“As a case study of the causes and consequences of the property crash in 2008, this litigation is probably as good as any.”  Lord Malcolm

Outer House case in which RBS sought payment of sums due under a personal guarantee granted by Mr O’Donnell and Mr MacDonald, the directors of Whinhill Developments Ltd which had been formed to purchase a potential development site at Stone Farm in Greenock. The directors argued that the guarantee had been induced by negligent misrepresentations made on behalf of RBS.

RBS and Whinhill entered a one year loan agreement in September 2007 whereby RBS would provide a loan of £1.65m to fund the purchase. Whinhill bought the site for about £1.5m and planned to obtain planning permission then sell the site to a builder or developer. Whinhill granted a standard security and floating charge in favour of RBS (the site being Whinhill’s only asset).  Whinhill were unable to repay the loan at its expiry in September 2008. The parties then agreed to refinance the loan facility with a new loan of £1.695m to be repaid by March 2011; the Whinhill directors providing a personal guarantee for the company’s liabilities to a maximum aggregate value of £300k.

Whinhill failed to repay the sums due after a default event occurred and RBS sought payment of the sums due under the guarantee in February 2011. Central to the case was the property crash in 2008 and the falling value of the property. The loan was originally advanced in mid-2007 on the strength of a market valuation of £3m. When the facility was refinanced in 2008, property values had “fallen off a cliff” and the credit division of RBS was enforcing a 70% loan to value ratio. However, Whinhill’s relationship director in RBS’s commercial banking division was keen to avoid the crystallisation of what may have been by then a worthless security. He received word from Ryden that the property could be valued at £2m which, with a personal guarantee from Whinhill’s directors, would allow the 70% loan to value ratio to be met.

On three separate occasions RBS told the directors that Ryden would or had re-valued the subjects at £2m. The directors had understood the revaluation could be relied on for lending and guarantee purposes and Lord Malcolm took the view that it was reasonable for them to do so. Shortly after the first occasion (but before the second), RBS’s relationship director received the updated valuation from Ryden by letter. However, the letter made it clear that the report was not suitable for, nor to be relied on by the bank, for lending purposes (it was also based on an assumption of increased development density which had not been discussed with the Whinhill directors). There was no evidence that the report had been sent to the Whinhill directors.

Lord Malcolm found that the RBS statements were material factors in the directors’ decision to grant the guarantee and that the guarantee would not have been granted if they had been aware of the true position. As a result, a reduction of the guarantee was granted.

Whether the Whinhill directors were also entitled to damages for their losses depended on whether the misrepresentations amounted to a breach of a duty of care owed to them. Lord Malcolm found that, in using the assurance given by Ryden before receipt of the report to help persuade the Whinhill directors to agree to the guarantee, the relationship director had to be taken as having assumed responsibility for its accuracy. He then came under an obligation of enquiry or disclosure if he subsequently received material which cast doubt on the information given to the directors. And thereafter, he had a duty not to repeat the misrepresentation. The relationship director had breached that duty and the Whinhill directors were entitled to damages for loss sustained as a consequence.

The full judgement is available from Scottish Courts here.

(See also Inner House decision here)

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Inner House case concerning Glasgow City Council’s liability for damage caused to an Indian restaurant on the ground floor of a tenement building following the Council’s demolition of the floors above.

The Council had carried out the demolition work under s13 of the Building Scotland Act 1959 and argued that they should be free of responsibility for the collapse as, after the works had been completed, they had written to the restaurant owners indicating that future maintenance of the structure would be their responsibility. However, in the Outer House, the temporary judge had found that, whilst the Council had initially acted under the 1959 Act, after it had made the decision to demolish part of the building, a relationship had been created between them and the neighbouring proprietors that gave rise to a common law duty of care. The Council had carried out the demolition without carrying out gable stabilisation works, without which, it knew would there would be a material risk of harm to people or property in the vicinity of the wall. There was no evidence of the restaurant owners having been advised that the exposed wall lacked stability and they were entitled to assume that the Council had carried out the demolition works in a manner that did not create a new structural instability. As a result, the Council was found to be in breach of its duty.

The Inner House dismissed the Council’s appeal, finding there to be no error in the temporary judge’s decision. The duty breached was not a breach of statutory duty nor a failure of duty of care in the manner in which the Council exercised their statutory discretion to carry out the works. Rather it was a purely operational duty arising after the decision to carry out the demolition works was made: i.e. a duty not to create a reasonably foreseeable risk of harm by reason of the way in which the Council carried out the works.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

English Court of Appeal case concerning leases of commercial premises at 104 Cromer Street and at 106/108 Cromer Street in London. The subjects in both leases included the ground and basement premises but not the upper floors (which consisted of residential flats retained by the Landlord) nor the soil pipes on the rear wall of the building which served the upper floors.

The leases contained an obligation on the tenant to put and keep the subjects in good and substantial repair, decoration and condition. There was no corresponding obligation on the landlord to repair the parts of the building it had retained; the landlord’s only express obligations being in relation to insurance (of both the premises and the retained subjects) and allowing the tenant quiet enjoyment of the premises.  A cesser of rent clause (i.e. ceasing liability for rent) also applied in the event the premises (or any part of them) were unfit for occupation and use.

The premises were damaged on at least 4 occasions between April 2004 and June 2005 by water and sewerage coming from the parts of the property retained by the landlord. The damage was repaired and insurance payments made. The tenant continued to pay the rent until June 2008 then stopped. The landlord took steps to forfeit the leases and re-enter the premises. The tenant argued that, as she had continued to pay the rent during the period in 2005 when the premises had been (in the tenant’s opinion) unfit for use, she was entitled to set that off against the rent due in 2008. The tenant also sought substantial damages for financial losses (including loss of business) arising from the leaks.

In order to succeed in such a claim the tenants had to establish a breach of duty on the part of the landlord in either contract or in delict arising from the various leaks. The basis of such liability was said to be either an implied obligation to keep the retained parts in repair or alternatively a common law duty as adjoining occupier to remedy any defect in those premises which was capable of causing damage to the leased subjects.

The Court of Appeal found that there was no reason to require the implication of an obligation on the landlord to keep the retained subjects in good repair. Although there was no express repairing obligation imposed on the landlord, the repair of the structure of the building was catered for through the provisions of the insurance clause. In the face of these provisions there was no reason based on necessity or business efficacy to alter the balance of the scheme by imposing an implied obligation to repair on the landlord, let alone one (as was argued for by the tenant) under which his liability to repair was absolute.

For much the same reasons, the existence of what the parties obviously intended should be a comprehensive scheme for the repair of both the leased subjects and the retained parts of the building was sufficient to exclude any liability in delict to which the landlord might otherwise be subject to in relation to the retained premises.

The full judgement is available from BAILII here*.

*We believe that the tenant disputes the facts as reported in the judgment (see here) and is appealing the case to the Supreme Court.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Outer House case considering the consequences of a judicial rectification of a lease. Mr Mirza was the landlord and Mrs Salim the tenant under a 25 year lease of a shop and yard in Glasgow. Mr Mirza built a shop on the yard. A dispute arose as to who had a real right in the yard and Mrs Salim sought and obtained an interim interdict preventing Mr Mirza from entering the yard and operating the shop in February 2008. However, in August 2009 the Court found that the yard had been included in the lease as the result of a conveyancing error (for which neither of the parties were responsible) and granted a judicial rectification[1] of the lease removing the yard from the leased subjects (the rectification being retrospective in effect). Mr Mirza then sought damages for wrongful interdict.

Mr Mirza’s action was dismissed. After considering the authorities on damages for wrongful interdict, Lord Woolman reached the following conclusions:

1. interim interdict is obtained periculo petentis (at the risk of the perpetrator);
2. the award of damages, however, depends upon an assessment of the whole circumstances of the case;
3. damages will be awarded if the interim interdict is nimious or groundless;
4. a false statement made by the person obtaining the order is likely to fall into that category;
5. a person who obtains a possessory judgment that was lawful at the time or pronouncement will not be liable in damages; and
6. it is not necessary for a pursuer to aver malice or ill will.

Lord Woolman found that, in this case, Mrs Salim had not acted in a way that was “nimious or groundless”. At the time of the action she had had a sure foundation to seek the interdict and in doing so, she had vindicated her right to exclusive possession. Lord Woolman held “that it would be a strong thing” to subject Mrs Mirza to damages taking the view that; “rectification altered the deed and the register, but it did not airbrush history. It did not convert a rightful interdict into a wrongful one”.

The full judgement is available from Scottish Courts here.

(See appeal to the Inner House here.)

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Sheriff Court case considering a noticed served on Mr and Mrs Sinclair by Fife Council after a retaining wall (which was over 100 years old) owned by Mr and Mrs Sinclair collapsed and damaged a section of Dysart High Street (which was supported by the wall).  The notice was served under section 91(2) of the Roads (Scotland) Act 1984 and required Mr and Mrs Sinclair to (1) replace the collapsed wall with a new wall and foundation; and (2) reinstate the damaged road. (A conservative estimate of the cost reinstatement of the wall was said to be £200k.)

The Sinclairs challenged the notice under s91(9) of the 1984 Act which allows a person in receipt of a notice to refer the matter by summary application to the sheriff.

In the sheriff court it was found that, whilst the Council was entitled to serve a notice in respect of repairs to the wall, it was not entitled to do so in respect of the reinstatement of the road. The notice could be served on Mr and Mrs Sinclair as owners of the wall because the wall was in such condition that it was a danger to the road or road users. However, the same was not the case with the road. They did not own the road or the solum and were not responsible for its maintenance. Any works to the road would require the Council’s consent in terms of s56 of the 1984 Act and that could not be given in advance in the notice.

The quashing of the part of the notice referring to the road did not invalidate the remainder of the notice which referred to the wall. But, although the part of the notice referring the wall was valid, the court found that its requirements were unreasonable. In coming to this conclusion the court took account of the following:

1. The use of the road and the benefit the Council derived from the wall: the road was a busy thoroughfare through Dysart used by, amongst other things, buses, refuse lorries and other public utility vehicles. The support provided by the wall was central to the safe keeping of the road and, as a result, the council kept a register of retaining walls and carried out regular inspections. Although the inspections identified a bulge, more detailed tests to identify the danger the bulge represented were not carried out. It was also known by the Council’s engineers that the wall’s random rubble construction was not suitable for its purpose as a retaining wall and yet the council did not further examine the wall to assess its fitness for purpose.
2. The causes of the collapse: a number of factors were put forward as reasons for the collapse but it was agreed that backfill[1], which was owned entirely by the Council and over which the Sinclairs had no control, was an important factor in the collapse. The road had also been disturbed by the Council and utility companies.
3. Although it was of significance that the Council had in no way contributed to the collapse of the wall by act or omission, if the inspection regime had been more rigorous failings in the wall would have been identified and action taken.
4. The council required the replacement wall to meet modern design standards which would result in a significant improvement to their roads infrastructure at no cost to them.

The Council had the discretion to pay for or contribute to the costs of the remedial work but chose not to. Given the history of events leading to the collapse, the court found that decision to be unreasonable and, as a result, quashed the whole notice.

 The full judgement is available from Scottish Courts here.

Petition for judicial review of a decision by Highland Council to grant planning permission for a development of 64 houses at Resaurie near Inverness.

The petitioners (who lived nearby the proposed development) had two main arguments:

1. In making its decision, the Council should have had regard to the increased risk of ground water flooding to the petitioners’ property and other properties on the boundary of the site.
2. The Council should also have had regard to a change of planning policy (in the interval between the resolution to grant consent and the formal grant) which introduced a requirement to take a precautionary approach to flood risk.

The petition was refused by Lord Pentland in the Outer House and an appeal to the Inner House was also refused. The court found that the issue of groundwater had been before the Council when they took their decision to grant planning permission and it could not be argued that they failed to take account of it.  Issues of groundwater flooding had been considered and addressed by the professionals advising the developers, and had been fairly put before the Council. (The court also noted that the weight to be attached to a relevant consideration is a matter for the decision-maker, provided that he does not act unreasonably.)

With regard to the change of planning policy, although the Inner House disagreed (“with some hesitation”) with Lord Pentland’s finding that there had been no material change to the planning policy, it found that the amendments made had been slight and amounted to mere fine tuning. The court had also been told that the Council’s planning officer had considered the terms of the planning policy and reached the view that both the developer and the Council had in fact taken a precautionary approach in relation to the proposed development. The court did not consider that the planning officer could be said to have erred in reaching that conclusion.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Sheriff Court case concerning missives of let for premises at 34-39 Ann Street in Aberdeen. The missives were dated 13 September 2006 and annexed to them was a draft lease. However, the lease was never engrossed and signed by the parties.

Although the missives provided for a lease with a term of ten years, they also contained a supersession clause providing that the missives would cease to have effect after a period of 2 years.

Speedy contended that, as no lease was signed, the formal written lease came to an end when the missives ceased to be enforceable on 13 September 2008. Thereafter the lease continued from year to year by tacit relocation until Speedy served a notice to quit on 9 December 2010 and left the premises on 13 September 2011. The Sheriff agreed with that argument and dismissed Gilcomston’s action for declarator that the parties were bound by a valid and enforceable lease for a period of 10 years from 13 September 2006.

The full judgement is available from Scottish Courts here.

Supreme Court case considering whether the Scottish Ministers had given adequate reasons for their decision to approve the Fife Structure Plan with modifications; Ms Uprichard arguing that the reasons given by the Ministers had not adequately addressed her objections to proposed modifications to the plan.

 In brief, the essence of Ms Uprichard’s objection was that the modifications to the plan did not contain any modification to the strategy within the plan that St Andrews should become an economic driver for Fife (by significantly expanding the town). In support of her contention that there should have been such a modification, she referred to both a 1998 study which asserted that St Andrews was “at its landscape capacity” and to the “Grant Report” which concluded that there was limited scope for development.

Amongst the reasons given by the Ministers for not modifying the structure plan on the basis of objections such as those given by Ms Uprichard, was “reason 33” to the effect that the Grant Report had indicated that there was some scope for development (subject to mitigation) to the west of St Andrews. Ms Uprichard argued that this did not address her objection (which she claimed was that the available capacity could not accommodate the scale of the planned development rather than that there was no capacity for development). Ms Uprichard’s arguments were rejected in the Inner house and her appeal to the Supreme Court was also dismissed.

The assertion that St Andrews was at landscape capacity appeared in Ms Uprichard’s’ letter of objection and reason 33 addressed objections of that general tenor by referring to the finding of the Grant Report that there existed some scope for development to the west of St Andrews. The broader point made by Ms Uprichard that the scale of development envisaged in the structure plan would damage the landscape setting of the town was addressed by the substance of further reasons given by the Ministers. The Supreme Court found that the reasons given, when read as a whole, provided an intelligible explanation to a well-informed reader such as Ms Uprichard as to why the Ministers were not persuaded by her objections.

The full judgement is available from the Supreme Court here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Outer House case in which Whyte and Mackay sought to enforce an adjudicator’s decision requiring Blyth & Blyth to pay them almost £3m in damages.

Blyth & Blyth had designed the structure of a new bottling plant at Whyte and Mackay’s Grangemouth premises. Whyte and Mackay claimed that the foundations were defective and would result in settlement and damage to the building. They referred the resulting dispute to an adjudicator (as they were entitled to do in terms of the contract between the parties)[1].

When Whyte and Mackay sought to enforce the adjudicator’s decision in the Court of Session, Blyth & Blyth argued that the adjudicator had failed to give adequate reasons for his determination and that to enforce the decision was incompatible with Blyth & Blyth’s rights under the European Convention on Human Rights.

Reasons for the decision
Lord Malcolm found that the adjudicator had failed to give adequate reasons for his determination as he had failed to deal with Blyth & Blyth’s contention that, even if the additional piling deemed necessary to make the foundations adequate had been specified in their design, Whyte and Mackay would not have been prepared to pay the additional time and financial costs required to carry out the extra work. This was potentially a complete answer to the claim and a very significant omission from the adjudicator’s decision. As such, it was sufficient to justify reduction of the award.

Human Rights
Arguably of more importance, however, was Lord Malcolm’s finding that to enforce the adjudicator’s award would be a disproportionate interference with Blyth and Blyth’s right to their possessions under article 1 of the first protocol to the Convention on Human Rights.  Lord Malcolm observed that adjudication is a “rough and ready” process which is “designed to provide a speedy and relatively cheap provisional award pending a final determination by litigation, arbitration or agreement”; the “rough and ready” aspect being particularly true in large and relatively complicated cases such as this one. He also noted judicial concerns as to whether difficult questions of law should be referred to adjudication. Whilst a court, in the face of a Convention challenge, will usually be able to justify enforcement of an adjudicator’s award on the basis of the general interest benefits arising from adjudication (e.g. speed, cost, efficiency and cash-flow requirements), this was a case where such benefits were largely, if not entirely absent. No general or public interest had been served by Whyte and Mackay taking the dispute to adjudication (it would be many years until the cost savings gained by the absence of piling would be outweighed by the projected losses and the bulk of the claimed losses would not occur until 2035/6).

In coming to this conclusion, Lord Malcolm also dismissed Whyte and Mackay’s argument that a decision not to enforce the adjudicator’s award on the basis of article 1 of the first protocol would undermine the whole adjudication scheme, finding such a contention to be “exaggerated and unconvincing”.

A further challenge to the award under article 6 of the Convention (the right to a fair hearing) was rejected on the basis that article 6 is only engaged when a civil right or obligation is being determined and an adjudication cannot be regarded as a final determination of the right or obligation at stake.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

Inner House case considering a claim for damages under the Occupiers Liability (Scotland) Act 1960. Mr Dawson worked as a self employed courier and was delivering a package to Ms Page’s cottage. Building works were taking place at the cottage and the surroundings resembled a building site.  After making two unsuccessful visits to the cottage to deliver the package, Mr Dawson left the package under an oil storage tank in the back garden. As he was leaving the cottage he slipped on a wet plank over a trench in the garden and injured his hand.

Mr Dawson’s claim for damages failed in the Outer House.  After noting wet planks are slippery and a notice is not required to point that out, Lord Glennie found that there was no requirement on Ms Page to exclude people from the site or give warning of the risks. The Inner House observed that the fundamental aim of the 1960 Act had been to the restore a broad test of reasonableness in relation to such claims and rejected Mr Dawson’s appeal which was based the argument that Lord Glennie should not have reached the conclusion that a state of affairs which is obvious is not a danger.

The full decision is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.