Scottish Court of Session Decisions

[1] From 1990 until 29 November 1996, the pursuer was employed by the second defenders as a honing/grinder operator. The pursuer's employers, the second defenders, contracted with the first defenders, an insurance company, for a policy of permanent health insurance for their employees. It is a matter of agreement that the contract between the defenders took the form of a Group Long Term Disability Insurance Policy and Schedule, dated 19 June 1992, which remained in force at least until the time of the pursuer's dismissal from his employment with the second defenders. That policy is 6/1 of process. The "grantee" of the policy was Baker Hughes Ltd. The "Employer" within the meaning of it included the second defenders. The "Insurer" under the said policy was the first defenders.

[2] In condescendence III, the pursuer avers that in 1995 he became ill. In May of that year he completed a claim form in respect of the said insurance. He submitted it to the first defenders. It is averred that the second defenders completed a form supplied to them by the first defenders in respect of the pursuer's incapacity for work. It is a matter of agreement that the pursuer was dismissed by the second defenders on 2 October 1996 and that, as a consequence of that dismissal, the pursuer made an application to an industrial tribunal, in which he claimed that the second defenders had dismissed him unfairly, were in breach of contract and were in breach of the Wages Act 1985. It is also a matter of agreement that a compromise of the pursuer's disputed application to the industrial tribunal was reached. It is agreed that the terms of the compromise are contained in the Schedule to an order of the Industrial Tribunal, dismissing the pursuer's application, dated 2 May 1997 and entered in the Register of the Tribunals on 8 May 1997. The terms of that Schedule are as follows:

[3] In relation to the claim made the against the first defenders upon the basis of the pursuer's alleged incapacity for work, the pursuer avers, in condescendence IV, that on or about 31 October 1996, the second defenders purported to grant a discharge in favour of the first defenders of all their liabilities for the said claim. The discharge concerned has been produced and is incorporated into the pursuer's pleadings. It is 6/4 of process. It is in the following terms:

The pursuer goes on to aver that the said sum was then paid by the first defenders to the second defenders. By letter dated 25 November 1996 the second defenders wrote to the pursuer. They advised the pursuer that the claim for permanent health insurance benefit had been rejected by the insurers. The said letter made no mention of receipt by the second defenders of any money from the insurers in respect of the said claim relating to the incapacity of the pursuer. By letter dated 29 November 1996, the pursuer avers that the second defenders again wrote to him. That letter also referred to the refusal by the insurers to pay benefit to the pursuer. It is averred that that letter stated:

The pursuer avers that the said letter makes no reference to the fact that the insurers were prepared to pay some money in respect of the said claim. It makes no reference to the receipt by the second defenders of the said sum of £5,000. The said letter also informed the pursuer of the decision of the second defenders to terminate his employment with them. They stated therein that the dismissal was because the pursuer was not capable of resuming any work for the second defenders. They chose as the effective date of that dismissal the date of the letter from the insurers in which the insurers formally rejected the claim on behalf of the pursuer, namely 2 October 1996. The pursuer goes on to aver that, in terms of General Rule 11 of the said Policy, the second defenders are obliged to pay to the pursuer all sums which they have received from the first defenders under the said Policy in respect of the pursuer's ill health. General Rule 11(d) states:

The pursuer also avers that, in terms of the definitions in the said Policy, he is an Incapacitated Member.

[4] In condescendence V the pursuer avers that the second defenders hold the said sum of £5,000 on trust for him. It is claimed that they have received that money on his behalf in terms of the said Policy, but have failed to pay it over to him. It is averred that they have obtained it from the first defenders on the assertion that they had a claim to meet from the pursuer. They have retained the said money. They have no title to the said money. It is averred that, accordingly, they are in breach of trust. The pursuer also goes on to make averments concerning the incorporation of a document entitled Baker Hughes Limited Group Long Term Disability Insurance Scheme in the contract between the second defenders and their employees, including the pursuer. It is averred that the said document was supplied to the pursuer prior to the commencement of his illness in 1995. He avers that he supplied his labour to the second defenders on the basis that that document formed part of his contract of employment. He avers that, in terms of the said document, the second defenders must pay to the pursuer any sum or sums received by them from the insurer in respect of the incapacity of the pursuer. These averments are met by a simple denial on behalf of the second defenders. The pursuer, in condescendence VI, also makes certain averments, with which I need not be concerned, relating to the circumstances in which the second defenders discharged the claim made in respect of the pursuer's illness against the first defenders.

[5] Against this background, in the present action, the pursuer originally stated two Conclusions. In the first of these, he sought production and reduction of what was described as a pretended Discharge dated 31 October 1996 by the second defenders of the obligations of the first defenders to the pursuer under and in terms of the Baker Hughes Limited Group Long Term Disability Insurance Scheme in return for a payment by the first defenders to the second defenders of £5,000. In the second conclusion, the pursuer seeks payment to the pursuer by the second defenders of the sum of £5,000, together with interest thereon at the rate of eight percent a year from 31 October 1996 until payment. On 30 September 1998, the present case was partly heard in the procedure roll. At that time, the Lord Ordinary, of consent, refused the first conclusion of the summons, sustained the first plea-in-law for the first defenders, and dismissed the action in so far as laid against the first defenders. Thereafter the diet of procedure roll was discharged and the pursuer was allowed to lodge a minute of amendment, within a specified period. Subsequently, the proceedings were amended and on 5 May 1999 a further diet of procedure roll took place, at which the pursuer was again allowed a specified period in which to lodge a minute of amendment. Once again, following further amendment the case was appointed to the procedure roll on the second defenders' first and third pleas-in-law. It appears that the interlocutor effecting that, dated 8 October 1999, proceeded, to some extent, upon a misapprehension, since the second defenders' third plea-in-law is not a preliminary plea. However, for the present purposes, that is not a matter of importance.

[6] When the case came before me in the procedure roll, the motion of counsel for the second defenders was that I should sustain the second defenders' first plea-in-law, a plea to the relevancy and specification of the pursuer's averments, and should dismiss the action. After outlining the history of the case, she submitted that the pursuer, despite numerous amendments, had still not formulated a relevant case for payment of the sum of £5,000 sought in conclusion 2. She pointed out that the insurance policy, which featured in the pursuer's pleadings, 6/1 of process, was a contract between the second and first defenders, which provided certain benefits in the circumstances specified in it, which were payable to the grantee, Baker Hughes Limited, a company which was the parent company of the second defenders, but which was not the employer of the pursuer. It was a matter of agreement that benefit provided for an incapacitated member of the scheme annexed to the policy was to be administered under that scheme. Paragraph 11(c) of the scheme was important. The terms of that paragraph of the scheme showed that benefits paid under the scheme were to be characterised as salary or earnings for the purpose of the taxation of income. Furthermore, it was pointed out that the pursuer was never a party to the contract, as was evident from the averments in condescendence and answer 2. Accordingly the contract was res inter alios. It was of importance to appreciate that, following the development of the pursuer's illness and his dismissal on 2 October 1996, there was an application on his behalf to the industrial tribunal which was compromised upon the terms set forth in the schedule to the order of the tribunal dated 2 May 1997, which were set forth in answer 3 for the second defenders. The situation which had emerged was that it had been considered that the pursuer was not an incapacitated member within the definition contained in Rule 2A(b) of the General Rules of the scheme, as appeared from the terms of the letter dated 29 November 1966, quoted in condescendence IV. Upon that basis, it followed that he was not entitled to benefit under Special Rule C of the scheme. Against that background, the pursuer had averred that the second defenders had received £5,000 from the first defenders in respect of a claim on behalf of the pursuer. That state of affairs was the subject of admission. The pursuer now said that the second defenders were trustees holding that sum for his benefit. The submission made on behalf of the second defenders was that the averments in condescendence V relating to that matter were irrelevant and, in particular, lacking in specification. Furthermore, it was a matter of agreement that the pursuer had granted a discharge to the second defenders, at the time when the pursuer's application to the industrial tribunal was disposed of. That discharge covered all claims available to the pursuer under the contract of employment. The second defenders' position was that that settlement had discharged all obligations incumbent upon the second defenders in relation to the pursuer's contract of employment. It was submitted that that discharge effectively prevented the pursuer from asserting the present claim. In his pleadings, the pursuer made no attempt to address that particular problem. That was evasive and objectionable. In that connection reference was made to Murray v Edinburgh District Council 1981 S.L.T. 253, at pp.255 to 256. The pursuer's discharge granted as part of the compromise before the industrial tribunal constituted an insurmountable obstacle to the present claim, because that claim was one "arising under the terms of his contract of employment or out of the termination of his contract of employment", within the meaning of the agreed compromise.

[7] In any event, the action ought to be dismissed because the contract under which the sum of £5,000 had been paid was res inter alios. In any event, the pursuer's averments relating to alleged breach of trust, at page 14B-C of the closed record, 18 of process, were irrelevant. There was no specification as to the making of the assertion there referred to. In particular, it was not specified when, how or by whom and to whom the assertion was made. No documentation relating to the matter had been incorporated into the pleadings. There was no relevant basis for the further assertion that the second defenders had no title to the money concerned. In addition, there were no averments as to how the alleged trust had been created. In that connection reference was made to Clark Taylor & Company and Quality Site Development (Edinburgh) Limited 1971 S.C. 111, at p.118, and Balfour Beattie Limited v Britannia Life Limited 1997 S.L.T. 10, at pp.17 to 18. While counsel for the second defenders agreed that, in the present case, in distinction from the cases cited, the alleged truster and trustee were not the same person, essentially that made no difference. There were simply no averments here as to how the alleged trust had been created. The pursuer had had every opportunity to refine his pleadings in the numerous amendment procedures which had occurred. Furthermore, in condescendence V, the pursuer had made certain averments concerning a document entitled Baker Hughes Limited Group Long Term Disability Insurance Scheme. In particular, he relied upon general condition 11(d) of the Scheme. Those averments did not assist the pursuer, since they proceeded upon the basis of an assumption that there was an "incapacitated member". However, the pursuer was not to be regarded as an incapacitated member, since that status had not been accepted. In all these circumstances, the action should be dismissed.

[8] Counsel for the pursuer moved me to allow a proof before answer on the whole case. He stated that the background to the matter was to be found in condescendence IV, where averments were made concerning the payment by the first defenders to the second defenders of the sum of £5,000. It was quite clear that a claim had been made against the first defenders in respect of the pursuer. That claim had plainly been compromised, as appeared from the document 6/4 of process, which constituted the basis upon which the payment had been made. It was quite plain from that document that, firstly, a claim had been made against the first defenders "in respect of Joseph Smith". Secondly a payment of £5,000 had been made by the first defenders to the second defenders as representing commuted future benefit payments which might be due. All that was to represent "a full and final discharge of all liabilities on the part of UNUM Limited in respect of the claim for Joseph Smith". It was quite clear from the terms of that document that the payment had been made "in respect of the claim for Joseph Smith". It followed from that that the pursuer was beneficially entitled to the funds concerned. Furthermore, Rule 11(d) of the General Rules of the Scheme demonstrated that the second defenders as employers were under an obligation to make a payment to the pursuer, since they had received the sum claimed from the insurer. It did not matter whether the pursuer was or was not an "incapacitated member", since the operation of Rule 11(d) was not confined to such a recipient.

[9] As regards the terms of the compromise reached before the industrial tribunal, while it was accepted that the terms of that compromise meant that the pursuer could not claim any sum for breach of any provision of his contract of employment by the second defenders, the present claim was not such a claim; accordingly it was not affected by the terms of that compromise. The pursuer's claim was a claim against the second defenders as trustees for him.

[10] Criticisms had been made of the pursuer's averments relating to the matter of trust, under reference to Clark Taylor & Company Limited and Quality Site Development (Edinburgh) Limited. The passages relied upon in that case related to a situation where it was claimed that a trust had come into being in circumstances where the alleged truster and the alleged trustee were the same person. That was not the position here. The first defenders were the truster. The second defenders were the trustees. In any event, the pursuer had made relevant averments concerning the creation of the alleged trust. Looking at the matter in another way, there was no possible basis upon which the second defenders could retain the money paid for themselves, since they had no right to it. The money had been paid to them in respect of a claim made on behalf of the pursuer. The second defenders' insurable interest had to be an obligation in their part to pay funds to the pursuer.

[11] It had been contended on behalf of the second defenders that the present action should be dismissed as irrelevant, since the contract between the second defenders and the first defenders was res inter alios. That contention was unsound, since the pursuer's claim was not made by him as a party to any contract. It was made by him as a beneficiary of certain funds which, in consequence of the operation of a contract had come to be held by the second defenders as trustees.

[12] Counsel for the second defenders in reply submitted that, in relation to the alleged trust, there were insufficient averments to enable the Court to find a relevant case of trust and breach of trust. It was said that the payment of £5,000 had been made as a "benefit" under the Scheme. There was no basis for that assertion in the averments in condescendence for that assertion in the averments in condescendence V or elsewhere. Furthermore, the discharge granted by the pursuer before the industrial tribunal constituted an insuperable obstacle to the present claim. Reliance had been placed on Rule 11(d) of the General Rules of the Scheme. However that rule referred to a "payment to an incapacitated member". The pursuer did not possess that status here. There was no basis for the existence of any form of trust revealed in the pursuer's averments. The Scheme relied upon by the pursuer had, according to his averments, been part of his contract of employment.

[13] It appears to me to be clear from the pursuer's averments and also his pleas-in-law 2 and 3 that the present claim for payment of the sum of £5,000 is not grounded upon the contract of employment which existed between the pursuer and the second defenders, but rather upon a relationship of beneficiary and trustee, which he claims has come into being in consequence of the events described in his averments in condescendences IV and V. It was a matter of agreement between counsel that the action could be dismissed at this stage only if the Court were satisfied that the pursuer's claim was bound to fail even if all of the averments made by him were proved. As I understood the submissions made on behalf of the second defenders. There were two fundamental criticisms made of the pursuer's case. In the first instance, it was argued that the averments of a trust existing in relation to the funds concerned in favour of the pursuer were irrelevant. In the second place, it was argued that the compromise entered into between the pursuer and the second defenders' before the industrial tribunal, embodied in the terms set out in the schedule to the order of that tribunal dated 2 May 1997 constituted an insuperable obstacle to the present claim. I examine each of these matters in turn.

[14] As regards the pursuer's case of trust, in my view, it has to be recognised that, in the present action there is no longer any challenge to the validity of the discharge granted in favour of the first defenders of their liabilities in relation to the pursuer's claim, dated 31 October 1996, 6/4 of process, which is incorporated in the pursuer's pleadings. It was in consequence of the granting of that discharge that the payment of £5,000 was made by the first defenders to the second defenders, according to the pursuer's averments. It appears to me therefore to be of importance to examine the terms of that discharge, with a view to their casting light on the character of the payment which was then made. The discharge narrates that it was requested that "all future payments which may be due to us in respect of Joseph Smith are commuted for a single payment of £5,000 (five thousand pounds) made payable to Baker Oil Tools (U.K.)". It appears to me that these words indicate that the payment of £5,000 was being made as a lump sum commutation of all future payments which might be due "in respect of Joseph Smith". Furthermore, that payment was provided to "represent a full and final discharge of all liabilities on the part of UNUM Limited in respect of the claim for Joseph Smith". Thus, in my opinion, the payment being made was one "in respect of the claim" for the pursuer. It appears to me that the language used in the document concerned tends to support the contention of the pursuer that the beneficial entitlement to the sum concerned was that of the pursuer. Payment was made in respect of a claim made for the pursuer and no one else. In addition, it seems to me that the terms of General Rule 11(d) relied upon by the pursuer lend some support to his case of trust. The implication from the words used in that provision may be that the employer will be under an obligation to make payment if he has received a sum payable under the scheme from the insurer. It was argued on behalf of the second defenders that no assistance could be got by the pursuer from the terms of that Rule, because the pursuer was not an "Incapacitated Member". It appears to me that that contention has no merit for two reasons. In the first place, at page 13C in condescendence IV of the closed record, 18 of process, the pursuer avers that in terms of the definition in the said policy the pursuer is an Incapacitated Member. At this stage of proceedings, when I am concerned with the relevance of the pursuer's case, it appears to me that that is a complete answer to the point made. In any event, the scope of Rule 11(d) seems to me to be wider than assumed by counsel for the second defenders. The words used in the rule include "any payment to an incapacitated member or any other person". Thus, it may not be important for this purpose whether the pursuer is indeed an "Incapacitated Member"; on any view, he must be "any other person". In these circumstances, my conclusion is that there are sufficient averments made on behalf of the pursuer of the existence of a trust in his favour in relation to the £5,000 to entitle him to an enquiry. Some reliance was placed by counsel for the second defenders on the cases of Clark Taylor & Company Limited and Quality Site Development (Edinburgh) Limited and Balfour Beattie Limited v Britannia Life Limited. I do not find these cases to be of assistance in the present context. As I understand it, the dicta relied upon in those cases were concerned with a situation in which it was contended that the truster and trustee were the same person. The observations as to the criteria to be satisfied before it could be decided that a trust existed, were related to that situation. Plainly, that is not the situation with which I am concerned in the present case. On the basis of the ca

[15] Dealing now with the contention that the discharge granted by the pursuer to the second defenders in respect of the compromise of his claim before the industrial tribunal, it is important to observe the terms of the document concerned. The payment made to the pursuer was said to be "in full and final settlement of all claims which the applicant could bring against the respondent arising under the terms of his contract of employment or out of the termination of his contract of employment." It appears to me at least arguable that the claim at present asserted by the pursuer, to the effect that he is the beneficiary of funds held in trust by the second defenders, does not fall within that description. If such a trust does exist, it is the product of the terms of another contract, that is to say, the contract between the second defenders and the first defenders, under which arrangements were made for the payment of certain benefits to employees of the second defenders. The discharge also refers to claims "arising ... out of the termination of his contract of employment". I have difficulty in understanding how the present claim could be said to fall into that category. There appears to me to be no necessary relationship between the payment made in respect of the claim under the Disability Insurance Scheme and the circumstances of the termination of the pursuer's contract of employment. Having said that, it has to be acknowledged, in my opinion, that the relationship between the pursuer's contract of employment and the second defenders' Disability Insurance Scheme, on the averments made in the present action, is, to say the least of it, obscure. The terms of the pursuer's contract of employment were not before the Court in any competent form at the debate and the averments made by the parties do not appear to me to assist in that regard. In condescendence V, there is a series of averments by the pursuer concerning the Disability Insurance Scheme and, in particular, about the circumstances in which the pursuer came to know about the provisions of that scheme. However in those averments, the pursuer does not attempt to make a case to the effect that the Disability Insurance Scheme was, by some recognised means, incorporated into the contract of employment. The second defenders' response to those averments is a simple denial, which does not advance understanding of the matter. While the situation may become clearer in the course of an enquiry, at this stage, I find myself quite unable to conclude that the pursuer's claim falls foul of the language used in the discharge granted by the pursuer at the time of the compromise of his application to the industrial tribunal.

[16] For all of these reasons, the conclusion which I have reached is that I cannot say that the pursuer's action is bound to fail, assuming that the averments which he has made are proved. It therefore follows that it is not appropriate for this action to be dismissed. I shall accordingly allow a proof before answer on the whole case, no suggestion having been made that any particular averments should be excluded from probation. The second defenders' plea-in-law 1 will be reserved.