Scottish Sheriff Court Decisions

B978/08 Bridgefoot Building Contracts Ltd v James Michie and Others

Act: Ms Fyffe, Solicitor, Dundee

Alt: Mr Murray, Solicitor, Dundee

DUNDEE, 9 April 2009. The Sheriff Principal, having resumed consideration of the cause, assigns 16 April 2009 at 3pm within the Sheriff Court House, 6 West Bell Street, Dundee as a diet to hear further submissions in the appeal restricted to the question of the proper form of the sheriff's interlocutor and that under reference to the note annexed hereto.

Dundee 16 April 2009

Act: Ms Fyffe, Solicitor, Dundee

Alt: Mr Murray, Solicitor, Dundee

The Sheriff Principal, in respect that neither party now takes issue with the form of the Sheriffs interlocutor of 5^th December 2008, refuses the appeal and adheres to said interlocutor ; finds the petitioners liable to the respondents in the expenses of the motion number 7/1 of process; quoad ultra, finds the respondents jointly and severally liable to the petitioners in the expenses of the appeal ; allows accounts thereof to be given in and remits the same when lodged to the auditor of court to tax and to report ; remits to the sheriff to proceed as accords.

NOTE:

[1] This is an appeal by the respondents in a summary application brought under section 1(1) of the Administration of Justice (Scotland) Act 1972 (hereinafter referred to as "the 1972 Act") for recovery of certain documents held by or on behalf of the respondents. Section 1(1) of the 1972 Act provides that the sheriff court shall have power "to order the inspection, photographing, preservation, custody and detention of documents and other property ... which appear to the court to be property as to which any question may relevantly arise in any existing civil proceedings before that court or in civil proceedings which are likely to be brought, and to order the production and recovery of any such property ... ." The present application is made on the basis that the documents sought to be recovered are property as to which any question may relevantly arise in civil proceedings which are likely to be brought but which have not yet been commenced.

[2] From the outset the petitioners sought a warrant for intimation and an order for answers before inviting the court to consider the merits of the application. Answers were duly lodged and all parties were represented at a hearing on the application and answers which took place on 25 November 2008. The sheriff took time to consider his decision and on 5 December 2008 pronounced an interlocutor granting commission and diligence in the terms craved.

[3] The respondents' appeal is founded on three separate grounds. Firstly it is contended that the petitioners' application was incompetent. Secondly the sheriff's interlocutor is challenged by reference to the merits of the application. Thirdly it is contended that the sheriff's interlocutor is not in proper form. I have set out herein my reasons for thinking that the first two grounds of appeal cannot be sustained but the reasoning in relation to ground 1 has a direct bearing on the third ground of appeal and in particular calls into question the parties' apparent consensus about the form of the sheriff's interlocutor. In these circumstances I have assigned a diet to hear further submissions on that aspect of the case only.

Competency of the Application

[4] The first ground of appeal raises an issue of competency which was not addressed to the sheriff. It is advanced under reference to rule 3.1.2 of the Act of Sederunt (Summary Applications, Statutory Applications and Appeals etc. Rules) 1999 (hereinafter referred to as "the 1999 Rules"), which provides that an application for an order under section 1(1) of the 1972 Act shall be made by summary application where the proceedings in respect of which the application is made have not been commenced. In terms of rule 3.1.2(2)(c) it is provided that the summary application shall contain "the facts which give rise to the applicant's belief that, were the order not to be granted, the listed items, or any of them, would cease to be available for the purposes of section 1 of the Act."

[5] In the present case no such facts are averred and it was conceded that no such averments could be made. It was submitted by the solicitor for the respondents that in such circumstances the application was incompetent.

[6] In response the solicitor for the petitioners submitted that the provisions of rule 3.1.2(2)(c) only applied to those applications in which an order for commission and diligence was sought ex parte before service of the application (the so called "dawn raid" scenario). It was pointed out that in this area the 1999 Rules were identical to rules promulgated for the Court of Session and these had been introduced contemporaneously with the coming into force of the Human Rights Act 1998. Reference was made to the annotated version of the Court of Session Rules (chapter 64) in the Parliament House Book, from which it seemed clear that these rules had been introduced in their amended form to ensure compliance with the European Convention on Human Rights. In short such compliance required the court to be satisfied inter alia that "there was clear evidence that the respondent had incriminating material in his possession and that there was a real possibility that he might destroy it if forewarned (my emphasis)" - (see notes to RCS 64.1-PH Book C55). On the other hand, if the respondent had the opportunity of receiving notice of the application and of being heard before the court was invited to make an order under section 1(1) of the 1972 Act, there was no infringement of the respondent's human rights if the requirements of section 1(1) were met and the order then granted.

[7] In my opinion the submissions for the petitioners are to be preferred. Part 1 of Chapter 3 of the 1999 Rules was enacted under the powers conferred by section 32 of the Sheriff Courts (Scotland) Act 1971 and section 1(3) of the 1972 Act. Section 1(3) provides that the powers conferred on the Court of Session by section 32 of the 1971 Act shall include "power to regulate and prescribe the procedure to be followed, and the form of any document to be used, in any application under the foregoing provisions of this section in a case where the application is in respect of proceedings which have not been commenced ...." It seems clear therefore that the 1999 rules were intended to regulate matters of procedure only and accordingly ought to be construed, so far as possible, in a manner which enables the substantive powers afforded by section 1(1) of the 1972 Act to be exercised rather than in a manner which has the effect of limiting those powers.

[8] In respect of applications for recovery of property in advance of the commencement of civil proceedings, the provisions of section 1(1) of the 1972 Act do not limit the remedy afforded thereby to those cases of urgency where it is apprehended that the property will be destroyed or otherwise lost (see Yau v Ogilvie & Co. 1985 SLT 91 and Iomega Corporation v Myrica (UK) Ltd. 1998 SC 636 per Lord President at 638 F-H). The question therefore is whether it is possible to construe rule 3.1.2(2)(c) in a way which does not limit the remedy to such cases.

[9] While rule 3.1.2(2)(c) is apparently of general application if looked at in isolation, I think it can properly be seen to be directed towards the so called dawn raid situation when set in the context of the other rules. Rule 3.1.2(2)(c) requires some evidence that the property would cease to be available "were the order not to be granted". Rule 3.1.6 provides that an "order" shall be in Form 11A and include in addition a warrant of citation. This makes it clear that what is envisaged is an order granting commission and diligence in advance of service of the application. This is borne out by the terms of Form 11A (which includes both an order for service and an order granting commission and diligence) and is further reinforced by the provisions of rule 3.1.5 which enables the sheriff to order intimation or service of the summary application before granting it. Such a provision is plainly intended as an alternative to what was to be seen as the normal procedure envisaged in applications of this nature. In similar vein rules 3.1.8, 3.1.9, 3.1.11 and 3.1.12 are all obviously directed to a situation in which an order for commission and diligence has been granted before service of the application.

[10] With the exception of rules 3.1.1(1)(a), 3.1.1(2) and 3.1.2(1), the whole of Part 1 of Chapter 3 was introduced as an amendment to the 1999 Rules by SSI 2000/387. As has already been noted, these amendments were apparently introduced in view of relevant case law of the European Court of Human Rights and one can readily see a human rights dimension in the dawn raid situation. However it is not immediately obvious that there are any such considerations in relation to those applications where the respondent has prior intimation of the application and an opportunity to be heard before any order is made. Certainly the solicitor for the respondents did not suggest any. Provided the respondent has such an opportunity, there does not seem to be any ground for distinguishing a process of discovery initiated before the commencement of proceedings from such a process during the dependence of an action but before the record has been closed. As the Lord President pointed out in Iomega Corporation v Myrica (UK) Ltd sup.cit. (page 638H), both are a creature of section 1 of the 1972 Act and, were there any objection to recovery of property on human rights grounds in relation to the former, it is difficult to see how such objection would not also apply to the latter. I am not aware of any such objection having been sustained.

[11] When looking at the amended rules of Part 1 as a whole therefore I am satisfied that the provisions of rule 3.1.2(2)(c) only apply to those applications in which the court is invited to grant an order for commission and diligence in advance of service of the application. It follows that the respondents' first ground of appeal cannot be sustained. I shall consider later the implications of this approach for the form of the sheriff's interlocutor.

The Merits of the Application

[12] Turning to the merits of the application, there was no dispute about the legal principles which applied in a case of this nature. It was accepted that these had been correctly set out in the sheriff's note under reference to Pearson v Educational Institute of Scotland 1997 SC 245, Parks v Tayside Regional Council 1989 SLT 345 and Dominion Technology Ltd v Gardner Cryogenics Ltd (no.1) 1993 SLT 828. These authorities required the petitioners to show that proceedings are likely to be brought and that in relation to such proceedings they have an intelligible prima facie or stateable case. However there is no requirement that they should make the sort of full averments that would be required to meet the usual tests of relevancy and specification. In assessing whether a prima facie case exists the sheriff ought to take account of any defence offered against it.

[13] The factual background to the application can be paraphrased briefly as follows. According to the pleadings on Record, at the material time the first respondent was a director of the petitioners and as such owed them fiduciary duties which included the duty not to put himself in a position where his personal interests conflicted with those of the petitioners. The petitioners had a trading relationship with a company Southern Cross Healthcare Limited and provided electrical, joinery, plumbing and general maintenance services to them. They aver that in January 2008 they became aware that Southern Cross were considering awarding a contract to the petitioners to provide heating and hot water servicing and maintenance at their residential homes. The petitioners decided to incorporate a new company to undertake that work and the first respondent was to be one of the directors of that company. Negotiations reached an advanced stage and substantial agreement was reached such that the petitioners had every reason to expect that they would secure this work. They then aver that on 27 March 2008 the first respondent resigned as a director in the petitioners and very shortly thereafter caused the second respondents to be incorporated and became one of their directors. On 31 March 2008 the petitioners were told by Southern Cross to suspend all work on their behalf and a notice terminating their relationship was received a few days later. The petitioners then aver that the third respondents were incorporated with the same registered office and place of business as the second respondents and they express the belief that the first respondent caused that to be done and that, although not a director in that company, he was a senior officer in it. The petitioners then aver that they became aware that the second and third respondents were carrying out work that had previously been done by the petitioners and that they had also started to undertake the heating, hot water servicing and maintenance work that the petitioners had been negotiating with Southern Cross to undertake. In short therefore their complaint is that the first respondent has diverted work away from them to other companies in which he had an interest. The petitioners also aver that the first respondent was effectively preparing the ground for his resignation from about December 2007 and had approached employees of the petitioners with the result that some had moved to work with the respondents. The pleadings were supported by a detailed and lengthy affidavit from the principal director of the petitioners.

[14] In his note the sheriff stated that he had no hesitation in concluding that an intelligible prima facie case had been made out. He placed particular emphasis on what he thought was the clear inference to be drawn from the facts that while still a director the first respondent had been preparing the ground to take over the petitioners' work for Southern Cross, this being borne out by the approaches to employees of the petitioners and the speed with which the work of Southern Cross was removed from the petitioners and transferred to one or other or both of the second and third respondents after he had resigned. He also took the view that the Southern Cross heating and hot water servicing work was clearly a maturing business opportunity for the petitioners and that it mattered not that it was intended that a subsidiary company of the petitioners would undertake that work.

[15] The respondents' second ground of appeal makes two criticisms of the sheriff's decision. In the first place it is contended that the sheriff failed to give proper weight to the respondents' representations (firstly) that the second respondent had never traded and (secondly) that the first respondent was only an employee of the third respondents. Under reference to Allen v Flood 1898 AC 1 and Mackenzie v Iron Trades Employers' Insurance Ltd 1910 SC 79, the solicitor for the respondents also questioned the legal basis of any claim against the second and third respondents and submitted that there could be none. If there was no basis in law for an action to be raised against these respondents it could not be said that proceedings were "likely to be brought" or that their documents should be the subject of an order for recovery.

[16] In the second place, it is contended that the sheriff was wrong to conclude that the petitioners had made out an intelligible prima facie case. The primary criticism under this head related to the weight which the sheriff had attached to different aspects of the factual background. It was submitted that it appeared as if the sheriff had given little if any consideration to the first respondent's explanations. It was submitted that he had given no weight to the fact that Southern Cross was the business contact of the first respondent before he became a director of the petitioners and that there was an explanation for the increased turnover after that time which contradicted the inference that that business had been developed by the petitioners. Reference was made to the first respondent's affidavit from which it appeared that there were relational difficulties and it could not therefore be inferred that the reason for his resignation as a director had been motivated by his desire to take the maturing business opportunity with Southern Cross for himself. Having resigned there was nothing to stop him setting himself up in competition with the petitioners unless the purpose of the resignation was to steal a business opportunity. It was submitted however that there was insufficient evidence to support the view that that was his purpose.

[17] In responding to these submissions the solicitor for the petitioners submitted that, while averments were made of an intention to raise proceedings against all three respondents, it was not a prerequisite for success in the application that all three respondents should be intended defenders in the prospective action. If there was a clear basis of claim against the first respondent it mattered not whether the second and third respondents were also to be parties in any prospective action, provided that the documents in the hands of the second and third respondents were documents as to which any question might relevantly arise in such an action. Accordingly the court only needed to be satisfied that there was an intelligible prima facie case against the first respondent.

[18] In submitting that there was such a case the solicitor for the petitioners made extensive reference to the affidavit of Mr Kelly, the principal director of the petitioners. It was submitted that this provided a level of detail and corroboration of the essential aspects of Mr Kelly's evidence which was compelling and directly contradicted the uncorroborated evidence of the first respondent. It was conceded that the first respondent had had a business connection with Southern Cross before his association with the petitioners but that business had been surrendered to the petitioners who had then developed it. While it was accepted that that business was only diverted from the petitioners after the first respondent had ceased to be a director, it was contended that even after his resignation he had a continuing duty which precluded him from diverting to himself not only existing business of the petitioners but also any maturing business opportunity which the petitioners were actively pursuing and where his resignation was prompted or influenced by a desire to acquire that business and opportunity for himself (Island Export Finance Ltd v Umunna 1986 BCLC 460). It was submitted that the sheriff had been right to infer that the first respondent had been laying the ground work for acquiring this business while still a director of the petitioners and that accordingly that objective could be seen as the motivation for his resignation.

[19] In my opinion the submissions for the petitioners are to be preferred. In relation to the position of the second and third respondents the approach suggested by the solicitor for the petitioners and outlined in paragraph 17 above is in my view the correct one. Accordingly the appeal properly depends on the existence of an intelligible prima facie case against the first respondent. In that regard I consider that the sheriff was fully entitled to reach the view that such a case did indeed exist and I am content to adopt his reasoning for that view. It is important to emphasise that the sheriff does not need to be satisfied that such a case will succeed. While the explanations offered by the first respondent might in due course be relevantly and perhaps even successfully plead in defence to the proposed substantive claim that does not in any way detract from the fact that an intelligible prima facie case has been set out. In any event the weight to be attached to different factors is primarily a matter for the sheriff and I do not consider that it is open to me to interfere with his assessment of the competing factors unless it can be shown that he has gone plainly wrong. The respondents fall far short of persuading me that such is the case. Indeed, like the sheriff, I have no hesitation in concluding that an intelligible prima facie case has been made out.

The Form of the sheriff's interlocutor

[20] The respondents' third ground of appeal suggests that the sheriff's interlocutor ought to have been pronounced in the terms of Form 11A of the 1999 Rules and this was conceded by the solicitor for the petitioners. I doubt whether that concession was well made since it will be clear from what I have said in paragraph 9 above that rule 3.1.6 seems to be directed to an order which is pronounced before service, in other words in a so called dawn raid situation, and arguably does not apply in the circumstances of this case. On the other hand, in providing for the manner in which an order is to be executed, one can infer from the terms of Form 11A that there ought to be adequate safeguards to protect respondents from a disproportionate interference with their private and family lives in those cases in which the order is to be enforced by an invasion of their privacy and their property as opposed simply to citing them to appear and give evidence before the commissioner. Thus, even if rule 3.1.6 does not directly apply, there remains a live question whether an interlocutor which does not provide for such safeguards would constitute an infringement of the respondents' human rights. Furthermore, in a situation in which the respondents have prior notice of the application, it must be open to question whether it is necessary to authorise the commissioner to enter the premises of the respondents to enforce the order and to open lock fast places when recovery of the relevant documents (though not the computer hardware and software referred to in paragraph 2 of the specification) could be made by the more conventional route of citing the respondents to attend the commissioner for examination on oath and to produce such documents in their possession. Were it thought that that was the more appropriate course of action, a further question arises as to whether the court could make such an order without the petitioners amending the terms of crave 3 of their application. Before finally disposing of the appeal I would wish to be addressed on these issues and have accordingly assigned a further hearing for that purpose.