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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Unity Trust Bank Plc v. Frost & Anor [2005] ScotCS CSOH_33 (04 March 2005)
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Cite as: [2005] ScotCS CSOH_33, [2005] CSOH 33
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Unity Trust Bank Plc v. Frost & Anor [2005] ScotCS CSOH_33 (04 March 2005)
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OUTER HOUSE, COURT OF SESSION [2005] CSOH 33 |
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A967/94
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OPINION No.2 OF LORD EASSIE in the cause UNITY TRUST BANK PLC Pursuers; against MARTIN FROST AND LINDA STUART ANDERSON or FROST Defenders: ________________ |
Pursuers: Nicoll; Franks MacAdam Brown
Defenders: Party Litigants
4 March 2005
Introductory
[1] In this action, in which the pursuers seek repayment of money lent to the defenders and the enforcement of two standard securities granted by the defenders by way of security for the loan, I heard a preliminary proof before answer on three issues in the course of the year 2003, following which I advised the case on 2 October 2003. I refer to the opinion delivered on that date. In accordance with the concluding paragraph of that opinion, the action was put out by order on 8 October 2003. By reason of the failure of both the pursuers and the second defender to appear at that hearing, it was necessary to continue the case by order until 29 October 2003 when, inter alia, I called for notes of proposals for further procedure and appointed parties to be heard thereon by order on 28 November 2003. On that date the case was restored to the procedure roll and a diet was fixed for April 2004.Further procedural history
[2] Although not essential for decision on the substantive issues eventually arising from the procedure roll hearing, it may be useful were I to note some features of the procedural history following the interlocutor which I pronounced on 28 November 2003. At a by order hearing on 18 December 2003 there appeared counsel for Mr Conn who is the supervisor in an Individual Voluntary Arrangement, into which the first defender - Mr Frost - had entered in England. Mr Conn's appearance through counsel and solicitors followed certain correspondence with the Keeper of the Rolls in which Mr Conn had advanced the unusual, if not extravagant, proposition that as such supervisor he might properly conduct litigation on behalf of the creditors through the agency of the legally unqualified insolvent. Mr Conn having been advised to seek legal advice from Scottish solicitors, counsel was thereafter instructed on his behalf. Counsel who appeared at the hearing on 18 December 2003 had been instructed only on the eve of that hearing. He sought a continuation until 16 January 2004, on which date leave was sought and granted for Mr Conn, as supervisor, to apply within 21 days to be sisted as a party to the litigation. [3] On 13 February 2004, Mr Conn was sisted as an additional defender. The receipt of a minute of amendment on his behalf was allowed, with provision for answers to that minute of amendment by the other parties to the litigation. The case was to be put out by order on 24 March 2004 in order to deal procedurally with that minute of amendment but, shortly before that date, Mr Conn's agents withdrew from acting. No response was received to the notice served on him requiring him to indicate whether he intended to insist on his defence to the action. Accordingly, the minute of amendment was not moved and the supervisor has not participated further in the proceedings. I shall accordingly use the expression "the defenders" as referring only to Mr and Mrs Frost. [4] On 30 March 2004 a motion by the first defender for recall of an inhibition registered in terms of a warrant granted ex parte to the pursuers by an interlocutor of the court of 10 March 2004 was refused. This refusal was then the subject of a reclaiming motion by the first defender. The administrative consequence of the transfer thereby of the action to the Inner House was the discharge of the diet of procedure roll which had been fixed for 27 April 2004. In the event, the case having called in the Inner House on 21 April 2004, counsel for the pursuers then withdrew the pursuers' opposition to the recall of the inhibition. I am unaware of the reasons for this volte face on the part of the pursuers. [5] By this time, a petition for the sequestration of the estates of the first defender had been presented and an interim trustee - Mr Robin McGregor CA - had been appointed. At a calling of the case on 27 April 2004 and on 8 June 2004, counsel for the interim trustee appeared but when the action came before me on 21 October 2004 for what was to prove the first instalment of the procedure roll debate, there was no appearance by or on behalf of the trustee in the sequestration proceedings. I was informed by counsel for the pursuers to the effect that in response to correspondence from the pursuers' solicitor, the trustee had simply indicated that he did not intend to appear or to be represented at the debate. An unsatisfactory feature of this response is that the court and the other parties to the litigation are left in doubt whether the trustee, acting on behalf of the creditors other than the pursuers, has abandoned the claims advanced in the counterclaim. Since in these circumstances I could not exclude the claims so advanced having been abandoned by the trustee to Mr Frost personally, I allowed Mr Frost as a party litigant to participate in the debate. In doing so I did not decide, and should not wish to be taken as having decided, any issue whether the claims in the counterclaim (assuming them to be well-founded) are assets abandoned by the trustee in the sequestration and the trustee and supervisor in the individual voluntary arrangement respectively, or whether those assets remain available to those trustees for the general creditors but subject to their possible liability for expenses as domini litus.The Principal Action
[6] As already described, the principal action seeks repayment of a bank loan made by the pursuers to the defenders and enforcement of the standard securities granted by the defenders in security of that borrowing. The three essential points earlier distilled by the court from the pleadings for the defenders as possible direct defences to the claim for repayment were (i) whether the pursuers were the correct creditors in the loan; (ii) whether the defenders had wholly or partially repaid the loan; and (iii) whether the loan was "void ab initio" by reason of some alleged breach of Bank of England supervisory arrangements. These were the subject of the preliminary proof before answer and have been decided adversely to the defenders. The concern which I expressed both during and at the conclusion of that preliminary proof respecting the difference in the interest rates stated in the certificate of balance issued in terms of the probative personal bond and the only contractual documentation produced by the pursuers has now been addressed by their legal advisors, with to my mind reprehensible belatedness (and only after an incompetent attempt to amend in terms of answers to the minute of amendment for Mr Conn which was not going to be moved). So, in itself, the defence to the principal claim is exhausted except insofar as the sums of money claimed by the defenders in their respective counterclaims, may be seen as proper grounds for retention against the pursuers' liquid claim. It is therefore necessary to turn to the counterclaims both of which were attacked in their entirety by counsel for the pursuers as being irrelevant.The counterclaims - introduction
[7] It has to be said at the outset that the pleadings for the defenders in the counterclaims have not been professionally compiled. In the case of counterclaim for the first defender, those pleadings are lengthy. Regrettably, they fall far short of the aim of pleadings in providing a concise, coherent statement of a party's position. The pleadings in question are often tendentious, repetitive and contradictory. Matters are not assisted by the first defender's blanket corporation into the pleadings of a lengthy discursive, and equally tendentious, report by a Mr Hartland and a report purportedly on behalf of the Citizens Advice Bureau. A conventional approach to the relevancy of the pleadings which proceeds upon their having been properly and professionally written is thus rendered difficult. However, having listened to Mr Frost over a good length of time, I hope I have been able in good measure to grasp the essentials of his position. The counterclaim lodged on behalf of the second named defender, Mrs Linda Frost, simply adopts the terms of the counterclaim for the first defender - Mr Frost - but with an additional claim which is effectively disposed of by the outcome of the preliminary proof. (That adoption imports possible technical problems dependent upon the extent to which the terms of the counterclaim for the first defender were to be remitted to proof). Mrs Frost did not present any separate oral argument but contented herself with adopting what had been said by her husband. [8] Leaving aside the conclusion in the counterclaim seeking the expenses of the counterclaim, the conclusions of the counterclaim are nine in number. The first and second conclusions seek to have the loan and hence the personal bond and standard securities reduced as a nullity but (subject to what is said in Statement 13, para [36] infra) this is simply a repetition of what was advanced in the defence to the principal claim and has been dealt with in the limited preliminary proof before answer. The ninth conclusion seeks interdict against the pursuers' taking possession of the defenders' property and is, I understand, ancillary to the now failed attack on the validity of the personal bond and standard securities. The remaining conclusions may, I think, be grouped as follows:-(a) Direct Claims
Conclusions 3-5 encompass a claim for payment to both defenders of two sums namely £2,000,000 and £5,000,000 which I understand to be losses alleged to have been sustained by breach of a contractual obligation alleged to have been owed by the pursuers to the defenders directly but arising out of what is said to be a wider contractual arrangement than the actual loan made by the pursuers to the defenders.
(b) Assigned Claims:
Conclusion 6 seeks payment to both defenders of £8,000,000 on the basis of claims for damages in respect of alleged breach of contract by the pursuers under contracts with certain limited liability companies, which claims are said to have been assigned to the first defender. The conclusion also appears to embrace a delictual claim by an individual, Alan Caine, also said to have been assigned to the first defender.
(c) Defamation and Miscellaneous Claims
Conclusion 7 seeks a declarator that "the pursuer" either solely or jointly with or as a manager or agent has defamed the first defender ...". The subsequent conclusion seeks payment to "the defender" of £1,000,000. It is not clear whether this conclusion is intended to encompass only damages for the alleged defamation or also to embraces certain other claims advanced by way of averment, such as claims for reimbursement of expenses said to have been the consequence of the employment of the first defender by the pursuers in connection with loan applications from the limited companies or other commercial entities.
I shall follow the broad heads flowing from that grouping of the conclusions in the counterclaim in considering, in light of the submissions of counsel, the relevance of the contentions which I have endeavoured to distill from the pleadings and Mr Frost's oral explanations. It should however be noted that the contention that the pursuers were prohibited from lending the money to the defenders by reason of an intervention by the Bank of England in the exercise of its supervisory powers also appears to underline much of what is claimed by the defenders in the lengthy counterclaim. For example, one finds in statement 15 an allegation (among others whose irrelevance is patent) of failure to operate "within the Bank of England's guidelines". A series of claims based on those alleged irregularities - "faults" to use the phrase in the defenders' pleadings - follows in some succeeding articles (16-24). Since these contentions do not survive my contrary finding after the preliminary proof before answer, my consideration and analysis of the counterclaim thus proceeds by endeavouring to identify within the counterclaim the possible grounds of action which do not proceed upon that mistaken basis.
The Direct Claims
[9] At the heart of this branch of the counterclaim is the contention that the loan made by the pursuers to the defenders was part of a "larger agreement" (c.f. conclusion 4), whereby the pursuers had agreed, subject to certain conditions, to provide funds to, among others, two companies namely Heathfield Ltd and Sabrebright Ltd. Since apparently those conditions could not be immediately satisfied by the companies, the defenders agreed to borrow from the pursuers the money now claimed in the principal action and to provide the security of Edenside House, Kelso, (which is the subject of the first standard security whose enforcement is sought) all with the purpose of passing those funds to Heathfield Ltd and Sabrebright Ltd until such time as the pursuers would lend money to those companies in terms of the arrangements between them and the pursuers. It is said that on that occurrence, the money borrowed by the defenders from the pursuers and passed to the companies would then be repaid to them by those companies and the defenders, in turn, could repay the sums originally borrowed by them from the pursuers. However, the pursuers did not, in the event, lend money to the companies in question and accordingly, it is said, the defenders did not receive reimbursement from the companies of the money which they advanced to the companies and thus the defenders were not in a position to make repayment to the pursuers. [10] As I understand it, the defenders' contention is that the fact that the pursuers did not, in the event, lend money to the companies constitutes a breach of a contractual duty owed directly by the pursuers to the defenders, in consequence of which breach the defenders have suffered loss. It is far from clear what heads of loss are being claimed. Even supposing that there were any merit in the contention that there was some wider contractual arrangement whereby a failure by the pursuers to lend to the companies constituted a breach of contractual obligation owed to the defenders, the loss sustained by the defenders would simply be the amount of money lent by them to the companies in question out of the funds advanced by the pursuers to the defenders. Yet the sums claimed are £2,000,000 and £5,000,000. [11] However, in my view the legal contention advanced by Mr Frost is fundamentally misconceived. The offer of loan of 15 May 1989 (No.7/1 of process), to the defenders makes no reference to any arrangement involving any company. It bears to be as a bridging loan pending the sale of Edenside House (the subject of the first of the standard securities) - see para.[14] of the opinion of 8 October 2003. I would also record that at one point in the course of his address to me at the debate, Mr Frost stated that the loan was indeed a bridging loan over Edenside until it was sold, since he and his wife were thinking of buying a small farm. The copy conditional offers of loan to Heathfield Ltd and Sabrebright Ltd (Nos.5/7 and 5/6 of process respectively) also make no reference to any loan to the current defenders. On the other hand, what is averred by way of a contractual relationship between the defenders and the companies is that following discussions about raising finance on security of Edenside House, on 3 March and 30 April 1989 Mr Alan Caine wrote to the defenders confirming his and the companies' guarantee that they would "repay Frosts' loan from the Unity money drawn down on Sabrebright Ltd and Heathfield Ltd - and in any event they would undertake to make good all monies and expenses no later than January 7, 1990". [Counterclaim, Stat 10, p34 ⅓] There is thus no proper basis in averment, or in the documentation lodged in process, for a multi-party contract of the nature contended for by Mr Frost. It is of course a common fact of commercial - and indeed non-commercial activity - that parties enter into contracts in the knowledge or understanding that the practical ability of one (or both) to perform may be affected by, or even entirely depend upon, the due performance by a third party of that third party's obligations under another contract or contracts, into which one of the original parties has entered. Knowledge or understanding that a commercial enterprise involves a combination or general arrangement of bilateral contracts, does not produce a single multilateral contract. Remedies have to be worked out in terms of the separate contracts in the overall arrangement. So, as was pointed out by counsel for the pursuers, if indeed the funds lent by the pursuers to Mr and Mrs Frost were thereafter lent by them to the companies in reliance on the letters from Mr Caine to which I have referred, the remedy of Mr and Mrs Frost is plainly that of suing Mr Caine and the companies on whose behalf he gave the undertaking or guarantee of repayment. If they be insolvent - which in the case of the companies I believe to be the case - that is, I am afraid, simply the misfortune of Mr Frost and, particularly, Mrs Frost. [12] The fundamental misconception in this branch of the counterclaim is, in my view, underscored by the fact that the first defender avers that he is the assignee of claims for damages by, among others, at Heathfield Ltd and Sabrebright Ltd for breach of the averred contracts of loan between those companies and the pursuers. If it be the case that the pursuers wrongly declined to make funds available to those two companies with the consequence that a claim for damages by the companies arises against the pursuers on the basis of the pursuers' breach of contract, it cannot be that a claim for the same loss arises directly to Mr and Mrs Frost. [13] In these circumstances I am satisfied that the direct claims advanced by the defenders in the counterclaim, are irrelevant and should not be admitted to probation. I turn now to the assigned claims.The Assigned Claims
[14] In the opening sentence of Statement 3 of his counterclaim, the first defender avers that he is the assignee of Alan Caine and a number of companies, including Heathfield Ltd and Sabrebright Ltd and reference is thereafter made to various "letters of assignment". While this averment is met by a simple denial by the pursuers, their counsel made no submissions regarding Mr Frost's title to sue as an assignee. I therefore proceed upon the basis that the existence of the first defender, Mr Frost's, title to prosecute claims on behalf of Mr Caine and the companies is not a matter for decision at debate. I was not referred to any of the letters of assignment. I was also not addressed by counsel for the pursuers respecting the purported adoption on behalf of the second defender - Mrs Frost - of conclusions in the counterclaim for the first defender which proceed upon the basis of an assignation to the first defender alone. In short, on the basis of the submissions to me no question currently arises for a decision on title to sue respecting the assigned claims. Such argument as was advanced on behalf of the pursuers related simply to the relevancy of the assigned claims.
[15] While the first defender avers that he is the assignee of claims against the pursuers at the instance of Mr Caine and a number of companies, the only companies to whom it is averred that the pursuers made specific offers of loan are Heathfield Ltd and Sabrebright Ltd. It is thus averred (page 33 1/2 of the record) that on 9 February 1989 an offer of loan of £150,000 was made by the pursuers to Sabrebright Ltd (No.5/6 of process) and (page 34 of the record) that loan facilities up to £500,000 (No.5/7 of process) were offered to Heathfield Ltd. It is not, I think, suggested that any other particular offers of loan facilities were made and indeed any specific averments to that effect are absent. So in respect of the assigned contractual claims one is thus concerned solely with possible claims for damages for breach of contract prestable against the pursuers by Heathfield Ltd and Sabrebright Ltd. [16] In their answer to Statement 10 in the counterclaim, the pursuers refer to those offer letters of 9 February 1989 and 7 June 1989 respectively to Sabrebright Ltd and Heathfield Ltd and aver that the conditions in those letters were never purified by the intended borrowers. No further specification is given of the respect or respects in which the conditions were not purified. Counsel for the pursuers submitted however that the pleadings advanced by the first defender, Mr Frost, as an assignee, were irrelevant in that it was not averred by him that the companies had satisfied the conditions in those offers. [17] In considering that submission from counsel for the pursuers, it should be borne in mind that the first defender avers that the officer of the pursuers with whom the companies had been dealing, Paul Theobald, advised the directors of the two companies in approximately September 1989 that Unity - the pursuers - was prohibited from providing the funding because it had "exceeded its statutory lending ratio". As a result of the evidence which I heard at the preliminary proof and as stated in my earlier opinion, I am satisfied that the pursuers were not in any way precluded by any Bank of England supervisory requirement from proceeding to fulfil their offers of loan to Heathfield Ltd and Sabrebright Ltd, should the conditions upon which the offers were made be satisfied. However, that finding of fact does not of course preclude the possibility that, as averred by the first defender, Theobald (who was not tendered as a witness at the preliminary proof) wrongly represented to the directors of Heathfield Ltd and Sabrebright Ltd that such a prohibition from the Bank of England had intervened and that, irrespective of whether the conditions attaching to the offer of loan might be satisfied, the pursuers would not be willing to lend in terms of their offers of loan. In such an event, there might be no reason for the intending borrower companies to endeavour to satisfy the contractual conditions, which include, for example, the provision of bank references. It is true that the first defender does not aver that if Theobald had not made the alleged representation that the pursuers could not implement their offers of loan by reason of the alleged exceeding of the "lending ratio", the intending borrower companies could, and would, have met the loan conditions. However, it appears to me that at best for counsel for the pursuers this is a rather narrow, technical pleading argument and it may be a nice point whether a party faced with an anticipatory breach or repudiation of a conditional contract who accepts the repudiation and seeks damages requires also to aver that if the contract had not been repudiated he would have yet satisfied the contractual conditions. I heard no argument on this point. Counsel for the pursuers made no reference to any authority - or indeed any reference to the nature of the conditions said not to have been satisfied. I do not consider that I could accede to the invitation from counsel for the pursuers to dismiss the assigned claims, without enquiry, simply on this narrow technical ground. [18] The second ground upon which counsel for the pursuers sought to criticise the relevancy of the assigned claims related to what counsel described as the omission from the pleadings of any relevant averment of a mechanism of loss. Where a bank, or other lender, declined to fulfil an offer to lend money to a commercial entity, the normal consequence would be that the intending commercial borrower would require to seek alternative finance on possibly less advantageous terms. But the counterclaim - insofar as it proceeds on the assigned claims - did not advance any claim based on increased finance charges for obtaining alternative finance for the proposed loan facilities of £150,000 and £500,000 respectively. Instead, what was claimed was a sum of £8,000,000 which was said to be the total amount of the loss incurred by the two companies when the ventures upon which they had embarked eventually foundered. [19] In response to this submission Mr Frost stated that the provision of bank finance was the key to the obtaining of other funds from the Welsh Development Agency, local authorities in Wales, and tourist boards. He referred to page 32 of the closed record in which reference is made to the need for bank finance to enable infrastructural work on inter alia the roads and sewage plant to be completed as a key to "unlocking the venture". The provision of those other funds from such agencies was, said Mr Frost, subject to "cut-off" dates and by the time Heathfield Ltd and Sabrebright Ltd were able to obtain new offers of finance from Barclays Bank, those cut-off dates had passed and consequently the enterprises were effectively doomed to failure. [20] I accept the submission of counsel that normally (c.f. the first branch of the rule of Hadley v Baxendale [1854] 9 Ex 341) the measure of damages flowing from a breach of a contractual undertaking to lend money will be the increased financial costs in obtaining alternative finance from another lending source. Although not articulated as such, Mr Frost's claim that delay in obtaining new finance entailed much wider consequential loss by reason of the averred inability timeously to take up the funding available from inter alios the Welsh Development Agency, invokes the second branch of Hadley v Baxendale. [21] While I accept the possibility that such a "second branch" claim may emerge in the context of a contract to provide finance, the relevancy of such a claim requires averments and proof of very special circumstances. In particular, in the present case, it would be necessary for the companies in question respectively to be able to aver and prove that at the time at which Unity offered facilities to them, Unity knew (i) that the projects were dependent upon funding from inter alios the Welsh Development Agency; (ii) that such funding was dependent on bank finance being available for the completion of the infrastructural works; (iii) that the availability of such funding was strictly dependent upon timeous provision of bank finance for those works; and (iv) that if they repudiated the offer to lend, the two companies in question might not get alternative finance within the timescales in question. [22] It is clear, but perhaps not surprising, that in the assigned claims the pleadings for the first defender do not address these issues in terms. But what is averred appears to me to be incompatible with any possible case under the second branch of Hadley v Baxendale. It may perhaps be inferred from the pleadings that, as a matter of averment, the pursuers' Mr Theobald was aware that the ventures of the respective companies involved the obtaining of finance for the Welsh Development Agency and other sources, but it is not averred that he was aware of any particular "cut-off" dates by which infrastructure on the sites had to completed. The offers of loan facilities made by the pursuers to the companies state that the purpose of each of the proposed loans is to assist in the purchase of land. They do not refer to the execution of infrastructural construction work. Perhaps more importantly, nothing is averred to suggest that it was in the contemplation of the parties to the offers of loan, either at the time at which the offers of loan were made, or indeed in September 1989, that the two companies in question could not have obtained finance from other sources in room of the pursuers, in order to proceed with their ventures on a timescale which would enable them to obtain the other funding from the additional sources such as the Welsh Development Agency. On the contrary, it is averred by the first defender that Sabrebright Ltd and Heathfield Ltd were offered "alternative funding" from Midland Bank, Barclays Bank and Business Mortgage Bank (closed record p.38) and that the purpose of the Heathfield loan (the purchase of the site from Saundersvale), was achieved with funding from Barclays Bank in March 1990 following what is described as "Alan Caine's partial recovery". That averment is preceded by averments to the effect that Mr Caine suffered a nervous breakdown by reason of the financial problems of the companies in question and required surgical treatment for a physical complaint which confined him to bed until February 1990. It should also be noted that it is averred by the first defender that Business Mortgage Bank offered finance in September 1989. So the only reasonable inference to be drawn is that if there were delay in the progress of the ventures of the companies that arose from the ill-health of Mr Caine. [23] In these circumstances I consider that no relevant claim at the instance of either Heathfield Ltd or Sabrebright Ltd has been averred. The averments which are made are inimical to any relevant ground of liability for what is now claimed. [24] The first defender also bears to pursue as assignee of Alan Caine a claim for damages for personal injury suffered by Mr Caine. This is the subject matter of statement 25 in the counterclaim. The damages claimed are £2,000,000 in respect of the "capital sum required to provide a similar lifestyle ... for Alan Caine to that which he enjoyed prior to his meeting with Unity", together with a further sum of £300,000 for loss which "he has personally suffered". The alleged basis for liability is unclear but appears to flow from the first defender's contention - which does not survive the preliminary proof - that the pursuers were precluded by the Bank of England from implementing their offers to make loans to the companies. But in any event, I do not see how an alleged breach of contract to lend money to a limited liability company can give rise to a claim for damages for personal injury by one of its directors. This assigned claim is, in my view, plainly irrelevant.Defamation and Miscellaneous
[25] In statements 30 and 31 of his counterclaim, the first defender seeks to advance a claim for defamation, reflected in conclusion 7. The only specific statement founded upon in the pleadings contained within statement 30 of the counterclaim as being defamatory is a recommendation said to have been made by an Ian Sim, a director of the pursuers, to - presumably - the board of directors in 1994 that the pursuers should seek to put the defenders into bankruptcy. Since the pursuers could properly take the view that the defenders were in default of their repayment obligations, this recommendation was not only justifiable but was, on any view, not a defamatory statement. [26] The succeeding article of the counterclaim, statement 31, opens with the general assertion that during 1994 and 1995 "the pursuer" made defamatory remarks. But the only specific statement of which notice was given is that:"On or about 14th October 1995, it is suggested (sic) that a Donny McLeod, a representative of clive (sic) Franks, Unity's lawyer, rang Mrs Eirlys Smith, Martin Frost's previous counsel, abused her verbally and threatened her not to assist with the Frost's Unity action. The above mentioned statements sere (sic) false and calumnious".
How such an allegedly abusive statement to a member of Faculty could give rise to the much wider dissemination and damage to reputation claimed in the later passages of statement 31 is unexplained in the averments.
[27] In the event I understood Mr Frost to agree that as pleaded, his allegations of defamation were irrelevant. At the continued diet of debate on 17 November 2004, he moved to amend his pleadings to make a more specific allegation of supposedly defamatory utterances by Mr Clive Franks, the pursuers' instructing agent in this litigation. I refused that motion on the primary basis that Mr Frost was seeking to amend his pleadings to make a claim against Mr Franks, who is of course not a party to these proceedings; but also because the minute of amendment was not in proper form and because of its lateness, thereby raising inter alia issues of limitation under Part III of the Prescription and Limitation (Scotland) Act 1973, as amended. In these circumstances, I am satisfied that no relevant claim against the pursuers for damages for defamation has been presented. [28] I turn now to the other, miscellaneous claims. Statement 26 contains claims for various sums said to be due by the pursuers, either to Mr Frost directly or to one of his cedents. These may be summarised as follows:-(a) A bill for a stay over a weekend in the summer of 1989 by Paul Theobald and companion at Heathfield Court is said to be owed by the pursuers (presumably to Heathfield Ltd).
(b) Paul Theobald, on behalf of the pursuers, is said to have instructed Mr Frost to review and report on the business of three customers and to ascertain the viability of Dryburgh Abbey Hotel and the purchase of land from that hotel. A sum respecting Mr Frost's time and outlays on this commission is averred to be unpaid.
(c) It is averred that in 1990 the pursuers requested that Mr Frost examine the viability of the pursuers' investment in Hartlepool. It is said that Mr Frost, accompanied by two Longcrofts' employees, spent two days in Hartlepool and a sum is claimed for this work.
(d) It is averred that the firm of Longcrofts conducted an extensive feasibility study into an ESOP scheme. The fee payable for this study commissioned by the pursuers is said to have been assigned ultimately to the first defender.
(e) A mid-week break taken in the summer of 1993 at Heathfield Court by an employee of the pursuers, Mr Michael Askey, and his family is said to be payable by the pursuers and still outstanding.
(f) Holidays are averred to have been booked and taken with Saundersvale Leisure Park by employees of the pursuers and the Co-operative Bank during the summer of 1993. It is said that these holidays were provided by Heathfield Court Ltd and that the entitlement of the latter to payments from the pursuers was assigned to the defender in May 1994.
[29] I was informed by counsel that despite the inclusion in each sub-head of statement 26 of averments purporting to incorporate an invoice brevitatis causa no invoices - or at least no invoices prepared prior to the dependency of these proceedings - have been produced. As I understood counsel, he did not claim that there was any fundamental irrelevance in these claims. He did say, as respects head (a) that there was no obligation on the pursuers as Mr Theobald's employer to pay for his weekend break. However, I think, the existence of such an obligation depends on the circumstances and one cannot at this stage exclude the possibility that the weekend break was authorised by the employer as one for which the employer would be responsible to the provider. For the rest, Mr Nicoll's faintly argued complaint was of lack of notice or specification. [30] While it is no doubt the case that each of these claims could be pled with greater precision (and probably would have been if each had been the subject of a separate or discrete action for payment in which the pleadings had been professionally drafted) I am not persuaded that the departures from the desirable standards of written pleadings are so grave as to warrant my treating these heads of claim as irrelevant and thus not worthy of probation. Enquiry would be necessary for their determination. [31] Statement 27 in the counterclaim makes a claim that the pursuers should repay to the defender "the following third party debts and/or payments wrongly made by the defender to the pursuer which were due by the pursuer but paid by the defender". The sum claimed is £97,435 broken down into three heads. Each of the heads refers to a report by Derek Hartland as giving further details. Neither Mr Frost nor counsel referred me to any passage in the Hartland's report (No.29/1 of process) and perusal of that report provides no enlightenment or assistance. The same applies as respects the Citizens Advice Bureau document to which reference is also made in the pleadings. As I understand it, the sums in question are the amounts said to have been incurred by the defenders, or the companies, in property valuations or other reports provided to support their respective applications for loan facilities. In my view, it is clear that a prospective lender may ask the prospective borrower to provide reports or valuations in support of his application for loan facilities and that the prospective borrower will normally be responsible for payment of the expenses thereby involved. It is clearly implied in the averments that the first defender, or the companies in question, duly made payment for such outlays or services commissioned by them. The basis upon which recovery of this expenditure is now sought from the pursuers is not explained in the pleadings and in his oral submission Mr Frost was not able to offer any suggestion of a legal basis which had any whiff of possible cogency. In these circumstances, I consider that this claim is also irrelevant and lacking any suggestion of potential relevance. [32] Statement 28 of the counterclaim contains a further claim for repayment to the first defender of sums said to have been wrongly deducted from the defenders' (joint) account with the pursuers. The only details given are in these terms:-"A. Interest amounting to £200,098 as scheduled by Unity;
B. Security fees amounting to £23,609 as scheduled by Unity and Hartland;
C. Legal and accountancy fees amounting to £11,500 as scheduled by Unity and Hartland."
Although this article of the counterclaim refers to a report by the Citizens Advice Bureau and I construe the reference to Hartland as a reference to the statement by Mr Hartland, I was not referred to any passage in either document and so far as I can see neither provides any real assistance. As best this article of the counterclaim may be understood, heads (B) and (C) relate to fees incurred by the pursuers to their solicitors and advisors respecting the loan facilities provided to the defenders, ultimate responsibility for which the conditions of the lending placed on the borrower. So the short answer is that the terms of the lending to the defenders makes these payable by the defenders. Head (A) remains inexplicable except to the extent that according to Mr Frost's oral presentation it involves some unspecified question as to interest on another bank account but Mr Frost was unable to give articulation to the nature of the issue or the legal grounds upon which the claim for repayment of the interest charged on that bank account now proceeded. In these circumstances, I have to say that I am placed in the position of being unable to detect any stateable ground for repayment by the pursuers of these sums.
[33] Accordingly, and in summary, the result of my examination of the terms of the counterclaim is that I must sustain the pursuers' challenge to its lack of relevancy and specification with the exception of those items claimed in statement 26. [34] In the argument which he addressed to me, Mr Frost spent some time on a submission that the answers to the counterclaim lodged by the pursuer were skeletal and lacked candour. He cited Ellon Castle Estates Co v MacDonald 1975 SLT (Notes) 66; Foxley v Dunn 1978 SLT (Notes) 95; and Gray v Boyd 1996 SLT 60. Given my decision on the relevancy of the counterclaim, this submission falls to be considered only as respects the claims in statement 26. I can deal with the argument shortly. It is clear from Gray v Boyd that, in the absence of admissions which require explanation to avoid consequent liability (as in Ellon Castle Estates), a party faced with a claim is entitled to deny it and put the pursuing party to his proof. In my view, as respects statements 26 the current nominal pursuers but real defenders, Unity, are entitled to take that standpoint though the consequence, as Mr Frost correctly observed in the course of his submissions, may be that the scope for Unity, as the defending party making that simple denial, to lead evidence may be much restricted. The decision to make such a simple denial, with its possible restrictions on their ability to lead evidence, was of course a matter for those acting for Unity in this process.The Counterclaims - two additional points
[35] There are two further matters arising out of the discussion regarding the counterclaim which, for the avoidance of possible future contention, I should record. [36] First, in amplification of what is stated in statement 13 in the counterclaim by way of a purported defence to repayment of the loan on the ground that the making of the loan was "unconscionable", Mr Frost stated that the interest rates contracted in 1989 under the loan were higher than the normal rates for ordinary lending for domestic purchase of houses which, said Mr Frost, indicated that the loan from Unity was for commercial purposes. That may be so, but it was simply a matter of assertion. In any event, in my view, it matters not. The suggestion in the pleading in statement 13 that the loan was governed by the Consumer Credit Act was - rightly - not pursued. The other point advanced by Mr Frost was that under current (2004) conditions, the rate of interest chargeable on this loan is much in excess of the current interest rates for such loans. That may also well be so but plainly the consequences of the higher interest rate by current standards follows from the decision of Mr and Mrs Frost to decline to pay the debt owed by them to the pursuers. So, in my view, there is no substance in the "unconscionable" argument. [37] Secondly, at the conclusion of his submission that in its entirety, the counterclaim was irrelevant, counsel for the pursuers then moved a motion (previously enrolled) that the court should grant the summary decree in terms of Rule of Court 21.2 in favour of the pursuers dismissing the counterclaim. Although it is clear that the Rule of Court is intended to give a party pursuing a claim the possibility of obtaining summary decree where the defending party has not presented any ground of possible defence, the Rule does not give the defending party a right to seek summary dismissal of his being confronted with a plainly irrelevant claim. Mr Nicoll submitted that the reference to pursuer and defender in the Rule should be taken literally with the consequence that in a counterclaim, the defending party (the nominal pursuer) could move for dismissal by way of summary decree, whereas the pursuing party (the nominal defender) had no such opportunity of moving for summary decree in the counterclaim. In my view, the absurdity of that proposition requires no underscoring. And the presentation of the motion, following a full debate on the pleadings, demonstrates a similar misunderstanding of the purpose of the Rule of Court. I have no hesitation in rejecting this motion.Retention as a defence
[38] Having found that a part of the counterclaim is sufficiently pleaded to be relevant for enquiry, the question then arises whether it may be treated as a relevant defence, wholly or in part (depending on the relative magnitude of the sums involved), to the principal claim for repayment of the loan made to both defenders in 1989. Counsel for the pursuers submitted that in light of the personal bond, the principal claim advanced by the pursuers was a liquid claim, whereas all the claims under the counterclaim were illiquid. Such illiquid claims, he said, could not be set off as against liquid claims. Counsel for the pursuers did not offer any assistance to the court by referring to any authority on this topic, except, after prompting by the court, a solitary reference to Scottish North Eastern Railway Company v Napier (1859) 21 D 700. On the other hand, a relatively simple, but clear and accurate, exposition of the law in this area is to be found in the late Professor Wilson's work on "The Scottish Law of Debt" (2nd Edition) Chapter 13, to which Mr Frost was helpfully alert to refer in the course of his submission. I quote from paragraph 13.1:-"If there are two separate debts, there arise two distinct questions which are often confused. The first is: in an action for debt it is a relevant defence to plead that a debt is due by the pursuer to the defender? The second is: in an action for debt, what types of debt can form the basis of a counterclaim by the defender? The answers to these questions are not necessarily the same because a debt due by the pursuer to the defender may be the basis of a counterclaim, even although it is not a relevant defence; the pursuer will be granted decree for the full amount of his claim but the counterclaim may be allowed to continue as a substantive action.
The answer to the first question is that the debt is a relevant defence only in circumstances where the doctrines of compensation, balancing of accounts in bankruptcy or retention operate.
Compensation under the Act 1592, c.143 operates where both debts are liquid and certain other conditions are fulfilled; retention operates where both debts, liquid or illiquid, arise out of the same contract; balancing of accounts in bankruptcy operates where the creditor or debtor in the liquid claim is bankrupt. If one of these doctrines is applicable then the pursuer's claim is extinguished or reduced pro tanto. If none of these doctrines is applicable, the existence of the defender's claim is no defence and is no bar to the pursuer's obtaining decree for his claim because it is clearly established that in general an illiquid claim is not an answer to a liquid claim. As has already been indicated, however, this does not necessarily mean that the debt due to the defender cannot form the basis of a counterclaim".
Operative Decision
[42] I shall grant decree for payment in terms of the first crave of the initial writ and for declarator in terms of the remaining craves. I find the counterclaim for the first defender to be irrelevant except for the claims advanced in statement 26 thereof. Accordingly I shall exclude from probation all of the claims, except those in statement 26 respecting which I shall allow a proof before answer. Despite the blanket adoption in the counterclaim framed for the second defender, it is, I think evident that what is advanced in statement 26 cannot be a claim at her instance. I shall accordingly dismiss as irrelevant the counterclaim of the second defender.