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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord Nimmo SmithLord KingarthLady Dorrian |
[2009] CSIH 1XA1/07 OPINION OF THE COURT delivered by LORD NIMMO
SMITH in the Appeal from the Sheriffdom
of Glasgow and Strathkelvin at in the cause JAMES J DUNCAN Pursuer and Respondent; against AMERICAN EXPRESS SERVICES
EUROPE LIMITED Defenders and Appellants; _______ |
Pursuer and Respondent; Currie, QC, Davies, Harper McLeod LLP
Defenders and Appellants;
Introduction
[1] For many
years the pursuer held a charge card account ("the account") with the defenders
("Amex"). During 1993 Amex supplied to
one Brian Stevenson ("Mr Stevenson") a supplementary charge card on the
account. Between
[2] The pursuer
has raised an action in
The general features of
credit card transactions
[3] Counsel were
agreed that the general features of transactions on an account such as this were
as described by Sir Nicolas Browne-Wilkinson V-C in In re Charge Card Services Limited [1989] 1Ch 197 (C.A.), at page
509. His Lordship set out what in his
judgment were "the normal features of credit card or charge card transactions,
there being no relevant distinction between charge cards and credit cards for
present purposes." Under the heading "The general features of credit card transactions"
he went on to say:
"(A) There is an underlying contractual scheme
which predates the individual contracts of sale. Under such scheme, the suppliers have agreed
to accept the card in payment of the price of goods purchased: the purchasers
are entitled to use the credit card to commit the credit card company to pay the
suppliers. (B) That underlying scheme is established by two
separate contracts. The first is made
between the credit company and the seller:
the seller agrees to accept payment by use of the card from anyone
holding the card and the credit company agrees to pay to the supplier the price
of goods supplied less a discount. The
second contract is between the credit company and the cardholder: the cardholder is provided with a card which
enables him to pay the price by its use and in return agrees to pay the credit
company the full amount of the price charged by the supplier. (C)
The underlying scheme is designed primarily for use in over-the-counter
sales, i.e., sales where the only connection between a particular seller and a
particular buyer is one sale.
(D) The actual sale and purchase of the commodity
is the subject of a third bilateral contract made between buyer and
seller. In the majority of cases, this
sale contract will be an oral, over-the-counter sale. Tendering and acceptance of the credit card
in payment is made on the tacit assumption that the legal consequences will be
regulated by the separate underlying contractual obligations between the seller
and the credit company and the buyer and the credit company. (E) Because
the transactions intended to be covered by the scheme would primarily be
over-the-counter sales, the card does not carry the address of the cardholder
and the supplier will have no record of his address. Therefore the seller has no obvious means of
tracing the purchaser save through the credit company. (F) In
the circumstances, credit cards have come to be regarded as substitutes for
cash: they are frequently referred to as
"plastic money." (G) The credit card scheme provides advantages to
both seller and purchaser. The seller is
able to attract custom by agreeing to accept credit card payment. The purchaser by using the card, minimises
the need to carry cash and obtains at least a period of free credit during the
period until payment to the card company is due."
The pursuer's averments
of fact
[4] The preliminary proof before answer
before the sheriff was conducted on the basis that most of the pursuer's
averments on record were to be taken pro
veritate at that stage. Evidence on
a small number of matters of fact was led from one witness. What follows is therefore principally derived
from the pursuer's pleadings, important aspects of which are denied by Amex.
[5] The pursuer
is a businessman. He and his wife and
children have interests in a number of companies. From about 1987 until December 2004 the
companies employed Mr Stevenson in various capacities. The pursuer treated him as a close and
trusted friend and employee. Mr
Stevenson was responsible, amongst other matters, for administering the
financial affairs of the pursuer and his family. He received and processed correspondence,
bank statements, credit and charge card statements and personal invoices
addressed to the pursuer and his family.
He was responsible for the production of a regular summary of the
pursuer's financial position on various personal accounts, including the
account.
[6] The charge
card issued to the pursuer by Amex was initially called a "Gold Card". Later it became a "Platinum Card" and then, at
the invitation of Amex, a "Centurion Card".
During 1993 the pursuer's daughters Angela Duncan and Linda Duncan became
"cardmembers" on the account. This was
done with the authority and knowledge of the pursuer. At the same time Amex issued a charge card on
the account to Mr Stevenson. This, it is
averred, was done without the authority or knowledge of the pursuer. Amex issued replacement cards to Mr Stevenson
from time to time, again without the authority or knowledge of the pursuer. Mr Stevenson used these cards to conduct
transactions on the account.
[7] As can be
seen from the statements produced, the cards issued to the pursuer, his
daughters and Mr Stevenson were used by each of them to conduct transactions on
the account. Monthly statements were
sent by Amex to the pursuer which clearly showed the nature and amount of each
transaction and the name of the individual whose card had been used to conduct
it. In addition, there were annual
charges in respect of each of the cards, so that from 1993 onwards there were
annual charges attributable not only to the card from time to time issued to the
pursuer but to the cards issued to his daughters and to Mr Stevenson. Initially, Amex collected payment monthly by
direct debit from the pursuer's account with Clydesdale. The pursuer was under the impression that
this was how monthly payments to Amex continued to be made. In fact, Mr Stevenson took to making payments
by cheque drawn on the pursuer's account with Clydesdale. These, it is averred, were "fraudulently completed
and signed by Brian Stevenson and were not signed by or authorised by the
pursuer." Whatever might otherwise be
taken from this averment on its own, reference may also be made to a note by
the sheriff appended to an interlocutor dated 22 June 2006, in which he
recorded that counsel for the pursuer had stated: "The pursuer's position is
that the cheques are not signed with the pretended signature of any authorised
signatory, but rather were signed with Mr Stevenson's own signature, he having
no mandate from the pursuer to draw cheques."
It appears that Mr Stevenson did not merely use cheques drawn on the
pursuer's account with Clydesdale for the purpose of making monthly payments to
Amex, but he also drew further unauthorised cheques to make payments on his own
behalf. This course of conduct continued
until Mr Stevenson's dishonesty came to light in 2004.
[8] In addition
to the present action, the pursuer made a separate claim against
Clydesdale. In December 2005 a
settlement agreement was entered into between Clydesdale and the pursuer, the
terms of which are set out and discussed below.
[9] Mr
Stevenson's dishonesty has not, we were told, gone unpunished. He was prosecuted for embezzlement in the
High Court of Justiciary, and sentenced to a lengthy period of imprisonment.
[10] The witness
who was called to give evidence was led by the pursuer. She was Mrs Marcia Holland, a certified
public accountant qualified in the state of
The settlement agreement
with Clydesdale
[11] Some words
have been redacted from the copy of the settlement agreement which has been
lodged as a production. The parties were
Clydesdale, the pursuer and, we assume, other members of his family. The legible dates are 22 and
"WHEREAS
(a) the
Bank provided and provides banking services to Mr Duncan [names omitted] (together
known as the "Duncan Account Holders");
(b) the
Duncan Account Holders have complained to the Bank alleging that the Bank has
in breach of mandate and without authority permitted a Mr Brian Barrie
Stevenson, whether by himself or through others acting on his instructions or
on his behalf to effect transactions by various means, including by cheque,
misuse of credit cards and card accounts and by electronic funds transfer, on
bank and credit card accounts of the Duncan Account Holders with the Bank ("the
Stevenson Transactions"); and
(c) the
Bank and the Duncan Account Holders have agreed a compromise in respect of all
differences and disputes between them concerning, relating to or arising out of
the Stevenson Transactions.
NOW
THEREFORE THE PARTIES HAVE AGREED AND DO HEREBY AGREE AS FOLLOWS:
1. The Bank has agreed, without admission
of liability, to make payment of the sum of [figures and words omitted] ("the
Payment") to the Duncan Account Holders, to be divided between and amongst the
Duncan Account Holders as detailed in the schedule attached to this Agreement
with reference to transactions which are Stevenson Transactions on the
respective accounts of the Duncan Account Holders with the Bank and where the
recipient of the funds so transacted was not the account holder, whether in
respect of an account with the Bank or any other financial institution, in full
and final settlement of any and all claims and rights of action which any one
or more of the Duncan Account Holders may have against the Bank relating to, arising
out of or connected with the Stevenson Transactions. The Payment will be made to Messrs. Harper Macleod Solicitors' Client Account
[account details omitted] before
2. By their execution of this Agreement,
each of the Duncan Account Holders releases, waives and discharges all claims
and rights of action competent to them or any one or more of them, of any kind,
howsoever arising and whether or not presently manifest or made, against the
Bank in relation to, arising out of or connected with the Stevenson
Transactions.
3. [confidentiality]
4 [non-disclosure]
5 [expenses]
6 This Agreement shall be governed by
and construed solely in accordance with Scottish law and the parties hereby
submit to the non-exclusive jurisdiction of Scottish Courts."
It can be seen from the schedule that £1,126,652.51 was paid
by Clydesdale to Mr Duncan.
The issues to be
determined at the preliminary proof
[12] The issues for
determination at the preliminary proof took the form of six questions. Questions 1-4 were in terms agreed between
the parties. Questions 5 and 6 were
introduced upon the motion of Amex. This
was initially opposed on behalf of the pursuer, but the opposition was
withdrawn. The terms of the questions
were as follows:
"1.
What written terms from time to time formed part of the contract between the
pursuer and defenders in relation to the operation of the pursuer's account as
referred to in condescendence 2?
2. In circumstances where (i) the defenders
issued a card and replacement cards on the pursuer's account to a third party;
(ii) the third party used those cards to pay for goods and services; and (iii)
the defenders charged sums to the pursuer's account in respect of the use of those
card[s] by the third party, all without the knowledge or authority of the
pursuer:
(a)
whether or not the defenders would be entitled in terms of the contract as
existing from time to time between the parties to charge said sums to the
pursuer's account; AND, in any event,
(b)
whether or not it was a term (express or implied) of the contract that the
pursuer was liable to pay any sums so charged unless (i) he proved to the
reasonable satisfaction of the defenders that those cards were being used by
the third party without his permission, and (ii) he informed the defenders
promptly of the unauthorised use of those cards; and
(c)
whether "promptly" in such circumstances means the earlier of
(i)
following the issue of each relevant statement including charges arising from
such unauthorised use; or (ii) when the cardholder in fact became aware of the
unauthorised use; or (iii) ought with reasonable diligence to have become aware
of the unauthorised use.
(d)
Whether or not it was a term of such contract that the pursuer would inform the
defenders promptly when he became aware of such unauthorised use of those
cards?
3. If the term in 2 (c) applies, whether or not
the pursuer would be entitled to have the sums charged to the pursuer's account
as a result of the unauthorised use of those cards reimbursed to his account
with the effect that there would be a credit balance on the pursuer's account?
4. Whether the pursuer's primary claim is
properly characterised as
(i)
payment of a balance due on an account or (ii) a series of separate claims in
repetition for repayment of monies paid under the pursuer's mistaken belief
that they were due?
5. Whether, on the pursuer's case that the
cheques drawn on his account held at Clydesdale Bank and used to settle his
account with the defenders were forged, the monies paid to the defenders were
the monies paid by the Clydesdale Bank and not by the pursuer, so that the
pursuer's sole remedy is against Clydesdale Bank for breach of mandate and not
against the defenders?
6.
Whether, on the assumption that the pursuer had potential claims against both
Clydesdale Bank and the defenders, and on the true construction of the
settlement agreement between the pursuer and Clydesdale Bank, the pursuer has
by that settlement agreement precluded himself from bringing any claim against the
defenders?"
[13] Before the
preliminary proof before answer took place, the parties entered into a joint
minute of admissions, by which they inter
alia agreed that the terms of various issues of the American Express Cardmember
Agreement formed part of the contract between the pursuer and Amex and that
such terms were applicable to the operation of the account from the date of
each issue until superseded by the next.
The dates of the various issues covered by the joint minute were: May
1993, July 1993, September 1995, October 1997, April 1999, January 2000,
October 2003, November 2003 and August 2004.
Of these, all but the first were applicable from time to time during the
period in which Mr Stevenson used the card issued to him, i.e. there were eight
issues current from time to time during this eleven-year period.
The terms of the
parties' contract
[14] As a result of
the joint minute of admissions, it became unnecessary for the sheriff to answer
question 1. It is convenient however to
set out here such of the terms of the various issues of the cardmember
agreement as are relevant for present purposes.
It is noteworthy that before the sheriff, and again before us, counsel
did not suggest that there was any material difference between these
issues. It was not explained to us, in
that case, what purpose was served by sending out so many new issues to cardmembers,
other than to confuse them. Counsel
chose, for whatever reason, to address us principally on the terms of the May
1993 and October 1997 issues. We now set
out the relevant provisions of these issues.
The May 1993 issue
[15] Paragraph 2
provided various definitions. "Card" was
defined as meaning "The Gold Card, either the Basic Card, the Additional Card
or the Supplementary Card...". These
expressions were defined as follows:
"(c)
If you are the individual who asked us to issue one or more Cards, you are the
Basic Cardmember and will have a Card Account with us. Any primary Card so issued is called the
Basic Card. If, as the Basic Cardmember
you ask for a further Card to be issued in your name for use in connection with
the Card Account, that Card will be known as the Additional Card.
(d)
If you have received this Card at the request of a Basic Cardmember for use in
connection with a Basic Cardmember's Account you are a Supplementary Cardmember
and the Card which you have received is called a Supplementary Card."
Paragraph 2(f) provided:
"All
amounts charged to a Card Account, including all annual or other fees
associated with Cardmembership, any late payment charges, and other sums owing
to us and to our subsidiaries, are referred to as Charges."
Paragraph 2(h) defined the expression "Record of Charge" as
the record made, whether or not signed by the cardmember, when the card was
used to incur a charge at a "Service Establishment", i.e. a firm or other
organisation accepting the card for goods and services.
[16] Other
provisions were as follows:
"3. Card Use
(a)
You are the only person who may use the Card bearing your name for Charges...
. You will be liable to pay all Charges
incurred by you on the Card Account whether or not a Record of Charge is signed
at the time. ...
(b) The Basic Cardmember is liable for all
Charges incurred on the Card Account including Charges incurred on any
Additional Card or Supplementary Card issued on the Card Account. ...
4. Billing
(a) Card Account statements are sent to the Basic
Cardmember. This includes all Charges
made in connection with Supplementary Cards. ...
6. Payment
(a) All Charges are due for payment in full
immediately on receipt of your statement.
...
8. Queries
(a) If you have any questions about the Charges
appearing on your statement please tell us immediately. ...
10. Lost Cards
(a) You
must tell us immediately if the Card is lost, stolen, mutilated or not received
when due.
(b) You are liable for any unauthorised use of
the Card issued to you to the extent permitted by law.
(c) But once you have told us of its theft, loss,
or non-arrival, orally or in writing, your liability is automatically limited
to a maximum of twenty pounds (£20.00) up to the moment of reporting, provided
that the Card has not been used by a person who acquired possession of it with
your consent, in which case you will be fully liable for all use made of the
Card. ..."
The October 1997 issue
[17] The October
1997 issue contained definitions similar to those of the May 1993 issue. The only difference worth noting is that the
expression "Supplementary card" was defined as "the card we issue to other
people ... to use on your card account", with no reference to this being at the
request of the basic cardmember. Counsel
for Amex accepted, however, that such words would be implied, so that their
omission made no difference to the parties' agreement. The words "on your request" reappeared in the
equivalent definition in the November 2003 issue.
[18] Other
provisions of the October 1997 issue were as follows:
"3
Using the card
a You are the only person entitled to use the
card with your name on it. You must pay
all charges made by you or any other cardmember on your card account and any
other person using the card if he or she has your permission. We can charge to your charge account any
amount owed to us arising from theses charges.
b
You must pay all charges on the card account, including charges made with the
additional card and any supplementary card.
...
4
Statements
a We will send card statements to you. The statement will include charges to all
cards on your account, including charges made by any supplementary cardmember
or other person using the card with your permission.
b You and the supplementary cardmembers are
responsible for all charges made to your card account according to paragraph 3b
above. ...
6
Payment
a You must pay all charges in full when you
receive your card account statement. ...
7
Questions about charges, cancelling charges and accepting cards
a If you have any questions about charges on
your card account, you must contact us immediately. ...
9
Liability for loss, theft and misuse of cards
a You must tell us immediately if the card is
lost, stolen, damaged or does not arrive when it is due. You must also tell us if the card is being
used by another person without your permission.
b As long as you have told us promptly, you
will only have to pay us up to £20 for any loss you suffered, up to the time
you have told us about the loss.
c If your card is used by another person with
your permission, you will be responsible for all charges made on the card up to
the time you tell us you have withdrawn your permission. ..."
The sheriff's interlocutor
[19] The interlocutor
now appealed against, answering questions 2 to 6, was in the following terms:
"
(1)
in circumstances where (a) the defenders issued a card and replacement cards on
the pursuer's account to Brian Stevenson (b) Brian Stevenson used those cards
to pay for goods and services and (c) the defenders charged sums to the
pursuer's account in respect of the use of those cards by Brian Stevenson, all
without the knowledge or authority of the pursuer, the defenders would not be
entitled in terms of the contract as existing from time to time between the
parties to charge said sums to the pursuer's account;
(2)
it was not a term, either express or implied, of the contract that the
pursuer was liable to pay any sums charged by Brian Stevenson unless (a) he
proved to the reasonable satisfaction of the defenders that those cards were
being used by Brian Stevenson without his permission and (b) he informed the
defenders promptly of Brian Stevenson's unauthorised use of those cards; and
upon the hypotheses that such a term applied "promptly" did not mean following
the issue of each relevant statement[;]
(3)
that the pursuer is entitled to have sums charged to his account as a result of
Brian Stevenson's unauthorised use of those cards reimbursed to his account
with the effect that there would be a credit balance on his account;
(4)
finds that the pursuer's primary claim is properly characterised as payment of
a balance due on an account;
(5)
finds in respect of monies paid to the defenders by way of forged cheques or
cheques drawn in breach of mandate that the pursuer is not confined to a single
remedy against Clydesdale Bank;
(6)
finds that on a true construction of the settlement agreement between the
pursuer and Clydesdale Bank the pursuer has not by that settlement agreement
precluded himself from bringing any claim against the defenders; ... ."
The concluding part of the interlocutor fixed the holding of a
case management conference inter alia to
discuss further procedure.
Question 2: The effect
of the contractual provisions
[20] Amex's grounds
of appeal against the sheriff's decision on this question are as follows:
"(i) Upon a
proper analysis of the terms and conditions applicable to the contract between
the parties, Clause 9 is habile to cover cards issued by the defenders but
not authorised by the pursuer.
(ii) In
determining that obligations between the parties in respect of charges made on
an unauthorised card were not affected by the failure of the cardholder to
raise a query within some brief period following the issue of each statement,
the Sheriff failed to give adequate weight to a comparison of the
characteristics of a chargecard arrangement and those of a bank current
account. In particular, having accepted
... (a) that, because of the
separate contracts entered into with vendors and service providers, the
chargecard issuer was in a peculiarly exposed position and (b) that the
chargecard issuer was dependent upon the member to alert him if any transaction
recorded on a statement was not genuine, the Sheriff failed to give due, or
any, weight to the contrast between an application for payment in respect of a
chargecard transaction and operation of a bank current account based upon the
terms of the mandate between the customer and the banker."
As can be seen from these grounds of appeal, two points arise
from the express terms of the parties' contract, as set out in the various
issues of the cardmember agreement in force from time to time.
[21] The first
point raised in the grounds of appeal requires us to consider whether "clause 9
is habile to cover cards issued by [Amex] but not authorised by the
pursuer". As we understand it, this is a
reference to paragraph 9 of the April 1999 issue, on which the sheriff was
invited to focus more than we were. The
provision in question also appeared as paragraph 9 of the October 1997 issue,
the counterpart to which is paragraph 10 of the May 1993 issue. We find it impossible, on a proper
construction of these provisions in the context of the contract as a whole, to
conclude that the pursuer has contractual liability for sums arising from the
use of cards issued to Mr Stevenson without the knowledge or authority of the
pursuer. If, as was accepted by counsel
for Amex (see paragraph [17] above), a supplementary card could only be issued
on the account at the request of the pursuer as the basic cardmember, the cards
issued by Amex to Mr Stevenson without the knowledge or authority of the
pursuer could not be "cards" within the meaning of the agreement. It necessarily follows that the use by Mr
Stevenson of the cards thus issued to him could not generate "charges" within
the meaning of the agreement, since the only charges referred to therein are
those incurred by the use of cards issued to or at the request of the cardmember.
[22] The second point may be put in this way: Even if Amex were not entitled to charge such
sums to the pursuer's account, but nevertheless purported to do so, with the
result that the debit entries were shown on the monthly statements sent to the
pursuer, and if the pursuer failed to query the debit entries, did he become
liable for payment of the purported charges?
Central to the discussion before us was the decision of the Privy
Council in Tai Hing Cotton
Mill Ltd v Liu Chong Hing Bank Ltd and Others [1986] AC 80 ("Tai
Hing"). In this case, a company with
current accounts at three banks authorised the banks to pay cheques drawn on
behalf of the company signed by the managing director or nominated signatories. The express terms of the company's contracts
with the banks included a requirement that the company should notify the banks
within a specified time of any errors in its monthly bank statements. Over a period of several years an accounts
clerk forged the managing director's signature on a large number of cheques purporting
to be drawn by the company. The banks
honoured the cheques on presentation and debited them against the company's
accounts. The company's system of
internal financial control was not adequate to prevent or detect forgery and so
the forgeries were not discovered until later.
The company then sought repayment of the sums in question. Having lost at first instance and in the
Court of Appeal of
"The question [of general principle] can be framed in two ways. If put in terms of the law's development, it
is whether two House of Lords' decisions, one in 1918 and the other in 1933,
represent the existing law. If put in
terms of principle, the question is whether English law recognises today any
duty of care owed by the customer to his bank in the operation of a current
account beyond, first, a duty to refrain from drawing a cheque in such a manner
as may facilitate fraud or forgery, and, secondly, a duty to inform the bank of
any forgery of a cheque purportedly drawn on the account as soon as he, the
customer, becomes aware of it. The first
duty was clearly enunciated by the House of Lords in London Joint Stock Bank Ltd. v.
Macmillan [1918] A.C. 777, and the second was laid down, also by the House
of Lords, in
At pages 105 to 106 Lord Scarman said, in discussing
whether a wider duty must be implied into the contract:
"The relationship between banker and customer is a matter of contract. The classic, though not necessarily
exhaustive, analysis of the incidents of the contract is to be found in the
judgment of Atkin L.J. in Joachimson v. Swiss Bank Corporation [1921] 3 K.B.
110, 127:
'I think that there is only one contract made
between the bank and its customer. The
terms of that contract involve obligations on both sides and require careful
statement. They appear upon
consideration to include the following provisions. The bank undertakes to receive money and to
collect bills for its customer's account. The proceeds so received are not to be held in
trust for the customer, but the bank borrows the proceeds and undertakes to
repay them. The promise to repay is to
repay at the branch of the bank where the account is kept, and during banking
hours. It includes a promise to repay
any part of the amount due against the written order of the customer addressed
to the bank at the branch, and as such written orders may be outstanding in the
ordinary course of business for two or three days, it is a term of the contract
that the bank will not cease to do business with the customer except upon
reasonable notice. The customer on his
part undertakes to exercise reasonable care in executing his written orders so
as not to mislead the bank or to facilitate forgery.'
Atkin L.J. clearly felt no difficulty in
analysing the relationship upon the basis of the limited duty enunciated in Macmillan's case. And in Macmillan's case itself the protracted
discussion, which is now only of historical interest, as to the true ratio
decidendi of Young v. Grote (1827) 4 Bing. 253 reveals
vividly that the House was aware of the possibility of a wider duty but
rejected it.
The argument for the banks is, when analysed, no more than that the
obligations of care placed upon banks in the management of a customer's account
which the courts have recognised have become with the development of banking business
so burdensome that they should be met by a reciprocal increase of
responsibility imposed upon the customer: and they cite Selangor United Rubber Estates Ltd. v. Cradock (No. 3) [1968] 1 W.L.R. 1555 (Ungoed-Thomas J.) and Karak Rubber Co.
Ltd.v. Burden (No. 2) [1972] 1 W.L.R. 602 (Brightman J.). One can fully
understand the comment of Cons J.A. that the banks must today look for
protection. So be it. They can increase the severity of their terms
of business, and they can use their influence, as they have in the past, to
seek to persuade the legislature that they should be granted by statute further
protection. But it does not follow that
because they may need protection as their business expands the necessary
incidents of their relationship with their customer must also change. The business of banking is the business not of
the customer but of the bank. They offer
a service, which is to honour their customer's cheques when drawn upon an
account in credit or within an agreed overdraft limit. If they pay out upon cheques which are not
his, they are acting outside their mandate and cannot plead his authority in
justification of their debit to his account. This is a risk of the service which it is
their business to offer. The limits set
to the risk in the Macmillan [1918]
A.C. 777 and
'I think Mr. Scrutton's contention
equally fails when it is considered apart from authority. It amounts to a contention on the part of the
bank that its customers impliedly agreed to take precautions in the general
course of carrying on their business to prevent forgeries on the part of their
servants. Upon what is that based? It cannot be said to be necessary to make the
contract effective. It cannot be said to
have really been in the mind of the customer, or, indeed, of the bank, when the
relationship of banker and customer was created. What is to be the standard of the extent or
number of the precautions to be taken? Applying
it to this case, can it be said to have been in the minds of the directors of
the company that they were promising to have the pass-book and the cash-book
examined at every board meeting, and to have a sufficient number of board
meetings to prevent forgeries, or that the secretary should be supervised or
watched by the chairman? If the bank
desire that their customers should make these promises they must expressly
stipulate that they shall. I am inclined
to think that a banker who required such a stipulation would soon lose a number
of his customers. The truth is that the
number of cases where bankers sustain losses of this kind are infinitesimal in
comparison with the large business they do, and the profits of banking are
sufficient to compensate them for this very small risk. To the individual customer the loss would
often be very serious; to the banker it is negligible.'
Their Lordships reject,
therefore, the implied term submission."
[23] As to
the express terms of business, Lord Scarman said at pages 109 to 110:
"Their Lordships agree with the views of the trial judge and Hunter J. as
to the interpretation of these terms of business. They are contractual in effect, but in no case
do they constitute what has come to be called 'conclusive evidence clauses.' Their terms are not such as to bring home to
the customer either 'the intended importance of the inspection he is being
expressly or impliedly invited to make,' or that they are intended to have
conclusive effect against him if he raises no query, or fails to raise a query
in time, upon his bank statements. If
banks wish to impose upon their customers an express obligation to examine
their monthly statements and to make those statements, in the absence of query,
unchallengeable by the customer after expiry of a time limit, the burden of the
objection and of the sanction imposed must be brought home to the customer. In their Lordships' view the provisions which
they have set out above do not meet this undoubtedly rigorous test. The test is rigorous because the bankers would
have their terms of business so construed as to exclude the rights which the
customer would enjoy if they were not excluded by express agreement. It must be borne in mind that, in their
Lordships' view, the true nature of the obligations of the customer to his bank
where there is not express agreement is limited to the Macmillan and Greenwood duties. Clear and unambiguous provision is needed if
the banks are to introduce into the contract a binding obligation upon the
customer who does not query his bank statement to accept the statement as
accurately setting out the debit items in the accounts."
[24] Counsel
disagreed on the applicability of this decision to the present case. We did not understand counsel for Amex to
argue that, if it is applicable, the result would not be as contended for by
counsel for the pursuer. We accept that
a credit account with a bank has features that are not the same as those of a
charge card account: see the quotation from In
re Charge Card Services Limited at paragraph [3] above. We also accept that a bank current account
generally operates in credit, while the opposite applies to a charge card
account. But what matters for present
purposes is that in each case statements are sent to the account holder, who
may or may not be in a position to read them and may or may not readily have
the means to hand of checking the accuracy of the entries. As was held in Tai Hing, to make a statement, in the absence of query,
unchallengeable by the customer after expiry of the time limit, the customer
must be subject to a conclusive evidence clause expressed in sufficiently clear
and unambiguous terms. All that the
agreement provides in the present case (paragraph 8 of the May 1993 issue and
paragraph 7 of the October 1997 issue) is that if the card holder has any
questions about charges on the account he must tell or contact Amex
immediately. Counsel for Amex were
reduced to submitting that it was implicit in this that the customer will
become liable for a debit entry in the account (which ex hypothesi ought not to have been made) unless he has both
checked the statement and informed Amex promptly that his liability is
disputed. We do not accept this
approach. There is no good reason why
such adverse consequences should be left to implication. Amex have gone to some lengths to set out the
express terms and conditions applicable from time to time to the parties'
contract. There is no good reason why,
if they wish to do business on the terms now contended for, they should not
make express provision to that effect. Tai Hing yields the proposition that a
conclusive evidence clause in a contract relating to a current account or
running account (as to which, see below) requires to be clear and
unambiguous. There is no such clause in
the present case.
[25] For these
reasons, we are satisfied that the Sheriff answered question 2 (a) and (b)
correctly. In the circumstances it is
not necessary to proceed to consider question 2 (c) and (d).
Questions 3 and 4:
Characterisation of the pursuer's claim
[26] The Sheriff
thought it appropriate to consider these two questions together, and likewise
before us the parties discussed them together.
We shall do the same. The grounds
of appeal for Amex against the sheriff's decision on these questions are as
follows:
"The
Sheriff erred in determining ... that a chargecard account was no different
from a bank current account and that the relationship between the parties was
simply that of debtor and creditor. In
so doing, the Sheriff failed to give proper, or any, weight to (i) the
fact that a chargecard agreement was not an agreement for the provision of
banking facilities but, rather, an agreement whereby the chargecard issuer was
entitled to make application for payment in respect of an apparent transaction,
(ii) the fact that such applications had been made and (iii) the fact that
payments had been made. Upon a proper
analysis, any claims open to the pursuer were separate claims in repetition for
repayment of monies paid under a mistaken belief that they were due and not a
claim for payment of a credit balance due on an account."
[27] The discussion
turned on the question whether the pursuer's Amex account is properly described
as a running account. In that event, the
pursuer contends that credits arising in his favour should be reflected in the
account and that in the event of a credit balance arising Amex would stand in
the relationship of debtor to him. In
Wilson, Scottish Law of Debt (2nd ed.)
the author states:
"A
running account or account-current is one in which the intention of the parties
was that the transactions should be set down on different sides of the account
against each other and a balance struck at the end with periodical
settlements."
There is a similar statement in Goode, Consumer Credit Law and Practice, paragraph 25.22c. One of the cases referred to by Goode is In re Charge Card Services Limited [1987]
Ch 150, in which Millett J (whose judgment was affirmed in the Court of Appeal,
[1989] 1 Ch 197, quoted above) said of credit card or charge card accounts at
page 174:
"In
my judgment, this is not a case of set off at all, for there are no mutual but
independent obligations capable of being quantified and set off against each
other. There are reciprocal obligations
giving rise to credits and debits in a single running account, a single
liability to pay the ultimate balance found due on taking the account, and
provisions for retention and provisional payment in the meantime."
[28] Reference was
also made to the definition of "running-account credit" in section 10 of the
Consumer Credit Act 1974:
"(1)
For the purposes of this Act-(a) running-account
credit is a facility under a personal credit agreement whereby the debtor is
enabled to receive from time to time (whether in his own person, or by another
person) from the creditor or a third party cash, goods and services (or any of
them) to an amount or value such that, taking into account payments made by or
to the credit of the debtor, the credit limit (if any) is not at any time
exceeded; ..."
By the Consumer Credit (Exempt Agreement) Order 1989 (SI 1989
No. 869), regulation 3, an agreement for a running-account credit which
provides for the making of payments by the debtor in relation to specified
periods and requires that the number of payments to be made by the debtor in
repayment of the whole amount of the credit provided in each such period shall
not exceed one, as in the present case, is exempted from regulation by the
Act. Counsel for the pursuer
nevertheless submitted that section 10 provides assistance in the matter of
definition.
[29] Under
reference to these authorities, the Sheriff concluded: "At bottom therefore a
charge card account is no different from a bank current account and the
relationship between the parties is simply that of debtor and creditor." This led him to the conclusion that it would be
wholly inconsistent with the notion of a running account that the pursuer's
remedy should be a series of separate claims in repetition in respect of
individual incorrect entries on the account.
[30] Before us,
counsel for Amex contended that the pursuer's remedy was for repetition of
money paid in error. Although counsel
accepted that the account might from time to time be in credit, as had happened
in practice in the present case, they submitted that what made the pursuer's
charge account with Amex different from a current account with a bank was that,
firstly, it generally operated in debit and, secondly, the balance due by the
pursuer was payable in full each month.
[31] In our opinion
the Sheriff correctly concluded that the pursuer's primary remedy is for payment
of a credit balance on account. The
authorities referred to above fully support this view. The position adopted on behalf of Amex does
not recognise that what is at issue here is not whether payments into the
account were made (from the pursuer's Clydesdale account) "in error", but
whether debit entries were made on the Amex account in circumstances where Amex
were not contractually entitled to make such entries. If, as we have held, Amex were not entitled
to debit from the account "charges" attributable to the use by Mr Stevenson of
cards issued to him without the knowledge or authority of the pursuer, it would
follow that on an accounting between the parties these debits should be
re-credited to the account. The fact
that a balance was struck and paid in full each month could not affect the
pursuer's overall entitlement to a true accounting: these would be no more than
"periodical settlements", of the kind contemplated in the passage quoted from
Question 5: Remedy for
forged cheques or cheques drawn in breach of mandate
[32] The grounds of
appeal against the sheriff's decision on this question are as follows:
"(i) Upon
the basis that any claim by the pursuer is for repayment of money paid in
error, any money paid by way of forged cheques was not paid with the pursuer's
own funds and, as a matter of law properly characterised, the pursuer's claim
is against the bank which made payment upon the basis of the forged cheques.
(ii) Upon
the assumption that the Sheriff was correct to conclude that the pursuer's
primary remedy was for payment of a credit balance on an account, the Sheriff
erred in determining ... that the defenders were not entitled to enquire into
the source of those funds. Payments on
forged cheques made into that account were payments, properly characterised,
not of the pursuer's funds but of the paying bank's own funds."
[33] It is perhaps
unfortunate that the word "forged" appears in this question. In relation to a cheque, it connotes the
making of a fraudulent imitation of the signature of the bank's customer or
other authorised signatory. But, as
noted above at paragraph [7], the pursuer's position is that the cheques were
not signed with the pretended signature of the pursuer or an authorised
signatory, but rather were signed with Mr Stevenson's own signature, he having
no mandate from the pursuer to draw cheques.
[34] Counsel for Amex,
at whose instance the question was introduced, said that its terms had been
necessitated by a lack of clarity in the pursuer's pleadings, and presented an
argument on the basis that the word "forged" was to be given its normal
meaning. Counsel referred to section 24
of the Bills of Exchange Act 1882, which is in these terms:
"Subject
to the provisions of this Act, where a signature on a bill is forged or placed
thereon without the authority of the person whose signature it purports to be,
the forged or unauthorised signature is wholly inoperative, and no right to
retain the bill or to give a discharge therefor or to enforce payment thereof
against any party thereto can be acquired through or under that signature,
unless the party against whom it is sought to retain or enforce payment of the
bill is precluded from setting up the forgery or want of authority.
Provided
that nothing in this section shall affect the ratification of an unauthorised
signature not amounting to a forgery."
[35] Reference was
also made to the discussion of this provision in Gloag and Henderson, The Law of Scotland, paragraph
20.34. Counsel also relied on Bank of England v Vagliano Brothers [1891] AC 107, in which Lord Watson said at page
131:
"The
decision of the Queen's Bench in Robarts v. Tucker 16 QB 560 has, ever since its
date, been accepted in mercantile practice as determining the obligations
incumbent upon bankers who agree to retire acceptances on account of their
customers. It casts upon them the whole
duty of ascertaining the identity of the person to whom they make payment with
the payee whose name is upon the bill.
They may pay in good faith to the wrong person, in circumstances by
which the acceptor himself or men of ordinary prudence might have been misled;
but they cannot take credit for such a payment in any question with the
acceptor. It has been said by one of the
learned Judges that the rule is a harsh one, and it is possible that in some
circumstances it may operate harshly; but it appears to me to be settled beyond
dispute, and I see no reason for suggesting any doubt that it puts a reasonable
construction upon the contract constituted by the agreement of the banker to
pay his customers' acceptances when they fall due. In the absence of any special stipulations it
construes the arrangement so constituted as importing that, on the one hand,
the customer is to furnish or repay to the banker the funds necessary to meet
his obligations as acceptor; and that, on the other hand, the banker undertakes
to apply the money provided by the customer, or advanced on his account, so as
to extinguish the liability created by his acceptance. Accordingly, no payment made by the banker
which leaves the liability of the acceptor undischarged can be debited to the
latter."
[36] In Bank of Scotland v MacLeod Paxton Woolard &
Co 1998 SLT 258 Lord Coulsfield said at page 271:
"It
is well established that when funds are paid into the hands of a bank, in an
ordinary banking transaction, the bank become owners of the funds and entitled
to retain them unless someone can demonstrate an obligation to pay the funds to
them. The bank customer is a creditor of
the bank and there is no question of any trust relationship between banker and
customer, in ordinary circumstances....An ordinary cheque is an order on the bank
to pay funds which the bank owes to its customer to another party, and the bank
is, unless the cheque is guaranteed, obliged to meet it only if there are funds
to do so or it has agreed to do so."
[37] On the basis
of these authorities, counsel submitted that a banker who pays on a forged
cheque and therefore without a mandate from his customer does so, not with the
customer's money, but with his own money.
In National Westminster Bank
Limited v Barclays Bank International
Limited &c [1975] 1Q P 654, Kerr J said at page 666:
"The
common aphorism that a banker is under a duty to know his customer's signature
is in fact incorrect even as between the banker and his customer. The principle is simply that a banker cannot
debit his customer's account on the basis of a forged signature, since he has
in that event no mandate from the customer for doing so."
The same applied if Mr Stevenson, not being an authorised
signatory, signed cheques drawn on the pursuer's account. The payment was in any event still made by
the bank from its own money and not from the pursuer's. In that event, the bank alone had the title
and interest to pursue the money, and the pursuer had suffered no loss caused
by Amex. The claim was one for
repetition, and was properly at the instance of Clydesdale, not the pursuer,
otherwise the result would be surprising.
[38] Counsel for
the pursuer emphasised that it was not averred in the pursuer's pleadings that
the cheques had been "forged", the averment was that they were "fraudulently
completed and signed" by Mr Stevenson and "were not signed by or authorised by
the pursuer". If the issue was what was
the balance due to the pursuer on account with Amex, the exact source of the
funds was not relevant.
[39] Of this
question, the Sheriff said:
"I
am inclined to agree with [senior counsel for Amex] that the distinction
between a forged cheque and a cheque issued in breach of mandate, which has
never subsequently been ratified, is indeed a distinction without a
difference. It is, however, not a matter
which I require to resolve, because I am in agreement with senior counsel for
the pursuer in that the source of the funds used to pay these various
statements does nothing to restrict the pursuer's right of action against the
defenders."
The Sheriff went on to say that, since he had concluded that
the pursuer's primary remedy was for payment of a credit balance on an account,
then he could see no basis upon which Amex were entitled to enquire into the
source of those funds. The mere fact
that the pursuer might have a separate claim against a third party was no
reason to deny him the right to payment of the credit balance due on his
account with Amex. He did not see why
Amex should escape liability in the period after Mr Stevenson's unexplained
decision to switch from payment by way of direct debit to cheque.
[40] We agree with
the sheriff's approach to answering this question. Given that the pursuer's primary claim is
properly characterised as one for payment of a balance due on an account, that
balance can only be arrived at once account is taken of all sums paid to credit
of the account from time to time. Assuming
for this purpose that, as averred by the pursuer, the payments were made by
cheques drawn on the pursuer's account with Clydesdale fraudulently completed
and signed by Mr Stevenson and not signed by or authorised by the pursuer and are
to be treated in the same way as forged cheques, so that the sums credited came
from Clydesdale's funds rather than the pursuer's, the sums nevertheless, so
far as can be concluded from the pleadings, remain credited to the
account. Moreover, if all had been
conducted as it should have been, the pursuer and members of his family were
conducting transactions on the pursuer's account with Amex, which required to
be settled monthly by payments out of his account with Clydesdale. So what is truly at issue is the element of
each monthly payment attributable to Mr Stevenson's transactions on the Amex account. Provided that Amex, in an accounting with the
pursuer, have given him credit for these elements, the source of the credits is
of no significance (and in any event the implication from the pursuer's
pleadings is that the debit entries on the Clydesdale account remain). The situation might be different if
Clydesdale, having reversed any debit entries on the pursuer's account, were
seeking repayment from Amex, but that is not the subject of any averment by
either party, so it must be assumed that the credits stand.
[41] Notwithstanding
the foregoing, there is an interaction between questions 5 and 6, and for the
reasons given in our discussion of question 6 we recognise that there may be an
overlap between the pursuer's claim against Amex and the subject-matter of the
settlement agreement with Clydesdale.
Question
6: Effect of the settlement agreement with Clydesdale
[42] The terms of this agreement are set out at paragraph
[11] above. The grounds of appeal
against the sheriff's decision on this question are as follows:
"(i) Whether or not the pursuer's claim in the
present action is properly characterised as an action for payment of a credit
balance due on an account with the defenders, the Sheriff erred in determining ...
that the defenders and Clydesdale Bank could not be characterised either as
concurrent wrongdoers or contract breakers.
(ii) The Sheriff failed to give adequate weight to
the terms of the compromise agreement with Clydesdale Bank. In particular he failed to give adequate
weight to the manifest anticipation that Clydesdale Bank would no longer have
any exposure in respect of Stevenson transactions and that, in consequence, it
was implicit in the agreement that the pursuer would no longer have any right
to proceed against the present defenders.
(iii)
In approaching a proper construction of
the compromise agreement, the Sheriff gave inadequate weight to the point,
which he accepted ..., that the potential claims against the two parties could
be said to overlap.
(iv) The Sheriff erred in his construction of
Clause 1 ... Properly construed, in
the context of the agreement as a whole, Clause 1 identifies an important
step in proceeding to allocate the payment to recipients. However, as far as the parties to the
compromise agreement were concerned it is manifest that the payment was being
made in full satisfaction of any claims which the pursuer might have had
against the bank in respect of all the Stevenson transactions."
[43] Counsel for Amex drew attention to the third plea-in-law for
the pursuer, in terms of which he seeks reparation from Amex for loss and
damage suffered as a result of their breach of contract. Counsel submitted that if he received full
satisfaction from Clydesdale for his loss, he was not entitled to recover from
Amex a sum in excess of his loss: Erskine, Inst.
III.i.15. The question was whether,
on a proper construction, the effect of the settlement agreement was to
extinguish his loss. Counsel accepted
that in Steven v Broady Norman & Co. Ltd. 1928 S.C. 351 it was held that the
fact that a decree has been obtained against one of a number of joint and
several obligants does not preclude a fresh action being brought against the
others, if satisfaction has not been got under the decree already obtained; and
that the same would apply to the settlement agreement.
[44] Counsel
relied on what was said by Lord Hope of Craighead in Jameson v Central Electricity
Generating Board [2000] 1 AC 455, at pages 471 to 476:
"The basic rule is that a
plaintiff cannot recover more by way of damages than the amount of his loss. The object of an award of damages is to place
the injured party as nearly as possible in the same financial position as he or
she would have been in but for the accident. ...
So the first question which
arises on the facts of this case is whether satisfaction for this purpose is
achieved where the plaintiff agrees to accept a sum from one of the alleged
concurrent tortfeasors which is expressed to be in full and final settlement of
his claim against that tortfeasor, if that sum is less than the amount which a
judge would have held to be the amount of the damages which were due to him if
the case had gone to trial and the defendant had been found liable. ...
[I]t is clear that an
agreement reached between the plaintiff and one concurrent tortfeasor cannot
extinguish the plaintiff's claim against the other concurrent tortfeasor if his
claim for damages has still not been satisfied. The critical question, as Auld L.J. was right
to point out [in the Court of Appeal [1998] Q.B. 323] at p. 342B, is whether
the claim has in fact been satisfied. I
think that the answer to it will be found by examining the terms of the
agreement and comparing it with what has been claimed. The significance of the agreement is to be
found in the effect which the parties intended to give to it. The fact that it has been entered into by way
of a compromise in order to conclude a settlement forms part of the background.
But the extent of the element of compromise
will vary from case to case. The scope
for litigation may have been reduced by agreement, for example on the question
of liability. There may be little room
for dispute as to the amount which a judge would award as damages. So one cannot assume that the figure which the
parties are willing to accept is simply their assessment of the risks of
litigation. The essential point is that
the meaning which is to be given to the agreement will determine its effect.
I take as my starting point
the fact that a claim of damages in tort is a claim for unliquidated damages. It remains unliquidated until the amount has
been fixed either by the judgment of the court or by an agreement as to the
amount which must be paid to satisfy the claim. ...
What then is the effect if
the amount of the claim is fixed by agreement? Is the figure which the plaintiff has agreed
to accept in full and final satisfaction of his claim from one concurrent
tortfeasor open to review by the judge in a second action against the other
concurrent tortfeasor on the ground that, despite the terms of his agreement,
he has not in fact received the full value of his claim? Or is the fact that that figure was agreed to
as the amount to be paid in full and final settlement of the first action to be
taken as having fixed the amount of the claim in just the same way as if it had
been fixed by a judgment, so that the claim must be held to have been
extinguished as against all other concurrent tortfeasors?
As I have said, a claim of
damages is a claim for a sum of money, the amount of which must necessarily
remain unliquidated until something has been done to fix the amount. Where the claim is adjudicated upon by the
court, the amount of the damages is fixed by the judgment which the court makes
as to the sum required to make good to the plaintiff the full value of his
loss. But it is well known that many
claims are settled without the amount due as damages having been adjudicated by
the court. They are settled by agreement
between the parties. Were it not for the
fact that most claims of damages are settled in this way, the parties would be
exposed to greater expense and uncertainty and the burden of work on the courts
would be intolerable. There is a strong
element of public interest in facilitating the disposal of cases in this way.
In the typical case the
plaintiff agrees to accept the sum which the defendant is willing to pay in
full and final settlement of his claim. Such
a settlement normally involves an element of compromise on both sides. Each side will have made concessions of one
kind or another to reflect its assessment of the prospects of success if the
case were to go to trial. The plaintiff
will normally have made a discount from the amount which he regards as full
compensation for his loss. He may have
withdrawn some elements of his claim, reduced the amounts sought in settlement
of others or accepted an overall reduction in the amount claimed. But, whatever the nature and extent of the
compromise, one thing is common to all these cases. This is that the agreement brings to an end
the plaintiff's cause of action against the defendant for the payment of
damages. The agreed sum is a liquidated
amount which replaces the claim for an illiquid sum. The effect of the compromise is to fix the
amount of his claim in just the same way as if the case had gone to trial and
he had obtained judgment. Once the
agreed sum has been paid, his claim against the defendant will have been
satisfied. Satisfaction discharges the tort and is a bar to any further action
in respect of it: United Australia Ltd. v. Barclays Bank Ltd. [1941] A.C. 1, 21 per
Viscount Simon L.C.; Kohnke v.
Karger [1951] 2 K.B. 670, 675 per Lynskey J. I think that it follows that, if the claim was
for the whole amount of the loss for which the defendant as one of the
concurrent tortfeasors is liable to him in damages, satisfaction of the claim
against him will have the effect of extinguishing the claim against the other
concurrent tortfeasors.
There may be cases where the
terms of the settlement, or the extent of the claim made against the tortfeasor
with whom the plaintiff has entered into the settlement, will show that the
parties have not treated the settlement as satisfaction for the full amount of
the claim of damages. In the same way a
judge, in awarding damages to the plaintiff in his action against one
concurrent tortfeasor, may make it clear that he has restricted his award to a
part only of the full value of the claim. That was the point which the sheriff, Sir Allan
G. Walker Q.C., had to examine in Carrigan v.
In holding that the second
action was incompetent the sheriff distinguished two previous cases where a
second action to recover further damages had been held to be competent. The first was Dillon v. Napier, Shanks & Bell
(1893) 30 S.L.R. 685, where the court examined the terms of the receipt and the
correspondence regarding the settlement which showed that the pursuer's claim
against the second wrongdoer was expressly reserved and the payment made was
not a payment in full satisfaction of all possible claims for the injury. The second was Crawford v. Springfield Steel Co. Ltd.,
18 July 1958 unreported, where Lord Cameron held that the obtaining of a decree
against one employer did not debar a later claim against another employer
because the judge in the first action had made it clear in his judgment that he
had granted decree for only 10 per cent of the pursuer's total loss due to the
disease which he had contracted on the footing that the defenders in that
action were only 10 per cent to blame for the pursuer's incapacity. In Carrigan v.
In these circumstances the sheriff
applied the decision of the Court of Session in Balfour v. Baird & Sons 1959 S.C.
64, where the judgment which the pursuer had obtained against one employer in
the first action made it clear that the award of damages was for the whole of
the damage which he had suffered as the result of his pneumoconiosis and the
second action which had been raised against another employer was dismissed as
incompetent. Relying on the principle
which was explained in that case that the claim is extinguished against all the
wrongdoers once the damages have been satisfied in an action against any one of
them, the sheriff held that the claim had been satisfied by the settlement of
the first action and that in this case also the second action was incompetent. He did not, as Auld L.J. noted at p. 339D,
hear any evidence that the sum which had been accepted in settlement was less
than the full amount of his loss. But it
is clear from the sheriff's judgment that he would have held that evidence to
that effect was excluded by the terms of the settlement.
I think that these cases
demonstrate the limits of the inquiry which the judge may undertake in the
event of a subsequent action being raised against another alleged concurrent
tortfeasor. He may examine the statement
of claim in the first action and the terms of the settlement in order to
identify the subject matter of the claim and the extent to which the causes of
action which were comprised in it have been included within the settlement. The purpose of doing so will be to see that
all the plaintiff's claims were included in the settlement and that nothing was
excluded from it which could properly form the basis for a further claim for
damages against the other tortfeasors. The
intention of the parties is to be found in the words of the settlement. The question is one as to the objective
meaning of the words used by them in the context of what has been claimed.
What the judge may not do is
allow the plaintiff to open up the question whether the amount which he has
agreed to accept from the first concurrent tortfeasor under the settlement
represents full value for what has been claimed. That kind of inquiry, if it were to be
permitted, could lead to endless litigation as one concurrent tortfeasor after
another was sued on the basis that the sums received by the plaintiff in his
settlements with those previously sued were open to review by a judge in order
to see whether or not the plaintiff had yet received full satisfaction for his
loss. Different judges might arrive at
different assessments of the amount of the damages. The court would then have to decide which of
them was to be preferred as the basis for the apportionment between the various
tortfeasors. I do not think that this
can be regarded as acceptable. The principle of finality requires that there
must be an end to litigation.
The question therefore is
... not whether the plaintiff has received the full value of his claim but
whether the sum which he has received in settlement of it was intended to be in
full satisfaction of the tort."
[45] Counsel submitted, in light of this
passage, that Clydesdale and Amex were likewise concurrent wrongdoers, the loss
caused to the pursuer by Clydesdale being larger than, and including, the loss
allegedly caused by Amex. On the face of
the settlement agreement, having regard to the commercial purpose behind it,
its effect was to discharge both wrongdoers.
Recital (b) in the preamble in particular supported this construction:
it referred to funds paid to Amex out of the Clydesdale account as part of "the
Stevenson Transactions", which were thus included in the compromise.
[46] Counsel went on to refer to Heaton and others v AXA Equity and Law Life Assurance Society plc and another [2002] 2
AC 329, in which it was held, distinguishing Jameson, that where a claimant had overlapping claims for
successive breaches of contract against two defendants and had concluded a
compromise agreement "in final settlement" with one defendant, the proper
approach to the question whether he could pursue an action against the other defendant
was to ascertain the intended effect of the compromise agreement by
interpreting the words used in the context of the particular circumstances, and
where the agreement had not fixed the full measure of the claimant's loss his
action would not be precluded. Lord
Bingham of Cornhill said, in paragraph 9:
"In considering whether a
sum accepted under a compromise agreement should be taken to fix the full measure
of A's loss, so as to preclude action against C in tort in respect of the same
damage, and so as to restrict any action against C in contract in respect of
the same damage to a claim for nominal damages, the terms of the settlement
agreement between A and B must be the primary focus of attention, and the
agreement must be construed in its appropriate factual context. In construing it various significant points
must in my opinion be borne clearly in mind:
(1) The release of one concurrent
tortfeasor does not have the effect in law of releasing another concurrent
tortfeasor and the release of one contract-breaker does not have the effect in
law of releasing a successive contract-breaker.
(2) An agreement made between A and B
will not affect A's rights against C unless either (a) A agrees to forgo or
waive rights which he would otherwise enjoy against C, in which case his
agreement is enforceable by B, or (b) the agreement falls within that limited
class of contracts which either at common law or by virtue of the Contracts
(Rights of Third Parties) Act 1999 is enforceable by C as a third party.
(3) The use of clear and comprehensive
language to preclude the pursuit of claims and cross-claims as between A and B
has little bearing on the question whether the agreement represents the full
measure of A's loss. The more inadequate
the compensation agreed to be paid by B, the greater the need for B to protect
himself against any possibility of further action by A to obtain a full measure
of redress.
(4) While an express reservation by A
of his right to sue C will fortify the inference that A is not treating the sum
recovered from B as representing the full measure of his loss, the absence of
such a reservation is of lesser and perhaps of no significance, since there is
no need for A to reserve a right to do that which A is in the ordinary way
fully entitled to do without any such reservation.
(5) If B, on compromising A's claim, wishes to protect himself against any claim against him by C claiming contribution, he may achieve that end either (a) by obtaining an enforceable undertaking by A not to pursue any claim against C relating to the subject matter of the compromise, or (b) by obtaining an indemnity from A against any liability to which B may become subject relating to the subject matter of the compromise."
Lord Mackay of Clashfern said, in paragraph 41:
"Whether a particular
agreement has that effect is a question of construction of the words, in the
light of all the relevant facts surrounding it."
Similar
statements were made in the opinions of the other judges.
[47] Counsel submitted that the recipient of
the funds was Amex, and that Clydesdale could not have intended, in respect of
those funds, to leave an area of exposure not covered by the agreement. The context must be that which was
immediately apparent, without proof of surrounding circumstances, unless proof
was required for a particular reason, for example to resolve an ambiguity.
[48] Counsel for
the pursuer submitted that the above authorities supported the argument that
there were here two separate claims, the losses claimed from Clydesdale being
entirely separate from those claimed from Amex. The sheriff had correctly held, in answering question
4, that the pursuer's claim in the present action was primarily for payment of
a credit balance due on his account with Amex.
This was not therefore a claim for damages. The claim against Clydesdale was also for
payment of a balance due. Settlement of
the claim against Clydesdale could not constitute settlement of the claim
against Amex. There might be some
overlap between the claims, but they were not identical. Counsel pointed out that Amex's pleadings contained
no averments of such circumstances as might relevantly be proved to assist in
the interpretation of the agreement. The
sheriff had been invited by Amex to construe the agreement without recourse to
evidence, and his approach should not be disturbed.
[49] It appears to us that the key to this
issue is the proper construction of the expression "the Stevenson transactions"
in recital (b) in the preamble to the agreement, which were given a definition
in the narrative "that the Bank has in breach of mandate and without authority
permitted [Mr] Stevenson, whether by himself or through others acting on his
instructions or on his behalf to effect transactions by various means,
including by cheque, misuse of credit cards and card accounts and by electronic
funds transfer, on bank and credit card accounts of the Duncan Account Holders
with the Bank." It is to be noticed at
once that this definition does not extend in terms to the use (or misuse) by
him of charge cards issued to him by Amex: such use was not, and could not have
been, "permitted" by Clydesdale; and the transactions thereby effected were not
"transactions ... on bank and credit card accounts ... with the Bank". The definition would be apt to extend to
payments made to Amex out of such an account, including of course that of the
pursuer, whether by cheque or other means, provided that they were made "in
breach of mandate and without authority".
But this then raises questions of fact, which are not expressly
addressed in the agreement.
[50] What were the "mandate" and the "authority,
presumably those granted by the pursuer to Clydesdale? The settlement only related to transactions "in
breach of mandate and without authority".
It appears from the pleadings for the pursuer, taken pro veritate, that it was within the
scope of the direct debit mandate granted by him to Amex that payments were to
be made from the pursuer's Clydesdale account in settlement of sums due to Amex
in respect of charges incurred on the Amex account by the use by the pursuer
and members of his family of the charge cards issued to them. The use by Mr Stevenson of cards issued to
him without the authority or knowledge of the pursuer to conduct transactions
on the pursuer's Amex account does not mean that payments made to Amex out of
the pursuer's Clydesdale account by direct debit were "in breach of mandate and
without authority": Clydesdale had no responsibility for operations on the Amex
account. It is impossible to regard the
direct debit payments, while they continued, as forming part of "the Stevenson
transactions". Once the payments to Amex
started to be made by cheques drawn by Mr Stevenson, without the authority of
the pursuer, these would certainly have been "in breach of mandate and without
authority". But even then the cheques
were, it appears, in payment of the whole sums due to Amex each month, arising
not only from Mr Stevenson's use of the cards issued to him, but also the use
by the pursuer and his family of cards issued to them. The loss to the pursuer would then extend no
further than to the corresponding gain to Mr Stevenson. There are thus clear reasons for thinking
that, while there may well be an overlap between the claims against Amex and
Clydesdale, the two are by no means identical.
[51] In the
passages quoted above, Lord Hope said in Jameson
v
Central Electricity Generating Board that
the answer would be found "by examining the terms of the agreement and
comparing it with what has been claimed", and Lord Bingham in Heaton and others v AXA Equity and Law Life Assurance Society plc and another said that
"the agreement must be construed in its appropriate factual context". These passages support the view we have come
to, which is that it is not possible to construe the agreement in the present
case without proof of its factual matrix, in particular the losses suffered by
the pursuer on each of the Amex and the Clydesdale accounts, and the details of
the claim made by him against Clydesdale, as referred to in recital (b) in the
preamble to the agreement. We note that
the pursuer avers:
"Payment
has only been made by the Clydesdale Bank to the pursuer where the recipient
account of the funds transacted was not an account of the pursuer whether in
respect of an account with the Clydesdale Bank or any other financial
institution. No payment has or will be
made by the Clydesdale Bank to the pursuer in respect of any sums paid by
unauthorised transactions from the Clydesdale Bank account of the pursuer to
the defenders."
These averments are denied by Amex. It may be that the terms of the pursuer's
initial claim against Clydesdale and any ensuing correspondence will serve to
resolve this dispute.
[52] We can sympathise with the sheriff, who was
asked by the parties, whose positions on this question were polarised, to
decide it as a pure question of construction. Although there are, as he thought
and as discussed above, indications that Amex's argument may not be without its
difficulties, there are, in our view, sufficient uncertainties in relation to
the background to suggest that evidence should be led before any answer could
confidently be given. And, as we have
indicated, it is not a question that necessarily admits of a straightforward answer
of "yes" or "no"; the correct answer may lie between the two extremes, and it
can only be determined after the leading of evidence. The sheriff should have deferred the giving of
an answer to the question until after proof.
Result
[53] For all the foregoing reasons, we shall
vary the sheriff's interlocutor of 7 November 2006 by deleting head (6) thereof
and substituting: "(6) defers the giving of an answer to question 6 until after
proof of the factual context of the settlement agreement, so far as relevant,
and the details of the pursuer's claim against Clydesdale Bank;". Quoad
ultra we shall refuse the appeal, adhere to the sheriff's interlocutor, and
remit the case back to the sheriff to proceed as accords.