Scottish Court of Session Decisions

The pursuers purchased a plot of land at Dirleton in April, 1987. They appointed the first defender as their architect to design and to supervise the construction of a house on the site. The second defenders were engaged as builders of the house. The initial contract price was £115,624, and the final contract price about £125,000. The project, as perceived by the pursuers, was a disaster. The present litigation resulted. The action was raised in April, 1993 and proceeded as an ordinary action until December. At that time the case was sisted for informal adjustment and negotiation. That process saw some progress in the identification of the issues among the parties in the form of a "Scott Schedule", but was inconclusive. In June, 1995, the sist was recalled. In July, 1995, the first defender, the pursuers' architect, introduced a contention that the case should be sisted for arbitration. That issue was finally resolved by the Second Division on 20 March, 1996. The dispute as between the pursuers and their architect went to arbitration. The arbitration proceedings included a debate, and twenty-one days of proof. Decree arbitral was pronounced on 15 December, 1997. The present action remained live between the pursuers and the second defenders.

The pursuers were successful in the arbitration to a very substantial degree. It appears clear that they were for all practical purposes fully vindicated in their claims against the first defender. The arbiter found the pursuers entitled to payment of £191,121.96 in respect of their building claims, and £8,500 each for the trouble, inconvenience and distress they had suffered.

It is apparent that the dispute was prosecuted and defended with vigour. But it is now agreed that the pursuers are entitled to their expenses, including a special fee for their solicitors, and certification of their expert advisers. The parties remain in dispute on one matter, namely whether the pursuers are entitled to an award of interest on the outlays or disbursements properly incurred by them and, if they are, how that should be quantified. Counsel were agreed that, at least in proceedings in the Outer House, the position was accurately summarised by Lord Kirkwood in Phillips v Upper Clyde Shipbuilders 1990 S.L.T. 887, at page 890. It is competent for the court to award interest on expenses prior to the date of decree. But the established practice of the court is that interest will be awarded only if there are special circumstances justifying that course. Lord Kirkwood set out fully the basis in authority for these propositions and it is unnecessary to repeat the discussion of that material. But, in view of the argument in this case, it is appropriate to make some observations on the factors which have been taken into account, and on the court's approach to them.

In Groat v Sinclair 15 May, 1819, F.C., the action was raised in 1780 by the representative of Malcolm Groat, who had sold certain lands to the predecessor of the defender in 1741. The action proceeded by fits and starts until November, 1817 when the Lord Ordinary made an award of expenses in favour of the pursuer. The pursuer then sought interest on his outlays from the respective dates of disbursement. He succeeded. The defender reclaimed, and the court adhered. The pursuer argued before the Inner House that a "most harassing litigation" had been carried on by the defender and his authors for thirty years, that the defender's predecessors had had possession of the lands for eighty years without payment of the price, and that by delay in payment "they have got above L.5000 of dead interest". It was not even near an equivalent to give the pursuer interest on his expenses. The court sustained the Lord Ordinary's disposal "in respect of the peculiar circumstances of the case, and especially the extraordinary endurance of the litigation, and the great advantage accruing to the petitioner by dead interest on the price of the lands". The report concludes: "No danger can arise from granting interest in this case, particularly as the Court have expressed their interlocutor very guardedly". The Lord Ordinary had based his disposal on the view that expenses were intended to indemnify the successful party, and would fail in that purpose unless interest paid on their disbursement was included. That finds an echo in later cases. But such an approach would suggest a general right to payment, not an exceptional equitable remedy. It appears from the final interlocutor that the factors relied on by the court were duration of the litigation and the unfair advantage obtained by the defender and his predecessors in title. There was nothing particular about the outlays themselves. Groat was followed in McDowall v McDowall 1821, 1 S. 188. However, there is little similarity between the circumstances. The pursuer had succeeded in obtaining an award of damages before the Admiral. That decree was extracted. Both parties sought reduction of the decree. The pursuer was again successful, and obtained higher damages. The Lord Ordinary awarded interest on the expense of extracting the Admiral's decree. The expenses of extract were high. The Lord Ordinary's reasoning, so far as it appears from the report, appears to echo the Lord Ordinary in Groat rather than the Inner House. Further the amount of the expense was a factor in this case. In Earl of Fife v Duff 1827, 5 S. 492, the law agent's account comprised large amounts of outlays, and an "extremely moderate" charge for trouble. The Earl argued that if interest were not allowed, the cost of financing the outlays would exceed his agent's remuneration, so that the agent would be a loser by his employment. The claim was allowed. Blair's Trustees v Payne dealt with the underlying problem in 1884, much too late for the Earl's agent. The only significant factor bearing on the award of interest appears to have been the very large sums involved. In Barclay v Barclay 1850, 22 Sc. Jur. 354, a claim for interest was allowed on a selective basis. There had been heavy expenditure on obtaining Belgian legal advice and evidence. There had also been a large account for printing. Interest was allowed on the foreign elements, but not on the printing. The case was said to have been of a very peculiar nature. In The Craig Line Steamship Company v The North British Storage & Transit Company 1921 S.C. 114, a claim for interest was again allowed on a selective basis. Lord Salvesen (page 131) would have awarded interest on the whole outlays on a full indemnity principle. The majority of the court, with considerable hesitation, granted inte

There is not a consistent pattern in the cases in which awards of interest have been made. The general indemnity principle has not been applied. There are cases in which the particular character of the litigation has been a factor, and others in which that has not figured. In some the duration of the litigation has been a factor, sometimes attributable to extraneous circumstances and sometimes not. In some the nature or the amount of the disbursement has been a prominent consideration, and in others that has not been emphasised.

I was referred to cases dealing with interest more generally, Blair's Trustees and Elliott v Combustion Engineering Limited 1997 S.C. 126 in the context of debt, and Boots the Chemist v G. A. Estates 1993 S.L.T. 136 in relation to damages. Apart from underscoring the anomalous character of the present problem, these cases are not of assistance, in my view, at first instance. The general rule of practice, and the scope of the exception, at least in general terms, are established by the authorities. They are recognised in Maclaren on Expenses, page 505, and Bell's Commentaries 7th edition, vol. 1 pages 693-4.

For the pursuers, Mr Reid argued that there were special circumstances justifying an award in this case. The amount of the award both in absolute terms and in relation to the contract price of the house was very high. The case was particularly complex, involving forty or so discrete allegations of breach of professional duty, and some fifty discrete topics relating to the building which had to be dealt with in the litigation initially and then in the arbitration. At the end of the day two small claims were abandoned, and five were rejected, after twenty-one days of proof. The pattern of claims might be expected in a dispute arising from a commercial building contract, but in the context of a domestic building was most unusual. The litigation, in the broadest sense, was unduly protracted. The late arbitration plea, and the diversion of the case from court involved additional time. The litigation had had a very significant effect on the pursuers and their family. This was reflected in the amounts awarded for trouble and inconvenience, which were large by general standards. They had had years of financial worries. The first pursuer had maintained full records, without which successful prosecution of many of the claims would have been impossible, and there was voluminous correspondence. It was his persistence which had led to a successful claim, but that had involved excessive time and trouble. On any view the litigation was very expensive. The untaxed account for the action was £70,000, of which £55,000 was outlays. The account of expenses for the arbitration was approximately £200,000. The cost were astronomical for an individual in employment without independent capital engaged in a dispute over what was a family home. Very large outlays had been incurred in obtaining advice from architects and other building industry professionals.

For the defender, Mr Glennie argued that there were no special circumstances. The case was not out of the ordinary. On the contrary it was a typical building contract dispute. There were many large cases of as great or greater importance to the client. The litigation had not been unduly protracted, according to standards generally prevailing in the court, given the range of issues raised. Building disputes not infrequently took five years to disposal. So far as concerned the impact on the pursuers of the problems experienced, they had already been compensated for that. The factor should not be taken into account again. If the pursuers were particularly susceptible to stress, or obsessive in approaching the problem, that should not be taken into account. If they were not, there was nothing to distinguish their case from the norm. The untaxed expenses were high. But if they survived taxation, then they would be the measure of the expense properly incurred in conducting the litigation. The case had been run as a commercial dispute. The costs were not out of the ordinary in that context. Throwing money at a case did not make it exceptional. That would only encourage excessive expenditure on litigation. In any event the only expenditure which might be exceptional was that incurred in instructing architects and associated professionals, and one had to consider when along the line of that expenditure it became exceptional. There was no reason to think that a large proportion of the expenditure would not have been incurred in any building case. Further, on analysis of the accounts it was clear that the material sums had been disbursed within a relatively recent period. There had not been a long period of necessary finance.

The pursuers' agents' untaxed account of fees and outlays in the Court of Session action, so far as concerns the first defender, amounts to £77,261.99. Of that £50,717.62 is attributable to architects' and other related advice. The architects' accounts which were rendered were allocated between work related to claims against the defenders respectively. It is apparent from an examination of the accounts in the litigation, ignoring the arbitration proceedings, that the heaviest expenditure was incurred in the first year of the litigation, when the major part of the preparation of the pursuers' case was in hand. The accounts end in December, 1995, and after the reclaiming motion the focus of attention changed to the arbitration. The pursuers have had to carry the finance costs of the majority of the expenditure from dates between September, 1993 and July, 1994. If the whole expenditure is allowed at taxation, the sum of the disbursements will be high. Whether it will be exceptionally high is a different issue. It appears to me that the court is not well placed to form a view on that question without enquiry. On the other hand, the other outlays in the account, for counsel's fees, court dues and printing, do not appear to be particularly high. However, again the Court is not skilled in assessing such matters without guidance.

So far as concerns other factors, it is necessary in my view to distinguish between anxiety and other forms of response to the circumstances giving rise to the claims from anxiety related to the litigation. The arbiter awarded the pursuers sums for the trouble and inconvenience experienced during their contacts with the first defender. One starts with an anxious case, given such a background, and it may or may not have a bearing on whether the Auditor allows the whole or part only of the Hurl Rolland Partnership account for professional advice. But whether it is exceptional may depend in part on how one clarifies the case. As a building contract case, in the broadest sense, the case does not appear to be out of the ordinary. Even in a domestic context it is in a class of case which must at least include cases in which people have purchased residential property for their own occupation on the basis of allegedly negligent survey reports, and more generally of disputes over the design and construction of residential property for personal occupation by the employer. It must be a characteristic of each such case that anxiety over the person's home, and the quality of life which can be sustained in it, affect the individuals involved. The sum of money involved in the present case is large, especially in relation to the contract price for the property, but it is not obviously exceptional. The case has not been in court an exceptional period of time.

Before coming to a view on the disposal of the case two steps are required. It is necessary to have the Auditor's report on taxation. It is not satisfactory to proceed on assumptions as to the probable level of party and party expenses. Secondly, it is necessary to have information on the question whether all or any of the expenditure allowed is exceptional, in absolute terms or in relation to the issues raised and dealt with in the case. I consider that in making a remit of the account of expenses to the Auditor I should seek his advice on whether the sums expended in respect of the Hurd Rolland Partnership account, as taxed, and the pattern of such expenditure and the circumstances in which it was incurred, are exceptional.

There remains a question of the rate of interest which should properly be charged in the event of the pursuers succeeding. They opened a separate bank account to fund the outlays, and by agreement with their bankers were advanced the sums they required at three per cent above base. The present claim has been quantified on that basis. The authorities show that full indemnity has not been approved generally as the basis on which interest has been granted, despite a number of references to that principle. There has been no suggestion that there was any basis in contract for the claim. As presently advised, I incline to the view that, if any interest is due, the appropriate rate would be the rates fixed from time to time by Act of Sederunt for ordinary judicial awards. However, since the major issue of the pursuers' entitlement to interest is to be the subject of further investigation, I shall reserve my decision on the rate.