Scottish Sheriff Court Decisions

IAN HAMILTON QC-V-THE ROYAL BANK OF SCOTLAND GROUP PLC

Oban 26 February 2009

This is a Small Claim raised by Ian Hamilton Q.C. against The Royal Bank of Scotland Group plc for payment to him of the sum of £1282, being the sum invested by him in shares in the Defenders, pursuant to a rights issue by the Defenders last year. The action was originally based on both alleged fraud and negligence on the part of the Defenders. By amendment when the case called last week, all allegations of fraud were withdrawn. The claim is therefore now based only on alleged negligence on the part of the Defenders.

I am today concerned with an Incidental Application by the Defenders for a direction that the Small Claim be treated as an Ordinary Cause.

I want to begin by saying something about the case of Mullan v Anderson 1993 SLT 835, to which I was referred on the last occasion the case called. That case concerned an application to remit an Ordinary Cause to the Court of Session under section 37 (1) (b) of the Sheriff Courts (Scotland) Act 1971. The application before me proceeds in part, after amendment on the last occasion, under section 37 (2) (b) of the Act, which, to all intents and purposes, is in the same terms as Section 37 (1) (b). It appears to me therefore that the case of Mullan -v- Anderson is relevant to that part of this Incidental Application. It was the majority view in that case that a single stage determination was appropriate, and that if the Sheriff decided that the importance or difficulty of the case made it appropriate to remit, then he had no discretion thereafter to refuse to do so. It seems to me that, in dealing with that part of this Incidental Application, I must follow the majority view in that case.

The Incidental Application proceeds also under section 37 (2B) of the Act. That subsection is in different language, in that it is not required in that subsection that the difficulty of any question of law or the exceptional complexity of any question of fact make it appropriate to treat the cause as an Ordinary Cause. What is required is that the Sheriff forms an opinion as to whether or not a difficult question of law or a question of fact of exceptional complexity is involved. Only if such a question of law or question of fact is involved may the Sheriff then decide that the cause be treated as an Ordinary Cause. That seems to me to require a two stage process, involving firstly the formation of an opinion as to whether such a question of law or question of fact is involved, and secondly, if such a question is involved, an exercise of discretion in deciding whether or not the cause should be treated as an Ordinary Cause.

Having considered the terms of section 37 (2B), and what was said in Mullan -v- Anderson, it seems to me that whether the Sheriff is proceeding by way of a single stage determination or a two-stage determination, he has to take account of the respective characteristics of the procedure in the Small Claims Court and Ordinary Cause procedure, including the comparative expense of litigating under each of those procedures.

As far as the question of importance of the cause is concerned, which is relevant only under section 37 (2) (b), it is clear from the case of Mullan -v- Anderson that importance includes both importance to the parties, and importance in general, with regard to the public interest.

I will deal first with the application insofar as it is founded upon section 37 (2B) of the Act.

Having considered all of the submissions made to me by Mr Hamilton and Miss Cullen I am persuaded that this case will involve difficult questions of law. The claim proceeds now only on the basis of negligence, Mr Hamilton having undertaken to delete from the statement of claim all allegations of fraud on the part of the Defenders.

The allegations of negligence relate firstly to representations by the Defenders that they were at all material times solvent, or to non-disclosure by the Defenders that they were at all material times insolvent. It seems to me that legal issues as to company insolvency, and how that may be established, will arise, as will issues regarding precisely what duties were owed by the Defenders to the Pursuer, in what way or ways the Defenders are alleged to have failed to discharge those duties, and how such failure, if there was failure, led to the Pursuer's loss.

The allegations of negligence relate secondly to the acquisition by the Defenders of ABN Amro, and the effect which that acquisition may have had on the Defender's indebtedness. Again it seems to me that difficult issues will arise in respect of the duties owed to the Pursuer with regard to disclosure of the effects of that acquisition, how the Defenders are alleged to have failed to discharge those duties, and causation. There may also be issues as to whether the indebtedness of a company acquired by the Defenders amounts to indebtedness of the Defenders themselves.

The Statement of Claim as amended also refers to the announcement by the Defenders, two months after the Pursuer subscribed for his shares by way of the Defenders' rights issue, of what is described as their biggest loss to date, and the Defenders negligence in not informing the Pursuer of that loss when inviting him to subscribe.

Accordingly legal issues will arise relating to the duties owed by a company such as the Defenders when inviting shareholders to subscribe for additional shares by way of rights issue, as will legal issues in relation to corporate insolvency and as to corporate accounting, and legal issues as to the extent to which any negligence might be excluded by reliance on advice from auditors or other professional advisers.

All of these appear to me to be difficult questions of law.

As to the facts, it appears to me that there will be factual issues relating to the accounts of the Defenders at various times, the solvency of the Defenders at various times, the advice given to the Defenders by its auditors and others, upon which I am told that the Defenders will claim they relied, and as to the circumstances of the losses announced by the Defenders. There will also be issues relating to the acquisition by the Defenders of ABN Amro, and the consequences of that acquisition. I was informed by Miss Cullen that the evidence of various expert witnesses will have to be led in respect of these matters. I am of the view that all of these factual issues will involve questions of fact of exceptional complexity.

Accordingly I require now to proceed to the second stage of the determination of this part of the Incidental Application, namely whether I should exercise my discretion by ordering that the cause be treated as an Ordinary Ccause, or by refusing to do so.

In reaching a decision as to how to exercise my discretion, I have to have regard to the respective characteristics of Small Claims procedure and Ordinary Cause procedure.

It seems to me to be important that in Small Claims procedure, unlike Ordinary Cause procedure, there is no provision for written pleadings beyond the Statement of Claim. The Defenders do not even require to lodge answers. I am of the view, notwithstanding the requirement in the Small Claims Rules that the Statement of Claim should give fair notice to the Defenders of the case they have to meet, that, in order to give the Defenders proper notice, and also to enable the Court to give the various legal issues proper consideration, full written pleadings are necessary in this case, setting out in detail the legal basis of the claim, and indeed the factual basis for it. It also seems to me that the Pursuer ought to have proper notice of precisely what the Defenders will seek to prove.

It is also, I think, of importance that in a Small Claim, unlike an Ordinary Cause, it is not possible to have a debate on the legal issues in a case at a hearing separate from and in advance of proof. Whilst Mr Hamilton maintains that this matter would inevitably have to go to Proof Before Answer, Miss Cullen maintains that the Defenders will seek a debate on the relevancy of the Pursuer's claim, with a view to securing dismissal of the action without the necessity of going to proof. It is impossible at this stage to judge whether Proof Before Answer is indeed inevitable. It seems to me likely that there will be pleas to the relevancy, and perhaps as to specification, which may be appropriate for debate, even if only for the purposes of having certain averments excluded from probation, and thus restricting the scope of any proof.

Another material difference between the two procedures is that in a Small Claim there is no provision for the evidence to be recorded other than by way of the Sheriff's own handwritten note. I regard that as insufficient given the complexity and likely length of any proof, particularly if evidence of a technical nature is to be given by expert witnesses.

As far as expense is concerned, I have considered the question of additional expense generally, and also particularly as far as Mr Hamilton is concerned. It seems to me that I have to decide whether the factual complexity or legal difficulty is such that the additional expense of Ordinary Cause procedure would be merited. There is, I think, a balancing exercise to be carried out between that consideration, and consideration of the ability of a party to bear the additional expense. Mr Hamilton has stated that, whilst he accepts that he would not be incurring the cost of employing solicitors or Counsel, he could not afford the risk of the expenses of an Ordinary Cause being awarded against him, and therefore wishes the cause to remain in the Small Claims Court, so as to limit his exposure to an order of expenses, in the event that he is unsuccessful, to £150. In balancing the respective interests of the parties, I have come to the view that the legal difficulty and factual complexity of this case clearly merit the additional expense which would be involved in an Ordinary Cause, and that that outweighs any concern Mr Hamilton may have with regard to a potential award of expenses against him in the end of the day.

With regard to that concern, it was Mr Hamilton's position last week that if the Defenders' Incidental Application were granted, he would abandon his action. Of course I do not know if that remains his intention. I suppose that since the case last called there may have been some developments by way of Mr Hamilton finding a way to fund an Ordinary Cause, and to limit his potential exposure to an award of expenses, perhaps by way of support pledged by other shareholders, or otherwise. In any event, whilst I could not in any way prejudge the issue of expenses, and could not bind myself or any other Sheriff who may be involved in hearing the case, I would observe, as Miss Cullen for the Defenders did last week, that, in the event that the cause does proceed as if it were an Ordinary Cause, the whole question of expenses will in the end of the day be a matter for the discretion of the Sheriff, and there may be arguments which the Pursuer could advance if he were unsuccessful, with a view to having any award of expenses restricted to the scale appropriate to a Small Claim, for example, in view of the amount of the sum sued for, or in view of the fact that his Small Claim is treated as an Ordinary Cause only because the Defenders sought that by way of Incidental Application, which the Pursuer opposed.

It is also, I think, not irrelevant that for an Ordinary Cause, unlike a Small Claim, Legal Aid is available, although, of course, I have no way of knowing whether or not Mr Hamilton would qualify for assistance by way of Legal Aid.

I have also considered the nature of the Small Claims procedure generally. That procedure is in my view clearly intended for claims of low value, which do not involve difficult legal issues or exceptionally complex factual issues. In this respect it is, I think, relevant that when the monetary limit for claims in the Small Claims Court was increased recently, claims for personal injury were excluded from the procedure, because they would be likely to involve such issues. I am quite satisfied that the Small Claims procedure was never intended to be used for a matter such as this.

Mr Hamilton also raised the question of the likely delay in dealing with his claim, if it is to be treated as an Ordinary Cause. In response, Miss Cullen undertook that her clients would make all efforts to conduct matters expeditiously, and stated that they had no intention at the moment, if successful in their Incidental Application, of seeking to have the case remitted to the Court of Session, being content, for the convenience of the Pursuer, to litigate in Oban. She further submitted that the Rules provide for an Options Hearing within ten weeks, and therefore that there should not be undue delay. I think it is probable that if the claim is to proceed as an Ordinary Cause it will take somewhat longer than it would in the Small Claims court. However, it is impossible to quantify the additional time which would be required, particularly since under Ordinary Cause procedure, it is at least possible that the matter might be resolved at debate. In any event I am not persuaded that there will inevitably be such additional delay that I should exercise my discretion by refusing the Application.

For all of these reasons I have decided that the Defenders' Incidental Application, insofar as founded upon section 37 (2B) should be granted, and that the case should be treated for all purposes as an Ordinary Cause in the Sheriff Court in Oban.

Turning now to section 37 (2) (b), I have had to consider the questions of difficulty and importance.

As far as difficulty is concerned, I have already given my view of the legal and factual difficulties in this case.

As far as importance is concerned, again on the basis of what was said in Mullan -v- Anderson, I have to consider both importance to the parties and importance generally, with regard to the public interest.

The amount involved in this case is not great, and whilst Mr Hamilton suggested that his claim is of great importance to himself, I am not convinced that the amount of the claim could, viewed objectively, make the case one of importance. The matter is of course of great importance to the Defenders. The implications for the Defenders, if Mr Hamilton, as only one individual shareholder, were successful in his claim, could be considerable.

The matter is also, in my view, of some considerable importance to the public generally, given what has happened to the Defenders since the rights issue, in particular by way of the investment of a large amount of public money, which I think is a matter within judicial knowledge. Indeed, Mr Hamilton, in his submissions last week, acknowledged that the matter was important, and that it was a matter of public interest (as distinct from a matter which excited the interest of the public).

Following the single stage determination favoured by the majority of the judges in Mullan -v- Anderson, I have concluded that the difficulty and importance of the cause, taking account of the respective characteristics of the Small Claims Court and the Ordinary Cause procedure as I have already done in relation to section 37 (2B), clearly make it appropriate to treat the cause as an Ordinary Cause. Having reached that conclusion I have, in view of the majority opinion in Mullan -v- Anderson, no further discretion to refuse to direct that this case be so treated.

For all these reasons I have decided that the Defenders' Incidental Application, in so far as founded upon section 37 (2) (b) of the Act should be granted.

Accordingly, as I am required to do in terms of Rule 15.2 of the Small Claims Rules, I will direct the Pursuer to lodge an Initial Writ, and to intimate the same to the Defenders, within 14 days of today's date, direct the Defenders to lodge defences within 28 days of today's date, and fix an Options Hearing, the date of the Options Hearing to be not sooner than 10 weeks after the last day for lodging the initial writ.