Judge allows proof to determine whether reduction of decree by default is ‘necessary to produce substantial justice’

Two “inconsistent” decrees of the same court amount to “exceptional circumstances” which would allow the court to reduce a decree by default if reduction is “necessary to produce substantial justice”, a judge in the Court of Session has ruled.

Lord Jones gave his opinion in the case of Nova Scotia Limited v Matthew Purdon Henderson, in which the pursuers seek reduction of a decree of the Court of Session, pronounced on 6 January 2009, reducing a disposition granted in favour of them by Letham Grange Development Company Limited (LGDC).

The pursuers averred that the subjects disponed to them included the Letham Grange Country Club and Resort, but the LGDC went into provisional liquidation and the defender Matthew Henderson, who was appointed provisional liquidator of LGDC, raised an action in the Court of Session seeking reduction of the disposition.

The defender, who averred that the disposition was granted for “inadequate consideration” and therefore represented a “gratuitous alienation” in terms of section 242 of the Insolvency Act 1986, was granted summary decree in the Court of Session action, but that decree was ultimately recalled by order of the House of Lords.

A proof before answer was allowed and a four‑week diet of proof was fixed, to begin on 6 January 2009, but the pursuers’ solicitors withdrew from acting and they were unable to obtain either alternative representation to enable them to present their case at proof, or to obtain a discharge of the diet of proof to give them time to obtain such representation, although they actively sought both.

On 6 January 2009, there being no appearance on behalf of the pursuers, decree by default was pronounced by the court and the disposition was reduced, without any substantive determination of the legal or factual issues between the parties having been made, and without the pursuers having been heard in relation to any such issue.

However, in or around June 2009, the defender also raised a commercial action in the Court of Session against the pursuers and Foxworth Investments Limited, seeking reduction of a standard security granted by the pursuers in favour of Foxworth in January 2003, over the subjects of the disposition.

The commercial judge held that the sale from LGDC to the pursuers was made for “adequate consideration” and was not a gratuitous alienation, and accordingly granted decree of absolvitor - a decree which, after further process, was ultimately affirmed by the UK Supreme Court by judgment in July 2014.

In response to an averment by the defender in the present action, the pursuers admitted that it was open to them to reclaim against the decree by default within the 21 day period following 6 January 2009, under explanation: (a) that they did not know that they could do so; (b) they still lacked legal representation; and (c) they were, accordingly, unable during the 21 day period to demonstrate the existence of any facts and circumstances apt to warrant recall of the Court of Session decree.

However, in these circumstances, the notional availability of the right to reclaim was not an effective remedy against the substantive injustice suffered by them as a result of the Court of Session decree.

The defender’s advocate moved the court to sustain the third plea‑in‑law, a standard plea to the relevancy, and to dismiss the action. His “fundamental proposition” was that the action was “irrelevant” because the pursuers seek to reduce a “decree in foro”, which was a decree on the merits.

Referring to the pursuers’ averments to the effect that the decree was pronounced without any substantive determination of the legal or factual issues between the parties having been made, counsel contended that it did not matter as the decree was a decree in foro which was “final and conclusive” between the parties to that action.

Since the pursuers were, on the authorities, “held as confessed”, they were so held on all of the defender’s grounds of action and since they did not offer to prove that there was something wrong in fact or law about any of the grounds, they cannot demonstrate that substantial justice requires that the disposition be reduced.

Counsel for the pursuers, who were seeking a proof before answer, contended that the question was whether, in all the circumstances of a particular case, there were “exceptional circumstances” such that substantial justice will best be done by granting decree of reduction.

The pursuers averred that the defender continued to enjoy the benefit of the decree of reduction by default, which was obtained by him on 6 January 2009, notwithstanding that, in the commercial action, determined after full proof and argument, his entitlement to such reduction was “judicially negative”.

In these circumstances, it was argued that it was “necessary” – to ensure that substantial justice is done between the parties – that the decree of reduction be reduced.

In a written opinion, Lord Jones said: “Once it is appreciated that the defaulting party may reclaim, and that the court may allow the action to proceed, it becomes immediately clear that he or she is not conclusively held as confessed by reason of the default. I disagree with counsel for the defender’s contention, therefore, that the decree under challenge in these proceedings was a decree in foro which is ‘final and conclusive’.”

He added that a “consistent thread” running through the relevant authorities was that, notwithstanding the existence of an alternative remedy of which a litigant has not availed himself, the court has the power in “exceptional circumstances” to reduce a decree by default “if reduction is necessary to produce substantial justice”.

In this case, the pursuers offered to prove that decree passed against them without fault on their part, as they could not obtain legal representation for the proof and the Lord Ordinary refused a motion for discharge.

“On their averments, the pursuers are entitled to a proof of their contention that they did not avail themselves of the appeal process, through no fault of their own,” Lord Jones said.

The judge further held that counsel for the pursuers was “well founded” in contending that the fact that there were two “inconsistent” decrees of the same court on the matter of gratuitous alienation constituted “an exceptional circumstance”.

Lord Jones concluded: “In my opinion, if the Lord Ordinary were to find the pursuers’ averments established after proof in this action, he or she would be entitled to hold that there are exceptional circumstances such that reduction of the decree by default is necessary to produce substantial justice. Put another way, having regard to what the pursuers offer to prove, it cannot be said that they will be bound to fail at proof.”