Outer House judge finds Scottish Ministers liable to pay over £5 million to guarantors of Ferguson Marine

HCC International Insurance Company Plc sought reimbursement by the Scottish Ministers of sums it paid to settle debts owed by a company it controlled that were subject to a guarantee agreement. Said company had inherited the debts of Ferguson Marine Engineering Ltd, which had been contracted to build two passenger ferries.

The case was heard by Lord Tyre. The pursuer was represented by Kenny McBrearty QC and the defenders by Almira Delibegović-Broome QC

Full and final discharge 

In October 2015, Ferguson Marine (FMEL) entered into the contracts with Caledonian Maritime Assets Ltd (CMAL). In terms of the contracts, CMAL made substantial advances of funds to FMEL towards the costs of construction. As is common practice in shipbuilding, FMEL required to arrange refund guarantees in order to provide security to CMAL that, if FMEL defaulted on its obligations, CMAL would be able to recover those advances. These were provided by the pursuer in 2016, with FMEL granting a deed indemnifying HCC in respect of any sums paid to CMAL under the Refund Guarantees. The governing law of the deed was English law.

An intercreditor agreement was entered into by the pursuer and the defenders regulating the rights of FMEL’s various creditors, under which HCC would have first priority in respect of debts owed. In August 2019 FMEL entered administration, and its business and assets were transferred to a new entity owned by the Scottish Ministers. Following negotiations, a settlement was reached between HCC and CMAL, providing for certain payments to be made by HCC to CMAL, and for HCC’s liabilities under the Refund Guarantees to be discharged.

The pursuer claimed that it was entitled in terms of the Intercreditor Agreement to payment of the sum that it paid to CMAL plus costs and expenses, which amounted to £5,047,775.79. The defenders maintained that the agreement was no longer in force as the liabilities of FMEL were discharged by agreement, however the pursuers maintained that the relevant Bond Discharge Date under the agreement had not yet occurred as another company in the group, MacKellar Sub-Sea Ltd, had not yet had its liabilities discharged, and it was entitled to seek indemnity from it.

It was submitted for the pursuer that the occurrence of the Bond Discharge Date required full and final discharge by HCC of “all present and future liabilities and obligations at any time of Holdings and/or FMEL and any other indemnitor… to HCC”. Although the lead indemnitor had been discharged from liability, MacKellar had not and therefore the Bond Discharge Date had not yet arrived.

On behalf of the defenders. it was submitted that there had been a full and final settlement in relation to the entire group. The Bond Discharge Date had occurred, as the relevant part of the contract referred only to the release of FMEL, the only party with meaningful assets. Alternatively, if the court was of the view that this point could not be decided now, it could be left until after the conclusion of parallel proceedings in England seeking rectification.

Interests promoted by accession

In his opinion, Lord Tyre began by noting the relevance of the English proceedings, saying: “I do not accept that there are any issues arising in these proceedings that ought not to be addressed until the question of rectification has been determined. The principal issue is the proper construction of the Intercreditor Agreement. In so far as reference has to be made to deeds governed by English law, the court is entitled to proceed on the basis that the ‘foreign’ law is the same as Scots law, except to the extent that there has been expert evidence to the contrary.”

Turning to whether MacKellar was still liable for the debt, he said: “The board minute narrates that the board were satisfied that MacKellar’s interests would be promoted by acceding to the Deed of Indemnity. That, it seems to me, is understandable in a situation in which the continued funding of the group as a whole would be in jeopardy if the additional securities could not be granted. In these circumstances I am satisfied that the evidence demonstrates that MacKellar did receive consideration for its accession as an indemnitor.”

He continued: “In these circumstances, in my opinion, the liabilities incurred by MacKellar to HCC by acceding to the Deed of Indemnity ought, on a proper construction, to be regarded as having been incurred pursuant to - or alternatively as a result of -the issue of the Refund Guarantees, notwithstanding that MacKellar was not originally an indemnitor.”

Considering the definition of the Bond Discharge Date, Lord Tyre explained: “Read short, in the circumstances that have occurred, it is the date upon which all present and future liabilities at any time of Holdings, FMEL or MacKellar to HCC under the last Bond outstanding and/or any related deed of indemnity have been fully and finally discharged. In my opinion that date has not yet occurred.”

He continued: “There was very little evidence regarding the assets of MacKellar, but in my opinion this is not relevant to the proper interpretation of the Intercreditor Agreement. The short answer is that all of the conditions for the occurrence of the Bond Discharge Date have not been met by the clear terms of the Deed of Release of the Deed of Indemnity, which discharged only FMEL’s liabilities.”

Lord Tyre concluded: “I hold that HCC has proved that it is entitled, in terms of the documentation as it stands, to payment of the sums sued for. As I have noted, however, it would not be appropriate to grant decree for payment until the conclusion of the English rectification proceedings, and this action will now require to be sisted.”