Henderson v 3052775 Nova Scotia Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 10 May 2006 |
| Neutral Citation | [2006] UKHL 21 |
| Date | 10 May 2006 |
| Docket Number | No 4 |
| Court | House of Lords |
[2006] UKHL 21
HOUSE OF LORDS
Ordered to Report
The Committee (Lord Bingham of Cornhill, Lord Hoffmann, Lord Hope of Craighead, Lord Rodger of Earlsferry, Lord Mance) have met and considered the cause Henderson (Respondent) v. 3052775 Nova Scotia Limited (Appellants) (Scotland). We have heard counsel on behalf of the appellants and respondent.
This is the considered opinion of the Committee.
The appellants are 3052775 Nova Scotia Ltd ("Nova Scotia"), a company incorporated under the Companies Acts of the Province of Nova Scotia, Canada. On 12 February 2001 Letham Grange Co Ltd ("Letham Grange") executed a disposition in favour of Nova Scotia of heritable property known as the Letham Grange Country Club and Resort in Angus ("the subjects"). The subjects comprise a hotel and two golf courses. The disposition narrated that the consideration in respect of which it had been granted was £248,100.
One striking feature of the case is that the same individual was very much involved in the affairs of both Letham Grange and Nova Scotia. That individual, who is Taiwanese by birth, is variously known as Dong-Guang Liu, J Michael Colby, Peter Liu and (in Japan) Tong Kuang Liu. So some of the documents in the case are written to and from the same individual, acting in different capacities and under different names. For convenience, we shall generally refer to him as Mr Liu.
On 15 November 2002 Letham Grange went into provisional liquidation. On 14 February 2003 the respondent, Matthew Purdon Henderson, was appointed its liquidator ("the liquidator").
Thereafter the liquidator raised an action against the appellants, seeking reduction of the disposition on the ground that it represented a gratuitous alienation in terms of section 242 of the Insolvency Act 1986. Section 242(1) provides that, where the subsection applies and the winding up of a company has commenced, an alienation by the company is challengeable by the liquidator. It is common ground that subsection (1) applies. Section 242(4) provides inter alia:
"On a challenge being brought under subsection (1), the court shall grant decree of reduction … 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 …"
As the liquidator averred, Letham Grange had bought the subjects in 1994 for £2,105,000. In November 2002 the hotel and golf courses were valued as a going concern at approximately £1,800,000. After his appointment as liquidator, in order to preserve the value of the subjects for the creditors, the liquidator continued to trade, but Mr Woolman QC, who appeared for the liquidator, informed us that the hotel eventually closed in October 2004 while the bar and golf courses have continued to trade. In these circumstances the liquidator sought reduction of the disposition of the subjects on the ground that the consideration of £248,100 for the alienation of the subjects had not been adequate.
In their defences the appellants admitted that Letham Grange had acquired the subjects in 1994 for £2,105,000 and that they had been valued at approximately £1,800,000 in November 2002. The appellants explained that Letham Grange had financed the purchase of the subjects in 1994 by borrowing from various members of Mr Liu's family and from the Coquihalla Development Co Ltd and the Sanwa Bank. The appellants also admitted that Letham Grange had granted a disposition of the subjects in their favour but, in broad outline, they averred that in fact the sum of £248,000, which was the purchase price in the missives and disposition, represented only part of the consideration. In addition, the appellants had assumed £1.85 million of debt which Letham Grange had owed to the Liu family as a result of the loans made in 1994.
It is accepted that Letham Grange was insolvent in February 2001. Therefore, what the appellants are in effect saying is that Nova Scotia obtained title to the only substantial asset of Letham Grange and that asset was then available to pay off the Liu family creditors in preference to Letham Grange's other creditors. But the liquidator founds no argument on that aspect of the case and so we say no more about it.
We should record that, in the course of his submissions before the House, Mr Woolman sought leave to argue that it was not open to the appellants to lead evidence which was designed to contradict the terms of the disposition by showing that the consideration had not simply been the purchase price shown in the disposition, but had included the debt of Letham Grange which the appellants say that they had assumed. We refused counsel leave to introduce this point since it had not been argued below and since it would seem to raise potentially far-reaching legal issues which, as we shall explain, would not be suitable for resolution on a motion for summary decree.
After the record closed, in November 2003 the pursuer enrolled a motion for summary decree in terms of rule 21.2 of the Rules of the Court of Session. Rule 21.2(1) is in these terms:
"Subject to paragraphs (2) to (5) of this rule, a pursuer may, at any time after a defender has lodged defences while the action is depending before the court, apply by motion for summary decree against that defender on the ground that there is no defence to the action, or a part of it, disclosed in the defences."
Rule 21.2(4) provides:
"On a motion under paragraph (1), the court may -
(a) if satisfied that there is no defence to the action disclosed or to any part of it to which the motion relates, grant the motion for summary decree in whole or in part, as the case may be; or
(b) ordain any party, or a partner, director, officer or office-bearer of, any party -
(i) to produce any relevant document or article;
(ii) to lodge an affidavit in support of any assertion of fact made in the pleadings or at the bar.
On 27 November 2003, of consent, the Lord Ordinary continued the cause until the following week. On 2 December Lord Carloway heard counsel on the liquidator's motion for summary decree and on 9 December he granted the motion. He subsequently granted leave to reclaim. On 5 March 2004 the Inner House allowed a minute of amendment for the appellants to be received and the pleadings to be adjusted. On 17 March the Inner House recalled the summary decree and remitted the case to the Outer House for a further hearing in light of the amended pleadings. That hearing also took place before Lord Carloway, who again granted summary decree of reduction of the disposition. Once more he granted leave to reclaim and, eventually, on 18February 2005 an Extra Division (Lord MacLean, Lord Philip and Lord Hardie) refused the reclaiming motion and adhered to the Lord Ordinary's interlocutor: 2005 1 SC 325. The overall view of the Extra Division can be gauged from a sentence towards the end of the opinion of the court given by Lord Hardie, at p 334, para 17: "Having considered the pleadings and the documents lodged in process we have concluded that the defence is neither genuine nor authentic."
The appellants appealed to this House against the interlocutor of the Extra Division. We have come to the conclusion that, as Mr Sandison submitted in the course of his well presented submissions on behalf of the appellants, the decision of the Extra Division cannot be supported.
It is common knowledge that rule 21.2 was inserted into the Rules of Court in 1985 to tackle what was widely perceived to be an abuse of the pre-existing procedure. Put shortly, a defender could lodge skeleton defences denying the pursuer's averments, but either not making any positive case of his own or making a factual case which was relevant but demonstrably unfounded. When faced with skeleton defences, pursuers could ask for the record to be closed early, but they were still liable to have difficulty in obtaining decree without going to proof since a defender could rest on his denials of the pursuer's averments and insist on putting the pursuer to proof. This meant that a pursuer who actually had an unanswerable case might experience a delay of years before he obtained decree. While judges sometimes felt able to help pursuers in this predicament by taking a robust view of skeleton defences of this kind, the position overall was uncertain and unsatisfactory. What is now rule 21.2 was intended to provide a way of tackling abuses of this kind.
The first point to notice is that a motion for summary decree under the rule can be made at any time after defences are lodged. This means that, in an appropriate case, the court can deal with a potential abuse at an early stage without waiting for the record to close. Rule 21.2(4) gives the court a power to grant the motion, but does not require it to do so where it would not be appropriate in all the circumstances: Frew v Field Packaging Scotland Ltd 1994 SLT 1193, 1195F per Lord Prosser. Next, what the pursuer is entitled to seek is summary decree. The very description "summary" decree indicates that the procedure is intended to be used where the matter can be determined in a summary fashion, without there being any need for a prolonged examination of matters of fact or law. Of course, in practice motions of this kind are likely to take longer than more routine motions: we were told, for instance, that the hearing before the Lord Ordinary had taken the greater part of a day, while the hearing before the Extra Division had taken about a morning. The length of the hearing is likely to depend on such factors as the amount of material to be considered, its nature and how much of it is in dispute.
Rule 21.2 applies where the...
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