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Midlothian Council v David Anderson Keith and others [2019] CSOH 29

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Midlothian Council v David Anderson Keith and others [2019] CSOH 29

09 April 2019

Construction costs can constitute ‘loss’ for the purposes of prescription in relation to claims against designers.

In a decision which reveals the significant extent of the implications of the UK Supreme Court’s decision in Gordon’s Trustees v Campbell Riddell Breeze Paterson (2017 SLT 1287), Lord Doherty has dismissed, on the basis of prescription arguments, a local authority’s claim against a firm of engineers in relation to site investigations which the engineers had allegedly advised on in a negligent manner.   The cost incurred by the Council in constructing the development once the site investigations had been completed was held to constitute a ‘loss’ for the purposes of prescription.

Midlothian Council’s pleaded case against the engineers, Blyth & Blyth, was quite straightforward (although it is important to note that liability was disputed by Blyth & Blyth).  The Council wished to build a new social housing development in Gorebridge.  It appointed Blyth & Blyth to provide services in relation to site investigation works at the proposed site.  The site was in a coal mining area.  The team responsible for designing and carrying out the site investigation works, which included Blyth & Blyth, assessed the risk from ground gas to be ‘low’.  Thereafter, the Council procured the building of the housing development. It was built without any ground gas defence system being put in place, such as a gas membrane.  Practical completion of the development occurred in June 2009.  In due course, the Council’s tenants moved in to the houses.  On 7 September 2013 ground gas was first detected in one of the houses, in quantities said to be harmful to human health.  Following investigations, the Council decided it was necessary to demolish and rebuild the entire housing development. 

Proceedings were raised against Blyth & Blyth on 4 September 2018 – within five years of the date upon which ground gas had first been detected in the houses, but more than nine years after practical completion.  The Council alleged that Blyth & Blyth had been negligent in performing its services, and, in particular, that they had been negligent in assessing the ground gas risk at the development site as low, rather than high.  The Council sought damages of over £12 million.  The bulk of the £12 million was rebuilding costs, but other heads of loss were also claimed including demolition costs. Blyth & Blyth denied liability. Amongst the arguments taken in their defence, it was contended that the supposed obligation on which the Council’s claim was based had prescribed. The court appointed a debate to address the prescription argument.

There was no dispute between the parties that damnum and injuria had occurred by June 2009.  The Council therefore had to rely on section 11(3) of the Prescription and Limitation (Scotland) Act 1973 in order to postpone the commencement of the five year period.  The question for decision by the court was therefore whether the Council knew, or could with reasonable diligence have known, that it had suffered loss, injury or damage (which had been caused by the act, neglect of default of Blyth & Blyth) more than five years before proceedings had been raised against Blyth & Blyth.

Blyth & Blyth argued that, on the hypothesis on which the Council’s pleadings proceeded, the development had been constructed without a ground gas defence system in reliance on Blyth & Blyth’s supposedly negligent advice.  The Council had subsequently had to demolish the entire development.  It followed that with the benefit of hindsight, the money spent by the Council on construction of the development without a ground gas defence system (around £6 million) had, on the Council’s own case, been wasted or did not achieve its purpose.  This constituted a ‘loss’ for the purposes of section 11(3).  The Council had actual knowledge of that expenditure, which had been incurred between December 2007 and practical completion June 2009.  Proceedings had therefore been raised against Blyth & Blyth several years after the five year prescriptive period had expired.

Not surprisingly, the Council admitted that it knew of the expenditure relating to construction of the development, but argued that this did not constitute ‘loss’ for the purposes of section 11(3).  The Council argued that its loss was that it had been left with an uninhabitable development, which occurred at practical completion in June 2009, but that it had not become aware of having suffered that loss (and could not with reasonable diligence have become aware of suffering that loss) until 7 September 2013 when gas was first detected in a house at the development.

Relying upon Lord Hodge’s opinion in Gordon’s Trustees, Lord Doherty held that as soon as the Council accepted Blyth & Blyth’s advice in relation to the ‘low’ ground gas risk and acted upon it, there was loss.  The Council entered into contractual obligations and incurred expenditure on the basis of the advice.  The design and construction of the development were destined to fail from the start because they were based on the advice.  Thus, the expenditure involved in constructing the development was destined to be wasted.  On the Council’s pleadings, that expenditure, which was incurred between December 2007 and June 2009, was as a matter of objective fact, loss, injury or damage caused by Blyth & Blyth’s alleged breach.  With the benefit of hindsight, the expenditure was wasted.  It did not achieve its purpose.   The Council was therefore aware of having suffered loss, injury or damage more than five years before the action was raised against Blyth & Blyth.  Any obligation on Blyth & Blyth to make reparation had therefore prescribed, and the Council’s pleadings to the contrary were irrelevant.  The action against Blyth & Blyth was dismissed.

Garry Borland QC and Alasdair McKenzie of Axiom appeared for Blyth & Blyth.  David Thomson QC of Axiom appeared for Midlothian Council.

A copy of Lord Doherty’s opinion can be found here .