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National Westminster Bank plc (Respondents) v. Spectrum Plus Limited and others and others (Appellants)
HOUSE OF LORDS
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
National Westminster Bank plc (Respondents) v. Spectrum Plus Limited and others and others (Appellants)
 UKHL 41LORD NICHOLLS OF BIRKENHEAD
1. I have had the advantage of reading in draft the opinions of my noble and learned friends Lord Hope of Craighead, Lord Scott of Foscote and Lord Walker of Gestingthorpe. For the reasons they give I agree that the decision of Slade J in Siebe Gorman & Co Ltd v Barclays Bank Ltd  2 Lloyd's Rep 142 was wrong and should be overruled.
2. The respondent bank had a second string to its bow. The bank contended that if the House considered Siebe Gorman was wrongly decided the House should overrule that decision only for the future. The bank submitted that the Siebe Gorman decision should continue to apply to all transactions entered into before your Lordships' decision in the present case, including the debenture under consideration on this appeal.
3. This submission raises a controversial issue of major importance concerning the power of your Lordships' House to give a ruling in this 'prospective only' form. The bank argued the House has this power. The Crown appellants were content to assume the House may have this power. At very short notice the Attorney General, on the invitation of your Lordships, appointed Mr Glick QC to assist the House by presenting the case against the House having any such jurisdiction. The House is indebted to Mr Glick, who was assisted by Mr Edmund Nourse, for his clear and comprehensive presentation of this case.
4. The starting point is to note some basic, indeed elementary, features of this country's judicial system. The first concerns the essential role of courts of law. In the ordinary course the function of a court is adjudicative. Courts decide the legal consequences of past happenings. Courts make findings on disputed questions of fact, identify and apply the relevant law to the facts agreed by the parties or found by the court, and award appropriate remedies.
5. The second feature concerns the wider effect of a court decision on a point of law. To promote a desirable degree of consistency and certainty about the present state of 'the law', courts in this country have long adopted the practice of treating decisions on a point of law as precedents for the future. If the same point of law arises in another case at a later date a court will treat a previous decision as binding or persuasive, depending upon the well-known hierarchical principles of 'stare decisis'.
6. The third feature is that from time to time court decisions on points of law represent a change in what until then the law in question was generally thought to be. This happens most obviously when a court departs from, or an appellate court overrules, a previous decision on the same point of law. The point of law may concern the interpretation of a statute or it may relate to a principle of 'judge-made' law, that is, the common law (which for this purpose includes equity). A change of this nature does not always involve departing from or overruling a previous court decision. Sometimes a court may give a statute, until then free from judicial interpretation, a different meaning from that commonly held.
7. The fourth feature is a consequence of the second and third features. A court ruling which changes the law from what it was previously thought to be operates retrospectively as well as prospectively. The ruling will have a retrospective effect so far as the parties to the particular dispute are concerned, as occurred with the manufacturer of the ginger beer in Donoghue v Stevenson  AC 562. When Mr Stevenson manufactured and bottled and sold his ginger beer the law on manufacturers' liability as generally understood may have been as stated by the majority of the Second Division of the Court of Session and the minority of their Lordships in that case. But in the claim Ms Donoghue brought against Mr Stevenson his legal obligations fell to be decided in accordance with Lord Atkin's famous statements. Further, because of the doctrine of precedent the same would be true of everyone else whose case thereafter came before a court. Their rights and obligations would be decided according to the law as enunciated by the majority of the House of Lords in that case even though the relevant events occurred before that decision was given.
8. People generally conduct their affairs on the basis of what they understand the law to be. This 'retrospective' effect of a change in the law of this nature can have disruptive and seemingly unfair consequences. 'Prospective overruling', sometimes described as 'non-retroactive overruling', is a judicial tool fashioned to mitigate these adverse consequences. It is a shorthand description for court rulings on points of law which, to greater or lesser extent, are designed not to have the normal retrospective effect of judicial decisions.
9. Prospective overruling takes several different forms. In its simplest form prospective overruling involves a court giving a ruling of the character sought by the bank in the present case. Overruling of this simple or 'pure' type has the effect that the court ruling has an exclusively prospective effect. The ruling applies only to transactions or happenings occurring after the date of the court decision. All transactions entered into, or events occurring, before that date continue to be governed by the law as it was conceived to be before the court gave its ruling.
10. Other forms of prospective overruling are more limited and 'selective' in their departure from the normal effect of court decisions. The ruling in its operation may be prospective and, additionally, retrospective in its effect as between the parties to the case in which the ruling is given. Or the ruling may be prospective and, additionally, retrospective as between the parties in the case in which the ruling was given and also as between the parties in any other cases already pending before the courts. There are other variations on the same theme.
11. Recently Advocate General Jacobs suggested an even more radical form of prospective overruling. He suggested that the retrospective and prospective effect of a ruling of the European Court of Justice might be subject to a temporal limitation that the ruling should not take effect until a future date, namely, when the State had had a reasonable opportunity to introduce new legislation: Banco Popolare di Cremona v Agenzia Entrate Uffficio Cremona (Case C-475/03, 17 March 2005), paras 72-88.
United Kingdom practice
12. Prospective overruling has not yet been adopted as a practice in this country. The traditional approach was stated crisply by Lord Reid in West Midland Baptist (Trust) Association Inc v Birmingham Corporation  AC 874, 898-899, a case concerning compulsory acquisition:
13. In Launchbury v Morgans  AC 127, 137, Lord Wilberforce noted 'We cannot, without yet further innovation, change the law prospectively only'. More recently, in Kleinwort Benson Ltd v Lincoln City Council  2 AC 349, 379, Lord Goff of Chieveley said the system of prospective overruling 'has no place in our legal system'.
14. The possibility of a change in this practice has been raised from time to time. In R v National Insurance Commissioner, Ex p Hudson  AC 944, 1015, 1026, Lord Diplock said this topic deserved consideration. Lord Simon of Glaisdale said the possibility of prospective overruling should be seriously considered. He expressed a preference for legislation, saying that 'informed professional opinion' was probably to the effect that the House had no power to overrule decisions with prospective effect only. Lord Simon repeated his plea in Milliangos v George Frank (Textiles) Ltd  AC 443, 490. In the Court of Appeal in R v Governor of Brockhill Prison, Ex p Evans (No 2)  QB 1043, 1058, Lord Woolf MR expressed the view that prospective overruling has much to commend it. In your Lordships' House this issue was left open:  2 AC 19. Lord Slynn of Hadley, with his Luxembourg experience in mind, considered there may be situations in which it would be desirable, and in no way unjust, that the effect of judicial rulings should be prospective or limited to certain claimants: page 26. Lord Hobhouse of Woodborough was hostile to prospective overruling, describing it as a denial of the constitutional role of the courts: page 48. In the advocates' immunity case of Arthur J S Hall & Co v Simons  1 AC 615 the House departed from the earlier decision of the House in Rondel v Worsley  1 AC 191. The decision on the immunity point in the Hall case did not affect the actual outcome in that case. In that context my noble and learned friend Lord Hope of Craighead expressed the view that the change in the law made by the Hall decision should take effect only from the date of the judgment in that case: page 726. He said, at page 710:
15. Perhaps the nearest the House has come to giving non-retroactive rulings was in two decisions on the law of undue influence. The decisions concerned cases where, typically, a wife claims her consent to a mortgage of her share in a jointly-owned home was procured by her husband exercising undue influence over her: Barclays Bank Plc v O'Brien  1 AC 180 and Royal Bank of Scotland v Etridge (No 2)  2 AC 773. In both cases the House said that, in order to avoid being fixed with constructive notice of the wife's rights, a bank could reasonably be expected to bring home to the wife the risks she was running. But in both cases the House sought to give guidance by being more specific on what that test meant in practice. It was in this limited respect that in both cases the House, having regard to realities, drew a distinction between past and future transactions. In the O'Brien case, at pages 196-197, Lord Browne-Wilkinson said that whether the steps taken by the creditor satisfied the prescribed test would, for past transactions, depend on the facts of each case. As to the future, an appropriately worded warning given at a private meeting between the creditor and the wife would generally suffice to satisfy the test. Despite this admonition the banks did not adopt the course of holding such a meeting. In the Etridge case the House decided that holding a private meeting was not the only way a bank could discharge its obligation to bring home to the wife the risks she was running. I set out, at pages 811-812, paras 79-80, other steps which would generally be regarded as discharging this obligation as to future transactions and, separately, as to past transactions.
16. These two decisions illustrate the flexibility inherent in this country's legal system. In passing, another instance of this flexibility can be noted. This illustrates how the House has been prepared to depart from a strict and narrow interpretation of the judiciary's adjudicative role. From time to time situations occur where a point of law of general importance is raised by court proceedings but the outcome will have no practical effect in the particular case. The general principle is that the court will not entertain such proceedings. Nevertheless, when there is good reason for doing so, the House, in the cautious exercise of its discretion, may proceed to decide the point of law. A recent example occurred in the Judicial Committee of the Privy Council in Attorney General for Jersey v Holley  UKPC 23. There an enlarged Board resolved a conflict between previous decisions of the Board and the House of Lords on an important issue concerning the defence of provocation to a charge of murder. The Board decided this point even though the outcome, either way, would have no effect on the conviction or sentence of the defendant in that case.
17. One further matter may be noted regarding the present position on prospective overruling. In the devolution legislation of 1998 Parliament made express provision for courts to have power to limit the temporal effect of a particular class of decisions. The Scotland Act 1998, section 102, provides that where a court decides a provision in an Act of the Scottish Parliament is not within the legislative competence of the Parliament the court may make an order removing or limiting any retrospective effect of the decision or suspending the effect of the decision to enable the defect to be corrected. Comparable provisions appear in the Government of Wales Act 1998, section 110, and the Northern Ireland Act 1998, section 81. These provisions show that Parliament does not perceive non-retroactive rulings by courts as being of their nature inconsistent with the judiciary's proper function.
18. In other common law countries prospective overruling has taken root as such only in the United States of America and India. In the United States the fortunes of prospective overruling, sometimes known colloquially as 'Sunbursting', have waxed and waned. Prospective overruling, although without that label, occurred as long ago as the mid-19th century in the Ohio case of Bingham v Miller (1848) 17 Ohio 45. In 1932 the Supreme Court, in a famous judgment of Justice Cardozo, held that the Constitution neither prohibits nor requires prospective overruling. The Federal Court, he said, 'has no voice upon the subject': see Great Northern Railway Co v Sunburst Oil & Refining Co 287 US 358. Prospective overruling by the Supreme Court itself reached its apogee in the 1960s and 1970s when the court decided that in both criminal and civil cases 'the accepted rule today is that in appropriate cases the Court may in the interests of justice make the rule prospective': Linkletter v Walker (1965) 381 US 618, 628. In 1971 in the leading case of Chevron Oil Co v Huson (1971) 404 US 97, 106-107, the court summarised three factors taken into account when considering if a decision should be applied non-retroactively: whether the decision established a new principle of law, whether retrospective operation would advance or retard the operation of the new rule, and whether the decision could produce substantial inequitable results if applied retrospectively.
19. Since then the Supreme Court has retreated. In Griffith v Kentucky (1987) 107 S Ct 708 the court abandoned prospective overruling when directly reviewing criminal cases. Selective overruling has been abandoned in civil cases: James B Beam Distilling Co v Georgia (1991) 501 US 529 and Harper v Virginia Department of Taxation (1992) 509 US 86. Whether the court has abandoned 'pure' prospective overruling in civil cases remains to be resolved: see Glazner v Glazner (2003) 347 F 3d 1212, a decision of the Court of Appeals of the Eleventh Circuit.
20. Taking its lead from the United States jurisprudence the Supreme Court of India has made prospective overrulings but only in constitutional cases. The first case was Golak Nath v State of Punjab (1967) 2 SCJ 762. In that case the court reversed two earlier decisions of its own in circumstances where meanwhile constitutional amendments had been made, and state laws enacted, on the basis of the court's earlier two decisions. The jurisdiction is not confined to cases where an earlier decision is overruled. Non-retroactive effect may be given to a ruling which decides an issue for the first time: India Cement Ltd v State of Tamil Nadu (1990) 1 SCC 12. The Supreme Court founds its jurisdiction to make rulings of this character on article 142 of the Indian Constitution. This article empowers the Supreme Court to 'make such order as is necessary for doing complete justice in any cause or matter pending before it'. In exercise of this power it is a 'well settled proposition that it is open to the Court to grant, mould or restrict relief in a manner most appropriate to the situation before it, in such a way as to advance the interests of justice': Orissa Cement Ltd v State of Orissa 1991 Supp (1) SCC 430.
21. In Ireland in Murphy v Attorney General  IR 241 the Supreme Court held that certain taxation provisions were unconstitutional and void. The court rejected an argument that it was for the courts to say whether these statutory provisions should be held to be invalid prospectively or with only limited retrospective effect. The provisions were invalid from the date on which they were enacted. However, the court also held that the plaintiffs' restitutionary right to recover amounts paid by way of taxes unconstitutionally imposed began with the first year in which they raised their objections. Further, unless other taxpayers had already made tax recovery claims, only the plaintiffs could maintain a claim pursuant to the court's decision.
22. In Canada prospective overruling has not found favour. In Re Edward and Edward (1987) 39 DLR (4th) 654 the Saskatchewan Court of Appeal said prospective overruling would be a 'dramatic deviation from the norm in both Canada and England'. Bayda CJS, at page 664, said 'the most cogent reason for rejecting this technique is the necessity for our courts to maintain their independent, neutral and non-legislative role'. He approved comments that prospective overruling 'would distort our expectations of the judicial role' and that 'confidence may recede at the point where the courts are not seen as adjudicative agencies but as legislators': see Lord Lloyd of Hampstead, 'Introduction to Jurisprudence', 4th ed, (1979), pp 858-859. But in the extreme circumstances of a Reference re Language Rights under the Manitoba Act 1870 (1985) 19 DLR (4th) 1 the Supreme Court of Canada declined to give retroactive effect to its decision on the constitutional invalidity of all statutes and regulations of the Province of Manitoba not printed and published in both English and French. A declaration that the unilingual laws of Manitoba were of no effect would have created a legal vacuum with consequent legal chaos. Refusing to take a narrow and literal approach to constitutional interpretation, the court held it could have regard to unwritten postulates such as the principle of the rule of law. Faced with the task of recognising the unconstitutionality of Manitoba's unilingual laws while avoiding a legal vacuum and ensuring the continuity of the rule of law, the court made a ruling which gave deemed temporary validity to all laws rendered invalid by reason of their unilingual defect.
Luxembourg and Strasbourg
23. Far-reaching economic consequences may flow from the retrospective effect of rulings by the European Court of Justice on the interpretation of Community instruments. This has led that court to limit the temporal effect of some of its rulings, from Defrenne v Sabena  ECR 455 onwards. Sitting as a Grand Chamber the court recently reiterated its basic approach in R (Bidar) v Ealing London Borough Council  2 WLR 1078, 1112, para 66:
But the court noted that 'exceptionally' it may limit the temporal effect of a ruling. It has done so only in defined circumstances (paragraph 69):
24. Unlike the European Court of Justice and its role in the interpretation of Community instruments, the European Court of Human Rights' interpretative function is not confined to identifying the meaning properly to be given to the European Convention on Human Rights when it first came into force. The Strasbourg court interprets the Convention in the light of present-day conditions: Marckx v Belgium (1979) 2 EHRR 330, 353, para 58. In that case, taking heed of the decision of the European Court of Justice in Defrenne v Sabena  ECR 455, the Strasbourg court held that the principle of legal certainty dispensed the Belgian state from re-opening legal acts antedating the delivery of its judgment.
25. A notable instance of this 'dynamic and evolutive' approach to interpretation can be found in the successive cases relating to recognition of the rights of transsexual persons, culminating in the decision in Goodwin v United Kingdom (2002) 35 EHRR 447. In Goodwin the court held that the United Kingdom could 'no longer claim' that the matter fell within its margin of appreciation and that the fair balance inherent in the Convention 'now' tilted in favour of the applicant: para 93. Running through the court's reasoning is an acceptance that the earlier, contrary decisions of the court remained correct statements of the interpretation and application of the Convention when they were given. Consistently with this the court held that the finding of violation 'with the consequences which will ensue for the future' was just satisfaction: para 120.
26. As with all controversial subjects prospective overruling attracts arguments both ways. The arguments against prospective overruling are both principled and practical. It will be convenient to note first the major practical difficulties attendant upon prospective overruling. The retrospective nature of a court ruling on a point of law means that the ruling applies in all cases, past as well as future. This is subject only to defences of general application, such as limitation, laches, and res judicata. Whatever its faults the retrospective application of court rulings is straightforward. Prospective overruling creates problems of discrimination. Born out of a laudable wish to mitigate the seeming unfairness of a retrospective change in the law, prospective overruling can beget unfairness of its own.
27. This is most marked in criminal cases, where 'pure' prospective overruling would leave a successful defendant languishing in prison. 'Selective' prospective overruling avoids this consequence but it could see a successful defendant freed while others in like case stayed in prison. In civil cases 'pure' prospective overruling would hinder the development of the law by discouraging claimants from challenging a prevailing view of the law. 'Selective' overruling, if only the successful claimant benefits from the change, is likely to mean that persons in like case are treated differently. Further, it would introduce an arbitrary element into the law. The ability to obtain an effective remedy could depend upon which of several challenges reaches the House of Lords first. Even if everyone who had already commenced proceedings was given the benefit of the court ruling there would still be scope for discrimination: there would be discrimination between those who knew they might have a claim and started proceeding post-haste and those, lacking proper advice, who were unaware they might have a claim.
Objections in principle
28. The essence of the principled argument against prospective overruling is that in this country prospective overruling is outside the constitutional limits of the judicial function. It would amount to the judicial usurpation of the legislative function. Power to make rulings having only prospective effect, it is said, is not inherent in the judicial role. A ruling having only prospective effect cannot be characterised as merely a less extensive form of overruling than overruling with both retrospective and prospective effect. Prospective overruling robs a ruling of its essential authenticity as a judicial act. Courts exist to decide the legal consequences of past events. A court decision which takes the form of a 'pure' prospective overruling does not decide the dispute between the parties according to what the court declares is the present state of the law. With a ruling of this character the court gives a binding ruling on a point of law but then does not apply the law as thus declared to the parties to the dispute before the court. The effect of a prospective overruling of this character is that, on the disputed point of law, the court determines the rights and wrongs of the parties in accordance with an answer which it declares is no longer a correct statement of the law. Making such a ruling would not be a proper exercise of judicial power in this country. Making new law in this fashion gives a judge too much the appearance of a legislator. Legislation is a matter for Parliament, not judges.