Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2011] CSOH 70
F35/09	OPINION OF LADY CLARK OF CALTON Re expenses in the cause D M (AP) Pursuer; against J M (AP) First Defender; and THE W TRUSTEES LIMITED Second Defenders; and K B (AP) as legal representative of R M, S M and J M Third Defender; _________

Pursuer: J Scott, QC and C Wilson; Morton Fraser LLP

First Defender: Wise, QC and R Innes; HBJ Gateley Wareing (Scotland) LLP

Second Defenders: Inglis; Hamilton Burns

5 May 2011

Summary
[1] The background to this case and my opinion following the proof is set out in my opinion of
15 February 2011. On
9 March 2011, I heard various motions for expenses. The motions related to expenses insofar as not previously determined. My decisions in relation to expenses should all be read as relating to expenses insofar as not previously determined.

[2] Senior counsel for the pursuer sought such finding as to expenses against the first and second defenders as the court shall consider appropriate. The main thrust of her submissions was directed against the second defenders. Senior counsel for the first defender sought expenses of the proof against the pursuer and made no motion in relation to the other defenders. Counsel for the second defenders sought expenses against the pursuer and made no motion in relation to the other defenders. There was no appearance on behalf of the third defender.

Further Productions
[3] I allowed the Sixteenth Inventory of Productions for the Pursuer 16/334 to 16/361 and the Nineteenth Inventory of Productions for the First Defender 19/99 to 19/119 to be lodged. There was no objection. These productions contained information setting out some of the settlement negotiations during the period September 2010 to January 2011. I also allowed counsel for the second defenders to lodge a document entitled the Schedule of Offers as 111 of process.

[4] I was informed that there had also been various oral discussions by counsel which proved unsuccessful in achieving a settlement. Obviously I was unaware of these documents and I was unaware of settlement negotiations until the information was placed before me by counsel.

The Law
[5] It was not in dispute that expenses are a matter for the discretion of the court. There was a consensus that some specialities may apply in relation to expenses in a matrimonial case under reference to Little v Little 1990 SLT 785 and Sweeney v Sweeney (3) 2007 SC 396. It was accepted that the present case was unusual in that the parties to the proof were not confined to spouses. The parties included the second and third defenders.

Written submissions
[6] I am grateful to counsel for their written submissions in relation to expenses. The note of submissions for the pursuer is 112 of process. The note of submissions for the first defender is 113 of process. Counsel for the second defenders made his submissions under reference to 111 of process.

Cross motions of the pursuer and second defenders
[7] Before dealing with the motions on behalf of the pursuer and the second defenders, I consider it necessary to make some general remarks about the role and interests of the first and second defenders in the proof. I consider that the first defender and the second defenders had separate and different interests in relation to the proof. The first defender had transferred substantial assets to the second defenders. The first defender was not a Trustee of the second defenders. The first defender maintained a defence in relation to his own assets. Senior counsel for the first defender maintained a position at the proof that the interests of the first defender and the second defenders were separate and distinct. It should also be borne in mind that the first defender, unlike the second defenders, instructed the proof having obtained a grant of legal aid in August 2010. It should also be noted that in the course of the proof, the first defender's position changed. During his evidence, the first defender stated that he would be prepared to concede a £200,000 pension transfer to the pursuer. By the end of the proof, senior counsel for the first defender had departed, on instruction, from that position. She submitted on behalf of the first defender that no order of financial provision should be made in favour of the pursuer by the first defender. The position of the second defenders throughout the proof was that the Trust assets should be left untouched by any court award.

[8] Let me turn now to consider in more detail the defence of the second defenders adopted at the proof. I deal with the implications of the defence mounted by the second defenders in my opinion of
15 February 2011 particularly at paragraphs 38-42. That is relevant to my consideration of expenses. In very general terms, in relation to a critical issue, the meaning and application of section 18 of the Family Law (Scotland) Act 1985, the second defenders were unsuccessful. They were also unsuccessful in their attempts to introduce new documents to found new lines of defence. I deal with that in the Appendix to my opinion of
15 February 2011.

[9] I have no difficulty in concluding that in relation to the issues which were in dispute at the proof as between the pursuer and the second defenders, the pursuer was successful. I was rather surprised at the motion on behalf of the second defenders seeking expenses against the pursuer. It became apparent that the motion was based not on the results of the proof but on the negotiations which were "behind the scenes" during the first period of the proof and prior to the commencement of the second period of the proof.

[10] There was no tender lodged on behalf of the second defenders. I understand in this case that there was no tender lodged by any party. Whatever the merits of the practice which may have developed in relation to offers in matrimonial cases, I do not consider it helpful in a case such as this, to have a situation where a party seeks to rely not on a tender but on less formal correspondence or worse, verbal discussions, in relation to expenses at the end of a proof. Some of the problems caused by that are illustrated in this opinion.

[11] In this case I was invited to listen to submissions about verbal discussions which had taken place amongst counsel on various occasions. As I had no means of resolving the disputes which appeared to exist amongst counsel or of drawing inferences about shades of meaning in the oral discussions, I did not find this a helpful exercise. I was not prepared to embark upon it. I have restricted my consideration to the correspondence in the new productions and the submissions which bear upon that correspondence.

[12] In the schedule of offers (111 of process), counsel for the second defenders summarised the offers drawn from the correspondence included in the Sixteenth and Nineteenth Inventories of productions. Counsel sought to persuade me that if one looks at the award made by the court to the pursuer, and compared that with the total of the combined offers made by the first and second defenders, at various dates, the pursuer was unsuccessful.

[13] I do not consider that this is an appropriate way to consider the position as between the pursuer and the second defenders. As I have explained, I consider that the first and second defenders had separate interests. They were separate parties with separate representation and appeared to pursue separate lines of defence. In considering the offers made and the implications for expenses, I consider that the offers should be assessed separately.

[14] On the second defenders' own figures, the highest offer made to the pursuer on behalf of the second defenders was £575,000. The pursuer obtained an order from the court from the second defenders of £789,418. In my opinion, the award which the pursuer obtained from the second defenders after proof was substantially in excess of any offer that was ever made by the second defenders. Counsel for the second defenders also referred to Adams v Adams (No 2) 1997 SLT 150. I did not consider that the present case was similar to Adams. The pursuer in the present case showed a willingness to accept less than she sought in her conclusions and attempted to accept an extra judicial offer subject to clarification of important points. I discuss this further in paragraph 21.

[15] Even if I am wrong in my approach, I have no hesitation in concluding that the "offers" made by the second defenders are far from satisfactory in their form. I understand the reasons senior counsel for the pursuer criticised them and I agree with her. I may say that if the offers had taken the form of a tender in normal form, it would have been much easier for me to form a view of the offer at this stage. It would also have been much easier for the pursuer and her counsel to form a view about what was actually being offered.

[16] Let me expand on these views by looking at the detail of the correspondence in the Sixteenth and Nineteenth Inventory of Productions. In this exercise, I assume that the total of the offers by the first and second defenders exceeded the sums (exclusive of expenses) awarded to the pursuer by the court. That assumption may be disputed but I carry out the exercise to test the submissions of counsel for the second defenders. I direct my attention to the offers made by the second defenders as it is the form of these offers which caused some difficulty. The offers by the first defenders which to some extent overlapped did not offer taxed expenses. In considering the offers, I bear in mind that the pursuer was not offered taxed expenses by any party.

[17] The first written offer by the second defenders to which I was referred is dated
29 September 2010 on day 6 of the proof (16/335 of process). That offer did not provide any date for payment and stated that "the heritable assets will be placed for sale as soon as reasonably practicable". The offer did not include any expenses.

[18] On
1 October 2010 by letter (16/336 of process) the second defenders increased their offer to £575,000 which included "an additional £75,000 to meet your client's concerns in relation to recoverable expenses which may be due to the Legal Aid Fund". That offer was made and intimated on
1 October 2010, day 8 of the proof. It is not possible to assess the value of the offer, except in a general estimated way, as the expenses incurred on behalf of the pursuer up to
1 October 2010 were not known and are not known to me now. I understand that the sum of £75,000 was a rough estimate of expenses up to day 6 of the proof. The letter further stated that:

"This offer of settlement is open until
4pm on Friday 1 October 2010. If the offer is not accepted by
4pm on Friday 1 October 2010, it will deemed to have been refused and will be withdrawn. The Legal Aid Board will thereafter be advised and we will invite the Scottish Legal Aid Board to consider suspending your client's Legal Aid Certificate pending a review of same in the circumstances".

[19] I was advised by senior counsel for the pursuer that the time for consideration of the offer of
1 October 2010 was inadequate. I agree with her. Senior counsel was actively involved in the proof. The pursuer, who suffers from serious illness, had made arrangements to leave the court at
3.30pm. This information is included in a letter sent on behalf of the pursuer dated
3 October 2010 (16/337 of process).

[20] Thereafter there was various correspondence. Some of the correspondence took place at a stage when the first defender was giving evidence. There may have been some difficulties in taking instructions from him about negotiations. By letter dated
7 October 2010 (16/345 of process), the second defenders intimated that they were instructed to reinstate the proposed offer of settlement of £575,000. No date for payment was given. The letter stated "if the offer of settlement is accepted, our client will undertake to sell the Wards Estate to raise funds as soon as is reasonably practicable given the current market conditions". It was left to the pursuer "to confirm the position with the first defender as to whether his pension entitlement may form part of any proposed settlement". As I understand the correspondence, said offer from the second defenders was inclusive of any expenses. Said offer by the second defenders was made on day 11 which was the last day of the hearing of the proof in its first part. The problems about the unascertained and substantial expenses makes it very difficult to judge the value of this offer as it is not an offer made with expenses as taxed to the date of the offer. I can conclude that the offer would be of less value to the pursuer than the offer dated
1 October 2010 because of the increased expenses from 1 October to
7 October 2010.

[21] By
17 December 2010, there was an agreed revised increased valuation of the first defender's Cable & Wireless pension. By
17 December 2010, there were further problems about expenses between the parties. On
23 December 2010, the pursuer purported to accept the second defenders offer in settlement of £575,000 (inclusive of expenses) having received confirmation that the first defender's offer of settlement of 29 September "remains extant". Thereafter attempts were made to reach a settlement. In the absence of an agreement about a date for settlement and judicial rate of interest the negotiations foundered and fell apart.

[22] A revised and lower offer of settlement by the second defenders was made on
8 January 2011 (16/361 of process). In addition by
31 December 2010 (19/117 of process) the agents for the first defender intimated concerns about the health of the first defender which had resulted in two hospital admissions.

[23] I consider that on a fair construction of the documents in 16 and 19 inventory of productions, if there had been any realistic prospect of settlement, that had ceased by the end of 2010.

[24] Having looked at the details of the proposals about settlement, I am satisfied that even if one considers the offers by the first and second defenders as a package, there is no package ever set out in clear terms. Bearing in mind the difficulties which pre-trial investigation had revealed and which were evident at the proof about the administration of the second defenders, I consider that it would have been essential to have some certainty in the form of agreement about the date of payment. Even if parties accepted that some time would elapse before the Trust property would or could be sold, that required to be reflected somehow by the parties in mutually agreed terms which reflected a mutually agreed date. Such a date was not included in any of the offers and was never reached of consent. Indeed it is plain in the correspondence in December 2010 that there was in fact a significant dispute about a date for payment which was never resolved by the parties. In the circumstances of this case, I would not expect the pursuer or pursuer's counsel to leave such an important issue dependent upon the actions and judgement of the second defenders. As at December 2010 the effective decision maker was EW, the mother of two of the children of the first defender. Her actions in relation to the management of the second defenders I can only describe as giving serious cause for concern. That is the most neutral phraseology which I can find to describe the involvement of EW. I consider that senior counsel for the pursuer was well entitled to insist upon a date for payment. I also consider that date would provide the date from which judicial interest would run. That issue also was never resolved.

[25] If I am wrong about that, I would merely add that in any event the package did not reflect in full the substantial expenses incurred at the proof. It is not therefore a simple exercise to try to compare the figures in 111 of process and the value of the orders (including the order for expenses now made by the court to the pursuer). Indeed in the absence of figures for the taxed expenses at various dates, I doubt if it is possible.

[26] For the reasons I have explained, I therefor have no difficulty in refusing the motion on behalf of the second defenders.

[27] In relation to the pursuer's motion for expenses against the second defenders, I have no difficulty in concluding that in principle the pursuer should be entitled to an award of expenses for the reasons which I have narrated above. I consider that the pursuer was successful at the proof in relation to the second defenders and that the submissions made on behalf of the second defenders in relation to offers made do not provide any justification for refusing an award of expenses to the pursuer.

[28] I have given careful consideration about how any such award of expenses should be framed bearing in mind all the circumstances and the fact that there were other parties involved in a defence to this action.

[29] Counsel for the second defenders submitted that the active involvement of the second defenders at the proof did not use up much court time. I accept that. One of the difficulties in this case for the pursuer is that she was not entitled to make a claim directly against the second defenders. That claim could only be made indirectly as part of the action against the first defender. As I explain in my opinion, the complicated structure of the 1987 Act regulated the pursuer's claim against the first defender. The pursuer required to satisfy the terms of that complicated structure. That included providing evidence about the value of the matrimonial assets at the relevant date. That exercise, as appears from my opinion of
15 February 2011, consumed much time at the proof. Although it was not part of the second defenders' case, the defence by the first defender in relation to the value of the net matrimonial assets was useful, in practical effect, to the second defenders in that it reduced the pursuer's entitlement. Had counsel for the first defender not mounted a defence to the claim in relation to the net value of the matrimonial assets, a much greater share of the second defenders assets or indeed all of the assets might have been awarded from the second defenders to the pursuer.

[30] I take the view that because of the 1987 Act provisions, it was inevitable that there would be substantial time taken at any proof in relation to evidence about the net value of the matrimonial assets. The case was obviously made more complex by some of the other issues which related to the first defender and by issues relating to the management of the second defenders. All of these issues had an impact in relation to the pursuer's claim against the second defenders. In the absence of an agreed settlement, these issues required to be explored in the time consuming and expensive proof.

[31] As I have explained, I consider that the involvement of the first defender and his defence to the action, had a beneficial effect in relation to the second defenders in that it minimized the sums awarded by the Court. The involvement of the third defenders took up very little court time. The third defenders were legally aided. They had separate interests to the second defenders. Unlike the third defenders, the second defenders had control of the trust funds and were in a position to take a decision to settle the action by payment of money. The third defenders were not in a position to make any settlement in relation to the action as they did not control the funds of the trust.

[32] It should also be noted that by the date of the commencement of the proof, the first defender had very limited funds available to him. These funds were mainly represented by pension funds. Realistically, the first defender alone was not in a position to settle this action with the funds available to him. I note however that from the date of
29 September 2010, the first defender offered the whole of his Cable & Wireless pension as part of a package. On one view, the first defender could make no further significant offer. The only way in which the case could settle would be on the basis of an acceptable offer from the second defenders. During the course of discussions and written communications, that was not achieved.

[33] I did consider an award of expenses to the pursuer of 100% against the second defenders from the
30 September 2010 with some lesser award for the earlier part of the proof. On one view such an award might be justified on the basis that the proof continued because of an unwillingness on the part of the second defenders to offer a sum sufficient to achieve an acceptable settlement of an amount equivalent to that awarded by the court as between the pursuer and the second defenders. On reflection, however, I consider that I should take into account that the second defenders were not set up and funded with the intention of defeating the pursuer's claim for financial provision. The purpose of the trust was in general terms to benefit the children of the first defender. The second defenders were caught up in this litigation mainly because the first defender had disposed of millions of pounds of cash after the date of separation. It is plain that efforts were made by the second defenders to achieve a settlement. The difficulties of achieving a settlement were no doubt exacerbated by the pursuer's understandable suspicions about the true position of the first defender's financial position and concerns about the administration of the second defenders. Looking at the matter broadly, I consider that subject to my findings in paragraph
34, a fair solution is to award the pursuer 50% of the taxed expenses in relation to the proof against the second defenders except in so far as expenses have previously been awarded.

[34] There was some delay and expense occasioned by the actions of the second defenders in the course of the proof. I deal with that in detail in the appendix to my opinion of
15 February 2011. For the reasons explained in the appendix, I refused the motion of the second defenders. I award 100% of the taxed expenses occasioned by the motion by the second defenders on
7 January 2011 to lodge a late inventory of productions and late list of witnesses to the pursuer against the second defenders.

[35] The pursuer also seeks expenses against the second defenders in relation to expenses occasioned prior to the proof. In non matrimonial cases, a successful pursuer would in many cases be entitled not only to expenses of the proof but to expenses of the process as taxed which would normally include certain expenses occasioned prior to the proof. The special rules which may be relevant to spouses are not in my opinion obviously relevant or appropriate to third parties.

[36] In any event I am far from satisfied that the second defenders participated in the action in the spirit of helpful disclosure recommended in such cases as Little and Sweeney. I refer to my discussion in the Appendix to my opinion of
15 February 2011. The mere fact that EW who was at the time the sole directing mind of the second defenders in the litigation sought to introduce on day 12 of the proof, new averments that she was a substantial creditor (it was alleged) of the second defenders shocked me. I consider that there is no justification in this case from departing from the usual rule that expenses should follow success. I consider that the second defenders should bear 100% of the taxed expenses of process prior to the proof insofar as the expenses were incurred by the pursuer in relation to the second defenders and except insofar as previously dealt with.

Cross Motions for Expenses by the pursuer and first defender in relation to the proof
[37] Both the pursuer and first defender were granted legal aid in respect of the proof. I understand that both parties, from the perspective of the Legal Aid Board, have been successful to some extent. The pursuer has obtained a substantial award both from the first defender and from the second defenders. The first defender has retained a substantial part of his pension funds. I understand that both parties in terms of the Legal Aid rules may be liable to repay the legal aid fund in whole or in part.

[38] I note that in negotiation, the first defender was prepared to transfer a sum substantially in excess of the £200,000 which was awarded as a pension transfer. The award by the court was made taking into account all the circumstances which included the poor health of the first defender at the beginning of 2011, my opinion that his future earning potential was problematic and potential tax liabilities which remained unresolved.

[39] Viewed very simply the first defender was successful to some extent in that he retained some assets sought by the pursuer at the proof. I also accept that the first defender, at least from the 29 September and for a period thereafter, did his best to settle the proof from the assets which he retained. Nevertheless I consider that the matter should be looked at more broadly. On any view, the pursuer in this case was entitled under the 1985 Act to a sum considerably in excess of the full value of the first defender's pension. She succeeded in establishing that at proof. Had the first defender not given away millions of pounds in cash after the date of separation, he himself would have been in a position to pay the sum awarded by the court. The pursuer may not have required to embark upon such a complex a action which included a claim against the second defenders.

[40] In all the circumstances I consider that as between the pursuer and the first defender, there should be no expenses due to or by the pursuer and first defender in relation to the proof.

Motion for expenses by the pursuer against the first defender in relation to specified items prior to the proof
[41] Senior counsel under reference to Little v Little made detailed submissions about the problems which she submitted were caused by the first defender in relation to the preparation of the case. She submitted that this was not a case where there had been co-operation on the part of the first defender and she referred to some of the difficulties caused by the first defender. Senior counsel for the first defender disputed some of the facts and the inferences drawn on behalf of the pursuer. Without having another expensive hearing, I was not well placed to resolve these detailed matters. In any event, in making a decision, I intend to try to apply the general principal in Sweeny, that the exercise of my discretion should be fair and reasonable.

[42] I accept that this is not a case where one might conclude that there has been full and useful co-operation. I accept that the pre-proof preparation and investigation by the pursuers was unusually difficult. I accept that the first defender's financial circumstances were unusually complex and that to some extent his attention was focused on trying to save his business interests rather than this litigation. Had he been successful in that, the course of this action would probably have been different. I take into account that this is a matrimonial action, albeit unusual. I have approached the matter of expenses generally on a broad basis trying to achieve a fair and reasonable outcome. I take into account the limited funds available to the first defender. On the understanding that there remains on joint deposit a sum of £10,000 as a balance of arrested funds, I conclude that it would be fair and reasonable to find the first defender liable to the pursuer in expenses (insofar as not previously dealt with) prior to the proof occasioned by the first defender to the maximum sum of £5,000 or such lesser sum as shall be found due as part of the taxed expenses.

[43] In conclusion, I record that certain submissions were made in relation to findings of expenses in relation to legally aided parties. I make no comment about these submissions as I deem it unnecessary in view of the decisions which I have taken.

[44] I reserve all other matters relating to expenses and certification of witnesses and appoint the case to the By Order Roll.