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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Inn Spirit Ltd v Scottish Widows Plc [2006] ScotCS CSOH_150 (28 September 2006) URL: http://www.bailii.org/scot/cases/ScotCS/2006/CSOH_150.html Cite as: [2006] CSOH 150, [2006] ScotCS CSOH_150 |
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OUTER HOUSE, COURT OF SESSION [2006] CSOH 150 |
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A427/05 |
OPINION OF LADY CLARK OF CALTON in the cause INN SPIRIT LIMITED (IN LIQUIDATION) Pursuer; against SCOTTISH WIDOWS plc Defender: ________________ |
Pursuer:
J. Mitchell, Q.C; Tods Murray LLP
Defender: Currie, Q.C.; Maclay Murray & Spens
28 September 2006
Introduction
[2] In the present action, the pursuer seeks to recover from the defender firstly, a sum of £124,919.68; and secondly, a sum of £21,414.24. The grounds of action are complex. In summary, there is a claim, supported by the first plea-in-law for the pursuer, based on a statutory assignment under English law in terms of section 126 of the Law of Property Act 1925 or in equity; separately, a claim in delict for damages supported by the second and third pleas-in-law; and, separately, a claim based upon constructive trust et separatim equitable compensation supported by the fourth plea-in-law. The pleadings are set out in a Closed Record of 50 pages and referred to numerous documents, some of which are referred to for their terms and held incorporated into the pleadings brevitatis causa.
The Pursuer's Pleadings
[3] Articles
1-9 set out a history relating to the pursuer and the actings of
Mr and Mrs Burns, which led to a series of injunctions issued in
court proceedings in
[4] It is against that historical narrative that the pleadings are developed. It is necessary to look in detail at the averments of the pursuer in article 10 to article 23 of condescendence as it is in these articles that the pursuer attempts to found the various cases pled against the defender. It is these articles which were the subject of criticism by senior counsel for the defender.
[5] In
article 10 of condescendence, the pursuer makes averments that the defender is
and at all material times has been part of the Lloyds TSB banking group. Detailed averments are made about letters
from the pursuer's solicitors (Halliwell Landau) to a branch and various departments
of Lloyds TSB which included copies of orders made in the English High Court in
relation to Mr and Mrs Burns and the misappropriated monies. Averments are then made about correspondence
from the defender's Mr Cunningham to Halliwell Landau in a letter dated
"We are aware of
the circumstances you have referred to in your letter. However, I can confirm that we have now
complied with the Court Order and marked our records accordingly ..."
[6] In
article 11 of condescendence, averments are made to the effect that the
defender had been notified of the initial without notice order made by
HHJ Hegarty Q.C. on
[7] In
article 12 of condescendence, the pursuer avers that legal proceedings were
progressed in relation to charging and third party orders against the Scottish
Widows investments. The only intimation
to the defender averred is that an interim
charging order was subsequently made against Mrs Burns' bonds on
[8] Article
13 of condescendence sets out averments about the history in the English High
Court of applications made by the pursuer for charging orders against Mr Burns'
Bonds and Mr Burns' Unit Trust. It is
averred that although interim charging orders were made on
[9] Article
14 of condescendence deals with a new matter.
The pursuer avers that in a letter dated
[10] In article 15 of condescendence, the pursuer avers that the authority letter represented the culmination of a series of communications between the pursuer, acting by Halliwell Landau, and Mr and Mrs Burns acting by themselves and by their solicitors and reference is made to various communications, none of which is averred to involve the defender. It is averred that the authority letter was then signed by Mr and Mrs Burns and was sent by them to the defender and copied to Halliwell Landau.
[11] In article 16 of condescendence, it is averred that on various
dates between
[12] In article 17 of condescendence, it is averred that by a letter
sent by both fax and post, dated
[13] In article 18 of condescendence, the pursuer avers that on 6
November 2002 a letter was sent from Halliwell Landau to Paul Smith believed to
be a unit trust administrator working in the defender's client service division
unit trust department. Said letter
referred to a conversation between the two men in which concerns were raised by
the defender's legal department that any payment to the pursuer would be in
breach of the freezing and proprietary injunctions and/or the charging orders
over Mr and Mrs Burns' Bonds and Mr Burns' Unit Trust. A further copy of Mr Justice Rimer's
order was enclosed and attention drawn specifically to the exception set out in
paragraph 8.3. A further fax from
Halliwell Landau to Mr Smith on
"my client would wish to have confirmation in writing that the With Profits Bonds will be held to the order of Inn Spirit Limited (acting by its Liquidator Steven Williams) and that no payment or encashment or other disposal or dealing with these bonds would be carried out at the direction or request of Mr and Mrs Burns or any other person ...".
A response by fax by Mr Smith
stated: "The with profit bonds are being kept and you should receive
confirmation of this within the next week".
During a telephone conversation on
[14] It is in article 19 of condescendence at page 37 of the Record
that we come to the averred factual basis of the pursuer's complaint against
the defender. The pursuer avers that on
[15] In article 20 of condescendence, it is averred that the pursuer has made recovery in respect of Mrs Burns' Bonds but in respect of Mr Burns' Bonds there is a shortfall in recovery of £124,919.68. That is the sum which is referred to in the first conclusion.
[16] In article 21 of condescendence, the pursuer makes averments in relation to assignment and the first plea-in-law. I deal with this at paragraphs 39 to 42.
[17] In article 22 of condescendence, the pursuer makes averments to underpin the case of fault and negligence supported by the second and third pleas-in-law. I deal with this in paragraphs 20 to 38.
[18] In article 23 of condescendence, the pursuer makes averments to underpin the fourth plea-in-law in relation to breach of constructive trust et separatim equitable compensation and I deal with this in paragraph 43.
[19] Finally, in article 24 of condescendence, the pursuer makes averments about the early surrender penalties which I understand from the submissions on behalf of the pursuer are intended to form the basis of conclusion 2. I deal with this in paragraph 44.
Negligence
[20] The main discussion at Procedure Roll was concerned with the
part of the case to which article 22 is crucial. Although some of the documents were
incorporated into the pleadings, some were not.
In his submission, senior counsel for the defender made reference without
objection to many of the documents lodged as productions. I found that helpful in trying to put some of
the voluminous pleadings into context. I
am of the opinion, however, that does not entitle me to go beyond the pleadings
and make decisions about documents which are not incorporated in the
pleadings. There was no dispute before
me that the law applicable to this part of the claim is the law of
[21] In article 22 of condescendence, the pursuer avers that there
existed a special relationship of sufficient proximity and foreseeability of
damage between the pursuer and the defender involving an assumption of responsibility
by the latter to the former and relied upon by the former in relation to the Scottish
Widows investments and in particular Mr Burns' Bonds. In the circumstances condescended on, it is
averred the defender owed a duty of care to the pursuer in relation to the
Scottish Widows investments and the said bonds, it being fair and reasonable to
impose such duty on the defender in the circumstances condescended on. It is important to note at this point that no
further specification is given as to which circumstances are averred to be
relevant for these purposes. The
circumstances condescended on are narrated over some 44 pages. It is averred that in paying the proceeds of
Mr Burns' Bonds to Mr Burns, the defender acted in breach of that duty at
a time when the defender was aware of the pursuer's claims, the High Court
action against Mr and Mrs Burns and the various orders made therein and
secondly, that it had communicated with the pursuer and Mr Burns "as above"
which appears to be a reference to the various communications averred in
condescendence 10 to 19. It is further
averred that the pursuer relied upon the defender's repeated assurances that
the relevant court orders were being complied with. But for these repeated assurances, it is
averred the orders could have been formally registered and enforced in
Analysis of the law relating to negligence
[22] The averments in Article 22 which I summarise in the foregoing paragraph are the starting point for the pursuer's case of negligence. A number of cases were cited by both counsel to explain the current state of development in this difficult area of law. The starting point for senior counsel for the defenders was Henderson v Merrett Syndicates Limited [1995] 2 AC 145 citing Lord Goff dealing with the governing principle at pages 178-181 and the Opinion of the Lord Justice Clerk in Royal Bank of Scotland Plc v Bannerman Johnston McLay 2005 SC 427. Senior counsel for the pursuer cited Custom & Excise Commissioners v Barclay's Bank Plc (CA) 2005 1 WLR 2082; Barclay's Bank Plc v Quinscale Limited & Another [1992] 4 All ER 363, QBD; Merrett v Babb [2001] QB 1174; and Phelps v Hillingdon London Borough Council [2001] 2 AC 619.
[24] Senior counsel for the pursuer submitted that the facts in Customs & Excise Commissioners were very similar to the present case. In that case, the Commissioners sought to recover outstanding VAT from two companies by obtaining freezing injunctions in respect of company assets including money in their bank accounts. The bank was notified and was bound by the injunctions but failed to take action to prevent payments out of the accounts in breach of the injunction. The Commissioners claimed damages for negligence against the bank. In paragraph 48 at page 2096, Longmore LJ concluded that applying the threefold test approach
"a duty ought to be imposed on the bank, towards claimants who have obtained a freezing order, to take care that funds of a person whose account has been frozen pursuant to that order should not be dissipated in breach of that order. I would not be deterred by the apparent absence of any express or deliberate assumption of responsibility on the part of the bank since I would hold that the law ought to decide that such responsibility should be imposed and that that, in accordance with Phelps [2001] 2 AC 619 is sufficient."
This submission was pressed by
senior counsel for the pursuer, despite the pleadings for the pursuer at page
44B-C, where the pursuer is specifically offering to prove an assumption of
responsibility by the defender to the pursuer and relied upon by the pursuer in
relation to the Scottish Widows investments and in particular Mr Burns'
bonds. Senior counsel for the pursuer
did not seek to depart from his case on record albeit the logic of the argument
which he was presenting appeared to me to be consistent with a conclusion that
the pursuer was entitled to succeed in law without proving any assumption of
responsibility by the defender. But
senior counsel for the pursuer, despite the logic of his argument, did not seek
to depart from his pleadings and specifically accepted them. He submitted that the factual averments made
were sufficient to enable him to establish the facts and circumstances in
accordance with the threefold test set out in article 22. It would have been difficult for senior
counsel for the pursuer to accept the pleadings and still press his legal
argument as a question would then have arisen as to the relevance of some of
the pleadings which plainly are drafted on the basis of alleged facts and
circumstances intended to demonstrate an assumption of responsibility by the
defender relied on by the pursuer as set out in article 22 of
condescendence. In view of the position
adopted by senior counsel for the pursuer, it is not necessary in my view to
determine this issue of law at this stage in the present case. There was no dispute by senior counsel for
the defender that in an appropriate case a legal duty might arise where the
threefold test applied. I would merely comment
in relation to the submission made on behalf of the pursuer that there does
appear to be some important differences between the present case and the
factual circumstances in Customs and
Excise Commissioners. For example,
in the present case, it is not in dispute that the injunctions of the
[26] Senior counsel for the pursuer accepted that the pursuer must relevantly aver facts and circumstances additional to knowledge. Additional factors were averred by the pursuer in support of the threefold test. These were described by senior counsel for the pursuer as passages in the pleadings to the effect that the defender made undertakings that monies would not be paid to Mr and Mrs Burns and that the defender would honour the terms of the English court orders. The passages referred to are at page 19C, 24D, 30E, 31B, 31E-32D, 35B and 36B.
[27] Senior counsel for the defender made detailed criticisms of the averments in article 10 to 18 and 22 from which he concluded that the communications on which the pursuer relies, do not support the averment in article 22 of condescendence that the parties were in a "special relationship of sufficient proximity and foreseeability of damage ... involving an assumption of responsibility" on the part of the defender. In the argument which he developed with reference to the communings relied on by the pursuer, senior counsel pointed out that the only court orders which the defender is averred to have had knowledge, are the order of 3 May 2002 (after it had been superseded) and the interim charging order relating to Mrs Burns' Bonds. In addition, the defenders received the authority letter. But even taking the defender and Scottish Widows Unit Trust Managers together (for which there is no basis in law), neither had knowledge of any of the court orders in force as at 8 November 2002, the date the bonds were encashed by the defender and the proceeds given to Mr and Mrs Burns. Senior counsel submitted that the pursuer is not entitled to ignore the legal personality of the defender and confuse it or identify it with other legal persons such as Lloyds TSB and Scottish Widows Unit Trust Managers Limited. There is, he submitted, no basis set out in the pursuer's pleadings to lift the veil of legal personality and attribute communings or a relationship with a company other than the defender in order to lay the foundation of a special relationship and assumption of responsibility between the pursuer and the defender of the type averred in article 22 of condescendence.
[28] In his submission, senior counsel for the pursuer did not put forward any legal basis for treating different legal companies as if they were the defender and imputing knowledge and responsibility thereby to the defender. His approach appeared to be to try to avoid these difficulties by trying to isolate in the pleadings averments which were undisputedly a reference to the defender. That approach, however, leads to unanswered questions in relation to the averments about Lloyds TSB, and the relevance of these pleadings. In my opinion, any averments about Lloyds TSB are not relevant to lay a foundation for article 22 of condescendence. The only reason pled is the averment in article 10 of condescendence that the defender is and at all material times has been, part of Lloyds TSB banking group. That does not in my opinion justify attributing knowledge and responsibility of one company to another separate company.
[29] Senior counsel for the defender made specific detailed criticisms in relation to various averments and I now deal with these. In relation to article 11 of condescendence, there are averments about communications to "the defender's unit trust administration department" and "the defender's legal department". The criticism by senior counsel for the defender is similar to that which he made about Lloyds TSB. Senior counsel for the defender submitted that the pursuer's pleadings were not clear or accurate and that the documentation showed that the unit trust administration department was a separate company, namely Scottish Widows Unit Trust Managers Limited. While I accept the pursuer's contention that evidence may explain the context and relevance, it is not in my opinion good or satisfactory pleading to aver a separate company (if so it be) as a department of the defender.
[30] The criticism of article 12 of condescendence is to the effect that the averments relate to a history of communings in relation to Mrs Burns' Bonds. I accept the point made by senior counsel for the defender that the pursuer's averments in article 22 in relation to negligence are all directed towards the surrendering of Mr Burns' Bonds. Nevertheless, without hearing evidence, it is difficult to assess what implications are to be drawn from the whole history of communings which include the communings in relation to Mrs Burns' Bonds.
[31] In relation to article 13 of condescendence, I agree with
senior counsel for the defender that these averments do not assist in relation
to the case of negligence, albeit they may explain the history. The averments explain that the copies of the
relevant court order were not served on the defender until late December
2002. That service postdates the surrendering
of the bonds by the defender to Mr Burns on
[32] In relation to article 14, I also accept that these averments do not assist in relation to the case of negligence. The pursuer does not aver circumstances to explain how the actions of Mr and Mrs Burns could create duties on the part of the defender owed to the pursuer. These averments may, however, be relevant to the defender's state of knowledge at the time in any communings with the pursuer. They also may bear upon other aspects of the case, in particular, the averments about the assignation.
[33] In relation to article 15 of condescendence, I accept the submissions by senior counsel for the defender to the effect that the averments do not disclose that the defender played any part in the correspondence detailed and there is no averment that the defender was at any time made aware of the matters detailed. The averment at page 29E that the authority letter was signed by Mr and Mrs Burns and sent by them to the defender, merely reflect the averments with which I have already dealt in article 14. I do not consider that the averments in article 15 add anything in relation to the case of negligence.
[34] In relation to article 16, some points of detail were criticised but the major criticism was to the effect that in a series of conversations, various requests, if not demands, were made on behalf of the pursuer but it is not averred that in any of the conversations, allegedly on the part of the defender, was it ever represented to the pursuer that the defender would implement what was requested by the pursuer. The high point of article 16 of condescendence for the pursuer is that a representative of the defender ("from the legal department") was considering the pursuer's request that day, and that "Kevin" hoped to be in a position to confirm the legal department's advice by the end of the day.
[35] In article 17 of condescendence, the pursuer accepts that there
was no confirmation by the defender to comply with the request and avers
further correspondence on
[36] In article 18 of condescendence, there are averments about further
correspondence. Senior counsel submitted
that, contrary to what is averred, there was no charging order in relation to
Mr Burns' Unit Trust and the interim
charging order referred only to Mr Burns' Bonds. This may be correct as a matter of fact but
the pursuer is offering to prove something different. It is not for me to determine at this
stage. The pleadings are also criticised
on the basis that the averment that a copy of Mr Justice Rimmer's order was
enclosed is irrelevant as, by the time of the letter, that order had been
superseded. The pursuer avers that
Mr Smith (working in the defender's client service division unit trust
department) responded by facsimile dated
[37] When I consider the case pled against the defender, I conclude
that article 22 of condescendence could form a basis in law for a case based on
negligence provided the averments of fact underpinning the case were relevantly
averred. There appears to be a basis in
law for a claim of this type of which sufficient notice of the legal basis is
given in article 22 of condescendence. I
do have some reservations about the averment at page 45B "but for these
repeated assurances, the orders could have been formally registered and
enforced in
[38] I have come, however, to the conclusion that the defenders are entitled to fair notice of the factual averments which are meant to found and underpin the case in negligence in article 22 of condescendence. In view of the way in which the case has been pled, I have decided that no fair notice is given as it is a matter of guess work as to which averments are founded on by the pursuer to found a factual basis from which legal duties might flow in terms of article 22 of condescendence. I am satisfied that the criticisms of senior counsel for the defender are in this respect well-founded. I consider the problem is fundamental.
Assignment
[39] In article 21 of condescendence, the pursuer avers at 40A to B that, standing the terms of the communications between Mr Burns, Halliwell Landau and the defender, as condescended upon, Mr Burns' Bonds were assigned by him to the pursuer and notice of such assignment was given to the defender prior to its subsequent encashment of said bonds, with the effect that the defender was not entitled to encash said bonds and pay the proceeds of the same to Mr Burns without the pursuer's consent. It is averred that the assignment of said bonds is governed by English Law. There follows detailed pleadings about section 136 of the Law of Property Act 1925 and the effect in law thereof. The only other reference in the pleadings to the way in which this assignment was allegedly created is at 43D:
"In the circumstances condescended upon, including the terms of the authority letter and the correspondence between Halliwell Landau and the various offices and personnel of the defender, a valid legal et separatim equitable assignment was effected ..."
In my opinion, the criticisms of senior counsel for the defender about this aspect of the pleadings are well founded. There is inadequate and misleading specification and there is a lack of fair notice of the case which is pled against the defender. It is plain from page 43D that whatever the absolute assignment is meant to be, it is not limited to the authority letter. As I was required to dwell on the pleadings at some length, it is plain that the pleadings about communications have a timespan from March 2002 to December 2002 with no apparent clear separation in the pleader's mind between personnel from different companies with separate legal personality. There are many letters, faxes and communications to which the pleadings refer. In summary, the pleader on behalf of the pursuer makes no attempt to aver in what way they satisfy section 136(1) of the 1925 Act which refers to
"absolute assignment by writing under the hand of the assignor ... of any debt ... of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt ...".
[40] Senior counsel for the defender raised an issue about proper
pleading practice in relation to averments about foreign law. He pointed out that although there was an
averment that the assignment is governed by English law, there was no averment
that English law is different from Scots law.
In the absence of such an averment, he invited me to construe the
document in terms of the law of
[41] Senior counsel also criticised the authority letter on the hypothesis that it was to be construed as an assignment by writing. He pointed out that it is patently not itself an assignment, otherwise no other steps would be required. It does not state that any interest and entitlement had to be transferred other than that the transfer is to be to the satisfaction of the pursuer. It authorises the addressee to liaise directly with the pursuer "in all matters pertaining to the transfer, assignment or granting of security over the above securities ...". I took the view that it was not for me to address these issues of interpretation. This is a matter which in my opinion would require expert opinion evidence about English Law as to whether the requirements of section 136(1) were satisfied by any particular writing. I consider, however, that it does underline the unsatisfactory nature of the pleadings. It is for the pursuer to aver how it is alleged an assignment has been created, particularly in circumstances where foreign law is set out in the pleadings. There is in my opinion a lack of relevant averments and no fair notice.
[42] Article 21 of condescendence at pages 42B to 43E also contains averments on an alternative basis that an equitable assignment was effected so as to prevent Mr Burns from having power validly to grant a discharge of the debt due under Mr Burns' Bonds without the concurrence of the pursuer. It is averred that the defender remains liable to make payment to the pursuer therefor. The pursuer avers various elements which are said to be essential under English law to create an equitable assignment. Senior counsel for the defender made similar criticisms about relevancy, specification, fair notice and pleading practice as those he applied to the averments in relation to a legal assignment. Against the background that it is averred by the pursuer that an equitable assignment need not be in writing nor in any particular form, it is essential that the pleader specifies which circumstances are to be taken together to enable the court to conclude that an equitable assignment was effected. I consider that for the same reasons which apply to the case based on assignment in writing, the pleadings about an equitable assignment are inadequate in that there is an absence of relevant averments and no fair notice.
Constructive Trust
[43] In article 23 of condescendence, the pleader became concise. This aspect of the case is dealt with at page 46C to E, in which the pursuer avers:
"... in the circumstances the defender held Mr Burns' Bonds upon constructive trust for the pursuer and in encashing said Bonds and paying the proceeds of same to him without the pursuer's knowledge and consent, it acted in breach of trust. In the further alternative, in so acting the defender knowingly dealt with trust property, namely Mr Burns' Bonds, in a manner inconsistent with the trust over the same in favour of the pursuer. Consequently, in either case the defender is liable to account to the pursuer for the Shortfall; alternatively it is liable to pay equitable compensation in the same amount. English law governs the said constructive trust."
Senior counsel for the defender made the obvious point that the pursuer does not aver how the requirements of the constructive trust are met. The only notice given is that the pursuer relies on "the circumstances". It was submitted that taking into account the detail of the correspondence and communings between the parties, much of which cannot on any view be relevant to the question of constructive trust, the defender should be given notice of the facts and circumstances on which the pursuer relies. In this article of condescendence, the pursuer does not even attempt to set out the essential elements of constructive trust or the alternative. Even if that had been done, it would still be essential in my opinion for the pursuer to plead facts and circumstances to give fair notice of how they say the constructive trust arose or the alternative applied. In some cases, where the factual situation is narrowly pled and clear, it may not be necessary to aver anything further by way of additional specification. But this is not such a case and it is incumbent upon the pleader to specify relevant averments and give fair notice.
Early Surrender Penalties
[44] The pleadings do not expressly set out the basis of the second conclusion but on a generous reading, the second conclusion relates to the early surrender penalties referred to at page 37C to D. I understand that senior counsel for the defender so interpreted the pleadings. He submitted that the pursuer make no specific averments to justify the assertion that they are entitled to a refund of the early surrender penalties. For all the pursuer avers, they would have been liable to such penalties in any event. He also submitted that the averments in the action are all directed towards the surrendering of Mr Burns' Bonds and not Mrs Burns' Bonds. This aspect of the pursuer's case depends upon there being a relevant case in relation to one or more of the main cases which are made on behalf of the pursuer. If there was such a relevant case, I would not exclude this part of the case from probation.
[45] I consider that parties as they requested should be given the opportunity of considering my opinion before I deal with the pleas-in-law. I have accordingly appointed the case to the By Order roll.