Scottish Court of Session Decisions

The pursuer in this action is the trustee on the sequestrated estates of James Wyse Aitken ("the bankrupt"). Sequestration of the estates of the bankrupt was awarded in the Sheriff Court at Haddington on 9 June 1993. The defender is the wife of the bankrupt. In 1990 the bankrupt and the defender jointly purchased from East Lothian District Council a house at 52 Whitecraig Road, Whitecraig, Musselburgh. Their title to the house was recorded in the Sasine Register on 4 January 1991. By a disposition dated 6 May 1992 and recorded in the Sasine Register on 20 May 1992 the bankrupt conveyed his one-half share in that house to the defender. The disposition (No.8/1 of process) narrates that it was granted for the love, favour and affection borne by the bankrupt to the defender. The pursuer in this action seeks reduction of that disposition on the ground that it constituted a gratuitous alienation.

Since it is admitted on behalf of the defender that she is the wife of the bankrupt, and that the alienation to her by the bankrupt of his one-half share in the house took place within the quinquennium preceding the date of sequestration, the conditions entitling the pursuer as trustee in the bankruptcy to challenge that alienation under section 34(1) of the Bankruptcy (Scotland) Act 1985 are satisfied. It is accepted that the onus accordingly moves to the defender to establish one or more of the defences set out in sub-section (4) of section 34. The only defence advanced by the defender in this case is that provided for under head (b) in that sub-section, namely - "that the alienation was made for adequate consideration" - the only substantive plea-in-law for the defender being -

The pursuer challenges the relevancy of the averments made in support of that plea and at the Procedure Roll discussion before me counsel for the pursuer, Miss Bain, moved for decree of reduction of the disposition to be granted de plano. That motion was resisted by Mr Sandison, who appeared for the defender.

The averments made on behalf of the defender narrate that in addition to the house at 52 Whitecraig Road ("the house") the defender and her spouse, the bankrupt, jointly owned a parcel of ground at Whitecraig Road, Musselburgh ("the parcel") their title to the parcel being contained in a feu disposition in their favour recorded in the Sasine Register on 28 January 1982. On 15 June 1990 the defender and the bankrupt granted a standard security over the parcel in favour of the Clydesdale Bank. The standard security (No.7/2 of process) was recorded in the Sasine Register on 13 July 1990 and in it both the defender and the bankrupt undertook to repay all sums that were or might become due by either or both of them to the Bank. It is averred by the defender that the only sums advanced by the Clydesdale Bank were funds advanced by way of an overdraft to the bankrupt for the purposes of his business. In relation to the standard security it is averred, in particular, that the bankrupt and the defender:

It is further averred that in the Spring of 1992 the defender and her husband were contemplating a matrimonial separation. There then follow averments relating to the respective unencumbered values of the house and the parcel after which the averments on behalf of the defender continue as follows:

There follow thereafter certain averments which were not relied on by counsel for the defender and accordingly need not be further mentioned.

In presenting her submission that no relevant defence had been disclosed counsel for the pursuer referred to the Opinion of the Court delivered in McFadyen's Trustee v McFadyen 1994 S.C. 416 and in particular to the passage at 421G which reads:

Counsel also referred to the Opinion of the Court in Cay's Trustee v Cay 1998 S.C. 780. Counsel went on to submit, in summary, that in exchange for the conveyance of the house nothing of any material patrimonial value, capable of vindication in a legal process, was given to the bankrupt. He did not acquire ownership of the parcel or any legally enforceable right thereto, and in respect of the contradictory averment of a discharge of personal liability to relieve the defender of any liability which he might incur to the Bank through the realisation of the security subjects, it appeared to come at a subsequent moment in time. There were, in any event, no relevant averments of its being an adequate consideration. It was necessary for the defender to establish that the personal right being given up by the wife to the husband had actual value, of an adequate amount.

Counsel for the defender accepted that in light of the test for the presence of a consideration set out in McFadyen's Trustee he could not, and did not, rely on the averments to the effect that the conveyance to the defender of the bankrupt's one-half share in the house would be counter-matched by a transfer of her half share in the parcel constituted a consideration. Any claimed understanding that such an exchange would take place was not legally enforceable and not capable of vindication in a court. However, the narration in the defender's averments was, said counsel, to the effect that the bankrupt and the defender orally agreed on two things. In brief, the first was that the shares in the house and the parcel be exchanged. That was never done and no enforceable contract for it existed. Thereafter, in the second place, something different was agreed. Since the bank overdraft was to the husband alone, if the Standard Security over the parcel were realised by the Bank to satisfy the outstanding overdraft, the wife would have a claim of relief against the husband in respect of the whole or partial loss of her half-share in the parcel. Accordingly, what was agreed was that in exchange for the receipt of the bankrupt's one-half share in the house the wife waived any such right to claim relief against the husband respecting the realisation of the Standard Security as regards her one-half share in the parcel. Such an agreement might be established without any need for it to be constituted in writing. The giving up by the wife of her claim of relief accordingly constituted the giving of a consideration. Counsel referred in that regard to Thomas v Thomson (1866) 5 M 198. He went on to submit that all that was required for a relevant defence was that there be an exchange of obligations and it was not necessary for the defender to show that the right of relief given up by her had any practical value. The present situation was, said counsel, more akin to an unfair preference than a gratuitous alienation (but no challenge was advanced to the relevancy of the pursuer's case).

In my opinion the defence put forward on behalf of the defender is attended with considerable difficulty.

As already indicated, what was put forward by counsel for the defender as being adequate consideration for the conveyance to the defender of the one-half share in the house was the averred agreement by the defender to give up any claim - the claim of relief - against her husband in the event that he failed to repay his overdraft with the consequence that the parcel was sold by the Bank in realisation of its security. It may be observed that no real specification is given in the defender's averments of the date upon which the agreement was reached, or indeed the place or other surrounding circumstances of the averred agreement. It is not suggested that the agreement was reduced to, or in any way vouched by, a written document. Although counsel for the pursuer did not complain of want of specification of these matters as such, she did advert to the apparent conflict between the averments suggesting that a transfer of the wife's half-share in the parcel was agreed as the equivalent consideration for the husband's one-half share in the house and the later averments suggesting that the consideration was, on the other hand, the subsequent discharge of a claim of relief against the husband. The timing of events is in my view important since, for the purposes of section 34(4) of the Bankruptcy (Scotland) Act 1985, the consideration has to be contemporaneously given or agreed upon as the appropriate counter-prestation, both being parts of the single transaction whereby the alienation under challenge is effected. The matter was put thus in McFadyen's Trustees at 421F:

On an ordinary reading of the defender's averments what appears to be said is that at the time of the conveyance of the bankrupt's share in the house, there was some informal understanding that he would receive a counter conveyance of the defender's share in the parcel. That understanding was not relied upon by counsel for the defender as constituting any consideration. But even accepting Mr Sandison's invitation to treat the word "then" in the fifth sentence of the passage second quoted from the defences as not referring to the distribution for behoof of creditors mentioned in the immediately preceding sentence (which on a prima facie reading of the averment it would), it nonetheless appears to me that the agreement relied upon as constituting the consideration was an event subsequent to the granting of the disposition of the bankrupt's one-half share in the house. It would thus not constitute a consideration for the purposes of section 34(4) of the Bankruptcy (Scotland) Act 1985.

However, taking matters further, even if the defender's agreement to waive her right of relief may properly be seen as a consideration for the transfer to her of the bankrupt's share in the house, a relevant defence is only constituted if the consideration is an "adequate" consideration. In so far as counsel for the defender submitted that for the purposes of the defence of adequate consideration under section 34(4)(b) it was not necessary to aver and prove that the right given up had any practical value I do not agree with him. In my opinion the expression "adequate consideration" means the giving of a consideration which might objectively be described as being a reasonable prestation for the property conveyed by the bankrupt to the transferee had the transaction taken place between parties acting at arms length in ordinary commercial circumstances. The averments on behalf of the defender do not address the matter of the practical worth of the right of relief said to have been surrendered by the defender as a consideration for her receipt of the one-half share in the house. It is true, as counsel for the defender pointed out in his submissions, that averments are made concerning the respective values of the one-half share in the parcel and a one-half share in the house, but the value of the heritable property is a very different thing from the value of a right of relief in personam. The right of relief said to have been conceded by the defender as a consideration for the receipt of ownership of the bankrupt's share in the house would only arise contingently in the event that her husband did not repay his overdraft and the Bank consequently realised its security. The worth of the right of the defender to be relieved by her husband of her liability to the Bank, whether that liability be realised directly in terms of the obligatory clause of joint liability in the standard security or by the loss of her property interests in the parcel by reason of the realisation of the Standard Security, would obviously depend on the state of solvency of the husband. It is not suggested at any point in the averments for the defender that at the time of the alienation the bankrupt's assets exceeded his liabilities. It is not suggested that there are any peculiar circumstances in which, notwithstanding the Bank's realisation of its security, the bankrupt would nonetheless be in a position to honour his obligation of relief. The defences accordingly do not contain any averments of the adequacy of the consideration in fact relied upon by counsel for the defender. This appears to me to be destructive of the defence proposed on behalf of the defender.

For these reasons I consider that no relevant defence has been stated to this action and I shall therefore uphold the pursuer's first plea-in-law and grant decree of reduction de plano.