When threats are enough

The UK Supreme Court has decided on a practical solution to a hitherto unresolved question regarding the law of warrandice

10th December 2012 | Geoffrey D Mitchell QC

Defects in title are never welcome. It is one thing if they are discovered prior to the conclusion of missives or the completion of a transaction, when the possibility of withdrawal may be available. It is a different matter when they are discovered post-completion.

In that event it may not be long before the attention of parties becomes focused on the warrandice clause in the disposition. For example, a purchaser may discover that a seller, from whom he has bought a property, did not have title. He may face a threat of eviction from a third party who does hold title. To avoid eviction, the purchaser may choose to reach a financial settlement with the third party, and then raise an action for damages against the seller for breach of warrandice.

Prior to the Supreme Court decision in Morris v Rae [2012] UKSC 50 (7 November 2012) it was understood that, in order to trigger a seller’s liability under the warrandice clause, actual eviction of the purchaser was not required. A threat might suffice, provided that the threat was made by a party with a competing title to the subjects, which was “unquestionable” and would inevitably prevail against the title of the purchaser (Clark v Lindale Homes 1994 SC 210). But what if it were to emerge that, at the time the threat was made, the third party was not the true owner, and title rested with an entirely different person? Would that be fatal to the purchaser’s claim for damages?

In Morris the court grappled with this issue, and in so doing it fulfilled what is surely one of the prime functions of a court, that of finding practical, commonsense solutions to apparently complex legal problems.

In 2004 a company, RDL, bought a plot of land in Ayr from Mrs Rae. RDL received a disposition containing the words “and I grant warrandice”. The disposition was sent for registration. The Keeper of the Registers advised RDL that Mrs Rae did not have title to part of the subjects sold. That “disputed” part belonged, it was thought, to another company, JCL. The Keeper was therefore not able to issue an unqualified land certificate: indemnity would be excluded from the disputed part, rendering it unmarketable. JCL asserted its title to the disputed part and threatened RDL with eviction. RDL paid £70,000 to JCL and in exchange received a disposition of the disputed part.

An action of damages for breach of warrandice was raised by RDL against Mrs Rae. The twist came when it was discovered – after the threat of eviction was made by JCL and the disposition exchanged in return for £70,000 – that some years previously JCL had mistakenly conveyed the disputed part to a Mr Lynch. Fortunately, Mr Lynch accepted the mistake and granted a disposition of the disputed part in favour of RDL, for no consideration. The Keeper registered this disposition without exclusion of indemnity. Mr Morris (having taken an assignation of RDL’s rights) pressed on with the action for breach of warrandice.

Mrs Rae argued that, since the title was held by Mr Lynch, a remedy in warrandice was not available because JCL had neither a registered nor an “unquestionable” title when the threat of eviction was made. Mr Morris argued that, had Mr Lynch been identified as the holder of the title, JCL would have been able immediately to secure a disposition of the disputed part from Mr Lynch (as, in fact, happened), and no proceedings would ever have been required to establish JCL’s title. Mrs Rae prevailed in the Inner House (2011 SLT 701), and the action was dismissed.

The Supreme Court unanimously allowed Mr Morris’s appeal. The court considered that what was required was proof that JCL’s ground of challenge to RDL’s title was “unquestionable” or, put another way, that RDL’s right to retain possession of the disputed part was “untenable”. The claim based on warrandice would succeed if it could be proved that when RDL yielded to the threat, JCL would have been immediately able to obtain title to the disputed part, and that no proceedings would have been required to secure that result (per Lord Hope, at para 32). In other words, it was not essential that RDL held the title at the time the threat was made; the right to claim under the warrandice clause would be triggered if RDL could prove that JCL had an “unquestionable” right to obtain a valid title.

The logic of the position adopted by Mrs Rae would have required RDL to shrug off the threat of eviction, and then to defend an action of eviction brought by JCL, on the basis that JCL did not have title. But, as Lord Reed observed, this would have been neither practical nor realistic: “If the purchaser of land is facing the prospect of undoubted eviction, even if it is not imminent, he has an immediate practical problem. He cannot, for example, let the land to a tenant for its full value, since he cannot himself grant warrandice; he cannot spend in safety the rent received from any existing tenant, since he is liable to have to account for it to a third party; and he cannot sensibly sow crops, since a third party may be entitled to harvest them. It is important for him to be able to resolve the practical problems arising from the defect in his title as soon as he can” (at para 47).

It would be a waste of time and money for a purchaser to defend eviction proceedings, when the party making the threat is “unquestionably” capable of making good on the threat (at para 47). In short, the purchaser would have “no realistic alternative” but to accede to the threat (at para 56).

Clearly all problems would have been avoided had the examination of title shown that Mrs Rae did not have title to the disputed part. Should matters proceed as far as a threat of eviction, the message to be found in Morris is that it is for the purchaser to consider whether the challenge, based on the competing title, is “unquestionable”. If eviction is bound to follow, then it would be a waste of the purchaser’s time and money to fight eviction proceedings. If he then brings an action against the seller for breach of warrandice, he will receive the support of the court if he had “no realistic alternative” but to accede to the threat. So, it seems that in this area of practice, as in most, thorough research, sound judgment and tactical awareness are the order of the day.