Summary

It was appropriate to remove a firm of stockbrokers as CPR Pt 20 defendants where it was apparent that no court would order them to make a contribution under the Civil Liability (Contribution) Act 1978 s.1(1) in respect of an alleged conversion of shares.

Facts

The applicant stockbrokers firm (C) applied to set aside a grant of permission to the respondent (M) to issue Part 20 proceedings against them and, in a second set of proceedings, M applied to issue Part 20 proceedings against a South African company (J). The first claimant (H) was a Jersey company and the second claimant (R), which was engaged in exploration and mining for gold in South Africa, was its holding company. Amongst H's assets was a valuable share certificate. H's chief executive (K), who was also the chief executive of J, transferred the share certificate to a company (Y) in which M held a beneficial interest with C acting as stockbrokers for the transaction. H and R commenced proceedings against M and C alleging that each had converted the share certificate as the transfer had not been authorised by H and R. The claim against C was settled before it served a defence. M defended the claim on the basis that the share certificate was sent pursuant to agreement between M and J, negotiated between himself and K as to acquisition of certain mining rights with the certificate as a non-refundable deposit; and that he did not admit that H was the owner of the shares or that the disposal was made without authority. M successfully applied that C be brought back into the action as a Part 20 Defendant to a claim for a contribution pursuant to the Civil Liability (Contribution) Act 1978 s.1(1) on the basis that C would be strictly liable in conversion in the same way that he would if the claimants successfully established that H had no authority to authorise the transfer. C contended that it should be removed as Part 20 defendant as in the circumstances it was inappropriate that it should have to indemnify M and it owed M no duty of care. M contended that if he was liable in conversion then so also was J so that it was liable to make a contribution to him pursuant to the 1978 Act.

Held

(1) It was appropriate to remove C as Part 20 defendant as M's account of how K transferred the share certificate was not credible and even if it were credible, no court would think it just and reasonable that C should be ordered to make a contribution; and it was not in accordance with the overriding objective under the CPR for the court to exercise its discretion by joining C to the action as a Part 20 defendant, Sheffield Corp v Barclay (1905) AC 392 HL followed. In particular no duties could in the circumstances conceivably be imposed upon C by the terms of its retainer which had been arranged by a reputable firm of solicitors on the behalf of Y via the agency of M. None of the circumstances of the transaction negotiated between M and K were explained to C which was simply instructed to perform an execution only transaction on the basis that Y was the beneficial owner of such shares despite their registration in the name of H and asked to transfer the shares to its own name as nominee for Y, with the objective of facilitating securitisation. The exercise of due diligence by C to the high extent which M alleged was not part of the normal services of a stockbroker and consequently an obligation to perform those services did not form part of C's retainer (see paras 37-58 of judgment). (2) It was an essential requirement, before J could be held vicariously liable for any action carried out by K that at the material time K was acting not in his personal capacity but in his capacity as chief executive officer of J. There was no credible evidence that K was so acting at the time of the transfer of the share certificate and, accordingly, it was inappropriate to join J to the action (paras 59-60).

Judgment accordingly