Scottish Court of Session Decisions

Kelly v. Capital Bank [2002] ScotCS 317 (13 December 2002)

OUTER HOUSE, COURT OF SESSION
A4612/01	OPINION OF LORD CARLOWAY in the cause A KELLY LIMITED Pursuers; against CAPITAL BANK PLC Defenders:   ________________

 

 

Act: Bowen; Balfour & Manson (for Levy & McRae, Glasgow)

Alt: Buchanan; McClure Naismith

13 December 2002

1. The Pleadings

1. The pursuers sue the defenders for £38,250. Their averments are in short compass and state:

"2. On or around May 2002 the pursuers instructed Gerald Ferguson of Kingsgate Motors Limited to act as their agent in the sale of a Porsche Boxer (sic) motor car...The said agent entered into a contract with a Mr Gerald Conway (hereinafter referred to as "the purchaser") for the sale of the said car. The price was agreed at £45,000. Payment was to be made by way of a cash deposit of £6,750 and the balance (£38,250) by way of hire purchase. The agents arranged hire purchase on behalf of the purchaser with the defenders. The purchaser's application for hire purchase was accepted by the defenders. The defenders confirmed by telephone call to the agent that finance had been granted and that the agents could release the car. As a result, the said car was released to the purchaser..."

The defenders reply by averring, inter alia, that they had received from Kingsgate Motors a faxed standard form proposal to enter a hire purchase contract with Mr Conway. This was approved by them "in principle". They had later received a standard vehicle finance form again from Kingsgate Motors containing an offer from that company to sell the car to the defenders. In a somewhat cryptic averment in answer to the next article of condescendence, the defenders state that they "did not intimate acceptance of either the contact (sic) to buy the car or the hire purchase contract". This is despite their acceptance that they sent a "settlement cheque" and paid commission to Kingsgate Motors. The pursuers aver in response:

"The offer was made by the said agent. The deposit had been received by the said agent. Title to the car passed to the defenders on their acceptance of the vehicle finance form...the agent simply forwarded documentation provided by the purchaser as required by the defenders."

The pursuers then aver:

"3. The defenders posted a cheque for the sum of £38,250 to the agent by correspondence dated 1 June 2001. Thereafter, the defenders issued a stop on the cheque. The sum sued for is accordingly outstanding..."

Purportedly in response to the defenders' averments, which in answer to this article make no reference to a "proposal", the pursuers continue with the somewhat peculiar:

"The defenders confirmed by way of telephone call that the proposal had been accepted as previously averred."

In what is the only admission by either party in respect of the substantive averments on record, albeit one which does not properly meet the averment, the defenders admit that "the settlement cheque was stopped". The defenders earlier explain that this was because false documentation had been presented to them.

2. I should add here that the pursuers refer in their pleadings to "said" documents being incorporated into the pleadings but no documents were referred to or founded upon during the course of the debate.
3. The pursuers' plea-in-law on the merits is:

"2. The defenders being due and resting owing to the pursuers in the sum sued for, decree should be granted as concluded for."

 

2 Submissions

4. The defenders moved that their general relevancy plea-in-law be sustained and the action dismissed. It was said that the pursuers' plea-in-law was not a plea at all in that it did not set out any legal proposition relating to the averments of fact. However, looking at the averments, it seemed that the case might be based upon contract or upon the stopped cheque. In either case the pleadings were irrelevant. If the case were based on contract then the pursuers had failed to aver any contractual link between the pursuers and defenders. The pursuers averred that their agent entered into a contract with a Mr Conway. The hire purchase is then said to have been arranged with the defenders on behalf of Mr Conway. Although the pursuers had referred to "The offer" at one point, there was no specification by them of what this offer related to. They also did not state how title was to pass to the defenders and the fact that this was to happen was not consistent with their averment that Mr Conway was the purchaser. There was also an inconsistency in the pursuers stating that the agents received a deposit yet only forwarded documentation.
5. If the pursuers were basing their case on the cheque as a bill of exchange, then there was still no relevant case. To succeed in such a case, the pursuers would have to found upon section 47(2) of the Bills of Exchange Act 1882 (c 61), which provides the holder with a right of recourse against the drawer or indorser in the event of dishonour by non-payment. In terms of section 47(1) such dishonour only occurred if either the cheque had been presented and payment not made or presentment had been excused. The section provided a remedy to the holder, that is to say, in terms of section 2, the payee or indorsee in possession of it or, in the case of a bearer cheque, the bearer. The defenders' first substantive point on this aspect was that the pursuers did not say that they were the payees. Indeed, the inference from the averments in the third article of condescendence was that the payee was the agent. If the pursuers were arguing that they could sue as principals then this could be true in relation to any underlying obligation but not on the basis of the cheque itself.
6. The defenders' second point was that there was no averment that the cheque had been presented. It was not enough that there had been a "stop" put on the cheque. This was not a situation where presentment had been excused in terms of section 46. Reference was made to Byles on Bills of Exchange and Cheques (27^th ed) para 12-21 and to Hill v Heap (1823) Dow & Ry NP 57. In relation to the pursuers' surprising concession (infra) concerning the physical removal of the cheque, the effect of that was that either there had been no delivery under section 21 or the pursuers had waived their right to found upon the cheque.
7. The defenders' third point was that in order for the pursuers to be able to sue upon a stopped cheque, there required to be an obligation underlying the cheque which entitled the pursuers to payment. Due presentment could only take place if all the conditions attaching to the delivery of the cheque had been met, that is to say if there was an underlying unconditional obligation to make payment. Reference was made to Thompson v J Barke & Co (Caterers) 1975 SLT 67, Lord Dunpark at 69. As between the immediate parties to the cheque, its existence gave no greater right than existed at common law in respect of the obligation. The pursuers had to aver the underlying obligation and had not done so.
8. Finally, the defenders complained of a lack of specification in that the pursuers had failed to aver any dates, times or places in their averments. They referred to a proposal being accepted but did not say what the proposal was or when it was accepted.
9. The pursuers moved for a proof before answer in respect of the defenders' relevancy plea. They said that their case was based solely upon their entitlement based upon the averments concerning the issue and stopping of the cheque in the third article. The earlier averments of contract in the second article were just background. The pursuers were entitled to elect to sue the defenders by virtue of their relationship to them as principals of their agents, Kingsgate Motors (Bennett v Inveresk Paper Co (1891) 18 R 975, Lord McLaren at 983). They were entitled as such principals to pursue their remedy under section 47 of the 1882 Act in respect of the stopped cheque. The pursuers' plea-in-law encompassed this remedy and colour could be given to the plea by looking at the averments. In the second article, there was a link averred between the pursuers and the defenders in respect of a tripartite relationship whereby Kingsgate Motors, as the pursuers' agents, sold the car to the defenders and the defenders contracted with Mr Conway to buy the car at the end of the finance contract. It was not the intention of the pursuers' pleadings to suggest that there had been a sale to Mr Conway despite his being called "the purchaser". The sale was from Kingsgate Motors to the defenders and this was also reflected in the defenders' own pleadings. The contract was therefore between Kingsgate Motors, on behalf of the pursuers, and the defenders. However, the legal basis for the action founded upon in the pleadings was the cheque issued to the pursuers' agent and not any contract.
10. At this point in the submissions there was a rather surprising turn of events. The pursuers said that their averment that the defenders issued a stop on the cheque did not mean, as might have been supposed, that there had been a countermand sent to the drawee bank. Rather, what had happened was that a sales representative of the defenders had called at the premises of Kingsgate Motors and had asked for, and had been given, the cheque back. There was no suggestion that it had been taken by force or clandestinely, simply that a member of Kingsgate Motors' staff had handed the cheque over to the defenders' representative. Nevertheless, the pursuers still maintained that they could avail themselves of the remedy under section 47 as the actions in the premises constituted a waiver of presentment, it being a deliberate act of the defenders to take back the cheque, thereby preventing presentment.
11. On the issue of underlying obligation, the cheque contained a contractual undertaking to pay the sum specified and the defenders were prima facie liable to pay that sum. The pursuers did not require to plead any underlying obligation. Reference was made to Universal Import Export v Bank of Scotland 1995 SLT 1318 per Lord Justice-Clerk (Ross) at 1321. On specification, the pursuers said that their use of "proposal" in the third article was in response to the defenders' reference to that word in their answer to the second article. The timing of events was not material in the context of the pursuers' case being founded upon the cheque.
12. The pursuers' stated a general relevancy plea. This was directed towards the defenders' averments concerning the reasons for the "stopping" of the cheque. If the pursuers were able to found upon section 47, then the reasons averred by the defenders for stopping the cheque, that is to say the false documentation, were irrelevant. It could be no defence that fraud had been committed by a third party, namely Mr Conway (Universal Import Export v Bank of Scotland (supra) per Lord Justice-Clerk (Ross) at 1322, Lord Morison at 1326-7). This was so even if the falsehoods had been channelled through persons also acting as the pursuers' agents. Since the defenders admitted stopping the cheque, decree should be pronounced de plano or at least these averments should be excluded from probation. In reply, the defenders accepted that, if a cheque had been issued to the pursuers and dishonoured in terms of the 1882 Act, the fraud of Mr Conway could not found a relevant defence. However, the averments concerning the reasons for stopping the cheque were not intended to form the basis of a discrete defence but as part of the general factual background narrating the history of the contract and the defenders' decision not to enter into either of the two proposed contracts.

3. Decision

(a) Plea-in-law

13. The stating of appropriate pleas-in-law remains a cornerstone of the system of written pleadings, designed primarily, in the case of a summons, to give any defender fair notice of the legal case against him and to state to the court the legal basis upon which the action proceeds. A plea-in-law ought, of course, to state a distinct legal proposition applicable to the facts averred. The plea that a particular sum is due and resting owing may be appropriate where the averments reveal the existence of a loan by a pursuer, for example a bank, to a defender which is due but unpaid. It will rarely be applicable to any other set of facts. It is certainly not one which covers such averments as the pursuers make in this case. As the defenders complain, these averments might conceivably cover a case based upon contract or one based upon a countermanded cheque, but these are only the two most obvious possibilities which might occur to their reader. If it had been a contract case of the underlying type ultimately referred to by the pursuers, namely a contract of sale between the pursuers and the defenders, then a reference to sale and non-payment of the price might have been expected. However, since the pursuers state that they are not founding upon such a contract to obtain payment, they cannot validly be criticised for not stating such a plea. At the Bar, the pursuers maintained that their case depended upon the issue of the cheque by the defenders and its subsequent dishonour as a result of its removal by the defenders from the pursuers' agents' premises. It is perhaps not surprising that the set of facts as they unfolded in the course of the debate posed problems of legal analysis. However, before a pursuer can be said to have set out a relevant case he must state a plea-in-law which, on the facts averred, would entitle him to decree. This plea must also give the defender fair notice of the basis of the pursuer's case in law. The pursuers' plea-in-law here does neither of those. It gives no clue that the pursuers are founding upon a dishonoured cheque, far less that they are maintaining a legal proposition that a principal can successfully sue a third party on the basis of that third party's cheque made payable expressly only to another party who transpires to be an agent of the principal. On this ground alone the action is irrelevant and falls to be dismissed. In that regard, I do not consider that the Court should, or a defender should be required to, look through a pursuer's averments and then start to search to find a possible case in law. However, for the reasons which follow, I also consider that the action must be dismissed even having carried out that search to find that case.

(b) The Cheque

14. If a party is founding upon a cheque as the basis of an action for payment then there are certain fundamental requirements of pleading which must normally be met.

He must aver: first, that he is a payee, or at least indorsee, of the cheque; secondly, that he is the holder of the cheque; thirdly, that the cheque has been dishonoured either by non-payment when presented to the drawee or by circumstances excusing presentment; and fourthly that the defender is the drawer or an indorser. In this case the pursuers have averred none of these essential elements. Indeed, such averments that do exist suggest that these fundamentals are not present in fact.

15. First, the cheque is said to have been posted "to the agent". The "agent" presumably refers to either Mr Ferguson or to Kingsgate Motors, who are elsewhere referred to as "agents". In either case, there is no reason to suppose from the pleadings that the cheque from the defenders was made payable to the pursuers. The more obvious inference from the averments is that it was made payable to the agent or agents. That being so, there is no basis in law upon which the pursuers can sue the defenders (as drawers) purely on the basis of a cheque made out to another, whether that other turns out to be an agent or not. For obvious reasons of mercantile convenience, cheques can only be founded upon, in circumstances akin to those in this case, by a holder as defined in section 2 of the 1882 Act (i.e. a payee or indorsee or, in the case of a bearer cheque, the bearer). Furthermore, the holder is defined as a payee or indorsee "in possession" of the cheque. However, by concession at the Bar, the pursuers accept not only that are they not in possession of the cheque (and never have been) but also that the agent or agents are not in possession of it either as a result of the voluntary return of the cheque to the drawer.
16. Thirdly, in their pleadings the pursuers aver that the defenders issued a "stop" on the cheque. In spite of the use of language which is not identical to that used in the 1882 Act, the averment adopted would normally be taken as meaning that the defenders had countermanded the cheque under section 75 of the 1882 Act. However, again by concession at the Bar, it is accepted that the defenders did not countermand the cheque and neither the pursuers nor the agent or agents ever presented it to the drawee bank. That being so, it is difficult to see how the pursuers can hope to establish a case based upon a dishonoured cheque. The argument that the return of the cheque by the agent or agents somehow amounted to an implied waiver of presentment on the part of the defenders cannot be sustained in the accepted circumstances. The actings founded upon as establishing waiver are properly characterised as those of the agent or agents in returning the cheque. A request for the return of a cheque, whether complied with or not, can hardly be seen as implying waiver of presentment on the part of the drawer. On the contrary, if anything, the return is a waiver of the returner's right to rely upon the cheque. Finally and fourthly, it may be a technicality, but the pursuers do not even say that the defenders, as distinct from another bank or institution are the drawers of the cheque.
17. For these reasons the pursuers have failed to aver a relevant case based upon a dishonoured cheque and the action falls to dismissed on this ground also.

(c) Underlying Obligation

18. If a cheque is made payable to a pursuer, as payee or indorsee, then, as a matter of relevancy, that pursuer need do very little other than aver that he received and holds a cheque from the defender as drawer or indorser and that the cheque has been dishonoured. The cheque is prima facie proof of the existence of an obligation by the defender to pay the pursuer the sum stated and, of course, the pursuer can rely upon section 47 of the 1882 Act. In that situation, a pursuer need not go on to aver the circumstances which resulted in and merited the defender issuing the cheque to him in the first place. A defender may still raise a defence to payment based upon the original underlying circumstances (Devos Gebroeder v Sunderland Sportswear (supra) Lord Jauncey at 338). Such a defence may require a response from a pursuer, but that does not mean that the pursuer need set out these circumstances to have a relevant case based upon the dishonoured cheque. In this respect, had I determined that the pursuers had set out a relevant case based on the cheque, I would not have dismissed the action because of inadequacies in what, according to the pursuers, were averments simply setting out the background.
19. The pursuers' averments which do attempt to set out the original dealings with the defenders do, however, leave not a little to be desired. Despite the submission at the Bar to the effect that what the pursuers were really saying was that there was a contract of sale between the pursuers and the defenders, that is not what the pursuers have averred upon record and, consequently, is not what they would be entitled to attempt to prove at any subsequent inquiry. It is plain from the opening averments of the pursuers in the second article that the first contract, which they say was entered into, was one between Mr Ferguson, as the pursuers' agent, for the sale of the car to Mr Conway. The second contract, as appears from the subsequent averments, is one arranged by "the agents" (this time presumably Kingsgate Motors), acting for Mr Conway, and the defenders for the hire purchase of the car. Whatever form that contract took in relation to the transfer of title of the car to the defenders pending payment of the instalments by Mr Conway, there is no contractual nexus averred between the pursuers and the defenders. Had the case been periled upon contract and taken the form of an action for payment of the price to the pursuers by the defenders then it would have been dismissed as irrelevant standing the absence of averments which would enable such a nexus to be proved.

(d) The Fraudulent Documentation

20. One of the many peculiarities in the pleadings is that, as noted above, the only averment of substance which either party actually responds to with an admission is that a cheque was "stopped". Yet this is the very averment which the pursuers then disowned on Procedure Roll. Set in that context, the defenders' consequent averments explaining why the cheque was stopped seem a little out of place. It is accepted, as it was bound to be, that the fraud of a third party cannot provide a defence to an action based upon contract. However, the defenders do not plead these averments as a defence. Had they done so then an appropriate plea-in-law would have been required. Rather, the averments are narrative of the circumstances which the defenders maintain prevailed at the time they decided not to enter into any contractual arrangements concerning the car. As such background, they give the pursuers notice that evidence may be led to set the scene explaining not only that no contracts were entered into but also why that was. In that sense the averments are relevant to the substantive defence and, had I determined that the pursuers' averments merited inquiry, I would not have excluded the defenders' averments on this aspect.
21. So far as the detailed points of specification taken by the defenders are concerned, it must be borne in mind that the facts in this case must almost all be within the knowledge of one or other of the parties or their agents. It is disappointing to observe, therefore, that, so far as disclosed by the pleadings, there is an almost total absence of consensus upon any of the facts despite the reality appearing to be that much is not actually disputed. As already observed, it is surprising that only one admission of substance is made throughout the whole record and that in relation to an averment then disavowed by its maker. As has often been said in the past, the system of written pleadings, with its considerable advantage of enabling cases to be accurately and fairly determined by the court without the necessity of lengthy and costly inquiry, depends upon each party stating with candour the facts upon which he relies and, of equal importance, admitting the averments of his opponent which he knows to be true. This obviously requires each adversary's pleader to consider with care his opponent's written case and to respond accordingly. It is not immediately clear to the reader of the pleadings in the present case that this has been done. Rather, each side, but notably the pursuers, has presented a miscellaneous catalogue of averment which does little to focus the issues between the parties in the manner intended by the written system. That having been said, however, none of the specification points raised by the defenders carries such weight as to require excision of any particular part of the pursuers' pleadings had they been determined suitable for enquiry.
22. In all the circumstances, I will repel the pursuers' second (relevancy) plea-in-law, sustain the defenders' second plea-in-law and dismiss the action.