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OUTER HOUSE, COURT OF SESSION

[2023] CSOH 81

CA68/22

OPINION OF LORD HARROWER

in the cause

LEGAL AND GENERAL ASSURANCE (PENSIONS MANAGEMENT) LIMITED

Pursuer

against

HALLIDAY FRASER MUNRO

First Defender

and

FAIRHURST

(

formerly W A FAIRHURST & PARTNERS)

Second Defender

and

STEWART MILNE GROUP LIMITED

Third Defender

and

HALLIDAY FRASER MUNRO LIMITED

Fourth Defender

Pursuer: MacColl KC, A McKinlay; Eversheds Sutherland (International) LLP

First and Fourth Defenders: Borland KC, Manson; DAC Beachcroft (Scotland) LLP

Second Defender: Dunlop; Stronachs LLP

Third Defender: Lord Keen of Elie KC, McKenzie KC; Brodies LLP

17 November 2023

Introduction

[1]

This is one of two actions concerning the Union Plaza building in Aberdeen, a multi-

storey, office building at Union Wynd. The building has seven levels from the ground floor

to the sixth floor. There are also basement and sub-basement levels providing car parking

space. This action, CA68/22, relates to the basements. CA69/22 relates to the superstructure.

The Union Plaza building was built in 2008, and the pursuer is its second purchaser, having

bought it in 2013. In both actions, the pursuer sues in respect of defects in the design and

application of what it calls the "paint protection systems", protecting the steelwork against

the risk of both fire and corrosion. So far as inadequate corrosion protection is concerned,

this complaint is made only in the basement action, where the pursuer also complains of

water ingress. By contrast, the complaint that the paint protection systems inadequately

protect the steel against the risk of fire is made in respect of the whole building. The pursuer

also makes complaints in both actions of various other defects in fire protection.

[2]

As the second purchaser of the building, the pursuer's title to sue is derived from

various collateral warranties it received, or had assigned to it, from each of the main

contractor, the architect and the engineer, although, as I explain in the next two sections,

they are not all held responsible for each of the defects. Both actions came before me for

debate on the defenders' preliminary pleas-in-law regarding prescription, specification and

relevancy. The issues raised concern the relationship between collateral warranties and the

underlying construction contract, particularly in the context of the law of prescription. Since

the issues are largely common to both actions, I address them together in this opinion.

However, a separate opinion will be issued in the superstructure action indicating how I

propose to dispose of the parties' pleas in that matter.

Parties

[3]

On 1 December 2006, Stewart Milne Central Limited ("the Employer") entered into a

construction contract with Stewart Milne Group Limited ("SMG"), in which SMG was

appointed main contractor for the construction of the building. The contract was in the form

of the Scottish Building Contract With Quantities May 1999 Edition (January 2004 Revision),

as amended by a letter dated 27 April 2007 from SMG to the Employer. The Employer and

SMG are part of the same group of companies. SMG is the third defender in the basement

action and the first defender in the superstructure action.

[4]

The Employer appointed Halliday Fraser Munro, a partnership, as architects in terms

of a contract dated 27 February and 2 April 2007. Following their appointment, the

partnership's liabilities were assumed by Halliday Fraser Munro Limited. The pursuer has

chosen to sue both parties, with the partnership being the first defender in the basement

action and the second defender in the superstructure action, while the company is the fourth

defender in the basement action and the third defender in the superstructure action. One of

the issues that has arisen for debate is whether the pursuer's actions should be directed at

the company rather than the partnership. In order to simplify matters, and unless the

context otherwise requires, I shall simply refer to both the partnership and the company as

"HFM". The Employer also appointed Fairhurst, as civil and structural engineers in terms

of a contract dated 12 December 2006 and 17 January 2007. Fairhurst is sued only in the

basement action, where it is the second defender.

[5]

The building was certified as being practically complete on 8 July 2008. The

Employer then sold the building to Union Plaza Limited Partnership ("UPLP"), which is in

the same group of companies as the Employer and SMG. Although the date of that sale was

left unspecified by the pursuer in its pleadings, senior counsel for the pursuer accepted at

debate that it occurred on or around 22 August 2008. The certificate of making good defects

was issued on 13 December 2013. UPLP then sold the building to the pursuer on

20 December 2013, at which point the pursuer obtained the collateral warranties upon which

these actions are based. HFM's collateral warranty is dated 6 January 2014; SMG's is dated

8 January 2014. Fairhurst's collateral warranty, dated 2 July 2008 and 28 November 2013,

was originally granted in favour of UPLP, and then assigned to the pursuer on 18 December

2013.

The pursuer's averments

[6]

While the pleadings in each action are detailed and rather lengthy, at debate the

parties discussed the nature of the defects only in the most general terms. It is however

necessary to give at least the gist of the pursuer's complaints in both actions.

[7]

The basements extend beyond the footprint of the superstructure, creating an

external deck or podium. Although the pursuer had been aware, when it purchased Union

Plaza, that there had been water ingress in the basements caused by defects in the tanking of

the podium and retaining walls, it was advised that these had been remedied. However

water ingress in the basements continued. Following investigations, the pursuer entered

into an agreement with SMG in or around May 2018, in which SMG undertook to carry out

certain remedial works to the podium defects at its own cost. Notwithstanding these

remedial works, water ingress into the basements has continued. The problem of continuing

water ingress will require repair, which the pursuer estimates will cost £50,000. This is the

subject of the second conclusion in the basement action and is directed only at SMG.

[8]

In the course of carrying out the remedial works to the podium defects, certain

consequential defects in the basements were discovered, which included damage to some

areas of protective paintwork covering the steel. The need for remedial works to address the

podium defects was identified in a survey report by CBRE dated November 2013, prepared

on behalf of UPLP, and in a peer review carried out by GIA Building Consultancy, dated

December 2013, instructed by the pursuer. Subsequently, however, the pursuer discovered

that the paintwork in the basements was subject to degradation, observable as surface

delineation and blistering of the paint coating, and rust and corrosion of the steel beams.

The degradation to the paintwork in the basements was not caused solely by water ingress

resulting from the podium defects. Rather, it was a consequence of inherent defects in the

design and application of the so-called "paint protection system".

[9]

The pursuer only became aware of the paint protection system defects in

November 2018, after it had appointed Jones Lang LaSalle to investigate the design,

specification and application of the protective paintwork in the basements. Prior to

November 2018, there had been no reason for the pursuer or either of the building's

previous owners to believe that there was a problem with the paint protection system in the

basements, beyond the damage caused by water ingress as a result of the podium defects.

The pursuer holds all three defenders responsible for the defects in the paint protection

system in the basements. The summons in the basement action was served on each of them

on 17 December 2018.

[10]

On 2 February 2021, the pursuer introduced averments in the basement action

relating to defects in the design and installation of the soffit insulation between the steel

beams and the steel metal decking. Missing or poorly installed insulation had resulted in

the risk of exposure of the beams in the event of fire. Moreover, insulation materials had

been installed tight up against the steel beams, which would prevent the expansion of the

coat of intumescent paint in the event of fire. These soffit insulation defects had been

identified in a draft report dated August 2020 prepared for the pursuer by Mr John Aitken of

Firespec Ltd. Prior to August 2020, there had been no reason for the pursuer or either of the

building's previous owners to believe that there was a problem with the soffit insulation in

the basements. This complaint is not directed at Fairhurst. In its first conclusion in the

basement action, the pursuer seeks £350,000 from all three defenders joint and severally, or

severally, in respect of the cost of investigations and remedial works to address both the

paint protection system defects in the basements and the soffit insulation defects.

[11]

Following Mr Aitken's investigations in the basements, the pursuer instructed him to

carry out investigations into fire protection in the rest of the building. As a result, in

October 2020, the pursuer became aware of the existence of defects in the design and

installation of the paint protection system in the superstructure, together with other fire

protection defects (referred to compendiously by the pursuer in the superstructure action as

the "fire protection defects"). Prior to October 2020, there had been no reason for the

pursuer or either of the building's previous owners to believe that there was a problem with

fire protection in the superstructure, including its paint protection system. The summons in

the superstructure action was served on SMG on 28 May 2021 and on HFM on 1 June 2021.

It seeks to recover from them, jointly and severally, or severally, the sum of £20 million in

respect of the estimated cost of investigations and remedial works to address the fire

protection defects in the superstructure.

[12]

The pursuer avers that the words and conduct of each of the defenders induced it

and the building's two previous owners erroneously to believe that the defenders had

complied with their duties under their contracts or appointments with the Employer. The

words and conduct said to have induced that erroneous belief included the defenders'

performance of their obligations under their respective contracts or appointments, and their

requests for payment for work done. They included the words and conduct of each of the

defenders in connection with the certification process, whether it related to the certification

of works for payment, the certification of practical completion or the certification of making

good defects. It included words or conduct relating to the presentation of the works for

certification (SMG), advice given in relation to certification (Fairhurst) and the issuing of the

certificates themselves (HFM). The pursuer also relied on the issuing of a certificate from

SMG's subcontractor, Specialist Firecoat Systems, dated 19 June 2008, that all steel

throughout the building had been shown to achieve in excess of the relevant 120 minute

standard for fire resistance. Finally, the pursuer relied on the granting by each defender of a

collateral warranty either to the pursuer itself or to UPLP. In summary, the pursuer avers

that the erroneous belief that the defenders had complied with their obligations, induced by

the words and conduct of the defenders, induced the pursuer and the building's two

previous owners to refrain from raising proceedings.

The issues

[13]

The issues raised by the defenders were summarised by the pursuer as follows: (I) Is

SMG entitled to the benefit of the same prescription arguments which would have been

open to it had the claims been brought by the Employer?; (II) Has the pursuer plead a

relevant case based upon section 11(3) of the 1973 Act?; (III) Has the pursuer plead a

relevant case based upon section 6(4) of the 1973 Act?; (IV) Is the pursuer entitled to recover

damages in relation to collateral warranties which were granted after it purchased the

building on 20 December 2013?; and (V) Is Halliday Fraser Munro entitled to be released on

the basis that all liabilities have been assumed by Halliday Fraser Munro Limited?

[14]

For convenience I have adopted the same general structure in this opinion, subject to

two preliminary remarks. Firstly, the pursuer no longer insisted on its case based upon

section 11(3) insofar as it was directed against HFM and Fairhurst. Secondly, I acknowledge

that the defenders would not necessarily adopt exactly the same formulation of the relevant

issues: the pursuer's averments in terms of section 6(4), in particular, are challenged as a

matter of specification as well as relevancy.

(I) Is SMG entitled to the benefit of the same prescription arguments which would have

been open to it had the claims been brought by the Employer?

[15]

Section 6(1) of the Prescription and Limitation (Scotland) Act 1973 provides that

obligations of the sort described in Schedule 1 are subject to a five-year prescriptive period.

The obligations listed in Schedule 1 include any obligation arising from liability to make

reparation, and any obligation arising from, or by reason of, any breach of contract or

promise. Time starts to run on any such obligation when it becomes enforceable (s 6(3), 1973

Act). In British Overseas Bank Nominees Limited v Stewart Milne Group Limited 2020 SC 24, the

Inner House decided that the statutory prescriptive period is essentially a maximum period

that applies by default, it being always open to parties to agree a shorter period (para 25).

Further, because of the importance of time-bar provisions to contractors and designers, a

collateral warranty "should normally be subject to the same time-bar as applied to the

original building contract" (para 16). They explained that by the "same" time bar, they

meant "a time-bar that has effect on the same date" (ibid).

[16]

The pursuer submitted that the court's use of the word "normally" was an

acknowledgement that there was no universal rule, and that each case would turn upon its

own facts and circumstances. The key clauses in the SMG collateral warranty were the

following, where SMG is referred to as the "Contractor", and the pursuer, being the

beneficiary, is referred to as the "Company":

"WHEREAS

(A)

In terms of the Construction Contract the Employer has appointed the

Contractor to carry out the construction of the Works on the Site as part of the

Project.

(B)

The Company has entered into an agreement to purchase the Site.

[...]

WARRANTIES

The Contractor warrants to the Company that:-

2.1

the Contractor has carried out and will complete the Works in conformity

with the Construction Contract;

2.2

the Contractor has [sic] and will observe, perform and comply with all the

provisions and obligations on the part of the Contractor all as contained in the

Construction Contract."

DUTY OF CARE

3.1

Duty of care in relation to the carrying out of the Works

Without prejudice to Clause 2 (Warranties), the Contractor warrants that in

carrying out the works the Contractor has exercised and will continue to exercise the

reasonable skill and care to be expected of an experienced, properly qualified and

competent contractor with experience of carrying out works similar to the Works in

connection with projects of a similar standard, size, scope, nature and complexity

and value to the Project.

3.2

Duty of care in relation to the design of the Works

Without prejudice to the [sic] Clause 2 (Warranties), the Contractor warrants

that such of the design of the Works for which it is responsible under the

Construction Contract (including any design not carried out by the Contractor but

for which the Contractor is responsible in terms of the Construction Contract) has

been and will be carried out using the reasonable skill and care to be expected of an,

[sic] experienced, properly qualified and competent architect, engineer or other

appropriate professional designer, as the case may be, with experience of carrying

out design in connection with projects of a similar standard, size, scope, nature,

complexity and value to the Project.

3.3

Company's reliance

The Contractor acknowledges that the Company shall be deemed to have

relied upon and will continue to rely on the Contractor's reasonable skill and care as

set out above.

3.4

No loss

The Contractor agrees that it will not be entitled to argue in defence or

mitigation of any claim against it arising from this Agreement that any loss suffered

or cost incurred by the Company or any permitted assignee of the Company is not

recoverable from the Contractor pursuant to this agreement because that loss or cost

has not been suffered or incurred by the Employer.

[...]"

[17]

The pursuer contrasted the SMG collateral warranty with the "no greater duties"

clause (Clause 3.2) in the collateral warranties provided by the other defenders, in which

HFM and Fairhurst are each, respectively, referred to as the "Consultant", and where the

Employer under the construction contract is referred to as the "Client". The "Company" is

the beneficiary under the warranty, which in the case of the Fairhurst warranty was of

course UPLP until the benefit of the warranty was assigned to the pursuer:

"The Consultant shall owe no greater duties or obligations to the Company under

the terms of this Agreement than it would have owed to the Company had the

Company been named as the Client under the Appointment...".

No equivalent wording was provided in the SMG warranty. Nor, according to the pursuer,

could any such proviso be implied. It would make no commercial or practical sense given

that the Employer, SMG and UPLP were all part of the same group of companies. The

existence of a "no greater duties" clause was considered important by the Inner House in

British Overseas Bank Nominees Ltd in its interpretation of the collateral warranty in that case.

In the absence of any contractual limitation, the statutory prescription period applied,

commencing on the date of the SMG collateral warranty unless postponed in terms of the

provisions of the 1973 Act.

[18]

I am not persuaded by this argument. SMG warranted that it had carried out and

that it would carry out and complete the Union Plaza building works "in conformity with

the Construction Contract", and that it had and would comply with "all the provisions and

obligations on the part of [SMG] all as contained in the Construction Contract". In my view

that wording is sufficient to allow SMG, in any question with the pursuer, the benefit of any

prescription defence it would have had against the Employer. There is a peculiarity in that

the drafting "has carried out and will carry out", "has [observed] and will observe"

implies that the SMG collateral warranty was intended to be provided at a point in time at

which at least some of the contract works were still to be carried out. In its choice of

wording SMG followed, as it was obliged to do, the standard form (including the

grammatical errors) annexed to the side letter dated 27 April 2007 to the construction

contract. However, in the event, the warranty was not signed until 8 January 2014, after the

certificate of making good defects was issued. The fact that the date of execution cannot

readily be reconciled with the manner in which the warranties are drafted suggests that it

was not intended to be the date from which the warranties were to take effect.

[19]

The pursuer relied heavily on the absence of a "no greater duties" clause in the SMG

collateral warranty, contrasting it with the collateral warranty under consideration in British

Oversees Bank Nominees Ltd. However, the importance of the "no greater duties" clause in

that case was only that it "[put] matters beyond doubt" (para 27). Its presence was not

critical to the court's interpretation of the collateral warranty under consideration. Rather,

the court attached greater importance to the "fundamental purpose" of collateral warranties

in cases where the underlying contract was a building contract. That purpose was described

as being,

"to place the beneficiary and the contractor in an equivalent position to the original

developer and contractor, not to extend the obligations of the contractor to the

beneficiary of the warranty beyond those undertaken in favour of the original

developer. Details of the wording used should not obscure that basic objective"

(para 7).

The context against which the collateral warranty must be construed would include, in the

case of building contracts, the roles of the various persons involved and the totality of

contracts governing the project" (para 8). The general legal context would also be relevant,

including the fact that collateral warranties were developed in the construction industry in

order to ensure that the claims of subsequent purchasers, tenants, and the like against the

contractor and the design team would not fall into a so-called legal "black hole"

(paras 10-12). That legal and commercial context demonstrated an important feature of their

purpose, namely, to provide the subsequent purchaser with rights against the contractor

that are equivalent to the rights that were enjoyed by the original employer under the

building contract.

"The notion of equivalence is central. The purpose of the warranty is not to provide

purchasers ... with rights greater than those held by the original employer, to do so

would make no commercial sense. Equivalence accordingly requires not merely that

the beneficiary of the warranty should have the same affirmative rights of action as

the original employer; it also requires that those rights of action should be subject to

the same qualifications, limitations and defences as were available to the contractor

in respect of the original building contract" (para 12).

[20]

It is clear that the purpose of the SMG collateral warranty was to ensure that the

pursuer's claims against SMG would not fall into a legal black hole. This is apparent from

the terms of the preamble, as well as the "deemed reliance" and "no loss" provisions in

Clauses 3.3 and 3.4. For these reasons alone, I would hold that the principle of equivalence

is central to the SMG collateral warranty as much as it is to collateral warranties in the

construction sector generally. However, it is also significant that Clause 5.1 of the SMG

collateral warranty placed an obligation on SMG to effect and maintain professional

indemnity insurance for twelve years after the date of practical completion. In my view that

requirement only makes commercial sense if liability under the SMG contractual warranty is

linked to the date of practical completion under the construction contract.

[21]

For all those reasons, SMG is entitled to the benefit of the same prescription

arguments which would have been open to it had the claims been brought instead by the

Employer, albeit that they take effect as a contractual limitation rather than a statutory

prescription. The pursuer accepted that the Employer suffered loss, injury and damage

under the construction contract at the date of practical completion on 8 July 2008. It follows

that time would run against the pursuer under the SMG collateral warranty from that date,

unless the period can be said to have been postponed on the basis of any argument that

would have been available to the Employer against SMG.

(II) Has the pursuer pled a relevant case against SMG based upon section 11(3) of the 1973

Act?

[22]

One such argument is that section 11(3) of the 1973 Act must be read as qualifying

the contractual limitation which, in the previous section, I held to be available to SMG as

part of its collateral warranty. Section 11(3) would have the effect of postponing the running

of time on the basis that "the creditor was not aware, and could not with reasonable

diligence have been aware" of the occurrence of loss, injury or damage. Of course, even if I

had upheld the pursuer's arguments in the previous section, given the date of the SMG

collateral warranty, prescription would prima facie have extinguished all of the pursuer's

claims against SMG other than those it had made the subject of the original summons in the

basement action. Accordingly, the pursuer relies on section 11(3) of the 1973 Act, not just as

providing a necessary qualification to the contractual limitation defence available to SMG. It

also relies on section 11(3), in the event that I am wrong about my interpretation of the SMG

collateral warranty, as a defence to statutory prescription operating against its claims

regarding the soffit insulation defects and the superstructure action.

[23]

Against that background, the pursuer argued that it was entitled to a proof before

answer on its averments regarding the lack of actual or constructive awareness of loss on the

part of the Employer, UPLP and the pursuer. SMG's position was that objectively, and with

the benefit of hindsight, the Employer had suffered financial loss "when it paid for and took

possession of the ex hypothesi defective building at practical completion". That being so,

section 11(3) was not available to the pursuer with respect to its claims against SMG, just as

the pursuer appeared belatedly to have recognised that it could no longer advance this

argument against HFM and Fairhurst: Gordon's Trustees v Campbell Riddell Breeze Paterson

LLP 2017 SLT 1287; WPH Developments Ltd v Young & Gault LLP 2022 SC 28.

[24]

However, in my view, whatever may be the correct analysis of the pursuer's claims

against HFM and Fairhurst, money paid by the Employer to SMG for the construction of the

building was simply consideration for services supplied, rather than loss incurred by the

Employer as a result of SMG's breach of contract. In that regard, and in agreement with the

pursuer, I would accept what I understand to be the distinction between consideration and

loss drawn by Lord Doherty, obiter, in Midlothian Council v Raeburn Drilling and Geotechnical

Ltd 2019 SLT 1327 (para 25). Senior counsel for SMG referred me to Scottish Widows Services

Ltd v Harmon/CRM Facades Ltd 2010 SLT 1102, and in particular to Lord Drummond

Young's analysis of loss in the case of defective performance by the contractor or design

team. The primary loss resulting from defective performance, the court said, is the physical

defect in the building (paras 17, 18 and 29). That may well be the case, but the issue here is

not to do with when loss occurred but with when the Employer had actual or constructive

awareness of loss. In that regard, SMG founded at debate not on the pursuer's actual or

constructive awareness of defects in the building, which is something that might become

relevant at proof, but on the Employer's payment of the price for the building. As I have

said, the price paid is consideration for services supplied, rather than loss caused by breach.

[25]

SMG further argued that, whatever may have been the position regarding the

consideration paid by the Employer for the building, the pursuer (and indeed UPLP)

incurred financial loss when they purchased the building. Here too, however, I agree with

the pursuer, that the price paid for the building did not represent loss or damage

recoverable under the collateral warranty. In particular, while Clause 3.4 of the SMG

collateral warranty prevents SMG from arguing that the loss suffered by the pursuer "has

not been suffered or incurred by the Employer", the principle of equivalence means that the

pursuer effectively stands in the shoes of the Employer. As a result, it can only recover in

respect of the type of loss for which the Employer itself would have been able to recover

under the construction contract.

[26]

I have already noted that the pursuer accepted that its averments relating to

section 11(3), in the context of its claims against HFM and Fairhurst, should be excluded

from probation. Insofar far as the actions are directed against SMG, I would accept that the

pursuer makes relevant averments regarding the absence of actual or constructive

awareness on the part of the Employer, UPLP and itself regarding the existence of defects in

the paint protection system in the basements prior to November 2018, of defects in the soffit

insulation in the basements prior to August 2020, and of the fire protection defects in the

superstructure prior to October 2020. The pursuer does not appear to rely on section 11(3) in

respect of water ingress.

(III) Has the pursuer pled a relevant and specific case based upon section 6(4) of the 1973

Act?

[27]

The pursuer submitted that, insofar as its case against each defender proceeded on

the basis of a contractual limitation, mirroring the statutory prescription that would have

been available against any claim by the Employer, then it was entitled to rely upon

section 6(4) of the 1973 Act. In other words, the principle of equivalence required that the

entire statutory regime applicable to the five-year prescription should be taken to have been

incorporated into the contractual limitation. As regards SMG, of course, the pursuer's

primary argument was that the statutory prescription period applied and would have

commenced prima facie from the date of the collateral warranty. In that context, insofar as it

was necessary to do so, the pursuer also relied on section 6(4). Before summarising the

arguments of parties on this issue, it is convenient to set out the relevant terms of

section 6(4). They provide as follows:

"In the computation of a prescriptive period in relation to any obligation for the

purposes of this section-

(a)

any period during which by reason of-

(i)

fraud on the part of the debtor or any person acting on his behalf, or

(ii)

error induced by words or conduct of the debtor or any person acting

on his behalf,

the creditor was induced to refrain from making a relevant claim in relation to the

obligation, and

(b)

any period during which the original creditor (while he is the creditor) was

under legal disability,

shall not be reckoned as, or as part of, the prescriptive period:

Provided that any period such as is mentioned in paragraph (a) of this

subsection shall not include any time occurring after the creditor could with

reasonable diligence have discovered the fraud or error, as the case may be, referred

to in that paragraph."

[28]

HFM argued that, for the purposes of section 6(4), the pursuer could only rely on

words or conduct of HFM directed specifically at it, rather than at the Employer or UPLP.

Since the only words or conduct directed at the pursuer upon which it relies occurred after

the action had already prescribed, its case under section 6(4) was irrelevant. In any event,

the HFM collateral warranty contained no wording that would allow the pursuer to rely on

words or conduct directed at other parties. Indeed, the HFM collateral warranty contained

no wording importing anything equivalent to section 6(4). Further, the pursuer did not aver

how any words or conduct on the part of HFM came to operate on the mind of the pursuer

such as to have induced it into error. For the purposes of section 6(4) the relevant state of

mind must exist in one or more individuals and, in a corporate context, must be capable of

being attributed to the relevant company: Dryburgh v Scotts Media Tax Limited 2014 SC 651.

The pursuer had not given sufficient notice of the period during which it or anyone else had

been induced into error. The pursuer had averred separate end dates for separate defects.

Each end date was predicated upon receipt by the pursuer of expert reports. However,

there was no averment that the Employer received a copy of the pursuer's expert report.

[29]

Fairhurst adopted HFM's arguments in their entirety. In addition, they complained

that the pursuer's averments lacked specification, particularly its averment in article 8 of

condescendence that "the period until (at least) 17 December 2013 should be discounted in

calculating the prescriptive period in term of section 6(4) of the 1973 Act." The pursuer

failed to aver a start date or an end date for the period during which it was induced to

refrain from making a claim. It failed to aver what particular words or conduct of Fairhurst

induced an error. So far as Fairhurst's performance of its obligations under the appointment

was concerned, the pursuer could not simply rely on the general duty to exercise care and

skill. Otherwise any alleged breach of a duty of care in all professional negligence disputes

would prevent commencement of the prescriptive period. Words or conduct occurring

during the course of the works could not be relied upon since they predated practical

completion and the commencement of prescription. Any advice given regarding the

certification of interim payments or practical completion under the construction contract did

not constitute a warranty in respect of the works. Fairhurst's entitlement to payment was

not conditional on the absence of defects; therefore, when claiming payment under their

appointment, they were not necessarily representing that the building was free from defects.

[30]

SMG adopted HFM's submissions, other than its submission to the effect that express

wording was required to incorporate the equivalent of section 6(4) in a collateral warranty.

That was understandable enough, since otherwise SMG might have risked undermining its

earlier submissions on the availability, without express wording, of a contractual limitation

against the pursuer equivalent to any prescription defence it might have had against the

Employer.

[31]

I begin by underlining what is obvious, that we are here discussing the relevancy,

and to some extent the specification, of the pursuer's pleadings. Insofar as the defenders

sought dismissal of the actions based on the relevancy of the pursuer's averments regarding

contractual limitation or prescription, then the sole question at this stage is whether the

actions are bound to fail.

[32]

Secondly, and just as obviously, this is not the sort of case where the creditor in the

obligation had first been intent on pressing a claim but was then deflected from doing so by

words or conduct of the debtor. The notion that section 6(4)(a) was confined to addressing

such a scenario was rejected in Thorn EMI Ltd v Taylor Woodrow Industrial Estates Ltd

(29 October 1982, unreported, and cited with approval in BP Exploration Operating Company

Ltd v Chevron Transport (Scotland) 2002 SC (HL) 19 (para 32)). It is perfectly possible in

principle, therefore, for the pursuer to argue that the creditor of the defenders' respective

obligations, whoever that may be from time to time, had been induced to refrain from

making a claim, even while it may not have been aware that it had such a claim. Indeed, on

the pursuer's averments, it is precisely because the relevant creditor at all material times had

been induced erroneously to believe that the defenders had complied with their obligations

that it failed to raise legal proceedings.

[33]

Thirdly, the creditor is not restricted by section 6(4) to relying on words or conduct

that post-dated the coming into existence of the obligation upon which the action is

founded. At least in principle, the creditor is entitled to found upon words or conduct of the

debtor that not only preceded the coming into existence of the claim itself, but which gave

rise to that claim. This follows from Rowan Timber Supplies (Scotland) Ltd v Scottish Water

Business Stream Ltd [2011] CSIH 26, where the pursuer claimed for repetition of sums

mistakenly paid, over a ten-year period, to Scottish Water in respect of water drainage

charges. The pursuer was held to have made relevant averments that the very issuing by

Scottish Water of charge notices induced the error which, in turn, induced the pursuer to

refrain from making a claim. The same conclusion follows from Caledonian Railway Co v

Chisholm (1886) 13 R 773, where the railway company sought to recover what it would have

charged the defender for carrying the defender's grain sacks, over a seven-year period, had

the defender not falsely represented that the sacks had been used, or intended to be used, for

the carriage of grain on the pursuer's line. While in Caledonian Railway Co, the defender had

by its words or conduct implicitly represented that no obligation to pay had arisen, in Rowan

Timber Supplies, the defender's charge notices had implicitly represented that the sums

sought were truly due (Rowan Timber Supplies, para 11). In each case, at least on averment,

the pursuer had been induced to refrain from making a claim.

[34]

Caledonian Railway Co and Rowan Timber Supplies were both payment actions (or in

the case of Rowan Timber Supplies, an action for repayment). However, there is no reason in

principle why the argument should not be available in what amounts to a claim for

damages. In such a case, the creditor may rely on words or conduct of the contractor or

consultant pre-dating practical completion, on the basis that it induced the creditor

erroneously to believe that the contractor or consultant had complied with its obligations.

Imagine that the contractor claimed payment for applying layers of paint that it knew it had

omitted, or that the architect or engineer had certified that sums were due to the contractor

in respect of a specification that it knew to be defective. Should the creditor be prevented

from relying on the debtor's fraud, in the sense required to satisfy section 6(4)(a)(i), even

though he may thereby have been induced to refrain from making a claim until these defects

appeared or were discovered? I can see no reason why he should, nor why the answer

should be any different where the creditor founds on error rather than fraud. Fairhurst

argued that no reliance could be placed on words or conduct predating the date when

prescription prima facie would have commenced, which in this case was the date of practical

completion. However, while clearly there would have been no right of action prior to

practical completion, it does not follow that an erroneous belief that the defenders had

complied with their respective duties had not already been induced, or at least begun to be

induced, on the basis of words or conduct preceding practical completion.

[35]

Fourthly, must the words or conduct be directed specifically at the pursuer, as it is

submitted they must by the defenders? Again, I can see no reason in principle why they

should. I would reject HFM's and Fairhurst's argument that express wording was required

in order to incorporate the equivalent of section 6(4) into their collateral warranties. Their

argument involved treating the "no greater duties" clause in Clause 3.2 as a "lesser duties"

clause. There is no basis for such an interpretation. The principle of equivalence discussed

earlier requires that pleas that would have been available to the employer, whether they be

in the context of the underlying construction contract or the contracts of appointment with

the design team, should also be available to those standing in the shoes of the employer such

as the beneficiaries of collateral warranties. Otherwise their claims might fall into a black

hole, something which it is the very purpose of the collateral warranty to prevent. In my

view, therefore, the pursuer offers relevantly to prove that the building's two previous

owners, as well as the pursuer itself, were induced to refrain from bringing proceedings by

reason of a common erroneous belief that the defenders had complied with their contractual

obligations.

[36]

Fifthly, I would of course accept, following Dryburgh, that it is necessary, in order for

section 6(4) to apply to the facts of any case, that error on the part of the company should be

accompanied by a specific mental state in one or more individuals that is capable of being

attributed to the company (para 21). But Dryburgh was decided on appeal following a proof

before answer. It does not follow, and the case is not authority for the proposition, that the

specific mental state of any particular individuals must be plead either as a matter of

relevancy or specification. It is also necessary to bear in mind the speech of Lord Hope in BP

Exploration Operating Company Ltd (op cit), in which he said that there need not be some

conscious act of self-restraint on the part of the creditor before section 6(4) could apply

(para 30). Certainly, a creditor's reason for not making a claim might in some cases result

from a conscious and deliberate decision on his part, but not where he was unaware of the

obligation because of error (para 31). That is what is averred here, since, as I have indicated,

in both actions, the pursuer claims that the relevant creditor at all material times was

unaware of the existence of a right of action as a result of words or conduct of the defenders

inducing it erroneously to believe that they had complied with their duties under the

contract.

[37]

Sixthly, it follows also from BP Exploration, that the period of time covered by the

word "refrain" in section 6(4) includes time when the creditor does nothing to enforce the

obligation, "whether or not this is the result of a conscious decision on his part not to press

the claim" (ibid, para 33). It is not necessary for the creditor to identify the date when he

would have made the claim but for the error (ibid). Contrary to the defenders' submissions,

therefore, I would not hold that the pursuer's case is fatally undermined by any vagueness

in its pleadings in this regard. On any fair reading, the pursuer should be understood as

saying that time should not run until the error was discovered, in relation to which it has

made relevant and sufficiently specific averments, namely, in November 2018, for the paint

protection system defects in the basements; in August 2020 for the soffit insulation defects in

the basements; and in October 2020 for the fire protection defects in the superstructure.

[38]

Finally, when it comes to the actual words and conduct relied upon by the pursuer,

the question, from the point of view of relevancy, is as follows. Are they in principle capable

of being understood as a false representation by the debtor, even if only implicitly, giving

rise to an erroneous belief on the part of the creditor that the defenders had complied with

their obligations? In my view, they are. Fairhurst objected to any reliance being placed on a

letter dated 5 December 2013, in which it sought to give reassurances to the Stewart Milne

Group relating to water ingress in the basements. This could have no relevance, they

claimed, to any paint protection system defects in the basements, or the alleged soffit

insulation defects. However, the same letter concluded by saying that Fairhurst knew of "no

reason why the making good [sic] defects certificate should not be issued". Whether or not

that amounted to a representation regarding the condition of the basements generally is a

question more appropriately resolved after proof.

[39]

It was not disputed that the question of whether or not the creditor had exercised

reasonable diligence could not be decided at debate. In my view, therefore, the pursuer has

in both actions plead a relevant and specific case on the basis of section 6(4) of the 1973 Act.

Such was the level of generality at which the debate was conducted, there was little or no

reference made to the specific defects in respect of which the section 6(4) argument would

apply. For the avoidance of doubt, I am persuaded that the pursuer has relevant averments

in respect of the paint protection system defects in the basements, the soffit insulation

defects in the basement, and the fire protection defects in the superstructure (including the

paint protection system defects there). That is so whether, as I have held, the argument

applies in the context of the contractual limitation argument plead by all the defenders, or

whether, as the pursuer maintained in its primary argument against SMG, statutory

prescription applies. I did not understand the pursuer to be invoking section 6(4) in respect

of its complaint regarding water ingress, or if it was, what its arguments were in that regard.

(IV) Is the pursuer entitled to recover damages in relation to collateral warranties which

were granted after it purchased the Building on 20 December 2013?

[40]

HFM and SMG argued that, the building having been purchased by the pursuer on

20 December 2013, prior to the collateral warranties having been granted by them,

respectively, on 6 and 8 January 2014, it follows that any breach by them of their collateral

warranties did not and could not have caused the pursuer to suffer loss. Any loss had

already been sustained by the time the collateral warranties were granted and took effect.

[41]

I reject this argument essentially for reasons given by the pursuer. It proceeds on the

false premise that actual reliance is necessary in order to found a claim for breach of

warranty. There is no reason why any person who becomes liable for the cost of repairing a

defect in a building should not be entitled to sue for that cost provided he is the beneficiary

of an appropriately worded collateral warranty granted by the person responsible for the

defect (Scottish Widows Services Ltd, op cit, paras 17, 18). Senior counsel for the pursuer noted

that the date of the latest signature on the collateral warranty in British Overseas Bank

Nominees Ltd post-dated the relevant purchase (op cit, para 32). There was no suggestion in

that case that the post-dating prevented the collateral warranty being enforced.

(V) Is Halliday Fraser Munro entitled to be released on the basis that all liabilities have

been assumed by Halliday Fraser Munro Limited?

[42]

HFM acknowledged that the transfer of liabilities from the partnership to the

company might not in itself be sufficient to relieve the partnership of liability to the pursuer.

However, it submitted that, in choosing to sue the company, the pursuer intimated its

acceptance of that transfer of liability. Moreover, this was reflected in the pursuer's

averment in both actions that the company had "assumed the liabilities" of the partnership.

Reference was made to MRS Distribution Ltd v DS Smith (UK) Ltd 2004 SLT 631, in which it

was noted that it was possible to infer from conduct that the relevant obligation had been

subject to novation or delegation (para 9). HFM invited me to dismiss the action against the

partnership in both actions.

[43]

I would reject this attack on the relevancy of the pursuer's pleadings. The pursuer

has explained its position as follows:

"[T]he pursuer has not consented to any discharge of liability on the part of the

[partnership]. It does not follow from the [company] having assumed responsibility

for the liabilities of the [partnership], in an agreement between these parties, that the

[partnership] has been divested of any liability vis-à-vis the pursuer".

In my view, the pursuer has relevant averments that it has not accepted or otherwise

consented to the substitution of the company for the partnership. I will therefore allow both

actions to proceed against the partnership as well as the company.

Disposal

[44]

I would be minded to give effect to the foregoing discussion in this, the basement

action: by sustaining SMG's first plea-in-law, by excluding from probation the pursuers'

averments regarding statutory prescription (rather than contractual limitation) being

applicable to SMG's obligations under its collateral warranty; by sustaining HFM's and

Fairhurst's first pleas-in-law by excluding from probation the pursuer's averments

regarding section 11(3) of the 1973 Act; by sustaining the pursuer's fifth plea-in-law by

excluding from probation the defenders' averments regarding the pursuer not being able to

sue on a collateral warranty that post-dated the pursuer's purchase of the building; and

thereafter to allow a proof before answer with all pleas standing.

[45]

However, there may be other matters that were not discussed at the debate, beyond

the formal adoption by parties of their notes of argument. I have in mind SMG's objection to

the relevancy of certain of the pursuer's averments regarding section 10 of the 1973 Act and

whether SMG, by entering into the podium defects agreement, should be taken to have

relevantly acknowledged anything. The pursuer's note of argument was silent on that

matter, as it was on the water ingress defect generally.

[46]

I have therefore decided to put both actions out by order to discuss (a) the terms of

the interlocutor that would give effect to my decision, including the precise averments that

require to be excluded from probation, (b) further procedure, and (c) any question of

expenses.