Scottish Court of Session Decisions

The Waulkmill Salmon Fishings of Scone Palace on the River Tay, referred to hereafter as "the Fishings", have been made the subject of certain time-share arrangements. Those arrangements involve the rights to fish being divided into periods of one week. These weekly entitlements to fish during the fishing season have been disposed of to purchasers, who are members of a Main Syndicate operating under a Constitution. Week 36 of the Fishings was acquired by Messrs A. D & P. Green, of Units 13/17 Somerfield Trading Estate, Western Road, Birmingham. Thereafter those purchasers arranged to sub-sell certain of the rods available in Week 36 in terms of a Sub-Syndicate Constitution. In connection with that latter arrangement, it was agreed that the rights acquired by the purchasers in respect of Week 36, embodied in a primary Fishing Certificate, were to be held in trust for the members of the Sub-Syndicate by Balfour & Manson Trustees, a company incorporated under the Companies Acts and having its registered office at 58 Frederick Street, Edinburgh. The entitlement of the members of the Sub-Syndicate were to be specified in Certificates of Membership of that Syndicate. The Deed of Trust under which the entitlement concerned was so held has been produced and is 8/1 of process. This Deed of Trust was executed on 17 July 1991. The Sub-Syndicate Constitution was annexed to the Deed of Trust mentioned and has also been produced as part of that production. It is entitled Syndicate Agreement by Anthony D. Green and others.

In the present context, it is necessary to record that the foregoing Syndicate Agreement creates certain obligations upon members of the Sub-Syndicate to make certain payments. Also provision is made for the expulsion of a member of the Sub-Syndicate. In particular, in terms of Clause (NINE) it is provided that each member of the Sub-Syndicate is to pay, when required, their share of the annual management charge made in terms of the Constitution of the Main Syndicate; in addition, to pay, when required, their share of the costs of the Sub-Syndicate, as calculated in accordance with a formula there prescribed. Clause (TEN) of the same document provides as follows:

In the first instance, the pursuer and the defenders, other than the third defender, were members of the "Waulkmill Week 36, Syndicate", to which I refer hereafter as "the Syndicate". It is a matter of agreement that a Special Meeting of the Syndicate was held on 30 October 1996 for the purpose of considering a motion to expel the pursuer from the Syndicate. As a result of that meeting, the pursuer was indeed expelled from the Syndicate. Thereafter, the Syndicate placed advertisements in the press offering for sale the rights to which the pursuer had been entitled in terms of his Certificate. Subsequently a contract was entered into by the second defender, on behalf of the Syndicate, under which the rights previously enjoyed by the pursuer were sold to the third defender for the sum of £59,575. Settlement of that transaction has taken place.

In the present action, the pursuer concludes:

It is admitted by the defenders in the present action that the pursuer is entitled to an accounting from them. Furthermore, by interlocutor of 28 April 1998, the Lord Ordinary found the pursuer entitled to an accounting from the defenders. Subsequently, on 26 May 1998, the Lord Ordinary held the defenders liable to account to the pursuer and appointed them to lodge an account of their intromissions. In due course, such an account was lodged and is reproduced in the closed record in the present action. Subsequently, Objections by the pursuer to the accounts and Answers to those objections for the defenders were lodged and adjusted.

When this case came before me in the procedure roll, senior counsel for the pursuer, having explained the background to the matter, moved me to sustain pleas-in-law 2 and 4 for the pursuer, tabled in connection with the pursuer's Objections and the defenders' Answers thereto, reproduced at page 31 of the closed record. He explained that he wished the Court to restrict the deductions which the defenders sought to make from the proceeds of sale of the pursuer's entitlement to £5,073.44, being the sum referred to in item 2 in the Schedule to the account of intromissions by the defenders, which was the expenses incurred by the defenders to Messrs Strutt & Parker for providing a valuation of the Certificate which was sold and for the marketing of that Certificate. The defenders' position was that they sought to deduct that sum together with a variety of other sums, which, in total, amounted to £14,878.32. In practice, counsel for the pursuer sought to have excluded from probation the averments of the defenders in Answer 3, in which they defended the disputed deductions. Quoad ultra, a proof before answer had to be allowed in relation to other matters. Counsel for the pursuer said that the issue between parties at this stage was whether, in terms of the Syndicate Agreement items 1 and 3 to 6 set forth in the Schedule to the defenders' Account were "reasonable expenses properly incurred", within the meaning of Clause (TEN) of the agreement. His submission was that on a proper construction of the Syndicate Agreement those "expenses" should be confined to the expenses incurred in realising the pursuer's Certificate, that is to say the expenses referred to in item 2 of the Schedule. The other items in that Schedule were not legitimate deductions. In elaborating his submissions, counsel for the pursuer drew attention to the terms of the Syndicate Agreement and, in particular, Clauses (THREE), (FOUR), (FIVE), (NINE), (TEN), (TWELVE) and (THIRTEEN). Having done so, counsel for the pursuer argued that the word "expenses" in Clause (TEN) did not include the expenses of the Syndicate referred to elsewhere as being payable by Members in terms of their shares and, in particular, those referred to in Clauses (FIVE) and (NINE). The word "expenses" in Clause (TEN) referred to the expenses of realisation of the Certificate of an expelled Member, not expenses of the Syndicate in general. There were clear indications that that was the intention of the draftsman of the Syndicate Agreement. In particular, the language of Clause (TEN) made it clear that the word "expenses" was not intended to include the cost of all disciplinary proceedings, or even the cost of all measures taken to realise a disciplined Member's Certificate. The Syndicate Agreement contemplated suspension or expulsion as disciplinary sanctions. In the event of either course being taken, the Syndicate could market the Certificate of the disciplined Member in different ways. There might be letting of his right to fish during suspension or expulsion but pending transfer. In those situations the Syndicate had to account to the Member for the net proceeds of letting, after deduction of any sums due by such Member. However, the final sentence of Clause (TEN) related to the situation in which a Member was expelled and the Syndicate had made arrangements for the realisation of the relevant Certificate. The "expenses" there referred to were the expenses of realisation. The words "such Member" in the last sentence of Clause (TEN) referred to "any such Member being expelled" to be found in the penultimate sentence thereof. That showed that the expenses to be deducted related only to those incurred in the realisation of the Certificate of the expelled Member. Putting it otherwise, the "expenses" were of the "due arrangements for the realisation of the Cert

The solicitor for the defenders began by explaining that the issues raised by counsel for the pursuer did not exhaust the subject matter for discussion at the hearing. The defenders sought to have sustained their plea-in-law 2, set forth at page 32 of the closed record, which was directed to the exclusion of the pursuer's averments at page 24D-E, to the effect that the price received by the defenders was £59,575 but that the value of the rod was at least £70,000. There was no basis for the averment to the effect that the pursuer believed and averred that the defenders did not endeavour to obtain the best possible price for the Certificate as required. In particular, there was no specification in the pursuer's averments as to the origin of the figure of £70,000. There was no specification of what endeavours the pursuer said were not made in the realisation of his Certificate. There was nothing to support the inference which was averred. Accordingly the averments concerned ought to be excluded from probation. Even if that course were taken however, it was accepted that a proof was theoretically necessary, in the light of the averments made concerning value added tax in Statement and Answer 1.

Turning to the matter of the interpretation of Clause (TEN), it was submitted that the final sentence of that Clause related to the subject matter of the whole Clause, which included the conduct of disciplinary proceedings against a member of the Syndicate. Turning to the particular items contained in the Schedule to the accounts, it was submitted that all of the items concerned were properly deductible. Item 4, expenses incurred by the defenders in connection with a defence to the action raised by Durwood Investments Limited was a proper deduction, since the defenders had to defend the action in order to render the pursuer's Certificate capable of realisation. This item was validly included as a deduction, even if Clause (TEN) had to be narrowly construed. So far as item 5 was concerned, it related to general work by solicitors in connection with the implementation of the sale of the pursuer's Certificate and matters which gave rise to his expulsion. Item 6 was said to be in a similar situation, as was item 1. It was contended in relation to item 3 that the second defender had been involved in some secretarial work which was necessitated by the expulsion and its consequences. It was said that the Court could remit the whole account, as it stood, to the Auditor of the Court of Session. Summarising his position, the solicitor for the defenders argued that the final sentence of Clause (TEN) covered all expenses involved in the expulsion of the pursuer from the Syndicate. It was true that Clause (NINE) imposed a liability on all Members to pay their share of certain charges, including the costs of the Syndicate, but it did not follow from that provision that Clause (TEN) should have the narrow meaning contended for by the pursuer. It was comprehensible to suppose that Clause (TEN) was intended to cause the whole expenses of an expulsion to fall on the expelled member, not upon the innocent members. In the whole circumstances, pleas-in-law 1 and 2 for the defenders on page 32 of the closed record should be sustained and plea-in-law 2 and 4 for the pursuer on page 31 of the closed record should be repelled. The result would be that the dispute would be limited to the issue regarding value added tax and to the reasonableness of the whole expenses shown in the Schedule to the accounts, in the light of a proper view of the terms of Clause (TEN).

In reply, counsel for the pursuer moved me to refuse the defenders' motion. The averments made at page 24D-E of the closed record relating to the value of the pursuer's rod and the price realised therefor were relevant and should be remitted to probation. There was no reason why evidence from a valuer should not be led to justify the figure of £70,000 averred by the purser. There was no difficulty relating to the inference sought to be drawn by the pursuer. If it were proved that the value of the pursuer's rod was at least £70,000, it could be properly inferred that, if the defenders realised only £59,575 they had not endeavoured to obtain the best possible price for the Certificate, as was their duty. Commenting on the particular items in the Schedule to the accounts, it was submitted that item 4 was irrelevant. The expenses referred to in it had nothing to do with realisation.

As I understand it, there was no dispute that there must be a proof before answer on the Statement of Facts for the pursuer and Answers thereto for the defenders, in relation to the issue regarding value added tax canvassed in Statement and Answer 1. The question in controversy was whether the proof should extend beyond that matter to embrace the matters which were the subject of argument before me. Dealing firstly with the controversy surrounding the price realised by the defenders for the pursuer's entitlement and the issue of whether the defenders had endeavoured to obtain the best possible price for the Certificate, I have reached the conclusion that the pursuer's averments in relation to those matters in Statement 2 on page 24D-E of the closed record are relevant for enquiry. In my opinion, the criticism made of the averment that the value of the rod was a least £70,000 was unsound. It appears to me that the pursuer would be quite entitled to lead evidence from an appropriate expert valuer to show that the value of the rod was at least £70,000, on the basis of that averment. The situation then would be that the pursuer is averring that the defenders realised a price of £59,575, when the value of the asset realised was at least £70,000. I consider that, in that situation, it would be open for the Court to infer, in the absence of an explanation, that the defenders had not endeavoured to obtain the best possible price for the Certificate, as required by the terms of Clause (TEN) of the Syndicate Agreement. No doubt, the defenders would be able to show what steps had been taken in the marketing of the rod and would be able to prove that Messrs Strutt & Parker recommended the acceptance of the price of £59,575. However, in this connection, I consider that the pursuer has stated a relevant case and accordingly I shall allow the averments concerned to go to probation.

Turning now to the issue of the interpretation of Clause (TEN) of the Syndicate Agreement, I consider that it is necessary to examine the terms of that Clause as a whole, in the context of the whole of the Syndicate Agreement. Approaching the matter in that way, it is to be noted that, under Clause (FIVE) of the Syndicate Agreement, the Syndicate as a whole is obliged to reimburse the secretary whom they appoint "in respect of all outlays and expenses incurred on behalf of the Syndicate." Furthermore, in terms of Clause (NINE) provision is made for Members of the Syndicate "(c) to pay when required their share of the costs of the Syndicate which share call be calculated" in the way there specified. In these ways, provision has been made for the Members to meet their share of the costs of the Syndicate, which plainly include the outlays and expenses incurred on behalf of the Syndicate by the secretary. As I see it, there is nothing in Clauses (FIVE) or (NINE) limiting in any way the nature of the outlays, expenses and costs which are to be dealt with in that way. Turning next to the terms of Clause (TEN) itself, it is to be observed that it is contemplated that disciplinary measures by way of suspension or expulsion of a Member are contemplated, in appropriate circumstances. As I read Clause (TEN) suspension is a possible disciplinary measure, distinct from expulsion. In the event of suspension, the secretary is to be entitled to let the right of the suspended Member to fish during the period of suspension. The net proceeds received from such a letting are to be applied to defray any sums due by the Member concerned; thereafter the secretary is to account to him for any surplus. It appears to me that there is no suggestion in these provisions applicable to suspension that any expenses incurred in the disciplinary proceedings leading to that measure are to be met wholly and exclusively by the Member suspended. As I read the provisions concerned any such expenses would simply be treated as part of the costs of the Syndicate, to be defrayed in terms of Clause (NINE). When one comes to consider the situation of a Member who is expelled, Clause (TEN) contemplates the possibility that the expelled member may remain the owner of his Certificate beyond the time of expulsion. If that situation occurs, once again the right to fish pertaining to that expelled Member may be let and the proceeds of the let applied in the same way as the proceeds of a let in respect of a suspended Member's right to fish. Again, there is no suggestion that the expenses of disciplining a member, who is in the end expelled, should be deducted from those proceeds. Coming then to the last two sentences of Clause (TEN), one finds that, in the event of a Member being expelled, the Syndicate is to make all due arrangements for the realisation of the Certificate of that Member, to endeavour to obtain the best possible price for the Certificate and thereafter to account to the expelled member in respect of the price. There then follows the words which were the subject of controversy at the debate. In the light of the foregoing circumstances, I have reached the conclusion that the "expenses" referred to in the last sentence of Clause (TEN) were intended to be the expenses of the realisation of the Certificate of the expelled Member alone. I have two principal reasons for reaching that conclusion. In the first place, in my view, it would be anomalous and incomprehensible if the expenses of a disciplinary procedure which resulted only in suspension were to be met by the Syndicate as a whole, as part of their costs, in terms of Clause (NINE), whereas the expenses of disciplinary procedure which resulted in expulsion would be met wholly and exclusively out of the proceeds of the realisation of the Certificate of the expelled Member, as contended for by the defenders. I can see no rational explanation as to why th

Having reached the foregoing conclusion, I now consider the six items in the Schedule to the Account of the defenders' Intromissions, sought to be deducted from the proceeds of sale of the pursuer's fishing entitlement. As regards item 1, I consider that it is not deductible since it is unrelated to the realisation of the Certificate of the pursuer; the expenses referred to in this item are said to be "in connection with preliminary work relative to expulsion of the pursuer and ancillary matters". Turning to item 2, there was no dispute that these expenses were properly deductible; they are plainly expenses incurred in the realisation of the pursuer's Certificate. Next considering item 3 of the Schedule, in my opinion these expenses are not deductible. They are said to be vouched by the document 7/21 of process. In my view, there is nothing in the item as stated in the Schedule, or in this document, which suggests that these expenses are related to the realisation of the pursuer's Certificate. Item 4 is concerned with expenses said to have been incurred by the defenders in connection with their defence to an action raised by Durwood Investments Limited, in which that company sought to prevent the sale of the pursuer's Certificate. In my opinion, these expenses cannot properly be seen as expenses of the realisation of the pursuer's Certificate. I consider that any extra-judicial expenses incurred by the defenders in this connection, which are not recoverable from Durwood Investments Limited, are to be seen as part of the general costs of the Syndicate to be defrayed as provided for in Clause (NINE).

As regards item 5, it appears to me that the position is somewhat different. This item is said to embrace "expenses incurred by the defenders to Balfour & Manson in connection with implementation of sale and general work in the period from 26 August 1997 to 21 November 1997". In my view, it may be that some part of these expenses is a relevant deduction against the proceeds of the realisation of the pursuer's Certificate, in terms of Clause (TEN) of the Syndicate Agreement. At this stage it is impossible for me to form any view as to what part of those expenses may be deductible. I consider that elucidation of what part of these expenses is deductible must be left for the factual enquiry which is to take place in this case.

Finally, in item 6, the expenses incurred and to be incurred by the defenders in the present action are sought to be deducted. In my opinion, this item is not a relevant deduction against the proceeds of the realisation of the pursuer's Certificate, in terms of Clause (TEN) of the Syndicate Agreement. They have nothing to do with the realisation of the pursuer's Certificate. The expenses of the present action will simply require to be dealt with according to the ordinary principles which are applied to such matters at an appropriate stage of the action.

In all of these circumstances I shall allow a proof before answer on the Statement of Facts for the pursuer in support of their Objections to the Account of Intromissions of the defenders, on the Answers thereto for the defenders, in support of their Answers to those Objections, under exclusion of the defenders' averments in Answer 3, in so far as they support the deductions sought to be made in items 1, 3, 4 and 6 of the Schedule to the defenders' Account of Intromissions. I shall sustain plea-in-law 2 for the pursuer related to his Objections and plea-in-law 4 related to those Objections, to the extent of excluding from probation the averments in Answer 3 relating to the deductions sought to be made in items 1, 3, 4 and 6 of the said Schedule. I shall repel plea-in-law 2 of the defenders related to their Answers to the Objections and reserve their plea-in-law 1 related to those Answers.