Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2013] CSOH 81
CA4/12	OPINION OF LORD HODGE in the cause SANE INVESTMENTS LIMITED Pursuer; against ASTRAZENECA UK LIMITED Defender: ________________

Pursuer: I Davie; Lindsays LLP

Defender: A Delibegović-Broome; Dundas & Wilson CS LLP

3 May 2013

[1] The pursuer ("SI") is the landlord of a property at 10 York Place, Edinburgh. The defender ("AZ") was the tenant under a twenty-five year lease granted in 1982 which expired on 31 July 2007. AZ obtained the tenant's interest by assignation in 2001. SI and AZ were not able to agree on the tenant's obligations for dilapidations on expiry of the lease. SI raised this action seeking £113,796.31 as damages for the tenant's failure to perform its repair obligations under the lease and £16,258.53 as damages in respect of professional fees relating to the repair of the property.

[2] The parties sought to adopt an economic way of resolving their dispute. They initially tried to reach agreement on contested items by means of a Scott schedule. When they were not able to agree a number of items, they agreed, with the encouragement of the court, to remit to an expert reporter certain factual questions as to whether the items which they had not agreed were "wants of repair" within the tenant's repairing obligations under the lease. The parties provided in the joint remit that the reporter was to issue his report in draft and that they could intimate objections concerning any issues of law within 14 days from receipt of the draft report. Clause 10.2 of the joint remit provided:

"In the event that a party intimates any objection or objections pursuant to clause 3.2, the Reporter must apply to the Court for direction in relation to the question of law,[or the] construction of the lease so raised in any such objection. The report shall not be finalised until the Reporter has received such directions from the Court."

[3] On 28 August 2012 I received the joint remit and appointed Mr William H. Morrison, a chartered building surveyor and director of Capita Symonds, to investigate the facts and circumstances referred to in the agreed remit and to report. Mr Morrison produced a draft report dated 9 January 2013. Both SI and AZ lodged notes of objections to his draft report and on 26 March 2013 Mr Morrison produced a response to the objections. As a result of his clarification of position in that response, SI did not insist on two of its three objections.

[4] In order to save expense, the parties agreed with Mr Morrison that they would present on his behalf the issues on which directions were sought by lodging his draft report and response and by debating their objections.

[5] Having heard counsel in a debate on 3 May 2013, I decided that Mr Morrison had not erred in law in his draft report and announced my decision at the time. I agreed to give written reasons for my decision. This opinion sets out those reasons.

SI's surviving objection

[6] SI challenges the reporter's decision to refuse its claim for £4,625. In the schedule to his report he noted that SI's claim for professional fees for preparing the schedule of dilapidations and an interim fee for the negotiation of the claim had been agreed but he refused the unvouched claim for £4,625. In answer to the parties' question whether that cost should properly be categorised as a want of repair he stated that the lease was silent in relation to the landlord's ability to recover costs incurred for any subsequent negotiations. In answer to the question whether the costs existed at the ish, he stated that no evidence had been provided that SI had in fact incurred the cost claimed.

[7] Ms Davie submitted that Mr Morrison acted beyond his remit in commenting on the claim for professional fees in his draft report. The remit asked the reporter to address whether the individual "wants of repair" identified in the Scott schedule that had not been agreed were properly characterised as "wants of repair", whether the works that SI undertook to rectify the items were reasonable and necessary, and whether the costs that SI claimed were reasonable. There was no direction to him to consider professional fees. In any event, she submitted that the reporter had misconstrued the lease which provided for the recovery of such costs. He did not have adequate evidence to make the determination. She invited me to delete his comments on professional fees. Entitlement to those fees should be determined in another forum.

[8] I am satisfied that there is no substance in this challenge. Professional fees were item 76 in the Scott schedule and the claim for £4,625 was not agreed. Reading the joint remit together with the Scott schedule I am satisfied that the parties referred the issue of professional fees to the reporter. The costs of rectifying repairs at the end of a long lease almost invariably include professional fees and the parties must be taken to have referred those fees as part of the cost of rectifying the "wants of repair".

[9] The parties' subsequent actions support the view that they understood the remit to include the determination of reasonable professional fees. By email dated 4 December 2012 Mr Morrison asked parties' solicitors for certain information and to clarify whether the cost of £4,625 was a typographical error or to confirm to what it related. SI's solicitors responded on 10 December stating that it was not a typographical error but related to professional fees incurred to the surveyor. They undertook to provide further information. On 12 December Mr Morrison asked when he would receive the additional information and on 21 December SI's solicitors replied that the £4,625 was a work in progress figure for which there was no invoice and attached the other invoices from the surveyor.

[10] I accept Ms Davie's submission that the subsequent correspondence did not extend Mr Morrison's remit (Redding Park Development Co Ltd v Falkirk Council [2011] CSOH 202). But in my view it is consistent with my interpretation of the remit and suggests that at the time the parties interpreted it in a similar way. The challenge appears an afterthought when SI had failed to vouch the work in progress claim.

AZ's objections

[11] Two of AZ's objections related to the redecoration of the property. The tenant's obligation in clause 3(9) of the lease was to paint and redecorate with paper or other suitable decorative material all of the interior parts of the premises in every fifth year of the lease. After AZ (on the reporter's findings) had failed to comply with this obligation, SI redecorated the premises using vinyl wall paper throughout the building. At the ish the building had been covered by a mixture of painted anaglypta wall paper and vinyl wall paper. AZ could have redecorated the interior of part of the building with the lower specification anaglypta paper (as before) but would have had to paint that paper. The reporter looked at AZ's costs for such redecoration. He recognised that the higher specification paper entailed an improvement but balanced against that savings made from not having to paint the lower specification paper. He recorded in his response to the objections that SI had not claimed for the cost of vinyl wallpaper and the adhesive to hang it.

[12] AZ attacked his approach on the basis that SI's redecoration works had superseded AZ's obligation to redecorate. Mrs Delibegović-Broome submitted that the Reporter had failed to apply the correct legal approach to the causation of loss. AZ was liable only for losses which SI suffered as a result of its breach of contract. Before one came to consider quantification, one had to ask whether the sum the landlord claimed flowed from a breach of contract by the tenant. Only if that question was answered in the affirmative did one assess the money value of the loss.

[13] I have no difficulty with the assertion that the person whose contract has been broken can recover as damages from the party in breach only those losses that have been caused by the breach of contract. But I do not think that the reporter decided otherwise. The landlord was entitled to be placed in the same position in monetary terms as it would have been in if there had been no breach of contract. Had AZ performed its obligation to redecorate, it may be that SI would have accepted that scheme of redecoration. AZ did not and SI redecorated the interior. In such circumstances I see no error in the reporter's consideration of betterment on the one hand and savings on the other as a means of adjusting the landlord's actual expenditure to put in money terms what the landlord would have had if the tenant had complied with its obligations.

[14] I consider the obligation to redecorate every fifth year was an obligation which did not depend on the state of decoration of the premises being unsatisfactory at the date the obligation required to be fulfilled. In other words, the obligation did not arise only if there was disrepair. In my view, as Ms Davie submitted, the obligation tied into the twenty-five year term of the lease and obliged the tenant to redecorate periodically and at the end of the lease. Accordingly I reject AZ's submission that the reporter erred in failing to take into account the fact that it had redecorated the property in 2003. Mr Morrison recorded that the tenant had redecorated the property in 2003 but interpreted the lease as requiring redecoration in 2006-2007 before the ish. He did not err in law in so doing.

[15] AZ's other objection related to the cost of remedying internal damp which ran from the eaves to the basement which had been caused by blocked rainwater outlets on the roof. The costs claimed exceeded the contractor's initial estimate. SI did not have the remedial works carried out until about nine months after the ish. AZ submitted that, as SI was not entitled to receive damages for losses which could reasonably have been avoided, the reporter had erred in failing to assess whether SI could reasonably have avoided some of the cost of the repairs if it had acted more promptly. Mrs Delibegović-Broome also submitted that the reporter, who had not had sight of the landlord's insurance policy, erred in assuming that the cause of dampness could not be regarded as an "insured risk" for which the landlord and not the tenant was responsible under clause 3(6) of the lease.

[16] I am satisfied that Mr Morrison did not err in law in his treatment of the claim for internal damp. First, he considered that the costs incurred were reasonable for the works set out in the contractor's report. He pointed out that it was not unusual for costs to increase beyond an initial estimate after exposure work revealed the full extent of the remedial work and he stated that SI had not taken an unduly long time to obtain reports in September 2007. Those factual findings are consistent with an assessment of whether the costs claimed could reasonably have been avoided. Secondly, I am satisfied that there is no merit in the submission about the landlord's insurance. The risks against which the landlord was to obtain insurance were set out in clause 1(2)(f) of the lease. The specified risks did not include damage caused by blocked rainwater outlets. In any event, AZ did not put in issue the scope of the landlord's insurance policy in the Scott schedule. Even if it had, it would have been irrelevant in my view as clause 3(6) of the lease excludes from the tenant's repairing obligation the "insured risks" specified in clause 1(2)(f) and not any other risks which are covered by the insurance policy which the landlord takes out.

Conclusion

[17] As I was satisfied that Mr Morrison had not erred in law in his draft report, I did not need to make any directions.