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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Gardiner, Re [2001] ScotCS 272 (23 November 2001)
URL: http://www.bailii.org/scot/cases/ScotCS/2001/272.html
Cite as: [2001] ScotCS 272
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OUTER HOUSE, COURT OF SESSION |
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OPINION OF LADY PATON in the Petitions of JOHN BRIAN McMEANS GARDINER Petitioner; for Suspension of a calling-up notice under the Conveyancing and Feudal Reform (Scotland) Act 1970 and relative certificate relating to a standard security over 42 New Kirk Road, Bearsden, Glasgow and the said JOHN BRIAN McMEANS GARDINER and MRS SHEENA GRAY GARDINER Petitioners: for Suspension of a calling-up notice under the Conveyancing and Feudal Reform (Scotland) Act 1970 and relative certificate relating to 6 Thorn Drive, Bearsden, Glasgow ________________ |
Petitioners: Di Emidio; Wilson Terris & Co., S.S.C.
Respondents: P. W. Ferguson, Advocate; S. Bennett, Advocate; Bennett & Robertson
23 November 2001
Procedural history
[1] On 10 August 2001, the petitioners enrolled motions for the interim suspension of a certificate and three calling-up notices relating to two heritable properties, namely 42 New Kirk Road, Bearsden, Glasgow (process P941/01) and 6 Thorn Drive, Bearsden, Glasgow (process P942/01). In compliance with a caveat which had been lodged in process, intimation of the motions was made to the respondents. The motions came before me in the vacation court on 14 August 2001. Both petitioners and respondents were represented.
[2] Having heard submissions, I granted the interim suspensions sought. The respondents enrolled a late motion for leave to appeal. On 3 October 2001, I granted leave to appeal, all as detailed below, and subsequently provided this opinion.
Parties involved
[3] The respondents, Jacques Vert plc, are designers and manufacturers of ladies fashion garments. They have their registered office in London. The petitioners are John Gardiner, who is in his late fifties, and his wife Sheena Gardiner. They reside at their home, which they jointly own, at 6 Thorn Drive, Bearsden, Glasgow. Mr. Gardiner runs a fashion business known as "Gardiner Fashion Group" from a warehouse at 74 Miller Street, Glasgow, and a fashion shop called Vanity Fair at 42 New Kirk Road, Bearsden, Glasgow (the title to which is in his name alone).
[4] Mr. Gardiner is the sole petitioner in the petition process P941/01 relating to suspension of the calling-up notice in respect of 42 New Kirk Road. Both Mr. and Mrs. Gardiner are the petitioners in the petition process P942/01 relating to suspension of the calling-up notices in respect of 6 Thorn Drive. Throughout this opinion, Mr. Gardiner is referred to as "the first petitioner", and Mrs. Gardiner as "the second petitioner".
Distributorship agreement and heritable securities
[5] In February 1998, the first petitioner and the respondents entered into a distributorship agreement dated 6 and 11 February 1998 (number 1 of process in each of the petition processes). In terms of the agreement, the respondents appointed the first petitioner as their exclusive distributor in Scotland, and undertook inter alia to sell and supply fashion garments to him for wholesale purposes.
[6] Clause 4.3 of the distributorship agreement provides:
"Sale of the products pursuant to this Agreement shall be subject to the standard Terms and Conditions of Sale of the Company unless such terms and conditions shall be inconsistent with this Agreement in which event the provisions of this Agreement shall prevail."
[7] The standard Terms and Conditions of Sale referred to were not lodged in process, nor were they mentioned during submissions in the vacation court. Nevertheless, for the purposes of completing this opinion, I requested and was provided with a faxed copy of the Terms and Conditions. Several conditions may have some relevance in the present dispute, namely:
"1 In these terms and conditions, the following words shall have the following meanings: ... 'Payment Date' for the United Kingdom for all invoices dated up to (and including) the 19th of a month, the 10th of the first following month, and for all such invoices dated after the 19th of a month, the 10th of the second following month ...
4.1 Payment is due in full (without any right of set-off, deduction or withholding whatsoever) by the Payment Date. Terms for payment shall be of the essence of the Agreement ...
4.3 Interest shall be payable by the Buyer on any money which is not paid by it to the Seller under the Agreement by the 10th of the month following the Payment Date. Such interest shall accrue and be calculated on a daily basis, both before and after [indecipherable] at the rate of 4 per cent above the base rate from time to time of Midland Bank plc, for the period from the 10th of the month following the Payment Date until the date on which it is actually paid. It shall be compounded monthly and payable on demand."
[8] In the course of their business relationship, the respondents asked the first petitioner to provide security for the sums which became due by him when fashion garments were delivered to him. On 3 April 2000, the first petitioner granted them a standard security over his shop premises at 42 New Kirk Road, Bearsden (Land Register Title Number DMB 2046). A copy of the standard security is number 2 of petition process P941/01. On 6 March 2001, as a result of requests made by the respondents, the first petitioner and his wife, the second petitioner, granted a further standard security over their family home at 6 Thorn Drive, Bearsden, recorded in the Register of Sasines on 16 March 2001: number 2 of petition process P942/01.
[9] In each standard security, the first petitioner undertook to "pay on demand all sums and perform all obligations which are now or which may at any time hereafter become due to Jacques Vert plc". The standard securities over the properties were granted to secure such sums and obligations. Each standard security incorporated the standard conditions set out in Schedule 3 to the Conveyancing and Feudal Reform (Scotland) Act 1970, with certain variations.
[10] In neither the distributorship agreement, nor the standard securities, was there any wording to the effect that a written demand made by the respondents would be conclusive evidence that the sum or obligation demanded therein was properly due and payable or prestable. Nor did there appear to be a clause specifically providing for interest to run from certain dates and at certain rates, should such a written demand remain unsatisfied.
Dispute between the parties
[11] On 17 May 2001, the respondents raised an action in the Court of Session against the first petitioner, alleging material breach by him of his obligations under the distributorship agreement, and in particular failure to pay for goods supplied. The first conclusion sought interdict against the first petitioner from selling or otherwise disposing of the products listed in the schedule. The second conclusion sought delivery of the products, and the third conclusion sought, in the alternative, payment of £152,732.16, with interest at the judicial rate of 8 per cent from the date of citation.
[12] That same day, 17 May 2001, having heard submissions from Mr. S.A. Bennett, counsel for the respondents, and there being no caveat, Lord Philip granted interim interdict prohibiting the first petitioner from selling or disposing of the products listed in the schedule. Lord Philip also granted an interim order for possession of the products in terms of section 47(2) of the Court of Session Act 1988. A warrant was granted to messengers-at-arms to enter the first petitioner's premises at 42 New Kirk Road, and 74 Miller Street, and take possession of the products.
[13] According to the petitioners' averments in paragraph 6 of their counterclaim referred to below, messengers-at-arms proceeded to remove substantial quantities of fashion garments from both the warehouse and the shop. Further fashion garments were caught by the interim interdict and could not be sold.
[14] The first petitioner lodged defences and a counterclaim, seeking damages of £153,951 in respect of alleged breaches of contract on the part of the respondents, including inter alia alleged failures to adhere to delivery schedules, alleged defects in goods delivered, and alleged wrongful use of diligence. Copies of the open record, adjustments, and counterclaim, are lodged in each petition process. In the defences as adjusted, it is averred inter alia that:
"[The respondents] are not entitled to [interdict and delivery] because [the first petitioner] was not in breach of his obligation to pay for the products as at the date of raising this action. [The respondents] are called upon to specify on record (a) the circumstances in which it is alleged that [the first petitioner] was in material breach of the obligation under the Agreement to pay for the products and (b) how the sum third concluded for has been arrived at. Further and in any event, [the respondents] are in material breach of certain express and implied terms of the Agreement all as more fully condescended upon in the counterclaim. But for [the respondents'] material breaches of contract, the [first petitioner's] loss and damage would not have occurred. [The respondents] are therefore not entitled to payment of the sums third concluded for by them in this action. Further, as a result of [the respondents'] said breach, the [first petitioner] has suffered loss as more fully condescended on in the counterclaim. Accordingly, [the first petitioner] is entitled to retain the sum third concluded for in this action pending resolution of the counterclaim ..."
[15] The first petitioner also avers in his defences as adjusted that:
"On or about 22 June 2001 said interim orders were recalled of consent following upon an agreement between the parties under which the products seized by messengers-at-arms on 18 May were uplifted by [the respondents] along with other products including those affected by the interim interdict. In exchange [the respondents] agreed to credit [the first petitioner's] trading account with them to the value of £39,430.22."
Formal certificate demanding payment
[16] On 8 June 2001, the respondents sent the first petitioner a certificate (number 7 in each petition process) in the following terms:
"Re: Outstanding Debt
I, Paul Allen, being a duly appointed Director of Jacques Vert plc, a company incorporated under the Companies Acts and having its Registered Office formerly at 23 Plumbers Row, London, and now at 22 Plumbers Row, London (the 'Company') hereby certify that as at the date hereof the total amount of principal due by you to the Company is £136,572.76 made up as under-noted. Interest at the rate of 9.25% per annum is due on the total amount of principal from and after the date of this Certificate.
Yours faithfully,
Paul Allen (Mr. P. Allen)
Date: 8 June 2001
Note referred to:-
M Season Order £2,979.17
P Season Order £129,856.89
Special Account £676.80
Sample Account £3,059.90
Total amount of principal due £136,572.76"
[17] It will be seen that interest at the rate of 9.25 per cent was demanded on the principal sum of £136,572.76 from and after the date of the certificate (i.e. from and after 8 June 2001). That demand for interest does not appear to be based upon any clause in the distributorship agreement, nor upon any condition in the incorporated standard Terms and Conditions of Sale, nor upon any provision in the standard security: for while there was provision for interest in clause 4.3 of the standard Terms and Conditions quoted above, that clause appears to relate to interest arising in the event of a failure to pay routine invoices (not a formal Certificate demanding payment such as the Certificate dated 8 June 2001). In any event, interest was demanded "from and after the date of this Certificate" (i.e. from and after 8 June 2001) whereas the date from which interest was to run as provided for in clause 4.3 was "the 10th of the month following the Payment Date until the date on which [payment is made]".
Calling-up notices
[18] On 12 June 2001, sheriff officers acting on behalf of the respondents served calling-up notices upon the petitioners.
[19] At the vacation court hearing on 14 August 2001, only one calling-up notice in respect of 42 New Kirk Road had been lodged in process, forming number 8 of each petition process. For the purposes of completing this opinion, I requested and was provided with copies of the two further calling-up notices relating to 6 Thorn Drive.
[20] The terms of the calling-up notices were as follows:
(a) Calling-up notice in respect of 42 New Kirk Road, Bearsden (copy lodged as number 8 of both petition processes):
"TAKE NOTICE that JACQUES VERT plc ... requires payment of the principal sum of ONE HUNDRED AND THIRTY SIX THOUSAND FIVE HUNDRED AND SEVENTY TWO POUNDS AND SEVENTY SIX PENCE (£136,527.76) [sic] with interest thereon at the rate of 9.25% per annum from the Eighth day of June Two Thousand and One (subject to such amendment of the principal sum and the amount of interest as may subsequently be determined) secured by a Standard Security by you in favour of the said Jacques Vert plc registered under Title Number DMB 2046 on Twenty sixth June Two Thousand; And that failing full payment of the said sum and interest thereon and expenses within two months after the date of service of this demand, the subjects of the security may be sold."
(b) Two calling-up notices relating to 6 Thorn Drive, Bearsden, one addressed to and served upon the first petitioner, and one addressed to and served upon the second petitioner (neither having been formally lodged in either petition process):
Calling-up notice served upon the first petitioner:
"TAKE NOTICE that JACQUES VERT plc ... requires payment of the principal sum of ONE HUNDRED AND THIRTY SIX THOUSAND FIVE HUNDRED AND SEVENTY TWO POUNDS AND SEVENTY SIX PENCE (£136,527.76) [sic] with interest thereon at the rate of 9.25% per annum from the Eighth day of June Two Thousand and One (subject to such amendment of the principal sum and the amount of interest as may subsequently be determined) secured by a Standard Security by you and Mrs Sheena Gray Gardiner in favour of the said Jacques Vert plc recorded in the Register for the County of Dumbarton on Sixteenth March Two Thousand and one; And that failing full payment of the said sum and interest thereon and expenses within two months after the date of service of this demand, the subjects of the security may be sold."
Calling-up notice served upon the second petitioner:
"TAKE NOTICE that JACQUES VERT plc ... requires payment of the principal sum of ONE HUNDRED AND THIRTY SIX THOUSAND FIVE HUNDRED AND SEVENTY TWO POUNDS AND SEVENTY SIX PENCE (£136,527.76) [sic] with interest thereon at the rate of 9.25% per annum from the Eighth day of June Two Thousand and One (subject to such amendment of the principal sum and the amount of interest as may subsequently be determined) secured by a Standard Security by you and John Brian McMeans Gardiner in favour of the said Jacques Vert plc recorded in the Register for the County of Dumbarton on Sixteenth March Two Thousand and one; and that failing full payment of the said sum and interest thereon and expenses within two months after the date of service of this demand, the subjects of the security may be sold."
[21] It will be seen that all three calling-up notices appear to contain an error, namely the principal sum is defined in words as "ONE HUNDRED AND THIRTY SIX THOUSAND FIVE HUNDRED AND SEVENTY TWO POUNDS AND SEVENTY SIX PENCE", yet the principal sum is defined in figures as "£136,527.76".
Petitions for suspension
[22] The petitioners then petitioned the Court of Session for suspension and interim suspension of the certificate dated 8 June 2001 and the calling-up notices. The prayer of the petition at the instance of the first petitioner, relating to 42 New Kirk Road, Bearsden, craves the court -
" ... to suspend the certificate served upon the petitioner on 8 June 2001 and the calling-up notice served on him on 12 June 2001; and to suspend the said certificate and calling-up notice ad interim ..."
The prayer of the petition at the instance of both petitioners, relating to 6 Thorn Drive, Bearsden, craves the court -
"... to suspend the said certificate served on the first petitioner on 8 June 2001 and the calling-up notices served upon the first and second petitioners on 12 June 2001; and to suspend the certificate and the calling-up notices ad interim ..."
Vacation court: submissions
[23] In the vacation court on 14 August 2001, Mr. Di Emidio, counsel for the petitioners, explained that there was a dispute as to whether the petitioners were truly in default. The petitioners were defending the respondents' action for payment. They also had a counterclaim for damages, alleging breach of contract on the part of the respondents. Unless the operation of the calling-up notices were suspended, the respondents could simply rely upon the standard securities, operate the powers of sale, and sell the first petitioner's shop and the first and second petitioners' family home.
[24] Counsel for the respondents, Mr. P. Ferguson, invited the court to refuse the motions for interim suspension, on two grounds.
[25] Firstly, the petitions were irrelevant. They disclosed no prima facie case. The sum certified was due and owing. The petitioners had not attempted to say why the debt was not due. In their counterclaim, the petitioners were seeking damages in respect of an alleged breach on the part of the respondents, relating to the time of delivery of the goods. However damages were an illiquid sum. It was not said on the petitioners' behalf that the goods had never been received. Counsel advised that the respondents had in fact recovered possession of some of the goods which had been delivered, leaving a sum of £136,572.76 unpaid and due.
[26] Secondly, counsel submitted that, as the calling-up notice had been served on 12 June, the two month period referred to in the calling-up notice (which followed the style in Form A of Schedule 6 to the 1970 Act) expired at midnight on 12 August 2001. The petition seeking suspension came too late. The respondents as heritable creditors were entitled to recover possession of the heritage.
Vacation court: ruling
[27] In the vacation court on 14 August 2001, I understood from the first petitioner's defences in the action for payment that he denied that any sum was due; that he in any event disputed the amount of any sum due; and thirdly that he claimed a right of retention in respect of his claim for damages.
[28] Dealing first of all with the last ground of defence, I was not satisfied that the first petitioner was entitled to any right of retention in respect of a claim for damages. The standard Terms and Conditions of Sale, which were not referred to at the vacation court, provide inter alia:
"4.1 Payment is due in full (without any right of set-off, deduction or withholding whatsoever) by the Payment Date. Terms for payment shall be of the essence of the Agreement ..."
Quite apart from any difficulties arising from the illiquid nature of a claim for damages, that contractual term suggests that retention is not open to the first petitioner.
[29] However I considered that the other two grounds of defence were stateable, even standing the relatively brief averments in the defences. There may well be disputes as to the precise sum or sums due, particularly where some fashion garments were recovered by the respondents. Furthermore, I was not satisfied that the contract documents entitled the respondents to dictate the figure said to be due by the first petitioner, and then to proceed to do diligence on the basis of that figure, without any preliminary inquiry or validation or justification of such a figure (in the form, for example, of a court decree for a sum due). Similarly bearing in mind the terms of the parties' contract documents, I was not satisfied that the respondents were entitled to choose a rate of interest and a date from which that interest would run, as they purported to do in the certificate dated 8 June 2001, number 7 of process.
[30] In particular I was unable to find any agreement between the parties that the respondents' formal written demand for payment of a certain sum would be conclusive evidence that the sum therein demanded was indeed due and payable. Nor was there a court decree constituting and specifying the precise sum due by the petitioners. While I was not referred to any authorities on this point in the course of the vacation court hearing, I considered that in a matter as serious as a possible enforced sale of business premises and a family home, it was pars judicis to consider whether the contract documentation referred to by the parties provided an adequate basis for the course of action adopted by the respondents. Ultimately I was not persuaded that the documentation did so.
[31] Accordingly I stated in the vacation court that I was not satisfied that the terms of the distributorship agreement and the standard securities were such as to form a proper basis for the calling-up notices; that I could not see, in the contractual documents before me, any provision (such as is often found in bank and other loans) that the creditor's certificate would in itself be sufficient or conclusive proof of the debt due; and finally that I was satisfied that there was a dispute as to the precise sums and obligations due by the first petitioner to the respondents. In all the circumstances, I allowed the petition in each process to be amended by inserting in the prayer, after the words "to suspend the certificate served ... on 8 June 2001 and the calling-up notice served ... on 12 June 2001", the words "and any procedure following thereon" (intended to cover any measures which might have taken place after the service of the calling-up notices on 12 June 2001 but before the vacation court hearing on 14 August 2001); and I granted the interim suspensions sought.
Motion for leave to reclaim
[32] The respondents thereafter enrolled a motion for leave to reclaim. The motion was late, but I allowed it to proceed. On 3 October 2001, counsel for the respondents, Mr. Bennett, submitted that the interlocutor of 14 August 2001 was incompetent. He contended that, by the time the matter came before the vacation court on 14 August 2001, it was too late. The calling-up notices permitted a period of only two months for payment. The calling-up notices followed Form A of Schedule 6 to the Conveyancing and Feudal Reform (Scotland) Act 1970, and provided inter alia that:
"... failing full payment of the said sum and interest thereon, and expenses within two months after the date of service of this demand [italics added], the subjects of the security may be sold."
Counsel submitted that, in terms of the Interpretation Act 1978, "month" meant a calendar month. Once the two month period had expired, the petitioners were in default. Reference was made to standard condition 9(1)(a) - "The debtor shall be held to be in default in any of the following circumstances, that is to say - (a) where a calling-up notice in respect of the security has been served and has not been complied with." Reference was also made to section 20(1) of the Conveyancing and Feudal Reform (Scotland) Act 1970: "Where the debtor in a standard security is in default within the meaning of standard condition 9(1)(a), the creditor may exercise such of his rights under the security as he may consider appropriate, and any such right shall be in addition to and not in derogation from any other remedy arising from the contract to which the security relates or from any right conferred by any enactment or by any rule of law on the creditor in a heritable security". Suspension of the calling-up notices could not alter the fact that the petitioners were in default. Counsel drew a parallel with a charge for payment: once the days of charge had expired and a state of apparent insolvency was constituted, it was too late to suspend the charge: Sutherland v. Sutherland (1843) 5D 544.
[33] Counsel also contended that the interlocutor of 14 August 2001 was incompetent because it appeared to attempt to affect future conduct. As Sheriff N.M.P. Morrison Q.C.'s commentary on Rule 60.1 of the Rules of Court made clear, "suspension merely affects past and not future conduct. Accordingly, where a person wishes also to prohibit future conduct he must include a crave for interdict in the prayer of the petition".
[34] Counsel for the petitioners opposed the motion for leave to reclaim. He submitted that the interlocutor was competent. It did not seek to affect the future. Analogies with bankruptcy law were not apt. Leave should be refused.
[35] Parties accepted that the question of granting of leave to reclaim was one for the discretion of the court. Counsel for the respondents drew attention to Macphail, Sheriff Court Practice, paragraphs 18.50 to 18.52, and argued that a substantial and arguable point of law was in issue. Moreover, factors such as expense, convenience and time favoured the granting of leave to reclaim. The matter could be put out for early disposal. Meantime, the interim suspensions would remain in place, protecting the petitioners. If the respondents' arguments were ill-founded, the Inner House would so rule. The interim suspensions would then continue to remain in place, and would run in tandem with the action for payment. If, on the other hand, the respondents' arguments were well-founded, an authoritative ruling by the Inner House would probably end all litigation there and then, thus expediting matters considerably and saving expense.
Grant of leave to reclaim
[36] I did not accept that the interlocutor pronounced on 14 August 2001 attempted to control future behaviour. The interlocutor was directed to the calling-up notices and any procedure following thereon which had occurred prior to 14 August 2001. I was not therefore satisfied that there was a substantial and arguable point of law in that context about which an appeal court might reasonably take a different view.
[37] In relation to the other argument advanced (relating to the two-month period in the calling-up notice), I took the view that an authority such as Sutherland was not entirely in point. In any event, my view, as indicated above, was that the respondents were not entitled to resort to calling-up notices until they had proved what sum, if any, was owed to them by the first petitioner. Also, having further considered matters for the purposes of this opinion, I note that the petitioners' motions for interim suspension were enrolled in the Court of Session on 10 August 2001, i.e. before the end of the two-month period on 12 August 2001. Arguably therefore they took timeous steps to seek suspension, and could not be deemed to be "in default" until the matter had been dealt with by the court.
[38] Nevertheless I considered that there might be an arguable point of law on which an appeal court might take a different view. I accordingly granted leave to reclaim.
Additional matters
[39] The following additional matters may be of assistance to the court. They were not discussed in the vacation court.
[40] Error ex facie each calling-up notice: Each of the three calling-up notices appears to contain an error, namely a discrepancy between the words and figures relating to the amount said to be due. Each calling-up notice gives the amount in figures as "£136,527.76", but in words as "ONE HUNDRED AND THIRTY SIX THOUSAND FIVE HUNDRED AND SEVENTY TWO POUNDS AND SEVENTY SIX PENCE". It may be that such an error raises serious doubts about the validity of the calling-up notices. A high degree of accuracy is required where any party uses any form of diligence or summary measure.
[41] Examples of wording in commercial contracts: Examples of commercial documents containing the parties' express agreement that a statement or certificate is to constitute conclusive evidence that a sum is due include the following:
R. D. Harbottle (Mercantile) Ltd. v. National Westminster Bank [1978] Q.B. 146, where the parties had expressly agreed as follows: "You are hereby irrevocably authorised and directed to pay forthwith on any demand ... it being expressly agreed that any such demand shall as between the undersigned and you be conclusive evidence that the sum stated therein is properly due and payable."
Howe Richardson Scale Co. Ltd. v. Polimex-Cekop and another [1978] 1 Lloyd's Rep.161, where the documentation included a similar statement viz. "... it being expressly agreed that any such demand shall as between the undersigned and you be conclusive evidence that the sum stated therein is properly due".