[New search]
[Printable PDF version]
[Help]
SHERIFFDOM OFGLASGOW AND STRATHKEVIN AT GLASGOW
[2025] SC GLA 10
GLW-CA74-24
JUDGMENT OF SHERIFF D N TAYLOR
in the cause
4U2 LIMITED
Pursuer
against
GLASGOW CITY COUNCIL
Defender
Glasgow 14 February 2025
The Sheriff, having resumed consideration of the cause, Sustains the third plea in law for the
defender and Dismisses the action; Assigns a hearing on expenses to take place on
27
February 2025 at 9.30 am within Glasgow Sheriff Court, 1 Carlton Place, G5 9DA to call in
open court.
NOTE
Background
[1]
I heard counsel in debate in this ordinary cause action on 26 November 2024.
[2]
The pursuer seeks payment of the sum of £39,062.50 with interest. The action arises
out of an application for grant assistance made by the pursuer to the defender in June 2020.
The application was made in terms of the Small Business Grant Fund. Although this fund
2
was financed by the Scottish Government it was administered by local authorities, in this
case the defender.
[3]
The pursuer avers that its application for grant assistance from the fund was refused
by the defender. It is averred that the defender negligently misrepresented the reason for
the refusal of the application and that the pursuer suffered loss as a result.
[4]
The debate proceeded in respect of the defender's third plea in law which is a
general plea to the relevancy and specification of the pursuer's averments.
[5]
For the purposes of the debate the parties' written pleadings are contained within a
record, No 12 of process dated 13 March 2024. In advance of the debate parties lodged
written submissions; Nos 13 and 14 of process for the pursuer and defender respectively. A
joint bundle of authorities was lodged in electronic form. Counsel supplemented their
written submissions by oral submissions at the debate. In the course of the debate, it was
accepted by both parties that I was entitled to look at the contents of the first inventory of
productions for the pursuer containing Nos 5/1 to 5/4 of process in considering the relevancy
and specification of the pursuer's pleadings. At the conclusion of the debate, I made
avizandum.
[6]
I now issue my judgment.
The defender's submissions
[7]
The defender adopted its written submissions, No 14 of process.
[8]
Having regard to the test in Jamieson v Jamieson 1952 SC (HL) 44 the pursuer's case
was bound to fail even if it proved everything it offered to prove.
[9]
In order to succeed the pursuer must establish:
(a)
that the defender owed the pursuer a duty of care;
3
(b)
that the defender breached that duty; and
(c)
that, as a result of that breach, the pursuer has suffered loss and damage.
[10]
In relation to the existence of a duty the defender pointed out that the case concerns
an administrative decision made by a local authority. The primary issue for determination
by the court is whether, in communicating the reasons for its decision on the pursuer's
application, the defender owed a common law duty of care to the pursuer.
[11]
The defender referred to Robinson v West Yorkshire Chief Constable [2018] AC 736. In
Robinson the Supreme Court explained the ratio of the decision in Caparo Industries PLC v
Dickman and Others [1990] 2 AC 605. In Caparo the House of Lords applied a tripartite test.
For a duty of care to exist there had to be foreseeability, proximity and it had to be fair, just
and reasonable to impose a duty. Many courts, including the Court of Appeal in Robinson,
had been misapplying that tripartite test.
[12]
With reference to paragraphs 21, 26, 27 and 29 of Lord Reed's speech in Robinson the
correct approach was to consider firstly whether the duty claimed fell within established
precedents. It was only in novel cases that the court required to look beyond established
precedents to consider whether a duty of care existed.
[13]
The defender submitted that this case is a novel one. None of the cases cited by the
pursuer at paragraph 8 of its written submissions involved a duty of care to avoid economic
loss being imposed on a public body issuing reasons for an administrative decision. To
impose a duty of care upon the defender in these circumstances would be a development of
the law.
[14]
Adopting the approach in Robinson two issues arose. Firstly, any development in the
law would need to be incremental. Secondly, the proposed duty would need to pass the
tripartite test set out in Caparo.
4
[15]
The imposition of a duty of care in this case would involve an "explosive" expansion
of the law. Local authorities and other public bodies make administrative decisions every
day. It would impose a significant burden on those making such decisions if they were to
owe a duty to take care for the financial wellbeing of those effected by their decisions. In
that respect the proposed development of the law could not be categorised as incremental.
[16]
Secondly, the duty of care averred by the pursuer did not meet the Caparo test.
[17]
With reference to Lord Bridge's speech in Caparo at pages 620H to 621A there was no
proximity between a body making an administrative decision and an applicant such as the
pursuer.
[18]
Neither was the fair, just and reasonableness test satisfied. Where a public body
issues reasons for its decision those reasons must be adequate. If the reasons are inadequate
the party concerned has a remedy in judicial review. It follows that the pursuer had a
remedy in judicial review if he considered the reasons given by the defender for its decision
to be inadequate. In these circumstances it would not be fair, just or reasonable to impose a
common law duty of care upon the defender.
[19]
Furthermore properly categorised the pursuer's claim is for pure economic loss.
There is no suggestion that the pursuer has suffered any loss of, or damage to, its property
as a result of the alleged breach of duty. Where only economic loss is sustained the
circumstances in which the law will impose a duty of care are much narrower. Reference
was made to pages 619B to F, 620H to 621B and 621D to F of Lord Bridge's speech in Caparo.
A duty to take care to avoid purely economic loss only existed where the defender knew
that its statement would be relied upon by the pursuer for the purpose of entering into a
specific transaction or a transaction of that kind. The type of situation in which a duty had
5
been imposed was where the defender had knowledge or expertise which was imparted to
the pursuer.
[20]
The defender referred to the cases cited at paragraph 7(a) of its written submissions
(Hedley Byrne & Co Limited v Heller Partners Limited [1964] AC 465; Caparo Industries Plc v
Reidhaven's Trustees 2014 SC (UKSC) 121; Playboy Club London Ltd v Banca Nazionale del Lavoro
SpA [2018] 1 WLR 4041; Royal Bank of Scotland Plc v Bannerman Johnstone Maclay 2005 SC 437
professional person, eg an accountant in Hedley Byrne & Co Limited, which was relied upon
by the claimant in relation to a specific transaction or a transaction of a particular kind. It
was accepted that a public body could come under a duty to take care to avoid economic
loss if the appropriate circumstances existed. Here though the factual circumstances were
far removed from the circumstances which could instruct a duty of care. There was no
underlying transaction which the pursuer was contemplating entering into.
[21]
The defender also referred to the cases cited by the pursuer at paragraph 8 of its
written submissions (Ministry of Housing and Local Government v Sharp [1970] 2 QB 223,
Wokingham BC v Arshad [2023] PIQR P5). In Ministry of Housing and Local Government a
transaction was contemplated. The defendant had issued a certificate which it knew would
be relied upon by the plaintiff. That factual matrix was consistent with the circumstances in
which the authorities had held that a duty of care should exist. It did not matter that the
defendant was a local authority. All of the other cases cited by the pursuer as being closely
analogous involved similar situations. They are all distinguishable from the present case.
6
[22]
Finally under this heading the defender referred to the use of the phrase "the
voluntary assumption of responsibility" in Hedley Byrne. It is clear from the speeches of all
of the Lords in Caparo that this phrase should not be taken as a test for the establishment of a
duty of care in cases of negligent statement.
[23]
In summary, on the duty point, the defender submitted that the pursuer's case is
irrelevant because the averments cannot establish that a duty of care was owed by the
defender to the pursuer.
[24]
Even if a duty of care was owed by the defender to the pursuer it was submitted that
there are no relevant averments of breach of duty.
[25]
The defender referred to the pursuer's averments in Article 4 of condescendence:
"In the June 2020 representations the defenders represented that the pursuer's
application had been refused for want of evidence that self catering accommodation
was the primary source of income for the pursuers. In the March 2023
representations, the defenders represented that the pursuers' application had, in fact,
been refused for want of evidence that the pursuers were actively trading. On the
hypothesis that the true reason that the pursuers' application was refused was that
given in March 2023, the reason given in June 2020 was false."
[26]
These averments are flawed for two reasons. Firstly, there can be more than one
reason for refusal of an application. Secondly, the averments proceed on the basis of a
hypothesis. Central to the hypothesis is the email sent by the defender to the pursuer dated
30 June 2020. It is claimed that this email misrepresents why the decision was made, ie it
misrepresents the actual reasons for the decision. However, it is clear from the words used
in the email that the defender had not made any decision in relation to the pursuer's
application. The email of 30 June 2020 was not a refusal of the application but rather a
request for further information. On that basis all that the pursuer offers to prove is that
there was a misrepresentation as to why the application was not progressed. There is no
discrepancy between the defender's communications in June 2020 and March 2023.
7
Accordingly, the pursuer's case is bound to fail as there are no relevant averments that any
duty owed by the defender to the pursuer was breached.
[27]
The pursuer's averments of loss are contained within Article 4 of condescendence. It
is averred inter alia: "Had they been asked to demonstrate that they actively traded at the
salient time they could and would have evidenced this."
[28]
There is no specification of what evidence the pursuer would have produced.
[29]
Furthermore it is averred in Article 4 that:
"Alternatively, and in any event, the pursuers have lost the chance of providing such
further evidence (which they would have done if they had been told accurately the
reasons that their application had been refused) and having their application
reconsidered on the basis of all such evidence."
[30]
The weaker alternative rule, as explained in Haigh & Ringrose Ltd v Barrhead Builders
Ltd 1981 SLT 157 applies to this averment. The pursuer does not offer to prove that the
application would have been granted on reconsideration. There is no averment as to what
further evidence would have been submitted nor of how the eligibility criteria for the grant
would have been met. The case is irrelevant for these reasons too.
[31]
In conclusion the defender invited me to sustain its third plea in law and dismiss the
action.
The pursuer's submissions
[32]
The pursuer adopted its written submissions, No 13 of process.
[33]
The court should only dismiss an action of damages for alleged negligence on the
grounds of relevancy in rare and exceptional cases (see Miller v South of Scotland Electricity
Board 1958 SC (HL) 20 at p 33).
8
[34]
It is accepted that the decision made by the defender could have been challenged by
judicial review. However, that does not mean that the pursuer does not have a remedy in
damages against the defender at common law (see Davy v Spelthorne BC 1984 AC 262 per
Lord Fraser at p275 A - B and per Lord Wilberforce at p278 E H and p279 A - B).
[35]
Put simply, the approach to be adopted in deciding whether a duty of care exists is to
determine first of all whether the case is a novel case. If the case is a novel one the Caparo
test should be applied.
[36]
This is not a novel case. It is a straightforward case of negligent misrepresentation.
The fact that the defender is a local authority does not make the case a novel one. Following
the approach in Commodity Solution Services Ltd v First Scottish Searching Services Ltd 2019
SC (SAC) 41 (per Sheriff Braid pp52 53, paragraphs 30, 31 and 33) the court should seek to
identify a feature or features of a case which is or are legally novel rather than factually
novel.
[37]
The pursuer also referred to the Court of Appeal's decision in Ministry of Housing and
Local Government v Sharp and Another [1970] 2 QB 223 and in particular to Lord Denning's
judgment at p265G - 266D and p268E - G. There Lord Denning states that if a public officer
is given an official duty (such as the registrar in Ministry of Housing and Local Government) he
is personally responsible for seeing that the duty is carried out.
[38]
The defender's submission that for a duty of care to exist there had to be a specific
transaction in contemplation is made in the context of the claim being a claim for pure
economic loss. The argument is based on Lord Bridge's explanation of the law in Caparo.
However, with reference to the summary of the arguments at p610B - C of the report it is
clear that the comments about a specific transaction were made in the context of that case.
9
[39]
At p638 A - E of Caparo, Lord Oliver explains what can be taken from the Hedley
Byrne case in relation to the conditions which give rise to a duty of care. He identifies four
conditions as being required to establish the necessary relationship between the maker of a
statement or giver of advice and the recipient. The first of these conditions is that the advice
be required for a purpose, whether particularly specified or generally described, which was
made known, either actually or inferentially, to the adviser at the time the advice was given.
The remaining three conditions focus on the purpose for which the advice is required and
do not refer to the advice being required for a specific transaction. Accordingly, all that the
pursuer has to establish in this case is that the statement made by the defender was required
by the pursuer for a purpose.
[40]
The purpose in this case was so that the pursuer can know the true reasons for the
defender's decision and take such steps as it can to challenge the decision. It is clear from
the emails sent by the pursuer to the defender contained within No 5/2 of process that the
pursuer wanted to understand the true reason for the refusal of the application.
[41]
Even if it is necessary to point to a specific transaction which the pursuer was
contemplating entering into the pursuer has made relevant averments. The specific
transaction in question is the pursuer's instruction of his solicitor. At Article 4 of
condescendence the pursuer avers that:
"The defenders, as the decision makers, knew or ought to have known that the
reasons given by them for the refusal of the pursuers' application would be relied
upon by the pursuers. In particular, the defenders knew or ought to have known
that the reasons given (sic) them for the refusal of the pursuers' application would be
relied upon by the pursuers to determine whether to provide further evidence in
support of their application or a further or renewed application, or alternatively, to
decide whether to challenge the defenders' decision by complaint, judicial review or
otherwise"
10
[42]
In fact the Small Business Grant Fund has now been closed. No further grants are
available under the Fund. Accordingly, there would be no point in the pursuer seeking
judicial review of the defender's decision now.
[43]
In summary, on the duty issue, the principles relating to the duty to take care to
avoid making a negligent statement were summarised in the judgement of Neill LJ in
McNaughton Ltd v Hicks Anderson & Co [1991] 2 QB 113 at p122B - 127B. All of the features
required to give rise to a duty of care owed by the defender to the pursuer were present in
this case (see the pursuer's written submissions at paragraph 6)
[44]
In relation to the issue of breach of duty the pursuer submitted that it was irrelevant
that there may be more than one reason for a decision. What mattered was that only one
reason for the defender's decision was communicated to the pursuer in June 2020. A
different reason was given for refusal of the application in March 2023.
[45]
It is accepted that the pursuer's case proceeds on a hypothesis. The pursuer is
entitled to proceed on that basis given that it does not know the actual reason for refusal of
the application. The pursuer is entitled to assume that the second email sent by the defender
in March 2023 stated the correct reason for refusal of the application. That is a perfectly
valid hypothesis in the circumstances.
[46]
There is a clear discrepancy between the defender's communications in June 2020
and March 2023. The email of 30 June 2020 refers to "the primary source of income for the
applicant". The letter of 13 March 2023 states that "4U2 Ltd was not actively trading".
Different words are used. It matters not whether the email of 30 June 2020 is treated as a
refusal or failure to progress the application. What matters is that the statement was
inaccurate.
11
[47]
On the issue of loss, the pursuer submitted that it had made relevant averments of
loss. It was averred in Article 4 that if the true reason for refusal had been disclosed
appropriate evidence would have been produced and the application would have been
granted. Even if the pursuer's primary case is irrelevant it still has a relevant claim for loss
of chance. The averments which are criticised by the defender are relevant averments of the
loss of a chance of having the application granted. There is no weaker alternative.
[48]
In conclusion the pursuer invited me to repel the defender's first and second pleas in
law and quoad ultra to allow parties a proof before answer of their averments under
reservation of both parties' third pleas in law.
Decision
[49]
In their submissions, parties analysed the case under the headings of duty, breach
and loss. I shall adopt the same approach in explaining the reasons for my decision.
Duty
[50]
In Robinson v Chief Constable of West Yorkshire Police (supra) the Supreme Court held
that the tripartite test set out in Caparo Industries PLC v Dickman and Others (supra) should
not be regarded as the test of whether or not a duty of care is owed in all cases. The court
should first of all consider whether the case is a novel one in which the duty of care has not
been recognised in previous cases (per Lord Reed in Robinson at paragraph 27).
[51]
Only in a novel case should a court then consider whether the law should be
developed to recognise the existence of the duty of care claimed. Development should take
place in an incremental way. The court should also consider whether it is fair, just and
reasonable to impose a duty in the circumstances.
12
[52]
Commodity Solution Services Ltd v First Scottish Searching Services Ltd 2019 SC (SAC) 41
is a recent example of how the principles explained in Caparo and Robinson should be
applied to determine whether a duty of care exists. Following the approach adopted by
Sheriff Braid as he then was in Commodity Solution at paragraph 31 it is necessary first of all
to consider whether the case is a novel one. To do that the legally significant features of the
present case should be determined and compared with the legally significant features of
previous cases.
[53]
The pursuer's case is one of negligent misrepresentation. The negligent
misrepresentation is averred to have been made by the defender when giving its reasons for
an administrative decision. The claim is for pure economic loss. These are the legally
significant features of the case.
[54]
It is accepted by the defender that in appropriate cases a public body can owe a duty
of care to a party to avoid making a negligent misrepresentation. What is in issue is whether
those circumstances exist in this case. The pursuer argues that its case is not a novel one as it
falls within the established parameters of a claim for damages for negligent
misrepresentation. The difficulty with that proposition is that it ignores the factual and legal
context in which the allegedly negligent misrepresentation was made. The pursuer was
unable to cite any case in which the court has imposed a duty of care on a public body to
avoid causing economic loss when issuing its reasons for an administrative decision. That in
itself renders the case a novel one.
[55]
Following Commodity Solution the next step in the analysis of whether a duty of care
is owed is to consider previously decided cases to see if they are analogous.
13
[56]
The pursuer cites four cases which it claims are closely analogous: Ministry of
Housing and Local Government v Sharp [1970] 2 QB 223, Davy v Spelthorne BC [1984] AC 262,
Welton v North Cornwall DC [1997] 1 WLR 570 and Wokingham BC v Arshad [2023] PIQR P5.
[57]
In Ministry of Housing and Local Government v Sharp, the Ministry of Housing had
paid compensation of £1,828 to the proprietor of land. A compensation notice was
registered in the register of local land charges. Planning permission was subsequently
granted so that the £1,828 became repayable by any future purchaser to whom notice was
given. A clear search was given by the registrar following a search negligently carried out
by a clerk. Two key issues arose in relation to liability: (1) whether the registrar, as keeper
of the register, was under a duty towards the Ministry (and if so, whether that was an
absolute duty or one of reasonable care); and (2) whether the searcher, for whom the local
authority was vicariously liable, owed a duty in tort to the Ministry. The judge at first
instance found neither the registrar nor the local authority liable. The majority of the Court
of Appeal allowed the appeal only in so far as it related to the local authority, but refused it
in so far as it related to the registrar
[58]
As Sheriff Braid observed at paragraph 39 of Commodity Solution, the most detailed
judicial explanation of the decision in Sharp is by Lord Mance in Customs and Excise
Commissioners v Barclays Bank plc [2006] UKHL 28. At paragraph 110 of the Customs and
Excise case Lord Mance stated:
"The closest case to the present...is Sharp. But the statutory scheme there was aimed
at protecting persons in respect of property purchases and so far as necessary for that
purpose, overriding other proprietary interests. Again, it would have been
incongruous if a person relying on such a certificate to his detriment could have a
claim because of the closeness of the situation to Hedley Byrne, but the minister whose
cause of action for reimbursement was extinguished had none (cf per Lord Denning
MR at p 268H and Salmon LJ at p 278FH). I consider that...Sharp was rightly
decided. It was referred to without disapproval in the speeches of both Lord
Templeman and Lord Griffiths in Smith v [Eric S] Bush [(a firm)...The result reached
14
was eminently fair, just and reasonable. The role of land registrar was established as
a public service to keep accurate records and provide reliable information. The
information was to enable buyers to be secure in the property rights they acquired
but concomitantly to override other property interests in the public interest in order
to achieve this, even though such security and overriding occurred through
negligence of the registrar or a clerk fulfilling his function. It would be unjust if no
compensation could be obtained for the adverse consequences on property rights of
negligence of an official performing such a service in the public interest."
[59]
It can be seen that Lord Mance regarded it as important that the negligent act of the
clerk which was complained of in Sharp was carried out in the course of performing a
statutory function. The position in the present case is different. When issuing reasons for its
decision to the pursuer the defender was not performing a statutory function in the way the
clerk in the Sharp case was.
[60]
The second case cited by the pursuer is Davy v Spelthorne. In this case the defendant
served an enforcement notice upon the plaintiff in respect of his use of premises within its
area. The plaintiff did not appeal against the enforcement notice and the time for appeal
expired. The plaintiff raised proceedings against the defendant seeking an injunction,
damages for negligence and an order setting aside the notice on the basis that he had not
appealed against the enforcement notice because of negligent advice tendered by the
defendant or its officers. The Court of Appeal ordered that the claims for injunction and
setting aside be struck out on the basis that they raised questions of public law which could
only be determined by judicial review. The defendant appealed seeking to have the
remaining claim for damages for negligence struck out. The grounds of appeal were that the
damages claim was barred by the terms of section 243(1) of the Town and Country Planning
Act and that the plaintiff was asserting a public law right which could only be pursued by
judicial review. The House of Lords dismissed the appeal. It held inter alia that the
15
plaintiff's action did not raise any issue of public law since he was not seeking to impugn a
public authority's decision but was bringing an ordinary action of tort.
[61]
As stated by Lord Fraser at p269E - F the most important issue in Davy was whether
a person with a cause of action against a public authority, which is connected with the
performance of its public duty, was entitled to proceed against the authority by way of an
ordinary action, as distinct from an application for judicial review. Much of the discussion
in the speeches is concerned with this issue. There is no detailed discussion of the legal basis
of the plaintiff's claim against the defendant. Although Hedley Byrne and other negligent
advice cases were cited in argument none of these cases are discussed in the speeches. In
addition, a different feature in Davy to the present case is that in Davy the plaintiff's claim
was based on negligent advice which he alleged the defendant or its officers had tendered to
him. There is no suggestion in the present case that the defender gave negligent advice to
the pursuer.
[62]
In Welton v North Cornwall DC an environmental health officer employed by the
defendant inspected the plaintiff's guest house and advised him that substantial building
work needed to be carried out to the premises to ensure that they complied with statutory
regulations. In fact, the requirements stipulated by the officer were vastly in excess of what
the regulations required. The plaintiff sued the defendant claiming damages for the
unnecessary expenditure he had incurred as a result of the negligent misstatements of its
officer. The claim succeeded at first instance. The defendant's appeal was dismissed by the
Court of Appeal who held that that in purporting to impose detailed requirements, enforced
by threat of closure and close supervision, the officer had assumed a responsibility to take
care in the statements he made to the plaintiff as to the alterations necessary to secure
compliance with the relevant food legislation, knowing that they would rely on the accuracy
16
of those statements. Since the officer had been acting outside his statutory powers and
duties it was unnecessary for the court to consider whether the imposition of a duty of care
was in the circumstances fair, just or reasonable, or contrary to public policy.
[63]
It is apparent from all three of the judgments in Welton that the Appeal Court's
decision was based upon application of the principles stated in Hedley Byrne (per Rose LJ at
p580D; per Ward LJ at p583C - E and per Judge LJ at p588H - 589A). Indeed, as observed by
Lord Justice Ward the position of the plaintiff in Welton was stronger than that of plaintiffs
in other cases where advice had been tendered negligently. Lord Justice Ward took the view
that the officer had imposed detailed requirements upon the plaintiff rather than simply
tendering advice. Following his analysis and application of the principles in Hedley Byrne,
Lord Justice Rose considered the issue of statutory duty. In particular, he explored whether
the existence of a statutory duty incumbent upon the defendant excluded the application of
a common law duty of care under Hedley Byrne principles. In analysing this issue he
commented that:
"When considering the impact of statutory duty on the relationship in the present
case, it seems to me that there are at least three categories of conduct to which the
existence of the defendants' statutory enforcement duties might have given rise.
First, there might be conduct specifically directed to statutory enforcement, such as
the institution of proceedings before the justices, the service of an improvement
notice and the obtaining of a closure order, in an emergency or otherwise. Such
conduct, even if careless, would only give rise to common law liability if the
circumstances were such as to raise a duty of care at common law (see per
Lord Browne-Wilkinson in X (Minors) v. Bedfordshire County Council [1995] 2 A.C.
633, 735); and such a duty is not raised if it is inconsistent with, or has a tendency to
discourage due performance of, the statutory duty: see per Lord Browne-Wilkinson
in X (Minors) v. Bedfordshire County Council, at p. 739. Secondly, there is the offering
of an advisory service: in so far as this is merely part and parcel of the defendants'
system for discharging its statutory duties, liability will be excluded so as not to
impede the due performance of those duties: see per Lord Browne-Wilkinson in X
(Minors) v. Bedfordshire County Council, at p. 763. But, in so far as it goes beyond this,
the advisory service is capable of giving rise to a duty of care; and the fact that the
service is offered by reason of the statutory duty is immaterial: see per Lord Browne-
Wilkinson, at p. 763. Thirdly, there is the conduct which is at the heart of this case,
17
namely the imposition by Mr. Evans, outwith the legislation, of detailed
requirements enforced by threat of closure and close supervision."
[64]
Wokingham BC v Arshad is the most recent case cited by the pursuer as being closely
analogous. This case concerned a taxi driver who held a taxi license issued by the Council.
He bought a replacement taxi and was given certain advice by the Council about steps
which were required to bring the vehicle up to the appropriate standard. He claimed inter
alia that the advice given to him was negligent and that his taxi licence was suspended as a
result. He claimed damages from the Council for psychiatric illness, consequential loss and
aggravated and exemplary damages. At first instance Mr Arshad was found entitled to
general damages for psychiatric illness. His claims for consequential loss and aggravated
and exemplary damages were dismissed. The Council appealed. In delivering his judgment
in the High Court, Mr Justice Bourne held that the trial judge was correct in finding that it
was fair, just and reasonable to impose a duty of care to avoid economic loss which would
be a reasonably foreseeable consequence of negligence. There was no obstacle to recovering
damages where bad advice led to a person entering into a flawed transaction which caused
them to suffer loss of a foreseeable kind. However, the psychiatric injury claimed by the
plaintiff was not so reasonably foreseeable to make it appropriate for the local authority to
owe a duty of care to him in that respect. On that basis the Council's appeal was allowed.
[65]
It is clear from Mr Justice Bourne's judgment that he treated the case as one in which
the Council had given advice to Mr Arshad outside any form of statutory certification. As
such he regarded the case as falling within the second of the categories of conduct identified
by Lord Justice Rose in Welton (see paragraph 61 above). The case was an example of the
Hedley Byrne duty extending to a statement made by a local authority official in the context
18
of, but nevertheless outside, a statutory regulation process (Wokingham BC at p197,
paragraph 36).
[66]
I have summarised the facts and what I consider to be the legally significant features
of the four cases cited by the pursuer. I do not consider any of these cases to be closely
analogous to the circumstances of the present case. In Sharp the negligent act complained of
occurred in the course of the performance of a statutory function. In both Welton and
Wokingham the context was advice tendered or requirements imposed by a public authority
outwith the permitted exercise of its statutory duties. The ratio of Davy v Spelthorne is
concerned with the interaction of a remedy for damages at common law with the right to
pursue a public law remedy by judicial review. In none of the cases cited by the pursuer has
the court imposed a duty of care on a public body to avoid causing economic loss when
issuing its reasons for an administrative decision. For these reasons I do not regard the
imposition of a duty of care upon the defender in this case as being an incremental
development in the law.
[67]
The defender submitted that even if the duty of care averred by the pursuer was
regarded as an incremental development in the law the duty nonetheless did not meet the
fair, just and reasonableness test set out in Caparo. The pursuer had a remedy in public law
if it considered that the reasons given by the defender for its decision were inadequate. In
such circumstances the pursuer could seek judicial review of the defender's decision. To
impose a common law duty on the defender for negligent misstatement would impose a
radical new burden on public authorities.
[68]
In response the pursuer cited passages from the speeches of Lord Fraser (page 275A -
B) and Lord Wilberforce (pages 278E - H and 279A - B) in Davy v Spelthorne (supra). The
essence of these passages was that in that particular case there was no reason why the
19
plaintiff could not have a remedy in damages for breach of a common law duty of care and a
public law remedy for injunction and setting aside of the enforcement notice. I do not
consider that Davy v Spelthorne assists the pursuer. All that can be taken from that case in
the present context is that where the facts permit a pursuer may have a remedy in damages
as well as a remedy in judicial review.
[69]
An odd feature of this case is that there is a gap of more than two and a half years
between the defender's email of 30 June 2020 (contained within No 5/2 of process) and the
defender's letter of 14 March 2023 (No 5/3 of process). It is not clear what, if anything,
passed between the parties during this period in relation to the consideration of the
pursuer's application for grant assistance. There is nothing in the pursuer's first inventory
of productions which sheds any light on the position. Neither of the parties referred to the
time gap in their written or oral submissions. In any event I cannot speculate on the
position. What was important however was that the pursuer accepted in the course of its
submissions that it did have a remedy in judicial review.
[70]
The fact that the pursuer had a remedy in judicial review is significant. The pursuer
refers to his remedy in judicial review in his own pleadings in Article 4 of condescendence at
page 6 of the record. What is also significant is the effect that imposing a common law duty
upon the defender in these circumstances would have upon public authorities. Public
authorities and other public bodies make administrative decisions on a daily basis. To
impose a duty of care on such bodies to avoid causing a party economic loss when issuing
the reasons for their decisions would place an undue burden on them. For these reasons I
do not consider that it would be fair, just and reasonable to impose a duty of care upon the
defender in the circumstances of this case.
20
[71]
The defender submitted that there was another reason why the pursuer's averments
of duty were irrelevant. The focus of this submission was on the requirement for there to be
a sufficiently proximate relationship between the parties to give rise to a duty of care to
avoid economic loss for a negligent misstatement. The defender referred to Lord Bridge's
speech at p621D - F of Caparo where he stated:
"Hence, looking only at the circumstances of these decided cases where a duty of
care in respect of negligent statements has been held to exist, I should expect to find
that the "limit or control mechanism . . . imposed upon the liability of a wrongdoer
towards those who have suffered economic damage in consequence of his
negligence" rested in the necessity to prove, in this category of the tort of negligence,
as an essential ingredient of the "proximity" between the plaintiff and the defendant,
that the defendant knew that his statement would be communicated to the plaintiff,
either as an individual or as a member of an identifiable class, specifically in
connection with a particular transaction or transactions of a particular kind (e.g. in a
prospectus inviting investment) and that the plaintiff would be very likely to rely on
it for the purpose of deciding whether or not to enter upon that transaction or upon a
transaction of that kind".
[72]
The defender submitted that Lord Bridge spelled out in this passage that the liability
of a defender for a negligent misstatement which causes pure economic loss is limited to a
situation in which the pursuer relies upon the misstatement for the purposes of a transaction
or transactions of a particular kind.
[73]
The pursuer argued that Lord Bridge's comments had to be interpreted in light of the
particular circumstances of Caparo which was a "transaction" case. It founded upon the
comments made by Lord Oliver in relation to the Hedley Byrne test at p. of the report where
Lord Oliver states:
"What can be deduced from the Hedley Byrne case, therefore, is that the necessary
relationship between the maker of a statement or giver of advice ("the adviser") and
the recipient who acts in reliance upon it ("the advisee") may typically be held to
exist where (1) the advice is required for a purpose, whether particularly specified or
generally described, which is made known, either actually or inferentially, to the
adviser at the time when the advice is given; (2) the adviser knows, either actually or
inferentially, that his advice will be communicated to the advisee, either specifically
or as a member of an ascertainable class, in order that it should be used by the
21
advisee for that purpose; (3) it is known either actually or inferentially, that the
advice so communicated is likely to be acted upon by the advisee for that purpose
without independent inquiry, and (4) it is so acted upon by the advisee to his
detriment. That is not, of course, to suggest that these conditions are either
conclusive or exclusive, but merely that the actual decision in the case does not
warrant any broader propositions."
[74]
The pursuer submitted that Lord Oliver's statement that the decision did not warrant
any broader propositions indicated that liability for making a negligent misstatement which
causes economic loss was not restricted to a situation in which the pursuer had a particular
transaction or kind of transaction in mind. All that the pursuer required to do was to satisfy
the four conditions set out in Hedley Byrne.
[75]
My interpretation of Lord Bridge's comments in Caparo about the necessity of there
being a particular transaction or kind of transaction to found liability is that his comments
were made in a general sense. The comments were not intended to apply only to the
particular circumstances of that case. They were expressed as a limit or control mechanism
on the liability of a party for causing economic loss by a negligent misstatement.
[76]
It seems to me that Lord Oliver's comment that "the actual decision in the case does
not warrant any broader propositions" was made about the decision in Hedley Byrne. If
Lord Oliver had disagreed with Lord Bridge's comments about the requirement for there to
be a transaction as a control mechanism it would be odd for him not to express his
disagreement in his speech. In fact at p641F G, Lord Oliver states, in referring to the case
"Thus Smith v. Eric S. Bush [1990] 1 AC 831, although establishing beyond doubt
that the law may attribute an assumption of responsibility quite regardless of the
expressed intentions of the adviser, provides no support for the proposition that the
relationship of proximity is to be extended beyond circumstances in which advice is
tendered for the purpose of the particular transaction or type of transaction and the
adviser knows or ought to know that it will be relied upon by a particular person or
class of persons in connection with that transaction."
22
[77]
These comments have been interpreted in subsequent cases as endorsing the need for
there to be a transaction in contemplation before a duty of care can be established.
[78]
In McNaughton Ltd v Hicks Anderson & Co [1991] 2 QB 113 (a case which was cited by
the pursuer) at p126, Lord Justice Neill identified a number of matters which he considered
important in determining whether a duty of care existed to prevent causing economic loss
by negligent misstatement. He commented that one of the most important matters to
consider was the state of knowledge of the adviser. In that respect, quoting from
Lord Oliver's speech in Caparo, he stated at p126D - G:
"On the other hand any duty of care will be limited to transactions or types of
transactions of which the adviser had knowledge and will only arise where `the
adviser knows or ought to know that the statement or advice will be relied upon by a
particular person or class of persons in connection with that transaction': per Lord
[79]
Reeman and Another v Department of Transport and Others [1997] PNLR 618 was a
Court of Appeal case in which the plaintiff sought damages for their economic loss suffered
as a result of the Department of Transport's negligent certification of a fishing vessel.
Lord Bingham explained in his judgment that the cases show that before a plaintiff can
recover compensation for financial loss caused by negligent misstatement his claim must
meet a number of conditions. He identified three as being particularly important ie that the
statement be plaintiff-specific, purpose-specific and transaction-specific. By transaction
specific he meant that: "the statement must be made with reference to the very transaction
into which the plaintiff has entered in reliance on it."
[80]
Both McNaughton and Reeman are English Court of Appeal cases. In Scotland the
Inner House in Royal Bank of Scotland PLC v Bannerman Johnstone McLay 2005 SC 1 SC 437
considered the scope of the Caparo test in the context of a claim for professional negligence
against a company's auditors. At paragraph 45 the Lord Justice Clerk stated:
23
"According to Caparo Industries plc v Dickman (supra), the relationship of proximity is
established where the defender knows (1) the identity of the person to whom his
advice or information is to be communicated; (2) the purpose for which that person is
to be provided with the advice or information, and (3) the fact that that person is
likely to rely upon the advice or information for the known purpose ( Caparo
Industries plc v Dickman, supra, Lord Bridge of Harwich at pp 620H621B;
Lord Oliver of Aylmerton at p 638C D; cf Lord Ordinary at paras [45] [46])."
[77]
The most recent Supreme Court case cited by the defender was Playboy Club
[81]
The facts in Playboy were that a member of the Playboy Club sought a cheque cashing
facility to enable him to exchange cheques for casino chips. The Club's policy was to seek a
banker's reference before granting such a facility. To protect the privacy of its members the
Club used another company in its group, Burlington Street Services Limited, to obtain
references on its behalf. Burlington obtained a reference from the defendant bank which
erroneously stated that the member was creditworthy. On that basis the Club granted the
cheque cashing facility to the member and lost a significant sum when the member lost
money at the casino tables. The Club sued the defendant bank in negligence. The claim
succeeded at first instance. On appeal the Court of Appeal allowed the bank's appeal on the
basis that the bank did not owe a duty of care to the Club. The only duty was owed to
Burlington to whom the reference was addressed.
[82]
The Supreme Court dismissed the appeal. In delivering the leading judgment
Lord Sumption found that the bank did not owe a duty of care to the Club in circumstances
where it had no knowledge that its reference would be communicated to anyone other than
Burlington. Lord Sumption cited the passage from Lord Bridge's speech in Caparo (referred
to at paragraph 69 above) with approval. After referring to Lord Oliver's concurring speech
in Caparo he stated at paragraph 10:
24
"The defendant's knowledge of the transaction in respect of which the statement is
made is potentially relevant for three purposes: (i) to identify some specific person or
group of persons to whom he can be said to assume responsibility; (ii) to
demonstrate that the claimant's reliance on the statement will be financially
significant; and (iii) to limit the degree of responsibility which the defendant is taken
to assume if no financial limit is expressly mentioned."
[83]
In his concurring speech in Playboy Lord Mance observed that there are passages in
the authorities which indicate that for a duty of care to arise in tort for negligent
misstatement (a) the claimant must be a specific person or within a group to whom
responsibility may be said to have been undertaken and (b) the purpose for which the
representation is required must be specifically in connection with a particular transaction or
transactions of a particular kind or must, whether particularly specified or generally
described, be made known, either actually or inferentially, to the representor. The Court of
Appeal held that neither (a) nor (b) was present in Playboy.
[84]
Lord Mance stated that, although he agreed that the appeal should be dismissed, he
did not consider that the Club should fail because it had failed to identify a particular
purpose or transaction for which the representation was required. There was no reason in
principle why a duty of care should not arise in relation to the unspecified purpose for
which the reference was required provided that the reference was requested and given in
terms showing that it was intended to be and would be relied upon.
[85]
Lord Mance's comments in Playboy might suggest that there is no requirement for a
specific transaction or type of transaction before a duty of care can arise for negligent
misstatement causing economic loss. However two points should be noted. First of all
Lord Mance's comments on this point are obiter, the leading judgment having been handed
down by Lord Sumption with whom the other Lords agreed. Secondly it is clear that
25
Lord Mance took the view that the unspecified purpose for which the bank's reference was
relied upon involved significant financial exposure.
[86]
What I take from the foregoing cases is that for the necessary proximity to exist in
this type of case the negligent misstatement must be relied upon in connection with a
specific transaction, type of transaction or particular purpose. The terms transaction and
purpose have often been used interchangeably in the authorities. What characterises the
relationship of proximity however is that in the transactions which are entered into the
pursuer incurs expenditure or suffers loss. For example, in Welton v North Cornwall DC
(supra) the plaintiffs spent money on alterations to their guesthouse to comply with the
defendant's requirements; in Wokingham BC v Arshad (supra) Mr Arshad bought a particular
Ford Galaxy car in reliance on the advice tendered by the Council's employee. In the
present case the pursuer submitted that the purpose that the negligent misstatement was
required for was to enable it to understand the true reason for the defender's decision. The
pursuer needed to know the true reason for the defender's decision so it could consider
taking steps to challenge the decision. If knowledge of a particular transaction was required,
the pursuer's instruction of its solicitor amounted to a transaction. In that respect the
pursuer referred to its averment in Article 2 of condescendence incorporating the email
chain ending 19 February 2021. In the email to the defender dated 19 June 2020 the
pursuer's director Michael McFadden stated:
"Should clarification not be forthcoming, I will pass this matter to our solicitor and
request that they formally escalate as we are being prevented from accessing a much
needed Government Grant; for which we satisfy ALL criteria; without justification".
[87]
I am far from certain that the pursuer's averments make it sufficiently clear that it is
relying on the instruction of its solicitor as a transaction for the purpose of establishing the
necessary element of proximity. In any event there is a more fundamental problem for the
26
pursuer. As I have noted above in the transactions which are referred to in the authorities
the pursuer spent money or incurred loss. As observed by Lord Sumption in Playboy (supra)
the defendant's knowledge of the transaction is relevant inter alia to demonstrate that the
claimant's reliance on the statement will be financially significant. That kind of transaction
is quite different to the transaction referred to by the pursuer, ie the instruction of its
solicitor. There is no suggestion that the pursuer would incur significant expense in relation
to the instruction of its solicitor nor that any such expense would be causally related to any
breach of duty on the part of the defender. Furthermore, the statements made by the
defender were made in the course of the defender issuing reasons for its decision on the
pursuer's application for a grant. The statements cannot be regarded as advice or
recommendations given by the defender. In that respect the present case is distinguishable
from the authorities cited by both parties where invariably the negligent misstatement
occurred in the course of advice or recommendations made by the defender. In short, I do
not consider that there was a sufficiently proximate relationship between the defender, as a
body making an administrative decision, and the pursuer as an applicant for a grant, such as
to give rise to a duty of care owed by the defender to the pursuer.
[88]
It follows from the foregoing analysis that I do not consider that the pursuer has
made relevant averments of the existence of a duty of care owed by the defender. For these
reasons I would sustain the defender's preliminary plea and dismiss the action.
Breach
[89]
The defender's secondary submission was that there were no relevant averments of
breach of duty.
27
[90]
It was submitted that the pursuer's averments were irrelevant as they proceeded on a
hypothesis. I accept as a general rule of pleading that a pursuer is entitled to base its case
upon a factual hypothesis provided that the hypothesis is supported by other factual
averments and provided that it can justifiably claim to be in ignorance of the precise facts
(see the comments about alternative averments of fact in Macphail: Sheriff Court Practice 4th
Edn at paragraph 9.37). Here the pursuer avers that two different representations were
made by the defender, in June 2020 and March 2023. It maintains that it cannot know what
the true reason for refusal of its application was. On that basis it claims it is entitled to
proceed on the hypothesis that the June 2020 representation was false. I accept that the
pursuer can reasonably claim to be ignorant of the precise reason for refusal of its
application. That information is peculiarly within the defender's knowledge. The reasons
which the pursuer avers it was given in June 2020 and March 2023 are prima facie different
reasons. On that basis I accept, that in these particular circumstances, the pursuer is entitled
to proceed on the basis of a hypothesis and I would not be prepared to treat its case as
irrelevant on this ground alone. However, the averred hypothesis must be supported by
relevant averments of fact.
[91]
The pursuer's averments of breach of duty are contained within Article 4 of
condescendence. There it is averred that the defender owed the pursuer a duty to ensure, or
at least to take reasonable care to ensure, the accuracy of statements made by the defender to
the pursuer explaining the reasons given for the refusal (my emphasis) of its application.
[92]
For this duty to have been breached there must have been a misstatement by the
defender to the pursuer of the reason for refusal of the pursuer's application.
[93]
As already noted the pursuer proceeds on the hypothesis that the true reason for
refusal of the pursuer's application was the reason given in the March 2023 representation,
28
ie that the application was refused for want of evidence that the pursuer was actively
trading. On that basis it is averred that the reason given for refusal of the pursuer's
application in June 2020 was false.
[94]
The problem with these averments is that they are not supported by relevant factual
averments. The pursuer founds on the email sent by the defender to the pursuer on 30 June
2020. This email is contained within the email string ending 19 February 2021 No 5/2 of
process which is incorporated brevitatis causa into the pursuer's pleadings. The
penultimate paragraph of the email of 30 June 2020 states: "Once we have the pertinent and
relevant information from yourself we will be able to make a determination with regard to
the grant application".
[95]
Read pro veritate this email cannot amount to a refusal of the pursuer's application.
It amounts to no more than a statement that the pursuer's application cannot be progressed
unless further information is provided.
[96]
The pursuer claimed that there was no difference between refusal of its application
and a failure to progress the application. Any alleged difference is tautological. I do not
agree. There is an obvious difference between refusing the pursuer's application and the
defender advising the pursuer that its application will not be progressed.
[97]
For the pursuer to relevantly aver breach of the averred duty it must offer to prove
that the defender falsely stated the reason for refusal of its application. The averments do
not offer to do that. Accordingly, I would dismiss the action for this reason as well.
Loss
[98]
The defender's final submission was that even if there were relevant averments of
duty and breach of duty there were no relevant averments of loss.
29
[99]
The defender referred to the pursuer's averments in Article 4 of condescendence that:
"Had they been asked to demonstrate that they actively traded at the salient time
they could and would have evidenced this. Had such evidence been forthcoming the
Defenders would have made grant assistance available to the pursuers."
[100]
These averments were criticised as lacking specification as no detail was provided of
what further information would be provided. I do not consider that the pursuer's
averments lack essential specification on this ground alone. It is true that more detail could
be provided. However, the pursuer's averments must be read as a whole.
[101]
The pursuer avers in Article 4 of condescendence that on reasonable enquiry its
trading position was vouched or was capable of being vouched. It explains why it was
unable to trade prior to 2020 which was in part due to a rat infestation in a neighbouring
property which necessitated the involvement of the defender's Environmental Health
Department. It is averred that the defender had financial information about the pursuer in
its own records. In addition, reference is made to a letter sent by Pillow Property Partners
Limited dated 11 June 2020 which is incorporated brevitatis causa into the pursuer's
pleadings. The letter from Pillow Property Partners Limited, No 5/5 of process, states that
Pillow Partners manage five properties in Drumoyne Drive, Glasgow on behalf of the
pursuer. The letter states that these properties are available 365 days a year solely as
serviced accommodation with bookings in excess of 140 days during the financial year.
Read as a whole these averments give the defender sufficient notice of its trading position
and the kind of information which might have been provided on further enquiry.
[102]
The defender also submitted that the pursuer's averments in Article 4 of
condescendence anent loss of chance were irrelevant. The defender argued that these
averments fell foul of the weaker alternative rule expressed in Haigh & Ringrose Ltd v
Barrhead Builders Ltd (supra).
30
[103]
In its written submissions the pursuer cited the Joint Liquidators of RFC 2012 plc,
Noters 2022 SLT 9. In this case at paragraphs 43 to 45 Lord Tyre explained the current
position on loss of chance claims in Scots law. He quoted from the speech of Lord Briggs in
"For present purposes the courts have developed a clear and common-sense dividing
line between those matters which the client must prove, and those which may better
be assessed upon the basis of the evaluation of a lost chance. To the extent (if at all)
that the question whether the client would have been better off depends upon what
the client would have done upon receipt of competent advice, this must be proved
by the claimant upon the balance of probabilities. To the extent that the supposed
beneficial outcome depends upon what others would have done, this depends upon
a loss of chance evaluation. This sensible, fair and practicable dividing line was laid
down by the Court of Appeal in Allied Maples Group Ltd v Simmons & Simmons [1995]
1 WLR 1602..."
[104]
Following the approach outlined by Lord Briggs a loss of chance evaluation is
appropriate where the supposed beneficial outcome depends upon what others would have
done. In the present case the outcome of the pursuer's application for grant assistance may
have depended, at least to some extent, on what others would have done. The pursuer may
have required to produce information from other parties to vouch for the fact that it was
actively trading. For example, it may have required to produce information from Pillow
Property Partners Limited and/or the occupants of the properties at Drumoyne Drive to
vouch its trading position. Furthermore, although not expressly averred, it was I believe
accepted that the Grant Fund was financed by the Scottish Government. In that further
respect the outcome of the pursuer's application may have depended on what others would
have done ie on the Scottish Government providing the finance. On that basis the pursuer
has made sufficiently relevant averments that it has lost the chance of having its application
reconsidered. I agree with the submission made by the pursuer that the weaker alternative
rule does not apply in these circumstances. The pursuer has made sufficiently relevant
31
averments that is has suffered loss either on the basis that its application for grant assistance
would have been granted or alternatively on the basis that it has lost the chance of having its
application reconsidered. For these reasons I am not prepared to treat the pursuer's
averments of loss as irrelevant et separatim lacking in specification.
Conclusion
[105]
I have found that the pursuer's averments of duty and breach of duty are irrelevant.
It follows that I shall sustain the third plea in law for the defender and dismiss the action.
[106]
No submissions were made in relation to the issue of expenses on the basis that the
position with expenses would depend on the outcome of the debate. Accordingly, I have
fixed a hearing on expenses to take place on 27 February 2025 at 9.30am Glasgow Sheriff
Court, 1 Carlton Place G5 9DA to call in open court. If parties are able to reach agreement
on the issue of expenses, they can contact my clerk to seek to have the hearing discharged
and an appropriate interlocutor pronounced.
BAILII:
Copyright Policy |
Disclaimers |
Privacy Policy |
Feedback |
Donate to BAILII
URL: http://www.bailii.org/scot/cases/ScotSC/2025/2025scgla010.html
