Iris Joan Milne+gillanders Motors (aberdeen) Limited V. Hazel Margaret Gray And Another+hazel Margaret Gray And Another
| Jurisdiction | Scotland |
| Judge | Lady Dorrian |
| Neutral Citation | [2008] CSOH 84 |
| Court | Court of Session |
| Year | 2008 |
| Date | 04 June 2008 |
| Published date | 04 June 2008 |
| OUTER HOUSE, COURT OF SESSION [2008] CSOH 84 | |
| OPINION OF LADY DORRIAN in the cause IRIS JOAN MILNE Pursuer; against HAZEL MARGARET GRAY and ANOTHER Defenders: and GILLANDERS MOTORS (ABERDEEN) LIMITED Pursuers; against HAZEL MARGARET GRAY and ANOTHER Defenders: ________________ |
Pursuers: Benyon; Lefevre Litigation
Defenders: Reid, Q.C., Simpson; Paull & Williamson
4 June 2008
[1] These are two associated actions raised against the two individual directors and sole shareholders of an accountancy company, Scotts Private Client Services Limited. In each case the pursuers had invested funds in a scheme offered by an English accountancy firm, Dobb White. In each case those funds were remitted for the pursuers by Scotts following, separately in each case, a meeting in Scotts' offices with the first defender. The use made by Dobb White of those funds is the subject of an ongoing criminal and civil investigation in both the United States and the United Kingdom. Scotts were subject to an investigation by the Financial Services Authority which found that the company had failed to exercise due skill, care and diligence in their conduct relating to the investment of funds with Dobb White. A financial penalty of £25,000 was imposed on Scotts. In each case the pursuers aver that they have lost their investment and that there is no prospect of recovery from Dobb White or the partners thereof. Scotts are now in liquidation and it is averred that they are believed to have no assets. It is further averred that the professional indemnity insurers for Scotts have declined to be involved on the basis that investment with Dobb White was not covered by that insurance. It is in these circumstances that the directors, who were also the sole shareholders, are sued individually. There is a dispute in each case over whether or not the first defender advised the pursuers to invest in the Dobb White scheme. What is not disputed is that the decision to invest was taken in each case after a meeting at Scotts' offices with the first defender.
[2] In the Milne case the meeting took place with the pursuer's estranged husband following which it is averred that the first defender sent a pro forma letter of instruction for the pursuer to sign, which the pursuer did on 30 January 2002. The first defender replied by pro forma letter dated 31 January 2002 which contained the following sentence relating to Scotts, namely:
"We confirm that the company carries professional indemnity insurance up to the value of £5 million per claim. If you require any further information please do not hesitate to contact us".
Receipt of £50,000 was acknowledged by Scotts on 19 March and receipt of a further £20,000 acknowledged on 22 March, both 2002. The letter of 19 March confirmed that the sum had been invested as discussed. It contained the following sentence: "These funds remain covered by our professional indemnity insurance."
[3] It is averred that the pursuer proceeded to invest the sum of £70,000 with Scotts reliant upon the representations regarding professional indemnity insurance (P.I.I.) contained in the letters of 31 January 2002 and 19 March 2002. The pursuer avers that:
"the representations by the defenders, concerning the coverage or inclusion of the investment activity being carried out by Scotts for the pursuer, were made fraudulently. The defenders had no honest believe that those representations were true."
[4] In the Gillanders case it is averred that the decision to invest followed a meeting in Scotts' offices between the first defender and the two principal shareholders of the pursuers Susan Gillanders and Sally Elington. A similar pro forma letter of instruction, issued to and signed of behalf of the pursuers on 5 April 2002, was acknowledged on 5 April 2002 in a letter from Scotts which included the following statement: "We confirm that the company carried professional indemnity insurance up to the value of £5 million per claim. If you require any further information please do not hesitate to contact us." By letter dated 29 May 2002 Scotts confirmed that the sum of £250,000 had been invested as discussed. That letter went on to say "These funds remain covered by our professional indemnity insurance." It is averred that the pursuers proceeded to invest the sum in question reliant upon the representations relating to professional indemnity insurance in the letters of 5 April 2002 and 29 May 2002. It is averred that:
"the representations by the defenders, concerning the coverage or inclusion of the investment activity being carried out by Scotts for the pursuer, were made fraudulently. The defenders had no honest belief that those representations were true."
[5] In each action the cases made against the defenders are substantially the same, being first a case of fraudulent misrepresentation against both defenders and separately a case of negligent misrepresentation.
Fraudulent misrepresentation
[6] The letters in which the representations were made were sent and signed by the first defender and are on that basis attributed to her. The attribution to the second defender is made on the basis of an averment that the letters were part of:
"pro forma correspondence which had been provided by Dobb White directly to the second defender. In these circumstances, the pursuer contends that the representations contained in those letters were made by and with the full knowledge and agreement of both defenders."
There then follow averments designed to support the allegation that the defenders had no honest belief in the representations. These essentially consist of numerous areas of enquiry, including failure to obtain information from their professional indemnity insurers.
Negligent misrepresentation
[7] In each action the case on negligent misrepresentation is based on allegations of assumption of personal responsibility by the defenders. In each case it is averred that "there was a direct and proximate relationship ... whereby the defenders assumed a professional and legal responsibility" for the pursuers and their investments. In each case it is averred that the defenders knew or ought to have known that the pursuers would rely on the correspondence in which the representations were made as being true and accurate when deciding whether or not to proceed with the investment with Scotts.
[8] As to the assumption of personal responsibility, in the Milne case it is averred that the pursuer contacted Scotts for investment advice on the recommendation of her then (but estranged) husband. A meeting took place at Scotts' offices between the first defender and the pursuer's husband who was acting as her agent. The pursuer was not present. It is averred that the first defender advised investing the pursuer's funds in the Dobb White scheme and that this advice was accepted by the pursuer when communicated to her by her husband. No further averments were made by the pursuer, but the defenders aver that the husband was a longstanding client of a firm in which the second defender had been a partner and subsequently of Scotts.
[9] In the Gillanders' case it is averred that the two principal shareholders relied on and trusted the second defender because of the long period of time that he had advised and acted for the pursuers on a continuous basis, beginning in the early 1990s when he was a partner in Rutherford Manson Dows and thereafter at Scotts. It was averred that he knew and acted for the parents from the early 1990s onwards and, after the death of their father in 1991, visited his widow at home and provided financial advice for her. It is averred that these circumstances also led to reliance and trust being placed in the second defender by the pursuers. It is then averred that after the establishment of Scotts, the first defender became their main point of contact and "a similar working relationship of trust and reliance began relative to the first defender". There are also averments that the investment was recommended by the first defender who informed the pursuers that it was (a) for selected clients only; (b) a safe one; and (c) that in any event Scotts had £5 million of professional indemnity insurance.
[10] The defenders deny that any advice was given asserting essentially that they supplied only a conduit between the pursuers and the said scheme. They deny any assumption of personal responsibility. They aver that any involvement by the defenders was routine by them as directors for and through Scotts.
Defenders' submissions
[11] In summary, the defenders' submissions were (1) that the action based on fraudulent misrepresentation should be dismissed since the averments are not capable of yielding the inference that the defenders, or either of them, acted fraudulently; (2) that the action based on negligence should be dismissed since the averments do not disclose a basis for holding after proof that either of the defenders assumed personal responsibility to the pursuers, that the pursuers relied on such an assumption of personal responsibility, or that such reliance was in all the circumstances reasonable. (3) In the Gillanders' case the pursuers' reliance on a fax dated 1 June 2002 is attacked as irrelevant since it is after the date on which the investment was made and could not therefore have been relied on in the decision to invest and that it is not averred that the information was provided to the pursuers. (4) In each case an averment that the FSA imposed a financial penalty on the defenders is attacked on the basis that the penalty was in fact imposed on Scotts; and (5) finally there were arguments relating to quantum.
[12] In support of these propositions counsel highlighted the fact that all the correspondence was signed as a director on behalf of Scotts, in whose offices the relevant meetings had taken place. In the Milne case the letter of 19 March 2002 came after the fund had already been transferred, at least so far...
To continue reading
Request your trial