Scottish Court of Session Decisions

This action came before me on the procedure roll, when counsel for the defenders moved me to dismiss the action and counsel for the pursuer moved me to allow a proof before answer. The pursuer seeks damages from the defenders, who carry on the business of chartered surveyors, for loss, injury and damage which she alleges she has suffered as a result of the breach of contract et separatim fault and negligence of the defenders. The action was raised in 1992 and has followed a leisurely progress since then. It was appointed to the procedure roll on 29 June 1994. It first called on the procedure roll on 21 March 1997, but the hearing was discharged on the pursuer's motion. The closed record was amended, on the pursuer's motion, on 18 January 1996 and on 31 March 1998. Despite there having thus been ample opportunity for setting out the pursuer's case on record, her pleadings are by no means a model of clarity. I shall start by attempting to summarise them, so far as necessary for present purposes.

The pursuer avers that in or about July 1987 she agreed to purchase the property consisting of the second floor flat at 69 York Place, Edinburgh ("the property") from Mr John Macphail. The property is within a Georgian tenement. The pursuer and Mr Macphail were acquainted and carried on business together and the purchase of the property was arranged privately between them. The pursuer and Mr Macphail instructed Messrs Ketchen & Stevens, W.S., Solicitors, Edinburgh ("Ketchen & Stevens") to act on their behalf, relative to the necessary conveyancing for the purchase of the property. The pursuer and Mr Macphail did not require to instruct different firms of solicitors, and gave consent to Ketchen & Stevens to act for both of them. The pursuer required to borrow money to finance the purchase of the property from Mr Macphail. She contacted the Bank of Scotland. The Bank required that a survey report be obtained relative to the property. Mr Macphail acting on behalf of the pursuer contacted Ketchen & Stevens and requested them to instruct an appropriate surveyor to survey the property and compile a report. Ketchen & Stevens instructed the defenders to inspect the property and compile a report for the purposes of valuation and suitability for a bank loan. In so doing they were acting as agents on behalf of the pursuer who was the purchaser of the property and the person to whom the loan was to be advanced. The defenders agreed to do so, and thereupon a contract was entered into between the defenders and the pursuer whereby in consideration of a professional fee the defenders would inspect the property and compile a survey report relating to the property. On or about 3 August 1987 the defenders inspected the property. They compiled a report dated 6 August 1987. The report was produced and both counsel invited me to take account of its terms. It is addressed to Ketchen & Stevens and marked "For the Attention of Mr Boyd". It is headed "Re: Mr McPhail - 69 York Place, Edinburgh". The opening sentences are in these terms:

After discussion of the property and its condition it concluded, under the heading "VALUE":

In response to averments by the defenders, the pursuer admits that the defenders were informed by Mr Boyd of Ketchen & Stevens, in a telephone call at about 2.50pm on 31 July 1987, that Mr Macphail intended selling the subjects to the pursuer. She further avers (in a passage which as printed in the amended closed record is textually corrupt, but the text of which I established in discussion with counsel):

The pursuer avers that on the basis of the report the Bank of Scotland agreed to lend to her a sum of money to enable her to purchase the property and that she became the heritable proprietor of the property in or about August 1987 and has remained the heritable proprietor of the property. The Bank required that buildings insurance cover be obtained in respect of the property and arranged and obtained a buildings insurance policy for the property through Bank of Scotland Insurance Services Limited. The insurers were Sun Alliance. The value of the insurance cover obtained was £110,000. In instructing insurance cover to that value the pursuer relied upon the report compiled by the defenders, which had been made available to the Bank of Scotland by Ketchen & Stevens on behalf of the pursuer. The reinstatement value contained in the report was used as a basis for the insurance. Subsequent inflationary increases in the reinstatement value for which the flat was insured were based on the valuation in the report. The pursuer avers:

The pursuer goes on to aver, in summary, that the defenders based their recommendation of reinstatement value for insurance purposes on a measurement of the property of 1084 square feet, whereas its gross area was in fact 1637 square feet. In 1987 recommendations made by the defenders and other surveyors as to the amount of insurance cover for residential properties in Edinburgh were based upon (a) a rate per square foot based upon type of property involved and (b) the gross internal floor area of the relevant property. The defenders based the figure of £110,000 as the recommended insurance cover on a factor of about £101 per square foot applied to the measurement of 1084 square feet. This represented the cost of rebuilding a Grade A listed Georgian tenement building. In or about February 1991 the property and other properties in the same tenement were severely damaged by fire. The insurers paid the sum of £139,148 to the pursuer in full and final settlement of her claim. Had the insurance cover been based on the figure of 1637 square feet the insurance cover, as of the date of the damage to the property, would have been £209,986.98 after the application of inflationary increases. The cost of repair to the property and the pursuer's share of repairs to other parts of the tenement block exceed this latter figure. The pursuer's principal claim against the defenders is, as I understand it, for the difference between £139,148 and £209,986.98. The pursuer's averments about the damages she seeks are, however, by no means straightforward; but since counsel for the defenders did not advance any argument about their relevancy or specification I propose to say no more about them.

The pursuer avers that it was an implied term of the contract that the defenders would in inspecting the property, compiling the report, and providing the recommendation as to insurance cover act in the manner of reasonably competent surveyors. It was their duty to measure the gross internal floor area of the property reasonably accurately and recommend a reasonable value for insurance cover accordingly. The defenders breached the said implied term. They based their recommendation as to insurance cover on a measurement of the gross internal floor area of 1084 square feet when it was in fact 1637 square feet. No reasonably competent surveyor would have underestimated a gross internal floor area to such an extent, and in particular the gross internal floor area of the property to such an extent. The pursuer further avers that, separatim, her loss, injury and damage were caused by the fault and negligence of the defenders. They knew or ought to have known that the purchaser of the property and the person to whom the loan was to be advanced (the pursuer) would rely upon the said recommendation as to the amount of insurance cover. It was the duty of the defenders in inspecting the property, compiling the report and providing the recommendation as to insurance cover to act in the manner of reasonably competent surveyors. It was their duty to measure the gross internal floor area of the property reasonably accurately. They breached these duties. They based their recommendation as to insurance cover on a measurement of the gross internal floor area amounting to 1084 square feet when the said area was in fact 1637 square feet. No reasonably competent surveyor would have underestimated a gross internal floor area to such an extent, and in particular the gross internal floor area of the property to such an extent. The loss injury and damage suffered by the pursuer were a reasonably foreseeable consequence of the defenders' fault and negligence.

In moving me to dismiss the action as irrelevant, counsel for the defenders advanced a number of submissions about the circumstances in which persons such as the defenders came under a duty of care. In the course of these submissions counsel referred to the decisions of the House of Lords in Smith v Bush [1990] 1 AC 831, Caparo Industries Plc v Dickman [1990] 2 AC 605 and South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191; and to Shankie-Williams v Heavey [1986] 2 E.G.L.R 139, Beaumont v Humberts [1990] 49 E.G. 46 and Smith v Carter 1995 S.L.T. 295. Counsel submitted that the authorities established that a duty of care in respect of negligent advice would be imposed only if a number of points were satisfied: (a) that it was foreseeable that the recipient of the negligent advice was liable to suffer loss and damage; (b) that there was a relationship of sufficient proximity between the parties; (c) that the defender knew or ought to have known with a high degree of probability that some identifiable person would act upon the advice given for a specific purpose of which the giver of the advice was aware; and (d) that it was just and reasonable to impose liability. In this case there were no sufficiently specific averments of a relationship of sufficient proximity between the parties to found a duty of care. There were no sufficiently specific averments that the pursuer relied, or was indeed entitled to rely, upon the advice given by the defenders, nor that the defenders knew of any such reliance. If the duty existed, it extended only to the very transaction which the defenders had in mind at the time that the instructions were taken. The averments of agency were so unspecific as to be irrelevant. One could not tell what Ketchen & Stevens told the defenders. There was no averment that the defenders knew for whom the report was being compiled or for what purpose, and certainly not the purpose that the pursuer claimed. The only averment about the purpose was that the report was for the purposes of valuation and suitability for a bank loan. That was nothing to do with a sale. In any event, no mention was made of insurance in the instructions given to the defenders, who accordingly had no knowledge of reliance on the report for that purpose, and the pursuer was not entitled to rely on it for that purpose. Accordingly, even if all the pursuer's averments were proved, she could not succeed and the action was accordingly irrelevant: see Jamieson v Jamieson 1952 S.C. (H.L.) 44.

In moving me to allow a proof before answer, counsel for the pursuer submitted that the pursuer offered to prove that the very transaction which was in contemplation at the time when the defenders were instructed did take place. The pursuer set out a case to the effect that the defenders knew that Mr Macphail was selling the property to the pursuer and that a loan was to be obtained. They knew of the identity of the proposed lenders. The pursuer's interest and likely reliance on the report were clear. Counsel did not take issue, except on points of detail, with the propositions which could be derived from the authorities referred to above, but added for good measure reference to Bourne v McEvoy Timber Preservation Limited (1975) 237 E.G. 496 and Hingorani v Blower (1976) 238 E.G. 883. She submitted however that the pursuer's case was not that the defenders were told that the solicitors acted for Mr Macphail, but that they were told to inspect the property and do a report for the valuation and suitability of the property for a bank loan in circumstances where Mr Macphail intended selling the property to the pursuer and that the Bank of Scotland was to be the lender. The surveyors here knew about the particular sale transaction, the identity of the proposed purchaser, and that the report was needed in connection with a loan in circumstances where a valuation in general terms had been asked for and which was wide enough to cover the question of insurance value. It was artificial and fallacious to separate the question of insurance from the sale transaction. The transaction covered the whole of what was done and could reasonably have been anticipated as likely following the defenders' valuation.

Unsatisfactory as the pursuer's pleadings are in many respects, I am not persuaded that the test in Jamieson v Jamieson is satisfied and that it is appropriate to dismiss the action as irrelevant at this stage. I can state my reasons quite shortly, in view of the approach adopted by counsel for the pursuer. Counsel did not suggest that, if the instructions were given to the defenders on behalf of Mr Macphail as seller of the property, in preparing that report the defenders came under a duty of care to the pursuer as the purchaser. I need not therefore discuss the circumstances in which surveyors may come under a duty of care to persons other than those on whose behalf they are instructed. The pursuer avers that in instructing the defenders to inspect the property and compile a report Ketchen & Stevens were acting as agents on behalf of the pursuer who was the purchaser of the property and the person to whom the loan was to be advanced, that the defenders agreed to do so, and thereupon a contract was entered into between the defenders and the pursuer. In light of this, I do not think it is possible simply to read the heading of the report dated 6 August 1987, where Mr Macphail's name appears, and conclude from that it the defenders were under the impression that the instructions had been given on behalf of Mr Macphail as the seller. Apart from this, there is nothing about the terms of the report itself which appears to me to point unequivocally to its having been prepared for the seller. Its terms appeared to me to be at least compatible with its having been prepared for the purchaser, that is to say the pursuer. I do not think it appropriate to speculate at this stage as to how Mr Macphail's name appeared in the heading. The exact instructions given by Ketchen & Stevens to the defenders, in the light of what they were told by Mr Macphail, the defenders' understanding of those instructions and any explanation for the appearance of Mr Macphail's name in the heading of the report all appear to me to be matters which would require to be explored in evidence before a view could be taken of them. At this stage, the pursuer is in my view entitled to take a stand on her averments on record, which appear to me to be sufficient for their purpose.

The pursuer's primary case is therefore that she was in a contractual relationship with the defenders and that the report was prepared by the defenders in performance of their contractual duties. A duty to take reasonable care is of course implied in any such contract, and if the defenders failed to exercise reasonable care in the preparation of the report and thereby caused loss and damage to the pursuer, she would be entitled to damages for breach of contract. I have difficulty in seeing what useful purpose is served by the pleading of a separate case of fault against the defenders, in very similar terms to the case of breach of contract, but after some hesitation I have decided that I should allow a proof before answer of these averments also. In South Australia Asset Corporation v York Montague Limited, Lord Hoffmann said that the law implies into a contract for valuation a term that the valuer will exercise reasonable care and skill; that the relationship between the parties also gives rise to a concurrent duty in tort; but that the scope of the duty in tort is the same as in contract. I was not addressed fully on this passage or on the authorities to which Lord Hoffmann made reference, but I am prepared to accept its applicability to the present case on the understanding that any delictual duty owed by the defenders to the pursuer was concurrent with an implied term in a contract between them and was accordingly predicated upon the existence of a contract between them. Counsel did not seek to argue that the averments of fault were based on an alternative set of facts, in particular the existence of a contract between Mr Macphail and the defenders, and it is therefore on the footing that the pursuer's whole case is based upon her averment that a contract was entered into between her and the defenders that I am prepared to allow a proof before answer.

Given that the report expressly recommended a figure for insurance cover I can see no reason why, if the report was made pursuant to a contract between the pursuer and the defenders and the pursuer acted on the recommendation and as a consequence suffered loss and damage, she should not be entitled to damages from the defenders. On what basis the recommendation was made, whether or not it was based on an underestimate of the gross internal floor area of the property, whether the pursuer acted on the recommendation and continued to do so and whether and to what extent her loss and damage were reasonably foreseeable all appear to me to be matters in respect of which evidence would require to be led before questions of relevancy arising from them could be considered.

For these reasons I shall allow to parties a proof before answer of their respective averments, leaving all pleas standing at this stage.