EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Clarke Lord Bonomy Lord Bracadale	[2011] CSIH 30 A284/06 OPINION OF LORD CLARKE in the Reclaiming Motion by ROBERT MORRIS Pursuer & Respondent; against ANNA MARIA RAE Defender and Reclaimer: _______

Act: Logan; Campbell Smith WS (for Frazer Coogans, Solicitors, Ayr)

Alt: Brown; HBM Sayers (for Howat Associates, Solicitors, Mauchline)

5 April 2011

[1] This is an action for damages for breach of warrandice. The pursuer is the assignee of rights in subjects at 152 Dalmellington Road, Ayr, the said rights having been acquired by him from the liquidator of a company then known as Ransom Developments Limited (hereinafter referred to as "the said Company"). The rights were assigned to him by the liquidator of the said company on 27 March 2009. It should be noted that throughout the pleadings the word "pursuer" is used to refer to both the said company and the actual pursuer in the present case Robert Morris.

[2] It is averred in article 2 of condescendence, that the said company purchased from the defender property at 152 Dalmellington Road, Ayr, by missives dated 18, 21 & 22 & 23 June, 27 July and 3 August 2004 in exchange for a price of £140,000. The subjects were said to have been disponed by the defender by disposition dated 12 August 2004 to the said company (6/2/2 of process). It is averred that the said disposition bore to dispone subjects which were described as

"all and whole the plot or area of ground at Bankfield House, 152 Dalmellington Road, Ayr shown outlined in red an on the plan annexed and subscribed as relative hereto..."

The plan, it is averred, showed a certain area of ground extending to about 1,230 sq. metres with a frontage on Kincaidston Drive, Ayr. The disposition in question contained the words "and I grant warrandice". The said company, in due course, sought registration of the said disposition in the Land Register. It is averred in article 3 of condesendence that

"By letter dated 8 June 2005 the Keeper of the Registers of Scotland intimated that he was unable to proceed with registration of the pursuer's title to the subjects disponed. He did so on the basis that the defender did not have title to and therefore was unable to grant an effective title to a substantial area of the plot disponed within the disposition being that part adjacent to Kincaidston Drive, Ayr. The Keeper of the Registers forwarded a plan showing the subjects disponed outlined in red but showing the area to which the defender had not effectively been able to transfer title coloured in blue. The area coloured blue on the said plan are the subjects in dispute which belonged to James Craig Limited, and in respect of which this claim for breach of warrandice is made".

[3] The pursuer goes on to explain, in article 4 of condescendence, that as at 30 July 1991 the said James Craig Limited, who at that time were the heritable proprietors of the land marked blue in the Keeper of the Register's plan, "inadvertently transferred title to the area coloured blue to a John Stevenson Lynch. The pursuer's averments continue in

"The disposition was in error in that it was not intended to dispone the area coloured blue. Mr Lynch has acknowledged and accepted this error as hereinafter condescended upon".

[4] After receipt of the letter of 8 June 2005 from the Keeper of the Register the said company, it is averred, engaged in correspondence with the defender's solicitors. It is averred that in that correspondence the agents for James Craig Limited asserted their rights to possession of the area coloured blue and that by letter dated 18 November 2005 James Craig Limited's solicitors threatened to evict the pursuer from that part of the subjects truly owned by them. The pursuer goes on to aver that as a result of that threatened eviction the pursuer has suffered loss and damage.

[5] The sequence of events, as averred, which occurred after the 18 November 2005 was that the said company negotiated with James Craig Limited to purchase from them the land marked blue on the Keeper of the Register's plan, at a price of £70,000. A disposition in favour of the said company was granted by James Craig Limited to the said company on 9 March 2006. It is furthermore averred by the pursuer that subsequently Mr Lynch "in recognition of the error contained in the 1991 disposition, granted a title in favour of the pursuers of the area coloured blue without any consideration to him". (Article 4 of condescendence).

[6] On the foregoing basis of averred fact the pursuer in article 5 of condescendence avers further that

"The threat of eviction by James Craig Limited was based on an unquestionable title. They would have been entitled to have their title established by requiring Mr Lynch to grant a corrective disposition. He would have granted such a deed if asked as demonstrated by his granting of a disposition in favour of the pursuers at the behest of James Craig Limited. Alternatively they could have made an application for rectification of the 1991 disposition in terms of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, ss 8-10. There would have been no possible defence to such an action which would have given James Craig Limited a recorded title predating that of the pursuer".

The pursuer then avers, under reference to the grant of warrandice in the disposition in favour of the said company, that James Craig Limited were threatening to evict the pursuer from a substantial portion of the subjects disponed to it by the defender. It is said that there would have been no defence to such an action and that the pursuer is therefore entitled to an indemnity from the defender for the loss suffered by it as a result of the threatened eviction. The pursuer seeks to recover from the defender the sum of £70,000 said to have been paid by the said company to James Craig Limited in connection with rectifying the position.

[7] The pursuer's pleadings came before Temporary Judge Rae Q.C. for discussion as to their relevancy on the procedure roll. In a short opinion the Temporary Judge reached the conclusion that the pursuer was entitled to a proof of his averments. Against that decision the defender has reclaimed.

[8] The point taken, on behalf of the defender, was a short one - for there to have been breach of warrandice, upon which the pursuer was entitled to found, there had to have been either eviction or threatened eviction of him (or his assignors) from the subjects in question by a person who at the time of the eviction, or threat of eviction, had an "unquestionable title" to the subjects in question. In the present case the pursuer had failed to make relevant averments that the threatened eviction was made by a person who, at the time of the threat, had an unquestionable title to the subjects in question. At the time of their threat James Craig Limited had no title to the subjects in question, far less an unquestionable title. The pursuer's own averments were that James Craig Limited had disponed the subjects in question to a third party in 1991. The necessary precondition for an effective threat of eviction resulting in a breach of warrandice did not arise.

[9] The leading modern authority on the subject of warrandice, Clark v Lindale Homes Limited 1994 SC 210, set out the requirements that have to be met before a relevant claim based on breach of warrandice could arise. As the head note of the report itself, under para (2), states:

"Although eviction did not mean physical removal, it did involve the emergence of a real or threatened burden on the property which had to come from a competing title - holder, that title itself being beyond doubt".

The averments of the pursuer demonstrated that, at the time of the alleged threat by James Craig Limited, James Craig Limited did not have a title to the land in question which title at that time was beyond doubt. After referring to Bell's Principles, in Clark, the Lord President (Hope) at page 216B said:

"As I understand the statement of principle in that paragraph, eviction occurs when there is a loss to the buyer due to the fact that someone else has a competing title which is beyond doubt. This is a fact which can be demonstrated judicially, or by the seller's action admitting that there is such a defect, or by proof that the defect is unquestionable".

In a later paragraph at letters E to G, page 216, the Lord President said this:

"The significance of the warning in sec.895 of Bell's Principles that warrandice is an obligation to indemnify, not to protect, is that the mere possibility that there may be an eviction, where the defect is unclear, will not do. There must be eviction of the subject from the grantee so that the defect in his title is placed beyond doubt. But there seems to me to be no more in this point than that there is no right to an indemnity until there has been a clear breach of the absolute warrandice which has caused loss to the grantee. The warrandice is breached when there is shown to be a competing title which will inevitably prevail in competition with that which has been given to the purchaser. Actual eviction, or the threat of eviction which occurs upon a challenge being made by the party with the competing title, will enable the grantee to make a claim on the warrandice".

After having observed, at page 219 C-D that, according to the authorities, actual eviction in the sense of ejection or removal from the property is not required, his Lordship said

"This still leaves open, however, the question whether it is essential, in order to bring the obligation to indemnify into existence, that a challenge to the pursuer's title has been made by the party with the prevailing title or whether it is sufficient that there is a defect in the title which has caused loss to the grantee and would, if it had been insisted upon, have been unquestionable".

His Lordship, in addressing that question, came to the conclusion at page 220B that the answer to it was that:

"...more is required to justify a claim under the warrandice clause than a mere deficiency in the title of the grantee".

His Lordship continued:

"As Lord McLaren observed in Welsh v Russell at p. 773, the obligation of warrandice remains latent until the conditions that give it force and effect have come into existence. The fact that the pursuer did not acquire a good title to the flat is in itself not sufficient to give rise to the obligation to indemnify. She was not entitled to incur expense to remove the defect simply in order to protect herself against the possibility of loss on its re-sale. Something else was required, and according to expressions used in the authorities it is eviction which gives rise to the claim. The word "eviction" might be thought to imply that the loss is in some respect due to action by the party who has the competing title to assert his rights".

Accordingly, in His Lordship's opinion, in the case before him, where the pursuer did not aver that any action had been taken by the party with the competing title, the pursuer had no relevant case.

[10] In his opinion at page 224 B-D in Clark, Lord Morison put matters this way:

"It is of course obvious that 'eviction' does not mean physical removal. But it is in my view equally clear on these authorities, and confirmed by the case of Welsh v Russell, that it does involve the emergence of a real or threatened burden on the property. The word itself in any event clearly indicates this to be the case. If such a burden has been judicially established, the position is clear. If it has not been judicially established the warrandice clause may still be invoked if eviction in the strict sense is threatened, provided that the threat is based on an unquestionable right. Such a threat could only come as a result of a demand from the competing title-holder, for no one else has any right, let alone an unquestionable right to make it. In my opinion the absence of any averment by the pursuer that she suffered loss either as a result of the constitution of a real burden by judicial decree or as a result of a demand by the competing title-holder, renders her case irrelevant".

[11] More recently in the case of Holms v Ashford Estates Limited 2009 SLT 389 the Extra Division, after having referred to Clark and the three possibilities which Lord President Hope stated might establish eviction in breach of a warrandice, said this at paragraph 45 page 399:

"The first is where prior litigation between the grantee of the deed containing the grant of warrandice and the person claiming the competing right has resulted in a judicial determination in favour of the latter. The second is where, in the action for breach of warrandice, the party granting warrandice accepts the deficiency of the title which he granted. The third is where it can be shown in the action for breach of warrandice that the defect in title is unquestionable. In the present case neither the first nor the second alternative can apply. So one is concerned with the third position, whether the defect in title of which the pursuers claim can be said to be unquestionable. No doubt other equivalent expressions to "unquestionable" may equally be deployed, but in our view one way of putting the matter is by posing the question whether, were proceedings by way of action of declarator or interdict to take place between the party to whom warrandice had been granted and the competing proprietor to be contemplated, it could immediately be affirmed that the title of the competing proprietor was so plainly preferable as to render the position of the party claiming warrandice unstateable. In other words, there would be nothing that could properly be disputed or argued in such a hypothetical action on behalf of the person to whom the warrandice has been granted".

In the present case, as has been noted, the defender's submission was that at the time the threat was made the "threatener" did not have an unquestionable title to subjects in question. At that time the heritable proprietor was according to the pursuer's own averment, Mr Lynch. It was nothing to the point that, sometime later, Mr Lynch may have recognised the land had been conveyed to him in error and, according to the pursuer's averments was prepared to grant a corrective disposition.

[12] The pursuer's position, in submission, was that he was offering to prove that at the time of the threat, James Craig Limited did have an unquestionable title to the land in question. They were, it was said, the "true owners" at that time. The Temporary Judge had been correct to say that the pursuer's averments were sufficient for enquiry into the matter.

[13] I have reached the conclusion that the Temporary Judge was in error in allowing a proof before answer in this case. It appears to me that the passages from the authorities, which have been cited above, have established that the matter as to whether the "evicter" has an unquestionable title to the subjects in question and thereby the right to evict, has to be judged at the time that eviction is sought or threatened. The fact that Mr Lynch may have been prepared to grant a disposition in the pursuer's predecessor's favour, as averred by the pursuer, after the pursuer's assignors had paid James Craig Limited a certain sum of money, does not, in my opinion, make what happened by virtue of James Craig Limited sending the letter of 18 November 2005, "a threat of eviction by the person with the unquestionable title to be subjects" at that time. The person who had the right and title to seek possession of the subjects at the time of the "threat" by James Craig Limited, was not James Craig Limited. James Craig Limited at that time had, on the pursuer's averments no title far less an unquestionable title to the subjects, which would have entitled them to demand possession immediately. If that is correct, then there was no breach of warrandice arising as a result of that letter. What the pursuer avers has apparently happened, is what Lord President Hope in Clark at pages 220E to 221B said would not give rise to a breach of warrandice claim viz the defect in title being cured and then the grantee seeking to recover loss and damage based on breach of warrandice, for the cost of doing so. For the foregoing reasons I consider that the defender's first plea in law must be sustained and the action be dismissed.

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Clarke Lord Bonomy Lord Bracadale	[2011] CSIH 30 OPINION OF LORD BONOMY in the Reclaiming Motion by ROBERT MORRIS Pursuer and Respondent; against ANNA MARIA RAE Defender and Reclaimer: _______

Act: Logan; Campbell Smith WS (for Frazer Coogans, Solicitors, Ayr)

Alt: Brown; HBM Sayers (for Howat Associates, Solicitors, Mauchline)

5 April 2011

[14] While I agree entirely with the Opinion of your Lordship in the chair as to the applicable law, I am not persuaded that it follows inevitably from that interpretation that the action must fail. I consider that it is possible that evidence led in light of the terms of the record could establish both an unquestionable competing title and a threat of eviction.

[15] The crucial difference on the facts between the present case and that of Clark v Lindale Homes Limited is that in Clark there never was any serious question of eviction. The third party holding the title to part of the subjects did not threaten to take action to enforce that right. The position here is different. The company described as the true owners of the area in issue, James Craig Limited, asserted their rights. The pursuer avers in Article 4:

"By letter dated 18 November 2005 solicitors acting on behalf of James Craig Limited asserted their title to the land and threatened to evict the pursuer from that part of the subjects truly owned by them".

It is at this point that my views and those of your Lordship part company.

[16] The pursuer also avers that James Craig Limited can demonstrate a good title to that area of ground and explains that they "inadvertently transferred title to a John Stevenson Lynch by a disposition in error in that it was not intended to dispone the area coloured blue". The pursuer further avers that Mr Lynch "has acknowledged and accepted this error". In my opinion it is possible that evidence led on the strength of these averments could establish that James Craig Limited had an unquestionable title to the subjects because the disposition was indeed erroneous, as acknowledged by Mr Lynch, and that all that lay in the way of enforcement of the threat of eviction was the mechanics of the reconveyance from Lynch to James Craig Limited. That that may in fact be the position is not denied by the defenders. They simply do not know or admit the averments about the transaction which led to the title being transferred to Lynch nor the arrangements for the reconveyance.

[17] What is sufficient threat of eviction is identified in the Opinion of the Lord President (Hope) in Clark at page 216F-G as follows:

"Actual eviction, or the threat of eviction which occurs upon a challenge being made by the party with the competing title, will enable the grantee to make a claim on the warrandice. But it seems to me that neither of these is essential, if it can be demonstrated that the grantee has sustained loss against which he requires to be indemnified because there is a defect in the title which will provide a ground for an actual eviction and it is unquestionable. If these requirements are satisfied it would appear that, in principle, it is open to the grantee to aver that he has suffered eviction within the meaning of the word which is relevant in this context and to claim indemnity for breach of the obligation of absolute warrandice".

I consider that the unquestionable nature of the title of James Craig Limited could be established by evidence relating to the circumstances of the disposition to Lynch and the arrangements for reconveyance. In his Opinion Lord Morison at page 223D-G also envisaged voluntary action to avoid the inevitable consequence of eviction, when he said:

"Stair, Institutions, II, iii, 46 speaks of the effect of warrandice as being the up-making of what is warranted, 'in so far as it is evicted'. This is a clear indication of the extent of the indemnity which the obligation of warrandice imposes. Stair then speaks of the ordinary procedure of intimation to the warrander to be followed when 'any suit is moved whereon eviction may follow' and the competency of an action of warrandice for relief if 'eviction follow, and distress thereby'. Finally he speaks of the warrandice taking effect 'where there is an unquestionable ground of distress, though the fiar transacted voluntarily to prevent the distress'. The latter observation is obviously intended to recognise that the warrandice obligation comes into effect if there is a demand by a competing title holder, based on an unquestionable ground, which is voluntarily complied with by the fiar in order to avoid the distress following judicial eviction. In the case of such a demand warrandice will take effect equally as if distress had followed the result of judicial process. The word 'distress' contained in the last sentence of this passage cannot be understood in any different or more general sense than that inferred by the earlier reference. In the case of a demand based on an unquestionable ground it would be a waste of time and expense if the fiar were compelled to resist it. In this respect Stair precisely reflects the wider meaning attached to the word 'eviction' by Pothier as applying not only to eviction in the stricter sense but also to a 'demand which is brought to obtain it'.

The pursuer in the present case could well prove that the procedure followed to secure title to the area which was not effectively conveyed by the defenders was followed to avoid the waste of time and expense that would have been incurred were the pursuer to have ignored the threat of eviction and resisted an action at the instance of James Craig Limited whether in his own name or that of Lynch with Lynch's authority. There is no suggestion in the pleadings that such action could have been resisted successfully. Pointless litigation was avoided by the pursuer making payment to James Craig Limited and Lynch disponing the subjects to the new purchaser. Lord Hope recognised in Clark at p.220G-H that that was an appropriate course to follow where breach of warrandice was revoked. He said:

"On the pursuer's averments the defenders appear to have accepted that she had been confronted with a defect it the title which was unquestionable, because they proceeded to take the steps which were necessary for that defect to be cured. For all practical purposes the situation which arose in this case was the same as if the defect had emerged because of the threat of eviction by the party with the competing title to the property. It may be thought to be unreasonable for the pursuer to be deprived of the opportunity of recovering such loss and expense incurred by her as she can show was attributable to the defect, which is what she seeks to do in this action".

I read that as an indication that the cost of curing the defect, in the present case, paying the price for transfer of the strip of land not in fact conveyed by the defenders, is a reasonable assessment of the loss sustained by the eviction or threat of eviction of the purchaser from the subjects. The reason why that remedy was denied to the pursuer in Clark was the absence of eviction or threat of eviction.

[18] For these reasons I consider that the application of the law to the circumstances of this case ought to await a full exploration of the facts. The difference between us relates not to the requirements for breach of warrandice but how they might be established.

[19] Before leaving the case I would like to add my voice to that of the Lord President (Hope) who expressed his unease that the introduction of registration of title, and the departure from the previous practice of searching the record before delivering a disposition, has created the potential for injustice. As a result, by the time a defect in title has been identified in terms of an adverse report by the Keeper of the Registers, any term in the missives upon which the pursuer might have relied in an action for breach of contract may well have been superseded. As it turns out there was far greater potential for injustice in the present case than in Clark. This Court was not advised of the terms of the missives between the parties and is therefore unaware whether the pursuer may have a remedy on any other basis. However there is an obvious risk that a purchaser may sustain irrecoverable loss where a defect in title emerges at a late stage, no immediate step is taken to evict or even threaten to evict the purchaser and the purchaser's circumstances are such that immediate resale of the subjects is necessary. The property value would obviously be adversely affected until either the competing title holder with unquestionable title threatened eviction or the positive prescriptive period expired.

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Clarke Lord Bonomy Lord Bracadale	[2011] CSIH 30 A284/06 OPINION OF LORD BRACADALE in the Reclaiming Motion by ROBERT MORRIS Pursuer and Respondent; against ANNA MARIA RAE Defender and Reclaimer: _______

Act: Logan; Campbell Smith WS (for Frazer Coogans, Solicitors, Ayr)

Alt: Brown; HBM Sayers (for Howat Associates, Solicitors, Mauchline)

5 April 2011

[20] I am in agreement with the opinion of your Lordship in the chair and have nothing to add.