Factual and Procedural Background
In May and June 2016, the Plaintiff contracted separately with the First Defender and the Second Defender for the design and construction of three wind turbines in Aberdeenshire. The turbines were to be erected on land leased to three Special Purpose Vehicles (SPVs) incorporated by the Plaintiff: Company A, Company B, and Company C. Until July 2017, the Plaintiff owned 50% of each SPV's shares, with the remainder owned by Company D, in which the Plaintiff now holds 15% shares; since July 2017, Company D has owned 100% of the shares. The Plaintiff’s objective was to develop a wind farm accredited under the Feed-In Tariffs (FIT) Scheme, entitling the SPVs to FIT payments based on electricity generation.
The Plaintiff claims losses arising from breaches of contract and negligence by both Defenders. He seeks recovery of losses personally and on behalf of the SPVs, the latter following amendment after a recent Inner House decision. The SPVs were convened as Defenders but have not participated following service of pleadings. The case before the court concerns the relevancy and specification of the Plaintiff’s pleadings, particularly challenging the transferred loss claim and the quantification of losses, as well as the admissibility of averments about an exclusion clause in the contract with the Second Defender.
Legal Issues Presented
- Whether the principle of transferred loss exists in Scots law such that the Plaintiff can sue for losses sustained by the SPVs, which are not parties to the contracts.
- The relevancy and specification of the Plaintiff's pleadings quantifying losses sustained by the SPVs.
- The admissibility and reasonableness of exclusion of liability clauses in the contracts, particularly the NEC3 Short Contract with the Second Defender, under the Unfair Contract Terms Act 1977.
- Other procedural and pleading criticisms raised by the Defenders.
Arguments of the Parties
Defenders' Arguments
- No principle of transferred loss exists in Scots law; the law relies on the jus quaesitum tertio to address third-party losses.
- The transferred loss claim is irrelevant as the SPVs have or should have direct rights of action, and the Plaintiff disavows any contractual intention to benefit the SPVs.
- The Plaintiff’s quantification of loss by diminution in value is irrelevant because the business continued trading; damages should be assessed by loss of profits.
- The risks relied upon by the Plaintiff (e.g., revocation of accreditation) are contingent and insufficiently specified.
- The NEC3 Short Contract is not the Second Defender’s standard terms of business; therefore, the reasonableness test under section 17 of the 1977 Act does not apply.
- Various pleading points criticize the specification and clarity of the Plaintiff’s claims.
Plaintiff's Arguments
- Scots law does recognize a transferred loss principle in certain circumstances, supported by judicial opinions and legal policy to prevent losses falling into a "legal black hole".
- The Plaintiff seeks damages directly payable to the SPVs, avoiding issues identified in the precedent case Forthwell.
- The principle of transferred loss is distinct from the jus quaesitum tertio, and the contracts were made with knowledge of the SPVs' involvement.
- Loss quantification is a matter for proof and involves applying a broad approach; diminution in value is a valid measure of damages alongside loss of profits.
- The risks cited (e.g., accreditation revocation, turbine failure) justify damages reflecting contingent future losses, consistent with established case law.
- The NEC3 Short Contract may constitute the Second Defender’s standard terms of business, triggering the reasonableness test under the 1977 Act.
- Criticisms of specification and pleading can be addressed through evidence and cross-examination rather than dismissal at this stage.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Forthwell Limited v Pontegadea UK Ltd [2024] CSIH 38; 2024 SLT 1245 |
Consideration of the transferred loss principle and its application in Scots law. |
Provided the primary recent authority; the court found its ratio narrow, allowing transferred loss claims only in limited circumstances, such as contractual intention to benefit the third party or property transfer. |
| McLaren Murdoch & Hamilton Ltd v The Abercromby Motor Group Ltd 2003 SCLR 323 |
Judicial support for the transferred loss principle in Scots law. |
Referenced as part of the historical judicial support for transferred loss, though challenged by Defenders. |
| Marquess of Aberdeen and Temair v Turcan Connell 2009 SCLR 336 |
Recognition of transferred loss principle and its limitations. |
Used to illustrate prior judicial opinion relevant to transferred loss. |
| Alfred McAlpine Construction Ltd v Panatown Ltd [2001] AC 518 |
Discussed the limits of third-party rights and transferred loss under contract law. |
Authority cited in support of the legal framework surrounding third-party claims. |
| Axon Well Intervention Products Holdings AS v Craig [2015] CSOH 4 |
Consideration of transferred loss and contractual rights. |
Referenced for its judicial analysis of transferred loss in Scots law. |
| Swynson Ltd v Lowick Rose LLP [2018] AC 313 |
English law on transferred loss requiring contractual intention to benefit third parties. |
Considered persuasive regarding the necessity of contractual intention in Scots law. |
| BV Nederlandse Industrie Van Eiprodukten v Rembrandt Enterprises Inc [2020] QB 551 |
English law on transferred loss and contractual intention. |
Referenced to contrast English and Scots law approaches. |
| Westbury Estates Ltd v The Royal Bank of Scotland PLC 2006 SLT 1143 |
Principle that Scots law evolves with social practices. |
Quoted to support the notion that transferred loss could be a developing principle. |
| Duke of Portland v Wood's Trustees 1926 SC 640 |
Principles of damages assessment and restoration. |
Supported the broad, flexible approach to quantification of damages. |
| Watson Laidlaw & Co Ltd v Pott Cassels and Williamson 1914 SC (HL) 18 |
Damages as restoration and use of broad imagination in quantification. |
Supported the approach that damages may be assessed by reference to contingent risks. |
| Golden Strait Corpn v Nippon Yusen Kubishika Kaisha [2007] 2 A.C 353 |
Damages for contingent losses and assessment as at breach date. |
Applied for the principle that damages reflect value of contractual benefits deprived by breach. |
| Bunge SA v Nidera BV 2015 Bus LR 987 |
Followed principles in The Golden Victory regarding damages assessment. |
Reinforced the approach to contingent damages in Scots law. |
| Douglas Shelf Seven Ltd v Co-operative Wholesale Society Ltd 2007 GWD 9-167 |
Consistency with damages assessment principles in Scots law. |
Referenced in support of damages assessment methodology. |
| Bwlfa and Methyr Dare Steam Colleries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426 |
Damages assessment where contingent risks may crystallize after breach. |
Supported the approach to assess damages at breach with later adjustment if risk materializes. |
| Biggin v Permanite [1951] 1 K.B. 422 |
Damages assessment when full evidence is not available. |
Supported the court’s discretion to do the best it can in quantification. |
| Marex Financial Ltd v Sevilleja [2021] AC 39 |
Prohibition on claims for reflective loss. |
Referenced to confirm that the Plaintiff cannot claim reflective loss. |
| UYB v British Railways Board 2000 WL 1629557 |
Use of alternative methods as cross-checks in damages assessment. |
Supported the Plaintiff’s use of diminution in share value as a cross-check. |
| Langstane Housing Association Ltd v Riverside Construction (Aberdeen) Ltd 2009 CSOH 52 |
Whether standard form contracts constitute standard terms of business under UCTA 1977. |
Considered in relation to the NEC3 Short Contract and its applicability to section 17 of UCTA. |
| McCrone v Boots Farm Sales Ltd 1981 SC 68 |
Interpretation of standard terms of business under UCTA 1977. |
Referenced to support the factual inquiry into whether terms are standard terms of business. |
| Border Harvesters Ltd v Edwards Engineering (Perth) Ltd 1985 SLT 128 |
Determination of standard form contracts for UCTA purposes. |
Analogous to the present case, emphasizing the need for proof on the issue. |
| McCluskey v Scott Wilson Scotland Ltd [2024] CSIH 26 |
Guidance on orders following debate or proof. |
Referenced regarding procedural approach to interlocutors following this opinion. |
Court's Reasoning and Analysis
The court began by addressing the principle of transferred loss in Scots law, which concerns whether a contracting party may recover losses suffered by a third party not a party to the contract. The court reviewed the recent Inner House decision in Forthwell, which narrowly circumscribed the circumstances in which transferred loss might be recognized, primarily where there is a contractual intention to benefit the third party or where property has been transferred. The court noted divergent judicial opinions within Forthwell, with some judges supporting recognition of transferred loss on policy grounds to avoid allowing losses to go uncompensated, while others were more cautious or dissenting.
The Defenders argued that Scots law does not recognize transferred loss beyond the established jus quaesitum tertio principle, and that the Plaintiff’s pleadings expressly disavow any contractual intention to benefit the SPVs, rendering the transferred loss claim irrelevant. The Plaintiff contended that the law evolves to meet novel circumstances and that the transferred loss principle has some basis in Scots law, distinct from the jus quaesitum tertio. However, the court found that the Plaintiff’s pleadings do not establish the necessary contractual intention to benefit the SPVs and thus the transferred loss claim must be dismissed.
On quantification of loss, the court acknowledged the Defenders’ contention that damages should be assessed by loss of profits where the business continues, and that the Plaintiff’s diminution in value approach is unconventional. Nonetheless, the court emphasized that Scots law does not adopt rigid rules for assessing damages and permits a broad approach, including contingent risks, consistent with authorities such as Duke of Portland and The Golden Victory. The court would have admitted the Plaintiff’s averments on loss to proof, had the transferred loss claim been allowed.
Regarding the exclusion clause in the NEC3 Short Contract, the court considered whether it constitutes the Second Defender’s written standard terms of business for the purposes of the Unfair Contract Terms Act 1977. The Defenders argued it could not be, citing precedent that standard form contracts drafted by professional bodies are not the party’s own standard terms. The Plaintiff disputed this, submitting that the clause was unnegotiable and used invariably by the Second Defender. The court concluded that this factual question is suitable for proof before answer and declined to exclude the Plaintiff’s averments on reasonableness at this stage.
Finally, the court addressed miscellaneous pleading criticisms by the Defenders, finding that most had been addressed by amendments or concessions and that the remaining averments should not be refused probation.
Holding and Implications
The court DISMISSED the Plaintiff’s transferred loss claim insofar as it sought recovery of losses sustained by the SPVs (the first four conclusions). Certain averments in the pleadings were to be deleted as irrelevant, though the precise scope was to be determined by interlocutor.
The court allowed the Plaintiff to proceed with other aspects of the claim, including the quantification of loss and the challenge to the exclusion clause, subject to proof. This decision means the Plaintiff cannot recover losses on behalf of the SPVs under the transferred loss principle as currently pleaded, but the claim for personal losses and other contractual issues remains alive. No new precedent was established beyond applying and interpreting the existing authority, particularly Forthwell, and emphasizing the necessity of clear contractual intention for transferred loss claims in Scots law.