Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2012] CSOH 177
A171/11	OPINION OF LORD DRUMMOND YOUNG in the cause BRIAN JAMES THOMSON Pursuer; against ELIZABETH MARIE MOONEY Defender: ________________

Pursuers: Henderson; Campbell Smith, WS, LLP

Defenders: Innes; Balfour & Manson, LLP

23 November 2012

[1] In the present action the pursuer claims payment of two sums from the defender on the basis of unjustified enrichment in the form of recompense. The sums concluded for are respectively £35,000 and £68,434. In response the defender has lodged a counterclaim against the pursuer in which she claims payment of £8,943.25, based on a right of relief. I heard no argument on the counterclaim, and it is not necessary to say anything more about it. In respect of the principal action, the defender has tabled pleas in law alleging that the pursuer's first claim has prescribed by virtue of section 6 of the Prescription and Limitation (Scotland) Act 1973 and, separately, challenging the relevancy and specification of certain of the pursuer's averments. The action called before me in the procedure roll and I heard argument on both of those pleas. I should record that the summons was signeted on 6 April 2011.

[2] The pursuer's averments are as follows. The parties formed a relationship and subsequently, in 2005, began to cohabit and became engaged to be married. In June 2005 the parties purchased a dwelling house at 29 English Row, Calderbank, Airdrie. Each of them took a one half pro indiviso share in the subjects. The purchase price was £180,000. Of that sum, the pursuer contributed £70,000 from his own funds and the remainder was raised through a loan from Bristol & West PLC; a standard security was granted in respect of the loan. The parties ceased to cohabit in September 2007. The defender avers that this occurred in May, but nothing turns on the difference. The pursuer stopped paying instalments on the loan in October of that year, and the house was sold in December. The sale price was £160,000. The proceeds were used to repay the loan from Bristol & West PLC, and also to repay a loan from the Royal Bank of Scotland which the defender had taken out to finance a business carried on by her under the name "Bib and Tucker". Following payment of those sums, the net sale proceeds were £35,805.93.

[3] The pursuer avers that the sum of £70,000 was paid by him towards the house on the understanding that the parties would be married and would continue to live together. He further avers that he had three bank accounts with Halifax PLC. Two of those were converted into joint accounts in the name of both parties, and repayments to Bristol & West plc were made out of one of those joint accounts. The sole source of funding of that account was the pursuer's wages, the defender's wages being paid into an account in her own name. Consequently it is averred that the loan taken out to acquire the subjects was effectively paid out of the pursuer's wages. Nevertheless, no part of the pursuer's claim is founded in any way on those payments.

[4] In April 2006 the defender started the business known as "Bib and Tucker" in Uddingston. The pursuer avers that he paid money into the business and agreed to be jointly liable with the defender for a business loan obtained from the Royal Bank of Scotland in the sum of £106,050. The parties granted a standard security in favour of the Royal Bank over the house at 29 English Row in respect of the business borrowings. The pursuer further avers that on 10 April 2006 he paid £4,000 and on 19 April 2006 a further £9,500 into the business, in both cases from his own funds. In addition, the pursuer granted further standard securities over other heritable properties held in his own name in favour of the Royal Bank in respect of the business borrowings. On 23 March 2007, following the sale of those properties, £43,678 was paid to the Royal Bank out of the net proceeds of sale to reduce the business borrowings. Thus the pursuer paid sums totalling £57,178 into the business; these were recorded as "capital introduced" in the accounts of the business for the period ended on 5 April 2007. The pursuer avers that he contributed those sums and agreed to incur liability to the Royal Bank in respect of the business loan on the understanding that the parties were to be married and would continue to live together. When the property at 29 English Row, Calderbank was sold in December 2010, £22,513 was paid to the Royal Bank towards repayment of the business loan.

[5] The pursuer claims that the defender has been unjustly enriched in two respects. First, he avers that she has been enriched to the value of £35,000 in respect of the payment of capital of £70,000 that he made when the property at 29 English Row, Calderbank, was acquired. Half of the total sum paid by him amounted to a contribution towards her one half pro indiviso share of the house. Consequently he claims payment of that amount from her. Secondly, the pursuer claims that the defender has been further enriched by the pursuer's contributions to her business in the sum of £57,178, as mentioned in paragraph [4], and by a further sum of £11,256, which was the portion of the proceeds of sale of 29 English Row, Calderbank used towards the repayment of the defender's share of the business loan for the "Bib and Tucker" business. That sum of £11,256 is half of the £22,513 paid towards repayment of the loan from the proceeds of sale of the house.

Prescription

[6] The defender argues that the pursuer's claim in the first conclusion of the summons for £35,000 has prescribed by virtue of section 6 of the Prescription and Limitation (Scotland) Act 1973. Section 6(1) is in the following terms:

"If, after the appropriate date, an obligation to which this section applies has subsisted for a continuous period of five years -

(a) without any relevant claim having been made in relation to the
obligation, and

(b) without the subsistence of the obligation having been relevantly acknowledged,

then as from the expiration of that period the obligation shall be extinguished".

The obligations to which this section applies are defined in Schedule 1; they include, in paragraph 1(b) of that Schedule, "any obligation based on the redress of unjustified enrichment, including without prejudice to that generality any obligation of restitution, repetition or recompense". The expression "appropriate date" is defined in section 6(3); in relation to an obligation to make redress for unjustified enrichment it is defined as "a reference to the date when the obligation became enforceable".

[7] The defender submits that the pursuer's contribution to the purchase price of the house at 29 English Row, Calderbank was made in June 2005, when title was taken in the joint names of the parties and the purchase price was paid. The summons was signeted on 6 April 2011. The "appropriate date" from which the five-year prescriptive period started to run was the date on which the obligation to make recompense became enforceable. In this case, that occurred as soon as the enrichment arose. In Shilliday v Smith, 1998 SC 725, it was held that a person could be said to be unjustly enriched at another's expense when he has obtained a benefit from the other's actings or expenditure without there being a legal ground which would justify his retaining that benefit. An obligation of that nature becomes enforceable as soon as the enrichment arises, since at that stage there is no legal ground that justifies retention of the benefit. All the facts necessary to establish enrichment are in place at that time. Consequently at any time thereafter the pursuer can raise a relevant claim for recompense: N.V. Devos Gebroeder v Sunderland Sportswear Ltd, 1990 SC 291, per LP Hope at 301. In the present case, therefore, the obligation became enforceable as soon as the pursuer had paid the sum of £70,000 towards the purchase price and title was taken in the joint names of the parties: Morrison v Coleman, Sheriff Principal Dunlop, 19 February 2008, unreported; McCafferty v McCafferty, 2000 SCLR 256; Virdee v Stewart, [2011] CSOH 50. At that point the defender received her one half pro indiviso share of the property, in part as a result of the payments made by the pursuer. The action was raised more than five years after that date, by which time the claim had prescribed.

[8] The pursuer, by contrast, submits that that his claim for recompense only became enforceable at the point when the parties separated, which was within five years of the raising of the action. The claim was based on the causa data causa non secuta; the sum of £70,000 had been contributed at a time when the parties were engaged to be married, but no marriage had followed. Thus, while the defender could be said to be enriched at the point when the money was contributed, it could not be said at that point that the enrichment was unjust as it was contemplated that the parties would subsequently marry. The right to recover the sum paid by way of recompense did not come into being until after payment, at the time when the parties separated and it became clear that they would not marry. Termination of the relationship was the last fact necessary to establish a claim based on unjustified enrichment; it was only then that the enrichment could properly be described as unjust. In particular, it could not be expected that, while the couple were still engaged, one would sue the other.

[9] The starting point for an analysis of the present problem is found in my opinion in the remarks of Lord Cullen in Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd, 1996 SC 331, at 348-349, cited by LP Rodger in Shilliday v Smith, supra, at 1998 SC 727:

"A person may be said to have received unjustified enrichment at another's expense when he has obtained a benefit from his actings or expenditure, without there being a legal ground which would justify him in retaining that benefit, and it is in accordance with equity that he should account for that enrichment".

As is pointed out in Shilliday, at 727, the significance of such unjust enrichment at the expense of another is that "in general terms it constitutes an event which triggers a right in that other person to have the enrichment reversed". The expression "in general terms" is important; repetition and other remedies for unjust enrichment are equitable in nature, and it is open to the court to refuse the remedy if the result would be unfair. The formulation used in Dollar Land indicates that two elements are necessary: the obtaining of a benefit and the absence of a legal ground which would justify the retention of that benefit. Sometimes these two elements will not come into existence at the same time. For example, where money is paid by one contracting party to another in pursuance of their contract but performance by the recipient does not take place, because the contract is rescinded on account of his material breach of contract, or because of supervening impossibility of performance or frustration, enrichment can be said to occur at the time when the money is paid but retention of that money by the recipient is justified by a legal ground, the existence of the parties' contract, for as long as the recipient is both able and willing to perform his obligations under the contract. The enrichment only becomes unjust at the point when the recipient is in material breach of contract or performance becomes impossible or is frustrated. Where, however, money is paid at a time when there is no legal ground justifying retention, the two elements will come into existence simultaneously, and there will be a right to recovery of the money immediately after payment.

[10] In N.V. Devos Gebroeder v Sunderland Sportswear Ltd, supra, some of the cloth supplied under a contract of sale had proved defective and the purchasers refused payment on two bills of exchange that had been issued in part payment. The sellers raised proceedings for payment of the price due under the contract. The action proceeded to proof, following which it was held that the sellers were in material breach of contract and therefore not entitled to payment under the contract. Thereafter, more than five years after the purchasers' refusal to make payment, the sellers amended their pleadings to introduce a case based on recompense. The sellers submitted that the obligation of recompense had not been enforceable until the court held that the pursuers were in material breach of contract. This argument was rejected. The court accepted that an action based on recompense could not have been raised as long as a contractual remedy was available. Nevertheless, the decision following proof that the sellers were in material breach of contract meant that they were deprived of the right to claim payment of the price from the moment when that breach occurred. The consequence of this was stated by LP Hope at 1990 SC 301:

"Thus the only remedy available to them, having in material breach of contract delivered defective goods to the defenders, was a possible claim quantum lucratus to the extent to which the defenders had been enriched. That claim came into existence as soon as the defenders were lucrati following receipt of the defective goods. They came into existence when all the facts necessary to establish it had occurred, and from that moment the pursuers were in a position to make a relevant claim for recompense based on those facts".

[11] N.V. Devos Gebroeder has been followed in three subsequent cases. In the first of these, Morrison v Coleman, supra, cohabiting parties had acquired a house with the assistance of a secured loan for which they were jointly and severally liable. After the separation the pursuer continue to reside in the property and pay the full amount due in respect of the loan until the property was sold, some 15 years later. He attempted to recover half of the amount of those monthly payments from the defender. Sheriff Principal Dunlop held (at paragraph [20]) that the defender was enriched with each monthly payment, and her obligation to recompense the pursuer in respect of her pro rata share rose on each occasion when a monthly instalment was paid. Thus prescription operated. This case is a clear example of the situation where a benefit is received (through each of the monthly loan payments) but there is at that time no legal ground justifying retention of the benefit. In McCafferty v McCafferty, supra, the pursuer bought heritable property as an investment and was advised to take title in the joint names of himself and his brother to avoid any claim on it by his ex-wife. The whole purchase price was paid by the pursuer. Nine years later his brother, the defender, claimed ownership of a one half share of the property and raised an action of division and sale, in which decree was granted. The sale proceeds were divided equally. The pursuer then raised an action for recompense for half of the sale proceeds. The defender argued that any obligation to make recompense became enforceable at the date of the disposition, which was more than five years previously, and that the obligation had accordingly prescribed. That argument was sustained by Sheriff AL Stewart. He held (at 2000 SCLR 262-263) that as from the date when the disposition in favour of the parties was recorded the defender was infeft in a half share of the property, and it was the coming into existence of such a right that enriched him and gave rise to the obligation to make recompense. On this case, I merely observe that it was clear that from the outset that the defender had no legal basis to justify retention of the benefit. In such a case it might be possible in appropriate circumstances to argue that an implied or resulting trust had come into operation; that seems to be the only way in which prescription could be circumvented. In Virdee v Stuart, supra, the defender inherited a family croft. The pursuer, his sister, had built a house on the croft in 1994, and the family made use of that house during the periods when they stayed at the croft. No agreement was concluded between the parties as to their rights in the house, and accordingly it became the property of the defender, the owner of the land. In 2010 the pursuer raised proceedings for recompense on the basis that the defender had been unjustly enriched at her expense. It was held that prescription operated. The defender had been enriched as soon as the house was completed, as the value of the land would have been significantly enhanced (per Lady Smith at paragraph [24]). That enrichment was unjustified because the defender had no legal right or entitlement to it. It was observed (paragraph [25]) that this was not a case where a house is built on the basis that the parties shared an expectation that a future event would take place, such as might occur if a woman built a house on her fiancé's land but the engagement was subsequently called off.

[12] In the present case, when the parties acquired the house at 29 English Row, Calderbank, title was taken in their joint names. Consequently when the pursuer paid £70,000 towards the purchase price of the house, the inevitable result was that the defender was enriched by the payment of half of that sum through her one half pro indiviso share in the property. The first requirement of recompense was accordingly satisfied. The critical question is whether the second requirement, the lack of any legal ground which would justify retention of the benefit, also existed. In my opinion it did. The defender's acquisition of her share in the house was funded in part by the payment made by the pursuer out of his own resources. Her receipt of the benefit of that payment was entirely gratuitous, and no basis was suggested in which she would have been entitled to retain the benefit. No doubt in some cases of this nature there may be an intention to make a gift, but that would clearly be inconsistent with obligation to make recompense and the pursuer would fail on that ground, without regard to prescription.

[13] For the pursuer it was submitted that the critical feature that distinguished this case from N.V. Devos Gebroeder was the averment that he paid the £70,000 on the understanding that the parties would be married and would continue to live together. It was only when the parties separated that the enrichment of the defender could be described as unjust. In my opinion this argument is misconceived. There is authority that, where property is transferred in contemplation of marriage but the marriage does not take place, the party who receives the property is under an obligation to restore it under the condictio causa data causa non secuta or the condictio sine causa: Stair, Institutions, I vii 7, cited in Shilliday at 729. Nevertheless, the underlying ground for recompense or repetition is that in such a case there is no legal ground for retaining the benefit, and that absence of a legal ground is present from the outset. If the marriage does supervene the transfer may well be converted into an outright gift, but that does not affect the pre-existing position. Thus, for example, if a man transferred funds to his fiancée in contemplation of their marriage but then discovered that he required the money to pay a debt and thus avoid sequestration, there can be little doubt that he would be entitled to return of the money at once. This indicates very clearly that there is no legal ground for retention of the money even during the period prior to the marriage.

[14] On the subject of prescription, I should note in conclusion that I was referred by counsel to two textbooks, Johnston, Prescription and Limitation, paragraphs 4.89-4.90, and Evans-Jones, Unjustified Enrichment, paragraphs 10.45-10.47. The first of these works merely suggests, citing the authority of N.V. Devos Gebroeder, that a claim for recompense arises simply when the recipient is enriched. Professor Evans-Jones, on the other hand, is more critical of the notion that the claim arises following mere enrichment. He states (paragraph 10.47) that

"As the law stands the important point is that the [prescriptive] period runs (absolutely) from the moment when the defender is enriched. It has been assumed that this coincides with the moment when the constitutive requirements of the claim are met. It has been suggested above that this is not necessarily the case".

In the earlier discussion, the example is given of a payment made in anticipation of a future marriage but, just short of the prescriptive period of five years, the recipient decides not to go through with the marriage. Professor Evans-Jones suggests that it would be unfair to say that the limitation period ran from the moment of enrichment rather than the point when the recipient decided not to proceed with the marriage. In my opinion it is not correct to suggest that the prescriptive period runs simply from the date of enrichment. The correct approach is, as suggested by Lord Cullen in Dollar Land in the passage cited above at paragraph [9], that enrichment must coincide with the absence of a legal ground which would justify retention of the benefit. The negative quality of the latter requirement may mean that it is easily satisfied; nevertheless, it is still an essential requirement. On that basis, in N.V. Devos Gebroeder once the material breach of contract had occurred there was no legal ground on which the sellers could retain the payments that have been made to them for the goods. Consequently the two requirements were satisfied at that stage. In the case discussed by Professor Evans-Jones of the payment made in contemplation of marriage where the marriage does not take place, it does not seem especially unfair that prescription should operate from the moment when the payment is received, especially as few engagements last for anything like five years. In such a case, a possible alternative analysis in an appropriate case would be that the gift is a conditional gift, in which case it would fall at the point where the engagement is called off. For present purposes, however, it is sufficient to say that I do not agree that the limitation period runs in absolute terms from the moment of enrichment; it is also necessary to consider whether at that point there is any legal ground for retention of the benefit. That is the approach that I have attempted to follow.

Relevancy

[15] The defender also challenges the relevancy of certain of the pursuer's averments. These are the averments relating, first, to the nature of the employment that the parties had at the time when the property at 29 English Row, Calderbank was purchased and secondly, the financial arrangements that were entered into thereafter. There is said to be no connection between those averments and either of the sums concluded for. The financial arrangements which the parties made during their cohabitation in respect of their day-to-day living expenses were not relevant to the claims made on behalf of the pursuer. It might have been suggested that contributions were made to the loan repayments to Bristol & West PLC, but that was not the case that was made in the pursuer's pleadings. That case was based on financial contributions to the business rather than payments to service the loan used to acquire the house.

[16] For the pursuer it was submitted that the defender had advanced the contention in her pleadings that she had not been enriched by the full sum sued for. If that were to be investigated it might involve consideration of the parties' domestic arrangements; the critical point was that recompense was an equitable remedy, and a wide range of factors might be relevant to that.

[17] In my opinion the averments in question are not relevant to the pursuer's case, and I will accordingly exclude them from probation. Apart from the payment of £70,000 at the time when the house was acquired, the pursuer's case is based entirely on contributions that he is said to have made to the defender's business; these are set out in paragraph [4] above. Three payments are relied on: first, two capital payments of £4,000 and £9,500 made in April 2006 and secondly, a further capital payment of £43,678 paid out of the net proceeds of sale of certain heritable properties that belonged to the pursuer. As these payments are all capital in nature, it is difficult to understand the relevance of the parties' employment or the financial arrangements that were entered into after the purchase of the property at 29 English Row, Calderbank. All that is involved is the making of those capital payments which are alleged to have resulted in a direct benefit to the defender's business. In my opinion the parties' domestic arrangements do not bear on that..

Conclusion

[18] For the foregoing reasons I will sustain the defender's first plea in law to the extent of holding that the claim made in the first conclusion of the summons has prescribed by virtue of section 6 of the 1973 Act, and I will accordingly pronounce decree of absolvitor in respect of that part of the claim. I will further sustain the defender's second plea in law to the extent of holding irrelevant the pursuer's averments regarding the pursuer's and the defender's employment at the time when the house at 29 English Row, Calderbank was acquired, the averments relating to the three accounts with Halifax PLC, the funding for those accounts, the payment of the defender's wages and the manner in which the loan in respect of the house was paid (page 6A-C). Otherwise I will allow a proof before answer. I should note that the defender challenged the specification of certain of the pursuer's averments, but that argument was not insisted in. Parties were agreed that expenses should follow success. I will accordingly award the expenses of the procedure roll discussion in favour of the defender.