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Scottish Sheriff Court Decisions
You are here: BAILII >> Databases >> Scottish Sheriff Court Decisions >> Prudential Assurance v Gibson (t/a John Gibson Financial Services) [2004] ScotSC 62 (22 September 2004)
URL: http://www.bailii.org/scot/cases/ScotSC/2004/62.html
Cite as: [2004] ScotSC 62
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SHERIFFDOM OF LOTHIAN AND BORDERS
Linlithgow A639/03
JUDGMENT OF
SHERIFF PRINCIPAL IAIN MACPHAIL QC
in the appeal
in the cause
PRUDENTIAL ASSURANCE
Pursuers and Appellants
against
JOHN GIBSON trading as JOHN GIBSON
FINANCIAL SERVICES
Defender and Respondent
_________________________
Act: Higgins, Advocate; Macdonalds, Glasgow
Alt: Hughes; The Anderson Partnership, Glasgow
EDINBURGH, 22 September 2004.
The Sheriff Principal, having resumed consideration of the cause, allows the appeal; recalls the interlocutor of 19 May 2004 complained of;
(1) in the principal action: (a) excludes from probation the averments in answer 3 on page 3 of the closed record (no 14 of process) from the words 'It is averred' on line 3 of page 3 to the end of answer 3; (b) pro tanto sustains the pursuers' fourth plea-in-law; and (c) before further answer allows parties a proof of their respective averments on record restricted to quantum only, on a date to be afterwards fixed;
(2) in the counterclaim: sustains the pursuers' fourth plea-in-law and dismisses the counterclaim;
(3) finds the defender liable to the pursuers in the expenses of the debate and the appeal; allows an account thereof to be given in and remits the same to the Auditor of Court to tax and to report;
(4) remits the cause to the Sheriff at Linlithgow to proceed as accords.
NOTE
Introduction
[1] This is an appeal by the pursuers against an interlocutor of the Sheriff allowing a proof before answer. The pursuers sue the defender for payment of £17,209.86. The defender counterclaims for payment of £30,000. The defender has stated a general plea to relevancy in the principal action but has been content to reserve it. The pursuers have stated and insisted in general pleas to relevancy in both the principal action and the counterclaim. The Sheriff has heard parties in debate on these pleas and has allowed a proof before answer. The pursuers now appeal. They maintain (1) that in the principal action the averments in support of the defence are irrelevant and should be excluded from probation, and there should be a proof restricted to quantum only; and (2) that the counterclaim should be dismissed. [2] The pursuers are an insurance company. On 5 July 1999 the parties entered into an agreement whereby the pursuers appointed the defender as their 'appointed representative' to introduce business to the pursuers. In the principal action the pursuers aver that circumstances have arisen in which they are now entitled to reclaim commission previously paid to the defender amounting to £17,209.86. They sue the defender for payment of that sum. In his defences the defender denies that he is liable to pay the pursuers that amount. He also attempts a defence which, as I have noted, the pursuers have challenged by a general plea to relevancy. At the hearing of the appeal the defender's solicitor, having listened to the submissions in support of that plea by counsel for the pursuers, wisely conceded that counsel's attack was well-founded and that the averments in support of his defence should be excluded from probation. In the principal action I have therefore sustained the pursuers' relevancy plea to that extent and allowed a proof restricted to quantum only. Since the defender's plea to relevancy is still standing, the proof will be before answer. [3] The remainder of this judgment is concerned only with the issue of the relevancy of the defender's averments in the counterclaim. His statements of fact 2 and 3 are in these terms:2. The pursuers encouraged the defender to sell endowment contracts of insurance on behalf of the pursuers. The pursuers continued to encourage the defenders to do so when the pursuers knew they were subject to investigation by the Financial Services Authority for endowment mis-selling. The pursuers were fined by the Financial Services Authority for endowment mis-selling. The pursuers terminated the defender's contract thereby preventing the sale of further endowment policies. The pursuers have written to the defender's clients recommending they change from endowment based mortgages recommended by the defender to repayment mortgages. The pursuers have also advised the defender's clients that they have been given poor advice to take out endowment based products and offered them financial redress. When doing so it is open to such clients to surrender their endowments or cease contributing premiums to them and to accept the financial redress. When such clients either surrender or cease contributing to their endowment policies, commission paid to the defender by the pursuers for writing such policies in some circumstances becomes repayable by the defender to the pursuers in terms of the contract between the parties. The pursuers have so written to such clients of the defender as Mr and Mrs J and Mr and Mrs W [the clients' names and addresses are stated]. Having done so to these clients it is believed and averred the pursuers will have done so to other clients of the defenders. Such advice is not sound financial advice.
3. The pursuers owed the defender a duty to take reasonable care in the representations they have made to the defender's clients to convert from endowment based mortgage policies to repayment mortgages. The pursuers owed the defender a duty to take reasonable care when so writing to such clients to ensure that the advice was sound in their circumstances. The pursuers knew or ought to have known that if they gave advice then some or all of the defender's clients would accept such advice. The pursuers knew or ought to have known that giving such advice where it was not sound would have a deleterious effect upon the defender's reputation as a financial adviser. The pursuers failed in duties of care incumbent upon them in giving such advice. In so failing the pursuers have caused or materially contributed to the defender's losses as hereinafter condescended upon.
Submissions
[5] The pursuers' counsel submitted that in an action of damages for negligence the essential facts should be set out with reasonable clarity; and the duties alleged to have been breached should be plainly stated and should be duties which the court can be satisfied at least might have been incumbent upon the defenders in law in the circumstances averred (Jamieson v Allan McNeil & Son, WS 1974 SLT (Notes) 9). The defender's averments of essential facts in statement in fact 2 were unclear. They appeared to be setting out four different cases against the pursuers: that they had encouraged the defender to sell endowment contracts; that they had terminated his contract; that they had written to the defender's clients recommending change; and that they had advised those clients that they had been given poor advice. As to statement in fact 3, the duties alleged to have been breached in the first and second sentences were an innovation. The courts would be slow to expand the categories of situations in which a duty of care arose, and would generally do so by analogy with established categories (Caparo Industries plc v Dickman [1990] 2 AC 605 at 617-621). This was not an action by the clients against the pursuers based on the giving by the pursuers of unsound advice on which the clients had acted to their detriment. No analogy could be drawn with the relationship of employer and employee considered in Spring v Guardian Assurance plc [1995] 2 AC 296. Counsel also cited British Telecommunications plc v James Thomson & Sons (Engineers) Ltd 1999 SC (HL) 9 at 12. The duties contended for by the defender were far too wide. His averments were therefore irrelevant and the counterclaim should be dismissed. [6] The defender's solicitor founded on Caparo and Spring, and in particular on a passage in Lord Slynn of Hadley's speech in Spring at 335E. He submitted that the Sheriff had been correct to conclude that he could not hold at the stage of debate that the counterclaim would necessarily fail since the defender 'had done just enough to argue that the pursuers did owe a duty of care to the defender in consequence of their statements to third parties'. An insurance company, when communicating with its policy-holders, owed a duty of care to the broker through whom they had taken out their policies. The policy-holders would rely on the company's representations to the detriment of the broker. That was not an extension of the employer-employee principle, and there was no material difference between the present case and Spring. The tests in Caparo had been met. In order to dismiss the counterclaim at this stage the court would have to hold that no duty of care could ever arise here. A proof before answer should be allowed.
Discussion
[7] The submissions for the defender were extremely brief. I am not persuaded that they are sound. In Caparo at 618D-E Lord Bridge of Harwich cited with approval the following words of Brennan J in Sutherland Shire Council v Heyman (1985) 60 ALR 1 at 43-44:It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories . . .
Here, the defender seeks to draw an analogy with the category discussed in Spring. It was there held that an employer who gave a reference for a former employee owed that employee a duty to take reasonable care in its preparation and would be liable to him in negligence if he failed to do so and the employee thereby suffered economic damage. The issue in the present case, on the other hand, is whether insurers when communicating with an assured owe a duty to the person who introduced the assured to the insurers not to make negligent statements about that person's advice, and would be similarly liable to that person if they failed in that duty.
[8] The two situations appear to me to be readily distinguishable. As Lord Goff of Chievely pointed out in Spring at 319D-H, the employer has special knowledge of the employee's character, skill and diligence in the performance of his duties while working for the employer; he provides the reference not only for the assistance of the third party but also for the assistance of the employee; and the employee relies upon him to exercise due skill and care in the preparation of the reference before making it available to the third party. His Lordship further observed that the provision of such references is a service regularly provided by employers to their employees; 'indeed, references are part of the currency of the modern employment market.' At 320D-E his Lordship added that it did not necessarily follow that, because the employer owed a duty of care to the employee, he also owed a duty of care to the recipient of the reference: the relationship of the employer with the recipient was by no means the same as that with his employee. [9] In the present case, on the other hand, the relationship between the pursuers and the defender was comparatively distant and impersonal. That is apparent from their agreement (no 5/1 of process) which is incorporated in the pursuers' pleadings and to which reference was made without objection at the appeal hearing. Paragraph 7 provides:7. The relationship between the Company [the pursuers] and the Appointed Representative [the defender] is one of independent contractors and not one of employer and employee or of partnership, and nothing in this Agreement shall be taken to imply the contrary.
Paragraph 31, which opens the section of the agreement dealing with its termination, provides in part:
(1) The Company may terminate this Agreement in writing at any time at its absolute discretion, with or without giving prior notice.
Further, the pursuers did not communicate with the policy-holders for the benefit of the defender. Nor were they doing so in order to discharge any responsibility towards him; nor was he relying on the exercise by them of due care and skill. The communication was not a service regularly provided by insurers to those with whom they contracted in relation to the introduction of business: it was rather a communication made by the pursuers to their policy-holders in unusual circumstances. Thus the attempted analogy with the situation in Spring appears to me to be unsound.
[10] There is of course a similarity between Spring and the present case in that in each the complainer, A, is seeking damages from B for a statement negligently made by B about A to C. It may be that Spring could be said to indicate that such a misrepresentation to C may constitute a breach of an independent and antecedent duty owed by B to A, and that if C relies on it to A's detriment, B may have a claim for damages. However, I heard only a faint outline of a submission to that effect. The question whether in the circumstances of this case the pursuers owed a duty of care to the defender could raise issues of general importance. A considered answer to the question would depend, first, upon a careful study of averments, which are at present lacking, about the nature of their relationship. It would also depend upon a thorough examination not only of Caparo and Spring but also of other decisions on the subject of liability for negligent misstatements. As I have indicated, I have not been afforded the benefit of an adequate discussion of these authorities in the short speech for the defender. Suffice it to say that I am not satisfied, on the basis of the brief argument on his behalf, that the duties he alleges to have been breached might have been incumbent upon the pursuers in law in the circumstances averred (Jamieson v Allan McNeil & Son WS).Result
[11] I have therefore sustained the pursuer's plea to relevancy in the counterclaim and dismissed the counterclaim. In the principal action there will be a proof before answer restricted to quantum only. The parties were agreed that in the event of my so holding, the expenses of the debate and the appeal would follow success. I have therefore found the defender liable to the pursuers in these expenses as taxed. I was not moved to certify the appeal as suitable for the employment of junior counsel. I have remitted the cause to the Sheriff at Linlithgow to proceed as accords.