Scottish Sheriff Court Decisions

(A3273/08)

JUDGMENT OF

SHERIFF PRINCIPAL EDWARD F BOWEN QC

 

in the appeal

in the cause

 

ROWAN TIMBER SUPPLIES (SCOTLAND) LMITED

Pursuers and Appellants

 

against

SCOTTISH WATER BUSINESS STREAM LIMITED

 

 

Act: Moynihan QC, instructed by Maxwell McLaurin

Alt: Johnston QC, instructed by Brodies

 

 

EDINBURGH, 26 February 2010

The Sheriff Principal, having resumed consideration of the cause, sustains the appeal and recalls the sheriff's interlocutors of 10 July and 31 August 2009; allows the pursuers and appellants a period of 14 days from this date in which to lodge a Minute of Amendment and the defenders and respondents a period of 14 days thereafter to lodge Answers thereto, if so advised; finds the defenders and respondents liable to the pursuers and appellants in the expenses occasioned by the appeal and remits the account thereof, when lodged, to the Auditor of Court to tax and to report thereon; certifies the cause as suitable for the employment of senior counsel for the purpose of the appeal; reserves all other question of expenses and continues the appeal to a procedural hearing on Wednesday, 31 March 2010, at 10.30am in the Sheriff Principal's Appeal Court.

 

(signed) E Bowen

NOTE:

 

1. Between 1993 and 2008 the pursuers and appellants received a series of charge notices from the defenders and respondents in respect of water and sewerage charges. The charges to which the notices related were duly paid. In 2007 the pursuers discovered that they had not been using the defenders' infrastructure and were not liable for the charges. The defenders thereupon repaid a sum which covered the payments made by the pursuers from April 2002. They contend that payments made before that date are not recoverable, having prescribed in terms of section 6(1) of the Prescription and Limitation (Scotland) Act 1973. In this action the pursuers seek to recover a sum representing those payments.

 

2. In response to the defenders' plea of prescription the pursuers found on section 6(4) of the 1973 Act. Section 6(1) sets a period of five years as the prescriptive period for obligations set out in Schedule 1 to the Act. An obligation based on redress of unjustified enrichment, including any obligation of restitution, repetition or recompense falls within Schedule 1. Sub-section 4 provides: "In the computation of a prescriptive period in relation to any obligation for the purposes of this section (a) any period during which by reason of -

(i) fraud on the part of the debtor or any person acting on his behalf, or

(ii) error induced by words or conduct of the debtor or any person acting on his behalf

the creditor was induced to refrain from making a relevant claim in relation to the obligation...shall not be reckoned as, or as part of, the prescriptive period".

 

3. The precise averments of the pursuers which seek to invoke the operation of the provisions of section 6(4) are in the following terms: "The defenders' conduct in issuing repeated charge notices in respect of waste water and surface water drainage charges induced the pursuers to refrain from making any relevant claim in relation to the repayment of waste water and surface water drainage charges not due to the defenders". It will be seen from these averments that in contending that their claim has not prescribed the pursuers rely on the very fact that incorrect invoices were issued to them, and not on any distinct or separate act on the part of the defenders in "inducing them to refrain from making a claim". The learned sheriff sustained an argument that these averments were irrelevant. It was submitted to him that there were no relevant averments of error induced by the defenders' conduct; whilst invoices might be said to have induced the pursuers to make the payment wrongly in the first place, they had not induced them to refrain from recovering payment. Moreover, section 6(4) had the effect of suspending a prescriptive period which had already started to run; the actings on which the pursuers sought to rely, namely the issue of erroneous invoices, occurred before each prescriptive period had commenced and could not be said to interrupt it. The sheriff upheld these submissions.

 

4. Mr Moynihan, QC for the pursuers and appellants submitted that the sheriff had erred in applying an unduly narrow construction to the terms of section 6(4). The purpose of section 6(4) "is to address the injustice which would otherwise arise if the circumstances which led to the delay were brought about by fraud on the debtor's part or by error induced by the debtor's words or conduct": per Lord Hope of Craighead in BP Exploration Co Ltd v Chevron 2002 SCHL 19 at paragraph 27. It did not require a conscious act of self-restraint in pursuing a claim on the part of a creditor for the exception in section 6(4) to be met; it was sufficient that the creditor was ignorant of his right to claim if that ignorance was induced by words or conduct on the part of the debtor (see paragraphs 30-31 of Lord Hope's speech). Lord Hope had gone on to approve the observations of Lord Murray in Thorn EMI Ltd v Taylor Woodrow Industrial Estates Ltd (unreported) 29 August 1982 who said (at page 7 of his Opinion): "I cannot see that it would make sense for Parliament to provide remedies for periods of time when a creditor's mind may be clouded by fraud or error and then to limit the availability of the remedies to the restricted circumstances where a creditor has been intent on pressing a claim and is then deflected from this course by a debtor's word or conduct. The effect of this would be that the greater fraud or error would go unchecked, but the lesser fraud or error would attract the statutory dispensation. Of course, if that were the plain meaning of the words used by Parliament, then this unfortunate result would follow. In my view, however, there is nothing in sub-section 4 in its context in the Act to circumscribe the scope of the words "induced to refrain from making a relevant claim" so that they fail to cover the case of a creditor who is induced or deflected from making any claim at all as well as a creditor who would have proceeded to a relevant claim but for the debtor's words or conduct".

 

5. Whilst the defenders were correct in submitting that it was not sufficient for the pursuers simply to aver ignorance or unilateral mistake on their part in not pursuing a claim (see Lord Hope in Kleinwort Benson Co Ltd v Lincoln CC 1999 2A-C 349 at 418), there was no basis for contending that the error had to be caused by an act on the part of the defenders which was separate from the conduct which gave rise to the cause of action. No doubt that would be the classic case where section 6(4) applied - as it did in the BP Exploration case where in correspondence after the event giving rise to the claim the defenders or their agents gave misleading information as to the identity of the person responsible. But at no point in his speech in BP Exploration did Lord Hope indicate the need for a second or subsequent act; his theme was the avoidance of injustice.

 

6. That led to the case which provided the foundation for Mr Moynihan's argument, namely Caledonian Railway Co v Chisholm 1886 13R 773. That was a case where a railway company sued the defender for charges due in respect of the carriage of grain sacks. Under the contract between the parties empty sacks could be carried free if the sacks were to be used ultimately to transport grain on the pursuers' railway. The defender claimed free carriage by a representation to that effect. The truth was that some of the sacks were intended to be filled with grain to be moved by ship or by another railway line. In consequence the pursuers ought to have been paid. They discovered the truth at a later date and claimed the evaded charges. The Inner House held that prescription did not apply because the pursuers had been prevented from discovering their entitlement to charge because of the defender's false representation.

 

7. The statute founded on by the defenders was the Triennial Prescription Act 1579 c.83. Having set out the circumstances of the case the Lord President (Inglis) observed (at page 776): "To apply the statute to a case of that kind, it appears to me, would not only be entirely unjust, but would be entirely against the meaning of the statute. The statute assumes that the creditor is in a condition to sue, and it is because of his failure to sue - because of his negligence in putting off the making of his claim - that the statute imposes the penalty upon him. It is clear to my mind, therefore, that wherever a case of this kind can be made, that the failure to sue is due to the conduct of the defender (whether it amount to fraud or not), to concealment on the part of the defender, or to the bringing forth of pretences which are false in fact, whether fraudulent or not, the pursuer cannot be visited by the penalty of the statute, because there is no negligence upon his part, but the sole cause of the delay in bringing forward his claim and raising the action is the conduct of the defender". Mr Moynihan pointed out that there was no requirement in that case for the conduct to be separate to that giving rise to the claim; indeed it was the fact that the self same representation which led to the claim also misled the pursuers as to their right to pursue it which meant that prescription did not apply.

 

8. It was the submission of the pursuers that the presentation of a continuous stream of invoices amounted to "the bringing forth of pretences which are false in fact, whether fraudulent or not". There was significance in the fact that there had been a repeated series of invoices over a long period of years. The situation would be different where an isolated invoice is received and paid but no subsequent invoice submitted. That might put the person who paid the initial invoice on guard that something was wrong. But in the present case a continuous series of ostensively correct invoices would be likely to lead to the misapprehension that the demand was well founded and the person paying would have no reason to investigate the possibility of seeking a refund. That, it was submitted, was clearly a situation which was covered by section 6(4).

 

9. In reply, Mr Johnston, QC for the defenders and respondents emphasised that claims for repayment for sums made in error were capable of prescribing, and that only errors induced by words or conduct on the part of the debtor were relevant to suspend the running of prescriptions. That being so the element of causation or "inducing" was important (see Kleinwort Benson Ltd (supra)). The related point was that it was not unusual to give a narrow interpretation to statutory provisions which provided exceptions; in the present example there were sound policy reasons for the existence of prescription and section 6(4) provided the exception to the general rule.

 

10. Emphasis was placed on the fact that section 6(4) is in its terms concerned not with the representation that induces making payment but a representation that induces the creditor not to make a relevant claim. Section 6(4) was intended not to address injustice generally, but to relieve the creditor of the injustice which might be created if the debtor's conduct has for some of the prescriptive period caused him not to make a relevant claim: see the discussion by Lord Hope in BP Exploration (supra) at paragraph 26. In the present case no conduct was relied on other than the issue of the invoice itself. That could not be said to have induced the creditor to refrain from reclaiming the payment; what it did was lead to the payment being wrongly made in the first place.

 

11. Further, section 6(4) was relevant to suspend a prescriptive period that had already started to run (para 26 of BP Exploration (supra). Here the prescriptive period started to run when the debtor received payment of a sum that was undue - that was the point when he became enriched and the enrichment was unjustified. But since the issue of the invoice pre-dated that there was no conduct on the part of the creditor that fell within the prescriptive period.

 

12. Counsel drew a number of points of distinction with the Caledonian Railway case. In the first place there was in that case deliberate concealment of material facts. There was no suggestion of fraud of a false pretence of that nature in the present case. The observations of Lord President Inglis about pretences "whether fraudulent or not" went further than was necessary for the decision and were strictly speaking obiter.

 

13. There was also a critical difference in the statutes to which the Caledonian Railway case and the present depended. The 1579 Act provided, very simply, that certain categories of debt not founded upon written obligations prescribed after three years or could be founded only on writ or oath of the debtor. Because of the very general terms of the statute it was open to the court to read into it a qualification as the circumstances in which it might apply. In the present case the 1973 Act was quite explicit both in its application and in relation to the exception contained in section 6(4). The Caledonian Railway case did not deal with a statute in similar terms.

 

14. Mr Johnston contended that the position he was adopting did not depend on a narrow interpretation of section 6(4). His argument simply involved applying the terms of the section to the facts of the case. It was not suggested that the defenders had done anything other than issue invoices. How could that be characterised as "inducing someone not to make a claim for repayment". If one asked, "Were the pursuers induced by the issue of invoices to refrain from making a claim for unjustified enrichment?" the clear answer was no. The key question in the case thus turned simply on the application of the statute. In that respect it had to be borne in mind that the word "induced" was used twice in section 6(4). The focus on the "inducement" where the word appeared for the second time, and when applied to facts of this case, related to not making a claim for repayment.

 

15. In relation to the Thorn EMI case Mr Johnston submitted that the question there had been whether, for the purposes of section 6(4), it was necessary for a creditor to aver that he was or was about to pursue a claim but was put off by the debtor's words or conduct. Lord Murray's decision was that it was not, and that the words of sub-section 4 were apt to cover a creditor who was induced or deflected from making any claim at all. What this contemplated still related to an inducement not to claim as distinct from inducing the original payment.

 

16. Counsel contended that the question which concerned the court in BP Exploration was whether the creditor must aver a date which he took a conscious decision not to press his claim (see paragraph 33 of Lord Hope's speech). The case was not authority for a broad reading of section 6(4). Finally Mr Johnston drew attention to the observations of Sir David Edward in Adams v Thorntons 2005 SC 30 at paragraph 73 where he stated the need for the law of prescription to be effective and said "It is in my opinion important to hold to the principle that it is for the party claiming the protection of section 6(4)...to demonstrate the statutory conditions for avoiding the axe of prescription are satisfied".

 

DISCUSSION

17. I accept that there is a considerable attraction to Mr Johnston's "plain terms" approach of applying section 6(4) to the known facts. It is not difficult to conclude that it was the issue of invoices which caused the pursuers to make the payments. It is much harder to say that this "induced" them to refrain from making a claim for repayment. On that straightforward application of the terms of section 6(4) the sheriff's decision is readily understandable.

 

18. There are, however, sound reasons both in principle and in the light of the authorities for reaching the view that section 6(4) should not be narrowly construed. The reason in principal is that articulated by Lord Murray in Thorn EMI - approved by Lord Hope in BP Exploration notwithstanding that it amounted to rejection of the argument advanced by him as counsel in Thorn EMI - that it does not make much sense to provide relief to a creditor for his "induced" error which may deflect him from making a claim yet provide no relief for induced ignorance of the fact that he never had a claim in the first place. It is interesting to note that in his discussion of the significance of the word "refrain" in section 6(4) and in rejecting the implication that this word requires a conscious act of self-restraint on a part of a creditor, Lord Hope observed at paragraph 31 of BP Exploration: "But to read the word in this way in this context would be to open the door to the risk of the very injustice which the sub-section was designed to avoid. It would mean that time would run against a person whose reason for not making a relevant claim was not that he was stopping himself from making it, as a matter of conscious and deliberate decision on his part, but that he was wholly unaware of the obligation because its existence was being concealed from him by the debtor's fraud".

 

19. Although I accept that there are sound policy reasons for the existence of the law of prescription, and that it will be for a creditor to show, as Sir David Edward put it that "the axe should not fall", it seems to me that the acceptance that the normal rules of prescription should not apply in certain circumstances is as much a principle of law as it is an "exception". That is certainly how I understand the approach of Lord President Inglis in the Caledonian Railway case. His theme was that the statute providing for prescription "assumed" that the creditor was in a position to sue, and is penalised for his failure to do so. But if the underlying assumption is removed, there is no basis for applying the penalty.

 

20. That view was endorsed by Lord Hope at paragraph 26 in BP Exploration. His Lordship went on to set out the purpose of section 6(4) and then quoted from the Scottish Law Commission Report on the Reform of the Law relating to Prescription and Limitations of Actions which is in these terms: "We consider that on equitable grounds a defence against the suggested new short negative prescription should similarly be available to the creditor if he has been deterred from taking action within the prescriptive period by fraud or concealment by the debtor or by error on the part of the creditor but only where the error has been induced by the words or conduct of the debtor...the effect of such fraud, concealment or error should be to defer the commencement of the prescription until the date when the fraud concealment or error was discovered by the creditor or could, with reasonable diligence on his part, have been discovered". His Lordship added (in paragraph 29) "the wording of section 6(4) of the 1973 Act reflects this approach".

 

21. On that basis I am clear that the effect of sub-section 4 is that a prescriptive period does not start to run until the creditor is disabused of an error, provided that error was induced by the defender. It is incorrect, although no doubt frequently convenient, to speak of section 6(4) of having the effect of suspending or interrupting a prescriptive period which has already started to run. That conclusion goes a considerable distance to undermining the submissions of the defenders in the present case which were founded on "timing" of the misleading representations. It also falls to be observed that section 6(4) does not speak of suspension or interruption of the prescriptive period but talks of the period during which the creditor was induced to refrain from making a relevant claim as not being "reckoned" as part of the prescriptive period.

 

22. In my view, if the present case had been founded on allegations of fraud on the part of the defenders it would have been indistinguishable on the facts from Caledonian Railway and I am far from persuaded that the effect of section 6(4) of the 1973 Act is to change the law as it was interpreted by Lord President Inglis. The present case, is of course, not founded on fraud or anything approaching it, but the underlying principle - that a creditor should not be penalised for the delay if it is caused by ignorance induced by the debtor - is given effect by both parts (i) and (ii) of sub-section (4)(a). The circumstances relied on, namely the submission of invoices issued on a wrongful basis over a long period certainly lend weight to the pursuers' contention that this activity was likely to deflect them from any inquiry as to their right to seek recovery of the sums paid. That to my mind brings the pursuers within the ambit of section 6(4) on the view that they are creditors who were ignorant of their right to claim, that ignorance having been induced by words or conduct on the part of the debtor.

 

23. In the whole circumstances I am of the view that the action ought not to have been dismissed. I have accordingly recalled the decree pronounced by the sheriff and continued the cause for amendment procedure which the pursuers' counsel accepted as necessary.