exhausted domestic remedies. The applicants could have challenged the receivers’ appointment and obtained a court declaration that they had been invalidly appointed. They had five years to make such a challenge between the appointment of the receivers in June 1992 and alleged loss suffered by the settlement of the NWW contracts in 1997. It was not sufficient to suggest, as the applicant’s had, that they had been advised that the prospects of having the receivers removed were not good, or that the freezing of their directors’ assets prevented them from making such a challenge.

64. The applicants had further failed to exhaust domestic remedies because of the way in which they had pleaded their case against the receivers. OBG had abandoned its claim for an account (see paragraph 26 above) and had refrained from making any claim which alleged negligence on the part of the receivers. This had been a tactical decision because it avoided having to plead or prove fault and causation. Finally, the only reason OBG had not pursued its claim against Centriline was because the latter had also gone into liquidation, making the claim unprofitable.

65. As to the substance of the applicants’ complaint, the Government made the following four submissions.

66. First, they submitted that loss which OBG claimed to have suffered was not a possession within the meaning of Article 1 of Protocol No. 1. “Possessions” could include contractual rights but, where an applicant sought to rely on a claim which had not been pursued to judgment, the claim was not sufficiently established under that Article (National & Provincial Building Society and others, 23 October 1997, §§ 67-69, Reports of Judgments and Decisions 1997‑VII). The contractual claims against NWW were insufficiently established on the date when the receivers were appointed, 9 June 1992: they had not been pursued to judgment at that stage. Indeed, OBG’s claims against NWW did not materialise until much later when NWW made savings on the contracts by giving OBG’s work to another contractor.

67. Second, the Government submitted that OBG had not been deprived of its possessions. OBG had put its claim for damages in the domestic proceedings based on the valuation of the business at 9 June 1992. Therefore, no deprivation occurred at that date because all OBG’s assets remained vested in it. There was also no interference with OBG’s possessions. The receivers had asserted that they, not the directors, were in control of the business. That assertion involved an interference with the de facto ability of the directors to manage OBG’s affairs, but not a legal or factual interference with OBG’s property.

68. Third, there was no violation of the United Kingdom’s negative obligations under Article 1 of Protocol No. 1. The receivers were not State agents, but had been invalidly appointed by Centriline, a private company. The receivers had not exercised any statutory powers (they could not, given their invalid appointment). Even if they had, this would not have turned them into State agents.

69. Fourth, there was no violation of the United Kingdom’s positive obligations under Article 1 of Protocol No. 1. The applicants’ complaint was essentially that English law did not provide a sufficiently valuable remedy for the cause of action they chose to pursue. However, upholding this complaint would require the Court to have no regard for the following factors:

- a company could apply to the domestic courts to remove invalidly appointed receivers (this demonstrated that domestic law provided a suitably balanced regime to protect the rights of companies);

- there had been potential causes of action against Centriline; and

- there had been various other causes of action against the receivers that, for tactical reasons (such as the need to prove fault and causation), the applicants had chosen not to pursue.

70. The Government submitted that a violation of Article 1 of Protocol No. 1 would, in effect, mean that a State would be positively required to make invalidly appointed receivers strictly liable for the entire value of the assets of the company. This would be irrespective of the receivers’ state of knowledge, their honesty and good faith. It would be irrespective of subsequent events such as changes in value of the assets. It would also be without any investigation of the causal connection between the acts of the receivers and the alleged loss ultimately sustained by the company. Article 1 of Protocol No. 1 could not be interpreted as imposing a positive obligation to protect all forms of property with civil remedies which were based on strict liability.

71. In respect of the torts relied on by the applicants, the Government recalled that the claim relating to interference with contractual relations had been dismissed by the House of Lords because the applicants could not prove the necessary elements of the tort of inducing breach of contract or the tort of causing loss by unlawful means (see Lord Hoffmann at paragraphs 47 and 48). This could not trigger State liability under the Convention. For the tort of conversion, the 1977 Act (see paragraph 59 above) represented a deliberate decision by Parliament not to extend the tort to intangible assets.

72. There were both principled and pragmatic reasons for not imposing strict liability for pure economic loss and, in respect of the tort of conversion, for restricting strict liability to tangible assets. No Contracting State imposed strict liability for wrongful interference with intangible assets. Moreover, strict liability would provide a major disincentive to professional receivers accepting appointments. Such receivers would not accept appointments because they could not know the extent of their exposure. This was particularly so when, as in this case, the higher value of the intangible assets (the NWW contracts) was only discovered years after the receivers’ actions. The imposition of strict liability would also discourage company directors from promptly challenging invalidly appointed receivers. Instead, it would encourage them to bide their time until they saw the value of the intangible assets which the receivers had realised.

b. The applicants

73. The applicants indicated that, since the Government accepted that the first and second applicants were victims, they would not press their claim that the third and fourth applicants had distinct victim status.

74. The applicants contended that they had exhausted all effective domestic remedies. None of the other courses of action identified by the Government would have afforded them an adequate and effective remedy for the taking of their intangible assets. It was irrelevant that domestic law allowed for the removal of invalidly appointed receivers; the freezing of their assets meant that they did not have the effective ability to make such an application. Moreover, the actions of the receivers had a virtually immediate effect on the value of their possessions; it could be said that this would have been put right by the receivers’ removal, or that this course of action would have been any quicker than the proceedings the applicants had in fact brought. An action against Centriline was not possible: it was the very absence of a contract between Centriline and OBG which made the appointment of the receivers under the RBS/Centriline debenture invalid.

75. As to the merits of their complaint, the applicants underlined that their claim in the domestic proceedings was for the losses incurred by the receivers on and after 9 June 1992 (i.e. not just losses incurred on that date). In their reply to the Government’s submissions, the applicants submitted the following.

76. First, they submitted that OBG had a sufficiently established acquired economic value in the NWW contracts and other intangible property for this to qualify as “possessions” for the purposes of Article 1 of Protocol No. 1. In contrast to National & Provincial Building Society and others, cited above, OBG had an enforceable claim under those contracts, which was principally based on work it had already done under the NWW contracts. The only issue was the quantification of that claim. The trial judge had found that OBG’s intangible property, as reflected in the NWW contracts, would have achieved a markedly higher value if it had been dealt with by the liquidators and not by the invalidly appointed receivers. This finding had not been the subject of appeal. Therefore, OBG’s case had a much greater similarity to Pressos Compania Naviera S.A. and Others v. Belgium, 20 November 1995, Series A no. 332, where the Court had accepted that a tort claim was a possession for the purposes of Article 1 of Protocol No. 1

77. Second, the applicants submitted that the receivers’ taking total and exclusive control of their business and assets was clearly a deprivation of or interference with their possessions. It removed the right of the applicants to use and enjoy their possessions and bestowed that right on the receivers.

78. Third, there had been a violation of the United Kingdom’s negative obligations under Article 1 of Protocol No. 1 because section 232 of the Insolvency Act (see paragraph 58 above) validated the actions of the receivers, without provision for redress in the event of the unlawfulness of the receivers’ actions.

79. Fourth, there had been a violation of the United Kingdom’s positive obligations under Article 1 of Protocol No. 1. The outcome of the domestic proceedings was that domestic law afforded no remedy for the unlawful taking of intangible assets. In this connection, the United Kingdom Government could not rely on other remedies under domestic law; as the applicants had submitted, there were no such remedies which were effective in their case.

80. The applicants further submitted that the absence of fault or intention to harm on the part of the receivers was immaterial: there had still been a deprivation of or interference with their possessions, for which they were entitled to an adequate and effective remedy. It was wrong in principle to require a company to prove fault for the outright taking of possessions. In any event, the receivers had clearly intended to take the applicants’ property without having any right to do so. Therefore, it was erroneous to suggest that the applicants’ case against the receivers was based on pure “no fault” liability or that they sought to be exonerated from the requirements of proving fault or causation.

81. The applicants accepted that their case was unusual. However, the crux of the problem was the irrational distinction which English law made between tangible and intangible assets. Throughout the domestic proceedings the courts had accepted that the applicants were entitled to compensation for their tangible property (either under the tort of trespass or the tort of conversion) but not their intangible property. As the minority of the House of Lords had found, it made no sense that the receivers should be strictly liable for what was lost on the tangible assets but not for what was lost on the intangible assets.

82. Moreover, the trial judge had concluded that, if OBG’s liquidation had not been inevitable, then the receivers would have been strictly liable for the value of the whole of the business, including both its tangible and its intangible assets. This served to show that, despite the difficulties alleged by the Government, it was possible to have strict liability in respect of intangible assets. As it was, the current law of tort meant that there was less protection for businesses which were based significantly on intangible property (such as internet businesses) than those based on tangible assets. The lack of logic in the distinction was further illustrated by the legal fictions involved in the tort of conversion (see paragraph 59 above). These fictions meant, for example, that losses arising from the taking of a company’s money would not be actionable, but losses arising from the taking of a cheque would be actionable (see also Lord Nicholls’ observations in respect of a share certificate at paragraph 56 above).

83. Finally, Parliament might have made a conscious decision not to include intangible assets within the scope of the tort of conversion, but this only meant that it was Parliament’s deliberate decision to leave English law in a position that was incompatible with Article 1 of Protocol No. 1. Moreover, the nature of business at the time the 1977 Act was enacted was very different from now. Since 1977, the domestic courts had been left to apply an ancient rule of law. This rule bore no relation to the realities of modern business where intangible property was more important and valuable than ever before.

2. The Court’s assessment

84. The Court notes the Government’s preliminary objections as to the victim status of the third and four applicants, and as to the applicants’ alleged failure to exhaust domestic remedies. However, the Court considers it unnecessary to rule on these objections since, in any event, it considers this complaint to be manifestly ill-founded.

85. First, as to whether the loss suffered by OBG was a possession within the meaning of Article 1 of Protocol No. 1, the Court notes that the trial judge found that the value of the NWW contracts was in fact higher than the value obtained by the receivers. The Court further notes that, although members of the Court of Appeal and House of Lords expressed doubts as to this conclusion, they refused to disturb the trial judge’s findings. Therefore, the Court is prepared to accept that, as a matter of fact, the actual value of the NWW contracts was in fact higher than the value obtained by the receivers. For this reason, and for the purposes of the present decision, the Court is prepared to proceed on the basis that the applicants’ submission is correct and that the actual value of the NWW contracts was a “possession” within the meaning of Article 1 of Protocol No. 1.

86. Second, it is clear to the Court that, when the receivers assumed exclusive control of the applicants’ business, the actions of the receivers amounted to a control of the applicants’ possessions within the meaning of Article 1 of Protocol No. 1.

87. Third, although the applicants maintain that there has been a breach of the United Kingdom’s negative obligations under Article 1, the Court cannot agree. The control of the applicants’ NWW contracts was not the result of any direct State action but the acts of private parties, the receivers. Moreover, OBG was not awarded damages against the receivers by the domestic courts as a result of those courts’ findings as to general applicable principles of tort. This is essentially a matter of the State’s positive obligation to protect private property under Article 1 of Protocol No. 1 (see, inter alia, Sovtransavto Holding v. Ukraine, no. 48553/99, § 96, ECHR 2002-VII and Matheus v. France, no. 62740/00, §§ 68 et seq., 31 March 2005). The Court recalls that, when that positive obligation arises, it is for the State to ensure in its domestic legal system that property rights are sufficiently protected by law and that adequate remedies are provided whereby the victim of an interference can seek to vindicate his rights, including, where appropriate, by claiming damages in respect of any loss sustained (Blumberga v. Latvia, no. 70930/01, § 67, 14 October 2008). Moreover, in disputes between private parties, this positive obligation requires States to afford judicial procedures that offer the necessary procedural guarantees and therefore enable the domestic courts and tribunals to adjudicate effectively and fairly any disputes between private persons (Sovtransavto Holding, § 96, cited above; Anheuser-Busch Inc. v. Portugal [GC], no. 73049/01, § 83, ECHR 2007‑I; Freitag v. Germany, no. 71440/01, § 54, 19 July 2007).

88. Fourth, it follows from these principles that the only issue in the present case is whether the House of Lords’ refusal to develop the law of tort to allow for an award of damages to the applicants in respect of their intangible assets was compatible with the United Kingdom’s positive obligations under Article 1 of Protocol No. 1. In determining that issue, the Court must examine first, whether the House of Lords’ judgment pursued a legitimate aim in the general interest and, if so, whether a fair balance was struck between that general interest and the interest of the applicants (see, inter alia, J.A. Pye (Oxford) Ltd and J.A. Pye (Oxford) Land Ltd v. the United Kingdom [GC], no. 44302/02, §§ 67-85, ECHR 2007‑III).

89. It does not appear to be in dispute that the House of Lords’ judgment pursued a legitimate aim in the general interest. The views of the majority were clearly based on the need to maintain reasonable limits on the liability in tort of third parties such as receivers. Therefore, the only remaining question is whether the House of Lords’ judgment struck a fair balance between that general interest and the interests of the applicants. Having regard in particular to the extensive examination of the law of tort carried out by the House of Lords, the Court has no doubt that it did.

90. In respect of the first tort relied upon by OBG (wrongful interference with contractual relations), the Court notes that the House of Lords was unanimous in finding that no such hybrid tort existed and that the OBG had not made out the necessary elements of the separate torts of procuring a breach of contract and causing loss by unlawful means. That conclusion was fully open to the House of Lords to reach. It was not arbitrary or unreasonable (see, Anheuser-Busch Inc, § 83, cited above). Indeed, if anything, the House of Lords’ judgment provided substantial clarification of the law which applied to these torts.

91. Support for this view can be found in the fact that, throughout the proceedings, the applicants accepted that there was no negligence or bad faith on the part of the receivers. It was well within the wide margin of appreciation which the domestic authorities enjoy in such cases for the House of Lords to decide that, because of this absence of negligence or bad faith on the part of the receivers, the applicants could not recover damages for the NWW contracts by relying on the tort of procuring a breach of contract or the tort of causing loss by unlawful means.

92. The Court turns to the second tort relied upon before the House of Lords, the tort of conversion. The Court notes that the House of Lords was divided as to whether it would be a logical and practical step to extend this tort to intangible assets. However, the Court also notes that the difference of opinion between the majority and minority was essentially whether it was for the courts to develop the common law in this way or whether such a development was too great a step for the courts to take and should instead be left to Parliament. As a matter of domestic law, this was pre-eminently a judgment for the House of Lords to make. There is nothing to indicate that the view taken by the majority of their Lordships (that this was ultimately a matter for Parliament) was arbitrary or manifestly unreasonable. This conclusion is not altered by the applicants’ submission that the nature of contemporary business means that intangible assets are more important than ever before. This was an argument which was considered and rejected by the House of Lords. In such a complex area of private law, it is not the role of this Court to second guess the House of Lords’ conclusion, or indeed to weigh the competing arguments for and against such a development of the common law.

93. In light of these factors, the Court concludes that Article 1 of Protocol No. 1 cannot be interpreted as imposing a positive obligation on the domestic courts to develop the common law of tort simply because, in a particular case, a company either cannot show negligence or bad faith, or because the greatest loss suffered by the company has been in respect of intangible assets, the full value of which only became apparent after it went into receivership. This conclusion is reinforced by the unusual circumstances of the present case. The Court of Appeal and the House of Lords were entitled to find that the facts of OBG’s case made it singularly unsuitable for an extension of the common law in this manner. This is even more so when, as the trial judge found, OBG’s liquidation or insolvency would have occurred even if the receivers had not been appointed, a factor which led Lord Hoffmann to find that he had no regret in dismissing the applicants’ appeal.

94. For substantially the same reasons, the Court is also not persuaded by the applicants’ submission that, if the House of Lords was not at fault for refusing to develop the common law of tort, then Parliament, by not including intangible assets within the scope of the tort of conversion as defined by the 1977 Act, was at fault for having left the law in a position which was incompatible with Article 1 of Protocol No. 1. It must be for Parliament to decide whether the business case for extending the tort of conversion to intangible assets outweighs the difficulties which would inevitably be involved in such an extension. Article 1 of Protocol No. 1 cannot however be interpreted as requiring Parliament to make that extension.

95. Finally, although the applicants have focused exclusively on the outcome of their tort claims against the receivers, it would not be appropriate for the Court to overlook the wider legal framework in England and Wales governing the appointment of receivers as part of its assessment under Article 1 of Protocol No. 1. As the Government have shown, this legal framework includes the right of a company in receivership to apply to the High Court for the removal of invalidly appointed receivers. The Court is not persuaded that the freezing of their assets prevented the applicants from making such an application. The Court further notes that English law allowed for the applicants to make several claims based in negligence against the receivers and to pursue claims against Centriline. The domestic authorities cannot be held responsible for the fact that the applicants could not prove negligence on the part of the receivers or for the fact that Centriline became insolvent. The Court therefore considers that, seen as a whole, this legal framework provided proper protection for the property rights of companies in administrative receivership. Had OBG availed itself of the other remedies available to it, the domestic courts would have been able to adjudicate effectively and fairly any disputes between OBG, Centriline and the receivers. The legal framework which was in place was wholly compatible with the State’s positive obligations under Article 1 of Protocol No. 1.

96. For the above reasons, the Court considers that a fair balance was struck between the general interest and the interest of the applicants. It therefore finds that the applicants’ complaints under Article 1 of Protocol No. 1 are manifestly ill-founded and must be rejected in accordance with Article 35 §§ 3 and 4 of the Convention

B. Article 13 of the Convention

97. Article 13 of the Convention guarantees the availability at national level of a remedy where there is an “arguable claim” of a violation of a substantive Convention provision (see, as a recent authority, Knaggs and Khachik (dec.), nos. 46559/06 and 22921/06, § 193, 30 August 2011 with further references therein). In so far as the applicants’ complaint under Article 1 of Protocol No. 1 has been found by the Court to be manifestly ill‑founded, no arguable claim arises under that Article. Accordingly, Article 13 does not apply to that complaint. It follows that the complaint under Article 13 is manifestly ill-founded and must also be rejected in accordance with Article 35 §§ 3 and 4 of the Convention.

For these reasons, the Court by a majority

Declares the application inadmissible.

Lawrence EarlyLech Garlicki             
RegistrarPresident

 

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