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JAMES GILCHRIST AND OTHERS AGAINST MCCLURE NAISMITH LLP


OUTER HOUSE, COURT OF SESSION

[2015] CSOH 134

 

A415/14

OPINION OF LORD BANNATYNE

In the cause

JAMES GILCHRIST AND OTHERS

Pursuers;

against

McCLURE NAISMITH LLP

Defenders:

Pursuer:  AJ Bowen QC;  DAC Beachcroft Scotland LLP (for Ascent Legal Scotland)

Defender:  ARW Young QC, C Paterson;  CMS Cameron McKenna LLP

 

13 October 2015

Introduction

[1]        This matter came before me as a procedure roll debate in terms of the defenders’ first plea-in-law which was a general plea directed to the relevancy and specification of the pursuers’ pleadings.  In terms of that plea, the defenders submitted that certain averments of the pursuers should not be admitted to probation.

 

Overview of case
[2]        In the action the pursuers sought reparation for loss, injury and damage which they alleged had been sustained by them as a result of legal advice tendered to them by the defenders.  They alleged that this advice was negligent et separatim in breach of contract.  The pursuers sought damages under various heads.

 

The pleadings
Parties and the capacities in which they sue
[3]        The first pursuer sued the defenders as an individual and as an assignee of all rights, title and interest of Hawkhill Estates Ltd (in liquidation) (“Hawkhill”).  The second pursuer is the wife of the first pursuer.  The third pursuer is a company Fearann Ltd.  The defenders provide legal services.

 

The general background

“COND. III.   On or about August 2005 Hawkhill and a Thomas Barr entered into a joint venture in terms of which Hawkhill and Thomas Barr (“Mr Barr”) jointly purchased a commercial property at Riverside Business Park, Irvine (‘the Property’) to be registered in Hawkhill’s name with a view to leasing the Property to a substantial public-sector tenant and selling it with the benefit of the tenant premium.  A Minute of Agreement, prepared by Thomas Barr’s solicitors, recorded the terms of the joint venture as follows:  the parties would contribute equally to the purchase of the Property,  the Property would be sold on as advantageous terms as possible, the net profit on sale of the Property would be divided equally between the parties and each party would meet their own tax.  The parties were under a duty to apply the property for the purposes of the joint venture.  The parties invested £1m each in the joint venture. Hawkhill’s investment was funded by loans from Royal Bank of Scotland plc secured on the Property.  Hawkhill was unable to lease the Property to a public sector tenant and instead leased the Property to a private sector tenant with the first pursuer managing the Property on behalf of the joint venture.  The first pursuer had attempted to sell the Property in 2007, in 2008 and in 2009 but without success.”

 

 

The dispute with Thomas Barr

“COND. IV.   By letters dated 18th December, 2009 and 21st January, 2010 Solicitors acting for Thomas Barr notified the first pursuer and the defender, who acted for the pursuers through their members and employees, that Thomas Barr was alleging that the first pursuer was in breach of the joint  venture and that the first pursuer had retained rental income from the Property without accounting to him.  Thomas Barr made a number of proposals which included either party buying out the other’s interest in the Property.  The Property was at that time valued at £1.7 Million.  The allegations in relation to breach of the joint venture were unfounded and the pursuers sought advice from the defender in relation to the letters of 18th December, 2009 and 21st January, 2009 and also in relation to outstanding invoices relating to property consultancy services provided by the third pursuer to (BHL), a company controlled by Thomas Barr, which were then estimated at £853,000 and which Thomas Barr had told the first pursuer in or about March 2010 were not going to be paid.  The first pursuer advised the defender that he was concerned that Thomas Barr was not accounting to BHL for the full amounts which had been earned by BHL from the property developments in respect of which the first pursuer had provided consultancy services through the third pursuer to BHL.”

 

 

The advice of the defenders

They “advised the first pursuer, the third pursuer and Hawkhill that the Minute of Agreement was ‘not worth the paper it was written on’ and that the Property should be transferred by Hawkhill to the third pursuer for the sum of £1.7 million made up ‘by the sum of £850,000 (approximately) due by [BHL], the £600,000 loan advance by RBS and £250,000 of the balance’.”

 

 

The mechanics of the implementation of the advice and the alleged failures by the defenders properly to advise

“COND. V.  Between 8th March, 2010 and 30th July, 2010 the defender arranged for the transfer of the first pursuer’s shareholding in Hawkhill to the third pursuer in consideration for the issue of 200 shares in the third pursuer to the first pursuer, for the transfer of title to the Property from Hawkhill to the third pursuer and for the transfer of liability for the loan from Royal Bank of Scotland plc from Hawkhill to the third party.  The defender also arranged the assignation by the third pursuer to Hawkhill of its title and interest in the sum owed by BHL to the third pursuer of £853,371 by assignation dated 20th July, 2010 and the further sum of £597,488.98 by assignation dated 10th January, 2011 both intimated to BHL on 11th January, 2011.  The total sum assigned was £1,450,859.98.  The defender failed to advise the pursuers that the transfer of the Property would be a breach of fiduciary duty by Hawkhill and that the first, second and third pursuers and Hawkhill would be liable to account to Thomas Barr for his half-share of the Property on the basis that they had knowingly effected and assisted in the receipt of trust property in breach of trust.  The defender also failed to advise the third pursuer to pursue the debts owed by BHL by raising an action and arresting funds held in the hands of third parties, the first pursuer having advised Mr Aitken that BHL had funds in its bank in the region of £350,000 as shown in BHL’s accounts for accounting year ending 31st July, 2005.  BHL’s accounts for year end 31st July, 2009 show fixed assets of £711,220 and cash of £53,180.”

 

 

What happened following the putting into effect of the above advice

“Following the transfer of the Property to the third pursuer, Thomas Barr raised proceedings against the pursuers and Hawkhill alleging inter alia breach of trust and seeking inter alia payment by the first and second pursuers and Hawkhill of £850,00 plus interest from 2nd August, 2010 being half the value of the Property transferred in breach of trust.  On 31st October, 2010 inhibitions were granted against the first and second pursuers and their personal bank accounts were arrested.  Rent payable by the tenants of the Property was arrested in the tenants’ hands.  Euan Brown of the defender advised the second pursuer that she should be separately represented and recommended Levy & Macrae who she duly instructed.  Mr Aitken advised Hawkhill to raise an action against BHL to recover the unpaid fees owed by BHL which had been assigned by the third pursuer to Hawkhill.  An action was raised to recover fees in the sum of £1,167,255.  On or about 25th March, 2011 Lord Hodge awarded summary decree against Hawkhill for payment of £850,000 on the ground that the transfer had been a breach of fiduciary duty to which Hawkhill had no defence.  As a result Begbie Traynor were appointed as administrators to Hawkhill and subsequently Hawkhill went into liquidation on 19th September 2011.  By assignation dated 6th and 8th September, 2011 and intimated to BHL on 12th September, 2011 Hawkhill through its joint liquidators assigned to the first pursuer all rights it had acquired against BHL through the assignations from the third pursuer dated 20th July, 2010 and 10th January 2011.  After extensive negotiations and on the advice of the defender and Senior Counsel the pursuers settled the actions between Thomas Barr and the pursuer and Hawkhill and between the first pursuer and BHL on or about 12th October, 2012 on the terms that the Property was transferred to Thomas Barr, the debt to RBS secured over the Property would be taken over by Thomas Barr, sums of rent arrested would be released to Thomas Barr, decree of absolvitor was granted in both actions with no expenses due to or by any parties.  The defender had continued to act for the first and third pursuers and Hawkhill.  By assignation dated 3rd and 4th June, 2013 intimated to the defender via their agents Dundas & Wilson on 7th June, 2013 Hawkhill through its joint liquidators assigned to the first pursuer its rights, title and interest in connection with advice given by the defender to Hawkhill.  Hawkhill was dissolved on 10th September 2013.  A copy of the assignation dated 6th and 8th September, 2011 and assignation dated 3rd and 4th June, 2013 are produced and referred to for their terms which are incorporated herein for the sake of brevity.  The defenders’ answers are denied save insofar as coinciding herewith.  Thomas Barr’s allegations were robustly denied by the defender acting on the instructions of the first pursuer and Hawkhill and the action was defended on that basis.  As the defender was well aware, BHL, a company controlled by Thomas Barr, had failed to account to the third pursuer for fees.  The first pursuer and Hawkhill had not accounted to Thomas Barr for rental income from the Property pending payment of said fees.  The first and third pursuers and Hawkhill opposed the application to strike BHL from the register and the defender’s John Bett advised the first pursuer that Companies House had informed him that HMRC had also objected.  Begbie Traynor required a deposit of £10,000 to act as administrators as Hawkhill had no cash in the bank.  The first pursuer paid this sum.  Begbie Traynor assigned the claim against BHL to the first pursuer in consideration for the £10,000 deposited by the first pursuer.”

 

 

The duties breached
            The only duty pled which was material for the purposes of the argument before me was as follows:

“ The defender was under a duty to advise the pursuers and Hawkhill that the Property was held in trust for the joint venture, to advise the pursuers and Hawkhill that the transfer of the Property to the third pursuer would be a breach of trust and that there could be legal consequences in relation to the Property and damages for breach of the terms of the joint venture.“

 

 

The losses claimed by the pursuers
[4]        In article 9 of condescendence, certain losses of the first pursuer were averred.  The parts of article 9 material to the discussion before me were these:

“The first pursuer had been required by HMRC to account for VAT on his fees submitted to and paid by Hawkhill between August 2006 and March 2011 when his income rose above the VAT threshold.  He submitted an invoice dated 31st March, 2011 to Hawkhill in respect of said VAT but Hawkhill went into administration before said VAT invoice was paid and the first pursuer as a creditor in Hawkhill’s liquidation received no dividend.  By February 2013 he had paid VAT of £57,401.30 on fees rendered by him to Hawkhill for management for the period August 2006 to March 2011 and he was advised by Johnston Carmichael that he was only entitled to claim 20% of said VAT, £8,278.55 leaving a loss of £49,122.“

 

and

“His health has suffered as a result of the stress caused by the litigation and the damage to his reputation.  As a result of the litigation and the liquidation of Hawkhill he has lost the opportunity to receive management fees through Hawkhill and the third pursuer for the tax years 2010/11, 2011/12 and the equivalent of six months from 2012/13, a total of £144,385 based on average net annual earnings in the four years prior to 2010 of £57,754.  The first pursuer was prevented from pursuing alternative business because of the damage caused to his reputation by the finding of breach of trust.  The defender did not advise the first pursuer of any breach of trust in relation to the rental income from the property.  The defender’s David Forrester acted for the first pursuer in relation to the disqualification undertaking which did not cover Hawkhill and the third pursuer but related to any new companies because the disqualification proceedings concerned poor administration in submitting annual returns and accounts in existing companies excluding Hawkhill and third pursuer.  This is the sum second concluded for.”

 

[5]        Turning to article 10 of condescendence the averments here related to Hawkhill’s losses.  These losses fell into two parts first:

“COND. X.     As a result of the defender’s breach of contract Hawkhill suffered loss and damage.  The Property was leased until 2018.  Had the defender advised Hawkhill of its duty to apply the Property for the purposes of the joint venture the most probable outcome following the letter of 18th December, 2009 is that Hawkhill would have obtained funding to buy Thomas Barr’s £1 million interest in the Property and repay Thomas Barr’s share of the past rent, the joint venture would have been terminated and Hawkhill would have used future rental income to repay the loans so that by the end of the lease in 2018 Hawkhill would have had £875,927 equity in the Property.  As a result of the defenders’ advice the pursuer did not pursue the option of the purchase of the Property which Thomas Barr’s agents had raised in their letter of 21st January, 2010.  Said option would have been commercially viable because the pursuer would have secured the funding on the combined security of his home and the Property.  The schedule headed ‘Scenario that Hawhill would have bought out Thomas Barr’ is produced and referred to for its terms which are incorporated herein for the sake of brevity.  Hawkhill has accordingly lost the opportunity to acquire equity in the Property as condescended upon.  This is the sum third concluded for.“

 

and secondly:

“Further, Hawkhill owned a property at 11 Buccleuch Lane, Glasgow valued on or about 21st July, 2010 at £220,000.  The Liquidator sold the property for £135,000.  In addition but for its liquidation Hawkhill would have continued to own 11 Buccleuch Lane which in 2009/2010 generated net income of £6,872 as a self-catering apartment, a schedule showing which and headed ‘Buccleuch Lane No. 11’ is produced and referred to for its terms which are incorporated herein for the sake of brevity.  Hawkhill intended to retain Buccleuch Lane for the foreseeable future and accordingly claims loss of income for five years in the sum of £34,360.  Accordingly Hawkhill lost the opportunity to acquire equity in 11 Buccleuch Lane of £85,000.  This is the sum fourth concluded for.  The defenders’ answers are denied save insofar as coinciding herewith .  Explained and averred that the defender acted for Hawkhill in the purchase of 11 Buccleuch Lane May 2008 for £210,000 at which time the bank valuation was £230,000“

 

[6]        Article 11 sets out the second pursuers’ losses.  She claimed for her health having suffered as a result of the litigation.

Submissions on behalf of the defenders
[7]        The defenders submission generally related to the relevance and specification of certain of the claims made on behalf of the pursuers.

[8]        Mr Young’s first argument was that the first pursuer’s claim for £49,122 in respect of VAT charged by himself as a sole trader to Hawkhill in the period August 2006 to March 2011 was irrelevant.

[9]        This claim related to output tax which the first pursuer had failed to properly charge Hawkhill during the period 2006 to 2011 when the first pursuer’s turnover exceeded the VAT threshold and thus he had been required to render an invoice to Hawkhill for five years’ worth of VAT in March 2011, but was unable to recover this from Hawkhill before it went into liquidation.

[10]      Mr Young challenged the relevance of this claim.  It was first his position that the loss was not directly linked to any of the specific breaches of duty pled against the defenders.  There was no duty pled relative to advising the first named pursuer on VAT or regarding the first pursuer’s trading relationship with Hawkhill.

[11]      The VAT issue arose after the defenders put into effect the transfer of the property which was at the core of the pursuers’ complaint against the defenders.  Nothing was averred to found a case against the defenders that this VAT issue should have been in the reasonable contemplation of the parties when they undertook their contractual obligations in 2010.  Beyond that, it was not the kind of loss which would fall within the scope of the duty owed by the defenders to the first pursuer.

[12]      It was his position that if argued:  that on a “but for” analysis this loss was recoverable, then such an analysis was insufficient to determine the kind of loss that could be claimed following a breach of duty.  This submission was made under reference to:  Kuwait Airways Corp v Iraqi Airways Co 2002 2 AC 883 per Lord Nicholls at paragraph 69 to 71.

[13]      Moreover, he submitted that this was a loss which had been sustained as a result of the first pursuer’s own failure to correctly operate the VAT regulations from 2006.  Had the first pursuer correctly charged VAT from 2006 as required by law, then on the hypothesis of fact upon which the pursuers proceeded, Hawkhill would have made payment of the VAT element so the first pursuer would not have suffered any loss.  Accordingly this loss was purely caused by the first pursuer’s own fault.

 

Reply for the pursuers
[14]      Mr Bowen submitted that the appropriate way to test the relevancy of the pleadings in relation to this part of the claim was by application of the “but for” test.  It was his position that the loss was clearly caused by the defenders’ negligence, in this sense:  the negligence was an effective or a dominant factor rather than merely the occasion of the loss.  But for the liquidation of Hawkhill, the first pursuer would have recouped the full amount of the output tax.  He submitted that the fact the output tax related to the period 2006/2011 did not as a matter of law mean that the loss was caused by that fact nor could it break the causal link between the liquidation and the loss.  The defenders accepted responsibility for the types of losses which could reasonably be seen at the time of the contract to be not unlikely to result if the contract was broken.  Thus the loss was not too remote.  In any event he submitted that the issue of remoteness should not be decided at this stage but rather after proof.

 

Discussion of the first issue
[15]      I am persuaded that in relation to this first issue, I should prefer the arguments put forward by Mr Young.

[16]      The duties at page 27D to 28B of the record are narrowly pled.  I am unable to identify how a duty to advise the pursuer and Hawkhill that the property was held in trust and its transfer would be a breach of trust could on a fair reading be said to include a duty to advise the first defender in relation to the issue of VAT or regarding his trading relationship with Hawkhill.

[17]      In Kuwait Airways Lord Nicholls at paragraphs 69 to 71 gives guidance as to the identification of a plaintiff’s true loss in actions of tort.  This requires the court to consider two issues, namely:  first to apply the well known “but for” test and secondly, ... “The law has to set a limit to the causally connected losses for which a defendant is to be held responsible”.  Those “outside the limit” ... “may be described as too remote because the wrongful conduct was not a substantial or proximate cause, or because the loss was the product of an intervening cause”.

[18]      Assuming that the first pursuer’s averments can pass the “but for” test, I am persuaded that they cannot pass the second test.

[19]      The proximate cause of this loss is not breach of any of the duties pled, rather the real or proximate cause of the first pursuer’s loss was the first pursuer’s fault in not properly charging VAT.  Further, it appears to me that applying the principle of foreseeability to the circumstances of this case, I am persuaded that such a loss at the time of the tendering of the advice could not reasonably have been foreseen.  How could the defenders reasonably have foreseen that the first pursuer was not, as required by law, correctly charging VAT.

[20]      Lord Nicholls at paragraph 71 goes on to say this: 

“In most cases, how far the responsibility of the defendant ought fairly to extend evokes an immediate intuitive response.”

 

[21]      Here I believe the intuitive response is that this loss is not recoverable and that is confirmed by looking to (1) the ambit of the defenders’ duty (2) the issue of proximate cause and (3) reasonable foreseeability.

[22]      For the foregoing reasons, I am of the view that this particular part of the pursuers’ claim is not relevant.

 

The second issue
[23]      The second matter argued by Mr Young related to the sum of £625 plus VAT sought at page 30A-B of the closed record which relates to payment for advice with respect to the VAT issue dealt with above.  His argument relative to this was the same as he put forward regarding the first issue.  Accordingly for the same reasons as above stated, I believe this head of damage is also irrelevant.

 

The third issue
[24]      The next head of claim to which Mr Young turned was this:  the third pursuers previously had made a claim within the seventh conclusion for the loss of opportunity to recover fees due by BHL.  That claim had recently been deleted albeit that the linked averments of fact and duty had not been excised from the pleadings.  Moreover, in the first conclusion, there was a claim for the sum of £17,526 in relation to legal expenses paid by the first pursuer on behalf of Hawkhill who raised an action against BHL based on the claim assigned to Hawkhill by the third pursuer.  If, as now appeared to be accepted, there had been no loss sustained by any of the pursuers as a result of the claim against BHL, it would appear to follow that no criticism could be made of the legal costs incurred by Hawkhill in pursuing BHL.  He submitted that this head of claim should be deleted or at least, the pursuers required to explain the continued basis for this claim.

 

Reply for the defenders
[25]      It was accepted that the claim involving BHL had been stripped out of the pleadings.  This was because BHL had no assets.  Mr Bowen also accepted therefore that the  £17,526 in expenses was also not recoverable.  However, he submitted the supporting averments were of relevance in relation to the breach of duty averments made in article 8.  In particular they had relevance to the averment made at page 28A to B:  it was the defenders’ duty:

“to advise the pursuers and Hawkhill that recovery of the debt owed by BHL to the third pursuer should be pursued by an action to recover the debt and that funds of BHL held in the hands of third parties should be arrested.”

 

It was his submission that the averments were of relevance generally in relation to the advice given by the defenders that an action should not be raised against BHL.

 

Discussion of the third issue
[26]      I am persuaded that the averments are of relevance for the reasons advanced by Mr Bowen and accordingly they should be admitted to probation.

 

The fourth issue
Submissions for the defenders
[27]      Mr Young’s submissions related to the averments supporting the second conclusion.

[28]      Generally in the first part of his argument under this head, Mr Young submitted that it was not at all clear what case the defenders were facing.  To some extent the point he was advancing was an issue of lack of specification.

[29]      In his averments in support of this conclusion the first pursuer claimed for damage to his health due to:

  • “stress caused by the litigation”
  • “damage to his reputation”

(See:  page 31C of the closed record).

[30]      Immediately following the above averments was this:

“As a result of the litigation and the liquidation of Hawkhill he has lost the opportunity to receive management fees through Hawkhill ...”

 

[31]      Other than to aver one attendance with his general practitioner there was no indication given as to the physical and mental problems from which the first pursuer had suffered.  Nor was there specification of how his reputation had suffered and how this had affected his business. Overall, three distinct bases were put forward in support of the second conclusion without any appreciation of the differences in these claims.

[32]      Beyond the above, Mr Young made the point that mental distress could not generally be claimed in a professional negligence case unless the contract was to provide peace of mind which was not the case here.  A claim for stress without any specification that it went beyond an emotional reaction did not sound in damages (see:  Simpson v ICI Ltd 1983 SLT 601;  Watts v Morrow 1991 1 WLR 1421;  Mack v Glasgow CC 2006 CSIH 18 at paragraph 17;  Hartle v Laceys 1999 Lloyds Rep PN 315;  and also Jackson & Powell at paragraphs 11-332 to 336).  Mr Young made the same argument regarding, the second pursuer’s claim based on “stress” (see:  article 11).

[33]      Mr Young also put forward a distinct second chapter to his arguments under this head and this related to the following aspect of the claim:  the first pursuer sought damages for the lost opportunity to receive management fees through Hawkhill and the third pursuer for two to three years.  The basis for this was averred to be “as a result of litigation and the liquidation of Hawkhill”.

[34]      Mr Young thereafter proceeded in relation to this claim to reiterate the points regarding the VAT claim as set out above.  It was, he submitted, once more a claim solely based on a “but for” analysis.  The claim was irrelevant as it did not pass the second leg of the test of Lord Nicholls regarding scope of duty and remoteness.  There was nothing in the pleadings to indicate that the defenders were or ought to have been aware that the continued existence of Hawkhill was critical to the first pursuer earning fees and that he could not have earned these through some other vehicle.

 

Reply on behalf of the pursuer
[35]      Mr Bowen submitted that the first pursuer offered to prove that his health had suffered as a result of the stress caused by litigation and the damage to his reputation.  It was his position that the averments combined with the medical records in process constituted a relevant case for proof.

[36]      In support of his position that these averments were relevant, he directed my attention to Curran v Doherty 1995 SLT 716 in which an award of damages was made for anxiety, worry and distress arising from the professional negligence of a solicitor who had advised the pursuer relative to her divorce.

[37]      He submitted that the three different bases which founded the claim were sufficiently clearly identified and differentiated at page 31 of the record and no confusion as to the nature of the case arose.

[38]      Moving on to the second broad branch of the defenders’ argument, he submitted that the first pursuer offered to prove that he had lost the opportunity to receive management fees on the basis that, but for the litigation and Hawkhill’s liquidation, he would have continued to receive those fees in the tax years 2010/11 to 2012/13.  The circumstances averred in respect of the close relationship between the first and third pursuers and Hawkhill and the outcome of the action brought against those parties, constituted a sufficient basis to establish the first pursuer’s inability to trade through Hawkhill and the third pursuer.

 

Discussion of the third issue
[39]      With respect to the issue of lack of specification, I have no difficulty in finding that there is a lack of specification.  I am persuaded that it is not sufficient specification to aver this:  the first pursuer “health has suffered as a result of the stress caused by the litigation and damage to his reputation.”  In my view, the averments are lacking in specification for the following reasons:

  • The pursuer has to provide more detail of how his health has suffered in order to give fair notice of his case.
  • He has to say whether he was too unwell to work due to physical or mental health problems or both and if so, he has to aver in detail what these physical/mental problems were and when he was unable to work due to these.
  • On the other hand, if he is saying that he was fit to work but could not obtain work due to the damage to his reputation then he has to aver this and aver:what work he did not obtain;when he did not obtain this work;the nature of the work he did not obtain;and from whom he did not obtain the work.Not to make such averments is to fail to give fair notice of his case.
  • If on the other hand his position is that on both of the above bases he was unable to obtain work ie he did not obtain work due to damage to his reputation and due to damage to his health, then the averments which I have above said are necessary require to be made in order to properly specify these claims and in addition the two claims have to be clearly distinguished by averment.In other words when the claim relates to periods of ill-health then that has to be averred and when the claim is based on damage to reputation and loss of work due to that, the periods for that part of the claim also have to be identified.In the absence of such averments, there is no fair notice of the case being made.
  • What the pursuers cannot do I believe, is to lump these different claims together, not clearly differentiating between them and in addition not giving any details of the claim.In my view, that is precisely the position as presently averred on record.

[40]      I am satisfied that the pursuers’ averments in support of the said claim are wholly lacking in specification in that they entirely fail to give fair notice of the case made to the defenders.

[41]      With respect to the issue of the relevancy of the averments of loss based on “stress caused by the litigation” this, in my view, is an irrelevant averment.  In my opinion “stress” is not sufficient to found a claim.  If it is as a result of a mental rather than physical problem that the pursuer was unable to earn fees then in order to be relevant the averment must be of a recognised psychiatric/psychological problem (see:  in particular Simpson v ICI Ltd per Lord Robertson at 605).  For the same reasons I find the claim of the second pursuer based on stress irrelevant.

[42]      The case of Curran v Doherty does not provide any assistance to the pursuers in that there was no dispute in that case that the distress and anxiety occasioned to the pursuer did sound in damages.  Therefore the issue before me did not form any part of the argument before the Lord Ordinary in Curran v Doherty.  It forms no part of the ratio of that case that a claim averred as the pursuer has done in this case is relevant.

[43]      Moreover, there is in any event a complete lack of specification as to what was the effect on the pursuer’s health.

[44]      It was argued by Mr Young that there was a further difficulty which related to the averments of damage caused to the reputation of the pursuer by the finding of breach of trust.  As he pointed out there was no finding of breach of trust against the first pursuer but only against Hawkhill.  However, I believe Mr Bowen’s reply that the first pursuer’s reputation was so clearly interlinked with Hawkhill’s, that his reputation was affected by the finding is sufficient on this point.

[45]      It was also argued by Mr Young that it was clear from the pursuer’s own averments at page 24 and as narrated in the opinion of Lord Hodge that the first pursuer failed to account for rent due to Thomas Barr in breach of the joint venture agreement so his reputation was affected by an issue which arose before the defenders were instructed in 2010.

[46]      In my view this is a matter which cannot be dealt with at this stage but requires evidence to be led to see how the issues interrelated, if at all.  It is a matter for proof.

[47]      Lastly, turning to the issue of remoteness, I am not persuaded that on the basis of the pleadings I can determine the issue of remoteness in relation to this part of the claim.  I cannot say at this stage that on the basis of the pleadings the proximate cause for this loss is not the averred breach of duty on behalf of the defenders.  I am accordingly not persuaded by the argument put forward by Mr Young as regards this matter.

[48]      There was a final argument put forward by Mr Young that the loss of management fee income was based on the first pursuer’s pre 2010 earnings.  This argument as set forth at paragraph 8 of the written submissions required evidence to be heard before it could be decided.

 

The fifth issue
[49]      The fifth issue related to the third conclusion and in particular to a property Omni House (referred to as “the property” in the pleadings).  In short the pursuers averred that, if properly advised, Hawkhill would have bought out Thomas Barr’s share in the property and would have paid Thomas Barr’s share of past rent.  The third conclusion sought payment of £875,927 which was said to be the equity which Hawkhill would have had in the property by the end of the lease in 2018.  A schedule is incorporated showing the method whereby it is said that equity would have been built up.

[50]      Mr Young took no issue with the proposition that there could relevantly be pled a loss of opportunity claim under this head.  However, where he did take issue was this:  how the claim was formulated.  In development of the above argument he said this:  where as a result of professional negligence, a claimant had lost out on the opportunity to acquire an interest in property, damages were assessed by taking the difference between the value of the property which would have been acquired less the sum which would have been paid to acquire it.  In support of this he referred to Jackson and Powell on Professional Liability at paragraph 11-282.  He accepted that a different approach might be appropriate where the property was to be developed but that was not relevant in the present case as, by 2010/11, Omni House had been developed and let.  The pursuers averred that Hawkhill could have acquired Thomas Barr’s interest for £1 million but did not aver that his interest was worth more than that.  If the pursuers had only lost out on the opportunity to pay market value for the interest in the property then there was no loss.  Indeed, on the face of the schedule produced, in support of the claim (and which was incorporated in the pleadings) the pursuers would have paid £1 million for an interest worth £850,000 so by not purchasing the interest, the pursuers would have avoided a loss.  This approach also had the merit that the date of assessment of loss was close to the date of the breach.

[51]      Rather than take the above approach the pursuers had sought to establish a “loss” as at a future date in 2018.  He observed, that they sought interest in the conclusion from the date of citation even though the loss had, on their averments, not yet crystallised.  Nor he observed did they seek to discount the “loss” back to a current value.  However, his more fundamental objection was that the pursuers were seeking to create a “loss” by projecting a date of assessment in the future.  The equity would be far lower if the current date was taken, or potentially far higher if a date beyond 2018 was taken.  There was no principle why 2018 was the appropriate date on which to assess this loss.  No valuer could say that the value of the property in 2018 would be £1.7 million which was a key figure for the pursuers’ calculation.  If the pursuers had truly lost the opportunity to acquire the property interest in 2010/11, the loss he submitted should be assessed by reference to the value of the interest as at that date, which value would take account of the existence of the lease.

[52]      A further point in relation to this head of claim which Mr Young sought to make was that in the schedule, the pursuers sought to show how equity could have been built up from the application of the rental payments to reduce the sums due to the heritable creditor.  The period 2005 to 2010 during which Thomas Barr was entitled to a one half share of the annual rent, the pursuer had deducted £97,785 of expenses from Thomas Barr’s entitlement.  This presumably meant that there were expenses occurred of approaching £200,000 for this five year period.  On the assumption that the pursuers would have acquired Thomas Barr’s interest in 2010, the full annual expenses would have fallen to be deducted from the rent received from 2010 to 2018.  However, the schedule made no deduction for expenses in this period but simply assumed that all of the rent could be set off against the monies due to the heritable creditor thereby maximising the equity build up.  No explanation was provided in the pleadings or schedule why the expenses should fall to zero once Thomas Barr’s interest was acquired.  While the pursuers had indicated informally that the first named pursuer would not have charged management fees to Hawkhill once it acquired the whole interest of the property, that was not averred and in any event was contrary to the first pursuer’s claim for loss of management fees in conclusion two.

 

Reply on behalf of the pursuers
[53]      Mr Bowen submitted that Hawkhill’s claim was for loss of opportunity to acquire equity in the property with reference to the lease terminating in 2018.  Hawkhill had to establish a real substantial chance that it would have acquired that equity and that the loss of opportunity was not too remote, in other words, that the loss was a not unlikely result of the breach of contract.  The pursuers had averred a relevant case for proof.  The issue for proof was whether, on the information available to the defenders when the contract was made, the defenders should or the reasonable man in their position would, have realised that such loss was sufficiently likely to result from the breach to make it proper to hold that the loss flowed naturally from that breach or that loss of that kind should have been within his contemplation (see:  Koufos v Czarnikow Ltd (The Heron II) 1969 1 AC 350 per Lord Reed at page 385;  and Jackson v Royal Bank of Scotland PLC 2005 1 WLR 377 per Lord Hope at paragraph 36.

[54]      With respect to the issue of the annual expenses for the period 2010/18, it was a reasonable inference from the pursuers’ averments and the factual matrix that, after Hawkhill was the sole owner of the property annual expenses previously charged by the first named pursuer, would not be charged to Hawkhill.

 

Discussion
[55]      There is no dispute between parties that generally where a claimant has lost out on the opportunity to acquire property, damages are assessed by taking the difference between the value of the property which would have been acquired, less the sum which would have been paid to acquire it.  However, that is not the approach to the formulation of loss which has been taken by the pursuers.  The question for the court therefore appeared to me to be this:  are there averments made on behalf of the pursuers that on the basis of the information available to them, the defenders should reasonably have contemplated that the loss as formulated was a natural and probable consequence of the breach?  I am satisfied that the answer to that question is no.

[56]      The information available to the defenders at the relevant time was as set out in article 3 of condescendence.  The principal pieces of information were these:

  • the intention of the joint venture was to lease the property to a substantial public sector tenant and thereafter to sell it with the benefit of the tenant premium.
  • Hawkhill was unable to lease the property to a public sector tenant.
  • the property (prior to the alleged breach was instead let to a private sector tenant.
  • the first pursuer had attempted to sell the property in 2007, 2008 and 2009.

[57]      I am satisfied that the above averred factual matrix does not support the averred formulation of loss.  It does not follow from that averred factual matrix that the defenders should reasonably have contemplated that the loss as formulated was a natural and probable consequence of the breach.

[58]      On the basis of this factual matrix, what could not reasonably be contemplated, was the retention of the property to the end of the lease and its sale at that point.  Rather the factual matrix points to the sale of the property at a considerably earlier date.  It had been offered for sale in 2007, 2008 and 2009.  Against that averred background, it could not, it appears to me, to be in the reasonable contemplation of the defenders that the property would be retained until the end of the lease, a date as distant as 2018.

[59]      The date chosen for the crystallisation of the loss under this head appears to have a degree of arbitrariness.  Why does the loss crystallise at that date?  Why not some other date?  No hint is given in the pursuers’ averments as to why that particular date, rather than any other date has been chosen.  This lack of explanation for that particular date being chosen tends to support the view that the loss formulated in this way could not be said to be in the reasonable contemplation of the defenders.

[60]      I conclude for the foregoing reasons that the averments in support of this part of the claim are irrelevant.

[61]      With respect to the second part of the argument relative to this conclusion, an informal indication by the defenders’ legal representatives does not assist in relation to the issue of relevancy and specification.  As to the assertion that it was a reasonable inference from the pursuers’ averments that when Hawkhill became the sole owner of the property, the first pursuer would not charge any fees to Hawkhill, I am not persuaded by this.  In my view, there would have to be averments explicitly stating  that the first named pursuer would not have charged fees.  This must be the case, in that, as submitted by Mr Young, this assertion that it is a reasonable inference runs counter to the first pursuer using his pre-2010 earnings from Hawkhill as a relevant basis for calculating his future loss in support of the second conclusion.  The pursuers cannot have it both ways.  I am of the view that the pleadings in this section are also for these reasons irrelevant and lacking in specification.

 

The sixth issue
[62]      The next challenge related to the fourth conclusion and the property at Buccleuch Lane.  Reading short, this conclusion sought £119,360 and the supporting averments were as follows:  Hawkhill owned property at Buccleuch Lane, Glasgow which was sold by the liquidator for £135,000 whereas it had been valued at £220,000 in 2010.  Thereafter the claim put forward was for the loss of “the opportunity to acquire equity in 11 Buccleuch Lane of £85,000” and for lost rental income of £34,360 over five years.

[63]      The defenders’ primary position in relation to this claim was this:  the claim for loss of an opportunity to acquire equity was strangely put.  Hawkhill in fact owned the property so did not lose the opportunity to acquire anything.  If it was being contended that the liquidator sold it at an under-value then the pursuers should be directing their attention to the liquidator.  On the basis that the liquidator must be assumed, in the absence of averments to the contrary, to have properly fulfilled his duties therefore the property at Buccleuch Lane was sold on a fair basis to meet Hawkhill’s debts.  The sale of Buccleuch Lane would have reduced the indebtedness of Hawkhill so it received full benefit for the value of its asset.  Thus Hawkhill suffered no loss.

[64]      His secondary position was this, that although the pleadings indicated that Hawkhill lost equity of £85,000, it was clear from the schedule of rental loss that Hawkhill had an outstanding loan of £160,000 to the bank in relation to this property.  On that basis, the maximum equity that Hawkhill truly enjoyed on the property was £60,000.

[65]      Moving on, Mr Young also argued that the loss of rental income amounted to a double counting in that the assumption inherent in the capital claim was that the pursuers had cashed in their investment.  Further he submitted the claim for loss of rental income amounted to cherry-picking from the profits which Hawkhill may or may not have earned.  Hawkhill would have received the rental income alongside other income, and with other expenses including management expenses.  If Hawkhill, for example, did not ultimately make a net profit from its business activities as a whole, it would not be appropriate to allow the first pursuer as assignee to claim for some loss of income from one business activity.  This would amount to allowing the pursuers to cherry-pick those parts which appeared profitable without having to give allowance for the unprofitable activities and/or the inherent management expenses in running the business.

[66]      In reply Mr Bowen on behalf of the pursuers argued that the claim related to the losses sustained by Hawkhill as a result of the liquidation sale.  Whether Hawkhill averred the capital loss as a loss of equity or as the loss of opportunity to acquire that equity in the property, the cause of that loss was clear, namely the liquidation sale.  The claim for loss of rental income was relevant as, in addition to retaining the equity in Buccleuch Lane, Hawkhill would have earned rental income.  There was no inference to be drawn from the pleadings that Buccleuch Lane would have been sold.  Mr Bowen in the course of his submissions suggested that it was well known that liquidators got a different price from open market value and that appeared to be the basis for the claim for £85,000.

 

Discussion
[67]      I entirely agree with the primary position developed by Mr Young in relation to this claim.  The averments are irrelevant for the reasons advanced by Mr Young.  If it is to be the defenders’ position that a liquidator obtained a different price when selling property from the price which would have been obtained on the open market, had the property been sold on the open market at the same time then this case is not pled, far less adequately pled.

[68]      I am satisfied that this part of the pursuers’ claim is irrelevant for the above reasons.

[69]      The defenders’ secondary position appears to me to be equally well founded had I not already found in their favour in terms of their primary argument, I would have found in favour of them in terms of their secondary argument.

[70]      With respect to the third argument advanced on behalf of the defenders, it appears to me that in their claim for loss of rental, for the reasons advanced by Mr Young, the assumption inherent in the capital claim is the sale of the property.  Thus the claim for loss of rental income is double counting.

[71]      Beyond that, if I am wrong in my above analysis, there is in any event an element of double counting as their averments of loss of rental income are based on their having been deprived of the whole of the property at Buccleuch Lane.  However, that is not the reality of the position, which is that the first part of their claim proceeds on a claim for a loss of the part of the true value of the property namely £85,000.  They are not in those circumstances entitled to claim the loss of rental income as if they had lost the entire value of the property.  Finally, in my opinion, there requires to be averments on behalf of the pursuers to show they have not cherry-picked the claim as argued by Mr Young.

 

Conclusion
[72]      For the foregoing reasons, I hold that the following averments should not be admitted to probation:

1.         In article 9 of condescendence:

a.         at page 29D-30B from the words “The first pursuer had ...” to ... “advice on recovering said VAT.”

b.         at page 31B-C to page 32A-B from the words “His health has suffered ...” to “... second concluded for.”

c.         At page 32B-D from the words “In answer to ...” to the end of article 9.

2.         The whole of article 10 of condescendence.

3.         In article 11 of condescendence:

a.         at page 36B-C from the words “Her health suffered ...” to “... sues for said injury.”

b.         at page 36C-E from the words “In answer to the defenders’ call ...” to the end of article 11.

[78]      I reserve all questions of expenses.