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Searchers owe duty of care to inhibiting creditor: Sheriff Appeal Court

11 February 2019

A professional search firm owes a duty of reasonable care to an inhibiting creditor, the continuing effectiveness of whose inhibition depends on it being disclosed by the search carried out, the Sheriff Appeal Court has ruled.

Sheriff Principal Derek Pyle, Sheriff Principal R A Dunlop QC and Sheriff Peter Braid agreed with the sheriff that it was fair, just and reasonable to hold that a duty existed, but held that the case should go to proof before answer rather than a proof restricted to quantum.

The action was brought by Commodity Solution Services Ltd and its liquidator Charles Sands, against First Scottish Searching Services in respect of a search carried out in respect of a property in Arbroath, then owned by a Mr & Mrs Gardiner. In December 2011 the pursuer company obtained decree for payment of £50,000 against Mr Gardiner, which decree remained unsatisfied to any extent. In February 2012 the company served and then registered an inhibition against Mr Gardiner. The property had been on the market since August 2010, latterly at offers over £124,950. In about March 2012 it was withdrawn from the market; in July it was sold to Mr Gardiner's son and the son's partner. The defenders were instructed to carry out a search which was exhibited to the purchasers; it did not disclose the inhibition, and the purchasers' title was registered without qualification.

The pursuers averred that the effect of s 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. The searchers owed the creditors a duty of care at common law, 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, or that the creditors received or otherwise relied on the search report or paid any fee to the searchers. The searchers argued that s 159 had made a fundamental change in the law but the Parliament had not imposed any new duty of care on searchers, as it could have, and if there was now a lacuna in the law it was one that only the 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 relied on Ministry of Housing & Local Government v Sharp (1970) in holding that the searchers owed a duty of care if they knew or ought to have known that others in proximity, namely the company 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 most relevant case was now Robinson v Chief Constable of West Yorkshire Police (2018), by which the court had first to ask whether there was an established line of authority; if, as here, there was not, 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), which held that a bank owed no duty to a creditor, of which the bank was aware, which had served a freezing injunction. Applying other tests, there had been no assumption of responsibility, no reliance, and there could be no duty.

Sheriff Braid, delivering the leading opinion with which his colleagues agreed, accepted that Robinson was the starting point. If the court was faced with a novel type of case, it had to consider which of the previously decided cases provided the closest analogy. "Having done that,... the court must decide whether to extend the law, so as to provide for a duty of care in the case before it, taking care to maintain the coherence of the law and to avoid inappropriate distinctions. In carrying out this task, the court must weigh up the reasons for and against imposing liability and ask whether the imposition of a duty of care would be just and reasonable."

The present case was novel: "there is no case (with the possible exception of Sharp...) of a duty of care being found to be owed where there has been both an absence of reliance and of a relationship of some sort between the parties, of which at least one party is aware".

Considering the possibly analogous cases, also including White v Jones (1995), Sharp was indeed the closest, "given the similarity in circumstances and the fact that there, as here, the person doing the search was unaware of the existence of the creditor whose charge was not disclosed", though the others had still be considered "in the context of considering the overall coherence of the law, and the need to avoid arbitrary distinctions".

After examining the cases, Sheriff Braid concluded that the imposition of a duty of care "would not be an unjustifiable leap". Rather, it "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."

Accordingly, applying the incremental approach could justify the imposition of a duty. Asking then whether this would be fair, just and reasonable, "there is 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 company was also unable to state whether the purchasers had been in good faith. The proper extent of any recovery was also still to be resolved. These questions were best resolved after a proof before answer.

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