Court clarity and commercial reality

Following a number of years of closely followed litigation, the Inner House of the Court of Session has recently overturned a lengthy 137-page decision of a sheriff at Glasgow Sheriff Court.

Mr Guidi had granted a registered standard security and a personal guarantee in favour of Clydesdale Bank plc in 2011, which was subsequently assigned as part of a bulk assignation to Promontoria (Chestnut) Ltd in 2015. When Promontoria sought to recover the sums due under the personal guarantee by serving a charge for payment, Guidi sought reduction of the charge and declarator that Promontoria had no title to recover the outstanding indebtedness.

The appeal dealt with two key topics: the assignation of standard securities, and the redaction of commercially sensitive documents in litigation. Ultimately, the Inner House concluded ([2023] CSIH 4) that: (i) the standard security had been validly assigned despite parties not adopting the exact wording of the relevant legislation; and (ii) the redaction of a document does not in itself mean it cannot be relied on.

Assignation: flexibility in form

The Inner House ultimately found that the framework which governs assignations, the Conveyancing and Feudal Reform (Scotland) Act 1970, allows for flexibility in its application.

A failure to repeat the wording set out in the 1970 Act verbatim does not automatically render the assignation invalid. The court took a pragmatic approach in finding that flexibility in this regard is compatible with the interests of justice, noting that “forms should be servants, not masters”.

Furthermore, the Inner House rejected the sheriff’s finding that assignations of this nature could not also include instruments such as personal guarantees or floating charges, on the basis that it was more likely than not that, in a transaction such as this one, there would be instruments of this type.

Guidi’s argument that the validity of the assignation rested on whether there was evidence that Promontoria had paid the purchase price to the bank also held little weight. The court commented that it “defies belief” that the bank would have treated the assignation as concluded since 2015 in the absence of payment.

Crucially, the court also raised the overarching issue that the underlying debt remains unpaid. If the assignation had not been validly assigned, the debt would still be owed to the original creditor. This was denied as part of the same action. Therefore, the assignation had been validly assigned to Promontoria and Guidi’s claim was dismissed.

Redaction: necessary information?

Promontoria had produced a copy of the deed of assignation, which included redactions of commercially sensitive information. Guidi contested this on the basis that Promontoria was obliged to produce the complete version of the principal document.

The Inner House found that, in a commercial action, a party is only under a duty to lodge such parts of a document as are necessary to prove its case. It was noted that Guidi was aware of the appropriate method of document recovery in court proceedings (i.e. commission and diligence), but did not follow this process. Ultimately, it was not contended that the redacted content had a bearing on the case, nor was there a statable basis on which the redactions might render the assignation invalid. The Inner House held that supposition was not sufficient in these circumstances.

The court noted with approval the guidance found in other Promontoria cases heard in the Court of Appeal, noting that it was not being asked to construe an ambiguous provision and could answer the question before it without the redacted content.

Comment

Importantly, this judgment demonstrates that the courts do strive to take a commercial and pragmatic approach, where possible.

On the point of the assignation of standard securities, the endorsement of flexibility from the court is welcome. Moreover, the recognition that other financial instruments such as personal guarantees and floating charges will likely be included in a bulk assignation provides helpful recognition of the commercial realities of such transactions.

In terms of redaction, this judgment again takes a pragmatic approach and assists with the protection of commercially sensitive information in the context of commercial litigation. However, this should be handled with care and litigants should not be tempted to take a mile from this inch. It is important that the courts are still able to construe the document on which a party relies to make its case. Parties making redactions should remain prepared to fully justify and explain these to the court, which remains ultimately entitled to rule on the need for them if challenged.

This decision provides helpful guidance, as well as some commercial clarity, on both areas of law from the Inner House. Given the raft of litigation which has taken place on both matters, this clarity is welcome.