Scottish Sheriff Court Decisions

(A124/07)

JUDGMENT OF

SHERIFF PRINCIPAL EDWARD F BOWEN QC

in the appeal

in the cause

IAN MacDONALD

Pursuer and Appellant

against

JOHN NICHOLSON AND EVEANNE NICHOLSON

Act: Fraser, Solicitor, Wallace Hodge, Solicitors, Ayr

Alt: Jansch, Solicitor, Biggart Baillie, Edinburgh

EDINBURGH, 18 January 2011

The Sheriff Principal having resumed consideration of the cause sustains the appeal in part; amends the Sheriff's Finding in Fact and Law (6) by deleting the word "refuse" and substituting "withhold"; amends Finding in Fact and Law (7) by deleting the words "defenders suffered" and by substituting the word "Defenders'" and by deleting the words "and are entitled to" and substituting "is reasonably estimated at"' thereafter recalls the Sheriff's interlocutor of 22 March 2010 and of new grants decree against the pursuer for payment to the defenders of the sum of £9,721.86; reserves all questions of interest and expenses and appoints parties to be heard thereon at a date to be afterwards fixed.

(signed) E Bowen

Note:

1. In this action the pursuer seeks decree for payment of £28,588.71 said to be due by the defenders for the construction of a timber framed riding arena at a property at Broughton, near Biggar. The defenders have counter-claimed for damages. Following proof the pursuer's claim was rejected and he was found liable to the defenders in the sum of £15,000.

2. It is a useful starting point to note the parameters of the dispute as set out on Record and in this respect it falls to be observed that the parties pleadings are - perhaps unusually for a Sheriff Court action of this type - commendably concise. The pursuer avers that in May 2005 the parties agreed that he would build the riding arena. He says: "No price was agreed. The parties agreed that the pursuer would charge the defenders the amount it cost him to build the arena". He goes on to aver that the work proceeded and that it cost him £53,219.57 to complete it. He was paid £24,721.86 in about October 2005 at which time he maintains that the defenders "confirmed the terms of the parties' agreement as to price". The sum sued for represents the balance said to be due.

3. The defenders admit that the agreement was entered into in May 2005. They say that the pursuer agreed to build the arena for £21,000; that certain additional works were instructed during the course of the construction and that they have paid £3,721.86 more than the agreed price in return for those additional works.

4. In the counter-claim the defenders set out that the riding arena is not fit for purpose; does not comply with the original design or with the Building Warrant issued for it; and has not been constructed in accordance with the parties' contract. They contend that it will require to be demolished and reinstated at a cost of £45,000 plus VAT.

5. The pursuer in response admits that the arena does not comply with the Building Warrant, but contends that this was due to breach of contract on the part of a structural engineer who had been instructed by him for preparation of drawings and the obtaining of the Warrant. The pursuer avers that the engineer, who was called as a third party in the action, had altered the pursuer's original design and obtained a Warrant based on that revision. Having built the arena in accordance with the original design the pursuer was obliged to concede that it does not comply with the Building Warrant, thereby placing him in breach of contract with the defenders. As the pursuer reached an accommodation with the third party prior to the proof the latter did not feature at it. In relation to damages the pursuer avers in answer to the defenders' counter-claim that, in so far as remedial works are required, they can be carried out at a cost of between £9,000 and £15,000.

6. The Sheriff held that the agreement reached in the Spring of 2005 was for design and construction of a riding area "at a price not to exceed £21,000" (Finding in Fact 3). He then went on to hold that at a meeting around November 2005 "It was agreed that the defenders would pay for work carried out to date...totalling £24,721.86. This sum represented the agreed cost of £21,000 and an additional £3,721.86" (Findings in Fact 5 and 6). However, Finding in Fact 6 continues: "It was agreed that certain further additional work would be carried out and that the building would be completed by the end of 2005 at a total cost of £30,000". An agreed contract price of £30,000 is recorded in Finding in Fact and Law 1.

7. In fact the building was not completed until April 2006 at which point the pursuer submitted two further invoices which have not been paid. The Sheriff concluded that the arena as constructed was not fit for purpose, lacked structural integrity, and would not qualify for a local authority Completion Certificate. He held, however, that the defects were capable of rectification and concluded that this would cost £15,000 inclusive of VAT.

8. In the light of these findings the Sheriff rejected the pursuer's claim. He granted decree for £15,000. Finding in Fact and Law 6 records a conclusion that the defenders are entitled to refuse further payment to the pursuer for additional costs incurred in the building. Finding in Fact and Law 7 records that the defenders "are entitled to the sum of £15,000 to enable them to rectify the faults in the building structure and seek a Building Warrant Completion Certificate to enable them to enjoy the building in terms of the Agreement between the parties".

9. There are two grounds of appeal. The first is to the effect that the Sheriff erred in concluding that the parties agreed a price of £30,000. It states: "No evidence was led by any witness which would enable the Court to conclude that such an Agreement was reached". The second ground states: "Esto the Sheriff was correct that the contract price was £30,000, that the pursuer was not entitled to payment of that price and that the defenders were entitled to damages represented by the cost of the remedial works which they required to carry out in order to complete the contract works the Sheriff's quantification of the loss suffered thereby by the defenders is incorrect".

10. I do not consider that there can be any real answer to the second ground of appeal. In his submission on behalf of the pursuer and appellant Mr Fraser, solicitor, cited the case of Ramsay and Son v Brand 1898 25R 1212 in which Lord President Robertson set out that in general a builder who "chooses to depart from his contract" loses his right to sue for the contract price. His Lordship continued: "In the application of this rule it suffers a modification which in no way invades the principle. A building contract by specification necessarily includes minute particulars, and the law is not so pedantic as to deny action for a contract price on account of any and every omission or deviation. It gives effect to the principle by deducting from the contract price whatever sum is required to complete the work in exact compliance with the contract". Applying that principle to the present case, Mr Fraser maintained that the Sheriff was wrong in law to make Finding in Fact and Law 6: "The defenders are entitled to refuse further payment to the pursuer of the additional costs incurred in the building". If the contract price was £30,000 that was what the defenders were bound to pay under deduction of the sum necessary to rectify the defects.

11. Mr Fraser approached the matter by a separate route, namely by reference to the principle of restitutio in integrum, the guiding rule in any question of damages. If the contract price was £30,000, on the Sheriff's findings the defenders had paid £24,721 and would require to spend a further £15,000 to get what they bargained for. In consequence they were only entitled to £9,721 to put them in the position they would have been in, not £15,000. The position in law was that the defenders' obligation to pay the contract price was postponed, on the principle of compensation, until the extent of damages for the pursuer's breach of contract was determined: Bannatyne v East of Scotland Farmers Limited 1970 SLT (N) 50.

12. The only answer to this was a suggestion that there was a distinction to be drawn between a contract to build, and an agreement to design and build, and that because the pursuer had entered into the latter and had failed to perform, the Sheriff was entitled to take a "holistic" approach and to award the sum required by the defenders to rectify the faults. I am not sure that I understand that argument, but I am clear that the Sheriff was bound to apply the law as indicated by the principles set out in Mr Fraser's argument. Having found, as he did, that the agreed price was £30,000, the defenders' claim for damages falls to be reduced by the amount which their payments to the pursuer fall short of that figure.

13. A more difficult issue arises from the first ground of appeal, that is whether the Sheriff was indeed entitled to hold that the agreed price was £30,000. Mr Fraser contended in the first place that the first defender did not say that £30,000 was agreed. The closest he came (at page 432 of the Notes of Evidence) was to say that "he would have expected to pay" £30,000. That was not the same thing as an agreement. Reference was made to the well known observation of Lord President Dunedin in Muirhead v Turnbull and Dickson 1905 866 at 694: "Commercial contracts cannot be made by what people think in their inmost minds. Commercial contracts are made according to what people say".

14. In the second place Mr Fraser maintained that any evidence relating to an agreement made in November 2008 centring on a sum of £30,000 was inadmissible. There was no mention of such a meeting on record or indeed of the figure of £30,000. Timeous objections had been taken to the leading of evidence of any agreement other than for a figure of £21,000 (page 387 of the Notes). The Sheriff had allowed the evidence under reservation (page 392) but had not ruled on its admissibility.

15. Further and in any event, Mr Fraser contended that what was to be included in the first defender's expected payment of £30,000 and what the Sheriff had found, could not be reconciled. The basis of the Sheriff's finding was to be found in paragraph 12 of his Note where he said: "At a meeting on site in November 2005 the defenders agreed to pay invoices totalling almost £25,000 which had been submitted and agreed to additional works costing around £3,000 and "a few thousand" extra for labour to complete the building. This would have represented a total outlay of around £30,000. The first defender explained this as representing additional work - in the installation of kickboards and the payment of some extra money to ensure the job was finished by the end of 2005". The trouble was that the first defender had made it clear that installation of kickboards was not the subject of discussion in November 2005 but was a separate matter.

16. These submissions were designed to lead to the conclusion, having regard to the pleadings and admissible evidence, that the only possible basis for the court to hold a contract proved was on the pursuer's position that he was to be paid what it cost him to build the arena. That was £53,219.57. It was to be noted that in Finding in Fact and Law 2 the Sheriff held that: "The drawings prepared by the pursuer and third party were defective and have resulted in the building being structurally unsound". Mr Fraser sought to argue, citing Graham v United Turkey Red 1922 SC 533 as his authority, that the pursuer had performed the "build" part of the contract and was entitled to be paid for that in full with any deducted damages being in respect of the defective "design".

17. It is correct that there is no record for an agreement at £30,000 and it is also correct that, having allowed evidence in relation to that matter under reservation as to its competency, the Sheriff ought to have dealt with Mr Fraser's objection when giving his judgment. However, I do not consider this to be fatal. It might have been if this was a situation where a party has succeeded on a case not pled, but it is not. The defenders' case was that they agreed to pay £21.000 and subsequently to an additional £3,721.86. The Sheriff has accepted that, but has gone further, against the interests of the defenders, in holding that they agreed to pay more. I do not consider that the pursuer can object to a conclusion which, is essentially favourable to him. There is also I accept a measure of confusion on the face of the Sheriff's Note as to whether the pursuer's failure arose in respect of the construction of the arena in terms of the plans provided, or whether the plans themselves were deficient. Finding in Fact 8 and Finding in Fact at Law 2 do not sit comfortably together. But this may not matter given that the pursuer has accepted responsibility for the purposes of the proof for both design and build. What is important is that the Sheriff, whilst appearing to accept at least by implication that the work cost the pursuer £53,000 (Note paragraph 49) makes it clear that he could not accept the pursuer's testimony that there was an "open ended agreement to pay" (paragraph 53). In that situation I do not see that I could hold on appeal that the pursuer is entitled to recover on the basis of that sum being the contract price whatever the extent of the work he actually did.

18. The precise basis upon which the defenders' figure of £30,000 comes forward is also, I accept, not wholly satisfactory. But short of remitting to the Sheriff and perhaps re-opening the proof I doubt whether it is susceptible to complete clarification. What I am clear is that it was open to the Sheriff to hold that the sum put forward by the first defender in discussion with the pursuer was a limit to which he was prepared to go, and was not merely a thought which he kept to himself. In that situation, although it is not wholly satisfactory, I am not inclined to interfere with Finding in Fact and Law 1 which in effect fixes the contract price at £30,000.

19. I shall accordingly allow the appeal to the extent of reducing the sum decerned for to £9,721.86. I note that the Sheriff awarded interest from 14 January 2008. The basis of this is unclear and I shall reserve the question of the date from which interest should run along with all questions of expenses.