Scottish Court of Session Decisions

[1] This is an action of damages for professional negligence at the instance of a building society against a firm of solicitors. The pursuers conclude for damages of £150,000. In support of that conclusion they make averments about four separate transactions in which the defenders were instructed to act for them in relation to the making of advances on heritable security in connection with the purchase by the borrowers of residential property. They aver that the defenders acted negligently and in breach of contract in certain respects in relation to each of the transactions. They aver that as a result of that negligence they made advances which they would not otherwise have made. The averments of loss contain the material for a separate calculation in relation to each of the four transactions. The defenders do not challenge the competency of concluding for a single sum of damages in respect of four separate alleged wrongful acts or omissions. In the circumstances no useful purpose would be served by my taking that point ex proprio motu. I should not, however, on that account be taken to have endorsed the competency of that form of proceeding.

[2] The defenders aver that any obligations that they may have had to make reparation to the pursuers have prescribed in terms of section 6 of the Prescription and Limitation (Scotland) Act 1973 ("the 1973 Act"). In response the pursuers seek to rely on section 11(3) of the 1973 Act. When the case called before me on the procedure roll, the defenders argued that the pursuers had made insufficient averments relevantly to support their reliance on section 11(3), and that the action should therefore be dismissed. The pursuers argued that they had made sufficient averments to justify the allowance of a proof before answer, either on the whole case or, in the first instance, on the issue of prescription.

[3] In article 2 of the condescendence the pursuers aver that in about September 1989 they instructed the defenders to act for them in respect of the purchase of 7 Cowiefaulds Cottages, Gateside, Fife by a mutual client, a Mr Douglas Miller. They aver that the defenders accepted those instructions. The offer of advance was made by the pursuers on 27 September 1989. The pursuers were in due course asked to provide a cheque for settlement on 26 January 1990. The disposition and standard security were sent for recording on 5 February 1990. The client subsequently defaulted, and the subjects were repossessed on 31 July 1991 and sold on 7 November 1991.

[4] In article 3 of the condescendence the pursuers make similar averments relating to a transaction in which the purchaser was one Ian Kibble, the subjects were 1 Cowiefaulds Cottages, the date of the offer of advance was again 27 September 1989, the settlement cheque was again requested on 26 January, the date on which the disposition and standard security were sent for recording is not specified, the date of repossession was 26 November 1990 and the date of sale was 2 August 1991.

[5] In article 4 of the condescendence, the pursuers make similar averments about two further transactions. One was the sale of 3 Cowiefaulds Cottages to one Anthony Redman, and the other was the sale of 4 Cowiefaulds Cottages to one Stelios Koskinas. In each transaction the date of the offer of advance was 16 February 1990, and the loan cheques were requested prior to 23 February 1990. No. 3 was repossessed on 30 May 1991 and sold on 11 August 1992. No. 4 was repossessed on 30 May 1991 and sold on 27 March 1992.

[6] The pursuers aver that the four subjects formed part of a single development. In each case the seller was the developer. In each case the purchaser was an employee of the seller.

[7] The alleged negligence and breach of contract in relation to each of the four transactions is said to have taken the form of a failure to make proper inquiry about the borrower/purchaser, and failure to report on the unusual nature of the transaction and the likely credit-worthiness of the clients.

[8] The defenders aver that any right of action that the pursuers might have had against them subsisted from "at least 26 November 1990 and at the latest 31 July 1991", that the summons was served on 3 June 2000, and that any obligation on their part to make reparation to the pursuers has accordingly been extinguished in terms of section 6 of the 1973 Act.

[9] In response to that contention, the pursuers make the following averments:

[10] Section 6(1) of the 1973 Act provides inter alia as follows:

The appropriate date is the date on which the obligation became enforceable (section 6(3)). Section 11(1) provides inter alia as follows:

[11] In the course of the debate various dates were suggested as the date on which the pursuers first suffered loss, injury or damage as a result of the defenders' alleged negligence and breach of contract. It is sufficient for present purposes to note that the last possible date was in 1992, more than five years before the action was raised. No other relevant claim or relevant acknowledgement is relied upon. The result is, as Mr Henderson for the pursuers accepted, that if the matter were to be determined solely by the application of sections 6(1) and 11(1), the alleged obligations on which the pursuers found would have been extinguished.

[12] In those circumstances the pursuers found on section 11(3), which provides inter alia as follows:

[13] Mr Robertson for the defenders submitted that the pursuers had failed to aver circumstances sufficient to support the inference that they were not, and could not with reasonable diligence have been, aware until a date less than five years before the raising of the action that they had suffered loss and damage caused by an act, neglect or default. Mr Robertson referred to Glasper v Rodger 1996 SLT 44, and in particular to the following passage from the Opinion of the Court delivered by Lord President Hope at 47F-K:

Mr Robertson also referred to Beveridge & Kellas WS v Abercromby 1997 SC 88 at 90I to 91G and 93B-D.

[14] Mr Robertson pointed out that on the pursuers' own averments they were alleging breach of contract and negligence in relation to four transactions, all handled on their behalf by the defenders, that took place within a space of less than six months, that involved four properties within a single development all sold by the same developer, and in which the purchasers/borrowers all defaulted within eighteen months, and the properties were repossessed and each sold for less than the amount of the secured loan. In those circumstances, it was not enough for the pursuers to make the bare averments (a) that they did not become aware of the existence of a potential claim until June 1996 and (b) that they could not with reasonable diligence have become so aware prior to that date. On their own averments, they asked their solicitors to carry out an audit and investigate whether they could make a claim against their professional advisers in respect of the shortfall in recovery in respect of the loans. On their own averments, it was that shortfall that prompted them to take that step. The fact of the shortfall, and its aggregate amount, were known to them by March 1992. There was no explanation of why the investigations which they ultimately instructed could not with reasonable diligence have been instructed earlier. It was to be borne in mind that the pursuers were a substantial financial institution.

[15] In all those circumstances, Mr Robertson submitted, the pursuers had failed to discharge the burden which was incumbent on them of making relevant averments to bring themselves within the scope of section 11(3). The averments seeking to invoke section 11(3) should therefore be excluded from probation and, that done, the defenders' plea of prescription should be sustained and the action dismissed. Failing dismissal, there should be a preliminary proof before answer on the question of prescription. Mr Robertson sought to reserve for future discussion the defenders' plea to relevancy, so far as it bore on the pursuers' pleadings on the merits.

[16] As I have already indicated, Mr Henderson for the pursuers accepted that the pursuers could only succeed in having the defenders' plea of prescription repelled by successfully invoking section 11(3). He accepted that the onus of establishing that the circumstances fell within the scope of section 11(3) rested on the pursuers. He submitted, however, that on a sound view of the authorities, the pursuers had made sufficient averments for that purpose. This case was distinguishable from many of the reported cases because the loss complained of was not of an obvious nature. The mere fact that the security subjects were realised at less than the amounts of the relative loans was not sufficient by itself to point to there having been loss due to the negligence of the defenders. There were many possible reasons for a loss on realisation of security subjects, for example a general fall in the market, the fact that the sales followed repossession, or the fact that four properties in the same development all came on the market in a short space of time. It was, Mr Henderson submitted, only after the files had been gathered in that it could be seen that there had been loss which was caused by negligence. Mr Henderson suggested that the point in issue might be whether an organisation like a building society could be said to be acting reasonably if it accumulated a batch of transactions for investigation, before setting the investigation in motion. In view of the averments that the pursuers had made, it was for the defenders to put in their pleadings the basis for asserting that reasonable diligence would have involved doing more than the pursuers did. Mr Henderson drew my attention to Kirk Care Housing Association Ltd v Crerar and Partners 1996 SLT 150, in which Lord Clyde (at 153A-C) made certain observations on Glasper. He also cited The Mortgage Corporation v Lambert & Co [2000] Lloyds Rep. Bank. 207.

[17] Mr Henderson's primary motion was that I should allow a proof before answer on the whole pleadings. Alternatively, he submitted that a proof before answer should be allowed, divided into two stages, one dealing with the preliminary issue of prescription, and the other dealing with the merits. He sought to persuade me that it would be inappropriate to do as Mr Robertson had suggested, and reserve the defenders' plea to the relevancy of the pursuers' averments on the merits. The defenders' third plea-in-law, to the relevancy of the pursuers' averments of loss, should be repelled now, since it could not stand with the allowance of a proof before answer.

[18] The only issue truly before me is the relevancy of the pursuers' averments invoking section 11(3). It is a matter of concession that if those averments are irrelevant, the pursuers' claims have prescribed. To make a relevant case under section 11(3) the pursuers must in my view make averments not only that they were not in fact aware, until a date less than five years before the raising of the action, that they had suffered loss and damage caused by the breach of contract or negligence of which they say the defenders were guilty, but also that they could not with reasonable diligence have become aware of that fact earlier. The pursuers aver that they did not in fact become aware of the relevant facts until June 1996 when their present solicitors obtained access to the relevant files. That is a relevant averment of actual unawareness. So far as reasonable diligence is concerned, however, they merely aver that until the files were recovered they could not with reasonable diligence have become aware that they had a claim. They aver nothing to explain why that was so. That is not, in my opinion, enough to constitute a relevant invocation of section 11(3).

[19] I accept from Glasper that there are cases where a pursuer, if he has no reason to know or suspect that he has suffered loss at all, will be able to deal with the question of reasonable diligence by way of a bare averment that, because he was unaware of his loss, he could not with reasonable diligence have discovered that it was due to negligence, because there was nothing to put him on inquiry. I do not consider that this is a case of that sort. I recognise some force in Mr Henderson's submission that the mere fact that repossessed security subjects are sold at less than the amount of the loan will not necessarily prompt the reasonably diligent lender to inquire as to whether he has, in the circumstances, suffered a loss caused by act, neglect or default. It may well be that the pursuers suffered loss as soon as they made the advances which, on their contention, they would not have made if the defenders had exercised reasonable care. If so, the loss on sale following repossession is not necessarily the loss caused by the defenders' act, neglect or default. But it does not seem to me that that places the pursuers in the category of a person who is wholly unaware that he has suffered loss, and therefore has no occasion to think that he requires to carry out any form of investigation. On the contrary, when account is taken of the circumstances disclosed in the pursuers' own pleadings, it seems to me that the pursuers were, by March 1992 at the latest, aware that they had suffered loss in respect of each of the four transactions. In addition, they were aware that all four transactions were handled by the same solicitors, took place within a short space of time, involved the same development and the same seller, and resulted in default within eighteen months. In those circumstances, I am of opinion that it is incumbent on the pursuers, who are after all a lending institution well accustomed to such transactions, to explain why it is that they did nothing until 1996. Indeed the fact that they instituted an audit in 1996 supports the inference that the circumstances were such as to call for inquiry to see whether they had any recourse in respect of the losses they had suffered. Their averments contain nothing to explain why the steps which they chose to take in 1996 could not with reasonable diligence have been undertaken earlier. I am therefore of opinion that this is a case in which a bare averment that the pursuers could not with reasonable diligence have become aware earlier that they had a claim does not constitute a relevant invocation of section 11(3). To make a relevant case the pursuers would, in my opinion, have had to set out facts and circumstances explaining why they could not, with reasonable diligence, have discovered earlier than 1996 that they had suffered loss due to an act, neglect of default.

[20] I shall accordingly sustain the defenders' second plea-in-law so far as directed against the relevancy of the pursuers' averments invoking section 11(3), consequently exclude those averments (namely the fourth to ninth sentences of article 8 of the condescendence) from probation, and thereafter sustain the defenders' first plea-in-law and dismiss the action. I shall reserve the question of expenses.