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DELIKES LIMITED v. SCOTTISH AND NEWCASTLE PLC [2000] ScotSC 1 (25th January, 2000)

B342/98

JUDGMENT OF

SHERIFF PRINCIPAL NICHOLSON

in the cause

DELIKES LIMITED -

Pursuers and Appellants

against

SCOTTISH & NEWCASTLE plc -

Defenders and Respondents

Act: Williamson, Solicitor Advocate; Brodies WS

Alt: D M Campbell, Advocate; Macdonald-Henderson, Glasgow

EDINBURGH, 25 January 2000

The Sheriff Principal, having resumed consideration of the cause, refuses the appeal and adheres to the interlocutor of 13 May 1999 complained of; reserves meantime all questions of expenses.

NOTE:

This is an appeal in a summary application for the rectification of a document in terms of section 8 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985. The document in question is a deed of variation of a standard security granted by the pursuers in favour of the defenders. After a debate the sheriff, on 13 May 1999, dismissed the application as irrelevant, and the pursuers, who seek a proof before answer, have now appealed against that decision.

The background to the application

The background facts and circumstances are a little complex, and are as follows. The pursuers are a limited company which owns and operates licensed premises in Bellshill known as the Carousel Bar. A director and shareholder of that company is a Mr William Fachie. In 1986 the pursuers granted in favour of the defenders a standard security over the Carousel Bar subjects in security of "all sums advanced or to be advanced on loan to us by, and other sums or obligations due or to become due or prestable or to become prestable by us" to the defenders. That standard security appears to have been signed on behalf of the pursuers by Mr Fachie. Prior to the time of the events with which the present action is concerned the pursuers had also granted a standard security over the Carousel Bar subjects in favour of the Bank of Scotland.

Mr Fachie and his wife were also partners in a firm which owned and operated a hotel in Wishaw known as the Gatsby Hotel. Early in 1996 they decided that they would like to convert a bar in the hotel so as to make it resemble an Irish bar, and in May 1996 they first approached the defenders in an attempt to secure a loan for that purpose. At that time the Fachies already owed the defenders Ł63,185 in respect of an earlier loan and Ł15,720 in respect of an advance of discount to be serviced through the sale of alcoholic beverages at the hotel. Negotiations for a loan to finance the proposed conversion continued for some months, and in January 1997 the defenders agreed to make a loan of Ł60,000 available to the Fachies. However, the defenders made it a condition of granting that loan that it should be guaranteed by, inter alia, a security over the heritage of the Carousel Bar owned by the pursuers.

Against the foregoing background the pursuers' pleadings in Condescendence 2 continue:

"Given that the pursuers had already granted Standard Securities over that heritage in favour of the Governor and Company of the Bank of Scotland and the defenders, the said condition entailed that Mr Fachie, as a Director of the pursuers, procure the agreement of the pursuers to enter into a Deed of Variation of the pursuers' said Standard Security in favour of the defenders so as to extend it to secure the said loan and the entry by the pursuers, the defenders and the Bank into a Revised Ranking Agreement to order the precedence inter se of the said Securities and the extent of the lending covered by each stage of that precedence. Mr Fachie did so."

In Condescendence 3 of their pleadings the pursuers go on to aver:

"The pursuers were subsequently invited by Mr Fachie to agree to provide a Standard Security to the defenders to guarantee in the manner hereinbefore condescended upon the said loan of Ł60,000 to the said firm [i.e. Mr and Mrs Fachie, trading as the Gatsby Hotel] and therefore to vary their extant Standard Security in favour of the defenders accordingly and to enter into the said Revised Ranking Agreement so as to procure that the defenders' rights to enforce repayment of the said Ł60,000 against the heritage should rank ahead of the Bank's right so to enforce payment of overdraft facilities which it was envisaged might be extended to the pursuers by the Bank. That the pursuers agreed to do."

The pursuers' averments then continue as follows:

"In so doing, the pursuers intended only to assume responsibility for the guarantee of repayment of the said sum of Ł60,000 which was then to be lent by the defenders to the firm for the proposed refurbishment of the Gatsby Hotel. The pursuers did not intend to provide a guarantee for any other indebtedness of Mr and Mrs Fachie. The defenders knew because that was what they specifically stated in their offer of loan contained in the letter dated 7 January 1997, that it was for repayment of only that sum which the pursuers were to agree, as a condition of the loan, to vary the Standard Security so as to grant further security in favour of the defenders over said heritage."

What happened thereafter was that the pursuers instructed solicitors to prepare a deed of variation of their original standard security in favour of the defenders so as to include within it security in respect of the loan which was to be made by the defenders to Mr and Mrs Fachie. It is averred that the solicitors in question were instructed that the variation was to extend only to securing payment of the sum of Ł60,000. In the event, however, the deed of variation, which was signed on behalf of the pursuers and on behalf of the defenders on dates in April 1997, is expressed as providing security "for all sums advanced or to be advanced on loan to William Fachie and Yvonne Fachie ... in terms of Minute of Agreement entered into between [the defenders] and the said William Fachie and Yvonne Fachie dated 21 February and 3 March 1995 or any Minute or Minutes of Agreement to follow thereon". (The reference to an agreement in 1995 was not made clear to me, but it appears that the terms of the deed of variation have the effect of extending the security not only to the 1997 loan of Ł60,000 but also to earlier borrowings and any possible future borrowings as well.)

The detail of that is not of particular importance for present purposes because the position adopted by the pursuers in the present proceedings is that the deed of variation was intended to extend their potential liability to the defenders solely in respect of the loan of Ł60,000 which the defenders had agreed to advance to Mr and Mrs Fachie, and that it was incorrectly expressed in so far as it went further than that. It is in that situation that the pursuers now seek rectification of the deed of variation so as to have it expressed solely by reference to the sum of Ł60,000. For completeness I should add that, by the time when the present proceedings were commenced, both Mr and Mrs Fachie had been sequestrated. The pursuers' application for rectification was intimated to the Fachies, through their trustees, and also to the Bank of Scotland, but none of them has entered the process.

The statutory framework

The statutory provision which allows for the rectification of a document is section 8 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 which followed on from recommendations made by the Scottish Law Commission in 1983 (Scot Law Com No 79). Section 8(1) is in the following terms:

"Subject to section 9 of this Act, where the court is satisfied, on an application made to it, that -

(a) a document intended to express or to give effect to an agreement fails to express accurately the common intention of the parties to the agreement at the date when it was made; or

(b) a document intended to create, transfer, vary or renounce a right, not being a document falling within paragraph (a) above, fails to express accurately the intention of the grantor of the document at the date when it was executed,

it may order the document to be rectified in any manner that it may specify in order to give effect to that intention."

Subsection (2) of section 8 provides that, for the purposes of subsection (1) "the court shall be entitled to have regard to all relevant evidence, whether written or oral".

During the debate before the sheriff there appears to have been some discussion as to whether or not the pursuers were seeking rectification under paragraph (a) or paragraph (b) of section 8(1), but at the appeal hearing the solicitor advocate for the pursuers made it clear that he was founding solely on paragraph (a). Consequently, that is the part of the subsection which is of primary relevance for present purposes. However, I have thought it right to quote paragraph (b) in full as well since it is the provision which has featured in several of the cases to which I was referred in the course of the appeal hearing.

The sheriff's decision, and what happened thereafter

In the Note which accompanies the interlocutor of 13 May 1999, in which the application was dismissed, the sheriff has set out in detail the submissions which were advanced before him and the reasons which led him to conclude that the application should be dismissed. I intend no disrespect to the sheriff's careful analysis if I say that his final conclusions can be briefly summarised as follows. In the first place, the sheriff noted that it is nowhere suggested in the pursuers' pleadings that there was an antecedent agreement between them and the defenders regarding the extent of Mr and Mrs Fachie's indebtedness which would be secured by the deed of variation, and which was not accurately reflected in the deed itself. As a consequence the sheriff concluded that the pursuers could not seek to invoke section 8(1)(a) on the basis of any such agreement.

The sheriff then turned to a submission which had been advanced before him to the effect that it is not necessary for the purposes of the subsection that the agreement referred to therein should have been between the parties to the document in respect of which rectification is sought, and that it is sufficient if there is an agreement between one of the parties to the document and a third party, with the document being intended to give effect to that agreement. The sheriff did not find it necessary to decide that point as a matter of law, and in fact declined to do so, because he took the view that even on that basis the pursuers had not sufficiently averred an agreement between the defenders and Mr and Mrs Fachie which would satisfy the normal tests of relevancy and fair notice. For the foregoing reasons the sheriff dismissed the application.

After the appeal to myself had been marked there followed some preliminary hearings in the course of which the pursuers were allowed to lodge a fairly lengthy minute of amendment. As well as making quite substantial alterations and additions to the text of the articles of Condescendence that minute of amendment also rewrote the pursuers' crave and their plea-in-law. In due course the minute of amendment was answered by the defenders, and thereafter I allowed the record to be amended accordingly. A question then arose as to whether the case should be remitted for further debate before the sheriff on the amended pleadings or whether it should simply proceed by way of appeal to myself. Parties indicated a preference for the latter course, and as a result I heard the appeal on the basis of pleadings which are in various respects different from those which were considered by the sheriff.

Submissions at the appeal hearing

I have already mentioned the fact that, at the appeal hearing, the solicitor advocate for the pursuers made it clear that, while not necessarily accepting that paragraph (b) of section 8(1) of the Act applies only to unilateral documents, he was nonetheless prepared to present his submissions in support of the appeal by reference only to paragraph (a) of the subsection. He also made it plain that he accepted that he could not argue that there had been any antecedent agreement between the pursuers and the defenders which had not accurately been reflected in the deed of variation. In the result the submissions which the solicitor advocate for the pursuers was obliged to advance were, first, that the terms of section 8(1)(a) of the Act can properly be construed in such a way that, as a matter of law, a document can be rectified notwithstanding that the agreement which is said to support such rectification is not an agreement between the parties to the subsequent document; and second, that the agreement between the Fachies and the defenders is such an agreement, and that its terms are sufficiently averred in the pleadings as to give fair notice to the defenders and to entitle the pursuers to a proof before answer. As can be seen, the first part of the foregoing submission addressed directly the question of law which the sheriff at first instance did not require to decide, and which indeed he expressly declined to decide.

The interpretation of section 8(1)

In addressing the question of the legal effect, and indeed extent, of section 8(1) the solicitor advocate for the pursuers submitted that it is clear from the terms of paragraph (a) that it is capable of dealing with two different situations, which were described as "recording" and "effecting". The first of those, it was submitted, covered the kind of case where a document was intended to record the terms of an agreement, but had failed to do so accurately. The second, it was submitted, covered the situation where a document, such as a disposition, was intended to give effect to a prior agreement, but failed to do so accurately. From that starting point the solicitor advocate for the pursuers went on to submit that the words used in the subsection are sufficiently wide as to allow for many different kinds of document to be rectified so that, for example, a deed of variation between B and C is capable of being regarded as a document which was intended to give effect to an agreement between A and B. The general policy of the Act, it was submitted, is to include a wide range of documents rather than to exclude them: and that approach, it was also submitted, is confirmed when one comes to consider what has been said in many of the cases dealing with the Act. That general policy, it was submitted, is also confirmed when one considers the terms of section 8(2) which allows a court to have regard to all relevant evidence, whether written or oral.

As examples of the wide and liberal approach contended for by the solicitor advocate for the pursuers he went on, first, to postulate a case in which A (a tenant) might agree with B that he would assign his lease to B subject to the consent of C (the landlord). C might give his consent, but in committing that consent to writing, he might fail accurately to record the nature of the agreement between A and B. In such a case, it was suggested, either A or B would be entitled to seek rectification of the document granted by C notwithstanding that neither of them had been a party to that document. As another example, the solicitor advocate for the pursuers advised me that it is within his professional experience that, if an obvious conveyancing error is discovered in an old deed, rectification of that error may be sought notwithstanding that the person seeking such a remedy may be many removes or generations away from the parties to the original agreement. That, it was submitted, strengthened the argument that it is not necessary, for the purposes of section 8(1)(a), that the parties to the antecedent agreement should be the same as the party or parties to the document, or indeed that the applicant for rectification should be the same as any of these parties.

I shall return to consider the examples postulated on behalf of the pursuers later, but for the present it is convenient to continue to summarise the submissions advanced by the solicitor advocate for the pursuers. Having developed his submissions on what he suggested was a sound construction of section 8(1) he went on to submit that what he called the inclusive, rather than exclusive, approach to interpretation found support in a number of authorities and other materials. He readily conceded that there has been no reported case in which consideration has had to be given to the question which arises in the present case, namely whether, for the purposes of section 8(1)(a), the parties to the document must be the same as the parties to the antecedent agreement. However, he submitted that there is nothing in the reported cases or elsewhere to suggest that that is indeed a requirement, and on the contrary, he submitted, there are many dicta which lend some support to the position adopted by the present pursuers.

In developing the foregoing submissions the solicitor advocate for the pursuers made reference to the following: the Scottish Law Commission Report which I have already cited; Shaw v. William Grant (Minerals) Ltd 1989 SLT 121; Bank of Scotland v. Graham's Trustee 1993 SLT 252; George Thompson Services Ltd v. Moore 1993 SLT 634; Rehman v. Ahmad 1993 SLT 741; Bank of Scotland v. Brunswick Developments (1987) Ltd - through all of its appearances in court (1994 SLT 623, 1995 SLT 689, 1997 SLT 48, 1998 SLT 439, 1999 SLT 716); McClymont v. McCubbin 1995 SLT 1248; Huewind Ltd v. Clydesdale Bank plc 1996 SLT 369; Royal Bank of Scotland v. Shanks 1998 SLT 355; and Norwich Union Life Insurance Society v. Tanap Investments VK Ltd 1999 SLT 204.

It is, I think, unnecessary for me to refer to every passage in the opinions in the above cases to which reference was made by the solicitor advocate for the pursuers, However, a few quotations will, I believe, convey the flavour of comments to which importance was attached. Reference was made to a passage in the opinion of the Lord Ordinary in Bank of Scotland v. Brunswick Developments (1987) Ltd when that case (which was concerned with paragraph (b) of section 8(1)) first appeared in the Outer House (1994 SLT 623). At page 626K-L the Lord Ordinary said:

"I should add that it does not seem to me to be necessarily the case that, as the petitioners at one stage submitted, the only relevant intention in a case under section 8(1)(b) arising in connection with a company is the intention of the person or persons who actually sign the document. It seems to me possible that regard may also have to be had to the intention of the persons who, for the time being and for the relevant purpose, formed the directing mind or will of the company."

It was submitted that the foregoing passage supports the view that, in a case under paragraph (a), it is not necessary that the signatory or signatories of the document require to be the same parties as those to the antecedent agreement.

Reference was also made to passages in the opinions which were delivered when the Bank of Scotland case appeared for the first time in the Inner House (1995 SLT 689). At page 694D-E the Lord President said this:

"I can find no indication in section 8 or [in the Scottish Law Commission Report] that it was intended that it should be given a restricted interpretation. The problem which arises in cases of agency is not mentioned in that report. But it is clear that the general intention was to provide a direct remedy for the rectification of defectively expressed documents which would make it unnecessary to resort to remedies previously available, which might give rise to procedural difficulties. This suggests that the provision should be construed, so far as possible, to enable the procedure to be used in all cases of defective expression in documents of the kind mentioned in the subsection."

At page 695E-F Lord Weir expresses his agreement with the foregoing views, and says: "I agree with your Lordship in the chair that the provision should be construed, so far as possible, so as to enable the procedure to be used in all cases of defective expression".

The solicitor advocate for the pursuers accepted that, at the end of the day, the Bank of Scotland case had been decided against the petitioners when the case reached the House of Lords (1999 SLT 716). He submitted, however, that that decision had proceeded on a point which had not been clearly focused in the lower courts, and that there is nothing in the speeches delivered in the House to suggest a departure from the general views expressed by the Lord President and Lord Weir as to the potentially wide scope of section 8.

Counsel for the defenders addressed this matter fairly briefly. He began by making it plain that he was not suggesting that an applicant under section 8(1)(a) need necessarily be a party to the agreement, and to that extent he accepted the competency of the example postulated by the solicitor advocate for the pursuers of an application made by a successor in title in respect of an incorrectly expressed deed of many years earlier. In such a case the applicant would neither have been a signatory to the document nor a party to the agreement to which it was intended to give effect; but in such a case, and provided that the applicant could establish title and interest, there appeared to be nothing in the subsection to render his application incompetent. I, for my part, would agree with that.

Counsel also made it clear that he accepted that the signatories to the document need not be the same as the signatories or parties to the antecedent agreement; but, he submitted, that would be permissible only where signatories were acting in the one case as a principal and in the other as an agent. I shall return to that point shortly, but I pause to observe that there is some support for counsel's submission at various places throughout the Bank of Scotland saga (see, for example, Lord Marnoch at 1998 SLT 445).

Counsel went on, however, to submit that, in whatever circumstances, it is essential that the parties to the agreement and the parties to the document should be identical, or at least should be the same by virtue of being principal and agent. He went on to note that the deed of variation in the present case is a bilateral document, and he submitted that it is clear from the words used in the subsection that in such a case the parties to that document must be the same as the parties to the earlier agreement. As support for that submission counsel directed my attention to the speech of Lord Hoffman in the Bank of Scotland case where, at page 718D, he refers to the purpose of rectification as being "to amend an instrument to conform to the intention of the author or parties and enable it to take effect as if originally so expressed". Reference was also made to a passage in the speech of Lord Clyde, beginning at the very end of page 719, where he said: "... it is common ground that in para (a) [of section 8(1)] the word 'parties' should refer to the principal parties where agents are involved". That, it was submitted, supported the view that not only must the parties to the document and the agreement be the same but also the only deviation from that will be where any nominal difference arises from the existence of a principal and agent.

Decision on the interpretation and scope of section 8(1)

In coming to my decision on this matter it is, I think, helpful to remind ourselves of the factual basis on which the pursuers seek the remedy of rectification. One begins with an agreement between, on the one hand, Mr and Mrs Fachie in their capacity as a firm operating the Gatsby Hotel and, on the other hand, the defenders. It is averred that in terms of that agreement the defenders agreed to lend Ł60,000 to the Fachies provided that security in respect of the loan was provided both by the Fachies and by a third party, namely the pursuers. Accordingly, the pursuers were not a party to that agreement. It was apparently agreed between the Fachies and the defenders that the security should be created by, among other things, a variation of an existing standard security granted by the pursuers in favour of the defenders.

What happened next was that Mr Fachie, who was a director of, and shareholder in, the pursuers' company, approached the pursuers to seek their agreement to enter into a deed of variation of the standard security in favour of the defenders. For present purposes I am prepared to assume that, in doing that, Mr Fachie was not acting as an individual but was acting on behalf of the firm consisting of himself and his wife. I note, however, that it is not suggested that Mr Fachie was acting in any way on behalf of the defenders when he approached the pursuers about a deed of variation. The pursuers, it seems, agreed to the course proposed by Mr Fachie, and what happened thereafter was that a deed of variation was prepared, and in due course it was signed on behalf of the pursuers and the defenders. It was therefore, as was pointed out by counsel for the defenders, a bilateral document. Indeed, as the sheriff has mentioned in his Note, this is in fact a statutory requirement (Conveyancing and Feudal Reform (Scotland) Act 1970, s. 16(1) and Sched. 4, Form E).

In the result, therefore, what we have in the present case is (1) an agreement between the Fachies and the defenders; (2) an agreement between Mr Fachie and the pursuers; and (3) a contractual document signed on behalf of the pursuers and the defenders. What we do not have, notwithstanding the bilateral nature of the document, is any agreement between the pursuers and defenders; and, as I have mentioned earlier, the solicitor advocate for the pursuers expressly indicated that he could not point to any antecedent agreement between those parties.

It is of some assistance to look at the historical background to the rectification provisions in the 1985 Act, and, as was pointed out by the solicitor advocate for the pursuers, that background is to be found in the 1983 Report published by the Scottish Law Commission. I agree with the solicitor advocate for the pursuers that that Report lends some support to the view that rectification procedure should be as widely available as possible. However, I am in little doubt that it stops short of recommending the creation of a remedy in a case like the present one.

In paragraph 3.4 of the Report it is said:

"We do not think that any particular restrictions should be imposed on an applicant for rectification other than that to be successful he should be able to satisfy the court that the terms of a written contract fail to express accurately the common intention which the contracting parties had agreed it should express."

Although it does not address the particular point in terms, it seems to me that the words used in the above passage, and in particular the words "which the contracting parties had agreed it should express", which in turn must refer back to the words "the terms of a written contract", all point to the fact that what was contemplated by the Commission was a remedy which would be available where the parties to the written contract and the parties to the antecedent agreement were the same.

A similar approach is, I believe, to be found at paragraph 3.5 in the Report where the Commission says:

"We agree, however, with those commenting on the memorandum that there are some important criteria which should be satisfied if rectification is to be granted. The first is that the parties should have reached agreement. The second is that the document which was intended to give effect to that agreement defectively expresses the parties' common intention at the time when they reached agreement."

It seems to me that this passage, like the earlier one, is plainly written in the context of the parties to the written document being the same as the parties to the earlier agreement. In the result, therefore, I do not consider that the argument advanced by the solicitor advocate for the pursuers in the present case obtains any support from the terms of the Scottish Law Commission's Report.

The next question, I think, must be to ask whether section 8 of the 1985 Act is itself expressed in terms which go beyond what appears to have been in the contemplation of the Scottish Law Commission two years earlier. In my opinion it does not do so. The terms of section 8(1) are slightly different from the terms of the clause which appeared in the draft Bill annexed to the Commission's Report, but I consider that any differences are matters of drafting style rather than of substance. I take the view that the natural meaning of section 8(1)(a) is that it is intended to deal with a situation where parties to an agreement have reached a common intention but a document intended to express or give effect to that agreement, the document being between the same parties, fails to do so. In my view that reading of the subsection is reinforced when one looks at section 9 of the Act, to which section 8(1) is declared to be subject.

Section 9 makes provision for the protection of other persons whose interests might be adversely affected were a document to be rectified under section 8; and section 9(1) provides that a court is to order the rectification of a document only where it is satisfied that the interests of a person to whom section 9 applies would not be adversely affected to a material extent by the rectification. Subsection (2) then provides that section 9 applies "to a person (other than a party to the agreement or the grantor of the document) who has acted or refrained from acting" in certain ways. It seems to me that the words in brackets in the passage which I have just quoted point clearly to the fact that section 8(1)(a) must be construed on the basis that the parties to the document which is to be rectified must be the same as the parties to the antecedent agreement.

There is, in my view, a further consideration which has to be taken into account. Section 8(1)(a) applies where a document "intended to express or give effect to an agreement" fails to express accurately the common intention of the parties to the agreement. If that subsection is to be applicable in the circumstances of the present case it seems to me that one must ask the question: Was the deed of variation of a standard security granted by the pursuers in favour of the defenders intended to express or give effect to the common intention of the Fachies and the defenders as contained in the agreement between them? In my opinion the simple answer to that question must be in the negative. The common intention in the agreement between the Fachies and the defenders was that the defenders would lend the Fachies Ł60,000 on certain conditions, but it is plain that the deed of variation was never intended to express or to give effect to that agreement. At best, in my opinion, it was a document which was intended to be entirely collateral to that agreement; which appears to have resulted from some sort of agreement between Mr Fachie and the pursuers; and which, despite its bilateral character, does not appear, at least so far as the pleadings are concerned, to have resulted from any agreement between the pursuers and the defenders. In the result I am of opinion that it is unsound as a matter of interpretation to suggest that section 8(1) of the 1985 Act can accommodate the kind of situation which is present in this case.

I do not consider that anything that is said in any of the cases to which reference was made in the course of the appeal hearing runs counter to what I have just said. Furthermore, I do not find it necessary to alter my conclusion upon a consideration of the situations which were advanced by the solicitor advocate for the pursuers by way of example. I do not have any difficulty with his example regarding the owner of heritable property who may seek, after a lapse of many years, to rectify a document such as a disposition which may, for example, incorrectly express some important matter such as the position or extent of a boundary. Accepting, as I do, that a disposition, albeit unilateral, is a document falling within section 8(1)(a), since it is a document intended to give effect to an agreement, the important point is that the grantor of a disposition will have been a party to the antecedent missives for the sale of the property in question. In that situation there will be no question of the parties to the earlier agreement (the missives) having been anyone other than the buyer and the seller, and I therefore consider that it may be perfectly appropriate that a successor in title should be able to apply to the court for rectification on the basis that the disposition does not accurately express the common intention of the buyer and the seller as set out in the missives. That example does not, in my opinion, lend any support to the contention advanced on behalf of the pursuers in the present case.

The second example postulated by the solicitor advocate for the pursuers concerned a situation where A (a tenant) agrees with B that, subject to the consent of the landlord (C), he will assign his lease to B. The contention was that it should be open to either A or B to apply for rectification if they were of the view that a document of consent granted by C failed accurately to express the common intention of A and B. At first sight this example appears to have some similarities to the present case. However, I have come to the conclusion that it is in fact quite different. In the first place, I think it is possible that a document of consent, if entirely unilateral, would be likely to fall under paragraph (b) of section 8(1) in which event the considerations might be entirely different. In the second place, however, I consider that it is much more likely that any document granted by the landlord would be intended to give effect to an agreement between him and his existing tenant, and possibly the potential assignee as well. In that event the document would fall fairly and squarely within the terms of section 8(1)(a) with any separate agreement between A and B simply amounting to surrounding circumstances.

In the result I have come clearly to the conclusion that section 8(1)(a) of the Act does not admit of a case like the present one where the parties to the document and the parties to the antecedent agreement are not the same. That, of course, is sufficient to dispose of this appeal. However, there was also some discussion at the appeal hearing about the sufficiency and relevancy of the pursuers' averments in the event that I were to decide that, as a matter of law, section 8(1) is capable of accommodating a case where the agreement being founded on is not between the parties to the subsequent document. It is therefore appropriate that I should say a few words on that matter.

The sufficiency and relevancy of the pursuers' pleadings

When the case was before him the sheriff approached this matter by assuming, but not deciding, that the parties to the agreement need not be the same as the parties to the document in respect of which rectification was being sought. On that basis he examined the pursuers' pleadings in detail to see if they expressed a common intention to the effect that the pursuers' standard security should be varied only to the extent of guaranteeing the loan of Ł60,000 which was to be made by the defenders to the Fachies. As a result of that examination the sheriff concluded that the pursuers' pleadings were seriously defective, and did not give any detail of a common intention such as was required for the purposes of section 8(1)(a). He therefore concluded that the pursuers had failed to state a relevant case for rectification of the deed of variation.

The minute of amendment lodged on behalf of the pursuers prior to the hearing of this appeal was intended to deal with the sheriff's criticisms; and at the appeal hearing counsel for the defenders very fairly conceded that many of the sheriff's criticisms had in fact now been met, particularly in relation to details regarding the identity of persons acting on behalf of the defenders with whom the Fachies had meetings and other dealings, and the dates and places where such meetings took place. However, it was counsel's submission that the pursuers' pleadings still fail adequately to set up a common intention on the part of the Fachies and the defenders that any security to be granted by the pursuers would be limited to Ł60,000 and no more.

In support of the relevancy of the pursuers' pleadings their solicitor advocate submitted that the key averment is now to be found at the end of condescendence 3 where it is stated:

"There was no need to have the defenders' agreement to 'limit' the security. The effect of the documentation was to extend the lending which was secured by the Standard Security over the Carousel Bar. The defenders' offer of loan, as hereinbefore averred, stated that it was to be secured over the Carousel Bar to the extent specified in their letter of 7 January 1997. The pursuers' agreement to enter into a variation of their existing Standard Security over the Carousel Bar proceeded upon the terms of the defenders' said letter of 7 January 1997 and Mr Fachie's agreement to these terms. It was the further security required by that letter that the pursuers agreed to provide to give effect, in part, to the agreement between the defenders and Mr Fachie (the latter then acting on behalf of the firm of the Gatsby Hotel) and to provide it by entering into the Deed of Variation of the Standard Security."

By reference to the foregoing averments the solicitor advocate for the pursuers drew my attention to the letter of 7 January referred to therein (no. 11 of the pursuers' productions). That is a letter from Scottish Brewers Limited "as agents for Scottish & Newcastle plc" addressed to Mr Fachie. It confirms "in principle our offer, subject to Board approval, of a supplementary loan of Ł60,000 to assist with the conversion costs at the Gatsby Hotel". The letter then continues: "This loan would be secured by a 2^nd Charge Standard Security over the businesses of The Gatsby Hotel and the Carousel Bar, Bellshill".

As was pointed out by counsel for the defenders the passage in the letter of 7 January 1997 which I have just quoted does not say in terms that the additional security is only to be in respect of the loan of Ł60,000. Moreover, as he also pointed out, a supplementary minute of agreement between the defenders and the Fachies (pursuers' production no. 6), intended to formalise the arrangements for the loan, states in its preamble: "and whereas the Second Party [the Fachies] has agreed to enter into this Supplementary Minute of Agreement in order to secure the said advance and all other sums which are presently due or which may hereafter become due by the Second Party to S & N .......". That, it was submitted, is entirely inconsistent with a common intention on the part of the Fachies and the defenders that any additional security to be granted either by the Fachies themselves or by the pursuers should be limited only to the amount of Ł60,000. Counsel also noted that an averment which was particularly founded on by the sheriff still remains in the pursuers' pleadings. That is an averment at the end of condescendence 5 which states: "With reference to the defenders' averments in answer, admitted, subject to the explanations hereinbefore made, that the defenders were never asked nor did the defenders specifically agree to 'restrict' the security."

In response the solicitor advocate for the pursuer suggested that the last-mentioned averment was simply, as he put it, a historical throwback to the style of crave which had originally appeared in the summary application. As matters now stand, he submitted, we are not concerned with any question of restriction but with what the deed of variation was intended to cover.

With all respect to the solicitor advocate for the pursuer, I do not think that an averment such as this can simply be ignored. Moreover, it seems to me that the foregoing submission is little more than an exercise in semantics. Whether one talks about a restriction or not, the plain fact, as I understand it, is that the pursuers are contending that the terms of the agreement between the Fachies and the defenders were such that the additional security to be granted by the pursuers would extend only to the amount of the loan, namely Ł60,000, and no further. On that basis it seems to me that the averment at the end of Condescendence 5 is of considerable significance. I have already observed that the terms of the letter of 7 January do not in my view support the contention that the extent of the security was to be commensurate with the amount of the loan. At best for the pursuers the terms of the letter are ambiguous, but in my opinion that ambiguity is resolved against the pursuers by the averment at the end of Condescendence 5.

In McClymont v. McCubbin (which I have cited earlier), a case in which rectification of a disposition was sought, it was held to be competent to go behind the terms of missives in order to establish the true nature of the agreement between the parties on certain matters. At one point I wondered whether a similar course of action might be for consideration in the present case. However, I have come to the conclusion that that would not be appropriate here. As I have already said, I consider that any possible ambiguity in the letter of 7 January 1997 is in fact resolved by the admission which is made by the pursuers at the end of Condescendence 5. Moreover, it is also of importance that the pursuers do not themselves suggest in their pleadings that there were other matters agreed between the Fachies and the defenders outside of what is stated in the letter. Consequently, there are no pleadings in this case which would support any inquiry of the kind which was held to be competent in McClymont.

For all of the foregoing reasons, therefore, I am of opinion that, even if I had held that section 8(1)(a) can be invoked where the parties to a document are different from the parties to the antecedent agreement, there are, even in that context, insufficient relevant averments to support the pursuers' case. It therefore follows that I have rejected both of the grounds of appeal which were advanced on behalf of the pursuers, and I have refused the appeal.

I have reserved all questions of expenses meantime. However, given the outcome of the appeal, it occurs to me that parties may not be in any dispute as to how the question of expenses, including the certification of the appeal as suitable for the employment of junior counsel, should be disposed of. If that be the case, I am perfectly happy to issue an interlocutor dealing with expenses on the basis of a joint motion (or even informal letters addressed to my clerk) without the necessity of any further appearance in court.