Robert Mark Gibson And Another V. The Royal Bank Of Scotland Plc And Others
| Jurisdiction | Scotland |
| Judge | Lord Emslie |
| Neutral Citation | [2009] CSOH 14 |
| Court | Court of Session |
| Docket Number | A91/08 |
| Published date | 03 February 2009 |
| Date | 03 February 2009 |
| Year | 2009 |
| OUTER HOUSE, COURT OF SESSION [2009] CSOH 14 | |
| A91/08 | OPINION OF LORD EMSLIE in the cause ROBERT MARK GIBSON and ANOTHER Pursuers; against THE ROYAL BANK OF SCOTLAND plc and OTHERS Defenders: ________________ |
Pursuers: MacColl; Thorntons
First Defenders: McBrearty; Dundas & Wilson
3 February 2009
Introduction
[1] In this action the pursuers, who are husband and wife, seek reduction of a standard security which was granted over their home in St Andrews in late January 2006. That standard security was granted by the former husband of the second-named pursuer ("Mr McAlister"), in whose name the title to the property was originally taken, and was correspondingly accepted (and recorded in their own favour) by the Royal Bank of Scotland plc ("the Bank") who appear in this process as first defenders.
[2] The pursuers' position is that the granting of the standard security was in breach of certain pre-existing contractual arrangements concluded between themselves and Mr McAlister on and after 8 February 2005. Initially these comprised (i) an option conferred on the pursuers to purchase the subjects from Mr McAlister within a two-year period, and (ii) a lease of the property to the pursuers in the meantime, but by written notice dated 2 March 2005 the pursuers formally exercised their option and stipulated 8 February 2006 as the date for entry and completion. These somewhat unusual temporary arrangements were apparently conceived as a means by which a debt owed by Mr McAlister could in due course be recouped by the pursuers in the form of a discounted option price.
[3] Although none of the option documentation was registered or recorded, the pursuers complain that in taking and recording the standard security in their favour the Bank acted in bad faith and cannot now be allowed to retain the benefit of the transaction. In that context it is averred that at the material time the Bank were aware of the antecedent purchase option but took no steps to inquire into its nature and result before accepting the security. According to the pursuers the Bank's averred knowledge was sufficient to put them on inquiry; the Bank's failure to inquire was sufficient to constitute bad faith on their part; and in conjunction with such bad faith the pursuers' antecedent option rights provided a relevant and sufficient basis for the present action of reduction.
[4] For their part the Bank seek to maintain the validity of the security transaction in their favour, contending that the pursuers' action should be dismissed as irrelevant. In that connection I have now heard an interesting and wide-ranging debate on the procedure roll, in which the principal competing arguments concerned the circumstances in which a recorded grant of heritable rights might be defeated by considerations of bad faith on the part of the grantee. On the one hand, there was the long-established principle of the law of property whereby a party transacting with heritage was entitled to do so on the faith of the public records, and whereby recorded real rights would prevail over merely personal rights of whatever nature. On the other, there was the well-known equitable principle of contract law, whereby no-one should be permitted to benefit from his own breach of the basic obligations of good faith and fair dealing. In broad terms the main issue before me was the degree to which these potentially competing principles could be reconciled, and in particular whether the Bank's standard security was susceptible to reduction where their averred bad faith concerned the pursuers' personal and unrecorded option rights. The Bank's position was that such rights afforded the pursuers no relevant basis for challenging the subsequent standard security in their favour; furthermore, that the Bank's averred state of knowledge gave rise to no duty of inquiry on their part; and that in any event the initial option agreement was formally defective because the pursuers' written acceptance had not been witnessed.
[5] If the last of these contentions was correct, parties were agreed that it would be a matter for proof whether (as the pursuers alleged) any formal invalidity had been cured by the subsequent actings of parties. It was further agreed that the Bank's averred state of knowledge, which was disputed on Record, would also be a matter for proof in due course if required. However, the need for proof on such issues would fly off altogether if the Bank's primary contentions were upheld to the effect that, even if they were proved to have known of the pursuers' pre-existing option rights, the recorded standard security which they held was still valid and unreducible.
[6] For convenience I propose to deal with the debated issues in turn, beginning with the Bank's subsidiary argument on the formal validity of the initial option agreement.
Formal validity of the initial option agreement
[7] The Bank's contention here was that, on any view, certain of the pursuers' averments at page 8 of the Record should be excluded from probation. The option agreement was said to have been constituted by written offer and acceptance, both dated 8 February 2005, and the problem arising in this context was that the written acceptance (No. 6/5 of process) had failed to comply with the formal requirements laid down in the offer (No. 6/4 of process). Clause 8 of that offer was in the following terms:-
"8. FORMAL DOCUMENTATION REQUIRED
Neither the Grantor nor the Grantee shall be bound by any acceptance hereof or any other letter purporting to form part of the Option Agreement or any amendment or variation of the Option Agreement unless the same satisfies the requirements of Section 3 of the Requirements of Writing (Scotland) Act 1995."
Section 3 of the 1995 Act prescribed the circumstances in which valid subscription by the granter of a deed or document would be presumed. Although perhaps not strictly "requirements" as such, unlike those set out in sections 1 and 2 of the Act, there was nothing else to which clause 8 of the offer could sensibly be thought to refer. The heading of the clause confirmed that formalities of execution were in issue; the fact that the offer was itself witnessed was a pointer in the same direction; and on the pursuers' contrary argument the clause would be deprived of all content.
[8] For these reasons the pursuers' averments on Record at page 8 were irrelevant and should be excluded from probation. These were in the following terms:-
"Further explained and averred that, notwithstanding the terms of Clause 8 of the offer letter of 8 February 2005, the offer and de plano acceptance both dated 8 February 2005 constituted a binding option agreement between the Pursuers and the Second Defender. Properly construed, Clause 8 of the offer letter does not impose a requirement that any acceptance of the offer would only be valid if it was witnessed. Section 3 of the Requirements of Writing (Scotland) Act 1995 imposes no requirement for any contractual document to be witnessed. The formalities of any acceptance of the offer were governed by Clause 10 of the offer, which provided: 'This offer is open for immediate written acceptance only'. The provisions of Clause 10 of the offer were met by the acceptance of 8 February 2005."
[9] In response, counsel for the pursuers confirmed that these averments fairly reflected his clients' position. Properly understood, section 3 of the 1995 Act set forth no "requirements". Provided that a document or deed was in writing and subscribed by the granter, as required by sections 1 and 2, the presumption offered by section 3 was merely evidential and need not arise at all. The intention behind clause 8 of the offer of 8 February 2005 was therefore unclear, and it was unsurprising that in his unwitnessed acceptance of even date the pursuers' solicitor had plainly considered himself to be concluding a binding contract. Clause 10 of the offer was also significant, since it simply provided for immediate written acceptance. If clause 8 was intended to erect a further hurdle capable of invalidating an important agreement, it had not clearly achieved that object. It would have been easy for the offer to provide in terms for any acceptance to be formally witnessed, but that had not been done. And if the intended import of clause 8 was open to doubt, the court should be slow to exclude the averments from probation at this stage. It could not be said, in other words, that the necessity for witnessing was so plain that the pursuers would be bound to fail on this aspect of the case.
[10] While in my view there is some force in the Bank's contentions on this matter, I am not prepared to exclude the averments from probation. On a proper construction of the 1995 Act, it does not seem to me that section 3 contains any "requirements" worthy of the name. The primary requirements of the Act are to be found in sections 1 and 2, and by comparison section 3 does no more than identify particular circumstances in which a presumption regarding the granter's subscription will arise. Had clause 8 referred simply to "the requirements of the Act of 1995", I do not think that the informed reader would have contemplated looking for these in section 3. To my mind, therefore, it is a matter of speculation whether the wording of clause 8 was deliberately intended, and if so what that wording was supposed to convey.
[11] In my opinion, a party desiring to stipulate for particular formalities in a contract must do so clearly and in a fair manner. Clause 8 here was not highlighted in any way as being of special or unusual importance; on the contrary it appeared among other clauses on a different page from clause 10; where there was no obvious point in having a solicitor's signature witnessed, its terms might strike even a careful reader as containing a misprint for section 2 of the Act; and in the circumstances I regard it as preferable to defer any decision on...
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