Scottish Court of Session Decisions

This case first came before me on Procedure Roll on 28 November 1997. By interlocutor dated 12 December 1997 I sustained the first plea-in-law for the first defender, a general plea to the relevancy and specification of the pursuers' averments, and dismissed the action. I refer to my Opinion issued on 12 December 1997 for a full narrative of the parties, the averred circumstances and counsel's submissions, and also for the reasons for my decision.

Following my decision the pursuers enrolled a reclaiming motion. The cause was appointed to the Summar Roll for hearing but before it could take place the pursuers lodged a Minute of Amendment. By interlocutor of the Inner House dated 20 January 1999 the court, without hearing argument, of consent allowed the appeal, recalled my interlocutor of 12 December 1997, allowed the Closed Record to be amended in terms of the Minute of Amendment for the pursuers (No. 18 of process) and the answers for the first defender (No. 19 of process) and remitted the cause back to me to proceed as accords. Accordingly, on 10 October 1999 the case came before me once again on Procedure Roll.

By their Minute of Amendment the pursuers had added two further conclusions, now numbered 3 and 4, in the following terms:-

The Minute of Amendment also contained short supporting averments in the condescendence and a new plea-in-law (now numbered 4). The answers for the first defender were in short compass. Brief averments were added to answers 3 and 4 and a new plea-in-law (plea-in-law 5) was added which was specifically directed at the relevancy of the pursuers' new plea-in-law 4. The pursuers still had their plea to the relevancy and specification of the first defender's averments (now numbered 6). It was on these pleas that the debate before me on 7 October 1999 took place.

In opening the debate, Mr Francis for the pursuers made it clear that he was not seeking to re-argue the points he had made at the previous debate on 28 November 1997. He accepted the conclusion I had reached in light of that debate. This debate was therefore confined to the effect of the amendments which had been made since. Whereas previously the pursuers' case had been that their interest in the funds which had been placed on deposit receipt was limited to the extent of their liability arising from the Statutory Notices which had been issued in respect of the flat at 8 Dundas Street, Edinburgh ("the subjects"), now, in terms of the amendments which had been made, their case was that the property in the funds placed on deposit receipt had never ceased to be theirs. It therefore did not matter for how long the first defender's liability for the cost of the works on the subjects subsisted or for how much it was. This followed from the terms of the discharge given to the pursuers by the first defender in the disposition of the subjects. On page 1 of that disposition it states that the first defender "IN CONSIDERATION of the price of NINETY THOUSAND POUNDS (£90,000) STERLING paid to me by MARK STEPHEN ROSS HAMILTON, residing at Seventy nine Conniston Drive, Edinburgh and KAREN CATHERINE ISOBEL HAVRANEK, residing at Sixty five Thistle Street, Edinburgh of which sum I hereby acknowledge the receipt and discharge them ..." has sold and thereby dispones the subjects to the pursuers. This was a discharge of the pursuers for the consideration of the price of £90,000. The first defender can therefore have no further claim against the pursuers even to the extent of having them deliver up the deposit receipt. On page 2 of the disposition it is stated:

On the question of consideration, however, the missives had been fully implemented. The following saving clause, therefore - "But the said missives shall cease to be enforceable after a period of two years from the date of entry hereunder except in so far as they are founded on in any Court proceedings which have commenced within the said period" - did not come into play. In delivering a disposition in these terms Mr Francis submitted that the first defender had asserted positively that he had no further interest in the money which was placed on deposit receipt. Mr Francis accepted that if this construction was correct, it followed that the first defender had settled in the disposition for less than he bargained for in the missives. Mr Francis's primary submission, therefore, turned on the construction to be put on the terms of the disposition. If he was right in the construction that he contended for, there still remained the question as to what is to happen to the money on deposit receipt. To answer that question, Mr Francis submitted, one must look to see what the parties' intention was in terms of their contract. There were two possibilities depending, first, on whether the first defender did pay for the works within two years in terms of Clauses 2 and 19 of the Schedule annexed to the missive of 18 December 1991 and, secondly, on whether he did not pay. In the first case the money became his; the contingency against which it had been placed on deposit receipt had materialised, the condition for payment had been purified. In the second case the money remained the pursuers'.

As a secondary submission Mr Francis said that as a matter of business efficacy a term could be implied into the agreement reached by the parties in what have been referred to as the post-missive letters (the letters of 12, 19, 26 and 27 March 1992) to the effect that the money on deposit receipt should be released to the first defender in the event that he paid for the works. Otherwise it remained the pursuers'. The result, therefore, was the same.

Mr Francis referred me to the speech of Lord Dunedin in Dickson v National Bank of Scotland 1917 S.C. (H.L.) 50 at page 53 where his Lordship had said this:

That was authority for looking at the post-missive letters if his primary submission did not succeed. In the letter of 12 March 1992, which was about two weeks before settlement, the first defender's agents wrote to the pursuers' agents suggesting "a retention of £10,500 at settlement". This figure was arrived at in light of the estimated amount of the first defender's liability for the cost of the works. In their reply of 19 March the pursuers' agents wrote that the pursuers "have confirmed their agreement to the retention of £10,500 at settlement" in respect of the works. They continued: "We will arrange to put this on joint deposit receipt at settlement". This money therefore came from the pursuers. In their letter of 26 March the pursuers' agents wrote as follows:

The £10,500 was therefore to be placed on deposit receipt subject to a contingency which never in fact materialised. The deposit receipt itself, which was also dated 26 March, stated that it was received from the pursuers' agents "pending completion of repairs at 8 Dundas Street, Edinburgh". Then, finally, there was the letter of 27 March from the first defender's agents to the pursuers' agents acknowledging receipt of "your cheque for £79,500 in settlement of the net purchase price. We shall be pleased to receive a copy of the deposit receipt in respect of the retention of £10,500 as and when to hand from your Bank". The use of the word "retention" in these letters meant that the property in the money placed on deposit receipt remained with the pursuers. It was to become the first defender's property only if he paid for the works in terms of his obligation. In the event he never did pay but the fact that his obligation flew off after two years did not alter the situation so far as the property in the money was concerned: it remained with the pursuers. It followed from this that what the first defender accepted in respect of the £10,500 was no more than a contingent interest in it. On the basis of these submissions Mr Francis asked me to sustain his fourth and sixth pleas-in-law and pronounce decree in terms of conclusions 3 and 4.

In reply Sir Crispin Agnew for the first defender submitted that nothing essentially new had been advanced by Mr Francis. In terms of Clause 2 of the Schedule annexed to the missive dated 18 December 1991 it was the first defender's obligation "on or before settlement to deposit in joint names of the seller's agents and the purchaser's agents a sum sufficient to pay the share of the cost of said scheme for the said subjects of offer". With regard to the interpretation to be put on the post-missive letters the court had already dealt with that. On page 12 of my Opinion of 12 December 1997 I had found that they were nothing more than machinery for implementing the agreement contained in the missives. It appeared, however, that Mr Francis was trying to re-open that issue. Sir Crispin submitted that he could not do that. If, however, he could, then Sir Crispin renewed the arguments he had advanced at the previous debate and which he said were accurately recorded earlier in my Opinion. He also referred me to the sentence at page 13 of the Opinion where I had said that the true position was that the £10,500 placed on deposit receipt was the first defender's money. He submitted that the conclusions I had reached on pages 12 and 13 were correct. The creditor (in this case the first defender) could prescribe how the money due to him could be paid. In this case the first defender had a collateral obligation to put £10,500 on deposit receipt in terms of Clause 2. All that had happened was that instead of the first defender doing that personally, his agents had asked the pursuers to do it for him using part of the money which was due to him and in that way fulfilling his obligation. Sir Crispin adopted what Lord Dunedin had said in Dickson v National Bank of Scotland. The sum on deposit receipt was there to ensure that there was a sum of money to cover the first defender's obligation to pay for the works. That was an obligation, however, which lasted for two years only.

Sir Crispin noted that the deposit receipt itself stated that the money was to be uplifted by the first defender's agents. That was consistent with the property in the money passing to the first defender and was consistent with the terms of his obligation in Clause 2 of the Schedule annexed to the missive of 18 December 1991. It was a fund from which his obligation to pay the cost of the works could be satisfied and it could have been arrested if an action had been raised on the basis of the obligation. If it was necessary to analyse the meaning of the word "retention" used in the post-missive letters, it did not mean that the pursuers were retaining their money but rather that they were retaining someone else's money against that person's obligation to them. This was a common situation in building contracts where part of the contract price was retained against defects materialising after completion. The meaning of "retention" in the Oxford English Dictionary supported this. In particular, there was a reference there (in para. 3(a)) to the second edition (1693) of Stair's Institutes 1.xviii.157 where it is said that "retention is not an absolute extinction of the Obligation of Re-payment, or Restitution, but rather a Suspension thereof, till Satisfaction be made to the Retainer." With regard to the terms of the discharge in the disposition the fact that it was in consideration of the price of £90,000 also pointed to the parties thinking that the property in the money had passed to the first defender. It was inherently unlikely that the first defender would give a discharge for more than he had received.

Replying to Sir Crispin's submissions, Mr Francis said that they were no answer to his submission based on the terms of the discharge. He accepted, as noted earlier, that it was a necessary consequence of that submission that the first defender had settled in the disposition for less than he bargained for in the missives. That was why the discharge itself was so important. With regard to Sir Crispin's submissions in relation to the post-missive letters they were no more than his analysis of the situation. It was not, however, a matter for analysis of that kind but rather of evidence as to what actually occurred. That was what Lord Dunedin had said in Dickson v National Bank of Scotland. Here there was no evidence that the money placed on deposit receipt was money belonging to the first defender which he asked to be paid to someone else. Moreover, in the post-missive letters retention was distinguished from the purchase price and the money placed on deposit receipt was retention against a clearly defined contingency which had to materialise or condition which had to be purified before payment was due. The court should not feel that its hands were tied by its earlier decision.

In my opinion, Mr Francis's submissions are unsound. With regard to his primary submission, which turns on the construction to be put upon the discharge which the first defender gave to the pursuers in the disposition, this was, as is said in the relevant part of the disposition, "in consideration of the price of ... £90,000 ... paid to me". In other words, as I read it, the first defender is acknowledging that the price of £90,000 has not just been paid, but has been paid to him. It is not, therefore, in my opinion a discharge for anything less than £90,000 being made over to the first defender and, so far from supporting the view that the part of that sum (£10,500) which was placed on deposit receipt was the pursuers' money, in my opinion it shows the contrary, namely, that the £10,500 was the first defender's money. That is, of course, what would be expected given the terms of his obligation under Clause 2 of the Schedule annexed to the missive dated 18 December 1991. Rejecting, as I do, Mr Francis's primary submission based on the terms of the discharge, the consequential question that he raised as to what was to happen now to the £10,500 does not arise.

Mr Francis's secondary submission was also based on the premise that the £10,500, when it was placed on deposit receipt, was the pursuers' money. Since that premise is in my opinion ill-founded, it follows that I must also reject this secondary submission. I should perhaps add, however, that if it had been necessary for me to deal with his secondary submission as he developed it, which involved a consideration of what it was that the parties had agreed in the post-missive letters with particular reference to the use of the word "retention" in them, I would not have found in his favour. I considered these letters fully in my Opinion of 12 December 1997. It is true that this was in the context of Mr Francis's earlier submissions but nothing that he said in his secondary submission in this debate persuaded me that the conclusion I came to in December 1997 concerning these letters should be altered. As I said then, I am unable to accept that what is contained in them is anything more than machinery for implementing the agreement contained in the missives. The use of the word "retention" in them is in my view perfectly consistent with that and when looked at in context is not supportive of Mr Francis's submission.

For all these reasons the pursuers' case is in my opinion still irrelevant. I shall therefore sustain the first and fifth pleas-in-law for the defenders and dismiss the action.