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OUTER HOUSE, COURT OF SESSION
[2007] CSOH 118
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A2381/02
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OPINION OF LORD EMSLIE
in the cause
ROYAL INSURANCE (UK)
LIMITED
Pursuers;
against
AMEC CONSTRUCTION
SCOTLAND LIMITED AND OTHERS
Defenders:
ญญญญญญญญญญญญญญญญญ________________
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Pursuers: McLean;
DLA
First Defenders: Borland;
MacRoberts
Second Defenders: Richardson;
Simpson & Marwick
Third Defenders: Jones, Q.C.; McColl; Brodies
6 July 2007
Introduction
[1] This
is an action of damages against contractors, architects and structural
engineers who were involved in major reconstruction works affecting several
buildings in central Glasgow
between 1987 and 1990. Significant
problems manifested themselves some years later, and the pursuers' claim covers
inter alia disturbance and remedial
costs relative to one of the buildings of which they became tenants in
1991. The action was raised in September
2002, and after sundry procedure a debate on the first and third defenders'
preliminary pleas took place in the latter part of 2005. By interlocutor dated 25 November 2005,
following that debate, a proof before answer was allowed, and in March 2006 a
12-week diet was set down to commence on 25 September 2007. On completion of an extensive amendment
procedure dating from November 2006, I have now heard parties on the defenders'
opposed motion, notwithstanding the current allowance of proof, to have the
case sent back to the procedure roll instead..
[2] In
essence, the issues raised at the debate in 2005 concerned the pursuers' title
to claim disturbance and remedial costs where multiple relevant invoices had
apparently been rendered to and paid by third parties. At that stage, however, the argument of the
first and third defenders was formally directed to the relevancy of the
pursuers' pleadings, and the pursuers' fundamental title and interest to pursue
the action as a whole were not in issue.
This was perhaps unsurprising because, in the instance and throughout a
lengthy Record, the pursuers represented themselves as the party having (i)
right, title and interest to enforce certain collateral warranties or
undertakings against the various defenders relative to the conduct of the
initial reconstruction works, and (ii) full repairing and reinstatement
obligations, coupled with liability for rent, qua tenants under the lease of 1991.
[3] As
I have already noted, an extensive amendment procedure then took place with
effect from November 2006, and the Closed Record has only now been opened up
and amended in terms of the first defenders' minute of amendment and the other
parties' answers all as adjusted. In the
course of that amendment procedure, from about February 2007 onwards, the first
defenders tabled a formal challenge to the pursuers' title and interest to maintain
the present action. In particular they
averred the disclosure, in the pursuers' own accounts for the year ended 31 December 1992, of an
arrangement whereby
"... with effect
from that date the pursuer transferred not merely its whole insurance business
and staff to Royal Insurance PLC, but all its assets and liabilities as well".
The relative balance sheet, it was
averred, showed that the value of leasehold property held by the pursuer was by
the same date reduced to nil, as indeed was that of its other former
assets. In these circumstances, the
first defenders alleged that the collateral warranties under which the pursuers
bore to sue, and the lease representing their supposed interest in the
building, had ceased to be their property prior to the inception of the present
action. They therefore called on the
pursuers to condescend upon the basis on which any title to insist in this
action could be supported.
[4] By
way of adjustment to their answers in February and June 2007, the pursuers
responded in inter alia the following
terms:
"Until about
1992, the pursuers carried on business as insurers in the United
Kingdom and elsewhere. They did so as part of the Royal Insurance
group of companies. Their staff occupied
the premises. During the course of 1992,
the said group reorganised their businesses.
As a result, at the end of 1992, the insurance business carried on in
the United Kingdom
by the pursuers was transferred to another company within the group, namely
Royal Insurance PLC (PLC), although until about 1996 the pursuers continued to
conduct some insurance business outwith the United
Kingdom.
After said transfer at the end of 1992, the staff previously employed by
the pursuers at the premises became employees of other Royal Insurance group
companies. The pursuers employed no
staff themselves in the United Kingdom
from the end of 1992. The legal
framework for the said business transfer was provided by an Agreement between
the pursuers and PLC dated 31 December
1992. The Agreement is
governed by English law. In terms
thereof as construed under English law, the pursuers declared themselves to be
bare trustees of the assets that they held, insofar as said assets were not
required by PLC to be conveyed to them, for the benefit of PLC. The pursuers' interests in the said lease and
in the undertakings ... have not been required to be conveyed to PLC and are
accordingly held by the pursuers as bare trustees under an English trust for the
benefit of PLC. As such, the pursuers
retain title and interest to pursue this action. The pursuers remained and remain as tenants
under the said lease, subject to the said tenants' obligations. They provided accommodation for employees of
other Royal Insurance group companies in the premises on an informal
basis. The pursuers remained and remain
liable to the landlords for payment of the rent and related payments due under
the said lease, but have been relieved of those charges by other Royal Insurance
group companies in consideration of the fact that group employees were
occupying the premises."
The new issues
[5] All three defenders now
have preliminary pleas and supporting averments to the effect that, on the
pursuers' own averments taken pro veritate,
the latter have never had title or interest to pursue this action in their own
right. According to the defenders'
submission, the critical assets and liabilities were vested in the pursuers in
a different legal capacity, namely that of trustees, and as the instance
confirmed this was a capacity in which they did not sue. The existence of a trust implied some form of
conveyance or divestiture by the pursuers in their own right, as truster, in
favour of themselves as trustees. The
legal consequence, it was said, was that the title to enforce the defenders'
collateral warranties had since 1992 lain with the pursuers in a special
trustee capacity which had not previously been disclosed. As stated in Macfadyen and Others, Court of Session Practice, at paragraph 116,
trustees must always be properly named and designed in the instance of legal
proceedings and this reflected the general rule that any special capacity in
which a party sued or was sued must be made clear. In the defenders' submission this was a
substantive deficiency in the pursuers' title which, if sustained at a
procedure roll debate, could lead to dismissal of the whole action.
[6] The
pursuers, on the other hand, maintained before me that their title and interest
to sue was not in jeopardy; that there
had never been any conveyance, disposition, assignation, transfer or other
divestiture of the key assets and liabilities pursuant to the agreement of
31 December 1992; and that
accordingly the defenders' new challenge was misconceived. The Royal Insurance group reorganisation was res inter alios so far as the defenders
were concerned, and it was significant that in asserting their new challenge
the defenders had relied on nothing more substantial than a text book on
practice where, moreover, the cited caselaw did not
support the proposition advanced. If
necessary, amendment as to mere capacity was expressly provided for within Rule
of Court 24.2, but in the pursuers' submission no such amendment was in any
event required.
[7] I
am not at present called on to resolve these issues which the defenders
characterised as substantial and potentially fatal to the validity of the
present action. The position adopted by
counsel for the pursuers was that the argument "... would not be straightforward",
and would proceed on considerations of principle as extrapolated to meet the
circumstances of this case. For my own
part, I might have been inclined to question how far the situation was affected
by the fact that under Scots law a seller or transferor in possession, sometimes
even after delivery of a formal conveyance for recording, would not normally be
regarded as subject to any form of trust at all. I might also have been inclined to wonder what were the incidents of the bare trust averred by the pursuers
under English law. Would it, for
example, permit them to hold property or enforce contracts in their own name without
disclosure of the trust to third parties?
For present purposes, however, these potential concerns are immaterial
because (a) none of the parties suggested that it would be appropriate for me
to enter into any detailed consideration of the new issues on their
merits; (b) the Agreement of
31 December 1992 is not before me, nor do I have averments or evidence as
to its terms or incidents beyond the deemed creation of a bare trust under
English law; and (c) the matter was
presented to me on all sides on the footing that points of some substance had
now arisen for determination. I
therefore proceed on the basis that there are real issues to try, and that at
the very least the defenders have a "good arguable case" to put forward. In addition, as senior counsel for the third
defenders pointed out, I have to recognise that if the pursuers' title and
interest to sue were to be found wanting a serious issue of prescription would
then be likely to arise.
The parties' submissions
[8] Against
that background, I turn to consider the merits of the defenders' motion for a
procedure roll debate on the new issues, coupled with recall of the previous
allowance of a proof before answer and discharge of the diet due to commence on
25 September 2007. In the
defenders' submission no preliminary proof would be required: it was enough that the pursuers themselves
had averred a bare trust, even though the Record was otherwise silent as to its
terms and incidents. The choice was thus
simply between, on the one hand, appointing the case of new to the procedure
roll or, on the other, leaving the current allowance of a proof before answer
in place. Counsel for the pursuers
agreed that this was, realistically, the choice to be made by the court. In his submission a preliminary proof would
be inappropriate because of the
significant degree to which the evidence there would overlap with other issues
and would require to be duplicated at a main proof in due course. As I understood it, the parties were also
ultimately in agreement that the court could not properly "ride both horses",
and seek to hold a procedure roll debate while the present proof diet remained
standing. Apart from being procedurally
contradictory, such an arrangement would involve a serious risk of the proof
having to be discharged at a later stage after seriously high preparation costs
had been incurred. Such an outcome was
readily foreseeable in the event of the court's decision on the preliminary
issues being delayed and/or reclaimed.
[9] As
regards competency, all parties agreed that the decision was one for the court
to take on a discretionary basis, and with the interests of justice in
mind. The general rule was no doubt that
a Lord Ordinary could not alter the substance of an earlier interlocutor, but
it was well settled that that rule did not apply where the pleadings on which a
proof was allowed were altered by amendment.
In that situation, the court would not truly be reviewing or recalling its
previous interlocutor: it was simply a
matter of selecting the most appropriate mode of inquiry to fit the changed
circumstances. In Bendex v James Donaldson
& Sons Ltd 1990 SC 259, the Lord President (Hope) at page
265-6 said:
"It seems to us
... to be entirely consistent with the scope of the power (to allow amendment)
that the Lord Ordinary should be entitled to make a fresh order as to the mode
of inquiry should this be appropriate in the light of the amendment. This is so even if this means recalling an
order previously made. We see no
conflict between this approach to the matter and the general principle that a
Lord Ordinary is not entitled to alter the substance of a prior interlocutor. The position is simply that a Lord Ordinary,
in considering whether or not to allow an amendment ..., must have in mind that a
consequence of allowing the amendment will be that the mode of inquiry which
was originally allowed may no longer be appropriate and will have to be
reconsidered."
This approach was affirmed by the
court in Gillon v Gillon (No.2) 1994 SC 162 (esp. at page 165E-F),
and also found expression in Macphail,
Sheriff Court Practice, 3rd ed., at paragraph 10.06, and in the
annotations to Rule of Court 4.15.
According to all counsel, the court's discretion would require to be
exercised in light of the whole known circumstances. For present purposes, these would include the
apparent substance of the matters sought to be debated, and also what I might
call the "balance of convenience", namely the practical and economic
considerations which might militate for or against each of the available
options.
[10] I have already recorded how all parties' submissions proceeded
on the basis that the challenge to the pursuers' title and interest involved
matters of substance on which the competing arguments would not be
straightforward. Beyond that, on the defenders'
side, I was urged to send their challenge to debate because otherwise 12 weeks
of judicial time could prove to have been entirely wasted if the pursuers were ultimately
found to have no title or interest to sue.
Escalating high-end expenditure
by four parties in preparing for and running a proof of such magnitude would
also be wasted, as would the substantial time commitment now required of
principals, agents and experts. An award
of expenses would be inadequate compensation in such circumstances, not least
because a relatively substantial proportion of such expenses might be
irrecoverable. In addition, a challenge
to title and interest was something which in principle ought to be disposed of in limine, and if the pursuers had
disclosed the events of 1992 at an earlier stage it was inevitable that such
issues would have been debated in 2005.
The source of the pursuers' current difficulties was entirely within
their own knowledge, and if the action was stale they had only themselves to
blame. The lateness of disclosure had
not been satisfactorily explained, and the defenders should not be exposed to
the risk of serious prejudice by reason of developments for which the pursuers
must bear responsibility. Moreover, in
the event of the pursuers succeeding on the new issues, a fresh proof might be
fixed within a reasonable time. Delay in
that connection would not necessarily be significant, and was unlikely to be of
great materiality where (according to the pursuers' counsel) only a limited
amount of pre-1990 factual evidence was available. Appropriate expert evidence, would, moreover,
be likely to be obtainable irrespective of the date of any proof, and since the
pursuers had apparently "pooled resources" with the owners of neighbouring
buildings such evidence might well be preserved in connection with these other parties'
claims.
[11] On the pursuers' side it was stressed that connected matters
had already been remitted to proof following the procedure roll debate in
November 2005. The new issues, and the
other matters raised during the amendment process, should simply be added in
with the remainder. The impending diet
of proof had been fixed as long ago as March 2006. Preparations were already well-advanced, and
standing down now could seriously devalue these preparations if (as seemed
likely) any fresh proof diet would be significantly delayed. Multiple issues required to be explored and
resolved, and there was a risk of important evidence being lost by the passage of time. The health and availability of factual and
expert witnesses could not be guaranteed indefinitely, nor could the health and
availability of counsel and agents. It
was idle to speculate, as the defenders had done, about the use of the
pursuers' evidence in other parties' actions where the issues were
different. If the present diet were
lost, there was the spectre of years of delay before another extended
allocation of judicial time could be secured.
A procedure roll debate (or any preliminary proof which might be
allowed) would foreseeably be followed by a reclaiming motion, and possibly a
further appeal to the House of Lords. In
addition, responsibility for the present situation did not rest with the
pursuers alone. It would have been open
to the defenders to obtain the relevant company accounts at a much earlier
stage, and their failure to do so should not be seen as a reason to disrupt the
proper progress of this action.
Discussion
[12] In the unusual circumstances of this case I have not found it
easy to decide where the interest of justice may truly be thought to lie. On the one hand, the present proof diet has
been fixed for a considerable time, with preparation on all sides well
advanced, and if it were to be lost there is a clear risk of preparations to
date being rendered abortive, and also of evidence being lost (with or without
the possibility of replacement) if any fresh diet were to be several years down
the line. In addition, following the
original debate in November 2005, certain matters were remitted to proof before
answer which, with the benefit of hindsight, may possibly be seen as manifestations
of the more fundamental problems which are now alleged. If the forthcoming proof had not been of such
magnitude, and if the likely expense of preparing for and fighting it had not
been so great, and above all if there had been any reason to believe that the
defenders' challenge to the pursuers' title and interest possessed no real
substance, there would in my view have been a strong case for refusing the
defenders' motion and leaving in place the current arrangements for a proof
before answer.
[13] On the other hand, for the reasons already given, I have to
proceed on the basis that the defenders' new points are indeed matters of
substance, and that at the very least a "good arguable case" for dismissal of
the action has been advanced. Moreover,
the forthcoming proof is of 12 weeks duration, and given the number of
contested issues in the original and amended pleadings I suspect that a further
allocation of time might ultimately be required. For a proof of such length, with multiple
issues requiring the services of expert as well as factual witnesses, I have no
difficulty in accepting that the expenses incurred on all sides are liable to
be extremely high. Some of these
expenses have, of course, been incurred already, but there can be no doubt that
from now on, as the necessary preparations gather pace, the escalating costs
will be very significant indeed. Prima facie the wastage of such a
significant tract of judicial time, and also of the time, commitment and
expense of parties, must in my view be regarded as a matter of real concern. In addition, I think that a challenge to the
pursuers' title and interest to pursue the present action is something which
ought in principle to be determined ante
omnia before an extensive proof on both merits and quantum takes place.
Resolution of such a challenge in the defenders' favour would be fatal
to the whole proceedings, whereas resolution in the pursuers' favour could
permit a fresh proof diet to be fixed within a reasonable timescale.
[14] Pausing there, it seems to me that consideration of the
practical "balance of convenience" tends to favour the option of recalling the
allowance of a proof before answer, discharging the forthcoming diet and
sending the case anew to the procedure roll pursuant to the defenders'
motion. A further consideration which in
my view militates strongly in favour of that course is that responsibility for
this present crisis must lie, first and foremost, with the pursuers. The events of 1992 are matters peculiarly
within their own knowledge and experience, and it is not easy to see how
matters of such obvious potential importance could have been left out of
account for so long. Some thought must
surely have been given to the pursuers' title and interest when the action was
first raised, and a fortiori in and
before 2005 when the defenders drew attention to the extraordinary situation in
which many claimed outlays did not appear to have been incurred by the pursuers
at all. Surely at that stage one might
have expected the Agreement of 1992 and its legal consequences to be the
subject of disclosure and averment. In
my opinion, the pursuers cannot legitimately complain about the loss of a proof
diet, and the consequent risk of prejudicial delay, where the main underlying
cause of the present difficulties would seem to be their own failure to make timeous disclosure of potentially critical facts and
circumstances within their own knowledge.
[15] In any event, as previously mentioned, I am not persuaded that
any delay in obtaining a fresh proof diet in the event of the pursuers
successfully fighting off the defenders' new challenge would necessarily be as
great as counsel sought to suggest.
Counsel's submissions assumed the likelihood of a preliminary proof
and/or a reclaiming motion, but in my view neither possibility should be
regarded as a foregone conclusion. In
addition it seems to me that the feared loss of evidence in the event of
serious delay may also be overstated, having regard to the allegedly limited
need for pre-1990 factual evidence and the likelihood of expert evidence being
replaceable if required. All three
defenders appeared content, for their interest, to accept the relevant risks,
and it is also noteworthy that the pursuers' fears were expressed in general
terms and without specific reference to particular witnesses or pieces of
evidence.
[16] For all of these reasons I have come to the conclusion that, in
the interests of justice, I should exercise my discretion in favour of granting
the defenders' motion. I shall therefore
recall the allowance of a proof before answer dating back to 25 November
2005, discharge the 12-week diet of proof which is set down to commence on
25 September 2007, and appoint the case of new to the procedure roll on inter alia all
three defenders' new preliminary pleas. Quoad ultra, for the avoidance of any further
procedural delay and uncertainty, I propose to appoint this case to call By
Order, at a date to be afterwards fixed, with a view to hearing further
submissions as to the full extent of the fresh debate which should be
allowed. By way of illustration, I note
that the averments which were the subject of debate in November 2005 have
undergone significant change during the recent amendment procedure, and in my
view it would be of interest to know (i) whether the relevancy of the pursuers'
substituted averments is now a live issue, and if so (ii) how far that issue
may be thought to be covered by, or alternatively separate from, the defenders'
broader challenge to the pursuers' title and interest to sue. Senior counsel for the third defenders has
also raised the possibility of an issue of prescription in the event of the latter
challenge being successful. In my view
it would be desirable to determine at this stage whether any such related or
consequential issues ought to be remitted for debate at the same time.
