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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Milne & Ors v Messrs Moores Rowland & Ors [1999] ScotCS 305 (23 December 1999) URL: http://www.bailii.org/scot/cases/ScotCS/1999/305.html Cite as: [1999] ScotCS 305

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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 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:

1. 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;
2. 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;
3. 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;
4. that it would be necessary to form an investment company registered in Jersey;
5. 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;
6. 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
7. 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:

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 -

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 knowledge and reasonable foresight from those relied upon by the first and second pursuers. Similarly, all of the pursuers make the same averments of duty of care and breach of duty in respect of Miss Arnott, but again the third and fourth pursuers rely on different averments of knowledge and foresight from those relied upon by the first and second pursuers. It is unnecessary for present purposes to rehearse the averments of fault in detail. In short, Mr Ludwig is said to have been at fault (1) in failing to satisfy himself that the trust deeds made provision for each of the first and second pursuers to obtain a life interest in the trust fund set up by the other in succession to that other and for an accumulation and maintenance trust in favour of the children on the death of the survivor, (2) in failing to review the draft deeds before execution, and (3) in failing to take reasonable care to see that the first and second pursuers were not given deeds for execution which did not make such provision. The case against Miss Arnott is similar in substance, although in her case the second duty is put in terms of preparation, rather than review, of the draft deeds.

In their averments of loss, the first and second pursuers aver that each of the trusts will terminate on the death of the granter thereof, and the children (or their estates if they have predeceased) will become absolutely entitled to share the trust fund. The survivor of the first and second pursuers will therefore lose the benefit of the life interest which he or she would have enjoyed if the trust deeds had made provision for such a life interest in favour of the survivor. Averments are then made setting out, by reference to a report (No. 6/9 of process) by Mr R. K. Sloan FAA, the present actuarial value to each of the first and second pursuers of the loss of the contingent life interest in the trust fund settled by the other after that other's death. There is also a brief averment of expenditure by the first pursuer on accountancy and actuarial advice.

The averments of loss made by the third and fourth pursuers begin by setting the limits of the period during which CGT charges could have been avoided if Mr Ludwig's scheme had been fully implemented. It is averred that because of changes in the law made by section 132 of and Schedule 23 to the Finance Act 1998, gains accruing to the trustees on disposals of land on or after 17 March 1998 attract a charge to CGT which would not have been avoided if the defenders had not been in breach of duty; but that those changes do not affect the CGT consequences of disposals made prior to that date. In light of the limit imposed on their claims by that change in the law, the pursuers aver that on the death of each of the first and second pursuers CGT will be chargeable on the whole gains accruing to the trustees of that pursuer's trust since the date of appointment of the non-resident trustees. Such gains will include all the gains which have arisen on disposals of land prior to 17 March 1998. The charges on those gains arising on disposals between 10 March 1989 and 17 March 1998 will, it is averred, be substantial. It is averred that those charges would not have occurred if the trust deeds had provided for the respective funds to pass (i) to the survivor of the first and second pursuers for life, and (ii) thereafter to an accumulation and maintenance trust "for the third and fourth pursuers" (sic; sc for the children). It is then averred that:

There then follow separate averments relating to each of the two trusts setting out:

1. a computation of the present value, calculated actuarially, of the charge to CGT which each trust will incur;
2. a computation of the present value of the accelerated charge to IHT which each trust will suffer if the settlor in respect of that trust is the first to die of the first and second pursuers; and
3. the expenditure incurred out of trust funds on a share of insurance premiums to meet the tax chargeable on the death of the first or second pursuer.

What I have set out so far is a summary of the main averments by the pursuers in support of their claims. There are other averments which are material to points taken in the defences and discussed in the course of the debate which I heard, but I need not set them out until I come to record the submissions in relation to which it is necessary to consider them.

The case was appointed to the procedure roll at the instance of both defenders. Mr Moynihan for the first defenders advanced six separate arguments. Mr Wylie for the second defenders adopted all of those, and advanced an additional argument with which the first defenders were not concerned. It is convenient to deal with each argument in turn. It should be noted, however, that all parties were agreed in inviting me not to pronounce an interlocutor disposing of the points debated without affording them a further opportunity of being heard. That arose at least in part in the context that the pleadings had been amended at the outset of the hearing, in terms of a Minute of Amendment and Answers which contained some material which there had only been a short time to consider. I therefore agreed that I would put the case out By Order to allow parties to consider their positions in light of my opinion, and make such further motions as to future procedure as they thought necessary.

This submission concerned the relevancy of the cases made by all four pursuers. The submission was made under reference to the first defenders' third plea-in-law. In brief summary the point taken was that the averments of loss were irrelevant, because they were based on a comparison of what actually occurred, not with the scheme advised by Mr Ludwig, but with parts only of it. The proper basis for the claim for damages would have been a comparison between, on the one hand, the fiscal and financial consequences of the trusts which were actually put in place and, on the other hand, the fiscal and financial consequences of the scheme proposed by Mr Ludwig if it had been implemented. The pursuers' averments instead drew a comparison between the consequences of the trusts actually put in place, and those of a hypothetical scheme which involved only two of the elements of Mr Ludwig's scheme. Mr Ludwig's scheme involved three elements, namely (i) the creation in the United Kingdom of a trust in which the settlor (the first or second pursuer as the case might be) and the settlor's surviving spouse had successive interests in possession, and the "export" of that trust to Jersey after the land had been conveyed to the trustees; (ii) the formation of an investment company registered in Jersey; and (iii) the creation of an accumulation and maintenance trust for the benefit of the settlor's children. In the pursuers' pleadings nothing was said about element (ii) after the averments describing the advice given by Mr Ludwig and accepted by the first and second pursuers. It was averred that nothing further was done after the trusts set up on 10 March 1989 were exported to Jersey. It was therefore implicit in the pursuers' case that no investment company registered in Jersey was set up. When the pursuers came to make their averments of loss, however, they made no mention of the investment company. The averments of loss sought to identify the loss by a false comparison of the financial and fiscal consequences of what was actually done with the financial and fiscal consequences of a hypothetical scheme comprising Mr Ludwig's scheme with the investment company element stripped out. Anticipating that the pursuers would argue that that was only a matter of quantification which did not affect the relevancy of the pursuers' case, Mr Moynihan submitted that the point was more fundamental than that, and constituted a fundamental flaw in the relevancy of the case. A simple example of the consequences of the pursuers' failure to draw the relevant comparison was that no allowance was made in the computation of their loss for savings made through the fact that the proposed investment company was not set up. The pursuers incorporated into their pleadings Mr Ludwig's letter of 9 February 1989 (No. 6/11 of process) in which he advised that "the annual running costs of setting up the trusts in Jersey would be £6000 per annum. This would include the setting up and running costs of an interest in possession settlement for yourselves, an accumulation and maintenance trust for your children and an off-shore investment company" (emphasis added). No account was taken in the pursuers' averments of loss of the element of those projected costs which had not been incurred because the investment company had not been set up. The point, however, went deeper than that example. A tax avoidance scheme was a complex web of interwoven devices intended to achieve particular results. It was therefore necessary, if one element of the scheme was being left out of account in computing loss resulting from a failure properly to implement the scheme, to explain why that was being done, and what effect that had. A further example of the point was to be found in the fact that the first and second pursuers' claims each related to the loss of the value of the liferent interest of the survivor in the trust set up by the other. The purs

Mr Wylie for the second defenders adopted Mr Moynihan's submissions, under reference to the second defenders' fourth plea-in-law. He advanced no additional argument on the point, except that he submitted that, since the second defenders were not the authors of the scheme, the argument was even stronger at their instance than it was at the instance of the first defenders.

Mr Tyre, in replying to those submissions, began by emphasising that the present issue was the relevancy and specification of the pursuers' case. Reference to the defenders' pleadings was of no moment. The pursuers' case should be allowed to proceed to inquiry unless it could be said either that they were bound to fail even if they proved what they had averred, or that they had failed to give fair notice of their case. The pursuers' position was that for the purposes of their case as it was pled the part of Mr Ludwig's scheme relating to the setting up of an offshore investment company was immaterial, and the precise intended role of that aspect of the scheme therefore did not require to be explained in the pursuers' pleadings. The pursuers' case was that, whatever other elements Mr Ludwig may have recommended, the critical features of his scheme were (i) the creation of an interest in possession in favour of the survivor of the first and second pursuers, and (ii) the creation of an accumulation and maintenance trust in favour of the children, all with a view to securing that no CGT would arise on the occasions of disposals of the land while those trusts subsisted and that eventually capital payments out of the trusts could be made in such a way that CGT exemption would be available. The pursuers' case was that over time deferment of CGT liability could be turned into complete avoidance. It was the failure to put those critical features of the scheme into effect that the pursuers founded upon as having caused their loss. The third element of Mr Ludwig's scheme, the setting up of the offshore investment company was of no significance in the context of the pursuers' case. It was not a matter of the pursuers' pleadings excluding that element of the scheme from consideration in computing their loss. There was simply no link between its omission and the loss which the pursuers claimed to have suffered. The pursuers set out their loss by drawing the correct comparison between what was done and what Mr Ludwig had advised, but required to make no reference to the investment company proposal because that was immaterial to the loss they claimed. It might or might not be right, as Mr Moynihan claimed, that in calculating the amount of the loss allowance should be made for a saving of expenditure through not setting up the investment company. If, however, there was force in that point, it was one which went only to quantification and was for the defenders to raise in their pleadings if they saw fit, so that the point could be addressed at proof. The absence of reference to it in the pursuers' pleadings did not render those pleadings irrelevant.

I did not understand it to be matter of dispute that the relevant measure of the pursuers' loss is the difference between, on the one hand, the fiscal and financial consequences of implementation of the scheme which Mr Ludwig recommended and which the pursuers aver that they instructed should be implemented, and, on the other hand, the fiscal and financial consequences of the steps which were in fact taken. In my view it follows that it is for the pursuers to set out in their pleadings the nature and purpose of each element of the scheme, and the way in which it was intended that each element should bear upon and affect each other element. There is in my view force in Mr Moynihan's submission that the nature of a tax avoidance scheme makes it important that the role of each element of the scheme should be clearly set out and understood before the comparison of what was intended with what was achieved is attempted. It may be, of course, that in a particular scheme the omission of one element has no bearing on the loss resulting from the failure to implement other elements. But in my view the proper way for a pursuer to reflect that position, if it is the position for which he contends, is to aver expressly that the element in question has no bearing on the computation of loss, and explain why in the particular circumstances that is so. It is not, in my view, adequate for a pursuer to do as the present pursuers have done, namely make no reference to an integral element of the scheme and seek to excuse that silence, when challenged, by arguing, without any averment to that effect, that the element in question is immaterial to the loss he claims. The effect of failure on the part of a pursuer to make averments about the role played in the over-all scheme by each part of it will vary with circumstances. Some points may be of relatively little significance, and may be capable of being raised without too much difficulty by the other party. An example of that end of the range is, in my view, to be found in the point made by Mr Moynihan about the pursuers' failure to take account of the savings in running costs effected by the failure to set up the investment company. But other points may be of greater significance. Although Mr Tyre was no doubt right to point out that the issue before me turns on an examination of the pursuers' pleadings, I nevertheless regard it as legitimate for Mr Moynihan to illustrate his argument by reference to the defenders' understanding of the purpose of setting up the investment company. That illustration serves to show, in my view, that the effect of omission of reference to an element of the scheme in approaching the computation of loss may be to introduce substantial distortion.

In my opinion the pursuers have failed to make averments which seek to measure their loss by reference to the only relevant comparison, namely that between the whole financial and fiscal consequences of the intended scheme and the whole financial and fiscal consequences of what was actually done. If their position is that the offshore investment company element of the scheme has no material bearing on their loss, then it is in my view for them to say so in averment, not simply to omit all reference to that aspect of the scheme in their averments of loss. Moreover, if that is their position it is in my view for them, as a matter of fair notice, to explain the intended role of the investment company in the original scheme, so that the assertion that its omission has no bearing on the computation of the loss claimed is open to examination. That is in my opinion so even although the first defenders, through Mr Ludwig, were the authors of the scheme. It is so a fortiori in the case against the second defenders, who were not the authors of the scheme.

The pursuers' case of fault against the first defenders contains the following averments:

Mr Moynihan submitted initially that those averments should be excluded from probation. He submitted that they might be read either as doing no more than addressing the possibility that the steps towards creation of an interest in possession in favour of the survivor of the first and second pursuers and the creation of an accumulation and maintenance trust in favour of the children might be effected after rather than before export of the trusts, or as making a wholly inspecific averment of a duty to achieve the same consequences by means different from those originally advised. If the latter was what was intended, the averment should be excluded from probation for want of specification. Mr Tyre disavowed any intention of making a case that different means of achieving an equivalent result should have been adopted, and made it clear that the esto case was intended only to keep open the possibility that some of the steps to put the scheme into effect might have been carried out after rather than before export of the trusts. In light of that assurance, Mr Moynihan did not press this submission.

This submission was concerned with the relevancy of the averments made by the first and second pursuers in response to the defenders' contention that their claims have prescribed (the defenders' respective first pleas-in-law). No equivalent point was taken in relation to the third and fourth pursuers. For the purposes of the debate before me it was common ground between the parties that there had been concurrence of damnum and injuria no later than 1991. More than five years elapsed thereafter before the action at the instance of the first and second pursuers was raised in December 1997. It followed that, in terms of sections 6 and 11(1) of the Prescription and Limitation (Scotland) Act 1973 any obligation on the part of the defenders to make reparation had been extinguished, unless the first and second pursuers made averments which relevantly invoked the exception provided for in section 11(3). The first and second pursuers therefore required to make relevant averments that until a date less than five years before the action was raised they were "not aware, and could not with reasonable diligence have been aware that loss, injury or damage caused as aforesaid [i.e. in this case by the defenders' negligence] had occurred". The defenders' submission was that they had not done so with sufficient specification.

Two passages in the pursuers' pleadings bear upon this issue. In article VI of the condescendence they make the following averments:

In article XIII of the condescendence, in response to the averment that their claims have prescribed, they aver:

In their Answer 6 the first defenders make the following averments:

In Answer 13 they add:

The second defenders, in their Answer 6, aver that they:

The pursuers respond to those averments by the defenders with a general denial.

Mr Moynihan, in advancing this submission, accepted that he could not look for more specification of the pursuers' averment that they were not aware until October 1993 that loss caused by the defenders' negligence or breach of contract had occurred. The other branch of the pursuers' case under section 11(3), however, required to be supported with greater specification than the bare assertion that they could not with reasonable diligence have become so aware at any earlier date. Adequate specification required fair notice of the pursuers' position in response to the defenders' averments. Did they dispute that they had been called upon to contact the first defenders' Jersey office and had failed to do so? Did they accept that the fee notes and the various reminders about them were received? If they were received, did they maintain that they did not appreciate that the level of fees charged had the significance which the first defenders attributed to them? The bland general denial of the defenders' averments gave them no fair notice of what the pursuers' position was.

Mr Moynihan sought support for his submission in a number of authorities which he cited. While there was an onus of averment and proof on a defender who pled prescription to identify the date on which he contended that damnum and injuria concurred (Strathclyde Regional Council v W. A. Fairhurst and Partners 1997 SLT 658; Paterson v George Wimpey & Co Ltd 1999 SLT 577), a pursuer who sought to rely on section 11(3) required to aver and prove circumstances which brought the case within the scope of that subsection (Glasper v Rodger 1996 SLT 44; Strathclyde Regional Council v Fairhurst). Where the lack of awareness founded upon related not to whether the loss had resulted from negligence, but to whether loss had been suffered, the question which required to be addressed was "whether, in all the circumstances, the pursuer had any reason to exercise reasonable diligence in order to discover whether a loss had occurred" (Glasper, at 47K). While in some circumstances a bare averment that reasonable diligence would not have revealed the loss might suffice, that was not so where the defender made averments suggesting that there had been occasion for inquiry which, if carried out with reasonable diligence, would have revealed the loss; in such a case the court was entitled to expect the pursuer to deal with the defenders' averments which went to that point (S.R.C. v Fairhurst at 663H; Mr Wylie, in adopting Mr Moynihan's submissions, added reference to Beveridge & Kellas WS v Abercromby 1997 SLT 1086). The averments which the defenders made in the present case identified circumstances in which the pursuers might be said to have been put on inquiry as to whether the scheme had been properly implemented. In order relevantly to aver a case under section 11(3), the pursuers required to respond to those averments, making clear in what respect they disputed them.

Mr Tyre submitted that what required to be averred in support of a contention that the pursuers had not been aware, and could not with reasonable diligence have been aware, of certain facts varied from case to case. In support of that proposition he relied on what was said in Glasper at 47J to 48I. He submitted that in averring (i) in article V of the condescendence that Mr Ludwig advised them on 31 March 1989 that the position was satisfactory and the stage was set for future transactions, and (ii) in article VI that no event occurred between March 1989 and October 1993 which caused or ought reasonably to have caused them to doubt that all necessary steps had been taken, the pursuers had averred facts and circumstances which afforded a sufficient basis for their case under section 11(3). The defenders' argument was a very narrow one founded on their own averments in Answer 6. Those averments were denied (although so far as the second defenders' averment was concerned, the proper response ought to have been "not known and not admitted", rather than a denial). In all the circumstances the pursuers had averred enough to go to proof on the section 11(3) issue.

It was not disputed that the defenders have relevantly averred that the first and second pursuers' claims have prescribed. Nor was it disputed that it was for the pursuers to make relevant and specific averments bringing the circumstances within the scope of section 11(3). The issue is whether they have done so. They have averred that they did not know until 1993 that the scheme had not been properly implemented. Mr Moynihan was, in my view, right to accept that the defenders could not expect greater specification of that point. But to invoke section 11(3) the pursuers must also aver that they could not with reasonable diligence have been aware of that fact at a date more than five years before the action was raised. The pursuers make the averment that they could not with reasonable diligence have become so aware earlier than they did. In the context of the two other averments on which Mr Tyre relied, I am of opinion that that averment would be prima facie sufficient. Those two averments are (i) the reference to Mr Ludwig's intimation at the end of March 1989 which implied that everything had proceeded according to plan, and (ii) the averment that nothing occurred between then and October 1993 to suggest to the pursuers that matters were otherwise. Following the approach adopted in Glasper, I am of opinion that the pursuers have said enough in those averments to enable them to maintain that there was no reason for them to have inquired into the matter, and that accordingly in the circumstances there was nothing that they ought to have done in the exercise of reasonable diligence that would have revealed the true state of affairs. That at least would be the position if the defenders had done nothing to aver circumstances that ought to have put the pursuers on inquiry. The questions which arises are (a) whether the averments which the defenders have made are such as to suggest that the pursuers ought in the exercise of reasonable diligence to have made inquiries which would have revealed the true position and (b) whether the pursuers' response to those averments gives fair notice of their position.

In my view, neither the defenders nor the pursuers have expressed their pleadings with the desirable degree of clarity on those matters. Dealing first with the defenders' averments, the first point which the first defenders make is that the pursuers were repeatedly called upon to contact the first defenders' Jersey office and did not do so. I understand that the implication is that if the pursuers had responded, they would have learned that the scheme had not been fully implemented, but it seems to me that in the absence of specification of when the calls were made, or of the purpose for which the pursuers were being invited to make contact, it is unclear whether such an inference can properly be drawn. The second point is that the pursuers failed to make timeous payment of the fees rendered by the first defenders, despite certain specified reminders. I do not understand the intended significance of the averments about late payment of fees, if they are taken alone. The third point (or it may be a development of the second) is that the fees charged were much lower than those previously estimated by Mr Ludwig as the annual running costs of the scheme. I understand that the inference which the defenders seek to have the court draw from those circumstances is that the pursuers were thereby given cause to suspect that the scheme had not been fully implemented, and ought therefore in the exercise of reasonable diligence to have made inquiries which would have revealed the true position. If that is how these averments are to be understood, they seem to me to be the most relevant and specific averments made on this point by the first defenders, albeit still somewhat elliptical. The fourth point is the second defenders' averment that copies of the trust deeds were passed to Armstrong Watson. Apart from their acceptance that they were charged and paid fees, the pursuers make no specific response to those averments. Having regard to the inspecific nature of the first and second points, I would be disinclined to regard the pursuers' failure to make a specific response as constituting a serious deficiency in their pleadings. So far as the fourth point is concerned, Mr Tyre recognised that the proper reflection of the pursuers' position would have been "not known and not admitted". In my view a more satisfactory and complete response, if that is their position, would have been a positive averment that Armstrong Watson did not make them aware that they had received the copy trust deeds, and/or did not pass them to them. It is the third point which seems to me to be of clearest significance. I infer, from the pursuers' averment that they paid the fees, that they accept that they did at some stage receive the fee notes. It seems to me that if the pursuers' position is that, although they did receive the fee notes on the dates specified by the defenders, they were not alerted by the amounts charged to the possibility that the scheme had not been fully implemented, it would have been better for that position to be expressly stated in averment. In the whole context, however, I am not persuaded that on the averments which they have made the pursuers are bound to fail in their attempt to invoke section 11(3), or that the way in which they set out their position fails, to an extent that is seriously prejudicial, to afford the defenders fair notice of the case which they make.

In the result, therefore, while in my opinion both the pursuers and the defenders might with profit improve the specification of their averments on the section 11(3) issue, I am not persuaded that it would be inappropriate to allow those averments as they stand to be admitted to proof before answer.

The First Defenders' Submission (4) - No Title to Sue

This submission, advanced under reference to the first defenders' second and the second defenders' third pleas-in-law, relates to the third and fourth pursuers' title to sue. The submission, advanced by Mr Moynihan and adopted by Mr Wylie, was that the third and fourth pursuers sought to recover damages, not in respect of a loss which they as trustees had suffered, or which had been suffered by the trust estate under their charge, but in respect of a loss which had not yet crystallised but which would, at a future date, be suffered by beneficiaries in the trusts. The trustees were not entitled to pursue recovery of such losses in a representative capacity.

Mr Moynihan sought first to illustrate his argument by reference to the incidence of CGT. Taking as an example the trust set up by the first pursuer and in which the third pursuers are the trustees presently acting, he pointed out that it provides for a liferent in favour of the first pursuer and for the fee to be shared on her death equally by the children. On the liferentrix's death, the children, if they survive, will become absolutely entitled as against the trustees to equal shares in the trust funds. In that event the children will be subject to a charge to capital gains tax, provided they are domiciled in the United Kingdom at some time in the year in question (Taxation of Chargeable Gains Act 1992, section 87(1), (4) and (7), section 97(1) and (2) and section 60). A charge to tax thus might or might not arise, according to whether the beneficiary who became absolutely entitled was domiciled in the United Kingdom at some time in the relevant year. If a charge to tax arose, it was a charge on the recipient beneficiary, not on the trustees. The losses which the third and fourth pursuers sought to recover, so far as they related to CGT liability, would thus, if they occurred, not be losses suffered by the trustees or the trust estate, but losses suffered by the beneficiaries personally. Mr Moynihan next dealt with the incidence of IHT. Again illustrating the matter by reference to the first pursuer's trust, liability in respect of the charge to IHT which will arise on her death in respect of the property settled by her will fall upon the trustees (in terms of section 200(1)(b) of the Inheritance Tax Act 1984) and upon the beneficiaries in whom the property vests on the death (in terms of section 200(1)(c)). Despite the possibility of liability falling on the trustees, the way in which the pursuers pled their case relied on the liability bearing on the beneficiaries rather than on the trustees (articles VIII and IX of the condescendence - "loss and damage suffered by the beneficiaries of the trusts of which the third and fourth trustees are the pursuers"). Where, as here, part of the loss (the accelerated IHT liability) could fall on the trustees or on the beneficiaries, and part of it (the CGT liability) could only fall (if it fell at all) on the beneficiaries, it was understandable that the losses should be represented as falling wholly on the beneficiaries, and that was how the matter had been presented in the third and fourth pursuers' pleadings. The trustees had, however, no title to sue in a representative capacity for losses which would be suffered by the beneficiaries.

Mr Tyre submitted that the action, so far as laid at the instance of the third and fourth pursuers, had been properly brought in their name. On a proper understanding of their pleadings they were, he submitted in the first place, suing on behalf of the trust estates under their charge for recovery of losses suffered by the trust estates. He relied on the averment in article I of the condescendence:

That averment, he said, reflected the fiduciary capacity in which the third and fourth pursuers sued. It was tantamount to saying that the trustees were suing for a loss which bore on the trust estate. They were not suing as representatives of particular beneficiaries. It would, Mr Tyre submitted secondly, be surprising if something as important as title to sue were to depend on where the taxing statutes placed the charge to tax. So far as the charge to CGT was concerned, in the case of an onshore trust the charge would fall on the trustees. In the case of an offshore trust the legislation placed liability on the UK domiciled beneficiaries so as to enable the Inland Revenue to seek payment of the tax from persons within the jurisdiction. That pragmatic provision should not affect the identity of the party with title to sue for loss suffered in the form of a charge to tax which could have been avoided. What mattered was that someone (it was not yet known who) would at some future date suffer diminution in the benefit he received from the trust by virtue of a charge to tax which, if the defenders had acted differently, would have been avoided. The proper parties with present title to sue in respect of such loss were the trustees. Thirdly, if the action had been raised by the first and second pursuers' children, their claims would have been met by a plea of no title to sue. Some actionable losses (the insurance premiums mentioned in article XII of the condescendence) had already been borne by the trustees. It was the trustees, not the beneficiaries, who had title to sue for these (Menzies on Trustees §§ 351 and 1307-8; Lees' Trustees v Dunn 1912 SC 50, per Lord Dundas at 61 and Lord Salvesen at 66). Other losses (the future liability for tax) could not be sued for at this stage by the beneficiaries, since it could not yet be ascertained who the beneficiaries were upon whom that loss would ultimately bear. It could thus not be argued that the trustees had no title to sue for these losses on the ground that there were others who should be suing instead.

In responding to Mr Tyre's submissions, Mr Moynihan modified his argument somewhat. He accepted that it was averred by the third and fourth pursuers that part of the loss claimed, namely the insurance premiums, had already been borne by the trustees. He accepted, too, that the element of loss constituted by liability to an accelerated charge to IHT could fall in terms of section 200(1)(b) on the trustees. So far as those elements of the claim were concerned, he accepted that if the third and fourth pursuers were to assert that they were, as trustees protecting the trust estate under their charge, seeking recovery of those losses as losses suffered by the trust estate, they would have title to sue. His submission, in respect of those aspects of the claim, therefore came to be that in their averments the third and fourth pursuers did not present their claim in that way, but expressly presented it as a claim made in a representative capacity on behalf of the beneficiaries, who were averred to be the parties on whom the loss fell. So far as that element of the loss represented by the charge to CGT was concerned, Mr Moynihan pointed out that Mr Tyre accepted that in terms of section 87 the charge would fall not on the trust estate before distribution but (provided they were domiciled in the UK for part of the relevant year) on the recipient beneficiaries after distribution. That meant, he submitted, that the trustees had no title to sue in respect of that element of loss. The result was that for part of the claim the third and fourth trustees had fundamentally no title to sue, and for the balance of the claim, while they might have title to sue if they presented the claim differently, they had no title to sue on the only basis set out in the pleadings, namely as representatives of the beneficiaries for loss which would (if suffered) be suffered by the beneficiaries.

In my opinion, the third and fourth pursuers, as the trustees presently acting in the trusts set up by the first and second pursuers respectively, are the parties with title to sue for recovery of any losses which have been suffered or will be suffered by them as trustees, or which have diminished or will diminish or adversely affect the trust estate under their charge. It seems to me, however, that the third and fourth pursuers' averments reflect a somewhat inconsistent approach to the expression of such a claim. They do aver in article XII of the condescendence that they as trustees have suffered loss and damage. In particular (leaving aside for the moment the more complicated case of the CGT liability) they aver (a) that if the truster is the first of the first and second pursuers to die, they (the trustees) will suffer an accelerated charge to IHT, and (b) that they have incurred the expenditure on insurance premiums. In all other respects, however, it seems to me that their pleadings present the case in a different way. In article I of the condescendence they aver that they sue "on behalf of persons prospectively entitled to an interest in the capital of the ... [trusts]". In articles VIII and X, they identify the loss and damage caused by Mr Ludwig's and Miss Arnott's alleged negligence as "the loss and damage sustained by the beneficiaries of the trusts" of which they are trustees. There is therefore, in my view, some force in Mr Moynihan's submission that, even if in principle there are elements of loss which can be presented as bearing on the trustees or the trust estate, the third and fourth pursuers bear to sue on the misconceived basis that they do so as representatives of the prospective beneficiaries. I have come to the conclusion, however, that I would be adopting an unduly technical approach to pleading if I were to hold that the third and fourth pursuers have no title to sue for losses which they aver have been borne or will be borne by the trust estate, simply because the language of their pleadings suggests that they conceive that they are suing in a representative capacity on behalf of the prospective beneficiaries.

The averments relating to the element of loss comprising future liability for CGT seems to me to raise an issue which is not one simply of the language of the pleadings. It is not disputed by the third and fourth pursuers that the charge to CGT (if one arises) will fall on the beneficiaries to whom the trust estate passes on the death of the liferenter or liferentrix. Whether there will be a charge to CGT will depend on whether the beneficiaries are domiciled in the UK at some time in the relevant year (section 87(7)). If, however, there is a charge to CGT, it will not diminish the trust estate in the hands of the trustees before distribution. It will fall on the beneficiaries after distribution. On that analysis there is apparent merit in the submission that that charge does not constitute a loss suffered by the trustees or the trust estate under their charge, and therefore is not a loss in respect of which they have title to sue. I am of opinion, however, that that analysis does not properly reflect the real substance of what is alleged to have happened. There is, in my view, some force in Mr Tyre's submission that it would be unfortunate if title to sue came to depend on the technicalities of taxing legislation as to the party on whom the charge to tax may be levied. The charge laid on the beneficiaries of an offshore trust by section 87 no doubt reflects a perceived need for the Inland Revenue to have recourse for recovery of the tax against a party who (unlike the offshore trustees) is subject to one of the jurisdictions of the UK. It is not, however, in my view necessary to peril the decision on that consideration. It seems to me that the substance of the third and fourth pursuers' complaint against the defenders in this action is that, as a result of the alleged negligence, the trusts will not achieve the purposes for which they were set up. As a result of that alleged negligence, the third and fourth pursuers do not have in their hands (as the first and second pursuers contemplated that they would as a result of the implementation of Mr Ludwig's scheme) trust estates which will pass to the beneficiaries (whoever they may turn out to be) undiminished by CGT; instead they have in their hands trust estates which (leaving aside the possibility of avoidance through the beneficiaries not being domiciled in the UK at the material time) will, on being passed to the beneficiaries, immediately bring down upon the beneficiaries a charge to tax. It is not, in my view, unrealistic to regard that situation as damage to the trust estates under the third and fourth pursuers' charge, and thus as a loss for recovery of which they have title to sue.

My conclusion in relation to this submission is that, while the third and fourth pursuers' pleadings might with profit have avoided the confusing reference to their suing as representatives of the prospective beneficiaries, the substance of the matter is that they sue in respect of losses which bear on the trust estate. That is in my view clear so far as the insurance premiums and the IHT losses are concerned. It is also in my view so in real substance in relation to the CGT losses, albeit the charge to CGT will fall on the eventual beneficiaries on their receipt of the trust funds. I therefore take the view that the first defenders' second plea-in-law and the second defenders' third plea-in-law fall to be repelled.

The starting point of this submission, which was concerned with the relevancy and specification of the third and fourth pursuers' averments of loss, was to note that the loss which the first and second pursuers claim is the loss to each of them, if they survive the other, of a liferent interest in the trust constituted by the other. That loss arises because of the failure to make provision in each trust, as Mr Ludwig's scheme contemplated, for a liferent, on the death of the truster, in favour of his or her surviving spouse. The value of the survivor's liferent, however, while lost to the surviving spouse, is not lost in absolute terms. The value of the interest of the residuary beneficiaries is increased, in respect that they will, in the absence of a surviving spouse's liferent, become absolutely entitled to the fee earlier than they would have done if there had been provision for a surviving spouse's liferent. Thus, supposing for the purpose of illustration that the first pursuer were to die ten years after her trust was set up, and the second pursuer were to survive her by five years, the result under Mr Ludwig's scheme, if implemented, would have been that (i) the first pursuer would have enjoyed a liferent of the trust estate for ten years, (ii) the second pursuer would then have enjoyed a liferent of the trust estate for five years, and (iii) the children or their representatives would then (i.e. fifteen years after the setting up of the trust) become absolutely entitled to the fee. Under the trust as it has actually been set up, the consequences of that hypothetical sequence of events would be that (i) the first pursuer would have enjoyed a liferent of the trust estate for ten years and (ii) the children or their representatives would then (i.e. ten years after the setting up of the trust) become absolutely entitled to the fee. In that illustration, although one effect of the failure to implement Mr Ludwig's scheme in full is the loss of the second pursuer's survivor's liferent, the other effect is an acceleration of the children's absolute entitlement to the fee. In calculating any loss suffered by the third and fourth pursuers, allowance required to be made for the benefit derived by the children or their representatives from the omission of the surviving spouse's liferent. Otherwise there would be double counting, when the pursuers' claims are considered as a whole. The fact that no such allowance is made in the third and fourth pursuers' averments goes to the relevancy of their averments of loss, for the same reason as underlies the first defenders' first submission, namely that there has been a failure to measure the loss by a proper comparison of the consequences of the trusts as actually constituted with the consequences which would have flowed from full implementation of Mr Ludwig's scheme. In the third and fourth pursuers' averments of loss, the comparison is incomplete, because while the negative effects of the failure to implement the whole scheme are identified and founded on, no account is taken of the accidental beneficial effects (for the ultimate beneficiaries) of the omission of the surviving spouses' liferents. On that basis the point went to the relevancy of the third and fourth pursuers' averments of loss. Alternatively, it could be expressed as a criticism of the specification of those averments. Once the point had been made in the defences (as it was in answer 12 for the first defenders) it was for the third and fourth pursuers, as a matter of fair notice, either to show that the assertion of double counting was in some way mistaken or else to take into account in the computation of their loss the benefit derived by the ultimate beneficiaries from the omission of the surviving spouses' liferents.

Mr Tyre's response to this submission was to say that it did not demonstrate that the third and fourth pursuers were bound to fail in their claim that they had suffered loss. The point went to computation, and was complicated by the fact that what had to be balanced in computing the loss was, on the one hand, earlier receipt by the fiars of a trust fund which will be diminished by CGT, and, on the other hand, later receipt of a trust fund which would not be subject to a charge to CGT. It could not be said that it was clear that because of this consideration the third and fourth pursuers could suffer no loss. The point was one for the defenders to take as a matter of quantification of the third and fourth pursuers' losses.

In my view Mr Tyre was correct in his submission that this point does not go so far as to show that the third and fourth pursuers are bound to fail to establish that they have suffered loss. On the other hand, it is in my view clearly correct in principle that the third and fourth pursuers must, in calculating their loss, take account of any beneficial effect of the failure fully to implement Mr Ludwig's scheme. In particular, it is in my view clear that they must take account of the fact that the omission of the survivors' liferents results in accelerated enjoyment of the fee by the ultimate beneficiaries. They have at present made no attempt to do so. Their averments of loss are, therefore, in my opinion irrelevant in respect that they are based on an erroneous comparison of the effects of the intended scheme with only part of the effects of the actual arrangements. Particularly once the point has been raised by the defenders, it is in my opinion incumbent on the third and fourth pursuers to address the matter in their averments of loss. They have sought to give specification of their loss by incorporating into their pleadings the actuary's report, No. 6/9 of process, but that report takes no account of the effect of the omission of the survivors' liferents on the value of the interests of the ultimate beneficiaries. The calculation as it presently stands can therefore as a matter of averment be seen to be prima facie incomplete. In that situation I am of opinion that in order to be regarded as giving fair notice of their position and thus as being sufficiently specific, the third and fourth pursuers' pleadings would require to be altered so as to remedy that incompleteness, whether by further averment or by the incorporation of a revised actuary's report.

This submission arose out of amendment of the first defenders' pleadings made at the commencement of the debate on the procedure roll. Prior to that amendment it was a matter of admission by the first defenders that, if Mr Ludwig's scheme had been put into effect, not only would deferral of CGT liability have been achieved but, in addition, "over time, [the trust funds] could be passed down to the children without any charge to CGT ... arising". By the amendment, the first defenders withdrew the admission that avoidance of tax liability could be achieved, and set out averments in which it was contended inter alia that the proposed scheme was intended to achieve postponement, but not avoidance, of such liability. To that contention the pursuers responded by averring that "[b]y utilisation of [CGT] annual exemptions the ... charges [to CGT] could have been avoided altogether". As a result of the amendment, therefore, the parties' positions have polarised, with the pursuers maintaining that the proposed scheme was intended to achieve avoidance and would have done so, and the first defenders maintaining that only postponement was intended. In that context, Mr Moynihan advanced a limited submission about that aspect of the third and fourth pursuers' pleadings. He did not argue that it was inconceivable that complete avoidance could have been achieved by the proposed scheme, but submitted that as a matter of specification the pursuers had not given sufficient detail of how it was that complete avoidance was to be achieved through the medium of the proposed accumulation and maintenance trusts. Since the computation of loss set out in the actuarial report proceeded on the assumption that the proposed scheme would have achieved complete avoidance, it was essential for the third and fourth pursuers' pleadings to explain how such avoidance was to be achieved by the implementation of the proposed scheme. Such specification was required before the first defenders could respond adequately (a) on whether the pursuers' case was accurately founded on the scheme which Mr Ludwig contemplated and recommended and (b) on whether as a matter of law the recommended scheme would have had the effect of achieving complete avoidance. What was clear in the pursuers' pleadings was that Mr Ludwig's advice related to accumulation and maintenance trusts for the first and second pursuers' children, not for their grandchildren. While there was a received understanding of what was meant by an accumulation and maintenance trust (c.f. section 71 of the 1984 Act), it was necessary to know more about the contemplated terms of the children's interests in the proposed trusts. Without such greater detail set out in averment, it was far from clear, from the bare averment that avoidance would be achieved by the use of annual exemptions, how that would have worked in practice. As with some of his earlier arguments, Mr Moynihan anticipated that the pursuers' response would be to say that the point related only to quantification, and could be focused adequately by the defenders setting out what they said the true measure of loss was. His response was to say that all that he would require to do at proof would be to show that the scheme was concerned with deferment rather than avoidance. It was not incumbent on him to deal with the proper computation of the pursuers' loss in the event that only deferment and not avoidance was what the scheme was designed to achieve. The pursuers' case therefore stood or fell with their contention that avoidance was the aim of the scheme and would have been achieved if the scheme had been implemented. Proper notice of how that would have been achieved was therefore an essential element of proper specification of the pursuers' case. As a practical example of the importance of such specification, Mr Moynihan submitted that if the means by which the use of the annual exemption was to be achieved

In response to this aspect of the first defenders' submissions, Mr Tyre emphasised that the point was taken as one of specification only, and arose as a result of the first defender's belated withdrawal of their admission that Mr Ludwig's scheme, if implemented, would have enabled avoidance of liability to tax to be achieved. The pursuers' averment was that Mr Ludwig had advised that there should be "a Trust such as an Accumulation and Maintenance Trust, for the children". It was not averred that Mr Ludwig's advice had been any more detailed than that. It was therefore not for the pursuers to aver in more detail what Mr Ludwig had had in mind or how by the means he outlined complete avoidance would have been achieved. That was not a matter within their knowledge. An accumulation and maintenance trust did not have to confer of the beneficiary an absolute right by the maximum qualifying age of 25. An interest in possession by that age was sufficient. The averment that avoidance could be achieved by the utilisation of annual exemptions was therefore in the circumstances sufficiently specific.

Mr Moynihan disputed that the pursuers could properly avoid giving specification of how Mr Ludwig contemplated that the accumulation and maintenance trusts would be used to achieve avoidance rather than mere deferment. He pointed out that in Article III of the condescendence it is averred that Mr Ludwig explained his proposals to Miss Arnott. Since the pursuers say that Miss Arnott was at fault in not implementing Mr Ludwig's scheme, they must know what the scheme outlined by Mr Ludwig to Miss Arnott entailed.

In my opinion, there is some force in Mr Tyre's point that if Mr Ludwig's advice to the pursuers was simply that avoidance could be achieved through the medium of accumulation and maintenance trusts, it is asking too much of the pursuers to expect them to identify in their pleadings more precisely than Mr Ludwig did to them exactly what form the accumulation and maintenance trusts would have taken, and in particular what interest would have been conferred on the children at what qualifying age. I do not consider that the fact that the pursuers also blame Miss Arnott means that they must be taken to have known precisely what Mr Ludwig had in mind. Their point against Miss Arnott, so far as fault is concerned, is that she did not set up accumulation and maintenance trusts at all, not that she failed to reflect precise details contemplated by Mr Ludwig. But that does not, in my view, remove all force from Mr Moynihan's argument. It seems to me that his legitimate concern is not so much with the identification of the precise form of accumulation and maintenance trust contemplated by Mr Ludwig, but with the precise mechanism by which an accumulation and maintenance trust, if put in place, would have enabled avoidance rather than deferment to be achieved. The pursuers' position is that complete avoidance would have been achieved. That being so, it seems to me to be an essential part of their case to explain how that would have been done. The bare reference which they make to the use of annual exemptions is, in my view, the beginning of that explanation, but by itself it is not sufficient to give fair notice of how such use would in practice enable the target of complete avoidance to be achieved. In my view, as a matter of fair notice, not of what Mr Ludwig had in mind but of how the result which the pursuers say implementation of his scheme would have achieved would have been attained in practice, it is incumbent on the pursuers to set out in their averments the way in which through the medium of annual exemptions the constitution of accumulation and maintenance trusts would have enabled avoidance to be achieved. I am therefore of opinion that the pursuers' averments, as they presently stand, give inadequate specification of this essential element of their case, and are on that account not fit to be remitted to probation. I do not see that there should be any difficulty for the pursuers, if they are right in maintaining that avoidance could be achieved by the deployment of annual exemptions, in explaining the mechanism in averment.

The choice of law issue which was discussed in the debate which I heard arose in connection with the second defenders' first plea-in-law, which is in the following terms:

In Answer 13 the second defenders make the following averments:

There then follow averments making reference to certain specific provisions of the 1980 Act, culminating with the assertion that the pursuers' claims are statute-barred according to English law. The pursuers are then called upon to aver the applicable law. The pursuers respond to that call by making the following averments:

Before going on to consider the submissions made in respect of those averments it is convenient to note that Mr Tyre made clear in the course of the debate that the only case made by the pursuers against the second defenders was a case in delict. The pursuers do not seek to assert that the second defenders were in breach of any contractual duties. The consequence is that the second defenders' averments in answer 13, in so far as they seek to maintain that the pursuers' case based on contract is statute barred, seek to deal with a case which is not made. Given that the pursuers' only case is founded on delict, Mr Tyre sought leave to delete the averment about the proper law of the contract between the pursuers and the second defenders, and the averment about the breach of duty having occurred in Scotland, which I have underlined in the passage quoted above, and I granted leave accordingly. In the result, the issue about choice of law concerns a case which is made in delict only.

In light of the averments in answer 13 and article XIII, Mr Wylie submitted that four questions required to be addressed, namely:

1. whether the pursuers' averments give fair notice of what their position on choice of law is, and of what they offer to prove in that connection (which question he submitted should be answered in the negative);
2. whether there is a sufficient foundation in the pursuers' pleadings for the proposition that Scots law rather than English law falls to be applied (to which question also he submitted there should be a negative answer); that question required to be addressed in the context that the pursuers' own averments identified strong links with England rather than Scotland;
3. whether, in face of the second defenders' reasonably full averments about the English law of limitation, it is incumbent on the pursuers, as a matter of relevancy, to make averments on that issue (which question he submitted should ¾ distinguishing Bonnor v Balfour Kilpatrick Ltd 1974 SLT 187 ¾ be answered in the affirmative); and
4. how, in light of the answers to those questions, future procedure on the question of choice of law should be regulated.

Mr Wylie then turned to examine those of the pursuers' averments that disclosed the connection of the subject matter of the pursuers' claim against the second defenders with England (and the absence of connection with Scotland). These were to the effect that:

1. the second defenders are a firm of solicitors carrying on business in Carlisle;
2. they are believed to be domiciled in England;
3. the need for the second defenders' involvement arose out of the fact that the pursuers owned, along with Miss Nixon, the 18 acres of land near Carlisle;
4. the title under which the pursuers' held the land, the Assent referred to on record, was an English document;
5. Miss Arnott's involvement in the matter was that she was instructed to prepare drafts of the necessary deeds transferring English property into trust;
6. the trusts, once formed, were to be exported to Jersey, not to Scotland;
7. the trusts were executed in English form, and made reference to English legislation;
8. since the case against the second defenders was founded on delict only, and not on contract, nothing turned on the proper law of the contract with the second defenders, whatever that might be;
9. the place of all of Miss Arnott's relevant actings was England.

In these circumstances, Mr Wylie submitted, Miss Arnott's actings and omissions fall to be judged by the standards of her own professional environment, namely by the standards reasonably to be expected of an English solicitor. There was no good prima facie reason to treat her as being subject in any way to Scots law. If it was to be suggested that Scots law had any bearing on the assessment of whether she had acted in breach of duties incumbent on her, it was for the party so asserting to make relevant averments of the factual basis for doing so. That the pursuers had not done. The averment that the pursuers were resident and domiciled in Scotland could not be decisive. The averments that the harm was suffered in Scotland and, more importantly, that the breach of duty occurred in Scotland did not give fair notice of the basis on which those assertions were made.

In these circumstances, Mr Wylie sought to rely on section 23A of the Prescription and Limitation (Scotland) Act 1973. That section, introduced into the 1973 Act by section 4 of the Prescription and Limitation (Scotland) Act 1984, provides as follows:

1. Where the substantive law of a country other than Scotland falls to be applied by a Scottish court as the law governing an obligation, the court shall apply any relevant rules of law of that country relating to the extinction of the obligation or the limitation of time within which proceedings may be brought to enforce the obligation to the exclusion of any corresponding rule of Scots law."

Having regard to the pursuers' averments, it was clear that the locus delicti was England. That was where, in substance, the wrong allegedly committed by Miss Arnott had been committed (Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391). It followed that English substantive law "governed" any obligation to make reparation incumbent on the second defenders, in the sense contemplated in section 23A, and that accordingly in terms of section 23A the English rules of limitation fell to be applied. Although reservations had been expressed about the applicability of section 23A to obligations arising in delict, on the ground that because of the double actionability rule a foreign lex loci delicti cannot be said to be "the law governing" the obligation (Anton, Private International Law, second edition, page 406; see also Johnston, Prescription and Limitation, page 345, § 21.08(2)), Mr Wylie submitted that the reference in the section to "an obligation" was unqualified in its terms, and that the semantic ground on which the reservations were expressed was insufficient to warrant inferring such a substantial restriction of the scope of the provision.

In the alternative, Mr Wylie submitted that if the reservation about the scope of section 23A was well founded the question of which system of law applied to matters of prescription or limitation was to be determined by the common law rule that a limitation period provided for by the lex loci delicti would be given effect if it were classified as substantive, but not if it were classified as procedural (Anton, loc. cit.). There was, he submitted, support in authority for the view that the foreign limitation period was a substantive matter (Anton, loc. cit.; Goodman v London and North Western Railway Co (1877) 14 SLR 449; McElroy v McAllister 1949 SC 110 at 127).

Thus, Mr Wylie submitted, the conclusions could be reached that on the facts averred or admitted by the pursuers the locus delicti was England, and that, by the application either of section 23A or the common law, the law applicable to the question of limitation could be identified as English law. In these circumstances, the pursuers' averments that Scots law was the applicable law and that the English limitation rules were therefore inapplicable were not relevant.

Mr Wylie further submitted that it was incumbent on the pursuers, in these circumstances, to set out in their averments what they contended the English law of limitation was, and the basis on which they contended that any right of action had not been cut off by the passage of time. In doing so, he sought to distinguish Bonnor v Balfour Kilpatrick Limited 1974 SLT 187. In that case the pursuer suffered an accident in the Sultanate of Oman. He sued for damages in this court. He made no averments to the effect that the claim was actionable under the law of the Sultanate of Oman, despite a call made in the defences that he should do so. The defenders pled that on that account the action was irrelevant. It was held that if foreign law was not put in issue, the court would proceed on the presumption that the lex loci delicti was the same as Scots law, and that the call in the defences was not sufficient to put the foreign law in issue. Lord Kincraig concluded his opinion (at 189) with these words:

Mr Wylie's submission was that in the present case, the defenders had put English law in issue by their averments in Answer 13, and that it therefore was incumbent on the pursuers to set out their competing view of English law in accordance with which they maintained that their claims were not barred by the passage of time. They had failed to do so.

In response, Mr Tyre made four submissions on the question of choice of law, namely -

1. that the locus delicti was Scotland, and accordingly Scots law was the law applicable to the question of limitation;
2. that if that was wrong, the double actionability rule applied, section 23A therefore could not apply, and, since the English rules of limitation were procedural in nature, they did not apply and the Scots law of limitation did;
3. that if it was not a matter of concession by the defenders that the English rules of limitation are procedural, it was a matter for them to prove that they are substantive rules and thus rules that fall to be given effect in Scottish proceedings; and
4. that in the circumstances of this case there was no need for the pursuers to make averments about English law, either as affecting the substance of the alleged obligation or as affecting limitation.

In elaborating upon his first submission, Mr Tyre referred to Anton, op. cit., page 412, where the problem of identifying the locus delicti where different elements of the delict take place in different jurisdictions is discussed. Three possibilities are identified, namely the place of acting, the place of the harm or result, and the place of the substance of the wrongdoing. There was little Scots authority for the place of acting (only John Walker & Sons v Douglas McGibbon & Co 1972 SLT 128). The place of the substance of the wrongdoing had been used in England in determining whether the English courts had jurisdiction (e.g. in Metall und Rohstoff AG), but Professor Anton expressed the view (at 414) that that approach was not appropriate in the context of choice of law. There was in any event some support for the view that, on an application of the substance test, the place where negligent advice was acted upon would be treated as the locus delicti (Diamond v Bank of London & Montreal [1979] 1 QB 333 per Lord Denning MR at 346). The correct approach, however, Mr Tyre submitted, was that the locus delicti should be determined by identifying the place where the wrongful act was completed, took effect, had its result or caused harm. In support of that contention he relied on authorities from the law of defamation (Longworth v Hope (1865) 3 M 1049 per Lord President McNeill at 1055 and Lord Deas at 1057; Joseph Evans & Sons v John G Stein & Co (1904) 7 F 65 per Lord McLaren at 68 and Lord Kinnear at 71; Thomson v Kindell 1910 2 SLT 442). Mr Tyre laid particular stress on a passage in the opinion of Lord Kinnear in Evans (at 71) where his Lordship said:

In the present case, the place of the harm was the place where the pursuers were living, namely Scotland. Scots law was therefore the lex loci delicti as well as the lex fori. There was therefore no question of the English law of limitation being applicable.

If, contrary to Mr Tyre's first submission, it were held that the locus delicti was England, he submitted that the double actionability rule came into play, and that accordingly section 23A of the 1973 Act could not operate. In relation to the events with which this action was concerned, the double actionability rule applied. The changes introduced by Part III of the Private International Law (Miscellaneous Provisions) Act 1995 had no relevance, since the acts and omissions founded on took place long before the commencement of those provisions (section 14(1)). Since, applying the double actionability rule, the pursuers' right of action depended both on the law of England (which for the purpose of this argument was taken to be the lex loci delicti) and on the law of Scotland as the lex fori, it could not be said that the law of England fell to be applied as the law governing the obligation. It was only when a single law could be identified as the law which fell to be applied as the law governing an obligation that section 23A could take effect. Mr Tyre recognised that there was nothing in the Scottish Law Commission Report No 74 out of which the amending legislation in 1984 arose to suggest that the Commission intended to exclude delictual claims from the scope of the proposed reform, but nevertheless submitted that the language of section 23A did not permit its application to delictual claims.

If the locus delicti was England, and section 23A did not apply, the applicability of the English limitation rules came to depend on whether those rules were procedural or substantive (Don v Lippmann (1837) 2 Sh & M 682). Mr Tyre challenged the soundness of Mr Wylie's reliance on Goodman and McElroy as affording support for the view that the English rules of limitation relied upon in the present case were substantive. Those cases were concerned with the statutory claim made available by the Fatal Accidents Act 1846, section 3 of which provided that an action thereunder should be commenced within twelve months of the death. That that provision was regarded as going to the substance of the right did not mean that the limitation provision relied on in the present case was likewise a matter of substance. On the contrary, the current English limitation provisions were a matter of procedure (Ronex Properties Ltd v John Laing Construction Ltd [1983] 1 QB 398, per Donaldson LJ at 404D; c.f. The Westminster Bank Ltd v McDonald 1955 SLT (Notes) 73). They were therefore inapplicable in proceedings in Scotland.

Mr Tyre recognised that that submission depended on its being accepted that the English limitation provisions relied on by the second defenders were procedural in nature. That was, of course, a matter of English law. Although in Goodman Lord Shand appeared to have reached a conclusion about the nature of the limitation provision in the 1846 Act without the benefit of evidence, in the absence of a concession by the second defenders that the limitation provisions on which they founded were of a procedural character, it was for them to prove that they went to the substance of the obligation. If, therefore, the second defenders' limitation plea could not be repelled at this stage, the pursuers were entitled to put them to proof of their implied assertion that the provision on which they founded was a matter of substance and excluded the pursuers' claim.

Finally, Mr Tyre submitted that there was no need for the pursuers to make averments about the English law of limitation. Their position was that the lex loci delicti was Scots law, and that the English rules of limitation were therefore irrelevant. The second defenders, on the other hand, maintained that the English limitation rules were applicable, and made averments to the effect that those rules excluded the pursuers' claim. If the pursuers failed to establish that Scots law was the only applicable law, and the second defenders succeeded in establishing that the English limitation rules were substantive and excluded the pursuers' claim, the pursuers would no doubt fail. It was not, however, necessary for the relevancy of the pursuers pleadings that they should aver that, if English law applied to the question of limitation, it did not exclude the pursuers' claim.

In my opinion it is convenient to deal with two preliminary points before turning to the merits of those submissions. The first point is that it is not disputed that, in judging whether Miss Arnott was negligent, her actings must be compared with those of an English solicitor of ordinary competence. That is not a matter of choice of law. It is simply the application in this case of the ordinary rule in cases of professional negligence that the defender's conduct must be tested by reference to what would have been done in the circumstances by ordinarily competent members of his or her own profession. Miss Arnott's profession is that of English solicitor. To support the claim against her, evidence will be required that she acted in a way in which in the circumstances no English solicitor of ordinary competence would have acted if exercising ordinary care. But that is quite independent of the choice of law issues that were debated. The second point is that, although in Answer 13 the second defenders aver that "English law and the provisions of the Limitation Act 1980 fall to be applied in the present case", it is only in relation to the question of limitation that the second defenders seek to invoke English law. No averments are made to suggest that so far as the merits of the case against the second defenders are concerned, English law is different from Scots law. Thus, even if the second defenders succeed in their contention that the locus delicti is England, they do not seek to put English law in issue in relation to the merits of the allegation of negligence against them. As a result, so far as the question of negligence is concerned, the court will apply Scots law in reliance on the presumption that the lex loci delicti is the same (Bonnor v Balfour Kilpatrick Ltd).

In my opinion the first matter that requires to be considered is the identification of the locus delicti. If Mr Tyre is correct in his submission that it was Scotland, no question of the application of the English rules of limitation can arise, because in that event Scots law would be both the lex fori and the lex loci delicti. As Mr Wylie pointed out, it is clear on the pursuers' own averments that virtually everything that Miss Arnott did was done in England. She is an English solicitor practising in England. She was consulted about a matter relating to English real property, and instructed to prepare the necessary documents to effect the transfer of that property into trust, and prepared and presented for execution documents in English form. It is not averred where the execution of the documents took place, but parties (rightly, in my view) recognised that that was not a factor of significance, since it might depend on the accident of where the pursuers happened to be at the time when the documents required to be signed. For example, they might have had the documents sent to them for signature while they were on an extended holiday in Australia, but that would not have made Australia the locus delicti. As I understood him, Mr Tyre periled his submission that the pursuers had relevantly averred that the locus delicti was Scotland on the the averments: "The harm resulting from the second defenders' breach of common law duty consists of the future loss of net income which will be sustained by the pursuers. The place of the said harm is Scotland". The submission was that, notwithstanding the fact that Miss Arnott did all that she did in England, the delict which she is alleged to have committed took place in Scotland, because that is where the resultant harm took effect. In my opinion the reliance which Mr Tyre placed on the defamation cases was mistaken. It is clear that the delict of defamation is committed not by the mere expression of the defamatory words, but by their communication to another. Thus where they are expressed in written form in one country, and the document is sent to a recipient in another country, it is only when the recipient reads the document that the commission of the delict is completed. The locus delicti is therefore the country in which the recipient of the document read the defamatory words contained in it. A further illustration of the same point may be found in the thalidomide case which was briefly mentioned in the course of the debate (Distillers Co. (Biochemicals) Ltd v Thompson [1971] AC 458). There an English manufacturer supplied a drug to an Australian company. They did not supply with it an appropriate warning about its side-effects. The plaintiff's mother, when pregnant, bought and took the drug, and as a result the plaintiff was born with serious physical defects. It was held that the manufacturer's failure to warn the consumer of the dangers of taking the drug took place when the drug was purchased by the consumer in Australia, and that Australia was therefore the locus delicti. It seems to me that that case and the defamation cases are distinguishable from the present case. Those cases were concerned with where the wrongful act was completed, not with where the loss resulting from the wrongful act took place. In the present case, Miss Arnott's wrongful acts were completed (apart perhaps from the signature of the deeds, which it is accepted is not determinative) in England. Where the resultant loss took place is, in my view, something quite separate from where the delict was committed. Indeed, if Mr Tyre's submission were well-founded, it would follow that if, between the date of execution of the deeds and the date on which loss was first suffered by the pursuers, the pursuers had emigrated to Australia, Australia would have become the locus delicti. That cannot, in my view,

The next question which requires to be considered is whether as a result section 23A operates to secure that the English rules of limitation apply to the pursuers' claims against the second defenders. Since Part III of the Private International Law (Miscellaneous Provisions) Act 1995 was not in force at the material time, the common law double actionability rule applies to those claims. It is therefore necessary to consider whether section 23A can take effect in relation to an obligation the existence of which must be determined by reference not only to the lex loci delicti but also to the lex fori. In a case to which the double actionability rule applies, it is difficult as a matter of semantics to see how the lex loci delicti can be regarded as the law governing the obligation. In the course of the debate I was inclined to think that, despite the semantic point, it might be possible, and would be more attractive, to read section 23A as referring, in delict cases, to the lex loci delicti. As Mr Tyre accepted, there appears to be nothing in the Scottish Law Commission Report No. 74 to indicate that it was intended that the proposed legislation should not apply in cases of delict. I have come to the conclusion, however, that it is impossible to overcome the clear language of the section. Mr Tyre was therefore in my opinion right in his submission that section 23A could not apply in the present case so as to render the English rules of limitation applicable to the pursuers' claims against the second defenders.

That being so, the next question is whether, by the application of the common law rules as to the effect of foreign rules of limitation, the same result is achieved by the second defenders as would be achieved by the application of section 23A. It was not disputed that the common law gives effect to a foreign limitation rule which is classified as substantive, but not to one which is classified as procedural. I do not consider that the authorities relied upon by Mr Wylie support his proposition that the English limitation provisions on which he relies should be regarded as substantive. The provision in question in Goodman could be regarded as conferring a new statutory right to make a claim provided it was made within a limited period. It is therefore understandable that the limitation was seen as integral to duration of the right, and therefore a matter of substance (see also McElroy per Lord Russell at 127). The provision relied on by the second defenders here (section 14A of the Limitation Act 1980) is rather different. Although Ronex Properties Ltd v John Laing Construction Ltd, in which Donaldson LJ (at 404D) regarded it as trite law that the English Limitation Acts bar the remedy and not the right, was concerned with earlier legislation, the language used in that legislation was the same as in the 1980 Act. If it were for me to decide the matter as one of law, I would be inclined to hold that section 14A is expressed in such a way as to be of a procedural nature ("An action ... shall not be brought ..."). Although in Goodman Lord Shand dealt with the issue without evidence of English law, it appears that he was able to do that because of the extent of the concessions made in the course of argument (see Lord Mackay in McElroy at 121). Here, no such concession was made by Mr Wylie. If the second defenders wish to maintain their contention that as a matter of English law section 14A of the 1980 Act goes to the substance of the obligation, rather than being of a merely procedural character, it seems to me that they are entitled to the opportunity of proving that that is so. In light of what Donaldson LJ said in Ronex Properties, however, it is not obvious to me that they have any realistic prospect of doing so.

I turn now to Mr Wylie's submission that it is incumbent on the pursuers to make averments about the English law of limitation. Bonnor v Balfour Kilpatrick Ltd was concerned with the situation where the pursuer made no averments at all about the content of the lex loci delicti. It was held that that did not render his pleadings irrelevant, because if the foreign law was not put in issue, the court would apply Scots law, on the presumption that the foreign law was to the same effect. The fact that the defences contained a call on the pursuer to make averments about the lex loci delicti was held to be insufficient to put the foreign law in issue, and Lord Kincraig expressed the view that nothing short of an averment by the defenders that the lex loci did not allow the claim would compel the pursuer to make averments about the foreign law. Accepting, as I do, that the view expressed by Lord Kincraig was sound in the context in which it was expressed, I am nevertheless of opinion that it does not follow that the present pursuers must aver what they say the English law of limitation is. In Bonnor what was in issue was whether the pursuer required to aver that his claim was actionable by the law of the Sultanate of Oman. There was no question as to whether the Sultanate of Oman was the locus delicti. Therefore, if the defenders, instead of merely calling on the pursuer to aver the law of the Sultanate of Oman, had sought to displace the presumption that it was the same as the law of Scotland by making positive averments that it did not admit the claim, it would have been necessary for the pursuer, in order relevantly to aver that he had a right of action, to aver the law of the Sultanate of Oman by which he had such a right. In the present case it is not contended by the second defenders that the law of England did not give the pursuers a right of action in the circumstances on which they found. In that respect, English law is not put in issue. The only respect in which English law is put in issue is limitation. The contention is that the English law of limitation applies, and excludes the claim. To that contention, the pursuers might have made a variety of responses. They might have admitted that English law applies, but contended that on a sound view of the English law of limitation their claim was not excluded. If they had made that response, they would have had to set out in averment their contention as to what the English rules of limitation were and what the basis was for contending that it did not exclude their claim. That is not, however, the response which the pursuers have chosen to make. Rather, their response is to contend that the English limitation rules do not apply (1) because the locus delicti was Scotland, and (2) because, if the locus delicti was England, the English limitation rules nevertheless do not apply (a) because section 23A does not apply in cases of delict, and (b) because they are procedural in nature. Although I have held the first of these contentions to be ill-founded, I have also held that part (a) of the second contention is well-founded, and it follows that the second defenders' plea of limitation will fail if they fail to prove that the English limitation provision on which they rely is substantive, and excludes the pursuers' claim. I am therefore of opinion that the response which the pursuers have made to the second defenders' invocation of the English law of limitation is a relevant one, without positive averment on their part that the English law of limitation, if applicable, does not exclude their claim. If the second defenders do succeed in proving that the English limitation rules are substantive, and therefore applicable in the present case, the pursuers are not entitled, as their pleadings stand, to lead any positive evidence to contradict the assertion that those rules exclude their claim. But since th

In summary, therefore, my conclusions on the choice of law issue are:

1. that on the pursuers' own averments it can be concluded that the locus delicti was England;
2. that section 23A of the 1974 Act has no application in delict cases where, as here, the double actionability rule applies;
3. that the applicability of the provision of the English law of limitation founded on in the present case therefore depends on its being held to be substantive in nature;
4. that, although if I were deciding the matter as one of law, I would hold that the English provision founded on is procedural in nature, English law is a matter of fact in these proceedings, and the second defenders, if they insist upon it, are entitled to an opportunity of proving that the provision is substantive; and
5. that the pursuers' pleadings are not irrelevant for want of positive averments about the English law of limitation.

The conclusions which I have reached on the matters discussed in the course of the hearing on the procedure roll may therefore be summarised as follows:

In the event, however, as discussed at the hearing on the procedure roll, I shall put the case out By Order without pronouncing a substantive interlocutor, in order to give parties an opportunity of considering whether any motion for leave to amend should be made. The second defenders may also wish to consider whether to maintain the contention that the English limitation provision on which they rely is substantive in nature.