Scottish Court of Session Decisions

Defender: Young QC, Gardiner; DWF LLP

Third Party: Connal QC (sol adv); Pinsent Masons LLP

9 May 2014

Introduction

[1] This case arises out of an error in a rent review clause in a lease. The defender has admitted liability for the error and paid a substantial sum to settle the pursuer's claim. It now seeks a contribution from the third party. The issue came before me for discussion on the Procedure Roll. In seeking dismissal of the claim, the third party submitted that the defender had not made out a relevant claim under section 3(2) of the Law Reform (Contributory Negligence) (Scotland) Act 1940. The defender maintained the contrary position. It invited me to allow a proof before answer.

[2] Between about 2003 and 2006 a consortium of companies carried out a commercial development at Pacific Quay, Glasgow. STV Central Ltd ('STV') decided to relocate there from its former premises at Cowcaddens. It instructed Semple Fraser, solicitors, and CBRE Ltd (formerly CB Richard Ellis Ltd), surveyors, to act on its behalf in securing a lease of new premises at Pacific Quay. Negotiations about the heads of terms commenced in 2003. The lease for the new premises was executed in May 2006.

[3] The landlord agreed to STV's request to fit out the new premises to a higher specification than was normal for that type of building. The extra cost was reflected in the rent, which was split into two elements: (a) the initial rent, and (b) the enhanced rent. Clause 1.1.13 set out a formula to calculate the enhanced rent over the 20 year period of the lease:

"subject to review and compounded (upwards only) at each successive anniversary ("the Relevant Date") of the Date of Entry, according to the formula R = 1 x A/B where R is the Enhanced Rent payable from and after the Relevant Date, 1 is the Enhanced Rent payable prior to the Relevant Date, A is the RPI for the date two months before the Relevant Date ... and B is the RPI for the date two months before the Date of Entry."

[4] The effect of the RPI formula was to increase the sum payable in an exponential manner. If, for example, the retail prices index increased at the rate of 3 per cent each year, STV would have been liable to pay an annual rent of £100 million in 2025. It only became aware of the true effect of the RPI formula in November 2009. On the advice of senior counsel, it decided against raising an action for rectification. Instead it entered into negotiations with the landlord to attempt to resolve matters. Following mediation in March 2012, the landlord agreed to insert a new rent formula into the lease. In return, STV became liable to pay various sums to the landlord.

[5] STV raised the present action for professional negligence against the defender shortly before Christmas 2012. It sought compensation for the losses it had incurred on the basis of breach of contract and delict. In February 2013, the defender admitted liability. Subsequently it lodged a substantial tender, which STV accepted in July 2013. Accordingly the litigation is now between the defender and CBRE.

[6] The defender traces the negotiations regarding the proposed lease at Pacific Quay back to 2003. On 9 May Sarah Clarke (STV), Simon Etchells (a partner in the defender) and Philip Reid (the managing director of CBRE) met to discuss matters. On 19 June Mr Etchells and Mr Reid, together with Joanna Campbell-Smith (also of the defender), attended a meeting with representatives of the consortium, including Jones Lang Wootton. Later the same day, Jones Lang Wootton sent Heads of Terms to Mr Reid, which he summarised in an email to STV. He copied the email to the defender.

[7] The key emails upon which the defender relies were sent in March and April of the following year. On 9 March 2004, Mr Etchells sent three emails:

09.51 He informed the Consortium's solicitors that he was asking CBRE to look at the RPI wording and Enhanced Rent provisions. Later that day he copied the email to Mr Reid.

10.03 He sent an email to Mr Reid asking "Can you comment on the RPI wording and the Cat A enhanced rent review point I make?"

11.38 He sent an email to STV and Mr Reid stating "Enhanced Rent - I think that the RPI provisions work, but I ask that CBRE look at them."

[8] CBRE employed Keith Hutchison as one of its rent review specialists. On 25 March 2004 he wrote an email commenting on one aspect of the rent review provisions in the proposed lease. He did not, however, address the wording of the RPI formula. On 30 March 2004, Mr Reid sent a copy of that email to Ms Campbell-Smith. In his covering email, he stated "I am still waiting for one of my colleagues to let me know the new RPI wording, altho most seem happy to use RPI!"

[9] By email dated 5 April 2004, Ms Campbell-Smith asked Virginia Beckett of CBRE "have your rent review colleagues yet signed off on the RPI wording in the lease?" Ms Beckett replied on 7 April 2004 stating "RPI - we are happy in principle with the RPI wording." Later the same day, Ms Campbell-Smith sent another email to Ms Beckett about the wording of the increase to the enhanced rent. She requested "your/your rent review colleagues' views on what we should be recommending to [STV]." CBRE did not respond to that request.

II Contractual Duty of Care

[10] The defender accepts that CBRE did not have a duty to draft or revise the lease. It contends, however, that CBRE had a duty:

"to consider the terms of the Enhanced Rent definition and to advise whether the indexation provision worked satisfactorily throughout the 20 year term of the lease. It was their duty to advise if the indexation provision resulted in grossly excessive rental increases in later years. CBRE failed to do so and by said failure caused or materially contributed to the pursuer's loss and damage."

[11] Mr Young relied upon a number of factors in advancing his argument that the defender had made a relevant claim. He contended first that CBRE had the competence to check the RPI formula. It employed specialists for that purpose. Second, it was implicitly understood that the members of the professional team advising STV would cooperate with one another. In a complex transaction of this type, the solicitors would be expected to seek assistance from the surveyors in respect of the RPI formula. Third, CBRE had acted in a manner from 9 March 2004 onwards that was consistent with an acceptance that it was obliged to provide STV with specialist input regarding the formula. Mr Young pointed out that CBRE had not declined to provide any information requested by the defender, nor had it issued any disclaimer. On his analysis, there was a measure of shared responsibility which could only properly be explored at proof.

[12] In applying section 3(2) of the 1940 Act, I require to decide whether, if CBRE had been sued by STV, it would have been held liable: Farstad Supply AS v Enviroco Ltd [2010] UKSC 87 per Lord Clarke at para 15. In my judgment, the answer to that question is "no". There is nothing to suggest that STV looked beyond the defender for advice on the terms of the lease, including the RPI formula. The defender does not point to any contractual document, to any instruction or request made by STV, or to any advice proffered by CBRE to STV. While the defender would no doubt have welcomed specialist advice on the RPI formula, there is nothing to indicate that CBRE undertook contractual liability to STV to provide it.

III Assumption of Responsibility

[13] The defender pleads its alternative case as follows:

"Esto the contractual remit of CBRE was limited and did not include a contractual obligation to provide such input, by its actings CBRE voluntarily assumed responsibility to STV in relation to the advice which it did in fact proffer on the draft clause."

[14] The "assumption of responsibility" test derives from Hedley Byrne v Heller & Partners [1964] AC 465. In that case, Lord Reid stated (at page 486) that a reasonable man asked to provide information or advice, and knowing that it may be relied upon, has three options. He may (i) decline to answer or keep silent, (ii) provide the information or advice sought, or (iii) provide it subject to a disclaimer.

[15] In this case, while CBRE did respond to emails from the defender, it did not provide clear-cut advice about the RPI formula, despite two express requests from the defender that it do so. Accordingly, it is doubtful that it assumed responsibility for providing advice on this point.

[16] But in any event, any assumption of responsibility must be coupled with reliance. The requirement has been underscored many times: see Smith v Bush [1990] 1 AC 831, per Lord Jauncey at 871E-872A; Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, per Lord Goff at 180F-G; and BCCI v Price Waterhouse [1998] PNLR 564, per Sir Brian Neill at 587-588. That approach has been consistently followed in Scotland: see for example Houlgate Investment Co Ltd v Biggart Baillie LLP [2011] CSOH 160; and Grant Estates Ltd v The Royal Bank of Scotland plc [2012] CSOH 133.

[17] In my view, it is fatal to the defender's case that it does not expressly aver reliance by STV. I do not accept Mr Young's submission that STV expected the professional team (as opposed to the defender alone) to point out any error before it executed the lease. The emails do no more than indicate that the rent review clause was mentioned by the parties. In none of them did CBRE expressly approve the RPI formula. The closest it came was when Ms Beckett stated on 7 April 2004 that "we are happy in principle with the RPI wording." That clearly was not sufficient for the defender, however, because Ms Campbell-Smith then sent her follow up request. The critical feature is that the emails do not establish that STV was relying on CBRE's advice with regard to the RPI formula.

[18] The fact that the parties were members of a professional team who were expected to cooperate with one another does not give rise to an obligation on the part of CBRE to provide input to STV in respect of the RPI formula. The facts of the present case are very different from those in Smith v Bush, where there were a very high number of transactions each year, all following the same general pattern: Lord Templeman at 849F, Lord Griffiths at 855B. In my judgment, it is not possible to conclude that any generalised approach could apply to this commercial arrangement, which is clearly both bespoke and complex.

[19] I therefore conclude that there is no foundation for the averment that STV instructed CBRE along with the defender "to negotiate and finalise a lease with the consortium." That averment is wholly inspecific and would not entitle the defender to lead evidence at proof. As none of the other averments would give rise to liability, I hold that the defender's claim fails.

IV Conclusion

[20] I shall dismiss the claim against the third party. By way of postscript, I wish to add that I have disregarded STV's position in arriving at my decision. It directed the summons solely against the defender and chose not to adopt the case against CBRE after defences were lodged. In response to CBRE's answers, STV expressly admitted that it was neither CBRE's "role nor responsibility to draft the rent review provision in the lease."