Challenging Private Law

Lord Sumption on the Supreme Court

William Day, Sarah Worthington, William Day, Sarah Worthington

• Publisher: Hart Publishing
• Year: 2020
• Print ISBN: 9781509945474
• eBook ISBN: 9781509934881
• Edition: 1
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

Lord Sumption has been one of the most influential judges of his generation. This book critically reflects on the important and controversial issues raised by his jurisprudence. Using Lord Sumption's judgments and extra-judicial lectures as a starting point, the book contains a selection of essays that consider 'where next' in relation to topics such as: - contract variation, damages and penalties;
- economic loss and personal injury in tort law;
- knowing receipt and proprietary restitution;
- illegality in private law;
- agency and attribution;
- piercing the corporate veil;
- foreign law in the English courts. The book covers a broad range of areas in private law including contract, tort, unjust enrichment, equity, company and commercial law, as well as private international law and civil procedure.

1

Introduction

LORD SUMPTION

The output of a single judge is rarely consistent and never definitive. Even in the highest appellate court, opinions about legal issues are necessarily provisional. They are liable to be overtaken by further thought. Other cases on different facts turn up to puncture the larger generalisations. The changing composition of an intensely deliberative court like the Supreme Court may require different compromises between its members. The process does not stop with retirement. It is the fate of even the most influential judges to find their confident statements of the law revised or undone by their successors (‘explained’ is the usual euphemism). We sit to serve the public, not to refashion the law according to our own prejudices or to perfect some overarching legal philosophy of our own.

These are some of the reasons why I have never asked myself whether I had a personal legal philosophy, let alone worked out what it might be. Until, that is, the seminar at Trinity College Cambridge at which the papers published in this volume were first presented and discussed. Rereading them, and looking back over the rather large number of judgments that I seem to have written during my seven years on the Court, I think that it is possible to identify three main themes on which I believe that I have been consistent. To call them a personal philosophy would be absurdly grandiose. But they are certainly instincts which have informed my approach to most legal issues.

The first is a strong belief in legal certainty. There is a school of thought which holds that rules of law get in the way of justice, and should either be avoided altogether or qualified so as to leave the field clear for idiosyncratic solutions to hard cases. However, the Supreme Court does not exist to do justice in particular cases, but to sort out the law. It is fundamental to any just scheme of law that it should be as predictable in its application as the infinite variety of human experience and the changing values of our community permit. An absence of settled principle or, worse, a propensity to depart from settled principle to accommodate a judge’s personal feelings about the facts is a form of retrospective judicial legislation which is almost always unjust. Judges have a higher duty than just satisfying their own emotional needs. A system of customary law such as the common law, based mainly on precedent, is bound to be more flexible than a code. That is one of its strengths. But the common law is a body of legal principles, not a licence constantly to reinvent the legal wheel.

Secondly, the law should be coherent. This means that the way that it deals with a particular subject or factual situation should be logically consistent. But it means more than that. It means that the law’s approach to one subject should be consistent with its approach to other subjects which raise comparable problems. Specialisation enables practitioners to provide a better service to their clients. But most specialisations are bogus. They impede an understanding of the underlying legal principles. It is important to be able to look into the next-door room to see how they do things there. We should not, if we can help it, construct self-contained islands of law which proceed on assumptions peculiar to themselves. The Supreme Court ought to be able to survey the whole field of law when considering what may originally have seemed to be an obscure corner governed by its own rules. The fact that most members of a panel of five will usually be strangers to the field has advantages which are not always appreciated by specialist practitioners.

The third theme is really a reflection of the first two. I have always been profoundly suspicious of judicial discretion. Discretion has its place in the law of remedies and in the court’s regulation of its procedures. Its place in private law should be very limited. Private law is not concerned with mere expectations. It is concerned with legal rights vested in people. Rights should not be subject to judicial value judgements. The relevant value judgement had already been made when the law recognised the right. General rules of law which intervene to qualify rights, such as the rules which avoid certain transactions for illegality, should be as clear and as principled in their operation as the rights themselves, so far as the complexity of human affairs allows. These thoughts may explain why I regard Patel v Mirza as the worst decision of the Supreme Court in the realm of private law for a generation.

Legal scholarship occupies a smaller place in the work of the courts than it once did, among advocates and judges alike. A freer approach to authority by judges, especially appellate judges, is probably the main reason for this. The resulting gap has been largely filled by academic scholarship, which, as a result, has contributed more to the development of the law over the past half-century than it ever did before. This has been an immensely fertile process. The present collection of studies does much to explain why. I do not emerge unscathed from it, which is as it should be. I think that if I had had the advantage of these criticisms before my judgments were delivered, I would probably have modified parts of my reasoning. That would have made them better judgments. But I suspect that the basic line would have remained unchanged. Appellate judges have to compromise with awkward facts as well as with each other. And repentance is not their style.

2

Interpretation

EWAN McKENDRICK

The Supreme Court has begun to withdraw from the more advanced positions seized during the Hoffmann offensive, to what I see as a more defensible position … Just as ICS changed the judicial mood about language and tended to encourage the view that it was basically unimportant, so the more recent cases may in due course be seen to have changed it back again, at least to some degree.

– ‘A Question of Taste: the UK Supreme Court and the Interpretation of Contracts’¹

The best-known contribution made by Lord Sumption to the law relating to the interpretation of contracts is to be found not in his judgments while a member of the Supreme Court, but in his extra-judicial 2017 Harris Society Lecture given at Keble College, Oxford entitled ‘A Question of Taste: The UK Supreme Court and the Interpretation of Contracts’, from which the quotation at the beginning of this chapter is taken. A large part of the lecture is devoted to a critical analysis of modern developments in the law relating to the interpretation of contracts, with a particular focus on the judgments of Lord Hoffmann, who was the dominant judicial voice on the interpretation of contracts during his term as a member of the House of Lords between 1995 and 2009. Lord Hoffmann has himself responded in vigorous terms to Lord Sumption’s critique,² and it is a principal aim of this chapter critically to evaluate the debate between Lord Sumption and Lord Hoffmann.

Before doing so, it is important to consider the contribution made by Lord Sumption in his judicial capacity. During his tenure as a Justice of the Supreme Court, Lord Sumption sat on three of the leading modern cases concerned with the interpretation of contracts. In none of these cases did he write his own judgment. In Arnold v Britton³ and Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd,⁴ he expressed his agreement with the judgment of Lord Neuberger, while, in Wood v Capita Insurance Services Ltd,⁵ he agreed with the judgment of Lord Hodge. Lord Sumption also sat in three less well-known cases. He delivered a dissenting judgment in BNY Mellon Corporate Trustee Services Ltd v LBG Capital No 1 plc⁶ and gave the judgment of the Privy Council in Fairfield Sentry Ltd v Migani.⁷ His most significant judicial contribution, however, is to be found in the rather neglected decision of the Privy Council in Krys v KBC Partners LP,⁸ where he gave the majority judgment. It is with this case that we shall begin.

I.KRYS v KBC PARTNERS LP

Krys v KBC Partners LP was a case concerned with the interpretation of the articles of a limited partnership following a dispute concerning the distribution of the partnership assets upon its dissolution. There were four partners. The first was the Principal Limited Partner, a company whose ultimate beneficial owners were Boris Berezovsky and Arkady Patarkatsishvili. It contributed assets valued at US$320 million to the partnership. The second partner was the General Partner, a company controlled by a professional fund manager, Mr Jaffe, and which was entitled to a management fee of 2% of the aggregate capital contributions of the limited partners. The third and fourth partners were two Special Limited Partners, both of which made nominal capital contributions of $100 each and whose role was to represent the interests of the General Partner and others involved in the management of the partnership.

The principal purpose of the partnership was to sell, realise, exchange or distribute the investments contributed by the Principal Limited Partner within the term of the partnership ‘with the principal objective of providing the Limited Partners with a high overall rate of return’.⁹ It was expected that the sale of the assets would prove to be a challenge, given the ‘notoriously difficult’¹⁰ business conditions in the Balkans and former CIS states where the assets were located and the fact that ‘their sale value was likely to be undermined’¹¹ if it became known that the assets were connected to Messrs Berezovsky and Patarkatsishvili. In the event, none of the assets of the partnership were sold prior to the end of the partnership term on 1 July 2012, although the partnership appeared to have been ‘highly successful in terms of increasing the overall value of its Investments’.¹² In the liquidation of the partnership, an issue arose as to the entitlement, if any, of the Special Limited Partners to a success fee, referred to in the articles as ‘Carried Interest’, which could amount to 30% of any profits or gains made on the sale of the investments.

The entitlement to share in the distribution of the assets of the partnership was governed by the complex terms of clauses 7 and 8 of the articles. These clauses made clear provision for the payment of Carried Interest to the Special Limited Partners in two circumstances. The first was on the sale of investments within the term of the partnership where an interim payment of Carried Interest could be made provided that certain conditions were met. The second was after all of the investments had been sold. The requirements of neither of these circumstances had been satisfied on the facts, so it was submitted on behalf of the Principal Limited Partner that the Special Limited Partners were only entitled to the return of their nominal capital contributions of US$100 each and were not entitled to a further share in the distribution of the assets of the partnership.

The Special Partners sought to avoid this conclusion and relied upon what Lord Sumption termed ‘a variety of ingenious arguments’.¹³ These submissions took two principal forms. The first focused on the wording of clauses 7 and 8 of the articles, whereas the second was based on a wider appeal to considerations of commercial good sense and the commercial consequences of an interpretation which confined the Special Limited Partners to the recovery of their nominal capital contributions.

A.The Wording of Clauses 7 and 8

In relation to the wording of clauses 7 and 8, there were two principal points of dispute. The first concerned the meaning of the wor...

Table of contents

• Cover
• Title Page
• Foreword
• Preface
• Contents
• Contributors
• Table of Cases
• Table of Legislation
• 1. Introduction
• 2. Interpretation
• 3. Variation and Waiver
• 4. Termination
• 5. Contract Damages
• 6. Penalties
• 7. The Contract/Tort Borderline
• 8. Personal Injury
• 9. Injunctions
• 10. Unjust Enrichment
• 11. Proprietary Restitution
• 12. Knowing Receipt
• 13. Illegality
• 14. Agency
• 15. Attribution
• 16. Powers
• 17. Piercing the Corporate Veil
• 18. Good Arguable Case
• 19. Forum Conveniens
• 20. Foreign Law
• 21. Res Judicata
• 22. Privilege
• Index
• Copyright Page