Scottish Court of Session Decisions

This was an action at the instance of Boyle & Company, manufacturing confectioners, The Japperies, Blackburn, Lancashire, against Morton & Sons, engineers, Belhaven Works, Wishaw, Lanarkshire, in which the pursuers, founding on a contract of indemnity, sought payment from the defenders of the costs of an action which they had unsuccessfully defended.

The facts of the case, which were admitted, were as follows:—(This narrative is in part taken from the opinion of the Lord Ordinary ( Stormonth Darling.)—“The contract of indemnity arose out of a sale in 1896 by the defenders to the pursuers of a vacuum boiling-pan, as to which there was some doubt whether it infringed a patent called Kane's Patent.

Accordingly, by letter to the pursuers dated 2nd December 1896 the defenders undertook to ‘indemnify you from any legal action that may arise in connection with your using our vacuum pan for boiling sugar and glucose up to hard crack.’ In May 1900 Kane raised an action for infringement of his patent against the pursuers in the Chancery Division of the High Court of Justice in England. The pursuers at once communicated with the defenders, and the result was a fresh undertaking by the defenders' solicitors, on their behalf (by letter dated 20th June 1900), to pay costs and damages, if any, ‘on the distinct understanding that the conduct of the case is left entirely in our hands, and necessary instructions are given to us to enable us to lodge the defence in good time.’”

The pursuers accordingly authorised the defenders' solicitors to proceed with the defence of the action. In that action judgment was given against the present pursuers by Mr Justice Byrne.

On 16th May 1901 the defenders' solicitors, in intimating the result of Kane's action to the pursuers, wrote in the following terms, viz.—“We much regret that the decision was unfavourable, but we hope that as large interests are involved an appeal will be decided upon, and that you will be able to do your part by giving formal instructions if other parties will be responsible for the costs.”

On 23rd May the defenders' solicitors wrote to the pursuers' solicitors as follows—“We have to-day had a consultation with counsel, who advised that the trade ought to appeal in this case, and Messrs Boyle will consult you to-morrow as to their position if they instruct us to give notice of appeal.” In their letter they asked for instructions from the pursuers for an appeal, and the letter proceeded—“At a small cost, and almost no responsibility, Messrs Boyle can be of great assistance to those members of the trade who, like themselves, have used the vacuum pan. We quite agree with them that they should not ultimately undertake the responsibility of the appeal, and if the other members of the trade will not come forward and subscribe their money, and effectually guarantee Messrs Boyle against everything but their proportion, not only of their own costs but of the costs which the other side have recovered and may recover in the Court of Appeal or House of Lords, that then Messrs Boyle should withdraw.”

The pursuers' solicitors replied by telegram on 24th May in the following terms—“Boyles will not appeal unless costs incurred by plaintiffs, and damages and costs to be incurred on the appeal, are at once provided for satisfactorily.”

On the same day the defenders' solicitors wrote as follows—“We much regret the decision communicated to us by telegram to-day, and hope that your clients will reconsider the matter. In our letter we placed the whole facts clearly before you. We left out of consideration the indemnity by Messrs Morton, as you are aware that we advised them to give the indemnity

Page: 256↓

asked last year, but the question has now passed beyond that stage. We believe that your clients agreed with Mr Horn that it was useless to hold the meeting of the trade on Tuesday, owing to the Whitsuntide holidays preventing attendance, and Messrs Morton & Sons are not in a position to bear or guarantee the costs of a possible appeal to the House of Lords any more than your clients, so that it is quite impossible for the terms of your telegram to be complied with. We feel sure that you will agree with us that the mere giving of the notice of appeal does not alter Messrs Boyle's position, or add in any way to their liabilities, as they can at any time withdraw the notice, and it in no way prejudices any claim they may have against Messrs Morton.”

The pursuers ultimately demanded a deposit of £700 to meet costs and damages already incurred. This demand was not complied with, and no appeal was entered.

In the present case the pursuers pleaded—“(1) The defenders having agreed to indemnify the pursuers for the costs awarded against and paid by them in said action, are bound to repay the same to the pursuers.”

The defenders pleaded—“(3) The pursuers, by their refusal to enter an appeal except upon conditions which they were not entitled to insist in, having interfered with the defenders' conduct of the case, and thereby broken their agreement with the defenders, are barred from recovering the sum sued for.”

On 21st May 1902 the Lord Ordinary sustained the third plea-in-law for the defenders, and assoilzied them from the conclusions of the summons.

Opinion.—“Both parties maintain that this case can be decided on the admitted facts, and I agree with them. The question is whether the pursuers have lost the right which they had under contract with the defenders to be indemnified from the costs of an action by refusing to allow an appeal against an adverse judgment to be taken in their name.”

[ After the narrative quoted above]—This (the undertaking of 20th June 1900) was not a new contract, but a mode of working out the old. Probably it was the mode on which the defenders would have been entitled to insist without express stipulation, but it is unnecessary to consider that, because the stipulation was admittedly agreed to. And really, as it seems to me, the sole question comes to be, whether the pursuers can be said to have left the conduct of the case entirely in the hands of the defenders, when they refused to let them appeal from the adverse decision of the Judge of first instance except upon condition of their depositing or finding security for £700.

Now, if this be the question, I do not think that it would be elucidated in any way by a proof. A proof could not show whether there were probable grounds for an appeal. The presumption, I suppose, must always be the other way. But it is admitted by the pursuers that counsel advised an appeal, and therefore it cannot be said that the defenders were asking anything inconsistent with the ordinary ‘conduct of the case’ when they demanded that the pursuers should continue to give the use of their name in order to permit of counsel's advice being followed and the soundness of the judgment being tested in the regular way. An appeal within a court is, in a question of this kind, to be viewed more favourably than an appeal from one court to another altogether distinct, and in particular an appeal to the House of Lords. The one is normal, the other is exceptional. It is said that the judgment of Mr Justice Byrne made an entire change of circumstances, and justified the pursuers in demanding security, which they would not have been entitled to demand before. That the judgment made a difference in the situation I do not doubt; it made the success of the defence more doubtful, perhaps much more doubtful, than it had originally been; but there is no allegation that it affected the financial ability of the defenders to bear the consequences of failure. And if the pursuers were content at the outset of the action to rely on the defenders' solvency, I see no reason for holding that they had a right to change their attitude merely because the first judgment was adverse. In short, I see no necessary connection between the one thing and the other.

I therefore come to the conclusion that the pursuers, by refusing to appeal except on a condition which they were not entitled to impose, failed to fulfil their own part of the contract, and so disabled themselves from demanding performance of the defenders' part. I decide nothing beyond that. In particular, I must not be held as giving any countenance to the notion indicated in the defences that the pursuers may be liable to repay to the defenders, as damages for breach of contract, the expenses paid by the latter to their own solicitors. For that would seem to imply that these sums would have been recovered if an appeal had been taken, or, in other words, that the appeal would have been successful. Now, nobody can say that. It is quite a different thing to say that the defenders ought to have been allowed the chance of succeeding, and that by refusing to give them a chance the pursuers have lost their right to take benefit by the contract. The proper plea to sustain is, 1 think, the third plea for the defenders, and it must carry absolvitor and expenses.”

The pursuers reclaimed, and argued—The stipulation with regard to the “conduct of the case” only meant that the defenders' solicitors were to be the sole solicitors for the defence of the action. If the agreement for indemnity gave the defenders a right to take an appeal as a step in the conduct of the case they should have done so. If they were not entitled to do so without the consent of the pursuers, then the pursuers were entitled to withhold their consent, and the Lord Ordinary's ground of judgment failed. Apart from the terms of the agreement now relied on by the defenders, the Lord Ordinary had not given due weight to the correspondence

Page: 257↓

which followed the adverse judgment, from which it appeared clearly that in the contemplation of parties a totally new arrangement had to be made.

Argued for the respondents—The letter of 20th June 1900 containing the stipulation as to the “conduct of the case” was a mere working out of the indemnity, which was given with regard to “any legal action that might arise.” The pursuers having accepted that indemnity without security were not entitled afterwards to demand security. An agent entrusted with the conduct of a case in the Court of Session would be empowered to reclaim against an Outer House judgment without consulting his client. In any event, if the “conduct of the case” did not include a right to appeal, at least it deprived the pursuers of the right to refuse to enter an appeal. Any misunderstanding that arose in the correspondence carried on by the defenders' solicitors did not affect the defenders.

At advising—