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Scottish Court of Session Decisions


You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Legal Services Centre Ltd v Miller Samuel LLP & Ors [2006] ScotCS CSOH_191 (15 December 2006)
URL: http://www.bailii.org/scot/cases/ScotCS/2006/CSOH_191.html
Cite as: [2006] CSOH 191, [2006] ScotCS CSOH_191

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OUTER HOUSE, COURT OF SESSION

 

[2006] CSOH 191

 

A214/04

 

 

 

 

 

 

 

 

 

 

 

OPINION OF LADY DORRIAN

 

in the cause

 

THE LEGAL SERVICES CENTRE LIMITED

 

Pursuers;

 

against

 

MILLER SAMUEL LLP and OTHERS

 

Defenders:

 

 

ннннннннннннннннн________________

 

 

Pursuers: Woolman, QC, Davies; Harper Macleod

Defenders: McNeill, QC, McBrearty; Brechin Tindal Oatts

 

15 December 2006

 

Introduction

[1] The pursuers are a property development company. They are suing a firm of solicitors for breach of contract and negligence. The primary issue on the Procedure Roll was whether that claim has been prescribed by virtue of section 6 of the Prescription and Limitation (Scotland) Act 1973. There were additional arguments in relation to the relevancy and specification of the averments of loss. A further issue was settled by amendment at the bar.

 

History of Events
[2] In or about 1985 the pursuers' tender to develop a site in Glasgow for the Procurator Fiscal was accepted by the Secretary of State for the Environment. The site was owned by Glasgow City Council who were to lease it to the Scottish Development Agency, who would in turn sub let to the pursuers. A condition of the sub-lease was that the pursuers would develop the site and in due course sub-let the major part to the Secretary of State for the use of the Procurator Fiscal.

[3] The pursuers instructed the defenders, and in particular the third defender, as solicitors to advise them in relation to the negotiation and drafting of the leases with the SDA and the Secretary of State. The lease to the Secretary of State was to be for a period of 60 years, with a five yearly rent review clause.

[4] It was eventually agreed that the rent review should be geared to 100% of prime Glasgow City Centre office rental values. The pursuers aver that the review mechanism was to ignore the age and specification of the building, the length of the lease and other variables or comparators. It is averred that on or about 25 June the third defender was instructed to include a rent review clause in these terms.

[5] The lease was executed on 21 December 1989 and 16 January 1990. The rent review clause was geared to prime office rental within Glasgow City Centre, that being determined on the basis of a number of suppositions and disregards and in all other respects on the same terms as the lease between the pursuers and the Secretary of State. The pursuers aver that these suppositions and disregards and the "same terms" reference should not have been included, and say that they altered the meaning of "prime Glasgow City Centre office rental values" from that given in their instructions. They aver that their inclusion was in breach of the defenders' duties and that loss and damage has thereby been sustained.

[6] The Secretary of State entered into occupation of the subjects and, after a re-measurement, the rent was set at г465,965.95. At a rent review on or about 18th November 1994 the rent was fixed at г850,000. The pursuers aver that this was on the shared understanding that the rent was to be based on a 100% gearing with no allowance for age, location, size or specification of the subjects or the duration of the lease. The defenders were not involved in this negotiation.

[7] In or about 1999 the relevant rights and obligations of the Secretary of State were transferred to the Lord Advocate. A further rent review was due for about 17 November 1999. Intimation was given on behalf of the Lord Advocate that the rent was to be based upon a hypothetical letting of the subjects on the assumption that they were in the prime office area in Glasgow, upon the suppositions and giving effect to the disregards in the lease, and according to the "same terms" condition. The pursuers raised an action for rectification, which was compromised on the basis of a Minute of Variation, under which the revised rent from 17 November 1999 to 16 November 2003 was to be г1,225,000 per annum. From 17 November 2003 to 27 May 2005 it was to be г1,240,000. Thereafter, subject to certain minimum increases, the rent was to be fixed according to a formula based on 90% of prime office rental values for Glasgow City Centre. As to the minimum increases, the varied lease provided for the yearly rent to increase at each review date by at least 7.73% above the rent payable immediately before the review date, or by more if the then full market rental value indicated a higher figure, that full market value being identified as 90% of the open market rental rate.

[8] The pursuers aver that since future rents will not be based upon a 100% gearing they will lose income, estimated at г3,500,000. Various issues arise in relation to the specification of this loss and I will deal with these in due course.

[9] The action was signetted on 24 April 2004. The defenders aver that any obligation upon them had been extinguished by quinquennial prescription since there was concurrence of injuria and damnum at the date of execution of the lease, namely 16 January 1990. The pursuers aver that they did not suffer any loss until 17 November 1999, or in any event until 17 November 2004. They then aver, relying on section 11(3) of the Act, that they did not know, and could not reasonably have known, that they would suffer loss until early 2000. They make various contentions in support of this averment and the defenders accepted that this matter should be remitted to proof before answer.

 

Submissions

I Prescription

[10] It was common ground that this is an obligation to which Section 6 of the Prescription and Limitation (Scotland Act) 1973 applied, that the appropriate date for commencement of the prescriptive period was the date when the obligation became enforceable, and, under reference to Dunlop v McGowans 1980 SC (HL) 73, that the obligation became enforceable when there was a concurrence of injuria with damnum.

(a) Defenders' Submissions

[11] Junior counsel for the defenders submitted that this was 16 January 1990, the date of execution of the lease. The duty was to draft the clause in line with instructions, and breach of that must have occurred by the date of execution, at which point the pursuers were immediately party to a lease which was less favourable and less valuable than it ought to have been. Factors might come to light thereafter which impact on quantification, but there should be no confusion between the occurrence of a loss and how it must be quantified. Only the extent of it could be affected by whether the other party to the lease chooses to take advantage of the clause, not its existence.

[12] Counsel referred to Beard v Beveridge, Herd & Sandilands W S 1990 SLT 609 where a rent review clause inserted in a lease in 1967 was found, in 1987, to be inoperable. The issue was whether the loss arose on execution, or only when it became clear that the tenants would not agree to a reviewed rent. The Lord Ordinary observed that the execution of the lease bound the pursuers to it as drafted. Had they discovered the defect immediately, they could have raised an action on the same ground of negligence as was before him, even though the damages sought might have had to be calculated without the accuracy made possible by supervening events.

[13] Counsel also referred to Jackson v Clydesdale Bank Plc 2003 SLT 273, a case which involved an undervalue sale of assets of a company. The Lord Ordinary drew a distinction between cases such as the present, and cases where negligent advice or misrepresentation resulted in the recipient concluding a transaction with a third party. In those cases the question is whether loss is suffered by entering into the transaction or whether one must wait to see whether in future, the transaction itself actually produces a loss or a profit. The case of Osborne & Hunter Ltd v Hardy Campbell 1999 SLT 156, to which counsel also referred, was such a case. On the other hand, in cases such as Beard there is an immediate loss. In Jackson the court found that as soon as the contract for sale at undervalue was concluded, the company had suffered loss. The argument in that case was that any loss at the time of contract was conditional, potential or uncertain as, in the circumstances, the transaction might have been reversed or undone. The Lord Ordinary described Beard and other cases as exemplifying that "where a transaction is concluded (or its conclusion was omitted) in circumstances involving negligence or injuria and productive of immediate loss, the possibility of voluntary steps being taken by a third party to remedy, cancel or mitigate the amount of loss will not on that account delay the starting point for the running of time for the purposes of prescription."

[14] By analogy, there was in the present case an immediate loss arising on execution of the lease. In saying otherwise the pursuers are relying on the possibility of voluntary steps being taken by a third party to avoid the loss: such steps might ultimately mitigate the loss, but did not mean that at the time of execution there was not an identifiable and quantifiable loss. In Johnston on Prescription and Limitation at page 72 it was pointed out that in Beard "although loss was not certain at the date of execution of the lease, it was bound to occur unless the tenants decided not to take advantage of the defective rent review clause". It is suggested that in such circumstances "it is reasonable to say the loss arose at the date of execution because, for it to be avoided, an extraneous factor - loosely a novus actus interveniens - would have to intervene. It does not seem reasonable to postpone the start of prescription in order to see whether such a factor does actually materialise." Counsel submitted that in that passage the word "certain" was used to mean "absolute" in the sense of quantification and adopted the reasoning there set out.

[15] Counsel submitted that the pursuers' argument would lead to absurdity. If the date of realisation were the appropriate date, it would simply be a matter of chance at which review date the tenant noticed the defect - on that basis it could have been 2045 before it was noticed, at which point the court would be faced with prescription running only from that stage.

(b) Pursuers' Submissions

[16] For the proposition that a case should only be dismissed for irrelevancy if the pursuers' case will necessarily fail, counsel for the pursuers referred to Jamieson v Jamieson 1952 SC (HL) 44 and Miller v SSEB 1958 SC (HL) 20. He said that it was going too far to say the loss must have been suffered in January 1990. The issue was whether the pursuers' argument must necessarily fail. He referred to Strathclyde Regional Council v W A Fairhurst & Partners 1997 SLT 658 in submitting that the onus was on the defenders to aver and prove that the obligation had prescribed. As in that case, the pursuers had averred sufficient to entitle them to a proof before answer.

[17] Counsel submitted that the language of the 1973 Act supported the pursuers' contention. In section 11(1), by using the past tense in the words "caused" and "occurred", the statute is requiring one to look at what has actually happened, not into the future. The loss must have occurred, and it only does so when the rent review clause fails in 1999. Earlier, one can identify only a potential loss. As soon as one identifies a fault there is the potential for loss but it is only later, when it actually emerges, that the loss "occurs" for the purposes of prescription. The defenders are saying that because one can try to measure a future loss, it has occurred already. They say that if a loss is inevitable or even likely it is to be treated as having happened. Such arguments distort the word "occurred". The loss has not occurred on execution, even if one can put a value on it on a contingency basis.

[18] Counsel submitted that the facts in Dunlop v McGowans 1980 SC (HL) 73 confirmed this. In that case the loss was said to date from Whitsunday 1970, when the landlord could not obtain vacant possession, but one could say that once the 40 day period of giving notice was missed, loss became inevitable because they would not be able to evict the tenant. Once the 40 day notice point was passed, there was an inevitable loss. However, the court held that it was only when they could not recover vacant possession that the loss actually resulted.

[19] Counsel next referred to Duncan v Aitken, Malone & MacKay 1989 1 SCLR 1 in which instructions were given in 1963 to convey an interest in a house from husband to wife. The husband was sequestrated in 1983 with no conveyance having been done. An action was raised in 1987. The court held that there was no loss until the pursuer was effectively deprived of her right in the property, which did not happen until the right became vested in the trustee in sequestration.

[20] In Fergus v MacLennan 1991 SLT 321 instructions were given in 1968 and again in 1972 to convey to the pursuer a one half pro indiviso share in a property bequeathed to her under her mother's will. In 1973 the whole property had been conveyed to the father and his new wife. By 1972 the will had been lost. The pursuer argued that she had suffered no loss until 1983 when the right to the one half pro indiviso share had been irretrievably lost. Prior to that, steps could have been taken to assert her right in the form of actions of proving the tenor and of reduction. The court concluded that there was, until 1983, only a potential loss, and allowed a proof before answer. Counsel submitted that the issue of certainty relates not to whether loss can be corrected but whether it has occurred. In both Duncan and Fergus the loss is said to occur when it is irretrievable. In the present case it only becomes known that it is irretrievable at the time of the 1999 rent review. In Osborne & Hunter Limited v Hardy Caldwell 1999 SLT 153, a case relating to a loan which turned out to be irrecoverable, the Lord Ordinary had repelled a plea of time bar on the basis that there was no loss until the loan was called up. The defenders reclaimed and a proof before answer was allowed on the defender's argument that, since the pursuers averred that they should never have been advised to lend the money in the first place, the loss occurred when the money was advanced.

[21] The issue is not one which should be decided without proof, and should not have been so decided in Beard, where there should have been a proof of the defenders' averments that loss occurred at the outset of the lease. The case of Beard has been criticised by commentators. In Walker on Prescription and Limitation (6th edition p72) it was criticised on the basis that it could not have been certain at the time of execution that any loss would be sustained.

[22] Jackson v Clydesdale Bank PLC does not assist since the real issue was whether the links between the company and the receiver meant that the transaction could be reversed. Counsel referred to the paragraph 4.46 in Johnston on Prescription and Limitation:

"The view that loss is sustained at the date of the transaction may be justifiable on the facts provided that (1) the loss is material; (2) the loss is certain or only to be avoided if some extraneous factor intervenes; and (3) the loss is not speculative, prospective, contingent or deferred. If these conditions are not met, the loss must arise."

Counsel submitted that the loss in the present case must necessarily be speculative and prospective until the rent review clause failed in 1999 and that the loss did not occur until that date. The court should therefore allow a proof before answer.

(c) Senior Counsel for Defenders

[23] Senior Counsel for the defenders submitted that prescription exists to bring certainty to commercial and other affairs and to avoid stale claims with their attendant evidential problems. If the pursuers were correct it would result in a serious breach of these principles and the absurd result that prescription might not start running until 2045.

[24] What the pursuers have in the present case is a defective lease, a defective asset. In an action raised at the outset it would be clear that what they had obtained was contrary to instructions and consequently less valuable, the only remaining issue being one of quantification. It is not reasonable to assume that another party, who has a specific right, will not take advantage of it.

[25] In Dunlop there was no expectation of any change in the asset prior to Whitsunday, at which point effectively a new asset would be created, one with the right to remove the tenant. They would have had the same asset on day 41 and day 39 but not at Whitsunday. Fergus v MacLennan was in a separate category and was really straining the issue: it was difficult in that case to see that a loss had not occurred at an earlier date.

(d) Senior Counsel for Pursuers

[26] For the pursuers, senior counsel submitted that only the clearest cases merited a decision at debate. It is not clear that the conditions referred to above in paragraph 4.46 of Johnston on Prescription and Limitations are met and it would be appropriate to send the case to proof before answer on this issue. On the defenders' argument, the pursuers would have to have raised an action by January 1995, four years before the problem was identified.

II Relevancy of averments of loss

(a) Defenders' Submissions
[27
] According to counsel for the defenders there were two issues (a) whether the averments were sufficient to prove any loss; and (b) whether the averments were sufficient to justify the sum sought.

[28] He noted that the claim involved calculating the present value of a lost income stream, which necessarily involved actuarial principles. Issues arise about the appropriate rate of return and how it is to be applied. The pursuers have simply plucked a figure out of the air, averring that they "estimate the present value" of lost rental income in the sum of г3,500,000.

[29] The comparison which the pursuers seek to make is not simply between 90% and 100% of prime city centre office rates. One needs to consider the minimum increase provided in the formula agreed at variation, on which it is conceivable that there will be no loss.

[30] Turning to quantification, the averments were fairly bare. Even if enough is averred to allege the year on year loss, that would be insufficient as it does not show how that is converted into a present day figure of г3,500,000. Even if one accepts a present annual loss of г82,000 (based on differentials in the pleadings) one doesn't simply multiply by the remaining 43 years of the lease.

(b) Pursuers' Submissions

[31] For the pursuers, counsel referred to Smith v Lindsay & Kirk 1998 SLT, a solicitors' negligence case, for the observation that there was "no one way of approaching the calculation of damages". He submitted that the pursuers' position was relatively simple, being based on the difference between what the rent ought to be, and what it is and will be. Sufficient notice is given of what these figures are, so the defenders are not prejudiced by lack of notice when it comes to proof. Calculation of the precise sum is straightforward. The defenders have been able to do their own calculation with sufficient precision to aver that the pursuers have either suffered no loss, or indeed, are better off. As for the expenses of the earlier litigation, it is simple arithmetic to identify the sum sued as г50,000, which can readily be checked against the account of expenses.

(c) Senior Counsel
[32
] Senior Counsel accepted and slightly amplified the arguments on loss made by their juniors. Reference was also made to Ellon Castle Estates v MacDonald 1975 SLT (n) 68 and Robertson Construction Denny Limited v Bone Steel & Others, an unreported decision of Lord Clarke of 29 October 2003.

 

Discussion

Prescription

[33] In my opinion the situation in the present case, as in Beard, is that at the time of execution the pursuers had something which was intrinsically less valuable than it ought to have been. It seems quite wrong in principle that the running of prescription should depend on a third party failing to enforce a right to which he was entitled. I agree with the observations in Jackson that the "possibility of voluntary steps being taken by a third party to remedy, cancel or mitigate the amount of loss will not on that account delay the starting point for the running of time for the purposes of prescription."

[34] Such an approach is consistent with the cases cited to me. In Dunlop there was no question of having to rely on the intercession of a third party for loss to ensue. In that case the landlord would not have been able to evict the tenant before Whitsunday even if proper notice had been given. Until that point, even after the period had started to run without notice having been given, the landlord had the same asset with the same worth, i.e. a property with a sitting tenant. Only at Whitsunday did he have something different and less valuable than that which he ought to have had, namely a property without vacant possession. That, it seems to me, is the reasoning of the court. It was not because in the interim the tenant might agree to leave, or die, or because of any other such contingency. The reasoning in Dunlop appears to be wholly consistent with both Beard and Jackson.

[35] Duncan was not a case in which loss could only be avoided by the intervention of a third party; it was a case in which loss would not follow until such an action put it out of the pursuer's hands to prevent it.

[36] Fergus is admittedly a more difficult case to reconcile. However, on one view of it, if the loss is treated as being the loss of the property, that loss only occurred when it was out of the pursuer's hand to obtain title to the property. That only happened in 1983 when, by operation of law, the loss became inevitable. This may offer some explanation for a case in which, at first blush, at least some loss must have occurred before 1983. However, until 1983 the purpose of the instructions could still have been carried out, albeit at additional cost. The factual situation was somewhat complicated and it was in the "unusual circumstances" the court felt it appropriate to allow a proof before answer to establish the facts.

[37] Osborne is quite a different species of case. In such circumstances a loss would not usually have been incurred until there was default in the loan, but that is not a good analogy with the circumstances of the present case. Moreover, it is wholly clear that the court took the course it did because of the particular circumstances of the case. Where pursuers aver that they should never have been advised to lend in the first place, and, but for the negligent advice, would not have done so, their own averments immediately raise the possibility of the loss having occurred at the earlier date.

[38] Strathclyde Regional Council v Fairhurst is again a different type of case. That was a case involving negligent design of a bridge, in which it was recognised that what had to be established was physical damage of a material kind. One can readily see the need for proof in such circumstances.

 

Decision

Prescription

[39] In my opinion the defenders were correct to suggest that the pursuers are seeking to confuse the occurrence of a loss with its quantification. At the time of the execution of the lease they had a less valuable asset than they should have had and, as in Beard, would have been able to raise an action. As in Beard, the assessment of damages might have been less capable of precision than at a later stage but the exercise could clearly have been carried out. It is not unusual for the court to have to approach the assessment of damages according to certain future likelihoods. Accordingly I am of the view that the claim has prescribed by virtue of section 6 of the Prescription and Limitation (Scotland) Act 1973. I will therefore withhold from probation the averments in article X of condescendence (i) at page 74 of the Closed Record (as amended), from the words "the pursuers did not suffer" in line 6 thereof, to the words "Further, and in any event," in line 12 thereof; and (ii) in the fifth line of page 76, the words "November 1999 et separatim"

 

Averments of loss

[40] I consider that the pursuers have made sufficient averments both to show a loss and to enable a quantification of that loss to be calculated. They aver or admit: the original rent up to 1999 and what the rent in 1999 and 2004 would have been under the clause as instructed; the rent as varied from 1999 to 2003; from 2003 to May 2005; and from then to 2009. They aver the formula to operate from 2009 and aver that, based on historical rental values, rents are likely to continue to rise at a sum in excess of 7.73%. They aver that the varied rent will never reach the sum it would have done had the clause been drafted as intended. They may be right or they may be wrong about this. The defenders' approach may eventually be preferred. However it cannot in my view be said that the averments are not sufficient to allow the pursuers a proof on the matter.

[41] I shall therefore repel the first plea in law for the defenders and the third plea in law for the pursuers and quoad ultra allow the parties a proof before answer of their averments.


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