AIB Group (UK) Ltd v Martin and Another
| Jurisdiction | UK Non-devolved |
| Judge | LORD IRVINE OF LAIRG LC,LORD HUTTON,LORD MILLETT,LORD SCOTT OF FOSCOTE,LORD RODGER OF EARLSFERRY |
| Judgment Date | 13 December 2001 |
| Neutral Citation | [2001] UKHL 63 |
| Date | 13 December 2001 |
| Court | House of Lords |
[2001] UKHL 63
Lord Chancellor
Lord Hutton
Lord Millett
Lord Scott of Foscote
Lord Rodger of Earlsferry
HOUSE OF LORDS
My Lords,
I have had the advantage of reading in draft the speeches of Lord Scott of Foscote and Lord Millett. I would have contented myself with deciding that this appeal should be dismissed for the reasons given by the former, but for the fact that, unlike my Lord, I found attractive both prior to the appeal, and in the course of argument, the "distributive construction" fully elucidated by Lord Millett. Nonetheless, I have on balance concluded that the better view is that favoured by Lord Scott of Foscote. I too therefore agree that the appeal should be dismissed.
My Lords,
I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Millett, Lord Scott of Foscote and Lord Rodger of Earlsferry. It is not in dispute that the relevant provisions in the mortgage can be construed, as they were by the Court of Appeal, as imposing an obligation on Mr Alan Gold jointly with Mr Martin, but also severally, to pay to the bank not only monies advanced to the two of them jointly, but also monies advanced to Mr Martin alone for purposes which had no connection with Mr Gold.
Lord Millett has set out in his speech the reasons why a distributive construction could be adopted but for the reasons stated by Lord Scott and Lord Rodger I consider that the construction adopted by the Court of Appeal was correct and should be upheld.
I would add one further observation. It is a general rule in the construction of deeds that the intention of the parties is to be ascertained from the words used in the deed and that, with certain limited exceptions, extrinsic evidence cannot be given to show the real intention of the parties. On occasions this rule may lead to the actual intention of the parties being defeated but the rule is applied to ensure certainty in legal affairs. In Mallan v May (1844) 13 M & W 511, 517 Pollock CB stated:
"We must apply the ordinary rules of construction to this instrument; and though, by so doing, we may, in some instances, probably in this, defeat the real intention of the parties, such a course tends to establish a greater degree of certainty in the administration of the law."
However, whilst in the present case it would not have been permissible in construing the mortgage deed to take into account extrinsic evidence of the intention of the parties, I note with some satisfaction that it is apparent that the construction given to the mortgage by Lord Scott and Lord Rodger does not defeat the real intention of the parties. It is clear from the passage in the judgment of Jacob J on the non est factum point set out by Lord Scott in his speech that Mr Howard Gold, Mr Alan Gold's solicitor upon whom he entirely relied, fully understood that the deed had the effect for which the bank contends and Jacob J added: "He [Howard] had even ensured that such a clause did not apply when he and Alan gave supporting security for Mr Martin's nursing home project."
Accordingly I would dismiss the appeal.
My Lords,
Your Lordships are concerned with the application of an interpretation clause contained in a standard form. Both features are significant. A standard form is designed for use in a wide variety of different circumstances. It is not context-specific. Its value would be much diminished if it could not be relied upon as having the same meaning on all occasions. Accordingly the relevance of the factual background of a particular case to its interpretation is necessarily limited. The danger, of course, is that a standard form may be employed in circumstances for which it was not designed. Unless the context in a particular case shows that this has happened, however, the interpretation of the form ought not to be affected by the factual background.
The fact that the question concerns the application of an interpretation clause is also significant. The purpose of such a clause is twofold. It shortens the drafting and avoids unnecessary repetition; and it enables the form to be used in a variety of different situations. It is not the purpose of such a clause to enlarge the parties' rights and obligations beyond those provided by the operative provisions by imposing, for example, a secondary liability as surety in addition to a primary liability as principal debtor. The application of such a clause is not merely a question of construction. If it is capable of being applied to the operative provisions in more than one way, it should be applied in a way which serves its purpose rather than in a way which extends the parties' obligations beyond those contemplated by the operative provisions. Of course, an interpretation clause may have this effect; but if so it should do so plainly and unambiguously.
The form which your Lordships are called upon to construe ("the joint mortgage") is drafted for the case of a single mortgagor and employs an interpretation clause to adapt it for use where there are two or more mortgagors. It is commonly used in cases where the mortgagors are husband and wife who are mortgaging the matrimonial home, where it is unlikely to give rise to difficulty; but it may be used in other cases also where its use is more problematical. In the present case the mortgagors were partners who carried on a business in partnership together and each of whom also carried on his own separate business. The bank advanced money to the mortgagors jointly, and also to each of them separately. By the joint mortgage the mortgagors personally covenanted to repay the bank's advances and charged their jointly owned properties by way of security. By separate deeds entered into at the same time each of them also covenanted to pay and charged his own separately owned property with payment of his own liabilities to the bank, whether due from him alone or jointly with any other person and whether as principal or surety.
It is beyond dispute that the mortgagors thereby undertook a joint and several liability for the joint debts and charged the jointly owned properties to secure their repayment. It is also beyond dispute that each of them also undertook a personal obligation to repay not only the joint debts but also his own separate debts, and charged his own separate properties to secure the repayment of all such debts. The question is whether each of them also covenanted by way of guarantee to pay the debts of the other and charged his separate properties with such payment. None of the documents contains an express guarantee. If there is such a guarantee, it derives exclusively from the way in which the interpretation clause in the joint mortgage is applied to the operative provisions.
The relevant operative clause is clause 2(1) of the joint mortgage. So far as material this reads:
"The mortgagor hereby covenants with … the bank… that it will on demand pay or discharge to the bank … all sums of money … advanced to the mortgagor by the bank…"
When used by a single mortgagor there is no room for any surety liability. There is complete identity between the covenantor and the subject-matter of the covenant. The covenantor undertakes a personal obligation as principal debtor to repay money advanced to himself.
In the present case, however, "the mortgagor" is defined as "Mr Martin and Mr Gold". Substituting these names for "the mortgagor" in the relevant clause produces the following:
"Mr Martin and Mr Gold hereby covenant with … the bank … that they will on demand pay or discharge to the bank … all sums of money … advanced to Mr Martin and Mr Gold by the bank…"
There is still no room for any surety liability. The identity between the covenantors and the subject-matter of the covenant, indicated by the repetition of the words "the mortgagor", is retained. The two covenantors are jointly liable for money advanced to them jointly. They undertake a personal obligation as principal debtors.
The interpretation clause, however, contains an expanded definition to adapt the form for use where the expression "the mortgagor" includes more than one person. In such a case, it provides that the expression
"shall be construed as referring to all and/or any one of those persons and the obligations of such persons hereunder shall be joint and several."
Applying this to the words "the mortgagor" where they first appear in clause 2(1) has the effect of modifying the covenant but not its subject-matter. As modified the clause reads:
"Mr Martin and Mr Gold hereby jointly and severally covenant and each of them hereby severally covenants with … the bank … that they will on demand pay or discharge to the bank … all sums of money … advanced to Mr Martin and Mr Gold…"
There is some duplication, but the effect is to produce three distinct covenants and three distinct obligations; a joint and several covenant by both Mr Martin and Mr Gold and a separate covenant by each of them. Each of the covenants is a covenant to repay the money advanced to them jointly, so there is still no room for any surety liability. The identity between the covenantors and the subject matter of the covenants indicated by the repetition of the words "the mortgagors" is retained. They undertake joint and several obligations as principal debtors.
Applying the interpretation clause to the expression "the mortgagor" where it secondly appears in clause 2(1), however, modifies the subject-matter of the covenant and extends the covenantors' liability. The only question is: how far? If the interpretation clause is applied literally and comprehensively, clause 2(1)...
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