Searchers owe duty of care to inhibiting creditor, appeal court rules

Sheriff Principal Derek Pyle
Sheriff Principal Derek Pyle

Professional searcher firms owe a duty of care to creditors who have registered an inhibition, the continuing effectiveness of which depends on it being disclosed by the search carried out, the Sheriff Appeal Court has ruled.

The court refused an appeal by a firm of searchers, upholding a decision of a sheriff that a duty existed, but ruled that the case should go to proof before answer rather than a hearing restricted to quantum.

The action was brought by Commodity Solution Services Ltd and its liquidator Charles Sands, against First Scottish Searching Services over a search carried out in respect of a property in Arbroath, then owned by Mr and Mrs Ian Gardiner. 

Sheriff Principal Derek Pyle, Sheriff Principal Alastair Dunlop QC and Appeal Sheriff Peter Braid heard that in December 2011 the pursuers and respondents obtained decree for payment of £50,000 against Mr Gardiner, but he never made any payment in satisfaction of the decree. 

In February 2012 the company served and then registered an inhibition against Mr Gardiner, which was effective against the property.

The property had been marketed for sale since August 2010, initially at offers around £160,000 and later at offers over £124,950, but was removed from the market in around March 2012 before being sold in July/August that year to Mr Gardiner’s son Paul and his partner. 

The appellants were instructed to carry out a search of the Register of Inhibitions and Adjudications, which was exhibited to the purchasers, but did not disclose the inhibition.

Accordingly, the inhibition was not discharged before the sale and the purchasers’ title was registered in the Land Register without qualification.

The respondents averred that the effect of section 159 of the Bankruptcy and Diligence (Scotland) Act 2007 was that the inhibition ceased to have effect, the property having been bought “in good faith and for adequate consideration”. 

Searchers owed a “common law duty of care” to creditors, albeit the duty had only become of practical significance since the 2007 Act. 

This was although it was not said that the searchers were aware of the creditors’ existence when they undertook the search, or assumed any responsibility towards them for the content of their search and report, or that the creditors received or otherwise relied on the search report or paid any fee to the searchers. 

However, the appellants’ position was that parliament made a “fundamental change in the law” when enacting s.159 - it could have chosen to impose a duty of care on searchers but did not do so, and whether that was deliberate or if there was a lacuna in the law it was one that only parliament could fill.

A subsidiary issue was whether, if a duty of care was owed, an inhibiting creditor had to aver and prove good faith on the part of the purchaser in order to establish that s.159 was engaged.

The sheriff, following Ministry of Housing & Local Government v Sharp [1970] 2 QB 223, held that a duty of care was owed by searchers if they “knew or ought to have known that others…namely the respondents as inhibitors on the register which they were searching, would be injuriously affected by a mistake such as they admitted to making in the present case”.

On appeal the searchers argued that the sheriff erred in his approach as the law was changed by the UK Supreme Court in Robinson v Chief Constable of West Yorkshire Police [2018] UKSC 4, by which the court had first to ask whether there was analogous case law and an “established line of authority”; if, as here, the situation was novel, the court had to consider the “overall coherence of the law”, and consider whether it was “just and reasonable” to impose a duty of care.

The closest case to the present was Customs & Excise v Barclays Bank [2006] UKHL 28, in which the House of Lords held that no duty of care was owed to a bank on which a freezing injunction had been served, in circumstances where the bank knew of the creditors existence. 

In the present case, the appellants did not know of the respondents, there was no relationship of any sort between the parties or any assumption of responsibility, and thus to hold a duty of care existed would “undermine the coherence of the law”, nor would it be “just and reasonable”.

Having considered the case law Sheriff Braid, delivering the leading opinion with which the other appeal sheriffs agreed, observed that the case presented a novel situation which could not be decided in accordance with an established line of authority”.

He concluded that the imposition of a duty of care “would not be an unjustifiable leap”.

“Rather, he said, “would maintain the coherence of the law, since the respondents were entirely reliant, for the efficacy of their inhibition, on a searcher of the register finding it and reporting its existence to a potential purchaser. Additionally, the appellants could be said to have voluntarily taken on the task of searching the register (for profit), and, as such, to have assumed responsibility to the class of persons affected by that task, namely, inhibiting creditors whose inhibition were on the register”.

He continued: “The only real impediment to the existence of a duty of care remains the absence of any known relationship between the appellants. However, when it is remembered that the respondents were in fact on the register which the appellants were to search, and that the appellants’ task was to find them, coupled with the fact that the number of persons in that position is by definition restricted to creditors who had registered an inhibition against the seller, that perhaps becomes less of an issue.”

“However, when it is remembered that the respondents were in fact on the register which the appellants were to search, and that the appellants’ task was to find them, coupled with the fact that the number of persons in that position is by definition restricted to creditors who had registered an inhibition against the seller, that perhaps becomes less of an issue. Put another way, viewed objectively, there was in fact a relationship between creditors who had registered an inhibition, and the searchers tasked with finding them. The fact that, subjectively, the searchers were unaware of that relationship, because they did not carry out the search with care, does not mean that there was no relationship as a matter of law. 

“As I have pointed out, the very function of the search was to discover the existence of inhibiting creditors who were there to be found, and having regard to the fact that the appellants voluntarily undertook the search, in my view that does give rise to…a relationship of sufficient proximity as to give rise to a duty of care. Accordingly, I consider that the application of the incremental approach, and of established principles, to the facts here, could justify the imposition of a duty.”

As to whether it would be fair, just and reasonable to impose such a duty on the appellants, he added that there was an “inherent assumption in the 2007 Act (and in conveyancing practice) that inhibitions will be disclosed, at the point of sale, by properly instructed and conducted searches”. 

“It is a fact that such searches are in practice carried out by firms such as the appellants. The system therefore relies on such searches being carried out with due care… I acknowledge that the searcher cannot exclude or limit liability, but I consider that this factor is outweighed by the other factors including the ability to insure, and the fact that the extent of the risk must always be limited by the value of the property being searched against.”

However, it remained to be established that there had been a breach of duty. The remaining questions regarding good faith and loss were best resolved after a proof before answer.

© Scottish Legal News Ltd 2019

Other judgments by Sheriff Principal Derek Pyle