[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Pioneer Seafood Ltd v Braer Corporation & Ors [1999] ScotCS 121 (21 May 1999) URL: http://www.bailii.org/scot/cases/ScotCS/1999/121.html Cite as: [1999] ScotCS 121

[New search] [Help]

The defenders have enrolled a motion in the following terms:

The pursuer opposes the motion. The minuter supports it.

The pursuer concludes for compensation in the sum of £1,989,555 for losses sustained by it in consequence of the Braer mishap. The Record has been closed and a procedure roll debate on the preliminary pleas for the defenders and the minuter has been fixed for the week beginning 25 May 1999.

The pursuer is one of several fish processors who have raised actions of this kind. It claims compensation for losses resulting from inconsistencies in the supply of produce, reduced sales prices, reduction in turnover and profit, increased costs of obtaining produce from alternative sources and professional costs in the formulation of the claim.

The claim raises a question of economic loss. I have decided similar questions in favour of the defenders and the minuter in other Braer litigations, namely Landcatch Ltd v The International Oil Pollution Compensation Fund ([1998] 2 Lloyd's L.R. 552), Skerries Salmon Ltd v The Braer Corporation (1 December 1998, unrepd.) and P. & O. Scottish Ferries Ltd v The Braer Corporation (7 January 1999, unrepd.). Since the hearing on this motion on 14 May 1999, a reclaiming motion in Landcatch Ltd v The International Oil Pollution Compensation Fund has been refused (Second Division, 19 May 1999, unrepd.). Reclaiming motions are pending in the other cases. It may be that the present claim is distinguishable from the claim made in the Landcatch case; but at the moment it can at least be said that in this case, as counsel for the pursuer acknowledges, the economic loss question presents a difficulty for the pursuer.

The Braer ran aground on 5 January 1993. The present action was raised in December 1995. The pursuer went into receivership on 16 May 1997. The floating charge holders are the Clydesdale Bank and Shetland Islands Council. The Bank's floating charge has priority to the extent of £50,000, with interest and expenses. The Council's floating charge ranks second to the extent of £141,000, with interest and expenses. The two charges rank pari passu thereafter.

The Joint Receivers' Report to creditors dated 9 July 1997 identifies the causes of the pursuer's insolvency as being (a) the acquisition by the company in 1996 of new leasehold premises built by Shetland Islands Council in order to comply with European Community regulations; (b) the acquisition by the company in 1996 of the Bradford-based business of Fletcher & Hibbert, wholesale fish merchants, in an effort to expand its customer base, and (c) serious bad debt problems experienced by the company in 1996 and the company's failure to collect approximately £40,000 from two continental debtors.

According to the Joint Receivers

The Joint Receivers reported that the net value of the claims of preferential creditors was estimated at £27,000; the total sum due to the floating charge creditors was £136,179, and the total sum due to unsecured creditors was estimated at £250,000. It was likely that preferential creditors would receive a dividend; but the dividend prospects for the floating charge creditors, and particularly the second-ranking creditor, would not be known until the position with regard to preferential creditors was established. It was considered unlikely, however, that there would be a return to the second-ranking floating charge creditor. It was considered most unlikely that there would be any funds available for the distribution of a dividend to ordinary unsecured creditors.

On 1 June 1998 the Joint Receivers submitted an Abstract of Receipts and Payments for the period from 16 May 1997 to 15 May 1998. This showed that there had been a net inflow of funds of about £75,000 but that the net inflow was much less than the debts to secured and unsecured creditors.

It appears that legal fees and receivers' fees are still being incurred and that interest under both floating charges continues to accrue.

The Joint Receivers have been invited to accept personal liability for the expenses of the action but have declined to do so. The floating charge creditors have declined to fund the action.

In a letter to the pursuer's solicitors dated 13 May 1999 one of the Joint Receivers said that the directors of the pursuer considered that the single most significant reason for the demise of the company was the effect suffered on the trading of the company by the Braer oil disaster. The Joint Receiver added that although it was not part of his remit to investigate specific reasons for the company's demise, he could confirm that he had "formed the view that the directors were correct in the above assertion, and that the changes to the volumes and pattern of fishstocks and pattern of landings following on the Braer disaster led directly to the subsequent insolvency of the company, and was the single most significant contributory factor to its demise."

The defenders found on section 726(2) of the Companies Act 1985, which provides as follows:

Section 726(1), which applies to England and Wales, provides that in similar circumstances the court

Counsel for the defenders argued that on the undisputed facts it was probable that if the defenders were to succeed in this action they would not recover their expenses. The defenders would suffer an injustice in being forced to defend the claim. If the pursuer were to succeed, the obvious beneficiaries would be the floating charge creditors, both of whom were well able to meet an award of expenses. The floating charge creditors should not be allowed to use the impecuniosity of the pursuer as a weapon in the litigation. Despite what the Joint Receiver said in his letter dated 13 May 1999, it was plain that the Braer mishap had not precipitated the insolvency of the company.

Counsel for the defenders moved that caution should be ordered in the sum of £10,000. The defenders had incurred judicial expenses of that order in similar Braer cases that had been decided on the procedure roll, such as P. & O. Scottish Ferries Ltd v The Braer Corporation (supra).

Counsel for the defenders submitted that the court could order caution without necessarily sisting the action and that it was open to the court to fix a time limit for the lodging of caution, as the Lord Ordinary had done in Augustus Ltd v Anglia Building Society (1990 SLT 298). Seven days would be an appropriate time limit in this case. The floating charge creditors should have no difficulty in finding the money within that period. They had known for some time that the present application was likely to be made.

Counsel for the pursuer accepted that the defenders had laid before the court "credible testimony" as to the matter mentioned in section 726(2) (supra). Nevertheless, the pursuer had a statable case. The law on economic loss in its application to the Braer cases had yet to be fully resolved. An order for caution would operate as a serious bar to the progress of the actions. The floating charge holders were unwilling to fund the action as they would rank after the preferential creditors. According to the Joint Receiver's letter dated 13 May 1999, the Braer mishap had precipitated the insolvency. This was a material consideration against the granting of caution (Keary Developments Ltd v Tarmac Construction Ltd ([1995] 3 All E.R. 534). An order for caution would probably stifle the action, which might be well-founded.

If the court were minded to accept the submissions for the defenders, the proper course would be to order caution and to sist until caution was found. The court had no power to impose a time limit. This view was supported by the difference in wording between section 726(1) and section 726(2). If caution could not be found within a reasonable time, it would be open to the defenders to enrol to recall the sist.

In any event £10,000 was excessive. The procedure roll debate in this case would be short since the issues would already have been debated in other fish processor claims. £5,000 would be an appropriate sum.

It being agreed by counsel that defenders have produced "credible testimony" in terms of section 726(2), the decision on this motion is one for the discretion of the court.

In my view, the pursuer should be ordained to find caution. The pursuer is insolvent. If the defenders succeed in the action, an award of expenses in their favour will be worthless. The Joint Receivers have declined to accept personal liability for the expenses of the litigation. The floating charge creditors, who stand directly to benefit if the pursuer succeeds in the action, have declined to fund the action. While the court should not at this stage attempt to draw a firm conclusion as to the pursuer's prospects, it is at least accepted by the pursuer's counsel that the decisions so far made on the economic loss point present the pursuer with a difficulty.

In all the circumstances I consider that the defenders and the minuter are entitled to the protection which section 726(2) confers. If the Braer mishap had precipitated the pursuer's insolvency, that would have been a material, but not decisive, consideration against an order for caution (Keary Developments Ltd v Tarmac Construction Ltd, supra, at p. 541). I am not prepared to accept the representations made by the Joint Receiver in his letter dated 13 May 1999. In my view the important document is the Joint Receivers' Report to creditors submitted on 9 July 1997, shortly after the insolvency occurred. The Report sets out clear and concise reasons for the insolvency. There is not a word about the Braer mishap, far less any suggestion that the Braer mishap was "the single most significant contributory factor to the [pursuer's] demise".

But even if the Braer mishap had been the cause of the company's insolvency, that consideration would have been clearly outweighed, in my view, by the considerations on which I have based my decision to order caution.

Having regard to the terms of the Record and to my experience of these litigations, I think that it would be reasonable to assume that the defenders' procedure roll expenses will be of the same order as those that they have incurred in similar actions. I shall fix caution at the sum of £10,000.

The natural reading of section 726(2) is that if the court decides to order caution it should also sist the action. The difference between the wording of subsection (1) and the wording of subsection (2) gives some support for this interpretation. Subsection (2) makes no reference to time limits. In Augustinus Ltd v Anglia Building Society (supra), of which there is only a brief report, the Lord Ordinary imposed a time limit without sisting the cause. I notice that in Metric Modules International Ltd v Laughton Construction Co Ltd (1995 S.C.L.R. 676), which was not cited by counsel in this case, Sheriff Principal Nicholson examined the point thoroughly and reached the same conclusion as the Lord Ordinary in Augustinus Ltd v Anglia Building Society (supra).

The problem of interpretation arises from the fact that the subsection does not provide for the case where caution is not found. In most cases an indefinite sist for the finding of caution penalises the pursuer and is to the advantage of the defender. But there are cases where the defender has an urgent interest in having the action brought to a conclusion. This is such a case (cf. Anderson v The Braer Corporation, 1996 S.L.T. 779, at p 782B-D). I appreciate that even where a statutory provision is silent on the matter of time limits, the court may be able to exercise a general discretionary power to adject time limits to its procedural orders. But I am inclined to think that in a case under section 726(2) the express provision for sisting points against the imposition of a time limit. Sisting puts a stop to all further procedural steps. If a time limit is imposed, the action continues and judicial expenses continue to be incurred.

It is unnecessary for me in this case to reach a concluded view on the point because I am satisfied that the appropriate course in this case is to order caution and to sist the cause until caution is found. If the pursuer fails to find caution within a reasonable time, the defenders will be entitled to enrol for recall of the sist and, on the view that the pursuer is in default, for decree of absolvitor (cf. Augustinus Ltd v Anglia Building Society, supra).

I would have been unwilling to ordain the pursuer to find caution within seven days. The time limit is unreasonably short. The pursuer has been in receivership for two years. The case was appointed to the procedure roll ten months ago. The motion comes late in the day. The defenders could have enrolled it long before the procedure roll hearing became imminent. In that event there would have been no need for such a deadline. Any longer time limit would have been pointless because the matter of caution would probably have remained unresolved by the date of the procedure roll hearing.