B.f.s. (dundee) Limited V. David Murphie
| Jurisdiction | Scotland |
| Judge | Sheriff R.A. Davidson |
| Court | Sheriff Court |
| Date | 20 January 1999 |
| Docket Number | A3/97JUDGMENT |
| Published date | 25 May 1999 |
SHERIFFDOM OF TAYSIDE, CENTRAL AND FIFE AT DUNDEE
A3/97JUDGMENT OF SHERIFF R.A.DAVIDSON
in the cause
B.F.S. (DUNDEE) LIMITED
PURSUERS
against
DAVID MURPHIE
DEFENDER
Act: Milne, Messrs. Thorntons, W.S., Dundee
Alt: L.F. Foulis, Messrs. Blackadder Reid Johnston, Solicitors, Dundee
Dundee, 20th. January, 1999.
The sheriff, having resumed consideration of the cause,
allows parties, before answer, a proof of their respective averments, under reservation of the first plea-in-law for the defender; appoints the cause to the procedure roll of
9th. February, 1999to enable a suitable diet to be assigned; allows parties to be heard on any question pertaining to the expenses of the cause on said date.
NOTE
This case came before me for debate on 26th. August, 1998, and, once again, I find myself having to apologise to parties for the time it has taken to produce this judgment, but it is a further indication of the pressure of business upon this court and the limited time available for consideration of a set of circumstances and arguments therenent which are by no means straightforward, irrespective of the financial issues involved.
The debate proceeded upon the defender's plea-in-law 1, a general plea to the relevancy and specification of the pursuers' pleadings. Mr. Foulis' basic proposition was that I should sustain the plea and dismiss the action. As a secondary position, he moved me to exclude Art. 3 of condescendence from probation.
In this action, the pursuers, a limited company, seek decree against the defender, the company's former finance director, an individual resident within this court's jurisdiction, for payment of the sum of £3,648 plus interest at 8% from citation. It is averred by the pursuers that the defender was employed as their finance director until 31st. May, 1994. The pursuers resolved to make him an ex gratia payment on his departure. The pursuers aver that the defender initiated discussion on this topic via the company auditors. A representative of the auditors appears to have been a party to the discussions and to have tendered advice on the tax implications of such a payment, which advice is said to have been to the effect that a payment of £14,592 to the defender would not attract income tax if it were to be regarded as payment of compensation for loss of office. The pursuers aver that they then resolved to make such a payment and that this is recorded in a minute of a directors' meeting of 17th. May, 1994. The minute records that the payment is to be effected by paying £8,000 cash and transferring ownership to the defender of his company car at its then book value of £6,592. It is then averred:-
" Said agreement was reached and said minute was prepared on the understanding by all directors that payment of £14,592 was not liable to income tax, was the limit of the pursuers' liability either to the defender or to the Inland Revenue and could be paid to the defender on a gross basis without deduction of income tax."
I presume that when the pleader referred to "all directors" he intended to include the defender. The pursuers go on to aver making the payment, but that when the Inland Revenue became aware of the payment, they adjudged it to be an ex gratia payment which attracted a Schedule E liability of £3,648 which the pursuers have been obliged to pay. Against that background, the pursuers claim that the defender has been "enriched" to the tune of £3,648 and that they are entitled to repetition of that sum.
Further, in Art. 3, the pursuers aver that the defender obtained advice from the insurance broker who was responsible for the pursuers' directors' pensions scheme, of which he was a member, about the options open to him at his projected retirement date, and that, in the event, he elected to take the maximum tax free lump sum available to him on retirement and to purchase an annuity with the balance. The effect of this, so the pursuers aver, is that any ex gratia payment made by them to the defender on retirement would inevitably attract income tax. It is further averred that the defender knew that that was the position and did not so inform his fellow directors nor the company's auditors. It is averred:-
" Had he elected not to take a lump sum from the pension scheme, the payment from the pursuers might have been classed as a relevant benefit from an approved scheme and, as such, avoided liability to income tax."
The pursuers' only plea-in-law reads:-
" The sum sued for having been paid by the pursuers to the defender under mistake of fact or law, the pursuers are entitled to repetition of said sum according to the condictio indebiti."
Despite that sole plea-in-law, the pursuers appear to aver two bases upon which recovery of money is sought from the defender, namely (1) that, notwithstanding the terms of the minute of the directors' meeting of 17th. May, 1994, the agreement bewteen the parties was to pay him £14,592 subject to tax, the parties being under the mistaken apprehension that no tax was due, and that he should be required to reimburse them the sum as income tax which they were ultimately required to pay to the Inland Revenue and/or (2) that the defender had some unspecified obligation presumably arising out of his directorship to tell the pursuers that the effect of his pensions' election would be that no payment to him of any ex gratia nature could be made tax exempt, that position having been made known to him by the pursuers' insurance brokers. That is the background against which the defender's agent made submissions in support of his preliminary plea.
Under reference to "The Law of Restitution in Scotland" by the late W.J. Stewart, esp. Chapter 7 pages 122 and 135-6, including the supplement to the text, Mr. Foulis noted that it was not averred that there was mistaken belief as to what was agreed between the parties. The agreement, duly minuted, was that the pursuers would pay the defender £14,592. They had done so. Where was the error ? There was no reference in the minute to the incidence of taxation. The pursuers could not therefore aver that something occurred in respect of which either of the parties was under a mistaken belief.
At page 122, para 7.11. 1, Mr Stewart states the following proposition, viz., "There will be a claim to recover money or goods paid or transferred in such a way that the recipient becomes the owner, if the transfer was in the mistaken belief that the payment or transfer was legally obligatory." He goes on to explain that "legally obligatory" generally means bound by a legal obligation. He seems to suggest at para. 7.14 that before there can be "mistaken belief" an essential ingredient is that the error be excusable. The issue of "excusable error" was considered in the subsequent five judge Inner House decision in Morgan Guaranty Trust Co of New York v Lothian Regional Council 1995 S.L.T. 299 (i.e. the decision is subsequent to the publication of Mr. Stewart's text) and with the abolition therein of the "error of law rule," as I shall come to consider, the significance of the "excusable error" issue has reduced if not vanished given that an error of law is an error of law and trying to determine whether a party should have been aware of the law as part of the process of resolving claims for unjust enrichment now is no longer a relevant consideration. The case of Morgan further decides that it makes no difference to the application of the condictio indebiti whether the mistaken belief is one of fact or law and that formulation of the law seems to me to detract from any significance formerly attached to the subjective qualitative assessment of the pursuer's mistake.
Mr. Foulis went on to refer me to the judgment in Balfour Melville v Duncan 1903 5F 1079. Frankly, I found the facts of the case difficult to comprehend. Suffice it to say that it appeared to relate to overpayments made to a liferentrix by trustees. At page 1085, Lord Kinnear says:-
" I think the averments irrelevant, because I cannot find in the case as stated any legal basis to support the conclusion of the summons. To say that the pursuer paid an amount in full for certain specified years, whereas he might have made deductions from each year's payment which he did not in fact make, is by no means enough to found a condictio indebiti. To recover overpayments under such an action, it is necessary that the pursuer should show that they were made in error or ignorance, and in such circumstances as will entitled him to be relieved against his own mistake. But if all that he can allege is that he paid a debt in full, when he might have insisted, if he had thought first, upon making a certain deduction, and if it appears on his own shewing that he did so in full knowledge of his legal rights and of the facts bearing upon his liability, I can see no ground in law on which he should be entitled to recover. The pursuer says nothing as to the reasons which induced him to pay more than he alleges he was bound to pay; and, in the absence of...
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