Pursuer David Booth and defender Daniel Donald had previously agreed to form a company, Caldonia Developments Ltd, to acquire the title of farmland previously owned by the pursuer for residential housing development. The defender later wished to back out of the agreement and refused to discharge the standard security in order to recover his investment.

The case was heard by Sheriff Philip Mann at Aberdeen Sheriff Court.

Based on representations

On 18 September 2013, the pursuer was sequestrated at the instance of the Royal Bank of Scotland, which was his heritable creditor in respect of two properties called Caldonia and Northlasts. He later attempted to buy back Northlasts from the trustee in sequestration for £220,000 but by summer 2019 this purchase had not been completed. At this time the pursuer was introduced to the defender, a property developer who specialised in buying properties, obtaining planning permission for them and then selling them on for a profit.

The pursuer and defender agreed that the defender would fund the purchase of Caldonia from the trustee for a price of £930,000, with any profits from the sale being split equally between the parties. A new limited company, CDL, was set up, with the intention that title to Caldonia would ultimately be vested in it.

An agreement was later reached with the Bank in which the trustee would relinquish his interest in the two properties in exchange for £1,150,000, which meant that the properties would re-vest in the name of the pursuer. Following this, it was suggested by the defender’s solicitor, Douglas Burnett, that the pursuer grant a standard security in favour of the defender for Caldonia’s purchase price, which the pursuer agreed to based on representations that the security would not be registered.

In October 2020, the pursuer informed the defender there would be a delay in obtaining the loan funds he needed to purchase Northlasts. The defender agreed to provide a further £220,000 in the form of a loan, and as such a standard security for £1,150,000 was prepared by the pursuer in favour of the defender. This standard security contained a clause consenting to registration.

After title to Caldonia had been disponed to CDL and the £220,000 repaid, the defender refused to settle the LBTT due on the transaction and grant a discharge of the standard security. The defender, having lost interest in the project, sought to recover his investment of £930,000. It was submitted by the pursuer that the standard security fell to be reduced on account of fraudulent misrepresentations by the defender’s solicitor. Alternatively, the security contained an implied term that it would be discharged upon repayment of the £220,000 to the defender and transfer of Caldonia’s title to CDL.

No purpose remains

In his decision, Sheriff Mann said of the defender’s evidence: “I did not find the defender to be credible and reliable. It became perfectly clear during his evidence that he no longer wished to be involved in the joint project with the pursuer and his whole focus was on recovering the money which he had put up in order to acquire Caldonia.”

He continued: “The defender’s stance was wholly at odds with the other evidence which clearly suggested that the purpose of his putting up the money was not to earn a return from interest payments on a loan to the pursuer but to allow him to share in the capital appreciation of Caldonia which would result from its development. His evidence seemed to me to be self-serving and calculated towards achieving return of his money and nothing else.”

Considering whether there had been fraudulent misrepresentation, the sheriff said: “It is crucial to understand that the security which was eventually signed by the pursuer and registered by Mr Burnett was not the standard security that was in contemplation when the undertaking [not to register] was given. The standard security eventually granted and registered was for a higher sum including a bridging loan by the defender to the pursuer in the sum of £220,000 to enable the pursuer to pay the price of Northlasts.”

However, on whether the security nonetheless fell to be discharged, he concluded: “The loan in respect of Northlasts has been repaid. The pursuer has signed and delivered to the defender a disposition of Caldonia in favour of the limited company. I have concluded that the defender is bound to register that disposition. There remains no purpose to the standard security and it ought to be discharged. At the very least it was an implied term of the contract between the parties that the standard security should be discharged upon transfer of title to the limited company.”

Sheriff Mann therefore granted all of the pursuer’s craves save the one relating to fraudulent misrepresentation.