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FIRST DIVISION, INNER HOUSE, COURT OF SESSION
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Lord President
Lord Osborne
Lord Kirkwood
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[2006CSIH2]
XA40/05
OPINION OF THE COURT
delivered by THE LORD
PRESIDENT
in
APPEAL
From the Sheriffdom of
Lothian and Borders at Edinburgh
in the cause
BRACKENCROFT LIMITED
Pursuers and Appellants;
against
SILVERS MARINE LIMITED
Defenders and Respondents:
_______
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Act: Boland; Henderson Boyd Jackson (Pursuers and Appellants)
Alt: Buchanan; Semple Fraser (Defenders and Respondents)
6 January 2006
Introduction
[1] In
April 2001 the pursuers contracted with the defenders for the carrying out of
certain repairs to a yacht belonging to the pursuers. Certain work was carried out with which the
pursuers were not satisfied. They raised
in the Sheriff Court at Edinburgh an action
of damages for breach of contract. After
a proof, which included ten days of evidence heard during June and September
2004, the sheriff on 9 December 2004 issued an interlocutor by which he
sustained the pursuers' third plea-in-law, in effect holding that the pursuers
were entitled to reparation from the defenders;
his findings in law included a finding that the pursuers had established,
but only in respect of certain limited matters, that the defenders were in
breach of contract. After a later
hearing the sheriff on 15 February
2005 granted decree in the pursuers' favour in the principal sum
of €45,725.38; he reserved to a later
hearing argument on the question of interest and expenses. On 23 March 2005 he found the pursuers
entitled to interest on the sum of €45,725.38 at the rate of eight per centum per annum from 9 September
2004 until payment; he also made the
following finding on expenses:-
"Finds the
pursuers entitled to expenses from the defenders down to the date of the tender
and Finds the defenders entitled to expenses from the pursuers thereafter ..."
The pursuers have appealed to this
court solely on the issue of the sheriff's disposal of expenses.
[2] The
document referred to by the sheriff as "the tender" was a copy of a document
headed "Minute of Tender" and bore to relate to the action between the pursuers
and defenders in Edinburgh Sheriff Court. Its terms were as follows:-
"MACFARLANE
for the Defenders stated to the Court that without prejudice to and under
reservation of their whole rights and pleas, the defenders tendered and hereby
tender to the Pursuers the sum of FIFTY-FIVE THOUSAND EUROS (€55,000) together
with such expenses as the Court may deem appropriate, in full of the craves of
the Initial Writ."
[3] Before
the sheriff a number of issues arose between the parties about this
document. The first and second were
whether it was ever lodged in process and, if so, when. The court staff, it seems, had lost the
principal, although the solicitor for the pursuers accepted that it had been
brought to her notice when the parties were in court on 2 February 2004. The court sheets were to the effect that a
minute of tender had been lodged on 14 June 2004.
The sheriff ultimately held that the principal "tender" had in fact been
lodged and that it had been lodged on the latter date. There is no appeal against that
determination.
The issue
[4] The
sole issue now between the parties is as to the legal consequences in respect
of expenses of the lodgement on 14 June
2004 of the document in question.
The sheriff, having discussed McKenzie
v H. D. Fraser & Sons 1990 S.C.
311 (a decision of the First Division) and Banks
v D.R.G. plc 1988 S.L.T. 825 (a
decision of Lord Cullen in the Outer House), held that, although the "tender"
did not include the phrase "with the expenses of process to date", it was
nonetheless a proper judicial tender. On
that basis he made the award of expenses quoted above.
The submissions of parties
[5] Mr Borland
for the pursuers submitted that the sheriff had erred in concluding that the
document was a proper judicial tender and in giving effect to it as such. It was a settled rule applicable to questions
of tender that a judicial tender was of no avail unless it was accompanied by a
tender of expenses down to its date (Gunn
v Hunter (1886) 13 R. 573, especially
per Lord President Inglis at page 574). Reference was also made to Macphail - Sheriff Court Practice (2nd
Edition) para. 14.38. A judicial
tender, if it was to have any effect on the disposal of expenses, had to
include an explicit offer of expenses down to its date. Such a tender covered the expenses which a
pursuer had incurred in consequence of the defender's actions and put the
pursuer in the same position as if he had, at the date of the tender, obtained
decree for the amount tendered (Clegg
v McKirdy & MacMillan 1932 S.C.
442, especially per Lord Hunter at page 446). While there might be an elasticity in what
constituted "the expenses of process", the rule provided a framework which was
well understood. Here the defenders had
argued before the sheriff, on the basis of their unusually framed tender, that
the pursuers should not be awarded any expenses at all. The rule was a simple one and should not
lightly be departed from (Tottel's Court
of Session Practice, Division L [104]).
In McKenzie v H. D. Fraser & Sons, a tender in
ordinary and proper form had been lodged and accepted. That allowed the court to determine what were
in the circumstances the expenses appropriate to the case. Tenders which used a formulation such as
"such expenses as the court considers proper" had been disapproved
(page 321). The fact that the court
might modify an award of expenses made (R.C. 42.5) did not mean that the
rule about the form of tender could, if the tender was to be effective, be
departed from. The tender, being
ineffective on the matter of expenses, should have been ignored and the
pursuers awarded the whole expenses of the action except insofar as otherwise
dealt with.
[6] Mr Buchanan
for the defenders submitted that the document lodged was a valid judicial
tender. A tender offering to a pursuer a
specific capital sum together with such expenses as the court might deem
appropriate would, if accepted, place him in the same position as if he had at
the date of the tender obtained decree for the amount tendered. That being so, it was a valid judicial tender
and should be given effect to as such.
An (explicit) offer to pay expenses down to the date of the tender did
not, on acceptance, have the effect that the pursuer was entitled to expenses
down to that date. The court's
discretion was not limited to modifying the scale of the expenses; it was empowered to modify them in respect of
the date to which they were awarded. The
modification might even be to nil (Neilson
v Motion 1992 S.L.T. 124). What rendered a tender ineffectual was the
imposition of a restriction on the court's discretion as regards expenses. The omission from a tender of the phrase "to
the date of the tender" did not render it inoperative. There might be special circumstances which
justified departure from the usual type of tender, as where the tenderer wished
to make it plain that he was not conceding expenses up to the date of the
tender. That had been the defenders'
position here, where they wished to contend that the action had been raised on
the basis of an invoice and a subsequent initial writ which gave no proper
specification of the amount claimed. A
tender in this form had, without adverse comment, been given effect to in McPherson v British Railways Board 1985 S.L.T. 467. In Banks
v D.R.G. Plc the tender had been
ineffective as a judicial tender because it imposed a limitation on the offer
of expenses. In any event, even if what
had been lodged was not a judicial tender, the fact that that offer had been
made should be taken into account by the court when disposing of expenses (Gordon v O'Hara 1931 S.C. 172, especially per LJC Alness at
pages 176-7; Banks v D.R.G. plc, per
Lord Cullen at pages 827-8).
Reference was also made to Mavor
& Coulson v Grierson (1892)
19 R. 868. The sheriff had been entitled
to deal with expenses as he had.
Discussion
[7] In
a judicial system where the ordinary rule is that expenses are awarded to the
ultimately successful party, it is important that there be in place an
established practice which will allow a defender, who does not concede
liability but wishes to guard against the risk of being found liable to some
extent, to protect his position by making a without prejudice offer to settle
the action in a specific sum. In Scotland the
principal mode whereby a defender may so protect his position is by the making
of a without prejudice judicial tender.
At one time such tenders were made on record. That practice has been departed from. A judicial tender is now made by the
lodgement, as a separate item of process, of a minute of tender.
[8] As
is plain from the opinions in Gunn v Hunter, a judicial tender, to be
recognised and given effect to as such, must be accompanied by an offer of
expenses. The ordinary form of the offer
as to expenses is of the expenses of process to the date of the tender (Clegg v McKirdy & MacMillan, per Lord Hunter at page 446, per LJC
Alness at pages 446-7; McKenzie v H.D. Fraser & Sons at page 318;
Macphail - Sheriff Court Practice para.
14.36). The meaning of the expression
"the expenses of process" is not in doubt.
It is
"an
elastic, a flexible, phrase, and is always subject to interpretation by the
Court ... the Court determines what the phrase connotes and what expenses are
covered by it."
(Clegg v McKirdy &
MacMillan per LJC Alness at page 447, cited with approval by the First
Division in McKenzie v H.D. Fraser & Sons). Because it is a judicial tender, the court
determines its particular content in the light of the circumstances of the case
before it. Thus, for example, it may be
that the expenses recoverable are restricted to those on a lower scale than
would ordinarily be applicable (McKenzie
v H.D. Fraser & Sons) or enhanced
by an additional fee (Fleming Brothers
(Structural Engineers) Limited v Ford
Motor Co. Ltd. 1969 S.L.T. (N) 54, cited with approval in Marks & Spencer Ltd. v. British Gas Corporation 1984 S.C.
86). The result is that, while a party
lodging a tender in ordinary form and a party considering or accepting it will
not know with exactness the content of the expenses comprised in that tender,
he will know that it will be determined by the court applying judicial
principles (including any relevant rules of court) in the circumstances of the
particular case.
[9] In
three Outer House cases between 1985 and 1990 (referred to in McKenzie at page 319) a different
formula was adopted by defenders. That
formula was in very similar terms to that used by the defenders in this
case. In McKenzie the First Division (at page 321) expressly disapproved of
the use of such a form of words. It did
so because the words were tautologous "and likely to lead to the very confusion
which has brought about the dispute in the present case". That dispute was whether, when a defender
wished to be in a position to argue that the expenses in a Court of Session
action should be awarded on a sheriff court scale, he should use the ordinary
form of tender or a form of the kind employed in the three Outer House cases
referred to. It was held in McKenzie that the use of the ordinary
form was appropriate; expenses were in
the event awarded on the ordinary sheriff court scale without sanction for the
employment of counsel.
[10] In our view it is important that the practice laid down in McKenzie should be adhered to. The use, purportedly as a judicial tender, of
the form disapproved in McKenzie is
likely to lead to confusion in an area of common practice where the risk of
confusion should be avoided. The
recognition as a judicial tender of an offer in the disapproved form is liable
to cast doubt on the meaning and effect of the ordinary form.
[11] In these circumstances we are not prepared to recognise as a
judicial tender the offer made in the present case. Accordingly, in so far as the sheriff so
recognised it and gave effect to it on that basis, he erred in law. It does not follow, however, that the fact
that this offer was made is to be ignored in a question of expenses between the
parties in this case. In Gordon v O'Hara it was held that the existence of a without prejudice offer
made on record (offering expenses only on a specified lower scale), while not
an offer of a judicial character, was a material factor in determining the
expenses to be awarded (per LJC Alness at pages 176-7). A similar approach was adopted by Lord Cullen
in Banks v D.R.G. plc at pages 827-8.
Disposal
[12] Parties accepted that, in the event of our taking this view, it
would be appropriate for us to remit to the sheriff to consider of new the
issue of expenses. That was because
detailed issues arose about the conduct of the parties on which he was in the
best position to take a view. We shall
take that course.
