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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Smith v Gordon & Smyth & Ors [2001] ScotCS 207 (16 August 2001)
URL: http://www.bailii.org/scot/cases/ScotCS/2001/207.html
Cite as: [2001] ScotCS 207
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OUTER HOUSE, COURT OF SESSION |
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OPINION OF LADY PATON in the cause JOHN J SMITH Pursuer; against (FIRST) GORDON & SMYTH and OTHERS; (SECOND) DAVID WILLIAMSON and (THIRD) RAEBURN ALLISON & COMPANY and OTHERS Defenders: ________________ |
Pursuer: Agnew of Lochnaw, Q.C.; U. Doherty, Advocate; Balfour & Manson
First Defenders: Hanretty, Advocate; Morison Bishop
Second Defender: Connal, Solicitor-Advocate, McGrigor Donald
Third Defenders: Paterson, Advocate; HBM Sayers
16 August 2001
[1] In this action the pursuer sues firstly, a firm of solicitors, secondly, an accountant, and thirdly, a firm of accountants, alleging professional negligence. The action so far as directed against each defender is founded upon breach of contract. The summons was signetted on 12 January 1998, and was served on each defender shortly thereafter.
[2] At a debate, the pursuer offered a proof before answer. The defenders invited the court to sustain their preliminary pleas directed to prescription, relevancy and specification. They sought either absolvitor or dismissal of the action so far as directed against them.
[3] On the third and last day of the debate, senior counsel for the pursuer moved to amend the Closed Record in three respects: in Article 2 at p.9A-B, by deleting the word "second" where it appears after the words "a letter dated 21 January 1993 to the", and substituting the word "third"; in Article 11 at p.34A, by deleting the word "first" where it appears after the words "to check with the" and substituting the word "second"; and at p.35E by deleting "section 61(2)" and substituting "section 62(1)". I granted the pursuer's motion, and reserved the question of the expenses of the amendment.
Background
[4] The pursuer owned a farm called Back Priestfield. In 1991 he sold 54 acres of the farm land for development purposes at a price of £965,000. Missives were concluded on 29 November 1991. The sale resulted in a capital gain of £868,482. A liability to capital gains tax arose as soon as missives were concluded.
[5] In terms of section 115 of the Capital Gains Tax Act 1979 (c.14) liability for that tax could be deferred indefinitely - indeed until the pursuer's death - provided that the proceeds of sale were re-invested in qualifying assets within one year before or three years after the conclusion of the bargain. Qualifying assets included other farms purchased in the pursuer's name and farmed by him. This was known as roll-over relief.
[6] Read short, the pursuer's complaint is that, despite having had the professional services of a firm of solicitors, an accountant, and subsequently another firm of accountants, he was not given clear advice about roll-over relief. As a result, he failed to take full advantage of the relief within the qualifying period ending on 28 November 1994. In particular, part of the sale proceeds of Back Priestfield were re-invested in a farm called Turnlaw Farm, but title was taken (apparently without the pursuer's instructions) in joint names of the pursuer and his wife, thus reducing the relief available to him. Further, a large part of the sale proceeds were simply not re-invested in qualifying assets. Finally, penalty and interest were incurred as a result of failure to make timeous intimation and payments to the Inland Revenue.
[7] The pursuer avers that he suffered a total loss of £245,000, comprising capital gains tax of £167,092 (which he would not have had to pay had he taken full advantage of roll-over relief) together with penalty of £33,418 and interest of £44,490. It is the pursuer's case that, had he received advice, he would not have incurred that loss.
[8] In the First Conclusion, the pursuer seeks payment of £245,000 from all three defenders, jointly and severally. Alternatively, in the Second and Third Conclusions, "failing recovery of the element of loss represented thereby in the sum first concluded for", the pursuer seeks payment of £58,400 and £15,418 from the first and third defenders jointly and severally, representing the additional capital gains tax of £58,400 which he would not have had to pay had title to Turnlaw been taken in (or changed to) his name alone, together with interest thereon of £15,418. Also in the alternative, in the Fourth and Fifth Conclusions, "failing recovery of the element of loss represented thereby in the sum first concluded for", the pursuer seeks payment of £33,418 and £44,490 from the second and third defenders, representing the penalty of £33,418 arising from failure timeously to intimate the capital gain to the Inland Revenue, and interest incurred to the Inland Revenue of £44,490.
Chronology of some events referred to on record
[9] For convenience, certain dates and events relied upon by the pursuer, and referred to on record and during the debate, are summarised below. Some of the matters are disputed, but at this stage I have to accept the pursuer's averments pro veritate.
July 1991: Telephone call from the pursuer's wife, Mrs. Smith, to the second defender (accountant), seeking advice about the tax consequences of the proposed sale of Back Priestfield.
22 July 1991: Meeting attended by the pursuer, Mrs. Smith, and the second defender, at which the second defender mentioned "roll-over" to Mrs. Smith.
Later in July 1991: Contact between the pursuer and the first defenders (solicitors), about the sale of Back Priestfield.
11 October 1991: Missives concluded by the first defenders for the purchase of Turnlaw Farm, with a date of entry of 11 October 1991. Both the missives and the subsequent disposition ran in the joint names of the pursuer and Mrs. Smith.
29 November 1991: Missives concluded for the sale of Back Priestfield.
25 June 1992: Letter from the second defender to the pursuer, inter alia requesting details of the sale of Back Priestfield, and referring to "time-limits in connection with submission of relative computations": Article 3 of Condescendence, page 15D.
9 July and 4 September 1992: Alleged reminder letters from the second defender to the pursuer (although these letters are not admitted by the pursuer).
25 September 1992: Termination of the second defender's agency. The third defenders took over as the pursuer's accountants.
30 September 1992: Formal letter of resignation from the second defender.
31 October 1992: Date by which intimation of the capital gain arising on the sale of Back Priestfield should have been made to the Inland Revenue. As a result of the lack of intimation, the pursuer incurred a penalty.
14 January 1993: Letter from the third defenders to the first defenders enquiring in whose names title to Back Priestfield and Turnlaw were held. Intimation of the sale of Back Priestfield given by the third defenders to the Inland Revenue.
21 January 1993: Reply from the first defenders to the third defenders, confirming that the title to Back Priestfield had been in the pursuer's name alone, and that title to Turnlaw Farm was in joint names.
28 November 1994: End of the period within which roll-over relief could be claimed.
29 November 1994: Meeting attended by the pursuer and further new accountants: cf. Article 5 of Condescendence, p.21A. (Note apparently erroneous reference to "third defenders" in Article 13 of Condescendence at p.38D-E).
21 March 1997: Penalty imposed on the pursuer by the Inland Revenue.
12 January 1998: Signetting of the pursuer's action against all three defenders, with service being effected shortly thereafter.
Case against the solicitors (first defenders)
[10] In Articles 2, 3, and 4 of Condescendence, the pursuer avers that the first defenders knew that Back Priestfield was to be sold for development. In that knowledge, they acted on the pursuer's behalf in the purchase of another farm, Turnlaw Farm, and on 11 October 1991, concluded missives at a price of £235,000. However, without the pursuer's knowledge or instructions, title to Turnlaw Farm was taken in joint names of the pursuer and his wife. The pursuer avers that the first defenders did not give the pursuer clear advice about capital gains tax or roll-over relief. Had such advice been given, the sale proceeds of Back Priestfield would have been re-invested within the permitted period in agricultural property and buildings taken in the pursuer's name alone, to be held and farmed by the pursuer. The pursuer accepts in his averments that he did not instruct the first defenders to give him advice about tax consequences, but avers that any reasonably competent solicitor in the first defenders' position would have regarded it as part of their duties to give such advice. In any event, the first defenders had addressed questions of value added tax and inheritance tax, demonstrating that they regarded tax consequences as part of their duties. The Inland Revenue would have permitted Mrs. Smith's one-half share of Turnlaw Farm to be conveyed to the pursuer at any time before 28 November 1994, thus enabling the pursuer to maximise the roll-over relief.
[11] In Articles 6 and 9 of Condescendence, the pursuer sets out the duties of care said to be owed by a solicitor of ordinary competence exercising reasonable care. The averments relate inter alia to (i) awareness that capital gains tax liability might arise on the sale of Back Priestfield, and the duty to give advice about mitigating that liability (including advice, if necessary, to seek "specific tax advice", for example from a tax specialist); (ii) the need for specific instructions before re-investing the sale proceeds of Back Priestfield (owned solely by the pursuer) in heritage in joint names of the pursuer and his wife; (iii) the duty to advise the pursuer appropriately prior to 28 November 1994, so that title to Turnlaw Farm could if necessary be transferred from joint names to the pursuer's name alone.
[12] Article 12 of Condescendence refers inter alia to breach of contract, and gives details of the various losses suffered by the pursuer.
[13] In Answer 13, the first defenders raise the issue of prescription, as follows:
"... Explained and averred that any obligation on the part of the first defenders to make reparation to the pursuer is prescribed. On the hypothesis of fact averred by the pursuer, a charge to capital gains tax arose in consequence of the disposal of the lands at Back Priestfield. [That charge was not mitigated by the acquisition of the lands at Turnlaw Farm and accordingly the pursuer suffered loss on the conclusion of the said purchase of the lands at Turnlaw Farm.] Pursuer was aware or could with reasonable diligence have been aware of the said loss having been suffered and that such must have been a consequence of professional negligence on the part of the pursuer's professional advisers."
Counsel for the first defenders accepted that the averment shown in square brackets above was not wholly correct.
[14] In Article 13 of Condescendence, the pursuer responds to the averments directed to prescription as follows:
"...Explained and averred that the pursuer, as a layman, quite reasonably in the circumstances condescended upon was not aware of the tax consequences of what had been done or omitted to have been done until a meeting with the third defenders [quaere "new accountants"] on 29 November 1994. Before that he was not aware, had no reason to be aware and could not reasonably have been aware that he had suffered loss and damage as a result of the failures condescended upon. He suffered no loss and damage other than tax consequences as a result of Turnlaw Farm being taken in joint names of himself and his wife. His wife was willing to transfer the property back to him if asked as indeed she ultimately did in an attempt to obtain roll-over relief although late. Further and in any event the neglect and default of the first and third defenders continued until 28 November 1994 when re-investment for roll-over relief purposes was no longer possible. Further and in any event the loss was not incurred until the means of avoiding the charge of capital gains tax by means of roll-over relief was lost on 28 November 1994. Further and in any event the amount of the capital gains tax liability and interest was not ascertained until 21 March 1997. The penalty was not imposed until that date."
First defenders' submissions
[15] Prescription: Counsel for the first defenders submitted that any obligation to make reparation was one to which the quinquennial prescription applied in terms of section 6 of the Prescription and Limitation (Scotland) Act 1973. The quinquennium began when injuria and damnum coincided: Dunlop v McGowans, 1980 S.C.(H.L.) 73. Counsel submitted that the injuria in the present case was the taking of the title in joint names when the first defenders had (according to the pursuer) not been instructed to do so. As soon as missives were concluded, the pursuer lost a half share of Turnlaw Farm. The injuria did not extend any further. The first defenders had not been asked to give advice on tax matters. The pursuer might attempt to argue that the first defenders' duty of care continued until 28 November 1994, when roll-over relief could no longer be obtained: section 11(2) of the 1973 Act. But on the assumption that there had been a breach of duty on the part of the first defenders, their obligation to make reparation arose on the conclusion of the missives when injuria (arising from the conclusion of the missives in joint names) coincided with damnum namely loss of half of Turnlaw Farm, expense which might be incurred in trying to rectify the situation, and (ultimately) a liability to capital gains tax which would have been significantly less had Turnlaw Farm been taken in the pursuer's name alone. The fact that the extent of pursuer's loss might thereafter increase or decrease - even to the extent of being wholly mitigated - was irrelevant when identifying the terminus a quo for the purposes of prescription. Thus the fact that the title could be restored to the pursuer's name alone and the capital gains tax liability reduced within the three year period permitted by section 115 of the 1979 Act did not alter the fact that the pursuer had suffered a loss as soon as missives were concluded in joint names of himself and his wife. The first defenders' retainer did not go beyond completion of the conveyancing for the two properties: cf. Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] 1 Ch. 384, at p.435A-E. The first defenders' first plea-in-law should be sustained, and decree of absolvitor pronounced.
[16] Counsel then referred to the pursuer's averments which appeared to rely upon section 11 (1) and (3) of the 1973 Act. Counsel submitted that the breach of contract in the present case consisted of concluding missives (and subsequently taking title) in joint names of the pursuer and his wife, rather than in the name of the pursuer alone. An important matter therefore was the date when the pursuer became aware that the title had been taken in joint names. It was for the pursuer to satisfy the court that he was entitled to rely upon s.11(1) and (3). Yet there were no averments disclosing when the pursuer first learned that title was to be, or had been, taken in joint names. The pursuer made no clear admissions to the first defenders' averments in Answer 2 at p.11D ("The State for Settlement in relation to the transaction clearly indicated the purchase of the lands by both the pursuer and Mrs Smith. They were provided with a copy of the Land Certificate relating to the subjects which set out, in the proprietorship section, the pursuer and Mrs. Smith's details"). Counsel argued that it was a simple matter for the pursuer to aver when he first became aware that his solicitors had, without his instructions, taken the title to Turnlaw Farm in joint names: cf. dicta in Beveridge & Kellas v Abercromby, 1997 S.C. 88 at p.91H-93G. As the pursuer had failed to make sufficient relevant averments entitling him to rely upon section 11(1) and (3), the first defender's first plea-in-law should be sustained, and absolvitor granted.
[17] Lack of specification: In any event, counsel for the first defenders contended that the pursuer's averments lacked specification, and the action should be dismissed for that reason. There were no averments setting out the nature and ambit of the first defenders' retainer. This was a fundamental lack of specification, as the pursuer's case was founded upon contract (not delict, or contract and delict). The nature and extent of the first defenders' duties obviously depended upon what they had contracted to do, or what they had been instructed to do. There were further instances of lack of specification: what was meant by "clear" tax advice, or being "properly" advised. The first defenders were entitled to fair notice on these matters. Further there were many facts within the pursuer's knowledge which ought to be averred: for example, the third defenders averred in Answer 5 at p.22D of the Record that, following upon a meeting between the pursuer and the third defenders on 25 September 1992, "there was no contact between the pursuer and the third defenders until January 1993." This was met by a denial from the pursuer, yet no details were given of what contact, if any, had taken place. Counsel referred to further discrepancies and failures to aver facts which ought to be within the pursuer's knowledge. The pursuer's whole case lacked candour, clarity and specification. Failing absolvitor, the first defenders' second plea-in-law should be sustained, and the action so far as directed against the first defenders should be dismissed.
[18] Relevancy and joint and several liability: Counsel for the first defenders further submitted that the pursuer appeared to be saying that there were concurrent and identical duties incumbent upon each defender. However the circumstances were not such as to give rise to identical duties on the part of each defender. The case concerned three different contracts, with three different professionals. Yet the pursuer appeared to aver joint and several obligations on the part of each defender. Such joint and several liability might exist where three defenders were sued in delict, but not when they were sued on the basis of each professional's separate contract with the pursuer. Reference was made to Gloag, Contract (2nd ed) p.198; McBryde, Contract, 16-01, 16-02: Allison v Isleburn Ltd & anor., 1997 S.C.L.R.791; Duff v East Dunbartonshire Council, 1 June 1999, (Lady Cosgrove, unreported). The pursuer seemed at times to recognise that the case truly concerned different breaches by different defenders of different obligations: for example, in the fourth and fifth conclusions he did not seek to recover from the first defenders any damages in respect of the penalty incurred as a result of lack of intimation to the Inland Revenue, apparently recognising that such intimation was not part of the first defenders' duties. Nevertheless the pursuer sought to base his case against the defenders on joint and several liability. The action as pled was accordingly irrelevant, and should be dismissed. In reply to submissions by senior counsel for the pursuer, counsel for the first defenders submitted that joint and several conclusions might be competent where two similar advisers were instructed in respect of the same sort of advice; also where the acts or omissions of two separate advisers resulted in the same loss (Grunwald v Hughes, 1965 S.L.T. 209). However in the present case, different species of loss had emerged. Contrary to the first defenders' understanding of the pursuer's case on record, counsel for the pursuer seemed to suggest, in his submissions, that the first defenders could be liable for the penalty incurred. But as the failure to notify the Inland Revenue was nothing to do with the first defenders, they could not be liable in respect of the penalty.
[19] Causation: Counsel submitted firstly that the averments disclosed no causal link between the alleged failure in duty (taking title to Turnlaw in joint names) and the charge to capital gains tax arising on the sale of Back Priestfield. Secondly, even if, contrary to the first defenders' submissions, the pursuer were correct in his contention that the first defenders had some contractual obligation which went beyond the mere completion of the conveyancing for the two transactions (for example, an obligation to give tax advice), then the pursuer had not relevantly averred a causal link between a breach of that obligation and any loss suffered. On the averments it was clear that the pursuer was at all relevant times receiving advice from accountants. The first defenders as solicitors were entitled to assume that the pursuer would receive all necessary advice about capital gains tax from his accountants. Accordingly no causal link between the alleged failure to give advice and the pursuer's loss had been properly averred. The action so far as directed against the first defenders should be dismissed for this reason also.
[20] Quantum: Counsel contended that the first defenders should not be liable for damages in respect of interest or penalty. Further, if the first defenders were to be held liable to any extent (in that title to Turnlaw should not have been taken in joint names) the loss arising was only £58,400. Reference was made to Article 6 of Condescendence at p.36C, and to the Second Conclusion. Any averments or any conclusion seeking sums other than £58,400 were irrelevant so far as directed against the first defenders.
[21] First defenders' motion: Counsel for the first defenders concluded by inviting the court to sustain the first defenders' first plea-in-law (prescription) and to assoilzie the first defenders, failing which to sustain their second plea-in-law and to dismiss the action so far as directed against the first defenders.
Case against the accountant (second defender)
[22] In Article 2 of Condescendence, the pursuer avers:
"The second defender was the pursuer's accountant and tax adviser at the material time. He looked after all of the pursuer's tax affairs. He was aware of the sale of Back Priestfield. Mrs. Smith telephoned him for advice about the tax consequences of the proposed sale in July 1991. He subsequently met with the pursuer and Mrs. Smith on 22 July 1991. He mentioned 'roll-over' to Mrs. Smith at that meeting. He provided no detail of the concept. Mrs. Smith was at that time unaware of its significance. Thereafter there was contact between him and the first defenders about the sale later in July 1991. The second defender acted as the pursuer's accountant and tax adviser until the third defenders took over acting on or about 25 September 1992."
[23] In Articles 3 and 4 of Condescendence, the pursuer avers that the second defender failed to give the pursuer clear advice about capital gains tax and roll-over relief. Alternatively he failed to advise the pursuer to obtain the necessary advice. Had the pursuer received advice, he would have made full use of roll-over relief and would have re-invested the sale proceeds such that liability to capital gains tax would have been deferred indefinitely. Failure to give him the advice resulted in a liability to capital gains tax which would not otherwise have arisen.
[24] In Article 5 of Condescendence, the pursuer avers that the second defender did not notify the Inland Revenue of the capital gain within the time-limit of 31 October 1992. Nor did the second defender advise the new accountants who were taking over the pursuer's tax affairs that no such notification had been made.
[25] In Articles 7 and 10 of Condescendence, the pursuer sets out the duties of care said to be owed by a chartered accountant of ordinary competence, exercising reasonable care. The averments refer inter alia to (i) awareness that capital gains tax liability might arise on the sale of Back Priestfield, and that roll-over relief might be available; (ii) giving advice on those matters (whether instructed to or not), including advice on mitigating liability by taking title in the pursuer's name alone, when re-investing the proceeds; (iii) notifying the Inland Revenue of the disposal and the capital gain as soon as practicable, and in any event prior to the time-limit of 31 October 1992; (iv) in any event on a change of agency, advising the new accountants that the Inland Revenue had not yet received notification.
[26] Article 12 of Condescendence refers inter alia to the second defender's breach of contract, and gives details of the various losses suffered by the pursuer.
[27] In Answer 13, the second defender raises the issue of prescription as follows:
"Esto the second defender is obliged to make reparation to the pursuer (which is denied), explained and averred that said obligation has prescribed. On the hypothesis of fact advanced by the pursuer, a charge to capital gains tax arose on disposal of Back Priestfield Farm. The loss averred by the pursuer is as a consequence of the means by which title was taken to Turnlaw Farm and of the alleged failure to report the capital gain by 31 October 1992. The second defender ceased acting for the pursuer on or about 25 September 1992. The chargeable gains tax due on the sale was due to be paid on 1 December 1992. Entry was taken to Turnlaw Farm on 11 October 1991. The pursuer was aware then or could with reasonable diligence have become aware of the said loss and that such loss must have been as a consequence of professional negligence on the part of the pursuer's professional advisers."
The pursuer's response is contained in Article 13 of Condescendence, quoted above.
Second defender's submissions
[28] Prescription: The solicitor-advocate for the second defender submitted that the pursuer suffered some loss (attributed to the second defender) in October or November 1991, well before September 1992 when the agency terminated.
Accordingly the quinquennium (so far as relating to any obligation to make reparation owed by the second defender) began to run in September 1992 and ended by September 1997. Any obligation to make reparation had therefore prescribed. The pursuer's averments in Article 13 of Condescendence relating to his lack of awareness were so lacking in specification that they failed to bring the pursuer within the terms of section 11(1) and (3) of the 1973 Act. The second defender's second plea-in-law should be sustained, and absolvitor granted.
[29] Relevancy and specification: It was further submitted that the pursuer's averments were characterised by a lack of candour, despite the case having been in court for some time, undergoing several amendment procedures. The court would be entitled to take the view that there was a degree of evasion on the part of the pursuer. Accordingly the court was free to construe the pleadings strictly: cf. dicta in Gray v Boyd, 1996 S.L.T. 60. The first defenders' submissions relating to relevancy, specification, and lack of candour, were adopted in full. There were matters within the pursuer's knowledge which had not been pled, and there were general denials which were inconsistent with other averments made by the pursuer.
[30] It was further submitted that the chronology of events was important. The meeting with the second defender founded on by the pursuer occurred in July 1991, months before the sale of Back Priestfield. At that stage, a sale was merely envisaged. There was no suggestion in the averments that the second defender knew anything about the acquisition of Turnlaw; nor that he was told anything about the actual sale of Back Priestfield. Accordingly in July 1991 there had been a discussion when a sale was merely contemplated, and nothing else. The averment at p.8C-D that the second defender was "aware of the sale of Back Priestfield" was vague. Against such a factual background, any suggestion that the second defender had an obligation to notify the Inland Revenue of a gain was ill-founded, as was any suggestion that he had an obligation to offer significant detailed advice. One would have to know what the sale proceeds were before advising on re-investment. In relation to the meeting in July 1991, there were no averments about the instructions given to the second defender, or about any information provided by the pursuer to the second defender. The fact that there had been a mention of roll-over relief was averred, but no details were given. The averments did not give fair notice of what happened at the meeting, or of the legal basis for imposing duties on the second defender. It was averred that the accountancy agency was taken over by the third defenders on 25 September 1992, well within the roll-over relief triennium. The second defender had no further involvement. There was nothing in the factual averments providing a foundation for the duties pled. There was also a lack of specification and lack of fair notice in the assertions that "no clear advice" was given.
[31] Further, the second defender had averred in Answer 3 at p.17D-E of the Record that he "wrote to the pursuer on 25 June 1992, requesting details of the sale of the farm. On 9 July and 4 September 1992 the second defender wrote to the pursuer again asking him for these outstanding details. No information regarding the sale of the farm was provided by the pursuer to the second defender. In the letter of 4 September 1992 he advised the pursuer: 'If the position is not detailed to HM Inspector of Taxes in the near future, there is a distinct possibility that a penalty could be imposed.'" Initially the pursuer had admitted receiving all three letters; however after the lodging of the second defender's Note of Arguments, the pursuer deleted the admission except insofar as relating to the letter dated 25 June 1992. This was yet another example of the pursuer's lack of candour. The pursuer did admit having received the letter dated 25 June 1992. The pursuer also averred in Article 3 of Condescendence that the "letter dated 25 June 1992 from the second defender to the pursuer as its principal purpose enclosed trading profit statements but stated in the last paragraph 'Details of the sale of the farm etc.' should be forwarded as soon as possible. It mentioned 'time limits in connection with submission of relative computations'. It did not say what those time limits were."
[32] In relation to the averments in Article 4 of Condescendence, there could be no case against the second defender relating to Turnlaw Farm. The second defender knew nothing about Turnlaw Farm, and had never been asked to do anything in relation to it.
[33] Article 5 of Condescendence provided the basis for the pursuer's "failure to notify" case. The obligation to notify the Inland Revenue was the tax-payer's, not his accountant's. But in any event, the pursuer's case depended upon the proposition that the second defender should notify the Inland Revenue even although he did not know the sale price of Back Priestfield, or the amount of any capital gain. Further the second defender had by letter asked the pursuer for the necessary information, and had not received it. In the light of the pursuer's failure to furnish the second defender with the appropriate information, no relevant case of failure to notify the Inland Revenue had been made out against the second defender.
[34] The solicitor-advocate further submitted that it was not clear whether Article 7 of Condescendence was directed against the second defender or the third defenders or both. In any event, that Article simply repeated the issues about title and notification. In relation to the averment that "Any reasonably competent accountant, in the circumstances, whether specifically instructed to do so or not, would have given the pursuer advice on his capital gains tax liability and on how that liability might be mitigated by use of roll-over relief", it was submitted that an accountant would require specific instructions, either express or implied from facts (duly averred on record), before giving such advice. A farmer such as the pursuer would not welcome receiving an invoice for work which he had not requested. The pursuer's averments were not sufficient to disclose either express or implied instructions. The second defender was not told about the gain; nor was he told about the other transactions, or about the title to the property.
[35] The second defender's submissions on relevancy and specification were summarised as follows:
(i) There were no relevant averments supporting the joint and several claim contained in the First Conclusion, which sought payment by the defenders jointly and severally of the sum of £245,000. It was of doubtful competence for a pursuer to sue a number of persons jointly and severally in respect of their separate breaches of their individual contracts. It might be appropriate in a case where a pursuer instructed two advisers, at the same time, with the same instructions, covering the same subject-matter. But in the present case, there were different contracts, at different times, and a number of individual matters arising. Not every defender was blamed in respect of each breach. The second defender could not be liable for any loss arising from the taking of the title to Turnlaw in joint names (£58,400). The second conclusion, which sought recovery of damages of £58,400 on the basis of the wrongful taking of title in joint names, was quite properly not directed against the second defender. Accordingly, the second defender could not be jointly and severally liable for the sum of £245,000 first concluded for.
(ii) The case of an alleged failure to intimate the transaction to the Inland Revenue was irrelevant. There could be no claim against the second defender in respect of failure to notify the Inland Revenue about the sale of Back Priestfield, as the pursuer had not responded to the second defender's requests for information. The second defender had not been provided with details about the sale, despite his requests for information.
(iii) There were no relevant averments relating to failure to advise. In relation to Article 10 of Condescendence, when reading the averment that it was the second defender's duty "being aware of the sale of Back Priestfield", one had to remember that all that the second defender knew was that such a sale was likely to take place. He was not told what actually happened, or what gain was realised. The phrase "clear advice" did not give fair notice of what was meant. The phrase "whether specifically instructed to do so or not" reflected the pleader's difficulty and an attempt to create a case where no instructions could be pled. "General advice" was similarly vague. The pursuer had failed to make out a sufficient relevant case against the second defender.
(iv) There were no relevant averments directed against the second defender in relation to causation of loss. The pursuer on his own averments purchased other land after the second defender's agency ceased. The pursuer was at that time acting on the advice of the third defenders. The second defender knew that other accountants had taken over the task of advising the pursuer on tax matters. Accordingly there was no factual basis for averments of a causal link between the second defender's actions prior to the termination of agency on 25 September 1992 and events occurring after the termination of agency.
(v) Given the nature of roll-over relief, and the qualifying requirements which involved the actual expenditure of money (not merely the completion of a form, or a submission to the Inland Revenue) there were insufficient factual averments relating to the pursuer's other resources, showing that he was able and willing to re-invest the whole sale proceeds in qualifying assets, rather than, for example, paying debts, or making provision for his family. It was incumbent upon the pursuer to make full and candid averments about his financial circumstances, financial dealings, and the availability of suitable farming property which the pursuer might have purchased and farmed. Farms situated in, say, Shetland, or farms which the pursuer could not operate, would not be feasible prospects for roll-over relief.
(vi) The claim for interest was irrelevant. The pursuer's pleadings gave no indication how the interest element of the damages was calculated. The pursuer accepted at p.37 of the pleadings that there might be an element of double-counting. There was no proper explanation of the basis, dates, and rates applicable to allow the court to assess whether interest was a proper charge.
[36] The solicitor-advocate for the second defender concluded by inviting the court to sustain the second defender's second plea-in-law (prescription) and to grant absolvitor; failing which to sustain the second defender's first plea-in-law and to dismiss the action so far as directed against the second defender; failing which to order a preliminary proof before answer on the question of prescription.
Case against the new accountants (the third defenders)
[37] In Article 2 of Condescendence, the pursuer avers that the third defenders took over the pursuer's accountancy and taxation affairs, including capital tax allowances, on about 25 September 1992. The pursuer further avers that, when he subsequently purchased land in 1993 and 1994, he received certain advice from his new accountants, the third defenders, namely:
" ... to purchase future lands in his name alone"
although the pursuer adds that the advice was not given in context of an overall plan for mitigation of tax.
[38] In Articles 3 and 4 of Condescendence, the pursuer avers that the third defenders failed to give the pursuer clear advice about capital gains tax and roll-over relief. Alternatively they failed to advise him to obtain the necessary advice. Had the pursuer received such advice, he would have made full use of roll-over relief and re-invested the sale proceeds such that liability to capital gains tax would have been deferred indefinitely. Failure to give him the advice resulted in a liability to capital gains tax which would not otherwise have arisen.
[39] In Article 5 of Condescendence, relating to the need to notify the Inland Revenue of any capital gain, the pursuer avers that the third defenders were advised of the sale of Back Priestfield and the purchase of Turnlaw when they assumed agency on 25 September 1992. The third defenders did not ask the second defender whether the disposal and capital gain had been intimated to the Inland Revenue. The third defenders took no steps to notify the Inland Revenue until about 14 January 1993, when -
"intimation was given only in the most general terms, with no indication to the Inland Revenue that the gain was substantial. No computation had been agreed with the Inland Revenue by 28 November 1994, when the pursuer moved to other accountants ..."
[40] In relation to Article 7 of Condescendence (setting out the duties of care of a chartered accountant of ordinary competence, exercising reasonable care), counsel for the third defenders argued that senior counsel for the pursuer had, in his presentation of argument, identified Article 7 as applying only to the second defender and not to the third defenders. Thus, it was contended, the case so far as pled against the third defenders was rendered even more irrelevant. However I did not understand senior counsel to restrict Article 7 to the second defender. The terms of Article 7 are general and describe the actions expected of a chartered accountant of ordinary competence, exercising reasonable care, in the various circumstances which faced the second and third defenders. I accordingly take into account the averments in Article 7 of Condescendence when considering the case against the third defenders.
[41] In Article 8 of Condescendence, the pursuer avers inter alia that the third defenders wrote to the first defenders on 14 January 1993, enquiring in whose names Back Priestfield and Turnlaw were held. The first defenders replied on 21 January 1993, confirming that title to Back Priestfield had been in the pursuer's name alone, and title to Turnlaw was in joint names.
[42] In the remainder of Article 8 and in Article 11 of Condescendence, the pursuer sets out the duties of care owed by the third defenders, namely to advise the pursuer about capital gains tax liability and roll-over relief, and about maximising roll-over relief, including advice about taking title to Turnlaw Farm in the pursuer's name alone. There follow averments about advice to mitigate tax liability, advice to transfer Mrs. Smith's half of Turnlaw Farm into the pursuer's name, and advice to consult a tax adviser. The pursuer avers that, had such steps been taken, he would have invested all the proceeds in qualifying assets (including transferring Turnlaw Farm into his name alone) and would have indefinitely postponed any liability to capital gains tax. The pursuer further avers that it was the third defenders' duty "to take reasonable care, when assuming agency, to check with the [second] defender that the Inland Revenue had been informed of the disposal and capital gain" and to "inform the Inland Revenue of the disposal and gain prior to 31 October 1992. It was his duty to take reasonable care to inform the Inland Revenue of the approximate amount of the capital gain in order that protective assessments could be raised at about December 1992. Further it was his duty to take reasonable care to prepare the tax computations as soon as possible after being instructed ..."
[43] Articles 12 and 13 of Condescendence detail the pursuer's losses and raise the issue of prescription.
Third defenders' submissions
[44] Prescription: Counsel for the third defenders submitted that, in view of the way in which the Conclusions were framed, it was legitimate to look at the claims in respect of penalty and interest independently of the other claims. The penalty was incurred on 31 October 1992. On the assumption that there had been a breach of duty on the part of the third defenders, there had been a concurrence of injuria and damnum on that date. Any obligation to make reparation in respect of the penalty had accordingly prescribed.
[45] Similarly, on the pursuer's own averments, had the Inland Revenue been advised of the disposal of Back Priestfield they would have issued protective assessments, which would have been paid on 1 December 1992, and no interest would have arisen. There was a concurrence of injuria and damnum on 1 December 1992, and any obligation to make reparation in respect of interest had accordingly prescribed.
[46] In relation to both the penalty element and the interest element, counsel reiterated that it was legitimate to view these as separate breaches of contract giving rise to separate obligations to make reparation for the purposes of section 6 of the 1973 Act, for two reasons: firstly, the way the conclusions were framed; and secondly, because of authorities such as Midland Bank Trust Co. Ltd. v Hett, Stubbs & Kemp [1979] 1 Ch. 384; and Johnston, Prescription and Limitation, paragraph 4.68. A similar question had arisen in the unreported case of Graham v Bell & Co and ors., 24 March 2000 (Lord Hardie), in particular paragraphs [7] - [8]. However the pleadings in that case were in different form, and the question did not ultimately have to be determined. It was appropriate that the court should adopt the view that there had been separate breaches giving rise to separate obligations to make reparation, each having a different starting-point for the purposes of the quinquennial prescription, rather than adopting the view that there was one unitary obligation to render professional services, with one overall breach of that obligation giving rise to one obligation to make reparation, and accordingly one starting-point for the quinquennial prescription. On the approach contended for, it was accepted that the separate obligation to make reparation in respect of lack of tax advice might not have prescribed, as the third defenders' conduct during the period 25 September 1992 to 28 November 1994 (the last date for roll-over relief) could arguably be regarded as a "continuing act, neglect or default" in terms of section 11(2) of the 1973 Act. On that view, it would not matter whether some loss had emerged prior to the cessation of the continuing act, neglect or default. However the separate obligation to make reparation in respect of the penalty incurred, and the separate obligation to make reparation in respect of the interest incurred, having become enforceable on 31 October 1992 and 1 December 1992 respectively, had prescribed - subject always to the pursuer's attempt to invoke the provisions of section 11(3) of the 1973 Act.
[47] In relation to the pursuer's averments directed to section 11(3), counsel for the third defenders adopted the submissions of the first and second defenders. The pursuer's averments in Article 13 of Condescendence were of the vague and inspecific nature criticised by Lord Sutherland in Beveridge & Kellas v Abercromby, 1997 S.C. 88, at p.91E. The pursuer's averments showed that he had tax consequences in mind when he dealt with heritable property. For example, in Article 3 of Condescendence, the pursuer averred that in July 1991 "some advice on tax consequences of the sale was sought" from his accountant, the second defender. Further in Article 2 of Condescendence, the pursuer averred that he had, in 1993 and 1994, purchased lands of Tweedieside and Hazeldean and Greenlaw, having been advised by the third defenders "to purchase future lands in his name alone". The pursuer had also received the letter dated 25 June 1992 from the second defender, requesting details of the sale of the farm and mentioning "time-limits in connection with submission of relative computations". Against that background the pursuer had not averred sufficient to be able to rely upon section 11(3). On his own averments, he had knowledge that there might be possible tax consequences, that there were time-limits, and that there was some issue about taking title in his own name or in joint names (as he had been told to acquire other land in his name alone). In such circumstances, there was an obligation on the pursuer to use "reasonable diligence" to make inquiries. If he did not, section 11(3) could not be relied upon. A brief telephone inquiry to his accountants would have provided the necessary information.
[48] Joint and several liability: Counsel for the third defenders further submitted that it was not competent to have joint and several conclusions against multiple defenders arising out of separate contracts: cf. Barr v Neilsons (1868) 6 M 651, Lord President Inglis at p.654. Each conclusion failed, as it was directed against more than one defender, arising out of separate contracts. It was for the pursuer to make out a clear and comprehensible case, not for the court to try to work out what the pursuer's case was. The odd position adopted by the pursuer at p.37A-B reflected his difficulties. The whole action fell to be dismissed.
[49] Relevancy and specification: Counsel submitted that the pursuer had based his case on contract, yet had not identified what the contract was. There were no averments that the third defenders had been instructed to advise on the consequences of the sale of Back Priestfield; or about capital gains tax in general; or as regards Turnlaw Farm. On the basis of a very general averment of instructions about tax affairs, the pursuer made specific averments of obligations said to be incumbent upon the third defenders. The averments did not disclose whether or how the pursuer communicated any information to the third defenders to enable them to fulfil their alleged obligations. Although the third defenders referred to a meeting with the pursuer on 25 September 1992, the pursuer's pleadings denied that such a meeting had taken place. The pursuer therefore averred some contract, constituted somehow, one did not know where, how, or when, nor the nature of the contract. Also in relation to the need to notify the Inland Revenue of the disposal, the pursuer failed to aver that he had given the third defenders all the details necessary to enable them to notify the Revenue. In conclusion, the pursuer's averments of instructions "to take over his accountancy and taxation affairs ... to deal with all the pursuer's tax affairs including dealing with capital tax allowances" were insufficient to provide a foundation for the specific duties set out in Article 11, and the specific duty about the title to Turnlaw Farm. In relation to any general duty to advise about capital gains tax liability, and the availability of roll-over relief as at September 1992 (when the third defenders were instructed), the pursuer himself recognised that general advice was given by the third defenders: for example, advice about the purchase of lands in 1993 and 1994. There were no averments that the pursuer had instructed the third defenders to give advice about an overall plan to mitigate tax. It was for the pursuer to explain how he came to receive advice about the purchase of lands in 1993 and 1994. The advice had to be put in context. There was simply insufficient on record to enable the pursuer to aver a relevant case of failure to advise.
[50] Counsel for the third defenders adopted the second defender's submissions in respect of the nature of roll-over relief. In order to obtain that relief, the pursuer had to re-invest the proceeds in qualifying assets, and had to use those assets for the purposes of his business. The pursuer failed to set out in his pleadings that it would in fact have been possible for him to invest in qualifying assets.
[51] Further, counsel submitted that the pursuer had failed to explain how he would have been able to pay tax of about £260,000 in December 1992 (which was what, in effect, he was claiming he would have done if computations had been submitted timeously). He had required bridging finance for Turnlaw Farm. It was inappropriate for the pursuer only to reveal his financial position at the proof.
[52] In conclusion, counsel for the third defenders invited the court to sustain the third defenders' second plea-in-law (prescription) so far as relating to penalty and interest. Alternatively, the court should sustain the third defenders' first plea-in-law and dismiss the action so far as directed against the third defenders. Finally, if the court felt that there were sufficient averments about general instructions in relation to the pursuer's accountancy and taxation and affairs, the court should refuse to remit to probation any duties not falling within the general instructions to act as the pursuer's accountant and tax adviser.
The pursuer's response
[53] Senior counsel for the pursuer submitted that the case should be sent to proof before answer, all pleas standing. Under reference to Jamieson v Jamieson, 1952 S.C.(H.L.) 44, he submitted that it could not be said that the pursuer was bound to fail.
[54] At the outset, counsel suggested that if the court were minded to sustain any plea of prescription, the appropriate decree should be one of dismissal, not absolvitor, as the court would in effect be holding that the pursuer had not made sufficient relevant averments entitling him to invoke section 11(3) of the 1973 Act: cf. dicta in Beveridge & Kellas v Abercromby, 1997 S.C. 88; and Waydale v DHL Holdings (UK) Ltd., 2000 SC 172.
[55] Counsel submitted that the defenders had misunderstood the case on record, and had concentrated on the wrong aspects of the pleadings. In essence, the pursuer's case was that in each of the contracts, there was an obligation to advise the pursuer on the tax issues arising from the sale of Back Priestfield and the purchase of Turnlaw. In other words, to advise the pursuer about roll-over relief, and the need to invest in qualifying assets. That obligation was a separate obligation from any other obligation that might have existed as a result of the contract. There was a separate additional obligation incumbent upon the first defender to take the title to Turnlaw Farm in the pursuer's name alone. There was a separate additional obligation incumbent upon the first and third defenders to advise the pursuer about a transfer of the Turnlaw title from joint names to the pursuer's name alone. There was a separate additional obligation incumbent upon the second and third defenders to intimate the capital gain to the Inland Revenue within the time-limit.
[56] Counsel accepted that the pursuer's case was based on contract. The first defenders had instructions to sell one property and to buy another. The second defender had instructions to act as the pursuer's accountant and tax adviser. The third defenders had instructions to take over the pursuer's accountancy and taxation affairs. It was a matter for expert evidence what the scope of each set of instructions encompassed. The pursuer averred a series of duties. In professional negligence cases, certain contractual duties were the same as delictual duties. It was a matter for expert evidence what a reasonably competent professional would do in the circumstances.
[57] In relation to the first defenders, it was accepted that the pursuer had not given specific instructions that he required tax advice: but at p.14E of the Record it was averred that any reasonably competent solicitor in the position of the first defenders would have regarded it as part of his duties to consider the tax consequences of the sale and to take reasonable steps to see that the pursuer was properly advised. Further the pursuer averred that the first defenders had considered other taxes (value added tax and inheritance tax) thus demonstrating that they saw tax consequences as part of their remit. The scope of the first defenders' duties was essentially a matter of evidence. It could not be said at this stage as a matter of law that certain duties did not arise. A lay person would not necessarily know what specific instructions to give. In relation to a house purchase, he would not specifically instruct a solicitor to carry out a title search, prepare a disposition, prepare a standard security, or take other specific steps. The solicitors in the present case actually raised taxation questions, showing an assumption of responsibility relating to taxation matters. Hurlingham Estates Ltd. v Wilde & Partners [1997] 1 Lloyd's Rep. 525 supported the proposition that solicitors might have a duty to advise on tax and the structuring of transactions, even if no specific instructions are given and the solicitor is aware that the client has an accountant. The precise extent to which a client was entitled to rely on his solicitors when there were tax advisers in the background might be a matter to explored at the proof: cf. the circumstances in Hurlingham Estates Ltd.
[58] So far as the second defender was concerned, the pursuer averred that the second defender was "aware" of the sale of Back Priestfield: that was all that was required. The scope and extent of the duties of a reasonably competent accountant looking after the pursuer's tax affairs in such circumstances was a matter for expert evidence. In relation to the July 1991 meeting, it was submitted that simply to mention roll-over to a lay person (as was averred in Article 3 of Condescendence, at p.15B-C) was not sufficient: there would have to be explanation about what was involved, and what steps should be taken to qualify for relief.
[59] So far as the third defenders were concerned, there was a specific averment in Article 2 of Condescendence, at p.8E, that they were instructed to "deal with all the pursuer's tax affairs including dealing with capital tax allowances". In relation to advising about transfer of the Turnlaw title to the pursuer's name alone, it was averred at p.26B-C that in January 1993 the third defenders received information that Back Priestfield had been in the pursuer's name, but Turnlaw was in joint names of the pursuer and his wife: yet the third defenders did nothing.
[60] Turning to the criticisms made of the joint and several conclusions, counsel submitted that if any one of the three defenders had given appropriate advice within a reasonable time before 28 November 1994, the pursuer could have avoided paying tax, and would not have been liable for penalty or interest. Accordingly it was the failure of each of the defenders to take appropriate steps which led to one common result and one loss. Each defender contributed to exactly the same loss: cf. Grunwald v Hughes, 1965 S.L.T. 209. This was not a question of unconnected or disconnected losses (as in Barr v Neilsons (1868) 6 M 651). The wrong was contributed to by each of the defenders, as a result of their different breaches of contract. The first defenders had a duty to give general tax advice, a duty not to take Turnlaw in joint names without having been instructed to do so, and a duty to advise about structuring the various transactions, including advice against taking Turnlaw in joint names or (if necessary) advice about altering the title to the pursuer's name alone. The second defender had a duty to give advice about tax and the title to Turnlaw. The third defenders had a duty to give advice about tax and transferring title of Turnlaw to the pursuer. Breach of any one of these duties contributed to one wrong. The alternative conclusions permitted the court flexibility. For example if the court were to conclude in relation to the second defender that there was no duty to give advice, but there was a duty to notify the Inland Revenue about the sale, the court's awards could reflect this. The pursuer only had to establish one breach by each of two defenders to make a joint and several conclusion competent: cf. Clydesdale Bank plc v McLay Collier & Partners, 1998 S.L.T. 1102. The case of Allison v Isleburn Ltd. and anor., 1997 S.C.L.R. 791, cited by the defenders, depended upon the proposition that it was impossible for two people to be doing the same job. That situation did not apply in the present case.
[61] In relation to prescription, counsel submitted that each obligation had its own prescriptive period. There could be different starting points for different defenders, and for each of the different obligations which each defender had. It was not correct to view each defender as having a unitary obligation to act as a reasonably competent professional, with each incident (for example, the taking of title in joint names, or the failure to notify the Inland Revenue of the disposal) being manifestations of loss arising from one breach of one obligation. The same point had arisen in Graham v Bell & Co. and ors., 24 March 2000, Lord Hardie (unreported), but in that case, it had not been necessary to decide the issue. Dunlop v McGowans, 1980 SC (HL) 73 gave no guidance on this particular point, as in that case there had been one default, namely a failure by solicitors to serve a notice to quit. Sinclair v MacDougall Estates Ltd., 1994 S.L.T. 76 dealt with the issue to some extent. There might be an overall contract, yet within the contract one could focus on specific failures in duty, each being a breach of duty (injuria) leading to loss (damnum). A recent Inner House case, Cole v Lonie, 2001 S.C. 610, suggested that examination of each different obligation was the correct approach. Taking that approach, it was accepted that any loss or expense suffered by the pursuer as a result of title to Turnlaw being taken in joint names (such as the loss of half of Turnlaw, or wasted fees or expenditure necessary to rectify the situation) might have prescribed, but that was not what was sought to be recovered in the present action. In relation to the first defenders' obligation to make reparation in respect of the failure to give tax advice, there was a concurrence of injuria and damnum on 28 November 1994, when it was no longer possible to qualify for roll-over relief: that obligation to make reparation had not therefore prescribed. In relation to their obligation to advise about the structuring of the various transactions, there was again a concurrence of injuria and damnum on 28 November 1994. Similarly the termini a quo for the third defenders' obligations to make reparation were 28 November 1994. The first and third defenders' obligations to make reparation had therefore not prescribed.
[62] If, contrary to that submission, each defender were to be regarded as having a unitary obligation to carry out professional duties with due care and attention, with various breaches of that unitary obligation resulting in various manifestations of loss, then in terms of section 11(2) of the 1973 Act, the first and third defenders were carrying out a "continuing act, neglect or default" until the loss currently sued for occurred on 28 November 1994. The failure to give appropriate tax advice about title, and about structuring the transactions, did not cause an actual loss until 28 November 1994. A taxpayer who made a disposal could apply to the Inland Revenue requesting deferment pending re-investment in qualifying assets for roll-over relief. The Inland Revenue would make an assessment; the tax-payer would appeal and apply to postpone the tax, on the basis that he would be re-investing. Subsequently if the tax-payer managed to re-invest in qualifying assets, he was not liable to pay tax, interest, or penalty. If however the tax-payer did not manage to re-invest, he might become liable to pay capital gains tax at the end of the three year period, with interest calculated as from the date of the assessment. He still would not have incurred any penalty, provided timeous notification had been made. In these circumstances, no loss occurred until 28 November 1994 when the pursuer's position became irremediable. The first and third defenders' obligations to make reparation had not prescribed.
[63] Despite the averment in Article 13 that the pursuer "suffered no loss and damage other than tax consequences as a result of Turnlaw Farm being taken in joint names of himself and his wife", counsel accepted that the pursuer might be regarded as having suffered a loss in October 1991, when he lost half of Turnlaw Farm on the title being taken in joint names of himself and his wife. But the default could also be regarded as part of a failure to advise the client about the structuring of transactions with a view to minimising tax liability. On that approach, no loss arose until November 1994.
[64] Counsel further submitted that no loss emerged in respect of the penalty until 28 November 1994. As at 31 October 1992, there was a potential loss. If the full roll-over relief were ultimately used, the penalty flew off.
[65] Counsel summarised the pursuer's contention in respect of the emergence of loss (or damnum) as being that no actual loss emerged until 28 November 1994, when the opportunity to claim full roll-over relief for the sale proceeds of Back Priestfield was no longer available. As at that date, the pursuer became liable for capital gains tax, penalty and interest. Had he been able to take full advantage of roll-over relief, he would not have been so liable. Reference was made to Ferguson v MacLennan, 1991 S.L.T. 321; Duncan v Aitken Malone & McKay, 1989 S.C.L.R. 1.
[66] However, in relation to the second defender, counsel accepted that the agency had ceased on 25 September 1992. Accordingly so far as the second defender was concerned, depending on the view ultimately taken about the emergence of loss, the pursuer might be dependent upon satisfying the court in terms of section 11(3).
[67] Counsel then turned to the averments relating to lack of awareness of loss. Counsel submitted that there were sufficient averments in Articles 2, 3, and 13 of Condescendence relating to section 11(3) to entitle the pursuer to a proof before answer. The averments disclosed that the pursuer was a layman, a small farmer, whose solicitors had not explained the concept of roll-over relief to him, or told him what to do. Nor had his accountant explained the concept of roll-over relief to him, or told him what to do. When the pursuer changed accountants in September 1992 (about eleven months after the sale of Back Priestfield) his new accountants, the third defenders, had not explained the concept of roll-over relief to him, or told him what to do. The third defenders had advised the pursuer to buy heritable property in his own name in 1993 and 1994, but that advice was not given in the context of an overall plan for mitigation of tax. In other words, the pursuer had been told to make sure that he was buying in his own name: that did not mean that he had received advice about the sale proceeds of Back Priestfield, or that there had been any explanation about the concept of roll-over so far as it affected the sale proceeds of Back Priestfield, including need to re-invest the proceeds in qualifying assets which he would be able to work, all prior to 28 November 1994. On one view, the pursuer had used reasonable diligence in terms of section 11(3) by transferring his tax affairs to the third defenders on 25 September 1992 with instructions to "take over his accountancy and taxation affairs ... [and] deal with all the pursuer's tax affairs including dealing with capital tax allowances". A lay person such as the pursuer was entitled to rely upon his professional adviser and to assume that he would be given the advice he needed about any tax-saving measures open to him, and also any time-limits involved. While the pursuer accepted in his averments in Article 3 of Condescendence at p.15D that he was in June 1992 made aware of "time-limits in connection with submission of relative computations", he was not told what the time-limits were. He had exercised reasonable diligence by instructing the third defenders as he had done. The averments in Article 13 had to be taken in the context of all the other factual averments contained in the Record. The loss crystallised on 28 November 1994 and the pursuer was unaware then or prior to that date of any loss, actual or potential. The following day, 29 November 1994, when matters had become irremediable, he was made aware of the loss at the meeting referred to. Until 29 November 1994, the pursuer had no reason to think that any loss would arise, and had no reason to take steps to investigate any loss: cf. Glasper v Rodger, 1996 S.L.T. 44.
[68] Finally, counsel submitted that the averment of no "clear advice" was sufficiently specific in the context of the Record, where the pursuer averred that the first defenders gave no tax advice; the second defender mentioned roll-over to Mrs Smith, but gave no explanation of the concept or the steps which should be taken; and the third defenders advised the pursuer in 1993 and 1994 to buy property in his own name, but gave him no advice in the context of an overall plan for mitigation of tax. In relation to the suggestion that the pursuer should aver what farms he might have bought, it was submitted that it was enough for the pursuer to say that he would have re-invested the sale proceeds in agricultural property and buildings to be held and farmed by him. In relation to interest, it was the pursuer's position that, had he not had to pay any capital gains tax, he would not have had to pay any interest or penalty.
Opinion
[69] Defenders' contractual duties, relevancy and specification: When testing the pursuer's pleadings at this stage, I must accept the pursuer's averments pro veritate. It is nevertheless important to note that any alleged negligence or failure in duty has yet to be established.
[70] It is difficult without the benefit of evidence to conclude that the first defenders' contractual obligations were limited solely to completion of the conveyancing in respect of Back Priestfield and Turnlaw Farm. At this stage I cannot exclude the possibility that evidence, including expert evidence, may demonstrate that the circumstances gave rise not only to an obligation to complete the conveyancing, but also to other obligations, such as an obligation to advise the pursuer that there might be certain tax consequences following upon the transactions, or that tax advice should be sought; or an obligation to take reasonable steps to see that the pursuer received such advice (Article 6 of Condescendence p.23B-D; Article 9 of Condescendence p.30B-E): cf. dicta in Hurlingham Estates Ltd. v Wilde & Partners, cit. sup. at p.530.
[71] So far as the second defender is concerned, again it is difficult, without hearing evidence, to accept that an accountant in the second defender's position must receive precise and specific instructions before having an obligation to give his client advice about roll-over relief or the need to obtain expert advice thereon. Nor can I accept at this stage that the responsibility for notifying the Inland Revenue of the capital gain was the tax-payer's alone. Further I should prefer to hear evidence (including expert evidence) before concluding that a client's failure to provide details about a transaction of which his accountant was aware would necessarily relieve the accountant from giving some sort of intimation to the Inland Revenue. Finally, evidence is, in my view, necessary before a view can be formed about the nature and extent of any duty on the part of the second defender to liaise with and give information to new accountants who were taking over the pursuer's affairs.
[72] In relation to the third defenders, I consider that the averments as they stand entitle the pursuer to explore the nature and extent of the third defenders' contractual duties, including any duty to review the tax advice already offered to the pursuer, to check on imminent time-limits, and either to advise the pursuer about capital gains tax and roll-over relief, or to take reasonable care to see that the pursuer obtained such advice from a tax expert. In my view, the pursuer is also entitled, on the averments, to explore whether there was any duty on the part of the third defenders to intimate the capital gain to the Inland Revenue, or to check whether such intimation had been made.
[73] On the question of relevancy and specification in general, I accept that some matters of fact apparently within the pursuer's knowledge are not fully or frankly dealt with on record. For example, the pursuer does not aver how or when he learned that the title to Turnlaw Farm had been taken in joint names of himself and his wife. In relation to the State for Settlement (a document which the pursuer does not deny having received, and which apparently disclosed the joint title) the pursuer merely avers "The precise terms of the State for Settlement for Turnlaw are not known and not admitted". Further, the third defenders aver having had a meeting with the pursuer on 25 September 1992. The pursuer appears to deny such a meeting, without further explanation. The third defenders further aver that they had no further contact with the pursuer until January 1993. The pursuer appears to deny that there was no further contact during that period, yet fails to give any details of alleged contact. Again, it is perhaps a matter for comment that the pursuer initially admitted on record having received three letters from the second defender, but subsequently restricted that admission to one letter dated 25 June 1992. Some of the defenders' other criticisms of the pursuer's pleadings, concerning discrepancies, and instances of apparent lack of candour or lack of specification, were also to some extent justified. Nevertheless I am satisfied that, looked at as a whole, the Closed Record gives sufficient notice of the pursuer's complaint against each of the three defenders. I do not consider it necessary for the pursuer to aver in detail the instructions which he gave to each professional adviser; nor to aver the details of his financial circumstances during the relevant period; nor to aver precisely how he would have re-invested sale proceeds in an endeavour to achieve roll-over relief; nor to elaborate on the circumstances in which he received advice about the purchase of lands in 1993 and 1994; nor to aver dates, rates and other details in respect of the interest charged by the Inland Revenue.
[74] Loss and causation: Towards the end of the debate, it appeared to be a matter of agreement that it was Inland Revenue practice to waive any penalty or interest where a tax-payer was ultimately found entitled to roll-over relief such that he did not have to pay capital gains tax. Accordingly, had the pursuer appreciated the steps required of him in order to be eligible for roll-over relief, and had he taken such steps, he would not only have avoided paying any capital gains tax, but he would also have avoided paying any penalty or interest. It is therefore possible to view the liability to pay capital gains tax, penalty, and interest, as related aspects of the damnum caused by the alleged injuria namely failure to advise about capital gains tax and roll-over relief. At this stage therefore I reject the first defenders' submission that any averments or conclusion directed against the first defenders and seeking sums other than £58,400 are irrelevant. I also reject the third defenders' submission that the elements of penalty and interest should be treated as separate losses giving rise to individual obligations to make reparation which became enforceable on 31 October 1992 and 1 December 1992 respectively.
[75] In relation to causation, the first defenders contended that, even assuming some sort of continuing obligation to give tax advice, the pursuer's averments did not disclose a causal link between any alleged breach on the part of the first defenders and any loss suffered by the pursuer, as the pursuer was at all relevant times receiving assistance and advice from accountants. The case so far as directed against the first defenders should be dismissed for that reason.
[76] In my view, it is possible that a professional adviser may have an obligation to give a client advice about a particular matter despite the fact that the client also has the services of another professional adviser. I am unable to conclude at this stage, without hearing evidence, that no duty rests upon a solicitor to give any advice about the possible tax consequences of a conveyancing transaction because the solicitor is aware that the client has the services of an accountant. I accordingly reject the first defenders' argument on this point.
[77] The second defender for his part contended that, on the cessation of his agency on 25 September 1992, other accountants took over the task of advising the pursuer on tax matters. Accordingly there was no causal link between the second defender's acts or omissions on the one hand, and any loss arising from lack of tax advice leading to failure to take full advantage of roll-over relief on the other.
[78] As I indicate in the section below ("Joint and several conclusions") it is my view that each defender's alleged breach of his contract to render professional services to the pursuer could contribute to the wrong from which the pursuer suffered. Fulfilment by any one of the defenders of the contractual duties averred (to give advice about roll-over relief, or to advise about obtaining such advice) could have prevented the relevant loss. Accordingly I reject the second defender's argument on this point.
[79] Joint and several conclusions: The fundamental breach of duty to which the pursuer's action is directed is the alleged failure on the part of each of the defenders to advise the pursuer about possible tax consequences and the steps necessary to minimise tax, or to take reasonable care to see that the pursuer received such advice. [80] I consider that the proper approach is as outlined by the pursuer, namely that if a defender in this case is proved to have been in breach of his contract by failing to give the pursuer necessary advice, then that defender's breach caused or contributed to the wrong from which the pursuer suffered. The principles outlined in Grunwald v Hughes, cit. sup., are applicable. As Lord Strachan observed at p.213:
"... the principle ... to the effect that two wrongs are really one if they both contribute to one common result must be applicable also in contract cases."
Lord Walker stated, at p.214-215:
" ... the true nature of a joint and several decree ... does not depend on antecedent consent between the defenders but on the fact that breach of duty on the part of each is a material cause of the ... damage. Perhaps the best account of the meaning of a conclusion for joint and several liability is that given by Lord McLaren in Fleming v Gemmill, 1908 S.C. 340, at page 345 ... where he said: 'The word "several" implies that against whatever number of defenders a man proceeds, each is liable for the whole sum sued for, and the word "jointly" or "conjunctly" secures to those against whom the decree is made operative the right of rateable relief against the persons who have not paid'. That description shows that the essential of joint and several liability is that each defender should be liable for the whole damage. The fact that each defender may be so liable on different grounds is I think vouched by Belmont Laundry Co. Ltd. v Aberdeen Steam Laundry Co. Ltd. (1898) 1 F 45 and Rose Street Foundry and Engineering Co. v Lewis & Sons, 1917 S.C. 341 ... in each of which joint and several liability was affirmed. Neither case involved negligence or breach of contractual duty to exercise care. In each a servant had broken his contract of employment by deserting his master's service. In the one case the second defender had wrongously induced the breach, and in the other had wrongously harboured the servant. I can see no reason in principle why two defenders should not be jointly and severally liable for their separate breaches of contract, provided always that each breach was a material cause of the whole damage."
Similar guidance can be found in Clydesdale Bank plc v McLay Collier & Partners, cit. sup.
[81] The case of Barr v Neilsons, cit. sup., cited by counsel for the third defenders, is in my view distinguishable, as the court was there concerned with "two disconnected wrongs" (Lord President Inglis at p.654). As for Allison v Isleburn Ltd. & anor., cit. sup., cited by counsel for the first defenders, that case concerned the duty to institute and maintain a safe system of working. After debate, the court held that the duty could not be attributed to two defenders, but the Lord Ordinary made it clear that his decision turned on the particular averments. As the Lord Ordinary pointed out at p.795E-F,
"... a system case is made simultaneously against two parties, without any attempt to aver separate identified contributions made by the two defenders to a single coherent system."
By contrast on the averments in the present case, an award of damages against one or more of the defenders jointly and severally may be appropriate, as advice from one or more of the defenders would, on the pursuer's averments, have prevented the relevant loss referred to in paragraph [74] above.
[82] So far as the alternative Conclusions are concerned, several results or combinations of results might be reached by a court after hearing evidence, none of which can safely be excluded at this stage. For example, it is possible that the court might wish to grant decree against a defender in terms of the Fourth Conclusion, but not in terms of the First Conclusion. It appears to me that, at this stage, it is impossible to predict what path any proof before answer may ultimately take. I consider that all the conclusions should remain meantime, thus providing the court with a certain degree of flexibility in a proof before answer.
[83] Prescription: In a case alleging breach of contract on the part of a professional adviser, it may be that the contract, properly construed, and the surrounding events give rise to one or more contractual obligation, breach of which may result in one or more obligation to make reparation. In Dunlop v McGowans, cit. sup., one injuria or failure in duty gave rise to one obligation to make reparation. Other cases concerned more than one breach or failure, giving rise to more than one obligation to make reparation: see for example Cole v Lonie, cit. sup.; Sinclair v MacDougall Estates Ltd., cit. sup.
[84] In the present case, it is my view that any obligation incumbent upon the first defenders to give the relevant tax-related advice should be treated for the purposes of prescription as distinct from any obligation properly to complete the necessary conveyancing. An obligation relating to tax advice would in my view have remained incumbent upon the first defenders until 28 November 1994, even if an element of related loss began to emerge prior to that date: cf. dicta of Lord Kirkwood at p.324 of Fergus v MacLennan, 1991 S.L.T. 321; and the approach adopted by Oliver J. in Midland Bank Trust Co. Ltd. v Hett, Stubbs & Kemp [1979] 1 Ch. 384, at p.435E. Accordingly, any alleged failure on the part of the first defenders to fulfil such an obligation - in other words, any alleged "neglect or default" on their part - would in my view be a continuous neglect or default, lasting until 28 November 1994, after which date the pursuer could no longer claim roll-over relief. I accordingly consider that section 11(2) of the 1973 Act has the effect of postponing the start of the five-year prescriptive period until the cessation of the neglect or default, i.e. until 28 November 1994, when the position became irremediable. On that view, any obligation to make reparation in respect of that neglect or default has not prescribed.
[85] Similarly, any obligation on the part of the third defenders to give the relevant tax-related advice would in my view subsist from 25 September 1992 until 28 November 1994. I therefore consider that any alleged neglect or default on their part was a continuous one, which remained incumbent upon them until 28 November 1994, and accordingly, in terms of section 11(2), any obligation to make reparation in respect of that neglect or default has not prescribed.
[86] The second defender is in a rather different position, in that his agency, and hence any alleged neglect or default on his part, ended on 25 September 1992. If therefore an element of loss emerged prior to the termination of his agency, any obligation on his part to make reparation to the pursuer would prima facie have prescribed: section 11(1) and (2) of the 1973 Act. The consequences and expenses arising from transfers of heritable property (including changes in title to land, professional fees, and emerging tax liabilities), may or may not amount to a "loss" or "losses" suffered by an individual in the sense used in section 11 of the 1973 Act. Much will depend on the precise nature of the transactions, any associated expense or liability (including tax liability), and any means whereby such an expense or liability could have been mitigated, postponed, or avoided. Such issues are in my view best addressed after inquiry into the facts. However at this stage I accept that there may be something in the second defender's contention that at least some element of loss connected with lack of tax advice could be said to have emerged prior to September 1992 when the second defender's agency terminated. It may be therefore that, in the case of the second defender, the pursuer will be dependent upon section 11(3) of the 1973 Act. For that reason, and also in case I am wrong in my approach to section 11(2) and the first and third defenders' obligations to make reparation, it is appropriate that I turn to consider section 11(3).
[87] Section 11(3) of the 1973 Act (founded upon by the pursuer in respect of all three defenders): I agree with counsel for the pursuer that a lay person may not be aware of all the legal, financial, and taxation consequences of a land transaction. It is at least arguable that he should be entitled to rely upon his professional advisers to warn him of such consequences without having to make a specific request for such advice: cf. Hurlingham Estates Ltd. v Wilde cit. sup. A realisation on the part of the pursuer that the title to Turnlaw Farm had per incuriam been taken in joint names of himself and his wife would not necessarily, on the information before me, have alerted him to the fact that such a situation might substantially increase his tax liability. Nor would a bare mention of "roll-over" made to the pursuer's wife (but not to the pursuer) necessarily have put the pursuer on his inquiry either in July 1991 or at any later date. In my view therefore it is possible that someone such as the pursuer, learning that title to Turnlaw Farm had been taken in joint names, might be aware of having suffered a loss in the sense of having made an involuntary gift to his wife, yet not be aware of any loss arising from lack of tax advice. Nor would he necessarily be aware of any "neglect or default" on the part of his professional advisers so far as relating to lack of tax advice and any consequences thereof: section 11(1) and (3): and cf. dicta in Glasper v Rodger, 1996 S.L.T. 44.
[88] Focusing then upon the obligations to make reparation in respect of which the pursuer sues in this action, it seems to me that a lay person such as the pursuer could be regarded as having used reasonable diligence to obtain advice about inter alia the tax consequences of a land transaction by the very act of instructing lawyers and accountants to act on his behalf.
[89] It follows therefore that the pursuer's failure to aver precisely how and when he learned that title to Turnlaw Farm had been taken in joint names, and the apparently inaccurate averment in Article 13 of Condescendence that the pursuer "suffered no loss and damage other than tax consequences as a result of Turnlaw Farm being taken in joint names of himself and his wife", cease to be of any major significance when assessing the sufficiency of the pursuer's averments in terms of section 11(3) of the 1973 Act in this action. Further, I am not convinced that the terms of the second defender's letter dated 25 June 1992, which requested details of the sale of Back Priestfield and mentioned "time-limits in connection with submission of relative computations", were sufficient to alert the pursuer to a loss caused by negligence within the terms of section 11(3). Nor am I satisfied that the only proper construction of averments that the pursuer was advised by the third defenders in 1993 and 1994 "to purchase future lands in his name" must be that the pursuer was at that stage fully aware that he had suffered a loss in relation to the transactions involving Back Priestfield and Turnlaw Farm, and that the loss had been caused by negligence on the part of his advisers. The pursuer's position, as averred in Article 13 of Condescendence, is that he "was not aware of the tax consequences of what had been done or omitted to have been done until a meeting with the third defenders [quaere "further new accountants"] on 29 November 1994". The pursuer therefore offers to prove that it was only at the meeting on 29 November 1994 that he learned that he had suffered a loss within the meaning of section 11 of the 1973 Act, and (presumably) that the loss might be attributable to negligence on the part of his professional advisers. If the pursuer succeeds in establishing those facts, any obligation to make reparation on the part of his professional advisers would not have prescribed. In conclusion therefore I am satisfied that the pursuer has averred sufficient in terms of section 11(3) to entitle him to an inquiry.
[90] Whether there should be a preliminary proof restricted to the question of prescription: Much of the evidence relating to questions of prescription may also have a bearing on the merits of the case. On balance, I am of the view that there should not be a preliminary proof on the question of prescription.
Conclusion
[91] I shall allow a proof before answer, all pleas standing. I reserve the question of the expenses of the debate to enable parties to address me on that matter.