Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2010] CSOH 26
CA20/09	OPINION OF LORD GLENNIE in the cause CREDENTIAL BATH STREET LIMITED Pursuers; against DLA PIPER SCOTLAND LLP & OTHERS Defenders: ­­­­­­­­­­­­­­­­­________________

Pursuer: P Davies; Harper MacLeod

Defender: L Murphy QC; Biggart Baillie

5 March 2010

[1] The pursuers sue in this action as assignees of Credential Charing Cross Limited (variously "Credential" or "the landlords"). The matter comes to court at debate on the defenders' first plea in law to relevancy and specification. The defenders seek dismissal of the action.

[2] For the purposes of the debate, the pursuers' averments are to be taken pro veritate. They aver that, by a lease dated 17 July 2001, Credential leased to Pertemps Callpoint Limited ("Pertemps Callpoint" or "the tenants") a building known as The Venlaw Building in Bath Street, Glasgow ("the premises") for a period of 25 years from 15 June 2001 at a rent of £328,320 a year. The tenants' obligations under the lease were of a fairly standard kind. They included an obligation to keep the premises (and the plant and machinery within the premises) in good and substantial repair and condition, to comply with Notices to repair within a specified period, and to pay the landlord's costs in relation to such notices and schedules relating to wants of repair. Clause 5.1 of the Lease permitted the landlords to irritate the Lease if the tenants failed to comply with their obligations thereunder, or if they went into liquidation. The tenants' obligations were guaranteed by their parent company, Pertemps Group Limited ("Pertemps Group").

[3] On 1 and 4 October 2002, the tenants (Pertemps Callpoint) assigned their interest under the Lease to a subsidiary, Callpoint Europe Limited ("Callpoint Europe"). By an Amortized Payments Agreement of the same date, Callpoint Europe undertook to pay the landlords £103,680 per annum for the duration of the lease as reimbursement for the cost of works carried out to the premises at their request. Callpoint Europe's obligations under both the Lease and the Amortized Payments Agreements were guaranteed by Pertemps Callpoint (the original tenants) for the duration of those agreements. That guarantee included "step-in" obligations on the part of Pertemps Callpoint in the event of default by Callpoint.

[4] The defenders are a firm of solicitors and the partners thereof. They acted on behalf of the pursuers in the negotiation of the Lease, the guarantee, the assignation and the Amortized Payments Agreement.

[5] Credential Holdings Limited ("CHL", the parent company of the landlords) held a minority shareholding in Pertemps Group. In August 2002, on the sale by CHL of that minority shareholding in Pertemps Group, it was agreed that Pertemps Group would grant a further guarantee ("the Guarantee") for the whole obligations of the proposed new tenant, Callpoint Europe, under the Lease and the Amortized Payments Agreement. The Guarantee was for a two year period from 1 January 2003 until 31 December 2004 ("the Guarantee Period").

[6] The Guarantee was not in fact executed until May 2003, but nothing turns on this. It was drafted by the defenders. Mr Clapham of the pursuers had instructed the defenders, early in February 2003, to draft the Guarantee to cover the whole obligations of Callpoint Europe under the Lease and Amortized Payments Agreement for the Guarantee Period. The defenders accepted those instructions and within a day or so sent a draft Guarantee by email to the pursuers, stating that, in terms of the draft, Pertemps Group "will guarantee all the obligations due by [Callpoint Europe] under the Lease and Amortized Payments Agreements...". This was the Guarantee that was eventually executed in May 2003. Its terms are the subject of complaints by the pursuers in this action.

[7] In October 2003 the pursuers took an assignment from the landlords of their rights under the Lease, the Amortized Payments Agreement and the Guarantee.

[8] During the course of 2003 Callpoint Europe were persistently late in making payments of rent and other sums due under the Lease. Further, in November 2003 the pursuers were advised of the need for repairs to the premises. They considered servicing a notice of dilapidations, and sought advice from the defenders as to whether or not the Guarantee covered the repairing obligations in the Lease and, if so, how Pertemps Group's liability under the Guarantee could be triggered before the end of Guarantee Period. The defenders advised that the Guarantee covered the repairing obligation; and that, in order to make Pertemps Group liable, a copy of the Schedule of Dilapidations should be served simultaneously on Callpoint Europe and Pertemps Group, with a period of two months being allowed to carry out the repairs. Concern was expressed by Mr Clapham to the defenders that Callpoint Europe would be unable to meet their obligations under the Lease, including their repairing obligations.

[9] On or about 10 March 2004, the pursuers instructed the defenders to serve a Schedule of Dilapidation on Callpoint Europe and to enforce the Guarantee against Pertemps Group in relation to the same repairs. A Schedule of Dilapidations was prepared and, in late March 2004, was intimated to Callpoint Europe and to Pertemps Group. Callpoint Europe were called upon to carry out the work within two months. A revised Schedule of Dilapidations was intimated at the end of April 2004, again with a two month period being stipulated for the work to be carried out. The work was not carried out. At the end of June 2004 the pursuers threatened to irritate the Lease if the work was not carried out by 12 July 2004. This prompted Callpoint Europe to seek and obtain interim interdict against the pursuers from irritating or seeking to irritate the Lease on the grounds that the two month period allowed in the Notice to carry out the work was not reasonable, given the nature and extent of the works required to be done.

[10] In July 2004 the pursuers presented a petition for the winding up of Callpoint Europe on the grounds that it was unable to pay its debts as they fell due and that its assets were insufficient to meet its liabilities. The purpose was that if the prayer of the petition were granted within the Guarantee Period, that would trigger the step-in provisions in the Guarantee. However, the petition was defended by Callpoint. At the end of February 2005, however, Pertemps Callpoint, the sole shareholder in Callpoint Europe, passed an extraordinary resolution that Callpoint Europe be placed in creditors' voluntary liquidation. Eventually, in April 2005, the court ordered that Callpoint Europe be wound up. As a result of that there is no prospect of any dividend for the creditors including the pursuers.

[11] The pursuers raised proceedings against Pertemps Group to enforce the Guarantee in respect of the costs of carrying out the repairs set out in the Schedule of Dilapidations; and claiming damages against Pertemps Group for causing Callpoint Europe to oppose the petition for its liquidation until after the expiry of the Guarantee Period, thereby preventing the step-in provision operating. The action was dismissed after debate on three grounds: first, that under the Guarantee, Pertemps Group were only liable for breaches of the Lease during the Guarantee Period if a demand had been served during the Guarantee Period calling upon them to make payment under the Guarantee; second, that service of the Schedule of Dilapidations did not amount to such a demand and that Pertemps Group therefore had no legal liability for the failure of the tenant to carry out the repairs; and, third, that there was no obligation on Pertemps Group not to cause Callpoint Europe to oppose the winding up petition, whether or not they knew or ought to have known that opposition was unjustified in fact or in law. Accordingly, all attempts to claim relief against Pertemps Group under the Guarantee have come to nothing and there is no prospect of recovering any sums from them or of enforcing the step-in provisions.

[12] In Articles 9 and 10 of Condescendence, the pursuers aver that the defenders were in breach of in a number of duties owed to them in contract and/or in delict. I shall not recite them all in full. It is sufficient to note that the alleged duties fall into two categories; those owed in respect of the drafting of the Guarantee; and those owed in respect of the attempts to enforce it. Within the first category, for example, it is averred that the defenders ought to have drafted the Guarantee so that it was effective to guarantee the obligations of Callpoint Europe under the Lease and the Amortized Payments Agreement during the whole of the Guarantee Period, and not only those obligations in respect of which the pursuers were able to serve notice on Pertemps Group within that period. Similarly, it is averred that the defenders ought to have drafted the step-in provisions so that they were enforceable if Callpoint Europe were put into liquidation or the Lease was irritated as a result of proceedings raised before the expiry of the Guarantee Period, rather than only if the winding up order itself was made or the Lease irritated before the end of the Guarantee Period. And it is averred that the defenders owed duties of care to advise the pursuers of any aspects of the Guarantee which would prevent them recovering sums or enforcing the step-in and provision under it. Within the second category of obligation, there are a number of complaints that as to the defenders' failures both to give advice as to enforcement and to take the appropriate steps to enable the guarantee to be enforced.

[13] As I have said, the matter came before the court at debate on the defenders first plea-in-law to the relevancy and specification of the pursuers' averments. Mr Murphy QC, who appeared for the defenders, moved the court to dismiss the action. He sought to characterise the pursuers' case in this way. It was not a case, he said, where the solicitor had failed to draft a Guarantee in the terms specifically instructed or had drafted one in terms which no competent solicitor acting with the appropriate skill and care could properly have drafted. Properly understood, he said, the pursuers' case was that the defenders, having drafted a Guarantee, and having been instructed to "enforce" that Guarantee, failed to take steps to operate the Guarantee so as to trigger the guarantors' liability prior to 1 January 2005. The crucial element in that case, he said, was that there was an express instruction to enforce the Guarantee. Without that, the case must fail. There had to be relevant and specific averments on the point. The pursuers had made an averment in Article 6 that

"on or about 10 March 2004 the Pursuers instructed the Defenders to served a Schedule of Dilapidations on Callpoint [Europe] and to enforce the Guarantee against Pertemps [Group] in relation to the same repairs".

That was understood to be a reference to an e-mail of 10 March 2004. However, although that e-mail referred to service of the Schedule of Dilapidations, it did not in terms say anything about "enforcing" the Guarantee. It was therefore not clear what was the basis of that averment or what was meant by it. Further, the pursuers gave no specification of any steps which the defenders could or should have taken and what effect such steps would have had. The-email could not be construed as an instruction to take immediate steps to enforce the guarantee. That was fatal to the pursuers' case which accepted that the guarantee was drafted in terms such that it could have been enforced as any time up to the end of 2004.

[14] The defenders took a further point. Early in June 2004, on the pursuers' averments, they instructed Harper MacLeod. They argue that, notwithstanding that, the defenders "continued to act for the pursuers" in relation to the enforcement of the Schedule of Dilapidations and the Guarantee. However, it was clear from the correspondence referred to that from June 2004 onwards the defenders were only acting in respect of an issue about the assignation of the Lease. Accordingly, for the last six or seven months of the Guarantee Period, the defenders owed no duty of care to the pursuers, whether in delict or contract, in respect of the enforcement of the Guarantee.

[15] Finally, Mr Murphy contended that the pursuers' averments of loss were lacking in specification and appeared to indicate that as that 1 January 2005 the guarantor had divested itself of its assets. Accordingly, any claim against the guarantor under the guarantee would have been worthless. It followed that any breach by the defenders caused the pursuers no loss. There were averments made about undertaking given to Pertemps Group by its new parent company in or about November 2004, but it was not clear how those averments assisted the pursuers' case. There had been requests for the pursuers to clarify the position but they had failed to do so.

[16] For the pursuers, Mr Davies moved the court to allow a proof before answer. The defenders' view of the pursuers' case was incomplete. The pursuers' case was twofold. First, they alleged that the defenders negligently drafted the guarantee and in two particular respects made it difficult and impractical to enforce. This was because (a) it required service of a demand on Pertemps Group within the Guarantee Period and (b) the step-in provisions were only enforceable if the tenant was wound up or the Lease irritated within the Guarantee Period. In effect, therefore, the time limit put on the Guarantee by the defenders created difficulties which should not have been created in the first place. Although the Guarantee was badly drafted, it was not entirely unenforceable; but had it been properly drafted it could and would have been enforced by the pursuers.

[17] The second part of the pursuers' case was that when questions of enforcement arose, the pursuers instructed the defenders to enforce the Guarantee and sought advice from them as to how that should be done. As a result of their failures at that stage, enforcement steps were not taken. This related not so much to the step-in provisions, since no practical steps could have been taken in respect of those provisions at that stage, but rather to steps which should have been taken before June 2004. In those circumstances, the question of whether or not the defenders continued to be instructed after June 2004 was not material to the claim. But the pursuers did maintain that the defenders had continuing instructions and were under a continuing duty to implement those instructions.

[18] I have come to the conclusion that I should allow a proof before answer on all issues in the case. In those circumstances it would not be appropriate for me to express any firm view on the merits of the arguments placed before me. The defenders attack on the pursuers' case focuses on the inadequacies of the averments concerning steps which should have been taken to enforce the guarantee - what instructions were given, what steps should have been taken, with what effect, etc.. That attack assumes that there is no real issue in the case about the defenders obligations in terms of drafting the Guarantee. That appears to me to be a misconception. It seems to me to be clear from the pleadings that the pursuers do maintain the case that the defenders were in breach of a duty of care owed in contract and in delict in a number of respects relative to the drafting of the Guarantee. It is true that the allegations of breach are more in the nature of assertion than justification, but in commercial procedure defects of that sort in the pleadings are typically, and properly, dealt with by the lodging of expert reports.

[19] Further, it seems to me that there is a risk that, in focusing the argument on whether the e-mail of 10 March 2004 can properly be understood as an instruction to "enforce" the Guarantee against Pertemps Group, the defenders are inviting the court to take that e-mail out of its proper context. The pursuers aver that any solicitor of ordinary competence, who was aware of the financial position of Callpoint Europe, the terms of the Guarantee and the interests of the pursuers, would have understood that e-mail as amounting to an instruction that the defenders should take immediate steps to enforce the Guarantee. Whether that averment will be made good I cannot say, but it would in my view be wrong for the court to hold the pursuers' case to be irrelevant based only on an argument that on its literal wording, divorced from the context in which it was sent and any relevant evidence from those involved in the events of the time, as well as expert evidence as to what a solicitor placed in that context should properly have understood, the e-mail appears to fall short of containing such an instruction.

[20] In those circumstances I shall allow a proof before answer leaving all pleas outstanding. I do not think that the issues of specification which were raised at debate should prevent me taking this course. The commercial court does not encourage debates purely on matters of specification, though I appreciate that the complaints raised about specification in this case were tacked on to arguments on relevance. If the defenders wish to pursue their points on lack of specification - and I do not want to be seen to discourage them - the proper course is to bring the matter back before court and seek specific orders for further specification of particular points.