Pursuer: Upton; Gillespie Macandrew

Defenders: Fairley; Anderson Strathern

12 December 2008

Background
[1] This case came before me on the defenders' general plea to the relevancy. The pursuer asserts that sums debited from his account on the instructions of a firm of solicitors in Manchester, Davis Blank Furniss, were made without authority. The sums debited from the account included a sum at credit of the account in the sum of £350,000. They also included sums paid under a loan facility. The pursuer's argument is restricted to the sum of £350,000. The defenders say that they had authority and that this is manifest from the face of the pursuer's pleadings: the case is thus irrelevant and should be dismissed.

The pleadings
[2] The pursuer avers that he signed a client investment authority ("C.I.A.") authorising ASfund A.G. of Zurich ("ASfund") and the Insurance Policy Trading Co Ltd ("I.P.T.C.") Godalming, Surrey to act on his behalf for certain purposes for the purchase and assignation of traded endowment policies ("T.E.P.S."). These were to form the basis of a Geared Investment Plan ("G.I.P.") to be prepared for the pursuer by I.P.T.C and ASfund. In terms of the C.I.A., the pursuer authorised I.P.T.C. to appoint Davis Blank Furniss to act for him in respect of the legal assignment of T.E.P.S. into the G.I.P. The pursuer accepts that a letter from Davis Blank Furniss to him advising him of the purchase of 66 policies was sent to him under cover from a letter from ASfund. He avers that he had given no order to purchase such policies and "for that reason and because he had no legal relationship with Davis Blank Furniss" he addressed his reply to ASfund.

[3] A copy of the C.I.A. was intimated to the defenders who agreed to grant the pursuer a loan facility on his account with them to provide funds for the purchase of the T.E.P.S. Clause 12(2) of the loan facility agreement provided that the pursuer irrevocably authorised the bank to:

"(a) .... remit the amount of the facility drawn down or the purchase price of the relevant policies (as required) to your legal advisers for remitting to the appropriate vendors of the relevant policy."

The facility was for £625,000. It is averred that between December 2001 and January 2002, the pursuer deposited a total sum of £350,000 in the account. It is further averred that as a result of debits "purportedly made in favour of 'Davis Blank Furniss'" the account became overdrawn to the extent of £546,759.43. The pursuer avers that between December 2001 and June 2002 "one or more of Davis Blank Furniss, I.P.T.C. or ASfund A.G. apparently purported to buy 66 T.E.P.S. in the name of and for the pursuer. He had not instructed them to do so." He avers that,

"despite being the putative holder of the policies the pursuer does not appear to receive normal information relative to their values, such as annual reports...".

The pursuer avers that the C.I.A. authorised I.P.T.C. to appoint Davis Blank Furniss to act for the pursuer only in respect of the legal assignment of the policies. He avers that the defenders have not identified any authority given by the pursuer to Davis Blank Furniss to request the debits condescended upon.

[4] The defenders say that they reasonably believe and aver that the policies were purchased on the instructions of the pursuer, with his full knowledge and consent and that I.P.T.C. and David Blank Furniss were authorised to request the transfer of funds necessary to complete the purchase of policies on the pursuer's behalf. They arranged for the assignation of the policies into the name of the pursuer. The policies were then deposited with the defender as security for the loan facility. The defenders also aver that following a "margin call" letter issued to the pursuer, he e-mailed them on 13 July 2003 in the following terms:

"Between January and June 2002 I bought 66 policies (TEP) which have been examined by the solicitors Davis Blank Furniss and have been assigned to my name. These policies have been deposited at the Bank of Scotland as security for my GIP Plan Facility."

The pursuer avers that he "has no record of an e-mail in the terms averred by the defenders to have been sent on 13 July 2003", and otherwise meets these averments with a general denial.

[5] The pursuer avers that "according to the pursuer's bank statements, the debits were purportedly made in favour of 'Davis Blank Furniss'." He puts certain calls on record asking the defenders to identify the means and persons by whom the debit requests were submitted.

The issues
[6] The issues in the case are largely encapsulated in Article 10 in which the pursuer avers as follows:

"The limits of any entitlement of the defenders so to debit the pursuer's account are to be found in clause 12(2)(a) of the facility letter. With regard to those terms:-

(i) The sums debited were not paid for remission to the 'appropriate vendors of the relevant policies', for no such policies had been identified by nor agreed with the pursuer;

(ii) The sums debited were not remitted to legal advisors of the pursuers; and

(iii) The sums debited included the pursuer's £350,000 deposit, for the remission of which to third parties the defenders had no authority."

Issues (i) and (ii)
[7] The first of these issues has no bearing in an issue between the pursuer and the bank and is therefore irrelevant, a point which I did not understand Mr Upton, for the pursuer, to dispute.

[8] On the second issue, the pursuer's counsel argued that the pleadings did not disclose that Davis Blank Furniss had in fact been appointed by I.P.T.C. and that at the very least the pursuer's pleadings put the defenders to proof on this matter. Moreover, if they had been appointed this did not make them "legal advisors" for the purposes of the facility letter. I do not accept these submissions. In my view the pursuer has not put the defenders to proof on these matters. In addition to the averments already noted, in Article 9 the pursuer avers that he has never instructed Davis Blank Furniss, that they have not to his knowledge undertaken any formal steps to recognise him as a client, that the only connection between them is the C.I.A. and that no record of their appointment to act for him has been disclosed to him. Largely on the basis of these averments he avers that they have never been legal advisors of his. These averments are beside the point: the authority given to I.P.T.C means that it is not necessary for there to be any direct instruction from the pursuer, he has authorised their appointment to act for him by authorising I.P.T.C to appoint them for this purpose. His averments do not amount to a challenge to the defenders to prove that the solicitors were appointed under the C.I.A nor do they amount to a denial that they were so appointed. The C.I.A. gave power to I.P.T.C to appoint them and that was intimated to the defenders in about November 2001. Subsequent to that intimation, the pursuer entered into the facility agreement containing authorisation for his legal advisors to draw down funds. In these circumstances the defenders were entitled to proceed on the basis that the solicitors who were authorised to be appointed under the C.I.A had in fact been appointed and that those solicitors were "legal advisors" for the purpose of the facility letter. The pursuer's argument that the purpose for which authority was given under the C.I.A was restricted and that a solicitor appointed for that purpose was not thereby a "legal advisor" seems to me to be casuistic. The C.I.A. gave intimation to the bank that certain agents were authorised to purchase policies on behalf of the pursuer. It authorised one of them to appoint solicitors for the purpose of effecting those purchases. The facility letter is an irrevocable mandate to the bank to remit funds to legal advisors of the pursuer for the purpose of purchasing policies. In those circumstances, it is not necessary for instructions to come from the pursuer directly. It is enough if accredited agents of the pursuer intimate that policies are to be purchased on his authority and that is sufficient authority for the exercise of the mandate in the facility letter for remitting the funds to the solicitors for remitting to the vendors in terms of paragraph 12 of the facility letter.

[9] As to actual remittance of funds to Davis Blank Furniss, counsel argued that the pursuer's pleadings put the defenders to proof of the issue of whether the funds had in fact been remitted on the instructions of Davis Blank Furniss, to Messrs Davis Blank Furniss and whether the bank were advised that the funds were being drawn down for the purpose of remitting those funds to appropriate vendors of the relevant policies. He said the bank were also put to proof on the associated question of whether he sent the e-mail of 13 July 2003. It was argued for the defenders that the pursuer has not challenged the accuracy of the bank statements which show payments to Davis Blank Furniss and I agree with that. I also accept the argument for the defenders that the agency of I.P.T.C/ASfund is important because it entitled the defenders to remit funds to Davis Blank Furniss for the specified purpose on the indication from I.P.T.C. or ASfund that they had identified policies to be purchased for the pursuer. The pursuer accepts that he is the "putative holder" of the policies and avers that between certain dates one or more of "Davis Blank Furniss, I.P.T.C. or ASfund apparently purported to buy sixty-six T.E.P.S in the name of and for the pursuer." As far as the bank knew and were entitled to assume, both the latter were entitled to do so and the former was entitled to have funds remitted to them for that purpose. Nothing in this averment is sufficient to suggest that the bank did not have the necessary authority to remit funds. Moreover, I think the defenders are entitled to rely on the e-mail of 13 July 2003. It is not sufficient for the pursuer to rely on a general denial and to aver that he "has no record" of the e-mail. The question of whether the pursuer sent that e-mail is something which should be wholly within his knowledge and whether he actually kept a record of it is immaterial. I consider that his averments on this matter are lacking in frankness and that the defenders are entitled to rely on the e-mail.

Issue (iii)
[10] The remaining issue is the third one identified at paragraph 5 hereof. The precise issue here was whether the defenders had authority under clause 12(2)(a) to remit any part of the sum of £350,000 at credit of the pursuer's account.

Submissions for defenders
[11] Counsel for the defenders submitted that Clause 12 of the facility letter authorised remittance of funds from the account for the specific purpose of purchasing traded endowment policies for the pursuer, whether by way of loan facility or by debit from his own funds. The disjunctive "or" used in Clause 12 is perfectly clear: it envisages either that the whole amount of the facility will be remitted or that the purchase price will be remitted as required. There will either be a single transfer or a series of requests on a piecemeal basis. In other words, in the absence of a single transfer, the amounts will be drawn down as and when required. The argument that the defenders were not entitled to remit any part of the £350,000 was incorrect for three reasons:

1. It is contrary to the way a loan facility operates on an account. The party cannot access the loan facility unless the balance on the account has reached nil. An authority to draw down to the full extent of the loan facility carries with it an assumption that the funds in the account will first be exhausted.

2. The pursuer's approach would involve the account being simultaneously in debit and credit. The bank would be authorised to draw down a loan but would be prohibited from touching the £350,000. The bank would charge interest on a higher sum than they were actually owed, as it would require for those purposes to ignore the £350,000 in credit.

3. Clause 12 envisages either drawdown of the whole facility, which as a matter of logic, would include any credit balance, or a more piecemeal approach as required. The latter approach does not require a drawdown at all. The piecemeal approach may involve drawing down the loan facility but only if the aggregate exceeded £350,000. Authority to draw down the loan facility encompasses authority to draw down the sum at credit or the account. It is not suggested that this was anything other than a standard running account.

Submissions for Pursuer
[12] Counsel for the pursuer submitted that for a payment from a customer's account to be made within authority the mandate must authorise the bank to pay out the funds which they do in fact pay out. Counsel submitted that the C.I.A. was not a mandate in any way in which the concept was understood.

[13] Counsel then turned to the facility letter which he submitted had no bearing on the use of sums at credit of the pursuer's account. The agreement regulated the terms only of a loan and the language used - "drawdown" - is the language of a loan. It did not regulate the account, only the loan to be made available through the account. Counsel accepted that there could be no loan whilst there remained a credit balance, but it did not follow that the loan terms applied to the credit balance. The provisions have to be read in the context of the subject matter, which is of money being lent. For example, it would be a nonsense, when the pursuer used his own money to buy a policy that it would have to be assigned in security even when there was no obligation to the bank, yet this would follow from the defenders' argument.

[14] Although the facility agreement on two occasions refers to a situation where the account may be in credit, (page 2 and page 5), it does not follow that it regulates a credit balance on the account. The pursuer warrants that he will be responsible for meeting any balance of the price beyond the facility. This is not necessary if the bank had a mandate to use his own cash resources.

[15] In the course of argument reference was made to the re-issue of the Stair Memorial Encyclopaedia article on Banking, Money and Commercial Paper by Professor Crerar, paragraphs 90, 94 and 97, Royal Bank of Scotland v Skinner 1931 S.L.T. 382 and Grier on Banking Law in Scotland (2001), paragraph 4.16.

Discussion and decision
[16] I have come to the conclusion that the arguments for the defenders are to be preferred. In my view the authority given in the facility letter is sufficient to cover the funds at credit of the account as well as any funds drawn down on the facility. I agree with counsel for the defenders that the disjunctive wording of Clause 12(2)(a) is intended to cover not only the whole amount of the facility but the amounts required from time to time to be remitted from the account for purchase of policies. That is sufficient to cover funds from time to time at credit of the pursuer. Moreover, the wording of the letter clearly anticipates that the account will from time to time be in credit. Paragraph 4 provides that "If the account is in credit at any time, interest ... will be calculated on the cleared balance of your account." The facility is only made available when the "initial policies" have been purchased (cl 5) and these must have been paid up to and including the date of drawdown of the facility, so it is clearly envisaged that these policies, which clearly come within the scope of the agreement, are to be paid for from the pursuer's own funds. Finally, it is worth noting that the agreement envisages that the pursuer might operate several accounts because the authority given in clause 12(2)(a) commences with authority "to open accounts in your name".

[17] Furthermore, I consider that the authority to remit funds to the limit of the facility carried with it the authority to remit funds at credit of the account.

[18] Accordingly, I consider that the pursuer's case is irrelevant and I will sustain the defenders first plea in law and dismiss the action.