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OUTER HOUSE, COURT OF SESSION
[2017] CSOH 88
CA127/16
OPINION OF LORD BANNATYNE
In the cause
PROMONTORIA (RAM) LIMITED
Pursuers
against
JOHN MOORE
Defender
Pursuers: Mr Barne; HBJ Gateley
Defender: Mr R Anderson; Burness Paull LLP
21 June 2017
Introduction
[1] This matter came before me for debate in terms of the defender’s first to third pleas in law. The defender sought dismissal of the pursuers’ case on the basis that the pursuers did not have title to sue and it was irrelevant and lacking in specification.
Background
[2] On 31 May 2007 the defender signed a personal guarantee (“the Guarantee”) addressed to the Ulster Bank Limited (“the Bank”).
[3] In terms of the Guarantee the defender irrevocably guaranteed payment and discharge of all sums due or to become due by Parker Moore (IOM) Limited (“the Debtor”) to the Bank in terms of banking facilities extended to the Debtor by the Bank.
[4] The Bank and Debtor entered into a facility agreement in around June 2007 in terms of which the Bank advanced the sum of £14.5 million to the Debtor and provided the Debtor with an overdraft facility of £600,140. The facility agreement was amended and restated on various occasions. On 9 December 2014 the Bank intimated to the Debtor and the defender an event of default under the amended facility agreement. The defender agreed to pay £1.4 million to the Bank, being the amount outstanding in terms of the Guarantee at that time. On 28 August 2015 the Bank and Ulster Bank Ireland Limited entered into an agreement with the pursuers (“the Global Deed of Transfer”). In terms of the Global Deed of Transfer the Bank sought to assign to the pursuers inter alia various debts, including the Bank’s rights under the amended facility agreement between the Bank and the Debtor. The Bank also sought to assign to the pursuers its rights under the Guarantee. Whether the Bank had assigned its rights under the Guarantee and properly intimated assignation to the defender was a matter of contention.
The Guarantee
[5] The following are the material provisions of the Guarantee:
“1. I, John Moore,… (including my heirs and successors (‘the Guarantor’) in consideration of the Bank granting loan facilities to the Principal pursuant to the terms of the Facility Agreement (as defined below) (i) hereby irrevocably guarantee payment and discharge of all sums due and to become due by Parker Moore (IOM) Limited (a company incorporated in the Isle of Man) (Company Number 110771C)… (‘the Principal’) to the Bank to be applied in repayment or cancellation (as applicable) of the facilities made available under the facility agreement entered into between the Principal and the Bank (‘the Facility Agreement’) on or around the date of this Guarantee (as such facility is amended, restated, supplemented, novated or replaced from time to time) (‘the Guaranteed Obligations’) and shall on demand in writing at any time once the same have fallen due (whether by acceleration or otherwise), pay or discharge the Guaranteed Obligations to the Bank with interest (at the rate specified in the said Facility Agreement) from the date of demand; and (ii) agree that any item or amount claimed by the Bank to be included in the Guaranteed Obligations which is not recoverable from the Guarantor under this Guarantee for any reason on the basis of a guarantee shall nevertheless be recoverable from the Guarantor as principal debtor by way of indemnity and the Guarantor agrees to discharge its liability in respect of that item or amount on demand with interest from the date of demand. The provisions of this Clause 1 are subject always to Clause 13 below.
2. This Guarantee shall be a continuing security, notwithstanding any intermediate payment to the Bank, or any settlement of account, or my death or mental incapacity, or any other matter whatever.
…
5. This Guarantee shall be in addition to, and shall not prejudice or be prejudiced by, any other security or guarantee at any time held from or on account of the Principal. This Guarantee may be enforced without the Bank first taking any steps or proceedings against the Principal or having recourse to any such security or guarantee.
…
7. The Bank may, at all times, in its absolute discretion, and without affecting my liability as Guarantor, (i) grant, continue, vary, renew, refuse, determine or increase any credit facilities provided to the Principal, (ii) grant any indulgence to, release, compound with or enter into any other arrangement whatever with, the Principal, me or any other person, (iii) deal with, renew vary, release, abstain from perfecting or enforcing, enforce or realise any security, guarantee or other rights held by the Bank from or on account of the Principal, or (iv) do or omit or neglect to do anything whatever which (but for this provision) might operate to discharge or reduce my liability.
…
9. A demand for payment or any other demand or notice under this Guarantee may be made by letter sent by post to or left at the address of the Guarantor specified in Clause 1 above or such other address as is notified to the Bank by not less than 5 business day’s prior notice. If sent by post it shall be deemed to have been given at noon on the third day following the day the letter was posted.
10. All payments falling to be made by me shall be made to the Bank without any set‑off or counterclaim and free from any deduction or withholding for or on account of any taxes.
11. A certificate by an officer of the Bank as to the money and liabilities for the time being due or incurred by the Principal to the Bank shall, in the absence of gross negligence, wilful default or manifest error, be conclusive and binding on me.
12. Notwithstanding any other provision of this Guarantee, my total aggregate liability to the Bank under this Guarantee shall be limited to the sum of £1,500,000 together with any interest accrued thereon from the date of demand in accordance with the terms of Clause 1 hereof and all associated costs in terms of the Facility Agreement.”
Issues
[6] The defender’s challenge to relevancy falls into two chapters:
1. Whether the Guarantee was such that it could not be assigned to the pursuers? With respect to this chapter there was a subsidiary argument advanced to the effect that there was no right for the Bank to assign.
2. Whether the assignation had been properly intimated to the defender?
The Submissions on behalf of the Defender
[7] Mr Anderson first argued that the Bank’s rights on a proper construction of the Guarantee were not assignable.
[8] In development of that position Mr Anderson contended that the question of whether rights arising in terms of modern finance documents are assignable is a question of construction.
[9] The first provision of the Guarantee which he submitted was of significance was Clause 1. He directed the court’s attention to this: the Guarantee is granted in respect of the Guaranteed Obligations. Those are to be found in the Facility Agreement between the Bank and the Debtor. The Facility Agreement is defined to permit amendment, restatement, supplement, novation or replacement. He observed, however, that there was no reference to assignation. The Guarantee requires payment to the Bank. The Bank is a defined term, it is not defined so as to include assignees. He submitted that the Bank had used defined terms and that such defined terms should be given their natural ordinary meaning. The ordinary meaning of bank is the Bank.
[10] The second point made by Mr Anderson was this: the Guarantee was addressed to a specific creditor ie the Bank. This is a material factor in considering whether the Guarantee is assignable. Said submission was made under reference to Waydale Limited v DHL Holdings (UK) Limited (No 2) 2001 SLT 224 per Lord Hamilton at paragraphs 22 and 23; Fortune v Young 1918 SC 1 and Royal Bank of Scotland v Brown 1982 SC 89.
[11] Mr Anderson went on to submit that reading the terms of the Guarantee as a whole, a reasonable person with all of the information available to the parties would understand the words chosen by the defender and the Bank to mean that the Guarantee was not assignable. In development of that submission he said as follows:
(a) The ordinary benefit of discussion, is waived by the Bank (clause 5); there is no agreement that any assignee shall be entitled to enforce the Guarantee without first discussing with the Principal;
(b) The ordinary privileges of the cautioner on various acts or omissions by the Bank in its dealings with the Principal (clause 7);
(c) the demand to be made under the Guarantee is to be made to a particular address and the Guarantor is obliged to notify the Bank of any change of address (clause 9);
(d) Payments are to be made by the Guarantor to the Bank, without set-off or counterclaim or deduction. That is not an argreement to which commercial sense can be given in a question with an assignee against whom a debtor may have a perfectly good counterclaim (clause 10);
(e) Clause 11 makes provision for the certificate of the liabilities due to be given by an officer of the Bank as to the money and liabilities for the time being due or incurred by the Principal to the Bank.
(f) Clause 12 caps the Guarantor’s liability to the Bank;
[12] What he took from consideration of the terms of the Guarantee as a whole was this: A reasonable person with all the information known to the parties would have understood the words used by the Bank and the defender to envisage that the Guarantee was for the benefit of the Bank and only the Bank, unless there was a subsequent agreement varying the position to permit assignation of the benefit of the Guarantee. No such agreement was ever reached.
[13] Taking matters in the round, therefore, the Guarantee is drafted, like the restated Facility Agreement, like any other banking document: capitalised terms are carefully defined. Banking documents such as this, set out precisely what is to be permitted: as in the definition, within the Guarantee, of “Facility Agreement”. That definition does not include any reference to assignability. It permits a novation: a change of its terms between the original parties to the agreement. It makes no mention of assignees, although the insertion of such a term is common where the parties wish to make that intention clear. As a matter of construction, therefore, he submitted that reading the Guarantee as a whole the reasonable person with all the information available to the parties would consider that the natural and ordinary meaning of the words which the parties had chosen to use was that there may be further agreement between the Principal, the Guarantor and the Bank. But that reasonable person would not conclude that the benefit of the Guarantee was assignable.
[14] He then turned to consider the issue of delectus personae, in the context that the Bank’s rights under the Guarantee are not expressly assignable. It was his submission that looking to the issue of delectus personae the Guarantee was not assignable.
[15] In expansion of his position he submitted that it was important to understand that the Bank was a UK regulated entity; the pursuers did not fall into that category. The argument with respect to delectus personae then went as follows: in the twenty first century, where there is extensive regulation of UK banks (from 2001 by the FSA; and, from 2013, by the FCA), the granter of a guarantee, under Scots law, to a UK regulated bank must be taken to have agreed, in the absence of express wording to the contrary, that he would be dealing with a UK regulated entity and only with a UK regulated entity. That agreement is important at two levels. First, the Bank as a UK regulated entity would be required to make any written demand; and, secondly, that the Bank would not be permitted to assign to an unregulated entity such as the Pursuers. In more traditional terms, a guarantee may be granted in reliance on the bona fides of a creditor to keep the interests of the guarantor in mind and in proper proportion and balance.
[16] In summary he submitted that by applying the principles of construction or by following the traditional principle of delectus personae it was clear that the Guarantee was not assignable.
[17] The next argument related to the issue of conditionality. He developed this argument as follows: having regard to the terms of the Guarantee a three stage process was envisaged:
(i) the Guaranteed Obligations (of the Principal) falling due;
(ii) a written demand, in terms of Clause 9 of the Guarantee, perhaps accompanied by a certificate in terms of clause 11 of the Guarantee;
(iii) followed by payment by the Guarantor to the Bank, in terms of clause 10.
From this he argued: As has been seen, it is difficult to make commercial sense of, for instance, the waiver of set-off rights and counterclaim rights, contained in clause 10, which the Guarantor may have against the Bank to a claim by an assignee. A written demand, on the terms of the Guarantee, was a condition precedent to liability: The Royal Bank of Scotland v Brown 1982 SC 89 at 101 per Lord Justice Clerk Wheatley. In the context of the terms of the Guarantee, it is submitted, that a demand had to be made by the Bank. Indeed, it is submitted that, as a matter of commercial common sense, this must be the proper construction. For until the demand had been made there was no claim to payment that could be assigned. And if there was no claim to payment held by the Bank against the Defender at the date of the Global Transfer Agreement there was nothing to assign: Bell v Cheape (1845) 7 D 614 at 637 per Lord Jeffrey.
[18] The second detailed chapter of Mr Anderson’s submission was with respect to the issue of intimation.
[19] He commenced this submission by setting out one of the purposes of intimation of an assignation which was this: to identify to whom the Debtor must pay.
[20] Having regard to that purpose he then turned to look at the factual circumstances of the instant case. He set out what the defender had received by way of intimation which was as follows:
(a) A Minute of Agreement signed by the Bank on 15 October 2015 offering a compromise, subject to a resolutive condition;
(b) A letter dated 23 March 2016 from a firm of Scottish solicitors representing an entity apparently registered in Ireland, purporting (i) to intimate to the Guarantor the Global Transfer Agreement, by enclosing a document which appeared to be a heavily redacted copy of the Global Transfer Agreement; (ii) alleging a ‘breach of the settlement agreement’; and (iii) purporting to demand ‘immediate repayment of the sum of £1,400,000 from you being your liabilities to our Client in terms of the Guarantee’, asking for payment to a bank account with yet another company, ‘Thames Collections Ltd’. Some months later, by letter dated 20 June 2016, agents acting for the Pursuers sought to intimate the Global Transfer Agreement to the Principal, again sending what appears to be a heavily redacted copy.
(c) In October 2016, the Defender received a Summons, where the same copy of an apparent Global Transfer Agreement, is produced by the Pursuers in the Schedule of Documents attached to the Summons and founded upon by the Pursuers in the Summons, but which copy does not even demonstrate on its face that the Global Transfer Agreement had been signed or witnessed at all, still less subscribed for and on behalf of the Defender’s creditor, the Bank.
[21] Against that factual background he said this: First the Defender, it is submitted, has been justified in refusing to pay a large sum to an offshore entity pending clarification of inconsistent and, in so far as redaction of signature goes, meaningless documentation. The Defender, in short, could not be said to have paid in good faith to a party producing such easily concocted documents that it is entitled to payment. In the event that the Pursuers were a fraudster, the Defender could be sued again by the Bank. The Defender would be protected only if he could demonstrate having paid in good faith. Where a purported intimation does not even demonstrate a document which bears to have been signed for and on behalf of the cedent, he submitted that the Defender would have difficulties in demonstrating that he had paid, ex hypothesi, to the wrong party in good faith.
[22] An important point of practice, however, now arises. The Pursuers having produced and founded upon a document which had no signatures or witnesses, have now sought to found upon another version, said to be a true copy of the original but still containing blacked-out sections. However, the pursuers have already founded upon a version which had no signature or attestation in its pleadings in this court. The Requirements of Writing (Scotland) Act 1995, s 3(3)(a) provides that, ‘the name and address of a witness may be added at any time – (i) before the document is founded on in legal proceedings…’. The Pursuers in this case founded on a document in which the details of the signatories and witnesses were redacted. Following the Defender’s adjustments, the Pursuers appear to recognise that there is a difficulty in trying to intimate an assignation without demonstrating some document signed by the cedent. It is submitted that, having founded upon a redacted version which had neither subscriptions nor attestations, it is not now open to seek to lodge a version which purports to show that underneath those obliterations there were signatures. The version now founded upon has not, in any event, been subscribed (it is signed on a free-standing signature page, not subscribed in terms of s 7). As a result, even if the Pursuer were permitted to found upon the revised copy, it is not a document in terms of 3(1) in the 1995 Act which benefits from any presumptions as to signature. Indeed, the signatures are largely illegible.
[23] As a matter of practice, one commercial judge has already deprecated the lodging of redacted documents: Alliance Trust Savings Limited v Currie [2016] CSOH 154 paragraphs 44-46. It is submitted that there is real substance to that criticism, in terms of a public general statute, where the document relied upon forms the basis of the pursuers’ title to sue.
[24] Standing back from the questions which arise in terms of the copy documents which have been lodged, on any analysis, he submitted, the pursuers have not thus complied with the terms of the Transmission of Moveable Property (Scotland) Act 1862, section 2 (which presupposes that a certified copy of the written assignation will be posted to the debtor). The pursuer, in the present case, does not appear to suggest it has complied with the 1862 Act.
[25] For the foregoing reasons he submitted that the pursuers’ case was irrelevant.
The Pursuers’ Reply
[26] With respect to the assignability issue Mr Barne’s primary position was a short one. It was this: the issue of whether or not the Guarantee was assignable does not arise. The Guarantee being accessory to the principal debt, follows it ex lege: accessorium sequitur principale. Nor, he submitted was it necessary to intimate the assignation of the principal debt to the cautioner, although intimation to the cautioner can be undertaken for practical rather than constitutive reasons. In the present case, the Guarantee constitutes a cautionary obligation; therefore it follows the principal debt regardless of any assignation.
[27] If the court was not with him in terms of his primary position, he submitted that the rights under the Guarantee were assignable and had been properly assigned to the pursuers.
[28] He accepted that in terms of this approach, whether or not the rights that existed under the Guarantee are assignable turns on a question of construction. He submitted that there is nothing in a contract of guarantee per se that renders it unassignable. In the instant case, there is no express prohibition against assignation and so the issue becomes whether or not the doctrine of delectus personae applies. As McBryde, The Law of Contract in Scotland (3rd edition) at paragraph 12-37 suggests, in relation to the applicability of delectus personae, the issue is the intention of the parties, as might be deduced from: (1) the type of contract, (2) the terms of the contract and (3) the nature of the respective parties or the business of the parties. Transactional context may also be relevant (see: Waydale Limited v DHL Holdings (UK) Limited (No 2) 2001 SLT 224).
[29] Developing this argument he said this: the general rule is that rights are assignable and delectus personae is the exception. The paradigm example of a right that can be assigned is a right to payment under a contract (see: Anderson, Assignation at page 31.) It was his position that there was nothing within the Guarantee that gave rise either to an express or implied prohibition on assignation. In particular the Guarantee Obligation, which related to payment of sums advanced to the Debtor, did not involve any special relationship between the Bank and the defender such that delectus personae arose.
[30] There was, he submitted, nothing in the clauses upon which the defender relied which supported his argument. These clauses did no more than exclude certain potential defences a cautioner might advance against a creditor or assignee. He accepted that the defender’s best point was that the obligation was addressed to the Bank. However, he said such an argument could apply to any contract where the two parties were named and therefore did not support the defender’s argument.
[31] It was his position that (1) the very broad tailpiece to Clause 2 and (2) the breadth of Clause 7 strongly suggested that the Guarantee should be coextensive with the main obligation.
[32] Looking at the transactional context he made two points: First it is of note that the Bank, the Debtor and the defender each signed a letter dated 16th December 2013. Appended to that letter was the Amended and Restated Facility Letter in terms of which the Bank continued to support the Debtor’s borrowing. Paragraph 11 of the Terms and Conditions Applicable to All Facilities states that:
“The Bank shall have the right to assign, transfer, novate or participate the benefits or obligations of the Facilities or any part thereof… to any person without the consent of the Borrower, the Personal Guarantor or any other person. The Borrower is not permitted to assign or transfer the benefits or obligations of the Facilities or any part thereof to any other party without the prior written consent of the Bank.”
This, he submitted, was relevant to the transactional context: the Principal Debt was freely assignable; there is no reason why the accessory obligation, to the extent that an assignation is necessary, should not also be freely assignable.
[33] In respect of the transactional context, it should be further noted that the defender was a director and controlling mind of the Debtor. This is therefore not a situation where the cautioner is a stranger to the underlying transaction and who, as a result, relies on the good sense of the creditor and/or debtor. Nor is this a case where the manner in which the guaranteed obligations may be enforced might vary widely as between different creditors.
[34] So far as the contention the Guarantee was not assignable to an “unregistered opaque offshore entity such as the pursuers” he submitted this argument was misconceived. Underlying this contention was this: the principle of delectus personae could apply such that a right is assignable only to a particular class of assignees. That could not be correct; either delectus personae applies and the right cannot be assigned or it does not apply, in which case the right can be assigned.
[35] Beyond the above, there was no suggestion that the regulatory scheme prevented assignation and in these circumstances that was an end of the defender’s argument.
[36] Turning to the argument that there was no right in existence to assign, Mr Barne made two short points: firstly, the accessory nature of the obligations under the Guarantee mean that they follow the Principal Debt. Secondly, on the assumption that the Bank’s rights under the Guarantee are assignable, there is nothing in the Guarantee that would stop an assignee issuing a demand and making a claim under the Guarantee.
[37] Turning to the issue of intimation Mr Barne submitted that this had no merit for three reasons:
a. Formal intimation was not required. The accessory nature of cautionary obligations means that they follow the principal debt: accessorium sequitur principale.
b. To the extent that intimation is required, the assignation by the Bank to the pursuer of the Guarantee was properly intimated to the defender.
c. In any event, it is settled law that the holder of an unintimated assignation has a title to sue: the raising of the action is itself intimation. To the extent that where an assignee’s formal title to sue is incomplete on raising an action, that defect can be remedied in the course of the action.
[38] With respect to the point which he made at paragraph b Mr Barne developed this in the following way: even if intimation to the defender qua guarantor was required, it is submitted that this has occurred.
[39] The rules on what constitute effective intimation are ill-defined. McBryde in The Law of Contract in Scotland (3rd ed.) sets out at paragraph 12-96 some of the accepted methods of intimation. There, it is noted that, “Production of the assignation, or a copy of it, to the debtor, or a distinct reference to its terms in a letter to the debtor, is valid intimation at common law, provided that the debtor’s written acknowledgement is obtained.”
[40] Having regard to the Burness Paull letter dated 8 April 2016 (no 6/9 of process), receipt of the Global Deed of Transfer, being the assignation of both the Principal Debt and the Guarantee, is acknowledged. In any event, the requirement for acknowledgment by a debtor must be doubted in light of the Inner House’s obiter dictum in the decision in Christie, Owen and Davies Plc t/a Christie & Co v Campbell 2009 SC 436, where it is strongly doubted than an acknowledgement is required for effective intimation at common law.
[41] More generally, in the Christie case the Inner House approved the approach to intimation set out by Wilson in The Scottish Law of Debt. This was in the following terms:
“Generally, however, intimation can be proved rebus ipsis et factis. The terms must be such as to convey to the debtor that the debt has been transferred and that the transferee is asserting his claim to the debt from the debtor; the amount of the debt being assigned must be stated; general statements may not suffice; letters from the debtor to the intimator can be looked at.”
[42] In light of this, he submitted that assignation of the Guarantee has been properly intimated. The issue becomes whether the original redactions somehow invalidated the intimation. In Libertas-Kommerz GmbH v Johnson 1977 SC 191 Lord Kincraig said the following (page 206):
“It seems to me that both cases show that if there has been a written intimation to the debtor of the fact that an assignation has been granted, the terms of that intimation must be considered, and if they are such, on a reasonable interpretation, as to convey to the debtor that the debt has been transferred, and that the transferee is asserting his claim to the debt from the debtor, intimation will be held to be effectual. I do not think it is necessary to refer to the details of the assignation, if otherwise the intention is clear.”
[43] With respect to his final point, namely: judicial intimation, he made the following points: even if the pursuers’ first two arguments are not accepted by the court, the pursuers submit that any defect in respect of intimation has been cured by the raising of judicial proceedings. It is settled law that the holder of an unintimated assignation has a title to sue: the raising of the action is itself intimation. Judicial intimation is the ‘best of all intimations’ – Carter v McIntosh (1862) 24 D 925 at 934 per the Lord Justice-Clerk (Inglis).
[44] The general rule is that a party must have title to sue prior to raising proceedings. However, that rule is subject to an exception in the circumstances where the party has a substantial right requiring only formal completion: see Laurence McIntosh Limited v Balfour Beatty Group Limited [2006] CSOH 197 at [20]ff. The raising of proceedings and the attendant judicial intimation of the assignation completed any formal defect in the pursuer’s title to sue.
[45] The defender’s argument about the extent of the redactions and the subsequent production of an unredacted assignation (other than in respect of price) is without merit. Sheriff Principal Dunlop QC said the following in Nigel Lowe Holdings Ltd v Intercom Construction (Pty) Ltd 2004 GWD 40-816:
“[54] Having made these observations I now address the issue raised by the parties. In my opinion the essential information that required to be communicated to the defenders was that the pursuers were now the party in right of Associates’ claim to the subject matter of the action. In my view that information was contained within the initial writ and accordingly this ground of appeal cannot be sustained. I accept that the defenders were entitled to call upon the pursuers to vouch these matters and to give greater specification, but I do not consider that that vouching and specification were required contemporaneously with the initial writ. The amended pleadings, narrating the mechanics of the transfer, together with the production of the asset transfer agreements sufficiently set out the pursuers’ title in elaboration of the original averment in the initial writ.”
[46] Lastly the defender advances an argument under reference to section 3(3)(a) of the Requirements of Writing (Scotland) Act 1995 that it is somehow too late to lodge a different version of the assignation. This argument has been dealt with above and is, in any event, misconceived. The Assignation itself has not changed. It is simply the extent of the redactions that have. Whether or not the Assignation is probative or not in terms of section 3 of the 1995 Act is irrelevant to the issue of intimation. The defender’s point that there has not been compliance with section 7 of the 1995 Act is similarly irrelevant: whether or not the assignation is probative in terms of the 1995 Act is irrelevant to the issue of validity and/or intimation.
[47] For the foregoing reasons he submitted that the pursuers had pled a relevant case.
Discussion
[48] The primary issue is this: was the Guarantee assignable?
[49] The starting point in considering this is the general principle that if the principal debt is assigned the assignee may call upon the cautioner to make payment: accessorium sequitur principale.
[49] I do not understand the foregoing statement to be contentious. Mr Barne’s first argument flowed from this general principle and was to this effect, because of this principle, the issue of whether the Guarantee is assignable does not arise. I do not accept this primary argument: the Guarantee could either expressly or impliedly prohibit assignation.
[50] Having rejected Mr Barne’s primary argument, the question for the court is this: on a proper construction of the Guarantee was assignation prohibited?
[51] There is no express provision in the Guarantee prohibiting assignation. I therefore turn to the issue of whether there was any implied prohibition.
[52] Clause 1 of the Guarantee is the primary clause of obligation. It identifies a particular party as the obligee: the Bank. It is not a matter of contention that the Bank is a defined term and that Bank as defined does not include assignees. There is I believe some force in the argument advanced by Mr Anderson that such a term should be given its ordinary and natural meaning and that Bank therefore means Bank.
[53] In Waydale Limited v DHL Holdings (UK) Limited (No 2) Lord Hamilton considered the assignability of a Guarantee and concluded that the Guarantee was assignable. At paragraphs 20 and 21 he analyses the development of the law in relation to limitation of a Guarantee “in respect of the person”. He in particular considers Philip v Melville, 21 February 1809 FC.
[54] He observes that Philip v Melville is authority for the following proposition:
“… where a guarantee is addressed to a particular person, contemplating a transaction or transactions only with that person, it does not, in the absence of express provision to that effect, extend to transactions with another.”
[55] He then applies at paragraph 22 that proposition to the facts of the case before him:
“The primary clause of obligation does not expressly identify a particular person as the obligee under the letter of guarantee, the reference in that clause to the SDA being confined to its being named as a party to the two relative transactions. The extent of the obligations is particularised by reference to obligations arising out of specified transactions rather than by reference to any specified creditor.”
[56] In contrast, to the terms of the primary clause of obligation in Waydale, a particular party is expressly identified as the obligee in the Guarantee in the instant case: the Bank.
[57] Clause 1 in the instant case cannot I think be read as being a Guarantee of due performance of obligations under particular contractual relationships as Lord Hamilton read the primary clause of obligation in Waydale. In Waydale, the SDA in the primary clause of obligation, was only named “as a party to the two relative contracts”. In contrast in the present case the primary obligation is addressed “to the Bank”. It requires payment to the Bank. Thus by reference to this clause the Guarantee appears to be one designed in favour of a particular creditor, namely: the Bank. This is an indicator that on a sound construction of the Guarantee there is an implied prohibition against assignation.
[58] Mr Barne sought to argue as a primary position that the type of argument being advanced by Mr Anderson could apply to any contract between two parties. Contracts always identified the parties and that did not stop assignation. The fact that the Bank is named does not amount to an implied prohibition of assignation. I do not believe that there is any real weight in this argument. In essence it does not engage with the point being advanced by Mr Anderson.
[59] Mr Barne went on to argue that the reasonable person with the knowledge of the parties would have to have regard to the following provision in Clause 1 namely: the Facility Agreement could be the subject of amendment, restatement, supplement, novation or replacement from time to time. He then referred to the amended/restated/Facility Agreement and in particular paragraph 11 of the standard terms, as earlier set out. His position was that this was part of the transactional context and given that assignation was allowed with respect to the principal debt the Guarantee would be coextensive with that obligation.
[60] I am satisfied that this does not assist the pursuers. Rather I think that all it does is to highlight that the Guarantee, which is an exhaustive document, does not contain an express provision in similar terms to that contained in the restatement of the facility agreement.
[61] Mr Barne also submitted with respect to the transactional context that the defender is not a stranger to the underlying transaction. I believe this is of some significance. Lord Hamilton in his analysis in Waydale of the law relating to limitation of a guarantee in respect to the person observes that one of the main considerations in the case law in holding a guarantee addressed to another person not to be assignable was that the guarantor was relying on the good sense of the person to whom it was addressed. However, in the present case such a consideration does not arise. As contended by Mr Barne the defender given his relationship to the underlying transaction was not relying on the good sense and prudence of the creditor/debtor. Moreover I accepted Mr Barne’s argument that the position in the present case is not one where the manner in which the obligations may be enforced might vary widely as between different creditors. Thus it is a very different position from that before Lord Penrose in Waydale Ltd v DHL (Holdings) (UK) Ltd 1996 SCLR 391. In that case the guaranteed obligations included the tenant’s repairing obligations under a lease. Lord Penrose considered that a successor landlord might enforce these differently from the original landlord, thus giving rise to an issue of delectus personae. He came to the opposite view to Lord Hamilton and held the guarantee not to be assignable. No issue of delectus personae arises in that way in the present case. It appears to me that the foregoing factors tend to indicate that there is not a prohibition to the assigning of the Guarantee.
[62] Beyond the above the nature of the contract itself tends to point towards there not being a prohibition to the assigning of the contract. I accept that the paradigm example of a right that can be assigned is the right to payment under a contract.
[63] Clause 1 cannot of course be looked at on its own, the Guarantee has to be construed as a whole.
[64] Accordingly Clause 1 has inter alia to be considered in terms of the provisions of Clause 2 and 7 upon which reliance was placed by Mr Barne and in the context of the provisions as relied on by Mr Anderson.
[65] I believe that the other provisions of the Guarantee are clauses which are ancillary to the primary obligation contained in Clause 1. I accordingly am persuaded that the approach to be taken with respect to construction and in particular with respect to the effect that these clauses could have on a sound construction of Clause 1 is as set out by Lord Hamilton in Waydale at paragraph 23:
“In the absence of clear language in them (the ancillary clauses) delimiting the scope of the primary obligation as expressed it would be inappropriate to read the primary obligation more restrictively that its own terms justify.”
[66] Applying the above observations to the circumstances of the instant case the approach to the ancillary provisions is this: that in the absence of clear language in them widening the scope of the primary obligation it would be inappropriate to read the primary obligation more widely than its own terms justify.
[67] Clause 2 provides inter alia:
“This Guarantee shall be a continuing security, notwithstanding… any other matter whatever.”
[68] Clause 7 provides inter alia:
“The Bank may, at all times, in its absolute discretion, and without affecting my liability as Guarantor… (ii) grant any indulgence to, release, compound with or enter into any other arrangement whatever with, the principal, me or any other person…”
[69] It seems to me that the wording of each of these provisions is clear.
[70] The wording in Clause 2: “or any other matter” is clearly wide enough to encompass an assignation of the principal debt by the Bank. A reasonable person with all the information available to the parties would understand the use of these words to mean that the Guarantee would be a continuing security notwithstanding its assignation by the Bank. Such a person would thus understand that assignation was not prohibited. The terms of this Clause clearly envisage the possibility of assignation by the Bank.
[71] Turning to Clause 7, reading short, the liability of the defender as guarantor is not affected by the Bank entering into any other arrangement whatever with any other person.
[72] The above on a sound construction is clearly wide enough to encompass the Bank granting an assignation and the granting of that assignation having no effect on the liability of the defender.
[73] Again I consider the reasonable person with the information available to the parties would understand that the above wording means that the defender’s liability as guarantor is not affected by the granting of an assignation by the Bank. The wording is wide enough to envisage the possibility of an assignation by the Bank. Such a person would understand from these words that assignation was not prohibited.
[74] I am persuaded that these two clauses particularly when looked at together, on a sound construction, point strongly towards assignation not being prohibited.
[75] With respect to the various ancillary provisions upon which Mr Anderson sought to rely, I preferred the construction placed upon them by Mr Barne. It appeared to me that they did not suggest that the rights under the Guarantee are unassignable. To take one example Clause 10 (set off). In Anderson: Assignation at paragraph 2.41 this is said:
“If the possibility of set-off is fundamental to delectus personae, then there must be delectus personae in every contractual relationship where the possibility of set-off has not been excluded. But the most commonly assigned right is the right to payment arising out of a contract. It is incontrovertible that such rights are transferable. Since the debtor may plead compensation against the assignee (assignatus utitur jure auctoris), a potential plea of compensation is entirely irrelevant to both assignation and delectus personae.”
The above I believe indicates why the terms of Clause 10 cannot be construed as a prohibition to assignation.
[76] Accordingly, looking to the guarantee as a whole I am persuaded, with some hesitation, that on a sound construction of the whole guarantee, the scope of the primary obligation as set out in Clause 1 is widened and that accordingly assignation is not prohibited.
[77] When regard is had to the whole terms of the Guarantee; the nature of the right; and the transactional context I conclude that assignation is not prohibited.
[78] Moreover, it appears to me that some assistance with respect to the issue of assignability of the Guarantee can be obtained from a consideration of the issue of delectus personae, which I have already touched on.
[79] Generally with respect to the Guarantee, there appears to be nothing which could be said to involve a relationship between the defender and the Bank which could be described as special and thus give rise to an issue of delectus personae. The averment in Answer 5 relative to the Bank’s “reputation” is so lacking in specification as to amount to nothing and cannot set up any special relationship between the Bank and the defender which could found an argument based on delectus personae.
[80] Mr Barne, I believe, is also correct in asserting that “the terms of the loan” relied upon by the defender to set up a special relationship between the Bank and the defender cannot found such a contention. As Mr Barne pointed out, the terms of the loan are what they are and any assignee would be bound by them in the same way they bind the Bank.
[81] What I said earlier with respect to the transactional context feeds into the issue of delectus personae and supports the view that there is no delectus personae with respect to this transaction.
[82] Mr Anderson’s detailed position with respect to the issue of delectus personae as developed in the course of his oral submissions relied on the regulatory framework which applies to British banks but not, however, to the pursuers.
[83] The averments in support of this are these:
“It (the Bank) is a bank, which according to its own website, is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority and entered on the Financial Services Register ... The regulatory oversight of the FCA is significant. For instance, in relation to allegations against the “Global Restructuring Group” within the Royal Bank of Scotland Group, of which the Bank, since around 2000 has formed part, the FCA appointed an independent reviewer under section 166 of the Financial Services and Markets Act 2000 to investigate. The reviewer reported to the FCA in November 2016. The report has not yet been published. RBS announced in November 2016 a complaints procedure in relation to the charging of complex fees, chaired by a retired High Court judge. Further, the Bank is believed to subscribe to the Lending Code and to have adopted the Council of Mortgage Lenders handbook. The Bank is also believed to be a member of the British Bankers Association. The Bank is subject to the jurisdiction of the Financial Ombudsmen Service. In these circumstances and against that regulatory background, the Defender believes that that an unregulated entity such as the Pursuer will have a quite different enforcement policy from the Bank.”
[84] I am satisfied that these averments are irrelevant and lacking in specification.
[85] With respect to the averments regarding the Royal Bank of Scotland these are irrelevant in that the substance of this case does not relate to the “Global Restructuring Group” within the Royal Bank of Scotland Group. I accept that it is an example of what FCA may do, however, it is no more than that.
[86] Beyond the above, it is not averred with any precision how this regulatory regime could in any material respect bear on any issues between the defender and the pursuers or between the defender and the Bank. It is not suggested that there is any matter which could give rise to this regulatory framework being brought into play. I find myself in agreement with Mr Barne that the regulatory framework could only be of relevance if it prevented assignation. That, however, is not the defender’s position.
[87] Beyond that, as argued by Mr Barne, there is no authority to the effect that a right can only be assigned to a particular class of assignee. The law, is rather, due to the existence of delectus personae or the absence of delectus personae a right is either not assignable or is assignable.
[88] The next detailed chapter of the defender’s submission was in summary this: a demand had to be made by the Bank before assignation could take place, as otherwise there was no claim to assign. I was not persuaded by this argument. First, the accessory nature of the obligations under the guarantee mean that they follow the principal debt.
[89] A similar argument to that advanced by Mr Anderson was contended for in Nigel Lowe Holdings v Interior Construction (Pty) Limited supra (see: para 22). The Sheriff Principal rejected that argument. I would adopt his analysis at paras 29-34). Applying that analysis to the instant case there existed at the time of the assignation a vested right in the Bank, namely: the right to be paid by the Debtor and which failing the right to be paid by the Guarantor. What has been assigned is not an unvested contingent right.
[90] Moreover, if the assignation is assignable as I have held, there is nothing to stop the assignor issuing the demand and making a claim in term of the Guarantee. In particular the terms of Clauses 9 and 11 do not stop the assignee from issuing such a demand.
[91] The next chapter of the defender’s argument related to intimation.
[92] Intimation to the cautioner is done for practical reasons to identify the date of transfer and to identify to whom the debtor must make payment. It is not required for constitutive purposes for the reasons advanced by Mr Barne. I believe that that is a complete answer to the points made by the defender regarding proper intimation.
[93] In any event, if that is wrong, I accept the arguments put forward by Mr Barne that intimation took place prior to the raising of the action. Each of the arguments he advanced I believe had considerable force.
[94] Lastly, if I am wrong in relation to the first two matters, I believe that the argument advanced by Mr Barne with respect to judicial intimation, is clearly correct.
[95] So far as the Requirements of Writing (Scotland) Act 1995 argument I preferred the position of Mr Barne. First the assignation itself has not changed. The other points made are clearly not relevant to the issue of intimation.
[96] The argument in terms of the Moveable Property (Scotland) Act 1862 falls to be rejected as the terms are permissive not prescriptive.
[97] Without difficulty I reject entirely the defender’s arguments with respect to intimation.
Conclusion
[98] For the foregoing reasons, I reject the defender’s arguments with respect to the relevancy of the pursuer’s case and the issue of the pursuers’ title to sue.
Decision
[99] I repel the defender’s 1st to 3rd pleas in law; allow parties a proof before answer; and reserve all questions of expenses.