The trustees spent money trying to recover two fields. They learned only later that their solicitors’ notices to quit were defective. For the five-year Scottish prescription rule the Court applied in 2017, did time start when the trustees knew they had incurred the expense, or only when they understood why it had been wasted?
The fields and the notices to quit
The trust owned three agricultural fields near Killearn with potential for residential development. To realise that potential it needed vacant possession. The leases and later agreements made identifying the tenant and tenancy important when serving notices to quit.
The first notices for two fields gave insufficient notice. In November 2004 the solicitors served fresh notices requiring the tenant to leave on 10 November 2005.
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The tenant stayed on. The trust instructed new solicitors to seek possession.
The trustees instructed Anderson Strathern LLP, which on 9 February 2006 applied to the Scottish Land Court to remove the tenant. It was agreed that by 17 February 2006, at the latest, the trustees had incurred material expense on those applications. On 24 July 2008 the Land Court gave effect to the notice for the grazing field, but refused to give effect to the notices for the other two fields because they misdescribed both the tenant and the lease. Those two fields remained agricultural holdings, so the trust could not develop them.
The claim and the decisions below
On 17 May 2012 the trustees sued the respondents for damages. They alleged breach of an implied term that the solicitors would use the knowledge, skill and care of a reasonably competent solicitor, by failing in the 8 November 2004 notices to identify the tenant and the applicable lease of the two larger fields. The sums claimed included fees and outlays paid to the solicitors and to Anderson Strathern, and damages for the lost enhanced value of the land and the lost chance to exploit its development potential.
Under the version of the 1973 Act at issue, five years without a relevant claim or acknowledgment could extinguish the obligation to make reparation. Section 11(1) generally started time when loss occurred. Section 11(3) could postpone that date where the claimant neither knew, nor could with reasonable diligence have known, that loss had occurred.
For this preliminary issue, breach and resulting loss were assumed. The Lord Ordinary held that the trustees knew they had incurred legal costs by February 2006. Five years had therefore passed before the action began in May 2012. The Inner House upheld the decision.
What section 11 requires the creditor to know
The same words for loss, injury or damage appeared throughout section 11. Lord Hodge read them consistently: the later subsection asked when the claimant knew of the facts that constituted loss under the earlier one.
Two earlier cases framed the issue. In Dunlop v McGowans, solicitors had failed to serve a notice to quit in time. The obligation to make reparation was a single obligation and arose once a legal wrong and resulting loss coincided. It became enforceable on the date when, but for the omission, the landlord would have obtained vacant possession, although the losses could then only be estimated. In David T Morrison & Co Ltd v ICL Plastics Ltd, an explosion had caused visible damage to a shop. The Court held that section 11(3) requires the creditor to be aware, actually or constructively, only that loss or damage has occurred, not of its cause. The words “caused as aforesaid” describe that loss; they do not require further knowledge. Morrison did not decide the question here: where financial loss consists of money spent in reliance on professional advice, must the client recognise that the spending is a detriment?
Lord Hodge held that the answer was no. In section 11(1), loss, injury or damage is an objective fact. Time starts, for example, when defective goods are acquired, expenditure is incurred, or vacant possession is not obtained. Section 11(3) delays that start only until the creditor knows of the same fact. It does not wait until the creditor knows that something has gone awry, that he or she is poorer or otherwise at a disadvantage, or that there is a particular head of loss. It is enough that the creditor knows that something sought has not been obtained, or that expenditure has been incurred.
He accepted that this can be harsh. Someone may incur legal fees on negligent advice, or buy a house at an overvalue on a surveyor’s advice, while knowing of the payment but not that it is a loss. The circumstances may not prompt an enquiry. The trustees’ reading would, however, create uncertainty: it was unclear whether an adverse first-instance judgment would start time if there were strong grounds for appeal. Requiring awareness of a head of loss would also require knowledge of the factual cause, which Morrison had rejected. Lord Hodge noted that it was not clear this construction was what the Scottish Law Commission had envisaged in the discoverability recommendation which led to the 1973 Act, and that the fit was more questionable for financial loss than for observable damage to property. Certainty, at least with hindsight, nevertheless favoured the statutory reading.
Why time had already run
The trustees said their legal fees appeared recoverable until the Land Court ruled against them. That expectation did not postpone time.
They knew they had failed to obtain possession on 10 November 2005. In any event, they knew or should have known by 17 February 2006 that they had incurred legal costs trying to recover the land. On either basis the claim brought on 17 May 2012 was too late.
The Court acknowledged that applying the test to financial loss could produce harsh results. A proposed change to the discoverability rule was then before policymakers. The appeal concerned the existing wording applicable to these events.
Verdict: The Supreme Court unanimously dismissed the trustees’ appeal. Any obligation to compensate them had already been extinguished. The Court did not make a finding of professional negligence against the solicitors.
