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Cite as: [2008] CSOH 92, [2008] ScotCS CSOH_92

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OUTER HOUSE, COURT OF SESSION

[2008] CSOH 92

OPINION OF LORD MATTHEWS

in the cause

(FIRST) RANALD DURNESS MACKAY, (SECOND) MRS MOYRA AGNES ISABELLA MACKAY and (THIRD) MRS SHEENA MACKAY

Pursuers;

against

JAMES M EDMOND

Defender:

________________

Pursuers: Paterson; Morton Fraser

Defender: Kennedy; Balfour + Manson LLP

19 June 2008

[1] In this action the pursuers seek payment of damages from the defender which they say arise from his negligence in carrying out duties as an accountant and tax adviser. The broad thrust of the case is that tax returns were submitted late or not at all, that they contained errors and omissions and that there was a failure properly to advise in relation to tax planning matters prior to the sale of certain properties. It is not disputed that the defender was a chartered accountant responsible for the tax affairs and certain of the business interests of the first pursuer from 1980 and of the second pursuer from 1982, all until November 1997.

[2] There is a factual dispute as to what responsibility, if any, he had for the tax affairs of the third pursuer.

[3] In about 1997 the Inland Revenue, as it then was, carried out an investigation into the tax affairs of the pursuers which gave rise to the liabilities set out on Record and the pursuers claim that the interest, penalties and professional fees which they incurred as a result of the investigation, and their response to it, lie at the door of the defender.

[4] This case called before me on Procedure Roll for a debate on the defender's first, third and fourth pleas-in-law.

[5] The first plea-in-law was a general plea to the relevancy and specification of the pursuers' averments.

[6] The third plea-in-law seeks to strike out certain averments added by minute of amendment and adjustment thereto relating to certain Capital Gains Tax Liabilities and the fourth plea-in-law seeks absolvitor on the basis of mora, taciturnity and acquiescence.

[7] The pursuers were represented by Miss Paterson, Advocate and the defenders by Mr Kennedy, Solicitor Advocate.

[8] At the outset Mr Kennedy tendered a fresh note of argument which merely reflected certain changes in pagination in the Record since the original note was submitted.

[9] The broad thrust of his submissions were that the pursuers' averments of loss were irrelevant, that the averments added by amendment and adjustment were caught by prescription and that there had been inordinate and inexcusable delay in proceeding with the action such that the defender should be assoilzied.

Averments of loss
[10] As far as loss was concerned he pointed out that the main element of the claim related to interest and penalties. The tax liability obviously would have to be met anyway. The claim for the pursuers is set out in article 8 of condescendence starting at page 21, although the details perhaps do not matter particularly.

[11] At page 22A the following is averred:

"Had the defender fulfilled his contractual and delictual obligations to the pursuers over the years concerned, the pursuers would not have required to pay penalties and interest. They would have been able to pay their annual tax liabilities from income, or from the sale of specified property in a tax efficient manner such as to meet tax liabilities in an orderly manner. Following the investigation and settlement with the Inland Revenue, the pursuers required, as a matter of urgency, to sell assets, thereby incurring sums in fees, costs and Capital Gains Tax. But for the defender's negligence et separatim breach of contractual obligations, the pursuers would not have incurred said sums. Capital Gains Tax of £33,846 required to be paid by the pursuers on the properties sold to realise funds to effect settlement of the pursuers' liabilities."

[12] There then follows a general denial of the defender's averments accept in so far as coinciding with the pursuers.

[13] At page 26C the following is averred:

"The pursuers have sustained loss even allowing for the interest which might have been earned on sums not paid on tax when properly due. Any interest (which) would have been earned would have been at about 2 per cent under Base Rate."

[14] This demonstrated, said Mr Kennedy, that the sums concluded for were excessive. If the sums did not meet the conclusions then the action was irrelevant. Personal injury cases were different.

[15] I do not consider that this is a matter which can be dealt with at this stage. The sum sued for may well prove to be excessive, as is often the case, but that is not a good reason for dismissal.

[16] Mr Kennedy went on to say that no allowance had been made for the benefits which had accrued to the pursuers from the postponement of the payment of tax. They claimed that they sustained loss even allowing for the interest which they might have earned. It was incumbent on the pursuers to aver the extent of the benefit they had achieved through the delay in paying tax and set that against the amount which they had had to pay by way of interest and penalties.

[17] They would have had the use of the money or assets in the lengthy period during which they did not pay the tax but they had not averred what benefit that gave them.

[18] The pursuers had produced a schedule to cover the Capital Gains Tax which they claimed had fallen due because they had had to sell properties to meet the tax liabilities otherwise incurred. They therefore conceded that they had sold properties. If there was a Capital Gains Tax liability, that meant that there must have been a capital gain on the sale of certain assets which would have been part of their portfolio of properties which had been let out.

[19] If there was a period between 1980 and 1997 when tax was not paid for whatever reason, he expected, and was entitled to expect, to be told what the benefit in rental income and capital gains was over that lengthy period, with the pursuers saying at what point they would have been forced to sell some of the properties to meet the liabilities if there had been no postponement of the tax. Only if the pursuers made these averments could it be seen whether or not the interest and penalties, which they had admittedly incurred, were greater or less than the benefit they had obtained by postponement of payment of the tax. The averments of loss were irrelevant because only one side of the picture was given. They averred what was paid out but did not aver what came in. As I understood his argument, it was to the effect that if, for example, the pursuers had a property worth £200,000 which they sold in order to meet a tax liability of £200,000 then they would be left without that property.

[20] If in the interim the tax liability including interest and expenses amounted to, for example, £300,000 and they sold the property in question for say £400,000 then by keeping the property in the interim they would have made a net gain of £100,000.

[21] No distinction fell to be applied between interest, penalties and professional fees. One simply had to compare the situation as it would have been had they paid the tax with the situation as it was now. In a personal injury case, for example, if a pursuer said that he had been a high earning advocate before an accident and that now he was a lowly paid clerk, he would have to aver the difference in his income. It was simply a matter of fair notice and it was for the pursuer to make the appropriate averments to justify their conclusions. As soon as the pursuers accepted, as they did, that they were forced to sell assets to meet the tax liability, they were forced to accept that the benefit of ownership of these assets had accrued to them in the meantime, and that had to be taken account of in computing the loss. Mr Kennedy said that he had tried to make a stab at the calculation in order to advise his client. In his submission there was no loss at all but it was very difficult. The pursuers had not averred what they would have done had they been aware of the tax liability at the appropriate time and they had given no credit for the benefit which they had had. The averments of loss were therefore irrelevant, lacking in specification and failed to give fair notice to permit the defender properly to consider his position.

[22] If there were no relevant averments of loss then the action fell to be dismissed.

Prescription
[23] The third plea-in-law related only to certain averments added by the first-named pursuer by minute of amendment (No 12 of process) on 3 May 2007 and subsequent adjustment. The general thrust of the original case was negligent dealings with certain tax returns but the averments which were added related to alleged failures properly to advise the first named pursuer about the Capital Gains Tax consequences of selling certain properties.

[24] The averments are to be found between page 10E and page 11C in article 3.

[25] They are to the following effect:

"From 1990/91 onwards, the defender failed to advise the first pursuer in relation to the Capital Gains Tax consequences of the sales of certain properties. Chargeable gains required to be notified to HMRC by 31 October following the end of the year of assessment. These properties were those at (1) 2 Dean Park Mews, sold in 1994/95, the chargeable gain in which was £5,196, and (2) Hawthorn Bank, South Queensferry and 72 West Port, Edinburgh were sold in 1995/96, (sic) the chargeable gain in which was £1,616. Had the defender advised that by transferring title of the properties (prior to their sale) into the joint names of the first and third pursuer, the first and third pursuer would have followed that advice and Capital Gains Tax savings would have been achieved. The tax return for the 1994/95 year of assessment did not refer to the sale of property at Dean Park Mews, Edinburgh. That sale was not notified to the Inland Revenue timeously. The defender failed to advise the first pursuer, or the Inland Revenue, that the disposal was to the first pursuer's son, a 'connected person' for Capital Gains Tax purposes. The effect of such a transaction was that the market value required to be substituted for the consideration, thus giving rise to a potential liability. He failed to advise the first pursuer that by transferring title of the property to himself and his wife, the liability to Capital Gains Tax would be reduced by about £4,650."

[26] Mr Kennedy submitted that a fresh case was being made out which did not relate to tax returns as such but related, as I have said, to a negligent failure to give tax planning advice. This was a totally different type of case and the minute of amendment and adjustments thereto were the first mention of such a case.

[27] The only date given in these averments is 1990/91 onwards. The defender ceased to act in 1997 and the action was raised in 2002, within 5 years of the end of the contract for services.

[28] The first pursuer now sought in 2007 to bring an entirely new case outwith the prescriptive period.

[29] Mr Kennedy submitted that the liability to make Capital Gains Tax arose as soon as the properties were sold, the negligent failure which was alleged having been perpetrated before the sale.

[30] There is an averment in article 9 at page 24B to the following effect:

"It was only following the opening of the Revenue enquiries and intimation of the Revenue's intention to make further assessments that the pursuers were aware, or could with reasonable diligence have become aware, that they had suffered loss. Reference is made to section 11 of the Prescription and Limitation (Scotland) Act 1973."

[31] Mr Kennedy referred to the case of Britannia Building Society v John Bernard Clarke & Others, unreported, in the opinion of Lord Macfadyen dated 25 May 2001.

[32] This was an action for professional negligence and the details do not matter particularly. I was referred, though, to paragraph 18 of his Lordship's opinion which runs as follows:

"The only issue truly before me is the relevancy of the pursuers' averments invoking section 11(3). It is a matter of concession that if those averments are irrelevant, the pursuers' claims have been prescribed. To make a relevant case under section 11(3) the pursuers must in my view make averments not only that they were not in fact aware, until a date less than 5 years before the raising of the action, that they had suffered loss and damage caused by the breach of contract or negligence of which they say the defenders were guilty, but also that they could not with reasonable diligence have become aware of that fact earlier. The pursuers averred that they did not in fact become aware of the relevant facts until June 1996 when their present solicitors obtained access to the relevant files. That is a relevant averment of actual unawareness. So far as reasonable diligence is concerned, however, they merely aver that until the files were recovered they could not with reasonable diligence have become aware that they had a claim. They aver nothing to explain why that was so. That is not, in my opinion, enough to constitute a relevant invocation of section 11(3)."

[33] Mr Kennedy also referred to article 9 at page 25C where the following averment appears:

"The liability to Capital Gains Tax only came to the attention of HMRC during the investigation. The pursuers were not required to pay Capital Gains Tax until then and therefore sustained no loss in that regard until then."

[34] He submitted that the pursuer required to plead himself out of prescription or the part of the case referred to would require to be dismissed. There was no relevant averment dealing with potential awareness and the averments ought to be excluded from probation.

[35] It struck me that the question of awareness might not really be the issue. It appeared from the averments that in or about 1997 the liability to Capital Gains Tax either was or could have been appreciated sufficiently to start the prescriptive period running. The real issue was whether or not the averments about Capital Gains Tax amounted to a new case and what the effect of that would be.

[36] Mr Kennedy conceded that if the averments had been contained within the original summons then he had no point on prescription. The issue therefore did indeed come to be whether these averments amounted to a new case added after the expiry of the prescriptive period. I will deal with this point infra.

Delay
[37] In relation to his fourth plea-in-law Mr Kennedy submitted that the case was comparable to that of Tonner & Another v Reiach & Hall, 12 June 2007 now reported at 2007 SCLR 754. He understood that Miss Paterson would accept that in an appropriate, she would say exceptional, case the court had power to dispose of a case where there had been inordinate and inexcusable delay in proceeding. The issue was whether there had been delay of that character.

[38] Tonner considered how the matter should be brought before the court and disapproved of ex-parte statements. There should be written pleadings and in this case there were averments for the defender directed to the point and explanations from the pursuer. There was sufficient before me, said Mr Kennedy, to decide the issue without any requirement for evidence.

[39] In Tonner the court considered whether dismissal or absolvitor was appropriate. In the absence of a plea of mora, taciturnity and delay, dismissal was appropriate. Such a plea was advanced by the defender in the current case and Mr Kennedy moved for absolvitor.

[40] Mr Kennedy submitted that the case could broadly be divided into two parts. One related to the fact that tax returns did not show any income from a firm called Primak. The defender's position was that he did not know about that until 1998. It was claimed by the pursuers that the defender had attended a meeting in connection with that in 1980.

[41] The other major concern related to the defender's lodging not tax returns but schedules of income with the Revenue, according to the defender, which the Revenue ought to have assessed but did not. The pursuers aver that the returns went in late and that following the Revenue investigation the latter did not now accept that there was any error on their part. There was an issue as to what led to the failure to assess the income. If the defender was correct, and there was Revenue error, then interest and penalties would not normally be exacted. The defender avers that a large amount of interest and penalties should not have been conceded as due by those acting for the pursuers in their subsequent negotiations with the Revenue.

[42] The Primak point turned on a meeting some 28 years ago and the "Revenue error" point turned on what was happening between 1980 and 1997.

[43] It was agreed that the Revenue enquiry started in 1997 and from there on the pursuers had advice from a firm called Lamb & Company and from solicitors then in Peebles. By 1999 figures had been agreed with the Revenue. Therefore, between these two years, there had been negotiations between the pursuers and the Revenue. Till then the pursuers did not know what the loss was. The summons was served in September 2002 and Mr Kennedy conceded that that was timeous in relation to the main part of the claim. Thereafter, however, he submitted that the case fell into the category struck at by paragraph 137 of Tonner. That is to the following effect:

"The relevant factual context will include the procedural context. Much may depend, in the particular case, on the stage that the action had reached before the delay occurred. At one end of the scale, there is the situation illustrated by the present case where an action has been raised in order to defeat prescription and no further procedure has taken place. If the action is allowed to proceed, extensive procedure may be necessary before the action can reach the stage of final disposal. At the other extreme, extensive procedure may have taken place leaving very little further to be done to resolve the case."

[44] He submitted that if an action was raised at the last minute it would be easier to argue that delay thereafter was inexcusable and the opposite would apply if the case was raised earlier.

[45] Mr Kennedy helpfully submitted a chronology. Service of the summons was accepted in October 2002, defences lodged in the following month and an Open Record printed.

[46] The action was sisted in January 2003 and that sist was not recalled until 3 May 2007 when the pursuers' minute of amendment was allowed. Mr Kennedy submitted that that period of over four years amounted to inordinate delay and that it was for the pursuers to put an explanation before the Court to show that it was excusable. In his submission the background of the case, going back to 1980, the fact that the case was raised at the end of the quinquennium and that there was a sist for over four years, created a prima facie case for the court's exercise of the inherent power to "strike out" the action, to use the English phrase.

[47] While the principles had been set out in Tonner, each case obviously had to be considered on its own merits. This case was not as extreme as Tonner, but I had to bear in mind that the matters which would be the subject of proof would go back to the early 80's.

[48] There had been two cases since Tonner, namely Smith v Golar-Nor Offshore A/S, unreported, 25 September 2007, a decision of Lady Paton and Ronald v Argyll & Clyde Health Board, a recent decision of Sheriff William Dunlop in Dumbarton which was currently under appeal.

[49] In Smith, which was a personal injury case, Lady Paton made the following comments at paragraphs 27 and 28:

"27 I accept that the court has the power to dismiss the action where there has been inordinate and inexcusable delay, resulting in an added element of unfairness to the defenders specific to the factual context of the case, all as set out in Tonner v Reiach & Hall.......

28 Reviewing matters in this case as a whole, as I was invited to do, I have concluded that the only period during which there could be said to have been 'inordinate delay' was the period of approximately three years between September 2003 and November 2006. At all the stages in the case, the pace of the litigation, while not always entirely satisfactory, could not in my view be said to amount to 'inordinate' delay".

Paragraph 29 goes on as follows:

"Focusing therefore on events during that period of inordinate delay, the question arises whether the delay was inexcusable. As can be seen from the Chronology and the Breakdown provided by counsel for the pursuer, difficulties were encountered because of the time taken by busy medical professionals to respond to enquiries; the need for legal aid sanction for a new medical expert; and the fact that the pursuer was working off-shore. Those matters in my view provide a sufficient explanation for the passage of time, such that the delay occurring during those three years cannot be regarded as inexcusable."

[50] The defenders had lodged an inventory of process containing, amongst other things, a letter from Mr Kennedy's firm to the pursuers' agents dated 14 October 1999, which he referred to for its terms. He relied on that because it set out the point in issue and said that nothing had changed since then. I do not find that letter particularly helpful.

[51] The pursuers' averments in connection with these matters are to be found at page 25E.

[52] According to Mr Kennedy they make it plain that investigations were complete by mid-November 2004, or at least shortly thereafter.

[53] I was invited to consider the personal circumstances of the defender. He took a second heart attack in May 2003 and had undergone by-pass surgery. He retired in 2006, he was now well over 70, he was concerned about the case and his blood pressure was affected whenever he received a letter from Mr Kennedy. The defence relied very much on his evidence and when he looked over the files which he gave to Lamb & Company, and which were returned to him, he found that they were incomplete. The personal circumstances of the defender were comparable to those of one of the defenders referred to by Lord Glennie in the case of McKie & Others v MacRae & Another, unreported, 23 December 2005 at paragraph 62. That is in the following terms:

"In addition, I consider that it is relevant, particularly in the case of defenders who are individuals, to have regard to their personal circumstances. No personal liability is sought to be established against the first defender, but she will be subjected for an extended period to the stress of the case, and the memory of the distressing events giving rise to it, hanging over her. The second defender is sued personally. He is probably uninsured, since the car was not being driven by the driver to whom it was hired. To have this case hanging over him so long after the event, at an advanced age and having long retired from the business, and with so much at stake in terms of potential liability, is, to my mind, intolerable."

[54] In all the circumstances I was invited to sustain the first and fourth pleas-in-law and in any event to sustain the third plea-in-law to the extent of excluding from probation the averments about the Capital Gains Tax liability.

[55] During the course of the discussion on his second argument, Mr Kennedy eschewed any intention to attack the specification of these latter averments on the basis that they did not indicate precisely when the advice ought to have been given. This had been an argument set out in the note of argument.

[56] Returning to the prescription argument, I invited him to address me more specifically on the question whether the new averments amounted to a new case as such and, if so, what the consequences of that were.

[57] In this connection he then turned to look at page C191 of the Parliament House Book and particularly to paragraph 24.1.2 thereof and the authorities cited therein. I pointed out to him that the authorities referred to therein appeared to be to the effect that the time for considering whether such an amendment should be allowed is at a hearing of the motion to allow the pleadings to be amended in terms thereof. It was too late to challenge an amendment on the basis of time-bar or prescription once the amendment had been allowed (and the record amended) unless the Interlocutor was timeously reclaimed. Reference was made to Greenhorn v J Smart & Co (Contractors) Ltd 1979 S.C. 427, 432, Sellers v IMI Yorkshire Imperial Ltd 1986 S.L.T. 629, 638A and Jones v Lanarkshire Health Board 1991 S.C. 285.

[58] Having considered the case of Jones, Mr Kennedy conceded that he was too late to take the point.

[59] Nonetheless he argued that even if I were not with him in disposing of the whole action on the basis of Tonner, I should dispose of that part of it. That was what Sheriff Dunlop had done mutatis mutandis.

Reply for the Pursuers
[60] Miss Paterson first of all invited me to repel the third plea-in-law for the defender and Mr Kennedy consented to that course of action.

[61] She also invited me to repel the fourth plea-in-law and quoad the first plea-in-law to allow a proof before answer.

Averments of loss
[62] As far as the averments of loss were concerned I had to understand the basis of the claim being made.

[63] In this connection I was referred to article 9 of condescendence at page 23E. In particular, Miss Paterson drew my attention to the following averments:

"By letters dated 6 and 24 November 1997, the Inland Revenue intimated their intention (1) to enquire into the 1996/97 tax return for (a) the partnership of Messrs D Mackay & Sons, and (b) the first pursuer, and (2) to make further assessments on the first and third pursuer for the years 1988/89 to 1994/95 in respect of income from property and 1988/89 to 1995/96 in respect of taxed investment income 'for the purpose of making good tax which may have been underpaid by reason of ... negligent conduct in failing to submit ... (tax returns) for the years 1988/89 to 1995/96 within the time allowed'."

[64] She explained that the loss extended to interest and penalties and the costs incurred in relation to the enquiries and investigations carried out by the Revenue over a period of almost ten years. There were therefore a number of different sources of income, three different taxable persons and a number of different taxable entities with which they were involved to varying decrees. It was not just a question of one source of income for one individual.

[65] That was why it had taken over two years for the Revenue and Mr Lamb to agree the figures and for settlement terms to be drawn up.

[66] Article 2 of condescendence set out the basis upon which the defender was engaged between about 1980 and November 1987. He was a Chartered Accountant responsible for the first pursuer's tax affairs and in relation to setting up his business interests. Between 1982 and November 1997 he was responsible for the second pursuer's tax affairs etc. Between about 1980 and November 1997 it was averred that he was responsible for the third pursuer's tax affairs. He did not provide any of the pursuers with a letter of engagement.

[67] He had been instructed by the late brother of the first pursuer, according to the averments, and submitted accounts in relation to the firms of W & J Shepherd and D Mackay & Sons. There was also reference to Primak Properties, in which the first pursuer was a partner. There was thereafter reference to certain reliefs for which the pursuers might have been eligible, so the case was a complex one. A further complexity was that between 1988/89 and 1996/97 there was a change in the tax regime (from 6 April 1991) in terms of which a wife who had income required to submit her own tax return instead of her details being included in her husband's.

[68] Many of the averments about the defender's engagement were admitted, including the averment that he did not provide a letter of engagement, although he denied receiving any instructions from the third defender, the first defender's wife.

[69] It was in matters of detail that there was a substantial dispute.

[70] It was not in dispute that blank tax returns were signed by the first and second pursuer throughout the period, and then submitted by the defender to the Revenue. In other words, the pursuers throughout the period had no knowledge of what information was being provided to the Revenue and when. Since the defender was their tax adviser, they expected him to tell them of the amounts of tax to pay and when it should be paid.

[71] Her comments about complexity were relevant to the issue of mora, but also had to be taken into account when considering the averments of loss. In the first place, the question of penalties had to be considered. The Revenue took a number of different factors into account when considering the level of penalties, and these were set out in article 9 at page 25 paragraphs C to D. It is averred there that:

"As the defender is well aware, in calculating interest and penalties, HMRC take into account a variety of factors. These factors include persistent failure to submit returns timeously, failure to disclose sources of income and gains and failure to make correct returns."

[72] Because of the complexity of the first and second pursuers' tax affairs, in order to consider whether the level of interest and penalties was reasonable, it would in due course be necessary to go through each year to consider the circumstances and where fault lay.

[73] All this meant that the court would have to take a broad approach and the pleadings gave sufficient notice of the pursuers' case.

[74] Since the pursuers themselves had no knowledge about what was being submitted to the Revenue by the defender, the information on which the settlement was achieved was based on the defender's own files. It was averred that they were not in good order, although that was disputed. See page 25E. The defender knew what was in these files and was in a position to respond. Miss Paterson recognised clearly that because tax was not paid then the pursuers had had the benefit of the money in the interim. She had set out a basis of calculation of the benefit accruing to the pursuers in article 8 at page 26E. That is, as I have already indicated, to the following effect:

[75] She also averred, although it was not part of the claim, that the pursuers had required to pay approximately £34,000 in order to settle their liability for Capital Gains Tax. That would have not been incurred had they not required to sell their property in order to settle the claim for interest and penalties. The averment in relation to that was at page 22B. Miss Paterson also referred to the averments at the top of page 22 as follows:

"Had the defender fulfilled his contractual and delictual obligations to the pursuers over the years concerned, the pursuers would not have required to pay penalties and interest. They would have been able to pay their annual tax liabilities from income, or from the sale of specified property in a tax efficient manner such as to meet tax liabilities in an orderly manner. Following the investigation and settlement with the Inland Revenue, the pursuers required, as a matter of urgency, to sell assets, thereby incurring sums and fees, costs and Capital Gains Tax. But for the defender's negligence et separatim breach of contractual obligations, the pursuers would not have incurred said sums."

[76] If the Pursuers had been able to sell their properties in an orderly fashion they could perhaps have used up Capital Gains Tax exemptions given the nature of the various entities. Various reliefs might have been available if some properties were used for certain purposes. As much detail as was available and was necessary had been given and in any event a broad brush approach had to be taken at the end of the day. That was true in relation to any claim for economic loss.

[77] Miss Paterson said that in some ways the criticism of the averments of loss might be academic. If the defender was correct that the interest and penalties did not arise through any fault of his then a large part of the claim would fail. Answer 3 at pages 14 and 15 refers to schedules of income being submitted to the Revenue by the defender. This was not a case where the defender was unaware what the loss was. The analogy of a personal injury case was not a good one. In that situation the income of the pursuer would be unknown to a defender but that was not the case here.

[78] I should allow a proof before answer.

Delay
[79] As far as the fourth plea was concerned, Miss Paterson accepted the general proposition that the court had the inherent power to dispose of an action by dismissal or absolvitor but said that that should only be as a last resort. She referred to paragraph 123 of Tonner.

[80] It was recognised that each case depended on its own facts and circumstances. The circumstances of the current case were nowhere near as extreme as those in Tonner.

[81] She pointed out that in some of the cases referred to there had been an earlier determination of the facts. In Tonner there had been an arbitration in 1986, within three years of the completion certificate being issued. In McKie there had been a Fatal Accident Inquiry after the accident.

[82] We were not in that position here. The best the pursuers could do was to have regard to the defender's files and the findings of the Revenue investigation.

[83] I asked in particular what had been going on since November 2004. She said that once various matters had been put to the Revenue, further matters were considered. In particular, there was an averment that there was no letter of engagement which was in fact admitted. Enquiry was made of the Institute of Chartered Accountants as to whether or not that would amount to negligence. That could have a bearing on the question of whether or not the accountant should have been giving tax advice or not. Guidance had now been issued to Chartered Accountants about letters of engagement and a pro forma was included in that guidance. There was also the question of the execution of blank tax returns. Enquiries were made of the Institute of Chartered Accountants and the Institute of Taxation to see if they had ever allowed that to be done and, if so, whether they had to be checked by the client before submission. This was all against a background in which Miss Paterson could not understand how it could be said not to have been negligent to have a client sign a tax return and then submit it without checking.

[84] These enquiries covered a number of different years so the answer might not have been the same in each case.

[85] Other matters which were dealt with during that period were enquiries relating to Capital Gains Tax which resulted in a schedule being prepared by Mr Lamb and submitted by the defender. That schedule was dated 3 April 2006 and is referred to in answer. Work had to be done on that.

[86] Mr Lamb prepared the schedule and communicated it to the defender so it showed that work had been going on during the sist.

[87] Miss Paterson said that she was consulting in 2006 and subsequently, so, while the action might not have proceeded apace, it was not as if nothing was being done.

[88] In any event the defender could have exercised his right to move to recall the sist if he had so wanted but he had not done so. If his health was an issue, then that was a step he could have taken.

[89] Since the sist had been recalled, which was achieved when the minute of amendment was lodged, work had been done on that amendment, some having been carried out previously. The defender lodged a note of argument in the middle of 2006 and there had to be a further minute of amendment by the pursuer in order to address some of the issues raised therein. The amendment procedure was not concluded by the beginning of 2008 when a diet of debate was set down. That was discharged on the pursuers' motion.

[90] While there may have been delay, in relative terms it was very slight and was nothing like the delay referred to in any of the authorities.

[91] Miss Paterson also submitted that it was relevant to note that in the other cases referred to either the facts were straightforward or they involved one accident or one single dwelling house. The current case was much more complex.

[92] Page 25A contains the following averments:

"Following the closure of the enquiry and payment of the additional sums required to HMRC, these proceedings were raised and thereafter required to be sisted for further investigations. The pursuers required to investigate the defender's assertions made in correspondence and contained in his defences. In particular, the defender asserts that the delay in paying tax arose partly as a result of failures on the part of HMRC. The defender's files did not contain sufficient information to support such an assertion. The settlement discussions with HMRC were protracted with four different inspectors being involved. The defender was afforded the opportunity to respond during August 1999, but had failed to do so by the end of September 1999. No response was received from him. No information was provided by the defender to properly mitigate the interest and penalties."

[93] At page 25E the following averment appears:

"The pursuers' present advisors were hampered by the poor state of the defender's file as received by them. They required to make enquiries of HMRC. Through no fault on the part of the pursuers, or their agents, these enquiries were not concluded until late 2004. A number of tax inspectors dealt with the files relating to the periods, which extended over a significant number of years, and covered many business interests. These enquiries included obtaining HMRC comments on the defender's assertions, for example, that certain (unspecified) tax return were submitted to the Inland Revenue prior to 1997, copies of these not being on the defender's files as recovered by the pursuers, and that a sufficient return of the income from Primak Properties had been made. They required to obtain copies of assessments issued by HMRC over the period. That correspondence was not concluded until mid-November 2004. Agents and Counsel required to give further consideration to the assertions made by the defender. During the sist of the action, discussions took place between the parties' respective agents. There has been no unreasonable delay in proceeding with this action. The defender has suffered no prejudice."

[94] A perusal of the interlocutors showed that the Open Record was received late on 22 November 2002. Although the interlocutor does not show it, the Record was closed on 22 January 2003 and the cause sisted for further investigation. The sist was recalled on 3 May 2007 when the Record was opened up and the cause was restored to the adjustment roll until Wednesday 27 June, on which date it was again to close. The minute of amendment for the pursuer, number 12 of process, was allowed to be received. That minute increased the sum sued for.

[95] On 27 July 2007 the cause was appointed to the Procedure Roll and the defender was ordained to lodge a note of argument within 28 days.

[96] On 11 September 2007 a further minute of amendment for the pursuers was received and marked number 15 of process, answers being allowed within 14 days.

[97] All this had brought us up to where we were today. In Tonner the pursuers' pleadings were sparse and a great deal of further work was envisaged with concomitant delay. In Ronald it was envisaged that further investigation was required. There was no suggestion in the current case that that was needed. As at presently advised the pursuers had done all they needed to do and were ready to proceed to proof.

[98] As far as the potential loss of evidence was concerned the defender's remedy lay in taking his evidence now in order that it could be preserved and lie in retentis.

[99] Each case on mora depended on its own facts. How long had the case been in court? What type of case was it and what did the future hold? The reality here was that ten years had elapsed from when the pursuers first became aware of what had been happening. It was seven or eight years since they had settled their liability. Only then was the extent of their loss known. The enquiries took two years involving four tax inspectors etc as I have indicated already.

[100] I should therefore find that the option of last resort should not be exercised and I should repel the fourth plea-in-law.

[101] It was pointed out to me that the defender had a counterclaim for payment of his fees. The period covered by these fees was from 1980 to 1997 and the covering invoice was only issued on 16 October 2002. If I were to dismiss the action then the counterclaim would remain extant.

[102] The existence of the counterclaim might have been something which could have persuaded the defender to attempt to recall the sist.

Reply for the Defender
[103] In reply Mr Kennedy submitted that where the case was complex there was even more danger of memory dimming and evidence being lost. It was one thing to ask a witness about a road traffic accident, but quite another to ask him to remember the circumstances of tax returns in 1988 and 1991 etc.

[104] The defender did not know how, when, and at what prices the various properties had been sold in order to meet the tax liability beyond the information contained in the schedule to which reference had been made. That schedule showed the address of the properties, the dates of the sales, the sale proceeds and the amount of capital gain attributable to each pursuer.

[105] He needed to know, though, what part of the capital gain related to a period after it would have been necessary in any event for the tax to have been paid. He did not know what rental was coming in, when the property was being used, and what the increases in value were. The extent of the pursuers' gain on these properties was not specified at all. There should have been an averment about what asset would have been disposed of and when in order to meet tax liabilities as they properly fell due had there been no question of negligence. In that way the current situation could have been compared with the situation as it would have been.

[106] To some extend that was hypothetical and involved the application of hindsight but it had to be done.

[107] I queried whether in fact the only appropriate way of approaching this was to consider the question of interest. Mr Kennedy said that that depended on the facts. Insufficient facts were averred in this case and the reference to the Base Rate was facile.

[108] As far as the explanation to justify the delay was concerned, it was not at all clear why it would take any particular length of time to make the enquiries of the institutes which were mentioned by Miss Paterson. In this day and age no one would dispute that a letter of engagement should be issued, although it was difficult to see how a failure to issue such a letter could of itself cause any loss. It would just clarify what a professional man was or was not to do. Equally, having a client sign blank tax returns was not a particularly clever thing to do, but no loss would have been sustained if the information in the tax returns was accurate.

[109] As far as recalling the sist was concerned reference was made to Tonner at paragraph 116, but more particularly to McKie at paragraph 50(5) on page 31 where Lord Glennie said the following:

"The courts in England have adopted the approach that the defendant in litigation in court (though not in arbitration) is entitled to 'let sleeping dogs lie' without that being held against him if, at a later date, he wishes to apply to dismiss the action for want of prosecution. The rationale is set out by Lord Salmon in Birkett v James at p. 329 and by Lord Diplock and Lord Fraser (dissenting in the result) in Bremer Vulcan pp. 984-5 and 990 respectively. Why should a defendant apply to court to make the plaintiff get on with the action when that would be contrary to his interests? That reasoning appears to be equally applicable in Scotland."

[110] Mr Kennedy reiterated his argument that the more complex the case the more urgent was the need to get on with it. Any proof in this case would probably be in 2009 and would have to deal with matters which went all the way back to 1980. Evidence could be obtained on commission, but it was generally unsatisfactory for the evidence of a defender to be taken before that of the pursuers. The evidence of witnesses tended to dim with the passing of time and delay was more likely to lead to further expense, more anxiety and ultimately injustice.

Discussion
[111] As can be seen the first substantive point taken by the defenders is that no account has been taken by the pursuers of any gains made by their use of property which they ultimately had to sell in order to raise funds to pay the tax, interest and penalties due. The averments in support of that plea are to be found in answer 8 at page 23 and broadly speaking the defender's position is that the pursuers were able to retain for a period of years certain assets which would otherwise have been realised to meet the tax liability. The liabilities to tax, interest and penalties were met by realisation of certain heritable properties which had considerably increased in value in the intervening period and the gain net of Capital Gains Tax was greater than the interest, penalties and accounting expenses which were required to be met.

[112] The pursuers' position is that had matters proceeded as they ought they would have been able to pay their annual tax liabilities from income or from the sale of specified property in a tax efficient manner. As a matter of urgency they required to sell assets thereby incurring sums and fees, costs and Capital Gains Tax.

[113] Those averments appear in condescendence 8.

[114] In condescendence 9 the pursuers aver at page 26 that they have sustained loss, even allowing for the interest which might have been earned on sums not paid on tax when properly due. Any interest which would have been earned would have been at about 2% under Base Rate.

[115] In my opinion the submissions for the pursuers are to be preferred on this point.

[116] In the first place, it seems to me to be wholly unreasonable to expect them to try to cast their minds back many years over several accounting periods and try to ascertain what use they would have made of their property portfolio. Would they have sold property to pay tax as it was due, or would they have raised funds on the security of it? The answers to these questions are wholly speculative at best and it would be quite unreasonable, as I have said, to expect the pursuers to undertake this exercise.

[117] Secondly however, and more fundamentally, the defender's submissions proceed, in my opinion, on a fallacy. The primary obligation on the pursuers was to pay money to the Revenue, not to sell property. How they would have raised the funds which they would have used to pay the Revenue is irrelevant in my opinion.

[118] Once funds came into their hands, whether by selling properties or by borrowing or by accumulating income, then the source of the funds ceased to play any part.

[119] The obligation being to pay money, it is the enjoyment of that money over the years for which they have to answer now when calculating such gains as they may have made in the interim.

[120] The only way in which that can properly be measured is by considering how much interest that money would have earned.

[121] That kind of calculation is understandable, accessible and consistent.