Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2015] CSOH 126

 

A348/11

OPINION OF LORD JONES

In the cause

3052775 NOVA SCOTIA LIMITED

Pursuers;

against

MATTHEW PURDON HENDERSON

Defender:

Pursuer:  Sandison QC;  Halliday Campbell

Defender:  Thomson, advocate;  Burness Paull LLP

15 September 2015

Introduction
[1]        The pursuers seek reduction of a decree of the Court of Session, pronounced on 6 January 2009 (“the decree”), reducing a disposition which was granted in favour of them by Letham Grange Development Company Limited (“LGDC”), on 12 February 2001 (“the disposition”).  The defender has tabled a number of preliminary pleas‑in‑law, including two to the relevancy of the action.  The case came before the court for discussion on the procedure roll on 19 February 2015.

 

The pursuers’ pleadings
[2]        The pursuers aver that the subjects disponed to them included the Letham Grange Country Club and Resort.  The disposition was delivered on 12 February 2001 and was immediately presented for registration in the Land Register of Scotland.  LGDC went into provisional liquidation in terms of an interlocutor of the Sheriff of Glasgow and Strathkelvin at Glasgow on 15 November 2002.  The defender was appointed provisional liquidator of LGDC on that date.  On 3 December 2002, he was appointed interim liquidator by interlocutor of the Sheriff at Glasgow:

“and he was purportedly appointed liquidator of the said company by the votes of such creditors of the company as he chose himself to recognise as valid for that purpose at a creditors’ meeting held on 14 February 2003.”

 

[3]        According to the pursuers’ averments, on or around 11 April 2003 the defender raised an action in the Court of Session (“the Court of Session action”) seeking reduction of the disposition.  In that action, the defender averred that the disposition was granted for inadequate consideration and, therefore, represented a gratuitous alienation in terms of section 242 of the Insolvency Act 1986 (“the 1986 Act”).  The defender was granted summary decree in the Court of Session action on 21 April 2004, but that decree was ultimately recalled by order of the House of Lords, on 10 May 2006.  A proof before answer was allowed on 11 September 2007, and a four‑week diet of proof was fixed, to begin on 6 January 2009.

[4]        It is averred that, on 27 November 2008, the pursuers’ solicitors withdrew from acting and the pursuers were unable to obtain either alternative representation to enable them to present their case at proof, or to obtain a discharge of the diet of proof to give them time to obtain such representation, although they actively sought both.  On 6 January 2009, there being no appearance on behalf of the pursuers, decree by default was pronounced by the court, the disposition was reduced, and the pursuers were found liable to the defender in the expenses of the action on an agent and client basis, without any substantive determination of the legal or factual issues between the parties having been made, and without the pursuers having been heard in relation to any such issue.

[5]        In response to an averment by the defender in the present action, the pursuers admit that it was open to them to reclaim against the decree by default within the 21 day period following 6 January 2009, under explanation:  (a) that they did not know that they could do so;  (b) they still lacked legal representation;  and (c) they were, accordingly, unable during the 21 day period to demonstrate the existence of any facts and circumstances apt to warrant recall of the Court of Session decree.  The pursuers aver that, in these circumstances, the notional availability of the right to reclaim against the decree of 6 January 2009 was not an effective remedy against the substantive injustice suffered by them as a result of the Court of Session decree and the consequent unwarranted advantage gained by the defender therefrom.

[6]        The pursuers go on to aver that, in or around June 2009, the defender raised another action in the Court of Session (“the commercial action”) against the pursuers and Foxworth Investments Limited (“Foxworth”), seeking reduction of a standard security granted by the pursuers in favour of Foxworth in January 2003, over the subjects of the disposition.  The defender raised the commercial action because he had been unable to take any effective steps to deal with his apparent title to the subjects of the disposition, standing the existence of the standard security.  Prior to the determination of the commercial action, the defender purported to convey the subjects to a third party.  The pursuers aver that the third party was the dominus litis both in the Court of Session action from and after about 2006, and in the commercial action, and is the dominus litis in the present action.  The pursuers further aver that the third party took title to the subjects in full knowledge of the fact that the defender's title thereto was under challenge.  It did not give full consideration for the subjects, instead paying £1 for subjects worth approximately £2 million.

[7]        The pursuers were able to secure representation to defend the commercial action.  (I was told during the course of the hearing that the pursuers were represented by the firm that had withdrawn from acting in the Court of Session action in November 2008.)  A two‑week diet of proof was heard in the commercial action in June and July 2010.  The pursuers aver that the principal issue in the case was whether the pursuers’ title to the subjects had, in fact and law, been susceptible to reduction at the instance of the defender.  On 12 April 2011, the commercial judge issued an opinion in which he observed that:

“the real issue between the parties is, ultimately, whether [the pursuers’] title fell to be reduced”,

 

and that:

 

“the issues in this action effectively duplicate those which were raised in the first action and would have been resolved… in the first action had the proof proceeded.”

 

In the result, the commercial judge held that the sale from LGDC to the pursuers was made for adequate consideration and was not a gratuitous alienation, and, accordingly, granted decree of absolvitor.  The pursuers conclude their narrative in these terms:

“That decree of absolvitor was, after further process, ultimately affirmed by the Supreme Court of the United Kingdom by judgment dated 2 July 2014.”

 

Submissions for the defender
[8]        Mr Thomson, advocate moved me to sustain the defender’s third plea‑in‑law, a standard plea to the relevancy, and to dismiss the action.  His “fundamental proposition” as he described it, was short and to the point.  The present action is irrelevant because the pursuers seek to reduce a decree in foro, which is a decree on the merits.  Referring to the pursuers’ averments to the effect that the decree was pronounced without any substantive determination of the legal or factual issues between the parties having been made, counsel submitted that the starting point for the pursuers was “the wrong one”, because, in these averments, the pursuers effectively seek to deny “the fundamental effect of a decree in foro”.  Counsel contended that it does not matter whether there had been an enquiry into the factual and legal issues, the point is that the decree was a decree in foro which is “final and conclusive” between the parties to that action.  In support of that proposition, counsel referred me, first, to MacLaren:  Court of Session Practice, at page 1090, where a decree in foro is described as a decree pronounced in a cause which has been litigated by both parties.  When it is pronounced in the Outer House and not reclaimed against:

“it operates as res judicata where the pleas are properly contested on the merits between the same parties and on the same grounds.”

 

Counsel also cited Maxwell:  The Practice of the Court of Session, at page 583, where the view is expressed that a decree in foro may be reduced on grounds different in important respects from the grounds on which a decree in absence may be reduced.  The general rule is said to be that a decree in foro cannot be reduced on the merits either on grounds which had been founded on by the losing party and which had been declared by the judge to be insufficient, or on grounds which a party had neglected to put forward before decree, and an action of reduction founded on one or other of these grounds will be dismissed on a plea of res judicata.  At page 584 of the same work, the author expresses the view that a decree in foro may be reduced on grounds other than the merits, for example where there is an inherent nullity etc.  It is explained that a decree by default is a decree in foro.  After extract, the decree may, in the discretion of the court, be reduced in an action at the instance of the pursuer or the defender.  Finally, at page 617, the author expresses the opinion that a decree in foro contentioso is any decree pronounced in a cause after defences have been lodged.  It includes every kind of decree; interlocutory, interim and final, other than a decree in absence.  It is res judicata between the parties, and a decree of that kind pronounced by a Lord Ordinary, if not reclaimed against, has as full effect between the parties and the representatives as one of the Inner House.  Under reference to the passage at page 583 which I have paraphrased above, the author states that a decree in foro may, on certain grounds, be reduced.

[9]        Counsel next relied on the decision in Forrest v Dunlop (1875) 3 R 15 (“Forrest”).  The pursuer in that case raised an action of damages.  The defender entered appearance and lodged defences.  In due course, the pursuer having failed to comply with a provision of the rules of court, the Lord Ordinary assoilzied the defender and found him entitled to expenses.  Before the reclaiming days had expired, the pursuer raised a second action against the same defender in precisely the same terms as the first.  The Lord Ordinary sustained the defender’s plea of res judicata, assoilzied the defender and found the pursuer liable in expenses.  Mr Thomson founded, in particular, on the following passage in the opinion of the Lord Ordinary:

“I think that the pursuer must be held as confessed in the former action, and that he cannot now insist in the claim of damages from which the defender was assoilzied in that action.”

 

The Lord Ordinary explained that a decree by default was a decree in foro, and said that the party against whom such a decree is pronounced can be reponed only by adopting the well‑known and authorised procedure of an application to the Inner House, by a reclaiming note within 21 days, or possibly before extract.  Mr Thomson went on to refer, again, to MacLaren, this time at page 1089, where the author notes that decrees in foro may be classified as, among other things:

“decrees where either party being ordered by the court to do anything fails to do so is held as confessed.”

 

Mr Thomson stressed the reference to being “held as confessed”.

[10]      In Walker:  The Law of Civil Remedies in Scotland, the author expresses the view that a decree granted in foro cannot be reduced on the merits, whether on grounds of fact and/or law, which the party failed to put forward in the former action, or on grounds of fact and/or law which he did put forward but which were held to be inadequate to prevent decree passing.  (Page 174)  The view is expressed, however, that such a decree may be challenged on grounds not going to the merits of the decision, such as an absence of jurisdiction.  (Page 175)  It is noted that a decree passing by default is a decree in foro and may be reduced, and that inadvertence has been held sufficient ground though requiring strong evidence to support it.  (Page 175)  The author continues, at page 176, as follows:

“The general principle is that reduction may not be granted on the merits, that is, merely on averments that the interlocutor, decree or other decision was unwarranted on the facts, or granted under an erroneous view of the law, because if that were so a reduction would be in substance merely a further appeal, and would always be available where the ordinary mode of appeal had been neglected or exhausted, or even where no appeal in the ordinary sense was permitted.  ‘Reduction has been the common law remedy for such a case of hardship for which in any civilised country there must be a remedy… I should give no countenance to the notion that we should … allow actions of reduction to be substituted for and come in the place of appeals.  I think the court would not entertain, and I should not myself be at all prepared to assent to the court entertaining, an action of reduction to serve the purpose of an ordinary appeal…’  Nor is reduction competent if by choice or oversight appeal was not taken or not taken timeously, nor if the plea was not taken in the former action.”

 

[11]      As authority for the last of these propositions concerning choice or oversight, Walker cites Philip v Reid 1927 SC 224.  That was an action of affiliation and aliment in which the sheriff‑substitute granted decree, and, on appeal, his decision was affirmed by the sheriff.  The decree was afterwards extracted, and, when charged under the decree, the defender paid the whole amount of aliment then due.  In the following year he brought an action for reduction of both of the sheriff court decrees, in which he challenged the procedure of the sheriffs, and stated as his reason for proceeding by way of reduction that, through want of care, an appeal against the interlocutor of the sheriff had not been taken timeously.  Reversing the judgment of the Lord Ordinary, the Second Division dismissed the action, holding that reduction as a process of review was not an alternative to the ordinary method of appeal and was available only in exceptional circumstances, and that here it was incompetent, in respect that no such exceptional circumstances had been relevantly averred.  In his opinion, the Lord Justice‑Clerk noted that the Lord Ordinary had reviewed the sheriffs on the facts of the case and on the law applicable to one aspect of the litigation.  The Lord Justice‑Clerk described that procedure as “unprecedented, and indeed startling”.  (Page 229)  Under reference to another case, the Lord Justice‑Clerk adopted this opinion:

“the view that an option exists, and that a litigant can sue an action of reduction when an appeal is open to him which he has neglected, is an inaccurate representation of his rights.”  (Page 230)

 

[12]      Counsel next cited Adair v David Colville & Sons 1926 SC (HL) 51 (“Adair”), in which Viscount Dunedin said this:

“That the remedy of reduction may be competent to set aside a judgment, when other means of review are not, is true. Instances can be found where it has been so utilised, but it is a remedy which does not exist of right; and must be most carefully applied. I shall not attempt, for I think such attempt would end in failure, to define categorically the cases in which reduction is competent. One obvious instance would be where a judgment had been obtained by reason of some fraud practised on the Court; but, generally speaking, it is certainly not competent when other means of review are prescribed, and these means have either been utilised or the parties have failed to take advantage of them. It is not for a judicial body to interfere with the wisdom of the Legislature in making the arrangements it has made, and one of these arrangements it has made in this present Act is by section 31 [of the Sheriff Courts (Scotland) Act 1907], is that the verdict as applied shall be the final judgment in the cause, so that it follows that, if the parties fail to have the evidence transcribed by a shorthand writer, they accept the Sheriff’s judgment as final in applying the verdict. It follows, and so all the learned Judges have held, that it is not possible to set right by the form of reduction what could have been set right by appeal. It is, therefore, in this case not permissible to say that the Sheriff wrongly applied the verdict given when he found that the legal result of that verdict was absolvitor.”  (Page 55)

 

[13]      Viscount Dunedin’s words in the foregoing passage were analysed by the Second Division in Bain v Hugh L. S. McConnell Ltd 1991 SLT 691 (“Bain”), and Mr Thomson quite properly drew my attention to that case.  An action of damages in the sheriff court was dismissed by the sheriff on his own initiative.  He had no power to do so.  The pursuer appealed to the Court of Session against the interlocutor dismissing the action.  The parties agreed that the appeal should not be opposed in order that the action might proceed before the sheriff.  The pursuer’s agents failed to enrol a motion giving effect to that agreement.  They also failed to lodge the papers required for the appeal by Rule of Court 269(b).  The pursuer was, accordingly, deemed to have abandoned the appeal.  The defenders then extracted the sheriff's interlocutor.  No further appeal was competent.  The pursuer raised a fresh action, seeking reduction of both the deemed abandonment of the appeal and the sheriff's interlocutor.  The Lord Ordinary allowed a proof before answer.  The defenders reclaimed, arguing that the action was incompetent.  They contended that abandonment did not fall within the class of writings or acts which could be reduced, and that reduction of the interlocutor was incompetent because, although the sheriff had acted ultra vires, other means of review were provided and had either been initiated or not taken advantage of by the pursuer.  The Second Division held that, while in general where other means of review were provided and those means had either been utilised or the parties had failed to take advantage of them, reduction of a decree was incompetent, there were exceptions to this rule, and while it was not possible to define categorically the cases in which reduction was competent, a decree might be reduced in exceptional circumstances where it was necessary to do so in order to produce substantial justice or where there had been a miscarriage of justice such as to render the whole proceedings fundamentally null; and where the pursuers averred both that the sheriff had acted ultra vires and that the defenders’ agents had taken advantage of the pursuer’s solicitor's mistake in failing to implement the agreement between the parties, the pursuer’s pleadings revealed exceptional circumstances in which reduction was competent.  The reclaiming motion was refused.

[14]      In the course of his submissions in Bain, counsel for the reclaimers founded on Viscount Dunedin’s observation that, generally speaking, reduction is not ccompetent when other means of review are prescribed, and these means have either been utilised or the parties have failed to take advantage of them.  Delivering the opinion of the court, the Lord Justice‑Clerk (Ross) said that it was important to observe that Viscount Dunedin had prefaced his remarks with the words “generally speaking”, expressing the view that the use of these words must mean that there are exceptions to the rule.  The Lord Justice-Clerk observed that Viscount Dunedin was at pains to point out that it was not possible categorically to define the cases in which reduction was competent, and stressed the importance of there being a miscarriage of justice if reduction was to be justified.  Further, in Adair Lord Carson made it plain that reduction will be competent if the pursuer can:

"establish that there was such a miscarriage of justice as renders the whole proceedings fundamentally null".

 

In the opinion of the Second Division, said the Lord Justice-Clerk, it is incorrect to read the dictum of Viscount Dunedin as meaning that reduction will never be competent where other means of review have been prescribed, and these means have either been utilised or parties have failed to take advantage of them.  It is well established, continued his Lordship, that a decree may be reduced in exceptional circumstances if reduction is necessary to produce substantial justice.  Reference was made to the following passage in the opinion of the Lord Justice-Clerk in Forrest at page 16:

"It is also open to the party to bring a reduction of the decree on the ground that it was obtained through inadvertence, in which case the Court, although it will require a strong statement of facts to support such an application, has the power to award substantial justice."

 

[15]      The opinion of the Second Division in Bain continued in the following terms:

“In Maclaren, Court of Session Practice, p. 695 it is recognised that even a decree in foro of the Court of Session may be reduced on grounds other than the merits, such as where there is an inherent nullity.

 

Counsel for the defenders referred us to a number of later decisions, but these appeared to us to support the view that it is competent for the court to reduce a decree in circumstances such as obtain in the present case. In Philp v Reid, 1927 SLT at p. 169, the Lord Justice-Clerk appeared to recognise that reduction of a sheriff court decree would be competent where there had been a miscarriage of justice as a result of an excess of power alleged with regard to what the sheriff had done. In Mitchell Construction Co. (Scotland) Ltd. v Brands Transport and Demolition Ltd., Lord Kincraig said at p. 58: ‘Reduction of a sheriff court decree as a means for review of a decision is not competent when other means are prescribed unless there are exceptional circumstances justifiably excusing a party from failing to use these prescribed means.’  In Zannetos v Glenford Investment Holdings Ltd., the Lord Ordinary reviewed the authorities and recognised that reduction might be justified if a miscarriage of justice had occurred or if it was necessary to produce substantial justice.”

 

[16]      Mr Thomson drew my attention to Battenberg v Dunfallandy House 2010 SC 507, in support of the proposition that, in a case where a party seeks to have a decree pronounced in default recalled on a reclaiming motion, the appellate court has a discretion of its own in deciding whether or not to recall.  (See paragraphs 12 to 14)

[17]      Having regard to the foregoing authorities, counsel for the defender recognised that a decree in foro may be reduced in “exceptional circumstances”.  He argued that this case, however, falls under what Professor Walker describes as the “general principle”, that reduction is not competent “if by choice or oversight” an appeal was not taken.  Further, in order relevantly to aver a sound basis for seeking reduction, it is necessary to plead such circumstances as can be considered as “exceptional”, and to aver that the decree was unfounded in fact or law.  In this case, submitted counsel, the pursuers has failed to do either.

[18]      Finally argued counsel, the decree which the pursuers seek to reduce proceeded on more than one ground, which I take to mean that the present defender sought reduction of the disposition on the grounds that it was (i) a gratuitous alienation under section 242 of the 1986 Act, (ii) an unfair preference under 243 of the Act and (iii) a fraudulent preference.  (It appears that the latter two grounds for reduction were incorporated into the pleadings after the Court of Session action had been to the House of Lords.)  In this action, the pursuers’ pleadings are lacking because they do does not aver, as they ought, that there existed no other ground of action on which basis the disposition should be reduced.  Against that background, counsel referred to the opinion of the Lord Ordinary in the commercial action.

[19]      A question arose in the commercial action about the onus of proof.  The Lord Ordinary expressed the view that, if the present pursuers’ title to the subjects was reduced at common law in the Court of Session action, and not under statute, the burden would lie on the pursuers in the commercial action to show that Foxworth’s rights under the standard security were not acquired in good faith or for value.  Having set that scene, the Lord Ordinary said this:

“The complication in this case arises from the fact that the default decree reducing NSL's title did not (and could not) specify the ground on which the title was reduced. Indeed it is questionable whether it was reduced on any ground other than the fact that NSL did not appear at the diet of proof. All that can be said is that NSL's title was reduced. In those circumstances, the court cannot proceed on the basis that the reduction was as a gratuitous alienation or unfair preference under s.242 or 243 of the 1986 Act so as to lay upon the defender the burden of proving that it acquired its rights in good faith and for value. It must, in my view, proceed on the basis least favourable to the pursuers. That means that the burden is on the pursuers to establish that the standard security was not acquired in good faith and for value. Nor can the pursuers seek to transfer this burden by showing that the disposition to NSL could have been reduced under s.242 or s.243 of the Act, with the consequence that it would be for Foxworth to bring itself within the provisos to the relevant subsections — the fact is that the disposition has been reduced, and the question is what effect the reduction which has in fact happened should have on the rights acquired prior to reduction by the third party (Foxworth). I have approached the matter on the basis that the burden is on the pursuers to establish that the standard security was not acquired in good faith and for value, though ultimately that does not matter, since my decision is one at which I would have arrived even if I had approached the matter on the basis that the burden of proof lay on the defender.”

 

[20]      Mr Thomson submitted that the Lord Ordinary was wrong to hold that the court could not proceed on the basis that the reduction was on the ground that it was a gratuitous alienation or an unfair preference under sections 242 or 243 of the 1986 Act.  Since the pursuers were, on the authorities, “held as confessed”, they were so held on all of the defender’s grounds of action.  They do not offer to prove that there was something wrong in fact or law about any of the grounds and, therefore, they cannot demonstrate that substantial justice requires that the disposition, itself, be reduced.  The present action is, accordingly, irrelevant and ought to be dismissed.

[21]      In his answers to the condescendence, the defender pleads that there has been a lengthy and inexcusable delay in seeking reduction of the decree “such that it would be inequitable for reduction now to be granted”.  That is reflected in his seventh plea‑in‑law.  During the course of his opening submissions, counsel for the defender advised me that he did not seek to argue, at this stage, that the pursuers are not entitled to reduction because of delay in raising this action.

 

Submissions for the pursuers
[22]      Mr Sandison QC for the pursuers opened by renewing an offer already made of a proof before answer.  He submitted that two questions fall to be decided in this case.  The first is:  what is the appropriate legal test to determine the availability of the remedy of reduction in a case such as this?  The second is:  on what basis can it be said that the appropriate legal test might be met in this case?

[23]      On the first question, senior counsel contended that the question is whether, in all the circumstances of a particular case, there are exceptional circumstances such that substantial justice will best be done by granting decree of reduction.  In support of that proposition, counsel cited Royal Bank of Scotland v Matheson 2013 146 (“Matheson”).  The bank sought reduction of a decree in absence granted against them in an action at the instance of Mr Matheson.  After proof, the Lord Ordinary granted decree of absolvitor.  In allowing a reclaiming motion, an Extra Division held that the approach to be adopted by the court in determining an application for reduction of a decree in absence is a consideration of the whole circumstances bearing upon the justice of the case.  It further held that the Lord Ordinary misdirected himself in proceeding on the basis that the weight to be attached to errors committed by the bank’s solicitors were predominant and that, in that case, the overriding consideration was that a substantial defence was put forward but decree was allowed to pass without investigation of it and, accordingly, justice required that the decree of reduction should be pronounced.

[24]      Turning to the second question, Mr Sandison argued that, in this case, the pursuers aver that the defender continues to enjoy the benefit of the decree of reduction by default, which was obtained by him on 6 January 2009, notwithstanding that, in the commercial action, determined after full proof and argument, his entitlement to such reduction was judicially negatived.  (Article 5 of the condescendence)  In these circumstances, it is necessary, to ensure that substantial justice is done between the parties, that the decree of reduction be reduced.  Further, said senior counsel, the House of Lords has held that the present pursuers have a defence to the Court of Session action.  (See Henderson v 3052775 Nova Scotia Ltd 2006 SC (HL) 85 at paragraph 35.)  Indeed said counsel, one needs to do no more than read the defences in the Court of Session action to see the grounds on which decree would have been resisted.  As a matter of law, the test to be applied is a very simple one.  Regardless of whether the decree of which reduction is one in absence or one in foro, the question is:  “where does the substantial justice of the case point”.  Counsel was not suggesting that the status of the decree ‑ as having been pronounced after full judicial determination of the facts, or having been granted as the result of a default, or having been granted in absence, no defences having been lodged ‑ is an irrelevant consideration, but it cannot be the governing consideration in determining the availability of reduction.

[25]      Counsel next drew attention to the opinion of Lord Woolman in Martens v James Aird & Sons [2010] CSOH 126 (“Martens”), as an example of a relatively recent decision in an action of reduction of a decree by default.  In giving the reasons for refusing to grant decree of reduction, the Lord Ordinary noted that, the decree in question being a decree in foro, the test was whether there were exceptional circumstances which justified reduction being granted.  An aspect of that test, said his Lordship, is to enquire whether there has been a miscarriage of justice.  In the particular circumstances of that case, the Lord Ordinary held that there had not.

[26]      Mr Sandison noted that counsel for the defender had emphasised the proposition that one cannot reduce a decree in foro on the merits.  Counsel did not take issue with that proposition, insofar as it went.  It is necessary, however, to understand what is meant by the proposition, and it is that, if the challenge is to a decree in foro, the party challenging cannot simply raise an action of reduction in which the sole basis is that the decree is wrong fact or in law.  That would be to use the reduction process as an appeal.  The only way to understand the notion that reduction of a decree in foro is not available on the merits is simply that in such an action it is not sufficient to say no more than that the decision was wrong in substance.  In the case of a decree by default, what one has to do is to indicate “at a relatively low level” that it was not appropriate.  In such a case, the merits of the action do not fall to be investigated.  In the Martens case, Dr Martens had “chosen to walk away from the case when it was in full swing” rather than having no choice in the matter.  The position in law, therefore, is very simple; where the doing of substantial justice requires it, the court is not to shut its eyes to the exact status of the decree under challenge.  Indeed, the exact status may be a very significant indication of where the substantial interests of justice lie, because, if there has been no investigation of the facts and circumstances and a party is coming to court complaining that the wrong result has been reached, it may be much easier to reach the conclusion that there has been a miscarriage of justice, or a failure to do justice, in a particular case.

[27]      Counsel for the pursuers next turned his attention to the fact that they had not reclaimed the interlocutor in which the Lord Ordinary pronounced decree by default.  The leading authority on the topic, he said, is Bain.  From Bain through other cases and ending up in Matheson, the consistent approach has been to consider the need to do substantial justice.  Counsel accepted, however, that the pursuers will have to explain satisfactorily at proof why it will be doing substantial justice to grant them the remedy that they seek when they did not attempt to reclaim the decree by default.  In their pleadings, they admit that it was open to them to reclaim within the 21 day period following 6 January but they explain that, first, they did not know that they could do so, second, they still lacked legal representation and, third, during that period they were unable to demonstrate the existence of facts and circumstances apt to warrant the recall of the decree.  Mr Sandison noted that counsel for the defender had submitted that all the pursuers had to do was to turn up before a Division and throw themselves on the mercy of the court.  That argument, however, overlooked the fact that, as a corporate entity, the pursuers could not appear in court and argue for anything, except through the medium of legal representation.  It is for all these reasons that the pursuers plead that the notional right to reclaim was not an effective remedy.

[28]      Further, contended counsel, this was not a case of inadvertence leading to the failure to appear at the proof, but the inability to do so.  Under reference to Leith v Leith (1822) 1 S 506 (“Leith”), Mr Sandison submitted that inability to appear at a diet at which decree by default is granted has long been regarded as an exceptional circumstance justifying the remedy of reduction.

[29]      Another feature of this case which renders it exceptional, submitted counsel, is that, on one view, there are now conflicting decrees of the court.  On the one hand, the defender contends that the decree in the Court of Session action affirms all of his grounds for reduction of the disposition.  On the other hand, there is the outcome commercial action, which negates the existence of a remedy based on the ground of gratuitous alienation.  On that issue, contended counsel, the first decree is res judicata against the pursuers, and the second is res judicata in their favour.

[30]      Drawing the various strands of his argument together, counsel submitted that there are clear grounds to doubt that the decree by default is a substantially just disposal of the case.  First, there is no rule of law which requires the status of the earlier decree as one that was granted without judicial determination of the merits to be ignored.  On the contrary, its status as a decree sine causa cognita is a relevant feature in the whole circumstances.  Second, there is a good reason why the pursuers in this case did not go to proof, namely their inability to obtain representation.  Inability has long been regarded as adequate to justify access to the remedy of reduction.  In Leith, the party who sought and was granted relief from what would, today, be regarded as a decree by default had failed to obtemper an order of the court, because she had been reduced to “indigent circumstances” (which I take to mean, in effect, that she was unable to afford representation).  The court regarded that as resulting in “her utter inability to prosecute her claims in a court of justice.”  (Leith, page 507)  In this case, the pursuers were unable to be represented at proof and unable to reclaim.  This was not a case like Martens, where decree had passed against the party seeking relief because, having “joined issue” as the Lord Ordinary put it, she chose “unilaterally (to) walk away”.  (Martens paragraph 36)

[31]      Mr Sandison’s third strand was that, as matters stand, as a result of the decree under challenge, substantial unmerited losses or gains, depending on one’s point of view, have arisen.  In that context, counsel referred to McKelvie v The Scottish Steel Scaffolding Co Ltd 1938 SC 278 and Johnstone & Clark (Engineers) Ltd v Lockhart 1995 SLT 440.  In the former case, a sheriff court action, decree was granted against the defenders by default.  On appeal to the Inner House, the Lord President (Normand) said that he would be “extremely reluctant that a decree pronounced against any defender should become final where there was a substantial defence which had never been heard”.  (Page 280)  In the latter, the pursuers sought reduction of a sheriff court decree in foro.  At pages 444‑445 of the report, Lord Osborne said that the approach to be taken in relation to a claim for reduction of decree was authoritatively explained in Bain.  His Lordship referred also to Adair and noted the general rule and the exception to it, which are narrated earlier in this opinion.  Lord Osborne continued:

“… it is not possible to define categorically the cases in which reduction may be competent.  Thus, it appears to me that it is necessary to examine the circumstances of each case and to reach a conclusion as to whether there exist exceptional circumstances and whether the reduction is necessary to achieve substantial justice… While I consider that issues of reponing have to be seen as involving somewhat different considerations from those involved in an action for reduction of a decree such as this, it does appear to me that certain cases concerned with that type of proceeding are capable of casting light upon what is involved in the doing of substantial justice.  What does emerge from such cases, in my view, is that the court is normally reluctant that a decree pronounced against a defender should be treated as unassailable in circumstances where there existed a substantial defence to the claim concerned, which has never been heard.  That appears to me to emerge from the opinion of Lord President Normand in McKelvie…”

 

That approach, submitted Mr Sandison, should be adopted by the court in this case.

 

Submissions for the defender in response
[32]      Mr Thomson opened his response by accepting that “substantial justice” is the overriding consideration, in relation to applications to reduce both decrees in absence and decrees in foro, including decrees by default.  In considering reduction of a decree in absence, however, the test is not the same as when considering reduction of a decree in foro.  (Matheson)  Counsel accepted that, in a case such as this, the court will be slow to shut out a defence which has not been heard.  McKelvie, however, was a case about appeals rather than actions of reduction.  In the former, there is no need to demonstrate “exceptional circumstances”.  That, said Mr Thomson, takes us back to a consideration of the pleadings to ascertain the basis on which the pursuers seek to reduce the decree.  Counsel asked the court to recall that, in the course of his submissions, he had expressed his understanding of the pursuers’ pleaded case as being that the exceptional circumstances on which it relies are the following:

“ln the foregoing exceptional circumstances (viz. circumstances in which the defender continues to enjoy the benefit of the decree of reduction by default obtained by him on 6 January 2009, notwithstanding that in the further proceedings subsequently brought by him and determined after full proof and argument his entitlement to such reduction was judicially negatived), it is necessary in order to ensure that substantial justice is done between the parties that the said decree of reduction is reduced.”  (Article 5 of the condescendence)

 

Having heard Mr Sandison’s submissions, said Mr Thomson, it seemed to him that the grounds on which the pursuers now contend that reduction should be granted are: that there is a defence which has not been heard;  that the decree by default was pronounced because of an inability to be represented at proof;  and that a reclaiming motion was not marked due to an inability to advance that reclaiming motion.  None of that, argued counsel, in any sense depends on the issuing of the commercial judge’s opinion in April 2011.  One knows from the pursuers’ pleadings that, when the commercial action commenced in June 2009, the pursuers had by that stage been able to obtain legal representation.  If the ground of reduction is simply as submitted by Mr Sandison in argument, those matters were addressed very shortly after the decree was pronounced in early 2009.

[33]      Mr Thomson said that he had not taken the delay point in his opening submissions because, on his reading of the pleadings, he had understood that the pursuers relied on the outcome of the commercial action as one of the “exceptional circumstances” justifying reduction.  Having regard to senior counsel’s submissions, it now appeared that the decision of the commercial judge was not being relied on for that purpose.  Consequently, this action should have been brought at the beginning of 2009.  In the assessment by the court of what substantial justice requires, contended Mr Thomson, the long delay between then and the raising of this action in July 2011 would be an important factor to consider.  Mr Thomson was asked whether the fact that there are two decrees from this court - a decree by default which says one thing and a reasoned judgment which says the opposite on an important issue ‑ can be regarded as one of the circumstances which may be regarded as exceptional.  Counsel replied that he was willing to accept that it could be so regarded but if, as he understood it to have been submitted on behalf of the pursuers, it is not necessary to become involved in a dispute on the merits, the decree by default should have been the subject of an action of reduction early in 2009 when the pursuers secured legal representation.

 

Decision and reasons
[34]      The question which falls for determination at this stage is whether, even if the pursuers prove all that they offer to prove, the action of reduction is bound to fail.

[35]      During the course of his submissions, as has been seen, Mr Thomson relied heavily on the various expressions of view to the same effect; that a decree by default is a decree in foro, the consequence of which is that the party against whom decree has passed is “held as confessed”.  In my view, an essential characteristic of a decree in foro is that such party has joined issue in the litigation.  By contrast, decree in absence may pass against a person who is not a party to the action.  In such circumstances, that person is not “held as confessed”.  It may be, for example, that he or she did not know of the existence of the proceedings.  It is to be expected, therefore, that the rules governing the overturning of a decree in absence will be different from those regulating the reversing of a decree by default.

[36]      Where decree is pronounced against a party who has failed to do something ordered by the court, it can be said that such party has, by default, lost the right to contest the action which he has joined.  The action is brought to an end by means of the interlocutor pronouncing decree.  The defaulting party being “held as confessed” supplies the reason why the action has been concluded in favour of the other party.  Once it is appreciated that the defaulting party may reclaim, and that the court may allow the action to proceed, it becomes immediately clear that he or she is not conclusively held as confessed by reason of the default.  I disagree with counsel for the defender’s contention, therefore, that the decree under challenge in these proceedings was a decree in foro which is “final and conclusive”.

[37]      A consistent thread running through the relevant authorities is that, notwithstanding the existence of an alternative remedy of which a litigant has not availed himself, the court has the power to reduce a decree by default, in exceptional circumstances, if reduction is necessary to produce substantial justice.  (Bain, page 695J)  (It is appropriate to note at this point that, although cases concerning the reduction of a decree an absence were cited during argument, in such cases it is unnecessary to establish the existence of exceptional circumstances.  (See Robertson’s Executor v Robertson 1995 SC 23))

[38]      In this case, the pursuers offer to prove that decree passed against them, without fault on their part.  In support of that assertion, they aver that the solicitors instructed for the proof in January 2009 withdrew from acting on 27 November 2008.  That left the pursuers with a total of 27 working days to find alternative solicitors who would accept instructions to prepare for and run a four week proof.  According to the Note by the Lord Ordinary which is number 7/1 of process, and which has been incorporated into the pleadings, the present pursuers had been ordained to lead at proof.  At the hearing on the present pursuers’ motion to discharge the proof, on 17 December 2008, 18 working days after the solicitors instructed for proof had withdrawn, counsel who appeared for the present pursuers explained that his firm had first been contacted on behalf of the present pursuers on 8 December, two weeks after the withdrawal, and that he had only that morning consulted with the present pursuers.  The Lord Ordinary refused the motion for discharge, in consequence of which, on 17 December, the solicitors who had moved for the discharge withdrew from acting.  The pursuers aver that that these solicitors had agreed to act for the pursuers only to move for the discharge, and that they would not agree to act for them in the event that the proof was not discharged.  There then remained seven working days until the proof.  On that analysis of the averments on record, there is sufficient to entitle the pursuers to a proof on the issue of absence of fault on their part.

[39]      Following the passing of the decree by default on 6 January 2009, the pursuers had 21 days to reclaim.  As is recorded earlier in this opinion, they offer to prove that they were unaware that that was the case, and they still lacked legal representation throughout that period.  Even if they had been aware of the possibility of reclaiming, that was not an effective remedy, in the absence of such representation.  I reject Mr Thomson’s assertion that this is a case in which the pursuers’ failure to mark a reclaiming motion was “by choice or oversight”.  On their averments, the pursuers are entitled to a proof of their contention that they did not avail themselves of the appeal process, through no fault of their own.

[40]      The terms of the pursuers’ defences to the Court of Session action have been incorporated into this action by reference.  It is clear that, as is recorded earlier in this opinion, the defender tabled three grounds of challenge to the disposition.  It is equally clear that the pursuers stated a substantive defence to each ground.  Mr Thomson made much of the fact that, when the Court of Session action reached the House of Lords on the summary decree issue and their Lordships held that there was a defence to the action the merits of which could not be determined without proof, the only ground on which reduction was sought was gratuitous alienation.  For his part, Mr Sandison made something of the fact that, in the Court of Session action, the present defender had sought to reduce the disposition on three grounds whilst, in the commercial action, he sought to reduce the standard security in favour of Foxworth only on the gratuitous alienation point.  Nothing turns on any of these contentions.  The question in this case is whether the pursuers have offered to prove that they have a substantive defence on all three grounds relied on by the present defender in the Court of Session action.  The terms of their averments in answer in that action demonstrate that the question falls to be answered in the affirmative.  That defence has not been heard.

[41]      In my judgment, Mr Sandison is well founded in contending that the fact that there are two decrees of the same court which, on the matter of gratuitous alienation, are inconsistent, constitutes an exceptional circumstance.  Mr Thomson accepts that that may be correct.

[42]      As is noted in paragraph [32] of this opinion, in his response to Mr Sandison’s submissions, Mr Thomson argued that this action ought to have been raised as soon as the pursuers secured legal representation in early 2009.  I was not told what counsel intended that I should do in the event that I agreed with that proposition.  There is no preliminary plea seeking dismissal on the ground of delay.  It was not suggested that, if the pursuers’ pleadings were otherwise held to be relevant for proof, they would, nevertheless, be bound to fail in this action because they had delayed in raising proceedings.  Ultimately, it seemed that Mr Thomson was doing no more than making an observation.  In any event, in my view, when the defender raised the commercial action, the pursuers cannot be faulted for deciding to wait until the conclusion of that litigation before deciding whether or not to raise this action.  As it is put in article 3 of the condescendence:  “The fact that a successful defence of the commercial action would be likely to lead to an action of reduction of the decree of January 2009 was, indeed, specifically canvassed at several points in the course of the commercial action.”  (My emphasis)  The alternative was to fight two parallel litigations in which one issue was common to both.  Had they done so, they would have been open to criticism for risking unnecessary expense and inconvenience.

[43]      In my opinion, if the Lord Ordinary were to find the pursuers’ averments established after proof in this action, he or she would be entitled to hold that there are exceptional circumstances such that reduction of the decree by default is necessary to produce substantial justice.  Put another way, having regard to what the pursuers offer to prove, it cannot be said that they will be bound to fail at proof.  Consequently, I will repel the defender’s third plea-in-law and allow a proof before answer.  All questions of expenses will be reserved in the meantime.