The recent Scottish case of Khaliq v Londis (Holdings) Ltd has cast some doubt on the rather exceptional principle of "Melville Monument" liability. The doctrine stems from the case of Walker v Milne (1823) in which a claim was successfully made by a land-owner for reimbursement of his costs incurred in preparing land for the construction of a monument to Viscount Melville. No contract existed between the parties but liability to reimburse arose from a "non-contractual understanding" when the development funders, frustrated by delays, went ahead and built the monument on a different site.
The present case involved Mr Khaliq, the owner of two neighbouring shops, who entered into discussions with Londis Group with a view to becoming a member of the group. Members would ultimately benefit from the supply of goods, advice and services. Mr Khaliq was advised by a representative of Londis that if he wanted to become a member he must relocate his fast food outlet to the neighbouring property and refurbish it accordingly. A membership application form was signed by Mr Khaliq and the refurbishment work began, with Londis being involved throughout the process. However, a year later Mr Khaliq received a letter advising that his membership was not proceeding. Mr Khaliq claimed for his losses, arguing breach of contract, which failed, as there was no contract between the parties. The claim rested on "Melville Monument" liability.
On hearing Mr Khaliq's appeal, the court decided that the requirements of the claim were not met. Londis had made no representation to Mr Khaliq to imply that a contract existed which included an obligation to refurbish the property, and accordingly his claim failed. The court also distinguished the present case on the basis that Mr Khaliq did not sustain a financial loss following the refurbishment due to his ability to continue trading from the premises.
However, the judges in the Khaliq case cast uncertainty upon the modern application of "Melville Monument" liability, which could leave a "black hole" into which claims for reliance based losses caused by breaking off contract negotiations in bad faith would fall. That is not a development to be welcomed - watch this space for further news.