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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Shetland Seafarms Ltd In The Cause Of Assuranceforeningen Skuld v International Oil Pollution Compensation Fund & Ors [2000] ScotCS 158 (9 June 2000) URL: http://www.bailii.org/scot/cases/ScotCS/2000/158.html Cite as: [2000] ScotCS 158

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[1] The objectors, the International Oil Pollution Compensation Fund (IOPCF) and James L R Robb and Brian Robb (Claim No 90), have enrolled a motion to have the claimant ordained in terms of section 726(2) of the Companies Act 1985 to find caution of £100,000 in respect of their expenses. The objector Alexander Eunson (Claim No 27) has enrolled a motion in similar terms. At the hearing counsel moved the first of these motions on behalf of IOPCF only.

[2] When these motions were enrolled, I had allowed proof before answer on the whole claim and the objections to it. All parties expected that the proof would last for at least four weeks and that it would involve detailed evidence on scientific questions about salmon farming and on financial questions such as the methodology and calculation of the claim.

[3] I have today appointed a preliminary proof to be held on the question of the alleged fraudulence of the claimant in the submission of the claim (cf. my Opinion dated 2 June 2000). All parties expect that the preliminary proof will be concluded within two weeks. Since the preliminary proof could result in the outright refusal of the claim, the caution sought in both motions has been restricted to £40,000.

[4] Section 726(2) of the 1985 Act provides as follows:

[5] The motioner, Alexander Eunson, has lodged the Accounts of the claimant for the year ended 30 June 1999. The balance sheet shows inter alia that the net assets of the claimant are £142,305; that its bank loan and overdraft facilities are secured by a bond and floating charge over all of the assets of the company; that cross guarantees exist between the various companies within the group controlled by Ettrick Trout Company Limited, the claimant's ultimate parent company, and Beaverflow Limited, a related company, in respect of bank facilities; that at 30 June 1999 borrowings in respect of these charges and cross guarantees amounted to £1,351,081; that there is a second bond and floating charge over the assets of the claimant in favour of a supplier to whom the group and the related company owed £1,561,062 at that date; and that there is a marine mortgage loan of £54,628 secured over the relevant asset, the loan being guaranteed by the parent company.

[6] It appears that the claimant no longer trades. In 1997 shareholders' funds were about £1,000,000. In 1998 it paid a dividend of £950,000. As at 30 June 1999 shareholders' funds were £142,305, but subject to the securities that I have mentioned.

[7] Counsel for the claimant stated that he did not take issue with this summary of the claimant's financial position. He opposed the motion on two grounds: (1) that section 726(2) allowed the court to make an order for caution only against a "pursuer" and (2) that the claimant's financial position was a consequence of the incident for which compensation was claimed.

[8] In support of the first ground of opposition counsel for the claimant argued that the subsection should be construed literally. The claimant was not a "pursuer". On the contrary the claimant was a defender convened to the multiplepoinding raised by Assuranceforeningen Skuld (Skuld), the insurer of the Braer. It had been held that the expression "pursuer" in one of the forerunners of this provision did not apply to a company that was the respondent in an appeal (Star Fire and Burglary Insurance Company v Davidson (1902) 4 F 997).

[9] In support of the second ground of opposition counsel for the claimant stated that the claimant had ceased to operate the fish farming enterprise as a consequence of the Braer incident. The claimant should not on that account be impeded from putting forward a substantial claim for the losses that the incident had caused.

[10] In my opinion the first point taken on behalf of the claimant is unsound. It is a point that could not be taken if the motioners, as is open to them, were to enrol motions for caution at common law. In my view, the word "pursuer" in the subsection should not be construed literally as counsel for the claimant suggests. The subsection refers to the "pursuer in an action or other legal proceedings." In an ordinary action the party raising it is designed as the "pursuer"; but in other legal proceedings he is not. Moreover, in other legal proceedings the party against whom they are raised is not designed as the "defender". This points against a strictly literal interpretation of these expressions in the context of this subsection.

[11] If the interpretation suggested for the claimant were correct, the provision would never apply in any claim by a company that had to be pursued by means of a petition process. Such a restriction would be pointless. I fail to see why the subsection should protect a defender against whom a claim is made in an ordinary action, but not protect a respondent against whom a claim is made by way of petition. Moreover on the claimant's argument the subsection would operate rather arbitrarily in relation to remedies that can be sought either by action or by petition (cf. Exchange Telegraph Co v White, 1961 SLT 104).

[12] In my view, the subsection is designed to give protection to a party against whom an impecunious company litigates. In my view the subsection should be construed by reference to the reality of the situation rather than to the labels by which parties are formally designed. The present claim was initiated by an action in which the claimant was the pursuer and The Braer Corporation and Skuld were the defenders. That action remains in dependence. After Skuld lodged its limitation fund and was exonered and discharged, the claims made in the actions raised against The Braer Corporation and Skuld had thereafter to be pursued as claims in the Skuld limitation process in accordance with the Practice Note dated 15 May 1999. The claimant's status as pursuer in the original action underpins the claim made by it in the present process.

[13] The reality here is that the claimant is seeking payment of £1,428,891.12 out of the fund in medio. The motioners have undisputed title and interest to oppose the present claim. A decree in favour of the claimant will deplete the amount available to meet other valid claims and will increase the contingent liability of IOPCF. If the fund in medio is insufficient to meet all valid claims, liability in respect of the deficiency will then transmit to IOPCF. IOPCF in turn will be entitled to seek limitation. In that event it is possible that the IOPCF limitation fund will be insufficient too. It is obvious therefore that the interests of the claimant and those of the motioners are directly opposed. These are "other legal proceedings" within the contemplation of the subsection. In my opinion the claimant is in substance the pursuer of a claim and in opposing it the motioners are in substance defenders in respect of it.

[14] Star Fire and Burglary Insurance Company v Davidson (supra) is distinguishable. In that case the company was the successful pursuer in the action. It was held that in resisting an appeal by the defenders, the company was not a pursuer in the sense of the section. In the present case, the claimant remains the party seeking the remedy at first instance.

[15] On the undisputed evidence as to the claimant's financial position, I consider that the pre-conditions of section 726(2) are made out. It therefore becomes a matter for the discretion of the court whether to order caution and, if so, what sum of caution to set.

[16] I am not persuaded that the claimant's financial position is a consequence of the Braer incident. It may be that the incident caused the claimant to cease to trade; but that fact does not explain why the company is in its present financial state. It seems from the Accounts that until 1998 the company had the resources to fund these proceedings and to meet a substantial award of expenses if it was unsuccessful. I have been given no information from which I could conclude that the Braer incident caused the change in the claimant's financial state after 1998.

[17] In any event, even if the Braer incident is the cause of the claimant's current financial state, I consider, for the reasons given by Lord Maxwell in Dean Warwick Limited v Borthwick (1981 SLT (Notes) 18, at p 19), that that ought not to be a reason to refuse the motion where, as here, it is likely that the motioners will incur irrecoverable expenses if the claim should fail. The expenses in the process are about to escalate as parties prepare for the preliminary proof. The objectors' expenses are likely to be substantial. In contrast with other cases under this provision, the present claimant has not offered any alternative form of reassurance for the objectors' expenses, such as an undertaking of financial support from its directors or shareholders. This is a material consideration in view of the fact that the claimant is a wholly-owned subsidiary of Ettrick Trout Company Limited, the parent company of the group, the chief executive of which, Mr Baxter, is its controlling shareholder.

[18] In these circumstances the objectors are entitled to the protection that section 726(2) confers.

[19] Despite the view of counsel that the preliminary proof will take about two weeks, I think that there is a realistic prospect that it can be concluded in less than that time. Moreover, since the objectors' cases on fraud are virtually the same, there should be scope for economies in the preparation for and conduct of their cases at the preliminary proof. In granting the motions, I shall therefore restrict the amount of caution to the sum of £20,000 in each case. If it should appear that the preliminary proof will take significantly longer, it will be open to the motioners to seek further caution (Merrick Homes Ltd v Duff 1995 SCLR 959).

[20] For the reasons that I gave in Pioneer Seafood Ltd v The Braer Corporation and Others (1999 SCLR 1126) I shall not impose a time limit in the Interlocutor; but it would seem reasonable to expect the claimant to find the caution ordered within the period suggested by counsel for the objectors, namely 28 days.