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FIRST DIVISION, INNER HOUSE, COURT OF SESSION
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Lord President
Lord Nimmo Smith
Lord MacLean
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[2006] CSIH 43
A640/04
OPINION OF THE COURT
delivered by LORD MacLEAN
in
RECLAIMING MOTION
by
(FIRST) MRS. CATRIONA
MARGARET MACKINTOSH and (SECOND) ALISON MARY MANN
Pursuers and Reclaimers;
against
(FIRST) CRAIG MORRICE and
(SECOND) MRS. LILLIAS MARGARET MORRICE
Defenders and Respondents:
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Act: Wolffe; Simpson & Marwick (Pursuers and Reclaimers)
Alt: Murphy, Q.C.; HBM Sayers (Defenders and Respondents)
5 September 2006
[1] Dr.
Charles John Howell Mann and Dr. Evelyn Margaret Fortune Mann, who were married
to each other, were killed in a road accident on 24 July 2001 when the car in which they were
travelling was in head-on collision with a car driven in the opposite direction
by one Philip Alexander Morrice. As a
result of the collision, both vehicles burst into flames and the occupants of
both died at the scene. The defenders,
who are the executors of the late Philip Alexander Morrice, have admitted that
the accident was caused by his fault and negligence. The pursuers are the daughters of the late
Dr. Charles Mann and the late Dr. Evelyn Mann.
They each sue as individuals for £125,000 in respect of loss of society
and loss of support. It is averred that
they shared the residue of their parents' estate between them. In the third conclusion they sue alternatively
as executrices of their parents' estates for payment of the sum of £150,086.40. In the pleadings it is averred that each of
the pursuers suffered a loss of one half of this sum as a residuary
beneficiary. It is further pleaded that
the pursuers suffered a loss as executors of the sum of £2,750 in respect of
funeral costs.
[2] The
pursuers aver that in 1995 Dr. Charles Mann made a substantial gift of £175,000
to each of them. In 1997 Dr. Evelyn Mann
made a further gift of £175,000 to each of the pursuers, which was followed by
a further gift of £20,000 to each of them.
In view of Dr. Charles Mann's and Dr. Evelyn Mann's life expectancies
their gifts were expected to become exempt transfers, respectively, in April
2002 and April 2004. Because of their
premature deaths in July 2001 the transfers became chargeable to inheritance
tax. The tax free bands of the estates
of each of them became largely used by the prior transfers. As a result, there was a substantial increase
in inheritance tax payable on their residuary estates, amounting to
£150,086.40. It is this sum which the
pursuers seek to recover as executrices of their parents' estates. They further aver that they each suffered a
loss of one half of that sum as a residuary beneficiary.
[3] The
defenders pleaded that the pursuers' averments relating to the alleged losses
in respect of increased liability to inheritance tax were irrelevant et separatim lacking in specification,
and should not be admitted to probation.
The Lord Ordinary accepted that plea by excluding from probation all the
averments of loss relating to the increases in inheritance tax payable on the
estates of Dr. Charles Mann and Dr. Evelyn Mann, both in respect of the
pursuers as individuals and as executrices.
The claim for funeral expenses, he pointed out, could properly be
brought by the pursuers as relatives of the deceased rather than as
executrices. He therefore dismissed the
action so far as it proceeded at their instance as executrices. The action was thus restricted to proof of
quantum of the loss of society claims and the funeral expenses.
The reclaimers' submission
[4] From
his interlocutor the pursuers reclaim.
Mr. Wolffe moved us to recall the interlocutor of 13 December 2005; to sustain the pursuers' first
plea-in-law; to repel the defenders'
first plea and to allow parties a proof restricted to quantum of the parties'
whole averments. The Lord Ordinary erred
in holding that the loss was attributable to a period after death, which was
not permitted in terms of section 2 of the Damages (Scotland) Act 1976
(as amended). He also erred in holding
that the loss was not capable of being regarded as loss of support in terms of
section 1(3) of the 1976 Act.
[5] The
deceased, when alive, made substantial capital gifts to the pursuers. These were potentially exempt transfers which
would become exempt transfers if the donors survived for at least seven years
after the gifts. If, however, death
occurred within the seven year period, tax was attracted. It was a tapering tax, depending upon the
lapse of time within the seven year period (Inheritance Tax Act 1984 section
7(4)). At the time the band of relief
was £275,000. So, the tax charged was
materially greater than it would have been but for the accident. The liability for tax fell upon the
deceased's personal representatives (IHTA section 200), and it was to be
treated as part of the general testamentary and administrative expenses of the
estate (IHTA section 211). The Lord
Ordinary, in paragraphs [11] and [12] of his Opinion was correct in holding that
on the pursuers' averments there was a loss to the deceaseds' estates caused by
increased tax.
[6] Mr.
Wolffe referred to B.T.C. v Gourley 1958 A.C. 185 for the
long-established principle that tax must be deducted from damages which were
payable. It also applied where the tax
loss was a possible head of claim.
Section 2 of the Damages (Scotland) Act 1976
achieved the aim of the underlying policy of the law. Subject to losses which were too remote, the
law permitted the victim to be compensated for all the losses he sustained (Duff v Duff, 13 January 1993, Lord Clyde unreported at pp. 2-3). Mr. Wolffe referred to the long title of the
Damages (Scotland) Act 1976
and, in particular, its object to amend the law relating to damages recoverable
in respect of deaths caused by personal injuries; and to define the rights to
damages in respect of personal injuries and death which were transmitted to an
executor. Mr. Wolffe submitted that, but
for what was excluded in the existing section 2(2), everything else was
transmitted to the executor under section 2(1).
This was an action arising from personal injuries and death. The claim in respect of the tax loss was not
excluded by section 2. Mr. Wolffe
referred to paragraphs 4 and 19 of the Scottish Law Commission Report of 1973
and pointed out that a tax loss like the one averred in this case was a
foreseeable cause of loss at death. Mr.
Wolffe referred to Sommerville v N.C.B. 1963 S.C. 666, in which the
intervening death of the pursuer brought an end to his claim for future loss of
earnings which was the subject of a minute of tender. As a result of the change of circumstances
brought about by the death, the tender could not be accepted. The key to a proper understanding of Daniels v. Thompson [2004] EWCA Civ 307 was that until loss had been sustained
there was no cause of action. Loss was
sustained only after the death of the testator and no cause of action was
vested in her so as to survive for the benefit of her estate. In this case there was personal injury which
was immediately actionable, followed by consequential financial losses. The Lord Ordinary erred in holding that the
loss here was attributable to a period after death and that it was not
transmissible to the executrices. The
second ground of appeal should be upheld.
[7] So
far as loss of support was concerned, the Lord Ordinary was correct when he
said, at paragraph [15], that the amount of loss of support was a question of
fact and a matter for the jury. It was
for the jury to weigh the imponderables:
Dingwall v W. Alexander & Sons (Midland) Limited 1982 S.C. (H.L.) 179 per Lord
Justice Clerk Wheatley at page 205. The
pursuers were donees, residuary legatees and dependants. But there was no system of support in the
life time of the deceased. In this case
each parent made a separate gift to each child.
In English law there would be no objection to admitting this claim if it
were made by the executrices: Davies v Whiteways Cyder Co. 1975 1 Q.B. 262 per O'Connor J. at page
268. The footnote in McGregor on Damages (17th edition) at
paragraph 36-038 summarises Davies as
follows:
"where
monies had come to the dependants by inter
vivos gifts of the deceased which were liable to estate duty because made
within seven years of his death, it was held in Davies v Whiteways Cyder Co.
that the payment of the estate duty constituted the loss of the expectancy of a
future pecuniary benefit and was accordingly recoverable, subject to a small
discount for the chance that the deceased might not have survived the remainder
of the seven-year period. The same
situation can still arise with inheritance tax, which has superseded estate
duty and taken over from capital transfer tax."
But English law, in any event, was
broader in its application to such heads of claim because the provisions of the
Fatal Accidents Act 1846 were wider than those of the Damages (Scotland) Act 1976.
The respondents' submission
[8] The
Lord Ordinary's reasoning between paragraphs [9] and [18] was correct and no
error of law had been demonstrated in that reasoning. The claim at common law by the executrices
for loss to the deceaseds' estate was based on the increased incidence of tax
by reason of the deaths. It was clear
that such a claim was competent at common law only if the loss had been
suffered by the deceased in their lifetimes.
The loss here arose on death. It
had to be a loss sustained by the person who was injured. In the present case the donors, that is to
say the deceased, did not sustain a patrimonial loss. It was the donees who did. No competent claim could be brought during
the deceaseds' lifetimes because there was no loss. Sommerville
v N.C.B. vouched that. When a person dies, prospective losses are
cut off. On death the claims will be by
those relatives who were dependent upon the deceased and actually suffered the
loss. Paragraph 6 of the Scottish Law
Commission Report of 1973 made it clear that the executor's and dependants'
claims were based on the premise that the deceased would have had a right to
claim in life. Consistent with what was
recommended in the Scottish Law Commission Report in paragraph 19, the Damages
(Scotland) Act 1976
in section 1(3) conferred the direct right of recovery upon the relatives in
respect of the loss of support they had suffered since the deceaseds' death or
were likely to be suffered by them. The
deceased person ought to be able to recover losses which occurred in his
lifetime but not those which occurred after death, including those
consequential upon it. The Lord Ordinary
was correct when he said at the end of paragraph [9] of his Opinion that it was
an established principle at common law that, where the wrong founded upon
caused the death, an executor could only recover patrimonial losses suffered by
a deceased during his lifetime.
[9] The
pursuers claimed in the action that there were transmitted to them, in terms of
section2(1) of the Damages (Scotland) Act 1976
(as amended), the deceaseds' rights to damages in respect of personal injuries
sustained by them which were vested in them immediately before their death. There were, however, no such rights on the
part of the deceased or either of them.
Even if death could be equiparated to personal injuries, there was an
inherent contradiction because no right was vested in either of the deceased
immediately before death. It was not
something which could have been pursued in their lifetime. The executrices had no higher right than the
deceased had in their lifetimes. What
the Lord Ordinary said in paragraph [11] of his Opinion was entirely correct.
[10] As for the claim for loss of support in terms of section 1(3)
of the 1976 Act, averred to be suffered by the pursuers' dependants since the
date of the deceaseds' death, the question was what was the support given to
them by the deceased in their lifetimes?
On that matter there were no averments.
The loss was said to arise only after the death and took the form of a
diminution in the value of the estate.
In counsel's submission this was a claim by residuary beneficiaries
dressed up as a claim under section 1(3) of the 1976 Act. The support referred to and founded on was
the reduced residue of the estate.
Decision
[11] This is a case concerned with deaths which occurred directly
and immediately as a result of admitted negligent driving. There is no claim for damages in respect of
personal injuries. Neither deceased had
in their lifetime a right to damages vested in them in respect of personal
injuries. Neither suffered any
patrimonial loss in their lifetime as a result of the accident. Where death results from a negligent act, as
in this case, relatives or dependants, such as the pursuers, are entitled to
claim for loss of society (solatium)
and, where it is justified factually, for loss of support. It is, as the Lord Ordinary pointed out, an
established principle at common law that, where the wrong founded on caused
death, an executor can recover only patrimonial losses sustained by a deceased
during his lifetime. So the executor in Sommerville could recover the wages lost
by the pursuer up to the date of his death, but not any future loss of
wages. Section 2(1) of the 1976 Act
provides that there shall be transmitted to the executor of a deceased person
the like rights to damages in respect of personal injuries sustained by the
deceased "as were vested in him immediately before his death". Conversely, as section 2(2) of the Act
provides, any right to damages by way of compensation for patrimonial loss
attributable to any period after the deceased's death does not transmit to the
executor under section 2. The losses in
this case were contingent upon death. As
the Lord Ordinary points out, inheritance tax is charged on the death of any
person and for there to be any liability to pay tax the deceased must have
died. So, the loss to the estates of the
deceased caused by the payment of inheritance tax is attributable to a period
after death. Both at common law and by
statute the claims do not transmit to the pursuers as executrices. The pursuers, as relatives of the deceased,
are entitled to damages to compensate them for any loss of support suffered by
them as a result of the act or omission causing the deaths. This raises the question, of course, about
the levels of support the pursuers received in the lifetime of the deceased and
especially in the period up to their deaths.
On that subject there are simply no averments. It cannot be said that the deceased, when in
life, supported the pursuers in relation to the inheritance tax incidence. What appears to be claimed as a loss of
support is a sum representing the diminution in the values of the deceaseds'
estates which the pursuers share as residuary legatees. However that is to be regarded, it is not
support which the deceased provided for the pursuers during their i.e. the
deceased's lifetime. The English statutory
provision discussed and applied in Davies
v Whiteways Clyde Co. (Fatal
Accidents Act 1846 section 2) is quite different and broader in its scope than
the applicable Scottish provisions.
[12] We consider that the respondents are well-founded in their
submissions. While having some natural
sympathy for the pursuers we see no alternative to refusing the reclaiming
motion and adhering to the interlocutor of the Lord Ordinary in whose reasoning
we are unable to detect any fault.
