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ERIC NGUYEN v. SEARCHNET ASSOCIATES LTD [1999] ScotSC 18 (15th June, 1999)
A3001/98
JUDGMENT OF
SHERIFF PRINCIPAL NICHOLSON
in the cause
ERIC NGUYEN
Pursuer and Appellant
against
SEARCHNET ASSOCIATES LIMITED
Defenders and Respondents
Act: O'Neill, Advocate; Skene Edwards WS
Alt: Halley, Advocate; Davidson Chalmers WS
EDINBURGH, 15 June 1999
The Sheriff Principal, having resumed consideration of the cause, allows the appeal and recalls the interlocutors of 13 January 1999 and 9 February 1999; of new allows to parties a proof of their respective averments, and appoints said proof to proceed on a date to be afterwards fixed; finds the defenders liable to the pursuers in the expenses of the appeal; allows an account thereof to be given in and remits the same, when lodged, to the Auditor of Court to tax and to report; certifies the appeal as suitable for the employment of junior counsel.
NOTE:
This is in the first instance an appeal against an interlocutor of 9 February 1999 in which the sheriff granted decree of absolvitor in favour of the defenders. That interlocutor followed from an earlier interlocutor of 13 January 1999 in which the sheriff had ordained the pursuer to consign the sum of £4,000 in respect of potential liability for the defenders' expenses in the hands of the sheriff clerk on or before 1 February. That sum was not consigned by the pursuer; and it was in respect of that failure that the sheriff granted the decree against which the present appeal has been taken.
The action to which this appeal relates is one in which the pursuer seeks payment from the defenders of a sum of money which he claims is due to him in respect of work which he did in Edinburgh on behalf of the defenders during a period between March 1997 and January 1998. The pursuer is a computer software engineer, and the work in question relates to computer programming.
The pursuer is a French national, and he currently lives and works in the Netherlands. It was in that situation that, in January 1999, the defenders enrolled a motion to have the pursuer ordained to sist a mandatary, or alternatively to have him ordained to find caution for expenses. That motion (no. 7/2 of process) is expressly stated as proceeding on the basis "that the pursuer is resident outwith the United Kingdom", and that basis for the motion has been noted by the sheriff in the Note which she prepared in response to the marking of the present appeal. By the stage when the motion was being considered by the sheriff proof in the action had already been assigned for 16 February 1999 (that is to say, just over a month later), and in that situation she reached the conclusion that it would not be appropriate to order the sisting of a mandatary. However, she concluded that the finding of caution for expenses would be appropriate, and the course which she took was to ordain the pursuer to consign the sum of £4,000 on or before 1 February 1999. Such a course is competent in terms of rule 27.4(1)(b) of the Ordinary Cause Rules 1993 but, as the rule makes clear, an order for consignation is merely one method of requiring a party to find caution for expenses.
The present appeal is competent without leave of the sheriff since the interlocutor in which she granted decree of absolvitor upon the failure of the pursuer to obtemper the order for consignation constituted a final judgment within the meaning of sections 3(h) and 27 of the Sheriff Courts (Scotland) Act 1907. However, it was accepted on both sides of the Bar that, in terms of section 29 of that Act, that appeal entitled the pursuer and appellant to seek review of the earlier interlocutor in which the order for consignation was made. In the circumstances of the present case that is the effect of the decision in McCue v. Scottish Daily Record & Sunday Mail 1998 SCLR 742. Consequently, the submissions which were presented at the appeal nearly all related to the earlier interlocutor of 13 January 1999, it being accepted that, if that interlocutor were to be recalled, it must inevitably follow that the subsequent interlocutor of 9 February 1999 should also be recalled.
In the first instance four separate grounds of appeal were intimated on behalf of the pursuer. However, at the end of the day counsel founded only on the fourth ground of appeal which is in the following terms:
"Further and in any event, the Sheriff in ordering the lodging of Caution in circumstances where the Pursuer was an EC National residing in an EC member country, was in breach of the Pursuer's rights under EC legislation. In particular, said order for caution was in breach of Article 7 [ sic ] of the Treaty of Rome 1957, which prohibits discrimination on the grounds of nationality. The Sheriff accordingly erred in law in ordering Caution to be lodged by the Pursuer."
The article of the Treaty of Rome to which reference is made is now article 12 of the post-Amsterdam version of the Treaty (which came into force on 1 May 1999), and it is in the following terms:
"Within the scope of the application of this Treaty and without prejudice to any special provision contained therein, any discrimination on grounds of nationality shall be prohibited."
Before turning to the submissions which were advanced on behalf of the pursuer at the appeal it is appropriate that I should set out what the sheriff has herself given as her reasons for ordering the pursuer to find caution in the form of a consigned sum of money. In her Note she says that she:
"had regard to the nature of these proceedings, the nature of the pursuer's employment and residence and the clear admission that the pursuer was resident outwith the jurisdiction of this Court and outwith the United Kingdom. There were no allegations that the pursuer was impecunious but rather that he had limited means and, more importantly, would be liable to move at short notice to a different job in a different country. There was no suggestion that the pursuer had assets or property in Scotland against which diligence could be executed to satisfy expenses. Although it was suggested that the pursuer was well settled in Holland he has no specific ties to Holland other than the short-term contract work relating to computer programming on which he was engaged. Within the last 12 months it was known that the pursuer has lived and worked in Scotland and Holland and furthermore is a French National. Certainly no undertaking was given that the pursuer would not move outwith the jurisdiction of the Dutch Courts, nor was any issue taken to the suggestion that the pursuer's employment was normally of a short-term nature and that he has in the past travelled widely in the course of providing services as a software engineer."
The sheriff goes on to say that it was against the foregoing background that she decided to exercise her discretion by ordering the pursuer to consign the sum of £4,000 as caution for expenses.
In her narrative of the submissions which had been advanced before her the sheriff notes that reference had been made by the solicitor appearing for the pursuer to the Brussels Convention on the Enforcement of Judgments. However, so far as the Treaty of Rome itself is concerned she makes the following observations:
"I should add that no submission was made on behalf of the pursuer in terms of paragraph 4 of the grounds of appeal namely that the order that the pursuer consign money was in contravention of his rights under the Treaty of Rome. The Brussels Convention was certainly mentioned as being an appropriate vehicle for the defenders to enforce any decree for expenses but I was certainly not addressed on the broader principles embodied in the Treaty of Rome. In these circumstances it is not appropriate for me to deal in any detail with that ground of appeal save to mention that my understanding would be that the Treaty of Rome deals with the obligations upon States within the European Community rather than the rights of individuals within member States when pursuing litigation in order to resolve civil disputes. Clearly the practice in the Scottish Courts of ordering the sisting of mandataries or the lodging of consigned funds by Foreign nationals when litigating in the UK Courts has developed over a considerable number of years both prior to and since the Treaty of Rome and furthermore against a background of established conventions such as the Brussels Convention which facilitates enforcement of foreign judgments. Although the Convention may be considered a useful tool in order to assist the enforcement of a judgment abroad it can also be considered a blunt instrument which adds to the expense and delay caused to a succesful litigant within our Courts."
In presenting the appeal on behalf of the pursuer counsel began by submitting that the sheriff's views regarding the effect of the Treaty of Rome, as expressed in the passage which I have just quoted, are so fundamentally flawed as to vitiate her whole approach to the question whether or not the pursuer should have been required to find caution for expenses. By reference to Van Gend en Loos [1963] ECR 1 , at 12, it was submitted that Community law does not solely impose obligations on member States. On the contrary the Treaty itself imposes rights and obligations directly on individuals, both expressly and by implication, quite independently of national legislation or any rules of the common law. This is known as the doctrine of horizontal direct effect. Moreover, it has been held by the Court of Justice that membership of the Community entails a permanent limitation of the sovereign right of member States to the extent that all national rules, whether in existence before, or introduced subsequent to, the 1957 Treaty of Rome, can be given effect only and in so far as compatible with Community law ( Costa v. ENEL [1964] ECR 565, at 593-4).
Counsel went on to observe that it has been held that the courts in member States are obliged to disapply or suspend any provisions of national law in so far as these national rules contravene principles or provisions of Community law ( R. v. Secretary of State for Transport, ex parte Factortame (No. 2) [1991] AC 603 ; Amministrazione dello Stato v. Simmenthal [1978] ECR 629 , at 643). Finally, on this general point, counsel submitted that courts are obliged as a matter of Community law to take relevant points of Community law into account, if necessary ex proprio motu , and to disapply any national procedural or practice rules which might otherwise prevent the national courts from giving full force and effect to Community law rights ( Peterbroek and Others v. Belgian State [1995] ECR I-4599 , at 4623).
On the basis of the foregoing submissions (which were not themselves challenged by counsel for the defenders) counsel for the pursuer submitted that the sheriff's approach to Community law had been totally flawed, and that it was now open to him to develop his arguments in relation to that law notwithstanding that, as appears from her Note, the sheriff herself had not been addressed in relation to that matter. On that point counsel for the defenders submitted that, since the sheriff's decision had not been influenced by her misunderstanding of Community law (that misunderstanding having become apparent only after she became aware of the pursuer's fourth ground of appeal), I should decide the appeal, not by reference to Community law, but solely by reference to the factors which were in fact taken into account by the sheriff. I am not persuaded by that submission. It is always open to an appellant to present at appeal a line of argument which was not presented at first instance; and, particularly where that line of argument raises fundamental issues of competency, an appellate court will be slow to ignore or prohibit such arguments. Moreover, given that, as I have mentioned above, it has been authoritatively held that courts are bound to take note of matters of Community law, even ex proprio motu , I consider that I myself would be in breach of Community law were I not to consider its implications and consequences in the context of the present case. I therefore turn now to consider the further submissions which were advanced by counsel for the pursuer.
He began by referring to the article of the Treaty of Rome which I have quoted earlier, and he noted that, although the number of that article has changed through the years (originally article 7, post-Maastricht 1993 article 6, and post-Amsterdam 1999 article 12) its wording has remained constant with the consequence that the principles deriving from it have been consistently developed by the Court of Justice. Counsel went on to submit that it is clear that the article in question has direct horizontal effect, and can therefore be prayed in aid by any individual before a national court of a member State ( Walrave and Koch v. Association Union Cycliste Internationale [1975] ECR 1405; Cowan v. Trésor Public [1989] ECR 195 ). Further, counsel noted that the prohibition on nationality discrimination has been held to cover not only direct but also covert or indirect discrimination so that criteria such as the place of origin or residence of a worker could be tantamount in their practical effect to discrimination on grounds of nationality ( Solgiu v. Deutsche Bundespost [1974] ECR 153; R. v. Minister of Agriculture, Fisheries and Food, ex parte Agegate Ltd [1990] ECR 4459).
Counsel for the pursuer then went on to refer to a number of cases in which article 6 has been considered, particularly in relation to the issue of security for costs. For present purposes I do not find it necessary to examine these cases in detail, and it is sufficient that I simply record the cases referred to. They were: Boussac Saint-Frères SA v. Brigitte Gerstenmeier [1980] ECR I-3427; Hubbard v. Hamburger [1993] ECR I-3777 ; Mund and Fester v. Hatrex International Transport [1994] ECR I-467 ; Data Delecta AB v. MSL Dynamics Ltd [1996] ECR I-4661 ; Hayes v. Kronenberger [1997] ECR I-1171; and Saldanha v. Hiross Holding AG [1997] ECR I-5325 . All of the foregoing cases establish that what is now article 12 of the Treaty of Rome is of direct effect, and may be relied on by individuals in circumstances of both direct and indirect discrimination in cases which fall within the ambit of Community law. In the present case, it was submitted, the dispute arises from the provision of services by a French national exercising his Community fundamental right to establish himself on a self-employed basis in a part of another member State, namely Scotland. He has now exercised the same fundamental right to establish himself in another member State, namely the Netherlands; and in that situation, it was submitted, there is sufficient Community law connection to bring into effect the anti-discrimination provisions of what is now article 12 of the Treaty.
Counsel for the pursuer then turned to consider the applicability of article 12 of the Treaty in the circumstances of the present case. He submitted that, when one looks at the reasons given by the sheriff for ordering caution, it is clear that the preponderant reasons were that the pursuer is a French national, and that he resides outwith the United Kingdom. But, he submitted, these are the very reasons which, on their own, are struck at by article 12. In that connection reference was made to a number of cases, mostly English, in which article 12, or its numerical predecessors, have been considered in connection with orders for the finding of security for costs.
The English cases all arose from a consideration of the English rule contained in R.S.C., Ord. 23, r. 1(1) which is in the following terms:
"Where, on the application of a defendant to an action or other proceeding in the High Court, it appears to the court - (a) that the plaintiff is ordinarily resident out of the jurisdiction ... then if, having regard to all the circumstances of the case, the court thinks it just to do so, it may order the plaintiff to give such security for the defendant's costs of the action or other proceeding as it thinks just."
Cases in which the foregoing rule have been considered are De Bry v. Fitzgerald and Another [1990] 1 WLR 552; Fitzgerald v. Williams [1996] QB 657; and Chequepoint SARL v. McClelland [1997] QB 51. In the last of these cases it was held that an order to find security for costs did not contravene Community law since, in the circumstances of that case, which also involved a consideration of section 726(1) of the Companies Act 1985, the plaintiff company was being treated no differently from an English company in similar circumstances. In the other two cases, however, the over-riding effect of the anti-discrimination principles in Community law were held to apply. In Fitzgerald v. Williams , Sir Thomas Bingham MR (as he then was) examined the relationship between the English rule relating to security for costs and the relevant Community law, particularly as explained in Mund and Fester v. Hatrex International Transport (cited above), and concluded (at p. 675):
"Since, however, ... a plaintiff suing in England who is a national of and resident in another member state party to the Convention [i.e. the Brussels Convention] has a Community right which a national court must protect not to be the subject of discrimination on grounds of nationality, it is necessary to ask whether any modification of English law or practice is called for to protect that right. The answer compelled by the Mund case in my view is: the English court should never exercise its discretion under the rule to order security to be given by an individual plaintiff who is a national of and resident in another member state party to the Convention, at any rate in the absence of very cogent evidence of substantial difficulty in enforcing a judgment in that other member state."
It is of interest to note that similar results have been reached in at least two Scottish cases ( Medicopharma (UK) BV v. Cairns 1993 SLT 386; and Kaiser Bautechnik v. GA Group Ltd 1993 SLT 826). However, in neither of the foregoing cases was there any citation of, or reference to, Community law, and it seems that in both cases the decision not to order caution for expenses was arrived at by a consideration of general principles.
Against the whole of the foregoing background counsel for the pursuer submitted that the sheriff had been wrong to found on the pursuer's nationality and place of residence as providing a justification for an order for caution. On the basis of what was said by the Master of the Rolls in Fitzgerald (in the passage which I have quoted above) counsel accepted that, in a case like the present one, Community law does not impose an absolute prohibition on an order for caution. However, such an order will be justified only where, apart from questions of nationality or residence, there is "very cogent evidence of substantial difficulty in enforcing a judgment" in the other member State. In the present case, it was submitted, there is no such cogent evidence.
Although the sheriff has said that the pursuer is of limited means, there is no suggestion that he is impecunious far less that he is the subject of any bankruptcy order, or its equivalent. The sheriff does not express the view that the pursuer's case against the defenders is unstatable. And, although the sheriff expresses some concern about the fact that the pursuer's work may require him to move from one country to another, there is nothing to suggest or indicate that any such move in the future, even were it to take place during the course of the present proceedings, would be to a country outside the European Community. In those circumstances, it was submitted, there is not nearly enough in the present case to justify an order for caution for expenses once the sheriff's reliance on the pursuer's nationality and place of residence are displaced. Reference was made in that connection to Macphail, Sheriff Court Practice (2 nd ed) 11.52 and 11.53, and to the cases cited, and quoted from, in those paragraphs.
In response to the foregoing submissions counsel for the defenders noted that the power which a Scottish court has to order caution for expenses is a much wider, discretionary, power than that permitted to English courts in terms of R.S.C Ord. 23, r. 1(1), and in that situation he submitted that little guidance is to be derived from the English cases in which that rule has been under consideration. He submitted that in the present case the sheriff's main concern had not been the pursuer's nationality or current residence outwith the United Kingdom but rather the uncertainty and instability of his residence given that he is likely to obtain work anywhere in the future. In those circumstances, it was submitted, the considerations to which the sheriff attached weight could equally well have arisen if the pursuer were a Scotsman currently resident in the Netherlands, or indeed if he were a Scotsman resident in Scotland but whose employment was such that he was likely to move from one place to another at very short notice. In either of these situations, it was submitted, the sheriff would have been perfectly entitled to exercise her discretion in accordance with the established Scottish principles regarding orders for caution for expenses. Counsel also reminded me that, where an exercise of discretion is subject to appeal, an appellate court will not interfere unless either it can be shown that the judge at first instance erred in law, or misunderstood the relevant facts, or where the decision arrived at is one which no reasonable judge could or should have arrived at. It was submitted that it could not be said that the sheriff's decision in the present case is open to review on any of those grounds.
Counsel for the defenders also presented a subsidiary argument in which, if I understood correctly, he sought to argue, by reference to the case of Young's Exrs. v. Peebles , 1997 SC 309, that I should not interfere with the sheriff's interlocutor of 13 January 1999 since it itself had not been appealed at the time; there had been no attempt by the pursuer to prorogate the time for making consignation; and, at the subsequent hearing on 9 February 1999, there had been no attempt to challenge the earlier interlocutor but instead the solicitor then appearing for the pursuer had simply sought to offer excuses for the fact that consignation had not taken place. I do not understand that Young's Exrs itself provides any authority for the view that an interlocutor ordering caution for expenses will be inviolate from review on account of the kind of circumstances founded on here; and in any event I consider that the later case of McCue , to which I have referred earlier, makes it plain that the sheriff's interlocutor of 13 January is open to review notwithstanding that it was not itself made the subject of an appeal at the time, and notwithstanding what may have occurred thereafter. I therefore reject this line of submission.
The principal question, therefore, in the present appeal is whether or not the sheriff's interlocutor of 13 January is fatally flawed on account of the failure by the sheriff to take account of relevant Community law. So far as that question is concerned, I am in no doubt that, for the reasons which were fully explored by counsel for the pursuer at the appeal hearing, the answer must be in the affirmative. The sheriff, in her Note, has demonstrated a fundamental error as to the applicability of the Treaty of Rome; and, while she mentions certain other matters as having contributed to her decision to order caution, it seems to me to be clear that the over-riding considerations which influenced that decision were the facts relating to the pursuer's nationality and residence. That is plainly struck at by article 12 of the Treaty, and it therefore follows that, at least in the first instance, the sheriff's decision was fatally flawed in that regard.
The next question, however, must be whether there were other considerations of such weight before the sheriff as would have entitled her to make an order for the finding of caution even if she had closed her mind to the facts of the pursuer's nationality and residence. A difficulty about that question, of course, is that we simply do not know how the sheriff herself would have approached the matter had she been fully alive to the requirements imposed by Community law, and accordingly her own reasoning cannot be analysed against that hypothetical background. However, I consider that, given the fundamental error in the sheriff's approach, I myself can properly consider the other matters founded on by her in order to see whether or not they provide a sufficient and acceptable basis for the order which she made. In my opinion they do not provide such a basis. Scots law itself (as explained in the passages in Macphail to which I have earlier referred) would not in my view support the making of an order for caution in the circumstances of this case; and the circumstances of this case, other than the pursuer's nationality and residence, certainly do not, in my opinion, satisfy the very high test desiderated by the Master of the Rolls in Fitzgerald (see above), namely that there must be "very cogent evidence of substantial difficulty in enforcing a judgment" in another member State.
In all the circumstances, therefore, I have come to the conclusion that this appeal must be allowed, and that the interlocutors of 13 January and 9 February should be recalled, with a proof being allowed de novo . Before leaving the merits of the appeal, however, I wish to add that I do not criticise the sheriff in this case either for not herself having taken Community law into account when she was considering whether or not to grant the defenders' motion on 13 January, or for having misrepresented the effect of that law when she came to write her Note following on the marking of the present appeal. Notwithstanding the requirement of Community law that courts should, if necessary ex proprio motu , give effect to Community law, the fact remains that sheriffs, and possibly judges at all levels, normally expect those appearing before them to alert them to any relevant law, whether national or European; and it seems to me to be expecting a lot to assume that sheriffs will always have the relevant law at their fingertips whether or not they are referred to it by parties. However, the present case may offer a salutary lesson that both sheriffs and practitioners must try to be aware of any possible European dimension, particularly when one or more of the parties is a national of, or resident in, another member State of the Community; and it may be that in such cases, even if Community law is not referred to by the parties, sheriffs should in future ask parties or their representatives whether or not there is any relevant part of Community law to which attention should be given.
Finally, I turn to the matter of the expenses of the appeal. I invited submissions on that matter at the conclusion of the appeal hearing, and counsel for the pursuer indicated that he would be agreeable that expenses should follow success. However, counsel for the defenders submitted that, even if the appeal were to be allowed, expenses should be awarded in favour of the defenders, or at least I should find no expenses to be due to or by either party. In support of that position counsel founded on the fact that the "European argument" had not been before the sheriff, and had been introduced only in the grounds of appeal. In that situation, it was submitted, the sheriff might well have decided the case differently if those matters had been before her, and her reasons for whatever decision she might have reached would have been different from those which were contained in the Note prepared for this appeal. In those circumstances, it was submitted, the pursuer ought not to be awarded the expenses of the appeal.
In response on this matter counsel for the pursuer pointed out that the question of the pursuer's nationality and residence had been before the sheriff, as had the existence and applicability of the Brussels Convention. In that situation, it was submitted, the central point in the appeal had been there from the start, and the reference to the Treaty of Rome in the grounds of appeal had merely underlined that issue. Moreover, it was observed that the pursuer's fourth ground of appeal has been known to the defenders since February 1999. In that situation they had plenty of time to consider the position, and to concede the appeal if satisfied that the ground of appeal was unanswerable. They had chosen not to do that; and, it was submitted, it would now be quite unjust that they should receive an award of expenses for being wrong.
In my view the effect of Community law is that it is not just for a judge to take note of it, if necessary ex proprio motu : it is also for parties to an action to bring it to judicial notice where relevant, and in the circumstances of the present case, that means the defenders just as much as the pursuer. In fact, however, although some sort of European dimension appears to have been mentioned at first instance, it is clear that nobody addressed the sheriff on the matter in the way in which it was addressed at the appeal. In those circumstances I am not disposed to treat what happened, or did not happen, before the sheriff as the starting point for determining liability for expenses in connection with the appeal. Instead, I prefer to proceed simply on the basis that a point of importance was introduced in the grounds of appeal; the defenders sought to challenge that ground of appeal; and they did so unsuccesfully. In those circumstances I consider that they must now bear the expenses of the appeal. Finally, I should just add that certification of the appeal as suitable for the employment of junior counsel was agreed on both sides, and I have given effect to that.