(first) Eileen Blackburn And (second) Echelon Wealth Management Limited (in Liquidation) Against (first) Barnett Alexander And (second) Quarters Trustees Limited
| Jurisdiction | Scotland |
| Judge | Lord Jones |
| Neutral Citation | [2015] CSOH 179 |
| Year | 2015 |
| Date | 23 December 2015 |
| Court | Court of Session |
| Published date | 23 December 2015 |
| Docket Number | CA158/14 |
OUTER HOUSE, COURT OF SESSION
[2015] CSOH 179
CA158/14
OPINION OF LORD JONES
In the cause
(FIRST) EILEEN BLACKBURN; and (SECOND) ECHELON WEALTH MANAGEMENT LIMITED (IN LIQUIDATION)
Pursuers;
against
(FIRST) BARNETT ALEXANDER; and (SECOND) QUARTERS TRUSTEES LIMITED
Defenders:
Pursuers: MacDougall; Halliday Campbell WS
First Defender: Roxburgh; TLT LLP
23 December 2015
Introduction
[1] The first pursuer is the liquidator of the second pursuer (“Echelon”). She seeks declarator that a payment of £200,000, which was made on or about 27 May 2008 by Echelon to the first defender’s SIPP, was a gratuitous alienation, and she seeks payment of that sum. The first and second defenders are trustees of the SIPP. In his answers to the condescendence, the first defender avers that, on or about 10 October 2008, the £200,000 was repaid to Echelon. The case came before the court on 24 and 25 April 2015 for a preliminary proof, on the question whether the £200,000 was repaid to Echelon as the first defender avers.
Agreed facts
[2] The following facts were admitted or agreed. The first defender and Steven Alexander were directors and shareholders of Echelon. Echelon’s business involved trading contracts for differences. The nature of such contracts was explained in evidence, but it is unnecessary to record that explanation in this opinion. In January 2007, Echelon began doing business with IG Markets Ltd (“IG”). The terms of the parties’ agreement are documented in a contract (“the white label agreement”) dated 17 and 23 January 2007, which is at tab 4 of the joint inventory of productions, number 23 of process. In terms of the white label agreement, IG opened a trading account with Echelon (the “head account”). IG also opened designated sub‑accounts for Echelon in relation to transactions with its clients (the “trading accounts”).
[3] The trading accounts were each designated with four digit codes which were unique to a particular client of Echelon, for example E4123, E4124, and so on. Echelon was liable to IG for any net debit balance on the trading accounts and the head account taken together (“the accounts”). I refer to that as “the pooling arrangement”. IG would only effect an electronic funds transfer to one of Echelon’s bank accounts with the Royal Bank of Scotland (“RBS”) if there was a net credit balance on Echelon’s accounts with IG.
[4] On or about 27 May 2008, four cheques, each for £200,000, were drawn on one of Echelon’s bank accounts with RBS. These cheques were payable to the first defender, Steven Alexander, and two other individuals. The first defender’s cheque was paid into his SIPP account. The other three cheques were cancelled. The circumstances are explained later.
[5] On 9 October 2008, the sum of £250,000 was transferred from the first defender’s trading account to Steven Alexander’s trading account. £250,000 was transferred from Stephen Alexander’s trading account to the head account on 10 October 2008. That series of transactions is referred to in this opinion as “the transfer”. The net effect of the transfer was that the balance of the first defender’s trading account was reduced by £250,000, and the balance of the head account was increased by £250,000. It had no effect on the balance of the overall position between Echelon and IG.
[6] A provisional liquidator was appointed to Echelon on 17 October 2008.
The dispute
[7] The pursuers aver that the payment of £200,000 which was put into the SIPP account was a gratuitous alienation. The first defender maintains that £200,000 of the transfer represented repayment of that sum. The pursuers rely on the provisions of section 242 of the Insolvency Act 1986 (“the Act”) which, so far as is relevant to this action, provides as follows:
“242.— Gratuitous alienations (Scotland).
(1) Where this subsection applies and—
(a) the winding up of a company has commenced, an alienation by the company is challengeable by—
…
(ii) the liquidator;
…
(2) Subsection (1) applies where—
(a) by the alienation, whether before or after 1st April 1986 (the coming into force of section 75 of the Bankruptcy (Scotland) Act 1985), any part of the company's property is transferred or any claim or right of the company is discharged or renounced, and
(b) the alienation takes place on a relevant day.
(3) For the purposes of subsection (2)(b), the day on which an alienation takes place is the day on which it becomes completely effectual; and in that subsection ‘relevant day’ means, if the alienation has the effect of favouring—
(a) a person who is an associate (within the meaning of the Bankruptcy (Scotland) Act 1985) of the company, a day not earlier than 5 years before the date on which—
(i) the winding up of the company commences, …
…
(4) On a challenge being brought under subsection (1), the court shall grant decree of reduction or for such restoration of property to the company's assets or other redress as may be appropriate; but the court shall not grant such a decree if the person seeking to uphold the alienation establishes—
…
(b) that the alienation was made for adequate consideration,”
[8] The first defender admits that he was an associate of Echelon, within the meaning of the Bankruptcy (Scotland) Act 1985, at the relevant time. The action is defended on the first defender’s assertion that the £200,000 that was paid into the SIPP account was repaid to Echelon, in the circumstances narrated in paragraph [5] of this opinion.
The evidence
[9] The only witness called on behalf of the pursuers was David McGinness. He is currently employed as a senior manager in the Glasgow office of French Duncan LLP. He spoke to various qualifications which he had gained, and said that he joined French Duncan as an external consultant in August 2009, specifically to deal with the liquidation of Echelon. He became a full‑time employee in May 2012.
[10] Mr McGinness adopted his witness statement as his evidence. He explained the relationship between Echelon and IG, and the agreed facts reflect his evidence on that matter. He narrated the circumstances in which the four cheques were drawn in May 2008. Of the transfer, Mr McGinness expressed the view that it did not have the effect of increasing Echelon’s assets “by any amount whatsoever”, and that it cannot be said that the £200,000 paid into the first defender’s SIPP account was repaid.
[11] The first witness called on behalf of the first defender was Stephen Alexander. He had sworn an affidavit, which he adopted as his evidence. I set out those passages in his evidence, which are relevant to the resolution of the dispute between the parties, later in this opinion, as I do with the evidence of the first defender, who was the second and final witness called by his counsel.
Submissions for the pursuers
[12] The pursuers advance two propositions in support of their case. The first is that the transfer of funds from the first defender’s trading account to the head account was not intended to be a repayment. The second is that, even if it was, the transfer had no material or patrimonial value and, therefore, cannot constitute a repayment.
[13] Mr MacDougall, who appeared for the pursuers, submitted that, in the circumstances of this case and having regard to the terms of section 242 of the 1986 Act, the only possible basis on which it could be held that the payment to the SIPP account was not a gratuitous alienation is if it was made for “adequate consideration”. “Consideration”, said counsel, is not defined in the Act but has “an approved judicial definition”, to be found in MacFadyen’s Trustee v MacFadyen 1994 SC 416 (“MacFadyen’s Trustee”).
[14] That case arose out of a dispute between a trustee in bankruptcy and the bankrupt. The bankrupt agreed with a lender to be named as the owner of a joint pro indiviso share in a house, together with his mother, in order to satisfy a condition of the mortgage. He paid no sum towards the mortgage or any other cost associated with the purchase. Once the mortgage was paid off, the bankrupt transferred his joint pro indiviso share to his mother. On bankruptcy, the trustee argued that the transfer was a gratuitous alienation. The judge at first instance allowed a proof, restricted to ascertaining the value of the property. The defender reclaimed.
[15] The reclaiming motion came before an Extra Division. Lord McCluskey delivered the opinion of the court and, at page 421F, said this:
“The word ‘consideration’ is not defined in the Act and we consider that it must be given its ordinary meaning as something which is given, or surrendered, in return for something else. If something is given without any return being demanded or expected or obtained and at the time of giving is not intended to be regarded as a consideration of some past, present or future return — which appears to have been the position in regard to the gratuitous services in Dawson v. Thorburn — that which is given cannot later be converted into a consideration just because at the later date the giver and receiver chose so to describe it. A consideration appears to us to acquire its character as a consideration not later than the time when the giving or surrendering takes place. In the context of bankruptcy law, the bankrupt debtor must be regarded as a trustee for the creditors in respect of such of his assets as are under his control. In that context, it is our view that a consideration must mean something of material or patrimonial value which could be vindicated in a legal process, whether by being claimed or possibly by being pled in answer to another's claim. A principal purpose of the Bankruptcy (Scotland) Act 1985 is to regulate intromissions by a debtor with his material assets in order to safeguard the interests of his creditors… These interests are patrimonial and able to be vindicated by legal process. It would be curious if the very section, sec. 34, which is specifically intended to safeguard...
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