SHERIFFDOM OF GRAMPIAN HIGHLAND AND ISLANDS AT ABERDEEN

A1115/08

		JUDGMENT of SHERIFF DOUGLAS J CUSINE
		in causa
		CHARLES SUTHERLAND COPELAND, residing at Combs Causeway, Old Rayne, Insch, Inverurie, Aberdeenshire. PURSUER
		against
		TENON GROUP PLC, a company incorporated under the Companies Acts and having a place of business at 39 Queens Road, Aberdeen, AB15 4ZN. DEFENDERS
		___________________________

Act. Bell, advocate; Alt. Richardson, advocate

ABERDEEN, 11^th February 2011.

The Sheriff, having resumed consideration of the cause, and having heard from parties' counsel, sustains the defenders' first plea-in-law and Assoilzies them from the craves of the Initial Writ; Certifies the preliminary proof/debate as suitable for the employment of junior counsel; Finds the pursuer liable to the defenders in the expenses of the cause; Allows an account thereof to be given in and remits the same when lodged to the auditor of court to tax and to report.

NOTE:

This matter came before me as a preliminary proof on time bar, but given the significant amount of material agreed in the Joint Minute of Admissions (No. 23 of Process) ("the Joint Minute"), no witnesses were led by either party.

The pursuer was formerly a director of an incorporated company called Fridge Freight (Fyvie) Limited (FFF). Around February 1997, he granted a personal guarantee in favour of the Bank of Scotland in respect of FFF's overdraft to the bank. On 26^th September 1997, Ian Dunbar Fraser and Kenneth Robert Craig, insolvency practitioners of Messrs Scott Oswald, Chartered Accountants, were appointed Joint Receivers of the company. Ian Dunbar Fraser resigned as a receiver of FFF on 21 May 2002. The defenders have assumed the rights and liabilities of the former partnership of Scott Oswald.

On 31^st October 1997, the company's premises and other assets were sold to Messrs Rennie & Nicoll for £450,000 which resulted in a shortfall. The pursuer avers that the defenders failed in their duty to take reasonable care to secure a reasonable price for the company's assets and that they did not act in good faith. As a result of that failure, the pursuer had to fulfil his guarantee, resulting in a loss to him of £100,000, the sum sued for.

The initial writ in this action was served on 15^th December 2008. The pursuer avers that he did not become aware of the shortfall until 3^rd February 1998, when Kenneth Robert Craig, wrote to the pursuer's solicitors indicating that the shortfall was "circa £500,000". The letter of 3^rd February was sent in response to a letter from Messrs Donald & Budge, the pursuer's solicitors, dated 21^st January 1998 in which they requested "a note of the present position in the administration of the estate with an Accounting, or at least details of assets realised to date and liabilities outstanding". The defenders' position is that the pursuer was aware of the extent of the shortfall in February 1998, i.e. that he had sustained a loss, and that he could, with reasonable diligence, have made himself aware of the position at that date, or shortly thereafter. Accordingly, they aver that the action is time-barred.

It is not in dispute that the obligation in the present case is one governed by s. 6 of the Prescription and Limitation (Scotland) Act 1973, ("the 1973 |Act.") i.e. the five- year prescription. Both parties, however, referred to s. 6(4) and s.11(3) for circumstances in which the running of the five-year period can be postponed.

S.6(4) provides for the disregarding for the purposes of the section any period during which by reason of fraud on the part of the debtor, or error induced by the debtor (and that includes any person acting on behalf of the debtor) if, as a result, the creditor was induced to refrain from making a relevant claim in relation to the obligation.

S.11(3) provides that although the five-year period runs from the date when the loss occurred, if the creditor was not aware and could not, with reasonable diligence, have been aware, that the loss had occurred then the five-year period runs from the date on which the creditor became aware or could, with reasonable diligence, have become aware of the loss.

In terms of the Joint Minute, the pursuer's productions Nos. 5/1/1-6 are agreed.

Pursuer's submissions.

I should repel the defenders' pleas Nos. 1 and 7.

The pursuer became aware of the extent of the shortfall by the letter of 3^rd February 1998 (No. 6/1/3 of Process, especially paragraph 5) which was written in response to the letter dated 21^st January 1998 (No. 6/1/2 of Process). It was submitted that there was nothing to put the pursuer on notice that any further investigation was necessary and accordingly both s. 6(4) and s.11(3) come into play.

Reference was made to the letter of 21^st January 1998 from the pursuer's solicitor to Messrs Scott Oswald in which the pursuer expresses concerns about the speedy disposal of FFF and the price which might have been obtained from it. The reply is dated 3^rd February 1998 (No. 6/1/3 of Process) and it is on that that the defenders found their plea of "prescription". It was submitted on behalf of the pursuer that the letter provides an explanation and that there is nothing in it to indicate that it was not a full account being given by the Joint Receivers. The letter is, however, less than candid, thereby inducing an error on the part of the pursuer. The defenders' averment that the pursuer knew of the loss at that point is without foundation as indeed is their suggestion that he could, with reasonable diligence, have found out the true position.

Reference was made to a letter dated 14^th October 1997 (No. 5/1/2 of Process) sent by Rennie & Nicoll to Kenneth Clark which post-dates the closing date fixed by the Receiver which in Art. 2 of Condescendence (page 4 of Amended Closed Record, No. 22 of Process) is stated as being 6^th October 1997. It is agreed that in the letter, Rennie & Nicoll offered £450,000, but it was submitted that the response of 3^rd February 1998 (No. 6/1/3 of Process) is not candid. There is a letter dated 30^th September 1997 (No. 5/1/3 of Process) from Philip C Smith Commercials Limited to Mr Craig requesting information and a further letter (No. 5/1/4 of Process) dated 16^th October reconfirming the company's interest and asking for "your sales package". There is also a fax from Philip C Smith Commercials to Kenneth Craig dated 20^th October offering £510,000 for the assets (No. 5/1/5 of Process) and a reminder of the same date (No. 5/1/6 of Process). It was submitted that the pursuer came within the terms of s.11(3) because there was nothing after 3^rd February 1998 to put him on notice. The pursuer's understanding was erroneous, but that arose from an error induced by Scott Oswald and accordingly s.6(4) applied to the pursuer. The letter dated 18^th October 2006 (No. 6/1/5 of Process) sets out the pursuer's concerns and lists questions to be answered. It was submitted that the five-year period did not start running until October 2006 because of the application of s.11(3.) It was also submitted that s.6(4)(a)(ii) applies because of the error induced by the defenders, and, that being so, the prescriptive period did not begin to run until October 2006, and for the purposes of s. 11(3), the exact date was 31 October 2006.

Glasper v Rodger 1996 SLT 44--a decision of the First Division--was cited. That was an action raised by the pursuers against their former solicitors in respect of losses sustained on 20^th March 1984. The pursuers averred that it was not until August 1985 that they became aware that they had sustained a loss. My attention was drawn to page 47F of the Opinion of the Court delivered by Lord President Hope where he says, "In our opinion, the lack of awareness which requires to be established for the purposes of s11(3) of the 1973 Act is a lack of awareness that a loss has occurred caused by an act, neglect or default which gives rise to an obligation to make reparation for it. We agree with Lord Clyde's observation in Greater Glasgow Health Board v Baxter, Clark & Paul 1992 SLT at 40D that the subsection looks for an awareness not only of the fact of loss having occurred, but of the fact that it is a loss caused by negligence...," and further on he says, "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 s11(3) refers is to be capable of being satisfied" (47J). It was submitted that even if the pursuer in the present case was required to "dig around," he could not have known until October 2006 of any negligence on the part of the Joint Receivers as the letter of 3^rd February 1998 indicated that everything had been dealt with properly.

Another case, Britannia Building Society v Clarke (an Outer House decision of Lord Macfadyen) 2002 SLT 1355 was cited. In that case, it was held that s.11(3) did not apply because it was incumbent on the pursuers who were a lending institution to explain a delay of four years during which they did nothing to ascertain whether there had been any developments in respect of a loss. That case was distinguished on the ground that the pursuer in the present case, who had no specialist knowledge, had an explanation for doing nothing, viz- the letter of 3^rd February 1998.

Reference was then made to Rowan Timber Supplies (Scotland) Limited v. Scottish Water Business Stream Limited (unreported, Sheriff Principal Bowen, 26 February 2010) in which the speech of Lord Hope of Craighead in BP Exploration Co. Ltd. V, Chevron 2002 SC(HL) 19 was cited. In that case, Lord Hope of Craighead at paragraphs 26 to 35 explained the purposes of negative prescription and in paragraph 28 his Lordship explained the background to the current provision in s6(4). It was submitted that the purpose of s.6(4) is to address fraud or error. In this case, there was an omission on the part of the defenders which resulted in the pursuer's loss but that omission, it was submitted, came within the terms of s.6(4).

It was submitted that it is clear from Lord Hope's opinion in Glasper that the overall aim of s.11(3) and by implication of s.6(4) is to ensure that justice is done. S.6(4) does not require that a pursuer is deflected by any comment; it is sufficient that he was ignorant of a right to claim, ignorance for which he could not be blamed.

The pursuer's position was that the explanation provided to him in February 1998 induced an understanding which was incorrect and that the pursuer could not have known, or could not, with reasonable diligence, have ascertained that he had sustained a loss at that point. Accordingly time did not start to run against the pursuer until October 2006 when the true position was made clear to him. The initial writ was therefore served timeously and were I to favour the pursuer's submission, I should allow a proof before answer.

Defenders' submissions

I was invited to sustain the defenders' 1st plea-in-law and grant decree of absolvitor on the basis that the pursuer was aware in February 1998 or could, with reasonable diligence, have been aware that there was an actionable loss. That submission was made in relation to s.11(3) of the Act and it was submitted that s.6(4) had no application.

The following propositions were advanced:-

(1) It is incumbent on the pursuer to demonstrate that he has an extant claim against the defenders.

(2) In the present case, the agreed date of loss is 31^st October 1997 and accordingly the pursuer knew that he came within either s.11(3) or s.6(4).

(3) Unless the pursuer can satisfy the court that s11(3) applies, then the action was raised more than five years after the date of the loss, and is therefore time-barred.

(4) If, however, there was an error of the type envisaged by s.6(4), then the pursuer had five years from 2008 to raise the action.

(5) S.11(3) raises two questions:-

(a) What was the pursuer aware of in 1997/98?

(b) What could he have found out by the exercise of reasonable diligence?

(6) "Awareness" means knowing that a loss has occurred and that the loss is actionable. Reference was made to Glasper.

(7) Exercising reasonable diligence means doing all that a person of reasonable prudence would have done.

(8) It is clear from the authorities that a distinction is drawn between two situations:- (a) where the pursuer was aware of an actionable loss or could, with reasonable diligence, have been so aware; (b) where the pursuer could not reasonably have been aware of a loss. (Glasper)

(9) To come within s.6(4), the pursuer must prove -

(a) that he was in error, an error which induced him to refrain from making a claim;

(b) that the error was induced by the defenders in one of the ways identified, i.e. by words or conduct;

(c) that the proviso does not apply, i.e. the proviso about reasonable diligence.

(10) There was a commonality of language between s.11(3) and s.6(4).

(11) The 1973 Act itself represents a balance between the injustice occasioned by stale claims and the "snuffing-out" of claims. It was submitted there is no room outside these provisions for fairness, in other words there is no equivalent of section 19(A) of the Act.

The following authorities were cited:-

Beveridge and Kellas v Abercrombie 1997 SC 88.

Britannia Building Society v Clarke 2001 SLT 1355.

Adams v Thornton (No. 3) 2005 SC 30

BP Exploration Operating Company Limited v Chevron Transport (Scotland) 2002 SC (HL) 19.

In Beveridge and Kellas, an Extra Division considered the terms of s.11(3). In that case, a firm of solicitors sued a former client for fees. The client counterclaimed and the pursuers pled that the action was time-barred. Reference was made at page 93B, to Glasper, where the Lord President distinguished lack of awareness that any loss had been sustained and lack of awareness that any loss sustained was caused by an act, neglect or default. He had referred to Lord Clyde's test in Greater Glasgow Health Board v. Baxter, Clark and Paul 1992 SLT 35 with approval. In Beveridge and Kellas, the court held that it did not appear from the defender's averments that she was unaware of indebtedness to her bank, and so she must have been aware that she was suffering a loss. That being so, a person exercising reasonable diligence could have ascertained the correct position.

In the present case, the pursuer had to explain why he did nothing between 1998 and 2006, against the background of being aware in early 1998 of a loss. In that respect, the present case is similar to Britannia Building Society, where there was some uncertainty about the exact date of the loss, but it was held that that did not matter because the pursuers were on notice that there had been a loss. In the present case, the pursuer had instructed a solicitor who, in a "without prejudice" letter dated 3 February 1998, (No. 6/1/3 of process) was seeking information from the Receivers. It was not therefore enough for the pursuer to say thereafter, "I'll do nothing."

Reference was then made to Adams, an action alleging professional negligence on the part of solicitors in relation to a property development. In the Extra Division, it had been argued that the pursuer was entitled to rely on s.6(4) of the Act. Having quoted the subsection, Lord Penrose went on to say, "For sec6(4) to provide protection the creditor must establish that he was in error, that the error was induced in one or other of the ways identified, and that he has not become disabled from relying on the error by operation of the proviso. In relation to the proviso, there is enough common language between sec11(3) and sec6(4) to support the view that the protection flies off when a creditor of ordinary prudence exercising reasonable diligence could have discovered the error." (para.36) At para. 66, his Lordship said, "The first issue is whether Mr Adams has established as a fact that he was in error as to the scope of his remedies and because of that error refrained from pursuing a claim against Thorntons. If he was in error, he must then establish that the error was induced by Thorntons. And finally he must show that the error could not have been discovered with reasonable diligence until a point in time after which the discovery was irrelevant to the running of prescription against him." Temporary Judge, Sir David Edward at para.73 observed, "If the law of prescription is to be effective, it is, in my opinion, important to hold to the principle that it is for the party claiming the protection of sec 6(4) or of sec 11(3) to demonstrate that the statutory conditions for avoiding the axe of prescription are satisfied."

In BP Exploration Operating Company Limited v Chevron Transport (Scotland) 2002 SC (HL) 19, one issue was whether incumbent on the pursuer to demonstrate when he might reasonably have raised an action. In that connection, Lord Clyde stated, "What has to be identified is the period during which by reason of the error the creditor was induced to refrain from making the claim." Lord Millet at paras. 102, and 107 was to the same effect. My attention was drawn to the averment in Art. 5 of Condescendence (pp. 18/19 of the Amended Closed Record, No. 22 of process.) which narrates that the information about the disposal of the company became known to the pursuer in 2009 when the defenders provided internal files following upon their being served with a Specification of Documents. As counsel for the defenders pointed out, by that time, the action had been raised.

It was submitted

(1)   that prima facie the pursuer's claim is time-barred. Reference was made to the Joint Minute at paras. 29 and 31 in which it is agreed that the assets were sold on 31 October 1997 and that the Initial Writ in the present action was served on 15 December 2008.

(2)   for the purposes of s.11(3), four things are important:- (a) the pursuer was aware of the sale; (b) he was aware that the sale had resulted in a shortfall, i.e. the assets realised did not cover even the indebtedness to the Bank; (c) the pursuer had concerns about the receivership; and (d) he was sufficiently concerned to instruct a solicitor. In that connection, paras. 2, 3 and 4 of the Joint Minute were referred to. In para. 4, it is agreed that the pursuer was aware by 21 January 1998 that the business and assets of FFF had been disposed of by the Joint Receivers, that he was of the opinion that that sale could have satisfied FFF's liabilities in full and that the Bank had required him to meet his obligations under the personal guarantee which he had given in February 1997.

The letter dated 3 February 1998 (No. 6/1/3 of process) is a letter from the Joint Receivers to the pursuer's solicitors enclosing a report by the Joint Receivers on the receivership of FFF (No. 6/2/6 of process). That letter was a response to a letter of dated 21 January from the pursuer's solicitors to the Joint Receivers, and reference was made to paragraphs 5 to 8 of the Joint Minute. It was submitted that as at 3^rd February 1998, the pursuer knew of the shortfall and that it was in the order of £500,000, and therefore it was not open to the pursuer to argue that he did not know of the loss, but it was accepted that he might not know about any negligence.

One can reasonably infer from the correspondence that the pursuer and the Receivers did not agree and that the Receivers had made it clear that they would not accept the pursuer's appraisal of the situation. Reference was made to a letter dated 5 March 1998 (No. 6/1/4 of process, and para.10 of the Joint Minute) from the pursuer's solicitors in response to the letter of 3 February 1998 which states that they were giving that letter their consideration and that they would "revert to you shortly." From the correspondence, there was no basis for concluding that at 3^rd February 1998 the pursuer was completely satisfied because in the letter dated 21 January 1998 (No. 6/1/2 of process) the pursuer requests an accounting which he did not get in the letter of 3^rd February.

The pursuer avers that that letter was not adequate, but there is no evidence of anything else that the pursuer did until 18 October 2006. (paras 21 and 22 of the Joint Minute) If the pursuer says that the error fell off after that date, that is not pled. There is no averment about DTI proceedings which are referred to in the letter dated 18 October 2006 from the pursuer's solicitors to the defenders. (No.6/1/5 of process) The pursuer did nothing between February 1998 and October 2006, but the pursuer says that the defenders did nothing until the action was raised. There is a Specification of Documents referred to in the pleadings which the pursuer says is the basis for his awareness.

One has to ask why the action was not raised prior to 15^th December 2008, because the pursuer could with reasonable diligence have made himself aware much earlier than that the loss was actionable. There is nothing in the pleadings to show that the pursuer acted with reasonable diligence. It follows therefore that the pursuer has failed to discharge the onus on him to show why he did nothing upon being made aware of the shortfall.

The defenders' 2^nd Inventory contains items which were lodged with the Registrar of Companies and hence were documents in the public domain. (Nos. 6/2/6, 6/2/8, 6/2/9 and 6/2/10. (Reference was made to para. 20 of the Joint Minute.) By the time that the letter dated 18 October 2006 (No. 6/1/5 of process) was sent, the pursuer had access to No. 6/2/10 of process, namely the Receivers' abstract of receipts and payments which it is accepted was lodged with the Registrar of Companies on 18 October 1998. (see para. 20 of the Joint Minute) It follows therefore that the pursuer has not discharged onus on him in terms of s.11(3)

3. It was submitted that s.6(4) is not applicable because (i) pursuer has no evidence entitling him to plead error; (ii) the pursuer does not demonstrate any error in letter of 3 February 1998; (iii) the pursuer does not demonstrate that the proviso about reasonable diligence does not apply; and (iv) on the facts, there is no causal link between error and the pursuer refraining from raising an action until 2008.

There is, however, no evidence that the pursuer was in error. Any flaw that there might have been in the letter dated 3 February 1998 is not a basis for averring error, but, in any event, it is not accepted that there was any such flaw.

It has to be noted that the letter from the Joint Receivers dated 3 February 1998 does not refer to Philip C. Smith, whose expression of interest (No. 5/1/5 of process) is not one for FFF as a going concern, but only for certain assets. The letter of 3 February 1998 states, "As there was no interest in acquiring the business as a going concern the decision was taken to cease trading and wind down operations." That is not showing a lack of candour. The letter may not give the full picture, but the letter does not suggest that and so there is no basis for the pursuer averring that the defenders represented that the full picture had been revealed in that letter. The "reasonable diligence" test applies to s.6(4) as it does to s. 11(3).

In relation to "causal connection," reference was made to the speech of Lord Millett in BP Exploration Operating Company Limited v Chevron Transport (Scotland) supra at para. 102 in terms of which the pursuer has to identify when he ceased to be in error, but there is nothing in the letter of 18 October 2006 which states that. In any event, an error does not stop a pursuer raising an action.

I was invited to make an award of expenses in favour of the successful party and to certify the debate as suitable for the employment of junior counsel.

The pursuer's response.

The pursuer was entitled to assume from the letter of 3 February 1998 that the best price had been obtained for the business. For the purposes of ss.6(4) and 11(3), his state of knowledge is important. It was not until the receipt of the letter dated 18 October 2006 that the pursuer knew the true position and accordingly, prescription did not begin to run against him until that date.

DECISION.

I have decided to uphold the submissions made on behalf of the defenders. Accordingly, I have sustained their 1^st plea-in-law and granted decree of absolvitor.

I accept at the outset the proposition propounded by the defenders that the 1973 Act is itself an attempt to balance the unfairness arising from "stale" claims on the one hand and prematurely cutting off good ones. In ss. 6 and 11, there is no equivalent of s. 19A.

In Glapser, the court drew a distinction between a pursuer who is not aware of any loss, and the pursuer who is so aware. "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." (1996 SLT at 47H, per Lord President Hope) Given the terms of the Joint Minute, the pursuer was aware in late 1997 or early 1998, that he had suffered a loss and so, the issue then becomes whether the pursuer was in error induced by the defenders, (s.6(4) or was in ignorance (s.11(3). In either case, that raises the question what steps could he reasonably have taken to ascertain the error, or the cause of the loss. There is no specific averment about error, but it could be said that the pursuer was in error, if as he avers, the letter of 3^rd February 1998 failed to disclose "fully" the manner in which FFF had been disposed of. (That said, he does not aver when he ceased to be in error.) That averment does support "ignorance" which would bring the pursuer within s. 11(3). The averments in the present case are not dissimilar to those in Beveridge and Kellas, but in that case, the court held that they were insufficient to bring the defender in that case within s. 11(3), because she was aware on indebtedness to her bank and ought therefore to have explored the reasons for that. The same result was reached in Britannia Building Society v Clarke, but that case could be said to differ from the present in that the pursuers were a lending institution. On the other hand, the pursuer in the present case was a director of FFF and should in that capacity have been aware of the business, the value of its assets and potential purchasers.

Against the background of the inability of the pursuer to defeat a plea of time-bar, unless he can demonstrate that he could not with reasonable diligence have found out about any error or could not with reasonable diligence have identified the cause of the loss, I now turn to the terms of the Joint Minute of Admissions. In my opinion, paragraph 4 of the Joint Minute of Admissions is of particular significance. It has 3 elements, all relating to a letter dated 21 January 1998 from the pursuer's solicitors to the then Joint Receivers of FFF. These elements are (i) that at that date, the pursuer was aware that the business and assets of FFF had been disposed of by the Joint Receivers; (ii) that he thought that the assets of FFF had the potential to settle FFF's liabilities in full; and (iii) that the Bank had called in the pursuer's guarantee. The pursuer avers that the reply to that letter which is dated 3 February 1998 "failed to disclose the manner in which the receivers had disposed of the company," and that these details did not become available until "the Defenders provided copies of their internal files under the Specification of Documents served on them in late 2009."

By the time the Specification of Documents was granted, the current action had already been raised and so that averment is a strange one. In the Initial Writ (which was served on 15 December 2008), the pursuer avers that although the Joint Receivers sold the premises and other assets of FFF for £450,000, "[T]he real market value...was greater than this figure....Had the assets of [FFF] been sold at market value the Pursuer would not have been required to meet the said Personal Guarantee. As a result the Pursuer has suffered loss injury and damage." (Art. 2 p. 6 of the Amended Closed Record.) That averment makes it clear that the pursuer was aware that he had suffered a loss and in paragraph 4 of the Joint Minute, it is agreed that the pursuer was aware of that loss in January 1998. Because the Initial Writ was not served until 15 December 2008, prima facie, the pursuer's action is time-barred. That being so, the pursuer would have to bring himself within the terms of either s. 11(3) or s. 6(4)(a)(ii) of the 1973 Act.

In Article 5 of Condescendence, the pursuer, in answer to one of the defenders' averments, says, "admitted that correspondence took place between the defenders and Messrs. Donald & Budge under explanation that the defenders then and now refuse or were unable to answer fully the questions posed of them anent their actions in relation to the receivership of the company....(p.17) The Pursuers through their Agents sought to obtain all relevant information from the Defenders' predecessors during correspondence in late 1997 and early 1998. The only information supplied by the Defenders predecessors was by way of a letter to the Pursuer's then Agents Donald and Budge dated 3^rd February 1998. The said letter failed to fully disclose the manner in which the receivers had disposed of the company as more fully averred hereinafter.... (p. 17) Neither the Defenders nor their predecessors have been willing to provide any further information anent the disposal of the company since this date....(p. 18) The Pursuer only became aware that he had suffered loss as a result of the acts of the Defender's predecessors when they provided them with their files relating to the disposal of the company in late 2009." (pp. 18-19).

The terms of the letter of 3^rd February are agreed. The Joint Receivers provided a copy of the report to creditors and a summary of the statement of affairs sworn to by the pursuer with an observation that he had overstated the valuation of the assets "compared to independent valuations." (2^nd paragraph) The Joint Receivers then state that for a "number of reasons," the prospects of selling FFF as a going concern were "poor." It was clear, they said, that a quick sale was "necessary." "As there was no interest in acquiring the business as a going concern the decision was taken to cease trading and wind down operations." (3^rd paragraph). They then explain that the assets were sold on a "break up basis," five weeks after their appointment and they comment, "It is worth noting that even if a sale of the business had been achieved, it is arguable whether the going concern value of the assets would have exceeded the break up value given the risk involved for a purchaser and the general state of the business, not least of all the level of employee entitlements which would transfer to a going concern purchaser under TUPER ." [Transfer of Undertakings (Protection of Employment) Regulations]. (4^th paragraph) In the next paragraph, the letter states that the price negotiated "exceeded the independent valuation of the property and plant." There is then a comment on the pursuer's valuation. "The final outcome is subject to establishing the level of debtors realisations and agreeing preferential claims which you will note are particularly high. I am not prepared to disclose specific figures however I can confirm that there will be a very significant shortfall to the bank of circa £500,000. (1^st paragraph, p. 2).

That letter was replied to on 5^th March 1998 in which the pursuer's solicitors write. "We are giving this [i.e. the letter of 3^rd February] our consideration and shall revert shortly." The remainder of the letter deals with redundancy payments. No further letter is lodged in process, except one dated 18 October 2006 addressed to Tenon, the successors to the Joint Receivers, referring inter alia to proceedings raised against the pursuer and his wife by the Department of Trade and Industry in relation to their role as Directors. "[A] substantial amount of information was lodged and averments made in relation to the Receivership of the Company which we believe was carried out by your good selves. Having had an opportunity now of looking at the figure that were provided by you, he [the pursuer] is astonished to note just how little was realised for the business and all its assets and how high the figure appears to be for the alleged creditors of the business." The solicitors question whether a receiver using reasonable diligence would have realised so little for the business. The letter then poses 24 questions by way of a Note.

I deal with each of the letters in turn. The letter of 3^rd February gave the pursuer a copy of the report to the creditors and a fairly detailed account of why the business was sold other than as a going concern and why the pursuer's valuations were disputed. The letter cannot be said, as the pursuer avers, to fail to "fully disclose" how the business was disposed of. I am unable to accept that the letter fairly read can be said to have induced any error on the part of the pursuer. In so far as he was of the view that further and better particulars were required, it was open to him to ask for them. The only matters which the Joint Receiver refused to disclose were the levels of debtors' realisations and preferential claims. If the pursuer was of the opinion that he was entitled to that information at that stage, he could have asked for it. That letter enclosed the Joint Receivers Report and appendices, (No. 6/2/6 of Process) a document which was in the public domain, as was the Receivers' Abstract of receipts and payments dated 7 October 1998. The letter of 5 March 1998 indicates that the pursuer intends to "revert shortly" but does nothing, apparently until 18 October 2006--the letter asking 24 questions. It seems to me that many, if not all, of the questions posed therein could have been posed following on the letter of 5 March 1998. That letter mentions "a substantial amount of information" and "averments made" in connection with an action by the DTI against the pursuer and his wife. There are no averments in the current action about that case, but it was obviously raised prior to 18 October 2006, and that "substantial amount of information" about the receivership was mentioned in that action, and that that was known to the pursuer and yet no proceedings were raised in this case until 15 December 2008.

In short, in late 1997, or at the latest ealy 1998 the pursuer knew that he had sustained a loss. The letter of 3^rd February 1998 gave him pursuer sufficient information at that time to enable him to make a judgment about the quality of the work done by the Joint Receivers and, in so far as it was provisional in its terms, he could have followed it up, as he indicated he would in the letter of 5^th March, by repeating his request for an accounting and asking such further questions about the disposal of the business as he wished. He did nothing. Leaving that aside, the subsequent proceedings at the instance of the DTI, (presumably to have the pursuer barred from being a director of other companies) also provided him, by way of averment, of information which might have prompted him then to ask further questions. Again, he did not. The pursuer has therefore failed to satisfy me that he could not, prior, and indeed well prior to the raising of the current action, have with reasonable diligence dispelled any ignorance he had, or an error he laboured under about the details of the disposal of the assets of FFF.

I am prepared to certify the debate as suitable for the employment of junior counsel. I shall award expenses in favour of the defenders who have been wholly successful.