- The claimant
is the son of the late Enid Daniels and the executor of her estate. The
defendant
is a solicitor. In 1989 he was practising under the
style of Woodcock and Thompson. At about that time, Mrs Daniels decided to
attempt to reduce her estate’s potential liability to inheritance tax. To
that end, she retained the defendant in about July 1989 to give her estate
tax planning advice. The claimant was the only beneficiary under her will,
and he and his mother had already discussed the matter. At that time, Mrs
Daniels owned the freehold of four properties, including "Thornfield",
Moulton Lane, Boughton, Northamptonshire (where she was living). Her preferred
option was to transfer Thornfield to the claimant by way of gift. The defendant
advised Mrs Daniels that Thornfield should be transferred to the claimant,
and that an insurance policy should be taken out to protect her estate against
the risk of a liability to inheritance tax in the event that she died within
7 years of the transfer. Mrs Daniels accepted the advice and the defendant
prepared a deed of gift and this was duly executed on 9 August 1989. He did
not advise her that if she continued to reside at Thornfield otherwise than
for valuable consideration, she would at her death be deemed to have an interest
in possession in Thornfield, which would consequently be deemed to form part
of her estate for inheritance tax assessment.
- Mrs Daniels,
who was 85 years of age at the time of the gift, continued to live at Thornfield
rent free until her death on 17 March 1998. On her
death, the Inland Revenue treated Thornfield as part of her estate on the
basis that there had been a reservation of benefit within the meaning of
section 102 of the Finance Act 1986. The estate was, therefore, assessed
for inheritance tax purposes on the basis of the full value of Thornfield,
and tax of £30,980.80 was paid in March 1999. It is not in dispute that the
Inland Revenue’s assessment to tax was justified.
- The claimant brings these proceedings as executor of the estate. He claims
damages for breach of the duty of care owed by the defendant solicitor to
his client, Mrs Daniels. The claim form was issued in May 2002. By his defence,
the defendant denies breach of duty, but in any event contends that the claim
is barred by the Limitation Act 1980 on the grounds that the cause of action
(whether in contract or tort) accrued more than 6 years before the start
of the proceedings.
- On 29 January
2003, the deputy district judge ordered the trial of the following preliminary
issues: "on what date did the claimant’s cause
of action accrue and on what date will/does the primary limitation period
expire? If the primary limitation period has expired, when was the claimant’s
knowledge and on what date will/does the limitation period pursuant to section
14A of the Limitation Act 1980 expire?"
The statutory framework
- Inheritance
tax is charged on the value transferred by a chargeable transfer: section
1 of the Inheritance
Tax Act 1984 ("the IHT Act"). A chargeable
transfer is a transfer of value which is made by an individual but is not
an "exempt transfer": section 2(1).
- Section 4(1) provides that on the death of any person tax shall be charged
as if, immediately before his death, he had made a transfer of value and
the value transferred had been equal to the value of his estate immediately
before his death.
- The Finance
Act 1986 introduced "potentially exempt transfers" ("PETs")
into the inheritance tax code. Section 3A of the IHT Act provides that any
reference to a PET is a reference inter alia to a transfer of value which
is made by an individual on or after 18 March 1986 and which, apart from
that section, would be a chargeable transfer. Section 3A(4) provides that
a PET which is made 7 years or more before the death of the transferor is
an exempt transfer and any other PET is a chargeable transfer.
- Section 102 of the 1986 Act provides:
"(1)
Subject to subsections (5) and (6) below, this section applies where, on
or after 18th March 1986, an individual disposes
of any property by way of gift and either –
(a) possession and enjoyment of the property is not bona-
fide assumed by the donee at or before the beginning of the relevant period;
or
(b) at any time in the relevant period the property is not
enjoyed to the entire exclusion, or virtually to the entire exclusion, of the
donor and of any benefit to him by contract or otherwise;
and
in this section "the relevant period" means
a period ending on the date of the donor’s death and beginning seven years
before that date, or if it is later, on the date of the gift.
(2) If and so long as –
- possession and enjoyment of any property is not bona fide assumed as
mentioned in subsection (1)(a) above, or
- any property is not enjoyed as mentioned in subsection
(1)(b) above,
the property is referred to (in relation to the gift and the
donor) as property subject to a reservation.
(3) If immediately before the death of the donor, there is
any property which, in relation to him, is property subject to a reservation
then, to the extent that the property would not, apart from this section, form
part of the donor’s estate immediately before his death, that property shall
be treated for the purposes of the 1984 Act as property to which he was beneficially
entitled immediately before his death.
(4)
If, at a time before the end of the relevant period, any property ceases
to be
property subject to a reservation, the donor shall be
treated for the purposes of the 1984 Act as having at that time made a disposition
of the property which is a potentially exempt transfer."
- Section 200(1) of IHT Act provides, so far as material, that the persons
liable for the tax on the value transferred by a chargeable transfer made
(under section 4) on the death of any person are (a) the deceased’s personal
representatives, and (c) so far as the tax is attributable to the value of
any property, the beneficiary or other person in whom the property vests.
The judgment below
- Judge Rundell gave judgment on 15 March 2003. He held as follows:
(a) the cause of action in contract accrued in August 1989
so that the claim in contract was statute-barred;
(b) the cause of action in tort also arose in August 1989,
so that it too was statute-barred; and
(c) the date of knowledge for the purposes of section 14A
of the Limitation Act 1980 was no later than 19 May 1998, so that the claimant
could not invoke this provision.
In the result, he held that the limitation defence succeeded.
The claimant does not challenge (a) or (c). He appeals against (b), however,
with the permission of the judge.
The claim in tort as originally pleaded: breach of duty of care owed to
Mrs Daniels
- At para 7 of the Particulars of Claim, the claimant alleges that the defendant
owed Mrs Daniels a duty of care to exercise the reasonable skills, care and
diligence of a prudent solicitor advising in the field of estate planning
for inheritance tax.
- At para 19, he alleges that the defendant was in breach of duty of care
in that he:
"(i)
advised Enid Daniels that the only risk of a liability to Inheritance Tax
on the transfer was if she died within 7 years of the
same, and/or
(ii) failed to advise Enid Daniels to sever her interest
in Thornfield prior to such transfer, and/or
(iii) failed to advise Enid Daniels of the impact of the
reservation of interest provisions in respect of Inheritance Tax in respect
of the transfer, and/or
(iv) failed to advise to transfer property/assets other
than Thornfield owned by Enid Daniels to Richard Daniels, and/or
(v) failed to advise Enid Daniels to pay a market rent after
the transfer for her occupation of Thornfield payable from her income and
capital assets, and/or
(vi) failed to advise Enid Daniels what steps she could
have taken with respect to her occupation of Thornfield or the rest of her
estate to avoid or minimise any liability of her estate to Inheritance Tax,
and/or
(vii)
failed to advise Enid Daniels to deal with her assets so as to avoid or
minimise any liability of her estate to Inheritance Tax."
- At para 20,
it is pleaded that "if properly advised Enid Daniels
would have arranged the disposal of her estate and/or her occupation of Thornfield
so as to avoid any liability for inheritance tax on her death".
- Para 21 alleges
that by reason of the defendant’s negligence, the estate of Mrs Daniels
suffered
loss and damage, namely inheritance tax in the sum
of £30,980.80.
- The originally pleaded case, therefore, was that the defendant was liable
for the sum claimed as damages for breach of the duty of care owed to Mrs
Daniels.
- For the purpose of the limitation issue, it is to be assumed that these
allegations are well-founded.
- It is trite law that in negligence claims time runs against a claimant
from the date when his cause of action accrues, and that his cause of action
accrues when he suffers damage caused by the negligence complained of. In
most cases, there is no difficulty in determining when the damage is suffered.
But difficulty has arisen particularly in some professional negligence cases
where the position is less clear. The problem arises, for example, where
the negligence exposes to the claimant to a risk of substantial future loss,
which may not occur. Does the claimant suffer loss when he is first irretrievably
exposed to the possibility of the contingency occurring, or is it only if
and when the contingency actually occurs? There are several authorities in
which variations on this theme have been considered. It will be necessary
to look at some of them in this judgment.
The authorities
- There have
been several cases where a negligent person (usually a solicitor) failed
adequately
to protect the client’s interests and/or procured less
valuable rights for the client than should have been procured and/or did
not secure for the client that to which he or she was entitled. In each of
these cases the court has held that the client suffered loss when what I
shall for convenience call "the inadequate transaction" was concluded,
and not at the later date when the risk against which the solicitor had failed
to provide protection eventuated. In Forster v Outred [1982] 1 WLR
86, a mother signed a mortgage deed charging her property to H as security
for a loan to her son. The loss accrued not when demand for payment was made,
but when she signed the mortgage deed. The cause of action was complete when
the mother relied on the solicitor’s negligent advice and acted to her detriment
by signing the deed. Stephenson LJ at p 94C recorded the following
submission of Mr Stuart-Smith QC :
"What is meant by actual damage? Mr Stuart-Smith says
that it is any detriment, liability or loss capable of assessment in money
terms and it includes liabilities which may arise on a contingency, particularly
a contingency over which the plaintiff has no control; things like loss of
earning capacity, loss of a chance or bargain, loss of profit, losses incurred
from onerous provisions or covenants in leases. They are all illustrations
of a kind of loss which is meant by "actual" damage. It was also
suggested in argument, and I would accept it, that "actual" is
really used in contrast to "presumed" or "assumed." Whereas
damage is presumed in trespass and libel, it is not presumed in negligence
and has to be proved. There has to be some actual damage."
Stephenson LJ accepted this submission at p 98. This now
classic statement was approved by the House of Lords in Nykredit Mortgage
Bank Plc v Edward Erdman Ltd [1997] 1 WLR 1627 at 1630C-G per Lord Nicholls,
with whom all other members of the House agreed.
- Forster was applied in Melton
v Walker & Stanger [1981]
125 SJ 861. The plaintiff (P) gave instructions to the defendant solicitor
to prepare certain documents and advise in respect of a gift of a farm from
P’s uncle to P and her cousin W in the proportions 2/3:1/3. P and W agreed
that, should the farm be sold, the costs and capital gains tax (CGT) arising
there from should be shared equally between them. The agreement prepared
by the defendant did not have this effect. P claimed that by reason of the
defendant’s negligence she would have to pay 2/3 of the CGT on a sale of
the farm, instead of ½. It was held that the loss was suffered when the agreement
was executed, not on the sale of the farm or assessment of CGT. Had P brought
an action shortly after the agreement had been executed, the court would
have awarded damages (however difficult or speculative the assessment of
damages on that date might have been).
- Other similar examples of the application of the Forster principle are Baker
v Ollard & Bentley [1982] 126 SJ 593, and D W Moore and Co Ltd
v Ferrier [1988] 1 WLR 267. In Bell v Peter Browne & Co [1990]
2 QB 495 following the breakdown of his marriage, the plaintiff instructed
his solicitors that he had agreed with his wife that the matrimonial home
would be transferred into the sole name of his wife, but that he should
receive a one-sixth interest of the gross proceeds of sale whenever that
occurred. His continuing interest in the house was to be protected by a
trust deed or mortgage. The solicitor drafted the documents and the transaction
was completed; but no declaration of trust or mortgage was prepared or
executed. The house was eventually sold and the wife spent all the proceeds.
More than six years after the transfer of the house to the wife, the plaintiff
started proceedings against the solicitors. It was held that his cause
of action in negligence accrued when the transfer was executed without
the protection of the plaintiff’s interest in the house or its proceeds
of sale.
- At p 502D Nicholls LJ said:
"So
when did the plaintiff first sustain damage by reason of his solicitors’
negligence? On this it is necessary to distinguish
between (a) the solicitors’ failure to see that the parties’ agreement was
recorded formally in a suitable declaration of trust or other instrument
and (b) their failure to protect the plaintiff’s interest in the house or
the proceeds of sale by lodging a caution. As to failure (a), clearly the
damage, such as it may have been, was sustained when the transfer was executed
and handed over. At that point the plaintiff parted with title to the house,
and he became subject to the practical inconveniences which might flow from
his not having his wife’s signature on a formal document. If the wife thereafter
chose to deny his entitlement to one-sixth of the proceeds of the sale, the
plaintiff would have to rely on the correspondence between the solicitors
coupled with part performance. To the extent that this was less satisfactory
than a formal document recording the deal, the plaintiff suffered prejudice.
He suffered that prejudice when the transaction was implemented without his
having the protection of a formal document.
The
extent of that prejudice depended on the attitude adopted thereafter by
his former
wife. All we know is that, according to the pleadings
and the plaintiff’s affidavit evidence, when she sold the house she disposed
of all the proceeds and did not account to her former husband for his agreed
one-sixth share. But the uncertainty surrounding her future intentions goes
only to the quantum of the loss the plaintiff sustained when the transfer
was executed without him having the same degree of protection as would be
provided by a formal document."
- At p 503F he said:
"In
considering whether damage was suffered in 1978 one can test the matter
by considering what would have happened if in, say,
1980 the plaintiff had learned of his solicitors’ default and brought an
action for damages. Of course, he would have taken steps to remedy the default.
But he would have been entitled at least to recover from the defendants the
cost incurred in going to other solicitors for advice on what should be done
and for their assistance in lodging the appropriate caution. The cost would
have been modest, but not negligible."
- Knapp v Ecclesiastical Insurance Group Plc [1998] PNLR 172 was a
claim in negligence against insurance brokers for failing to advise the claimant
of certain matters with the result that an insurance policy entered into
by the claimant was voidable for non-disclosure. It was held that the claimant
suffered damage when the policy was entered into. Hobhouse LJ examined a
number of authorities, including those referred to above and at page 184E
said:
"From these authorities it can be seen that the cause
of action can accrue and the plaintiff have suffered damages once he has
acted upon the relevant advice "to his detriment" and failed to
get that to which he was entitled. He is less well off than he would have
been if the defendant had not been negligent. Applying this to the present
case, the plaintiffs paid their renewal premium without getting in return
a binding contract of indemnity from the insurance company. They had acted
to their detriment: they did not get that to which they were entitled. The
fact that how serious the consequences of the negligence would be depended
upon subsequent events and contingencies does not alter this; such considerations
go to the quantification of the plaintiffs’ loss not to whether or not they
have suffered loss. The risk of loss existed from the outset and in the absence
of better evidence would have to be evaluated and assessed as a risk and
damages awarded accordingly."
- In each of these cases, the client was held to have suffered damage as
soon as he was committed to the inadequate transaction. The transactions
were inadequate because there was inherent in each of them the risk that
a contingency would occur which would cause actual loss to the claimant.
The fact that it was uncertain whether the contingency would actually occur
went to the quantification of damage, and not to the question of loss itself.
Thus, in Forster it was uncertain whether the plaintiff would ever
be liable to pay her son’s creditors, but this did not prevent her from suffering
actual damage as soon as she was committed to the inadequate transaction
and her property was encumbered with a charge as security for a loan made
to her son by a third party. Her property became worth less than it would
otherwise have been if it had not been made the subject of a charge as the
result of the solicitor’s negligence.
- In Ollard v Bentley the plaintiff did not receive what the solicitors
ought to have obtained for her. The fact that the assessment of her loss
was dependent on the attitude of third parties and was, therefore, to some
extent a matter of speculation at the time of the conveyancing transaction
was relevant to the quantification of her loss; but she suffered loss when
the transaction was completed. In Melton v Walker & Stanger too,
the fact that the assessment of damages depended on factors outside the control
of the plaintiff went to the quantification of loss. But in each of these
cases, there was no doubt that, if anyone had suffered loss as a result of
the solicitor’s negligence, it was the plaintiff and no-one else. So too
in Moore v Ferrier.
The submissions in outline
- In the present case, Miss Carr QC submits on behalf of the defendant that
Mrs Daniels first suffered loss when she relied on the defendant’s advice
and did not take steps which (in the event) would have ensured that the transfer
was an exempt transfer and not a chargeable transfer for the purposes of
inheritance tax. Effective steps could have been taken immediately upon the
execution of the deed of gift on 9 August 1989, so that the potential benefit
of the 7 year period could have started immediately. The loss of that benefit
was damage suffered by Mrs Daniels at the date of the transfer. Alternatively,
Miss Carr submits that Mrs Daniels first suffered loss 7 years before her
death, when it became inevitable that the transfer of Thornfield would be
a chargeable transfer.
- On behalf of the claimant, Mr Scrivener QC submits that the estate did
not suffer any loss until the date of Mrs Daniels’ death. He says that the
liability to tax only arose because at her death Mrs Daniels was still residing
at Thornfield for no valuable consideration, and the value of her estate
(when Thornfield was included) exceeded the nil-rate band for inheritance
tax.
Discussion
- It has been
said that "it is a question of fact in each case whether
actual damage has been suffered": per Neill LJ Moore v Ferrier at
p 278G. In some cases, this question is in the nature of what is sometimes
referred to as a "jury question". An obvious example is where the
issue is when a claimant first suffered personal injury. But in a case such
as the present, the authorities show that the question when a claimant first
suffered loss is less straightforward and is not always easy to answer.
- Miss Carr’s primary submission is that Mrs Daniels suffered loss at the
time when the deed of gift was executed: she acted to her detriment in divesting
herself of legal ownership of Thornfield without obtaining the intended benefit
for herself or her estate of having made an effective PET, thereby acquiring
the real chance of the asset being wholly or partly outside the scope of
inheritance tax on her eventual death.
- Miss Carr contends that the fact that Mrs Daniels suffered a loss at that
time can be demonstrated by considering the insurance position. If the transfer
had been an effective PET and there had been no reservation of benefit, the
only risk to which the estate would be exposed would have been the risk that
Mrs Daniels did not survive the gift by 7 years. An insurance policy (policy
A) could have been obtained (held in trust for the benefit of the beneficiaries)
which would pay a sum of money in the event of inheritance tax being payable.
The policy would be for a period of 7 years and would provide decreasing
cover to reflect the tapering relief available for inheritance tax. In fact,
there was a reservation of benefit. A policy (policy B) could be obtained
to provide a sum of money to meet the estate’s liability in these circumstances.
But such a policy would be a whole life policy, and would not be adjusted
to take account of the tapering relief. Policy B would inevitably be more
expensive than policy A.
- Miss Carr also submits that Mrs Daniels suffered loss by paying the defendant’s
fees for services which were of no value. Furthermore, if Mrs Daniels had
discovered the true position some time after the deed had been executed,
and if she had sought other legal advice, the cost of such advice and its
implementation (to remedy the position) would have been loss suffered by
Mrs Daniels as a result of the defendant’s negligence.
- It is important to keep in mind that the preliminary issue before the court
was limited to the question when Mrs Daniels first suffered loss,
and did not embrace the separate question whether the liability for
inheritance tax on the transfer of Thornfield was a loss that was suffered
by Mrs Daniels. I confess, however, that I have found it impossible to resist
the temptation to consider at least whether Mrs Daniels could have
suffered the alleged loss. In my view, it is artificial in a case such as
this to consider when a person first suffers loss without deciding whether
she was at least capable of suffering that loss.
- I shall explain why in my judgment Mrs Daniels could not have suffered
the alleged loss as a result of the defendant’s alleged negligence. I can
illustrate the point by postulating a case where the facts were similar to
those in the present case, but Mrs Daniels had sought advice from the defendant
in relation to an imaginary wealth tax saving scheme. Suppose that there
had been a wealth tax in 1989, and that a person with assets whose value
exceeded one million pounds was liable for wealth tax at a certain rate.
Suppose further that there was a statutory provision whereby, if a person
transferred assets so as to reduce his wealth below the threshold figure,
he would cease to be liable for the wealth tax, but only after the expiry
of a period of 7 years from the date of the transfer and then only if there
were no reservation of benefit by the transferor. If in reliance on the defendant’s
advice, Mrs Daniels had transferred Thornfield to her son but with a reservation
of benefit, she would have continued to be liable for wealth tax for at least
7 years beyond the end of the 7 year period. That additional liability for
wealth tax would unquestionably have been loss suffered by her. It seems
to me that in those circumstances her case would have been on all fours with
the Forster line of cases, and her cause of action would have arisen
at the time when she entered into the transfer with a reservation of benefit.
From that moment, she would have been at risk of paying additional
wealth tax.
- But the position in the present case is quite different. Mrs Daniels was
never at risk of having to pay any inheritance tax. That was a risk to which
the estate, and the estate alone, was exposed, since liability to pay the
tax only arises on death. Once it is appreciated that Mrs Daniels could never
suffer a liability to pay inheritance tax, then it becomes clear that she
did not suffer any loss as a result of the defendant’s negligence on the
facts of this case. It follows in my view, therefore, that Mrs Daniels did
not suffer any detriment which could sound in damages when she divested herself
of legal ownership in Thornfield without obtaining the benefit of the possibility
of reducing the liability of her estate for inheritance tax.
- Park J reached the same conclusion in Macaulay and Farley v Premium
Life Assurance Co Ltd (unreported, 29 April 1999). In that case, the
executors of Mrs Macaulay claimed as damages the amount of inheritance
tax which became payable on her death as a result of the negligent advice
given to her by the defendant. A preliminary issue was ordered to be tried
as to whether the claim in negligence was statute-barred. The questions
that arose were, in essence, the same as have arisen in the present case.
On behalf of the defendant, it was submitted that relevant damage was suffered
when Mrs Macaulay adopted the ineffective tax saving scheme. For the executors,
it was contended that damage was suffered on the date of her death. The
arguments canvassed were similar to those discussed earlier in this judgment.
The judge held that the damage claimed (liability for inheritance tax)
was not suffered until the date of death. At p 7E, he said:
"The
questions are: what is the alleged loss or damage in respect of which this
action is brought? When did that loss or damage
accrue?
Mr Lyons, in submitting that the action is statute barred,
says that the loss or damage consisted of Mrs Macaulay in her lifetime adopting
a CTT-saving scheme which was ineffective, thereby losing the opportunity
to do something different. That loss of opportunity was suffered in her lifetime.
She could have sued, in her lifetime, for damages to compensate her for the
loss of the opportunity, and the fact that the exercise of quantifying the
damages would have been difficult does not change the position. Therefore
the cause of action arose in Mrs Macaulay’s lifetime when she suffered the
lost opportunity. That happened more than six years before the writ was issued,
and the result is that the writ was out of time. So the action is statute
barred.
Mr
Woolf submits that that analysis is wrong, and I agree with him. The claimants
are not suing in respect of a lost opportunity suffered
by Mrs Macaulay in her lifetime. They are suing in respect of the IHT liability
which arose on Mrs Macaulay’s death and which did not exist until she died.
The critical part of the particulars of loss and damage refers to "£30,880
being 40% of £77,200 (which is the transfer of value made by Mrs Macaulay
immediately before her death and which increased the amount of tax payable
by her estate in consequence of her death)".
Thus the damage relied on as a central ingredient of the
cause of action is the amount of IHT payable by Mrs Macaulay’s estate. In
my judgment, it is of some relevance that the IHT payable on death is imposed
directly on the personal representatives as such. It is not imposed on the
deceased (here Mrs Macaulay), and it is not the case that it only falls to
be paid by the personal representatives in right of the deceased. Under section
200(1)(a) of the Inheritance Act 1984 the persons liable for the IHT on a
deceased person’s free estate are the deceased’s personal representatives.
Therefore the claimants here are suing for an alleged loss
or damage which consists of or derives from their own liability under the
Act. That liability did not exist until Mrs Macaulay died. The cause of action
sued for was not complete until the loss or damage arose. The loss or damage
arose on 4th March 1991. The writ was issued just within six years
of that date and the action is not statute barred."
- One can, however, easily imagine circumstances in which a person in the
position of Mrs Daniels would suffer loss in her own right as a result of
negligence such as that which we must assume in the present case. Suppose
that 3 years after the deed had been executed, Mrs Daniels had discovered
that the transfer of Thornfield was not an exempt transfer because there
had been a reservation of benefit, and that she had obtained legal advice
from another solicitor to remedy the position. She would undoubtedly have
been able to recover the cost of obtaining the legal advice and any reasonable
remedial steps that were taken to make good the original deficiency.
- That, however, is not this case. In my view, Mrs Daniels did not suffer
any detriment capable of assessment in money terms. The true detriment suffered
by Mrs Daniels was that the defendant’s negligence frustrated her wish to
confer on her son the benefit of a reduction in the inheritance tax liability
of her estate. But that is not a detriment recognised by our law as damage
which is capable of assessment in money terms.
- On this point, there is in my view a reasonable analogy with the disappointed
beneficiary cases, of which the leading example is White v Jones [1995]
2 AC 207. In that case, the testator instructed his solicitors to prepare
a will to include legacies to his two daughters. The solicitors negligently
failed to prepare a new will. On the death of the testator, the daughters
sued the solicitors in tort. The problem facing the court was that, if the
solicitors did not owe a duty to the disappointed beneficiaries, the only
person who had a valid claim against the solicitors had suffered no loss,
and the only persons who had suffered a loss had no valid claim. As in White
v Jones, so in the present case, the fact that the testator’s desire
to benefit certain beneficiaries has been frustrated by the solicitors’ negligence
is not sufficient to cause the testator any detriment which is capable of
assessment in money terms.
- I can deal quite briefly with the other points made by Miss Carr as showing
that Mrs Daniels suffered loss at the time of the transfer or shortly thereafter.
The fact that a whole life policy would have been more expensive that a policy
to provide cover for 7 years is in my view irrelevant. It may be that if,
upon discovering the fact that the transfer of Thornfield was an ineffective
PET, Mrs Daniels had incurred the cost of obtaining an insurance policy which,
but for the negligence, she would not have obtained, she would have suffered
loss at that time. But that is an entirely hypothetical possibility. The
same applies to the suggestion that she suffered loss because, if she had
discovered the true position, she might have incurred the cost of instructing
other solicitors to advise her what to do. I have already referred to the
passage in Nicholls LJ’s judgment in Bell at p503F. But in this passage,
Nicholls LJ was testing the conclusion that he had already reached that the
plaintiff had suffered loss at the date of the transfer of the matrimonial
home. I do not believe that he was saying that the plaintiff had suffered
loss solely because he might have incurred the cost of consulting other solicitors.
The principle illustrated in the Forster line of cases should not
be taken to wholly unrealistic limits.
- Finally, the payment of fees for the performance of services that were
worthless. Mrs Daniels might have been able to claim repayment of these fees
in restitution on the basis that they were paid for no consideration. But
I do not see how they could be claimed as damages for loss caused by the
defendant’s negligence.
- Miss Carr submitted in the alternative that Mrs Daniels suffered loss during
the period following the execution of the deed of gift, because with the
passing of each day there was an increased risk that the inheritance tax
would not be avoided. But this submission fails for the same reason as her
principal submission: it is based on the premise that the liability for inheritance
tax was a loss which Mrs Daniels was capable of suffering.
- I recognise that the reasons that have led me to reject Miss Carr’s arguments
inevitably lead to the conclusion that the originally pleaded case is bound
to fail, because Mrs Daniels never had a cause of action in respect of the
inheritance tax liability. But I have to remind myself that the limitation
question is the only issue before the court, and it proceeds on the hypothesis,
which in my view is false, that Mrs Daniels did have a cause of action in
negligence. If she had a claim in negligence during her lifetime, then I
accept that it must have arisen at the time when she relied on the defendant’s
advice and did not take steps which would have ensured that the transfer
was an exempt transfer. This conclusion is compelled by a straightforward
application of the principle enunciated in Forster v Outred and the
other cases to which I have referred.
- Mr Scrivener attempts to escape from the toils of this principle by arguing
that the estate did not suffer any loss until Mrs Daniels died. That is an
implied admission that Mrs Daniels did not suffer any loss, and that she
therefore had no cause of action. Thus it can be seen that Mr Scrivener is
on the horns of a dilemma. If the loss claimed in these proceedings was not
suffered until Mrs Daniels died, then the pleaded case, which is based on
the premise that loss was caused to her by a breach of the duty owed to her,
is bound to fail. Alternatively, if the loss was suffered by her, it must
have been suffered before she died. Mr Scrivener does not advance an alternative
submission that, if Mrs Daniels suffered loss, this occurred on some date
after May 1996, and therefore within the limitation period. The short answer
to Mr Scrivener’s submissions is that on his pleaded case, if Mrs Daniels
suffered any loss as a result of breach of the duty owed to her, that must
have occurred more than 6 years before the issue of these proceedings.
- It follows that in my view the judge reached the right conclusion and the
appeal should be dismissed.
The application for permission to plead an alternative case: breach of duty
of care owed to the claimant as personal representative
- During the course of argument, we expressed our concern to counsel that
Mrs Daniels had not suffered the only pleaded loss, ie the increased liability
for inheritance tax. It seemed that this loss could only have been suffered
by the estate, or possibly the personal representative or beneficiary under
the will. A similar problem arose in Macaulay and Farley. In that
case, the executors brought the claim, and alleged that the defendant was
in breach of its duty of care to Mrs Macaulay. The statement of claim did
not plead that the defendant was also in breach of a duty of care owed to
her personal representatives. The judge said that it would "have been
better if the statement of claim had pleaded the matter in that way",
adding that he did not wish to prejudge any application for permission to
amend the pleading that might be made.
- At the end
of his submissions in reply, Mr Scrivener made an application for permission
to amend para
7 of the particulars of claim adding further
and in the alternative the plea that the defendant owed "Richard Daniels
(as personal representative of Enid Daniels) a duty of care in tort".
Miss Carr objected that she had been given no notice of this application,
which was in any event too late. We agreed to allow both parties to make
written submissions in relation to the application for permission to amend,
and to deal with it in our judgments on the appeal. Written submissions were
duly received by the court from both parties.
- Miss Carr objects to the proposed amendment on the grounds that the amended
case has no real prospect of success, alternatively faces significant hurdles
as a matter of law, and is in any event inadequately pleaded. She submits
that to hold that a duty of care is owed to the personal representative in
a case such as this would involve an unacceptable extension of the White
v Jones principle. Moreover, although personal representatives are liable
to pay inheritance tax (section 200(1) of IHT Act), unless the testator directs
otherwise, the tax is treated as part of the general testamentary and administration
expenses of the estate (section 211(1)(2)). In the present case, the tax
was paid on 11 June 1998 and a certificate of discharge was obtained on 19
March 1999. Since there is no contrary direction in Mrs Daniels’ will, the
tax will have been paid out of the estate. It follows that Mr Daniels suffered
no loss in his capacity as personal representative. Further, Miss Carr submits
that the application is made very late and in circumstances which should
lead the court to refuse to exercise its discretion to allow the amendment.
- Following
receipt of these written submissions, all three members of the court prepared
draft
judgments which were sent to the parties in the usual
way. All three of us expressed the view that the application for permission
to amend should be refused, although for somewhat differing reasons. We all
thought that the amended claim had no real prospects of success because the
claimant had suffered no loss in his capacity as personal representative.
Carnwath LJ suggested additionally that there was a more fundamental reason
for holding that the new claim could not succeed, namely that in normal circumstances
a personal representative "as such" has no separate interest which
could found a claim to damages arising out of negligence relating to the
testator’s property.
- On receipt of our draft judgments, Mr Scrivener made an application to
be allowed to address further oral argument, or for further written submissions
to be taken into account in the final judgments of the court. His main point
was that he should have been given the opportunity to develop the submission
that the defendant did owe a duty of care to the claimant as personal representative
as owner of the property of the testator and could maintain a claim in respect
of injury done to the estate after her death. He said that, in so far as
the draft judgments expressed the contrary view, they were in error.
- It is clear that the court has jurisdiction to allow further argument at
this late stage of the process: see Robinson v Bird and others [2003]
EWCA Civ 1820 paras 76-96. It is a jurisdiction that should be exercised
sparingly and only where the interests of justice so require. I agree that
the jurisdiction might be exercised where there has been a plain mistake
by the court and/or where the parties have failed to draw the attention of
the court to a point of law, or a line of authority. Mr Scrivener says that
this is what has happened in the present case, and that in the interests
of justice he should have the opportunity to argue the points of law more
fully than he has argued them hitherto.
- We refused to allow Mr Scrivener to make further submissions whether orally
or in writing. In so far as he complains that he should have been allowed
to develop his submissions orally, he did not object to the course proposed
by the court at the end of the hearing of the appeal that his application
for permission to amend be dealt with on written submissions. Nor did he
seek to make an application for oral argument (or even seek to put in a further
written submission) on receipt of Miss Carr’s written submissions. I recognise
that the points raised by the proposed amendment are new, and may be quite
difficult to resolve. For the reasons that I give at paras 52 and 53 below,
I would disallow the application for permission to amend. The same considerations
of delay and proportionality led me to conclude that it would be wrong to
allow Mr Scrivener to make yet further submissions at this late stage of
the proceedings.
- I would refuse the application for permission to amend on the grounds that
it is made too late. Amendments ought in general to be allowed so that the
real dispute between the parties can be adjudicated upon, provided that any
prejudice to the other party caused by the amendment can be compensated for
in costs, and the public interest in the efficient administration of justice
is not significantly harmed: see Cobbold v London Borough of Greenwich (CA,
9 August 1999, unreported). Payments of costs may not adequately compensate
a party who has had a piece of litigation hanging over his head for some
time, and has been totally "mucked around": see Worldwide Corporation
Ltd v GPT Ltd (CA, 2 December 1998, unreported). Miss Carr submits that
the defendant cannot be compensated in costs in the present case. He is a
retired sole practitioner, who has had this claim hanging over his head since
May 1998 when it was first intimated, and has had a legitimate expectation
that it would be resolved expeditiously: see Ketteman v Hansel Properties [1987]
AC 189, 220E-F. If the amendment is allowed, that expectation will be frustrated.
- The application
to amend has been made at a very late stage, following a trial (on evidence)
of
a preliminary issue, and after almost a day’s hearing
on the issue in the Court of Appeal. If the amendment had been introduced
early in the proceedings, it is most unlikely that the court would have ordered
the trial of a preliminary issue on limitation. To allow the amendment at
this late stage would be contrary to the overriding objective of dealing
with cases expeditiously, and in ways which are proportionate to the amount
of money involved. I bear in mind that the damages claimed are approximately £30,000.
The costs of dealing with this litigation even if that were done with expedition
would be likely to be disproportionate to the amount at stake. The costs
of dealing with the litigation if the amendment is allowed would be even
more disproportionate.
- For all these reasons, I would refuse the application for permission to
amend the particulars of claim and would dismiss the appeal.
Lord Justice Carnwath :
- I confess that I started the hearing of this appeal with a strong instinctive
feeling that the claim should not be treated as time-barred. This was for
very similar reasons to those which led Park J to the same conclusion in Macaulay
and Farley v Premium Life Assurance Co Ltd (unreported, 29th April
1999). Advice in relation to inheritance tax could be regarded as in a special
category, in that its effects would be experienced only after the death of
the person who received the advice. Accordingly, redress for a breach of
duty owed to the testator (assuming it did not come to light during his or
her lifetime) could only be a matter for the personal representatives.
- I saw this
not so much as a separate duty owed to the personal representatives; but
rather as
the same duty, but taking account of the fact that the damage
would in the normal course of events only be suffered by those representing
the testator after his or her death. As with a negligently drawn will, the
negligence will normally "lie hidden until it takes effect on the death
of the testator, i.e. at the very point in time when normally the error will
become incapable of remedy." (White v Jones [1995] 2AC 207, 276
D-E, per Lord Browne-Wilkinson). On that view, the proposed amendment, to
include a reference to a duty of care owed to Mr Daniels as personal representative,
could be seen as little more than a technicality, to ensure that the pleading
reflected what was already implicit in the pleaded cause of action (and in
the preliminary issue).
- However, I have been persuaded by Miss Carr’s careful analysis that this
is the wrong approach. My view has been reinforced by the exchange of submissions
and authorities on the proposed amendment. Had there been a clear prospect
of establishing a valid cause of action in respect of a duty owed to the
personal representative, I would have been perhaps more sympathetic than
Dyson LJ to the application for permission to amend, albeit made very late
in the day (and only after some encouragement from the Court). However, on
the basis of the arguments we have heard, I am not persuaded that the inclusion
of such a reference to the personal representative does anything to further
the claim.
- It is important to emphasise that we are not dealing with a claim in respect
of a duty owed to Mr Daniels in his capacity as a potential beneficiary,
under the principles in White v Jones. Whether such a claim could
be made is not an issue before us, even under the proposed amendment. We
are solely concerned with the claim in respect of a duty owed to Mrs Daniels,
with such reinforcement as can be provided by including a reference to Mr
Daniels in his capacity as her personal representative.
- The claimant’s
case presents a fundamental dilemma, as Miss Carr points out. If it is
right
to look for loss suffered by Mrs Daniels herself, then
I agree with Dyson LJ, in accordance with the cases reviewed by him, that
the loss must be taken as having occurred in August 1989, when the scheme
was put into effect without the steps necessary to secure its efficacy. On
that basis, it is time-barred, as the judge found. If, on the other hand,
as the claimant asserts, there was no relevant loss until after her death,
then there was no complete cause of action in tort until that time. Accordingly,
no such cause of action was "vested" in her on her death, so as
to survive for the benefit of her estate, under section 1(1) of the Law Reform
(Miscellaneous Provisions) Act 1934.
- At first sight, I found this way of putting the case paradoxical and unattractive.
However on further consideration, I can see no clear answer to it. At common
law, Mrs Daniel’s right of action in tort would have died with her. That
must equally be true of a potential right of action, which has not yet resulted
in damage so as to give rise to an actual cause of action (see e.g. Ronex
Properties v John Laing [1983] QB 398, 405). Section 1(1) of the 1934
Act reverses the common law rule in respect of "causes of action…vested
in" the testator at death. But, if the cause of action had not vested
in the testator by the time of his or her death, section 1(1) has no effect.
Section 1(4) extends the effect of the section to a potential cause of action
in tort against a tortfeasor who dies before damage is incurred, but
there is no similar extension for a potential claimant. (Donaldson LJ’s apparent
suggestion to the contrary in the Ronex case at p 405G was not relevant
to the facts of that case, and appears to have been an uncharacteristic slip.
It seems, though surprising, that in this respect the 1934 Act may have been
more restrictive than the preceding law, based on statutes dating back to
14th C: see Salmond on Torts 8th Ed (1934) pp 76-7,
and Twycross v Grant (1878) 4CPD 40, 45.)
- The solution suggested by Park J (Macaulay p
8E) lay in the personal liability for inheritance tax imposed on the personal
representatives "as
such" (by Inheritance Tax 1984 s 200 (1)(a)). However, I agree with
Dyson LJ that Mr Daniels has suffered no loss in his capacity as personal
representative. With respect to Park J I do not think that any special significance
can be attached to the fact that liability for inheritance tax is imposed
specifically on the deceased’s personal representatives by statute. There
is no reason to see that as any more than a reflection of the fact that it
cannot be imposed on the deceased herself. The liability of the personal
representatives is limited to the value of property received by them as personal
representatives, in the absence of "neglect or default" (s 204(1));
and the burden of the tax is treated as part of the general expenses of the
estate (s 211).
- The claimants rely on the judgment of Chadwick LJ in Carr-Glynn v Frearsons [1999]
Ch 326, as recognising the existence of a potential duty of care owed by
those advising on a will to the personal representatives of the testator.
In that case the defendant solicitors had drawn up a will which the testatrix
executed in 1989, in which she left to her niece a property which she had
owned jointly with her nephew. She died in 1993 without having severed the
joint tenancy, with the result that her share in the property automatically
vested in her nephew as a surviving tenant, and the gift to her niece was
ineffective. It was held, following White v Jones, that the niece,
as a disappointed beneficiary, had a cause of action against the negligent
solicitor.
- The issue whether
the personal representatives would have had any claim was not material
to the
decision. However there was some discussion of the
relationship between the niece’s claim and any potential claim by "the
estate". The defendants had argued that the cause of action properly
vested in the estate and not in the disappointed beneficiary, because otherwise
there would be a potential conflict of interest between the testatrix and
the beneficiary ([1999] Ch at 328 A-B). Chadwick LJ accepted that the personal
representatives would have had such a cause of action. He said:-
"As
it is the assets in the estate are less than they would have been if the
testatrix had been properly advised. It follows that,
prima facie, the defendants would be liable at the suit of the testatrix’s
personal representatives for the loss caused to her estate by their failure
to advise service of a notice of severance. But, again prima facie, any recovery
by the personal representatives would not benefit the plaintiff. The damages
would form part of the residue; and she is not the residuary beneficiary
under the 1989 will."
In a further passage on which the claimants specifically
rely, he noted the distinction between two different types of breach of duty:
"The lack of care lay in failing to ensure that the
asset fell into the estate; not in failing to effect a valid testamentary
disposition of an asset which did form part of the estate. It is that of
course which founds a claim which the personal representatives have against
the solicitors. ….." (p 335E-F).
He
accepted that "the personal representatives’ claim
on behalf of the estate" could not be ignored, for there might be circumstances
in which it would be available as an asset of the estate, and therefore it
was necessary to avoid the possibility of double liability. However he concluded
that this consideration should not preclude a claim on behalf of the beneficiary
where appropriate (p 336H-337E).
- I do not think this case assists the claimants. There was no limitation
issue, and there was no need for the Court to examine the nature of the cause
of action which was vested in the personal representatives. In any event,
the testatrix would presumably have had a cause of action against her solicitors
in contract, which would have vested in the personal representatives at her
death, regardless of any issue of damage necessary to found a cause of action
in tort. Accordingly, it is impossible to read the judgment as providing
any clear support for the proposition that a potential cause of action in
tort could have passed to the personal representatives.
- Dyson LJ has mentioned Mr Scrivener’s application, following a sight of
the draft judgments, to reopen the oral argument. I agree with Dyson LJ that,
while the Court undoubtedly has power to accede to such an application, it
should be exercised sparingly. I also agree with him that the application
should be refused in this case, for the reasons he gives.
- I add a brief comment, in recognition of the fact that Mr Scrivener’s submissions
related principally to a passage in my own draft judgment (referred to by
Dyson LJ). Mr Scrivener has helpfully drawn attention to statements in the
textbooks, based on old authority, as to the circumstances in which a personal
representative may bring in his own name an action in respect of property
received under a will. For example, it is stated in Williams:
"If an injury is done, after the death of a testator
or intestate, to any property forming part of his estate, the executor or
administrator may bring an action for damages for the tort. In such circumstances,
he has the option, either to sue in his representative capacity, and plead
as executor, or to bring the action in his own name." (Williams, Mortimer
and Sunnucks, Executors, Administrators and Probate 18th Ed para
62-20.)
The
authors explain that the executor’s right of action arises from the fact
that they
are, in law, the owners of the testator’s
property, and that ownership "draws to it the possession". (See
also Halsbury’s Laws vol 17(2) para 825, citing Hollis v Smith (1808)
10 East 293; Adams v Cheverel (1606) Cro Jac 113). In the light of
those references, I am happy to accept that the proposition in my draft judgment
was too widely stated, in so far as it suggested that a personal representative
could never bring an action in his own name in respect of damage to
property derived from the testator.
- However, those passages, and the cases cited, throw no light on the central
problem in this case. In those cases, ownership of the relevant physical
property had undoubtedly passed to the personal representatives, and that
was held sufficient to give them title to sue for its loss or damage (regardless
of actual possession). Here the issue is different. No relevant physical
property has passed to the personal representative. The question is whether
he has obtained any right in respect of something which was only a potential
cause of action at the date of death, and which therefore did not survive
so as to pass to him under the 1934 Act. Although I would be reluctant to
express a final view on the limited material before us, nothing in Mr Scrivener’s
present submissions suggests a more than speculative chance that further
argument would be likely to overcome this problem.
- Accordingly I agree with Dyson LJ that the appeal fails. I also agree with
him in rejecting the application to amend the particulars of claim, principally
on the ground that it would not materially assist the case, or at least that
it has not been show clearly that it would do so, and that to allow further
argument would be disproportionate. The wisdom of the latter view has been
underlined by the extent of additional argument to which the application
to amend has already given rise.
Mr Justice Gray:
- The issue initially presented to us on this appeal was whether the claim
of Mr Daniels against his mother’s solicitor, Mr Thompson, was statute-barred.
The determination of that issue required consideration of the question when
Mrs Daniels (and not anyone else) had suffered damage by reason of the assumed
negligence of Mr Williams.
- The answer to that question is complicated by the fact that the purpose
for which Mrs Daniels consulted Mr Thompson was not, as would usually be
the case, to obtain advice which would achieve some personal benefit for
herself as the client but rather to obtain advice which would enure for the
benefit of her estate by means of an arrangement to reduce inheritance tax.
- Assuming for present purposes, as the terms of the preliminary issue require
us to do, that Mrs Daniels (as opposed to her estate or her personal representatives)
suffered some damage, we have to decide when that damage was suffered so
that her cause of action in tort crystallised.
- On that assumption
I would hold that any damage to Mrs Daniels would have been suffered by
her
at the time when she acted to her detriment by transferring
the property "Thornfield" to the beneficiary under her will, Mr
Daniels. It is possible to visualise inheritance tax saving schemes which
entail no detriment to the testator. But in the present case, if Mrs Daniels
suffered an actual detriment, that would have happened when she relinquished
her title without achieving the intended benefit of removing the property
from the scope of inheritance tax.
- It is in my view no answer for Mr Scrivener to say that there was no loss
or detriment to Mrs Daniels at that time because she continued to live at
the property rent-free. Adapting the dictum of Templeman LJ in Baker v.
Ollard and Bentley (CA Civil Division Transcript No. 155 of 1982), cited
with approval by Neill LJ in D.W. Moore & Co v. Ferrier [1988]
1 WLR 267 at 276D, Mrs Daniels did not get what she should have got. That
occurred when she parted with her property without any resulting saving in
inheritance tax.
- But it should not be overlooked that the damage claimed here is the amount
of the inheritance tax not avoided. In that regard the real loser as a result
of the presumed negligence of Mr Thompson was in truth the estate of Mrs
Daniels and not Mrs Daniels herself. The object of obtaining the advice of
the solicitor was to benefit the estate by reducing the incidence of inheritance
tax. The failure to achieve that benefit had no ultimate effect on the financial
position of Mrs Daniels; nor in my view did it cause recoverable damage to
Mr Daniels in his capacity as his mother’s personal representative. I agree
with Dyson LJ and with Carnwath LJ that for this reason the claim must fail
and this appeal should be dismissed.
- I further agree that the amendment for which Mr Scrivener sought leave
at the end of his reply on this appeal should be refused, not because it
comes late (as it unquestionably does) but because, for the reasons given
by Dyson LJ and Carnwath LJ, I see no real prospect of success for a claim
by Mr Daniels in his capacity as personal representative. I do not think
it would have been appropriate or proportional in all the circumstances of
this case to permit Mr Scrivener to advance an oral argument to the contrary.