Scottish Court of Session Decisions

[1] The pursuer in these related actions seeks to enforce a claim for indemnity from the defenders respecting losses sustained by him in consequence of a fire at his house in Glen Loy on 6 December 1992. There a two actions. One concerns the buildings themselves and the other action concerns the contents but for present purposes there is no material distinction between the pleadings in each action.

[2] The indemnity is sought under a policy of insurance concluded initially on the basis of a proposal form signed by the pursuer in August 1991. It is averred by the pursuer and admitted by the defenders that by a letter dated 27 May 1993 the defenders repudiated any liability under the policy, holding the policy void from inception. In their defence to the present actions the defenders maintain that they were entitled so to avoid the policy on the ground of certain material alleged mis-statements in the proposal form.

[3] In addition to that defence the defenders also plead that the pursuer's claims have prescribed in terms of Section 6 of the Prescription and Limitation (Scotland) Act 1973 - "the Act". The actions came before me on the procedure roll for discussion only of that plea. Counsel for each party were agreed that the starting date for the running of the five year prescriptive period provided for by Section 6 of the Act was the date of the fire itself, that is to say 6 December 1992. It was also accepted that no "relevant claim" within the meaning of Section 9 of the Act had been made prior to the commencement of the present proceedings. It was further accepted that the date upon which both of the present actions were commenced was 22 May 1998. It is evident therefore that any obligation of the defenders to indemnify the pursuer in respect of his losses has prescribed unless on or after 22 May 1993 the subsistence of the obligation has been "relevantly acknowledged" by or on behalf of the defenders.

[4] What is required to constitute a "relevant acknowledgement" is dealt with in Section 10 of the Act, sub-section (1) of which provides that:

[5] In each of the present cases the pursuer relies only on head (a) and it is not suggested that there is any unequivocal written admission of the kind envisaged in head (b) of that sub-section.

[6] The averments made on behalf of the pursuer respecting the relevant acknowledgement contended for were amended at the start of the procedure roll discussion. In their amended form they read as follows:

[7] In their answers, on this aspect of the case, the defenders say that they began investigation following intimation in December 1992 of the pursuer's claim under the policy and that in a response to a request from the pursuer for interim payments since he was homeless they wrote to the pursuer on 23 December 1992. The defenders aver that the letter stated "as you will no doubt appreciate our investigations into your claim have not been completed and therefore we are unable to make any payment under the terms of our policy". The defenders' averments continue thus "the letter referred to a cheque for the sum of £100 being released 'without any admission of liability'. The cheque for £100 related to alternative accommodation costs. Thereafter investigations by the defenders continued and further payments were made to the pursuer in respect of alternative accommodation." The defenders' answers go on to refer to a meeting between the loss adjusters and a certain individual in relation to the property in April 1993 and then state that on 27 May 1993 the defenders wrote to the pursuer stating that the policy was being voided from inception.

[8] There were lodged in process copies of what were said to be letters from the defenders to the pursuer dated 7 May and 27 May 1993. The former copy letter, after reference to a contemporary telephone call from the pursuer, states:

The content of the later letter of 27 May 1993 may be summarised as stating that the defenders' enquiries are continuing; that the loss adjuster has had certain meetings; that a full report is awaited from him; and that on the receipt of the report "we shall be in a position to give the claim our consideration". It may be noted that the terms of that letter contain neither the repudiation of liability nor the intimation that accommodation would not be paid for after 28 May 1993 to which reference is made in the pleadings themselves.

[9] Mr Hanretty for the defenders submitted that the pursuer's averments did not constitute a proper averment of a relevant acknowledgement within the meaning of head (a) of sub-section 10 of the Act. None of the matters averred amounted to performance towards the obligation to pay an indemnity such as clearly to indicate that the obligation still subsisted. The carrying out by the defenders of investigations into the claim was not indicative of the subsistence of an obligation to make indemnity. The making of a payment without admission of liability as a "gesture of good faith" could not be performance towards implementation of the obligation which indicated its subsistence. Counsel referred to the consideration of section 10(1) given by the Extra Division in Richardson v Quercus Ltd 1999 S.C. 278. He submitted that the decision simply indicated that a court was entitled to look at the whole background or factual matrix in deciding whether particular actings relied upon were sufficient performance towards the implement of the obligation in question so as to clearly indicate the subsistence of the obligation. It was however important, said counsel, to bear in mind that the performance in issue must be performance indicative of the continuing subsistence of the obligation rather than its creation or constitution and in that regard he referred to the unreported decision of the court in Steel v Dundaff Ltd (13 January 1995). Making investigation into a claim could not indicate acceptance of the existence of the obligation which was claimed. Making a payment without admission of liability did not indicate the subsistence of an obligation. A payment made in respect of future costs could at best represent an indication of subsistence of an obligation at the time at which the payment was made. It would however be absurd to say that because the payment was an advance respecting future costs or loss of profits performance continued into the future for whatever might be thought to be the period of future costs or profits covered by the payment made previously. To aver simply that the defenders made payment for the pursuer's alternative accommodation covering the period up to 28 May 1993 was therefore insufficient. Counsel moved that the plea of prescription should be upheld. If that motion were not granted and enquiry were to be allowed it should be restricted to a preliminary proof before answer in relation to prescription.

[10] Counsel for the pursuer for his part moved that the plea of prescription be repelled and a proof before answer be allowed in respect of the other matters in the case. Alternatively he sought a proof before answer on all matters, including prescription. Counsel submitted that up until the repudiation of liability on 27 May 1993 there had been performance by the defenders from which the subsistence of the obligation might be indicated. Counsel pointed out that there was no adjective in Section 10(1)(a) requiring the "performance" to be substantial or significant. "Performance" was not confined to implement or part implement of the obligation. In Richardson v Quercus the court (at 287H) had expressed approval of the respondent's submissions in that case, recorded in these terms:

Since the concept of performance was thus wider than partial implement of the actual obligation founded upon, it was submitted that in the present case the investigation of the claim under the policy, the correspondence between the pursuer and the defenders and, particularly, the making by the defenders of payments towards the costs of the pursuer's alternative accommodation could all amount to appropriate performance indicating the subsistence of the obligation. In his opinion in Richardson Lord Johnston had expressed the view that a liberal and broad construction should be put upon both the phraseology of the statute and any inferences or conclusions to be drawn from evidence which bears upon either Section 10(1)(a) or Section 10(1)(b).

[11] Counsel for the pursuer submitted that the fact the defenders had agreed to pay towards alternative accommodation costs, and were averred to have done so until 28 May 1993, was thus capable of constituting performance sufficient for the purposes of Section 10(1)(a). In Stewart's Executors v Stewart 1993 S.L.T. 440 the Lord Ordinary (Kirkwood) had indicated that a proof before answer should be allowed to enable the court to decide after the leading of evidence whether the tests in Section 10(1)(a) of the Act had been satisfied. That approach was consistent with the broad interpretation of the statutory provisions joined by the decision in Richardson v Quercus. Accordingly at all events a proof before answer should be allowed.

[12] Although in many respects the matter in issue is within relatively narrow compass I have come to the conclusion that it would not be right to decide the question of prescription simply on the terms of the current pleadings without evidence having been heard.

[13] Having reached that conclusion it is, I think, inappropriate for me to express at this stage any concluded view on the submissions which have been advanced. I would simply say, by way of indication of some of my reasons for concluding that enquiry is appropriate, that on the face of matters the undertaking in the letter of 7 May 1993 to pay or contribute to the pursuer's costs of alternative accommodation is averred to be part of the indemnification owed under the policy. It is also averred that payment was made up to 28 May 1993, although the mechanism and timing of payment or payments is not spelled out in detail in the pursuer's pleadings. Although in many cases the mere fact that an alleged debtor (or the insurer of the debtor respecting the claim advanced against the debtor) takes steps to investigate whether liability exists will not usually amount to performance indicating the subsistence of the obligation, I am not however currently persuaded that the fact that the defenders, as the insurers in direct contractual relationship with their policy holder, were following a no doubt common practice of investigating the policy holder's claim and awaiting the loss adjusters' report must necessarily be destructive of any prima facie inference which might be drawn from the continuing payment of accommodation costs in terms of the policy and the apparently unqualified terms of the letter of 7 May 1993. It is also to be observed that the pleadings for both sides make reference to various letters respecting which probation has not been renounced. While in modern practice the renunciation of probation of documents referred to in the pleadings is not generally regarded as imperative before deciding matters at the stage of debate rather than proof I would simply observe that the letter of 27 May 1993 whose content I summarised above does not fit happily with the other averred correspondence. Moreover the letter of 7 May 1993 may also have to be seen also in the context of prior correspondence not completely set forth in the pleadings. In these circumstances, and having regard to the approach of the court in Richardson v Quercus, I consider that allowance of a preliminary proof before answer restricted to the question of prescription, and particularly whether the obligation contended for was relevantly acknowledged within the period of 5 years preceding the raising of the action, is the proper course to follow.