EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Eassie Lord Mackay of Drumadoon Lord Osborne	[2012] CSIH 84 XA42/11 OPINION OF THE COURT delivered by LORD EASSIE in the appeal by B L McG Pursuer and Appellant; against BANK OF SCOTLAND PLC Defenders and Respondents: _______________

Act: Cowan; solicitor advocate; Simpson & Marwick

Alt: Brown; Andersons Solicitors LLP (for Irwin Mitchell, Glasgow)

9 November 2012

[1] In this action brought in the sheriff court in Edinburgh the pursuer and appellant sues the defenders and respondents for damages for breach of contract. In the course of the proof before answer heard by the sheriff certain concessions were made by the parties. First, the pursuer restricted her claim to one half of the sum craved, namely to £43,000. Secondly, the defenders accepted that they were in breach of contract. In the event however the defenders were assoilzied by the sheriff on the ground that, as was contended by them, the pursuer had suffered no loss arising from the breach of contract which the defenders had conceded.

[2] Subject to one matter which may appropriately be amplified, the essential facts central to this appeal may be distilled from the detailed findings-in-fact made by the sheriff. At some time in 2001 the pursuer formed a personal relationship with Ms CF, who had separated from her husband. At that time the pursuer was living in a house in Joppa Road, Edinburgh and Ms CF went to live with the pursuer in that house. After a little time, the title to the Joppa Road property was put into the joint ownership of the pursuer and Ms CF and the latter became a co-obligant in respect of the loans secured over it. The pursuer and Ms CF also engaged in commercial activity in the form of acquiring, with funds obtained from financial institutions, residential property intended for letting to tenants. It appears from the terms of a joint minute to which later reference is made that on occasion this was done by means of a limited liability company; at other times by means of a joint venture.

[3] So far as their domestic arrangements are concerned, in the spring or early summer of 2003 the couple decided to move their home from Joppa Road to a house on the outskirts of Edinburgh - "TNG"- which they bought for a price of £250,000. The purchase price was paid in part from the nett proceeds of the sale of the house in Joppa Road and for the rest with funds which were advanced to them by the defenders and which were secured over TNG by means of a heritable security.

[4] The arrangement into which the pursuer and Ms CF entered with the defenders for the purpose of acquiring TNG was what is described as a "current account mortgage" or an "offsetting mortgage comprising linked accounts". A feature of this arrangement, from the standpoint of the borrower, is that, as opposed to more traditional arrangements involving a loan account not linked to the borrower's current account, any credit balance which would otherwise have been on the current account is automatically treated as offsetting what would be the debit on the loan account. As the sheriff explains in her finding in fact 32, this is a tax efficient arrangement. The pursuer proposes an amplification of that finding in fact, which is not opposed by the defenders, since that amplification essentially repeats what is to be found in the defenders' pleadings (answer 2). The amplification proposed is by way of substituting the following:

"The defenders made two accounts available to the pursuer and [Ms CF]. One was a conventional mortgage account, secured over the property, and with an initial advance of £210,800. The other was a loan facility regulated by the Consumer Credit Act 1974 and secured over the property. The loan facility had a variable limit. The limit was linked to the mortgage account. Subject to making a minimum number of qualifying repayments on the mortgage account, the pursuer and [Ms CF] were entitled to make withdrawals of up to 5% of the amount of the advance. Thereafter they were entitled to make overpayments to the account. Such overpayments would in the first instance be applied to reduce the balance of the mortgage. The pursuer and [Ms CF} were provided with a chequebook to allow them to make withdrawals. Where overpayments had been made, the balance overpaid could subsequently be withdrawn by means of the loan account chequebook facility. The right to make such withdrawals was not absolute. It was subject to conditions such as there being no failure to maintain monthly mortgage payments."

[5] However, the particular contractual obligation upon which the action proceeds is not one peculiar to the account conditions of this particular means of financing the purchase of residential properties. Rather, it is contained in the operating instructions, or mandate, given to the defenders by the pursuer and Ms CF. Those instructions effectively allowed either of the account holders to operate the account without recourse, in a matter with the defenders, to the other. The relevant terms are:

"(1) The Bank may honour any Instructions signed or made by any one of us or the survivor of us (or the successor if any one of us dies) even if this causes the account(s) referred to above to increase above the approved limits;

(2) The Bank may treat the signatures below as our specimen signatures, against which the Bank may confirm the authenticity of any Instructions;

(3) We are jointly and severally liable for any Instructions made by any one of us, together with interest and the Bank's charges and expenses relating to them; and

(4) ...

This authority continues until one of us cancels it in writing."

[6] Subsequent to the purchase of and the domestic removal to TNG, the relationship between the pursuer and Ms CF deteriorated. The reasons for this were explored at some length before the sheriff, who made findings thereanent. We do not consider it necessary to rehearse those findings. It is sufficient to say that following an acrimonious disagreement on 10 March 2005 the pursuer telephoned the defenders and orally sought to revoke the mandate allowing either of the account holders to operate the linked accounts. At about the very same time, Ms CF drew a cheque on the loan facility account in her own favour for the sum of £86,000. That amount was then effectively at credit on the account since it constituted an "overpayment" to which the account holders had immediate access. On 14 March 2010 the defenders accepted that instruction and paid £86,000 to the drawee of the cheque, namely Ms CF.

[7] At this point it may be useful to interpose in the narrative of events that the oral revocation was not followed up by any written revocation. Counsel for the defenders explained that it might have been open to the defenders to defend the action on the basis (as indeed set out in the defences) that the authority to act on the instruction of either account holder continued notwithstanding the telephone call because the instruction had not been cancelled in writing, as required by the terms of the mandate or operating instructions. However, in view of certain undertakings given by the defenders to the banking ombudsman in relation to this dispute, the defenders conceived that they were precluded from insisting on that defence. Hence, explained counsel, the concession of breach of contract which was made at the proof.

[8] The sum of £86,000 which was withdrawn by Ms CF was what remained of a slightly larger sum deposited by Ms CF on 23 November 2004. As the sheriff found - and it appears not to have been in dispute - the £86,000 represented the balance of the capital sum paid to Ms CF by her husband in settling the division of their matrimonial property on their divorce. In the proceedings before the sheriff a central issue was whether Ms CF had agreed to contribute the proceeds of that divorce settlement to what the pursuer contended was a broad joint venture that included their variously organised "buy to let" activities. The contention so advanced by the pursuer thus involved the proposition that Ms CF had agreed to donate one half of the divorce settlement to the pursuer; that is to say, by the stage of the controversial withdrawal in March 2010, one half of the balance remaining, £43,000 (hence the restriction in the sum craved which was conceded at the proof).

[9] Having heard evidence from both the pursuer and Ms CF, the sheriff rejected the contention - in many respects fundamental to the case advanced by the pursuer to the sheriff - that Ms CF had agreed to contribute the proceeds of her divorce settlement to some joint venture with the pursuer. The sheriff expresses that conclusion in the course of her finding in fact and law 4, when she says:

"Thus the pursuer has failed to rebut the presumption which exists against donation or gift and has failed to prove that [Ms CF] intended conferring a benefit upon the pursuer when she deposited the divorce settlement into the parties' account."

[10] We again interrupt the chronological narration of the facts to record that in presenting the appeal Mr Cowan, for the pursuer, accepted that in light of the sheriff's assessment of the evidence and the sheriff's findings, the deposit by Ms CF of the £86,000 (perhaps more accurately, the slightly larger sum of which £86,000 was the remaining balance) could not be treated to any extent as a donation by way of a contribution to the parties' joint venture or ventures or otherwise. Naturally, recognising that the placing of funds by one account holder in a joint account does not create any joint property in those funds, Mr Cowan also accepted that the £86,000 which Ms CF withdrew following the pursuer's oral cancellation of the mandate or operating instructions were funds which belonged wholly to Ms CF.

[11] The history of matters following the separation of the pursuer and Ms CF in March 2005 is set out by the sheriff in findings in fact 25 et seq. Among other matters, in May 2007 the pursuer and Ms CF entered into a minute of agreement respecting the resolution of their financial affairs. However, the terms of this agreement were not implemented for the reason that in October 2007 the estates of Ms CF were sequestrated on the grounds of her insolvency and her trustee in the sequestration declined to adopt the minute of agreement on the view that it was unfairly weighted against Ms CF, and hence against her creditors.

[12] Meantime, in 2007, the defenders had raised proceedings against Ms CF for the entire sums of principal and interest outstanding under the standard security over TNG. Agreement was however reached between the pursuer and Ms CF's trustee in sequestration, and the defenders were advised, that TNG would be sold. Following the sale of the house, the sums due to the defenders and secured over it were duly repaid to the defenders. The trustee on Ms CF's sequestrated estates offered to the pursuer that the whole of the nett free proceeds of the sale be placed on deposit receipt in their joint names pending resolution of any dispute between the pursuer and Ms CF. However, the pursuer rejected that proposition; she requested and accepted payment of one half of the nett proceeds of the sale of TNG.

[13] Accepting - as we have already noted - that he could not advance what had been the primary position of the pursuer before the sheriff, namely that Ms CF had agreed to donate a one half share of her divorce proceeds to the pursuer, Mr Cowan's submission in the appeal proceeded upon the basis that the sheriff had erred in her understanding of the nature of the bank account in issue. He proposed that the sheriff's finding-in-fact 32 be corrected or amplified in the manner which we have already indicated. It was, Mr Cowan said, erroneous to regard the £86,000 which was withdrawn by Ms CF on 10 March 2005 as a sum standing at credit in the account. When the divorce settlement proceeds were paid into the loan account they reduced the liability of the pursuer as a co-obligant in the two linked accounts. When the cheque drawn by Ms CF was wrongly honoured and the account debited, that joint and several liability was increased by £86,000. Had the £86,000 withdrawn by Ms CF been "locked in to the account" - as would have been the case had the defenders obeyed the oral revocation of authorisation, thereby effectively freezing the account, the nett proceeds on sale of TNG would have been increased by that amount. Hence, in a question with the bank, that is to say the defenders, the pursuer's liability had been increased by one half of that sum, namely £43,000, which was thus the measure of her loss flowing from the defenders now conceded breach of contract.

[14] While we appreciate that, on a technical view of the banking arrangements, the balance of the divorce settlement might not be seen as a sum standing at credit but rather as an "overpayment" on the loan account enabling that sum to be withdrawn, we are not persuaded that the banking arrangements - the purpose of which was essentially to confer a fiscal advantage on the customer - make any difference in substance to the real issue before us, namely whether the sheriff was entitled to conclude that the conceded breach of contract did not produce a loss to the pursuer. The entitlement of Ms CF to draw, and have honoured, the cheque in her favour proceeded simply on the basis that she had paid into the account the proceeds of her divorce settlement. Given the necessary acceptance that, on the findings made by the sheriff, the contention that Ms CF had agreed to gift one half of her divorce settlement to the pursuer cannot be maintained, the argument for the pursuer becomes, in our view, fallacious. The liability of the pursuer and Ms CF to the defenders respecting the debt secured over TNG was, of course, joint and several. So, to talk of a one half share of liability to the bank and an increase in that liability is to ignore the nature of joint and several liability. One is necessarily thrown back to the legal relationships between the co-obligants in that joint and several liability and their respective rights inter se. Assuming the £86,000 to have remained "locked in" (Mr Cowan's phraseology) to the bank account with the defenders, the joint and several liability of the joint account holders to the defenders would of course be reduced by that amount. Thus, in pro rata terms, the pursuer's liability in that joint and several liability would be reduced by £43,000; but since Ms CF did not donate, or intend to donate, that sum to the pursuer, the consequence of the deposit of the divorce settlement is that Ms CF would have had a countervailing claim against the pursuer for that amount. Accordingly, given that the £86,000 which Ms CF withdrew belonged to her alone and was a sum to which the pursuer had no right, the sheriff's finding that the pursuer has suffered no loss by reason of the defender's conceded breach of contract appears to us to be sound.

[15] That said, the submission for the pursuer appeared to be associated with a further submission to the effect that, on decided authorities, where a banker paid out funds to, or to the order of, one of two joint account holders in breach of the operating mandate, the other account holder was entitled to one half of the sum thus paid out. This submission proceeded particularly upon two first instance English authorities, namely Twibell v London Suburban Bank [1869] WN 127 and Catlin v Cyprus Finance Corporation (London) Limited [1983] 1 QB 759.

[16] The only report of Twibell is very brief. The bank account was apparently that of a partnership and the operating instructions to the bank were to the effect that no cheque drawn in the firm name by one of the two partners should be honoured unless it bore the initials of the other partner. The London and Suburban Bank paid a cheque drawn by one partner which was not initialled by the plaintiff, the other partner. The short report continues by saying that the court held:

"The plaintiff was entitled to sue for this breach of contract, and that the proper measure of damages was a moiety of the sum for which the cheque was drawn; and refused a rule for a new trial."

In Catlin the mandate by the two joint account holders, who were husband and wife, was similar in the respect that the cheques or orders for payment required to be authorised by both account holders by their signatures. The bank obtempered instructions given by the husband alone for the transfer of funds to an account for the sole use of the husband. However, the issue before the court was whether the plaintiff - the wife - required to join her husband as a defendant in the proceedings, that being the procedural course apparently dictated by the earlier decision of Brewer v Westminster Bank Limited [1952] 2 All ER 650. The ownership of the funds in the joint account was not a matter of discussion in the judgment of Bingham J., but it appears that the provenance of the funds in the joint account was the proceeds of the sale of an hotel in Liverpool owned and run by the account holders jointly. Accordingly, both Twibell and Catlin are, or appear to be, concerned with funds in a joint account which might be said to be partnership funds and therefore jointly owned. We were also referred to Jackson v White [1967] 2 Lloyds Reports 68 (to which reference is made in the judgment in Catlin) but it was not suggested that the judgment in that case was of any direct assistance.

[17] As counsel for the defenders pointed out, particularly as respects the brief report of the decision in Twibell v London Suburban Bank, where funds are partnership funds or may otherwise properly be described as joint funds a claim by the innocent account holder to a moiety may be understandable. However, for our part, we are unable to discern in the authorities to which we were referred any support for the proposition that where a bank, in breach of the terms of an operating mandate, has paid to one of the account holders funds which are admitted, or shown to be, wholly those of that account holder, the bank is nonetheless obliged additionally to pay to the other account holder a moiety of the funds paid to the rightful owner of those funds. Such a proposition appears to us to be contrary to the principle that damages are compensatory for loss and we are unable to accept it.

[18] Mr Cowan put forward a further contention to the broad effect that, while accepting that in the event of the operating mandate having been obtempered and the £86,000 "locked in" there might be a countervailing claim by Ms CF for £43,000 which would to that extent result in there being no loss to the pursuer, there might yet be scope for setting off against that countervailing claim various other unspecified claims which the pursuer might have against Ms CF respecting their other, non-domestic, "buy to let" transactions. Hence, Mr Cowan submitted, the pursuer might have suffered some loss, given the intervening insolvency of Ms CF. This contention was not the subject of any formulation in the pleadings; nor was it developed in the evidence; and the loss to which Mr Cowan referred is speculative, not quantified in any way, and does not even appear to have been advanced as a claim in Ms CF's bankruptcy. We thus are unable to accept it, if only for those reasons.

[19] Moreover, had the pursuer been in a position to advance against Ms CF's trustee in the sequestration claims arising out of other matters, she could, and no doubt should, have responded to the invitation by the trustee to consign the proceeds of the sale of TNG on deposit receipt pending resolution of claims against the bankrupt. The pursuer did not accede to that invitation but requested and accepted payment of a one half share of the nett proceeds of the sale of TNG. This, in our view, does not assist Mr Cowan's final contention.

[20] In these circumstances we consider that this appeal must be refused.

[21] As already foreshadowed, Mr Cowan proposed a number of changes to the sheriff's findings in fact and it is necessary that we consider his proposals, some of which were not in dispute. We have already referred to the amplification of finding in fact 32, which we are content to allow. Associated with that added precision to the banking arrangements are the essentially textual alterations proposed in paragraphs 4 and 5 of the pursuer and appellant's note of proposed alterations (No 36 of process), which were also not disputed and which we would also allow. As respects the other seemingly undisputed proposals, paragraph 1 of that note proposes the addition at the end of the sheriff's finding in fact 4 of a sentence giving an approximate quantification of "the level of equity" in certain properties at the commencement of the beginning of the relationship between the pursuer and Ms CF. Paragraph 3 simply proposes an approximate quantification of the free proceeds of the sale of the Joppa Road house, to which the sheriff refers in her finding in fact 10. As already indicated we are content with the amplification of finding in fact 32 which is proposed in paragraph 8 of the appellant's note. Paragraph 9 of that note is a self evident reflection of the banking arrangements.

[22] Given that these alterations were undisputed, and having regard to s 32 of the Court of Session Act 1988, we are content that the findings in fact be adjusted in accordance with them. However, we share the view of counsel for the defenders that the changes have no material bearing on the arguments before us.

[23] We turn now to the remaining changes proposed to the sheriff's findings in fact, which we understood to be wholly or partially disputed. Proposal 2 seeks to add at the end of finding in fact 8 the sentence- "Title to [...] Joppa Road was transferred into joint names in contemplation that the capital sum to be received by [CF] on her divorce would be used for the joint benefit of [CF] and the pursuer." We are not prepared to sanction this proposal, since it appears to be inconsistent with the important conclusion reached by the sheriff - and expressly accepted by Mr Cowan- that Ms CF did not donate, or intend to donate, any part of the divorce settlement to the pursuer. Proposal 6 seeks to delete from finding in fact 26 the words from and including "due to..." to the end of the finding. Those words link the fact that the action by the respondents against Ms CF did not continue with their being advised that the house was to be sold. The basis for the proposal to delete that passage in the finding in fact was said to be that there was no evidence that such was the reason for the action being discontinued. The extent to which this alteration was in dispute was unclear, but the primary facts of advice that the house was to be sold and that the action did not thereafter proceed are not in doubt. In our view it was open to the sheriff to make such a finding of linkage as a matter of inference; it is any event not a matter of any materiality. Proposal 7 seeks to add a number of sentences at the end of finding in fact 30. The first of these sentences reads - "She declined the offer made by [CF's] Trustee because her financial situation required her to have access to her fifty per cent share." This was in dispute. We observe first that we do not see it as being relevant. Secondly, it involves a view of the credibility and reliability of the pursuer on this chapter of her evidence. The sheriff evidently did not attach to the pursuer's testimony a badge of universal credibility and reliability and in those circumstances we decline to sanction it. Similar considerations apply as respects the fourth ( ie the penultimate) sentence of the proposed alteration, which we also decline to make. The remaining sentences of proposal 7, that is to say the second, third and final sentences were, we understood, not disputed subject to the insertion - which Mr Cowan accepted should be made- of the words "without litigation" immediately after the word "prepared" where it occurs in the third sentence. Since these proposed changes are not disputed, and again having regard to the terms of s 32 of the Court of Session Act 1988, we are prepared to make them; but in light of the arguments before us, and our decision on those arguments, we again agree with the view of counsel for the defenders that the undisputed changes have no effect upon those arguments.

[24] As respects the two proposed changes to the sheriff's findings in fact and law, Mr Cowan recognised that the second of those proposals could not be advanced in light of his acceptance that the sheriff's findings on the issue of donation to the pursuer of some portion of the divorce settlement, by way of its being contributed to their joint ventures or otherwise, were not open to challenge at appellate level and he abandoned it. The first proposal was, we were told, not disputed; it does not appear to us to add to, or detract from, anything material. We shall therefore accede to it.

[25] Given the terms of s 32 of the Court of Session Act 1988, we shall annexe to, and by reference to that annexation, include within the interlocutor refusing the appeal the sheriff's findings in fact and her findings in fact and law as amended by our decision.