KEITH, MIDLOTHIAN COUNCIL AGAINST DAVID ANDERSON KEITH & Ors [2019] ScotCS CSOH

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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> KEITH, MIDLOTHIAN COUNCIL AGAINST DAVID ANDERSON KEITH & Ors [2019] ScotCS CSOH_29 (20 March 2019) URL: http://www.bailii.org/scot/cases/ScotCS/2019/2019_CSOH_29.html Cite as: 2019 GWD 12-178, [2019] ScotCS CSOH_29, 2019 SLT 1327, [2019] CSOH 29

ALLAN D RENNIE, and STEPHEN BLENNERHASSETT as former partners of the now

dissolved partnership of the FIRM OF BRACEWELL STIRLING ARCHITECTS; (SECOND)

RAEBURN DRILLING AND GEOTECHNICAL LIMITED; (THIRD) RPS PLANNING AND

[1] This commercial action arises out of a social housing development at Gorebridge

which had to be demolished a few years after it was built. The development site was located

above coal strata and former mine workings. The second and fourth defenders advised the

pursuer in relation to site investigation and assessment. In reliance on the advice the

pursuer built a development of sixty-four houses on the site. It had no ground gas defence

system. The houses were occupied by tenants of the pursuer. Following complaints of gas

in some of the houses all of the houses were found to be uninhabitable because of the danger

to health caused by gas ingress. The pursuer decanted the tenants. It demolished the

houses. It proposes to re-build housing on the site, but with a ground gas defence system.

[2] The present action for damages was formerly against four defenders. The case

against the first defender was dismissed on 11 August 2017. The third defender was

assoilzied from the conclusions of the summons on 27 June 2018. The action is now directed

only against the second and fourth defenders. The pursuer avers that they did not advise it

that a ground gas defence system was required to prevent noxious gas seeping up from the

[3] The fourth defender maintains that any right the pursuer had to claim damagers

from it has been extinguished by the operation of the short negative prescription. It also

maintains that the pursuer’s averments anent prescription are irrelevant. These issues were

the subject of a debate at the fourth defender’s insistence. The second defender did not

participate in the debate. Counsel for the pursuer and counsel for the fourth defender

lodged written notes of argument, which they adopted and supplemented with oral

submissions. I provide an outline of each party’s submissions below. The fourth defender

denies liability and disputes many of the pursuer’s averments, but for the purposes of the

[4] The pursuer avers that it appointed the fourth defender in or around early 2004 to

provide site investigation advice and services for several sites, and that in 2005 the

development site was added to the list of sites covered by the contract. It avers that the

second and fourth defenders failed to carry out adequate site investigations and failed

properly to interpret and act upon the results of such site investigations as were carried out.

The pursuer further avers that appropriate site investigations and risk assessment would

have revealed the risk of ingress from ground gas and would have led to the installation of a

ground gas defence system within, or as part of, the foundations to be installed at the site;

and that the fourth defender was negligent in failing to advise that such a system should be

installed. It avers that had appropriate advice been given it would have accepted it and that

a ground gas defence system would have been incorporated in the development. It further

avers that, in reliance on the site investigation and assessment, it engaged contractors to

construct the development, and its architects issued construction drawings which did not

provide for a ground gas defence system; that the development was built between

December 2007 and 26 June 2009; and that it incurred expenditure on its construction

throughout that period, but that the scheme as designed and constructed did not include the

specification or installation of any ground gas defence system. The houses were occupied

by tenants without incident until 7 September 2013. On that date residents of one of the

houses became ill. On investigation it soon became apparent that dangerous levels of toxic

gas were present in the houses. The tenants and their families were all decanted. The

pursuer avers (articles 31 and 42) that it was necessary to demolish the development in its

entirety, and that that was the only feasible solution. The development was demolished

[5] The pursuer claims damages of £12,077,080 from the second and fourth defenders

jointly and severally or severally (the first conclusion and article 42). It avers (article 42.11)

that its losses arise from the need to demolish the houses. About two-thirds of the damages

claimed represent the costs which it is averred will be incurred to contractors to rebuild the

development with a ground gas defence system. Other substantial heads of the damages

claimed include demolition costs and the costs associated with decanting and rehousing

tenants and their families. The pursuer does not seek to recover the costs incurred

[6] In response to the fourth defender’s prescription plea the pursuer admits that it

incurred considerable expenditure in relation to the construction of the development

throughout the course of those construction works, and that it was aware of the expenditure

“... (i) that expenditure did not constitute loss for the purposes of prescription; (ii)

[it] could not with reasonable diligence have been aware, until in or around 7th

September 2013, that it had suffered any loss, injury or damage (its loss in fact being

the completion of an inherently defective development in 2009); and (iii)

accordingly, although loss had been occasioned on completion of the development in

2009, commencement of the prescriptive period was postponed until (no earlier than)

7th September 2013, in terms of s.11(3) of the Prescription and Limitation (Scotland)

Act 1973. Knowledge of the expenditure in relation to the design and construction of

the development was not knowledge of loss, for the purposes of the 1973 Act, since

that expenditure was not loss for those purposes. As hereinafter condescended upon

the defective nature of the Works was latent until in or around 7th September 2013 at

the earliest...Proceedings against [the fourth defender] commenced on 4th September

[7] The fourth defender avers (answer 27) that the pursuer incurred considerable

expenditure in relation to the construction of the development throughout the course of the

works, which were completed in June 2009; that it was aware of the expenditure being

incurred; and that the expenditure constituted loss for the purposes of prescription. In

“... On the denied hypothesis of the [pursuer’s] averments, [the fourth defender]

breached its duties to the [pursuer] in 2006, in that there was a failure to recommend

the installation of a ground gas defence system, such as a gas membrane. In due

course ... construction of the Development proceeded in reliance on the assessment of

risk by [the fourth defender], and on the basis that no ground gas defence system

needed to be installed. The [pursuer] paid for the construction of the Development.

It incurred considerable expenditure in relation to the construction of the

Development throughout the course of the works. Those works were completed in

June 2009. The Development was completed without any ground gas defence

system (such as a gas membrane) being installed. On the [pursuer’s] case, the

Development was, in the absence of a gas membrane, inherently defective. The

[pursuer] was - obviously - aware of the expenditure which it had incurred in

connection with the construction of the Development up to and including 2009. That

expenditure was, on the denied hypothesis upon which the [pursuer’s] case

proceeds, wasted or failed to achieve its purpose – in that it did not achieve the

[8] Sections 6 and 11 of the Prescription and Limitation (Scotland) Act 1973 provide:

“6.— Extinction of obligations by prescriptive periods of five years

(1) If, after the appropriate date, an obligation to which this section applies has

(a) without any relevant claim having been made in relation to the

(b) without the subsistence of the obligation having been relevantly

then as from the expiration of that period the obligation shall be extinguished:

(1) Subject to subsections (2) and (3) below, any obligation (whether arising from

any enactment, or from any rule of law or from, or by reason of any breach of, a

contract or promise) to make reparation for loss, injury or damage caused by an act,

neglect or default shall be regarded for the purposes of section 6 of this Act as having

become enforceable on the date when the loss, injury or damage occurred.

(2) Where as a result of a continuing act, neglect or default loss, injury or damage

has occurred before the cessation of the act, neglect or default the loss, injury or

damage shall be deemed for the purposes of subsection (1) above to have occurred

(3) In relation to a case where on the date referred to in subsection (1) above (or,

as the case may be, that subsection as modified by subsection (2) above) the creditor

was not aware, and could not with reasonable diligence have been aware, that loss,

injury or damage caused as aforesaid had occurred, the said subsection (1) shall have

effect as if for the reference therein to that date there were substituted a reference to

the date when the creditor first became, or could with reasonable diligence have

[9] Mr Borland moved the court to sustain the fourth defender’s first and seventh pleas-

in-law (to relevancy and prescription). He submitted that the breach of contract upon which

the pursuer founds occurred in 2006. That was the date of injuria. Damnum had occurred

when the pursuer had incurred expenditure constructing the development in reliance upon

the fourth defender’s advice (Gordon’s Trustees v Campbell Riddell Breeze Paterson LLP 2017

SLT 1287, per Lord Hodge JSC at paragraphs 18-24; Kennedy v Royal Bank of Scotland PLC

2018 SLT 1261, per Lord President Carloway at paragraphs 19-22). It made no difference

that the pursuer’s damages claim was based on the costs of demolition and rebuilding rather

than recovering the construction costs which ultimately proved to be abortive. That did not

alter the fact that the wasted expenditure had been a loss. That expenditure took place

between December 2007 and June 2009. It had been of the order of £6 million. It was clear

with hindsight that it had been wasted expenditure. Wasted expenditure was plainly a loss

(see eg David McBrayne Limited v ATOS IT Services (UK) Limited [2018] CSOH 32, per

Lord Doherty at paragraphs 112 and 113). When the expenditure was incurred the pursuer

suffered loss. There had been the concurrence of injuria and damnum by, at the latest,

June 2009. The pursuer had been aware of the expenditure at the time it was incurred. That

was sufficient awareness of the occurrence of loss. It did not need to know that it had

suffered some detriment or that something had gone awry. With hindsight, and as a matter

of objective fact, the expenditure was a loss. The pursuer’s averments in article 27 to the

effect that the obligation had not been extinguished were irrelevant. Any obligation upon

the fourth defender to make reparation to the pursuer had been extinguished in June 2014,

more than four years before the action against the fourth defender was raised on

[10] Mr Thomson submitted that the pursuer’s averments set out a relevant case that the

obligation it seeks to enforce has not been extinguished by prescription. While he did not

dispute the principle that wasted expenditure could be loss, injury or damage, the pursuer

did not maintain that the expenditure which had been incurred to contractors had been

wasted. Rather, it maintained that the pursuer’s loss here had been that it had been left with

a development which was uninhabitable because it had no ground gas defence system.

There had been loss as a result of the fourth defender’s breach but it had not occurred until

June 2009 - when practical completion of the development had been achieved. However, the

pursuer had not become aware of having suffered loss, and could not with reasonable

diligence have become so aware, until 7 September 2013 at the earliest when the first

[11] Read properly, Gordon’s Trustees v Campbell Riddell Breeze Paterson LLP did not

support the fourth defender’s argument. In that case the court had found that the pursuers

suffered loss on 10 November 2005 when they did not obtain vacant possession of a 40 acre

field and a 50 acre field. Since they were aware then that they had not obtained vacant

possession, the commencement of the prescriptive period was not postponed by virtue of

the operation of section 11(3). Legal expenses incurred after that date seeking to assert a

right to vacant possession had been wasted expenditure, and a head of loss, but they were

not what triggered the start of the quinquennium. Moreover, in Dunlop v McGowans 1980

SC (HL) 73 and in Gordon’s Trustees the pursuers had incurred the legal expense of the

defective notices to quit before the date when each pursuer ought to have obtained vacant

possession; but in each case the date of damnum was that date and not the earlier date when

expenditure by them on the notices had been incurred. If the fourth defender’s argument

was correct the conclusion in each case ought to have been that damnum occurred at the

time of the earlier expenditure. The consequences of the argument being right would be far

reaching. It would mean that in any contract for work or services where a creditor did not

get what he bargained for, the payment (or part payment) of the price by the creditor would

be damnum; and since the creditor would be aware of the expenditure when it was incurred

he could not rely on section 11(3) to postpone the start of the prescriptive period. If the

fourth defender’s argument was correct it would effectively render section 11(3) redundant.

[12] When section 5 of the Prescription (Scotland) Act 2018 is brought into force it will

effect substantial amendment to section 11 of the 1973 Act. However, this case has to be

[13] The alleged failures by the fourth defender, which the pursuer maintains were a

breach of contract, occurred in about 2006. I understand it to be common ground that that

was the date of injuria. The pursuer does not aver that there was a continuing breach after

[14] The pursuer’s claim against the fourth defender is not one for physical damage to

property. It is a claim for financial loss. In Gordon’s Trustees Lord Hodge JSC observed:

“19. ... In s.11(1) the phrase “loss, injury or damage”... is a reference to the

existence of physical damage or financial loss as an objective fact...No question arises

under subs.(1) as to the creditor’s knowledge of that objective fact ...

Thus if, as a result of a breach of contract, a person purchases defective goods, incurs

expenditure or fails to regain possession of his property when he or she wished to do

so, the s.11(1) clock starts when the person acquires the goods, when the expenditure

is incurred or when the person fails to obtain vacant possession of the property.”

I understand both parties to accept that, as a matter of objective fact, loss, injury or damage

had occurred by June 2009. However they arrive at that conclusion by different routes. The

rival contentions are (for the fourth defender) that there was damnum when the pursuer

incurred expenditure constructing the development in reliance on the fourth defender’s

negligent advice; and (for the pursuer) that damnum did not occur until June 2009 when

practical completion of the development was achieved. It seems to me that on a proper

analysis both contentions proceed on the basis (a) that the pursuer funded and carried out

the construction work in reliance on the fourth defender’s advice; and (b) that, with

hindsight, the construction expenditure was wasted and did not achieve its purpose.

[15] The pursuer characterises its loss as getting a development which was uninhabitable,

which it says did not happen until practical completion. While it has opted to frame its

damages claim in terms of the costs associated with demolishing and reconstructing the

development, it accepts that loss was caused by the injuria long before the demolition. Ex

hypothesi of its pleadings, it ended up with an uninhabitable development; and since the

development required to be demolished, in my opinion it may reasonably be inferred that

the construction expenditure was wasted. It is difficult to see why that expenditure was not

a loss until practical completion. The date of practical completion of a construction contract

may often be significant where the contractor is obliged to perform an obligation (or

obligations) by that date (see eg Huntaven Properties Ltd v Hunter Construction (Aberdeen) Ltd

[2017] CSOH 57, per Lord Doherty at paragraphs 55, 64; Agro Invest Overseas Ltd v Stewart

Milne Group Ltd [2018] CSOH 120, per Lord Clark at paragraphs 101-102). If the relevant

obligation is not duly performed by then the contractor will be in breach, and the date of

practical completion will be the date of injuria. If the breach causes immediate loss, injury or

damage, there will be the concurrence of injuria and damnum at that time. The obligation to

make reparation will become enforceable from that point unless the appropriate date is

deemed to be a later date because of the operation of section 11(3).

[16] Here, the fourth defender was not the contractor under the construction contract for

the development. Its contract with the pursuer was an earlier agreement relating to site

investigation and assessment. The breach of the relevant obligations under that contract,

the injuria, occurred in 2006, three years before practical completion. The development had

a fundamental defect of which the pursuer was unaware at practical completion; but that

defect was present in the design of the development, and its construction proceeded in

[17] In my opinion the pursuer suffered loss, injury or damage before practical

completion. As soon as the pursuer accepted the fourth defender’s advice and acted upon

it there was damnum. The pursuer (and the construction professionals and contractors it

engaged) relied upon the advice in determining the development’s design and in carrying

out its construction. The pursuer entered into contractual obligations, and it incurred

expenditure, upon the basis of the advice. Unfortunately, the design and construction of

the development were destined to fail from the start because they were based on the advice

which the fourth defender had given. Even if, through the intervention of an extraneous

factor, the problem had been discovered before construction began, in order to put matters

right the site investigation and assessment would have had to be revisited and varied, as

would the design of the development and the content and terms of the construction

contract. Inevitably, that would have been productive of additional costs. In any case, in

my opinion it is not appropriate to approach the matter on the basis that an extraneous

factor might have intervened (Jackson v Clydesdale Bank Plc, 2003 SLT 273, per Lord Eassie at

paragraph 28; Kusz v Buchanan Burton 2010 SCLR 27, per Lord President Hamilton at

paragraph 20; Heather Capital Ltd (In Liquidation) v Levy & McRae 2017 SLT 376, per

Lady Paton at paragraph 56). Rather, in my view the correct approach is to proceed on the

basis that the development was fated to be defective because of the fourth defender’s

breach, and that the expenditure involved in constructing it would be wasted (as proved to

[18] In my opinion the expenditure which the pursuer incurred constructing the

development between December 2007 and June 2009 was loss, injury or damage caused by

the fourth defender’s breach. The expenditure was wasted. It did not achieve its purpose.

[19] The pursuer avers that it was not aware before 7 September 2013 (at the earliest) that

it had suffered loss, injury or damage. It maintains that before then it had no actual or

constructive knowledge of having suffered any loss, injury or damage.

[20] I agree that on the pursuer’s averments it was unaware before that date that anything

had gone wrong, or that it had suffered a detriment. However, I do not agree that it follows

“[20] Section 11(3), which postpones the start of the prescriptive period, is

concerned with the awareness of the creditor. But that which the creditor must

actually or constructively be aware of before the prescriptive period begins is the

same “loss, injury or damage” of which s.11(1) speaks, because subs.(3) uses the

same language and also refers back to subs.(1) when it speaks of “loss, injury or

damage caused as aforesaid”. The phrase “loss, injury or damage” must have the

same meaning in each of the subsections of s.11. There is therefore no scope for

[21] It follows that s.11(3) does not postpone the start of the prescriptive period

until a creditor of an obligation is aware actually or constructively that he or she has

suffered a detriment in the sense that something has gone awry rendering the

creditor poorer or otherwise at a disadvantage. The creditor does not have to know

that he or she has a head of loss. It is sufficient that a creditor is aware that he or she

has not obtained something which the creditor had sought or that he or she has

[22] This approach is harsh on the creditor of the obligation, where the creditor

has incurred expenditure which turns out to be wasted or fails to achieve its purpose,

because the circumstances when the prescriptive period begins may not prompt an

enquiry into the existence or likelihood of such loss. Thus a person may begin a legal

action and incur expenditure on legal fees on the basis of negligent legal advice or he

or she may purchase a house at an over value as a result of the negligent advice of a

surveyor. In each case the person may be aware of the expenditure but not that it

entails the loss. But it offers certainty, at least with the benefit of hindsight. The

trustees’ formulation by contrast would create uncertainty. If it were necessary in

order for the prescriptive period to begin that the creditor be aware that something

had gone awry and that he or she has suffered a detriment in the form of wasted

expenditure, would an adverse judgment at first instance be sufficient to establish

such an awareness of detriment if there were strong grounds for an appeal? The

result might be prolonged uncertainty. Further, a requirement that there be an

awareness of a head of loss would involve knowledge of the factual cause of the loss,

which is an interpretation that this court has rejected in Morrison v ICL.”

[22] Here, the pursuer did not know that it had not obtained what it had sought from the

fourth defender (ie competent site investigation and assessment). However, it knew

between December 2007 and June 2009 that it was incurring expenditure on construction of

the development in reliance on the fourth defender’s advice. It did not know at the time it

was being incurred that the expenditure was wasted or would fail to achieve its purpose.

Nevertheless, as a matter of objective fact, and with the benefit of hindsight, the expenditure

was wasted and it did fail to achieve its purpose. As a matter of objective fact it was “loss,

[23] I do not accept that the interpretation of section 11(3) in Gordon’s Trustees - which I

have followed - renders section 11(3) redundant. The subsection undoubtedly has a

narrower ambit than was thought to be the case before David T Morrison & Co Ltd (t/a Gael

Home Interiors) v ICL Plastics Ltd 2014 SC (UKSC) 222 and Gordon's Trustees were decided.

However it is not redundant. There are circumstances where it does postpone the

[24] In my opinion, for the foregoing reasons, it follows that the pursuer was aware of

having suffered loss, injury or damage more than five years before the action was raised on

4 September 2018; and that, accordingly, the obligation of the fourth defender to make

reparation has been extinguished by the short negative prescription. That is sufficient to

decide the case. However, I think it is also appropriate to add some observations.

[25] First, in my view it is not necessary in this case to express views on scenarios

different from the one before me. I think it preferable that guidance in relation to each such

scenario is given in a case where it forms a necessary part of the court’s decision, and where

the court has heard full submissions in relation to it. For present purposes I confine myself

to the following remarks on a scenario which Mr Thomson prayed in aid, ie a construction

contract between employer and contractor. Mr Thomson suggested that if knowledge of the

incurring of expenditure could be awareness of loss for the purposes of section 11(3), then an

employer who paid sums to a contractor as work proceeded would thereby have knowledge

of loss, injury or damage if the expenditure ultimately turned out to be wasted because of

the contractor’s breach of contract. At first blush that scenario appears to be materially

different from the present case. Here, the relevant expenditure was not payment for the

fourth defender’s advice. It was further expenditure incurred in reliance on the advice. In

the posited scenario the expenditure was the consideration for the services being provided,

not further expenditure incurred by the employer in reliance on advice given by the

contractor. Besides, injuria must either precede or be contemporaneous with damnum

(Johnston, Prescription and Limitation (2nd ed), paragraph 4.21); and the damnum must be

caused by the injuria. It is not clear that those requirements are satisfied in the posited

[26] Second, I am not persuaded that there is anything to be taken from the fact that in

Dunlop v McGowans and Gordon’s Trustees the date of damnum was the date when vacant

possession ought to have been obtained, rather than the earlier dates when the pursuers

incurred the legal expense of the defective notices to quit. In those cases no-one suggested

that damnum occurred at the earlier date. The expenditure on the notices was the

consideration for the solicitors’ services, not further expenditure incurred in reliance on their

advice. It seems doubtful that the injuria preceded or was contemporaneous with the

[27] Mr Borland asked me to sustain both his relevancy plea and his plea of prescription.

The relevancy plea seeks dismissal and the prescription plea seeks absolvitor. Plainly, I

cannot grant both dismissal and absolvitor. Having regard to that, and to the fact that the

hearing was a debate on the pleadings, I think the appropriate course is to sustain both pleas

but to grant decree of dismissal rather than decree of absolvitor. I shall reserve all questions

Scottish Court of Session Decisions