Scottish Court of Session Decisions

The defenders in this action formerly carried on the business of the Tinto Hotel, Symington, Lanarkshire, in partnership. A dispute arose between them as to whether the contract of partnership had been terminated and, if so, what the consequences of the termination were. The pursuer was appointed by the Sheriff Principal of South Strathclyde, Dumfries and Galloway as arbiter to determine that dispute. After sundry procedure in the arbitration the pursuer issued, first, a Part Award dated 7 April 1993, and secondly, a Terminating Award dated 11 October 1996.

In the Terminating Award the pursuer made inter alia the following finding:

In this action the pursuer sued the defenders jointly and severally for £13,139.43, on the averment that that was the unpaid balance of the sum of £37,188.74 for which they had been found liable in paragraph 4 of the Terminating Award. The first defender lodged defences in which he took up the position that he should be assoilzied because the pursuer had failed properly to perform his duties as arbiter. He also sought to argue that the sum sued for was excessive. The first defender also lodged a counterclaim, in which he sought damages in respect of the pursuer's alleged breach of duty. The second defender lodged defences in which he averred that he had made payments to the pursuer which, in aggregate, exceeded his apportioned share of the joint and several liability, and claimed a right of relief against the first defender accordingly. After sundry procedure the action, so far as laid by the pursuer against the first defender, was settled. In terms of the Joint Minute (No. 23 of process) the first defender was found liable to the pursuer in the expenses of the action, including those of the counterclaim, up to and including 1 June 1998; quoad ultra the first defender was assoilzied from the conclusions of the summons in so far as directed against him; and the pursuer was assoilzied from the conclusions of the counterclaim.

One issue which remained outstanding at that stage was the second defender's claim for relief against the first defender. The second defender lodged a Note (No. 26 of process) setting out the basis of that claim, and the first defender lodged a Note (No. 27 of process) in response. The case was put out By Order on 5 October for debate of the issues raised in those Notes.

As the competing arguments were developed at the hearing, two issues were identified. The first was whether there had been a compromise of all outstanding claims between the defenders which encompassed any claim that the second defender might otherwise have had for relief. The second issue was whether the second defender's claim for relief must fail for want of relevant averments that the defenders were jointly and severally liable to the pursuer in the sum referred to in the Terminating Award.

Before addressing these issues it is convenient to set out the arithmetical basis of the second defender's claim. As can be seen from paragraph 4 of the Terminating Award (1) the aggregate sum for which the defenders were found to be jointly and severally liable was £37,188.74; and (2) the shares of that total liability allocated to the defenders respectively were (a) to the first defender £16,784.87 (i.e. £10,909.87 + £5875.00), and (b) to the second defender £20,403.87. The pursuer avers that he made four payments, of £10,909.87, £11,182.50, £1956.94 and £3854.44, totalling £27,903.75. That total exceeded his proper share by £7499.88. That was accordingly the sum which he was entitled to obtain by way of relief from the first defender.

Embedded in those figures is one issue of fact which cannot be resolved on the basis of the submissions which I heard. The sum of £10,909.87 was apparently paid out of partnership funds. It is not, as I understand it, disputed that the second defender was entitled to make the payment from that source, but it is unclear whether one half share of that sum was debited to the first defender's capital account. If it was, the first defender would already have borne one half of that sum, and the second defender's claim for relief would be reduced by that amount, i.e. by £5454.94. That factual issue remains to be resolved.

The contention that the claim for relief had been encompassed within the over all settlement between the defenders was argued by reference to correspondence which forms No. 7/1-15 of process. The matter of the arbiter's fees was raised in that correspondence in a letter of 10 March 1998 (No. 7/12) passing between the first defender's law accountants, Alex Quinn & Partners, and the second defender's law accountants, Messrs Quinns. In that letter the writer raised the query as to whether half of the fee of £10,909.87 had, after being paid from partnership funds, been debited to the first defender's capital account, and had thus already been paid by him. In the next letter, dated 25 March (No. 7/13) the same writer refers to discussions:

The reply of the same date (No. 7/14) does not touch on the point. Meanwhile, on 11 March the second defender's solicitors, Drummond Miller W.S., wrote to the first defender's solicitors, Hughes Dowdall, setting out the terms of settlement of "the two Court of Session actions" (i.e. two Court of Session actions then depending between the present defenders, not including the present action). The third numbered paragraph of that letter (No. 7/9), as subsequently corrected by letter dated 26 March (No. 7/8), stated:

Hughes Dowdall responded to that offer by letter dated 27 March (No. 7/7) in which they made counter-proposals as to the terms of settlement of the actions between the present defenders, and added in response to the third paragraph of the letter of 11 March (as amended):

There then followed a letter of 29 April (No. 7/6) in which the second defender's solicitors set out the arithmetic underlying his claim for relief. The response dated 7 May (No. 7/5) reiterated the contention that the arbiter had not discharged his functions properly and added:

The second defender's solicitors replied by letter dated 13 May setting out their interpretation of the settlement terms, which involved payment by the first defender to the second defender of £26,563.30, dismissal of both actions between the present defenders with the first defender paying judicial expenses to date, and an undertaking by the second defender not to seek expenses against the first defender in the arbiter's action. They concluded:

By letter of 14 May (No. 7/4) the first defender's solicitors confirmed that their offer had been correctly understood. The contemplated Joint Minutes and undertaking were then signed.

In my opinion, a fair reading of that correspondence makes it clear that to the end of the negotiations the first defender maintained his position that he was not obliged to make any payment in respect of the second defender's claim for relief, and the second defender maintained his position that he was entitled to such relief. I can find nothing in the correspondence from which it can be inferred that settlement of the claim for relief (whether by acceptance of it in whole or in part or by abandonment of it) was included in the matters on which agreement was reached. In particular, the exchange contained in Nos. 7/5 and 7/4 makes it clear what the scope of the compromise was, and contains no mention of the claim for relief. I am therefore of opinion that the first defender's contention that the claim for relief is barred by that compromise is not well founded.

The first defender's other main contention was that in any event the second defender had failed to aver a relevant claim for relief. In advancing that submission, Mr Mitchell began by citing Gloag on Contract (2nd edn.) p. 206:

Mr Mitchell accepted that that statement applied in its precise terms only where there was a joint and several debt and no express provision as to the share to be borne by each. Where there was such provision, the sharing provided for would take the place of proportionate sharing, and relief would be available to such extent as was necessary to secure that each co-debtor bore his own proper share. That passage in Gloag had been the subject of comment in Moss v Penman 1994 SLT 19. In particular, the phrase "forced to pay" was explained by Lord President Hope (at 21G) as follows:

It seems to me to be clear that all that is implied by the words "forced to pay" is that the payment was made in or towards discharge of a legally enforceable joint obligation to make it. It was on that essential foundation for a right of relief that Mr Mitchell built his argument. He submitted that if the joint obligation was disputed by the party from whom relief was sought, it was for the party claiming relief to establish the existence of the joint obligation. In the present case, the decree arbitral (paragraph 4 of the Terminating Award) was insufficient to establish the joint obligation when the first defender disputed it. In support of that submission Mr Mitchell referred to Henderson v Paul (1867) 5 M 629. In that case (which, like this, concerned a claim for relief by one party to an arbitration, who had paid the arbiter's fee, against the other party) the court rejected the submission that payment in discharge of a moral obligation to pay was a sufficient foundation for a claim for relief, but held that in the circumstances there had been a legal obligation to pay. Mr Mitchell submitted that, while it was open to the second defender to maintain his claim for relief if he offered to prove that the sum awarded by the arbiter was due and was reasonable, the fact that the arbiter had found the amount due afforded the second defender no "evidential privilege" in circumstances in which the first defender maintained (i) that the arbiter had failed to discharge his duties and thus was not entitled to remuneration, and (ii) that in any event the remuneration mentioned in the Terminating Award was excessive.

Mr Kelly for the second defender, while not disputing that a claim for relief required as part of its foundation an enforceable obligation to pay the joint debt, submitted that in the circumstances of this case the Terminating Award was sufficient to constitute a prima facie case that the sum mentioned in paragraph 4 was owed by the defenders jointly and severally to the pursuer, and that their respective shares of the joint debt were as set out there. Indeed he submitted that in order to maintain his position that the arbiter's fees were not due, to the effect of resisting the claim for relief, the first defender would require to seek reduction of paragraph 4 of the Terminating Award. So long as that decree arbitral stood, there was no relevant defence to the claim for relief.

In my view it is clear that relief can only be sought where the payment made has been made in discharge of an enforceable debt owed jointly by the party seeking relief and the party against whom relief is sought. In this case it is not disputed that the pursuer was appointed as arbiter to determine the dispute between the defenders. I do not understand it to be disputed that as a professional arbiter he was entitled to charge reasonable remuneration for the performance of his duties. I do not understand it to be suggested that in making the finding contained in paragraph 4 of the Terminating Award the pursuer was acting ultra fines compromissi. The points which the first defender seeks to take are (i) that the arbiter so failed in the performance of his duties that he has lost his right to remuneration, and (ii) that in any event the amount of the fees is excessive. In that situation, I am of opinion that Mr Kelly is right in his submission that the second defender makes a good prima facie case that the payment which he made was made in implement of a joint obligation to pay the arbiter's fees by pointing to the Terminating Award. By founding on that decree arbitral and the fact that he has made payment of more than the share of the joint obligation allocated to him, the second defender in my opinion makes a relevant claim for relief. I do not require at this stage to decide whether Mr Kelly is right in maintaining that to make a relevant defence to that claim the first defender requires to clear paragraph 4 of the Terminating Award away by reduction. I am satisfied, however, that it is for the first defender at least to make averments of the basis on which, despite that finding, the defenders were under no obligation to pay the fees fixed by it. To demand that the second defender, in addition to relying on the Terminating Award, must shoulder the burden of proving (a) that the arbiter duly performed his duties and is thus entitled to remuneration, and (b) that the amount of remuneration is reasonable, is in my view to invert the proper onus.

Mr Mitchell made the further submission that in any event the second defender could have no claim for relief in respect of the last sum paid, the sum of £3854.44, because it could be seen from the second defender's solicitors' own correspondence that that payment had been made in error. I do not consider that that submission is well-founded. It is important in my view to appreciate the nature of the "error". The point was not that the payment of £3854.44 was not truly due by the defenders jointly and severally to the pursuer. At the time it was made that payment was well within the total mentioned in paragraph 4 of the Terminating Award. Rather the point was that the payment had been made in the erroneous belief that it was part of the share of the joint and several liability allocated by the Terminating Award to the second defender. The error was in paying more than his share. That error, however, is not of such a nature as to undermine the basis for the claim for relief, because that "erroneous" payment was, despite the "error", part payment of the joint debt.

I therefore hold (1) that the first defender fails in his contention that the second defender's claim for relief is excluded by compromise, and (2) that the second defender has relevantly averred that the sums which he paid (including the "erroneous" payment of £3854.44) were legally due by founding on paragraph 4 of the Terminating Award. In the circumstances, without pronouncing an interlocutor giving effect to those findings, I shall put the case out By Order with a view to (a) giving parties an opportunity to resolve the factual issue as to whether one half of the payment of £10,909.87 was debited to the first defender's capital account in the accounts of the dissolved firm, and (b) giving the first defender an opportunity to consider whether he wishes to maintain, in a question with the second defender, his contention that the arbiter was not entitled to the remuneration set by paragraph 4 of the Terminating award and, if so, in what form that contention requires to be expressed if it is to constitute a relevant defence to the second defender's claim for relief.