House of Lords
|Session 2001- 02
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|Judgments - AIB Group (UK) Plc (Formerly Allied Irish Banks Plc and AIB Finance Limited) v. Martin and Another
HOUSE OF LORDS
Lord Chancellor Lord Hutton Lord Millett Lord Scott of Foscote Lord Rodger of Earlsferry
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
AIB GROUP (UK)PLC
(FORMERLY ALLIED IRISH BANKS PLC AND AIB FINANCE LIMITED)
MARTIN AND ANOTHER
ON 13 DECEMBER 2001
 UKHL 63
LORD IRVINE OF LAIRG LC
1. I have had the advantage of reading in draft the speeches of Lord Scott of Foscote and Lord Millett. I would have contented myself with deciding that this appeal should be dismissed for the reasons given by the former, but for the fact that, unlike my Lord, I found attractive both prior to the appeal, and in the course of argument, the "distributive construction" fully elucidated by Lord Millett. Nonetheless, I have on balance concluded that the better view is that favoured by Lord Scott of Foscote. I too therefore agree that the appeal should be dismissed.
2. I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Millett, Lord Scott of Foscote and Lord Rodger of Earlsferry. It is not in dispute that the relevant provisions in the mortgage can be construed, as they were by the Court of Appeal, as imposing an obligation on Mr Alan Gold jointly with Mr Martin, but also severally, to pay to the bank not only monies advanced to the two of them jointly, but also monies advanced to Mr Martin alone for purposes which had no connection with Mr Gold.
3. Lord Millett has set out in his speech the reasons why a distributive construction could be adopted but for the reasons stated by Lord Scott and Lord Rodger I consider that the construction adopted by the Court of Appeal was correct and should be upheld.
4. I would add one further observation. It is a general rule in the construction of deeds that the intention of the parties is to be ascertained from the words used in the deed and that, with certain limited exceptions, extrinsic evidence cannot be given to show the real intention of the parties. On occasions this rule may lead to the actual intention of the parties being defeated but the rule is applied to ensure certainty in legal affairs. In Mallan v May (1844) 13 M & W 511, 517 Pollock CB stated:
5. However, whilst in the present case it would not have been permissible in construing the mortgage deed to take into account extrinsic evidence of the intention of the parties, I note with some satisfaction that it is apparent that the construction given to the mortgage by Lord Scott and Lord Rodger does not defeat the real intention of the parties. It is clear from the passage in the judgment of Jacob J on the non est factum point set out by Lord Scott in his speech that Mr Howard Gold, Mr Alan Gold's solicitor upon whom he entirely relied, fully understood that the deed had the effect for which the bank contends and Jacob J added: "He [Howard] had even ensured that such a clause did not apply when he and Alan gave supporting security for Mr Martin's nursing home project."
6. Accordingly I would dismiss the appeal.
7. Your Lordships are concerned with the application of an interpretation clause contained in a standard form. Both features are significant. A standard form is designed for use in a wide variety of different circumstances. It is not context-specific. Its value would be much diminished if it could not be relied upon as having the same meaning on all occasions. Accordingly the relevance of the factual background of a particular case to its interpretation is necessarily limited. The danger, of course, is that a standard form may be employed in circumstances for which it was not designed. Unless the context in a particular case shows that this has happened, however, the interpretation of the form ought not to be affected by the factual background.
8. The fact that the question concerns the application of an interpretation clause is also significant. The purpose of such a clause is twofold. It shortens the drafting and avoids unnecessary repetition; and it enables the form to be used in a variety of different situations. It is not the purpose of such a clause to enlarge the parties' rights and obligations beyond those provided by the operative provisions by imposing, for example, a secondary liability as surety in addition to a primary liability as principal debtor. The application of such a clause is not merely a question of construction. If it is capable of being applied to the operative provisions in more than one way, it should be applied in a way which serves its purpose rather than in a way which extends the parties' obligations beyond those contemplated by the operative provisions. Of course, an interpretation clause may have this effect; but if so it should do so plainly and unambiguously.
9. The form which your Lordships are called upon to construe ("the joint mortgage") is drafted for the case of a single mortgagor and employs an interpretation clause to adapt it for use where there are two or more mortgagors. It is commonly used in cases where the mortgagors are husband and wife who are mortgaging the matrimonial home, where it is unlikely to give rise to difficulty; but it may be used in other cases also where its use is more problematical. In the present case the mortgagors were partners who carried on a business in partnership together and each of whom also carried on his own separate business. The bank advanced money to the mortgagors jointly, and also to each of them separately. By the joint mortgage the mortgagors personally covenanted to repay the bank's advances and charged their jointly owned properties by way of security. By separate deeds entered into at the same time each of them also covenanted to pay and charged his own separately owned property with payment of his own liabilities to the bank, whether due from him alone or jointly with any other person and whether as principal or surety.
10. It is beyond dispute that the mortgagors thereby undertook a joint and several liability for the joint debts and charged the jointly owned properties to secure their repayment. It is also beyond dispute that each of them also undertook a personal obligation to repay not only the joint debts but also his own separate debts, and charged his own separate properties to secure the repayment of all such debts. The question is whether each of them also covenanted by way of guarantee to pay the debts of the other and charged his separate properties with such payment. None of the documents contains an express guarantee. If there is such a guarantee, it derives exclusively from the way in which the interpretation clause in the joint mortgage is applied to the operative provisions.
11. The relevant operative clause is clause 2(1) of the joint mortgage. So far as material this reads:
When used by a single mortgagor there is no room for any surety liability. There is complete identity between the covenantor and the subject-matter of the covenant. The covenantor undertakes a personal obligation as principal debtor to repay money advanced to himself.
12. In the present case, however, "the mortgagor" is defined as "Mr Martin and Mr Gold". Substituting these names for "the mortgagor" in the relevant clause produces the following:
There is still no room for any surety liability. The identity between the covenantors and the subject-matter of the covenant, indicated by the repetition of the words "the mortgagor", is retained. The two covenantors are jointly liable for money advanced to them jointly. They undertake a personal obligation as principal debtors.
13. The interpretation clause, however, contains an expanded definition to adapt the form for use where the expression "the mortgagor" includes more than one person. In such a case, it provides that the expression
Applying this to the words "the mortgagor" where they first appear in clause 2(1) has the effect of modifying the covenant but not its subject-matter. As modified the clause reads:
There is some duplication, but the effect is to produce three distinct covenants and three distinct obligations; a joint and several covenant by both Mr Martin and Mr Gold and a separate covenant by each of them. Each of the covenants is a covenant to repay the money advanced to them jointly, so there is still no room for any surety liability. The identity between the covenantors and the subject matter of the covenants indicated by the repetition of the words "the mortgagors" is retained. They undertake joint and several obligations as principal debtors.
14. Applying the interpretation clause to the expression "the mortgagor" where it secondly appears in clause 2(1), however, modifies the subject-matter of the covenant and extends the covenantors' liability. The only question is: how far? If the interpretation clause is applied literally and comprehensively, clause 2(1) reads:
This produces no fewer than nine covenants: three joint and several covenants on the part of Mr Martin and Mr Gold to pay (i) their joint debts (ii) Mr Martin's debts and (iii) Mr Gold's debts; three similar covenants by Mr Martin alone; and three similar covenants by Mr Gold alone. Each of the covenantors undertakes a personal liability both jointly with the other of them and separately to pay the moneys advanced (i) to both of them (ii) to himself and (iii) to the other of them. The inclusion of (iii) breaks the identity between the covenantor and the subject-matter of the covenant indicated by the repetition of the words "the mortgagor" and introduces for the first time a secondary liability as surety.
15. If this were the only possible way of applying the interpretation clause, it would have to be adopted. But it is not. It is perfectly possible to apply the clause distributively so as to avoid both unnecessary duplication and the introduction of secondary liability. A distributive construction is commonly adopted when a plural subject is followed by a plural predicate and the plurals are broken down into their component singulars. An example from everyday speech would be to say: "A and B took their children to school". Prima facie the word "their" means "belonging to both of them". But this is not its only possible meaning, and if A and B are not married it is obviously not its meaning. In that case the word "their" means "of each of them". But this means that A and B took their respective children to school, not each other's children. The children are distributed to the relevant parent. And it goes further than that. Although the word "school" is in the singular, it may conceal a plural. If necessary, the sentence means that A and B took the children to their respective schools.
16. This is a well-established principle of construction. It often, and perhaps usually, gives the words their most natural meaning. It parades under a Latin name reddendo singula singulis. This simply means that, when plurals are broken down, each singular component must be attributed to its respective singular and not to every other possible singular. It is a broad and general principle which departs from the literal and grammatical meaning and does not depend upon minutiae of language.
17. In the present case the principle would operate in two ways. It would apply the interpretation clause to clause 2(1) by attributing the obligation to repay the moneys advanced to Mr Martin and Mr Gold jointly to their joint and several covenant, thereby removing the unnecessary duplication resulting from the attribution of the same obligation to their individual covenants. This reading preserves the identity between the covenantor and the subject-matter of the covenant, and makes no difference to the effect of the joint mortgage. It is the most natural way to read the operative clause and ought not to be controversial. Mr Martin and Mr Gold thereby jointly and severally covenant to pay the joint debts and each of them separately covenants to pay the separate debts.
18. Critically, however, a distributive application of the interpretation clause would not stop there. It would also attribute the obligation to repay the separate debts of "the mortgagor", not to each member of the class, but to the relevant member who owed them. This is a perfectly legitimate, and in my opinion the more natural, way to apply the interpretation clause. It treats a covenant by two or more persons (insofar as it means by each of them) to discharge their debts (in so far as it means the debts of each of them) as a covenant by each of them to discharge his own debts and not the debts of the other or others. Put shortly, it treats the obligation of two or more persons to pay their debts as an obligation to pay their respective debts.
19. This is "an intellectually respectable way" (see the judgment of Sedley LJ in the Court of Appeal) of reaching the conclusion which the Court of Appeal clearly wanted but felt unable to reach. It is not clear to me why they refused to apply the interpretation clause distributively. They seem to have done so because it produces a result at variance with that produced by applying it comprehensively. But that is necessarily the case. The Court of Appeal assumed that the question was one of construing clause 2(1) after the interpretation clause has been applied to it. But the real question is concerned with the proper way of applying the interpretation clause to clause 2(1). The Court of Appeal assumed that there was only one way to apply the clause, and did not consider whether a distributive application was the more appropriate way.
20. If legitimate, a distributive application of the interpretation clause in the present case is clearly appropriate. It gives full effect to every word of the interpretation clause and its purpose in adapting the form to the case where there are two or more mortgagors, while retaining the identity between the covenantors and the subject-matter of their respective covenants. It avoids the creation of a secondary liability not contemplated by the wording of the operative clause, which on its face creates one (or more) obligations of one (or more) principal debtors but no secondary liability.
21. In my opinion invoking clause 2(3) begs the question. Mr Martin and Mr Gold jointly and severally undertook to discharge the costs of the bank in relation to the joint mortgage. Since the joint mortgage effected a charge on their jointly owned properties, it was appropriate to charge the bank's costs in relation to the taking and realisation of the security to each of the mortgagors. Assuming, without deciding, that such costs would also extend to the costs of proceedings to enforce the personal covenants in clause 2(1), the question whether either of them is liable under clause 2(3) to pay the costs of proceedings against the other depends on the true construction of clause 2(1). Whether or not the interpretation clause is applied distributively to clause 2(1), the liability for costs is co-extensive with the substantive obligation.
22. At the conclusion of argument I was persuaded that a distributive application of the interpretation clause is both legitimate and appropriate. Your Lordships, however, are unanimously of the opinion that it is not legitimate, and I am not prepared to dissent from that view. Accordingly, with the same reluctance as was displayed by the Court of Appeal, I agree that the appeal should be dismissed.
LORD SCOTT OF FOSCOTE
23. The appeal before your Lordships raises a short point of construction of a mortgage. The mortgage is in the standard form that at the date of the mortgage, 22 July 1993, was used by lenders in the Allied Irish Banks group of companies for taking security from their borrowers.
24. There are two mortgagors, Mr Gold, who is the appellant and second defendant, and Mr Martin. In the description of the parties in the opening lines of the mortgage Mr Gold and Mr Martin are together described as "the mortgagor". Clause 1 of the mortgage is an interpretation clause. It defines the term "the mortgagor" as "the mortgagor named as such on page 1 hereof" ie Mr Gold and Mr Martin. The last sentence of clause 1 says that
25. In clause 3(1) of the mortgage
Fourteen properties were specified in the Schedule. Each was jointly owned by Mr Gold and Mr Martin.
26. Clause 2 of the mortgage, which contains the payment covenant, is the clause that has led to the problem. I will set it out in full:
27. The issue is whether the clause 2 covenant makes Mr Gold liable to the bank for Mr Martin's indebtedness to the bank arising out of advances to Mr Martin which had nothing to do with Mr Gold. The trial judge, Jacob J, and the Court of Appeal thought that it clearly did. But, with the leave of the House, Mr Gold has appealed.
28. Before outlining the way in which the argument has been put, a little background needs to be mentioned.
29. Mr Gold is a dentist but formed a business partnership with Mr Martin, a property dealer, to acquire and develop properties. In order to pursue this enterprise they borrowed money from companies in the Allied Irish Banks Group. For convenience and simplicity I shall use the expression "the bank" to refer indiscriminately to the lender company, whichever company in the group it may have been, and to the respondent to this appeal. Mr Martin also acquired development properties on his own account and borrowed from the bank for that purpose.
30. In 1993 the bank decided to re-structure both the joint borrowings of Mr Gold and Mr Martin and the sole borrowings of Mr Martin. Facility letters dated 11 February 1993 were sent to the borrowers. The letter to Mr Gold and Mr Martin offered them a joint facility of £1,710,000 to be secured on forty-six specified properties. Some of these properties were owned by the borrowers jointly, twenty- eight were owned by Mr Martin alone and two by Mr Gold alone. The letter to Mr Martin offered him a facility of £591,000 to be secured on the twenty-eight specified properties owned by Mr Martin alone and intended also as security for the joint facility.
31. The acceptance by the borrowers of the facilities offered by these letters led not only to the mortgage by Mr Gold and Mr Martin jointly, the construction of clause 2 of which is in issue, but also to a mortgage by Mr Gold of his two properties and a mortgage by Mr Martin of his twenty-eight properties. Each of these individual mortgages was, of course, in the bank's same standard form. The payment covenant in each of these would catch any indebtedness or liability of the mortgagor under the joint mortgage.
32. For the purposes of these arrangements with the bank Mr Gold was represented by a firm of solicitors, Mincoff Science and Gold ("MSG"). The partner in the firm who dealt with the matter on Mr Gold's behalf was Mr Howard Gold, his brother. Mr Howard Gold knew the level of Mr Martin's personal indebtedness to the bank as well as the amount of the joint indebtedness. The second defendant Mr Gold signed the joint mortgage and his individual mortgage on Mr Howard Gold's advice.
33. Later, and for reasons that are not material, the bank called in the loans. The sale by the bank of the properties comprised in its security has been completed but has left a substantial shortfall. So the bank is attempting to enforce the clause 2 covenant for payment in the joint mortgage contending that Mr Gold and Martin thereby agreed to pay or discharge the indebtedness to the bank not only of the two of them jointly but also of each of them separately.
34. Before Jacob J, it seems to have been accepted that clause 2 on its true construction did have the effect contended for by the bank. The second defendant sought to escape by relying on a non est factum point. In dealing with, and rejecting, this point, Jacob J referred to Mr Howard Gold's knowledge of the mortgage and its effect:
The "frightening" provisions to which the judge referred were sub-clauses (1) and (2) of clause 2.
The judge concluded:
35. The construction point that has been advanced before your Lordships was raised for the first time in the Court of Appeal. The construction contended for has been described, as a form of convenient shorthand, as a "distributive" construction. It is contended that because "the mortgagor", as defined, includes more than one person ie Mr Gold and Mr Martin, it should be construed as referring first to the two of them, next to one of them, and then to the other of them. This distributive construction requires, it is said, that clause 2 be interpreted thus:
36. This is the so-called distributive construction. If it were right, Mr Gold would not be liable to repay sums advanced to Mr Martin alone. The Court of Appeal did not accept this construction. Morritt LJ, who gave the leading judgment, said this: