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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Esmail & Anor v Bank Of Scotland & Anor [2001] ScotCS 275 (30 November 2001) URL: http://www.bailii.org/scot/cases/ScotCS/2001/275.html Cite as: [2001] ScotCS 275

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[1] This action is one of four which arise out of certain transactions involving the first pursuer and other members of his family, the first defenders and the second defender. The first pursuer is a businessman from Mozambique. His business includes the importation of goods from Scotland. On 2 January 1990 the first pursuer granted in favour of the second defender, who is his brother-in-law, a power of attorney in a form which is said to be standard in Mozambique. It is averred that its purpose was to allow the second defender, who was then resident in Dundee, to act on the first pursuer's behalf in conducting a retail business in Scotland. The power of attorney authorised the second defender to operate bank accounts on behalf of the first pursuer, but contained no express authority to operate bank accounts of which the first pursuer was a joint holder. The pursuers aver, next, that they instructed the first defenders to open a bank account in their joint names. They were the only authorised signatories, and it is averred that withdrawals from the account could be made only if signed for by one of the authorised signatories. The pursuers go on to aver that in pursuance of a fraudulent scheme the second defender instructed withdrawals from the joint account and used the sums withdrawn to support share dealings which were unauthorised by the pursuers. In doing so, he purported to rely on the power of attorney as authorising him to make the withdrawals. The pursuers' case against the first defenders is that the power of attorney did not authorise the second defender to make withdrawals from the joint account, and that the first defenders were in breach of their contract with the pursuers, and negligent, in allowing the second defender to make the withdrawals that he did. On that basis the pursuers inter alia claim damages from the first defenders.

[2] On 27 November 2001 I heard counsel for the first defenders and for the pursuers on the first defenders' motion to amend their defences in terms of their minute of amendment, No. 34 of process. Before examining the terms of the proposed amendment, however, it is convenient to note the procedural history of the action.

[3] The action was raised in July 1996 as an ordinary action. It was sisted in September 1996 to enable the second defender to apply for legal aid. In October 1996 the pursuers were ordained to find caution for expenses in the sum of £5000. In February 1997 the sist was recalled on the pursuers' motion. In April 1997, after the second defender's solicitors had withdrawn from acting for him, and he had not responded to the service on him of a Form 30.2, decree by default was pronounced against him. Adjustment continued until November 1997. In February 1998 the case was appointed to the procedure roll on the first defenders' motion. Between July 1998 and February 1999 the pleadings were amended by both the first defenders and the pursuers.

[4] On 4 July 1999, following a hearing on the procedure roll on 14 May 1999, the Lord Ordinary sustained the pursuer's first plea-in-law to the extent of repelling the first defenders' first to fifth pleas-in-law, and allowed a proof before answer restricted to the issue of quantum. In effect, the first defenders were held to have stated no relevant defence on the merits. As the Lord Ordinary recorded at page 3 of his opinion, the first defenders conceded before him that if the power of attorney was held not to be sufficient to authorise the operation of the account by the second defender, the appropriate course would be to allow a proof on quantum. At page 6 the Lord Ordinary reached the conclusion that the power of attorney did not authorise the operation of the account by the second defender.

[5] The first defenders reclaimed against the interlocutor of 4 July 1999, but on 8 November 2000, on their motion and of consent of the pursuers, the reclaiming motion was refused and no expenses were found due to or by either party in respect of the reclaiming motion.

[6] Thereafter the first defenders enrolled a motion in terms of Rule of Court 47.10 for transfer of the action to the commercial roll. The motion, which came before me on 30 November 2000, was not opposed by the pursuers. Although by then the action had been in dependence for almost four and a half years, and had reached the stage of a proof on quantum having been allowed, I was persuaded to grant the motion for transfer. The case proceeded at once to a preliminary hearing, and it was proposed on the pursuers' behalf that the parties should jointly instruct a forensic accountant to prepare a report on the movements of funds in connection with the various accounts mentioned in this and the three other related actions. It was indicated that in light of the outcome of such an exercise, some amendment of the parties' pleadings on the question of quantum might be required. The preliminary hearing was continued until 18 December 2000 to enable the first defenders to consider that proposal. On 18 December the first defenders agreed to the proposal that there should be a joint reference to a forensic accountant. It was agreed that that reference would be made by the parties rather than by the court. At the hearing of the motion to amend on 27 November 2001 I was referred to a Note of Issues prepared by the first defenders at the time of the continued preliminary hearing on 18 December 2000. That Note contemplated that the averments of loss would require to be made more specific in light of the report of the forensic accountant, and contained an indication that:

It is my recollection that that point was mentioned at the continued preliminary hearing on 18 December 2000, although my own notes of that hearing do not refer to it.

[7] The case was put out By Order on 26 February 2001 to review progress. By that date the forensic accountant's report had not been completed. A further By Order hearing took place on 30 March 2001. By then, the forensic accountant had provided to the parties a draft report, but it was not lodged in process. In light of its terms, further investigation was required, which involved the recovery of documents from a bank in the Isle of Man. At a further By Order hearing on 18 May 2001, it emerged that a formal letter of request would be required to obtain the documents from the Isle of Man. At that stage counsel for the first defenders reiterated that, once the forensic accountant's report was finalised, the defenders would wish to amend their pleadings, but only to bring them into line with the finalised report. There was no mention at that stage, so far as I recall, of any possibility of the introduction of a plea of contributory negligence. By the date of a further By Order hearing on 23 July, procedure was in train for recovery of documents by letter of request in England as well as in the Isle of Man. Counsel for the first defenders indicated that once the forensic accountant's report was finalised, it might be possible to resolve the issue of quantum without proof. The diet of proof which had by then been set down for August was therefore discharged. A fresh diet was fixed for October. On 5 September it appeared that the process of recovering documents in England was proving problematical, and was delaying completion of the forensic accountant's report. The diet of proof set for October was therefore discharged. At that stage the first defenders tendered the minute of amendment that is now before me. It was allowed to be received, and the pursuers were allowed to lodge answers thereto, or alternatively a note of argument setting out their ground for submitting that the amendment should not be allowed, by 17 October and the case was put out By Order for hearing on 19 November (which date was altered to 27 November because of my unavailability on 19 November). In the event the pursuers lodged a note of argument (which was allowed to be received late on 12 November 2001) rather than answers.

[8] The content of the minute of amendment, No. 34 of process, falls into three parts.

(1) The first two sentences of the passage sought to be added to answer 4 by paragraph one, paragraph 2, and the second plea-in-law sought to be introduced by paragraph 3, are concerned to assert a right of set-off in respect of claims made in the counterclaim and third party notice. Amendment in those respects was not opposed by the pursuers.

(2) By paragraph 1 the following averments are sought to be added to Answer 4:

By paragraph 3 of the minute of amendment the first defenders seek to introduce the following plea-in-law relative to the foregoing averments:

(3) By the remainder of paragraph 1 of the minute of amendment the first defenders seek to insert the following further averments in answer 4:

By paragraph 3 of the minute of amendment the following relative plea-in-law is sought to be introduced:

[9] Mr Smith for the first defenders first addressed the question of the competency of an amendment the effect of which would be to open up issues going to the merits of the pursuers' case when a proof restricted to the issue of quantum had been allowed. He submitted that such amendment was competent. In support of that proposition he relied on Gillon v Gillon 1994 SC 162 at 165A-F and Bendex v James Donaldson & Sons Ltd 1990 SC 259 at 265. Since Mr McNeill for the pursuers did not dispute the competency of the proposed amendment, and I accept that it is competent, I need say no more on that point.

[10] Dealing with the aspect of the minute of amendment identified in paragraph [8](2) above, Mr Smith candidly accepted that the proposed amendment arose at least in part out of the application of a fresh mind to the first defenders' pleadings. In part, however, he submitted that it arose out of fresh information. The fresh information related to the payment of £1,000,000 to Dealwise in March 1994. The source of that information was the forensic accountant's draft report. In explaining the terms of the proposed plea-in-law 1, which appeared to combine two separate matters, namely (i) causation and (ii) whether it was fair just and reasonable that the first defenders should be held liable for the pursuers' loss, Mr Smith explained that the argument which he proposed to advance on the basis of the averments and plea which he sought to add to the defences by amendment was founded on the case of South Australia Asset Management Corporation v York Montague Ltd (otherwise known as Banque Bruxelles v Eagle Star) [1997] AC 191. He referred in particular to the speech of Lord Hoffmann at 213C-214F. He submitted that there would be no prejudice to the pursuers if the first defenders were allowed to amend in this respect. The assertion that the first pursuer had authorised the second defender's use of the funds for stock market investment was one on which the pursuers already set out their position in their pleadings - "None of the withdrawals specified in the Schedule were authorised by the pursuers" (reclaiming print, page 16B); "The second defender extracted money from the said account in the knowledge that he had no authority to do so" (reclaiming print, page 19E). No new issue would therefore be introduced by that aspect of the amendment if it were allowed. The new averment about the cheque for £1,000,000 dealt with information which had come only recently to the first defenders, but was within the knowledge of the pursuers or at least the first pursuer.

[11] Dealing with the aspect of the amendment identified in paragraph [8](3) above, the case of contributory negligence, Mr Smith said that the possibility of the introduction of such a case had been mentioned in December 2000. The point that by 12 May 1993 the first pursuer was aware of the second defender's withdrawal from the account was already in the first defenders' pleadings (reclaiming print, page 15C) and the pursuers had already set out their account of what the first pursuer did in light of that knowledge (reclaiming print, page 13A-E).

[12] In these circumstances, Mr Smith submitted, it was in the interests of justice that the first defenders should be allowed to amend their pleadings in all three respects. Such amendment was necessary in order to enable the real question in controversy between the parties to be determined.

[13] Mr McNeill submitted that amendment in the respects identified in subparagraphs (2) and (3) of paragraph [8] above should not be allowed. He stated that the delay which had taken place in the action was a matter of extreme concern to the first pursuer. The case had been raised five and a half years ago. The reclaiming motion against the interlocutor repelling the defences on the merits as irrelevant and restricting proof to the issue of quantum had been abandoned over a year ago. The pursuers had agreed to a finding of no expenses due to or by either party in respect of the reclaiming motion. They might well not have done so if they had had any reason to suppose that the first defenders would later seek to introduce new issues going to the merits. Since the abandonment of the reclaiming motion, a great deal of time and money had been spent on the preparation of the forensic accountant's report and in seeking to obtain recovery of documents required to enable that report to be finalised. All of that had taken place in a context in which it appeared that all that required to be done was to unravel the complexities of payment into and out of various accounts in order to determine the amount lost by the pursuers as a result of the withdrawals from the account wrongfully permitted by the first defenders.

[14] Mr McNeill submitted that the points which the first defenders now sought to introduce into the pleadings did not truly depend on new information. The only new factual material was the averment about the £1,000,000 cheque. That was merely one adminicle of evidence supporting what the first defenders referred to as "the second defender's position".

[15] Mr McNeill accepted that in any proof on quantum there was to a limited extent an issue as to causation. The pursuers required to establish the amount of the loss caused by the wrongdoing. The causation issue which the first defenders sought to introduce under reference to South Australia Asset Management Corporation v York Montague Ltd was, however, a wholly different matter. Mr McNeill stated that if the first defenders were allowed to introduce that issue into the case, the pursuers would wish the case to return to debate in order to challenge the relevancy of the new contention. The result would be further delay, but the matter was too important not to be debated.

[16] So far as the case of contributory negligence was concerned, Mr McNeill submitted that the fact that the issue of the first pursuer's knowledge of the second defender's unauthorised withdrawals in May 1993 had been in the pleadings since before the hearing on the procedure roll told against the first defenders rather than against the pursuers. The case of contributory negligence did not depend on any matter of fact that had recently come to the attention of the first defenders. The pleadings now proposed could have been made prior to the allowance of the restricted proof. The acquiescence in the restriction of the proof to the issue of quantum which could be inferred from the abandonment of the reclaiming motion militated against allowing the first defenders to introduce the issue of contributory negligence at this late stage.

[17] As I have already mentioned in paragraph [9] above, I accept that the first defenders' motion to amend is competent, notwithstanding the fact that, if allowed, it would necessitate a widening of the scope of the proof previously allowed. Whether the amendment proposed should be allowed is therefore a matter for my discretion.

[18] As I have recorded in subparagraph (1) of paragraph [8] above, the aspects of the minute of amendment identified in that subparagraph were not opposed. I shall allow the first defenders' defences to be amended in those respects.

[19] In dealing with the aspects of the minute of amendment identified in subparagraph (2) of paragraph [8] above, there is one preliminary point that I should make. The proposition that the pursuers' loss was not caused by the first defenders' negligence or breach of contract, because the stock market transactions were authorised by the first pursuer who would have found some other means of funding those transactions if the first defenders had declined to allow the second defender to withdraw funds in reliance on the power of attorney, depends on acceptance of what the first defenders call "the second defender's position". The proposition is advanced on the hypothetical basis "Esto the position of the second defender is correct". The first defenders do not offer to prove that the second defender's position is correct. In my opinion that is a misuse of the device of pleading a case on an esto basis. It is permissible to adopt as the hypothetical basis for a case an assertion of fact which another party to the action offers to prove. The esto case can then succeed if that assertion of fact is in due course proved. It is not, in my opinion, legitimate to base an esto case on a hypothesis which no party to the action offers to prove as fact. Here the second defender is no longer in the process, and he does not offer to prove the truth of his "position". In that situation the first defenders, if they wish to base a case on the second defender's "position", must themselves offer to prove that it is factually true. In order to deal with that deficiency in the first defenders' pleadings I would, if I had otherwise been minded to allow the pleadings to be amended to introduce the new causation case, have given them the opportunity to clarify whether they were prepared to offer to prove that the second defender's "position" was correct. If they were not prepared to do so that would have been a separate ground on which I would have refused to allow this aspect of the amendment.

[20] In the event, however, I am not prepared to allow the causation aspect of the amendment. As I have already said, Mr Smith accepted that the amendment arose largely from the application of a fresh mind to the first defenders' pleadings. That is a matter that does not seem to me to assist the first defenders. There may be occasions where counsel comes into a case at a late stage and identifies an issue that has been overlooked by his predecessor, and where the interests of justice require that the point be allowed to be taken. This is not, however, a case in which it can be said that the first defenders have in any sense been denied proper representation in the earlier stages of the case. In those stages they were represented by experienced senior counsel well versed in banking law. It seems to me that the considerations material to the exercise of my discretion include the following:

1. The action was raised five and a half years ago.
2. Throughout the process of adjustment of the pleadings, and two subsequent amendments of the pleadings, extending in total from the commencement of the action over a period of almost three years, no attempt was made by the first defenders to advance the contention that the second defender's stock market transactions were authorised by the first pursuer, and would have been funded otherwise by him if the power of attorney had not served for that purpose, and that on that account it could be said that the pursuers' loss was not caused by the first defenders.
3. At the hearing on procedure roll, it was conceded on the first defenders' behalf that if the power of attorney was held not to warrant their permitting the second defender to withdraw funds from the account, a proof restricted to the issue of quantum would be appropriate.
4. The reclaiming motion against the interlocutor allowing the restricted proof was abandoned. The first defenders can therefore in my view be regarded as having acquiesced in the allowance of a restricted proof.
5. Although in a sense causation is an issue in any proof on quantum, in the present case at the stage when the restricted proof was allowed and acquiesced in, the only real issue for proof was the tracing of funds into and out of various accounts to see to what extent the funds withdrawn by the second defender found their way back into accounts belonging to the first pursuer and members of his family.
6. Since the transfer of the case to the commercial roll, the whole focus of procedure has been on the tracing issue, the clarification of that issue by means of the joint reference to a forensic accountant, and the recovery from other jurisdictions of documents necessary to enable the forensic accountant to finalise his report. That process has been expensive and time-consuming. It is highly questionable, in my view, whether the pursuers would have proposed that procedure if they had foreseen that the first defenders would seek to introduce a causation issue of the sort formulated in the amendment.
7. The causation point which the first defenders seek to introduce is a wholly new issue, but is by no means wholly dependent on factual material which has only recently come to their attention. The new factual material relates to the £1,000,000 cheque. That came to light in March 2001 in the forensic accountant's draft report. Although I accept that that was a significant piece of information, Mr McNeill was in my view right to characterise it as an additional adminicle of evidence potentially supporting a line of argument that was already available, rather than the sole foundation of a new line of argument.
8. The applicability of the authority on which Mr Smith relied in putting forward the new causation argument (South Australia Asset Management Corporation v York Montague Ltd) to the circumstances of the present case is far from being a straightforward issue. It is not appropriate for me to embark on a discussion of that case at this stage. I do accept, however, that if that issue were introduced into the pleadings by amendment, the pursuers would be likely to succeed in having the case appointed of new to debate. Further delay would be inevitable.

In these circumstances it seems to me that the first defenders have offered no adequate explanation for proposing this aspect of the amendment at this late stage. I am satisfied that it would be prejudicial to the pursuers to have to face that new line of argument now. I therefore take the view that I ought not to exercise by discretion in favour of allowing the first defenders to amend in this respect.

[21] So far as the proposed case of contributory negligence is concerned, I am not persuaded that the amendment should be allowed. Against the background of the whole procedural history of the case, the considerations that I have taken into account in that connection are:

1. That the case of contributory negligence now made is one that could have been made before the hearing on procedure roll. It is not based on any new factual material that has come to light since the proof restricted to quantum was allowed and acquiesced in. Mr Smith's attempt to turn that into a point against the pursuers is not in my view well founded. It is no doubt right that there were, prior to the procedure roll hearing, pleadings on both sides dealing with the date at which the first pursuer became aware of the wrongful withdrawals. But the first defenders, in knowledge of those considerations did not make out of them a case of contributory negligence at that stage, but instead conceded that, if the power of attorney did not warrant the withdrawals, the proof should be restricted to quantum, and thereafter, by abandoning the reclaiming motion, acquiesced in the allowance of a proof so restricted.
2. The mention of the possibility of amendment to introduce a case of contributory negligence in December 2000 does not, in my view, tilt the balance in favour of allowing this aspect of the amendment. What was then contemplated, as I understood it, was the possibility that the forensic accountant's report might throw up the basis for a case of contributory negligence. The case now made is not, however, put forward as justified by any new material turned up by the forensic accountant.

[22] I shall therefore -

1. allow the first defenders' defences to be amended in terms of those parts of the minute of amendment, No. 34 of process, identified in paragraph [8](1) above, and
2. quoad ultra refuse the first defenders' motion to amend.

I shall reserve the expenses of the motion.

[23] The first defenders have lodged minutes of amendment in similar terms in each of the other three actions. In each action I shall, for the reasons given above, allow and refuse amendment to the same extent as I have done in this action.