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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> STEPHEN AND ANOTHER, PETITION OF AS THE JOINT ADMINISTRATORS OF GRANITE CITY ASSETS LIMITED [2018] ScotCS CSOH_55 (01 June 2018)
URL: http://www.bailii.org/scot/cases/ScotCS/2018/[2018]_CSOH_55.html
Cite as: [2018] CSOH 55, [2018] ScotCS CSOH_55
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OUTER HOUSE, COURT OF SESSION
[2018] CSOH 55
P1050/17
OPINION OF LORD DOHERTY
in the Petition of
JAMES BERNARD STEPHEN, chartered accountant, and FRANCIS GRAHAM NEWTON,
chartered accountant, the joint administrators of GRANITE CITY ASSETS LIMITED
Petitioners
for directions in terms of paragraph 63 of Schedule B1 to the Insolvency Act 1986
Petitioners: Delibegovic-Broome QC; Morton Fraser LLP
Respondent: Dunlop QC, MacGregor; Anderson Strathern LLP
1 June 2018
Introduction
[1] The petitioners are the joint administrators of Granite City Assets Limited
(“Granite”). In this petition they seek directions as to whether certain sums are secured in
terms of a standard security granted by Granite in favour of FirstPoint Security Trustee
Limited on 2 October 2013.
The background and the documents
[2] Granite was incorporated as a special purpose vehicle to acquire a property at
96-126 John Street, Aberdeen. The property was to be demolished and re-developed as a
hotel and retail unit. Granite had two sets of funding arrangements, one for the payment of
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2
the purchase price of the Property and one for financing the development. The purchase
price was to be paid in instalments. The development was to be financed by a loan. Granite’s
obligations to pay the purchase price were to be guaranteed by BridgePoint Ventures LLC
(“BPV”). The respondent, IPN Global Capital Limited, is the successor of BPV. Granite
proposed to lease Units (hotel bedrooms) within the proposed development to raise money
to pay the purchase price.
[3] In order to facilitate the proposed purchase a Master Agreement dated 19 December
2012 was entered into between Granite, BPV, and SES Equity Partners Limited (“SESEP”)
(6/3 of process). The introduction to the Master Agreement narrated the proposed purchase
and development of the Property by Granite; that BPV had negotiated terms and conditions
with Granite on which Units would be made available for purchase by BridgePoint
Purchasers introduced by SESEP; that Granite would enter into agreements to sell leasehold
interests in the Units to BridgePoint Purchasers; and that the Master Agreement was
intended to set out the relationship between BPV, SESEP and Granite. Clause 1.1 provided:
“...
“BridgePoint Documentation” means (1) this Agreement, (2) the Addendum, (3) the
Standard Security, (4) the Floating Charge, (5) the Property Deposit Bond, (6) the
Security Trust Deed, and (7) the indemnity granted by Granite City for the benefit of
the Property Deposit Bond Provider; ...”
In terms of clause 2.1 Granite undertook to procure that the BridgePoint Units would be
available for the grant of leasehold interests to the BridgePoint Purchasers. In terms of clause
3 Granite and BPV each undertook certain different obligations relating to Deposits paid by
BridgePoint Purchasers. In terms of clause 5.1 Granite agreed with BPV and SESEP that it
would procure delivery of a Property Deposit Bond to each BridgePoint Purchaser. Clause
5.3 provided that, in the event that the Property Deposit Bond did not reimburse the
relevant BridgePoint Purchasers in whole in the event of any Granite default under the
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3
Purchase Agreement with the Purchaser, Granite undertook to SESEP and BPV that it would
make up any shortfall owed to such BridgePoint Purchaser out of its own monies within
three business days of having been given notice to do so by SESEP. Clauses 15 and 16
provided:
“15 Indemnity
15.1 Granite City undertakes to fully indemnify each of the BridgePoint Purchasers,
BPV, SESEP, their respective affiliates, shareholders, partners, members, managers,
officers, directors, employees, representatives, agents, heirs, successors and assignees
(collectively the “Indemnified Parties”) from and against any and all claims,
liabilities, actions, losses, costs, expenses (including all reasonable legal fees and
expenses) and damages howsoever arising from and relating to:
(a) any breach, violation or non-performance of any representation, warranty,
undertaking, condition or agreement in this Agreement, any of the Purchase
agreements, and/or any other contract between any of the Indemnified Parties and
the Granite City to be fulfilled, kept, observed and/or performed;
and/or
(b) any act or omission of Granite City in connection with the offer and/or sale of any
Unit in the Development or any violation of any law, rule or regulation by Granite
City.
15.2 If so requested by any of the Indemnified Parties, Granite City shall, to the
extent permitted by law, agree to defend all such actions or claims to which this
clause 15 applies and to conduct the defence thereof at its expense in good faith and
by using Counsel of appropriate seniority as shall be approved by the Indemnified
Parties who shall act reasonably and in good faith in giving such approval.
16 Property Deposit Bond Security
Granite City undertakes to BPV that it shall enter into the Standard Security and the
Floating Charge as security for Granite City’s obligations to the Secured Parties...”
Clause 21 provided:
“21 Insolvency
If Granite City suffers any of the following events, namely:
...
(d) in relation to a company ...
...
(iii) an administrator a receiver or an administrative receiver or a receiver and
manager are appointed ...
...
then BPV shall no longer be obliged to comply with its obligations under this
Agreement and shall be entitled (but not obliged) to terminate this agreement at any
time thereafter by notice to Granite City. … Following any such termination all
Deposits shall be repaid by Granite City in full to the BridgePoint Purchasers.”
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In terms of clause 24 Granite agreed to maintain the confidentiality of the BridgePoint
Documentation and not to use or disclose it to any third party without the express prior
written consent of BPV.
[4] The Master Agreement contemplated that the documentation listed in Schedule
Part 1A would be delivered by Granite to BPV, including a bond and floating charge by
Granite in favour of FirstPoint Security Trustee Limited in the form annexed as Part 9 of the
Schedule; a standard security by Granite in favour of FirstPoint Security Trustee Limited in
the form annexed as Part 8 of the Schedule; the Security Trust Deed between FirstPoint
Security Trustee Limited, FirstPoint Agent Limited and the Property Deposit Bond Provider;
and Property Deposit Bonds granted by the Property Deposit Bond Provider in favour of
each BridgePoint Purchaser in the form annexed as Part 5 of the Schedule.
[5] In article 4 of the petition the petitioners aver that Granite entered into a floating
charge in favour of FirstPoint Security Trustee Limited as Security Trustee for various
parties (including the BridgePoint Purchasers) dated 19 December 2012 and amended on
2 October 2013 and 13 November 2015; and that Granite executed a Standard Security in
favour of FirstPoint Security Limited, as security trustee for various parties including the
BridgePoint Purchasers, “dated 2 October 2013 as amended”. Those averments are admitted
by the respondent.
[6] The Standard Security of 2 October 2013 in favour of FirstPoint Security Trustee
Limited (6/10 of process) narrates that it was granted to FirstPoint Security Trustee Limited
“for itself and in its capacity as security trustee for the Secured Creditors (the “Security
Trustee”)”. Clause 1 defines inter alia the following terms:
“1.1 ‘BridgePoint’ means BridgePoint Ventures LLC ...;
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1.2 ‘BridgePoint Agent’ means FirstPoint Agent Limited ... in its capacity as agent for
the Bridgepoint Purchasers ...;
1.3 ‘BridgePoint Purchasers’ means each person which has paid a Deposit under and
in accordance with a Sale Agreement and which has not had its Deposit and/or other
sums due to it from Granite City paid back to it in full (each a ‘BridgePoint
Purchaser’);
1.4 ‘Bridge Lender’ means Red Friar Private Equity Limited ...;
...
1.7 ‘Deposit’ means the deposit paid by each BridgePoint Purchaser pursuant to the
terms of their respective Sale Agreement;
...
1.13 ‘Insurer’ means Northern & Western Insurance Co. Ltd ...;
...
1.15 ‘Master Agreement’ means the agreement between BridgePoint Ventures LLC,
SES Equity Partners Limited and Granite City dated 19th December 2012 in terms of
which BridgePoint Ventures LLC has agreed to make certain facilities available to
Granite City;
...
1.17 ‘Sale Agreements’ means the sale and purchase agreements entered into by
each BridgePoint Purchaser and Granite City for the sale and purchase of a leasehold
interest in each Unit (each a ‘Sale Agreement’) ...;
...
1.19 ‘Secured Creditors’ means together the Lender, the BridgePoint Purchasers,
BridgePoint, the Insurer, the BridgePoint Agent, the Bridge Lender and the Security
Trustee (each a ‘Secured Creditor’);
1.20 ‘Secured Liabilities’ means all liabilities and obligations of Granite City or the
Granite City owed or expressed to be owed to:
...
1.20.2 the BridgePoint Purchasers, the Insurer and/or BridgePoint under the Master
Agreement and the Security Documents;
...
1.20.5 the Security Trustee,
whether owed jointly or severally, as principal or surety or in any other capacity ...;
1.21 ‘Security Documents’ means this Standard Security, the floating charge and any
other agreement or document designated a security document by the Security
Trustee;
...
1.23 ‘Security Trust Deed’ means the security trust deed dated 18 March 2013
entered into between the BridgePoint Agent, the Insurer and the Security Trustee;
1.24 ‘Units’ means one or more of the units forming part of the Development
designated by the Granite City to be offered for sale to the BridgePoint Purchasers
(each a ‘Unit’).
...”
Clauses 2, 3 and 4 provide:
“2 Undertaking to Pay
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Granite City undertakes with the Security Trustee (for the benefit of the Secured
Creditors) to pay the Secured Liabilities to the Secured Creditors when due.
3 Security
In security of the Secured Liabilities Granite City grants a standard security in favour
of the Security Trustee for itself and for the Secured Creditors over the Security
Subjects.
4 Proceeds of Sale
4.1 Subject to clause 4.2, in the event that the Security Subjects (or any part of the
Security Subjects) are sold, the relevant Proceeds shall be paid to the Security Trustee
and the Security Trustee shall apply such Proceeds in accordance with the terms of
the Security Trust Deed.
4.2 Notwithstanding the generality of Clause 4.1 above, in the event that the Security
Subjects (or any part of the Security Subjects) are sold in accordance with the terms of
the Master Agreement, other than as a result of the exercise of the Security Trustee of
any of the remedies available to a creditor on default of a security provider by virtue
of the provisions of the Act and where no Enforcement Event is continuing, such
amount of the Proceeds as is required to repay and discharge the Secured Liabilities
in full shall be paid to the Security Trustee and the Security Trustee shall apply such
amount of the Proceeds in accordance with the terms of the Security Trust Deed.”
[7] The Recital (D) of the Security Trust Deed (6/12 of process) narrates that Granite had
undertaken certain obligations to, inter alia, the BridgePoint Purchasers. Clause 3 provides:
“3. Ranking and Priority
3.1 Ranking of Secured Liabilities
The Secured Creditors agree that the Secured Liabilities owed by Granite City to each
Secured Creditor shall rank ... in right and priority of payment in the order set out in
this deed.
3.2 Application of Proceeds
Subject to the terms of any Ranking Agreement and the claims of creditors which are
given priority by law, any and all Proceeds any other amounts payable pursuant to
the provisions of clause 9 or otherwise will be applied by the Security Trustee in the
following order of priority:
...
(b) Following an Insurer Default
...
(ii) secondly, in payment to the BridgePoint Agent to pay or discharge the
Purchasers’ Secured Liabilities;
...”
[8] On 19 December 2012 the Master Agreement, the Floating Charge (6/7 of process)
and the Security Trust Deed were executed. On 20 September 2013 the Property was
purchased by Granite. Between 9 January 2013 and 15 December 2013 Agreements for Lease
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of Units by BridgePoint Purchasers were entered into. The Deposit payments made by them
amounted in total to £4.5 million.
[9] Due to solvency problems, on 8 December 2015 Granite’s director filed Notice of
Intention to appoint Administrators. The petitioners were appointed as joint administrators
on 15 December 2015. On 27 June 2016 the joint administrators sold the Property for
£4 million (plus VAT). The funds realised were sufficient to repay in full the secured creditor
under the Facility Agreement. Interim payments were also made to the syndicate of
investor/purchasers under the Floating Charge. On 8 November 2017 the respondent gave
written notice to the petitioners under clause 21 terminating the Master Agreement (7/1).
[10] An issue has arisen as to whether the BridgePoint Purchasers, as a group of creditors,
have the benefit of the Standard Security. The petitioners seek an order giving directions
either that:
“a. The sums paid to Granite ... by the BridgePoint Purchasers ... are secured in terms
of the standard security...
or
b. The sums paid to Granite ... by the BridgePoint Purchasers ... are not secured in
terms of the standard security...”
If the BridgePoint Purchasers are secured in terms of the standard security there will be no
funds available for distribution to unsecured creditors.
[11] Both counsel prepared written Notes of Argument (11 and 12 of Process). The
petitioners had obtained an Opinion of Senior Counsel (6/17 of Process), as had the
respondent (6/18 of Process). Both of those Opinions pre-dated the respondent’s notice of
termination of the Master Agreement.
[12] I note for the record that the following documents were executed on the dates stated:
an Instrument of Alteration of Floating Charge (6/8) and a Supplemental Security Trust
Deed (6/13) (2 October 2013); a Deed of Variation of the Master Agreement (6/4)(December
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2013); a Secured Facility Agreement (6/15), a Second Supplemental Security Trust Deed
(6/14), and a Variation of Standard Security (6/11)(16 April 2014); a Deed of Guarantee
(6/16)(2014); and a Second Instrument of Alteration of Floating Charge (6/9)(13 November
2015). However it was not suggested that the terms of any of these documents were material
to the issues before the court.
Senior counsel for the petitioners’ submissions
[13] Senior counsel for the petitioners at the hearing was not the author of the Opinion for
the petitioners 6/17 of process. She indicated that in light of the advice in that Opinion the
petitioners considered it their duty to put forward the interests of unsecured creditors at the
hearing. She submitted that the key issue is whether Granite’s liability to repay the Deposits
of Bridgepoint Purchasers is one of the “Secured Liabilities” within the meaning of
clause 1.20 of the Standard Security. That could be further distilled into whether a liability or
obligation of Granite to repay the Deposits was owed or expressed to be owed under the
Master Agreement. No such liability or obligation was owed or expressed to be owed under
the “Security Documents”. That term was defined as “this Standard Security, the Floating
Charge and any other agreement or document designated a security document by the
Security Trustee”. Neither the Standard Security nor the Floating Charge were a source of
any relevant liability or obligation, and it was common ground that no document was ever
designated a security document by the Security Trustee.
[14] Turning to the Master Agreement, neither of the bases of liability/obligation to the
BridgePoint Purchasers which the respondent suggested was well-founded.
[15] Clause 15 did not undertake to indemnify the BridgePoint Purchasers in respect of
non-repayment by Granite of the Deposits. On a proper construction the undertaking was to
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indemnify the named parties (including the BridgePoint Purchasers) from and against
claims made against them by third parties, and from consequential losses arising as a result
of such claims. That was because the words “losses, costs, expenses” were to be construed
by looking at the other words which were listed and by applying the principle noscitur a
sociis. That was the ordinary and natural reading of the clause. It also accorded with the
commercial expectations of the parties to the Master Agreement. Reference was made to
40-41.
[16] In any case, even if (i) the scope of the indemnity was wide enough to include the
liability to repay the BridgePoint Purchasers’ Deposits, and/or (ii) in terms of clause 21
Granite was liable to repay the BridgePoint Purchasers’ Deposits, the liability/obligation in
each instance was owed to the other parties to the Master Agreement. It was not owed to the
BridgePoint Purchasers. On a proper construction of the Agreement neither clause contained
a promise by Granite to the BridgePoint Purchasers. Reference was made to Royal Bank of
2007 SC 285, per Lord President Hamilton at para 15; and Gloag and Henderson, The Law of
Scotland (14th ed), para 8.06. Moreover, the contracting parties had not conferred a jus
quaesitum tertio on the BridgePoint Purchasers. The mere fact that those purchasers had an
interest in the payments being made did not give them title to sue. It was not without
significance that as part of the overall arrangements the BridgePoint Purchasers had had
Deposit insurance. That had been the way in which it had been envisaged that their interests
would be protected. Even if on a proper construction of clause 15 and clause 21 the
contracting parties had intended to confer enforceable rights on the BridgePoint Purchasers,
for such rights to have been conferred the grant would have to have been irrevocable
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at p 88; Finnie v Glasgow and South-Western Railway (1857) 3 Macq 75, per Lord Cranworth at
p 3 and Lord Wensleydale at p 4; Mercedes-Benz Finance Ltd v Clydesdale Bank plc 1997
SLT 905, per Lord Penrose at pp 912J-913G). That was not the case here. There had been
nothing to prevent the parties to the Agreement from varying it. There had been no delivery
of the Master Agreement to the BridgePoint Purchasers, nor had there been any equivalent
of delivery. Indeed, Granite’s confidentiality obligations (clause 24) had precluded such
delivery or intimation without BPV’s prior written consent.
[17] Besides, even if a jus quaesitum had been conferred, it was not a contractual right but
was sui generis (McBryde, The Law of Contract in Scotland (3rd ed), para 10-23). It followed that
it was not a liability or obligation “owed ... under the Master Agreement”, with the result
that it was not secured by the Standard Security. The words “or expressed to be owed”
added nothing to the breadth of the definition in clause 1.20. It was difficult to see that a
liability which was not owed but was only expressed to be owed could be effectively
secured under a standard security.
Senior counsel for the respondent’s submissions
[18] Senior counsel for the respondent submitted that it was plain from the suite of
documents relating to the development that the intention of the parties to the Master
Agreement had been that Granite was to undertake liability to the Bridgepoint Purchasers to
repay the Deposits; and that that liability was to be secured by the Standard Security. That
was clear from clause 16 of the Master Agreement. It was also clear from the terms of the
Security Trust Deed. That document had been executed at the same time as the Master
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Agreement. One of the parties to it - FirstPoint Agent Limited - had been acting for and on
behalf of the Bridgepoint Purchasers. Recital (D) narrated that Granite had undertaken
certain obligations to, inter alia, the Bridgepoint Purchasers. Granite had been aware of the
terms of that document. It was referred to in the Master Agreement, and its receipt by
BridgePoint Ventures LLC was a condition precedent of release of the Deposits to Granite.
Since the commercial intent was plain the court should aim to give effect to it. Reference was
made to Royal Bank of Scotland plc v Carlyle, supra, per Lord Hodge JSC at para 29; and Rainy
para 25.
[19] On a proper construction of clause 15 the indemnity given was wide enough to
include the losses which the BridgePoint Purchasers suffered by reason of Granite failing to
return their Deposits. The BridgePoint Purchasers’ losses fell within the scope of “losses,
costs, expenses”. On an ordinary and natural reading of those words they were wide enough
to include the relevant losses. It had been an aim of the Master Agreement, and the suite of
documents as a whole, that the obligation to repay the Deposits to the BridgePoint
Purchasers should be a secured debt. From a commercial point of view it was perfectly
understandable that the indemnity should extend to the BridgePoint Purchasers’ own losses.
It was commonplace to find indemnities given against losses which are incurred without a
third party claim, eg against theft or natural peril; or in the event of inability to recover
damages as a result of insolvency of the paying party; or in collateral warranties granted in
building contracts (where it was entirely usual to find that a construction professional gives
a warranty breach of which would render him liable in damages, but also gives an
undertaking to indemnify the recipient against any losses arising from the breach: cf Royal
Insurance (UK) Ltd v Amec Construction Scotland Ltd 2008 SLT 825 at para 1). It would be
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wrong to conclude that clause 15 cannot have been intended to indemnify the BridgePoint
Purchasers for their own losses caused by Granite’s breach or non-performance just because
there was already a direct liability for damages. Collateral warranties generally created a
contractual nexus between the parties, breach of which would sound in damages, yet such
warranties commonly included an obligation to indemnify. There were good reasons for
this. The remedy for failure to obtemper an obligation to indemnify is a claim for payment,
not a claim for damages (Scott Lithgow Ltd v Secretary of State for Defence 1989 SC (HL) 9 at
p 20). For a number of other reasons a claim for indemnity could be more advantageous
than a claim for damages. The fact that the Master Agreement also contemplated that the
Bridgepoint Purchasers’ Deposits should have insurance protection (the Property Deposit
Bond) was not a good reason for construing clause 15 narrowly. It would have been obvious
to the parties that, for a variety of reasons, the insurer might not make payment to the
Bridgepoint Purchasers. The Security Trust Deed had contemplated default by the insurer
and had made provision for it. In fact the insurer had defaulted - it had become insolvent.
[20] In relation to both the clause 15 right and the clause 21 right the intention of the
parties to the Master Agreement had been to confer a jus quaesitum tertio on the BridgePoint
Purchasers. That was the correct conclusion construing the Master Agreement objectively. In
fact, in each case Granite had made a clear promise to the BridgePoint Purchasers to perform
the relevant obligation. The Bridgepoint Purchasers were the only persons with a material
interest in the obligations being performed cf Mercedes-Benz Finance Ltd v Clydesdale Bank plc,
supra, per Lord Penrose at pp 912J-913G. Those promises were binding without the need for
delivery of the Master Agreement (or an equivalent to delivery) to the BridgePoint
Purchasers. Reference was made to Royal Bank of Scotland plc v Carlyle, supra, per
Lord Hodge JSC at para 35; Cawdor v Cawdor, supra, per Lord Pesident Hamilton at para 15;
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Erskine, Inst, III,ii,43; Carmichael v Carmichael’s Executrix, supra; McBryde, supra, para 4-37.
In any case, the equivalent of delivery had taken place. The BridgePoint Purchasers had
been aware of the terms of the Master Agreement, not least because it had been delivered to
their solicitors who had received it on their behalf. If the petitioners did not accept that there
had been an equivalent of delivery inquiry on that question would be necessary.
[21] The jus arose from the Master Agreement. It was “owed ... under” it. If that was not
so it was certainly “expressed to be owed under” it.
[22] Finally, during oral submissions senior counsel sought to advance a further
argument which had not been foreshadowed in the pleadings or in the respondent’s note of
argument. If there were clause 15 and clause 21 obligations to repay the deposits to the
Bridgepoint Purchasers, but the clause 15 obligation was owed only to BPV and SESEP and
the clause 21 obligation was owed only to BPV, each of those obligations was nevertheless a
“debt” in terms of the Conveyancing and Feudal Reform (Scotland) Act 1970, s 9(8)(c)
(because it was an obligation ad factum praestandum). Since the Secured Liabilities under the
Standard Security included liabilities and obligations of Granite owed or expressed to be
owed to BPV under the Master Agreement (clause 1.20.2), the obligations ad factum
praestandum owed to BPV were secured by the Standard Security.
Decision and reasons
Clause 15
[23] I feel able to set out my views in respect of clause 15 relatively briefly. The petitioners
advocate giving the clause a narrower meaning than a literal interpretation would suggest is
appropriate. They rely upon application of the maxim noscitur a sociis. They also suggest that
the narrower interpretation would accord with commercial expectations because an
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indemnity with a greater scope would not materially increase the benefit which the
indemnified party would obtain from the indemnity. I am not persuaded that the
petitioners’ approach is correct.
[24] The noscitur a sociis principle involves identifying a common characteristic of a group
of words. One or more general words may be construed as having a more limited meaning
in light of the common characteristic. However, as Diplock LJ put it in Letang v Cooper
[1965] 1 QB 232 at p 247:
“The maxim noscitur a sociis is always a treacherous one unless you know the societas
to which the socii belong.”
[25] The ordinary and natural meanings of the words “losses, costs, expenses ... and
damages” are wide enough to include more than just indemnification against third party
claims and consequential losses caused by such claims. While the three preceding words
have the common characteristic that they concern third party claims against the indemnified
party, I think it would be going much too far to say that that is a common characteristic of all
seven words. In my view it is also significant that the words which follow, and which link
the seven words to the breaches etc described in (a) and the acts or omissions described
in (b), - “howsoever arising from and relating to” – are of very wide import.
[26] I am not convinced that an indemnity which extended to the BridgePoint Purchasers’
own losses would, to that extent, merely duplicate other rights of redress which the
petitioners have, or that it would be of no material commercial benefit to them. I agree with
senior counsel for the respondent that that is not so; and that indemnities of similar scope
are familiar in the other commercial contexts which he described. I also agree, looking at
clause 15 in the context of the Master Agreement as a whole, including the draft documents
in the Schedule, that the wider construction sits more comfortably with the commercial aims
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of the contracting parties, ascertained objectively, than the narrower construction does. It
makes business common sense that persons in the position of the contracting parties would
have agreed that the indemnified parties should be indemnified against all losses caused by
the breaches etc/acts or omissions described in parts (a) and (b) of clause 15.1. I am not
persuaded that any of the other terms of the Agreement ought to cause me to conclude that
per Lord Hodge JSC at para 40). In particular, I am not persuaded that the insurance
arrangements for the BridgePoint Purchasers ought to rule out the broader construction.
First, the BridgePoint Purchasers were not the only indemnified parties. The other
indemnified parties did not have the benefit of such insurance arrangements. Second, it is
clear that insurer default was contemplated. Third, while in terms of clause 5.3 Granite
undertook to SESEP and BPV that it would make up any shortfall owed to a BridgePoint
Purchaser in the event of Granite’s default under a Purchase Agreement, apart from
clause 15 there were no undertakings by Granite to make good losses SESEP or BPV
sustained as a result of the breaches etc described in parts (a) and (b).
Clause 21
[27] The construction of clause 21 gave rise to no controversy. Granite’s obligation to
repay the Deposits was a contingent obligation. Its existence was dependent upon the
occurrence of one or other of the events listed in clause 21 and on BPV giving notice of
termination following such an event. The happening of each of those contingencies was
uncertain. The contingencies were suspensive conditions.
[28] The suspensive conditions were fulfilled. Administrators were appointed to Granite
(clause 21 (d)(ii)). Notice of termination was given. Granite became obliged to repay all the
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16
Deposits in full to the BridgePoint Purchasers. That obligation is owed by Granite to the
other contracting parties. I did not understand senior counsel for the petitioners to suggest
otherwise.
Jus quaesitum tertio
[29] The more difficult question is whether the BridgePoint Purchasers have a jus
quaesitum tertio to enforce Granite’s clause 15 obligation (in so far as it concerns them) or
Granite’s clause 21 obligation. While the common law rule of jus quaesitum tertio has been
abolished in relation to contracts constituted on or after 26 February 2018 (Contract (Third
Party Rights)(Scotland) Act 2017 (”the 2017 Act”), s 11(1) and the Contract (Third Party
Rights)(Scotland) Act 2017 (Commencement) Regulations 2018 (SSI 2018/8), regs 1 and 2)
and has been replaced by the provisions of the 2017 Act, the common law rule continues to
apply in respect of contracts constituted before that date.
[30] The BridgePoint Purchasers plainly have an interest in each of the relevant
obligations being performed. I did not understand it to be suggested that BPV or SESEP had
substantial interests of their own in the performance by Granite of the obligations (and none
are evident to me from the terms of the Master Agreement). In any case, I respectfully agree
with Lord Penrose’s rejection in Mercedes-Benz Finance Ltd v Clydesdale Bank plc, supra, of the
extreme proposition that a third party right can only arise where the third party alone has a
substantial interest in performance. Looking at the terms of the Agreement objectively, I am
in no doubt that the contracting parties intended that each of the relevant obligations was to
protect the BridgePoint Purchasers’ interests, and that third party rights to enforce the
obligations were to be bestowed upon the BridgePoint Purchasers. I do not consider that the
confidentiality provisions in clause 24 preclude that conclusion. First, those provisions
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impose obligations of confidentiality on Granite. They do not impose confidentiality
obligations on BPV or SESEP. Second, even in the case of Granite, it may disclose
information to a third party with BPV’s prior written consent (which consent is not to be
unreasonably withheld or delayed)(clause 24.2).
[31] However, it is clear from Carmichael that something more than the contracting
parties’ intention to create a third party right is needed. While Lord Dunedin’s speech in
that case has been the subject of academic criticism and debate (see eg MacQueen, “Third
Party Rights in Contract: Jus Quaesitum Tertio” (in K Reid and R. Zimmermann (eds),
A History of Scottish Private Law in Scotland), p 220, and the different views there discussed at
pp 244-250; Lord Rodger of Earlsferry, “Law for all times: the work and contribution of David
Daube” [2004] 2 Roman Legal Tradition 3, at pp 15-17; McBryde, Contract (3rd ed), paras 4.32
- 4.43), the decision is authoritative and I am bound by its ratio. As a first instance judge I
have no alternative but to proceed on the basis that it correctly sets out the common law. It
follows that for third party rights to have been constituted in the present case it must be
shown not only that the contracting parties intended to create those rights, but also that they
intended their creation to be irrevocable.
[32] In Carmichael Lord Dunedin explained that irrevocability may be achieved in various
ways: (1) delivery of the contract to the third party; (2) registration of the contract, for
example in the Books of Council and Session; (3) intimation of the contract to the third party;
(4) the third party’s reliance upon the contract term in its favour; and (5) the third party’s
knowledge of the term in its favour. Lord Dunedin concluded (at p 203):
“I have gone through these various ways in which the intention that a jus tertio
should be created can be shown, but, after all, they are only examples and not an
exhaustive list, for in the end it is a question of evidence, and the only real rule to be
deduced is that the mere expression of the obligation as giving a jus tertio is not
sufficient”.
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[33] Accordingly, in order to succeed the BridgePoint Purchasers have to demonstrate the
necessary irrevocability. In my opinion that requirement cannot be elided by seeking to
characterise the clause 15 and clause 21 obligations as promises by Granite to the
BridgePoint Purchasers, and by maintaining that, as such, they are binding without delivery
or an equivalent (Stair, Institutions, I, 10,4; Cawdor v Cawdor, supra, per Lord President
Gill at para 34). The fact is that here the primary obligations form part of a multilateral
contract, in terms of which each of the contracting parties undertook obligations to each
other. While, arguably, the underlying inter-relationships between the contracting parties
and the BridgePoint Purchasers might be explained in terms of promises by the debtor and
by the stipulator to the third party (there is a long-standing academic debate as to whether
the jus quaesitum tertio is an application of the concept of unilateral promise, or something sui
generis, see eg Hogg, Promises, pp 305-7; McBryde, Contract (3rd ed), para 10-23), it is
nevertheless clear from Carmichael that when it comes to determining whether a jus
quaesitum has been constituted it is necessary to demonstrate delivery or an equivalent.
[34] The difficulty here is that the petitioners and the respondent do not appear to be in
agreement as to the relevant facts. The respondent suggests that the BridgePoint Purchasers
were aware of the terms of the Master Agreement and that a copy of it had been intimated to
their solicitors. Since the petitioners do not admit either of those matters, it seems that some
form of inquiry may be required.
[35] The petitioners say that it is unnecessary to have an inquiry as, even if the
Bridgepoint Purchasers have third party rights, they are not debts which are secured by the
standard security. They say that is because, on the hypothesis that Granite and the other
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contracting parties owe obligations to the Bridgepoint Purchasers, those obligations are not
contractual but are sui generis (McBryde, Contract, para 10-23). That being so, none of them
are liabilities or obligations owed or expressed to be owed by Granite to the BridgePoint
Purchasers under the Master Agreement. They are therefore not “Secured Liabilities” in
terms of clause 1.20.
[36] I am not persuaded that the petitioners’ analysis is correct. The BridgePoint
Purchasers were not parties to the Master Agreement but, on the hypothesis that the
Agreement was followed by delivery to them or an equivalent, third party rights were
constituted by the contracting parties in terms of, and by means of, that Agreement and
subsequent action. As a result the BridgePoint Purchasers were added to the persons who
had the right to enforce the relevant clause 15 and clause 21 obligations. On that scenario the
sensible view would be that Granite’s counterpart obligations are “liabilities or obligations ...
owed or expressed to be owed to ... the BridgePoint Purchasers ... under the Master
Agreement” in terms of clause 1.20 of the Standard Security.
Obligations ad factum praestandum
[37] I do not think it is necessary or appropriate at this stage to comment upon senior
counsel for the respondent’s alternative argument. It was a fall-back argument, and it was
not focussed in the pleadings or in the Notes of Argument. As a result senior counsel for the
petitioners was, understandably, not in a position to make fully developed submissions in
relation to it.
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Conclusions
[38] In my opinion the respondent’s construction of clause 15 of the Master Agreement is
correct. No issue arises as to the proper construction of clause 21. The debt owed by Granite
to each of the relevant BridgePoint Purchasers is a secured debt if the BridgePoint Purchaser
has a jus quaesitum tertio to enforce clause 15 or clause 21. In my view, a BridgePoint
Purchaser has such a right if there was delivery to it, or an equivalent to delivery, of the
Master Agreement (or intimation to it of the terms of the relevant clause(s)). As there
appears to be a dispute as to whether there has been such delivery or its equivalent, it seems
that further inquiry will be necessary.
Disposal
[39] I shall put the case out by order to discuss (i) an appropriate interlocutor to give
effect to my decision and (ii) any necessary further procedure.