SHERIFFDOM OF GRAMPIAN HIGHLAND AND ISLANDS at ABERDEEN

 

A1341/07

 

		JUDGMENT   by   SHERIFF J K TIERNEY
		in the cause
		EDEN SMALLY ROBB
		Pursuer
		against
		JAMES MICHIE TAYLOR
		Defender

 

 

 

Act: Higgins, Advocate, Ledingham Chalmers, Solicitors

Alt: Watt, Advocate, McClay, Murray & Spens, Solicitors

 

 

 

 

 

 

ABERDEEN, 11^th September 2009.

 

The Sheriff, having resumed consideration of the cause,

 

FINDS IN FACT

(1)          The pursuer is, and has been for many years, the principal shareholder in a group of oil service companies (hereinafter "the group of companies") with interests in the United Kingdom, Norway and the Middle East. He was in business for many years prior to 2000 based in Aberdeen, and since 2000 has been personally based first in Bahrain and thereafter in Doha, Qatar.

 

(2)          The defender is an accountant. He was a self employed accountant from 1978 to 2003 and is now employed by a limited liability company, J M Taylor Limited. From about 1989 he provided accountancy services to the pursuer's group of companies. In about 1999, he became a shareholder in Eurotechnology Limited, one of the group of companies. The pursuer was the majority shareholder in Eurotechnology Limited. In or about March 2000, Eurotechnology Limited and Franks International Limited (hereinafter "Franks") (a company wholly independent of the group of companies) were each 50% shareholders in a company called Franks Tubular International Limited (hereinafter FTI). At this meeting it was agreed that both Eurotechnology and Franks would provide £30,000 to FTI to assist its cash flow. As Eurotechnology Limited itself had a cash flow problem the defender decided to provide £30,000, in two tranches of £15,000 for investment in FTI on behalf of Eurotechnology to be repaid when Eurotechnology when they were in funds. The defender anticipated that this would be short term funding. He had no intention of making a long term loan. No written record or note of the transaction was produced. The defender did not have any such record

 

(3)          The sums were duly paid by the defender. The first tranche of £15,000 was paid by cheque dated 13^th March 2000 by the defender to FTI which cleared his bank on the 16^th March on which day Eurotechnology drew a cheque in his favour which cleared their bank 20^th March 2000.

 

(4)          On or about 31^st March 2000, the defender paid the second tranche of £15,000 to FTI by cheque, on behalf of Eurotechnology.

 

(5)          The pursuer did not ask the defender to make either of those payments

 

(6)          The provision of funds by the defender on behalf of Eurotechnology to FTI did not constitute a loan by the defender to the pursuer.

 

(7)          Eurotechnology did not have the funds to repay this second tranche in the short-term and on or about 4^th April 2000 a payment of £10,000 was made to the defender by Euroil Services Limited, another company in the group of companies, on behalf of Eurotechnology

 

(8)          Accordingly as at 4^th April 2000, the defender had been repaid by or on behalf of Eurotechnology £25,000 of the £30,000 which he had paid to FTI on behalf of Eurotechnology.

 

(9)          By March 2000 the pursuer had resolved to leave the UK and to live in the Middle East. He continued however to have certain ongoing personal financial transactions which required to be effected in the United Kingdom. He also had ongoing responsibilities in respect of the group of companies. In March 2000 (the date on the deed being left blank) the pursuer signed a power of attorney in favour of the defender. The deed is signed by the pursuer and witnessed by Gillian Tough, then his secretary. Among other things it authorises the defender (1) to open, operate and overdraw any account in the pursuer's name at any bank, building society or other organisation taking deposits of cash sums, (5) to alter or surrender any insurance or pension policy, (8) to deal with certain tax matters, (9) to attend and vote at company meetings and to exercise any right arising from any investment and (11 ) to buy, lease, sell and otherwise deal with any interest in property of every kind. The powers granted to the defender by the power of attorney were to endure for a period of one year from 1^st April 2000 to 31^st March 2001.

 

(10)      On the same day the pursuer's wife, Mrs Rachel Robb granted a power of attorney in similar terms to the defender.

 

(11)      On 4^th April 2000, the pursuer left the United Kingdom to reside in Bahrain.

 

(12)      Prior to his departure, the pursuer discussed with the defender the surrender or sale of two insurance policies, one with Standard Life and one with Woolwich Life. The defender advised him to encash or sell those policies.

 

(13)      The pursuer wanted to keep the Woolwich policy in place to provide funds to pay off the mortgage over his Aberdeen property in the event of his death

 

(14)      In or about April 2000, the pursuer instructed the defender to encash or sell one of these policies namely the Standard Life policy and signed a blank form for the defender to complete which the defender duly did.

 

(15)      On or about 19^th May 2000, the defender, signing under the the power of attorney, encashed the Woolwich the proceeds of which were paid into the pursuer's bank account on or about 1^st June 2000.

 

(16)      On or around 26^th July 2000, the defender signed a cheque (No. 711178) drawn on the pursuer's Bank of Scotland account for the sum of £5,000 in favour of a credit card company MBNA. This cheque was paid into the account which the defender had with that company as a payment towards his indebtedness to the company. The payment represented a payment of the pursuer's funds to the defender. The defender did not tell the pursuer what he had done. Had he done so the pursuer would have sought repayment of the money.

 

(17)      The pursuer did not authorise that payment to be made and did not know at the time that it was to be made

 

(18)      In or about September or October 2001 the pursuer returned to the United Kingdom for a short period. The defender told the pursuer that he had sold or surrendered both insurance policies rather than just one and had taken £5,000 from the proceeds for the purposes of a commercial transaction involving FTI.. The pursuer was annoyed that the second policy had been cashed without his knowledge or authority but accepted the explanation given by the defender as to what the defender had done with the proceeds of the sale of the policy..

 

(19)      This false information given by the defender to the pursuer induced the pursuer to take no steps to recover the money.

 

(20)      Between April 2000 and September/October 2001, the defender did not provide the pursuer with any information or documents relating to his discharge of the functions conferred on him under the power of attorney, and his intromissions with the pursuer's funds. He did not provide any documents such as bank account statements to the pursuer.

 

(21)      By reason of the trust which he reposed in the defender the pursuer reasonably did not feel any need to enquire into to these matters.

 

(22)      When in September 2001 the defender told the pursuer that he had used £5,000 from the pursuer's bank accounts for the purposes of a company transaction, the pursuer had no reason to doubt this and, by virtue of the trust which he reposed in the defender, had no reason to enquire further in respect of the matter.

 

(23)      Prior to the pursuer's visit to the United Kingdom in September 2001 the pursuer was unaware that the defender had paid to himself the sum of £5,000 from the pursuer's funds for any purpose.

 

(24)      From May 2001 the defender with the consent of the pursuer continued to operate the pursuer's power of attorney in respect of day-to-day financial matters until 2004 (notwithstanding the fact that it had expired) without producing any accounting to the pursuer and without providing him with copies of any bank statements. He also dealt with the pursuer's correspondence. The pursuer and defender were in touch with each other regularly by telephone at least twice and sometimes more each month discussing both business and personal matters. The pursuer, by virtue of the trust which he reposed in the defender did not seek any form of accounting from him. He had no reason to suspect that his affairs had not been properly looked after by the defender. The pursuer did ask the defender to send him copies of his bank statement, but the defender did not do so. Had the pursuer seen his bank statement for July/August 2000 after September 2001 he would have seen that money had been deposited in respect of the two policies, and he would have seen a withdrawal by cheque of £5000. That would have been consistent with what the pursuer had told him in September 2001. The bank statement disclosed the number of the cheque but not the identity of the payee. The pursuer would not have seen that the cheque for £5000 had been drawn in favour of a credit card company. He would not have seen that the defender had taken the money for his own benefit. He would not have ascertained that he had suffered a loss of that amount by virtue of the defender wrongfully paying that money to his credit card company for his personal benefit.

 

(25)      On a date shortly after 27^th August 2004, the pursuer received by email a copy of the minutes of a meeting attended by John Hammill, the defender, and Colin Neil. The minutes of the meeting indicate that the purpose of the meeting was the settlement and agreement of the business accounts between the defender and the group of companies, and the personal account between the pursuer and the defender. The meeting commenced on 25^th August and reconvened on the 27^th August.

 

(26)      The meeting covered transactions between and among the defender, the pursuer, and various of the group of companies from 2000 to the date of the meeting.

 

(27)      In paragraph 6 of the minutes it is recorded:-

 

"JT [the defender] advised the meeting that a loan from JT to Franks Tubulars International for £15,000 was part paid £10,000 by Euroil services to JT and the balance of the loan £5,000 was collected by JT via the insurance policies of ESR which totalled £19,097.83. The balance remaining from the insurance was deposited into ESR [the pursuer] account to clear off an overdraft and ongoing personal bills. This is evidenced within the ESR bank statements."

 

(28)      This was the first that the pursuer knew that the defender had taken £5,000 for his own benefit from the pursuer's account, utilising the proceeds of the sale of the insurance policies.

 

(29)      The pursuer immediately replied to the minute in the following terms:-

 

"CN [Mr Neil] to go back through all receipts to verify the money received by JT, J M Taylors and subsequent expenditure on behalf of ESR is correct. The information I received from JT was that the insurance money was used to pay off the deal with Franks International NDT Eagle with the balance being deposited into my personal account. At no time was I made aware that £5,000 of my wife's insurance money was taken from my wife's account by JT to pay JT."

 

The pursuer used the phrases "my wife's insurance money" and "my wife's account" because the policy had been intended for his wife's benefit.

 

(30)           Following the production of this minute the pursuer instituted investigations into the intromissions which the defender had made on the pursuer's account by virtue of the power of attorney. In about early 2005 he recovered the cheque for £5000 drawn in favour of the defender's credit card company after months of asking for this from his bank. He instituted proceedings against the defender based on unjust enrichment but did not continue these proceedings to a conclusion

 

(31)           Until he received the minute of the August 2004 meeting the pursuer did not know and had no reason to suspect that the defender had taken £5,000 to his own account from the pursuer's account. He had no reason to investigate the defender's operation of the power of attorney during the period from April 2000 to September 2001 or thereafter until August 2004. Other than in respect of the cheque for £5000 there was no criticism made of the defender's operation of the power of attorney or his conduct of the pursuer's affairs throughout the period from April 2000 to August 2004.

 

 

FINDS IN FACT AND IN LAW

(32)           The pursuer not having known until August 2004 and not having been in a position before that date where he could with reasonable diligence have ascertained that the defender had paid himself the sum of £5,000 from the pursuer's account in breach of his fiduciary obligations to the pursuer, the defender's obligations to the pursuer in respect thereof have not prescribed.

 

 

FINDS IN LAW

(33)           The defender being bound to account to the pursuer for his intromissions with the pursuer's funds under the power of attorney granted to the defender and having wrongly without authority and without good cause taken the sum of £5000 from the pursuer's account to himself is liable to make payment to the pursuer of the sum of £5,000.

 

(34)           THEREFORE sustains the pursuer's first plea-in-law, repels the defender's pleas-in-law and grants decree against the defender for payment to the pursuer of the sum of £5,000 with interest thereon at the rate of eight per cent per annum from 26^th July 2000 until paid; Reserves meantime all questions of expenses and appoints parties to be heard thereon on 13^th October 2009 at 10.00 o'clock within Aberdeen Sheriff Court.

 

 

 

 

 

 

 

NOTE:

 

(35)           This action was for count reckoning and payment in respect of the defender's intromissions with the pursuer's affairs under a power of attorney. The power of attorney was granted in March 2000 and endured for a year. In the course of that year, on 26^th July, the defender paid himself the sum of £5,000 from the pursuer's account. That was not disputed. The defender, however, said that he was entitled to take the money. The action did not follow the normal procedures for an action of this type but proceeded directly to a proof on the issue of the defender's entitlement and authority to take the money, The reasons asserted by the defender as justifying his taking the money are set out in his pleadings and can be summarised as follows:-

 

(i) The payment was known about and authorised by the pursuer at the time it was made. Authority was given on the basis of the pursuer's obligation to repay the sum of £5,000 which the defender had loaned to the pursuer (Answer 3).

 

(ii) In early March 2000, the pursuer and the defender were both shareholders in Eurotechnology Limited. That company and an independent other company, Franks International Limited were equal shareholders in FTI. There was a meeting between the shareholders of Eurotechnology, and representative of Franks International in March 2000 when it was agreed that the shareholders of both Franks International and Eurotechnology would each lend FTI £30,000 to aid cash flow. At the time Eurotechnology did not have liquid funds to lend the money to FTI. On 13th March 2000 the defender advanced £15,000 by cheque to FTI on behalf of Eurotechnology. On 20^th March 2000 Eurotechnology repaid that £15,000 to the defender.(Answer 4)

 

(iii) The pursuer did not have sufficient available funds to transfer money to Eurotechnology Limited himself by way of a loan. The pleadings for the defender then say in terms (Answer 4):-"The pursuer asked the defender to assist by way of a short-term loan to him of £15,000. The defender agreed to do this. The parties agreed that the defender would provide the loan monies to the pursuer until such point as the pursuer had funds available at which point the defender would be repaid. The pursuer would then loan the said funds to Eurotechnology Limited who would in turn loan them to FTI. To expedite the parties' arrangement and given the said purpose of the loan the defender made his cheque for the loan funds of £15,000 directly payable to FTI. The pursuer initiated and was fully aware of this arrangement. The defender wrote a personal cheque to FTI on the basis of this arrangement and this was cashed by the said company on 4^th April 2000. Other than this arrangement there would have been no necessity for the defender to pay FTI any funds. The repayment of this loan was made by the pursuer in two stages. Firstly, on or about 4^th April 2000 the pursuer realised funds amounting to £10,000 from his loan account with another company of which he was a shareholder, a company called Euroil Limited. Those funds were transferred to the defender in part payment of the pursuer's loan on that date. Secondly, the remaining £5,000 was repaid by way of cheque No. 711178 on or about 26^th July 2000 once the pursuer received sufficient funds in his bank account to pay it. In this regard the pursuer had initiated the sale of two endowment policies through the defender's firm in order to meet his financial commitments one of which was his indebtedness to the defender The pursuer and the defender had agreed that £5000 due by pursuer to defender was to be settled from the proceeds of the sale of the policies Accordingly the funds were not misappropriated.".

 

(36)      The defender's position on record therefore is very clear and it is that the only basis on which he took money from the pursuer's account on the 26^th July 2000 was (a) that the pursuer was obliged to pay him £5,000 by virtue of a loan which the defender had made to the pursuer in March 2000 and (b) that the pursuer had agreed that this indebtedness would be met from the sale of the policies.

 

(37)      There is no suggestion in the defender's pleadings that there was any other basis on which the defender could have taken the money.

 

(38)      The proof proceeded with the defender leading.

 

The evidence

(39)      The defender himself gave evidence, and called as witnesses Colin Neil, an accountant in the group of companies, John Hamill, a manager in the group of companies, Raymond Sutherland, a retired bank manager.

 

(40)      The pursuer gave evidence and called as witnesses his wife, Mrs Rachel Robb, his former secretary, Mrs Gillian Lumsden, Duncan McIntyre, a general manager within the group of companies, Alan Bannister, a finance manager with Franks International and Colin Webster, a group finance manager within the group of companies.

 

(41)      The defender's evidence as to the underlying basis for the pursuer owning him money did not accord with his pleadings. In examination in chief he said that both Eurotechnology and Franks agreed at a meeting in March 2000 to put £30,000 each into FTI to aid its cash flow problems, that Eurotechnology itself had a cash . flow problem at the time and that he told the pursuer, probably on the way to the meeting, that he would pay the money to FTI on behalf of Eurotechnology. He said that he would be repaid by Eurotechnology as and when they had the funds. He later qualified this to "immediately" which he then explained by saying that "there was no way that there was any intention given that I was giving them a long term loan."

 

(42)      In cross examination Miss Higgins, counsel for the pursuer, took him through the averments which had been made on his behalf (which were to the effect that the defender had loaned money to the pursuer) in some detail. The defender did not consider that the pleadings on his behalf were correct when they said that it was agreed that the shareholders of Franks and Eurotechnology would each lend FTI £30,000 to aid cash flow. He considered it was the shareholders of FTI (namely Franks and Eurotechnology Limited) who would advance £30,000. Counsel read to the defender the passage from Answer 4 "The pursuer as director of Eurotechnology did not have sufficient funds available of his own to transfer to Eurotechnology Limited by way of a loan. The pursuer asked the defender to assist by way of a short-term loan to him of £15,000. The defender agreed to do this". The defender said that he had not told his solicitors that. and did not know why his solicitors had put that in his pleadings,

 

(43)      Counsel put to him the passage "The parties agreed that the defender would provide the loan monies to the pursuer until such point as the pursuer had funds available at which point the defender would be repaid". The defender said that he did not tell that to his solicitors and that he did not think he had ever said that that was the position.

 

(44)      The passage reading "The pursuer would then loan the said funds to Eurotechnology Limited who would in turn loan them to FTI" was put to him and the defender said that this was not what he had told his solicitors.

 

(45)      In respect of the passage in the pleadings "To expedite the parties' arrangement and given the said purpose of the loan, the defender made his cheque for the loan funds of £15,000 directly payable to FTI" the defender agreed that he had made the cheque payable to FTI, but not because it was in relation to a loan from the pursuer to the company.

 

(46)      The passage "Other than this arrangement, there would have been no necessity for the defender to pay FTI any funds. The repayment of this loan was made by the pursuer in two stages" was put to him and he was asked if there was any reason why his solicitors would have said that and replied "I don't think I have ever had this conversation with Maclay Murray & Spens". He said it was not something that he had said either to them or to his previous solicitors.

 

(47)      The averment "Firstly on or about 4^th April 2000 the pursuer realised funds amounting to £10,000 from his loan account with another company of which he was a shareholder, a company called Euroil" was put to him that and he accepted in respect of that averment that the pursuer did not pay £10,000 from his loan account with that company.

 

(48)      The averment "those funds were transferred to the defender in part payment of the pursuer's loan on that date" was put to him and he agreed that there wasn't a loan to the pursuer.

 

(49)      I have set out the defender's evidence at length because it makes it clear that the defender quite simply did not stand by, in fact he negated, large passages of his defences. Specifically he negated the entire basis that had been pled on his behalf for him taking £5,000 from the pursuer's account, namely that it was owed to him by the pursuer by way of a repayment of a loan.

 

(50)      The defender did, however, give evidence that the £5,000 was paid to him with the pursuer's knowledge, and that it was paid to him in respect of the balance of the second payment of £15,000 which he had paid to FTI. He was not however able to say precisely what he had told the pursuer concerning the cheque for £5000, or even if he had told the pursuer that there had been such a cheque at all.

 

(51)      Leaving aside the questions of pleadings his underlying position was that he had paid this money at the request of the pursuer or at least with his full knowledge, that he had paid it on Eurotechnology's behalf, and that being so it was for Mr Robb, the pursuer, as the majority shareholder to fund the advance to FTI. He said it was not for him as a minority shareholder to make such a payment.

 

(52)      He gave evidence that the pursuer was in financial difficulties at least in respect of cash flow in March 2000 in that he had an unauthorised overdraft. For this reason he had instructed the defender to cash two endowment policies and had instructed him to take £5,000 from the proceeds of these policies to himself as the balance of the money the defender had paid to FTI on behalf of Euro Technology Limited. He stated that he had kept Mr Robb fully up-to-date with all his transactions on his behalf in furtherance of the power of attorney.

 

(53)      No documentation of any kind was produced to vouch any of the arrangements between the pursuer and the defender, or the defender and Eurotechnology, or to show that the pursuer consented to or was aware of what was going on, although the defender had said that he would have taken notes because , in his words "I am a note taker. I do take notes."

 

(54)      Mr Colin Neil gave evidence. He worked for the defender from 1998 to 2000 when he joined the Euro Technology group of companies as company accountant. He spoke to a number of matters including certain of the books of the company which had been lodged, and which had been produced on the SAGE accounting software which the Eurotechnology group used. He explained that transactions in the SAGE accounts could be backdated to bring them into a different financial year, or to reflect the cancellation of some other item. He too spoke to the minute of the meeting attended by himself, Mr Hamill and Mr Taylor on August 2004. He understood the purpose of the meeting had been to sort out financial entitlements and liabilities between Mr Taylor and his accountancy practice on the one hand, and Mr Robb and his various companies on the other.

 

(55)      He explained that Mr Taylor had made contributions to Euroil on various occasions. He confirmed that it was "quite common if there were financial difficulties for Mr Taylor to put some money in". He was a credible witness.

 

(56)      Mr John Hamill had been employed in the Eurotechnology group of companies between 1994 until July 2008 initially in a tutoring role and latterly in a managerial role. He had attended a meeting in or around April 2001 with Mr Taylor for the purposes of discussing the funding of FTI. The money was put into the company by the shareholders at that time. He too was able to speak to the minutes of August 2004. He had produced them and had sent the minutes to the other parties who had attended before circulating them to Mr McMahon, another manager of the company and the pursuer. The pursuer had then e-mailed his responses and as he recollected it he had cut and pasted them onto the original minutes. He had not appreciated the significance of paragraph 6 at the time. He was a credible witness

 

(57)      Mr Sutherland also gave evidence for the defender. He was a former bank manager but had little to say about the relevant events.

 

(58)      The pursuer gave evidence. He said that he had not borrowed any money from the defender, that he had not been aware that the defender was to fund the Eurotechnology payment to FTI from the defender's own resources, that he had not agreed to pay all or any part of this back to the defender, and that he had not been aware at the time, and had not authorised, any payments to be made to the defender through Eurotechnology or Euroil. .

 

(59)      So far as the insurance policies were concerned he had on the advice of the defender agreed that one policy should be cashed and had retained another for the purposes of covering his mortgage obligations in respect of his Aberdeen home. This was to ensure that if he died the Aberdeen house went to his wife mortgage free. He had never authorised the encashment or sale of the second policy and did not know that that had been done till about September 2001 when the defender told him that he had cashed the policy and used the money for the purposes of the 2001 FTI deal

 

(60)      It was not until 2004/2005 that he became aware that the defender had used money from the sale of the second insurance policies to pay off his personal credit card debt. He ascertained that having instituted an investigation into financial matters following the minute of the meeting in August 2004

 

(61)      That minute had been the first time he had learned that the defender had used the money in the way for his own benefit. It was in January 2005 that he discovered the precise mechanism, namely the cheque to the credit card company. He had never authorised the defender to take the £5000 and had not known that it had been done.

 

(62)      In cross-examination, he conceded that in about March 2000 he did not have cash available in his UK bank account but that he would have had access to cash if he had wanted. He agreed it would be correct to say that he was tight for cash at that time. Whilst he said in his evidence that he was now aware of the transactions whereby Mr Taylor paid two payments of £15,000 to or for the benefit of FTI and received repayment of £25,000 through Euroil, he had not agreed to that. He was adamant that he had been unaware of the nature of the transactions effected by the defender in paying the two sums for the benefit of Eurotechnology's investment in FTI. He was also adamant that he had not agreed to make a payment of £5,000 to the defender, that he had only authorised the sale of one insurance policy, and that he had not authorised the defender to pay to himself £5,000, whether from the sale of an insurance policy or otherwise. He remained unshaken in his position that the defender had stated to him in or about September 2001, on the pursuer's return to the United Kingdom, that the defender had encashed the second policy for the purposes of funding a business transaction. Whilst annoyed at this sale without his agreement he had accepted it and the explanation of what the defender had done, namely used the money for business purposes, and had not enquired further as he had accepted the defender's word because of the trust he had in him. He had no reason to doubt him. That continued to be the position until August 2004, when he had received the minute of the August meeting, and when he became aware for the first time that the defender had used the proceeds of the second policy to pay money to himself. By 2005 he had completed his investigation and after a long wait recovered the cheque which the defender had drawn in favour of the credit card company. He had instituted different proceedings against the defender in 2005.

 

(63)      Mrs Rachel Robb is the wife of the pursuer. She gave evidence that prior to she and her husband leaving the United Kingdom in April 2000 they agreed that one of the two policies be sold or realised and the other to remain in place. The intention was that her husband would change the policy but he was advised by his doctor to get his blood pressure down before he did so. She said that she was first aware of the sale of the second policy in or about September 2001 when her husband had told her. She referred to hearing from her husband about the payment by Mr Taylor to pay off a personal account in about September 2001. She also referred to the £5000 being used for a share swap.. She said that she did not know a lot about that.

 

(64)      She was a credible witness but I did not think she was reliable on the point as to what she had been told in 2001 about the use of the funds by the defender.

 

(65)      Mrs Gillian Tough or Lumsden had worked as the pursuer's private secretary from 1990 until 2002. She did not recollect discussions about insurance policies being cashed. She was asked to look at an email purporting to have been sent by her to the pursuer on 10^th July 2001 containing the sentence "still no sign of the money coming in from the insurance policies, as soon as it does Jim said he would let me know". She said she did not recall that email, and it did not look like an email that she would type, the formatting was odd. She remembered other parts of the email. She did not know who the "Stuart" was who was referred to in that email. Her style was entirely different from the style of the email, No. 5/4/13 of process. She was a credible witness.

 

(66)      Duncan McIntyre was general manager of Eurotechnology Limited. He had worked in the group of companies for 23 years. From about 1999 to 2002 he had been the general manager for FTI. In 2000 FTI needed an injection of funds from its shareholders. He recollected payments of a figure of £15,000 but could not remember the details. He did remember an incident in about September 2001 when he had walked into the defender's office and found the pursuer and the defender there, and the pursuer being upset. He was quite angry and it had to do with insurance policies. He was also told by the pursuer that the defender had made a remark to the pursuer to the effect that "if anything happened to him she will find somebody with money". In cross-examination, he remained vague about the investments or injections of loan capital into FTI in or about March 2000. He was aware that equipment had been put into the company but was not sure about money. He was a credible witness.

 

(67)      Mr Allan Bannister is the finance manager of Franks International and had been with that company in 2000. He remembered the joint venture of partners putting money into FTI. He could not remember particular meetings. Production 5/4/1 which set out the monthly investment schedule "rang a bell" with him. In cross-examination, when looking at the audit accounts for FTI for the year to 31^st December 2000 he confirmed that these accounts indicated that loans of £60,000 had been made to the company in that year by the pursuer and by Franks International. He was a credible witness

 

Submissions

Defender's submissions

(68)      Counsel for the defender submitted that on an examination of the evidence it was clear that the pursuer's company Eurotechnology was financially stretched in March 2000 and as a result of that the defender, with the pursuer's full consent and agreement personally paid two instalments of £15,000 to FTI in March 2000. By July 2000, £5,000 remained outstanding and the defender looked to the pursuer for the outstanding balance.

 

(70)      He accepted that it was for the defender to prove that the payment of £5,000 from the pursuer's account to the defender was authorised by the pursuer, and it was sufficient for the pursuer's claim to be defeated if the defender could show that the disputed transaction took place with the pursuer's authority.

 

(71)      He submitted that so far as the pursuer's case based on fraud was concerned the onus of proof was on the pursuer.

 

(72)      So far as the grounds of the defender's plea of prescription it was for the defender to prove that the pursuer's right of action had subsisted for an uninterrupted period of five years after the loss had been sustained without a relevant acknowledgement of claim having been made, but it was for the pursuer to prove that he could not have discovered his loss until 2005, despite having acted with reasonable diligence, and thus for the pursuer to bring himself within the exception provided for by Section 11(3) of the 1973 Act.

 

(73)      He submitted that the date of loss was 26^th July 2000 and the claim had prescribed on 25^th July 2005, there being no evidence that it had been interrupted by a relevant claim or by the existence of the liability being acknowledged within the five year period. The present action had been served on the defender on 20^th July 2007.

 

(74)      So far as the payment of the cheque is concerned, he submitted that the defender had the pursuer's authority to intromit with the funds in the pursuer's account when he wrote the cheque in favour of his credit card provider, MBNA. That was the evidence of the defender, the only other witness to the events being the pursuer, and he submitted that the defender should be accepted as credible and reliable for a number of reasons, including the fact that his account was coherent, intelligible, and given in measured terms. His memory after almost nine years was as good as could be expected.

 

(75)      The surrounding circumstances supported him, and in particular the shareholdings in the companies in 2000, his involvement in the company's business, the March meeting between representatives from Eurotechnology and Franks International for the purposes of funding FTI, the fact that the two companies had agreed each to invest £30,000, the accounts for FTI and Eurotechnology for that year, the financial strain that Eurotechnology was under in March 2000, the fact that the pursuer lacked cash at the time, all supported the defender's position that the pursuer and the defender had agreed that the defender would advance £30,000 to FTI on behalf of Eurotechnology in two instalments and, most importantly, that this would be short-term finance and that the defender would be repaid very quickly.

 

(76)      Thereafter, it was established that the defender paid FTI £15,000 by cheque on the 13^th March 2000, was repaid that amount by Eurotechnology by cheque dated 16^th March 2000, that the defender paid FTI a second sum of £15,000 by cheque dated 31^st March, that Eurotechnology was unable to pay the sum due to the defender, that Euroil paid £10,000 on 4^th April, leaving £5,000 outstanding.

 

(77)      So far as the policies of insurance were concerned, the surrender of both policies had been initiated by the pursuer before he went to Bahrain, and the policies were surrendered to meet the pursuer's liabilities.

 

(78)      He submitted that the defender had managed the pursuer's affairs diligently as his attorney, reported regularly to him on commercial and personal matters, told him in about June 2000 that the policies had been received into the defender's bank.

 

(79)      He submitted that in all the circumstances it had been proved on the balance of probabilities that the pursuer and the defender had agreed about the beginning of April 2000 that the £5,000 due to the defender was to be settled by payment from the proceeds of sale of the policies and the money therefore could not be said to have been misappropriated. It was properly paid in line with the parties' agreement.

 

(80)      He accepted there were differences between the defender's pleadings and his evidence. The defender's evidence was that in his view contractual liability to repay the sums rested with Eurotechnology, but that the "overall liability" rested with the pursuer who had undertaken to pay the £5000. He saw this as being a commonsense distinction and submitted that the defender could prove the existence of a liability on the part of the pursuer in the broad sense if not in the sense of a full contractual liability. He submitted that the general tenor of the case on record was that money which was due to the defender, no matter by whom, was to be paid to him from the proceeds of the sale of the pursuer's policies.

 

(81)      He submitted that in any event the defender was entitled to prove a case which is at variance of the case on record provided that it did not constitute a separate and distinct case and referred to Morrison's Associated Companies Limited v James Rome & Sons Limited 1964 SC 160, Burns v Dickson's Ironworks 1961 SC 102, and MacLean v The Forestry Commission 1970 SLT 265.

 

(82)      He submitted that in the circumstances it was open to me to find it proved that the pursuer and the defender had agreed that £5,000 due to the defender was to be settled from the proceeds of the sale of the pursuer's policies.

 

(83)      So far as the payment of 26^th July was concerned, he submitted that it had been proved that the defender had told the pursuer what he had done all in accordance with the agreement between the parties.

 

(84)      He submitted that the defender's evidence was credible and reliable given the length of time that had passed. It was also consistent with the evidence that the defender had diligently managed the pursuer's personal affairs, it was consistent with his practice of reporting on transactions by telephone call,

 

(85)      He accepted that in cross-examination the defender had accepted that he was not saying that he had specifically said that he had written a cheque, that he might have said that he repaid himself for the FTI loan. Counsel submitted, however, that this was still sufficient to prove that he had told the pursuer that he had taken the £5,000 in accordance with the earlier agreements. In addition he referred to the defender's evidence that he had visited the pursuer in October 2000 in Bahrain and had discussed the transaction at that time.

 

(86)      So far as the case of fraud was concerned, he made other submissions. As the case of fraud was pled on an alternative basis and as I have found for the pursuer on the first or principal case, namely the obligation to account for his intromissions with the pursuer's funds, and the fact that the payment was unauthorised authorised, I do not find it necessary formally to consider the alternative issue a

 

(87)      So far as the issue of prescription was concerned, the loss having been sustained on the 26^th July 2000 the pursuers claim prescribed on the 25^th July 2005, the present action had not been raised until the 20^th July 2007 being the date it was served on the defender and was therefore too late.. Section 11(3) of the Prescription and Limitations (Scotland) Act 1973 placed an onus of proof on the pursuer to prove that even if he had acted with reasonable diligence he could not have discovered that he had suffered the loss until, in the defender's submission, 2005. He submitted that the pursuer had failed to prove this. He referred to the pursuer's evidence in cross-examination, by reference to the record in an earlier court action, that he had told his agents in 2001 that he was "aware that £5,000 had been applied for "the deal"". This meant the sum paid to FTI by the defender in March 2000. This undermined the pursuer's credibility and reliability. On the evidence it was established that the pursuer had knowledge significantly earlier than 2005, most importantly there was the evidence of the defender that he had told the pursuer of the disputed transaction on or shortly after the 26^th July 2000. The pursuer was therefore aware of his loss at that time and the claim prescribed on 25^th July 2005. If it was not held to be established that the pursuer knew in July 2000 he was told by the defender on the defender's visit to Bahrain in October 2000, meaning that the claim would prescribe on or about 22^nd October 2005.

 

(88)      If that was not established then the pursuer could, on his own evidence, and the evidence of the defender, have been aware of the situation had he taken simple steps, namely by enquiring by post, email or fax, to see his bank statements by December 2000, in which event the claim would have prescribed by 1^st January 2006, as the July 2000 bank statement would have shown the cheque for £5,000.

 

(89)      The test was one of reasonable diligence, namely whether he took such steps as an ordinary prudent individual would have taken in the circumstances. He referred to Glasper v Rodger 1996 SLT 44.

 

(90)      In all the circumstances, he submitted that the correct disposal was decree of absolvitor.

 

 

Pursuer's submissions

 

(91)      Counsel for the pursuer submitted that I should disregard the defender's evidence in its entirety as he was both incredible and unreliable. She pointed to the material differences between his oral evidence and the record. Even in his oral evidence he had put forward different versions of the proposed liability for the pursuer, none of these versions supported the averments on record. His position that he was not responsible for the averments on record were not believable. His evidence that he had not instructed his solicitors to aver that there had been a loan by him to the pursuer was not believable.

 

(92)      His position overall was quite incredible. He had had a change of agents with amendment of his pleading as late as December 2008, after proof had been allowed. In that amendment further details of the alleged loan had been added to his pleadings. In an earlier action the transcript of the evidence disclosed that he had referred to a loan that he had made to the pursuer, and he had confirmed this in cross-examination in that earlier case and had stated it again in re-examination.

 

(93)      His position in the current proof that loans to Mr Robb and loans to the company were the same thing was unsustainable. The defender was an accountant and the financial manager for a large group of companies. It was quite incredible that he couldn't tell the difference between them, or between the different versions of events which he had given.

 

(94)      She referred to Mr Neil's evidence and to the effect of number 5/4/8 of process, the Eurotechnology nominal activity ledger for 2000 from the group SAGE accounting package, which showed a payment to the defender "Ex Euroil" of £10,000.

 

(95)      So far as regards the defender's position on the cheque of 26^th July, when pressed on the issues to whether he had told the pursuer that he had written that cheque he had answered variously "not necessarily"; "not saying I used the exact words"; "we were having discussions on an ongoing basis". Finally, when asked if he remembered telling the pursuer about the cheque he said "No, but I assume I did". When asked if he had fully reported back to the pursuer the nature of the cheque he had answered "I may have rephrased it as the FTI loan" and "I'm not saying I said I wrote a cheque".

 

(96)      She submitted that that evidence was not sufficient to support the defender's position and that it was important in respect of the issue of breach of duty and also in respect of prescription.

 

(97)      She pointed to the complete lack of documentation. She submitted that the defender was either fabricating the evidence or at best, couldn't remember and was trying to fill in gaps. She suggested the evidence supported the position that the defender was fabricating evidence. She submitted that the defender's case on liability to account and pay the balance due should be rejected because the defender had totally failed to prove the case which he had put on record.

 

(98)      She went through the defender's averments on record, and referred to the cases of Morrison v Rome and Burns v Dickson. It could not be said that the defender's oral evidence was merely an extension or modification of that case. It was entirely different. It was a new case which required a negation of the averments on record. The defender should not be allowed to extend the case. The pursuer, in respect of the issue of liability to account, had come to court to defend himself against the defender's assertion that the defender had made a loan to him. The witnesses and productions on the pursuer's side had been chosen by reference to that case and at the end of the day the defender had conceded that the case was not true. He had not made a loan to the pursuer. So far as the alternative case was concerned, it was very inspecific, it referred to monies being lent to companies and required inferences to be drawn that the pursuer was in some way liable for this. The pursuer had not come to court to defend these allegations and had made no preparation on that basis.

 

(99)      The pursuer's evidence on the other hand, counsel submitted, was quite straightforward, he had been open that he couldn't clearly remember specific facts and dates from nine years ago.

 

(100)  She submitted there had been no agreement between the pursuer and the defender, that the defender should take £5,000 from the pursuer's account in payment of a debt, or on any other basis, that the defender had first told the pursuer in September 2001 that he had written a cheque on the pursuer's account for £5,000, but had told the pursuer it had been applied to a business deal with FTI; that as a result of this the pursuer had been induced to believe the funds had been paid to FTI for the purpose of that business deal; that in early 2004 the pursuer had been advised either by Mr Neil or another that he should have concerns about his UK business, that he had returned to the UK in April 2004 and finally came to know that the £5,000 had been taken by the defender for his personal benefit in August 2004; that he had instructed Mr Neil to investigate this cheque, that it had taken some time to do so and that it had been 2005 before the pursuer had recovered the cheque.

 

(101)  On the legal issues, she submitted that the defender as the pursuer's attorney was under a duty of full disclosure, and had had no entitlement to take monies to his own account without the pursuer's full knowledge and assent. She referred to the Stair Memorial Encyclopaedia, Bell's Principles at para. 422 and Erskine's Principles at page 428.

 

(102)  The defender had failed to establish either that there was a debt due to him and that he had been instructed to take the money in repayment thereof, or that the payment had been made on some other basis with the full knowledge and assent of the pursuer.

 

(103)  On the evidence the defender had not rebutted the presumption that he was obliged to account for his intromission and, subject to prescription, he was therefore bound to repay the sum of £5,000.

 

(104)  On the issue of fraud she referred to Walker on Delict, Bell's Principles and McBryde on Contract, 3^rd edition. As I have indicated I do not propose to go into this alternative case

 

(105)  On either view, the pursuer had lost £5,000, being the sum which the defender had wrongly taken.

 

(106)  So far as the issue of prescription was concerned, she sought relief from the five year prescription set out in Section 6 of the 1973 Act by reference to Section 6(4) and 11(3) of that Act.

 

(107)  In respect of Section 11(3), she submitted that the evidence showed that the pursuer was not aware, and could not with reasonable diligence have been aware, that he had sustained a loss until a date less than five years before the action had been raised. He became aware until he saw the cheque which had been written on his account by the defender. That was in January 2005. At the very earliest he would become aware when he saw the minutes of the meeting of 27^th August shortly after that date, at which time he had become aware that the defender had applied funds to his own benefit.

 

(108)  She referred to Johnston on Prescription, and to the case of Glasper.

 

(109)  She submitted that the test was what an ordinary prudent person who had granted a power of attorney to another person would do. She referred to the evidence relating to the trust which the pursuer had in the defender, to the fact that the defender had told the pursuer in 2001 that the funds had been taken for business purposes and that the pursuer had accepted his word (which counsel for the defender had described as incredible). The issue from the pursuer's point of view was only £5,000.

 

(110)  There was nothing in the evidence which would have caused an ordinary prudent person to investigate matters.

 

(111)  She submitted that Section 11(3) applied to both the pursuer's claims, namely for accounting and for fraud, and that these claims arose at the same time.

 

(112)  She referred to Section 6(4) of the Act which would have the effect for leaving out of the computation of time any period during which the pursuer had been induced to take no action by virtue of the pursuer's initial concealment that he had taken the cheque for his own benefit, or by his subsequent misrepresentation of the taking of the cheque as being for a business deal, with the result that the pursuer was unaware of the true circumstances and took no action.

 

(113)  As soon as he became aware of the true position he did take action in terms of investigating matters.

 

(114)  The misrepresentations had been fraudulent on the part of the defender, firstly by concealing the fact that he had taken the cheque in July 2000; then by stating that it had been applied to a business deal, which she said in September 2001. The period accordingly was interrupted from July 2000 to receipt of the minute of August 2004 at the earliest, or January 2005 when the cheque was obtained. Either way the five year prescriptive period had not run. Neither claim had prescribed.

 

Decision

(115)  This is an action between two former business colleagues and friends arising out of a power of attorney which the pursuer granted to the defender when the pursuer left to take up residence in the Middle East. The defender had at the time considerable involvement in the affairs of the group of companies both as director, accountant and manager. Although the sum at stake was modest (£5000) the case occupied five days of proof with counsel on both sides. The issue is clearly one of great importance to the parties

 

(116)  The case is noteworthy for highlighting the importance of a record in litigation, and the importance of evidence being adduced to support a party's written pleadings. Where, as here, the defender has the onus of proof, it is for him to prove not just a defence, but the particular defence of which he has given notice in his pleadings. In the words of Lord Guthrie in Morrison's Associated Companies Limited v James Rome & Sons Limited:-

 

"It is a fundamental rule of our pleadings that a party is not entitled to establish a case against his opponent of which the other has not received fair notice upon record. It follows that a defender cannot be held liable upon a ground which is not included in the averments made against him by the pursuer. These are not mere technical rules since their disregard would tend to create injustice, by imposing liability upon a defender for reasons which he had no opportunity to refute."

 

(117)  In the present case, the defender says unequivocally in his pleadings that he was entitled to take money from the pursuer's account because the pursuer had authorised him to do that so that the pursuer's obligation to repay a loan to the defender could be discharged.

 

(118)  The defender's position in his evidence was that he had never made a loan to the pursuer, and had never told his lawyers that he had. He could not account for the unequivocal presence of the averments in support of such a loan which appeared in his pleadings. He denied ever giving his solicitor's instructions to insert pleadings to the effect that there had been a loan between the parties, and could not explain how the solicitors had drawn the pleadings in the terms in which they had. He had no explanation for the evidence which he had previously given in an earlier proof in a different action relating to the same transaction, when he stated unequivocally that he had made such a loan, and that any assertion that he had not made such a loan would be false.

 

(119)  The defender has accordingly failed to prove his case on record that the money which he took from the pursuer's account, with the pursuer's authority, was repayment of money which he had loaned to the pursuer.

 

(120)  Notwithstanding that formidable difficulty, counsel for the defender endeavoured to construct a case from the defender's evidence which could be summarised as being that the general nature of the evidence of the transactions between the defender and the companies in March of 2000 was sufficient to give rise to some form of obligation on the pursuer to make payment to the defender, and it was that payment, whatever its basis, which had been authorised by the pursuer.

 

(121)  In Burns v Dixon's Ironworks where Lord Justice Clerk Thomson said, at page 107,:-

"The court is often charitable to records and is slow to overturn verdicts on technical grounds. But where a pursuer fails completely to substantiate the only grounds of fault averred and seeks to justify his verdict on a ground which is not just a variation, modification or development of what is averred, but is something which is new, separate and distinct, we are not in the realm of technicality."

 

I consider that the Lord Justice Clerk's observations apply in this case.

 

(122)  What the defender is seeking to do is not in my opinion a variation, modification or development of what is contained in his pleadings, but is something which is new, separate and distinct. In his pleadings he makes very specific averments of his loan to the pursuer, the existence of which is clearly tied to the defender taking repayment from the sale of the policies. It is the pursuer's personal indebtedness to the defender in respect of that loan which is said to justify the defender taking the money. He no longer says that he lent money to the pursuer which the pursuer was obliged to repay him, he says that he lent money to Eurotechnology for them to lend to FTI, and that he did this for simplicity's sake by paying his cheques direct to FTI. Eurotechnology paid him back the first £15000, and Euroil paid him back £10000 of the second £15000 It is not at all clear from his evidence or indeed any of the evidence how the pursuer ends up liable for the balance. It is an entirely different case. That very different case spoken to by the defender in his evidence was not the case which the pursuer came to court to meet. His counsel said that she would have prepared for the case differently and perhaps taken different views concerning evidence to be led. I can readily accept that.

 

(124)       For the sake of completeness, however, I should also say that whatever the circumstances in which the defender came to advance money to FTI, I am satisfied that at no time did the pursuer undertake expressly or impliedly that he would be responsible for repaying that money to the defender

 

(125)       The defender's credibility on the aspect of the nature of the obligation which the pursuer had to him is undermined by the huge discrepancy between, on the one hand, the evidence which he gave in this case and on the other hand his pleadings in this case, his pleadings in the previous case, and his evidence in the previous case. It is undermined further by his assertion that he did not instruct the highly detailed averments in support of the case of loan In addition, his credibility is undermined by his apparent reluctance to accept the differences between personal liability and corporate liability. I do not accept that an accountant with the defender's experience would not know the difference between a personal liability and a corporate liability. I find it surprising that the defender, an accountant, who says that he does take notes, has not produced a single piece of documentary evidence to support his position in the form of file notes memoranda, letters of confirmation or e-mails. A professional man such as an accountant engaged in business transactions of the kind described would in my opinion be inspected to take and keep good notes of events as they transpired. I prefer the pursuer's evidence on this aspect of the case, namely that he was never loaned any money by the defender, and that he never undertook to pay any money to the defender in respect of any loan which the defender may have made to Eurotechnology in respect of the affairs of FTI.

 

(126)       The defender raised a question as to why he as a minority shareholder would put money into one of the companies, saying that that was the responsibility for the majority shareholder. I do not see any reason why a minority shareholder might not do that if he considered it was in his best interests to do so. The question was at least to an extent answered by Mr Neil in his evidence when he was asked in cross-examination if he could think of any reason why Mr Taylor would have been getting a payment for Euroil, he answered "It could be that he made a contribution to Euroil as indeed he did on various occasions." On being asked a follow-up question as to whether it was quite common if there were financial difficulties for Mr Taylor to put some money in, Mr Neil answered "Yes, correct".

 

(127)       The question as to whether the pursuer had any obligation to pay £5,000 to the defender in March 2000 is of considerable importance in pointing to the answer to the first critical question in the case, namely whether the defender had the pursuer's authority in July 2000 to use the power of attorney which the pursuer had granted in his favour to take £5,000 from the pursuer's account for his own personal benefit. It is difficult to see why the pursuer would give such authority to the defender to take a payment that was not due. The defender's case on record in answer 3 and answer 4 is that the pursuer authorised the payment on the basis of his own obligation to repay the sum of £5,000 which the defender had loaned to him. As there was no such loan there could be no authority to repay it. The pursuer denied in his pleadings and in his evidence that he had authorised the payment or that he had known about it and approved it I accept that evidence. There was no reason for him to have authorised the payment or to have approved it after it had been made

 

(128)       I considered the pursuer to be a generally truthful witness on all aspects of the case. I did not consider that that could be said about the defender. I did not believe him.

 

(129)       It follows therefore that the defender, in using his power of attorney to take £5000 from the pursuer's account for the defender's personal benefit in respect of an obligation which did not exist, and in doing so without authority, acted in breach of his fiduciary duty to the pursuer and as at 26^th July 2000 was under an obligation to repay that sum to the pursuer

 

 

The issue of prescription

(130)       The defender however says that even if he had such an obligation, it has prescribed.

 

(131)       It was not argued by the pursuer that the obligation was imprescriptible, but rather that the short-term negative prescription which would otherwise have operated by virtue of Section 6(1) of the 1973 Act did not operate by virtue of the provisions of Section 6(4) and Section 11(3) of the Act.

 

(132)       Section 6(4) provides for the interruption of the running of the prescriptive period in respect of any period in which by reason of fraud on the part of the debtor or error induced by words or conduct of the debtor the creditor was induced to refrain from making a relevant claim in relation to his obligation, and section 11(3) provides for a later starting date for the prescriptive period when the creditor does not become aware that he has suffered a particular loss injury or damage. Each is subject to a qualification relating to reasonable diligence

 

(133)       Section 11(1) provides that, subject to sub-sections (2) and (3), an obligation "... to make reparation for loss, injury or damage caused by an act, neglect or default shall be regarded for the purposes of Section 6 of this Act as having become enforceable on the date when the loss, injury or damage occurred."

 

(134)       Section 11(2) provides, in short that where there is a continuing act, neglect or default causing such loss, injury or damage the loss etc shall be deemed to have occurred on the date when the act, neglect of default ceased.

 

(135)       Section 11(3) provides in relation to a case based on sub-section 1, or sub-section 1 as modified by sub-section 2, "if the creditor was not aware and could not with reasonable diligence have been aware that loss, injury or damage had occurred, sub-section 1 shall have effect as if for the reference therein to that date there was substituted a reference to the date when the creditor first became, or could with reasonable diligence have become, so aware."

 

(136)       Section 11 applies only to obligations to make reparation for loss, injury or damage caused by an act, neglect or default. That would clearly apply to the pursuer's alternative case based on fraud. In my opinion, it also applies to the pursuer's primary case based on an obligation to account and pay where, as here, the pursuer has suffered a loss through the defender's legal wrong in taking money for his own benefit which was not due to him. Reparation is the general means of redress for loss caused by a legal wrong.

 

(137)       In the case of Glaster Lord President Hope in giving the opinion of the court said at page 47:-

"the lack of awareness which requires to be established for the purposes of section 11(3) of the 1973 Act is a lack of awareness that a loss has occurred which has been caused by an act neglect or default which gives rise to an obligation to make reparation for it"

 

and later at the same page-

"A party who is aware that he has sustained loss injury or damage may reasonably be expected to take some steps to find out what has caused that loss. Failure to do this will call for an explanation if the test of reasonable diligence to which section 11(3) refers is to be capable of being satisfied. But a lack of awareness that loss injury or damage has been sustained at all gives rise to a different question....................It is whether in all the circumstances the pursuer had any reason to exercise reasonable diligence to discover whether a loss had occurred."

 

At pages 47 to 48 the Lord President referred to the case of Peco Arts v Hazlitt Gallery Ltd 1983 1 WLR 1315, a case where a drawing which had been represented by the defendants to be an original Ingres was discovered several years later to be a reproduction, and where similar issues as to reasonable diligence arose under the Limitation Act 1980. The court in Glasper applied the approach of Webster J who had held that there was no lack of reasonable diligence on the part of the purchasers and that

"they were entitled to rely on the reputation and recommendation of the expert who had recommended the drawing to them for purchase, and on the reputation of the vendor and their managing director"

 

 

(138)       The date of the pursuer's loss for the purposes of Section 11(1) would have been the 26^th July 2000, or thereabouts, being the date on which the defender took £5,000 from the pursuer's bank account for his own benefit and the date when the loss, injury or damage occurred,

 

(139)       I am satisfied on the evidence that the pursuer did not know of this at that time. It is certainly not clear even from the defender's evidence that he told the pursuer what he had done on 26^th August. I prefer the pursuer's evidence that he did not know to that of the defender, which was to the effect that the pursuer did know, because it was part of the discussions between them as to repayment of the loan. I do not accept that there were any such discussions. As there was no loan there would simply have been no basis for the pursuer to instruct the defender to take the money to his own benefit.

 

(140)       Nor, in my opinion, applying the approach of Webster J. in Peco Arts Inc could the pursuer with reasonable diligence have been aware between July 2000 and September 2001 that he had sustained a loss as a result of what the defender had done. The pursuer had recently left the United Kingdom giving a power of attorney to the defender and there was no reason for him to suspect that the defender would not faithfully discharge his duties. He had known him for years and trusted him implicitly. There was no need for him to make any enquiry at all. He had no obligation to carry out checks on the man he had selected specifically because he trusted him.

 

(141)       In or about September 2001 however the pursuer returned to the United Kingdom and the defender then told him that he had cashed an insurance policy and written a cheque on the pursuer's personal account as being a tax efficient way of dealing with a business matter. There was contradictory evidence on this point from the pursuer and the defender but I prefer the pursuer's evidence. It was consistent with the evidence from Mrs Rachael Robb, whom I found to be a credible witness, that she had been told that the second policy had been sold, and that her husband had been angry about that. It was also consistent with the evidence of Mr MacIntyre who interrupted an argument between the pursuer and the defender relating to the sale of insurance policies. All of that, in my opinion, supports the pursuer's version of what the defender told him in September of 2001 and I accept his version.

 

(142)       That being the case, and given the trust which the pursuer had in the defender, it does not seem to me that the pursuer failed to use due diligence to ascertain what had happened to the money from the second policy money. He had been told by a man he trusted and to whom he had given control of his money what had been done with it. He was not happy with the policy being sold, but it was not the sale that caused the pursuer a loss. It was the unauthorised taking of the money to the defender himself. The pursuer did not doubt and had no reason to doubt that the money had been used as the defender falsely told him it had been. Applying the test set out in Peco Arts Inc He was entitled to rely on what the defender told him. Counsel for the defender specifically suggested that by December 2000 the Pursuer should have taken steps to see his bank statements. I do not consider he was under any obligation to do that, but had he done so the statement covering 26^th July 2000 would only have shown that the money had gone out of his account by cheque, which would be entirely consistent with what the defender had told him. The bank statement did not show to whom it had gone. He would not have found out that he had suffered a loss as result of the defender's wrongful act.

 

(143)       Between September 2001 and August 2004 the pursuer continued to run his business interests in the Middle East and the European companies continued to operate under the management team that the pursuer had put in place there, including the defender. So far as his personal affairs were concerned it would appear that the defender continued to deal with the pursuer's mail, and to engage in some dealings on his bank account for his behalf, notwithstanding that the power of attorney had expired. Nothing that happened in that period should have put the pursuer on his guard.

 

(144)       In all of these circumstances in my opinion the effect of section 11(3) is that the commencement date for the operation of prescription in respect of either head of claim was a date, which was not precisely ascertained, but which would have been within a few days of the 27^th August 2004, when the pursuer received a copy of the minute of the August meeting, and no earlier than 27^th August 2004. The current action was raised in 2007 and accordingly no questions of prescription can arise.

 

(145)       Section 6(4) would also apply. For the purposes of Section 6(1) the defender's obligation to account for or repay the money which he took from the pursuer's account for his own benefit subsisted from the moment he took that money, namely 26^th July 2000. Accordingly, in terms of Section 6(1), that obligation prescribed at the end of a continuous period of 5 years from that date unless one or other of the eventualities set out in sub paragraphs (a) and (b) of Section 6(1) applied. It was not suggested that either of these factors, relating to a relevant claim or a relevant acknowledgement, applied.

 

(146)       However, the effect of Section 6(4) is to take out of the reckoning of that continuous period of 5 years any period during which by reason of (i) fraud on the part of the debtor, or (ii) error induced by words or conduct of the debtor, the creditor was induced to refrain from making a relevant claim in relation to the obligation. That period, however, does not include any time occurring after the creditor could with reasonable diligence have discovered the fraud or error as the case may be.

 

(147)       In my opinion the pursuer was induced by the conduct of the defender not to take any relevant proceedings because the defender concealed from him the fact that he had sold the second policy and taken £5000 from the pursuer's account for his own benefit. In my opinion he was obliged to tell the pursuer what he had done immediately, Accordingly from the very moment the defender took the money namely 26^th July 2000, Section 6(4)(a)(ii) applied. .From that date the pursuer erroneously believed that the Woolwich policy remained in force, and that the defender was properly operating the power of attorney. That belief was induced by the defender's failure to disclose to him what he had done. I would not at this stage say that that failure was necessarily fraudulent. At that stage the defender may have considered that he was entitled, perhaps on some moral basis, to the money, and he may not have fully realised his fiduciary obligation not to take money to his own benefit without the pursuer's consent.

 

(148)       In September 2001 the position changed. At that time the defender told the pursuer that he had sold the second policy, which was correct, and that he had used his powers under the power of attorney to make payment from the pursuer's account in respect of business transactions for the group of companies, which was false. That false statement was intended to deceive the pursuer, and it had its intended effect. It was believed by the pursuer and he made no further enquiry concerning the matter.

 

(149)       I have no doubt, having regard to the strong feelings expressed by the pursuer in this matter, that had he been aware of the true situation in 2000 or 2001 he would have demanded the money back and if necessary raised proceedings to obtain the money. He was induced not to do so first by the conduct of the defender in not telling him what he had done and thereafter by the fraudulent representation on the part of the defender that he had used the money for a business deal.

 

(150)       He only became aware of the truth in August or September 2004, and only became aware of the specific mechanism by which the defender had acted, namely the cheque in favour of the defender's personal account with a credit card company in early 2005 after he had instituted investigations. He then did institute proceedings, but based on unjust enrichment rather than fraud or an obligation to account. These proceedings are not founded upon for the purposes of Section 6(1)(a).

 

(151)       So far as the proviso to Section 6(4) is concerned relating to reasonable diligence, I consider that in this case exactly the same considerations apply as do for the purposes of Section 11(3) with the result that the period between 26^th July 2000 and 27^th August 2004 is taken out of the reckoning of the five year prescriptive period

 

(152)       In all of the circumstances therefore in my opinion the defender's obligation to pay the pursuer the money which he took from his account remains enforceable.

 

(153)       I have put the case out for a hearing on expenses as I was requested to do.

 

(154)       So far as interest is concerned I consider that the appropriate date for the running of interest is the date on which the debt disclosed by the accounting occurred, namely the day on which the money was wrongly taken, 26^th July 2000, rather than the normal date for claims of this kind, namely the date of the accounting itself.

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