Scottish Sheriff Court Decisions

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URL: http://www.bailii.org/scot/cases/ScotSC/2000/33.html
Cite as: 2001 SLT (Sh Ct) 155, [2000] ScotSC 33

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DAVID ABBOTT and CHRISTINE ABBOTT v. THE FOREST HILLS TROSSACHS CLUB and MRS. G.LYALL and MRS. S. PHELPS and MR. D. DAVIDSON and BARRATT INTERNATIONAL RESORTS LIMITED [2000] ScotSC 33 (29th November, 2000)

SHERIFFDOM OF TAYSIDE CENTRAL AND FIFE
A412/99

JUDGMENT OF SHERIFF PRINCIPAL

R A DUNLOP QC

in the cause

DAVID ABBOTT and CHRISTINE ABBOTT

Pursuers and Respondents

against

(First) THE FOREST HILLS TROSSACHS CLUB, MR G LYALL, MRS S PHELPS and MR D DAVIDSON and (Second) BARRATT INTERNATIONAL RESORTS LIMITED

Defenders and Appellants

__________________

Act: A. Smith, Advocate, instructed by Pollock Somerville & Co., Stirling

Alt: C Sandison, Advocate, instructed by Tods Murray, WS, Edinburgh

STIRLING, 29 November 2000. The Sheriff Principal, having resumed consideration of the cause, Refuses the Appeal and Adheres to the Sheriff's interlocutor of 31 May 2000 complained of; Certifies the Appeal as suitable for the employment of Junior Counsel; Reserves meantime the question of expenses.

NOTE: The first defenders are an unincorporated association, being a Club in which the pursuers are both members. The Club operates from Forest Hills Resort, which is a "time share" resort comprising a number of residential lodges and related facilities. In terms of paragraph 3 of the Constitution of the first defenders, the purpose of the Club is "to secure for the members joint rights of ownership of specific Lodges and also exclusive rights of occupation of these specific lodges for specified periods in each year." The pursuers aver that they are the joint owners of a "time share" which entitles them to the use of one week of a particular property every year. They aver that they have a substantial financial investment in the purchase of that property. In terms of the Constitution there is to be a "Founder Member" who has the responsibility for arranging for the erection of residential lodges. In terms of Clause 7 of the Constitution it is provided that:-

"The whole business and affairs of the Club shall, except insofar as the same may have been delegated to the Management Company as hereinafter provided, be managed by a Committee which shall consist of five persons, three of whom shall be members of the Club and two of whom shall be nominated by the Founder Member and may be members of the Club."

In terms of Clause 11 of the Constitution it is provided that:-

"The Committee shall have power to do all things that may be necessary for the carrying out of the objects of the Club and for its general management and shall be entitled to delegate to the Management Company hereinafter provided for such of its powers as may be appropriate to enable the Management Company to perform its functions. Until such time as the Committee shall have been constituted, the management of the Club and all the powers of the Committee shall be vested in the Founder Member. In particular the Founder Member will, on behalf of the Club, enter into a Management Agreement with the Management Company (which may be itself) for the management of the lodges and the Club's property generally. The said Management Agreement shall be in the style annexed hereto. ....."

It is not disputed that a Management Agreement was entered into and that the second defenders are now the Management Company acting under that agreement. The executed agreement itself was not produced but parties were agreed that it was in terms identical to the style of Management Agreement annexed to the Constitution.

Clause 1 of the Management Agreement provides:-

"The Management Company will undertake on behalf of the Club, and the Club hereby delegates to the Management Company the management and administration of the whole of the Club property at Forest Hills, Kinlochard, by Aberfoyle. Without prejudice to the generality of the foregoing the Management Company will be responsible for all the items detailed in paragraph (a) to (h) of Article 12A of the Constitution of the Club ....."

Clause 2 of the agreement provides:-

"The Management Company shall during the subsistence of this agreement be entitled to exercise all the powers of the Committee of the Club (hereinafter referred to as "the Committee") in connection with the management and administration of the Club's property and affairs, including the power and right to collect from each member of the Club the annual management charge ....."

Clause 8 of the Management Agreement provides:-

"This agreement shall subsist ..... until 31 October 2002 with an option to the Management Company to continue the agreement for a further period of 21 years thereafter."

Clause 12A of the Constitution provides:-

"The members of the Club will contribute in proportion to the number of holiday certificates held by them, to the whole costs incurred by the Club, including without prejudice to the foregoing generality the cost of the following:-

maintenance, repair, redecoration (where appropriate), cleansing and when necessary renewal of the structure, exterior and interior of the lodges, and the whole services, roadways and amenity areas, whether exclusive, common, mutual or otherwise.

Maintenance, repair and when necessary replacement of the whole furniture, furnishings, plenishings, fittings and fixtures in, on, about or pertaining to the lodges.

.............

The maintenance of a sinking fund (if one is established) for the replacement of capital items of the Club's property.

Except insofar as the same may have been delegated by the Management Agreement hereinbefore referred to, the Committee shall have sole discretion in deciding what monies should be spent for any of the foregoing purposes and when the same should be spent. ....."

The pursuers' cause of action against the defenders is the alleged unlawful interference by the defenders with the pursuers' peaceful enjoyment of their property rights at the Forest Hills Resort. Whether that cause of action is made out depends upon whether the defenders are entitled to charge the pursuers a levy for the refurbishment of the lodges at the resort, including the lodge to which the pursuers have the occupancy right. That issue is focussed in the first crave, in terms of which the pursuers seek declarator that the first defenders have neither right nor title in terms of the Constitution of the Club to seek to charge the pursuers the refurbishment levy in the sum of Ł87 per annum from the year 1998 to 1999, and that any attempt to do so is ultra vires the Constitution. It appears clear from the pleadings that the determination of this issue principally depends upon the proper construction of Clause 12A of the Constitution. A finding in favour of the pursuers on this issue is the basis upon which it is alleged that there is unlawful interference in the pursuers' property rights.

In the conduct of this case the defenders have enjoyed single representation and relied on common defences. They challenged the relevancy of the pursuers' pleadings on a number of different grounds and a debate thereon was heard over two days. On 31 May 2000 the Sheriff pronounced an interlocutor excluding from probation certain averments of the pursuers, but in relation to the defenders' principal grounds of argument allowed a proof before answer. It is against that latter aspect of the Sheriff's interlocutor that the defenders have now appealed.

Although at the debate it was argued on behalf of the first defenders that the action directed against the first defenders was incompetent, no appeal is directed against the Sheriff's rejection of that argument. In my view however the Sheriff's conclusions in that regard may have some relevance to the arguments in this appeal. The grounds of appeal are in the following terms:-

"1. The Sheriff erred in law in not sustaining the defenders' second and fourth Pleas-in-Law to the extent of refusing probation of the pursuers' averments so far as directed against the second defenders, and in not dismissing the action insofar as directed against those defenders. The Sheriff ought to have held that the action against the second defenders was either:

based upon the allegation that they were in breach of the Management Agreement between themselves and the first defenders (or at least that the pursuers did not distinctly offer to prove a different basis for the action against the second defenders), and that title to sue for any breach of the Management Agreement inhered in the first defenders alone, and not in the pursuers as individuals, or

based upon the second defenders' actions as agents for the first defenders as disclosed principals, and thus not apt to found liability to the pursuers on the part of the second defenders.

The Sheriff erred in law in not sustaining the defenders' fourth Plea-in-Law to the extent of excluding from probation the averments of Article 5 of Condescendence relating to the letters dated 22 April 1998 and June 1998 and to the consultation exercise narrated in those letters. The Sheriff ought to have held that the said averments were irrelevant as bearing no logical relation to any fact in issue between the parties in the action.

The Sheriff erred in law in not sustaining the defenders' fourth Plea-in-Law to the extent of excluding from probation the averments in Article 7 of Condescendence claimed to support that part of the pursuers' first Plea-in-Law seeing (sic) repetition of the sums eighth craved. The Sheriff ought to have held that no relevant basis was stated for a plea for repetition of the said sums."

During the course of the appeal I allowed the Record to be amended in terms of a Minute of Amendment tendered by the pursuers which was intended to answer the defenders' criticisms of the pursuers' averments in Article 7 of Condescendence and to which the Appellants' second ground of appeal was directed. The Minute of Amendment introduces averments that the sum of Ł133.32 (being the sum eighth craved) was paid in protest and without prejudice to the pursuers' right to sue for its return. Reference is made to the terms of a letter dated 12 August 1999, which is capable of supporting that averment. I did not understand it to be disputed by Counsel for the Appellants that if someone pays under reservation to avoid some inconvenience then it is open to that person to seek repetition of that sum if it is ultimately found not to be due. In my view that proposition is a sound one and, in light of this Minute of Amendment, I am satisfied that there is now no basis for excluding these averments from probation and that the third ground of appeal should accordingly be refused.

The principal argument in the appeal is that set out in the first ground and is directed to the Sheriff's refusal to make a determination about the application of the rule in Foss v Harbottle 1843 2Hare 461. The Sheriff has outlined the parties' competing arguments at pages 21 and 22 of his Note and has stated his opinion that the submissions of the pursuers are to be preferred. However (at page 26) he has ultimately reserved his opinion as to the applicability of the rule until after enquiry. Counsel for the Appellants submitted that he was wrong to do so and in particular relied on what was said by the Court of Appeal in Prudential Assurance v Newman Industries 1982 1Ch 204 as supporting the view that one ought not to reserve an issue of this sort, since to do so would defeat the whole purpose of the rule in Foss v Harbottle and sanction the very mischief that the rule is designed to prevent - "By the time a derivative action is concluded, the rule in Foss v Harbottle can have little, if any, role to play. Either the wrong is proved, thereby establishing conclusively the rights of the company; or the wrong is not proved, so cadit quaestio."(p.221C). Counsel for the Appellants also referred to Taylor v NUM 1985 BCLC 237, which contains at page 243 an extract from the judgment of Jenkins L J in the case of Edwards v Halliwell 1950 2All ER 1064, which provides a convenient summary of what was the rule in Foss v Harbottle. The extract from that case is in these terms:-

"The rule in Foss v Harbottle, as I understand it, comes to no more than this: First, the proper plaintiff in an action in respect of a wrong alleged to be done to a company or association of persons is prima facie the company or the association of persons itself. Secondly, where the alleged wrong is a transaction which might be made binding on the company or association and on all its members by a simple majority of the members, no individual member of the company is allowed to maintain an action in respect of that matter for the simple reason that, if a mere majority of the members of the company or association is in favour of what has been done, then cadit quaestio. No wrong had been done to the company or association and there is nothing in respect of which anyone can sue. If, on the other hand, a simple majority of members of the company or association is against what has been done, then there is no valid reason why the company or association itself should not sue. In my judgment, it is implicit in the rule that the matter relied on as constituting the cause of action should be a cause of action properly belonging to the general body of corporators or members of the company or association as opposed to a cause of action which some individual member can assert in his own right. The cases falling within the general ambit of the rule are subject to certain exceptions. It has been noted in the course of argument that in cases where the act complained of is wholly ultra vires the company or association the rule has no application because there is no question of the transaction being confirmed by any majority. It has been further pointed out that where what has been done amounts to what is generally called in these cases a fraud on the minority and the wrongdoers are themselves in control of the company, the rule is relaxed in favour of the aggrieved minority who are allowed to bring what is known as a minority shareholders' action on behalf of themselves and all others. The reason for this is that, if they were denied that right, their grievance could never reach the court because the wrongdoers themselves, being in control, would not allow the company to sue. Those exceptions are not directly in point in this case. But they show, especially the last one, that the rule is not an inflexible rule and it will be relaxed where necessary in the interests of justice."

Counsel also relied on Taylor v NUM for the propositions that, firstly, "the principle in Foss v Harbottle does not depend upon the existence of a corporation" but applies equally "to any legal entity which is capable of suing in its own name and which is composed of individuals bound together by rules which give the majority of them the power to bind the minority" (p.242) and, secondly, that an individual member of the Society is entitled to sue on the grounds that something is proposed to be done which would be ultra vires only if it would be ultra vires the Society itself rather than merely ultra vires the governing body of the Society. (p. 244).

Counsel for the Appellants then pointed out that the members of the first defenders were bound by the Constitution which amounted to a contract among them. By contrast there was no contractual relationship between the pursuers and the second defenders. The substance of the pursuers' case is whether in terms of the Constitution the disputed charges are justifiable by the terms of that Constitution. By contrast the second defenders are only doing what they are contractually entitled to do in terms of the contract between the first and second defenders. The first defenders are not objecting to what the second defenders are doing. By bringing the second defenders into the action the pursuers are seeking a judicial determination that the conduct of the second defenders, which both defenders agree is conduct contractually authorised by the first defenders, is conduct the first defenders cannot lawfully authorise because it contravenes the terms of the contract between the pursuers and the first defenders. In those circumstances what the pursuers are seeking to do is to intervene in the contractual relationship which subsists between the defenders themselves and that is what the rule in Foss v Harbottle says cannot be done. Only the Club as a whole has title to seek judicial regulation of the nature and incidence of the contract between the defenders. If the pursuers sought to escape from that rule on the grounds that the first defenders actings were ultra vires it would be necessary to show that it was beyond the powers of the whole Club and upon a consideration of the terms of the Constitution such an argument could not be sustained. He also criticised the terms of the Sheriff's Note which seemed to imply that a rule of practice in relation to interdicts in Scotland could take precedence over the substantive law of Foss v Harbottle.

In responding to this ground of appeal, Counsel for the pursuers submitted that the Minute of Agreement was to all intents and purposes incorporated into the Constitution and formed part of the contractual obligations between the members and the Club. He emphasised that, looking to the terms of the Minute of Agreement, the second defenders were effectively standing in the shoes of the Club. He submitted that an interdict is competent against an agent as well as a principal and that since there are averments that the act of alleged infringement of the pursuers' rights was likely to be that of the second defenders, it was entirely appropriate that the craves for interdict should be directed against them. In support of these arguments reference was made to Burn-Murdoch on Interdict in the Law of Scotland paragraph 81 and Dobbie v Halbert 1863 1M 532, which it was submitted on its facts was indistinguishable from the circumstances in this case. Reference was also made to Wylie v Fisher 1906 14 SLT 894 (also cit. 1907 SC 606). In relation to the defenders' reliance on Foss v Harbottle it was submitted that the rule does not apply where the act in question "infringes the personal rights of a particular shareholder" (Gloag and Henderson The Law of Scotland 10^th Edition page 956).

In reply to these submissions, Counsel for the Appellants submitted that the pursuers do not have any personal rights against the second defenders. Their rights against the second defenders are only through the Club. If one construed "personal rights" in the sense suggested by Counsel for the pursuers one would be construing them so widely that Foss v Harbottle would never apply.

Despite the careful and persuasive approach of Counsel for the Appellants, I have come to the conclusion that his submissions cannot receive effect. A number of authorities were reviewed by the Court in Prudential Assurance v Newman Industries including the case of Gray v Lewis 1873 LR 8Ch App 1035. In relation to that case the Court of Appeal said (at page 219C):-

"This case highlights what the rule in Foss v Harbottle is primarily concerned with, namely, is a plaintiff shareholder entitled to prosecute an action on behalf of the company for a wrong done to it, or ought the action to be struck out on the footing that it is for the company and not for a shareholder to sue?"

That is entirely consistent with the passage from Edwards v Halliwell to which reference has already been made that "it is implicit in the rule (of Foss v Harbottle) that the matter relied on as constituting the cause of action should be a cause of action properly belonging to the general body of corporators or members of the company or association as opposed to a cause of action which some individual member can assert in his own right."

It is unfortunate that the case of Edwards v Halliwell was not referred to in full, because its factual circumstances are not dissimilar to those in the present case. In that case, which concerned a trade union, the rules of the union provided that "regular contributions of employed members shall be as per tables ..... and no alteration to the same shall be made until a ballot vote of the members has been taken and a two thirds majority obtained." A delegate meeting of the union, without taking any ballot, passed a resolution increasing the amount of the contributions of employed members. The plaintiffs claimed that that alteration was invalid.

In a passage of his opinion which follows the summary of his understanding of the rule in Foss v Harbottle, Jenkins L J deals with the particular facts before him as follows:-

"In my judgment, this is a case of a kind which is not even within the general ambit of the rule. It is not a case where what is complained of is a wrong done to the union, a matter in respect of which the cause of action would primarily and properly belong to the union. It is a case in which certain members of a trade union complain that the union, acting through the delegate meeting and the executive council in breach of the rules by which the union and every member of the union are bound, has invaded the individual rights of the complainant members, who are entitled to maintain themselves in full membership with all the rights and privileges appertaining to that status so long as they pay contributions in accordance with the tables of contributions as they stood before the purported alterations of 1943, unless and until the scale of contributions is validly altered by the prescribed majority obtained on a ballot vote. Those rights, these members claim, have been invaded. The gist of the case is that the personal and individual rights of membership of each of them have been invaded by a purported, but invalid, alteration of the tables of contributions. In those circumstances, it seems to me the rule in Foss v Harbottle has no application at all, for the individual members who are suing sue, not in the right of the union, but in their own right to protect from invasion their own individual rights as members."

The validity of the argument for the Appellants depends on whether Counsel is correct in his analysis that the pursuers are in effect seeking to pursue "a cause of action properly belonging to the general body of corporators or members of the company or association." In my opinion however that is not the position.

Counsel for the Appellants took as his starting point the statement of the Sheriff that "the nub of the dispute is contained in the first crave, in terms of which the pursuers seek declarator that the first defenders have neither right nor title in terms of the Constitution of the Club to seek to charge the pursuers the refurbishment levy .... and that any attempt to do so is ultra vires the constitution."

In my view however, the proper starting point, and what has in effect provoked the action, is the actual or threatened unlawful interference with the pursuers' rights of property. It is no doubt true that whether that interference is lawful or unlawful depends on the view taken of the issue identified by the Sheriff as the nub of the dispute, but that does not appear to me to detract from my analysis of the essential nature of the action. Viewed in that way, it seems to me that this is an action in which the pursuers seek to vindicate their personal rights as against the defenders. It is an action the nature of which is very similar to the action taken by the plaintiffs in Edwards v Halliwell. If that approach is correct, it does not appear to me that, as in that case, the rule in Foss v Harbottle applies at all.

The Sheriff has accepted, in my view correctly, that the Court can interfere in the actings of an unincorporated association where those actings affect the patrimonial interests or civil rights of its members. The Sheriff's decision in that regard is not now challenged and it is accordingly accepted that in principle a relevant claim can arise in circumstances where the pursuers have suffered injury by the acts of the first defenders in alleged violation of the Constitution. It is important to have in mind the nature of the rights allegedly violated. In Article 8 of Condescendence it is averred that the defenders (by which one presumes both defenders) have indicated that they will not permit the pursuers to enjoy the facilities of the Club, whether the common facilities or the time share week owned by them. The defenders have refused to supply keys to the lodges and have threatened to cut off power and water. All these actions are directly related to the pursuers' refusal to pay the disputed charges and clearly interfere with the pursuers' personal patrimonial interests. In terms of the Constitution these activities fall within the responsibilities of the Committee of the first defenders. However these responsibilities have been delegated to the second defenders in terms of the Management Agreement. In my view it is important to emphasise that that Agreement is one of delegation and it was accepted that, while that delegation is in force, the functions delegated could not be performed by the first defenders. Not only has there been a delegation of those functions by the first defenders but for all practical purposes they cannot now take these functions back into their own hands without the co-operation of the second defenders since the Management Agreement can be continued at the option of the second defenders until 31 October 2023. In short the second defenders are standing in the shoes of the first defenders in regard to these functions and, in a question with others, can have no greater or lesser authority in the performance of those functions than possessed by the first defenders. If an act of the first defenders is actionable as involving an unwarranted infringement of the pursuers' personal rights, it is no less actionable if the performance of it is delegated to another.

In Dobbie v Halbert (supra cit.) an agent plead in defence to a petition for interdict against his own unlawful act that he had been instructed to so act. In his Note on an appeal, the Sheriff said:

"An interdict is a legal process intended to prevent a party who is proceeding to do an alleged wrong from doing the wrong, no matter who ordered him."

On appeal to the Court of Session the Lord Justice Clerk, in the course of his opinion, said:

"No doubt it was quite competent for the respondent to have directed this petition against Harrison (the principal) as well as against Dobbie (the agent); and if he had done so, and it had turned out that Harrison had not authorised Dobbie to act for him in the matter, then Dobbie would have been liable for the consequences. But it was certainly equally competent to direct the petition for interdict against the party who actually inverted the possession. The only defence stated against the petition in the Sheriff court is that it was incompetent, because it was only directed against the doer of the wrong, and not against the party who, he says, authorised him to do the wrong. A more untenable plea could hardly be stated, yet on that sole defence the record was closed."

The fact that the second defenders exercise these functions by virtue of a contract between them and the first defenders does not seem to me to alter the nature of the pursuers' claim as being one which they can assert in their own right. A central part of the submission for Counsel for the Appellants was that the second defenders are only doing what they are contractually entitled to do in terms of the contract between the defenders. Having regard to the nature of that contract, in my view that submission is of precisely the same character as that unsuccessfully advanced in Dobbie v Halbert and in this case should meet the same fate. In my judgment the circumstances of the claim against the second defenders are properly governed by the principles set out in Dobbie v Halbert and also those referred to in paragraph 81 of Burn-Murdoch on Interdict. In essence the right of the pursuers that is said to be violated is the right to peaceable possession of their property during the relevant week. In their pleadings the pursuers identify the second defenders as being actors in preventing their enjoyment of that right and in my opinion it cannot be a relevant plea that the second defenders claim to be authorised to commit these acts.

In these circumstances I have come to the conclusion that the submissions of Counsel for the Appellants should be rejected and that the first ground of appeal should be refused.

The Appellants' second ground of appeal relates to the averments in Article 5 of Condescendence regarding letters of 22 April 1998 and June 1998 sent by the Committee of the first defenders to the members. It was submitted by Counsel for the Appellants that the Sheriff had been wrong to allow these averments to go to Proof. He submitted that a reasonable inference to be drawn from the pursuers' pleadings was that they were using these letters to support the averment at page 16 of the Record that "it is believed and averred that the defenders were of the opinion, (as is in fact the case) at least at the time that the said correspondence was issued, that the charge was one which was in addition to the management and other charges referred to in Clause 12A." He submitted that the Court's task in construing the Constitution of the Club is constrained by the rules of law which have developed in relation to the construction of contracts. He submitted that there is no rule of law which entitles one to have regard to an expression at some later stage about what the parties thought the contract meant.

In his reply, Counsel for the pursuers did not take issue with these propositions of law and expressly accepted that he would not be able to ask any witness at a Proof what that witness thought the contract to mean. However, in his submission, the correspondence raised an issue whether it supported an inference that the work (for which the charge was being made) was not within the ambit of Clause 12 as a matter of fact. In his submission the issue of fact was whether the levy was in addition to the management charges. If it was legitimately part of the management charges no consent was required and therefore in seeking consent these letters were an adminicle of evidence giving rise to the inference that the work to be carried out was not work to which the management charges could be applied.

It is noteworthy that the propositions advanced by Counsel for the pursuers at the appeal are somewhat removed from those made to the Sheriff. At page 32 of the Sheriff's Note it is recorded that Counsel for the pursuers submitted that the averments were relevant firstly by way of background narrative and secondly to the construction of the contract. As I understood the submissions of Counsel for the pursuers that is not a position that he was prepared to support at the appeal.

I am bound to say that the justification of these averments advanced by Counsel for the pursuers at the appeal is not one which instantly springs to mind when one reads Article 5 of Condescendence. However I recognise that the possibility that these letters could give rise to the inference suggested by Counsel for the pursuers cannot be excluded and that it could be a relevant issue of fact whether the work funded by the levy was work to which Clause 12 applied. There is no question that the pursuers' averments could have been better expressed if this was their purpose but, in light of the explanation given, I cannot now say that they are clearly irrelevant. With some hesitation therefore, I have come to the view that the Sheriff took the proper course in allowing a proof of these averments before answer. However, the pursuers should not be surprised if any attempt to use the letters in question as an aid to the construction of the Constitution or to elicit evidence from any witness as to their understanding of the meaning of the Constitution is met by objection, which in my view would be well justified.

In the whole circumstances therefore I do not consider that the Sheriff's interlocutor should be disturbed and accordingly I refuse the Appeal. Parties were agreed in asking me to reserve the question of expenses and to certify the Appeal as suitable for the employment of Junior Counsel. I agree that it is appropriate to do so.