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OUTER HOUSE, COURT OF SESSION
[2022] CSOH 47
CA11/22
OPINION OF LORD BRAID
In the cause
THE FIRM OF C&L MAIR
Pursuer
against
MIKE DEWIS FARM SYSTEMS LIMITED
Defender
Pursuer: J Brown; DAC Beachcroft Scotland LLP
Defender: M Steel; Pollock & McLean
1 July 2022
[1]
The pursuer is the proprietor of (and carries on business from) Townhead Farm,
Dumfries. In 2011 it commenced a project to improve the facilities at the farm, which
included the installation of a slurry tank to sit on a large area of level ground, beyond which
was an embankment. The pursuer contracted with the defender for the supply and
installation of the slurry tank. The work was completed in February 2012, and was paid for
by the pursuer at around that time.
[2]
In September 2016 a circle slip of the embankment occurred, causing the ground at
the base of the embankment to move, which the pursuer avers caused such damage to the
slurry tank that it will have to be demolished and built elsewhere. The pursuer sues the
2
defender for the loss which it avers flowed from the defender's breach of contractual
obligation and breach of duty. In particular, the pursuer avers that the defender failed to
give any consideration to the risks posed by the embankment or to advise that engineering
advice be taken.
[3]
The defender denies that any breach on its part caused the pursuer any loss, and a
proof before answer on the merits of the action has been fixed for 19 July 2022. The defender
also pleads that in any event, any obligation owed by it has been extinguished through the
operation of prescription by virtue of section 6 of the Prescription and Limitation (Scotland)
Act 1973, having subsisted for a continuous period of 5 years from the date when it became
enforceable without any relevant claim having been made. The pursuer disputes that
prescription has occurred, and the case called before me for debate on the defender's plea of
prescription. Although Johnston, Prescription and Limitation (2
nd
edition), expresses the view
at paragraph 4.42 that it is undesirable that in anything other than the clearest cases
decisions about prescription should be made solely on the pleadings, parties were agreed
that the relevancy of the defender's averments about prescription could usefully be
discussed at debate. It was common ground that if those averments were held to be
irrelevant, the court could dispose of the defender's prescription plea at this stage, allowing
parties and the court to focus exclusively on the merits of the action at proof, with some
saving in time. That advantage was tempered to some extent by the fact that it was also
common ground that if the defender's averments were held to be relevant, the issue of
whether the pursuer's claim had in fact prescribed would require to be held over until the
proof, for inquiry into the pursuer's averments that prescription had not in fact operated,
through the operation of section 11(3) and section 6(4) of the 1973 Act.
3
[4]
I did raise with counsel for the pursuer whether, in light of the authorities referred to
below, there might have to be inquiry into the likelihood of the embankment slipping and
whether it might have been inevitable; but he pointed out (without contradiction by counsel
for the defender) that it is not the defender's position on record that the slip was inevitable.
Accordingly, the debate was conducted on the footing that while there was a risk of a slip, it
was not inevitable that such a risk would ever be purified.
The issue
[5]
It is settled law that prescription begins to run when there is concurrence of injuria
and damnum: Dunlop v McGowans 1980 SC (HL) 73. This requires both a wrongful act,
usually a breach of contract or breach of duty (injuria), and loss caused by that act
(damnum). Necessarily, the loss must occur either contemporaneously with, or at some time
after, the wrongful act. Section 11(1) of the 1973 Act provides that an obligation to pay
damages arising from a breach of contract or duty "shall be regarded [for the purposes of
the short negative prescriptive period of five years] as having become enforceable on the
date when the loss, injury or damage occurred". In ascertaining the date when prescription
began to run the first task is to establish when loss, injury or damage occurred. The issue
which falls to be determined in this case is whether the pursuer suffered loss injury or
damage in (or by) February 2012, when the installation was completed and paid for, as the
defender contends; or whether, as the pursuer contends, it did not suffer loss until the slip
occurred in September 2016. If the former, any obligation owed by the defender had
prescribed before the action was raised. If the latter, the action was raised within the
prescriptive period.
4
The pursuer's submissions
[6]
Counsel for the pursuer submitted that there was no loss until the circle slip occurred
and the slurry store was damaged as a result. A loss which might or might not be suffered,
dependent on a future contingency, was not damnum sufficient to commence the
prescriptive period: Johnston, Prescription and Limitation, at paragraph 4.41; cf Law Society v
Sephton & Co (A Firm) [2006] 2 AC 543, Lord Hoffman at paragraphs 22 and 30. While that
was an English case concerned with the application of the conceptually different regime of
limitation, the analysis had been recognised as being applicable in Scots law: Khosrowpour v
Taylor [2018] CSOH 64, per Lord Doherty at [26]. Further support for the proposition that a
merely contingent loss did not amount to damnum came from Lord President Carloway in
Kennedy v Royal Bank of Scotland plc 2019 SC 168 at [20].
[7]
It was not always easy to identify on which side of the divide an individual case lay.
Clear examples of cases where the loss was inevitable were Midlothian Council v Raeburn
Drilling and Geotechnical Limited 2019 SLT 1327; WPH Developments Limited v Young & Gault
LLP 2022 SC 28 (in which the First Division upheld the correctness of Midlothian Council and
Kennedy); Beard v Beveridge Herd and Sandilands WS 1990 SLT 609; and Khosrowpour. By
contrast, Kusz v Buchanan Burton 2010 SCLR 27, was an example of a case where loss was
held not to have occurred.
[8]
In the final analysis, the circle slip was not an event that was certain to occur. It
might never have occurred, in which event there would never have been any loss. The
matter could be tested by asking whether the pursuer could have raised proceedings in
advance of the circle slip on the basis that if it were to occur at some future date, loss would
have been suffered. It could not. It followed that the prescriptive period did not commence
until the circle slip actually occurred.
5
The defender's submissions
[9]
While counsel for the defender appeared initially not to take issue with the pursuer's
overarching submission that where a loss was merely contingent, no damnum had occurred,
his analysis of the law appeared to leave no room for that proposition to have any practical
effect, since his submission came to be that damnum always occurred when wasted
expenditure was incurred, no matter the circumstances (subject to there being a causal link
between the wrongful act and the loss). When pressed, he conceded that he had been
unable to think of a single hypothetical example where the occurrence of damnum was
postponed until the purification of a contingency.
[10]
The defender's submission was mainly predicated on Gordon's Trustees v Campbell
Riddell Breeze Paterson LLP 2017 SLT 1287, per Lord Hodge, from which the following factors
could be derived. "Loss, injury or damage" meant physical damage or financial loss as an
objective fact (paragraphs 18 and 19). Hindsight must be applied in determining when loss
had occurred (paragraphs 22 and 24), the corollary of which was that the creditor did not
have to know, at the time, that he or she had a head of loss (paragraph 21). It was sufficient
if the creditor was aware that "he or she has not obtained something which [he or she] had
sought or that he or she has incurred expenditure" (paragraphs 19 and 22). Section 11(3) did
not postpone the start of the prescriptive period until a creditor was actually or
constructively aware that he or she had suffered a detriment in the sense that something had
gone awry; the creditor did not have to know that he or she had a head of loss
(paragraph 21). A causal link between the wrongful act, and the loss, was required. So, in
Midlothian Council, above, Lord Doherty had held that loss had occurred as soon as the
pursuer incurred wasted expenditure acting in reliance on the defender's advice. Likewise
6
the need for causation was emphasised in WPH Developments. In that case, the court also
endorsed the focus on knowledge of objective facts which constituted the loss or detriment.
[11]
Applying that approach to the facts of the present case, the defender's position was
that injuria had occurred by February 2012 at the latest; and that, with the benefit of
hindsight, damnum occurred when the pursuer incurred (what turned out to be) wasted
expenditure which failed to achieve its purpose. As a matter of objective fact, loss was
therefore sustained at that time February 2012 - both when the pursuer paid a third party
to construct the slurry tank and when it paid the defender for the advice it had tendered.
Decision
[12]
The first question is whether, as the pursuer submits, it is correct that in Scots law
loss which is wholly dependent on a contingency which may or may not occur does not
amount to damnum until the contingency in fact materialises. Putting that in a slightly
different way, does Gordon's Trustees (and the earlier case of David T Morrison & Co Ltd (t/a
Trustees) leave any room for the operation of such a rule? And, if it does, was the pursuer's
loss in the present case one which was wholly dependent on a contingency which therefore
did not occur until 2016; or did it occur in 2012 when the pursuer incurred expenditure
which, as it transpired, was wasted?
[13]
The starting point is the opinion expressed in Johnston, Prescription and Limitation, at
paragraph 4.41 that so long as a pursuer is merely exposed to a contingent loss or liability,
they sustain no loss or damage until the contingency is fulfilled and the loss becomes actual.
Although Australian authority - Wardley Australia Ltd v Western Australia (1992) 109 7
ALOR 247 at 258 - is cited in support of that proposition, the author also derives support
from Law Society v Sephton, above, in which the House of Lords held that a purely contingent
claim was not in itself damage until the contingency occurred, for the purposes of the
limitation regime in England. At paragraph 22, Lord Hoffman drew a distinction between
"bilateral transaction cases" where the plaintiff's failure to get what it should have got from
a bilateral transaction was quantifiable damage even though further damage might result;
and cases (such as that one) in which a purely contingent obligation had been in curred,
concluding at paragraph 30 that a contingent liability which stands alone is not damage
until the contingency occurs. The facts in Sephton were that the defendants had negligently
certified that they had examined a solicitor's accounts and that they were compliant with the
Solicitors' Accounts Rules 1991. In fact, the accounts were not compliant, and the solicitor
subsequently misappropriated funds from clients, which the Law Society eventually had to
make good out of its Compensation Fund. An issue arose as to whether damage occurred,
and the limitation period began, when the solicitor misappropriated money, or only when a
claim was made on the fund. The House of Lords held that it was the latter. Until then,
there was the possibility of a liability to pay a grant out of the fund, but until a claim was
actually made, no loss or damage was sustained by the fund: Lord Hoffman at
paragraph 18.
[14]
Lord Doherty in Khosrowpour, above, described "some of the discussion" in Law
Society v Sephton as persuasive, although it should be noted for completeness that in saying
that, he was not referring to the paragraphs mentioned above (other than paragraph 22). In
Khosrowpour, the pursuer had given £8,000 to his mother-in-law to assist with the purchase
of a council house at a discount on the basis of an informal agreement that she would leave
the house to him in her will. While in her first will she did bequeath the house to him, she
subsequently revoked that bequest in a second will. The pursuer sued his solicitor, averring
8
that the failure to advise the pursuer to enter into an agreement with his mother-in-law
whereby she was bound to leave him the house was negligent. An issue arose as to
prescription, and although it was argued that there had merely been a contingent loss until
the second will had been executed, Lord Doherty held that damnum had occurred
immediately the pursuer had parted with the £8,000: it was self-evident that what he got in
return for payment was less than he ought to have got and that all he had was a precarious
expectancy which could be defeated at any time.
[15]
Earlier, in Kusz above, the Inner House also referred with approval to Law Society v
Sephton in holding that, where a solicitor had negligently failed to raise an action and inhibit
a builder on the dependence of an action, no immediate loss had occurred and there was no
damnum until the pursuer obtained a decree but was unable to enforce it because the
builder had alienated his assets and left the country; only then could the claim against the
builder be said to have a value, the court stating that there was then "perfection of the
contingency by the obtaining of decree for a substantial sum": paragraph [22].
[16]
Finally, in Kennedy, above, Lord Carloway stated that "where loss is inevitable, as a
matter of law, in almost all cases, loss will have already occurred", which suggests that he
had in mind that there may be a small category of cases where even future inevitable loss
does not amount to loss; from which it must follow that where loss is contingent on an
uncertain future event (or is not inevitable), it has not already occurred.
[17]
For completeness, I should mention that counsel for the pursuer founded upon
Lord Drummond Young's observation at paragraph [42] of Kennedy that apprehended
damage is different from actual damage and is not sufficient by itself to justify a claim for
compensation. However, reading on, Lord Drummond Young appears to state that even in
the case of apprehended damage where there is no quantifiable loss, there might be
9
sufficient "loss, injury and damage" for the customer to vindicate his or her rights, and
therefore for damnum to have occurred; so that passage does not entirely support the
pursuer's case.
[18]
Ultimately, however, each case must turn on its own facts, and the authorities show
that Scots law at least admits of the possibility that there are situations where damnum will
not be held to have occurred where loss is wholly dependent upon a future even t which
may or may not occur, or is otherwise merely contingent. As I have said, counsel for the
defender did not dispute that proposition as such, but his approach appeared to leave little,
if any, room for its operation, leading on to the next question, which is whether the decision
in Gordon's Trustees leaves any room for such a rule. The first point to note is that Kennedy
was decided after Gordon's Trustees and the dicta of the Lord President and Lord Drummond
Young referred to above leave open the possibility, at least, that there may be cases where
any loss is merely contingent and where damnum has not yet occurred. Second, the issue in
Gordon's Trustees was not whether the loss was merely contingent upon a future event, and
none of the cases mentioned above was cited or referred to. Turning to consider Gordon's
Trustees in more detail, the facts in that case were that the defenders had served defective
notices to quit, and, on an objective assessment, loss was held to have occurred on the date
of the expiry of the leases in question, when the tenants had not removed from the subjects.
The high point of the defender's argument is the reference by Lord Hodge to damnum
occurring when (among other things) expenditure is incurred. However, I respectfully
agree with Lord Doherty's observation in Khosrowpour at [26] that Lord Hodge was not
making an exhaustive statement of the circumstances in which loss, injury or damage might
occur, so much as providing examples to illustrate the principle he was elucidating. While
Lord Doherty's point was that there may be other instances where loss can be said to have
10
occurred, equally it can be said that Lord Hodge was not expressing the view that in every
case where expenditure has been incurred, loss must necessarily be held to have occurred
since, as I have observed, he was not addressing his mind to the issu e of purely contingent
losses.
[19]
As Lord Hodge made clear at [19] of Gordon's Trustees, the starting point is to ask,
under reference to section 11(1), when loss, injury or damage, caused by a breach of contract
(or as the case may be) first existed as a matter of objective fact. That is the date when the
prescriptive clock begins ticking, unless it is postponed by the operation of section 11(2)
or 11(3). It is section 11(3) which deals with awareness of the creditor, and what the
Supreme Court held in Gordon's Trustees was that what the creditor must be aware of is the
same loss, injury or damage of which section 11(1) speaks - viz, that he or she has not
obtained something which he or she had sought, or had incurred expenditure, there being
no need for awareness that it had been caused by a breach of duty or something going
wrong. Lord Hodge made a reference at [24] to the failure to obtain vacant possession in
that case being seen as having caused loss "with the benefit of hindsight". That (and other)
references to hindsight was the subject of discussion by the Inner House in WPH
Developments. The Inner House eschewed any notion that the approach to section 11(3) in
Gordon's Trustees was based on the use of hindsight knowledge; rather, it had been
mentioned simply for the "uncontroversial proposition that loss can occur even though at
the time it is not appreciated, but subsequent events allow it to be recognised as such":
paragraph [33]. Finally, it should be observed that in WPH Developments, the sheriff had
rejected an argument that the damnum was uncertain or contingent, and that part of his
judgment was not challenged, but there was no suggestion in the Inner House that it was no
longer part of the law of Scotland that contingent loss did not amount to damnum.
11
[20]
Drawing all of this together, there is nothing in the ratio of Gordon's Trustees, or in
Lord Hodge's reasoning, or in the reasoning of the Inner House in Kennedy or WPH
Developments which requires the prescriptive clock to begin running where any loss is purely
contingent. In accordance with Gordon's Trustees the starting point in all cases must be to ask
when, objectively assessed, loss first occurred, but there remains a distinction between loss
which has occurred (even though not appreciated as such at the time) and loss which has
not yet occurred (but may do so in the future), the latter being purely contingen t and not
amounting to damnum.
[21]
That all said and as counsel for the pursuer acknowledged, it is not always easy to
decide on which side of the line an individual case lies. In some cases, the loss can clearly be
seen to have been inevitable from the outset. In Midlothian Council the fourth defender (a
firm of engineers) had failed to carry out adequate site investigations and failed to advise
the pursuer on the need for a ground defence system. In reliance on the advice given by that
defender, the pursuer, between December 2006 and June 2009, incurred the costs of
construction of a housing development on the site, which was uninhabitable because of
ground gas, and later had to be demolished. Damnum was held to have occurred by, at the
latest, June 2009. The site had been uninhabitable from the outset, and it was inevitable that
the expenditure incurred by the pursuer would turn out to have been wasted, even though
they had not known it at the time. In WPH Developments Limited the pursuer property
developers suffered loss as soon as they constructed walls on land they did not own, in
reliance on negligent site drawings prepared by the defender architects. Again, it was
inevitable that the walls would have to be moved even though that had not been known at
the time. However, inevitability cannot be the sole test. In Khsorowpour, the pursuer's loss
cannot be said to have been inevitable from the outset, since the pursuer's mother -in-law
12
might not have revoked her will. That is, rather, an example of a case where immediate loss
was incurred because the pursuer had obtained something which was less valuable than it
ought to have been, another example of which is Beard v Beveridge Herd and Sandilands in
which there was a negligent failure to include a rent review clause in a lease, renderin g the
lease immediately less valuable.
[22]
On the other hand, nor can the test be whether the pursuer was in a more precarious
position, which could have been said of the creditors in both Law Society v Sephton and Kusz,
the only cases cited in argument where the creditor's loss was held to be contingent, and the
facts of which are outlined above. In Law Society v Sephton, Lord Hoffman drew a distinction
between transaction cases, where some loss could be said to have occurred at the outset
through the acquisition of something immediately less valuable, and those other cases
where the loss was merely contingent. That seems to be the correct test to apply, rather than
asking whether the loss was inevitable or whether the creditor was in a more precarious
position, although doubtless these will both be relevant considerations to take into account.
Putting it another way, if the creditor has suffered no more th an a mere risk of future
loss - as was the situation in both Law Society v Sephton and Kusz - then loss cannot be said to
have occurred. There must be something more, such as acquisition of an asset which is
immediately less valuable than it ought to have been.
[23]
I turn now to the fact of the present case. Applying Gordon's Trustees, when can it be
said that some loss, injury or damage first existed as a matter of objective fact? To hold that
it occurred in 2012, more than four years before the slip occurred, is not so much to apply
hindsight as to look at matters in 2012 through the prism of a hypothetical crystal ball. Even
with the benefit of hindsight, it cannot be said that loss had occurred in 2012, in the sense
that it had in any of the cases discussed above. In 2012, there was merely a risk that a slip
13
might occur in which event the pursuer would suffer loss; but until that happened the
pursuer could not be said to have suffered detriment. The pursuer had not acquired
something that was necessarily less valuable than it ought to have been. It was simply not
known whether or not a slip would occur. The pursuer would have been unable to raise an
action against the defender before the slip occurred. The situation is to be contrasted with
that which would have existed if (unknown to anyone at the time) the slip had already
occurred but had not yet caused the slurry tank to suffer damage; or a chain of events had
been set in motion whereby it was inevitable that the embankment would slip. In both of
those scenarios, it could objectively be said that the pursuer had suffered loss, albeit it did
not know it; but that is not pled by the defender.
[24]
It follows that the pursuer's loss was purely contingent until the slip did in fact occur
in 2016. Until then, it could not be said that the pursuer had suffered any loss; there was
merely a risk that it might. Accordingly, damnum did not (on the facts averred) occur
until 2016, and the pursuer's claim has not prescribed.
Disposal
[25]
For all of the above reasons, I have repelled the defender's fourth plea-in-law. The
action will proceed to proof before answer on the remaining averments and pleas.
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