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Last edited 30 Nov 2020

GUS Property Management Ltd v Littlewoods Mail Order Stores Ltd

The facts of the GUS Property Management Ltd v Littlewoods Mail Order Stores Ltd concerned a building in Queen Street Glasgow owned by Rest Property Co Ltd which was damaged in late 1970/early 1971 by piling works carried out on neighbouring property for and on behalf of Littlewoods Mail Order Stores Ltd.

Serious structural damage was caused to the building owned by Rest. Rest was a wholly owned subsidiary of a holding company which in April 1972 adopted a policy of rationalising its property portfolio, involving the transfer to a newly created wholly owned subsidiary company, GUS Property Management Ltd, the plaintiffs, of various properties including the Queen Street building. Accordingly in March 1975 Rest conveyed its Queen Street building to GUS for a figure of £259,618, representing its book value. In June 1976, Rest assigned to GUS all of its claims arising out of the negligent building operations carried out on behalf of Littlewoods.

Following the assignment, GUS brought proceedings against Littlewoods claiming damages for delict (negligence) against Littlewoods, the consulting structural engineers (subsequently abandoned), the main contractors and the specialist piling sub-contractors. GUS claimed alternative heads of damage. Their first head of claim was for the sum of £350,000 representing the diminution in value of the building based on the difference between the respective values of the building in a damaged and undamaged state at the time of the building operations. The second head of claim was for the sum of £55,450 in respect of the costs of repairing the damage to the building, which costs had been incurred by GUS not Rest, after the date of the conveyance of the building but before the date of the assignment. The main contractors and the sub-contractors contended that GUS's claims should be dismissed for the following reasons:

GUS were really seeking to pursue a claim which Rest itself could have pursued at the date of the assignment; and
The only relevant loss which GUS could claim title to recover was loss suffered by Rest and recoverable by Rest at the date of the assignment; and
Accordingly, the sums spent on repairs by GUS themselves were irrecoverable; and
The alternative claim for diminution in the building's value was irrelevant since the costs of the repairs, being all that was necessary to achieve compensation, represented the proper measure of loss; and
In any event, since the property had been transferred at book value without any regard for the fact that the building had been damaged, Rest had suffered no loss and accordingly had no claim to assign to GUS.

In the Court of First Instance in Scotland, the Lord Ordinary rejected the defendants' submissions and the defendants appealed to the First Division, the Appellate court in the Scottish system. The First Division reversed the decision of the Lord Ordinary and dismissed the claims brought by GUS against the main contractor and the piling sub-contractor. GUS appealed to the House of Lords.

It will be apparent that the central issues in this case concerned the precise nature of an assignee's claim for damages against the original debtor. The First Division approached the issue from the correct starting point, namely that GUS, as assignees, could only sue in respect of claims which were vested in Rest at the time of the assignment; that is to say the assignee stands in the shoes of the assignor. However, the First Division went on to find that the assignor Rest, and consequently the assignee GUS, could not have brought a claim at the date of the assignment for the costs of repair works as Rest did not carry out those works nor had it incurred any expenditure nor any obligation in respect of those works. As for the alternative claim, the First Division felt that it did not have to deal with this claim as its quantification substantially exceeded the claim for remedial works. Nevertheless, the First Division commented that Rest would have had no claim in respect of the diminution in value because they had suffered no loss; the price, which Rest received, was the book value and would have been exactly the same even if the building had been in an undamaged state. The court considered that the position would be the same if a building with latent defects was sold at its market value in an undamaged state. The House of Lords, reversing the decision of the First Division, held:

‘That the best measure of the loss sustained was likely to, but need not necessarily, be the difference between the price obtained in the sale of the property in its damaged condition and the price it would have fetched in an undamaged state; and
That in this case the figure of price was of no relevance in estimating the plaintiffs' loss; and
That the depreciation in value and the costs of reinstatement of the building were alternative approaches to estimating the damages, the appropriate measure emerging after the leading of evidence; and
That the facts as to the costs of remedial works carried out by the plaintiffs' themselves might have evidential value for the purpose of arriving at an estimate of the loss suffered by the assignor Rest.'

Lord Keith delivering the leading judgment in the House of Lords stated as follows:

'Where the property is disposed of in an arm's length transaction for the price which it is fairly worth in its damaged condition, the difference between that price and the price which it would have fetched in an undamaged condition is likely to be the best measure of the loss and damage suffered. It may happen that the owner of the property disposes of it otherwise than by such a transaction. He may, for example, alienate it gratuitously... It is absurd to suggest that in such circumstances the claim to damages would disappear... into some legal black hole so that the wrongdoer escaped Scot-free. There would be no agreed market price available to form an element in the computation of the loss and so some other means of measuring it would have to be applied, such as an estimate in the depreciation in value or the cost of repair... It is undeniable on the pleadings that Rest suffered some loss through the defendant's operations. Its building was seriously damaged. How is the loss to be measured in money terms? One approach is to consider the extent to which the value of the building was depreciated as a result of the damage to it. Another is to assess the cost of repairs necessary to restore the building to the condition it was in before the defendant's operation. Both these approaches involve a process of estimating, an exercise familiar to courts of law... There is no doubt that the plaintiffs' pleadings were not drawn with that degree of accuracy which Counsel might normally hope to achieve. The draftsman does not appear to have had in the forefront of his mind a sound grasp of the true legal position, namely that the plaintiffs are suing not for their own loss, but for that suffered by Rest. It would, however, not be right or just to dismiss the action by reason of this formal pleading defect, which is capable of being put right by a similar amendment without any prejudice being suffered by the defendants. The plaintiffs' averments about their own expenditure on repairs to the building are not open to any objections so far as they are averments of facts. They have relevance, in my opinion, as indicating the scale of expenditure in which it is likely that Rest would have required to incur if they had continued to own the building. The facts averred may thus have evidential value for the purpose of arriving at an estimate of the loss suffered by Rest which is what the plaintiffs, as assignees of the claim, are in substance seeking to recover.'

The claims in this case were claims for damages arising from negligence. It has been suggested however that the House of Lords decision in so far as it relates to the measure of damages of an assignee is equally applicable to a claim for damages for breach of contract. It follows that the sale by the assignor for full market value or the fact that the assignor does not carry out the remedial works, go to matters of measure of damages and do not prevent an assignee from recovering its cost of remedial works or diminution in market value.

Some commentators have expressed the view that it is essential to the recovery of damage by an assignee that the assignment of the benefits of a collateral warranty is contemporaneous with the conveyance or transfer of the property, and that the assignment should, as well as the property, be expressly stated to be part of the transaction for which the purchase price is being paid (see for example Cartwright: The Assignment of Collateral Warranties' Construction Law Journal 1990 vol. 6 no. 1). Such suggestions may be very sensible practicable steps, but perhaps are not necessary as a matter of law in the light of GUS Property Management.