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Cite as:  CSOH 23,  ScotCS CSOH_23
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Atradius Credit Insurance N.V. v Whyte And Mackay Ltd  ScotCS CSOH_23 (10 February 2005)
OUTER HOUSE, COURT OF SESSION
 CSOH 23
OPINION OF LORD MACKAY OF DRUMADOON
in the cause
ATRADIUS CREDIT INSURANCE N.V.
WHYTE AND MACKAY LIMITED
Pursuers: Glennie, Q.C., Davie; Henderson Boyd Jackson, W.S.
Defenders: Moynihan, Q.C., Delibegović-Broome, McClure Naismith
10 February 2005
Introduction This action relates to a contract of guarantee ("the Guarantee"), which was concluded between NCM Credit Insurance Limited ("NCM") and Invergordon Distillers Limited ("Invergordon") during 1992.  In terms of an Instrument of Transfer dated 1 November 1998, the pursuers, who are a company incorporated in the Netherlands, are the transferees of NCM. As such, the pursuers are entitled to the rights of NCM under the Guarantee. The defenders, who are a company incorporated under the Companies Acts, have assumed responsibility for the liabilities of Invergordon under the Guarantee.  Invergordon are suppliers of Scotch Whisky. During 1992 they entered into a contract to sell a consignment of whisky to Service Group Limited/Sacilda-Soc, Angola (hereinafter referred to as "the buyer"). The gross sale price of the consignment of whisky was US$1,595,955.90. Invergordon invoiced that price to the buyer, by an Invoice dated 8 September 2002. In terms of the contract of sale between Invergordon and the buyer that price was payable 180 days after the bill of lading date.  At the same time as Invergordon and the buyer entered into their contract of sale, Invergordon undertook to pay certain expenses relating to the consignment of whisky, namely an advertising allowance payable to the buyer, which amounted to £15,400, and agency allowances payable to three associates of the buyer, Orlando Correia, Carla Correia and Forex Portugal, which totalled £436,744. Accordingly, the total of the allowances, which Invergordon agreed to pay, was £452,144. Those allowances were vouched by credit notes dated 8 September 1992, which Invergordon issued.  Invergordon's sale of the consignment of whisky to the buyer was insured in terms of the Guarantee. The Guarantee was constituted by (a) NCM's offer dated 23 October 1992 (number 7/5 of process), (b) Invergordon's acceptance dated 29 April 1992 (number 7/6 of process), (c) NCM's letter dated 13 May 1992, (number 7/7 of process) and (d) NCM's letter dated 3 June 1992, which imposed a credit limit of £500,000, (number 7/8 of process). The terms of two other documents, (i) 'NCM's Comprehensive Short Term (International) Guarantee' ("NCM's short term guarantee") ( number 6/4 of process) and (ii) 'SCHEDULE 1 to be attached to the Comprehensive Short Term (International) Guarantee' ("Schedule 1") (number 7/9 of process) were incorporated into the Guarantee concluded between NCM and Invergordon.
The terms of the Guarantee The provisions of NCM's short term guarantee, which are of relevance in the present action, are as follows:
"THIS GUARANTEE is given by NCM Credit Insurance Limited, (hereinafter called "the Insurer") to the person or persons (hereinafter severally called "the INSURED") described in Schedule 1 hereto.
WHEREAS the INSURED has made a proposal (hereinafter called 'the Proposal') on the date stated as the date of Proposal in Schedule 1 that the Insurer should give to the INSURED a guarantee in connection with certain contracts; and the Insurer has agreed with the INSURED to give this Guarantee upon the terms and conditions hereinafter mentioned:
NOW IT IS HEREBY AGREED as follows -
 In terms of the provisions of the Guarantee, the Credit Limit agreed by NCM and Invergordon was £500,000 and the Guaranteed Percentage for loss arising on account of Default R.02, as defined in Article 12, was 90%.
In consideration of the premiums paid and to be paid as hereinafter provided, the Insurer agrees, subject to the provisions of this Guarantee and of Schedules 1 and 2 hereto, to pay to the INSURED the Guaranteed Percentage (as hereinafter defined) of the amount of any loss which the INSURED may sustain in connection with any contract to which this Guarantee applies by reason of the occurrence of any of the causes of loss specified in those Sections of the General Conditions which are by Schedule 1 made applicable to this Guarantee (hereinafter called "Relevant Sections").
Subject to the conditions set out in Schedule 2, this Guarantee shall apply to every contract made or to be made by the INSURED as principal, being a contract -
which is made with a buyer in any of the countries specified in that Schedule other than the INSURED's Country (as hereinafter defined) and which -
i. relates to the export of goods from the INSURED's Country after the Date of Contract (as hereinafter defined): and
ii. (a) does not involve the granting of credit by the INSURED to the buyer for a period exceeding 180 days; and
(b) where the Pre-Credit Risk Section of the General Conditions is applied to this Guarantee, provides for the despatch within 12 months from the Date of Contract of all the goods that are to be despatched in connection with the contract; or
to which a Relevant Section states that it shall apply; or
to which the Insurer has agreed in writing that it shall apply.
Insurer's Maximum Liability
The maximum liability of the Insurer under this Guarantee for any period referred to in Article 10 shall be limited to the amount specified as the amount of the Insurer's maximum liability in Schedule 1, irrespective of whether such amount is exceeded at any material time by the amount(s) of any credit limit(s) individually or in aggregate which may be established under Article 11; the amount so specified or agreed for any such period shall include the amount of the liability of the Insurer in respect of loss ascertained during that period in connection with contracts declared in any previous period.
Disclosure of Facts and Minimising Loss
Without prejudice to any rule of law, it is declared that this Guarantee is given on condition that:
a. the INSURED has at the date of this Guarantee disclosed and will at all times during the operation of this Guarantee promptly disclose all facts in any way affecting the risks guaranteed; and
Prevention of and Minimising Loss
b. in order to prevent or minimise any loss recoverable under this Guarantee, the INSURED shall
use all reasonable care, skill and forethought,
take all practicable measures,
ensure that all rights against the contract goods, buyers and third parties (as the case may be) are properly preserved and exercised,
take all steps and agree to the doing of all things which the Insurer may require to be done including-
(a) the institution of legal proceedings;
(b) the appointment of the Insurer as the agent or attorney of the INSURED (as may be decided by the Insurer) with power in the name of the INSURED-
(i) to institute legal proceedings against any person from whom sums payable under or in connection with any contract may be obtained;
(ii) to appoint any person for the purposes of collecting any sums payable under or in connection with any contract;
INSURED's Costs and Expenses
and for any costs and expenses that are properly and reasonably incurred by the INSURED in pursuance of these obligations the Insurer will, in addition to any
amount payable under any of the Relevant Sections, reimburse the INSURED in the proportion in which the amount of loss ascertained in accordance with the Relevant Section is borne by each of them, or for such other amount as may have been specified in writing by the Insurer: in this paragraph 'costs and expenses' that are not eligible for reimbursement shall include (but not be limited to) the INSURED's own administration costs and expenses incurred in the pursuance of these obligations; and
For the purposes of this Guarantee -
b. 'Credit Limit' shall have the meaning given to it in Article 11;
c. 'Credit Risk' shall mean the cover provided under this Guarantee against loss sustained in connection with any contract to which any Credit Risk Section applies, being cover as set out in that Section;
h. 'Guaranteed Percentage' shall mean the percentage specified as such in Schedule 1, or such other percentage as may be agreed in writing between the Insurer and the INSURED;
m. 'Relevant Section' shall have the meaning given to it in Article 1;
n. 'Specified Deductions' shall, in relation to any goods, mean -
i. in the case of loss ascertained under any Credit Risk Section -
the following amounts to the extent to which, at the date of ascertainment of loss as specified in Articles 20 and 22, they may be credited or appropriated in or towards payment of the amount owing to the INSURED -
(i) any amount which the buyer is entitled to credit to his own account under the terms of his contract with the INSURED; and
(ii) any other amount which the buyer is entitled to credit to his own account by way of payment, credit, set-off or counterclaim; and
(iii) in any case where the buyer claims to be justified in withholding payment or in not performing any of his obligations under the contract, any amount which is established in the matter specified in Article 22a as due to the buyer, except to the extent that the amount has already been included under
any other head of this sub-paragraph; and
(iv) any amount which the INSURED is entitled to appropriate in or towards payment of the said amount owing; and
any expenses saved by the INSURED by non-fulfilment of the contract or otherwise; and
any part of the amount owing to the INSURED in relation to the goods which represents interest payable by the buyer for credit facilities in respect of any period subsequent to the payment by the Insurer of a claim under this Guarantee;
ii. - in the case of loss ascertained under the Pre- Credit Risk Section, the following amounts (subject to the provisions of paragraph III of the Pre-Credit Risk Section) to the extent to which, at the date of ascertainment of loss as specified in Articles 20 and 22 they may, in relation to goods not despatched, be
credited or appropriated in or towards payment of the amount which would have been payable if the contract had been fully performed, either
(i) the amounts referred to in heads (i), (ii) and (iii) of sub-paragraph i(a) of this paragraph; and
(ii) any amount which the INSURED is entitled to appropriate in or towards payment of the said amount which would have been payable; and
(iii) any other sum which the INSURED has recovered from any source, including the realisation of any security or the resale of any goods or materials; or
the aggregate of -
(i) the amounts referred to in heads (i), (ii) and (iii) of sub-paragraph i(a) of this paragraph, and
(ii) any amount which the INSURED is entitled to appropriate in or towards payment of the said amount which would have been payable; and
(iii) any other sum which the INSURED has recovered from any source, including the realisation of any security or the resale of any goods or materials; and
(iv) any expenses saved by the INSURED by non-fulfilment of the contract or otherwise; and
(v) any part of the amount which would have been payable under the contract in relation to those goods which represents interest payable by the buyer for credit facilities in respect of any period subsequent to payment by the Insurer of a claim under this Guarantee;
The Credit Limit
In respect of every buyer there shall be a Credit Limit established in accordance with the following provisions and the Credit Limit shall apply in relation to all contracts made with that buyer to which the Relevant Sections may at any time apply.
Causes of Loss
For the purposes of this Guarantee (and to the extent to which they are applied by the Relevant Sections) the following shall constitute causes of loss -
The failure of the buyer to pay to the INSURED within 6 months after the Due Date of Payment the amount owing in connection with goods delivered to and accepted by the buyer;
The Uninsured Percentage
Except for the sum guaranteed to the INSURED hereunder, the INSURED shall retain exclusively for his own account the risk of any loss covered by the Credit Risk and, if the Pre-Credit Risk Section is applied to this Guarantee, the Pre-Credit Risk.
Allocation of Moneys Received
All payments of principal payable under or in connection with any contract and all payment of interest accruing up to the Due Date of Payment of such principal, whether such payments relate to a contract guaranteed by the Insurer under this or any other Guarantee or to a contract not guaranteed by the
Insurer (irrespectively of any appropriation made by the person making such payment) shall, unless the Insurer otherwise agrees in writing, be allocated-
a. where such payments are made by the buyer, to the amounts outstanding under all contracts made by the INSURED with that buyer in the chronological order of the Due Dates of Payment of those amounts; and
b. where such payments are made by a guarantor under any guarantee of payment or, as the case may be, under any guarantee of payment and
undertaking relating to payment, to the amounts outstanding at the date of such payment under all contracts made by the INSURED with the buyer to which guarantees by such guarantor relate in the chronological order of the Due Dates of Payment of those amounts.
Date of Ascertainment of Loss
The amount of loss in accordance with the Relevant Section shall, in all cases, be ascertained on the date of ascertainment of loss which, subject to the provisions of Article 22, shall be -
b. where the cause of loss is cause R.02, 6 months after the Due Date of Payment;
Action After Payment of Claim
Upon payment by the Insurer, the INSURED shall -
i. take all steps and agree to the doing of all things which may be necessary or expedient, or which the Insurer may at any time require, to effect recoveries, whether from the buyer or from any guarantor or other person from whom such recoveries
may be made, including (if so required) taking such steps as are necessary or expedient -
(a) to institute legal proceedings; and
(b) to appoint the Insurer as agent or attorney of the INSURED (as may be decided by the Insurer) with power in the name of the INSURED -
(i) to institute legal proceedings against any person from whom recoveries may be made; and
(ii) to appoint any person for the purposes of collecting recoveries;
ii. upon request assign and transfer to the Insurer the INSURED's rights in connection with any contract in respect of which such payment has been made, including the right to receive any moneys payable under such contract or the right to damage for any breach thereof;
iii. upon request deliver up to the Insurer any goods relating to any contract in respect of which such payment has been made and any documents relating thereto and assign and transfer to the Insurer the INSURED's rights and interest in any such goods and documents;
iv. upon request assign, deliver up or otherwise transfer to the Insurer any negotiable instruments, guarantees or other securities relating to such goods or such contract;
If, after the INSURED, or any person on his behalf has been paid in whole or in part by the Insurer in respect of any claims made hereunder in relation to any contract, the INSURED fails to comply with any of his obligations under Article 4, Article 18, Article 24 a or paragraph a of this Article in connection with that contract, the INSURED shall upon demand repay to the Insurer the amount of those payments, less any
amount of those payments, less any sums which at the date of the demand have been recovered by the Insurer.
i. All sums which are received by or on behalf of the INSURED after the date of ascertainment of loss in relation to a contract and which fall to be allocated to the contract in accordance with Article 19; and
ii. all sums which are received by or on behalf of the INSURED in respect of interest under a contract in relation to any period after the date of payment of a claim under this Guarantee in respect of that contract; and
iii. all other sums whatsoever relating to a contract which are received by or on behalf of the INSURED from any source after the date of ascertainment of loss in relation to that contract, including (but not limited to) sums resulting from the realisation of any security given for the amount owing under that contract or from the resale of any goods or materials relating to that contract;
Remittance of Recoveries
shall, immediately on receipt by the INSURED or a person acting on his behalf or, where applicable, on conversion in accordance with Article 25, be remitted to the Insurer. The INSURED hereby acknowledges
and declares that, until such sums are so remitted, the INSURED receives and holds such sums in trust for the Insurer.
In respect of any contract to which Article 27 applies, any sum which, after the date of ascertainment of loss in relation to that contract, is received by or on behalf of the
Supplier in connection with the Supply Contract which, if received by the INSURED would fall to be allocated to that contract in accordance with Article 19, shall for the purposes of this Article be deemed to be a sum received by the INSURED and the INSURED shall immediately pay an equivalent sum to the Insurer.
Apportionment of Recoveries
All sums referred to in paragraph a of this Article, all equivalent sums referred to in paragraph b of this Article, all sums recovered by the Insurer relating to a contract in respect of which a claim has been paid, shall after receipt by the Insurer be divided between the
Insurer and the INSURED subject to any rights which the Insurer may have under Article 1A
in the proportion in which the amount of loss ascertained in accordance with the Relevant Section is borne by each of them respectively, whether or not such division results in the retention by the Insurer of a greater or lesser sum than the amount paid by the Insurer under this Guarantee in connection with that amount of loss:
Provided That, in respect of any claim paid by the Insurer in accordance with the terms of Pre-Credit Risk Section, the Insurer shall not be entitled by virtue of this Article to any amount in excess of the amount which he has paid to the INSURED under that Section in respect of that claim.
SECTION A of the General Conditions
The Buyer Risks
Contracts to which this Section Applies
This Credit Risk Section applies to contracts -
a. falling with Article 2a, except any contract to which any other Credit Risk Section, not being Credit Risk Section B, applies; and
b. in relation to goods despatched on or after the Commencement Date.
Commencement of cover
2. The cover provided under this Section in relation to goods despatched shall commence at the time when those goods are despatched; such despatch shall be deemed to be made when the INSURED or the Supplier parts with the possession of the goods in any way for the purpose of transmitting them to the buyer at a place outside the INSURED's Country.
3. Under this Section this Insurer agrees, subject to any condition for the time being attached to a Credit Limit approved by the Insurer for a particular buyer, to pay to the INSURED the Guaranteed Percentage of an amount of loss sustained by the INSURED in connection with goods despatched -
by reason of the occurrence of any of causes R.01, R.02 or R.10 after the despatch, such amount of loss being the amount owing to the INSURED in connection with those goods, less Specified Deductions;
Limitation to Credit Limit
Provided that in relation to any buyer the
Insurer shall not be liable to pay under this and any other Credit Risk Section, any amount in excess of the amount that results from applying
the Guaranteed Percentage to the Credit Limit for that buyer."
The dispute between the parties Invergordon despatched the consignment of whisky to the buyer in September 1992. The consignment was delivered to and received by the buyer. However the buyer failed to make payment within 180 days of the bill of lading date.  Invergordon submitted a claim under the Guarantee to NCM. That claim was made on a pro-forma supplied by NCM and was dated 7 September 1994. A copy of the completed claim form was lodged in process. It specified the amount of Invergordon's claim in the following terms:
"Amount of Claim
Total amount overdue for payment £832,962.36
Less specified deductions (see part 6a-e overleaf)* £452,144.00
Amount of loss £380,818.36
Guaranteed percentage of loss
(e.g. 90% or 95% as appropriate) 95% £361.777.74"
As at the date when the claim was submitted the sterling equivalent of the sale price of the consignment of whisky was £832,926.32. The Specified Deductions noted on the claim form, in part 6a-e, constituted the allowances totalling £452,144, to which I have already referred, but which Invergordon had not paid by the date when they submitted their claim to NCM. NCM settled Invergordon's claim by letter dated 26 June 1996, a copy of which was lodged in process (number 7/10 of process). In calculating the sum of £316,859.22, which they paid to Invergordon in settlement of their claim, NCM (i) took the sterling value of the sum due by the buyer as being £804,210.58, (ii) deducted from that sum credits, in respect of the allowances payable by NCM, totalling £452,144, and (iii) reduced the resulting balance of £335,206.66 by 10%, to take account of the uninsured percentage which Invergordon required to bear. The Guaranteed Percentage to be borne by NCM was 90% of the amount of loss, which, of course, fell within the agreed Credit Limit of £500,000.  NCM's letter of 26 June 1996 concluded in the following terms:
"May I remind you of your obligations under Article 23a of the Guarantee to take action to effect recoveries? Failure to comply with these obligations entitles NCM Credit Insurance Limited to a refund on demand of the claim payment. Recoveries are held in trust for NCM Credit Insurance Limited and must be sent to NCM Credit Insurance Limited, Cardiff, without deduction immediately on receipt by you or any bank or person on your behalf."
The present action The summons in the present action has conclusions in the following terms:
"1. For payment by the defenders to the pursuers of the sum of SIX HUNDRED AND THIRTY ONE THOUSAND FOUR HUNDRED AND FORTY NINE POUNDS AND NINETY PENCE (£631,449.90) together with interest thereon at the rate of eight per cent per annum from 6 November 2001 until payment.
2. For declarator that Article 24 of the pursuers' Comprehensive short term (International) Guarantee requires the pursuers, after receipt by them from the defenders of the defenders' full recovery of £1,041,200.00, to pay to the defenders only 10% thereof, namely £104,120.00, and to retain the remainder.
3. Alternatively, for payment by the defenders to the pursuers of the sum of FIVE HUNDRED AND TWENTY SEVEN THOUSAND THREE HUNDRED AND TWENTY NINE POUNDS AND EIGHTY ONE PENCE (£527,329.81) together with interest thereon at the rate of eight per cent per annum from 6 November 2001 until payment.
4. For the expenses of the action."
1. On a proper construction of the NCM short term Guarantee are the pursuers entitled to be paid in the proportion the pursuers' payment to the defenders bears to the amount of loss suffered by the defenders (a) before or (b) after deduction of the specified deductions?
2. On a proper construction of the NCM short term Guarantee is the sum to which that proportion falls to be applied the sum recovered by the defenders net of all payments made by the defenders consequent on recovery, including the payments made in respect of agency allowances?
The parties were agreed that I should answer these two questions and then put the case out for a further procedural hearing. There were two reasons for inviting me to do so. In the first place, the pursuers have not yet formally conceded that Invergordon were under any obligation to meet the claims of Orlando Corriera, Carla Corriera and Forex Portugal or that the compromise and settlement of those claims by the payment of £250,000 had been reasonable. Secondly, the monies recovered by Invergordon are still held by the defenders, apart from the sum of £409,750.19 that has already paid to the pursuers. Senior counsel for the defenders indicated that whatever the outcome of the hearing before me, the defenders would not wish a decree to pass against them.
Submissions on behalf of the pursuers At the outset of his submissions, senior counsel for the pursuers made clear that, whilst the pursuers were not prepared to concede that the terms of the Guarantee gave Invergordon the right to have the recovery agents' commission of 33% deducted from the gross amount recovered from the buyer, for the purposes of the present action the pursuers were content to proceed on the basis that the sum that Invergordon had recovered from the buyer was limited to £1,041,200. The pursuers were not, however, prepared to restrict that figure further, to take account of the settlement of £250,000 that Invergordon had made with and had paid to the three associates of the buyer.  It was submitted that the action turned on the construction of Article 24 of NCM's short term Guarantee. It was argued that the provisions of Article 24 admit of only one construction. The whole sum of £1,041,200 should have been remitted to NCM. Only £409,750.10 had been. The balance outstanding constituted the sum first concluded for.  The second conclusion sought a declarator of the pursuers' entitlement to payment of the whole sum recovered by Invergordon, 10% of which would then by re- payable to the defenders.  The third conclusion, which proceeded on an alternative basis, sought payment of the net balance that was due to the pursuers. When Invergordon's claim for loss had been settled under the Guarantee, the amount of loss that had been ascertained had been £380,818.36. That amount of loss had been ascertained in accordance with the terms of the Guarantee. The amount of the loss had been net of "Specified Deductions", a term defined in Article 9. It was the amount of loss, ascertained at the time that Invergordon's claim was submitted, rather than the full loss actually suffered by Invergordon, which was important in the construction and application of the provisions of Article 24.  In these circumstances, the recoveries subsequently achieved by Invergordon fell to be split between NCM and Invergordon in the same proportions as the ascertained amount of loss had been borne by them. Senior counsel for the pursuers argued that the relevant proportions to apply to the division of the net sum of £1,041,200, recovered by Invergordon, were the proportions in which the "amount of the loss ascertained in accordance with the Relevant Section" had been borne by each of them - namely 90%/10%. In other words, £937,080 should have been paid to NCM. Only £409,750.19 had been. The balance of £527,329.80 was accordingly due to the pursuers. That was the sum third concluded for.  During the course of his submissions, senior counsel for the pursuers referred to Lucas Limited and another v Export Credits Guarantee Department  1 W.L.R. 909. This case concerned the construction of a guarantee provided by the Export Credits Guarantee Department of the Board of Trade to English merchants, who had exported goods to the United Arab Republic. Guarantees for exporters, such as that provided by the Government Department to Lucas, had subsequently been provided in the public sector, by insurers such as NCM. However, such insurers, including NCM, had entered into contracts with their insured, which were in significantly different terms to the contract under construction in Lucas. In particular the clause in the Lucas contract, dealing with the distribution of recoveries, by the insured, namely Clause 17, had been in different terms to those found in Article 24 of NCM's short term Guarantee.  Clause 17 of the contract in Lucas referred to the recovery and division of "any sums recovered by the merchant and the guarantor in respect of a loss to which this guarantee applies". In Lucas, the House of Lords held that the terms of Clause 17 meant that once a sum recovered in respect of a loss covered by the guarantee reached the amount of that loss, Clause 17 no longer had any further application. Any further sum recovered was not received in respect of that loss (per Lord Morris of Borth-y-Gest at p.919A-C and Viscount Dilhourne at p.922D-H). An observation in the speech of Lord Simon of Glaisdale (at p.923D) is also of interesting distinguishing the terms of the contract in Lucas, from the terms of the Guarantee: "There is nothing either in the public scheme or the terms of this agreement which suggest in any way a profit-sharing venture".  Senior counsel for the pursuers in the present case pointed out that Article 24 was couched in very different terms. Moreover, no definition of recoveries was to be found in Article 9 or Article 23 of the Guarantee. It was quite clear that after settlement of the claim by NCM, Invergordon had remained under a duty to seek to make recovery of all sums due under their contract with the buyer. Invergordon's duty under Article 23 had not been limited to seeking recovery of the amount of the loss that had been ascertained, when their claim had been submitted by them, or recovery of the amount that they had received from NCM in settlement of that claim.  Senior counsel argued that the difference in wording between Clause 17 of the ECGD Guarantee and Article 24 of NCM's short term Guarantee was instructive. It had obviously been made in the light of what had been said by Lord Morris of Borth-y-Gest and Viscount Dilhourne in Lucas. In particular the inclusion of the last four lines in Article 24, dealing with settlement of a claim in terms of the Pre-Credit Risk Section of NCM's short term Guarantee, supported the construction that the pursuer sought to place on the provisions of Article 24c that were applicable to the present dispute.  Senior counsel for the pursuers acknowledged that it might appear anomalous that in the present case NCM should be entitled to recover 90% of the total recoveries made by Invergordon, leaving Invergordon to satisfy any claims in respect of the allowances they had agreed to pay, when their contract with the buyer had originally been entered into. Whilst it was possible to argue that NCM (and the pursuers) would make a profit in the present case, the size of that profit had been caused by the high allowances that Invergordon had agreed to pay to individuals connected to the buyer. Whereas NCM might benefit from a profit element in the circumstances of the present case, there might be other cases in which no recovery, or only limited recovery, was made and NCM would be significantly out of pocket. In these circumstances, the presence of a profit element in the present case did not mean that the construction of Article 24 argued for, on behalf of the pursuers, was wrong.  The construction argued for on behalf of the defenders would require the wording of Article 24 of NCM's short term Guarantee to be ignored. There was no doubt or ambiguity in the terms of that article, nor in any other part of NCM's short term Guarantee that was relevant to the present dispute. The approach to the pursuers to the construction of Article 24 produced a commercially sensible result.  Senior counsel for the pursuers submitted that the provisions of Article 4 did not cover the making of commission payments to recovery agents or the payment of allowances of the nature of the agency allowances paid by the defenders. Nor did the pursuers concede that the provisions of Article 4 applied to recoveries carried out by the defenders in accordance with their obligations under Article 23, or that the charges of recovery agents required to be taken into account, when the provisions of Article 24 were applied. It was also argued that the terms of the Guarantee did not afford any opportunity for recalculating, at a date subsequent to the settlement of the claim, the amount of loss which had previously been ascertained. There was no justification in implying any term into the contract between NCM and Invergordon. The implication of the term proposed by the defenders was not necessary. The highest that the defenders could put it was that the implication of such a term might make the contract between NCM and Invergordon more reasonable. That was not sufficient to warrant the implication of the term proposed by the defenders.  For these reasons, the first question should be answered on the basis that the pursuers should be paid in the proportion which NCM's payment to the Invergordon bore to the amount of the loss suffered by the Invergordon, after deduction of Specified Deductions. That proportion was 90%/10%. The second question should be answered in the negative. The sum to which the proportion of 90%/10% fell to be applied was £1,041,200, not £791,200.
Submissions on behalf of the defenders It was argued on behalf of the defenders that the first question should be answered to the effect that the pursuers were entitled to be paid in the proportion that the NCM's payment of £316, 859.22 to Invergordon had borne to the gross amount that the buyer had been due to Invergordon, when Invergordon had submitted their claim to NCM. In other words, the Specified Deductions of £452,144 should not be deducted from £804,210.58, before the proportion was calculated. It was submitted that in the event that the Court answered the first question in favour of the pursuers, the second question should be answered to the effect that the sum to which the 90%/10% proportion should be applied was the sum recovered from the buyer by Invergordon, net of all payments made by the defenders consequent on recovery, including their settlement of £250,000 in respect of the agency allowances.  In their written submissions, the defenders included a very helpful tabulation illustrating the dispute between the parties:
"2. Sums at a Glance
 Para 2.2 of the tabulation sets out the sum that would be payable if both questions were answered in the terms that the pursuers argued for. Para 2.3 indicates the sum that would be payable to the pursuers, if the first question was argued as the defenders contend it should be. Para 2.4 illustrates what would be due the pursuers if the second question was answered as the defenders contend it should be.  Senior counsel for the defenders submitted that a proper understanding of the Guarantee between NCM and Invergordon required consideration of three different phases in the contractual provisions:-
The computation of the sum paid under the guarantee is as follows:
The gross amount due by the buyers
Less Sum [B]
Assumed "specified deductions"
Payment under the guarantee: 90% of Sum [C] or 39.4% of Sum [A]
Computation of sum in third conclusion
Gross amount recovered from the buyers inclusive of interest
Less Sum [F]
Recovery of agents' commission of 33%
Net sum received from the recovery agents
Total sum pursuers say they are entitled to being 90% of Sum [G]
Payment to date by defenders. Should have been £410,232.80 (Sum [J]) - being 39.4% of Sum G.
Sum [H] less Sum [I]
The defenders' first argument
Gross amount recovered from the buyers inclusive of interest
39.4% of Sum G
Less Sum [I]
Sum already paid
Balance due by defenders
The defenders' second argument takes account of the agency commission (£250,000) that they paid on recovery of the price of the whisky but subject to that one alteration follows the same approach as taken by the pursuers in para.2.2 above.
Net sum received from the recovery agents
Less Sum [K]
Net balance recovered
90% of Sum [L]
Less Sum [I]
Sum already paid
1. The sum payable by the pursuers in respect of a claim under the Guarantee;
2. The provisions relating to mitigation of loss; and
3. The provisions relating to the apportionment of the recoveries. In determining the scope of the Guarantee, in a particular set of circumstances, consideration had to be given to (i) the relevant section of the Guarantee that was applicable, in the present case that being the Credit Risk Section A, and (ii) the particular cause of loss, in the present case the relevant one being R.02 in Article 12. For any loss arising from a default, as defined in R.02, the Guaranteed Percentage was 90% (Schedule 1). The Guarantee also specified the date on which the loss had to be ascertained. Where R.02 was relied upon, that date was six months after the due date for payment. Where the loss arose on account of the buyer's failure to pay for goods, the Guarantee defined the "loss" covered by the Guarantee "as the amount owed to the insured in connection with those goods less Specified Deductions".  Specified Deductions were defined in Article 9 as including any amount which the buyer was entitled to credit to his own account and any "expenses" saved by the insured by non-fulfilment of the contract or otherwise. The advertising allowance credited to the buyer of £15,400 was a Specified Deduction of category i.(a) (i). The agency allowances had been treated by the parties as falling with category i.(b), being "expenses" assumed to have been saved as a result of the buyer's default.  The Guarantee required the insurer to take steps to minimise loss. The relevant provisions were to be found in Articles 4 and 23. The contract provided that the insured would be reimbursed "for any costs and expenses that are properly and reasonably incurred in pursuance of these obligations". The reimbursement was to be "in the proportion to which the amount of loss ascertained in accordance with the Relevant Section is borne by each of them" or as may otherwise be agreed.  Recoveries were to be apportioned between the parties in accordance with Article 24. That article began by defining recoveries as, in effect, all sums received by or on behalf of the insured in relation to the contract. It then dealt with apportionment and provided that the recoveries were to be divided "in the proportion in which the amount of loss ascertained in accordance with the relevant section is borne by each of them". That was exactly the same formulation as applied to the reimbursement of "costs and expenses" in Article 4.  Senior counsel for the defenders submitted that, when answering the first question, a commercially sensible construction of Article 24c. should be preferred. Reliance was placed on Investors Compensation Scheme Ltd v West Bromwich Building Society  1 WLR 896, Bruce v Barrett Developments plc 1991 SC 348 and Bank of Scotland v Dunedin Property Investment Co 1998 SC 657. It was argued that it would not make any commercial sense to allocate to NCM a greater proportion of the recovery than they could ever have borne of the total loss covered by the guarantee, that loss being prima facie the loss of the price due by the buyer of the whisky, namely £804,210.58. Accordingly NCM should only receive 39.4% of the sum to be apportioned, rather than the 90% that the pursuers claimed. Having regard to the fact that the pursuers had already been paid £409,750.19, they were only entitled to a further £482.61, as set out in Para. 2.3 of the defenders' written submissions.  As far as answering the second question was concerned, senior counsel argued that the provisions in Article 4, referring to the reimbursement of costs and recoveries, were also applicable to the sum recovered by Invergordon, in terms of their obligations under Article 23, and to be divided between NCM and Invergordon, in accordance with the provisions of Article 24c. Before that sum was divided, Invergordon were entitled to have deducted not only the recovery agents' commission, but also the £250,000 they had paid in settlement of the claims for agency allowances. It could be concluded that payment of £250,000 in settlement of the claims for agency allowances had been properly and reasonably incurred. That payment had been made by Invergordon, as a direct consequence of their securing recovery from the buyer. To construe Article 24c as allowing that payment to be deducted from the sum to be recovered was a commercially sensible construction of that Article. In such circumstances, if the Court was against the defenders in answering the first question, the sum due to the pursuers should be limited to £302,329.81, as set out in Para. 2.4 of the written submission on behalf of the defenders.  In the alternative, senior counsel for the defenders argued that if I was not prepared to construe Article 2.4 in a manner that allowed the payment of £250,000 to be taken into account, then there was a lacuna in the terms of the Guarantee between NCM and Invergordon. The terms of the Guarantee did not deal with the type of factual situation which had arisen in the present case. Expenses, which would have been incurred by the Invergordon had their contract with the buyer been implemented, as originally intended, had been assumed to have been saved, when the Invergordon's claim under the Guarantee had been submitted and settled. That saving had not in fact been realised. In these circumstances, a term needed to be implied into the Guarantee that (a) where a deduction is made in respect of an assumed saving in assessing the guarantee payment, but (b) the saving is not realised, then credit should be given when apportioning any recovery to the extent that the assumed saving had not been achieved. That was necessary to achieve consistency. Otherwise NCM would have paid out on a net basis, which had assumed the saving of the Specified Deductions by Invergordon, but would receive a share of the recovery that ignored the fact that Invergordon had not in fact saved the full extent of the Specified Deductions. It that event, (i) NCM would have paid out £316,859.92 in the common belief of both NCM and Invergordon that the agency allowances, otherwise payable by Invergordon, had been saved, (ii) NCM would receive a total of £937,080, from the sum recovered by Invergordon, and (iii) Invergordon would be left with a nominal balance of £104,120, but in fact with a net loss of £145,000, once the payment of £250,000 was taken into account. That would be an absurd result.  Reference was made to The Moorcock (1889) 14 P.D. 64, Morton v Muir Bros 1907 SC 1211, Liverpool City Council v Irwin  AC 239 and Scottish Power plc v Kvaerner Construction (Regions) Ltd 1997 SLT 721.
Decision The parties were agreed that, in construing the provisions of Article 24c, I should follow the guidance to be found in the cases to which I have referred, Investors Compensation Scheme Limited v West Bromwich Building Society  1 WLR 896, Bank of Scotland v Dunedin Property Investment Co Ltd 1998 SC 657 and Bank of Credit and Commerce International S.A. v Ali & Others  1 AC 251. That involves seeking to determine the meaning which the terms of that Article would convey to a reasonable person, having all the background information that was known or should have been available to NCM and Invergordon, when the Guarantee was concluded. It is an objective exercise, involving an enquiry into what the terms of that Article mean, rather than what NCM and Invergordon may have intended them to mean. It is also an exercise which can be embarked upon by addressing what is the ordinary meaning of the words to be found in Article 24c.
Question 1 As far as question 1 is concerned, I have reached the conclusion that the submissions on behalf of the pursuers are to be preferred.  The sums of money to which Article 24c refers fall to be divided between the pursuers and the defenders 'in the proportion in which the amount of the loss ascertained in accordance with the Relevant Section is borne by each of them respectively'. As far as the Guarantee is concerned, the Relevant Section is the Credit Risk Section A of the General Conditions.  The loss suffered by Invergordon occurred by reason of the failure of the buyer to pay the amount they owed to Invergordon for the whisky, within 180 days after the Bill of Lading ("the Due Date for Payment") (Article 9 and Article 12, R.02). Article 20 provided that the date of ascertainment for such a loss would be six months after the Due Date for Payment.  Credit Risk Section A provided that NCM, as the insurer, would pay the Guaranteed Percentage of the amount of loss sustained by Invergordon, such amount of loss being the amount owed to Invergordon in connection with the whisky, less Specified Deductions. The Specified Deductions, as defined in Article 9, included "any expenses saved by the Insured by non-fulfilment of the contract or otherwise".  At the Due Date for Payment, the sum the buyer owed to Invergordon amounted to £832,962.36. In the claim form the Specified Deductions were entered by Invergordon as amounting to £452,144. That entry was accepted by NCM, when they settled Invergordon's claim. The entry accordingly had a bearing in ascertaining Invergordon's amount of loss at the figure of £380,818.36 and the ultimate settlement of Invergordon's claim by NCM paying 90% of £380,818.36, namely £361,777.74. In these circumstances, the Specified Deductions of £452,144 did not form part of the amount of loss that was ascertained and borne between NCM and Invergordon, after Invergordon's claim was submitted and settled. Of that ascertained amount of loss, namely £380,818.36, NCM bore 90% and Invergordon 10%.  In my opinion, when the provisions of Article 24c come to be applied to whatever sum falls to be apportioned between the pursuers and the defenders, the pursuers are entitled to 90% of that sum and the defenders to the balance of 10%. In my opinion, that follows from placing on the terms of Article 24c their ordinary meaning, a meaning which is also that which those terms would convey to a reasonable person with knowledge of the factual circumstances known to NCM and Invergordon, at the time they entered into the Guarantee.  Having regard to the agreed facts, as set out in the Joint Minute, I do not consider that the provisions of Article 24c can be construed to any different effect. In my opinion, the fact that such a construction may result in the pursuers receiving more than NCM paid out, when they settled Invergordon's claim, does not undermine the construction. That is because the closing words of the opening paragraph of Article 24c provide, in unambiguous terms, that the proportion to which it refers will be used in the division of sums recovered "whether or not division results in the retention by the Insurer of a greater or lesser sum that the amount paid by the Insurer under this Guarantee in connection with that amount of loss".  I agree with senior counsel for the pursuers that the proportion to which Article 24c refers is that in which the ascertained loss was borne by NCM and Invergordon, rather than the proportion in which the full loss that Invergordon, had incurred, or was understood to have incurred, had in fact been borne. The terms of the Guarantee did not entitle NCM to recover, in every instance, the full amount of what they may have paid in settlement of a claim under the Guarantee. However, the terms of the Guarantee are such that depending upon the figure at which the amount of the loss claimed by Invergordon was ascertained, NCM would have been entitled to recover the Guaranteed Percentage of 90% of any sums recovered by Invergordon. That is what the appropriate calculations justify in the particular circumstances of this case.  I also agree with senior counsel for the pursuers that the fact that the division of the recoveries in the proportions of 90%/10% would result in NCM being in profit, a profit from which the pursuers will now benefit, does not justify re-calculating the proportion on a different basis. In particular, it would not justify dividing the sum recovered on a basis that relates the sum actually paid by NCM to the total loss assumed to have been incurred by Invergordon, prior to making any deduction in respect of the allowances of £452,144. In my opinion, at the date that Invergordon's loss was ascertained, those allowances required to be treated as Specified Deductions, as defined in Article 9.
Question 2 As far as question 2, I have found this a much more difficult question to answer.  In my opinion, on a proper construction of Article 24c, the sum to which the proportion referred to in that Article falls to be applied is the sum that was recovered from the buyer by Invergordon, under deduction of the commission that the recovery agents retained, but not under deduction of the sum of £250,000, which Invergordon subsequently paid in settlement of the three claims in respect of agency allowances.  Clause 24c applies to the division of all sums recovered by Invergordon, the insured, and by NCM, the insurer. Any sum received by or on behalf of Invergordon, from the buyer, after the date of the ascertainment of the loss is a recovery covered by the provisions of Article 24a i. Article 24c, however, also applies to any sums recovered by the Insurer, NCM.  As senior counsel for the defenders pointed out, there is nothing in Article 24 that explicitly requires any costs and expenses, which Invergordon may have incurred in effecting recoveries, to be deducted from the sum recovered by them, before that sum is divided. In my opinion, however, giving the terms of Article 24c their ordinary meaning, they fall to be construed as allowing any costs and expenses incurred in seeking recovery of the sum due by the buyer to be deducted from any sum paid by the buyer, before it is determined what sum has been recovered and is available for division. Article 24c provides for the division of sums received by NCM and Invergordon. When the Guarantee was entered into, NCM and Invergordon envisaged the possibility that either of them might recover sums from the buyer, which they would then have to divide with the other. If Article 24c did not permit Invergordon to be reimbursed the costs and expenses they had incurred, in making recoveries from the buyer, nor would NCM have been able to do so, in the event that they had been the party that had made the recovery from the buyer.  In my opinion, whether one favours the approach of applying the principles of construction discussed in the speech of Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society, at page 921 H, with which Lord Hope of Craighead and Lord Clyde concurred, or whether one adopts the approach of seeking a "commercially sensible construction", which was favoured by Lord President Rodger, in Bank of Scotland v Dunedin Property Investment Co Ltd, at page 661 D, I consider that the meaning which the words of Article 24 c would convey to a reasonable person, who was conversant with the background to the Guarantee, is that if, after a claim was settled by NCM, either NCM or Invergordon recovered sums that fell to be apportioned between them, in terms of Article 24c, the sums to be apportioned would be the sums that had been recovered from the buyer, net of the costs and expenses incurred in doing so. In my opinion, no reasonable person would have construed those provisions as requiring either NCM or Invergordon to have borne by themselves the costs and expenses, such as the commission of recovery agents, which had been incurred in recovering sums from the buyer that then fell to be shared with the other party to the Guarantee.  Whilst the provisions of Article 4 continued to have effect after settlement of Invergordon's claim, the provisions of that Article are not, in my opinion, applicable to the discharge of Invergordon's obligations under Article 23 nor to the application of the provisions of Article 24.  For the purposes of the present action, the pursuers are, of course, prepared to concede that the commission retained by the recovery agents, who were instructed by Invergordon, should be left out of account. I recognise that, in making that concession, the pursuers have stressed that they do not acknowledge that they were under any obligation to do so. In my opinion, however, for the reasons I have explained, I consider that concession was correctly made and could not have been withheld.  In my opinion, the situation is different as far as the settlement of £250,000 is concerned. This relates to payments to third parties, as opposed to payments made as a necessary expense in effecting recovery from the buyer. Whilst those payments may have required to have been made to the third parties, as a consequence of Invergordon having effected recoveries from the buyer, I do not consider that the settlement of £250,000 can properly be regarded as having reduced the sum that was recovered from the buyer, in the same way that the payment of the recovery agents' commission did.  Furthermore, I do not consider that recourse to the provisions of Article 4 assists the defenders. Article 4b is concerned with the obligations on Invergordon, as the insured, to prevent or minimise any loss recoverable under the Guarantee. Whilst Article 23b confirms that those obligations remained in existence, after Invergordon's claim was paid, it is, in my opinion, clear that it was the provisions of Article 23a that required Invergordon to take the steps they did to recover payment from the buyer, not those set out in Article 4. In pursuing the buyer, after the claim had been settled, the pursuers were not seeking to "prevent or minimise loss that was recoverable under the Guarantee". They were fulfilling their obligations under Article 23a, which are couched in different terms.  Furthermore, the provisions of Article 4, dealing with costs and expenses, refer to the insured being reimbursed a proportion of such costs and expenses. It is clear that is not what the defenders argue for in the present action. The calculation set out in para 2.4 of the defenders' written submissions illustrates that the defenders wish to proceed on the basis that the recovery agents' commission and the settlement of £250,000 should both be deducted in full, from the sum Invergordon recovered from the buyer, before the resulting net sum is divided between NCM and Invergordon. The defenders are not contending that Article 24c. should be construed so as to allow the payment of £250,000 to be borne, in proportions, by both Invergordon and NCM. On the contrary, the defenders seek to deduct the whole of the £250,000 paid in respect of the agency allowances, from the sum to be apportioned between NCM and Invergordon.  In any event, there is the further point as to whether payments of the nature that Invergordon agreed to make to the third parties would have constituted "expenses" for the purposes of Article 4. I incline to the view that they would not, because had such payments been made before the amount of loss recoverable under the Guarantee had been ascertained and paid, the payments would have been taken into account in ascertaining the amount of the loss, as being relevant to the existence and amount of any Specified Deductions. In the circumstances of this dispute, the making of such payments by Invergordon, prior to the lodging their claim, would have excluded such payments being treated as Specified Deductions, within the meaning of Article 9. Likewise if the claims of the third parties in respect of the agency allowances had been compromised at £250,000 and such a payment had been made, that payment would have been taken into account in determining the extent of the Specified Allowances, rather that as being costs and expenses falling under Article 4.  In my opinion, the fact that, in the particular factual circumstances of the present dispute, the pursuers will recover substantially in excess of NCM's maximum liability under the Guarantee, does not provide support for the construction of Article 24c that is argued for by the defenders. Senior counsel for the defenders suggested that the outcome of the construction contended for by the pursuers would be "absurd". It could certainly be characterised as a surprising result. In my opinion, however the outcome of the apportionment in the present case could be characterised, such characterisation does not assist in construing the provisions of Article 24.  Nor is the construction favoured by the pursuers, which involves leaving the payment of £250,000 out of account, inconsistent with the terms of Article 24c. On the contrary, the provisions of Article 24c explicitly provide that the division of sums recovered in accordance with its provisions can occur whether or not such division results in the Insurer retaining a greater or lesser sum than the amount paid under the Guarantee by the Insurer, in connection with "the amount of loss ascertained in accordance with the Relevant Section". In any situation in which the Insurer ends up with a greater sum than they paid out, the Insured will inevitably end up with a lesser sum than they would have recovered, had they not made a claim under the Guarantee. That was a potential consequence or commercial risk for the Insured, when they submitted their claim under the Guarantee. In the circumstances of the present case it was a price that Invergordon ran the risk of paying, when Invergordon decided to submit a claim under the Guarantee. For these reasons, I consider that the construction that the pursuers seek to place on Article 24c is consistent with the general structure and the other provisions of the Guarantee.  In my opinion, it is important to bear in mind that the defenders do not seek to revisit the ascertainment of the amount of the loss, a calculation that was carried out before Invergordon received settlement of their claim. That is understandable. The provisions of the Guarantee do not provide for any recalculation to occur, when a claim has been submitted, determined and paid under the terms of the Guarantee. That is so, even when the claim has been made and determined on the basis of assumptions, such as the existence and extent of the Specified Deductions, which have turned out to be erroneous. Indeed, whether or not 'assumption' is the correct term to use, Invergordon's claim under the Guarantee was submitted and settled on a factual basis, which there is no provision for revisiting in the event that the factual basis changes in one respect or another.  In my opinion, the "sensible interpretation" contended for by the defenders, namely that the £250,000, which had formed part of the Specified Deductions, should be deducted from the sum recovered from the buyer, cannot be reconciled with the terms of Article 24c. It is argued that the "sensible interpretation" of Article 24c would take in account the "true extent of the Specified Deductions". In my opinion, however, the construction argued for by the defenders would involve recasting the provisions of that Article. In the first place it would alter the calculation of the sum to be divided in terms of Article 24c, by deducting from that sum not only the costs and expenses that the defenders had incurred in effecting recoveries from the buyer, but also the outlays incurred in settling debts due to third parties. Secondly, and more significantly perhaps, any alteration of the amount of the loss, in the light of subsequent events, would require adopting a date of ascertainment of loss different from that provided for in Article 20 of the Guarantee. Such alteration of the amount of loss would inevitably involve the adjustment (on possibly more than one occasion) of the proportion in which the amount of loss was being borne by the Insurer and the Insured. Such an adjustment of the proportion is, of course, what the defenders argue for in the present action.  In my opinion, the defenders would have been in a different position had Article 24c referred to "the loss which has been incurred by the Insured" or "the loss to which this Guarantee applies". Couched in those terms it would not be difficult to construe Article 24 as allowing for the loss to be recalculated in the light of subsequent events. In my opinion, however, the terms in which Article 24c are framed and indeed the whole structure of the Guarantee are inconsistent with the construction argued for by the defenders. For all these reasons, I have reached the conclusion that when Article 24c is construed, in accordance with the guidance to be found in the authorities to which I was referred, it cannot be construed as permitting payments to third parties, of the nature of the settlement of £250,000, to be deducted from any sum recovered by an insured in fulfilment of their obligations under Clause 23.  On an alternative basis, the defenders argued that in order to give business efficacy to the Guarantee, a term in the Guarantee should be implied "that (a) where a deduction is made in respect of an assumed saving in assessing the guarantee payment, but (b) the saving is not realised, then credit should be given when apportioning any recovery to the extent that that saving is not achieved".  In my opinion, it cannot be said that such an implied term is necessary to give business efficacy to the Guarantee. I am not persuaded that the defenders have satisfied the tests discussed in cases such as Liverpool City Council v Irwin and Scottish Power v Kvaerner Construction (Regions) Ltd. It may be that the circumstances of the present dispute can be described as anomalous. No doubt, in the circumstances that have unfolded, the presence in the Guarantee of a term of the nature that the defenders seek to have implied would result in what some observers might view as a more reasonable outcome of the current dispute between the parties, than the one the pursuers argue they are entitled to. Quite possibly such observers would take the view that it would be fairer if account could be taken of the expense that Invergordon incurred, in settling the claims in respect of the agency allowances, standing the fact that those agency allowances formed the major part of the Specified Deductions that had been taken into account when the amount of Invergordon's loss had been ascertained, in accordance with the provisions of the Guarantee. But such considerations do not, in my opinion, provide sufficient justification for implying the suggested term.  Furthermore, there is, in my opinion, some doubt as to how the term, which it is sought to imply, would itself fall to be construed and applied. What do the words "credit being given for the saving when apportioning any recovery" mean in practical terms? Would it necessarily involve the deduction of the whole of the payment of £250,000, from the sum to be divided in terms of Article 24c, before the division took place? Or would it permit apportioning the cost of that payment between NCM and Invergordon, in the proportion that "the amount of the loss ascertained in accordance with the Relevant Section" had been borne by them? Or is there a third possibility, namely recalculating "the amount of the loss ascertained in terms of the Relevant Section" in the light of the fact that the Specified Deductions have now proved to be different from those taken into account, when the amount of the loss was originally ascertained. Any such recalculation would, of course, have an inevitable impact on the proportion in which the amount of the loss has been borne between NCM, the insurer, and Invergordon, the insured.  The fact of the matter is that it is possible to operate the Guarantee, notwithstanding the absence of a term of the nature specified by the defenders. In my opinion, it cannot be said that if the proposed implied term had been suggested to NCM and Invergordon, before the Guarantee was entered into, both parties would have agreed, without hesitation, to the term being part of their contract. On the contrary, the Guarantee makes no provision for the amount of loss ascertained in accordance with the Relevant Section to be recalculated in the light of subsequent events. Yet the terms of Article 24c clearly recognise the possibility of NCM, as the insurer, ending up with a larger sum than they have paid out in settlement of any claim by Invergordon. That could only occur in the light of events subsequent to the submission and settlement of Invergordon's claim.  For all these reasons, I answer the second question on the basis that the sum recovered by Invergordon, to which the proportion falls to be applied, should not be reduced by the £250,000 paid by Invergordon in settlement of the claims in respect of agency allowances.  As agreed with counsel for both parties, I shall put this case out for a Procedural Hearing, to discuss what further orders parties wish me to make.