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Cite as: [1998] ScotCS 41

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OPINION OF LORD HAMILTON

in the cause

THOMAS DYER

Pursuer;

against

CRAIGLAW DEVELOPMENTS LIMITED and OTHERS

Defenders:

________________

29 October 1998

In this action, having heard counsel for the pursuer and for the first defenders at debate, I granted decree in terms of the first conclusion of the summons. As the matter discussed may be of some general importance in relation to the framing of interlocutors in like circumstances, I decided to prepare and issue an Opinion on it.

In 1995 the first defenders in the present action raised an action in Cupar Sheriff Court ("the 1995 action") against a firm of solicitors who had acted in an earlier action for a company styled Carmichael Developments (Tayside) Limited ("Carmichael"). In the 1995 action the pursuers craved inter alia an order on that firm of solicitors that they endorse in favour of the agents for the pursuers a joint deposit receipt which had been lodged in relation to the earlier action. In October 1995 the pursuer in the present action, who had meantime been appointed interim liquidator of Carmichael (by then in liquidation), was granted leave to enter the 1995 action as minuter. He was designed in that action as "Chartered Accountant, Interim Liquidator of Carmichael Developments (Tayside) Limited...". He was subsequently chosen to be liquidator of Carmichael. He actively resisted the grant of the remedies sought by the pursuers. Following a debate the sheriff in August 1996 granted decree in favour of the pursuers, the liquidator being described in the relative interlocutor as "the Minuter and second named Defender" and certain orders being pronounced against him. As minuter and second defender he appealed to the Court of Session against that determination. The appeal was refused. Following a hearing on expenses, interlocutors in the following terms were on 3 October 1997 pronounced by the First Division:-

"... The Lords having heard counsel for the Parties, finds the Minuter, Second Defender and Appellant liable as Liquidator to the Pursuers and Respondents in the expenses of the Appeal and of the hearing in the Single Bills on 3 July 1997....".

"...The Lords decern against the Minuter, Second Defender and Appellant as Liquidator for payment to the Pursuers and Respondents of the expenses of the Appeal and of the Hearing on the Single Bills on 3 July 1997 as the same shall be taxed by the Auditor of Court."

That decree for expenses has, I was informed, been extracted.

The issue in the present action is the interpretation of those interlocutors and in particular the significance, if any, of the expression "as Liquidator" used in each of them. The pursuer's contention is that the effect of the interlocutors so expressed is to limit the extent of his liability in expenses to the available funds of the company in liquidation. The contention of the first defenders (the successful pursuers and respondents in the appeal) is that the pursuer's liability is not so limited but that he is personally liable for those expenses, albeit with a right relief for them against the funds, insofar as available, of the company in liquidation. The issue is a live one since the company has, it seems, no available funds. The firm of solicitors who had been sued in the 1995 action were also convened as defenders in the present action but took no part in these proceedings.

It is not in dispute that the general rule is that a liquidator who litigates exposes himself to personal liability but is, if found personally liable, entitled to relief out of the company's assets (Smith v Lord Advocate 1978 SC 259, per Lord President Emslie at pp. 272-3). That rule has been settled since Liquidator of the Consolidated Copper Co of Canada v Peddie Etc (1877) 5R 393. It is illustrative of the more general principle that persons litigating in a representative capacity personally warrant the sufficiency of the funds in their hands (Sinclair v The Thurso Pavement Syndicate Ltd (1903) 11 SLT 364).

Disposal of expenses to that effect is not, however, inevitable. The Court, while finding a liquidator liable, may direct that the expenses should not form a charge against the funds of the company in liquidation (Liquidator of Nairn Public Hall Co 1946 SC 395 at p. 398). On the other hand, the Court may limit the enforcement of an award of expenses to the funds which the unsuccessful litigant holds in his representative capacity. In Craig v Hogg (1896) 24 R 6, an order pronounced in the Outer House in proceedings to which a judicial factor was a party was subsequently construed by a court of seven judges as having that effect; a similar situation in relation to a liquidator was contemplated by Lord Salvesen in Kilmarnock Theatre Co v Buchanan 1911 SC 607 at pp. 610-1.

In Craig v Hogg the judicial factor had unsuccessfully defended an action directed against him in relation to the funds under his charge. The interlocutor pronounced by the Lord Ordinary decerned and ordained the defender

"as judicial factor of Archibald Rodan Hogg, to make payment to the pursuer of £159,6s8d, with interest... finds the defender, as judicial factor foresaid, liable in expenses to the pursuer."

A decree was subsequently pronounced for the taxed amount of those expenses. The pursuer thereafter extracted the interlocutor and charged the judicial factor personally to make payment of the taxed expenses. The judicial factor presented a note of suspension of the charge. The Lord Ordinary refused the prayer of the note but in a reclaiming motion the Second Division, with three consulted judges, recalled that interlocutor; the decision was by a majority of five to two. The issue in that case was whether or not the words "as judicial factor" in the award of expenses had the effect of limiting the liability of the judicial factor to the factorial funds. The majority found that it did. Lord Young at pp. 13-14 said:-

"The decree, on which alone any liability of the complainer to the respondent stands, makes no distinction between the debt and the expenses of process, declaring in terms that his liability for both and each is 'as judicial factor'. I am unable to regard these words as superfluous and unmeaning, or otherwise than as distinct and intelligible words of limitation, operating alike on the liability for the debt and for the expenses. Now, what is that limitation? I have characterised it as, in my opinion, distinct and intelligible, thinking it clearly imports that the complainer is not by the decree thus qualified made the respondent's debtor, or the respondent his creditor for the sums specified, but is only ordered to treat the respondent as having a good claim on the factorial estate for these sums".

He later (at p. 18) observed:-

"It is important that there should be no doubt as to the meaning and effect of these qualifying and limiting words 'as judicial factor', or 'as trustee' or 'as executor', or as to the grounds in which they ought to be used or avoided, and others importing personal liability employed. This must be my excuse for entering so fully into the subject, and was indeed the reason which induced the Second Division to refer the case to a full Bench".

Lord Adam, also of the majority, observed at p. 19:-

"I can only say that throughout my long experience I have always understood the words 'as judicial factor' or 'qua judicial factor' when used as here were intended to limit liability to the factorial estate, and I have always so used them. But if that is their undisputed meaning when used in this interlocutor in connection with the principal sum, how can it be maintained that they are not to have the same meaning when used in connection with the finding as to expenses? I cannot read the interlocutor as if no such words were in it, or as if it found the judicial factor personally liable. To my mind the construction of the interlocutor is clear, and it imposed on the complainer no personal liability for expenses".

Lord McLaren, also of the majority, observed at p. 20:-

"If the decree is simply against the 'pursuer' or the 'defender', I should understand this as meaning that the individual decerned against must pay the expenses, reserving his claim to be indemnified out of the trust-estate, a claim which of course cannot be determined one way or the other in an action to which beneficiaries are not parties...".

He went on to hold that an award of expenses qualified by the words "as judicial factor" had the effect of restricting liability to the defender's representative capacity.

Lord Kinnear agreed with Lord Young.

Lord Moncrieff, also of the majority, observed at pp. 24-5:-

"The question - in my opinion the only question - which it is necessary to decide is, whether the decree, according to its terms, imposes personal liability for expenses on the complainer? I agree with those of your Lordships who hold that it does not, because the complainer was found liable in expenses 'as judicial factor' and not as an individual. These are limiting words; their natural and legal signification and effect is to restrict the decree to one against the party in a representative capacity".

In Kilmarnock Theatre Co v Buchanan the question before the Court was the form which should be adopted in a decree of expenses against liquidators who had unsuccessfully brought proceedings. It was not disputed that the decree to be pronounced was one which should have the effect of making the liquidators personally liable but with a right of recourse against the assets of the liquidation. It was held that it was inappropriate to insert the word "personally" into the decree as an effect of that would, while requiring the liquidators to pay the expenses out of their own pockets, deny them recourse against the assets of the liquidation. Craig v Hogg was referred to in argument and Lord Salvesen, in discussing it, said at p. 610:-

"The decision in the case is thus chiefly of value as to the correct way in which a finding for expenses should be expressed where the party to the litigation who is unsuccessful has been litigating in a representative capacity, and sounds a note of warning against qualifying the decree for expenses in any way, unless it is intended by the Court which pronounces it to limit its enforcement to the funds which the unsuccessful litigant holds in his representative capacity".

He later observed at p. 611:-

"Of course occasional cases may be figured - of which this is not one - where a person litigating in a representative capacity may be exempted by the Court by which the action is decided from personal responsibility; and in such cases it would be proper to limit the decree for expenses to the estate for whose benefit the unsuccessful litigation was undertaken. And, for the sake of clearness, it might be well in future to use some phraseology as 'only as judicial factor' or 'trustee' or as the case might be. In that case no difficult question of construction would arise, as in the case of Craig v Hogg, where there was so much divergence of judicial opinion".

In the present case the finding of expenses and the decerniture for them was against "the Minuter, Second Defender and Appellant as Liquidator". That phraseology is identical, save for the particular representative capacity, to "as judicial factor" which was construed in the award of expenses in Craig v Hogg. In the latter case the favoured construction was fortified by the circumstance that the same phrase was used in the interlocutor relative to the principal sum; but that difference is not, in my view, sufficient to distinguish it. The decision in Craig v Hogg is clear and binding authority for the proposition that, where in an award of expenses made against a person suing or being sued in a representive capacity the word "as" is used followed by the particular representive capacity, the award is a limited one and extends only to the amount of the funds under the representative's charge. By contrast, where the order is intended to be unrestricted, albeit preserving the representative's right of recourse against the funds under his charge, the interlocutor should , as in Kilmarnock Theatre Co v Buchanan, simply be against the representative described as such but without the qualifying word "as". The rule applies generally where a representative litigates. In the present case there was at one point in the discussion a suggestion that a distinction might be drawn between a judicial factor and a liquidator. That proposition was not developed. So far at least as concerns the form of the interlocutor, no such distinction can, in my view, properly be made. While "only as liquidator" as suggested by Lord Salvesen in Kilmarnock Theatre Co v Buchanan at p. 611 might have put the matter beyond doubt, the absence of that adverb is not, in my view, sufficient to justify a different construction.

In the pleadings in the present action the first defenders narrate that at the hearing on expenses they moved the judges of the First Division to find the present pursuer personally liable in the expenses of the appeal without a right of relief out of the assets of the company in liquidation but that that motion was refused. Although the pursuer's statement on averment is expressed in slightly different terms, it was accepted on his behalf before me that the first defenders' narrative was accurate. It also emerged in the course of the discussion that no motion had been made at the hearing before the First Division that the present pursuer's liability be restricted to the liquidation funds. In my view, however, I am not entitled in construing the relative interlocutors to take such circumstances into account. Nor am I entitled to speculate as to why the First Division might have limited the minuter's liability to the extent of the liquidation funds or as to whether an error may have been made in the drafting of these interlocutors. A decree of the Court must, at least when extracted, speak for itself (Craig v Hogg especially per Lord Adam at p. 19). Standing the terms of the interlocutors they must, in my view, be given the meaning and effect which interlocutors expressed in such terms have been settled as having.

For those reasons I granted decree of declarator to the effect that the pursuer's liability in the expenses awarded on the appeal was restricted to the limit of the assets of the company in liquidation.