|
OUTER HOUSE, COURT OF SESSION
[2008] CSOH 31
|
|
CA60/07
|
OPINION OF LORD HODGE
in the cause
REALSTONE LIMITED
Pursuers;
against
MESSRS J & E
SHEPHERD AND OTHERS
Defenders:
ญญญญญญญญญญญญญญญญญ________________
|
Pursuers: Kennedy, Solicitor Advocate; Balfour + Manson LLP
Defenders: Cowie;
Dundas &
Wilson C.S.
21 February 2008
[1] This
is an action by a developer against chartered surveyors arising out of alleged
professional negligence in the preparation of a plan of a plot of ground. The defenders challenged the relevancy of the
pursuers' pleadings at debate and sought to have the action dismissed. The pursues sought to have the defenders'
plea to the relevancy repelled.
[2] The
pursuers are a development company based in Chesterfield, Derbyshire. They were
owners of land at Dalbeattie which they were developing for housing. They sold off several plots within the
development to third party purchasers.
On 20 February 2004 the pursuers' solicitors
instructed Andrew Ross Limited ("ARL"), an architect's practice based in
Dalbeattie, to prepare a plan of Plot 23 of their development. The letter in question was commendably brief,
stating in one sentence that the adjusted layout plan had been approved and
that they would be obliged if Mr Ross would let them have deed plans for
plots 6 and 23 as soon as possible so that contracts might be issued. ARL instructed the defenders to prepare the
plan of plot 23 and the defenders did so.
[3] The
pursuers allege that the plan was defective and that they have suffered
financial loss as a result. Using the
plan, they conveyed the plot of ground to a purchaser and had to buy it back at
an inflated price after they discovered that the sold plot extended into land
designated for the roadway of the development site.
[4] The pursuers'
averments as to the nature of their contract with ARL are sparse. They aver merely that solicitors on their
behalf "wrote to [ARL] requesting a detailed deed plan for Plot 23". There are no averments as to the terms of the
contract between the pursuers and ARL which may have been established by prior
dealings. During the debate Mr Kennedy
for the pursuers described Mr Ross of ARL as the pursuers' "local site agent"
but there are no averments relating to his or ARL's status. The pursuers have no averments as to the
manner in which ARL and the defenders entered into their contract for the
provision of the particular plan (or plans if they also produced a plan of plot
6) or the terms of that contract. Neither
party has any averment that the contracts contained terms which excluded,
limited or regulated the liability of any of the parties. It may be, as the defenders aver, that the
contract between ARL and the defenders was simply a handwritten fax instructing
them to produce the plan or plans as the pursuers accepted that the defenders
had a continuing business relationship with ARL and that it was normal practice
for the defenders to receive instructions by such means. Nothing is stated about the terms on which
the defenders and ARL conducted their business in their continuing
relationship. It appears from the
pursers' averments that ARL were simply a conduit through whom the defenders
were instructed to produce the plans. If
that is the case, it is surprising that the relationship between the pursuers
and ARL in relation to obtaining plans was not one of principal and agent. But the pursuers' pleadings assume the
existence of a contractual chain between them, ARL and the defenders. In summary, little is known at this stage of
the action about the relevant contractual arrangements.
[5] The
pursuers aver that the defenders had previously produced plans of other plots
in the development. The defenders knew
that the pursuers would use those plans to define the subjects of sale in
entering into contracts of sale of those plots and in conveying the plots to
the purchasers. Thus when the relevant
contract was entered into the defenders would have known that the plan of Plot
23 was to be used by the pursuers for this purpose.
Parties' submissions
[6] Mr
Cowie for the defenders invited me to dismiss the action on the basis that the
pursuers had not pleaded a relevant case that the defenders owed them a common
law duty of care to avoid financial loss.
He submitted that the pursuers had chosen to request ARL to provide the
plan and that ARL had in turn contracted with the defenders to obtain it. He submitted that as a general rule where
parties created a contractual chain in which A contracted with B who in turn
subcontracted with C, C did not owe a duty of care to A in his performance of
his obligations to B to avoid causing financial loss to A. Whether one analysed the test for the existence
of a duty of care as the threefold test of (i) foreseeability, (ii) proximity
and (iii) whether it was fair, just and reasonable to impose a duty as in Caparo Industries Ltd v Dickman [1990] 2 AC 605 ("the threefold
test") or asked whether C had assumed a duty of care to A, as in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, no duty of care
arose. He acknowledged that the law,
exceptionally, could impose a duty of care on C to fill a gap in the law by
giving A a remedy in order to achieve practical justice. But he submitted that in this case there was
no reason why the pursuers could not obtain a remedy by pursuing a contractual
claim against ARL, which could in turn seek a remedy against the
defenders. He referred to White v Jones [1995] 2 AC 207,
Simaan General Contracting Co v Pilkington
Glass Ltd (No 2) [1988] 1 QB 758 (CA),
Williams v Natural Life Health Foods
Ltd [1998] 1 WLR 830 and, in responding to the pursuers' written arguments,
Noble v De Boer 2004 SC 548.
[7] Mr
Kennedy for the pursuers invited me to repel the defenders' plea-in-law to the
relevancy and to allow a proof on the basis that the court could conclude that
a duty of care arose in the averred circumstances. As a fall back, he invited me to allow a
proof before answer. In support of his
contention that the case fell within a well established category in which the
courts had found that a duty of care was owed he referred me to Hedley Byrne & Co v Heller & Partners Ltd [1964] AC 465, Junior Books Ltd v Veitchi Co Ltd 1982 SC (HL) 244
and Henderson v Merrett Syndicates Ltd. He referred in particular to the speeches of
Lord Fraser of Tullybelton and Lord Roskill in Junior Books at pp.265-266 and 277 respectively. He submitted that, where a
case fell within an area where it had been established that a duty of care existed,
it was not necessary to consider again whether it was fair, just and reasonable
that a duty of care arose: Noble v De Boer, Lord Marnoch at para.11. All that needed to be established was
foreseeability and proximity. There was
no dispute that the defenders could have foreseen the use that the pursuers
would make of the plan.
[8] In
relation to proximity Mr Kennedy submitted that the defenders were aware that
the pursuers would immediately use the plan of the plot of ground in their
contract with a purchaser and would become bound to a contract which, if the
defenders were careless in preparing the plan, they would be unable to
implement. The defenders were a national
firm of surveyors; they were well aware both that the plan would be used by the
pursuers and how the pursuers were to use the plan; they were aware of the
option of using disclaimers and exclusion clauses but they chose not to include
any disclaimer of liability. He referred
to The Royal Bank of Scotland plc v Bannerman Johnstone Maclay 2005 SC 437, Tartan American Machinery Corporation v
Swan & Co 2004 SC 276 and Bank of Scotland v Fuller Peiser
2002 SLT 574.
[9] In any
event he submitted that it was not possible to determine at this stage that a
duty of care did not exist in the averred circumstances and he invited me as a
fall back to allow a proof before answer.
In that context he referred to a number of cases in which the court had
allowed a proof before answer instead of determining on the pleadings alone whether
a duty of care arose. He also referred
to cases where the court had dismissed actions as irrelevant. Those cases turn on their own facts and
averments and I do not find it necessary to discuss them.
Discussion
[10] The
court may dismiss an action on relevancy only if it is satisfied that, even if
the pursuers were to prove their record in all material points, the action
would nonetheless be bound to fail: The
Royal Bank of Scotland plc v
Bannerman Johnstone Maclay, Lord Justice Clerk Gill at para 40.
[11] The
principal issue between the parties is the effect in the context of a claim for
pure economic loss of the contractual chain between A, B and C (i.e. the
pursuers (A)-ARL (B)- the defenders (C)) which, it was submitted, existed in
this case. The defenders did not contest
that if pursuers had contracted directly with defenders the latter might owe a
duty of care to the former so that the pursuers could sue them either in
contract or in delict. Henderson v Merrett Syndicates
Ltd vouches the possibility of concurrent liabilities in contract and
delict. The defenders' position was that
the creation of the contractual chain and the apparent availability to the
pursuers of a remedy in contract against ARL meant that the defenders owed no
duty of care to the pursuers in relation to pure economic loss.
[12] I am
not persuaded that the mere existence of a contractual chain from A to B to C
means in all circumstances that C cannot owe A a duty of care to avoid causing
A pure economic loss. Were that to be
so, Henderson v Merrett Syndicates
Ltd would not have been decided as it was.
Nonetheless, there are many circumstances in which either the structure
of the contracts in a contractual chain or the terms of those contracts, or
both, will exclude a duty of care by C to A in relation to economic loss. One has to look at the circumstances of the
particular case.
[13] On the
pursuers' pleadings, which have to be taken pro
veritate, the defenders knew the purpose for which the pursuers would use
the plan and could readily foresee that the pursuers might suffer economic loss
if the plan was materially inaccurate.
But that is not sufficient in itself to give rise to a duty of care in
relation to economic loss. A special
relationship is required. Using the
"assumption of responsibility" approach of Hedley
Byrne & Co Ltd v Heller &
Partners and Henderson v Merrett Syndicates
Ltd, it may be argued that the defenders voluntarily and in return for
payment took on the task of producing the plan for use by the pursuers. The defenders having taken this step
voluntarily, the law then asks an objective question: whether by so doing they
have placed themselves in a special relationship with the pursuers which is
akin to contract, from which a duty of care in relation to economic loss may
arise. To answer that rather general
question, it is necessary to consider more detailed matters. They include not only for whom the plan was
produced and the purpose for which the plan was to be used, and the defenders'
knowledge of those matters, but also whether it was intended that ARL would
check or alter the plan before submitting it to the pursuers and whether there
was anything in the contract between the pursuers and ARL or that between ARL
and the defenders which pointed away from the existence of such a special
relationship. If it were intended that
ARL would check or alter the plans or if the contracts were structured with the
intention that the pursuers should use the normal chain of contractual
liability by suing ARL for any lack of care and skill and leave it to ARL to
pursue any contractual remedy it had against the defenders, it would be
difficult for the pursuers to establish the existence of a special relationship
with the defenders.
[14] Using
the "threefold test" from Caparo
Industries plc v Dickman there is
again no issue on the pleadings about foreseeability. In considering the questions of proximity and
whether it was fair, just and reasonable that a duty of care to avoid causing
economic loss should exist it would be necessary to consider the detailed
matters mentioned in the immediately preceding paragraph. In relation to the latter test it would also
be necessary to consider whether the imposition of liability would depend upon
a principle which could give rise to liabilities of indeterminate amount to an
indeterminate class of persons.
[15] On the
pursuer's averments there are a number of factors which might point towards the
defenders owing them a duty of care to avoid causing economic loss. First, the defenders were professional
surveyors who had the necessary skills to produce accurate plans. Secondly, the pursuers and the defenders were
connected by the two contracts (A-B and B-C) at the time the plan was allegedly
negligently produced. It is thus not a
question of the defenders owing a wider duty of care to parties who might
obtain the plan and use it in the future in respect of any defects in its
production. There was an indirect
contractual nexus between A and C at the time of the alleged negligence. Thirdly, the defenders knew that the pursuers
had instructed ARL to obtain the plan and also the purpose for which the plan
would be used. Fourthly, the defenders
knew that the pursuers relied on their skill and care in the production of the
plan and that carelessness in preparing the plan could cause them economic loss. Fifthly, it may be inferred that the
defenders would have known that the pursuers would pay for their production of
the plan either directly or through the medium of ARL.
[16] It was
not disputed that the defenders were under a duty to exercise reasonable skill
and care in the production of the plan as an implied term of their contract
with ARL and that a concurrent obligation to ARL to exercise care to avoid
economic loss could arise in delict: Henderson
v Merrett Syndicates Ltd, Lord
Goff of Chieveley at pp.184-194, Williams
v Natural Life Health Foods Ltd,
Lord Steyn at p.834H. Having regard to
the five factors listed in the preceding paragraph, unless the structure or
terms of the contracts (A-B and B-C) excluded it, it is not evident that the
law of delict would not impose on C in
relation to A a similar duty of care to that which C owed to B in contract and
delict.
[17] In Henderson v Merrett Syndicates Ltd Lord Goff of Chieveley suggested (at
p.195G-H) that it would be unusual for a sub-agent to incur liability to the
agent's principal in tort, because, in many cases in which a contractual chain
had been constructed, the existence of a delictual liability would short
circuit the contractual structure which the parties had put in place. Lord Mustill made a similar point in his
dissenting speech in White v Jones at p.279D-F, in which he stated:
"[W]here the act complained
of occurs between persons who have deliberately involved themselves in a
network of commercial or professional contractual relations, such for example
as may exist between the numerous parties involved in contracts for large
building or engineering works, the contractual framework may be so strong, so
complex and so detailed as to exclude the recognition of delictual duties between
parties who are not already connected by contractual links. ... There may be situations where the parties
have erected a structure which leaves no room for any obligations other than
those they have expressly chosen to create."
Further, there may be cases where the existence of
exclusion clauses or limitation clauses in the contract between A and B or
between B and C would be inconsistent with a short-circuiting delictual
liability of C to A. Such clauses would
militate against the existence of a delictual duty of care and the absence of
such clauses would be a factor to take into account in considering whether such
a duty existed: The Royal Bank of
Scotland plc v Bannerman Johnstone
MacLay, Lord Justice Clerk Gill at para. 64. But, as I have said, there are no averments of
any contractual provisions regulating or limiting the liability of ARL or the
defenders to the pursuers.
[18] There
may be other provisions in a chain of contracts which may tend to demonstrate
that a direct delictual claim by A against C does not arise. An example of such provisions is the implied
terms under the Sale of Goods Act 1979 which can benefit the seller as well as
the buyer: see Junior Books Ltd v Veitchi Co Ltd, Lord Brandon of
Oakbrook's dissenting speech at pp.282-283 and Simaan Contracting Co v Pilkington
Glass Ltd (No 2), Bingham LJ at pp.782-783.
But there is nothing in the pursuers' pleadings in this case which
suggests that a delictual claim would circumvent any contractual arrangements
which were relevant to the allocation of responsibility between the parties.
[19] I
recognise that the law of delict can perform a gap-filling role to provide a
needed remedy which otherwise would not be available as Mr Cowie
suggested. In several cases, the House
of Lords has referred to this role. See
the speech of Lord Goff of Chieveley in White
v Jones at p.268 and Lord Steyn
in Williams v Natural Life Health Foods Ltd at p.837. But the context of those comments in each
case was that the court was being asked to extend the law of tort or delict in
the field of economic loss. It is
important to recall that the law of delict is the general law and has a much
wider role than gap-filling. Were the
law of delict, even in the field of economic loss, to be merely a gap-filler,
that would be inconsistent with the existence of concurrent liability in
contract and delict.
[20] On the
other hand, I am not persuaded that this is a case where the existence of the
duty of care is so clearly established that there is no need to examine the
facts before determining the relevancy of the pursuers' case. In inviting me to repel the defenders'
plea-in-law to the relevancy, Mr Kennedy relied principally on Junior Books v Veitchi Co Ltd. But the
seeds contained within the House of Lords' decision in that case have fallen on
stony ground. In D & F Estates Ltd v
Church Commissioners for England [1989] 1 AC 177, (which concerned the relationship between a
builder and a future occupier of a building) Lord Bridge of Harwich (at
p.202A-C) stated:
"The consensus of judicial
opinion, with which I concur, seems to be that the decision of the majority [in
Junior Books] is so far dependent
upon the unique, albeit non-contractual, relationship between the pursuer and
the defender in that case and the unique scope of the duty of care owed by the
defender to the pursuer arising from that relationship that the decision cannot
be regarded as laying down any principle of general application in the law of
tort or delict. The dissenting speech of
Lord Brandon of Oakbrook on the other hand enunciates with cogency and clarity
principles of fundamental importance which are clearly applicable to determine
the scope of the duty of care owed by one party to another in the absence ...of
either any contractual relationship or any such uniquely proximate relationship
as that on which the decision of the majority in Junior Books was founded."
While the uniqueness of the circumstances of the
sub-contractor and the building owner in the contractual chain which existed in
Junior Books may not be apparent, the
unwillingness of the House of Lords to use the case as a template for delictual
liability is.
[21] Thus in
Henderson v Merrett Syndicates Ltd Lord Goff of Chieveley (at p.196B-C) gave a
general statement of the law in relation to building contracts as follows:
"[I]f the sub-contracted
work or materials do not in the result conform to the required standard, it
will not normally be open to the building owner to sue the sub-contractor or
supplier direct under the Hedley
Byrne principle, claiming damages
from him on the basis that he has been negligent in relation to the performance
of his functions. For there is generally
no assumption of responsibility by the sub-contractor or supplier direct to the
building owner, the parties having so structured their relationship that it is
inconsistent with any such assumption of responsibility."
He recognised that Junior
Books created some difficulty in relation to this statement but stated that
the House of Lords did not require to reconsider that case for the purposes of
the particular appeal. See also Simaan Contracting Co, Bingham LJ at
p.781G-H and Dillon LJ at p.782D.
[22] The
concerns which senior judges have shown to limit or depart from Junior Books appears to spring from two
considerations. First, there is a wish
to avoid creating a tortuous or delictual liability for defective products
which may be owed to an indeterminate class of persons: viz. D & F Estates. This danger however does not need to arise
from Junior Books in which the
existence of a contractual nexus between the pursuers and the defenders was
very important. Secondly, however, there
is a concern that the general law should not impose duties which would cut
across the detailed contractual provisions which parties in a contractual chain
have put in place to govern their liability inter
se. The risk of introducing
uncertainty into complex commercial transactions justifies the retreat from Junior Books. That retreat having occurred, I consider that
Junior Books does not provide a basis
for the existence of an established duty of care.
[23] It is
clear from the decision of the House of Lords in Henderson v Merrett
Syndicates that, in determining whether a delictual duty of care can arise
between C and A in a contractual chain, it is important to analyse the
particular circumstances of the case including the contractual arrangements
between A and B and between B and C. In
this case the parties' pleadings cast insufficient light on these matters.
[24] I
consider a proof before answer is needed to determine the existence of duty of
care. Using the threefold test, there
are relevant averments of foreseeability and also averments which support
proximity, but depending on the contractual arrangements there may be a question
whether it is fair, just and reasonable to hold that there was a duty of care
on the defenders to the pursuer in relation to economic loss. Similarly, a
proof of the facts is required in order to apply the test whether the defenders
in undertaking to produce the plan should be held to have assumed
responsibility to the pursuers in relation to economic loss.
[25] Since
drafting this opinion I have considered the decision of the House of Lords in Customs and Excise Commissioners v Barclays Bank plc [2007] 1 AC 181,
which was not cited to me. The emphasis
which Lord Bingham of Cornhill (para 8) and Lord Mance (para 83) placed on
having regard to the detailed circumstances of the particular case and the
particular relationship between the parties is, I believe, consistent with the
approach which I have adopted.
Decision
[26] I
therefore refuse both the defenders' motion to dismiss the action and the
pursuers' motion to repel the defenders' plea to the relevancy. I reserve the parties' pleas until after a proof
of the facts.
