Scottish Sheriff Court Decisions

The motion for summary decree centred upon the terms of (i) a letter from the Defenders to the Pursuers dated 15^th August 2004 ("the letter of 15^th August"), and (ii) a letter from the Pursuers to the Defenders dated 24^th August 2004 ("the letter of 24^th August"). I shall set out a summary of the contents of these letters. In the letter of 15^th August, the Defenders enclosed a cheque for £1,284.71 which was stated to be "in full and final settlement of our account." The letter goes on to mention defects in the work and the time taken to do it. The quantification of the deductions is attached to the letter. In the letter of 24^th August, the Pursuers acknowledged the cheque "as payment to account" and they set out the total sum less the payment to account and the balance.

Mr Turnbull for the Pursuers submitted that the test for granting summary decree is whether a question of law admits of a clear and obvious answer in favour of the Pursuers, in support of which he cited Mackays Stores Limited v City Wall (Holdings) Limited 1989 SLT 835 an Outer House decision of Lord McCluskey.

In his submission, he considered the defences in their original form and then in their amended form.

1. Original defences.

In his submission, the letter dated 15^th August was an offer to compromise, an offer which had to be accepted and in that connection he referred to Gloag on Contract, 2^nd edition at pages 710 to 711. The learned author says, "If the creditor refuses to compromise, but keeps the money as part payment, his position is in no way prejudiced if the money was sent by the debtor himself ... ." In support of that proposition, Mr Turnbull cited Smith & Archibald Limited v Ryness 1929 (unreported). The decision of the Second Division appears in full in an article entitled, "Partial Payment 'in full settlement' of Debt." 1939 SLT (News) 81. Mr Turnbull cited the opinion of Lord Justice-Clerk Alness at page 86 where his Lordship stated that although a cheque may be tendered as payment "in full" if there is "a clear intimation" from the payee that this is not acceptable, the cheque will not be regarded as payment in full.

Mr Turnbull submitted that the condition upon which the Defenders tendered payment was rejected timeously by the Pursuers who are therefore entitled to maintain that the balance of £4,882.50 is still outstanding.

In Answer 5, the Defenders aver that the Pursuers are personally barred from insisting upon that payment. In that connection Mr Turnbull cited the opinion of Lord Chancellor Birkenhead in Gatty v Maclaine 1921 SC (HL) at 7 as the classic statement of the law on personal bar. That dictum makes it clear that two elements are essential for such a plea, namely the existence of a "certain state of facts" and "prejudice" and he submitted that as neither is present in the Defenders' pleadings, that plea is irrelevant.

(ii) Defences as Adjusted.

The defences as adjusted introduce an averment that the Defenders' letter of 15^th August, with its attached list of defects, amounts to a Notice of Withholding in terms of clause 6.5.1.3 of the Contract, an alternative averment to that which suggests that the letter is an offer to compromise. Mr Turnbull submitted, however, that even if the letter is a Notice of Withholding, that is not a defence to an action for payment. In any event, the letter is an explanation and it contains material not reflected in the defences. The following matters in the schedule to the letter, are not mentioned in the defences, viz.: £200 for "no reinforcing in slab"; £50 for "finishing off timber studding"; £150 for "complications involving soil down pipes"; £20 to "insulate/seal gap above fire door"; £900 "increase of cost of floor screening and £2,300 for "late completion." These figures, adding 5% VAT, amount to £3,801.

Mr Smith referred to Macphail on Sheriff Court Practice, 2^nd edition, para. 14.74 for the proposition that in considering a motion for summary decree, the court has to look at the substance of the matter, and not just at the pleadings as they currently stand.

In that connection he drew attention to the Defenders' production, No. 6/1 of process, in which there is a letter dated 9^th November 2004 from the architects pointing out that there are problems with the Pursuers' work, which are summarised in Answer 4. The architects indicate that remedial work should be carried out, but in Answer 4 it is averred that that has not been done.

In Mr Smith's submission, there is nothing contradictory about the letter. The Defenders are offering to pay the sum of £1284.71 because of the defects and hence are withholding payment of the balance of the contract price. A Notice of Withholding has to be issued within 5 days of the Final Certificate and given that short time-scale, it is not surprising that other defects may come to light thereafter.

So far as personal bar is concerned, his submission was that the Pursuers had cashed the Defenders' cheque prior to the Defenders being advised that the condition upon which the cheque was sent was not acceptable. He referred to Vintners Scotland Limited v Perry, 1978 SLT (Sh.Ct.) 48, a decision of Sheriff Principal Bryden on page 48 (page 2 of the Transcript) of which the learned Sheriff Principal refers to a variety of sheriff court cases. In one, Pollock v Maxwell 1965 SLT (Sh.Ct.) 17, the sheriff held that as the creditor had not taken effective steps before cashing the cheque to make it clear to the debtor that the cheque was accepted only as a payment to account, he must be held to have accepted the cheque on the debtor's terms.

In Mr Smith's submission, the letter of 15^th August could be regarded as a Notice of Withholding in that it complies with the requirements of condition 6.5.1.3 of the Contract. It specifies the amount being withheld, the grounds for doing so, and figures are allocated under individual headings. Furthermore, the Notice was sent in accordance with clause 1.2 of the Contract.

In Mr Smith's submission, if one looks to the substance of the Defenders' position, it is clear that they say that the work was defective and there was a delay in carrying it out. In all the circumstances, therefore, the motion for summary decree should be refused.

Mr Turnbull made the point that there is no plea-in-law reflecting the defences even as adjusted, and so the court could not, in sustaining the Defenders' pleas, know how much, if anything, ought to be withheld.

In considering whether or not to grant summary decree, the court must be satisfied that there is a question of law which admits of a clear answer in favour of the Pursuers. That was the opinion of Lord McCluskey in Mackays Stores Limited v City Wall (Holdings) Limited, supra. In so deciding, the court is not restricted to a consideration of the pleadings as they stand, but must ask whether there is a substantive defence to the action raised (see Macphail, para. 14.74). In my opinion, that may involve a consideration of matters not yet pled and accordingly the absence of a plea-in-law supporting present averments is not fatal.

Looking at the matter in the round, it is clear from the architects' letter above referred to that there were defects which ought to have been remedied and the Answers indicate that that has not happened. That being so, the Defenders are entitled to withhold performance of their obligation to pay, until such time as these defects are remedied. They could, of course, have refused to pay anything under the Final Certificate.

There is no doubt, however, that they are entitled to offer to compromise and this the Pursuers did in their letter of 15^th August. However, as an offer, it required express or implied acceptance by the Pursuers. The issue is whether by encashing the cheque, before advising the Defenders of that step, the Pursuers are personally barred from insisting on payment of the balance. In my opinion they are not. I accept that the Pursuers could have returned the cheque indicating that they were seeking payment in full and that anything short of that would not be acceptable. It is averred that they cashed the cheque. When that took place is not known, but what the Defenders did was to send the letter of 24^th August accepting the cheque only as a payment to account. In my opinion, the various authorities e.g., Smith & Archibald v Ryness, Gloag on Contract and Gilbey Vintners, make it clear that the mere cashing of the cheque does not amount to an acceptance of the Defenders' position and hence personal bar. The letter of 24^th August was sent within a reasonable time of receipt of the letter of 15^th August and clearly indicated that the Pursuers were not prepared to accept the Defenders' cheque in full payment. Furthermore, there is no averment of prejudice to the Defenders as a result of the Pursuers' actions, an essential elements of personal bar.

I do not accept the Pursuers' submission that the letter of 15^th August should be considered as either an offer to compromise or as a letter of withholding, but not both. When the Defenders sent that letter, it must have occurred to them that the Pursuers might not accept the cheque at all, but even if they thought, as they obviously did, that the Pursuers might accept it as payment in full, the Pursuers could not know how the £1271 was calculated, unless the Defenders gave the requisite details.

In all the circumstances, I have come to the conclusion that the Pursuers are not personally barred from suing for the balance due under the contract. That said, the Answers, in both their original and amended forms, do set out a defence to the action and accordingly, I have refused the Pursuers' motion for summary decree. As I was not addressed on expenses, I have reserved these.