Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2014] CSOH 158

CA41/11         

OPINION OF LORD MALCOLM

In the cause

JANE FORREST

Pursuer;

against

FLEMING BUILDINGS LIMITED AND OTHERS

Defenders:

Pursuer:  Party

First Defenders:  Broome;  Macroberts LLP

Second Defenders:  G Walker;  Simpson & Marwick

29 October 2014

[1]        The long and unfortunate history of the dispute with which this action is concerned is described in an earlier opinion of Lord Hodge [2013] CSOH 105.  I heard a debate in the action.  Matters did not proceed any more smoothly.  At an early stage I was informed by Mr Gale, QC that, as a result of certain advice which he had tendered, Mrs Forrest (the pursuer) had withdrawn his instructions.  I refused a motion by Mrs Forrest that the debate be discharged.  The result is that in determining the legal issues I have the benefit of only the notes of argument lodged on behalf of the parties plus the oral submissions presented by Mr Broome on behalf of Fleming Buildings Limited (the first defenders) and by Mr Walker on behalf of the second defenders (Gibb Architects Limited).  Understandably, by this stage being without legal representation, Mrs Forrest was unable to contribute on the merits of the matters at hand. 

The pursuer’s averments and claims

[2]        The case made on record can be summarised as follows.  Through a quantity surveyor, in 2005 the pursuer and her now estranged husband instructed the first defenders to build a dwellinghouse in Bothwell at a price of just under £514,000.  During the course of the work additions were agreed at a sum of almost £17,000.  The contract was governed by the JCT Standard Form (1998) edition.  The second defenders provided the architectural services.  The pursuer and her husband became unhappy with the progress and the quality of the works.  There were numerous defects.  An expert opinion from Bluestone Building Surveyors was obtained.  It confirmed various problems and defects.  Further expert reports were obtained from Hurd Rolland Architects and from Morris Engineering Design Limited.  Remedial costs were quantified at just under £400,000.  The building authority has refused a completion certificate.

[3]        The first defenders have been paid almost £416,000.  The pursuer pleads that certain works have been omitted, giving an adjusted contract price of some £439,000.  Under reference to the Hurd Rolland report, she states that the second defenders agreed to provide a full architectural service in a lead designer role.  Their administration of the contract was unsatisfactory.  On 19 December 2006 the second defenders issued certificate 10 valuing the works carried out at £456,000.  On 21 December 2006 they issued a revised certificate 10 at £385,000.  The outcome was that the first defenders were overpaid by £71,000, that sum remaining outstanding.  It is averred that, after sight of the Bluestone report, the architects realised that there were defects in the first defenders’ work, hence the revised certificate. 

[4]        The first defenders did not progress the works.  The pursuer and her husband lost confidence in the second defenders’ ability to administer the contract.  By letter of 20 April 2007 their contract was terminated.  They claimed entitlement to 14 days notice.  Within that period two further certificates were issued.  Certificate 11 valued the works at £463,000.  Certificate 12 was issued the following day at a value of £508,000, and this despite the lack of any material progress in the works since the earlier valuation of £385,000.  In addition the first defenders were given an extension of 37 weeks for completion of the works.  It is averred that there was no proper basis for the terms of certificates 11 and 12, and that, having regard to the defects in the works, their true value is £23,684.03. 

[5]        Consequential upon the failure to pay in respect of certificate 12, by way of a letter dated 30 May 2007 the first defenders suspended performance of their obligations.  The pursuer claims that this suspension is of no effect since the certified amount was not properly due.  Furthermore the proper notice was not served in terms of clause 28 of the contract.  It is averred that in any event by this stage the contract was at an end because of a collapse of mutual trust and confidence, and because of the defective nature of the works.  The latter amount to breaches of contract which have caused loss and damage to the pursuer and her husband.  The second defenders are criticised for issuing certificates 11 and 12.  Furthermore they knew or ought to have known that an extension of time of 37 weeks would prevent the pursuer and her husband from claiming damages for delay in completion.  The certificate should not have been issued after notice had been served terminating the architects’ contract.  Thereafter their mandate was limited to handover arrangements.  They had no power to issue the certificates, failing which they were issued in breach of a duty of reasonable care towards the pursuer and her husband.  In these circumstances the first conclusion seeks reduction of certificates 11 and 12. 

[6]        The pursuer also pleads that she is entitled to compensation in respect of loss suffered as a result of the defenders’ breaches of contract.  The project was funded by an overdraft from a savings bank, which was repayable on demand.  As a result of the overrun and other problems, the bank demanded repayment.  To raise money, in April 2007 the house was sold for £125,000 to a company owned by the pursuer’s father.  The pursuer avers that this sale was “not for value”.   She claims that had the contracts been performed properly, at this stage the house would have been worth £730,000, and could have been sold on the open market at that price.  Accordingly the defenders’ breaches of contract and negligence have resulted in a diminution of the value of the subjects, hence the second conclusion for payment from the defenders jointly and severally of £605,000.  There is also a claim in respect of anxiety and distress in the sum of £20,000. 

[7]        The action also concerns a claim by the pursuer for payment by the second defender of £150,000.  This is based upon earlier court proceedings in which the pursuer sought to reduce an adjudicator’s award of some £112,500 in favour of the first defenders.  The challenge was unsuccessful.  It is averred that had certificates 11 and 12 not been issued, those proceedings and the resultant costs awarded against the pursuer would not have occurred.  The costs are estimated at £150,000. 

[8]        The pursuer also pleads that on 15 December 2009 her husband assigned all his rights of action to her, the assignation being intimated to the agents for the defenders.  Early in the debate, on behalf of the pursuer Mr Gale intimated that he was not relying upon the assignation.  As already mentioned, his instructions were subsequently withdrawn.  However, at the start of the second day of the debate, Mr Forrest was present in court.  Mrs Forrest tendered a document by way of a notice of sist, with a view to the court allowing him to become a pursuer in the action.  I was not satisfied that Mr Forrest had received appropriate legal advice on the matter.  The motion was opposed and my attention was drawn to certain procedural informalities.  In the whole circumstances I was not prepared to grant the motion at that stage.  Counsel for the defenders had presented an argument based upon all parties not having been called, a submission which could not be maintained if Mr Forrest became a party to the action.  Mr Broome had also challenged the competency of the assignation given the terms of the contract between the pursuer and the first defenders.  Counsel suggested that the court could address the other arguments made in support of the motion to dismiss the action.  Should any of those prove to be successful, the application to sist Mr Forrest did not arise.  If none of them were successful, the matter of a sist of Mr Forrest, if pursued, and the arguments regarding “all parties not called” and the purported assignation could, if so advised, be put forward at a further hearing in the case (with or without any comments upon them  that I might wish to make meantime).  I therefore turn to the other arguments presented on behalf of the defenders in support of the motion for dismissal.

Mr Broome’s submissions on behalf of the first defenders and the decisions upon them

[9]        A dominant theme in the submissions for the first defenders was that, notwithstanding all that has happened, and the passage of time, the construction contract remains alive, and that the pursuer’s claim is truly one of delay pending practical completion.  Thus it was said that any claim was limited to the contractual agreement as to liquidated damages, and that pending completion there can be no claim for breach of contract.   Reference was made to various authorities in support of the proposition that, so long as alleged defects in performance can be resolved prior to completion, they do not sound in damages, and that liquidated damages under clause 24 is an exhaustive remedy. 

[10]      Those authorities do support Mr Broome’s proposition, at least as a general rule.  However, in the absence of evidence, and standing the nature of the pursuer’s case as set out on record, I am not prepared to proceed on the footing that it must be held that the contract is extant and that the pursuer’s claim is properly characterised as based on a delay in completion.  The pursuer has made reference to a number of expert reports detailing the alleged defects in the house and the deficiencies in the services provided by the builders and the architects.  The house has been sold to a third party.  There has been earlier litigation which reached the doors of the Supreme Court, and the first defenders have petitioned for the pursuer’s bankruptcy.  Many years have passed since the problems arose and the house was sold.  The pursuer offers to prove a complete breakdown between the employer on the one side, and the builders and architects on the other, and that the contract is no longer alive.  In the pursuer’s note of argument the claim is described as damages for diminution in the value of the property as a result of the defects as at the date of sale.  I do not consider that I can proceed upon the basis that she is bound to fail in this approach. 

[11]      Mr Broome also submitted that the claim is irrelevant given that it is averred that the sale of the house at £125,000 was not for value.  This was not a foreseeable consequence of any breach of contract.  Furthermore, it means that the measure of damages is wrongly stated.  I understand the force of these observations, which were to an extent repeated by Mr Walker on behalf of the other defenders, but, especially in a commercial action I do not consider that they justify dismissal.  On the other hand, it will be incumbent upon the pursuer to provide specification and vouching as to (a) the true value of the house at the date of sale, and (b) the alleged diminution in value as compared with a property not subject to the alleged defects. 

[12]      Mr Broome also challenged the relevancy and specification of the £20,000 claim for distress and anxiety.  Furthermore, standing the defenders’ challenge based on the five year negative prescription, he drew attention to the absence of any averments on the matter in the pursuer’s pleadings.  He submitted that with the onus being upon her in respect of the time bar challenge to the anxiety claim, this element of the action should be disallowed.  While I am not sympathetic to the specification point, I am persuaded that the second argument is well-founded.  I shall uphold the first defenders’ fourth plea-in-law, exclude the averments in article 14 of the condescendence from probation, and dismiss the fourth conclusion.

[13]      Mr Broome also criticised the averments in support of reduction of certificates 11 and 12.  It was said that the building contract requires there to be an architect, and that there is no scope for any diminution in the powers of the architect.  Certificates 11 and 12 could have been challenged at an adjudication or arbitration.  Reference was made to case law which supports the proposition that an employer must ensure that an architect is in place.  However the decisions cited do not address the specific issue as to the powers and duties of an architect whose position has been terminated, but subject to notice provisions.  The whole matter of certificates 11 and 12 is likely to be bound up with the full facts and circumstances, including the alleged breakdown in the parties’ relationship.  In my view it would be wrong to reach a view on Mr Broome’s submission on this point in isolation from the wider picture as it might emerge after evidence.  In short, I am not in a position to decide now that the case on record regarding the certificates must fail.  These issues should be remitted to proof before answer. 

Mr Walker’s submissions on behalf of the second defenders and the decisions upon them

[14]      Mr Walker explained that he was not advancing the specification criticisms contained in paragraph 5 of his updated note of arguments.  He submitted that the alleged loss of £605,000 is based on delays in completion, and is not causally connected to the alleged breaches of duty.  The contract provided a machinery for dealing with delays.  The most that can be recovered is liquidated damages.  This argument is similar to that presented by Mr Broome.  I am not persuaded that, at least at this stage, one can categorise the pursuer’s claim as limited to the consequences of delay in the completion of the works.  A different picture might appear after evidence, but in the meantime I consider that this plea on behalf of the second defenders should be answered after proof.

[15]      Turning to paragraph 1 of his note of argument, and in the context of the diminution in value claim, Mr Walker submitted that, since the sale price of £125,000 was admittedly not at a true value, it is incumbent upon the pursuer to prove its worth as at the date of sale.  No explanation is given as to the sale price which, according to the pursuer’s averments, created a loss quantified at some 50% greater than the alleged cost of the required remedial works.  No doubt counsel is correct in his basic proposition as to the need for the pursuer to establish the market value of the property as at the date of sale, but, especially in a commercial action, I do not consider that it follows that the case must therefore be dismissed.  If the case proceeds to proof there will be ample opportunity for the pursuer to provide fair notice and appropriate vouching on the point.  In any event, the cost of repairs might provide a fallback method of quantifying such a claim. 

[16]      Turning to paragraph 2 of his note, Mr Walker submitted that there is no notice as to how the pursuer intends to prove that it was foreseeable that she would sell the subjects at an undervalue.  Any such loss is too remote.  There is no link between the architect’s alleged failures and the combined factors of delay in completion, the bank’s demand for repayment of the loan, and the need for a sale to a connected company.  This argument is a variation on the theme underlying the earlier submissions.  Again I consider that the pursuer has sufficient averments to allow her to go to proof on the issue as to whether any failures on the part of the architect have caused her foreseeable loss, and if so, to what extent.

[17]      Mr Walker then criticised the £150,000 wasted expenses claim.  It was said that there is no link between it and the complaints levelled at the architect.  The adjudication award was challenged on the basis that there was no contract between the pursuer and her husband on the one hand, and the first defenders on the other; not on the basis of faults on the part of the architect.  While it is true that without the certificates the adjudication award would not have been achieved, if the award had not been challenged, the resultant liability in legal expenses would not have been incurred.  (Mr Walker also noted that there is no averment that it had been reasonable to challenge the award on the basis of no contract between the parties, however, if there is a real issue between the parties on this, it can be focused in advance of any proof.)

[18]      In essence Mr Walker’s point is that the issue of the certificates was part of the chain of events which led to the unsuccessful challenge to the award, but that the true cause of the liability in costs was the decision to challenge the award on the ultimately unsuccessful ground that there was no contract between the parties.  I can see the potential force in that argument, but before I can dismiss the claim at this stage, I would need to be satisfied that evidence could not advance matters.   Something may turn on the nature of the full arguments deployed before the adjudicator and the reasons for identifying the specific grounds for a judicial challenge to the award.  I note from the opinion of Lord Menzies dealing with the challenge to the adjudication award that there was a claim for retention and set off based upon an entitlement to damages.  That aspect formed part of the preliminary proof before his Lordship, and was dealt with at paragraphs 106/8 of his opinion.  It is not clear to me, at least at present, that that part of the challenge can be divorced from the issuing of the certificates.  It may be that some, but not all of the costs incurred fall within the scope of this part of the action.  In principle, in a contract which contains an adjudication machinery, the negligent issue of an architect’s certificate can cause foreseeable costs relating to the adjudication.  Again I consider that a confident answer to Mr Walker’s submission cannot be given until both parties have had the opportunity to lead evidence. 

Outcome

[19]      The overall result is that the only submission to succeed is that relating to the claim for anxiety and distress.  I therefore refuse the motions for dismissal of the action as a whole.  This leaves for consideration the matters mentioned in paragraph [8].  For this purpose the action shall be put out by order.  In the meantime I do not consider it appropriate to comment on the other arguments presented by Mr Broome.   They may or may not arise depending on (a) whether the pursuer relies upon the earlier assignation, and (b) whether Mr Forrest is or is not sisted as a pursuer in the action.