Scottish Court of Session Decisions

[1] In this action the pursuers conclude for payment by the defenders jointly and severally of damages in the sum of £30,000, with interest from 19 October 1999, on averments of breach of warranty on the defenders' part. The first defenders are the firm of Stirrat Park Hogg and the partners thereof. The second defenders are SPH (Scotland) Limited. The pursuers aver that in December 1997 they entered into negotiations to lease ground floor shop premises at 394 Dumbarton Road, Glasgow ("the subjects") from Scottish Friendly Assurance Society Limited ("the landlords"). On or about 9 January 1998 their solicitors instructed the first defenders, whose business includes the carrying out of property searches, to carry out such a search to ascertain inter alia whether there were any outstanding local authority statutory notices affecting the subjects. They paid the first defenders' fee of £80 for that service. The first defenders accepted the instructions, and in due course on 13 January 1998 provided a certificate. Paragraph 17 of the certificate contained a statement that action had been taken by the Glasgow City Council or its predecessors under section 90 of the Housing (Scotland) Act 1987, that improvement works were completed in 1989, and that liability to pay to the local authority a share of the cost of those works remained with the signatory of the relevant Minute of Agreement and did not run with the property. The pursuers aver that in reliance on the truth and accuracy of the certificate they concluded missives to lease the subjects on a full repairing and insuring lease. Thereafter they discovered that the statement in paragraph 17 of the certificate was not true. No action had been taken under section 90, but there was an outstanding notice under section 16 of the Housing (Scotland) Act 1974. Work thereunder had not begun. The pursuers discovered that they were responsible for a share of the cost of the works. They aver that that share, net of grant entitlement, will be £28,574.40.

[2] The defenders admit that on the instructions of the pursuers' solicitors the first defenders provided the certificate. They further admit that the statement contained in paragraph 17 of the certificate was and is untrue and inaccurate in the respects averred by the pursuers. They do not admit that the pursuers entered into the missives in reliance on the certificate.

[3] The pursuers found their action on a warranty granted by the first and second defenders. The warranty is printed on the reverse of the certificate, is headed "SPH COMPREHENSIVE WARRANTY" and is in inter alia the following terms:

1. ...

[4] On the basis that the admitted inaccuracy in the certificate constituted a breach of that warranty, the pursuers proceed in Article 6 of the Condescendence to set out the loss which they claim to have suffered as a result. Since the relevancy of those averments was the subject of the debate which I heard, it is convenient to set them out in full. The pursuers aver:

In response, the defenders aver that the measure of loss applicable to any claim arising out of breach of the warranty is defined in condition 1 thereof, and plead that the pursuers' averments are irrelevant.

[5] The case was appointed to debate on the defenders' first plea-in-law so far as it related to the relevancy of the pursuers' averments of loss. Both parties lodged notes of argument. The defenders in theirs took, first, the point that the pursuers' averments of loss did not adhere to the approach to quantification which, in terms of condition 2 of the warranty, was the only permitted approach. In addition the defenders gave notice of various points of criticism of the specification of the pursuers' averments of loss. In the event, however, it was agreed that the debate would be confined to the first point alone. Although, since the debate was in respect of the defenders' preliminary plea, Mr Hanretty for the defenders made his submissions first, I find it convenient to set out first my summary of the submissions made for the pursuers by Miss Crawford.

[6] The starting point of the pursuers' submissions was the general rule that the object of an award of damages was to put the pursuers in the position in which they would have been had the defenders fulfilled their obligations. The assessment of such damages was a question of fact. The pursuers offer to prove, as their primary approach to quantification of their loss, that had they known the true position in relation to the repair obligation under the outstanding statutory notice, they would either have had the landlords assume responsibility for the relative costs or would not have entered into the lease. On that basis the repair costs which will in the event fall upon them was a proper measure of the loss which fairly and reasonably arose naturally and directly from the defenders' breach of warranty. The repair costs offered a basis on which the pursuers' losses could be ascertained with reasonable certainty. The alternative approach, to which the pursuers' averments also made reference, was to assess the diminution in the value of the subjects resulting from the obligation to pay a share of the cost of the repair works. It was legitimate to adopt alternative approaches to the quantification of loss. The alternative approach offered, however, a less certain means of measuring the pursuers' loss. In these circumstances the proper course was to allow a proof before answer, admitting to probation the pursuers' whole averments of loss, both in support of the "repair costs" approach and in support of the "diminution in value" approach.

[7] The terms of the warranty were not, it was submitted, such as to exclude that approach. In the first place, the language in which the warranty sought to define the quantification of loss was not apt to deal with the circumstances of the present case, where the context in which the certificate was obtained was a proposal to take a lease of subjects rather than to purchase them. In particular, the measure provided by condition 1(b) - the difference between the price paid and the "true value" - could not readily be applied to a lease, particularly when "true value" was defined in terms of a price paid by a willing buyer to a willing seller. Secondly, if the language of the warranty was capable of being applied in the case of a lease, the common law approach to the assessment of damages could only be excluded by the use of unambiguous unequivocal language. That had not been done. For the defenders to succeed in laying down an exclusive rule for the quantification of damages for breach of their warranty, they required to use clear words of limitation, exclusion or restriction. They had not done so. In support of those submissions, Miss Crawford cited Bem Dis A Turk Ticaret S/A TR v International Agri Trade Co. Ltd, The "Selda", [1999] 1 Lloyd's Rep. 729. In that case the sellers sold to the buyers a quantity of tapioca c. & f. f.o. two safe Turkish ports on a named vessel, the Selda. The sale was on GAFTA 100 terms, clause 28 of which provided:

The buyers defaulted, and the sellers made a claim against them, which included the sums they had had to pay to the owners of the Selda for the cancellation of the charter. The buyers argued that they were not liable for those sums. It was held by the Court of Appeal (1) that the sellers were entitled in terms of section 50(2) of the Sale of Goods Act 1979 to the loss directly and naturally arising in the ordinary course of events from the buyers' breach of contract, and (2) that the wording of clause 28 was nothing like clear enough to have the effect that the parties to the contract intended to exclude remedies for its breach which would otherwise arise by operation of law; the words "shall be based" in sub-paragraph (c) were not the same as "shall be limited to". Miss Crawford submitted that condition 1 of the warranty in the present case was no clearer. It was insufficient to exclude the pursuers' claim for damages measured in accordance with the relevant common law approach to quantification, or to render the "difference between price and true value" approach the only legitimate one.

[8] Mr Hanretty for the defenders did not dispute the soundness of Miss Crawford's submissions about the general rules for the assessment of damages for breach of contract. He submitted that the crux of the matter was to be found in condition 1 of the warranty. The pursuers' case was expressly laid as a claim in respect of the defenders' breach of warranty. The warranty in its terms clearly defined the measure of damages to be paid in the event of breach of warranty, namely the amount of the defenders' fee (condition 1(a)), plus the excess of price over true value (condition 1(b)), plus interest from the date of intimation of claim (condition 1(c)), subject to a cap, where negligence was not alleged, of £100,000 (condition 2(b)). It was not an exclusion of a common law claim for damages for breach of contract, but a measure of the warranty granted by the defenders. If the warranty had not been granted, the pursuers would have had a claim for breach of contract, but would have had to support it by averments that the error in the property certificate was due to negligence on the defenders' part. By granting a warranty, the defenders had conferred on the pursuers a claim, independent of negligence, which they would not otherwise have had. They had, however, in conferring that claim defined how it was to be measured. If the pursuers took advantage of the additional right conferred on them by the warranty, they were bound by its terms as to quantification. Mr Hanretty sought to distinguish The "Selda". He submitted that it was concerned with breach of a bilateral contract, whereas the present case was concerned with a claim for breach of a unilateral warranty. Here the language of the warranty was clear and should be given effect according to its terms. That being so, the averments underlined in the passage quoted from Article 6 of the condescendence in paragraph [4] above should not be admitted to probation.

[9] In my opinion, it may be difficult, but not impossible, to apply the warranty in the case of a certificate obtained in connection with the taking of a lease. Before turning to examine the language of the warranty I note the inconsistency of the pursuers' position in this regard, arguing that the warranty is not expressed in language that is capable of being applied in the case of the taking of a lease, while at the same time in just such a case founding their claim squarely on that same warranty. Be that as it may, however, it seems to me that the warranty contains within its terms the means of applying it in the case of a lease. No doubt at first sight condition 1(b) with its references to "price" and "true value" seems better adapted to the case of the outright purchase of the subjects in question. But "property" is defined as including "any heritable interest", which must in my view include a lease which, like the one in the present case, is registered in the Land Register. Moreover, "price" is defined as meaning the consideration paid or to be paid for the property in question, which has the effect of broadening the prima facie meaning of the word. No doubt the definition of "true value", with its reference to "willing buyer" and "willing seller" harks back to outright sale. In my view, however, means can be found of adapting that to the context of a lease. I am therefore not persuaded that the pursuers' argument is advanced by an attempt to read the language of the warranty narrowly as applicable only to a case where the certificate was obtained in connection with an outright sale and purchase of heritable subjects.

[10] It is, in my view, worth considering what the position would have been if there had been no warranty. No doubt an erroneous certificate might nevertheless in some circumstances have given rise to a claim for damages. But it seems to me that the obligation which the law would have implied into the contract to provide a property certificate would have been an obligation to exercise in doing so the degree of knowledge, care and skill reasonably to be expected of a competent property searcher. In other words, to make a claim for damages for loss caused by reliance on an inaccurate certificate, the pursuers would, in the absence of the warranty, have had to prove negligence on the part of the defenders. I am not persuaded that Mr Hanretty was right to characterise the warranty as a unilateral obligation. It seems to me to be part of the bilateral contract between the searchers and the clients engaging their services to obtain a property search certificate. It is part of what the defenders offer to provide in return for their fee. It is, however, something that goes beyond what the pursuers would obtain if the contract did not incorporate the warranty, and it is something that the defenders offer on their terms. In that situation, it sees to me that the client who relies on the warranty may do so only according to its terms. He cannot take the benefit of the warranty but reject its inherent definition of its extent. It is not a case of the language of the warranty taking away something that the pursuers would have at common law. It is, rather, a matter of that language defining the extent of the extra benefit that the defenders are offering in the form of the warranty. On that analysis, I regard The "Selda" as dealing with a different type of case.

[11] Once condition 1 is seen as defining the extent of the benefit conferred by the warranty rather than as attempting to restrict a common law claim for damages for breach of contract, there is, in my view no difficulty about the clarity of its language. There is no need for it to use words of limitation, exclusion or restriction. It is sufficient for it to say, as it does, what the measure of loss is.

[12] Accordingly, I am of opinion that, in a claim founded on the warranty granted by the defenders, the only relevant heads of loss are (a) the fee paid to the defenders for the certificate, (b) the amount by which the price paid exceeded the true value, and (c) interest on both of these from the date of intimation of the claim. The pursuer has made relevant averments in respect of heads (a) and (c). There are also averments relevant to support the claim under head (b). In my view, averments about the cost of the repair work could relevantly be made in support of the assessment of the "true value", but the pursuers' present averments about repair costs are not cast in that supportive role, but are instead set out as the primary measure of loss. So cast, they are in my view irrelevant.

[13] I am therefore minded to sustain Mr Hanretty's submission and exclude from probation the averments underlined in the quotation from Article 6 of the condescendence set out in paragraph [4] above. However, it seems to me that there are further preparatory steps that may require to be taken before it is appropriate to allow a proof before answer. I shall accordingly put the case out By Order for discussion of future procedure.