Lloyd v. Riddell & Anor [2003] ScotSC 21 (25 March 2003)

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The Sheriff Principal having resumed consideration of the cause refuses the appeal and adheres to the Sheriff's Interlocutor dated 20 May 2002; finds the pursuer and appellant liable to the defenders and respondents in the expenses occasioned by the appeal and remits the account thereof, when lodged, to the auditor of court to tax and to report thereon.

[1] This is a professional negligence claim brought by the pursuer against his former solicitors. The defenders - or to be strictly accurate their predecessors - acted for the pursuer in relation to a security transaction concerning a property known as "The Coach House" in Pollokshaws Road, Glasgow. That property was owned by the pursuer. He intended to develop it, having first obtained a loan over the security of it. He avers that he took out a secured loan with William Mann & Co Limited ("Mann") to release funds to him so that Burnbrae Building and Development Services Limited ("Burnbrae") could proceed with a separate development in Port Glasgow. Those funds were paid over by the defenders to the sellers of the Port Glasgow development in settlement of the first instalment due by Burnbrae. The pursuer goes on to narrate that it was his intention to complete development of the Coach House, sell it, and use the proceeds to redeem the Standard Security and provide additional funds to Burnbrae to make payment of the balance of the purchase price for Port Glasgow.

[2] According to the averments Mann's offer of loan contained conditions requiring the defenders to "check the title" of the Coach House and to be satisfied that "appropriate planning, building control, change of use and other permissions" were obtained for the proposed development. It is then averred that there was a discrepancy between the terms of the relevant planning permission, which required a nine metre strip between the Coach House and its boundary, and the pursuer's title which showed a distance of only 5.4 metres. The area not included in the pursuer's title - referred to as "the ransom strip" - could not be purchased, initially because the owner refused to sell it, and subsequently, when it was offered for sale at £15,000, because the pursuer did not have sufficient funds to purchase it. This prevented development of the Coach House. The pursuer avers that "he defaulted in the security" in favour of Mann and that they repossessed the Coach House "causing the pursuer the loss and damage hereinafter condescended upon".

[3] The averments of breach of duty, of which I shall say more later, are to the effect that the defenders failed to examine the titles to the security subjects and failed to satisfy themselves that the appropriate planning and other permissions had been obtained for the conversion of the Coach House. That act of default took place, it is reasonable to infer, between 9 May 1990 (being the date of Mann's offer of loan) and July 1990 (when it is averred that the local authority planning department noticed the existence of the ransom strip). It does not appear to be disputed that Mann obtained decree of possession of the subjects on 23 March 1992 and the subjects were sold by April 1993. As the foundation of the pursuer's allegation of loss as formulated appears to be that repossession it follows that the concurrence of iniuria and damnum upon which the pursuer contends an obligation to make reparation arises occurred by no later than April 1993, (and arguably by March 1992).

[4] The present action was raised on 9 April 2001. Prima facie it is time-barred by virtue of Section 6 of the Prescription and Limitation (Scotland) Act 1973. Although another matter was debated before the sheriff he upheld the defenders' first plea in law and dismissed the action on the basis that any right of action had prescribed. This interlocutor is subject of this appeal.

[5] Section 6(4) of the 1973 Act provides that, in the computation of a prescriptive period in relation to any obligation for the purposes of the section (a) during any period which by reason of (i) fraud on the part of the debtor or any person acting on his behalf or (ii) error induced by words or conduct of the debtor or any person acting on his behalf, the creditor was induced to refrain from making a relevant claim in relation to the obligation, that period shall not be reckoned as part of the prescriptive period. That provision is subject to the proviso that the period mentioned in paragraph (a) shall not include any time occurring after the creditor could with reasonable diligence have discovered the fraud or error referred to.

[6] Section 11(5) of the Act, which follows on the provision in Section 11(1) as to the date when an obligation to make reparation falls to be regarded as enforceable, has the effect of deferring that date until the date when the creditor "first became, or could with reasonable diligence have become" aware that loss, injury or damage had occurred. It is accepted that to avoid the consequences of prescription the pursuer requires to found on one or other or both of these provisions to the extent of excluding a period of about three years from computation of the prescriptive period, or by deferring the commencement of that period until at least April 1996.

[7] Before turning to whether the pursuer can, as a matter of law, avail himself of either provision it is necessary to set out the factual background which in most of its essentials is not in dispute. The defenders did not act for the pursuer in relation to the purchase of the Coach House. Other solicitors did so. It appears that when the difficulty relating to the ransom strip came to light the defenders sought advice from a separate firm of solicitors. The nature and terms of the instruction seeking that advice are matters of contention. The defenders contend that the opinion which they sought was "for their benefit and their benefit alone". The pursuer by contrast avers that the defenders had obtained this whilst acting for him and were under an obligation to disclose the full terms of it to him. It appears that a preliminary view was obtained from those separate solicitors by letter dated 30 October 1990. The letter contains suggestions of fault on the part of the original solicitors who were involved in the conveyancing transaction. There is, however, a separate paragraph in the following terms:

[8] The pursuer was not shown that letter. What he was sent, under cover of a letter dated 26 November 1990, was a letter from the advising solicitors bearing the date 16 November 1990 which was in identical terms to the letter of 30 October 1990 subject to the excision of the paragraph above quoted. According to the pursuer's averments he became aware of the full terms of the letter of 30 October 1990 in "the summer of 1997". He avers that the defenders wrote to him on 18 April 1991 explaining that they could not continue to act for him due to a conflict of interest. He consulted new solicitors in October 1991. He maintains that this firm was instructed in restricted matters not concerning the Coach House. He avers that he recovered the defenders' file in October 1996 and did not instruct his new solicitors to intimate any claim against the present defenders until he had read the file recovered by the summer of 1997. It should be added that he makes a number of averments relating to his relationship with the defenders' senior partner. He avers that they were close personal friends, that their families went on holiday together, and he was assured by the said Senior Partner on or about 9 April 1991 "that he had no reasons to have concerns about the actings of the defenders".

[9] Against that factual background the pursuer commences his averments in answer to the defenders' contention that the claim is time-barred with a statement that:

He subsequently avers that he was "in error due to the words and conduct et separatim fraudulent actings of the defenders' predecessors" and refers to Section 6 of the 1973 Act. There follows a somewhat haphazard narration of facts punctuated by assertions, the general thrust of which is that the defenders "concealed" the letter of 30 October 1990 from them, and that he could not have discovered "this" until he recovered his files in October 1996 and read them in the summer of 1997. All that is said in relation to the use of reasonable diligence is that "he acted with due diligence in so recovering his file then in the circumstances condescended on". He concludes his pleadings on this issue with the following passages:

[10] I pause to observe that there is in these averments no specific reference to Section 11(3) of the 1973 Act, nor are there any averments which specifically identify the date falling within the quinquennium when the pursuer "first became or could with reasonable diligence have become aware" that loss, injury and damage was caused by the defenders' default. Not withstanding that absence, the case was presented both to me and to the sheriff on the footing that the pursuer was founding on both Section 6(4) and Section 11(3). I shall accordingly proceed on that basis, but I do so in relation to Section 11(3) with considerable hesitation. In my judgment this is not a situation in which the pursuer is entitled to found on the terms of that provision. In Ghani v Peter T McCann & Co, 2002 SLT (Sh Ct) 135 I expressed the view (at para 12) that Section 11(3) was designed to deal with cases where the creditor did not become aware of the existence of a problem until sometime after the damage had been caused. This is not such as case; the pursuer was aware of his loss since at least April 1993. At best, what the pursuer did not become aware of was the possibility that the loss was caused by the defenders' negligence until the summer of 1997. I doubt whether that would constitute awareness of "the fact that his loss was caused by negligence" as mentioned by Lord Clyde in Greater Glasgow Health Board v Baxter, Clark & Paul, 1992 SLT 35 at (40D), but if anything the present case confirms my respectful reservations as to the validity of that concept.

[11] The sheriff's decision in relation to prescription was based upon the view that the pursuer's averments were insufficient to support a case of fraud or "induced error" on the part of the defenders. He considered that the pursuer had in particular failed to aver why the defenders were under any obligation to exhibit the "opinion" dated 30 October 1992 to him. If they were not under an obligation to provide it there was nothing in the nature of a "pretence". In relation to the use of "reasonable diligence" the sheriff said:

[12] The approach taken by the sheriff may to some extent reflect the form in which submissions were presented to him. For my own part I have little doubt that the pursuer has sufficient averments to support a case that he was led to believe by the defenders' predecessors that there was no cause to blame them for the problems which arose in relation to the Coach House security. I do not regard it as essential for the pursuer to aver that he had a contractual right to have the opinion of 30 October 1990 exhibited to him. It appears to me that it is a reasonable inference from the terms of the letters of 30 October and 16 November that the defenders, having obtained the first letter which raised an issue as to their position, deemed it inadvisable to exhibit this to the pursuer. Even if the defenders were not under a specific duty to show the first opinion to the pursuer (and I consider that he has sufficient averments to suggest that they were) I would have thought that they owed a professional duty to the pursuer to advise him that their own actings were open to question and that he ought to seek separate advice. Not only did they fail to do that but, according to the pursuer's averments specifically told him at a meeting in April 1991 "that he had no reasons to have concerns" about their actings. In that respect I do not consider that the pursuer's averments that he had a particularly close relationship with the defenders' senior partner and would thus have a more than average reason to rely upon his advice to be irrelevant. What all this comes to, in my judgment is that the pursuer has sufficient averments to support the proposition that he was induced by the defenders into believing that his loss had not been caused by them. On the hypothesis that they were responsible for his loss (which is of course an entirely separate matter) he was thereby placed in a state of error as to what the true situation was. If the averments in support of a case of error are relevant it is not necessary for the pursuer to attempt the more demanding task of averring fraud.

[13] The difficulty which faces the pursuer is that the defenders ceased to act for him in April 1991 and it is a matter of admission that he had the benefit of separate legal advice from October of that year. There is no explanation as to why he took no steps to recover the defenders' files until October 1996 or indeed to read them until the summer of 1997. The question is whether it can be said that he could with reasonable diligence have discovered his error in that period; if he could, he cannot avail himself of the period starting with the date when he could have made that discovery for the purpose of delaying the effect of prescription. That applies whether he seeks to found on either Section 6(4) or Section 11(3).

[14] What constitutes the use of the reasonable diligence is a matter of legal nicety. The pursuer's sole averment is that he acted with due diligence in recovering his file in October 1996. His written submissions approach the matter solely on the footing that he acted with due diligence by obtaining an opinion in 1990 and seeking assurances from the defenders in spring of 1991. No attempt is made to address the issue, either in factual terms or as a matter of law as to the justification for inactivity between October 1991 and July 1997 other than by averment that his new agents were instructed in restricted matters.

[15] As the sheriff observed in certain circumstances the requirement to exercise reasonable diligence may not in fact call for any activity. That was the position in Peco Arts Inc v Hazlitt Gallery Ltd, 1983 1 WLR 1315 in which the plaintiff was in possession of a drawing, believed to be an original work, for a period of 11 years before discovering that it was in fact a reproduction. That was, in other words a case in which the plaintiff was unaware that there was any loss. The difference between cases where the pursuer is unaware of loss and those where there is such awareness was highlighted by the remarks of Lord President Hope in Glasper v Rodger, 1996 SLT 44. His Lordship said (at p 47):

The present case falls clearly in the first category. The pursuer was aware that he had sustained loss, injury and damage. The question for the purposes of Section 11(3) is whether he took the steps which a reasonable person would take to find out what caused that loss. That in turn would have led to the discovery, for the purposes of Section 6(4) of his error that the defenders were faultless.

[16] Given that the pursuer must have been well aware of his predicament arising from the Coach House security arrangement it is on any objective view extremely surprising that no steps were taken to instruct his new agents to examine this situation once they were consulted in October 1991. As I indicated in Ghani v Peter T McCann (supra) Section 6(4) applies a more subjective test than Section 11(3) and it may be that, with a view to invoking that greater element of subjectivity the pursuer's pleadings were deliberately focused on Section 6(4). What he appears to be saying is that, with his special relationship of friendship with the defenders' senior partner and in the light of the assurances which he was given there was simply no reason for him to question their actions even when he moved other agents. Whilst I have some sympathy with that position I find myself unable to hold that the reasonable man in the pursuer's position would have done nothing over the ensuing six years. He was well aware of a significant loss and it would have been a simple matter to have raised with his new solicitors the question of the propriety of the defenders' acting. No explanation is offered as to what prompted recovery of the defenders' files in October 1996 and why this step could not have been taken several years earlier. In my judgment the pursuer's averments fail to address adequately the question of whether he exercised reasonable diligence for the purposes of either section.

[17] Even if I am wrong in this view the matter does not rest there because the sheriff went on to hold that the case was irrelevant in respect of the averments of both causation and loss. I have no doubt that, as the pleadings stand, this view was well founded. As I have indicated (paragraph 3 supra) the pursuer avers in condescendence 4 that it was the defenders' duty to comply with the terms of specific instructions issued by Mann "which instructions included examining the titles to the security subjects, and being satisfied that the appropriate planning, building control change of use and other necessary permissions had been obtained in respect of the conversion of the Coach House". He goes on to aver that they owed him commensurate duties irrespective of said specific instructions. The averments proceed "the defenders failed to undertake such steps. No solicitor of ordinary competence exhibiting reasonable care would have failed to take such duties". These latter averments, insofar as they have any meaning at all, completely fail to specify what it is that the defenders ought to have done. The failure to specify the action which they should have taken in my view has led to a narration of a history of losses which do not in themselves flow directly from the defenders' breach of duty.

[18] It may reasonable to infer, having regard to the fact that on the pursuer's own averments it was impossible for him to comply with the terms of the planning permission due to the defect in his title, that the proper course was to advise him not to proceed with the standard security and the obtaining of the loan from Mann. On the assumption that this is correct, the pursuer would be faced with the somewhat intricate task of setting out the loss occasioned to him as a result of the granting of the security and obtaining of the loan when the method of repaying it was to prove impossible. That formulation would require to take into account not only principles of remoteness and foreseeability but the duty of the pursuer to minimise his loss. It is fair to say that the opening part of the pursuer's averments of loss makes some attempt to address this issue. He says:

Unfortunately the averments thereafter proceed to make detailed averments about potential profit and the consequences to Burnbrae.

[19] In his written submissions the pursuer appears to accept the difficulty relating to the loss sustained by Burnbrae because he asks "that the alternative scenario is investigated". He refers to the averments above quoted and submits that "the causation and loss issues can only surely be resolved at proof". Up to a point I agree with that proposition, but before proceeding to a proof it would be necessary to remove the averments which are not relevant and to reformulate the claim on the basis of the loss directly sustained by the pursuer in accordance with the principles I have above indicated. As the pleadings presently stand the court, and the defenders, would be placed in an impossible situation in attempting to determine what was being claimed. It is not for me to advise on how this should be done. Whilst I have no doubt that the pursuer can with justification say that he sustained loss the precise formulation of that is a matter of considerable complexity. It is worth adding that at the outset of the appeal I made it clear to the pursuer that in my view this was a case of considerable legal complexity which ought not be presented without proper representation. He was quite adamant that he wished to proceed.

[20] Having given the above indication in respect of causation and loss it is appropriate to stress that it is strictly speaking unnecessary for the court to deal with that matter in view of the fact that the plea of prescription falls to be sustained. In the result I am bound to adhere to the sheriff's interlocutor and to find the pursuer and appellant liable in expenses.

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You are here: BAILII >> Databases >> Scottish Sheriff Court Decisions >> Lloyd v. Riddell & Anor [2003] ScotSC 21 (25 March 2003) URL: http://www.bailii.org/scot/cases/ScotSC/2003/21.html Cite as: [2003] ScotSC 21

Scottish Sheriff Court Decisions