Professional negligence – Solicitor – Duty of care – Pursuer’s aunt retaining defender firm of solicitors in connection with gift of house to pursuer to avoid inheritance tax – Pursuer claiming that inheritance tax incurred owing to negligence of defender in relation to that transaction – Whether defender owing duty of care to pursuer – Whether such duty of care potentially owed under principle in White v Jones – Issue determined in favour of pursuer
In 1996, the pursuer’s aunt informed the defender firm of solicitors that she wished to make a gift of her house to the pursuer, so as to reduce the value of her estate for inheritance tax purposes, but that she wanted to continue living in the property during her lifetime. The defender advised that she should make an outright gift of the house to the pursuer, from whom she should obtain a separate undertaking to protect her right to stay in the property. The defender drafted a disposition in favour of the pursuer, which was duly executed and registered, plus a separate document that the pursuer signed to confirm that her aunt could stay in the property for as long as she wished.
In 2006, it emerged that the defender had made two mistakes: (i) the earlier disposition had conveyed only the superiority and not the dominum utile of the property; and (ii) the aunt’s continuing occupation on the basis of the pursuer’s letter, without payment of a market rent, meant that the house remained comprised in the aunt’s estate for inheritance tax purposes because the transfer would be treated as a gift subject to a reservation of benefit. The defender prepared a corrective disposition, which was executed and registered in October 2006. The pursuer also granted a lease of the property to the aunt at a market rent.
The aunt died in 2008. The 2006 transfer, having been made within seven years before her death, fell to be treated as a chargeable lifetime transfer for inheritance tax purposes. The pursuer claimed damages against the defender, contending that she had incurred a liability to pay £51,600 in inheritance tax, which would have been avoided but for the defender’s negligence. The defendant denied that it owed any duty of care to the pursuer, who had been aware of the purpose of the disposition and could have sought separate legal advice.
An issue arose as to whether the case fell within the principle in White v Jones [1995] 2 AC 207, which permitted claims against solicitors by intended beneficiaries of testators who had been deprived of their legacy as a result of the solicitor’s negligence in circumstances where neither the testator nor the estate had a remedy against the solicitor.
Held: The issue was determined in favour of the pursuer.
(1) Pursuant to the principle in White v Jones, a solicitor might be held to have assumed responsibility to an intended beneficiary where the solicitor could reasonably foresee that negligence on its part would deprive the beneficiary of a benefit that its client had intended the beneficiary to receive, in circumstances where no right of action was available to the client or her estate. The purpose of the principle was to ensure that there was no lacuna, in which a loss sustained as a result of the solicitor’s negligence could not be recovered by anyone, and also to ensure that the same loss could not be recovered twice. There was no reason why inter vivos gifts should not be capable of falling within the scope of the principle. What mattered was not whether the gift was testamentary but whether the consequences of the negligent act were capable of being rectified by the solicitor’s client. Only if they were not did the concern underlying the principle arise.
(2) The position of a donee might differ from that of a testamentary beneficiary in one respect. Whereas the testamentary beneficiary would inevitably be an entirely passive recipient of benefit, a donee might or might not be. Whether the existence of a transactional element in a lifetime gift took it outside the scope of the principle would vary according to the circumstances. The test was still whether the donor’s solicitor could be said to have assumed responsibility towards the recipient of the gift. In some cases, the existence of a conflict of interests between the donor and the donee might indicate that there had been no such assumption of responsibility. However, a potential conflict of interest arising was not sufficient in itself to exclude the application of the principle. Whether the existence of an actual conflict was sufficient to do so was a matter to be decided on all the facts and circumstances of the case: Vinton v Fladgate Fielder (a firm) [2010] EWHC 904 (Ch); [2010] PNLR 510 applied. Furthermore, while a solicitor would not, save in exceptional circumstances, be held to have assumed responsibility to the other party in a transaction conducted at arm’s length, that did not exclude an assumption of responsibility where the solicitor was instructed by a party to an intra-family transaction, the sole or principal purpose of which was to confer a benefit on the other party at the expense of the solicitor’s client.
(3) In the instant case, the pursuer averred that, following the transfer of the house by the aunt, there should have been a grant of a lease by herself to the aunt at a market rent. She offered to prove that if she, and more importantly her aunt, had been advised that such a course was required in order for the gift not to be treated as made subject to a reservation of benefit, then they would have entered into such a lease. It could not be said, at the present stage, that the pursuer’s case should necessarily fail on the ground that there was a conflict of interest sufficient to exclude the application of the principle in White v Jones. The circumstances were not necessarily such as to preclude an assumption of responsibility by the defender to the pursuer to take reasonable care to avoid causing her loss through negligence in its advice and actions on behalf of the aunt. Those were matters to be addressed after evidence had been led.
(4) The defender could not argue that there was no lacuna necessitating the application of the principle, purely on the ground that the aunt could have suffered a loss in her lifetime, consisting of the cost of the legal work carried out in 2006 to put right the previous errors. Even if some kind of loss had been sustained by the aunt or some other person, that would not, of itself, exclude the pursuer’s claim. There was no reason of principle why the existence of a claim for loss sustained as a consequence of a solicitor’s negligent act or omission should exclude the making of a claim under the White v Jones principle for a different loss sustained by a different person as a consequence of the same act or omission. It would be absurd to hold that the pursuer’s loss was excluded merely because the aunt had sustained an entirely different loss consisting of the cost of the ultimately unsuccessful remedial conveyancing.
Paul Davies (instructed by Morton & Fraser, of Edinburgh) appeared for the pursuer; Kenny McBrearty (instructed by Dundas & Wilson, of Edinburgh) appeared for the defender.
Sally Dobson, barrister
Professional negligence – Solicitor – Duty of care – Pursuer’s aunt retaining defender firm of solicitors in connection with gift of house to pursuer to avoid inheritance tax – Pursuer claiming that inheritance tax incurred owing to negligence of defender in relation to that transaction – Whether defender owing duty of care to pursuer – Whether such duty of care potentially owed under principle in White v Jones – Issue determined in favour of pursuerIn 1996, the pursuer’s aunt informed the defender firm of solicitors that she wished to make a gift of her house to the pursuer, so as to reduce the value of her estate for inheritance tax purposes, but that she wanted to continue living in the property during her lifetime. The defender advised that she should make an outright gift of the house to the pursuer, from whom she should obtain a separate undertaking to protect her right to stay in the property. The defender drafted a disposition in favour of the pursuer, which was duly executed and registered, plus a separate document that the pursuer signed to confirm that her aunt could stay in the property for as long as she wished.In 2006, it emerged that the defender had made two mistakes: (i) the earlier disposition had conveyed only the superiority and not the dominum utile of the property; and (ii) the aunt’s continuing occupation on the basis of the pursuer’s letter, without payment of a market rent, meant that the house remained comprised in the aunt’s estate for inheritance tax purposes because the transfer would be treated as a gift subject to a reservation of benefit. The defender prepared a corrective disposition, which was executed and registered in October 2006. The pursuer also granted a lease of the property to the aunt at a market rent.The aunt died in 2008. The 2006 transfer, having been made within seven years before her death, fell to be treated as a chargeable lifetime transfer for inheritance tax purposes. The pursuer claimed damages against the defender, contending that she had incurred a liability to pay £51,600 in inheritance tax, which would have been avoided but for the defender’s negligence. The defendant denied that it owed any duty of care to the pursuer, who had been aware of the purpose of the disposition and could have sought separate legal advice.An issue arose as to whether the case fell within the principle in White v Jones [1995] 2 AC 207, which permitted claims against solicitors by intended beneficiaries of testators who had been deprived of their legacy as a result of the solicitor’s negligence in circumstances where neither the testator nor the estate had a remedy against the solicitor.Held: The issue was determined in favour of the pursuer. (1) Pursuant to the principle in White v Jones, a solicitor might be held to have assumed responsibility to an intended beneficiary where the solicitor could reasonably foresee that negligence on its part would deprive the beneficiary of a benefit that its client had intended the beneficiary to receive, in circumstances where no right of action was available to the client or her estate. The purpose of the principle was to ensure that there was no lacuna, in which a loss sustained as a result of the solicitor’s negligence could not be recovered by anyone, and also to ensure that the same loss could not be recovered twice. There was no reason why inter vivos gifts should not be capable of falling within the scope of the principle. What mattered was not whether the gift was testamentary but whether the consequences of the negligent act were capable of being rectified by the solicitor’s client. Only if they were not did the concern underlying the principle arise.(2) The position of a donee might differ from that of a testamentary beneficiary in one respect. Whereas the testamentary beneficiary would inevitably be an entirely passive recipient of benefit, a donee might or might not be. Whether the existence of a transactional element in a lifetime gift took it outside the scope of the principle would vary according to the circumstances. The test was still whether the donor’s solicitor could be said to have assumed responsibility towards the recipient of the gift. In some cases, the existence of a conflict of interests between the donor and the donee might indicate that there had been no such assumption of responsibility. However, a potential conflict of interest arising was not sufficient in itself to exclude the application of the principle. Whether the existence of an actual conflict was sufficient to do so was a matter to be decided on all the facts and circumstances of the case: Vinton v Fladgate Fielder (a firm) [2010] EWHC 904 (Ch); [2010] PNLR 510 applied. Furthermore, while a solicitor would not, save in exceptional circumstances, be held to have assumed responsibility to the other party in a transaction conducted at arm’s length, that did not exclude an assumption of responsibility where the solicitor was instructed by a party to an intra-family transaction, the sole or principal purpose of which was to confer a benefit on the other party at the expense of the solicitor’s client.(3) In the instant case, the pursuer averred that, following the transfer of the house by the aunt, there should have been a grant of a lease by herself to the aunt at a market rent. She offered to prove that if she, and more importantly her aunt, had been advised that such a course was required in order for the gift not to be treated as made subject to a reservation of benefit, then they would have entered into such a lease. It could not be said, at the present stage, that the pursuer’s case should necessarily fail on the ground that there was a conflict of interest sufficient to exclude the application of the principle in White v Jones. The circumstances were not necessarily such as to preclude an assumption of responsibility by the defender to the pursuer to take reasonable care to avoid causing her loss through negligence in its advice and actions on behalf of the aunt. Those were matters to be addressed after evidence had been led.(4) The defender could not argue that there was no lacuna necessitating the application of the principle, purely on the ground that the aunt could have suffered a loss in her lifetime, consisting of the cost of the legal work carried out in 2006 to put right the previous errors. Even if some kind of loss had been sustained by the aunt or some other person, that would not, of itself, exclude the pursuer’s claim. There was no reason of principle why the existence of a claim for loss sustained as a consequence of a solicitor’s negligent act or omission should exclude the making of a claim under the White v Jones principle for a different loss sustained by a different person as a consequence of the same act or omission. It would be absurd to hold that the pursuer’s loss was excluded merely because the aunt had sustained an entirely different loss consisting of the cost of the ultimately unsuccessful remedial conveyancing.Paul Davies (instructed by Morton & Fraser, of Edinburgh) appeared for the pursuer; Kenny McBrearty (instructed by Dundas & Wilson, of Edinburgh) appeared for the defender.Sally Dobson, barrister
