Scottish Court of Session Decisions

 

OUTER HOUSE, COURT OF SESSION

[2015] CSOH 10A

 

CA98/13

OPINION OF LORD TYRE

In the cause

STORK TECHNICAL SERVICES (RBG) LIMITED

Pursuers;

against

MARION HOWITSON ROSS,

EXECUTOR OF THE LATE GEORGE ROSS

Defender:

Pursuer:  M Hamilton;  Maclay Murray & Spens

Defender:  Drummond;  Shepherd & Wedderburn

3 February 2015

Introduction

[1]        In 2008 the pursuers, then known as RBG Limited, entered into a contract with a company called SGL Carbon Fibers Limited (“SGL”), in terms of which the pursuers agreed to construct an additional production line at SGL’s factory premises.  The contract between the pursuers and SGL incorporated inter alia the conditions of the NEC3 form of engineering and construction contract as amended.  Those conditions included a dispute resolution procedure (Option W2) whereby disputes would be referred to and decided by an adjudicator to be nominated, in absence of agreement, by the president for the time being of the Institution of Civil Engineers.

[2]        In the course of the contract, disputes between the pursuers and SGL were referred for adjudication on two occasions.  On the second of those occasions, Mr George Ross was nominated by the ICE to act as adjudicator.  Mr Ross accepted the appointment while inviting the parties to note that he was now employed by a firm of solicitors called Knights, Solicitors LLP (“Knights”), Newcastle-under-Lyme, Staffordshire.  An Adjudicator’s Agreement was entered into between the pursuers, SGL and Mr Ross.  Thereafter Mr Ross held meetings and hearings, and on several occasions sought the opinion of senior counsel on matters upon which he wished advice.  On 8 October 2010, Mr Ross issued his decision which, including appendices, ran to 228 pages.  Certain clerical errors were corrected by a letter dated 22 October 2010.  Mr Ross found the pursuers liable to pay SGL the sum of £1,074,609.99 plus VAT and interest.

[3]        SGL subsequently attempted to enforce Mr Ross’s decision by raising proceedings in this court.  The pursuers resisted enforcement and, for their own part, sought reduction of the decision on the grounds (i) that it, or part of it, had been made in breach of the principles of natural justice, and (ii) that in reaching his decision, Mr Ross had failed to exhaust his jurisdiction or, alternatively, had exceeded it.  In an opinion issued on 31 March 2011, Lord Glennie held that Mr Ross had made his decision in breach of the rules of natural justice and further that he had failed to exhaust his jurisdiction.  Decree reducing the decision was pronounced.  It therefore became unenforceable.

[4]        In the course of the adjudication process, fees were paid by the pursuers and by SGL in connection with Mr Ross’s appointment.  Seven separate payments were made by each of the pursuers and SGL.  These payments were made in settlement of invoices issued by Knights.  The total fees paid (including outlays and VAT) were £281,008.62 of which the pursuers paid one half, ie £140,504.31.  In this action, the pursuers seek repayment of the latter sum.  The claim is made on the basis of unjustified enrichment.  On 14 August 2013, Mr Ross died, and the action was transferred to run against the defender in her capacity as Mr Ross’s executor. 

[5]        The pursuer’s claim is resisted by the defender on a variety of grounds.  Firstly, it is contended that the party to the contract with the pursuers and SGL was Knights, and not the pursuer as an individual.  Secondly, in the event that it is held that the contract was with Mr Ross, it is contended that in the circumstances of this case, any remedy which the pursuers may have ought to have been based on contract and not unjustified enrichment.  Thirdly, it is contended that even if the claim has been correctly made on the basis of unjustified enrichment, (a) there has been no such enrichment; (b) in any event, the pursuers’ claim overstates the extent of enrichment; and (c) in any event, it is not equitable to order repayment.

 

The Adjudicator’s Agreement

[6]        On 9 April 2010, Mr Ross wrote, on Knights headed notepaper, to solicitors acting for SGL and the pursuers respectively.  The letter stated:

“I have been selected by the Institution of Civil Engineering [sic] on the 9 April 2010 to act as Adjudicator in a dispute between the above Parties.

 

Upon receipt by me of the Referral Notice together with any accompanying documents (including a copy of the contract) that the Referring Party intends to rely upon I will write to the Parties regarding the timetable for the Adjudication and shall issue my further directions that may be required.  As is my usual procedure in Adjudication, I would like to clarify some housekeeping matters:

 

(a)        Please direct all correspondence to me at:

 

Mr G.M. Ross

 

{here followed Mr Ross’s home address, telephone and fax numbers and email address]

 

(b)        Wherever practical I request the Parties to communicate with me by fax and first class post (not e-mail) and concurrently to send a copy of any such communication to the other Party.  Where a document is too large to be faxed the Parties should fax the covering sheet and post or courier the document, again including a copy to the other party.

 

(c)        I will not accept telephone calls from either Party.

 

Yours sincerely

 

G.M. Ross

Accredited Adjudicator/Trainee Solicitor

for Knights solicitors llp”

 

[7]        Mr Ross next wrote, again on Knights headed notepaper, to the solicitors for SGL and the pursuers on 14 April 2010, stating inter alia:

“I acknowledge receipt of the Referring Party’s letter dated 12 April 2010.

 

…

 

Whilst writing I would be grateful if the Parties address all correspondence to my home address and not that of my former employer.

 

Please note that I am now employed by Knights Solicitors.

 

All communications to me to be by fax and first class post (not e-mail).”

 

The letter was signed as before.  I understand the reference to “my former employer” to be to a company called Morrison Ross Limited which offered a variety of services in the construction industry.  Mr Ross was an employee of the company prior to resigning in 2010 when he became a trainee solicitor.  He remained a director thereafter. 

[8]        On 21 April 2010, Mr Ross wrote to the parties’ agents, again on Knights headed notepaper, stating inter alia:

“…  I acknowledge receipt of the Responding Party’s representative’s fax dated 21 April 2010.

 

I also refer to my telephone conversations of 21 April 2010 with [representatives of the Parties] with regard to my terms and conditions.

 

…

 

Please find attached my revised Adjudicator’s Agreement and Schedule to the Adjudicator’s Agreement for the Parties signature.

 

For the avoidance of any doubt I confirm that [sic] following:

 

1.         I will provide a description of the time spent on matters with my fee bill.

 

2.         I am employed by Knights solicitors llp and Knights will issue fee bills for my services as Adjudicator.

 

3.         …”

 

The letter was signed as before.

[9]        One copy of the Adjudicator’s Agreement was signed by Mr Ross on 23 April 2010 and by an agent on behalf of SGL on 29 April 2010.  A separate copy of the Agreement was signed by Mr Ross on 23 April 2010 and on behalf of the pursuers on 5 May 2010.  The Agreement bore to be made between SGL (the first party) and the pursuers (the second party), collectively referred to as “the Parties”, of the one part and Mr Ross, referred to as “the Adjudicator”, of the other part.  It narrated that disputes had arisen between the Parties under their contract which were referred to adjudication in accordance with Option W2 of NEC3, and that various matters were agreed by the Parties and the Adjudicator, including:

“3.        The Parties bind themselves jointly and severally to pay the Adjudicator’s fees and expenses in accordance with the Procedure as set out in the attached Schedule to the Adjudicator’s Agreement.”

 

[10]      The Schedule provided inter alia as follows:

“1.0      Fees and Disbursements

 

The Parties are bound by the following terms and are jointly and severally liable to pay the Adjudicator as follows:

 

2.0       The Adjudicator shall be paid the hourly rate of £200.00 plus Value Added Tax in respect of all time spent upon, or in connection with, the Adjudication including time spent travelling whether or not the Parties settle before the Decision is made together with all expenses, disbursements and outgoings incurred by him.

 

3.0       The Adjudicator shall be reimbursed in respect of all disbursements properly made including but not restricted to [there follows a list of reimbursable expenses].

 

4.0       All fees, expenses, disbursements and outgoings will be subject to the addition of Value Added Tax at the rate current at the time of invoicing, that is properly applicable.

 

5.0       The Adjudicator shall be paid his fees and expenses (per the allocation of liability indicated within his Decision) within seven days after issue of his Decision.

 

6.0       In the event of a settlement of the issues by agreement between the Parties before a Decision is made, the fees, expenses, disbursements and outgoings due to the Adjudicator shall be paid by the Party or Parties responsible for doing so under the Terms of Settlement, immediately after notification of the amount.

 

For the avoidance of doubt, should the responsible Party fail to pay these fees and expenses, both Parties remain jointly and severally liable for them.

 

…

 

10.0      The Adjudicator is not liable for anything done or omitted in the discharge or purported discharge of his functions as Adjudicator unless the act or omission is in bad faith.

 

11.0      The Adjudicator shall keep the Parties appraised of his fees throughout the course of the Adjudication and shall submit interim fee bills which each party shall pay on an equal basis, and in my Decision my fees will be apportioned.  Payment is due within 7 days of date of invoice.

 

12.0      If I require Quantity Surveying input during this adjudication I will utilise the resources of Morrison Ross Limited at the following charge out rates [details were given].”

 

Mr Ross’s employment by Knights

[11]      Mr Ross was employed by Knights under a contract of employment dated 1 March 2010.  In terms of Clause 1.1 of the contract, he was employed as a trainee solicitor on the terms and conditions in an appendix to the contract and as a Chartered Arbitrator and Accredited Adjudicator on the terms and conditions therein.  Mr Ross undertook to

“… diligently and faithfully devote the whole of his working time and attention to such duties as may be reasonably imposed by [Knights] and perform such duties to the best of his ability providing that duties will not be required beyond a level that will impinge upon the quality of his training contract”. 

 

Mr Ross further undertook not during the period of employment by Knights to be directly or indirectly involved or concerned with any other business (whether as principal, agent, employee or otherwise) without Knights’ consent in writing.  His remuneration was determined as “a percentage of paid fees as detailed in Appendix 4”.  His employment as an arbitrator/adjudicator could be terminated on one month’s written notice.

[12]      Mr Ross’s remuneration entitlement was set out in Appendix 4 to the contract of employment as follows:

“1.       [Mr Ross] will be paid at the rate of 40% of all invoiced fees (exclusive of VAT) in respect of all arbitration/adjudication/construction work (for the avoidance of doubt, this excludes work undertaken as a Trainee) undertaken by him within 7 days of the invoice being paid by the client.  Such remuneration will be paid to the fee earner in his capacity as an employee and deductions for tax and NI made at source within the following months payroll.

 

2.         [Mr Ross] will be paid at the rate of £45 per hour for all non-chargeable marketing/development work authorised by the Head of Litigation in advance of its commencement…”

 

Appendix 5 to the contract contained Mr Ross’s contract as a trainee solicitor in accordance with the relevant regulations, and provided inter alia for payment of an annual salary of not less than £18,500.  Mr Ross was not registered for VAT as an individual.

 

Invoices issued for Mr Ross’s services under the Adjudication Agreement

[13]      Six invoices were issued to the pursuers prior to delivery of Mr Ross’s decision, and one final invoice thereafter.  It is not in dispute that invoices for identical amounts were issued simultaneously to SGL.  The issuing of the invoices conformed to a pattern.  On each occasion the invoice was sent by fax from Knights to the pursuers’ solicitors with a fax cover sheet and a letter in Mr Ross’s name on Knights’ headed notepaper stating;

“I herewith enclose my Bill No. [number] dated [date] in connection with my interim fees and expense for the above adjudication.

 

I decide that the Referring Party and the Responding Party are liable for one half of the fees and outlays incurred …

 

Payment is due on or before [date].

 

Please make payment to Knights solicitors using the attached remittance slip.”

 

The invoices themselves bear to have been issued by Knights.  Each sought payment for “Our Professional Charges as detailed in the attached schedule”.  VAT was charged on the fee and on disbursements which were subject to VAT.  The invoices were signed by one of the partners of Knights.  The schedule contained details of the hours worked by Mr Ross and a summary of the work that he had carried out.  Invoices for disbursements were attached; these appear to have consisted of invoices from Morrison Ross Ltd addressed to Mr Ross, invoices for counsel’s fees from Faculty Services Ltd addressed to Knights, and outlays incurred personally by Mr Ross.  Knights’ invoices were settled by payments made by the pursuers to Knights.

[14]      Evidence was produced at the proof to demonstrate that 40% of sums invoiced each month by Knights (after deduction of disbursements and VAT) for Mr Ross’s activities as an arbitrator or adjudicator, including his work in connection with the dispute between the pursuers and SGL, was paid to Mr Ross.  The remaining 60% was retained by Knights.  Mr Ross’s 40% share was received by him under deduction of income tax and national insurance contributions collected by PAYE.

 

Reduction of Mr Ross’s decision

[15]      As I have already mentioned, Mr Ross issued his decision on 8 October 2010 (corrected on 22 October 2010) finding the pursuers liable to pay the sum of £1,074,609.99, plus VAT and interest, to SGL.  When SGL raised proceedings in this court to enforce the award, the pursuers resisted enforcement on two grounds.  The first was that the decision, or part of it, was made in breach of the principles of natural justice in that Mr Ross had, in reaching his decision on certain issues, made use of his own knowledge and experience (a) to make factual determinations for which there was no evidence, and (b) without giving parties a reasonable opportunity of commenting.  The second ground was that Mr Ross had failed to exhaust his jurisdiction.  There had been a previous adjudication of a dispute under the contract, conducted by a Mr Robert Fleming.  The dispute in this adjudication had concerned the pursuers’ entitlement to be paid in respect of five invoices issued by it in 2009.  Mr Fleming’s decision had also been the subject of unsuccessful enforcement action, on that occasion by the pursuers.  Lord Menzies had refused the pursuers’ motion for summary decree and dismissed the action, setting aside Mr Fleming’s decision ope exceptionis but not reducing it.  This had induced Mr Ross to decline to value work which was the subject of invoices falling within a period in 2009 apparently covered by Mr Fleming’s unenforceable but unreduced decision.  

[16]      Lord Glennie found in favour of the pursuers on both grounds of challenge (see [2011] CSOH 62).  Having allowed the pursuers to lodge a petition seeking reduction of Mr Ross’s decision, he dismissed SGL’s action and granted the prayer of the petition for reduction.

 

Issue 1:  Who was the party to the contract with the pursuers and SGL?

[17]      Evidence was given in a witness statement and orally by Mr Andrew Davidson, a partner in Knights.  His view was that Mr Ross’s services as adjudicator were provided in his capacity as an employee of Knights.  Mr Ross required to be in full-time employment in order to meet the requirements of his training contract.  He accepted, however, that parties seeking an adjudicator came to Mr Ross rather than to Knights.  He saw the situation as analogous to his own appointment from time to time as a mediator, in which role he acted as a partner of Knights.  He acknowledged that the Adjudication Agreement was not a standard form used by Knights.  The VAT charged by Knights in their invoices to the pursuers and SGL was accounted for and remitted to HMRC in accordance with statutory requirements. Except in so far as it contained matters which are properly for determination by the court, I accept Mr Davidson’s evidence as credible and reliable.  The defender also gave evidence in a witness statement and orally at the proof, but so far as this issue is concerned her evidence was of a second-hand nature and did not add anything material to that of Mr Davidson.

[18]      The parties agreed in a joint minute lodged for the purposes of the proof (i) that it is standard practice within the construction industry to appoint a natural person as adjudicator, and (ii) that it is also standard practice within the construction industry for an adjudicator’s fees to be payable to an adjudicator’s employer where the adjudicator is an employee.

 

Argument for the pursuers

[19]      On behalf of the pursuers it was submitted that when Mr Ross entered into the Adjudicator’s Agreement with the pursuers and SGL, he did so in his personal capacity and not as an employee of Knights.  The Agreement itself made no mention of Knights; “the Adjudicator” was Mr Ross.  He did not sign the Agreement in a representative capacity.  That document alone constituted the contract among the parties.  Knights’ involvement was simply to provide the mechanism for payment of Mr Ross for his services as adjudicator.  The correspondence during April 2010 between Mr Ross and the parties to the proposed adjudication was pre-contractual and did not form part of their agreement.  References by Mr Ross in that correspondence to being employed by Knights was for information only, explaining the arrangements for payment and why the letters were being sent on Knights headed notepaper.  In any event, Mr Ross’s letter of 21 April 2010 referred to “my terms and conditions” and “my revised Adjudicator’s Agreement”.  There was no evidence of an express or implied relationship of agency as between Mr Ross and Knights, nor of disclosure of any such relationship to the pursuers.  The pursuers and SGL knew nothing of the arrangement between Mr Ross and Knights for distribution of the fees paid to Knights.  It was Mr Ross, not Knights, who had been appointed as adjudicator by the ICE.  If the parties’ intention had been to bind a person other than Mr Ross to the Adjudicator’s Agreement, that would have had to be expressly stated.

 

Argument for the defenders

[20]      On behalf of the defender, it was submitted that Knights, and not Mr Ross as an individual, were party to the Adjudicator’s Agreement.  The question of the identity of the parties to a contract was one of fact, to be determined by the terms of the contract and the surrounding circumstances.  In the present case it was necessary to have regard to the correspondence leading up to the signing of the two separate copies of the Adjudicator’s Agreement (which contained no “entire agreement” clause).  The fact that the Adjudicator’s Agreement bore to have been entered into by Mr Ross did not determine that he had contracted as an individual rather than as an employee.  Mr Ross was an experienced adjudicator.  It was standard practice to appoint a natural person to be adjudicator.  It was also standard practice, where an adjudicator was an employee, for his fees to be paid to his employer.  Mr Ross had made clear in correspondence that he was entering into the contract on behalf of Knights.  He had drawn attention to his employment status when sending the Adjudicator’s Agreement to the parties for signature.  That status afforded him the necessary authority to bind Knights to the contract.  Fees were invoiced by Knights for “our professional charges” and were paid to them by the pursuers.  Knights had charged VAT and remitted it to HMRC; they could only have done so if the supply of services was being made by them.

 

Decision

[21]      I accept the defender’s submission that the identity of the contracting party is largely one of fact, and that it is appropriate to examine the circumstances surrounding the contract to establish who were the parties to the contract (see eg McBryde, Contract, 3^rd ed, paragraph 5-87, and the authorities cited).  The contract is properly characterised, in my view, as a contract for the supply of the services of Mr Ross, the person selected by the ICE to act as adjudicator in the parties’ dispute, in consideration of the payment of a fee.  The question is whether in the circumstances Mr Ross contracted personally with the parties in dispute to provide his own services as an adjudicator or, alternatively, whether Knights contracted with the parties in dispute to provide Mr Ross’s services. 

[22]      In my opinion the circumstances which I have narrated indicate that the latter is the correct analysis.   As is common ground, it is standard practice for a natural person to be appointed as adjudicator; it is not, therefore, surprising to find that the Adjudicators’ Agreement refers to Mr Ross and is signed by him.  That does not, however, determine the capacity in which he entered into the Agreement.  In my opinion Mr Ross did all that he required to do in order to make clear to the parties in dispute that he was accepting appointment as adjudicator in his capacity as an employee of Knights.  Each of his letters disclosed that he was a trainee solicitor and was signed “for Knights solicitors llp”.  The letter dated 21 April 2010 with which he enclosed the Adjudicator’s Agreement for signature stated expressly that he was employed by Knights and that Knights would charge for his services.  As the parties have agreed, there is nothing peculiar about an adjudicator’s services being provided under a contract to which the adjudicator’s employer, and not the adjudicator as an individual, is party: the case of PC Harrington Contractors Ltd v Systech International Ltd [2013] BLR 1, referred to below in another context, affords an example.  In my view, Mr Ross made clear beyond any reasonable doubt that his services were being provided in the capacity of an employee of Knights and, accordingly, that Knights were the party to the contract with the pursuers and SGL.  The terms of the fee notes are consistent with this analysis, as is the manner in which VAT was charged and paid.  If Mr Ross had been the party to the contract, no VAT could have been lawfully charged or remitted to HMRC.  Had Mr Ross entered into the contract as an individual, this would not have been consistent with the conditions of his employment by Knights, which required him to devote the whole of his working time to duties imposed by Knights, and prohibited him from carrying on any other business without Knights’ written consent.

[23]      It follows from what I have said that any claim by the pursuers for repayment of the fee paid by them for Mr Ross’s services would require to be directed against Knights, as the other party to the contract for supply of those services.  No personal liability to the pursuers was incurred by Mr Ross in terms of that contract.  The present action, in so far as directed against Mr Ross personally, and latterly against the defender as his executor, is accordingly unfounded in fact and the defender is entitled to decree of absolvitor.

 

Issue 2:  The pursuers’ claim for restitution

[24]      In the light of my conclusion on the first issue, it is not strictly necessary to address any of the other issues argued before me, but in deference to those arguments and in case the matter goes further, I propose to express, as briefly as possible, my views on one of the issues, namely the relevancy of the pursuers’ claim for restitution, albeit that those views are obiter.  The remainder of this opinion proceeds upon the hypothesis, which I have found not to be the case, that the pursuers’ contract was entered into with Mr Ross as an individual.

 

Argument for the pursuers

[25]      The pursuers’ first plea in law is in the following terms:

“The defender having been enriched at the pursuers’ expense, and there being no intention of donation on the part of the pursuers toward the defender and no legal justification for the defender’s enrichment, the pursuers are entitled to repetition of the sums paid and decree should be pronounced as concluded for.”

 

Counsel for the pursuers submitted that they were entitled to repayment of the whole sum paid by way of Mr Ross’s remuneration, including outlays and VAT.  The purpose of his appointment as adjudicator was to obtain not simply a decision on the dispute referred to him but an enforceable decision.  Mr Ross’s decision having been held unenforceable and reduced by the court as a consequence of errors made by him, the purpose of the Adjudicator’s Agreement had failed and the fee paid to Mr Ross, through Knights, fell to be repaid:  PC Harrington Contractors Ltd v Systech International Ltd [2013] BLR 1 (CA).  An earlier decision to the contrary effect by Sheriff Principal RA Dunlop QC in Prentice Island Ltd v Castle Contracting Ltd (15 December 2003, unreported) should not be followed.

[26]      The legal basis of the pursuers’ claim for repetition was said to be the condictio causa data causa non secuta.  The pursuers had sustained a loss of £140,504.31 as a result of the failed purpose.  The defender had been enriched to the same extent.  There was no legal or equitable basis to justify retention of the enrichment by Mr Ross’s estate, and in the absence of such justification, the pursuers were entitled to a remedy for the defender’s unjustified enrichment:  cf Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd 1998 SC (HL) 90.  All of the elements were present for the pursuers to be entitled to the remedy of repetition based on the condictio.  Reference was made to the well-known passages from Cantiere San Rocco SA v Clyde Shipbuilding and Engineering Co Ltd 1923 SC (HL) 105 in the speeches of the Earl of Birkenhead at page 111 and Lord Dunedin at pages 124-5 (both quoting in turn the classic dictum of Lord President Inglis in Watson v Shankland (1871) 10M 142 at 152).  

[27]      The sum repayable was the whole sum paid to Knights as agents for Mr Ross; it did not matter that that sum included outlays, or that Mr Ross personally received only a percentage from Knights, or that he would have received his share net of income tax.  Nor did it matter that interim payments had been made prior to the issuing of Mr Ross’s decision; in terms of the Adjudicator’s Agreement, these were of the nature of advance instalments of the fee which was payable for an enforceable decision.  The full sum paid by the pursuers should be repaid unless the defender could show that this would be inequitable (Royal Bank of Scotland plc v Watt 1991 SC 48, Lord Justice-Clerk Ross at 57-8; Lord McCluskey at 66).  In any event the defender had failed to prove what proportion Mr Ross had received, or what he had paid by way of tax.

 

Argument for the defender

[28]      On behalf of the defender it was contended that the action had been incorrectly based upon unjustified enrichment.  The condictio causa data causa non secuta could be invoked only where the parties were for some reason precluded from relying upon the terms of their contract; if that were not the case, the law of unjustified enrichment would supplant the law of contract.  Where one party to a contract paid money to the other in expectation of receiving something in return at a later date, his remedy in the event of default by the other party was not restitution but damages for breach of contract: Connelly v Simpson 1993 SC 391, Lord McCluskey at 402-7.  The condictio was relevant only where the purpose of the agreement failed due to circumstances outwith the parties’ control.  In the present case the pursuers’ remedy, if any, fell to be determined by the terms of the Adjudicator’s Agreement.  That being so, any liability of Mr Ross (other than for acts or omissions in bad faith, which was not suggested) had been excluded by clause 10.0.

[29]      Even if the condictio did apply, the interim payments were not recoverable.  This was not a case of advance payment, entitlement to which was conditional upon the issuing of an enforceable decision.  PC Harrington Contractors Ltd v Systech International Ltd was distinguishable.  The terms of agreement were different: Harrington was a Scheme case with provisions for interim fee charging at the adjudicator’s discretion.  In the present case, Mr Ross was obliged under clause 11.0 of the Adjudicator’s Agreement to issue interim fee invoices in the course of the adjudication and the parties were obliged to pay them within seven days.  The parties to the dispute thus agreed to make payment to the adjudicator independently of his decision being issued.  Enforceability of the decision was not a condition of the adjudicator’s entitlement to payment and accordingly there had been no failure of purpose.  Moreover, Mr Ross had provided extensive services in good faith while conducting the adjudication.  The effect of granting the remedy sought by the pursuers would be to deprive the defender of remuneration earned by Mr Ross in the course of his employment by Knights.  He had altered his position after receipt and prior to the raising of the present action.  In any event, the sum of £140,504.31 was far in excess of the amount by which the defender had been enriched, if she had been enriched at all.  In terms of Mr Ross’s agreement with Knights, he was entitled to 40% of fees totalling £57,900, ie to 23,600.  After deduction of income tax and national insurance contributions he actually received around £12,368, which was the true measure of any enrichment obtained by the defender. 

 

Analysis of the nature of the pursuers’ claim

[30]      Cantiere San Rocco was concerned with the application of the condictio causa data causa non secuta to a claim based upon frustration of contract.  Its application to a case where one party rescinds following breach of contract by the other party is controversial.  This has been the subject of much academic comment and rather less by way of judicial analysis.  In Zemhunt (Holdings) Ltd v Control Securities plc 1992 SC 58, it was the party in breach of a contract for purchase of property at auction who was seeking the return of a payment of 10% of the price, which was said to have been an advance payment rather than a non-returnable deposit.  The Inner House refused the claim, holding that the deposit was paid as a guarantee of performance rather than a mere advance payment.  The significant aspect of the case for present purposes is the following obiter observation by Lord Morison:

“…  I would however briefly express my opinion that a breach of contract by the payer of part of the price which is sought by him to be recovered, following rescission of the contract by the payee on the ground of that breach, does not per se affect the equity of the claim for restitution.  This is because the ordinary remedies for breach of contract are available to the payee and the payer is already fully accountable for the breach by the operation of these remedies.  The view which I have expressed is at least consistent with the principles laid down in the case of Cantiere San Rocco v Clyde Shipbuilding and Engineering Co, and it is directly supported by a passage in Gloag on Contract (2^nd ed), p 59.”

 

The passage in Gloag on Contract to which Lord Morison referred is in the following terms:

“It may also be taken as an illustration of the general rule that money may be recovered if the consideration has failed that if one party has the right to rescind a contract, it is a condition of the exercise of his right that any payments made by the other party must be restored.”

 

Gloag also observes (page 59-60):

 

“In cases of breach of contract the party aggrieved has an action for damages, but in addition to this, and whether damages have been suffered or not, he is clearly entitled to recover any part of the price or other consideration which he may have paid.”

 

[31]      In Connelly v Simpson, the pursuer paid the price for purchase of shares in a private company but for personal reasons requested that the transfer of the shares be deferred.  The defender subsequently put the company into members’ voluntary liquidation and the shares were never transferred.  Lord McCluskey held that the condictio was not available in a case where the inability of the party in breach to implement the contract was a result of his own actings, and that the pursuer’s remedy consisted of damages for breach of contract.  On the facts of Connelly v Simpson, a claim for damages would have been worth considerably less than the price paid by the pursuer for the shares.  Lord Sutherland, on the other hand, considered (page 414) that Cantiere was ample authority for the proposition that money paid in advance was recoverable under the condictio where the reciprocal consideration was a future event that, for whatever reason, never occurs.  His reason for finding in favour of the defender was that, as in Zemhunt, the payments made by the pursuer were not properly characterised as advance payments but were payments made in consideration of acquisition of an immediate personal right to demand a transfer of shares.  There was therefore no room for the application of the condictio and the pursuer’s only remedy would be an action for breach of contract if he could show that the defender was in breach of his obligations under the contract.  Lord Brand, dissenting, was of the opinion that there was no answer to the pursuer’s claim for restitution, observing (page 415):

“…  It seems to me to be no more than common sense that a vendor who has been fully paid but is unable to fulfil his obligation under the contract should be liable to make restitution of the price …  I agree with the submission of counsel for the pursuer and respondent that the pursuer’s claim for restitution is a claim of right and not an exceptional remedy dependent on equitable considerations.”

 

Lord Brand added that he considered that the law was concisely stated in Trayner’s Latin Maxims, sub nom “Causa data causa non secuta” where the author said “money paid in purchase of a certain subject can be recovered on this ground, if the seller fail in delivery.”  No clear ratio emerges from this difference of judicial opinion, although it appears that two out of three of the members of the court (Lord Sutherland and Lord Brand) regarded the remedy of restitution as available in principle in cases of breach of contract.  In so far as the decision of the court has, on the contrary, been regarded as supporting a general rule that a buyer who rescinds is restricted to a claim for damages, it has been subject to criticism: see eg Scottish Law Commission Discussion Paper No 109 on Remedies for Breach of Contract, paras 4-40 to 4-43. 

[32]      An alternative analysis of entitlement to restitution following breach of contract, based upon the principle of mutuality of contract, has been expounded since Zemhunt and Connolly v Simpson by academic commentators.  Reference may be made in particular to the following articles:  R Evans-Jones, “Unjust Enrichment, Contract and the Third Reception of Roman Law in Scotland” (1993) 109 LQR 663;  HL MacQueen, “Unjustified Enrichment and Breach of Contract” 1994 JR 137;  JA Dieckmann and R Evans-Jones, “The Dark Side of Connelly v Simpson” 1995 JR 90; and HL MacQueen, “Contract, Unjustified Enrichment and Concurrent Liability:  A Scots Perspective” 1997 Acta Juridica 176.  There is further discussion in McBryde, Contract (3^rd ed) at para 20-132 (and other sources cited there);  in Gloag & Henderson, The Law of Scotland (13^th ed) at para 24.13;  and in the Stair Memorial Encyclopaedia, vol 15, paras 31 to 43 (contributed by Mr WDH Sellar); and there is a detailed treatment of the subject in Evans-Jones, Unjustified Enrichment (vol 1) at para 6-97ff.  Professors Evans-Jones and MacQueen both contend that restitution should be, and indeed is, recognised by Scots law as a remedy available under the law of contract following rescission, in addition to damages.  This contention receives support from passages in Erskine’s Institute and in Bell’s Commentaries.  Erskine states (III.3.86):

“No party in a mutual contract, where the obligations on the parties are the causes of one another, can demand performance of the other if he himself either cannot or will not perform the counterpart, for the mutual obligations are considered as conditional.”

 

This passage does not expressly address the question whether mutuality can be invoked by a party who has paid in advance.  Bell, however, states explicitly (Commentaries I.478), in the context of sale of goods:

“The claim of the buyer, then, to whom delivery is refused, is twofold:  1. For repayment of the price, if already paid to the seller;  and 2.  For indemnification of the loss sustained by non-fulfilment.”

 

It must be noted, however, that in Bell’s Principles (10^th ed), section 530, the buyer’s entitlement to restitution is attributed to the condictio, and it will be recalled that Lord Morison described his obiter view in Zemhunt (above) as being “at least consistent with” the principles laid down in Cantiere San Rocco. 

[33]      Although there appears to be consensus among commentators that the remedy of restitution (in a non-technical sense) should be available, in addition to damages for any loss caused by the other party’s breach of contract, to a person who has made a payment in anticipation of a counterpart obligation which is never implemented, there is less consensus as to what the legal basis for that remedy ought to be.  Professor MacQueen has adopted a neutral approach, albeit one founded at least to some extent upon unjustified enrichment, observing (1994 JR at page 148):

“…  It is submitted that in Scots law an innocent party’s right to terminate a contract for breach may entail the right to restitution from the contract-breaker.  The remedy is restitutionary in nature rather than merely in effect compensatory damages, the significance of the contractual principle of mutuality being to explain why retention of the enrichment is not justified.”

 

The preliminary view of the Scottish Law Commission (op cit, para 4-47) was

“… that all these matters would be better left to the law on unjustified enrichment, it being made clear that a claim for redress of unjustified enrichment is available to both parties on rescission notwithstanding the decision in Connelly v Simpson.”

 

In their subsequent report no. 174 on Remedies for Breach of Contract, the Commission noted that a majority of respondents had agreed with this view.  Professor Evans-Jones, on the other hand, has contended in the various works cited above that the disappointed payer’s restitutionary right finds an adequate and satisfactory basis in the principle of mutuality of contract, without recourse to the law of unjustified enrichment.  On this analysis, the condictio is excluded because the parties’ rights are determined by the law of contract.

[34]      For the purposes of the present opinion, I am, of course, concerned with what the law of Scotland is rather than what it ought to be.  It can hardly be doubted that the law is still in the course of development.  So far as I am aware, there has been no reported Scottish case in which a party to a contract who has made payment in anticipation of a counterpart performance which never occurs has been held entitled, under the law of contract, to the remedy of restitution of the price paid on the basis of the mutuality principle.  I am, however, satisfied that the passages cited above from Bell’s Commentaries and from Gloag on Contract provide sufficient authority for the propositions (i) that the remedy of restitution is available in such circumstances, and (ii) that the availability of restitution does not depend upon the application of the condictio causa data causa non secuta.  These propositions obtain some further support from Lord Morison’s obiter observations in Zemhunt. 

[35]      I recognise that this analysis might not be regarded as consistent with the opinions of either of the members of the majority in Connelly v Simpson.  The court in that case did not, however, address directly the question whether a remedy of restitution was available under the law of contract, as opposed to the law of unjustified enrichment.  There is no indication in the report of the case that the passage from Bell’s Commentaries to which I have referred, which makes clear that the remedies of restitution and damages are not mutually exclusive, was cited.  Lord McCluskey’s analysis (pages 406-7) that the claim for repayment of the price was a claim for damages was not adopted by the other two members of the court, and I would not have regarded it as binding upon me.  Lord Sutherland’s rejection of the pursuer’s claim for repayment was dependent upon the somewhat unusual circumstances of the case.  It respectfully appears to me that the dissenting opinion of Lord Brand is most consistent with the authorities to which I have referred; his description of restitution as “a claim of right and not an exceptional remedy dependent on equitable considerations” appears to me to confirm that he had in mind a remedy based on contract and not on unjustified enrichment.

 

Application of analysis to the present case
[36]      Identification of the correct basis of the pursuers’ claim is of more than academic significance.  If I am correct in characterising the claim as one for restitution based on the mutuality principle instead of the condictio causa data causa non secuta, its focus shifts from failure of purpose to the question whether the adjudicator’s failure to provide the parties to the dispute with an enforceable decision constituted a material breach of contract.  If so, that in turn raises the question whether equitable considerations, which might be relevant to the decision whether to order repayment of some or all of the fee paid by the pursuers to the adjudicator on the ground of unjustified enrichment, have any role to play in deciding whether or not to order repayment of some or all of the fee on the ground that the adjudicator was in material breach of contract.  This was not the basis upon which either party presented its argument at the hearing before me and, subject to what follows, it is not therefore appropriate for me to express a concluded view on any of these matters. 

[37]      I did hear argument on two aspects on which I feel able to express a view.  The first of these was whether a claim for repayment by the pursuers based on breach of contract was precluded by clause 10.0 of the Adjudicator’s Agreement, excluding liability for anything done or omitted by Mr Ross in discharge of his functions as adjudicator unless the act or omission was in bad faith.  In my opinion it is not.  Clause 10.0 is apposite, in my opinion, to exclude a claim by the pursuers for damages in respect of any loss which they might have sustained as a consequence of an act or omission of Mr Ross, such as an expense or liability incurred to a third party.  It has no application to any separate entitlement that the pursuers may succeed in establishing to the return of money paid by them to Mr Ross as consideration for the determination by him of the parties’ dispute, including in particular the issuing of an enforceable judgment.

[38]      The second aspect was the nature of the interim payments made by the parties to the dispute to Mr Ross.  If I had required to address this issue, I would have held that they were of the nature of advance payments of the fee due in respect of the provision of Mr Ross’s services as a whole.  I do not regard the wording of clause 11.0 of the Adjudicator’s Agreement as providing a basis for distinguishing the present case from the Harrington case merely because it required the adjudicator to keep the parties appraised of his fees and to submit interim fee bills for payment within seven days.  There is nothing in the agreement to suggest that these interim payments were made in consideration of anything other than the service for which Mr Ross was engaged, namely to supply an adjudication of the parties’ dispute.  The present case is therefore distinguishable on its facts from Zemhunt and from the analysis of the majority in Connelly v Simpson. 

[39]      Had it been necessary to do so, I would have held, for the reasons that I have given, that the pursuers’ claim based upon the condictio causa data causa non secuta was irrelevant.  In view, however, of the complexity of the issue and the uncertain state of the law, I would not have dismissed the action but would have afforded the pursuers an opportunity to consider whether they wished to seek leave to amend their pleadings or, indeed, to seek leave to reclaim before embarking upon any further procedure.  Since, however, I have found in favour of the defender on Issue 1, these matters do not arise.

 

Other issues

[40]      In addition to the issues with which I have dealt above, I was addressed by the parties on the following:

• whether reduction of Mr Ross’s decision constituted a failure of the purpose for which the parties contracted;
• what was the extent of the pursuers’ loss and of the defender’s enrichment; and
• whether, in the event that the defender was held to have been unjustifiably enriched to any extent, it was equitable to order the reversal of the whole or part of that enrichment.

In the light of my decision, all of these issues are superseded.  If, as I have held, the pursuers’ claim ought to have been directed against Knights, they would have required to be formulated differently.  Moreover, if, as I have held, the pursuers’ claim for repayment ought to have been based upon contract and not upon unjustified enrichment, they would either have required to be reformulated or would not have arisen at all.  For these reasons I do not consider that it would serve any useful purpose for me to attempt to address them on an obiter and increasingly hypothetical and unrealistic basis.

 

Disposal

[41]      I shall pronounce an interlocutor repelling the pleas in law for the pursuer, sustaining the second plea in law for the defender and granting decree of absolvitor in respect of the first conclusion of the summons.  All matters concerning expenses are reserved.