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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Adams v. Thorntons WS & Ors [2004] ScotCS 216 (17 September 2004) URL: http://www.bailii.org/scot/cases/ScotCS/2004/216.html Cite as: [2004] ScotCS 216, 2005 GWD 13-234, 2005 SLT 594, 2005 1 SC 30, 2004 SCLR 1016 |
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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord Marnoch Lord Penrose Temporary Judge Sir David Edward
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A1519/03 OPINION OF LORD MARNOCH in RECLAIMING MOTION in the cause JOHN DON ADAMS Pursuer and Reclaimer; against THORNTONS W.S. & OTHERS Defenders and Respondents: _______ |
Act: Logan; Campbell Smith, W.S.
Alt: Johnston; Balfour & Manson
17 September 2004
[1] I have had the advantage of reading in advance the Opinion about to be delivered by Lord Penrose. I agree with it in all its essentials and for the reasons he gives my motion to your Lordships is that this reclaiming motion be refused. So far as the so-called second and third "claims" in this litigation are concerned, Mr. Logan accepted that, even if these were viewed independently, prescription would operate but for the operation of section 6(4) of the Prescription and Limitation (Scotland) Act 1973. However, whatever may be the correct interpretation of section 6(4), I agree with Lord Penrose that, on the facts found by the Lord Ordinary, that subsection cannot be given effect as regards the first "claim" and I consider the same reasoning applies to the second and third "claims". [2] On the wider legal issues raised in the course of the debate before us I confess to rather less certainty than that felt by Lord Penrose. In particular, I wish to reserve my opinion on whether and, if so, how section 6(4) of the 1973 Act is intended to operate in a situation where, for purposes of the operation of section 6(1), the creditor in the obligation in question has only imputed, rather than actual, knowledge of the commencement of the triennium. The reference in section 6(4)(a) to the creditor being "induced to refrain from making a relevant claim" (emphasis added) suggests to me that that part of the sub-section may only become operative if and when the creditor has actual knowledge that a "relevant claim" exists. In any event, in the particular context of fraud and induced error it is not clear to me that the creditor can rely on anything other than what he understands to be the actual knowledge of a partner of a firm as opposed to the theoretical "knowledge" of the firm as a whole. [3] Lastly, although it has high authority to support it in the form of obiter dicta - Greater Glasgow Health Board v. Baxter Clark and Paul 1992 S.L.T. 35 at p. 40 per Lord Clyde; Glasper v. Rodger 1996 S.L.T. 44 at p. 47 - I wish, with all due respect, to reserve my own opinion on the validity of the proposition that, for purposes of section 11(3) of the 1973 Act, it is sufficient that the creditor knows he has sustained a loss caused by negligence albeit he is unaware of the identity of the person whose negligence is in issue. Adams v. Thorntons WS & Ors [2004] ScotCS 216 (17 September 2004)|
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord Marnoch Lord Penrose Temporary Judge Sir David Edward
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A1519/03 OPINION OF LORD PENROSE in RECLAIMING MOTION in the cause JOHN DON ADAMS Pursuer and Reclaimer; against THORNTONS W.S. & OTHERS Defenders and Respondents: _______ |
Act: Logan; Campbell Smith, W.S.
Alt:
Johnston; Balfour & Manson17 September 2004
[4] The pursuer and reclaimer, Mr Adams, raised this action against the defenders and respondents, Thorntons, on 26 October 2001, as a commercial action. Mr Adams claimed damages in respect of loss which he alleged he suffered as a result of Thorntons' failure to exercise the skill and care expected of a reasonably competent solicitor in providing him with professional services in connection with a development project related to land and buildings at Reres Road, Broughty Ferry, Dundee. Thorntons deny liability generally, and the extent to which they might be liable to Mr Adams, if at all, has not been the subject of debate or inquiry. So far as matters have progressed thus far, Thorntons have contended that any obligation they might have had to make reparation to Mr Adams has been extinguished in terms of section 6 of the Prescription and Limitation (Scotland) Act 1973, there being no averments of facts and circumstances relevant to exclude the operation of prescription. Thorntons' second plea in law focused the proposition that such averments as were made were irrelevant for that purpose. [5] After preliminary procedure the Lord Ordinary, of consent, allowed parties a debate on Thorntons' second plea in law. Thorntons contended that, on the undisputed facts describing the sequence of events set out in the parties' pleadings, Mr Adams did not have an answer to the plea of prescription if the second plea in law were sustained. On 26 April 2002 the Lord Ordinary issued an opinion in which he set out at length the issues that had been debated, and concluded that the second plea in law could not be disposed of without proof. In his opinion, the Lord Ordinary made some preliminary observations on the scope of proof, but allowed parties an opportunity to address him further on that matter. After discussion, the Lord Ordinary, on 1 May 2002, allowed the parties a preliminary proof before answer of their respective averments as adjusted to that date, restricted to the issue of prescription. That decision was taken against the background of opposition by Thorntons' counsel, whose opposed motion for leave to reclaim was refused. Thereafter there was further procedure involving, among other matters, the amendment of pleadings. But the proof proceeded, and on 29 November 2002 the Lord Ordinary sustained Thorntons' first plea in law and assoilzied them from the conclusions of the summons. In this reclaiming motion Mr Adams invites the court to recall that interlocutor and to allow proof on the merits of the action. The reclaiming motion proceeded on the basis that the Lord Ordinary's findings in fact were accepted by the parties. The oral evidence heard by the Lord Ordinary was not extended, and a small selection only of the documentary evidence presented was made available to the court. [6] The subjects in question were known as Airlie Lodge. The property comprised a substantial villa and extensive garden ground. At the date Mr Adams and his associate, Mr Ian Sigurd Henderson Barclay, became interested in the subjects the villa and garden ground had already been divided into three parts, two of which were in the ownership of Mr and Mrs David Brand, and the third of which was in the ownership of Mrs Lydia Robb. The development project envisaged the sub-division of the villa into flats and the construction of new houses on part of the garden ground. The redevelopment of the villa was intended to produce a number of new flats which would not correspond to the existing distribution of space within the building. If there were to be an effective redevelopment in the form envisaged, the whole subjects had to be acquired. It is averred that Mr Adams and Mr Barclay entered into a joint venture to acquire the whole subjects and carry out the development project. The averments relating to the instructions given to and accepted by Thorntons are of the most general nature. It is said, and the defenders admit with some qualifications, that Mr Adams consulted the firm about the purchase, and advised the solicitors that he intended to purchase the property for development in association with Mr Barclay. The acquisitions were to be carried out by Ballinard (Property and Investments) Ltd, a company owned by Mr Adams. It is averred that his interests were dealt with by Mr A Ritchie Robertson, a partner of Thorntons. But the details of the instructions were, and remain, controversial. In his opinion following the debate, the Lord Ordinary noted in his summary of Mr Adams' pleadings that there were various versions of the project in contemplation. He noted that Mr Adams averred that he instructed the defenders, who had acted as his solicitors on various previous occasions, to act for him in relation to the 'main' parts of the project. These matters are not further resolved in his opinion following the limited proof. [7] For the purposes of his opinion following the debate, the Lord Ordinary had adopted a description of the initial transactions that were in fact entered into. Ballinard's role was described as follows:
"By three separate sets of missives ('the first level missives') dated 19 and 24 October 1990 offers to purchase the three parts of Airlie Lodge were made by Ballinard (Property and Investments) Ltd ('Ballinard') a company owned by the pursuer (Mr Adams). Those offers were accepted by Mrs Robb and Mr and Mrs Brand for their respective parts of the house. The prices were to be (i) £112,000 for the south-east part; (ii) £183,000 for the north-east part; and (iii) £90,000 for the west part, making a total of £385,000. Entry was to be given on 14 December 1990. The sales were to be implemented by dispositions in favour of Ballinard or its nominees."
The terminology was carried forward to the proof. The Lord Ordinary finds that the first level missives were entered into. Mrs Robb was the seller of one part, and Mr and Mrs Brand were the sellers of the other two parts of the subjects. The Lord Ordinary finds that each set of missives provided that in exchange for the purchase price there would be delivered a valid disposition in favour of Ballinard or its nominees.
[8] Some other aspects of Thorntons' instructions may be inferred with reasonable confidence from two further transactions, described as the second and third level missives, which were entered into at the early stages of the scheme. The second level missives were dated 7 and 14 December 1990. They related to the sub-sale by Ballinard to Aberdeen Property Leasing Company Ltd (later Apple Limited) of part of Airlie Lodge for £222,000. The date of entry was again 14 December 1990. Apple was owned by Mr Barclay. These missives, as presented to the Lord Ordinary, did not include the plan by reference to which the subjects of the sub-sale were to be described. He records that the broad intention seemed to have been that the villa should be sold to Apple, and that Ballinard (or Mr Adams and Mr Barclay as the nominees of Ballinard) should retain the bulk of the attached ground. It is convenient to discuss the issues raised in this reclaiming motion in the same terms as those adopted by the Lord Ordinary. But it is necessary to note that the details of the instructions have not been resolved. If the case were to proceed further there would be significant issues to explore and resolve relating both to the initial instructions given to and accepted by Thorntons and the instructions sought and given as matters developed. [9] The sub-sale to Apple may have been intended to secure long-term objectives of the interested parties, but at least in the initial stages appears to have been an aspect of the funding arrangements for the project. It was intended that Ballinard would borrow £248,000 from the Clydesdale Bank. The third level missives related to the onward sale by Apple of two of the flats expected to be created within the villa to Mr Adams and Mr Barclay respectively. The initial scheme must, in the circumstances, have had at least certain minimum characteristics that led Thorntons to carry out the transactions referred to. Mr Adams and Mr Barclay entered into some form of joint venture, or, in view of Thorntons' denial that that was the relationship, a form of association, to acquire, through the vehicle of Mr Adams' company Ballinard, the whole subjects for redevelopment, funded in part by a Clydesdale Bank loan of £248,000, and in part by a sub-sale to Mr Barclay's company, Apple, of part of the subjects for a price of £222,000. The basic budget for the scheme was said to be £470,000, of which £385,000 was required for the acquisition of the subjects, leaving a balance of £85,000 available as a contribution towards the cost of the redevelopment. Onward sales were envisaged that would have secured for each of Mr Adams and Mr Barclay a flat in the completed development, and would have returned £160,000 to Apple. [10] At least in terms of its structure, the scheme thus far appears unremarkable save in one respect: the second level missives appear to have lacked a description sufficient to enable the Lord Ordinary to identify with any degree of precision the subjects to be sold on to Apple, a matter which might in ordinary course have been thought to be of some importance. However, matters did not follow an ordinary course. Thorntons, by the date agreed for settlement of the first level missives, were acting as solicitors for Mr Adams as an individual and for Mr Adams and Mr Barclay as partners in the joint venture, or other association formed by them, for Mr and Mrs Brand as sellers under the first level missives (Mr Brand being a partner of Thorntons), for Mrs Robb (who had initially been separately represented), for Ballinard and Apple for their interests in the scheme, and for the Clydesdale Bank as intended lenders of the initial finance. There was, on any view, a lack of independent scrutiny of the contractual arrangements such as one might reasonably have expected had the separate and conflicting interests of the parties been recognised at this initial stage and appropriate representation arranged. [11] By settlement day, 14 December 1990, matters had already deviated from the plan. It is agreed between the parties that on or around 5 November 1990 Mr McKenzie, an accountant acting for Mr Adams and others, told Mr Ritchie Robertson that Ballinard could not be used for the purchase. The reason given is a matter of controversy. Further Clydesdale Bank would not lend the necessary finance to Ballinard. The Lord Ordinary finds:"(T)he loan was ultimately made to the pursuer (Mr Adams) and Mr Barclay jointly and severally as individuals. There appears to have been no formal record of any understanding of what the consequences of the change of identity of the borrowers was to be. It appears to have been understood that the pursuer and Mr Barclay were to use the funds which they had borrowed from the Bank to meet pro tanto Ballinard's obligations under the first level missives and were to become the disponees under those missives as nominees of Ballinard. The loan was to be secured over Airlie Lodge or part of it."
The lack of precision of definition of the security subjects is remarkable. In other respects, experienced businessmen such as Mr Adams and Mr Barclay can reasonably have been expected to understand that they were accepting personal liability for the loan on terms that provided the Bank with security over subjects that they would be entitled to burden with a standard security. That, on the face of it, would have been impossible without a valid description of the relevant subjects. Thorntons, as practising solicitors, must have known and understood the practical and legal implications of the change in the form of the first level transaction, and in particular that personal liability was being accepted by two of their clients, Mr Adams and Mr Barclay, for a loan otherwise secured over heritable property.
[12] On 14 December 1990, the whole sum of £248,000 was drawn down by Thorntons from the Clydesdale Bank, and must have been held by them, as solicitors, initially for Mr Adams and Mr Barclay. Apple did not have funds available to settle the second level missives, and the second level transaction did not settle on 14 December as anticipated. The Lord Ordinary finds that Mr Adams and Mr Barclay were thus in a position to pay only part of the prices due by Ballinard under the first level missives. As a practical matter that may be a sufficient description of the position. However, it is to be noted that Mr Adams and Mr Barclay as individuals appear to have been in a position to implement in full the only relevant obligation they are said to have undertaken in light of the unacceptability of Ballinard as borrower, namely the obligation to meet pro tanto Ballinard's obligations under the first level missives. Ballinard remained the sole contracting party on the face of the missives. The company was unable to implement in full its obligations because of the default of Apple. Mr Adams and Mr Barclay, as individuals and as joint adventurers, were not, so far as the Lord Ordinary's findings show, under personal obligation to pay the balance. At that stage, as noted above, Thorntons were solicitors for all participating parties. The parties to the instant case are in dispute whether all or any of the acts or omissions of Thorntons were negligent or otherwise indicative of breach of a duty owed to Mr Adams. It would be inappropriate to express any view on the allegations of breach of duty made by Mr Adams. But what happened, and what Mr Adams could have been expected to understand of what had happened, form parts of the critical background to the plea of prescription. [13] Mr Ritchie Robertson of Thorntons paid over the whole £248,000 to Mr Brand for the benefit of himself, Mrs Brand and Mrs Robb. In acting for others in addition to representing his own interests in collecting this sum, Mr Brand must have received the money as solicitor, and as a member of Thorntons, from Mr Robertson as agent disburser of the funds of Mr Adams and Mr Barclay. Mr Adams and Mr Barclay, whether as nominees of Ballinard or as individuals, did not obtain in return a valid disposition of any part of Airlie Lodge or its garden ground. A purported disposition of part of the garden ground for a price of £195,000 was executed and purportedly delivered, but it was a meaningless document because it depended for its validity on a description by reference to an intended disposition in favour of Apple which was never delivered and could not be recorded. As a matter of arithmetic, £53,000 of the money borrowed by Mr Adams and Mr Barclay personally was paid over to the sellers as part payment of the balance due by Ballinard under the first level missives without delivery of any document bearing to be a disposition of part of the subjects. It appears that that could only have happened with any pretence of regularity if it was in pursuance of a scheme under which Ballinard remained the purchaser under the first level missives, notwithstanding Mr McKenzie's advice, entitled to a disposition on full settlement of the whole subjects in its own favour or in favour of its nominees, or if the payment was made in terms of some undefined contract substituted by novation for the first level missives. Mr Adams and Mr Barclay executed a standard security, prepared by Thorntons, in favour of the Bank on 14 December. It was ineffective to confer a valid security on the Bank. It follows that Mr Adams and Mr Barclay were immediately in breach of their contractual obligations to the Bank, and exposed to personal liability for the sums drawn down without such benefit as might have been derived from the availability of the intended security subjects, whatever these might have been. [14] The state of confusion that reigned at this stage in the arrangements for conveying the subjects, effecting the required securities over them, and generally the execution of the deeds required to implement the arrangements has been set out in considerable detail by the Lord Ordinary in paragraphs [21] to [24] and [26] of his opinion. It will be necessary to return to some of these issues in more detail later. But there are two aspects of the Lord Ordinary's approach that are, in my opinion, questionable and cause difficulty in this reclaiming motion. At the proof it appears that there was detailed discussion of the extent of the security to be provided to the Bank. The Lord Ordinary rejected Mr Adams' evidence that security was to be provided over the whole subjects at Airlie Lodge on the basis that that was inconsistent with the terms of the second and third level missives, the Bank's instructions to Thorntons, and the intention of Mr Adams and Mr Barclay to borrow on the strength of a title derived from Apple to acquire the flats in the re-developed building, taken along with the inherent improbability of Mr Adams' position and a lack of information about the Bank's position. There is a further comment on the lack of evidence in paragraph [25]. It has to be borne in mind generally that this was a restricted proof, the scope of which was determined by the Lord Ordinary. It is questionable whether it is a legitimate ground for criticism of the pursuer's evidence that it was not comprehensive on matters that would bear on the validity of his substantive claims against the defenders when those matters had not been remitted to probation. More significantly, it appears to be less than appropriate to judge the acceptability of the pursuer's understanding of what was intended by reference to fundamental improbability in the circumstances of this case. The identification of what was probable has taken colour from the proven events, and in particular the course the conveyancers took in preparing the initial set of documents intended to give practical effect to the purchase. It is not clear that any experienced practitioner asked to forecast in mid-December 1990 the likely sequence of events following on the conclusion of the missives, would have described what had happened to this point, and in particular the actions of Thorntons, with much success. [15] Since an inference of fundamental improbability was made, it is appropriate to consider it in the light of the primary facts found. The first level missives provided for the sale of the entire subjects to Ballinard. The second level missives provided for the sale onwards of part of the subjects to Apple. The two joint venturers were respectively the 'owners' of those companies. In my opinion, it is impossible to identify any fundamental improbability so far in the proposition that the Bank should have security over the entire subjects for the initial loan. If a standard security over the whole subjects had been granted, or over any part of them in which Apple was to have an interest, a subsequent disposition by Ballinard in favour of Apple in implement of the second level missives would have been subject to the prior security granted. But, leaving aside the possibility that the transaction as a whole was incapable of being realised at profit, which was not addressed at the limited proof, there is nothing improbable in such a result. The Bank's refusal to accept Ballinard as debtor resulted in the interposition of Mr Adams and Mr Barclay as principal debtors, but it appears to have been intended that they would hold the property as nominees of Ballinard. Again there is no improbability in the notion that the Bank should have security over the whole subjects, with the consequence that Apple would take subject to that security on implement of the sub-sale. Any improbability at this stage appears to arise exclusively from the decision that title to the part of the subjects to be taken by Apple should be taken directly by disposition from the sellers to Apple. Such an arrangement may have been more efficient in managing stamp duty costs, or there may have been other reasons for it. However, there is no finding that Mr Adams knew anything about the steps taken by Thorntons in connection with the conveyancing of the subjects. So far as the Lord Ordinary deals with the technicalities he finds that Mr Adams probably did not know about them. There remains the inference drawn from the third level missives. No doubt, if a standard security in favour of the Bank over the whole subjects remained in place at the completion of the project, Mr Adams and Mr Barclay would have had difficulty in raising a building society loan to purchase the two flats from Apple. But there is no finding that secured loans were anticipated at the outset, much less that their availability was material to the structure of the transaction as a whole. In my opinion the Lord Ordinary has misdirected himself in relation to the conveyances required to implement the missives in their terms, and in so doing has rejected Mr Adams' evidence in a material matter on an unsustainable basis. That, of itself, however, is not conclusive in Mr Adam's favour. The facts must be considered as a whole. [16] On the day of settlement, 14 December 1990, there was a meeting. Mr Adams attended as did Mr Barclay and a Mr Gray. The Lord Ordinary sets out the competing versions of what transpired in paragraphs [27] and [28] of his opinion, and refers to a number of sources of circumstantial evidence. However, he does not resolve the various issues that appear to arise. For example, in paragraph [27] it is narrated that Mr Adams' evidence was that Mr Ritchie Robertson advised him that the £222,000 due by Apple was due that day, and that "they were 'in the process'". According to Mr Adams, Mr Barclay and Mr Gray said that the funds would be available by 5.p.m. On that basis he had signed the standard security. Mr Robertson did not tell him until 17 December that the funds had not been forthcoming, and that the Bank borrowings had been paid over to Mr Brand. Mr Robertson was said, in the Lord Ordinary's words, 'perhaps unsurprisingly' to be unable to cast much light on the issue since events had happened so long ago and he had kept virtually no contemporaneous records. He had no recollection of assurances that Apple would provide the funds, or of advising Mr Adams on 17 December that the funds had not been forthcoming. He said that the pursuer was already aware of that fact. The issues that arise are not resolved one way or another. However, the state of knowledge to be imputed to Mr Adams on 14 December and over the following few days must depend on what he did understand of the basic facts about the flow of funds. [17] The Lord Ordinary in effect proceeds on a limited number of findings about the events of the period down to 17 December 1989. At paragraph [43] he accepts that Mr Adams was probably unaware (a) of the terms of the purported disposition delivered on 14 December, and of the fact that it did not confer a marketable title; (b) that the standard security failed to confer a valid security on the Bank; and (c) that there had been a failure to discharge prior securities in competition with the Bank's security rights. At paragraph [44] he sets out the state of Mr Adams' knowledge that is critical for a proper determination of the first issue that arises on prescription. The Lord Ordinary says:"The defenders found, as a matter of background, on the fact that the pursuer was experienced in property development. To an extent that is true. He had been involved in such enterprises before. He explained his own part as largely site supervision, maintaining that matters of finance were handled by Mr Barclay and Mr Gray. The later Bank file suggests, however, that he was understating his own involvement in the financial affairs of the joint venture. In my view the pursuer should be regarded as neither an expert nor as a complete tyro in property development."
That finding appears at worst for Mr Adams to be neutral. It would not support an inference that his experience would have led him to believe that his solicitors would have acted in the way he alleges Thorntons acted.
[18] The findings proceed:"More particularly, however, the pursuer was aware of the broad structure of the transactions which were to be undertaken for the purpose of the joint venture. He knew that the first level missives were to settle on 14 December. He knew that the sub-sale to Apple in terms of the second level missives were to be 'back to back' with the purchase under the first level missives. He knew that he and Mr Barclay were to have personal joint and several liability to the Bank for the loan of £248,000 which was to form well over half of the initial funding of the joint venture. He knew that £222,000 of further funding for the joint venture was to come from the price payable by Apple under the second level missives. He knew that both those sources of funding required to be available on 14 December if the first level missives were to settle on that date in the manner contemplated. He was keen that settlement should take place on 14 December, because his main concern was to get entry to Airlie Lodge so that the development could proceed. He attended a meeting on the date of entry with (Mr Ritchie Robertson), Mr Barclay and Mr Gray. The Apple funds were not to hand. On his own account he signed the standard security on the understanding that the Apple funds would be forthcoming later the same day. Three days later (by his own account) he learned from (Mr Ritchie Robertson) (a) that the Apple funds had not been forthcoming on 14 December and were still not to hand, and (b) that nevertheless the proceeds of the Bank loan had been paid over to the sellers. His position was that that was done without his instructions. Moreover he was aware that these events had taken place against the background that the defenders acted not only for him, but for the sellers, for the joint venture partner, Mr Barclay, whose company, Apple, had defaulted in its obligations under the second level missives, for Apple itself and for the Bank."
"In relation to a case where on the date referred to in subsection (1) above [i.e. the date on which loss, injury or damage occurred] ... the creditor was not aware and could not with reasonable diligence have been aware, that loss, injury or damage caused as aforesaid [i.e. by an act, neglect or default] had occurred, the said sub-section (1) shall have effect as if for the reference therein to that date there were substituted a reference to the date when the creditor first became, or could with reasonable diligence have become, so aware."
"In our opinion the lack of awareness which requires to be established for the purpose of section 11(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 35 at p 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. In that case it was clear from about the time of practical completion that the hospital at Yorkhill was suffering from various defects. It was averred that widespread and progressive cracking and detachment of the site fixed mosaic was observed and that there were defects in the windows rendering them difficult and impossible to open and close, resulting in water penetration, extensive air infiltration and timber decay. The pursuers' averments indicated an awareness by them not only of loss but of fault causing it. They averred that they believed that their loss was due to a construction fault rather than a design fault but, as Lord Clyde said at p 41K, this did not prevent the five year period from starting to run against them in relation to the defenders, who were a firm of architects. Furthermore, they had said nothing in their averments to explain why they could not with reasonable diligence have become aware that loss, injury or damage caused as aforesaid had occurred. They had said nothing to explain why this should be so or what steps they took, and on this ground also their averments were held to be irrelevant.
In the present case the pursuers' lack of awareness, according to their averments, relates not to the question of causation but to the fact that they had sustained a loss in the first place. 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. This is not whether reasonable diligence has been exercised in order to discover whether a loss which the pursuer knew about was 'caused as aforesaid' - that is, by an act, neglect or default giving rise to an obligation ... to make reparation. It is whether, in all the circumstances, the pursuer had any reason to exercise reasonable diligence in order to discover whether a loss had occurred."
"In the context in which I have to apply them, in my judgement, I conclude that reasonable diligence means not the doing of everything possible, nor necessarily the using of any means at the plaintiff's disposal, not even necessarily the doing of anything at all; but that it means the doing of that which an ordinarily prudent buyer and possessor of a valuable work of art would do having regard to all the circumstances, including the circumstances of the purchase".
I agree with the comment of the Lord Ordinary that, although that language is apt to deal with the circumstances which Webster J had to consider, it supports the more general point that reasonable diligence requires the taking of those steps that a person of ordinary prudence would have taken if placed in the circumstances in which the pursuer found himself.
[24] It appears from the authorities that prescription will not run against a creditor who does not know that he has suffered loss if he establishes that a person of ordinary prudence in his position would have had no reason to exercise reasonable diligence in order to discover whether a loss had occurred. If the creditor establishes that he did not have actual knowledge of loss and had no reason to investigate whether a loss had occurred, that creditor will not fail in resisting a plea of prescription by reason of failure to investigate whether there was negligence. If the creditor becomes aware of loss, or if the circumstances indicate that with reasonable diligence he could have ascertained that he had suffered loss, prescription will run unless he has taken reasonable steps to find out what caused that loss. In the words of Lord President Hope, failure to do that will call for explanation if the test of reasonable diligence is to be capable of being satisfied. [25] As the Lord Ordinary observed in his opinion following the debate, Mr Adams states in article 6 of his pleadings:"Admitted that the pursuer in fact incurred his loss in December 1990 when he became committed to the purchase of the ground and the associated bank borrowing but under explanation that he was not then aware of any loss. Admitted that the pursuer was aware by 1995 that the transaction had proved unprofitable but under the explanation that he was not aware that this loss had been caused by negligence."
The materiality of those admissions has to be assessed in the context of the pursuer's averments more generally.
[26] Mr Adams avers that Clydesdale Bank were to lend 65% of the purchase price of the property and development costs. As a matter of arithmetic, the £248,000 borrowed appears probably to represent approximately 65% of the aggregate price of £385,000 less a 1% facility fee. It is then averred that on 5 November 1990 Mr Ritchie Robertson was advised by the joint venture accountant, Mr McKenzie, that Ballinard could not be used for the transaction because it was a dormant company without assets, but with potential tax liabilities. It is also averred that the sub-sale to Apple for £222,000 would provide funds for part-repayment of the initial loan from the Bank, and would provide additional funds for the development. Apple would in turn grant a further security over the subjects for additional development funding. Ballinard entered into the first level missives shortly before Mr McKenzie's advice was received. But that transaction stood notwithstanding Mr McKenzie's advice, and the sub-sale by Ballinard to Apple at a price of £222,000 was concluded by missives dated 14 December 1990. Apple did not pay, and Ballinard could not settle. In January and February 1991 Apple sold two flats to Mr Adams and Mr Barclay at prices of £95,000 and £65,000 respectively, of which £141,952.70 was paid to and received by Thorntons. The whole sums received by Thorntons were paid over to Mr Brand. It is then averred that the development project was seriously under-funded, and, briefly, that the development was completed at a significant loss. It would be inappropriate to comment on the relevance of these averments, or the cogency of the financial claims made. The essence of the pursuer's case is that with the initial transactions he became locked into an unprofitable development project which provided significant benefit to Apple, which could not meet its own obligations, because of the approach adopted by Thorntons, to his detriment. [27] Mr Logan submitted that the Lord Ordinary was not entitled to conclude, as he did, that Mr Adams had failed to establish the facts required to enable him to benefit from section11 (3) up to a point sufficiently late to avoid prescription. He proceeded on the basis that loss had occurred by 17 December 1990 due to the encashment of the Clydesdale Bank cheque, without providing the Bank with adequate security, and the disbursement, without instructions, of the proceeds in favour of Mr and Mrs Brand and Mrs Ross. From that point, he argued, loss was inevitable, and damnum had occurred. All subsequent losses flowed from the events of the short period between 14 and 17 December. However, he said, on a proper analysis of the Lord Ordinary's findings, there was nothing to indicate to Mr Adams that loss injury or damage had been caused by any act, neglect or default of Thorntons. Non-payment by Apple simply indicated that payment had not been made. It did not indicate or tend to indicate that there had been any breach of duty by the solicitors. Mr Adams became aware that something had gone wrong after November 2000, the precise date being irrelevant. Until he had actual knowledge, Mr Adams was entitled reasonably to rely on Thorntons having complied with their duties as solicitors, in the circumstances, so long as they continued to act for him and provide him with legal advice, and that coloured the approach to the test of what could be discovered by reasonable diligence for the purposes of section 11 (3). Where, as in this case, there was a continuing relationship of solicitor and client over a long period, the solicitor's conduct had to be assessed, not piecemeal, item of advice by item of advice, as the Lord Ordinary had done, but in context. In relation to the encashment and disbursement of the loan cheque, the exercise of reasonable diligence did not impose on Mr Adams a duty to seek independent advice on what had occurred: he was entitled to rely on his continuing relationship with Thorntons, their willingness to continue to act for him and tender legal advice, and their advice as to what his interests required. [28] Mr Logan developed his submissions relating to the concession that loss had in fact been occasioned on 14 December 1990. He said that, on a proper analysis of what was known to Mr Adams, what had then gone wrong was that Apple were late in coming up with the purchase price. As a result the first level transaction was not settled fully. Mr Adams could not get entry to the subjects. No doubt any purchaser in that situation, who had agreed a sub-sale, would find the sub-purchaser's failure disappointing. But there was nothing in the fact that the transaction did not settle per se to suggest fault or negligence on the part of anyone. There was nothing to cause him to make enquiries. He did not know of the deficiencies in conveyancing. He did not then know that the loan money had been paid to the sellers. He did not know that the dispositions were worthless nor that the Bank had not obtained the security required. All that he knew was that Apple was late in making payment. If Mr Adams had been told that the loan money had been paid over he would have been entitled to assume that something had been obtained in return. Non-payment would have been a source of concern. It was not enough to say that the fact of non-payment would have put a person of ordinary prudence on his inquiry generally. The creditor must know that the loss was caused by a breach of duty, or at least be in a position where he ought to have known that. In this case the prudent creditor would have become aware on 17 December 1990 that Apple had not paid. But that would not have alerted him to the fact that Thorntons had drawn down the loan and paid the proceeds over to the sellers without getting a disposition of the subjects and without providing the bank with the required security. Apple's failure to pay would not have triggered inquiry into these matters. In the circumstances the prudent person would have a duty to find out what was happening to Apple's money. That was the current concern. Mr Adams did ask and was told by Mr Robertson that the money would be available shortly. There was a spectrum of possibilities as at 17 December 1990. Mr Adams might have been told that Apple would never pay: that would have caused panic. At the other end of the spectrum he might have been told that the money was coming in a few days: that one would leave to the solicitor. On the authorities the Lord Ordinary had misdirected himself as to the proper application of section 11 (3) in the circumstances he was entitled to find established. [29] For Thorntons, Mr Johnston argued that in relation to section 11 (3) the question whether a creditor had exercised reasonable diligence did not pre-suppose actual knowledge of loss and negligence, as Mr Logan appeared to have said. It envisaged knowledge that could have been acquired by the exercise of reasonable diligence, both in respect of loss and in respect of negligence. Section 11 (3) was a relaxation of the ordinary rule about when time started to run. It appeared that Parliament had intended to provide for problems such as latent defects in buildings where there was a risk that prescription could run before there was any knowledge of the problem. In such circumstances prescription did not begin to run until the creditor knew or ought to have known that loss had occurred and that there had been an actionable default. But to require actual knowledge of each element would dilute the rule excessively. Prescription started when the creditor, if exercising reasonable diligence, would have identified loss and default. That was what Glasper said. [30] Mr Johnston argued that the question before the Lord Ordinary, and the Court, was whether Mr Adams had any reason to exercise reasonable diligence to discover whether loss had occurred and whether there had been default. It was not essential that he should have the knowledge that reasonable diligence would have disclosed. There had to be something that would make a person of ordinary prudence take note, and do something. The Lord Ordinary's approach was correct and his discussion at paragraph 40 of his opinion accorded with the authorities. In particular, the Lord Ordinary identified the test correctly when he said:"It is to be noted that a lack of awareness of having suffered loss does not necessarily mean that the question of whether the pursuer could with reasonable diligence have become aware of having suffered loss caused by negligence does not arise. On the contrary, there is merely interposed an additional preliminary question, namely whether in all the circumstances, despite lack of awareness of loss, the pursuer had reason to exercise diligence at all to discover whether loss caused by negligence had occurred. If that question falls to be answered in the negative, i.e. that there was no reason to exercise diligence at all, it cannot be said that the pursuer could with reasonable diligence have acquired the requisite awareness. But if that question falls to be answered in the affirmative, the question of whether the pursuer could, with the exercise of reasonable diligence, have acquired the requisite knowledge then requires to be addressed. A pursuer relying on section 11(3) who was aware that he had suffered loss but not whether it was caused by negligence must prove that he could not by the exercise of reasonable diligence have discovered before the date contended for as the appropriate date that his loss was so caused. That is because his knowledge that he has suffered loss is sufficient to put him on inquiry as to whether the loss was caused by negligence. A pursuer relying on section 11(3) who was actually unaware until the date contended for as the appropriate date that he had suffered loss at all may prove that he had no reason to make any inquiry as to whether he had suffered loss and whether it was caused by negligence. But reason to make such inquiry may emerge from circumstances other than awareness of loss. Whatever the reason for inquiry may be, if it appears that such reason existed, the question once more becomes whether the pursuer has shown that he could not with reasonable diligence have become aware before the date contended for as the appropriate date that he had suffered loss caused by negligence."
"In the computation of a prescriptive period in relation to any obligation for the purpose of this section -
(i) fraud on the part of the debtor or any person acting on his
behalf, or
acting on his behalf,
the creditor was induced to refrain from making a relevant claim in relation to the obligation, ... shall not be reckoned as, or as part of, the prescriptive period;
Provided that any period such as is mentioned in paragraph (a) of this subsection shall not include any time occurring after the creditor could with reasonable diligence have discovered the ... error ... referred to in that paragraph."
"... the word 'induced' [in the phrase 'induced by words or conduct'] does not necessarily carry with it any sinister overtone. The debtor may have been acting entirely innocently and in good faith, but nevertheless has led the creditor to believe something different from the truth. In my view what is meant is that the debtor has led the creditor into error by his ... words or conduct and because of the error the creditor has been brought into the position of refraining from making a claim."
The word "refrain" is given a broad meaning. Lord Hope of Craighead in BP Exploration at 30F-H, paragraph [33] said:
"I would hold ... that the period of time covered by the word 'refrain' in section 6(4) includes time when the creditor does nothing to enforce the obligation, whether or not this is the result of a conscious decision on his part not to press the claim. ... [It] is not necessary for the creditor to identify the date when he would have made the claim but for the error. But the prescriptive period will only be interrupted if he can show that the reason why he did nothing to enforce the claim against the debtor was because he was misled by ... error induced by the debtor's words or conduct. And, under the proviso to section 6(4), the period of the interruption will not include any time after he could with reasonable diligence have discovered the ... error. In this way proper effect can be given to section 6(4) to avoid injustice on either side."
The Lord Ordinary had regard to these passages and also to the observations of Lord Clyde at 40C-H, paragraphs [66] and [67], and Lord Millett at page 58B, paragraph [109]). Where the proviso to section 6(4) does not come into play, the period of interruption comes to an end when the creditor actually discovers the error.
[39] Mr Logan's submission was that Mr Adams did not appreciate his position of risk. Mr Adams relied on his solicitor. In that respect the Lord Ordinary says in paragraph [45]:"The extent to which reliance on solicitor defenders may entitle a client pursuer to regard himself as having no cause for inquiry into whether he has suffered a loss caused by negligence is a matter of fact and degree. There are present in this case circumstances which, in my view, render it unreasonable for the pursuer to make no inquiry. In particular, three facts are in my view of particular importance in combining to yield that result. They are (i) the extent to which partial settlement using only the loan funds and without the agreed contribution from Apple differed from the transaction which ought to have taken place, (ii) the fact that, according to the pursuer, the partial settlement was effected without his instructions, and (iii) the background that the solicitors were also acting for various other parties with interests conflicting with those of the pursuer. I take the view that in these circumstances the present case is readily distinguishable from Glasper. This is not a case in which the pursuer had no cause to think that he had occasion to use reasonable diligence to ascertain whether he had suffered loss through negligence. On the contrary, the combination of circumstances was such as to put him on inquiry. On the evidence, it appears that he did nothing to find out what had gone wrong. He appears, astonishingly, not to have asked Mr Barclay or Mr Gray why Apple had not settled the second level missives timeously. He appears not to have asked ARR to explain to him in detail what had happened, what the implications were for him, and whether his interests were adversely affected.
"[68] It seems to me that the pursuer's case under section 6(4)(a)(ii) comes to this: that JSR in March 1995 and Mr Milne in 1998 led him to believe erroneously that the appropriate remedy by means of which to recover the loss which he had suffered was an action of count, reckoning and payment against Mr Barclay; that labouring under that error he did nothing to investigate or pursue a claim against the defenders; and that consequently the period from March 1995, when he was first misled, to late 2000, when he realised that he had a claim against the defenders, should be excluded in the computation of the prescriptive period. Mr Logan submitted that the case was analogous to Robertson v Watt & Co, 7 April 1995, Second Division, unreported. In that case, the pursuer's case under section 6(4)(a)(ii) was recorded in the Opinion of the Court as being:
'that the error which induced her to refrain from making a claim against the defenders as an individual was that she was led by the defenders to believe that she had a claim against Messrs Carnegie & Smith, and no one else' (emphasis added).
A proof before answer was allowed. In my view that case is readily distinguishable. The core of the error in that case was the mistaken belief that the pursuer did not have a claim against the defenders. In the present case, I do not consider that it can be held to have been proved that the defenders, by words or conduct, led the pursuer into the erroneous belief that he had no claim against them. They did reinforce his belief that he had a claim against Mr Barclay (and subsequently his executors). That does not seems to have been an erroneous belief, because the executors ultimately settled the claim. But advice that he had a good claim against Mr Barclay does not amount to advice that he had no claim against the defenders.
[69] In the result, I am not satisfied that the pursuer has proved that an erroneous belief that he had no claim against the defenders was induced in him by any words or conduct of JSR or Mr Milne in March 1995 or at any time thereafter. I am not satisfied that the pursuer has proved that his reason for not pursuing a claim against the defenders between 1995 and 2000 was such induced error. I am therefore of opinion that there is no period which falls to be left out of account under section 6(4) in computing the prescriptive period".Mr Logan observed that the Lord Ordinary's approach to the case had been different at debate (paragraph [44], page 802).
[43] In any event, Mr Logan submitted that the view adopted after proof was wrong. The emphasis the Lord Ordinary had placed on the words 'and no one else' was not justified. The words had no practical effect in Robertson and could not support the distinction drawn. In that case the pursuer, as executrix, was advised that a will drawn by Messrs Carnegie & Smith was invalid and that the estate should be distributed as intestate. That was done, to her personal loss. She was advised that she had a claim as an individual against those solicitors. Thereafter senior counsel's advice was taken, and the advice was that the will was valid. There was nothing in the circumstances reported to suggest that fault on the part of anyone other than the draftsman had been considered until senior counsel's advice was taken. The expression 'and no one else' had to be understood in that context. So long as the will was considered to be invalid, there was no issue whether the solicitors advising the executrix on distribution were at fault. The case, properly understood, was not distinguishable from the present. [44] Mr Logan submitted that the advice given to Mr Adams was advice of the defenders as a firm. It was not suggested that Mr Jack Robertson or Mr Milne had concealed anything in their personal knowledge from Mr Adams. But that was irrelevant. The firm had knowledge of the whole sequence of transactions, and they could not rely on personal ignorance of the actions of their partners within the scope of their professional practice. The pursuer was entitled to rely on what was known by the firm. [45] Mr Logan accepted that the Lord Ordinary was entitled to be critical of the evidence relating to some aspects of the transactions. He observed, however, that part of the difficulty arose from the fact that limited proof had been allowed, but that the evidence had strayed into areas that were more appropriate to the merits of Mr Adams case. If the case proceeded to full proof the scope of the evidence would be very different. As matters stood, Mr Logan accepted that the Lord Ordinary had rejected Mr Adams' evidence of the advice sought and given in 1995. But one had to understand the context. Mr Jack Robertson had just represented Mr Adams in negotiations with the Bank. Mr Adams at that stage still owed the Bank about £200,000. The outcome of those negotiations was that the remaining unsold parts of the development were bought at an over-value: paragraphs [51] and [52] of the Lord Ordinary's opinion referred to the circumstances. Mr Adams thereafter consulted Mr Robertson. What transpired took colour from two facts: the representation of Mr Adams in the negotiations; and the fact that Thorntons had acted in all of the sales, not only for the joint venture but also for Apple, and for all of the parties to the original purchase and sub-sale. It was reasonable for Mr Adams to infer that the advice given by Mr Jack Robertson reflected knowledge of all of the relevant facts even if that attributed to him more knowledge than he personally had. If he had had full knowledge it would have been reasonable to expect him to advise Mr Adams either that he had a claim against the firm, or that he should go elsewhere, and not to restrict his advice to saying that Mr Adams had a right of action against Mr Barclay. A misrepresentation could be wholly innocent and still support a case under section 6(4). In this case the only persons to have full knowledge of the relevant facts were the firm. Mr Logan accepted that the argument he was advancing had not been put in such terms to the Lord Ordinary. [46] The relevant facts did not stop at March 1995. At that time the pursuer was in straightened financial circumstances. In 1997 he returned to Thorntons and sought advice on the recovery of his loss. At that point he was referred to Mr Milne: paragraph [66] of the Lord Ordinary's opinion. He was advised that he could sue Mr Barclay. He was entitled to infer that that was where his claim lay. All of the claims against Mr Barclay arose from transactions in which the firm acted. All aspects of the transactions were dealt with by Thorntons. The firm alone had all of the necessary knowledge of what had transpired. The firm's knowledge was the appropriate focus. Mr Adams' contract was with the firm, not with individuals within the firm. The issue at this stage was whether prescription was interrupted by error. Whatever the firm's relationships with others, Mr Adams had been their client, and he relied on the firm to do the right thing. When Apple failed to pay, Mr Adams was entitled to advice about how he should react. Mr Jack Robertson's personal knowledge was not the measure of the firm's knowledge in this context. Inducing error in Mr Adams did not require that Mr Robertson be negligent. It was necessary to bear in mind that Mr Adams did not have actual knowledge of material facts. By March 1995 Mr Adams knew that he had a claim against someone. At that stage he was induced to think that that person was Mr Barclay. Thorntons continued to act for him, and he was entitled to believe that Mr Barclay was the appropriate target, and that there was nothing of materiality between him and Thorntons. It would be different if Mr Adams had in fact known that he had a claim against Thorntons, or if that had been glaringly obvious. But he did not know and the claim was not glaringly obvious on the information he had. [47] Mr Logan argued that it was reasonable for Mr Adams to fall into the error that Mr Barclay alone was vulnerable to action. It should have been clear to the firm that the correct response to his question, as found by the Lord Ordinary, was to tell him to take independent advice. The error was to be put into a false sense of understanding of what his remedies were. The Lord Ordinary had pitched the test the creditor had to meet at too high a level. He had adopted a wholly objective view, without regard to the characteristics of the solicitor-client relationship. The firm had professional obligations, for example not to act in situations of conflict of interest. In the present case, Thorntons do not admit that they were in breach of duty in acting in a situation of conflict. It cannot be said that Mr Adams should have identified some glaring breach of professional duty in the circumstances. [48] Thorntons not only advised Mr Adams that he had a remedy against Mr Barclay in 1995: after 1997 they acted for him against Mr Barclay for three years: Lord Ordinary's opinion paragraph [66]. Time had to be spent on exploring Apple's role because the firm had not maintained appropriate records: paragraph [28]. That caused Mr Milne difficulty. Mr Adams did know that Mr Milne was following up the question of Apple's role: file notes in 1998 showed that: Appendix pages 49 and 51. [49] Mr Logan was critical of the Lord Ordinary's approach in paragraph [67] of his opinion. He drew attention to paragraphs [42] to [43] of the opinion issued after the debate which set the scene for the consideration of the pursuer's case in this respect. There the Lord Ordinary correctly identified the issues. The pursuer's case was that the period he laboured under error began in March 1995 and persisted until August 2000. The Lord Ordinary was persuaded that it was reasonably clear that Mr Adams founded on an error originally induced by the advice given by Mr Jack Robertson and maintained in existence by the conduct of Mr Milne in pursuing the action against Mr Barclay. The Lord Ordinary said:"The pursuer, it seems to me, founds on his various averments of non-disclosure of information to him by JSR and Mr Milne not as the basis of the error, but as an explanation of why he was not disabused of the error earlier than he was. In that context those averments are in my view relevant. In my view, the averments in support of the pursuer's case under section 6(4), tested by the criteria laid down in BP Exploration, are sufficient to justify inquiry."
Mr Logan argued that that was the correct approach at debate, and continued to be the correct approach after proof. The purpose of the averments and the evidence was to explain why error persisted, and that was not in the event a matter of dispute. Mr Jack Robertson's evidence was that the advice was given in March 1995, and the situation did not thereafter change until 2000.
[50] Mr Logan argued that the Lord Ordinary, focusing on the averment that Mr Jack Robertson and Mr Milne had not 'disclosed' matters in the context of (a) the defenders' acceptance that the relevant information had not been communicated, and (b) the personal knowledge of the two solicitors, had misdirected himself. He had departed from the test discussed in his earlier opinion. The focus on active withholding of information personally known to the two solicitors was a misdirection. Concealment is not necessary for the purposes of section 6(4) where fraud did not arise. The Lord Ordinary appeared to desiderate evidence of actual intentional concealment. That was unnecessary: BP Exploration, per Lord Clyde at paragraph [65]. The Lord Ordinary's comments did not sit happily with that paragraph because he was looking for actual concealment. [51] So far as relevant, the facts found demonstrated that between March 1995 and 2000, during which Thorntons acted for him except when he was impecunious, Mr Adams was induced to believe that his remedy lay against Mr Barclay. He did not appreciate that he had a claim against Thorntons. Mr Logan submitted that having identified the point at which Mr Adams was induced into error, in March 1995, he remained in error continuously for a period sufficient to make the running of prescription irrelevant. The position was straightforward. The Lord Ordinary's interlocutor should be recalled and proof allowed on the merits. [52] Mr Johnston made six points in answer to Mr Logan's submissions on the application of section 6(4). Firstly, the pursuer accepted the Lord Ordinary's findings in fact. A central issue at the proof had been what happened in March 1995. Mr Robertson and Mr Adams had given evidence about those events. The Lord Ordinary had had the advantage of seeing and hearing the witnesses. The Lord Ordinary's considered view of what Mr Adams had asked and what Mr Robertson had advised was set out in paragraph [64] of his opinion. What the pursuer was now attempting to do was to qualify those findings by reference to background facts and circumstances that had not been relied on before the Lord Ordinary. For example, Mr Logan had relied on a statement that Mr Robertson had represented Mr Adams in negotiations with the Bank. It was not accepted that what had been said was accurate. But in any event there were no findings in fact on the matter that would warrant interference with the findings that were made at the end of paragraph [64]. Since the court had not seen and heard the witnesses, and indeed did not have the benefit of the notes of evidence, there was no basis for re-interpreting the opinion so as to generate something more ample than a duty to carry out the specific instructions of Mr Adams. There was a significant amount of evidence about what happened. It would be inappropriate to read into the words in the opinion more than was there in terms. [53] The second point was that the pursuer's submissions depended on imputing to Mr Jack Robertson and Mr Milne, as partners of the firm, knowledge of background facts and circumstances with which they were not personally involved. The pursuer required to make those points to support the argument that the answers given in March 1995 were given in the knowledge of the conveyancing transactions. That submission did not surface until Mr Logan's submissions in the reclaiming motion. It was not before the Lord Ordinary and had not been addressed by him. There was nothing relating to the point in the pleadings, and accordingly there were no findings in fact about what the firm knew. There were findings about what Mr Jack Robertson and Mr Milne did not know: paragraph [67] of the opinion. And there were some passages from which inferences could be drawn about Mr Ritchie Robertson's knowledge. For example, in respect of the first claim, Ritchie Robertson clearly knew about the events of 14 December. But there were no findings in fact about knowledge of the shortfall of £80,000, nor were there findings that any of the defenders knew about the disposition that was relevant to the third claim. [54] Mr Johnston accepted that one of the defenders had drawn up the Apple disposition and had to re-do it. So far as the £80,000 was concerned he said that there was no information on the defenders' files, and whether the arithmetic was right or wrong there were in any event no relevant findings in fact, and no evidence about what the firm knew or did not know. On the findings in fact made by the Lord Ordinary it could not be said that Mr Ritchie Robertson knew all relevant facts. In particular there was nothing to indicate that he knew about the £80,000 difference. There were significant gaps in the findings in fact, and the court was not in a position to fill them. Without access to the evidence, all that the court could do was assemble inferences when the Lord Ordinary had not been asked to consider the imputation of knowledge. It was too simple to say that Mr Ritchie Robertson must have known everything that had happened and therefore have known that there was a shortfall of some £80,000 in Apple's payments. Even if the court thought that the Lord Ordinary had misdirected himself, it might be that the court could not itself reach a different view: Thomas v Thomas 1947 S.C. (HL) 45. Here, even if there were an error in law, there was no material before the court to enable it to make alternative findings. [55] The third submission was based on Lord Clyde's speech in BP Exploration. The Lord Ordinary had applied the correct test, and his findings had to be read against that background. There had to be a causal connection between the debtor's words or conduct and the creditor's error. In this case the pursuer relied on the fact that the defenders were his solicitors and the fact that he had been given the correct advice in March 1995 to the question whether he could sue Mr Barclay. That was well short of the conduct one customarily found in such cases. In BP Exploration it was maintained that the defenders had misled the pursuers into suing the wrong company. If the position here had been that on 17 December 1990 Mr Adams had asked Mr Ritchie Robertson whether all was well and had been told that all was well, that would have been a clear case of words or conduct within section 6(4). But on the findings in fact in this case all that the pursuer had available to rely on was a limited question and an accurate answer. It is very difficult to say that the Lord Ordinary went wrong in those circumstances in his findings in paragraphs [68] and [69] of his opinion. Those findings reflected correctly the approach set out by Lord Clyde. The Lord Ordinary has examined the words and conduct and posed the correct question: what could be said to have induced an erroneous belief? Paragraphs [67] to [69] had to be read as a whole. It had to be borne in mind that section 6(4) came into play only if prescription had started to run. At least one must assume that the pursuer could have discovered with reasonable diligence that he had a claim. [56] Mr Johnston's fourth submission related to the proviso to section 6(4). It was not disputed by Mr Adams that so far as the second and third claims were concerned he could have discovered by early 1995 that he had suffered loss caused by negligence. There was a degree of artificiality about treating the three claims as entirely independent, especially given the finding in fact in paragraph [44] that Mr Adams knew the broad structure of the transaction. In the light of that knowledge, in order to induce error something more was needed than Mr Jack Robertson's answer to the specific question he was asked in March 1995. It was a matter of fact and degree in every case. What were the defenders asked to do and explain? What did they do and explain? What was the state of the pursuer's knowledge at the time? The knowledge he had, on the Lord Ordinary's findings, prevented him from relying on section 6(4). He did not meet the terms of the proviso. Mr Johnston suggested that it was material that the effect of error in section 6(4) was the same as the effect of fraud. Given the juxtaposition of the provisions, one should not fall too readily into the assumption that the requirements of section 6(4) (a) (ii) were made out. [57] The fifth submission was brief: so far as the first claim was concerned, unless the court rejected the Lord Ordinary's findings that the pursuer was on inquiry at 17 December 1990, then section 6(4) could not save the claim because the period of error was too short. [58] The sixth submission was equally brief: all of the cases referred to depended on their own particular facts. There was little benefit to be derived from factual analysis and attempting to distinguish the cases. The real question in any case was what instructions were given, and what words or conduct might or might not have misled the creditor. [59] Mr Johnston did not support the Lord Ordinary's view of Robertson v Watt: paragraph [68]. [60] In my opinion, it is clear that the Court must resolve the issue of the application of section 6(4) on the basis of the primary facts found by the Lord Ordinary supplemented by any inferential facts that can be supported on those primary facts. Whatever evidence there was before the Lord Ordinary, if it is not reflected in the findings in fact, and cannot be agreed between parties, it cannot be provided now by counsel. The parties have elected not to extend the recorded oral evidence, and have provided a limited selection only of the documentary evidence available at the proof. The case is more extreme than the examples given by Lord Thankerton in Thomas, where the emphasis was on the disadvantage that an appellate court has relative to the judge who has seen and heard the witnesses in assessing the evidence available. In the present case there can be no question of differing from the Lord Ordinary in the assessment of the evidence. It has not been placed before this court. [61] The problem can be illustrated by the example discussed by counsel. Mr Logan's observation that Mr Jack Robertson was involved in the negotiations between Mr Adams and the Clydesdale Bank described at the end of paragraph [51] of the Lord Ordinary's opinion, cannot weigh with the court. I am not persuaded that there is anything inconsistent with Mr Logan's submissions on the finding in paragraphs [52] and [56] that, following the meeting with the Bank, Mr Adams consulted Mr Jack Robertson about the destination of some of the proceeds of sales of flats. But whether or not that simply records the chronological sequence of events, as I might incline to think, the issue is controversial and the oral testimony relating to the negotiations, the solicitors' written records in file notes or elsewhere, and the fee notes charged for any work carried out, are not before the court. There is, in short, no evidential basis for the proposition that Mr Jack Robertson did advise on the negotiations or otherwise have a part to play in them. The same deficiency affects all other proposals for amending the primary facts found by the Lord Ordinary. [62] On the facts found by the Lord Ordinary, the first issue that has to be considered, in my opinion, is whether Mr Adams was in error, as a matter of fact, as to the remedy or remedies available to him in March 1995. On the Lord Ordinary's findings generally, and in particular having regard to the terms of paragraph [64] of his opinion, it is clear that Mr Adams had sufficient information at that date, derived from the joint venture accounts, to formulate the specific question whether he had a right of action against Mr Barclay. He was advised that he could raise an action of count reckoning and payment. However, whether he was in error, in the sense that he failed fully to understand in fact the scope of the remedies he might have is in my view a different issue. For the purposes of this stage of the case against the defenders it has to be assumed that but for the question of prescription the pursuer has averred a case for damages for breach of professional duty relevant for inquiry. But the ground of action now pled is different in character from the basis of the action against Mr Barclay. There is nothing in the grounds of action for count reckoning and payment that bears on the issues that arise from allegations of breach of contract by the solicitors. It does not follow from knowledge of a right of action against a joint adventurer who has made an inadequate contribution to the trading losses of the adventure, for example, (a claim that depends on there having been a relevant relationship between the parties) that there might be a different ground of action against a third party based in part on allegations that the relationship should never have been allowed to mature from concept into commitment. [63] Even if error were established, there would be the second and in certain respects more substantial question whether the error as to the scope of the available remedies was induced by Thorntons through Mr Jack Robertson and Mr Milne as partners carrying out the instructions received from Mr Adams and therefore as his agents. So to express this issue is to focus on an aspect of the argument before this court that was not canvassed before the Lord Ordinary. The Lord Ordinary approached the issue on the basis of a narrower interpretation of the pursuer's pleadings than he had adopted at the debate stage. But, that apart, he dealt with the question on the basis that it depended on what was known to Mr Jack Robertson and Mr Milne as individuals. Neither was a conveyancing partner. Neither had been involved in the formative stages of the transactions relating to Airlie Lodge. In the context of the case as presented to he Lord Ordinary, one can understand the finding in paragraph [67] that:"In the absence of evidence that JSR and Mr Milne were aware of the facts which they did not 'disclose' to the pursuer, I am of opinion that the fact that they did not disclose them does not assist the pursuer in establishing his case under section 6(4)"
The question at this stage is whether that involved a misdirection by the Lord Ordinary.
[64] As a matter of evolving events, the issue arises at a point where there clearly subsisted conflicts of interest among a number of the clients Thorntons had advised in connection with the Airlie Lodge project. Not least, the advice tendered, that Mr Adams could sue Mr Barclay, was advice related to the rights of one client of the firm against another, from each of whom Thorntons might have obtained confidential information. More seriously it was contemplated that Thorntons would act for Mr Adams in his action. But the conflict that is particularly material is the conflict of interests between the firm and Mr Adams. Advising and acting for Mr Adams had the direct result that there was no independent scrutiny of the background such as would have been carried out if instructions had been taken in ordinary course. As was pointed out by Phillips (page 37), the taking of instructions is a process that must involve dialogue:"It should, in most cases and at least in part, be dialectical with the lawyer as devil's advocate. The dialogue may well include moral, psychological and financial considerations, as well as forecasts of possible outcome of alternative courses of action."
The solicitor has a role to play in exploring the facts and circumstances and formulating and tendering advice in the light of what emerges from an iterative process.
[65] On the Lord Ordinary's findings in fact, neither Mr Jack Robertson nor Mr Milne had personal knowledge of the actions of their partners in the conveyancing department that are alleged to have caused or contributed to Mr Adams' losses. But Mr Adams was a client of the firm, and the firm had the requisite knowledge. In conflict situations, the conduct that has to be considered is the conduct of the firm: Cleland v Morrison 6 R 156 per Lord Justice Clerk Moncrieff at page 168 and Lord Gifford at page 169. The general proposition is expressed succinctly by Lord Gifford: "Employment of a firm is employment of all the partners." In that case there was actual concealment of the fact that a member of the firm had a personal interest in the property transaction in which the firm acted for another party to the transaction. But the essence of the decision was that the agency relationship was imposed on all partners. What was communicated to or came to the notice of Mr Ritchie Robertson in particular was communicated to and came to the notice of Thorntons as a firm. As members of the firm, Mr Jack Robertson and Mr Milne were mutual agents along with their partners of each other. The knowledge of the agent is imputed to the principal as a matter of general principle: Chapelcroft Limited v Inverdon Egg Producers Limited 1973 SLT (Notes) 37. In mutual agency the same principle applies: the partner virtually embraces the character of both principal and agent: Story Partnership page 1. The principle underlies section 16 of the Partnership Act 1890. It is appropriate to note that there has been some difference of opinion as to the scope of that section, discussed by the Sheriff Principal in Tait v Brown & McRae 1997 SLT (Sh.Ct.) 63 at page 69. But irrespective of the correct view of the scope of the section, mutual agency fixes partners with the knowledge obtained by co-partners in the ordinary course of business at least. In this case, knowledge of the firm's actions in relation to the conveyancing operations is to be imputed to Mr Jack Robertson and to Mr Milne as partners. Put negatively, Thorntons as a firm cannot be heard to rely on the personal ignorance of two of its partners of facts within the knowledge of the firm through the active participation in the business in question of other partners as advisers and as draftsmen of critical documents. [66] In my opinion, the Lord Ordinary can be said to have misdirected himself in applying to the question whether Thorntons induced error in Mr Adams criteria that depended on personal knowledge of individual partners of the facts and circumstances from which the error arose rather than the knowledge of the firm of which he was client. As I have already commented, he was not assisted in this matter by argument. Mr Logan's submissions to the Lord Ordinary did not cover this ground. But the point would have been of materiality if the evidence had been available for the court to consider. Mr Adams' complaint is against Thorntons, and is that at March 1995 and in and after 1997, he was left in ignorance of the possibility that he might have a claim against the firm by silence on the part of the firm associated with positive advice that he had a remedy against his former associate, and by the firm subsequently acting for him in pursuing that action. However, Mr Adams can only succeed at this stage if there are facts found by the Lord Ordinary on a proper approach sufficient to resolve a number of issues in his favour. 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. [67] The context in which these questions have to be considered is important. The issues before the Lord Ordinary included the date on which Mr Adams acquired actual knowledge of the basis on which to allege that Thorntons were answerable for breach of duty, and the date on which he could with reasonable diligence have become aware of the relevant facts. In paragraph [42] of his opinion the Lord Ordinary records Mr Adams' position, that he acquired relevant actual knowledge early in 2001. He then discusses in some detail the question whether Mr Adams could with reasonable diligence have discovered the facts relevant to his first claim in December 1990, concluding in paragraph [46] that Mr Adams had been put on inquiry then: "before the date of actual knowledge in early 2001". Mr Logan was therefore justified in contending that until early 2001 Mr Adams did not have actual knowledge, but was deemed to have the knowledge he could have obtained by reasonably diligent inquiry in, or presumably after, December 1990. It is not suggested that he was in error in any relevant sense between December 1990 and March 1995, four years and three and a half months later. Early 2001 lacks precision, and that exposes Mr Adams to Mr Johnston's fifth submission, that section 6(4) cannot avail Mr Adams standing the Lord Ordinary's finding that 17 December 1990 was the date on which relevant knowledge could have been obtained with reasonable diligence. On the Lord Ordinary's findings, Mr Johnston's submission is correct, and that is sufficient for disposal of the reclaiming motion in relation to the first claim: without proof that error interrupted the running of prescription for a period sufficient to ensure that the aggregate term unaccounted for was less than the prescriptive period, Mr Adams cannot succeed. However, it would hardly do justice to the argument to dispose of the reclaiming motion on that basis. [68] Where there is a clearly identifiable actual error, as in BP Exploration, the operation of section 6(4) is now tolerably clear. There are, however, unresolved difficulties when the creditor is deemed to have knowledge, which he does not actually possess, of the facts relevant to instruct a claim, and asserts that he was induced to refrain from making a relevant claim by fraud or error falling within the scope of the provision. A client in the position of the pursuer in Robertson v Watt & Co., advised that he had a remedy for loss against a third party debtor "and no one else", might fail to establish a right to the protection afforded by section 11(3) on the objective test prescribed by the authorities, but nevertheless contend that his incomplete, and erroneous, understanding of his rights was due to fraud on the part of his solicitor, or to conduct of the solicitor that induced error as to the scope of his remedies. More problematically a client who was initially disqualified from the protection afforded by section 11(3) might subsequently be prevented from identifying and pursuing a claim against the solicitor by fraud or conduct inducing error. For section 6(4) to be engaged in those circumstances one must envisage a development from a state of inexcusable ignorance of the existence of a remedy sufficient to exclude the benefit of section 11(3) to a state of continuing ignorance which becomes, for a time, excusable because of subsequent fraud or a supervening event or series of events that can be characterised as inducing 'error' without impinging on the actual knowledge of the creditor. In my opinion a defective or incomplete understanding of the scope of available remedies can properly be described as "error" for the purposes of the provision. In BP Exploration, Lord Hope observed that the creditor was not obliged to identify the date when he would have made a claim but for error. If that had been necessary a creditor in a continuing state of actual ignorance spanning the events alleged to have induced error could never obtain the benefit of section 6(4). The two provisions are not expressed as mutually exclusive alternatives. Since section 6(4) may apply in a case of fraud it is highly unlikely that they would have been intended to be mutually exclusive. In my opinion a creditor may obtain relief under section 6(4) where it is established that the debtor's conduct has induced in the creditor an incomplete understanding of the scope of the remedies open to him at the time and induced him to refrain from making a relevant claim against the debtor within the prescribed period. A belief that a remedy lay against a party other than the debtor in question uninstructed by knowledge that a different claim lay against the debtor making the relevant representation could, in my view, fall within the scope of section 6(4). However, the creditor must nevertheless establish the basic facts identified by Lord Hope. The creditor who is disabled from denying knowledge of his claim must show that from some stage the reason why he did nothing to enforce the claim was that he was misled by fraud or by error induced by the debtor's words or conduct. I have already referred to paragraph [67] of the Lord Ordinary's opinion where there are findings on the issues that were debated before him. It is not surprising that there are no findings in fact that determine the issue that now arises from Mr Logan's argument. The relevant questions were not focused before the Lord Ordinary. [69] The Lord Ordinary analysed the issues put before him in terms of traditional formal logic. Since it is agreed that issues of fact and circumstance arise, it is difficult to support an approach that excludes a remedy on proof of a particular negative or positive exception to some general proposition. One would have wished to be able to analyse the evidence to see whether there was a basis for a view on a balance of probabilities that Mr Adams was in error as to the scope of his potential remedies, and how that might have related to the taking of his instructions and the advice tendered. Since, however, none of the evidence has been placed before the court it is now impossible to reconstruct the findings in a way that might have enabled one to reach a conclusion on those issues. It is to be noted that had the case proceeded on the basis that the firm's knowledge was critical, the operation of the proviso to section 6(4) would have become a relevant issue before the Lord Ordinary. As matters now stand, one could only speculate as to the outcome of that issue. Mr Johnston was clearly correct in emphasising the disadvantages this court suffers from in the absence of the evidence the Lord Ordinary heard, and the impact that has on Mr Adams' position in this reclaiming motion. [70] Whatever questions there may be about the Lord Ordinary's approach, it appears clear that it was dictated by the submissions made to him. Without the evidence, it is impossible now to give effect to the further and different submissions made by Mr Logan to the court. [71] The advice tendered by Mr Jack Robertson and Mr Milne provided the focus for the second and third claims, on the analysis advanced before the Lord Ordinary. If either of these stages in Mr Adams' relationship with Thorntons was a distinct claim, separate issues might have arisen both under section 11 (3) and section 6(4). However on the approach adopted in Mr Adams' pleadings those questions do not arise. All of the loss that Mr Adams is alleged to have sustained is attributed to the first claim. Even if there were later instances of injuria, there was no identifiable loss attributed to either event. In substance the pursuer's case relies on these later events specifically to support the section 6(4) arguments advanced in relation to the first claim, and more generally to underline the continuing solicitor-client relationship that is relied on to support the allegation of reliance on the advice tendered by Thorntons. In rejecting the attack on the Lord Ordinary's conclusions on the first claim, one must therefore reject the reclaiming motion so far as it focused on the second and third claims. [72] In my opinion the reclaiming motion falls to be refused, and the Lord Ordinary's interlocutor affirmed. Adams v. Thorntons WS & Ors [2004] ScotCS 216 (17 September 2004)|
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord Marnoch Lord Penrose Temporary Judge Sir David Edward
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A1519/03 OPINION OF TEMPORARY JUDGE SIR DAVID EDWARD in RECLAIMING MOTION in the cause JOHN DON ADAMS Pursuer and Reclaimer; against THORNTONS W.S. & OTHERS Defenders and Respondents: _______ |
Act: Logan; Campbell Smith, W.S.
Alt: Johnston; Balfour & Manson
17 September 2004
[73] One of the reasons for the law of prescription is that, as time passes, it becomes increasingly difficult for a court to arrive at a just solution. As in this case, material elements may no longer be available and the effect of the available evidence may at best be confused and uncertain. 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 Section 6(4) or of Section 11(3) to demonstrate that the statutory conditions for avoiding the axe of prescription are satisfied. The Court's decision cannot depend on sympathy with the apparent merits of the case. Indeed, the more obvious the loss and the more glaring the act or omission giving rise to it, the more certain it is that the axe will fall if the claim is not pursued within the prescriptive period. Nor can the Court's decision depend on speculation as to acts, omissions or motives. [74] As Lord Penrose has pointed out, the case argued before us depended to a considerable extent on speculation as to points that were not argued before the Lord Ordinary and, for all we know, were not even explored in evidence. I agree with Lord Penrose's analysis that, making all allowances for the position in which the pursuer and reclaimer seems to have been placed, the conclusion must be that he has failed to bring himself within the protection of Section 6(4) or of Section 11(3). [75] I therefore agree that the reclaiming motion fails. [76] Like Lord Marnoch, I would prefer to reserve my opinion on the potentially difficult points of construction that were argued but do not have to be decided in order to resolve this case.
