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PETITION OF HER MAJESTY'S SECRETARY OF STATE FOR BUSINESS ENTERPRISE AND REGULATORY REFORM FOR AN ORDER TO WIND UP UK BANKRUPTCY LIMITED


Submitted: 21 September 2010

SECOND DIVISION, INNER HOUSE, COURT OF SESSION

Lord Justice Clerk

Lord Clarke

Lord Marnoch

[2010] CSIH 80

P1975/08

OPINION OF THE LORD JUSTICE CLERK

IN THE PETITION OF

HER MAJESTY'S SECRETARY OF STATE FOR BUSINESS ENTERPRISE AND REGULATORY REFORM

Petitioner;

For an order to wind up UK Bankruptcy Limited

_______

For the petitioner: Olsen; Brodies

For the respondent: No appearance

For the Lord Advocate: Miss Ross;

The Advocate General for Scotland: Lord Davidson of Glen Clova QC, in person

Amicus curiae: Clark QC; D G Hamilton:

21 September 2010

Introduction

[1] This is a petition for the winding-up of UK Bankruptcy Ltd (the company) under section 124A of the Insolvency Act 1986 on the ground that the winding-up is expedient in the public interest. On 9 December 2008 a provisional liquidator was appointed. On 22 December 2008 Paul Mason, one of the two directors and shareholders, lodged answers to the petition. They bear to be signed by him for and on behalf of the company.

[2] Mr Mason has produced no evidence that the Board of the company has authorised him to lodge these answers, or has even resolved to defend the petition. Therefore, in my view, we should proceed on the basis that the lodging of answers by Mr Mason has not been authorised by the company. According to the petitioner, Mr Mason is opposing the petition in order to forestall disqualification proceedings against him under the Company Directors Disqualification Act 1986. Mr Mason has not contradicted that assertion.

The Lord Ordinary's report and subsequent procedure

[3] On 19 February 2009, at a hearing on further procedure, Mr Mason sought to represent the company in the process. On 16 March 2009 there was a hearing before Lord Hodge on the question whether he was entitled to do so. Mr Mason submitted (1) that under article 6 of the European Convention on Human Rights a company has the right to be represented in court by one of its directors, and (2) that the rule that a company may be represented before this court only by counsel or by a solicitor having extended rights of audience is no longer good law.

[4] The Lord Ordinary considered that in consequence of the rule in Equity and Law Life Ass Soc v Tritonia Ltd (1943 SC (HL) 88), Mr Mason had no right to represent the company; and that, as a general rule, there was no incompatibility between article 6 and the requirement that a company must be represented by a suitably qualified legal representative, who had responsibilities to the court and was subject to professional discipline. He thought that, nonetheless, exceptional circumstances could arise in which the court would have to allow a company to be represented by a person who was not a qualified practitioner in order to ensure that there was a fair hearing under article 6. The Rules of Court did not provide for that, but the court could allow it by the exercise of its inherent power. There was a need for careful consideration of the circumstances in which that might be done.

[5] The Lord Ordinary has therefore reported the case to the Inner House on this question. He has considered some possible procedural safeguards. He suggests that the director or other representative should have to show that the company has authorised him to act on its behalf; and that, to avoid any conflict of interest, the company should expressly authorise the submissions that its representative is to make. He also suggests that the company should have to satisfy the court that it does not have the means to obtain legal representation and that its proposed representative is in a position to present the company's case; and that the court should consider the nature of any proposed submission to ascertain whether it raises a bona fide and relevant issue of fact or law.

[6] The Lord Advocate and the Advocate General compeared. It became apparent to us that both favoured the view that in appropriate circumstances the present rule should be relaxed. In the circumstances, we thought it expedient to appoint senior and junior counsel to act jointly as amicus curiae. They have favoured the same view.

The current rule in Scotland

The Act 1532 c 51

[7] The rule restricting rights of audience in this court dates from the foundation of the court. In the legislation of 1532 which established the College of Justice, the Act 1532 c 51 provided inter alia

"That na man enter to pley, bot parties conteined in their summoundes and their procuratoures, gif they will ony have.'

The procurators referred to were the advocates, whose office was instituted, and is still regulated, by chapters 64, 65 and 66 of that year.

The writers

[8] Maclaren's succinct expression of the rule is that "A member of the Faculty of Advocates is the only person allowed to plead before the Court of Session, with the exception of a party to the cause" (Court of Session Practice, p 14). Maxwell explains the underlying rationale as follows.

"Only a member of the Faculty of Advocates and a party to the cause are entitled to plead in court before the Court of Session. Such a rule, limiting a right of audience on behalf of others to members of the Bar, secures that the Court will be served by advocates who observe the rules of their profession, who are subject to a disciplinary code, and who are familiar with the methods and scope of advocacy which are followed in presenting arguments to the Court" (The Practice of the Court of Session, p 24).

Case law

[9] In Gordon v Nakeski-Cumming (1924 SC 939) the Inner House considered whether in light of the Married Women's Property Act 1920, which abolished a husband's right of administration over his wife's property, a husband could competently appear before it on his wife's behalf. The rule was restated in that case by Lord President Clyde as follows.

The right of audience before this Court is ... equally shared by the parties litigant before it, and by duly admitted advocates who appear on their behalf; but it belongs to no one else. Pleadings in cases called before this Court are accordingly presented to it either per party or per procuratorship of counsel, and in no other way" (at p 941).

[10] The rule was enforced by the Second Division in 1984 when it refused to permit an unqualified person to represent his elderly father. The court observed that the decision in Gordon v Nakeski-Cumming (supra) had been acted on consistently (Rush v Fife Regional Council, 1984 SLT 391).

[11] The only possible departure from that rule of which I am aware is in Kenneil v Kenneil ([2006] CSOH 95). That case related to disputes arising from an action of division and sale. The Lord Ordinary allowed a secured creditor, who appeared in her own right in relation to certain issues, to represent her husband, who was the second defender and was otherwise unrepresented. In his consideration of that procedure, the Lord Ordinary referred to the English practice by which a litigant in person may be assisted by a McKenzie friend (cf McKenzie v McKenzie [1971] P 33) and noted that in some cases such assistance had been permitted in Scotland (para [15]). He observed that in English practice the court was willing to allow a McKenzie friend not only to assist the litigant in person but, in certain circumstances, to address the court (para [16]). It is my impression that in agreeing to the proposal the Lord Ordinary regarded the second defender's wife as acting as if she were a McKenzie friend, on the view that she would say only what she and her husband had decided to say. He regarded it as a material consideration that the second defender's wife had in part drafted his averments. However, in that case the second defender was abroad at the time and in the event the decision of the Lord Ordinary was that he should be "represented" by his wife at the hearing (para [18]).

[12] In Anderson, Petr (2008 SCLR 59), in similar circumstances, the Lord Ordinary refused a proposal that the case for the elderly and infirm petitioner should be presented by her son, on the view that it was not competent in the Scottish courts for a person assisting a party litigant to address the court on the party litigant's behalf (para [24]).

The extension of rights of audience

Court of Session Act 1988

[13] The Court of Session Act 1988 confers on any solicitor a right of audience before the vacation judge (s 48(2)(a)) and in such other circumstances as may be prescribed (s 48(2)(b)). The Rules of Court allow solicitors without extended rights of audience to appear in limited circumstances in the hearing of certain motions (RC 23).

The Law Reform (Miscellaneous Provisions) (Scotland) Act 1990
[14] This Act made it possible for solicitors to be given extended rights of audience in the higher courts, civil and criminal (s 24; cf Court of Session Act 1988, s 48(1); s 48A).

[15] The Act also provided a method by which a professional or other body might enable one of its members who was a natural person to acquire rights to conduct litigation on behalf of members of the public and rights of audience in certain courts and in certain categories of proceedings (s 25). This provision has not been brought into force.

Criminal Procedure (Scotland) Act 1995
[16] This consolidating Act continues provisions that give to all solicitors limited rights of audience in relation to certain applications, and in preliminary and interlocutory proceedings, before a single judge of the High Court (s 103(8)).

Conclusion

[17] I mention these provisions by way of demonstrating that every extension of rights of audience beyond the restrictive categories of the traditional rule has been effected by way of express statutory provision. Subject to these specific extensions, the general rule that I have described has remained in force (cf Asmat Mushtaq v SSHD [2006] CSOH 19).

Artificial persons
[18] A separate line of authority relates to the representation of artificial persons. In Equity and Law Life Ass Soc v Tritonia Ltd (supra) a company director sought to appear before the House of Lords on behalf of two companies and with their authority. The House refused to hear him. Viscount Simon, LC said:

"When an appeal is argued before the House of Lords, no one has any right of audience except counsel instructed on behalf of a party or (when the litigant is a natural person) the party himself. In the case of a corporation, inasmuch as the artificial entity cannot attend and argue personally, the right of audience is necessarily limited to counsel instructed on the corporation's behalf" (at p89)

Although this dictum relates specifically to proceedings before the House of Lords, the principle that it sets out has been applied more widely. It has been applied consistently in the Court of Session (cf the annotations to the Rules of the Court of Session, Parliament House Book, vol 2, para 4.2.6). It has also been applied in ordinary cause procedure in the sheriff court where the right of audience is confined to advocates, solicitors and natural persons appearing on their own behalf (Dana Ltd v Stevenson 1989 SLT (Sh Ct) 43)

[19] In Clark Advertising Ltd v Scottish Enterprise Dunbartonshire (2004 SLT (Sh Ct) 85) the sheriff principal refused to allow a partnership to be represented by one of its partners on the view that the right of access to the courts contemplated by article 6(1) of the Convention was not absolute. He referred to the public interest justification for requiring an artificial persona to be legally represented. He considered that there was little doubt that this rule was both proportionate and legitimate. In Cultural and Educational Development Assn of Scotland v Glasgow City Council (2008 SC 439) an Extra Division held that an unincorporated voluntary association could not be represented in the sheriff court by its secretary, who was not a solicitor. It expressed the principle in the following way.

"The difficulties which courts commonly encounter where individual party litigants conduct their own cases are eloquent of the reasons for not extending the right of personal appearance beyond the case of the individual natural party. The rules serve to protect not only the opposing party and the court, but also, in the case of voluntary organisations, the members of the association, whose interests might otherwise be prejudiced by the actings of an individual or group of individuals pursuing litigation not truly in the association's interests. We are not to be taken as saying that that is so in the present case, but the risk of such an occurrence in general is part of the justification for the rule" (ibid, at para [11]).

These words were plainly intended to apply to the Court of Session and the sheriff court alike.

Drafting, signing and lodging of writs

[20] Section 32 of the Solicitors (Scotland) Act 1980, as amended by the Solicitors (Scotland) Act 1988 (Sched 1, para 7) makes it an offence for any unqualified person, as defined in section 65(1), to draft or prepare inter alia any writ relating to any action or proceedings in any court (s 32(1)(b)). The exception to that rule is confined to the case where the unqualified person "proves that he drew or prepared the writ or papers in question without receiving, or without expecting to receive, either directly or indirectly, any fee, gain or reward (other than by remuneration paid under a contract of employment) ... " (s 32(2)(a)). Even if Mr Mason comes within this exception, I consider that the signing of the answers and the lodging of them by him, as an unqualified third party, were invalid (cf RC 4.2(4)).

The position in England

[21] English practice in relation to rights of audience and the right to conduct litigation is more flexible than ours. The English courts have a discretion, as part of the inherent power, to permit a representative to appear ad hoc on behalf of a litigant in person (ALI Finance Ltd v Havelet Leasing Ltd [1992] 1 WLR 455). There is also a statutory power to that effect (Legal Services Act 2007, Sched 3, para 1(2); formerly Courts and Legal Services Act 1990, s 27(2)(c)).

[22] The idea that a company could be represented by an unqualified person had its origins in Lord Woolf's Report (Access to Justice, 1996). Lord Woolf recommended that a duly authorised employee of a company should normally be permitted to take any steps on behalf of the company that a litigant in person could take on his own behalf. This would be subject to the court's being satisfied that the representative was duly authorised to act, and to the right of the court to stop anyone who misbehaved from addressing it (ibid, at p 136).

[23] The Civil Procedure Act 1997 authorised the making of Civil Procedure Rules and established a Civil Procedure Rules Committee to make them by way of a statutory instrument (ss 2(1); 3(1)), with powers to make related practice directions (s 5(1)).

[24] Rule 39.6 of the Civil Procedure Rules 1998 (SI No 3132) implements Lord Woolf's recommendation. It provides that:

"A company or other corporation may be represented at trial by an employee if -

(a) the employee has been authorised by the company or corporation to appear at trial on its behalf; and

(b) the court gives permission."

The ancillary Practice Direction provides that:

"Rule 39.6 is intended to enable a company or other corporation to represent itself as a litigant in person. Permission under rule 39.6(b) should therefore be given by the court unless there is some particular and sufficient reason why it should be withheld. In considering whether to grant permission the matters to be taken into account include the complexity of the issues and the experience and position in the company or corporation of the proposed representative."

[25] Rule 39.6 was not related to article 6 of the Convention, which had not then been incorporated into domestic law. The rule reflected a policy that access to the courts should be widened. There is no comparable legislation in Scotland.

[26] In this case the Lord Ordinary doubts whether the English approach could prudently be imported into Scottish procedure. He refers to the greater powers of case management enjoyed by the English courts and to their power to strike out cases that have no reasonable prospects of success. He considers that without rigorous case management there is a significant risk that unqualified representatives could take up court time and cause wasted public costs without benefiting the entities that they represented. I am of the same view.

Submissions of counsel

[27] There was a general consensus among counsel that the present rule should be relaxed and that in certain defined circumstances, and subject to suitable safeguards, it should be competent for a company to be represented by a lay representative. There was also a general consensus that the rule should be modified by the court itself, whether by the use of its inherent power or by an act of sederunt.

[28] The case in favour of the proposal is that the current rule forces upon companies the expense of legal representation in all cases, whether or not in any individual case the enforcement of the rule would be of material benefit to the court or to the company itself. There may be cases in which a lay representative of a company, for example a director, may be best placed to articulate the company's position and thereby to assist the court. The rule also forces upon the company in every case an expense that may significantly affect its financial position or may be disproportionate to any advantage that legal representation may bring. In extreme cases, the cost of legal representation may cause the company not to be represented at all, with the consequent risk that it may suffer an injustice thereby. For these reasons it is submitted that the rule is needlessly restrictive, that it may work to the disadvantage of a company and that it can produce an unjust outcome.

[29] Counsel for the petitioner moved us to invoke the inherent power of the court in approving the proposed procedure and to have the conditions under which it would be competent refined in a statutory instrument. He suggested that the waiving of the existing rule should be a matter for the court's discretion, exercised by reference to the public interest, and with suitable safeguards. Counsel for the Lord Advocate urged us to proceed by way of act of sederunt under section 5 of the Court of Session Act 1988.

Conclusions

The nature of the proposal

[30] At present we have no reason to think that Mr Mason's proposal to defend the petition on the company's behalf has been duly authorised by the company; but I shall assume that it might be possible for Mr Mason to produce evidence of such authorisation, if required by the court to do so. My conclusions on this point proceed on that assumption.

[31] For a proper resolution of the question reported to us, it is essential at the outset to identify the nature of the proposal. The proposal is that the case for the respondent company should be conducted by Mr Mason, who is not legally qualified. His conduct of the case would include the framing and lodging of answers to the petition, representation of the company in procedural hearings and oral advocacy in opposition to the prayer of the petition.

[32] In my opinion, this is in essence a proposal for rights of audience. As such, in my view, it is in conflict with the Act of 1532 as interpreted in Gordon v Nakeski-Cumming (supra) and with the related line of authority, specific to corporations, starting with the House of Lords decision in Equity and Law Life Ass Soc v Tritonia Ltd (supra).

Is the Act of 1532 in desuetude?

[33] Counsel were divided on this question. Counsel for the petitioner submitted that the Act is in desuetude. Counsel for the Lord Advocate and the amicus thought that it is not. The Advocate General thought that the point is uncertain.

[34] In my opinion, it cannot be said that the Act of 1532 is in desuetude. The Inner House has held it to be in force twice in the twentieth century (Gordon v Nakeski-Cumming, supra; Rush v Fife Regional Council, supra) and, with only the one possible exception to which I have referred (Kenneil v Kenneil, supra), its provisions have hitherto been consistently enforced in our courts, subject only to the modern extensions of rights of audience to which I have referred.

[35] In my opinion, the Lord Ordinary erred in Kenneil v Kenneil (supra). Although he considered the application by the wife of the second defender in the context of lay assistance, the effect of his decision was to give her a free hand to conduct the second defender's case in his absence. That was incompatible with the idea of lay assistance. The Lord Ordinary perhaps overlooked the fact that in English procedure a McKenzie friend could not address the court except with the express allowance by the court of an ad hoc right of audience under section 27(2)(c) of the Courts and Legal Services Act 1990, which was then in force (cf Paragon Finance plc v Noueiri [2001] WLR 2357).

[36] There is no provision in Scotland for the granting of rights of audience to a lay assistant. The proposed legislation to permit lay assistants to address the court, to which I shall refer, impliedly withholds such rights. In any event, I consider that the Lord Ordinary in that case could not have allowed the second defender's wife to act as his lay assistant, if this is what he intended her to be, in the absence of the second defender himself (cf Clarkson v Gilbert [2000] FLR 839).

[37] The decision of the Lord Ordinary in Anderson, Petr (supra) was correct, in my opinion.

The rule in Equity and Law Life Ass Soc v Tritonia Ltd
[38] Even if it could be said that the Act of 1532 was in desuetude or that it could not reasonably be interpreted to apply to joint stock companies, there would nevertheless remain the specific rule established in 1943 (Equity and Law Life Ass Soc v Tritonia Ltd, supra) that a company cannot be represented in civil proceedings other than by counsel or, where competent, by a solicitor. Quite independently of the Act of 1532, that rule is rooted in cogent considerations. I need not rehearse them in detail. It is sufficient to say that the extension of rights of audience on behalf of companies to unqualified persons would bring all of the risks to the due performance of the justice system that are notorious in the case of party litigants. It would involve the conferment of rights of audience on persons who had received no training in law or in legal procedure and who were not subject to any code of conduct or to any form of professional discipline (cf Izzo v Philip Ross and Co [2002] BPIR 310).

The use of the inherent power and the power to make acts of sederunt

[39] In my view, it is not open to this court to modify the rule, whether by the use of its inherent power or by act of sederunt, no matter what conditions or safeguards it might impose.

[40] In any event, I consider that even if it were open to this court to modify the rule, it should not do so. The proposal raises questions of social policy relating to rights of audience in the civil courts. Such questions are not for us to decide. From the brief review of the legislation that I have given, it is clear that every extension of rights of audience in the courts has been brought about by express legislation. If there were to be an extension of rights of audience in relation to artificial legal persons, that, in my opinion, should be effected only by legislation after the normal consultative processes of law reform.

[41] This court cannot foresee all the wider implications of an ad hoc judicial decision to relax the present rule; nor the practical difficulties that might follow from it. However, certain practical problems at once come to mind. In a company liquidation or in a compulsory winding up of the kind with which this case is concerned, I can think of good reasons why a company should not be represented by a director whose own actings may have caused the litigation.

[42] Furthermore, the experience of this court over the last ten years or so has shown that certain indefatigable party litigants, of whom we have no shortage, in due course make their services available to other party litigants, either by acting as their lay assistants (Frost and Parkes v Cintec International Ltd, 9 September 2005, unrepd) or by taking assignations of their interests (cf Tods Murray WS v Arakin Ltd, 31 October 2003, unrepd). If lay representation of companies were to be allowed, it would not be long before such persons would make their services available for that purpose, as has happened in England (cf Paragon Finance plc v Noueiri, supra). In POW Trust and Anor v Chief Executive and Registrar of Companies ([2002] EWHC 72783 (Admin)) the company was represented by a director, Mr Terence Ewing, who was a serial party litigant in his own right (cf Ewing v Times Newspapers Ltd, 2010 CSIH 67). In Bournemouth and Boscombe Athletic Football Club Ltd v Lloyds TSB Bank plc [2004] EWCA Civ 935) the claimant company was represented by a person who had been appointed as a director for the purpose of conducting the litigation (cf paras 27 and 40).

[43] I am also of the view that the granting of this proposal would inevitably lead to wider questions of rights of audience in relation to unqualified persons; for example, in the representation of a trust by one of its trustees; or the representation of a commercial partnership by one of its partners.

[44] Even if it were open to us to allow representation of a company by an unqualified person, these considerations would persuade me of the unwisdom of our taking that step.

Article 6

[45] The question was raised in the discussion before us as to whether the enforcement of the present rule could operate to infringe the human rights of a company under article 6. The submission for the amicus curiae canvasses the possibility that the present rule could have that effect if a company had a prima facie valid claim or defence but was unable to pay for legal representation.

[46] We would have to consider that question only if there was evidence that the company had authorised Mr Mason to represent it and that its decision to do so arose from necessity rather than choice. Instead, we have the uncontradicted assertion of the petitioner that Mr Mason is opposing this petition in his own personal interest. For these reasons, I consider that article 6 does not arise in this case.

Lay assistance

[47] Nothing that I have said in this Opinion has any bearing on the separate question of lay assistance to a party litigant. It is within the power of the court to allow a party litigant to have the opportunity, at its discretion, to be assisted by a friend in the presentation of his case. That may be helpful to the court and in the interests of justice where a party litigant is, for any reason, incapable of presenting his own case coherently and clearly. It is not the role of such an assistant to act as an advocate or a legal adviser and such an assistant does not have a right of audience. The Act of Sederunt (Rules of the Court of Session Amendment No 4) (Miscellaneous) 2010 (SSI No 205, para 3) amends the Rules of Court to specify the scope of the lay assistant's role and and the conditions on which lay assistance will be permitted.

[48] Sections 91B and 91C of the Legal Services (Scotland) Bill, if enacted in their present wording, will maintain the principle that a lay representative, as there defined, does not have a right to conduct litigation or a right of audience; but, in accordance with a recommendation of the Scottish Civil Courts Review (Report of the Scottish Civil Courts Review, 2009, vol 2, ch 11), they provide that the rules of the Court of Session and of the sheriff court may permit a lay representative to make oral submissions to the court on the party litigant's behalf. Mr Mason's application in this case would not be warranted by such provisions.

Disposal

[49] I propose to your Lordships that we return the case to the Lord Ordinary with a direction that he should decline to accept Mr Mason as a representative of the company in these proceedings or to receive writs signed by him.


SECOND DIVISION, INNER HOUSE, COURT OF SESSION

Lord Justice Clerk

Lord Clarke

Lord Marnoch

[2010] CSIH 80

P1975/08

OPINION OF LORD CLARKE

IN THE PETITION OF

HER MAJESTY'S SECRETARY OF STATE FOR BUSINESS ENTERPRISE AND REGULATORY REFORM

Petitioner;

For an order to wind up UK Bankruptcy Limited

_______

For the petitioner: Olsen; Brodies

For the respondent: No appearance

For the Lord Advocate: Miss Ross;

The Advocate General for Scotland: Lord Davidson of Glen Clova QC, in person

Amicus curiae: Clark QC; Hamilton:

21 September 2010

[50] Having had the advantage of reading the Opinion of your Lordship in the Chair, I am in agreement with it and, in particular, the disposal of the matter proposed by your Lordship.

[51] I would only add by way of observation the following. Before this court, as noted by your Lordship, the position of the amicus curiae was, as set out in his written submission, and advanced in argument, that "there are circumstances in which the absolute bar which the rule represents is incompatible with Article 6(1) of the Convention". What the amicus had in mind, apparently, was a case where a company is genuinely unable to pay for representation and has a prima facie valid claim or defence which cannot be vindicated, at all, because of the rule. The Notes of Argument lodged on behalf of the Advocate General and the Lord Advocate also appeared to recognise the possibility of the strict application of the general rule, in a particular case, giving rise to an Article 6 issue. On the assumption that a company has Article 6 rights, then it seems to me that there may be force in what was said in that respect, by these various parties, but for the reasons given by your Lordship in the Chair no question of that kind arises in the particular circumstances of the present case.


SECOND DIVISION, INNER HOUSE, COURT OF SESSION

Lord Justice Clerk

Lord Clarke

Lord Marnoch

[2010] CSIH 80

P1975/08

OPINION OF LORD MARNOCH

IN THE PETITION OF

HER MAJESTY'S SECRETARY OF STATE FOR BUSINESS ENTERPRISE AND REGULATORY REFORM

Petitioner;

For an order to wind up UK Bankruptcy Limited

_______

For the petitioner: Olsen; Brodies

For the respondent: No appearance

For the Lord Advocate: Miss Ross;

The Advocate General for Scotland: Lord Davidson of Glen Clova QC, in person

Amicus curiae: Clark QC; Hamilton:

21 September 2010

[52] I agree entirely with the Opinion determined by your Lordship in the Chair.