Scottish Sheriff Court Decisions

A4079/01

The Sheriff Principal, having resumed consideration of the cause, allows the appeal; varies the interlocutor of 19 July 2004 complained of by deleting the words from 'thereafter' on line 6 to the end of the interlocutor and substituting therefor the words 'thereafter finds the defenders liable to the pursuers in the expenses of process except in so far as already dealt with; allows an account thereof to be given in and remits the same when lodged to the Auditor of Court to tax and to report'; quoad ultra adheres to the said interlocutor; certifies the appeal as suitable for the employment of junior counsel; finds the defenders and respondents liable to the pursuers and appellants in the expenses of the appeal, allows an account thereof to be given in and remits the same, when lodged, to the Auditor of Court to tax and to report; remits the cause to the Sheriff to proceed as accords.

[1] This is an appeal on a question of expenses only. The action is for the rectification of a document. When the case called for proof the Sheriff heard parties and disposed of the action without hearing evidence. The pursuers appeal against the order for expenses which she made on that occasion.

[2] The pursuers describe themselves as suppliers of cash and carry goods to the retail industry. The defenders are a married couple. They were the principals of a company which was originally named 'Ettrick Ltd' and later was named 'I N 60.Com Ltd'. Ettrick Ltd traded as 'Box Office Video'. The pursuers supplied goods to these concerns and operated three accounts: one in the name of 'Ettrick Ltd trading as Box Office Video', one in the name of 'Box Office Video' and one in the name of 'Mrs D MacCallum trading as I N 60.Com'. In 2001 the pursuers raised an action ('the payment action') in which they sued the defenders for payment of £11,383.53, the total of the outstanding balances on these accounts. The legal basis of the payment action was that the defenders had signed guarantees in respect of the obligations undertaken by each concern in relation to the supply of goods to them by the pursuers. In their defences in the payment action the defenders called upon the pursuers to produce a guarantee in the name of any of the three accounts, and stated a general plea to the relevancy. The pursuers were unable to produce any such guarantee and raised the present action. The payment action is at present sisted.

[3] In the present action it is said that in or about March 2000 the defenders applied to the pursuers for a credit facility for the supply of goods. I do not identify here the entity to which the goods were to be supplied, since the parties later came to be in dispute over that matter. When the defenders made their application, the pursuers required personal guarantees. One of their employees completed a form headed 'limited company guarantee' which the defenders signed.

[4] That form is the document which is the subject of the present action. No 5/2 of process is a copy of it. It bears the names, addresses and signatures of the defenders and continues:

In the initial writ the pursuers averred that the name of the company on the form, 'Box Office Video T/A Ettrick Ltd', was incorrect. There was no limited company named Box Office Video which was trading as Ettrick Ltd. The true position was that Ettrick Ltd was trading as Box Office Video. However, according to the pursuers, there had been no intention of restricting the guarantee to the obligations to the pursuers of Ettrick Ltd trading as Box Office Video: the intention had been that it should extend to all future obligations of Ettrick Ltd to the pursuers, however these obligations had been incurred. Accordingly the pursuers craved rectification as follows, in their first crave:

So rectified, the document would have borne that the defenders were the guarantors for Ettrick Ltd, without any qualification.

[5] That was the pursuers' position in the initial writ, which was served in December 2001. The defenders' substantive defence was not stated in the first closed record (no 9 of process, lodged on 3 May 2002), but appeared in a minute of amendment (no 12 of process) which was lodged on 7 November 2002. It states in part:

It may be noted that the defenders do not say that it was the common intention of the parties that the defenders would guarantee the obligations of Ettrick Ltd trading as Box Office Video; and they do not offer to consent to a rectification of the guarantee to that extent. They aver what they describe as their own understanding of what they were guaranteeing, and they say that if the pursuers intended that the guarantee should extend to all future liabilities, the guarantee should be set aside ope exceptionis.

[6] The pursuers, in their answers (no 13 of process) to the minute of amendment, denied the defenders' averments in the minute, and after amendment had been allowed at a rule 18 hearing on 12 December 2002 a second record (no 14 of process) was made up and lodged on 17 February 2003. On 3 March 2003 on joint motion a diet of debate was discharged and a proof before answer allowed. The action then remained becalmed until 23 February 2004 when it resumed its stately procedural voyage and the proof before answer was assigned for 19 and 20 July 2004. Some four months later, on 28 June 2004, the pursuers lodged a minute of amendment (no 16 of process) and a motion (no 7/3 of process) that the minute be received and answered within seven days, with a further seven days for adjustment. Attached to the motion is a certificate by the pursuers' solicitor in Form G8 that intimation of the motion was made on the defenders' solicitors by fax on 25 June 2004. The motion was unopposed and was granted in an interlocutor which also continued the cause to a rule 18 hearing at the proof diet on 19 July 2004. The date of that interlocutor is stated as '7 June 2004' but that is obviously wrong: it is likely to have been a date early in July 2004, after the lapse of the period of 7 days specified in rule 15.3(1)(c) of the Ordinary Cause Rules 1993: see rule 15.5(1). To complete the procedural history before the date of the proof it is only necessary to note that on 9 July 2004 a third record, no 19 of process, was lodged. The reason for that is obscure, because it is in the same terms as the second record, no 14 of process.

[7] The terms of the pursuers' minute of amendment (no 16 of process) are as follows. First, it seeks to add at the end of the first crave the words 'and by adding after "Ettrick Ltd" [the words] "trading as Box Office Video"'. The effect of that would be to make the first crave read as follows:

Accordingly the 'limited company guarantee' described in [3] above, thus rectified, would read:

The other material amendment sought in the minute is the insertion of an averment in the following terms:

The defenders did not lodge answers.

[8] The diet of proof before answer and the rule 18 hearing called before the Sheriff on 19 July 2004. In her note written at the pursuers' request for the purposes of the appeal the Sheriff gives her account of what was said when the case was called:

The Sheriff goes on to narrate the procedural history, examine the pleadings, set out the parties' submissions and give her reasons for the decision which she expressed in her interlocutor.

[9] The Sheriff's interlocutor is as follows:

[10] The first ground of appeal, shortly stated, is that the defenders had no locus to be heard on the question of expenses and the pursuers were entitled to the expenses of process. In order to address this ground of appeal it is necessary to ascertain as precisely as possible what the parties said to the Sheriff when the case was called. At the hearing of the appeal the parties were agreed that the Sheriff's account in the first paragraph of her note, quoted at [8] above, was incorrect. It was common ground at the appeal that the pursuers' counsel had not said that 'it had recently been agreed between the parties' that the pursuers would move to amend and that in the event of amendment being allowed the defenders would withdraw their defences and consent to decree being granted in terms of the amended crave 1. Nothing had been agreed. The pursuer's counsel knew, from the terms of a fax message from the defenders' solicitors to the pursuers' solicitors on 13 July 2004 (no 5/4/2 of process), that the defenders intended to withdraw their defences in the event of the amendment being allowed. Counsel told the Sheriff that he was moving the amendment and that those instructing him had received an indication from the defenders' solicitor that his intention was to withdraw the defences. The defenders' solicitor then addressed the Sheriff. The parties are unfortunately art variance as to what he said. He told me that he had told the Sheriff that the defences were being withdrawn in relation to the merits of the action only. Counsel, on the other hand, had no recollection of any such qualified statement or of any reservation as to the question of expenses.

[11] In this regrettable situation I consider that the only guide must be the Sheriff's interlocutor, which stands as a record of the proceedings until it is recalled or reduced. Nothing in the Sheriff's note can qualify the contents of the interlocutor (Macphail, Sheriff Court Practice (2nd ed), vol 1, paras 17.07, 17.25). In the absence of agreement by the parties that the record in the interlocutor is erroneous, I must accept it as accurate. The interlocutor states that the proceedings took the following course. (1) The Sheriff discharged the diet of proof. (2) She allowed the amendment. (3) On the defenders' unopposed motion, she allowed the defences to be withdrawn at the bar. (4) The Sheriff granted decree as craved and certified the cause as suitable for the employment of counsel. (5) Only 'thereafter', that is, only after she had disposed of all these issues, did the Sheriff turn her attention to the question of expenses. That is a wholly logical and intelligible sequence of events. As to step (3), it will be noted that nothing is said about the withdrawal being conditional or under reservation of the defenders' position as to expenses. That is to be expected: like Sheriff Principal Sir Frederick O'Brien QC in McKechnie v McKechnie 1990 SLT (Sh Ct) 75 at 76F-G, I do not understand how the defences could have been withdrawn conditionally.

[12] The pursuers' counsel submitted to the Sheriff that the defenders had no locus to address her on expenses because the defences had been withdrawn. The Sheriff rejected that submission. At pages 7-8 of her note she refers to 'the whole basis of settlement of this action'; but, as I have explained, the action had not been settled. The Sheriff continues:

[13] Unfortunately the Sheriff's view of the matter is not supported by the terms of her interlocutor. The interlocutor makes it clear that by the time parties were heard on expenses, the defences had been withdrawn and thus were no longer before the court. The interlocutor does not say that the defenders (a) consented to decree in terms of crave 1 as amended, and (b) refrained from consenting to decree in terms of crave 2. They might have been well advised to take that course, but the interlocutor tells us that they did not.

[14] At the hearing of the appeal the pursuers' counsel renewed his submission that the defenders had had no locus to be heard on expenses. They had followed at their peril a course which had been rash, to put it mildly. Having withdrawn their defences, they were deemed to have admitted the pursuers' averments, and had no locus to be heard further. The pursuers had been entitled to the expenses of process. Counsel discussed McKechnie v McKechnie 1990 SLT (Sh Ct) 75, Kennedy v Kennedy 1992 SLT (Sh Ct) 39 and Adair v J C Docherty & Sons 1953 SLT (Sh Ct) 58. The defenders' solicitor maintained his version of events and founded on Kennedy.

[15] In my opinion, once the defences had been withdrawn, the defenders had no locus to be heard further. The Sheriff would have been well advised to invite the defenders' solicitor to withdraw from the Bar. When the defences were withdrawn, the action became undefended. From the defenders' standpoint that was of course a highly unattractive outcome but it was, in my view, inevitable. The proposition that when a defender withdraws his defences he loses his locus to appear in the process seems to be one of those propositions that are so axiomatic that it is difficult to find authority for them. In McKechnie, however, where the Sheriff on joint motion had allowed the cause to proceed as undefended, Sheriff Principal O'Brien held that the Sheriff had been correct in holding that the defender's solicitor no longer had a locus to be heard. In Kennedy, McKechnie was distinguished but was not disapproved. In Adair the procedure is obscure and the issue of locus to appear was not addressed.

[16] It does not follow, however, from the fact that the action was ultimately undefended, that the pursuers should have been found entitled to the expenses of process. The terms of the award of expenses remained in the discretion of the Sheriff (Maclaren, Expenses, page 4; Macphail, Sheriff Court Practice, vol 1, para 19.03). I shall therefore examine the pursuers' criticisms of the Sheriff's award. The approach of an appellate court to an appeal on a question of expenses was authoritatively restated in the following terms by Lord President Hope, delivering the opinion of the First Division in Gray v Babcock Power Ltd 1990 SLT 693 at 694K-695A:

On this point the pursuers also cited Elliot & Stuart v McDougall 1956 SC 241 at 243 and D Macdonald & Bros Ltd v Cosmos Decorators Ltd 1969 SLT (Sh Ct) 9. The defenders cited Caldwell v Dykes, Charles Rogers & Sons v G & H Mullen 1957 SLT 23 and Durham v Gateway Foodmarket 1992 SLT (Sh Ct) 83.

[17] In her note the Sheriff states that by amending crave 1 the pursuers appeared to have met the objection which the defenders took to the original crave. She considered that by making the amendment the pursuers had met the factual and legal defence put forward by the defenders, and the amendment had led directly to the settlement of the action. She writes:

As to the date which she selected, 2 July 2004, the Sheriff explains:

[18] At the hearing of the appeal the defenders supported the reasoning of the Sheriff. I am satisfied, however, that the pursuers' criticisms of it are sound. The effect of the amendment was not to accept what the defenders averred in their answers. There is no admission in the minute of amendment of any of the defenders' averments. The pursuers' averments that it was the parties' common intention that the defenders would guarantee the obligations of Ettrick Ltd to the pursuers without qualification remained on record. Also still on record was the defenders' defence that their intention had been to guarantee only the liabilities of Ettrick Ltd to the pursuers in relation to the business of Box Office Video; and that esto the pursuers intended that the guarantee should extend to all future liabilities of Ettrick Ltd however incurred to the pursuers, the guarantee was executed under essential error and it should be set aside ope exceptionis. Thus, notwithstanding the amendment of the crave, their remained on record issues to try. The pursuers' counsel assured me that if the defenders had not withdrawn their defences, he would have proceeded with the proof and led his first witness. The Sheriff's misunderstanding of this position appears to me to vitiate her exercise of her discretion. It is only fair to the Sheriff to add, however, that the position was highly unusual, and that it is not impossible that it was explored before the Sheriff less fully than it was before me.

[19] I consider that the Sheriff also left an important relevant matter out of account when she disregarded the background to the raising of the action. In her note she expresses the view that it was immaterial why the pursuers sought rectification of the guarantee. As I have explained in [2] above, however, the action is necessary because in the payment action the defenders chose to place on record the calls described and to support them with a general plea to relevancy. The defenders' solicitor maintained that the pursuers could have proceeded with the payment action without raising the present action. He did not say, however, that the defenders would not have taken the pursuers to debate in the payment action and argued for dismissal, founding on the pursuers' failure to answer the calls. It is of course true that the guarantee was not in proper form, but it is in my view a relevant consideration that the pursuers were forced into raising the present action by the position adopted by the defenders in the payment action.

[20] I have therefore concluded that the decision of the Sheriff must be set aside in view of her misunderstanding of the effect of the amendment and her disregard of the background to the action. The question of expenses is accordingly at large for this court. There is no doubt that the pursuers have succeeded in obtaining the decree for rectification which they ultimately craved. The familiar rule is that a party who is successful and whose conduct is not open to adverse criticism is entitled to his expenses as taxed. The question whether success has been attained is arrived at after a full consideration of the particular circumstances of each individual case. (Maclaren on Expenses, page 22.) The Sheriff expressed the view that expense could have been avoided if the pursuers had raised an action in terms of the crave as amended on 19 July 2004. The defenders, seeking to support the decision of the Sheriff, maintained that the pursuers need not have amended so late in the day, and cited Colbron v United Glass Ltd 1965 SLT 366. Their solicitor submitted that the present case was analogous to Black v John Williams & Co (Wishaw) Ltd 1924 SC (HL) 22. The pursuers had been careless and thus should be refused expenses even though successful: Macphail, Sheriff Court Practice, vol 1, para 19.11.

[21] It is important, however, to notice the terms of the defences as well as of the pursuers' pleadings. As I have noted at [5] above, the defenders do not say that it was the common intention of the parties that the defenders would guarantee the obligations of Ettrick Ltd trading as Box Office Video; and they do not offer to consent to a rectification of the guarantee to that extent. They aver what they describe as their own understanding of what they were guaranteeing, and they say that if the pursuers intended that the guarantee should extend to all future liabilities, the guarantee should be set aside ope exceptionis. Thus the pursuers were faced with a radical reply to their critically important averment that it was the parties' common intention that the defenders would guarantee the obligations of Ettrick Ltd. The pursuers' amendment did not alter these diametrically opposed positions. As I have already pointed out, the pursuers' crucial averments remained on record, and they came into court on 19 July 2004 prepared to attempt to prove them by leading evidence. The first indication of a change in the defenders' position came in July 2004. The fax of 13 July 2004 (no 5/4/2 of process) narrated that the defenders had made an unacceptable offer, and they now advised that they intended to withdraw their defences upon the amendment of the crave. They stated explicitly that they intended to withdraw their defence to the action, 'allow decree to pass' and oppose any motion by the pursuers for expenses. That strategy was not only incautious, as I have explained, but also fatally misconceived. The pursuers were not obliged to point that out. The defenders, in pursuit of their strategy, abandoned their radical defence and enabled the pursuers to take decree. Of course it is not decree in the terms craved in the initial writ, but it is a decree taken with the pursuers' crucial averments no longer challenged. And there has been no suggestion from the defenders that if the pursuers had amended their crave at an earlier stage, without modifying their averments of fact, the defenders would have amended their own averments of fact. The case is readily distinguishable from Black.

[22] The whole circumstances are undoubtedly unusual. It is unnecessary to speculate as to whether the course of the action would have been different if the defenders' case had been differently conducted on averment, at the hearing on 19 July 2004 and at the hearing of the appeal. Suffice it to say that, on the basis of the submissions made to me, I am unable to hold that the conduct of the pursuers is open to adverse comment and I consider that the expenses of process at first instance should follow the event, except in so far as already dealt with in the interlocutors of 7 November 2002, 12 December 2002 and 16 February 2004. I cannot see any ground for distinguishing between the expenses of the first day of the proof on 19 July 2004 and the other expenses.

[23] I have therefore allowed the appeal and varied the Sheriff's interlocutor accordingly. The expenses of the appeal follow success. The pursuers' motion to certify the appeal as suitable for the employment of junior counsel was not opposed, and I am satisfied that it should be granted. The purpose of remitting the cause to the Sheriff to proceed as accords is to authorise the Sheriff to dispose of any objections to the Auditor's reports and to decern for the taxed amounts of expenses.