IRENE MORGANS AND RUTH MURNEY AGAINST JULIA STEWART LTD
SHERIFFDOM OF NORTH STRATHCLYDE AT PAISLEY
[2016] SC PAI 52
A325/13
JUDGMENT OF SHERIFF PRINCIPAL D L MURRAY
In the cause
IRENE MORGANS
AND
RUTH MURNEY
Pursuers/Appellants
Against
JULIA STEWART LTD
Defenders/Respondents
Act: Sutherland
Alt: Upton
Paisley, 8 July 2016
The Sheriff Principal, having resumed consideration of the cause, allows the appeal recalls sheriff’s findings in fact and Law 2 and 3 and substitutes therefor, -
2. The first pursuer is entitled to payment by the defenders of the sums due to her in terms of her contract of employment. This amounts to the sum of £7,000.00. Said sum to be paid by the defenders to the first pursuer after deduction of Income Tax and National Insurance due, the defenders also being required to account to HMRC in terms of their statutory obligations for payment of the required deductions of Income Tax and NI in order to achieve that net sum.
3. The second pursuer is entitled to payment by the defenders of the sums due to her in terms of her contract of employment. This amounts to the sum of £31,500.00. Said sum to be paid by the defenders to the second pursuer after deduction of Income Tax and National Insurance due, the defenders also being required to account to HMRC in terms of their statutory obligations for payment of the required deductions of Income Tax and National Insurance in order to achieve that net sum.
Recalls the Sheriff’s interlocutor of 18 November sustaining the pleas in law for the defenders and the Sheriff’s interlocutor of 11 December awarding expenses.
Grants decree in favour of the first pursuer for £7,000.00. Said sum to be paid by the defenders to the first pursuer after deduction of Income Tax and National Insurance due, the defenders also being required in terms of their statutory obligations to account to HMRC for payment of the required deductions of Income Tax and National Insurance in order to achieve that net sum. With interest on the said sum of £7,000 from the 23 December 2013 until payment at the rate of 8 per centum per annum.
Grants decree in favour of the second pursuer for £31,500.00. Said sum to be paid by the defenders to the second pursuer after deduction of Income Tax and National Insurance due, the defenders also being required in terms of their statutory obligations to account to HMRC for payment of the required deductions of Income Tax and National Insurance in order to achieve that net sum. With interest on the said sum of £31,500 from 23 December 2013 until payment at the rate of 8 per centum per annum.
Fixes a hearing for 20 July 2016 at 09:30 am at Paisley Sheriff Court to hear parties on expenses.
NOTE
Background
1. This case called before me on 7 March 2016, 1 April 2016 and 12 May 2016 for an appeal against the interlocutors of the sheriff of 18 November 2015 and 11 December 2015. The sheriff repelled the pursuers’ pleas-in-law sustaining the second plea-in-law for the defenders and the third, fourth, sixth, seventh and eighth pleas-in-law for the defenders assoilizing the defenders from the craves of the initial writ. The sheriff found no expenses due or by either party. For convenience, I refer to the parties as the pursuers and defenders throughout.
2. The case relates to a claim by the two pursuers that they were employed by the defenders in establishing and operating a residential care home for children. The proof before the sheriff had spread over eight separate days of evidence with a further day for submissions. The sheriff identified the following issues which were in dispute: 1. Was there a contract of employment between each of the pursuers and the defenders? 2. When did employment commence? 3. What wages are due between October and December 2010? 4. Are wages due for holidays not taken by each of the pursuers? 5. Are each of the pursuers entitled to an annual 5% cost of living pay increase? 6. Are each of the pursuers entitled to a 10% profit share? 7. Does the first pursuer’s letter of 2 April 2015 amount to a discharge of her claim to a profit share?
3. The sheriff’s findings on those issues are not subject to appeal by either party. He found there to be a contract of employment between the defenders and each of the pursuers which commenced on 9 October 2010. He found each of the pursuers had not received half of their wages between 9 October and 31 December 2010. He found each of the pursuers to be entitled to a 5% annual cost of living increase. He found the second pursuer to be entitled to a 10% share of profit, but rejected the first pursuer’s claim, finding her letter of 2 April 2015 amounted to a discharge. He found both pursuers to have failed to prove their claims for unpaid holiday entitlement.
4. The sheriff found that in terms of remuneration the first pursuer’s contract provided for an initial salary of £40,000 per annum and the second pursuer’s contract, an initial salary of £60,000 per annum. He found that the defenders had failed to pay one half salary due to the first pursuer and second pursuer for October, November and December 2010. Although the sheriff made no finding in fact it was accepted by parties for the first pursuer and second pursuer the gross sums not paid for the period from their commencing employment on 9 October 2010 to 31 December 2010 were £4,602.74 and £6,904.11 respectively.
5. The sheriff found the defenders had failed to pay the first pursuer a 5% increase in salary on 1 April 2011 and a 5% increase in salary on 1 April 2012. This amounts to £4,100.00 gross. He found the defenders had failed to pay the second pursuer a 5% increase in salary on 1 April 2011, a 5% increase in salary on 1 April 2012 and a 5% increase in salary on 1 April 2013, a total of £8,567.02 gross.
6. The sheriff found that the defenders made a net profit after tax: for the year ended 31 May 2012 of £148,910.00; for the year ended 31 May 2013 of £142,602.00; and for the year ended 31 May 2014 £15,595.00. He found the first pursuer had by letter dated 2 April 2013 relinquished her right to a share of net annual profits of the defenders at any time. He found the defenders had failed to pay the second pursuer her agreed 10% share of net profit for these years. This amounts to £29,155.00 gross. Thus in cumulo the sheriff found the first pursuer to have established a gross loss of £8.702.74 and to the second pursuer a gross loss of £44,622.13. The appeal by the pursuers is focused on the finding of the sheriff that, for those claims where he found in favour of the pursuers, they had failed to prove their net loss.
Submissions for the pursuers
7. The pursuers’ note of appeal against the sheriff’s decision avers the sheriff erred in finding that while the pursuers had led evidence of gross loss, they had failed to prove their net loss with reference to the incidence of taxation. And in relation to the second pursuer that the profit share entitlement of the pursuer was payable as profits akin to the terms of a joint venture.
8. Mr Sutherland’s primary submission for the pursuers was that the sheriff could have properly made an award in their favour for the gross figures. He did not maintain an argument that the second pursuer’s entitlement of a profit share was akin to a joint venture.
9. Mr Sutherland’s primary submissions were directed to reviewing the sheriff’s finding-in-fact-and-law 2 and 3 that the pursuers had failed to prove the amount due. Following some discussion, Mr Sutherland accepted that this was an action for payment on breach of contract. His position was that the position was broadly the same as in an action for damages. Namely, the pursuers were seeking to be put in a position to be paid what they ought to have received, but for the defenders’ breach of the pursuers’ contracts. Thus the outcome should be similar to an award of damages, seeking to put the pursuers back into the position they would have been, but for the harmful event. Such an approach correctly reflecting the decision of the House of Lords in British Transport Commissioners v Gourley [1956] AC 185. He submitted as the award would be taxable it could be awarded gross and the sheriff had erred in not making a gross award in favour of the pursuers for the sums the sheriff had found as being due to them. Under reference to MacLennan v Scottish Gas Board 1985 SLT 2, he submitted that it was wrong to suggest, as the defenders had done, that the obligation and responsibility to provide the appropriate information on tax rested on the pursuers. Rather, Maclennan was authority that the obligation to provide information on the taxation position rested with a defender, who was seeking to reduce the sum to be awarded.
10. Mr Sutherland submitted that it was important to have regard to the impact of the Income Tax (Pay as You Earn Regulations) 2003 and referred to paragraphs 276- 291 of Harvey on Industrial Relations and Employment Law. There he submitted the learned editors set out how the PAYE regime is to be operated:
“276
It is important to appreciate that the obligation to deduct tax under the PAYE system continues after termination of the employment (SI 2003/2682 regs 37, reg 37A). If a relevant payment is made after the employment has ceased and it has not been included in Form P45 (required by SI 2003/2682 regs 36, 38 or 39), the person making the payment (who need not even be the employer) has an obligation to deduct tax at the appropriate rate for the tax year in which the payment is made…. However, reg 37 was amended, further amended and a new reg 37A inserted by SI 2011/729 and SI 2011/1054, all with effect from 6 April 2011. The changes have the important effect that for payments made on or after that date, the payer must deduct tax on the non-cumulative (see reg 27 of the 2003 Regulations) basis using the OT code (defined in reg 7(3)(ca)). The OT code, used in accordance with tax tables (see reg 2 and ITEPA 2003 s 685) effects deductions of tax at the basic rate (20%), higher rate (40%) and additional rate (50%, falling to 45% in 2013–14) without making any provision for personal allowances. The result of applying the OT code is that post employment payments are subjected to income tax under PAYE at a variety of rates up to the applicable marginal rate of income tax.”
“[279]The impact of the PAYE system is sometimes misunderstood and then gives rise to difficulty after judgment in or compromise of a dispute when the employer correctly complies with his obligation (often, post-employment under SI 2003/2682 regs 37, 37A) to deduct tax from the sum payable under the terms of the award or compromise, pays the net sum to the employee and correctly accounts to the Revenue for the tax deducted. The disappointed (or disingenuous) employee claims to be entitled to receive the gross sum immediately.
[280]The basic point which is often missed is that the employer's obligation to deduct tax under the PAYE system is part of the general law quite apart from the terms of any award or compromise. Accordingly, whether or not the award or compromise agreement expressly addresses the incidence of PAYE on the compromise sum (and it is good practice for it to do so), the employer is bound to operate PAYE where it applies, as it usually will where the employer is paying arrears of earnings, or where the sum payable under the compromise exceeds £30,000. So, even in a case where the parties did not address the point and the employer has been ordered or has agreed to pay a gross sum, the employee is not entitled to receive direct payment of that gross sum if PAYE is otherwise applicable. The employer discharges his obligation under the order or agreement by paying net and by accounting to the Revenue for tax. Similarly, during employment the employee was not entitled to demand payment of his gross contractual salary, because there too the employer was obliged to deduct tax and to pay it to the Revenue. The liability to tax, if any, is that of the employee. He receives money's worth to the extent of the sum which is paid to the Revenue: see (though not a PAYE case) the reasoning in Hartland v Diggines [1925] 1 KB 372, 379–380 (Pollock MR); on appeal [1926] AC 289, 291–292 (Viscount Cave), 10 TC 247, 256, 262. Once the deducted tax is paid to the Revenue the credit for that sum accrues to the employee and he is entitled to adjustment of his tax affairs accordingly, and to repayment if appropriate.”
Mr Sutherland submitted that regulations 37 and 37A make clear that the defenders will be required to deduct tax and pay net. In a similar manner the defenders should make deduction of National Insurance in terms of the Social Security Contributions and Benefits Act 1992 schedule 1 paragraph 3.
11. In seeking to show how in practice the determination of sums had been dealt with by the courts Mr Sutherland referred to a number of cases: Re Houghton Main Colliery Co Ltd [1956] 1 WLR 1219, Shove v Downs Surgical plc [1984] ICR 532, Global Crossing (UK) Telecommunications Ltd v Jones UKEAT/0145/08/JOJ, General Mining and Engineering services Ltd v Mine Safety Appliances Ltd 1976 SLT(N) 28, Clark v Sutherland 1993 SC 320 and Oyesanya v Mid-Yorkshire NHS Trust [2015] EWCA Civ 1049.
12. He submitted a contract of employment provides for an employee to be paid gross sums. He pointed out that employees are taxed on those gross earnings. The tax legislation imposes an obligation on the employer to make deductions and to account to HMRC for tax and National insurance through the PAYE system. Those obligations apply in respect of both current and former employees. The required deductions for tax and National insurance having been paid over by the employer, being credited to the employee’s liability account. Thus his primary submission was that the sheriff was in error in not awarding the gross sums which he had identified as being due to each of the pursuers. The application of regulation 37 and schedule 1 paragraph 3 as referred to above would result in the defenders making the required deductions and paying over the net sums.
13. In the alternative, it was submitted for the pursuers that the sheriff had sufficient information to enable him to have made findings of net loss. It was submitted the sheriff had failed to take account of the first pursuer’s evidence of earnings and the schedule of loss which had been produced. In response to the written submissions of the defenders the sheriff had been addressed on the net losses sustained by the pursuers. Mr Sutherland submitted that such an approach was a perfectly proper and normal practice. He further noted that in Clark v Sutherland, where the evidence of wage loss was held by the court to be “plainly deficient” the court held it could adopt a broad brush approach where a party does not provide the material required in order to establish deductions and make a resultant net award. Mr Sutherland submitted as an alternative to his primary submission that decree should be granted for the gross sums which the sheriff had found due, it was open for me to find the sheriff was in error in dismissing the pursuers’ claims. This because he could have made a percentage reduction from the gross sums to reflect the incidence of taxation, following the approach of the court in Clark v Sutherland.
14. Mr Sutherland made particular reference to Oyesanya v Mid-Yorkshire Hospital NHS Trust. There a locum consultant sued the health board for unpaid remuneration. A gross figure was determined as falling due. Counsel for the heath board used an IPhone app to calculate the net sum due after deductions. When the case called before the Court of Appeal the court to invited parties to seek to agree the correct net figures and to lodge written submission if agreement could not be reached.
15. I was initially advised that the pursuers’ agents had been unable to agree with the defenders’ agents the net figures which fell to be paid. This despite my request at the preliminary hearing that parties should seek to agree such figures. However following further encouragement in the course of the appeal hearing parties advised me that they could agree net losses of £7,000.00 for the first pursuer, and £31,500.00 for the second pursuer. They also indicated agreement that the defenders would require to account to HMRC through the PAYE system for income tax and National Insurance before making net payment of the sums of £7,000.00 and £31,500.00 to the first and second pursuer respectively. Mr Sutherland submitted that if I were to reach the conclusion that a net figure was to be awarded then these agreed figures were to be preferred rather than applying a percentage deduction from the gross figures which the sheriff had identified. Oyesanya being authority that it was open to seek to have parties agree such figures. If I did not accept his primary submission he invited me as a further alternative to recall the interlocutor of the sheriff and to grant decree in favour of the pursuers for these sums.
Submissions for the defenders
16. Mr Upton’s submissions for the defenders focused on what he suggested was the confused approach of the pursuers. He objected to what he submitted was a change of the basis of the appeal. The grounds of appeal focused on the sheriff having erred in not awarding a gross loss, but the written submissions and oral submissions made by Mr Sutherland, argued as an alternative that there was sufficient information to enable the sheriff to make findings of net loss. Mr Upton submitted that the reality of the action was one of payment. He noted the pursuers’ first and second pleas-in-law are for payment of debts. Mr Upton submitted an action for payment on a contract is an action for implement of the contract where the obligation at issue is to pay money. Implement being the primary remedy where a contract is said not to have been performed. This he submitted meant that the authorities cited by the pursuers in relation to damages claims were not relevant to this action, which was one of payment. He also submitted that the pursuers were misguided in founding on case law about unlawful dismissal which was not relevant.
17. Mr Upton submitted that the defenders’ submissions to the sheriff focused on addressing what Mr Upton explained the pursuers had sought as a remedy - payment of their gross losses. The defenders maintain the sheriff is correct in what he states at paragraphs 62 – 69 of the judgement. Namely, that the pursuers were entitled to the sums as narrated above but only net of tax and National Insurance. Mr Upton submitted it was for the pursuers to bring evidence to the court of the tax and National Insurance which fell to be deducted and it was simply inadequate for the pursuers to do so only in submissions. He referred to Stewart v Glentaggart 1963 SC 300, where the court had dismissed a claim at debate in the absence of the pursuer setting out a relevant claim based on net loss. Mr Upton noted that the court had no evidence of tax codes or relevant income of the pursuers. He pointed out that the only reference to an award being made net was in terms of the schedules produced by the pursuers in course of submissions, after the evidence had been concluded.
18. He referred to the sheriff’s judgement which noted that the pursuers’ agent had lodged with his written submissions a very detailed schedule and tax calculation. He quoted the sheriff’s conclusion at page 30 of his judgement:
“These, of course, have no evidential value, since they have not been spoken to by any of the witnesses and by absence of agreement between the parties cannot be taken into account by me”.
He submitted the sheriff was correct in making such a finding as there was no adequate evidence to enable him to make a net award in favour of the pursuers.
19. Mr Upton submitted the correct course should have been for the pursuers to provide evidence of the impact of Income Tax and National Insurance to demonstrate their net loss. The pursuers had not done so. He submitted they were to be criticised for failing to do so. In failing to do so they had prejudiced their case. Without such evidence he submitted the sheriff was correct to uphold the defenders’ pleas-in-law and dismiss the pursuers’ claims.
20. Expanding on the reasons why an award should be made net, Mr Upton submitted an employee does not have a right to be paid salary gross, but can only expect payment of salary after deductions made by the employer, through the PAYE system, in respect of Income Tax and employee’s National Insurance. This he said was an implied term of a contract of employment. He submitted an officious bystander would expect an employer to make payment to the employee on a net basis. Salary may be agreed on a gross basis, but the expectation of the employee is only to have payment after the employer has fulfilled his statutory duty to make deductions for tax and national insurance. Thus he maintained the employer’s obligation is to pay wages net. The court should, he submitted, grant decree having regard to the parties’ contractual obligations. He submitted the court cannot innovate on the parties’ agreed obligations. Accordingly, in a payment action, as in the instant case, the court is only entitled, in his submission, to grant decree for a net sum. He accepted that an employer, and indeed the defenders in the instant case, would be liable to account to HMRC for Income Tax and National Insurance due by an employee through the PAYE system to achieve a net sum due to each pursuer from the gross sums payable. Notwithstanding the sheriff had made findings about the gross sums due to each pursuer, he maintained it was for the pursuers to bring before the court information to allow deductions for tax and National Insurance to be calculated to achieve a net sum.
21. He also noted that in Global Crossing, which the pursuers had referred to in which Mr Justice Wilkie approved the approach adopted in Shove v Downs Surgical Ltd the approach to be adopted was said to be :
“The tribunal is required, first of all to assess what the employee would have received had the contract been performed. In this case, what he would have received by way of salary and by way of contractual benefits during the nine months running from 9 July 2007. That calculation has to be a calculation of what he actually received, in other words, in his hand net of tax where, tax was payable.”
22. He submitted that the damages cases referred to by Mr Sutherland were not authoritative and confused matters. He maintained that in an action for payment the starting point is that the party claims a specified sum of money is to be paid and a decree should be for such a net sum. Neither he submitted were cases for wrongful dismissal of any relevance to the instant case where there was no issue of wrongful dismissal.
23. Under reference to McPhail 3rd Edition paragraph 17.14 he pointed out that a decree must be “clear and precise.”
”The decree should be so framed that the loser is left in no doubt as to what he is to do or pay, and the winner should know exactly what he has gained.”
This being necessary in order that the pursuer may be able to do diligence to recover the sum due. Decree for payment has, he maintained, to narrate the figure to be paid to the judgement creditor. He submitted that the decree requires the unsuccessful party to settle in legal tender the express sum awarded by the court and that should not involve part of the sum being paid to HMRC. He submitted that it was unattractive for a decree to encompass complex provisions to set out the deductions to be made and the net sum to be paid. The simple statement of the sum to be paid net was to be preferred.
24. Mr Upton disputed that there had been a submission before the sheriff that payment should be of an approximate net sum. He maintained that Clark v Sutherland was only authority for the court to make a notional deduction for tax and NI in the context of a damages claim. He submitted there was no basis for such a notional deduction in a claim for payment for breach of contract, such as in this case.
25. In responding to the submissions on behalf of the pursuers Mr Upton accepted that paragraphs 21 of 37 of the Income Tax (Pay as You Earn) Regulations 2003 oblige the employer to deduct PAYE. In respect of primary class 1 national insurance contributions paragraph 3 of schedule 1 to the Social Security Contributions and Benefits Act 1992 does not oblige the employer to make deductions. He recognised however that the expectation and almost universal practice is that that permissive authority given to an employer in respect of Class 1 National Insurance contributions does result in such deductions being made. Mr Upton also recognised that regulations 37 and 37A of the Income Tax (Pay as You Earn Regulations) 2003 provide for such deductions being made by an employer once an employee has left the employer’s employment. He submitted what was set out by the learned editors Harvey, referred to by Mr Sutherland as quoted above, was not authoritative.
26. He noted there had been no motion before the sheriff for fresh evidence to be heard. Neither was such motion made in the context of this appeal, nor was there a motion for the cause to be remitted back to the sheriff, or for a decree making payments of different sums to HMRC and to the appellants. Although he confirmed parties had agreed the net figures, he submitted that there was no basis to interfere with the sheriff’s interlocutor of 18 November 2015 and to substitute findings in favour of the pursuers for those sums. He made clear the defenders did not consent to decree being granted for said sums. He invited me to adhere to the sheriff’s interlocutors of 18 November and 8 December 2015 and dismiss the appeal.
Discussion and decision
27. Prior to case of The British Transport Commission v Gourley taxation had often been regarded as irrelevant in the quantification of an award of damages. Although as noted in Gourley, in McDaid v Clyde Navigation Trustees 1946 SC 462 Lord Sorn had decided that the pursuer’s claim was to be quantified on the net sum after deduction of tax when the pursuer received his wages net of tax under the PAYE system. The House of Lords held in Gourley that in the calculation of the plaintiffs’ damages for loss of earnings past and future, account had to be taken of the taxation which would have been payable if the earnings had been received as such. Their Lordships found that the damages had to be, a surogatum of net or after tax earnings (take home earnings) rather than gross, untaxed or notional earnings. In the leading judgement Earl Jowitt only concerned himself with the circumstances of a personal injury case, however Lord Goddard, with whom Lords Somerville and Radcliffe concurred, identified that the principle was equally applicable in a case of wrongful dismissal page 210:
“The principles set out above would be applicable in wrongful dismissal actions in which the court has to calculate damages for loss of earnings which would have been subject to tax had they been earned.”
28. The subsequent cases of Spencer v McWilliams Trustees 1958 SC 300 and Stewart v Glentaggart Ltd make it clear that Scots law also recognises the principle. The approach adopted by Lord Hunter in Stewart v Glentaggart Ltd has been approved of by commentators. Professor Walker in Civil Remedies at page 423 states that Lord Hunter in Stewart v Glentaggart Ltd:
“seems to achieve the legally correct result in a way as simple as the subject admits of, and therefore to be preferable”.
Professor McBride in The Law of Contract in Scotland at 22-116 describes Lord Hunter’s judgement as:
“Logically impeccable” in accounting for taxation on both sides and reducing damages on the Gourley principle.
29. Lord Hunter’s approach was to hold that damages should be assessed by ascertaining the net amount which would have been received by the employee after estimating the tax which he would have paid if there had been no breach in his contract of employment and that the sum should be ascertained after taking into account his liability to tax under The Finance Act 1960. In Stewart v Glentaggart Ltd., consideration focused on the special tax treatment of payments on retirement or removal from office or employment, which, at that time, was provided for in terms of Section 37 – 38 of The Finance Act 1960. The predecessors of the current provisions of sections 401 – 404A of The Income Tax (Earnings and Pensions) Act 2003. In Stewart v Glentaggart Ltd. Lord Hunter rejected the pursuer’s averments as irrelevant because they took no account of the tax position. So finding in response to specific averments from the defenders on the proper method of computing the pursuer’s loss having regard to different basis of calculating tax liability.
30. In General Mining and Engineering Services, however, Lord Dunpark found that as a matter of relevancy it was not necessary for the pursuers to set out their tax liability. He said:
“The tax chargeable on such damages is to be assumed to be the same as would have been charged on the actual payments due under the contract unless it is known, by reference only to tax law or Inland Revenue practice, that the amount of tax likely to be payable on the sum paid as damages would be less, and probably substantially less, than the pursuer would have been liable to pay on the contractual payments which he claims to have lost. If, as matter of law or ex concessu, it appears to the court that this is the true position, then the court may, as Lord Hunter did in Stewart v. Glentaggart Ltd., hold the pursuer's averments anent damages to be irrelevant, but in my opinion in what Lord Cameron called ‘the ordinary case’, the ordinary assumption, which I stated above, is to be made. In my opinion it is not for the pursuer to add to averments which indicate that his is the ordinary case by specifically stating that it is so. It must be for a defender who contends that there are special circumstances which take the case out of the ordinary class to satisfy the court that the normal assumption should not be made.”
Although not specifically referred to in the decision Lord Dunpark’s decision in General Mining and Engineering Services may been seen to accord with the decision of the Inner House in MacLennan v Scottish Gas Board where the court stated:
“It is not for a pursuer in any case to establish that a sum received by him in the name of damages will be subject to tax. The principle is that before tax is deducted by the court for any sum awarded it must be clear that the resulting sum will not be subject to tax.”
The conclusion of the Inner House being that any for sum awarded to the pursuer which might be subject to tax in the hands of the successful pursuer, the award should be made on a gross basis.
33. In claims, particularly contractual claims, it is important to understand whether the sums payable will be taxable or not in the hands of the recipient. It is regrettable that in this case that issue was not properly addressed in the instant case. Gourley proceeded on the assumption that no tax was payable on the damages. That position is not replicated in the instant case. The sums claimed for breach of contract in this case are taxable. I do not understand either party to now dispute that any sums awarded to the pursuers as loss of earnings is subject to tax. The parties in this case are to be criticised for failing to have had proper regard in advance of proof or indeed at the proof, of the tax treatment of any award made to the pursuers in satisfaction of their claims, as former employees, for loss of earnings.
34. In McBride, Law of Contract in Scotland 3rd Edition 2-118 the learned professor identifies certain difficulties encountered by the courts in dealing with tax. Such as HMRC not being a party to proceedings with consequence they may take a different view of tax liability. Foreign taxes may have to be considered. The pursuer’s taxation position may be affected by other taxable receipts, tax rates and reliefs can be subject to change over the years. He notes different views have been taken of where the onus on proving tax liability rests or whether it is for the pursuer or defender to make averments about the tax liability. He contrasts the different results in Stewart v Glentaggart Ltd and in General Mining and Engineering Services Ltd v Mine Safety Appliances Ltd, and draws the conclusion from these two cases that it is for the defender to aver that there are tax specialities. Professor McBride did not however identify the issue which is critical in this case, namely the implications arising from the operation of the Income Tax (Pay as You Earn) Regulations 2003 and the Social Security Contributions and Benefits Act 1992.
35. Surprisingly, there is little discussion in the authorities on the operation of the PAYE system despite the fact that PAYE was in operation before the decision in Gourley. It also featured in McDaid v Clyde Navigation Trustees. Indeed in Gourley Lord Reid makes specific reference to PAYE at page 213:
“In a case where the wrongdoer is the plaintiff's employer it has sometimes been said that he would have had to continue to pay the plaintiff's full wages or salary if there had been no accident or wrongful dismissal, so why should he take advantage of his own wrong to diminish his liability? That argument has lost some of its force since the introduction of the system of P.A.Y.E., but it would be strange if the introduction of a new method of collecting tax altered the legal position and, in any event, the argument would remain for surtax.”
36. The absence of averments by the defenders of the tax position in the instant case is to be contrasted with that faced by Lord Hunter in Stewart v Glentaggart Ltd. There the defenders set out detailed averments of their view of the approach to taxation, which resulted in the case being dismissed at debate following the failure of the pursuer to provide specification of his tax position. As Mr Upton pointed out in Stewart v Glentaggart Ltd. consideration focused on the special tax treatment of payments on retirement or removal from office or employment, which at that time was provided for in terms of Section 37 – 38 of The Finance Act 1960. The predecessors of the current provisions of sections 401 – 404A of The Income Tax (Earnings and Pensions) Act 2003. I agree with Mr Upton those provisions have no application in the instant case which is concerned with non-payment of earnings.
37. I had the benefit of detailed submissions on The Income Tax (Pay as You Earn) Regulations 2003 and in particular regulations 37 and 37A and The Social Security and Benefits Act 1992 schedule 1 paragraph 3 of Schedule 1. The Income Tax (Pay as You Earn) Regulations 2003 impose a PAYE deduction regime even where employment has ceased. The relevant provisions provide as follows:
“37. PAYE income paid after employment ceased
(1) This regulation applies if a relevant payment is made to an employee after the employment has ceased–
(a) by the former employer in respect of the former employment, or
(b) by any other person in respect of an obligation of the former employer,
and the payment has not been included in Form P45.
(1A) But this regulation does not apply if regulation 37A applies.
(2) The person making the payment must deduct tax on the non-cumulative basis using the 0T Code.
(3) But–
(a) the payment does not affect the cessation of employment, and
(b) the provisions listed in paragraph (4) do not apply.
(4) The provisions are–
| regulation 21 | deduction and repayment of tax by reference to employee's code |
| regulations 22 and 23 | cumulative basis |
| Chapters 2 and 3 of this Part | new employees and new pensioners: Forms P45 and P46. |
(5) The person making the payment must record the following information in a deductions working sheet (which the person must prepare for the purpose if one has not already been prepared for that tax year).
(6) The information is–
(a) the date of the payment,
(b) the amount of the relevant payment, and
(c) the amount of tax deducted on making the payment, or to be deducted or accounted for under regulation 62(4) or (5) (notional payments).
(7) The person making the payment must also notify the employee of the information mentioned in paragraph (6) without unreasonable delay.
37A.— Income paid after cessation of employment subsequently becoming subject to PAYE
(1) This regulation applies if—
(a) a payment has been made, after the cessation of the employment, to a former employee—
(i) by the former employer, or
(ii) by any other person in respect of an obligation of the former employer;
(b) that payment becomes a qualifying payment after the employment ceased; and
(c) the amount of the qualifying payment has not been included in Form P45.
(2) Where a qualifying payment has been made in a closed year, the employer must deduct tax, from any other payment made to the former employee in the tax period at the relevant time—
(a) in accordance with the last code used for the tax year in which the qualifying payment was made, or
(b) if the employer has not been notified of a code for that tax year, at the additional rate of tax applicable for that year.
(3) Where a qualifying payment has been made in an open year, the employer must deduct tax from any other payment made to the former employee—
(a) in accordance with the code in force in the final tax period in which the employee was employed, or
(b) if the employer has not been notified of a code, at the additional rate of tax applicable for that year.
(4) Neither the making of the qualifying payment, nor its subsequently becoming taxable, affect the cessation of the employment, and the provisions listed in regulation 37(4) do not apply in relation that payment.
(5) The employer must record the following information in a deductions working sheet for the tax year in which that payment was made.
If a deductions working sheet has not already been prepared for that tax year, the employer must prepare one.
(6) The information is—
(a) the date on which the qualifying payment was actually made;
(b) the amount of that payment; and
(c) the amount of tax to be deducted or accounted for under regulation 62(4) or (5) (notional payments).
(7) The employer must also notify the employee of the information listed in paragraph (6) without unreasonable delay after the relevant time.”
In a similar vein paragraph 3 of schedule 1 to the Social Security Contributions and Benefits Act 1992 empowers the employer to deduct PAYE and employee’s national insurance contributions when he makes a payment of earnings to a former employee.
“3.—
(1) Where earnings are paid to an employed earner and in respect of that payment liability arises for primary and secondary Class 1 contributions, the secondary contributor shall (except in prescribed circumstances), as well as being liable for any secondary contribution of his own, be liable in the first instance to pay also the earner's primary contribution or a prescribed part of the earner's primary contribution, on behalf of and to the exclusion of the earner; and for the purposes of this Act and the Administration Act contributions paid by the secondary contributor on behalf of the earner shall be taken to be contributions paid by the earner.
(3) A secondary contributor shall be entitled, subject to and in accordance with regulations, to recover from an earner the amount of any primary Class 1 contribution paid or to be paid by him on behalf of the earner; and, subject to sub-paragraphs (3A) to (5) below but notwithstanding any other provision in any enactment, regulations under this sub-paragraph shall provide for recovery to be made by deduction from the earner's earnings, and for it not to be made in any other way.
(3A) Sub-paragraph (3B) applies where a person (“the employee”) who is employed by a particular employer (“the employer”) receives earnings in a form other than money (“non-monetary earnings”) from the employer in a tax year.
(3B) If and to the extent that regulations so provide, the employer may recover from the employee, in the prescribed manner, any primary Class 1 contributions paid or to be paid by him on the employee's behalf in respect of those earnings.
(4) Sub-paragraph (5) below applies in a case where—
(a) a person (“the employee”) ceases in a particular tax year (“the cessation year”) to be employed by a particular employer (“the employer”); and
(b) the employee receives from the employer in the cessation year, after the cessation of the employment, or in the next tax year non-monetary earnings.
(5) If and to the extent that regulations so provide, the employer may recover from the employee in such manner as may be prescribed any primary Class 1 contributions paid or to be paid by him on the employee's behalf in respect of—
(a) the non-monetary earnings mentioned in sub-paragraph (4) above.
(6) Regulations under any provision of this paragraph shall be made by the Inland Revenue.”
38. The regulations impose a PAYE deduction regime even where employment has ceased. As the editors of Harvey on Industrial Relations Law narrate at para. 279:
“The impact of the PAYE system is sometimes misunderstood”
and at para. 280:
“The basic point which is often missed is that the employer's obligation to deduct tax under the PAYE system is part of the general law quite apart from the terms of any award or compromise. Accordingly, whether or not the award or compromise agreement expressly addresses the incidence of PAYE on the compromise sum (and it is good practice for it to do so), the employer is bound to operate PAYE where it applies, as it usually will where the employer is paying arrears of earnings, or where the sum payable under the compromise exceeds £30,000. So, even in a case where the parties did not address the point and the employer has been ordered or has agreed to pay a gross sum, the employee is not entitled to receive direct payment of that gross sum if PAYE is otherwise applicable. The employer discharges his obligation under the order or agreement by paying net and by accounting to the Revenue for tax. Similarly, during employment the employee was not entitled to demand payment of his gross contractual salary, because there too the employer was obliged to deduct tax and to pay it to the Revenue. The liability to tax, if any, is that of the employee. He receives money's worth to the extent of the sum which is paid to the Revenue: see (though not a PAYE case) the reasoning in Hartland v Diggines [1925] 1 KB 372, 379–380 (Pollock MR); on appeal [1926] AC 289, 291–292 (Viscount Cave), 10 TC 247, 256, 262. Once the deducted tax is paid to the Revenue the credit for that sum accrues to the employee and he is entitled to adjustment of his tax affairs accordingly, and to repayment if appropriate.”
That paragraph is also referred to by LJ Underhill in Oyesanya v Mid-Yorkshire Hospital NHS Trust at paragraph 79, a case to which I shall return.
39. In this action the pursuers sue for payments due under contracts of employment. Mr Sutherland says that such payments are gross sums on which the employer is bound by statute to make deductions for PAYE and National Insurance. Mr Upton says that payment under a contract of employment is properly understood as a net sum after the deductions which the employer is required to make for PAYE and National Insurance.
40. Mr Upton accepts that payment of an award by the court for loss of earnings under a contract of employment would be a relevant payment in respect of which the employer is bound to make deductions for PAYE and National Insurance even where the successful pursuer is no longer an employee of the defender.
41. For the pursuers to succeed in this appeal they require an affirmative answer to either of the following questions. Did the sheriff fall into error in not awarding decree for the gross loss of earnings, which he found each of the pursuers to have incurred. Or, if he decided correctly that any award required to be in respect of their net loss, did he have sufficient information to enable him to make a net award? This raises the associated question of how either answer should result in a decree being expressed, where the employer will under the general law have a duty to account to HMRC under the PAYE system for Income Tax and National Insurance, either on the gross sum or in addition to the net sum.
42. In a case such as this where the loss of earnings are taxable, and tax will be deducted initially by the employer having regard to the obligations of the employer to make deductions of Income Tax and National insurance through the PAYE system, one can see that there is an attraction in adopting a simple approach and awarding a gross sum. Particularly if as in the instant case there is no suggestion of a material change in the incidence of taxation between payments having been made timeously, or at the time of an award by the court. The deductions which the employer will require to make, for Income Tax and employees National Insurance through the PAYE system, before making payment to the employee will serve to put a pursuer in the same position as they would have been had payment been made timeously in terms of the contract. The employer will satisfy the award by making payment of a net sum after accounting to HMRC for the required deductions for PAYE and National Insurance. The employee receiving credit for these payments. Should the employer fail to make payment then the employee will be entitled to enforce the award for the gross sum, but will then require to account to HMRC for tax on the payment received through their tax return.
43. Mr Upton makes the point that it is highly desirable that the judgement creditor should have certainty of the sum which is he entitled to be paid in order that this may be enforced. He submits this requires an award of the court to be made net to reflect the sum the defender is bound to pay to the successful pursuer. Working through that argument, however, it may be seen that if an award is made gross, such enforcement action will only be required where the employer has not made the payment after deduction of the appropriate tax. The successful pursuer, having received the gross sum through the enforcement action will then require to account to HMRC for this gross receipt and pay the tax thereon. Given in this case there is no suggestion that there is a material difference in the tax rate applicable between the period when payment should have been made and the period at which the award was made, it can be argued that gross awards could have been awarded. This accords with the decision in the damages case of MacLennan v Scottish Gas Board 1985 SLT 2 where the court found absent any evidence from the defenders on the pursuer’s tax position the award should be made gross.
44. The position was addressed by J Sheen in Shove v Downs Surgical plc 1984 ICR 532, a case involving wrongful dismissal, in respect of which the particular tax treatment for payments in termination of employment was relevant. J Sheen states in his highly regarded analysis at page 536:
“In Gourley, the damages awarded were not subject to diminution by taxation in the hands of the plaintiff. In the instant case the damages to which the plaintiff is entitled will be taxable in his hands. They will be taxable whether or not I accept all the submissions made on behalf of the defendant. This has given rise to much debate as to the correct principle to be applied. On one view of such a case, it is said that the income of which the plaintiff has been deprived and the damages which he will receive are both taxable, the court should ignore taxation altogether. At the other extreme, it was argued that the correct principle is to start by estimating the net amount which would have been received by the plaintiff after the deduction of tax on his gross income. That net amount would represent as realistically as possible his actual loss. Thereafter on assessing the damages the court should take into account the plaintiff’s liability to tax for the damages awarded so that the net amount received should, so far as possible, equal the net amount or actual loss suffered. This being the approach adopted by the Outer House in Stewart v Glentaggart Ltd.”
A number of schedules were produced, by both parties, to set out the net loss and the gross sum which would require to be paid so that Mr Shove was, after tax, put in the same position as he would have been. It does not however appear that PAYE or interest was considered in that case. I note in passing with reference to a sum identified as holiday pay it is not stated explicitly whether this sum is gross or net of tax, although it probably reflects a gross loss. The court grossed up the net loss which it determined to have occurred in order that after tax Mr Shove would ultimately receive a net sum to place him in the position he would have been. It appears although it is not expressly stated that the expectation was that Mr Shove would be required to account for the Income Tax falling due on the gross sum awarded. That may be because prior to the Income Tax (Pay as You Earn) Regulations 2003 the employer was not required to make such deductions or because the impact of the employer’s obligation to deduct PAYE was overlooked.
45. It is also to be noted that in Shove the calculations had as a starting point equating the net position which Mr Shove would have been with the net position he required to be placed in to be properly compensated. This approach of equating the net figures reflecting the approach in Stewart v Glentaggart of accounting for taxation on both sides. I therefore conclude that the answer to the first question is in the negative. I reject the primary submission of the pursuers and find that the sheriff was correct in not making a gross award.
46. Making a net award also satisfies Mr Upton’s concern that in a payment action the pursuers are properly seeking the sum which they would themselves receive from their employers namely a net sum. There is however another reason why I reach the conclusion that the award should be assessed having regard to the net sum and that is in relation to the incidence of interest. A pursuer would be over compensated if they were to be entitled to interest in the gross sum when a proportion of that sum has to be accounted for to HMRC.
47. Awarding a net sum does not resolve all difficulties in relation to enforcement for it only in part resolves Mr Upton’s concern that the judgment creditor must know what they are to pay to satisfy the decree. This because in addition to paying the net sum to the successful party the unsuccessful party must account to HMRC for deductions for Income Tax and National Insurance through the PAYE system.
48. I have concluded that this can be best addressed by setting out in a decree in addition to the sum awarded, the unsuccessful party is also bound to account to HMRC for the deductions for Income Tax and National Insurance required in addition to this net sum. That would give a basis for the successful party to take action to recover such sums in the event of the defender not making payment to HMRC. For these reasons in answer to the first question I conclude that the award should be made in respect of a net sum.
49. I am therefore required to address the second question and determine whether the sheriff was right to find he had no proper basis to establish the net sum due to the pursuers. In Gourley on accounting for the incidence of taxation, Lord Goddard said at page 208:
“The task of determining it may not always be an easy one, but in complicated cases it is to be hoped that the parties, with the help of accountants, will be able to agree figures. If not, the court must do its best to arrive at a reasonable figure, even although it cannot be said to be an exact one.”
Earl Jowitt opined that there should not be a requirement for an elaborate assessment of tax liability and a broad brush approach should suffice page 203:
“It would, I think, be unfortunate if as a result of our decision, the fixation of damages in a running down case were to involve an elaborate assessment of tax liability. It will no doubt become necessary for the Tribunal assessing damages to form an estimate of what tax would have been if the money had been earned, but such an estimate is none the worse for being formed on broad lines, even although it may be described as rough and ready.”
Those observations were not specifically brought to the attention of the sheriff at the proof. Neither was the PAYE position brought to the attention of the sheriff. There were no averments by the defenders on the effect of taxation. Neither party submitted there was any peculiarity in respect of the application of tax. The pursuers’ agents’ focus was on gross loss. The sheriff was only provided with updated schedules of loss by the pursuer in the course of submission and it appears the pursuers only had regard to the need to consider net loss when faced with the draft written submissions by the defenders.
50. The first point to make is that deductions for Income Tax and National Insurance arise thought the operation of general law. The authorities make clear that the court is entitled to anticipate that such matters can be agreed by the parties. In the instant case the defenders have not sought to make an issue of the taxation position as it applies to the pursuers as being exceptional. The position here is that general taxation will arise on sums claimed for loss of earnings. This distinguishes the situation from that in Stewart v Glentaggart. There the defenders sought to argue there would be a material difference in the taxation position in the light of the personal circumstances of each of the pursuers. No such averments are made here.
51. The sheriff having resolved the series of issues he was faced with on liability, would have been entitled to adopted an approach in line with Clark v Sutherland and made a broad axe percentage deduction for such deductions absent evidence or agreement. I do not accept that Clark v Sutherland is restricted in its application to a claim for damages. I am satisfied that although the evidence presented by the pursuers at proof was deficient, as it failed to reveal the net amount the pursuers would have earned, there was a sufficiency to allow the court to establish such a net sum from the findings made. Alternatively the sheriff could have encouraged the parties to seek to agree such deductions or invited the defenders to respond to the pursuers’ schedules. In failing to follow either course the sheriff has fallen into error. It defies logic that the sheriff should conclude that he was unable to make an award to pursuers who he has found to have sustained gross losses. I find the sheriff was in error is dismissing the claims of the pursuers.
52. Some difficulties arising in this case were also seen in the case of Oyesanya v Mid-Yorkshire Hospital NHS Trust. As in the instant case, the gross salary figure due to Mr Oyesanya had been identified, but the question arose as to whether for the purpose of a judgement it should be expressed as a gross or net sum given the operation of the Income Tax (Pay as You Earn) Regulations 2003. In that case the Court of Appeal directed that parties should seek to agree the net figure to be paid to Mr Oyesanya and if agreement were not possible the court invited written submissions explaining the disagreement. The approach of encouraging parties to seek to agree net figures was not without precedent. In re: Houghton Lane Colliery Co Ltd 1956 1WLR 1219 Wynn-Parry J determined at page 1224 not to fix the net figures but:
“to allow the parties and their accountants an opportunity to agree figures giving them such guidance as I can.”
53. There is a complex history to Oyesanya v Mid-Yorkshire Hospital NHS Trust the case which is not relevant for present purposes the material fact being that ultimately the hospital trust recognised that plaintiff was due one month’s salary as a locum consultant. This amounted to £4,801.25 gross. That figure was not disputed, what was disputed was whether the sum should be paid net or gross and what deduction for tax and NI should be made from the gross sum. At para. 79 Lord Justice Underhill stated:
“Neither counsel addressed us on the provisions applicable to payments of arrears of salary by a former employer following a court award. However, the position appears on the face of it to be covered by regulations 37 and 37A of the Income Tax (Pay As You Earn) Regulations 2003, as helpfully expounded at paras. 279-290 of Harvey on Industrial Relations and Employment Law, in which case the Trust will indeed be required to pay net. Following the circulation of our judgment in draft, including the foregoing passage, we were told that the Appellant agreed that this was the case. I would invite the parties – in practice no doubt this will mean their respective accountants – to agree within 21 days the correct net figure to go in the judgment of the Court: if agreement is not possible, written submissions should be lodged with the Court explaining the disagreement and the Court will consider what course is most appropriate. If, however, there remains an issue of law as to whether payment should be net or gross, the Appellant should lodge written submissions within 14 days, to which Mr Sonaike should respond within 14 days thereafter; and the Court will then resolve the issue on the papers. The parties should not need to be reminded that the sums involved are not large, and they or their accountants would be well-advised to adopt any pragmatic solution that may be available rather than incur further costs. HMRC may well be a useful source of advice.”
54. I had the benefit of submissions from parties on the operation of regulations 37 and 37A of the Income Tax (Pay as You Earn) Regulations 2003. At the conclusion of the hearing on 1 April I again invited parties to seek to explore whether agreement could be reached, as to the net sums after deduction of Income Tax and National Insurance, which would be due, standing the sheriff’s findings on the gross losses sustained by the pursuers. This followed a prior request at the preliminary hearing in February that parties should produce a worked schedule demonstrating their calculations. The defenders declined to produce such a schedule. I also drew to parties’ attention that there might be a question over the period for which half pay was due standing the sheriff’s finding that the pursuers’ employment commenced on 9 October 2010. I am able to record that when the case was recalled on 12 May 2016 parties advised me that they were able to agree the figures for the net loss to the first pursuer at £7,000.00 and at £31,500.00 for the second pursuer. I also record that Mr Upton formally indicated he did not consent to decree passing for those sums.
55. In Oyesanya the Court of Appeal was able to assist parties to achieve a solution, not fully grasped by the parties in this action. I have come to the conclusion that it is necessary that the sum claimed should be awarded net of tax. Such an approach enables a calculation to be made of the interest due on the sum unpaid to the successful pursuer. It avoids overcompensation of the pursuers with interest on that proportion of the awards which reflects tax and National insurance. It also accords with the approach of Lord Hunter that the assessment should take account of the incidence of tax when it fell due and when it was paid.
56. I am satisfied that it is appropriate to modify the sheriff’s interlocutor to make such findings and to grant decree in favour of the first pursuer for £7,000.00 and for £31,500.00 in favour of the second pursuer. Utilising the net figures as agreed by the parties being preferable to having to adopt a broad brush percentage deduction to achieve a net figure as was adopted by the court in Clark v Sutherland.
57. The further complication, however, is the need, as Mr Upton referred to, to certainty in the level of award made by the court. Best practice, but possibly a counsel of perfection, is as suggested by the editors of Harvey for the gross loss to be narrated in a decree along with the deductions anticipated to be made by the defenders in respect of the accounting to HMRC for both Income Tax and National Insurance with the consequent net sum also being specified. Such an approach provides a successful pursuer with a comprehensively founded basis to enforce the decree. All that the parties advised me that they had agreed to was a resultant net sum but Mr Upton advised they had not agreed the precise deductions. I shall therefore recall the interlocutor of the sheriff to the extent necessary to find the first pursuer entitled to the sum of £7,000.00 and the second pursuer entitled to the sum of £31,500.00. These sums to be paid after the required deduction by the defenders for Income Tax and National Insurance through PAYE. The defenders being required to make payment of those deductions to HMRC.
Interest
58. I was also addressed on the matter of interest. Mr Sutherland simply invited interest to be awarded at the judicial rate of 8 per cent per annum from the date of citation. This he submitted is what the sheriff would have done had he made a finding on this at the conclusion of the proof. For the respondents, Mr Upton indicated that there had been no effort by the pursuers to seek agreement of the net liabilities arising from the gross sums found by the sheriff, until at the earliest the preliminary hearing in the appeal, when I had invited parties to provide information on the net figures based on the findings of the sheriff. He submitted that the figures only having been agreed at the third day of the appeal on 12 May 2016, it would be appropriate to only award interest from that date or, at the earliest, from the hearing on 10 February 2016. This because the pursuers had failed to lead evidence to enable the net figures to be ascertained at proof.
59. Mr Upton also referred to the case of Farstad Supply v Enviroco Ltd 2013 SC 302 where the judgment of Lord Hodge was upheld in the Inner House. He invited me to reduce the judicial rate of interest to take account of prevailing market rates as Lord Hodge had determined to do. Given interest rates have remained low he submitted that an award at the judicial rate would overcompensate the pursuers and a discounted rate should be applied, following Farstad Supply v Enviroco Ltd.
60. The decision of the Inner House in Farstad makes clear that the fixing of the date from which interest is to run, and the rate of interest, is a matter for the discretion of the court. I have reached the view that the judicial rate of eight per cent should apply. I had no detailed submission from the defenders or the pursuers of rates of interest which may be relevant to either party. I consider such submissions may have assisted were I attracted to modify the judicial rate. I also note that in Farstad the defenders had specific averments seeing a reduction in the judicial rate. I am not satisfied, particularly absent such averments and information on the rates which might be applicable to the parties in this case, that the judicial rate of interest should be modified in this case. Neither do I see any basis which would cause me to modify the standard position that interest at the judicial rate should be payable to the successful party from the date of citation. This reflects the period over which the defenders have contested the pursuers’ rights to those sums before the court and the pursuers have been found entitled to those sums. It compensates the pursuers for their being denied access to the funds throughout that period and recognises the defenders as having had the benefit of the funds.
61. I have concluded I should allow parties the opportunity to make further submissions on expenses in the light of this judgement. The case shall therefore call before me on 20 July 2016 at 09:30am within Paisley Sheriff Court.