Scottish Court of Session Decisions

In this action the pursuers seek damages on the ground of alleged fraudulent misrepresentations made by the Joint Receivers of P.W.P. Design and Print Ltd and their solicitors in the course of selling the assets of the company to the pursuers.

In very broad terms the nature of the fraud alleged is that the defenders untruthfully represented to the pursuers that the Receivers had a "legal title" to the factory premises occupied by the company such as could "prevent" the pursuers taking entry to these premises despite Missives of Lease having been concluded between the pursuers and the landlords of the premises. It is said by the pursuers that this representation resulted in their being prevailed on by the defenders to pay £280,000 more for the business assets than they would otherwise have done and that this figure accordingly constitutes the loss which they have sustained in consequence of the defenders' fraud.

When the case called before me in Procedure Roll it was common ground between the parties that allegations of fraud could only properly be made on clear and specific averments - Shedden v Patrick Et Al 1854 1 MacQ. 535 in the Opinion of the Inner House at pps. 581 and 589 and per the Lord Chancellor (Cranworth) at p. 615 - and, against that background, it became clear that counsel for the defenders attacked the specification and relevancy of the case pled by the pursuers on essentially two main grounds (which were, incidentally, somewhat different from those heralded by the respective Notes of Argument).

In the first place, Mr Keen for the third and fourth defenders, submitted that the pursuers' whole case proceeded on a legal misconception, namely that the lease of the premises granted to the pursuers by the landlords automatically superseded or took preference over the "licence" admittedly enjoyed by the Receivers. Secondly, and in any event, both he and Mr Hodge, for the first and second defenders, submitted that even if the pursuers' case were to be read as recognising the need for the licence to be terminated by the landlords before the pursuers could take entry - which it was agreed between the parties was the correct legal position, - the representations allegedly made by the defenders did no more than reflect that impediment. In short, there was nothing in the pleadings to indicate that what the defenders had represented, namely that they had a "title" which could "prevent" the pursuers taking entry, was other than the truth.

Before turning to the reply by Mr Ellis, for the pursuers, it is, I think, necessary to set out verbatim the most salient of the pursuers' averments which bear on this matter. These commence at p. 23C of the Closed Record:-

In a later Article of Condescendence (at p. 36 of the Closed Record) it is averred that the terms of what is there described as the "informal arrangement" between the Receivers and the landlords were set out in a letter from Arthur Andersen & Co. to the landlords dated 15 February 1996, the terms of which are held to be incorporated in the pleadings brevitatis causa. Again, I think it is as well that that letter (No. 7/3 of Process) be set out in its entirety:-

Thereafter, the pursuers' pleadings continue as follows:-

Finally, in Article V of Condescendence, the pursuers aver, inter alia, as follows:-

Mr Ellis commenced his reply by submitting that, while it was necessary to aver clearly and specifically what was said to constitute a fraudulent representation and the meaning or inference which the pursuer sought to derive from it, that did not require the meaning or inference in question to be the only possible meaning or inference since, if different meanings were possible, the actual meaning intended and understood was, or could be, a matter for proof. In this submission Mr Ellis was, I think, broadly correct.

Next, Mr Ellis demurred to Mr Keen's submission that the pursuers' case proceeded on the legal misconception to which I have referred and invited me to read the pursuers' averments as proceeding on the correct legal basis, namely as recognising that the pursuers could only take entry to the factory premises under the Missives of Lease if and when the landlords terminated the licence enjoyed by the Receivers. As to that, I am bound to say that there are parts of the pursuers' pleadings which do suggest the existence of some confusion or misconception in this regard but, for present purposes, I am prepared to look at the pursuers' averments against what is now agreed, at least, to be the correct legal background.

For the rest, I think that I fairly summarise Mr Ellis's submissions as being, first, that on an application of the principle that a landlord "cannot derogate from his own grant" the landlords would have been obliged to co-operate with the pursuers by terminating the licence as soon as possible; second, that the defenders should have known this; third, since the licence was only a very informal arrangement, that the period of "reasonable notice" required for its termination would, to the knowledge of the defenders, have been "very short"; and, fourth, that the representations made by the defenders, taken together, denoted an ability to keep the pursuers out of the premises for a substantial period, being one well in excess of what would constitute a period of "reasonable notice". I propose to examine each of these propositions in turn.

As to Mr Ellis's first proposition under this head reference was made by him to Gloag on Contract, 2nd Ed. at p. 296 and to Rankine on Leases, 3rd Ed., at p. 200 and, in my opinion, these references did indeed vouchsafe the proposition in question. I am, however, less happy about the proposition that both sets of defenders would have been aware of the legal position thus formulated. The third defender was, of course, a solicitor, but, in light of recent authority, I am unclear whether even solicitors are deemed to know all of the law. Even more problematic must be the legal knowledge of a Chartered Accountant and, in this connection, Mr Ellis expressly disavowed any intention to impute to the first defender any specialised knowledge had by the third defender. However, the "bottom line", as it seems to me, is that the pursuers offer to prove the requisite knowledge on the part of both defenders and that, I think, is an end of the matter so far as relevancy is concerned.

Mr Ellis's third proposition is where it seems to me the pursuers' case begins to founder. The letter of 15 February 1996 (No. 7/3 of Process) makes it clear, in my opinion, that the Receivers were "licensed" to occupy the business premises whilst they sought a purchaser for the company as a going concern. That does not mean, of course, that they could stay there as long as they liked but what would constitute a reasonable period of notice for termination purposes would, it seems to me, have to be tested against that background. This, in turn, in my opinion, might well involve a consideration of when, where and to what extent it was reasonable to advertise the intended sale; what, if any, offers had been received; and the state of the marketplace generally; - all this quite apart from whatever time was reasonable for, if necessary, physically vacating the premises and removing the plant and tenant's fixtures. In short, I simply do not accept Mr Ellis's assertion - for that was all it was - that a reasonable period of notice for terminating the licence could and should be assumed as being "very short", let alone that the defenders should themselves be deemed to have made that assumption. In this connection, Mr Ellis was at pains to submit that the reference in No. 7/3 of Process to trading the business whilst the Receivers sought a purchaser for it as a going concern was only stated to be an "intention" on the part of the Receivers and, as such, should not be seen as being of contractual significance. In my opinion, however, the reference in question makes crystal clear the whole purpose of the licence and what did, or did not, constitute "reasonable notice" of termination would have to be tested in that light.

Turning to Mr Ellis's final proposition, I am prepared to accept that, read together and in context, the alleged representations could be taken to infer that the defenders were in a position to "prevent" the pursuers taking occupation to the premises to an extent which would be embarrassing to the pursuers and thus, of necessity, over a material period of time. However, if I am right that the period of notice for terminating the licence could itself have been quite lengthy, there is, as it seems to me, no reason - and certainly no reason disclosed in the pleadings - for attributing to the alleged representations anything other than a reference to that period. What is more, it is difficult to see what else could have been intended or, for that matter, understood, in the context of a licence to occupy "without limit of time". Such a licence, if not expressly granted for a period solely determinable by the occupier, is of necessity terminable on reasonable notice. And, although Mr Ellis left open as a "possibility" that the inference the pursuers sought to take from the alleged representations could have included the existence of a licence during the pleasure of the Receivers, his submission was that the inference, as such, was a much broader one. In the result, and as was submitted by counsel for both defenders, it seems to me, not only that the alleged representations are entirely consistent with being a reference to the requirement for a reasonable period of time to elapse before the licence could be terminated, but that, leaving aside the "possibility" to which I have just referred, they were consistent with nothing else. In short, as Mr Keen put it, the inference for which Mr Ellis contended, namely the inference that the defenders could keep the pursuers out of the premises for a lengthy period which was both unspecified and indeterminable, was, quite simply, a "legal impossibility". Mr Ellis in the end accepted that this was so but submitted that an inference involving a "legal impossibility" could still be fraudulent if intended to be acted on by the listener. Bearing in mind, however, that the pursuers' representatives were accompanied by two of their own solicitors at the meeting in question it seems hardly likely that such an inference could have been intended by the defenders even if, somewhat remarkably, it was so understood by the pursuers.

I have already referred to the case of Shedden v Patrick Et Al cit. sup. but, as I draw this Opinion to a close, it is, I think, apposite to refer in terms to what was said by Lord Fullerton when delivering the Opinion of the Inner House, at p. 589 of the Report in question:-

In the present case, when the facts, as averred, are properly analysed, it seems to me that they do indeed lead to a conclusion directly opposite to that contended for by the pursuers. However, even if I were wrong about that, I am in any event satisfied that the pursuers have failed to state clearly and explicitly any basis for attaching a dishonest meaning to the representations allegedly made by the defenders. In short, the pursuers have failed to show how or why they could have concluded that the defenders had a legal title to prevent the pursuers from taking entry to the factory premises other than the legal title which the defenders in fact had, namely a licence to occupy the premises until terminated by "reasonable notice" from the landlords. Insofar as Mr Ellis sought to contend for some different meaning or inference, that different meaning was, in my opinion, so vague and improbable as, in the words of Lord Fullerton, to defy "the ordinary sense of mankind". In any event, it is nowhere clearly set out in the pleadings and it depended on the premise that a period of reasonable notice for purposes of terminating the licence could not itself have been such as to embarrass the pursuers. As stated above that premise was, in my opinion, quite unsound.

It only remains to add, for the record, that in the early stages of the debate the positions adopted by the various parties and some of the arguments advanced were rather different from those which I have summarised in the foregoing Opinion. I make absolutely no criticism of this since one purpose of debate is to tease out the real issues and arguments which divide the parties. I have, however, made no attempt to summarise those arguments which were not in the end maintained.

In the overall result I shall sustain the first plea-in-law for the first and second defenders and the first plea-in-law for each of the third defender and fourth defenders and dismiss the action.