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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Ewos Ltd v. Mainland & Anor [2005] ScotCS CSOH_153 (22 November 2005) URL: http://www.bailii.org/scot/cases/ScotCS/2005/CSOH_153.html Cite as: [2005] ScotCS CSOH_153, 2006 SCLR 477, [2005] CSOH 153

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Ewos Ltd v. Mainland & Anor [2005] ScotCS CSOH_153 (22 November 2005)

[1] In November 2002 the pursuers raised an action against the defenders in which they sought damages on the grounds of breach of contract and fraudulent and negligent misrepresentation. The sums sued for initially amounted to £1,756,400 in total. Defences were lodged, and at the first preliminary hearing, on 3 February 2003, the pursuers were ordained to provide further specification in their pleadings on a number of matters, including the allegations of fraud and misrepresentation. At the procedural hearing in the action, on 9 May 2003, a debate was fixed for 1 and 2 July 2003. Notes of argument were ordered. The pursuers, recognizing the force of certain of the defenders' arguments, decided that amendment of their pleadings was necessary. Consequently, on 26 June 2003, on the unopposed motion of the pursuers, the court discharged the diet of debate and allowed the pursuers 14 days to lodge a minute of amendment. In that interlocutor the pursuers were found liable to the defenders in the discharge of the diet of debate fixed for 1 and 2 July. That finding of expenses was not qualified in any way. It was a matter of agreement between the parties that an unqualified finding of expenses implies that taxation should proceed on a party and party basis.

[2] A minute of amendment was lodged in due course and answered, and further adjustment was allowed. At a further procedural hearing held on 2 October 2003, another debate was fixed for 11 and 12 December 2003, and further notes of argument were ordered. Amendment of the pleadings was allowed on 31 October 2003, and the pursuers were found liable to the defenders in the expenses occasioned by the amendment procedure. That finding of expenses was not qualified. When the debate began on 11 December 2003, counsel for the pursuers indicated that he was no longer insisting on the case based on fraudulent misrepresentation, and deleted the whole of the averments that bore to support that case. I was then addressed by counsel for the defenders, who criticized important aspects of the pursuers' remaining pleadings, notably the questions of causation and quantification of loss. After counsel for the defenders had spoken counsel for the pursuers indicated that he would require to amend to meet the main points made on behalf of the defenders, and made a motion to that effect. The motion was opposed by counsel for the defenders. I decided to allow the pursuers to tender a minute of amendment by 16 January 2004, and appointed the cause to be heard by order on 21 January 2004. Counsel for the defenders then made a motion that the expenses of the action to date should be awarded to the defenders. He also asked for expenses on an agent and client basis. I decided that the defenders should be entitled to the expenses of the action to date, but I thought it too early to decide whether those expenses should be on a party and party or agent and client basis; I thought that a decision on that matter might depend on whether the pursuers were now able to tender an effective minute of amendment. I accordingly indicated that my award of the expenses of the action to date should be without prejudice to whether it was on an agent and client or party and party basis. An entry to that effect was made in the minute of proceedings. The award of expenses itself, however, is simply a finding that the pursuers should be liable to the defenders in the expenses of the action to date, without qualification.

[3] On 21 January 2004 the case called by order. Counsel for the pursuers stated that he had been unable to prepare the necessary minute of amendment in time for the hearing, and made a motion that the case should be continued until 10 February 2004. The motion was not opposed, and I granted it and appointed the minute of amendment to be lodged by 6 February 2004. I indicated, however, that that would be the final continuation allowed to enable the pursuers to prepare a minute of amendment; counsel for the pursuers stated that he was content that the continuation should be a final one. Counsel for the defenders made a motion that the pursuers should be found liable to the defenders in the expenses occasioned by that by order hearing, and with the consent of counsel for the pursuers, I made such a finding. Once again counsel for the defenders moved for expenses on an agent and client basis, and I indicated that my award of expenses was without prejudice to the question of whether such expenses should ultimately be on an agent and client basis. That was noted in the minute of proceedings, although the award of expenses contained in the interlocutor is itself unqualified.

[4] By 10 February 2004 it was clear that a relatively long hearing would be required, and the hearing appointed for that date was accordingly discharged, with consent of both parties, and refixed for 16 February. On 16 February 2004 counsel for the pursuers tendered a minute of amendment. Receipt of this was opposed by counsel for the defenders. It seemed to me that the minute of amendment did not address important matters raised in the course of the debate on 11 December; in particular, it did not address the critical questions of causation and quantification of loss. In view of my statement at the hearing of 21 January that any continuation would be final, I decided to dismiss the action. Thereafter counsel for the defenders moved for the expenses of the action, on an agent and client basis. He referred to the repeated failures of the pursuers to put their pleadings in order. Initially they had made averments of fraud. Further specification of the fraud case was ordered at the first preliminary hearing, on 3 February 2003, but the relative averments were not deleted until the debate in December. Moreover, at that debate, counsel submitted, the necessary factual material had not been collected by the pursuers and expert accountants had not been instructed by them. Counsel submitted that the court should express its disapproval of such conduct of the action by finding the pursuers liable in expenses on an indemnity basis. Otherwise the defenders would be out of pocket in meeting an ill-founded claim. Counsel for the pursuers opposed that motion, on the basis that such an award would be out of proportion to the criticism of the pursuers' conduct of the action.

[5] I decided that expenses should be awarded on an agent and client basis. I considered that the pursuers' conduct of the action as a whole was open to serious criticism. Allegations of fraud had been made at the outset. Despite the order to provide specification made on 3 February 2003 no properly pled case had been made by the time of the first debate, in July 2003. Even when that debate was discharged to allow further amendment, nothing was done to state a relevant case of fraud. The result was that at the debate in December counsel for the pursuers felt compelled to abandon the entire case of fraud. In my opinion that shows seriously defective preparation of the case. That failure to prepare was especially culpable in view of the fact that allegations of fraud had been made; fraud is always a most serious matter, and it is the elementary duty of any legal adviser who makes a case of fraud to ensure that prima facie a proper factual basis exists. That duty was manifestly not fulfilled in the present case. The defects in the preparation of the pursuers' case did not stop there, however. The averments relating to the causation and quantification of loss caused by breach of warranty or negligent misrepresentation were manifestly defective, in fundamental respects, even when the debate took place on 11 December 2003. That was so even though a previous debate had been discharged in order to allow the pursuers to amend further. Following the debate on 11 December 2003 the pursuers were given time to amend further, but at the by order hearing on 16 February 2004 it was clear that their pleadings were still manifestly defective on the questions of causation and quantification of loss. I took the view that the pursuers had been given every opportunity to put their pleadings in order but had failed to do so. In all the circumstances it seemed to me to be important to mark the court's displeasure at the pursuers' conduct of the action by awarding expenses on an agent and client basis.

[6] The interlocutor of 16 February 2004 found the pursuers liable to the defenders in expenses in the following terms:

My intention at the time was that the whole recoverable expenses of process should be taxed on an agent and client basis. That followed from my reasons, as set out in the last paragraph, for making an award of expenses on that basis. I intended to mark the court's displeasure at the entire conduct of the action by the pursuers and their legal advisers, and I thought that that could only be done effectively by awarding the whole expenses of process on an agent and client basis. When an account of expenses was prepared by the defenders the exercise was carried out on that basis. At this point, however, the pursuers pointed out that the award of 16 February 2004 was confined to the expenses in so far as not already dealt with, and that according to the interlocutor it was only that award that had been made subject to taxation on an agent and client basis; consequently, the pursuers said, the awards made in the interlocutors of 26 June 2003, 31 October 2003, 11 December 2003 and 21 January 2004 should be taxed on the ordinary party and party basis.

[7] The defenders accordingly enrolled a motion for rectification of the interlocutor of 16 February 2004 to make it clear that the whole expenses awarded in the action, including expenses awarded by earlier interlocutors, should be liable to taxation on an agent and client basis. Their counsel asked me to rectify head 4 of the interlocutor of 16 February 2004 so that it read "Appoints the Auditor to tax said account and all previous accounts on an agent and client basis, third party paying". As an alternative, if the interlocutors of 11 December 2003 and 21 January 2004 fell to be distinguished from the earlier interlocutors, he moved that I should rectify head 4 so that it read "Appoints the Auditor to tax said account and the accounts referred to in the interlocutors of 21 January 2004 and 11 December 2003 on an agent and client basis, third party paying". In that way, counsel submitted, the interlocutor would give effect to what the defenders had understood to be my intention at the time when I pronounced the interlocutor of 16 February 2004.

[8] The defenders' motion raises the primary question whether it is competent at the end of an action to make expenses already awarded in an earlier interlocutor taxable on an agent and client basis. In addition, two secondary questions arise: first, whether the competency of varying the basis for taxation is affected by a reservation of that question made at the time of the earlier interlocutor, and secondly whether rectification of the earlier interlocutor is competent and necessary. I will deal with these matters in turn.

[9] As a general matter, I consider it important that the court should have a wide power to order that expenses should be taxed on an agent and client basis, to enable it to impose a sanction against conduct of litigation that is plainly inadequate or defective. In the absence of anything akin to the English wasted costs order a direction that expenses should be paid on an agent and client basis is the only effective sanction that a Scottish court has against such conduct. Where an action has been inadequately or defectively conducted, it is very common to find that its course has been marked by abortive debates or procedure roll discussions, unnecessary minutes of amendment and the like. In such cases, it is normal to find that expenses have been dealt with at the time when the diet of debate or procedure roll has been discharged, or when amendment has been allowed; that ensures that the matter is not lost sight of but is dealt with when the underlying facts are still fresh in the minds of the judge and counsel. At that point, however, the degree of incompetence in the conduct of the litigation may not be apparent, and no basis for an award of expenses on an agent and client basis may yet have emerged. It may only be at the conclusion of the case that the need for such an award becomes obvious.

[10] That is very clearly illustrated by the present case, where it did not occur to the defenders, or indeed the court, to consider expenses on an agent and client basis either when the first diet of debate was discharged, on 26 June 2003, or when amendment was allowed on 31 October 2003. It was only on 11 December 2003, when the second diet of debate came to an end because the pursuers recognised the inadequacy of their pleadings, that a motion was made for agent and client expenses. At that point it appeared to me that the defenders were clearly entitled to the expenses of the debate, but I thought that it was premature to consider agent and client expenses until I saw the pursuers' minute of amendment. I accordingly decided to find the defenders entitled to the expenses of the debate but that such finding should be without prejudice to the basis on which the award was taxed. That reservation was recorded in the minute of proceedings. It was only when the pursuers failed to tender an effective minute of amendment at the by order hearing of 16 February 2004 that I thought that I could properly mark my displeasure at the pursuers' conduct of the action by awarding expenses on an agent and client basis.

[11] For the reasons stated in the last two paragraphs, I think it desirable that the court should have power when pronouncing the final interlocutor in an action to alter the basis of taxation of all previous awards of expenses. After considering the authorities that appear to have a bearing on the matter, however, I have with considerable regret been driven to the conclusion that retrospective alteration of the basis of taxation is not competent unless the matter is reserved at the time of the earlier award of expenses.

[12] I was referred to two tracts of authority. The first is a series of cases where the question of altering the basis of taxation in an earlier interlocutor was raised directly. With one exception, all of these dealt with the position after the final interlocutor in the action had been pronounced and after the earlier awards had been remitted for taxation. The first of these cases is Fletcher's Trs v Fletcher, 1888, 15 R 862, where a multiplepoinding had been concluded and an award made finding all parties entitled to expenses out of the trust estate; nothing was said about the basis for taxation. The parties' accounts were remitted to the Auditor of Court, who asked the court to direct which principle of taxation should be used. Lord Young said

The significant point in this case is that the action had concluded, and matters had passed to the Auditor. The function of the court was accordingly completed. It is also significant that Lord Young refers to the basis of taxation as a matter to be determined at the time when the case is decided; by the time matters arose in Fletcher's Trs the case had already been decided. The case thus does not have a direct bearing on cases where the basis of taxation is raised before the case is finally decided, and where the decision to tax on an agent and client basis is made at the time of the final decision.

[13] In Mackellar v Mackellar, 1898, 25 R 883, an action for the custody of children, an award of expenses was made in unqualified terms. The Auditor taxed the account as between agent and client. It was held that this was unjustified, and that it was too late for the successful party to move that the account should be taxed on that basis. Lord McLaren stated (at 25 R 888):

As with the last case, the possibility of taxing expenses on an agent and client basis was only raised following the remit to the Auditor, after the case had been concluded in court. Lord McLaren's reasoning seems to be based on the fact that the matter had been remitted to the Auditor, because it was the function of the court, not the Auditor, to determine the basis for taxation; consequently, by the time the account had gone to the Auditor, it was too late to change the basis.

[14] In Magistrates of Aberchirder v Banff District Committee, 1906, 8 F 571, the defenders were sued in respect of their public duty to maintain roads and streets. Because a public duty was involved the defenders were entitled to the protection of section 1 of the Public Authorities Protection Act 1893, which provided that in any action brought for an act done in execution of any public duty or authority a successful defender should be entitled to expenses taxed on an agent and client basis. The defenders were successful, and they were found entitled to certain expenses in the interlocutor pronouncing absolvitor. Nothing was said in the interlocutor about the basis of taxation, but the defenders lodged an account prepared on an agent and client basis. The Auditor refused to tax the account otherwise than as between party and party, and the defenders presented a note craving the court to direct the Auditor to tax the account as between agent and client. It was held that the application was too late. Lord President Dunedin said (at 573)

The critical point seems to be that the motion for expenses on an agent and client basis must be made before "the interlocutor in the cause" is signed. In the context that appears to refer to the final interlocutor dealing with the merits of the action. In the same case Lord McLaren stated (at 573)

The case clearly involves a final interlocutor. The reason for treating the final interlocutor in the case as definitive is perhaps obvious. It is at that point that the question of expenses passes to the Auditor, but he has no power to determine the basis on which expenses are to be taxed; only the Court has that power. Consequently, if the Court has not exercised its power to award expenses on an agent and client basis before the question of expenses has passed to the Auditor, expenses must be on the normal party and party basis. In addition, the interlocutor will of course involve a decerniture in respect of the whole subject matter of the cause. That appears significant in the light of the second tract of authorities discussed below.

[15] Because the three foregoing cases all dealt with motions made after the successful party's account had been remitted to the Auditor, and after the final interlocutor dealing with the merits of the case, I do not think that they have any necessary application to the present case. In the present case the motion for expenses on an agent and client basis was made as part of the procedure that led to the interlocutor dismissing the action, and the question of agent and client expenses had been raised on two previous occasions and reserved by the court. One case, however, Walker v McNeil, 1981 SLT (Notes) 21, goes further than the three cited above and holds that, if at any stage in an action an interlocutor awarding expenses is pronounced but the basis for taxation is not specified, with the result that the ordinary party and party basis applies, it is incompetent for the court to alter the interlocutor subsequently to specify that taxation should be on an agent and client basis. Lord Maxwell referred to the three cases discussed above and continued

[16] Thus Lord Maxwell proceeded on the dicta in the earlier cases. I am not confident that those dicta go as far as he suggested, except for Lord McLaren in Magistrates of Aberchirder. Nevertheless, in the second tract of authority to which I was referred, the principles that underlie awards of expenses are discussed more clearly than in the 19th and early 20th century authorities. On the basis of that discussion, although it does not deal with the question at issue in the present case, I have come to the conclusion that Lord Maxwell's views are correct. Consequently, if an award of expenses is made prior to the final interlocutor and nothing is said about taxation of the expenses on an agent and client basis, taxation will be on the usual party and party basis, and that cannot be altered subsequently.

[17] The underlying principles are as follows. When expenses are awarded, the court pronounces two interlocutors, the award of expenses itself and the decerniture for those expenses. The significance of the decerniture is that the interlocutor finally determines part, or the whole, of a case; that has a consequence that the decree may be extracted: Maclaren, Court of Session Practice, 1095. If taxation is to be on an agent and client basis, that appears in the award of expenses. The decerniture is normally for payment of the expenses referred to in the award as taxed by the Auditor; thus the decerniture necessarily takes in the basis of taxation specified in the award. The award of expenses can be altered or supplemented by a subsequent interlocutor. The decerniture, however, cannot be; that is because the decerniture is the basis for extract of the award, and finality is essential in any interlocutor that forms the basis for extract. Consequently any matter that is properly regarded as forming part of the decerniture is unalterable.

[18] The foregoing principles appear in two relatively recent cases in the Inner House, Marks and Spencer Ltd v British Gas Corporation, 1985 SLT 17, and U.C.B. Bank PLC v Dundas & Wilson, C.S, 1991 SLT 90. In those cases it was held that it was competent to allow an additional fee even after a decerniture for payment of expenses. In the latter case L.P. Hope stated (at 93L-94F):

[19] The critical distinction is accordingly between elements in the award of expenses that enter into the decerniture and elements that do not; the latter consist merely of instructions to the Auditor. L.P. Hope cites the decision of Lord Maxwell in Walker v McNeil with approval, and appears to accept that the basis of taxation enters into the decerniture. That seems correct in principle. The decerniture is "for payment... of the expenses referred to in the foregoing interlocutor as the same shall be taxed". The previous interlocutor finds a party liable in expenses on the basis that is specified in that interlocutor; if no basis is specified expressly the expenses are on a party and party basis: Fletcher's Trs v Fletcher, supra. The result of that wording is that the basis of taxation in the interlocutor dealing with expenses is incorporated by reference into the interlocutor containing the decerniture. That means that it cannot be altered. Moreover, the basis of taxation is something that must be determined by the court prior to the remit to the Auditor; it is not a matter that the Auditor has power to determine. This should be contrasted with the allowance of an additional fee, which is a matter that may be remitted to the Auditor. The result is that the basis of taxation cannot be altered retrospectively. As I have already indicated, I consider this an undesirable result, but I think that it is compelled by the authorities.

[20] That means that the awards of expenses made on 26 June 2003 and 31 October 2003 cannot now be modified. On both of those occasions the awards of expenses were unqualified, and were accordingly made on an party and party basis. A further matter arises, however, in relation to the interlocutors of 11 December 2003 and 21 January 2004. On both of those occasions counsel for the defenders moved for expenses on an agent and client basis. On each occasion I formed the view that it was premature to decide that matter, and decided to make an award of expenses but to reserve the question of the basis of taxation. This was given effect in the manner described in paragraphs [3] and [4] above; on each occasion it was noted in the minute of proceedings that the award of expenses was without prejudice to the question of whether expenses should ultimately be on an agent and client basis. The question is whether that makes a difference.

[21] In my opinion it does. If the basis of taxation is reserved, it is clearly a matter that remains open for decision by the court, and it may, indeed must, be determined in a subsequent interlocutor. That is subject to one important qualification, however. The basis of taxation is a matter that belongs peculiarly to the decision of the court, and that decision must obviously be recorded in the form of an interlocutor. I accordingly consider that the reservation of the basis of taxation should have been recorded in the relevant interlocutor, rather than the minute of proceedings. I am nevertheless of opinion that the two interlocutors in question, those of 11 December 2003 and 21 January 2004, can now be rectified to incorporate the reservation recorded in the minute of proceedings.

[22] The rectification of interlocutors is governed by RC 4.15(6), which provides as follows:

In Laing v Scottish Arts Council, 2001 SC 493, the Court held that what was intended by that provision was, in lay terms, "a power to bring an interlocutor into line with the court's original intention". That might consist of the actual correction of an error, but it might also involve the removal of ambiguity or the clarification of what the court intended to say by putting matters differently. It seems clear, however, that it is always competent to correct an interlocutor in order to ensure that it accords with the court's intention at the time. In the case of the two interlocutors of 11 December 2003 and 21 January 2004, my intention was to reserve the basis of expenses until a future date. That intention was clear from the terms of the minute of proceedings. I accordingly consider it competent to correct those two interlocutors, using the power contained in RC 4.15(6), to bring them into line with the minute of proceedings.

[23] The result of that is that the basis of taxation for the awards of expenses contained in those interlocutors is not determined by the interlocutors, but is a matter that must be determined at a future date. That determination was made on 16 February 2004. On that date, as indicated in paragraph [6] above, my intention was that the whole recoverable expenses of process should be taxed on an agent and client basis. That was in fact not possible in relation to the awards of expenses made by the interlocutors of 26 June 2003 and 31 October 2003, for the reasons discussed above. Nevertheless, it was possible in relation to the awards of expenses made on 11 December 2003 and 21 January 2004. I accordingly conclude that the interlocutor of 16 February 2004 should be corrected to give effect to that intention.