Law Weblog

“No temporal limit to the effect of rulings”. The House of Lords can postpone the coming into effect of a ruling on a point of law. This appears to be (within a few miles) what their Lordships have stated in an amazing judgment of seven Law Lords. In our opinion, this judgment ranks with the Practice Statement of 1966 in terms of importance.

Friday 1 July 2005 at 11:33 pm | In News | Post Comment

National Westminster Bank v Spectrum Plus [2005] HL
[Precedent – prospective overruling is lawful]
National Westminster Bank was owed money by Spectrum Plus, a paint company. Other creditors such as the Inland Revenue, Customs & Excise and Spectrum employees were also owed money. Spectrum became insolvent (went bust). Nat West sued to recover their money ahead of the Revenue.

Held: By seven Law Lords:-
Banks that lent money to companies on certain terms have lost their right to a place at the front of the queue for repayment when the companies go bust. Nat West’s charge counted as a “floating”, rather than a “fixed” charge, meaning it had to wait in line behind a queue of government creditors.

The law lords declined to overrule prospectively Siebe Gorman (1979) that is they declined to make their decision effective only in the future.

Siebe Gorman v Barclays Bank (1979) overruled.

Nat West Bank lost.

Comment: This judgment hits 10 on the scale of important decisions in recent years. The whole basis of precedent has been altered. All sides in the debate about judicial creativity and the judiciary’s role in law making will now to be re-argue their case.

The effect of this case is that many insolvencies over the past 25 years may have been wrongly decided and could, in theory, be challenged. The main beneficiaries will Revenue & Customs, but a Crown statement three years ago indicated that they would not seek to unpick earlier decisions.

Over 500 other cases have been awaiting this judgment and can now be sorted out; the sums involved may costs banks hundreds of millions of pounds.

The House of Lords held that it had jurisdiction in certain exceptional circumstances to depart from the normal principles relating to the retrospective effect of court decisions, the present case was not within that exceptional category of case in which a declaration that the overruling was to have prospective effect only would be appropriate.

The bank argued that if the HoL was going to overrule Siebe Gorman, it should do so only for the future and Siebe Gorman should continue to apply to all transactions entered into before the instant case.

The essence of the argument against prospective overruling was that in this country prospective overruling was outside the constitutional limits of the judicial function and would amount to the judicial usurpation of the legislative function.

The ruling is clear, prospective overruling is lawful.

That argument raised the issue: would a decision by the House of Lords on a point of law having only prospective effect be so substantial a departure from established judicial procedure that it should be regarded as outside the function discharged by the judiciary under this country’s constitution?

In this country, the established practice of judicial precedent derived from the common law. Constitutionally the judges had power to modify that practice.

There could be circumstances in this country where prospective overruling would be necessary to serve the underlying objective of the courts of this country: to administer justice fairly and in accordance with the law.

There could be cases where a decision on an issue of law, whether common law or statute law, was unavoidable but the decision would have such gravely unfair and disruptive consequences for past transactions or happenings that their Lordships’ House would be compelled to depart from the normal principles relating to the retrospective and prospective effect of court decisions.

If, altogether exceptionally, the House of Lords, as the country’s supreme court were to follow that course their Lordships would not regard it as trespassing outside the functions properly to be discharged by the judiciary under this country’s constitution.

However, the present case was miles away from the exceptional category in which alone prospective overruling would be legitimate.