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House of Lords
Session 1998-99
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Judgments

Judgments -- Governor and Company of the Bank of Scotland v. Brunswick Development (1987) Limited and Another

HOUSE OF LORDS

  Lord Browne-Wilkinson   Lord Steyn   Lord Hoffmann
  Lord Clyde   Lord Hutton

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE

GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND
(RESPONDENTS)

v.

BRUNSWICK DEVELOPMENTS (1987) LIMITED AND ANOTHER
(APPELLANTS) (SCOTLAND)

ON 29 APRIL 1999

LORD BROWNE-WILKINSON

My Lords,

I have had the opportunity of reading in draft the speeches of my noble and learned friends, Lord Hoffmann and Lord Clyde. For the reasons which they give I would allow the appeal and dismiss the petition.

LORD STEYN

My Lords,

I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Hoffmann and Lord Clyde. For the reasons they give I would allow the appeal and dismiss the petition.

LORD HOFFMANN

My Lords,

This petition for rectification must in my opinion fail on the simple ground that the remedy of rectification was, in the circumstances of the case, inappropriate and misconceived.

The instrument sought to be rectified is a letter instructing the Bank of Scotland ("the bank") to transfer £1.5 million from the account of Brunswick Developments Ltd. ("Brunswick") to the account of A. Goldberg & Sons PLC. It was signed by Mr. Steven and Mrs. Leon ("the signatories") who were named as authorised signatories in a mandate which Brunswick had given to the bank. The bank acted upon the letter, transferred the money and debited Brunswick's account.

Brunswick subsequently went into liquidation and the liquidator challenged the bank's right to debit the account on the grounds that the letter, although signed by authorised signatories, was not in a form which complied with the terms of the mandate. In response, the bank presented a petition to rectify the letter by making the necessary amendments which would enable it to comply.

There is no dispute that the signatories intended to order the bank to make the transfer and that the bank understood the letter in that sense and acted upon it. If, therefore, they had actual authority to order the transfer, the terms of the letter are irrelevant and no question of rectification can arise. On the other hand, if the signatories did not have actual authority, the bank can rely upon the letter only if it fell within their ostensible authority.

Ostensible authority depends upon a representation by Brunswick to the bank that the signatories had authority to order the transfer. In the present case, the mandate potentially created such ostensible authority. It was an agreement with the bank which included a representation that if (but only if) the bank received an instrument which was signed by the signatories and otherwise complied with the terms of the mandate, the bank would be obliged and entitled to make the transfer and debit Brunswick's account.

If the letter complied with the terms of the mandate, the bank was entitled to debit the account and no question of rectification arises. If it did not, the notion that it can be made to comply by rectification seems to me quite misconceived. The purpose of rectification is 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. Such a remedy is appropriate to instruments to which the law gives effect because they record the intention of the author or parties. But this is not the case when a document is relied upon as a representation or as forming part of a representation. Either the document constituted such a representation at the time it was acted upon or it did not. Rectification cannot be used by either representor or representee to rewrite history and create a representation which was not made or erase one which was. One might just as well rectify the order for the charge of the Light Brigade.

The absurdity of the bank's position can be illustrated by supposing that the signatories had intended to order a transfer of only £150,000 and had delivered an instrument which in all respects complied with the mandate but by mistake said £1,500,000. On the bank's argument, Brunswick could bring proceedings to rectify the instrument to reflect the true intentions of the authors and so retrospectively invalidate the bank's right to act upon it. This would completely defeat the purpose of the mandate. But the same must in my opinion be true of an attempt by the bank retrospectively to deem itself to have acted upon a representation which was not made.

I would therefore allow the appeal and dismiss the petition.

LORD CLYDE

My Lords,

The respondents in this appeal, the Bank of Scotland, presented a petition to the Court of Session under section 8 of the Law Reform (Miscellaneous Provisions) Act 1985, for rectification of a letter of instruction dated 31 July 1989. The letter was written on notepaper headed "A. Goldberg & Sons PLC." and was signed by two signatories "on behalf of A Goldberg & Sons PLC." The letter contained an instruction to the bank to transfer the sum of £1,500,000 "from Brunswick Developments Limited account number 17217727 to A. Goldberg & Sons PLC. account number 30468801." It continued: "These monies will form a loan repayable on demand from Brunswick Development Limited to A. Goldberg & Sons PLC. which will attract interest at one over base rate." The full name of the former company was Brunswick Developments (1987) Limited (hereafter referred to as "Brunswick"), but no point is taken in regard to that error. The signatories to the letter were a Mr. Steven and a Mrs. Leon. Mr. Steven was the Finance Director of A. Goldberg & Sons PLC. ("Goldberg") and a Director of Brunswick. Mrs. Leon was the company secretary of both Goldberg and Brunswick.

The £1,500,000 had been invested in Brunswick, as to £1,000,000 by Goldberg and as to £500,000 by the Scottish Development Agency, for the purpose of a proposed development by Brunswick. Initially the sum at the credit of Brunswick's account was set off by the bank against the deficit which existed in the account which Goldberg held with the bank, which reduced the interest to be paid by the bank on Brunswick's account and the overdraft interest to be claimed on Goldberg's account. As part of this arrangement Goldberg agreed to pay interest at the rate of one per cent over base rate to Brunswick. But the bank thereafter indicated that this arrangement required to be discontinued as being contrary to certain banking rules in respect that Brunswick was not a wholly owned subsidiary of Goldberg. The transfer of the sum and the creation of the loan was then devised as a means of satisfying the bank's requirements as well as preserving the satisfactory financial arrangements which had been made between the two companies. It was in an attempt to achieve this alteration of the position that Mr. Steven and Mrs. Leon executed the letter of 31 July 1989. Unfortunately, not only was the letter headed with the name of Goldberg rather than Brunswick and the number of Brunswick's account mis-stated, but, more critically, the phrase which stated on whose behalf the letter was signed referred to Goldberg and not to Brunswick. The bank, however, transferred the money, debiting Brunwick's account and crediting Goldberg's account.

Goldberg went into liquidation in June 1990 and Brunswick went into liquidation in February 1991. In August 1992 Brunswick's liquidator raised an action against the bank for payment of £1,500,000. It is in that context that the bank came to raise the present petition. The petition was opposed by Brunswick and its liquidator. The action against the bank has in the meantime been sisted.

Section 8(1) of the Act of 1985 provides:

     "8(1) 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."

In their petition the bank sought to rectify the letter dated 31 July 1989 by (a) deleting in the letter-heading the words "A. Goldberg & Sons PLC" and substituting therefor "Brunswick Developments (1987) Limited"; (b) deleting the reference "17217727" and substituting therefor "172177"; and (c) deleting the words in the conclusion of the letter "for A. Goldberg & Sons PLC" and substituting therefor "for Brunswick Developments (1987) Limited."

The competency and relevancy of the petition was challenged by Brunswick on procedure roll. On 28 October 1993 Lord Coulsfield repelled the plea to the competency and allowed a proof before answer. A reclaiming motion was then taken against that decision but that was refused on 26 January 1995 by the First Division (Lord President Hope and Lords McLuskey and Weir). The proof was thereafter heard by Lord Hamilton and by interlocutor dated 16 January 1996 he rectified the letter along the lines sought in the petition. Brunswick then lodged a second reclaiming motion which was heard by the First Division (Lord President Rodger of Earlsferry, Lords Marnoch and Cowie) and was refused on 25 April 1997. The present petition of appeal to this House was brought expressly to challenge the interlocutors of 16 January 1996 and 25 April 1997 together with subsequent interlocutors dealing with expenses. But the appellants sought also to question the approach adopted by the First Division at the first reclaiming motion.

It is often found that during the history of a case through successive appeals the arguments become narrowed and refined. The present proceedings are an exception to that. The various presentations appear to have lurched from one argument to another so as to give rise to a suspicion about the basic stability of the case. While some subsidiary points do seem to have fallen away, the issues remained, to use the Lord President's words, still remarkably fluid even during the second reclaiming motion. This characteristic was not lost when the matter reached this House.

In order to understand the argument in its final shape it is necessary to trace briefly the course of the past debates. Before Lord Coulsfield there was a question whether the case fell under section 8(1)(a) or section 8(1)(b) of the Act of 1985 but since the stage of the first reclaiming motion it has been common ground that the relevant provision is section 8(1)(b). There was also debate earlier whether the section could cover a mistake in the identity of the grantor; but that point was answered affirmatively by the First Division in the first reclaiming motion and is not now in dispute. But it is with the construction of the word "grantor" in the section that the greatest fluctuations have occurred. In their pleadings the bank averred that "the letter failed to express accurately the intention of Brunswick acting through its authorised signatories at the date when it was executed." Before Lord Coulsfield it was contended by Brunswick that the grantor of the letter was Goldberg. Lord Coulsfield held that the bank should be allowed to prove if they could that the letter was intended by Brunswick to be signed on their behalf. In that connection he considered that regard might have to be had to the intention of the persons who at the time formed the directing will and mind of the company. At that stage it was understood that Mr. Steven was the sole director of Brunswick and in that context Lord Coulsfield understandably expressed the view that the intentions of the sole director and of the secretary of the company required to be considered.

Prior to the first reclaiming motion the pleadings were amended so as to record that Mr. Steven was only one of four directors. The main point for decision in that reclaiming motion was whether section 8(1)(b) permitted rectification of the identity of the grantor. The First Division upheld Lord Coulsfield's view on that and, with the same very considerable hesitation which had been expressed by Lord Coulsfield, allowed a proof. But the view was also taken at that stage that the persons who signed the document should be taken to be the grantors of it. However in the subsequent proof before Lord Hamilton that approach appears to have become less prominent. It was later in the Inner House on the second day of the second reclaiming motion that the contention was resurrected and it was then recognised that standing the earlier decision of the Inner House the argument would require to proceed upon the basis that the signatories were the grantors, although both the Lord President and Lord Marnoch expressed some doubt about it.

In this House counsel for Brunswick argued that the only person who might qualify as the grantor was Brunswick. Counsel for the bank presented no substantial argument to support the earlier proposition that the signatories were the grantors. He chose to take his primary stand upon the basis that Brunswick was the grantor. In my view this approach, which was adopted by both sides, reflects a correct construction of section 8(1). In the first place, the word "grant" is particularly appropriate to a dealing with rights and while the expression "grantor of the document" is used it is not difficult to read that as a shortened form of expression for a grantor of rights set out in a document. On the other hand a contrast may be made with the distinct use of the word "executed" which more exactly refers to signing of the document. Secondly, the intention which the grantor has under the paragraph is an intention to create, transfer, vary or renounce a right, and that suggests that the grantor is himself the creator or the holder of the right. Thirdly, it is common ground that in paragraph (a) of the subsection the word "parties" should refer to the principal parties where agents are involved and while distinctions in language can be identified between the two paragraphs it is reasonable to conclude that the word "grantor" in paragraph (b) should also refer to principals where they are not themselves signatories so as to preserve a balance of approach between the two provisions. Finally, it is at least consistent with this use of language that one finds in Schedule 2 to the Requirements of Writing (Scotland) Act 1995 that a company is seen as a "granter"(sic) of a document if the document is signed by certain persons on its behalf. All of these considerations point to the conclusion, now not seriously in controversy, that the grantor is the principal not the signatory where these are not the same person.

Here the problem which faces the bank, if Brunswick is to be the candidate for the position of the grantor for the purposes of the paragraph, is that of establishing that it was the intention of Brunswick that the instruction to the bank for the transfer was an instruction intended to be made by Brunswick. The establishment of that intention on the part of Brunswick is essential not only to demonstrate that the document fails to express accurately that intention, but also to enable the court to grant an order in rectification which will give effect to that intention. But it is matter of agreed fact that Mr. Steven and Mrs. Leon had no express authority from Brunswick to instruct the transfer of £1,500,000 from Brunswick's account to Goldberg's account by way of loan. No actual intention on the part of Brunswick has been established.

As a matter of construction of section 8(1) it is not now doubted as matter of generality that it may cover cases where a document is executed by one person on behalf of another, including cases where an official of a company executes a document for the company. As a matter of law attribution of intention may be possible in relation to this statutory provision. But whether such an attribution is to be made is a matter of the circumstances of the case. The sole basis on which it was suggested that Brunswick had the necessary intention was that the intention of the signatories was to be attributed to it. Certainly it was established that the signatories intended to sign on behalf of Brunswick. But the problem is how that intention is to be attributed to Brunswick. Counsel for the bank submitted that the signatories had an ostensible authority to instruct the transaction and thereby their intention was to be imputed to Brunswick. In that connection he referred to a mandate sent by Brunswick to the bank dated 26 March 1987 whereby the bank was empowered to honour and debit to Brunswick's account all orders for payment drawn, accepted or made by certain named persons among whom were Mr. Steven and Mrs. Leon. That mandate could no doubt have provided a basis for establishing that if Mr. Steven and Mrs. Leon had presented themselves as acting on behalf of Brunswick they would have been acting with the ostensible authority of Brunswick. But the letter of instruction of 31 July 1987 appeared on its face to be signed on behalf of Goldberg, so that it can hardly form the basis of any ostensible authorisation by Brunswick. Section 8(1) of the Act of 1985 is concerned with the intention of the grantor at the date of the erroneous expression of his intention. At the date of the letter of instruction Brunswick did not have the intention which the bank seek to attribute to it and such an intention on the part of Brunswick cannot be spelled out of the letter. The attempt now to alter the critical part of the letter is not a rectification to reflect the intention of Brunswick but an attempt to change retrospectively the appearance of authority which was actually presented in July 1987 in the hope of attributing to Brunswick an intention which it did not have when the document was executed and which could not then be attributed to it. Such an enterprise is not within the scope of section 8(1).

In the later stages of his argument counsel for the bank sought to enlarge upon the background circumstances in which the letter had come to be signed and upon the practice and the knowledge of the bank in their dealings with Brunswick. This led him to invite the House to solve the problem by adopting a construction of the letter whereby it could be concluded that it was signed on behalf of Brunswick. On that approach the prayer of the Petition would require to be refused as unnecessary. While some argument in relation to construction was evidently advanced at an earlier stage of the case it has never been discussed in the opinions of the judges who have successively considered the case, it forms no part of the case for the bank in the present appeal and it is not raised as one of the stated issues in the appeal. In these circumstances it would be wholly inappropriate for such an argument to be entertained at this stage of the proceedings. Presumably if there is substance in such an argument it can be raised in the course of the action by Brunswick against the bank which has been sisted. Mention was also made of the recording of the transfer in the accounts of the company and if there is relevant material in that connection then presumably it can also be explored in that process.

For the foregoing reasons I would allow the appeal. The petition should be dismissed.

LORD HUTTON

My Lords,

I have had the opportunity of reading in draft the speech of my noble and learned friends Lord Hoffmann and Lord Clyde. For the reasons which they give I would allow the appeal and dismiss the petition.

 
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