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Cite as: [2003] ScotCS 345, 2004 SCLR 338

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Hughes v. Barratt Urban Construction (Scotland) Ltd [2003] ScotCS 345 (30 December 2003)

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Kirkwood

Lord Macfadyen

Lord Brodie

A441/00

OPINION OF THE COURT

delivered by LORD MACFADYEN

RECLAIMING MOTION

in the cause

JOHN JOSEPH HUGHES

Pursuer and Respondent;

against

BARRATT URBAN CONSTRUCTION (SCOTLAND) LIMITED

Defenders and Reclaimers.

_______

Act: Springham; Dundas & Wilson, C.S.

Alt: Borland; MacRoberts

30 December 2003

Introduction

[1] In this action the pursuer concluded for damages for breach of contract against the defenders in respect of certain defects in a property which he purchased from them. Proof was heard on 11 February 2003 and the three following days, and damages were awarded in the principal sum of £23,000 with interest from the date of decree. Subsequently, after amendment of the conclusion for interest in the Inner House, interest on that sum of damages was awarded from 11 August 1994 until payment. The effect of that award was to yield a total of principal and interest of a little over £39,000. The matter was remitted to the Temporary Judge for such further procedure as might be required in relation to expenses in the Outer House. On 3 October 2003 the Temporary Judge found the pursuer entitled to the expenses of process so far as not previously dealt with. The defenders had lodged a tender of £37,500 on 11 February 2003, and relied on it in arguing that the pursuer should be awarded expenses only to its date and that they should be awarded expenses against the pursuer from its date. The Temporary Judge rejected the defenders' submissions. The issue in this reclaiming motion is whether the Temporary Judge erred in her approach to the effect to be given to the tender in dealing with the motions for expenses which followed the remit to her from the Inner House.

Procedural History
(a) Before the proof
[2] The pursuer raised this action in February 2000. In the summons he averred that he had bought the property in question from the defenders in August 1982, and that cracking of the brickwork was noticed in August 1994. He averred that he had suffered loss attributable to breach of contract or fault on the part of the defenders. His averments of loss were at that stage inspecific. The sum originally sued for was £30,000 with interest from the date of decree.

[3] In February 2001 the pursuer lodged a minute of amendment (No.17 of process). On 23 October 2001 the Closed Record was amended in terms of that minute and the defenders' answers thereto, both as adjusted. By that amendment the principal sum sued for was increased to £56,500. The conclusion for interest remained unaltered. The averments of loss at that stage referred to a diminution of £47,500 in the value of the subjects because of the defects. The averments did not clearly identify the date as at which the diminution in value was to be assessed. There were also averments of several other items of loss totalling £9000.

[4] On 17 January 2003 the defenders were allowed to lodge a further minute of amendment (No.34 of process). The pursuer lodged answers (No.35 of process).

[5] Prior to the proof, the defenders lodged a report by their expert witness in which he valued the pursuer's loss by reference to the diminution in the value of the property as at August 1994. Although the defenders made their position as to the date at which the loss of value was to be assessed clear in that way, their pleadings did not then expressly advance the contention that the pursuer's loss fell to be assessed as at August 1994.

[6] By minute of tender (No.36 of process) lodged on 4 February 2003 the defenders tendered £27,500 in full satisfaction of the conclusions of the summons. The basis on which that tender was calculated is set out in paragraph [9] below.

(b) At the proof
[7] On 11 February 2003, the first day of the proof, the Closed Record was amended in terms of the minute and answers (Nos.34 and 35 of process), both as adjusted. The pursuer's averments of loss, as so amended, made reference to the value which the property would have had, if sound, at various dates including August 1994 and January 2003. The loss of value claimed, however, was the loss assessed as at January 2003, namely £49,000. The other items of loss amounting to £9000 remained part of the claim. The total sum claimed was thus stated at £58,000. The defenders' pleadings still did not expressly make the case that the pursuer's loss fell to be evaluated as at August 1994. We were informed that the pursuer also tendered a minute of amendment to increase the principal sum sued for to £58,000 in accordance with the amended averments. The interlocutor of 11 February 2003 makes no reference to that minute of amendment. A reprinted Closed Record had, however, been prepared in anticipation of the amendments, and it reflected not only the changes to the averments of loss effected by the answers (No.35 of process), but also the intended increase of the principal sum sued for to £58,000. It appears that it was by oversight (whether on the part of counsel or on the part of the court is not clear) that the amendment to increase the sum sued for was not mentioned in the interlocutor of 11 February 2003. Nonetheless, the proof was conducted on the basis that the pursuer's claim was for £58,000. Before us, it was common ground between the parties that we should proceed as if that increase in the sum sued for had been regularly made, and we agree that it is appropriate that we should take that course. The conclusion for interest remained, at the outset of the proof, a conclusion for interest from the date of decree.

[8] On 11 February, at the commencement of the proof, the previous tender was withdrawn by minute (No.38 of process), and a new tender (No.39 of process) of £37,500 was lodged.

[9] Counsel for the defenders, Mr Borland, explained the basis of the tenders to us. The original tender reflected a view taken by the defenders of the diminution in the value of the property as at August 1994. It did not include provision for the other items of loss (amounting to £9000) included in the pursuer's averments. The second tender was lodged on Mr Borland's advice, and reflected broadly the same view of the loss of value as at August 1994, but included also a slightly overstated allowance to cover the other heads of loss. Neither tender contained any allowance for interest from August 1994 to the date of decree. That was said to have been because Mr Borland wished to advance the arguments recorded in paragraph [37] of the Temporary Judge's Opinion of 15 April 2003.

[10] At the proof the issues between the parties were (1) whether the pursuer's claim had prescribed, (2) what the proper approach to computation of the pursuer's loss was, and (3) what the pursuer's entitlement to interest was. The issue of whether the defenders were (aside from the issue of prescription) liable to the pursuer for breach of contract or fault was conceded by the defenders at the outset of the proof.

[11] In the course of the proof Mr Borland objected to questions asked by Mr Smith for the pursuer designed to ascertain the diminution in value in August 1994. The Temporary Judge repelled that objection (paragraph [16] of her Opinion of 15 April 2003). In their submissions at the conclusion of the proof, counsel for both parties proceeded on the basis that the pursuer's loss fell to be assessed by reference to the diminution in value as at August 1994. The view taken by the Temporary Judge on the evidence was that that diminution should be assessed as amounting to £23,000. The pursuer did not lead evidence in support of the other claims on record totalling £9000. As a result the Temporary Judge assessed total damages at £23,000.

[12] In his submissions at the conclusion of the proof, Mr Smith moved for an award of interest on the principal sum of damages from 9 August 1994 (see paragraph [36] of the Temporary Judge's Opinion dated 15 April 2003). In response, Mr Borland submitted, under reference to section 1(1) of the Interest on Damages (Scotland) Act 1958 ("the Act") and Orr v Metcalfe 1973 SC 57, per Lord Cameron at 62, that such an award was incompetent in the absence of a conclusion for interest from the date in question. The Temporary Judge accepted Mr Borland's submission on this point. Consequently, she awarded interest only from the date of decree. At no stage in the course of the proof or the hearing on evidence did Mr Smith move the Temporary Judge for leave to amend the conclusion for interest so as to seek interest from August 1994 or any other date prior to the date of decree.

(c) After the proof
[13] The pursuer reclaimed against the Temporary Judge's interlocutor of 15 April 2003. Pending the hearing of the reclaiming motion, he tendered a minute of amendment (No. 42 of process) in terms of which he sought to amend the conclusion for interest so as to seek interest from 11 August 1994. The motion to amend came before an Extra Division on the single bills on 3 June 2003. According to Mr Borland, Mr Smith candidly accepted that the reclaiming motion was no more than a vehicle for the motion to amend. The motion to amend was opposed by Mr Borland on behalf of the defenders, but was granted. The amendment having been allowed, the Extra Division went on to recall the Temporary Judge's interlocutor of 15 April 2003 to the extent of amending it to award interest from 11 August 1994. Mr Borland indicated to us that he had not advanced any separate argument against that step, the issue having been argued in terms of whether or not the amendment to the conclusion for interest should be allowed.

[14] Having allowed the minute of amendment, and having altered the Temporary Judge's interlocutor to the effect of awarding interest from 11 August 1994, the Extra Division remitted to the Temporary Judge to deal with the question of expenses in the Outer House. We were informed by Mr Borland that, in the course of the hearing on the single bills, one of the members of the court observed that any prejudice caused to the defenders by the amendment and the consequent award of interest could be taken into account by the Temporary Judge in dealing with the question of expenses. The fact that the defenders had lodged a tender was disclosed to the Extra Division, although its amount was not.

[15] On 3 October 2003 the Temporary Judge heard the parties on the pursuer's motion for the expenses of process, so far as not already dealt with. The pursuer's submission in support of that motion was that he had beaten the tender. The principal sum awarded together with the interest awarded by the Extra Division amounted to approximately £39,000, which exceeded the amount of the tender. The defenders, on the other hand, submitted that the pursuer had failed to beat the tender. It was only by virtue of the amendment, allowed after the Temporary Judge had issued her decision and after the marking of the reclaiming motion, that it had become competent to award interest from a date earlier than the date of decree. In considering whether the tender had been beaten, regard should be had only to the award made by the Temporary Judge. Accordingly the pursuer should be found entitled to expenses only to the date of the tender, and liable to the defenders in expenses thereafter.

The Temporary Judge's decision
[16] The Temporary Judge preferred the pursuer's contention. She noted the defenders' submission that they had tendered in response to a conclusion which did not permit an award of expenses from August 1994. She noted that they accepted however, that they had not been misled by the way in which the loss was averred by the pursuer. They had based their tender on the view that the pursuer's loss fell to be assessed as at August 1994, but had taken no account of interest from that date. In relying on the fact that, until amended in the course of the Inner House proceedings, the pursuer's conclusion for interest was for interest only from the date of decree, the defenders were highlighting one aspect only of the pursuer's conclusion. The other aspect was that damages were sought by reference to diminution in 2003 values. In that situation the Temporary Judge observed:

"It was obvious to the defenders therefore, or ought to have been obvious to them, that the pursuer's case sought to allow for the passage of time from 1994 to the present. It would have been equally obvious that if damages were properly assessed by reference to the diminution in value in 1994 it would be likely that a party would seek interest on that figure and that the court would allow it. In assessing the amount to be tendered a party is to be expected to consider what the appropriate measure of loss might be and to take into account the potential for interest to be awarded. A defender may choose, as the defenders in this case did, to take a calculated gamble that interest would not be awarded. If they do so, however, they run the risk that their tender will be insufficient."

In taking their stand on the form of the conclusion as it stood at the date of tender and at the date of proof, the Temporary Judge suggested, the defenders were taking advantage of a technicality of pleading to bring about an unjust result. In all the circumstances "the usual rule applied", i.e. the pursuer fell to be treated as having beaten the tender and was therefore entitled to full expenses.

Section 1(1) of the Interest on Damages (Scotland) Act 1958
[17] It was not disputed before us that the Temporary Judge had taken a correct view of the meaning of section 1(1) of the Act. Section 1(1) provides:

"Where a court pronounces an interlocutor decerning for payment by any person of a sum of money as damages, the interlocutor may include decree for payment by that person of interest, at such rate or rates as may be specified in the interlocutor, on the whole or any part of that sum for the whole or any part of any period between the date when the right of action arose and the date of the interlocutor."

The authority which explains obiter how a claim for interest under section 1(1) must be made, namely Orr v Metcalfe, was actually concerned with section 1(1A) of the Act, which deals with interlocutors awarding a sum consisting of or including damages or solatium in respect of personal injuries. In cases to which subsection (1A) applies,

"the court shall exercise [the power conferred by section 1(1)] so as to include in that sum interest on those damages and on that solatium or on such part of each as the court considers appropriate, unless the court is satisfied that there are reasons special to the case why no interest should be given in respect thereof".

In Orr v Metcalfe it was held that in cases under subsection (1A) an award of interest was prima facie mandatory, and was comprehended within the principal sum sued for. There was thus in such cases no need for a separate conclusion for interest in respect of the period prior to the date of decree. In contrast, however, in respect of subsection (1), Lord Cameron said (at page 62):

"This ... is a discretionary power and, in my opinion, it would be necessary for a pursuer who seeks to invoke it in his favour to include a conclusion or crave for interest in his summons or writ in such a way as to give notice that he intends to seek such an award of interest ... This discretionary power relates to all awards of damages, and the interest which may be decerned for is additional to the sum awarded in name of damages itself and therefore, does not form part of it".

The Temporary Judge held, in accordance with Lord Cameron's observations, that it was incompetent for her, at the conclusion of the proof, to grant Mr Smith's motion for interest on the principal sum of damages from any date prior to the date of decree, since there was no conclusion for such interest.

The defenders' submissions
[18] Mr Borland submitted that the Temporary Judge had fallen into error in taking into account what she surmised should have been obvious to the defenders about the interest which the pursuer would seek if the computation of his claim was to be carried out as at 1994, and about the attitude which the court would exhibit towards such a claim. The fundamental flaw in the Temporary Judge's reasoning, said Mr Borland, was that it failed to take account of the critical question of the timing of the amendment to claim interest from 1994. The question of assessment of damages as at 1994 was clearly a live issue during the proof. That was so both because of Mr Borland's objection (see paragraph [11] above) and because the submissions on both sides eventually proceeded on that basis. The question of interest, the meaning of section 1(1), and Orr v Metcalfe were all discussed during the hearing on evidence. Yet at no time was a motion made to amend the conclusion so as to claim interest from 1994. The result was that, at the time when the Temporary Judge issued her decision on 15 April 2003, the pursuer did not beat the tender. Damages were awarded in the sum of £23,000. Interest from any date prior to the date of decree was incompetent in the absence of a specific conclusion. The tender was for £37,500. The pursuer thus failed to beat the tender. The subsequent amendment and award of interest made in the Inner House did not alter that fact.

The pursuer's submissions
[19] Miss Springham, who appeared before us for the pursuer, pointed out that the Temporary Judge, in dealing with expenses, was exercising a discretion. The court should interfere only if it was clear that she had gone beyond the proper bounds of that discretion. There was, Miss Springham submitted, no general principle that a defender, in making a tender, had to address not only the case actually made by the pursuer, but also foreseeable developments of that case. In the particular circumstances of this case, however, having regard to the way in which it was pled on each side and the way in which it developed at proof, the reasoning adopted by the Temporary Judge could not be said to be erroneous. There was room for differences of opinion as to what, in the circumstances, was a fair disposal of the question of expenses. If the court took the view that the Temporary Judge had erred, the matter of expenses required to be considered of new by the court. On any view, the expenses of the first day of the proof should be awarded to the pursuer, since the tender had only been lodged that day. It should also be borne in mind that part of the proof was taken up with the question of prescription, on which the defenders failed. Moreover, the question of the defenders' liability in contract or delict had not been conceded until the commencement of the proof.

Discussion
[19] In our opinion the Temporary Judge made the award of expenses that she did on the basis that the "usual rule" as to expenses when a pursuer beats a tender should be applied in the circumstances of the present case. She did that on the view that the pursuer should be treated as having "beaten" the tender because, although the award of interest which took the total sum awarded to the pursuer above the amount of the tender was only made in the Inner House after her decision on the merits of the case, the defenders should have realised that, if damages were assessed as at August 1994, interest from that date would be likely to be claimed and to be awarded.

[20] In our opinion, the Temporary Judge erred in her approach to the matter in two respects. In the first place, we do not consider that it can be affirmed as a proposition of general application that a defender, when tendering, must foresee alterations of the basis of the pursuer's claim which may at a future date be made by amendment, and make allowance for them. In the second place, we are of opinion that, for the purpose of the application of the "usual rule" as to the effect of a tender, lodged in the course of proceedings in the Outer House, on liability for the expenses incurred in those proceedings, the question whether the tender has been beaten or not must be determined at the date of the Lord Ordinary's decision, and cannot be affected by amendment made in the course of Inner House proceedings for review of that decision. In the present case it is, in our opinion, a combination of those considerations that shows that the Temporary Judge reached a decision which was, in the circumstances, erroneous. The result, in our opinion, is that the question of expenses falls to be reconsidered of new by us.

[21] We do not consider that the matter can properly be dealt with by the application of the "usual rule". The usual rule assumes a tender in place at the time of the decision in question. It assumes a comparison between the amount of the tender and the amount of the award. It lays down that (a) if the tender is of an amount equal to or larger than the award, the pursuer will be awarded expenses to the date of the tender and be liable in expenses thereafter, and (b) if the tender is less than the award the pursuer will be awarded the whole expenses of process. The usual rule does not address a situation in which the award, although it was, at the time when it was made, less than the tender, was subsequently increased to an amount exceeding the tender following amendment of the pleadings in the course of a reclaiming motion.

[22] We are therefore of opinion that the proper approach in the present case is not to seek to apply the usual rule in an artificial way to circumstances to which it does not properly apply, but to approach the question of expenses in the unusual circumstances of this case as a matter of general discretion.

[23] When identifying the whole relevant circumstances of the case, it is, in our view, important not to lose sight of the facts (i) that the correct approach to quantification of the pursuer's claim (as was ultimately accepted on the pursuer's behalf) was to assess the diminution in value of the property as at the date of the damage, namely August 1994, (ii) that the defenders had given notice of their contention that that was the correct approach in their expert report lodged in process before the proof (albeit not in their pleadings), (iii) that the question of valuing the pursuer's loss as at August 1994 was live throughout the proof and was ultimately accepted on the pursuer's behalf, (iv) that it was clear on authority that on a sound construction of section 1(1) of the Act a claim for interest from any date earlier than the date of decree required to be made the express subject of a conclusion to that effect, (v) that nevertheless counsel for the pursuer steadfastly declined before the Temporary Judge to move any amendment of the conclusion for interest such as would have made an award of interest from a date prior to the date of decree competent, and (vi) that it was only after a reclaiming motion had been marked that a motion to amend was made and granted, so as to make an award of expenses from August 1994 competent. On the other hand, there is in the particular circumstances of this case, merit in the view that the defenders must have appreciated that the purpose of the pursuer's attempt to value his loss as at early 2003 was to allow for the passage of time since the date when the loss was incurred. They must, therefore, have appreciated that (leaving aside the way in which the pursuer chose to plead his claim) if the loss was properly to be valued as at 1994, there would be a good claim for interest on the loss so assessed from that date. In that knowledge, they advanced (through their expert witness, if not in their pleadings) the contention that the loss should be valued as at 1994. In those circumstances, the balance of considerations is, in our view, more favourable to the defenders than it would have been if the pursuer had advanced his claim all along on the basis of 1994 valuation, with an express conclusion for interest from 1994. On the other hand, the balance of considerations is more favourable to the pursuer than it would have been if the defenders had not themselves introduced the contention for 1994 valuation, and if it had not been so clear that (technical pleading issues aside) interest from 1994 was a corollary of valuation of the loss as at 1994. In these special circumstances, we have come to the conclusion that justice would best be done between the parties by an award of expenses which equates neither to the award which would have been appropriate if the tender had, in a straightforward way, been beaten, nor to the award which would have been appropriate if the tender had, in a straightforward way, exceeded the damages awarded. We consider that justice would in the circumstances be done by (i) finding the pursuer entitled to expenses up to and including those of the second day of the proof, and (ii) finding the pursuer liable to the defenders in the expenses incurred thereafter.

Result
[24] We shall accordingly allow the reclaiming motion, recall the Temporary Judge's interlocutor of 3 October 2003, and substitute a finding as regards the expenses of process (so far as not already dealt with) that (i) the defenders shall be liable to the pursuer in expenses up to and including 12 February 2003 and (ii) the pursuer shall be liable to the defenders in expenses thereafter.