Scottish Sheriff Court Decisions

MAYPARK PROPERTIES LIMITED v. ROY G.L. STIRRAT AND OTHERS [2000] ScotSC 31 (10th November, 2000)

A2864/97

GLASGOW, 10 November 2000.

The Sheriff Principal having resumed consideration of the cause sustains the appeal and recalls the sheriff's interlocutor complained of dated 27 April 2000; sustains the second plea in law for defenders; repels the pursuers' pleas in law and grants decree of absolvitor; reserves all questions of expenses.

The pursuers are a property development company. They purchase domestic flats, refurbish them and resell them at a profit. In September 1994 their solicitors submitted an offer to purchase a flat at 11 Arundel Drive, Langside, Glasgow for the sum of £32,000. The offer to purchase was made in name of one of the directors of the pursuers, Mr Gary Cohen or his nominee. Missives were exchanged with the seller and a bargain was concluded. One of the terms of the bargain was that the seller had to exhibit to the pursuers "District Council Property Enquiry Certificates or SPH search" and that if the document submitted disclosed an item adverse to the purchaser's interest there would be an opportunity to resile from the contract.

The defenders are partners of the firm known as SPH Property Search. They carry out searches of certain records maintained by District Council Departments including Planning, Building Control and Environmental Health and sell these to parties having an interest. They provided a search report dated 9 November 1994 to the seller of 11 Arundel Drive which stated in terms that a search had been carried out for orders, notices, declarations and agreements under inter alia the Housing (Scotland) Act 1987 Section 108 (compulsory repair notices) and that the search was clear. This report was duly exhibited to the pursuers' agents and the transaction proceeded. The purchaser Mr Cohen had in the meantime instructed his solicitors that title to the subjects should be taken in name of the pursuers.

Shortly before entry was taken the pursuers and their solicitors discovered that there was in existence an outstanding notice issued by the local authority in terms of Section 108 of the Housing (Scotland) Act 1987. That notice related to 11 Arundel Drive and required the rectification of defective chimney heads. Further enquiry revealed that a contract was in existence which involved rectification work both on 11 Arundel Drive and the adjoining property at no. 19. The works at no. 19 Arundel Drive were also required under the Housing (Scotland) Act 1987. These works were of an extensive nature and were scheduled to take some 44 weeks.

In the present action the pursuers seek damages from the defenders on the basis that they were at fault in issuing the clear property search certificate. They averred, and the sheriff accepted, that had the existence of the repair notice relating to 11 Arundel Drive come to their attention that in turn would have led to knowledge of the existence of the major repair works. Had the pursuers known of that they would not have proceeded with the purchase of 11 Arundel Drive. The sheriff proceeded to award damages of £4,309.01. That award was made on the basis that the chimney repair at 11 Arundel Drive cost £309.01. As to the major part of the award, that was based on the sheriff's conclusion in finding in fact 9 expressed as follows:

That finding was made in the light of evidence led before the sheriff to the effect that potential purchasers could not be attracted to the property because of scaffolding and other obstructions relating to the major works which were being carried out.

The defenders have appealed against this decision on three broad grounds. Firstly they contend that the sheriff erred in law in holding that the pursuers were persons to whom the defenders owed a duty of care. Secondly, and proceeding on the assumption that there was a duty of care, the defenders contend that there was no evidence entitling the sheriff to hold that they were in breach of it. Finally, they contend that the sheriff erred in law in holding that the pursuers had suffered any loss. I shall deal with the competing submissions made under each of these heads and my conclusions in respect of each of them separately.

Counsel for the defenders intimated at the outset of the hearing that he accepted the sheriff's findings in fact but challenged his conclusions in law. He commenced his submissions by referring to the terms of findings in fact 2, 3, and 4 which deal with the conclusion of missives in name of Gary Cohen or his nominee as purchaser; the condition that a clear search be provided either by District Council Property Enquiry Certificates or SPH Search; the provision of that search by the defenders; and the fact that prior to settlement Mr Cohen instructed his solicitor to take title to the property in name of the pursuers. That, said counsel, was the totality of findings in fact which demonstrated any relationship between the parties. The sheriff had gone on to hold in finding in law 2 that:

That barely supported the sheriff's conclusion that the defenders owed a duty of care to the pursuers, but he appeared to have accepted a submission that:

The sheriff had also said that he accepted that the defenders owed a duty of care to a purchaser. He added:

The sheriff had accordingly held that the requisite degree of proximity existed between the parties to entitle the pursuers to maintain that the defenders owed them a duty of care. Counsel proceeded to examine the development of this area of the law initially by reference to certain well known passages in Hedley Byrne Co Ltd v Heller & Partners, 1964 AC 465 and more particularly in Caparo Industries v Dickman 1992 AC 605. That case gave some indication of the limit of the extent to which the "requisite proximity" between the parties was permissible in cases where liability based on the Hedley Byrne principle was asserted. Thus, in his speech (at p 621E) Lord Bridge of Harwich said:

In his speech (at 638C) Lord Oliver indicated that one of the requirements necessary to establish a relationship giving rise to Hedley Byrne liability was that

The difficulty for the pursuers in the present case, counsel contended, was that they were not members of an identifiable as distinct from an indeterminate class. There was a clear illustration of this in Reeman & Another v Department of Transport & Others, 1997 PNLR 618. That was a case in which plaintiffs who had purchased a commercial fishing vessel which was unseaworthy sought to establish liability against a Department of Transport surveyor who had issued a certificate of sea-worthiness. It was held on appeal that the Department owed no duty of care to the plaintiffs. Having regard to the purpose of the certificate and the statutory scheme under which it was issued, which was to promote safety at sea, and the fact that the class of potential purchasers who might rely on the certificate could not be ascertained at the time when it was issued, the plaintiffs were not sufficiently proximate. In his judgment Lord Justice Gibson said (at p 638D):

Counsel submitted in conclusion that "a nominee" was simply a member of an unidentifiable class to whom the defenders in issuing the property certificate could not be said to owe any duty of care.

In response counsel for the pursuers pointed to the terms of the sheriff's Note (at p 21B) where it was recorded that at the proof:

In the light of that concession the sheriff, he contended, only had to consider the narrow question of whether the pursuers fell within that class having regard to the fact that the missives specifically made mention of nominees. He submitted that the sheriff was entitled to conclude that the purchaser was "Gary Cohen or his nominees" and that included the pursuers. In the light of the defenders' concession consideration of the more abstract questions of proximity arising from Hedley Byrne and Caparo Industries did not arise. If it did, however, counsel contended that the "requisite proximity" still existed. The sheriff had found in finding in fact 8 that the defenders knew that the search would be exhibited to a purchaser of 11 Arundel Drive and that the purchaser in terms of the offer was "Gary Cohen or his nominee". That fitted with the views of the House in Caparo, in particular where Lord Bridge (at p 624) in quoting from a decision in the New Zealand Court of Appeal said:

To hold that there was a duty to a potential purchaser in terms of the missives was not to create a potential liability to an indeterminate class. When Lord Bridge had spoken of "an identifiable class" that clearly inferred that the defender did not have to know the identity of a person who might act upon the information which he provided. As counsel put it "the purchaser can be anybody - but it is that particularly anybody to whom the duty is owed". In relation to the case of Reeman he contended that this was plainly distinguishable upon the view that there were any number of potential purchasers for the vessel; it should also be viewed differently because it was a case where the existence of any duty was denied whereas in the present case the duty was admitted.

On this aspect of the case I have no difficulty in holding that in issuing a property search certificate to a seller of heritable subjects the pursuers were in sufficient proximity to a potential purchaser to give rise to the duty of care requisite to the type of liability with which this case is concerned. I cannot see that it could be other than reasonably foreseeable to them that such a person would rely on the terms of such a certificate. That being so, standing the fact that the terms of finding in fact 8 are not challenged I am prepared to accept the submissions advanced on behalf of the pursuers. That finding, as I have indicated, records that

I do not consider that this creates an indeterminate class of persons to whom the issuers of such a certificate might be liable. If the identity of a purchaser was a matter of concern to them it would be open to them to enquire as to whether there was a potential purchaser and such enquiry would have revealed, in the circumstances of this case that the potential purchaser was "Mr Cohen or his nominees". The decision I regard as somewhat special to the facts of the case, and I have the gravest doubts as to whether a duty would exist in similar circumstances where no specific mention to be made of nominees in the relevant missives. I am however satisfied that in the light of his unchallenged findings in fact the sheriff was entitled to hold that a duty of care was owed to the pursuers.

The sheriff held as a matter of fact that "The existence of the notice relating to number 11 Arundel Drive should have been ascertained by the defender by the exercise of reasonable care in carrying out the search. It was part of public records". He found as a matter of law that "the existence of the correct information could have been disclosed by the exercise of reasonable care on the part of the defenders". In their grounds of appeal the defenders contend that the case was properly averred as one of professional negligence; there was no evidence of professional negligence and on the pleadings the pursuers were not entitled to make a case simply that the defenders were in breach of a duty to take reasonable care.

Counsel for the defenders accepted that the authorities indicated that in certain circumstances a professional advisor exercising simple skills might owe a duty of care to a third party. That being so the pursuers had properly approached the issue at the outset of their averments in article 3 of condescendence where it was contended that it was the defenders duty when carrying out the search "to act with the knowledge, skill and care to be expected of a reasonably competent firm of property searchers". Their reliance on the Hedley Byrne principle which flows from the exercise of a special skill on the part of the defender meant that the pursuers could not succeed simply on a finding that the defenders in the present case had failed to exercise reasonable care. Questions of the standard of duty were not raised directly in Hedley Byrne but lay at the heart of the decision in Mutual Life & Citizens Assurance Co Ltd & Anr v Evart, 1971 AC 793. He relied on particular on a passage in the speech of Lord Diplock at p 804 in the following terms:

This passage, counsel contended, made it clear that the duty of care arose where a defender professed to carry out skills to a particular standard. The failure in duty could only be measured by a failure to aspire to that standard. The pursuers had not led any evidence to establish such a failure and they could not seek to rely on a failure in a lesser standard. They had properly pled the case on the basis on professional negligence but had failed to prove it.

In response counsel for the pursuers contended that as the defenders had conceded that they owed a duty of care both to the sellers of the property and purchasers of it, it followed that they accepted that they were in the "expert" category. What they were providing however was simply a specialised service in searching records which did not require the same level of examination for the necessary level of expertise as, for example, a service in providing skilled advice. What was important, and distinguished the case from Mutual Life, was that the defenders were in business to carry out searches of the type in question. They had in the course of that business "undertaken some responsibility" which was the starting point for liability in Hedley Byrne. Counsel referred to certain passages in the speeches of Lord Reid (at 483 and 486) and Lord Hodson at 514. At p 496 Lord Morris said:

The case of Mutual Life was in a special category because the advice which was given was not given in the course of the day to day business of the defendants. The foundation for the basis of liability under the Hedley Byrne principle was to be found in the speech of Lord Diplock at p 802 where he referred to a statement being made in the ordinary course of a business or profession. The sheriff in the present case had rightly held that information was given out in the course of a business. It was sufficient to hold that the defenders had failed to exercise reasonable care and the sheriff was entitled to decide the case on that basis.

The arguments advanced on this part of the case raise issues both as to the general law to be applied, and the appropriateness of the sheriff's findings in the light of the averments on record. On the latter point I note that although the pursuers commenced article 3 of condescendence with what might be regarded as the standard averments in a professional negligence case they go on to aver that "the defenders were in breach of their duty to take reasonable care for the interests of third parties such as the pursuers who would rely on said search report". I am accordingly of the view that there was sufficient as a matter of pleading to entitle the pursuers to proceed on the basis that there was simply a breach of duty to take reasonable care.

As to the general law to be applied I accept the submissions by counsel for the pursuers that the observations of Lord Diplock in Mutual Life which were relied on by counsel for the defenders were made in the context of an argument over liability in a case where the advice had been given outwith the scope of a business of providing information of the type relied on. I can see that to enable the principles of Hedley Byrne to be broadened and to include advice given on a more casual basis it may be necessary to show that profession of a particular skill has been relied on, that in turn giving rise to liability where the standard to be expected in exercising that skill is departed from. In a situation however where information is provided as part of a service and is in the nature of information collated as distinct from expert advice, the essential question which may give rise to liability is whether it was likely to be relied on. It does not seem to me as a matter of principle that the exercise of a skill to a particular standard is central to that issue. I accordingly conclude that it was sufficient as a matter of law for the sheriff to be satisfied that the defenders had failed to exercise reasonable care in issuing the property certificate in the terms complained.

I am also satisfied that there was sufficient evidence entitling the sheriff to infer that the defenders were in breach of that duty in issuing the certificate. The finding that the existence of a Section 108 notice was part of public records, and the finding that the defenders issued a "clean" search, leads to the clear inference that the notice was overlooked. That, to my mind, was prima facie evidence of fault. The situation was one in which it does not appear to me that the defenders put the question of the standard of duty or their failure to aspire to it directly in issue. Answer 4 does not even include the customary averment that "the defenders fulfilled the duties which were incumbent upon them". Had there been such an averment the defenders might in my view have been in a better position to argue that the question of standard of duty was in issue and that the case which they had expected to meet had not been properly addressed.

The defenders' position on this matter is encapsulated in their ground of appeal which is in the following terms:

Counsel for the defenders submitted that the factual position was perfectly clear. The pursuers had purchased 11 Arundel Drive for £32,000. After spending £8.000 on renovations they sold it for £42,000 and accordingly had generated £2,000 of profit. There was no suggestion that the flat was worth less than £32,000 at the time of purchase. As a result it could not be said that the pursuers were any worse off through having acted upon the information which subsequently proved to be wrong. That excluded a claim based on negligence: see Banque Bruxelles SA v Eagle Star, 1997 AC 191, Lord Hoffman at 216D/F. A whole line of authority demonstrated that in cases of this type the proper measure of damage was the difference between what the pursuers had paid for the subjects in reliance on a negligent report and the actual value. Counsel referred to a number of cases in which actions had been raised against surveyors these being Winram v Ferguson, 1977 SLT (N) 8, Phillips v Ward, 1956 1 All ER 874, Stewart v Brechin & Others, 1959 SLT (N) 45 and Duncan v Gumleys, 1981 SC 729. In Martin v Bell-Ingram, 1986 SC 208 it was observed by the Lord Justice-Clerk (at p 222) that:

This approach was not confined to cases involving surveyors: Ford v White, 1964 1 WLR 885; Salvesen v Rederi Aktiebolaget Nordstjernan & Others, 1907 5 F (HL) 101. Reference was also made to the judgment of Lord Denning MR in Perry v Sydney Phillips & Son, 1982 1 WLR 1297.

In summary the pursuers require to aver and prove that they paid more for the subjects then the subjects were worth. They had made no attempt to do so and a claim for loss of profits was not open to them. Moreover, the £309 awarded by the sheriff in respect of the actual repair work was recoverable from the sellers in terms of the missives and should not have been included.

In reply counsel for the pursuers contended that the pursuers' case was not focused as one for loss of profit but as a claim for diminution in value of the purchased property. Cases involving surveyors' negligence were not of assistance, he contended, as the central issue was the invalidity of the valuation. It was appropriate in such cases to treat the difference between a true valuation and the actual price paid as the measure of the pursuers' loss. That was not the central issue here. The pursuers had simply purchased a report in reliance on information which was false and had then discovered that the property could not be sold for its true value because of the ongoing works. The sheriff was entitled to accept the unchallenged evidence of the estate agent led on behalf of the pursuers that the true value of the subjects at the time of sale was of the order of £46,000 and that in consequence the pursuers were worse off to the extent of £4,000.

I am in no doubt on this issue that the defenders' submissions fall to be upheld and the appeal allowed as a consequence. Whilst in a sense the pursuers are "worse off" because of the price which the flat fetched that is only the position because of the reduction in profit on the sale which they anticipated. Their claim, properly understood, is one for loss of profit which the law simply does not permit. The fundamental fallacy in their argument is that it fails to address the issue of the point in time at which damages are to be assessed. In my view it is plain on the authorities that this would be at the time the negligence occurred or at least at the time the pursuers became aware of it. Their loss cannot be measured at some indeterminate time in the future depending on when the property which they purchased was sold. In Perry v Sydney Phillips & Son Lord Denning said (at p 1301/2) "Where there is a contract by a prospective buyer with a surveyor and the surveyor agrees to survey a house and make a report on it, and he makes it negligently and the client buys the house on the faith of the report, then the damages are to be assessed at the time of the breach according to price which the buyer would have given if the report had been carefully made from that which he in fact gave owing to the negligence of the surveyor". That case was cited with approval by the Second Division in Martin v Bell-Ingram and I have no doubt that it represents the law of Scotland. The principle is not in my view confined to cases of surveyors' negligence, nor could it be. In Ford v White & Co (supra) Pennycuick J observed (at p 758B):

In my view that passage accurately represents the law to be applied in any case involving the purchase of property on the basis of negligent advice whatever that advice may be. The date of ascertainment of the pursuers' loss is a critical element in determining the amount.

For the sake of completeness on this aspect of loss I have only to add that I am satisfied that the pursuers' contention that the pursuers were not entitled to recover the sum of £309.01 in respect of repairs to the chimney also falls to be upheld.

In summary I am satisfied that the defenders owed a duty of care to the pursuers and that there was sufficient evidence to entitled the sheriff to hold that they were in breach of that duty. The pursuers are not however entitled to the damages which they seek and I view it as unfortunate that this matter was not challenged and disposed of at an earlier stage of the proceedings. In the whole circumstances I must recall the sheriff's interlocutor and grant decree of absolvitor. It was agreed that questions of expenses should be reserved.