DWF sued for £1m by former landlord over failure to pay for office repairs

The UK law firm, which entered the Scottish legal sector in 2012 via its merger with Biggart Baillie, is being sued by commercial property landlord Moor Row after the firm refused to carry out certain repair works at the end of its lease of the premises.

A judge in the Court of Session rejected the legal firm’s argument that the damages action and indemnity claim was “premature” and “incompetent”.

Lady Wolffe heard that the pursuer and defender were formerly landlord and tenant under a sublease of four floors of Dalmore House on Glasgow’s St Vincent Street, which came to an end in June 2016 after the firm moved its Glasgow office to 110 Queen Street.

Moor Row, which sublet the Dalmore House premises to DWF, claimed that the firm “did not leave the premises in a state consistent with its performance of the obligations owed as tenant under the lease” and raised an action seeking payment of £910,894 to carry out necessary dilapidation works.

The original basis of the pursuer’s action was one of damages for breach of certain obligations said to be owed by the defender under the lease, but in adjustments added shortly before the debate the pursuer added a case for indemnity by the defender of the obligations the pursuer owed to Tarn, as head landlord under the head lease, which wrote a letter to the pursuer in November 2016 seeking payment of the cost to complete the works.

While the defender admitted that it had breached the terms of its lease by failing to carry out any of the dilapidations works identified, it resisted the pursuer’s claims on the basis that it doubted that there was any intention to complete the repairs as the premises had subsequently been marketed for sale as a “redevelopment opportunity”.

In seeking to have the damages claim dismissed, the defender’s pleadings stated: “In these circumstances, it is reasonably believed and averred that (i) no tenders have been sought for the works; (ii) no contractor has been identified; (iii) no price for the works has been agreed with such a contractor; and (iv) no contract has been concluded for the carrying out of the works.

“It is further reasonably believed and averred that in these circumstances neither the pursuer nor Tarn Crag truly has any intention to carry out the works, and that neither will incur any costs or expenses in so doing. On a true construction of the sub-lease, the defender assumed no payment obligation to the pursuer as an alternative to its obligations ad factum praestandum under the sub-lease.”

Further, in relation to the pursuer’s case based on the indemnity, the defender argued that the action was “premature” or “irrelevant” as there had been no claim against it by the head landlord.

It averred: “In these circumstances, the pursuer presently has no liability to the Head Landlord and thus no claim against the defender, either under the indemnity or as damages at common law, for the hypothetical cost of such works.”

In a written opinion, Lady Wolffe said: “In the absence of clear language that this is what the parties intended, I do not accept that clause Seven of the Lease precludes a common law claim for damages or first requires that the works be completed before such a claim may be made. Insofar as the defender’s relevancy challenge to the pursuer’s damages claim was founded on the clauses within the Lease, it does not succeed.”

The judge also rejected the defender’s prematurity point.

Lady Wolffe explained: “First, the adjustments introducing the pursuer’s case based on indemnity post-dated the Tarn Letter. That, in my view is a complete answer to this point. Secondly, the principal ground of action is one for damages for breach of contract. The technical prematurity point did not extend to the pursuer’s principal case.

“The defender did not explore what would follow if this aspect of the pursuer’s case were deleted. If it were a truly a question of competency, nothing would preclude the pursuer raising a separate action based on the indemnity.

“Given the substantial overlap of the facts underlying the two bases of the pursuer’s claims (which, on this hypothesis, would be the present action but restricted to the damages claim, and the indemnity claim in the newly-raised separate action), that separate action would be productive of duplication of time, effort and expense.

“If that separate action were then conjoined with this case, the proceedings following on would in practical terms be indistinguishable from what otherwise will be the procedure in this case.

“If, on the other hand, the prematurity point is not one of competency or want of title to sue, but is one of discretion in terms of the procedure to be followed, I would exercise that discretion to permit the pursuer’s case based on indemnity to proceed in the present action.”

On the defender’s challenge to the pursuer’s case based on the indemnity, the judge found that the defender’s reading of “claim” as meaning, in effect, an “established liability”, was “too restrictive and is not consistent with the clear commercial purpose of such a clause”.

However, Lady Wolffe did “not entirely accept” the pursuer’s submissions as to whether it had suffered loss due to the defender’s admitted breach.

She added: “The defender is of course liable in the sense that it is admittedly in breach of the contractual repair obligation; the pursuer has sustained a legal injuria. It does not necessarily follow, however, that the pursuer has sustained a loss (or damnum) as a consequence of that breach, or that there is automatically, and without more, a liability incumbent upon the defender to make any payment in respect of its breach of obligation.

“It remains the case, in my view, that, as with any common law claim for damages for breach of contract, in the absence of a payment or liquidated damages clause in the contract, it is still incumbent upon the pursuer in such a case to prove the fact and quantum of the actual loss flowing from the defaulting party’s breach of contract. This compensatory principle lies at the very core of the Scots law on damages…

“In these circumstances, I reserve my opinion on whether proof of estimated costs would itself suffice. In any event, I would not be prepared to exclude averments on such issues as a matter of relevancy. Accordingly, it is likely that a proof or proof before answer will be the appropriate means to resolve the matters on record.”