Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2010] CSOH 90
	OPINION OF LORD WOOLMAN in the cause TODS MURRAY W.S. Pursuers; against ARAKIN LIMITED Defenders: ­­­­­­­­­­­­­­­­­________________

Pursuer: Ferguson Q.C., Duncan; Simpson & Marwick W.S.

Defender: Mr Andrew McNamara, party, as assignee of Arakin Limited

9 July 2010

Introduction

[1] The pursuers are a firm of solicitors. In this action, they seek to recover the sum of £87,831.11, being the balance of their professional fees and outlays in respect of work they undertook on behalf of Arakin Limited ("Arakin"). Most of the work was done in the period from 1986 until 1994.

[2] The work in question related to three matters. First, an arbitration between Arakin and the City of Glasgow District Council ("GDC"). Secondly, a litigation in Glasgow Sheriff Court between Arakin and its former accountants, Maclachlan & Brown. Thirdly, a dispute between Arakin and Harvie Construction Limited.

[3] The defenders dispute the pursuers' entitlement to the sum claimed. Mr McNamara has taken an assignation of the defenders' interest and he appeared on their behalf as a party litigant. At the debate he was assisted by Mr Pentland Clark, who sat behind him in court and provided advice and support, but did not make any oral submissions. Mr McNamara invited me to dismiss the principal action and to allow a proof before answer on the counterclaim.

[4] Although Mr McNamara developed a number of arguments, three submissions were central to the defenders' position. First it was maintained that rather than any sums being due to the pursuers, on a proper calculation the defenders have overpaid the pursuers. Secondly, it was contended that as the pursuers had not issued any VAT invoices for the sums claimed, there was no debt. The third submission was that if any sums were owed to the pursuers, the defenders were entitled to retain and set off such sums against any amounts found due in respect of the counterclaim.

[5] The counterclaim alleges that the professional service provided to Arakin by the pursuers in relation to the GDC arbitration and the MacLachlan & Brown litigation was deficient in a number of respects. However, the allegations contained in the counterclaim are of a much more serious and damaging nature than would normally be found in a claim for professional negligence. The sum sought by way of damages by the defenders totals over £62 million.

[6] The pursuers submitted that the counterclaim should be dismissed on the ground that it was an abuse of process. They also argued that it was fundamentally irrelevant and lacking in specification. Counsel for the pursuers accepted that there was a factual issue about the exact sums paid by the defenders in respect of the taxed accounts. I was invited to remit the case to a proof before answer on that point alone.

Background

[7] The pursuers' claim is essentially a simple one. They sue for payment of a debt. By contrast, the defenders' position is a great deal more complicated. Despite their lengthy written pleadings, I have found it very difficult to determine the precise factual background upon which they rely. However, in order to provide context to the legal arguments, it is necessary to attempt to set it out. What follows is my understanding of matters, drawn from the pleadings, the written materials placed before me, and the oral submissions in court.

[8] Mr McNamara founded a business called JACL Electrics in 1967 with a £200 loan from his grandfather. In 1973, JACL became an approved electrical contractor with GDC. Subsequently, the business was incorporated under the name of Arakin Limited. In 1983 Arakin itself was placed on GDC's list of approved contractors.

[9] By the middle of the 1980s, Arakin had expanded its operations into construction and property development. Together with its subsidiary companies, it had a total of about 100 employees. Mr McNamara's family was closely involved in the business. He and his wife Jeanette were the controlling directors. The flow of work from GDC was a crucial part of the business.

City of Glasgow District Council

[10] In 1986, GDC sent a warning letter to Arakin about one of its contracts. It notified Arakin that it had failed to proceed regularly and diligently with the works to refurbish several council houses in Castlemilk. Subsequently, by letter dated 6 October 1986, GDC terminated the contract. At the same time, it removed Arakin from its list of approved contractors. Those decisions had a significant and adverse effect on Arakin's business. As well as the loss of the GDC business, Arakin found it very difficult to be placed on other local authority lists.

[11] Mr Michael Simpson, one of the pursuers' partners, was instructed on Arakin's behalf in late October 1986. The importance of Arakin being reinstated to the GDC list was explained to him. Mr Simpson took the view that the determination of the contract by GDC had been competent. He advised Arakin to serve a Notice of Arbitration, which was done on 10 February 1987. The aim was to achieve a resolution that would include the restoration of Arakin to the approved list of GDC contractors. Throughout 1987 discussions and communications took place between the parties to see if an agreement could be reached, but without success.

[12] Mr Simpson retained counsel to act on Arakin's behalf. On counsel's advice (he having take a different view on matters from Mr Simpson), an action was raised in the Court of Session in 1988 to seek a declarator that GDC's determination of the contract was incompetent, together with damages for loss of profits. It was recognised that under the contract, the parties had to arbitrate their disputes and that the court action might be sisted, pending the outcome of the arbitration.

[13] In Autumn 1988, there was a further series of meetings between Arakin and GDC to resolve matters. Again parties were unable to reach agreement and in 1989 it was decided that the arbitration proceedings should proceed to a hearing. Arakin instructed a valuation report to establish the sum owed by GDC to Arakin. The report, which brought out a figure of £284,000, was prepared by Rand and Associates. It was the predecessor of Rand Associates Consultancy Services Limited ("Rand"). Rand features in the discussion later in this opinion.

[14] The Arbitration was split into two parts. In the Spring of 1991, the Arbiter pronounced an interim Decree Arbitral in respect of Part 1. He awarded a sum of about £274,000 to Arakin. The hearing of Part Two of the arbitration began in March 1991 but after various adjournments was not completed until 25 June 1992. In total, the hearing on Part 2 occupied forty seven days. The Part 2 award granted Arakin an extension of the contract period of the Castlemilk contract to 6 October 1986. In consequence, Arakin did not require to pay liquidate damages of £10,500 to GDC for that period.

[15] It therefore appears that Arakin achieved a measure of success in the arbitration. It did not, however, attain its primary goal of restoration to the GDC approved list.

[16] Mr McNamara lodged two letters of complaint with the Law Society of Scotland arising out of the arbitration. In February 1993, he made allegations against Mr Simpson that are similar to the ones in the current pleadings. In November 1993, Mr McNamara made allegations against Mr Drummond, the Depute Town Clerk of GDC who had acted on its behalf in the arbitration.

MacLachlan & Brown

[17] MacLachlan & Brown acted as accountants on behalf of JACM from 1966 onwards. They continued to act when JACM became Arakin. In 1988, Arakin came to the view that it had received defective accounting advice from MacLachlan & Brown in the years 1983 to 1987. It therefore decided to withhold payment of professional fees.

[18] MacLachlan & Brown raised an action in Glasgow Sheriff Court to recover their fees. Arakin denied that the fees were due and counter-claimed for professional negligence on the basis that it had suffered significant loss as a result of the erroneous tax advice it had received. The litigation was conducted on behalf of MacLachlan & Brown by the firm's professional indemnity insurers.

[19] The pursuers' partner who acted in this matter on behalf of Arakin was Mr Robert Dobie. He was first instructed in about August 1988. Subsequently he retained senior and junior counsel to act on Arakin's behalf. The first diet of proof took place in February 1994 and lasted for four weeks. Arakin was ordained to lead at the proof and led all its witnesses at the first diet. A continued diet of proof was fixed to take place in March 1995. Only two witnesses remained to be led by McLachlan & Brown at the continued diet.

[20] Between the two diets, the pursuers withdrew from acting on behalf of Arakin. The letter intimating that decision was dated 22 December 1994 and was signed by the firm's Chairman, Mr Abram. Prior to the withdrawal, Arakin had lodged a letter of complaint dated 5 February 1993 against Mr Dobie with the Law Society of Scotland.

[21] Accordingly, when the continued diet of proof took place in March 1995, a different firm of solicitors acted for Arakin. The sheriff who heard the proof issued a judgment very largely in Arakin's favour. She held that MacLachlan & Brown were not entitled to payment of their fees. She also held that Arakin had suffered loss by reason of professional negligence on the part of the accountants. She made awards under a number of headings. The Sheriff made an interim award of £1,040,000, but in addition Arakin was to receive a sum in respect of tax (Closed Record 93A-B).

[22] An appeal was marked against that judgment. Before it was heard, an extra-judicial settlement was agreed with the insurers acting on behalf of MacLachlan & Brown. I was informed by Mr McNamara that the settlement figure was very close to the figure awarded by the Sheriff. Because they were no longer instructed in the matter, the pursuers were not involved in the settlement.

[23] It therefore appears that Arakin achieved a measure of success in this litigation.

Harvie Construction

[24] The third matter in respect of which the pursuers seek their fees is a dispute between Arakin and Harvie Construction Limited. The taxed accounts bring out a total of some £7,000. This dispute only figured in the debate as a stand alone matter in relation to the question of prescription.

Chronology of the Present Action

[25] The present action has had a lengthy procedural history. When it was raised in 1996, the pursuers sought payment only in respect of their fees and outlays in the McLachlan & Brown action. The figure was then amended twice. On 4 September 1996, it was increased to include the Harvie Construction Limited accounts. On 19 December 1996 it was amended again to add the GDC Arbitration account. At that stage the figures sought were different from those in the conclusions, because there were no taxed accounts.

[26] Defences were lodged on 7 February 1997. On the motion of the defenders, the Court ordered the pursuers to prepare and submit detailed time and line accounts to the Auditor. The relevant interlocutors are dated 8 October 1996, 7 February 1997, 18 December 1998 and 4 March 1999 respectively. The taxations then took place. The Auditor held that the amount due to the pursuers by the defenders was £409,597.50. That was the total of the following taxed accounts: numbers 6 (which included an uplift), 12, 13, 14 and 36. The pursuers' position is that the defenders have made payments amounting to £321,766.39 to date. Accordingly, the pursuers now sue for the balance of £87,831.11.

[27] Arakin lodged its counterclaim on 30 January 1998. At that stage, Arakin had legal representation in the action and the sum sought was £1 million. There was, however, no specification of the loss. All that was stated in Statement 5 was: "The sum concluded for in this counterclaim is a reasonable estimate of the defenders' said loss and damage." Subsequently, a number of firms of solicitors acted on behalf of Arakin, but each withdrew from acting. On 29 May 2001 Mr McNamara and another individual, Mr Martin Frost, were sisted as parties in place of Arakin. That was subject to the condition, subsequently satisfied, that they consign the sum of £100,000.

[28] Both parties lodged Notes of Objections to the taxed accounts. They were subsequently revised and incorporated into composite Notes of Objections. The Auditor produced various reports to deal with the matters raised.

[29] Mr McNamara and Mr Martin Frost made allegations to the effect that the pursuers and their solicitors, Simpson & Marwick, had deliberately tampered with the court process in order to deceive the court and defraud Arakin. A proof took place before Lady Smith to determine the validity of these allegations. She held that none of them had been established (Opinion 31 October 2003).

[30] By interlocutor dated 22 January 2004, Lady Smith ordered the defenders liable for the expenses relating to the unfounded allegations. She stipulated that payment of those expenses "shall be a condition precedent to further procedure in respect of the counterclaim in the action". Between 2004 and 2009, the expenses remained unpaid. Accordingly, the matter proceeded on the basis that the only issues to try were contained in the principal action.

[31] A hearing on the composite Notes of Objections took place before Lord Mackay of Drumadoon and he issued an opinion on 28 April 2006: [2006] CSOH 64. In large measure, he repelled each party's respective objections to the Auditor's decision: see the summary at paragraph 222 of his opinion.

[32] Lord Mackay, however, did indicate that a proof might be allowed in respect of several points at issue between the parties. The first of these related to whether there had been an infringement of the defenders' human rights if they had not received all the necessary papers for the taxation: paragraphs 35 and 36.

[33] The second issue related to the accounting. Lord Mackay stated:

"[42] Before this action can be concluded, it will be necessary for the court to carry out a detailed accounting, which takes into account, amongst other matters, (i) the fees and outlays, which the pursuers were entitled to be paid by Arakin, (ii) the VAT properly chargeable by the pursuers on VAT invoices submitted to Arakin in respect of those fees and included within those outlays, (iii) the payments to account, whether of fees, outlays or VAT, made by Arakin to the pursuers following upon their receipt of those invoices, (iv) any payments by Arakin to parties other than the pursuers in settlement of outlays, including VAT on such outlays, which had been referred to in VAT Invoices submitted by the pursuers to Arakin, (v) the VAT which can be charged by the pursuers and recovered by Arakin in respect of fees incurred by Arakin, which remain due by them and which have not yet been the subject of a VAT Invoice submitted by the pursuers, (vi) the VAT included within any outlays incurred by the pursuers on behalf of Arakin, which remain due by Arakin and which have not yet been the subject of a VAT Invoice, (vii) the interest (if any) which the pursuers are entitled to claim from the defenders, in respect of any sums due by the defenders, and (viii) the interest (if any) which the defenders are entitled to set-off against any sums due to the pursuers, in respect of payments made by Arakin to the pursuers. The exercise will involve questions of fact and questions of law, including construction of the relevant VAT legislation, the defenders' plea of prescription and the application of the doctrine of settled accounts to the agreed and established facts of the case. Before this exercise could be completed, the pursuers will require to lodge, amongst other documents, the invoices received by them in respect of those outlays they incurred which included an element for VAT. It is probable that many of the vouchers are already in process and are to be found within the multitude of productions that have already been lodged. However, before the exercise could be completed, the vouchers will require to be inventoried and, preferably, copied and collected together in files which could be read in conjunction with the Accounts of Expenses to which the outlays relate."

[34] Thirdly, in respect of the taxation of the pursuers' time and line account of the professional services they carried out in connection with the GDC arbitration (Account No. 6 of Process), Lord Mackay allowed a hearing on evidence in respect of objection 2, which concerned allegations of false telephone calls.

"[58] Notwithstanding the guidance in the authorities to which I have previously referred, I have reached the view that I should allow a hearing of evidence in relation to the factual issues that are raised by this objection. Whilst that is an unusual course of action to follow, I am prepared to adopt it because it is one which all parties seek. A hearing on the factual issues relating to the telephone calls between the pursuers and Mr. McNamara is a hearing the parties could bring about at some future stage in the action. It seems sensible to allow it to take place now, for the reason it should place the court in the position of being able to make findings in fact that may assist the parties to reach agreement on the items of work covered by this objection, failing which the court will require to determine the objection. Such a determination might result in the account being remitted back to the Auditor."

[35] By interlocutor dated 9 May 2007, Lord Mackay ordered parties to lodge their respective proposals for a proof to be heard in respect of paragraph [58] of his opinion.

[36] A reclaiming motion was taken by both parties in respect of the Lord Ordinary's decision relating to the Notes of Objections. The Second Division found in favour of the pursuers on the three points in issue and returned the accounts to the Auditor to proceed as accords: [2007] CSIH 19 per Lord Justice-Clerk Gill at paragraph 61. The reclaiming motion did not seek to review the decision about a hearing on the evidence.

[37] After further procedure, the procedure relating to the Notes of Objections was determined by interlocutor dated 2 October 2008 pronounced by Lord Mackay. He expressly repelled Objection 2 to the Account No. 6 of process and refused to fix a hearing on evidence about (i) the entries relating to telephone calls, or (ii) the defenders being denied access to documents relating to the taxation of the accounts.

[38] On 22 April 2009, a diet of proof before answer was fixed to commence on 10 November 2009. In about early August 2009, matters significantly changed. Mr McNamara paid the expenses together with the interest due in terms of the interlocutor dated 22 January 2004. He contended that the proof before answer should proceed on the date fixed for the debate in relation to both the main action and the counterclaim.

[39] The pursuers were not prepared to proceed on that basis. Senior counsel reminded me that the cause was first appointed to the Procedure Roll on 11 May 1999. The diet fixed for 30 September 1999 was discharged on the defenders' motion, as was the one fixed for 15 December 1999. The pursuers had only departed from their insistence on a debate on the basis that the pleadings relating to the counterclaim were no longer material.

[40] Standing the sea change in the defenders' position, I held that the pursuers were entitled to insist on their preliminary pleas and a hearing was fixed for a discussion on the Procedure Roll. I ordered written notes of argument to be produced by each side. In response to the pursuers' note of argument, the defenders lodged a Minute of Amendment which was allowed to be received on 22 October 2009. It made significant alterations to their pleadings. In particular, it introduced averments of professional misconduct. The record was amended in terms of the Minute and the pursuers' Answers on 24 November 2009.

[41] On 4 June 2009, the Court upheld an application by the Lord Advocate to have Mr McNamara declared a vexatious litigant. It specifically excluded the current proceedings from the ambit of the order pronounced.

The Principal Action
The Pursuers' Position
[42] The pursuers' claim is based upon the taxed accounts. They found on the proposition that "After taxation, the amount of the account so taxed alone forms a charge against the client." (McLaren on Expenses page 515)

[43] Because the defenders challenge the amount of what was paid, the pursuers accept that proof on that question will be required. Counsel indicated that the pursuers would rely on the evidence of their law accountant. He has prepared a three volume document entitled "Reconciliation", which has been lodged in process. It seeks to address the issues identified by Lord Mackay in paragraph 42 of his opinion of 28 April 2006. The first volume aims to explain the arithmetic underlying the sum claimed. The other two volumes contain supporting materials.

Submissions by the Defenders
[44] Mr McNamara submitted that the principal action was irrelevant and should be dismissed. From the defenders' pleadings, their written note of argument and Mr McNamara's oral submissions, it is possible to discern a total of six lines of argument in support of their contention that no sums are due.

(i) Fees Paid in Full

[45] It was contended that all of the fees have been paid in full. Mr McNamara referred to two affidavits which indicated that the defenders had overpaid any sums due to the pursuers. In my view this is properly the subject of evidence and should be remitted to a proof before answer as suggested by Lord Mackay and accepted by the pursuers. This would include the question of settled accounts.

(ii) Taxed Accounts do not Supersede Individual Fee Notes
[46] It was stated that the taxed accounts do not supersede the individual fee notes. No authority was cited in support of this proposition and in my view it is wrong, standing the quotation from McLaren cited above. As senior counsel for the pursuers pointed out, the logic of the defenders' argument would have an absurd result. It would mean that a solicitor whose account was reduced at taxation could ignore the sum assessed by the Auditor and sue on the basis of the original accounts.

[47] Linked to this argument was the suggestion that the pursuers could not sue in the absence of a fee charging agreement. In my view it was for the Auditor to assess the reasonableness of the fees charged and the matter has been conclusively determined by the taxation process.

[48] I therefore reject the defenders' submissions on this point.

(iii) Re-Opening the Taxation
[49] The defenders make a number of serious allegations regarding the taxation. They continue to insist (a) that the pursuers inserted "false entries in respect of telephone calls" in their accounts (Closed record 143F); (b) that the Auditor's "conduct of the final period which was invoiced was inept" (32B-C); and (c) that he acted in breach of the European Convention on Human Rights (33C-34B, see also 141G-142G).

[50] On the basis of these averments, the defenders state that "a proof should be ordained to ascertain the veracity and/or extent of the false entries" (143F-G). They also reserve the right "to have the taxation declared null and void and to seek a re-taxation to be ordered in the event of the pursuers failing to provide a proper reconciliation" (142F-G). The defenders' seventh plea-in-law is to similar effect.

[51] At debate, I found Mr McNamara's position on this point confusing and difficult to follow. He stated at some points that he did accept the figures in the Auditor's reports. However, he stated at one point that he did not accept the taxations as being full taxations, although it was not clear what that meant.

[52] Having regard to Lord Mackay's interlocutor of 2 October 2008, in my view it is no longer open to the defenders to seek a hearing in relation to the telephone calls. In my view, it would not in any event be competent for the defenders to seek to re-open the taxation in this action. The court could not sustain the pleas-in-law founded on by the defenders in this connection.

[53] Any challenge regarding the conduct of the taxation would in my view have to be by way of judicial review. Given the dates upon which the respective taxations took place, it is likely that if such a challenge was made now, it would be argued that it came too late. The taxations took place a considerable time ago and both the Auditors who conducted the respective taxations have since retired.

[54] In my view, no challenge based on any alleged infringement of the defenders' human rights arises. The taxations took place prior to the commencement of the Human Rights Act 1998 on 2nd October 2000. The Act is in general not retrospective: R. v Lambert [2002] 2AC 545. The exception which extends the backward reach of the Act does not apply, because the taxations were not "proceedings brought by or at the instigation of a public authority": section 22 (4).

[55] I also observe at this point that the allegations made against the pursuers and the Auditor did not appear to be supported by anything other than Mr McNamara's bald assertion. This matter is an important one. I shall return to it in more detail when discussing the counterclaim.

(iv) The Absence of VAT Invoices
[56] This was the principal argument relied upon by the defenders. Mr McNamara submitted that there is no debt and therefore no claim, because the pursuers did not send valid VAT invoices to the defenders. He said that Arakin had been inspected by HM Customs and Excise a number of times over two decades. He was therefore well aware of the importance of adhering to the VAT rules. Prior to the summons being raised, he referred to "kicking up blazes" with the pursuers asking them for VAT invoices.

[57] Mr McNamara founded his submission on the provisions of the Value Added Tax Act 1994 and the VAT Regulations 1995. Specifically, he relied on Regulations 13 and 14, which stipulate that a person making a taxable supply must provide a VAT invoice in a prescribed form within 30 days.

[58] The pursuers aver in response that they did write numerous letters to Arakin seeking payment. More importantly, they contended that as payment is now sought on the basis of the taxed accounts, this line of argument is irrelevant.

[59] The pursuers also submitted that the absence of VAT invoices is immaterial. I was referred to Wilson on Debt 2^nd edition at paragraph 11.1, which states:

"Whatever the position may be in England, there is no requirement that a creditor must preface his action by a demand for payment"

That statement is founded on the authority of Lord Justice-Clerk Cooper in McDonald v North of Scotland Bank 1942 SC 369 at page 375. The pursuers submitted that a fee note is merely a demand for payment. It does not constitute the debt. The pursuers' entitlement to payment is not dependent on whether or not fee notes were sent to Arakin, or whether there were other requests for payment.

[60] The defenders' written note of argument states:

"I submit that this source authority contained in 'Wilson on Debt' has no relevancy to the present action or the present circumstances in support of the pursuers' assertion that their entitlement to payment is not dependent on whether there were fee notes sent to Arakin, or whether there were other requests of payment in consideration of the sums held 'on account' in excess of the sum concluded for in the pursuers' summons.

...both the pursuers and the defenders have obligations to HMRC, both being VAT registered companies to keep proper accounts under statutory regulations which, in the circumstances, supersede the authority relied upon in 'Wilson on Debt'."

[61] At the hearing Mr McNamara confirmed his opinion that Professor Wilson had simply got it wrong. I pointed out that the second edition of Wilson on Debt was published nearly twenty years after the introduction of VAT. That did not cause Mr McNamara to alter his position.

[62] In my view the pursuers' argument is correct. The VAT legislation provides a self-contained code between the government and the taxpayer. It lays down the proper procedure for dealing with VAT, including the penalties for non-compliance. Enforcement is a matter for HM Revenue and Customs. However, the legislation does not govern the rights and duties of private individuals between one another. In particular, it does not itself create or extinguish the underlying debt. That is a matter of private law.

[63] It follows that I therefore reject the defenders' argument on this point.

(v) Prescription of the claim regarding Harvie Construction Ltd
[64] The defenders submitted that the claim for professional services provided by the pursuers in respect of the Harvie Construction Limited dispute has prescribed (139C-140F). In my view the argument is misconceived. This account was added by way of Minute of Amendment and Note of Adjustments which was intimated to the defenders' then solicitors on 30 August 1996, well within the prescriptive period.

(vi) The Counterclaim

[65] Finally, the defenders maintained that they are entitled to retain payment of any sum due to the pursuers until the counterclaim is determined. This is a matter to which I shortly turn.

Summary - Principal Action

[66] In my opinion, there is only one issue for determination in respect of the principal action. That is whether or not the accounts have been paid in full. Lord Mackay indicated that the court would require to consider certain matters relating to VAT and prescription (see para 42 of his Opinion and in particular heads (ii), (v) and (vi)). I have had the benefit of hearing detailed argument on these matters and I am satisfied that the pursuers' arguments are to be preferred. Accordingly, the proof before answer will be restricted in the manner I have outlined.

Counterclaim
[67] In the counterclaim, the defenders seek a total sum of £62,519,141. That is split between two conclusions (£48,870,974 and £13,648,167). The sums derive from the Rand reports. I shall begin by discussing three features of the counterclaim that are material to the legal arguments which were presented to me. They are (a) its legal basis; (b) the scope of the inquiry sought by the defenders; and (c) the grave nature of the defenders' allegations.

A. The Basis of the Counterclaim
[68] The counterclaim proceeds on two bases. The first to fourth pleas-in-law are in standard form for a case of professional negligence. They refer to "breach of contract", "negligence" and "fault and negligence" on the part of the pursuers.

[69] However, the defenders also refer to professional misconduct throughout their pleadings. In the counterclaim, the fifth plea-in-law states:

"5. The defenders having suffered loss and damage as a result of the pursuers' fault due to the Pursuers' acts ultra vires, in breach of instructions, and Professional Misconduct, the defender is entitled to reparation therefore as counterclaimed."

[70] In the principal action, the seventh and twelfth pleas are as follows:

"7. The Pursuers Accounts numbers 6, 12 and 36 of process containing false entries in respect of telephone calls, a proof should be ordained to ascertain the veracity of the Pursuers' claims that telephone calls occurred of the specified duration on the dates and at the times specified therein; and esto there are found to be false entries in the account, the action should be dismissed as unfounded in fact and the relevant partner of the Pursuers' firm disciplined for Professional Misconduct."

"12. The Pursuers failing to account properly in accordance with the Value Added Tax statutory regulations and the Solicitors Accounts Rules, despite their client's requests that they do so, and said conduct amounting to Professional Misconduct in terms of section 35 of the Solicitors (Scotland) Act 1980 and the Solicitors Code of Conduct, their fees should be disallowed and the Defender granted assoilzie."

[71] Those pleas are echoed in the defender's averments:

"In the event that it is established that false claims were made in the Pursuers' averments of fact per their Accounts submitted to taxation, the conclusions of the Pursuers' action should be dismissed and the relevant partner of the Pursuers' firm responsible for the false claims disciplined for Professional Misconduct in accordance with the Defender's seventh plea-in-law." [43E-G]

"it is manifest that the Pursuers have known (or ought to have known) that they were at all material times in breach of their duty to account accurately to their client, in breach of their fiduciary duty of care owed to their client to account for client funds in their custodial care, and had accordingly professionally misconducted themselves in breach of the obligations incumbent upon them under the said articles of the Code of Conduct." [45C-E]

"the pursuers should be found guilty of professional misconduct" (45F)

"Mr. Dobie was guilty of professional misconduct by his repeated failure to inform the Pursuers' client, Arakin, of developments which Arakin required to consider or discuss in order to make informed decisions, thus denying Arakin any ability to give proper instructions to the Pursuers' Mr. Dobie. Averred that throughout the Pursuers' instruction by Arakin in respect of Arakin's dispute with M&B, the Pursuers' Mr. Dobie repeatedly acted without any proper authority of his client, and without informing his client of his acts and/or misrepresented the true circumstances to his client, and was according guilty of gross misconduct" [46G-47B]

"Mr. Dobie was guilty of professional misconduct through failing to inform the Defender of developments which they might require to consider or discuss in order to make informed decisions, thereby enabling the Defender to give proper instructions to the Pursuers' Mr. Dobie. Throughout the cause of the Pursuers' instruction by Arakin in respect of the dispute with M&B the Pursuers' Mr. Dobie repeated acted without any proper authority of his client and according was guilty of misconduct." [51F-52B]

"Mr. Dobie's concealment of this positive response to Mr. McNamara's suggestion of a meeting (by Mr. Dobie's repeated failure to advise his client of the multiple requests) amounted to professional misconduct on the part of Mr. Dobie" [56C-D]

"The defender refers the court to the powers conferred on it under section 55 (1)(e) of the Solicitors (Scotland) Act 1980, to find the defender not liable for any expenses incurred in respect of defending/pursuing the actions against McLaren and Brown" (69A-B).

[72] I have rehearsed these passages at length in order to indicate the major role occupied by professional misconduct in the defenders' pleadings. In the course of his oral submissions, Mr McNamara reinforced that approach. He stated that while he founded on all the defenders' pleas, ninety five per cent of laymen would regard the allegations as falling within the category of professional misconduct, not negligence.

[73] The Court does not have jurisdiction to make the proposed findings of professional misconduct sought by the defenders. These are matters for the discipline procedures which regulate the conduct of Scottish solicitors: Solicitors (Scotland) Act 1980. Accordingly, in my view the case so far as based on professional misconduct is misconceived and all references to this matter in the pleadings fall to be deleted.

[74] The defenders' reliance on professional misconduct has a further consequence. Because these allegations infiltrate their whole approach, it becomes difficult to determine which parts of the counterclaim are actually based on professional negligence.

B. The Scope of the Inquiry

[75] As the pleadings currently stand, the defenders seek an inquiry into the following matters. First, they wish the court to consider their averments of professional misconduct as well as professional negligence. As indicated above, they also seek to re-open the Auditor's taxation in respect of a number of matters.

[76] Next, they wish to revisit the decision of Lady Smith: "On the basis of that admission the adjudication of Lady Smith on the doctoring and tampering of process is unsound" (143E). That enquiry is sought, despite the fact that her decision was not reclaimed

[77] The defenders also wish the proof to include the question of whether or not the pursuers were entitled to obtain diligence on the dependence of the action:

"6. The defenders having suffered loss and damage as a result of the Pursuers' unfounded action and the Pursuers' malicious use of unjustifiable diligence against the Defender, the Defender is entitled to reparation therefore as concluded for in the counterclaim."

[78] Finally, the defenders wish at proof to inquire into the pursuers' motion to obtain decree in absence.

[79] If all these matters are to be tested by way of evidence, the proof would be likely to be a very lengthy one.

C. The Nature of the Allegations

[80] The defenders make very grave allegations against the pursuers, their individual partners and other individuals. In order to illustrate their nature and content, I have selected several examples, but they could be multiplied.

[81] Examples of allegations made against the firm include the following:

"The pursuers' averment that £19,189.13 'remains unpaid despite requests' is a false and or reckless averment, utterly unfounded in fact" (33A-B)

"...the Pursuers have made false claims in the accounts submitted to taxation by inserting false entries in respect of telephone calls received from (Mr. A. McNamara of) Arakin. The Defender understands this to have been an attempt to slander his character in order to found an application for the "uplift" with the Auditor on the basis that Mr McNamara of Arakin was a "difficult client" who was always on the phone and never taking advice." (43A-C)

"the raising of the summons was...a malicious and vexatious act by the pursuers" (46D)

"This disgraceful conduct highlights the ongoing deceits being perpetrated by the pursuers and their agents to pervert the course of justice." (146D-E)

[82] The allegations made against Mr Dobie include the following:

During the course of a conversation in 1994, Mr McNamara stated that "...Mr. Dobie "was working a VAT scam" and enriching himself at the expense of Arakin...Mr. Dobie was unjustifiably enriching himself and the pursuers...at the expense of his client Arakin."(39A-E)

"Mr. Dobie acted in breach of his fiduciary duty of care: he appropriated client's funds for his own account; and, made a profit in breach of his duty." (40D-E)

[83] With regard to Mr Simpson, one section of the pleadings is headed: "Dishonesty of Mr. Simpson" (155-156). The allegations against him include the following:

"Mr Simpson misled the Auditor and Arakin's law accountant Mr. Grieve, by stating that Arakin had refused to pay fee notes or invoices, and that therefore he could increase his account. That averment was a falsehood..." (31G to 32B)

[84] Allegations are also made against other persons. I have referred above to the criticisms made of the Auditor. Another person who is the subject of a damaging allegation is the solicitor instructed by the pursuers in relation to the current litigation:

"...the subsequent actions of Mr. Peter Anderson of Simpson Marwick... acting on behalf of Tods Murray in their action against Arakin, particularly in regard to the application for diligence and latterly against the defender by their unfounded continuance of the action, when he knew, or should have known, that the action was without any foundation or basis in fact and when he knew that the action was ultra vires the VAT statutes (reference is hereby made to the letter dated 9th September 1999), amounts to a reckless disregard for a law agent's duties and responsibilities as an officer of the Court, being in breach of the Solicitors' Code of Conduct and the Solicitors (Scotland) Act 1980, and further, amounted to an abuse of process and wilful imposition against the defender." (185B-E)

[85] The defenders also allege that there was "serious misconduct and impropriety on the part of the District Council Officials" (168E-F).

[86] It hardly needs to be said that these allegations are among the most serious that could be made.

Submissions on Abuse of Process

[87] Counsel for the pursuers submitted that the counterclaim should be dismissed as an abuse of process, because there was no responsible basis for the defenders' averments and that it contains collateral averments that have nothing to do with the current proceedings. Mr McNamara contended that there was no abuse of process and that the counterclaim should be remitted to proof.

Abuse of Process - the Principles

[88] A number of recent cases have considered the scope of abuse of process in Scots law: Shetland Sea Farm v Assuranceforeningen Skuld 2004 SLT 30; Clarke v Fennoscandia (No. 3) 2005 SLT 511; McKie v Macrae 2006 SLT 43; Wright v Paton Farrell 2006 SC 404; Tonner v Riach 2008 SC 1; Moore v Scottish Daily Record 2009 SC 179; Clarke v Fennoscandia Ltd 2008 SC (HL) 122; and Lord Advocate v McNamara 2009 SCLR 551.

[89] The relevant principles were clearly set out by Lord Gill in Shetland Sea Farm at paragraphs 143 to 146:

a. the court has an inherent power to dismiss a claim where the party pursuing it has been guilty of an abuse of process.

b. it does so to protect the integrity of its procedures by preventing one party from putting the other at an unfair disadvantage and compromising the just and proper conduct of the proceedings

c. it is a drastic power which should only be exercised sparingly

d. it can occur in many ways

i. by pursuing a claim or presenting a defence in bad faith and with no genuine belief in its merits;

ii. by fraudulent means;

iii. for an improper ulterior motive, such as that of publicly denouncing the other party.

e. In cases where a litigant has been guilty of dishonesty in the prosecution of his case, the court must consider whether the dishonesty has made a fair trial of the issue impossible. If it has, the court has a duty to stop the proceedings in order to protect the innocent party from an injustice. But if the dishonesty is found out and desisted from and if, in consequence, a fair trial of the essential claim remains possible, the court ought not to stop the proceedings. To do so in such circumstances would simply be judicial retaliation for the affront to the court.

The Need for a Skilled Witness
[90] The pursuers emphasised the vital importance of a party being in possession of an appropriate expert before making allegations of professional negligence. They contended that in the absence of such a report, it is an abuse of process to institute and persist in such proceedings.

[91] In response, Mr McNamara argued that in respect of some of the allegations, no expert was required. This was most clearly put in the defenders' Note of Argument, which stated "sometimes matters of misconduct are just so blatant they require no 'expert's' view to demonstrate that this is the case."

[92] I reject that approach. In my view, allegations of professional negligence require to have a proper foundation. Without such underpinning, the court is not in a position to make a finding in favour of the defenders (Walkers Evidence, third edition para. 16.3). As a solicitor must always exercise a measure of judgement in fulfilling his duties, it is not enough to say that he has failed to implement his instructions. The allegation must always be buttressed by a report from an appropriate witness, which states that the course taken was one that no solicitor exercising ordinary skill and care would have taken.

[93] In the absence of such a rule, it would be open to a party to make whatever assertions he or she chose, however spurious or mistaken. In my view, that is just what has happened here. Mr McNamara's conduct of this case can be illustrated by reference to two matters which arose in the course of the debate.

(i) The Pursuers' Motive for Raising the Action

[94] The defenders aver (46D-E) that:

"...given the pursuers' duty of care owed to their client, their manifest breach of VAT statute, VAT Regulations and the Solicitors Accounts Rules, and the resultant impossibility of their having any 'due and exigible' prestable claim in the absence of any actual VAT invoices remaining outstanding (as admitted by Mr. Anderson in his letter dated 9/9/99), the raising of the summons was therefore a malicious and vexatious act by the pursuers, the defender believing and averring that said summons was raised to interrupt The Law Society of Scotland's investigation of Arakin's complaint made against the pursuers for misconduct, false-billing and inadequate professional service (the Law Society being required to cease investigation on grounds of sub judice)."

[95] During the course of the debate, Mr McNamara was asked to provide the basis for this assertion. He responded by stating that it was "the only logical reason we could come up with".

[96] He was then asked how he arrived at that assumption, given that the action was signetted three years after the defenders lodged their letter of complaint against Mr Dobie. Mr McNamara then appeared to switch his position. He stated that the action had been raised after the Law Society of Scotland had asked Mr Dobie to provide a response to the complaint. In this connection, Mr McNamara mentioned a meeting on 5 November 1997 between himself and the Law Society of Scotland. When it was then put to him that the meeting took place over a year after the action was raised, Mr McNamara became disinclined to found on this allegation.

(ii) Book-Keeping
[97] The defenders' written Note of Argument states:

"Mr. Dobie claimed to have paid 'Outlays' of amounting to tens of thousands of pounds. This was false/fraudulent book-keeping by Mr. Dobie. The time and line account does not even attempt to claim that any payments were made to Faculty until October 1994. Accordingly Mr. Dobie deceived his client, and obtained further payments (£67,686.63 in June 1994) on a false pretence that money had been paid out, when in fact the money remained 'on Account' and should have been earning interest in his client's name."

That allegation was founded on a letter written by Mr Dobie dated 19 May 1994. When its terms were examined in court, Mr McNamara accepted that the allegation was wrong. In other words, a very serious accusation had no basis whatsoever.

[98] It appeared to me that these examples demonstrated a cavalier and reckless approach taken by Mr McNamara. In my opinion, it indicated that he wished to use the litigation to ventilate his own unsupported assertions.

Do the Defenders have a Relevant Expert?
[99] During the course of the hearing, I asked Mr McNamara to identify the experts upon whom he proposed to rely. He provided the following names: (i) Mr Miller of Rand; (ii) Mr Iain Gow, solicitor; (iii) Mr Philip Yelland of the Law Society of Scotland; and (iv) various members of the legal profession who had previously acted on behalf of Arakin.

Mr Miller of Rand
[100] It is clear both from the pleadings and from Mr McNamara's submissions that the defenders rely heavily on Rand. They have provided several reports, the most recent being dated June 2009 and September 2009. The reports each run to several hundred pages. Their main purpose is to provide a valuation of the defenders' claim for the purpose of quantifying their alleged loss. They also, however, give certain opinions on the conduct of the pursuers in relation to the GDC arbitration. In my view there are a number of difficulties in treating Mr Miller as a skilled witness on the merits of the claim.

Qualification to act as a Skilled Witness

[101] Rand are quantity surveyors based in Surrey. They are described as building and construction cost consultants. Mr David Miller, the author of the reports, is designed at the end of each report as a member of the Royal Institute of Chartered Surveyors ("MRICS") and a Fellow of the Chartered Institute of Building ("FCIOB"). I was informed that he is a surveyor with experience in arbitration and construction claims.

[102] In my view, there is a fundamental objection to Mr Miller acting as a skilled witness in this case. Whatever expertise he possesses, he is clearly not qualified to speak about the competence of a Scottish litigation solicitor. He has no knowledge or experience of the legal profession. His testimony could not assist the court in determining whether or not there had been a departure from normal practice and that the course adopted by the pursuers was one which no ordinary professional person of ordinary skill would have taken if acting with ordinary care (Walkers Evidence, third edition para. 16.3.2). The Rand reports do not address the allegations in respect of the McLachlan & Brown action.

Independence

[103] As noted above, Rand's predecessor provided services to Arakin in the course of the GDC arbitration. The position is set out in the June Report (page 3):

"The involvement of Rand Associates included developing the claim documentation, preparation of Scott Schedules etc for both phases of the Arbitration Proceedings, attendance before the Arbiter and attendance upon Counsel during eighteen weeks of hearings to assist him in the examination and cross examination of witnesses and the preparation of Counsel's final submission to the Arbiter."

[104] Accordingly Rand has had a long commercial association with the defenders and itself provided services in respect of one of the disputes which features in the present litigation. While there is no bar to such a person acting as an expert, it may justify careful scrutiny of any report they prepare.

[105] On applying such scrutiny (and acknowledging that there has been no opportunity for Mr Miller to set out his position in the witness box) there is in my view cause for concern about the approach he has adopted.

[106] First, there is the language he has employed:

"Clearly Tods Murray do not understand the requirements of the Contract as to the validity and evaluation of the alleged Contra-Charges. Their involvement overly complicated the resolution of the Contra-Charges and examination of the Arbiter's findings clearly indicates his view supporting Arakin's findings that Tods Murray should have advised following the requirements and obligations of the Contract to resolve this matter instead of using the 'Old Boy' basis with their opposite numbers at Glasgow who appear to have as little Building Contract Law knowledge, experience and understanding as Tods Murray." (June 2009 report page 9)

In my view, that is not the objective language one would expect to find in a professional report.

[107] Further, Mr Miller appears to have simply relied upon Mr McNamara's assertions. For example the September 2009 report (page 43) states that:

"Arakin Ltd contend that the issue of the writ and the subsequent arrestment served on Sun Alliance Insurance Co was designed to mischievously injure and cause nuisance to Arakin Ltd."

In the absence of reasoned evaluation, such repetitions of the party's own stance do not provide assistance to the court.

[108] I had particular concern with the following passage in Rand's September 2009 report (page 44):

"The increase in the value of arrestment to £275,000 appears to be an illegal act undertaken by an alleged reputable firm of Solicitors and Writers to the Signet acting on instructions from another alleged reputable firm of Solicitors and Writers to the Signet in clear breach of their duties and obligations as Officers of the Supreme Court and contrary to natural justice."

Mr McNamara accepted that this sentence was a mistake for which he (Mr McNamara) took responsibility. In my view, however, for someone in another profession to make such a serious allegation without enquiry calls into question their own credentials.

[109] It is therefore my view that Mr Miller cannot be treated as a skilled witness on the merits in this case. The matter can be tested in this way. Suppose he was called as a witness and the competency of his giving evidence was challenged on the basis that he was not qualified to do so. In my view, such a challenge would be successful.

The Other Proposed Skilled Witnesses

[110] Mr Gow is the defenders' conveyancing solicitor. Mr McNamara wished to call him to give evidence: (a) regarding Arakin's financial position before and after the dispute with GDC; (b) in relation to the solicitor's accounts rules; and (c) on the simplest way for the GDC arbitration to have been concluded.

[111] Mr Gow is able to give evidence regarding (a) as a witness to fact. As I have held that the auditor's taxation has conclusively determined (b), Mr Gow's evidence in this regard is redundant.

[112] In relation to (c), it is my view that Mr Gow is not qualified to give opinion evidence on this matter. In a letter written by him to the pursuers on 24 October 1994 (and referred to in the defenders' note of argument), he stated:

"I am not a court practitioner but I know at least that a client is entitled to a taxation as a matter of right."

[113] Standing the opening words of that sentence, it was difficult to understand how Mr Gow could assist the court on any question of professional negligence arising in this case. Mr McNamara appeared to accept that proposition during the course of the hearing and the affidavit lodged from Mr Gow dated 30 September 2009 does not cover negligence.

[114] Mr McNamara also proposed to cite Mr Yelland of the Law Society of Scotland. This seemed bound up with Mr McNamara's wish to include the question of professional misconduct in this claim. In my view, that was clearly collateral to the issues before the court. In any event, Mr Yelland was the person within the Law Society who had dealt with the defenders' complaints. Those complaints are currently on hold. It was unclear how Mr Yelland could provide any assistance with the issues raised by the defenders' pleadings.

[115] Mr McNamara indicated that the defenders wished to rely upon various lawyers. They included Mr Andrew Peacock, who had been Arakin's solicitor at the time that counsel was instructed to draft the counterclaim. They also included counsel who had previously acted on behalf of Arakin. No report or opinions were disclosed in respect of any of these witnesses and I found it difficult to understand precisely how they could assist. When questioned, Mr McNamara appeared to indicate that he wished to call them in relation to matters of fact, rather than opinion.

Summary - Skilled Witnesses

[116] Accordingly, it appeared to me that there was no expert opinion upon which the defenders could properly rely to support their averments. Accordingly, the pursuers were being asked to prepare for and conduct a lengthy proof where the counterclaim would necessarily fail. I was particularly concerned by the fact that Mr McNamara had been prepared to proceed without a report in relation to Mr Dobie for many years.

Mr McNamara's Litigation History

[117] Mr McNamara has a history of proceeding without appropriate witnesses to support his case. That history is fully set out in the Opinion of the Inner House in Lord Advocate v Andrew McNamara 2009 SCLR 551.

[118] For present purposes, it is sufficient to record two instances pertinent to the current litigation. First, in the proof before Lady Smith, none of the fourteen witnesses led by the defenders (then represented by both Mr McNamara and Mr Frost) had been approached before the allegations had been made. She concluded at paragraph 53 that the defenders' approach had been reckless and she agreed with senior counsel "that they had no reasonable grounds for their asserted belief in the truth of the allegations that they made."

[119] Secondly, Mr McNamara accepted before the Inner House that in another action raised by him and Mr Frost against Levy & McRae, allegations of breach of contract or negligence were made and persisted in without the support of any expert opinion (2009 SCLR 551 at paragraph 52). That case had a number of parallels with the present action. After Levy & McRae had sued Arakin for payment of their professional fees, Arakin sought damages from them of over £5 million.

[120] Lord Reed, delivering the Opinion of the Court, stated (at para. 54) that the proceedings:

"... were based on allegations of professional negligence which were unsupported by the opinion of anyone qualified to express an opinion on that issue. It is not suggested that they were instituted in the expectation that such support could be obtained; nor does there appear to have been any attempt to obtain such support. In those circumstances, we consider that we are entitled to conclude that the proceedings were instituted without any reasonable ground and were vexatious."

Practical Effects of the Counterclaim
[121] I was informed that the main practical effect of the counterclaim was the large amount of time that Mr Simpson and Mr Dobie have had to devote to it. That mainly involves responding to requests from those advising the pursuers. In the period leading up to the Procedure Roll hearing, Mr Dobie had devoted fourteen per cent of his chargeable hours for the year to the case. Mr Simpson is now retired, but it imposes a considerable demand on his time.

[122] It was explained to me that in relation to insurance, no premium loading has been imposed on the pursuers' professional indemnity policy. Although they require to declare the existence of this litigation when tendering for contracts, it does not have a material impact on their ability to secure work.

[123] I recognise that all litigation places burdens on the parties. However, it is unreasonable to expect parties to shoulder those burdens if the claim is manifestly without substance. That is clearly not in the public interest.

Conclusion on Abuse of Process

[124] Lord Justice-Clerk Gill indicated that an abuse of process may occur if a case "wastefully occupied the time and resources of the court in a claim that was obviously without merit": Clarke v Fennoscandia Ltd (No. 3) 2005 SLT 511, at paragraph 17. In my view having regard to the factors discussed above, the defenders' counterclaim clearly fits that description.

[125] It follows that I am satisfied that the counterclaim is an abuse of process and should be dismissed on that basis. To allow it to proceed would in my view not be in the interests of justice. It compromises the court's procedures. In effect, Mr McNamara is seeking to use the counterclaim action to air his own unfounded complaints. To allow it to proceed would be unjust on the pursuers, who would require to commit enormous resources to the case (Lord Advocate v McNamara at para. 40). It would also place an undue burden on the court. In my opinion, it is just and proportionate response to dismiss it at this stage.

Relevancy and Specification

[126] The pursuers' second submission was that the counterclaim was fundamentally irrelevant and lacking in specification. Counsel for the pursuers embarked on a detailed scrutiny of the defenders' pleadings to justify dismissal on this ground. Mr McNamara did not present any detailed response to these arguments, although he did resist the motion which was made. In my view, the matter can be dealt with briefly, having regard to the following interlinked factors.

(a) Intelligibility
[127] It is the minimum requirement of pleadings that they are intelligible. It is the defenders' duty to give proper notice of the line of defence and the main facts upon which they rely: Neilson v Househill Coal and Iron Company (1842) 4 D. 1187, 1193 per Lord Justice-Clerk Hope. I have found it very difficult to follow the defenders' pleadings. Some of the essential facts, such as the amount of the settlement with the insurers in the MacLachlan & Brown action, are not mentioned.

[128] Further the "connective tissue" between the alleged grounds of fault and the supposed loss is almost entirely missing. This is a case where following an apparently successful outcome in an arbitration and a litigation, the defenders claim to have suffered enormous losses by reason of the fault on the part of their professional advisors. In such circumstances, one would expect to see a clear explanation linking the alleged loss to the grounds of fault. That explanation is absent. I agree with junior counsel for the pursuers, who said that the defenders' case amounts to a repetition of diffuse, vague allegations with critical gaps in the picture and with a series of numbers annexed.

[129] I have already made observations about the utility of the Rand reports. In my opinion, there was force in the pursuers' submission that they should not be considered at all, because they contain broad and vague allegations, at least some of which are not referred to in the pleadings. As Lord Macfadyen stated in Royal Bank of Scotland v Holmes 1999 SLT 563, 570:

"...the wholesale incorporation into the pleadings of a lengthy document, only parts of which are in any way relevant to the issues identified in the pleadings, is in general unsatisfactory, and may well be held not to give the specification required."

[130] Even if the Rand reports are taken into account, however, they do not advance the defenders' position. The pursuers remain substantially in ignorance of the case they face. In my view, they should not be required to go to proof on that footing. As Lord Robertson stated in Morrison v Rendall 1986 SC 69 at page 78:

"It is not the function of pleadings to justify an inquiry which may result in evidence being led which might establish the pleader's case: on the contrary the pleadings must set forth clearly and specifically the facts upon which the pleader aims to succeed in his pleas, so that the other party may have notice of the case against him and the facts upon which it is founded. In my opinion, the pleadings in this case do not satisfy this test, and I am prepared to allow the appeal on this primary ground alone."

(b) The Responsibilities of the Pleader
[131] The parties to a litigation must act responsibly when drafting the pleadings. Given the very damaging allegations made by the defenders, one would expect them to have a proper foundation. As indicated above, the defenders do not have an appropriate skilled witness. The allegations therefore appear to represent the unsupported assertions of Mr McNamara.

[132] That is in my view not a proper basis to proceed and is a factor which can be properly taken into account when considering questions of relevancy and specification:

"Our whole system of pleading and of disposal of cases upon preliminary pleas must depend upon each party stating with candour what are the material facts upon which he relies and admitting the facts stated by his opponent which he knows to be true." Ellon Castle Estates Company Limited v Macdonald 1975 SLT (Notes) 66

[133] In this connection, it is also material in my view that the defenders' pleadings lack candour. For example, the pursuers placed a series of calls on the defenders with regard to the GDC arbitration that have gone unanswered. They included calls to specify:

a) the manner in which the pursuers had failed to act "in a competent manner";

b) the "basic facts" which were not in dispute but which were not agreed;

c) the matters that had extended the arbitration, by how much and with what impact upon expense which had not been recovered;

d) the heads of loss that were not within the remit of the Arbiter;

e) the reasons why the defenders did not revive the Court of Session action against GDC (which had remained sisted);

f) when the defenders became aware that Mr McNamara's confrontations with GDC officials led to great reluctance on their part to re-instate Arakin;

g) why the defenders would not have proceeded with the arbitration; and

h) what loss flowed from the continued arbitration.

Accordingly, the defenders had full notice of the points that should have been addressed in their pleadings. By choosing not to respond, they imperilled their case.

(c) The Inclusion of Collateral Matters

[134] A great deal of the material contained in the counterclaim relates to collateral matters. I have already instanced the averments relating to professional misconduct and the re-opening of the Auditor's taxation. In my view, they were irrelevant as were the allegations that there was wrongful diligence, given Mr McNamara's apparent misunderstanding of the relevant law on this point and his concession in the course of the debate that he might have been mistaken on this point.

(d) The Elements of Professional Negligence

[135] Even if the defenders' case could be stripped back solely to professional negligence, it must meet certain pleading requirements. The classic formulation in this regard was provided by Lord President Clyde in Hunter v Hanley 1955 SC 200, at page 206:

"To establish liability...where deviation from normal practice is alleged, three facts require to be established. First of all it must be proved that there is a usual and normal practice; secondly it must be proved that the defender has not adopted that practice; and thirdly (and this is of crucial importance) it must be established that the course...adopted is one which no professional man of ordinary skill would have taken if he had been acting with ordinary care."

The correctness of that approach has been affirmed many times since: see for example Maynard v West Midlands RHA [1984] 1 WLR 634, 638 per Lord Scarman; Gerrard v RIE 2005 1 SC 192, at 218-219.

[136] In my view, the defenders' averments fall far short in this regard. There is no attempt to specify any of the necessary elements. Perhaps that is unsurprising, given that they do not have the benefit of an appropriate expert report to support the allegations which are made. Indeed it might be said to highlight the problem of proceeding without such a report.

(e) The Loss Averments
[137] I have already stated that there are also difficulties with the defenders' quantification of loss. Put broadly, they appear to calculate their loss on the basis that Arakin would have been wholly successful in a linear progression in the years since 1996. They claim that the pursuers are liable to compensate them for the whole of the difference between where Arakin is now, compared with where it would have been. There are, however, a number of problems with the quantification.

[138] In respect of the MacLachlan & Brown action, it is not specified what different result would have been achieved, if the pursuers had not allegedly been at fault. Obvious questions which one would expect to see answered are - what sum would the Sheriff have awarded if the pursuers had not been negligent? How did their conduct affect the settlement sum?

[139] With regard to the GDC arbitration, the absence of averment is more stark. There is no explanation as to how the pursuers could have ensured that Arakin would have been reinstated to the GDC list of approved contractors.

[140] There were two other problematic features of the loss averments. First, the defenders seek to recover compound interest in relation to most heads of claim. The general principle is that: "A claim for compound interest with annual rests is a demand which can only be maintained either in the case of a fixed usage in commercial dealings or where there has been an abuse in the party trusted with funds and violating his trust." Douglas v Douglas's Trs. (1867) 5 M 827, 836 per Lord Justice Clerk Patten; see also Bell's Principles, section 32; McBryde: Law of Contract in Scotland third edition, paragraph 22-138. There is no averment to explain why the defenders are entitled to claim compound interest.

[141] Secondly, the defenders' claim to recover sums in respect of the amount of tax they would have had to pay on any award of damages or settlement in the original disputes. There is no explanation as to why this figure should be recoverable from the pursuers.

[142] I therefore hold that the averments of causation and loss are irrelevant and fundamentally lacking in specification.

Conclusion on Relevancy and Specification

[143] In my view, these five factors when taken together make it plain that the counterclaim is fundamentally irrelevant and lacking in specification and falls to be dismissed on that basis (as well as being an abuse of process).

Result
[144] The proof before answer will be restricted to the sole issue of the sums paid by the defenders in respect of the taxed accounts and whether any sum is due by them to the pursuers.

[145] It follows that in the principal action, I shall sustain the pursuers' first, second and third pleas-in-law and delete all the defenders' averments and pleas which are not directed to the issue which I have outlined above relating to the sums paid by the defenders. I append to this Opinion a draft schedule of averments which fall to be deleted and shall put the case out By Order for discussion on the further procedure to be followed.

[146] With regard to the counterclaim, I shall sustain the pursuers' first and second pleas-in-law, repel the defenders' pleas and dismiss the counterclaim.

Appendix to Opinion

Draft Schedule of Averments

Subject Matter	Averments to be deleted	Para in pursuers' note of argument
Pleas-in-law & averments relative to disposal of principal action	139B: "and the Pursuers' conclusions... and 11." Pleas-in-law: 1, 2, 6-9, 12, 13. In plea-in-law 10 the phrase "with compound interest... Defender" ought to be deleted
No prestable claim/VAT/Solicitors' Accounts Rules	Pleas-in-law: 6-9 (p.192-193) 23A - 23F: "Denied... brevitatis causa." 24G - 26A: "As is further... plea in law." 31C-D: "Any sum...funds." 35C - 40G "Reference is hereby ... brevitatis causa." 130E - F-G: "No relevant... by the Pursuers." 135F-G: "without foundation in law" 136F: "as set out...April 2006." 137C-137E: "The defender avers... 'on account'" 138E: "The Defender refers...despite requests." 178G - 179A: "The action being... company."
That taxed accounts do not supersede fee notes	23F - 24D "Further... plea-in-law."	Para 6
The reconciliation is inept	24D - 24F: "The pursuers' ... inept." 32G: "in law, the pursuers' averments in the Record have no basis or foundation" 130D: "The unsigned... inept." 134C-E: "The defender calls... ninth pleas-in-law." 136E: "The Pursuers' accounting... and 4)."	Para 7
* Absence of fee charging agreement	42C - 42E: "Further... pleas-in-law." 103F - 104A: "Further explained... account."	Para 8
The auditor/ECHR	32C - 32G: "The Auditor's ... 2B below." 33C - 34B: "Further... documents." 35B: "In breach... to do." 136F-137B-C: "Explained and averred...April 2006." 137-138C: "The Auditor abated...dated April 2006." 142C-D - 142G: "Reference is made...Arakin."	Paras 9-11
Harvie	139C-140F-G "Separatim... dismissed de plano."	Para 12
* Dishonesty of Mr. Simpson	140G-142C-D ("...sub-paragraph (v) above))"	Para 13
False entries in respect of telephone calls	43A - 43E: "The Defender... granted." 143F - 144A: "Under reference...upheld."	Paras 14-15
Lady Smith	143C-E: "Despite this...unsound."	Para 16
Answer 4	In its entirety	Para 17
Averments without basis	135F "and their averment...was a false and reckless averment" 139A-B: "a false and reckless averment" 147F-G: "Explained and averred... fact."" 178F-G: "This is an admission...payment." 24D: "accordingly...abuse of process...dismissed." 31F - 32B: "In any event... M&B account." 33A-B: "false and or reckless averment" 34E: "as therefore... Scotland." 46D: "the raising of the summons...judice." 62F: "...the pursuers' Mr. Dobie thereafter induced his client to give instructions in pursuit of a course of action advised by Mr. Dobie (for Mr. Dobie to obtain pecuniary advantage for his own benefit) through the above 'misrepresentation' and 'deception'" 65F: "the acts were knowingly prejudicial" 68D: "averred...underlying dishonesty and deceit...circumstances."	Discussion on responsible pleading
Partnership Act	104B - 106D
Agreement to go to taxation (There is no plea of personal bar)	31D: "Explained...errors"
Right to retain until sums previously paid are accounted for	25G: "Arakin at all times...accounted for."

Averments bearing on the counterclaim

Subject	Averments to be deleted	Para Note of argument
Pleas-in-law and general averments relative to disposal of the counterclaim	Pleas-in-law: - Counterclaim in its entirety Counterclaim: pleas1-6 (p.212) Principal action: 13 (194) 33B; 135G-136A: "and thereafter... counterclaim"
Collateral matters - in particular misconduct	26E: "For the avoidance... 1988." 39F - 40E: "Example...VAT statutes." 41E - 42B: "Given that... accounts." 42D - 42E: "The Defender...pleas-in-law." 43E - 45F: "In the event... pleas-in-law." 46B - 63A: "The pursuers' ... dispute." 65D: "was guilty of professional misconduct and" 66E: "and accordingly Mr. Dobie should be held to be guilty of misconduct... entirety." 66G - 73C: "Mr Dobie's....below." 82F: "and as averred... above)." 156D: "In so doing...instead the pursuers'..."	Para 13
Ultra vires/auctor in rem suam/mala fides	65F - 66A: "and were auctor in rem suam... causa." 178G - 179A: "The action being... company." 66E: "and to have acted in mala fides" 66F - 69D: "Improper... relationship." 82F: "mala fides"	Para 17
Senior counsel	88G - 90D: "2D The Defender ... Mr. Dobie."	Para 94
Raising of action	34C-35F: "2B Raising...deductions." 46B - 46E: "The pursuers' Mr. Dobie...judice." 136D: "The Pursuers... paid in full."	Paras 95-97
Wrongous use of diligence	91G - 93A: "Royal and Sun...critical time." 146E - 148D: "Wrongous use... without merit." 178B - 185A: "Damages caused by wrongful... incurred."	Paras 98-114
Peter Anderson etc.	144A-B - 146D: "Explained...justice." 185B - 186F: "Separatim... defender	Para 115
Repetition	49C-D: "...repayment of same together with"	Para 116
Unjustified enrichment	39F-40E: "Example of...statutes."	Para 117
Breach of fiduciary duty/duty of care	39F-40E: "Example of...statutes."	Para 118
Professional Negligence	63B - "Acts without..." 148E - 178A: "Mismanagement... £1,475,785.00" 73C - 77E: Prior Knowledge for the Pursuers' Mr. Dobie 77F - 91G: "The pursuers were in receipt... agreement." 93A - 93A: "They used... £9,336,174.00." 148E - 178A: "Mismanagement... £1,475,785."	The remainder of the note of argument