A recent Court of Session case demonstrates the importance of what (like a nag) we keep reminding everyone; read the terms of those contracts before signing on the dotted line!

Setting the Scene

In 2008 the Bank of Scotland (BoS) lent £2.35m to a property development company to develop the land with a hotel, various timeshare and residential plots and a golf course. BoS obtained a survey report from Knight Frank LLP (KFL) before providing the borrowing. KFL said that the land was worth at least £4.25m.

The Crisis

Later that year the financial crisis took effect and the development could not progress. There was no prospect of repayment to BoS. The land without development potential was valued at £170,000. BoS suffered a big loss.

BoS sued KFL for negligence in making the valuation. The case actually covered many issues but, crucially, the judge first had to make a decision on a more fundamental matter; was the Court of Session the appropriate court to decide the case?

Court of Session, or not?

The critical point in this was that KFL’s report incorporated its standard terms, which stated that the report was subject to English law and any disputes would be dealt with by the English courts. The judge decided in favour of KFL that the right place was the English courts.

The lesson

Failure to properly read the report’s terms and raise an issue with them is likely to result in BoS throwing good money after bad, having raised an action in the wrong court. This is a tough lesson in why care should be taken in reviewing the so-called “boilerplate” terms of your contracts as well as the headline commercial ones.

If you have any worries about your customer or supplier contracts, now might be the time to have them reviewed. Please contact me or our contract team (partner, Alan D Stalker WS) for some initial guidance.