Court rules against Avocet chairman's loan claims

SPECIAL FEATURE by OUR COURT REPORTER

The repeated claims made by businessman Martin Frost that one of his companies, Avocet Farms Ltd. is not responsible for a £3.25 million advance from an agricultural financier have been dismissed by a judge in Scotland's Court of Session.

And Lord Clark, in a written judgment published on the Scottish Courts website, has also rejected Mr Frost's assertion that the appointment of joint administrators to Avocet Farms (now called Orrdone Farms) was both illegal and invalid.

The complicated case concerns a so-called Petition for Rectification, lodged on behalf of United Kingdom Agricultural Lending Ltd. (UKALL), who are seeking to recover the money loaned to Orrdone Farms. Rectification is a remedy exercised in the court's discretion to re-write mistaken wording in a legal document so that it accords with what the parties intended.

The error in the terms of the standard securities in this case was that that they were granted in respect of the first respondent, Hamilton Orr Ltd., another company of which Mr Frost is a director, rather than Orrdone Farms Ltd. UKALL contends that the intention of the parties at the time of the grant of the standard securities in 2016 was that the documents would grant security in respect of the indebtedness of Orrdone Farms, the second respondent to the petitioner.

Lord Clark's judgment states: "The first respondent owned various farming properties (in Berwickshire), including Harcarse Hill Farmhouse, Harcarse Hill Steading, Harcarse Hill Cottages and adjacent fields, and Sunwick Farm.

"In July 2016, the first respondent was indebted to Ilona Rose Investments Limited (“IRIL”) in the sum of £2,375,942.81. Following discussions, it was agreed that the petitioner (UKALL) would make a new loan in the sum of £3.25 million which would allow that debt to IRIL to be discharged. The petitioner contended that the arrangement was that it would make the loan to the second respondent, in the form of offsetting the first respondent’s debt to IRIL, with the remaining monies being transferred to the second respondent."
The background set out in the judgment shows that in about September 2017, Hamilton Orr disponed (transferred ownership) the subjects at Harcarse Hill and Sunwick Farm to the Orrdone Farms. The consideration in the dispositions was narrated as being "for certain good and onerous causes".

Orrdone was registered as proprietor of Harcarse Hill and Sunwick Farm on 3 September 2018.

"The petitioner’s position is that the transfer of title took place without its knowledge or consent. An action of reduction has been raised in this court by the first respondent against the second respondent in respect of the Sunwick Farm disposition. The second respondent is presently interdicted ad interim from taking any action to obtain possession of Sunwick Farm. Bankruptcy proceedings have been raised in England by the petitioner in respect of the third and fourth respondents (Mr and Mrs Frost)".

During the court proceedings counsel for UKALL submitted that the answers initially lodged for the respondents were "patently untrue and deliberately dishonest and that they sought to raise a number of irrelevant matters."

The judgment adds: "On 2 February 2021 the solicitors who had acted for the third and fourth respondents withdrew from acting. On 5 February 2021 the third and fourth respondents, appearing personally, moved to have the cause sisted [delayed], on the ground that it might be capable of being resolved by discussions between the parties. Counsel for the petitioner advised the court that no such discussions were occurring. The motion was refused."

At a substantive hearing in March this year it was claimed on behalf of UKALL that the affidavit of Mr Frost contained “some extraordinary material but was of little relevance to the issues”.

The petitioner lodged affidavits from Emma Porter, one of the joint administrators of Orrdone Farms, and Russell Spinks, the solicitor who acted on behalf of UKALL in relation to the standard securities.

"Ms Porter explained that the joint administrators were appointed by the petitioner following upon the second respondent having been in default of its payment obligations under a debenture granted in favour of the petitioner. The joint administrators had no objection to the petition. She commented upon the answers as originally lodged by the respondents, viewing these as being exceptionally surprising and containing a number of quite strange claims and accusations which were hard to follow."

Mr Spinks explained that he had used styles from earlier standard securities dealing with Hamilton Orr as the borrower. He had erred in failing to revise the terms to indicate that the loan was to the second respondent, which was the clear understanding and position of the parties.

Lord Clark says: "“An affidavit from Mr Frost was lodged. Among other things, it narrated Mr Frost’s own experiences and background and made a number of peculiar and disparaging comments and insinuations about individuals with whom he has had dealings. Virtually nothing in his affidavit is of any assistance or relevance for present purposes.”

Mr Frost made submissions on behalf of himself and his wife. He claimed the joint administrators of Orrdone Farms had, throughout their appointment, failed to acknowledge that their appointment was invalid for the very straightforward reason that no loan was made by the petitioner to the company.

The recipient of the loan referred to was Hamilton Orr, he submitted. In Mr Frost's opinion the stated purpose of the petition was to rewrite the standard securities to create a falsehood by substituting Orrdone Farms Ltd as the debtor and borrower in place of Hamilton Orr. The true position was the complete opposite to what was stated in the petition. The lawyers were attempting to cover up their errors.

But in his decision Lord Clark rejected the suggestion that the joint administrators of Orrdone Farms had been appointed wrongly.

And the judge concluded: "The personal guarantees, given after independent advice, were in respect of the second respondent’s indebtedness to the petitioner. The second respondent is liable under that agreement."

In a reference to Paul Newsham, lay representative of Hamilton Orr, and to Mr and Mrs Frost, Lord Clark says: "No witnesses were identified by them and the only affidavit lodged was that of the third respondent. Ample opportunity to lodge all relevant documentation was given.

"No evidence of any kind was produced seeking to vouch the factual position advanced by the respondents, in particular that the three solicitors had agreed (in contradiction of the terms of the Facility Letter) that the proposed loan should be made by the petitioner to the first respondent rather than to the second respondent and were now seeking to cover up their errors."

The judge goes on to state he had no reason to question the terms of the affidavit of Mr Spinks.

"I accept that solicitors erring in this manner, and not discovering it when reviewing the drafts, is unfortunate and perhaps unusual. But Mr Spinks was entirely frank in fully explaining and accepting his mistake, caused by adopting a previous style of standard security which did not deal with a separate debtor.

"The correspondence prior to the Facility Letter makes clear the intention of the parties, that the loan is to be to the second respondent (Orrdone). The accounts of the first and second respondent, whether audited or not, plainly show that the latter is the debtor and the former is not. In these convincing circumstances, and in the absence of any support for the positions advanced by the respondents, the stiff test is met and grant of the application for rectification is appropriate."