KLEINWORT BENSON LIMITED v. CITY OF GLASGOW COUNCIL
| OUTER HOUSE, COURT OF SESSION |
| CA143/00 | OPINION OF LORD MACFADYEN in the cause KLEINWORT BENSON LIMITED Pursuers; against CITY OF GLASGOW COUNCIL Defenders: ________________ |
Pursuers: Moynihan, Q.C., Weir, Maclay Murray & Spens
Defenders: Glennie, Q.C., Mrs Wolffe, Simpson & Marwick, W.S.
10 May 2002
Introduction
[1]This action arises out of a series of seven interest rate swap contracts entered into between the pursuers and the defenders' statutory predecessors, the City of Glasgow District Council ("GDC"), in September 1982. It was subsequently held that such contracts were ultra vires of local authorities such as GDC. Accordingly, this action, in which the pursuers seek repayment of various sums which they paid to GDC under the contracts, and in which GDC were the party originally called as defenders, was signetted on 6 March 1992, and served on GDC on or about the same date. Before defences were lodged the action was, on 7 April 1992, sisted of consent pending the outcome of proceedings in the High Court of Justice in England. The proceedings in England were finally disposed of in 1997 (Kleinwort Benson Ltd v Glasgow City Council [1999] 1 AC 153). The outcome of those proceedings was that it was held that the English courts did not have jurisdiction to entertain the pursuers' claims.
Procedural History
[2]On 25 September 2000 the pursuers enrolled a motion seeking (1) recall of the sist and (2) transfer of the action to the commercial roll in terms of Rule of Court 47.10. That motion was opposed by the defenders, but only in relation to the question of transfer to the commercial roll. The motion called before me on 29 September when, on joint motion, it was continued until 5 October 2000. On the latter date, having heard counsel, I granted the motion transferring the action to the commercial roll.
[3]Per incuriam the interlocutor of 5 October 2000 does not bear to recall the sist. My notes of the hearing confirm, however, that Mrs Wolffe, who appeared for the defenders at that hearing as well as the debate, stated that they did not oppose the recall of the sist. Thereafter the action proceeded and a number of steps were taken and a number of hearings took place, all on the hypothesis that the sist had indeed been recalled. Attention was first drawn to the omission from the interlocutor of 5 October when the case called before me for debate on 28 June 2001. Mr Moynihan, senior counsel for the pursuers, submitted that I should correct the interlocutor of 5 October in exercise of the power conferred on me by Rule of Court 4.15(6). In my view it is questionable whether the omission of the words "recalls the sist" from the interlocutor is of any practical significance. Plainly both parties and the court have all acted as if the sist was recalled at that stage. Recall of the sist at that stage is, in my view, implicit in the remainder of the interlocutor and in all that has happened since. In the circumstances, however, I take the view that it is appropriate, in order to set the record straight, that I should correct the interlocutor by adding express reference to the recall of the sist, and I shall therefore do so.
[4]Prior to the hearing on 5 October the pursuers had lodged a minute of amendment seeking to substitute the present defenders for GDC. Their motion to amend to that effect was not opposed, and was granted.
[5]In addition, the pursuers had, prior to the hearing on 5 October, lodged what bore to be a Note of Adjustments (No. 8 of process). At the hearing I pointed out that, since defences had not yet been lodged, adjustment was premature. On the other hand, it seemed to me that, if the pursuers wished to alter their averments, it was convenient that they should be allowed to do so before the defenders prepared their defences. That would enable the defences to address the pursuers' pleadings from the outset in the form that they wished them to take. As I recollect the matter, I therefore suggested that the pursuers' pleadings might also be amended in terms of the Note of Adjustments (No. 8 of process). Counsel for the pursuer moved accordingly. There was, again as I recollect the matter, no real opposition on behalf of the defenders to the adoption of that expedient. I therefore allowed the summons to be amended in terms of No. 8 of process.
[6]Where a motion for transfer of an action to the commercial roll is granted before defences have been lodged, Rule 47.10(3) provides that the case should be put out for a preliminary hearing within fourteen days after the lodging of defences. In view of the nature of this case, the defenders sought an extended time for lodging defences, and I allowed a period of eight weeks for that purpose. That period expired on 30 November 2000, and the case was in due course put out for a preliminary hearing (a few days late) on 18 December.
[7]At the preliminary hearing which took place on 18 December 2000 it became apparent that there was some confusion as to the extent to which the pursuers' pleadings had been adjusted or amended. It was not, however, appreciated at that stage what the nature of the confusion was. It was only at the continued preliminary hearing which took place on 1 February 2001 that it became apparent that there had been a misunderstanding about the Note of Adjustments in terms of which amendment had been allowed on 5 October. While the Note of Adjustments on which the pursuers wished to rely, and which was lodged in court, was in the terms to be found in No. 8 of process, the Note of Adjustments which had been intimated to the defenders, and which Mrs Wolffe therefore understood to be under discussion on 5 October, was an earlier draft. That earlier draft has subsequently been lodged as a production (No. 17 of process). At the hearing on 5 October, nothing was said that alerted the pursuers or the court to the fact that the Note of Adjustments lodged in court (No.8 of process) had not been intimated to the defenders, or that alerted Mrs Wolffe to the fact that the Note of Adjustments of which the defenders had had intimation (now No. 17 of process) was not the document in terms of which amendment was being sought and allowed. By 1 February it had been appreciated that the confusion over the terms of the amendment allowed on 5 October might have an impact on issues of limitation. The preliminary hearing was further continued to 15 March and to 4 May. On the latter date the case was appointed to debate. The parties' pleadings, as they stood at the date of the debate, are to be found in the Record (No. 25 of process).
The Pleadings
[8]The primary basis of the pursuers' claim is that they are entitled to restitution under English law. They have an alternative claim for repetition under Scots law. The English law basis of the claim is formulated in the following three pleas-in-law:
| | "1. | The Proper Law of the obligation to make restitution being English Law, and the sums concluded for being due by the defenders to the pursuers in accordance with the Law of England on the grounds specified in Pleas 2 and 3, decree should be pronounced as concluded for. |
| | 2. | The pursuers having made payment to GDC under a mistake in law the pursuers are entitled to restitution of the sums paid as condescended on. |
| | 3. | There having been failure (or absence) of consideration for the payments by the pursuers to GDC, the pursuers are entitled to restitution of the sums paid as condescended on." |
[9]The defenders seek to resist the pursuers' claim on a number of bases. These include those formulated in their third and fourth pleas-in-law, which are in the following terms:
| | "3. | Esto English Law is the proper law of any obligation incumbent upon the defenders (as statutory successors to GDC) (which is denied) and on the hypothesis that the English Law of Limitation governs that obligation, any claim by the pursuers founded upon an absence of consideration in respect of any sum paid by them more than six years (i) prior to the making of a relevant claim founded upon a failure of consideration, (ii) et separatim and in any event, prior to the service of the present action being time barred in terms of Section 5 of the Limitation Act 1980, the pursuers' averments thereanent should be excluded from probation et separatim their claim to that extent should be dismissed. |
| | 4. | Esto English Law is the proper law of any obligation incumbent upon the defenders (as statutory successors to GDC) (which is denied) and on the hypothesis that the English Law of Limitation governs that obligation, any claim by the pursuers founded upon mistake being a new claim and being time barred in terms of Section 35 of the Limitation Act 1980, the pursuers' averments thereanent should be excluded from probation et separatim their claim to that extent should be dismissed." |
[10]It is convenient to defer referring to the parties' averments until it is necessary to do so in recording the arguments advanced in the course of the debate.
The Scope of the Debate
[11]In opening the debate for the defenders, Mrs Wolffe moved me to sustain the defenders' third and fourth pleas-in-law and repel the pursuers' first, second and third pleas-in-law. In effect, the defenders' contention was that, having regard to the relevant law of limitation, the claims based on English law were made too late. The effect of giving effect to Mrs Wolffe's motion would be to leave the pursuers with only the alternative Scots law basis for their claim.
[12]The debate proceeded on certain agreed hypotheses. These were:
- that English law was the proper law of the obligations founded on by the pursuers; and
- that in so far as the issues between the parties turned on matters of English law, the court should be entitled to base its decision on the submissions made, without requiring proof of English law.
[13]Mrs Wolffe indicated that there was substantial agreement between the parties as to what the relevant rules of English law are. She referred in particular to what was said in the defenders' revised Note of Arguments (lodged on 27 June 2001) at paragraphs 4 to 9. The points there made can be summarised as follows:
| (1) | The relevant rules of English law setting out the time limits applicable to the pursuers' claim are to be found in the Limitation Act 1980 ("the 1980 Act"). Those rules are rules of limitation (barring the remedy), not prescription (extinguishing the obligation). |
| (2) | Different rules applied to the pursuers' claim depending on whether it was based on (a) absence of consideration or (b) mistake of law. |
| (3) | The rule applicable to a claim based on absence of consideration is set out in section 5 of the 1980 Act, which provides: |
| | | "An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued." |
| | It was common ground that that section applied to the claim based on absence of consideration. Authority in support of that proposition was to be found in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1994] 4 All ER 890 per Hobhouse J at 942c-943e. |
| (4) | Time starts to run under section 5 when the cause of action accrues. That happens when the plaintiff would be able to issue a statement of claim capable of stating every existing fact which, if traversed, would require to be proved to support the plaintiff's right to judgment (see inter alia Central Electricity Generating Board v Halifax Corporation [1963] AC 785, per Lord Guest at 806). In the case of a claim for recovery of sums paid based on failure or absence of consideration, the cause of action accrues upon the payment of each sum sought to be recovered. |
| (5) | Section 5 also applies to the claim based on mistake of law, but its effect is mitigated by section 32 of the 1980 Act, which provides: |
| | | "(1) ... where in the case of any action for which a period of limitation is prescribed by this Act, ... |
| | | | (c) | the action is for relief from the consequences of a mistake; |
| | | the period of limitation shall not begin to run until the plaintiff has discovered the ... mistake ... or could with reasonable diligence have discovered it." |
| | It was common ground that this section applied to the claim based on mistake of law (see also Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349). |
| (6) | Just as an action cannot be commenced more than six years after the accrual of the cause of action (or, in the case of the claim based on mistake of law, after the date on which the mistake was, or could with reasonable diligence have been, discovered), a new claim, i.e. one involving a new cause of action, cannot be introduced by amendment into an existing action after the expiry of the relevant period of limitation (section 35(3) of the 1980 Act), save in limited circumstances involving the exercise of the court's discretion. |
[14]At that stage in Mrs Wolffe's submissions, Mr Moynihan, senior counsel for the pursuers, intervened to confirm that the parties were in agreement on all of these matters of English law, subject only to the qualification that there was dispute as to the applicability of the rule in section 35(3) of the 1980 Act. Later, in the course of submissions by Mr Weir, junior counsel for the pursuers, the position was clarified. Mr Weir submitted that the applicability of section 35 could be determined at debate, but that if I held that section 35 was applicable, a proof would be required before it could be determined to what effect it should be applied. Mr Glennie, senior counsel for the defenders, accepted in the course of his submissions that that was a correct formulation of the position.
The Defenders' Initial Submissions
[15]Mrs Wolffe submitted first that the pursuers' English law claims were new claims, separate and distinct from the original Scots law claim. That matter fell to be determined by Scots law, and tested by identifying the obligations which those claims respectively sought to enforce.
[16]The legal basis of the original Scots law claim was to be found in article 3 of the condescendence of the summons. It was predicated on the proposition that the interest rate swap contracts were ultra vires of GDC. On that basis it was said that the pursuers were:
"entitled to restitution of the said sums paid by them to [GDC] ... by virtue of the maxim nemo debet locupletari jactura aliena. Alternatively, the pursuers are entitled to repetition of said sums under the condictio indebiti. The pursuers mistakenly believed that said sums were due to be paid to the defenders. In particular, they believed that the parties (sic) had entered into valid agreements with [GDC]. In the circumstances, it is equitable that the pursuers should recover the sums paid by them to [GDC]. It is inequitable that [GDC] should be permitted to retain said sums."
Those averments were all based on Scots law. The relative plea-in-law was in the following terms:
"1. [GDC] having no power or authority to enter into the said agreements and said agreements accordingly being ultra vires of [GDC] and void, the pursuers are entitled to repayment of the sums paid by them to [GDC] thereunder as condescended upon".
[17]The English law claims were introduced in the Note of Adjustments (No. 8 of process) in terms of which, as narrated in paragraph [5] above, the summons was amended on 5 October 2000. Mrs Wolffe drew attention first to paragraph 5(ii) of that document, which introduced averments that the proper law of the obligation to make restitution was English law, that English law determined the pursuers' right to repayment, and that English law also governed limitation. Paragraph 6 elaborated on each of those points in turn. It introduced averments -
| (1) | setting out the considerations founded upon in putting forward the proposition that English law was the proper law of the defenders' obligation to repay (new article 5 of the condescendence); and |
| (2) | identifying the pursuers' contentions as to the parties' rights and obligations if English law applied (new article 6 of the condescendence), including |
| | (a) | the contention that the pursuers had an entitlement to restitution on the grounds - |
| | | (i) | that there was failure (or absence) of consideration for the payments made by the pursuers, and |
| | | (ii) | that the payments were made under mistake of law, in that the pursuers wrongly assumed that they were obliged in terms of the interest rate swap contracts to make the payments; and |
| | (b) | their contentions as to the effect of the English law of limitation, with references to sections 5 and 32(1) of the 1980 Act. |
Paragraph 7 introduced pleas-in-law 1 to 3 quoted in paragraph [8] above.
[18]On a comparison of the contents of No. 8 of process with those of the summons, Mrs Wolffe submitted first that it was clear that the source of the obligations founded on in the former was different from the source of the obligations founded on in the latter. The summons referred to obligations founded on Scots law. The averments introduced in No. 8 of process related to obligations derived from English law. Those facts alone were sufficient to justify the conclusion that No. 8 introduced new claims. Secondly, Mrs Wolffe submitted that the ingredients of the claims stated in No. 8 of process were markedly different from those of the claims stated in the summons. In that way too the obligations founded on in No. 8 of process were new and distinct from those founded on in the summons. Mrs Wolffe submitted that there was no Scottish authority directly in point, but nevertheless cited NV Devos Gebroeder v Sunderland Sportswear Ltd 1990 SC 291, per Lord President Hope at 302-303 and Lord Dunpark at 306; GA Estates Ltd v Caviapen Trustees Ltd 1993 SLT 1051, per Lord McCluskey at 1059K; J G Martin Plant Hire Ltd v Bannatyne, Kirkwood, France & Co 1996 SC 105; and Assuranceforeningen Skuld v International Oil Polution Compensation Fund (No. 2) 2000 SLT 1348. In short, Mrs Wolffe's first submission was that No. 8 of process introduced new cases, because those cases were presented on a fundamentally different basis from the case made in the summons, being based on different obligations or, in English terms, different causes of action.
[19]The second branch of Mrs Wolffe's submissions was concerned (1) with the proposition that, if the obligations in question were English law obligations, the English law of limitation of actions fell to be applied to the exclusion of the Scots law of prescription; and (2) with the identification of the relevant rules of the English law of limitation.
[20]The first of those points derives from section 23A(1) of the Prescription and Limitation (Scotland) Act 1973 ("the 1973 Act"), which provides as follows:
"Where the substantive law of a country other than Scotland falls to be applied by a Scottish court as the law governing an obligation, the court shall apply any relevant rules of law of that country relating to the extinction of the obligation or the limitation of time within which proceedings may be brought to enforce the obligation to the exclusion of any corresponding rule of Scots law."
Mrs Wolffe made reference to the commentaries on that provision in Johnston on Prescription and Limitation at page 344, paragraph 21.06, and in Anton on Private International Law, second edition, pages 300-304; to Part VII of the Report of the Scottish Law Commission (No. 74) "Prescription and Limitation of Actions: Report on Personal Injury Actions and Private International Law Questions" (1983), which contained the recommendation implemented by the insertion of section 23A into the 1973 Act by the Prescription and Limitation (Scotland) Act 1984; to the Report of the (English) Law Commission (No. 114) "Classification of Limitation in Private International Law" (1982), which made similar recommendations for English law; and to the resulting English legislation, the Foreign Limitation Periods Act 1984 ("the English 1984 Act"). She drew attention to section 1(4) of the English 1984 Act, which provides that an English court, in applying the limitation rules of another country where those rules involve the exercise of a discretion, "shall so far as practicable exercise that discretion in the manner in which it is exercised in comparable cases by the courts of that other country". She noted the absence of any corresponding provision in section 23A, but did not submit that it should be inferred that in applying that section a Scottish court should adopt a different approach.
[21] Turning therefore to the relevant rules of the English law of limitation, Mrs Wolffe reiterated the points summarised in paragraph [13] (3) to (5) above. The pursuers accepted that, in so far as their claim was based on failure or absence of consideration, the effect of section 5 of the 1980 Act was that they had no right to recover money paid more than six years before the action was commenced (Record, page 29D). In so far as the claim was based on mistake of law, the pursuers made averments seeking to invoke section 32(1)(c) on the basis that they did not discover the mistake, and could not with reasonable diligence have done so until the date of the decision in Hazell v Hammersmith and Fulham London Borough Council [1992] AC 1 (24 January 1991) or alternatively the date of the decision in Morgan Guaranty v Lothian Regional Council 1995 SC 151 (1 December 1994) (Record, pages 30A-31C).
[22]The relevant English rules relating to limitation also, Mrs Wolffe submitted, included section 35. It provides inter alia as follows:
| | "(1) | For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced- |
| | | (a) | in the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced; and |
| | | (b) | in the case of any other new claim, on the same date as the original action. |
| | (2) | In this section a new claim means any claim by way of set-off or counterclaim and any claim involving either- |
| | | (a) | the addition or substitution of a new cause of action; or |
| | | (b) | the addition or substitution of a new party; ... |
| | (3) | Except as provided by section 33 of this Act or by rules of court, neither the High Court nor any county court shall allow a new claim within subsection (1)(b) above, other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Act which would affect a new action to enforce that claim. ... |
| | (4) | Rules of court may provide for allowing a new claim to which subsection (3) above applies to be made as there mentioned, but only if the conditions specified in subsection (5) below are satisfied, and subject to any further restrictions the rules may impose. |
| | (5) | The conditions referred to in subsection (4) above are the following- |
| | | (a) | in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action; ...". |
[23]The pursuers could not satisfy section 35(5)(a), Mrs Wolffe went on to submit, because the new cause of action which they sought to introduce could not be said to "arise out of the same facts or substantially the same facts" as the claims made in the summons. In that connection she cited Arab Monetary Fund v Hashim [1993] 1 Lloyd's Rep 543 for the discussion of section 35 in the judgment of Evans J. At 593, his Lordship said:
"The effect of section 35, broadly stated, is that a new claim may be added by amendment notwithstanding that the limitation period has expired at the date of amendment and the new claim if added takes effect from the date of the writ if but only if the provisions of section 35(5) and any other restrictions imposed by the Rules of Court (cf. O. 20, r. 5) are complied with."
In seeking to apply the test set by section 35(5), his Lordship first held that the new claims were different causes of action. He then continued (at 594) with a discussion of the test to be applied in determining whether new claims arise out of the same or substantially the same facts as those already in issue on the previous claim. Since, however, it is common ground in the present case that, if I hold section 35 to be applicable, a proof will be necessary to determine how it should be applied, it is not necessary to enter on that aspect of the matter at this stage.
[24]The third branch of Mrs Wolffe's argument was concerned with certain rules of Scottish procedure founded on by the pursuers in their Note of Argument. They sought to rely first on Sellars v IMI Yorkshire Imperial Ltd 1986 SC 235 as vouching the proposition that "it is open to a party to make even radical changes to his case by adjustment after the expiry of the limitation period". Secondly, the pursuers sought to rely on Greenhorn v J Smart & Co (Contractors) Ltd 1979 SC 427 as vouching the proposition that "where changes to pleadings are to be made by amendment, objection has to be taken before the pleadings are amended". Mrs Wolffe submitted that, in order to give full effect to section 23A of the 1973 Act, and to apply the English limitation rules, including those set out in section 35 of the 1980 Act relating to new claims, it was necessary to ignore these Scottish procedural rules about when and how alterations could be made to a party's pleadings.
[25]In Sellars, which was concerned with new averments added by adjustment to an action of damages for personal injury some five months after the limitation period of three years imposed by section 17 of the 1973 Act had expired, Lord Justice-Clerk Ross said (at 244):
"In the present case ... [the] averments which radically alter the pursuer's case were added after the expiry of the triennium by adjustment and not by amendment. In my opinion that makes a material difference. With the possible exception of scandalous averments ... the court has no control or discretion over what averments may be added by adjustment. The court can control adjustment by limiting the adjustment period and ultimately by closing the record, but the court does not require to grant leave to add particular adjustments in the way in which leave is required for a minute of amendment. There is no express reference in the [1973 Act] to adjustment, and, in my opinion, ... a pursuer may adjust his pleadings without restriction and without obtaining express leave to do so."
Mrs Wolffe submitted that those observations were confined in their application to cases under section 17, and had no application to the issues raised by section 23A. That was so at least where the Scottish rule corresponding to the foreign rule was of the nature of prescription rather than limitation, or where the foreign law contained rules regulating the making of a late claim. In any event, Mrs Wolffe submitted, the rule in Sellars could have no application in a commercial action where, in terms of rule of court 47.4(2) the ordinary rules regulating adjustment were disapplied, and in terms of rules of court 47.5 and 47.11 adjustment was at the discretion of the commercial judge.
[26]In Greenhorn, which was also concerned with limitation in an action of damages for personal injury, a minute of amendment seeking to change the basis of the pursuer's case was tendered some twenty months after the expiry of the triennium. The defenders sought to oppose the motion on the ground that such a change should not be permitted after the expiry of the triennium. Lord President Emslie (at 429) took up the account of what happened in the following terms:
"For reasons which are not at all clear to us, the important question which the defenders sought to raise was not, however, disposed of, as it should have been, at this stage. What appears to have happened is that because the defenders had in their answers to the minute of amendment introduced a new plea in law raising the question of time bar, the Lord Ordinary took the view that the point the defenders wished to make could be explored and resolved in procedure roll. In the result he allowed the record to be amended and sent the case to that roll. That was, we regret to say, an error in procedure because the real question has always been whether the amendment should have been allowed at all."
In due course on the procedure roll the Lord Ordinary dismissed the action on the ground that the late amendment had changed the basis of the action. It was that decision that was reclaimed, and the reclaiming motion was refused. Mrs Wolffe submitted that the actual decision in Greenhorn demonstrated that, whatever the proper procedure may be, the question of whether amendment to introduce a new case after the expiry of the limitation period should have been allowed remains open for determination at a later stage, if it was not addressed at the date at which the motion to amend was made.
[27]Mrs Wolffe submitted that it was immaterial what actually happened procedurally between October and December 2000. The purported amendment on 5 October was ineffective. Before amendment takes place, two steps are required, namely (i) the lodging of the document containing the proposed amendment, and (ii) intimation of it to the other party. The court had before it the summons, the minute of amendment designed to substitute the defenders for GDC, and the Note of Adjustment, No. 8 of process. No. 8 of process had not been intimated. The document that had been intimated (now No. 17 of process) had not at that stage been lodged in court. In those circumstances amendment could not properly be allowed in terms of either document. But if the view were accepted that the purported amendment was ineffective, the pursuers fell back on their subsequent adjustment adopting as part of their pleadings the terms of No. 8 of process. Neither method of altering the pursuers' pleadings should be allowed to deprive the defenders of their entitlement to rely on the relevant English limitation provisions. In seeking to apply section 35(3) in the context of a Scottish action, in which averments had been introduced, whether by amendment or by adjustment, without the issue raised by section 35(3) having been noticed, the court could give effect to the substance of the rule against the allowance of a new claim after the expiry of the time limit by excluding from probation averments introduced after such expiry. Although that involved asking and answering the question posed by section 35(3) at a different procedural stage from that at which it would have been asked and answered in English proceedings, it enabled the Scottish court to give substantial effect to the English rule.
[28]Mrs Wolffe's motion (although later superseded by MR Glennie's acceptance that if section 35 was applicable, a preliminary proof would be required to determine how it should be applied) was accordingly that I should sustain the defenders' third and fourth pleas-in-law, repel the pursuers' first three pleas-in-law and exclude the relative averments from probation.
The Pursuers' Initial Submissions
[29]Mr Weir identified the core of the difference between the parties as lying in the interpretation of section 23A of the 1973 Act. He therefore began his submissions by examining that section. It applies "[where] the substantive law of a country other than Scotland falls to be applied by a Scottish court as the law governing an obligation". The debate was proceeding on the basis that that was so in the present case. In that event, the section obliged the Scottish court to "apply any relevant rules of law of that country relating to the extinction of the obligation or the limiting of time within which proceedings may be brought to enforce the obligation". The foreign rule was to be applied "to the exclusion of any corresponding rule of Scots law". In a case such as this, in which the issue according to the foreign law is one of limitation, the foreign rules that require to be applied are only the foreign rules of limitation. Correspondingly, it is only the Scottish rules of limitation (or prescription) that are excluded. It is necessary to distinguish between rules relating to limitation, and rules of court procedure. Johnston on Prescription and Limitation was consistent with that view, in that at paragraph 21.06 there was no reference to matters of court procedure. The defenders' failure to make that distinction led them into the erroneous submission that section 23A required this court to apply provisions of section 35 of the 1980 Act that were truly concerned with court procedure, and exclude the ordinary rules of Scottish court procedure.
[30]It was to be noted, Mr Weir submitted, that English law reserves to the English courts, when they are dealing with an obligation governed by a foreign law, the application of section 35. Section 1(3) of the English 1984 Act provides:
"The law of England and Wales shall determine for the purposes of any law applicable by virtue of subsection (1)(a) above [i.e. the foreign limitation law] whether, and the time at which, proceedings have been commenced in respect of any matter; and, accordingly, section 35 of the Limitation Act 1980 (new claims in pending proceedings) shall apply in relation to time limits applicable by virtue of subsection (1)(a) above as it applies in relation to time limits under that Act.
The reasons for the adoption of that rule were discussed in the (English) Law Commission Report (No. 114) at paragraphs 4.18 and 4.19. The provision tended to indicate that English law treated section 35 as a rule of court procedure rather than part of the law of limitation.
[31]Applying the distinction between the law of limitation and procedural rules, Mr Weir submitted that on a proper application of section 23A in the circumstances of the present case, section 35 of the 1980 Act was irrelevant, and on the other hand the Scottish rules of procedure concerning the incorporation of new cases into the pleadings in an existing action, by adjustment or amendment, fell to be applied.
[32]Mr Weir pointed out two aspects of the defenders' submissions which he maintained showed an inconsistency of approach. The first was that they suggested that the question of whether the pursuers' English law claims were "new claims" should be determined according to Scots law (cf. Mrs Wolffe's reference to cases such as NV Devos Gebroeder and GA Estates v Caviapen Trustees), yet maintained that the question of whether amendment should have been allowed should be controlled by section 35(3) and (5) of the 1980 Act. The second was that although they argued for the applicability of section 35(3) and (5), they did not take proper account of subsections (1) and (4). There was no good reason for applying only part of section 35.
[33]Turning to the Scottish rules of procedure, which he submitted fell to be applied, Mr Weir dealt first with amendment. He submitted that Greenhorn was authority for the proposition that a proposed amendment to introduce a new case after the expiry of the relevant time limit requires to be challenged at the time of the motion to amend. If that stage is allowed to pass, and the new case is incorporated into the pleadings, it is too late then to argue that the claim has not been timeously made. That view of the effect of Greenhorn was supported by Jones v Lanarkshire Health Board 1991 SC 285, per Lord Prosser (Ordinary) at 288 and Lord Murray at 298. So far as adjustment was concerned, the position was as set out in Sellars.
[34]Mr Weir then turned to examine the application of those rules to the events which have happened in this case. The interlocutor of 5 October 2000 bore to allow amendment of the summons in terms of the Note of Adjustments (No. 8 of process). That Note of Adjustments contained the averments making the English law claims. The defences lodged by the defenders on 30 November 2000 (No. 9 of process) included averments and pleas that made it clear that the defenders were aware that the pursuers were seeking to advance claims based on English law (see answer 3 and pleas-in-law 2 and 5). Mr Weir accepted that those references were in response to the contents of No. 17 of process, the draft Note of Adjustments which had been intimated to the defenders before 5 October, and which the defenders thought had been the document containing the averments added to the summons by the amendment made on 5 October. No 17 of process, however, had incorporated the essence of the new claims made in No. 8 of process. In particular, in paragraphs 2(iii) and 6(ii) there had been set out averments to the effect that the only place with which the contracts had any material connection was London, that English law therefore regulated the question of repayment, and that repayment was sought on the grounds of failure of consideration and mistake of law. The plea-in-law which would have been introduced by paragraph 7 was inspecific, but was adequate to cover the English law claims. Accordingly, despite the confusion over Nos. 8 and 17 of process on 5 October, the defenders were at that date aware that what the pursuers were seeking to incorporate into the summons were claims based on English law and based on an alleged right to repayment on the grounds of want of consideration and mistake of law. In that knowledge, they had not opposed the motion to amend on the ground that it came after the expiry of the relevant time limit. It could not, in these circumstances, be said that the interlocutor of 5 October was nullified by the fact that the defenders had not had intimation of No. 8 of process. It could only be set aside by reclaiming motion. There was provision in Rule of Court 38.7 for obtaining leave to reclaim out of time, but the defenders had not attempted to resort to that procedure when they later discovered the confusion between No. 8 and No. 17 of process. In any event, even if the interlocutor of 5 October could be said to be ineffective to incorporate the cases based on English law into the pursuers' pleadings, the averments in question could be added by adjustment once that was authorised on 18 December. Such adjustment effectively introduced the English law cases into the pursuers' pleadings in accordance with Sellars.
[35]Mr Weir further argued that the defenders were wrong in maintaining that the cases based on English law were new cases. The line of authority cited by Mrs Wolffe (NV Devos Gebroeder and GA Estates v Caviapen Trustees) was concerned with the particular language of section 6 of the 1973 Act. There was no radical alteration to the nature of the pursuers' case made by the introduction of the English law cases. They, like the Scots law cases, were founded on the fact that the interest rate swap contracts were ultra vires of GDC. The English case based on failure of consideration equated to the Scottish case based on the condictio indebiti. The element of mistake in law, which, because of the impact of the English law rules of limitation, was the pursuers' preferred ground of action under English law, was foreshadowed in the summons (see article 3 of the condescendence - "... mistakenly believed ..."). The underlying factual foundation of the claim thus remained the same. That showed that no radical incompetence took place when the amendment was allowed on 5 October 2000.
[36]In summary, therefore, the pursuers' submissions as advanced by Mr Weir were that on a sound construction of section 23A a distinction required to be made between the English law of limitation, and English rules of court procedure; that section 35 of the 1980 Act fell into the latter category and accordingly did not fall to be applied; that the Scottish rules of court procedure were not excluded by section 23A; and that on a proper application of those rules the English law claims had been effectively incorporated into the pursuers' pleadings without objection having been taken on the ground that they should be excluded as coming too late. On that basis the defenders' third and fourth pleas-in-law should be repelled.
The Defenders' Response
[37]Mr Glennie recognised that the heart of the dispute between the parties lay in the interpretation of section 23A. He submitted that the distinction between the law of limitation and rules of court procedure which the pursuers sought to invoke involved an oversimplification. How was the borderline between the two categories to be determined? Could it be said that the section disclosed clear legislative intent to limit the reference to the foreign law in that way? It could not be said that a provision (such as section 35(5)) fell into the category of rules of procedure because it involved an exercise of judicial discretion. If that were so, section 19A of the 1973 Act would be characterised as a matter of court procedure and not part of the Scots law of limitation. It was difficult to see why the law of limitation should not be expressed partly in terms of rules and partly in terms of discretion, and why the effect of section 23A should not be to require reference to the whole package of the foreign law of limitation, whatever the balance between rule and discretion might be in the particular system. Nor could it be said that a provision was not part of the law of limitation because it was expressed in terms of a prohibition on the allowance of amendment to introduce a new claim after the expiry of the time limit. If the rule said: "No claim may be brought by action or added to an existing action more than six years after the cause of action arose", that would be a rule of the law of limitation. It was difficult to see why the result should be different if the rule was expressed in two sections, one saying: "No claim may be brought by action commenced more than six years after the cause of action arose", and the other saying, "No claim may be added to an existing action by amendment effected more than six years after the cause of action arose." The intention underlying section 23A was that the court should, so far as possible, deal with questions of limitation in the same way as they would be dealt with by the lex causae. If the foreign law contained provisions to the effect-
| (i) | that no action might be commenced more than six years after the cause of action arose; |
| (ii) | that in general no new claim might be added by amendment to an existing action more than six years after the cause of action arose; |
| (iii) | that, as an exception to (ii), in certain specified circumstances the court might in its discretion allow a new claim to be added by amendment to an existing action more than six years after the cause of action arose; and |
| (iv) | that, if such amendment was allowed, the new claim would be treated for the purpose of the law of limitation as if it had been raised at the same time as the original action; |
it was difficult to see how it was possible to regard part of that package of provisions as forming part of the law of limitation, and another part as not doing so. There was nothing in the language of section 23A to compel the making of a distinction among the various parts of such a package.
[38]Mr Glennie then turned to consider what help in the construction of section 23A might be obtained from the corresponding English provision. Section 1(1) of the English 1984 Act referred to "the law of that other country relating to limitation". Subsection (4) made it clear that the "law" referred to in subsection (1) might include a provision conferring a discretion. Section 4(1) defined the phrase "the law ... relating to limitation" as a reference to "so much of the relevant law ... as (in any manner) makes provision with respect to a limitation period applicable to the bringing of proceedings in respect of that matter in the courts of that country ...". Section 4(2) defined "relevant law" as "the procedural and substantive law applicable ... by the courts of that country". Mr Glennie submitted that a similar approach to section 23A was appropriate. He recognised, however, that it was important to import only the "law ... relating to ... limitation", and not to import the general law of the other country relating to the amendment of pleadings. It was clear from paragraphs 7.5 and 7.7 of the Scottish Law Commission Report No. 74 that the intention was to import the result which would have been reached on the question of limitation by the lex causae. Section 23A sought to equiparate foreign rules relating to limitation with foreign rules relating to prescription, in effect asking in each case: what would have happened if the claim had been brought in the foreign country?
[39]If section 23A imports the whole of the English law of limitation, Mr Glennie submitted, the English rules regulating amendment to add a new claim after expiry of the time limit are included in what is imported. Thus section 35 of the 1980 Act is part of what is imported. That section, on the face of it, imposes a restriction on the bringing of a new claim after the expiry of the limitation period. It is, therefore, part of the English law of limitation. The possibility of the foreign law of limitation containing rules of that type made it impossible, consistent with the terms of section 23A, to apply automatically the Scottish procedural rules about adjustment and amendment when dealing with a case under that section. In the first place, in such a situation the Scottish court, applying a foreign rule that lays down restrictive criteria for the addition of a claim to a subsisting action after the expiry of the time limit, cannot impose on the foreign system the Scottish distinction between adjustment and amendment. Secondly, a Scottish rule allowing the uncontrolled introduction of new material by adjustment, irrespective of whether it is done after the expiry of the time limit, cannot prevail over the restrictions imposed by the foreign law. The rule of practice in Sellars must give way to the rules which form part of the foreign limitation provisions. The only real difficulty is in identifying appropriate procedure to allow the foreign criteria to be applied. The answer proposed to that difficulty is that if the averments expressing the new claim would have been judged by an English court not to pass the test set by section 35, they should now be excluded from probation.
[40]Mr Glennie recognised that on one view it might be harder to argue against the application of the rule vouched by Greenhorn and Jones, because the amendment process, unlike adjustment, gives the opportunity of objection. He submitted, however, that where the matter in issue was the application of a foreign limitation rule, there might well require to be an investigation into factual matters, such as what precisely the foreign rule was or how the foreign court would have exercised a discretion, before the foreign rule could be applied. That involved considerations beyond those normally taken into account in determining under Scottish domestic procedure whether an amendment should be allowed. The potential need for limited proof before the limitation issue could be determined was recognised by Lord Prosser in Jones at 289.
The Pursuers' Response
[41]Mr Moynihan for the pursuers submitted that the issues which required to be addressed were whether section 35 of the 1980 Act applied at all, and if it did, to what effect it applied in the circumstances of this case. He recognised that if the first question were answered in the affirmative, the second would require to be addressed at a preliminary proof at which expert evidence of English law would require to be led.
[42]Mr Moynihan began by looking at the matter in the context of Scottish procedure. If this were a purely Scottish case, any defence of limitation would have been overcome by the current state of the pleadings (Jones at 298 - "Once adjustment or amendment has been made the defect in the action due to limitation is cured".) Unless the interlocutor of 5 October 2000 was opened up in a reclaiming motion, the allowance of the amendment at that stage foreclosed any argument about limitation.
[43]Turning to section 23A, Mr Moynihan submitted that if it was properly construed the result was the same, the argument about limitation was foreclosed. At one level, the submission was simply that the limitation point was one for the defenders to take, and they had not taken it timeously. The English rules permit amendment to add a new claim after expiry of the time limit in certain circumstances. If the defenders were minded to argue against amendment to add the new claim on the basis that the criteria set by the applicable English rules were not satisfied, it was for them to take that point in opposition to the motion to amend. No. 17 of process, the document of which the defenders had had intimation as at 5 October 2000, gave clear notice that the pursuers' intention was to introduce claims under English law. The defenders had nevertheless not opposed the motion to amend on grounds related to its effect on limitation. The result was that the new claims were now part of the pursuers' case. The amendment had not been allowed under reservation of the limitation argument.
[44]Since the defenders argued for the applicability of section 35 of the 1980 Act (or at least parts of it), the question which required to be addressed, Mr Moynihan submitted, was whether that section was part of the "relevant rules of law of [England] relating to ... the limitation of time within which proceedings may be brought" to enforce the obligations in question. Only limited guidance was to be gained by looking at the English 1984 Act, the provisions of which were much more elaborate. Assistance could legitimately be drawn from the Scottish Law Commission Report (No. 74), which, while proposing legislation in the terms subsequently incorporated in section 23A, formulated its recommendation 13 as follows:
"The rules of prescription or limitation of the lex causae, including any relevant rules of suspension and interruption, should be applied by a Scottish court, however they may be classified for choice of law purposes under the lex causae, to the exclusion of any corresponding rule of Scots law."
Mr Moynihan accepted that rules such as those found in Scots law in sections 6(4) and 19A of the 1973 Act fell within the scope of section 23A. What required to be determined was whether section 35 of the 1980 Act fell within the category of rules covered by section 23A.
[45]Mr Moynihan submitted that if any part of section 35 fell outwith the scope of section 23A, it was then necessary to consider whether that part was severable from the part that might fall within its scope. If it was not severable, no part of the section should be regarded as falling within the scope of section 23A. He submitted that section 35 was written, in effect, "the wrong way round". It began, in subsection (1)(b) by setting out that a new claim was to be treated as a separate action commenced on the same date as the original action. It then prohibited, except in circumstances controlled by rules of court, the allowance of a new claim after the expiry of the time limit (section 35(3)). It then provided for the making of rules of court permitting a new claim to be made after expiry of the time limit (section 35(4)), but only if the conditions specified in subsection (5) were satisfied. Subsection (5)(a) imposed the condition that the new claim should arise out of the same, or substantially the same, facts as the original action. It could be seen that those provisions constituted a package of rules which could not be separated from each other, and which were intimately bound up with the procedures of the English court. It was evident that in England section 35 was regarded as part of the procedure of the English courts, because section 1(3) of the English 1984 Act provided that in cases where the English courts were applying foreign rules of limitation by virtue of section 1(1)(a) of that Act they would nevertheless apply section 35. In these circumstances, section 35 was not to be regarded as comprising part of the "relevant rules" for the purpose of section 23A.
Discussion
[46]It is common ground for the purposes of the debate that the claims which the pursuers seek to make based on English law are founded on obligations to which "the substantive law of a country other than Scotland falls to be applied by a Scottish court". It follows that in respect of those claims this court must "apply any relevant rules of law of that country relating to ... the limitation of time within which proceedings may be brought to enforce the obligation", and that that must be done "to the exclusion of any corresponding rules of Scots law" (section 23A of the 1973 Act).
[47]It is also common ground that the "relevant rules" of English law include those provided for in section 5 and (so far as the mistake of law case is concerned) section 32(1)(c) of the 1980 Act. The issue between the parties arises because the defenders contend that the "relevant rules" also include section 35 of the 1980 Act. That is disputed by the pursuers.
[48]Whether section 35 forms part of the "relevant rules" depends on the proper construction of section 23A. Both parties made reference to the Scottish Law Commission Report (No. 74), and I accept that it is legitimate to have regard to its terms as an aid to construction of the legislation enacted in terms of the draft Bill attached to the Report. I have already quoted recommendation 13 in paragraph [44] above, and I accept that that formulates the legislative intent underlying section 23A. It seems to me to follow that no distinction is to be drawn between a foreign limitation rule that is in absolute terms, and one that involves an exercise of judicial discretion. A rule conferring a discretion to permit or not to permit proceedings to be brought after the expiry of a time limit is, in my view, as much a part of the rules of limitation as is an unqualified rule that proceedings may not be brought after the expiry of the time limit. Nevertheless, I accept that there is, as the pursuers submitted, a borderline to be drawn between rules which are properly to be regarded as rules of limitation, and rules which are, on the contrary, simply an ordinary part of the rules of court procedure in the foreign system. The question, it seems to me, comes to be whether the pursuers have sought to draw that borderline in the right place.
[49]In my view it cannot be wholly without significance that section 35 is part of a statute entitled the Limitation Act 1980. The 1980 Act is a consolidation of the law relating to limitation of actions in England, and it seems to me to be reasonable to infer, at least prima facie, that its provisions are encompassed within the phrase "rules of law ... relating to ... the limitation of time within which proceedings may be brought to enforce" obligations to which English law falls to be applied.
[50]I agree with Mr Moynihan that the order in which the subsections of section 35 are set out is not logically satisfactory. It seems to me, however, that the substance of the section is that it makes the following package of provisions:
| (i) | a general rule prohibiting any court from allowing a new claim (of the sort mentioned in subsection (1)(b), including in particular one of the sort mentioned in subsection (2)(a), namely the addition of a new cause of action) to be made in the course of an action after the expiry of a limitation period which would prevent its being made in a new action (subsection (3)); |
| (ii) | a provision authorising the making of rules of court to permit such a new claim to be made in an existing action, but only if conditions specified elsewhere in the section and any other conditions specified in the rules of court are satisfied (subsection (4)); |
| (iii) | a provision specifying the conditions mentioned in paragraph (ii) above (subsection (5)), in terms which permit the new claim involving a new cause of action to be added only if it arises out of the same or substantially the same facts; and |
| (iv) | a provision to the effect that, if in accordance with the provisions already mentioned a new claim is permitted to be made in the course of an existing action, it shall be deemed to be a separate action commenced on the same date as the original action. |
That analysis seems to me to be consistent with what was said by Evans J in Arab Monetary Fund v Hashim at 593 (see paragraph [23] above). The effect of those provisions is, in my view, to lay down a general rule to prevent a party from evading the effect of the ordinary limitation rule by bringing forward a claim based on a new cause of action, which would be time barred as a separate action, in the form of an amendment to an existing action; but to make an exception in favour of new causes of action based on the same or substantially the same facts. In my opinion regard must be had to the substance rather than the mere form of the provisions in question. In my view that package of provisions is in substance an integral part of the law of limitation of actions. Although the exception is to be regulated by rules of court, these are rules of court expressly authorised for the particular purpose, the core content of which is prescribed by the statutory provision. The rules are not ordinary rules of general application which happen to bear inter alia on limitation cases. They are specific rules provided as part of the machinery of the law of limitation. I am therefore of opinion that the whole of section 35 falls within the scope of the phrase "relevant rules ... relating to ... limitation" in section 23A, and falls to be applied in the present case.
[51]I do not consider that a different result can be justified by reference to the terms of the English 1984 Act. Certainly, it contains express provision in section 1(3) to the effect that an English court must apply section 35 in a case in which section1(1)(a) otherwise requires the application of a foreign limitation rule, but the reasons for that provision are discussed at some length in the Law Commission Report (No. 114) at paragraphs 4.18 and 4.19, and it is there recognised that "this approach might be said to represent at least a theoretical departure from the general principle which we recommend, whereby the limitation period prescribed by the lex causae should apply".
[52]It remains for consideration whether the Scottish procedural rules to which reference was made in the course of the debate preclude such application. They are not, in my opinion, excluded by section 23A. What section 23A excludes are the Scottish rules relating to limitation. I do not consider that either the rule in Sellars or the rule in Greenhorn and Jones can properly be regarded as part of the law of limitation. The rule in Sellars simply involves an application of the general procedural rule that the court does not control the terms in which pleadings are adjusted. The point, it seems to me, is that a party is free to add anything he chooses to his pleadings in the course of adjustment. He does not require the leave of the court to do so. Any averments he adds by adjustment form part of the pleadings in the action. A limitation rule that depends on the date of commencement of the action thus cannot be relied upon to exclude averments added by adjustment in the ordinary procedural course of an action timeously raised. (I do not consider that the rule is in any fundamental way different under the commercial rules. Although in a commercial action, it is a matter for the commercial judge's discretion whether, and if so on what subjects, adjustment is to be allowed, if adjustment is allowed, the court exercises no more control over the content of the adjustments than it does under ordinary procedure. The contrast is between amendment, where the court sees what is proposed before leave is given, and adjustment, where leave, if given in a commercial action, is given in advance without sight of what is proposed.) Similarly, Greenhorn and Jones involve the application of the ordinary general rule that amendment is a matter for the court's discretion. The Scots law of limitation says nothing about amendment to add a new or different claim to a timeously raised action after the expiry of the limitation period. Amendment is a matter for the court's discretion. One factor which will militate against that discretion being exercised in favour of introducing a new and different case is the fact that it is brought forward after the last date on which it might have been raised as a separate action. But the ground on which such an amendment is refused is not that the law of limitation prohibits such amendment, but because the court regards it as inappropriate, in exercise of its general discretion to control amendment of the pleadings, to permit it to be made.
[53]The result, in my opinion, is that section 23A does not operate to exclude those rules of procedure in the present case. The question which remains is whether averments which have found their way into the pursuers' pleadings in circumstances which, so far as Scottish procedure is concerned, make them part of the pursuers' case, thereby become immune from attack based on the applicable English law of limitation. In my opinion the proper application of section 23A requires the court to address the English criteria and decide whether or not, on a proper application of those criteria, the new claim should be allowed to be introduced. Section 35(3) prohibits the court from allowing a new claim to be introduced after the expiry of the limitation period. The only permitted exception (relevant for the purpose of the present case) is where the condition specified in subsection (5)(a) is satisfied. The fact is that in the present case (a) the relevant criterion was never addressed at the time of the interlocutor allowing the amendment, and (b) in any event, if that amendment (intended as no more than a procedural short cut) had not been allowed, the same averments would have been introduced without the need for leave of the court, in the course of the adjustment period that was first allowed on 18 December 2000. It seems to me that the only way in which the court can ensure that section 23A is applied is to allow the limitation point to be taken now. I do not consider that a reclaiming motion to set aside the interlocutor of 5 October (and possibly the interlocutors thereafter allowing adjustment of the pleadings) is necessary to open the way to that course. I am of opinion that the procedure that has taken place does not preclude the application of section 23A, and consequently the application of section 35. I see no difficulty in giving effect to a decision that the new cases are not permitted by section 35 (if that is the decision that is in due course reached) by sustaining the defenders' third and fourth pleas-in-law, repelling the pursuers' first three pleas-in-law, and excluding the relative averments from probation.
[54]Since I have held that section 35 of the 1980 Act is applicable to determine whether the English law cases which the pursuers have introduced into their pleadings are time barred or not, it is in my view necessary that there should be a preliminary proof before answer at which evidence is adduced as to how an English court would apply section 35 in the circumstances of the present case. It seems to me that the scope of the proof will require to include whether the pursuers' English law claims are new claims involving a new cause of action, to which the prima facie prohibition in section 35(3) would apply, and, if so, whether those new claims satisfy the section 35(5) test of arising out of the same or substantially the same facts.
Result
[55]Before allowing a preliminary proof before answer on the application of section 35, I shall put the case out By Order to enable the parties to make submissions on the precise scope and likely duration of the preliminary proof, and on the procedural steps that should be undertaken in preparation for it. I shall, however, at this stage make the correction to my interlocutor of 5 October 2000 mentioned in paragraph [3] above.