The Governor And Company Of The Bank Of Scotland V. Bass Brewers Ltd And Others
| Jurisdiction | Scotland |
| Judge | Lord Macfadyen |
| Date | 01 June 2000 |
| Docket Number | CA98/99 |
| Court | Court of Session |
| Published date | 01 June 2000 |
| OUTER HOUSE, COURT OF SESSION | |
| CA98/99 | OPINION OF LORD MACFADYEN in the cause THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND Pursuer; against BASS BREWERS LIMITED and OTHERS Defenders: ________________ |
Pursuer: Brodie, Q.C.; Brodies, W.S.
Defenders: Gallacher; Wright Johnston & Mackenzie
1 June 2000
Introduction
[1]In this action the pursuers seek rectification of a letter of consent granted by the first defenders, Bass Brewers Limited ("Bass"), on 27 December 1997 in terms of which Bass, who held a floating charge over the property and undertaking of Lewis Lloyd Holdings Limited ("the company"), consented inter alia to the granting by the company in favour of the pursuers of a standard security over subjects at Hazelburn, Campbeltown ("the subjects"). Although the pursuers called as defenders not only Bass but also the joint receivers of the company ("the receivers"), the Royal Bank of Scotland plc ("RBS") and Argyll & Islands Enterprise Limited ("AIE"), Bass are the only compearing defenders. In order to gain a clear understanding of the context in which the claim for rectification of the letter of consent is advanced, it is necessary to set out at least in outline the structure of certain transactions in which the company engaged.
Background
[2]The following summary of events is taken mainly from the pursuers' averments. On 29 August 1996 the company granted in favour of Bass a Bond and Floating Charge ("the Bass charge") which was registered with the Registrar of Companies on 5 September 1996. Also on 29 August 1996 the company granted in favour of RBS a Bond and Floating Charge ("the RBS charge") which was registered with the Registrar of Companies on 9 September 1996. On 4 September 1996 Bass, RBS and the company entered into an instrument of alteration regulating the ranking inter se of the Bass and RBS charges.
[3]The Bass charge contained a provision in terms of which the company undertook that:
"unless with the written consent of [Bass] we shall not create or allow to come into being any security or charge upon any part of the property (including heritable, real and leasehold property wherever situated) assets, undertaking or uncalled capital of us or any of our subsidiary companies ...".
In the pleadings that provision is referred to as "the Bass negative pledge". The RBS charge contained a provision expressed mutatis mutandis in similar terms. In the pleadings that provision is referred to as "the RBS negative pledge".
[4]In late 1996 the company wished to purchase the subjects. The pursuers made funds available to the company to enable it to do so. One of the conditions on which the funds were made available was that the company grant in the pursuers' favour a first ranking security over the subjects ("the BI security").
[5]In 1994 the company's predecessors in title as owners of the subjects had obtained certain grant monies from AIE, and in respect of certain monetary obligations arising out of the conditions of the grant had granted a standard security over the subjects in favour of AIE. As part of the transaction for the purchase of the subjects the company agreed to grant in favour of AIE a new standard security over the subjects ("the AIE security"), postponed to the BI security. The ranking of the BI security and the AIE security inter se was regulated by a ranking agreement between the pursuers and AIE which was recorded in the Register of Sasines on 23 June 1997.
[6]The solicitors acting for the pursuers, the company and AIE respectively were, it is averred, aware of the existence of the RBS and Bass charges, and of the negative pledges which they contained. Accordingly, steps were taken to obtain letters of consent from RBS and Bass. The averments made by the pursuers in elaboration of that point are largely concerned with the obtaining of the letter of consent from RBS, but since they form the background to the averments made about the obtaining of the letter of consent from Bass it is convenient to make some reference to them. It is averred:
"It was the widespread belief amongst solicitors dealing in such transactions at the time, including [the company's solicitor] that the effect of a letter of consent from a holder of a subsisting floating charge to the grant of a standard security would be to disapply any negative pledge and enable the standard security to rank in priority to the floating charge."
The averments then narrate various communings between the company's solicitor and officials of RBS which led to the issue of a letter of consent by RBS ("the RBS consent"). The averments then continue:
"A letter of consent in similar terms ["the Bass consent"]... was obtained from [Bass]. Mr Bruce, the signatory of the Bass consent, shared the said belief that, consistent with commercial practice and understanding at the time, a subsequent standard security granted by a company would always rank in priority to a floating charge and that all that was necessary to disapply the negative pledge was to obtain a letter of consent by the holder of the floating charge containing the negative pledge."
[7]The Bass consent was dated 27 December 1996, was signed by Mr Bruce as attorney for Bass, and was in the following terms:
"We confirm that we have no intention of appointing a receiver under the floating charge granted by [the company] and will not do so within the next 21 days. We consent to the granting of Standard Securities by [the company] in favour of [the pursuers] and [AIE] over the subjects".
[8]By instrument of appointment dated 30 January 1998 the receivers were appointed joint receivers of the property charged by the RBS charge. By instrument of appointment dated 9 February 1998 they were also appointed joint receivers over the property charged by the Bass charge.
[9]The receivers subsequently brought a petition for directions in which they sought the guidance of the court as to the effect of the RBS and Bass consents on the ranking of the RBS charge and the Bass charge relative to the BI and AIE securities. Bass and the pursuers lodged answers to the petition and made submissions on the questions on which directions were sought by the receivers. By interlocutor dated 13 November 1998 Lord Cameron of Lochbroom found that the consents had no effect as regards the ranking of the RBS and Bass charges relative to the BI and AIE securities, or as regards the priority of the BI and AIE securities relative to the RBS and Bass charges. The pursuers reclaimed against that decision, but the reclaiming motion was subsequently abandoned.
The Rectification Sought
[10]In the present action the pursuers conclude for rectification of the Bass consent by the insertion of the words "prior ranking" after the words "We consent to the granting of" in the second sentence.
[11]The averments which the pursuers make in support of the conclusion for rectification proceed, after narrative of the circumstances which I have summarised in paragraphs [2] to [7] above, as follows:
"The Bass Consent was a document intended to vary or renounce a right. Bass, RBS and the Company knew that as a result of the transaction for the purchase of the Subjects, the Company would grant the BI and AIE Securities and that the Subjects would become part of the property of the Company. Having regard to the nature of the said transaction, it would make no commercial sense for BI and AIE to make funds available to the Company for the purchase by it of the Subjects unless they were to obtain securities over it (sic) ranking in priority to the Bass and RBS Charges. But for the facilities made available by BI the Subjects would have not become the property of the Company. Neither the Bass nor the RBS Charges was prejudiced by the grant of the AIE and BI Securities, the effect of which was to enable the Company to acquire a substantial asset. ... Letters of consent by Bass and RBS to the grant of Standard Securities in favour of BI and AIE would be otiose unless grantor (sic) consent to them as first ranking charges, ranking in priority to the Bass and RBS Charges. The first defenders are called upon to aver for what commercial purpose their consent was granted, other than for the purpose of enabling the BI and AIE Securities to rank as first ranking charges in relation to the RBS and Bass Charges. ... As hereinbefore condescended upon the request by [the company's solicitor] was in the context of, and predicated upon, the said widespread understanding that a consent from the holder of a floating charge was sufficient to disapply a negative pledge. As hereinbefore condescended upon, Mr Bruce of the First Defenders shared this belief. The First Defenders acquiesced without demur in the request made by [the company's solicitor]. In the foregoing circumstances the Bass Consent has failed to express accurately the intention of the granting (sic) thereof. In particular, the Bass Consent omits to state in terms, as intended, that the standard securities to which they were granting consent were to rank in priority to the Bass and RBS Charges in respect of the Subjects."
[12]In addition to the present action the pursuers also raised an action seeking rectification of the RBS consent to similar effect. That action and the present action were appointed to the same diet of debate. At the beginning of the debate, however, I was informed that the pursuers were to abandon the action concluding for rectification of the RBS consent. The diet of debate in respect of that action was therefore discharged. The debate proceeded in respect of the present action.
The Statutory Remedy of Rectification
[13]At common law the court had no power to rectify deeds. Following the Report of the Scottish Law Commission on Rectification of Contractual and Other Documents (Scot. Law Com. No. 79), sections 8 and 9 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 were enacted. Section 8(1) is in the following terms:
"Subject to ...
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