Katherine Steven+douglas Steven As Executors Of The Late Mrs. Agnes Thomson Milligan V. Hewats+stephen Rodney Govier+robert Richie Myles+neil Cavers+andrew James Malone+charles Alexander Laurie
| Jurisdiction | Scotland |
| Judge | Lord Tyre |
| Neutral Citation | [2013] CSOH 61 |
| Published date | 25 April 2013 |
| Date | 25 April 2013 |
| Docket Number | A510/11 |
| Court | Court of Session |
| OUTER HOUSE, COURT OF SESSION [2013] CSOH 61 | |
| A510/11 | OPINION OF LORD TYRE in the cause MRS KATHERINE STEVEN Pursuer against (FIRST) HEWATS; (SECOND) STEPHEN RODNEY GOVIER; (THIRD) ROBERT RITCHIE MYLES; (FOURTH) NEIL CAVERS; (FIFTH) ANDREW JAMES MALONE; and (SIXTH) CHARLES ALEXANDER LAURIE, Defenders ___________ |
Pursuer: Davies; Morton Fraser
Defenders: McBrearty; Dundas & Wilson
25 April 2013
Introduction
[1] In this action the pursuer seeks reparation for loss and damage which she claims to have sustained as a consequence of negligence of the defenders while acting as solicitors on behalf of her aunt, the late Mrs Agnes Thomson Milligan ("Mrs Milligan"). The loss claimed by the pursuer consists of inheritance tax payable on a lifetime gift of a house to her by Mrs Milligan, which tax the pursuer avers could and would have been avoided but for the defenders' negligence. This is one of two parallel actions raised in relation to the same actings by the defenders; in the other action (Steven & Anor v Hewats), Mrs Milligan's executors seek reparation for a loss consisting of additional tax payable on her estate at death as a consequence of the lifetime gift of the house having become chargeable to tax. The two actions came before me together for debate on the procedure roll; this opinion is concerned with the action raised by the pursuer as an individual. For the full picture it may be desirable to read this opinion in conjunction with my opinion in the action by the executors.
The pursuer's averments
[2] The pursuer avers that after the death of Mrs Milligan's husband in 1974, Mrs Milligan had been the sole heritable proprietor of a house known as Ardlaggan, New Galloway, in which she resided. For reasons narrated in the pursuer's pleadings, the dominium utile and superiority of Ardlaggan were held by Mrs Milligan on separate titles. In 1996 Mrs Milligan instructed the defenders in relation to the preparation of a new will. The pursuer avers that the defenders also provided advice on "general estate planning". Mrs Milligan informed the defenders that she wished to make a gift of Ardlaggan to the pursuer with a view to reducing the value of her estate subject to inheritance tax in the event of her death. She wished, however, to continue to reside at Ardlaggan. The defenders advised Mrs Milligan that she should make an outright gift of the house to the pursuer but that she should obtain a separate undertaking from the pursuer to protect her right to stay at Ardlaggan. The defenders drafted a disposition of Ardlaggan in favour of the pursuer, which disposition was executed by Mrs Milligan on 26 March 1997 and registered by the defenders on behalf of the pursuer in the Land Register on 4 September 1998. The defenders also prepared a document for signature by the pursuer confirming that Mrs Milligan could stay at Ardlaggan for as long as she wished. A letter enclosing this document was sent to the pursuer on 20 March 1997 and stated inter alia as follows:
"We understand Mrs Milligan recently discussed with you the possibility of transferring Ardlaggan and the associated lands in New Galloway to you as an outright gift. Mrs Milligan is about the [sic] sign the title deed in your favour but would wish you to sign the enclosed document confirming that she may stay at Ardlaggan for as long as she wishes. In the event that you feel it appropriate, you should not hesitate to take independent legal advice on this document but we would ask you to have it signed and returned to us as soon as possible."
[3] The pursuer avers that in 2006 it was recognised that two errors had been made by the defenders in 1997. Firstly, the disposition granted by Mrs Milligan in favour of the pursuer had conveyed only the superiority and not the dominium utile of Ardlaggan. Secondly, Mrs Milligan's continuing occupation of Ardlaggan on the basis of the pursuer's letter, and without payment of a market rent, had the consequence that for inheritance tax purposes the house remained comprised in Mrs Milligan's estate because the transfer would be treated as a gift subject to reservation of benefit. These matters having come to light, a corrective disposition was prepared by the defenders, executed by Mrs Milligan on 6 October 2006 and registered in the Land Register on 25 October 2006. In return, the pursuer granted Mrs Milligan a lease of Ardlaggan at a market rent. Unfortunately, Mrs Milligan died on 6 January 2008. The transfer of Ardlaggan in 2006, having been made within seven years before her death, fell to be treated as a chargeable lifetime transfer for inheritance tax purposes. In this action the pursuer avers that she has thereby incurred a liability to pay tax of £51,600, being 40% of the value of the house after deduction of two annual exemptions and the £300,000 nil rate band in force at the time of Mrs Milligan's death. She avers that but for the defenders' negligence an effective gift would have been made in 1997 and the value of the house would not have been charged to inheritance tax at all.
[4] As regards duty of care, the pursuer makes inter alia the following averments: It was the defenders' duty in 1997 to take reasonable care to draft the description of the subjects to be conveyed so that the dominium utile of Ardlaggan was included in the conveyance. Further, the defenders knew or ought to have known that if Mrs Milligan continued to reside at Ardlaggan without paying a market rent then the transfer would be regarded as a gift with reservation of benefit with the effect that on her death the house would be treated as comprised within her estate for inheritance tax purposes. They knew or ought to have known that in these circumstances the pursuer would incur liability for inheritance tax which would diminish the value of the gift. In these circumstances, it was the defenders' duty to take reasonable care to advise Mrs Milligan that if she wished to remain at Ardlaggan she should enter into a lease of the house by the pursuer at a market rent. The defenders acted for the pursuer in drafting and arranging signature of the letter permitting Mrs Milligan to stay at Ardlaggan, and in registering the disposition on the pursuer's behalf. In any event they knew or ought to have known that the purpose of the gift was to mitigate the liability of Mrs Milligan's estate for inheritance tax and to transfer Ardlaggan to the pursuer free of any inheritance tax liability. In these circumstances, the pursuer avers that the defenders owed a duty of care to her as the beneficiary of the gift by Mrs Milligan.
The issue
[5] The issue debated before me in this action was whether, in the circumstances averred by the pursuer, the defenders owed a duty of care to her, in her capacity as the recipient of a lifetime gift of Ardlaggan by Mrs Milligan, so as to be liable to make reparation to her in respect of the loss that she claims to have sustained.
Arguments for the parties
Argument for the defenders
[6] On behalf of the defenders it was contended that the pursuer had failed to aver circumstances in which the defenders owed a duty of care to her to prevent her from sustaining the loss which she claimed to have suffered. Although the pursuer pleaded that the defenders acted for her in two specific matters (drafting and arranging for her to sign the letter permitting Mrs Milligan to remain at Ardlaggan, and registering the disposition in the pursuer's favour), this did not assist her case. Even if she succeeded in proving that the defenders acted for her - as opposed to Mrs Milligan - in relation to both of these matters, the former not being admitted, it was not suggested that the defenders' performance of these duties was negligent or caused the pursuer loss. Her case could only succeed by means of an unwarranted extension of the principle enunciated by the House of Lords in White v Jones [1995] 2 AC 207. The ratio of that decision was to be found in the speech of Lord Goff of Chieveley, whose concern was one of doing practical justice: there would be a lacuna if, as he put it, the only persons who might have a valid claim (the testator and his estate) have suffered no loss, and the only person who has suffered a loss (the disappointed beneficiary) has no claim. The solution to this "extraordinary fact" which Lord Goff proposed was to hold that the assumption of responsibility by a solicitor towards his client extended to an intended beneficiary who (as the solicitor can reasonably foresee) may, as a result of the solicitor's negligence, be deprived of his legacy in circumstances where neither the testator nor the estate will have a remedy against the solicitor. Counsel submitted that it would be wrong to extend this principle to the circumstances of the present case. In particular, where there was an actual or even a potential conflict of interest between the solicitor's client on the one hand and the beneficiary on the other, the solicitor ought not to be held to owe a duty of care to the latter. Reference was made to McLeod v Crawford 2010 SLT 1035. The present case concerned an inter vivos gift, a situation which Lord Goff distinguished from a testamentary disposition in White v Jones at page 262. The absence of conflict of interest in White v Jones was clear: the disappointed beneficiaries wanted legacies...
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