Scottish Court of Session Decisions

Pursuer: Davies; Morton Fraser

Defenders: McBrearty; Dundas & Wilson

25 April 2013

Introduction

[1] In this action the pursuers seek reparation for loss and damage which they claim to have sustained in their capacity as executors as a consequence of negligence of the defenders while acting as solicitors on behalf of the first pursuer's aunt, the late Mrs Agnes Thomson Milligan ("Mrs Milligan"). The loss claimed by them consists of part of the inheritance tax payable on Mrs Milligan's estate, which tax the pursuers aver could and would have been avoided but for the defenders' negligence when carrying out Mrs Milligan's instructions in connection with a lifetime gift of a house by Mrs Milligan to the first pursuer. This is one of two parallel actions raised in relation to the same actings by the defenders; in the other action (Steven v Hewats), the first pursuer seeks reparation for a loss consisting of tax payable on the lifetime gift as a consequence of its having become chargeable to tax on Mrs Milligans' death. The two actions came before me together for debate on the procedure roll; this opinion is concerned with the action raised by the pursuers as executors. For the full picture it may be desirable to read this opinion in conjunction with my opinion in the action by the first pursuer as an individual.

The pursuers' averments

[2] The pursuers aver that after the death of Mrs Milligan's husband in 1974, Mrs Milligan had been the sole heritable proprietor of a house known as Ardlaggan, New Galloway, in which she resided. For reasons narrated in the pursuers' pleadings, the dominium utile and superiority of Ardlaggan were held by Mrs Milligan on separate titles. In 1996 Mrs Milligan instructed the defenders in relation to the preparation of a new will. The pursuers aver that the defenders also provided advice on "general estate planning". Mrs Milligan informed the defenders that she wished to make a gift of Ardlaggan to the first pursuer with a view to reducing the value of her estate subject to inheritance tax in the event of her death. She wished, however, to continue to reside at Ardlaggan. The defenders advised Mrs Milligan that she should make an outright gift of the house to the first pursuer but that she should obtain a separate undertaking from the first pursuer to protect her right to stay at Ardlaggan. The defenders drafted a disposition of Ardlaggan in favour of the first pursuer, which disposition was executed by Mrs Milligan on 26 March 1997 and registered by the defenders on behalf of the first pursuer in the Land Register on 4 September 1998. The defenders also prepared a document for signature by the first pursuer confirming that Mrs Milligan could stay at Ardlaggan for as long as she wished. A letter enclosing this document was sent to the first pursuer on 20 March 1997 and stated inter alia as follows:

"We understand Mrs Milligan recently discussed with you the possibility of transferring Ardlaggan and the associated lands in New Galloway to you as an outright gift. Mrs Milligan is about the [sic] sign the title deed in your favour but would wish you to sign the enclosed document confirming that she may stay at Ardlaggan for as long as she wishes. In the event that you feel it appropriate, you should not hesitate to take independent legal advice on this document but we would ask you to have it signed and returned to us as soon as possible."

[3] The pursuers aver that in 2006 it was recognised that two errors had been made by the defenders in 1997. Firstly, the disposition granted by Mrs Milligan in favour of the first pursuer had conveyed only the superiority and not the dominium utile of Ardlaggan. Secondly, Mrs Milligan's continuing occupation of Ardlaggan on the basis of the first pursuer's letter, and without payment of a market rent, had the consequence that for inheritance tax purposes the house remained comprised in Mrs Milligan's estate because the transfer would be treated as a gift subject to reservation of benefit. These matters having come to light, a corrective disposition was prepared by the defenders, executed by Mrs Milligan on 6 October 2006 and registered in the Land Register on 25 October 2006. In return, the first pursuer granted Mrs Milligan a lease of Ardlaggan at a market rent. Unfortunately, Mrs Milligan died on 6 January 2008. The transfer of Ardlaggan in 2006, having been made within seven years before her death, fell to be treated as a chargeable lifetime transfer for inheritance tax purposes. In this action the pursuers aver that as a consequence of the gift of the house having been charged to inheritance tax, the amount of tax chargeable on her estate at death was significantly increased. The whole of the nil rate band at the date of death, namely £300,000, was exhausted by the lifetime gift. The pursuers aver that the amount of Mrs Milligan's estate which was chargeable to tax at 40% was accordingly increased by £300,000, resulting in an additional inheritance tax liability of £120,000. The pursuers further aver that they will require to account to HM Revenue & Customs for any damages received, so that the sum required to compensate them for the loss which they have suffered is the grossed-up equivalent of £120,000, namely £200,000. (I should note that I heard no specific argument as to whether this additional element of loss, amounting to £80,000, was relevantly pled.)

[4] As regards duty of care, the pursuers make inter alia the following averments: It was the defenders' duty in 1997 to take reasonable care to draft the description of the subjects to be conveyed so that the dominium utile of Ardlaggan was included in the conveyance. Further, they knew or ought to have known that the purpose of making the gift at that time was to reduce the liability of Mrs Milligan's estate to inheritance tax. In these circumstances, it was the duty of the defenders to advise Mrs Milligan that if she continued to reside at Ardlaggan then the transfer would be regarded as a gift with reservation of benefit with the effect that on her death the house would be treated as comprised within her estate for inheritance tax purposes. It was further their duty to take reasonable care to advise Mrs Milligan that if she wished to remain at Ardlaggan she should enter into a lease of the house by the first pursuer at a market rent.

The issue

[5] The issue debated before me in this action was whether, in the circumstances averred by the pursuers, the defenders were liable to make reparation to the pursuers in their capacity as Mrs Milligan's executors in respect of the loss that they claim has been sustained as a consequence of the defenders' breach of the duty of care which they owed to Mrs Milligan.

[6] I should mention at this stage that prior to presentation of the defenders' argument, counsel for the pursuer confirmed that the pursuers' claim was based upon an alleged breach of a duty of care owed by the defenders to Mrs Milligan, which breach had occurred prior to Mrs Milligan's death and resulted in a loss, the right to seek reparation for which transmitted on Mrs Milligan's death to the pursuers as her representatives. This was to be distinguished from a contention that the executors sued as representing the deceased's estate and/or the parties interested therein. No such contention was being advanced: it was recognised that an argument on the latter basis had been rejected by this court as irrelevant in Matthews v Hunter & Robertson Ltd 2008 SLT 634.

Arguments for the parties
Argument for the defenders

[7] On behalf of the defenders it was contended that in order for a claim for reparation for a loss to transmit from a deceased person to his or her executors, the loss had to have been sustained prior to death: if not, there was nothing to transmit. It was acknowledged that there was little Scottish authority on the point. Mitchell v Mackersy (1905) 8F 198 stated the general rule that the executor is eadem persona cum defuncto: as Lord Kyllachy put it at 199, the executor is

"...simply the representative of the deceased; ...he stands simply in the deceased's shoes, being debtor to her creditors and creditor to her debtors..."

The implication of this was that there had to be an enforceable obligation before death in order for the executor to be capable of being creditor to the deceased's debtor. In the present case Mrs Milligan sustained no loss because no tax was chargeable during her lifetime. It appeared to have been common ground in Matthews v Hunter & Robertson Ltd (above) that no loss had been sustained by the deceased during her lifetime: see the narration of the pursuer's argument at paragraph 18 of the opinion of the Lord Ordinary (Brodie). There was no indication that Lord Brodie considered this concession to have been wrongly made. It was recognised that a dictum of the Lord Ordinary (Carloway) in Mackintosh v Morrice's Executors 2006 SLT 580 at paragraph 12 founded upon by the pursuers (see below) could on one reading be said to support the proposition that an executor could sue for losses arising after death as a consequence of a negligent act that occurred before death. However, it was submitted that on a proper reading of the paragraph in question, an enforceable claim had to have arisen before the deceased's death. It was not suggested that any assistance could be obtained from English authorities.

Argument for the pursuers

[8] On behalf of the pursuers it was accepted that, as a matter of fact, no loss was sustained until after the death of the deceased. Where, however, there was a breach of duty of care owed to the deceased, there was no reason to draw a distinction between losses arising before or after death. It was clearly Lord Carloway's view in Mackintosh v Morrice's Exrs that this was the general rule, subject to an exception (not relevant here) where the deceased's death had been caused by the negligent act or omission upon which the claim was based. There was no need in this case for the executors to rely upon the White v Jones principle: the claim was based on direct liability of the defenders to the executors as representatives of the person to whom the duty of care had been owed. No assistance could be obtained from Matthews v Hunter & Robertson Ltd because the argument had been different and had in any event proceeded on the basis of a concession by the pursuer. The English authorities demonstrated that the law there was in a state of uncertainty. There were sound practical reasons for allowing a claim by the executors instead of requiring a multiplicity of claims by disappointed beneficiaries. If, however, the executors' claim was held irrelevant, the beneficiary ought to have a right of action based on White v Jones [1995] 2 AC 207.

Discussion

[9] I agree with the observation of counsel for the defenders that there is a lack of authoritative guidance on the question of whether an executor can sue as representative of the deceased where no loss arises until after the deceased's death. That being so it seems appropriate to begin my analysis by considering Mackintosh v Morrice's Exrs, which was relied upon by the pursuers as affording such guidance. This was a claim for loss consisting of inheritance tax that became payable on lifetime gifts by two donors as a consequence of their deaths in a road traffic accident. The action was raised by the pursuers both as the deceased's executors and as individuals with an interest in their estates. Lord Carloway dismissed the pursuers' claim qua executors as irrelevant on the ground that no loss had arisen during the deceased's lifetimes that could transmit to the executors. As this was a case in which the death had been caused by the negligent act forming the basis of the claim, rights to damages were defined by statute, although Lord Carloway noted (paragraph 9) that in this type of case, losses which arose to the estate as a result of the death had not been recoverable at common law by the deceased's executor. At paragraph 12 his Lordship made the following observations:

"It is, as a generality, competent for executors to claim for losses caused to an estate by negligent acts where there has been no transmission to them from the deceased. An obvious example is where the negligent act has occurred after death. There are also situations where an action may be raised for damage caused to an estate as a result of a negligent act happening before death. Claims for patrimonial loss occasioned by breaches of contract are one example, but there are many others which will transmit to executors. In this regard it is not instructive to take much out of English cases in this field, where different rules seem to apply... In Scotland the executor stands eodem persona cum defuncto and is able to claim successfully for losses caused in many situations to the deceased or his estate or both. However, such claims are outwith the field of loss occasioned by the death of a deceased as a result of a negligent act forming the basis of the action."

[10] The contention on behalf of the pursuers in the present case was that the last two sentences quoted support the proposition that in the field of losses not occasioned by the death of the deceased as a result of a negligent act forming the basis of the action, an executor can claim successfully for a loss to the deceased's estate even if there had been no loss to the deceased. In my judgment, that contention seeks to read too much into Lord Carloway's observation. Nowhere in his opinion does he refer to any authority for such a proposition, which on the face of it would conflict with the following observation of a general nature by Lord President Dunedin in one of the cases cited by Lord Carloway at paragraph 9, namely Leigh's Exrx v Caledonian Railway Co 1913 SC 838 (which was itself overruled some years later on a different point) at 844:

"The extreme case is undoubtedly the opinion of Lord Neaves in Auld v Shairp 2R 191. He holds that the moment that a delict has taken place a civil right is at once vested in the person who is the sufferer by the delict, and that that is part of his patrimony, and transmits just as any other part of his property transmits. I am of opinion that that is unsound law, and I think it is quite clear that that law, in its extreme form, cannot live with the law of Bern's Executor v Royal Lunatic Asylum, Montrose (1893) 20R 859 [a decision of a Court of Seven Judges]."

I am confident that if Lord Carloway had intended to state a proposition in law vouched by no previous authority, especially one which was obiter to the circumstances of the case before him, his Lordship would have said so in terms. In my opinion it is much more likely that he did not have specifically in view the situation where an executor sues in respect of a negligent act which occurred before death but in respect of which the deceased sustained no loss during his or her lifetime.

[11] I therefore have to approach the matter on the footing that the point remains free of authoritative guidance in Scots case law. Nor do I find any reliable source of guidance in the English case law. This is partly because there are certain statutory provisions applicable under English but not Scots law, but also because the law in England appears still to be in the course of development. In Daniels v Thompson [2004] PNLR 638, whose facts were not dissimilar to those of the present case, the Court of Appeal dismissed an action by the executor on the ground that the deceased had suffered no loss as a consequence of the solicitors' alleged negligence. The only detriment to the deceased was the frustration of her wish to confer upon her son the benefit of a reduction in the inheritance tax liability of her estate, and that was not a detriment capable of assessment in money terms. In Rind v Theodore Goddard [2008] PNLR 598, which also concerned inheritance tax on a gift subject to reservation of benefit, a claim by a beneficiary was allowed to proceed to trial because it was not clear, standing the decision in Daniels v Thompson, that an action by the executors would succeed. Morgan J did, however, refer to dicta in certain previous cases, not cited to the court in Daniels v Thompson, which appeared to indicate that the executors would have a valid claim: see in particular Otter v Church Adams Tatham & Co [1953] Ch 280, Upjohn J at 289. More recently, in Vinton v Fladgate Fielder [2010] PNLR 510, a case concerning an alleged failure to structure a transaction in such a way as to secure business property relief from inheritance tax, Norris J allowed to go to trial a claim by the executors to enforce the deceased's contractual rights, a claim (comparable to the present claim) by the executors to sue in tort to enforce the deceased's rights, a claim by the executors as representing the deceased's estate, a claim by the executors as representing the beneficiaries, and a claim founded on White v Jones by the beneficiaries themselves, apparently on the basis that none of these claims was so clearly unfounded that it fell to be struck out without a hearing.

[12] In the absence of any authority which might compel me to reach a different view, I am of the opinion that the defenders' argument is sound. Where no loss has been sustained during the lifetime of the deceased, there is, in my opinion, nothing that could transmit to the executor and form the basis of an action by the latter. This approach appears to accord with the common law position regarding losses arising from negligent acts causing death, and it is not obvious to me why the rule should be different, depending on the cause of the loss. It accords with the common understanding upon which the court proceeded in Matthews v Hunter & Robertson Ltd, and with the settled rule for the purposes of the law of prescription and limitation that a right of action arises where there is concurrence of injuria with damnum. It respectfully appears to me also to accord with common sense and logic. I therefore reject the pursuers' argument and hold, under reference to the only basis in law argued before me, that the executors' action is irrelevant and falls to be dismissed.

[13] It does not, however, seem to me to follow from my rejection of the pursuers' argument that there is no relevant basis upon which the defenders could be found liable, if proved to have been negligent, for the loss consisting of the additional tax payable on Mrs Milligan's estate because of the two errors described earlier. Not only would this constitute an instance of the sort of lacuna described by Lord Goff in White v Jones (above) at pages 259-60, but it would seem to be anomalous, at least in the circumstances of the present case, if (as I have held in the parallel action) a relevant claim could be made to recover tax chargeable on the lifetime gift but no relevant claim could be made to recover additional tax chargeable on the deceased's estate as a consequence of the lifetime gift having fallen within the chargeable period before death. If there is a remedy, then the choice would appear to lie between an action by the executors on some basis other than the one argued before me, or an action by a beneficiary or beneficiaries based on the White v Jones principle. It so happens, in the present case, that the first pursuer is both the sole beneficiary in Mrs Milligan's estate and also the recipient of the lifetime gift, and thus the person upon whom the whole burden of the additional inheritance tax has fallen, but that is beside the point in determining what remedy, if any, ought to be available in respect of the additional tax chargeable on death.

[14] So far as an action by the executors on a different basis is concerned, I have already mentioned the decision of Lord Brodie in Matthews v Hunter & Robertson Ltd, dismissing as irrelevant a claim by an executor in respect of a breach of duty owed to the deceased's "estate". In the course of a detailed analysis of the Scottish and English authorities cited to him, his Lordship observed that none contained any support for the pursuer's proposition that damages for loss constituted by diminution of the estate could be sued for by an executor on the basis of duty owed directly to him. Under reference to the then current edition of Clerk & Lindsell, Tort¸ 19^th ed (2006) and the case of Otter v Church, Adams, Tatham & Co to which I referred briefly above, Lord Brodie concluded that the scope for claims by an executor against the negligent solicitor of a deceased client might be wider in England than in Scotland. It is perhaps of interest, however, to note that the 20^th edition of Clerk & Lindsell (2010) contains the following passage at para 10-08:

"It has sometimes been argued that even if the estate cannot sue under [certain statutory provisions which do not apply to Scotland] it might be able to allege a discrete duty of care in tort owed to it as an estate: but the courts have not been receptive to such claims."

Reference is made in a footnote to Daniels v Thompson, Rind v Theodore Goddard and Matthews v Hunter & Robertson Ltd.

[15] It should also be recognised that in many of the decided cases, including White v Jones itself and also Holmes v Bank of Scotland 2002 SLT 544, the executors could have had no relevant claim because the estate as a whole suffered no loss, the problem being rather that one or more beneficiaries suffered loss individually because the estate was not distributed in accordance with the deceased's wishes.

[16] To some extent, the identification of the person with a right to sue in respect of a negligent act before death causing loss which does not arise until after death might be regarded as a matter of form rather than substance. As Neuberger J observed in Chappell v Somers & Blake [2004] Ch 19 in a slightly different context (post-death negligent acts by a solicitor instructed by an executor), at para 17:

"...Given that any damages would ultimately come to the beneficiary, irrespective of who has the right to sue, the question of whether it is the executrix or the beneficiary who can bring the proceedings is not of great significance. The essential point is to ensure that there cannot be double recovery (i e that the same damages cannot be recovered twice, once by the beneficiary and once by the executor)."

Counsel for the pursuer suggested that from a practical point of view there was much to be said for admitting actions by executors rather than requiring what may be a multiplicity of claims by individual beneficiaries. But it appears to me that however a claim by executors is propounded as a matter of law, conceptual difficulties are likely to arise. As Lord Brodie observed in Matthews at paragraph 38, the concept of a duty of care as a duty owed by one person to another is not easy to apply where the "person" to whom the duty of care is said to be owed is an estate consisting of a bundle of assets vested in an executor for the purpose of administration.

[17] The alternative approach would be to acknowledge that no relevant basis can be identified for a claim by an executor in respect of such losses, with the consequence, as expressly envisaged by Lord Goff in White v Jones at page 268, that the principle in that case could be invoked in appropriate circumstances by individual beneficiaries in order to fill the lacuna thus created. It may, indeed, be easier to reach a conclusion as to whether a solicitor may be said to have assumed responsibility to an identifiable beneficiary, or to an identifiable class of beneficiaries, than to an "estate" or to an executor with administrative duties. The availability of a remedy based on the White v Jones principle would always, of course, depend upon the circumstances of the particular case: in some, such as Matthews v Hunter & Robertson Ltd and also Fraser v McArthur Stewart 2009 SLT 31, the facts will simply not support a finding of such assumption of responsibility.

Disposal

[18] For these reasons I am minded to sustain the first plea in law for the defenders and to dismiss the action. However, in view of the close link between this action and the parallel action at the instance of the first pursuer as an individual, I propose to put the two actions out By Order together to enable parties to address me on further procedure.