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Scottish Sheriff Court Decisions
You are here: BAILII >> Databases >> Scottish Sheriff Court Decisions >> MacDonald-Haig v. MacNeill & Critchley (a firm) & Ors [2004] ScotSC 15 (20 February 2004)
URL: http://www.bailii.org/scot/cases/ScotSC/2004/15.html
Cite as: [2004] ScotSC 15
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SHERIFFDOM OF GRAMPIAN HIGHLAND AND ISLANDS AT INVERNESS
A829/01
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JUDGEMENT of SHERIFF PRINCIPAL SIR STEPHEN S T YOUNG Bt QC |
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in the cause |
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MRS VANESSA MACDONALD-HAIG |
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Pursuer and Respondent |
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against |
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MACNEILL & CRITCHLEY, PETER F MACDONALD, GILLIAN M SILVER, ALASTAIR HENRY ROBB, NEIL BRIAN SPEIGHT, FRANK CRITCHLEY and WILLIAM C MURRAY |
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Defenders and Appellants |
Act: Mr Donald Davidson, advocate, instructed by Mr Andrew Murchison, solicitor, Inverness
Alt: Mr A J Spencer Kennedy, solicitor, Balfour and Manson, Edinburgh
Inverness: 20th February 2004
The sheriff principal, having resumed consideration of the cause, refuses the appeal and adheres to the interlocutor of the sheriff dated 27 October 2003 subject to the qualification that the proof before answer which he allowed shall proceed on a date to be afterwards fixed by him; finds the defenders and appellants liable to the pursuer and respondent in the taxed expenses of the appeal, allows an account thereof to be given in and remits the same, when lodged, to the auditor of court to tax and to report; quoad ultra remits the cause to the sheriff to proceed as accords.
Note
[1] In this case the pursuer and respondent is the nominee of, and trustee for, a limited company which has its registered office in London. The defenders and appellants are MacNeill & Critchley, a firm of solicitors, and the present and relevant former partners thereof. The pursuer seeks decree for payment of the sum of £70,000 to compensate her for the loss, injury and damage which she says that she sustained as a result of fault et separatim breach of contract on the part of the defenders.
[2] In the note appended to his interlocutor dated 27 October 2003 the sheriff has set out in full the averments of the pursuer which were the subject of the debate before him and the appeal to myself. It is unnecessary therefore that I should set these pleadings out in full here. In short, the pursuer avers in article 2 of the condescendence that she instructed Mr Peter MacDonald, one of the partners of the firm, to act for her in connection with the sale of heritable subjects to Mrs Frederika Terpstra and Mr Gierlof Maas. At the material time (towards the end of 1979) the open market value of the subjects, according to the pursuer, was around £28,000. But Mrs Terpstra was only in a position to offer £20,000. She therefore offered to the pursuer to agree a condition so that the property could be re-acquired whenever the pursuer wanted. In due course a formal offer to purchase the property was received from Mrs Terpstra's agents. This included a condition which read: "It is accepted that your client will reserve a right to re-purchase in the event of our clients wishing to sell". The pursuer discussed the offer with Mr MacDonald who then issued a qualified acceptance which included a condition to the effect that the pursuer's right to re-purchase should apply also on the death of Mrs Terpstra. This qualification was not at first acceptable to her, and there followed various telephone calls and meetings between the pursuer and Mr MacDonald which culminated in a meeting between them and Mrs Terpstra and a solicitor representing her on or around 26 November 1979.
[3] The pursuer avers that in all of the telephone calls and meetings between herself and Mr MacDonald she "made it clear that a primary objective for her was to secure that at some stage in the future, and not later than Mrs Terpstra's death, she would be entitled to re-acquire the property at a price on stipulated terms. The pursuer was advised by the said Mr MacDonald in response that this could and would be achieved" (my emphasis). Mr MacDonald suggested that a right of pre-emption should be included in the disposition of the subjects to secure this objective. The pursuer says that she relied on this advice and that she had made known to the defenders that the disponees might try to get out of, or around, any deal which might be agreed. In return for a pre-emption right, they wished a clause to recompense them for improvements. This was inserted. The pursuer avers that the defenders did not discuss with her any further steps that might be taken to protect her interest, and did not advise her that there was any risk at all that her objective might not be achieved. She says that, had they given any such advice, she would not have sold the subjects at that stage.
[4] In due course a disposition was adjusted between the defenders acting on behalf of the pursuer and the agents acting for Mrs Terpstra and Mr Maas. It included a provision to the effect that there was reserved to the pursuer and her executors a right of pre-emption over the subjects exercisable on the sale of the subjects or on the death of Mrs Terpstra whichever was the earlier at the price of £20,430. In addition it was provided that, if the pursuer exercised this right, she should recompense the disponees for the amount of any outlays incurred by them on heritable improvements to the subjects up to a maximum of £5,000 indexed for inflation.
[5] The pursuer avers that she signed an engrossment of the disposition on 3 March 1980. This was subsequently recorded in the General Register of Sasines applicable to the County of Inverness on 17 March 1980. The pursuer says that she signed the disposition relying upon the advice of the defenders who, according to her, had at no stage advised her about the meaning or effect of a real burden or that the right of pre-emption contained in the disposition might not be such a burden. Nor was any advice given to her to the effect that the right of pre-emption could be defeated by a future gift. She avers that she understood from the advice given by the defenders that the right of pre-emption would definitely be effective at some point in the future. She then says that the defenders ought to have considered situations beyond sale and the death of Mrs Terpstra and that the words "alienate or dispone" could have been inserted in the disposition. The pursuer avers that such words would cover gift and that, had she been given any such advice on how to protect her position more fully, she would have accepted it.
[6] In the final section of article 2 the pursuer refers to various events which occurred after the completion of the transaction in March 1980. In particular, she avers that on 7 March 1986 correspondence was received from Mrs Terpstra's agents in which a request was made by them to the effect that the right of pre-emption should be varied so that it would be exercisable at market value. There followed various communications between the pursuer and Mr MacDonald and the upshot was that on 19 September 1986 the defenders wrote to Mrs Terpstra's agents proposing that the right of pre-emption might be waived in exchange for a consideration of £10,000. Nothing further is said in article 2 about this proposal, but it is evident from what happened thereafter that it was not accepted.
[7] In article 3 the pursuer avers that, prior to any subsequent sale of the subjects or the death of Mrs Terpstra, she and Mr Maas gifted the subjects to herself and her son equally between them and to the survivor of them and to their respective assignees and disponees whomsoever. The disposition was dated 16 March 1996 and was recorded in the General Register of Sasines on 7 August 1997. Mrs Terpstra then died on or about 30 November 1999. The pursuer raised an action seeking to declare her right of pre-emption, but this was dismissed, the sheriff holding that the right of pre-emption was not an effective real burden and further did not cater for a gift of the subjects. An appeal against the sheriff's decision was evidently marked but subsequently abandoned on the advice of senior counsel. The pursuer avers that, as a result of the defenders' defective advice, she has suffered loss, injury and damage.
[8] In article 4 the pursuer avers that her loss, injury and damage was caused by the defenders' fault et separatim breach of contract. She proceeds to specify various ways in which the defenders were in breach of their duties to her, in particular by failing to provide that the right of pre-emption should apply in all cases of transfer of the subjects, and not just their sale or the death of Mrs Terpstra, and further by failing to provide that the right should have been enforceable as a valid real right or alternatively secured by a standard security over the subjects. The pursuer ends article 4 by averring that, but for the defenders' failures, she would not have suffered the loss, injury and damage to which she refers in article 5.
[9] In article 5 the pursuer avers that she was found liable for the expenses of the unsuccessful action to which reference has already been made and that these are estimated at about £10,000 in total. She also says that the subjects were valued at about £70,000 in 2000 and that in terms of the disposition she would have required to pay over about £30,771 (that is, £20,430 plus £5000 plus the indexation thereon) had the right of pre-emption been enforceable. She says that she has thus lost a net asset of about £40,000. She also says that she has lost the opportunity of renting out the subjects or investing the money which would have been recouped on their re-sale, and that this sum is reasonably estimated at £20,000.
[10] In their answers 5 and 6 the defenders in short maintain that any obligation on their part to make reparation to the pursuer has been extinguished in terms of section 7 of the Prescription and Limitation (Scotland) Act 1973, any loss suffered by the pursuer as a result of the defenders' fault or breach of contract having occurred at the date of delivery of the disposition to Mrs Terpstra and Mr Maas in March 1980. The present action was commenced in December 2001.
[11] The pursuer tabled two preliminary pleas. The second was as follows:
2. The defenders' averments in answer relating to the claimed prescription of any of the pursuer's rights being irrelevant et separatim being lacking in specification, they should not be remitted to probation.
[12] The defenders' first, second and fifth pleas-in-law were as follows:
- The pursuer's averments being irrelevant et separatim lacking in specification, the action should be dismissed.
- In particular there being no relevant averments to exclude the operation of section 7 of the Prescription and Limitation (Scotland) Act 1973, the action should be dismissed.
3. Any obligation on the defenders to make reparation to the pursuer having been extinguished by prescription, the defenders should be assoilzied.
[13] After debate the sheriff in terms of his interlocutor dated 27 October 2003 repelled the defenders' first, second and fifth pleas-in-law, sustained the pursuer's second plea-in-law and excluded from probation the averments in answers 5 and 6 in terms of which the defenders maintained that any obligation on their part to make reparation to the pursuer had been extinguished in terms of section 7 of the 1973 Act. Otherwise the sheriff allowed to parties a proof before answer of their respective averments. He also found the defenders liable to the pursuer in the expenses of the debate and an earlier hearing on 13 August 2003. It is this interlocutor which is the subject of the present appeal.
[14] Section 7(1) of the 1973 Act provides that if, after the date when any obligation to which the section applies has become enforceable, the obligation has subsisted for a continuous period of twenty years (a) without any relevant claim having been made in relation to the obligation, and (b) without the subsistence of the obligation having been relevantly acknowledged, then as from the expiration of that period the obligation shall be extinguished. Section 7(2) provides that the section applies to an obligation of any kind apart from certain specified types of obligation, none of which the pursuer is seeking to enforce in the present case. Section 11(1), read along with section 11(4), provides in short that, for the purposes of section 7 of the Act, any obligation (whether arising from any enactment, or from any rule of law or from, or by reason of any breach of, a contract or promise) to make reparation for loss, injury or damage caused by an act, neglect or default shall be regarded as having become enforceable on the date when the loss, injury or damage occurred.
[15] Opening the appeal, the defenders' solicitor submitted that I should recall the interlocutor of the sheriff, sustain the defenders' first and second pleas-in-law and dismiss the action. He proceeded to develop his submissions under two main heads. In the first place, he submitted that the sheriff had erred in repelling the defenders' first plea-in-law since, according to him, the pursuer had averred two alternative and inconsistent cases against the defenders, neither of which had been relevantly stated. Firstly the pursuer had averred in article 2 (on page 4 of the closed record, lines 26 - 28) that the defenders had not advised her that there was any risk that her objective might not be achieved and that, had they given any such advice, she would not have sold the subjects at that stage. The defenders' solicitor submitted that, if the pursuer was to be read here as saying that she would not have sold the subjects, then there were no relevant averments of loss to be found in her pleadings. If she had not sold the subjects, she would have remained the owner of them and one would have expected to find averments of loss stated on this hypothesis. Thus, she ought to have been saying in this event that in 1980 she had sold an asset worth £28,000 for £20,000 plus a right of pre-emption of doubtful value with the result that she had lost a sum of money equivalent to the difference between £28,000 on the one hand and £20,000 and the value of the right of pre-emption (measured in 1980) on the other hand. But it was clear from article 5 that the pursuer was not seeking compensation from the defenders for her loss calculated on this basis.
[16] The defenders' solicitor then drew attention to the averment in article 2 (on page 5, lines 18-19) where the pursuer had stated that, had she been given advice by the defenders on how to protect her position more fully, she would have accepted it. The defenders' solicitor submitted that, if the pursuer was saying here that she would have insisted upon the defenders attempting to obtain an indefeasible right of pre-emption, she had as a matter of relevancy to aver that, if asked, Mrs Terpstra would have agreed to such an indefeasible right. As it was, the pursuer did not offer to prove that Mrs Terpstra would have agreed to such a right being incorporated in the disposition in her favour and that of Mr Maas and it followed, said the defenders' solicitor, that this alternative branch of the pursuer's claim was irrelevant.
[17] In response, counsel for the pursuer submitted that it was incorrect to say that she was advancing two alternative cases against the defenders. On the contrary, the case which the pursuer was putting forward was a single case of "bad advice" given to her by the defenders as a result of which she had entered into a transaction into which she would not otherwise have entered. Counsel drew attention to the last sentence in answer 2 where the defenders say that they believe and aver that Mrs Terpstra and Mr Maas would not have been willing to accept a right of pre-emption phrased in terms more onerous to them than the terms adjusted in the missives approved by the pursuer and incorporated in the disposition approved and signed by her. This averment was denied by the pursuer, and on any view the issue raised by it would, said counsel, require to be addressed in a proof before answer. But it did not detract from the pursuer's case of fault against the defenders. On a fair reading of the pursuer's pleadings, the defenders could be left in no doubt about the case that they had to meet. The lengthy and detailed averments in article 2 did no more than give the factual picture which was essential to give the defenders fair notice of the case that was being made against them. The averments in article 4 set out a single case of "bad advice" to the effect, in short, that the defenders should have explained to the pursuer the intricacies of a right of pre-emption and how she might secure the objective which she had mentioned to them and they should then have drafted a disposition which created an indefeasible right of pre-emption. It was clear from the averments in article 2 that the pursuer's position was that she had relied on the professional advice of the defenders, had signed the disposition accordingly and that, but for their bad advice, she would not have signed it.
[18] I have some sympathy for the defenders' solicitor to the extent that the length and complexity of the averments in article 2 in particular seem to me to have obscured the essential simplicity of the case which is being made by the pursuer against the defenders. The defenders' solicitor contrasted the pursuer's averments, on the one hand that, had the defenders' advised her that there was a risk that her objective might not be achieved, she would not have sold the subjects at that stage, and on the other hand that, had the defenders given her advice on how to protect her position more fully, she would have accepted it (with the result, presumably, that she would have insisted upon the insertion in the disposition of an indefeasible right of pre-emption - indefeasible, that is, to the extent that such a right could ever be indefeasible). At first blush I can understand how it might be thought that the pursuer is here adopting two alternative and inconsistent positions. But in truth it seems to me that these are simply two ways of saying the same thing, namely that, had it not been for the defenders' bad advice, the one thing that she would not have done would have been to sign the disposition which she in fact signed containing, as it did, a right of pre-emption which was not altogether indefeasible and so did not achieve the objective which the pursuer had previously set before Mr MacDonald and which he had advised her could and would be achieved.
[19] In my view the starting point of the pursuer's case is indeed to be found in the averments which I have emphasised in paragraph [3] above, namely that in all of her telephone calls and meetings with Mr MacDonald, the pursuer made it clear that a primary objective for her was to secure that at some stage in the future, and not later than Mrs Terpstra's death, she would be entitled to re-acquire the property at a price on stipulated terms and further that she was advised by Mr MacDonald in response that this could and would be achieved. In other words, the pursuer's position, as I read it, is that a representation was made to her by Mr MacDonald that she would get an indefeasible right of pre-emption at the end of the day. And it was on the basis of this advice or representation that she went ahead and entered into a transaction which she had been led to expect would give her an indefeasible right of pre-emption and which she would not have entered into had she been advised that this objective was not in fact capable of achievement, for example because Mrs Terpstra would not agree to an indefeasible right of pre-emption. Moreover, on this analysis of her claim it is not essential to its success that the pursuer should aver and prove that Mrs Terpstra would in fact have agreed to an indefeasible right of pre-emption.
[20] In the remainder of article 2 and in article 3 the pursuer thus goes on to explain how in the event she did not get an indefeasible right of pre-emption, and in particular how, relying on the defenders' advice, she signed the disposition which did not achieve the objective which she had stated and which Mr MacDonald had stated could and would be achieved, all with the result that in 1996 the right of pre-emption was defeated by the simple device of Mrs Terpstra and Mr Maas giving the subjects to her and her son. Then in article 4 the pursuer explains how the defenders were in breach of their duties to her and in particular the implied term that they would exercise the knowledge, skill and care of reasonably competent solicitors, and towards the end of this article she avers that, but for the defenders' failures, she would not have suffered the loss, injury and damage which she did. Finally, in article 5 she gives details of the losses which, according to her, she has sustained as a result of the defenders' bad advice, and in short what she does, as might be expected, is to contrast the position as it turned out with a right of pre-emption which was less than indefeasible with what would have been the position if the right of pre-emption had been indefeasible as she had been led to expect that it would have been on the basis of Mr MacDonald's advice.
[21] In summary therefore I consider that the pursuer's averments are relevant and apt to support the claim which she has made against the defenders and that the sheriff was right to repel their first plea-in-law.
[22] The defenders'solicitor's second principal submission was that the obligation of the defenders to make reparation to the pursuer had been extinguished by virtue of the provisions of section 7 of the 1973 Act, the obligation having become enforceable in March 1980 and the present action having only been raised in 2001 (on 30 November 2001 to be precise) and in the intervening years no relevant claim having been made in relation to the obligation and the subsistence of it not having been relevantly acknowledged. Referring to section 11(1) of the Act, the defenders' solicitor submitted that the obligation on the part of the defenders to make reparation to the pursuer had become enforceable in March 1980 since that was when she had sustained loss, injury and damage as a result of the defenders' alleged breaches of duty, the pursuer then having acquired a right of pre-emption which was less valuable than it would have been but for the defenders' breaches of duty. The pursuer, so it was said, had sustained a loss immediately upon signing the disposition in March 1980 and it was nothing to the point that in the event Mrs Terpstra might not have taken action to defeat the right of pre-emption as in fact she had done. Here the defenders' solicitor referred to the averment in article 2 to the effect that the pursuer had made known to the defenders that the disponees might try to get out of, or around, any deal which might be agreed. According to the defenders' solicitor, this averment made it impossible for the pursuer to maintain that there was no real likelihood that at some later date the disponees would seek to circumvent the right of pre-emption. Thus the pursuer's loss had occurred on the date on which she signed the disposition incorporating the right of pre-emption and at any stage thereafter she could have raised an action against the defenders seeking compensation for this loss, and it mattered not that at the end of the day she might be over-compensated if, after securing compensation from the defenders, Mrs Terpstra had died before the right of pre-emption was defeated. The defenders' solicitor proceeded to examine in detail a number of cases in which an issue had arisen similar to that in the present case. Many of these are referred to at some length by the sheriff in the note appended to his interlocutor, and at this stage I do not think that it is necessary that I should refer again to the details of these cases. Besides, the defenders' solicitor acknowledged that each case of this kind must be judged on its own facts and circumstances. If the view of the matter taken by the sheriff were to be held to be correct, it would be tantamount to saying that the pursuer could not successfully have claimed compensation from the defenders at any time between the date upon which she signed the disposition and the date upon which the right of pre-emption was defeated. This, said the defenders' solicitor, could not be correct. The sheriff had therefore been wrong to repel the defenders' second and fifth pleas-in-law.
[23] In response, counsel for the pursuer submitted that she had suffered no loss in 1980 when she had signed the disposition. The truth of the matter was that this had incorporated a perfectly valid right of pre-emption which was enforceable in the event of a sale of the subjects by the disponees or on Mrs Terpstra's death. There was no way at that stage of knowing whether, if at all, the right of pre-emption would be defeated as in the event it was. The effect of the pursuer raising an action against the defenders in, for example, 1981 would have been to alert Mrs Terpstra to the defect in the right of pre-emption which she might not otherwise have noticed. Besides, in such an action the point would have been made in the defences that the pursuer had at that stage sustained no loss and a plea would therefore have been taken to the effect that the action was premature. The present case was to be contrasted with the other cases to which reference had been made in which the party seeking relief had sustained a clearly identifiable loss when the transaction in question had been entered into. In the present case at best for the defenders the pursuer had sustained only a provisional or contingent loss. In the event her loss had not crystallised until 1996 when the right of pre-emption had been defeated as a result of the gift of the subjects to Mrs Terpstra and her son, and it was only then that the defenders' obligation to the pursuer had become enforceable. The sheriff had therefore been right to repel the defenders' second and fifth pleas-in-law.
[24] In my opinion the submissions for the pursuer on this branch of the case are to be preferred. The critical question here is whether, on the one hand, she sustained loss as a result of the defenders' breaches of duty in March 1980 when she signed the disposition or whether, on the other hand, her loss only occurred when the right of pre-emption was defeated in 1996 by the gift of the subjects to Mrs Terpstra and her son. If the pursuer had had the true position explained to her shortly after signing the disposition in 1980, and if she had then been asked whether she had sustained a loss as a result of the defenders' breaches of duty, she would in my view have had to answer that she did not know and could not know unless and until steps were taken by the disponees to circumvent the right of pre-emption. She would have said, on the one hand, that she had a right which would be perfectly valid and enforceable in the event of the disponees seeking to sell the subjects or of Mrs Terpstra's death and that, if either of these two things happened, she would not sustain any loss. On the other hand, she would also have had to say that there was an unquantifiable risk that the defect in the right of pre-emption might be discovered so that there was always a possibility that she might sustain loss at some date in the future. But she would have emphasised that no man, be he ever so expert in these matters, could predict how likely it would be that the defect would be discovered by the disponees. She would rightly have said that to attempt to do this would be pure speculation. And for good measure she might, if asked now, also point out that for a long time it appeared that the defect had not been spotted by Mrs Terpstra and her advisers. Thus in 1986 correspondence was received from her agents in which a request was made that the right of pre-emption should be varied to the effect that it should be exercisable at market value. It seems unlikely that this request would have been made if at that stage the defect had been noticed. Indeed, given that she was not immortal, one would have thought that the first thing that Mrs Terpstra would have done upon noticing the defect would have been to take steps to defeat it. But in fact this did not happen until 1996 which rather suggests that, despite the pursuer's original concern that the disponees might try to get out of, or around, any deal which might be agreed, it was only then, in 1996, that they eventually noticed the defect.
[25] The defenders' solicitor pointed out quite correctly that it was common in, for example, an action of reparation to find that a court had to form an estimate of the pursuer's future losses with the result that he or she might end up being over-compensated if in the event the losses turned out to be less than had been estimated by the court. For example, in an industrial injury claim the pursuer might seek compensation for a loss of future earnings. Evidence would be led from medical and employment experts and in the light of this the court would arrive at a figure for the pursuer's future loss of earnings which would then be included in the compensation payable to him notwithstanding the possibility that, against the evidence of the experts, he might thereafter turn out to be in a position to return to employment sooner than predicted. All this is true, but in such a situation the award to the pursuer of a sum to compensate him for future loss of earnings would be based on the evidence of experts which in turn would be based on hard facts such as the pursuer's medical condition, his employment history, his qualifications and the state of the employment market generally. In contrast, as I have already indicated, it would be quite impossible for any expert to assess how likely it would be that the disponees would discover the defect in the right of pre-emption and take advantage of it to defeat the right. If the defenders' argument in this case is correct, it would mean that in, say, 1981 the pursuer would have been entitled to recover a sum of money from the defenders in the determination of which one man's guess (and I use the word advisedly) would have been as good as another's. Thereafter, if Mrs Terpstra had died before steps had been taken to defeat the right of pre-emption, the pursuer would have been in a position to enforce it with the result that, far from sustaining any loss as a result of the defenders' breaches of duty, she would be better off than if these breaches had not occurred. In my opinion this cannot be correct.
[26] The defenders' solicitor founded strongly on the decision of Lord Cameron of Lochbroom in Beard v Beveridge, Herd & Sandilands, WS 1990 SLT 609. In that case landlords instructed a firm of solicitors to let shop premises on terms which included a provision for rent review. The lease was executed in 1967 and gave to the landlords and to the tenants the option to request that the rent be reviewed in November 1987. In 1987 the rent review clause was discovered to be inoperable because no mechanism had been provided for determining the rent failing agreement between the parties. The then tenants refused to agree an increased rent. An action was raised against the successors to the firm of solicitors claiming reparation for the loss arising from the negligence of the drafter of the rent review clause. The solicitors pleaded that any obligation to make reparation had prescribed under section 7 of the 1973 Act, and it was argued that the loss, injury and damage sustained by the pursuers had occurred in 1967 when the lease had been executed and the landlords became bound by a lease which was less valuable than it should have been. This argument was sustained by Lord Cameron of Lochbroom who stated at page 611I/L:
The execution of the lease bound the pursuers to the lease as it was drafted. I agree with counsel for the defenders that if the pursuers had discovered the defect in the lease immediately after its execution, they could then have raised an action of reparation on the same ground of negligence as is pleaded in this action and have sought damages, albeit the damages might require to have been calculated on the basis of estimation and without the accuracy that has become possible in the present pleadings in the light of supervening events. Thus, for instance, they might have been calculated by reference to the difference in value which the lease as drafted and executed would have had upon assignation of the landlords' interest for money's worth as compared with the lease with an operable rent review clause of the nature instructed by the pursuers. Accordingly, in my opinion, the execution of the lease was the occurrence which gave rise to the loss, injury and damage flowing from the negligent act of the drafter and is thus the equivalent of the failure to obtain vacant possession by Whitsunday 1971 in Dunlop v McGowans (1980 SC (HL) 73). An analogy may be found in the example cited in the Scottish Law Commission's Report on Prescription and Limitation of Actions (Latent Damage and other related issues), no. 122 at para. 3.6, where reference is made to the case of the client who acquires, as a result of his solicitor's negligence, a faulty title to his house which is not discovered until he attempts to sell the property more than 20 years later, and where the obligation to make reparation on the part of the negligent solicitor would have prescribed.
[27] It appears that some doubt has been expressed about whether or not Beard was correctly decided. It is not for me to express an opinion one way or the other on this question, and in any event I do not think that I need to do so since it was accepted that the decision is not binding on me and, moreover, the facts of that case are in my opinion clearly distinguishable from those of the present case. In Beard the pursuers instructed the solicitors to prepare a lease which included a provision for a rent review. In providing in the lease, without more, that the landlords and the tenants should have the option to request that the rent be reviewed in November 1987, the solicitors effectively produced a lease which was no different from one which did not have a rent review provision at all since it would always have been open to the parties to the lease to agree a variation of the rent. In other words, it was obvious from the outset that, on the assumption (which could scarcely have been gainsaid) that rents would continue to rise, the pursuers would inevitably be worse off with a lease which effectively had no rent review provision than they would have been if the solicitors had done what they had been asked to do. By contrast, in the present case there was no inevitability at all about the pursuer's loss. She had a right of pre-emption which was valid and enforceable in the event that the disponees sought to sell the subjects or that Mrs Terpstra died, and only time would tell whether the disponees would discover the defect in the right of pre-emption and take advantage of it so causing loss to the pursuer. It might of course have been a different matter if, before the subjects were given away in 1996, the pursuer had sought to assign her right of pre-emption. In this event the assignee and his advisers might not have noticed the defect in the right of pre-emption. But if they had done so, and if the consideration paid for the assignation had been shown as a result to have been less than it would have been if the right of pre-emption had been indefeasible, then the pursuer would have sustained a loss as a result of the defenders' breaches of duty upon granting the assignation. But of course none of this happened.
[28] In several of the other cases to which the defenders' solicitor referred me the same feature can be found as in Beard, namely that, in contrast to the present case, it could be seen from the outset that the pursuers would suffer loss as a result of the defenders' breaches of duty, or at least would be very likely to do so. Thus in Osborne & Hunter Limited v Hardie Caldwell 1999 SLT 153 a partner in a firm of chartered accountants advised the pursuers to lend a sum of money to, and act as guarantors for, a company MacMillan Litho Limited ("ML Ltd"). ML Ltd did not repay the loan and the pursuers had to make payment to a bank in terms of the guarantee. They sued the accountants, alleging professional negligence. The defenders argued that the action, being one of reparation to which the quinquennial prescriptive period applied, was time barred on the basis that the action was not raised until 24 January 1996 and concurrence of iniuria and damnum had been not later than the first payment of the loan monies, namely April 1990, which was when the pursuers had acted to their disadvantage. The Lord Ordinary repelled the plea of prescription on the basis that the concurrence of inuria and damnum in relation to the pursuer's loan could not take place until there was a failure to repay the loan and, in relation to the guarantee, until it was called up. On appeal the Second Division recalled the interlocutor of the Lord Ordinary to the extent that he had repelled the plea of prescription. Giving the opinion of the court, the Lord Justice Clerk (Cullen) (as he then was) stated at page 157D/F:
It may well be that it is normally the case that, until there is default in the repayment of a loan, it cannot be shown that damnum has occurred. However, each case depends on its particular circumstances. In the present case it is undeniable that the pursuers handed over a total of £55,000 and thereafter depended solely on whatever they could recover as creditors. The averments made by the pursuers plainly indicate that this is a case in which the financial position of ML Ltd was such that it was inadvisable for the pursuers ever to lend money to them. It was not a question of the pursuers having lent money without obtaining adequate safeguards which ML Ltd could have provided to cover the risk of their failure to repay. In these circumstances the pursuers prima facie suffered a material disadvantage from the moment when they parted with the money, and accordingly suffered damnum at that time. In any event it cannot be said in the present case that damnum must have occurred at the later stage.
[29] In Jackson v Clydesdale Bank Plc 2003 SLT 273 the liquidator of a company raised an action
against a bank and a firm of accountants seeking damages for breach of duty in respect of certain transactions conducted when the company was in receivership. On 2 April 1996 two partners of the firm were appointed as receivers of the company. On 10 May 1996 the company, acting through the receivers, executed a sale and purchase agreement whereby the whole of the company's assets were sold to a separate company in which only one share had been issued. This was held by one of the receivers on behalf of himself and his fellow receiver. On 18 June 1996 this share was sold by the receivers to a third party. The original company was subsequently ordered to be wound up and the liquidator thereafter claimed that the receivers had breached their duty to take reasonable care to obtain the best price obtainable for the assets of the company. The summons in the action was signeted on 13 June 2001 and was served on the defenders on 14 June 2001. The defenders argued inter alia that the claim had prescribed by the lapse of more than five years. The liquidator argued that no loss had been suffered by the company until 18 June 1996 since, until that date, the receivers had retained control of the company which had acquired the assets and could have cancelled the transaction without penalty. This argument was rejected by the Lord Ordinary (Eassie) who observed in paragraph [22] of his judgement:
Taking pro veritate the pursuer's contention that the contract of 10 May 1996 provided for the sale of the assets of the company at an undervalue it is clear, other things being equal, that the company suffered loss immediately on conclusion of that contract and I did not understand counsel for the liquidator to question that, had the sale been to a wholly independent purchaser at the outset, the claim would have prescribed.
[30] The liquidator in that case evidently sought to persuade Lord Eassie that the sale of the company's assets had not in fact been to a wholly independent purchaser and that until 18 June 1996, when the single share in the purchasing company had been sold by the receivers to a third party, they could have effectively undone the transaction with the result that it was only on that latter date that damnum had occurred. This argument was rejected by Lord Eassie who dealt with it in paragraph [27] of his judgement as follows:
While the argument has some initial attraction and was expertly presented by counsel I am ultimately not persuaded of its soundness. The pursuer's contention is underlain by a certain disregard of the principle of separate corporate personality. From the standpoint of the company - whose claim the liquidator pursues - its loss is suffered by the (for present purposes assumed) deleterious consequences of the contract of 10 May 1996 to which it was committed by virtue of the receivers' actions. As the seller under the contract, the company as such had no control over the intentions of the purchaser. The contract for the sale of the assets of the company was in no way dependent on a change in the shareholder control. Indeed, the subsequent changes in shareholdings in the purchaser are entirely explicable on the basis that the purchaser had previously acquired unconditional rights to the assets of the company. Separate corporate personality has long been recognised for its ultimate public utility in fostering commerce and while, at a particular level, its existence is sometimes seen as advantageous and at other times seen as irksome and inconvenient, all depending on the circumstances and the standpoint of the individuals involved, the court must be attentive to and draw and apply the consequences flowing from separate corporate personality irrespective whether those consequences may operate advantageously or irksomely to the parties involved. It was, I think understandably, not suggested in the present case that there were any peculiar circumstances justifying what is sometimes termed the "lifting of the corporate veil". The fact that the sale by the company to S & R Gravure Ltd was a sale to a subsidiary does not therefore alter the fact that it was by that sale that the company suffered loss in the form of a sale at an alleged undervalue, that gain accruing to the subsidiary.
[31] In passing, it is interesting to notice the observation of Lord Eassie in paragraph [21] of his judgement where, speaking of cases such as Osborne & Hunter, he stated:
On the other hand the actual circumstances of the third party's financial standing at the time of the transaction may be so parlous that the right to claim repayment of the advance and the interest due upon it would immediately and plainly be judged less valuable than the sum advanced. Hence the need in certain circumstances ....... for close examination of the actual facts.
[32] In J G Martin Plant Hire Limited v Bannatyne Kirkwood France & Co 1996 SC 105 the defenders, in accordance with instructions received from the pursuers, raised an action for payment of a debt due to the pursuers against Arco Demolition Limited and also lodged an arrestment in the hands of a third party in respect of sums due by the third party to Arco Demolition Limited. Both these things were done on 19 November 1990. Decree in the action was subsequently granted on 16 January 1991. It later turned out that there was no limited company registered in the name of Arco Demolition Limited, although there was a company registered as Arco (Building & Demolition) Limited. The pursuers subsequently raised an action of reparation against the defenders which was dismissed by the sheriff. The pursuers appealed to the Court of Session, and on 21 November 1995, while the appeal was pending, they lodged a minute of amendment the principal effect of which was to introduce a new ground of action to the effect that no solicitor of ordinary competence and experience would have raised an action against a corporate body without first checking as to the accuracy of the name of that corporation. The defenders submitted that the claim so far as it was based on this new ground of action had prescribed since the original action had been raised and the arrestment laid on 19 November 1990 and the minute of amendment had only been lodged in process on 21 November 1995. For the pursuers it was submitted that the obligation to make reparation founded upon did not become enforceable before the date of decree in the action which the defenders had raised on the pursuers' instructions, namely 16 January 1991, with the result that that was the earliest date from which prescription could run. Giving the opinion of the court, the Lord Justice Clerk (Ross) stated at page 110D/F:
It is clear from Dunlop v McGowans that the right to raise an action for reparation accrues when iniuria concurs with damnum. In the present case we agree with counsel for the defenders that the prescriptive period began to run not later than 19 November 1990. By that date the act, neglect or default complained of had occurred in that the action had been raised and the arrestments laid against Arco Demolition Limited. Moreover by that date there was at least potential loss to the defenders, and in our opinion that was sufficient to constitute damnum. There was accordingly a concurrence of iniuria and damnum on, at the latest, 19 November 1990.
[33] It is interesting to notice that in Jackson v Clydesdale Bank Lord Eassie observed of this last case in paragraph [24] of his own judgement:
I would also add that in JG Martin Plant Hire Limited the Second Division held that the starting point for the running of prescription was the date upon which the defending solicitor raised proceedings against the wrong company. Loss was regarded as having been sustained by the client on that date notwithstanding the ability of the solicitors to have remedied matters at a later date. However, the extent to which it might be said that loss was not sustained at the date of raising the action against the wrong defender, and lodging arrestments against the wrong defender, because the matter was capable of remedy, was not apparently the subject of extensive discussion and the assistance to be derived from JG Martin Plant Hire Limited in the present case may thus be limited.
Besides, as counsel for the pursuer in the present case pointed out, there was in JG Martin Plant Hire Limited at the very least no way in which the mistake of the defenders in that case could be corrected without a penalty in expenses to the pursuers. Moreover, it seems to me that the situation in J G Martin Plant Hire Limited was not dissimilar to that in Beard to the extent that in the one case the pursuers, instead of having a valid and effectual arrestment upon which they could rely, had no such arrestment while in the other case the pursuers, instead of having a valid and effectual rent review provision, had no such provision.
[34] In all these cases it could be said that an important consideration was that it was possible to point to the occurrence of an event which produced for the pursuers a loss which was capable of measurement upon an informed and rational basis, albeit that at that stage the measurement was bound to be less certain than it would be if it were carried out at a later date by which time, for example, it would be known whether or not a borrower had defaulted upon his obligation to repay or an incompetent solicitor had been able to retrieve a disadvantageous situation created by his neglect by taking some other step after the date of the neglect. So too in Dunlop v McGowans Lord Keith of Kinkel stated at page 81:
An obligation to make reparation for such loss, injury and damage is a single and indivisible obligation, and one action only may be prosecuted for enforcing it. The right to raise such an action accrues when injuria concurs with damnum. Some interval of time may elapse between the two, and it appears to me that section 11(1) does no more than to recognise this possibility and make it clear that in such circumstances time is to run from the date when damnum results, not from the earlier date of injuria. The words "loss, injury and damage" in the last line of the subsection refer back to the same words in the earlier part and indicate nothing more than the subject matter of the single and indivisible obligation to make reparation. In the present case the loss, injury and damage flowing from the respondents' negligent omission occurred at Whitsunday 1971 when the appellant, but for that omission, would have obtained vacant possession of the premises. A quantification of the loss was capable of being made at that date notwithstanding that it would then necessarily have had to be made on the basis of estimation, and that greater accuracy might have been capable of being achieved, in the light of supervening events, at a later date (my emphasis). Whitsunday 1971 is therefore the date at which the prescriptive period began to run.
[35] It is I think significant, as counsel for the pursuer pointed out, that in Dunlop v McGowans damnum was held to have occurred, not 40 or more days before Whitsunday 1971 when the defenders failed to give the requisite notice of termination to the tenants, but at Whitsunday 1971 itself. As Lord Keith observed, that was the date upon which a quantification of the pursuer's loss was capable of being made, even although there was clearly a risk before that date from the last date upon which the defenders could have served the notice of termination of the lease that the pursuer would suffer loss at Whitsunday 1971.
[36] If the defenders' argument here is correct, the pursuer would have been entitled in, say, April 1980 to raise an action against them for payment of damages to compensate her for the loss sustained by her as a result of the defenders' breaches of duty. In such an action she would have had to aver and prove the extent of her loss, and one essential element in the calculation of this would have been the value of the right of pre-emption which she had in fact got as opposed to the right which she would have got had the defenders achieved her stated objective. At the point of seeking to aver this value, she would have realised that she was faced with an impossible problem since the value of the right which she had got would have depended crucially upon the likelihood of the disponees discovering the defect in the right and thereafter taking steps to defeat it, and there would have been no rational way in which she could have assessed the degree of that likelihood short of asking the disponees (which would have been the one thing that she could not possibly have done without at once effectively destroying the right). Faced with this insuperable difficulty, she would I think have necessarily concluded that she would be unable at that stage to prove that she had suffered any loss as a result of the defenders' breaches of duty, and that she would only be able to do so if and when the disponees took steps to defeat the right of pre-emption. In other words, in the circumstances of the present case she could not have averred and proved that she had sustained any loss until after the subjects were given away to Mrs Terpstra and her son in March 1996, so that it was only then that, for the first time, she could have raised an action against the defenders with any hope of success.
[37] At the end of the day the question in this case is a straightforward one. Did the pursuer sustain loss, injury or damage as a result of the defenders' alleged breaches of duty on 3 March 1980 when she signed the disposition in favour of Mrs Terpstra and Mr Maas? In my opinion the short answer to this question is that she did not suffer such loss, injury or damage on that date. What happened then was that she was put at risk of suffering such loss, injury and damage in that at some stage in the future the disponees might defeat the right of pre-emption which, had her objective been achieved as Mr MacDonald had advised her it could and would be, would not have been capable of being defeated. But there was no rational basis in fact upon which any man could have assessed the degree of that risk with the result that a quantification of the pursuer's loss at that stage (as the defenders would have it) was not capable of being made. In these circumstances it seems to me to be erroneous to say that the pursuer had then suffered loss, injury or damage. It was only in March 1996 that the loss, injury and damage occurred. I therefore think that the sheriff was right to repel the defenders' second and fifth pleas-in-law.
[38] It was not in dispute that the defenders should be found liable to the pursuer for the expenses of the appeal in the event that I adhered to the interlocutor of the sheriff in its entirety (apart of course from directing that a new date should be fixed for the proof before answer which he had allowed).
[39] I was asked to certify the appeal as suitable for the employment by the pursuer of junior counsel, and I have already done so since the issues raised in this appeal plainly justified the employment of counsel.
[40] In addition to the authorities which I have already mentioned, I was referred to Haberstich v McCormick & Nicholson 1975 SLT 181, Martin v Bell-Ingram 1986 SLT 575, Fergus v MacLennan 1991 SLT 321, Wardley Australia Limited v The State of Western Australia (1992) 175 CLR 514 and David Johnston - Prescription and Limitation (SULI 1999). I should perhaps also mention that counsel for the pursuer adopted the whole passage in the sheriff's note between pages 24 and 27 where he referred to the English cases of Downs v Chappell 1996 3All ER 344 and Bristol and West Building Society v Mothew 1996 4All ER 698. The defenders' solicitor founded on three other English decisions which are referred to in the judgement of Lord Eassie in Jackson v Clydesdale Bank, namely Forster v Outred & Co 1982 1 WLR 86, Nykredit Mortgage Bank plc v Edward Erdman Group Limited 1997 1 WLR 1627 and D W Moore & Co Limited v Ferrier 1988 1 WLR 267. But the full reports of these five English cases were not made available to me during the hearing of the appeal. The facts of Nykredit are mentioned in Mr Johnston's book at paragraph 4.44. It appears to have been yet another case in which, in contrast to the present case, it was plain from the outset that a loss capable of quantification on a rational basis would be sustained since the amount of the loan had at all times exceeded the true value of the property and the borrower had defaulted immediately.