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Friends Provident Life And Pensions Ltd v. McGuinness [2005] ScotCS CSOH_72 (03 June 2005)

OUTER HOUSE, COURT OF SESSION

[2005] CSOH 72

A829/04

OPINION OF LORD MACKAY

OF DRUMADOON

in the cause

FRIENDS PROVIDENT LIFE & PENSIONS LIMITED

Pursuers;

against

JOHN McGUINNESS

Defender:

________________

Pursuers: Moore, Solicitor Advocate, Q.C. ; H B M Sayers

Defender: Thomson, Summers ; Blacklock Thorley

3 June 2005

Introduction
[1] This is an action in which the pursuers conclude for payment of £627,408.31 by the defender. In terms of Conclusion 1 of the summons, the pursuers seek repayment of that sum of money, which they aver that they paid in error to the defender on 26 November 2004.

[2] The background to the pursuer's claim is as follows. On 25 November 1998, the defender effected a single premium with profit bond with the pursuers ("the policy"). When the policy was effected, the defender made a starting investment of £750,000. On 15 November 1999 the defender assigned the policy to the Royal Bank of Scotland ("the Bank"), in security of certain obligations owed to the Bank by the firm of W. Haughey, D.W. Keane and J. McGuinness, in which the defender was and remains a partner. In November 2004, the defender sought to surrender the policy to the pursuers. The pursuers agreed to do so and they paid him the sum of £627,408.31. It is averred on behalf of the pursuers that they did so in ignorance of the fact that the policy remained assigned to the Bank. No retrocession of the assignation has ever been granted. It is averred that the pursuers' error arose because their electronics records indicated that with effect from 16 June 2004 the assignation of the policy in favour of the Bank no longer existed. It is averred that those records noted erroneously that the reversionary interest in the policy had reverted to the defender. Indeed, during the hearing before me, it was made clear on behalf of the pursuers that in October 2004 they had advised solicitors acting for the defender that their records showed the policy to have been reassigned by the Bank in June 2004. The defender himself had been similarly informed, during various telephone conversations between the members of the pursuers' staff and him, in October and November 2004.

[3] The current action was raised in December 2004. On 10 December 2004 Lord Abernethy granted interim interdict against the defender from dissipating, dealing with, making over to a third party or in any way intermitting with the funds in the sum of £627,408.31 that had been paid to him in error on 26 November 2004.

[4] An Open Record was lodged on 25 February 2005. In his written defences, which form part of the Open Record, the defender admitted making an application to surrender the policy and to having received payment of £627,408.31. The defences did not admit, however, that the Bank has never retrocessed the policy to the defender.

[5] On 14 February 2004 the pursuers' solicitors wrote to the defender's solicitors, intimating their intention to enrol a motion for summary decree in this action on 15 March 2005. The pursuers had previously lodged various documents relating to the policy, including the assignation of the policy in favour of the Bank, which was granted by the defender on 15 November 1999. The original inventory also included a fax message dated 8 December 2004, which the Bank had sent to the pursuers, asking the latter to confirm that the policy remained in place and that their records confirmed the existence of the assignation in favour of the Bank. With the letter of 14 February 2005, the pursuers' solicitors enclosed a copy of a letter dated 4 February 2005, which the pursuers had received from the Bank. That letter of 4 February 2004 stated in terms that the policy had not been re-assigned by the Bank to the defender. The letter of 14 February 2005 suggested to the defender's solicitors that it was incumbent on the defender to produce documentary evidence that the policy had been re-assigned or, in the absence of such documentary evidence, clear information as to the circumstances in which the re-assignation took place, along with details of the persons that the defender had dealt with.

Motion for summary decree
[6] At the hearing of the motion for summary decree on 17 March 2005, the pursuers were represented by Mr Moore, Solicitor Advocate, Q.C., and the defender by Mr Howie, Q.C., and Mr Summers, Advocate.

[7] In moving me to grant summary decree for payment, in terms of the first conclusion of the summons, Mr Moore referred to the various productions which the pursuers had previously lodged. He also referred to an affidavit by Derek Charles Edwards, an employee of the pursuers, and one by Lynn Mhairi Hunter, a manager with the Royal Bank of Scotland, which had been lodged in process. Those affidavits expanded upon the information contained in the summons and the productions that had previously been lodged. Attached to the affidavit of Derek Charles Edwards were transcripts of the various telephone conversations between the defender and members of the pursuers' staff, which had taken place during October and November 2004.

[8] Mr Moore argued that no relevant defence had been pled to the conclusion for payment. He submitted that it was not a defence to the action for the defenders merely to say that the payment had been made as a consequence of error on the part of the pursuers. The pursuer had themselves averred that the payment had been made in error. They accepted that prior to the defender seeking to surrender the policy on 5 November 2004, they had stated to the defender and to his solicitors that the policy had been re-assigned in favour of the defender. The Bank had stated, however, that had not occurred. The raising of the action and the letter of 14 February 2005 to the defender's solicitors had afforded the defender ample opportunity to produce evidence that the Bank were in error in stating that the policy had never been re-assigned by them. The defender had failed to do so. His defences contained no averments to that effect. In these circumstances, summary decree should be granted.

[9] In replying to these submissions, Mr Howie moved me to continue the motion. He stated that he wished to take instructions on the issues that had been raised. He informed me that the defender's position was that the pursuers had told him the policy had been retrocessed. The defender assumed that he must have lost the policy document, after it had been returned to him by the Bank. Mr Howie explained that he had no instructions as to when any retrocession had been granted, nor as to whether, and if so when, a retrocession had come into the possession of the defender. He explained that the defender was involved with Mr Keane and Mr Haughey. The defender had understood that Mr Keane had been making efforts to seek the release of various securities granted to the Bank. The defender had relied on what he and his solicitors had been told by the pursuers.

[10] Mr Howie submitted that the question of whether the error was excusable, as opposed to being crass and inexcusable, was relevant to whether the sum paid to the defender was repayable by him. During the course of his submissions Mr Howie said nothing about the defender wishing to raise the issue as to whether the pursuers' attempt to seek recovery of the surrender value of the policy should be refused on the grounds of equity, let alone anything relating to the factors upon which any such line of defence based on equity would depend. Mr Howie confined his submissions to saying that the defender would be prejudiced if no adjournment was allowed and summary decree was granted. As far as the pursuers' position was concerned, that was protected by the interim interdict they had been granted and the fact that diligence, by way of arrestment, had caught funds of the defender extending to £140,000. Mr Howie suggested that an adjournment was required to allow him to take instructions and to investigate how the error made by the pursuers had arisen.

[11] Mr Moore opposed any continuation of the motion. He submitted that it was quite clear that the defender had adopted a leisurely manner towards investigating the factual circumstances giving rise to the action. In that regard, the terms of the letter of 14 February 2005, which had been sent to the defender's solicitors, had been ignored.

[12] During the course of the hearing no authorities were cited to me. Having regard to the terms of the parties' pleadings, the productions lodged by the pursuers, the contents of the affidavits lodged by the pursuers, the correspondence upon which Mr Moore founded and the submissions I heard, I reached the conclusion that I should grant summary decree for payment of £627,408.31, together with interest on that sum and the expenses of the action. In my opinion, the defender's pleadings, as set out in the Open Record, contain no positive line of defence. At their very highest, all the defender's averments seek to do is to put the pursuers to the proof (a) that the Bank had never re-assigned the policy to the defender and (b) that when the pursuers redeemed the policy they had been erroneously understood that the Bank had re-assigned the policy to the defender. The pursuers, of course, accept that prior to 5 November 2004 they had the defender and his solicitors that the policy had been re-assigned to the defender.

[13] In light of the terms of the defender's pleadings and the submissions I had received, I was satisfied that no relevant defence to the action had been disclosed in the written defences or had been put forward on behalf of the defender. Standing the terms of the letter of 14 February 2005, and its enclosure, and bearing in mind that the defender had been given four weeks notice of the enrolment of the motion for summary decree, I saw no reason to continue the hearing of the motion to allow further instructions to be taken from the defender. In my opinion, there had been ample opportunity for those acting for the defender to take full instructions from him on the various factual matters mentioned in the summons, the documents lodged by the pursuers when the summons called and the contents of the letter attached to the pursuers' solicitors' letter of 14 February 2005. As Mr Howie himself said, he could not argue with that correspondence. On 24 March 2005, I pronounced the appropriate interlocutor granting decree in favour of the pursuers.

Motion for leave to reclaim
[14] A motion for leave to reclaim was enrolled. This motion first came before me on 5 April 2005. On that occasion the pursuers were represented by Mr Moore and the defender by Mr Thomson, Advocate. In addressing me in support of the motion for leave to reclaim, Mr Thomson embarked upon submissions which involved his setting out and developing various grounds on which the defender wished to defend the action. These grounds had not been mentioned in the written defences or during Mr Howie's submissions on 17 March 2005. In view of the fact that inadequate time had been allocated for the hearing of the motion for leave to reclaim, the hearing was continued until 14 April 2005.

[15] By 14 April 2005, Mr Thomson had drafted and lodged in process a Statement of Position, which set outs, in considerable detail, the grounds upon which the defender seeks to defend the action. This document, which I had suggested to Mr Thomson he might lodge, incorporated the submissions he had made on 5 April, developed them and added certain others.

[16] Prior to the hearing on 14 April 2005, Mr Thomson had arranged for the defender to provide an affidavit. This had lodged in process. Furthermore, he had arranged to have lodged in process draft adjustments to the Open Record, which had been prepared by Mr Howie and Mr Summers before the hearing on 17 March 2005, and which had been referred to by Mr Howie, during the course of his submissions that day, but which Mr Howie had never sought to lodge during the course of the hearing.

[17] In developing his submissions on 14 April 2005, Mr Thomson made clear that the defender's instructions had now changed. The defender now accepted that the Bank had never retrocessed the assignation of the policy, which he had assigned in the Bank's favour. Mr Thomson explained that the defender now sought the opportunity of defending the action on a number of grounds. These were set out in the Statement of Position document, whose terms are self-explanatory. There is no requirement for me to set them out in detail. Put shortly they are (i) that having required the defender to sign an indemnity, before making payment to the defender, and having thus acquired a contractual remedy against the defender, the pursuers were not entitled to seek a remedy under the condictio indebiti (Para.6), (ii) that the pursuers are personally barred from seeking the remedy of repetition under the condictio indebiti (Para.7), (iii) that the remedy of repetition under the condictio indebiti should be refused by reason of the defender having changed his position in having ceased, at least in part, to be enriched by the payment he had received (Para.8) and (iv) that the remedy of repetition under the condictio indebiti being an equitable remedy, in the circumstances it would be inequitable to grant that remedy (Para.9).

[18] When dealing with the terms of paragraph 6 of the Statement of Position, Mr Thomson referred to Haddon's Executrix v Scottish Milk Marketing Board 1938 S.C. 168 and in particular to the Opinion of Lord Carmont at p.175. In relation to paragraph 7, Mr Thomson referred to Unjustified Enrichment: Jones, at paragraph 10.09.

[19] When dealing with Paragraph 9 of the Statement of Position, Mr Thomson made reference to Morgan Guaranty Trust Company of New York v Lothian Regional Council 1995 SC 151, per Lord President Hope at p.166A-B. Mr Thomson submitted that the nature of the error, which had been made by the pursuers, was a factor which ought to be taken into account in considering the whole equities of the situation. He contended that, whilst it may be difficult to say that there had been crass error on the part of the pursuers, the nature of the error and how it had occurred were not clear. The circumstances relating to the actings of the pursuers in making the payment in error were relevant as to whether, as a matter of equity, the pursuers were entitled to the remedy they sought.

[20] Mr Thomson explained that the defender was not a man of business. He had won £10 million on the Lottery. He had become involved with Mr Keane and Mr Haughey, but was now in dispute with Mr Haughey. He had been told by the pursuers that the Bank had released their security over the policy, that they no longer held an assignation in respect of the policy and that they had released the policy. The defender had acted in good faith in surrendering the policy and seeking repayment of the funds held in the policy. Following receipt of that payment he had transferred £400,000 to his wife and paid off another creditor. Mr Thomson submitted these were all factual matters that could only be established after proof.

[21] Under reference to Paragraph 10 of the Statement of Position, Mr Thomson very fairly recognised that none of the foregoing arguments had been developed during the course of the hearing on the motion for summary decree. He submitted that they nevertheless constituted arguable lines of defence to the action and argued that, had these submissions been advanced during the hearing on 17 March 2005, I would not have been satisfied that there was no valid stateable defence to the action. As far as the test that required to be met by a pursuer seeking summary decree was concerned, reference was made to the authorities mentioned in the annotations to Rule of Court 21.2 in the Parliament House Book (C/171) and, in particular, to P & M Sinclair v The Bamber Gray Partnership 1987 S.C. 203.

[22] Mr Thomson argued that because I was dealing with what was, in effect, a final decree in the action that had a bearing on whether I should exercise my discretion to grant leave to reclaim. He recognised that if I granted leave to reclaim the question of the expenses that had been incurred in connection with the hearings on 17 March 2005, 5 April 2005 and 14 April 2005 would require to be dealt with. He submitted, however, that any award of expenses against the defenders should not be made a condition precedent of the defender being granted leave to reclaim.

[23] In responding to those submissions Mr Moore also founded on the passage from the case of Morgan Guaranty to which I have referred. He stressed that the nature of the error only became relevant when the defender raised the question of the equities of repayment. The onus was the defender to make the necessary averments. He argued that the court could not be satisfied on the basis of what had now been raised by Mr Thomson that the defender had a stateable defence.

[24] Mr Moore argued that in relation to all of the grounds of defence, set out in the Statement of Position, two matters were of importance, namely (a) the defender claimed to have spent a proportion of the sum he had been paid by the pursuers and (b) the defender also claimed to be unable to repay the sum which he had been paid by the pursuers. As far as the first of these matters was concerned all the court was being told that the defender had transferred £400,000 to his wife and paid an unspecified amount to an unspecified creditor. The level of detail in the defender's affidavit was such that it raised a number of significant questions. Furthermore, there had been no reference to any payment to the defender's wife in the submissions advanced by Mr Howie or in the draft adjustments, which he and Mr Summers had prepared.

Discussion
[27] The history of the hearings before me is unusual. I remain of the view that in the light of the submissions I received on 17 March 2005, the appropriate course of action for me to follow was to grant summary decree for payment of the sum concluded for. However, in the light of the submissions I have heard from Mr Thomson, I have reached the conclusion that had such submissions been placed before me on 17 March 2005 I would not have granted summary decree. I would not have reached the conclusion that the defender did not have a stateable defence to the action. In expressing that conclusion I wish to stress, of course, that I did not hear full submissions on all the issues raised by Mr Thomson. Nevertheless, I have reached the view that had I received on 17 March 2005 the submissions, which I subsequently received from Mr Thomson, I would not have that ought it appropriate to grant summary decree for payment of the sum claimed by the pursuers.

[28] In these circumstances, in the exercise of my discretion, I reached the view that I should grant leave to reclaim my interlocutor of 24 March 2005.