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Posted August 22, 2017 | Published in Dispute resolution

“Auld Reekie” Suffers No Loss From “New Reekie” Challenge

I make no excuse for what follows. I spent a wonderful few days in Edinburgh last week, and wanted to manipulate a blog that would allow me to combine some observations I made (between a number of excellent comedy shows I attended at the Fringe festival) in respect of the number of live construction projects in Edinburgh, with some form of relevant construction update.

First, I’ll explain the first two words of the title of this blog. “Auld Reekie” originated as a less than complementary nickname for Edinburgh (but a nickname that is now often used by locals more affectionately). The words are Scots for Old Smoky and make reference to the huge amount of smoke and thick smog that once filled the air of the Old Town of Edinburgh. There is an alternative interpretation (which I kind of prefer but shares I think the same sort of historic inaccuracies as the film Braveheart) which focuses on the word “reek” being the Scots word for stink or stench, and the fact that in the past, strolling around Edinburgh, you would notice a distinctive aroma which was a combination of two factors: the many whisky distilleries and breweries that once existed in Edinburgh, and the fact that sewage from much of the Old Town ended up in a Nor Loch in the very centre of town (which Loch, now gone, is the famous Princes Street Gardens).

No such stench now as I surveyed the many cranes involved in projects: the new Forth Crossing (nearly complete); the new St James’ shopping centre development, an £850m project and one of the UK’s largest regeneration projects which is in full swing (due to complete in 2020); Edinburgh Airport’s continued five year £220m plus growth and expansion project; a wonderful football team in the west side of Edinburgh about to complete its new £15m main stand (I may have mentioned this before, and check my twitter @jonathanjcmore for some new time lapse construction shots!); and there are now serious discussions about extending the much maligned tramline from the east end of the city centre, down through Leith to Newhaven and Granton (as was originally planned).

My (admittedly) tenuous hook for imposing the above three paragraphs upon you is the recent Court of Session (which is in Edinburgh!) case of Cruden Building & Renewals (“Cruden”) v Scottish Water [2017] CSOH 98, which focused on the issue of possessory title and the resulting “no loss” situation in which Cruden found itself.

" The key clause in the Agreement considered by the Court was that Cruden Holdings had been given a licence to enter the site (but not an exclusive right of occupation) for the sole purpose of carrying out the construction works. "

By way of background, Cruden were not a main contractor in a traditional contractual set up. Fellow group company, Cruden Holdings (West) Limited (“Cruden Holdings”), had entered into a Development and Licence Agreement (the “Agreement”), as developer for the client, the Glasgow Housing Association.

As luck would have it (not for Cruden, but for me in my attempt to stitch this blog seamlessly together) the claim arose as a result of the leakage of foul water from a sewer onto the site upon which Cruden was attempting to work. This “New Reekie” drama unfolded in Glasgow, where the development site was located.

Cruden suffered delay as a consequence of the sewage leak (19 weeks in total) which resulted in additional costs that it sought to recover. However, Cruden had no contractual route upon which to recover its delay costs, as there had been no entitlement to an extension of time or loss and expense under the building contract between it and Cruden Holdings or any ability to ultimately claim for such issues from the client.

Cruden sued Scottish Water in delict (the Scottish version of tort) for recovery of its economic loss. Scottish Water responded by contesting that Cruden had no “title”, or ability, to sue as it neither owned nor had possessory title to the site.

The key clause in the Agreement considered by the Court was that Cruden Holdings had been given a licence to enter the site (but not an exclusive right of occupation) for the sole purpose of carrying out the construction works. Cruden Holdings then “delegated” its responsibility for the construction works to Cruden.

The legal issue in play here related to the principle that in order to bring such a claim the pursuer (claimant) must have had either legal ownership of, or a possessory title to, the property at the relevant time i.e. when the sewage leak occurred. Cruden clearly did not own the property but it did, as contractor, have possessory rights as a consequence of it being a party to the relevant building contract.

The question for the court was: did the possessory right of Cruden under its contract provide sufficient possessory title to support its claim?

It should be noted that this is hardly a burning issue as the most recent “on point” case was in the 19th century (for the anoraks, Cattle v Stockton Waterworks Co 1875 LR QB 453).

Cruden’s claim failed.

The court found that Cruden only had the use of the site for limited purposes i.e. to complete the works in order to make a profit. Cruden therefore had no title to sue, notwithstanding the fact that a wrong was done to the site causing Cruden economic loss, as Cruden only had contractual rights in relation to the site and not legal ownership or a possessory title. This left Cruden in a “no loss” position, notwithstanding the costs it had incurred through no fault of its own (other than question marks over the contract drafting), as it could not sue under the building contract and had no title to sue Scottish Water.

The courts usually strive to fill this type of “no loss” black hole, but justification for such a ruling, as in this case, was provided by Lord Bannatyne with reference to Candlewood Corporation v Mitsui Ltd [1986] AC 1 which found that there can be “justification for denying the right of action to a person who has suffered economic damage to… the property of another is for reasons of practical policy…” i.e. that, for example, some limitation must be imposed upon the liability of a wrongdoer towards those who have suffered damage as a consequence of his negligence (Leigh and Sillavan Ltd v Aliakmon Shipping Co. Ltd 1986 WLR 902).

This case is unusual as ordinarily the contractor would have ensured an entitlement to claim for the costs of such an event and the developer would have done so likewise "up the line" to the housing association. However, it is helpful that there is now an up to date review of the relevant principles which provides a warning to those involved in similar development projects, to ensure that such risks are properly dealt within the contract.

Scottish cases are not binding on English law; however, they are often referred to by the English courts and are “persuasive” authority. Should any reader ever have any Scots law queries please do not hesitate to contact me, as I remain legally qualified in Scots law and able to advise as appropriate.

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