EXCLUSIVE by OUR COURT REPORTER
The latest attempt by bankrupt businessman Martin Frost to have responsibility for a £3.25 million debt shifted from one of his Avocet companies has failed after a ruling in a Court of Session appeal case delivered by Scotland's leading judge Lord Carloway.In an Opinion published on the Scottish Courts website today it was confirmed that Lord Clark's earlier decision to approve a so-called Petition of Rectification - the correction of a legal drafting error - from United Kingdom Agricultural Lending (UKALL) Ltd would not be overturned.
Mr Frost, the former chairman of the Avocet "disruptive technology" group of companies, had repeatedly claimed the £3.25 million was owed to UKALL by another firm, Hamilton Orr Ltd., and not by Orrdone Farms Ltd., one of his insolvent businesses which is now in administration.
Lord Clark, in a judgment handed down in May, also rejected Mr Frost's allegation that the appointment of joint administrators to Orrdone Farms had been "illegal and invalid".
The new Opinion shows Mr Frost was not in court for the appeal hearing on December 17th "on grounds of ill health". There was no appearance either from his wife Janet Orr Frost while Hamilton Orr, the first reclaimers (appellants) were represented by Paul Newsham, the Lancashire-based accountant who has served as a director of several Avocet companies.
In his judgment, Lord Carloway (the Lord President) sitting with Lord Malcolm and Lord Turnbull explained a loan facility for Orrdone Farms had been created with UKALL.
"Unfortunately, and as was admitted by the drafter, namely Russell Spinks, a solicitor, in an affidavit lodged with the court, the standard securities were in error framed in respect of the indebtedness of Hamilton Orr and not Orrdone Farms" said the judge.
The Lord Ordinary (Lord Clark) granted the rectification petition. Hamilton Orr and the third and fourth respondents (Mr and Mrs Frost), who are personal guarantors of the debtor, reclaimed (appealed) the Lord Ordinary’s decision. They contended that the standard securities reflected the true picture - that the loan was to be made to Hamilton Orr, not Orrdone Farms.
Lord Carloway states: "In the respondents’ joint grounds of appeal, joint note of argument, and in written submissions for Hamilton Orr and the fourth respondent, which were presented at the hearing, it was argued that the Lord Ordinary erred in failing to draw various conclusions from the productions which were before him, and generally in failing to prefer the respondents’ submissions.
"The respondents made particular criticisms of the Lord Ordinary’s acceptance of the evidence contained within Mr Spinks’ affidavit; alleging that Mr Spinks had acted unprofessionally. The respondents criticised the Lord Ordinary for failing to take into account that Orrdone Farms was a wholly owned subsidiary of a parent company with “no commercial benefit” at the time of the transaction. Criticisms in relation to the manner of the appointment of administrators to Orrdone Farms were also made."
The judgment goes on to say: "The fourth respondent’s [Mrs Frost] submissions detailed complex family relationships between various actors involved in the farming business of the group of companies owned by the Orr family and their associates. She alleged that the present dispute arose as a result of both certain members of her extended family and the lawyers involved in the transactions telling lies."
In dismissing the appeal, Lord Carloway adds: "There is no merit in any of the respondents’ arguments. In order to grant their rectification, the Lord Ordinary required to be satisfied that the standard securities did not accurately reflect the intention of the parties at the date when they were executed. The weight of evidence contained in the productions and the affidavit of the principal solicitor involved in the transactions overwhelmingly pointed to the conclusion that the identification of the debtor in the securities did not reflect the parties’ intentions.
"It demonstrated that the parties’ intention at the time was that the loan relative to the securities would be made by the petitioners to Orrdone Farms and not Hamilton Orr. That loan was to be secured by a number of means, including standard securities over the farms owned by Hamilton Orr. The court has not been provided with the commercial reasons for that arrangement, but it is not unusual for related companies to provide security for debts owed by one another."
And according to Lord Carloway: " The court is not persuaded that it would be contrary to business common sense for it to find in the petitioners’ favour. The allegations made against the lawyers involved in the transaction and the fourth respondent’s various family members are unsubstantiated and largely irrelevant. There is no reference to a loan by the petitioners to Hamilton Orrin any of the productions, with the exception of the standard securities themselves. The court therefore accepts, for the reasons given by the Lord Ordinary, that the securities were drafted erroneously in that regard. No substantial basis for interfering with the Lord Ordinary’s findings in fact on the central issue have been presented.
"The third and fourth respondents do not have title and interest to resist this petition. Their only interest is in their capacity as guarantors of the debtor. The basis of that liability is contained in the terms of personal guarantees and a facility letter. The rectification of the standard securities will have no bearing on their personal obligations to the petitioners. The standard securities do not require to be rectified in order to enforce the guarantees. The arguments regarding the appointment of administrators to Orrdone Farms do not add anything to this. The appointment, as highlighted by the Lord Ordinary, has not been challenged."
"The respondents made particular criticisms of the Lord Ordinary’s acceptance of the evidence contained within Mr Spinks’ affidavit; alleging that Mr Spinks had acted unprofessionally. The respondents criticised the Lord Ordinary for failing to take into account that Orrdone Farms was a wholly owned subsidiary of a parent company with “no commercial benefit” at the time of the transaction. Criticisms in relation to the manner of the appointment of administrators to Orrdone Farms were also made."
The judgment goes on to say: "The fourth respondent’s [Mrs Frost] submissions detailed complex family relationships between various actors involved in the farming business of the group of companies owned by the Orr family and their associates. She alleged that the present dispute arose as a result of both certain members of her extended family and the lawyers involved in the transactions telling lies."
In dismissing the appeal, Lord Carloway adds: "There is no merit in any of the respondents’ arguments. In order to grant their rectification, the Lord Ordinary required to be satisfied that the standard securities did not accurately reflect the intention of the parties at the date when they were executed. The weight of evidence contained in the productions and the affidavit of the principal solicitor involved in the transactions overwhelmingly pointed to the conclusion that the identification of the debtor in the securities did not reflect the parties’ intentions.
"It demonstrated that the parties’ intention at the time was that the loan relative to the securities would be made by the petitioners to Orrdone Farms and not Hamilton Orr. That loan was to be secured by a number of means, including standard securities over the farms owned by Hamilton Orr. The court has not been provided with the commercial reasons for that arrangement, but it is not unusual for related companies to provide security for debts owed by one another."
And according to Lord Carloway: " The court is not persuaded that it would be contrary to business common sense for it to find in the petitioners’ favour. The allegations made against the lawyers involved in the transaction and the fourth respondent’s various family members are unsubstantiated and largely irrelevant. There is no reference to a loan by the petitioners to Hamilton Orrin any of the productions, with the exception of the standard securities themselves. The court therefore accepts, for the reasons given by the Lord Ordinary, that the securities were drafted erroneously in that regard. No substantial basis for interfering with the Lord Ordinary’s findings in fact on the central issue have been presented.
"The third and fourth respondents do not have title and interest to resist this petition. Their only interest is in their capacity as guarantors of the debtor. The basis of that liability is contained in the terms of personal guarantees and a facility letter. The rectification of the standard securities will have no bearing on their personal obligations to the petitioners. The standard securities do not require to be rectified in order to enforce the guarantees. The arguments regarding the appointment of administrators to Orrdone Farms do not add anything to this. The appointment, as highlighted by the Lord Ordinary, has not been challenged."
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