SHERIFFDOM OF GRAMPIAN HIGHLAND AND ISLANDS
AT INVERNESS
A686/06
JUDGEMENT
of
SHERIFF
PRINCIPAL SIR STEPHEN S T YOUNG Bt QC
in the cause
MRS ANNE STRACHAN AND EDDIE STRACHAN
Pursuers and Respondents
against
HIGHLAND JOINERY PRODUCTS LIMITED
Defenders and Appellants
|
Act:
Mr G I Hawkes, advocate, instructed by Simpson & Marwick, Edinburgh
Alt:
Mr Lachlan McNeill, advocate, instructed by South Forrest, Inverness
Inverness: 29th February 2008
The
sheriff principal, having resumed consideration of the cause, refuses the
appeal and adheres to the interlocutor of the sheriff dated 24 September 2007;
finds the defenders and appellants liable to the pursuers and respondents in
the expenses of the appeal and allows an account thereof to be given in and
remits the same, when lodged, to the auditor of court to tax and to report;
certifies the appeal as suitable for the employment by the pursuers and
respondents of junior counsel; quoad
ultra remits the cause to the
sheriff to proceed as accords.
Note
[1] In this case the pursuers and respondents
are husband and wife. They reside
together at Drumbeghouse, Drumbeg, Sutherland.
On or about 7 October 2004 they contracted with the defenders and
appellants for the supply of windows and doors at the property. They claim that the windows and doors which
were in due course supplied by the defenders were not of satisfactory quality,
in breach of the term implied into the contract in pursuance of section 14(2) of
the Sale of Goods Act 1979. They say that as a result they sustained various
losses, including a loss of profits from a business which they intended to
carry on at the property, and they now seek damages from the defenders to
compensate them for these losses. The
defenders tabled two pleas-in-law directed to the relevancy and specification
of the pursuers' averments, and these were the subject of a debate before the
sheriff on 24 September 2007. The outcome of this was that by interlocutor
of the same date he allowed a proof before answer. It is this interlocutor which is the subject
of the present appeal, and in the grounds of appeal it is said that the sheriff
erred in law in allowing proof of the pursuers' averments in support of their
claim for loss of profit. It is said in
short that these averments are irrelevant and should therefore have been
excluded from probation.
[2] In article 2 of the condescendence the
pursuers aver, inter alia, as
follows:
The pursuers decided to carry out extensive renovation
works to their property known as Drumbeghouse.
In addition they wished to construct two studios within the ground of
Drumbeghouse. The pursuers purchased the
property in order to live there and to operate a business therefrom. As part of the refurbishment of Drumbeghouse
and the construction of the two studios the pursuers required to install
windows and doors. On or about 7 October 2004 the pursuers
contracted with the defenders for the supply of windows and doors in both the
studios and the main house. The
defenders were supplied with information including drawing number S4.02.05
Revision C. In terms of that drawing the
windows required to be purpose made by Nor-Dan ........ The defenders refused to
come to the pursuers' home to measure for the windows. The first pursuer therefore took the plans to
the defenders along also with a Nor-Dan brochure. The first pursuer explained to Mr
Duncan Macdonald
of the defenders that they were carrying out refurbishment of Drumbeghouse and
constructing two studios in the grounds in accordance with drawing
S4.02.05. The first pursuer explained
that the pursuers were to be running a business ....... In pursuance of that
contract the defenders manufactured windows and doors. It was an implied term of that contract that
the windows and doors manufactured by the defenders should be of satisfactory
quality ....... The defenders were fully aware that they were supplying windows to
be installed into Drumbeghouse which was being refurbished and for the new
build studios. By failing to supply
windows and doors of a satisfactory quality they have caused the pursuers loss
and damage all as hereinafter condescended upon.
Both
before the sheriff and at the hearing of the appeal counsel for the defenders
conceded that the words "within the property" were to be implied after the
words "running a business" in this passage.
[3] In article 3 of the condescendence the
pursuers aver that the windows and doors supplied by the defenders were not of
satisfactory quality and they explain in some detail what were the defects
which were found in them. They aver in
particular that as a result of these defects "the windows and doors allow
ingress or water into Drumbeghouse and the studios", and later on they aver
that they "have been informed by Building Control that until the windows
adequately provide ventilation and can be cleaned safely from inside the
buildings any application for certificate of completion would be
rejected".
[4] In article 4 the pursuers aver, inter alia, that the windows and doors
are not reasonably fit for keeping wind and water out of their home and
studios, nor for the purpose of providing adequate ventilation.
[5] In article 5 the pursuers aver, inter alia, as follows:
As a result of the defenders' material breach of contract
the pursuers have suffered loss and damage.
The ingress of water into Drumbeghouse and the studios has caused damage
to the property. As the result of water
ingress into the house the pursuers are unable to complete the required
renovation works. They are unable to
install flooring which they have previously purchased. That flooring is being stored in studio
number 2. The pursuers are unable to
live in the house and are living in studio number 1. The windows and doors require to be replaced
in their entirety ...... The pursuers have
been unable to carry out their business activities of offering accommodation
and classes in Art and Cookery. The
pursuers intended to commence trading by September 2006. They have been unable to do so. The projected turnover for the first year's
trading is £158,592 with a projected gross profit of £97,864. The pursuers' projected cashflow forecast for
the first year of trading anticipates that they would have commenced trading in
April 2006. They would have done
so. The anticipated sales in respect of
accommodation is £100,467. The sale of
wine is anticipated as being £17,873.
They anticipated an income in respect of cookery classes of £25,344 and
of £14,908 in respect of art classes.
After payment of borrowings, outgoing in respect of cookery and art
lessons, wine and food costs and other overheads their net cashflow is
predicted to be £97,864. The pursuers
reasonably estimate that they would have secured a net profit of £50,000 for
the first year. After tax and national
insurance contributions it is reasonably anticipated that the pursuers would
have secured the sum of £17,000 each per annum. These losses are ongoing. The sum first craved is a reasonable estimate
of the cost of replacement windows, necessary redecoration works, and loss and profits (sic).
[6] In each of articles 6 and 7 the pursuers
incorporate averments in support of their respective claims for damages for the
distress and inconvenience sustained by each of them personally as a result of
the defenders' breach of contract. For
present purposes it is necessary to notice only the averment which appears in
each of these articles to the effect that draughts, rainwater and snow are able
to enter the house and the studios, evidently (though this is not stated
explicitly) as a result of the defective quality of the windows and doors
supplied by the defenders.
[7] Section 53A of the Sale of Goods Act 1979
provides:
(1) The
measure of damages for the seller's breach of contract is the estimated loss
directly and naturally and resulting, in the ordinary course of events, from
the breach.
(2) Where
the seller's breach consists of the delivery of goods which are not of the
quality required by the contract and the buyer retains the goods, such loss as
aforesaid is prima facie the difference
between the value of the goods at the time of delivery to the buyer and the
value they would have had if they had fulfilled the contract.
(3) This
section applies to Scotland
only.
Section
54 of the Act provides:
Nothing in this Act affects the right of the buyer of
the seller to recover interest or special damages in any case where by law
interest or special damages may be recoverable, or to recover money paid where
the consideration for the payment of it has failed.
[8] It is not in dispute in this case that
section 53A opens up a claim for damages under the first rule in Hadley v Baxendale (1854) 9 Ex 341 while
section 54 opens up a claim for damages under the second rule, and it is under
this second rule that the pursuers' claim for loss of profits is based. The rules themselves were expressed (at page
354) in the following terms:
Where
two parties have made a contract which one of them has broken, the damages
which the other party ought to receive in respect of such breach of contract
shall be such as may fairly and reasonably be considered either arising
naturally, i.e. according to the usual course of things, from such breach of
contract itself, or such as may reasonably be supposed to have been in the
contemplation of both parties at the time they made the contract as the
probable result of the breach of it.
The
second rule was further amplified in the following passage (at pages 354/5):
.......
if the special circumstances under which the contract was actually made were
communicated by the plaintiffs to the defendants, and thus known to both
parties, the damages resulting from such a breach of contract, which they would
reasonably contemplate, would be the amount of injury which would ordinarily
follow from a breach of contract under the special circumstances so known and
communicated.
The
rules have been interpreted and restated in a number of subsequent cases. In
particular, in C. Czarnikow Ltd v Koufos 1969 1AC 350 Lord Reid said at page 385:
The
crucial question is whether, on the information available to the defendant when
the contract was made, he should, or the reasonable man in his position would,
have realised that such loss was sufficiently likely to result from the breach
of contract to make it proper to hold that the loss flowed naturally from the
breach or that loss of that kind should have been within his contemplation.
[9] Opening the appeal, counsel for the
defenders submitted that the sheriff had erred in law in allowing proof of the
averments in article 5 which I have italicised.
Counsel suggested that in the note appended to his interlocutor the
sheriff had dealt with the defenders' attack upon these averments as an issue
of specification. Counsel stated that
the issue was truly one of relevancy, and had been argued as such before the
sheriff. He submitted that the knowledge
on the part of the defenders that the pursuers were to be running a business,
by implication within the building which was being refurbished and the two new
studios, was not in itself sufficient to lead to the conclusion that the
defenders ought reasonably to have contemplated that the pursuers would be
likely to suffer a loss of profits due to a delay in the commencement of their
business in consequence of the defenders' failure to supply windows and doors
that were of satisfactory quality. In
the absence of averments by the pursuers that the defenders knew what type or
types of business the pursuers intended to carry on, and more importantly when
they intended to commence these businesses, there was no basis for saying that
it would have been within the reasonable contemplation of the defenders that as
a result of their breach of contract the pursuers would sustain the loss of
profits of the kind averred by them in article 5 of the condescendence. It was accepted that the pursuers could
recover the costs of replacing faulty windows and doors and carrying out
redecoration, and also damages for the personal upset sustained by each of
them, since these were all matters which would have been within the reasonable
contemplation of the defenders. Both
under section 53A and under section 54 of the 1979 Act the test was what ought
to have been within the reasonable contemplation of the defenders, and the
solitary averment in article 2 that the pursuers would be running a business
was not of itself sufficient to bring within the reasonable contemplation of
the defenders the fact that they would be likely to suffer a loss of profits of
the kind referred to in article 5 if the windows and doors supplied were not of
satisfactory quality.
[10] In response, counsel for the pursuers pointed
out that the defenders knew that they were to supply windows and doors for use
in the property, in other words the refurbished house and the two new studios,
and further that the pursuers intended to run a business within the
property. As a matter of relevancy this
was, so counsel submitted, enough to support the pursuers' claim for damages by
way of the loss of profits specified in article 5. At the debate it had indeed appeared that the
defenders' point was one of specification rather than relevancy, namely that
the pursuers had not stated what types of business they would be running from
the property so that the defenders had not been in a position to assess whether
or not they should take on the risks associated with entering into the contract
with the pursuers. Counsel submitted that it must be within the reasonable
contemplation of a supplier of windows and doors to be incorporated into a
property who is told that the property is to be used for running a business
that, if the property is rendered unfit for residential or business use on
account of the defective quality of the windows and doors supplied by him, then
he would face the possibility of a claim for loss of business profits even if
he did not know what particular type of business the buyer proposed to carry
on. Thus in the present case the
defenders' Mr Macdonald, having been told that the pursuers intended to run a
business within the property, ought to have realised that, if the windows and
doors supplied by the defenders were not of satisfactory quality, they faced a
possible claim, not merely for the costs of replacement, redecoration and
relocation incurred by the pursuers, but also for loss of business profits. It must, said counsel, have been obvious to
the defenders that if the windows and doors supplied did not protect the
property against the elements, then the property would not be capable of being
used for business purposes whatever the precise nature of the business. There was virtually no conceivable business
that could be run from the property if it was rendered uninhabitable on account
of the defenders' breach of contract.
[11] In my opinion the submissions for the
pursuers are to be preferred. To adapt
the language of Lord Reid in the passage quoted in paragraph [8] above, the
question here is whether, if it is proved that the first pursuer explained to
Mr Macdonald of the defenders that the pursuers were to be running a business
within the property, this would be enough to support a finding that the
defenders should, or the reasonable man in their position would, have realised
that an inability to carry on business activities of the kind specified by the
pursuers in article 5 of the condescendence, and hence a loss of profits on the
part of the pursuers, were sufficiently likely to result from a breach by the
defenders of the implied term of the contract that the windows and doors
supplied by them would be of satisfactory quality to make it proper to hold
that this loss of profits flowed naturally from the breach or that loss of that
kind should have been within their contemplation.
[12] In my opinion this question falls to be
answered in the affirmative. According
to the pursuers' averments the defenders were on notice that the pursuers were
refurbishing the existing property and constructing two studios in the grounds
of the property, that the windows and doors to the supplied by the defenders
were to be installed in both the existing property and the two new studios, and
that the pursuers were to be running a business within the property. In these circumstances it seems to me that it
would be open to the sheriff to draw the inference that the defenders ought reasonably
to have contemplated that, if the windows and doors supplied by them were not
of satisfactory quality, the property (including the two new studios) would not
be wind and watertight and so would be rendered unfit for use by the pursuers
for the purposes of the business activities that they intended to carry on
within the property and hence that they would sustain a loss of profits. It matters not in my opinion that the
defenders may not have known precisely what type of business or businesses the
pursuers would be engaging in or when they intended to commence trading. All that is required here is that the
defenders should reasonably have contemplated that the pursuers would be
carrying on a business or businesses of the kind averred by them in article 5
and that they would commence trading within a reasonable period of time after
the installation of the windows and doors which were to be supplied by the
defenders. In my view it would be open
to the sheriff to find that offering accommodation and classes in art and
cookery are precisely the type of business activities which might reasonably be
expected to be carried on within a dwelling house and studios situated in the
north west of Scotland, and further that it ought not to have come as a
surprise to the defenders, having contracted with the pursuers in October 2004,
to learn that the latter intended to commence trading by April 2006, eighteen
months or so later. In all the
circumstances therefore I consider that the pursuers' averments in article 2,
if proved, would be sufficient to support their claim for loss of profits as
specified by them in article 5 of the condescendence. I have refused the appeal accordingly.
[13] In addition to the authorities cited above,
in the course of the discussion I was referred to Benjamin's Sale of Goods (7th
Edn) at pages 1082/3, Bence Graphics
International Ltd v Fasson UK Ltd 1996 QB 87, Walker on Damages at pages 14/15, Sellar on Sale of Goods
at paragraphs 6.16 et seq, Bunting v Tory
1948 64 TLR 353 and Bostock & Co Ltd
v Nicholson & Sons Ltd 1904 1KB 725.
