Melville Monument liability: some doubtful dicta

An Extra Division cast doubt upon the continued existence of Melville Monument liability in Mohammed Khaliq v Londis (Holdings) Ltd [2010] CSIH 13, published on 12 February 2010. 

Melville Monument liability, as it was first dubbed by Bill Stewart (now of Stirling University), springs from the case of Walker v Milne (1823) 2 S 379, in which a landowner was held entitled to reimbursement of his expenditure in preparing a plot on his estate for a monument to Viscount Melville, based on a non-contractual understanding with the subscribers who wished to pay for the monument and have it erected.  The expenditure was wasted when the subscribers, concerned by the delays caused by other developments on the landowner’s estate, decided to put up their monument on a different site.  (For those interested in that sort of thing, the monument was to have been placed in what is now Melville Crescent, intersecting Melville and Walker Streets in Edinburgh's West End, and may still be admired in its final setting in St Andrew Square, rightwidth=240.)  The line of case law considering this decision is set out in MacQueen & Thomson, Contract Law in Scotland (2nd edn, 2007), paras 2.92-2.96.  The modern understanding as set out by Lord Cullen in Dawson International plc v Coats Paton 1988 SLT 854 is that the liability to reimburse arises when a party acts in reliance on an implied assurance by another that a binding contract exists between them when in fact there is no more than agreement which for some reason falls short of being a binding contract.

In the Khaliq case, a businessman (K) owned two neighbouring shop units in Glasgow, one of which traded as a fast-food outlet and the other of which was leased to third parties.  He wanted to join a trading group (Londis) which operated as a wholesaler supplying goods to members as well as advice and other services.  The Londis representative advised K to switch the fast-food outlet to the other unit and to refurbish the first one for Londis trading, using a company (Swallow) recommended by Londis.  K signed and submitted to Londis a membership application form, which was approved a couple of months later.  Londis prepared a store development plan for the first unit, and K instructed Swallow to proceed.  Swallow’s existing workload meant they could not start at once, and in the meantime K began the process of switching his fast-food outlet to the second unit, including contracting with a shop-fitter to refit the unit at a cost of £20,000 and having a structural beam inserted and other associated works carried out, at a further cost of just under £5,000.  All this was to the knowledge of Londis.  A year or so after the application, K was advised by Londis that his membership application was not proceeding; but he agreed with Swallow that nonetheless the refurbishment of the first unit should go ahead, and it was carried out at a cost of about £35,000.

K’s claim for his losses under the head of breach of contract by Londis failed because it was accepted that there never had been a contract between the parties, the proposed agreement not having been signed or executed by the parties.  Thus the claim rested entirely on Melville Monument liability. 

The sheriff, and upholding him, the unanimous Extra Division hold that the requirements of the claim were not met.  The expenditure in switching the fast-food outlet’s location to the second unit was not caused by any Londis representation that such action was required by or for K’s membership of the group or any supposed contract between them, albeit that the Londis representative had made the initial suggestion that the first unit would be better for Londis trading.  The expenditure on refurbishing the first unit was carried out after it became clear that there was no contract between K and Londis, and there could be no question of any assurance from Londis, implied or otherwise, that there was such a contract.

The decision on the latter point seems correct, standing the established view of Melville Monument liability requirements; but the answer on the expenditure related to the refitting of the second unit seems more questionable.  It is not the law that the reliance expenditure requires to be in performance of the supposed contract, but simply that it is caused by the implied assurance that there is a contract.  However, there might still have been room after such a conclusion to explore a point made by Lord Osborne:

“In undertaking the expenditure which he did, the appellant effected improvements in his own properties. The sheriff finds in finding-in-fact [36] that the renovations at 564 Broomfield Road remain in place and that the appellant continues to trade from both 564 and 566 Broomfield Road. It appears to me that, in that situation, it cannot be said that the appellant has received no benefit from his expenditure. In these circumstances, having regard to the formulation of the Melville Monument principle arrived at by Lord Cullen, I doubt whether it could ever be said that it was unconscionable that the appellant should be denied reimbursement of that expenditure. Putting the matter in another way, it is difficult to see why, in a context in which the appellant has in fact benefited from his own expenditure, it should be seen as equitable that he should recover it from the respondents.” (para 31)

The really disturbing thing about the Khaliq case, however, is that although the decision is justifiable within the parameters of the Melville Monument liability the judges choose to cast serious doubts upon the existence of the liability in the modern law, something never hitherto doubted.  So Lord Osborne (with whom Lord Hardie agrees) says:

[26] … it appears to me that certain subsequent developments (post Dawson v Coats Paton) may have gone a long way to removing the equitable justification which, in earlier times, was seen as underlying the Melville Monument principle. I have in mind, the provisions of section 1 of the Civil Evidence (Scotland) Act 1988, which abolished the rule requiring corroboration in civil proceedings, sections 1 and 2 of Requirements of Writing (Scotland) Act 1995, which relaxed the requirements of the law in relation to certain kinds of contract relating to heritable property, and the developments that have occurred in the law relating particularly to negligent misrepresentation. Thus, in an appropriate case, there may be justification for reconsideration of the raison d'être, or at least the scope, of Melville Monument liability.

Lord Marnoch adds his two pennorth, rather boldly suggesting that Lord Cullen got it wrong in Dawson:

[37] …  I am inclined to agree with counsel for the respondent that this whole line of authority, such as it is, has now been superseded by the legislation to which your Lordship in the Chair has referred and perhaps, also, by what are relatively recent developments in the common law of delict.

[38] It follows that, albeit with respect to Lord Cullen, as he then was, I, for my part, wish most distinctly to reserve my opinion on the correctness of the dicta or, it may be, the decision in Dawson International plc v Coats Patons plc 1988 SLT 854 insofar as relevant to this branch of the law

This is remarkable stuff, especially when it is not in the least justified by any specific discussion of either the Civil Evidence or the Requirements of Writings Acts, or any assessment of how the development of the law of negligent misrepresentation might have impacted on the quite particular situations dealt with under Melville Monument liability.  It is certainly clear that none of the developments mentioned had any view of Melville Monument liability when enacted or in the course of judicial development.  The old old misunderstanding about the relationship between law and equity in Scots law also rears its ugly head once more.  Nor are the dicta apparently informed by any awareness of comparative law: in most European systems, as pointed out in the modern literature on Melville Monument liability, there is a reliance-based liability for losses caused to a party by the bad faith breaking-off of contractual negotiations. 

It is to be hoped that the strongly-stated dicta in Khaliq do not stultify development of Melville Monument liability and leave Scots law on pre-contractual liability in a dark alleyway from which most of the rest of Europe escaped a long time ago; but it is to be feared they will have just that effect, given that this is a Division talking about an Outer House judgement, albeit one given by one of the most distinguished of modern Scottish judges.