Scottish Court of Session Decisions

[1] In this commercial action the pursuers seek payment of certain sums claimed to be due to them by reason of alleged breaches of various warranties granted by the defenders under an agreement dated 29 October 1999 for the purchase by the pursuers of the shares then held by the defenders in Teelux Limited.

[2] The Summons having been signetted in December 1999, parties were first heard at a preliminary hearing on 4 February 2000. After sundry procedure they were then heard at debate on 29 and 30 June 2000. On 9 August I issued an Opinion on the matters discussed at the debate. After sundry further procedure I pronounced an interlocutor dated 21 November 2000 allowing to parties a proof before answer and appointing that proof "unless an earlier diet is hereafter fixed" to proceed on 24 April 2001. The phrase within quotation marks was included because there was then a prospect that an earlier diet (in December 2000) might be fixed; but in the event it was not. The diet of proof of 24 April 2001 was confirmed by my interlocutor of 5 December 2000. That interlocutor also disposed on a restricted basis of the third conclusion of the Summons, it being by then apparent that the defenders had no tenable defence to that conclusion as so restricted. By at least January 2001 it was apparent that, as a result of the views expressed by me at debate and of procedure by Notice to Admit and Notice of Non-Admission, the outstanding issues between the parties to which the proof was relevant were within relatively narrow compass. A possible uncertainty as to the scope of the defence, which emerged on 5 March 2001, was resolved by interlocutor of 22 March.

[3] Matters were set for proof, the outstanding issues being (1), in relation to the first conclusion, (a) whether certain Citroen vehicles were "cars" within the meaning of the Disclosure Letter delivered relative to the share purchase agreement, (b) whether the pursuers were in the circumstances obliged to give credit for such benefit of possession and use as Teelux Limited had had of those vehicles and (c) whether the pursuers had failed to mitigate their loss by reason of refusing a proposal by the first defender in relation to those vehicles, (2), in relation to the second conclusion, whether the pursuers were in the circumstances obliged to give credit for the possession and use had by Teelux Limited of a Peugeot van, (3), in relation to the fourth conclusion, (a) whether certain debts owed to Teelux Limited by a particular customer (namely, Walter Alexander (Falkirk) Limited) had been paid and (b) the effect on recoverability during the relevant period of certain debts to which Inland Revenue C.I.S.4 registration cards might relate and (4), in relation to the first, second and fourth conclusions, whether, having regard to the possibility of tax savings or reliefs, the sums claimed were overstated.

[4] All those issues, with the exception of issue (1)(a), are concerned with the quantum of the pursuers' claims. The largest element in value is that under the fourth conclusion where the pursuers' claim is now restricted to £99,070.00. Of that, Mr Cormack for the pursuers advised me, only £12,428.00 relates to the debt of Walter Alexander (Falkirk) Limited and £8,145.45 to the C.I.S.4 point. The only outstanding defence in relation to the balance (of some £78,500) appears to be the tax point which, having regard to the defenders' accountant's report in relation to it, must be regarded as at best tentative.

[5] On 10 April 2001 the defenders enrolled a motion for discharge of the diet of proof. In my absence that motion was heard by Lord Penrose who on 12 April continued it to be heard by me on 24 April. His reasons for doing so are contained in a Note issued by his Lordship. The background to the motion was that on or about 23 March 2001 the first defender had stated to a partner of Messrs Friels, the local solicitors acting for the defenders, that, in the event of the defenders being found liable to the pursuers, they might seek relief from Messrs Friels, who had also acted for them in the negotiation of the share purchase agreement and in the preparation of the relative Disclosure Letter. Messrs Friels had in these circumstances taken the view that they should no longer act for the defenders in this litigation, though it appears that they have, at least to date, continued to act in relation to two other litigations arising out of separate arrangements broadly related to the share purchase transaction. Following Messrs Friels withdrawal, their Edinburgh agents (Messrs Drummond Miller) also withdrew. That withdrawal was intimated to the Court by letter dated 2 April 2001. Counsel who had acted for the defenders substantially throughout the litigation (Mr Upton, Advocate) did not, I was informed on 24 April, withdraw - albeit, his instructing agents having withdrawn, he was consequentially as at early April without instructions. It appears that Lord Penrose may have been misinformed as to Mr Upton's position. (Messrs Drummond Miller's letter of 2 April had indicated that counsel also had withdrawn).

[6] On 24 April the case called before me. Mr Lindsay appeared for the defenders and renewed their motion, initially made before Lord Penrose, to discharge the diet of proof. He informed me that he and his instructing solicitors (Messrs Brechin Tindal Oatts) were instructed by the defenders only in relation to the motion to discharge the proof. They had no papers and no instructions to represent the defenders at the proof in the event of it not being discharged. Messrs Brechin Tindal Oatts had on 9 April requested Messrs Friels to pass to them the papers in the case but the latter had declined to do so, claiming a lien over them in respect of unpaid fees.

[7] Mr Cormack opposed the motion for discharge. He further submitted that, on the basis that the defenders were not in a position to proceed to the proof appointed by the interlocutor of 21 November, they had failed to comply with an order of the court within the meaning of Rule of Court 47.16 and that the Court should forthwith grant decree against them in terms of the outstanding conclusions of the Summons (as restricted). The defenders' failure to prepare for the appointed diet was, he submitted, inexcusable. First, there was no adequate explanation for the defenders' failure until towards the end of March 2001 to raise with Messrs Friels the possibility of resort being had by the defenders against them, so occasioning the latter's withdrawal from acting. Secondly, no proper steps had been taken to obtain release from Messrs Friels of such papers as were required to conduct the proof. Messrs Friels did not have an unqualified right to retain these. Reference was made to Ryder - Professional Conduct for Scottish Solicitors at p. 50. Thirdly, given the alternative sources of information and the limited matters in issue, there had been an unjustified failure to arrange for the instruction of counsel and solicitors for the proof even if Messrs Friels were unco-operative. The pleadings and productions were complete. The extent of the outstanding issues was evident on perusal of the Opinion issued after the debate, the interlocutors pronounced and the other steps of process such as the Notice to Admit and the Notice of Non-Admission. Witness lists and summaries had been lodged. The only witnesses for the defenders were two of their own number together with an accountant who had prepared a report on the tax issues. Fourthly, the defenders had given no heed to the clear views expressed by Lord Penrose in his Note as to the steps they might appropriately take to prepare for the appointed diet. At the hearing before Lord Penrose, the pursuers had offered to make available to the defenders' new agents copies of any relevant papers in their possession. That offer had not been taken up. There had further been no attempt on the part of the defenders to initiate discussion with a view to resolving matters without proof. In so far as the defenders had any defence to the action (the outstanding issues being essentially for them to discharge) they had wholly failed to take appropriate steps to present it. Mr Cormack advanced certain alternative motions which it is unnecessary to rehearse.

[8] Mr Lindsay in response accepted that, if the defenders were not in a position to proceed with the proof, that could constitute a failure within the meaning of Rule of Court 47.16. He maintained, however, that such failure was not deliberate. He also indicated that, if the motion to discharge the proof were refused, the defenders would wish to consider conducting their own defence; they would not, however, in such circumstances have the benefit of any legal representation.

[9] There was some uncertainty initially as to the precise position of the defenders in the event of the motion to discharge the diet being refused. But in the event, I having refused the motion to discharge, Mr Lindsay and his instructing solicitors having withdrawn and the pursuers being about to lead evidence, I heard the defenders personally on the matter. They then stated directly that they were not willing to participate in the proof. They maintained that being required to do so would constitute an infringement of their right to a fair hearing under Article 6 of the European Convention on Human Rights and Freedoms.

[10] In view of the terms of Lord Penrose's Note there was representation before me for Messrs Friels (Mr Davies) and for Mr Upton (Mr McLean). In the event, however, no motion was directed by the pursuers against either of them. I should, however, for completeness mention that in the course of his address Mr Davies referred me to Yau v Ogilvie & Co 1985 S.L.T. 91, Montgomerie v AB (1845) 7 D 553 and McIntosh v Chalmers (1883) 11 R 8. Reference was also made to the Law Society Guidance on Mandates, reproduced at Parliament House Book F971 and following. Messrs Friels, Mr Davies said, had not received from the defenders any mandate for the delivery of papers.

[11] I granted the pursuers' primary motion. In doing so I found it unnecessary to apportion among the defenders personally and their various legal advisers responsibility for the situation that the defenders were either unable or unwilling to participate in the proof at the appointed diet. This case had from its inception been subject to detailed procedural management with a view to ensuring that the issues were clarified and could be resolved as expeditiously as possible. The first defender, who is the senior family member of the three defenders, had personally attended several of the hearings at which the issues were discussed and arrangements made to progress their resolution. At least the first and third defenders are businessmen who had been involved in the management of Teelux Limited prior to the settlement of the share purchase agreement and for some time thereafter. So far as disclosed to me, full preparation (including the lodgement of documents and the arrangement of witnesses) had been made by or on behalf of the defenders for the appointed diet of proof at which the outstanding issues were narrow and not unduly complex. These issues, which were primarily related to quantum, largely turned on contentions raised by the defenders in respect of which the onus rested on them.

[12] It is on any view remarkable that a conflict of interest between the defenders and Messrs Friels, if it was to emerge at all, emerged only in March 2001. Any issue as to the quality of the advice given by the latter while acting for the defenders in negotiating the share purchase agreement or in framing the relative Disclosure Letter ought to have been evident not later than the issue of my Opinion in August 2000. Thereafter all that was in substance in issue was the extent of the defenders' liability. In any event, once the conflict did emerge it was incumbent on the defenders and those advising them to take proper measures to make such alternative arrangements for the conduct of the proof as were necessitated by the withdrawal of Messrs Friels and their Edinburgh correspondents. So far as appears, no steps were taken to ascertain whether Mr Upton, who had acted for the defenders substantially throughout this litigation, remained available to accept instruction from the new agents. (Another counsel, Mr McColl, Advocate, had also appeared on several occasions for the defenders and was familiar with the case). An informal request appears to have been made by Messrs Brechin Tindal Oatts to Messrs Friels for the papers, which request was met by a claim to a lien over them. This claim, although made on 9 April, was remarkably not drawn to the attention of Lord Penrose when the pursuers' motion for discharge of the proof was first heard on 12 April. Had it been so, no doubt his Lordship would have had observations to make about the professional responsibilities of solicitors whose purported exercise of a general lien over papers may obstruct the course of justice. In the Law Society Guidelines on Mandates it is stated at p.F973 of the Parliament House Book-

Reflecting this rule of professional conduct, Miss Ryder in Professional Conduct for Scottish Solicitors at p. 970 observes -

So far as appears, no formal mandate authorising transfer of the papers from Messrs Friels to Messrs Brechin Tindal Oatts was ever signed by the defenders or presented to Messrs Friels; nor were any other steps taken to secure the transfer of papers. Nor was the offer made on behalf of the pursuers before Lord Penrose (to make available such papers as were in their possession) taken up. Nor, it seems, was the extent to which the defence could be conducted on the basis of productions and other materials borrowable from the court process explored. Had such steps been taken, it would readily have become apparent that the proof could have proceeded even without papers being delivered by Messrs Friels and even by a counsel and solicitors who had had no prior involvement in the case. All the defenders did was to instruct solicitors and counsel to make (and subsequently to renew) the motion for discharge of the proof. No proper steps were taken by or on behalf of the defenders to meet the contingency that the court might refuse the motion to discharge.

[13] I am unable to say whether this wholly unsatisfactory state of affairs was the result of a tactical manoeuvre designed to avoid facing up to the consequences of a proof or a gross failure by the defenders and/or their advisers to recognise the importance of expeditious disposal of commercial litigation. Whichever it be, I was satisfied (Mr Lindsay having accepted that failure to prepare timeously for proof could amount to a failure within the meaning of Rule 47.16) that there had been such a failure in this case and that the appropriate course was to exercise the power under Rule 47.16(c) to grant decree as moved for. The present action, involving as it does payment issues arising out of a business agreement, is of the very type for which the 1994 commercial cause rules were introduced with a view to achieving expeditious resolution. The Convention does not in the circumstances assist the defenders.