Kathleen Beveridge Milne &c V. Messrs.moores
| Jurisdiction | Scotland |
| Judge | Lord Macfadyen |
| Date | 23 December 1999 |
| Court | Court of Session |
| Published date | 23 December 1999 |
| OUTER HOUSE, COURT OF SESSION
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| OPINION OF LORD MACFADYEN in the cause MRS. KATHLEEN BEVERIDGE MILNE AND OTHERS Pursuer; against (FIRST) MESSRS MOORES ROWLAND and (SECOND) MESSRS WRIGHT BROWN AND STRONG AND OTHERS Defender: ________________
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Pursuer: Tyre, Q.C., Turcan Connell
Defender: Moynihan, Q.C., Maclay Murray & Spens
Wylie, Q.C., Simpson & Marwick
23rd December 1999
Introduction
In this action the pursuers seek damages in respect of losses which they claim to have suffered as a result of alleged professional negligence on the part of the defenders. The first and second pursuers are husband and wife. The third and fourth pursuers are the trustees presently acting under declarations of trust executed by the first and second pursuers respectively on 10 March 1989. The first defenders are a firm of chartered accountants with an office in Edinburgh. The second defenders are a firm of English solicitors with an office in Carlisle. The action concerns steps which the first and second pursuers sought to take in 1989 to minimise the future incidence of capital taxes in respect of funds which they proposed to realise by the sale for development purposes of certain land in Carlisle in which they had an interest. Mr Ronald Ludwig, a partner of the first defenders, and Miss A. J. Arnott, a partner in the second defenders, acted for the first and second defenders in that connection.
The Pursuers' Pleadings
The pursuers aver that the first and second pursuers were joint owners, along with a Miss Nixon, of an area of land near Carlisle known as Deer Park and extending to about 18 acres; that the land was in agricultural use, but they had been advised that planning permission for residential development would be likely to be granted; that the first and second pursuers and Miss Nixon intended to sell the land to realise its development value; that the first and second pursuers were desirous of minimising the impact of capital taxes on their shares of the proceeds of sale; and that they also wished to use the sale proceeds to provide for their two children, who were then in minority, in a way which minimised the impact of capital taxation. Accordingly, the pursuers aver, the first and second pursuers in February 1989 sought advice from Mr Ludwig as to the devising and implementation of a scheme whereby (i) capital gains tax (CGT) on sales of the land could be minimised, and (ii) the proceeds could be passed to the children with minimum incidence of inheritance tax (IHT). It is averred that a meeting took place on 8 February 1989 at which Mr Ludwig gave the pursuers (sc. the first and second pursuers) certain advice. The content of the advice which he gave is summarised in the pursuers' averments in the following way:
- that the charge to CGT which would otherwise arise on the occasion of the sale of the land could be deferred if (a) the land were transferred to a trust in which there subsisted an interest in possession in favour of the first and second pursuers, and (b) non-resident trustees were then appointed to the trust;
- that an occasion of charge to CGT would occur on appointment of the non-resident trustees, but no charge would arise because the land would be valued according to its current use;
- that the trust deed could provide for the fund, on the first and second pursuers' respective deaths, to pass to the survivor for life, and thereafter to a trust such as an accumulation and maintenance trust for the children;
- that it would be necessary to form an investment company registered in Jersey;
- that no charges to CGT would arise during the subsistence of the trust unless capital distributions were made to persons resident in the United Kingdom;
- that by this means CGT which would otherwise be payable on disposals of the land could be deferred and, over time, the proceeds or assets representing the same could be passed down to the children without any charge to CGT or IHT arising; and
- that there was a degree of urgency in putting those proposals into effect because it was possible that in the Budget scheduled for 14 March 1989 measures would be announced which would, with immediate prospective effect, cancel the tax advantages which he had described.
It is also averred that Mr Ludwig proposed that the non-resident trustees should be partners or employees of the first defenders in Jersey, or a trust company managed by such partners or employees.
Having set out in those terms the advice which Mr Ludwig gave, the pursuers go on to aver that the first and second pursuers accepted all of that advice and instructed Mr Ludwig to proceed to take the steps necessary to put his proposed scheme into effect, and that he accepted those instructions.
The next chapter of the pursuers' averments concerns the steps which were taken with a view to implementing Mr Ludwig's scheme. It is averred that he wrote to Miss Arnott to explain his proposals and to obtain confirmation of whether the land was already held under an appropriate trust deed. It is averred that the land was in fact held by the first and second pursuers and Miss Nixon under an Assent dated 6 May 1988 granted by the surviving executor of the late William Bell; that the Assent did not create an interest in possession trust; that Mr Ludwig asked Miss Arnott to produce a trust deed or deeds which could be used to "export" the trust by means of appointment of non-resident trustees; that Miss Arnott sought advice, discussed the matter with Mr Ludwig and the second pursuer, formed the view that the Assent was not itself an appropriate interest in possession trust, and received from the proposed trust company a style interest in possession trust deed; that Miss Arnott accepted instructions from the [first and second] pursuers to draft and prepare for execution (i) appropriate interest in possession trust deeds and (ii) deeds appointing non-resident trustees to the trusts thereby created; and that she proceeded to prepare three Declarations of Trust for execution by the first and second pursuers and Miss Nixon respectively, and a deed [in fact three deeds] of appointment of new, non-resident trustees. There then follow further averments of steps taken by Mr Ludwig in connection with implementation of his scheme, but I do not consider it necessary for present purposes to recount them in detail.
On 10 March 1989 each of the first and second pursuers and Miss Nixon executed a Declaration of Trust and a Deed of Appointment of new trustees. The documents, the terms of which are incorporated in the pursuers' pleadings, had been prepared by Miss Arnott. The Deed of Trust executed by the first pursuer provided for her 11/32 share of the land to be held for her for life and thereafter for the children in equal shares absolutely. The Deed of Trust executed by the second pursuer was, mutatis mutandis, in identical terms. The Deeds of Appointment appointed as new trustees of the trusts one Christopher McFadyen and one Timothy Warren, both of the first defenders' Jersey office. Having narrated the execution of those deeds, the pursuers aver:
"No further action was taken by anyone on behalf of the first or second defenders towards implementation of the scheme proposed to the first and second pursuers by Mr Ludwig."
They aver that on 31 March 1989 Mr Ludwig wrote to the first and second pursuers indicating that the position was now highly satisfactory and the stage was set for future transactions in the land once planning permission had been obtained; that in May 1989 they paid the first defenders' invoice for "taking all steps necessary to set up the structure in Jersey reviewing documentation as necessary"; and that thereafter parts of the land were sold to developers by the trustees.
The pursuers aver that the first and second pursuers reasonably assumed that all necessary steps had been taken, by or in accordance with the instructions of Mr Ludwig, to put in place the structure necessary to achieve the tax advantages described to them by Mr Ludwig; and that in particular they reasonably assumed that no further steps required to be taken in order -
| (ii) | to prevent the occurrence of any charge to CGT on the death of either of them, or on disposals of land during the subsistence of interest in possession trusts in their favour and an accumulation and maintenance trust in favour of the children." |
They aver that in about October 1993 they discovered for the first time that the steps necessary to create the said trusts and to achieve the said tax advantages had not been taken. They did so when they consulted new solicitors for advice inter alia in relation to the CGT consequences of a proposed transaction in respect of funds held in Jersey. By then, Parliament had enacted provisions in the Finance Act 1991 which had the effect of preventing the taking of any remedial steps which might achieve the said advantages. The pursuers aver that as a result of the failure of those steps which were taken on the defenders' advice to achieve the said advantages, the pursuers have respectively suffered loss and damage.
Upon that foundation of factual averment the pursuers proceed to set out their averments of fault. The pleadings deal separately with (a) the case against the first defenders at the instance of (i) the first and second pursuers (Article VII of the Condescendence) and (ii) the third and fourth pursuers (Article VIII), and (b) the case against the second defenders at the instance of (i) the first and second pursuers (Article IX) and (ii) the third and fourth pursuers (Article X). The cases against the first defenders are expressed in terms of breach of contract et separatim delict, whereas the cases against the second defenders are expressed in terms of delict alone. All of the pursuers make the same averments of duty of care and breach of duty in respect of Mr Ludwig, although the third and fourth pursuers rely upon different averments of...
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