Gaelic Seafoods (ireland) Limited V. Ewos Limited
| Jurisdiction | Scotland |
| Judge | Lord Drummond Young |
| Neutral Citation | [2009] CSOH 29 |
| Date | 26 February 2009 |
| Docket Number | A640/02 |
| Court | Court of Session |
| Published date | 27 February 2009 |
| OUTER HOUSE, COURT OF SESSION [2009] CSOH 29 | |
| A640/02 | OPINION OF LORD DRUMMOND YOUNG in the cause GAELIC SEAFOODS (IRELAND) LIMITED Pursuers; against EWOS LIMITED Defenders: ________________ |
Pursuers: Cormack, Solicitor-advocate; McGrigors, LLP
Defenders: Lake; Maclay Murray & Spens, LLP
26 February 2009
[1] The pursuers are a company incorporated in Ireland. They carried on the business of salmon farming at sites in Ireland. They are now in liquidation and receivership. During 1995 and 1996 the defenders supplied the pursuers with salmon feed. The pursuers claim that the feed was defective, and that in supplying such feed the defenders were in breach of their contract with the pursuers. They further claim that the supply of defective feed caused them significant losses. In furtherance of that claim the pursuers have raised an action against the defenders for payment of the sums of £2,078,948 and £1,746,262; those amounts are said to represent the losses sustained by the pursuers at the two sites where the feed was used.
[2] The adjustment of the pleadings has now been completed and a proof before answer has been allowed. The defenders have lodged a motion to ordain the pursuers to find caution of £50,000 for expenses in respect that (1) the pursuers are company in liquidation, (2) the costs of defending the claim are significant in respect that the events in issue occurred over 10 years ago in Ireland and involve complex technical and scientific issues relating to causation and quantum, (3) a funding agreement relied on by the pursuers did not provide the defenders with adequate security and (4) the pursuers had been found liable to the defenders in respect of a discharged procedure roll discussion and amendment procedure. That motion is opposed by the pursuers.
[3] The pursuers are not a company incorporated under the Companies Acts having force in Great Britain, and accordingly section 726(2) does not apply; that subsection only applies to a "company", which is defined by section 735(1) as a company incorporated under the 1985 Act or an "existing company"; the latter expression is defined in the same subsection as a company incorporated under earlier Companies Acts but excluding those applicable in Ireland. Consequently the defenders' motion for caution was made at common law.
[4] I was referred to a number of authorities in which caution at common law is discussed. The first of these was Kaiser Bautechnik GmbH v GA Group Ltd, 1993 SLT 826. In that case (at 827L) Lord Cameron of Lochbroom noted that the defenders had submitted that the criterion adopted in cases under section 726(2) was apt to caution at common law. On that basis, caution was available where there was a substantial risk that any award of expenses in the defenders' favour would not be satisfied. Lord Cameron accepted that in appropriate circumstances a party might be required to find caution where the court was satisfied that there was such a substantial risk present and that it would be inequitable that the party whose circumstances or conduct gave rise to that risk should proceed further in the action without finding caution. In the circumstances of that case, however, caution was refused; the pursuers were not insolvent, and there was no other reason for supposing that caution was required. In Medicopharma (UK) BV v Cairns, 1993 SLT 386, an action was brought by a foreign company which was not insolvent. A motion for caution was refused by Temporary Judge TG Coutts QC. It was conceded that the common law test was higher than the test under section 726 of the Companies Act. The judge stated:
"A litigant is not normally ordained to find caution. In order that that should happen there require to be compelling factors such as the unlikelihood of success in the action or that the litigant was an undischarged bankrupt or that some award or decree having been granted in another matter there had been a failure to pay".
No such factor was present in that case. In Balfour Beatty Ltd. v Brinmoor Ltd., 1997 SCLR 387, Lord Abernethy held that it was competent at common law to ordain a company defender to find caution. Counsel had accepted that the common law tests for caution were different from and more stringent than those under section 726(2); thus at common law mere poverty or an inability to pay a defender's expenses if the defence were successful is not a ground for ordaining a pursuer to find caution for expenses: see 388G and 389C. Apart from those statements, however, little guidance is given in the case as to the tests for caution at common law.
[5] The subsequent case of Fallimento La Pantofola D'Oro SpA v Blane Leisure Ltd. (No 2), 2000 SLT 1264, involved an action brought by an insolvent Italian company for payment of the price of goods supplied. The pursuers' "curatore" (the equivalent of a liquidator) would not under Italian law be personally liable in expenses. The defenders claimed that were entitled to damages for breach of contract, as the goods had failed quality checks, and that they were entitled to set off their claim for damages against the price. The pursuers had, however, taken issue with the defenders' tests on the goods. The sum claimed by the pursuers was sufficiently large to have had a possible bearing on their eventual insolvency. The defenders enrolled a motion for caution. Lord Hamilton reviewed the law in detail. He stated (at pages 1267-1268):
"[7] The courts in Scotland have long exercised a common law jurisdiction in respect of the finding of security for expenses by litigants who are individuals... It would, however, be inappropriate, in my view, to seek to apply without qualification principles applicable to an individual in the circumstances of a limited company. As Millett J said in DSQ Property Co. Ltd. v Lotus Cars Ltd., [1987] BCLC 60, at p 64e-f: 'A limited company is not like an individual. It is a commercial concern with exclusively commercial debts and liabilities. Unlike an individual it can charge its full undertaking to a secured creditor and leave nothing at all for unsecured creditors, even those having priority in a winding up. It is obvious that in some circumstances justice may require such a plaintiff to be required to give security for costs, and this is recognized in the legislation of both Great Britain and Northern Ireland'.
These observations were made in the context of an application under [the English Rules of Court], but I agree with them and regard them as equally relevant to the exercise in Scotland of the court's common law jurisdiction in respect of limited companies. Likewise, the basis on which bankrupt individuals are ordinarily required to find caution..., namely, their being divested of their estates, has limited, if any, application, in my view, to the position of limited companies.
[8] There is, so far as I am aware, no reported case in which a court in Scotland has considered an application at common law to require a limited company to which the Companies Acts provisions do not apply to find security for expenses. There is accordingly no direct guidance. However, the jurisdiction involves discretion in the exercise of which a number of factors will fall to be considered. These will include, but are not limited to, the financial circumstances of the company".
Lord Hamilton went on to consider the various factors that were relevant in that case. The first of these was the availability of adequate funds or other resources on which the defender could recover any award of expenses ultimately made in its favour. In that case this was a relevant consideration, because the defenders held goods that they had not paid for and could set off the value of those goods against any award. The second factor was whether the acts of the defenders that were said to form the basis for the pursuers' claim had been instrumental in bringing about the pursuers' insolvency. It was difficult to reach a view on that factor, although some limited weight might be given to it in view of the size of the sums at stake. The third factor was the prospects of success, although this was taken into account on "a broad and wholly provisional basis". In that case it could not be said the pursuers' claim was entirely without merit. The fourth factor was the extent to which those who had a financial interest in the pursuers and their claim, whether creditors, shareholders or others, might be able or willing to provide security. No information was available on this matter, and it was accordingly not taken into account. Nevertheless, Lord Hamilton expressed regret that there was no information available. Ultimately, on a balancing of the first three of those factors, the motion for caution was refused.
[6] In the present case the primary factor relied on by the defenders was the admitted insolvency of the pursuers. A chartered accountant, Mr. David Mehigan, has been appointed liquidator by the High Court in Ireland. Counsel for the defenders submitted that the litigation was effectively brought on behalf of the pursuers' creditors; they would benefit from any sums that were recovered. Thus those creditors were able to litigate against the defenders with immunity from expenses, and that could give rise to possible injustice. Counsel further pointed out that the liquidator could have sisted himself as a party to the action, thus incurring personal liability for any award of expenses in the defenders' favour, and could then have taken steps to insure himself against such liability. Concern was also expressed at the way in which the litigation had been conducted by the pursuers. The action had been appointed to a diet of procedure roll, and at the last minute the pursuers had produced a minute of amendment. There had been a consequent finding of expenses against the pursuers.
[7] The solicitor-advocate for the pursuers recognized that the insolvent liquidation created a potential problem...
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...The element of fraud was not present in this case. He also referred to the case of Gaelic Seafoods (Ireland) Limited v Ewos Limited [2009] CSOH 29 simply for the fact that the failure to order caution in that case arose from the reluctance of the liquidator to sist himself to that action an......