Scottish Sheriff Court Decisions

The sheriff, on resuming consideration of the cause, Sustains the first plea-in-law for the first defender and the first plea-in-law for the second defender, refuses to admit the pursuer's averments to probation; Accordingly dismisses the action and finds the pursuer liable to the first and second defenders in the expenses of the cause.

[1] In this action the pursuer seeks to recover £32,179.78 from the first defender and £22,362.22 from the second defender or alternatively from the first defender. The total sum sought is £54,542.

[2] The pursuer avers that in or about January 1999 he was in discussion with the second defender and James Stephen Lipp "with a view to entering a joint venture together trading in the sale of whisky". The first defender did not exist at that time, being first incorporated on 27^th May 1999 "for the purpose of carrying on the business of the proposed joint venture". The pursuer continues that "discussions among the pursuer, the second defender and James Stephen Lipp proceeded on the assumption that the pursuer would invest money in the first defender and would receive a beneficial interest in the first defender as a result, whereas the investment of the second defender and James Stephen Lipp would consist largely of the assets and business of their partnership BDW Corporate". The pursuer then makes averment anent various steps which he, the first defender and James Stephen Lipp took "on behalf of the proposed joint venture". The pursuer concludes Article 2 with the averment "The pursuer, the first defender and James Stephen Lipp did not reach agreement. They did not proceed with a joint venture business ....".

[3] The defenders' position on Record is that "since January 1999 all the relevant transactions regarding trading in whisky have been carried out by a joint venture the participants in which are the pursuer, the second defender and James Stephen Lipp." (page 4, line 8).

[4] The pursuer's pleadings then deal with the purchase of assets in February 1999. The assets it is averred are now being used by the first defender. The pursuer avers that he funded the majority of the purchase price for the benefit of "the proposed joint venture" and in expectation of the acquisition in return of a substantial shareholding in the first defender (which it will be remembered was not formed in February 1999). The pursuer did not intend to donate the assets thus purchased to the first defender.

[5] In Article 4, the pursuer avers that he, the second defender and James Stephen Lipp opened a bank account in the name of "Glendarroch Trading International" "for the purposes of the proposed joint venture". He makes averment as to the actings of the first defender in using the Glendarroch trademark on its website and advertising Glendarroch whisky for sale. He believes and avers this whisky is the stock he paid for.

[6] In Article 6, the pursuer avers that the joint venture did not proceed. He has received no consideration, compensation or re-imbursement for the stock or the trademarks and, without defining the nature or extent of the benefit to the first and second defenders, the pursuer avers that they have benefited. "Accordingly the defenders have each been unjustly enriched at the expense of the pursuer to the extent of their respective benefit from the trademarks and the stocks insofar as derived from the pursuer's contribution to the purchase price thereof".

[7] Articles 7 and 8 quantify the benefit to the first defender as the total sum paid by the pursuer for the trademarks and the benefit to the second defender as the total sum paid by the pursuer for the stocks. The pursuer only believes and avers that the second defender has acquired title to the stocks. On an esto basis the first defender is said to have benefited to the extent of the whole purchase price.

[8] Before dealing with the arguments presented at debate, it is convenient to set out, briefly, the nature and content of the defence. The defenders' position is that the joint venture came into existence at least to the extent of purchasing the trademarks and stock, with a view to all members of the joint venture obtaining benefits. The defenders admit that final agreement on all the terms of the joint venture was not reached. They aver that the trademarks and stocks were intromitted with by the first and second defenders and James Stephen Lipp for the benefit of the joint venture and that expenses have been incurred which fall to be taken into account in calculating any sum due to the pursuer. The defenders offer, in terms, an accounting.

[9] In opening the debate for the defenders, Mr Merson's main submission was that the action as pled was misguided. Count reckoning and payment was the pursuer's remedy, not recompense. The defenders, he accepted had a liability to account for what had happened to the stocks. The pursuer, he argued was only looking at one side of the equation and not taking account of expenses incurred.

[10] Turning to the basis on which recompense was available as a remedy, Mr Merson made reference to the Stair Encyclopaedia, volume XV at paragraph 59 and the 10^th edition of Gloag and Henderson, along with Stewart on Restitution, page 148. From these he distilled six factors which required to be considered in respect of a claim for recompense.

1. Loss by the pursuer.
2. Lack of intention to make a gift.
3. Gain by the defender as a result of the pursuer's loss.
4. That the actings must not have been carried out by the pursuer for his own benefit (in suo).
5. That the pursuer must have no other legal remedy except in special circumstances.
6. That the pursuer must have been in error in making the payment.

[11] Mr Merson argued that the pursuer was only entitled to the equitable remedy if he satisfied all six aspects of the test. Failure in one aspect would lead, he said, to failure of the remedy. The defenders accepted that there was no intention of donation and that the pursuer had made a loss. It was therefore accepted that two of the six criteria were fulfilled. Mr Merson dealt with the averments of the dealings among the parties to the intended joint venture and pointed out that in acting as he had, the pursuer on his own averments, was acting in suo and expecting to benefit. Further, it was argued, the pursuer was not in error in acting as he did. He was perfectly well aware of what he was doing.

[12] Although it was not necessarily accepted for the defenders that the court required to consider questions of equity absent the other criteria for recompense, Mr Merson dealt with that aspect by arguing that the equity of the situation lay with the defenders. If the pursuer succeeded in his claim, two of the three joint venturers would bare all the expenses while the pursuer recovered his whole investment.

[13] Mr Merson's final criticism of the pursuer's pleadings went to the averments in Articles 7 and 8 on quantum. These he criticised as being based solely on the cost to the pursuer which was not necessarily the same as the extent to which the defenders were lucrati. The question, he argued, was what was the value of the trademarks and stock to the defenders.

[14] There is some doubt in the authorities as to whether error requires to be shown by the pursuer before he is entitled to recompense. There is likewise some doubt as to whether the pursuer must be without another remedy before he can seek recompense. Mr Watt, for the pursuer, conceded that the six identifiers of recompense set out by Mr Merson were not disputed on behalf of the pursuer. I am accordingly spared the necessity of deciding whether all are indeed required to entitle the pursuer to that remedy. Mr Watt challenged, however, the appropriateness of count reckoning and payment in a situation in which parties had co-operated for a short period with a view to forming a relationship which did not in the end come to pass. Under reference to Walkers Principles at page 305, he argued that what was required to give rise to the right to, or obligation to provide, an accounting was a "formal" relationship by which he meant one giving rise to a legal relationship. He did not accept that the actings averred were sufficient to create a relationship giving rise to an obligation to account or a right to require an accounting.

[15] Turning then to the criteria for entitlement to recompense, Mr Watt proposed that the payments made by the pursuer were not in suo because the joint venture did not proceed. The defenders, he argued, were enriched to the extent of the pursuer's payments on the basis of Cuthbertson v Low infro and any sums expended by the defenders or other venturers did not fall into account.

[16] There had been, Mr Watt argued, error on the part of the pursuer in that he had proceeded on the basis that the joint venture would be entered into. The pursuer had no alternative remedy because there was no relationship giving rise to a right to an accounting. Under reference to Lawrence Building Co infra he argued that all aspects of the test were satisfied and recompense was the appropriate remedy.

[17] Mr Watt then argued his pleas and sought to have all averments relating to the joint venture excluded from probation because, he said, there was not sufficient specification of how the joint venture had arisen.

[18] The debate was interrupted at this point and continued on 22^nd June 2004. At the resumption of the debate, Mr Watt tendered a minute of amendment deleting his craves for recompense and seeking to substitute craves for count reckoning and payment. In support of his motion to have his minute of amendment received, he conceded that the pursuer accepted a joint venture had arisen from the actings of the pursuer, the second defender and James Stephen Lipp although it had not been formalised. Its maximum duration, he said, was from January 1999 to November 1999. The minute of amendment also sought to bring in a third defender, James Stephen Lipp.

[19] Receipt of the minute of amendment was opposed by Mr Merson who argued that, the action having been raised in 2002 and the defenders having pointed to the appropriate remedy from the first lodging of defences, the minute of amendment came too late. He also pointed out that this was the fourth minute of amendment for the pursuer and that an earlier attempt to bring in craves for count reckoning and payment had failed in February 2004. It had, at that stage, been argued for the defenders that on the test of the weaker alternative the action would fall to be dismissed because the claim for recompense, which was to be left standing, was irrelevant.

[20] It was also pointed out by Mr Merson that in suing for the whole sum which the pursuer said he had invested in the joint venture he must be taken to be acting on behalf of the whole joint venture. If that were the case the action as amended would be incompetent since he, as a joint venturer, could not both sue and be liable to pay. His claim was for one-third.

[21] Mr Merson summed up the defenders' position in respect of the minute of amendment by saying that the pursuer should accept that the action was misconceived, allow it to be dismissed, pay the expenses and start again against the correct parties and for the correct remedy.

[22] I refused the motion to have the minute of amendment received. In my view it came too late in the day and, by bringing in a third defender, would return the whole action to the very beginning. There was also merit in the argument set out above at paragraph 20.

[23] Mr Watt sought leave to appeal on the ground that I had failed to take account of the fact that the minute of amendment would focus the issues between the parties and any prejudice to the defenders could be compensated by an award of expenses.

[24] It seemed to me that in the whole circumstances it was not appropriate to grant leave to appeal. Quite apart from any other consideration the decision on the debate being a final interlocutor, should it go against the pursuer, would be appealable without leave. To grant leave to appeal against an interim decision would simply delay matters even further.

[25] Mr Watt then chose to continue his attack on the defenders' pleadings, in the course of which he argued that averments as to the date of incorporation of the first defenders should be excluded, along with all averments relating to stocks being held in trust for the joint venture and all references to expenses incurred by the joint venturers.

[26] In a brief response Mr Merson argued that the defenders' averments were intended to focus on the true issue between parties and the correct remedy. It might be, he accepted, that they were strictly irrelevant to a defence to an action of recompense, but they were both relevant and necessary to the defence stated which was that the pursuer was entitled to an accounting taking cognisance of his expenditure and that of his co-venturers.

[27] In the course of the pursuer's submissions I was referred to Lawrence Building Co Ltd v Lanark County Council 1978 SC 30; Varney (Scotland) Ltd v Lanark Town Council 1974 SC 245; Edinburgh and District Tramways Co Ltd v Courtenay 1909 SC 99; Kames, Principles of Equity, 4^th edition p 100-109; Cuthbertson v Lowes (1870) 8 M.1073; Macphail, Sheriff Court Practice, 2^nd Edition, p 272-274; GEA Airexchangers Ltd v James Howden & Co Ltd 1984 SL.T. 264; Walker, Principles of Scottish Private Law (4^th edition), Vol 1 p 390-391; Dollar Land (Cumbernauld) Ltd v C I N Properties Ltd 1996 SLT 186. All of which I considered and which I found helpful in reaching my decision.

[28] It seems to me that the arguments for the defenders are to be preferred in all aspects. The pursuer's averments are sufficient to establish that there was a joint venture among the pursuer, the first defender and James Stephen Lipp albeit without the whole terms thereof having been agreed or achieved. Mr Watt conceded that that was the case in seeking to have his minute of amendment allowed to be received. For that reason alone, the remedy sought is not appropriate. In any event the pursuer's averments to do not allow him to prove all the criteria which it was accepted were necessary for success in an action of recompense. Although it would require him to prove a negative, the pursuer would require to show he was not acting in suo. It is quite clear from his averments that that is exactly what he was doing. Further, there is no averment that he acted in error. Looking simply at the averments and ignoring, for the moment, the concession made by Mr Watt, the pursuer's averments do not lay any basis for proving that he acted in error. Even if he is right, on his averments, that the joint venture did not come into being, that was not an error in either fact or law it is merely a disappointed expectation. Finally, considering the criteria, it is difficult to see why, in equity, the pursuer should recover his whole investment while the other joint venturers bare the losses.

[29] Accordingly, there having been a joint venture, and the criteria for recompense not being fulfilled, on the averments as they stand, the action falls to be dismissed. I have accordingly sustained the first pleas-in-law for each of the defenders.

[30] It was agreed that should the action be dismissed expenses would be awarded against the pursuer and I have so ordered.