Accounting claim against solicitors following fraud held time barred
An action against a firm of solicitors for accounting for £7.3m, intended as loans to certain companies but paid over to others on the instructions of persons engaged on a fraudulent scheme, and never recovered, has been held barred by prescription.
Heather Capital Ltd and its liquidator brought the claim against the now Burness Paull arising out of transactions in 2006. The pursuers, who operated as a hedge fund, deposited money with the defenders that was intended to be lent to four Gibraltar companies. It was averred that the defenders' Mr Wilson transferred the money to other parties on the instructions of an individual who had no actual or apparent authority to do so. When in 2007 the pursuers' auditors raised questions about the recoverability of the loans, one of the individuals involved in the fraud took steps to conceal it, including by transferring funds to make it appear that the loans had been repaid. The subsequent accounts however contained a qualification. The pursuers stated that they did not become aware of the fraud until an email from Mr Wilson in 2012 explained where the funds had originally been paid.
The defenders argued (1) that on the pursuers' own averments, the loans had been repaid; and (2) that the claim had prescribed. The pursuers founded on ss 11(3) and 6(4) of the Prescription and Limitation (Scotland) Act 1973, arguing under s 11(3) that time did not start to run until receipt of the 2012 email, and under s 6(4) that it was incumbent on the defenders as part of the duties they owed the pursuers to advise of the sequence of events that had led to the loss of the money and their failure to do so had erroneously induced the pursuers not to make a claim.
Lord Tyre held that on the pursuers' averments, the apparent repayment was nothing of the sort: money had gone round in a circle and the pursuers were no better off than they had been before. The defenders were not being sued for repayment but for damages for loss caused by the facilitation of fraud.
However neither of the pursuers' arguments on prescription were upheld. On s 11(3), even if they had not actually become aware of their loss until 2012 – which would have been matter for proof – they had not sufficiently averred that they could not with reasonable diligence have become so aware. By 2007 their directors had information from their auditors indicating that a fraud had at least been attempted, and the pursuers' averment that “all avenues of enquiry were considered to have been pursued”, did not address the question whether the loss “could” with reasonable diligence have been discovered.
On s 6(4), the “error” founded on was in effect the transfer of funds itself, which confused the ground of action with protection from prescription. “Words or conduct” in s 6(4) required more than mere silence on the part of the debtor. Further, to claim that the defenders were under a fiduciary duty would prevent the prescriptive period from ever starting to run, where the defenders denied liability; and the same considerations would in any event have applied regarding reasonable diligence.
The defenders were therefore entitled to absolvitor.