Scottish Court of Session Decisions

The interlocutor pronounced on 15 October, 1998 did not, as intended by me, remit the pursuers' account of expenses to the Auditor to tax. The case was disposed of in terms of a joint minute which did not seek a remit. Neither party sought to have the interlocutor altered. In the circumstances, the Auditor has not reported on the defenders' liability to the pursuers and his report on the question referred to him, whether all or any of the expenditure incurred by the pursuers as detailed in numbers 29 (5) and 29 (8) of process was exceptional in nature or amount in relation to the proper conduct of the litigation, was attacked as failing to meet the terms of the remit in full. There is, of course, a sense in which that must be true. The expenses have not been taxed, and in absolute terms it is clear that the precise requirements of the remit have not been met. However, I consider that the report meets the requirements of the remit in a practical way. The taxation of the account in this case may result in an increase in the net amount payable, since an additional fee was allowed. The taxed amounts of the charges of Hurd Rolland are not known. One could not form a view in arithmetical terms that what was exceptional in amount relative to the untaxed account and its components would necessarily be exceptional in purely arithmetical terms relative to the taxed account and its components. However, the auditor has reported that the outlays incurred in instructing Hurd Rolland were exceptional in nature. His view does not depend on the amount of the expenditure relative to the account of expenses generally. In these circumstances, I consider that the view expressed exhausts the remit. It is appropriate, therefore, to proceed to the next stage of the process. I shall remit the pursuers' account for taxation, and shall find on the basis of the auditor's report that interest falls to be paid on the taxed amounts of the Hurd Rolland outlays as being exceptional in nature in the circumstances of this case.

The rate at which interest falls to be allowed was discussed on 8 February, 1999. For the pursuers Mr Stewart argued that interest should be calculated at the rates incurred by the pursuers on overdraft with the Clydesdale Bank. The expenditure had been funded in that way, to the knowledge of the defenders. It was fair and reasonable that payment should be made on the basis of what the defenders should have anticipated would happen. The pursuers' account was debited with interest quarterly, and interest was compounded accordingly. But it was accepted that compounding was not appropriate as between the parties. While the indemnity principle was not applicable generally, once it was decided that expenditure was exceptional, there were similarly exceptional reasons for departing from the standard rate.

For the defenders Mr Glennie argued that the rate of interest payable from time to time on decrees was intended to smooth out market movements, and to accommodate the varying situations of parties in a practical way. Lenders received interest well below base lending rates. Borrowers tended to pay interest at rates higher than base lending rates. The rates, struck at broadly 1% over base, procured a reasonably fair balance, and should be departed from only in very exceptional circumstances. He referred to Lord McCluskey's opinion in Trans Barwil Agencies (U.K.) Limited v John S. Braid & Co. Ltd. (No 2) 1990 S.L.T. 182.

The circumstances of parties to litigation, both individually and relative to their opponents, vary widely. A pursuer who is sufficiently in funds to meet the whole expenses of pursuing a claim may be resisted by a defender who has alternative uses for the sums in dispute which can yield a surplus sufficient to make it worth his while defending an action even where the defence is without merit. It is not obvious that the interest payable to such a pursuer should inevitably differ from that payable to a pursuer who requires overdraft facilities to fund his expenditure against the same defender and who is confronted by similar tactics. The interest foregone by the party in funds will inevitably be at a lower rate than the rate of interest payable on overdraft. But the factor driving the generation of the interest in each case will be the defender's unconscionable conduct. One might incline to the view that, in the exercise of the court's discretion in these cases, the defender's conduct should be at least a material consideration. But the significant point may be that there would not be a logical or comprehensive answer to the balance which the court must strike which had regard solely to the position of one of the parties. In the present case there is information which supports the pursuers' contention that an overdraft was required, and that the defenders knew of the need. But the same expenditure could have been incurred by parties who chose to finance the action by overdraft rather than by realising assets which they held. Even if the question depended wholly on the means of the successful pursuer, one would only be able to determine the appropriateness of the use of overdraft facilities by enquiry into that party's total financial position. Further, if one were to proceed on the indemnity principle, in justifying the consideration of the question solely from the point of view of the successful claimant, it would be difficult to avoid compounding interest where that was necessary fully to reflect the cost to the pursuer of funding the expenditure in question.

The judicial rate is now struck on a more or less conventional basis: notes on Rule of Court 7.7, Parliament House Book. It is considered generally to be fair as between parties, both in relation to the rate applicable and to the basis of computation, at simple interest rather than by compounding. In my view it would require a consideration of the balance of interests between the parties for a proper exercise of the discretion to fix an alternative rate. Something might turn on the conduct of the parties. Something might turn on their relative economic strengths. Something might turn on an analysis of the legal basis for awarding interest and on any distinction between the instant case and the general rule. It is unnecessary in this case to develop a theory of interest, however. Viewing the whole information available, there is, in my opinion, nothing to distinguish the case, so far as concerns the rate of interest, from the generality of litigation. It cannot be enough that the pursuers incurred an overdraft for the specific purpose of funding the expenditure. Nor can it be enough that the defenders knew, or ought to have known, that that transaction would be entered into. These factors must be present in many cases before the court. The indemnity principle will not justify the claim, not least because it is not in fact relied on. For that the pursuers would have required to claim interest compounded at quarterly rests. They recognise that that claim would have failed.

I shall therefore allow interest on the Hurd Rolland charges, so far as allowed by the auditor at the judicial rates applicable from the respective dates of disbursement of those charges until payment.