Scottish Court of Session Decisions

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URL: http://www.bailii.org/scot/cases/ScotCS/2008/CSIH_47.html
Cite as: [2008] CSIH_47, [2008] ScotCS CSIH_47, 2008 SC 667, 2008 GWD 29-442, [2008] CSIH 47, 2008 SLT 855

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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Eassie

Lord Wheatley

Lord Marnoch

[2008] CSIH 47

OPINION OF THE COURT

delivered by LORD EASSIE

in the cause

THOMAS RUDDY

Pursuer and Respondent

against

MONTE MARCO & OTHERS

Defenders and Reclaimers

_______

Act: Hajducki QC, Lloyd; Anderson Strathern LLP

Alt: R Milligan; Anderson Fyfe LLP

25 July 2008

[1] Following a proof in this action of reparation in respect of personal injuries the Lord Ordinary, by interlocutor dated 7 March 2008, granted decree against the first defender for payment of a sum of damages; he assoilzied the second defenders. Against that interlocutor the first defender has now reclaimed.

[2] The pursuer and respondent sustained his injuries on 5 October 2002 when he was working in a warehouse at 137 Shawbridge Street, Pollockshaws, Glasgow owned by the second defenders. The first defender and reclaimer was then, and at the time of the proof, a director of the second defenders. He and his wife were the only shareholders in the second defenders. In July 2002 vandals had set fire to the roof of the warehouse, causing damage to a part of the roof and significant smoke damage to the subjacent walls and flooring of the relevant part of the warehouse. Over the summer of 2002 the damage to the roof was repaired by a roofing contractor. At some point in the early Autumn of 2002 the first defender spoke to the pursuer and asked him to carry out work at the warehouse, including cleaning and painting the walls, the arrangement being that the pursuer would be paid a cash sum of £40 (or £50) per day.

[3] At the proof before the Lord Ordinary a number of issues were in contention. These included matters with which this reclaiming motion is not concerned, such as the nature of the work upon which the pursuer was engaged at the time; the circumstances of the accident; whether he was instructed to do the task upon which he was apparently engaged at the time of the accident; and whether, assuming him to be employed, fault could be attributed to the employer. Another issue was whether the pursuer was working as a self-employed contractor or was working under a contract of employment. In that latter event, there was then an issue as to whether the employer was the first defender (as an individual) or the second defenders. The Lord Ordinary rejected the contention that the pursuer was engaged as a self-employed contractor. No challenge is advanced as to the Lord Ordinary's conclusions in that respect. The only aspect of matters before the Lord Ordinary which is raised by the first defender in this reclaiming motion is the attribution by the Lord Ordinary of personal liability to the first defender as being the employer of the pursuer in relation to the work in question.

[4] In consequence of the serious injuries which he sustained the pursuer was unable to give any meaningful evidence respecting either the circumstances of the accident, or his engagement, or his previous work history. But evidence was led touching the last of these matters from members of his family. The facts found by the Lord Ordinary relating to, among others, all of these matters are set out by the Lord Ordinary in his opinion http://www.scotcourts.gov.uk/opinions/2008csoh40.html. But for present purposes we can summarize the facts relevant to the issue raised in the reclaiming motion as is set out in the following five paragraphs.

[5] First, the pursuer could not be said to be someone whose employment status was, or had been, regular. The Lord Ordinary summarizes the evidence thus in paragraph [17]:

"[17] Overall, the impression created by all the evidence on this aspect was that the pursuer was a person whose primary and regular income derived from state benefits, but who would work casually from time to time as a painter, decorator or odd job man to supplement his benefit. He would have worked for persons other than the first defender or his companies, but the extent of that work is impossible to gauge with any certainty. It was at best spasmodic. He would have been concerned to conceal his casual engagements from the Benefits Agency and would therefore not have worked for anything other than cash. He would not have wanted his name to appear on any documentation; be it work records, job schedules, invoices or receipts. He would not have wished to enter into the PAYE scheme or to pay any National Insurance contributions."

[6] The first defender was a director of a number of companies. As the Lord Ordinary notes in paragraph [19] of his opinion, the pleadings for the pursuer aver that:

"The pursuer and the first defender had known each other for a period of some ten years prior to the accident. They had an established relationship, whereby the first defender would, from time to time, phone the purser, and engage him to do work, for one or other of his various companies."

The Lord Ordinary goes on to say in that paragraph that:

"The essence of the pursuer's case on record is thus that he was engaged by the first defender, but these engagements were to work for the first defender's companies."

It appears that of such employments only two specific incidences were canvassed in the evidence. These were (a) general maintenance work done by the pursuer at a plant operated by VP Packaging Limited in Barrhead, where whisky and other drink related items were packaged; and (b) work at a jewellery shop in the Pollock Centre operated by another company, Veyco Limited.

[7] There were no signs or other features at the warehouse in which the pursuer sustained his accident to indicate that it was owned or occupied by the second defenders. No trading or other activity was being carried out in the relevant part of the warehouse.

[8] In respect of his work at the warehouse, the pursuer was paid in cash by the first defender on every Friday afternoon. But the sums so paid were reimbursed to the first defender by cheques drawn on the second defenders' bank account and the sums in question were entered into the second defenders' accounting records and were included in the second defenders profit and loss account under the entry "repairs and renewals" or "clean up".

[9] The charges invoiced by the roofing company for repairing the roof were invoiced to and paid by the second defenders.

[10] The arrangement whereby the pursuer was engaged to carry out the work at the warehouse was entirely oral. In his evidence to the Lord Ordinary the first defender maintained that he had offered to pay the pursuer "through the books of the company" but, as in the past, the pursuer had declined this. The first defender also testified in his evidence that he had mentioned the second defenders by name as being the company in question. The Lord Ordinary rejected those particular aspects of the first defender's testimony as being not credible. In paragraph [46] of his opinion he says:-

"[46] The first defender's evidence that he told the pursuer of the second defenders' involvement with the warehouse, or indeed the involvement of any company in the warehouse, is rejected as not credible. The same applies to his assertion that the pursuer would have known of this involvement. There was nothing to inform the pursuer of this involvement. The first defender may have offered to put the pursuer "through the books" but, even if the pursuer might have thought that such an arrangement would have involved him formally working for a limited company, that arrangement was declined. There would have been little practical purpose in the first defender mentioning the involvement of the second defenders, unless he was actively thinking of potential legal pitfalls, which is not likely. What the first defender was interested in doing was selling or leasing the warehouse as soon as possible and achieving that by cleaning up the damage caused by the fire as cheaply as possible. He was prepared to engage the pursuer on a purely "off the record" cash basis, as was the pursuer to reciprocate. The name or the existence of the second defenders would have meant nothing to the pursuer. It is not at all likely in the context of such a cash transaction that there would be any mention of a corporate entity. It was a simple arrangement between the first defender and the pursuer. Under it, the pursuer would not have looked to a corporate entity to pay his wages. He would have looked to the first defender personally to do that and the first defender did so. The first defender provided no documentation or other material to advise the pursuer that he was contracting with anyone other than himself as an individual. The pursuer's contract was with the first defender as such an individual and not as an agent for a principal, disclosed or not. Looking at all the circumstances of the arrangement, the pursuer was employed by the first defender."

[11] While taking issue with the conclusions drawn by the Lord Ordinary in the two concluding sentences of that paragraph, counsel for the first defender did not seek to challenge the Lord Ordinary's rejection of the first defender's testimony to the effect that he had made plain to the pursuer when he asked him to do the work that he would be employed by the company and that the company was the second defender. However, counsel submitted that it was open to the first defender in this reclaiming motion to challenge the inferences drawn by the Lord Ordinary from the primary facts - in particular the Lord Ordinary's conclusion that the pursuer was employed by the first defender as an individual. In that respect reference was made Benmax v Austin Motor Co Limited [1955] AC370 per Lord Reid, 376; and to Barber v Somerset County Council [2004] UKHL13 [2004] 1WLR 1089, per Lord Scott of Foscote at para [11] ff.

[12] The key primary facts in question were submitted by counsel for the first defender to be that (a) the warehouse premises were owned by the second defenders; (b) the wages paid to the pursuer were provided by the second defenders and included in their accounting records as part of the costs of the repair of the warehouse; moreover the roofing costs invoiced by the roofing contractor were invoiced to and paid by the second defenders; and (c) previously, the pursuer had only been engaged by the first defender in his capacity as an agent for one or other of the companies of which he was a director. The Lord Ordinary had recorded that the second defenders, having no active employees, had no employers' liability insurance. But that was an irrelevant factor. The proper conclusion to draw from the primary facts was that in engaging the pursuer's services the first defender was acting as an agent for the second defenders (agency being admitted by the second defenders on their pleadings).

[13] Counsel for the reclaimer further submitted that in light of those particular primary facts, and having regard to the averment (already quoted) to the effect that previously the pursuer had done work for one or other of the first defender's various companies, the pursuer knew, or ought to have known, that when engaging him to work at the warehouse the first defender was acting as agent for a company. In that respect counsel also referred to the evidence given by the pursuer's wife, Mrs Ruddy, recorded by the Lord Ordinary in paragraph [44] of his opinion to the effect that her husband would be aware that the first defender operated a number of companies which had premises in the city and that her husband would be aware that the premises would be owned by those companies. Counsel for the first defender further submitted that in those circumstances the proper inference to draw was that the pursuer's contract of employment was with the second defenders and that the first defender was not the individual employer with individual responsibility.

[14] In support of that proposition counsel for the first defender referred to Bowstead & Reynolds on Agency (18^th edition) article 97 (para 9 -001) and the succeeding paragraphs of commentary on that article. Article 97 sets out the general rule that -

"In the absence of other indications, when an agent makes a contract, purporting to act solely on behalf of a disclosed principal, whether identified or unidentified, he is not liable to the third party on it. Nor can he sue the third party on it."

Reference was also made to Armour v TL Duff & Co 1912 SC 120, 123; the "Santa Carina" [1977] 1 Lloyds LR 478, 481; and to Teheran - Europe Co Limited v ST Belton (Tractors) Limited [1968] 2QB 545 per Diplock LJ, 555. Further, in a case in which the agent was a director of an incorporated company, it was important to keep in mind the separate juristic personality of the company and not to set it "at naught" by attributing a personal liability to the director - cf Williams v Natural Life Limited [1998] 1 WLR 830 per Lord Steyn, 834 ff.

[15] In response Mr Hajducki, who appeared for the pursuer and respondent submitted that the Lord Ordinary was entitled to come to the conclusion which he reached. It was important to recognise that the two identified previous engagements were very different. Both involved the pursuer working in a trading business, alongside other employees, where the name of the trading company was known and displayed. But as respects the activity in the warehouse, there was nothing to disclose its ownership; and there were no other employees. What mattered was not the thinking of the first defender, but what was shown to have been communicated to the pursuer. In that respect counsel referred to the passage at 835F in the speech of Lord Steyn in Williams v Natural Life Limited. At best for the first defender, on the Lord Ordinary's undisputed findings, the first defender was acting as an agent for an undisclosed principal, in which event it was clear that the agent was personally liable. Counsel referred in that connection to paragraph 29.8 in Walker on Obligations (3^rd edition). Reference was also made to the preceding paragraph, 29.7, discussing liability for a disclosed, but unidentified, principal.

[16] As respects the role of an appellate court respecting its ability to review findings of fact, or of mixed fact and law, counsel for the pursuer referred additionally to Lee Ting Sang v Chung Chi-Keung & Another [1990] 2 AC 374; Biogen Inc v Medeva Plc 1997 RPC 1 and Arrow Generics Limited v AKZO BV [2008] CSIH 31; 2008 SLT 589, at paragraph [84].

[17] In a response on this latter aspect of the argument counsel for the first defender and reclaimer adverted us to R v H [2007] UKHL7, at paragraph [107].

"The pursuer's contract was with the first defender as such an individual and not as an agent for a principal, disclosed or not."

To the extent that the Lord Ordinary wholly excludes agency we think that criticism to have merit. But, in a question with the pursuer, the fact that the first defender was de facto acting as agent for the second defenders is, of course, not the end of matters.

[19] Taking the first defender thus to have been acting as agent of the second defenders, the focus must then pass to the state of communication between the first defender and the pursuer at the time at which the engagement to carry out the work was concluded. As already mentioned, the first defender deponed that he had specifically offered to put the pursuer "through the books of the company" and had mentioned the second defenders by name. The Lord Ordinary rejected this evidence in paragraph [46] of his opinion, quoted above. In light of that rejection, and of what we have said in the preceding paragraph of this opinion, it would follow that the first defender was acting as agent for an undisclosed principal. It is not in doubt that an agent for an undisclosed principal incurs liability to the third party with whom he contracts unless the third party, on learning of the existence of the principal, elects to hold the principal liable (cf Walker para 29.8). No question of election was said to have arisen in the present case. So, as agent for an undisclosed principal the first defender is yet subject to personal liability.

[20] But even if the circumstances of the prior relationships between the pursuer and the first defender should have alerted the pursuer to the first defender's operating a number of companies (cf the evidence of Mrs Ruddy to which reference has already been made) and even if the pursuer might, on that account, have reason to believe that the warehouse was owned by a company, the Lord Ordinary's rejection of the first defender's evidence of his having told the pursuer specifically of the second defenders means that, on this hypothesis, at best for the first defender, he was acting on a disclosed agency but for an unidentified principal.

[21] In paragraph 29.7 of his work with the headnote "(ii) Agent acting for disclosed but unidentified principal" Professor Walker states:

"Where an agent, having authority to contract, does so, disclosing that he is acting for a principal but not disclosing the latter's identity, the other party cannot rely on the latter's credit and is entitled to sue the agent personally".

For this proposition, which, in its unqualified terms, does not coincide with the general rule expressed in Bowstead and Reynolds in article 97, the author cites various authorities not all of which appear wholly to support the proposition in those categorical terms. However, the practical consideration that, unless the principal is identified, (or readily identifiable from some public register as in the case of Armour v T L Duff & Company) the third party creditor cannot assess his worth, or indeed proceed against him, and must therefore trust to the agent's credit is evident in some of those authorities, particularly Dores v Horne and Rose [1842] 4 D 673 and in our view provides reason for thinking that as a matter of general, or prima facie, rule the proposition is sound. Professor Wilson in his work The Scottish Law of Debt, page 308 (to which it is acknowledged we were not referred) says that :

"Where the agent has contracted expressly as agent for a principal whose name is not disclosed, the position is not altogether clear but it seems that the agent may be liable".

Among the authorities cited in the footnote to that passage is Gloag on Contract (2^nd edition) page 138 where Gloag points out that where, as agent, someone sells a specific article the purchaser must normally look to the owner, the unidentified principal, for specific implement of that obligation. So at least one aspect of the lack of clarity identified by Wilson appears to relate to that specialty. We also note the discussion on this topic in paragraphs 137 to 146 of the "Reissue" article on "Agency and Mandate" by Laura Macgregor in the Stair Encyclopedia (to which we were also not referred).

[22] In any event we also observe that the commentary to article 97 of Bowstead and Reynolds imports some qualification of the general rule stated in that article. In that commentary the authors state:-

"..the mere fact that a person acts as an agent and is known to do so does not necessarily negate his involvement in the transaction. It has more recently been said that 'it is not the case that, if a principal is liable, his agent cannot be. The true principle of law is that a person is liable for his engagements (as for his torts) even though he acts for another unless he can show that by the law of agency he is held to have expressly or impliedly negatived his personal liability'"

[23] Preceding on the basis of such authority as was cited to us, we have come to the view that even if the circumstances were such that the pursuer might have appreciated, or even ought to have appreciated, that the first defender was acting for one or other of his companies, in other words, that he was acting for a disclosed but unidentified principal, in order to escape personal liability the first defender had to show that he expressly or impliedly negatived personal liability. In other words the circumstances required to be such that, consonant with the thinking of Dores v Horne and Rose, and also with Macgregor's preference (para 140) for the reliance on credit approach, it was evident that the pursuer did not trust to the credit of the first defender but to the credit of his unidentified principal.

[24] In the factual circumstances found by the Lord Ordinary we do not consider that this test is met. Since the Lord Ordinary rejected the first defender's evidence of what he claimed to have stated to the pursuer when engaging him to perform the work, the Lord Ordinary's finding, in paragraph [46], that the pursuer would have looked to the first defender personally to pay his wages cannot, in our view, be challenged.

[25] Accordingly, while we do not agree with the Lord Ordinary's opinion in so far as he appears to have rejected the first defender's having acted as an agent for the second defender (a finding which may have consequences as respects the first defender's ability to obtain relief or reimbursement from the second defenders) we conclude that in any question with the pursuer the Lord Ordinary reached a correct result, given his findings on the evidence.

[26] For those reasons, this reclaiming motion must be refused.