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OUTER HOUSE, COURT OF SESSION
[2008] CSOH 173
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A787/06
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OPINION OF LADY DORRIAN
in the cause
STEFAN BLACHA
Pursuer;
against
THE BANK OF
SCOTLAND PLC
Defenders:
ннннннннннннннннн________________
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Pursuer:
Upton; Gillespie Macandrew
Defenders: Fairley;
Anderson Strathern
12 December 2008
Background
[1] This case came before me on
the defenders' general plea to the relevancy.
The pursuer asserts that sums debited from his account on the
instructions of a firm of solicitors in Manchester,
Davis Blank Furniss, were made without authority. The sums debited from the account included a
sum at credit of the account in the sum of г350,000. They also included sums paid under a loan
facility. The pursuer's argument is
restricted to the sum of г350,000. The
defenders say that they had authority and that this is manifest from the face
of the pursuer's pleadings: the case is thus irrelevant and should be
dismissed.
The pleadings
[2] The pursuer avers that he
signed a client investment authority ("C.I.A.") authorising ASfund A.G. of
Zurich ("ASfund") and the Insurance Policy Trading Co Ltd ("I.P.T.C.")
Godalming, Surrey to act on his behalf for certain
purposes for the purchase and assignation of traded endowment policies
("T.E.P.S."). These were to form the
basis of a Geared Investment Plan ("G.I.P.") to be prepared for the pursuer by
I.P.T.C and ASfund. In terms of the
C.I.A., the pursuer authorised I.P.T.C. to appoint Davis Blank Furniss to
act for him in respect of the legal assignment of T.E.P.S. into the G.I.P. The pursuer accepts that a letter from Davis Blank
Furniss to him advising him of the purchase of 66 policies was sent to him
under cover from a letter from ASfund. He avers that he had given no order to purchase
such policies and "for that reason and because he had no legal relationship
with Davis Blank Furniss" he addressed his reply to ASfund.
[3] A
copy of the C.I.A. was intimated to the defenders who agreed to grant the
pursuer a loan facility on his account with them to provide funds for the
purchase of the T.E.P.S. Clause 12(2) of the loan facility agreement provided
that the pursuer irrevocably authorised the bank to:
"(a) .... remit the amount of the
facility drawn down or the purchase price of the relevant policies (as
required) to your legal advisers for remitting to the appropriate vendors of
the relevant policy."
The facility was for г625,000.
It is averred that between December 2001 and January 2002, the
pursuer deposited a total sum of г350,000 in the account. It is further averred that as a result of
debits "purportedly made in favour of 'Davis Blank Furniss'" the account
became overdrawn to the extent of г546,759.43. The pursuer avers that between
December 2001 and June 2002 "one or more of Davis Blank Furniss,
I.P.T.C. or ASfund A.G. apparently purported to buy 66 T.E.P.S. in the
name of and for the pursuer. He had not
instructed them to do so." He avers
that,
"despite being
the putative holder of the policies the pursuer does not appear to receive
normal information relative to their values, such as annual reports...".
The pursuer avers that the C.I.A.
authorised I.P.T.C. to appoint Davis Blank Furniss to act for the pursuer
only in respect of the legal assignment of the policies. He avers that the defenders have not identified
any authority given by the pursuer to Davis Blank Furniss to request the
debits condescended upon.
[4] The
defenders say that they reasonably believe and aver that the policies were
purchased on the instructions of the pursuer, with his full knowledge and
consent and that I.P.T.C. and David Blank Furniss were authorised to
request the transfer of funds necessary to complete the purchase of policies on
the pursuer's behalf. They arranged for
the assignation of the policies into the name of the pursuer. The policies were then deposited with the
defender as security for the loan facility.
The defenders also aver that following a "margin call" letter issued to
the pursuer, he e-mailed them on 13 July
2003 in the following terms:
"Between January
and June 2002 I bought 66 policies (TEP) which have been examined by
the solicitors Davis Blank Furniss and have been assigned to my name. These policies have been deposited at the
Bank of Scotland as security for my GIP Plan Facility."
The pursuer avers that he "has no
record of an e-mail in the terms averred by the defenders to have been sent on 13 July 2003", and otherwise
meets these averments with a general denial.
[5] The
pursuer avers that "according to the pursuer's bank statements, the debits were
purportedly made in favour of 'Davis Blank Furniss'." He puts certain calls on record asking the
defenders to identify the means and persons by whom the debit requests were
submitted.
The issues
[6] The issues in the case are
largely encapsulated in Article 10 in which the pursuer avers as follows:
"The limits of
any entitlement of the defenders so to debit the pursuer's account are to be
found in clause 12(2)(a) of the facility letter. With regard to those terms:-
(i) The sums debited were
not paid for remission to the 'appropriate vendors of the relevant policies',
for no such policies had been identified by nor agreed with the pursuer;
(ii) The sums debited were
not remitted to legal advisors of the pursuers; and
(iii) The sums debited
included the pursuer's г350,000 deposit, for the remission of which to
third parties the defenders had no authority."
Issues (i) and (ii)
[7] The first of these issues
has no bearing in an issue between the pursuer and the bank and is therefore
irrelevant, a point which I did not understand Mr Upton, for the pursuer,
to dispute.
[8] On
the second issue, the pursuer's counsel argued that the pleadings did not
disclose that Davis Blank Furniss had in fact been appointed by I.P.T.C. and
that at the very least the pursuer's pleadings put the defenders to proof on
this matter. Moreover, if they had been
appointed this did not make them "legal advisors" for the purposes of the
facility letter. I do not accept these
submissions. In my view the pursuer has
not put the defenders to proof on these matters. In addition to the averments already noted, in
Article 9 the pursuer avers that he has never instructed Davis Blank
Furniss, that they have not to his knowledge undertaken any formal steps to
recognise him as a client, that the only connection between them is the C.I.A.
and that no record of their appointment to act for him has been disclosed to
him. Largely on the basis of these
averments he avers that they have never been legal advisors of his. These averments are beside the point: the
authority given to I.P.T.C means that it is not necessary for there to be any
direct instruction from the pursuer, he has authorised their appointment to act
for him by authorising I.P.T.C to appoint them for this purpose. His averments do not amount to a challenge to
the defenders to prove that the solicitors were appointed under the C.I.A nor
do they amount to a denial that they were so appointed. The C.I.A. gave power to I.P.T.C to appoint them
and that was intimated to the defenders in about November 2001. Subsequent to that intimation, the pursuer
entered into the facility agreement containing authorisation for his legal
advisors to draw down funds. In these circumstances the defenders were entitled
to proceed on the basis that the solicitors who were authorised to be appointed
under the C.I.A had in fact been appointed and that those solicitors were
"legal advisors" for the purpose of the facility letter. The pursuer's argument that the purpose for
which authority was given under the C.I.A was restricted and that a solicitor
appointed for that purpose was not thereby a "legal advisor" seems to me to be casuistic.
The C.I.A. gave intimation to the bank
that certain agents were authorised to purchase policies on behalf of the
pursuer. It authorised one of them to
appoint solicitors for the purpose of effecting those purchases. The facility letter is an irrevocable mandate
to the bank to remit funds to legal advisors of the pursuer for the purpose of
purchasing policies. In those circumstances,
it is not necessary for instructions to come from the pursuer directly. It is enough if accredited agents of the
pursuer intimate that policies are to be purchased on his authority and that is
sufficient authority for the exercise of the mandate in the facility letter for
remitting the funds to the solicitors for remitting to the vendors in terms of
paragraph 12 of the facility letter.
[9] As
to actual remittance of funds to Davis Blank Furniss, counsel argued that
the pursuer's pleadings put the defenders to proof of the issue of whether the
funds had in fact been remitted on the instructions of Davis Blank
Furniss, to Messrs Davis Blank Furniss and whether the bank were advised
that the funds were being drawn down for the purpose of remitting those funds
to appropriate vendors of the relevant policies. He said the bank were also put to proof on
the associated question of whether he sent the e-mail of 13 July 2003. It was argued for the defenders that the
pursuer has not challenged the accuracy of the bank statements which show
payments to Davis Blank Furniss and I agree with that. I also accept the argument for the defenders
that the agency of I.P.T.C/ASfund is important because it entitled the defenders
to remit funds to Davis Blank Furniss for the specified purpose on the
indication from I.P.T.C. or ASfund that they had identified policies to be
purchased for the pursuer. The pursuer
accepts that he is the "putative holder" of the policies and avers that between
certain dates one or more of "Davis Blank Furniss, I.P.T.C. or ASfund
apparently purported to buy sixty-six T.E.P.S in the name of and for the
pursuer." As far as the bank knew and
were entitled to assume, both the latter were entitled to do so and the former
was entitled to have funds remitted to them for that purpose. Nothing in this averment is sufficient to
suggest that the bank did not have the necessary authority to remit funds. Moreover, I think the defenders are entitled
to rely on the e-mail of 13 July
2003. It is not sufficient
for the pursuer to rely on a general denial and to aver that he "has no record"
of the e-mail. The question of whether
the pursuer sent that e-mail is something which should be wholly within his
knowledge and whether he actually kept a record of it is immaterial. I consider that his averments on this matter
are lacking in frankness and that the defenders are entitled to rely on the
e-mail.
Issue (iii)
[10] The remaining issue is the
third one identified at paragraph 5 hereof. The precise issue here was whether the
defenders had authority under clause 12(2)(a) to remit any part of the sum
of г350,000 at credit of the pursuer's account.
Submissions for defenders
[11] Counsel for the defenders submitted
that Clause 12 of the facility letter authorised remittance of funds from
the account for the specific purpose of purchasing traded endowment policies
for the pursuer, whether by way of loan facility or by debit from his own
funds. The disjunctive "or" used in Clause 12
is perfectly clear: it envisages either
that the whole amount of the facility will be remitted or that the purchase
price will be remitted as required.
There will either be a single transfer or a series of requests on a
piecemeal basis. In other words, in the
absence of a single transfer, the amounts will be drawn down as and when
required. The argument that the
defenders were not entitled to remit any part of the г350,000 was
incorrect for three reasons:
1. It is contrary to the way
a loan facility operates on an account.
The party cannot access the loan facility unless the balance on the
account has reached nil. An authority to
draw down to the full extent of the loan facility carries with it an assumption
that the funds in the account will first be exhausted.
2. The pursuer's approach
would involve the account being simultaneously in debit and credit. The bank would be authorised to draw down a
loan but would be prohibited from touching the г350,000. The bank would charge interest on a higher
sum than they were actually owed, as it would require for those purposes to
ignore the г350,000 in credit.
3. Clause 12 envisages
either drawdown of the whole facility, which as a matter of logic, would
include any credit balance, or a more piecemeal approach as required. The latter approach does not require a
drawdown at all. The piecemeal approach
may involve drawing down the loan facility but only if the aggregate exceeded г350,000. Authority to draw down the loan facility
encompasses authority to draw down the sum at credit or the account. It is not suggested that this was anything
other than a standard running account.
Submissions for Pursuer
[12] Counsel for the pursuer submitted
that for a payment from a customer's account to be made within authority the
mandate must authorise the bank to pay out the funds which they do in fact pay
out. Counsel submitted that the C.I.A. was not a mandate in any way in which
the concept was understood.
[13] Counsel then turned to the facility letter which he submitted had
no bearing on the use of sums at credit of the pursuer's account. The agreement regulated the terms only of a
loan and the language used - "drawdown" - is the language of a
loan. It did not regulate the account,
only the loan to be made available through the account. Counsel accepted that
there could be no loan whilst there remained a credit balance, but it did not
follow that the loan terms applied to the credit balance. The provisions have to be read in the context
of the subject matter, which is of money being lent. For example, it would be a nonsense, when the
pursuer used his own money to buy a policy that it would have to be assigned in
security even when there was no obligation to the bank, yet this would follow
from the defenders' argument.
[14] Although the facility agreement on two occasions refers to a
situation where the account may be in credit, (page 2 and page 5), it
does not follow that it regulates a credit balance on the account. The pursuer warrants that he will be
responsible for meeting any balance of the price beyond the facility. This is not necessary if the bank had a
mandate to use his own cash resources.
[15] In the course of argument reference was made to the re-issue of
the Stair Memorial Encyclopaedia
article on Banking, Money and Commercial Paper by Professor Crerar,
paragraphs 90, 94 and 97, Royal
Bank of Scotland v Skinner 1931
S.L.T. 382 and Grier on Banking Law
in Scotland (2001), paragraph 4.16.
Discussion and decision
[16] I have come to the
conclusion that the arguments for the defenders are to be preferred. In my view the authority given in the facility
letter is sufficient to cover the funds at credit of the account as well as any
funds drawn down on the facility. I agree with counsel for the defenders that
the disjunctive wording of Clause 12(2)(a) is intended to cover not only
the whole amount of the facility but the amounts required from time to time to
be remitted from the account for purchase of policies. That is sufficient to cover funds from time to
time at credit of the pursuer. Moreover,
the wording of the letter clearly anticipates that the account will from time
to time be in credit. Paragraph 4 provides
that "If the account is in credit at any time, interest ... will be
calculated on the cleared balance of your account." The facility is only made available when the
"initial policies" have been purchased (cl 5) and these must have been
paid up to and including the date of drawdown of the facility, so it is clearly
envisaged that these policies, which clearly come within the scope of the
agreement, are to be paid for from the pursuer's own funds. Finally, it is worth noting that the agreement
envisages that the pursuer might operate several accounts because the authority
given in clause 12(2)(a) commences with authority "to open accounts
in your name".
[17] Furthermore, I consider that the authority to remit funds to
the limit of the facility carried with it the authority to remit funds at
credit of the account.
[18] Accordingly, I consider that the pursuer's case is irrelevant
and I will sustain the defenders first plea in law and dismiss the action.
