Scottish Court of Session Decisions

[1] In this case, the pursuer, the Accountant in Bankruptcy, seeks payment from the second defender of two sums, the first being £6,700 and the second £12,000. The first defender has not entered appearance. His estate was sequestrated on 15 April 1997. The defenders are husband and wife.

[2] The claims against the second defender relate to two alleged gratuitous alienations by the first defender to her. The first alienation concerns a disposition by the first defender to the second defender dated 26 August 1996 and recorded in the General Register of Sasines 13 September 1996, of his one-half share in a house at 56 Moat View, Roslin, Midlothian, which had previously been owned by the defenders in common. The second alleged alienation involves the transfer on or about 1 October 1996, by the first defender to the second defender of three photographic machines. In respect of the first alienation the second defender does not deny that it took place nor that, if it were made for no or inadequate consideration, it would be reducible by virtue of the provisions of section 34 of the Bankruptcy (Scotland) Act 1985, being an alienation in terms of section 34 to "an associate" of the first defender, which took place within a period of five years before the first defender's sequestration. The defence to this claim is that the alienation was for adequate consideration.

[3] As far as the second claim is concerned the second defender does not, as far as her pleadings go, admit that an alienation to her took place. The pursuer's averments about the alienation of the goods by the first defender to the second defender are simply met by a general denial. The second defender's substantive averments in answer to this claim are that, in any event, the pursuer is not entitled to seek the sum sought in the second conclusion but should be seeking as his remedy the restoration to him of the property in question.

[4] The case came before me for discussion on the procedure roll of the pursuer's second plea-in-law, which is a general plea to the relevancy of the second defender's averments. Counsel for the pursuer informed me, at the outset of his submissions, that he recognised that there would require to be a proof in this case in respect of the quantum of what might be recoverable by the pursuer in respect of the first claim. He also accepted, apparently, that there would require to be a proof about the facts and circumstances of the alleged alienation by the first defender to the second defender, to which the second claim relates, because of the second defender's general denial which covers the fact of the alienation of the goods in question. What the pursuer was seeking, was exclusion from probation, of certain of the second defender's averments in answer to each of these claims.

[5] It is a matter of admission by the second defender that, as at the date of the disposition of the first defender's share in the heritable property to her there were loans secured over that property in favour of the Halifax Building Society and Cedar Holdings Limited. The extent of these are averred by the second defender to have been £37,647.52 and £14,254 respectively. The second defender avers that upon the transfer to her of the property outright it was remortgaged to the Bank of Scotland in respect of a loan of £53,000.

[6] The pursuer avers in Article 4 of the Condescendence that the disposition in favour of the second defender by the first defender of his share in the house narrated that the consideration was "love, favour and affection". It is further averred by the pursuer that the defenders certified, for the purposes of obtaining exemption from stamp duty, that the conveyance was for no consideration. After referring to the relevant stamp duty regulations the pursuer avers that no stamp duty was paid on the disposition.

[7] The second defender's replies to the specific averments relating to what was said in the disposition are as follows:

[8] Previously in this Answer, the second defender averred how it was that consideration was paid by her in exchange for the disposition in her favour. The averments in question are as follows:-

The pursuer's counsel submitted that the second defender's averments, seeking to set up a defence to the first claim, on the basis that adequate consideration had been paid in return for the disposition, were irrelevant in that they were in contradiction of the disposition, which stated that no consideration had been paid, which had been recorded in the General Register of Sasines and which had been neither reduced nor rectified. Reference was made to the decision of the House of Lords in the case of Anderson v Lambie 1954 SC (HL) 43 to support the proposition that as long as a probative deed was not reduced and did not contain a patent error, any alleged error in its terms could not be corrected (see Lord Reid at p. 60). The possibility of rectification of such a deed now arose by virtue of the provisions of section 8 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, but while the second defender made averments in the present case that she intended to apply for legal aid to seek rectification of the terms of the disposition, the pursuer's counsel submitted that these averments were irrelevant. In the first place he contended that while the second defender averred that she intended to seek rectification of the disposition in terms of section 8(1)(b) of the 1985 Act, those averments were irrelevant because section 8(1)(b) was inappropriate for the situation and that rectification would require, to be made, if at all, in terms of section 8(1)(a). Moreover, and in any event, the averments regarding the intended rectification were vague and evasive. The second defender did not say what stage the application for legal aid had reached and why no emergency legal aid had been sought. Even more significant was the fact that insufficient specification was given about the agreement between herself and her husband regarding the paying off by her of the existing loans and his business debts which were said to be the basis for consideration having passed between them for the disposition to be granted in the second defender's favour. The requirements with regard to what was to be averred, before a sufficiently specific case for rectification of such a document was made, was set out by the Court in the case of Shaw v William Grant (Minerals) Ltd 1989 SLT 121 and counsel for the pursuer submitted that the second defender's averments did not meet those requirements and were fatally lacking in specification.

[9] In reply, counsel for the second defender submitted that the appearance of the expression "for love, favour and affection" in the disposition was not conclusive, in a case like the present, of the question as to whether adequate consideration had been paid when the disposition was granted. In that respect he referred me to the case of Matheson's Trustee v Matheson 1992 SLT 685. That case involved a challenge by a permanent trustee in sequestration of a disposition of heritable subjects by a husband to a wife, on the footing that it was made for no adequate consideration. The disposition in question bore to be granted for the love, favour and affection which the husband bore to the wife. Lord Marnoch at p. 686I set out the submission of counsel for the trustee in relation to the appearance of the expression "for love, favour and affection" in the disposition as being that:

His Lordship then continued, "Counsel for the second defender did not, I think, dispute any of the legal propositions above summarised...". It appears, therefore, that the Court in that case did not consider as being unsound the concession which had been made by counsel for the trustee that the appearance of the words "for love, favour and affection" in the disposition were not conclusive of the question as to whether, in fact, adequate consideration had been given for the granting of it. Counsel for the second defender in the present case, also referred me to the decision of an Extra Division in the case of McFadyen's Trustee v McFadyen 1994 SC 416. In that case the permanent trustee in bankruptcy sought reduction of a disposition of heritable property granted by a bankrupt son in favour of his mother. The disposition expressly narrated that the property was disponed "without payment of consideration". In her defences, the mother incorporated the pleadings in an action of rectification she had raised in which she sought to have deleted from the disposition those words and to substitute for them the words "for certain good and onerous causes". The mother condescended upon what those "good and onerous causes" were said to be and how they amounted to "adequate consideration". In giving the judgment of the Court, Lord McCluskey at p. 418 said:

At p.421 his Lordship said:

In the event, having considered the mother's pleadings in some detail, the Court, in that case, reached the conclusion that the averments did not disclose any relevant basis for any consideration having been paid by her for the granting of a disposition in her favour. I agree, however, with counsel for the second defender in the present case that the Court's opinion in the case of McFadyen's Trustee confirms that the concession made, and apparently accepted by the Court, in the Matheson case supra was correct and that expressions such as "for love, favour and affection" when they appear in the disposition under challenge are not conclusive of the question of fact, in proceedings brought under section 34(4) of the Bankruptcy (Scotland) Act 1985, that inadequate consideration has been paid in respect of the disposition by the bankrupt which is being attacked.

[10] In the present case, counsel for the pursuer did not submit that the averments which the second defender makes in relation to what she did with regard to paying off the existing loans and the first defender's business debt could not amount to consideration or, in any event, adequate consideration for the purposes of the statutory provision. His position, as I understood it, was that those averments were irrelevant unless and until the disposition was rectified. The second defender's remedy, he said, was to seek to have the present proceedings sisted until the outcome of any rectification action that she may wish to bring.

[11] I am unable to accept those submissions, standing the approach of the Court in the case of McFadyen's Trustees. While, of course, it is true, as counsel for the pursuer pointed out that, in that case the mother had already raised rectification proceedings, and had incorporated the pleadings in that process in her defences to the action by the trustee in bankruptcy, the outcome of the rectification action was not known and yet the Court was prepared to contemplate the possibility of a proof on the question as to whether consideration had been given or not in the trustee's action for reduction of the disposition. I cannot see any reason, in principle, why the fact that an action for rectification has not yet been raised, should prevent the disponee from averring that, notwithstanding the terms of a disposition, adequate consideration for the purposes of section 34(4) of the Bankruptcy (Scotland) Act 1985 was in fact given. That is a different question from the question as to whether the disposition should be rectified under section 8 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 although, of course, the factual material in support of both will, no doubt, to some extent, perhaps even to a very considerable extent, be the same. I, accordingly, do not consider that any problem there may be with regard to the second defender's averments in the present case, as to the basis upon which rectification may be sought, or the fact that she has not yet raised an action for rectification, make her averments regarding adequacy of consideration in the present case irrelevant. In a case like the present, a defender seeking to establish such a defence may well face very severe difficulties in relation to credibility at any enquiry into the matter. In addition, in the present case, if the second defender were to succeed in establishing such a defence, there may well be Revenue implications for her and/or the first defender, but I am satisfied that she is entitled to a proof before answer on this chapter of the case, standing the averments she makes about having provided adequate consideration for the granting of the disposition in her favour.

[12] Counsel for the pursuer attacked the second defender's answers to the pursuer's second claim in the action as being irrelevant and lacking in specification. The pursuer avers that the first defender alienated three photographic machines to the second defender, which were transferred to her on or about 1 October 1996 for no consideration. The pursuer further avers that the machines were worth £12,000 and that on or about 18 October 1996 the second defender sold the machines to one Gordon Aitchison, who purchased them in good faith and for value at a price of £12,000.

[13] The second defender's response to those averments are, in my opinion, unsatisfactory and lacking in candour. They are simply to the effect "admitted that the second defender sold certain machines to Gordon Aitchison. Admitted that the purchase price was to be £12,000". There then follows the general denial to which I have already alluded. The second defender's averments continue:

The submissions of counsel for the pursuer in respect of those averments were succinct. They were that the averments wholly lacked any explanation as to why restoration of the goods was the only remedy which could be sought by the pursuer in the circumstances, standing that those goods have apparently been transferred to a third party by the second defender under a contract of sale. It was insufficient for the second defender simply to aver that the purchaser had not bough the goods in good faith nor for value without further specification as to why that was so, and without averring where the goods now were and how and where they might now be recovered by the pursuer. The pursuer, in those circumstances, was entitled to seek payment of the value of the goods relying on the provisions of section 34(4) of the Bankruptcy (Scotland) Act 1985 which are to the effect that:

[14] In reply, counsel for the second defender sought to rely on the cases of Short's Trustee v Chung1991 SLT 472 and Kay's Trustee v Kay 1998 SLT 321. In the former case, Lord Sutherland, in giving the Opinion of the Court, said at p. 476K-L:

In the later case of Kay's Trustees, Lord McCluskey, in delivering the Opinion of the Court, considered the dictum of Lord Sutherland just referred to and at p. 327B-C said:

[15] Counsel for the second defender submitted that the effect of those decision was that the pursuer, in the present case, was seeking the wrong remedy and should be seeking restoration of the machines. He was not entitled, in lieu thereof, to sue for their value. In my opinion this submission was misconceived. It has to be recognised, first of all, that in the two earlier cases the trustee was seeking restoration of the property in question. It was the person who held the property who was seeking to resist such an order being made in terms of section 34(4) of the 1985 Act and was asking the Court to order something else, if the equities pointed in that direction. The Court, in those cases, was merely saying that, where restoration of the property was possible, it was the trustee's primary right to have the property reconveyed to the debtor's estate. In the present case the second defender does not aver that the machines can be restored to the pursuer. It is of some importance, in that connection, to note that in the sheriff court proceedings brought at her instance against the purchaser, she did not, apparently, seek a decree ordaining redelivery of the goods to her, but simply sued for the sale price. What she is offering is not the re-delivery of the goods, but the assignation of the decree in her favour for payment, which she has obtained against the purchaser. She has not sought to convene the purchaser as a third party to these proceedings. She makes no averments at all as to the present whereabouts of the goods. In that situation, in my judgment, the pursuer is entitled, relying on the words "or other redress as may be appropriate" in section 34(4), to seek payment to him of the value of the goods. That is not to seek to rely on some general equitable power of the Court, but is simply seeking the appropriate redress in the circumstances where the property in question is moveable property. The present case is distinguishable from the cases of Short's Trustee and Kay's Trustee where the relevant property was heritable and could be reconveyed by reduction of the relevant disposition. In the present case the property is moveable, has been sold to a third party and the whereabouts of the goods are apparently unknown. It is also nothing to the point, in my opinion, that the second defender may not, herself, have received any consideration in return for having sold these goods to the third party, if there was a gratuitous alienation to her in terms of section 34 of the 1985 Act. The pursuer, in my opinion, is entitled to seek appropriate redress from her which, in this case, would appear to be the value of the goods in question.

[16] For the foregoing reasons I shall accede to the pursuer's motion that the second defender's averments in Answer 6 which follow the sentence of "Quoad ultra denied save insofar as coinciding herewith" should be excluded from probation and I shall repel the second defender's fourth plea-in-law. Quoad ultra I shall allow a proof before answer.