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OUTER HOUSE, COURT OF SESSION
[2008] CSOH 107
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A2381/02
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OPINION OF LORD EMSLIE
in the cause
ROYAL INSURANCE (UK)
LIMITED
Pursuers;
against
AMEC CONSTRUCTION (SCOTLAND)
LIMITED and OTHERS
Defenders:
ญญญญญญญญญญญญญญญญญ________________
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Pursuers: McNeill, Q.C., McLean; DLA
First Defenders: Howie, Q.C., Borland; MacRoberts
Second Defenders: Johnston, Q.C.; Simpson & Marwick
Third Defenders: Doherty, Q.C., MacColl; Brodies
25 July 2008
Introduction
[1] Between 1987
and 1990 several buildings in central Glasgow
underwent major reconstruction works involving the respective defenders as contractors,
architects and structural engineers.
Significant problems manifested themselves some years later, and the
pursuers' claim covers inter alia disturbance
and remedial costs relative to one of the buildings of which they became
tenants in 1991. The action was
raised in September 2002, and is principally founded upon alleged breaches
of collateral undertakings which the respective defenders granted in the
pursuers' favour relative to the conduct of the reconstruction works. In addition the pursuers assert a contractual
right, by virtue of the same collateral undertakings, to be indemnified against
the losses which they have sustained.
[2] Since 2002
the action has had a chequered procedural history involving changes of front by
the pursuers and, in parallel, a series of disputes arising out of the
defenders' determined efforts to have the pursuers' claims dismissed or
restricted on legal or procedural grounds.
This latest dispute takes the form of an opposed motion by the pursuers
for amendment of their instance so as, for the first time, to state the trustee
capacity in which they sue, and in order to set that dispute in its proper
context it is convenient to begin with a brief outline of the prior procedural history
of the case.
[3] Following
lengthy adjustment and amendment procedures, during which the pursuers
temporarily made averments of loss based on the decision in Alfred McAlpine Construction Ltd v Panatown Ltd, 2001
1 A.C. 518 ("Panatown"), a
debate on the first and third defenders' preliminary pleas took place in the
latter part of 2005. In essence,
the issues raised at that debate concerned the pursuers' entitlement to claim
disturbance and remedial costs where multiple relevant invoices had apparently
been rendered to and paid by third parties.
At that stage, the argument of the first and third defenders was
formally directed to the relevancy of the pursuers' pleadings, and the
pursuers' fundamental title and interest to pursue the action as a whole were
not in issue. Following that debate a proof
before answer was allowed, and a 12-week diet was subsequently set down to
commence on 25 September 2007.
[4] From
November 2006, however, further extensive amendment procedure took place
in the course of which the first defenders, followed by the second and third
defenders, tabled a formal challenge to the pursuers' title and interest to
maintain the action. In particular the
first defenders averred the disclosure, in the pursuers' own statutory accounts
for the year ended 31 December
1992, of an arrangement whereby
"... With effect from that date the pursuer
transferred not merely its whole insurance business and staff to Royal
Insurance PLC, but all its assets and liabilities as well."
The relative balance sheet, it was
averred, showed that the value of leasehold property held by the pursuer was by
the same date reduced to nil, as indeed was that of its other former
assets. In these circumstances, the
first defenders alleged that the collateral undertakings under which the
pursuers bore to sue, and the lease representing their supposed interest in the
building, had ceased to be their property prior to the inception of these
proceedings. They therefore called on
the pursuers to condescend upon the basis on which any title or interest to
insist in this action could be supported.
[5] By
way of adjustment to their answers in February and June 2007, the pursuers
responded in inter alia the following
terms:
"Until
about 1992, the pursuers carried on business as insurers in the United
Kingdom and elsewhere. They did so as part of the Royal Insurance
group of companies. Their staff occupied
the premises. During the course of 1992,
the said group reorganised their businesses.
As a result, at the end of 1992, the insurance business carried on
in the United Kingdom
by the pursuers was transferred to another company within the group, namely
Royal Insurance PLC (PLC), although until about 1996 the pursuers
continued to conduct some insurance business outwith the United
Kingdom.
After said transfer at the end of 1992, the staff previously
employed by the pursuers at the premises became employees of other Royal
Insurance group companies. The pursuers
employed no staff themselves in the United
Kingdom from the end of 1992. The legal framework for the said business
transfer was provided by an Agreement between the pursuers and PLC dated 31 December 1992. The Agreement is governed by English
law. In terms thereof as construed under
English law, the pursuers declared themselves to be bare trustees of the assets
that they held, insofar as said assets were not required by PLC to be conveyed
to them, for the benefit of PLC. The
pursuers' interests in the said lease and in the undertakings ... have not
been required to be conveyed to PLC and are accordingly held by the pursuers as
bare trustees under an English trust for the benefit of PLC. As such, the pursuers retain title and
interest to pursue this action. The
pursuers remained and remain as tenants under the said lease, subject to the
said tenants' obligations. They provided
accommodation for employees of other Royal Insurance group companies in the
premises on an informal basis. The
pursuers remained and remain liable to the landlords for payment of the rent
and related payments due under the said lease, but have been relieved of those
charges by other Royal Insurance group companies in consideration of the fact
that group employees were occupying the premises."
[6] When
the Closed Record was finally amended in June 2007, all three defenders
had preliminary pleas and supporting averments to the effect that, on the
pursuers' own pleadings taken pro
veritate, the latter had no title or interest to pursue the action in their
own right. The critical assets and
liabilities were now vested in the pursuers in a different legal capacity,
namely that of trustees, and as the instance confirmed this was a capacity in
which they did not sue. In light of that
development it was necessary to consider whether the pending proof should still
proceed or whether, as the defenders maintained, the new challenge to the
pursuers' title and interest was sufficiently important to be the subject of a
fresh procedure roll debate instead. By
interlocutor of 6 July 2007
I granted the defenders' opposed motion for discharge of the diet of proof, and
in its place re-appointed the cause to the procedure roll on the respective
defenders' new preliminary pleas.
[7] Thereafter,
for the reasons more fully set out in my opinion dated 9 November 2007, I rejected the defenders'
challenge to the pursuers' title and interest to pursue this action
notwithstanding the absence of any reference in the instance to the trustee
capacity in which their claim was said to be advanced. Although the action was raised in
September 2002, ostensibly by the pursuers in their own right as an
individual corporate entity, it was only between late 2005 and mid-2007
that it emerged (and was belatedly averred) that in fact the relevant cause of
action had all along been held by the pursuers as bare trustees under an
English trust pursuant to the corporate restructuring of the Royal Insurance
group in 1992. According to the defenders,
this revelation was fatal to an action commenced on the wrong footing; the pursuers as an individual corporate
entity lacked title and interest to sue when the action was raised, and could
not competently cure that lack pendente
processu; and their non-observance
of the established rule whereby a pursuer's special capacity must be stated in
the instance of a summons was a further ground on which the defenders' pleas
should be sustained. In my judgment,
however, the pursuers' title and interest to sue could not sensibly be impugned
where they were the only legal persona
involved at any stage; where they had
throughout held all requisite capacities for the purposes of this action; where no relevant capacity, title or interest
had ever been held by any third party;
and where the focus of the defenders' complaint might thus realistically
be regarded as technical, and as a matter of form, in respect that the pursuers
did not initially design themselves as trustees in the instance of the summons.
[8] Having
reached that conclusion on the substantive issue of the pursuers' title and
interest to sue, I went on to hold that the court could not simply ignore the
pursuers' omission to design themselves properly in the instance, and that
their non-observance of the established rule in that regard rendered the
summons defective in form and thereby incompetent. As a matter of proper practice, in my view, the
action could not be allowed to proceed while the instance remained as it was.
The present dispute
[9] In response to the
foregoing decision, the pursuers now seek to amend the Record by adding at the
end of their own instance the words "... as trustees for Royal Insurance plc
conform to an Agreement between Royal Insurance plc and the pursuers dated 31 December 1992". They maintain that these additional words merely
supplement their designation, curing a technical want of form, and that there
could be no valid bar to amendment along such lines.. By contrast the defenders characterise the
proposed amendment as an illegitimate attempt to cure, if not a fundamental
lack of title or interest to sue, then certainly a radical incompetence having
substantial legal consequences. In
addition they maintain that any contractual or other obligation on their part
towards the pursuers as trustees has been extinguished by the operation of the
five-year prescription under Sections 6 and 11 of the Prescription
and Limitation (Scotland)
Act 1973, as amended. In these
circumstances the defenders contend that the pursuers' motion to amend should
be refused outright, and further that the action should be dismissed as both
incompetent and out of time. Failing
that, in their submission, the amendment should only be allowed upon onerous
conditions regarding the payment of expenses.
[10] In the further debate which I have now heard on the above
issues, the parties were in agreement on certain matters. In particular,
(i) By reference to
authorities such as Pompa's Trustees
v Edinburgh Magistrates 1942
S.C. 119, O'Hare v Western Heritable Investment Co Ltd 1965
S.C. 97, Hynd v West Fife Co-operative Ltd 1980
S.L.T. 41, Sellars v IMI Yorkshire Imperial Ltd 1986
S.C. 235, and Gray Aitken
Partnership Ltd v Link Housing
Association Ltd 2007 S.C. 294, the question whether to allow or
refuse any amendment of pleadings was properly to be seen as a matter of
discretion for the court.
(ii) However,
Lord Justice Clerk Cooper in Pompa's
Trustees, at p.125, had set out three principal restraints which would
operate upon the court's discretion in circumstances where a relevant
time-limit had already expired. The
relevant passage in his Lordship's opinion was in the following terms:
"Further, our reports contain many
decision showing that the Court will not in general allow a pursuer by
amendment to substitute the right defender for the wrong defender, or to cure a
radical incompetence in his action, or to change the basis of his case if he
seeks to make such amendments only after the expiry of a time limit which would
have prevented him at that stage from raising proceedings afresh."
That passage had been
approved and applied on many subsequent occasions, and in Gray Aitken it had been held applicable, by analogy, to
amendments seeking to substitute the right pursuer for the wrong pursuer. Moreover, while the terminology used by
Lord Justice Clerk Cooper might appear more suited to limitation cases,
where allowance of a minute of amendment would signal the end of the defenders'
claim to statutory protection, it was accepted that the same principle should, mutatis mutandis, apply in the context
of the negative prescription as well.
Amendment there would not have the effect of reviving a claim which had
already been extinguished, but as a general rule the court should still be slow
to permit amendment in the face of major defects. Once again, this was confirmed by the
decision of the First Division in the Gray Aitken
case.
(iii) Where the general rule
in Pompa's Trustees applied, the
force of the restraints upon the court's discretion was emphasised by the
Lord President in Hynd at p.43 as
follows:-
"It is not difficult to appreciate
that it would be quite improper, and to that extent an incompetent exercise of
the court's discretion to allow a pursuer by amendment to defeat the protection
afforded to a defender by the limitation statutes."
Thus the scope of the
qualification '... in general' in Lord Justice Clerk Cooper's formulation
might be quite limited, perhaps going no further than the reliefs now available
to pursuers under Sections 6(4), 11(3) and 19A of the 1973 Act. On the other hand, the qualifying words might
be thought wide enough to permit the allowance of any amendment where to refuse
it would be unconscionable or contrary to the interests of justice.
[11] In
essence the parties' dispute before me was focused on four main issues, namely
(a) whether the pursuers' claim qua
trustees had prescribed, in respect that their trustee status had not been
disclosed, and the present minute of amendment had not been brought forward,
until more than five years had elapsed since this action was raised; (b) if so, and if the action were not
simply to be dismissed on that ground, whether the restraints in Pompa's Trustees should operate so as to
preclude allowance of the amendment;
(c) whether, having regard to the whole circumstances, and in particular
the pursuers' conduct in and after 2002, the court's discretion should be
exercised in their favour anyway; and
(d) in the event of all of these issues being decided in the pursuers'
favour, whether allowance of the proposed amendment should be made subject to
conditions on expenses. For convenience,
I propose to deal in turn with each of these issues below.
Prescription
[12] In asking me to dismiss the pursuers'
claim as having prescribed under sections 6 and 11 of the 1973 Act,
counsel for the respective defenders stressed that no mention of the pursuers'
trustee status had appeared on Record until 2007, and that the present
minute of amendment had been brought forward more than five years after the
commencement of proceedings in September 2002. If necessary the defenders would argue
prescription on broader grounds, going back to the period before 2002, but for
present purposes it was sufficient that the action ― ostensibly brought
by the pursuers in their own personal capacity as an "individual corporate
entity" ― had been in court for a continuous and uninterrupted
period of more than five years before the present minute of amendment was
lodged. No proceedings having been taken
by the pursuers qua trustees during
that period, the running of prescription had not been timeously interrupted and
any obligation owed by the defenders towards the pursuers in that capacity had
been extinguished by operation of law.
The defenders' contractual undertakings had been granted
in 1989; any relevant iniuria had occurred in or
before 1990; manifest damnum came to light some years after
that; and the pursuers must throughout
be deemed to have been aware of their own trustee status and consequent cause
of action.
[13] With
limited exceptions, the running of prescription could only be interrupted by
the making of a "relevant claim" under section 9 of the Act, or by receipt
of a "relevant acknowledgement" under section 10. In either case, the claim or acknowledgement
must relate to the obligation in question, and must be made to or by the "creditor"
in that obligation. In the defenders'
submission the creditor in any obligation which they might owe was the pursuers
qua trustees, since it was solely in
that capacity that, since 1992, they had had any entitlement to found upon
the contractual undertakings granted in 1989.
Self evidently, it was said, the pursuers as trustees had made no such
claim until the present minute of amendment was tendered, and that came too
late for prescription purposes.
[14] On the
authorities, identification of the creditor in an obligation for the purposes
of section 9 depended not merely on title but critically on capacity as
well. It was not sufficient for the
correct person to make a claim in appropriate proceedings
if he did not do so in the correct capacity. As stated in Johnston, Prescription and Limitation, at para. 5.33:
"... the same person may have
claims in two different capacities, such as a claim in person and a claim as
executor. These claims are subject to
different prescriptive regimes, so a claim made in one capacity will not serve
to interrupt prescription of a claim in the other."
Thus a timeous monetary claim by a pursuer in his own
right did not save from prescription a parallel claim later acquired from his
sister: Robertson v Robertson (1776)
M. App. "prescription" No. 2; Hailes' Decisions, p.707. A claim founded on escheat did not interrupt
prescription on a later claim based on a general disposition: Blair v
Sutherland (1735)
Mor. 11270; Home's Decisions, No. IV.
Similarly, suing in the capacity of executor would not save from
prescription a claim as an individual, and vice
versa: Robertson v Watt & Co,
Second Division, 4 July 1995 (unreported);
Herries v Heath (Scotland )Ltd, Extra Division, 15 May 1998 (unreported).
[15] Of
particular importance here was the case of Stuart
v Stuart 1869
7 M. 366, where the court confirmed that a counterclaim brought in
the wrong capacity was incompetent and must be dismissed. There the pursuer had sued the defender for repayment
of a loan, and in his counterclaim the latter, as executor of his late father,
had sought to set off certain outstanding advances which had been made by his
father to the pursuer in the past. In
holding this counterclaim to be incompetent the critical importance of capacity
was affirmed by the court, and in the defenders' submission it was essential
that the same should apply in the context of prescription. Otherwise, it was said, there would be an
anomalous and unacceptable difference between the law of prescription and the
law relating to debt.
[16] For all
of these reasons, the defenders maintained that there could be no question of a
relevant claim having been timeously brought by the pursuers qua trustees so as to interrupt the
running of prescription. Senior counsel
for the pursuers had candidly accepted, in his submissions, that in
September 2002 the action was raised by the pursuers in their own right as
tenants of the damaged building, and that concession must now be held fatal to
their current attempt to amend. For the
purposes of section 9 of the 1973 Act title, interest and capacity
must all co-exist with regard to the claim actually made. If a claim was made in the wrong capacity, it
did not matter what other capacities the pursuer might then hold, and even
without senior counsel's concession the silence of the instance quoad any special capacity must
inevitably lead to the same conclusion.
[17] In
response, senior counsel for the pursuers submitted that the defenders'
approach was misconceived and that the authorities relied on could all be
distinguished. In determining whether
the pursuers were in 2002 the creditor for the purposes of section 9
of the Act, it was of critical importance that in my opinion of 9 November 2007 I had positively affirmed their
title and interest to pursue this action.
Over and above that, it was clear that since 1992 the pursuers had de facto held the correct capacity, in
respect that they were all along the trustees having right to found upon the
collateral undertakings of 1989.
The obligations sued on remained unchanged; all were owed by the defenders to the
pursuers in their capacity as trustees;
however many capacities they might hold, Royal Insurance (UK) Ltd were a
single legal persona; there was no other party in existence having
title, interest or capacity to maintain the present claim; and in all the circumstances the pursuers, and
the pursuers alone, must qualify as creditor under section 9 of the
Act. Since they had at all material
times held the requisite title, interest and capacity to the exclusion of
anyone else, and since the action in 2002 had been directed against the
correct defenders relative to the correct obligations, it was impossible that
prescription had not been interrupted by a relevant claim in this case. As determined in November 2007, any
problem for the pursuers was one of form only and did not affect their status
as creditor in a relevant claim under section 9.
[18] The
fallacy of the defenders' argument lay in failing to recognise certain
essential distinctions. In particular,
cases involving a single obligation or group of obligations had to be
distinguished from cases where separate and different obligations were
involved. This distinction was
recognised in Johnston, Prescription and
Limitation, at para.20.21 (pp.334 and 336), and the passage at
para.5.33 on which the defenders had founded was concerned with cases in the
latter category. Similarly, clear
distinctions fell to be drawn between new claims, on the one hand, and existing
claims, on the other, and between defects of substance and defects which were
purely technical or formal in nature. If
such distinctions were applied, the cases cited by the defenders were plainly
distinguishable. Robertson (1776) concerned separate and distinct rights, the
pursuer having belatedly acquired a monetary claim open to his sister. The problem in Blair was again the separate and distinct nature and source of the
obligations which the pursuer sequentially sought to assert. The two Inner House decisions in Robertson (1995) and Herries were also distinguishable, in that they
involved representative claims in the capacity of executor. An executor was in law eadem persona cum defuncto, so that in each of these cases there
were not merely separate and different obligations and claims, but also
different personae pursuing
them. In any event, no decision on
prescription was reached by the Inner House in either case, that issue being
held over for determination by the Sheriff in due course.
[19] Finally,
the decision in Stuart was not
concerned with prescription, and was of no assistance in identifying the creditor
in any obligation for the purposes of section 9 of the 1973 Act. All that the court decided was that a
counterclaim involving compensation or set-off required concursus debiti et crediti, that is, full identity of parties
(including capacity) by comparison with the main action. Of greater assistance, perhaps, was the
decision of Lord Weir in Grindall
v John Mitchell (Grangemouth) Ltd 1987
S.L.T. 137. There, the pursuer's
claim of damages for personal injuries was held sufficient to interrupt
prescription vis เ-vis the later
sisting of his trustee in bankruptcy as having formal entitlement to claim
patrimonial loss. As explained in Johnston,
Prescription and Limitation, by
reference to that case at para.20.21 (p.336),
"No new issue of
prescription will arise if the obligation in question is single and
indivisible, since a relevant claim is made on it even by one party, although
properly it ought to be pursued by another party too."
[20] In the
whole circumstances, it was said, no question of prescription arose here, and
the defenders' submissions in that regard must be rejected as unsound.
[21] In my
judgment there are good reasons why the pursuers' contentions on this issue should
be preferred. To begin with, as a matter
of construction of the 1973 Act, it is in my view hard to envisage
circumstances in which the correct legal persona
having title and interest to enforce a given obligation, and holding the
requisite capacity in that connection, should be held to fall outwith the
category of creditor for the purposes of a relevant claim under section 9. The requirements of that section, in my
opinion, are simply (a) that in order to make a relevant claim, a person
must objectively be the creditor in a
given obligation; (b) the necessary
claim must be made by him in appropriate proceedings; and (c) that claim must relate to the
obligation in question. Where a timeous
claim is made by an objectively ascertained creditor, I cannot find in the
section any basis for requiring, in addition, that the claim must in gremio disclose or specify the
capacity in which it is advanced. As
shown by cases such as British Railways
Board v Strathclyde Regional Council 1981
S.C. 90 and Wilson v Lothian Regional Council 1995
S.L.T. 991, even gross procedural deficiencies in a summons or other writ,
such as the total absence of conclusions or the virtual absence of a
condescendence, may be insufficient to preclude interruption of prescription by
a relevant claim. Short of fundamental
nullity, therefore, it seems to me that the precise form and presentation of a
claim are unlikely to be material considerations for the purposes of section 9. No doubt there is an established rule whereby
any special capacity in which a party sues must be stated in the instance, but
in my view that requirement arises independently as a matter of procedure, and
for practical reasons which are unconnected with the law of prescription.
[22] If the
creditor in a given obligation were not to be ascertained objectively by
reference to the holding of title, interest and capacity in that connection,
the only alternatives would seem to be either
(i) to judge matters by reference to a person's subjective knowledge
or belief, or (ii) to do so by
reference to the content of a claim once made.
I do not find either of these alternatives attractive. Whether or not a party qualifies as creditor
cannot surely depend on his subjective belief.
At any given date a person either is or is not the creditor in an
obligation. A creditor is still a
creditor whether he realises that or not.
Conversely, mistake or misapprehension cannot turn someone into a
creditor who does not truly qualify for that status. A person may be greatly surprised to find
himself entitled to pursue a given claim, nevertheless his status as creditor
cannot sensibly be thought to run from the date of the surprise rather than
from the date on which the entitlement truly arose. By the same token, a relevant acknowledgement
addressed to the true creditor under section 10(1)(b) of the Act is in my
view still a relevant acknowledgement even if the recipient is then unaware of
his status or indeed mistakenly believes that the relevant right is vested
elsewhere. Similarly, partial
performance of an obligation for the purposes of section 10(1)(a) must, I
think, interrupt prescription immediately, and not from some later date when an
absent-minded creditor comes to recognise his status or, a fortiori, when that recognition is subsequently committed to
writing.
[23] Since
only a "creditor" can legitimately make a relevant claim, the statute seems to
me to envisage identification of the entitled party at the moment before a claim
is made and without reference to its terms.
If that were not so, a person continuously holding full title, interest
and capacity could arbitrarily float in and/or out of creditor status depending
on the terms of his initiating writ or of any later adjustment or
amendment. In my view that would be a
highly unsatisfactory situation, yet one which seems inevitably to flow from
the defenders' argument in this case.
The appearance of the present summons would have been identical if the
pursuers had subjectively thought of themselves as trustees from the start but,
for some reason, omitted to state that capacity in the instance. According to the defenders, however, no
relevant claim would have been made in that situation either, nor at the date
(in late 2005) when the pursuers apparently rediscovered their forgotten
trustee status, nor even at the date (in or before mid-2007) when the pursuers
eventually averred that status in connection with the claim. In my opinion the defenders have no
legitimate justification for denying creditor status to the pursuers as at any
of these dates.
[24] In my
view all of the authorities cited to me in connection with the issue of
prescription are distinguishable as relating to circumstances which differ
significantly from those of the present case.
Robertson (1776), Blair, Robertson (1995) and Herries all concerned the sequential
assertion of separate and distinct obligations derived from different sources,
whereas here the obligations said to flow from the contractual undertakings
of 1989 have remained precisely the same throughout. No new claim is being advanced here, and
certainly no claim derived from any third party or based on a different
obligation altogether. As regards the
case of Stuart, that was in my view concerned with the requirements for a
counterclaim asserting compensation or set-off, taking the main action as a
fixed point of comparison, and did not address the means by which prescription
on the main action might be interrupted.
Similarly, on its facts, I do not regard the decision on joint claimants
in Grindall as particularly helpful
in the present context. As against that,
it seems to me that a common feature of these various cases is of some value
for present purposes, namely their emphasis on the need for careful
identification of the obligation in issue and of the party in right of it. With such guidance in mind, I do not consider
that the pursuers are here seeking to assert any new or different obligation
requiring separate treatment on the question of prescription, nor that their
title, interest and capacity to found on the defenders' collateral undertakings
of 1989 have changed in any way. It
is in any event hard to see why the acquisition of trustee status before,
rather than after, the action was raised should now be held fatal to their
claim.
[25] Taking
all of these considerations into account, I have reached the conclusion that
the defenders' arguments on prescription are ill-founded and must be
rejected. I will not, however, repel
their various pleas-in-law at this stage since I understand that these may be
advanced on different and broader grounds later on if the pursuers' action is now
allowed to proceed.
Restraints
arising under Pompa's Trustees
[26] Having rejected the defenders'
arguments on prescription, it is not strictly necessary for me to decide
whether any of the restraints set out by Lord Justice Clerk Cooper in Pompa's Trustees should be held to
apply in the circumstances of this case.
Had I required to do so, I would have answered that question in the
negative. There is no question here of
one defender being substituted for another (as was on one view actually
permitted in Pompa's Trustees), nor
of any change being made to the basis of the claim being pursued. Similarly, in my view, there is no question
of a new pursuer being substituted at the present time, nor of any "radical incompetence"
having to be cured.
[27] As
regards the substitution of pursuers, I was referred to the recent Inner House
decision in Gray Aitken where
the circumstances were very different.
There the result of a corporate reconstruction was (i) that company
A, having undisputed title and interest to pursue a given obligation, changed
its name to B; and (ii) that a second
company ― a new and distinct legal entity ― was then set
up under the name A which had formerly belonged to the first. An action was then raised against the
defenders sub nomine "A" seeking
damages for breach of contract. This
step was taken within the five years contractually permitted for such a claim,
but it was not until a later date outwith that period that the pursuers sought
to amend their own instance by deleting "A" and substituting "B". According to the pursuers, all that was
involved was the correction of a misdescription, since the new company A
plainly had nothing to do with the original contract or with the claim of
damages. It was, moreover, the correct
company which had instructed solicitors to raise the action, and it was unfortunate
that the latter had mistakenly done so in a name which was at the same time
(i) the current name of the new/wrong company and (ii) the former
name of the old/correct company. For the
defenders, however, it was maintained that since different corporate entities
were involved, this was no mere clerical error or misdescription. On the contrary it was an illegitimate
attempt, outwith both the contractual limitation period and the prescriptive
period under the 1973 Act, to substitute one company for another and thus
change the identity of the pursuers in the action. In upholding the defenders' contentions, and
applying the rule in Pompa's Trustees,
the court rejected any suggestion of mere clerical error or mistranscription,
and founded heavily on the incorporation of another distinct legal entity under
the name in which the action was raised.
The error was held to be a matter of substance going to the identity of
the person suing. On that basis, the
proposed amendment was deemed to involve substitution of a different person for
the original pursuers (both companies being in existence at the time when the
action was raised), and was accordingly struck at by the line of authority
referred to. By comparison with Gray Aitken, in my view, the
present case raises entirely different issues.
There is no question here of any new or different legal entity being
involved, and thus no question of the proposed amendment involving substitution
of one pursuer for another. I therefore
regard Gray Aitken as readily
distinguishable for present purposes.
[28] Turning
to the question of "radical incompetence", I understood parties to agree that
the phrase had no clearly defined meaning, and ultimately that it must be for
the court, as a matter of degree, to assess the seriousness of the defect or
failure in question. As senior counsel
for the first defenders pointed out, Lord Justice Clerk Cooper himself had
appeared to treat "radical incompetence" and "fundamental nullity" as different
things in Keanie v Laird 1944 S.L.T. 35, at p.36,
but as against that the same judge held in Pompa's
Trustees (at p.125) that the pursuers' admitted error there "... (did)
not involve a radical and fundamental incompetence". The problem is that "fundamental", "nullity",
"radical" and "incompetence" are not terms of art bearing a precisely defined
significance, and as pointed out in Johnston, Prescription and Limitation, at para.5.19 there is a danger of
circular argument here in seeking to distinguish one term from another.
[29] Senior
counsel for the first defenders maintained that "radical incompetence" must
cover defects short of "fundamental nullity", and might be said to arise
wherever any problem fell outwith the category of technical, formal and
curable. Alternatively, he suggested
that a "radical incompetence" covered any incompetence taken up as pars judicis by the court, and in that
context maintained that I myself had done just that at paragraphs [23]
and [24] of my opinion of 9 November 2007 in the present case. However, senior counsel for the pursuers and,
if I understood him correctly, counsel for the second defenders maintained that
a "radical incompetence" had to involve something fundamental which went to the
very root of the validity of proceedings.
According to Johnston, Prescription and Limitation, again at para.5.19, the question might
be whether the court would have no option but to dismiss an action as incurably
incompetent. If not, then there would be
both the substance of an action in court and an interruption of
prescription. In Douglas v Tait and Another 1884 12 R. 10, two pursuers
purported to combine separate claims in the same action. This was held to be an error in form, and not
an absolute nullity, and in any event the defenders' objection came too
late. A comparable decision was reached
by the court in Tod's Trustees v Graham's Trustee 1869
8 M. 264.
[30] More
recently, in Thomas Menzies
(Builders) Ltd v Anderson and Menzies 1998
S.L.T. 794, Lord Eassie repelled pleas of incompetence and
prescription which proceeded on the footing that conjoined claims by two
pursuers in the same action inferred a fundamental nullity, and thus could not
interrupt prescription quoad one of
the claims stated separately at a later date.
At p.798 E/F and J/K, Lord Eassie set out various factors
which led him to the conclusion that the proceedings had all the hallmarks of
"the substance of an action". The
pursuers were correct. There was no
question of lack of title to sue. The
grounds of action had been the same all along.
The original case was fully pled containing ample averments in support
of the claim. The conclusions (taken
individually) did not seek a decree which the Court of Session could not
competently pronounce. No decree was
sought against parties outwith the court's territorial jurisdiction. There was no question of the action
proceeding on an illegal contract or the like, nor any formal defect in the
initiating summons. There was no real
obstacle to the defenders lodging a valid tender in the action or to such a
tender being accepted by one or other of the pursuers. Moreover, had the action been undefended,
decree in absence could competently have been obtained in favour of both
pursuers. Although the defenders sought
to distinguish that decision on its facts, I find Lord Eassie's typically thoughtful
analysis of great assistance in determining where a line might sensibly be
drawn between an incompetence which is "fundamental" or "radical" and one which
is not.
[31] Further
guidance is in my view to be derived from the decision of Lord Osborne in Wilson, confirming that failure to comply with the Rules of Court
(there the omission of any conclusion in a summons) would not necessarily
constitute a fundamental and incurable defect.
By contrast, Boslem v Paterson 1982 S.L.T. 216
was a case in which purported service on a deceased defender could never be
made effective, thereby rendering the whole proceedings fundamentally null.
[32] Weighing
up all of these considerations as best I can, I conclude that the incompetence
identified in the present case ― even on a pars judicis basis ― falls well short of what would be
necessary to qualify as "radical" or "fundamental". On the contrary, as explained in my opinion
of 9 November 2007, the defect in the
pursuers' instance may properly be seen as formal and technical in nature, and
does not strike at the essential validity of the pursuers' title and interest
to sue. Ex facie the action is fully and properly pled; no defect of any kind is patent on the face
of the summons; the correct parties and
grounds of action are identified; no
decree is sought which this court could not competently pronounce; no jurisdictional issue arises, nor any taint
of illegality; had any tender been
lodged and accepted, the resulting settlement would in my view have been valid
and enforceable; and similarly if the
action had gone undefended I do not think that there could have been any
objection to a decree in absence pronounced in the pursuers' favour. Accordingly, had it been necessary for me to
do so, I would have rejected the defenders' second major argument based on the
restraints affirmed in Pompa's Trustees
and subsequent cases, and would in any event have held it unconscionable to refuse
the proposed amendment on purely procedural grounds.
The court's
discretion regarding amendment
[33] Having thus disposed of the defenders'
arguments on prescription and "radical incompetence" I now turn to consider
whether, as a matter of discretion, the pursuers' proposed amendment should be
allowed. According to the defenders it should
not, taking account not only of the nature and history of the defect sought to
be cured but also of what were called the equities of the situation including
consideration of the pursuers' conduct.
The starting point, according to counsel, was the pursuers' inexplicable
failure to appreciate their own trustee status which was accompanied by an
absence of assets, staff or insurance business in the United Kingdom. For a claim of this size, due diligence on
such matters was indispensable. Thereafter,
having pled and then deleted averments of loss based on Panatown, they came forward to a debate on relevancy which focused
on the fact that almost all of the invoices comprised in the claim had in fact
been paid by third parties. Even at that
point, where an extraordinary situation was under scrutiny and demanded
investigation, the pursuers' trustee status was not brought to light. Yet more reprehensibly, it took the pursuers
some eighteen months to reveal the truth on Record after it was discovered in
around December 2005, and no such disclosure might have been forthcoming
if the defenders had not raised the problem by way of amendment after examining
the pursuers' own historic accounts and returns. In the result, a considerable amount of the
procedure in this action had been directed to the wrong issues, and the wasted
expense involved was enormous.
Unfortunately, since a modified award of expenses relative to the
2005 debate had already been made in the pursuers' favour, the court did
not even have the option of penalising the pursuers in the whole expenses of
the action to date as a condition precedent to any allowance of their current
amendment. In the whole circumstances,
it was suggested, the equities were so strongly in favour of the defenders that
the proposed amendment should be refused outright. Failing that, any allowance of the amendment
should be made conditional upon the pursuers meeting the whole outstanding
expenses of the action to date on an agent and client basis.
[34] In
reply, senior counsel for the pursuers maintained that any defect in the
instance was of a kind which had frequently been held curable in the past. At paragraph [19] of my opinion of
9 November 2007 Anderson, Plotzker,
Morrison, Rackstraw, Hunter and Donaghy were identified as cases in which
some apparent deficiency in the pursuers' title as disclosed in the instance
was held curable by means of amendment, and in which the court, sometimes in
colourful language, rejected an unduly technical and inflexible approach where
a pursuer's underlying right of action was evident. As regards the equities of the situation, the
defenders' criticism of the pursuers' conduct was unduly harsh. For several years after the raising of the
action neither the pursuers nor the defenders had sought to carry out the
extensive research necessary to unearth the trust arrangements of 1992. In the pursuers' case, while corporate and
group knowledge at a high level could not be denied, the reality was that those
involved with contracts and litigation in 2002 had long since ceased to be
aware of corporate changes which had occurred ten years earlier. The company was still live; it was still tenant of the damaged property; and it had been the employer for the purposes
of the remedial works contract. Against
that background, neither the pursuers nor their solicitors at "litigation
level" had any reason to carry out extensive checks on the historic status of
the company, and the action was raised in 2002 in genuine ignorance of the
true position. The pursuers' trustee
status had only been discovered by means of detailed research at the time of
the 2005 debate, and thereafter the pursuers had had to take legal advice south
of the border on the incidents of a bare trust under English law. Following the defenders' amendments
in 2006, which called for extensive further consideration, the necessary
averments in reply were made in two stages over the first half of 2007.
[35] Contrary
to the defenders' submission, little or none of the past procedure in this
action had been wasted. Whether the
pursuers were trustees, having an obligation to account to others, was arguably
res inter alios so far as the
defenders were concerned. It was of no
consequence to them whether the claim was maintained by the pursuers in their
own right or as trustees, and there might be many situations in which trustees would
have a clear interest to withhold details of trust arrangements. Moreover the issues focused on Record and
debated in 2005 would in substance have been the same even if the action had
initially been raised by the pursuers qua
trustees. The Panatown formulation would have come and gone in the same way, and a
problem would still have arisen regarding invoices ostensibly paid by third
parties rather than by the pursuers themselves.
From 2006 onwards a lengthy amendment procedure had taken place,
and in mid-2007 the court had discharged the impending proof diet and
substituted a further debate instead.
That debate, conducted over eight days, had been resolved substantially
in the pursuers' favour. Contrary to the
defenders' arguments, which they could and should have chosen not to advance,
the pursuers' initial and continuing title and interest to pursue the claim were
positively affirmed. The only area of
the debate in which the pursuers were unsuccessful related to the formal
content of the instance, or more accurately the absence of words at that point
to identify their trustee capacity.
[36] There
was, in these circumstances, every reason why the court's discretion should be
exercised in the pursuers' favour. The
defect in the instance was formal, technical and curable. The pursuers' conduct could not be described
as unlawful, dishonest or reprehensible, and no deliberate or flagrant breach
of duty towards the court or the defenders had occurred. On the contrary the pursuers' initial error
should be viewed as understandable, given the level at which litigation
arrangements would have been made, and in the end the true position had been
candidly disclosed in the pleadings.
Even if material time and expense had been wasted, which was denied,
that would not constitute a reason for refusing the amendment. At best, it was said, such considerations
might warrant the imposition of restorative conditions of some kind. Even there, however, the defenders' claims
were pitched too high, and ignored the fact that in a major debate in 2007
they had been substantially unsuccessful on legal points of their own choice.
[37] In my opinion
the criticisms which the defenders have levelled against the pursuers' conduct
are justified to some extent. Given the
scale of the corporate changes which engulfed the pursuers in 1992, the
initial error which occurred in 2002 is, to say the least, surprising. Thereafter, having shifted their ground once
already, the pursuers in 2005 faced a sustained challenge to the relevancy
of their averments of loss. Even then
the penny did not drop, and it was not until the end of that year that the 1992 arrangements
apparently came to light. This did not,
however, result in any immediate disclosure, formal or informal, and it was
only after the defenders themselves amended to challenge the pursuers' title
that averments in reply were belatedly made in 2007. No convincing explanation for the delay
between 2005 and 2007 was put forward, nor any explanation offered
for the pursuers' continued resistance to the defenders' motion for discharge
of the proof. Moreover, although the
pursuers' title and interest to sue survived the major debate in 2007, it
was only in the aftermath of that debate that the pursuers sought to amend
their instance in accordance with what I held to be an established rule of practice.
[38] Nevertheless,
for the reasons advanced by their senior counsel, I do not consider that the
pursuers' conduct here can be criticised to such a degree as would justify
outright refusal of the curative amendment which they now propose. Significant considerations here, in my view,
are that the defect to be cured may be properly characterised as formal and
technical, and that it is hard to identify any substantive prejudice to the
defenders which could not adequately be relieved by an award of expenses. Some actions legitimately proceed without
even the name of the true pursuer being disclosed in the instance. A cedent may sue in the name of his
assignee; insurers in the name of their
insured; and a nominal pursuer may
conceal the presence of a dominus litis
in the background. The defenders of
course face no such difficulty in the present case where their complaint is
restricted to the issue of capacity.
Furthermore, it seems to me that any wasted expenditure has been rather
more limited than the defenders suggest, and that in large measure the debate
of 2007 concerned issues of law which the defenders chose to pursue and on
which they were ultimately unsuccessful.
Viewing the matter as one for the exercise of the court's discretion,
and taking account of all of the factors advanced in argument on both sides of
the Bar, I am satisfied that the pursuers' motion for amendment of the Record may
appropriately be granted. The only
question which remains is thus whether, and to what extent, the granting of
that motion should be made subject to the imposition of conditions.
Conditions
[39] For the reasons already given, I consider
that the pursuers' conduct in this matter merits substantial criticism, but
perhaps not to the extent urged upon me by counsel for the respective
defenders. Inevitably, time and expense
have been wasted on the investigation and pursuit of issues which need never
have arisen if the pursuers had, from the outset, recognised their own trustee
status and complied with the established rule regarding disclosure of special
capacity in the instance of a summons.
Over an extended period, as it seems to me, the defenders have had to
respond to claims ostensibly presented on the wrong footing, and since at least
mid-2007 have faced a dilemma to which they should not have been exposed. The significance of such problems should not
in my view be underestimated, and I certainly do not agree that it would be
appropriate to measure the pursuers' responsibility by reference only to the
conduct and outcome of particular hearings.
The disputed issue of the pursuers' title and interest to sue was a
matter of obvious general importance, and it was entirely understandable that
the defenders should have sought to bring it to the court's attention. The same may, I think, be said of the issues
of prescription, competency and discretion which have been raised in connection
with the present motion for amendment.
[40] On the
other hand, it is in my view necessary to make due allowance for other factors
which may be thought to work in the pursuers' favour, notably (i) the
extent to which this action would have been likely to proceed on the same
footing even if they had initially sued as trustees; (ii) certain respects in which
expenditure has related to matters other than the pursuers' status, such as the
merits of the claim; and (iii) the
eventual fate of the legal challenges advanced by the defenders since mid-2007.
[41] Taking
a broad equitable view here, as I must, it seems to me that unconditional
allowance of the proposed amendment would be inappropriate and would, in
particular, fail to reflect the unnecessary time, trouble and expense for which
the pursuers must bear primary responsibility.
At the other extreme, I do not consider that the defenders can
realistically expect to be awarded the whole outstanding expenses of the action
to date, especially on an "indemnity" or agent and client basis. Up to and including the debate of 2005, my
impression is that the procedure in this action would have followed
substantially the same course if the pursuers' trustee status had been
disclosed from the outset. The problem
focused at that debate was the payment of multiple invoices by third parties,
rather than by the pursuers themselves, and on reflection I am not convinced
that that problem would have been any different, or less acute, if the pursuers
had then been suing as trustees. In
addition, it seems to me that the amendment process of 2006/2007 ranged
far more widely than the issue of the pursuers' status and, more importantly,
that at least some of the expenditure incurred since then must be attributed to
arguments which the defenders themselves have unsuccessfully chosen to pursue.
[42] On the
whole matter, I have reached the conclusion that justice would be done by
finding the pursuers liable, as a condition of amendment, for the whole
expenses incurred by the defenders from 6 July
2007
to the present date. Broadly speaking,
this will cover the expenses of the opposed motion for discharge of the proof
in early July 2007, the lengthy debate on title and interest which took
place later that year, and the present proceedings relative to amendment of the
pursuers' instance. In other
circumstances I might have been inclined to award these expenses on an
"indemnity" or agent and client basis, but taking account of the defenders'
substantial lack of success on the disputed issues of title, interest and
capacity it seems to me that an ordinary party and party award would
suffice. Equally, I might in other
circumstances have contemplated making actual payment of the expenses in question
a condition precedent to the granting of the pursuers' motion, but I am not
persuaded that that would be an appropriate course of action where (i) the
defenders may be assumed to be insured;
(ii) there is a cross-award of expenses against them in connection
with the 2005 debate;
(iii) the present award covers a relatively limited period during
which the defenders' arguments have met with only limited success; and (iv) it would be desirable to avoid
any further cause of delay to the progress of this action.
Disposal
[43] For all of these reasons, I shall
allow the Closed Record to be opened up and amended in terms of the pursuers'
minute of amendment No. 52 of process and the defenders' answers thereto
Nos. 54, 53 and 55 respectively, and in that connection I shall find
the pursuers liable to the defenders in the whole taxed expenses of process
from 6 July 2007 up to and including the present date. The pursuers will of course also bear the
expense of preparing and printing an amended Closed Record as part of the
ordinary consequences of amending.
