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Gillespie v. Toondale Ltd [2005] ScotCS CSIH_92 (09 December 2005)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lady Cosgrove

Lord Drummond Young

Sir David Edward

[2005CSIH92]

A533/05

OPINION OF THE COURT

delivered by LADY COSGROVE

RECLAIMING MOTION

THOMAS GRAHAM GILLIESPIE

Pursuer and Reclaimer;

against

TOONDALE LIMITED

Defenders and Respondents:

_______

Act: Richardson; Maclay Murray & Spens (Pursuer and Reclaimer)

Alt: Clive; H.B.M. Sayers (Defenders and Respondents)

9 December 2005

The background
[1] The pursuer in this action seeks payment from the defenders, a company involved in property development, of the sum of £189,000 said to be due in terms of an oral contract entered into between the pursuer and a Mr. Liberty Durant acting as agent for the defenders.

[2] The pursuer avers that the contract in question related to the development of a piece of land in Airdrie owned by a company called Piula Holdings (PHL) and that PHL was controlled by the pursuer's cousin, Thomas Edward Stevenson Gillespie. The pursuer's averments in relation to the terms of the contract are as follows:

"In terms of the contract, it was agreed that the pursuer would introduce Mr. Durant, on behalf of the defender, to his cousin. In return, the defender agreed to make payment of certain sums to the pursuer on the fulfilment of various conditions. In terms of the contract, the defender agreed to pay the pursuer: (i) a success fee of £50,000 following the construction of the first houses on the land by the defender; (ii) a fee of £1,000 for each house for which planning permission had been obtained but the part of the land for which was sold prior to construction; and (iii) a fee of £1,000 for each house that was constructed on the land following the sale of that house."

[3] The pursuer goes on to aver that, following conclusion of the contract, he introduced Mr. Durant, on behalf of the defenders, to his cousin. Thereafter the land was sold to the defenders by PHL. The defenders took entry on about 17 April 2003 and commenced developing the land in about early 2004. The sum sued for comprises the £50,000 success fee and a further £149,000 now allegedly due in terms of clauses (ii) and (iii).

[4] The defenders, in their answers, admit that the pursuer entered into an oral contract with Liberty Durant and that he was acting as agent. The pursuer's averments as to the terms of that contract are denied. It is averred that missives were concluded for the purchase of the land between the defenders and PHL and that the purchase price was paid to PHL. It is further averred:

"Mr. Durant understood the pursuer to be the beneficial owner of PHL and thus 'owner' of the land ... He had no discussions with any other party prior to the pursuer issuing instructions to solicitors who concluded Missives with the solicitors acting for the defenders. The written contract made no reference whatsoever to any alleged agreement with the pursuer as averred by him. No separate written agreement was entered into. No letters were exchanged. Until Gateway Homes Limited, the building company in which Mr. Durant has an interest, raised proceedings against the pursuer seeking monies arising from an unrelated matter, no demand had been made by the pursuer for payment of any sum allegedly due."

It is also specifically denied on behalf of the defenders that Mr. Durant has ever met or spoken to the pursuer's cousin. The pursuer is called upon to aver when and where he alleges that any meeting or discussion took place.

[5] The summons contains a warrant for arrestment and for inhibition on the dependence of the action. It is averred that the pursuer is reasonably apprehensive that the defenders, by reason of their indebtedness, will be unable to pay any decree awarded by the court in his favour; and that warrant to do diligence on the dependence of the action would be a proportionate means to secure against the identified risk.

[6] In the case of the Advocate General v Taylor 2004 S.C. 339 the court addressed the mischief that diligence was available as of right, irrespective of whether the pursuer's claim was well-founded in fact or in law and without any judicial assessment of the validity or otherwise or the strength or weakness of that claim. In accordance with the practice adopted following that decision, the summons was placed before a judge for his decision as to the grant or refusal of the warrant for inhibition. The Lord Ordinary granted the application and the summons with the warrant for inhibition on the dependence was signetted on 15 August 2005 and served on the defenders on 17 August 2005. An inhibition over a part of the defenders' property was recorded in the Register of Inhibitions and Adjudications on 23 August 2005. After defences had been lodged a motion was enrolled on behalf of the defenders for recall of the inhibition. On 9 September 2005 the vacation judge, Lord Johnston, having heard counsel granted that motion. In the Note subsequently issued by him he said:

"The hearing was short, largely taken up by the pursuer seeking to demonstrate that there was a security risk justifying the retention of the inhibition, under reference to various company accounts.

The reason I did not entertain that submission was simply because in my opinion the pursuer has not demonstrated a sufficiently prima facie case to warrant the imposition of an inhibition with the deleterious consequences that can cause. Unless in my opinion that can be reasonably established, there is no justification for the charge.

My simple view in this case was despite requests to counsel for the pursuer, he was unable to produce any tangible evidence to support the assertion that any agreement existed which entitled the pursuer to succeed in this case. The defence is a complete denial. The contract is said to be oral and accordingly it follows that the existence of the inhibition depended upon assertions by counsel for the pursuer based on nothing other than apparent statements verbally given to him by his client. That is not acceptable.

In my opinion, against recent case law, this is a wholly inadequate basis to found the existence of inhibition in an action of this sort. It is, to my mind, oppressive and dispropriate. On that basis alone I accordingly pronounced the interlocutor now reclaimed against."

[7] At the hearing before us Mr. Richardson, counsel for the pursuer and reclaimer, moved us to recall the said interlocutor of the Lord Ordinary, to consider the matter de novo, and to refuse the recall of the inhibition. Mr. Richardson submitted that the Lord Ordinary erred in asserting that "the defence is a complete denial". That was not an accurate reflection of the pleadings in that the defenders specifically admit that the pursuer entered into an oral contract with Liberty Durant acting as agent. The pursuer's case was one based on the existence of an oral contract and that matter was admitted. He also submitted that the Lord Ordinary erred in his approach by suggesting that the pursuer required to produce "tangible evidence" to support the existence of an oral contract. He ought not to have relied on the absence of any proof of the contract, and should have gone on to consider the averments in the light of the whole circumstances before reaching a view as to whether or not the pursuer had established a prima facie case on the merits.

[8] Mr. Clive, counsel for the defenders, accepted that the pleadings were lacking in clarity and that the admission as to the existence of the oral contact was "unfortunate". The defenders' position was that an oral contract was entered into between the pursuer and Liberty Durant relating to an agreement about the acquisition by the defenders of development land from the pursuer. (It was accepted that such an oral contract relating to heritage would have been unenforceable). The pursuer's position that Mr. Durant entered an oral contract with him to facilitate the completion of a written contract between different parties was denied. The defenders' pleadings reflected their understanding that the pursuer was either the owner of the land or in a position to act on behalf of the owner.

[9] In our opinion, on a fair reading of the pleadings as a whole, the defenders' averments amount to an admission that an oral contract was entered into between the pursuer and Liberty Durant but a denial of the terms of that contract as averred by the pursuer. In particular, the defenders deny the existence of any agreement to make payments to the pursuer on the fulfilment of various conditions relating to the purchase and development of the land in question. In these circumstances the Lord Ordinary erred when he stated "The defence is a complete denial". By virtue of this misapprehension, he has not fully appreciated the precise nature of the issue raised by the pleadings. What is in dispute is not the existence of an oral contract but the nature and terms of that contract. Further, we are not satisfied that the Lord Ordinary in reaching his decision on the recall of the inhibition has fully addressed himself to the test to be applied. That being so, it is appropriate that the interlocutor of 9 September 2005 reclaimed against be recalled, and the matter be considered by this court de novo.

The test
[10] In the case of Advocate General v Taylor, supra the court held that, in order to bring Scots law on the obtaining of diligence within Article 1 of the First Protocol, grant of warrant should be a judicial act. Diligence is no longer available as of right, irrespective of whether the pursuer's claim is well-founded in fact or in law and without any judicial assessment of the validity or otherwise or the strength or weakness of that claim. The test to be applied is set out in para 34 of the Court's Opinion:

"We have in mind that the applicant for a warrant or for letters of inhibition need only establish a prima facie case on the merits of the action. The necessity for diligence need not be demonstrated although it may no doubt assist the grant if it is. But the applicant will have to demonstrate that the diligence is proportionate to the claim."

[11] The creditor in that case was the Inland Revenue who were able to proffer to the court a certificate under section 70 of the Taxes Management Act 1970 as substantiation of their claim against the defender. A creditor in possession of such a certificate or of a bank guarantee can easily demonstrate the existence of a prima facie case. In other cases, invoices or demands for payment might be available so that the claim is fully vouched. The present case, however, is in a wholly different category. Liability, which is said to arise on breach of an oral contract, requires to be established. No guidance is provided in the opinion of the court in Taylor as to what is required in such a case to "establish a prima facie case on the merits of the action".

[12] In the course of the argument before us reference was made to the cases of Karl Construction Limited v Palisade Properties plc 2002 S.C. 270 and Barry D. Trentham Limited v Lawfield Investments Limited 2002 S.C. 401, both decisions of Lord Drummond Young in the Outer House. In the case of Trentham, Lord Drummond Young discusses the relevance of the existence of a defence to the pursuer's claim and says (at para. 19):

"[T]he existence of a defence may cast doubt on the pursuer's prospects of success in the action. If the doubt is sufficiently substantial, it may not be reasonable to grant judicial security in respect of the pursuer's claim. In Karl Construction Limited v Palisade Properties plc I suggested that, before inhibition on the dependence could be granted, the pursuer required to establish a prima facie case on the merits of the action. I intended this test to be a substantial hurdle for the pursuer to surmount. The expression 'good arguable case', used in English law in relation to Mareva injunctions, may give a good idea of what is intended. If, at the stage of a motion for recall, an apparently substantial defence is put forward to the pursuer's claim, it is in my opinion appropriate for the court to scrutinise the claim and the defence and to determine whether in all the circumstances inhibition is appropriate, or whether it should be recalled, either absolutely or subject to conditions. This is in my view an aspect of the requirement of a prima facie case, in the sense of a good arguable case; if there is an apparently substantial defence to the pursuer's claim it is difficult to say, on the basis of the whole of the material before the court, that that claim amounts to a good arguable case. If no substantial defence is put forward, of course, all that the court requires to consider is whether the pursuer has set out a good prima facie case."

[13] We agree with that approach. In particular, it is in our opinion necessary for the court at the stage of a motion for recall to consider the pleadings as a whole, both the pursuer's averments and the defence stated, and the submissions made by both counsel to determine whether, in all the circumstances, inhibition is appropriate on the basis of the existence of a prima facie case. We also agree that the prima facie test is a substantial hurdle for the pursuer to surmount. It is not sufficient for him to advance a colourable case. Grant of judicial security and the serious interference with the defenders' property warrants the application of a higher test. Where, as in the present case, the defence amounts to a denial of the existence of an oral contract of the nature averred by the pursuer, the court ought only to grant diligence if the pursuer's averments are both cogent and convincing. Our law now recognises the potential for harm through unwarranted diligence and for abuse based on a pretended or imagined debt The ease with which a superficially valid summons can be presented is self-evident. The safeguard now imposed is the requirement of judicial assessment of the validity or otherwise of the pursuer's claim. It is for the pursuer to demonstrate good cause for the remedy he seeks.

Decision
[14] Turning to the facts of the present case, we observe firstly, that the oral contract between the pursuer and Mr. Durant was entered into in January 2003 and that the defenders took entry to the land in Airdrie on about 17 April 2003 and began developing it early in 2004. The defenders aver that the pursuer made no request or demand for payment of the sums said to be due in terms of the Airdrie contract prior to proceedings being raised against him by Gateway Homes Limited, a company in which Mr. Durant has an interest, in respect of an unrelated matter. In that other action the pursuer avers that he is entitled to deduct from sums allegedly due by him to Gateway Homes the payment due by Mr. Durant in terms of the oral contract that is the subject of the present action. That other action was signetted on 13 June 2005. The present action was raised only in September 2005, some two and a half years after the conclusion of missives of sale for the Airdrie land between the defenders and PHL.

[15] We observe further that in the original defences to the other action there is no mention of the £50,000 success fee. Pleadings in that action were later adjusted and a figure of £50,000 was introduced at about the time that the action with which we are here concerned was raised. Our impression of the cogency of the pursuer's case is not strengthened by the fact that further adjustment in the pleadings in the other case has since taken place and the success fee is now said to be "approximately £75,000". It is also now averred in that action that £25,000 has been paid by Mr. Durant on behalf of Toondale in respect of the success fee stipulated in what is described as the Airdrie contract. That is a fact which, in our view, ought to have been capable of being vouched in some way, for example, by the production of a cheque or covering letter, or even an entry in a bank statement. No such documentary vouching has been produced.

[16] As recorded above, the pursuer specifically avers that he "introduced Mr. Durant, on behalf of the defender, to his cousin." That averment is denied and the pursuer is called upon to aver when and where he alleges that any meeting or discussion took place. The pleadings in this action are, as yet, unadjusted and the call has not been answered. However, at the hearing before us (and in the pleadings in the other action) the pursuer's position is now said to be that he had "acted as an intermediary" in communicating to his cousin the desire of Mr. Durant as agent for the defenders to purchase the property. Counsel expressly departed from the suggestion implicit in the averment in the summons that there had been any direct personal introduction.

[17] In this unsatisfactory state of the pleadings we are of the view that, as it stands, the pursuer's case amounts to no more than a bald, unconvincing and wholly unsupported assertion of the terms of an oral contract and the existence of a debt based on those terms. There is, in our opinion, no sufficient prima facie case demonstrated to justify the retention of the inhibition. In that situation it is unnecessary for us to consider the question of proportionality. The inhibition on the dependence is recalled.