Kennedy v Royal Bank of Scotland Plc
| Jurisdiction | Scotland |
| Judgment Date | 15 November 2018 |
| Neutral Citation | [2018] CSIH 70 |
| Date | 15 November 2018 |
| Docket Number | No 8 |
| Court | Court of Session (Inner House) |
[2018] CSIH 70
First Division
Sheriff Court
Beard v Beveridge, Herd and Sandilands WS 1990 SLT 609; 1990 SCLR 335; [1992] CC 111
Dunlop v McGowans 1980 SC (HL) 73; 1980 SLT 129 and 1979 SLT 34 (IH); 1978 SLT 103 (OH)
Gordon's Trs v Campbell Riddell Breeze Paterson LLP [2017] UKSC 75; 2017 SLT 1287; 2018 SCLR 129 and [2016] CSIH 16; 2016 SC 548; 2016 SLT 580; [2015] CSOH 31; 2015 GWD 12–216
Jackson v Clydesdale Bank plc 2003 SLT 273
Johnston v Scottish Ministers [2005] CSOH 68; 2006 SCLR 5
Scottish Ministers v Stirton [2013] CSIH 81; 2014 SC 218; 2013 SLT 1141; [2014] Lloyd's Rep FC 18
Shanks v Gray 1977 SLT (Notes) 26
Sibbald (John G) & Son Ltd v Johnston [2014] CSOH 94; 2014 GWD 19–372
Warren James (Jewellers) Ltd v Overgate GP Ltd [2010] CSOH 57; 2010 GWD 17–348
Davidson, F, Evidence (W Green, Edinburgh, 2007), para 4.56
Lewis, CT, and Short, C, A Latin Dictionary (Rev ed, Clarendon Press, Oxford, 1879)
Justinian, The Digest (CH Monro ed, Cambridge University Press, Cambridge, 1904–1909), Bks 1, 9, 18, 22, 39, 47, 48, 53
Trayner, J, Latin Maxims and Phrases (4th Duncan ed, W Green, Edinburgh, 1998)
Walker, AG, and Walker, NML, The Law of Evidence in Scotland (3rd Ross and Chalmers ed, Tottel, Haywards Heath, 2009), para 3.11.1
Prescription — Quinquennial prescription — Appropriate date — Bank terminating loan agreements — Customer forced to sell properties two months later — When loss suffered — Whether loss suffered at date of termination or date of sale — Prescription and Limitation (Scotland) Act 1973 (cap 52), secs 6, 11
David Kennedy raised an action for damages in the sheriffdom of Lothian and Borders at Edinburgh against the Royal Bank of Scotland plc. The cause called before the sheriff (WH Holligan) for a debate, on 8 March 2016. At advising, on 21 April 2016, the sheriff held that any obligation to make reparation had prescribed and dismissed the action. The pursuer appealed to the Sheriff Appeal Court (‘SAC’).
The SAC allowed the appeal and the cause appointed to a preliminary proof on prescription. The cause called before the same sheriff for the preliminary proof on 30 August 2017. At advising on 23 October 2017, the sheriff held that any obligation had prescribed and assoilzied the defenders. The pursuer appealed to the SAC.
On 18 January 2018, on joint motion, the cause was remitted to the Inner House under sec 112 of the Courts Reform (Scotland) Act 2014 (asp 18). The court allowed the defenders to lodge late grounds of cross-appeal on 29 August 2018.
Section 6 of the Prescription and Limitation (Scotland) Act 1973 (cap 52) (‘the 1973 Act’) provides, inter alia, “(1) If, after the appropriate date, an obligation to which this section applies has subsisted for a continuous period of five years– (a) without any relevant claim having been made in relation to the obligation, and (b) without the subsistence of the obligation having been relevantly acknowledged, then as from the expiration of that period the obligation shall be extinguished”. Section 11 provides, inter alia, “(1) Subject to subsections (2) and (3) below, any obligation (whether arising from any enactment, or from any rule of law or from, or by reason of any breach of, a contract or promise) to make reparation for loss, injury or damage caused by an act, neglect or default shall be regarded for the purposes of section 6 of this Act as having become enforceable on the date when the loss, injury or damage occurred.”
A customer received a notice from his bank, dated 8 February 2010, purporting to terminate three term loans on the grounds of an irretrievable breakdown in the bank–customer relationship, and demanding repayment within two days. Following correspondence on 10 and 12 February 2010, the bank agreed to extend the period for repayment by 60 days. In the course of March and April 2010, the customer sought to refinance, or to raise funds by finding purchasers for buy-to-let properties financed by the loans. On 7 April 2010, his wife obtained alternative finance in the amount of 75 per cent of the market value of the properties and purchased them for that amount. On 2 April 2015, the customer raised proceedings against the bank seeking reparation for breach of contract for prematurely terminating the loans. He quantified his damages as the difference between the actual market value of the properties and the amount for which he had sold them to his wife.
The bank argued that any obligation to make reparation had prescribed. Once there had been a decision to satisfy the demand for repayment, any of the options open to the customer inevitably involved incurring loss. Any difficulty in quantifying the loss was not fatal to the existence of an obligation to make reparation. As the customer had incurred legal fees in February 2010, that itself amounted to a loss. The customer argued that he had not suffered any actual loss until he sold the properties to his wife. The inevitability of loss was irrelevant; what mattered was when it was actually sustained.
At first instance, after debate, the sheriff held that any obligation had prescribed and dismissed the action. Following a successful appeal, the cause was remitted for a preliminary proof on the question of prescription. The same sheriff heard the proof and, again, found any obligation had prescribed, and assoilzied the bank. The customer appealed.
Held that the appropriate date was when there was a refusal by the bank to perform its obligations under the contract and that occurred at the initial intimation of termination on 8 February 2010 (paras 20, 25, 41, 45–47); and appeal refused.
Observed that: (1) legal expenses arising from advice on or presentation of a claim did not form part of the claim, they were assessed as part of the expenses of litigation and did not constitute damnum for the purposes of prescription (paras 22, 48); and (2) as a matter of fairness, the proof should have been allocated to a different sheriff than the one who heard the debate as he had already adjudicated on the same matter (para 24).
Dunlop v McGowans 1980 SC (HL) 73 and Gordon's Trs v Campbell Riddell Breeze Paterson2017 SLT 1287applied.
The cause called before the First Division, comprising the Lord President (Carloway), Lord Brodie and Lord Drummond Young, for a hearing on the summar roll, on 14 September 2018.
At advising, on 15 November 2018—
Lord President (Carloway)—
[1] This appeal concerns the pursuer's term loan arrangements with the defenders. The pursuer avers a breach of contract; being the defenders' early termination, and demand for repayment, of three loans. The issue is whether any obligation to make reparation in respect of the alleged breach has prescribed under sec 6 of the Prescription and Limitation (Scotland) Act 1973 (cap 52) (‘the 1973 Act’).
[2] The action was raised on 2 April 2015. On 21 April 2016, after a debate, the sheriff found that the pursuer had pled a specific and relevant case of breach of contract, but held, as a matter of relevancy, that any obligation to make reparation had prescribed. He sustained the defenders' plea in law to that effect but dismissed the action, rather than assoilzing the defenders. The Sheriff Appeal Court (‘SAC’) allowed the pursuer's appeal on prescription. They held that there was no ‘material’ on which the sheriff had been entitled to reach the conclusion that the defenders' demand, for repayment of substantial sums of money within a short period of time, was bound, as at that moment, to cause the pursuer loss. A preliminary proof on prescription was allowed and the cause was remitted to the sheriff. The same sheriff, who had already dismissed the action, heard the proof. On 23 October 2017, he reached the same conclusion on prescription; this time holding that the defenders had been in breach of contract, but that they should be assoilzied on the basis of prescription.
[3] The pursuer appealed again. The appeal was appointed provisionally to the SAC's accelerated procedure. However, on 18 January 2018, on joint motion, it was remitted to this court in terms of sec 112 of the Courts Reform (Scotland) Act 2014 (asp 18) ‘given the current flux in the law of prescription’ and because the appeal raised ‘novel and more particularly, complex, issues’. On 29 August 2018, the court allowed the defenders to lodge late grounds of cross-appeal.
[4] The pursuer runs a car sales business. He also owned nine ‘buy to let’ residential properties, which were subject to standard securities in favour of the defenders. These enterprises were supported by three term loans, including a revolving one. By letter dated 8 February 2010, the defenders purported to terminate the loans before the expiry of the terms, citing an irretrievable breakdown in the bank–customer relationship. They gave the pursuer two days in which to repay £532,077.88. If the loans were not repaid, the defenders stated that they would follow their specified debt recovery procedure. By letter of 12 February 2010, following representations by the pursuer's solicitor, the defenders extended the period for full repayment to 60 days from 12 February. The pursuer's evidence was that he had been the subject of a proceeds of crime investigation, having sold cars to persons believed to be involved in organised crime, but no proceedings had been taken against him. There was no evidence from the defenders about this.
[5] On 4 March 2010, the pursuer wrote to the defenders referring to the unfavourable environment in which to secure alternative finance and the costs associated with legal/valuation work, along with arrangement and security fees. In the absence of a satisfactory explanation for the breakdown in the banking relationship, the pursuer could not obtain alternative finance. Over the course of March and April, he contacted...
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