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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Cheltenham & Gloucester Plc v Royal & Sun Alliance Insurance Co Plc [2000] ScotCS 254 (5 October 2000) URL: http://www.bailii.org/scot/cases/ScotCS/2000/254.html Cite as: [2000] ScotCS 254

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(1) The Pleadings
[1] The pursuers in this action seek payment of two sums viz.: (one) £131,696.14 with interest at a certain rate; and (two) £1,389.24 again with interest. These sums are the same as those obtained by the pursuers from the Sheriff at Hamilton on 27th June 1995 in an action by them against a solicitor called William Graeme St. Clair ("the insured"). The terms of an extract of the decree (No. 6/1 of process) were incorporated into the pursuers' pleadings brevitatis causa. The pursuers averred that they had instructed the insured to act in relation to a loan being granted by them to a Mr. and Mrs. Gallacher in 1990. According to the pursuers, the insured breached his contract with the pursuers and they had raised an action against him. Although perhaps not stated specifically, the decree related to that action. The pursuers referred to the Closed Record in that action (No. 6/2), which bore the same process number as the extract, and incorporated its terms into the present pleadings brevitatis causa.
[2] The Closed Record in the Sheriff Court action contained a crave seeking exactly the same sums as were granted in the eventual decree. Looking at the averments and answers on that Record, the pursuers maintained that they had instructed the insured to obtain a "First Charge" (a standard security with a preferred ranking) in respect of the Gallachers' house. He had failed to do this. Rather, an earlier security held by the Bank of Scotland prevailed when it was called up in January 1994. The debts due to the Bank exceeded the price eventually realised for the house. The Gallachers had no other assets. The pursuers' therefore obtained nothing despite obtaining a decree against the Gallachers for £132,527.88. At the time of raising the Sheriff Court action, the outstanding amount of the loan due by the Gallachers was £131,696.14 and there were also certain fees and outlays of £1,389.24, which the pursuers said they were owed. These were the amounts sued for in the action which, in terms of the pleas-in-law, was one for damages against the insured in his capacity as a solicitor. The defence, in short, seemed to be that the insured had not been asked to obtain a "First Charge" but only to obtain a security, perhaps replacing a postponed one held in respect of a loan from the Clydesdale Bank.
[3] The defenders, as insurers, had originally instructed the defence to the Sheriff Court action but withdrew cover from the insured in about April 1995, some two months before decree passed against him. The reason for doing so formed the basis of the substantive defence to this action. The insured was sequestrated in the Autumn of 1997. The present action was therefore raised, it was averred, against his insurers under and in terms of the Third Parties (Rights Against Insurers) Act 1930 which provides :

[4] The pursuers averred that the defenders were bound to indemnify the insured against his liability incurred to them in terms of the Master Policy Scheme for the Law Society of Scotland. The terms of that policy were also incorporated into the pleadings. Although not specifically averred, as no doubt it should technically have been, it was not disputed that the relevant clause of the policy was under the heading "Insurance" and stated :

It was the good faith element of the clause that was founded on by the defenders to repudiate liability. They maintained that the insured had not acted in good faith in that he knew of the prior security held by the Bank of Scotland and had acted deliberately in not obtaining its discharge before advising the pursuers about the purported satisfactory completion of the security arrangements. Curiously, the pursuers have not responded to these averments either by denying them or at least stating expressly that they are not admitted. In other circumstances, that may have posed a problem for them. It may yet do so. However, no technical point was taken on the matter at this stage.

(2) Submissions
(a) Defenders
[5] The case came before me on the Procedure Roll for debate on the defenders' first plea-in-law. This was the standard one seeking dismissal of the cause on the grounds of irrelevancy. In support of the plea, counsel for the defenders submitted that the pursuers required to aver two elements in a case of this type. First, they needed to specify the liability incurred by the insured to the pursuers. Secondly, they had to specify that such a liability was one covered by the insurance policy which the insured had with the defenders. The first element required to be established initially in an action against the insured (and not his insurers) (MacGillivray on Insurance Law (9^th ed.) para. 28-12; Post Office v Norwich Union Fire Insurance Society Ltd. [1967] 2 QB 363, Lord Denning MR at 374 B-C, approved in Bradley v Eagle Star Insurance Co. Ltd. [1989] AC 957, Lord Brandon at 966 A-C]. The second required action against the defenders as insurers. In the second action, the defenders could avail themselves of any defences which could have been open to them in an action against them by the insured. Put another way, the pursuers took the insured's title tantum et tale (Greenlees v Port of Manchester Insurance Co. 1933 SC 383, LJ-C (Alness) at 400).

[6] The question which counsel posed rhetorically under reference to Lord Brandon's dicta was : what did it mean by saying that "the insured person cannot sue for an indemnity from the insurers unless and until the existence and amount of his liability to the third party has been established (my emphasis) by action"? All that existed in the present case was a decree in favour of the pursuers but there had been no findings in fact in the Sheriff Court action which the Court could look at to establish that the sums awarded in the decree related to matters covered by the insured's policy. Counsel maintained there had to be findings in fact which the Court could examine before it could deal with the second element (see Professor E.R.Hardy Ivamy et al. in Halsbury's Laws of England (4^th ed. Reissue) Vol 25 sub nom. "Insurance" para. 693). The problem which arose here was that no findings in fact had been made (cf. The "Vainqueur José" [1979] 1 LlLR 557, Mocatta J. at 561-2; M/S Aswan Engineering Establishment Co. Ltd. v Iron Trades Mutual Insurance Co. Ltd. [1989] 1 LlLR 289, Hobhouse J. at 291-2). The pursuers had failed to aver a connection between the decree which they had obtained and the terms of the policy under which the defenders were liable. The action accordingly had to be dismissed.

(b) Pursuers

[7] The solicitor for the pursuers submitted that the pleadings were adequate and the authorities quoted took the defenders little distance on their point of relevancy. None of the authorities referred to hinted at any need for formal findings in fact. Indeed, such a point had not been foreshadowed in any of the cases in which the prospect of introducing an insurer had been canvassed or realised (Saunders v Royal Insurance plc 1999 SLT 358; Horne v The Prudential Assurance Co. Ltd. 1997 SLT (Sh Ct) 75). The pursuers might conceivably have convened the defenders in the original action by means of some form of declaratory conclusion (Landcatch Ltd. v Gilbert Gilkes 1990 SLT 698, Lord Morton at 693; McDyer v The Celtic Football and Athletic Co. Ltd. 1999 SLT 2, Lord MacFadyen at 10L-11B) but they did not have to do so.

[8] If a pursuer requires to recover from an insurer under section 1 of the 1930 Act then he does require to overcome two hurdles. The first is to establish the liability of the insured to him. This requires to be done in an action by the pursuer against the insured (Post Office (supra); Bradley (supra)). At that stage, the pursuer may or may not know whether he will require to invoke the provisions of the 1930 Act. If he does anticipate that necessity, for example where the insured is already bankrupt, then it may be possible for him to convene the insurer by introducing some form of declaratory conclusion (Landcatch (supra) McDyer (supra). He does not, however, have to adopt that inclusive course. If he raises an action against the insured and the action proceeds to decree in the pursuer's favour then that decree will normally be determinative of the liability of the insured to the pursuer.

[9] The insurer will, again in the normal case, almost always have the right under the insurance policy to instruct the defence to the action. If the insurer adopts that course then he will become the dominus litus and thus be liable at least for the expenses of the action in the event of the failure of the defence. In certain circumstances, he may no doubt also hold himself out as liable for any principal sum eventually awarded, in the sense of making himself personally barred from resisting that liability. That poses little difficulty where there is no problem with the insurers' liability under the policy in a particular case. Where the insurer, on the other hand, forms the view that he is not liable to indemnify his insured, then he still has at least two options. The first is to refuse or withdraw cover in respect of any defence to the pursuer's action. In that event, if the pursuer proceeds with his action and secures decree against the person thought to be insured, the amount of the decree will be determinative of the liability of the insured to the pursuer unless and until that decree is reduced on the grounds of, for example, fraud or collusion. The insurer cannot normally re-open the question of the amount of the liability in circumstances where he has declined to enter the process and fund the defence to the action or has withdrawn his instructions and funding in the course of the action. The question of liability between the pursuer and the insured has to be litigated in an action between those two parties and a decree in that action has to be seen as a final determination of that liability so long as the decree stands unreduced.

[10] The second option is for the insurer to offer to instruct the defence to the action but make it clear ab ante, or at least as soon as possible, both to the pursuer and the insured, that his position is to remain that he is not liable under the policy. If that is his position, problems might arise if the defender does not wish the insurer to instruct his defence. A defender may be reluctant to allow participation of an insurer without at least a mutual pact on any eventual settlement or tactic. However, there is no suggestion of that in this case.

[11] In a case which has proceeded to judgment after evidence has been heard, there may be little difficulty in relation to the second element of required proof, that is to say whether the liability determined in the action falls under the terms of the insurance policy. There will usually be a judgment setting out what has been decided and why. That judgment will be res judicata between the pursuer and the insured and, if the relative decree stands, will effectively bind the insurers on that matter also, albeit that the insurer may still escape liability under and in terms of a clause in the policy. The specific issue which has arisen in this case is whether the decree is still determinative in a case where there has been no opinion or note explaining the basis of a decree, such as, for example, where the decree has been pronounced because the insured has decided not to insist in his defences and has for reason of impecuniosity or otherwise allowed decree to pass. I answer that question, in the circumstances of this case, in the affirmative.

[12] I am unable to perceive any problem in determining what the Sheriff Court decree in this case related to. That is done, simply and accurately, by looking at the decree and upon the pleadings upon which the action was based. That is an advantage of the current Scottish system of pleading in ordinary actions. The sums decerned for were those craved in an action predicated upon the averments upon record and appended pleas-in-law. These averments and pleas make it clear that the facts (which is, in practice, what they become when as here a decree in foro is pronounced) upon which the decree for payment of the specific sums passed were that the insured had breached his contract with the pursuers in failing to secure a "first charge". The defence made in answer to that averred breach has to be taken as failed. It is not necessary to search for specific findings in fact made by the Court in a case where, ultimately, decree is not resisted. Indeed, it would introduce an additional and unnecessary burden upon the system of civil practice in Scotland were the Court required to make specific findings in fact in cases where the defences are withdrawn.

[13] In this case, therefore, where the defenders as insurers specifically withdrew from funding the defence to the Sheriff Court action, the liability of the insured to the pursuers was and is determined by the subsisting Sheriff Court decree. Again that decree, which was one in foro, is res judicata between the pursuers and the insured and, so long as it stands unreduced, fixes the insured's liability to the pursuers. That decree is referable, by a glance at the pleadings upon which it proceeded, to a breach by the insured to carry out his instructions to secure a "First Charge". That breach is, at least prima facie, an act neglect or omission on the part of the insured. The pursuers aver in that context that the breach falls within the policy. It must be inferred from that that the pursuers are contending that it was something done in good faith. The pursuers pleadings are accordingly relevant.

[14] No other issues of relevancy were raised by the defenders. In these circumstances, I will repel the defenders' first plea-in-law and allow a proof of the parties' averments. That proof will be concerned primarily, in terms of the pleadings, with whether the actings of the insured were in good faith or not.