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Cite as: [2004] ScotCS [2004] ScotCS 238
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Bank of Scotland v. Kunkel-Griffin [2004] ScotCS [2004] ScotCS 238 (02 November 2004)
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OUTER HOUSE, COURT OF SESSION |
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A1407/03
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OPINION OF LORD EMSLIE On application by the Defender for recall of Decree in Absence In the cause THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND Pursuers; against MRS BRIGITTE KUNKEL-GRIFFIN Defender:
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Pursuers: Fairley; Anderson Strathern, W.S.
Defender: Logan; Campbell Smith, W.S.
2 November 2004
Introduction
[1] The defender is a German national married to a Scottish businessman. On 15 October 2003, at her home address in Sargenroth, Germany, she accepted formal service of a summons and citation at the instance of the pursuers. The summons sought payment of sums allegedly due under a personal guarantee which the defender had executed in the pursuers' favour on 30 July 2001. That guarantee concerned the indebtedness of a Scottish company of which her husband was a principal director and she was the company secretary. Although the summons and citation were served on the defender in Germany, accompanied by full translations into German, she also had a home in Scotland where she spent about half of her time.[2] Thereafter, the defender neither entered appearance nor sought to lodge defences to the action, and on 16 December 2003 decree in absence was pronounced in the pursuers' favour. That decree was extracted on 31 December 2003. Until May 2004, no formal service of the decree was effected on the defender as required by Rule of Court 19.1(6), but by letters in English dated 5 and 12 January 2004 (at least one of which appears to have been received by the defender in the ordinary course of post) the pursuers' agents sent her a copy of the Extract Decree and threatened enforcement measures if early payment proposals were not forthcoming. At this point, the defender took steps to obtain professional advice; certain necessary investigations ensued; Defences to the action were prepared for lodging; and a motion for recall of the decree in absence was enrolled on the defender's behalf on 19 March 2004. A two-day opposed hearing of that motion has now taken place before me on 14 and 15 October 2004.
[3] The recall of decrees in absence is governed by the provisions of Rule of Court 19.2. Paragraph (1) provides that such a decree may not be reclaimed against. Paragraphs (2)-(4) set out the procedure whereby (subject to any extended relief allowable under Rule of Court 2.1) a motion for recall must be granted by the Court upon certain prescribed conditions being fulfilled within 7 days from the date of the decree. To meet the special situation of a defender on whom service has been effected furth of the United Kingdom, paragraph (5) then provides as follows:-
"Where a summons has been served on a defender furth of the United Kingdom under Rule 16.2 and decree in absence has been pronounced against him as a result of his failure to enter appearance, the Court may, on the motion of that defender, recall the decree and allow defences to be received if -
(a) without fault on his part, he did not have knowledge of the
summons in sufficient time to defend;
(b) he has disclosed a prima facie defence to the action on the merits, and
(c) the motion has been enrolled within a reasonable time after he had knowledge of the decree or in any event before the expiry of one year from the date of the decree;
and, where that decree is recalled, the action shall proceed as if the defences had been lodged timeously."
"(a) the defendant, without any fault on his part, did not have knowledge of the document in sufficient time to defend, or knowledge of the judgment in sufficient time to appeal, and
(b) the defendant has disclosed a prima facie defence to the action on the merits.
An application for relief may be filed only within a reasonable time after the defender had knowledge of the judgment."
Submissions for the Defender
[6] In opening the debate before me, counsel for the defender began by elaborating on the contrast to be drawn between the terms of Rule of Court 19.2(5) and the related provisions of the Convention and Service Regulation. Without any provision for appeal, and without formal service of the decree, the defender had been deprived of (variously) a second bite of the cherry or a second boat to (catch or) miss, and accordingly a strict application of the requirement in Rule of Court 19.2(5)(c) would operate more harshly against the defender than either the Convention or the Service Regulation intended. In counsel's submission, "knowledge" of the decree for the purposes of the various instruments must be equated with formal service, with the result that the "reasonable time" allowed for seeking recall of a decree in absence did not even begin to run until - at the very least - such service was effected. On that basis, the defender's motion for recall had been enrolled before any available appeal days or any "reasonable time" had begun to elapse. Counsel did not, however, argue that Rule of Court 19.2(5)(c) was wholly inapplicable in the circumstances; merely that it should be construed and applied in such a way as to ensure that the defender's opportunity to secure relief against the decree of 16 December 2003 was as full and fair as that envisaged and provided for under the Convention and Service Regulation, and as affirmed by the European Court of Justice in decisions such as Debaecker & Plouvier v Bouwman 1985 ECR 1779 and Hendrikman & Another v Magenta Druck & Verlag GmbH 1996 AER 944.[7] On the facts, it was argued, the defender's failure to enter appearance and lodge defences prior to 16 December 2003 was entirely excusable. She was a German national; her first language was German; and even with the assistance of a German translation the terms of the citation were misleading and unclear. She had reasonably understood them to mean that the date of calling of the summons would be subsequently notified to her, so that appearance could be entered and defences lodged within the stated time-limits thereafter. A German lawyer to whom she spoke had come to the same conclusion, and she therefore thought that she was safe in taking no further action at that stage. Informal notification of the decree had come as a complete surprise in January 2004, and immediate steps had then been taken with a view to having it recalled. In such circumstances, the defender should not be penalised for a legitimate misunderstanding in the period prior to 16 December 2003, nor for the time reasonably required to react to the informal notification of the decree in early 2004.
[8] In this connection I should record, for the avoidance of doubt, that the arguments for the defender were presented solely by reference to Rule of Court 19.2(5) and the related provisions of the Convention and Service Regulation. Notwithstanding the terms in which the motion was enrolled on 19 March 2004, I was not asked to consider whether, in the circumstances, the defender could or should be relieved, under Rule of Court 2.1, of the consequences of her failure to enter appearance or lodge defences timeously, or of the consequences of her failure to apply timeously for "automatic" recall of the decree under Rule of Court 19.2(2)-(4).
[9] Moving on, counsel maintained that although he did not seek to make anything of the potentially complex matter of jurisdiction at this stage, the Defences lodged along with his client's motion disclosed a prima facie defence on the merits for the purposes of Rule of Court 19.2(5)(b). A prima facie defence, I was reminded, did not require to be fully relevant or specific:- cf Cooney v Dumfries & Galloway Council, (Extra Division, unreported, 4 April 2003). The true test was one of plausibility, or "seeming cogency" (Burn Murdoch on Interdict, para 143), acknowledging the scope for amplification and reformulation in the future. Some preliminary assessment of prospects might be legitimate, but anything in the nature of a concluded view should be avoided. Against that background, two particular lines of defence were identified. First, the defender had reasonably understood from the Bank's correspondence in March 2002 that the extent of her guarantee obligation was commensurate with the value of two properties in Hastings which she had also made available to the pursuers in security of the company's indebtedness. Accordingly, once the pursuers repossessed and sold these security subjects, the guarantee obligation should have been reduced to nil. In any event, second, the defender had been released from any remaining guarantee obligation by negligence and misrepresentation on the part of the pursuers regarding (a) the extent of the heritable securities which they held from the company direct, and (b) the financial conditions which would have to be met before further advances could be made. In particular, in their letter of 27 December 2001 (which the defender herself received and signed for on 4 January 2002), the pursuers expressly stated that they held standard securities over eight properties in the Dundee area, and (in an appendix) that they would only grant further loan facilities upon the company meeting certain stringent financial conditions. Not surprisingly, it was said, the defender relied on these statements in deciding to leave her guarantee in place rather than exercise an available option of early cancellation with restricted exposure. It was now clear, however, that the pursuers had inexplicably failed to take any standard securities over the Dundee properties, leaving the company free to transfer them to third parties (as in fact happened), and furthermore that none of the stipulated financial conditions were met when the pursuers advanced further funds to the company's account. In the result, counsel argued, the defender had been induced to act to her prejudice by the pursuers' material misrepresentations and negligent conduct, with the result that the latter were disabled from enforcing the guarantee obligation against her.
[10] In support of the latter submission, counsel referred me to a number of authorities illustrating the common law principles under which a cautioner may be released from all further obligation if prejudicially affected by the creditor's negligence or misrepresentation, or by the creditor's failure to obtain or hold alternative securities to which the cautioner should have been entitled to look in reduction of his liability. Reference was made in particular to Fleming v Thomson 1826 2 W & S 277; Royal Bank of Scotland v Ranken 1844 6D 1418; Bank of Scotland v MacLeod 1986 SLT 504; China & South Sea Bank Limited v Tan 1990 1 AC 536; Bank of Ireland v Morton, Judgment of Sheriff Principal McInnes, QC, unreported, 18 April 2000; and 2003 SC 257; Gloag & Irvine, Rights in Security and Cautionary Obligations, page 916; Wallace & McNeill, Banking Law, 10th Ed., pp. 195-6; and Stair Memorial Enclyclopaedia of the Laws of Scotland, vol. 3, paras. 898 and 900. It was of course acknowledged, under reference to Bank of Ireland v Morton and Bank of Scotland v MacLeod in particular, that these common law principles could be varied or over-ridden by the parties' express contract. However, under further reference to the well-known case of Smith v UMB Chrysler (Scotland) Limited 1978 SC HL 1, counsel argued that there was nothing in the defender's guarantee capable of having that effect. Clause 8 in particular was silent on the subject of misrepresentation, and on a proper construction could not be held to exclude the pursuers' liability for their own negligence. The closest it came to such exclusion was by the use of the word "neglect" in sub-clause (iv), but since that word had several alternative meanings the exclusion of liability for negligence had not been achieved.
[11] In the whole circumstances, counsel maintained that all branches of the requirements for the recall of the decree of 16 December 2003 had been satisfactorily met, and that on a proper exercise of the Court's discretion the defender's motion should be granted.
Submissions for the Pursuers
[12] In contending that the defender's motion should be refused, counsel for the pursuers (i) disputed the proposition that Rule of Court 19.2 was in any way deficient by comparison with the Convention and Service Regulation; (ii) maintained that the defender had in any event failed to bring herself within the scope of sub-paragraph (a) or (c) of the Rule of Court; and further (iii) challenged the defender's claim to have advanced a prima facie defence for the purposes of sub-paragraph (b) of the Rule.[13] Addressing each aspect in turn, counsel began by demonstrating that the relevant parts of the Convention and Service Regulation were, word for word, in identical terms. It was true that each referred to a right of appeal, but on a proper analysis Rule of Court 19.2(2)-(4), provided an even more favourable post-decree procedure whereby, on the fulfilment of certain simple conditions, a defender could secure recall of the decree as of right. Even the stated time-limit for securing this remedy could, it was conceived, be extended by virtue of the Court's general relieving power under Rule of Court 2.1. Accordingly, the defender was not well-founded in asserting that Rule of Court 19.2 omitted a valuable post-decree stage to the prejudice of persons furth of the UK who were sued in the Court of Session. In any event, the Convention and Service Regulation could not sensibly be read as disjunctively affording relief to a defender if either the failure to lodge defences timeously or the failure to take timeous post-decree action could be shown to have been "without fault". On the contrary, the intention was surely that relief was restricted to persons who, without fault, had been unable to take either step within the applicable time limits.
[14] In the circumstances of this case, counsel argued, the defender did not qualify for relief on any ground. As regards Rule of Court 19.2(5)(a), the defender's problems stemmed from her own uninduced misreading of the standard citation, and by her inexplicable conduct in consulting only a German lawyer. If a Scottish lawyer had been consulted, the defender would have received proper advice from the outset. She had even been in Scotland shortly before the decree passed against her, as evidenced by an Execution of Service (unconnected with this action) at the matrimonial address in Newport-on-Tay on 15 December 2003. She could not plead ignorance of the summons, excusable or otherwise; no credible explanation or excuse had been (or could be) put forward for her failure to seek appropriate advice on a matter of Scots law and procedure; there was nothing in the citation to indicate that any further official notice would be forthcoming; and if she had acted appropriately there was more than sufficient time to enable her to enter timeous appearance and defend the action. In such circumstances, the defender could not be regarded as "without fault" for the purposes of the relevant Rule.
[15] As regards the post-decree procedure available for recall, as of right, under Rule of Court 19.2(2)-(4), the defender had at no stage sought to avail herself of this option. Further, so far as Rule of Court 19.2(5)(c) was concerned, the defender had not enrolled her motion within a reasonable time of receiving a copy of the Extract Decree in January 2004. Under the Rule of Court, the Convention and the Service Regulation, knowledge of a judgment or decree was the stated trigger for the running of time, and there was no warrant for substituting the word "service" in its place. In fairness, however, counsel acknowledged that, since he was not in a position to dispute the defender's factual account of her actings between January and March 2004, this aspect of his submissions could not be advanced with as much vigour as the others.
[16] In submitting that no prima facie defence had in any event been advanced, in the sense of raising a colourable or arguable issue to try, counsel strenuously disputed the suggestion that his client's letter in March 2002 had somehow reduced the defender's guarantee obligation to nil. The guarantee contained a clear and explicit ceiling of £150,000; the letter could not sensibly be read as the defender claimed, nor could it have varied the terms of a formal guarantee; and, significantly, the defender's own letter of 8 April 2003 revealed a correct understanding of the situation, namely that the extent of the guarantee obligation would merely fall to be reduced pro tanto as each of the Hastings properties was sold and the proceeds applied to the company's account. The weakness of the defender's position was further illustrated by her third plea-in-law which, without justification, alleged personal bar on the ground that the pursuers had "undertaken" to restrict her guarantee obligation.
[17] Counsel also disputed the proposition that the defender had been released from her outstanding guarantee obligation by actings on the part of the pursuers. On the facts, her claim to have been prejudicially induced to leave her guarantee standing did not sit easily with the averment in the Defences to the effect that if the defender had been aware of the true position ".... she would not have agreed to further sums being advanced to the company." It was, however, on the law that the defender's real difficulties arose. Bank of Ireland v Morton was the latest Inner House decision in this field, and the Court there had rejected a cautioner's claim based on breach of a common law duty of care notwithstanding the absence of any exclusionary reference to negligence in the relevant guarantee. It was acknowledged that bad faith on the part of the creditor (in the sense of deliberate wrongful acts) would bar the enforcement of guarantee, but alleged negligence could not be prayed in aid where that would be inconsistent with the terms of the parties' contract. A fortiori, Clause 8 of the guarantee in the present case expressly excluded the pursuers' liability for the consequences of their own negligence. According to the Oxford English Dictionary, a principal meaning of the word "neglect" was "To omit through carelessness, to fail through negligence...."; in ex parte Matson 1822 KB 238, Abbott, CJ (at p. 239) said: "The word 'neglect' imports culpability"; and in Grein v Imperial Airways 1937 1 KB 50 and Casson v Ostley PJ Limited 2003 BLR 147, the Court treated the term "neglect" as synonymous with negligence. Moreover, the fact that the term "neglect" was preceded in the Clause by the words "do" and "omit" showed that this was the intended meaning here. In short, the terms of the guarantee entitled the pursuers to do, or to refrain from doing, whatever they wished in relation to other securities, and any liability for negligence (including negligent misrepresentation) was excluded by the terms of Clause 8(iv). If there was any doubt on this matter, then the pursuers founded on the absence of any other plausible ground of liability which could arise under the term "neglect".
[18] For all of these reasons, counsel for the pursuers submitted that the defender's motion for recall of the decree of 16 December 2003 was unjustified and should be refused.
Discussion
[19] In order to qualify for the exercise of the Court's discretion under Rule of Court 19.2(5), the defender must first bring herself within the protective scope of sub-paragraphs (a), (b) and (c) of the Rule. The requirements of all three sub-paragraphs must be satisfied; in the event of failure on any one of them, an application of this kind must fail. The same applies, in my opinion, to the requirements spelled out in the Convention and Service Regulation.[20] Dealing with the sub-paragraphs of the Rule of Court in reverse order, I am prepared to accept that the present motion was enrolled within a reasonable time after the defender became aware of the decree in early 2004. The precise date on which the decree was brought to her knowledge is not established, but the debate was conducted before me on the footing that she learned of the decree through receipt of one or more of the letters sent to her by the pursuers' agents on 5 and 12 January 2004. Each of these letters enclosed a copy of the Extract Decree, and it seems that the defender sought legal advice relative to the present application for recall when she returned to the UK shortly thereafter. In the period which followed, it seems that material investigations (including the ingathering of documents) were necessary in order to develop the prima facie defence required for the purposes of sub-paragraph (b) of the Rule; the defender herself had to return to Germany for at least some of the relevant period; and matters were further complicated by the fact that the company's former professional advisers were no longer in business. The Defences now lodged in process are reasonably substantial and far from straightforward, and bearing in mind the one year minimum period envisaged in the Rule, the Convention and the Service Regulation I conclude that, in the circumstances of this case, the defender's application can properly be held to have been made within a reasonable time for the purposes of sub-paragraph (c) of the Rule of Court.
[21] Against that background, it is not strictly necessary for me to decide whether, as counsel for the defender argued, formal service of the decree must be deemed an indispensable step without which the "reasonable time" for recall proceedings could not even begin to run. If I had required to do so, however, I would have rejected the argument as unsound. All three instruments identify the date of "knowledge" of the decree as the trigger point; "service" is not mentioned in that context; and in my view what counts is simply such degree of knowledge of a decree or judgment as will enable a defender to appreciate what has happened and to consider the possible need for appropriate legal advice and assistance. No doubt formal service of the decree, or of a certified copy interlocutor as required by Rule of Court 19.1(6), would emphatically bring home the requisite knowledge to a defender, but in my opinion such knowledge could just as effectively be obtained through, for example, collection of a copy of the decree from the Court, or alternatively by postal, telephone or internet communications. In the circumstances of this case, moreover, counsel's contention seems to me to lack practical substance. Since the defender in fact began to take the necessary action as soon as the pursuers' agents advised her that the decree had passed, there is no reason to think that she would have taken any earlier or different action had formal service of the decree been effected instead. The point might have become live if the defender had taken no action whatsoever until after the decree was formally served on her in May 2004. But that did not happen, and de facto she reached the advanced stage of applying for recall of the decree some two months earlier.
[22] In the same context, I am not persuaded of the soundness of the defender's contention that the lack of an appeal stage in Rule of Court 19 is of material significance for present purposes. In my view there is great force in the pursuers' argument that the automatic right to obtain recall of a decree in absence under Rule of Court 19.2(2)-(4) may be regarded as a legitimate equivalent of the appeal envisaged in the Convention and the Service Regulation, and perhaps even as affording a broader and more readily available remedy. I do not, however, require to take this matter any further, given that I have already determined the issue arising under sub-paragraph (c) of the Rule in the defender's favour.
[23] Turning now to the requirement of a prima facie defence under Rule of Court 19.2(5)(b), I consider that the defender's contentions must be preferred here too. In considering whether a prima facie defence has been disclosed, I do not of course have to reach a final view on relevancy, specification or prospects of success:- cf. Cooney, supra; WAC Limited v Whillock 1989 SC 397, per LJC Ross at 410. There would, I think, have to be some reasonable basis for believing that the defence might turn out to be well-founded but, as counsel for the pursuer accepted, the existence of a colourable, arguable or plausible case to try would be sufficient at this preliminary stage of assessment.
[24] Approaching the matter on that footing, I start by noticing that the pursuers' conduct at the time of making further advances to the company in early 2002 (thus increasing the defender's potential liability under her guarantee) was little short of extraordinary. In their letter of offer of 27 December 2001, they expressly asserted the existence of standard securities over properties in the Dundee area which were never in fact taken; they spelled out financial conditions for further advances which were then totally ignored; and they ended up making further advances, without heritable security, in favour of a company whose recent accounts painted a most unhealthy picture. This letter was received and signed for by the defender on the company's behalf, and it would not be at all surprising if its terms materially influenced her future attitude to the personal guarantee which she had given. It is true that the precise nature of her response is not yet clearly identified, the averment in the Defences being at variance with what counsel for the defender maintained during the debate, but at this stage I consider that a stateable case of prejudice caused to the defender as cautioner by the pursuers' acts and omissions may reasonably be advanced. To be fair, this aspect of the matter was not seriously challenged on behalf of the pursuers, whose primary contention was that clause 8 of the guarantee excluded any liability on their part for negligent acts or omissions affecting the defender. I am, however, unconvinced of the strength of that argument. The terminology of clause 8 of the guarantee does not, in my opinion, unequivocally exclude the pursuers' liability for negligence and, on a proper construction of the clause as a whole, it is far from clear what meaning should be attributed to the word "neglect" appearing in sub-clause (iv). Put shortly, I consider that a colourable or arguable issue to try arises in this connection, and even if I had been approaching the matter as one of pure relevancy I would not have been persuaded that the defender's contentions were necessarily bound to fail. For these reasons, I conclude that the defender has succeeded in bringing herself within sub-paragraph (b) of the Rule of Court as well as sub-paragraph (c).
[25] It is, however, with respect to sub-paragraph (a) of the Rule that I think the defender faces the greatest difficulty. As an essential prerequisite of success under that sub-paragraph, the defender must satisfy the Court that "without fault on her part" she did not have "sufficient time to defend" in the period prior to the decree of 16 December 2003. In my view, counsel for the pursuers was well-founded in submitting that a defender materially at fault in that (pre-decree) period is not entitled, even under the Convention and Service Regulation, to obtain recall on the ground of some excusable post-decree failure. If that were not so, then relief would illogically become available to such a defender on denial of the opportunity to pursue a baseless appeal, and I do not consider that that can realistically have been intended. Moreover, while accepting that the phrase "sufficient time" must here be given a broad and extended meaning in accordance with the decisions of the European Court of Justice to which I was referred, (that is, denoting a fair opportunity in all the circumstances, as opposed to the mere availability of a certain length of time), it seems to me that the existence or otherwise of such an opportunity must be judged on a common-sense basis by reference to the whole surrounding circumstances including, in particular, the reasonableness of the defender's actings. If, in a given case, an opportunity which would ordinarily have been deemed fair and adequate is lost by reason of acts or omissions which are wholly unreasonable, then in my view it is hard to see how the requirements of sub-paragraph (a) can properly be regarded as satisfied. In such a case, the loss of the necessary opportunity may be said to have been brought about by fault on the defender's part; an alternative approach would be to say that the Court is not obliged to afford an opportunity sufficiently extensive to cater for a defender's own unreasonable conduct.
[26] In this case the facts on which I am invited to proceed are (i) that the summons and citation were duly served on the defender on 15 October 2003; (ii) that she appreciated the potential significance of these documents at that time; (iii) that she unilaterally misread the citation as indicating that some further official notice would be sent before defences were required; (iv) that an unidentified German lawyer apparently shared that view; (v) that the defender took no steps to contact a Scottish lawyer at any stage, whether directly on returning to Scotland, or by e-mail, post or telephone; (vi) that she made no contact with the pursuers or their agents either; (vii) that during the relevant period she was married to a Scottish national and dividing her time between Scotland and Germany in approximately equal measure; (viii) that the time for entering appearance and lodging Defences duly expired without any action being taken; and (viiii) that the pursuers thereafter sought and obtained the decree in absence to which these proceedings relate. In my judgment it cannot sensibly be said that, in such circumstances, the defender was deprived, without fault on her part, of a fair opportunity to defend the action timeously. On the contrary, as it seems to me, the opportunity which she had to protect her position would have been more than sufficient but for her own inexplicable failure to take the obviously necessary and appropriate step of contacting a Scottish lawyer, whether for the limited purpose of checking that her unilateral reading of the citation was correct, or for the broader purpose of giving instructions for the timeous preparation and lodging of Defences. I therefore hold that since the defender's opportunity to defend the action timeously did not slip away without fault on her part, the necessary requirement of sub-paragraph (a) of Rule of Court 19.2(5) has not been fulfilled. Accordingly, in my view, the defender is not entitled to seek the exercise of the Court's discretion in her favour.
Decision
[27] For the foregoing reasons, I consider that the defender's motion for recall of the decree of 16 December 2003 must be refused.