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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> McKeand v Dorian [2001] ScotCS 259 (13 November 2001) URL: http://www.bailii.org/scot/cases/ScotCS/2001/259.html Cite as: [2001] ScotCS 259

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[1] This appeal concerns certain transactions which took place between two individuals, the defender and reclaimer and one William Robert Ruffler ("Ruffler"), and two companies, Lordsvale Leisure Limited ("Lordsvale") and HD Import and Export Enterprises (Pty) Limited ("HD"), in or about August 1993. In particular, it concerns a Deed of Covenant entered into by the defender and Ruffler on 27 August 1993. Ruffler thereafter assigned to the pursuer and respondent his whole right, title and interest in the Deed of Covenant under a deed of assignment. The pursuer and respondent sues as such assignee. No issue arises in regard to the assignation. It is accepted that the deed of assignment was a legal and statutory assignment under English law, for which consideration was not needed and which placed the assignee in the same position as the assignor. After a proof before answer, the Lord Ordinary held that the defender was liable to pay the principal sum of £71,000 in terms of the Deed of Covenant to Ruffler and was therefore liable to the pursuer to the same extent. He accordingly granted decree for payment by the defender to the pursuer of the sum of £71,000 with interest thereon at the rate of 15 per cent a year compounded monthly from 27 August 1993.

[2] The history of events leading up to the making of the Deed of Covenant is largely undisputed. We take the salient facts in large part from the Lord Ordinary's opinion. Lordsvale was incorporated in England in 1982. Its principal activities were those of manufacturers and distributors of amusement machines. One of its two original directors and shareholders was Mr. Ansell ("Ansell"). In about 1989 the then directors of Lordsvale sought financial assistance from Ruffler. He acquired 50% of the issued shares in Lordsvale for about £90,000. He also guaranteed its overdraft. Additionally, he became a director along with others associated with him, who subsequently resigned. Ruffler himself resigned as a director on 28 April 1993. Thereafter Ansell was the sole director of Lordsvale. As at 27 August 1993 the members of Lordsvale were Ansell and Ruffler. Each appeared in the register of shareholdings as holding 50% of the issued shares, although, as the Lord Ordinary noted, in early 1993 some of Ruffler's original shareholding had been bought back for £19,000. This left a balance of £71,000 from his original investment of £90,000 which Ruffler was interested in recovering. Lordsvale ceased to trade in about June 1993. It subsequently went into members' voluntary liquidation in about October 1993.

[3] During a period from about 1990 Lordsvale supplied amusement machines to a South African company, HD. At the material time in July and August 1993 the defender was the sole director of HD. He and his wife, from whom he was then in the process of being divorced, were its members. The defender appeared to have regarded HD's business effectively as his own, at least to the extent of its being in his personal interest that its debts should be paid. By 1993 a balance of £71,000 was due and resting owing by HD to Lordsvale in respect of goods shipped by Lordsvale to HD in late 1992. The defender appeared to have regarded this debt as one for which he had personal responsibility. Over a period of several months from early 1993 he came under increasing pressure from Ansell to settle the debt. He tried in vain to raise money from various sources, including a Scottish company of which the pursuer was a director, that is to say, from third parties other than Ruffler . One possibility which he considered was to give security by way of a mortgage over a vessel owned by him named the "Fairest Cape".

[4] Court proceedings were threatened by a firm of lawyers in Johannesburg acting for Lordsvale. In a letter dated 21 July 1993 addressed to the defender as managing director of HD, the lawyers wrote, under reference to a written acknowledgement of indebtedness given by the defender in his personal and unqualified capacity, that a summons would be issued against HD and the defender in a joint and several capacity. The debt of £71,000 owed by HD to Lordsvale was then the major debt still due to Lordsvale.

[5] In the face of such threatened legal action, the defender approached Ruffler for financial assistance to extend over a period until January 1994, when he expected to be in funds. The defender's evidence was to the effect that this was in July 1993 (vol. 3.391-392: 394E). This is consistent with contemporary correspondence between Ansell and the defender on the one hand (App. 643) and Ruffler and the defender on the other (App. 633 & 645) which was spoken to in evidence, in particular, by the defender.

[6] Negotiations took place between Ruffler and the defender which culminated in the defender flying to the United Kingdom on 27 August 1993. He went to Ruffler's office in London. Four documents were signed there on that date. These were a facility letter, (a draft of which had been sent to the defender on 19 July 1993), a mortgage over the "Fairest Cape", the Deed of Covenant and a letter bearing to be signed by Ruffler on behalf of Lordsvale ("the waiver letter").

[7] The facility letter dated 27 August 1993 stated that, further to recent discussions, Ruffler as the lender confirmed the terms, subject to contract, upon which the facility would be made available to the defender as the borrower. The amount of the facility was stated to be £71,000 as "the Advance". The purpose was stated to be:

The period of the loan was stated to be until 16 January 1994, with interest charged at 15% per annum, and repayment of capital to be in part or full payment "providing it is made within the period stipulated above". The security for the loan was a mortgage in favour of Ruffler over the "Fairest Cape". One of the conditions in the facility letter was in these terms:

The facility letter was signed by Ruffler. Below his signature appeared that of the defender and the date "27/8/93" in manuscript and words confirming that the defender accepted all the terms and conditions contained in "this facility letter dated the 27^th day of August 1993".

[8] The mortgage, signed by the defender, provided, amongst other things, that the defender, as mortgagor, in consideration of £71,000 "this day lent to me" by Ruffler as mortgagee "do hereby for myself and my heirs covenant with the mortgagee firstly that I or my heirs executors or administrators will pay to the mortgagee the said sum of £71,000.00 together with interest thereon at the rate of 15 per cent per annum on the 16^th day of January next", with provision for the payment of interest on the principal sum or such part thereof as might for the time being remain unpaid thereafter; "and for better securing to the mortgagee the repayment in the manner aforesaid of the principal sum and interest I hereby mortgage to the mortgagee 64 shares" in the "Fairest Cape".

[9] The Deed of Covenant was executed as a Deed by both the defender and Ruffler. The preamble included the following recitals:

Clause 1 of the Deed of Covenant together with the Third Schedule provided for the repayment period of the sum of £71,000 to be such period commencing on the date of the Deed of Covenant and ending on 16 January 1994. Repayment of the sum was to be as stated in the facility letter, provided that the principal sum and interest and all other sums pursuant to the mortgage and the Deed of Covenant were paid to the mortgagee by no later than 16 January 1994. Interest on the debit balance was to be calculated at 15 per cent per annum and to be charged and payable monthly in arrears, the first such calculation to be made at the end of the calendar month after the date of advance of the loan. The Deed of Covenant contains a provision that it has to be construed in accordance with and governed by the law of England and Wales.

[10] The defender gave evidence that a draft of a facility letter dated 19 July 1993 had been sent to him by Ruffler. He agreed that it was in effect an offer to make an advance of £71,000 to him to repay the outstanding debt owed by HD to Lordsvale (vol. 3.394-5) A further copy of a facility letter was sent under cover of the letter to him from Ruffler dated 2 August 1993, which letter bore to have been copied to Ansell (App. 645: vol. 3.396). No suggestion was made in evidence that the terms and conditions in the draft letter, and, in particular, that referred to in the letter of 2 August 1993, differed in any material respects from those in the letter which was set before the defender on 27 August 1993 (Ruffler - vol. 2.186).

[11] At the meeting on 27 August 1993 the defender insisted that as part of the transaction the waiver letter should be produced and framed in terms acceptable to him. As first framed by Ruffler, the letter was on Lordsvale's headed paper and addressed to the defender and dated 27 August 1993. It stated in typescript:

Ruffler had signed the letter over the legend "Lordsvale Leisure Limited". When the defender saw the letter, he said that he did not understand the meaning of the word "waives". The defender asked Ruffler to clarify what had been written. He said that the letter should say that HD did not owe any further money. Ruffler forthwith added in handwriting below his signature the sentence: "I hereby confirm H.D. Enterprises owes no further sums to Lordsvale Leisure Ltd." and signed the letter below this sentence.

[12] We note at this point that, in his submissions for the reclaimer, counsel conceded that, provided that the letter was written and signed by Ruffler with the actual authority of Lordsvale, its terms were such as to constitute an effective waiver of the debt due to Lordsvale by HD. In a subsidiary submission counsel challenged a finding by the Lord Ordinary that it was only once Ruffler had written and signed the waiver letter in the terms already set out above, that the defender was prepared to sign the other documents. Counsel, however, accepted that the Lord Ordinary would have been entitled to hold that the defender would not have signed the remaining documents unless the waiver letter was also signed. In our opinion, this criticism of the Lord Ordinary's findings is misplaced. In cross-examination the defender stated that it was only once he had got a document saying that Lordsvale did not have a claim against HD that he was happy to sign the Deed of Covenant and mortgage and the facility letter (vol. 3:436/7).

[13] In addition to the above facts, it is, in our opinion, necessary to take account of certain other matters spoken to in evidence and referred to in the Lord Ordinary's opinion, concerning events prior to 27 August 1993. The Lord Ordinary heard evidence from both Ansell and Ruffler in this regard. From Ansell's evidence he noted, first of all, that Ansell had suggested that he should buy Ruffler out of Lordsvale and that the company would become his and his wife's and they would restructure it and start again. Ansell spoke to reaching an agreement with Ruffler that Ruffler would take an assignment of the debt owed by Lordsvale and the balance in money, in place of his original investment, and he would get Ruffler's shares to make up his holding to 100%. His understanding was that Ruffler would receive £71,000 in exchange for his shares, having previously received £19,000, the money being paid as part of the return of his original investment. We observe that the evidence as to the manner in which this was achieved is not entirely clear (e.g. Ansell - vol. 1.19 and 1.46). However, there was no doubt that it was carried through by the company, Lordsvale, and there was no suggestion that it was a personal arrangement between Ansell and Ruffler. When Ansell went to the USA on about 19 August 1993, he left all the affairs of Lordsvale in Ruffler's hands. He said that Ruffler certainly had authority to sign the waiver letter, because he asked him to deal with everything in his absence. He had asked Ruffler to fax a copy of the waiver letter to him in the USA so that he was fully aware of what was happening at the time. He said that it was probably faxed to him shortly after 28 August 1993. From Ruffler's evidence the Lord Ordinary noted that he said that he did not particularly wish to enter into the transaction with the defender, but Ansell wanted a clean slate. The transaction, including the waiver letter, was the way of repaying Ruffler's investment in the company. The debt of £71,000 owed to Lordsvale was the major debt still owed to Lordsvale and agreement had been reached with Ansell that this sum was to come back to him to repay his investment in the company. The waiver letter was a means of obtaining money from the defender. Ruffler said that he was in constant contact with Ansell. They had agreed that this is what would be done, namely, that the debt would be waived by Lordsvale and Ruffler would get the money from the defender.

[14] We take note that no attack is made upon the Lord Ordinary's assumption, set out in paragraph 12 of his opinion, that there was no lawful impediment to Ruffler's recovering his investment in Lordsvale by means of such a transaction and therefore no reason in law why Ansell should not authorise Ruffler to waive the debt on behalf of Lordsvale.

[15] It is also to be noted that, while the Lord Ordinary makes no specific reference to the evidence of the defender, in the course of his cross-examination the defender was asked about the matter of Ruffler's authority to sign the waiver letter. He stated that Ansell knew that he was coming over to the United Kingdom to sign a document, that Ansell would have known that he was coming to meet Ruffler about the debt, the loan and the discharge of the debt from HD and that while he did not know that Ansell was in America, he thought at the time that Ruffler had authority to sign the waiver letter (vol. 3.439D-440D). Evidence was also given by Ansell that in August 1993 he had passed to Ruffler all Lordsvale's files and all the correspondence "relating to the bad debt" with the solicitors in South Africa and asked him if he would try and recover the debt (vol. 1.15). In cross-examination he said that in August 1993 Ruffler paid £10,000 out of his own pocket to clear Lordsvale's overdraft facility with the bank, which was guaranteed by Ruffler (vol. 1.62 and 69). This is consistent with Ansell's evidence that Lordsvale had had an overdraft of about £10,000 that it could not pay (vol. 1.23) and also with the bank balances of Lordsvale for July and August 1993 shown in the director's report to the creditors in the liquidation of Lordsvale (App. 638). Ansell agreed that he was in constant contact with Ruffler during August (vol. 1.18). He gave evidence (vol. 1.19-20) about a file note dated 11 August 1993 (App. 646) which referred, amongst other things, to the fact that Ansell had been on the telephone with the defender, that the defender had told him that he had not received the draft facility letter which had been sent under cover of a letter dated 2 August 1993 (App. 645) and that Ansell had faxed a copy of the facility letter to the defender. The defender himself spoke to his being under pressure from Ansell in that Ansell had been phoning to South Africa and to the defender's wife and was making threats in regard to payment of money (vol. 3.445).

[16] We now turn to consider the submissions for the reclaimer. At the outset of the appeal counsel intimated that he was concerned only to present argument in relation to the first ground of appeal and not the further grounds of appeal. Thus, in this appeal the reclaimer does not seek, in the first place, to challenge the Lord Ordinary's findings in fact that as a matter of English law the waiver letter was enforceable against Lordsvale by HD without consideration and that, in any event, consideration for a waiver of Lordsvale's right against HD was provided by HD when the defender as an individual entered into the Deed of Covenant. In the second place, the reclaimer does not seek to challenge the Lord Ordinary's further finding in fact that as a matter of English law, the waiver letter operated as a promissory estoppel against Lordsvale, as being a clear and unequivocal representation that Lordsvale would not sue HD for the debt and that in such an event it would be inequitable for Lordsvale to resile from its promise when the promisee, HD, had not relied upon the letter or altered its position to its detriment and Lordsvale had received no benefit and HD had suffered no detriment. Finally, the reclaimer does not seek to submit that the Lord Ordinary had erred in fact and in law, when considering the issues of waiver, consideration and promissory estoppel under English law, in treating HD on the one hand and the defender on the other hand as one and the same legal person.

[17] The submissions for the reclaimer were twofold. In the first place, it was argued that on a proper construction of the Deed of Covenant, in its context, Ruffler was required to make an advance before the defender became indebted to him and that it was, accordingly, insufficient to procure the letter of waiver. This submission proceeded from the proposition that because Ruffler had invested in the shareholding of Lordsvale and because the evidence indicated that by August 1993 the shares had no value and the intention was that the company would, as it subsequently did, go into voluntary liquidation, there was no basis for a claim by Ruffler that he was entitled to be paid a sum of £71,000 by Lordsvale. In these circumstances, any payment in discharge of HD's debt was to be directed to Lordsvale itself and that payment was to be in money or money's worth. It was necessary to identify the intention of the parties to the Deed of Covenant, Ruffler and the defender, from all the relevant documents and the surrounding circumstances. It was accepted that the inference from the factual context was that Ruffler and the defender considered that the purpose of the transaction was to relieve pressure upon HD for payment of the sums due on the two invoices. However, in the circumstances, the only proper inferences were that the intention was to secure payment in money or money's worth to Lordsvale of the debt due by HD to Lordsvale, that is to say, a money advance, and that the defender would undertake a personal obligation to Ruffler for the amount of money required to be paid by Ruffler to Lordsvale to satisfy that debt, which sum, together with interest, was to be repaid to Ruffler by the defender at a later date. The Lord Ordinary had fallen into error in finding that any agreement between Ruffler and Ansell was an agreement entered into by Ansell on behalf of the Lordsvale and so bound Lordsvale. Rather the nature of the agreement was a personal one between Ansell and Ruffler whereby Ruffler would collect the debt for Lordsvale, the money so collected would go into Lordsvale and thereafter Ruffler would recover the money when Lordsvale went into liquidation. On a division of the surplus assets to shareholders of Lordsvale, Ansell would waive any right to his share of the assets and accordingly the net assets would pass to Ruffler. There was nothing to establish any contract between Ruffler and Lordsvale as a company. There was no evidence sufficient to support the Lord Ordinary's conclusion that what was "clear is that both Mr. Ruffler and the defender regarded the purpose of the transaction as being to relieve the pressure that the defender was under to secure payment of HD's debt to Lordsvale by providing the means by which HD would be released from that debt and in lieu thereof the defender would become indebted to Mr. Ruffler in the same amount." In paragraph 17 of his Opinion the Lord Ordinary had observed that there could be little difficulty with this, viewed objectively. He had then proceeded to examine the question whether the language of the documents was consistent with that intention. The language of the documents was, however, consistent with a transaction in which, so far as Lordsvale was concerned, there was no debt due by Lordsvale to Ruffler as at 27 August 1993. The agreement concerning the return of £71,000 was one made between Ruffler and Ansell as an individual and not as sole director of Lordsvale. It was not enforceable against Lordsvale. It did not mean that Lordsvale owed Ruffler £71,000 for his shareholding in the company in return for his taking over the debt owed by HD to Lordsvale. As Professor McKendrick, who gave expert evidence on behalf of the defender, had observed, in order to establish a basis for equitable set-off, the claims had to be between the same parties (vol. 4. 560-561). Upon a proper understanding of the purpose of the tran

[18] In the second place, counsel submitted that on the evidence it was clear that Ruffler did not have actual authority to sign the letter of waiver. The pursuer's pleadings in condescendence 2 and 3 set out that in signing the waiver letter and conducting the negotiations with the defender which led up to the letter, Ruffler was acting under the actual authority to do so as agent of Lordsvale granted by Lordsvale acting by its director, Ansell, in July 1993. This was the nub of the pursuer's case. Counsel submitted that in accepting that Ruffler had actual authority to sign a letter the effect of which would be to release HD from its debt to Lordsvale, the Lord Ordinary had proceeded in the face of evidence which was at least inconsistent with the finding and at best wholly contrary to it. These matters related to Ansell's evidence concerning knowledge of the existence of the waiver letter, his evidence as to the continuance of instructions to the South African solicitors and his evidence about his understanding of how matters stood with regard to the debt in October 1993 when Lordsvale went into liquidation. The Lord Ordinary had made no attempt to explain how such inconsistent statements could be reconciled.

[19] In sum, counsel submitted that whether Ruffler wrote the letter of waiver with actual authority or not, upon a proper construction of the Deed of Covenant he had not carried out the countervailing obligation upon him to pay a sum of money to Lordsvale before he could found upon the terms of the Deed of Covenant. Events subsequent to 16 January 1994 were not relevant in a consideration of this issue. For the foregoing reasons the Lord Ordinary had erred. Upon a proper appreciation of the evidence and a proper construction of the whole documents, he should have sustained the sixth and seventh pleas-in-law for the defender and granted decree of absolvitor.

[20] For the pursuer and respondent, the submissions began from the proposition that the issues raised concerned either matters of fact or of English law. The Lord Ordinary had considered the evidence in relation to the issue of actual authority and it was not evident that his determination on the issue was plainly wrong. The question of whether or not the letter of waiver was seen by Ansell at the time or only shortly before the proof was not to the point, since it was clear that other documents, including the draft of the facility letter, were seen by Ansell prior to 27 August 1993. As regards the question of what was intended in regard to the return of Ruffler's shareholding, that was a matter that had not been particularly focused during the proof and was one on which Ansell could well have been confused. The explanation given in the report to the meeting of Lordsvale's creditors on 12 January 1994 (App. 639) attributing the failure of the company to the "bad debt" of HD did not mean that the matter had not been resolved prior to Lordsvale's liquidation. More to the point, any confusion on the matter was ended by the Lord Ordinary's findings in paragraphs 13 and 14 of his opinion, which were not disputed for the defender, namely, that since August 1993 the defender has made no payment to Ruffler nor has he made any payment to the liquidator of Lordsvale, while the liquidator has accepted by letter dated 24 October 1997 that the debt was not still outstanding. The evidence of Ansell was to be read to the effect that as the sole director of Lordsvale he had given Ruffler general authority to deal with HD's debt on behalf of Lordsvale and this extended to its recovery. It was not necessary to look for specific authority to sign the waiver letter. The three stage structure of the transaction derived from the documents was not incompatible with general authority being given by Ansell on behalf of Lordsvale to Ruffler to deal with the debt on behalf of Lordsvale. Any doubt about actual authority had, in any event, been cured by the liquidator's letter which ratified the authority. But, in any event, actual authority was not required to make the Deed of Covenant enforceable against the defender in accordance with its terms. The obligation of the defender to repay the loan under the Deed of Covenant did not, on a proper construction of its terms, depend upon Ruffler having made a payment in money or money's worth. This was an issue which required to be determined by reference to the evidence given by the two expert witnesses, as a matter of English law. No issue was taken with the Lord Ordinary's approach either as to the law to be applied as set out in paragraph 16 of his opinion or, in paragraph 17, as to what was to form the "factual matrix" for the determination of the commercial purpose or intention of Ruffler and the defender. The commercial reality was that the defender was HD. His interest was to obtain postponement of payment of the sum of £71,000 while at the same time providing security personally for that payment and securing that HD were relieved of the obligation to pay its outstanding debt. In commercial terms, immediate release of HD from that debt was the important issue for the defender and for HD in the face of the pressure for payment and, in particular, the threat contained in the solicitors' letter of 21 July 1993 of proceedings directed against both HD and the defender personally. The defender himself did not have the money in August 1993 according to his own evidence (vol. 3.402-3). If the waiver was granted with authority and so, as was accepted for the defender, was effective as value given by way of set-off, the only dispute was whether, on the documents, it was necessary that there had to be something otherwise by way of value given in money or money's worth. In the facility letter there was nothing to indicate

[21] In our opinion, the submissions for the respondent are to be preferred. The primary question to be addressed is, we consider, the nature of the transaction which was carried out on 27 August 1993. That it was intended that the whole transaction be concluded at the one time is, we consider, clear when regard is had to the terms of the documents themselves. The meeting was one arranged between Ruffler and the defender. It took place against the background that, as the facility letter set out, the engagement was to involve four parties, Ruffler and the defender as individuals, in the capacity of lender and borrower respectively, and HD and Lordsvale in their separate capacities as debtor and creditor. Ruffler knew that the defender was to represent HD as well as himself as an individual. The defender thought at the time that Ruffler represented Lordsvale as well as himself as an individual (e.g. the defender vol. 3.439-40). It was the signing of the mortgage to be granted by the defender as an individual that was to give rise to the obtaining of the letter confirming that the debt owed by HD to Lordsvale had been repaid in full. The Deed of Covenant was stated to be supplemental to the mortgage which was to be of even date with the Deed. The overall purpose of the engagement was to secure the discharge of the debt as between the two companies (see e.g. the defender vol. 3.403). So far as Ruffler was concerned, the security covering the loan and the period of its repayment was to be the mortgage; so far as the defender was concerned, his interest, on HD's behalf, was to secure that HD was immediately discharged by Lordsvale from responsibility for payment of the debt upon his taking on a personal engagement to Ruffler for the postponed payment of the sum of £71,000. As the defender put it, it was only once he got a document from Lordsvale saying that it did not have a claim against HD that he was happy to sign the Deed of Covenant, the mortgage and the facility letter (vol. 3.436-7). In such circumstances, the Lord Ordinary was fully entitled to hold that neither Ruffler nor the defender contemplated that money would be advanced by Ruffler to the defender or to HD, that Ruffler and the defender knew that on 27 August 1993 Ruffler had not paid anything to discharge the debt owed by HD to Lordsvale and that both Ruffler and the defender regarded the waiver letter as sufficient compliance with the obligation in the facility letter to produce a letter confirming that the debt had been repaid in full. Indeed the defender accepted as much (vol. 3.446 & 453). The Lord Ordinary was thus fully entitled to reach the view that the facility letter and the other documents required to be read in the light of the statement in the waiver letter that the debt had been waived. As he observed, the terms of the waiver letter were inconsistent with the idea that Ruffler was thereafter to pay over the sum of £71,000 to Lordsvale to release the debt. The recital in the mortgage that that sum had been "lent" on that day could only be understood as reflecting the agreement or understanding of both parties that Ruffler's procuring, by way of production, of the waiver letter, was to be treated as, or deemed to be, the advance of the "loan" by him. From the defender's point of view Ruffler was doing something of benefit in thus procuring HD's release from the debt owed to Lordsvale and this was to be regarded as a "loan" from both parties' point of view. Such a construction formed the best way of making sense of and giving effect to what the parties in fact did. It allowed a consistent interpretation to be given to all the relevant documents. As the Lord Ordinary further observed, it explained what was otherwise a fundamental inconsistency between the obligation on the defender in terms of the mortgage to "pay" the sum on 16 January 1994 to Ruffle

[22] In paragraph 27 of his opinion, the Lord Ordinary expressed his opinion that the letter was "indeed effective as a binding release of the debt owed by HD to Lordsvale" and therefore constituted the reciprocal consideration for the obligation undertaken by the defender to make payment of £71,000 to Ruffler, since, as he put it, each of the Deed of Covenant and the waiver letter constituted consideration for the other and since that was in fact provided on the same occasion, they became binding on Lordsvale and the defender respectively. The Lord Ordinary also went on to say, and this is not now disputed, that, having regard to equitable considerations pointing to the same result, if the matter had come before an English commercial court, it would probably have been held that the defender was bound to make payment to the pursuer.

[23] The Lord Ordinary's opinion that the waiver letter was binding proceeds from his finding that Ruffler had actual authority to grant a waiver on behalf of Lordsvale. Thus, in paragraph 9 of his opinion, the Lord Ordinary makes clear that he considered that the pursuer had undertaken to prove, and therefore required to prove, that the waiver letter was written by Ruffler with authority from Lordsvale. He did not deal with the matter on the basis that it was unnecessary to do so, although counsel for the pursuer had made such a submission before him. At one point in the course of the submissions for the respondent before us, it appeared that a similar line was being pursued. Since there is no cross-appeal for the respondent, we do not consider it appropriate to express any view on the matter.

[24] In paragraph 12 of his opinion the Lord Ordinary sets out that he accepted Ansell as a truthful witness. He goes on to say that "having regard to the consistency in their evidence I am prepared to accept as credible the account given by both him and Mr. Ruffler to the effect that the latter did have actual authority to sign the waiver letter as part of the transaction: that is to say, I accept that Mr. Ruffler had actual authority to sign a letter the effect of which would be to release H.D. from its debt to Lordsvale." We observe that this finding is consistent with evidence given by Ansell himself (e.g. vol. 1.14-19 & 107-8: vol. 2.137-8). Counsel for the reclaimer sought to undermine the finding by reference to what was said by Ansell as to his understanding of matters subsequent to 27 August 1993. In particular, counsel pointed out that in the immediately preceding passage the Lord Ordinary had stated that "there are some indications that after Lordsvale went into liquidation Mr. Ansell made, or associated himself with the making of, statements to the effect that the debt was still owed by H.D. to the company" and had then observed that "at best for the defender these go to the question of his credibility". Counsel made particular reference to evidence given by Ansell regarding the waiver letter. In examination in chief Ansell referred to "a copy of the letter" having been faxed to him probably after 27 August 1993 whereas, in the course of cross-examination, Ansell had denied seeing the signed waiver letter until about a month prior to the proof (vol. 1.116 & 2.121). Counsel also referred to passages in Ansell's evidence (e.g. vol. 2.126-7)) where Ansell indicated that he had not withdrawn instructions to solicitors in South Africa to pursue HD for the debt of £71,000 and that until October 1993 these instructions stood. However, Ansell went on to accept that the lawyers had not received any response to the letters written to the defender and so no formal legal action was started, although, he said, it had been his intention, if he could find the defender in South Africa, to sue HD. But when reference is made to these passages in context, it is clear that they will not stand with Ansell's evidence otherwise that he was made fully aware of what was happening in August 1993. He himself had been in telephone communication with the defender in August 1993, that is to say, after the last occasion when the lawyers in South Africa had been involved. It is reasonable to assume that Ansell must have known that a letter of the nature of the waiver letter was to be procured from Lordsvale because he knew of the facility letter and its terms, at least in draft, prior to 27 August 1993. At one point in his evidence he accepted that he had knowledge both of the facility letter and of "the other documentation relating to the waiver of the debt" (vol. 1.19-20). Nor will suggestions that he was ignorant of what was to happen, stand with the defender's evidence that Ansell knew that he was coming to London to meet Ruffler in connection with the debt due by HD to Lordsvale. We take note that no issue was taken with the statement in paragraph 14 of the Lord Ordinary's opinion that evidence about dealings between the defender, the pursuer, the pursuer's father and the liquidator of Lordsvale in the course of which doubts were expressed as to whether or not the debt of £71,000 was still outstanding by H.D. to Lordsvale, was not relevant for the purpose of construing the documents signed on 27 August 1993. In the same paragraph the Lord Ordinary cited a passage from the speech of Lord Reid in James Miller & Partners Limited v Whitworth Street Estates (Manchester) Limited [1970] A.C. 583 at p. 603 concerning the legitimacy of using as an aid to construction of a contract

[25] We turn now to consider the evidence relating to the nature of an agreement between Ruffler and Ansell. Ansell spoke to an agreement between Ruffler and himself at about the time that Ruffler resigned as a director by which Ruffler would take an assignment of the debt and the balance in monetary terms, in return for his original investment in the company and Ansell would receive Ruffler's shareholding so that he would "own the business one hundred per cent again". He went on to say that he had dealt with the debt initially but having managed to get some contract work in the USA, he left "all the matters of the company" in Ruffler's hands and "he agreed that he would take care of what needed to be done in my absence", he not being a director at that stage. There was no formal document giving him power or authority, just a verbal agreement, the effect of which was that he, Ansell, gave the company's files and all the correspondence relating to the bad debt with the solicitors in South Africa to Ruffler and asked him to try and recover the debt (vol. 1.12-15). The nature of the agreement spoken to in examination-in-chief and its effect as enabling Ruffler "to take and put in his pocket a debt due to Lordsvale" was confirmed by Ansell in cross-examination (vol. 1.65-66). Again, in examination-in-chief (vol. 1.16-20) Ansell was asked about authority to sign the waiver letter. He was quite specific that Ruffler would "certainly" have had the authority because he, Ansell, had asked him to deal with everything in his absence. As we have already noted, Ansell then went on to say that Ruffler did actually fax a copy of the letter to him in the USA, so that he was "fully aware of what was happening at the time". When asked whether that was before or after 27 August 1993, he replied that "it would probably be after". When asked whether he was aware of the details of other documentation bearing the date 27 August 1993, Ansell stated that he "was aware that there was some agreement and finance in place on a boat" and that "Mr. Ruffler would actually lend some money to Mr. Dorian, by way of a mortgage and that the conclusion of the agreement would mean that the debt would be settled that was owed originally to Lordsvale Leisure and my understanding was that the money would be repaid to Roy Ruffler by way of his repayment for the shares being given back to me in the company" and that Ruffler "would receive the £71,000 in exchange for his shares being given back to the company". He explained that he was "in nearly daily contact" with Ruffler when he first went to the USA because he "actually thought that this agreement and the documents on a boat was the final conclusion to the bad debt". He was then asked:

He then went on to state, under reference to the file note of 11 August 1993, that he had received a copy of the facility letter "around the same time as the other documentation relating to the waiver of the debt". In cross-examination Ansell was asked (vol. 2.124)

We observe at this point that this last question and answer is not consistent with either Ansell's evidence in chief nor with the inference properly to be drawn from the file note of 11 August 1993 in that the draft facility letter had already been made available to Ansell prior to 27 August 1993.

[26] The principal question going to the matter of actual authority is whether the arrangement between Ruffler and Ansell, as the sole director of Lordsvale, concerning the use of the debt due by HD to off-set the balance of Ruffler's investment in the company was understood by both as forming a part of the transaction into which Ruffler and the defender were entering on 27 August 1993, it being known that the subject of the transaction was the debt due by HD to Lordsvale. Having had the opportunity of reviewing the evidence of Ansell, we are satisfied that the tenor of his evidence, together with that of Ruffler and of the defender, entitled the Lord Ordinary to hold that prior to 27 August 1993 there was an agreement between Ansell and Ruffler for a transaction as set out in paragraph 12 of the Lord Ordinary's opinion, namely, one in which Ansell was persuaded that the "assignment" of the debt to Ruffler and the associated waiver of it by Lordsvale, was the best means of ending Ruffler's involvement with the company and enabling Ansell to resume control of it, which was his ambition at the material time. In reaching this view, we also bear in mind that the Lord Ordinary had the advantage of seeing and hearing the witnesses and, in particular, of being able to express the view that Ruffler appeared to him to be the more astute and persistent businessman and one who would have persuaded Ansell into acceptance that an "assignment" of HD's debt to Ruffler and a waiver of that debt by Lordsvale associated with the assignment, would be the best means of securing two ends, firstly, ending Ruffler's involvement with the company and, secondly, enabling Ansell to resume full control of Lordsvale. It is, in our opinion, not without significance that Ansell in his evidence and in reference to the period prior to August 1993 when he was pressing the defender for payment of the debt, described it as a "bad" debt and one on which he had given up his ability to collect it (e.g. vol. 1.18 & 63).

[27] The second strand in the reclaimer's submission relating to authority was the proposition that, while it was accepted that there was evidence relating to an agreement between Ansell and Ruffler that the latter would get back his investment, this was an agreement which was entered into between two individuals and was not enforceable against Lordsvale. That being so, the existence of any such agreement did not mean that Lordsvale owed Ruffler anything for his shares when Ruffler took over the debt owed by HD to Lordsvale. Accordingly, the Lord Ordinary had erred in holding that, as stated in paragraph 19 of his opinion, there had been an agreement between Ruffler and Ansell "on behalf of Lordsvale" that Ruffler would recover the value of his investment in Lordsvale in exchange for his shares and that the transaction with the defender would provide the necessary financial solution, an agreement the effect of which was that, in the result, Ruffler gave up what Lordsvale owed him for his shares in exchange for taking over the debt owed by HD, that is to say, he made a payment by way of set-off. In our opinion, there is no merit in this argument. In the first place, this submission is at odds with the evidence of Ansell himself, some parts of which we have already referred to. There is no hint that, in the submissions made to the Lord Ordinary, this argument formed any part of the case put forward for the defender on this issue. We refer to the Lord Ordinary's discussion of the submissions set out in paragraph 12 of his opinion. Ansell was, as we have already noted, aware that the transaction to be entered into between Ruffler and the defender involved, amongst other things, the procurement from Lordsvale of confirmation that, upon completion of the transaction, HD would no longer be debtor of Lordsvale. In our opinion, the respondent's submission that the general authority given to Ruffler by Ansell to act in the matter of the debt extended to such procurement is well founded, for the reasons set out in the Lord Ordinary's opinion. Accordingly, the pursuer and respondent established, as he offered to prove, that there was actual authority for the grant of the waiver letter. In our opinion, the terms both of the waiver letter as originally typed and with the manuscript addition fell fully within that general authority. As Professor McKendrick observed, there was no material difference in the legal effect of the amended letter from the letter as originally typed.

[28] For the above reasons, we do not consider that the reclaimer has made out any of the grounds of appeal which have been argued before us. Accordingly, we shall refuse the reclaiming motion and adhere to the Lord Ordinary's interlocutor.