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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Kenneil v Kenneil & Anor [2006] ScotCS CSOH_95 (16 June 2006)
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Cite as: [2006] CSOH 95, [2006] ScotCS CSOH_95
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OUTER HOUSE, COURT OF SESSION

 

[2006] CSOH95

 

A2113/02

 

 

OPINION OF LORD GLENNIE

 

in the cause

 

EDAN HUGH NELSON KENNEIL

 

Pursuer;

 

against

 

(FIRST) DAMON BALFOUR NELSON KENNEIL and

(SECOND) ALISTAIR THOMAS NELSON KENNEIL

 

Defenders:

 

 

­­­­­­­­­­­­­­­­­________________

 

 

 

Pursuer: C. Wilson; Turcan Connell

First Defender: J. Lake; Maclay Murray & Spens

Reporter: G Hawkes, McCaffrey; Shepherd & Wedderburn

Parties Present: Caroline Kenneil (for herself and the Second Defender) and Laura (known as Bonnie) Kenneil

 

 

16 June 2006

 

Introduction

[1] This opinion arises out of an action of division and sale in respect of the Ardpatrick Estate in Argyll. I heard a number of motions on 6 June 2006 and the following three days. I indicated certain decisions towards the end of that hearing and parties thereafter placed before me an interim scheme of division reflecting those decisions. After further discussion, and in light of indications by me as to the procedure I might adopt, parties consented to certain interim payments. I have pronounced an interlocutor giving effect to these decisions and matters of agreement. I have been asked to set out my reasons for my decisions. This Opinion attempts to do that.

 

Background

[2] In my Opinion of 18 January 2006, I referred briefly to the history of the matter from the time of the interlocutor authorising the sale in May 2004. That Opinion was concerned principally with the question whether the pursuer and the first defender were entitled to bring actions of damages against the second defender in respect of his alleged breach of the first missives; and whether, in consequence, they were creditors of the second defender, having title to seek to reduce certain standard securities granted by the second defender in favour of his wife and children. I held, for the reasons set out in that Opinion, that the pursuer and first defender had no such right or title.

[3] At a further By Order hearing, held before I pronounced my interlocutor of 2 February 2006, the pursuer and first defender invited the Court to grant authority to the Reporter to raise an action against the second defender for his breach of the first missives and for reduction of the standard securities. I refused those motions. My reasons, in brief, were as follows. First, I considered that the Reporter had not suffered substantial damages as a result of the alleged breach of the missives, standing that he had only ever had title to, or possession of, the subjects in a limited capacity and for the limited purpose of selling them and bringing the proceeds into Court. Secondly, since the Reporter did not stand to benefit by the missives, I considered that he had no interest of his own in reducing the securities. Thirdly, although his remit was to bring in the proceeds of sale and he was, therefore, properly to be regarded as having authority to take all steps ancillary to that, including, for example, the taking of appropriate action to sue for the price or to forfeit the deposit, an action of damages for breach of the first missives went well beyond that authority. Fourthly, I took the view that this motion by the pursuer and the first defender was simply a backdoor route to achieve the same result as that for which they had argued at the two day hearing in January 2006, which gave rise to my earlier Opinion. I had fixed that January hearing as a means of resolving these disputed matters so as to enable the sale to proceed and the proceeds of sale to be brought into Court for the purpose of distribution. The issue of the standard securities was a barrier to this, and it had to be resolved as a matter of some urgency. It seemed to me to be too late for the pursuer and second defender at that late stage to advance arguments which had been available to them at that hearing.

[4] The interlocutor of 2 February 2006 also gave certain directions, in part consequential upon the decisions to which I have referred. In particular, it authorised the Reporter to use the net proceeds of sale (i.e. the proceeds of sale less the sums representing the Reporter's actual or estimated expenses of sale), after deduction of certain sums, to discharge in whole or in part the standard securities, and thereafter to consign the balance of the funds into the hands of the Accountant of Court, an account at the Royal Bank of Scotland having been set up for this purpose.

[5] The sale of the Ardpatrick Estate to Caledonian Trust plc (and the first defender, who participated in the successful bid) completed on 25 April 2006 for a total price of £2,558,775. The Reporter has paid off some of the standard security holders in full. Caroline Kenneil has been paid only in part. It was on her motion, effectively seeking payment of further sums which she claimed were undisputedly due to her, that the matter came before the Court again on 18 May. It was clear at that point that the Reporter was in a position to lodge a report of the sale, and it seemed sensible to fix a hearing substantially in terms of Rule of Court 45.2(5) at which all parties could address me fully on what further steps should be taken. I made it clear on that occasion that one of the issues to be considered was whether a sum of £370,000 plus interest, representing the deposit forfeited by the second defender on account of his breach of the first missives, should continue to be "ring fenced" (as it came to be called) in terms of the interlocutor of 2 February or should be made part of the proceeds of sale available for distribution. I directed parties to lodge in Court a statement of their contentions on this issue, and fixed a hearing for 6 June and the ensuing day. In the event, the hearing before me has lasted 4 days. If it has helped to resolve the matter, it will have been time well spent.

[6] At the beginning of the hearing before me, no monies had been paid into Court by the reporter. As I have indicated, some of the issues raised by the various motions affected the question of how much was available to be paid in. These questions included the claim by Caroline Kenneil to be paid further sums in terms of the Court's interlocutor of 2 February 2006, which sums were to be paid by the Reporter before paying the proceeds of sale into Court. They also included questions as to whether the amount of the forfeited deposit plus accrued interest should be treated as part of the proceeds of sale and available for distribution. On the first day of the hearing I was invited by Mr Lake, for the first defender, to order that the monies held by the Reporter should be paid into Court under deduction of the estimated expenses of sale. I understood the reason for this to be so that the discussion about distribution could take place on the proper basis in accordance with Rule of Court 45.2(5). I was content to do this on the understanding that the transfer of the funds should not affect the rights of any party to the action and/or any security holders. This reservation was reflected in my interlocutor of 6 June 2006 ordering such payment. Pursuant to that interlocutor the money was transferred into the account with the Royal Bank of Scotland set up for this purpose.

 

Issues arising for decision

[7] The issues for decision at the hearing before me were conveniently grouped under three heads.

[8] The first head related to what monies were available for distribution. The arguments under this head focussed principally upon whether any sufficient basis had been set out on behalf of the second defender for him to claim an entitlement to recover back from the Reporter the forfeited deposit of £370,000 plus accrued interest, on the basis either of reduction of the first missives or some other argument to the effect that, in respect of his failure to complete under the first missives, he was not in breach or, if he was, that that breach was itself caused by the actions of the Reporter. Also argued under this head was the question of what was to happen to the rights possessed by the Reporter against the second defender in respect of the second defender's alleged breach of the first missives. In my earlier Opinion I had held that it was the Reporter, not the pursuer and the first defender, who held whatever rights of action there might be against the second defender for his alleged breach of the first missives; and I had also, in my interlocutor of 2 February, refused the motion by the pursuer and the first defender that the Reporter should be authorised to commence proceedings against the second defender for breach of those missives with the view to bringing any such damages into Court. At the hearing before me on this occasion, the first defender moved for an order that the Reporter's rights against the second defender for breach of the missives should be transferred to the other parties to the action, i.e. to the pursuer, the first defender and the second defender. In other words, those rights should, in effect, be treated as part of the proceeds of sale and distributed by the Court.

[9] The second head related to the expenses of the action for division and sale and, in particular, of the sale itself. The action had commenced in 2003. On 31 March 2004 Lord Philip remitted certain issues to the Reporter, in effect asking him to report on the potential sale of the property. The expenses in connection with that, being the Reporter's fees and outlays, were ordered to be for the account of all three parties equally. On 12 May 2004 Lord Mackay of Drumadoon, having considered and approved the report, granted warrant for the sale and appointed it to be conducted under the oversight of Mr Rettie with assistance from Messrs Shepherd & Wedderburn with the expenses of sale being, again, for the account of all three parties equally. In this capacity and until today, Mr Rettie was not strictly acting as Reporter, but as a selling agent within Strutt & Parker appointed to conduct the sale in terms of Rule of Court 45.2(1), but he has been referred to throughout as "the Reporter" notwithstanding his change of position and I shall continue to use that terminology. The issues before me relating to expenses were as to the total level of expenses of sale, being the fees of Strutt & Parker and of Shepherd & Wedderburn, who were appointed by the interlocutor of 12 May 2004 to give advice concerning the sale and as law agents in respect of the sale; and how those expenses were to be distributed between the parties. In respect of this latter issue, the question arose of whether I had already dealt with it in the interlocutor of 2 February 2006 or whether the order made in that interlocutor was intended as no more than a provisional allocation of responsibility made so as to enable the sale to go ahead.

[10] The third head was as to the appropriate manner in which the net proceeds of sale should be distributed between the parties to the action. In respect of this, there was a specific question of whether, if the ring fencing around the forfeited deposit was taken down and that forfeited deposit, plus accrued interest, formed part of the proceeds of sale for distribution, the sum representing the amount of that forfeited deposit plus interest should be divided between all three parties or simply between the pursuer and the first defender.

 

Funds available for distribution

[11] I turn first to deal with the issues relating to the funds available for distribution. I shall deal with the points arising under this head separately.

 

Representation of the second defender

[12] In considering these issues, a preliminary question arose as to whether Caroline Kenneil, who appeared in her own right on certain of the issues as a secured creditor, could represent her husband, the second defender, who was otherwise unrepresented at the hearing. This was opposed by the pursuer and the first defender. The Reporter took a neutral position. Having heard argument, I took the view that in the exceptional circumstances of this case I should allow Mrs Kenneil to represent her husband's interests.

[13] My reasons for doing so were as follows. It is clear that, in the ordinary case, a party is entitled to be represented in the Court of Session only by himself, by a member of the Faculty of Advocates or by a solicitor with extended rights of audience, known as a "solicitor advocate". I exclude any question of rights of audience enjoyed by lawyers from other member states of the European Union or any consideration of what may be the position when section 25 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 comes into force. I refer to the Opinion of the Extra Division in Asmat Mushtaq v Secretary of State for the Home Department (unreported 3 March 2006) at para.[11], and to the decision of Lady Smith in Tods Murray WS v Arakin Limited (unreported 31 October 2003) at para.[61].

[14] The right of a party to represent himself is, as is recognised in Tods Murray v Arakin, fundamental. To my mind this right is not limited to circumstances where the party cannot secure legal representation for financial or other reasons. It includes a case where the party simply does not wish to instruct a lawyer, whether because of considerations of expense or because he does not think a lawyer would do his case justice or for any other reason whatsoever. This right of a party litigant to speak in Court often raises problems. Neither his conduct in Court nor what he says is constrained by any code of professional conduct. His submissions may not focus as closely as would those of a professional advocate upon the relevant issues. He may not be aware of some of the intricacies of the law or the law of evidence. He may not appreciate the constraints imposed upon an advocate, for example, in making any allegation of fraud or dishonesty. All of this puts a burden on a Court. It also puts a burden on the legal representatives of other parties who will be expected to assist party litigants - or more accurately to assist the Court in dealing with issues raised by party litigants - insofar as they are able to do so without acting against the interests of their client. The difficulties are clearly set out in para.62 of Lady Smith's Opinion in Tods Murray v Arakin, with which I agree, though I express no opinion on the last two sentences in that paragraph which raise issues which are far removed from the case with which I am here concerned.

[15] The Courts in England have recognised that a party litigant presenting his case in Court may be, or may feel himself to be, at a disadvantage. For this purpose they have, as a matter of discretion, often allowed the party litigant to be assisted in Court by what has become known there as a "McKenzie friend": McKenzie v McKenzie [1971] P 33. The Courts in England have now recognised that any application by a party litigant for the assistance of a McKenzie friend engages Article 6 of the Convention for the Protection of Human Rights and Fundamental Freedom, and have held that there is a strong presumption in favour of allowing such an application: see, for example, In Re O (Children) [2006] Fam 1. To my mind, such considerations apply equally to litigation in Scotland. Mr Lake, who appeared for the first defender, helpfully told me that he knew of two cases where, in litigation in Scotland, a McKenzie friend had been allowed to assist the party litigant. Another example appears from paragraph 1 of the Opinion of Lord McEwan in Martin Frost and John Parkes v Cintec International Limited (unreported 9 September 2005). I am sure there must have been others.

[16] Traditionally, the role of a McKenzie friend has simply been to assist the party litigant in the submissions which the party litigant himself makes to the Court. But there have been occasions, in England, where the Court has gone further and, in particular circumstances, allowed the McKenzie friend to address the Court. One such case was Izzo v Philip Ross & Co (a firm) (Times Law Reports 9 August 2001). It would seem from the report in In Re H (McKenzie friend: pre-trial determination) [2002] 1 FLR 39, that that also was the role which it was intended Dr P should play in the hearings to which that appeal related. Although it appears that a statutory power now exists in England, under s.27 of the Courts and Legal Services Act 1990, for the Court to grant a right of audience in relation to particular proceedings, it does not appear that this statutory power lay at the heart of those decisions. Be that as it may, it seems to me to be clear that the Court must have power to accede to a motion by a party litigant that the person assisting him in presenting his case be allowed to address the Court on behalf of the party litigant, even though the Court is likely to exercise such a power only in exceptional circumstances. To hold otherwise, it seems to me, would be inimical to principles of access to justice. I note that in Asmat Mushtaq v Secretary of State for the Home Department, in which it was held that a Mr McDonald had no right of audience in Court on behalf of the petitioner, the Court permitted the petitioner's brother-in-law to speak on her behalf. That was because of her incomplete command of English. The Court was at pains to point out that the brother-in-law was, in effect, acting as an informal interpreter for the petitioner. Nonetheless, I consider that this approach gives some support for the notion that the Court has a discretion in the matter. I emphasise that this discretion to allow a lay person to speak for a party litigant (if he can be called such in those circumstances) is quite different from a party's right to be represented in Court only by advocates and solicitor-advocates, on which the position is made clear in the authorities to which I have referred.

[17] How should that discretion be exercised? As I have already indicated, I anticipate that it will only be exercised in favour of allowing such representation in exceptional cases. Each case will depend upon its own facts. In the present case it seemed to me that the circumstances pointing overwhelmingly to the desirability of this course. Part of those circumstances lie in the background to the dispute. The second defender and his wife have, so far as I am aware, effectively acted as one in these proceedings and in the disputes which have led to them. In particular, since the present issue is about the fate of the forfeited deposit of £370,000, it is right to point out that, as has been stated on a number of occasions and not contradicted (though I do not think it is formally admitted), the deposit put up by the second defender was in fact put up using his wife's money. The advance of that money forms the background to one of the standard securities in issue at the earlier stage of these proceedings. I have no doubt that if the second defender were himself to speak on his own behalf, he would be saying no more than that which he and his wife together had decided upon. He would no doubt turn to his wife, sitting in Court as a McKenzie friend, for help on what to say. If, conversely, his wife were allowed to speak for him, I would hear precisely the same. I accept fully that if Caroline Kenneil is allowed to speak on behalf of her husband, the Court, and possibly lawyers to the other parties, will be placed in the same difficulties as when a party litigant speaks, and so to some extent has proved to be the case. But these difficulties in the present circumstances are not made worse by the fact that the party litigant is represented by his wife speaking on his behalf. If he spoke, and she sat beside him or behind him as a McKenzie friend, the Court would be addressed with the same submissions.

[18] Other factors were to my mind also of relevance. First, these proceedings have been ongoing for some considerable time. It is clear that Mrs Kenneil is as familiar with the paperwork as her husband, probably more so. Secondly, Notes of Argument, 84 and 85 of Process, containing factual assertions and argument relating inter alia to the question of the deposit, have been lodged in Process on behalf of the Second Defender. They were lodged, as I understood it, by Caroline Kenneil exercising her Power of Attorney. It was accepted by counsel for the other parties that the documents were properly lodged on behalf of the Second Defender. The Second Defender's averments and arguments therefore required to be addressed; and it was therefore not a large step to allow Caroline Kenneil, who had in part drafted them, to speak to them. Thirdly, this hearing was fixed so that the matters remaining in dispute could be dealt with promptly. The second defender is presently out of the country. He has been represented by solicitors and counsel in the past, but he has just changed solicitors and with their assistance he drew up a Power of Attorney in favour of his wife. I was led to believe that he and his solicitors thought that this would enable his wife to speak on his behalf. Having considered the Power of Attorney and heard submissions about it, I formed the clear view that it did no such thing. Indeed, it would be difficult to see how it could achieve this purpose consistent with the rule to which I have already made reference about representation in Court only by advocates or solicitor advocates. To allow an exception whenever a party has granted a Power of Attorney to another would be to drive a coach and horses through that rule. Nonetheless, if the second defender had made arrangements with a view to his being represented at this hearing by his wife, it would have been manifestly unfair to him had I refused to let her speak for him and the hearing had gone ahead without him being represented at all. Equally, any discharge of the hearing fixed for this session would have defeated the purpose of endeavouring to get the remaining issues in dispute dealt with promptly. In all those circumstances, it seemed to me clear that I should allow him to be so represented at this hearing by Caroline Kenneil, and I so ruled.

 

The forfeited deposit of £370,000

[19] On behalf of the second defender, and by reference to the Notes of Argument lodged on his behalf, Caroline Kenneil made detailed submissions as to why the deposit should not be forfeited and why it should not form part of the proceeds of sale for general distribution. As I noted her submissions, they effectively fell under five heads. First, she submitted that her husband had been pushed or panicked into making the bid at too high a figure. He had wanted to bid at £3.4 million. Instead, because of what was said in the hours and minutes leading up to the bids closing, she had taken the decision on his behalf to bid at £3.7 million. It is perhaps sufficient to say, at this stage, that she did not suggest that Mr Rettie, the Reporter, was himself responsible for any statement which caused her or her husband to act in this way. She did, however, blame other parties, particularly the first defender and his lawyer, as well as her own lawyer. Secondly, she said that once the bids were opened, and it was clear that the second defender's was the highest bid, he and she were misled into thinking that there was no opportunity to renegotiate. Had they been allowed to renegotiate, she says, they could have reduced the price and have avoided the default which occurred. Again, it was not suggested that Mr Rettie himself was responsible for any such representation. Third, she complained that the missives between the second defender and the Reporter were altered in the course of correspondence so as to delete certain provisions about vacant possession and purification. She complained that neither she nor her husband had been aware of this at the time. She said that it had been the difficulties about vacant possession and marketable title that eventually led to the financial support for the bid falling through. Fourth, she said that, after missives were concluded, it became apparent that the Reporter was not fulfilling his obligations about vacant possession before completion. This caused, as before, the financial package upon which the second defender was relying to fall through. Fifth, she complained that the re-tendering process was not carried out fairly and above board. She had concerns, based upon what others had said, that the bid which was accepted was not in fact the highest; and that, in effect, steps were taken to prevent the second defender from acquiring the property.

[20] I was addressed on these submissions by Mr Lake on behalf of the first defender, as well as by Mr Wilson for the pursuer. It seemed to me that the proper approach to the problem was this. Since I was concerned with the sale of the property and distribution of the proceeds of sale, I should consider whether the second defender had set up a sufficiently arguable case to justify maintaining the "ring fence" around the forfeited deposit. If the Second Defender had set up a sufficiently arguable case for reduction of the first missives or for the return of the deposit, it would be wrong to allow these sums to be distributed and, perhaps, lost for good. On the other hand, if he had not set up a sufficiently arguable case, there would be no harm in allowing distribution of these sums as part of the proceeds of sale. There were no formal pleadings on the issue, but the second defender's submissions had been set out in a number of documents and took the form, in effect, of Notes of Argument with assertions of fact included. I considered that the proper approach was not necessarily to adopt a "relevancy" based scrutiny, but rather to consider whether in substance I was persuaded, on the material before me, that the arguments had any realistic possibility of success.

[21] I formed the clear view that the second defender's arguments had no realistic prospect of success. I propose to set out the reasons briefly. Since in my earlier opinion I had held that the contract of sale contained in the first missives was entered into by the second defender (as successful bidder) with the Reporter, any representation undermining the first missives had to be representation made by or on behalf of the Reporter. Further, any such representation had to be shown to be false, and it had to be shown that it had induced the contract. Mr Lake took me to the missives and showed how the questions of vacant possession and marketable title had been dealt with. Whether or not the second defender or his wife personally ever saw the missives or studied them in detail, it is perfectly plain that these matters were dealt with in the missives by solicitors acting on behalf of the second defender. Indeed, one of the matters complained of was introduced into the missives by solicitors for the second defender. There was nothing untoward about the missives. It follows that the third point relied upon on behalf of the second defender must fail. It also follows, in my opinion, that the complaint underlying the fourth point relied upon by the second defender is unfounded, since it is based upon the Reporter being under some absolute obligation in terms of the missives to secure vacant possession when the missives themselves show that this obligation was deleted. I am also satisfied that no sufficient averments have been made as to any misrepresentation by or on behalf of the Reporter inducing the sale so as to give rise to an argument that the missives should be reduced. Even if the Reporter had been responsible for any statement about being unwilling to renegotiate the price after the bid was accepted, I do not see how this could be regarded as a misrepresentation. It is axiomatic in the system of closed bids that once a bidding process is complete the highest bidder cannot simply turn round and insist on renegotiation. Nor can he reasonably expect the seller's agent to permit renegotiation. To allow this would undermine the whole bidding process. Finally, I am satisfied that the complaint about the re-tendering process is irrelevant to the issue of reduction of the missives or the return of the deposit.

[22] For all those reasons, I hold that the second defender has not shown any realistic prospect of being able to argue, successfully, that the deposit of £370,000 plus accrued interest should not be treated, along with other monies, as part of the proceeds of sale and available for distribution in accordance with the Court's order under Rule of Court 45.2(5). I would have come to the same decision even if I had been adopting a narrow relevancy approach to the second defender's arguments.

[23] However, I cannot leave this issue without observing that many of the allegations raised by Caroline Kenneil on behalf of the second defender amounted to allegations of fraud or dishonesty liberally cast around against a number of people. There was not, to my mind, any adequate basis set out upon which such allegations would be permitted to be made in Court by, for example, an advocate or solicitor-advocate acting on behalf of a party. This is one of the difficulties to which I have already referred of a party litigant presenting his own case, and it is similarly a difficulty which features in the particular circumstances of present litigation. Mr Lake and Mr Wilson were rightly concerned to point out, as also was Mr Hawkes for the Reporter, that their clients did not accept any of the allegations of fraud, bad faith or impropriety levelled against them. These issues, of course, were not the subject of any evidence, but it is right that I should record the fact that, quite apart from any legal objection to the relevancy of the points made on behalf of the second defender, the factual assertions underlying them were strongly disputed.

 

Distribution of the amount of the forfeited deposit

[24] On the basis that the forfeited deposit should be treated as part of the proceeds of sale, Mr Lake on behalf of the first defender submitted that nonetheless it should only be distributed between the pursuer and the first defender and not shared with the second defender. His reasoning was, as I understood it, that the deposit is intended to represent some assurance that the contract will proceed. Where a contract is breached, there is a right to damages, and here there was a loss in the amount of the difference between the price agreed in terms of the first missives and the price realised in terms of the second missives. The deposit should be regarded as a deposit on account of the second defender's liability in damages. For that reason it should be distributed to the parties who have suffered the loss. It seemed to me that this submission must fail. First, as I had held in my earlier Opinion, the contract contained in the first missives was a contract between the Reporter and the second defender. If any loss had been suffered, it had been suffered by the Reporter and not by the parties to the action. Although the difference between the price under the first missives and the price under the second missives was indeed greater than £1 million, I took the view then, and I adhere to it now, that the Reporter himself, having title and possession only for limited purposes, cannot be said to have suffered such a loss. Further, even if such legal niceties were stripped away, any loss felt by the parties would have been felt by each of three parties to the action and not just by the pursuer and the first defender. In those circumstances I could see no equity in distributing the amount of the forfeited deposit only between the pursuer and the first defender.

 

The Reporter's rights under the first missives

[25] Mr Lake next addressed me on what was to happen to the remaining rights under the first missives. The contract was not reduced, and the second defender was in breach. The Reporter had rights of action for breach. Since the Court had already held that the Reporter would not be authorised to commence an action for breach against the second defender, something had to be done about those rights. He submitted that they should be distributed to the parties to the action. Insofar as one third of those rights would end up with the second defender, that third would be extinguished. But this did not mean that such a transfer was incompetent. In the hands of the pursuer and the first defender those rights would be valuable assets which they could enforce. Mr Lake prayed in aid the right of a party under the Convention not to be deprived of his property. He said that once binding missives had been concluded, whereby the purchaser was obliged to pay £3.7 million, there was an entitlement on behalf of the three brothers to participate in £3.7 million.

[26] I rejected this submission also, for a number of reasons. First, if I am right that the Reporter himself suffered no loss, the transfer of a right of action to the parties could not be worthwhile. One cannot marry a cause of action for breach of contract, in respect of which the innocent party has suffered no loss, with the loss suffered by a different party who has no right of action. Equally, the argument based upon some expectation to an entitlement to £3.7 million proceeded, in my opinion, upon a false view of the position. Before the division and sale, the three parties to the action, as pro indiviso owners of the estate, had a legitimate expectation to receive the market value of the property. That was the limit of their "entitlement" if it can be called an entitlement at all. If, for whatever reason, the second defender's bid were above the market value, that did not alter the legitimate expectation of the three parties. Subject to the deduction of expenses of sale, the parties were still getting what they were entitled to expect, namely, the market value of the property.

[27] It did not seem to me that I needed to make any order about such rights as the Reporter might possess under the missives. As far as I am aware the Reporter does not intend to exercise such rights himself. Once the sale process is concluded his role will come to an end and the rights, such as they are, will come to an end too.

 

Expenses

Amount of expenses

[28] Turning to deal first with the amount of the expenses, it seemed to me that the fees charged by Strutt & Parker in respect of the first and second sales were effectively fees which had already been agreed by the parties or approved by the Court. In respect of the first sale, the interlocutor of 12 June 2004 specifically ordered Mr Rettie to intimate to the Deputy Principal Clerk of Session and the parties, within a period of 7 days, details of the basis upon which he intended to charge for his services in respect of effecting the sale. I was shown the letter sent within about 2 days of that interlocutor identifying that he intended to charge at the rate of 2% of the sale price. There was no objection of which I have been made aware. The interlocutor of 8 April 2005 authorised Mr Rettie to attempt to effect a new sale. That authority was given in terms of his report, which report, as I understand it, had attached to it a letter setting out that his fees for a resale to under-bidders would be at the rate of 1% of the resale price. The parties' solicitors were shown a copy of that letter and again there was no complaint. It seems to me, therefore, that I must take the fees of Strutt & Parker as fixed. I propose also to take the fees of the Reporter in preparing the report pursuant to the interlocutor of 31 March 2004 as undisputed.

[29] Issues were raised before me as to the amount of the fees billed by Shepherd & Wedderburn, solicitors acting for the Reporter in connection with the sale. It seemed to me that the appropriate course was to remit those fees to taxation. An amount has been provisionally deducted from the proceeds of sale in respect of the whole or substantially whole of the amount of the fees claimed by and paid to Shepherd & Wedderburn. Insofar as after taxation those recoverable fees are less than the amounts claimed, then there will be further sums to be paid into Court as part of the net proceeds of sale and distributed between the parties. It was agreed that in principle such sums will fall to be divided equally between the three parties, or to those claiming through them. The Reporter will bring the matter back to Court when the figures have been ascertained, rather than pay any resulting balance into Court, so that the question of further payment to the standard security holders, in particular Caroline Kenneil, can be considered and dealt with as appropriate.

 

Apportionment of expenses

[30] There were a number of motions concerning the apportionment of expenses. The principal issue in dispute was as to apportionment, as between the three parties, of the expenses of sale. Before turning to this I should mention certain matters which were briefly discussed. First, Mr Wilson on behalf of the pursuer, asked for the expenses of process up until the time that the Reporter was appointed in March 2004. These expenses were, in effect, simply the expenses of pleading the case out to the point at which it could be brought before the Court for a motion, of consent, for the Reporter to be appointed. These proceedings came against the background of earlier proceedings at which some of the issues had been elaborated. In the circumstances, it seemed to me that the steps of process at this early stage were simply a means by which the matter was brought to Court for the purposes of the sale; and I took the view that there should be no expenses due to or by any party in respect of this stage.

[31] Secondly, in my interlocutor of 2 February 2006 I reserved the expenses of the 2 day hearing on 9 and 10 January 2006. That hearing dealt with the question of the standard securities, and of whether the pursuer and the first defender had any direct right of action against the second defender so as to give them title to challenge those securities. Mr Lake, for the first defender, conceded that the Reporter's expenses of that hearing should be shared between the pursuer and the first defender, and Mr Wilson accepted that also. They submitted that the other parties, namely the second defender and Caroline and Bonnie Kenneil, the latter two having been involved in the January hearing in their capacity as holders of the standard securities under attack, should bear their own expenses. It seemed to me that the January hearings were concerned with a discrete issue which was occasioned by the decision of the pursuer and the first defender to pursue a claim against the second defender and to challenge the standard securities. I took the view that on this issue expenses should follow success and made an award that the pursuer and the first defender should not only bear the expenses of the Reporter in respect of the January hearings, but also should bear the expenses of the second defender and Caroline and Bonnie Kenneil. The expenses of the second defender and of the two latter individuals, as party litigants, will be taxed in the appropriate way.

[32] Third, there was the question of expenses since then. The hearing in February which followed my opinion would have had to take place in any event, as would the hearing before me now. It was accepted, as I understood it by all parties, and I would in any event have so decided, that the expenses incurred by the Reporter in respect of those hearings should be part of the expenses of sale, but that all other parties should bear their own expenses.

[33] I turn, therefore, to the main issue on apportionment of expenses. For the first defender, Mr Lake argued that the second defender was responsible for the enormously increased costs of the sale and should bear by far the larger proportion of those expenses. Mr Wilson for the pursuer associated himself with this submission. There was placed before me a schedule prepared by Mr Lake on the basis of invoices lodged in Court reflecting the fees of the Reporter, of Strutt & Parker and of Shepherd & Wedderburn. These totalled in excess of £350,000. A very significant part of those expenses was incurred in respect of the second sale. It was submitted that the second defender should be largely responsible for the additional expenses caused by the failure of the first sale, though it was accepted, as I understood it, that the exercise was not quite as simple as drawing a line after, for example, the conclusion of missives from the first sale, and adding up the expenses until an equivalent point of the second sale, for reasons which I will explain.

[34] The matter was complicated by the interlocutors already made on the question of expenses. I have noted, already, that the expenses of the Reporter and the expenses of the first sale were, in advance of each event, ordered to be borne equally between the three parties to the action. In addition, in my interlocutor of 2 February 2006, I found the pursuer, the first defender and the second defender liable in equal part for the expenses of sale "under exception that the second defender shall be solely liable to pay towards such expenses of sale the sum of £56,000 plus VAT in respect of his conduct having caused an increase in the amount of such expenses". Mr Lake argued that, in making such an order, I had intended only to make a provisional finding, simply for the purpose of enabling the mechanics of ingathering and distributing the proceeds of sale to take place. I cannot see why I would have needed to make a provisional finding for this purpose. The interlocutor does not bear such a construction. It bears to be a final determination in respect of the expenses of sale, at least up to that date. In that same interlocutor there were various deductions which the Reporter was authorised to make from the proceeds of sale on a provisional or estimated basis. Had it been intended that the finding of expenses was also to be regarded as provisional only, I consider that this would have been dealt with in the same way. Having looked back at my notes of the February hearing, which led to the interlocutor of 2 February, it seemed to me that I had intended to make a final determination in respect of those expenses. At all events, I am satisfied that the interlocutor has this effect and it is not open to me now to re-open that question.

[35] I am not, in any event, persuaded that I would have come to a different view had the matter been at large now. It is true that the figures I have now been given for expenses appear to differ markedly from those with which I was provided before making my decision in February. But the matter is not entirely straightforward. For example, it may well be that the legal expenses in respect of the second sale were greater than those in respect of the first, in that the second sale was more complicated. But its complication was due, in part at least, to the fact that it was a sale to a third party rather than to one of the three pro indiviso owners. All the questions about vacant possession and the requirement for a delayed completion that arose in respect of the second sale, and gave rise to considerable legal expense, would, in my opinion, have been likely to arise in respect of the first sale had that first sale not been to the second defender but to a third party. In those circumstances, to make the second defender pay the whole amount of the legal expenses relating to the second sale would penalise him unjustly, and over-compensate the other parties. I took the view that in respect of Strutt & Parker's fees, I should take their reduced percentage of 1% on the reduced price realised by the second sale as being a fair reflection of the addition to their fees caused by the second defender's default. Accordingly, it seemed fair to reflect the second defender's fault by making him liable for the Strutt & Parker fees of the second sale, but not the whole amount of the Shepherd & Wedderburn fees relating to the second sale. In those circumstances, the view I took in February was, in effect, that I should make the second defender liable for the Strutt & Parker fees of the second sale, but fix an amount of the Shepherd & Wedderburn fees which reflected, on a broad brush basis, what I considered to be the likely fees attributable to the second sale which would not have been involved in the first sale had it been to a third party. On the figures I was given in February, this was an amount of some £30,000 which, when added to £26,000 for the Strutt & Parker expenses of the second sale, gave me the figure of £56,000 which appears in the interlocutor. However, it is important to note that that £30,000 attributable to the extra Shepherd & Wedderburn fees was not intended to be the whole of their fees in respect of the second sale. I have now been shown fee notes for Shepherd & Wedderburn in respect of the second sale, or at least the period after the first sale, amounting to in excess of £120,000. Some of these fees are due to hearings for which a different order as to expenses has been made. Further, the whole of the Shepherd & Wedderburn fee notes will be remitted to taxation. What will emerge from taxation is an unknown, both to the parties and to the Court. In those circumstances I do not have material before me which persuades me that the allocation of expenses that I made in February was different to the allocation that I would now make if the matter were fresh before me.

 

Scheme of Division

[36] In the course of the hearing, I indicated my decision on the points argued before me. As a result, parties helpfully co-operated in drawing up a scheme of division of the net proceeds of sale. This took account of the fact that the first defender had contributed to the purchase by use of a "voucher" representing his potential entitlement as a seller, which voucher would be recouped from his entitlement to share in the proceeds. It took account also of the fact that part of the second defender's share had been paid out to holders of the standard securities. In the event, after deduction of the actual and estimated expenses of sale, and certain other adjustments to reflect the parties' different liabilities in expenses, the scheme of division showed the following payments to be due, namely (1) payment to the pursuer of the sum of 879,736.23, (2) payment to the First Defender of the sum of £85,441.69 and (3) payment to Caroline Kenneil of the sum of £302,915.03. The payment to Caroline Kenneil was on the basis that the Reporter confirmed that at least this sum was due to her on her standard security.

 

Interim payments

[37] For the pursuer, Mr Wilson moved the Court to order an interim payment in favour of his client of £700,000. His client had, as yet, received nothing. An interim payment of this amount would leave sufficient sums in the fund potentially due to him to cover any successful reclaiming motion by the second defender in respect of the forfeited deposit. All other parties were prepared to consent to this.

[38] Caroline Kenneil also moved for a further interim payment to her. It was her motion to this effect that had triggered the hearing in the first place. This was resisted by Mr Lake for the first defender. He said that his client might want to reclaim, in particular to challenge my decisions in January and February concerning the first defender's right of action against the second defender for breach of the first missives and his title to challenge the standard securities. If any such reclaiming motion were successful, it would affect the rights of the holders of the standard securities, to the extent that they remained unpaid, and in particular would affect the right of Caroline Kenneil to any further payment out. He submitted that there should be no further payment out to Caroline Kenneil until this was resolved, since payments to her would reduce the value of the fund eventually available for distribution after a successful reclaiming motion.

[39] At this stage of the argument it appeared that the Court was being asked to pronounce a final interlocutor concluding the whole matter. With hindsight it can be seen that this was unrealistic because there were a number of loose ends, such as taxation of Shepherd & Wedderburn's fees, which might have some impact on the final amounts available for distribution and therefore might require some further interlocutor. On the basis that the Court was intending to pronounce a final interlocutor, Mr Lake pointed out, correctly, that that would give an opportunity for parties to reclaim; and that any reclaiming motion would open up all previous interlocutors (to the extent not acted upon), including my decisions in January and February. Further, it would put on hold any order made as a result of this hearing, including any interim order for payment out to a party on account of his entitlement unless such interim order was made of consent. Therefore unless interim payment to Caroline Kenneil was ordered of consent, payment could not be made pending any reclaiming days or until final disposal of any reclaiming motion. Mr Lake told me that the first defender was not prepared to consent to an order for interim payment to Caroline Kenneil for the reasons already indicated.

[40] Whilst the approach taken by Mr Lake on behalf of the first defender was entirely understandable, it seemed to me to run counter to the obvious intent of my earlier interlocutor. In my interlocutor of 2 February 2006, giving effect to my decisions in January and February that the first defender (and, for that matter, the pursuer) had no title to challenge the standard securities, I authorised the Reporter to use the second defender's potential entitlement to the proceeds of sale, less certain deductions, "to discharge in whole or in part the standard securities"; and required him "thereafter" to consign the balance of the remaining funds in the hands of the Accountant of Court. I also made provision to the effect that in so far as there were further sums potentially available after final determination of the amount of the expenses of sale and/or after the position concerning the forfeited deposit had been clarified, the Reporter should use such sums, in an amount up to a third thereof, to pay outstanding sums due to the holders of the standard securities "and shall pay the balance into Court". The scheme clearly laid down in that interlocutor was that payments to the holders of the standard securities - the unassailability of which, at the suit of the pursuer and the first defender, had been determined in January - should occur before the balance of the funds was paid into Court. Neither the pursuer nor the first defender sought leave to reclaim against that interlocutor, as they could have done. I cannot now say whether, if leave had been sought, I would have granted it, but I suspect that I would not have done standing the need to progress the sale under the second missives.

[41] Pursuant to that interlocutor, payments were made in full to Bonnie Kenneil and in part to Caroline Kenneil. In the ordinary course, in accordance with the terms of that interlocutor, once the issues about the Reporter's expenses and the forfeited deposit had been resolved, there would have been further payments to Caroline Kenneil as holder of a standard security, again before the balance of the funds was paid into Court. The relevance of such payments being made before the balance was paid into Court is that until the funds are in Court and a scheme of division is approved, there can be no final interlocutor. It would have been consistent with my interlocutor of 2 February 2006 that further payments should have been made to Caroline Kenneil once certain issues, such as the fate of the forfeited deposit, had been resolved. Once a final interlocutor was pronounced, however, opening up the possibility of reclaiming, this intention would be frustrated if a reclaiming motion were marked.

[42] It seemed to me at that point in the argument, and (subject to the caveat I have mentioned) I remain of that view, that we had only reached this difficulty because of the interlocutor pronounced at the beginning of the hearing authorising the transfer of the funds into Court, albeit that the full payments had not yet been made to Caroline Kenneil as holder of a standard security. Until that was done, there could have been no question of a final interlocutor being pronounced at the end of this hearing; and the question of reviewing the earlier decisions could not have arisen at this stage. It seemed to me, therefore, that contrary to the intention expressed in the interlocutor that the transfer of the sale proceeds into Court was not to prejudice the right of any party or security holder, the transfer of the funds into Court was being used to prejudice the position of Caroline Kenneil, in that it was being used as a trigger for procedure which would stop her being paid in accordance with the 2 February interlocutor. Put another way, that mechanistic process of transferring the funds into Court was threatening to subvert the earlier interlocutor.

[43] I indicated to the parties, in particular to Mr Lake for the first defender, that unless there was consent to a further interim payment to be made to Caroline Kenneil as part of a final interlocutor, I would consider whether it might be better make such an order without consent and defer making a final interlocutor until a later date - as I have indicated, I now realise that this was inevitable, but this was not apparent at the time. I also suggested that there was no reason why his client should not also seek an interim payment. In light of these observations and after an opportunity for all parties to consider their position, I was told that each party was prepared to consent to interim payment to the others in the full amount shown provided that the other parties also gave reciprocal consent. In the event, therefore, I was able to make orders of consent for such payments.

[44] I recognise that in the case of some, and perhaps all, parties this consent may have been given reluctantly. I would simply express the hope that the parties, in so consenting, may have given an indication that their appetite for further litigation is reduced; and, by so consenting, have removed much of its point.

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