Post Execution Alteration of Contractual Documents

February 11, 2019

A revival of the rule in Pigot’s Case? 


1. In Grove Park Properties Ltd v The Royal Bank of Scotland [2018] EWHC 3521 (Comm), the Claimant borrower sought to rely on the rule in Pigot's Case (1614) 11 Co. Rep 27 that a material alteration in a deed will render it void, and on what was said about this by Lord Kenyon CJ in Master v Miller (1791) 4 TR 320 at 329 when the principle was extended to “all written instruments”. 
 
2. As Chitty on Contacts 33rd edn., 2018, para.25-020 puts it: “If a promisee, without the consent of the promisor, deliberately makes a material alteration in a specialty or other instrument containing words of contract, this will discharge the promisor from all liability thereon, even though the original words of the instrument are still legible." 
 
3. Not every alteration will have this effect.  The alteration must be (a) deliberate and (b) material. 
 
4. The policy behind the rule was said by Lord Kenyon CJ to be ensuring that no one should be allowed to take the chance of committing a fraud without running the risk of losing by it if detected. 
 
5. Chitty goes on at 25-024: “The burden of proving that the promisee has, without the consent of the promisor, deliberately made a material alteration to a written instrument would appear to be on the promisor.  But, once it has been proved or it is apparent from the face of the instrument that it has been altered, the burden of proof switches to the promisee to show that the alteration was made in circumstances which were insufficient to discharge the promisee from all liability under the instrument (for example, by proving that the alteration was made before the promisor signed the document).  The question whether an alteration is material is a matter of law for the court”. 
 
6. The authorities were reviewed by Moore-Bick LJ in Habibsons Bank Ltd v Standard Chartered Bank (Hong Kong) Ltd [2010] EWCA Civ 1335.  It was emphasised at [34] that it is the instrument that is rendered void by alteration, but that nothing in the authorities suggested that it would automatically render the underlying transaction void.  The powerful effect of the rule in the case of a deed is because it is the deed itself which gives rise to the obligations; if the deed is void the obligations it gives rise to are also void.  The same is not true of all contractual documentation. 


The Facts in Grove Park Properties 


7. In late 2007 RBS extended a £10.5 million loan to the Claimant.  There is a dispute over whether the loan was to be repayable after 5 or 10 years (and thus whether the contractual documentation should have recorded the repayment date as 2012 or 2017). 
 
 
8. The documentation was drawn up with a repayment date in 2012.  The Claimant’s case is that this was an error which the parties noticed on signing and that by agreement the Claimant’s director amended in manuscript the final “2” in 2012 to a “7” so that the date read 2017 when the documentation was signed.  He then initialled this change, signed the document and retained a photocopy. 
 
9. At some point subsequently, the signed document held by the bank was altered again, this time by changing the date of 2017 back to 2012 and that change was initialled by a bank employee.  The Claimant was not given a copy of this final version of the document showing the change back to 2012. 
 
10. The Claimant says that this post-agreement alteration by the bank was deliberate and material and that its effect was to void the document, with the result that there was no obligation on the Claimant to repay the loan after 5 years, 10 years or at all. 


To be continued… 


11. The reported hearing was of a preliminary application concerning the pleadings, so the point was not determined.  It will be interesting to see what the Court decides if and when the point comes to be determined. 

 

(see Robert Machell's profile)
 
 

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