Scottish Court of Session Decisions

[1] In these proceedings, which were remitted from the Sheriff Court at Jedburgh, the pursuers ("the Bank") seek in the principal action certain remedies relative to an alleged transaction of loan to the first defender ("Mr. Frost") and his wife, the second defender ("Mrs. Frost") and relative to certain standard securities purportedly granted in respect of it. The remedies sought include a petitory crave for £306,178.80 with interest from March 1994 and (subsequently added) declaratory craves in respect of the standard securities and a relative personal bond. Mr. and Mrs. Frost have lodged separate defences to the principal action. Mr. Frost, subsequent to the remit of the cause to this court, lodged a counterclaim in which he concludes for various remedies. These include a conclusion for declarator that the personal bond and the standard security bearing to be granted in pursuance of it "are an absolute nullity" and a further conclusion for production and reduction of both those deeds and of a subsequent standard security purportedly granted by Mrs. Frost. Although Mrs. Frost is not formally a party to the counterclaim, she appears to have associated herself with it and these conclusions relate also to her interests in those deeds. Mr. Frost also counterclaims for payment, as damages or otherwise, of various sums to which he maintains he is entitled either personally or as assignee of others. He also makes claims on behalf of Mrs. Frost. His claims in total amount to several million pounds sterling. Certain other remedies are also counterclaimed for. From a relatively early stage in these proceedings Mr. Frost has not been legally represented. From a somewhat later stage the same has been true of Mrs. Frost. Both Mr. and Mrs. Frost appeared before us as party litigants, Mr. Frost being permitted by the court to speak on behalf of his wife as well as of himself.

[2] The general background to this litigation, which has been in dependence since 1994, may be summarised as follows. In 1989 certain financial dealings occurred which resulted in the granting by Mr. and Mrs. Frost in favour of the Bank of the first standard security, being over subjects at Kelso known as Edenside House. Mr. Frost was at about that time involved with others, including various corporate bodies, in certain business ventures in Wales. He maintains that the Bank's conduct in relation to lending transactions relative to those ventures involved certain improprieties which have caused him and others, it is claimed, loss and damage. His counterclaim is directed principally, though not exclusively, to the recovery of such loss as well, apparently, as the setting aside of the loan and security documents upon which the Bank relies. Mrs. Frost appears, ex facie the deed, to have granted in 1993 the second standard security, in this case over property at Newton St. Boswells known as Langlands Mill. Both standard securities were recorded in the General Register of Sasines in 1993. It appears that in or about January 1997 an individual voluntary arrangement ("the IVA") was made under Part VIII of the Insolvency Act 1986 in respect of the financial affairs of Mr. Frost. That Part of the 1986 Act does not apply to Scotland (see section 440(2)(b)), though there may be some parallels with certain voluntary arrangements entered into in Scotland by non-corporate debtors. It will be necessary in due course to return to the possible significance of the IVA - albeit there is reason to believe that early in 2000 it was discharged, but with some continuing obligations incumbent on Mr. Frost as debtor.

[3] Mr. Frost's pleadings, particularly in his counterclaim, are extensive and complex. They also include references to a number of documents extraneous to the pleadings, which documents are "incorporated herein brevitatis causa". These documents include "Derek Hartland's statement", itself apparently a long and complex document in turn referring to a large number of other documents. While it is possible to form a broad impression of the nature of Mr. Frost's pleaded complaints, it is difficult to decern with confidence much of what may be important, including the legal bases on which the claims depend. The Bank's pleadings, by contrast, are within relatively narrow compass. Much of Mr. Frost's elaborate narrative and assertions in the counterclaim are responded to by general denials, occasionally accompanied by short explanations. The Bank's pleadings in the principal action are somewhat fuller, though they make no specific response to passages in Mr. and Mrs. Frost's defences in which reference is made to the IVA.

[4] The case was remitted to the Procedure Roll where argument was heard by the Lord Ordinary from Mr. Frost in person and from counsel for the Bank. Counsel submitted that for various reasons the counterclaim could, without inquiry, be disposed of by the Bank being assoilzied from its conclusions. The Lord Ordinary rejected those submissions and they were not insisted in before us. Nothing further need accordingly be said about them at this stage. Mr. Frost submitted to the Lord Ordinary (1) that the principal action should be dismissed and (2) that decree de plano should be granted in his favour in terms of the whole conclusions of the counterclaim. The Lord Ordinary also rejected these submissions, which were renewed before us.

[5] It is convenient to deal first with the submission in respect of the counterclaim. The burden of Mr. Frost's argument, as we understood it, was that, his detailed averments, which included various matters within the Bank's knowledge, having been answered mainly by general denials, his averments should be treated as admitted by the Bank. There was, he argued, an obligation on a party to answer fully and candidly averments made by its opponent. Reference was made to Macphail - Sheriff Court Practice (2nd edition) paras. 9-131 and 9-132. Reference was also made, in written materials submitted to the Lord Ordinary and to this court, though not in oral argument, to Ellon Castle Estates Co. Limited v. Macdonald 1975 S.L.T. (N) 66, Foxley v. Dunn 1978 S.L.T. (N) 35 and E.F.T. Finance Limited v. Hawkins 1994 S.L.T. 902 as well as to a number of other cases. The skeletal answers to the counterclaim proffered by the Bank and unexpanded by it despite ample opportunity to do so did not, he argued, constitute a valid defence to the counterclaim and decree should be granted de plano.

[6] We are unable to accept this submission. In the three cases referred to, all of which related to contractual situations, judges sitting in the Outer House felt able to infer from the pleadings that, despite a general denial or denials, the defender had no answer to the claim made against him. These cases were discussed in the Inner House in Gray v. Boyd 1996 S.L.T. 60 - a case not referred to in oral argument before us but mentioned under reference to a brief report of it in 1995 G.W.D. 34 - 1760 in the written "logic argument" relied on by Mr. Frost. In Gray v. Boyd, which related to a contract of loan, it was held (by a majority) that in the circumstances of that case a bare denial did not constitute an admission of the alleged loan. There was some difference of emphasis among the judges and Lord Morison dissented in the result. But it is plain that, even in contract cases, there is no general rule that a bare denial by a party of averments of matters within his own knowledge is of itself held to be tantamount to an admission of the truth of those matters. In some cases it may be possible to infer an admission from an inconsistency between averment or partial admission and other features of the pleadings. In some other cases the facts admitted may, notwithstanding a general denial of some elements of the opponent's case, give rise to an irresistible inference of liability. An example of the latter class is Lutea Trustees Ltd v. Orbis Trustees Guernsey Ltd. 1998 S.L.T. 471. But such cases will be relatively rare. And the need to undergo such an exercise is now largely superseded by the introduction of provision for summary decree.

[7] In the present case the Bank's pleadings in its answers to the counterclaim are relatively brief. They do not begin to address the elaborate narrative presented by Mr. Frost, though it may fairly be said that that narrative is in many places tortuous, difficult to follow and of at least doubtful relevancy. While the Bank's averments are in short compass, there is no inherent inconsistency in them; nor are there any other circumstances which would justify an inference that the Bank admits any or all of the elaborate averments directed against it in relation to the various (largely delictual) grounds of action advanced, far less as to the quantification of the amounts counterclaimed for. There are no admissions of fact which would warrant an inference of liability. It may be that, in the event of a proof being allowed on the counterclaim, the paucity of the Bank's pleadings will restrict the scope of positive evidence which it can properly adduce. But that does not warrant the conclusion that the answers in respect of any of the claims are irrelevant. Accordingly decree de plano cannot properly be granted in respect of any of them.

[8] In the principal action the defences for each of Mr. and Mrs. Frost contain the following averments:

[9] The Bank makes no specific response to those averments which are covered by a general denial. Again Mr. Frost submitted that the Bank must be taken as having admitted those averments as being matters within its knowledge. Again we are unable to accept that submission. There is no inconsistency in the Bank's averments on these matters which would warrant an inference that averments covered by a denial are to be treated as admitted. In any event, even if such an admission is to be inferred in relation to its own actings, or actings within its knowledge, it does not follow that the pursuers' averments in the principal action are irrelevant, so justifying dismissal. It seems that the quoted averments are designed to set up a defence to the effect that by its actings in relation to Mr. Frost's IVA the Bank has disabled itself from enforcing, at least to the full extent of the amount claimed, such rights as it may have under any relevant heritable security. But whether it has so disabled itself turns in the first place on a matter of English law, namely, the effect, if any, under that law of the Bank's actions in the IVA procedure on any security or securities which it holds for any relevant debt. A subsequent legal question under Scots law (as read with any "cross border" provision) may then arise as to the consequences on a heritable security in Scotland of the ascertained position under English law. But the initial position under English law is in a Scottish court a matter of fact which, if disputed, must be duly proved by the party asserting it. It is impossible to construe the Bank's pleadings as amounting to an admission of any particular position under English law. Moreover, even in terms of the Frosts' pleadings it does not appear to be claimed that any security held by the Bank is defeated, merely that it is available only to the extent of £200,000 "which sum will be offered to the Bank by fellow creditors subsequent to English proceedings". On no view can this assertion of future action by fellow creditors be treated as admitted by the Bank. It may also be observed that it is by no means apparent how any consideration arising by reason of Mr. Frost's IVA has any effect on Mrs. Frost's position.

[10] At the bar various statements, not reflected in pleadings, were made concerning Mr. Frost's IVA. It seems that, while not accepting the Frosts' formulation of what had occurred or the legal effect of it, the Bank acknowledges that an IVA under Part VIII of the Insolvency Act 1986 was approved, against the opposition of the Bank and of certain other creditors, by a meeting of Mr. Frost's creditors and that a subsequent challenge to that approval failed in the English courts. Mr. Frost sought to mount a contention based on conduct by the Bank at a subsequent stage in the IVA (or in a revised IVA) which, he maintained, further restricted any rights which the Bank had. But this contention is not reflected in the pleadings. If it is to be put in issue, it will require to be properly pled. It can have no effect on any present question of relevancy.

[11] For these reasons Mr. Frost's primary challenge to the decision of the Lord Ordinary, who refused to dismiss the principal action or to grant decree de plano in the counterclaim, must fail. Mr. Frost submitted in the alternative that he was entitled to a proof at large of the counterclaim. The Lord Ordinary did not allow a proof at large either on the principal action or on the counterclaim, but allowed a preliminary proof before answer on three specified matters, namely:

[12] The rationale behind this course, which the Bank sought as an alternative to dismissal of the counterclaim, appears to be that resolution of those limited matters may resolve the central issues in this litigation more expeditiously and more economically than would be involved by adopting any other course. Matter (3) has a precedent in that in a separate action at the instance of Mr. and Mrs. Frost, in which were raised issues similar to those underpinning much of the present counterclaim and the defence to the principal action, the First Division on 11 October 1996 allowed a preliminary proof before answer on the same matter. In the event that proof did not take place because in advance of the diet of proof Mr. and Mrs. Frost abandoned that action. Matters (1) and (2) are essential to the Bank's principal action. They are disputed by Mr. and Mrs. Frost who, it seems, maintain that any sums advanced were not advanced by the Bank but by some other institution; they also, it seems, dispute the amount of any outstanding loan.

[13] We are persuaded that the allowance of such a preliminary proof before answer is a convenient manner of progressing this excessively lengthy litigation. We express no view as to what disposal would be appropriate in the event of the specified matters being resolved in any particular way. But there appears to be a reasonable prospect that certain resolutions of them might justify the court, either forthwith or on a subsequent motion for summary decree, disposing substantially of the principal action or the counterclaim or significant parts of one or both.

[14] We should add that a number of other complaints were made to us by Mr. Frost, including complaints about the non-disposal in the Outer House of certain motions enrolled at various times by him and of the continuation of diligence on the dependence of the principal action. But none of these matters is properly before us and it is unnecessary to refer to them further. Mr. Frost's written Grounds of Appeal also raised several issues beyond those discussed above. But only passing reference was made to these at the hearing and they do not, in our view, warrant further discussion here.

[15] One other matter should be mentioned. Counsel for the Bank stated that his position before the Lord Ordinary was that the Bank sought, in the event of a preliminary proof before answer being allowed as moved for in his alternative proposal, to reserve the whole legal and factual contentions in relation to any subsequent proceedings on any larger matters. In particular, the Bank did not depart from its position that the counterclaim was irrelevant and that the Bank might, in certain circumstances, seek to challenge its relevancy, in whole or in part, at a subsequent Procedure Roll discussion. This procedural attitude is not, at least expressly, reflected in the Lord Ordinary's interlocutor nor is there any suggestion in his Opinion that such an attitude was evinced to him. In discussing the Bank's arguments he noted "that at no time did counsel seek to advance an argument that any part of the counterclaims was either irrelevant or lacking in specification". While he contemplated a proof on issues beyond those appointed to preliminary proof, the Lord Ordinary makes no reference to the possibility of any future Procedure Roll discussion. We can only conclude that the Bank's attitude was not made clear to the Lord Ordinary.

[16] Nonetheless, we consider that in the circumstances of this extraordinary case it would be inappropriate to foreclose the possibility of a further Procedure Roll discussion in the event that resolution of the specified matters does not lead immediately to disposal of the whole litigation. In particular, we note that the legal bases of certain of the claims made in the counterclaim, particularly those in the later statements, are far from clearly identified. It may well be appropriate that, if they remain live, the relevancy of those claims should be tested at Procedure Roll. Whether that or any other procedural arrangement is appropriate will be a matter for the Lord Ordinary to determine in the light of the circumstances then obtaining. To make clear that this option is not foreclosed we shall vary the Lord Ordinary's interlocutor to the extent of making that plain. Otherwise, the Lord Ordinary's interlocutor will be affirmed.