Matthew Purdon Henderson V. Foxworth Investments Limited &c
| Jurisdiction | Scotland |
| Judge | Lord Glennie |
| Neutral Citation | [2011] CSOH 66 |
| Docket Number | CA166/09 |
| Court | Court of Session |
| Published date | 12 April 2011 |
| Date | 12 April 2011 |
| OUTER HOUSE, COURT OF SESSION [2011] CSOH 66 | |
| CA166/09 | OPINION OF LORD GLENNIE in the cause MATTHEW PURDON HENDERSON, Chartered Accountant, Messrs Johnston Carmichael, 7-11 Melville Street, Edinburgh as Liquidator of Letham Grange Development Company Limited, a company incorporated under the Companies Acts and having its registered office at 1/4 Atholl Crescent, Edinburgh, EH3 8LQ Pursuer; against (First) FOXWORTH INVESTMENTS LIMITED, a company incorporated under the Companies Acts of the Province of Nova Scotia, Canada, and having its registered office at 1300-1969 Upper Water Street, Purdy's Wharf Tower II, Halifax, Nova Scotia, B3J 3R7, Canada and (Second) 3052775 NOVA SCOTIA LIMITED (Company Number 3052775), a company incorporated under the Companies Acts of the Province of Nova Scotia, Canada, and having its registered office at 1300-1969 Upper Water Street, Purdy's Wharf Tower II, Halifax, Nova Scotia, B3J 3R7, Canada Defenders: ________________ |
Pursuer: Moynihan Q.C.; Miss Muirs; Balfour + Manson LLP
Defenders: Sandison Q.C.; Halliday Campbell
12 April 2011
Introduction
[1] The pursuer is the liquidator of Letham Grange Development Company Limited (variously "LGDC" or "the Company"). He sues for declarator that "the pretended standard security" granted by the second defenders ["NSL"] in favour of the first defenders ["Foxworth"] dated 6 January 2003 in respect of subjects known as Letham Grange, by Arbroath ["the subjects"], is void and unenforceable; and for production and reduction of that pretended standard security.
[2] The circumstances giving rise to this action are as follows. On 12 February 2001 the Company sold the subjects to NSL. An application was made to register the disposition in the Land Register of Scotland under title number ANG11868.
[3] In November 2002 winding up proceedings were commenced in respect of the Company in the Glasgow sheriff court. The pursuer was appointed provisional liquidator on 15 November 2002, interim liquidator on 3 December 2002 and liquidator on 14 February 2003. The effective date of the liquidation was 3 December 2002.
[4] In April 2003 the pursuer commenced an action against NSL in the Court of Session seeking reduction of the sale on the grounds that it was:
(a) a gratuitous alienation in terms of section 242 of the Insolvency Act 1986,
(b) a fraudulent preference at common law and/or
(c) an unfair preference to which section 243 of the Insolvency Act 1986 applied.
I shall refer to that action as "the first action".
[5] The first action had a lengthy procedural history, much of which is recorded in the speech of Lord Rodger of Earlsferry in Henderson v 3052775 Nova Scotia Limited 2006 SC (HL) 85. In short, the pursuer obtained summary decree in the Outer House and NSL's reclaiming motion to the Inner House was refused; but the House of Lords allowed NSL's appeal on the ground that its defences raised issues which were inappropriate for disposal by summary decree and could only be properly resolved after the hearing of evidence. The case was remitted to the Court of Session. A diet of proof was fixed to begin on 6 January 2009. In the event, the proof did not take place. In the present action, the defenders (both Foxworth and NSL) aver that, in the first action, the solicitors for NSL withdrew from acting in advance of the diet of proof, and that NSL was unable to obtain either alternative representation or a discharge of the proof diet. In the event, therefore, the court pronounced decree of reduction on 6 December 2009 in default of NSL's appearance at the diet of proof without making any substantive determination of the legal or factual issues between the parties.
[6] There was at one time an issue between the parties as to whether, in the present action, that decree, being by default and not being a decree upholding any one of the three separate grounds of action, could give rise to a plea of res judicata against NSL. The pursuer, rightly in my view, does not now take the res judicata point, recognising that, even if the issue were res judicata against NSL, it would not be res judicata against Foxworth. However, that still leaves a question as to the basis upon which the disposition was reduced. I shall return to this point later in this Opinion.
[7] On 6 January 2003, before the commencement of the first action (between the pursuer and NSL) and long before the decree of reduction of the disposition in favour of NSL, NSL granted a deed purporting to be a standard security over the subjects in favour of Foxworth. The deed is in the following terms:
"STANDARD SECURITY
WE, 3052775 NOVA SCOTIA LIMITED (Company Number 3052775) incorporated under the Companies Acts of the Province of Nova Scotia, Canada having our Registered office at Suite 1100-1959 Upper Water Street, Halifax, Nova Scotia, Canada, hereby undertake to pay to FOXWORTH INVESTMENTS LIMITED (Company Number 3037857), incorporated under the Companies Acts of the Province of Nova Scotia, Canada having our Registered office at Suite 1100-1959 Upper Water Street, Halifax, Nova Scotia, Canada, all sums due and that may become due by us to the said Foxworth Investments Limited in respect of a Personal Bond and Debt Agreement with interest from Twenty fifth January, Two thousand and one at eight point five per cent per annum payable half-yearly in arrears on Twenty fifth January and Twenty fifth July commencing on Twenty fifth July Two thousand one; For which we grant a Standard Security in favour of the said Foxworth Investments Limited over ALL and WHOLE the subjects known as Letham Grange, by Arbroath and registered in the Land Register of Scotland under Title Number ANG 11868; The standard conditions specified in Schedule 3 to the Conveyancing and Feudal Reform (Scotland) Act 1970, and any lawful variation thereof operative for the time being, shall apply; 3052775 NOVA SCOTIA LIMITED will not without Foxworth's prior written consent, sell, lease, or otherwise dispose of the Collateral; should 3052775 NOVA SCOTIA LIMITED default on any of its obligations, become insolvent, a receiver or similar official is appointed in respect of any its property, or the holder of a charge takes possession of all or any part of its property, etc., --- Upon any of the above named defaults, Foxworth Investments Limited will immediately take possession of the Collateral and become the rightful owner of the whole subjects registered In the Land Register of Scotland under Title Number ANG 11868; Foxworth Investments Limited will not be liable to 3052775 NOVA SCOTIA LIMITED or any other Person for any failure or delay in exercising any of its rights under this Agreement; And we grant warrandice; And we consent to registration for execution.
IN WITNESS WHEREOF these presents are executed in the manner underwritten.
Subscribed for and on behalf of and signed at Taipei on 6th day of January 2003 by
[signature]
--------------------------------------------
3052775 NOVA SCOTIA LIMITED
Lee Fon Yi, Director
[signature]
-------------------------------------
Zhiang Kwei Zhong, Witness
address: #58, Sec.3 Lane 99
39 Ran, Kanlin Road
Taipai, Taiwan, ROC"
An application was made on 20 June 2003 to the Land Register of Scotland to register that deed as a standard security.
[8] The pursuer now seeks to reduce that standard security. He puts forward two grounds for reduction. First, he contends that the deed does not validly create a standard security and is therefore void. That gives rise to an argument about the form and terms of the deed and its compliance with the requirements of the Conveyancing and Feudal Reform (Scotland) Act 1970. The second ground is that, even if in form and content the standard security is not thereby rendered invalid, the rights acquired by Foxworth under the standard security were not acquired in good faith even if ("which is not known") they were acquired for value. It is convenient to take this latter point first.
Did Foxworth acquire rights under the standard security for value and in good faith?
[9] Although the sale to NSL has been reduced, and with it NSL's title to grant any heritable security over the subjects which had been conveyed to it by the disposition, the question still arises as to the effect of that decree of reduction on rights acquired by a third party prior thereto. In the first action, the pursuer sought reduction on three grounds, two of them statutory and one at common law. The position of a third party consequent upon reduction on one or other of those grounds requires to be addressed. In so far as the ground on which a disposition might be reduced is one or other of the two statutory grounds - viz. a gratuitous alienation in terms of s.242 of the 1986 Act, or an unfair preference under s.243 - the effect of the reduction of that disposition is qualified by the provisos to those sections. However, in so far as a disposition might be reduced as a fraudulent preference at common law, the position is somewhat different. I take each in turn.
Reduction under ss.242 and/or 243 of the 1986 Act
[10] Ss.242 and 243 of the 1986 Act provide, so far as material to this action, as follows:
"242 Gratuitous alienations (Scotland).S
(1) Where this subsection applies and-
(a) the winding up of a company has commenced, an alienation by the company is challengeable by-
(i) any creditor who is a creditor by virtue of a debt incurred on or before the date of such commencement, or
(ii) the liquidator;
(b) ...
(2) Subsection (1) applies where-
(a) by the alienation ... 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...
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