Scottish Court of Session Decisions

At advising, on 22nd March 1990, the sheriff principal (Hay) allowed the appeal and assoilzied the defender.

In the note annexed to his interlocutor, the sheriff principal set forth that:—

"The sheriff has found that in March 1986 the pursuer instructed the defenders to advertise and sell his house. It was agreed that in the event of a sale the pursuers would be entitled to commission at one per cent of the sale price, plus their outlays for advertising. The pursuers did not advise the defender at any stage of the method by which these outlays would be calculated. The sheriff has found in fact and law that by failing to do so they were in breach of their obligation under sec. 18 (1) in respect of their failure to give the defender the information required by sec. 18 (2) (d). This is the only matter in respect of which the sheriff has found the pursuers in breach of their obligations in terms of sec. 18 (1) and (2). The pursuers advertised the defender's property in their block advertisement in the Glasgow Herald on seven occasions between 18th March and 24th June 1986, and on three occasions subsequently. The issue which arises in relation to advertising costs is restricted to the first seven advertisements. The last three advertisements were inserted on terms specifically agreed between the parties. The sheriff has made detailed findings in fact about the pursuers' system for advertising clients' properties for sale in the Glasgow Herald. They advertise properties in a block advertisement and are invoiced by the newspaper each week for the cost of the block advertisement. The amount due on the invoice is net of a discount of 18 per cent allowed by the publishers to the pursuers, which is deducted at source before V.A.T. is applied. The invoice issued to the pursuers in respect of the block advertisement on 18th March 1986 when the defender's property was first advertised was in the sum of £6,047.50 plus V.A.T. of £907.13. It appears therefore that the value of the discount is substantial. The pursuers did not pass on the discount to their clients. They recorded it in their books as commission received from the newspaper. It was their policy at the time of the transaction with the defender not to inform clients of the discount. The sheriff has also made detailed findings in fact about the pursuers' system for apportioning the costs of the block advertisement among the various clients whose properties were advertised. The sheriff has found that if the defender had been given particulars of the manner in which advertising outlays were calculated, and, in particular, that if he had been informed that the discount allowed by the newspaper would not be passed on to him in the calculation of outlays for advertising his property, he would have reflected on the matter and would have considered approaching other estate agents. The total sum charged to the defender by the pursuers in respect of advertising costs for the seven occasions on which the property was advertised between 18th March and 24th June 1986 was £634.98. The sheriff has found in fact and law that one-half of that sum should be deducted as compensation to the defender for prejudice suffered as a result of the pursuers' failure to comply with their obligation under sec. 18 (2) (d) of the Act, that is, by failing to give him details of the method by which the outlays for advertising would be calculated. The defender's solicitor argues that the sheriff should also have found that the pursuers were in breach of their obligation under sec. 18 (2) (a) to give particulars of the circumstances in which the defender would become liable to pay remuneration to the pursuers, and that he erred in law by failing so to find. He founds this argument on the proposition that by failing to disclose and to account to the defender for the discount of 18 per cent allowed to them by the newspaper, the pursuers were in fact taking undisclosed remuneration from him and this was in breach of their obligation under section 18 (2) (a). The defender's solicitor founds on passages in the evidence of the pursuers' manager, Mr Neilson, in the proof. In particular, he founds on Mr Neilson's answer to the question: ‘Customers are being charged a cost for advertising which did not truly reflect the cost incurred by S.E.A.L.?’, namely: ‘It was considered to be put towards the preparation and compiling of the Herald advertisement.’ In his note the sheriff has recorded in helpful detail the arguments addressed to him at the hearing on the evidence. He does not refer to the argument now advanced by the defender's solicitor in relation to the pursuers' obligation in terms of sec. 18 (2) (a), and, as I apprehend, that argument was not specifically adduced before him. The only argument adduced in relation to sec. 18 (2) (a) appears to have been that the agent must specify an identifiable point of time for payment. The sheriff rejected that argument, rightly in my respectful opinion. In my opinion, the argument now advanced in relation to a breach by the pursuers of their obligation under sec. 18 (2) (a) is well-founded. It is based on evidence which was before the sheriff and in relation to which he has made clear and comprehensive findings in fact. I am persuaded that the discount on advertising charges allowed by the newspaper to the pursuers, which was not disclosed and not passed on to their clients, properly falls within the definition of ‘remuneration’ for which the client was liable to pay, within the meaning of sec. 18 (2) (a). It is unfortunate that the point was not raised before the sheriff since he records that in the circumstances as he has found them there was no breach by the pursuers of those parts of their obligations covered by sub-paras. (a), (b) or (c) of sec. 18 (2). Having had the benefit of detailed argument on the point, I have the misfortune to disagree with the learned sheriff. I am driven to the view that the pursuers were clearly in breach of their obligation under sec. 18 (2) (a) in that the practical effect of their policy not to reveal or to account to their clients for the discount received from the newspaper was that the defender became liable to pay undisclosed remuneration to the pursuers for carrying out estate agency work. In my respectful opinion, the learned sheriff misdirected himself by finding that the pursuers were not in breach of sec. 18 (2) (a). That being so, the exercise of discretion in terms of sec. 18 (6) is at large for this appeal court. The learned sheriff deals comprehensively in his note with the questions which arise in terms of sec. 18 (6) on an application by an agent for enforcement of a contract which is otherwise not enforceable in terms of sec. 18 (5). As he rightly says, the court is enjoined by sec. 18 (6) (a) to dismiss the application if, but only if, it is just to do so, and in deciding on that matter the court is enjoined to have regard to prejudice caused to the defender by the pursuers' failure to comply with their obligation and the degree of culpability for the failure. The sheriff deals first with the question of culpability. He was satisfied that the failure to supply the information required by sec. 18 (2) (d) was no simple oversight or momentary lapse on the part of the pursuers' manager, who was simply not aware at the time of the obligations imposed on estate agents by sec. 18. The sheriff goes on to say: ‘Quite apart from that, however, it was also abundantly clear from his evidence that not only was it not the practice of the pursuers to provide such information, but that it was their policy not to inform clients of the discount received from the Glasgow Herald and a fortiori not to disclose the manner in which that discount was taken into account in the calculation of advertising outlays in relation to individual clients.’ In my respectful opinion, the learned sheriff seems at this stage to have treated as one act of default two quite separate matters arising under sec. 18 (2), namely (1) the failure which he has found in the obligation under sec. 18 (2) (d) to disclose details of how the advertising costs were charged, and (2) the undisclosed profit of 18 per cent on advertising charges which the pursuers took from the defender by not passing on the discount. The sheriff goes on to say: ‘In all the circumstances I cannot agree with the pursuers' agent that the degree of culpability for the pursuers' failure to comply with their obligation is minimal. There was in my view a not insignificant degree of culpability for the failure to supply the required information under sec. 18 (2) (d), in that the failure was the result of a deliberate decision not to inform clients of the manner of calculation of outlays in respect of advertising. In particular the question of the discount was of crucial importance in the calculation of outlays, and the failure to credit the discount or at the very least to disclose the effect of the discount on the calculation was in my view significantly culpable.’

He then goes on to consider the question of prejudice to the defender as a result of the pursuers' default, and comes to the view that the defender was not significantly prejudiced. I respectfully agree with the learned sheriff's assessment of the degree of prejudice actually suffered by the defender. The sheriff goes on to say: ‘Having regard to these elements of prejudice and culpability, I am bound to dismiss the application if, but only if, it is just to do so. The use of the word "

just" appears to me to import equitable considerations which require me to attempt to strike an equitable balance having taken the required factors into account. Section 18 (6) (a), as the defender's agent pointed out, is to an extent penal in nature and rather Draconian in effect since it does not allow the court to pick and choose which parts, if any, of the contract should be enforced. If it is just to do so, the court must dismiss the application and thereby deprive the pursuers of any payment under the contract.’ I respectfully agree with the sheriff's interpretation of the provision. He goes on to say, however: ‘In that context it is an important feature of the present case that there has been a failure to comply with one part only of the obligation under sec. 18. Although the pursuers are significantly culpable in relation to the breach of that part of the obligation and have caused prejudice to the defender thereby, it would not be just in my view to dismiss the application and thereby deprive the pursuers of any payment under the contract. Indeed it would be positively unjust to take such a course in the circumstances of this case. The pursuers have complied with those parts of their obligation under sec. 18 (2) (a), (b)and (c) and the defender has suffered no specific prejudice in relation thereto.’ The sheriff then says: ‘The culpability of the pursuers in the present case with regard to the breach of that part of their obligation contained in sec. 18 (2) (d) is of a significant degree but, taken in the context of the obligation under sec. 18 (1) and (2) as a whole, it is not of such significance, either taken in isolation or in combination with the prejudice caused to the defender, as to lead me to hold that it would be just to take the Draconian step of dismissing the application.’ On this point, I regret to say that I disagree with the learned sheriff. In my respectful opinion, the breach of the pursuers' obligation under sec. 18 (2) (d) which he found to be established, and in relation to which he took the undisclosed commission into account, would in itself have justified the court in dismissing the application for relief in terms of sec. 18 (6) (a). The court is given a discretion in the matter, however, and it is of the essence of a judicial discretion that on the same material different minds may reach widely different decisions, any one of which may reasonably be thought to be the best, and any one of which a judge may make without being held to be wrong (see Bellenden v. Satterthwaite [1948] 1 All E.R. 343 at p. 345). I would therefore not have been prepared to interfere with the exercise by the learned sheriff of his discretion in the instant case unless I was satisfied that there was a misdirection in relation to the breach of the obligation under sec. 18 (2) (a). In my respectful opinion, however, the learned sheriff did misdirect himself in treating as an aspect of the pursuers' failure to provide their clients with details of how the advertising costs were charged, their deliberate policy not to pass on to clients the discount allowed by the newspaper and to conceal from clients that they were doing so. On the view which I take of the facts, and with the benefit of detailed argument on the point, I am driven to the conclusion that this was an entirely separate act from the pursuers' failure to disclose to the clients the rather involved system which they adopted for apportioning among clients the costs of the block advertisement, including the heading and other parts advertising the pursuers' various services. The learned sheriff has found that the pursuers' failure to account for or at least to disclose the effect of the discount was significantly culpable. In that, I agree with him. In my opinion, however, the undisclosed emuneration arising from the discount on advertising costs is not only caught by the provisions of sec. 18 (2) (a) but is also critical to the question of whether it would be just to dismiss the pursuers' application for relief in terms of sec. 18 (6). Section 18 (5) is penal in effect, but in terms of sec. 18 (6) the agent may apply to the court for relief from the consequences of failure to comply with the provisions of sec. 18 (1) and (2). On such application, the court must consider two matters, namely prejudice caused to the client by the agent's failure to comply with his obligation, and the degree of culpability for the failure. Having regard to the fact that the taking, at the defender's expense, of the undisclosed profit on advertising charges was a policy deliberately adopted by the pursuers, I am driven to the view that the degree of culpability was so high that it would not be just that this contract should be enforced. The sheriff has found in fact and law that the defender suffered prejudice as a result of the pursuers' culpable failure to comply with their obligation, but he expresses the view in his note that he was not prejudiced to any significant extent. I do not dissent from that view. If the application for enforcement of the contract is refused, the defender will gain a windfall advantage in that he will not be obliged to pay the pursuers anything by way of commission or advertising costs for selling his house. I have taken these matters into account in considering the justice of dismissing the pursuers' application for relief, but I have come to the view that in all the circumstances the degree of culpability on the part of the pursuers for the failure in their obligations under sec. 18 (2) (a) and (d) was such that it would not be just to order enforcement of the contract. Accordingly, I am satisfied that the pursuers' application under sec. 18 (6) for the enforcement of the contract should be refused. It follows that the contract is not enforceable in terms of sec. 18 (5). The appeal is therefore allowed. The interlocutors complained of granting decree to the pursuers and awarding expenses will be recalled, and the defender will be assoilzied."

The pursuers thereafter appealed to the Inner House of the Court of Session.

The cause called before the Second Division, comprising the Lord Justice-Clerk (Ross), Lord Murray and Lord Marnoch, for a hearing thereon on 3rd March 1992. Eo die, their Lordships made avizandum.

At advising, on 27th March 1992 the opinion of the court was delivered by the Lord Justice-Clerk (Ross).

OPINION OF THE COURT.—In this action, the pursuers, who carry on business as estate agents, seek payment of fees in the form of commission, and outlays in the form of advertising costs, due to them under a contract with the defender in terms of which the pursuers undertook to advertise and market the defender's property at 30 Forth Road, Bearsden. The defender resists payment on the ground that the contract between the parties is unenforceable due to failure on the part of the pursuers to comply with the obligation placed upon them by the terms of sec. 18 (1) of the Estate Agents Act 1979.

In their pleadings the pursuers put forward their case on alternative grounds. In the first place they aver that they were not in breach of the provisions of sec. 18 (1) and (2) of the Act of 1979, and that accordingly they are entitled to enforce the contract. Alternatively they aver that if they failed to comply with the terms and conditions laid down in sec. 18 (1) and (2) so that they are not entitled to enforce the contract in accordance with sec. 18 (5) of the said Act, they are entitled to apply to the court for enforcement of the contract in terms of sec. 18 (6) of the Act of 1979.

The sheriff heard evidence at a proof, and he held that the pursuers had failed to comply with their obligation under sec. 18 (1) of the Act of 1979 in respect that they had failed to give the defender the information required by sec. 18 (2) (d) of the said Act. He accordingly held in terms of sec. 18 (5) (a) of the Act of 1979 that the contract was not enforceable by the pursuers except pursuant to an order of court under sec. 18 (6) of the Act. In terms of sec. 18 (6) the sheriff held that it was not just, having regard to the prejudice caused to the defender and the degree of culpability on the part of the pursuers, that the said application should be dismissed in terms of sec. 18 (6) (a) of the Act. He therefore determined that the contract should be enforced, but he further held that the sum payable by the defender under the contract should be reduced by the sum of £317.49 as compensation to the defender in terms of sec. 18 (6) (d) of the Act of 1979, in respect of prejudice suffered as a result of the pursuers' failure to comply with their said obligation.

Against that decision of the sheriff the defender appealed to the sheriff principal. After hearing parties the sheriff principal varied the interlocutor of the sheriff and held in terms of sec. 18 (6) that it was just, having regard to the prejudice caused to the defender and to the degree of culpability on the part of the pursuers, that the application of the pursuers for enforcement of the contract should be dismissed, and that the contract should not be enforced. He accordingly assoilzied the defender from the conclusions of the action (by which we assume he meant the crave of the initial writ). Against that decision of the sheriff principal the pursuers have appealed to this court.

This appeal turns upon the provisions of sec. 18 of the Act of 1979. The relevant provisions of sec. 18 have been set forth by both the sheriff and the sheriff principal in the notes annexed to their interlocutors, and it is unnecessary to repeat these provisions again ad longum. In his note the sheriff records that the solicitor for the pursuers had conceded that the pursuers could not succeed on their primary case since on any view of the evidence they had not complied with the requirements of sec. 18 (1) and (2). He accepted that the pursuers had failed to comply with the requirements of sec. 18 (2) (d) in that they had not given the defender information as to the manner in which the advertising costs would be calculated. On the pursuers' behalf it was accordingly accepted that the contract with the defender was not enforceable in terms of sec. 18 (5); it was however submitted that the court should not consider it just to dismiss the application having regard to the prejudice caused to the defender by the pursuers' failure to comply with their obligations and their degree of culpability for that failure. The pursuers accordingly submitted that the court should make an order for payment by the defender to the pursuer, reduced if need be in terms of sec. 18 (6) (b).

On the defender's behalf it was submitted to the sheriff that there had been a breach of obligation under sec. 18 (1) and (2) in respect of failures to provide the information specified in sec. 18 (2) (a), (c) and (d). In these circumstances the defender's solicitor stressed the high degree of culpability and high level of prejudice, and accordingly maintained that the court should dismiss the application since it should consider it just to do so in terms of sec. 18 (6) (a).

After considering all the evidence adduced before him, the sheriff concluded that there had been no breach by the pursuers of those parts of their obligation covered by paras (a), (b) or (c) of sec. 18 (2). He observed that it had not been claimed by the defender that there had been any breach of para. (b). The sheriff did, however, accept that there had been a failure to comply with part of the obligation contained in sec. 18 (2) (d), in respect that although the pursuers through Mr Neilson had informed the defender of the approximate cost of outlays in relation to advertisements, they had not provided him with particulars of the manner in which the outlays would be calculated. The sheriff accordingly recognised that the contract between the parties was not enforceable by the pursuers and that he required to consider the application by the pursuers for enforcement in terms of sec. 18 (5) and (6). The sheriff then proceeded to consider, as he was required to do, the question of culpability and the question of prejudice. He decided that there had been a not insignificant degree of culpability for the failure to supply the required information under sec. 18 (2) (d). So far as prejudice was concerned, he took the view that in the circumstances of the case the defender had not been prejudiced to any significant extent. Having considered these elements of prejudice and culpability, the sheriff concluded that it would not be just in his view to dismiss the application and thereby to deprive the pursuers of any payment under the contract. Indeed he concluded that it would be positively unjust to take such a course in the circumstances of this case.

Having decided that it would not be just to dismiss the application, the sheriff then proceeded to consider the provisions of sec. 18 (6) (b) which allowed him to reduce or discharge any sum payable by the defender under the contract so as to compensate him for prejudice suffered as a result of the pursuers' failure to comply with their obligations. In the event, he came to the conclusion that in order to compensate the defender for the prejudice caused, the sum payable by him under the contract should be reduced by an amount equivalent to 50 per cent of the total sum due (including V.A.T.) in respect of the advertisements instructed between 18th March and 24th June. The sum to be deducted amounted to £317.49, and the sheriff gave effect to that decision in his interlocutor.

Before the sheriff principal it was submitted on behalf of the defender that the sheriff should also have found that the pursuers were in breach of their obligation under sec. 18 (2) (a) to give particulars of the circumstances in which the defender would become liable to pay remuneration to the pursuers, and that he erred in law by failing so to find. This argument was based upon the proposition that by failing to disclose and to account to the defender for the discount of 18 per cent allowed to them by the newspaper, the pursuers were in fact taking undisclosed remuneration from him and that this was in breach of their obligation under sec. 18 (2) (a). This is the matter referred to in finding 9 and finding 12 of the sheriff's interlocutor to the effect that it was the practice of the pursuers to advertise in the Glasgow Herald newspaper by means of a block advertisement containing details of a number of properties being offered by them for sale on the instructions of their clients, and to the fact that George Outram & Co. Ltd., owners of the Glasgow Herald, allowed the pursuers a discount of 18 per cent in respect of the total cost of the block advertisement. As is made plain in finding 24, this discount of 18 per cent allowed to the pursuers by the Glasgow Herald was not passed on to the pursuers' clients. Finding 24 is in the following terms:

"(24) The discount of 18 per cent allowed to the pursuers by the Glasgow Herald was not passed on to the pursuers' clients, but was recorded in the pursuers' purchase day book as commission from George Outram & Co. Ltd. The defender was not given any information by Mr Donald Neilson, or any other representative of the pursuers, regarding the said discount or its effect in the calculation of charges for advertisements. It was the policy of the pursuers at the time of this transaction not to inform clients or potential clients of the discount allowed by the Glasgow Herald."

The sheriff principal accepted that this argument had not been addressed to the sheriff. The only argument presented to the sheriff in relation to sec. 18 (2) (a) appears to have been that the agent must specify an identifiable point of time for payment. That argument had been rightly rejected by the sheriff. However the sheriff principal, in the light of the argument now advanced to him, concluded that there had been breach by the pursuers of their obligation under sec. 18 (2) (a). He explained that he was persuaded that the discount on advertising charges allowed by the newspaper to the pursuers which was not disclosed and not passed on to their clients properly fell within the definition of "remuneration" for which the client was liable to pay, within the meaning of sec. 18 (2) (a).

The sheriff principal accordingly decided that the sheriff had misdirected himself by finding that the pursuers were not in breach of sec. 18 (2) (a), and that being so he concluded that the exercise of the discretion in terms of sec. 18 (6) was at large for him. Having regard to the terms of sec. 18 (6) (a) the sheriff principal proceeded to consider the matter of culpability and the matter of prejudice. Although he agreed with the sheriff's assessment of the degree of prejudice actually suffered by the defender, he disagreed with the sheriff on the subject of culpability. The sheriff principal held that the sheriff had misdirected himself in treating as an aspect of the pursuers' failure to provide their clients with details of how the advertising costs were charged, their deliberate policy not to pass on to clients the discount allowed by the newspaper and to conceal from their clients that they were doing so. He reached the conclusion that this was an entirely separate act from the pursuers' failure to disclose to their clients the rather involved system which they adopted for apportioning among their clients the costs of the block advertisement. The sheriff principal stated that having regard to the fact that the taking, at the defender's expense, of the undisclosed profit on advertising charges was a policy deliberately adopted by the pursuers, the degree of culpability was so high that it would not be just that this contract should be enforced. That being so the sheriff principal dismissed the application by the pursuers for the enforcement of the contract.

Counsel for the pursuers accepted that the sheriff principal was entitled to hold that there had been a breach of sec. 18 (2) (a) in addition to the breach of sec. 18 (2) (d) to which the sheriff had referred. He submitted however that although the sheriff had not held that there had been any breach of the obligation under sec. 18 (2) (a), he had taken account of the fact that the 18 per cent discount had not been passed on to the defender in consequence of a deliberate policy on the part of the pursuers to that effect. Although the sheriff principal had been entitled to hold that there had been a failure to supply the information specified in sec. 18 (2) (a) and sec. 18 (2) (d), he submitted that it was only one obligation which had been breached. The language of sec. 18 (5) made it clear that sec. 18 (1) imposed a single obligation, although a party might fail to comply with that obligation in a number of different respects specified in sec. 18 (2). It was clear from the note annexed to the sheriff's interlocutor that he had treated the pursuers' failure to disclose the remuneration which they received by way of discount from George Outram & Co. ltd. as culpable. The truth of the matter was that the sheriff had approached the matter in the correct way. He had identified two separate failures to provide information but had treated them under one paragraph of sec. 18 (2). Moreover, he had considered both culpability and prejudice and had put them in the balance. Although the sheriff had not recognised that there had been any failure to comply with the obligation in respect of the matters specified in sec. 18 (2) (a), in the circumstances of the present case the same matters fell under sec. 18 (2) (a) and 18 (2) (d); whether the pursuers were regarded as having been in breach of one or two paragraphs of sec. 18 (2) did not matter. In exercising his discretion, the sheriff had had regard to all the material facts, and in particular all the material breaches on the part of the pursuers. He submitted that any misdirection on the part of the sheriff in finding that the pursuers were not in breach of sec. 18 (2) (a) was not material to the decision which he was making under sec. 18 (6) (a).

Counsel for the defender on the other hand submitted that it was plain that the sheriff had failed to appreciate the proper legal category into which the facts fell. Section 18 (2) set forth four different types of particulars, and it was plain that these fell into two groups: (a) and (b) were both concerned with remuneration payable to the agent, whereas (c) and (d) were concerned with items other than remuneration such as outlays. It followed that in the present case there had been failure on the part of the sheriff to recognise that the pursuers had been in breach of an obligation in relation to remuneration as well as an obligation in relation to outlays. He submitted that this failure to disclose remuneration over and above what had been contracted for was a serious matter. Under reference to Gloag on Contract (2nd edn), pp. 521–522, and Ronaldson v. Drummond & Reid (1881) 8 R. 956 he reminded us that at common law an agent was bound to credit this client with any discount which he might receive from a person whom he has employed on behalf of a client. Counsel also pointed out that parties had been agreed before the sheriff that the number and nature of the contraventions of the obligation might be of significance in relation to questions of prejudice and culpability when the court was considering an application for enforcement of the contract under sec. 18 (6). Counsel also pointed out that when the sheriff stated in his note that the pursuers had complied with those parts of their obligation under sec. 18 (2) (a), (b) and (c) it was clear that the sheriff had not properly applied his mind to the fact that there had been wrongful appropriation of money. He had clearly misdirected himself in holding that there had been no failure to comply with the requirements of sec. 18 (2) (a) and that vitiated his decision. Counsel submitted that in these circumstances the matter was at large for the sheriff principal and that in the circumstances he was entitled to conclude that it was just for the court to dismiss the pursuers' application having regard to the prejudice caused to the defender and the degree of culpability of the pursuers. He accordingly invited us to dismiss the appeal.

We have considerable sympathy with the sheriff because although parties are now agreed that the sheriff principal was correct in holding that the pursuers were in breach of their obligation under sec. 18 (2) (a), no argument to that effect had ever been advanced before the sheriff. Accordingly the sheriff can hardly be blamed for not holding that there had been a breach of the obligation under sec. 18 (2) (a) in this respect. The important question however is whether that misdirection on the part of the sheriff means that his exercise of his discretion in terms of sec. 18 (6) fell to be set aside, and that the matter was at large for the sheriff principal.

We are not persuaded that the misdirection by the sheriff meant that the exercise of discretion was at large for the sheriff principal. In our opinion the reasoning of the sheriff principal is flawed in that he has failed to recognise that when the sheriff considered the question of whether it was just to dismiss the application, he had regard to all the relevant material relating to both prejudice and culpability. Although he approached the case as though the only breach had been a breach of the obligation under sec. 18 (2) (d), he took fully into account all the matters which it is now agreed also gave rise to a breach of the obligation under sec. 18 (2) (a). The sheriff principal concluded that the pursuers were in breach of their obligation under sec. 18 (2) (a), "in that the practical effect of their policy not to reveal or to account to their clients for the discount received from the newspaper was that the defender became liable to pay undisclosed remuneration to the pursuers for carrying out estate agency work".

It is, however, clear that the sheriff took these matters into account when he was assessing the culpability of the pursuers. In his note, the sheriff states:

"it was their policy not to inform clients of the discount received from the Glasgow Herald and afortiori not to disclose the manner in which that discount was taken into account in the calculation of advertising outlays in relation to individual clients".

In an ensuing passage in this note the sheriff refers to Ronaldson v. Drummond & Reid and to the fact that the pursuers were bound to account to the defender for the discount. The sheriff states:

"In the present case the pursuers were acting as agents for the defender in relation to the instruction of advertisements for insertion in the Glasgow Herald, and what they have done is to charge their clients, including the defender, more than was actually charged to them by the Glasgow Herald by not crediting the discount to their clients. They have therefore charged more than they were entitled to, and increased the burden on their clients, which they had no right to do while acting as agents on their behalf."

When the sheriff came to consider the subject of culpability, he expressed the view that there was a not insignificant degree of culpability from the failure to supply the required information under sec. 18 (2) (d) in that the failure was the result of a deliberate decision not to inform clients of the manner of calculation of outlays in respect of advertising. The sheriff went on to say:

"In particular the question of the discount was of crucial importance in the calculation of outlays, and failure to credit the discount or at the very least to disclose the effect of the discount on the calculation was in my view significantly culpable."

When the sheriff came to consider the question of prejudice, he stated:

"The main elements of prejudice appear to me to be, first, the fact that the defender was deprived of the benefit of the 18 per cent discount, and secondly, and perhaps more importantly, that he was deprived of information which may have led him to consider his position more carefully and perhaps seek a quotation elsewhere."

In these circumstances we are satisfied that when the sheriff was exercising his discretion under sec. 18 (6), and was determining whether it was just to dismiss the application, he in fact had regard to all the matters which have been put forward in support of the conclusion that the pursuers had been in breach not only of their obligation under sec. 18 (2) (d) but also their obligation under sec. 18 (2) (a). In these circumstances we are satisfied that the sheriff principal was not entitled to hold that the failure of the sheriff to recognise that there had been a breach of the obligation under sec. 18 (2) (a) meant that the exercise of his discretion was vitiated. In our opinion although the sheriff may have misdirected himself, the misdirection was not material and did not affect the exercise by him of this discretion. We agree with counsel for the pursuers that the sheriff principal was not well founded when he criticised the sheriff for treating as one act of default two quite separate matters arising under sec. 18 (2). What is of importance is not whether there were one or two acts of default; but the nature and substance of the breaches which took place.

We are satisfied that in exercising his discretion the sheriff did have regard to all material matters, and indeed in one passage in his note the sheriff principal himself appears to recognise that the sheriff had had regard to the matters which arise under sec. 18 (2) (a) and sec. 18 (2) (d):

"In my respectful opinion, the learned sheriff seems at this stage to have treated as one act of default two quite separate matters arising under sec. 18 (2), namely, (1) the failure which he has found in the obligation under sec. 18 (2) (d) to disclose details of how the advertising costs were charged, and (2) the undisclosed profit of 18 per cent on advertising charges which the pursuers took from the defender by not passing on the discount."

If the sheriff treated these two quite separate matters as one act of default, that can only meant that he had regard to both these matters and took them into account.

In a later passage in his note, the sheriff principal again makes it plain that he recognised that the sheriff had taken account of the matters which in the sheriff principal's view showed that there had been a breach of the obligation under sec. 18 (2) (a). The sheriff principal stated:

"The learned sheriff has found that the pursuers' failure to account for or at least to disclose the effect of the discount was significantly culpable. In that I agree with him."

In all the circumstances we are satisfied that the sheriff's approach under sec. 18 (6) (a) was correct; he had regard to prejudice caused to the defender by the pursuers' failure to comply with their obligation, and he also had regard to the degree of culpability of the pursuers. The sheriff principal recognised that the sheriff had a discretion in this matter, and that he would not be entitled to interfere with the exercise by the sheriff of his discretion unless the sheriff had proceeded upon some wrong principle. In this connection the sheriff principal referred to Bellenden v. Satterthwaite [1948] 1 All E.R. 343 at p. 345. Reference might also be made to Thomson v. Glasgow Corporation 1962 S.C. (H.L.) 36 at p. 54. The sheriff principal seeks to justify his interfering with the exercise by the sheriff of his discretion by holding that there had been a misdirection by the sheriff in relation to the breach of obligation under sec. 18 (2) (a). We have already pointed out that the sheriff principal was in error in this regard because he failed to recognise that any misdirection in that connection was not material. The sheriff principal expresses the view that the breach of the pursuers' obligation under sec. 18 (2) (d) which the sheriff found to be established, and in relation to which he took the undisclosed commission into account, would in itself have justified the court in dismissing the application for relief in terms of sec. 18 (6) (a). What the sheriff principal has done is to substitute his view upon this matter for the view of the sheriff, and that was something which he was not entitled to do since he had no good grounds for concluding that the sheriff had exercised his discretion on any wrong basis. The matter was not at large for the sheriff principal and he was not entitled to substitute his view upon this matter for the view of the sheriff.

In all the circumstances therefore we have come to the conclusion that the sheriff principal was not entitled to alter the sheriff's interlocutor as he did. We shall accordingly allow the appeal, recall the interlocutors of the sheriff principal dated 24th April 1990 and 11th May 1990, and we shall affirm the interlocutors of the sheriff dated 20th December 1989 and 18th January 1990.