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LOMOND ASSURED PROPERTIES LTD v. McGRIGOR DONALD


OPINION OF LORD JOHNSTON

in the cause

LOMOND ASSURED PROPERTIES LIMITED

Pursuers;

against

MESSRS McGRIGOR DONALD

Defenders:

________________

Pursuers: J. D. Campbell, Q.C., John G. Gray & Co., S.S.C.

Defenders: Young, Dundas & Wilson, C.S.

18 February 1999

The pursuers are a wholly owned subsidiary company of Lomond Assured Properties (Holdings) Limited, and is a Business Expansion Scheme company formed for the purposes of investing in domestic property. The defenders are a leading firm of Scottish solicitors who were instructed by the pursuers in the circumstances hereafter narrated. In this action the pursuers claim damages alleging professional negligence on the part of the defenders in handling the pursuers' case in relation to those instructions.

There is very little dispute between the parties as to the facts of the case, liability in respect of one act of negligence being admitted and the proof turning solely upon what ought to be regarded as the financial consequences of that negligence in terms of the claims for damages.

The pursuers had developed a number of investments in the property market in Scotland and in pursuance of that scheme, by missives dated 4, 5 and 6 April 1990 (21/21 of process), they entered into a contract with Richard Wilson Homes Limited ("the developers") for the purchase of three dwellinghouses at a development in Port Glasgow. That latter company as the developers in turn instructed builders to build houses on the site which consisted of a number of separate plots, namely plots 6, 8 and 22, which were being gradually developed at the material time. At the time the contract was entered into the houses in question had not been built. The price was to be £167,000 and this was paid in advance on 5 April 1990 for tax reasons, given that the development was being financed, as far as the pursuers were concerned, under the Business Expansion Scheme. It followed that the developers had received the full purchase price before any steps were taken to implement their obligations under the contract. The matter was complicated by the fact that the directors of the pursuers who paid the purchase price did not have the authority of the pursuers so to do and indeed a director of the pursuers, Dr Benfield, stopped payment in respect of the first cheque that was issued. Nevertheless, still unauthorised the directors in question issued the second cheque which was cleared by the TSB. Quite separate to the disputes with which this action is concerned, the pursuers took proceedings against the TSB in respect of their unauthorised issuing of the pursuers' funds to the developers which proceedings were eventually compromised by a payment by the bank to the pursuers of some £50,000 plus expenses. As will be seen, an issue arises in this case as to how, if at all, that settlement affects the pursuers' claims for damages but that issue can be left out of the equation for the time being.

The missives are inelegantly framed in a number of respects, not least in relation to the issue as to date of entry, but the contract also envisaged that the performance of the developers' obligations under the missives would be secured by the granting of a standard security in favour of the pursuers over certain other plots in the development which were subsequently identified as 16, 17, 18 and 19. The three house plots which were the subject of purchase were as I have indicated respectively numbers 6, 8 and 22. The missives were drawn up by a firm of solicitors, Carruthers Gemmill, acting on behalf of the pursuers and exchanged with the firm of Blair & Bryden, acting for the developers.

Dr Benfield, who was a non-executive director being paid generally on commission, was concerned at the position of his company in relation to this contract right from the start, not least in relation to the unauthorised parting of funds both by the directors and the bank and the inchoate nature of the transaction when it came to the granting of the securities. They accordingly consulted the defenders through their London office to seek general advice, as well to obtain purification of the contract with regard to the securities, and in due course the matter was passed to Mr Petrie in the defenders' Glasgow office who was one of the defenders' witnesses before me. The pursuers Board's resolution sacking the recalcitrant directors and appointing the defenders is 21/23 of process and the instructions to the defenders can be found in 21/24. Having examined the file, Mr Petrie prepared notes (21/26) which revealed that he was aware that the Bank of Scotland held a prior first charge over the entire development and accordingly in order to provide sufficient equity a deed of restriction would be required to replace the pursuers as first charge holders in respect of their relevant security plots. Dr Benfield's evidence, which was not really contradicted, was to the effect, however, that the defenders were being called-in generally to act as advisers to the pursuers in relation to all the problems that were emerging, in relation both to the missives and the security, and as to what should be done to achieve performance of the contract by the developers since one of the anomalies of the missives was that although it was for the sale of houses, those houses were yet unbuilt and there was no express requirement in the contract that they should be built.

To put the matter aside for the moment in this narrative, the defenders in fact failed to achieve the necessary deed of restriction by way of oversight and at all times accordingly the security that was granted in favour of the pursuers in respect of the security plots was therefore a second charge. No party awoke to this fact until the developers subsequently went into receivership the following summer (1991) when the receiver thereafter brought it to the attention of the pursuers and defenders that the pursuers were second charge holders in respect of those four plots. Again as a matter of history, some time after the receivership commenced, the pursuers negotiated a deal with the receiver whereby for a payment of money they acquired the release of the security plots. The defenders admitted negligence in respect of the failure on their part to achieve the deed of restriction at the outset. The defenders' position was that was the limit to which any negligence was admitted but the pursuers' position was rather wider in argument. Amongst other obligations within the missives the defenders were also bound to provide certificates from the National House Builders Council (NHBC) which were effective insurance policies against non-completion and defects. They were also bound to provide a road bond which was effectively a means of protecting the pursuers against any claim by the local authority if the development road was handed over in a non made-up state.

It was part of the pursuers' scheme, if all had gone well, that initially the houses they had purchased on completion would be rented out and only sold after a passage of time, again for reasons in connection with the Business Expansion Scheme. However, the clause in the missives relating to entry falls to be interpreted and I shall have to return to this. At the time of entering into the contract the parties contemplated quite reasonably that the houses would be complete by August of 1990 or shortly thereafter. However, from the very start of the contract the contractors and developers delayed with regard to the building of the houses under the contract to the extent that when the receiver was called in the following year all three houses were to a greater or lesser extent incomplete. Also as a matter of fact the defenders never provided the relevant cover under the NHBC scheme, nor did they provide a road bond by the time of the receivership. They make no specific claims in these respects against the defenders, but they remain relevant issues in the case.

In August 1990 there was an important meeting between the pursuers and the defenders where inter alia discussion took place as to the strength or weakness of the pursuers' position generally, and in particular as to whether they had a claim for interest in respect of loss of rental income from that date, the defenders having received the purchase price in advance and thus having the benefit of it, while the pursuers were being deprived of any income because the houses were not complete. At that time Mr Petrie advised that the securities were all in place and were valid and that accordingly interest could be claimed using the security plots as a lever. When, however, that was put to Blair & Bryden by letter 20/20, the problem relating to the terms of the clause of entry in the missives arose. The pursuers' directors who gave evidence, particularly Dr Benfield and Mr Monks, stated that at that time they were satisfied that there was no cause for anxiety having regard to the nature of the advice they were receiving from the defenders. However, although the defenders from time to time pursued the claim for interest, they only did so by way of letter (see for example 20/35).

Throughout the winter the contractors and the developers continued to drag their feet to the extent that by 13 February 1991 complaints were being made to Blair & Bryden that at that time plot 22 was incomplete and being used as a store, plot 8 had only reached foundations and a report was waited on plot 6. There was no NHBC cover and no road bond. Blair & Bryden were advised that the defenders considered that the pursuers had a claim for interest running at the time but it was not pursued.

Internally within the defenders, Mr Petrie was becoming increasingly concerned as to how pressure could be brought to bear upon the developers, and therefore consulted his litigation department. Thereafter certain advice was tendered to the pursuers by letter (21/36 and 20/110). The view was expressed that the securities were valid and were therefore available to pressurise the developer, securing the whole of his obligations. Since the developers would wish in due course to develop the security plots, there would be pressure upon them to have the security in favour of the pursuers removed and that in turn was the pressure that could be put on the developers on behalf of the pursuers to achieve completion of their houses. However the substance of the advice was "to sit tight" and not to sue and this is a critical aspect of the case to which I will return, since this advice was strongly criticised by counsel for the pursuers, and indeed formed part of his claim, a position not accepted or admitted by the defenders. There was thereafter intermittent correspondence between the parties (20/37 and 20/40) which indicates that little pressure was in fact being exerted upon the developer. Indeed at the end of June Mr Monks, a director of the pursuers, was becoming concerned as to the financial stability of the developers, there having been problems with their contractor walking off site for non-payment, and had sought and received assurance from the defenders that the security plots provided more than adequate protection. At this stage still it has to be borne in mind that all parties were assuming that the pursuers had a first stage security.

Matters came to a head in the autumn of 1991 with the arrival on the scene of the receiver and the subsequent discovery by all concerned as to the true security position. As I have already indicated, the three houses were not complete and indeed were not completed until 1994, there being long delays while negotiations took place with the receiver and steps taken to employ another contractor. The total cost of completing the three houses was agreed, being vastly in excess of what would have been required to complete the houses as at the date of the receivership, the former being the sum of £104,603, the latter on the evidence being estimated at £22,000. Quite apart from non-work upon them there was deterioration from wear and tear, weather and, if not vandalism, at least removal of fittings. A major part of the pursuers' claim was for the full cost of the actual finishing work. The pursuers also claimed for loss of rental income, loss of interest on that income, legal expenses which were agreed and a claim for management time in respect of the part-time executive directors who it is said would not have been engaged by the company in this respect but for the defenders' negligence. I will deal with each of these in due course.

When it comes to the issue of quantum, evidence was given by a number of surveyors whose reports are in process directed to the claims for loss of rental income and interest and also as to the valuation of the security plots.

I also heard evidence from Professor Rennie, Professor of Conveyancing at Glasgow University, on his view generally of the contract between the pursuers and the developers and the obligations professionally imposed upon the defenders in relation to their instructions. He focused on three issues, namely the failure on the part of the defenders to obtain unencumbered title to the house plots and to the security plots in respect of the first charge to the Bank of Scotland; secondly, the failure on the part of the defenders to compel production by the developers of NHBC certificates in relation to the three houses; and thirdly, the failure to obtain a road bond. As I have indicated, fault was accepted in relation to the first of those claims but counsel for the defenders maintained as a matter of causation there was no loss flowing from either of the other two. Any claim by the pursuers he submitted therefore should be restricted to the consequences causally connected with the failure first referred to in financial terms.

In submission, however, counsel for the pursuers advanced wider grounds of fault based upon the advice given by the defenders in August of 1990 and also on their failure properly to follow up effectively the claims that were being made in relation to completion and interest. It has to be said that Professor Rennie recognised in general terms the duty of a solicitor to implement his instructions to achieve a result which is practical and legal, but he did concede in cross-examination that steps had been taken by the defenders to follow up the question of interest and at the end of the day I am not convinced that that aspect of the matter, which in any event is not adequately pleaded, yields any claim. A much more important consideration is what attitude I should take to the position of the claim in relation to the advice "to sit tight". This in turn requires consideration of the original contract.

Counsel for the pursuers submitted that properly understood, what was contemplated by the parties to the missives were dates of entry in August of 1990, but I have to say that I find that an extremely difficult interpretation to put on the clause which is in the following terms:

"The date of entry shall be 14 days from the date when the house is certified as complete and fit for habitation by the local authority or 1 August 1990, 7 August 1990 and 14 August 1990 respectively, whichever is the later. Should entry not be given on said dates your clients will pay interest at TSB Bank (Scotland) Plc base rate on the purchase price to our client."

Not surprisingly, when the claim for interest was first put to Blair & Bryden their Mr Cunningham, who also gave evidence, at once took the point that there could be four possible dates of entry on proper construction of that clause, the additional one being the date when each house was complete, thus rendering the contract open-ended. The position of counsel for the defenders was simply that the state of that clause, for which the defenders were not responsible, created all the problems, weakening the pursuers' bargaining position, quite independent of the mistake made in relation to the security and the advice to "sit tight" therefore proceeded not least upon an assertion that the claim for interest might fail. Counsel for the pursuers position was that the proper advice that Mr Petrie should have given was to threaten and indeed embark if necessary on litigation quantifying a claim for loss of rent and, if necessary, inhibiting, to bring maximum pressure on to the developers. This, he submitted, would have been an appropriate course of action given the assumption, wrongly made, that the security was a first ranking one, giving an immediate right to the pursuers to call it up in their own interests without having to account to the bank. Counsel for the defenders countered this by pointing to the vagaries in the clause in the missives and in any event to the crucial question that if litigation had been embarked upon likelihood is that developers would have abandoned the site and this was precisely the opposite of what the pursuers were trying to achieve, namely completion of their houses. Counsel for the defenders therefore rejected any claim directed against his clients based on the quality of the advice given which in any event he pointed out was not pleaded. The respective positions taken by the parties as to the consequences of their submissions was that as far as the pursuers were concerned the total of the actual completion cost could be recovered because they would never have been incurred if the first ranking security had been placed as a shield which would have achieved the necessary pressure, while counsel for the defenders maintained that there was not causal connection between the inadequate security and the subsequent historical events and the pursuers claim in this respect should therefore be restricted to the value of the plots, if secured only to the pursuers. This is the main issue which I will require to resolve in this head of the claim.

Before doing so, however, I shall deal with the position in relation to the NHBC certificates and the road bond in order to put aside their relevance or otherwise to the main questions. The absence of the latter did not, as I understood it, constitute any claim on behalf of the pursuers, although it represented a breach of the defenders' obligations under the contract which would have been secured by the security. That being so, it does not enter the equation in assessing the claim.

With regard to the NHBC situation it is true that such amounts effectively to an insurance policy for non-completion which would have been available to the pursuers if the developers had registered, but as a matter of fact I am not satisfied upon the evidence that any amount of pressure would have been able to persuade the developers to produce the necessary certificates since I was informed that most of the other houses had been successfully sold by the developer without such a certificate. Accordingly, even if the pursuers can bring this issue under their umbrella of general consequences stemming from the negligent advice, I do not find it proved that such would have had any practical consequence.

Looking at the facts that I have narrated against the background of Professor Rennie's evidence, that advice does not in my opinion lay the basis for an assertion that the advice to sit tight and not raise an action and inhibit was negligent. Indeed it was recognised on the pursuers' side that the decision to sit tight was a sound commercial one at the material time given the ultimate aim of having the houses completed. What is however much more important to my mind is that I am entirely satisfied upon the evidence particular of Dr Benfield that if the advice had been to sue, it is highly unlikely that such would have been effective for the very reason I have just stated, namely the likelihood of antagonising the developers to the point of departure by them from the site. While I recognise that the pleading does not specifically cover this matter I prefer to decide it upon my view of the evidence. It is also far from clear to me that inhibition would have succeeded for any length of time in view of the vague state of the missives and the opportunity always given to the party inhibited to argue for recall on the basis that the claim upon which the diligence is laid is unsound in law. I would venture the view that if I had been asked to consider the validity of an inhibition laid on in respect of a claim for interest based on entry dates in August 1990 in terms of the clause of entry in the missives, I would have the greatest difficulty in sustaining it.

Counsel for the pursuers based his claim for the total repair and completion costs on the simple proposition that they were only incurred because of the failure on the part of the defenders to put sufficient pressure on the developers in 1990 to complete. While it was unfortunate there had been such a passage of time and there had been deterioration, that did not break the causal link since none of that, it was submitted, would have materialised or occurred if all had gone well or had been successfully resolved in 1990 and the obstruction, it was said by counsel, to that resolution was the inadequate security.

The problem I have with this approach is that it seems to leave out of account the fact that throughout the time when the pressure was sought to be exerted or when, according to counsel for the pursuers, it should have been being exerted, everybody assumed that the pursuers did in fact have a first ranking security and yet no decision was taken to call it up or even to threaten it. Leaving to one side for the moment whether in fact such a security would have exerted the necessary pressure, and I have some doubt as to why that should necessarily be, save I presume the wish on the part of the developers to retain the four undeveloped sites for development by themselves, I am unable accordingly causally to connect the subsequent history with regard to, first of all, actual non-completion and thereafter the delay before final completion, with the inadequate security. Since the defenders cannot be blamed for the receivership, that seems to me to be the primary cause of the problem and if the pursuers had had a first ranking security at the time of the receivership the value to them of it would be its actual value in relation to the value of the plots. This was, in essence, counsel for the defenders submission and with it I agree. In my opinion, and I so hold upon the evidence, the real and dominant cause of the failure to put pressure upon the developers to complete, which would have avoided the ultimate repair and completion costs, was attributable to the defective state of the missives with regard to date of entry, and the subsequent receivership for which the defenders are not responsible.

In these circumstances I reject this part of the pursuers' claim for the agreed sum of £104,603 and will restrict this aspect of the claim to the value to be put upon the security plots on the assumption that at the material time, that is to say the time of the receivership, the pursuers were the first ranking security holders and would have realised those securities in order to complete the houses. I should only add that had I been in favour of the pursuers' claim in this respect, it would have been necessary to make a deduction from that figure to reflect what it would have cost to complete the houses as at the date of the receivership to reflect that if the claim is validly based upon what actually happened, hypothetical completion costs at the date of receivership must be treated as deductible since they would inevitably have had to have been incurred. In his submissions counsel for the pursuers suggested a sum in the region of £22,000 upon the evidence, which figure I would have accepted.

I turn now therefore to what I regard to be the correct issue, namely the valuation of the security plots as at the date of the receivership, assuming first ranking security. Evidence was given by a number of surveyors but there were initial questions as to whether or not the security plots which were at the top end of the development had been provided with services by way of a finished road and sewers. The evidence was conflicting in this respect but I consider on balance that the preferred view is that the road had not been complete nor had the main sewer been complete. In any event I do not hold it proved to the contrary.

Mr Carmichael, a valuer led for the pursuers, suggested a value of £17,500 per plot, if unserviced, in 1991. He carried a retrospective exercise viewing the site in 1997. Mr Simpson, a valuer led by the defenders, saw the plots in February 1992 and was under the impression that the road only had a base coat for about 80 yards before the top of the site and that only part of main sewer was in place. He valued the four plots as a unum quid at £40,000. He was not prepared to go above £25,000 per plot for a fully serviced plot, although he recognised that a value could be enhanced if marketed through the receiver. Finally, another surveyor led by the defenders, Mr Edgar, provided a valuation report for the receiver in August 1991 (20/16 of process) valuing the unserviced plots within the range of £7,500 to £15,000 per plot.

All the surveyors recognised there were certain speculative elements in their assessment, not least as to what the market might bear and indeed whether it would be likely to get a better price through the receiver marketing the whole property. The pursuers' counsel asked me to prefer the evidence of Mr Carmichael, while not surprisingly the defenders' counsel favoured Mr Edgar and Mr Simpson. It is true in this respect that Carmichael thought the price might be even higher if a road bond had been in place, but for the reasons I have already given I reject that aspect of the matter. I also consider that the more acceptable line is that taken by the surveyors who actually saw the site at around about the material time, that is to say Simpson and Edgar. Counsel for the defenders submitted that looking at the evidence across the board and the number of imponderables an appropriate figure for the four plots might be £50,000 on a fairly broad-brush exercise. Given that is precisely what this exercise is, with that figure I agree and my award therefore in respect of the loss of value of the security is £50,000 in respect of the four plots. That is the starting point for the pursuers' claim for damages.

The parties were agreed that there was a valid claim for loss of rental but were at odds as to how it should be assessed. The pursuers' position is essentially set out in a report by Mr McMorrow (21/29) which allows for a claim running from August 1990 to September 1994 and again from October 1994 to February 1995 and March 1995 to June 1996.

The defenders' position was that this period was altogether too wide and that no claim realistically should run until 1 January 1992, being a period of some two to three months after the date of the receivership which would have been the length of time needed to complete if completion had been attempted at that time. He therefore cut down the claim to that extent. The pursuers' calculations came out at £92,450 while that of the defenders were rounded off at £65,000. Both reflected the possibility of small gaps where there might be an absence of tenant between tenancies, although the pursuers directors' evidence was that this risk was not very high.

I confess to having some difficulty connecting the claim for loss of rental income with the negligence of the solicitors relating to the inadequate security rather than upon a loss of a bargaining position with which I have already dealt. It follows from my findings in this respect that I do not see how it is realistic to suggest that there is a causal link between the negligence of the defenders in respect of the inadequate security and loss of rental income starting in August 1990, given that the houses were not complete then, nor indeed complete a year later. However I do recognise that if there had been an adequate security such could have been called up to provide finance and the houses could have been completed relatively quickly after the receivership and therefore there is a valid claim starting from whatever that completion date would be. That was the position of counsel for the defenders and I accept it. His figures are therefore to be preferred and the loss of rental claim is therefore assessed at £65,000. However this is a gross figure because it is necessary thereafter to consider the cost to the pursuers of managing the lets.

The pursuers, relying particularly on the evidence of Mr Dodwell, maintained that such an element should be minimal with new lets on a small portfolio where no agent would be employed, the rent being collected by direct debit. The defenders' position was that the evidence was highly unsatisfactory since no real attempt had been led by the pursuers to lead evidence which reflected actual costs, which would have been possible from comparable developments, Mr Dodwell having given evidence that he had been involved in other developments. It was submitted by counsel for the defenders that following Clark v Chief Constable for Lothian & Borders Police 1993 S.L.T. 1299 where an element was recognised in a claim where the primary responsibility was upon the pursuers to establish it, an assessment should be made reflecting the highest reasonable level in favour of the defenders, if the evidence was unsatisfactory.

Mr Dodwell's report, no. 30 of process, showed actual costs as between 18% and 52%, while the defenders submitted that a mean average of the four years to be taken from the financial records of the company showing respectively a reduction of 23%, 36%, 43%, 52% would bring out an average of 33% applying the so-called Clark principle.

Since this exercise is designed essentially to determine loss of profit I find the approach of Counsel for the pursuers limiting the figure to 10% to be unrealistic and am therefore driven to the position adopted by the defenders in the absence of more specific evidence. I cannot fault the approach of counsel for the defenders when he takes a mean figure of the four years which are produced by the financial records which are in process. I therefore will follow his approach in this respect and the award will be restricted to 67% of £65,000, i.e. £43,550.

It is also recognised that interest is due on the loss of rental income and Mr McMorrow calculated upon his figures that there was a rate of return of 22.9%. It was agreed that that figure should be applied to whatever figure I had struck for loss of rental income. Given that that figure is £43,550, there falls to be added the figure of £9,973 by way of interest.

Parties were agreed that allowance should be made for certain legal expenses unnecessarily incurred and that was agreed at the sum of £1,150.

The final head of the pursuers claim related to charges for management time, which the pursuers maintained were unnecessarily incurred with regard to their executives in the sense that it would not have been incurred at all but for the problems which had arisen consequent upon the pursuers' negligence. Mr McMorrow's report (21/80) contains a table on page 11 setting out the claim based upon an assessment by Dr Benfield of the length of time he and his colleagues were required to spend upon this development with all its problems. This produces a total of £58,000. This was a claim, he submitted, available in principle given that it was a cost to the pursuers unnecessarily incurred of having to require these non-executive directors on a time basis to attend to the company's interests given the state of affairs and the problems. The evidence appeared to be that had everything worked out smoothly, these costs would not have been incurred by the company at all since they were not equivalent to salary payable in any event.

Counsel for the defenders' position was that Mr McMorrow was unable to assess the number of hours worked or the reasonableness of the charges or whether the work related to issues caused by the defenders' fault. He submitted that while management expenses may be a legitimate claim, it was necessary to produce proper evidence of the time actually spent on the remedial works to show the actual disruption to trading activities and he referred to Tait & Lyle Food & Distribution Ltd v G. L. C. 1982 1 W.L.R. 149 at page 152 and 3; there could have been general work necessitated by the receivership, the problem of the TSB, the problem with the missives and indeed litigation work involving a separate claim. Dr Benfield in evidence sought to distinguish between what could be described as ordinary matters relating to the running of the building and issues of law arising from the problems created with legal advisers. The evidence was so inadequate, said counsel, this claim should not be quantified or could not be quantified to any material extent and should be struck out.

There is much force in counsel for the defenders' position but I have decided that it is too stringent. In Tait & Lyle supra there simply was no evidence upon which the court could proceed and, while I recognise that Mr McMorrow's exercise is not much more than that of arithmetic, I do have the evidence particularly of Dr Benfield which has to be looked at upon the hypothesis that with adequate security the development would have been complete by the end of 1991 or the beginning of 1992 and Dr Benfield's involvement would thereafter not have been necessary. The same applies to the position of Mr Monks. Counsel for the pursuers accepted a discount in respect of the calculations of Mr McMorrow to reflect the time spent preparing for this litigation and thus restricted the claims for the years 1993 to 1996 when the last house was sold, producing a total sum unnecessarily incurred of £58.000.

While the position is not entirely satisfactory, it seems to be logical to recognise that if there is a valid claim for loss of rental income from the beginning of 1992 as I have so held, being the date hypothetically when the development would have been complete using the security funds if they had been available, a claim for abortive executive time over the same period should run, albeit counsel restricted it to the years 1993 to 1996 to reflect the probable involvement in any event by the non-executive directors during 1992 in preparation for this litigation. Since he has made such a discount, and since I consider the claim to be legitimate in principle, I will accordingly allow it at the restricted figure of £58,000.

In these circumstances the pursuers' gross claim as quantified by me comes to £162,673.

There is one final matter that requires to be resolved in relation to the successful claim by the pursuers against the TSB for wrongfully passing the cheque issued by the recalcitrant directors. It was accepted that of the global settlement of £77,500 which was achieved, £18,491 were legal expenses so that a sum of £59,009 was obtained by the pursuers by way of damages from the bank. The issue for me is how that sum should be treated in the context of this litigation where the pursuers are claiming damages from the defenders in respect of a wholly separate delict or breach of contract which precludes any notion that the present defenders and the bank are co-delinquents.

Counsel for the defenders' position was that looked at in the round, this was a recovery by the pursuers, albeit on a compromised basis upon the advice apparently of counsel, of money that they had expended on the development and should therefore be seen a bonus to be taken into account in respect of any claim now being made against the defenders because of their negligence.

Counsel for the pursuers' position was simply that it was a wholly separate exercise and was damages in relation to a failure of the bank properly to look after its clients' interests. No evidence was available as to the basis of which the compromise was effected and it would be quite inappropriate to give the present defenders a credit in respect of somebody else's actions, even if it resulted in a windfall for the pursuers. Dr Benfield's position in evidence was that his real quarrel with his recalcitrant directors was that they should not have committed the money before there was an adequate guarantee in place to protect the pursuers against the insolvency of the developers. I am hampered by the fact that I do not have any evidence other than speculation as to the basis upon which counsel advised a settlement, but, embarking upon that latter exercise, I can only assume that, in the abstract, at the time there was a need to recognise that the pursuers had been unnecessarily exposed to financial loss through the actions of the bank, encouraged by the relevant directors. Since I would have assumed the bank would have admitted liability, the settlement was a compromise as between the pursuers obtaining the whole of the purchase price back and failing completely because the development was ultimately completed.

This seems to me to be a broad-brush equitable exercise which I must look at in the context of the whole circumstances of this unusual case. If it is a principle of the law of damages in respect of negligence or breach of contract that the victim should be placed so far as possible in the same position as he ought to have been in had the wrong not been committed, there is at least an argument that to ignore the fact that as part of the whole process, which did after all involve the defenders from day one of their involvement, a successful claim is made against another party which produces money into the pot which embraces the claim being made against the wrong-doer is wholly unrealistic. The pursuers need not have sued the bank, but having done so and also thereafter sued the present defenders, equity could demand that they give credit for the recovery in the first suit. If such credit is not given it is arguable that they will have had a windfall in respect of the cost to them of the purchase of the houses.

However in my opinion the reality is that the recovery from the bank is not remotely connected with the defenders' negligence and that seems to me to be determinative that it should be left out of account, especially when I have no idea on what basis the compromise was achieved. To do otherwise benefits the defenders to an unreasonable extent.

In these circumstances the claim I have assessed will stand and my final award in this case in respect of a sum of damages is £162,673.

There remains the question of interest on that sum. Counsel had agreed generally that such should apply at the rate of 8% from the date of citation, which is 29 August 1995, with the exception in relation to the claim for rent loss as between September 1995 and June 1996 when the rate should be 4%.

Decree will be pronounced accordingly.

OPINION OF LORD JOHNSTON

in the cause

LOMOND ASSURED PROPERTIES LIMITED

Pursuers;

against

MESSRS McGRIGOR DONALD

Defenders:

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