Michael Upton: Searchers’ liability and the fundamentals of duties of care
Advocate Michael Upton M.C.I.Arb., of Hastie Stable, summarises a recent judgment from the Sheriff Appeal Court on establishing a duty of care for economic loss in a case against an allegedly negligent search firm being pursued for damages by the holder of an inhibition, which the searchers allegedly failed to report.
On Monday in its judgments in Commodity Solution Services v First Scottish Searching Services (DNF-A162-16) the Sheriff Appeal Court has allowed p.b.a. in an action by an inhibiting creditor seeking damages from a firm of searchers, holding it relevant to aver that the searchers owed the creditor a delictual duty of care not to overlook its registered inhibition, when reporting on a search in the Register of Inhibitions. The pursuing creditor averred that in breach of that duty, the defending searchers had wrongly reported there to be no registered inhibition, thus allowing the inhibited debtor to transfer property to third parties, to the creditor’s loss.
The searchers had been instructed by the debtor in contemplation of a sale to third parties. Commodity’s case was that an erroneously clear search had been disclosed to the third-party prospective purchasers, who proceeded to take title.
The issue arose because of the protection given to purchasers acquiring through a breach of inhibition, by the Bankruptcy & Diligence (Scotland) Act 2007. Commodity’s case was that if the purchasers were in good faith and gave adequate consideration, then their title was irreducible: 2007 Act, s. 159.
The searchers founded on the fact that they had been unaware that the creditor even existed, so had undertaken no specific responsibility to it. Even where the third party recipient of court injunction breached it, to the prejudice of the claimant who had obtained it and whose identity he knew, he owed the claimant no duty of care (Customers & Excise v Barclays Bank, 2006), so neither did the searchers here.
Sheriff Braid lucidly set four questions to determine whether a duty of care exists:
- is the case truly ‘novel’ in the context of previous cases?;
- if not, then do the previous cases establish a duty?;
- otherwise, which previous case provides the closest analogy?; and
- would it be just, fair and reasonable to impose a duty?
Sheriff Braid held the case to be novel because Commodity had not relied on anything said or done by the searchers, but analogous with Ministry of Housing & Local Government v Sharp (1970). A delictual duty could arise where one person voluntarily undertook a function knowing that the economic well-being of another person depended on his performing it properly (White v Jones (1995), and that other person was identifiable - here, from the Register, which it was precisely the searchers’ task to examine. Assumption of responsibility for a task could give rise to responsibility to a person whose protection depended on doing it carefully. Given s. 159, if searchers were not liable to inhibiting creditors, then they would have little incentive to search with care.
In effect Commodity’s grievance is the alleged failure to put the purchasers on notice; it has been allowed inquiry into whether the searchers should indemnify it for conferring on the purchasers the shield of ignorance provided by s. 159.
Sheriff Principal Pyle made some interesting remarks about Lord Hope’s article on ‘The Strange Habits of the English’ (The Stair Society’s Miscellany 6) and the reception of England’s case-by-case development of the law - “the spectre of the law of negligence being no more than a conglomeration of individual decisions on individual facts”, “a morass of single instances”, so that in Bill Wilson’s words “There is no real law here, beyond that which is to be found in the actual cases”, in contrast to the speculative hypothetical result, had Scots law tried to identify any more reliably predictive general principles on its own.
First Scottish Searching: Paul Reid; Clyde & Co.
Commodity Solution Services: Julie McKinlay, Raeburn Christie Clark & Wallace