Scottish Court of Session Decisions

Hughes v. Barratt Urban Construction (Scotland)Ltd [2002] ScotCS 87 (20th March, 2002)

OUTER HOUSE, COURT OF SESSION
	OPINION OF LORD CARLOWAY in the cause JOHN JOSEPH HUGHES, Pursuer; against BARRATT URBAN CONSTRUCTION (SCOTLAND) LTD, Defenders:   ________________

 

Pursuer: Smith; Dundas & Wilson, C.S.

Defenders: Sandison; MacRoberts

20 March 2002

1. The Contracts

1. The pursuer avers that in August 1982 he entered into missives with the defenders for the purchase of a property at Plot No. 145 Weavers Court, Monteith Row, Glasgow. The defenders were developing the area known as Weavers Court and their law agents had prepared standard form missives for purchasers to sign. Although the pursuer was unable to produce his own missives, he did lodge missives relating to a neighbouring plot which, it was accepted, were in their essentials identical to his own (No. 6/2 of process). These missives reveal that the purchase was of a house, presumably not then completed, specified in a schedule by house type and size and located on a general site layout plan. The whole terms of missives were incorporated brevitatis causa into the pursuer's pleadings. One clause was also reproduced in full as follows:

"8. It is understood that you are on the Scottish Register of House Builders maintained by the National House Building Council..., that the house will be erected to meet the said Council's Specifications and that they will issue a Certificate after completion of the house. I am...agreeable to enter into the Agreement with you in the form prescribed by the said Council."

Although not specifically quoted in the pleadings by either party, a further clause read:

"11. It is understood that you will maintain the dwellinghouse for six months after I enter into possession and shall rectify any defects certified by your Maintenance Inspector...No further representation or guarantee as to materials, construction, workmanship, or any other matter is implied on your part."

For the sake of completeness, there was also a "non supersession clause" covering the missives relative to the subsequent disposition of the house to the pursuer. The agreement referred to in the missives was the Scottish House Purchaser's Agreement. Again, the pursuer was unable to produce his own copy but that of a neighbour was lodged (Pro. 6/3) and once more agreed as being in identical terms, where relevant, to that of the pursuer. It was incorporated in full brevitatis causa but clauses 3 and 5 were also quoted in full. The Agreement provided:

"1. The rights conferred upon the purchaser under this Agreement shall be in addition to any rights he may have against the vendor under common law or any other agreement relating to the dwelling.

...

3. The vendor warrants to the purchaser that the dwelling has been or will be built in an efficient and workmanlike manner and of proper materials and so as to be fit for habitation.

...

5. The vendor shall not be liable to the purchaser in respect of any breach of the warranty set out in Clause 3 if the defect or damage caused by that breach does not first appear until after the expiry of the Initial Guarantee Period unless and until the purchaser has made a claim against the Council under Section III of the Insurance Policy in respect of that defect or damage and the Council has disclaimed liability in respect of that claim or any part of it; any relief obtained from the Council shall be taken into account in mitigation of damages against the vendor."

6.(a) The vendor shall.....remedy any defect in the dwelling caused by a breach of the Council's requirements and any damage to the dwelling caused by such defect provided that such defect or damage first appears and is reported to the vendor in writing within the Initial Guarantee Period; the vendor's liability under this clause shall be...without prejudice to his liability under Clause 3...

12. Nothing contained in any other contract made between the purchaser and the vendor relating to the dwelling shall restrict or over-ride in any way whatsoever that which is contained in this agreement and in so far as any term in any such other contract is inconsistent with the terms of this agreement the terms of this agreement shall prevail provided that a higher standard or additional requirements called for by the contract shall not be deemed inconsistent.

...

14 (a) In this agreement

"The Council's Requirements" means the Requirements for the design and construction of dwellings adopted by the Council...

...

"Damage" means damage to the dwelling caused by any defect.

"Defect" means a defect in the dwelling caused by the vendor's breach of any of the Council's Requirements and resulting in damage.

"Initial Guarantee Period" means the period of two years from the date of issue of the Notice of Insurance Cover..."

Curiously, there is also a definition of "Structural Defect" but that phrase does not seem to have been used elsewhere in the Agreement, which is unfortunate given its obvious connection with the problems in this case.

2. It was averred that the Notice of insurance cover had been issued by the National House Builders Council on 11 November 1982, but again only a Notice relating to a neighbour was produced (Pro. 6/4). It was not incorporated into the pleadings. The pleadings did refer to "the Insurance Policy" which was said to have provided for cover from the Council for a period expiring ten years from the issue of the Notice. The policy was not produced although, during the course of the process, the pursuer had been reminded of the need to lodge any documents founded upon in his pleadings. At all events, the broad structure envisaged by the Agreement was that any "defects or damage" discovered during the first two years (the Initial Guarantee Period) would be remedied by the defenders. Thereafter, any claim was to be directed against the NHBC under the insurance policy.

 

2. The Pursuer's Case on Record

3. The problem which arose was that in about August 1994, the pursuer noticed cracking in the brickwork of the house. After investigation, this was said to have been caused because the foundations had not been properly constructed by the defenders when they built it. In short, the house had been built on infill which had not been properly compacted. As a result, the stone columns supporting the house had moved. It was averred that:

"No reasonable contractor would have constructed the foundation in this way...Any such contractor would have known that to construct it in the way that it was in fact carried out would have resulted in a risk to the stability of the stone columns and therefore the structure of the dwellinghouse...It was not constructed in accordance with the standards of a reasonably competent builder."

The allegation was then that the defenders had negligently constructed the house. Although the averments of loss were not entirely clear in relation to whether the whole the house had, or required to be, demolished, the claim was in respect of £47,500 as representing, I think, the difference between the value of the house now and what it would have been worth had the foundations been adequate, together with some relatively small demolition costs and other expenses.

4. The pursuer sought to plead three different cases against the defenders. The first might reasonably be described as one based upon a breach of an express contract term. This was that:

"[The dwellinghouse] was not built in an efficient and workmanlike manner and of proper materials, as was required in terms of Clause 3 of the Agreement..."[Closed Record p. 15 E]

Secondly, the pursuer maintained a case based upon what was said to be an implied term of contract. This was averred as follows:

"Further it was an implied term of the contract to erect the dwellinghouse that it should be erected to a reasonable workmanlike standard using proper materials suitable for that purpose."[8 B-C]

Based also upon the same averments (supra) in relation to the express term it was said that there had been a breach of the implied term.

5. Thirdly, the pursuer included a case based upon quasi-delictual principles. No doubt conscious of the potential difficulties which can arise in such a case the pleader had commenced this case by averments covering the time when the missives were entered into. The case commenced:

"[The defenders] were acting in the course of their business as housebuilders...So far as the pursuer was concerned, the design and construction of the property was undertaken by the defenders. Neither of the parties contemplated that the pursuer of consultants appointed by him or any other party would supervise or inspect the construction of structural elements of the property such as the foundations. No such supervision or inspection took place. In the circumstances, the defenders assumed responsibility to the pursuer for the construction of the structural elements of the property such as the foundations. The defenders knew or ought to have known that the pursuer would rely upon them in this respect, as in fact he did."

With this preamble, the pursuer then averred:

"Further, and in any event, the pursuer's loss and damage were caused by the fault of the defenders. It was the duty of the defenders to construct the property in accordance with the standards of reasonably competent builders and developers. In the circumstances, the defenders assumed responsibility to the pursuer to take reasonable care in the construction of structural elements of the property, such as the foundations. The defenders owed the pursuer a duty of care in that respect which extended to the prevention of the type of loss and damage suffered by the pursuer in this case."

6. All three cases were encompassed in a global plea-in-law which read:


"The pursuer having suffered loss, injury (sic) and damage through the breach of contract et separatim fault of the defenders is entitled to reparation from them therefor."

I pause to observe that it would have been far more appropriate at least to have had a separate plea-in-law to cover what were three quite distinct legal propositions.

3. Submissions

1. DEFENDERS
2. The defenders moved that their second plea-in-law, to the relevancy of the action, be sustained and the action dismissed. In relation to the express term case, the pursuer had quoted two clauses but was apparently founding upon only one when it came to alleging a breach. First there was clause 8 of the missives, which said that the house would be built to meet the NHBC "Specifications". But none of the problems with the house were said to have been in breach of any NHBC Specifications or Requirements. Secondly, there was clause 3 of the Agreement, which was founded upon. But, maintained the defenders, any claims under that clause were excluded by the operation of clause 5, which provided that any such claims arising, like this one, after the Initial Guarantee Period had first to be directed against the NHBC under the insurance policy. There was no offer to prove that such a claim had been made despite a specific call to state whether this had been done and, if so, with what result. The pursuer intended to argue that the need to claim under the policy had disappeared because the policy only subsisted for ten years and the problems here arose after that time. However, there was no mention of ten years in the Agreement. If anything, the combination of Agreement and ten year policy would carry with it the implication that the parties envisaged that both the NHBC and defenders' liability was extinguished after ten years but not that the defenders' liability would cease after two years but revive after ten. In addition, if the pursuer was making a claim then it would have to be in respect of a "defect" or "damage" as defined in the agreement but such a claim depended upon a breach of one of the NHBC Requirements. No such breach had been averred. That such a breach was required followed logically from the nature of the NHBC scheme, albeit that clause 3 on its own did not mention "defect" or "damage". This was because the scheme was based upon a system of inspection and insurance. The insurance would cover only certain defined defects and that is why a claim was first required against the policy.
3. So far as the case based upon the purported implied term was concerned, the defenders submission was that there could be no implied term in the missives, which was where the pursuer alleged it arose, since these missives had specifically stated in clause 11 that no further representation or guarantee as to materials, construction, workmanship, or any other matter on the part of the defenders was to be implied. Furthermore, there were no averments here concerning the need for any clause to be implied as a necessary adjunct to making the contract efficient in business terms (Rockcliffe Estates v Co-operative Wholesale Society 1994 SLT 592, Lord MacLean at 594).
4. The delictual case was also irrelevant. The relationship between the parties was contractual and any delictual liability could not be greater than the liability defined in the contract, even if, in abstract, a duty of care existed (Tai Hing Cotton Mill v Liu Chong Hing Bank [1986] AC 80 at 107). Furthermore, the pursuer did not offer to prove that the defect in the house caused any imminent or apprehended damage to any person or property, other than to the house itself. In such circumstances, there was no duty to take reasonable care arising to build the house in a defect free manner (Murphy v Brentwood District Council [1991] 1 AC 398, Lord Keith of Kinkel at 468-470; Lord Bridge of Harwich at 475-6; Lord Oliver of Aylmerton at 484, 489-491, 497-8; Department of the Environment v Thomas Bates and Son [1991] 1 AC 499, Lord Keith at 519). The case of Junior Books v Veitchi Co 1982 SC (HL) 244 (Lord Fraser of Tullybelton at 265, Lord Keith at 267) was a very special case and, even before Murphy v Brentwood District Council (supra), had been doubted in D & F Estates v Church Commissioners of England [1989] AC 177 (Lord Bridge at 201). Although the pursuer had attempted to plead a "reliance" case of the type found in Junior Books v Veitchi Co (supra), in the contractual situation, such an attempt must fail. The Court should therefore refuse probation in respect of the delictual case and repel the pursuer's first plea to that extent.
5. PURSUER
7. The pursuer maintained that a proof before answer should be allowed on all his averments. Dealing with the express term case, he submitted that the missives and the Agreement required to be read together. However, clause 3 in the Agreement was a "stand alone" term in that it did not confine itself to defects or damage as specified in clause 5 and thereafter defined. Since it was not so confined but the provisions of clause 5 were, proceeding under clause 3 could not be limited by clause 5 unless the defenders proved that the claim under clause 3 related to damage or a defect as so defined. They did not seek to do so. It may be a narrow point but the pursuer offered to prove that the problems were because of a clause 3 breach and they were entitled to such a proof.
8. The pursuer protested about the defenders' use of clause 11 to exclude an implied term case, in the absence of there being no averments specifically founding upon that clause as excluding an implied term. Had it been pled, the pursuer might have attempted to challenge it under the Unfair Contract Terms legislation on the basis that the contract here was not simply one for the sale of heritage but for services relative to the construction of the house. In any event, clause 11 appeared to be in conflict with clause 3 of the Agreement.
9. In defending the quasi delictual case, counsel accepted that the delictual liability could be no greater than that contracted for but that did not make it irrelevant. However, the pursuer was pleading a "reliance" and "assumption of responsibility" case and that case was sufficiently relevant to go to proof (Junior Books v Veitchi Co (supra) Lord Roskill at 273, 276-7, Lord Brandon of Oakbrook (dissenting) at 280-1; Murphy v Brentwood District Council (supra), Lord Keith at 466, Lord Bridge at 481; D & F Estates v Church Commissioners of England [1989] AC 177, Lord Bridge at 201-2). After the facts were established, it might be possible to regard the case as a complex structure situation (McLeod v Scottish Special Housing Association 1990 SLT 749 OH, Lord Coulsfield at 751-2; Parkhead Housing Association v Phoenix Preservation 1990 SLT 812 OH, Lord Prosser at 817).

4. Decision

1. EXPRESS TERM
2. The clause founded upon by the pursuer as having been breached is clause 3 of the Agreement. This clause provides that the house must be built in an efficient and workmanlike manner and of proper materials and so as to be fit for habitation. The pursuer has pled a relevant case so far as a breach of that clause is concerned having regard to the averments concerning the defective infill. The question is then whether there is anything else in the missives or Agreement which, as a matter of relevancy, prevents the pursuer from recovering damages by virtue of a breach of that clause. The defenders found upon clause 5. This clause prohibits claims under clause 3 where "the defect or damage caused by that breach" occurs outwith the Initial Guarantee Period but has not been the subject to a claim under the insurance policy. However, the word "damage" in clause 5 is restricted to damage caused by a "defect" and "defect" for that purpose is defined as "Defect" means a defect caused by a breach of any of NHBC Requirements and resulting in damage. The limitations in clause 5, looking solely at the contractual terms and such relevant material on this subject as appears in the pleadings, appear to be confined to the situation where the breach of clause 3 complained of is also a breach of the NHBC Requirements. No doubt, as was suggested by the defenders, this may be because the relevant insurance will be confined to risks relative to the Requirements but, in the absence of the policy, I cannot determine this. Although this cannot be used to determine the relevancy of the pursuer's case, I note that the defenders do not seek to prove that the damage averred relative to the clause 3 breach also falls within the meaning of the defined terms "damage" and "defect" in clause 5 so as to exclude a claim. In the circumstances, I consider that the pursuer has plead a relevant claim under clause 3 which is not, as a matter of relevancy, excluded by clause 5.
3. I should add that I do not think that it was, or is, necessary for the defenders to refer specifically to clause 5 in their pleadings and to set out how they thought clause 3 ought to be construed in the light of it. The pursuer quoted both terms in full and incorporated the whole of the Agreement in his pleadings. The defenders were entitled to develop an argument based upon a construction of the contractual terms to the effect that clause 5 excluded the pursuer's claim without specifying anything further. This is especially the case given that the defenders provided notice of this line in a detailed Note of Argument lodged some months in advance of the Procedure Roll debate. However, in light of my decision upon relevancy, I do consider that if the defenders seek to rely upon the limitations expressed in clause 5, then it is for them to plead that the damages claimed fall within its ambit under reference to the elusive NHBC Requirements. On the other hand, so far as the effect of clause 5 is concerned, there is no reference to it being limited to a period of ten years. If, therefore, it is proved that the damages claimed under clause 3 do fall within the ambit of clause 5 because they arise from a contravention of the Requirements then, standing the fact that whether they made a claim falls within their knowledge, I consider that it will be for the pursuer to aver and prove that he has made a claim against the NHBC in respect of that damage and the NHBC has disclaimed liability in respect of it. As the defenders commented at the debate, it is difficult to understand why the pursuer has not answered the defenders' calls to specify what has occurred by way of claim here unless it is that a claim has not been made or, if it has, not disclaimed.
4. For completeness, I will observe also that there is nothing in the terms of clause 5 or the rest of the Agreement to suggest that there is any question of liability dying and reviving according to the periods of time in the insurance policy. The defenders' liability does not disappear merely because of a requirement to claim against the Council. That liability is simply subject to an additional requirement that such a claim be made and rejected after the two year Initial Guarantee Period. Finally, on the issue of express terms, in relation to the clause 8 reference, there is no case based upon a breach of clause 8 but since that clause is the link between the missives and the Agreement, clause 3 of which is ultimately founded upon, I do not think reference to it is irrelevant and I will leave that reference standing.
6. IMPLIED TERM
7. I can see no room for implying into the missives a term of the type averred in a situation where the parties have already set out their rights and obligations relative to the standard of workmanship and materials used on the house in the written contractual materials. The implied term claimed bears a remarkable resemblance to the express term in clause 3 and, where there is already an express term covering a particular aspect of contracting parties' relationships, it is somewhat difficult to understand why the Court should imply a slightly different term on the same topic. Although the need for "business efficacy" (Rockcliffe Estates v Co-operative Wholesale Society (supra) Lord Maclean at 594 under reference to Lord Jamieson in McWhirter v Longmuir 1948 SC 577 at 589) may not be the ultimate test where the contract is not a commercial one, looking to the presumed intention of the parties, there is still no basis for the implication of a term such as that contended for.
8. I would have reached this view irrespective of the express terms of clause 11 which makes it clear that no other representation as to materials, construction or workmanship is to be implied. However, that clause makes the matter of intention even clearer to the effect that no implied term of the type contended for is to be permitted. In relation to clause 11, I do think it is legitimate for the defenders to found upon it, without specific reference in their pleadings, where the pursuer has incorporated the whole of the missives in his pleadings. It is for the pursuer to plead the facts and circumstances giving rise to the implication of a term and, having incorporated the whole contract, the defenders are entitled to found upon any term of that contract which might point away from the implication contended for. I should add also that the pursuer cannot claim to have been taken by surprise by the point made given the express reference to clause 11 by the defenders in their Note of Argument.
9. DELICTUAL CASE
10. It being conceded that any delictual case cannot involve duties greater than those which the parties have contracted for, it is difficult to see what practical purpose the delictual case is intended to serve in the circumstances here. As Lord Scarman, delivering the opinion of the Privy Council in Tai Hing Cotton Mill v Liu Chong Hing Bank (supra at 107)

"Their Lordships do not believe that there is anything to the advantage of the law's development in searching for a liability in tort where the parties are in a contractual relationship... Though it is possible as a matter of legal semantics to conduct an analysis of the rights and duties inherent in some contractual relationships ... either as a matter of contract law when the question will be what, if any, terms are to be implied or as a matter of tort law when the task will be to identify a duty arising from the proximity and character of the relationship between the parties, their Lordships believe it to be correct in principle and necessary for the avoidance of confusion in the law to adhere to the contractual analysis: on principle because it is a relationship in which the parties have, subject to a few exceptions, the right to determine their obligations to each other, and for the avoidance of confusion because different consequences do follow according to whether liability arises from contract or tort, e.g. in the limitation of action. ...Their Lordships do not, therefore, embark on an investigation as to whether in the relationship... it is possible to identify tort as well as contract as a source of the obligations owed by the one to the other. Their Lordships do not, however, accept that the parties' mutual obligations in tort can be any greater than those to be found expressly or by necessary implication in their contract."

On this basis, where a case simply concerns the parties' economic relations, it is their contract which must be allowed to govern these relations and not any supposed quasi delictual duty. For that reason alone, I consider the delictual case here irrelevant.

11. Furthermore, in Murphy v Brentwood District Council (supra) Lord Keith made it abundantly clear (at pp 468-470) that there was no duty, outwith contract, upon a builder to avoid creating defects in the building itself. In so doing, he rejected the complex structure theory previously postulated by, amongst others, Lord Bridge in D & F Estates v Church Commissioners for England (supra at 206) and ultimately rejected by him in a house building situation in Murphy v Brentwood District Council (supra at 479). The pursuer has attempted to bring himself into a special category by pleading a case of reliance on the defenders' skills relative to housebuilding. He no doubt had in mind the manner in which Lord Keith, in his speech in Murphy v Brentwood District Council (supra at 466), characterised Junior Books v Veitchi Co (supra) as falling under the ambit of Hedley Byrne & Co v Heller & Partners [1964] AC 465. The problem for the pursuer is that, unlike the situation in Junior Books v Veitchi Co (supra), his relations with the defenders were evidently not governed purely by some form of general reliance but by the terms of the contract he signed. Unlike Hedley Byrne & Co v Heller & Partners (supra), the defenders do not seem to have tendered any advice to the pursuer upon which reliance was placed. I should add at this stage also that I do consider that the Outer House cases of McLeod v Scottish Special Housing Association (supra) or Parkhead Housing Association v Phoenix Preservation (supra) assist the pursuer given that they were decided in the era after Anns v Merton London Borough Council [1978] AC 728 but before Murphy v Brentwood District Council (supra).
12. In Department of Environment v Bates (supra) Lord Keith explained the decision in Murphy v Brentwood District Council (supra) in the context of a housebuilder as follows (at 519):

"It was the unanimous view that, while the builder would be liable under the principle of Donoghue v Stevenson (1932 SC (HL) 31) in the event of the defect, before it had been discovered, causing physical injury to persons or damage to property other than the building itself, there was no sound basis in principle for holding him liable for the pure economic loss suffered by a purchaser who discovered the defect, however such discovery might come about, and required to expend money in order to make the building safe and suitable for its intended purpose."

That would seem to be determinative of the pursuer's case against the defenders based on quasi delictual principles. He attempts to circumvent the obvious conclusion that his case is irrelevant by some vague averments about reliance, but I do not consider that he can succeed on that basis where his relationship is governed by a contract which defines the rights and obligations which arise. Accordingly, I hold that this part of the pursuer's case is irrelevant.

(d) RESULT

13. Since I have found the case based on an implied term irrelevant, I will exclude from probation the averments relating to the case based upon a purported implied term. These are: the sentence commencing "Further it was an implied..." at page 8 B-D of the closed record; the words "both implied and" at 14 C-D; and the words "and the implied term" at 15 E. In relation to the delictual case, I will exclude from probation the averments from "So far as the pursuer was concerned..." to "...as in fact he did" at 6 A-D and the whole of the fourth article of condescendence. I will repel the pursuer's first plea-in-law in part by deleting therefrom the words "injury" and "et separatim fault". Quoad ultra, I will allow a proof before answer.