Pursuer: Gibson; SKO Family Limited

Fourth Defender: M V Ross; Morton Fraser LLP

2 April 2014

Introduction

[1] The pursuer purchased the house at [an address in Fernieside] ("the subjects") from the City of Edinburgh Council in about January 2002. The Council granted her a Feu Disposition. The transaction was duly registered in the Land Register of Scotland and the pursuer was entered in the Proprietorship Section of the Title Sheet related to the subjects. She was advanced monies by GMAC-RFC Limited and she granted that company a standard security over the house which standard security was duly registered in the Charges Section of the Title Sheet. The pursuer avers that she cohabited with the third defender between about 2001 and about November 2007. She avers that from about May 2009 she allowed him to resume residence at the house on a temporary basis but that they did not cohabit. She avers that in March 2010 the third defender embarked on a fraudulent scheme whereby he arranged for a woman to impersonate the pursuer with a view to selling the subjects and that the third defender "secured the co-operation of the first defender as the purchaser in the transaction for the sale of the subjects to him". The purported sale price was £110,000. The third defender also fraudulently prepared a letter bearing to be from the pursuer to mortgage agents which indicated that the pursuer was to gift the first defender £27,500 on a non-refundable basis. The mortgage agents advised the fourth defender of that proposed arrangement. The fourth defender advanced the first defender a loan of £80,500 to be used for the purchase of the subjects. The first defender executed a standard security in the fourth defender's favour. The impersonator forged the pursuer's name on a purported disposition of the subjects by the pursuer to the first defender. The disposition was recorded in the Land Register and the first defender was entered in the Proprietorship Section of the Title Sheet. Out of the funds advanced to the first defender £45,411.90 were used to repay the outstanding balance of the loan which had been made to the pursuer by GMAC-RFC Limited. The standard security granted by the first defender to the fourth defender was recorded in Charges Section of the Title Sheet relating to the subjects. The pursuer avers that the first defender never took possession of the subjects and that pursuer has remained in possession of them. She avers that in January 2012 at Edinburgh Sheriff Court the third defender was convicted of fraud in respect of his said conduct.

[2] In the present action the pursuer sought (1) reduction of the fraudulent disposition and declarator that the entry in the Land Register recording a transfer of title from the pursuer to the first defender is inaccurate; (2) declarator that the entry in the Land Register relating to the standard security granted by the first defender is inaccurate, and that the security is of no force and effect in any question between the pursuer and the fourth defender; and (3) an order ordaining the second defender to rectify the Land Register in terms of s. 9 of the Land Registration (Scotland) Act 1979 by deleting that part recording a transfer of title by the pursuer to the first defender and by deleting that part showing or tending to show the grant of a standard security by the first defender in favour of the fourth defender.

[3] Only the fourth defender defended the action. It also lodged a counterclaim. The first conclusion of the counterclaim is:

"1. For declarator that, as a consequence of a payment made to GMAC-RFC Limited in respect of the outstanding loan due by the pursuer to GMAC-RFC Limited as at 29 March 2010, that payment having been made using funds fraudulently obtained from the fourth defender, and the pursuer having been unjustly enriched thereby, the fourth defender is entitled to recompense from the pursuer therefor."

The second conclusion is for payment of £45,411.90 with interest.

[4] The matter came before me for a Procedure Roll hearing. Notes of argument had been lodged in advance. At the outset of the hearing Miss Ross indicated that the fourth defender was no longer opposing decree being pronounced in terms of the pursuer's first, second, and third conclusions in the principal action. Over the course of that day and the following day I heard parties' submissions anent the counterclaim. In the course of the second day Miss Ross sought leave to amend the counterclaim to address certain criticisms which had been made by Mr Gibson. In due course a minute of amendment and answers were lodged. The matter called before me again on the fourth defender's motion to amend in terms of the minute and answers. The motion to amend was not opposed, and the counterclaim and answers thereto were amended. At the same time I granted the pursuer's motion for decree in terms of the first, second and third conclusions in the principal action.

[5] In the circumstances I do not recount all of the submissions made at the procedure roll hearing. Some were overtaken by events. I restrict myself to outlining how matters finally stood.

The counter claim (as amended)

[6] In the counterclaim the fourth defender avers:

"7. The orders sought by the pursuer in the principal action are based on the third defender's fraud in arranging for the sale of the subjects; arranging for a female accomplice to impersonate the pursuer and to forge the pursuer's signature on the purported disposition of the subjects; and in causing the first defender to act as purchaser and grant a purported standard security over the subjects in favour of the fourth defender. The purported disposition and the purported standard security were granted as part of a fraudulent scheme. The third defender was responsible for the fraudulent scheme. The sum advanced by the fourth defender to the first defender was obtained as part of the fraudulent scheme. If the pursuer is successful in seeking the orders for reduction, declarator and rectification she will be reinstated as the heritable proprietor of the subjects. Payment having been made to GMAC-RFC Limited in respect of the full outstanding sum of her loan, the pursuer no longer has any liability to GMAC-RFC Limited. That being the case, the pursuer has derived a benefit to the extent of her outstanding liability to GMAC-RFC Limited at the date on which payment was made to GMAC-RFC Limited. Her enrichment is thereby unjust. She has enjoyed a gratuitous gain at the expense of the fourth defender and the fourth defender is entitled to recompense therefor. With reference to the pursuer's averments in answer...[a]dmitted, under explanation following that in the event the pursuer is restored to the Land Register as heritable proprietor of the Subjects and the fourth defender's standard security is removed as a charge on the Subjects, the fourth defender will have a right to enforce the personal obligations owed to it by the first defender. Admitted, under explanation following, that the fourth defender currently has the right to enforce the first defender's personal obligations owed to it to pay the sums outstanding under the loan made by it to him.... Explained and averred that the fourth defender has issued demands for payment to the first defender. The first defender has failed to respond. The fourth defender endeavoured to contact the first defender directly but without success. Having instructed inquiries to be made, the fourth defender has ascertained that the first defender resides with his parents at the address in the instance [an address in Craigmillar]. The first defender advised the fourth defender's enquiry agents that he has no assets. The fourth defender has instructed further enquiries to be made. The first defender is aged 32. He lives with his parents for four or five days a week at the address in the instance and with his brother for two or three days a week. The first defender is in permanent employment as a scaffolder. He works 39 hours per week. He earns £10.50 per hour, gross. His weekly income after tax is approximately £330. He pays £100 per week to his parents as rent and as a contribution towards bills and expenses. He pays £50 per week to his brother for rent and as a contribution towards bills and expenses. The first defender has a child, who lives with his ex-girlfriend. He pays his ex-girlfriend £90 per week in child support payments. The first defender has approximately £90 per week to pay for food, transport, his mobile phone and other necessities. He has a bank loan in respect of which he is paying instalments of £93 per month, with the sum of approximately £614 outstanding. The first defender does not own a car. With the exception of the subjects, to which he has no valid title in the circumstances condescended upon, the first defender has no heritable property. He has no assets of any substance. The first defender has no savings. The first defender's financial circumstances are such that he is unable to pay off the loan of £79,542.88 (the sum outstanding as at 18 September 2012) in full or to make monthly payments. Instalments for the loan to the fourth defender would be approximately £425.88 per month. In any event, the payments would require to be increased to reflect the accumulated arrears. In all the circumstances, the fourth defender considers that there are no reasonable prospects of recovering any sums due to it by the first defender.

8. In making payment to the fourth defender to recompense for her unjust enrichment, the pursuer will suffer no prejudice. She will be reinstated to the position she was in prior to the disposition of the subjects to [the first defender]. It would be equitable for the pursuer to be required to make payment to the fourth defender... The fourth defender is willing to extend to the pursuer borrowing facilities in respect of the sum second concluded for on equivalent terms to those applicable to the pursuer's loan with GMAC-RFC Limited.

9. As at 29 March 2010 the sum outstanding by the pursuer to GMAC-RFC Limited was £45,411.90. That is the sum sued for..."

[7] The fourth defender's third and fourth pleas-in-law are:

"3. The pursuer having been unjustly enriched as a consequence of a payment made to GMAC-RFC Limited in respect of the outstanding loan due by the pursuer to GMAC-RFC Limited as at 29 March 2010, that payment having been made using funds obtained from the fourth defender, and the fourth defender being entitled to recompense from the pursuer therefor, decree of declarator should be pronounced as concluded for.

4. The sum sued for being the amount due by the pursuer to GMAC-RFC Limited and the extent to which the pursuer has been unjustly enriched, decree should be pronounced as concluded for."

[8] The pursuer's first plea-in-law in the answers to the counterclaim is:

"1. The fourth defender having no interest to sue, the pursuer not having been enriched, the counterclaim should be dismissed".

Her second and third pleas-in-law are pleas to the relevancy of the fourth defender's averments.

The parties' submissions

[9] Mr Gibson's motion was for his first three pleas-in-law to be sustained and for the counterclaim to be dismissed. Miss Ross' motion was for a proof before answer with all pleas standing.

[10] It was common ground that the following passage in Gloag and Henderson, The Law of Scotland (13^th ed.) was an accurate statement of the law in relation to recompense:

"24.01 ....[I]n Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd [1998 S.C. (HL) 90 at 98H-L] Lord Hope observed:

'that the pursuers must show that the defenders have been enriched at their expense, that there is no legal justification for the enrichment and that it would be equitable to compel the defenders to redress the enrichment.'

This authoritative formulation identifies three elements in the cause of action in unjustified enrichment, namely: (1) the enrichment of the defender; (2) at the pursuer's expense; and (3) no legal justification for the enrichment. (4) The fourth matter mentioned (the equity of the court compelling redress) is not an element in the cause of action (that is a requirement that has to be proved affirmatively by the pursuer); rather demonstration of inequity is a defence [Compagnie CommercialeAndre SA v Artibell Shipping Co Ltd (No.2) 2001 S.C. 653 at 668I - 669A citing Morgan Guaranty Trust of New York 1995 S.C. 151]."

[11] Mr Gibson's first and second submissions overlapped. First, he submitted that the fourth defender had not made relevant averments of loss on its part. Reference was made to Exchange Telegraph Co. Limited v Giulianotti 1959 S.C. 19, at p.26. While the fourth defender had averred that (of the sum of £80,200 which it had advanced to the first defender) the sum of £45,411.90 had been used to discharge a liability of the pursuer to GMAC-RFC Limited, it had a contractual right to seek redress from the first defender. Standing the fourth defender's averments anent the first defender's circumstances it could not be said that that right was worthless. Accordingly, the first defender had suffered no loss and it had no interest to sue. Second, Mr Gibson submitted that the fourth defender had not made relevant averments that the pursuer had been enriched. Looking at the matter in the round the correct analysis was that she had suffered a loss. Although the fraudulent disposition and the standard security in favour of the fourth defender had now been reduced, her title to the subjects would not be restored unless and until the Keeper complied with the interlocutor ordaining him to rectify the title sheet. Until that occurred the correct view was that she continued to suffer loss. The counterclaim was accordingly premature and the fourth defender's averments that the pursuer had been enriched were irrelevant.

[12] Mr Gibson's third submission was that if there was enrichment of the pursuer at the fourth defender's expense it had been indirect. The general rule was against recovery in cases of indirect enrichment: Evans-Jones, Unjustified Enrichment, vol. 1, paras 8.01, 8.02, 8.06. The circumstances averred did not provide a relevant basis for departing from the general rule here. The fourth defender did not aver that there had been fraud on the part of the first defender. M&I Instruments Ltd v Varsada 1991 SLT 106 was distinguishable because there the third party benefiting from the fraud had cohabited with the fraudster.

[13] Mr Gibson's fourth submission was that here the fourth defender had a contractual remedy against the first defender. In the circumstances the remedy of recompense was not available. It was a subsidiary remedy. Special and strong circumstances were required if the remedy was to be available where there had been an alternative remedy. The fourth defender's averments failed to meet that test. They were accordingly irrelevant. Reference was made to Varney (Scotland) Ltd v Lanark Town Council 1974 S.C. 245 per Lord Justice Clerk Wheatley at pp. 252-3; GW Tait & Sons v Taylor 2002 SLT 1285 at p.1289; Transco plc v Glasgow City Council 2005 SLT 958 at p.962J-K. It mattered not that the remedy which the fourth defender had was not a remedy against the pursuer.

[14] Miss Ross submitted that the fourth defender had averred enough to entitle it to a proof before answer. It could not be said that even if all the fourth defender's averments were proved the counterclaim must necessarily fail (Jamieson v Jamieson 1952 S.C. (HL) 44, per Lord Normand at p. 50; Mitchell v Glasgow City Council 2009 S.C. (HL) 21, per Lord Hope at para. 10). In relation to each of the points made by Mr Gibson the fourth defender had averments which were sufficient for the matter to proceed to inquiry.

[15] The fourth defender had made relevant averments of loss on its part, viz of those funds which had been advanced by it to the first defender and which had been used to repay the pursuer's loan.

[16] The pursuer had been enriched by the discharge of her loan. The fourth defender had relevant averments to that effect. The enrichment had occurred at the time the loan had been repaid and it had been at the fourth defender's expense.

[17] While the general rule was that indirect enrichment was not recoverable, there was no absolute bar in cases of indirect enrichment: Gloag and Henderson, supra, para. 18.02. In the circumstances averred the relationship between the fourth defender and the pursuer was sufficiently close to make the remedy of recompense available. The funds were directly traceable. Further, there were well recognised exceptions to the general rule. One such exception was where money or property had been obtained by fraud or breach of trust and had been used to discharge the obligations of another: M&I Instruments Ltd v Varsada 1991 SLT 106; Clydesdale Bank v Paul (1877) 4 R. 626. The fourth defender averred that the money had been obtained from the fourth defender and that it had been an integral part of a fraudulent scheme. The pursuer had derived an indirect but obvious benefit for which she had given no consideration.

[18] The existence of an alternative remedy was a factor which fell to be considered in determining whether it was equitable to allow recompense. It was not an absolute bar to recovery in every case. Besides, here the fourth defender averred that the obtaining of the loan had been part and parcel of the fraudulent scheme. The first defender had no assets, and there were no reasonable prospects of recovering funds from him. Strong and sufficient circumstances had been set out for permitting recompense by the fourth defender from the pursuer. Reference was made to Varney (Scotland) Ltd v Lanark Town Council, supra per Lord Fraser at pp. 258 - 260; Lawrence Building Co. Ltd v Lanark County Council 1978 S.C. 30, per Lord President Emslie at p. 41; Bennet v Carse 1990 SLT 454 at 455L - 456B; Transco plc v Glasgow City Council, supra paras 16 -19; Whitty, "Transco plc v Glasgow City Council: Developing Enrichment Law after Shilliday" Edin LR Vol 10, pp 112 -132.

Decision

[19] In my opinion the fourth defender's averments entitle it to inquiry by way of a proof before answer. In truth, I was surprised when Mr Gibson continued to resist Miss Ross' motion following amendment of the counterclaim.

[20] I agree with Miss Ross that, at this stage, it simply cannot be said that if the fourth defender succeeds in proving all its averments the counterclaim must still fail: Jamieson v Jamieson, supra, per Lord Normand at p. 63; Mitchell v Glasgow City Council, supra, per Lord Hope at para. 10. In relation to each of the matters raised by Mr Gibson I accept Miss Ross' submissions that the fourth defender's averments are sufficient to entitle it to inquiry. In view of that I do not consider it necessary or desirable to offer any further observations on the matters debated before me (interesting though they were) in advance of the facts being established.

Disposal

[21] I shall allow parties a proof before answer on the counterclaim and the answers thereto. I shall reserve all questions of expenses meantime.