Norwich Union Life Insurance Society v Tanap Investments Vk Ltd ((in Liquidation))
| Jurisdiction | Scotland |
| Judgment Date | 26 May 2000 |
| Docket Number | No 50 |
| Date | 26 May 2000 |
| Court | Court of Session (Inner House - Extra Division) |
EXTRA DIVISION
Lord Penrose
PracticeWritRectificationSecured creditors seeking rectification of two of three minutes of agreement to characterise minutes as variations or extensions of first minute so as to gain security for sums loaned under latter minutesWhether latter minutes capable of rectificationWhether holder of postponed security having title and interest to oppose rectificationLaw Reform (Miscellaneous Provisions) (Scotland) Act 1985 (cap 73), secs 8(1) and 91
Section 8(1) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 enacts, inter alia, that, subject to sec 9, 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, it may order the document to be rectified in any manner that it may specify in order to give effect to that intention. Section 9(1) enacts that the court should not order a document to be rectified in terms of sec 8 unless it is satisfied that the interests of a person to whom sec 9 applies (being a person who has acted or refrained from acting in reliance on the terms of the document) would not be adversely affected to a material extent by the rectification or that that person has consented to the proposed rectification.
Creditors who held a standard security which, in terms of a first minute of agreement executed by the first defenders and themselves, provided that it was in security of all sums of money due and that might become due to themselves by the first defenders in terms of Minute of Agreement granted by [the first defenders] in favour of [the creditors] dated of even date with our execution hereof and subsequent date and any variation, extension, renewal, replacement or alteration thereof, sought rectification of two later minutes of agreement so as to characterise them as variations or extensions of the first minute of agreement. On the day of the execution of the first minute, the creditors and the first defenders had by exchange of letters agreed that the creditors would lend the first defenders 3.3 m to be released in three instalments of 900,000, 1.29 m and 1.11 m. After the advance of the second loan instalment but before the advance of the third sum, the second defenders advanced money to the first defenders and obtained a standard security over, inter alia,the same property. In due course, after the first defenders had become insolvent, a dispute arose as to entitlement to the sale proceeds of the burdened property. The creditors raised an action in the Court of Session concluding for, first, declarator that all sums advanced under the three minutes of agreement were covered by their standard security and, alternatively, rectification of the second and third minutes of agreement to characterise them as variations or extensions of the first minute of agreement so that the sums advanced under the latter two minutes would be covered by the standard security. At an earlier hearing the creditors' claim for declarator was rejected on the ground that the second and third minutes of agreement were not variations or extensions. Thereafter the second defenders sought dismissal of the alternative claim for rectification on the ground that as there
was no prior agreement that the second and third minutes were to be variations or extensions of the first minute, sec 8(1)(a) had no application. The creditors argued that the second defenders had no title or interest to oppose rectification and contended that sec 9 was exhaustive of the issues which could be raised in opposition to rectification and of the parties who were entitled to raise such issues. The commercial judge (Lord Penrose) allowed a proof before answer and the second defenders reclaimed. At the same time the creditors submitted in a cross-appeal that the Lord Ordinary had erred in not sustaining their plea of no titleHeld (1) that dismissal of the claim for rectification was not justified at this stage: where a subsequent document (such as the second and third minutes) failed to adopt what was by then perhaps the only means of achieving the original common intention, rectification might be justified to the effect of re-expressing the document in terms of such particular means, even although the original common intention was a broader one which at earlier stages might have been achieved by a number of means (p 522BE); and (2) that sec 9 did not, either by express provision or by very clear implication, remove the rights of third parties to defend their patrimonial interests where rectification would have a possible adverse effect on them and, accordingly, the second defenders had title and interest to oppose the application both on its merits under sec 8(1)(a) and as to the adverse effect of such a decree on their patrimonial interests (p 525FG); and reclaiming motion and cross-appeal refused.
Norwich Union Life Insurance Society raised an action under the commercial cause rules in the Court of Session against Tanap Investments VK Limited (In Liquidation) and Svenska Handelsbanken concluding for (1) declarator that two minutes of agreement were variations or extensions of an earlier minute of agreement dated 16 August 1988 and 9 September 1988 and (2), alternatively, rectification of the two later minutes of agreement so as to characterise them as variations or extensions of the first minute of agreement. The first defenders did not appear and were not represented. The second defenders lodged defences.
The cause called for debate before the commercial judge (Lord Penrose) on the second defenders' plea to the competency of the alternative conclusion. On 2 June 1997 the commercial judge repelled the plea:seeNorwich Union Life Insurance Society v Tanap Investments VK Ltd (in liquidation) (No 1) 1998 SLT 623.
The cause thereafter called for a further debate before the commercial judge (Lord Penrose) on the second defenders' plea to the relevancy of the alternative conclusion after the pursuers had failed to obtain decree in terms of their conclusion for declarator. At the hearing the pursuers contended that the second defenders lacked title and interest to oppose the conclusion for rectification.
On 11 March 1998 the commercial judge allowed parties a proof before answer: see 1999 SLT 204.
The second defenders and the pursuers reclaimed.
Cases referred to:
Bank of Scotland v Brunswick Developments (1987) LtdSC1999 SC (HL) 53
Bank of Scotland v Graham's TrusteeSC 1992 SC 79
Belhaven Brewery Co Ltd v Swift 1996 SLT (Sh Ct) 127
Huewind Ltd v Clydesdale Bank plc 1995 SLT 392 (Outer House); 1996 SLT 369 (Inner House)
Rehman v Ahmad 1993 SLT 741
Shaw v William Grant (Minerals) Ltd 1989 SLT 121
Thompson (George) Services Ltd v Moore 1993 SLT 634
Textbooks, etc referred to:
Scottish Law Commission, Report on Rectification of Contractual and Other Documents (Scot Law Com No 79), Part VI
The cause called before an Extra Division, comprising Lord Prosser, Lord Hamilton and Lord Allanbridge for a hearing on the summar roll on 13 January 2000.
At advising, on 26 May 2000, the opinion of the court was delivered by Lord Prosser.
Opinion of the Court[1] In this commercial action, the Lord Ordinary, by interlocutor of 11 March 1998, allowed the parties a proof before answer of their respective averments, and appointed the action to be put out by order on 30 March 1998. In this reclaiming motion, the second defenders and reclaimers, Svenska Handelsbanken, submit that their first plea in law, a plea to the relevancy of the pursuers' averments, should be sustained, and the action dismissed. The pursuers, the Norwich Union Life Insurance Society, submit that the reclaiming motion should be refused; but in addition, they have a cross-appeal, in terms of which they contend that the second defenders have no title or interest to resist the conclusion for rectification. (They do not contend that there is a lack of title or interest to resist the other conclusions.) The second defenders ask that the cross-appeal be refused. The first defenders, Tanap Investments VK Ltd (in liquidation), do not appear.
[2] The pursuers have two substantive conclusions. By the first, they seek rectification of certain minutes of agreement between themselves and the first defenders, in the manner specified in a scheme of rectification annexed to the summons. In terms of their second conclusion, they seek declarator that the preference in ranking of a standard security granted by the first defenders in favour of the pursuers, over another standard security granted by the first defenders in favour of the second defenders, extends to all sums due by the first defenders to the pursuers under one of the minutes of...
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