[2013] CSOH 108



in the cause







Pursuer: Sandison QC and Reid; Maclay Murray & Spens LLP

Defender: Weir QC and Hawkes; Simpson & Marwick

4 July 2013

[1] In 2006 Manorgate Limited purchased a site on the corner of Riggs Road and Whitefriars Street in Perth ("the Site"). It intended to demolish the existing buildings and erect new commercial premises in their stead. One of the new units was to be used as a retail branch for its flooring business. The other units were to be let to complementary traders. After Manorgate paid the purchase price and took entry, it discovered a crucial fact. The Site was designated as being one of archaeological significance.

[2] The designation had a major effect on Manorgate's plans. In granting planning permission to carry out the proposed development, the planning authority required Manorgate to carry out archaeological investigations. Those investigations disclosed that a mediaeval Friary with associated burial ground had once stood on the Site. Extensive human remains lay below the earth's surface. The planning authority stipulated that those remains had to be dealt with in a sympathetic manner. There were two main options. The first was to remove the remains by way of excavation. The second was to design the foundations for the new buildings in a manner which did not interfere with the remains. Over a very lengthy period Manorgate considered various solutions with the aid of its professional advisers. Ultimately, it concluded that the development was uneconomic. It closed down the Site in March 2010 and it has remained 'mothballed' ever since.

[3] The archaeological designation of the Site should have been noted in an appropriate property search. In this case, First Scottish Property Services Limited ('FSPSL') carried out the search. It provided a Property Enquiry Certificate ('PEC'), which the sellers' solicitors exhibited to Manorgate. The PEC failed to disclose the archaeological designation.

[4] Manorgate now claims damages of £1,211,818.69 from FSPSL, together with interest. Put broadly, that sum is based upon (a) the lost capital value of the Site (b) site investigation costs; (c) trading losses; and (d) development losses. FSPSL admits that it was negligent. It accepts that the PEC should have referred to the archaeological designation. But it maintains a number of lines of defence. They include causation, contributory negligence, remoteness and mitigation.

[5] In my view, these lines of defence fall to be rejected and the real question is the proper calculation of Manorgate's loss.

The Facts
The Friary
[6] The Order of the Brothers of Our Lady of Mount Carmel, or 'Carmelites', established the Friary of Tullilum in Perth in the 15th century. It thrived for a considerable period. At some point in the 16th century, the Bishop of Dunkeld came to live there in order to escape Highland raids. Over the course of centuries, however, the Friary fell into disuse and its buildings became derelict. By Victorian times, no visible evidence of the establishment remained.

[7] Despite the name of the adjacent thoroughfare ('Whitefriars Street'), in modern times many people were unaware of the Friary's existence. They included the sellers from whom Manorgate acquired the Site. Its history was, however, known to some individuals. The Ordnance Survey map of 1862 identified the area as being the supposed site of a Whitefriars Chapel.

[8] In 1982 archaeologists carried out limited excavations in the area of the Site. They confirmed the existence of the Friary. They also discovered the remains of twenty one human bodies and concluded that the Site incorporated a burial ground. But archaeologists were unable to determine the exact configuration of the buildings. Further, they did not know the precise location or dimensions of the burial ground.

[9] Part II of the Ancient Monuments and Archaeological Areas Act 1979 empowers local authorities to designate sites of archaeological significance. At the time of Manorgate's purchase, Perth & Kinross Council had designated the Site and published Policy 61 of the Perth Area Local Plan. It stated:

"Proposals Map B indicates Areas of Archaeological Significance where the District Council will seek to protect archaeological remains from avoidable disturbance. Where development is proposed in such areas, encouragement will be given to approved investigators excavating and recording archaeological features before development takes place. If necessary appropriate conditions will be attached to planning consents. The District Council will also seek to protect other sites of archaeological interest, which may be discovered. Where it is likely that archaeological remains may exist, the prospective developer will be required to arrange for an archaeological evaluation to be carried out by a professionally qualified archaeological organisation or archaeologist before the planning application is determined."

[10] Manorgate operates a retail flooring business, which trades under the name 'Direct Flooring'. In 2006, it traded from eight branches in Scotland and was looking to expand. One of its directors, John Semple, was in charge of its expansion plans. He instructed Douglas Livingston, a chartered surveyor, to assist in the search for a new site. Mr Livingston had begun working with Manorgate in 2005 as an independent property consultant. After a short period, he effectively worked as a member of its in-house team. Mr Livingston's career as a surveyor commenced in 1977. He has extensive experience of the Scottish property market.

[11] Manorgate's candidates for the new branch included Perth, Dunfermline and Stirling. It intended to use one of the units in the new premises to open one of its own branches and to let the remaining units to other similar traders. Alternatively, it was prepared to consider selling the subjects after development and leasing back one unit. It had adopted a similar approach at sites in Falkirk and Bathgate.

[12] In early 2006, Mr Livingston and Mr Semple embarked on a car trip to try to find a location for the new branch. They noticed the Site, although it was not on the market for sale at the time. Mr Semple thought that it "looked perfect", because it had a good trading location on the corner of a busy road, a short distance from a retail park and relatively close to Perth town centre.

[13] At that time, the Site comprised a small commercial complex of older buildings. One of them contained a joinery business operated by the owners of the Site, James Normand and Son. In addition there were four small flats in a separate building. All of the buildings were in relatively poor condition.

[14] Mr Livingston considered that the planning authority would be unlikely to grant retail planning consent. He believed, however, that it would grant restricted consent for 'trade counter' use. He advised Mr Semple that in his opinion the Site would be likely to yield a significant profit to Manorgate.

[15] Mr Livingston made enquiries and discovered the identity of the Site owners. He contacted Mr Normand junior by telephone and learned that the firm was keen to move to new premises. He also discovered that the sellers had been involved in protracted missives with a local housing association. The association had made an offer for the Site the previous year, subject to the condition that it obtained satisfactory planning consent. Matters had stalled mainly because the association had failed to secure permission for the number of flats it wished to erect. That had a consequential effect on the proposed purchase price. The missives contained a formula which linked the price to the number of flats that could be included in the new development.

[16] Mr Livingston relayed the information he had gleaned from Mr Normand to Mr Semple. After some discussion, Mr Semple confirmed that he wished Manorgate to acquire the Site. The property market was buoyant and he saw this as a good opportunity. In order to make the offer as attractive as possible, Mr Semple decided that it should not contain a suspensive condition regarding planning consent. He believed that the sellers would not agree to conditional missives and he was keen to conclude matters quickly.

[17] Mr Livingston suggested to Mr Semple that Manorgate should make an offer for the Site in the region of £425,000.00 to £450,000.00. That was based upon his valuation and is contained in a letter dated 28 March 2006. Mr Semple instructed him to try to agree a lower price. Mr Livingston and Mr Normand then carried on negotiations by telephone. Mr Livingston said that Manorgate was willing to make an offer without a suspensive planning condition. In addition, it was willing to allow the joinery business to remain in occupation of its premises at the Site until its new facility was built. The outcome of these negotiations was that Mr Normand agreed to sell the subjects to Manorgate for £385,000.00.

[18] Manorgate elected not to obtain a site survey prior to concluding the transaction. Two factors influenced its decision. First, the condition of the existing buildings was immaterial as they were going to be demolished. In Mr Livingston's opinion, the ground was suitable for the proposed new buildings and he so advised Mr Semple. Secondly, there was the question of cost and delay. Manorgate was purchasing the subjects using its own funds. While a lending institution would have insisted upon a 'red book' valuation survey, that would have been expensive and might have led to delay.

The Missives
[19] Calum Fraser of Hannay Fraser, solicitors, acted for Manorgate in the conveyancing transaction. On 6 April 2006, he submitted a formal offer on behalf of Manorgate to purchase the Site at the agreed sum. It included a condition which required the sellers to confirm that there were no orders or notices under the Town and Country Planning Acts or other local government legislation adversely affecting the subjects. Mr Fraser's evidence was that he did not think that a survey was required prior to making this offer.

[20] During the course of the adjustment of the missives, that condition was replaced with the following term:

"A Property Enquiry Certificate from First Scottish Searching Services (sic) will be exhibited prior to the Date of Entry. In the event of said Property Enquiry Certificate disclosing any matter materially prejudicial to the Purchasers' future interest in the Subjects, the Purchasers' only option will be to resile from the Missives to follow hereon without penalty provided they do so within 5 working days of your receipt of the said Property Enquiry Certificate."

[21] The sellers' solicitors were Miller Hendry. On Friday 4 August 2006 they sent a fax to FSPSL attaching a plan of the Site. They stated "We act in connection with the sale of [the Site] and have been asked by Hannay Fraser & Co to obtain from you a Property Enquiry Certificate". FSPSL replied by fax on Monday, 7 August 2006 with the PEC attached. Under the head "Planning" it stated:

"Current Local Plan

Perth Area Local Plan





Other Matters


Otherwise the PEC did not disclose anything of significance. In particular, it did not mention the archaeological designation of the site.

[22] Mr Fraser received the PEC the next day. On 10 August 2006, the missives were concluded, the price was paid and Manorgate took entry to the subjects. As agreed, the sellers were allowed to remain in occupation. The initial agreement was that they should be there for a period of six months. In fact, James Normand & Son remained as licensees at the Site until June 2007, when their new joinery facility was ready.

[23] Shortly after taking entry, Manorgate began considering the commercial possibilities of its new acquisition. It erected a hoarding at the Site inviting expressions of interest. On 25 August 2006, Mr Livingston wrote to Mr Semple and stated:

"I have received a very encouraging response to the board at Riggs Road - more than a dozen enquiries so far. They range from people wanting to buy the whole site, for residential or commercial development, to people interested in a unit. I have one party keen to just buy the flats for refurbishment."

The Archaeology Picture Unfolds
[24] At a very early stage Manorgate instructed an architect, Stephen Mallon, to act on its behalf in relation to the proposed development. He contacted Perth and Kinross Council's Roads Department on 27 March 2006 to ask about parking provision and vehicular access at the Site. He subsequently had a meeting with officials to discuss these points.

[25] Sometime in Autumn 2006 and after Manorgate had taken entry, Mr Mallon submitted a 'pre application' for the Site. He met planning officials from the Council to discuss its terms. At that meeting, a planning officer informed Mr Mallon that the site had been designated as one of archaeological importance. He explained that that could constrain development. He told Mr Mallon that investigations would have to take place and that Perth & Kinross Heritage Trust ('PKHT') would advise on their nature.

[26] Mr Mallon considered that the Site presented a very good opportunity to Manorgate. Accordingly, when he conveyed the archaeological information to Mr Semple, he did so in the context of a positive appraisal.

Planning Permission
[27] Manorgate lodged its application for full planning permission on 29 November 2006. It sought to erect a "terrace of non-food retail units with associated car parking and yard." Permission was granted on 6 March 2007. Its terms were significantly better than Manorgate had expected. The authority consented to the subjects being used for "non-food retail uses and shall primarily be associated with the sale of bulk items not normally sold within the town boundary". Because Manorgate was not confined to 'trade counter' use, that potentially made it much easier to let units at the Site. Mr Livingston described the planning decision as a 'game-changer'. There was a significant demand for home improvements at that time. He thought that the other new units could be let to traders whose goods complemented those of Manorgate.

[28] The planning consent was not all good news. The authority directed Manorgate to deal with the archaeological issues as follows:

"5. Work shall not commence until the developer has secured the implementation of a programme of archaeological works in accordance with a written scheme of investigation which has been submitted by the applicant and approved by the Planning Authority. Thereafter the developer shall ensure that the programme of archaeological works is fully implemented and that all recording and recovery of archaeological resources within the development site is undertaken to the satisfaction of the Planning Authority."

[29] On 9 March 2007, PKHT issued "Terms of Reference of an Archaeological Evaluation". It required the developer to investigate:

"the nature, extent and importance of any archaeological remains that are likely to be affected by the development. The results of this evaluation can be used to develop a mitigation strategy, if required, for preservation of remains either in situ or by record."

[30] According to Mr Semple, this was the first document that alerted him to the archaeological issue. He described himself as shocked and concerned about the possible impact on the proposed development. But he decided to proceed, because Manorgate had paid the purchase price and was therefore committed to the Site. He was also being advised that the development would yield a good profit. Against that background, he asked his professional advisers to liaise with PKHT about the archaeological issues.

[31] PKHT's manager at that time was David Strachan. He explained that PKHT generally adopts national planning policy in relation to matters. In relation to human remains, the recommendation is that they be left in situ. He added, however, that it is common for bodies to be excavated and their details preserved in an archaeological journal. After being studied, the remains are sympathetically reburied.

[32] Manorgate obtained several quotations for a preliminary evaluation of the Site. It decided to award the contract to the Scottish Urban Archaeological Trust Limited ('SUAT'). SUAT submitted the lowest estimate. Its depute director, Derek Hall, had a measure of knowledge and experience of the Site. He had been involved in the 1982 excavations and had written two papers about the Friary.

First evaluation - June 2007
[33] SUAT carried out its first inspection in late June 2007. It dug five trial trenches at accessible parts of the Site. It recorded its findings in a report dated 17 July 2007. The main conclusion was that the graveyard might surround the Friary, as opposed to being contained within it. That had the potential significantly to affect development at the Site. SUAT recommended that further evaluation should take place after the existing buildings had been demolished.

[34] Mr Semple was very concerned about these findings. Given the monies that Manorgate had already committed, he did not think it commercially sensible to walk away. At that stage, he still hoped for a cost effective solution. In particular he understood that a foundation design could be devised that would not have an impact on the human remains.

Second evaluation - October 2007
[35] Demolition took place in September 2007 and SUAT carried out a further evaluation the following month. On this occasion seven further trenches were dug below the demolished buildings. It found that the archaeological remains started within a depth of 50cm and continued to at least 2m. The Friary remains started at a depth of 1m, at which point flagstones were evident. Due to the ground conditions at the Site, it was necessary to strip-down the soil to a depth of 1.8m to find ground suitable for the foundations of the proposed development. SUAT recommended that everything should be left in situ.

[36] Various foundation designs were considered. Manorgate took advice not only from Mr Mallon, but also from a civil and structural engineer and PKHT. None of the proposed solutions was satisfactory. The problem arose because the human remains were at a relatively shallow depth. The nature of the soil made it unsuitable for a ground bearing slab. The use of a suspended slab was also deemed uneconomic, because it would have required a grid of foundations to support it. Each pile would have had to be carefully located so that it did not disturb any human remains.

Full Excavation
[37] It became apparent that in order to develop the Site using a traditional foundation design, full excavation was necessary. On 28 April 2008, SUAT quoted a price of approximately £100,000.00 to remove all the remains. Mr Semple was extremely disappointed at this unforeseen cost, but he decided that the best way forward was to carry on and accept the quotation. If Manorgate had sold the land at that point, it would have taken a substantial loss. On the basis of the calculations made by Mr Livingston and Mr Semple, if the land was developed Manorgate would still obtain a healthy profit of about £400,000.00.

[38] After various discussions, Manorgate accepted SUAT's tender on 13 June 2008. The works were planned to commence on 16 June 2008 and take place over a period of nine weeks. At the outset, SUAT expected to find the remains of about 20 to 25 bodies. That estimate was based on the findings from the earlier investigations and on the assumption that there had been no post-Reformation burials at the Friary. SUAT's view turned out to be mistaken. It quickly found another graveyard with many more bodies, some in family groups. PKHT thought that the date range for the burials might extend over a period of about 600 years, from the 13th to the 18th centuries. There were about three times as many remains as it had estimated. After a total of just over a hundred bodies had been removed from the Site, SUAT informed Manorgate that there were likely to be about one hundred further human remains. The cost of excavating them rendered the development non viable.

Application for Class 1 Planning Consent
[39] Manorgate considered various options to relieve its financial predicament. It applied for grants to assist with the cost of the archaeological works. Historic Scotland, Perth and Kinross Council and PKHT declined to provide assistance. Mr Semple held a meeting with his advisers. The discussion centred on whether it remained possible to develop the site and break even. The cost of the works to date amounted to £87,900. That was the whole of the projected budget. It was thought that the cost of excavating the remainder of the bodies from the Site would be in the region of £250,000.00.

[40] There was a further factor to take into account. By September 2008, the economy had cooled down. Third party interest in the site had materially weakened. Mr Livingston stated that the economy "fell off a cliff" in 2008 after the collapse of Lehman Brothers.

[41] In a final attempt to make the site commercially viable, Manorgate applied to vary the planning permission to allow unrestricted Class 1 planning consent. Alternatively, it sought Class 2 use (financial, professional and other services), Class 3 use (food and drink) or use as a hot food takeaway. The application stated:

"Due to the escalating cost of archaeological works in relation to the land, and the deterioration in economic conditions, the current 'bulky goods' consent does not result in redevelopment of the site being financially viable particularly in a property market where bulky goods retailers have no current requirements in Perth. Furthermore public funding to complete the archaeological works has been requested, but is unavailable."

[42] If granted, Class 1 planning consent would have allowed Manorgate to attract a much wider class of retail clients. In particular, it hoped that a 'city express' type of supermarket could be located at the Site, which would yield higher rents and enhance its capital value.

[43] Manorgate engaged Paul Houghton, an expert planning consultant, to assist in the application. He expressed optimism about the prospects of success. The application was lodged in February 2009. Both the application and the subsequent appeal to the Scottish Ministers were refused. By that time the recession was having a marked effect on the economy. The market for DIY and home improvements had significantly deteriorated.

[44] Having exhausted the commercial possibilities for the site, Manorgate arranged to backfill the Site. It remains in that condition today. PKHT has confirmed that any further development would require the full excavation to be completed. All of the items excavated to date have been reserved. The remainder are required to complete the archive. In March 2010 a quantity surveyor estimated that the full cost of the archaeological works, including those to date, would amount to approximately £363,000.00 (exclusive of VAT).

Property Enquiry Certificates
[45] Simon Harrison is in charge of the property enquiry department at FSPSL. He explained that PECs are "primarily a search of the records". An employee checks planning and building warrant applications and various other statutory listings relating to a particular property. A PEC will disclose, for example, whether it is served by an adopted road, or has mains water, or is subject to any local authority notices in relation to planning, building control, or environmental health. A PEC will also disclose whether a property has listed building status. A standard search for a PEC takes about 20 minutes, for which FSPSL normally charges a fee in the order of £65.00 to £75.00.

[46] The last page of the PEC is headed "Important Information". That information is set out in two boxes. The first box contains eight bullet points. Two of them are of relevance to the current dispute:

"Searches have been carried out by our Enquiry Team of all available Public records in respect of all relevant matters covered by the undernoted legislation and regulations insofar as applicable to the property."

"This search is covered by professional indemnity insurance."

[47] In the evidence, the function of a PEC was variously described as a 'clean bill of health', as 'part of the due diligence' and as 'a failsafe check'. Mr Harrison accepted that as the PEC listed the site as being zoned for commercial use, that meant that it was in an area which was being used for a business area or light industrial use. He also accepted that prospective purchasers would rely on PECs and that FSPSL's advertisements stated "Leave it to the Experts".

The Claim
[48] Manorgate maintains that in consequence of FSPSL's breach of duty, it sustained the following losses:

(a) capital losses £351,453.21

(b) site expenditure £148,901.48

(c) loss of development profit £432,078.00

(d) loss of past trading profit £227,875.00

(e) loss of one year's future trading profit £51,511.00

Before considering the proper measure of loss and the valuation of the claim, it is convenient to consider the substantive lines of defence.

[49] FSPSL advances two arguments in relation to causation. First, it contends that Manorgate would have proceeded with the purchase, even if the PEC had disclosed the archaeological designation. Secondly, it maintains that Manorgate did not rely on the contents of the PEC in deciding whether to purchase the Site.

Would Manorgate have purchased the Site in any event?
[50] Mr Weir submitted that this question should be answered "yes". He listed a number of factors which he said demonstrated Manorgate's keen enthusiasm to acquire the Site. In 2006 the economic conditions for development were very favourable. Mr Semple regarded the Site as 'perfect' for the company's expansion plans. In its anxiety to acquire the Site, Manorgate chose not to carry out site investigations, or to make the missives subject to a suspensive planning condition. Even after Mr Semple became aware of the problem, he still decided to go ahead with the project. Accordingly, it could be inferred that if the PEC had been accurate, Mr Semple would still have entered into the transaction. He would have regarded the archaeological designation as an acceptable commercial risk.

[51] That argument was flatly contradicted by Mr Semple. His position was unequivocal. If the PEC had disclosed that the Site was designated as one of archaeological significance, he would have asked Mr Fraser to explain the position to him. Upon learning that there had once been a mediaeval Friary and graveyard on the Site, Mr Semple would have walked away from the transaction. He would have asked Mr Livingston to find another site to develop.

[52] Mr Semple gave two reasons to explain why he would not have proceeded with the transaction. From the commercial perspective, the Site presented "unknowns" for development. But Mr Semple also laid stress on what he termed "the moral aspect" of the matter. He was reluctant to become involved in the development of subjects where human remains were present.

[53] I found Mr Semple to be a careful witness. In cross-examination, he was candid and prepared to make concessions, even where they were adverse to his position. I have carefully considered whether he was refracting matters through the lens of hindsight. In my view he was not. I formed that view by taking into account my own assessment of his testimony and coupling it with the evidence of Mr Fraser.

[54] Mr Fraser is a solicitor of many years standing and he gave his testimony in a measured and responsible fashion. Mr Fraser knew Mr Semple reasonably well in 2006 and described him as an astute businessman. In Mr Fraser's view, Mr Semple made decisions based on the level of risk and the likely financial return. As Mr Fraser put it, Mr Semple would be interested in the 'bottom line' figure and would not act in a cavalier fashion. Even more tellingly, Mr Fraser said he did not think that Mr Semple would have proceeded if he had known about the archaeological issues. He added "I would certainly not have advised him to go forward and he generally took my advice."

[55] I accept Mr Semple to be credible and reliable on this point. He did not strike me as someone who was intent on purchasing the Site 'come what may'. I hold that if the PEC had been accurate, then Manorgate would have withdrawn from the missives. I therefore reject this branch of the causation argument.

Did Manorgate rely on the PEC?
[56] Mr Weir argued that the PEC did not play, nor could it reasonably have played, a "real and substantial part" in inducing Manorgate to enter into the transaction: Banque Bruxelles Lambert SA v Eagle Star Life Insurance [1994] EGLR 108; Howes v Crombie 2001 SCLR 921. He submitted that Manorgate never contemplated that the PEC would inform it about the "esoteric" issue of archaeology.

[57] I disagree. In my view the PEC did play an important part in Manorgate's decision. In essence, it operated as a form of early warning system. Mr Fraser expected it to disclose potential problems, which could be further investigated. In his experience that included sites of scientific interest and sites of archaeological importance. Mr Harrison confirmed that FSPSL expected potential purchasers to rely upon the certificates it issued.

[58] If the PEC had been accurate in this case, the archaeological designation could have been evaluated. Manorgate mistakenly proceeded on the basis that the PEC provided the property with a clean bill of health. Accordingly, I also reject this branch of the causation argument.

Fault on the Part of Manorgate
[59] FSPSL submitted that Manorgate's losses were attributable in whole or in part to fault on its part. It had failed to take appropriate steps to protect itself in purchasing the Site. This line of defence was based mainly upon the evidence of John Gilmour Strang, chartered surveyor, who stated that he had never come across a developer who relied solely on a PEC to satisfy itself in relation to site matters.

[60] Mr Strang said that, prior to purchase, a reasonably prudent developer ought to have carried out the following steps: (i) instructed a site survey; (ii) undertaken ground investigations; (iii) established from the local plan what general planning policies affected the area of the subjects; (iv) entered into detailed discussions with the Planning Department to discuss the proposed use of the subjects; (v) established (by reference to published historical plans or otherwise) whether there were likely to be any legacy issues in the soils or the surrounding area; (vi) sought the seller's consent to the excavation of trial pits to establish the load bearing capacity of, and any contamination in, the underlying soils; and (vii) (in light of the information derived from these investigations) prepared a comprehensive development appraisal.

[61] FSPSL also advanced a further argument. It contended that Manorgate should have protected itself in the missives by including a condition either (a) making the bargain conditional on the completion of site investigation works, or on the grant of satisfactory planning consent; or (b) allowing for a reduction in the purchase price to reflect the cost of abnormal development works such as the undertaking of archaeological studies. Mr Weir said that there was no time pressure and that on the evidence of Mr Normand, such conditions would have been acceptable to the sellers.

[62] Mr Sandison invited me to disregard Mr Strang's testimony, on the footing that expert evidence on this point was inappropriate. The question is one of fact for the court. It must determine whether Manorgate ought to have taken steps to avoid suffering loss. In my view, the present case gives rise to intertwined questions of fact and good practice. I derived assistance from Mr Strang and the other professionals who gave evidence. They provided the context in which to decide what course a reasonable developer would have adopted.

Sole Fault
[63] As FSPSL has conceded fault, it would be surprising to hold that Manorgate was solely responsible for its own loss. Even if such a finding could be made, in my view there would have to be powerful reasons to do so. Mr Weir accepted that I would have to hold that Manorgate's conduct was (in his words) "egregious". In my view such a finding cannot be made. Manorgate was confronted by a novel and unfolding problem. It took commercial decisions at each stage to address the problem. In doing so, it acted throughout upon the advice of its professional advisers. I therefore reject this argument.

Contributory negligence
[64] Section 1(1) of the Law Reform (Contributory Negligence) Act 1945 allows the court to reduce the recoverable damages as it thinks "just and equitable having regard to the claimant's share in the responsibility for the damage." Lord Denning provided helpful guidance on the tests to apply in Davies v Swan Motor Co (Swansea) Ltd [1949] 2KB 291. He stated that "the real question is not whether the plaintiff was neglecting some legal duty, but whether he was acting as a reasonable man and with reasonable care" (at 324-325). He also stated that the question involved "a consideration, not only of the causative potency of a particular factor, but also of its blameworthiness." (at 326). In a case pre-dating the 1945 Act, Viscount Birkenhead LC emphasised that any question of contributory negligence "must be dealt with somewhat broadly and upon common-sense principles as a jury would probably deal with it": The Volute [1922] 1 AC 129, at 144.

[65] In my opinion, the crucial fact is that FSPSL held itself out as providing a specialist searching service. It expected recipients to rely on its certificates. Matters went awry because it supplied Manorgate with inaccurate information. That in my view was the dominant cause of the loss.

[66] Was Manorgate also blameworthy to some extent? I accept that the steps suggested by Mr Strang represent best practice. But each transaction must depend on its own facts. A purchaser is entitled to assess the commercial risks and make an informed decision about how to deal with them. In this case Manorgate had to carry out a balancing exercise. It was keen to secure the transaction in the context of a buoyant market. Mr Livingston's view was that if it adopted the measures suggested by FSPSL, it might lose the deal with the sellers. In other words, Mr Strang was advocating a counsel of perfection.

[67] As matters turned out, the risks that Mr Strang was keen to guard against did not manifest. There was no settlement in the ground, there was no contamination (other than the archaeological deposits) and the proposed buildings could be built. Accordingly the only risk that Manorgate had to address stemmed from the archaeology.

[68] In effect FSPSL argues that Manorgate should have queried or double-checked the accuracy of the information in the PEC. I find that a surprising position for it to adopt. If a purchaser is obliged to carry out its own separate investigations into the same matters, that would deprive PECs of any real utility.

[69] Having regard to the whole circumstances, in my view Manorgate was not blameworthy. I therefore do not accept that the damages fall to be reduced on the ground of contributory negligence.

Mitigation of loss
[70] FSPSL maintains that as the archaeological position unfolded, Manorgate should have taken steps to limit its losses. On receipt of SUAT's first report dated 17 July 2007, FSPSL contends that Manorgate should have refurbished and sold the four flats at the Site. It should not have proceeded to demolish the buildings or incur any other costs. The contention is reiterated in relation to SUAT's appraisal after demolition had taken place. According to FSPSL, once Manorgate had SUAT's report of March 2008, it should have 'cut its losses'. It was unreasonable to proceed with further works which would cost in the region of £90 - £100,000.

[71] Many authorities on mitigation were cited to me. It is unnecessary to set them out as the cardinal propositions were not in dispute:

(a) the onus lies on a defender to show that a pursuer could have avoided (b) or reduced its loss by taking reasonable steps

(c) that is a question of fact

a pursuer does not require to take exceptional steps to mitigate its loss

[72] Lord Macmillan amplified the third point in Banco de Portugal v. Waterlow & Sons [1932] AC 452 at 506:

"The law is satisfied if the party placed in a difficult situation by reason of the breach of a duty owed to him has acted reasonably in the adoption of remedial measures, and he will not be held disentitled to recover the cost of such measures merely because the party in breach can suggest that other measures less burdensome to him might have been taken."

[73] In my view the course adopted by Manorgate was a reasonable one. It had committed itself to the purchase and had paid the purchase price. At the outset, no one appreciated the full extent of the archaeological difficulties. They were only disclosed incrementally through SUAT's investigations. At each stage Manorgate's aim was to complete the development. Its decision to proceed was based upon the understanding that the project remained viable and would return a profit. Until the full archaeological picture was known, there was a chance that its optimism would be found to be justified. It only ceased operations when it became plain that the development was not viable.

[74] In those circumstances, I hold that Manorgate acted reasonably in the steps it took and that its losses should not be reduced on the ground that it failed to act reasonably.

[75] FSPSL submitted that any award should be restricted to a diminution in the capital value of the subjects. Mr Weir claimed that the other losses claimed by Manorgate were too remote. He accepted that the test is one of reasonable foreseeability: Lagden v O'Connor [2004] 1 AC 1067, 1088 per Lord Hope of Craighead.

Diminution in Capital Value
[76] Manorgate seeks damages of £351,453.21 in respect of diminution in capital value. It calculates this figure (a) by deducting the current value of the Site (£50,000) from the purchase price (£385,000), and (b) by adding the legal costs of purchase (£16,453.21).

[77] Parties accepted that if the archaeological position had been known at the time of purchase, then the value of the Site with the buildings was £150,000. Mr Sandison argued, however, that unless the removal of the buildings was unreasonable, Manorgate could recover the whole loss.

[78] In my view, the value attributable to the buildings cannot be ignored. FSPSL could reasonably foresee that its negligence would result in a diminution in capital value at the time of purchase. In my opinion, however, it could not reasonably foresee the sequence of events that led to the buildings being demolished and the Site still being unsuitable for the erection of the proposed new buildings.

[79] I conclude that the principle of remoteness acts as a brake on the recoverability of the claimed loss. In my opinion, the diminution claim is properly valued at £251,453.21 (£385,000 + £16,453.21 - £150,000).

Site Expenditure
[80] Manorgate incurred the following expenditure in carrying out the various steps to see whether the development could be made viable:



Legal costs


Architects' costs


Archaeological costs


Surveyor costs


Planning costs


Miscellaneous costs


Works costs




[81] Manorgate vouched all these items and in my view it is entitled to recover the sum sought.

Economic loss
[82] In respect of economic loss, Manorgate claims trading profits and development profit. Manorgate maintains that these losses all flowed from FSPSL's breach of duty to take reasonable care to supply accurate information to Manorgate.

[83] Mr Weir submitted that there should be no award in respect of economic loss. He founded mainly on FSPSL's restricted knowledge at the time it issued the PEC. It did not know (a) the identity of the purchaser; (b) the purchaser's plans for the Site; or (c) the development potential of the Site.

[84] Mr Weir also relied on factors relating to Manorgate. He argued that its original aim was to secure a trading address, rather than to sell the Site. In addition, it only expected to obtain 'trade counter' consent. The wider retail consent which was actually granted came as a surprise to Manorgate. That being so, it could not have been foreseeable by FSPSL. In addition, Mr Weir argued that there was no evidence that the sale of 'trade counter' units would have realised any profit.

[85] In the landmark case of Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, Lord Goff of Chieveley stated that: "[where] a person assumes responsibility to another in respect of certain services, there is no reason why he should not be liable in damages for that other in respect of economic loss." (at 181 C-D).

[86] Lord Hoffmann provided further analysis in his speech in South Australia Asset Management Corporation v York Montague Limited [1997] AC 191:

"A duty of care ... does not ... exist in the abstract. A plaintiff who sues for breach of a duty imposed by the law ... must do more than prove that the defendant has failed to comply. He must show that the duty was owed to him and that it was a duty in respect of the kind of loss which he has suffered. ... The real question in this case is the kind of loss in respect of which the duty was owed. ... How is the scope of the duty determined? ... In the case of tort, it will ... depend upon the purpose of the rule imposing the duty." (211H)

[87] Where the duty is to provide information (as here) he stated:

"If his duty is only to supply information, he must take reasonable care to ensure that the information is correct and, if he is negligent, will be responsible for all the foreseeable consequences of the information being wrong." (214F).

[88] These propositions have been considered and applied in many subsequent cases. The Court of Appeal recently reviewed this area of law in Conarken Group Ltd & Anor v Network Rail Infrastructure Ltd [2012] 1 All ER (Comm) 692. I respectfully agree with the summary given by Jackson LJ:

"145. The common law rules and principles which regulate the recoverability and assessment of damages form a vast and rippling skein, to which many judges and jurists have contributed over the last two centuries. I would not presume to offer a comprehensive review of that skein. I do, however, suggest that four principles relevant to the present appeal can be discerned from the authorities:

(i) Economic loss which flows directly and foreseeably from physical damage to property may be recoverable. The threshold test of foreseeability does not require the tortfeasor to have any detailed knowledge of the claimant's business affairs or financial circumstances, so long as the general nature of the claimant's loss is foreseeable.

(ii) One of the recognised categories of recoverable economic loss is loss of income following damage to revenue generating property.

(iii) Loss of future business as a result of damage to property is a head of damage which lies on the outer fringe of recoverability. Whether the claimant can recover for such economic loss depends upon the circumstances of the case and the relationship between the parties.

(iv) In choosing the appropriate measure of damages for the purposes of assessing recoverable economic loss, the court seeks to arrive at an assessment which is fair and reasonable as between the claimant and the defendant."

He continued: "no single set of rules is comprehensive or can be inflexibly applied" (at para. 146).

Loss of Business Profits
[89] In my view the decisive consideration in relation to the recoverability of business profits is that FSPSL knew that the Site was zoned for commercial use. The circumstances that then occurred were no doubt unusual. But I conclude that the loss of business profits suffered by Manorgate was within the contemplation of FSPSL. It could reasonably foresee that business loss would occur. As in personal injury cases, a defender "can only escape liability if the damage can be regarded as differing in kind from what was foreseeable": Hughes v Lord Advocate 1963 SC (HL) 31, 38 per Lord Reid.

Calculating the trading profits
[90] Manorgate called Frank McMorrow, forensic accountant, as an expert witness on its behalf. He assessed the trading profits that a branch of Direct Flooring would have made on the Site. Prior to the proof he had prepared a detailed report, which he amplified in his oral evidence. Mr McMorrow based his calculations on the actual performance of Manorgate's business in all of its branches since 31 December 2007. He calculated past losses at £227,875.00 and the on-going loss at £51,511.00 per annum.

[91] Mr Weir argued that these calculations were "wholly speculative". He maintained that they relied upon the "questionable assumption that a new branch in Perth would have achieved at least the average profit figure for the existing branches". FSPSL did not call an equivalent expert.

[92] In my opinion, Mr McMorrow's approach was designed to avoid a speculative result. It smoothed out high-performing and low-performing branches. As he put it "the beauty of this exercise is that it produces actual average branch performance". I found his methodology both cogent and convincing.

[93] After preparing his report but prior to the proof, Mr McMorrow had seen Manorgate's most recent management accounts. Although using those figures would increase the claim by about £3,300.00, Mr Sandison confirmed that Manorgate chose to rely on the figures in Mr McMorrow's report.

The period of loss
[94] Manorgate seeks lost business profits a period of three years to the date of proof. It also seeks a sum for a further one year period because it intends to use any sum awarded in this action to finance a replacement branch. Mr Semple thought that he could have a new branch open within 12 months of starting development. In my view Manorgate is entitled to the past losses at £227,875.00 and the on-going loss at £51,511.00 per annum.

Development Profit
[95] Manorgate also claims £432,078.00 in respect of development profit. Mr Honeyman said that if the Site had not had any archaeological issues, it could have been developed and sold for that figure.

[96] I decline to make an award under this head. In my view, FSPSL could not reasonably foresee that the purchaser of the Site would both seek to carry on business there and also sell the Site and generate development profit. That is too remote.

[97] If I had been making an award under this head, it would have been based upon the rent that could have been achieved for the units in the development. Two surveyors gave evidence on this matter. Mr Jim Honeyman, instructed by Manorgate, estimated that the new retail units could have been let at a figure of £12.50 per square foot. By contrast Jonathan Reid, instructed by FSPSL, suggested a figure of £8.00 per square foot.

[98] In their reports, the two surveyors each listed an extensive number of comparator sites upon which they based their respective figures. These were subject to detailed cross-examination and criticism by counsel in their closing submissions. Each side invited me to accept its expert and reject the other's valuation. Both, however, accepted that if I could not choose between them, I should select an average figure. That is the approach I would have taken.

[99] I found the evidence of both surveyors helpful and did not prefer one to the other. I would have concluded that the true rental figure is £10.00 per square foot per annum. There were three other matters that would have required a decision under this head. I would have held (a) that the appropriate level of contingency should be 4 per cent; (b) that provision of £4,000 should be made for marketing; and (c) that allowance should be made for a rent-free period of four months.


[100] Counsel agreed that I should give my decision on the principal matters, leaving the precise arithmetic (including interest) to be worked out by parties. I shall fix a by order hearing for that purpose.