Delikes Limited V. Scottish And Newcastle Plc
| Jurisdiction | Scotland |
| Judge | Sheriff Principal C.G.B. Nicholson |
| Court | Sheriff Court |
| Date | 25 January 2000 |
| Docket Number | B342/98 |
| Published date | 27 January 2000 |
B342/98
JUDGMENT OF
SHERIFF PRINCIPAL NICHOLSON
in the cause
DELIKES LIMITED -
Pursuers and Appellants
against
SCOTTISH & NEWCASTLE plc -
Defenders and Respondents
Act: Williamson, Solicitor Advocate; Brodies WS
Alt: D M Campbell, Advocate; Macdonald-Henderson, Glasgow
EDINBURGH, 25 January 2000
The Sheriff Principal, having resumed consideration of the cause, refuses the appeal and adheres to the interlocutor of 13 May 1999 complained of; reserves meantime all questions of expenses.
NOTE:
This is an appeal in a summary application for the rectification of a document in terms of section 8 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985. The document in question is a deed of variation of a standard security granted by the pursuers in favour of the defenders. After a debate the sheriff, on 13 May 1999, dismissed the application as irrelevant, and the pursuers, who seek a proof before answer, have now appealed against that decision.
The background to the application
The background facts and circumstances are a little complex, and are as follows. The pursuers are a limited company which owns and operates licensed premises in Bellshill known as the Carousel Bar. A director and shareholder of that company is a Mr William Fachie. In 1986 the pursuers granted in favour of the defenders a standard security over the Carousel Bar subjects in security of "all sums advanced or to be advanced on loan to us by, and other sums or obligations due or to become due or prestable or to become prestable by us" to the defenders. That standard security appears to have been signed on behalf of the pursuers by Mr Fachie. Prior to the time of the events with which the present action is concerned the pursuers had also granted a standard security over the Carousel Bar subjects in favour of the Bank of Scotland.
Mr Fachie and his wife were also partners in a firm which owned and operated a hotel in Wishaw known as the Gatsby Hotel. Early in 1996 they decided that they would like to convert a bar in the hotel so as to make it resemble an Irish bar, and in May 1996 they first approached the defenders in an attempt to secure a loan for that purpose. At that time the Fachies already owed the defenders £63,185 in respect of an earlier loan and £15,720 in respect of an advance of discount to be serviced through the sale of alcoholic beverages at the hotel. Negotiations for a loan to finance the proposed conversion continued for some months, and in January 1997 the defenders agreed to make a loan of £60,000 available to the Fachies. However, the defenders made it a condition of granting that loan that it should be guaranteed by, inter alia, a security over the heritage of the Carousel Bar owned by the pursuers.
Against the foregoing background the pursuers' pleadings in Condescendence 2 continue:
"Given that the pursuers had already granted Standard Securities over that heritage in favour of the Governor and Company of the Bank of Scotland and the defenders, the said condition entailed that Mr Fachie, as a Director of the pursuers, procure the agreement of the pursuers to enter into a Deed of Variation of the pursuers' said Standard Security in favour of the defenders so as to extend it to secure the said loan and the entry by the pursuers, the defenders and the Bank into a Revised Ranking Agreement to order the precedence inter se of the said Securities and the extent of the lending covered by each stage of that precedence. Mr Fachie did so."
In Condescendence 3 of their pleadings the pursuers go on to aver:
"The pursuers were subsequently invited by Mr Fachie to agree to provide a Standard Security to the defenders to guarantee in the manner hereinbefore condescended upon the said loan of £60,000 to the said firm [i.e. Mr and Mrs Fachie, trading as the Gatsby Hotel] and therefore to vary their extant Standard Security in favour of the defenders accordingly and to enter into the said Revised Ranking Agreement so as to procure that the defenders' rights to enforce repayment of the said £60,000 against the heritage should rank ahead of the Bank's right so to enforce payment of overdraft facilities which it was envisaged might be extended to the pursuers by the Bank. That the pursuers agreed to do."
The pursuers' averments then continue as follows:
"In so doing, the pursuers intended only to assume responsibility for the guarantee of repayment of the said sum of £60,000 which was then to be lent by the defenders to the firm for the proposed refurbishment of the Gatsby Hotel. The pursuers did not intend to provide a guarantee for any other indebtedness of Mr and Mrs Fachie. The defenders knew because that was what they specifically stated in their offer of loan contained in the letter dated 7 January 1997, that it was for repayment of only that sum which the pursuers were to agree, as a condition of the loan, to vary the Standard Security so as to grant further security in favour of the defenders over said heritage."
What happened thereafter was that the pursuers instructed solicitors to prepare a deed of variation of their original standard security in favour of the defenders so as to include within it security in respect of the loan which was to be made by the defenders to Mr and Mrs Fachie. It is averred that the solicitors in question were instructed that the variation was to extend only to securing payment of the sum of £60,000. In the event, however, the deed of variation, which was signed on behalf of the pursuers and on behalf of the defenders on dates in April 1997, is expressed as providing security "for all sums advanced or to be advanced on loan to William Fachie and Yvonne Fachie ... in terms of Minute of Agreement entered into between [the defenders] and the said William Fachie and Yvonne Fachie dated 21 February and 3 March 1995 or any Minute or Minutes of Agreement to follow thereon". (The reference to an agreement in 1995 was not made clear to me, but it appears that the terms of the deed of variation have the effect of extending the security not only to the 1997 loan of £60,000 but also to earlier borrowings and any possible future borrowings as well.)
The detail of that is not of particular importance for present purposes because the position adopted by the pursuers in the present proceedings is that the deed of variation was intended to extend their potential liability to the defenders solely in respect of the loan of £60,000 which the defenders had agreed to advance to Mr and Mrs Fachie, and that it was incorrectly expressed in so far as it went further than that. It is in that situation that the pursuers now seek rectification of the deed of variation so as to have it expressed solely by reference to the sum of £60,000. For completeness I should add that, by the time when the present proceedings were commenced, both Mr and Mrs Fachie had been sequestrated. The pursuers' application for rectification was intimated to the Fachies, through their trustees, and also to the Bank of Scotland, but none of them has entered the process.
The statutory framework
The statutory provision which allows for the rectification of a document is section 8 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 which followed on from recommendations made by the Scottish Law Commission in 1983 (Scot Law Com No 79). Section 8(1) is in the following terms:
"Subject to section 9 of this Act, where the court is satisfied, on an application made to it, that -
(a) a document intended to express or to give effect to an agreement fails to express accurately the common intention of the parties to the agreement at the date when it was made; or
(b) a document intended to create, transfer, vary or renounce a right, not being a document falling within paragraph (a) above, fails to express accurately the intention of the grantor of the document at the date when it was executed,
it may order the document to be rectified in any manner that it may specify in order to give effect to that intention."
Subsection (2) of section 8 provides that, for the purposes of subsection (1) "the court shall be entitled to have regard to all relevant evidence, whether written or oral".
During the debate before the sheriff there appears to have been some discussion as to whether or not the pursuers were seeking rectification under paragraph (a) or paragraph (b) of section 8(1), but at the appeal hearing the solicitor advocate for the pursuers made it clear that he was founding solely on paragraph (a). Consequently, that is the part of the subsection which is of primary relevance for present purposes. However, I have thought it right to quote paragraph (b) in full as well since it is the provision which has featured in several of the cases to which I was referred in the course of the appeal hearing.
The sheriff's decision, and what happened thereafter
In the Note which accompanies the interlocutor of 13 May 1999, in which the application was dismissed, the sheriff has set out in detail the submissions which were advanced before him and the reasons which led him to conclude that the application should be dismissed. I intend no disrespect to the sheriff's careful analysis if I say that his final conclusions can be briefly summarised as follows. In the first place, the sheriff noted that it is nowhere suggested in the pursuers' pleadings that there was an antecedent agreement between them and the defenders regarding the extent of Mr and Mrs Fachie's indebtedness which would be secured by the deed of variation, and which was not accurately reflected in the deed itself. As a consequence the sheriff concluded that the pursuers could not seek to invoke section 8(1)(a) on the basis of any such agreement.
The sheriff then turned to a submission which had been advanced before him to the effect that it is not necessary for the purposes of the subsection that the agreement referred to therein should have been between the parties to the document...
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