AIB Group (UK) Plc v. Martin and Another [2001] UKHL 63

House of Lords

Between

AIB Group (UK) PlcAppellant

Martin and AnotherRespondent

Before

Lord Chancellor

Lord Hutton

Lord Millett

Lord Scott of Foscote

Lord Rodger of Earlsferry

Date 13 December 2001

[1]I have had the advantage of reading in draft the speeches of Lord Scott of Foscote and Lord Millett. I would have contented myself with deciding that this appeal should be dismissed for the reasons given by the former, but for the fact that, unlike my Lord, I found attractive both prior to the appeal, and in the course of argument, the "distributive construction" fully elucidated by Lord Millett. Nonetheless, I have on balance concluded that the better view is that favoured by Lord Scott of Foscote. I too therefore agree that the appeal should be dismissed. LORD HUTTON My Lords,

[2]I have had the advantage of reading in draft the speeches of my noble and learned friends Lord Millett, Lord Scott of Foscote and Lord Rodger of Earlsferry. It is not in dispute that the relevant provisions in the mortgage can be construed, as they were by the Court of Appeal, as imposing an obligation on Mr Alan Gold jointly with Mr Martin, but also severally, to pay to the bank not only monies advanced to the two of them jointly, but also monies advanced to Mr Martin alone for purposes which had no connection with Mr Gold.

[3]Lord Millett has set out in his speech the reasons why a distributive construction could be adopted but for the reasons stated by Lord Scott and Lord Rodger I consider that the construction adopted by the Court of Appeal was correct and should be upheld.

[4]I would add one further observation. It is a general rule in the construction of deeds that the intention of the parties is to be ascertained from the words used in the deed and that, with certain limited exceptions, extrinsic evidence cannot be given to show the real intention of the parties. On occasions this rule may lead to the actual intention of the parties being defeated but the rule is applied to ensure certainty in legal affairs. In Mallan v May (1844) 13 M & W 511, 517 Pollock CB stated:

"We must apply the ordinary rules of construction to this instrument; and though, by so doing, we may, in some instances, probably in this, defeat the real intention of the parties, such a course tends to establish a greater degree of certainty in the administration of the law."

[5]However, whilst in the present case it would not have been permissible in construing the mortgage deed to take into account extrinsic evidence of the intention of the parties, I note with some satisfaction that it is apparent that the construction given to the mortgage by Lord Scott and Lord Rodger does not defeat the real intention of the parties. It is clear from the passage in the judgment of Jacob J on the non est factum point set out by Lord Scott in his speech that Mr Howard Gold, Mr Alan Gold's solicitor upon whom he entirely relied, fully understood that the deed had the effect for which the bank contends and Jacob J added:

"He [Howard] had even ensured that such a clause did not apply when he and Alan gave supporting security for Mr Martin's nursing home project."

[6]Accordingly I would dismiss the appeal. LORD MILLETT My Lords,

[7]Your Lordships are concerned with the application of an interpretation clause contained in a standard form. Both features are significant. A standard form is designed for use in a wide variety of different circumstances. It is not context-specific. Its value would be much diminished if it could not be relied upon as having the same meaning on all occasions. Accordingly the relevance of the factual background of a particular case to its interpretation is necessarily limited. The danger, of course, is that a standard form may be employed in circumstances for which it was not designed. Unless the context in a particular case shows that this has happened, however, the interpretation of the form ought not to be affected by the factual background.

[8]The fact that the question concerns the application of an interpretation clause is also significant. The purpose of such a clause is twofold. It shortens the drafting and avoids unnecessary repetition; and it enables the form to be used in a variety of different situations. It is not the purpose of such a clause to enlarge the parties' rights and obligations beyond those provided by the operative provisions by imposing, for example, a secondary liability as surety in addition to a primary liability as principal debtor. The application of such a clause is not merely a question of construction. If it is capable of being applied to the operative provisions in more than one way, it should be applied in a way which serves its purpose rather than in a way which extends the parties' obligations beyond those contemplated by the operative provisions. Of course, an interpretation clause may have this effect; but if so it should do so plainly and unambiguously.

[9]The form which your Lordships are called upon to construe ("the joint mortgage") is drafted for the case of a single mortgagor and employs an interpretation clause to adapt it for use where there are two or more mortgagors. It is commonly used in cases where the mortgagors are husband and wife who are mortgaging the matrimonial home, where it is unlikely to give rise to difficulty; but it may be used in other cases also where its use is more problematical. In the present case the mortgagors were partners who carried on a business in partnership together and each of whom also carried on his own separate business. The bank advanced money to the mortgagors jointly, and also to each of them separately. By the joint mortgage the mortgagors personally covenanted to repay the bank's advances and charged their jointly owned properties by way of security. By separate deeds entered into at the same time each of them also covenanted to pay and charged his own separately owned property with payment of his own liabilities to the bank, whether due from him alone or jointly with any other person and whether as principal or surety.

[10]It is beyond dispute that the mortgagors thereby undertook a joint and several liability for the joint debts and charged the jointly owned properties to secure their repayment. It is also beyond dispute that each of them also undertook a personal obligation to repay not only the joint debts but also his own separate debts, and charged his own separate properties to secure the repayment of all such debts. The question is whether each of them also covenanted by way of guarantee to pay the debts of the other and charged his separate properties with such payment. None of the documents contains an express guarantee. If there is such a guarantee, it derives exclusively from the way in which the interpretation clause in the joint mortgage is applied to the operative provisions.

[11]The relevant operative clause is clause 2(1) of the joint mortgage. So far as material this reads:

"The mortgagor hereby covenants with … the bank… that it will on demand pay or discharge to the bank … all sums of money … advanced to the mortgagor by the bank…"

When used by a single mortgagor there is no room for any surety liability. There is complete identity between the covenantor and the subject-matter of the covenant. The covenantor undertakes a personal obligation as principal debtor to repay money advanced to himself.

[12]In the present case, however, "the mortgagor" is defined as "Mr Martin and Mr Gold". Substituting these names for "the mortgagor" in the relevant clause produces the following:

"Mr Martin and Mr Gold hereby covenant with … the bank … that they will on demand pay or discharge to the bank … all sums of money … advanced to Mr Martin and Mr Gold by the bank…"

There is still no room for any surety liability. The identity between the covenantors and the subject-matter of the covenant, indicated by the repetition of the words "the mortgagor", is retained. The two covenantors are jointly liable for money advanced to them jointly. They undertake a personal obligation as principal debtors.

[13]The interpretation clause, however, contains an expanded definition to adapt the form for use where the expression "the mortgagor" includes more than one person. In such a case, it provides that the expression "shall be construed as referring to all and/or any one of those persons and the obligations of such persons hereunder shall be joint and several." Applying this to the words "the mortgagor" where they first appear in clause 2(1) has the effect of modifying the covenant but not its subject-matter. As modified the clause reads:

"Mr Martin and Mr Gold hereby jointly and severally covenant and each of them hereby severally covenants with … the bank … that they will on demand pay or discharge to the bank … all sums of money … advanced to Mr Martin and Mr Gold..."

There is some duplication, but the effect is to produce three distinct covenants and three distinct obligations; a joint and several covenant by both Mr Martin and Mr Gold and a separate covenant by each of them. Each of the covenants is a covenant to repay the money advanced to them jointly, so there is still no room for any surety liability. The identity between the covenantors and the subject matter of the covenants indicated by the repetition of the words "the mortgagors" is retained. They undertake joint and several obligations as principal debtors.

[14]Applying the interpretation clause to the expression "the mortgagor" where it secondly appears in clause 2(1), however, modifies the subject-matter of the covenant and extends the covenantors' liability. The only question is: how far? If the interpretation clause is applied literally and comprehensively, clause 2(1) reads:

"Mr Martin and Mr Gold and each of them hereby jointly and severally covenant with … the bank ... that they and each of them will on demand pay or discharge to the bank … all sums of money … advanced to Mr Martin and Mr Gold or either of them by the bank … "

This produces no fewer than nine covenants: three joint and several covenants on the part of Mr Martin and Mr Gold to pay (i) their joint debts (ii) Mr Martin's debts and (iii) Mr Gold's debts; three similar covenants by Mr Martin alone; and three similar covenants by Mr Gold alone. Each of the covenantors undertakes a personal liability both jointly with the other of them and separately to pay the moneys advanced (i) to both of them (ii) to himself and (iii) to the other of them. The inclusion of (iii) breaks the identity between the covenantor and the subject-matter of the covenant indicated by the repetition of the words "the mortgagor" and introduces for the first time a secondary liability as surety.

[15]If this were the only possible way of applying the interpretation clause, it would have to be adopted. But it is not. It is perfectly possible to apply the clause distributively so as to avoid both unnecessary duplication and the introduction of secondary liability. A distributive construction is commonly adopted when a plural subject is followed by a plural predicate and the plurals are broken down into their component singulars. An example from everyday speech would be to say:

"A and B took their children to school"

. Prima facie the word "their" means "belonging to both of them". But this is not its only possible meaning, and if A and B are not married it is obviously not its meaning. In that case the word "their" means "of each of them". But this means that A and B took their respective children to school, not each other's children. The children are distributed to the relevant parent. And it goes further than that. Although the word "school" is in the singular, it may conceal a plural. If necessary, the sentence means that A and B took the children to their respective schools.

[16]This is a well-established principle of construction. It often, and perhaps usually, gives the words their most natural meaning. It parades under a Latin name reddendo singula singulis. This simply means that, when plurals are broken down, each singular component must be attributed to its respective singular and not to every other possible singular. It is a broad and general principle which departs from the literal and grammatical meaning and does not depend upon minutiae of language.

[17]In the present case the principle would operate in two ways. It would apply the interpretation clause to clause 2(1) by attributing the obligation to repay the moneys advanced to Mr Martin and Mr Gold jointly to their joint and several covenant, thereby removing the unnecessary duplication resulting from the attribution of the same obligation to their individual covenants. This reading preserves the identity between the covenantor and the subject-matter of the covenant, and makes no difference to the effect of the joint mortgage. It is the most natural way to read the operative clause and ought not to be controversial. Mr Martin and Mr Gold thereby jointly and severally covenant to pay the joint debts and each of them separately covenants to pay the separate debts.

[18]Critically, however, a distributive application of the interpretation clause would not stop there. It would also attribute the obligation to repay the separate debts of "the mortgagor", not to each member of the class, but to the relevant member who owed them. This is a perfectly legitimate, and in my opinion the more natural, way to apply the interpretation clause. It treats a covenant by two or more persons (insofar as it means by each of them) to discharge their debts (in so far as it means the debts of each of them) as a covenant by each of them to discharge his own debts and not the debts of the other or others. Put shortly, it treats the obligation of two or more persons to pay their debts as an obligation to pay their respective debts.

[19]This is "an intellectually respectable way" (see the judgment of Sedley LJ in the Court of Appeal) of reaching the conclusion which the Court of Appeal clearly wanted but felt unable to reach. It is not clear to me why they refused to apply the interpretation clause distributively. They seem to have done so because it produces a result at variance with that produced by applying it comprehensively. But that is necessarily the case. The Court of Appeal assumed that the question was one of construing clause 2(1) after the interpretation clause has been applied to it. But the real question is concerned with the proper way of applying the interpretation clause to clause 2(1). The Court of Appeal assumed that there was only one way to apply the clause, and did not consider whether a distributive application was the more appropriate way.

[20]If legitimate, a distributive application of the interpretation clause in the present case is clearly appropriate. It gives full effect to every word of the interpretation clause and its purpose in adapting the form to the case where there are two or more mortgagors, while retaining the identity between the covenantors and the subject-matter of their respective covenants. It avoids the creation of a secondary liability not contemplated by the wording of the operative clause, which on its face creates one (or more) obligations of one (or more) principal debtors but no secondary liability.

[21]In my opinion invoking clause 2(3) begs the question. Mr Martin and Mr Gold jointly and severally undertook to discharge the costs of the bank in relation to the joint mortgage. Since the joint mortgage effected a charge on their jointly owned properties, it was appropriate to charge the bank's costs in relation to the taking and realisation of the security to each of the mortgagors. Assuming, without deciding, that such costs would also extend to the costs of proceedings to enforce the personal covenants in clause 2(1), the question whether either of them is liable under clause 2(3) to pay the costs of proceedings against the other depends on the true construction of clause 2(1). Whether or not the interpretation clause is applied distributively to clause 2(1), the liability for costs is co-extensive with the substantive obligation.

[22]At the conclusion of argument I was persuaded that a distributive application of the interpretation clause is both legitimate and appropriate. Your Lordships, however, are unanimously of the opinion that it is not legitimate, and I am not prepared to dissent from that view. Accordingly, with the same reluctance as was displayed by the Court of Appeal, I agree that the appeal should be dismissed. LORD SCOTT OF FOSCOTE My Lords,

[23]The appeal before your Lordships raises a short point of construction of a mortgage. The mortgage is in the standard form that at the date of the mortgage, 22 July 1993, was used by lenders in the Allied Irish Banks group of companies for taking security from their borrowers.

[24]There are two mortgagors, Mr Gold, who is the appellant and second defendant, and Mr Martin. In the description of the parties in the opening lines of the mortgage Mr Gold and Mr Martin are together described as "the mortgagor". Clause 1 of the mortgage is an interpretation clause. It defines the term "the mortgagor" as "the mortgagor named as such on page 1 hereof" ie Mr Gold and Mr Martin. The last sentence of clause 1 says that "If the expression 'the mortgagor' includes more than one person it shall be construed as referring to all and/or any one of those persons and the obligations of such persons hereunder shall be joint and several".

[25]In clause 3(1) of the mortgage "The mortgagor as beneficial owner hereby charges by way of legal mortgage all and singular the property or properties described or referred to in the Schedule hereto as a continuing security with payment to the bank and the company of all monies covenanted to be paid under clause 2 hereof". Fourteen properties were specified in the Schedule. Each was jointly owned by Mr Gold and Mr Martin.

[26]Clause 2 of the mortgage, which contains the payment covenant, is the clause that has led to the problem. I will set it out in full:

"2 The mortgagor hereby covenants with each of the bank and the company that it will on demand pay or discharge to the bank and the company:- (1) all sums of money which have been or are now or may hereafter at any time or from time to time be advanced to the mortgagor by the bank or the company (as the case may be); (2) all other indebtedness and/or liabilities whatsoever of the mortgagor to the bank or the company (as the case may be) present, future, actual and/or contingent and whether on any banking or other account or otherwise in any manner whatsoever including such indebtedness and/or liabilities due under the terms hereof (whether alone or jointly with any other person and in whatever style, name or form and whether as principal or surety); (3) all costs and expenses incurred by the bank or the company in relation to this legal mortgage and/or any such advances, indebtedness and/or liabilities on a full indemnity basis; (4) the amount of any acceptance or other credits and any cheques, notes or bills from time to time given or assumed by the bank or the company and all commission, discount and banking charges; and (5) interest and charges upon or relating to all such advances, indebtedness, liabilities, unpaid interest, costs, and expenses, acceptance credits, cheques, notes, bills, commission, discount and banking charges, until demand at such rate or rates as have been or may from time to time be agreed between the mortgagor and the bank or the mortgagor and the company (as the case may be), or in default of any agreed rate or rates and in any event from and after demand until full discharge (as well after as before judgment) at the specified rate of interest."

[27]The issue is whether the clause 2 covenant makes Mr Gold liable to the bank for Mr Martin's indebtedness to the bank arising out of advances to Mr Martin which had nothing to do with Mr Gold. The trial judge, Jacob J, and the Court of Appeal thought that it clearly did. But, with the leave of the House, Mr Gold has appealed.

[28]Before outlining the way in which the argument has been put, a little background needs to be mentioned.

[29]Mr Gold is a dentist but formed a business partnership with Mr Martin, a property dealer, to acquire and develop properties. In order to pursue this enterprise they borrowed money from companies in the Allied Irish Banks Group. For convenience and simplicity I shall use the expression "the bank" to refer indiscriminately to the lender company, whichever company in the group it may have been, and to the respondent to this appeal. Mr Martin also acquired development properties on his own account and borrowed from the bank for that purpose.

[30]In 1993 the bank decided to re-structure both the joint borrowings of Mr Gold and Mr Martin and the sole borrowings of Mr Martin. Facility letters dated 11 February 1993 were sent to the borrowers. The letter to Mr Gold and Mr Martin offered them a joint facility of £1,710,000 to be secured on forty-six specified properties. Some of these properties were owned by the borrowers jointly, twenty- eight were owned by Mr Martin alone and two by Mr Gold alone. The letter to Mr Martin offered him a facility of £591,000 to be secured on the twenty-eight specified properties owned by Mr Martin alone and intended also as security for the joint facility.

[31]The acceptance by the borrowers of the facilities offered by these letters led not only to the mortgage by Mr Gold and Mr Martin jointly, the construction of clause 2 of which is in issue, but also to a mortgage by Mr Gold of his two properties and a mortgage by Mr Martin of his twenty-eight properties. Each of these individual mortgages was, of course, in the bank's same standard form. The payment covenant in each of these would catch any indebtedness or liability of the mortgagor under the joint mortgage.

[32]For the purposes of these arrangements with the bank Mr Gold was represented by a firm of solicitors, Mincoff Science and Gold ("MSG"). The partner in the firm who dealt with the matter on Mr Gold's behalf was Mr Howard Gold, his brother. Mr Howard Gold knew the level of Mr Martin's personal indebtedness to the bank as well as the amount of the joint indebtedness. The second defendant Mr Gold signed the joint mortgage and his individual mortgage on Mr Howard Gold's advice.

[33]Later, and for reasons that are not material, the bank called in the loans. The sale by the bank of the properties comprised in its security has been completed but has left a substantial shortfall. So the bank is attempting to enforce the clause 2 covenant for payment in the joint mortgage contending that Mr Gold and Martin thereby agreed to pay or discharge the indebtedness to the bank not only of the two of them jointly but also of each of them separately.

[34]Before Jacob J, it seems to have been accepted that clause 2 on its true construction did have the effect contended for by the bank. The second defendant sought to escape by relying on a non est factum point. In dealing with, and rejecting, this point, Jacob J referred to Mr Howard Gold's knowledge of the mortgage and its effect:

"There is no doubt that Howard saw the final deed, including the 'frightening' provisions. Nor is there any doubt that he knew what their effect was. He had been concerned with similar clauses in the past, including for Alan .… Howard also knew that the provisions were not theoretical in that Mr Martin undoubtedly did have debts owed to the bank."

The "frightening" provisions to which the judge referred were sub-clauses (1) and (2) of clause 2. The judge concluded:

"I cannot see any room for non est factum here. Alan signed without reading the document. He never read any documents approved by Howard. Howard was his appointed agent. That is really the end of the case."

[35]The construction point that has been advanced before your Lordships was raised for the first time in the Court of Appeal. The construction contended for has been described, as a form of convenient shorthand, as a "distributive" construction. It is contended that because "the mortgagor", as defined, includes more than one person ie Mr Gold and Mr Martin, it should be construed as referring first to the two of them, next to one of them, and then to the other of them. This distributive construction requires, it is said, that clause 2 be interpreted thus:

"A. Mr Gold and Mr Martin jointly and severally covenant to pay (1) all sums of money which have been advanced to them, Mr Gold and Mr Martin jointly, and (2) all other indebtedness and/or liabilities whatsoever of them, Mr Gold and Mr Martin, whether together or jointly with any other person . . . and B. Mr Gold hereby covenants to pay . . . (1) all sums of money which have been advanced to Mr Gold, and (2) all other indebtedness and/or liabilities whatsoever of Mr Gold whether alone or jointly with any other person and C. Mr Martin hereby covenants to pay (1) all sums of money which have been advanced to Mr Martin (2) all other indebtedness and/or liabilities whatsoever of Mr Martin whether alone or jointly with any other person."

[36]This is the so-called distributive construction. If it were right, Mr Gold would not be liable to repay sums advanced to Mr Martin alone. The Court of Appeal did not accept this construction. Morritt LJ, who gave the leading judgment, said this:

"Once it is recognised that each reference to mortgagor includes Mr Martin and Mr Gold jointly, and Mr Martin and Mr Gold severally and in isolation from the others, then both the obligation to pay and the liability which that obligation extends to, is a several obligation of Mr Gold in relation to a several liability of Mr Martin, as well as the other way round ... "

[37]Mr Davidson QC, counsel for Mr Gold, protests that this passage, while it plainly rejects the distributive construction contended for, does not explain why it does so.

[38]Mr Davidson accepts that the construction contended for by the bank, and accepted by the Court of Appeal, is a legitimate construction but argues that the distributive construction, too, is legitimate and that the court, in choosing which of two legitimate constructions to adopt, should choose that which is more appropriate having regard to the factual matrix. The factual matrix, he says, supplies no reason why Mr Gold should have been expected to undertake personal liability for Mr Martin's debts and that the distributive construction is, therefore, to be preferred.

[39]I am afraid that I do not find Mr Davidson's submissions in the least compelling or clause 2 in the least ambiguous. The clause starts with a joint covenant by Mr Gold and Mr Martin. It is not three separate covenants, one by them jointly and one by each of them individually. It is a single joint covenant. Their liability under this joint covenant is declared to be joint and several. This deals with the effect of their joint covenant. It does not turn a single covenant into three covenants.

[40]But the critical issue is not whether Mr Gold and Mr Martin, as well as jointly covenanting to pay, have severally covenanted to pay. The critical issue is what have they covenanted to pay? Under sub-clause (1) they have covenanted to pay "all sums of money ... advanced to the mortgagor by the bank ... " The mortgagor means the two of them and/or each of them. So they have covenanted to pay all sums of money advanced by the bank to the two of them and/or to each of them. I do not understand how any process of construction can avoid the conclusion that they have covenanted to pay the sums advanced by the bank to Mr Martin alone as well as the sums advanced by the bank to them jointly.

[41]The point is the same under sub-clause (2). Mr Gold and Mr Martin have covenanted to pay or discharge "all other indebtedness and/or liabilities whatsoever of the mortgagor to the bank ... " ie "... of the two of them and/or each of them ... " So they have covenanted to pay or discharge the indebtedness of Mr Martin to the bank as well as their joint indebtedness to the bank.

[42]The distributive construction, which treats the single joint covenant as three separate covenants, makes no sense of sub-clause (3). Mr Gold and Mr Martin covenant to pay "all costs and expenses incurred by the bank ... in relation to this legal mortgage ... ". This would cover the costs of proceedings taken by the bank to enforce payment of the indebtedness of Mr Martin alone as well as the cost of proceedings to enforce payment of any joint indebtedness. There is no reference in sub-clause (3) to 'the mortgagor' and no distributive construction can exclude Mr Gold's liability to pay all costs and expenses caught by the sub-clause, whether incurred in connection with the recovery of indebtedness for which Mr Martin is primarily liable or of any joint indebtedness. A construction that excludes Mr Gold from liability in respect of advances to Mr Martin alone but leaves him liable to pay the bank's costs of proceedings to recover those advances does not produce a result that could sensibly, or reasonably, have been intended.

[43]In my opinion, there are no real difficulties of construction arising out of the reference to 'the mortgagor' in clause 2. As was succinctly put by Mr Cousins, following for the bank, clause 2 constitutes a covenant by Mr Gold and Mr Martin to pay their joint debts to the bank, to pay Mr Martin's debts to the bank and to pay Mr Gold's debts to the bank.

[44]This simple construction may leave Mr Gold under obligations that he had not foreseen and had not intended at the time he signed the joint mortgage. But he has already succeeded in an action for negligence against the firm of solicitors who acted for him and, as I understand it, this appeal is being funded by their insurers.

[45]In my opinion the Court of Appeal came to the correct conclusion for the correct reasons. I would dismiss the appeal. LORD RODGER OF EARLSFERRY My Lords,

[46]I have had the privilege of reading in draft the speeches of both my noble and learned friends, Lord Millett and Lord Scott of Foscote. Despite Lord Millett's reservations I have come to the view that the relevant provisions should be construed as Lord Scott proposes.

[47]There is, of course, no doubt about the value of the canon of interpretation which Lord Millett invokes. It occurs in a number of slightly different forms, all of them still - happily - in concise and precise Latin. Like any other rule of interpretation, it is there to help to ascertain the objective meaning of the document in question. Like all such rules, it must be used with discrimination. In this case I am by no means satisfied that applying it in the manner suggested would truly bring out the intended effect of clause 2(1).

[48]As Lord Scott points out, the covenant in clause 2(1) is a single covenant by the mortgagor which, by reason of the definition of "the mortgagor" in clause 1, is "joint and several". Prima facie - and without reading any further - the use of these words indicates that Mr Martin and Mr Gold are jointly and severally liable for any obligations to be specified in clause 2(1). In other words, each of them is liable to pay the whole or any part of the sums specified, as opposed to being liable simply to pay a pro rata (half) share of those sums.

[49]It is necessary, however, to go further into clause 2(1) to discover for what sums Mr Martin and Mr Gold are to be liable. As Lord Millett explains, if parsed out, clause 2(1) provides:

"Mr Martin and Mr Gold and each of them hereby jointly and severally covenant with … the bank … that they and each of them will on demand pay or discharge to the bank … all sums of money … advanced to Mr Martin and Mr Gold or either of them by the bank…"

It is common ground that this provision can indeed be construed as imposing an obligation on Mr Gold, jointly with Mr Martin but also severally, to pay not only all sums of money advanced by the bank to Mr Martin and Mr Gold but also all sums advanced by the bank to either of them as an individual. In other words, Mr Gold is to be jointly and severally liable inter alia to pay the sums advanced by the bank to Mr Martin. Both Jacobs J and the Court of Appeal interpreted the provision in this way. The suggestion is, however, that it would be preferable to interpret it reddendo singula singulis so that liability for the separate debts of the individuals making up "the mortgagor" would be attributed only to the individual who incurred the debt in question. The result is then that there is in effect a joint and several liability on Mr Martin and Mr Gold to pay the joint debts and a several liability on each of them to pay his separate debts. On that footing Mr Gold is liable to pay his own separate debts to the bank but not Mr Martin's.

[50]I accept, of course, that the rule of construction, reddendo singula singulis , could be applied to a document containing obligations on the part of two debtors. So, for instance, a mortgage deed in which A and B covenanted to pay "their debts" might be interpreted, reddendo singula singulis , as meaning that each of them undertook to pay his own debts. I am not persuaded, however, that in the present case the single covenant, for joint and several liability, should in effect be divided up so as to withdraw the separate debts of the individuals from the joint and several liability and then to subject them to a, separate, several liability of the relevant individual. I do not question the intellectual respectability of the proposed way of reaching that result; I simply do not believe that the result reflects the intention of the parties to this particular agreement.

[51]In part, at least, I have difficulty in accepting the second defendant's construction because Mr Davidson acknowledged on his behalf that provisions making one of two debtors liable for the debts of the other are frequently found in documents used by banks and lending institutions. This can be seen from a number of specimens which the bank produced. For instance, in the case of the Royal Bank of Scotland, condition 12.2 - also dealing with interpretation - provides that, where two or more persons are included in the expression "mortgagor", each of them is to be "primarily liable by way of indemnity for the liabilities to the bank of the other or others of them". Counsel accepted that explicit provisions of this kind are indeed intended to make one debtor liable for the debts of the other and that they are valid. Against that background I do not find the result produced by the straightforward interpretation of the wording of clause 2(1) surprising.

[52]In the circumstances the second defendant's argument had really to rest on the form of the provisions in this case. In effect, counsel argued that definition clauses should not be interpreted so as to produce what are, in effect, important substantive effects on the obligations of the debtors concerned. As is apparent, however, from the Royal Bank and other examples shown to the House, interpretation clauses of this kind are by no means unusual. In the absence of reported cases to the contrary, it must be assumed that they are given effect.

[53]More positively, I note that in Wright v Tennent Caledonian Breweries Ltd 1991 SLT 823 - to which the House was not referred - the First Division of the Court of Session had to deal with a deed of variation of a loan agreement where "the borrower" was defined in a somewhat similar manner to "the mortgagor" in this case. In particular, in the case of two or more individuals, the obligations and conditions affecting the borrower were to be binding on the individuals "jointly and severally". Despite this, one of the debtors submitted that her liability under the loan agreement was only pro rata, because it would have required clear provisions in the deed of variation to incorporate the joint and several liability into the loan agreement. The court rejected that argument. In his opinion, with which Lord Allanbridge and Lord Sutherland concurred, Lord President Hope said, at p 827 A - B:

"In my opinion the statement in clause 1.03 of the deed of variation that the obligations and conditions affecting the borrower shall be binding on two or more persons jointly and severally goes beyond a mere definition of the expression 'the borrower'. It is concerned not with the question who is to be taken to be the borrower - that is to say, with the person or persons to whom that expression extends - but with the measure of the obligations undertaken by those persons in that capacity."

He went on to say that the whole structure of the loan agreement as varied "including the use of the expression 'the borrower' in the singular at the outset to describe the two persons who are to receive the loan" confirmed his view that the debtors' liability under the agreement was joint and several (as opposed to pro rata).

[54]In much the same way, the definition of "the mortgagor" in the agreement in this case was not concerned simply with the question of who was to be taken to be the mortgagor: it dealt with the measure of the obligations which Mr Martin and Mr Gold undertook. It must be treated accordingly. There may be various reasons why the draftsman of the bank's standard form agreement chose to draft it in this particular way. I need not go as far as the First Division and draw a positive inference from the use of the singular "the mortgagor". It is sufficient that I find nothing in the chosen form of drafting which would, of itself, justify the House in adopting the second defendant's preferred interpretation of clause 2(1). © 2001 Crown Copyright

Cited in 16 later judgments

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