Governor and Company of the Bank of Scotland v Brunswick Developments (1987) Limited

Rectification cannot alter a document retrospectively so as to create an ostensible authority or representation which did not exist when the document was acted upon. A document relied upon as a representation either conveyed the relevant representation at that time or it did not.

Under section 8(1)(b) of the Law Reform (Miscellaneous Provisions) Act 1985, the grantor is the principal who creates, transfers, varies or renounces the right, rather than an agent who merely signs the document. Rectification therefore requires an intention attributable to that principal when the document was executed. An agent’s intention cannot be attributed to the principal merely through ostensible authority where the document itself appears to have been signed for another principal.

The Bank of Scotland transferred £1.5 million from the account of Brunswick Developments (1987) Ltd to A Goldberg & Sons PLC pursuant to a letter signed by two authorised signatories. The letter was headed and signed on behalf of Goldberg rather than Brunswick. The signatories had no express authority from Brunswick to make the transfer.

After both companies entered liquidation, Brunswick’s liquidator sought repayment from the bank. The bank petitioned under section 8 of the Law Reform (Miscellaneous Provisions) Act 1985 to rectify the letter so that it appeared to have been issued by Brunswick. Lord Hamilton granted rectification, and the First Division refused Brunswick’s reclaiming motion.

The central questions were whether Brunswick was the grantor for section 8(1)(b), whether the signatories’ intention could be attributed to it through ostensible authority, and whether rectification could retrospectively create the representation of authority upon which the bank needed to rely.

1. Appeal allowed unanimously and petition dismissed. Lord Hoffmann and Lord Clyde delivered the substantive speeches. Lord Browne-Wilkinson, Lord Steyn and Lord Hutton agreed with both.

2. Per Lord Hoffmann, rectification was inappropriate and misconceived. If the signatories possessed actual authority, their intended instruction was effective irrespective of defects in the letter and rectification was unnecessary. If they lacked actual authority, the bank could rely only on a document falling within the ostensible authority represented by Brunswick’s mandate.

3. Per Lord Hoffmann, rectification makes an instrument conform to the author’s or parties’ intention where the law gives effect to the instrument because it records that intention. It cannot rewrite history where the document is relied upon as a representation. The document either constituted the relevant representation when acted upon or it did not. Retrospective rectification could neither create an unmade representation nor erase a representation already made.

4. Per Lord Clyde, the grantor under section 8(1)(b) of the Law Reform (Miscellaneous Provisions) Act 1985 is the principal who creates or holds the relevant right, rather than an agent who signs the document. This construction follows from the statutory distinction between granting rights and executing a document, and maintains consistency with section 8(1)(a), under which the parties are the principals where agents act for them.

5. Brunswick could therefore qualify as grantor only if the relevant intention was its own or was legally attributable to it when the letter was executed. The signatories intended to act for Brunswick, but they had no express authority to make the loan and transfer. Although the bank mandate might have conferred ostensible authority had they presented themselves as acting for Brunswick, the letter appeared on its face to have been signed for Goldberg. Their intention could not accordingly be attributed to Brunswick.

6. Rectifying the letter would not express an intention held by Brunswick at execution. It would retrospectively alter the appearance of authority and attempt to attribute an intention which Brunswick neither possessed nor could then be treated as possessing. That fell outside section 8(1). A late argument that the letter could already be construed as signed for Brunswick was not properly raised in the appeal and could, if available, be pursued in the sisted repayment action.

1. House of Lords: Allowed Brunswick’s appeal unanimously, reversed the operative result below and dismissed the bank’s petition for rectification.

2. First Division of the Court of Session: On 25 April 1997, refused Brunswick’s second reclaiming motion against Lord Hamilton’s order rectifying the letter.

3. Outer House of the Court of Session: On 16 January 1996, Lord Hamilton ordered rectification following proof.

4. First Division of the Court of Session: On 26 January 1995, refused a reclaiming motion against Lord Coulsfield’s decision and permitted the case to proceed to proof.

5. Outer House of the Court of Session: On 28 October 1993, Lord Coulsfield repelled the challenge to the petition’s competency and allowed proof before answer.