Scottish Court of Session Decisions

In or about January 1993, the pursuer in this action was the tenant of shop premises at 154 Bank Street, Blairhill Shopping Precinct, Coatbridge. Desiring to sell his lease of these premises, the pursuer instructed the defenders to act on his behalf in the matter. The defenders are a firm of solicitors carrying on a practice in Coatbridge. The defenders accepted the pursuer's instructions and, in due course, the lease of the premises was marketed for sale. On or about 15 February 1993, an offer to purchase the lease of the premises was received from Messrs MacPherson Gibb and McAfee, a firm of solicitors who were then acting on behalf of their client, Gurgut Gill. The price offered was £108,000. That offer was accepted by the defenders on behalf of the pursuer and missives were concluded. The date of settlement thereunder was 9 June 1993. On that date, the defenders received £106,000, representing the balance due of the purchase price, from Messrs MacPherson Gibb and McAfee. On the same date, the defenders gave a letter of obligation to Messrs MacPherson Gibb and McAfee, in which an undertaking was given to deliver to them an assignation of the lease of the premises concerned within 14 days of the date mentioned and also to produce within that period written confirmation from the landlords of the premises, Monklands District Council, that the landlords consented to the use of the premises as a Sub-Post Office. By letter dated 11 June 1993, the defenders forwarded to the pursuer the sum of £22,640.33, which sum was the balance of the purchase price under deduction of the sum of £73, 579.94, being amounts due to the Bank of Scotland, and after taking account of certain sums which the defenders themselves retained. The sums retained were firstly £9,779.73 and secondly £7,242.70. The circumstances in which the first sum retained was held by the defenders are the subject of dispute. The second sum mentioned was retained by the defenders to meet their legal fees and outlays.

In the summons in the present action, there are two main conclusions. In the first of these, the pursuer seeks payment by the defenders of a sum of £9,779.73, the sum first retained already referred to. In the second conclusion, the pursuer seeks payment by the defenders of £5,088.18, which is averred to be the difference between the second sum retained in name of legal fees and outlays and the amount at which the defenders' account was taxed by the Auditor of Court at Hamilton, which taxation was undertaken at the request of the pursuer. In short, the sum second concluded for is said to be the amount by which the defenders have overcharged the pursuer by retaining the sum of £7,242.70, already mentioned.

When this action came before me in the procedure roll, on the basis of the defenders' plea-in-law 1, it was indicated by counsel for the defenders that they accepted that the pursuer's claim stated in his second conclusion and sought to be supported in Condescendence VI had to be the subject of a proof before answer. Accordingly, the defenders sought to have their plea-in-law 1 sustained only in relation to the part of the action which was advanced in support of the pursuer's claim for £9,779.73 first concluded for. That entailed the exclusion from probation of most of the contents of Condescendences III, IV and V. Those Condescendences set forth the basis of the pursuer's claim for £9,779.73. The positions of the parties in relation to that matter can be seen from these Condescendences and the relative Answers.

Counsel for the defenders submitted that three propositions could be vouched: (1)  solicitors did not require authority to issue letters of obligation where they were issued by the firm and not on behalf of the client; (2)  if a client made a factual representation to his solicitor, the solicitor was entitled to assume its accuracy and owed no contractual or delictual obligation to investigate the truth of that representation, except where the solicitor was "on notice" that he could not rely upon his client's representation; and (3)  when a solicitor undertook a liability in consequence of a representation made by a client and retained client funds to cover any loss he might suffer in consequence of undertaking that liability, lack of authority from the client so to do did not of itself entitle the client to payment of the money retained.

In developing his submissions, counsel for the defenders drew my attention to the averments made in Condescendences II and III. He also referred to 6/1 of process, which was the letter of undertaking involved. He contended that the premise of the pursuer's averments at page 7B-D of the Closed Record, (As Amended) was that the client's authority was necessary for a letter of obligation could properly be issued.

Turning to the pursuer's case, in so far as it was based upon contract, a critical averment was to be found at page 8D-E of the Record. There the pursuer averred that he had advised the defenders that he had obtained consent to the use of the premises as a Sub-Post Office about 6 years earlier from a Mr McNeilly of the landlords. The legal duties averred by the pursuer in relation to his contractual case were to be found in Condescendence IV. The averments at the commencement of that Condescendence at page 25D-E of the Record were not comprehensible and, in particular, were in conflict with the averments mentioned at page 8D-E. Condescendence V was apparently a condescendence relating to breach of delictual duty. The duties there averred were co-extensive with the duties averred in relation to contract.

Turning specifically to what he described as the letter of obligation issue, counsel for the defenders referred to Digby Brown & Co v Lyall 1995 S.L.T.932. In that case a letter of obligation had been signed by a firm of solicitors without qualification but was stated to be on behalf of their clients. It might not be surprising if the client's authority was necessary for the issue of a letter of obligation such as that. However, the letter involved here contained no such language. It created a personal obligation upon the defenders themselves, but not upon the pursuer. It followed that the pursuer's authority was not needed before such a letter of obligation was issued. Consideration of the pursuer's averments showed that that view, which was correct, was not accepted. That rendered that part of the pursuer's case irrelevant. If a client of a solicitor had given to his solicitor a misrepresentation of fact, a right of retention in favour of the solicitor would be available in the event of that misrepresentation giving rise to some potential liability on the part of the solicitor. That right of retention arose from the mutuality of the relationship between solicitor and client. In this connection reference was made to Johnston v Little 1960 S.L.T.129. This case showed that the normal letter of obligation, which did not purport to be issued on behalf of the client, was an inter-solicitor contract. Authority or the lack of it from the client had no part to play in relation to such letters of obligation.

Turning to the implications of the contract between the pursuer and the defenders, which was important in relation to the second proposition stated, the contract was plainly one of agency, which was not in writing. Its terms had to be implied. In Condescendence IV, the pursuer averred certain terms which it was said had to be implied in the contract concerned. What was averred in this Condescendence sought to impose extraordinary duties upon the defenders. The essence of it was that they could not accept what their clients said to them. These averments of implied terms had to be read in the context of the averment of fact, already referred to, at page 8D-E of the Record. It was submitted that implied terms such as those set forth in Condescendence IV could not properly be implied in the circumstances. An implied term in a contract required to be a statement of the obvious, a term that the Court could safely conclude both parties would readily have accepted, had the matter concerned been brought to their attention. Here the pursuer did not appear to invoke that principle. Nor did he identify facts and circumstances demonstrating that the defenders would have agreed to such contractual conditions. The case which the pursuer had pled in this regard was in conflict with the Code of Conduct for Solicitors set out in the Code of Conduct (Scotland) Rules 1992, made by the Council for the Law Society of Scotland and approved by the Lord President of the Court of Session pursuant to Section 25A of the Solicitors (Scotland) Act 1980. Rule 5(a) made it plain that solicitors had a duty to discuss with and advise their clients on the objectives of the work carried out on behalf of the clients and the means by which the objectives were to be pursued. That duty had plainly been observed in the present case; the trouble was that the pursuer, the client, had misled the defenders as to a state of fact. The defenders could not be blamed for that. Where a party to a litigation contended for a surprising implied condition, the Court was entitled to look for detailed averments as to the basis upon which the condition was thought to be implied. In the present context, there ought to be, but were not to be found in the Record detailed averments of solicitors' practice in this regard. Further guidance as to implied terms could be found in William Morton & co v Muir Bros & Co 1907 S.C.1211 at page 1224. Once again, there was a conflict between the pursuer's averments at page 8D-E and those at page 26A-B of the Record. It was plain from the former that detailed instructions had been taken from the pursuer by the defenders. As regards the averments at page 26B-C, there was no real basis for the duty sought to be implied. This part of the pursuer's case was irrelevant. Furthermore, there were no averments to the effect that, had this duty been performed, things would have been different. It was not self evident that that would have been the case. Furthermore, the duties alleged at page 26C-D of the Record appeared to have been performed, according to the pursuer's averments at pages 8-9. The averment made at page 26D, as a statement of duty, was very extreme. The whole transaction might have been lost, if the desiderated course had been followed.

Turning to the pursuer's delictual case, which was to be found in Condescendence V, it amounted to no more than a repetition of terms which were thought to be implied as part of the contractual case. Accordingly if the defenders' submissions relating to the contractual case were well founded, it should follow that the delictual case also was defective.

Counsel for the defenders turned to deal with the issue of retention in relation to his third proposition. He pointed out that in Condescendence III it was averred that there had been no authority to retain funds. The answer to that criticism was that retention was not a right arising as an incident of the agent principle relationship; it was a remedy unilaterally available to the defenders. In this connection reference was made to The Law of Contract in Scotland, McBride at pages 307-309. The right to retain was a function of the principle of mutuality, which applied to all kinds of bilateral contracts. Accordingly the right to retain had nothing to do with authority.

In the whole circumstances, the defenders' first plea-in-law ought to be sustained to the extent of excluding the first to fifth sentences inclusive of Condescendence III, the whole of Condescendence IV and the whole of Condescendence V from probation. The pursuer's pleas-in-law 1, 3 and 4 should be repelled.

Counsel for the pursuer submitted that all questions of law should be reserved until after the proof before answer which was appropriate on the whole case. The pursuer did not seek to have his pleas-in-law 6 and 7 sustained at this stage. The Court should not accede to the defenders' motion, unless it were satisfied that the case for payment of the sum of £9,779.73 was one which was bound to fail. That was the appropriate test set forth in Jamieson v Jamieson 1952 S.C.(H.L.) 44. The arguments addressed to the Court in favour of the defenders' position proceeded upon a fundamental misunderstanding of the pursuer's case. The essence of the claim which was made in Conclusion 1 was that the sum of £9, 779.73 was money which belonged to the pursuer and which he was entitled to have returned to him. There were three bases for this part of the pursuer's action. Firstly, the contention made was that the defenders were wrongfully retaining money which belonged to the pursuer. Secondly, a claim was made on the basis of alleged breach of contract. Thirdly, a claim was made based upon alleged breach of delictual duty on the part of the defenders. It had to be understood that the second and third bases of the pursuer's claim were advanced on an alternative basis. Those parts of the pursuer's case were pled in response to the defenders' position. These several grounds of action were dependent upon the instructions given by the pursuer to the defenders and the authority of the defenders. Those were matters of fact, which had to be explored in evidence.

Counsel for the pursuer then proceeded to draw attention to the details of the conveyancing transaction concerned, as disclosed in the pursuer's averments. The letter of obligation granted in the present case was what might be described as a "non-classic" letter of obligation, as explained in the article on letters of obligation in The Journal of the Law Society of Scotland 1993, at page 431. That having been done, the defenders had put themselves in the position of having no absolute control over subsequent events. They were not in a position to know whether they could implement the obligation which they had granted. In that situation, it was their duty thereafter to seek the pursuer's instructions on the letter of obligation if they intended to retain funds pending the implementation of it. The defenders, in not taking the pursuer's instructions in relation to the letter of obligation and the retention of funds "hanging on the letter of obligation", exceeded their authority. In that situation, the defenders could not look to the pursuer to rectify the situation.

Counsel for the pursuer pointed out that there were three separate grounds of action stated in the contentious part of the case. The defenders' submissions so far had elided these. The first ground for the pursuer's claim for the £9,779.73 retained was that of wrongful retention. This ground was set forth in Condescendence III. The factual basis for it appeared between pages 5E and 8C of the Record. In that part of the Record the pursuer offered to show that he instructed the defenders to act in a conveyancing transaction. At the end of the transaction, they retained funds which belonged to him. The pursuer was advised that the funds were retained "pending delivery of the assignation of the lease". The pursuer accepted that position. Later however he discovered that, following upon the delivery of the assignation of the lease in about August 1993, the funds concerned were being retained pending delivery of a consent from the landlords. The position was that there was no legitimate reason to retain funds after the delivery of the assignation of the lease at that time. The first basis for the pursuer's case was, quite simply, that the pursuer was entitled to payment of his own funds following upon that date, when the only legitimate basis for retaining them had disappeared.

It was important to recognise the position in relation to solicitors' authority to act on behalf of a client. In this connection reference was made to Walker on Contracts, paragraph 6.30. The authority of a solicitor was not general; his powers were those necessary or usual in the business or employment concerned. Reference was also made to Begg on Law Agents at pages 235-236. In the present case, the defenders "own bargain", embodied in the letter of obligation under consideration went beyond what was necessary to achieve the implement of the missives in respect of written confirmation of the lack of a problem; that was done without reference to the pursuer, who was the client. In these circumstances retention was illegitimate. It was not clear when the defenders claimed that the obtained their right of retention. It may have been on 11 June 1993, upon the basis of the circumstances averred at page 11A-B of the Record. However, at that date they were not asserting a right to retain on the basis subsequently adopted. The position was that the defenders never did explain the reason for their retention until the raising of the present action. The position was that it was up to the defenders to aver relevantly and prove a right of retention of funds which indubitably belonged to the pursuer. The defenders' own averments relating to the matter were highly unsatisfactory, but the pursuer was prepared to enter upon a proof on the basis of them. Rights of retention on the part of solicitors were in a special and sensitive position, as appeared from Webster on Professional Ethics & Practice Etc paragraph 2.19, at page 29. It appeared to be the defenders' position that they accepted that the matter of retention of the client's funds would require agreement from the client. That emerged from what was averred at page 23B and 24A-B of the Record. There the need for the express or implied authority of the client to retain funds seemed to be recognised. The fact was that the defenders did not have that.

The nature of a right of retention in mutual contracts was explained in Gloag on Contract at pages 626-627. In Glendinning v Hope & Co 1911 S.C. (H.L.) 73 at page 78, the principle of retention was explained. Where an agent was required to undertake liabilities or make payments for his principal and, in the course of his employment, came into possession of property belonging to his principal, a right of retention came into being. However, the observations made there were predicated upon the view that the agent was authorised to undertake the liabilities which he had. That depended on the scope of his mandate. That matter was appropriate for proof.

Turning to the contractual and delictual aspects of the pursuer's claim, it was explained that these parts of the case arose out of the defenders' response to the pursuer's primary claim to have paid to him the money, belonging to him, which the defenders had retained. In that sense, they were ancillary aspects of the case. At this stage in the argument counsel for the pursuer indicated that she wished to make an amendment to the pursuer's pleaings at page 8D-E of the Record. The proposed amendment was the deletion of the following words: "advised that he had obtained consent to the use of the premises as a Sub-Post Office about six years earlier from Mr McNeilly of the landlords. He" ... . It was explained that this amendments followed upon a reconsideration of the terms of the precognitions available to the pursuer's advisers. Counsel for the defenders expressed his amazement at the proposed amendment. If it were granted, it would have very serious implications relating to the expenses of the debate. After consideration of the pursuer's motion to amend and the opposition thereto, I decided to allow the amendment proposed. Thereafter the debate continued.

The position which the pursuer now took up in his averments was that he had conveyed his understanding relating to the matter of consent to the defenders. Their position in averment was that the pursuer had represented that consent had actually been obtained. Against that background, it was necessary to see what was actually averred in Condescendence IV. It was quite plain that that Condescendence was an esto case predicated upon the basis that the representations averred by the defenders that consent had been issued had in fact been made. The amendment just made removed any possible conflict between the terms of Condescendence IV, which involved a denial of a representation, and the averments at page 8D-E of the Record. The remainder of Condescendence IV was a case made in delict. There could be no argument that a general duty of reasonable care and skill was inherent in relationship between solicitor and client. So far as the detailed averments expanding upon that duty were concerned, these were matters upon which expert evidence would be required. In this connection, reference was made to Jackson & Howell on Professional Negligence, 4th edition, paragraphs 4.04 and 4.05. These submissions were in general in accordance with the Code of Conduct for Solicitors issued by the Law Society of Scotland, paragraph 5(e). The detailed averments made by the pursuer focused upon the more general duty of a solicitor to communicate effectively with his client. No criticism could be made of the pursuer's averments in relation to causation, since at page 27D of the Record there were averments on the matter. In any event, the issue of causation was a matter of fact for proof. Once again, it had to be emphasised that the only reason why the pursuer had made cases of breach of contract and delict on the part of the defenders was because of the defenders' own averments. They sought to rely upon what they said were specific instructions issued by the pursuer. In any event, such specific instructions, if proved, would not necessarily be an answer to the pursuer's case, if those instructions were result of inadequate advice given by the defenders. In that connection reference was made to Jackson & Powell OP.CIT, paragraph 4-93. A crucial matter was the nature of the instructions issued by the pursuer and received by the defenders. There were different versions of fact contained in the parties' averments about that matter, which demanded proof. In the whole circumstances a proof before answer should be allowed on the whole case, reserving the parties' preliminary pleas.

In reply, counsel for the defenders re-emphasised the chronology of the relevant events, as disclosed in the pleadings. The position was that the pursuer had been advised that funds were being retained pending the delivery of the assignation of lease; there was no objection stated to that. As appeared from the pursuer's averments in Condescendence II at page 11A of the Record, on 11 June 1993 the landlords wrote to the defenders confirming the approval given on 26 March 1987 but stating that that was on condition that payment of rent arrears in the sum of £9,779.73 was made. When the landlords' letter of 11 June 1993 had come to the defenders' attention, they knew that they were in trouble. It was at that point that they discovered the alleged breach of duty by the pursuer. In particular, they saw then that they had granted a letter of obligation which they would not otherwise have granted. At that stage, the facts giving rise to the defenders' claim were clear. Even if an assignation of the lease was capable of being delivered in August 1993, there had already emerged a valid contractual right to retain. As at 11 June 1993, the defenders had an indisputable authority to retain. When that ran out, with the delivery of the assignation of the lease in August 1993, the new right to retain came into effect. The defenders' position depended upon the principles of mutuality of obligations. The issue of authority did not come into the question if there was a legal right to retain based upon the principle of mutuality.

It was said that the primary case of the pursuer was a simple one for the repayment of money belonging to the pursuer, retained by the defenders. However, that claim was irrelevant, for want of specification. There ought to have been averred further specification of the claim for payment and of the circumstances in which it arose. Furthermore, the defenders required more specification as to when the duty to account on their part arose. Despite the amendment which had been effected by the pursuer, the pursuer's position on Record was still uncertain as to the representations which might have been made concerning consent. It was necessary to give the defenders fair notice of why they should have appreciated the exact significance of what had been said by the pursuer.

It was a matter of agreement between the parties that the pursuer's averments supporting Conclusion I for payment of £9,779,73 could be excluded from probation only if the defenders were able to demonstrate that, if all of those averments were established, that particular claim would necessarily fail, it being recognised that the criterion set forth in Jamieson v Jamieson was applicable. Applying that criterion to the averments of the pursuer which are the subject of controversy, I have reached the conclusion that they cannot be excluded from probation and that a proof before answer ought to be allowed on the whole case, including the claim made in Conclusion I for £9,779.73. It is quite clear from the pursuer's averments in Condescendence II that that sum of money was retained by the defenders out of the larger sum of £106,000, which the defenders received in settlement of the transaction for the sale of the pursuer's lease on or around 9 June 1993. It was accepted on behalf of the pursuer that the defenders had been entitled to retain the sum concerned pending delivery of the assignation of the lease, which duly occurred in or about August 1993. The pursuer's case was that thereafter, the defenders had no right to retain that sum. There was no question of any express authority having been conferred by the pursuer upon the defenders to do so.

Against this background, in my opinion, the pursuer's claim for the sum retained could be shown to be irrelevant only if, firstly, the defenders had averred a ground upon which they would be entitled to retain funds indubitably belonging to the pursuer, in the particular circumstances of the case, and, secondly, if the pursuer, in his averments could be shown to have accepted or recognised the factual basis of such a right. In my opinion, that situation does not obtain here.

The position of the defenders, in the face of the claim for payment of the sum concerned, as I understand it, is that they are entitled to retain "pending settlement of any liability the defenders may have to the buyer in terms of the Letter of Obligation which they issued on the faith of the pursuer's representations to them in respect of the letter of consent and hereinbefore condescended upon. .... This liability, although incurred personally by the defenders, had only been undertaken because of the pursuer's assurance that he had obtained a letter of consent from the landlords. In representing to the defenders that he had obtained consent when he knew or ought to have known that no consent had been granted, he breached his contract of agency with the defenders. The pursuer owed a duty to the defenders to provide them with accurate information as to matters within his knowledge such as whether the council had issued him with a letter of consent." As I understand it, the defenders are alleging a right to retain which is based upon an alleged breach by the pursuer of an implied condition of his contract with them.

Having carefully considered the pursuer's averments as amended, I can find nothing in them which admits or acknowledges the alleged factual basis of the defenders' claimed right to retain the sum concerned in the circumstances. That being so, it appears to me that, the pursuer's case for payment of the retained sum cannot be said to be one which is irrelevant, in the sense that it will necessarily fail if all of the pursuer's averments are established.

There is considerable averment and there was a substantial amount of argument concerning the nature of the Letter of Obligation issued by the defenders in this case. It does not appear to me that that feature of the case affects the fundamental position, which I have attempted to outline above. Such issues as there may be between the pursuer and the defenders concerning the Letter of Obligation may affect the case for retention which the defenders make against the pursuer, but it does not appear to me to affect the simple and straightforward position of the pursuer, stated in averment, which is to the effect that the pursuer is entitled to payment of his own money and that no right of retention of it by the defenders is accepted by the pursuer. That feature of the situation appears to me to have been lost sight of by counsel for the defenders.

In relation to the matters raised in Condescendences IV and V, it appears to me that the Condescendences themselves are quite plainly a response to the case made by the defenders in Answer 3, which is said to form the basis of the defenders' claim for retention. That is apparent from the opening sentences of Condescendences IV and V at pages 25D and 28B of the Record. Condescendences IV and V are, of course, formulated as claims in contract and delict. Some criticism was directed towards the detailed averments of contractual and delictual duties contained in those Condescendences. It appears to me however that the validity or otherwise of those criticisms cannot be assessed in the absence of evidence. There is no doubt that a solicitor owes to his client a general duty to exercise the degree of skill and care to be expected of reasonably competent solicitors. What that may entail in any particular circumstances, in my opinion, can only be elucidated in the light of expert evidence as to what a reasonably competent solicitor would do in some particular factual situation. In these circumstances, I am unable, at this stage to say that the cases made in those Condescendences would necessarily fail, if proof were allowed. Plainly the fate of these parts of the pursuer's case would hang upon the expert evidence which might be adduced.

In all these circumstances, I shall reserve the whole preliminary pleas of parties and allow a proof before answer.