Summary of Opinion — Outer House, Court of Session

Factual and Procedural Background

On 17 January 2008 the owner of Breda Estate granted a standard security over properties on the Estate in favour of Company B to secure sums borrowed under two loan agreements. The Plaintiff (original borrower) seeks production and reduction of the standard security and the loan agreements, suspension of a calling up notice, an interdict against enforcement and, among other remedies, payment of £5,000,000. Company B assigned the loan and security to the Defendant by an assignation alleged to have occurred in March 2017. The claim pleads that the loans and standard securities are voidable because Company B paid a secret commission to the Plaintiff's agent. The Plaintiff added a ground based on an English Court of Appeal decision by adjustment in 2022. The original pursuer died after debate; the action continues with an executor as Plaintiff. The Court heard argument principally on the Plaintiff's conclusion for payment and on whether liabilities of Company B transmitted to the Defendant and whether the Defendant is liable for loss arising from its own actions. The Judge Lake sustained the Defendant's first plea-in-law quoad the Plaintiff's third plea-in-law and the averments in Article 13 of Condescendence, and allowed proof before answer on the remaining averments.

Legal Issues Presented

1. Whether liabilities of the original lender (Company B) to pay damages for payment of a secret commission transmitted to the assignee (the Defendant) on assignation.
2. Whether the Defendant is liable in damages for its own acts (including alleged wrongful refusal to discharge the standard security or wrongful assertion of the security).
3. When, for the purposes of any obligation to discharge the security, rescission of the loan agreement became effective and whether restitutio in integrum had to be completed first.
4. Whether the Plaintiff is entitled to interest (or notional interest) to be taken into account when calculating any restitutionary payment.
5. Whether the pleadings specify losses with sufficient particularity for proof (specification of claimed trading profits and diminution in value).

Arguments of the Parties

Plaintiff's Arguments

• The loans and standard security are voidable because Company B paid a secret commission to the Plaintiff's agent; reliance placed on the English Court of Appeal decision in Case 1 [2021] EWCA Civ 471, [2022] Ch 12.
• The Plaintiff may advance claims which existed against Company B against the Defendant as assignee to reduce or extinguish obligations by way of restitutio or as freestanding damages; the Plaintiff contends liabilities transmitted by assignation.
• The Defendant's refusal to discharge the security and its assertion of rights caused losses (lost wind-farm income, lost events trading income £7m, diminution in value £2m) for which the Defendant is liable at least for losses accruing post-assignation.
• The Plaintiff should receive credit for interest on payments made during the agreement when calculating any restitutionary payment; reliance on Case 13 [2021] EWHC 1403 (Ch) / Case 1.

Defendant's Arguments

• Where a claim exists against an assignor it may be relied on as a defence to the assignee's claim, but the assignation does not transfer a liability to pay damages so as to allow a freestanding damages claim against the assignee; reliance placed on Treatise A and authorities cited in the opinion.
• The Plaintiff's purported rescission was not effective because restitutio in integrum had not been made; without completion of restitutio the obligation to discharge did not arise.
• The Plaintiff's pleadings are insufficiently specified as to the basis and quantum of major elements of loss (notably the £7m events profit claim and the alleged diminution in value), prejudicing the Defendant's ability to respond.
• The Court should not allow transmission of the assignor's liabilities so as to impose a separate damages obligation on the Defendant beyond what can be pleaded in defence to any claim by the Defendant.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court proceeded in two main stages.

First, on transmission of liability by assignation, the Judge examined institutional and judicial authority (including Case 3, Case 4 and the sheriff court authorities Case 5 and Case 6) and commentary (Treatise B). The Court concluded that the authorities point to a rule that an assignee acquires the right to seek payment but is subject to defences and exceptions which the debtor could have raised against the assignor; they do not establish a general rule that liabilities to pay damages for pre-assignation breaches transfer to the assignee as standalone causes of action. The Judge accepted the defender's narrower interpretation of the older dicta and adopted the sheriff court decisions as persuasive on this point. On policy grounds (commercial practice in assignations, sales of loan books) the Judge found no compelling reason to adopt a general rule of transmission of liabilities. The Court therefore held that averments that Company B's liability to pay damages transferred to the Defendant were irrelevant.

Second, the Court analysed the Plaintiff's alternative case that the Defendant incurred liability by its own acts (wrongful assertion of the security or wrongful refusal to discharge it). The Judge examined when any obligation to discharge would arise, applying Case 7 (Westville) to conclude that rescission does not take effect until restitutio in integrum is completed where restitution is required. The Plaintiff's pleaded case did not establish that restitutio had been effected before the date alleged for loss; the Plaintiff's contention that claims against the Defendant had already extinguished the obligation to make restitution was circular and unsupported by the pleadings. The Plaintiff's offer in the pleadings to make restitutio was made only in 2022 (after assignation and some years after the assignation-related losses claimed) and there were no averments of loss post-dating that offer. For these reasons the Judge found the third plea-in-law and the averments in Article 13 irrelevant.

The Court also addressed subsidiary points: (a) the Judge would have allowed credit for interest when calculating any restitutionary payment, following the approach in Case 13 (the English chancery decision), and (b) the pleadings as to the major elements of claimed loss (notably the £7m events profit and the alleged £2m diminution) were insufficiently specified such that the Defendant would lack fair notice and be prejudiced at proof; the Judge indicated he would have sustained specification objections had those averments otherwise remained relevant.

Holding and Implications

Holding: The Court sustained the Defendant's first plea-in-law quoad the Plaintiff's third plea-in-law and excluded the Plaintiff's third plea-in-law and the averments in Article 13 of Condescendence. The Court allowed proof before answer on the remaining averments.

Implications: The direct effect is that the Plaintiff's pleaded claim that liabilities of Company B to pay damages transmitted to the Defendant by assignation was held irrelevant and excluded; the Plaintiff's alternative claim for damages premised on rescission was dismissed as irrelevant for lack of completed restitutio and requisite averments of loss arising after any effective rescission. The action proceeds to proof before answer on the averments not excluded. The opinion addresses application of existing authorities and practices but does not purport to establish a new general rule transferring pre-assignation liabilities to assignees beyond the scope of defences and exceptions available to the debtor.