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OUTER HOUSE, COURT OF SESSION
[2006] CSOH 83
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A1254/03
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OPINION OF LORD BRAILSFORD
in the cause
AEA RECRUITMENT
CONSULTANTS (EDINBURGH) LIMITED
Pursuers;
against
ALEXANDER
McNAUGHTON and OTHERS
Defenders:
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Pursuers: Murphy, Q.C.;
McClure Naismith
Defenders: I. Ferguson,
Q.C.; Simpson & Marwick, W.S.
26 May 2006
[1] This
case called before me for discussion on the Procedure Roll on 10 February 2006. I was invited by counsel for the defenders to
uphold his first plea-in-law, a general plea to the relevancy and specification
of the pursuers' pleadings, and refuse probation to the pursuers' averments in
article XIII of condescendence or, in the alternative, to delete averments in
the same article at page 60C of the Closed Record (As Further Amended) where a
claim was made in respect of National Insurance Contributions paid by the
pursuers in respect of replacement staff.
Mr Ferguson, Q.C. for the defenders accepted that my upholding of
his primary motion would result in dismissal of the case in respect of the
fifth, damages, conclusion.
Mr Murphy, Q.C. for the pursuers moved me to allow a proof before
answer of all his averments.
[2] The pursuers seek interdict, delivery
of certain items and damages against the defenders as a result of actions which
are averred to have taken place in May 2003.
The argument advanced on behalf of the defenders was confined to an
attack on the relevancy of averments in article 13 of condescendence designed
to support the fifth conclusion of the summons, the claim for damages. The argument advanced on behalf of the
defenders was focused in the Second Note of Arguments for the Defenders (No. 48
of process).
[3] Counsel
for the defenders indicated that his argument fell into three parts, which he
identified as (a) a notice point (b) a quantification point and (c) a
subsidiary point. These were essentially
ways of characterizing the argument set forth in his note of argument which set
forth two grounds of attack on the pursuers' averments in support of their case
for damages caused by the defenders' alleged breach of duty. These arguments for the defenders were,
firstly, that before any loss claimed by the pursuers could be quantified they
required to prove that clients, candidates and staff would not have left the
pursuers but for the defenders' actions.
It followed that, in the language of the Note of Arguments,
"[T]he crucial
first stage is to identify the clients, candidates and staff whom it is said
left the pursuers and why they did so.
If their leaving can be attributed to the defenders actions then, and
only then, can the breach be said to have caused a loss."
As a matter of averment it was
submitted that there were no averments to lay the basis of this claim. Secondly, an argument was set forth, that a
claim was made by the pursuers (in article XIII of condescendence at page 60C
of the Closed Record (as further amended)) in respect of loss said to have been
incurred in payment of National Insurance Contributions for replacement
staff. The relevancy of this head of
claim was challenged on the basis that had the staff who are said to have left
the pursuers' employment as a result of the defenders' actions remained then
the pursuers would have required to pay National Insurance Contributions on
their behalf. There is accordingly, it
was submitted, no loss.
[4] The
first of these arguments was represented as a matter of relevancy. The argument essentially arose from the
structure of the pursuers averments of loss, which as already noted are set
forth in article XIII of condescendence.
There it was stated that as a result of various breaches of duty on the
part of the defenders the pursuers had suffered loss
"...in relation to
sales which would have been generated from clients, candidates and staff who
would not have left the pursuers but for the actions of the defenders"
(56A).
For the defenders it was contended
that sales and therefore revenue was obtained by the pursuers from placement of
candidates with employers who then paid certain sums for this service. What, it was maintained, the pursuers had
done in calculating loss was to calculate profit downturn compared to
historical profit trend, not to attempt to link loss to loss of sales generated
by the clients, candidates and staff who left.
This it was maintained, was the wrong approach to quantifying damage
and, in any event under reference to the pleadings to which I have already
mentioned was not what the pursuers were offering to prove. The correct approach to loss in this case on
the defenders' argument was to calculate loss of profit that would have been
generated by each client that the pursuers lost as a result of the defenders' actions. For this to be done it was necessary to
identify in the pleadings both the clients who had left, and to prove that they
had left as a result of the defenders' actions.
Only at that stage could you calculate the financial consequences of the
various breaches.
[5] Practical
support for this approach to loss in this case was, it was said by the
defenders, to be found in an expert accountants report prepared on behalf of
the pursuers into losses sustained by them.
The report was incorporated into the pleadings (Report by Price
Waterhouse Coopers dated March 2005, No.6/34 of process). In this report the authors state in Chapter
III, entitled "Calculation of Loss"
at paragraph 3.3:
"The correct
methodology is to calculate AEA's loss of gross profit on sales which were lost
as a result of the actions of the Defenders."
Again in paragraph 3.5 the authors
of the report recognize, it is said, that
"...the ideal
scenario would be to identify each and every instance of business lost by AEA
to the defenders or to another recruitment agency."
Notwithstanding this recognition of
what the defenders said was the proper approach to quantification of damages
the authors of the report go on to formulate loss on the basis of a different
methodology (set forth in paragraph 3.4) and that because proceeding on the
basis of the "ideal scenario" would be impossible for three reasons,
essentially matters of practicality, set forth in paragraph 3.6.
[6] The
approach advanced by Mr Ferguson in a case such as this involving losses
said to arise from disruption to business was therefore essentially of a need
to causally link an identifiable breach of contract to a resultant cost. As I understood him Mr Ferguson advanced
this as the only proper way to approach loss in such a case. He said this approach was supported by Euro Pools Plc v Clydeside Steel Fabrications Ltd 2003 SLT 411 (per Lord Drummond
Young at 415 C/J) and Duke of Portland v Wood's Trustees 1926 SC 640 (per the
Lord President (Clyde) at 651 - this reasoning was subsequently approved on
appeal in the House of Lords reported at 1927 SC (HL) 1). Presented in this way the argument was clearly
an issue of relevancy. Mr Ferguson
did however contend that the argument could also be presented as a
specification point. On this approach
the failure by the pursuers to identify by averment which clients had been lost
as a result of the breaches of contract prevented, or at least materially
hindered, the defenders proper investigation of the validity of losses said to
arise from such breach.
[7] The
pursuers' response to this challenge was that it was fundamentally
misconceived. They maintained that the
pleadings disclosed a number of breaches of contract by several different
persons collectively causing detriment to the profitability of their business. Counsel described this, colourfully but on his
characterization probably accurately, as "commercial sabotage". In a case of this sort it was maintained that
quantification of loss was always going to present the party who sustained loss
with difficulties. Actual loss was
always a jury question, the causation of any loss being therefore a matter of
common sense. A jury would approach the
matter by application of their own knowledge of business. Adopting this general
approach the pursuers had sought to present loss by reference to the historical
trading pattern of their business not by seeking to identify individual losses
attributable to separate identifiable breaches of contract.
[8] Support
for this approach to quantification of loss was said to be found in the 17th
edition of McGregor on Damages at
paragraphs 40-002 - 40-004, where the author deals with the approach to loss in
the English tort of inducement of breach of contract. Reliance was also placed upon the well known
dictum of the Lord President (Emslie) in Haberstitch
v McCormick & Nicholson 1975
SC 1 at pages 6-7 and 9-10. Counsel for
the pursuers further maintained that his client's case could be legitimately
compared or equiparated with a global claim in a construction contract. In such claims he argued it was now recognized
that proof of individual causal connections between events giving rise to the
claim and the individual elements of the claim was not necessary. In support of this proposition reference was
made to John Doyle Construction Limited v Laing Management (Scotland) Limited 2004 SC 713. In summary he maintained that the pursuers
approach was general, but legitimate. It
was in accordance with commercial common sense. A proof before answer should be allowed.
[9] Notwithstanding
that the arguments developed before me by counsel were primarily presented as
matters of relevancy I do not consider that the pleadings in this case disclose
any question of principle. Both counsel
recognized and accepted that the purpose of an award of damages is to put the
pursuer in the position they would have been in had the defenders fulfilled the
obligations incumbent upon them (Gloag
"Contract" 2nd Edition, page 680; McBryde
"The Law of Contract in Scotland", 2nd Edition, paragraph 20-82). The law allows wide latitude as to how such
loss is quantified (Haberstitch (supra)). Having
regard to that consideration I consider that there is no objection in principle
to quantification of the claim in the way attempted by the pursuers, and reach
that view without considering it necessary to rely on the analogy of the
approach to quantification of global claims in construction contract cases. It is of course true that, as already noted
the pursuers own expert accountants recognise that the "ideal" approach to
quantification is different from the method which Mr Murphy now represents
as the approach disclosed in his pleadings. That matter may well cause the pursuers
problems at proof but is not, in my view, a fundamental objection fatal to the
relevancy of the pursuers' case.
[10] If I am correct that no issue of principle arises there remains
the question of specification. It would
still be necessary as a matter of fair notice for the pursuers to adequately
specify the factual basis upon which their case rests. It is that matter which I consider to be
critical and the true issue between the parties at the present stage in
proceedings. I have come to the view
that in the present case the current issue between the parties resolves to a
matter of specification, whether it can be said that in the averments of loss
in Article XIII of condescendence the pursuers have stated a case which is
consistent with the remainder of their pleadings and adequate, as a matter of
fair notice, to give the defenders proper notice of the case they require to
meet.
[11] In relation to this issue I have to say that I have
considerable sympathy with the argument of counsel for the defender. In particular his contention that the pursuers'
averment at page 55E - 56B that
"[T]he pursuers
have suffered losses in relation to sales which would have been generated from
clients, candidates and staff who would not have left the pursuers but for the
actions of the defenders"
necessitates further specification
of the clients, candidates and staff concerned appears, in my view, to have
some attraction. In the end of the day
however I have formed the opinion that read as a whole, as I was encouraged to
do by their counsel, the pursuers' pleadings at least arguably disclose a
sufficiently specific and relevant approach to damages to entitle enquiry at a
proof before answer. The language I have
used indicates, correctly, a lack of enthusiasm on my part for the pursuers'
pleadings on this issue. Notwithstanding
a lack of enthusiasm I do not think that the defenders have established that
these pleadings are so lacking in specification as to disentitle the pursuers
to enquiry by way of a proof before answer.
I should indicate that this view extends to the defenders subsidiary
point relating to National Insurance Contributions.
[12] For the foregoing reasons, I will allow a proof before answer.
