4U2 Ltd, a business offering serviced accommodation in Glasgow, had sought damages of £39,062.50 from Glasgow City Council on the basis that it had made a negligent misrepresentation to it which resulted in the refusal of its application. The sheriff at Glasgow dismissed the case on the basis that the appellant’s pleadings were irrelevant and lacking in specification.

The appeal was heard in the Sheriff Appeal Court by Sheriffs Principal Aisha Anwar KC and Gillian Wade KC, with Appeal Sheriff Patrick Hughes. Tosh, advocate, appeared for the appellant and G R Middleton, advocate, for the respondent.

Evidence of trading

The appellant company was incorporated on 11 April 2016. It lodged dormant accounts for its first three years of trading and carried on business as a provider of serviced accommodation. After applying for the Small Business Grant Fund, the respondent emailed the appellant on 17 June 2020 to ask for evidence that self-catering accommodation was its primary source of income. The appellant provided supporting documentation from another company, Pillow Partners, confirming it managed five properties on behalf of 4U2, but the council took the view that this evidence was insufficient and suggested by email dated 30 June 2020 that an annual tax return from HMRC be submitted.

By reply, the appellant’s director Mr McFadden said he considered the documentation from Pillow Partners to be sufficient evidence to prove the primary income of 4U2. 4U2’s application was refused on the basis that it did not meet the grant eligibility criteria, which included a requirement that the business was actively trading. The appellant contended that the council had previously stated that the reason for refusal was a failure to provide evidence of primary income, and had it told the appellant earlier that the true reason was no evidence of active trading, it could have provided that evidence and been awarded the grant.

The sheriff considered that the council did not owe the appellant a duty of care, which he considered was a novel one, to avoid causing economic loss when issuing the reasons for their decision, as was contended for by 4U2. He did not consider the email requesting more information on 4U2’s income to be a letter of refusal and consequently dismissed the action.

For the appellant it was submitted that the duty of care owed by the council was not novel and would not create an undue burden upon local authorities. The respondent submitted that the appellant’s true remedy would have been a petition for judicial review, as recognised by the sheriff, and in any case the appellant’s averments could not prove a false statement had been made in the email of 30 June 2020.

Reiteration of requirements

Delivering the opinion of the court, Appeal Sheriff Hughes noted the problems with the appellant’s case: “The difficulty for 4U2, as the sheriff correctly identified, is that [the averments of misrepresentation] are not supported by relevant factual averments; the email of 30 June 2020 cannot on any ordinary or reasonable reading, be construed as a refusal of 4U2’s application. The council expressly stated that at that time, no decision had been made on the application. The email of 30 June 2020 was a request for further information. In the event, 4U2 elected not to provide any further information; nor did it challenge the request for further information on the basis that it understood it to be a refusal of the application, at the time.”

He continued: “Furthermore, 4U2 do not specifically aver that the content of the email of 30 June 2020 was false or was a misrepresentation of the factual situation as it existed. At the highest the court is asked to draw an inference that if the content of the email of 14 March 2023 was correct what was said in June 2020 must have been false. In our opinion that does not follow. As the council submitted both statements could be true. 4U2 must aver that what was said in June 2020 was false and why that was so.”

While that was sufficient to resolve the appeal, the Appeal Sheriff said of the arguments on duty of care: “In our view, the general relationship between those who administer grant schemes and those who apply to benefit from them is very different from relationships such as solicitor and client; and cannot, of itself, give rise to a duty of care by the former towards the latter. We agree with the sheriff that for a duty of care to arise in a case of negligent misrepresentation, a specific transaction must be in contemplation.”

He concluded: “The [respondent’s] ‘representation’ was no more than a reiteration of one of the scheme’s requirements. 4U2 does not aver that it did in fact satisfy that requirement, nor that it could have vouched that to be the case. Even on 4U2’s own averments the council could not award the grant in the absence of evidence of that requirement. Two criteria had to be met; if they were, the grant would be made, otherwise it would not. The criteria were straightforward; whether they were satisfied, and how that satisfaction could be evidenced, were matters wholly within the knowledge of the applicants. The absence of pleadings on this issue is noteworthy.”

The appeal was accordingly refused.