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OUTER HOUSE, COURT OF SESSION
[2006] CSOH 105
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A13/00
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OPINION OF C. J.
MacAULAY, QC
Sitting as a
Temporary Judge
in the cause
RONALD EVAN WILSON
Pursuer;
against
DUNBAR BANK PLC
Defenders:
________________
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Pursuer: Haddow, QC; D.
Davidson; Drummond Miller, WS
Defenders: Sandison;
DLA
11 July 2006
Introduction
[1] At
the time leading up to the events giving rise to this action, the pursuer was the
heritable proprietor of property at Fernieside Avenue,
Edinburgh.
He had carried out a development of six residential flats at that
location. The construction of the flats
was completed by about April 1995. He
obtained financial help in connection with that development from the defenders.
[2] Because
of the pursuer's inability to repay the borrowing he had obtained from the defenders,
the defenders served a calling-up notice on him on 3 June 1996. The defenders
then took possession of the subjects in September 1996 and a sale of the
subjects subsequently took place.
[3] The
essential issue raised in this action was whether the defenders were in breach
of the duty they were under in terms of Section 25 of the Conveyancing and
Feudal Reform (Scotland) Act 1970 (the "Act").
As a separate issue, the defenders counterclaim for a sum which they
contended was still outstanding in connection with the finance they provided to
the pursuer.
[4] In
the course of the proof before answer evidence was led from the pursuer
himself. On behalf of the pursuer,
evidence was also led from the following witnesses:
a. Anne Marie Balcombe - At
the relevant time Miss Balcombe was employed by DM Hall as a sales
negotiator. She dealt with properties on
a day to day basis. She worked under the
direction of Mr Nisbet.
b. George Stewart Watt - In
1996 Mr Watt was the senior partner in CRGP Robertson, Chartered
Surveyors. He was a Fellow of the Royal
Institution of Chartered Surveyors.
c. George Leonard Maguire -
Mr Maguire was a Fellow of the Royal Institution of Chartered Surveyors and a
partner in the firm McNeill Maguire & McCreath from 1999-2003.
d. David Thomson - Mr
Thomson was an enrolled solicitor and, since 1 May 2000, a partner in the firm of
DLA. From 1 May 1997 to 30 April
2000 he was a partner in Bird Semple Solicitors.
e. Robert Bolevant - When he
gave evidence Mr Bolevant was a self employed property consultant but from July
1968 until about 2002 he was employed by the Bank of Scotland. In 1996 he was the manager of the West End
Edinburgh branch of that bank.
f. John Urquhart - Mr
Urquhart was an enrolled solicitor and a partner with Morton Fraser Solicitors
in Edinburgh. He was admitted as a solicitor in 1970. From 1986 to 1998 he was employed as head of the
Nationwide Building Society Scottish Legal Department. He served as convenor of the Conveyancing
Committee of the Law Society of Scotland from 1996 to 1997. He was Chairman of the Scottish Committee of
the Council of Mortgage Lenders from 1995 to 1997.
[5] On behalf of the defenders
evidence was led from the following witnesses:
a. Brian Alan Dennison - Mr
Dennison was an enrolled solicitor and when he gave his evidence he was
employed by Boyds Solicitors. From 1979
to 1997 he was a partner in Bird Semple.
b. Lynn Joan McWilliams or
Mearns - At the relevant time Mrs Mearns was known as Miss McWilliams and as
the relevant documentation bears to be in the name of Miss McWilliams
hereinafter I shall refer to her by her maiden name. Since October 1991 she has been employed by
the defenders. When she gave her
evidence she was the regional loans manager of the defenders. At the relevant time she was an assistant
manager based at the Glasgow branch
of the defenders.
c. James Murray Crozier - At
the date of the giving of his evidence, Mr Crozier was an associate
director of the Bank of Scotland. He had
been in the employment of the Bank of Scotland since 1996. At the relevant time he was manager of the West
End branch of that Bank. He
was Mr Bolevant's predecessor.
d. George Nisbet - George
Nisbet was a partner in DM Hall Chartered Surveyors and had been since January
1991. He was a chartered surveyor and
had been a Fellow of the Royal Institution of Chartered Surveyors since about
1992/1993.
e. John Duncan Macpherson
Dalby - At the date of the giving of his evidence Mr Dalby was a director of
Deutsche Bank. From 1991 to 2003 he was
employed by the defenders. During that
period he was a director in property lending based in the Glasgow
branch.
[6] Mr
Maguire was called to give evidence because in March 1996 he had provided the
Bank of Scotland with a report providing a valuation of one of the flats
constructed by the pursuer. At that time
the pursuer's son intended to buy the flat.
The purpose of his report was to provide the Bank with some guidance as
to how much to lend to the pursuer's son in connection with his proposed
purchase of the flat. Ultimately his
evidence had no real bearing on the case.
[7] Mr
Bolevant and Mr Crozier were called to give evidence in order to speak to their
dealings with the pursuer and the defenders.
The pursuer had two accounts with the Bank of Scotland, a personal
account and a business account. The
business account was in the name of Waverly Contract Interiors Limited, a
business that was being run by the pursuer prior to the development of the
flats. The pursuer had a personal
liability under a letter of guarantee in respect of the business account. The Bank of Scotland had also provided some
funding for the development. The Bank of
Scotland held a postponed Security over the development.
[8] Mr
Dennison of Bird Semple acted for the defenders for part of the time covered by
the events that give rise to this action.
He left Bird Semple in about March 1997 and at that time Mr Thomson took
over.
[9] Evidence
was led in connection with proposals for the development of the Moredun area
generally. The flats constructed by the
pursuer were in that locality. This
evidence may have been designed to raise the spectre of an enhanced development
value and whether the defenders and DM Hall knew about the proposals, but it
did not seem to lead anywhere.
[10] In the course of the proof a great deal of evidence was led
about the valuation of the flats by DM Hall.
There was also a dispute about how it came to be that the pursuer
initially advertised the individual flats at about £1000 more than DM Hall's
valuations. I also heard evidence about
other events such as the pursuer's interaction with the defenders prior to the defenders'
repossession of the Harriers.
Ultimately, much of that evidence had no real bearing on the essential
question whether the defenders were in breach of their duty under Section 25 of
the Conveyancing and Feudal Reform (Scotland) Act 1970 after they had taken possession
of the flats. That question turned upon
the way in which the flats were marketed once in the possession of the defenders.
[11] The
company run by the pursuer, Waverly Contract Interiors Limited, had operated
from the location at Fernieside Avenue
that the pursuer used in the construction of the six flats. It had ceased trading. The building at that location had formerly
been occupied by Edinburgh Southern Harriers.
That is why the development became known as "the Harriers".
[12] The pursuer's company had been involved in the refurbishing of
pubs and hotels. It ran into financial
difficulties. In particular a large
overdraft was incurred with the Bank of Scotland for which the pursuer was
ultimately responsible. It was against that
background that the pursuer looked to the development of the Harriers as the
way of solving his financial difficulties.
Funding
[13] Some finance for the project
was provided by the Bank of Scotland (see paragraph [7]) but the major part of
the funding was provided by the defenders.
As a condition for receiving such funds, the pursuer granted a standard
security dated 6 December 1993
over the Harriers to the defenders.
[14] On 23 March 1994
the defenders made a loan facility offer to the pursuer of £114,000, which he
accepted. In January 1995 the pursuer
applied to the defenders for further finance in relation to the completion of
the development. By letter dated 18
January 1995 the defenders offered to increase the pursuer's borrowing facility
from £114,000 to £144,000. The pursuer
accepted this offer. The extra funding
enabled the pursuer to complete the project in 1995.
[15] In funding the construction of the Harriers, the defenders
relied on reports provided to them by Mr Nisbet of Messrs DM Hall. These reports provided the defenders with
guidance as to valuation.
The Pursuer's Attempts to Sell the
Harriers
[16] Throughout much of 1995 and up to about May of 1996, the pursuer
attempted unsuccessfully to sell the six flats of the Harriers as individual
residential flats. There had been considerable interest shown in
the flats. In that period the pursuer
made extensive efforts to market the flats.
[17] A crisis point was reached in May 1996. The pursuer had effectively run out of money
and was unable to finance any further realistic advertising of the Harriers.
[18] At a meeting on 29 May
1996, the defenders decided to invoke the Calling-Up procedure
sanctioned by the Act. Mr Dalby, Mr
Nisbet, Mr Dennison and Miss McWilliams were present at the meeting. The note of the meeting recorded that the
lack of sales was thought to be due to a slightly high asking price, and also
insufficient marketing. Certainly by
then there was virtually no marketing taking place because of the pursuer's
financial difficulties.
[19] By letter dated 3 June
1996 Messrs Bird Semple wrote to the pursuer intimating a notice of
default dated 30 May 1996
in respect of the principal sum then outstanding of £167,247.55. Payment of that sum and outstanding interest
was required within a period of 2 months.
No payment was made. After the
expiry of the Calling Up period, in September 1996 the defenders took
possession of the Harriers.
The Defenders' Strategy for the
Marketing of the Harriers
[20] The defenders instructed Mr Nisbet of DM Hall to put forward
marketing recommendations in connection with the proposed sale of the
Harriers. Mr Nisbet responded to that
request with a report dated 28 August 1996 (hereinafter the DM Hall
Report).
[21] The DM Hall Report contained a number of detailed
recommendations. The salient marketing
considerations were set out in the following manner:-
"1. Property Particulars
Property
particulars will be prepared which will describe the subjects and the terms of
their availability. It will be our
intention to market the subjects as being available either as one lot or
individually ...
They shall be
distributed by means of a direct mailing exercise to the undernoted parties:-
(a) all local solicitors, surveyors, estate agents and other property
professionals active in the market on their own and client's behalf, (b) local
developers/builders, (c) property companies and investors.
These will be
identified from our existing mail shot database and also from appropriate
publications such as the Yellow Pages, Thompsons Directory and such like ...
2. Advertising Boards/Stickers
We would recommend that a 5 foot by 4 foot, V angle board, describing the
development and the available units and giving our telephone number and logo be
erected on post to the front, at the most visible position ...
3. Press Advertising
We would
recommend that the availability of the Subjects be brought to the attention of
the wider market by means of an aggressive press advertising campaign.
The appropriate
media would be the Scotsman but on different days to appeal to different
sectors of the market ...
A series of four
initial adverts should be placed, programmed over the next 6 weeks and the
position regarding response monitored thereafter.
4. Timing
The market should be returning to a more normal level of activity following
the holiday period and we would recommend the immediate implementation of the
above mentioned measures.
We normally try
to have the first advertisement coinciding with the erection of the advertising
board and the implementation of the first mail shot. This can often serve to enhance the impact of
marketing the property and, given the nature of marketing to date anything
which can be done to enhance profit should be undertaken.
10. ESPC
There is no doubt that, in Edinburgh, the residential market is controlled
principally by the legal profession who publish the Edinburgh Solicitors
Property Guide. This is the most widely
residential property bulletin and, if the units are to be effectively marketed
individually, it will be necessary to effect inclusion within the ESPC. We are unable to organise this and we would
recommend that you seek assistance from your solicitors, Bird Semple, who have
already indicated that they would be in a position to help ...
We are confident
that we will be in a position to effectively market the subjects as a "unum quid" to the builder/developer
market but in the case of individual sales we feel that the bank's best
interests would be served if the ESPC publication can be used...
12. Owner Occupier Market
There is no doubt that the residential market in Edinburgh is becoming
increasingly active and a substantial level of activity taking place,
principally for good quality properties, in good locations.
We therefore
feel that provided an aggressive marketing campaign is implemented, at sensible
prices, there is a strong probability of satisfactory sales being
achieved. It should however be borne in
mind that it may still take a not inconsiderable period of time to effect a
sale of all six units.
14. Asking Prices
Notwithstanding
the content of our letter of 16 November 1995 wherein we apply values of
£48,500 for each of the ground floor units and £50,500 for each of the first
floor units, we consider that in order to encourage interest and generate
activity, pricing should be slightly below these figures and we would suggest
seeking offers in excess of £47,500 and £49,500 for the ground and first floor
units respectively...
On the basis of
a disposal of the subjects as a "unum quid",
we would draw your attention to our original report of 11 March 1993 wherein we
applied a "unum quid" value in the
order of £210,000. Given the fact that
prospective purchasers of this nature are likely to negotiate back from the
asking price we would recommend pricing the subjects at offers in excess of
£250,000 for the development as a whole ...
15. General Remarks
...
We consider that
the subjects are likely to have two distinct and separate markets which must be
approached on a different basis.
The owner
occupier market for individual properties must be aggressively attacked via the
ESPC and your solicitor contacts in conjunction with our own involvement.
The
developer/investor market should be approached on the basis of different
particulars and marketing techniques as outlined above. We do consider that from the bank's point of
view, the most sensible approach would be to attempt a disposal of subjects as
a whole for the reasons outlined earlier in this report.
Given an
aggressive and co-ordinated marketing programme we would be confident of
achieving a satisfactory disposal of the subjects on the Bank's behalf within a
reasonable time period ..."
[22] By letter dated 29
August 1996, Mr Nisbet was instructed by the defenders to
"undertake the procedures outlined within your report ...". The author of the letter (Miss McWilliams)
also indicated that she had spoken with Mr Dennison of Bird Semple, and that he
had confirmed that he would take the necessary steps to have the property advertised
in the ESPC (Edinburgh Solicitors Property Centre). Mr Nisbet was asked to contact Mr Dennison
directly in order to make the appropriate arrangements.
[23] The DM Hall Report and the bank's formal instructions to Mr
Nisbet to proceed in terms of the report represented the marketing strategy
proposed by the defenders in relation to the sale of the Harriers.
CRGP Robertson's Report
[24] The defenders also
instructed CRGP Robertson, Chartered Surveyors for a second opinion on the
value of the Harriers and marketability.
A report dated 24 September 1996 set out CRGP Robertson's
advice. Mr Watt was the author of that
report. One of the reasons advanced in
the report as to why none of the flats had sold was that the asking price had
been too high.
[25] In his report Mr Watt valued the aggregate open market value of
the six flats, if sold individually, at £267,000. On the basis that the sales were carried out
in a limited timescale he put forward an "estimated restricted realisation
price" of £243,000. In effect that
valuation represented a "forced sale" value.
[26] Broadly echoing the advice given in the DM Hall Report, Mr Watt
in his report suggested that "the subjects be vigorously remarketed at
realistic prices". He also expressed the
view that he expected the majority if not all of the flats could be disposed of
within three to four months "provided there is a vigorous marketing campaign
including extensive advertising".
Mr Watt on Advertising
[27] In his evidence Mr Watt explained that the circulation of
property particulars is important to the advertising of residential
property. They provide the first link
between the potential buyer and the property.
Properly presented they play an important part in attracting interest to
the property.
[28] In relation to the direct mailing exercise described in the DM
Hall Report Mr Watt explained that such an exercise would be normal and
good practice. In such an exercise he
considered it would be important to retain a record of to whom property
particulars were circulated so that they could subsequently be contacted to
enquire whether they might be interested in the property.
[29] Under particular reference to the press advertising proposed in
the DM Hall Report, Mr Watt was of the view that the recommendations made were sensible. Also, in relation to the timing of any
marketing he agreed that such timing was of significance, because traditionally
July/August and December/January were the quieter months of the year for the
property market.
[30] The proposal made in the DM Hall Report regarding advertisement
of the Harriers in the ESPC Mr Watt also described as being very sensible. He also agreed that the erection of boards at
the property itself was normal practice.
[31] Mr Watt was of the view that the extent of press advertising
that had occurred while the property was in the possession of debtor should not
be relied upon when considering press advertising. His view was that if results had not been
achieved in the past you should start afresh because the market did not remain
static. He considered newspaper
advertising to be "the core of any advertising campaign". He regarded press advertising, particularly
at the time when the Harriers were being exposed for sale by the defenders, to
be the main method of letting potential purchasers know that the property was
for sale. Also, advertising in
newspapers had a relatively short life-span, about 24 hours. That meant that it had to be refreshed.
[32] Mr Watt gave his evidence in a careful and measured way and I
accepted his evidence as summarised in paragraphs [24] to [31].
Viewing
[33] According to DM Hall's records the Harriers were viewed by Alan
Daly and Max Craimer on 24 October
1996.
[34] In the comments section of a property contact sheet relating to
Mr Daly the following remarks were made:
"Reilly McGinley/Conroy McInnes.
Digrasmart Ltd ..."
[35] In the comments section of the same property contact sheet
associated with Mr Craimer a note has been made "Very interested will
offer on the closing date".
[36] No other parties viewed
the Harriers.
The Receipt of Offers
[37] Messrs Reilly McGinley Conroy McInnes, Solicitors, Glasgow
submitted an offer dated 31 October
1996 on behalf of Digrasmart Limited ("Digrasmart"). The price was £205,000 and the date of entry
was set out as being 10 January 1997. In paragraphs [111] to [115] I look at the
position of Digrasmart Limited.
[38] The offer made on behalf of Digrasmart was expected. By letter dated 30 October 1996 Miss Balcombe of DM Hall wrote to
the defenders intimating that an offer of £205,000 for the Harriers was about
to be submitted. That letter made the
following observations:
"Further to our
telephone conversations of this week I write with regard to the above subjects
and developers, who have been to view the premises and intend to offer on the
property. I have spoken with John and
believe that he is in direct contact with the developers involved. Mr Daly has intimated that he will be
offering £205,000 for the development."
[39] Digrasmart was not mentioned in Miss Balcombe's letter of 30 October 1996. The reference to "John" was a reference to Mr
Dalby of the defenders. Mr Dennison said
in evidence that he was of the view that the bank (the defenders) had told Mr Murray
or Mr Daly about the Harriers. Mr
Murray also came to be associated with Digrasmart. At that particular time Mr Daly was a client
of Mr Dennison. Mr Dalby did not
demur from the suggestion that it may have been him who told Mr Daly about
the availability of the Harriers. I was
satisfied that the offer made on behalf of Digrasmart was prompted by contact
with the defenders rather than with any marketing campaign conducted on behalf
of the defenders by DM Hall.
[40] Another offer for the Harriers dated 8 November 1996 was also
received from Leslie Wolfson & Co, Solicitors, Glasgow on behalf of H&M
Developments (Scotland) Limited. The
price was £190,000 and the date of entry was stipulated as 17 January 1997. The Max Craimer who had viewed the Harriers
on 24 October 1996 was
associated with H&M Developments (Scotland)
Limited.
[41] Once again it was the defenders who had told Leslie Wolfson
& Co, and in particular Mr Silver of that firm, that the Harriers was on
the market. By letter dated 4 November 1996 from Leslie
Wolfson & Co, signed by Mr Silver and addressed to Mr Dalby of the defenders,
Mr Silver indicated that a preliminary inspection of the Harriers had taken
place and that an offer was to be made.
He also thanked the defenders for "putting this proposal to us". Mr Dalby said in evidence that he knew Mr
Silver and that it was possible that he had told him about the availability of the
Harriers. He said it was common practice
for the defenders to circulate prospective sales to Solicitors known to have
clients who were in the development market.
Also, by letter dated 23
October 1996 Miss Balcombe wrote to Miss McWilliams saying
that interest in the property had been expressed from a Mr Max Craimer "to whom
I believe John has sent sales particulars".
The "John" referred to in that letter was Mr Dalby.
[42] The interest in the Harriers expressed in the offers from the
two firms of Glasgow Solicitors was prompted by the defenders and not by any
marketing carried out by DM Hall.
[43] A closing date was fixed for 8 November 1996. The
decision to fix a closing date was triggered by the offer submitted on 31 October 1996 on behalf of
Digrasmart.
The Marketing Process
[44] DM Hall's marketing proposals are set out in paragraph [21]. The proposals included the preparation of
sales particulars, advertising boards, press advertising, advertising in the
ESPC and a direct mailing exercise. DM
Hall's proposals were designed to attract interest from the investor and
residential markets.
Sales
Particulars
[45] By letter dated 18
October 1996 the defenders wrote to DM Hall intimating that,
"Bird Semple
will also need the specifications of the property in order to place the details
in the ESPC, as advised in the strategy report prepared by DM Hall on 28 August 1996".
Subsequently on 21 October 1996 a fax was sent from DM Hall to
a firm called Genesis. Genesis was
engaged in the printing business. The
subject of the fax was described as "Urgent Particulars". Part of the fax bore to be a draft set of
particulars for the Harriers.
[46] By letter dated 23
October 1996 Miss Balcombe of DM Hall wrote to Miss McWilliams
of the defenders "enclosing two sets of sales particulars for the above
property". The sale particulars for the
Harriers were not available for dissemination to prospective purchasers until
about that particular date.
For Sale Boards
[47] The sales particulars produced in evidence disclosed that "for
sale" boards had been erected on site, albeit not of the size specified in the
DM Hall Report. It is not clear when
they were erected but they must have been erected prior to the preparation of
the particulars since they can be seen in the photograph displaying the
Harriers in the particulars.
Press Advertising
[48] No press advertisement of the Harriers took place prior to 7 November 1996. On that date, which was a Thursday, the
Harriers was advertised in the Scotsman.
The property section of the Scotsman on a Thursday is primarily directed
at the residential market, Tuesday being the day when property is advertised
for the investor market.
[49] On 8 November 1996
two further advertisements of the Harriers appeared, one in the Daily Express
and the other in the Dunfermline Press.
It follows therefore that the press advertising in relation to the
Harriers took place, firstly, on the day before the closing date and, secondly,
on the date of the closing date itself.
[50] The advertisement in the Scotsman of Thursday 7 November 1996 described the Harriers
as a development of six individual flats, but only a global "offers over" figure
of £250,000 was mentioned. The
advertisement did say that the flats were available individually with "prices
on application". The closing date was
said to be Friday 8 November at 12 noon. The advertisement in the Express of 8 November 1996 was in similar terms.
[51] The advertisement in the Dunfermline Press of 8 November 1996 had the incorrect
address - "Fernside Avenue"
- instead of "Fernieside Avenue". The details in relation to price and
availability as individual units were similar to the details given in the
advertisements in the Scotsman and the Express.
There was no mention of the closing date in the Dunfermline Press
advertisement.
[52] Advertisements disclosing only a global price for the whole
development are primarily directed at the investor market rather than the
individual residential market.
ESPC
[53] No documentary evidence was produced to show that advertising
of the Harriers in the ESPC had taken place.
Such advertising could not have occurred prior to the preparation of the
sales particulars in late October 1996.
DM Hall had to liaise with Mr Dennison on this issue and there was no
indication in the documents produced that that had occurred.
[54] The proposal to advertise
in the ESPC was not implemented.
The
Direct Mailing Exercise
[55] A direct mailing exercise to
persons including solicitors, surveyors and estate agents was one of the key
recommendations made in the DM Hall Report.
This type of exercise involves sending particulars of the property in
question on what was described in evidence on a "cold basis" and on the
assumption that the recipients of the particulars were people who might be
interested in the property concerned.
The sending of property particulars to selected recipients was described
as "mailshots".
[56] Miss Balcombe was unable to give any assistance as to whether
or not any direct mailing exercise had taken place. Perhaps not unsurprisingly, she had very
little recollection of this particular transaction. She had only been employed by DM Hall
from February 1996 to March 1998. At the
time of the proof she was self employed as a childminder. She had no recollection of a list containing
names of local solicitors, surveyors, estate agents and other property
professionals active in the market to whom particulars of this type of property
might have been sent.
[57] In his evidence Mr Nisbet maintained that unless specifically
instructed not to carry out the direct mailing exercise, DM Hall would always
carry out such an exercise. He saw the
direct mailing exercise as a fundamental and inherent part of the marketing
process. When asked directly whether the
direct mailing exercise had taken place his response was that "As far as I am
aware, yes". DM Hall had no record of
such an exercise taking place in this case but Mr Nisbet's position was that at
that time a record was not kept. Mr
Nisbet explained that it would be the office juniors who would be directly
involved in the exercise and that he himself would not be involved in the
actual preparation or issuing of the mail shots. Without a record he himself would have no way
of checking that the exercise had in fact been carried out.
[58] In paragraph [94] to [99], I deal with Mr Nisbet's credibility
and reliability as a witness.
[59] The direct mailing exercise had to include sending the
particulars relating to the Harriers to the chosen recipients, and as I have already
set out in paragraph [46], the particulars were not available until about 23
October 1996. Two offers were received
but as I find in paragraph [42] these offers were not prompted by any direct
action on the part of DM Hall.
Furthermore, the fixing of the closing date for 8 November 1996 was triggered by the offer
of 31 October 1996 made on
behalf of Digrasmart Limited and not by interest from any other source.
[60] Apart from Mr Nisbet's supposition that direct mailing had
taken place there was no evidence to suggest that the direct mailing exercise
had taken place. To the extent that Mr Nisbet's
evidence amounted to a positive assertion that direct mailing had taken place,
I did not accept it. (See paragraphs [94]
to [99] in relation to Mr Nisbet's credibility and reliability). I had little difficulty in concluding that
the direct mailing exercise had not taken place.
Advice on Offers
[61] By letter dated 11
November 1996 DM Hall suggested to the defenders that it might be
in their best interests to accept the offer of £205,000 with an entry date of 10 January 1997. There is no suggestion in DM Hall's letter of
11 November 1996 that the
aggressive and co-ordinated marketing programme set out in the Report of 28 August 1996 had not been
carried out.
[62] The letter of 11
November 1996 containing DM Hall's advice on the offers contained
the following observations:
"Turning to the
question of selling the property individually, such is obviously more difficult
in that six individual purchasers would require to be found whilst still
accommodating ongoing marketing and security costs. Our on site experience has indicated that
given the level of time on the market some potential purchasers are genuinely
concerned that they would possibly be residing in isolation for a considerable
period of time."
The only record of on-site
experience was that relating to Mr Daly and Mr Craimer (see paragraphs [33] -
[36]). Both these individuals were
property investors. There was no on-site
experience with the residential market.
The remarks just quoted from DM Hall's letter of 11 November 1996 were grossly misleading. .
[63] The defenders also sought advice from Mr Watt of CRGP
Robertson. Initially he responded by
letter dated 5 November 1996 saying that he found the offers "somewhat
disappointing" and that even on a "job lot" basis he would have expected an
offer perhaps in the region of £230-240,000.
In that letter Mr Watt indicated that "before finally commenting on this
matter it would be useful to have the views of the selling agents". He also asked if DM Hall could provide a
report on their efforts to attract suitable purchasers.
[64] Mr Watt wrote again to the defenders on 12 November 1996. At that time, Mr Watt had before him the
letter of 11 November 1996
containing the advice of DM Hall. He
assumed that the kind of advertising set out in the DM Hall's Report had indeed
taken place. In his letter of 12 November 1996 Mr Watt repeated
that he considered the offer of £205,000 "somewhat disappointing". However he considered that in view of the
"deteriorating circumstances of this case clearly expressed by DM Hall in
the letter to you it would appear that you really have no option but to adhere
to DM Hall's advice and accept the offer of £205,000 ..."
Conclusion of Missives
[65] A qualified acceptance of the offer submitted by Messrs Reilly
McGinley Conroy McGuiness was not sent until 9 December 1996.
The price of £205,000 was accepted but the date of entry was changed to 30 January 1997. A number of other qualifications were
proposed.
[66] The Missives for the sale of the Harriers were not concluded
under 9 October 1997. The agreed purchase price was reduced to
£195,000 and the agreed date of entry was 10 October 1997.
Reasons for Reduction in Price
[67] When the defenders took possession of the Harriers in early
September 1996, the pursuer's son was in occupation of one of the flats. That remained the position until December
1996. By being in occupation of one of
the flats he was performing a security function.
[68] In a letter of 2
October 1996 to Miss Balcombe, Miss McWilliams acknowledged that
the pursuer's son was performing such a security function. She went on to say,
"However, Brian
now feels that if DM Hall can provide effective security arrangements, it would
be prudent to make arrangements for Mr Wilson's son to vacate the flat."
[69] In a letter of 7
October 1996 to Miss Balcombe, Miss McWilliams set out that she
thought it "would be sensible to allow Mr Wilson's son to remain on site for
the time being". Subsequently in her
letter of 18 October 1996
to Miss Balcombe, Miss McWilliams wrote in the following terms,
"Brian Dennison
requires confirmation of the security details in order to revert to our
client's solicitors and inform them that we have full control over security
arrangements and therefore no longer consider that Mr Wilson's son's occupation
of one of the flats is necessary for that purpose."
[70] In her reply of 23
October 1996 Miss Balcombe indicated that in relation to security
measures she was awaiting a quotation from Burns Security with regard to
placing a night watchman at the property.
She also indicated that she was awaiting quotations from a company with
regard to specialised perplex sheeting which could be placed over the
windows. Miss Balcombe wrote again on 30 October 1996 sending Miss
McWilliams a quotation from the Security Company.
[71] When the pursuer's son came to vacate the premises in December
1996, the Harriers had not suffered any damage of any significance. Of course at that time it was anticipated
that entry was to be taken at the end of January 1997.
[72] Mr Dennison who was dealing with the conveyancing on behalf of
the defenders left Bird Semple in about March 1997 and the transaction was then
taken over by Mr Thompson. One reason
for the delay was that Digrasmart did not obtain an offer of funding from the
Clydesdale Bank until April 1997. DM
Hall had stipulated in their marketing strategy that prospective purchasers had
to produce evidence of funding at the outset.
The unsuccessful bidder, H & M Development Ltd, did provide such
evidence but Digrasmart did not. Also, an issue arose in relation to the
validity of the title. Mr Urquhart
explained it was the type of title issue that could easily be resolved by
obtaining defective title insurance. That
indeed was how the problem was ultimately resolved, but not until October 1997
shortly before conclusion of missives on 9 October 1997.
[73] The delay from the date of the qualified acceptance to the
conclusion of the missives resulted in a deterioration of the property. It became the target of vandalism. Boilers were removed from some of the flats
and that could only have occurred by DM Hall releasing the keys which were in
their possession.
[74] The final settlement of the transaction was only achieved by
the defenders agreeing with the purchasers that the price could be discounted
by £10,000 to take account of the repairs that required to be carried out to
the Harriers. That reduction was agreed
on the recommendation of DM Hall that such a reduction was reasonable.
[75] On 16 December 1997
Mr Dalby wrote to Mr Nisbet indicating that when the sale of the Harriers
was finally concluded in October 1997 for £195,000, the defenders were now in a
"loss situation". The purpose of the
letter was to set out why the defenders considered they were in that situation
and to request that DM Hall refrain from invoicing them in order to avoid
further losses for the defenders.
[76] The damage to the Harriers appears to have been caused by
vandalism but also because according to what was said in Mr Dalby's letter, at
least two boiler systems had been removed.
There was no evidence of break-ins and at the time in question the keys
were under DM Hall's control. In his
letter Mr Dalby went on to say,
"You can imagine
that replacement of these boilers contributed greatly to the £10,000 allowance
that was subsequently negotiated with the purchaser prior to agreeing to
complete the sale."
[77] In his evidence Mr Dalby said that he considered that
replacement of the boilers made a significant contribution to the defenders'
position in relation to the £10,000 discount.
Payment
[78] The purchase price of the Harriers was credited to the pursuer's
account with the defenders on 14
October 1997. By then his
account was overdrawn in the sum of £193,412.22. The crediting of the purchase price to his
account at that time meant that he had a credit balance of £1,587.78. As at 27
February 1998, the pursuer had a debit balance of £8,172.44. It is in respect of that sum that the
defenders counterclaim. His account was
in that position because the defenders had debited to the pursuer's account the
costs associated with the sale of the Harriers, some other miscellaneous costs
and bank charges. Had the price not been
reduced from £205,000 to £195,000, the pursuer's account would not have been
overdrawn in February 1998.
The Evidence of Mr Nisbet
Introduction
[79] Mr Nisbet was an experienced
chartered surveyor (see paragraph [5]d).
He was the senior commercial partner in DM Hall and was responsible for
the operation of the commercial department of DM Hall throughout Scotland. In particular, he was in charge of the
specified dedicated asset management realisation department of DM Hall. That department was involved in a significant
amount of recovery work for heritable creditors, receivers and trustees. Mr Nisbet had been closely involved in acting
for heritable creditors in the recovery and sale of properties throughout his
career.
[80] Mr Nisbet explained that he first became involved in the
proposed development of the Harriers in January 1993. It was then that DM Hall were instructed by
the defenders to provide an appraisal report and to give advice in respect of
the proposals being put forward by Mr Wilson for the development of the
Harriers. An appraisal report is
designed to give the prospective lender advice as to the financial viability of
the proposed development. He provided
the bank with a report dated 12 March
1993.
[81] Mr Nisbet provided the defenders with another report dated 27 January 1995, again providing
valuation advice. Whereas the DM Hall
Report of 12 March 1993 had
produced an aggregate valuation of £255,000 the Report of 27 January 1995 provided the defenders with an
aggregate valuation for the six flats of £306,000 "for bank mortgage
purposes". The Report of 12 March 1993 provided a unum quid valuation of £180,000. No unum
quid valuation was provided in the Report of 27 January 1995.
[82] In relation to the DM Hall Report (the Report of 28 August 1996 tendering the
marketing recommendations), Mr Nisbet explained that that report contained a
mixture of stock and specific advice. He
meant by that description that, although tailored towards the particular case
of the Harriers, certain aspects of the advice tendered would generally be
tendered in such circumstances.
[83] Mr Nisbet maintained that at the time of the preparation of the
DM Hall Report he was in no doubt that the Harriers would only be sold as a unum quid and not as six individual
properties. He said that in his
experience heritable creditors were never successful in generating individual
sales of properties of this kind.
[84] Mr Nisbet also said that when he prepared the DM Hall Report he
did not have any specific information as to how the property had been
advertised before that date. He said
that it was only after he was instructed that he became aware that the Harriers
had been widely and exhaustively advertised in the past.
Repossession
Stigma
[85] In his evidence, Mr Nisbet repeated the importance of avoiding
what he described as "repossession stigma" in the sale of properties on behalf
of heritable creditors. In the DM Hall
Report Mr Nisbet had put the position in this way:
"... Accordingly,
if prices are to be maximised it would be imperative to avoid any question of
repossession, and the borrower's co-operation will therefore be required if
this goal is to be achieved."
[86] He went on to say in his evidence that this goal was not
achieved during the marketing of the Harriers.
[87] According to Mr Nisbet, during the marketing of the Harriers,
the pursuer regularly turned up at the property and "engaged anybody willing to
listen" with suggestions that the bank had acted incorrectly. In his evidence in chief Mr Nisbet maintained
that this information was available from records and file notes kept by DM
Hall.
[88] In cross examination Mr Nisbet was taken to task in relation to
his assertion that it was the pursuer's interference at the site of the
Harriers that disclosed to prospective purchasers that the Harriers had been
repossessed. He was reminded that at a
Commission Hearing for the recovery of documents on 24 November 2003 he had
produced documents relating to the sale of the Harriers. It was pointed out to him that there was
nothing in the documentation produced to support his allegation that records
had been kept detailing the pursuer's alleged interference.
[89] Mr Nisbet looked decidedly uncomfortable when giving this part
of his evidence. He then maintained that
there was "anecdotal information" on this matter given to him by his staff and
that he may have been "possibly confused and mistaken" when he used the phrase
"file notes". At one point he said that
there was correspondence and notes on file indicating that in December 1996
when one of the joiners appeared at the property to undertake some boarding-up
works "he was approached by an individual and to be perfectly honest we assumed
it was Mr Wilson who questioned everything that had been done".
[90] Finally, in his cross examination when asked directly whether
he had any recollection even from files notes which had not been produced about
information about Mr Wilson engaging prospective purchasers in discussions Mr
Nisbet replied by saying that if he used "the word prospective purchasers I was
incorrect. We have no records of that".
[91] This issue was revisited in the re-examination of Mr
Nisbet. When asked to elaborate upon
what he meant by "anecdotal evidence" Mr Nisbet suggested that the source was
one of his partners whose brother-in-law lived in Gatehouse of Fleet where he
understood Mr Wilson to have a caravan.
Mr Nisbet suggested that the information that he had become aware of was
that Mr Wilson was "making no secret of his displeasure to anybody who was
listening there" and there is no reason not to expect that that would be the
same at the Harriers.
Press
Advertising
[92] When asked about the recommendations made in the DM Hall Report
on press advertising Mr Nisbet accepted that such advertising did not take
place in accordance with what was set out.
He appeared to justify that on the basis that interest had been received
from interested parties "presumably from our direct mailing exercise and the
provision of the advertising boards". He
said that when the competing interests had appeared and "a pre-emptive" offer
had been received that in order to identify prospective purchasers there was no
need to follow the press advertising recommendations because a unum quid sale would be achieved. He said that DM Hall were confident that
they could identify prospective purchasers who had acquired this type of
repossessed property from their own database and information sources.
[93] In so far as the placement of the advertisements on 7 and 8 November 1996 were
concerned, Mr Nisbet explained that there were two reasons for carrying out
that particular exercise. He said the
principal reason was to comply with the terms of repossession sales whereby if
a clear title is to be granted, the Keeper of the Registers must be satisfied
that the property had been advertised on at least one and ideally two occasions
prior to a closing date "or on a closing date".
The second reason he described as being a much less important reason and
he referred to it as "a sweep-up" to see if there was any other party who might
have had an eye on the property without having actually identified
himself.
Mr Nisbet's Credibility and
Reliability
[94] Mr Nisbet blamed Mr Wilson for causing the Harriers to become
"an obvious repossession case" but it became clear particularly in the course
of his evidence which I have summarised in paragraphs [85] to [91] that he had
no justification for doing so. When
faced up with the fact that there was no documentation to support his position
he became uncomfortable in evidence and tried to explain away his position in
other ways, culminating in his position in re-examination summarised in
paragraph [91]. It was clear to me that
Mr Nisbet deliberately sought to mislead the Court in relation to this
particular issue.
[95] In paragraph [62] I looked at the details of the advice given by
DM Hall to the defenders on 11
November 1996. The letter
setting out this advice suggested that "Our on site experience has indicated
that ... some potential purchasers are genuinely concerned that they could
possibly be residing in isolation ..."
That letter was signed by Miss Balcombe and although Mr Nisbet said he
may not have seen this letter he agreed that he would have discussed its
contents with Miss Balcombe. The
reference to potential purchasers in the context of on site experience was
wholly misleading. The only evidence of
potential purchasers related to the two investors who eventually were behind
the offers that were made.
[96] Mr Nisbet maintained that at the time of the preparation of the
DM Hall Report he did not know the extent of previous marketing carried out by
the pursuer, and that it was sometime after the Report had been submitted that
he became aware of the extensive advertising that had been carried out by the pursuer. However, the covering letter sent with the DM
Hall Report went on to say:
"This is a few
days later than I would have hoped, but you will gather that I do feel that
there are a number of aspects which must be fully explored, and it is for this
reason I thought it would be better to take a little more time and provide a
comprehensive report."
In the body of the report itself
reference is made to previous marketing in this way "... given the nature of
marketing to date, anything which can be done to enhance the profit should be
undertaken".
[97] It would be extremely surprising if a surveyor of Mr Nisbet's
experience had not made himself fully aware of the track record of any
marketing strategy before recommending his own marketing proposals. I did not find Mr Nisbet's evidence
credible on this issue. I formed the view
that he sought to use the pursuer's extensive marketing of the Harriers as an
excuse for DM Hall's failures in marketing.
Nor did I accept his contention that he only ever expected a unum quid sale. In the DM Hall Report, he had put forward
detailed proposals for the advertising of the Harriers to the residential
market. His position was not supported
by Mr Watt who considered that sales on the residential market were a realistic
option. Again, I formed the conclusion
that Mr Nisbet's insistence upon a unum
quid sale being the only realistic option was designed to mitigate DM
Hall's obvious failure to advertise the Harriers adequately to the residential
market.
[98] When it was put to Mr Nisbet in cross examination that the
failure to properly advertise the Harriers to the residential market was a
significant departure from the recommendations in the DM Hall Report Mr Nisbet
sought to evade the question but eventually accepted that it was a significant
departure.
[99] On the whole I was of the view that Mr Nisbet was not a
credible and reliable witness. In
relation the issues that were of importance in this case I concluded that,
unless his evidence was independently supported by other credible and reliable sources
of evidence, I could not accept his evidence.
The State of the defenders'
Knowledge on Marketing
[100] By letter dated 2
October 1996 Miss McWilliams wrote to Miss Balcombe enquiring about
"the latest sales strategy".
Subsequently by letter dated 7
October 1996 Miss McWilliams wrote to Miss Balcombe saying that she
looked forward to "receiving a reply to my letter of 2 October in due course". Again by letter dated 18 October 1996 Miss McWilliams wrote
to Miss Balcombe making reference to her letters of 2 and 7 October. That letter went on to say
"Bird Semple
will also need the specifications of the property in order to place the details
in the ESPC, as advised in the strategy report prepared by DM Hall on 28th August 1996.
In addition I am
required to keep our Recoveries Department in London
informed of marketing/sales progress (as outlined in the before mentioned
DM Hall Report) on a regular basis."
[101] Paragraph [45] sets out that a fax was sent on 21 October 1996 to Genesis from DM
Hall with the subject "Urgent Particulars".
It was only with the letter dated 23 October 1996 that Miss Balcombe on behalf of DM
Hall sent two sets of sales particulars to Miss McWilliams.
[102] Miss McWilliams accepted in evidence that by early November 1996
she had but recently received the sets of particulars. She also agreed that she could not recall any
advertisements of the Harriers having appeared by then.
[103] In his evidence Mr Dalby said that he was not aware what was
happening on the marketing side on a day to day basis.
[104] By letter dated 14 November 1996 Mr Dalby wrote to the pursuer
telling him that two offers had been received in respect of the Harriers. The letter began in the following way:
"As you were
aware, following your own extensive marketing since the properties above were
completed, DM Hall have been widely marketing the units, and advertised them
twice in the press last week."
The letter went on to say that
based on the advice being given, the defenders had instructed their solicitors
to accept the offer of £205,000 with a date of entry at early January 1997.
[105] When asked in evidence about the reference in the letter of 14
November 1996 to DM Hall "widely marketing the units" Mr Dalby said that
he was not aware of the detail of what DM Hall had been doing. He did say that he had been aware that the
Harriers had been advertised in the press the week prior to his letter. He thought that the defenders had copies of
the advertisements at that time.
[106] In relation to the direct mailing exercise, Mr Dalby believed
that in early November when consideration was being given to the offers that
had been made that that exercise had taken place. As at November and under reference to the DM
Hall Report Mr Dalby had expected that an aggressive press advertising campaign
was to be carried out. He considered
that the type of advertising proposed by DM Hall was standard.
[107] In cross examination a letter from Miss McWilliams to Mr Dennison
of 4 November 1996 containing the following passage was put to Mr Dalby:
"John Dalby has
spoken with Anne Marie Balcombe of DM Hall and ascertained that the property
will be advertised twice this week in the Edinburgh press with a closing date
for offers of Friday 8 November 1996."
Mr Dalby accepted that it did in
fact appear that there had not been any press advertisements of the Harriers
until that particular time. In his cross
examination Mr Dalby agreed that a delay from the end of August 1996 to
the first week of November 1996 was an inordinate delay in relation to
advertising in newspapers.
[108] In relation to the advertisement placed in the Express and
Dunfermline Press of 8 November 1996 Mr Dalby agreed that they
were useless in relation to seeking interest from individual purchasers. He held a similar view in relation to the
advertisement placed in the Scotsman of 7 November 1996.
[109] Mr Dalby's position was that if he had known there had been no
ESPC advertising and no press advertising before the closing date was fixed he
would have been concerned that DM Hall had not advertised the properties
properly.
[110] I would summarise the state of the defenders' knowledge on
marketing in the following way. The defenders
knew no press advertising had taken place prior to 7 November
1996. They knew that as at late October
particulars could not have been circulated to prospective purchasers. They knew from the DM Hall Report that the
direct mailing exercise could not take place without the sales
particulars. As at early November 1996
the defenders knew that very little had been done to implement the proposals
that they had instructed DM Hall to carry out in their letter of 29 August
1996.
Digrasmart Limited
[111] Digrasmart was ultimately
the purchasers of the Harriers.
[112] Digrasmart was incorporated on 31 May 1996. At
that time the directors were companies controlled by Bird Semple, the defenders'
Agents. These companies were
respectively known as Quill Serve Limited and Quill Form Limited. These companies resigned as directors on 10
December 1996. On 6 December 1996 Mr Daly became a director
of Digrasmart and Mr Murray became the Secretary.
[113] It follows that at the date of the offer made on behalf of
Digrasmart on 31 October 1996
the directors of that company were companies in the control of Bird Semple. Also, at the date of the qualified acceptance
of 9 December 1996 the Bird Semple companies were still directors of
Digrasmart.
[114] In his evidence, Mr Dennison explained that Digramsart was a
shelf company in the ownership of Bird Semple.
He explained that it was a company which was being set aside for Mr Daly
and Mr Murray for use in connection with a particular project that had not in
fact materialised. In relation to the
offer made on behalf of Digramsart for the Harriers, Mr Dennison insisted
that no member of Bird Semple had been involved in the decision to offer for
that property. In the period between May
and December 1996 it was Mr Daly and Mr Murray who were making any
decisions in relation to Digrasmart. The
Bird Semple companies, Quill Form Limited and Quill Serv Limited were simply
nominees and played no part in the substantive decisions made on behalf of
Digrasmart.
[115] In paragraph [39], I expressed the view that Mr Daly had been
told about the availability of the Harriers by Mr Dalby of the defenders. Mr Daly was a client of Mr Dennison but
he also used other legal firms in his property dealings. The offer made on behalf of Digramsart was
made by Messrs Reilly McGinley Conroy McGuiness.
The Evidence of Mr Urquhart
[116] Mr Urquhart's experience is
set out at paragraph [4]f.
[117] In connection with this action Mr Urquhart prepared a report
(6/213 of Process). He had been asked to
"form an opinion
as to whether the procedures adopted by the bank and by the surveyors and
solicitors instructed by the bank, were sufficient to comply with those
obligations which are imposed on the bank as heritable creditor to protect the
interests of the heritable proprietor, in particular the obligations imposed
under Section 25 of the Conveyancing and Feudal Reform (Scotland) Act
1970."
[118] In his report and also in his evidence, Mr Urquhart sought to
inform the Court on matters of conveyancing practice in relation to the
marketing of property for purposes of Section 25 of the Act. He also sought to inform the Court on conveyancing
practice in dealing with the sort of title problem that arose in this
particular case.
[119] In his report and evidence, he drew certain inferences and formed
a conclusion that the facts and circumstances surrounding this transaction gave
rise to a suspicion that the interests that were being pursued were perhaps
Digrasmart's interests to the detriment of the pursuer's interests.
[120] In so far as Mr Urquhart sought to inform the Court in relation
to conveyancing practice, I found his evidence helpful. However in relation to any inferences he
sought to draw from the facts and circumstances as he saw them, he transgressed
into what was essentially the Court's function and, in so far as that evidence was
concerned, I disregarded it.
[121] So far as advertising was concerned, Mr Urquhart's prime focus
was on the press advertising carried out by DM Hall. He explained that, although Section 25 of the
Act does not mention that advertising must be press advertising, it was by
press advertising that almost invariably heritable creditors sought to comply
with their obligation under that section.
He explained that solicitors acting for a purchaser from a heritable
creditor normally expect to see certificates of press advertising as
confirmation that the "statutory procedures" have been followed. Although to advertise on one occasion only
cannot always be said to be inadequate, Mr Urquhart's view was that the common
practice was to advertise on at least two occasions - those occasions being a
week apart, and often longer.
[122] In relation to the choice of media for press advertising, Mr
Urquhart explained that the appropriate choice for the property developer
investor market was the commercial property pages of the Scotsman, and to
target the West of Scotland market, the Herald.
[123] Mr Urquhart pointed out that, as it turned out, the offers made
for the Harriers were on behalf of West of Scotland based companies. The property had been advertised on the "residential
day" in the Scotsman. There was no press
advertising targeting the developer/investor market price to the closing date
of 8 November 1996.
[124] In relation to the owner/occupier market, he said that the choice
of the Scotsman residential section was appropriate as was the Express. The fact that the advertisements in these
newspapers did not disclose the prices of the individual flats would tend not
to generate owner/occupier interest. He
thought that the choice of the Dunfermline Press as an appropriate medium for
this type of advertisement was "bizarre".
That was a local newspaper with a geographically restricted circulation
and such an advertisement did not represent an appropriate targeting of either
the commercial or owner/occupier markets.
[125] Mr Urquhart regarded the timing of the advertisements in the
different newspapers as being incomprehensible.
Advertising on 7 and 8 November 1996 and specifying a closing date
of 8 November 1996 in the Scotsman and Express advertisements meant that
any prospective purchaser would conclude that it was too late to respond. Any such purchaser at a minimum would require
to view the property, instruct a survey or at least a valuation, wait for that
survey to be carried out, assess its conclusions, ascertain the availability of
funding and instruct a solicitor to make an offer.
[126] In his cross examination, Mr Urquhart accepted that in general
terms it would be reasonable to take into account previous marketing efforts
when dealing with a property that was not being exposed fresh to the market for
the first time. However, he went on to
make the point that for purposes of Section 25 of the Act, the advertising that
is taken into account in terms of determining whether the heritable creditor
has fulfilled his duty under that section, is advertising by the heritable
creditor.
[127] As far as Mr Urquhart was concerned, the conveyancing transaction
that ultimately took place after the Digrasmart offer was provisionally
accepted was inordinately protracted.
The Final State of the Pursuer's Account with the Defenders
[128] By letter dated 16 March 1998, Miss McWilliams wrote to the
pursuer confirming the state of his account with the defenders after the
application of the sale proceeds of £195,000 and the deduction of interest and
of fees paid to Bird Semple and DM Hall in connection with the sale of the
Harriers. She informed the pursuer that
his account was showing a debit balance of over £8,000. She indicated that "It is anticipated this
will be written off by the Dunbar Bank ... and that a final statement will be
sent to you showing that the account has been closed."
[129] Previously, by letter dated 10 March 1998, Miss McWilliams had
written to Mr Thomson of Bird Semple providing information in relation to the
pursuer's account. She informed Mr
Thomson that when fees, outlays and interest were taken into account "this left
Dunbar Bank with a shortfall of £8,172.44 which has now been written off by the
Bank".
[130] It was not for Miss McWilliams to decide whether or not the
pursuer's debt could be written off.
Notwithstanding her expectations, no formal decision was made by the
defenders to write off the pursuer's debt.
[131] The fees and outlays referred to by Miss McWilliams were those
incurred by Bird Semple and DM Hall.
Bird Semple's fees and outlays amounted to £5,150.81 and that was paid
by the defenders. DM Hall's fees and
outlays amounted to £7,477.34 but the defenders only paid for DM Hall's outlays
of £2,834.40. The defenders were unhappy
with the service provided to them by DM Hall during the period when the
vandalism and removal of boilers took place and refused to pay their fees.
Submissions
Submissions on behalf of the Pursuer
[132] On behalf of the pursuer Mr Haddow QC advanced four
propositions. Firstly he argued that the
defenders owed the pursuer a duty to take all reasonable steps to ensure the
price received for the subjects was the best that could have been reasonably
obtained. That proposition was not
disputed by Mr Sandison. Secondly, he
argued that that duty was not satisfied merely by taking advice and entrusting
the sale to DM Hall and Bird Semple, unless these agents also acted to
ensure that the price was the best that could be reasonably obtained. Thirdly he argued that in the circumstances
of this case, the onus was on the defenders to establish that they and their
agents acted in a way that ensured the price received for the subjects was the
best that could have been reasonably obtained.
Fourthly, he submitted that the value to be looked at was not a knock
down figure sufficient to pay off the loan but the proper market value of the
subjects. Mr Sandison did not disagree
with that fourth proposition.
[133] Mr Haddow submitted that when considering the duties upon a
heritable creditor, there was no difference to be drawn between statute and
common law. Mr Sandison in his
submissions agreed with that proposition.
[134] In developing his position Mr Haddow submitted that there were
two routes open to the pursuer. The pursuer
had a direct claim against the defenders because of their own failures, but in
any event an indirect route because of, in particular, the failures of DM Hall,
the defenders' agents.
[135] So far as the indirect route was concerned, Mr Haddow placed reliance
upon Cuckmere Brick Co v Mutual Finance Limited 1971 1 Ch. 949; Commercial and General Acceptance Limited v Nixon and Another 1983 152 CLR 491 and Bissett v Standard Property Investment plc 8 July 1999, (Unreported) to
support the proposition that a heritable creditor would be liable under Section
25 of the Act for the negligence of his agents even if reasonable care had been
taken to choose competent agents.
[136] Mr Haddow's essential position was that the marketing of the
Harriers was wholly inadequate. With
particular regard to the press advertisement that had taken place Mr Haddow
submitted that that advertisement had not been conducted in terms of Section 25
of the Act. The purpose of advertisement
was not simply to be in a position to say that advertisement had taken place. It was necessary to consider the ultimate aim
of the statutory provision, the aim being to ensure that the sale price was the
best that could reasonably be obtained.
Reference was made to Highland
Regional Council v British Railways
Board 1996 SLT 274. What took place
was a "sham". Mr Haddow submitted that as
at early November 1996 the defenders knew, or ought to have known, that
DM Hall had failed to carry out their instructions on marketing and that
the marketing of the Harriers was inadequate.
The defender therefore bore a direct responsibility. In any event the defenders were liable for
DM Hall's failures.
[137] In submitting in support of his third proposition that the onus
was on the defenders to establish that they and their agents had acted in
accordance with the terms of Section 25 of the Act, Mr Haddow argued that there
had been collaboration between the bank, Bird Semple and DM Hall to secure "a
lucrative deal" for Digrasmart/Mr Daly.
He submitted that the guiding object was not the realisation of the best
price for the subjects but rather to achieve a result that did not disadvantage
the bank but would advance Mr Daly's interests.
Reliance was placed upon Tse Kwong
Lam v Wong Chit Sen 1983 1 WLR 1349.
[138] On the issue of damages, Mr Haddow submitted that
Mr Watt's evidence provided a basis upon which an appropriate assessment
of the pursuer's loss could be made. Mr
Watt had valued the Harriers at an aggregate figure of £267,000. The pursuer's level of borrowing as at 31
December 1996 should be used when applying the appropriate set-off since that
would represent a time at which it was reasonably anticipated the Harriers
could have been sold. At that time, the
pursuer was overdrawn in the sum of £176,601.08. In broad terms Mr Haddow submitted that
I should grant decree in the sum of about £88,000.
[139] So far as the defenders' counterclaim was concerned, Mr Haddow
submitted that the evidence disclosed that the sum outstanding after the
proceeds of sale had been applied had been written off by the defenders. He argued that such a conclusion was a
reasonable inference from the evidence.
In any event, it was the delay which occurred in the settlement of the
transaction and the damage caused during the period off that delay that
generated a situation in which the outstanding indebtedness had not been wholly
paid off by the proceeds of the sale.
Mr Haddow submitted that the defenders and their agents were
responsible for that delay.
Defenders' Submissions
[140] Mr Sandison agreed that there was a duty on a heritable creditor
to take all reasonable steps to ensure that the price in which the subjects are
sold is the best price that could be reasonably obtained but he argued that the
pursuer had failed to prove that the defenders were in breach of duty. His position was, so far as the defenders
themselves were concerned, that there was no evidence that they failed in their
duty under Section 25 of the Act. In
relation to the position of DM Hall, Mr Sandison submitted that the heritable
creditor in possession complied with the duty under Section 25 by engaging
apparently competent agents and taking their advice. He submitted that that was what had occurred
in this particular case.
[141] In exploring the nature of the duty on a heritable creditor in
possession in such circumstances Mr Sandison placed particular reliance on Dick v Clydesdale Bank plc 1991
SLT 678. He argued that absent some
specific averment that DM Hall ought not to have been appointed then the pursuer
could not succeed. In Scotland the
heritable creditor in possession in exercising his power of sale is in the
position of a quasi-trustee for the
debtor and accordingly the creditor sufficiently performed his duty if he
employs competent agents to market the subjects.
[142] On the assumption that Scots law did treat the heritable creditor
as responsible for his agents, liability could only arise if the agents had
been negligent. He referred to Cuckmere Brick Co v Mutual Finance Limited (supra)
and Routestone Limited v Minories Finance Limited 1997 1 EG 123. Mr Sandison argued that the evidence fell
short of establishing that DM Hall and Mr Nisbet in particular had been
negligent.
[143] In relation to the attack made by the pursuer based upon
collusion and conspiracy Mr Sandison pointed out that there was no
plea-in-law to support such an approach.
In any event he submitted that the pursuer had failed to establish the
degree of connection required to justify a reversal of onus. Reference was made to Hallsbury's Laws of
England, 4th edition, Volume 32, paragraph 659 and 660, Morgan and Morgan v Lloyds Bank plc 1981 Lloyds Law Reports: (Banking) 73 and Newport Farm Limited v Damesh Holdings Limited (2003) UKPC 54.
[144] Mr Sandison placed reliance on the fact that a point was reached
when two offers for the Harriers were received and submitted that even if it
could be said there had been a breach of duty there was no evidence to
establish any loss or causally link any loss to any breach of duty. He highlighted the fact that Mr Watt had also
recommended acceptance of the price of £205,000.
[145] Under specific reference to Dick
v Clydesdale Bank plc (supra) Mr Sandison argued that there was
no averment or proof that anyone was in the market willing to pay more than had
been paid by Digrasmart. It was not
enough to prove a breach of duty. The pursuer
had to prove that in fact at the time of the sale there was someone in the
market who would have paid a higher price and it was the defenders' breach of
duty that caused that person to fail to pay that price. He also relied upon Davidson v Clydesdale Bank
plc 2002 SLT 1088 and Parker-Tweeddale
v Dunbar Bank plc 1991 Ch. 12.
[146] In relation to the delay in the settlement of the transaction,
the issue was whether the fact that the transaction took a long time to settle
was as a result of negligence on the part of the defenders or their
agents. He submitted that everyone
involved was doing what could be done at the time.
[147] When dealing with the defenders' counterclaim Mr Sandison pointed
out that there was no dispute that the pursuer's account was overdrawn in the
sum of £8,172. Mr Sandison submitted
that the critical question was whether the pursuer's obligation to pay that
debt had come to an end. In the absence
of prescription there could be no presumption that such an obligation would
come to an end. The onus was on the pursuer
to prove that the obligation had indeed come to an end. The only intimation to the pursuer was that
it was "anticipated" that the loan would be written off but that in fact had
not happened. In the circumstances the pursuer
required to prove waiver and that involved proving that the communication to
him caused him to conduct his affairs on that basis. There were no averments and there had been no
evidence in support of waiver. Reference
was made to Moodiesburn House Hotel
Limited v Norwich Union Insurance
Limited 2002 Scots Law Times 1069.
The Pursuer's Reply
[148] In dealing with Mr Sandison's criticism that there was no
evidence that DM Hall had acted below the relevant standard of care, Mr
Haddow submitted that there was unanimity that the kind of advice given by DM
Hall in the DM Hall Report was the sort of advice that would be expected in the
circumstances. Furthermore, in this case
the issue was not simply whether there was negligence in marketing. In the circumstances of this case the defenders
specifically instructed DM Hall to proceed in terms of the DM Hall Report. DM Hall failed to follow these
instructions.
Discussion
Duty on the Defenders under Section
25 of the Act
[149] Section 25 of the Act provides as follows:
"A creditor in a
standard security having right to sell the security subjects may exercise that
right either by private bargain or by exposure to sale, and in either event it
shall be the duty of the creditor to advertise the sale and to take all
reasonable steps to ensure that the price at which all or any of the subjects
are sold is the best that can be reasonably obtained."
Is a Heritable Creditor Responsible
for an Agents' Actings?
[150] Later I shall set out my reasons for concluding that the
defenders were directly at fault in relation to the manner in which the
Harriers was advertised. However, in
deference to the arguments presented to me, and in the event that I am wrong in
my views on the defenders' own actings, I propose first to consider whether a creditor
in a standard security is liable for the negligence of his agents..
[151] In Cuckmere Brick Company
Ltd v Mutual Finance Limited a
mortgagee was held liable for a loss on the sale of property caused by the
fault of the auctioneers. When the case
went to the Court of Appeal counsel for the mortgagee for the first time argued
that a mortgagee could not be liable for the negligent failure of his
agents. The Court of Appeal refused to
allow the point to be raised because it had not been taken in the Court
below. However Cross LJ said that in any
event he rejected the argument. He set
out his position (at page 973B-E) in the following way:-
"It may well be
that this point is not open to him in view of the way the argument proceeded
below - but in any case I do not accept the submission. In support of it, counsel pointed out that a
trustee is not liable for the default of an agent whom it is reasonable for him
to employ. But the position of a
mortgagee is quite different from that of a trustee. A trustee has not, qua trustee, any interest
in the trust property, and if an agent employed by him is negligent his right
of action against the agent is an asset of the trust. A mortgagee, on the other hand, is not a
trustee and if he sues the agent for negligence any damages which he can
recover belong to him. Of course, in
many cases, the mortgagee may suffer no damage himself by reason of the agent's
negligence because the purchase price, though less than it should have been,
exceeds what is owing to the mortgagee.
In such circumstances it may be that nowadays the law would allow the
mortgagor to recover damages directly from the agent although not in
contractual relations with him; but that was certainly not so a hundred years
ago when Woolff v Vanderzee (1869) 20 LT 353 was
decided. In those days the only way to
achieve justice between the parties was to say that the mortgagee was liable to
the mortgagor for any damage which the latter suffered by the agent's
negligence and to leave the mortgagee to recover such damages, and also any
damage which he had suffered himself, from the agent. I do not think that we can say that the
mortgagee used to be liable to the mortgagor for the negligence of his agent
but that that viability disappeared at some unspecified moment of time when the
law had developed enough to allow the mortgagor to sue the agent himself."
[152] The other two members of the Court (Salmon LJ and Cairns LJ) did
not express a concluded view but Cairns LJ, under reference to the earlier case
of Tomlin v Luce (1889) 41 ChD 573 where the argument that mortgagees were not
liable for the blunder of their agents was rejected, indicated that he would
need more argument to satisfy him that what was said in that case was wrong.
[153] Mr Haddow in his submissions placed particular reliance on the case
of Commercial & General Acceptance
Limited-v Nixon. That was a decision of the High Court of
Australia. In that case the mortgagors
fell into default in relation to payments due under a mortgage and the mortgagees
entered into possession of the property and instructed solicitors to proceed to
sell the property. Estate agents were
engaged to advertise the property for sale and to conduct an auction sale. By the time the case was being dealt with in
the High Court, there was no dispute that the estate agents had been negligent
in respect of the manner in which they had advertised the property. The question for the Court was whether the
mortgagees were liable to the mortgagor for the consequences of the negligent
conduct of their agents.
[154] The relevant statutory provision under consideration in the
Australian case was Section 85(1) of the Property Law Act 1974-1976. That subsection was in the following terms:-
"It is the duty
of a mortgagee, in the exercise after the commencement of this Act of a power
of sale conferred by the instrument of mortgage or by this or any other Act, to
take reasonable care to ensure that the property is sold at the market value."
The language of that provision and
in particular the description of the duty to be one to "take reasonable care to
ensure that the property is sold at the market value" is not significantly
different from the language of Section 25 of the Act.
[155] At page 495 Gibbs CJ expressed his opinion on the duty of a
mortgagee exercising a power of sale in the following way:-
"The duty of a
mortgagee exercising a power of sale in Queensland is clear; it is to take
reasonable care to ensure that the property is sold at market value. It may be accepted that in the present case
the appellant took reasonable care to choose competent agents, and then left
the conduct of the sale in their hands.
In my opinion this does not mean that the appellant thereby discharged
its duty under Section 85(1). The duty
of the mortgagee is not merely to take care to ensure that the sale is carried
out by competent agents. It is to take
reasonable care to ensure that the property is sold at the market value. The duty to take reasonable care is one that
the mortgagee is bound to perform, and he cannot escape liability for a breach
of that duty by delegation to another.
In other words, generally speaking at least, a mortgagee does not
discharge his duty to take reasonable care simply by choosing a competent agent
and then entrusting the conduct of the sale entirely to him. A reasonable man, selling his own property by
auction, and wishing to obtain the market value, would not allow the
auctioneers a freehand to advertise in whatever manner they thought fit; he
would make reasonable endeavours to ensure that the advertising proposed as
adequate. It is not unduly burdensome to
require a mortgagee to exercise similar care."
He went on to consider the case of Cuckmere Brick Co. Ltd v Mutual Finance Ltd and in particular the observations by Cross LJ set out at
paragraph [151]. He went on (page 498) to
conclude:-
"I consider that
the words of the subsection impose on a mortgagee exercising a power of sale a
duty higher than merely to select a proper person to carry out the sale. The duty is to take reasonable care to ensure
that the property is sold at the market value, and the mortgagee does not
discharge that duty simply by delegating it to another, whether that other be
an agent or an independent contractor."
[156] In supporting that position Mason J. (page 503) explained:-
"There are a
variety of reasons to sustain this liability.
The power is exercised primarily on behalf of and for the benefit of the
mortgagee by his agent in whose selection the mortgagor has no say. The agent acts in accordance with the
instructions of the mortgagee and has no independent discretion to exercise
except insofar as the mortgagee may choose to leave arrangements for the sale
in the hands of the agent. It is not
unfair or unreasonable in this situation that the mortgagee should have the
responsibility for the taking of reasonable care to ensure that the market
value is obtained, including the responsibility for adequate advertising of the
sale. He should satisfy himself that the
property has been advertised in accordance with his instructions - that, after
all, is what a prudent vendor would do in the circumstances."
[157] Under reference to what was said by Cross LJ in Cuckmere Brick Co. Ltd v Mutual Finance Ltd Mason J. said that
the position of a mortgagee could not be equiparated with that of a trustee
because unlike the trustee who has not qua
trustee any interest in the trust property a mortgagee does have an interest in
the property. There were therefore sound
reasons for imposing on the mortgagee a stronger duty than that imposed on a
trustee. At page 505 he went on to say:-
"It is the
mortgagee who has the most direct relationship with the mortgagor and who should
be expected to have a clearer perception of his obligations to the mortgagor
than the agent. If the negligent acts of
the agent bring about a breach of the duty owed by the mortgagee to the
mortgagor it will be consistent with the general principle agency that the
mortgagee as his principal be liable to the mortgagor for that negligence even
though the act leading to the breach is that of the agent ... In the end we come back to the question
whether the statutory duty is sufficiently performed by the mortgagee's
appointment of an agent reputed to be competent and by leaving the arrangements
for the sale entirely to him. The answer
to this question depends on the interpretation of Section 85(1) in the light of
the considerations already mentioned.
The duty imposed by the subsection is specific. It requires 'reasonable care' to be taken 'to
ensure' that the property is sold at the market value; it is not a mere duty to
take reasonable care in a general sense.
In this context the concept or standard of 'reasonable care' is not
satisfied by the mortgagee's delegation of the function to a real estate agent
reputed to be competent. In the
circumstances the standard of reasonable care expected of the mortgagee extends
to the making of such arrangements as will ensure that the sale is properly
advertised."
[158] At pages 515-516 Aitkin J. emphasised the difference between a
mortgagee and a trustee in the following way:-
"It must be borne in
mind that a mortgagee is not a trustee, nor is his position similar to that of
a trustee. A mortgagee has for his own
protection a power of sale but in its exercise he must not sacrifice the
interests of the mortgagor or of subsequent incumbensors. If his agent is negligent in the conduct of
the sale he may recover any loss suffered by him but he recovers on his own
account, not on account of the mortgagor, and could not claim more than his own
loss. As a matter of policy these
considerations demonstrate that the mortgagee is in a very different position
from a trustee and he should be responsible for his agent's negligence insofar
as it affects the mortgagor, an obligation for which he would be entitled to
indemnity from his agent."
The other judges (Wilson J. and
Brennan J.) delivered concurring judgements.
[159] In his submissions Mr Sandison placed particular reliance on Dick v Clydesdale Bank plc. That
case concerned security subjects made up of two pieces of ground, one used for
commercial purposes and the other for agricultural purposes. The creditors sought to exercise their right
to sell the subjects and instructed professional advisors to act for them in
the marketing of the security subjects.
The security subjects were sold in the open market after a period of
advertisement. The pursuer made no
challenge of the competence of the professional advisors who were selected by
the defenders. Nor did he suggest that
the defenders did not accept the best offer which was in fact received. The primary focus of the action was that the pursuer
maintained that he had suffered loss because the sale of that part of the
subjects made up by the agricultural land had been without regard to "hope
value" of the land for development. In
relation to that particular issue the pursuer criticised the way in which the
property was marketed. The pursuer's
point was that the defenders ought to have instructed their estate agents that
that land was to be marketed not only as agricultural land, which was how it
was described in the advertisements, but also with reference to its proper
value and potential development value.
The Lord Ordinary (Morison) on the procedure roll allowed a proof
before answer and the defenders reclaimed.
[160] When the case was heard by the First Division, the Court took the
view that the pursuer's averments that a better price could have been obtained
for the land were so unsatisfactory that no good reason would be served by
allowing the case to go to proof before answer.
In dealing with the argument that the defenders had done all that is
required of them by instructing competent professional advisors the Lord
President (Hope) (page 681 E-F) made the following observations:
"There is no
doubt that the defenders were entitled to employ professional advisors to
market the subjects and in particular to advertise them in an appropriate
manner in order to attract purchasers.
The purpose of the exercise is to obtain as much competition as possible
in the open market, this being essential if a fair price in that market is to be
achieved. In the ordinary case the creditor
may be required as having fulfilled the duties imposed upon him in regard to
the marketing of the subjects if he takes and acts upon appropriate
professional advice."
In these obiter remarks, it is to
be noted that the Lord President did not go so far as to say that creditors are
completely absolved if they employ competent professional advisors to market
subjects.
[161] At page 682 H-K Lord Cowie set out his position in the following
way:
"In my opinion
if the creditor in a standard security has the right to sell the security
subjects and employs competent agents to market them, the creditor can only be
said to have failed in his statutory and common law duties to obtain the best
possible price for the subjects if the agents have to the knowledge of the
creditor made a serious blunder resulting in a large diminution in the price
realised: Halsbury's Laws of England (4th ed.) Vol.32, 'Mortgage'
para. 729. I appreciate your Lordship's
point that the authority for that proposition is English and that no cases were
cited to us on it, but it seems to me, with respect, that the statement in
Halsbury is entirely consistent with the principles of Scots law. It would be strange indeed if a person who
employs experts to market the security subjects should be held to have failed
in his duty to obtain the best possible price if no criticism is levelled at
the experts. That is the position in the
present case. There is not a single
averment by the pursuer and respondent either criticising the choice of agents
or anything they have done and in particular, there is no averment that the
agents have made a serious blunder or to put it in a more legalistic way, the
agents have failed to do something which agents of ordinary skill would have
done if they had been taking ordinary care."
[162] The position as set out there by Lord Cowie is of course
different to this case. Here, DM Hall
are criticised by the pursuer for their failure to properly market the
Harriers. Also, Lord Cowie places a
gloss over the passage from Halsbury upon which he relies when he suggests that
for liability to exist the creditor must have knowledge of the agents'
"blunder". The passage in Halsbury makes
no reference to knowledge and the footnote associated with the passage makes
reference to Tomlin v Luce and Cuckmere Brick Co. Limited v Mutual
Finance Limited. It is also to be
noted that neither Cuckmere Brick Co.
Limited v Mutual Finance Limited
nor Commercial and General Acceptance
Limited v Nixon were specifically
referred to in arguments presented to the First Division in Dick v Clydesdale Bank plc.
[163] In Bisset v Standard Property Investment plc, the pursuers
sued the defenders for damages for an alleged breach of the duty imposed by
Section 25 of the Act. The pursuer had
formerly been the proprietors of heritable property at the Bridge of Orchy Hotel,
by Glencoe, Argyll. That property
comprised (i) the hotel itself and (ii) two areas of ground lying on the
opposite side of the A82 Road. In
consideration of certain advances made or to be made to them, the pursuers
granted the defenders a standard security over the whole property. The pursuers ran into financial difficulty
and endeavoured to sell the security subjects without success. The defenders took possession of the security
subjects and instructed estate agents to sell.
Certain steps were taken to market the security subjects and
subsequently instructions were given for their exposure to sale by public roup. At the auction no offers to purchase the
subjects were received. A small area of
ground forming part of the security subjects was sold to a local authority and
the remainder of the subjects were again exposed to sale by public roup. The security subjects were sold at auction at
the reserve price to a company connected with the defenders. The pursuers sued the defenders for damages
for alleged breach of the statutory duty imposed by Section 25 of the Act. They criticised the manner in which they
security subjects had been marketed and the conduct of both auctions. Criticism was directed against the defenders
personally and also at their agents, both the estate agents and the auctioneers
for whose acts and omissions the pursuers contended that the defenders were
responsible.
[164] The case came before Lord Hamilton for debate in respect of
certain challenges by the defenders to the relevancy and specification of the pursuers
pleadings. One of the arguments which
Lord Hamilton had to address was whether a security creditor could be liable
for failures by reputably competent professional advisors engaged by him. In the course of the arguments, reference was
made to Dick v Clydesdale Bank plc, Commercial and General Acceptance Limited v Nixon, and Cuckmere Brick Co. Limited v Mutual
Finance Limited.
[165] In his Opinion Lord Hamilton makes detailed reference to the
observations made in Commercial and
General Acceptance Limited v Nixon. At page 8 he went on to say:-
"So far as drawn
to my attention, the effect of a failure of an agent of a heritable creditor to
perform tasks entrusted to him relative to a sale has never been the subject of
express decision in Scotland, whether by reference to Section 25 or
otherwise. An analogy between the
position of the heritable creditor and a trustee has sometimes, it is true, been
drawn. Professor Halliday in the Conveyancing and Feudal Reform (Scotland)
Act 1970 (2nd edition) at para. 5-11, under reference to
the older authorities, comments in relation to Section 35(1) of the Act (which
makes in respect of a bond and disposition in security analogous provisions to
those in Section 25 relative to a standard security) - 'it may be regarded as
broadly stating the existing principle that a heritable creditor in exercising
his power of sale is the position of quasi-trustee for the debtor'......
Lord President
Hope refers to this comment in Dick v Clydesdale Bank plc. Some of the older authorities lend support to
the analogy. In Beveridge v Wilson (1829)
7 S.279 the consultant judges at p.281 observed:-
'...[the creditor]
is, to a certain degree, trustee for the common debtor, and of course for his
representatives; and therefore when he exercises his rights, he must do so in a
way beneficial and not hurtful to those concerned.'
(See also Rimmer & Another v Thomas Usher & Son Limited per Lord
Thompson at p.8.) However none of these
observations were made in the context of a discussion as to whether failures by
an agent charged by a heritable creditor with the carrying through of a sale
were to be imputed to his principal. In
relation of a quasi trustee "the quasi-trustee" (which is to be
distinguished from a trustee proper) may have its place to reflect the
obligations owed by the creditor to the debtor.
But the analogy should not in my view be taken too far. The reasoning of the Australian judges albeit
directed to a statute that in slightly different terms, is very
persuasive. I prefer the approach
indicated there (that the duty remains throughout on the creditor to secure the
statutory result) to that indicated in the pursuer's pleadings (that the defenders
are vicariously liable for the failures of the agents). The appropriate analysis at common law may be
otherwise."
[166] Like Lord Hamilton in Bisset
v Standard Property Investment plc, I
find the reasoning of the Australian judges very persuasive. The duty imposed upon the creditor under
Section 25 of the Act requires that "all reasonable steps" are taken "to
ensure" that the best price that can be reasonably obtained is indeed
obtained. Normally in the carrying out
of that duty the creditor in the Standard Security will require that others
such as estate agents or solicitors perform acts which are necessary for that
purpose. Nevertheless the duty in terms
of Section 25 of the Act remains upon the creditor. Performance of that duty requires that the
best price that can reasonably be obtained is indeed obtained. If, as a matter of fact, because of the
negligent actings of an otherwise competent agent the best price is not
obtained then the duty has not been performed.
In my opinion Mr Sandison sought to make too much of the analogy made in
Dick v Clydesdale Bank plc between the heritable creditor and a quasi trustee. Unlike a trustee, the creditor in a Standard
Security acts in rem suam. Use of the label "quasi trustee" emphasises that even although he is acting in rem suam, the creditor is not in the
position of an absolute owner selling his own property. He must act prudently when exercising his
power of sale, and act with proper regard for the debtor's interests.
[167] In Cuckmere Brick Co.
Limited v Mutual Finance Limited,
Cross LJ expressed the view that the mortgage was liable for the negligence of
his agent even although the mortgager may have had a direct claim for damages
against the agent (973C). However, over
the period of in excess of thirty years since the Cuckmere decision, the law in relation to delictual claims for
economic loss has undergone significant change and may still be evolving. It is far from certain that the pursuer in
this case, if precluded from pursuing the defenders for the negligent acting of
their agents, would have a direct claim against the agents. The uncertainties surrounding the issue
whether the pursuer could pursue a delictual claim for economic loss against DM
Hall directly in my view reinforces the desirability of holding the person with
whom he does have a direct relationship, the creditor, liable for the
negligence of agents.
DM
Hall's Marketing
[168] In paragraphs [44] to [60], I have set out my findings in
relation to the steps taken on behalf of the defenders to comply with their
duty under Section 25 of the Act. DM Hall's
reaction to the instructions given to them by the defenders to proceed in terms
of the Report of 28 August 1996 was one of almost total inaction. The DM Hall Report recommended that a
co-ordinated and "aggressive press advertising campaign" be put in place, and
went on to detail the manner in which it was proposed that such a campaign
should be implemented. DM Hall palpably
failed to carry out their own recommendations.
Mr Sandison argued, quite correctly, that DM Hall's failure to carry out
the instructions given to them based upon their recommendations did not
necessarily mean that they had performed their duties to their clients the defenders,
in a negligent way. However, the
position here is that DM Hall failed to implement the mailshot exercise. They failed to advertise in the ESPC. The press advertising of 7 and 8 November 1996 was, as Mr Dalby
agreed in his evidence, a useless exercise if intended to generate interest in
the Harriers. Mr Haddow in his
submissions described the press advertising exercise as a "sham" and that is a
description with which I would agree.
The interest generated in the Harriers was not prompted by DM Hall but
by the defenders and that in itself reflects the extent of DM Hall's failures
over the period of about two months following upon the defenders'
instructions. Standing my conclusions
that all that was done to market the Harriers to the public prior to the
closing date was the erection of "for sale" signs on site and an advertisement
in the Scotsman of 7 November 1996 and having regard to Mr Watt's evidence as
to what would normally be expected in relation to press advertising in such
circumstances (see paragraphs [27] to [31]) I have no hesitation in concluding
that DM Hall's marketing fell well below what would be expected of the
reasonably competent surveyor.
Consequently there was a failure adequately to advertise the Harriers
for sale and all reasonable steps that required to be taken to ensure that the
price at which the Harriers was sold was the best that could be reasonably
obtained were not carried out.
The
Defenders Themselves
[169] In paragraphs [100] to [110], I set out my findings in relation
to the state of the defenders' knowledge on the marketing carried out by DM
Hall prior to their decision to accept the offer made on behalf of
Digrasmart. I think it is fair to say
that at the time when the advice to accept the offer was given by DM Hall, the defenders
were misled as to the number of potential purchasers that had shown interest in
the Harriers (see paragraph [62]).
[170] Nevertheless Miss McWilliams knew by early November 1996 that
very little had been done to implement the DM Hall proposals. She had only received the particulars in late
October and was not aware, at that time, of any press advertising having taken
place. She ought to have realised at
that time that without sales particulars, no direct mailing could have taken
place. She knew when she wrote to Miss
Balcombe on 18 October 1996 (see paragraph [45]) that no
advertisement had taken place in the ESPC.
At that time she was pressing DM Hall to provide information on
marketing progress. She never received a
satisfactory response. The fact that the
sales particulars were not available until late October 1996 and that press
advertisements did not appear until 7/8 November 1996, provided sufficient
warning of DM Hall's failures to implement the defenders' instructions. At the time of receipt of offers, against
that background of knowledge, she ought to have satisfied herself that adequate
marketing had indeed taken place. Also,
having regard to Mr Dalby's evidence he is taken to have known that no
press advertising had taken place before 7 November 1996.
[171] In my opinion, the defenders can be faulted in failing to take
account of the obvious signs that the marketing of the Harriers had not taken
place as originally proposed. It
remained incumbent upon the defenders in the circumstances to satisfy
themselves that reasonable steps had been taken to ensure that the best price
that could be reasonably obtained had been obtained. They failed to do so.
Onus
[172] I have set out the competing
submissions on the question of onus at paragraphs [137] and [143]. I agree with Mr Sandison that the charge of
collusion and conspiracy was a serious one and ought to have been focussed in
an appropriate plea-in-law. The charge
was disputed by Mr Dalby, Mr Dennison and Mr Nisbet. It seems to have been based on suspicions
raised in the mind of Mr Urquhart and based upon certain inferences he was
prepared to make after his examination of the files relevant to this particular
case. At the heart of the charge lay the
involvement of Digrasmart.
[173] It was somewhat unfortunate that when the offer for the Harriers
was made on behalf of Digrasmart and the qualified acceptance received,
Digrasmart was in the apparent control of Bird Semple. However, as Mr Dennison explained (see
paragraph [114]) Digrasmart was truly being controlled by Mr Daly and Mr
Murray. I accept that at the relevant
time, the fact that Bird Semple had legal control of Digrasmart was a pure
coincidence.
[174] On the whole I accept the evidence given by Mr Dalby, Mr Dennison
and Mr Nisbet that they did not conspire to sacrifice the pursuer's
interests in favour of Digrasmart. I
agree with Mr Sandison that on this issue the pursuer has failed to establish
the degree of connection required to justify a reversal of onus and I have
approached the case on the basis that the onus of proof has remained on the pursuer.
Damages
[175] The thrust of Mr Sandison's
submissions on damages was that even if the defenders were in breach of duty
the pursuer had failed to prove any loss.
The essence of his position was that the pursuer had to lead evidence
from someone who would in fact have paid more than was actually obtained. In advancing that proposition he placed
particular reliance on Dick v Clydesdale Bank plc. In that case the Lord President (page 682
E-F) made the following observations:
"The creditor is
to be criticised for not taking further steps to attract an appropriate
purchaser only if there is evidence to show that had these steps been taken a
better bargain would have been achieved.
So it would only be if the pursuer is in a position to prove that there
was somebody in the market at the time who could be reached by advertisement in
the manner described by him and who was willing to pay an enhanced value to
reflect the hope of development that his case can get off the ground."
It is worth recalling that in that
case the pursuer had made no averments that there was anyone in the market who
may have been prepared to pay more than the agricultural value of the land -
the so called "hope value". In that
context I take the Lord President's remarks to mean that the essential failure
was one of identifying an available market, which, if approached by way of
appropriate marketing, would have been likely to generate a better price than
was in fact achieved.
[176] In my opinion it is not necessary for a debtor to lead evidence
from an individual or a number of individuals that he/they would have paid more
than was actually achieved in a sale by a creditor in a Standard Security. The critical questions are whether there is
sufficient proof of the existence of an available market, which as a result of
breach of duty on the part of the creditors, has not been approached, and
which, if approached, would have been likely to have produced a better price
than was in fact achieved. I see no reason why the existence of an available
market and of the prices achievable in that market cannot be established
through the medium of expert evidence.
[177] In this case, DM Hall's failures meant that the Harriers was
not adequately exposed for sale to either the investor market or the
residential market. It was evident from
the DM Hall Report that both markets were markets available for the
Harriers. Mr Watt made it clear
that there were reasonable prospects of the flats being sold individually on
the residential market. The offer made
by Digrasmart was made in the context of inadequate marketing to the investor
market, but in any event, the marketing to the residential market was, in
practical terms, non-existence. There
was no dispute that sales on the residential market were likely to generate a
larger sum than a sale of the Harriers to an investor as a unum quid.
[178] In my opinion the evidence given by Mr Watt as to what might
have been achieved had adequate marketing to the residential market taken place,
provides a sound basis for the quantification of the pursuer's loss.
[179] Furthermore, in assessing the pursuer's loss as a result of the
defenders breach of duty, I consider that an appropriate yardstick is the
acceptable evidence on what the flats of the Harriers could have realised in
the residential market if adequate marketing had been put in place.
[180] Mr Watt was satisfied when he gave his advice to the defenders in
September 1996 that there was a residential market for the Harriers. At that time he produced an aggregate
valuation of £267,000 and an estimated restricted realisation price of
£243,000. On the basis that there was a
vigorous marketing campaign he expected that the majority if not all of the
flats could be disposed of within three to four months. To take account of the possibility of the
minority of the flats taking a longer period to sell, and in exercising a broad
judgement, I propose to use a mid-point figure between £267,000 and £243,000 as
the appropriate starting point, namely, £255,000.
[181] In order to ascertain the pursuer's loss in the main action, it
is also necessary to have regard to the level of borrowing that existed at a
time when he might have expected, had the appropriate advertising campaign been
put in place, for the majority of the flats to have been sold. The pursuer's level of borrowing as at 31
December 1996 was £176,601.08. That
would be a time some three to four months after it had been anticipated that
the Harriers was to be marketed, and it seems to me to be the appropriate
set-off figure in calculating the pursuer's loss.
[182] Furthermore, and although I was not addressed specifically on
this matter, in ascertaining the pursuer's true loss, account has also to be
taken of the costs that might have been associated with successful sales. In paragraph [131] I set out the actual costs
incurred in the sale of the Harriers to Digrasmart. Having regard to those figures, in my view an
appropriate deduction to represent the costs that might have been incurred in
sales would be in the region of £12,000.
[183] On the basis of the analysis set out in the preceding paragraphs,
in the principal action, the pursuer is entitled to a decree in the rounded up
sum of £66,400. (£255,000 - (176,610 +
£12,000)).
Counterclaim
[184] The defenders' counterclaim depends upon (a) whether the
pursuer's debt was written off; (b) whether the defenders were bound by the
intimation made to the pursuer that it was anticipated that his debt was to be
written off and (c) where ultimate responsibility lies for the sum represented
by the counterclaim.
[185] I agree with Mr Sandison that the pursuer's outstanding
indebtedness to the defenders after receipt of the purchase price for the
Harriers was not written off by them. It
was anticipated that the loan would be written off but in fact that had not
happened. In these circumstances I agree
with the submission made by Mr Sandison that the pursuer required to prove
waiver. There were no averments in
support of waiver and no evidence had been led in support of it.
[186] The real issue in my opinion in relation to the counterclaim is
whether or not the defenders bear responsibility for the delay in settlement
with Digrasmart during which time the damage to the Harriers was caused and
consequently the reduction in the price.
On that issue I find Mr Urquhart's evidence totally convincing. The title problem that arose and seemed to
the principal cause of delay could have been easily resolved much sooner in the
manner in which it was ultimately resolved.
The proposed date of entry was 30 January 1997 and I see no reason on
the evidence why a date closer to that proposed date of entry could not have
been achieved. The damage caused by
vandalism and the removal of the boilers occurred during the period when the
settlement of the transaction was being unnecessarily delayed and at a time
when DM Hall were in control of the property. In my opinion the defenders
require to bear responsibility for that loss.
[187] Furthermore, and in light of my conclusions in the principal
action, had the defenders not been in breach of their duty under Section 25 of
the Act, the issues raised in the counterclaim would not have arisen at all.
Conclusion
[188] In the principal action I shall sustain the first plea-in-law for
the pursuer, repel the defenders' pleas and grant decree in favour of the pursuer
in the sum of £66,400. In the
counterclaim I shall sustain the second plea-in-law for the pursuer and repel
the defenders' pleas. The case shall be
put out by order so that I can be addressed on questions of expenses and on any
other matters that the parties may wish to raise.
