Scottish Court of Session Decisions

Davidson v. Clydesdale Bank Plc [2002] ScotCS 99 (9th April, 2002)

OUTER HOUSE, COURT OF SESSION
	OPINION OF T. G. COUTTS Q.C. SITTING AS A TEMPORARY JUDGE in the cause GEORGE DAVIDSON (A.P.) Pursuer; against CLYDESDALE BANK PLC Defenders:   ________________

 

Pursuer: Agnew of Lochnaw Q.C., J. Robertson; Balfour & Manson

Defenders: Tyre, Q.C.; Miss Grahame; Morton Fraser

9 April 2002

Introductory

1. This action in which proof was heard between 8 and 24 January 2002 passed the signet on 28 October 1993. It deals with events in 1987 and 1988. The pleadings have been the subject of three minutes of amendment by the pursuer. By this stage, his claim was for the sum of £2.5 million from the defenders who were his creditors and who held standard securities over his heritable property. Thus the passage of time since the relevant events rendered the evidence stale. Further because of the pursuer's strong feelings about the defenders, which surfaced at the proof from time to time, his evidence required to be looked at with some caution. When unsupported by other evidence it could not be relied upon.
2. The defenders abandoned a plea based upon prescription but insisted on their pleas (first) of no title or interest to sue and (second) that the pursuer had not suffered any loss. The pursuer maintained that he was entitled to sue for reparation for alleged losses arising as a consequence of the actings of the bank and their agents and claimed to have both title and interest so to do.

Background facts

3. A substantial number of background facts were admitted or ultimately not contested. The pursuer and his late wife granted a number of standard securities in September 1976 in favour of the defenders. Those securities were over, amongst other places, the farms, lands and buildings at Ardlethen Farm, Aberdeenshire. A sand and gravel quarry was located on a part of the farm land which bordered the River Ythan. The pursuer had worked those deposits of sand and gravel. He had been granted specific planning permission for such working in 1977 but enforcement notices were served upon him on 26 May 1980 and 11 February 1983 due to failure to make the restoration required under the terms of earlier consents; to expiry of the 1977 planning permission; and to unauthorised tipping of materials on the site. The pursuer made another application in 1982 to renew and extend the 1977 permission. The district council were prepared to grant planning permission for a limited area subject to the execution of an envisaged agreement under Section 50 of the relevant Planning Act but also required the provision of a performance bond. The pursuer was unable to provide the bond (he claimed because the defenders were unwilling to finance it) and submitted a further application in November 1986. The defenders had on 14 May 1985 issued a calling up notice for their standard securities and by interlocutor dated 12 December 1986 obtained the right to possession and sale of the security subjects. Accordingly the said November 1986 application was made just prior to the defenders obtaining the right to possession. In that state of affairs the planning authority wrote to the pursuer's agent referring to a meeting of the council's planning and development committee held on 17 March 1987 intimating that the committee had indicated that they were minded to grant a conditional unlimited permission solely for extraction at Ardlethen, subject to a satisfactory bond to secure that there were funds available for restoration and a Section 50 agreement setting out details of the phasing of reinstatement together with a timetable to be applied thereto. Two quotations for restoration works were obtained by the pursuer in the sums of £10,600 and £19,900 exclusive of VAT. On 12 May 1997 the local council's planning and development committee resolved, subject to the pursuer entering into such a Section 50 agreement and lodging a performance bond in the sum of £30,000 to cover the cost of reinstatement of the site including the areas already worked, the director of planning could receive delegated authority to grant full planning permission.
4. In 1986 the pursuer ceased to be a customer of the defenders. The pursuer was sequestrated by the defenders on 29 October 1987. The interim trustee then appointed was appointed permanent trustee at a meeting of creditors held on 16 December 1987. He was discharged on 29 August 1994 which was after the date on which the present action was raised. The defenders entered into the possession of the security subjects in early 1988 and instructed Messrs D. M. Hall and Company (Hall) to market the properties which were the subject of the standard securities. Prior thereto, and indeed for some time thereafter, the pursuer remained on the property and in particular I find, accepting the evidence of Mr Proud, that the pursuer, despite his denial in evidence, was present there when the mineral surveyors Ross went to Ardlethen Farm to value the mineral deposits on the instructions of said Hall.
5. Prior to his eventual departure from the premises the pursuer had been active, and indeed had been active from at least early 1980, in endeavouring either to market or to put in place a scheme for the further development of the mineral reserves on Ardlethen Farm. In particular the R.M.C. subsidiary, Scottish Aggregates Limited had I find, on two separate occasions, once in 1980 and once in 1985 dug trial pits, one at the obvious quarry workings and the other on a field to the north west of the lands near a farmhouse known as Burnside of Auchedly.
6. In addition, in 1987, the pursuer had obtained opinions and proposals from Kinord Associates Limited, Management and Engineering Consultants. Their report was prepared by their principal Mr Semple BSc., M.I.C.E., whose experience and qualifications were set out in his report (32/13) but who has since died. It was that appraisal which gave rise to and supported the pursuer's said last planning application which was presented to the district council by Mr Matthew Merchant, Chartered Architect.
7. The only satisfactory evidence of the depth or quality of the sand and gravel deposits before the Court was that emanating from Scottish Aggregates Limited. They were the only surveyors to have carried out trial pitting. There were, however, put before the Court various estimates or guesses about the volume of sand and gravel on the farm besides that of Kinord Associates. These included a report to Hall by J. W. H. Ross & Company, Consulting Mining Engineers, dated October 1988; reports from Messrs Savilles dated October 1995 spoken to by Mr Ott and Mr Goldsmith; a report from Grampian Soil Surveys (Aberdeen) Limited dated 27 June 1995 and evidence from a mineral surveyor, Philip John Lea, who also provided an estimate of the quantities which might have been present in 1987. The principal who carried out the investigation and report for J. W. H. Ross is now very elderly and infirm and could not give evidence. He had been assisted by and accompanied to the site by his partner Mr John Proud who gave some evidence of a limited extent but was unable to explain or expand the report. He was very hesitant and the Court could place no reliance upon his hearsay evidence about the words or intentions of his colleague, or upon such gloss as he gave to the Court upon his colleague's report.

Issues of fact to be resolved

8. The principal issues of fact which the Court required to resolve were firstly the value, if any, of the mineral deposits at Ardlethen Farm; secondly, the marketability of such deposits having regard to their extent and quality; thirdly, whether having regard to these factors an appropriate marketing strategy was adopted by Hall; fourthly whether, had any different marketing strategy been adopted, a different sum exceeding that which was already obtained would have been produced for the creditors and if so what that excess would have been.

The mineral deposits

9. Ardlethen Farm is situated in the Ythan valley about 3 kilometres west of the town of Ellon. It lies on the south bank of the River Ythan. The survey carried out by Mr Gray of Grampian Soil Surveys (Aberdeen) Limited (32/14 of process) indicates that there are present sand and gravel deposits from fluvio-glacial terraces in the whole river valley where the terracing is more fragmentary. That is the case at Ardlethen. The deposits are poorly sorted and contain boulders up to 3 metres in size often of the local underlying bedrock. The bedrock, which was exposed in places, was mainly an equigranular granitic gneiss with well spaced jointing, thus making the rock fairly massive. It would be suitable for the production of armour stone for marine and river works and, on crushing, for aggregate. The sand and gravel deposits were located principally where old workings were visible on the photograph 41/2 of process but also existed further westwards at Burnside. Estimates of their depth and density were provided by Mr Semple in the Kinord reports. Those reports were obtained, principally, for the purpose of demonstrating preliminary budget break even projections. They were provided to Mr Merchant, the architect acting on behalf of the pursuer in presenting his plan to the local authority.
10. Mr Semple's report (32/12 and 13 of process) provided a projected quantification. That quantification was the result of a visual survey of the farm accompanied by the pursuer and was derived from information gleaned from various drawings and reports from the Institute of Geological Sciences. The report dealt with four particular zones and, according to the plan annexed, dealt with an area surrounding the existing workings. He thought there were 1.6 million tonnes of mineral of which approximately 1.2 million was sand, gravel and loose rock. He estimated that the density would work out at about 1.6 tonnes per cubic metre.
11. From his reports it would appear that he did not have the benefit of the results of any trial pitting. Pits sunk in 1980 by Scottish Aggregates Limited caused that company to consider that there was about 200,000 tones of sand and gravel at a higher level than the old workings which it was said neither resembled the deposit at Scottish Aggregates' own quarry at Waulkmill on the opposite, north side of the river nor the terrace deposit at Ardlethen. Further pits and test results were obtained for Burnside in December 1985 in response to an invitation presented to Scottish Aggregates by estate agents acting on behalf of the pursuer. They thought that there there might be 180,000 tonnes of workable mineral, being sand and gravel, of the same quality as was being quarried by Scottish Aggregates at their own plant at Waulkmill.
12. It was that figure of 1.6 million tonnes of mineral which was presented initially to the planning authority by Mr Merchant. There is, I find, no proper scientific or even evidential basis for that figure. It was, I find, an optimistic assessment by Kinord Associates based upon a number of assumptions which actual digging did not bear out.
13. Since I am unable to find that the figure of 1.6 million tonnes has any basis other than an informed guess it follows that I am equally unable to accept the estimates of 2.5 million tonnes of sand and gravel provided by Savilles and the valuation placed thereon in their reports in 1995. Those were produced and spoken to by Mr Ott and Mr Goldsmith. Their evidence cannot be relied upon and I reject it. I found that the reports has no sound basis in fact or methodology. So far as the latter is concerned it was striking that despite a weekend intervening between examination-in-chief and cross Mr Goldsmith was unable to explain to the Court how he arrived at any of his figures. Those were £1.2 million for sand and gravel £324,000 for rock; £500,000 or thereby for infill opportunities and £20,000 for residual land value. He did not make any discount for risk. His estimate of 2.5 million tonnes of sand and gravel he described as conservative, but goes far beyond any of the others. There was no evidence to support that estimate. He had assumed a royalty of 70p per tonne but again that was an unsupported guess so far as the North East of Scotland is concerned. Further, there was no support for any value for infill opportunity from local experience (as opposed to the experience which Mr Goldsmith had in his home base of S.E. England). There was no clear identification of the land to which a residual value was given. Mr Goldsmith also placed value upon 2 million tonnes of rock which he said was available for extraction. While it may be the case that 2 million tonnes of rock could be extracted there was no satisfactory evidence that planning permission would be given for that purpose or of the marketability of such rock.
14. It is plain that the report produced to Hall by J. W. H. Ross is unsatisfactory and unworthy of acceptance in so far as the quantities specified in it are concerned. The report itself contains manifest errors, whether of survey or calculation it is not now possible to determine though it has to be noted that the report itself was heavily qualified and did state that an accurate assessment could not be obtained without trial pits. Nonetheless in the report, 34/12 of process, on what was described by him as "only a cursory inspection" of the lands and the sand and gravel deposits where exposed, the reporter, Mr Caldwell, felt able to say that the volume of reserves available for extraction within an area indicated on his plan were "approximately 285,000 tonnes, to the south thereof 1,000,000 tonnes or thereby and within another area some 115,000 tonnes". He goes on to say, "It therefore follows that in our opinion the total volume of sand and gravel available for extraction is approximately 400,000 tonnes". Even if the million was a misprint for 100,000 he could not arrive at a figure of 400,000. He then proceeded to make other assumptions producing an erroneous figure for annual income of £35,000 which even on his own figures and method of calculation should have been £45,000. He went on to calculate the value of the deposits after making allowance, he said, for tax at £65,000. An allowance for tax is obviously inappropriate. It is for the purchaser to consider his own tax position which could vary between purchases. Nonetheless, even on the most restricted view of the Ross report Halls were made aware that there were 500,000 tonnes of sand and gravel available for extraction.
15. The final witness, Mr Lea, R.I.C.S. with experience in mineral surveying and valuation who gave his evidence moderately, clearly and impressively, upon a consideration of all the material which had been placed before the Court gave the opinion that there would be minerals of the type and quality described in the Kinord report by Mr Semple but that the appropriate figure to consider for sand and gravel and loose rock (accepting the Kinord report's estimate of depth) was about 1,111,000 tonnes. He accepted that there could be 180,000 tonnes at Burnside following the Scottish Aggregates estimate.

The valuation of such quantities

16. It is trite and was accepted by all the witnesses that the value of mineral deposits depended on the availability of planning permission to work them plus the presence of a substantial local market which did not involve a producer in extensive transport costs. So far as planning permission is concerned, I accept that planning permission to work the minerals would, more likely than not, have been granted but only for the areas adjacent to the existing workings. I accept the evidence from Mr Lea which indicated that there was little likelihood of the Burnside deposits being granted planning permission within the foreseeable future, if ever. Accordingly I find that the deposits at Burnside could not form any realistic part of a valuation of the minerals in 1988 and 1989 and I reject the evidence to the contrary. I accept Mr Lea who said that any working of those minerals was so far into the future that no value could be attached to them at the time of the sale of the properties.
17. Further, the value of mineral deposits depends upon the availability of a market. The evidence about the buoyancy or otherwise of the local market for sand, gravel and, indeed, rock conflicted and judicial knowledge of the area cannot supply the deficiency in the evidence. It was said that substantial quantities of sand and gravel would be required for an Ellon by-pass, but that, it appeared, was completed in a fairly short period of time. It was also said that armour rock would be required for Peterhead Harbour but again there was no satisfactory evidence that such rock quarried at and transported from Ellon, would be economically viable. Local quarries at Peterhead would and could supply what was necessary. The overland transport costs from, let alone the costs of extraction, at Ardlethen would not be of an order to attract a potential buyer. There was some evidence that armour rock was imported from Norway - but the court was told that was a subsidised supply.
18. Mr Lea assumed an annual extraction rate of about 100,000 tonnes. He assumed a royalty of 30p per tonne for sand and gravel and 20p per tonne for loose rock and produced an annual royalty income from the asset of £23,027. There required to be applied a discount for risk which he assessed at 12% using industry accepted Tables and arrived at a figure of £135,000 for the value of the deposits. He described the Savilles' valuation of over £2 million as being wrong by an order of magnitude but acknowledged that it might have been possible to arrive at a value of about £200,000 for the minerals.
19. I am not prepared to accept a value in excess of £200,000 for the mineral deposits on the farm lands. Nor, as has been made clear, do I accept the Ross report that no value should be attached. The Ross report, when looked at critically indicates that the mineral deposits do have a value and to the extent that the conclusion of no value in that report was relied upon by Hall for their actings, they were not entitled to rely upon it.

The marketing of the whole property

20. Hall's position, from the evidence of the persons concerned at the time, was that they had originally regarded the minerals as having no value and that this was confirmed by the Ross report. That evidence does not sit easily with the fact that they did actually advertise the minerals separately, albeit in an inappropriate journal. The marketing brochure put out by Hall speaks for itself. They did not lot the minerals separately, nor mention the minerals on the first page, and although they did mention them within the body of the brochure that appears to be more or less as an afterthought along with a mention of trout fishing in the Ythan. Halls' witnesses thought that they would have told local operators about the quarries but there was no evidence of this having in fact been done. On the contrary, one operator, John H. Connon Limited, gave evidence to the effect that they were unaware of the availability of the deposits and went so far as to say that, on the information given to them later, they might have paid £2.5 million for the quarry. That evidence was highly qualified in that they made it clear that they would have been prepared to enter into a royalty agreement as a first choice but did not go into any particular detail. It was manifest when they wrote the letter of 24 August 1995 lodged in process (32/16) and when giving evidence that they had not considered fully the implications of an outright purchase as opposed to a royalty agreement. Further it could not be assumed that any such figure for purchase would have been paid once the true extent and quality of the mineral deposits had been ascertained by pitting, as they would have been by a prospective purchaser. Interest charges, as Mr Lea pointed out, on the finance for a £2 million purchase at that time would have meant that income of about £200,000 per annum would have been required merely to finance the purchase. That amount could not be produced from the farm on a royalty basis. Nor could extraction and sale of the product have produced such a sum as profit.
21. Nonetheless, the marketing by Hall was, I find, short of taking "all reasonable steps", which is their duty in terms of section 25 of the Conveyancing and Feudal Reform (Scotland) Act 1970. They took no steps critically to read and analyse the defective Ross report; they did not make reasonable use of the Kinord report in assessing the likely quantum of the mineral reserve and in particular did not attempt to ascertain the reason for the marked difference between that report, which I find they had in their possession, and the Ross report. They made no mention of the minerals on the title page of the sale particulars. They did not place any reasonable emphasis in the sale particulars on the availability of planning permission. They did not lot the minerals separately. They did not advertise the sale of minerals in an appropriate publication, advertising once in a cheaply produced document called "Mineral Planning" which carried virtually no advertising at all of any kind. The witnesses who were knowledgeable about the matter were of opinion that the appropriate advertisement should have been in "Quarry Manager". In these respects they failed to comply with their statutory duty.
22. Hall were also criticised in that they did not organise the digging of trial pits to ascertain the quality or quantity of the reserves nor did they pass on any planning information to J. W. H. Ross. Local operators were not contacted to ensure that the price at which all or any part of the security subjects were sold was the best that could reasonably have been obtained though they may have received brochures. That was something which on the evidence it was said, by Mr Coleman, would have been done. They were entitled to assume that as competent surveyors and valuers, Ross would have ascertained the planning situation. I do not accept that these alleged failures outlined in this paragraph amounted to a breach of duty. Since the common law duty averred does not extend so far as the statute I do not require to consider that further.
23. In the event Hall adopted the marketing strategy which emphasised the attractive features of the farmhouse, a matter apparent on examination of the photographs in the brochure, and its proximity to Aberdeen. They adopted a strategy which was designed to attract persons UK wide. That strategy was justified and the eventual purchaser who paid the highest price came from Yorkshire. I accept the evidence that there would have been a detriment to the prospects of obtaining the type of purchaser they did had there been an active quarry operating within a few hundred metres of the attractive farmhouse. Various estimates of the quantification of that detriment were made. I see no reason not to accept the evidence of Mr Galbraith of Halls and hold that the selling price of the farm would have been reduced from £456,000 to £215,000, its bare agricultural value.

Effect of failing to sell minerals separately

24. On one view the effect would have been a lower realisation than actually occurred. If the minerals had sold for the value reasonably attributed to them by, in particular, Mr Lea, there would have been, overall, a lower price obtained for the bankrupt's estate. On consideration of the whole matter I cannot find as fact that any larger sum would have been obtained by selling the minerals separately. Since I accept Mr Lea's evidence, at best for the pursuer there might have been a price of about £200,000 obtained for the mineral deposits.

Pursuer's title and interest to sue

25. It was argued for the defenders that since the trustee had not been discharged at the date of raising the action the pursuer's radical right to sue had not emerged, Whyte v Forbes 17R. 895.
26. For the pursuer it was argued that the trustee had shown no signs of taking up the action. There was evidence that he had been urged to do so by the pursuer. Accordingly the trustee could be treated as having abandoned the option of any action he could have taken.
27. I was not convinced that the ratio of Whyte v Forbes should be followed in current conditions. At that time the prescriptive period was twenty years, now it is five. In a complicated sequestration like the present it is highly probable that a trustee could not be discharged within the five year period of the default giving rise to the action. Since the default was one which lay in the failure by Hall to take all reasonable steps in accordance with their statutory duty, prescription began to run at the latest when the bargain for the sale of the farm was concluded. The better view may be that the pursuer's title could not have withstood a challenge by the trustee but that given the circumstances of this case the pursuer cannot be prejudiced by a trustee not taking action within the prescriptive period. If the trustee did not act after being urged it can be assumed that he has abandoned or will abandon any action open to him on the claim which the bankrupt asserts.
28. Accordingly I would not have granted absolvitor to the defenders solely on the basis that at the time when the action was raised the pursuer's trustee had not been discharged. However a formidable difficulty for the pursuer arises in the second part of the defenders' plea. The realised figures for the estate were agreed by joint minute. The defenders agreed that in order to produce a surplus to which the pursuer as opposed to his creditors would be entitled, the shortcomings of the selling agents would have to involve a sum in excess of £1,541,000. If it were otherwise the pursuer would obtain a windfall at the expense of his creditors. Unless the pursuer could demonstrate that he himself would benefit he had no interest to pursue the action.
29. The pursuer's response was that the bank had tabled no counterclaim and that he was entitled to payment of anything extra that the bank ought to have received. The creditors could seek to have a trustee re-appointed. The pursuer is entitled to the free proceeds that should have been obtained after the creditors, including the bank, had been paid off, as they would have been, had the full price been realised.
30. The view I have taken is that the pursuer's property, had it been sold to encompass, the value of the mineral deposits would not have realised more than the sum which was in fact realised. Thus since there was no loss at all there is plainly no interest in the pursuer to sue in this action. I shall therefore sustain the defenders' first plea-in-law.
31. Since there is no loss established in the proof had the proper, different course been adopted, it follows that the shortcomings of Hall had no practical effect. Mr Tyre for the defenders accepted that "all reasonable steps" had not been taken, in terms of the statute. That was a high statutory duty. I agree that it was not appropriate to rely on the Ross report as presented. It would have been a reasonable step to make further enquiries about it. It was not appropriate to ignore the Kinord report and take no steps to ascertain whether it had any merit and further it would have been a reasonable step to mention on the leading page of the sales particulars the availability of the quarry whether or not it should have been lotted separately. Since however the outcome on the evidence in the action is that the failures of Hall did not cause loss to the bankrupt estate, the defenders' sixth plea-in-law also requires to be sustained. The pursuer's first plea is accordingly repelled and I shall pronounce decree of absolvitor.