Scottish Sheriff Court Decisions

SHERIFFDOM OF TAYSIDE, CENTRAL AND FIFE AT DUNDEE

Case No. A212/12

JUDGEMENT of SHERIFF K.J. McGOWAN in the cause DIANE GIBSON Pursuer against (FIRST) MRS SANDRA GOW AND (SECOND) MR DEREK GOW Defender __________________­­­­­­­­­

Dundee, 26 March 2014

The Sheriff, having resumed consideration of the cause, (i) finds the pursuer liable to the defender in the expenses occasion by the amendment procedure; allows an account of expenses to be given and remits same, when lodged, to the Auditor of Court to tax and report; (ii) allows parties a proof before answer of their respective averments; and (iii) reserves meantime the question of expenses occasioned by the debate.

(Sgd)"K J McGowan"

Sheriff

Note

Introduction

[1] In this action, the pursuer seeks repayment of £50,000.00 which she says she loaned to the defenders in 2007 to assist them in the purchase of a house. It is said that the loan was constituted by a verbal agreement and was subject to certain conditions. The defenders do not deny receipt of that sum, but say it was a gift. Since then, according to the pursuer, she has attempted to have the defenders repay the money, but that the defenders have not complied with her requests to do so.

[2] The case came before me for debate on the defenders' preliminary pleas.

[3] In the course of argument, I was referred to the following sources:

a. "The Law of Scotland", Gloag & Henderson, 12^th edition, paragraphs 15.2 and 15.3;

b. Graham-Stewart v Feeney 1995 GWD 35-2048.

[4] Having made avizandum, I also considered (i) Neilson v Stewart, 1991 SC (HL) 22, which is referred to in Graham-Stewart; (ii) Gloag & Henderson, paras. 5.05 and 15.01, footnote 2; (iii) Thomson v Geekie (1861) 23D. 693, which is referred to in Neilson; and (iv) Jamieson v Jamieson 1952 SC (HL) 44.

Preliminary issue: the amendment

[5] At the outset of the debate, I was invited to allow amendment of the record in terms of the pursuer's minute and answers thereto, numbers 19 and 20 of process.

[6] That motion was not opposed, but the defender sought the expenses of the amendment process. That motion for expenses was opposed on the grounds that the amendment had merely been a "tidying up exercise". Neither agent referred me to the actual terms of the proposed amendment.

[7] In order to save time, I allowed the amendment and reserved expenses.

[8] The debate then proceeded, a Record incorporating the terms of the amendment and answers being available.

Submissions for defenders

[9] The pursuer's position was that money was now due from the defenders in repayment of a loan made by her to them. The pursuer had offered a proof before answer but the case was not apt for such.

[10] The defenders' primary position was that the £50,000 in question was a gift and not a loan. But even if the pursuer proved that it was a loan, under the condition for repayment which she was offering to prove, repayment was not yet due. Therefore, the pursuer was not entitled to the decree for payment which she sought.

[11] The point at issue in Graham-Stewart was different and although no specific passage was relied on, a copy of the judgement was made available for the Court's consideration. Reliance was placed on Gloag and Henderson, paras. 15.02 and 15.03.

[12] The defenders say that the money was a gift. The pursuer says it was a loan but even if it was a loan the obligation to pay had not crystallised.

[13] The critical question was: when does repayment fall to be made?

[14] The terms of the contract were critical to establish the answer to that question.

[15] The phrase "both parties understood" was not clear.

[16] If the pursuer was not retired or about to retire, there was no obligation to repay. There was no averment that the pursuer had retired or was about to retire. In these circumstances, she was not in a position to seek the decree which she was asking for.

[17] The pursuer seemed to be relying on a "second agreement" reached in about July 2012. But Article 3 of condescendence did not aver that money was actually due.

[18] The pursuer said three things. Firstly that there was a loan £50,000. Secondly that repayment was to be by the time she retired. Thirdly, that there was an "understanding" that repayment would be made within a reasonable time following a demand for such. The second and third propositions were inconsistent with one another.

[19] There were also issues of specification - what was "a reasonable" period of time?

[20] The case was based on what "both parties understood". The meaning of that was not clear. By definition, there could not have been any express agreement.

[21] There were no averments to support any implied term of the loan agreement.

[22] The second agreement in July 2012 was an attempt to plug the gap in the agreement which was said to have been entered into at the outset.

[23] It was accepted that the common law position was that a loan was to be repaid on demand.

[24] There were also issues as to whether they had ever been a request for repayment.

[25] The email of 29 May 2012 does not mention the loan at all. The email of 31 May 2012 does not mention retirement. These emails also predated the "second agreement" which was said to have been reached in July 2012.

[26] There were further difficulties with that supposed second agreement because

a. it doesn't be to refer to the second defender and

b. amounted to no more than an averment that the pursuer was invited to "draw up a contract". As such, that negatived the idea of an agreement being reached previously.

[27] The chronology was a problem for the pursuer. The demand email was dated 31^st May 2012; the solicitor's letter was dated June 2012; and the meeting at which it was said the agreement was reached did not happen until July 2012.

[28] There was no reference to any subsequent agreement.

[29] If the only question to be resolved was whether the £50,000 was a gift, it was accepted that a proof before answer would be appropriate. However, the pursuer's difficulty here was that she did not properly of aver a case that time for repayment had been reached or that an appropriate demand for payment had been made.

[30] There was also a problem with the pursuer's first plea in law which was not in proper form.

Submissions for pursuer

[31] It was a matter of agreement that the defenders obtained £50,000 from the pursuer. If the pursuer does not prove that was by of a loan, then her claim cannot succeed. That was a question of fact to be resolved by the evidence.

[32] The context here was a verbal agreement between two sisters. The pursuer's position was that there was a general agreement that the money was to be repaid. That was a matter for evidence and proof.

[33] This was not a commercial contract carefully negotiated between legally advised parties.

[34] The agreement reached in July 2012 was an agreement that matters should be formalised in a contract.

[35] The first plea in law for the pursuer was in correct form.

Reply for defenders

[36] The question of timing was crucial. That required to be addressed for a proof before answer to be allowed. The timing of the second agreement did not fit in with the timing of the demands for repayment.

Grounds of decision

Expenses of amendment

[37] Neither party referred me to the terms of the minute or answers. The proposed amendment (in part) takes the form of deletion of the whole of Article 2 of condescendence which is substituted by a new article. It is clear that the amendment provoked answers. The contention that the amendment was simply a tidying up exercise does not justify departure from the principle that the proposer of an amendment will normally have to meet the expenses of that exercise. Accordingly, I apply the normal rule and find the pursuer liable to the defender in the expenses occasioned by the amendment procedure.

Debate

General approach

[38] There are some general points which need to be borne in mind.

[39] First, an action will not be dismissed unless it can be determined on an examination of the pleadings that the action will necessarily fail even if all the averments are proved: Jamieson. In other words, the bar to achieving the knockout blow of dismissal is set at a high level.

[40] Second, at the stage of debate, the pursuer's pleadings are taken pro veritate: it is assumed, for the sake of argument that what is averred will be proved. The pursuer does not need to aver how matters are to be proved. In the present case, quite apart from anything else, the pursuer offers to prove that the £50,000 was a loan.

[41] The meaning of the pursuer's pleadings must be derived from them taken as a whole. One passage, taken in isolation might appear not to make sense, but that is not a legitimate approach.

The averments

[42] The relevant averments are as follows:

(Article 2)

"On or around July, 2007, the pursuer loaned the sum of £50,000 Sterling to the defenders to assist in the purchase of their property at [address]. No written agreement was entered into at that time." (Hereinafter "Passage 1").

"Explained and averred that a condition of the loan was that the defenders would require to repay the funds before the pursuer was to retire. Explained and averred that no exact time was stated for the repayment of said loan but that both parties understood that repayment would be within a reasonable period of time following upon a request for repayment. Explained and averred that the pursuer and the first named defender had agreed verbally in the summer of 2012 that a contract would be entered into to regulate the terms of repayment, the first named defender demanding that the terms of said contract be 'reasonable'. (Hereinafter "Passage 2").

"Explained and averred that the first named defender had previously met with the pursuer in or around July 2012 outside the Wellgate Centre, Dundee. On that occasion the first named defender agreed to repay the loan on terms that were 'reasonable' and instructed the pursuer to 'draw up a contract' deeming any payment to be reasonable which would not require her to 'sell her house' ". (Hereinafter "Passage 3").

(Article 3)

"The pursuer has made several attempts to obtain payment from the defenders in appropriate terms. The pursuer has suggested that the defenders grant a standard security over the property in her favour to guarantee the terms of repayment. The pursuer has made several approaches personally and through her solicitor in an attempt to negotiate the terms of payment. All attempts have been ignored by the defenders. The pursuer's letters have been ignored. The defenders steadfastly refused to negotiate the terms of payment." (Hereinafter "Passage 4").

Discussion

[43] In my opinion, it is clear that the pursuer is offering to prove that there was a loan: Passage 1. In addition, although it is somewhat infelicitously expressed, the pursuer also seems to be offering to prove that although there was no precise time for repayment, it was agreed that that loan was to be repaid on a demand for payment, at the latest by the time of the pursuer's retirement: Passage 2, Sentence 2; Passage 2, Sentence 1.

[44] I do not read the averments in the first two sentences of Passage 2 as depending on or being connected with the averments in (i) the remainder of Passage 2 or (ii) Passage 3 about a subsequent agreement. The pursuer seems to me to be saying that the agreement that the loan was to be repaid on a demand for payment existed from the outset.

[45] I do not find that the averments about the loan having to be repaid by the time the pursuer retired to be incompatible with the averments about it being repayable on demand.

[46] The pursuer does not aver that the loan was to be repaid when she (had) retired (or was about to retire). The term is said to be repayment before retirement. That seems to me to indicate "no later than" and does not exclude earlier repayment.

[47] In my view, these averments alone are sufficient to entitle the pursuer to an enquiry.

[48] The use of the word "understood" was also criticised: Passage 2, Sentence 2. In my view, in this context the phrase "both parties understood" can be taken to indicate that the pursuer is offering to prove a consensus or agreement. In the context of an agreement said to have been reached informally between to private individuals, that appears to me to be a valid averment.

[49] I did not find the passages in Gloag and Henderson relied on to be particularly enlightening.

[50] Paragraph 15.02 is concerned with the distinction between a loan and an advance.

[51] Paragraph 15.03 describes the distinction between "two basic categories of loan" but parties are free, of course, to negotiate such terms as they see fit.

[52] I was not directed to any particular passage of Grahame-Stewart (cited in Gloag and Henderson at paragraph 15.02, footnotes 8 and 9), but I was invited to give it my consideration.

[53] In the course of doing so, the following passage at page 5, caught my eye:

"It is not necessary, in the case of a loan, to specify either the manner of time of the payment: - Neilson v Stewart 1991 SC (HL) 22."

[54] In Neilson, the pursuer owned 50% of the shares in a company. He entered into negotiations with the defender for the purchase of those shares. A written agreement was prepared and signed. It provided that the pursuer was to sell the shares to the defender for £50,000, which sum the pursuer would then lend back to the defenders of the company (the defender and one other). The loan was to be secured over certain heritable subjects. The agreement provided that repayment of the loan was to be deferred for one year "after which time, payment shall be negotiated to our mutual agreement and satisfaction."

[55] The defender argued that that wording, which the pursuer conceded was too uncertain to be enforced, meant that the entire agreement was no more than an agreement to agree.

[56] The House of Lords, affirming the judgement of the First Division of the Inner House held inter alia that it was not essential the parties should agree on the period of the loan because, in the absence of agreement to the contrary, a loan is repayable at any time on demand.

[57] In particular, Lord Jauncey, having referred to Lord Justice-Clerk Inglis remarks at page 701 of Thomson v Geekie and Bell's "Principles of the Law of Scotland, 10^th edition, para. 201 said at page 40:

"I take from these passages that every loan carries with it an obligation of the borrower to repay. If the contract contains provisions for repayment those provisions will prevail. If, however, the contract contains no provisions or if for some reason the provisions turn out to be ineffectual then obligation to repay on demand revives. I entirely agree with the observations of the Lord President that: 'it is not essential that the parties should agree about the period of the loan because, in the absence of agreement to the contrary, a loan is repayable at any time on demand.'"

[58] I observe that the foregoing is noted in Gloag and Henderson at Paragraph 5.05 which states:

"It has been held that the period of a loan and the payment of it are not essential terms of a loan contract because a loan can be repayable on demand ... "

[59] See also Paragraph 15.01, footnote 2.

[60] So, there can be a valid and binding loan agreement even if there is no specific agreement as to repayment.

[61] That appears to me to undermine much of the criticism made of the pursuer's pleadings in the present case. Even if the averments about the repayment term (whenever that may have been negotiated) are inadequate or non-existent, the pursuer is entitled to say: "I do not need to aver that: I am offering to prove that this transaction was a loan - that is enough to entitle me to an enquiry into the facts".

[62] Furthermore, the defenders' argument in this case seems to me to be predicated on treating the questions (i) "was there a loan or not?" and (ii) "what was the term that regulated repayment?" are severable. I do not think that that is correct. Instead, it appears to me that they are interconnected. In other words, if there is evidence of a repayment term, that will tend to support the conclusion that the transaction was a loan. Likewise, if there is evidence that the transaction was loan, that gives rise to the presumption that there is an obligation repay.

[63] The answers to both these questions are questions of fact and will depend on all the relevant circumstances. That tends to support the view that where they fall to be resolved, that should be done after an enquiry into the facts.

[64] I am fortified in that view by the following points:

a. given the way in which this agreement is said to have been formed - by oral discussion - it will normally be necessary to have a factual enquiry before answering the questions of law (or mixed fact and law) which arise;

b. there is no dispute that a substantial sum did change hands - that is part of the factual circumstances that must be considered in determining the nature of the transaction which took place;

c. if the pursuer can prove that there was a loan, there are presumptions which may operate in her favour: Thomson v Geekie;

d. even if it is correct to focusing on the July 2012 agreement as a discrete issue, the question as to whether it amounted only to an "agreement to agree" or something more is a question of facts and circumstances.

[65] The lack of any averments to support any implied term of the loan agreement was criticised. But in my view it is not a question of an implied term but instead of a presumption in law: if the pursuer proves that this was a loan, then the presumption in favour of repayment (and payment of interest) arises.

[66] The averments at Passage 3 may indeed be an attempt to plug a perceived gap in the original agreement, but even if it is not proved, it does not follow that the action will fail. Depending on the evidence, the pursuer may prove a repayment obligation arising from the original agreement or a bare "loan" which may give rise to the presumption mentioned above.

[67] No. 5/2/2 (the email of 31 May 2012) is a clear demand of repayment: "...I would now like a full repayment of the loan/monies that you are due me." On the authority of Neilson, my view is that the fact that that demand bears to predate July 2012 does not matter.

[68] I agree that the pursuer's first plea in law is probably not in correct form. The action is one of (re)payment. But the second plea in law is adequate and any flaw in the first is a technical matter which causes no prejudice to the defenders. The defenders know what the pursuer's case is. The problem can be cured by a simple amendment and could not possibly justify dismissal of the action.

Conclusion and disposal

[69] In the circumstances, I shall allow a proof before answer with all pleas standing. I reserve the question of expenses meantime.

(Sgd)"K J McGowan"