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MIDLOTHIAN COUNCIL AGAINST DAVID ANDERSON KEITH AND OTHERS


Submitted: 21 June 2017

Web Blue CoS

OUTER HOUSE, COURT OF SESSION

[2017] CSOH 87

 

CA70/16

OPINION OF LORD TYRE

In the cause

MIDLOTHIAN COUNCIL

Pursuer

against

DAVID ANDERSON KEITH and others, as partners of the now dissolved partnership of

BRACEWELL STIRLING ARCHITECTS

First Defenders

and

RAEBURN DRILLING AND GEOTECHNICAL LIMITED

Second Defender

and

RPS PLANNING & DEVELOPMENT LIMITED

Third Defender

BLYTH AND BLYTH CONSULTING ENGINEERS LIMITED

Third Party

Pursuer:  Howie QC, D Thomson;  Shepherd and Wedderburn LLP

First Defenders:  Duncan QC, P Reid;  CMS Cameron McKenna LLP

Second Defender:  Moynihan QC, Walker;  Brodies LLP

Third Defender:  Ellis QC;  BLM

Third Party:  Borland QC, A McKenzie;  BTO Solicitors LLP

21 June 2017

Introduction
[1]        In this action the pursuer (“the Council”) seeks damages from the first, second and third defenders jointly and severally for loss and expense said to have been incurred in about 2013-14 when a social housing development at Gorebridge consisting of 64 newly‑built houses became uninhabitable due to ingress of ground gas, including carbon dioxide, that had migrated to the surface from disused coal mine workings.  The defenders and third party are all consultants who were engaged by the Council to provide advisory and other services in relation to the housing development project.  Allegations of fault made on an esto basis by the first defenders against the third party have not been adopted by the Council.  The action came before me for debate of the relevancy of the Council’s case against each of the defenders.  It will be necessary to address individually the arguments presented by the first defenders and third party, by the second defender, and by the third defender respectively.

 

The Council’s averments
[2]        In about 2004, the Council began to undertake a new social housing programme involving the development and redevelopment of a number of sites within its housing area, including the one at Gorebridge with which this action is concerned and which was identified as “Site 32”.  Among the consultants and contractors appointed by the Council (in approximate chronological order of appointment) were the following:

  • Third party (“Blyth & Blyth”): principal engineer;
  • Third defender (“RPS”): peer reviewer, contaminated land/environmental

consultant;

  • Woolgar Hunter:  consulting civil and structural engineers (desktop study only);
  • Second defender (“Raeburn”): consultant for ground investigation design and interpretive reporting; contractor for ground investigation;
  • First defenders (“Bracewell”): architect.

 

The case against Bracewell
[3]        The terms of Bracewell’s appointment as architect in relation to the Council’s social housing programme were contained in a Framework Agreement dated 8 and 10 November 2005 (“the Architect’s Appointment”) applicable to the whole project, and in call-off agreements referred to as “Build Specific Agreements” applicable to each development site.  A Build Specific Agreement in relation to Site 32 was entered into on 30 May and 6 June 2006.  In terms of Clause 3.8 of the Architect’s Appointment, Bracewell were the lead consultant and lead design consultant with overall responsibility for co‑ordinating other consultants and integrating the input of all designers, the Council, and any contractor.  Put shortly, the Council’s case is that in terms of the Architect’s Appointment and the Build Specific Agreement, Bracewell assumed contractual liability for the work of others, including other consultants and contractors.  The Council founds in particular on Clause 5.1 of the Architect’s Appointment, which stated:

“[Bracewell] shall as part of the Build Services carry out any Site Investigation Works and surveys as may be necessary and shall use reasonable endeavours to see that reference to such is included in the Build Specific Agreement produced by it…  [Bracewell] shall be wholly responsible for the Site Investigation Works and surveys, if any, referred to in the Build Specific Agreement and that irrespective of any Sub-Consultants, Contractor(s) or others appointed (including without limit site investigation contractors and laboratories)…”

 

The Build Specific Agreement required Bracewell to provide the Build Services detailed in an appendix.  Part 15 of the appendix, entitled “Site Specific Conditions/Matters” included “normal site investigations plus possible mine shaft capping and possibly grouting works”.

[4]        On the basis of, inter alia, these contractual terms, the Council contends that Bracewell assumed full responsibility for site investigation works, whether undertaken by themselves, by their sub-contractors or by others, and whether before or after Bracewell’s own appointment.  Bracewell are accordingly responsible for any negligent act or omission of any of the defenders or other consultants or contractors in relation to the need to design and install a ground gas defence system within the foundations of the houses at Site 32.

 

The case against Raeburn

[5]        Raeburn was appointed in 2005 to provide soil investigation, monitoring and analysis in relation to inter alia Site 32.  On 25 April 2006, Raeburn produced an “Interpretive Report on Ground Investigation” whose purpose was to provide information on a number of matters including soil gas issues.  Raeburn noted that the generation of soil or mine gas might result in migration into buildings.  It carried out measurements of concentrations of carbon dioxide and on the basis of those measurements made no recommendation of a ground gas defence system.  Raeburn was subsequently engaged by the Council, through its agent, Blyth & Blyth, to produce a Supplementary Interpretive Report dated 31 July 2006, in which it reported that the risk due to the generation of carbon dioxide ground gas was assessed as low, and did not recommend use of a ground gas defence system. 

[6]        The Council contends that Raeburn is in breach of contract in respect of inter alia inadequate site investigation, failure to categorise the risk of ground gas migration as high, inadequate monitoring with regard to number and depth of site investigation boreholes and number of visits, failure to appreciate that boreholes could create a gas migration route and to take appropriate measures to prevent this, and failure to adhere to published guidance.  Any ordinarily competent professional exercising reasonable skill and care would, it is averred, have recommended and specified the use of a ground defence system such as a gas membrane, which would have prevented the ingress of gas that occurred.

 

The case against RPS

[7]        RPS was appointed by the Council in about 2004 to act as an environmental consultant and peer reviewer to the Council in respect of contaminated land.  The Council subsequently engaged RPS’s services as an environmental consultant in respect of Site 32 and, specifically, to provide a peer review of reports by members of the design team submitted to the Council qua planning authority in support of an application for building warrant.  That application was made by the Council itself in its capacity as developer, and the reports submitted in support included Raeburn’s Interpretive and Supplementary Interpretive Reports and Woolgar Hunter’s desktop study.  RPS reviewed the documents submitted and provided advice, described as a Peer Review, to the Council on 20 November 2007.

[8]        The Council contends that RPS’s Peer Review ought to have, but failed to, identify deficiencies in the risk assessment advice received from Raeburn, and failed to identify that a ground gas defence system ought to have been, but had not been, recommended or specified by Raeburn.  Had RPS not breached their contract in this manner, a ground gas defence system would have been designed and installed.

 

Bracewell’s case against Blyth & Blyth
[9]        The Council’s pleadings with regard to the contractual position of Blyth & Blyth are somewhat opaque;  it will be recalled, however, that no case is made by the Council against Blyth & Blyth.  The Council admits that Blyth & Blyth had been appointed directly by them prior to the appointment of Bracewell under the Architect’s Appointment.  It appears also to be admitted that in pursuance of its direct appointment, Blyth & Blyth instructed Raeburn to provide a report on the ground conditions of Site 32.  Subsequently, however, in 2006 Bracewell appointed Blyth & Blyth as sub-consultant in the capacities of civil engineer, structural engineer and building services engineer in respect of Site 32.  According to the Council’s averments, Blyth & Blyth assumed responsibility for a variety of geo-environmental engineering site investigation services which included arranging for the carrying out of geotechnical and other investigations and the interpretation of the results, and thus the assessment of the risk of the presence of ground gas within Site  32.  The Council further assert that the agreement between Bracewell and Blyth & Blyth “confirmed the role and responsibilities under which Blyth & Blyth had been proceeding since at least November 2005”.

[10]      Bracewell deny that they have any contractual responsibility for site investigation or other works undertaken by other parties, including Blyth & Blyth.  In particular, they assert that they have no liability for works done by Blyth & Blyth which were directly instructed by the Council or which were instructed by Blyth & Blyth in its capacity as the Council’s agent.  They further contend that esto the combined effect of the Architect’s Appointment and the Build Specific Agreement is to render them legally responsible for acts or omissions of Woolgar Hunter, Raeburn or RPS, by the same contractual framework Blyth & Blyth is legally responsible to Bracewell for such acts and omissions, and accordingly that they are entitled to be relieved by Blyth & Blyth of any liability.

 

Argument for Bracewell
[11]      On behalf of Bracewell it was submitted that the case against them was irrelevant and should be dismissed.  The Council’s approach was dependent upon the proposition that in terms of Clause 5.1 of the Architect’s Appointment (see above), Bracewell were liable for the work of other parties whether or not those parties were Bracewell’s sub‑contractors and whether or not the work had been done and accepted by the Council before it entered into a contract with Bracewell.  That proposition was contra-indicated by the general scheme of the Architects’ Appointment, was inconsistent with the usual position in law and was unsupported by any other provision of the parties’ contract.  The language of Clause 5.1 was not consistent with assumption of liability for work already done: such work could not be described as “necessary”.  The words “carrying out” implied future works only.  Strict liability was inconsistent with an obligation of Bracewell in Clause 5.5 to “use reasonable endeavours” to see that any sub-consultant had the necessary skills and complied with legislation and other guidance and procedures.  The words “wholly responsible” related to Sub-Consultants, Contractors and others appointed but not to Other Consultants (all of these expressions being defined terms).  The omission of the latter should be taken to be deliberate.

[12]      The Council’s interpretation was also inconsistent with other provisions of the Architect’s Agreement.  Clause 7 provided that the standard of care to be exercised by Bracewell was the reasonable skill and care to be expected of a competent and qualified professional of the appropriate disciplines.  Clause 22.2 was particularly significant.  It provided as follows:

“Without prejudice to:

22.2.1  [Bracewell’s] responsibility for any sub‑consultants of whatever tier appointed by [Bracewell] or on its behalf, or

22.2.2  [Bracewell’s] responsibility (if any) for monitoring, commenting upon, co-ordinating and integrating the design, workmanship or services of any other party; or

22.2.3  any other obligations of or services provided or to be provided by [Bracewell] whatsoever,

[Bracewell] shall not be held responsible in terms of this Agreement for the services provided by any other party appointed by the Council but without prejudice to [Bracewell’s] duty to warn the Council of any concerns as to the performance by any Other Consultants or Build Partner.”

 

The plain reading of Clause 22.2 excluded Bracewell from liability for the advice of Other Consultants.  The Council admitted that Woolgar Hunter, Raeburn, RPS and Blyth & Blyth were all appointed by them and were all therefore Other Consultants.  The documents containing risk assessment advice were all provided by parties under separate contractual relationships with the Council; no advice tendered by Bracewell was criticised.  The words in Part 15 of the appendix to the Build Specific Agreement were too slender a basis to impose strict legal liability for the risk assessment advice criticised by the Council. 

[13]     As regards Blyth & Blyth, with whom it was accepted Bracewell had a contractual relationship, it was impossible to understand from the Council’s case whether advice now complained about was given pursuant to direct instruction by the Council or pursuant to Blyth & Blyth’s instruction by Bracewell as a sub-contractor.  The argument had to be tested by the weaker alternative, ie the former.  On that alternative, Blyth & Blyth were in the same position as the other parties for whose advice Bracewell were now wrongly being held responsible.

[14]     Senior counsel for Blyth & Blyth adopted the submissions for Bracewell and presented further arguments regarding the Council’s averments relative to Blyth & Blyth.  There was no specification of the contractual obligations said to have been assumed by Blyth & Blyth with regard to the design of the site investigations, or of the basis upon which Blyth & Blyth was said to have assumed responsibility for the assessment of the risk of the presence of ground gas.  In so far as Blyth & Blyth had acted as the Council’s agent in procuring the contract with Raeburn, it was not averred that Blyth & Blyth had a duty either to advise the Council on the adequacy of Raeburn’s site investigations or to warrant their adequacy.  No liability of Bracewell for breach by Blyth & Blyth of its obligations could be established without relevant averments of what Blyth & Blyth was said to have been obliged to do and what it had done wrong.  It was entirely unclear what was meant in the Council’s pleadings by “Risk Assessment Advice”.  The Council’s averment that Blyth & Blyth and Raeburn “provided for” monitoring visits was irrelevant in so far as it was contended that Blyth & Blyth had any such responsibility; in any event the contractual responsibility fell on Raeburn alone. 

 

The Council’s response
[15]      On behalf of the Council it was submitted that proof before answer should be allowed.  The contractual language founded upon by the Council was clear, unequivocal and unambiguous.  Clause 5.1 effected a departure from what might be regarded as the usual rules of liability, imposing responsibility on Bracewell for site investigation works, irrespective of who carried them out or when.  There was no scope for the invocation of “commercial common sense” to release Bracewell from the obligations which they had undertaken.  The word “necessary” simply meant requisite for the construction of the development, whenever done; it was not limited to work still to be done.  Future site investigation would be carried out by Bracewell; past work would be adopted by Bracewell if and when they were satisfied that it had been properly carried out.  Site investigation works were part of the Build Services in terms of Part 6 of the Appendix to the Build Services Agreement; anyone other than Bracewell carrying out site investigation works would be deemed to be doing so as a sub-contractor.  The word “others” in Clause 5.1 was wide enough to include Other Consultants.  It made commercial sense to interpose a single point of contact and of responsibility to the Council and there was nothing unfair about it: Bracewell would either have carried out site investigation works, caused them to be carried out, or checked them.  The contractual position between Bracewell and the others was not the Council’s concern.

[16]     Clause 7 did not help Bracewell: it was concerned only with work done by Bracewell itself.  A different standard was imposed where Bracewell was responsible for site investigation works carried out by someone else.  Nor did clause 22.2 assist: as already mentioned, any consultant or contractor carrying out site investigation works did so as a sub-consultant for the purposes of clause 22.2.1.  Bracewell’s monitoring obligation, referred to in clause 22.2.2, applied to all site investigation works carried out by others.  Clause 22.2.3 covered obligations of Bracewell in relation to the work of others.

[17]     The criticisms on behalf of Blyth & Blyth were also unfounded.  The Council had not adopted the case against Blyth & Blyth and had no need to plead one.  Deficiencies in site investigation work carried out by Blyth & Blyth were pled only as part of the Council’s case against Bracewell.  The Council’s averments regarding work carried out by Blyth & Blyth as its agent were no more than a factual narrative, which did not affect the Council’s case against Bracewell with regard to their assumption of responsibility for work carried out by Raeburn when instructed by the Council through the agency of Blyth & Blyth.  As no case was made against Blyth & Blyth, there was no need to distinguish between work carried out as the Council’s agent and other work.

 

Decision
[18]      The correct approach to interpretation of a written contract was stated thus by Lord Neuberger of Abbotsbury PSC in Arnold v Britton [2015] AC 1619 at paragraph 15:

“When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to ‘what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean’, to quote Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, para 14. And it does so by focussing on the meaning of the relevant words… in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions.”

 

In Scotland, Lord Neuberger’s formulation of the correct approach was applied both in @Sipp Pension Trustees v Insight Travel Services Ltd [2015] CSIH 91 at paragraph 17 and in Hoe International Ltd v Andersen [2017] CSIH 9 at paragraph 19.  In the latter case, the court emphasised that regard should also be had to the earlier observations of Lord Clarke of Stone-cum-Ebony in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 at paragraph 21 (cited and accepted by Lord Hodge in Arnold v Britton at paragraph 76):

“…The exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant.  In doing so, the court must have regard to all the relevant surrounding circumstances.  If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other.”

 

[19]      Applying this approach to the construction of clause 5.1 of the Architect’s Appointment, being the contractual provision founded upon by the pursuer, it is necessary to consider its natural and ordinary meaning, along with other relevant provisions of the Architect’s Appointment and the Build Specific Agreement, the overall purpose of the clause and the two elements of the parties’ contract, the circumstances at the time of execution, and all relevant surrounding circumstances, and to have regard to business common sense.  It would, in my judgment, be a striking departure from ordinary legal principle for Bracewell to be liable for any breach of contract committed in relation to site investigation works by any of the Council’s consultants or contractors, regardless of that party’s legal relationship with Bracewell, and regardless of whether it was committed before or after Bracewell’s appointment.  The Council argued that this, nonetheless, is the clear and unequivocal meaning of clause 5.1.  In my opinion the clause is not as clear and unequivocal as the Council contended.  It begins by imposing upon Bracewell an obligation to “carry out any Site Investigation Works as may be necessary”.  That is followed by a subsidiary obligation to “use reasonable endeavours to see that reference to such is included in the Build Specific Agreement” produced by Bracewell.  The words “to such” indicate, in my view, that the subsidiary obligation applies to site investigation works carried out by Bracewell, as opposed to site investigation works generally.  It is then at least a tenable interpretation of the reference in the following sentence to “the Site Investigation Works and surveys, if any, referred to in the Build Specific Agreement” that it applies to the same site investigation works, ie to works carried out by Bracewell as part of the Build Services.  That would be consistent with the remainder of the sentence, which renders Bracewell responsible for the work of Sub-Consultants, Contractor(s) or others appointed by them in connection with site investigation works.  The rest of Clause 5.1 is similarly concerned with an overall purpose of conferring rights on the Council with regard to work carried out by Bracewell or on their instructions.  The same may be said of Clause 5.3, which also contains the expression “such Site Investigation Works”. 

[20]      On this reading of clause 5.1, Bracewell assumed no responsibility for site investigation works carried out by anyone other than themselves or their sub‑consultants or contractors.  The reference in Part 15 of the Appendix to the Build Specific Agreement is not inconsistent with such a reading: it merely acknowledges that parties envisaged that Bracewell would carry out or instruct site investigations and, in the light of such investigations, might require to instruct works such as mine shaft capping or grouting.  It does not necessarily refer to site investigation works carried out by others.  Importantly, such an interpretation is consistent with Clause 22.2 which provides clearly that Bracewell are not to be responsible in terms of the Architect’s Appointment for the services provided by “any other party appointed by the Council”, a phrase which mirrors the definition of “Other Consultants” in Clause 1.28.  I reject the Council’s submission that responsibility for breaches of contract by Other Consultants falls within all or any of the three carve-outs from Clause 22.2 contained in sub-clauses 22.2.1, 22.2.2 and 22.2.3.  To argue that Sub‑clause 22.2.1 applies because every consultant is deemed by Clause 5.1 to be a sub-consultant is circular and would deprive Clause 22.2 of any practical effect.  It would make no sense to, in effect, relieve Bracewell of responsibility for services provided by Other Consultants, without prejudice to Bracewell’s responsibility for services provided by Other Consultants.  Sub-clause 22.2.2 is concerned specifically with Bracewell’s own duty to monitor and comment on the design, workmanship or services of others, and not with the imposition of a wider responsibility.  Sub-clause 22.2.3 is similarly concerned only with services provided by Bracewell.  It would in my view be very difficult indeed to reconcile the Council’s interpretation of Clause 5.1 with the terms of Clause 22.2 properly construed. 

[21]      The interpretation contended for by Bracewell also avoids the anomaly whereby, on the Council’s preferred construction, Bracewell would be strictly liable under Clause 5.1 for breaches of contract by third parties, while only requiring under Clause 7, in relation to the provision of its own services, to exercise the reasonable skill and care that would be expected of a competent and qualified professional. 

[22]      In so far as it is relevant and necessary in the present case to have regard to business common sense, this too, in my opinion, favours the argument advanced on behalf of Bracewell.  It would not accord with usual commercial practice for a consultant to assume liability for the breaches of contract of other consultants in a direct relationship with the client, especially in relation to work already carried out at the time of appointment of the professional said to have assumed the liability.  In my view the reasonable person with the background knowledge available to the parties at the time when the Architect’s Appointment and the Build Specific Agreement were entered into would not understand the language used by the parties in Clause 5.1 to be intended to create this very unusual and onerous liability, but rather would see Clause 5.1 as complementary to Clause 22.2 in imposing responsibility on Bracewell for its own acts and omissions and those of its sub‑contractors and sub‑consultants, but not otherwise.

[23]      It remains to consider whether the position is any different with regard to work carried out or instructed by Blyth & Blyth who, it will be recalled, was appointed as sub-consultant by Bracewell in addition to having a direct appointment by the Council.  Senior counsel for the Council did not, as I understood it, contend that Blyth & Blyth should be treated differently for this reason: his case in relation to Bracewell’s responsibility for work done by Blyth & Blyth was advanced on the same basis as work done by the other consultants.  The Council’s pleadings do contain certain rather unspecific references, on the one hand, to Blyth & Blyth having provided professional assistance to Bracewell in connection with investigation of site conditions and with the fulfilment of Bracewell’s obligations to the Council (Condescendence 10) and, on the other hand, to alleged breaches of contract by “Blyth & Blyth and Raeburn” in relation to creation of ground gas migration routes via boreholes (Condescendence 38.5) and inadequate provision for monitoring visits (Condescendence 38.6).  It is not, however, averred that any allegedly deficient work carried out or advice given by Blyth & Blyth was done in the latter’s capacity of sub-contractor to Bracewell.  I am mindful of the observations of Lord Glennie in Heather Capital Ltd v Levy & McRae and Heather Capital Ltd v Burness Paull [2017] CSIH 19 at paragraph 100 regarding the absence of necessity of elaborate pleading.  However, as Lord Glennie emphasised, the purpose of pleading is to give fair notice of the essential elements of the case.  If in the present case Bracewell were to be held responsible for a breach of contract by Blyth & Blyth, otherwise than in accordance with the Council’s general argument based on Clause 5.1, then in my opinion it would be incumbent upon the Council to explain why it is said that such breach occurred in the course of work done by Blyth & Blyth as Bracewell’s sub-contractor, rather than in the course of work done as the Council’s direct appointee.  This is especially so in view of the bracketing in the Council’s pleadings of Blyth & Blyth with Raeburn, and the Council’s acceptance that Blyth & Blyth was acting in its capacity as agent for the Council, rather than as sub‑contractor of Bracewell, when it instructed Raeburn to produce the Interpretive Report and the Supplementary Interpretive Report. 

[24]      For these reasons I hold that the Council has not made out a relevant case for holding Bracewell responsible, on the basis of the terms of the Architect’s Appointment and the Build Specific Agreement, for the alleged breaches of contract by other consultants and contractors with which this action is concerned.  I shall therefore dismiss the action in so far as directed against Bracewell.  In the light of the fact that, as senior counsel for the Council confirmed, no claim is directed against Blyth & Blyth, I do not find it necessary to deal in detail with the criticisms made by senior counsel for Blyth & Blyth of the Council’s pleadings in so far as applicable to the third party.

 

Argument for Raeburn
[25]      A note of arguments was lodged on behalf of Raeburn in advance of the debate.  The points raised were largely of specification: senior counsel for Raeburn complained that although the matters mentioned had been raised on previous occasions, they had not been addressed by the Council in its pleadings.  The points included:

  • Lack of specification of the circumstances in which Raeburn was said to have come under a duty to identify that site investigation works instructed by Blyth & Blyth on the Council’s behalf were inadequate;
  • Contradictory averments regarding the level of carbon dioxide emissions associated with a need to specify installation of a gas membrane;
  • Lack of specification of a failure to take long term changes into account;
  • Lack of clarity in the Council’s case based on inadequacy of numbers of boreholes and monitoring visits;
  • Contradictory averments regarding the requisite depth of boreholes;
  • Lack of causal connection between either alleged inadequacy of backfilling of boreholes or use of vibro‑replacement and the migration of gas to the houses;

[26]      At the hearing, senior counsel for Raeburn expressed a more general concern that the Council’s pleadings had expanded to the point where the case made against Raeburn was obscured rather than clarified.  Active case management was required in order to achieve a clearer understanding of the grounds upon which the Council was relying in its case against Raeburn.  It was not submitted that the action in so far as directed against Raeburn ought to be dismissed at this stage.

[27]      Senior counsel for the Council did not accept that all of the criticisms made by Raeburn were justified; some alleged contradictions were more apparent than real.  In certain respects, the criticisms were accepted, but it was submitted that the pleadings were sufficient for the court to allow proof before answer.

[28]      It does seem to me that some obscurity has been created by the fact that the very lengthy Condescendence 38 is framed on the assumption, which I have held to be incorrect, that as a matter of law any and all breaches of contract committed by the consultants could be compendiously laid at the door of Bracewell.  Framing the case in that way has perhaps led the Council to be less scrupulous than it might have been in identifying which failures are laid at the door of which consultants.  The grounds of fault in Condescendence 38 are based upon the alleged inadequacy of what is labelled “the Risk Assessment Advice”, a term defined in the Council’s averments as meaning “the Desktop Study, the Interpretive Report, the Supplementary Interpretive Report and the Peer Review and all related advice from Woolgar Hunter, Blyth & Blyth (for whom Bracewell were responsible, as a sub-consultant appointed by them), Raeburn and RPS, and the ground investigations which were undertaken”.  In the more detailed averments of alleged inadequacies that follow in the subparagraphs of Condescendence 38, it is not always clear which of the various contributors to “the Risk Assessment Advice” is being held responsible for each alleged failing, and why.  I therefore have some sympathy with Raeburn’s complaint that the grounds upon which it is being held liable are not as clearly explained as they might be.  It was suggested that this might most conveniently be done in a document separate from the pleadings. 

[29]      Although Raeburn’s note of arguments contains what is in effect a shopping list of issues for clarification, the general complaint is a broader one, and I do not wish to encourage further elaborate pleading.  I shall instead make an order appointing the Council to provide a note setting out the basis of its case against Raeburn.  No doubt in framing this note, those advising the Council will have regard to the points raised by Raeburn in the note of arguments and in the course of the hearing, although it need not be assumed that I, for my part, accept all of the points that have been made.

 

Argument for RPS
[30]      I have already set out (paragraphs 7 and 8 above) the Council’s averments with regard to breach of contractual duty on the part of RPS.  Further information as to the scope of RPS’s contractual duty may be obtained from a document entitled “Peer Review – Terms of Reference”, sent by fax to RPS on 3 June 2005 by the Council’s Environmental Health department, which stated inter alia as follows:

“Thank you for your response to my email dated 24 May 2005 and note your interest in carrying out peer reviews of submitted site investigation reports.

 

In general Midlothian Council would expect peer reviews to be carried independently and objectively to ensure that the submitted reports are factually correct, comply with current best practice and guidance and adequately deal with any contamination issues associated with the site in question.

 

More specifically the Council would expect you to check the following areas:

 

  1. That the general desk study information is correct and that areas (ie Coal Authority Reports) have not highlighted problems not addressed in the report.

     

  2. That the investigative works are sufficient to properly address any potential contamination on the site.

     

  3. Assess the conceptual site model and risk assessments of potential pathways.

     

  4. That the site investigation in line with current best practice and guidance.

     

  5. Ensure any outputs from risk assessment models (eg Clea, RBCA) have been properly calculated.

 

The final report must detail any shortfall in the site investigation/remediation strategy and where necessary recommend any further works that may be necessary.”

 

By email dated 8 June 2005, RPS confirmed that it was happy that the terms of reference detailed its role for peer review.

[31]      On behalf of RPS it was submitted that the Council’s case against it was irrelevant and should be dismissed.  The losses that the Council claimed to have suffered were suffered in its capacity as the owner of the houses in the development.  These were not within the scope of the duty owed to the Council by RPS, which had been instructed by the Council in its capacity as verifier (in terms of section 9 of the Building (Scotland) Act 2003) of a building warrant submitted by an applicant, albeit, in this case, that the applicant was the Council itself.  The circumstances were analogous to those of Murphy v Brentwood District Council [1991] 1 AC 398, in which the House of Lords, departing from Anns v Merton London Borough Council [1978] AC 728, held that no duty of care in respect of pure economic loss was owed to the purchaser of a house whose foundation turned out to be defective by a local authority which had approved the plans for its construction.  In the present case, extension of the liability of a verifier who negligently passed an application for a building to the owner of the building would be an unprecedented and unjustified extension of the verifier’s duty of care, and if the verifier was not liable to the owner, a fortiori an adviser to the verifier (which was RPS’s position) was not so liable. 

[32]      It made no difference that the verifier and the owner were the same person: no nexus was created by virtue of the existence of a contractual relationship between RPS and the Council qua verifier.  In the first place, no basis was pled for implication of a term that RPS would be liable for loss sustained by the Council in its capacity as owner.  It was not averred that it was ever drawn to RPS’s attention that their advice would be relied upon by the Council in that capacity.  Accordingly, this was not the kind of loss in respect of which RPS owed a duty: cf South Australia Asset Management Corporation v York Montague Ltd [1997] AC 191, Lord Hoffmann at 211-212.  In the second place, the damage claimed to have been sustained was too remote to be recoverable from RPS.  No circumstances were averred from which it could be inferred that the type of losses claimed to have been sustained must have been within the contemplation of the parties when the contract was entered into: cf Transfield Shipping Inc v Mercator Shipping Inc [2009] 1 AC 61, Lord Hoffmann at paragraphs 12‑21; Lord Hope of Craighead at paragraph 31; Lord Rodger of Earlsferry at paragraph 52.  The losses recoverable for any breach of contractual duty by RPS as adviser of the verifier of a building warrant were accordingly restricted to losses sustained by the verifier in that capacity, and not in the capacity of owner.  Use in the Council’s pleadings of the designation “environmental consultant” was no more than a description of the nature of the services provided by RPS as provider of peer review reports.

 

The Council’s Response
[33]      On behalf of the Council it was submitted that much of RPS’s argument was beside the point.  The case law regarding non-liability for pure economic loss, including Murphy v Brentwood District Council, was concerned with delictual liability.  The present case was founded in breach of contract and accordingly notions of what was fair, just and reasonable were inapplicable.  It was accepted that RPS’s instructions were restricted to peer review of the three reports accompanying the building warrant application, but it was not accepted that RPS was instructed by the Council only in the latter’s capacity as verifier.  The Council averred that RPS had been instructed in two capacities: as peer reviewer and as environmental consultant, and offered to prove that it had entered into the contract with RPS as owner as well as verifier.  The losses sustained accordingly fell within the scope of RPS’s contractual liability if its services were negligently performed.

Decision
[34]      In my opinion this issue cannot be determined without inquiry.  I accept the submission on behalf of the Council that the present case is not directly on all fours with Murphy v Brentwood District Council because the case against RPS is founded upon breach of contract.  There may, however, be a stronger parallel with cases on remoteness of damage in contractual claims.  In this regard, Transfield Shipping and the authorities there cited provide direct assistance.  As Lord Hoffmann observed in Transfield Shipping at paragraph 21:

It is generally accepted that a contracting party will be liable for damages for losses which are unforeseeably large, if loss of that type or kind fell within one or other of the rules in Hadley v Baxendale...  That is generally an inclusive principle: if losses of that type are foreseeable, damages will include compensation for those losses, however large.  But the South Australia and [Mulvenna v Royal Bank of Scotland plc [2003] EWCA Civ 1112] cases show that it may also be an exclusive principle and that a party may not be liable for foreseeable losses because they are not of the type or kind for which he can be treated as having assumed responsibility.”

 

Lord Rodger similarly stated (paragraph 52):

“…It is important not to lose sight of the basic point that, in the absence of special knowledge, a party entering into a contract can only be supposed to contemplate the losses which are likely to result from the breach in question – in other words, those losses which will generally happen in the ordinary course of things if the breach occurs. Those are the losses for which the party in breach is held responsible – the stated rationale being that, other losses not having been in contemplation, the parties had no opportunity to provide for them.”

 

[34]      It seems to me that there is a strong argument for the proposition that where a consultant is engaged to advise a verifier of a building warrant in that capacity only, any loss sustained by the verifier in the separate capacity of building owner is too remote to be recoverable from the consultant without proof of circumstances to demonstrate that the consultant assumed responsibility for such loss.  In the present case, however, there is a dispute of fact as to whether RPS was engaged by the Council only in the latter’s capacity as verifier, or whether it was engaged by the Council also qua owner.  The question whether the losses claimed to have been sustained by the Council are of a type for which RPS can be treated as having assumed responsibility is therefore at large, and is best determined in the light of proof of the nature of the contractual relationship between the parties at the time when the peer review of the three reports was instructed.

[35]      Senior counsel for RPS pointed out that the Council’s pleadings ignored the difficulty created by its dual capacity:  there was no acknowledgment of the Council’s role as verifier, and no averment that RPS’s services had been instructed by the Council otherwise than in the capacity of verifier.  In my opinion the Council has sufficient averments to entitle it to proof before answer.  It is for RPS to aver and prove that the contract entered into with the Council under the terms of reference that I have quoted created duties only in relation to the Council’s capacity as verifier.  I note that RPS already has averments to that effect.  The extent of RPS’s responsibility will accordingly be determined after inquiry.

 

Disposal
[36]      I shall put the case out by order to discuss further procedure in the light of this opinion.  Questions of expenses are reserved.