For Pursuers and Reclaimers: Moynihan, QC; Anderson Strathern

For Defenders and Respondents: Sandison, QC; Brodies

7 December 2011

[1] The background to this reclaiming motion is conveniently summarised by the Lord Ordinary at the outset of his Opinion in the following terms:

"The estate of Castle Grant, which is located near Grantown-on-Spey and which for centuries has been the part of the Seafield estates, includes a grouse moor. The current owners of the estate are the trustees of Viscount Reidhaven's trust ("the trustees"). The grouse moor was very productive in the 1920s and in the early 1970s provided a substantial annual bag of grouse. In common with several other Scottish estates, the productivity of the moor at Castle Grant declined thereafter. The presence of ticks on the moor and the spread of louping ill virus was probably the cause of the decline of the grouse population. In an attempt to reverse the decline of Castle Grant as a grouse moor, the owners of the estate instituted a recovery programme in the late 1980s or early 1990s. This involved among other things placing a flock of sheep, whose coats were treated with a chemical fatal to ticks, on part of the estate for several years in the early 1990s and an attempt to cull wildlife, such as hares and deer, which provided a food source for the ticks.

The estate's recovery programme had some success in improving the productivity of the moor. In the early years of this century there was evidence of a general increase in the size of the annual bag. The ten year annual average between 1970 and 1979 was 792 brace; between 1996 and 2005 it was 196 brace; but the five year average between 2001 and 2005 was 300 brace. Notwithstanding this improvement and a belief that the grouse moor was continuing to improve as a result of the recovery programme, the trustees recognised that there needed to be more significant investment in the moor to realise its potential. As the principal beneficiary of the trust did not shoot grouse and would not gain personal benefit from expenditure to improve the grouse moor, the trustees decided that it was appropriate to attract an outsider to make the needed investment by offering a fifteen-year lease of the moor.

Mr Alastair Erskine, a successful businessman and a keen shot, decided to take on the lease of the grouse moor at Castle Grant. He and his wife established a limited liability partnership, Cramaso LLP ("Cramaso") as the vehicle for Mr Erskine's investment in the moor and Cramaso entered into a fifteen-year lease of the moor from the trustees with effect from 1 January 2007 in a formal lease which the parties signed in December 2006 and January 2007. The tenant under the lease was obliged to put and keep the moor in good condition. This involved major capital expenditure in the early years of the lease on rebuilding the butt lines, repairing and upgrading the moorland road system, providing fencing for a sheep flock on the moor, repairing and upgrading the lunch huts, game larder and equipment storage area on the moor, and completing the repair and refurbishment of the cottages and farm buildings. The tenant was obliged "to manage the moor throughout the period of [the] lease in a manner fully commensurate with the operation of a top quality driven grouse moor in the district". The lease also obliged the tenant to employ a third gamekeeper on the estate in addition to the two whom the trustees had employed. It was, in short, an improving lease in terms of which the tenant had to invest heavily in the early years to improve the moor and could enjoy the benefits of those improvements during the currency of the lease before returning possession of the improved moor to the landlords on the expiry of the lease.

Mr Erskine invested large sums in Cramaso to fund the undertaking. Cramaso aver that they incurred overheads and capital expenditure amounting to £530,859 since entering into the lease. Cramaso were disappointed by the small numbers of grouse which they found on the moor after taking possession of it in 2007. They claim that they were induced to enter into the lease as a result of fraudulent or at least negligent misrepresentations by an employee of the trustees, namely Mr Sandy Lewis, the chief executive of the trust and of other Seafield family estates and entities. They therefore seek to reduce the lease and claim damages for loss which they aver resulted from those misrepresentations.

I heard a proof on the issues: (i) whether there had been a fraudulent or negligent misrepresentation and (ii) whether that misrepresentation induced Cramaso to enter into the lease. Questions of remedy and quantum, if relevant, were reserved for a later hearing."

[2] In the event, the Lord Ordinary decided that a material, but not fraudulent, misrepresentation was contained in an email dated 29 September 2006 written by Mr Lewis to Mr Jonathan Kennedy, a chartered surveyor who had been asked to advise the Trustees on the letting of their grouse moors, at the end of which Mr Lewis stated that he would be happy for Mr Kennedy to pass on the contents to Mr Erskine which Mr Kennedy did on 2 October 2006. In brief, that misrepresentation was that in estimating the number of birds on the moor area in question (45 kms² approximately) it was possible to extrapolate from counts of birds carried out over ten areas totalling only some 5 kms². The Lord Ordinary also held that Mr Lewis owed a duty of care to Mr Erskine in making the representations in the email of 29 September 2006 and that he failed in that duty. It should be recorded that this latter finding is the subject of a cross-appeal by the respondents, the substance of which is that Mr Lewis could not reasonably have expected anyone to rely on the content of the email. We did not, however, enter into the subject matter of the cross-appeal pending a decision on the reclaiming motion which arises out of the Lord Ordinary's last finding that, while Mr Lewis owed a duty of care to Mr Erskine, he did not owe such a duty to Cramaso which was not in existence when the misrepresentation was made. That was the sole question on which we heard full argument and which is thus the subject of this opinion. Moreover, counsel for both parties were agreed that there was no challenge to the Lord Ordinary's findings in fact so far as relevant to that issue.

[3] As to this matter the Lord Ordinary stated, inter alia, as follows:-

"The difficulty facing the pursuers in this action is that they are a separate legal person from Mr Erskine: see Limited Liability Partnerships Act 2000, section 1. The members of Cramaso are Mr Erskine and his wife. Mr Erskine introduced all of the capital of the business. His wife is not actively involved in running the enterprise other than ensuring that that proper catering is available on shooting days. Thus it is not misleading to describe Cramaso as being in substance Mr Erskine's vehicle for operating the lease or to call Mr Erskine the directing mind of the limited liability partnership. But no evidence was led as to the rights inter se of the members of Cramaso.

Further, Mr Lewis was not aware when he composed and sent the email of 29 September 2006 that Mr Erskine intended to create Cramaso. He learned of that intention several days later. Cramaso did not come into existence as a legal entity until 16 November 2006 ... On the law as it currently stands, this places an insuperable obstacle in the way of Cramaso's claim.

For a defender to be liable in delict for a careless representation, he must have broken a pre-existing duty of care to prevent the pursuer sustaining economic loss as a result of his negligent misrepresentation: Professor Joe Thomson in 2001 SLT 279 at p.280. Using a Hohfeldian analysis, there must exist at the time of the representation the person (or class of persons) to whom that duty is owed and who therefore has the correlative rights.

When the courts deal with an assertion that a duty of care is owed not to a particular representee but to a class of persons, there is always the concern, which Cardozo CJ classically stated in Ultramares Corporation v Touche (1931) 174 N.E. 441, (at p.444), that the law might subject a person to "liability in an indeterminate amount for an indeterminate time to an indeterminate class". To counter that danger, the Court of Appeal in England in Reeman v Department of Transport [1997] 2 Lloyds Rep 648 has set strict limits on the class to whom a duty of care is owed when a person gives advice."

[4] In the passage just quoted it is fair to say that the Lord Ordinary's emphasis appears to be on what he regards as the "insuperable obstacle" of Cramaso not coming into existence as a legal entity until after the misrepresentation in question and also in treating the question before him as a question involving "a class of persons". It is not surprising, therefore, that in opening the reclaiming motion Mr Moynihan, QC was at pains to establish, not only that this was a developing area of the law in which duties of care could be developed pragmatically and/or incrementally to avoid injustice but also that there were certain authorities (not all of which were before the Lord Ordinary) which suggested that it was not, after all, "an insuperable obstacle" that a member of a sufficiently defined class was not actually in existence at the time a duty of care arose to the class as a whole. To that end he cited a number of authorities including most pertinently, perhaps, Wild v National Bank [1991] 2 NZLR 454 (a company suing in respect of a pre-incorporation negligent misrepresentation) and Aiken v Stewart Wrightson Agency [1995] 1 WLR 1281 at pp. 1309/1311 (a duty held to be owed to future members of a Lloyds syndicate).

[5] It is, however, unnecessary to dwell further on this aspect of the case since when Mr Sanderson, QC came to reply, he accepted that in appropriate circumstances a duty could be owed to a class of persons which included some not actually in existence at the date of the negligent misrepresentation in question. Indeed, he submitted that the decision of the Court of Appeal in Reeman v Department of Transport, the case much founded on by the Lord Ordinary, was in fact consistent with the proposition advanced by Mr Moynihan. Properly understood, said Mr Sanderson, Reeman simply emphasised that foreseeability that persons might rely on a statement (in that case a Department of Trade Certificate of seaworthiness) was not of itself sufficient to establish an identifiable class for the purpose of satisfying the test of proximity and thus the existence of a duty of care. As the leading case of Caparo Industries Plc v Dickman [1990] 2 AC 605 had long ago clearly established, more than mere foreseeability was required for that purpose; but the facts as found at first instance in Reeman did not disclose any such additional material.

[6] In any event, said Mr Sanderson, the present was not a case involving any class at all. The true ratio of the Lord Ordinary's decision was to be found in the sentence at the end of para. [118] where he found, quite simply, that "there was not sufficient proximity between Mr Lewis and any as yet uncreated vehicle for the lease for there to be a duty of care to that entity".

[7] Whatever be the proper reading of the Lord Ordinary's Opinion on this matter, that last observation by the Lord Ordinary came to be the basis of Mr Sanderson's submissions to this court. For the necessary degree of proximity to be established it was by now trite law that it had to be made clear to the maker of the impugned statement that there was, at least, a high degree of probability that an identifiable person would act upon that statement to his potential detriment. Examples of observations to that effect could be found, not only in Caparo, but in Smith v Bush [1990] 1 AC 831 and White v Jones [1995] 2 AC 207. In the former Lord Griffiths, at p. 865, had said:

"I would certainly wish to stress that in cases where the advice has not been given for the specific purpose of the recipient acting upon it, it should only be in cases when the adviser knows that there is a high degree of probability that some other identifiable person will act upon the advice that a duty of care should be imposed. It would impose an intolerable burden upon those who give advice in a professional or commercial context if they were to owe a duty not only to those to whom they give the advice but to any other person who might choose to act upon it."

In the latter, at p. 274, Lord Browne-Wilkinson had said:

"The law of England does not impose any general duty of care to avoid negligent mis-statements or to avoid causing pure economic loss even if economic damage to the plaintiff was foreseeable. However, such a duty of care will arise if there is a special relationship between the parties. Although the categories of cases in which such special relationship can be held to exist are not closed, as yet only two categories have been identified, viz. (1) where there is a fiduciary relationship and (2) where the defendant has voluntarily answered a question or tendered skilled advice or services in circumstances where he knows or ought to know that an identified plaintiff will rely on his answers or advice."

[8] At the end of the day Mr Sanderson's submission was as simple as this: that if perceived reliance was essential to a relationship of proximity and thus to the existence and scope of a duty of care, then at the time the alleged misrepresentation was made only Mr Erskine was capable of being perceived as a person to whom a duty could be owed. At that time there was simply no other identifiable person within the contemplation of either Mr Lewis or the defenders who could be affected in any way. Albeit Mr Erskine could presently be seen as the "guiding mind" of the pursuers that situation might alter at any time and the credit-worthiness of the two separate legal personae could not be equated. In any event, there was not, in principle, any distinction to be drawn between the pursuers and any other assignee selected by Mr Erskine. It was impossible that a relationship of proximity could extend so far.

[9] In our opinion there can be no good answer to Mr Sanderson's submissions on this matter and we were certainly unable to detect any such answer in Mr Moynihan's reply. In the result, we shall refuse this reclaiming motion. For the sake of completeness, however, there are three miscellaneous matters to which we wish to make reference.

[10] In the first place, Mr Sanderson pointed out that, while there was an averment in the pleadings to the effect that the defenders should have "checked" their representations when becoming aware of Cramaso, that had not been insisted in at the Preliminary Proof and instead reliance had been placed on the following averment that there had been a duty to "correct" the misrepresentation already made. That had been relevant so long as fraudulent misrepresentation was in issue but it had no relevance where, ex hypothesi, the maker of the statement was unaware of its falsity.

[10] Secondly, a question arose in the course of the hearing as to whether absolvitor in relation to the conclusion for reduction of the lease was appropriate where, as appeared to be accepted, there might remain the possibility of rescission on the basis of innocent misrepresentation. As to that, both parties considered that decree of absolvitor in the present case would not be res judicata in regard to rescission and, for what it is worth, a joint minute to that effect was lodged as No 56 of process.

[12] Lastly, a question also arose in the course of the hearing as to whether Mr Erskine might himself still have a title to sue for damages in delict. This could clearly have been very relevant to the question whether the imposition of a further delictual liability on Cramaso would be "fair, just and reasonable" but, having disposed of the action on other grounds, it is unnecessary for us to reach a concluded view on that matter.

[13] As stated above the reclaiming motion is refused.