Daniels v Thompson

The claimant is the son of the late Enid Daniels and the executor of her estate. The defendant is a solicitor. In 1989 he was practising under the style of Woodcock and Thompson. At about that time, Mrs Daniels decided to attempt to reduce her estate’s potential liability to inheritance tax. To that end, she retained the defendant in about July 1989 to give her estate tax planning advice. The claimant was the only beneficiary under her will, and he and his mother had already discussed the matter. At that time, Mrs Daniels owned the freehold of four properties, including “Thornfield”, Moulton Lane, Boughton, Northamptonshire (where she was living). Her preferred option was to transfer Thornfield to the claimant by way of gift. The defendant advised Mrs Daniels that Thornfield should be transferred to the claimant, and that an insurance policy should be taken out to protect her estate against the risk of a liability to inheritance tax in the event that she died within 7 years of the transfer. Mrs Daniels accepted the advice and the defendant prepared a deed of gift and this was duly executed on 9 August 1989. He did not advise her that if she continued to reside at Thornfield otherwise than for valuable consideration, she would at her death be deemed to have an interest in possession in Thornfield, which would consequently be deemed to form part of her estate for inheritance tax assessment.

Mrs Daniels, who was 85 years of age at the time of the gift, continued to live at Thornfield rent free until her death on 17 March 1998. On her death, the Inland Revenue treated Thornfield as part of her estate on the basis that there had been a reservation of benefit within the meaning of section 102 of the Finance Act 1986. The estate was, therefore, assessed for inheritance tax purposes on the basis of the full value of Thornfield, and tax of £30,980.80 was paid in March 1999. It is not in dispute that the Inland Revenue’s assessment to tax was justified.

The claimant brings these proceedings as executor of the estate. He claims damages for breach of the duty of care owed by the defendant solicitor to his client, Mrs Daniels. The claim form was issued in May 2002. By his defence, the defendant denies breach of duty, but in any event contends that the claim is barred by the Limitation Act 1980 on the grounds that the cause of action (whether in contract or tort) accrued more than 6 years before the start of the proceedings.

On 29 January 2003, the deputy district judge ordered the trial of the following preliminary issues: “on what date did the claimant’s cause of action accrue and on what date will/does the primary limitation period expire? If the primary limitation period has expired, when was the claimant’s knowledge and on what date will/does the limitation period pursuant to section 14A of the Limitation Act 1980 expire?”

Inheritance tax is charged on the value transferred by a chargeable transfer: section 1 of the Inheritance Tax Act 1984 (“the IHT Act”). A chargeable transfer is a transfer of value which is made by an individual but is not an “exempt transfer”: section 2(1).

Section 4(1) provides that on the death of any person tax shall be charged as if, immediately before his death, he had made a transfer of value and the value transferred had been equal to the value of his estate immediately before his death.

The Finance Act 1986 introduced “potentially exempt transfers” (“PETs”) into the inheritance tax code. Section 3A of the IHT Act provides that any reference to a PET is a reference inter alia to a transfer of value which is made by an individual on or after 18 March 1986 and which, apart from that section, would be a chargeable transfer. Section 3A(4) provides that a PET which is made 7 years or more before the death of the transferor is an exempt transfer and any other PET is a chargeable transfer.

Section 102 of the 1986 Act provides:

“(1)

Subject to subsections (5) and (6) below, this section applies where, on or after 18^th March 1986, an individual disposes of any property by way of gift and either –

(a)

possession and enjoyment of the property is not bona- fide assumed by the donee at or before the beginning of the relevant period; or

(b)

at any time in the relevant period the property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise;

and in this section “the relevant period” means a period ending on the date of the donor’s death and beginning seven years before that date, or if it is later, on the date of the gift.

(2)

If and so long as –

(a)

possession and enjoyment of any property is not bona fide assumed as mentioned in subsection (1)(a) above, or

(b)

any property is not enjoyed as mentioned in subsection

(1)(b) above,

the property is referred to (in relation to the gift and the donor) as property subject to a reservation.

(3)

If immediately before the death of the donor, there is any property which, in relation to him, is property subject to a reservation then, to the extent that the property would not, apart from this section, form part of the donor’s estate immediately before his death, that property shall be treated for the purposes of the 1984 Act as property to which he was beneficially entitled immediately before his death.

(4)

If, at a time before the end of the relevant period, any property ceases to be property subject to a reservation, the donor shall be treated for the purposes of the 1984 Act as having at that time made a disposition of the property which is a potentially exempt transfer.”

Section 200(1) of IHT Act provides, so far as material, that the persons liable for the tax on the value transferred by a chargeable transfer made (under section 4) on the death of any person are (a) the deceased’s personal representatives, and (c) so far as the tax is attributable to the value of any property, the beneficiary or other person in whom the property vests.

Judge Rundell gave judgment on 15 March 2003. He held as follows:

At para 7 of the Particulars of Claim, the claimant alleges that the defendant owed Mrs Daniels a duty of care to exercise the reasonable skills, care and diligence of a prudent solicitor advising in the field of estate planning for inheritance tax.

At para 19, he alleges that the defendant was in breach of duty of care in that he:

“(i)

advised Enid Daniels that the only risk of a liability to Inheritance Tax on the transfer was if she died within 7 years of the same, and/or

(ii)

failed to advise Enid Daniels to sever her interest in Thornfield prior to such transfer, and/or

(iii)

failed to advise Enid Daniels of the impact of the reservation of interest provisions in respect of Inheritance Tax in respect of the transfer, and/or

(iv)

failed to advise to transfer property/assets other than Thornfield owned by Enid Daniels to Richard Daniels, and/or

(v)

failed to advise Enid Daniels to pay a market rent after the transfer for her occupation of Thornfield payable from her income and capital assets, and/or

(vi)

failed to advise Enid Daniels what steps she could have taken with respect to her occupation of Thornfield or the rest of her estate to avoid or minimise any liability of her estate to Inheritance Tax, and/or

(vii)

failed to advise Enid Daniels to deal with her assets so as to avoid or minimise any liability of her estate to Inheritance Tax.”

At para 20, it is pleaded that “if properly advised Enid Daniels would have arranged the disposal of her estate and/or her occupation of Thornfield so as to avoid any liability for inheritance tax on her death”.

Para 21 alleges that by reason of the defendant’s negligence, the estate of Mrs Daniels suffered loss and damage, namely inheritance tax in the sum of £30,980.80.

The originally pleaded case, therefore, was that the defendant was liable for the sum claimed as damages for breach of the duty of care owed to Mrs Daniels.

For the purpose of the limitation issue, it is to be assumed that these allegations are well-founded.

It is trite law that in negligence claims time runs against a claimant from the date when his cause of action accrues, and that his cause of action accrues when he suffers damage caused by the negligence complained of. In most cases, there is no difficulty in determining when the damage is suffered. But difficulty has arisen particularly in some professional negligence cases where the position is less clear. The problem arises, for example, where the negligence exposes to the claimant to a risk of substantial future loss, which may not occur. Does the claimant suffer loss when he is first irretrievably exposed to the possibility of the contingency occurring, or is it only if and when the contingency actually occurs? There are several authorities in which variations on this theme have been considered. It will be necessary to look at some of them in this judgment.

There have been several cases where a negligent person (usually a solicitor) failed adequately to protect the client’s interests and/or procured less valuable rights for the client than should have been procured and/or did not secure for the client that to which he or she was entitled. In each of these cases the court has held that the client suffered loss when what I shall for convenience call “the inadequate transaction” was concluded, and not at the later date when the risk against which the solicitor had failed to provide protection eventuated. In Forster v Outred [1982] 1 WLR 86, a mother signed a mortgage deed charging her property to H as security for a loan to her son. The loss accrued not when demand for payment was made, but when she signed the mortgage deed. The cause of action was complete when the mother relied on the solicitor’s negligent advice and acted to her detriment by signing the deed. Stephenson LJ at p 94C recorded the following submission of Mr Stuart-Smith QC :

“What is meant by actual damage? Mr Stuart-Smith says that it is any detriment, liability or loss capable of assessment in money terms and it includes liabilities which may arise on a contingency, particularly a contingency over which the plaintiff has no control; things like loss of earning capacity, loss of a chance or bargain, loss of profit, losses incurred from onerous provisions or covenants in leases. They are all illustrations of a kind of loss which is meant by “actual” damage. It was also suggested in argument, and I would accept it, that “actual” is really used in contrast to “presumed” or “assumed.” Whereas damage is presumed in trespass and libel, it is not presumed in negligence and has to be proved. There has to be some actual damage.”

Stephenson LJ accepted this submission at p 98. This now classic statement was approved by the House of Lords in Nykredit Mortgage Bank Plc v Edward Erdman Ltd [1997] 1 WLR 1627 at 1630C-G per Lord Nicholls, with whom all other members of the House agreed.

Forster was applied in Melton v Walker & Stanger [1981] 125 SJ 861. The plaintiff (P) gave instructions to the defendant solicitor to prepare certain documents and advise in respect of a gift of a farm from P’s uncle to P and her cousin W in the proportions 2/3:1/3. P and W agreed that, should the farm be sold, the costs and capital gains tax (CGT) arising there from should be shared equally between them. The agreement prepared by the defendant did not have this effect. P claimed that by reason of the defendant’s negligence she would have to pay 2/3 of the CGT on a sale of the farm, instead of ½. It was held that the loss was suffered when the agreement was executed, not on the sale of the farm or assessment of CGT. Had P brought an action shortly after the agreement had been executed, the court would have awarded damages (however difficult or speculative the assessment of damages on that date might have been).

Other similar examples of the application of the Forster principleare Baker v Ollard & Bentley [1982] 126 SJ 593, and D W Moore and Co Ltd v Ferrier [1988] 1 WLR 267. In Bell v Peter Browne & Co [1990] 2 QB 495 following the breakdown of his marriage, the plaintiff instructed his solicitors that he had agreed with his wife that the matrimonial home would be transferred into the sole name of his wife, but that he should receive a one-sixth interest of the gross proceeds of sale whenever that occurred. His continuing interest in the house was to be protected by a trust deed or mortgage. The solicitor drafted the documents and the transaction was completed; but no declaration of trust or mortgage was prepared or executed. The house was eventually sold and the wife spent all the proceeds. More than six years after the transfer of the house to the wife, the plaintiff started proceedings against the solicitors. It was held that his cause of action in negligence accrued when the transfer was executed without the protection of the plaintiff’s interest in the house or its proceeds of sale.

At p 502D Nicholls LJ said:

“So when did the plaintiff first sustain damage by reason of his solicitors’ negligence? On this it is necessary to distinguish between (a) the solicitors’ failure to see that the parties’ agreement was recorded formally in a suitable declaration of trust or other instrument and (b) their failure to protect the plaintiff’s interest in the house or the proceeds of sale by lodging a caution. As to failure (a), clearly the damage, such as it may have been, was sustained when the transfer was executed and handed over. At that point the plaintiff parted with title to the house, and he became subject to the practical inconveniences which might flow from his not having his wife’s signature on a formal document. If the wife thereafter chose to deny his entitlement to one-sixth of the proceeds of the sale, the plaintiff would have to rely on the correspondence between the solicitors coupled with part performance. To the extent that this was less satisfactory than a formal document recording the deal, the plaintiff suffered prejudice. He suffered that prejudice when the transaction was implemented without his having the protection of a formal document.

The extent of that prejudice depended on the attitude adopted thereafter by his former wife. All we know is that, according to the pleadings and the plaintiff’s affidavit evidence, when she sold the house she disposed of all the proceeds and did not account to her former husband for his agreed one-sixth share. But the uncertainty surrounding her future intentions goes only to the quantum of the loss the plaintiff sustained when the transfer was executed without him having the same degree of protection as would be provided by a formal document.”

At p 503F he said:

“In considering whether damage was suffered in 1978 one can test the matter by considering what would have happened if in, say, 1980 the plaintiff had learned of his solicitors’ default and brought an action for damages. Of course, he would have taken steps to remedy the default. But he would have been entitled at least to recover from the defendants the cost incurred in going to other solicitors for advice on what should be done and for their assistance in lodging the appropriate caution. The cost would have been modest, but not negligible.”

Knapp v Ecclesiastical Insurance Group Plc [1998] PNLR 172 was a claim in negligence against insurance brokers for failing to advise the claimant of certain matters with the result that an insurance policy entered into by the claimant was voidable for non-disclosure. It was held that the claimant suffered damage when the policy was entered into. Hobhouse LJ examined a number of authorities, including those referred to above and at page 184E said:

“From these authorities it can be seen that the cause of action can accrue and the plaintiff have suffered damages once he has acted upon the relevant advice “to his detriment” and failed to get that to which he was entitled. He is less well off than he would have been if the defendant had not been negligent. Applying this to the present case, the plaintiffs paid their renewal premium without getting in return a binding contract of indemnity from the insurance company. They had acted to their detriment: they did not get that to which they were entitled. The fact that how serious the consequences of the negligence would be depended upon subsequent events and contingencies does not alter this; such considerations go to the quantification of the plaintiffs’ loss not to whether or not they have suffered loss. The risk of loss existed from the outset and in the absence of better evidence would have to be evaluated and assessed as a risk and damages awarded accordingly.”

In each of these cases, the client was held to have suffered damage as soon as he was committed to the inadequate transaction. The transactions were inadequate because there was inherent in each of them the risk that a contingency would occur which would cause actual loss to the claimant. The fact that it was uncertain whether the contingency would actually occur went to the quantification of damage, and not to the question of loss itself. Thus, in Forster it was uncertain whether the plaintiff would ever be liable to pay her son’s creditors, but this did not prevent her from suffering actual damage as soon as she was committed to the inadequate transaction and her property was encumbered with a charge as security for a loan made to her son by a third party. Her property became worth less than it would otherwise have been if it had not been made the subject of a charge as the result of the solicitor’s negligence.

In Ollard v Bentley the plaintiff did not receive what the solicitors ought to have obtained for her. The fact that the assessment of her loss was dependent on the attitude of third parties and was, therefore, to some extent a matter of speculation at the time of the conveyancing transaction was relevant to the quantification of her loss; but she suffered loss when the transaction was completed. In Melton v Walker & Stanger too, the fact that the assessment of damages depended on factors outside the control of the plaintiff went to the quantification of loss. But in each of these cases, there was no doubt that, if anyone had suffered loss as a result of the solicitor’s negligence, it was the plaintiff and no-one else. So too in Moore v Ferrier.

In the present case, Miss Carr QC submits on behalf of the defendant that Mrs Daniels first suffered loss when she relied on the defendant’s advice and did not take steps which (in the event) would have ensured that the transfer was an exempt transfer and not a chargeable transfer for the purposes of inheritance tax. Effective steps could have been taken immediately upon the execution of the deed of gift on 9 August 1989, so that the potential benefit of the 7 year period could have started immediately. The loss of that benefit was damage suffered by Mrs Daniels at the date of the transfer. Alternatively, Miss Carr submits that Mrs Daniels first suffered loss 7 years before her death, when it became inevitable that the transfer of Thornfield would be a chargeable transfer.

On behalf of the claimant, Mr Scrivener QC submits that the estate did not suffer any loss until the date of Mrs Daniels’ death. He says that the liability to tax only arose because at her death Mrs Daniels was still residing at Thornfield for no valuable consideration, and the value of her estate (when Thornfield was included) exceeded the nil-rate band for inheritance tax.

It has been said that “it is a question of fact in each case whether actual damage has been suffered”: per Neill LJ Moore v Ferrier at p 278G. In some cases, this question is in the nature of what is sometimes referred to as a “jury question”. An obvious example is where the issue is when a claimant first suffered personal injury. But in a case such as the present, the authorities show that the question when a claimant first suffered loss is less straightforward and is not always easy to answer.

Miss Carr’s primary submission is that Mrs Daniels suffered loss at the time when the deed of gift was executed: she acted to her detriment in divesting herself of legal ownership of Thornfield without obtaining the intended benefit for herself or her estate of having made an effective PET, thereby acquiring the real chance of the asset being wholly or partly outside the scope of inheritance tax on her eventual death.

Miss Carr contends that the fact that Mrs Daniels suffered a loss at that time can be demonstrated by considering the insurance position. If the transfer had been an effective PET and there had been no reservation of benefit, the only risk to which the estate would be exposed would have been the risk that Mrs Daniels did not survive the gift by 7 years. An insurance policy (policy A) could have been obtained (held in trust for the benefit of the beneficiaries) which would pay a sum of money in the event of inheritance tax being payable. The policy would be for a period of 7 years and would provide decreasing cover to reflect the tapering relief available for inheritance tax. In fact, there was a reservation of benefit. A policy (policy B) could be obtained to provide a sum of money to meet the estate’s liability in these circumstances. But such a policy would be a whole life policy, and would not be adjusted to take account of the tapering relief. Policy B would inevitably be more expensive than policy A.

Miss Carr also submits that Mrs Daniels suffered loss by paying the defendant’s fees for services which were of no value. Furthermore, if Mrs Daniels had discovered the true position some time after the deed had been executed, and if she had sought other legal advice, the cost of such advice and its implementation (to remedy the position) would have been loss suffered by Mrs Daniels as a result of the defendant’s negligence.

It is important to keep in mind that the preliminary issue before the court was limited to the question when Mrs Daniels first suffered loss, and did not embrace the separate question whether the liability for inheritance tax on the transfer of Thornfield was a loss that was suffered by Mrs Daniels. I confess, however, that I have found it impossible to resist the temptation to consider at least whether Mrs Daniels could have suffered the alleged loss. In my view, it is artificial in a case such as this to consider when a person first suffers loss without deciding whether she was at least capable of suffering that loss.

I shall explain why in my judgment Mrs Daniels could not have suffered the alleged loss as a result of the defendant’s alleged negligence. I can illustrate the point by postulating a case where the facts were similar to those in the present case, but Mrs Daniels had sought advice from the defendant in relation to an imaginary wealth tax saving scheme. Suppose that there had been a wealth tax in 1989, and that a person with assets whose value exceeded one million pounds was liable for wealth tax at a certain rate. Suppose further that there was a statutory provision whereby, if a person transferred assets so as to reduce his wealth below the threshold figure, he would cease to be liable for the wealth tax, but only after the expiry of a period of 7 years from the date of the transfer and then only if there were no reservation of benefit by the transferor. If in reliance on the defendant’s advice, Mrs Daniels had transferred Thornfield to her son but with a reservation of benefit, she would have continued to be liable for wealth tax for at least 7 years beyond the end of the 7 year period. That additional liability for wealth tax would unquestionably have been loss suffered by her. It seems to me that in those circumstances her case would have been on all fours with the Forster line of cases, and her cause of action would have arisen at the time when she entered into the transfer with a reservation of benefit. From that moment, she would have been at risk of paying additional wealth tax.

But the position in the present case is quite different. Mrs Daniels was never at risk of having to pay any inheritance tax. That was a risk to which the estate, and the estate alone, was exposed, since liability to pay the tax only arises on death. Once it is appreciated that Mrs Daniels could never suffer a liability to pay inheritance tax, then it becomes clear that she did not suffer any loss as a result of the defendant’s negligence on the facts of this case. It follows in my view, therefore, that Mrs Daniels did not suffer any detriment which could sound in damages when she divested herself of legal ownership in Thornfield without obtaining the benefit of the possibility of reducing the liability of her estate for inheritance tax.

Park J reached the same conclusion in Macaulay and Farley v Premium Life Assurance Co Ltd (unreported, 29 April 1999). In that case, the executors of Mrs Macaulay claimed as damages the amount of inheritance tax which became payable on her death as a result of the negligent advice given to her by the defendant. A preliminary issue was ordered to be tried as to whether the claim in negligence was statute-barred. The questions that arose were, in essence, the same as have arisen in the present case. On behalf of the defendant, it was submitted that relevant damage was suffered when Mrs Macaulay adopted the ineffective tax saving scheme. For the executors, it was contended that damage was suffered on the date of her death. The arguments canvassed were similar to those discussed earlier in this judgment. The judge held that the damage claimed (liability for inheritance tax) was not suffered until the date of death. At p 7E, he said:

“The questions are: what is the alleged loss or damage in respect of which this action is brought? When did that loss or damage accrue?

Mr Lyons, in submitting that the action is statute barred, says that the loss or damage consisted of Mrs Macaulay in her lifetime adopting a CTT-saving scheme which was ineffective, thereby losing the opportunity to do something different. That loss of opportunity was suffered in her lifetime. She could have sued, in her lifetime, for damages to compensate her for the loss of the opportunity, and the fact that the exercise of quantifying the damages would have been difficult does not change the position. Therefore the cause of action arose in Mrs Macaulay’s lifetime when she suffered the lost opportunity. That happened more than six years before the writ was issued, and the result is that the writ was out of time. So the action is statute barred.

Mr Woolf submits that that analysis is wrong, and I agree with him. The claimants are not suing in respect of a lost opportunity suffered by Mrs Macaulay in her lifetime. They are suing in respect of the IHT liability which arose on Mrs Macaulay’s death and which did not exist until she died. The critical part of the particulars of loss and damage refers to “£30,880 being 40% of £77,200 (which is the transfer of value made by Mrs Macaulay immediately before her death and which increased the amount of tax payable by her estate in consequence of her death)”.

Thus the damage relied on as a central ingredient of the cause of action is the amount of IHT payable by Mrs Macaulay’s estate. In my judgment, it is of some relevance that the IHT payable on death is imposed directly on the personal representatives as such. It is not imposed on the deceased (here Mrs Macaulay), and it is not the case that it only falls to be paid by the personal representatives in right of the deceased. Under section 200(1)(a) of the Inheritance Act 1984 the persons liable for the IHT on a deceased person’s free estate are the deceased’s personal representatives.

Therefore the claimants here are suing for an alleged loss or damage which consists of or derives from their own liability under the Act. That liability did not exist until Mrs Macaulay died. The cause of action sued for was not complete until the loss or damage arose. The loss or damage arose on 4^th March 1991. The writ was issued just within six years of that date and the action is not statute barred.”

One can, however, easily imagine circumstances in which a person in the position of Mrs Daniels would suffer loss in her own right as a result of negligence such as that which we must assume in the present case. Suppose that 3 years after the deed had been executed, Mrs Daniels had discovered that the transfer of Thornfield was not an exempt transfer because there had been a reservation of benefit, and that she had obtained legal advice from another solicitor to remedy the position. She would undoubtedly have been able to recover the cost of obtaining the legal advice and any reasonable remedial steps that were taken to make good the original deficiency.

That, however, is not this case. In my view, Mrs Daniels did not suffer any detriment capable of assessment in money terms. The true detriment suffered by Mrs Daniels was that the defendant’s negligence frustrated her wish to confer on her son the benefit of a reduction in the inheritance tax liability of her estate. But that is not a detriment recognised by our law as damage which is capable of assessment in money terms.

On this point, there is in my view a reasonable analogy with the disappointed beneficiary cases, of which the leading example is White v Jones [1995] 2 AC 207. In that case, the testator instructed his solicitors to prepare a will to include legacies to his two daughters. The solicitors negligently failed to prepare a new will. On the death of the testator, the daughters sued the solicitors in tort. The problem facing the court was that, if the solicitors did not owe a duty to the disappointed beneficiaries, the only person who had a valid claim against the solicitors had suffered no loss, and the only persons who had suffered a loss had no valid claim. As in White v Jones, so in the present case, the fact that the testator’s desire to benefit certain beneficiaries has been frustrated by the solicitors’ negligence is not sufficient to cause the testator any detriment which is capable of assessment in money terms.

I can deal quite briefly with the other points made by Miss Carr as showing that Mrs Daniels suffered loss at the time of the transfer or shortly thereafter. The fact that a whole life policy would have been more expensive that a policy to provide cover for 7 years is in my view irrelevant. It may be that if, upon discovering the fact that the transfer of Thornfield was an ineffective PET, Mrs Daniels had incurred the cost of obtaining an insurance policy which, but for the negligence, she would not have obtained, she would have suffered loss at that time. But that is an entirely hypothetical possibility. The same applies to the suggestion that she suffered loss because, if she had discovered the true position, she might have incurred the cost of instructing other solicitors to advise her what to do. I have already referred to the passage in Nicholls LJ’s judgment in Bell at p503F. But in this passage, Nicholls LJ was testing the conclusion that he had already reached that the plaintiff had suffered loss at the date of the transfer of the matrimonial home. I do not believe that he was saying that the plaintiff had suffered loss solely because he might have incurred the cost of consulting other solicitors. The principle illustrated in the Forster line of cases should not be taken to wholly unrealistic limits.

Finally, the payment of fees for the performance of services that were worthless. Mrs Daniels might have been able to claim repayment of these fees in restitution on the basis that they were paid for no consideration. But I do not see how they could be claimed as damages for loss caused by the defendant’s negligence.

Miss Carr submitted in the alternative that Mrs Daniels suffered loss during the period following the execution of the deed of gift, because with the passing of each day there was an increased risk that the inheritance tax would not be avoided. But this submission fails for the same reason as her principal submission: it is based on the premise that the liability for inheritance tax was a loss which Mrs Daniels was capable of suffering.

I recognise that the reasons that have led me to reject Miss Carr’s arguments inevitably lead to the conclusion that the originally pleaded case is bound to fail, because Mrs Daniels never had a cause of action in respect of the inheritance tax liability. But I have to remind myself that the limitation question is the only issue before the court, and it proceeds on the hypothesis, which in my view is false, that Mrs Daniels did have a cause of action in negligence. If she had a claim in negligence during her lifetime, then I accept that it must have arisen at the time when she relied on the defendant’s advice and did not take steps which would have ensured that the transfer was an exempt transfer. This conclusion is compelled by a straightforward application of the principle enunciated in Forster v Outred and the other cases to which I have referred.

Mr Scrivener attempts to escape from the toils of this principle by arguing that the estate did not suffer any loss until Mrs Daniels died. That is an implied admission that Mrs Daniels did not suffer any loss, and that she therefore had no cause of action. Thus it can be seen that Mr Scrivener is on the horns of a dilemma. If the loss claimed in these proceedings was not suffered until Mrs Daniels died, then the pleaded case, which is based on the premise that loss was caused to her by a breach of the duty owed to her, is bound to fail. Alternatively, if the loss was suffered by her, it must have been suffered before she died. Mr Scrivener does not advance an alternative submission that, if Mrs Daniels suffered loss, this occurred on some date after May 1996, and therefore within the limitation period. The short answer to Mr Scrivener’s submissions is that on his pleaded case, if Mrs Daniels suffered any loss as a result of breach of the duty owed to her, that must have occurred more than 6 years before the issue of these proceedings.

It follows that in my view the judge reached the right conclusion and the appeal should be dismissed.

During the course of argument, we expressed our concern to counsel that Mrs Daniels had not suffered the only pleaded loss, ie the increased liability for inheritance tax. It seemed that this loss could only have been suffered by the estate, or possibly the personal representative or beneficiary under the will. A similar problem arose in Macaulay and Farley. In that case, the executors brought the claim, and alleged that the defendant was in breach of its duty of care to Mrs Macaulay. The statement of claim did not plead that the defendant was also in breach of a duty of care owed to her personal representatives. The judge said that it would “have been better if the statement of claim had pleaded the matter in that way”, adding that he did not wish to prejudge any application for permission to amend the pleading that might be made.

At the end of his submissions in reply, Mr Scrivener made an application for permission to amend para 7 of the particulars of claim adding further and in the alternative the plea that the defendant owed “Richard Daniels (as personal representative of Enid Daniels) a duty of care in tort”. Miss Carr objected that she had been given no notice of this application, which was in any event too late. We agreed to allow both parties to make written submissions in relation to the application for permission to amend, and to deal with it in our judgments on the appeal. Written submissions were duly received by the court from both parties.

Miss Carr objects to the proposed amendment on the grounds that the amended case has no real prospect of success, alternatively faces significant hurdles as a matter of law, and is in any event inadequately pleaded. She submits that to hold that a duty of care is owed to the personal representative in a case such as this would involve an unacceptable extension of the White v Jones principle. Moreover, although personal representatives are liable to pay inheritance tax (section 200(1) of IHT Act), unless the testator directs otherwise, the tax is treated as part of the general testamentary and administration expenses of the estate (section 211(1)(2)). In the present case, the tax was paid on 11 June 1998 and a certificate of discharge was obtained on 19 March 1999. Since there is no contrary direction in Mrs Daniels’ will, the tax will have been paid out of the estate. It follows that Mr Daniels suffered no loss in his capacity as personal representative. Further, Miss Carr submits that the application is made very late and in circumstances which should lead the court to refuse to exercise its discretion to allow the amendment.

Following receipt of these written submissions, all three members of the court prepared draft judgments which were sent to the parties in the usual way. All three of us expressed the view that the application for permission to amend should be refused, although for somewhat differing reasons. We all thought that the amended claim had no real prospects of success because the claimant had suffered no loss in his capacity as personal representative. Carnwath LJ suggested additionally that there was a more fundamental reason for holding that the new claim could not succeed, namely that in normal circumstances a personal representative “as such” has no separate interest which could found a claim to damages arising out of negligence relating to the testator’s property.

On receipt of our draft judgments, Mr Scrivener made an application to be allowed to address further oral argument, or for further written submissions to be taken into account in the final judgments of the court. His main point was that he should have been given the opportunity to develop the submission that the defendant did owe a duty of care to the claimant as personal representative as owner of the property of the testator and could maintain a claim in respect of injury done to the estate after her death. He said that, in so far as the draft judgments expressed the contrary view, they were in error.

It is clear that the court has jurisdiction to allow further argument at this late stage of the process: see Robinson v Bird and others [2003] EWCA Civ 1820 paras 76-96. It is a jurisdiction that should be exercised sparingly and only where the interests of justice so require. I agree that the jurisdiction might be exercised where there has been a plain mistake by the court and/or where the parties have failed to draw the attention of the court to a point of law, or a line of authority. Mr Scrivener says that this is what has happened in the present case, and that in the interests of justice he should have the opportunity to argue the points of law more fully than he has argued them hitherto.

We refused to allow Mr Scrivener to make further submissions whether orally or in writing. In so far as he complains that he should have been allowed to develop his submissions orally, he did not object to the course proposed by the court at the end of the hearing of the appeal that his application for permission to amend be dealt with on written submissions. Nor did he seek to make an application for oral argument (or even seek to put in a further written submission) on receipt of Miss Carr’s written submissions. I recognise that the points raised by the proposed amendment are new, and may be quite difficult to resolve. For the reasons that I give at paras 52 and 53 below, I would disallow the application for permission to amend. The same considerations of delay and proportionality led me to conclude that it would be wrong to allow Mr Scrivener to make yet further submissions at this late stage of the proceedings.

I would refuse the application for permission to amend on the grounds that it is made too late. Amendments ought in general to be allowed so that the real dispute between the parties can be adjudicated upon, provided that any prejudice to the other party caused by the amendment can be compensated for in costs, and the public interest in the efficient administration of justice is not significantly harmed: see Cobbold v London Borough of Greenwich (CA, 9 August 1999, unreported). Payments of costs may not adequately compensate a party who has had a piece of litigation hanging over his head for some time, and has been totally “mucked around”: see Worldwide Corporation Ltd v GPT Ltd (CA, 2 December 1998, unreported). Miss Carr submits that the defendant cannot be compensated in costs in the present case. He is a retired sole practitioner, who has had this claim hanging over his head since May 1998 when it was first intimated, and has had a legitimate expectation that it would be resolved expeditiously: see Ketteman v Hansel Properties [1987] AC 189, 220E-F. If the amendment is allowed, that expectation will be frustrated.

The application to amend has been made at a very late stage, following a trial (on evidence) of a preliminary issue, and after almost a day’s hearing on the issue in the Court of Appeal. If the amendment had been introduced early in the proceedings, it is most unlikely that the court would have ordered the trial of a preliminary issue on limitation. To allow the amendment at this late stage would be contrary to the overriding objective of dealing with cases expeditiously, and in ways which are proportionate to the amount of money involved. I bear in mind that the damages claimed are approximately £30,000. The costs of dealing with this litigation even if that were done with expedition would be likely to be disproportionate to the amount at stake. The costs of dealing with the litigation if the amendment is allowed would be even more disproportionate.

For all these reasons, I would refuse the application for permission to amend the particulars of claim and would dismiss the appeal.

I confess that I started the hearing of this appeal with a strong instinctive feeling that the claim should not be treated as time-barred. This was for very similar reasons to those which led Park J to the same conclusion in Macaulay and Farley v Premium Life Assurance Co Ltd (unreported, 29^th April 1999). Advice in relation to inheritance tax could be regarded as in a special category, in that its effects would be experienced only after the death of the person who received the advice. Accordingly, redress for a breach of duty owed to the testator (assuming it did not come to light during his or her lifetime) could only be a matter for the personal representatives.

I saw this not so much as a separate duty owed to the personal representatives; but rather as the same duty, but taking account of the fact that the damage would in the normal course of events only be suffered by those representing the testator after his or her death. As with a negligently drawn will, the negligence will normally “lie hidden until it takes effect on the death of the testator, i.e. at the very point in time when normally the error will become incapable of remedy.” (White v Jones [1995] 2AC 207, 276 D-E, per Lord Browne-Wilkinson). On that view, the proposed amendment, to include a reference to a duty of care owed to Mr Daniels as personal representative, could be seen as little more than a technicality, to ensure that the pleading reflected what was already implicit in the pleaded cause of action (and in the preliminary issue).

However, I have been persuaded by Miss Carr’s careful analysis that this is the wrong approach. My view has been reinforced by the exchange of submissions and authorities on the proposed amendment. Had there been a clear prospect of establishing a valid cause of action in respect of a duty owed to the personal representative, I would have been perhaps more sympathetic than Dyson LJ to the application for permission to amend, albeit made very late in the day (and only after some encouragement from the Court). However, on the basis of the arguments we have heard, I am not persuaded that the inclusion of such a reference to the personal representative does anything to further the claim.

It is important to emphasise that we are not dealing with a claim in respect of a duty owed to Mr Daniels in his capacity as a potential beneficiary, under the principles in White v Jones. Whether such a claim could be made is not an issue before us, even under the proposed amendment. We are solely concerned with the claim in respect of a duty owed to Mrs Daniels, with such reinforcement as can be provided by including a reference to Mr Daniels in his capacity as her personal representative.

The claimant’s case presents a fundamental dilemma, as Miss Carr points out. If it is right to look for loss suffered by Mrs Daniels herself, then I agree with Dyson LJ, in accordance with the cases reviewed by him, that the loss must be taken as having occurred in August 1989, when the scheme was put into effect without the steps necessary to secure its efficacy. On that basis, it is time-barred, as the judge found. If, on the other hand, as the claimant asserts, there was no relevant loss until after her death, then there was no complete cause of action in tort until that time. Accordingly, no such cause of action was “vested” in her on her death, so as to survive for the benefit of her estate, under section 1(1) of the Law Reform (Miscellaneous Provisions) Act 1934.

At first sight, I found this way of putting the case paradoxical and unattractive. However on further consideration, I can see no clear answer to it. At common law, Mrs Daniel’s right of action in tort would have died with her. That must equally be true of a potential right of action, which has not yet resulted in damage so as to give rise to an actual cause of action (see e.g. Ronex Properties v John Laing [1983] QB 398, 405). Section 1(1) of the 1934 Act reverses the common law rule in respect of “causes of action…vested in” the testator at death. But, if the cause of action had not vested in the testator by the time of his or her death, section 1(1) has no effect. Section 1(4) extends the effect of the section to a potential cause of action in tort against a tortfeasor who dies before damage is incurred, but there is no similar extension for a potential claimant. (Donaldson LJ’s apparent suggestion to the contrary in the Ronex case at p 405G was not relevant to the facts of that case, and appears to have been an uncharacteristic slip. It seems, though surprising, that in this respect the 1934 Act may have been more restrictive than the preceding law, based on statutes dating back to 14^th C: see Salmond on Torts 8^th Ed (1934) pp 76-7, and Twycross v Grant (1878) 4CPD 40, 45.)

The solution suggested by Park J (Macaulay p 8E) lay in the personal liability for inheritance tax imposed on the personal representatives “as such” (by Inheritance Tax 1984 s 200 (1)(a)). However, I agree with Dyson LJ that Mr Daniels has suffered no loss in his capacity as personal representative. With respect to Park J I do not think that any special significance can be attached to the fact that liability for inheritance tax is imposed specifically on the deceased’s personal representatives by statute. There is no reason to see that as any more than a reflection of the fact that it cannot be imposed on the deceased herself. The liability of the personal representatives is limited to the value of property received by them as personal representatives, in the absence of “neglect or default” (s 204(1)); and the burden of the tax is treated as part of the general expenses of the estate (s 211).

The claimants rely on the judgment of Chadwick LJ in Carr-Glynn v Frearsons [1999] Ch 326, as recognising the existence of a potential duty of care owed by those advising on a will to the personal representatives of the testator. In that case the defendant solicitors had drawn up a will which the testatrix executed in 1989, in which she left to her niece a property which she had owned jointly with her nephew. She died in 1993 without having severed the joint tenancy, with the result that her share in the property automatically vested in her nephew as a surviving tenant, and the gift to her niece was ineffective. It was held, following White v Jones, that the niece, as a disappointed beneficiary, had a cause of action against the negligent solicitor.

The issue whether the personal representatives would have had any claim was not material to the decision. However there was some discussion of the relationship between the niece’s claim and any potential claim by “the estate”. The defendants had argued that the cause of action properly vested in the estate and not in the disappointed beneficiary, because otherwise there would be a potential conflict of interest between the testatrix and the beneficiary ([1999] Ch at 328 A-B). Chadwick LJ accepted that the personal representatives would have had such a cause of action. He said:-

“As it is the assets in the estate are less than they would have been if the testatrix had been properly advised. It follows that, prima facie, the defendants would be liable at the suit of the testatrix’s personal representatives for the loss caused to her estate by their failure to advise service of a notice of severance. But, again prima facie, any recovery by the personal representatives would not benefit the plaintiff. The damages would form part of the residue; and she is not the residuary beneficiary under the 1989 will.”

In a further passage on which the claimants specifically rely, he noted the distinction between two different types of breach of duty:

“The lack of care lay in failing to ensure that the asset fell into the estate; not in failing to effect a valid testamentary disposition of an asset which did form part of the estate. It is that of course which founds a claim which the personal representatives have against the solicitors. …..” (p 335E-F).

He accepted that “the personal representatives’ claim on behalf of the estate” could not be ignored, for there might be circumstances in which it would be available as an asset of the estate, and therefore it was necessary to avoid the possibility of double liability. However he concluded that this consideration should not preclude a claim on behalf of the beneficiary where appropriate (p 336H-337E).

I do not think this case assists the claimants. There was no limitation issue, and there was no need for the Court to examine the nature of the cause of action which was vested in the personal representatives. In any event, the testatrix would presumably have had a cause of action against her solicitors in contract, which would have vested in the personal representatives at her death, regardless of any issue of damage necessary to found a cause of action in tort. Accordingly, it is impossible to read the judgment as providing any clear support for the proposition that a potential cause of action in tort could have passed to the personal representatives.

Dyson LJ has mentioned Mr Scrivener’s application, following a sight of the draft judgments, to reopen the oral argument. I agree with Dyson LJ that, while the Court undoubtedly has power to accede to such an application, it should be exercised sparingly. I also agree with him that the application should be refused in this case, for the reasons he gives.

I add a brief comment, in recognition of the fact that Mr Scrivener’s submissions related principally to a passage in my own draft judgment (referred to by Dyson LJ). Mr Scrivener has helpfully drawn attention to statements in the textbooks, based on old authority, as to the circumstances in which a personal representative may bring in his own name an action in respect of property received under a will. For example, it is stated in Williams:

“If an injury is done, after the death of a testator or intestate, to any property forming part of his estate, the executor or administrator may bring an action for damages for the tort. In such circumstances, he has the option, either to sue in his representative capacity, and plead as executor, or to bring the action in his own name.” (Williams, Mortimer and Sunnucks, Executors, Administrators and Probate 18^th Ed para 62-20.)

The authors explain that the executor’s right of action arises from the fact that they are, in law, the owners of the testator’s property, and that ownership “draws to it the possession”. (See also Halsbury’s Laws vol 17(2) para 825, citing Hollis v Smith (1808) 10 East 293; Adams v Cheverel (1606) Cro Jac 113). In the light of those references, I am happy to accept that the proposition in my draft judgment was too widely stated, in so far as it suggested that a personal representative could never bring an action in his own name in respect of damage to property derived from the testator.

However, those passages, and the cases cited, throw no light on the central problem in this case. In those cases, ownership of the relevant physical property had undoubtedly passed to the personal representatives, and that was held sufficient to give them title to sue for its loss or damage (regardless of actual possession). Here the issue is different. No relevant physical property has passed to the personal representative. The question is whether he has obtained any right in respect of something which was only a potential cause of action at the date of death, and which therefore did not survive so as to pass to him under the 1934 Act. Although I would be reluctant to express a final view on the limited material before us, nothing in Mr Scrivener’s present submissions suggests a more than speculative chance that further argument would be likely to overcome this problem.

Accordingly I agree with Dyson LJ that the appeal fails. I also agree with him in rejecting the application to amend the particulars of claim, principally on the ground that it would not materially assist the case, or at least that it has not been show clearly that it would do so, and that to allow further argument would be disproportionate. The wisdom of the latter view has been underlined by the extent of additional argument to which the application to amend has already given rise.

The issue initially presented to us on this appeal was whether the claim of Mr Daniels against his mother’s solicitor, Mr Thompson, was statute-barred. The determination of that issue required consideration of the question when Mrs Daniels (and not anyone else) had suffered damage by reason of the assumed negligence of Mr Williams.

The answer to that question is complicated by the fact that the purpose for which Mrs Daniels consulted Mr Thompson was not, as would usually be the case, to obtain advice which would achieve some personal benefit for herself as the client but rather to obtain advice which would enure for the benefit of her estate by means of an arrangement to reduce inheritance tax.

Assuming for present purposes, as the terms of the preliminary issue require us to do, that Mrs Daniels (as opposed to her estate or her personal representatives) suffered some damage, we have to decide when that damage was suffered so that her cause of action in tort crystallised.

On that assumption I would hold that any damage to Mrs Daniels would have been suffered by her at the time when she acted to her detriment by transferring the property “Thornfield” to the beneficiary under her will, Mr Daniels. It is possible to visualise inheritance tax saving schemes which entail no detriment to the testator. But in the present case, if Mrs Daniels suffered an actual detriment, that would have happened when she relinquished her title without achieving the intended benefit of removing the property from the scope of inheritance tax.

It is in my view no answer for Mr Scrivener to say that there was no loss or detriment to Mrs Daniels at that time because she continued to live at the property rent-free. Adapting the dictum of Templeman LJ in Baker v. Ollard and Bentley (CA Civil Division Transcript No. 155 of 1982), cited with approval by Neill LJ in D.W. Moore & Co v. Ferrier [1988] 1 WLR 267 at 276D, Mrs Daniels did not get what she should have got. That occurred when she parted with her property without any resulting saving in inheritance tax.

But it should not be overlooked that the damage claimed here is the amount of the inheritance tax not avoided. In that regard the real loser as a result of the presumed negligence of Mr Thompson was in truth the estate of Mrs Daniels and not Mrs Daniels herself. The object of obtaining the advice of the solicitor was to benefit the estate by reducing the incidence of inheritance tax. The failure to achieve that benefit had no ultimate effect on the financial position of Mrs Daniels; nor in my view did it cause recoverable damage to Mr Daniels in his capacity as his mother’s personal representative. I agree with Dyson LJ and with Carnwath LJ that for this reason the claim must fail and this appeal should be dismissed.

I further agree that the amendment for which Mr Scrivener sought leave at the end of his reply on this appeal should be refused, not because it comes late (as it unquestionably does) but because, for the reasons given by Dyson LJ and Carnwath LJ, I see no real prospect of success for a claim by Mr Daniels in his capacity as personal representative. I do not think it would have been appropriate or proportional in all the circumstances of this case to permit Mr Scrivener to advance an oral argument to the contrary.