Scottish Court of Session Decisions

[4] On behalf of the defenders Mr Stephenson submitted that the whole action was subject to a time limit of three years in terms of the Prescription and Limitation (Scotland) Act 1973 ("the 1973 Act"). Mr Stephenson submitted that the whole action should be dismissed. Alternatively, the claim for damages with respect to personal injuries was time-barred and should be dismissed.

[6] Mr Stephenson submitted that the wording of section 17 meant that the whole action was subject to the time-bar. Reference was made to "an action" not to a claim or head of damages. He conceded that the contrary view had been taken in certain cases and the view had been expressed that the time-bar should apply only to the personal injuries claim. Mr Stephenson submitted that the wording of the 1973 Act was quite clear and did not permit the alternative construction suggested by Lord Milligan in Drinnan v C W Ingram and Sons 1967 SLT. The cases of Fleming v Strathclyde Regional Council 1992 S.L.T. 161 and Thompson v Newey and Eyre unreported, 2 July 2004 had proceeded on the basis of concessions and the matter had not been argued.

[7] On the question of time-bar, Mr Geary invited me to adopt the construction taken by Lord Milligan in Drinnan and accepted in the other cases cited. It had never been Parliament's intention in passing the 1954 or 1973 Acts that, if, in an action including claims for damages for economic loss and personal injury, the personal injury action was time-barred, the pursuer automatically lost the whole of the claim, including that part subject to a different limitation.

[9] Section 17 of the 1973 Act provides:

Lord Milligan expressed the following conclusion:

[11] In Fleming a woman sought damages for inter alia distress and inconvenience occurring when the house which she occupied and the contents thereof were extensively damaged by an ingress of flood water and she was therefore unable to occupy the house for several days. It was alleged that the flooding had been caused by the fault and the negligence of the sewerage authority and the housing authority and the area in which the pursuer's house was situated. The action was raised more than three years after the flooding. It was held that pursuer's claim for personal injuries was time-barred and the averments in relation to personal injuries were excluded from probation. In Thompson v Newey and Eyre unreported, 2 July 2004, a decision of Temporary Judge Coutts Q.C. the approach adopted in Fleming was followed.

[13] I am unable to accept Mr Geary's argument that a later date for the commencement of the triennium may be identified. In my opinion the case is pled in such a way that the only identifiable date on which the triennium can be said to commence is the date of the hearing on 12 May 1994. Accordingly, I am satisfied that the personal injury case is time-barred and I shall exclude it from probation. The passage beginning at page 29C with the words "Further, he has suffered anxiety, distress..." and ending at page 30B with the words "...occasioned by the said breaches of contract" will accordingly be excluded.

[14] The breaches of duties of care on which the pursuer relies fall generally into four categories. These are said to arise from the factual averments as to what happened at various stages in the course of events as they unfolded. The first category of duties is found in Article 6 at pages 23B- 24B and the factual basis for these duties is to be found in Article 4 at pages 9-10. This category comprises duties arising from the initial presentation of the existence of the funds to the Inland Revenue. The pursuer avers that an accountant of ordinary competence exercising ordinary care would have called a meeting with the pursuer to obtain a detailed explanation as to the source of the sum of £81,173 and to explain to him that the sudden appearance of these funds would be likely to give rise to an enquiry by the Inland Revenue, particularly in the context of an ongoing investigation into the preceding two years accounts. He would not have shown the funds as an introduction of capital into the accounts for 1989-90. Some of the savings accumulated by the pursuer over the years could have been shown as drawings. He would have provided a detailed explanation either in the note to the accounts or in the covering letter to the Inland Revenue disclosing the sources of the sum in order to elide the possibility of an Inland Revenue enquiry. In particular he would have explained to the Inland Revenue that the source of £31,000 of the funds represented savings accumulated since the age of 10 and that it was simply a continuation of a family tradition. He would have informed the Inland Revenue that the pursuer was persuaded by his wife to lodge his savings in interest bearing accounts.

[15] The second category of duty is averred at page 24B to C and the factual basis for this duty is averred at page 12A-C. This category relates to the lack of preparation prior to the meetings with the Inland Revenue. The pursuer avers that prior to the meetings with the Inland Revenue the accountant of ordinary competence exercising ordinary care would have discussed the purpose and implications of the meetings in order that the pursuer would be properly prepared.

[16] The third category of duty is set out at page 24C to 25A and the factual basis for this duty is to be found at pages 12D to 13A-B. This relates to the absence of advice prior to the hearing before the General Commissioners as to the risks of proceeding and the possibility of a negotiated settlement. It is averred that

prior to the hearing the accountant of ordinary competence exercising ordinary care would have discussed with the pursuer the implications and purpose of the hearing.

In particular he would have advised the pursuer of the risks involved in proceeding to a hearing and that the purpose thereof was to determine whether the assessments should be finalised. He would have warned the pursuer that in the event of the assessments being finalised, he ran the risk of having imposed upon him a penalty of up to 100% of any additional tax being found due by him. He would have advised the pursuer that interest would be applied to the assessments. He would have advised the pursuer as to the prospects of success. He would have advised the pursuer of the possibility of negotiating a settlement with the Inland Revenue before the hearing which would avoid risks and lead to a much smaller prospective liability.

[17] The fourth category of duty relates to the conduct of the hearing itself. These averments are found between pages 25A and 27B. The factual basis for these averments are to be found at pages 13A to 17B-C. It is averred that, having been advised of the pursuer's health problems and domestic circumstances, the accountant of ordinary competence exercising ordinary care would have advised the pursuer to seek an adjournment of the hearing. In the event of that being refused, he would have advised the General Commissioners of the pursuer's state of health and domestic circumstances in order that they might take those into account in assessing his demeanour. He would have advised the pursuer to testify to the General Commissioners as to the source of the funds in issue. He would have called the pursuer to give evidence. He would have been aware that in the event of an explanation as to the source of the funds not being adduced in evidence the General Commissioners were bound to finalise the assessments.

[22] No offer was made to prove that the provision of a particular explanation would have avoided an Inland Revenue enquiry. The passage at page 24A, in which it was suggested that the sum of £31,000 comprised savings, would provide an explanation was for less than half the funds. It is not said that had that explanation been put forward the investigation would have been avoided. Therefore, without setting out the explanation that should have been made for the whole sum and by failing to offer to prove that if the explanation had been given the enquiry would have been avoided these averments were irrelevant.

[23] In relation to the second category of duty, namely, the requirement for preparation of the pursuer for the meetings Mr Stephenson submitted that no indication was given as to what prior preparation the pursuer would have made, or what advice with respect to preparation should have been given, or what lack of preparation caused the Inland Revenue not to be satisfied. These averments were so lacking in specification as to have no content and to be irrelevant and should be dismissed.

[24] In relation to the third category of duty, namely, the duty to advise of the risks of proceeding and the possibility of a negotiated settlement, Mr Stephenson submitted that these averments were inconsistent with the thrust of the whole of the rest of the case. The other averments proceeded on the basis that the pursuer's account of the source of the funds would have been accepted. Here, the averments proceeded on the basis that the pursuer's explanation would not have been accepted. The premise here was that the chances of convincing the Inland Revenue were so poor that the case should have settled.

[25] This was the one category of fault from which the loss averred in Article 7 might be said to flow. However, there was no specification why, or on what basis, the Inland Revenue would have accepted £25,000. Fair notice required some reason to be advanced.

[26] Each category of duties looked at separately required to be rejected. If they were all rejected then there was none left. If one or more was sufficient for a proof before answer and others were irrelevant then these should be deleted from the Record.

[27] Mr Geary submitted that the construction placed on Article 7 by Mr Stephenson was incorrect. The claim for loss was not for the difference between a negotiated settlement figure of £25,000 and the whole amount of tax liability plus interest and penalty. The claim was for the whole amount. That was clear in the opening part of Article 7 and the contents of Productions 6/8 and 6/9. The claim was totalled at page 28D-E in the sum of £90,017.12.

[28] He accepted that if the pleadings were dissected it was probably impossible to place a specific value on each ground of fault but that was not the proper approach to take. There was a sequence of events which began with the complaint that funds were improperly introduced into the business accounts which should not have been so introduced. Had they not been, the Inland Revenue enquiry would not have taken place. The question of whether it would have in any event come to the attention of the Inland Revenue was not relevant and was not averred by the defenders.

[29] The pursuer was entitled to list the catalogue of errors and omissions of the defenders even if he could not specifically put a value on each individual one. There were four events that followed on one from the other. Each one of the four was occasioned by the failure of the defenders in the preceding chronology. They were all inter-linked and must be read together. The pursuer was entitled to say that in each of these respects there was a breach of contract because that was not the way in which an accountant properly carrying out his function would have behaved.

[30] Mr Geary rejected the criticisms which had been made of individual complaints. It was sufficient for the pursuer to give notice that there was no preparation at all, which he did at page 12B. This was not a case in which the pursuer was complaining about the quality of preparation. At page 24B-C there was an averment as to the need for the defenders to have discussed the purpose and implications of the meetings in order that the pursuer would be properly prepared. So with respect to the meetings and the appearance before the General Commissioners there was sufficient on record to give the defenders fair notice of the case against them.

[31] In response to the criticism that the averments with respect to the hearing before the General Commissioners were inconsistent with the earlier averments because they proceeded on the basis that the pursuer's explanation would not be accepted, Mr Geary submitted that this was not a correct view of what the pursuer averred. All that was being said was that, as in any litigation, there was a risk involved and that therefore an accountant of ordinary skill exercising care would have advised the pursuer of the dangers involved in proceeding to hearing. At page 24D there were averments as to the risks which the pursuer faced if he was unsuccessful. These did not justify the view that they were predicated on the view that the explanation would not be accepted. All the pursuer was saying was that the defenders should have pointed out the risks of proceeding.

[33] It is necessary to read the pursuer's case as a whole. In my opinion it is artificial to attempt to place the categories of fault into watertight compartments. The pursuer avers that there was an on-going and developing problem with respect to the question of whether and, if so, how, the sum of money, which was introduced into the pursuer's accounts by the defenders, was to be the subject of taxation. The matter began with the introduction of the sum into the accounts in a particular way. It developed as a result of the assessments made by the Inland Revenue towards a hearing before the General Commissioners. Such a hearing, like any other litigation carried risks. It seems to me that the pursuer is entitled to make factual averments of a developing narrative and to seek to identify faults made by the defenders at a number of stages along the way of the unfolding events. When approached in this way, while it may be difficult, if not impossible, to relate a particular item of loss to a particular breach of duty, it may be open to the pursuer to seek to prove that the whole mishandling of the tax issue by the defenders has given rise to a total loss. Again, when the pursuer's pleadings are read as a whole it does not seem to me to be contradictory to say at the same time that a particular sum is the total measure of loss but that in the context of a hearing before the General Commissioners the taxpayer might well want to assess the risks of pressing on to a conclusion on the one hand, and of seeking a negotiated settlement on the other. In balancing the risks the taxpayer might opt for a negotiated settlement even although he had a prospect of complete success. That is no more than happens daily in the courts.

[34] In addressing the question of relevancy at this stage it is important to bear in mind the passage in the speech of Lord Normand in Jamieson v Jamieson 1952 SC (HL) 42 at page 50: