Scottish Court of Session Decisions

[1] The pursuers and reclaimers are a firm and its partners. The firm name is Fraser Trading Company. The partners are Mr. John Millward and his wife Mrs. Margaret Millward. Mr. Millward personally presented the reclaiming motion. The defenders and respondents are the Governor and Company of the Bank of Scotland. In a previous action by the defenders against the pursuers, the court granted decree in favour of the Bank, for payment by the pursuers of £435,315 together with interest. In the present action, the pursuers seek reduction of that decree. They also seek suspension of certain charges for payment served on them by the Bank, upon the basis of that decree. By interlocutor dated 11 May 1999, the Lord Ordinary dismissed the action as irrelevant. The pursuers reclaim.

[2] The sum of £435,315 represents a debt arising from overdraft facilities granted by the Bank to the firm. The pursuers do not dispute the amount of the debt as such, and accept that it remains unpaid. However, the decree of 27 August 1996 was pronounced in absence, and reduction is sought upon the basis that the pursuers were not in the circumstances liable to make payment.

[3] In 1991, Mr. Millward made contact with the Bank, in connection with a development which the firm wished to carry out at Larkhall Burn, Jedburgh. Meetings and correspondence followed. In January 1992, Mr. Millward submitted a revised proposal, seeking a limited overdraft facility to enable construction to start. On 16 January 1992, Mr. K.G. Houston of the Bank wrote to the pursuers confirming that the Bank were willing to provide finance to allow the development of the site to progress. He had calculated that the total facilities required at that time amounted to £110,000, and said that with £30,000 coming in from Scottish Borders Enterprise, the Bank would make an overdraft facility of £80,000 available. He enclosed a copy of the Terms and Conditions which would apply to the offer; and Mr. and Mrs. Millward signed a docquet to these Terms and Conditions, agreeing to them. According to the Terms and Conditions, the type of facility was described as a "fluctuating overdraft". The purpose was stated as being "to provide the borrower with working capital to allow the phased development of site at Larkhall Burn Cottage". And the amount was stated thus - "Initially £80,000 and then individual facilities to be agreed against each plot as it is sold or to be developed. Payments to the Builder to be released against Architect's Certificate of completed work". Under the heading of Repayment the provision was as follows:

That provision was reflected in a passage in Mr. Houston's letter, in which he says that legally he is obliged to point out that any facilities outstanding by way of overdraft are repayable on demand, but goes on to make certain observations as to review and the provision of further facilities.

[4] The agreed Terms and Conditions provided for a first standard security over the site in the name of the firm, and a second standard security over Larkhall Burn Cottage, which was in the name of Mr. and Mrs. Millward. These securities were in fact granted; and in May 1997 the Bank obtained summary decree in each of two actions against Mr. and Mrs. Millward in the Sheriff Court at Jedburgh, declaring their entitlement to sell the security subjects, and for removing. Mr. and Mrs. Millward appealed against both of these summary decrees. One appeal was allowed of consent, for technical reasons. The other appeal proceeded, and in the course of those proceedings Mr. and Mrs. Millward submitted a Minute of Amendment, seeking to add a counter-claim to the Sheriff Court proceedings. The proposed amendment was refused by the Inner House as plainly irrelevant. However, the terms of the proposed counter-claim have a bearing upon the present action: putting the matter shortly, Mr. and Mrs. Millward's position was and is that they are not obliged to repay the amounts advanced to them by the Bank, or interest thereon, because they themselves have claims against the Bank exceeding the amounts which they would otherwise owe the Bank. Again putting the matter shortly, these claims turn partly upon submissions as to the correct interpretation of the Bank's obligations under the agreed Terms and Conditions and alleged breach of contract by the Bank; and partly upon assertions of negligent misrepresentation by Mr. Houston, inducing the pursuers to agree to those Terms and Conditions, and in consequence to grant the standard securities.

[5] The Lord Ordinary refers in some detail to the pursuers' averments, and notes their close similarity to the averments which had been contained in the Minute of Amendment which was refused by the Inner House in the earlier appeal from the Sheriff Court. He held that the pleadings in the present action did not disclose any prima facie defence to the action of payment, and consequently held the action for reduction of the decree in absence to be irrelevant. The basis for his conclusions is essentially the same as the basis upon which the Inner House had held the Minute of Amendment, with averments of counter-claim, to be irrelevant. In the light of the course which Mr. Millward's submission to this court took, it is not necessary for us to consider in any detail the grounds upon which the Lord Ordinary held that the pleadings were irrelevant and we turn now to the position which Mr. Millward adopted before us.

[6] Initially, Mr. Millward drew our attention, in some detail, to his original proposals, which had been unacceptable to the Bank, and his revised proposal of 7 January 1992, which led to the letter and agreed Terms and Conditions on the 16th of that month. Against the background of the Bank's knowledge of how the proposed development would have to proceed, and of the pursuers' needs in financing phase 1 of the development in particular, he explained that the Bank's commitment was not only to provide finance for the first unit, but to do so, unit by unit, to the extent required for the development, and in particular phase 1, to proceed to completion. As we understood Mr. Millward, the submission was that this commitment was indeed to be found in the letter and Terms and Conditions of 16 January; but if it was not to be found there, it was to be found in Mr. Houston's earlier representations as to what the Bank would do, and these in the circumstances must be regarded as negligent misrepresentations. The Bank, and Mr. Houston in particular as a man skilled in these matters, had taken on an advisory role, with duties of care to the pursuers, who were relying on that advice. They had thus been induced to conclude the contract of 16 January, which was very different from the more modest proposal which they themselves had put forward on 7 January.

[7] Mr. Millward expanded quite substantially upon the history of the firm's dealings with the Bank before 16 January 1992, and we thought it right to allow him to do so, as a party litigant, notwithstanding the fact that in many respects his submissions were unrelated to the pleadings. But having adopted this wider approach, Mr. Millward accepted, when turning to the pleadings, that they did not cover either the general matters of skill and reliance upon advice, or certain oral misrepresentations which he claimed were made by Mr. Houston on 10 January. Correspondingly, these were matters which had not been before the Lord Ordinary in the form in which they were now being presented. It emerged that Mr. Millward had already envisaged that amendment might be necessary in order to make the pursuers' case relevant. And in the event he conceded that his case would be hopeless without amendment. In all the circumstances we gave him time to revise the draft Minute of Amendment which he had already prepared and in due course he sought leave to lodge the Minute, in terms designed to reflect the submissions which he had been making, and which had previously been lacking in the pleadings.

[8] Counsel for the Bank intimated that he opposed the lodging of this Minute, both on grounds of lateness, and upon the basis that it was manifestly irrelevant. However, rather than consider these submissions in isolation, we asked counsel to make all his submissions on relevancy, both in regard to the Minute and in regard to the original pleadings, with the question of whether the Minute should be received being reserved meanwhile.

[9] On behalf of the Bank, counsel noted that Mr. Millward had not abandoned that part of the pursuers' case which depended upon breach of contract. But that matter was not altered by the proposed Minute of Amendment, and he submitted that this part of the case was indeed irrelevant, for the reasons given by the Lord Ordinary. It was clear from the agreed Terms and Conditions that the Bank were not obliged to make any advances beyond the original £80,000: any further individual facilities would require to be agreed, and subsequent advances depended upon such subsequent agreement, and not upon any general obligation to fund the whole of phase 1 until completion. Moreover, the facility was subject to annual review, and was expressly repayable on demand, notwithstanding what was said as to reduction from sale proceeds. It was clear that the contract was one which entitled the Bank to seek repayment on demand and at any time. The contract simply did not bear the meaning contended for by the pursuers, and the alleged breaches only arose upon that interpretation.

[10] Turning to the case of alleged misrepresentation, counsel for the Bank submitted that this case implied that the contract which the pursuers claimed they had been induced to enter was a damaging one for them. This was therefore an alternative to the case of breach of contract, which involved no criticism of the contract, although asserting that it had been breached. Turning to the issue of misrepresentation, it was submitted that even with the proposed amendment, the alleged misrepresentation was nothing more than a statement of intention.

[11] The Minute of Amendment contains averments which relate to a meeting between Mr. Houston and the Millwards on 10 January. It is averred that Mr. Houston

It is further averred that

[12] Counsel for the Bank submitted that what was apparently being alleged was a statement that the Bank would do something at a future point in time. It was not being suggested that this was itself a binding contractual promise as to what they would do. In so far as it was an opinion or prognosis of what the Bank's position would be in the future, it was not apparently being suggested that this was a false representation of Mr. Houston's own opinion. And indeed it was not alleged that what Mr. Houston said was inaccurate or untruthful at the time. Moreover, despite the broad references to Mr. Houston's "special skill and knowledge" and his "particular knowledge of how the bank could finance this type of proposal", there were no real averments of circumstances giving rise to a duty, nor averments of what that duty was, nor of any basis for alleging negligence. And in addition, there was no indication that the pursuers had been induced to enter into some contract different from what they would have wanted. Furthermore, when one looked to the original pleadings, it was clear that the Millwards' complaint related to delays in the provision of funds. But the pleadings did not reveal, either in the proposed Minute of Amendment or at page 10 of the original pleadings, any specific representation as to what timescales might be accepted as binding, or indeed anything in the actual times of payments which would involve any departure from any scheme that might have been contained in the representations. Finally, the Minute of Amendment in no way improved the pleadings in relation to loss. Not only was there no quantification of loss (which was a crucial matter) but in addition there was no real indication of how the contract was disadvantageous, or gave rise to loss. Since a right to damages in excess of the debt was the only possible defence to the action of payment, there could be no question of reduction unless, at least prima facie, such a right to damages existed. The pleadings were wholly defective. The Minute of Amendment should not be received; but whether or not it was received, and amendment allowed accordingly, the pursuers' averments remained irrelevant, and the reclaiming motion should be refused.

[13] In reply, Mr. Millward insisted that what Mr. Houston had said went beyond a statement of intention, and was an opinion upon which the pursuers had relied. But he was unable to suggest that the pleadings contained any substantive averments of negligence. And he was unable to indicate any basis for the assessment of loss, or quantification of loss. He suggested only that the scale of the development could be seen to be very substantial.

[14] We are satisfied that without the Minute of Amendment, Mr. Millward was right to concede that the pleadings were irrelevant. In that regard, on both branches of the case, we see no point in adding to what has been said by the Lord Ordinary. And as regards the additional averments contained in the proposed Minute of Amendment, we are satisfied that they are manifestly irrelevant also. The criticisms advanced by counsel for the Bank are well-founded, and Mr. Millward in effect had no reply.

[15] In these circumstances we refuse the Minute of Amendment, and refuse the reclaiming motion.