Matthew Purdon Henderson V. Foxworth Investments Limited+3052775 Nova Scotia Limited
| Jurisdiction | Scotland |
| Judge | Lord Menzies,Lord Marnoch,Lady Paton |
| Neutral Citation | [2013] CSIH 13 |
| Date | 01 March 2013 |
| Docket Number | A66/09 |
| Published date | 01 March 2013 |
| Court | Court of Session |
| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lady Paton Lord Menzies Lord Marnoch | [2013] CSIH 13 A66/09 OPINION OF LADY PATON in the cause MATTHEW PURDON HENDERSON (Liquidator of Letham Grange Development Company Limited) Pursuer and Reclaimer; against (FIRST) FOXWORTH INVESTMENTS LIMITED (SECOND) 3052775 NOVA SCOTIA LIMITED Defenders and Respondents: _______________ |
Pursuer and Reclaimer: Lord Davidson of Glen Clova QC, D Thomson;
Burness Paull & Williamson
First and Second Defenders and Respondents: Sandison QC; Halliday Campbell
1 March 2013
Introduction
[1] In this action, the liquidator of a company known as Letham Grange Development Company Limited (LGDC) seeks reduction of a standard security dated 6 January 2003 granted over LGDC's heritable property. A proof before answer took place in 2010. The liquidator contends that one inference arising from the evidence was as follows.
[2] In 2001, LGDC was in financial difficulties. Mr Liu, a director with control of LGDC, arranged the sale of the company's principal asset, namely a country club (Letham Grange) extending to 283 acres and worth £1.8 million, at an undervalue of £248,100 to another company which he controlled, namely NSL. After the appointment of the liquidator to LGDC on 15 November 2002, Mr Liu arranged for the granting of a standard security dated 6 January 2003 by NSL over the country club, neither in good faith nor for value, in favour of a third company (Foxworth) which he controlled. Those transactions were carried out, it is said, with a view to placing the valuable heritable property beyond the reach of the liquidator, thus defeating the claims of LGDC's creditors.
[3] On 12 April 2011 the Lord Ordinary, having heard evidence and submissions, refused to grant the reduction sought, and assoilzied the defenders. The liquidator now reclaims.
The litigation history
[4] The liquidator's current action for reduction of the standard security is not the first action raised in connection with Letham Grange. There has been a protracted history of litigation dating back to 2003. In particular, on 11 April 2003, the liquidator raised an action seeking reduction of the 2001 disposition. On 9 December 2003, Lord Carloway granted summary decree. A reclaiming motion was marked and the pleadings were amended. The Inner House recalled the summary decree and remitted the action to the Outer House to proceed on the basis of the amended pleadings. On 21 April 2004 Lord Carloway again granted summary decree. A reclaiming motion was unsuccessful (2005 1 SC 325). However an appeal to the House of Lords was successful (2006 SC (HL) 85). The matter was remitted back to the Court of Session. At a proof before answer, the defenders failed to appear. Decree in absence was granted on 6 January 2009 (not 6 December 2009 as noted in paragraph [5] of the Lord Ordinary's opinion dated 12 April 2011).
[5] Later in 2009, the liquidator raised the present action seeking reduction of the 2003 standard security. Article 4 of Condescendence states inter alia:
"COND 4 [NSL's] title to grant any heritable security over the subjects has been reduced. The effect [of] the decree of reduction is qualified by the provisos to sections 242(4) and 243(5) of the 1986 Act. The decree is without prejudice to any right or interest acquired in good faith and for value. The [liquidator] challenges the deed purporting to create the standard security on two grounds:
1. [Its formal validity, a ground no longer insisted upon by the liquidator.]
2. In any event, as hereinafter condescended upon in Articles 6 and 7, the [liquidator] maintains that the rights of [Foxworth] under the standard security ... were not acquired in good faith, even if they were acquired for value (which is not known). He seeks reduction in terms of the second conclusion ..."
The second plea-in-law is as follows:
"2. [NSL] having no title to grant the standard security, and any right or interest that [Foxworth] may have under it not having been acquired in good faith and for value, decree of reduction should be granted as second concluded."
The standard security challenged
[6] The standard security bearing the date 6 January 2003 granted by NSL in favour of Foxworth provides inter alia:
"We [NSL] ... hereby undertake to pay to [Foxworth] ... all sums due and that may become due by us to [Foxworth] in respect of a personal bond and debt agreement with interest from 25 January 2001 at 8.5 % per annum ...; For which we grant a standard security in favour of [Foxworth] over ALL and WHOLE the subjects known as Letham Grange ... [subject to certain standard conditions] ... Upon any of the above named defaults, [Foxworth] will immediately take possession of the collateral and become the rightful owner of the whole subjects ..."
The standard security was drafted by the company director in question, Mr Liu. It was signed in Taipei on 6 January 2003 by Miss Lee Fon Yi (see paragraphs [22] and [44] below). It was not presented to be registered in the Land Register until 20 June 2003.
The questions at issue: whether transactions in good faith and for value
[7] Sections 242 and 243 of the Insolvency Act 1986 provide for the reduction of gratuitous alienations and unfair preferences, but with the following provisos:
Section 242(4): gratuitous alienations
"On a challenge being brought under subsection (1), the court shall grant reduction ...; but the court shall not grant such decree if the person seeking to uphold the alienation establishes - ...
(b) that the alienation was made for adequate consideration, ...
Provided that this subsection is without prejudice to any right or interest acquired in good faith and for value from or through the transferee in the alienation."
Section 243(5): unfair preferences
"On a challenge being brought under subsection (4) above, the court, if satisfied that the transaction is a transaction to which this section applies, shall grant decree of reduction ...
Provided that this subsection is without prejudice to any right or interest acquired in good faith and for value from or through the creditor in whose favour the preference was created."
[8] The 2001 disposition has already been reduced by decree in absence dated 6 January 2009. However it would be unrealistic to view the 2003 standard security in isolation. On the contrary, I consider it necessary to have regard to the whole picture, and therefore to take into account all the surrounding circumstances including the purchase of Letham Grange by LGDC in 1994, the sale of Letham Grange to NSL in 2001, and the circumstances surrounding the 2003 standard security.
[9] Thus the questions at issue in this case are whether the rights or interests acquired as a result of the 2001 disposition and the 2003 standard security were acquired in good faith and for value. In that context, the fact that Mr Liu was, at all relevant times, a director of LGDC, NSL, and Foxworth, with control of those companies, gives rise to an inference that each of these companies had knowledge of the circumstances and the affairs (including the financial affairs) of the other companies. I therefore agree with the Lord Ordinary's summation at paragraphs [20] and [23] to [24] of his opinion, where he states:
"[20] In many cases, the critical question relevant to the issue of good faith is whether it can be shown that the third party acquiring some right or interest in the property did so with knowledge of the circumstances which (later) led to the reduction of the title of the person from whom he acquired such right or interest. If that were the main issue, then, subject to one point of law, it might be thought that there would be little difficulty in the present case. It is accepted that [LGDC], NSL and Foxworth all had at least one common director ... Mr Liu. He is the principal actor in the events with which this action is concerned ...
[23] I accept that the [liquidator] has made no averments instructing a case that Mr Liu was the directing mind of Foxworth or that he was the person at Foxworth responsible for making the relevant decisions in terms of which Foxworth acquired rights under the standard security. But the evidence adduced by the defenders themselves made it clear that this was Mr Liu's role in the company. In para.17 of his witness statement, Mr Liu described briefly the circumstances in which the standard security came about:
'In around 2003, I agreed with my wife and parents that [Foxworth], another of our family companies, would undertake some of the liability to repay them ... Eventually, when we decided that Foxworth would assume liability to repay money to my family, I decided that I would get a fresh standard security and personal bond drawn up. Foxworth assumed liability to pay £2,000,000 in total and the personal bond was for that sum ...'
In that passage Mr Liu referred to agreeing with his wife and parents that Foxworth would undertake the liability. In their evidence, his wife, his father and his mother each confirmed that they left the running of the family business interests, of which Foxworth was part, to him. It is clear, therefore, from this evidence that Mr Liu took all the material decisions on behalf of Foxworth and, specifically, took the decisions relating to the acquisition by Foxworth of rights under the standard security. In those circumstances I have no difficulty in finding that Mr Liu was, indeed, the directing mind of Foxworth; and, since the evidence was introduced by the defenders themselves and without objection, it is now too late for them to contend that the [liquidator] cannot rely upon it in support of his case on attribution of knowledge.
[24] I have no doubt that, in the present case, the knowledge of Mr Liu about the circumstances of the disposition to NSL can be attributed to Foxworth."
Key events from 1994 to date
[10] I am indebted to the Lord Ordinary's opinion for much of the information...
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