Scottish Court of Session Decisions

The Lord Ordinary, in his opinion dated 26 February 1998, has stated the background to this dispute succinctly and in a way which both the reclaimers and the respondents were content to accept. The Lord Ordinary has also referred fully to the pleadings which came under scrutiny in the debate before him, and has explained the issues which were argued at that stage. The first question which he discussed, relating to the indemnity provision in Clause 11 of the contract, need not be referred to further as it was not raised by either party in the present reclaiming motion.

The ground of appeal for the reclaimers was in the following terms:

The Lord Ordinary has summarised clearly the competing submissions of the parties as to whether or not certain averments in relation to Claim A were relevant for enquiry. Broadly the same arguments were deployed in the reclaiming motion and the submissions made to this court may therefore be summarised briefly.

The reclaimers began by accepting that, even if their reclaiming motion were to be successful, there would have to be a proof before answer in relation to the pursuers' claim arising out of the indemnity clause, Clause 11, and that the averment of loss under Claim A would therefore require to go to proof. The reclaimers were, however, asking this court to sustain the defenders' plea to the relevancy in so far as it related to the cases based on breach of contract and upon fault and negligence, and to repel the third plea-in-law for the pursuers. The reclaimers accepted that no averments of fact would fall to be deleted if the court upheld the first plea-in-law for the defenders to the extent indicated; they accepted that the ambit of the proof would not be affected in any way if the reclaiming motion were to succeed. Although it was suggested from the bench that certain averments in Article 4 of the Condescendence, relating to the content of the ordinary duties of care incumbent upon reasonably competent engineers and reasonably competent architects might not have to go to proof if the defenders' plea were to be sustained, the respondents submitted that questions relating to the same matters would or could arise under Clause 11, with particular reference to the words "any neglect" in that clause. There was no contrary submission from the reclaimers on this point.

In these circumstances, the only point that this court was asked to determine was whether or not, in the light of the approach articulated in the speech of Lord Hoffman in Banque Bruxelles S.A. v. Eagle Star Insurance Company Limited 1997 AC 191, at page 216D, the pursuers' claim for damages under Claim A, so far as depending upon the case set forth in Article 4 of the Condescendence, was irrelevant. The arguments in favour of holding that claim to be irrelevant are to be found not only in the opinion of the Lord Ordinary but also in the opinion of Lord Marnoch in this court and it is unnecessary for me to repeat them at length. In developing those arguments before this court, counsel maintained that it was necessary first to determine what damage flowed from the breach and thereafter to establish how to measure it. It was suggested by the court that the word "damage" was possibly ambiguous, and that it might be useful to draw the distinction between iniuria and damnum, but the reclaimers did not advance any analysis using that distinction. It was maintained that the general principle which applied in this type of case was the principle of "restoration". In this context reference was made to Watson, Laidlaw & Company, Limited v. Pott, Cassels, and Williamson 1914 SC (HL) 18 and notably to the speech of Lord Shand at page 29, where his Lordship stated:

Reference was also made to The Duke of Portland v. Wood's Trustees 1926 S.C. 640 and Haberstich v. McCormick and Nicholson 1975 S.C. 1 which are discussed in the Lord Ordinary's opinion. In the light of these authorities, the Lord Ordinary's error, it was submitted, lay in not appreciating that the pursuers had failed to state what their position would have been had the defenders not been in breach of their duties in contract and in delict. It was submitted that the requirement to condescend upon this matter was absolute in a case of damages based upon breach of such duties. In the context of the present case, it was submitted that, in order to make a relevant case, the pursuers and respondents were required not only to aver that they had acted upon bad advice but also to specify what action they would have taken had they received the correct advice. They averred that they had, in consequence of receiving bad advice, tendered a lower figure for the contract works than they would have tendered had they received sound advice; but it was their duty to condescend upon what they would have tendered had they received sound advice. It was their duty to go on and to specify whether or not such a tender would have been accepted. If they averred that it would have been accepted, the nature of their loss, if any, would fall to be condescended upon in that set of circumstances. If they averred that it would not have been accepted, they would have had to aver how their loss, if any, would then be calculated. On that hypothesis, they would require to set forth in detail what they would have done to find other work, and to deploy their workforce profitably, and what profits or losses they might have made in such other work. They might even have to condescend upon the possibility that, had their tender not been accepted, they would have gone into liquidation, if that was their estimate of the likely consequences. While it was not disputed that the enquiries necessary to found such averments might be difficult, particularly, for example, in relation to discovering what other tenders were received in respect of the works, and also in relation to the availability of other work which the pursuers might have sought, it was submitted that such enquiries were necessitated by the absolute rule expressed in the speech of Lord Hoffman.

In reply, counsel for the respondents reminded us that no action should be dismissed on the ground of irrelevancy unless "it must necessarily fail even if all the pursuer's averments are proved": cf. the speech of Lord Normand in Jamieson v. Jamieson 1952 S.C. (H.L.) 44, where his Lordship adds that the test of relevance is the same for all actions. The same principle was applied in Miller v. South of Scotland Electricity Board 1958 S.C. (H.L.) 20: cf. the speech of Lord Keith or Avonholm at page 33, "In claims of damages for alleged negligence it can only be in rare and exceptional cases that an action can be disposed of on relevancy". Counsel for the respondents pointed out that the pursuers suffered no loss or damage immediately as a result of the receipt of advice which was given in breach of the duties condescended upon; there was no loss to be "restored" at that juncture. The defenders' negligence consisted of the giving of the negligent advice, but the loss and damage to the pursuers did not begin to be suffered until the pursuers, having prepared and submitted a tender based upon that negligent advice had that tender accepted by the employers. The consequence of the breaches of duty was that they were legally tied into a fixed price contract which they were obliged to perform whatever the cost to themselves. The law of Scotland in relation to determining the appropriate measure of loss and damage, as discussed by the Lord Ordinary, could not be said to exclude the approach advanced by the pursuers, namely that their loss could best be assessed by comparing and contrasting the costs which the pursuers were reasonably expected to incur in fulfilling their contract and the costs which they were in fact required to incur in order to do so. The alternative method suggested by the reclaimers would give rise to impossible tasks and require a great deal of pure speculation. It was, in any event, wrong to rely too heavily on English authorities in relation to the measure of loss and damages in Scottish cases, as the Lord Ordinary had pointed out. In this context, reference was also made to Prudential Assurance Co. Limited v. James Grant & Co. (West) Limited 1982 S.L.T. 423 and to G.U.S. v. Littlewoods 1982 S.C. (H.L.) 157. In the latter case Lord Keith of Kinkel, at page 178, clearly considered that there might be more than one approach to the measurement of the loss in money terms. Reference was made to the Opinion of the Court in Di Ciacca v. Archibald Sharp & Sons 1995 S.L.T. at page 381. In that case the Lord Ordinary had allowed a proof before answer in relation to the true measure of damages for reparation for professional negligence arising out of the purchase of a dwellinghouse. In the Inner House the view of the court was expressed thus:

The same approach should be adopted here. Indeed, in the ground of appeal in the present reclaiming motion, the reclaimers asserted "the quantum of damages in any case is a question of fact". We were also referred to Duncan v. Gumleys 1987 S.L.T. 729 and to the opinion of the Lord Justice Clerk at page 734 where he states, "I entirely accept that in assessing damages the court is not bound by any rigid rules" and goes on to give examples of the readiness of the court to relax rigid rules. His Lordship there adds that "...it is one thing to relax the rules, but it is another thing to award damages in the absence of evidence upon which to base the award". The respondents accepted that if they did not lead evidence upon which an award could properly be based then they would fail. However, it could not possibly be said, in the light of the authorities quoted that the pursuers' claim based on negligence and breach of contract would be bound to fail because the true measure of damages could not be ascertained on the pleadings. The respondents founded upon the statement by Lord Hoffman in the passage quoted by the Lord Ordinary:

The pursuers' position was that, having entered into the transaction on the assumption that the information was correct, the pursuers had bound themselves into a situation where they were required to meet unexpected and very substantial costs deriving directly from the errors in the information supplied to them. It was submitted that the sentence in the speech of Lord Hoffman immediately following that quoted was not necessarily an accurate and exhaustive statement of the law applicable in Scotland in this type of case.

I am satisfied that, although there is force in the argument presented by the reclaimers and which Lord Marnoch accepts, it cannot be said that, in the circumstances of this case, it would necessarily be inappropriate to seek to measure the loss suffered by the pursuers by reference to the extra cost approach which they have condescended upon. In so deciding, I am particularly impressed with the apparent unreality of the submission advanced by the reclaimers to the effect that the pursuers would require to obtain evidence and to make averments about what other tenders were received by the employers and to make other averments of a speculative character which the reclaimers claimed would be necessary. The question which we were being asked to decide in the reclaimers' favour at this stage was presented as a pure question of law in relation to the pursuers' averments. As noted earlier, it was not suggested by the reclaimers that the ambit of the proof before answer would be in any way affected by the upholding of their submission on relevancy at this stage. In the light of the approach to matters of relevancy which is to be found in the cases quoted I am satisfied that it is neither expedient nor appropriate to determine this allegedly abstract question of law on the basis of averments.

Although the Lord Ordinary expressed hesitation about the specification of the pursuers' pleadings in relation to certain matters, counsel for the reclaimers made it plain that no question of specification was to be argued in this court.

In the whole circumstances, I conclude that the Lord Ordinary reached the correct conclusion in allowing the pursuers and defenders a proof before answer of their respective averments on record, reserving all pleas to the relevancy.