Sheriff Appeal Court dismisses appeal against order to discharge standard security in property developer dispute

About this case:

• Citation:
  [2024] SAC (Civ) 49
• Judgment:
  External link
• Court:
  Sheriff Appeal Court
• Judge:
  Sheriff Principal N A Ross

Appellant Daniel Donald, the defender in an action by respondent David Booth seeking reduction of a standard security in the appellant’s favour, argued that the sheriff had erred in finding there was a binding oral agreement between the parties. Following proof, the sheriff ordered the discharge of the security on the basis that it was only to be relied upon if their joint company was unable to obtain title to the site.

The appeal was heard by Sheriffs Principal Nigel Ross and Kate Dowdalls, with Appeal Sheriff Gregor Murray. Massaro, advocate, appeared for the appellant and Reid, advocate, appeared for the respondent.

Bigger transaction

Between 2019 and 2020 the parties entered into talks for the development of a site in Peterculter, Aberdeen. The site was owned by the respondent but owing to his sequestration in 2013 it was vested in his trustee in sequestration. A new company, Caldonia Developments Ltd, in which each party would own a 50 per cent stake, was registered to carry out development, with the trustee agreeing to relinquish interest in the site and another site for a total payment of £1.15 million.

During negotiations, the trustee stated that he would only relinquish title so that it reverted to the respondent. In order to protect the appellant’s position until title was transferred from the respondent to Caldonia, the parties discussed the grant of a standard security in favour of the appellant over the site. The transaction proceeded and the standard security was registered, however the appellant refused to settle the Land and Buildings Transaction Tax due on the transfer of ownership of the site or register the disposition in favour of Caldonia.

The respondent raised an action for production and reduction of the security by reason of misrepresentation or, alternatively, discharge; for an order ordaining registration of the disposition in favour of the Company; and ordaining the appellant to pay the LBTT. Following proof, the sheriff found there had been no misrepresentation, but ordered discharge of the security, registration of the disposition, and payment of the LBTT. He did so on the basis that the parties had reached a binding oral agreement prior to the subsequent preparation and execution of the security with an implied term that it would be discharged on transfer of title.

Counsel for the appellant submitted that the sheriff erred in failing to give effect to the security. It contained a clear personal undertaking acknowledging a debt which should have taken priority to any oral agreement. The sheriff’s reasoning was inadequate to support a finding of oral contract.

For the respondent it was submitted that the security only formed part of a bigger transaction, which made sense in the context of solving a temporary problem created by the trustee refusing to transfer title directly to the new company. It was competent to restrict a subsequent security by the terms of a prior agreement.

Peripheral part

Sheriff Principal Ross, delivering the opinion of the court, said of the case for overturning the sheriff’s conclusions: “The appellant required to address the difficult task of proving a negative; that there was insufficient evidence. Counsel for the respondent drew attention to certain passages which justified the sheriff’s view. These included the respondent’s evidence referring to the arrangement. This evidence was that the only purpose of the Security was to give the appellant protection in the event that the respondent did not, or could not, transfer title to the Company, due to incapacity or being ‘hit by a bus’.”

He continued: “Mr Ross, [the appellant’s] advisor, gave evidence that the respondent agreed, on that basis, to sign a standard security when drafted. The standard security was to be in place until the transfer of title between the respondent and the Company. That evidence supports, and is capable of justifying, the sheriff’s conclusion. There was sufficient evidence.”

Assessing whether the sheriff’s decision was adequately explained, Sheriff Principal Ross said: “We are not left in real doubt about the basis for the sheriff’s decision. The judgment sufficiently explains the sheriff’s reasoning, against the background circumstances of the overall commercial arrangement, in which the Security played no more than a peripheral part.”

He concluded: “It is correct that the sheriff did not, as he might have, set out how the criteria for implication were met. However, it is also clear that they were, in fact, met. The sheriff implied a term into the oral contract, not the Security. The term implied was that the Security would be discharged upon payment of a sum (since paid) and title being transferred to the Company. It was clearly necessary, as otherwise the security would cover property the respondent no longer held and for a debt which was never his, but that of the Company.”

The appeal was therefore dismissed.