SHERIFFDOM OF GRAMPIAN HIGHLAND AND ISLANDS AT ABERDEEN

A691/06

JUDGEMENT   of   SHERIFF PRINCIPAL SIR STEPHEN S T YOUNG Bt QC   in the cause   GUNNAR SLEMMING   Pursuer   against   HENRY A ROSS   Defender

 

Act: Mr A C McMillan, solicitor, Burness, Edinburgh

Alt: Mr T R Thomas, solicitor, Ledingham Chalmers, Aberdeen

 

Aberdeen: 18 August 2010

The sheriff principal, having resumed consideration of the cause, refuses the pursuer's appeal and allows the defender's appeal against the interlocutor of the sheriff dated 22 April 2009; recalls this interlocutor accordingly, sustains the first plea-in-law for the defender and dismisses the action; appoints parties to be heard on all outstanding questions of expenses in chambers at Aberdeen Sheriff Court on Tuesday 5 October 2010 at 3.30 pm.

 

Note

 

[1] In this case the pursuer craved the court to grant decree for payment to him by the defender of the sum of £160,000 with interest and expenses. The pursuer formerly resided at Lessendrum Farm, Huntly, of which he was the heritable proprietor. In the summer of 2001 he entered into a contract with the defender, a building contractor, for the construction of a grain store building on the farm. The building was duly completed that summer, but the pursuer avers that the work carried out by the defender was not in accordance with the express terms of the contract in a number of ways which are specified in article 3 of the condescendence. In addition the pursuer avers that it was an implied term of the contract that in designing, supplying and constructing the building the defender would exercise the degree of skill and care reasonably to be expected of a building contractor of ordinary competence, and further that the defender was in breach of this implied term in five respects which are again specified in article 3.

 

[2] For some reason that is not readily apparent from the parties' pleadings the action was not raised until 31 March 2006. A notice of intention to defend and subsequently defences were lodged on behalf of the defender and the action was then sisted for negotiation between 19 July 2006 and 14 May 2007 apart from a brief interruption on 5 December 2006 when the sist was recalled to allow a minute of amendment for the pursuer to be received. For present purposes it is unnecessary to narrate the full history of the action since 14 May 2007. But what is important to notice is that in July 2007 the pursuer sold the farm, and he now resides in Canada.

 

[3] The pursuer's averments of loss are set out in article 4 of the condescendence. It will be seen that there are four heads of claim, and for ease of identification in what follows I have inserted before each head the number 1 to 4 in brackets as appropriate. Article 4 reads as follows:

 

As a result of the Defender's breach of contract, the Pursuer has sustained loss and damage. The Pursuer sustained the loss at the time the defective grain store was completed. The grain store building was intended to form an integral component of his working farm at the time it was built and at the time the loss was suffered. The Pursuer was entitled to receive a grain store to the specification that the contract provided. (1) The Pursuer is entitled to damages based on the cost of making the works conform to contract which is the cost of demolishing and rebuilding the grain store, using the correct materials and to a proper standard. The cost of carrying out these rectification works is specified in the report prepared by Matheson and Fraser, Quantity Surveyors, which is produced and referred to for its terms. The Pursuer is no longer in a position to undertake remedial works. This is now left to a third party, the present heritable proprietor. (2) Esto the Pursuer is not entitled to damages quantified by reference to the cost of remedial works, which is denied, the Pursuer is entitled to be placed in the position he was in prior to entering into the contract with the Defender. The Pursuer has obtained no benefit from the grain store which is not fit for purpose. The Defender has not offered to return the sums paid by the Pursuer for the construction of the grain store. (3) Esto the Pursuer is neither entitled to recovery of the cost of remedial works nor the sums paid out to the defender for works to be done under contract, the Pursuer is entitled to damages based on the loss of capital value of the grain store, which was reduced as a result of the defender's breach of contract as averred above. (4) In addition the Pursuer removed over 160 tons of spoiled grain from the grain store between August 2001 and July 2007, the majority of which he was unable to sell, and a small amount of which he could only sell at a very reduced rate. The grain was spoiled as a result of the dampness in the grain store building, which caused the grain to go mouldy. Most of the first year's harvest which was stored in the grain store building was completely destroyed. In subsequent years the Pursuer tried to load the grain away from the damp walls to reduce the amount of grain that was spoiled. The grain was spoiled as a result of the Defender's breach of contract and failure to exercise reasonable skill and care when constructing the grain store building. The Pursuer ought to be compensated for the spoiled grain which, had it not been for the Defender's breach of contract, he would have been able to sell for more than £100 per ton. The sum sued for is a reasonable estimate of the Pursuer's loss and damage. The averments in answer are denied except insofar as coinciding herewith. Explained and averred that the Pursuer contracted with the Defender for the construction of a grain store building, which by its very definition, is for drying grain. The Pursuer ought not to have required to dry the grain before storing it in the grain store building.

 

[4] In his answer 4, apart from two formal admissions, the defender denies the pursuer's averments of loss. He makes various calls upon the pursuer to provide further specification of his heads of claim, and he draws attention to the fact that the pursuer no longer owns the farm in the following passage:

 

Explained and averred that following the sale of Lessendrum Farm the pursuer has no interest or title to the agricultural building. Esto the defender was in breach of contract, which is denied, the pursuer is not entitled to claim for works which he cannot complete. The present heritable proprietor, William Stewart, has made use of the building as an agricultural building and has stored grain satisfactorily. He has no intention of either demolishing or carrying out works to the building. The pursuer has not suffered any loss of capital value. Esto the defender was in breach of contract, which is denied, such breach did not result in a loss of capital value on the sale of Lessendrum Farm, in which the building is situated.

 

[5] It will be apparent from the general denial towards the end of article 4 that beyond accepting that he is no longer in a position to undertake remedial works on the building the pursuer denies the averments of the defender in regard to the position of the present owner of the farm. But, significantly, he makes no positive averments of his own in regard to the present owner's position.

 

[6] In addition to various pleas directed to the merits of the pursuer's claim, the defender tabled two preliminary pleas in the following terms:

 

1. The pursuer's averments being irrelevant et separatim lacking in specification the action should be dismissed.

2. The pursuer's averments being irrelevant et separatim lacking in specification should not be remitted to probation.

 

[7] Following a debate the sheriff by interlocutor dated 22 April 2009 sustained the second of these pleas to the extent of excluding from probation the averments in article 4 of the condescendence in support of the pursuer's second, third and fourth heads of claim. She further repelled the defender's first plea in law and allowed parties a proof otherwise of their averments. It is this interlocutor which is the subject of the present appeal by the pursuer who maintains in short that the sheriff erred in excluding from probation the averments to which I have referred. The defender has also appealed against this interlocutor and in short he maintains that the sheriff ought to have held the averments in support of the pursuer's first head of claim to be irrelevant and to have sustained the defender's first plea in law and dismissed the action in its entirety.

 

[8] The sheriff records that the pursuer's first head of claim was the subject of the most detailed scrutiny during the debate. After considering various authorities to which she had been referred the sheriff concluded at page 5 of her note:

 

The general rule that damages are intended to restore the injured party to the position he would have been in but for the breach of contract is subject to the quantum of damages being calculated in light of subsequent circumstances which have affected the extent of the loss. Thus a pursuer who has sustained no actual loss at any stage will receive no damages, but a pursuer who has suffered a loss which has then been reduced or restricted by a subsequent event is entitled to reduced or restricted damages. It is for the pursuer to prove the extent of his loss. Whether the pursuer in this case can do so will only be clear after proof.

 

[9] In his second ground of appeal the defender asserts that the pursuer's averments in support of her first head of claim "do not relate to a loss which the pursuer has suffered, or will suffer, and are irrelevant". He then quotes this passage from the sheriff's note and concludes: "The pursuer has not averred that he has sustained an actual loss or any loss which has then been reduced or restricted by a subsequent event. Accordingly the defender's claim on record is irrelevant in law". (Plainly the reference here to the defender's claim was meant to be a reference to the pursuer's claim).

 

[10] Opening the appeal, the pursuer's solicitor drew attention to the familiar observation of Lord Normand in Jamieson v Jamieson [1952] AC 525 at page 534, viz: "The true proposition is that an action will not be dismissed as irrelevant unless it must necessarily fail even if all the pursuer's averments are proved. The onus is on the defender who moves to have the action dismissed, and there is no onus on the pursuer to show that if he proves his averments he is bound to succeed". Under reference to Avery v Hew Park School for Boys 1949 SLT(N) 6 and McMenemy v James Dougal and Sons Ltd 1960 SLT(N) 84 the pursuer's solicitor submitted that the averments in support of the pursuer's third and fourth heads of claim contained sufficient specification to give the defender fair notice of the claims being made against him under these two heads. He pointed out that in relation to the third head of claim the defender had made a positive averment to the effect that the pursuer had not suffered any loss of capital value. This implied that the defender had assessed the value of the claim for himself and accordingly it could not be said that he would be prejudiced by the absence of a more precise specification of this particular head of claim. The same the applied in the case of the fourth head of claim.

 

[11] In response the defender's solicitor submitted under reference to Macphail's Sheriff Court Practice (3^rd Edn) at paragraphs 9.07 and 9.27-30 that the averments in support of the pursuer's third and fourth heads of claim were indeed lacking in specification and did not give the defender fair notice of the factual basis of these two heads of claim. In relation to the third head, the pursuer had failed to give any details of the alleged loss of capital value of the grain store and the point in time at which this loss had been calculated. Nor had he given any details of the sale price of the farm in 2007. The pursuer, so it was said, must know what loss he had suffered in this context. He had craved payment of the sum of £160,000 but had given no indication how this figure had been derived. He had not produced any valuation of the subjects with an analysis of their value when sold compared to what their value would have been if the contract had been performed as he maintained that it ought to have been. As for his fourth head of claim, again the pursuer must know what his loss in this context had been. He did not say how much grain had not been sold and how much had been sold and at what price, nor did he explain to what type of grain he was referring. Yet he must have known what types of grain he had been growing and he must have had receipts for the grain which he had sold.

 

[12] Dealing with these two heads of claim, which she referred to respectively as heads 3(i) and (ii), the sheriff stated at pages 2/3 of her note:

 

It is convenient to deal with these heads in reverse order. Head 3(ii) is in my view totally lacking in specification. The type and quality of grain stored is not specified; the market price in each of the relevant years is not specified; the quantity of grain stored, and the quantity sold or not sold, are not specified. In summary, the defender could not possibly work out how the alleged loss is calculated.

 

Head 3(i), the loss of capital value of the grain store is also totally lacking in specification. There is no averment of what it should have been worth or what it was worth. The pursuer avers of contract price of £30,000 plus VAT, but claims £160,000. It may be that a building at that cost could have increased in value to £160,000 or more, but the pursuer does not specify on what basis that would have happened, nor at what point in time it did so. The fact that it seems highly unlikely is neither here nor there. Even if heads 3(i) and (ii) are intended to be cumulative, there is no sufficient specification of how they add up to the sum sued for.

 

For my own part, I think it is sufficient to say that I agree with both the sheriff and the defender's solicitor, and for the reasons stated by them, that the averments in support of the pursuer's third and fourth heads of claim are indeed so lacking in specification that they do not give fair notice to the defender of the factual basis of these claims. It follows in my opinion that the sheriff was right to have excluded these averments from probation.

 

[13] For the sake of completeness, I should mention here that the pursuer's solicitor submitted that there was no legal impediment to the pursuer presenting more than one measure of damages so that the court, after hearing evidence, might determine whether some or any of these measures might be applied in assessing the damages to be awarded to the pursuer. He referred here to Shetland Seafarms Ltd v The Braer Corporation 1999 SLT 1189 and Duke of Portland v Wood's Trustees 1926 SC 640. I did not understand the defender's solicitor to dispute this is a general proposition but he submitted, rightly in my opinion, that the averments in support of any particular head of claim still required to be relevant and specific in order to be admitted to probation.

 

[14] Turning to the pursuer's second head of claim, his solicitor acknowledged that if this were truly a quasi-contractual claim for repayment or restitution then it would not be open to the pursuer to advance it on the basis of his current pleadings. But he explained that, albeit that it was perhaps unhappily worded, this fell to be categorised as a claim for wasted expenditure, and he submitted that the pursuer's averments and pleas in law were sufficient to allow him to pursue such a claim as one potential measure of damages for the defender's breach of contract. To this the defender's solicitor responded, again rightly in my opinion, that the averments in support of this head of claim could not be interpreted in any other way than as a claim for repayment of the contract price which it had been conceded was not open to the pursuer. For my own part, it seems to me that the proposition that these averments are apt to support a claim for wasted expenditure is altogether farfetched. In the circumstances I think that I need say no more than that these particular averments are in my opinion plainly irrelevant and were therefore rightly excluded from probation by the sheriff.

 

[15] Referring to the pursuer's first head of claim, the defender's solicitor pointed out that by his own admission the pursuer could not proceed with the works of demolishing and rebuilding the grain store having sold the farm on which the building was situated. The pursuer was thus not in a position to incur the costs of carrying out these works and accordingly would suffer no loss under this particular head of claim. Referring to the passage at page 5 of the sheriff's note quoted in paragraph [8] above the defender's solicitor pointed out that the pursuer had not averred that he had suffered any actual loss in this context (not having carried out the works in question), or that he had suffered a loss which had been reduced or restricted by a subsequent event. So there was nothing here on which the pursuer could go to proof and the sheriff should therefore have excluded the averments in support of this head of claim from probation and, having excluded the averments in support of the other heads of claim from probation, should have dismissed the action in its entirety.

 

[16] The defender's solicitor submitted under reference to Golden Strait Corpn v Nippon Yusen Kubishika Kaisha [2007] 2 AC 353 that it would not be appropriate to assess the pursuer's loss upon a hypothesis which was known in light of subsequent events to be false and that in assessing the damages to be awarded to him account should be taken of the facts as they stood at the time of this assessment. An award of damages was intended to be compensatory, not penal, and it was wrong that the pursuer should receive what would in effect be a very substantial gratuitous benefit under this particular head of claim given that he was not in a position to carry out the works of demolition and reconstruction. Reference was made here also to Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344.

 

[17] In response, the pursuer's solicitor acknowledged that the pursuer was no longer in a position to carry out these works. But under reference to Wilkie v Brown 2003 SC 573 and McLaren Murdoch & Hamilton Ltd v The Abercromby Motor Group Ltd 2003 SCLR 323 he submitted that the pursuer was nonetheless entitled to seek damages on the basis of this first head of claim. In both these cases damages had been awarded on the basis of the cost of making the works in question conform to contract notwithstanding that in the one case these works had not in fact been carried out on account of the subsequent destruction by fire of the property and in the other case the cost of the works (which had been carried out) had been met, not by the defenders, but by another company which by then owned the property.

 

[18] In my opinion neither of these two cases affords support for the pursuer's first head of claim. In Wilkie v Brown the pursuer engaged the defender to carry out extensive alterations to a cottage at Glenloy. The pursuer raised an action in the sheriff court against the defender claiming that he had failed to complete the works and further that because he had walked off the site the pursuer had had to instruct remedial work to make the property wind and watertight. The sheriff found that the defender had been in material breach of contract, but that the pursuer had failed to prove loss and assoilzied the defender accordingly. There had been two elements in the pursuer's claim, namely the sum of £15,000 which he had had to spend on the remedial work and the sum of £68,072.31 plus VAT which was the estimated cost of completing the works in accordance with the contract. In the event these works were not carried out because the property was destroyed by fire in December 1992. The pursuer appealed to the Court of Session and it is clear from the opinion of the court delivered by the Lord Justice Clerk (Gill) that the principal issue in the appeal was whether the sheriff had been entitled to reject the evidence given by the pursuer and his witness, a local builder Mr. McKinnon, in support of the claims for payment of £15,000 and £68,072.31 plus VAT respectively. The court held that the sheriff ought to have found both these elements in the pursuer's claim to have been proved. It was also argued for the pursuer that, if his claim in respect of both these elements failed, then he should at least be entitled to nominal damages. In the event this subsidiary issue did not arise for decision in view of the court's decision on the principal issue. But the Lord Justice Clerk did add some observations on this subsidiary issue. For present purposes it is necessary to notice only the first of these, namely: "We doubt whether it would have been proper to make such an award in this case since an alternative claim for nominal damages was not pled ....." - see paragraph 19 of the opinion. In the present case too there are no averments by the pursuer apt to support a claim by him for payment of nominal damages.

 

[19] Having concluded that the pursuer ought in principle to succeed in both elements of his claim, the court went on to consider what was the appropriate amount to be awarded to him in respect of each element. In respect of the estimated cost of completion of the works the Lord Justice Clerk stated at paragraphs 25 and 26:

 

[25] If the works had been completed in accordance with the contract, the pursuer would have paid to the defender £33,113, that sum including VAT since the work constituted a taxable supply. He paid £25,100 and would therefore have had to pay a further £8,013 in due course. Counsel for the defender has not suggested that we should make any deduction on that account in the assessment of this head of claim. This is not surprising since the pursuer paid the £25,100 for work which, on findings-in-fact 24, 25 and 28, had only such value as there was in some of the intact materials, and which required to be taken down before the contract could be properly implemented. In our opinion, the realistic conclusion is that the pursuer should be awarded damages reflecting the cost of having the work completed in accordance with the contract in terms of Mr McKinnon's estimate, which makes allowance for the value of the intact materials, namely £68,072.31.

[26] The parties are agreed that since the property was destroyed before any remedial work could be done, the pursuer was never in the position of having to pay for that work to be done. If he had done so, he would have had to pay VAT on the sum of £68,072.31; but since that situation will not arise, we consider that he is entitled to recover only the net sum. We understood counsel to be agreed on this point.

In the result the court determined that the pursuer should be awarded damages in the sum of £83,072.31 (that is £15,000 plus £68,072.31). But what appears clear from the report of the case is that no argument was advanced on behalf of the defender to the effect that the estimated cost of completion of the works was not an appropriate measure of the pursuer's loss given that the property had been destroyed by fire before these works could be carried out. Indeed, if I understand correctly what was said in the two paragraphs which I have just quoted, counsel for the defender conceded that this would be an appropriate measure of the pursuer's loss. This being so, I do not consider that the decision in that case lends any support to the proposition for the pursuer in the present case that he should now be awarded the cost of the works required to reinstate the grain store in accordance with the contract notwithstanding that he no longer owns the farm on which this building is situated.

 

[20] In McLaren Murdoch & Hamilton Ltd v The Abercromby Motor Group Ltd the pursuers practised as chartered architects. They contracted with the defenders for the design of four car dealership showrooms and associated workshops in Kerse Road, Stirling. These were in due course constructed in accordance with the pursuers' design and under their supervision. Two disputes arose between the parties. In the principal action the pursuers claimed unpaid fees to which they maintained that they were entitled. The defenders counterclaimed alleging that the pursuers had been at fault in the design of the showrooms and workshops. The pursuers accepted that they had indeed been at fault in the design of the heating system but they disputed whether the defenders had established any loss or damage consequential upon their fault.

 

[21] The first submission for the pursuers in the counterclaim was that there had been no evidence for the defenders that the whole heating system had had to be replaced in both showrooms and workshops, and in particular that there had been no evidence on which the defenders could claim that it had been reasonable to replace the whole heating system. After considering the evidence for the defenders on this question and various authorities including Ruxley Electronics and Construction Ltd v Forsyth the Lord Ordinary (Drummond Young) concluded that the defenders were indeed entitled to the cost of replacing the entire heating system.

 

[22] At paragraph [32] of his opinion Lord Drummond Young went on to consider the second submission for the pursuers in the counterclaim as follows (Mr. Cunningham was the managing director of the defenders):

 

[32] The second submission for the pursuers in relation to the counterclaim was that the defenders had failed, in respect of certain heads of the damages claimed by them, to establish that the loss had been sustained by them as against other companies in the Abercromby Group. The first of these heads was the claim to the cost of replacing the heating system in the Fiat showroom, unit 1. The relevant invoices, which were rendered in the period from June to September 2001, were all in the name of a company known as Carden Investments Ltd. That company was spoken to by Mrs Sandra Cowie, who was its property director. She explained that it was in the same group of companies as the defenders, and was a wholly owned subsidiary of the same holding company. It functioned as a property investment company, and held the properties in the group, including Kerse Road. By a lending agreement concluded between the defenders and Carden Investments Ltd on 28 March 2001, it had been agreed that certain properties, including Kerse Road, should be transferred from the defenders to Carden Investments Ltd with effect from 1 May 2000. Under that agreement, the defenders agreed to discharge any liabilities in connection with the property arising or accruing due in respect of the period up to that date and Carden agreed to pay and discharge all such liabilities in respect of the period after that date. It followed, counsel argued, that the defenders could not establish any loss in respect of that property. Mr Cunningham had chosen to create a particular corporate structure for his business, and he must take the consequences of that structure. In the present case, no invoices had been produced identifying any liability on the part of the defenders, as against Carden Investments Ltd; consequently the defenders' claim must fail.

 

[23] In paragraph [33] of his opinion Lord Drummond Young pointed out that this argument raised the issue of the legal "black hole" and, after explaining briefly what this meant and referring to various authorities, he continued at paragraph [34]:

 

[34] In any such case, however, the initial task is to identify the precise loss that has been sustained, and consequently the person who has sustained that loss. That is because the problem of a 'black hole' truly arises only if loss has been sustained by a person other than a party to the contract. In identifying the loss, it is of critical importance to bear in mind that the loss resulting from a breach of contract is not the same thing as the quantification of that loss. Nor is it the same as the remedial measures necessary to put right the loss. The loss is rather the actual physical or economic damage sustained in consequence of the breach of contract. In the present case, the loss sustained in consequence of the pursuers' breach of contract in respect of the Fiat showroom and workshop is that that building had an inadequate heating system. That loss was sustained as soon as the building was completed. No doubt it took some time for the inadequacy of the system to be noticed, and a considerably longer time for remedial measures to be taken. Nevertheless, the loss itself existed independently of those remedial measures, and indeed before it was even noticed. At a time when the loss was sustained, the building was the property of the present defenders; it was not until May 2000 that it was transferred to Carden Investments Ltd. It follows, accordingly, that the defenders were the party who initially sustained the loss. That in my opinion of itself entitles them to sue in respect of that loss. The work necessary to remedy that loss was paid for by a third party, Carden Investments Ltd, after the property had been transferred. So far as the defenders' claim against the pursuers is concerned, however, that is quite irrelevant; the remedial work is not the same as the loss, and the situation is no different from a case where a third party such as an insurance company pays for the necessary remedial work. Nor does it matter that the defenders may have transferred the property to Carden Investments Ltd at full value; the loss resulting from the breach of contract was still sustained by the defenders, and the involvement of Carden Investments Ltd is res inter alios acta. For these reasons I am of opinion that the problem of the 'black hole' does not truly arise in the present case. If I am wrong in that conclusion, however, I am of opinion that the defenders are still entitled to recover the cost of the necessary remedial works from the pursuer's, for the reasons stated in the following paragraphs.

 

[24] Lord Drummond Young went on to analyse a number of authorities, including the decision of the House of Lords in Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518. He quoted a number of passages from the judgment of Lord Clyde who spoke for the majority of the House of Lords in that case including in particular a passage (at page 535 of the House of Lords report) in which his Lordship summed up the views of the majority and concluded that the best solution was

 

to permit the contracting party to recover damages for the loss which he and a third party has suffered, being duly accountable to them in respect of their actual loss. ... The solution is required for the law will not tolerate a loss caused by a breach of contract to go uncompensated through an absence of privity between the party suffering the loss and the party causing it. In such a case, to avoid the legal black hole, the law will deem the innocent party to be claiming on behalf of himself and any others who have suffered loss. It does not matter that he is not the owner of the property affected, nor that he has not himself suffered any economic loss. He sues for all the loss which has been sustained and is accountable to the others to the extent of their particular losses. ... If there is an anxiety lest the exception would permit an employer to receive excessive damages, that should be set at rest by the recognition of the basic requirement for reasonableness which underlies the quantification of an award of damages.

 

The emphasis in this last passage is mine. The passage appears in paragraph [38] of Lord Drummond Young's opinion, and at paragraphs [42] and [43] he continued, inter alia:

 

[42] ........ I am accordingly of opinion that Scots law should adopt the same general rule as that applied by the majority of the House of Lords in that case, as described by Lord Clyde in the passage quoted above at paragraph [38]. In effect the rule comes to this: if a breach of contract occurs, causing loss that can be measured in financial terms, the party who is not in breach may recover substantial damages even if that loss has been sustained by another person; if a loss has been sustained by a person other than the contracting party, however, the contracting party must sue on behalf of that other, and must accordingly account to that other for the damages recovered. The right to raise an action in this way is deemed by law to exist in any case where the loss resulting from the breach of contract occurs to a person other than the contracting party. It should not in my view be based on the intention of the parties; the right is rather conferred as a matter of general legal policy, to ensure that if a loss results from a breach of contract damages can be recovered from the party responsible for the breach; that was Lord Clyde's conclusion at [2001] 1 AC 530-531 ........

 

[43] On the foregoing analysis, I am of opinion that the defenders would be entitled to raise proceedings against the pursuers for substantial damages even in respect of a loss that had been suffered by another company such as Carden Investments Ltd. The defenders would be subject to an obligation to account for any damages recovered to such third party, but that is not a matter that concerns me in the present proceedings. Consequently, if I am wrong in the conclusion reached at paragraph [34] above, that the loss resulting from the pursuers' breach of contract was initially sustained by the defenders, I would hold that the defenders were still entitled to recover that loss from the pursuers, albeit on behalf of Carden Investments Ltd. On that basis, it is irrelevant whether the defenders ever reimbursed Carden for the loss, or whether the defenders received full value for the property when it was transferred to Carden. What the defenders are suing for on the present hypothesis is a loss that was ultimately sustained by Carden, not by the defenders.

 

[25] Considering these passages from Lord Drummond Young's opinion in the context of the present case, it is I think clear that the problem of the "black hole" no more arises in this case than it did in McLaren Murdoch & Hamilton Ltd v The Abercromby Motor Group Ltd. This is because, on the assumption that his averments in regard to the defender's breaches of contract are well founded, the pursuer did indeed sustain a loss as soon as these breaches had occurred, and he is accordingly entitled to sue the defender for damages in respect of that loss. But the question remains what in the particular circumstances of this case would be the appropriate measure of these damages. One possible measure would of course be the amount by which the value of the farm was less as a result of the defender's breaches of contract than it would have been if these breaches had not occurred. This is what the pursuer appears to be seeking in his third head of claim and the problem here, as already indicated, is not that the averments in support of this head of claim are irrelevant but that they are altogether lacking in specification.

 

[26] In McLaren Murdoch & Hamilton Ltd v The Abercromby Motor Group Ltd the defective heating system had already been replaced by the time that Lord Drummond Young came to assess the damages to be awarded to the pursuers. So there would have been no question in that case whether it was intended to replace the heating system. By contrast, in the present case the works necessary to rectify the defender's breaches of contract have not been carried out and, given that he no longer owns the farm, the pursuer cannot be heard to say that he now intends to carry out these works. In these circumstances it would in my opinion be wholly unreasonable to award him damages calculated by reference to the cost of carrying out these remedial works unless it be on the basis of the alternative approach indicated by Lord Drummond Young in paragraphs [42] and [43] of his opinion. But here too (and quite apart from the fact that there is in any event no "black hole" in this case) there are in my opinion insuperable problems for the pursuer given that he does not aver that the remedial works have been carried out by the new owner of the farm or even that the latter claims to have sustained a loss as a result of the defender's breaches of contract, let alone that he intends to carry out these remedial works at some time in the future. Nor of course does the pursuer aver that he is suing in this context on behalf of the new owner or that he would account to him for the damages recovered by him in the present action.

 

[27] I have already drawn attention to Lord Clyde's recognition in Alfred McAlpine Construction Ltd v Panatown Ltd "of the basic requirement for reasonableness which underlies the quantification of an award of damages". A good example of this in practice can be seen in the decision of the House of Lords in Ruxley Electronics and Construction Ltd v Forsyth. In that case the plaintiffs contracted to build a swimming pool and its enclosure for the defendant, Mr. Forsyth, in his garden. In the event the pool was not as deep as had been stipulated in the contract and the question arose whether Mr. Forsyth should be awarded the cost of reinstating the pool to the stipulated depth. The judge at first instance dismissed this part of his claim holding that the cost of reinstatement was an unreasonable claim in the circumstances. Mr. Forsyth's appeal against this decision was allowed by the Court of Appeal (by a majority) but the House of Lords unanimously restored the judge's decision holding that, where the expenditure was out of all proportion to the benefit to be obtained, the appropriate measure of damages was not the cost of reinstatement but the diminution in the value of the work occasioned by the breach even if that would result in a nominal award. For present purposes I would refer in particular to the observations of Lord Lloyd of Berwick on the relevance of an injured party's intention to reinstate to the reasonableness of calculating damages by reference to the cost of reinstatement. At pages 372/3 he said (Mr. Jacob was Mr. Forsyth's counsel):

 

Intention

I fully accept that the courts are not normally concerned with what a plaintiff does with his damages. But it does not follow that intention is not relevant to reasonableness, at least in those cases where the plaintiff does not intend to reinstate. Suppose in the present case Mr. Forsyth had died, and the action had been continued by his executors. Is it to be supposed that they would be able to recover the cost of reinstatement, even though they intended to put the property on the market without delay?

There is, as Staughton L.J. observed, a good deal of authority to the effect that intention may be relevant to a claim for damages based on cost of reinstatement. The clearest decisions on the point are those of Sir Robert Megarry V.-C. in  Tito v. Waddell (No. 2)  [1977] Ch. 106, and Oliver J. in  Radford v. De Froberville [1977] 1 W.L.R. 1262. One of the many questions in the former case was whether the plaintiffs could recover the cost of replanting the plots of land in question, or whether the recovery of damages was limited to the difference in the market value of the land by reason of the work not having been done. Sir Robert Megarry V.-C. said [1977] Ch. 106, 332:

"Again, some contracts for alterations to buildings, or for their demolition, might not, if carried out, enhance the market value of the land, and sometimes would reduce it. The tastes and desires of the owner may be wholly out of step with the ideas of those who constitute the market; yet I cannot see why eccentricity of taste should debar him from obtaining substantial damages unless he sues for specific performance. Per contra, if the plaintiff has suffered little or no monetary loss in the reduction of value of his land, and he has no intention of applying any damages towards carrying out the work contracted for, or its equivalent, I cannot see why he should recover the cost of doing work which will never be done. It would be a mere pretence to say that this cost was a loss and so should be recoverable as damages."

In the present case the judge found as a fact that Mr. Forsyth's stated intention of rebuilding the pool would not persist for long after the litigation had been concluded. In these circumstances it would be "mere pretence" to say that the cost of rebuilding the pool is the loss which he has in fact suffered. This is the critical distinction between the present case, and the example given by Staughton L.J. of a man who has had his watch stolen. In the latter case, the plaintiff is entitled to recover the value of the watch, because that is the true measure of his loss. He can do what he wants with the damages. But if, as the judge found, Mr. Forsyth had no intention of rebuilding the pool, he has lost nothing except the difference in value, if any.

The relevance of intention to the issue of reasonableness is expressly recognised by the respondent in his case. In paragraph 37, Mr. Jacob says:

"The respondent accepts that the genuineness of the parties' indicated predilections can be a factor which the court must consider when deciding between alternative measures of damage. Where a plaintiff is contending for a high as opposed to a low cost measure of damages the court must decide whether in the circumstances of the particular case such high cost measure is reasonable. One of the factors that may be relevant is the genuineness of the plaintiff's desire to pursue the course which involves the higher cost. Absence of such desire (indicated by untruths about intention) may undermine the reasonableness of the higher cost measure."

I can only say that I find myself in complete agreement with that approach, in contrast to the approach taken by the majority of the Court of Appeal.

Does Mr. Forsyth's undertaking to spend any damages which he may receive on rebuilding the pool make any difference? Clearly not. He cannot be allowed to create a loss, which does not exist, in order to punish the defendants for their breach of contract. The basic rule of damages, to which exemplary damages are the only exception, is that they are compensatory not punitive.

 

[28] In the present case, since the pursuer cannot possibly intend to reinstate the grain store to the condition in which he maintains that it ought to have been had it not been for the defender's breaches of contract, and since he does not aver any other basis upon which it might be reasonable to award him damages calculated by reference to the cost of reinstatement, I consider that the averments in support of his first head of claim are irrelevant with the result that the sheriff ought to have excluded them from probation in common with the averments in support of the other three heads of claim, and to have dismissed the action accordingly.

 

[29] As already indicated, the defender's solicitor relied also on the decision of the House of Lords in Golden Strait Corpn v Nippon Yusen Kubishika Kaisha in support of the proposition that the court in assessing damages in the present case would be entitled to look at the circumstances as they are now and would not be confined to a consideration of the circumstances as they were at the time of the defender's alleged breaches of contract. The circumstances of Golden Strait Corpn v Nippon Yusen Kubishika Kaisha were rather different from those of the present case, but I think that the opinions of their Lordships in that case amply vouch the proposition that in appropriate circumstances in assessing damages for breach of contract account may be taken of events occurring after the date of the breach. In the context of the present case it seems to be that it would be absurd to ignore the fact that the pursuer no longer owns the farm on which the grain store was constructed in determining what would be an appropriate measure of damages to be awarded to him in respect of the loss which he maintains that he sustained as a result of the defender's alleged breaches of contract.

 

[30] It was agreed that a further hearing should be fixed to consider all outstanding questions of expenses.