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SHERIFF APPEAL COURT
[2025] SAC (Civ) 6
EDI-A125-21
Sheriff Principal N A Ross
OPINION OF THE COURT
delivered by SHERIFF PRINCIPAL N A ROSS
in the appeal in the cause
CHARLES THOMPSON McKINLAY
Pursuer and First Respondent
against
AVELLIERIE LIMITED
First Defender and Second Respondent
and
KENNETH SCOTT
Second Defender and Appellant
Second Defender and Appellant: Garioch, solicitor advocate; Gilson Gray LLP
Pursuer and First Respondent: Olson, advocate; Chambers Legal Limited
First Defender and Second Respondent: no appearance
10 March 2025
[1]
In April 2017 Croftwalk Limited ("Croftwalk") advanced a loan of £20,000 to the
second respondent ("Avellierie"). The relevant deed of loan, namely Minute of Agreement
dated 17 April 2017 included reference, amongst other terms, to a personal guarantee by the
appellant, who was a director of Avellierie, and who was also a signatory. The sum was
2
repayable by 16 April 2018. The appellant also signed a separate letter dated 17 April 2017
(the "Personal Guarantee") which confirmed that he offered a personal guarantee in the
event that Croftwalk did not make timeous payment.
[2]
Croftwalk made a further loan of £33,000 to Avellierie in July 2017. The relevant
document, namely Minute of Agreement dated 21 June 2017 again included, amongst other
terms, a similar reference to a personal guarantee by the appellant ("Mr Scott"), who was a
signatory. The loan was repayable on 21 June 2018. On this occasion, Mr Scott did not
provide any further document or guarantee.
[3]
In due course, Avellierie failed to make payment to Croftwalk. Croftwalk purported
to assign the rights against Avellierie and Mr Scott to the pursuer and first respondent
("Mr McKinlay"), who was a director of Croftwalk, and he raised the present action.
Avellierie has not defended the action, decree has passed against it, and recovery has not
proved effective. The action therefore depends on the existence and effective transfer of
any personal obligation of Mr Scott in respect of Avellierie's debts to Croftwalk.
[4]
There was a preliminary proof in which the court, by judgment dated 10 November
2023, resolved a dispute whether the Minutes of Agreement contained effective personal
guarantees ("The Lender shall have a Personal Guarantee...") by Mr Scott. It rejected that
construction, and Mr Scott was found to have no cautionary liability to Croftwalk under
those Minutes of Agreement. The second loan, unsupported by any separate letter of
guarantee, is not recoverable against Mr Scott. That judgment was initially the subject of
a cross-appeal, now abandoned, in the present proceedings.
[5]
This appeal relates to the second diet of proof, which related to the issue of
assignation, specifically to what had been assigned. The parties agreed that Avellierie's
debt under the Minute of Agreement dated 17 April 2017 had been effectively assigned by
3
Croftwalk to Mr McKinlay. It was disputed, however, that the Personal Guarantee had also
been assigned.
[6]
In terms of Deed of Assignation dated 12 December 2020 it was provided:
"We, Croftwalk Limited...hereby assign our whole right, title and interest in and
to the claim of debt arising under the Deed of Loan dated 17 April 2017 between us
(as lender) and Avellierie Limited... (as borrower) and Kenneth Scott (as guarantor),
to Charles Thompson McKinlay..."
[7]
Notice of that assignation was given in letters dated 18 January 2021 by Mr McKinlay's
agent to both Avellierie and Mr Scott, stating:
"TAKE NOTICE that by an Assignation dated 12 December 2020 Croftwalk
Limited...assigned its whole right title and interest to the claim and debt under the
Deed of Loan dated 17 April 2017 between them and Avellierie Limited...in favour
of Charles Thompson McKinlay..."
[8]
It was accepted by both parties that the assignation was effective to transfer
Avellierie's right to repayment under the Minute of Agreement dated 17 April 2017. The
latter document did not, however, create any personal right against Mr Scott. Accordingly,
unless the assignation was effective to transfer both the rights under the Minute of
Agreement and the rights under Personal Guarantee, there was no right of recovery against
Mr Scott. Following further proof, the court held that the assignation did have such effect,
that the rights under both documents were transferred, and that there was accordingly
personal liability by Mr Scott for the indebtedness of Croftwalk to Avellierie. Mr Scott
appealed.
Submissions for the appellant
[9]
For Mr Scott, it was submitted that the sheriff did not apply the correct principles
of construction to the Deed of Assignation. The principles of construction required a plain
reading. It did not refer to the 2017 letter of guarantee. It was unambiguous and not subject
4
to identifying common sense or commercial purpose. The two documents, Minute of
Agreement and Personal Guarantee, were quite distinct. Any cause of action was limited
to the Minute of Agreement. The sheriff's construction required rewriting the contract,
which was impermissible. She had used the benefit of hindsight. She had taken into
account subjective intention, which in any event favoured non-assignation.
[10]
The sheriff had further found assignation had been effective by operation of law.
She had reached a wrong conclusion by misapplying Miller v Muirhead 1894 21 R 658. The
principle of assignation of everything necessary to make the assignation effectual had no
application here. The assignation was already effectual. The principle could not be justified
by non-payment, as non-payment was the only reason there was anything to assign. It
could not be right that every assignation of debt carried with it the assignation of an
associated personal security.
[11]
The sheriff had also wrongly allowed evidence on the financial standing of Avellierie
in December 2020, when the only averments related to 2017. She had wrongly taken into
account financial standing in 2020 as background to construction. Decree of absolvitor was
appropriate.
Submission for the first respondent
[12]
For Mr McKinlay, the only remaining respondent, it was submitted that an
assignation of debt will impliedly assign all rights of the cedent required to make the
assignation effectual. Reference was made to Miller v Muirhead (above). The sheriff had
not erred. The wording of the Deed of Assignation provides a description of the Minute
of Agreement. The sheriff's construction of the assignation accorded with legal principle.
The objective meaning of a document involved ascertaining what a reasonable person, with
5
all the reasonably available background knowledge, would have understood it to mean.
The Personal Guarantee was a collateral undertaking, and had no purpose outside that
undertaking.
[13]
The sheriff was correct to find that the Personal Guarantee had been assigned. It
was incidental to the loan, and was necessary to give business efficacy to the assignation
itself. In relation to pleadings, it was a reasonable inference that Avellierie was unable to
pay from 2017 onwards.
Decision
[14]
The question of whether an assignation of a claim of debt should carry with it an
associated security has been recognised as not satisfactorily resolved under Scots law
(see Scottish Law Commission Discussion Paper No 151 Chapter 5). It is asserted that
security rights are accessory to the claims that they secure, and that in principle when a
secured claim is assigned, the security should follow the claim (Scottish Law Commission:
Report on Moveable Transactions, Volume 1 at paragraph 13.26 and following). The
Moveable Transactions (Scotland) Act 2023 deals at section 16 with accessory security rights,
but is not yet in force. It may be that disputes such as the present may shortly no longer
arise. That does not assist with the present case, and does not resolve the question of how
the law presently stands.
[15]
The issue is one of construction of the Deed of Assignation. The relevant wording is:
"We, Croftwalk Limited...hereby assign our whole right, title and interest in and
to the claim of debt arising under the Deed of Loan dated 17 April 2017 between us
(as lender) and Avellierie Limited... (as borrower) and Kenneth Scott (as guarantor),
to Charles Thompson McKinlay..."
6
[16]
The most recent authoritative treatment of the construction of contracts is Lagan
Construction Group v Scot Roads Partnership Project 2024 SC 12, and Paterson v Angelline
(Scotland) Ltd 2022 SC 240). In Lagan, the Lord President (Carloway) stated:
"Parties' intention is most obviously gleaned from the language which they
have chosen to use. The court should not normally search for drafting infelicities
in order to justify a departure from the natural meaning of that language. It should
identify what the parties agreed, not what it thinks common sense may otherwise
have dictated. Contracts are made by what people say, not what they think in their
inmost minds."
[17]
The appellant's position is that the wording of the assignation is clear, and that there
is no requirement or licence to depart from the plain words. In my view, that is correct. The
appellant, however, has not placed sufficient reliance on the operative part of the assignation.
[18]
It is true that the subject of the Deed of Assignation is the 2017 Minute of Agreement,
and that the 2017 letter of guarantee is nowhere mentioned. That, however, does not resolve
the question of what was assigned. The assignation is not restricted to the Minute of
Agreement. That is merely the documentary vehicle for recording certain rights and duties.
The subject of the assignation is not the document, but the rights. The possessor of the rights
is Croftwalk, the intended recipient of the rights is Mr McKinlay, and the subject of transfer
is described as: "our whole right, title and interest in and to the claim of debt arising under
the Deed of Loan..."
[19]
It is therefore an unduly restrictive reading to limit the transferred rights to those
found within the four corners of the Minute of Agreement. The drafting is wide and
inclusive in its terms. The subject matter is the "claim of debt", not just a debt. When it
comes to "right, title and interest", both the "right" and "title" to the claim of debt may be
referable to the Minute of Agreement. The "interest", however, is wider. Croftwalk has
an interest in the claim of debt, in the form of a Personal Guarantee against Mr Scott. That
7
interest is quite independent of the Minute of Agreement, and the drafting expressly
includes it as part of the bundle of rights which were transferred to Mr McKinlay. To
approach matters from the opposite direction, it would be impossible to say Croftwalk
had no interest in the claim of debt. It had the Personal Guarantee.
[20]
The alternative is that the rights under the Personal Guarantee remain untransferred,
and were retained by Croftwalk. Those rights would immediately, however, lose all value
upon transfer of the principal debt, because there would be no debt to secure. The effect
would be that Croftwalk's right and interest, if not their title, would have been extinguished
at the moment of assignation. Croftwalk could not lawfully raise an action for payment
under the Personal Guarantee, because it would retain no right to claim the principal debt.
Anything other would leave the debtor with potential liability to both creditors. On the
appellant's analysis, Croftwalk's right and interest disappear notwithstanding that they are
not assigned. The result is incoherent as a matter of law and offends against commercial
common sense. A valuable right would lose its value without reward or gain to either party
to the assignation.
[21]
On that analysis, it is unnecessary to comment on the objections to evidence about
financial standing in 2020, as the evidence does not influence this analysis.
[22]
On the remaining question of whether the assignation would otherwise have been
assigned by operation of law, the law is less clear. There is a dearth of authority. In Miller v
Muirhead (above), Lord Rutherford Clark stated:
"If I assign a thing which is not mine, I assign all the rights I have to make it mine.
If I assign a thing which I have bought, but which remains in the possession of the
seller, I assign what is not my property, but I also assign the right to obtain delivery.
The law implies that a cedent confers on his assignee everything which is necessary
to make the assignation effectual."
8
[23]
The case of Muirhead related to tenant's fixtures to the heritable property subject to a
contractual right of removal at the end of the tenancy. During the lease the tenant assigned
that contractual right to the landlord, as security for debt. The tenant company went into
liquidation and the liquidator claimed that the purported assignation was an ineffective
security over moveables. The court disagreed. The tenant's fixtures had by operation
of law become the landlord's property. The tenant, however, held a contractual right to
remove them, and thereby to transfer ownership back to himself. The goods were not his,
but he had the right to make them his. The assignation of the contractual right was an
effective renunciation, in favour of the landlord, of the contractual (but not property law)
right of removal. The contractual right of removal had been assigned by operation of law,
because it was part of "all the rights I have to make it mine" and it was necessary to make
the assignation effectual.
[24]
In the present case, Croftwalk assigned its rights to the debt owned by Avellierie
and, with it, everything which was necessary to make the assignation effectual. On the
respondent's argument, the Personal Guarantee was, by implication of law, necessary to
make the assignation effectual. The question is whether the dictum in Muirhead applied
in anything other than the particular facts of that case.
[25]
I have concluded that Muirhead falls to be distinguished on the facts, and does
not support the respondent's submission that the Personal Guarantee was assigned by
implication of law. Muirhead relates to rights and property which are "not mine" - in that
case moveables which had become affixed to heritage, or in the Second Division's example,
undelivered goods which were in the possession of a third party. The dictum stops short
of endorsing a much wider proposition that the principle can be applied to a right which
remains with the cedent, or assignor, such as a right to demand payment from a third party.
9
Further, the phrase "If I assign a thing which is not mine" introduces some difficulty.
The "thing" referred to is a corporeal moveable, not a right. The law of assignation has
developed since 1894 and the modern law sits uncomfortably with such an analysis. For
that reason I do not accept that Muirhead is in point. Croftwalk's right to payment of the
debt was owned by Croftwalk and it could, and did, assign the debt. Croftwalk did not
have any other mechanism, or indeed need, to "make it mine" either prior to or after
assignation.
[26]
For completeness, I do not accept the appellant's submission that there is a difference
between what is necessary to make an assignation effectual, and what is required to make
it valuable. Effectual transfer requires more than satisfaction of legal technicalities, and
an assignation of a debt from an impecunious debtor would not be an effectual transfer.
Disposal
[27]
The appeal is accordingly refused. Parties agreed that expenses should follow
success. I will accordingly find the appellant liable to the first respondent in the expenses of
the appeal process.
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