LEONARDO HOTEL MANAGEMENT (UK) LTD AGAINST GALLIFORD TRY BUILDING 2014 LTD AND ANOTHER

Factual and Procedural Background

This case concerns a claim brought by the tenant of a hotel property located in The City, alleging defects in the hotel's cladding system. The tenant (the Pursuer) initiated proceedings against two parties: the design and build contractor originally instructed by the landlord (the First Defender) and the architect initially appointed by the landlord (the Second Defender). The landlord had contracted the First Defender in December 2006 for a development including the hotel, and appointed the Second Defender as architect in January 2007. A novation agreement in July 2007 transferred the architect's appointment to the First Defender. Both defenders granted collateral warranties to the Pursuer in July 2008. Practical completion of the hotel was certified in February 2009, and the Pursuer leased the hotel from the landlord in December 2009, undertaking full repairing obligations under the lease.

The Pursuer alleges that the cladding system is defective due to breaches by the defenders of contractual and delictual obligations, and seeks the cost of repairs, which it contends it is obliged to carry out under the lease. The proceedings were raised in February 2021. The defenders raised preliminary arguments that the claim was time-barred under the Prescription and Limitation (Scotland) Act 1973 and challenged the relevancy and specification of the Pursuer's pleadings.

Legal Issues Presented

1. Whether the Pursuer's claim against the defenders is barred by prescription under sections 6 and 11 of the Prescription and Limitation (Scotland) Act 1973.
2. Whether the Pursuer's claim is sufficiently specified and relevant to provide fair notice to the defenders, particularly regarding allegations of breach, joint and several liability, and quantification of loss.
3. Whether the collateral warranties granted by the defenders affect the running of prescription periods and the liability of the defenders.

Arguments of the Parties

Pursuer's Arguments

• The Pursuer contends that entry into the lease did not constitute loss for the purposes of section 11(1) of the 1973 Act because the obligation to repair was contingent and triggered only when the disrepair became apparent.
• Alternatively, if loss arose on entering the lease, the prescriptive period should be postponed under section 11(3) because the Pursuer was not aware, and could not with reasonable diligence have become aware, of the cladding defects until December 2020.
• The Pursuer relies on section 6(4) to argue that it was induced, by representations in the collateral warranties granted by the defenders, to refrain from making claims, thus suspending the prescriptive period.
• Regarding specification, the Pursuer submits that its pleadings, supplemented by expert reports incorporated by reference, provide fair notice of the case, including breaches and quantum.
• The Pursuer asserts that both defenders contributed to a single loss through breaches causing the cladding defects, justifying joint and several liability.
• Further specification on quantum is acknowledged as necessary before proof but the current pleadings are sufficient at this stage.

Defenders' Arguments

• The defenders argue that the claim is prima facie prescribed as the loss arose on entering the lease in December 2009, more than five years before proceedings were raised.
• They contend that the Pursuer's reliance on sections 11(3) and 6(4) is misplaced, particularly as the collateral warranties pre-date practical completion and cannot induce error under section 6(4) in a manner that suspends prescription.
• The defenders submit that averments concerning failures to report defects to third parties are irrelevant to inducement of error affecting the Pursuer.
• They assert the Pursuer's pleadings lack sufficient specification of breaches, causation, joint and several liability, and quantum, failing to give fair notice.
• The defenders maintain that the claim should be dismissed or, alternatively, that the relevant averments be excluded from probation unless adequately specified.
• They also argue that the Pursuer's use of "believed and averred" regarding payments under the building contract is irrelevant without proof of actual payments.

Table of Precedents Cited

Court's Reasoning and Analysis

The court first addressed the issue of when the prescriptive period commenced under section 11(1) of the Prescription and Limitation (Scotland) Act 1973. It accepted that the defenders' alleged breaches occurred before practical completion in February 2009. The key question was when the Pursuer suffered loss. The court found that the Pursuer's obligation to repair was triggered immediately upon entering the lease in December 2009 because the property was already defective, applying the precedent in Scottish Widows. Therefore, the prescriptive period started then.

Regarding section 11(3), the court held that loss requires knowledge of both the obligation to repair and the existence of defects. The Pursuer averred it only became aware of the defects in December 2020, thus potentially postponing the prescriptive period. The court found this averment relevant and not conclusively disproved.

On section 6(4), the court considered whether the Pursuer was induced by the defenders' conduct or representations to refrain from making claims. It accepted the Pursuer's argument that representations in the collateral warranties, including promises about past and future conduct, could constitute inducement even if made before the claim arose, following Rowan Timber Supplies. The defenders' narrow construction was rejected.

The court also considered prescription from the perspective of the employers (landlord and first defender) regarding claims under the collateral warranties. It found the Pursuer's averments sufficient to engage sections 11(3) and 6(4) in this context as well.

Turning to specification, the court acknowledged the defenders' criticisms of the Pursuer's pleadings as initially vague and unspecific, particularly regarding breaches, causation, joint and several liability, and quantum. However, it accepted the Pursuer's explanation that the incorporated expert reports provided adequate specification of breaches and that further specification on quantum would be provided before proof.

The court found that the Pursuer's averments on joint and several liability were not irrelevant and could succeed, noting that both defenders were alleged to have materially contributed to a single loss. However, the lack of detailed quantification required clarification.

The court emphasized the principle of fair notice in commercial actions, recognizing the permissibility of abbreviated pleadings supplemented by incorporated documents, but also the need for clarity and specificity to allow proper preparation and response by the defenders.

Holding and Implications

The court REJECTED the defenders' motions to dismiss the action on grounds of prescription and lack of specification.

The court ordered the Pursuer to provide further specification of the quantification of its loss to clarify its position on quantum and joint and several liability before the case proceeds further. The case was put out by order to be addressed on further procedure in light of these decisions. All questions of expenses were reserved.

The direct effect of this decision is that the Pursuer's case is allowed to proceed to proof subject to clarification of pleadings, with no final determination on prescription or liability at this stage. No new legal precedents were established, and the ruling primarily clarifies the application of existing principles to the facts and pleadings presented.