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On 7 November 2012, the Supreme Court announced its decision in Morris v Rae [2012] UKSC 50. As explained in my case preview, the case was about the scope of the absolute warrandice clause in deeds used to transfer heritable property in Scotland.
Background
Under Scots law, all deeds transferring heritable property have an express or implied warrandice clause. Under the clause the seller warrants his title as absolute owner of the property. The clause only comes into effect upon the purchaser being subject to eviction or a threat or eviction. The obligation is one of indemnity: the seller is obliged to indemnify the purchaser in respect of any loss which he may suffer because of the lack of title.
The question that divided the Extra Division of the Inner House in this case was about when there could be said to be a threat of eviction in this instance: see Morris v Rae [2011] CSIH 30, 2011 SC 654.
The facts:a reminder
Put short, the circumstances were as follows. A (the Pursuer) bought land from B (the Defender). The Keeper of the Registers refused to register A’s title without indemnity because B was not the owner of all she purported to sell. She had purported to sell some land she did not own (“the disputed ground”). Thereafter a third person, C, approached A threatening to assert his title to the disputed ground. A paid him £70,000 for the disputed ground. It turned out that the disputed ground was, in fact, not owned by C but appeared to be owned by someone else, D, to whom, many years before, C had transferred it by way of a conveyancing error. When he was approached by C, D transferred the disputed ground to A for no consideration.
A sued B for the £70,000 and the costs associated with making good the title. B’s defence was that there had been no threat of eviction (and therefore the absolute warrandice clause could not be relied upon) because C, who made the threat to evict, did not, at the time he issued the threat, actually own the disputed land.
A offered to prove that at the time of the threat C had an unqualified entitlement, exercisable immediately, to demand a transfer of the title vested in D. He also offered to prove that, upon such a transfer, he would have had no defence to C’s threat of eviction.
Previous decisions
The Temporary Lord Ordinary (Rita Rae QC) refused B summary judgment and allowed a proof. The Inner House reversed her decision on the basis that the case pleaded by A, even if proved, would not entitle him to the remedy he sought: Morris v Rae [2011] CSIH 30; 2011 SC 654.
There were no cases on the books of this situation. The majority of the Division of the Inner House (Lord Clarke and Lord Bracadale) decided the case on the basis that the decision of the First Division of the Inner House in Clark v Lindale Homes Ltd (1994 SC 210; 1994 SLT 1053) limited eviction to cases where the purchaser was removed as the result of a Court order in favour of a party with a better title or the threat came from a party whose title was unquestionably better. A’s case had to fail because when the threat was issued C had no title at all. A’s offer to prove that C could easily have made good his title was irrelevant.
Lord Clarke said: “What the pursuer avers has apparently happened, is what Lord President Hope in Clark v Lindale Homes Ltd said would not give rise to a breach of warrandice claim, namely the defect in title being cured and then the grantee seeking to recover loss and damage based on breach of warrandice, for the cost of doing so.”
The judge in the minority, Lord Bonomy, decided that Clark v Lindvale did not so narrowly circumscribe the circumstances in which warrandice could be triggered. He would have allowed A his proof.
The case in the Supreme Court
The appeal from the Division came before the Supreme Court chaired by Lord Hope.
A asserted before the Supreme Court that when the threat was issued, C could have obtained a good title from D without any need for litigation. B made a counter-assertion that D might not have actually owned the disputed land that he had purported to transfer to A. The Supreme Court proceeded on the assumption that A would be allowed to amend his pleading if the appeal was decided in his favour.
Lord Hope gave the leading judgment reversing the decision under appeal. He promptly distinguished Clark v Lindvale saying “ the question which had to be decided in Clark … was not directed to the problem that has arisen in this case”. He went on to explain the law from first principles starting with Stair, Institutions of the Law of Scotland (1693).
On the authority of Stair Lord Hope decided that:
“The warrandice takes effect unless [B] had a relevant defence to [C’s] claim. [A] offers to prove that there was no relevant defence as, if the fact that [C] did not have a title to the disputed part had been discovered when the threat was made, [C] would have been immediately able to secure title to it with the co-operation of [D]. On these facts, if they can be established, it would seem that the claim that [A] makes is within the scope of the remedy.”
It followed that A could succeed with his is case if he could prove, at the time the threat was made, D would have made the disputed land over to C without litigation being necessary. Accordingly, the case would be returned to the Court of Session for proof.
Lord Reed issued a concurring judgment and Lords Sumption and Carnwath concurred.
In an unusual step for the Supreme Court, Lord Walker issued a separate judgment making certain criticisms of A’s case—rather than of his colleagues’ judgments—but ended by saying that: “These difficulties cannot however amount to grounds for a principled dissent.”
The outcome in this case will be welcomed by conveyancing academics as being coherent, principled and just. The approach taken by the Inner House seemed unduly technical.
Scotland’s involvement in the Supreme Court for 2012 ended this week with two appeals being heard. On Monday, there was Kinloch v HM Advocate and, on Tuesday, Lloyds TSB Foundation v Lloyds Banking Group Plc.