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Cite as: [2008] ScotCS CSOH_135, [2008] CSOH 135

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OUTER HOUSE, COURT OF SESSION

[2008] CSOH 135

A183/08

OPINION OF LORD GLENNIE

in the cause

GBF FINANCIAL MANAGEMENT COMPANY LIMITED

Pursuer;

against

(FIRST) STEVEN WORRALLO; (SECOND) RHODA WORRALLO and (THIRD) ISLAND OF LITTLE CUMBRAE LIMITED

Defenders:

________________

Pursuer: No appearance

Defenders: Kinroy, Q.C.; McKay & Norwell, W.S.

11 September 2008

[1] In this action, the pursuer, a financial management company incorporated in the state of Delaware, USA, seeks declarator that "in terms of telephone conversations between Hendrikus van Bilsen [the President of the pursuer] and Steven Worrallo [one of the defenders] on 21 November and 11 and 21 December 2007, the defenders entered into a contract with the pursuer for the sale to the pursuer of all of the shares of the third defender at a price of £2.65 million." The third defender is the Island of Little Cumbrae Limited and its main asset, as I understand it, is the island itself.

[2] On 19 March 2008 the pursuers sought and obtained interim interdict, in effect preventing the defenders from seeking to sell their shares in the company to anyone else and from alienating the island of Little Cumbrae. The defenders reclaimed and on 11 June 2008 the Inner House allowed the reclaiming motion and recalled the interim interdict. No Opinion was issued by the Inner House but I am informed that one of the principal reasons for allowing the reclaiming motion was that the pursuer could not show a prima facie case on the merits.

[3] Since that time, the only procedure of substance has been a motion by the defenders to transfer the cause to the Commercial Court and to require the pursuers to sist a mandatory. Before that motion could be heard, the pursuer's solicitors had intimated that they had withdrawn from acting. Accordingly, at the hearing of the defenders' motion, I pronounced an order in terms of Rule of Court 30(2) ordaining the pursuer to intimate whether or not it intended to proceed with the cause under certification that if it failed so to intimate the Court might grant such decree or make such order or finding as it thought fit. The notice sent to the petitioner enclosing the interlocutor has on it, in bold, the words: "If you do not write to the Deputy Principal Clerk and inform him what you intend to do the Court may make an order or a finding or both against you as mentioned in the interlocutor attached."

[4] It appears that there was some difficulty in serving the notice on the pursuer. Nonetheless, on 31 July 2008 the pursuer returned the appropriate form signed by Mr van Bilsen. It was in the following terms:

"I am insisting in the above cause. My new solicitor's name and address is: N/A - Still in process of obtaining."

The words from "N/A" onwards were in manuscript.

[5] A further two months have elapsed but the pursuer has still not appointed solicitors to act on its behalf in these proceedings.

[6] It is trite law that a company cannot appear or take any step in legal proceedings except by a solicitor. For a company merely to return the form attached to the Rule 30(2) notice stating that it intends to proceed with the cause achieves nothing unless and until a solicitor is appointed. It amounts to saying: I intend to proceed, but I am not taking any step in the action or putting myself in a position to take any step. I would question the competency of such a response to a Rule 30(2) notice but I do not found my decision in this case on that. At the very least, it seems to me that a party who responds in this way to a Rule 30(2) notice must take steps promptly to appoint a solicitor. It must be in a position to comply with orders of the Court and to attend Court when required to do so. It cannot do this without appointing a solicitor.

[7] In light of the pursuer's lack of action, the defenders have asked for this case to come out By Order. The By Order hearing duly appeared on the Rolls of Court. That is the normal way in which notice is given of such hearings. If the pursuer had instructed a solicitor, as it should have, it would have had proper intimation of the hearing.

[8] As it is, the pursuer has obtained notice of the hearing by an informal route. Nonetheless, it has not instructed a solicitor on its behalf. Strictly, therefore, it has not appeared at this By Order hearing. However, Mr Van Bilsen himself has attended and has sent a letter to the Court in which, in addition to insisting in its case on the merits, he states that the pursuer is in the process of finding a solicitor versed in financial and commercial matters and company buy outs. No solicitor has yet been found. In answer to questions from the Court, Mr van Bilsen accepted that the search for a solicitor since the beginning of July had been "patchy" due to the pressure of the company's other business and the fact that it was "summertime".

[9] Mr Kinroy QC, for the defenders, submitted that the pursuer is in default and he asked me to pronounce decree of absolvitor in terms of Rule of Court 20.1. That rule provides, so far as material, as follows:

"(1) Without prejudice to the power of the Court to grant decree by default in other circumstances, where a party fails to attend before the Lord Ordinary on the calling of a cause -

(a) on the By Order roll ...

that party shall be in default.

(2) Where a pursuer is in default under paragraph (1)(a) ... the Court may grant decree by default against him with expenses."

The rest of that Rule is irrelevant for present purposes.

[10] I was referred to two authorities on the exercise of discretion in a case such as this. Mr Kinroy accepted that they were not directly employed but he submitted that they were indicative of the general approach. They were Saleem v Hamilton District Licensing Board 1993 S.C. 175 and Munro & Miller (Pakistan) Limited v Wyvern Structures Limited 1997 S.C. 1. The latter is helpful as indicating that, in an appropriate case, decree of absolvitor may be granted.

[11] In support of his motion, Mr Kinroy submitted, in summary: (i) that the pursuer has failed to appear at the By Order hearing and is therefore in default; (ii) that the pursuer has failed to instruct agents for some two months since returning the Rule 30(2) form; (iii) that the pursuer's case is unstateable, or "ludicrous" to use his precise language; and (iv) that the defender is suffering prejudice by reason of the pursuer's failure.

[12] To amplify point (iii) Mr Kinroy pointed to a number of changes of position in the pursuer's case. In the summons, it avers a contract for the sale and purchase of all the shares in the third defender at a price of £2.65 million. Earlier this year, so I am told, the defenders, while not accepting that there was a contract, were prepared to go along with it if the pursuer came up with the money, but it was said that it could not then pay. Then, at the time of the reclaiming motion, the defenders, having put the pursuer on notice that they required it to pay within a reasonable time, rescinded the alleged contract (if there was one) for failure to pay - and there has been no answer to that rescission. Finally, in a letter from the pursuer' solicitors dated 6 June 2008, a copy of which was shown to the Inner House at the reclaiming motion, the deal is described in a way which makes it clear that there was at that time no intention to be bound, no more than an agreement in principal.

[13] In amplification of point (iv), Mr Kinroy said that the defenders had a number of creditors who were pressing but had held back in the light of their success on the reclaiming motion. There was another buyer in the wings but he was reluctant to go ahead whilst the pursuer's claim was outstanding and he had notice of it. In the ordinary course, said Mr Kinroy, he would have been able to seek leave to add a counterclaim for declarator that there was no binding agreement and then move the Court for summary decree on that counterclaim. However, the pursuer's failure to appoint solicitors to take part in the action made that course difficult if not impossible.

[14] As Mr van Bilsen was present, I asked him, since it was relevant to the question of prejudice which the defenders claimed to be suffering, whether the pursuer was both willing and able now to put up the alleged purchase price of £2.65 million. His response was, in effect, "No", though he did not put it in that way. He said that the pursuer still required to do due diligence; and further that it wanted to discuss the method of payment - he mentioned possible loans or guarantees - and the structure of the deal. This, to my mind, was the clearest possible confirmation that there was no realistic possibility of the pursuer establishing, or even seeking to establish, that there was a binding agreement. Whatever arrangement may have been made can have amounted, at best, to no more than an agreement in principle subject to due diligence and discussion as to the method of payment.

[15] Further, since the pursuer was not able to put up the £2.65 million which it alleges is the price that it had agreed to pay for the shares, there is no way in which I can see the prejudice to the defenders being alleviated by my granting any indulgence to the pursuer.

[16] In those circumstances, I am satisfied that the pursuer is in default by not appearing at the By Order hearing and that there is no reasonable excuse advanced for the failure to appear by a solicitor. I consider it appropriate that I should grant decree by default. I am satisfied that it would be unfair to the defenders in the particular circumstances of this case to leave the case hanging over them. Decree of dismissal, therefore, is not adequate to do justice in the present situation. The circumstances justify decree of absolvitor.

[17] I shall grant decree of absolvitor and award the defenders the expenses of the action.