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OUTER HOUSE, COURT OF SESSION
[2008] CSOH 153
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OPINION OF LORD GLENNIE
in the cause
F M FINNIESTON LTD
Pursuers;
against
KENNETH ROSS
Defender:
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Pursuers: McKenzie, Solicitor Advocate; Pinsent Masons
Defender: McIlvride;
Lindsays
5 November 2008
[1] At
a continued preliminary hearing on 1 October 2008, on the defender's
motion, I ordered the pursuers to find caution for expenses in the sum
of г25,000 within 21 days of that date "in a form to be agreed
between the parties, which failing the case to be brought back to court in
order that said form be decided by the court".
[2] The
pursuers argued that caution should be given by their placing the sum
of г25,000 in a joint deposit account in the names of solicitors acting
for both parties, the terms of which would provide for the sum on deposit to be
released upon decree or settlement. The
defender raised questions as to whether such an account would offer adequate
security in the event of an arrestment at the hands of a creditor of the
pursuers or in the event of the pursuers' insolvency. He contended that a bond of caution should be
given, which failing the sum should be consigned into court in accordance with Rule
of Court 33.4(1)(b).
[3] I
was referred in the course of argument to Craiglaw
Developments Ltd v R Gordon Wilson 1997
S.C.L.R. 1157 and in particular to the discussion in the penultimate
paragraph. The critical question appears
to be whether the pursuers, by giving caution by means of a joint account in
the names of both solicitors, would have completely divested themselves of the
funds and of the power or control over them.
There is discussion in that case of the earlier decision in Allan's Executor v Union
Bank of Scotland 1909 S.C. 206.
In the event I did not have to decide that point since, in order to
comply with the order, the pursuers arranged for payment into court on about 22 October
2008.
[4] Before
the payment was made, parties had entered into discussions with the Accountant
of Court as to whether she could arrange for the funds to be placed in an
account earning a higher rate of interest that that normally available upon
consignation. Solicitors for the pursuers
had ascertained that they could obtain rate of interest of 4% from their
bank. By contrast, I understand from the
Accountant of Court that, under arrangements in place between her and the Royal
Bank of Scotland,
the money would be placed in a separate Special Deposit Account earning a rate
of interest of 31/2% below bank rate.
As at the date of this Opinion, the bank rate is 4.5%. The result is that funds consigned into court
under the normal arrangements presently attract a rate of interest of
only 1%. It is apparent that the arrangements in place between the
Accountant of Court and the Royal Bank of Scotland
do not presently provide a commercial rate of interest. I understand that the Accountant of Court
recognises that this is a problem and has already taken steps to see what
different arrangements can be made.
[5] In
light of this, the court was asked to make an order directing the Accountant of
Court to transfer the funds from the Special Deposit Account into which they
had been placed into an account agreed by the parties earning a higher rate of
interest. Subject to one point, to which
I shall refer, the Accountant of Court indicated that she had no objection to
such an order being made and would comply with it, though she would require the
parties to liaise with her to identify the appropriate account and to agree all
the necessary details.
[6] The
Accountant of Court was very properly concerned to draw to the attention of the
court the terms of the relevant Practice Note dated 30 May 1996 dealing with consignation. P.N. No.1 of 1996 states that all monies
consigned under orders of court in the name of the Accountant of Court shall be
placed on special deposit account to be held solely by the Royal Bank of Scotland,
North Bridge
branch, Edinburgh. This was to replace the then existing
practice of lodging funds on consignation receipt. The Practice Note goes on to say that special
deposit accounts will continue to afford to the court maximum flexibility in
the partial release of funds but will attract a higher rate of interest than
that previously earned by consignation receipt.
[7] The
background to the Practice Note is explained at para.33.4.3 of vol.2 of the
Parliament House Book. This explains
that by the Practice Note
"... the former
procedure for consignation receipts has been abolished. Such receipts were subject to criticism
because of the low rate of interest and their use, as a consequence, was
rare. The low rate of interest was
justified by the banks on the ground that consignation receipts were difficult
to administer. The new reform, a special
deposit account, allows a higher rate of interest. Consignation receipts had an advantage over
ordinary deposit receipts in that partial upliftment was possible. Partial upliftment will be possible from a
special deposit account."
It is apparent from this that the
purpose of the reform was to abolish the procedure for consignation receipts
and move to a procedure by which sums consigned into court could earn a
reasonable rate of interest. It is clear
from the information given to me that, under the arrangements currently in
place, the special deposit accounts with the Royal Bank of Scotland
in which the Accountant of Court ordinarily places funds consigned into court
do not presently achieve this. The
Practice Note is a note of the practice to be followed in the ordinary
case. It does not tie the hands of the
court. I see no reason why, in any
particular case, on a motion by one of the parties, the court should not order the
Accountant of Court to place the funds consigned into court in a particular
account earning a higher rate of interest once the details of that account have
been agreed between solicitors for the parties in a form satisfactory to the
Accountant of Court. Such a course seems
to me to be consistent with the spirit of the Practice Note. In any event, that is the order I propose to
make when the account details have been agreed.
[8] It
is to be noted that the problem potentially extends beyond consignation as a
means of providing caution for expenses.
The amount of caution ordered to be provided in the present case is not
large. In other cases consignation may
be required for larger sums.
Consignation may be used in lieu of diligence in security. Other
procedures require sums to be consigned into court: see, for example, where a
ship is sold by the court in an admiralty action (Rule of Court 46.5(10));
and the constitution by payment into court of a limitation fund to limit
liability for oil pollution under s.158 of the Merchant Shipping Act 1995 (see
s.170(3)(a) for its application to Scotland).
Very large sums may be involved.
It would be unsatisfactory were the court to have no power to make an
order of the type which I propose to make in this case.
[9] It
may be that representations should be made to the Lord President that the
Practice Note should be amended. I would
encourage and support any such representations.
