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OUTER HOUSE, COURT OF SESSION
[2006] CSOH 150
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A427/05
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OPINION OF LADY
CLARK
OF CALTON
in the cause
INN SPIRIT LIMITED
(IN LIQUIDATION)
Pursuer;
against
SCOTTISH WIDOWS plc
Defender:
________________
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Pursuer:
J. Mitchell, Q.C; Tods Murray LLP
Defender: Currie, Q.C.; Maclay Murray & Spens
28 September 2006
Introduction
[1] This
case came before me on the Procedure Roll on 11 and 12 May 2006 to consider the defender's first
plea-in-law directed to the relevancy and lack of specification of the
pursuer's pleadings. The pursuer is a
company incorporated under the Companies Act, with a registered office in England
and placed in compulsory liquidation on 13
March 2002 in proceedings in the High Court of Justice in England. The pursuer acts by its liquidator, Mr Steven Williams,
who was appointed with effect from 14
March 2002. Prior to the
pursuer's liquidation, Mr Stuart James Burns ("Mr Burns") was one of its
directors and his wife, Mrs Anne Alice Burns, ("Mrs Burns") was
its company secretary. The defender is Scottish
Widows plc, a company incorporated under the Companies Act having its
registered office and domicile in Scotland.
[2] In
the present action, the pursuer seeks to recover from the defender firstly, a
sum of £124,919.68; and secondly, a sum of £21,414.24. The grounds of action are complex. In summary, there is a claim, supported by the
first plea-in-law for the pursuer, based on a statutory assignment under
English law in terms of section 126 of the Law of Property Act 1925 or in
equity; separately, a claim in delict for damages supported by the second and
third pleas-in-law; and, separately, a claim based upon constructive trust et separatim equitable compensation supported
by the fourth plea-in-law. The pleadings
are set out in a Closed Record of 50 pages and referred to numerous documents, some
of which are referred to for their terms and held incorporated into the pleadings
brevitatis causa.
The Pursuer's Pleadings
[3] Articles
1-9 set out a history relating to the pursuer and the actings of
Mr and Mrs Burns, which led to a series of injunctions issued in
court proceedings in England. It is not in dispute in this case that none
of these injunctions were of legal effect within the Scottish jurisdiction. That history, set out in the pleadings, may
be summarised as follows. Following the
sale of the pursuer's business and the transfer of over £2 million to the pursuer's
business reserve account with the NatWest Bank, Mr and Mrs Burns instructed the
NatWest to transfer approximately £2 million into their account at Lloyds
TSB. It is averred that they did so
unlawfully, causing loss and damage to the pursuer and giving rise to legal action
on behalf of the pursuer. On 22 October 2001, it is averred
that Mr and Mrs Burns used some of the unlawfully misappropriated monies
to purchase various investment policies from the defender as follows: firstly,
"Mr Burns' Bonds" valued at approximately £300,000; secondly, "Mr Burns'
Unit Trust" valued at approximately £400,000; and thirdly, "Mrs Burns' Bonds"
valued at approximately £300,000. It is
averred that the law of the contract between Mr Burns and the defender in
relation to "Mr Burns' Bonds" is the law of England
and Wales. On 19
March 2002, the pursuer commenced proceedings in the English High
Court in respect of the misappropriated monies. The pursuer first obtained injunctive relief on
15 March 2002 effective
until 22 March 2002. Thereafter injunctions were continued on
various dates by further order of the Court until judgment. The terms of the orders made were not
identical. The proceedings came to trial
in England on 6 October 2003. On being satisfied that Mr and Mrs Burns
had acted in breach of their fiduciary duties to the pursuer and in breach of
trust by causing and/or procuring the transfer of the misappropriated monies on
28 September 2001, judgment
was made against them for a sum in excess of £2 million. It was also declared (1) that the pursuer
was/is beneficially entitled to the Scottish Widows investments and various
other assets acquired by or representing the misappropriated monies ("the
traceable assets") and (2)"the traceable assets" were/are held upon trust for
the pursuer to the extent that the same had not already been delivered up by
and/or paid and/or transferred to the pursuer.
[4] It
is against that historical narrative that the pleadings are developed. It is necessary to look in detail at the
averments of the pursuer in article 10 to article 23 of condescendence as it is
in these articles that the pursuer attempts to found the various cases pled
against the defender. It is these
articles which were the subject of criticism by senior counsel for the defender.
[5] In
article 10 of condescendence, the pursuer makes averments that the defender is
and at all material times has been part of the Lloyds TSB banking group. Detailed averments are made about letters
from the pursuer's solicitors (Halliwell Landau) to a branch and various departments
of Lloyds TSB which included copies of orders made in the English High Court in
relation to Mr and Mrs Burns and the misappropriated monies. Averments are then made about correspondence
from the defender's Mr Cunningham to Halliwell Landau in a letter dated 4 July 2002 in which it is
stated:
"We are aware of
the circumstances you have referred to in your letter. However, I can confirm that we have now
complied with the Court Order and marked our records accordingly ..."
[6] In
article 11 of condescendence, averments are made to the effect that the
defender had been notified of the initial without notice order made by
HHJ Hegarty Q.C. on 15 March
2002 by facsimile to the defender's unit trust administration department
on 19 March 2002. The averments detail part of the terms of the
order and some information about the effect of the order. It is then averred that the defender had also
been provided with a copy of the order made on 3 May 2002 by a further facsimile from Mr Ruby (of
Lloyds TSB) to the defender's legal department dated 4 July 2002.
It is averred that this fax led to the letter to Halliwell Landau dated 4 July 2002.
[7] In
article 12 of condescendence, the pursuer avers that legal proceedings were
progressed in relation to charging and third party orders against the Scottish
Widows investments. The only intimation
to the defender averred is that an interim
charging order was subsequently made against Mrs Burns' bonds on 29 August 2002, and was made final at
a further hearing on 14 October 2002. Further averments are made as follows. A copy of that application together with a
copy of a statement from Mr Vickery (of Halliwell Landau), his exhibit and
the interim charging order was sent
to the defender under cover of Halliwell Landau's letter dated 9 September
2002. Said letter of 9 September was
sent to the defender's office situated at Second Floor, 33
Chancery Lane, London
pursuant to a telephone conversation which took place on 22 August 2002 whereby Mr Vickery was provided by
one of the defender's representatives with that address for the purposes of
service within the jurisdiction of the English High court. Said letter was subsequently acknowledged by
a letter dated 19 October 2002
from Gill Smith, customer services department, at the defender's Head Office in
Edinburgh. By said letter the defender confirmed that "the
Court Order has been noted on our records and held in our file".
[8] Article
13 of condescendence sets out averments about the history in the English High
Court of applications made by the pursuer for charging orders against Mr Burns'
Bonds and Mr Burns' Unit Trust. It is
averred that although interim charging orders were made on 14 October 2002, copies were not served on the
defender until late December 2002 by letter dated 23 December 2002, sent to the defender's offices in Edinburgh. I might usefully comment at this stage that, by
that date, the events complained of in article 19 of condescendence had
occurred.
[9] Article
14 of condescendence deals with a new matter.
The pursuer avers that in a letter dated 17 October 2002 from Mr and Mrs Burns to the defender
and signed by both of them, Mr and Mrs Burns instructed the defender in terms of
the letter. The terms of the letter are
incorporated into the pleadings and are to be found at 6/36 of process. This is referred to by the pursuer as "the
authority letter".
[10] In article 15 of condescendence, the pursuer avers that the
authority letter represented the culmination of a series of communications
between the pursuer, acting by Halliwell Landau, and Mr and Mrs Burns acting by
themselves and by their solicitors and reference is made to various
communications, none of which is averred to involve the defender. It is averred that the authority letter was then
signed by Mr and Mrs Burns and was sent by them to the defender and copied
to Halliwell Landau.
[11] In article 16 of condescendence, it is averred that on various
dates between 17 October 2002
and 1 November 2002, there
were a number of telephone conversations between Miss Williams (from Halliwell
Landau) and various representatives of the defender. These communications related to the status of
Mr and Mrs Burns' Bonds and Unit Trust and whether the former could be
transferred into the name of the pursuer and whether the latter could be
encashed and paid to the pursuer. Various
specific averments are made as follows. On
29 October 2002, Miss Williams in conversation with a Lynn Massey,
referred to the interim charging order against Mr Burns' Unit Trust and
Miss Massey confirmed that the charging order was noted on the defender's
computer records and she agreed that the same prevented the defender from
paying the proceeds of Mr Burns' Unit Trust to Mr and Mrs Burns. On 30 October 2002, Miss Williams in
conversation with an unknown representative of the defender was told that although
the defender had a general policy of not paying the proceeds of its policies to
anyone other than the relevant policy holders, the existence of the court order
and the fact that the court order was on file would by-pass that general
rule. Miss Williams was also
informed that the pursuer's request for Mr and Mrs Burns' Bonds to be
transferred into its name and for Mr Burns' Unit Trust to be encashed and
paid to it had been transferred to the defender's in-house legal department. There are also averments about telephone
calls by Miss Williams on 31 October to the defender's unit trust managers' department
where a person called "Kevin" eventually indicated that the defender's risk
control department were of the opinion that the defender could comply with the
pursuer's request but that confirmation was needed from the defender's legal
department. On 1 November 2002 "Kevin" indicated that the
legal department was considering the pursuer's request that day and hoped to be
able to confirm the legal department's advice by the end of the day.
[12] In article 17 of condescendence, it is averred that by a letter
sent by both fax and post, dated 5
November 2002, Miss Williams wrote to the defender and specifically
to "Kevin". Copies of the interim
payment order made on 31 July 2002
and the authority letter were sent. The
communications stated that the pursuer enjoyed the benefit of both the interim
charging order against Mr Burns' Unit Trust and the proprietary injunction over
all the Scottish Widows investments and that the pursuer was not prepared
to permit any payment to Mr and Mrs Burns because of the risk of
dissipation. Various requests to confirm
various matters by return were made. An
offer to assist with the payment and transfer is also averred.
[13] In article 18 of condescendence, the pursuer avers that on 6
November 2002 a letter was sent from Halliwell Landau to Paul Smith believed to
be a unit trust administrator working in the defender's client service division
unit trust department. Said letter
referred to a conversation between the two men in which concerns were raised by
the defender's legal department that any payment to the pursuer would be in
breach of the freezing and proprietary injunctions and/or the charging orders
over Mr and Mrs Burns' Bonds and Mr Burns' Unit Trust. A further copy of Mr Justice Rimer's
order was enclosed and attention drawn specifically to the exception set out in
paragraph 8.3. A further fax from
Halliwell Landau to Mr Smith on 8
November 2002, stated inter
alia that:
"my client would
wish to have confirmation in writing that the With Profits Bonds will be held
to the order of Inn Spirit Limited (acting by its Liquidator Steven Williams)
and that no payment or encashment or other disposal or dealing with these bonds
would be carried out at the direction or request of Mr and Mrs Burns or
any other person ...".
A response by fax by Mr Smith
stated: "The with profit bonds are being kept and you should receive
confirmation of this within the next week".
During a telephone conversation on 8 November 2002, it was confirmed by Mr Smith that the
proceeds of Mr Burns' Unit Trust, approximately £382,000, would be telegraphically
transferred to Halliwell Landau's client account on 8 November 2002.
[14] It is in article 19 of condescendence at page 37 of the Record
that we come to the averred factual basis of the pursuer's complaint against
the defender. The pursuer avers that on 8 November 2002, the sum of
£397,173.09 was received into Halliwell Landau's client account
representing the realised proceeds of Mr Burns' Unit Trust. The pursuer makes no complaint about
that. On 8 November 2002, Mr and Mrs Burns' Bonds were also
encashed by the defender and paid by cheque directly to Mr and Mrs Burns and
not to the pursuer. It is averred that £260,782.14
plus some interest was paid to Mrs Burns and £261,782.04 plus some interest was
paid to Mr Burns following the deductions of Market Value Reductions (of £26,852.33
and £26,889.08 respectively) and Early Surrender Penalties (of £10,724.75
and £10,689.49 respectively).
[15] In article 20 of condescendence, it is averred that the pursuer
has made recovery in respect of Mrs Burns' Bonds but in respect of Mr Burns'
Bonds there is a shortfall in recovery of £124,919.68. That is the sum which is referred to in the
first conclusion.
[16] In article 21 of condescendence, the pursuer makes averments in
relation to assignment and the first plea-in-law. I deal with this at paragraphs 39 to 42.
[17] In article 22 of condescendence, the pursuer makes averments to
underpin the case of fault and negligence supported by the second and third
pleas-in-law. I deal with this in
paragraphs 20 to 38.
[18] In article 23 of condescendence, the pursuer makes averments to
underpin the fourth plea-in-law in relation to breach of constructive trust et separatim equitable compensation and
I deal with this in paragraph 43.
[19] Finally, in article 24 of condescendence, the pursuer makes
averments about the early surrender penalties which I understand from the
submissions on behalf of the pursuer are intended to form the basis of
conclusion 2. I deal with this in
paragraph 44.
Negligence
[20] The main discussion at Procedure Roll was concerned with the
part of the case to which article 22 is crucial. Although some of the documents were
incorporated into the pleadings, some were not.
In his submission, senior counsel for the defender made reference without
objection to many of the documents lodged as productions. I found that helpful in trying to put some of
the voluminous pleadings into context. I
am of the opinion, however, that does not entitle me to go beyond the pleadings
and make decisions about documents which are not incorporated in the
pleadings. There was no dispute before
me that the law applicable to this part of the claim is the law of Scotland.
[21] In article 22 of condescendence, the pursuer avers that there
existed a special relationship of sufficient proximity and foreseeability of
damage between the pursuer and the defender involving an assumption of responsibility
by the latter to the former and relied upon by the former in relation to the Scottish
Widows investments and in particular Mr Burns' Bonds. In the circumstances condescended on, it is
averred the defender owed a duty of care to the pursuer in relation to the
Scottish Widows investments and the said bonds, it being fair and reasonable to
impose such duty on the defender in the circumstances condescended on. It is important to note at this point that no
further specification is given as to which circumstances are averred to be
relevant for these purposes. The
circumstances condescended on are narrated over some 44 pages. It is averred that in paying the proceeds of
Mr Burns' Bonds to Mr Burns, the defender acted in breach of that duty at
a time when the defender was aware of the pursuer's claims, the High Court
action against Mr and Mrs Burns and the various orders made therein and
secondly, that it had communicated with the pursuer and Mr Burns "as above"
which appears to be a reference to the various communications averred in
condescendence 10 to 19. It is further
averred that the pursuer relied upon the defender's repeated assurances that
the relevant court orders were being complied with. But for these repeated assurances, it is
averred the orders could have been formally registered and enforced in Scotland. The pursuer avers that, in so acting, the
defender caused the said loss of damage namely the shortfall and is liable to
make reparation to the pursuer.
Analysis of the law relating to negligence
[22] The averments in Article 22 which I summarise in the foregoing paragraph
are the starting point for the pursuer's case of negligence. A number of cases were cited by both counsel
to explain the current state of development in this difficult area of law. The starting point for senior counsel for the
defenders was Henderson v Merrett Syndicates Limited [1995] 2 AC 145 citing Lord Goff dealing with the governing principle at pages 178-181 and
the Opinion of the Lord Justice Clerk in Royal
Bank of Scotland Plc v Bannerman
Johnston McLay 2005 SC 427. Senior
counsel for the pursuer cited Custom
& Excise Commissioners v Barclay's
Bank Plc (CA) 2005 1 WLR 2082; Barclay's Bank Plc v Quinscale Limited & Another [1992] 4
All ER 363, QBD; Merrett v Babb [2001] QB 1174; and Phelps v Hillingdon London
Borough Council [2001] 2 AC 619.
[23] Longmore LJ in Customs
& Excise Commissioners at pages 2088-2096 provided an overview of the
modern law which I found helpful. This draws
inter alia upon Henderson and Phelps. He refers to the threefold test of
foreseeability, proximity and fairness in the context of a cautious approach of
incremental development in this area of law dealing with negligent actions
causing economic loss. The three-fold
test appears to be reflected and set out in the pursuer's pleadings at the
beginning of Article 22 of condescendence. It is plain that it is not possible to give any
precise definition to the so-called threefold test.
[24] Senior counsel for the pursuer submitted that the facts in Customs & Excise Commissioners were
very similar to the present case. In
that case, the Commissioners sought to recover outstanding VAT from two
companies by obtaining freezing injunctions in respect of company assets
including money in their bank accounts.
The bank was notified and was bound by the injunctions but failed to
take action to prevent payments out of the accounts in breach of the
injunction. The Commissioners claimed
damages for negligence against the bank.
In paragraph 48 at page 2096, Longmore LJ concluded that applying
the threefold test approach
"a duty ought to
be imposed on the bank, towards claimants who have obtained a freezing order,
to take care that funds of a person whose account has been frozen pursuant to
that order should not be dissipated in breach of that order. I would not be deterred by the apparent
absence of any express or deliberate assumption of responsibility on the part
of the bank since I would hold that the law ought to decide that such
responsibility should be imposed and that that, in accordance with Phelps [2001] 2 AC 619 is sufficient."
This submission was pressed by
senior counsel for the pursuer, despite the pleadings for the pursuer at page
44B-C, where the pursuer is specifically offering to prove an assumption of
responsibility by the defender to the pursuer and relied upon by the pursuer in
relation to the Scottish Widows investments and in particular Mr Burns'
bonds. Senior counsel for the pursuer
did not seek to depart from his case on record albeit the logic of the argument
which he was presenting appeared to me to be consistent with a conclusion that
the pursuer was entitled to succeed in law without proving any assumption of
responsibility by the defender. But
senior counsel for the pursuer, despite the logic of his argument, did not seek
to depart from his pleadings and specifically accepted them. He submitted that the factual averments made
were sufficient to enable him to establish the facts and circumstances in
accordance with the threefold test set out in article 22. It would have been difficult for senior
counsel for the pursuer to accept the pleadings and still press his legal
argument as a question would then have arisen as to the relevance of some of
the pleadings which plainly are drafted on the basis of alleged facts and
circumstances intended to demonstrate an assumption of responsibility by the
defender relied on by the pursuer as set out in article 22 of
condescendence. In view of the position
adopted by senior counsel for the pursuer, it is not necessary in my view to
determine this issue of law at this stage in the present case. There was no dispute by senior counsel for
the defender that in an appropriate case a legal duty might arise where the
threefold test applied. I would merely comment
in relation to the submission made on behalf of the pursuer that there does
appear to be some important differences between the present case and the
factual circumstances in Customs and
Excise Commissioners. For example,
in the present case, it is not in dispute that the injunctions of the English
Court were not binding on the defender within the
jurisdiction of Scotland
because no steps had been taken to make them so. The defender is a financial institution which
is not a bank and unlike the circumstances considered by Longmore LJ, there is
no settled agreed procedure for reimbursing the defender for the work involved
in dealing with injunctions which are not binding in the jurisdiction. It is also plain that policy considerations
influenced the conclusions of Longmore LJ, as can be seen from paragraphs 33 to
34. The policy considerations in the
present case are not the same.
[25] As senior counsel for the pursuer accepted the threefold test
set out in the pleadings, it is necessary to give detailed consideration to the
question whether the factual averments which are made on behalf of the pursuer
are capable of leading to an inference that the legal tests set out and relied
upon in article 22 by the pursuer is capable of being established. I accept the general submission by senior
counsel for the pursuer to the effect that in this area of fact and law, the
ultimate decision making will be highly dependent upon the facts and
circumstances of the individual case and thus the proper approach would
generally be to allow a proof before answer.
Senior counsel for the pursuer analysed his case and submitted that the pursuer
offered to prove various facts and circumstances imputing knowledge to the
defender that money should not be paid to Mr and Mrs Burns. He cited passages in the pleadings 21D‑22D,
19B, 22D, 24A, 27B and 29E, 30C, 31B, 31E, 32D, 33B, 34C and 35A. There was dispute by senior counsel for the
defender as to whether the averments and the documents relied on showed
relevant knowledge at a relevant time in relation to any injunction in force
affecting Mr Burns' bonds. I was of
the opinion that I was not in the position at Procedure Roll to determine these
matters, even although some documentation was adopted in the pleadings. The matters were so diverse depending upon
other documents and other evidence that I consider it would be imprudent and
inappropriate to embark upon any such exercise.
The approach by senior counsel for the pursuer in relation to this
matter was to try to highlight parts of the pleadings where it was plain that
the knowledge was that of the defender and not for example of Lloyds TSB. This approach did not in my opinion
satisfactorily address the relevance of averments about knowledge in the
context of reference to Lloyds TSB and knowledge of "the defender's unit trust
administration department". Problems
similar to those I consider in paragraphs 28 and 29 arise also in relation to
the averments about knowledge.
[26] Senior counsel for the pursuer accepted that the pursuer must relevantly
aver facts and circumstances additional to knowledge. Additional factors were averred by the pursuer
in support of the threefold test. These
were described by senior counsel for the pursuer as passages in the pleadings to
the effect that the defender made undertakings that monies would not be paid to
Mr and Mrs Burns and that the defender would honour the terms of the
English court orders. The passages
referred to are at page 19C, 24D, 30E, 31B, 31E-32D, 35B and 36B.
[27] Senior counsel for the defender made detailed criticisms of the
averments in article 10 to 18 and 22 from which he concluded that the
communications on which the pursuer relies, do not support the averment in
article 22 of condescendence that the parties were in a "special relationship
of sufficient proximity and foreseeability of damage ... involving an assumption
of responsibility" on the part of the defender.
In the argument which he developed with reference to the communings
relied on by the pursuer, senior counsel pointed out that the only court orders
which the defender is averred to have had knowledge, are the order of 3 May
2002 (after it had been superseded) and the interim
charging order relating to Mrs Burns' Bonds.
In addition, the defenders received the authority letter. But even taking the defender and Scottish Widows
Unit Trust Managers together (for which there is no basis in law), neither had
knowledge of any of the court orders in force as at 8 November 2002, the date
the bonds were encashed by the defender and the proceeds given to Mr and Mrs
Burns. Senior counsel submitted that the
pursuer is not entitled to ignore the legal personality of the defender and
confuse it or identify it with other legal persons such as Lloyds TSB and
Scottish Widows Unit Trust Managers Limited.
There is, he submitted, no basis set out in the pursuer's pleadings to
lift the veil of legal personality and attribute communings or a relationship
with a company other than the defender in order to lay the foundation of a
special relationship and assumption of responsibility between the pursuer and
the defender of the type averred in article 22 of condescendence.
[28] In his submission, senior counsel for the pursuer did not put
forward any legal basis for treating different legal companies as if they were
the defender and imputing knowledge and responsibility thereby to the
defender. His approach appeared to be to
try to avoid these difficulties by trying to isolate in the pleadings averments
which were undisputedly a reference to the defender. That approach, however, leads to unanswered
questions in relation to the averments about Lloyds TSB, and the relevance of
these pleadings. In my opinion, any
averments about Lloyds TSB are not relevant to lay a foundation for article 22
of condescendence. The only reason pled
is the averment in article 10 of condescendence that the defender is and at all
material times has been, part of Lloyds TSB banking group. That does not in my opinion justify
attributing knowledge and responsibility of one company to another separate
company.
[29] Senior counsel for the defender made specific detailed criticisms
in relation to various averments and I now deal with these. In relation to article 11 of condescendence,
there are averments about communications to "the defender's unit trust
administration department" and "the defender's legal department". The criticism by senior counsel for the
defender is similar to that which he made about Lloyds TSB. Senior counsel for the defender submitted
that the pursuer's pleadings were not clear or accurate and that the
documentation showed that the unit trust administration department was a
separate company, namely Scottish Widows Unit Trust Managers Limited. While I accept the pursuer's contention that
evidence may explain the context and relevance, it is not in my opinion good or
satisfactory pleading to aver a separate company (if so it be) as a department
of the defender.
[30] The criticism of article 12 of condescendence is to the effect
that the averments relate to a history of communings in relation to Mrs Burns'
Bonds. I accept the point made by senior
counsel for the defender that the pursuer's averments in article 22 in relation
to negligence are all directed towards the surrendering of Mr Burns' Bonds. Nevertheless, without hearing evidence, it is
difficult to assess what implications are to be drawn from the whole history of
communings which include the communings in relation to Mrs Burns' Bonds.
[31] In relation to article 13 of condescendence, I agree with
senior counsel for the defender that these averments do not assist in relation
to the case of negligence, albeit they may explain the history. The averments explain that the copies of the
relevant court order were not served on the defender until late December
2002. That service postdates the surrendering
of the bonds by the defender to Mr Burns on 8 November 2002. I
accept the submission that these averments cannot form the basis of a duty on
the defender to the pursuer at the relevant time.
[32] In relation to article 14, I also accept that these averments
do not assist in relation to the case of negligence. The pursuer does not aver circumstances to
explain how the actions of Mr and Mrs Burns could create duties on the part of
the defender owed to the pursuer. These
averments may, however, be relevant to the defender's state of knowledge at the
time in any communings with the pursuer.
They also may bear upon other aspects of the case, in particular, the
averments about the assignation.
[33] In relation to article 15 of condescendence, I accept the
submissions by senior counsel for the defender to the effect that the averments
do not disclose that the defender played any part in the correspondence
detailed and there is no averment that the defender was at any time made aware
of the matters detailed. The averment at
page 29E that the authority letter was signed by Mr and Mrs Burns and sent by
them to the defender, merely reflect the averments with which I have already
dealt in article 14. I do not consider
that the averments in article 15 add anything in relation to the case of
negligence.
[34] In relation to article 16, some points of detail were
criticised but the major criticism was to the effect that in a series of
conversations, various requests, if not demands, were made on behalf of the
pursuer but it is not averred that in any of the conversations, allegedly on
the part of the defender, was it ever represented to the pursuer that the
defender would implement what was requested by the pursuer. The high point of article 16 of
condescendence for the pursuer is that a representative of the defender ("from
the legal department") was considering the pursuer's request that day, and that
"Kevin" hoped to be in a position to confirm the legal department's advice by
the end of the day.
[35] In article 17 of condescendence, the pursuer accepts that there
was no confirmation by the defender to comply with the request and avers
further correspondence on 5 November
2002 on behalf of the pursuer to the defender. A further request was made that the defender confirm
that immediate steps would be taken to comply with the authority letter for the
transfer of Mr and Mrs Burns' Bonds into the pursuer's name. Senior counsel for the defender made various
criticisms about the specification of the information allegedly sent to the
defender but I consider that details of these matters would require to be
considered in evidence. It is
significant, however, in my opinion that even by the end of article 17 of
condescendence, it is not averred that the defender had indicated any
willingness to comply with the request.
[36] In article 18 of condescendence, there are averments about further
correspondence. Senior counsel submitted
that, contrary to what is averred, there was no charging order in relation to
Mr Burns' Unit Trust and the interim
charging order referred only to Mr Burns' Bonds. This may be correct as a matter of fact but
the pursuer is offering to prove something different. It is not for me to determine at this
stage. The pleadings are also criticised
on the basis that the averment that a copy of Mr Justice Rimmer's order was
enclosed is irrelevant as, by the time of the letter, that order had been
superseded. The pursuer avers that
Mr Smith (working in the defender's client service division unit trust
department) responded by facsimile dated 8 November 2002 in which he stated "The With Profit
Bonds have been kept and you should receive confirmation of this within the
next week". That correspondence is
incorporated brevitatis causa and I
am entitled to consider it. It bears to
be a letter from Scottish Widows Unit Trust Managers Limited. I am of the opinion that I am entitled to
conclude that this is a different limited company from Scottish Widows plc, the
defender. This is an example of some of
the difficulties in the pleading in this case.
That letter which is founded upon by the pursuer does not appear to
justify the averment which is important to this chapter of the case. I consider that the implication of the
pursuer's pleadings in relation to article 18 is that the actings and
representations of Paul Smith are the actings and representations of the
defender to the effect that the with profit bonds are being kept by the
defender. The pursuer does not offer to
prove that the said intimation by Mr Smith was made at a time in the day
before the defender paid the money in respect of the bond to Mr Burns. I agree with senior counsel for the defender
that there are a number of unsatisfactory features about article 18 of
condescendence. I consider that the
averments are of doubtful assistance with the negligence case pled in article
22 of condescendence. I have grave
concerns about a pleading practice in this case in which the pursuer asserts or
implies communings on behalf of the defender when the document, which is
incorporated in the pleadings, makes it plain that the correspondence bears to
be from a company other than the defender.
There are no averments and no submissions made on behalf of the pursuer
to explain this.
[37] When I consider the case pled against the defender, I conclude
that article 22 of condescendence could form a basis in law for a case based on
negligence provided the averments of fact underpinning the case were relevantly
averred. There appears to be a basis in
law for a claim of this type of which sufficient notice of the legal basis is
given in article 22 of condescendence. I
do have some reservations about the averment at page 45B "but for these
repeated assurances, the orders could have been formally registered and
enforced in Scotland"
as I do not understand in what way the pursuer suggests that the repeated
assurances prevented formal registration and thereby enforcement of the orders
in Scotland. But I would not for that reason alone refuse
a proof before answer.
[38] I have come, however, to the conclusion that the defenders are
entitled to fair notice of the factual averments which are meant to found and
underpin the case in negligence in article 22 of condescendence. In view of the way in which the case has been
pled, I have decided that no fair notice is given as it is a matter of guess
work as to which averments are founded on by the pursuer to found a factual
basis from which legal duties might flow in terms of article 22 of
condescendence. I am satisfied that the
criticisms of senior counsel for the defender are in this respect well-founded.
I consider the problem is
fundamental.
Assignment
[39] In article 21 of condescendence, the pursuer avers at 40A to B
that, standing the terms of the communications between Mr Burns, Halliwell
Landau and the defender, as condescended upon, Mr Burns' Bonds were assigned by
him to the pursuer and notice of such assignment was given to the defender
prior to its subsequent encashment of said bonds, with the effect that the
defender was not entitled to encash said bonds and pay the proceeds of the same
to Mr Burns without the pursuer's consent.
It is averred that the assignment of said bonds is governed by English
Law. There follows detailed pleadings
about section 136 of the Law of Property Act 1925 and the effect in law
thereof. The only other reference in the
pleadings to the way in which this assignment was allegedly created is at 43D:
"In the
circumstances condescended upon, including the terms of the authority letter
and the correspondence between Halliwell Landau and the various offices and
personnel of the defender, a valid legal et separatim equitable
assignment was effected ..."
In my opinion, the criticisms of
senior counsel for the defender about this aspect of the pleadings are well
founded. There is inadequate and
misleading specification and there is a lack of fair notice of the case which
is pled against the defender. It is
plain from page 43D that whatever the absolute assignment is meant to be, it is
not limited to the authority letter. As
I was required to dwell on the pleadings at some length, it is plain that the
pleadings about communications have a timespan from March 2002 to December 2002
with no apparent clear separation in the pleader's mind between personnel from
different companies with separate legal personality. There are many letters, faxes and
communications to which the pleadings refer.
In summary, the pleader on behalf of the pursuer makes no attempt to
aver in what way they satisfy section 136(1) of the 1925 Act which refers to
"absolute
assignment by writing under the hand of the assignor ... of any debt ... of which
express notice in writing has been given to the debtor, trustee or other person
from whom the assignor would have been entitled to claim such debt ...".
[40] Senior counsel for the defender raised an issue about proper
pleading practice in relation to averments about foreign law. He pointed out that although there was an
averment that the assignment is governed by English law, there was no averment
that English law is different from Scots law.
In the absence of such an averment, he invited me to construe the
document in terms of the law of Scotland. I consider that senior counsel may be correct
in relation to strict pleading practice but in my opinion it would be entirely
misleading to attempt such an exercise in circumstances where the statutory
provisions on which the pursuer relies in the pleadings are plainly set out as English
law provisions in a specialist field. I
was not tempted, therefore, to follow his invitation. I consider that, in the circumstances, this
is best dealt with as a problem of relevancy of the pleadings and that is the
way in which I have chosen to deal with it.
[41] Senior counsel also criticised the authority letter on the
hypothesis that it was to be construed as an assignment by writing. He pointed out that it is patently not itself
an assignment, otherwise no other steps would be required. It does not state that any interest and
entitlement had to be transferred other than that the transfer is to be to the
satisfaction of the pursuer. It
authorises the addressee to liaise directly with the pursuer "in all matters
pertaining to the transfer, assignment or granting of security over the above
securities ...". I took the view that it
was not for me to address these issues of interpretation. This is a matter which in my opinion would
require expert opinion evidence about English Law as to whether the
requirements of section 136(1) were satisfied by any particular writing. I consider, however, that it does underline
the unsatisfactory nature of the pleadings.
It is for the pursuer to aver how it is alleged an assignment has been
created, particularly in circumstances where foreign law is set out in the
pleadings. There is in my opinion a lack of relevant averments and no fair
notice.
[42] Article 21 of condescendence at pages 42B to 43E also contains
averments on an alternative basis that an equitable assignment was effected so
as to prevent Mr Burns from having power validly to grant a discharge of
the debt due under Mr Burns' Bonds without the concurrence of the
pursuer. It is averred that the defender
remains liable to make payment to the pursuer therefor. The pursuer avers various elements which are
said to be essential under English law to create an equitable assignment. Senior counsel for the defender made similar
criticisms about relevancy, specification, fair notice and pleading practice as
those he applied to the averments in relation to a legal assignment. Against the background that it is averred by
the pursuer that an equitable assignment need not be in writing nor in any
particular form, it is essential that the pleader specifies which circumstances
are to be taken together to enable the court to conclude that an equitable
assignment was effected. I consider that
for the same reasons which apply to the case based on assignment in writing,
the pleadings about an equitable assignment are inadequate in that there is an
absence of relevant averments and no fair notice.
Constructive Trust
[43] In article 23 of condescendence, the pleader became
concise. This aspect of the case is
dealt with at page 46C to E, in which the pursuer avers:
"... in the
circumstances the defender held Mr Burns' Bonds upon constructive trust for the
pursuer and in encashing said Bonds and paying the proceeds of same to him
without the pursuer's knowledge and consent, it acted in breach of trust. In the further alternative, in so acting the
defender knowingly dealt with trust property, namely Mr Burns' Bonds, in a manner
inconsistent with the trust over the same in favour of the pursuer. Consequently, in either case the defender is
liable to account to the pursuer for the Shortfall; alternatively it is liable
to pay equitable compensation in the same amount. English law governs the said constructive
trust."
Senior counsel for the defender
made the obvious point that the pursuer does not aver how the requirements of
the constructive trust are met. The only
notice given is that the pursuer relies on "the circumstances". It was submitted that taking into account the
detail of the correspondence and communings between the parties, much of which
cannot on any view be relevant to the question of constructive trust, the
defender should be given notice of the facts and circumstances on which the
pursuer relies. In this article of
condescendence, the pursuer does not even attempt to set out the essential
elements of constructive trust or the alternative. Even if that had been done, it would still be
essential in my opinion for the pursuer to plead facts and circumstances to
give fair notice of how they say the constructive trust arose or the
alternative applied. In some cases,
where the factual situation is narrowly pled and clear, it may not be necessary
to aver anything further by way of additional specification. But this is not such a case and it is
incumbent upon the pleader to specify relevant averments and give fair
notice.
Early Surrender Penalties
[44] The pleadings do not expressly set out the basis of the second
conclusion but on a generous reading, the second conclusion relates to the
early surrender penalties referred to at page 37C to D. I understand that senior counsel for the defender
so interpreted the pleadings. He
submitted that the pursuer make no specific averments to justify the assertion
that they are entitled to a refund of the early surrender penalties. For all the pursuer avers, they would have been
liable to such penalties in any event.
He also submitted that the averments in the action are all directed
towards the surrendering of Mr Burns' Bonds and not Mrs Burns' Bonds. This aspect of the pursuer's case depends
upon there being a relevant case in relation to one or more of the main cases
which are made on behalf of the pursuer.
If there was such a relevant case, I would not exclude this part of the
case from probation.
[45] I consider that parties as they requested should be given the
opportunity of considering my opinion before I deal with the pleas-in-law. I have accordingly appointed the case to the By
Order roll.
