Scottish Court of Session Decisions

[1] In this case, a judicial factor sues a solicitor, alleging professional negligence. A debate took place on the question of the judicial factor's title to sue.

[2] In 1878, five individuals formed a joint venture, known as the Thurso Building Society, for the purpose of purchasing land, and erecting and letting houses. They instructed a firm of solicitors, Messrs. Keith & Murray, to act on their behalf. Over the years, Messrs. Keith & Murray carried out their duties. They effected purchases and sales, arranged borrowings, ingathered rents and managed funds.

[3] In 1905, three of the joint venturers died. In 1907 a fourth died. Messrs. Keith & Murray continued to act as solicitors for the building society. In 1925, a creditor of the building society assigned her interest in a heritable security over the society's property to Miss Mildred Keith. In 1936 the last surviving joint venturer, a relation of Miss Keith's named Peter Keith, died.

[4] At debate, counsel were agreed that the joint venture had come to an end by 1936 at the latest, if not earlier, by 1907. Accordingly by 1936 at the latest, the property, funds, rights and obligations formerly belonging to the joint venture became the property of the descendants of the five joint venturers, including Miss Mildred Keith as a descendant of Peter Keith.

[5] Messrs. Keith & Murray continued to act. The client account entitled "Thurso Building Society" was retained and operated. By 1964, Messrs. Keith & Murray comprised a sole practitioner, David George Robertson, the defender in the present action. In 1988 he retired, and the practice was taken over by another firm of solicitors. The new firm formed the view that the property and funds of the former joint venture should be distributed to the descendants of the five deceased joint venturers. One descendant, Peter Keith Morrison, provided information and assistance. A family tree was prepared, and about 280 apparently eligible descendants were identified.

[6] In the course of familiarising themselves with the affairs of the Thurso Building Society, the new solicitors identified certain transactions which gave rise to questions of possible professional negligence on the part of Messrs. Keith & Murray. In particular:

1. In 1982, certain heritable properties in George Street, Thurso, had been sold. In each transaction, Messrs. Keith & Murray had acted for both purchaser and seller. The heritable creditor Miss Mildred Keith had signed the dispositions. In none of the transactions was the property advertised, or an independent valuation obtained. The properties appeared to have been sold at undervalues.
2. Following upon the death of Miss Keith in 1984, a payment of £13,408.11, apparently representing a one third share of the funds in bank and building society deposits for the Thurso Building Society, had been paid out to beneficiaries named by Miss Keith in her will. As Miss Keith's share as descendant of Peter Keith was estimated to be about 11.6/280 and not one third, an overpayment appeared to have been made to her beneficiaries.
3. Certain unwarranted payments appeared to have been made to Miss Keith prior to her death, enabling her to purchase a car, and to pay for decoration.

The new agents decided that it was necessary firstly to petition the Court of Session for the appointment of a judicial factor on the estate of the former Thurso Building Society, and secondly to raise an action alleging professional negligence on the part of David George Robertson in an effort to recover any losses suffered. The descendant Mr. Morrison duly petitioned the court for the appointment of a judicial factor. On 9 November 1993 the pursuer was appointed judicial factor ad interim "on the estate of the former joint venture known as `Thurso Building Society'". The interim judicial factor raised the present action averring negligence on the part of Mr. Robertson. On 11 January 1994 the judicial factor's appointment was made permanent. The interlocutor was in the following terms:

[7] Counsel for the defender argued that the judicial factor had no title to sue. The fundamental flaw in the action was that it assumed that there was a continuing building society, a continuing persona, quite distinct from the descendants, on which the judicial factor had been appointed. The judicial factor had not suffered a loss for which he was entitled to sue. The descendants were the persons entitled to sue. No doubt the pursuer would rely, firstly, upon Dickie v Mitchell (1874) 1 R. 1030, where a judicial factor had been appointed on a joint venture where the older venturer was unable, and the younger venturer unfit, to run the farming business; and secondly, upon Dixon v Dixon (1832) 6 W. &. S. 229, where a judicial factor was appointed when the trustees of deceased partners could not agree about the winding-up of the partnership affairs. However each of these cases was special on its facts, and could not form the basis of a general principle. The Lord President in Dickie seemed to have attempted to express a general principle, founding on Dixon, but the court in Dixon had expressly limited their decision to the particular facts of that case. As Pyper v Christie (1878) 6 R. 143 demonstrated, on the termination of a joint venture such as the Thurso Building Society, the separate legal persona collapsed and resolved into separate elements, i.e. the descendants of the five joint venturers. Each descendant was entitled to sue in his own name, in the same way as Mr. Pyper and Mr. Hay had done in Pyper v Christie. There was a distinction between a joint venture and a partnership on the question of the collapse of the separate persona and the resolution into component parts. In a partnership, if all the partners died, the firm carried on, and there was something upon which the court might appoint a judicial factor in order to secure the winding up thereof. Such was not the case in a joint venture: when a joint venture came to an end, whether because the venture was finished, or the venturers died, there was a resolution into its constituent parts. The separate legal persona no longer existed and one had to focus on the individual rights in the property of the venture. In Pyper v Christie, the firm name was not included in the instance, as the firm no longer existed. Vindication of rights required to be effected by individuals with proprietary rights. In the present case, by 1936, and probably even earlier, by 1907 when the second last venturer died, there was no longer a joint venture. In its place there was a series of estates, each entitled to one fifth. The persons entitled to sue in respect of any wrongful acts in the 1980s were the descendants, not the judicial factor. In the 1980s, no duty of care had been owed to a joint venture. A duty of care had been owed to the descendants. If Pyper v Christie was a correct representation of the law, the action was ill-founded. There had been no sequestration of the estate of the former joint venture, taking the management and administration of the estate away from the descendants and placing it in the hands of a judicial factor. The judicial factor had been appointed on nothing, on "thin air". His position was not a happy one. Even if he had acquired something in 1993, he had not acquired title to sue in respect of wrongful acts or omissions which had taken place in the 1980s. Matters might have been different had the descendants assigned their rights to sue (acquired in the 1980s) to the judicial factor.

[8] Counsel for the defender further submitted that the pursuer might seek to rely on Mair v Wood, 1948 SC 83. But that case was not inconsistent with Pyper v Christie, despite the doubts expressed by some academic writers. In Mair, one joint venturer was injured during the subsistence of the joint venture. By the time the case reached the Inner House, the joint venture appeared to have come to an end. Lord Keith had been concerned that all the former venturers should be called to protect their rights of relief inter se. He commented that such a step was necessary because there remained no separate persona in Scots law. In Mair therefore the matter for decision was an incident which had occurred during the continuum of the joint venture, i.e. before any termination occurred. The court was not delivering a general view on joint ventures and partnerships in all circumstances, including the termination of a joint venture. The case of Pyper v Christie was cited in Mair v Wood without comment and without disapproval. Miller, Partnership (2^nd ed.) at p.636 predicted that:

But that prediction was not well-founded. Pyper v Christie was still good law where the joint venture had terminated prior to the acts complained of, as in the present case where the joint venture had terminated prior to the 1980s. It was the descendants who were entitled to complain about the wrongful acts. The defenders' first or alternatively their second plea-in-law should be sustained. Either the first plea (no title to sue) was correct, as any duty of care had been owed to the descendants for whom the solicitors had been acting, and thus the descendants had title to sue. Alternatively, if the first plea-in-law was repelled, the second plea (a general plea to the relevancy of the action) should be sustained, as the judicial factor had been appointed on an estate which consisted of nothing and had suffered no loss. For even if it were open to the court to appoint a judicial factor when all the venturers were dead, it did not follow that in the present case the judicial factor had the right to complain of losses which he himself had not suffered. The acts complained of had occurred in the 1980s; the judicial factor had not been appointed until 1993.

[9] Counsel for the pursuer responded by submitting that the judicial factor had title to sue. For the purposes of the matters being debated, there was no material distinction between a partnership and a joint venture: see Mair v Wood, 1948 SC 83, Lord President Cooper at p.86, and Lord Keith at pp.89-90. Lord President Cooper's observations were entirely general: there was no special emphasis on termination. Further s.32 of the Partnership Act 1890 drew no distinction between a partnership and a joint venture. The legal personae of both a partnership and a joint venture came to an end on the termination of the partnership or joint venture. In either case, there remained an estate requiring administration and distribution. In the present case, the descendants had an interest to receive an appropriate share of the net proceeds of realisation of the assets of the joint venture. They did not have a proprietary right to any particular asset. The judicial factor had been appointed on the estate. It was not necessary to have a separate legal persona owning something. All that was necessary was an accumulation of property and rights requiring administration or distribution: see Walker, Judicial Factors (1974) Ch.1. There were several situations where a judicial factor might be appointed on an estate which did not belong to a particular person: for example, the estate of a former partnership; the estate of a lapsed trust; and common property. In the present case, the fact that certain persons might have rights in the property of the former joint venture did not mean that there was not something which could be identified as the "estate" of the former joint venture. It was accepted that in the 1980s the duties owed by the defender were owed to the descendants as persons on whose behalf the estate was being administered. The duties were not owed to the joint venture, which had ceased to exist. If, in the course of administration, debts or claims arose because the person managing the estate paid out money wrongly, or acted negligently causing loss, those claims against that manager formed part of the estate and could be ingathered or realised once the judicial factor had been appointed. Dixon was an important case in that it decided that it was competent to appoint a judicial factor to an estate where the person who owned the estate had died. The legal persona had disappeared, leaving an estate on which a factor could be appointed. It was a short step from such a case to a case involving a joint venture: see Dickie v Mitchell (1874) 1 R. 1030, especially pp.1033, 1035. In Dickie, the persons had been incapable, not dead: but nevertheless the case involved the appointment of a judicial factor on the estate of a joint venture.

[10] In summary, several propositions could be advanced: (1) There was no material difference between a partnership and a joint venture whether during subsistence or after termination: Mair v Wood, cit. sup.; and Bell's Principles, paras.387 and 392. (2) There was no continuing legal persona after termination or dissolution of either a partnership or a joint venture: s.32 of the Partnership Act 1890. Pyper v Christie, cit. sup. stood alone, with no antecedents and no successors. On one view, Pyper could be distinguished from the present case in that it concerned a dispute amongst co-adventurers and not an action against a debtor to a former joint venture. The true ratio in Pyper was that where a joint venture comes to an end, each ex-venturer could sue the ex-venturer who held the funds. Lord Justice-Clerk Moncrieff's remaining dicta were obiter, and to the extent that these dicta seemed to indicate that a separate firm persona subsisted after the dissolution of a partnership, they were not sound. Lord Gifford's agreement was directed to the overall effect of the Lord Justice-Clerk's judgement (i.e. that the Lord Ordinary had been wrong to dismiss the action). There was no difference between partnership and joint venture after termination. The judicial factor in the present case had not been appointed to "nothing"; he was not a vitious intromitter with the property and funds formerly belonging to the joint venture. (3) The existence of a separate legal persona was irrelevant to the competency of an appointment of a judicial factor. What mattered was that an estate, a collection of property and rights, existed, which was in need of administration or distribution: Walker, Judicial Factors (1974) Ch.1; Irons, Judicial Factors (1908) Ch.1, para.1. (4) An estate, as a collection of assets and rights, would include debts due to the estate. Debts could include claims for money wrongly paid out, and for losses caused to the estate by the negligence of a manager. (5) Where an estate existed, there would be underlying ownership interests, i.e. a person or persons who had the right of ownership of the assets: see Irons, op. cit. Ch.1, para.1, and p.365. What was lacking was a person capable of ingathering, administering and distributing the estate. (6) It was competent to appoint a judicial factor on the estate of a former joint venture, just as it was competent to appoint a judicial factor on the estate of a former partnership: Dickie v Mitchell, cit. sup. Although criticism was made of Dixon as being an insecure foundation for the Lord President in Dickie, the fact of the matter was that the law had been settled for a century that a judicial factor could be appointed on the estate of a joint venture. (7) Once appointed, a judicial factor has title and interest and indeed a duty to sue to ingather debts due to the estate, including losses caused by the negligence of a manager. It was irrelevant that the wrongful acts had occurred during the decade prior to the judicial factor's appointment. (8) The duty of care owed by the manager of the estate of the former joint venture was owed to the persons with the underlying proprietary interests, those with a jus crediti. However once a judicial factor was appointed, title and interest to sue vested in the judicial factor for the benefit of those to whom the duty of care was owed, and it was contrary to the whole nature and purpose of the judicial appointment of a factor to permit any or all of the descendants to intromit with the assets or funds or to raise actions to recover debts or losses, so long as the judicial factor was in office and had not been discharged. In Henderson v Watson, 1939 S.C. 711, a judicial factor had been appointed on the estate of a testamentary trust. The Inner House held that, whi

[11] Counsel for the pursuer concluded by moving to amend Article 3 of Condescendence at p.7A-B by deleting the words "owners of the reversionary interest in the said properties" and by substituting therefor the words "the persons with interests in the estate of the former joint venture". The substituted averments, it was contended, reflected the pursuer's position more accurately. The amendment was allowed, and any question of expenses arising from the amendment was reserved.

[12] The office of judicial factor, as it has developed in the law of Scotland, is both flexible and practical. Whenever a collection of property, rights and obligations, appears to require management or distribution by a responsible and independent factor supervised by the court, the court may appoint a judicial factor to perform that function: see Irons, Judicial Factors (1908) Ch.1, para.1; Walker, Judicial Factors (1974) Ch.1; Rules of the Court of Session, Commentary by Sheriff N.M.P. Morrison Q.C. para. 61.1.2. Appointments may be made in a wide variety of circumstances, for example, a deadlock between trustees (Stewart v Morrison (1892) 19R. 1009); a sole trustee thought to be acting in his own interests (Soutar's Creditors v Brown (1852) 15D. 89); preservation of property the ownership of which is disputed (Walker, Judicial Factors (1974) Ch.9); and allegedly dishonest conduct on the part of directors of a limited company (Fraser, Petitioner, 1971 S.L.T. 146).

[13] I consider that the authorities demonstrate firstly, that the circumstances in which a judicial factor may competently be appointed are not rigidly defined or closed: cf. Leslie's Judicial Factor, 1925 S.C. 464; Stair Encyclopaedia, Trusts Trustees and Judicial Factors, Vol. 24, paras.238-239. Secondly, the authorities demonstrate that in each case the court focuses on an "estate" in the sense of a collection of property, rights and obligations requiring collection, preservation, administration, and distribution. It is the estate which is paramount, and underlying ownership of or entitlement to assets in the estate may be vested in a variety of persons. The identity of the person or persons with rights in the estate may change both before and during the period of the judicial factor's appointment, but once appointed, the factor continues to manage the estate by virtue of his mandate from the court until his appointment is terminated. The crucial feature in every appointment is that the court has entrusted the management of the estate (in the sense of a collection of property, rights and obligations) to the care of the judicial factor, in order that inter alia administrative steps, recovery of assets, resolution of disputes, payment of debts, and if necessary distribution to persons entitled thereto may be effected by him during the period of his appointment. Thus in my opinion a court could, if appropriate grounds such as death, deadlock or incapacity were made out, appoint a judicial factor on the estate of either a partnership or a joint venture in situations where some or all of the partners or joint venturers were alive but also in situations where all the partners or joint venturers had died.

[14] In my opinion, both counsel were correct in contending that, in the 1980s, when the allegedly negligent acts or omissions took place, Messrs. Keith & Murray owed a duty of care to the descendants of the five joint venturers, for both counsel accepted, correctly in my view, that during the 1980s no joint venture existed, and that any duty of care was owed to those with interests in the estate, i.e. the descendants of the five joint venturers. Further, both counsel were correct in submitting that the descendants' rights in the assets of the estate entitled them to sue in respect of any loss occasioned to the estate. However I agree with counsel for the pursuer that in 1993-94 the court could competently (and did) appoint a judicial factor on the estate in the sense of a collection of assets, rights and obligations, the estate being at that stage the property of the descendants and not the property of the former joint venture. Sequestration of the estate in the sense of removing from the descendants any right or title which they might have to manage the estate (including the ingathering of assets and the raising of actions to realise debts) does not in practice appear to be a mandatory stage of procedure in every case: see Walker, Judicial Factors (1974) pp.4-5. In this case, there was no sequestration prior to the appointment of the judicial factor. In my view, sequestration was unnecessary in the circumstances, particularly in view of the fact that the descendants had not in the past taken any steps to hold or administer the estate, nor did they appear likely to do so in the future, and thus there was little risk of a conflict of powers. By appointing a judicial factor, and by granting him the usual powers, the court authorised that judicial factor to take control of the property and funds comprising the estate, to manage and administer such property and funds, to ingather assets, to realise claims, to pay debts, and ultimately to distribute the estate to those entitled thereto. In so doing, the court vested in the judicial factor title to sue in relation to all such matters.

[15] In conclusion therefore, for the reasons given above, I agree with counsel for the pursuer that the judicial factor has title to sue.

[16] In a supplementary argument, counsel for the defender contended that certain averments in Article 7 of Condescendence (p.14B) and Article 8 (p.16C-D) should be excluded from probation as irrelevant. He argued that a solicitor's professional duties did not extend to obtaining an independent valuation for heritable property or to deciding whether or not to sell heritable property at a price lower than a valuation, or lower than its market value. Obtaining valuations and deciding when and at what price to sell heritage were matters for the heritable creditor Miss Mildred Keith, or, if Miss Keith's claims had been fully satisfied, for the descendants. A solicitor would at most provide advice, and certain conveyancing mechanisms.

[17] Counsel for the pursuer contended that the circumstances of the present case were unusual. During 1964 to 1988, management of the estate of the former joint venture had been undertaken by a solicitor, the defender. The defender had not merely acted as a law agent, but also as a manager on behalf of persons who were difficult to identify. He had taken decisions about selling property, holding funds, and making payments. It was averred that he had failed in the dual role of manager and lawyer. This was not therefore a simple case of a solicitor acting on the instructions of an easily identifiable client. The joint venturers were long dead; their descendants were numerous and not easily traceable; the solicitor had acted not merely as a solicitor but also as a manager of the estate. The solicitor had taken the initiative in selling property. There were no obvious clients to whom he could go for instructions. It was a matter for evidence what the solicitor in fact did, and thus the scope of his duties of care.

[18] I agree with counsel for the pursuer that in the rather unusual circumstances of this case the nature and extent of the solicitor's duties must be the subject of proof. It is quite possible for a solicitor to act as manager or factor, and to have duties of care connected with such functions. Accordingly I shall refuse the defender's motion to exclude averments from probation.

[19] Accordingly I repel the defender's first plea-in-law, and quoad ultra allow a proof before answer. I reserve the question of the expenses of the debate to enable parties to address me on that matter.