SDG TULLOCH HOMES LIMITED AGAINST EUROPEAN DEVELOPMENT COMPANY (HOTELS) LIMITED AND ANOTHER
OUTER HOUSE, COURT OF SESSION
[2016] CSOH 36
CA183/15
OPINION OF LORD TYRE
In the cause
SDG TULLOCH HOMES LIMITED
Pursuer;
against
EUROPEAN DEVELOPMENT COMPANY (HOTELS) LIMITED AND ANOTHER
Defender:
Pursuer: D Thomson; Shepherd & Wedderburn LLP
First Defender: Beynon; Lefevre Litigation
Second Defender: RW Dunlop QC; Ledingham Chalmers LLP
2 March 2016
Introduction
[1] The pursuer is the former owner of an area of land at Glebe Street, Inverness. In 2007, the pursuer concluded missives for sale of the land to the first defender for the sum of £2,900,000. The sale was subject to three suspensive conditions which, by November 2010, had either been purified or withdrawn. The first defender failed to pay the price. After going through an “ultimatum” procedure at the end of which in February 2011 the price remained unpaid, the pursuer rescinded the contract. It is a matter of admission that by failing to pay the price, the first defender was in material breach of contract.
[2] In 2013, the pursuer concluded missives for sale of the land to the second defender (Carlton Rock Limited) for the sum of £1,500,000. There is no connection between the first and second defenders. The missives were subject to a suspensive condition that the second defender obtain detailed planning permission for the land. Shortly before the second defender’s planning application was due to be determined by the planning committee in January 2014, the second defender withdrew the application. The pursuer called upon the second defender to pay the price; instead the second defender intimated that it resiled from the missives. The pursuer did not accept that the second defender was entitled to resile, and subsequently rescinded the contract itself.
[3] In 2015, the pursuer sold the land to Tulloch Homes Limited, a company in the same group as itself, for the sum of £800,000.
[4] In this action the pursuer sues the first defender for payment of £1,600,000 and the first and second defenders jointly and severally for payment of £805,000. So far as the first defender is concerned, the pursuer claims to have sustained losses as a consequence of breach of contract consisting of the difference between £2,900,000 and £800,000, plus re‑marketing and reselling expenses, increased funding costs and interest on a shareholder loan. So far as the second defender is concerned, the pursuer claims to have sustained losses as a consequence of breach of contract consisting of the difference between £1,500,000 and £800,000, plus re-marketing and reselling expenses and increased funding costs. The action came before me for debate. The principal issue was whether the action so far as laid against both defenders was competent. In addition, the second defender challenged the relevancy of the pursuer’s case against it, and the pursuer challenged the relevancy of certain averments by each of the defenders.
Competency: action against both defenders
Arguments for the defenders
[5] On behalf of each of the defenders it was submitted that the action was incompetent in so far as directed against the second defender. It was not competent to pursue an action against separate defenders for two disconnected breaches of contract. Reference was made to the line of authority on the competency of a joint and several conclusion in which Grunwald v Hughes & Ors 1965 SLT 209 is the best-known case. The second defender submitted that the correct analysis was that the admitted breach of contract by the first defender had caused the entirety of the pursuer’s loss. The fact that the sale to the second defender, had it proceeded, might have mitigated the loss sustained by the pursuer did not justify a finding of joint and several liability. The “wrong” on the part of the first defender was a breach of contract in which the second defender played no part; the issue was accordingly determined by the rule established in cases where it was held incompetent to sue two defenders for separate and distinct wrongs for each of which only one was responsible. The first defender accepted that the first conclusion, directed only against it, was competent.
Argument for the pursuer
[6] On behalf of the pursuer, it was accepted as a matter of general principle that two wrongdoers could not be sued jointly and severally for disconnected wrongs. In order for two parties to be sued jointly and severally, there had to be a “single common result” caused by the separate wrongs. Properly understood, the authorities demonstrated that joint and several liability arose where the wrongs contributed to the same loss. The fact that the grounds of action were different was irrelevant. The mere fact that the alleged breaches were of different contracts did not exclude joint and several liability. Nor was it necessary for the pursuer to prove that each defender’s wrong contributed to the whole of the loss and damage sustained. In the present case, the pursuer offered to prove that the separate breaches of the 2007 missives and the 2013 missives combined to produce one loss, represented by the difference between the price to be paid under the 2013 missives (and associated costs) and the price eventually received on sale in 2015. It would be curious if the second defender was better off because of the first defender’s breach, leaving the second defender to breach the contract with impunity. The defenders would, of course, have rights of relief against one another, or could seek an apportionment under section 3(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1940.
Decision
[7] The line of authority on the competency of suing two defenders jointly and severally is lengthy and well known. It has been the subject of analysis in a number of relatively recent judgments, among which is the opinion of Lord Glennie in PS Independent Trustees Ltd v Kershaw [2007] CSOH 50. At paragraphs 81-83, Lord Glennie identified three propositions, with all of which I respectfully agree. These are:
1. In order for joint and several liability to arise, the wrongs allegedly committed by various defenders should be connected or, as it is more commonly put in the negative, not “disconnected”.
2. There is no requirement for the different wrongs to be of the same character: thus, for example there can be joint and several liability where one defender is sued in delict and another for breach of contract.
3. There is no requirement that each defender’s breach was a material cause of the whole of the loss and damage sustained by the pursuer; it is competent to sue more than one defender in the same action where each made a material contribution to the overall loss sustained.
[8] In my opinion, the key proposition for the purposes of the present case is the first of these, namely that the wrongs allegedly committed should not be disconnected. This is a requirement which runs through the whole of the line of authority to which I have referred. In Barr v Neilsons (1868) 6M 651, where it was held to be incompetent to sue a husband and wife jointly and severally for two separate acts of slander, Lord President Inglis stated at page 654:
“…We return to consider the competency of this action, on the assumption that each defender is answerable for his or her own wrong, just to the same effect as if they were not connected. In these circumstances, is this a competent action? I think it is not. In the first place, I think it is out of the question to hold that these two parties can be made conjunctly and severally liable for two disconnected wrongs…”
The same terminology was employed by Lord Kinnear (others concurring) in his opinion in Sinclair v Caithness Flagstone Co Ltd (1898) 25R 703, concerning breaches of contract by the original tenant and its assignee under a lease of a quarry, at page 707:
“The conclusion sought is against both tenants, jointly and severally, or otherwise severally. Now, I think it would be contrary to all authority to hold that two parties can be made jointly and severally liable for two disconnected breaches of contract. Each is liable for the damage done by himself…”
[9] In Belmont Laundry Co Ltd v Aberdeen Steam Laundry Co Ltd (1898) 1F 45, decided by the same bench (minus Lord McLaren) as Sinclair, Lord Adam (others concurring) held that an action against two defenders, one of whom had breached his contract of employment with the pursuer and the other of whom had induced the breach, was competently laid against them jointly and severally, on the ground that they both contributed to produce “the one wrong of which the pursuers complain”. This case therefore addressed the second of the propositions set out above; on the facts of the case, no question arose of the wrongs being “disconnected”. In Fleming v McGillivray 1946 SC 1, a pedestrian injured in a road accident sued the (uninsured) driver of the vehicle and also its owner, the latter on the ground that he had breached his statutory duty by allowing the driver to use the vehicle for a purpose not covered by insurance. The decision of the Lord Ordinary (Mackintosh) dismissing the action as incompetent was affirmed by the Inner House. At page 6, Lord Mackintosh observed:
“In my opinion, the pursuer in this action complains of two quite separate and distinct wrongs alleged to have been committed against him – one by the first defender and the other by the second defender – and this is not a case of two wrongdoers contributing albeit in different ways, to one wrong…
The fact that admittedly the one wrong flows from a breach of a statutory duty and the other from the breach of a common law duty… may not in itself be enough to make the wrongs two different wrongs rather than different contributions to one and the same wrong, but the nature and quality of the acts which constitute the wrongs here alleged against the first and second defenders respectively are so essentially different and, so far as I can see, so peculiar to their respective perpetrators, that they cannot, in my opinion, be regarded in any proper sense as being separate contributions to one common wrongous result.”
[10] Those cases provide the backdrop of authority to the decision of the court in Grunwald v Hughes (above), in which it was held that an action against an architect and a heating contractor jointly and severally for damages caused by an outbreak of fire was competent, in circumstances where each was averred to have committed a separate breach of his own contract. Lord Justice-Clerk Grant (at 211) distinguished Sinclair on the ground that in that case there were two disconnected breaches of contract, whereas in the case before him it was alleged that “both defenders contributed by their respective breaches to a single result, the fire which caused the damage”. Lord Strachan (at 213) placed considerable emphasis in distinguishing Sinclair and Barr v Neilsons on liability having been excluded where the alleged breaches were disconnected. He stated:
“Counsel, on behalf of the pursuers accepted the rule stated by Lord Kinnear in Sinclair but maintained that Lord Kinnear's dictum does not apply to this case because the breaches of the two contracts were not disconnected in respect that, on the pursuers' averments, they contributed to the one common result, namely, the fire and its consequent damage. He argued that throughout the relevant authorities the true test of joint and several liability which the Court has applied is not to enquire whether the action was founded on breaches of contract or on delicts, but to enquire whether the wrongs were disconnected or not. I have come to the conclusion that counsel for the pursuers' argument as to the test to be applied is well founded…”
Later in his opinion (at 214), Lord Strachan appears to equate the expression “one common result” with the expression “one wrong”, as used by Lord Adam in the Belmont Laundry Co case, the “wrong” in Grunwald v Hughes being the occurrence of the fire.
[11] The test of contribution to a single common result was applied by Temporary Judge JMS Horsburgh QC in McGillivray v Davidson 1993 SLT 693, in which an action by a purchaser against the seller (for breach of warranty) and the seller’s solicitor (for breach of a letter of obligation) jointly and severally was held to have been competently raised. At page 695, the temporary Lord Ordinary quoted Lord Justice-Clerk Grant’s reference in Grunwald v Hughes to a “single wrong” and went on to express the opinion, under reference to an observation of Lord Prosser in Engdiv Ltd v G Percy Trentham Ltd 1990 SC 53 at 58, that “wrong” in that context appropriately described “loss and damage”. If the temporary Lord Ordinary intended to equate the expressions “wrong” and “loss and damage” so as to express the test as being whether the defenders’ respective breaches (whether of contract or otherwise) resulted in a single loss, I would respectfully find myself unable to agree. Such an analysis is not supported by Lord Prosser’s observation in Engdiv Ltd which was concerned specifically with a point of construction of section 3(2) of the 1940 Act. The context of the temporary Lord Ordinary’s dictum was his rejection of the contention that each breach had to have contributed to the whole of the loss sustained, and in the circumstances of that case it may not have mattered whether a distinction fell to be drawn between the wrong on the one hand and the loss sustained on the other. However, I find no support in the line of authority that I have cited for the proposition that in order to sue defenders jointly and severally it is sufficient to identify a loss to which they made a material contribution. That would, in my view, deprive the exclusion of “disconnected” wrongs of its importance.
[12] Counsel for the pursuer in the present case also derived support from the opinion of the Lord Ordinary (Lord Drummond Young) in Preferred Mortgages Ltd v Shanks [2008] PNLR 20, in which it was held competent for a mortgage lender to sue, jointly and severally, a valuer alleged to have overvalued a property and a solicitor alleged to have failed to report defects in the title. Having referred inter alia to Barr v Neilsons, Belmont Laundry Co and Grunwald v Hughes, Lord Drummond Young observed (paragraph 14):
“In all these opinions it seems clear that the crucial issue is whether the actings of each defender contributed to a single loss sustained by the pursuer. For this purpose the precise nature of the legal liability of each defender does not matter, provided that the actings of each defender contributed to the single loss.”
Again, if this passage is to be read as equating a single wrong, or single common result, with a “single loss”, I would respectfully disagree. As I have noted, none of the Inner House authorities cited uses the term “single loss” to describe the situation in which claims are not to be regarded as disconnected. As with McGillivray v Davidson, the distinction may have had no significance in the circumstances of the case, but that will not always be so. In my opinion, use of the concept of a “single loss” as a test would be to create considerable uncertainty as to the scope of joint and several liability. “Loss” is a description, usually quantified arithmetically, of the consequence of a wrong or of a series of wrongs. The problem, as I see it, is that arriving at a figure for overall loss does not assist in determining whether or not there is a single wrong for the purposes of joint and several liability, or two or more disconnected wrongs. A series of unconnected losses could always be aggregated to produce a single overall loss, but such a subjective manner of determining whether the conditions for joint and several liability are met would be quite unacceptable.
[13] In my opinion the authorities to which I have referred require the identification of a single wrong resulting from the various defenders’ breaches – of contract or otherwise – before joint and several liability can arise. Examples from the case law of what constitutes a single wrong include the breaking of the employee’s contract in Belmont Laundry Co, the occurrence of the fire in Grunwald v Hughes, the inability of the purchaser in McGillivray v Davidson to use the property acquired for the desired purpose, and the excessive lending, in reliance on professional advice, in Preferred Mortgages Ltd v Shanks. Those cases are to be contrasted with the circumstances in which the breaches have been found to be disconnected: for example, the breaches of terms of the lease by consecutive tenants in Sinclair, and the defamatory statements by different individuals in Barr v Neilsons. In each of the latter cases the sums sued for could have been aggregated to produce a figure which could be seen, from the subjective perspective of the pursuer, as a single loss from breaches of contract or slanders, as the case may be. That did not, however, render competent a claim based on joint and several liability.
[14] Applying this analysis to the facts of the present case, it seems to me to be clear that the pursuer seeks to sue the defenders jointly and severally for two disconnected breaches of contract. The first “wrong” consists of the admitted breach of contract in 2011 by the first defender. The second “wrong” consists of the alleged breach of contract in 2014 by the second defender. There is no averred connection between these two events other than that if the first had not occurred the pursuer would not have owned the land in 2013 and thus could not have contracted to sell it to the second defender. It is not enough, in my opinion, to render a joint and several claim competent that the pursuer can claim to have suffered a single overall loss consisting of the aggregate of losses from two disconnected breaches. The pursuer has failed relevantly to aver a single common result – or single wrong – and the action in so far as based upon joint and several liability in respect of both alleged breaches is incompetent.
[15] Before turning to the disposal of the action in the light of my opinion on the competency point, it is appropriate that I should express my views in response to certain arguments presented on relevancy, albeit that my views on these matters are obiter.
Relevancy: case against the second defender
[16] In order to provide the context for the second defender’s attack on the relevancy of the pursuer’s case against it, it is necessary to narrate some more of the pursuer’s averments. I noted at the outset that the 2013 missives were conditional upon second defender obtaining detailed planning permission for the land. The relevant clause (clause 5) provided inter alia as follows:
“5 Suspensive condition
The bargain to follow hereon shall be suspensive on the [second defender] obtaining a detailed Planning Permission for the Property on the following conditions;
5.1 The [second defender’s] application for a detailed Planning Permission will be in identical terms to the previous Planning Application lodged for the Property with the Highland Council for which Planning Permission was subsequently granted under reference number [specified] save for any amendments required by Highland Council or any statutory consultees or as a result of representations made during the Pre-Application Consultation in order to assist in the obtaining of Planning Permission…
5.2 The [second defender] confirms that the terms of the Planning Permission referred to in Clause 5.1 as previously granted by the Highland Council are acceptable.
…
5.4 The [second defender] will within 16 weeks of conclusion of the bargain to follow hereon submit an application for a detailed Planning Permission in terms of Clause 5.1
5.5 In the event that the [second defender] is not in receipt of detailed Planning Permission as provided for in this Clause 5 within 9 months of conclusion of the bargain to follow hereon then the [pursuer] or the [second defender] shall be entitled to resile from the bargain to follow hereon and that without any penalty due to or by either party by serving written notice to that effect to the other parties [sic] solicitors…”
[17] The pursuer avers that the second defender submitted a planning application in compliance with clause 5 and that the application, as subsequently amended by the second defender to assist in obtaining planning permission, was due to be considered by the Highland Council’s planning committee on 21 January 2014. For some weeks prior to that meeting, the second defender had sought the pursuer’s agreement to a three‑month extension of the long-stop date in clause 5.5 above, which was in fact 8 February 2014, in order to allow time for the execution of any section 75 agreement required in relation to the application. The pursuer declined to agree to an extension. By email to the pursuer’s agents on 17 January 2014, the second defender’s agents advised that their clients were instructing their planning consultants to withdraw the application; it was then withdrawn prior to the meeting on 21 January 2014. The pursuer avers that the second defenders withdrew the application to avoid purification of the suspensive condition; that but for the withdrawal the condition would have been purified; and that the second defender had no proper basis upon which to believe that a grant of planning permission would not be achievable before 8 February 2014.
[18] On the foregoing basis, the pursuer avers that as the withdrawal by the second defender of the planning application impeded or prevented fulfilment of the suspensive condition, it must be held to have been purified. Alternatively, the pursuer avers that esto the suspensive condition was not purified, it was an implied term of the 2013 missives that the second defender would not voluntarily take any steps calculated to prevent the grant of planning permission. By withdrawing the application, the second defender was in breach of the implied term. But for that breach, the pursuer avers, planning permission would have been secured and the suspensive condition purified. (I should note that at the outset of the debate counsel for the pursuer moved and was granted leave to delete averments asserting, in the alternative, that withdrawal of the application constituted a waiver by the second defender of its right to suspend implement of the bargain until planning permission was granted.)
[19] For its part, the second defender avers that because of certain concerns expressed by the planning authority in the latter part of 2013, there was a significant risk that when the application was considered by the planning committee, it would be refused. The second defender was concerned that the long-stop date would arrive without planning permission having been obtained, entitling the pursuer to resile from the bargain. The pursuer was accordingly asked on several occasions to agree to a postponement of the long-stop date; those requests were refused. After the application was scheduled for consideration by the planning committee on 21 January 2014, there remained uncertainty as to the Council’s requirements for a section 75 agreement. If the application had not been withdrawn there would have been no grant of detailed planning permission on 21 January 2014 but, at best, a recommendation by the planning committee that approval be granted subject to the fulfilment of a number of conditions. That would have taken at least eight weeks, leaving no prospect of detailed planning permission being obtained prior to the long-stop date.
Argument for the second defender
[20] On behalf of the second defender it was submitted that the pursuer’s two contentions were mutually inconsistent. It was of practical significance to determine which analysis was correct. If the contract for sale of the land was purified by withdrawal of the planning application, the second defender had not been entitled to resile and the only outstanding issue was quantification of the pursuer’s loss, assessed as at the date of the breach of contract. If, on the other hand, the second defender was in breach of an implied term, the pursuer required to prove that but for the breach, planning permission would have been granted before the long-stop date. Both contentions seemed to be based upon speeches in Mackay v Dick & Stevenson (1881) 8R (HL) 37, where Lord Watson appeared to support the former analysis and Lord Blackburn the latter, with the Lord Chancellor (Selborne) concurring in both. As the two analyses differed (cf the observations of Lord Reed in Credential Bath Street Ltd v Venture Investment Placement Ltd [2007] CSOH 208 at paragraphs 61-2), the case had no clear ratio that had to be followed. The dictum relied upon by Lord Watson, derived from a passage in Bell’s Principles (at §50), had been criticised by Gloag (Contract, page 279) and disapproved in English case law. The implied term approach adopted by Lord Blackburn should accordingly be preferred. In any event the pursuer had failed to plead a relevant case on either approach. Where, as here, it was possible to envisage circumstances in which it was in both parties’ interests to withdraw the application in order to avoid a risk of refusal, it could not be contended that withdrawal was an event impeding or preventing fulfilment, resulting in purification. Nor did the particular implied term averred by the pursuer meet the requirements laid down by the authorities for implication of a contractual term. The long-established test of necessity to give the contract business efficacy had recently been re-affirmed by the Supreme Court in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] 3 WLR 1843. It could not be said in the present case that it was necessary in order to give the contract business efficacy to imply a term that the second defender would not in any circumstances take any steps to prevent the grant of planning permission, especially as the missives did not even require the second defenders to use their best endeavours to obtain it.
Argument for the pursuer
[21] On behalf of the pursuer it was submitted that its averments in relation to both deemed purification and the existence of an implied term were habile for proof. The court ought not to concern itself unduly with preferring one of the analyses in Mackay v Dick & Stevenson to the other when both were available. If, however, a choice had to be made, the better analysis was that of Lord Watson. The authorities cited by Lord Shand (others concurring) in the Inner House in the same case demonstrated that this was a principle of substantive Scots law. Gloag’s criticism had been directed towards a different proposition by Bell apparently approved by Lord Watson. Lord Blackburn’s dictum could be reconciled if it were understood merely to state a general rule. In the present case the pursuer offered to prove that there were no circumstances in which the second defender could justifiably impede the grant of planning permission. Any adverse consequences of a refusal would have been a problem for the pursuer as owner of the land. If, however, the implied term analysis were applied, this was an example of the second type of implied term identified by Lord Neuberger in Marks & Spencer v BNP Paribas (at paragraph 15), namely a term implied by law unless expressly excluded. It did not depend upon satisfying the business efficacy test. In any event, if it did, the pursuer was at least entitled to inquiry as to whether that test was satisfied. Without such an implied term, the second defender would have had nothing more than an option to purchase, which was inconsistent with the detailed obligations set out in clause 5. The implied term contended for by the pursuer was so obvious that it did not require to be stated.
Discussion and decision
[22] I begin by addressing the question whether the decision of the House of Lords in Mackay v Dick & Stevenson has a clear ratio which governs the circumstances of the present case. In my opinion the ratio of the case is to be found in the speech of Lord Watson. The suppliers of a digging machine were entitled in terms of a contract to payment for the machine after it had been successfully trialled at a specified location. The purchaser failed to provide the requisite facilities for the trial to take place at the location. Lord Watson stated (page 45):
“[The suppliers] have been thwarted in the attempt to fulfil that condition by the neglect or refusal of the appellant to furnish the means of applying the stipulated test; and their failure being due to his fault, I am of opinion that, as in a question with him, they must be taken to have fulfilled the condition. The passage cited by Lord Shand from Bell’s Principles (section 50) to the effect that, "If the debtor bound under a certain condition have impeded or prevented the event, it is held as accomplished. If the creditor has done all that he can to fulfil a condition which is incumbent on himself, it is held sufficient implement," expresses a doctrine, borrowed from the civil law, which has long been recognised in the law of Scotland, and I think it ought to be applied to the present case.”
Before turning to Lord Blackburn’s speech, it should be noted that Lord Shand in the Inner House also cited a passage from Pothier’s Obligations, section 212 which, in translation and under reference to the Digest, reads “It is the rule common to all conditions of obligations that they be taken to be accomplished when the debtor who is obliged under such condition has prevented its accomplishment”.
[23] Lord Blackburn began his examination of this aspect of the case by stating (page 40):
“I have had the advantage of perusing the opinion of my noble and learned friend who is to follow me (Lord Watson), and as I agree entirely in all he says on this subject, I shall not repeat it.”
The remainder of Lord Blackburn’s speech must in my view be read in the light of this unqualified agreement with Lord Watson. That includes the following passage founded upon by the second defender as indicating an approach based on implied terms:
“I think I may safely say, as a general rule, that where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.”
Lord Blackburn cited as the foundation of this “general rule” an English case decided in 1469. Given Lord Blackburn’s express agreement with Lord Watson’s analysis based upon a doctrine “long recognised in the law of Scotland”, any different analysis based upon English law could only have been an obiter route to the same result. Lord Blackburn’s conclusion, at page 41, that “…if by his own default [the supplier] can now never be in a position to call upon the pursuers to take back the machine, on the ground that the test had not been satisfied, he must, as far as regards that, keep, and consequently pay for it” is consistent with either analysis.
[24] I accept the pursuer’s submission that the criticism by Gloag (and also by McBryde, Contract (3rd ed, 2007, at paragraph 20-19) of the principle enunciated by Bell and approved by Lord Watson is directed only at the second of the two sentences quoted from Bell (see above), and not at the proposition founded upon by the pursuer in the present case. It is of interest to note that the passage from Pothier cited by Lord Shand supports the first but not the second of the two propositions. Indeed, in my opinion that passage provides the formulation most directly supportive of the pursuer’s contention here.
[25] Had it been necessary to do so, I would have held that the pursuer has pled a relevant case based upon deemed purification by offering to prove that there were no circumstances in which the second defender was entitled to impede the grant of planning permission by withdrawing the application. I would also, however, have held that the second defender was entitled to prove that in the circumstances of this case the withdrawal did not in fact impede the grant of planning permission, for the reasons averred in the defences, and accordingly that the deemed purification rule could not apply. Moreover, having regard to the factual uncertainties disclosed by the parties’ respective pleadings, I would not have been inclined to exclude from probation the averments of both parties regarding implied terms, in case the situation emerging after proof was not such as to fall within the deemed purification rule but was nevertheless such as to found an argument that the implied term formulated by the pursuer was necessary to give business efficacy to the contract (Lord Neuberger’s second type of implied term being ex hypothesi excluded if the pursuer could not bring himself within the rule). In short, I would have allowed a proof before answer on the issue of whether the second defender’s withdrawal of the planning application constituted a material breach of contract entitling the pursuer to rescind and claim damages.
Relevancy: first defender’s averments on quantification
[26] In its response to the pursuer’s averments on quantum, the first defender avers that the sum sued for is excessive, and continues as follows:
“As at June 2015, the property’s actual value was approximately £2,900,000; the sale in 2015 at the price of £800,000 was a gross undervalue. The pursuer was required to take all reasonable steps to mitigate and minimise any loss and damage caused by the breach of contract of the first defender. In particular they were under a duty to (a) sell the property’s said actual value [sic] and (b) advise the first defender, prior to the conclusion of the missives with Tulloch Homes Limited in 2015, that the property was again available for purchase and (c) enter into fresh missives with the first defender for the sale to them of the property at a price of £2,900,000. As at that time, the first defender would have wished to conclude missives for such a purchase and with a price of £2,900,000. By mid 2015, the first defender had access to funding to properly and fully proceed with such a purchase.”
On behalf of the pursuer, it was submitted that no such duties were incumbent upon it. There was, strictly, no duty on an innocent party to mitigate its loss, and it would be very odd if such a party owed a duty to the party in breach of contract to go back after rescission of the contract to offer it a further opportunity to acquire the subjects of sale at a lower price. In reply, it was accepted on behalf of the first defender that the word “duty” was used somewhat loosely; the point was simply that the first defender’s liability was limited by the principle of mitigation.
[27] McBryde (op cit, paragraphs 22-37) states the law regarding mitigation of loss as follows:
“It is commonly, and inaccurately, said that, once there is a breach of contract, a person who suffers loss by the breach of contract has a “duty” to mitigate loss, or is bound to act in a way which mitigates loss, or the person must seek to minimise loss. There is not, however, any duty or obligation of this nature… The law does not penalise the pursuer who incurs excessive loss. He recovers the same loss, whether he mitigates or not. It is more accurate to say that loss which could reasonably have been avoided cannot be recovered from the party in breach. In truth it is not the pursuer who mitigates loss. The principle of mitigation limits the liability of the defender…”
The onus rests upon the defender to prove that the pursuer failed to act reasonably in the adoption of remedial measures undertaken as a consequence of the defender’s wrongdoing: cf Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452, Lord Macmillan at 506. It is not unusual to encounter the expression “duty to mitigate loss” in authoritative judicial dicta, and if the only point of criticism of the first defender’s averments was use of the word “duty” in connection with mitigation of loss, I would not have been minded to exclude the averment from proof as the true position in law, as set out above, is well settled. However, the first defender avers specific duties said to be incumbent upon the pursuer , presumably on the basis that no disappointed seller in the position of the pursuer, acting reasonably, would have failed to act in the manner described, including concluding a fresh sale with the first defender who had committed the breach of contract in 2011. In my opinion there is no basis in law for such alleged duties and accordingly I would not be willing to allow the sentence beginning “In particular…” to remain in the pleadings. It may be, however, that a relevant defence on quantum could be framed on the ground of a failure by the pursuer to act reasonably, albeit without any reference to duties incumbent upon the pursuer. I propose therefore to allow the first defender an opportunity to amend its pleadings, if desired, in the light of my observations.
Relevancy: second defender’s averments on quantification
[28] The pursuer also attacked the relevancy of the second defender’s response to the pursuer’s averments on quantum. Having asserted that the sum concluded for against the defenders jointly and severally is excessive, the second defender avers:
“Esto the pursuers have suffered loss which is, for any reason, recoverable from the second defenders, the true measure of that loss is the difference between (a) the price that would otherwise have been payable by the second defenders under the 2013 missives (£1,500,000) and (b) the open market value of the subjects retained the pursuers, which as at the material time (February – March 2014) was £1,250,000.”
On behalf of the pursuer it was submitted that this averment was irrelevant because the correct measure of loss was the difference between the contract price and the price achieved by the pursuer on re-sale. In support of this proposition, reference was made to a passage from Walker, Law of Damages in Scotland (1955) at page 399. It was not asserted that the pursuer had delayed unreasonably in re-selling the property. The averment should be excluded from probation.
[29] On behalf of the second defender it was submitted that the averment set out above adopted the correct measure of loss, namely the difference between the contract price and market value at the date of the alleged breach of contract. Re-sale price was relevant, but as an indication of market value. Reference was made to Johnson v Agnew [1980] AC 367, Lord Wilberforce at 400-1, and McGregor, Damages (19th ed, 2014, at paragraph 25-037).
[30] In my opinion the second defender’s basic proposition, ie that the measure of loss is the difference between the contract price and market value, is sound. However, it seems to me that there is less difference in practice than might appear from the competing submissions between this general principle and the pursuer’s calculation based upon actual selling price in 2015. In the first place, it is clear that a re-sale price may, and often will, equate to open market value. I note that McGregor, loc cit, states that “the price at which the seller has resold is strictly not to be taken in preference to the market price”, but acknowledges that the re-sale price “has been taken in most cases”, presumably on the ground that it afforded good evidence of the market price. In the second place, if a defender seeks to contend that the pursuer’s loss is to be measured under reference to market value rather than a (presumably lower) re-sale price, it is for that defender to demonstrate that the pursuer acted unreasonably in selling at the price obtained: see eg Gebruder Metelmann GmbH & Co KG v Nbr (London) Ltd [1984] 1 Lloyds Rep 614, Lord Donaldson MR at 632. Thirdly, the rule that the comparison be made at the date of the breach is not absolute if to follow it would give rise to injustice (Johnson v Agnew, above). A re-sale price at a particular date may in any event afford evidence of market value at a different date. Taking all of these considerations into account, I would have held the second defender’s averment relevant for proof.
Disposal
[31] The consequence of my opinion is that the present action cannot proceed in so far as laid against the defenders jointly and severally. I shall put the case out by order for discussion of further procedure. It may be that the pursuer will wish to amend to direct the present claim against the first defender alone, and to consider whether to institute separate proceedings against the second defender for any loss sustained as a consequence of the latter’s alleged breach of contract. I do not accept the pursuer’s contention that there is something odd about the second defender “escaping” from a share of liability for a loss consisting of the difference between the 2013 contract price and the 2015 sale price. A loss that was sustained in 2011 cannot have been sustained again in 2014, although it may be that a different and additional loss, for which the second defender would be liable if held to be in breach of contract, was sustained in 2014. As regards the relevancy points debated, these may or may not be of significance with regard to the action(s) as recast. All questions of expenses are in the meantime reserved.