Pursuer and Respondent: Alistair Forsyth; Campbell Smith

Defender and Reclaimer: Party

2 May 2012

Introduction

[1] This reclaiming motion relates to an interlocutor dealing with the expenses of an action for count, reckoning and payment raised by the pursuer and an associated counterclaim, lodged by the defender. The interlocutor was pronounced on 9 June 2011, by Morag Wise QC, sitting as a Temporary Lord Ordinary.

[2] The action of count, reckoning and payment and the counterclaim related to disputes that had arisen following the death of Robert Lamont ("the deceased"), who died on 11 January 2002. The pursuer is the sister of the deceased. She was appointed as executrix dative to the deceased's estate on 13 August 2002. The defender was the deceased's partner, having cohabited with him as husband and wife from the early 1980s. For some months following the deceased's death, the parties were in dispute as to who should administer his estate and who was entitled to inherit his moveable property. The delay in the appointment of the pursuer as executrix dative was caused, at least in part, by uncertainty as to whether the deceased had left a valid will.

[3] The deceased was the sole proprietor of a small business known as Glasgow Audio, which sold hi‑fi and related audio equipment from leased premises at 135 Great Western Road, Glasgow. Following his death on 11 January 2002 and until 30 August 2002, the defender ran the business, pending resolution of the issues as to who should administer the deceased's estate and who should inherit his moveable estate. Ultimately, no valid will was found and the deceased's moveable estate fell into intestacy.

[4] In the action for count, reckoning and payment, the pursuer claimed that the defender had not fully accounted to her, qua executrix, for her intromissions with the deceased's estate and in particular with the business known as Glasgow Audio, between the deceased's death and 30 August 2002. The pursuer sought an accounting and payment. In the alternative the pursuer sought payment of £150,000 being the pursuer's estimate of the balance due by the defender to the deceased's estate. The conclusions in the summons were subsequently amended to include one seeking a reckoning and payment of the balance due, failing which payment of £60,260; another seeking delivery of specified assets and items of property, failing recovery of which payment of £21,171.21; and a third seeking damages of £42, 340.

[5] The defender, for her part, counterclaimed. She pursued five claims for payment. The first of these sought compensation amounting to £30,049.79 for expense incurred by the defender in her administration and management of the Glasgow Audio business between January and August 2002. The defender also sought a decree of specific implement ordaining the pursuer qua executrix dative to free and relieve the defender of any liability for payment in respect of debts due by the deceased's business to Yell Limited, the Clydesdale Bank, HM Customs and Excise and the Inland Revenue. Two other conclusions each sought payment of £10,000 in respect of the sum by which the deceased's estate had been enriched by the efforts of the defender between 11 January 2002 and 30 August 2002 and to compensate her for unremunerated administration and management.

[6] After a proof extending to 24 court days, the Temporary Lord Ordinary decided to make no award in favour of the pursuer, in the principal action, or in favour of the defender in her counterclaim. The Temporary Lord Ordinary's reasons for doing so are set out in a lengthy opinion dated 13 May 2011.

[7] Subsequently, on 9 June 2011, the Temporary Lord Ordinary dismissed all the conclusions in the summons and the counterclaim. She also dealt with the issue of expenses. Having heard cross motions for expenses, she made no award of expenses due to or by either party. In a supplementary opinion, dated 24 November 2011, the Temporary Lord Ordinary set out her reasons for her decision on expenses. These included that the outcome of the proceedings had been one of divided success. She also placed reliance on the fact that in 2009 the pursuer had offered to seek dismissal of the action on a "no expenses due to or by basis", which the defender had rejected because she was anxious to ensure that the pursuer accepted liability for the matters raised in the counterclaim. Whilst the pursuer had raised the principal action and had not secured any decree for payment against the defender, the defender had refused to compromise the action and had insisted on her counterclaim. The Temporary Lord Ordinary suggested that the defender's explanation for refusing to countenance a dismissal of both parties' claims had been "slightly unsatisfactory".

[8] The Temporary Lord Ordinary noted that the majority of the time during the very lengthy proof had concerned the circumstances in which the defender had taken over and run the deceased's business for the period during 2002. She took account of such extra‑judicial offers to settle the action as had been made by the parties, none of which had brought about a settlement. She also had regard to how the parties had conducted themselves during the very lengthy proof. She took into account that the pursuer had lodged a number of important documents late and that the final draft of the proposed accounting was produced on behalf of the pursuer well into the proof and during the evidence of an important witness. The pursuer had been unsuccessful and none of the defender's conclusions in the counterclaim had met with success. Having considered these various matters, the Temporary Lord Ordinary in exercise of her discretion refused the motions of both parties.

Submissions by defender

[9] In support of the grounds of appeal that she had lodged, and under reference to the note of argument that she had prepared, the defender stressed that she had been successful in the principal action. As was clear from paragraphs [196] - [197] of the original opinion of the Temporary Lord Ordinary, when she came to calculate what sum, if any, was due by the defender to the pursuer, she had held there was none. Indeed in the light of the calculations that she set out in her opinion, the Temporary Lord Ordinary had observed "it might be thought that a sum was due to the defender." The defender had accordingly been entirely successful in the principal action and had a reasonable expectation that she would be awarded the expenses occasioned by that action. The first error the Temporary Lord Ordinary had accordingly made, when exercising her discretion on the question of expenses, had been to fail to regard the defender's success in that action as a very important factor in her decision as to expenses.

[10] It was also argued that the Temporary Lord Ordinary had erred in the reliance she had placed on the proposals for settlement in the letter dated 5 February 2009, which the solicitors for the pursuer had sent to the defender, and the defender's reply to those proposals in her own letter of 23 February 2009. The defender complained that those letters had been lodged in process by the pursuer on 30 May 2011, without proper intimation to her. Whilst she had been provided with copies of the letters on the evening of 7 June 2011, two days before the hearing of the motions on expenses, this had afforded her insufficient time to lodge other documents in response. More importantly, however, the defender criticised the Temporary Lord Ordinary's reliance on that correspondence, having regard to the terms of the letter of 5 February 2009. That letter had been written in forceful terms. It had threatened the defender with a possibility of being reported to the procurator fiscal, in respect of allegations of fraud relating to cheques of the deceased. It had made only a passing mention of the counterclaim as being incompetent. Nothing in the letter had suggested that the pursuer was willing to open negotiations with the defender. All the letter had stated was that the pursuer was prepared to have her own action dismissed on a "no expenses due to her by basis". The pursuer's reasons for doing so were described as being purely commercial. Furthermore many of the factual assertions set out in the letter, such as that the defender would be due the pursuer "more than £100,000", had in the event been disproved at the proof. On the morning the proof began, an offer in similar terms to that set out in the letter of 5 February 2009 had been made to the defender by the pursuer's counsel. Neither offer had been taken up. The defender's reasons for declining the first offer were set out in the letter of 23 February 2009. She had responded to the second offer by seeking settlement of the debts referred to in the counterclaim, an indemnity in respective of any liability on her part for any future creditors of the deceased's estate and £20,000 to cover her expenses.

[11] The defender explained that on two occasions prior to the proof she had offered to take part in mediation with a view to settling the disputes between the parties. Those suggestions had not been pursued. It had also been the defender who had suggested that the parties' respective accountants meet to discuss their evidence in the principal action. Such a meeting had taken place and had resulted, during the course of the proof, in the pursuer having to alter the basis of the accounting, on which the pursuer had been relying. That had led to the pursuer having to return to the witness box to speak to additional productions that she had required to lodge late. In these circumstances, it could not be said that the defender had been completely unwilling to try to negotiate a settlement of the disputes between the parties.

[12] The defender argued that a further factor on which the Temporary Lord Ordinary had failed to place appropriate reliance had been that the majority of the time during the proof had been spent on the principal action. Against that, the evidence relating only to the counterclaim had extended to approximately one day of court time, with a further half-day spent on submissions. Only the defender and her witness Crawford Herald had given such evidence.

[13] The defender also sought to rely on what the Temporary Lord Ordinary had set out in her principal opinion about the actings of the purser, both prior to and during the proof. The pursuer had, on 30 August 2002, taken over the deceased's business from the defender and sold the business to a third party. The same day she had handed over the assets of the business to the purchaser, without instructing any proper stocktaking of the assets and stock of the business or affording the defender the opportunity to do so. That had made it very difficult for the defender to prepare an accounting or respond to the accounting put forward by the pursuer. Moreover, the defender had not been given an opportunity to produce such an accounting, before the principal action had been raised against her. Once the principal action was underway the pursuer had failed to produce all the documents she should have done. During the course of the proof additional productions had been lodged, some as late as during the fourth and fifth weeks of the proof. That had caused additional delay in what was already a very lengthy proof.

[14] The counterclaim on the other hand had only required to be lodged because of the action taken by the pursuer when she took over the business and immediately disposed of it. At that time everything had been in the deceased's name. That explained how various accounts relating to the business were raised against the defender, for which she sought relief out of the estate of the deceased.

[15] In support of her submissions the defender also drew attention to the contrast between the Temporary Lord Ordinary's assessment of the credibility and reliability of the pursuer, about which she had considerable reservations, and what the Temporary Lord Ordinary had said about the evidence of the defender, who she found to be a generally honest and reliable witness, whose response to the various criticisms made of her had been largely backed up by documentary material or the evidence of other reliable witnesses (see paragraph [195} of the Temporary Lord Ordinary's opinion). In the whole matter, accordingly, the Temporary Lord Ordinary had erred in the exercise of her discretion when determining the question of expenses.

Submissions on behalf of the pursuer

[16] Counsel for the pursuer began by reminding the court that the issue of expenses had been one for the discretion of the Temporary Lord Ordinary. He also stressed that notwithstanding the terms of certain of the defender's grounds of appeal and her note of argument, the present appeal was not directed against the Temporary Lord Ordinary's ruling on the merits of the principal action and the counterclaim, in which there had been divided success.

[17] Counsel argued that the Temporary Lord Ordinary had been entitled to place reliance on the letter of 5 February 2009, which had been drafted by counsel. Whilst counsel acknowledged that he could not defend certain parts of that letter, in particular the threat that the defender might be reported to the procurator fiscal, the letter had offered the opportunity for the action to be settled prior to the lengthy proof getting underway. He drew attention to the defender's letter in response, which had made it clear that the defender was not prepared to accept what had been offered. In her letter the defender had stated that if the pursuer wished to resolve the situation, an offer of a lot more than "no expenses due to or by" would require to be made. In the circumstances the Temporary Lord Ordinary had been entitled to have regard to the contents of both letters. Counsel also relied on the renewal on the offer made on the morning the proof got underway. In practical terms that involved offering what subsequently proved to be the outcome of the lengthy proof. The Temporary Lord Ordinary had taken the view that the defender's response to the offer in the morning of the proof, namely a payment of £20,000, was an unsatisfactory response. Counsel also relied on other submissions he had made to the Temporary Lord Ordinary. It was clear that the pursuer had acted reasonably and responsibly and under the advice of her lawyers throughout the proceedings. Reference was also been made to the lengthy cross‑examination of the pursuer by the defender during the proof. The counterclaim had been of equal importance in financial terms to the principal action and it had been reasonable for the pursuer to insist in the principal action, unless the defender was prepared to drop the counterclaim, which she had been unwilling to do. Counsel for the appellant accepted that during the proof no more than two to three days had been spent on the counterclaim, although there had been an overlap in that some of the evidence relating to the principal action also touched on issues that arose in the counterclaim. However counsel stressed that the short period of time spent on the counterclaim did not reflect the importance of the counterclaim as against the importance of the principal action. Counsel for the pursuer accepted that the Temporary Lord Ordinary had regarded the pursuer's handling of the sale of the business as having been unsatisfactory and that an error in the original draft of the accounting sought on behalf of the pursuer had led to the necessity of recalling the pursuer to the witness box. Counsel argued that whilst the Temporary Lord Ordinary had been critical of the pursuer, the court should nevertheless be slow to interfere with the Temporary Lord Ordinary's decision. All issues had been addressed before the Temporary Lord Ordinary and by her in her supplementary opinion. This was not a case where the Temporary Lord Ordinary had been plainly wrong or where her decision was one that no reasonable Temporary Lord Ordinary could have reached.

Discussion

[18] In considering the submissions we received, we bear in mind the general principle that appeals directed solely against decisions on expenses, whilst competent, are not to be encouraged. We also recognise that the Inner House should only interfere with a decision on expenses if it can be said that the Temporary Lord Ordinary has "taken some matter into account which he ought not to have taken into account, or left some material matter out of account, or reached a decision which was plainly wrong" (see Ramm v Lothian and Borders Fire Board 1994 SC 226, per Lord Justice Clerk (Ross) at 227 B-C).

[19] Having reviewed the submissions we received and having considered the terms of both opinions by the Temporary Lord Ordinary, we have reached the conclusion that the Temporary Lord Ordinary's decision on expenses can be said to be plainly wrong. In our opinion the Temporary Lord Ordinary erred in placing the considerable emphasis she did on the defender's refusal to take up the offer set out in the letter of 5 February 2009, an offer that was repeated at the door of the court on the first day of the proof.

[20] In our opinion the terms of that letter were open to criticism. That was conceded by counsel on behalf of the pursuer. Not only did the letter include a veiled threat that the defender might be reported to the procurator fiscal, it was couched in terms which could hardly have done more to discourage the opening of sensible discussions intended to explore the possibility and terms of a settlement. It was in many respects a clear example of how a letter should not be written. It asserted that the counterclaim was incompetent, despite the fact that no such contention was included in the pursuer's written pleadings. It failed to make clear that what the pursuer was seeking was that the counterclaim should be dismissed with no expenses due to or by either party. It was couched in terms which did not admit the possibility of any merit in the defender's position in either the principal action or the counterclaim and sought to cause distress and worry to the defender by stating to her that if "this matter proceeds to proof and our client is successful then in all likelihood you are going to lose your home."

[21] The defender's explanation for refusing the offer is recorded by the Temporary Lord Ordinary as being that she was anxious to ensure that the pursuer accepted liability for the matters raised in the counterclaim, the result of which we have already referred to. However, it is wrong to consider that the defender got nothing out of the proof. Once the proof got underway information came to light, which ought to have been disclosed by the pursuer at an earlier stage of the proceedings, and which, very importantly, demonstrated that the principal action had been raised prematurely. That information also established that the action had been proceeding on an erroneous approach to the accounting sought from the defender. The information that emerged during the proof also confirmed that the principal action need never have been raised. Following the deceased's death the defender was operating the deceased's business in a satisfactory manner. Had the pursuer sought to negotiate the handover of the business in orderly manner, there would have been no need for the pursuer to take the business over suddenly and sell it to a third party the same day. That precipitate action on the part of the pursuer had placed the defender in a difficult position in defending the principal action and ensuring she was relieved of liability for debts incurred by the business. Those factors were equally relevant to the position she was confronted with on receipt of the letter of 5 February 2009 and when approached by counsel for the pursuer on the first morning of the proof.

[22] It is also of relevance that whilst the principal action and the counterclaim may in the end of the day have been about sums of money which are not dissimilar, the action of count, reckoning and payment was of a much more complicated nature than the counterclaim. Counsel for the pursuer did not dispute that the counterclaim only occupied between two to three days of the time spent during the proof. Furthermore in dismissing the conclusions in the counterclaim relating to any debts that may have been due by the deceased's business to Yell Limited, the Clydesdale Bank, the Inland Revenue and HM Customs and Excise, the Temporary Lord Ordinary left open the possibility of the defender seeking relief from the pursuer, in the event that recovery of any such debts is pursued against the defender in the future. It would appear the Temporary Lord Ordinary failed to place reliance on any of these distinctions between the principal action and the counterclaim. She treated the outcome of the proof as being one of divided success. The success may have been divided, but it was not of equal significance. The case pled and argued by the pursuer in the principal action was of much greater complexity and length than was ever going to be involved in the counterclaim. The complexity of the principal action was added to by counsel for the pursuer being allowed to amend, during his closing submissions, when he added a case of spulzie against the defender. In the event the Temporary Lord Ordinary, found that additional case to be without merit.

[23] For these reasons, we have reached the conclusion that it is open to this court reconsider the issue of expenses. We are satisfied that the ruling the Temporary Lord Ordinary made on expenses did not produce a just result. The success the defender achieved in persuading the Temporary Lord Ordinary to approach her accounting in respect of the deceased's business in the manner she did, supports the view that some award of expenses should be made. So also does the information before the court as to the pursuer's actings when taking over the business and disposing of it and raising the action of count, reckoning and payment as quickly as she did. It is seriously open to question whether the action need ever have been raised. Once raised, on account of the pursuer's attitude towards the defender the action became more complicated than it need have been. The pursuer failed to produce timeously the documents that she was called upon to produce. Her accountant's evidence had to be recast in the light of issues raised by the defender's accountant. The Temporary Lord Ordinary had considerable reservations as to the credibility and reliability of the pursuer's evidence. As against that the Temporary Lord Ordinary held the defender to be someone who had acted in good faith and whose evidence could be relied upon, without question. All these factors are relevant when determining a question as to the expenses of an action. Taking these various factors into account and bearing in mind, in particular, that the counterclaim occupied only two to three days of the proof, we have reached a view that a equitable decision on expenses would be that the pursuer should be found liable to the defender in the expenses occasioned by the principal action and the counterclaim restricted to two thirds of those expenses.

[24] When the pursuer moved her motion for her expenses, she sought that two of her witnesses, Crawford Herald, tax accountant, and Robert Crawford, Chartered Accountant, should be certified as expert witnesses. The Temporary Lord Ordinary does not appear to have made any ruling on that motion. In the absence of any agreement on that matter, the case will require to be remitted to the Temporary Lord Ordinary to hear parties.