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Cite as: [2000] ScotCS 250, 2002 SLT 109

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OUTER HOUSE, COURT OF SESSION

OPINION OF LORD HAMILTON

in the cause

CLYDEBANK FOOTBALL CLUB LIMITED

Pursuer;

against

CHARLES ALEXANDER STEEDMAN AND OTHERS

Defenders:

________________

Pursuer: L. Wallace; Robson McLean, W.S.

Defenders: Currie, Q.C., Sellar; Semple Fraser, W.S.

29 September 2000

[1] The pursuer ("the Company") was incorporated on 2 June 1965 with a share capital of £30,000 divided into 30,000 shares of £1 each. Its primary object was to -

"promote, foster, develop and play in all its branches the game of association football and to promote the practice and playing of competitions and matches, including any arrangements for football competitions, contests and matches in Scotland or elsewhere, and also to promote all forms of sport, games and allied activities".

It succeeded a club known as "Clydebank Juniors". Mr Charles Steedman and Mr John (commonly known as Jack) Steedman, who are respectively the first and second defenders in this action, were original shareholders and directors of the Company. A number of local residents in Clydebank also subscribed for shares in the Company. Among them were Mr James Heggie, the sixth defender, and Mr William Howat, the seventh defender, both of whom were also original directors.

[2] The Company became a member of the Scottish Football Association and of the Scottish Football League. Its home ground was at Kilbowie Park, Clydebank. In about 1978/79 bench seating was installed at the stadium there. By 1994/95, however, the Company was in financial difficulty. Its balance sheet as at 30 June 1995, following two years of heavy losses, showed a deficit of about £120,000; the deficit as at 30 June 1994 had been about £28,000. It had been seriously affected by the Bosman decision (relative to the freedom of players to transfer to other clubs) and by the advent of the National Lottery (which had reduced its income from club lotteries). Following the Taylor Report its bench seating no longer met acceptable safety criteria.

[3] The stadium at Kilbowie Park was situated within urban Clydebank. It extended to about 2 hectares. At about the end of 1994 the directors of the Company considered the possibility of selling the stadium for development and of building a new stadium elsewhere. By missives dated 19 and 21 July 1995 the Company agreed to sell Kilbowie Park to Vico Projects Limited ("Vico"), a development company, for £2.3 million. The bargain was subject to various suspensive conditions including the obtaining of acceptable outline planning permission. Vico lodged a planning application for a mixture of leisure and retail purposes. It was strongly opposed by local residents and was refused. An appeal to the Secretary of State against that refusal was unsuccessful. In about June 1996 another development company, Castlemore Securities, offered to purchase Kilbowie Park outright for £600,000, the obtaining of planning permission not being a condition of this offer. Certain provisions were included whereby the purchase price would be enhanced in the event of planning permission for specified uses (including leisure and retail) subsequently being obtained. Further discussions took place with Castlemore Securities which resulted in its making in July 1996 an offer to acquire Kilbowie Park for £2.9 million, subject to the obtaining of planning permission for retail and leisure uses. That body also offered to advance to the Company a loan, secured over the stadium, of £600,000.

[4] The Company did not in the event enter into any bargain with Castlemore Securities but drew the attention of Vico to the proposals made by the former. In the result a new bargain was entered into between the Company and Vico. By Minute of Agreement dated 2 and 11 September 1996 Vico, now styled "Vico Securities Limited", agreed to make a loan to the Company of £600,000 (to be secured over the stadium) and to acquire the stadium from it conditionally on outline planning permission being granted to Vico for a proposed development (again for mixed leisure and retail units). The gross purchase price on purification of the conditions remained £2.3 million. The loan of £600,000 was duly made and secured. A result of this development was that in the financial statements of the Company as at 30 June 1996 it was possible (taking into account post-balance sheet events) to include a revaluation reserve of £495,221 in respect of the stadium, which together with the previous figures of £51,027 for the ground and £53,752 for the social club at it, produced an accounting value of £600,000 for that property as a whole. Having discussed inter alia this valuation with the directors, the auditors of the Company reported that the financial statements gave a true and fair view of the state of affairs of the Company as at 30 June 1996. The result was that a surplus (of £144,803) appeared in the balance sheet as at 30 June 1996, although in the year to that date the Company had again made a substantial loss (£229,915). The Company's finances remained as at 30 June 1996 precarious. A cheque drawn by it early in July 1996 in favour of the Inland Revenue had been returned by the Company's bankers on the ground of insufficiency of funds in its account. Some relief was obtained on the loan from Vico being credited to the account and the overdraft consequentially being paid off in the latter half of 1996.

[5] The directors had meantime been giving consideration to a site for a new stadium. Discussions took place with West of Scotland Rugby Football Club exploring the possibility of it and the Company sharing a stadium. By disposition dated 29 April 1996 the Company acquired 15 acres (6.15 hectares) of land, part of Braidfield Farm (otherwise known as "Moreland's Farm"), which lay in the green belt between Clydebank and Glasgow. This area of ground ("Braidfield"), which it was hoped would provide a site for a new stadium, was acquired for £75,000, the purchase price being financed by a loan from The Football Trust.

[6] In the season ending in April 1996 the Company was playing in the First Division of the Scottish Football League. Its prospects of financial viability turned importantly on its remaining in that Division. By 1996 regulations, devised following the Taylor Report, had come into force which made it impossible to continue playing matches at Kilbowie Park. Arrangements were made for the Company to have use for home matches of the ground at Bogside, which belonged to Dumbarton Football Club. The Company played there during the 1996/97 season. This change of location was not popular with Clydebank fans, many of whom deserted the club; there had long been rivalry between Clydebank and Dumbarton. The cessor of activity at Kilbowie Park had other serious consequences. The property, including the social club premises there, was seriously damaged by vandalism. Demolition orders were ultimately served in respect of several of the structures.

[7] In December 1996 and again in April 1997 certain variations were consensually made to the Minute of Agreement between the Company and Vico. None of these variations is material for present purposes.

[8] On 16 January 1997 Messrs Cowan & Co., solicitors in Glasgow, wrote to the Chairman of the Company stating that they had -

"been instructed by an overseas client to write to you in connection with the purchase of a controlling interest in your Club. Our client is a businessman with a keen interest in soccer and funds are also available for investment in the Club itself."

Mr Allan Cowan, the author of the letter, was known to the second defender as a person of repute with an interest in Scottish football affairs. Mr Cowan asked that any discussion in relation to this approach should be treated in strict confidence. The second defender, who was by this time doubtful whether the proposed co-operative arrangement with West of Scotland Rugby Football Club would ever bear fruit, responded positively to this approach. Certain correspondence and discussions followed. It was made plain from an early stage that Mr Cowan's client was not interested in acquiring any heritable property owned by the Company. The client's wish, it appeared, was to acquire the Company's playing interests - in particular its membership of the Scottish Football Association and of the Scottish Football League and its interest in respect of its players. The second defender later came to learn that the previously undisclosed client was a Dr John Hall, whom he met on one occasion (in June 1997).

[9] The second defender, who took the leading role in these discussions on behalf of the Company and those interested in it, explored with the Company's accountants and solicitors the possible mechanisms and implications (including tax and legal implications) of an arrangement under which the heritable assets and relevant loans of the Company might be transferred to a new company with the Company continuing as a going concern in respect of its football playing interests. This consultation with professional advisers, which had begun in the context of the prospect of an arrangement with West of Scotland Rugby Football Club, continued in the context of the prospect of a possible sale to Dr Hall of the Company shorn of its heritable properties.

[10] By 1997 the 30,000 £1 shares of the Company were held as follows: - 26,139 shares (87.06% of the whole) were held by D.B.I. (Glasgow) Limited ("D.B.I."), a company in which certain individual members of the Steedman family and two Steedman family trusts in turn held shares. One share in the Company was held by each of the first defender and the second defender; the third defender, a son of the first defender, the fourth defender, a son of the second defender, and the fifth defender, another son of the second defender, each held 100 shares; the sixth defender and the seventh defender, both of whom were unrelated to the Steedman family, held respectively 292 and 525 shares. The remaining shares were held, in amounts ranging from 1 to 424, by thirty one other supporters, many of whom had held them since incorporation. It was envisaged by the second defender that the new company, to which the heritable assets and relevant liabilities (initially conceived as being Kilbowie Park, Braidfield, the loan from Vico and the loan from The Football Trust) would be transferred, would have the same capital structure as the Company (viz. £30,000) with the shares in it held in identical amounts to the distribution of shares in the Company.

[11] The advice received by the second defender was that, subject to certain caveats, such an arrangement could be effected. Among other suggestions the legal advisers suggested that the new company might have a shareholding of £300 rather than of £30,000, so allowing the new members to subscribe at 1p rather than at £1 per share. Accountancy and legal advice received then or sometime thereafter, though prior to the Extraordinary General Meeting (referred to hereafter), was that a transfer of assets from the Company to another company in which D.B.I. also held at least 75% of the shareholding would not give rise to any adverse tax consequences.

[12] At about the beginning of 1997 Vico submitted to the local planning authority a fresh application for outline planning permission. This application omitted any proposal for leisure use and was confined to retail units together with a restaurant. This application was considered by the planning committee of West Dunbartonshire Council on 4 June and an indication then given that, subject to certain conditions, it would be granted. Formal planning permission was not issued until 12 August 1997. That permission contained eight conditions. Condition 8 provided that before work commenced on site various matters, including "detailed proposals for the design of the new junction and roundabout at Montrose Street" should be approved by the planning authority. The fulfilment of that condition involved, as will appear, the acquisition of land owned by the Council.

[13] When word reached the directors of what had happened on 4 June they endeavoured to persuade Vico there and then to complete the bargain for the purchase of Kilbowie Park. Vico, unsurprisingly, was not prepared to do so until formal planning permission had been received and satisfactory access for the purposes of the approved planning proposal had been negotiated.

[14] In February 1997 Mr Cowan had written to the second defender indicating that his client was prepared to pay £150,000 to purchase "the Steedman family shareholding" in the Company, that is, the shares held by D.B.I. and by individual members of the Steedman family. He further stated that a similar price would also be offered on a pro rata basis to the remaining shareholders. These proposals were made expressly on the basis that the existing shareholders "would retain ownership of the heritable assets and liabilities of the Company, including any planning gain", Mr Cowan adding -

"My client has no interest in purchasing any heritable property over which the Company has any interest."

On 16 June 1997 the second defender, writing to his legal advisers, expressed certain views on an alternative version of that proposal, namely, one involving the sale to Dr Hall, or to a group headed by him, of the entire share capital of D.B.I. That version would also have involved Dr Hall and his associates making a similar offer to the minority shareholders in the Company. In that context the second defender stated -

"We" (viz. the shareholders of D.B.I.) "are prepared to accept the sum of £150,000 plus the proportion of £1.7m (the balance which will be payable by Vico Ltd for Kilbowie Park) attributable to D.B.I.'s Shareholding provided we have a binding Contract before June 30.

Obviously the problem is if Vico does not complete the Transfer of Title before this date and pay up. Therefore we would like a formal agreement with Dr Hall drawn up conditional on Vico settlement or alternatively Clydebank F.C. Ltd transferring Kilbowie Park to a new Company to await its sale."

I shall return to those observations. For present purposes it is sufficient to notice that Vico did not complete by 30 June and that Dr Hall (and any group headed by him) at no stage indicated an interest in acquiring or paying for any heritable assets of the Company.

[15] At the end of the 1996/97 season the Company was relegated to the Second Division of the Scottish Football League. Much of its support had by then drifted away. The prospect of building a new stadium was now remote. Developments in the financing of rugby football had rendered impractical the proposal that a stadium for joint use be constructed in co-operation with West of Scotland Rugby Football Club.

[16] By about the end of June 1997 the second defender had, now in the context of discussions with Dr Hall and his representative, taken active steps with a view to the formation of a new company to acquire the heritable assets of the Company against the prospect of a sale to Dr Hall of the shares of the Company once those assets had been transferred. By this time matters had assumed a certain urgency. The opening of the new football season was not many weeks away. It was important that arrangements be put in place to permit a smooth transfer of the footballing interests. In the event, a new coach, nominated by Dr Hall, was appointed by the Company in July to take responsibility for the players in preparation for the new season under new ownership.

[17] The second defender took advice from the Company's solicitors, Messrs Macdonalds, and obtained from them a style of notice considered to be appropriate for calling an Extraordinary General Meeting of the Company to consider a resolution relative to the transfer of property to a new company. Such a company, styled Kilbowie Retail Park Limited ("Kilbowie Retail") had on 2 July been formed, its subscribers being the first and second defenders who were also appointed directors. On 4 July a meeting of the directors of the Company took place attended by the second, third and fifth defenders, the third defender being in the Chair. The relative Minute records -

"The Directors discussed the proposal to transfer Kilbowie Park, Clydebank, and the ground at Moreland's Farm, Great Western Road, Glasgow, to Kilbowie Retail Park Limited. It was noted that these are substantial property transactions in terms of Section 320 of the Companies Act 1985, and therefore it was resolved to hold an Extraordinary General Meeting of the Company to seek members approval of and consent to the said transfers."

It was resolved to hold the relative Extraordinary General Meeting on 29 July.

[18] On 7 July the second defender wrote to each shareholder of the Company in the following terms -

"Dear Shareholder,

Further to our informal meeting on 22 May 1997 the Directors suggest the following in order to accommodate both those Shareholders who wish to retain their Shares and those, including the Holding Company, given the opportunity, who would prefer to sell.

As you know Kilbowie Park is sold to Vico Ltd, subject to two main conditions -

1 that they obtain outline Planning for their proposed Development and this they have now succeeded in doing and

2. that they obtain suitable access and on this they are negotiating with West Dunbartonshire Council but the next Council Meeting is in September and therefore it will be several months before the transaction can be finally concluded.

A new company will be formed called Kilbowie Retail Park Limited, with 30,000 Shares (nominal value 1p each) and these will be allocated to every Shareholder exactly in proportion to their present Shareholding and the Heritable Assets will be transferred to this Company together with the relevant loan from Vico. This means, when the ground is finally sold, your Shares in Clydebank Football Club can still be retained and yet the Shareholders who wish to benefit from their long involvement with the Club can do so.

An Extraordinary General Meeting has been convened as per the enclosed formal Notice to consider this matter."

The enclosed Notice was in the following terms -

"NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of the above Company will be held at the Registered Office at Burnbrae, Milngavie on Tuesday 29^th July 1997 at 7.30 pm for the purpose of considering and, if thought fit, passing the following resolution -

That in accordance with the terms of Section 320 of the Companies Act 1985 the members of the Company hereby approve and give consent to the following substantial property transactions, namely the transfer of ownership of the properties at Kilbowie Park, Clydebank and the ground at Moreland's Farm, Great Western Road, Glasgow presently owned by Clydebank Football Club Limited to Kilbowie Retail Park Limited."

The Notice was signed by the fifth defender as Secretary of the Company.

[19] This proposal was a revised version, in a somewhat different context, of a proposal which had been communicated to shareholders by a circular letter to them from the second defender in about December 1996, prior to any approach by a prospective purchaser of the Company's shares and while there remained some prospect of the Company acquiring a new stadium. A proposal along the lines of that described in the circular letter of 7 July had also been mooted at an informal meeting of the shareholders held at the social club on 22 May 1997.

[20] These proposals were dependent on appropriate consents being obtained from Vico and from the Clydesdale Bank, the financial institution funding Vico and which had taken a standard security over the standard security granted by the Company to Vico. Both were ultimately persuaded to give such consent. In the case of Vico this required a formal Minute of Variation to which Vico, the Company and Kilbowie Retail were parties. That Minute was ultimately executed on 11 and 16 September 1997. In short it made provision for (1) the assignation by the Company to Kilbowie Retail of (a) the contract with Vico (including liability in respect of the loan of £600,000 repayable to Vico) and (b) the standard security and (2) the transfer of the property in Kilbowie Park from the Company to Kilbowie Retail. Certain other variations to the existing arrangements between Vico and the Company were also made.

[21] On 17 July 1997 a further meeting of the directors of the Company took place. This was attended by the second, fifth, sixth and seventh defenders, the sixth defender being in the Chair. The resolution to be put before the Extraordinary General Meeting of the Company called for 29 July was further discussed. The sixth and seventh defenders were in agreement with the proposals. All the remaining directors, including those who had not attended either board meeting, were aware of and concurred in the proposals.

[22] On 29 July the Extraordinary General Meeting duly took place. Eighteen shareholders attended together with three proxy holders. Mr McLeod of Messrs Wyllie & Bisset, the Company's auditors, and Miss Joyce White of Messrs Macdonalds, the Company's solicitors, were in attendance. The third defender was in the Chair. After a general discussion a vote was taken. Fifteen votes were cast in favour of the resolution and five against. There was one abstention - by the majority shareholder, D.B.I., the Steedman family having decided that this majority holding should not be used to determine the outcome of the vote. The resolution was declared passed.

[23] It seems that, perhaps unsurprisingly given the footballing interests of the shareholders, much of the discussion at the meeting was centred less on the particular resolution before it and more on the footballing future of the club. In particular, the proposal that a majority shareholding in the Company should ultimately pass into the ownership of Dr Hall (and his associates) was not favourably received by some of the members. It seems likely that the minority who voted against the resolution were motivated by concern about that proposal rather than by opposition to the resolution as such.

[24] Immediately following the passing of the resolution steps were taken to allot shares in Kilbowie Retail to the members of the Company proportionately to their respective holdings in the latter. Such allotment was effected on 30 July. Where the nominal value of the allotted shares was very small, the allottees were not required by Kilbowie Retail to pay for their shares.

[25] Steps were also taken with a view to the transfer of the two heritable properties. Dispositions of Kilbowie Park and of Braidfield were executed on 5 August, subscription on behalf of the Company being by the second and fifth defenders in each case. In error the disponee in each of those dispositions was styled "Kilbowie Park Retail Limited". Corrective dispositions in favour of Kilbowie Retail (i.e. "Kilbowie Retail Park Limited") were executed on 17 September and recorded in the General Register of Sasines shortly thereafter, these dispositions being executed on behalf of the Company by the first and fifth defenders. In executing these deeds the subscribers were acting on the authority of all the defenders and in furtherance of their instructions. Each disposition described the relative disposal as having been "for certain good and onerous causes and considerations".

[26] Meantime negotiations were progressing towards a bargain for the acquisition of the shares of the Company once no longer possessed of the heritage. Early in July Messrs Macdonalds received a letter from Messrs Alexander Moffat & Co., W.S., under the headings "Dr John Hall" and "Sporting Club". This letter (dated 2 July) opened -

"We are asked by Cowan & Co., Solicitors, Glasgow to perform due diligence in the event of an acquisition of your client's interest in the issued capital of above."

Despite the stated remit Messrs Alexander Moffat & Co., W.S., (the style under which Mr Alexander Moffat practised as a sole practitioner) thereafter acted for the prospective purchaser(s) in all matters touching on the proposed bargain. Mr Cowan and his firm ceased to take any active part in the negotiations. Correspondence thereafter passed between Messrs Macdonalds and Messrs Alexander Moffat & Co., W.S., resulting ultimately in a share purchase agreement dated 22 September 1997 between D.B.I. and Amcows Twenty One Limited whereby the former agreed to sell and the latter to purchase the former's whole shareholding in the Company. (There is a minor discrepancy in the evidence as to the precise number of shares held by D.B.I. Certain evidence suggests that as at July it held 26,139 shares; the number referred to the sale purchase agreement is 26,118. This discrepancy is not important for present purposes.) Amcows Twenty One Limited (which subsequently changed its name to Riverbank Limited) was a shelf company incorporated by Messrs Alexander Moffat & Co., W.S., as a vehicle for the purchase by that firm's clients of the shares. The share purchase agreement included a general indemnity by the seller in favour of the purchaser and of the Company (which also executed that agreement) against any claim for taxation relative to pre-agreement events and also a specific indemnity by and in favour of the same parties against any claim arising from disposal of any heritable property at any time owned by the Company. It included a further indemnity by the seller in favour of the purchaser and the Company against any claim by Vico against the Company under the 1996 Minute of Variation as varied or under the standard security.

[27] Initially the second defender had had in mind that the outstanding loan to The Football Trust would also be transferred to Kilbowie Retail. However, some concern emerged that an attempt to transfer that liability to that company (a company not actively concerned in the playing of football) might trigger an immediate obligation to repay that loan. In the event it was agreed that that loan should remain with the Company but that the share price (which was to be determined by a fixed figure plus such proportion of the net assets of the Company as D.B.I.'s shareholding bore to the whole issued share capital) should be adjusted accordingly, the outstanding loan to The Football Trust being thus brought into account as a debit item. This was duly done. Settlement of the sale purchase agreement took place on 22 September. A press statement drafted on behalf of the purchaser was issued, which included the following -

"A company controlled by Dr John Hall has today acquired a controlling interest in Clydebank Football Club Limited. Dr Hall is a Scot, who is currently working in Bermuda who has been appointed Chairman of Clydebank subject to approval of The Scottish Football Association and The Scottish Football League. Dr Hall, with his fellow directors, intend to instruct management consultants with a view to determining the best means of provision of first class football to the Clydebank supporters, whose loyalty will not be taken for granted. The new player/manager Ian McCall and his squad have already demonstrated their skills and enthusiasm..."

In furtherance of the share purchase agreement new directors were appointed and the seven existing directors resigned office as at 22 September.

[28] A number of individual shareholders also voluntarily sold their shares in the Company to Riverbank Limited. Some shareholders were unwilling to do so but Riverbank Limited exercised its statutory powers to acquire those shares also. Thus the Company became a wholly owned subsidiary of Riverbank Limited.

[29] In the latter part of 1997 Vico entered into an arrangement with a more substantial developer, one of the Morrison Group of Companies, to carry forward the development at Kilbowie Park. In furtherance of the agreements made among the Company, Kilbowie Retail and Vico, Kilbowie Park was ultimately acquired by a nominee of Vico, namely, Morrison Vico Kilbowie Developments Limited. The disposition in its favour was executed by Kilbowie Retail on 9 December 1997. The consideration was £2.3 million, out of which the Vico loan of £600,000 fell to be repaid. Thus, as at December 1997, Kilbowie Retail realised a net sum of £1.7 million from the asset (Kilbowie Park) disponed to it in September in furtherance of the resolution of 29 July. Braidfield remained and remains the property of Kilbowie Retail.

[30] By letter dated 3 December 1998 under the hand of Mr Moffat (by then Secretary of the Company) the Company wrote to Messrs Macdonalds raising certain matters relative to the share purchase agreement which had been completed some fifteen months earlier. It was claimed therein that, among other matters, there had, in respect of certain transactions, been a contravention of section 264 (sic) and 320 of the Companies Act 1985 and that "the Company may seek restitution or remedy in respect thereof".

[31] In 1999 the present action was raised. In it the Company seeks a joint and several decree against the defenders, the seven directors of the Company as at July/September 1997. The sum sued for was originally £1.7 million but at the hearing on evidence Mr Wallace for the pursuer restricted the sum sought to £1,440,000 or such other sum as the court might, on the evidence, think fit. In terms of its fifth plea-in-law the pursuer seeks reparation on the ground that it has suffered "loss and damage through breach of duty on the part of the defenders, as condescended on". The primary basis for the allegation of breach of duty is that the disposals to Kilbowie Retail of Kilbowie Park and of Braidfield constituted distributions which were by section 263 of the 1985 Act unlawful and that each of the defenders who participated in the decision to make such distributions is liable for loss sustained by the Company as a result. The pursuer, by its sixth plea-in-law as amended, also maintains that the defenders are liable to the same extent by reason of an arrangement authorised by them having been entered into between the Company and Kilbowie Retail in contravention of section 320 of the 1985 Act. The alleged personal liability of the defenders for the consequences of that contravention is rested upon section 322(3)(b).

[32] It is convenient first to deal with the pursuer's ground of action insofar as based on sections 320 and 322 of the 1985 Act. Section 320(1) provides -

"... a company shall not enter into an arrangement -

(a) whereby a director of the company ... , or a person connected with such a director, acquires or is to acquire one or more non-cash assets of the requisite value from the company ...

unless the arrangement is first approved by a resolution of the company in general meeting ..."

Subsection (2) defines "a non-cash asset of the requisite value". Section 322(3) provides -

"If an arrangement is entered into with a company by a director of the company ... or a person connected with him in contravention of section 320, that director and the person so connected, and any other director of the company who authorised the arrangement or any transaction entered into in pursuance of such an arrangement, is liable -

...

(b) (jointly and severally with any other person liable under this subsection) to indemnify the company for any loss or damage resulting from the arrangement or transaction."

[33] Mr Wallace submitted that an arrangement to which section 320(1) applied had been entered into between the Company and Kilbowie Retail. That arrangement included not only the transfer of Kilbowie Park and Braidfield from the former to the latter but the consideration which under the arrangement was to pass from the latter to the former in respect of such transfer, namely, the assumption of liability for the outstanding loan of £600,000 to Vico. That arrangement had to be duly approved by the Company in general meeting. The transfer of liability for the loan was a central aspect of the transaction. Central aspects require to be covered in any approval (Demite Ltd v Protec Health Ltd &c [1998] B.C.C. 638, especially per Park J. at p. 649). That central aspect had not been covered by the purported approval given at the meeting of 29 July 1997. The resolution passed made no reference to it. Nor did the minute of the meeting. The explanatory letter sent to the shareholders on 7 July was inadequate in that it failed to specify the amount of the loan. The effect of the oral testimony as to what happened at the meeting was less than satisfactory. It was for the defenders to prove that the consideration for the transfer of the properties had been duly addressed by the members and approved by them. The defenders had failed to prove that it had. In any event, the burden of the evidence was that it had not been addressed. Moreover, the aspect of the transaction whereby Braidfield was being transferred for, in effect, no consideration had not been addressed and approved by the members.

[34] The contention that the arrangement purportedly approved by the resolution passed on 29 July was one to which section 320(1) applies gives rise to further contentious issues, including when the relative arrangement itself was entered into and whether, as at that date, Kilbowie Retail was a person connected with a director or directors of the Company. For the present, however, I proceed on the basis that the arrangement was, as envisaged by the framer of the draft resolution, one to which that subsection would apply and for which the requisite approval of the Company in general meeting was accordingly required.

[35] Whether or not there is due shareholder approval depends, in my view, among other things on the nature and context of the arrangement for which approval is sought. In the present case the occasion for the arrangement was the prospective sale of the shares in the Company (or a substantial proportion of them) to a purchaser who was interested in acquiring such shares only on the basis that the Company no longer held those heritable properties. If such a sale were to proceed, it was necessary that by some mechanism the Company disposed of those properties in advance of the completion of the share purchase. Although there might be a question as to what value those properties (one of them burdened by a debt secured over it) might have, it was plainly in the interests of the shareholders of the Company that they be transferred in such a way as to retain for the persons who were such shareholders any residual value which the properties had or might come to have. It was in that context that Kilbowie Retail was conceived and identified as the prospective transferee, with shares in it to be allotted proportionately to the shareholdings in the Company. The central element in the arrangement was accordingly not a disposal to a person connected and only connected with a director or directors of the Company but to a corporate body in which those who were the shareholders of the Company would have identical proprietary interests to those which they already held in the Company. Any post-transfer realisation of the properties, or either of them, would thus be controlled by identical interests as would have been the case had the properties been retained by the Company and its shares remained unsold.

[36] This context and purpose was perfectly plain to the shareholders well in advance of the meeting of 29 July. It had been mooted at the informal meeting of shareholders held on 22 May. It was further explained in the circular letter dated 7 July sent to each shareholder with the formal notice convening the Extraordinary General Meeting. In these circumstances the particular values which might be attributable to either of the properties or any debts associated with them was of minor importance. As the first defender put it in evidence, it was "simply like moving furniture round the house". The fourth defender's evidence was to the same effect. It may be that express reference was not made at the meeting (though it had been in the circular letter of 7 July) to the Vico loan being transferred to Kilbowie Retail. It is unlikely that the particular amount of the loan was referred to or that any specific mention was made of arrangements relative to the loan from The Football Trust. These latter details were unimportant having regard to the nature and purpose of the proposed transfer. It was, nonetheless, made clear to the shareholders, at least by the letter of 7 July, that a liability as well as assets was to pass from the Company to Kilbowie Retail.

[37] The circumstances of this transaction were very different from those with which Park J. was concerned in Demite Ltd v Protec Health Ltd &c. In that case the company had gone into administrative receivership at the instance of a debenture holder who was a friend of one of several shareholders, that shareholder also being a director of the company. The receivers had then sold the company's business to another company controlled by that director and his friend. That sale had been effected without any general meeting of the company. The two principal shareholders had shortly before the sale signed a document headed "Shareholders' Agreement" which in unspecific terms made provision for the sale of the company's business to a new company. No provision was made as to the price. Park J., having rejected an argument that the Shareholders' Agreement should be regarded as the equivalent of a shareholders' resolution, then considered whether, on the assumption that it could, its content would satisfy section 320. He held that it could not. He observed at para. 11.4 (on p.649) -

"Under the section the resolution must approve 'the arrangement'. I accept that this does not require approval of every last detail, but in my judgment there are some central aspects which must be covered. In the case of a sale one of them is the price, or possibly a minimum price, or at least a yardstick by reference to which the price is to be fixed. The 12 July agreement was totally silent as to the price at which Demite's business was to be sold. All that it said was that Newco was to make an offer of an unknown amount. It did not even say what Demite, acting by receivers, was to do when it received the offer. I cannot believe that assent to something as vague as that could be sufficient to constitute the approval of the arrangement which the section requires."

[38] In the context of any proposal that substantial assets of a company be sold to a body connected with a director of that company in circumstances where, if the proposal is put into effect, those who will come to have the ultimate beneficial interest in those assets are persons other than the whole existing shareholders of the transferor company, it is clearly important that these shareholders as a body should have an opportunity of considering the financial implications of such a sale, including the price (or perhaps the minimum price) at which such sale will be effected. Otherwise their interests are likely to be prejudiced. Where, however, the proposed transaction involves a transfer of the assets to a body whose shareholders will, under the arrangement, be the same and the same proportionately as in the company, no such prejudice can arise. In these special circumstances the consideration (if any) for the transfer is not, in my view, a "central aspect". It was not here. It is also clear, in my view, that the shareholders fully appreciated that no consideration other than the Vico loan was to pass in respect of the transfer of both properties.

[39] In these circumstances I am satisfied that the shareholders of the Company had sufficient information before them that the passing of the resolution at the Extraordinary General Meeting on 29 July constituted a valid approval by them of the arrangement which was subsequently carried through. On that ground the pursuer's case insofar as resting on section 320 fails.

[40] In these circumstances other issues relative to that case do not call for decision. It is, however, appropriate that I express my views on them. The arrangement, whenever it was entered into, was one whereby Kilbowie Retail acquired or was to acquire the heritable properties from the Company. To be subject to section 320 Kilbowie Retail required at the relevant time to be "a person connected with" a director or directors of the Company. It is not disputed that between 2 July (the date of its incorporation) and 29 July Kilbowie Retail was such a person. During that period its whole shareholders were the first and second defenders, who were both directors of the Company. However, on 30 July shares in Kilbowie Retail were allotted as earlier described. The defenders dispute that Kilbowie Retail was thereafter a person so connected.

[41] The mischief against which section 320 is directed is the carrying through of substantial property transactions involving directors or persons connected with them without arrangements in that regard first being approved by the members in general meeting. Where the proposed acquirer is a corporate body and the arrangement itself involves a change being made in the shareholding of that body prior to the relative acquisition, it is the character of the proposed acquirer following that change which, in my view, falls to be addressed in considering whether the proposed acquirer is a person connected with a director for the purposes of section 320. Accordingly, the circumstance that Kilbowie Retail was a connected person as at 29 July is irrelevant. It is its character following the allotment, throughout envisaged as part of the arrangement, which is material.

[42] That character involved a distribution of shareholding identical to that in the Company. The majority shareholder was D.B.I. to which 26,139 of the 30,000 shares of 1p each in Kilbowie Retail were allotted (approximately 87%). The share capital of D.B.I. comprised 10,000 shares of £1 each held as follows - 600 shares by each of the first and second defenders, 1,111 by each of the third, fourth and fifth defenders, 600 by a daughter of the first defender, 200 by each of two daughters and a further son of the second defender, 2,133 by the "Charles Steedman Trust" and 2,134 by the "John Steedman Trust".

[43] Mr Wallace's first submission on this aspect depended on the proposition that D.B.I. was a "shadow director" of the Company. That expression is defined by section 741(2) of the 1985 Act as meaning "a person in accordance with whose directions or instructions the directors of the company are accustomed to act". Section 741(3) provides that, for the purposes of certain provisions (including sections 320 to 322), "a body corporate is not to be treated as a shadow director of any of its subsidiary companies by reason only that the directors of the subsidiary are accustomed to act in accordance with its directions or instructions". The pursuer has no pleadings to the effect that Kilbowie Retail was a person connected with any of the directors by reasons of D.B.I. being a shadow director of the Company. Nor is there, in my view, any satisfactory basis, legal or evidential, for that proposition. It is clear that, for the purposes of section 320, the circumstance that the Company was a subsidiary of D.B.I. (by reason that D.B.I. held a majority of the voting rights in it) does not constitute D.B.I. a shadow director of the Company. Nor, even if it were the case, would the circumstance that the directors of the Company were accustomed to act in accordance with the directions or instructions of D.B.I. of itself constitute D.B.I. a shadow director of the Company. There was, moreover, no evidence that the board of the Company was in fact accustomed so to act. The burden of the evidence, insofar as it went, was that the directors of the Company acted independently and in a manner, as they saw it, in the best interests of the Company. The preparedness of D.B.I. to avoid dictating the affairs of the Company is illustrated by its abstention from voting on the resolution at the Extraordinary General Meeting. I accordingly reject Mr Wallace's first submission on this aspect.

[44] His alternative submission turned on the relationship between the second defender and the "John Steedman Trust", the latter holding 2,134 shares in D.B.I. One subhead of this submission depended on the proposition that the second defender was a trustee of the John Steedman Trust, the other that the second defender had a beneficial interest under that trust. The pleadings of neither side are satisfactory for the determination of this issue. The pursuer avers that "trustees for the second defender" were registered holders of 2,134 shares of D.B.I. The defenders admit that ambiguous statement. No documentary evidence was before the court relative to the establishment or the terms of that trust or relative to the appointment of trustees to it. Despite there being, on the face of the pleadings, no issue about this matter, certain evidence was led by the pursuer from the second defender (who was called as their first witness) in relation to the trust. After some evidence had been led touching on this matter Mr Currie for the defenders took objection to the line of evidence on the ground of an absence of record for exploring the position relative to the trust. Further evidence was admitted subject to a reservation as to its competency and relevancy. Mr Currie at the hearing on evidence maintained his objection.

[45] Shortly prior to objection being taken the second defender had testified that the John Steedman Trust and the parallel Charles Steedman Trust were inter vivos trusts set up by the second and first defenders respectively with a view to keeping the shares of the Company in succeeding generations of the Steedman family. He stated that he was at the time of incorporation of Kilbowie Retail a trustee of the John Steedman Trust but that neither he nor his brother, the first defender, had any beneficial interest in either trust. This was, in effect, a repetition of evidence which the second defender had given at a very early stage of his testimony. After objection had been taken and reserved, the second defender explained that under the John Steedman Trust its capital could not be distributed until the death of the survivor of himself and his son Ian, the fifth defender, the object having been to retain the capital interests for at least two generations. This added little of importance to the issues as they ultimately emerged, namely, whether at the material time the second defender was a trustee of or had a beneficial interest in the John Steedman Trust. The potentially significant evidence having been adduced without objection, it is evidence in the case to which I am bound to have regard. I accordingly repel the objection taken.

[46] According to the evidence of the second defender, which I accept on this matter, the John Steedman Trust was established by the second defender in 1989 in favour of his descendants, the capital being directed to be retained for a period which, as at 1997, had not expired. The second defender at no time had any beneficial interest under that trust; nor, incidentally, in so far as disclosed in the evidence, did his spouse or any children or step-children of his who had not attained the age of 18. As at the time of incorporation of Kilbowie Retail in early July 1997 (and by reasonable implication during the period thereafter when the arrangement for the transfer of the heritable properties was approved and effected) the second defender was a trustee of that trust. The evidence does not disclose whether during that period there were any other trustees or, if so, who they were.

[47] It is against that factual background that the complex provisions of section 346 of the 1985 Act, which define, among other expressions, "connected with a director" require to be addressed. Section 346(2) provides -

"A person is connected with a director of a company if, but only if, he (not being himself a director of it) is -

...

(b) except where the context otherwise requires, a body corporate with which the director is associated; or

(i) the director, his spouse or any children or stepchildren of his ..."

Section 346(3)(a) excludes from the reference in subsection (2) to a child any person who has attained the age of 18. Section 346(4) provides -

"A director of a company is associated with a body corporate if, but only if, he and the persons connected with him, together -

(a) are interested in shares comprised in the equity share capital of that body corporate of a nominal value equal to at least one-fifth of that share capital ..."

[48] Mr Wallace's argument in relation to the first subhead opened with the (accurate) statement that at the relevant time the second defender held 600 shares in D.B.I. and the John Steedman Trust held 2,134 shares. The aggregate (2,734 shares) comprised more than one-fifth of the share capital of D.B.I. The persons "connected with him" within the meaning of section 346(4), so ran the argument, included himself in his capacity as a person acting as a trustee of a trust of the kind referred to in section 346(2)(c). In that capacity he held the 2,134 shares of D.B.I. Thus he (as an individual and as a trustee) together held more than the requisite fraction of the share capital of D.B.I. Then applying section 346(4) to the position of Kilbowie Retail, the second defender as an individual and D.B.I. in aggregate held, so ran the argument, more than the requisite fraction of the share capital of Kilbowie Retail. Thus Kilbowie Retail was for the purposes of section 320 a person connected with the second defender.

[49] This argument fails, in my view, on a number of grounds. Section 346(2) provides that a person is connected with a director "if, but only if, he (not being himself a director)" is within the particular classes of persons referred to (emphasis added). Accordingly a director is not, for the purposes of the relevant provision, connected with himself acting in the capacity of a trustee of any trust. Nor, on the evidence, is the John Steedman Trust within any class of trust referred to in section 346(2)(c). Moreover, I see no justification for applying section 346(4) successively in respect of D.B.I. and then in respect of Kilbowie Retail. If contrary to my view the second defender as a trustee of a relevant trust can be regarded as a person connected with himself as an individual, the circumstance that the aggregate of these shareholdings in D.B.I. may, by section 346(2), render D.B.I. a body corporate associated with the second defender and thus by virtue of section 346(2)(b) a person connected with him is irrelevant for present purposes since there is no warrant in the provisions, in my view, for any further "connecting" exercise under section 346(4).

[50] As to the second subhead of this submission, that fails at the first hurdle since on the evidence the second defender had no beneficial interest under the John Steedman Trust. In any event, there is no evidence that any person other than the second defender was acting in the capacity of a trustee of the kind referred to in section 346(2)(c)(i). Even if there were, this argument would also appear to fail on the "successive application" element discussed in the context of the first subhead.

[51] For these reasons, even if I had held that there was no proper shareholder approval, I would have held, on the basis of the evidence and arguments, that the case based on section 320 failed because it had not been demonstrated that that section truly applied in the particular circumstances.

[52] A number of further issues arise in relation to the case under section 320 but it is convenient to deal with those after discussion of the other principal case advanced by the pursuer. It may, however, be noted at this point that, for the purposes of his argument on section 320, Mr Wallace was content to treat the acquisition of Kilbowie Park and of Braidfield as a single transaction, involving the acquisition of two non-cash assets. This composite approach was no doubt appropriate, and perhaps necessary, if the Braidfield element was to be brought within the financial scope of the statutory provisions.

[53] Section 263 of the 1985 Act provides -

"(1) A company shall not make a distribution except out of profits available for the purpose.

(2) In this Part, "distribution" means every description of distribution of a company's assets to its members, whether in cash or otherwise, except distribution by way of -

(a) an issue of shares as fully or partly paid bonus shares,

(b) the redemption or purchase of any of the company's own shares out of capital (including the proceeds of any fresh issue of shares) or out of unrealised profits in accordance with Chapter VII of Part V,

(c) the reduction of share capital by extinguishing or reducing the liability of any of the members on any of the company's shares in respect of share capital not paid up, or paying off paid-up share capital, and

(d) a distribution of assets to members of the company on its winding up."

[54] It is not suggested that any of these exceptions applied to any distribution made in the course of the transaction in issue. Section 263(3) defines what are for the purposes of that Part of the Act a company's profits available for distribution. It is admitted that as at the relevant time the Company did not have any such profits. It was also conceded by Mr Currie that, for the purposes of section 263, any distribution to Kilbowie Retail could properly be regarded as a distribution to the members of the Company. This concession proceeded on an analogy with the finding by Hoffmann J. in Aveling Barford Ltd v Perion Ltd [1989] B.C.L.C. 626 at p. 632d-e that the fact that the distribution was to a company controlled by a shareholder rather than to the shareholder himself was in the circumstances irrelevant.

[55] The issues between the present parties include whether the conveyances of Kilbowie Park and Braidfield by the Company to Kilbowie Retail constituted a distribution or distributions by the former and, if so, of what amount or value. Mr Wallace submitted that for this purpose the transfer of those two properties should be considered separately. While it may be necessary to some extent to give separate consideration to each property, a wholly separate treatment would, in my view, not be appropriate. Although separate dispositions were for conveyancing reasons required to carry through the property transfers, those dispositions (both those with the incorrectly designed disponee and the later corrective dispositions) were executed in each case contemporaneously and reflected a single transaction involving the transfer of both properties and a counter transfer of a liability for debt. It is accordingly appropriate, in my view, to consider those disposals as elements of a composite whole. If there was a distribution, it occurred on the delivery (actual or constructive) to Kilbowie Retail of the corrective dispositions, which event can be taken to have occurred on or within a few days of 17 September 1997.

[56] Those dispositions bore to have been granted for "certain good and onerous causes and considerations", the conventional expression in Scots conveyancing practice for value given other than in the form of a money price. It is, however, accepted by the defenders that an unlawful distribution may be constituted not only by a wholly gratuitous transfer but also by a sale (and presumably by any other form of transfer or exchange) which was known and intended to be at an undervalue, at least in circumstances where the undervalue was gross (Aveling Barford Ltd v Perion Ltd, per Hoffman J. at pp. 632-3). The pursuer maintains that the transfers of Kilbowie Park and of Braidfield to Kilbowie Retail were in each case at a substantial undervalue.

[57] Section 277 of the 1985 Act provides that where an unlawful distribution is made to a member of a company and at the time that member knew or had reasonable grounds for believing that it was so made, that member is liable, where the distribution is made otherwise than in cash, to pay the company a sum equal to the value of the distribution at that time. No such claim is made by the pursuer against any shareholder as such of the Company at the time of this disposal. Nor is any claim made on any basis against Kilbowie Retail. The claim is made against the defenders who were at the material time the directors of the Company. There is authority to the effect that at common law directors may in certain circumstances be liable, and liable jointly and severally, in respect of unlawful distributions made from a company's assets. A leading authority in this field is Re Exchange Banking Company, Flitcroft's Case [1882] 21 Ch D 519 where, in the context of unlawful distributions in the form of dividends, directors were held jointly and severally liable, they having been responsible over a number of years for misrepresenting to the shareholders the asset position of the company. The company having been wound up, the official liquidator successfully obtained an order requiring the directors to make good to the assets of the company sums amounting to the improperly distributed dividends. Although procedurally the order was obtained under section 165 of the Companies Act 1862 (the equivalent of what is now section 212 of the Insolvency Act 1986) the ground of liability was breach of trust. The principle of that case (as subsequently developed in authority) has recently been discussed and applied by Nelson J. in Bairstow v Queens Moat Houses plc [2000] 1 B.C.L.C. 549 where a listed company, against which former directors had brought proceedings for wrongful dismissal, successfully counterclaimed against those directors in respect of unlawful distributions made during their directorships. A ground of liability was again breach of trust. Additionally, the directors were found liable on the basis of breach of their respective contracts of employment. The relief provided by section 727 of the 1985 Act was, amongst other issues, also discussed. In the present action no case is made based on any contract of employment which any of the defenders may have had with the Company. The alleged breach is in each case in respect of duty in the office of director, that is, in effect, breach of trust, otherwise expressed as breach of fiduciary duty. Reference was made by Mr Wallace in this context not only to section 263 but to the Articles of Association of the Company. These incorporated certain of the regulations contained in Part I of Table A of the First Schedule to the Companies Act 1948, including regulation 116 (which prohibits payment of any dividend otherwise than out of profits). I do not consider that this reference materially advances matters. The essential issue is whether the defenders are liable for breach of fiduciary duty by their actings as directors relative to the capital disposal of the properties in 1997.

[58] Logically prior to the issue of any liability of the defenders for breach of fiduciary duty by reason of causing the Company to make an unlawful distribution is the issue whether there was in the circumstances of this case a "distribution" at all. Mr Currie's submissions tended to treat those issues as aspects of a single composite issue. I acknowledge that it is difficult to keep them wholly separate but they are, in my view, technically distinct and I shall endeavour to deal with them so. However, before addressing those issues it is appropriate to set out my reasoning and conclusions in respect of various additional matters of fact.

[59] Both sides instructed experts on valuation matters. Mr John A. S. McGregor, F.R.I.C.S., who practices as a chartered surveyor under his own name, was instructed by the pursuer. Messrs Montagu Evans, Chartered Surveyors, were instructed by the defenders. Mr James Anderson, A.R.I.C.S., an assistant in that firm, carried out the relevant investigations. Both Mr McGregor and Mr Anderson gave evidence. In accordance with established procedure in commercial actions the instructed experts were encouraged to meet and to discuss the valuation issues arising with a view to reaching in advance of the proof agreement on non-controversial matters. Mr McGregor and Mr Anderson met and otherwise communicated on a number of occasions and agreement on certain matters was reached between them. In relation to Kilbowie Park, agreement was helpfully reached on a range of valuation matters, though on certain other aspects agreement was not reached. In relation to Braidfield, Mr Anderson after various discussions with Mr McGregor, wrote to him on 7 June 2000 under reference to that site in the following terms -

"Further to our telephone conversation this morning, I write to confirm that we agreed the value of the above site to be fairly stated at a figure of £65,000 (Sixty Five Thousand Pounds), as at August 1997. I would be obliged if you would countersign and return this letter by way of confirmation of our agreement."

Mr McGregor on 8 June duly countersigned and returned the letter. It was lodged as a production in this action.

[60] Both experts addressed the value of Kilbowie Park in its state as at August 1997. There was no suggestion that its value as at its effectual disposal in September of that year was different. As at that time outline planning permission had been obtained for development of the site for retail and restaurant uses subject to a number of conditions, including condition 8 as referred to earlier in this Opinion. The essential question for the experts was the price which the site with the prospect of such development might, if offered for sale, have achieved at that time. The relative analyses involved an appraisal of factors which a hypothetical purchaser would take into account when viewing the financial prospects of such a development. The principal elements of such an appraisal on which the experts were not agreed were (1) the anticipated return (primarily rental income) which completed units would have been expected to produce, (2) the yield which the hypothetical purchaser would have taken into account in capitalising anticipated rental figures to calculate gross development value, and (3) the "developer's profit" (in the end, as will be seen, a somewhat imprecise concept) which the hypothetical purchaser would have brought into account when calculating the price he was prepared to offer for the site. A number of minor elements were also not agreed.

[61] As regards principal element (1), Mr Anderson produced and spoke to other transactions involving the striking of rental figures in a neighbouring retail park. Although in some instances those transactions occurred some years before and, in one instance, several months after August 1997, I was satisfied that the figures disclosed by those transactions when adjusted, as Mr Anderson did, to 1997, provided a reliable basis for the rental rates which he adopted for the retail units. Mr McGregor did not rely on any identified transactions at or about the valuation date but primarily on rates which had in fact been achieved in respect of let units or which were sought in respect of unlet units following the very recent completion (several years after the valuation date) of the development. So far as other material was relied on by him it was not disclosed and accordingly could not be tested. I found Mr Anderson's approach and materials a more reliable basis for assessing the rentals which a hypothetical purchaser would have anticipated looking as at the valuation date at the prospects of returns on the site once developed. In relation to the restaurant aspect of the development, Mr Anderson again made an appraisal based on an anticipated rental having regard to historical rents passing for like establishments. Mr McGregor took a capital figure reflecting a cash payment which the ultimate occupier had in the event made for the developed building. While it may well be, as Mr McGregor testified, that that commercial operator was in the habit of purchasing rather than renting units which it operated, I am not satisfied that, viewing matters as at the valuation date, the hypothetical purchaser would confidently having anticipated that that particular enterprise would take the restaurant unit or at what price. In these circumstances I prefer Mr Anderson's appraisal of principal element (1).

[62] As regards principal element (2), Mr McGregor adopted a yield of 8%, Mr Anderson of 8.5%. The difference essentially turned on the quality of the retail park which might have been expected on development - including the quality of the covenants likely to be available from prospective tenants. Although this is a narrow point, I prefer Mr Anderson's evidence to the effect that, having regard to the location and character of the anticipated development, the hypothetical purchaser would have been likely to foresee a quality of development which would have made appropriate the higher yield figure. I accordingly again prefer Mr Anderson's appraisal on this element.

[63] Before turning to principal element (3) it is convenient to dispose of the minor elements remaining in dispute. The first of these concerned whether a figure for demolition and site clearance should or should not be included in the "build-cost" element (which was otherwise agreed). This turns on whether demolition and site clearance would have been expected to have been incorporated in the main building contract or to have been let separately; and, if the former, whether the agreed build-cost element figure would require adjustment. This issue is virtually impossible to determine on the basis of the evidence led. The figure in issue (£25,000) is of minimal importance in the context of the development appraisal as a whole. On the evidence the pursuer, on whom rests the onus of proof, has failed to satisfy me that the costs would have been included in the build-cost element. The other minor disputed element related to whether the hypothetical purchaser would have taken into account the prospect of a charge being made for the borrowing of funds from a financial institution for the carrying through of the development. That issue turned on whether the development was likely to be carried through by a well established developer, who might not incur such a charge, or by one less well established who might. Again it is not possible to reach a wholly confident view but on balance I am of the view that it cannot be said that the hypothetical purchaser would assume that this development could be carried through without a finance charge for borrowing. On this matter I again accept Mr Anderson's appraisal.

[64] Principal element (3) involved a substantial difference of opinion between the experts with important consequences so far as the end result is concerned. Mr McGregor would allow a developer's profit of 15% of total development costs; Mr Anderson's figure was 30%. There appears to be no serious dispute but that, in general and in the absence of special risks, developer's profit would have been expected to be in the range of 15-20%. The issue here between the experts is whether or not the particular circumstances of this site as at the valuation date rendered appropriate a higher percentage to reflect extraordinary risks. There were undoubtedly special factors applicable to this site. A major factor was that realisation of development in accordance with the outline permission granted was dependent on the acquisition from West Dunbartonshire Council of an area of ground in its ownership. Another factor was that the Company was bound contractually (subject to suspensive conditions) to sell Kilbowie Park to Vico, which also held a standard security over that site in respect of the loan advanced by it. A further factor potentially affecting risk was that the planning permission granted was at that stage in outline only.

[65] There is force particularly in the first and second of those factors. The local authority in effect held a "ransom strip". If it were unwilling to part with it, the development could not proceed. Local politicians had in the past been hostile to development on this site, partly in support of local residents' opposition to an earlier proposed development there, and partly, it may be, because of concern that development might adversely affect an existing retail park in the vicinity in which the local authority had a commercial interest. There was accordingly no guarantee that the ransom strip would be made available. However, this risk can be overstated. By the summer of 1997 the members of the local authority had been persuaded to grant outline planning permission for a proposal which its officials had long supported. The land owned by it had no intrinsic value other than as a ransom strip. Having decided to approve the planning application the local authority was unlikely, in my view, to refuse outright to make available (for an appropriate price, the amount of which is not seriously in dispute) the land necessary for its realisation. Mr Anderson accepted that the perceived concern was of delay in obtaining the land, rather than of not obtaining it at all. While there was at the valuation date a likelihood of some delay, the risk that it would be such as to render the scheme unviable, while present, was not formidable. As to the second factor, the contractual relationship with Vico would undoubtedly have been an inhibiting factor on the marketability as at the valuation date of the site for development purposes. The Company was not free to sell the site to anyone else without the consent of Vico. The effect was that the only hypothetical purchasers in an unconditional bargain at the valuation date were Vico and any other developer who was prepared and able to persuade Vico to cede its contractual rights. That state of affairs would undoubtedly in my view have had a depressing effect on value. The third factor (the absence of detailed planning permission) would not, in my view, have had a marked effect. In the whole circumstances I am persuaded that the special factors applicable to this site take the developer's profit out of the normal range into one of unusual risk. I am not, however, persuaded that the risk was such that developer's profit should be assessed at as high as 30%. Weighing the material factors and the relative cogencies of the expert opinions expressed, I am of opinion that a figure of 25% for developer's profit would be appropriate.

[66] Mr Currie urged me not to "pick and mix" between different elements of the respective experts' appraisals to the effect of adopting some elements of one and some of the other. The overall judgment of an expert was, he argued, ultimately the important matter and a "pick and mix" approach would be likely to be distorting. I have considered it necessary, in order to form and express a reasoned opinion, to address the several elements in dispute between the experts severally. In the end, I have in general preferred that of Mr Anderson but subject to the qualification that I consider his figure for developer's profit to be overstated. I am, I believe, both entitled and obliged in these circumstances to take account of that qualification in determining on the whole evidence the correct valuation (objectively and retrospectively) of Kilbowie Park as at the valuation date.

[67] There are, however, in the circumstances of this case wider aspects to valuation than those brought out in the calculations inherent in the respective development appraisals. Before addressing these it would be appropriate to record the final figures arrived at by the experts. Mr McGregor's final valuation figure for Kilbowie Park was £1,985,000 (after a concession of £15,000 had been made in respect of a minor item). Mr Anderson provided two development appraisals, each of which fell to be corrected for an arithmetical error. The first appraisal proceeded on the basis that any development would proceed without delay, the second on the basis of a three year delay before a start was made. Mr Anderson's first appraisal prior to correction brought out a figure of £612,781 (after correction, £472,781); his second brought out a figure of £402,130 (after correction, £262,130). All those figures were prior to account being taken of the outstanding loan of £600,000 secured over the property.

[68] Mr Currie submitted that the evidence given by both experts was in the end irrelevant or of no value for the purposes of the issue in this action because it failed to take into account, or at least fully to take into account, the factual circumstances bearing on the realisation of value as at the valuation date. This submission was directed both to Kilbowie Park and to Braidfield but I leave the latter aside for the present. Mr Currie's contention in respect of Kilbowie Park was directed primarily against Mr McGregor's testimony which, he argued, was fatally flawed by a failure to take into account certain factual circumstances. Mr Anderson, Mr Currie argued, had at least to some extent taken those circumstances into account. Some of the circumstances referred to in this argument (including the contractual commitment to Vico) I have already considered and taken into account in the context of developer's profit. Others require consideration at this stage. Mr Currie observed that Mr McGregor's valuation of Kilbowie Park proceeded on, among other assumptions, the assumptions that the availability of the property was known in the market place for a period of six months prior to the valuation date and that on that date an unconditional sale could have been achieved. Mr Currie further submitted that Mr McGregor's valuation proceeded also on the assumption that there would at the valuation date have been a competitive interest in the site shown by a number of major developers. Those assumptions, Mr Currie argued, were inconsistent with the established facts.

[69] There is force in this argument. Only very limited interest had been shown in the site at the time it had been first marketed towards the end of 1994. Some competitive interest had been introduced when Castlemore Securities made its approach but there is no evidence that it remained interested as at the summer of 1997. No active marketing had been carried out in that year, either before or after outline planning permission was granted (or the earlier indication given of an intention to make such a grant). No unconditional offer was in fact made by any party in the period after planning permission was granted or while it was imminent. It would, however, be wrong, in my view, to conclude that it is manifest that as at the valuation date an unconditional sale could not have been obtained at any price (or at any price above the outstanding debt of £600,000). The grant of planning permission (and the earlier intimation of an intention to grant it) were, in my view, significant events in respect of the value of the subjects. In 1996 Castlemore Securities had been prepared to purchase the subjects without the benefit of any planning permission for £600,000. That preparedness had been sufficient to persuade Vico to make an advance of that sum in association with its bargain to pay £2.3 million in the event of an acceptable planning consent being obtained. Vico had not been prepared to settle the transaction immediately on the planning committee indicating its willingness to grant permission but the proposal which it rejected was to pay £2.3 million then. It does not follow that, against the prospect of it being contractually obliged to pay £2.3 million in the event of the satisfactory solution of outstanding matters (including acquisition of the ransom strip), Vico alone or in association with another developer would not have been prepared as at the valuation date to acquire the land unconditionally for something in excess of £600,000.

[70] In the event that possibility was never tested at the time. Nor was there any evidence from Vico as to what its position would have been likely to have been had any such proposal been made to it. But it remains a possible mechanism for realisation of value which cannot be ignored. Nor is it proper, in my view, to ignore the possibility that a speculative investor might have been prepared, planning permission having been granted, to pay more than £600,000 for the chance, however highly conditional, of receiving £2.3 million in the event of the bargain with Vico ultimately coming to fruition. Although time was short for the introduction of such a hypothetical purchaser (in that case of an assignation of the Company's contractual and conditional right to payment), it was not impossibly short.

[71] Taking the whole relevant circumstances into account I have come to the view that on an objective and retrospective consideration Kilbowie Park might reasonably have been expected to achieve on an unconditional bargain struck as at the valuation date a price in excess of but not substantially in excess of £600,000. Had Mr Anderson taken a developer's profit of 25% rather than 30%, a figure of about £260,000 would, I assess, have been added to his value. His first development appraisal (which I regard as the more appropriate in the circumstances) brought out, after correction, a figure of approximately £473,000. Adjustment of the developer's profit brings that figure to £733,000. Taking into account such additional inhibiting factors as are appropriate (in particular the relative shortage of time), a modification to £700,000 would in my view be appropriate.

[72] In relation to Braidfield, the experts reached the agreement earlier narrated. Mr Currie submitted that, notwithstanding that agreement and the lodgement of the document vouching it, the pursuer had failed to prove that that figure truly reflected the value of Braidfield at the valuation date. That was, so ran the argument, because both experts had proceeded on assumptions (particularly an assumption that the subjects had been available in the market place for a period of six months) which were inconsistent with the established facts. I reject this argument. The figure ultimately agreed between the experts was achieved following encouragement by the court that matters capable of agreement should be resolved in advance of the proof. The court (and the other party to a litigation) is entitled prima facie to assume that an expert instructed by a party is properly instructed, including instructed on any factual matters or assumptions upon which that party seeks to rely, and that any agreement which that expert comes to with the other expert instructed takes into account any such matters or assumptions. For ought seen, the figure of £65,000 (which was arrived at as a compromise) took into account all material considerations. Had it been the intention of the defenders to advance a contrary position, it was for them, in my view, to raise the matter in evidence with the experts. They did not do so. There is accordingly nothing to rebut the prima facie inference that parties are agreed that, as a matter of retrospective valuation, £65,000 fairly reflects the value of Braidfield at the valuation date. In these circumstances it is unnecessary to rely on what occurred in the course of an exchange between counsel and the court towards the end of the pursuer's proof; but if it were necessary to rely on it, I would conclude that the defenders through their counsel then unequivocally committed themselves to the extent mentioned above. In any event, there is no alternative figure positively before me, the only alternative being that the pursuer has failed to prove that Braidfield had, as an item of disposable property, any value as at the relevant time. In my view there is no justification for such a conclusion.

[73] Accordingly, the composite disposal of the two heritable properties in September 1997 involved their transfer at a cumulative sum of £165,000 less than their aggregate value as determined by the court on the basis of valuations made well after those transfers and of other evidence in the case.

[74] I now turn to another chapter of factual matters. It is plain on the evidence that Riverbank Limited, the eventual purchaser of the Company's shares, and those with an interest in that corporate vehicle were, through their legal representatives, fully acquainted with the fact and purpose of the disposals of the heritable properties at the time when those disposals were made. From a very early stage Mr Cowan had made plain that his (then unidentified) client was interested in acquiring a controlling interest in the Company shorn of its heritable assets and liabilities including any planning gain. That had been made quite explicit in his letter of 18 February 1997 to the second defender. From the latter part of June it was clear that Vico was not prepared immediately to complete the purchase of Kilbowie Park and that, if the purchase of the shares in the Company was to be effected within the timescale envisaged by the parties to that proposal, a transfer to another company of that property together with the loan secured over it would require to be made. Mr Cowan was aware of that requirement by at least 25 June and in his letter of that date made certain observations and enquiries about the mechanism proposed. His concern, as expressed, was "to ensure that my client does not purchase a company with a number of discontented minority shareholders who have a right of legal action against the company". In his letter of 27 June he acknowledged that the basis of the proposed share purchase would be that the heritable properties would, with associated debts, be transferred to a separate and distinct company and the share price fixed with reference to the net asset value of the Company after such transfer. Transfer of those assets was further referred to by him in his letter of 30 June to the second defender. When shortly thereafter Mr Moffat took responsibility for the proposed purchaser's interests he quickly became acquainted with what was proposed relative to the property transfers. Although he expressed a concern that the transaction could constitute a distribution, that was essentially related to the possible tax consequences of a transfer having that character. In the event the Company and the purchaser were protected against any such risk by tax warranties in the share purchase agreement. There was, moreover, no suggestion in the evidence that any claim had been or might yet be made against the Company by the Revenue authorities. Mr Moffat had by 16 July received a copy of the resolution to be put before the Extraordinary General Meeting on 29 July. A detailed note explaining the background was supplied by Messrs Macdonalds to Mr Moffat's firm with their letter to it of 28 July. After a proposal had been made that the prospective share purchasers acquire Braidfield, Mr Moffat intimated in his letter of 30 July that Dr Hall would not be acquiring that site. Correspondence between the two firms early in August confirmed that The Football Trust loan would be brought into account as a debit item in calculating the net asset figure for the purposes of fixing the share purchase price. That price was fixed accordingly. The draft terms of the Variation Agreement with Vico were the subject of scrutiny and detailed comment by Mr Moffat. The disclosure letter delivered in association with the share purchase agreement referred at paragraph 18 to the transfer of both properties to Kilbowie Retail and stated - "No consideration is payable by Kilbowie Park Retail to the Club". A reference and statement to the same effect had been made in an earlier draft of that letter. The share purchase agreement proceeded to completion. No suggestion was made by or on behalf of the purchaser prior to such completion that it or the Company was in any way prejudiced by any aspect of the property d

[75] I now turn to the issue of whether there was a "distribution" within the meaning of section 263; having regard to the composite nature of the transaction, the singular is, in my view, apt. "Distribution" is not further defined than by section 263(2) but it would appear that generally a distribution will be a transfer without consideration given by the recipient. The object of the statutory code is to prohibit the (gratuitous) return to shareholders, other than by specified means, of subscribed capital or assets representing the same. However, as illustrated by Aveling Barford Ltd v Perion Ltd, a transfer involving the passing of some consideration may in certain circumstances give rise to a distribution. That is because a transfer, albeit some consideration is given, may involve in substance a gift of capital to the transferee. In Aveling Barford Ltd v Perion Ltd Hoffmann J. cited and applied two earlier authorities in which judges had addressed the question whether there had been an unlawful return of capital. In Ridge Securities Ltd v I.R.C. [1964] 1 W.L.R. 479 Pennycuick J., in the context of a taxation issue, required to determine whether certain "interest" payments were in fact invalid gratuitous dispositions. At p. 495 he observed -

"A company can only lawfully deal with its assets in furtherance of its objects. The corporaters may take assets out of the company by way of dividend or, with leave of the court, by way of reduction of capital, or in a winding up. They may, of course, acquire them for full consideration. They cannot take assets out of the company by way of voluntary disposition, however described, and, if they attempt to do so, the disposition is ultra vires the company."

In Re Halt Garage (1964) Ltd [1982] 3 All E.R. 1016 Oliver J. in considering whether certain payments drawn from the capital of the company and paid purportedly as remuneration for services, were, insofar as they exceeded a certain weekly rate, unlawful, described at p. 1039 the real test as being "whether the transaction in question was a genuine exercise of the power" [to pay remuneration]. Oliver J. then went on to hold at p. 1044 that part of the payments made to the recipient (who was both a director and a shareholder) could properly be regarded as remuneration but that the rest were disguised gifts of capital. On the same page he referred to a situation "where a payment is made out of capital which is described as remuneration but which is manifestly beyond any possible justifiable reward for that in respect of which allegedly it is paid". Hoffmann J. in Aveling Barford Ltd v Perion Ltd at p. 631 described the issues in these earlier cases as being whether the payments in question were "dressed up gifts [or returns] of capital". In relation to the circumstances before him he held that the sale was at a "gross undervalue" (p. 632). The property was sold to the parent company for £350,000 when an independent professional valuation of £650,000 had been obtained shortly before that sale. At p. 633 he observed - "It was the fact that it was known and intended to be a sale at an undervalue which made it an unlawful distribution". He held that the defendant transferee (which was not a director of the Company) had no arguable defence to a claim that it was accountable as constructive trustee for the proceeds of a resale of that property. It is, in my view, clear from those authorities that it is necessary first to consider the character of the transaction or transactions in question and to determine whether it or they are, in whole or in part, "dressed up returns of capital".

[76] Mr Wallace conceded (rightly in my view) that if full consideration had been given by Kilbowie Retail to the Company for each of Kilbowie Park and Braidfield he could not maintain that there had been an unlawful distribution. It is implicit in that concession that a transfer of assets from the Company to Kilbowie Retail, if made in exchange for appropriate consideration (in the form of assumption of debt or otherwise), would not have been ultra vires the Company. It is also clear, in my view, that a mere arithmetical difference between the consideration given for the asset or assets and the figure or figures at which it or they are in subsequent proceedings valued retrospectively will not of itself mean that there has been a distribution. If the transaction is genuinely conceived of and effected as an exchange for value and the difference ultimately found does not reflect a payment "manifestly beyond any possible justifiable reward for that in respect of which allegedly it is paid", does not give rise to an exchange "at a gross undervalue" and is not otherwise unreasonably large, there will not to any extent be a "dressed up return of capital". In assessing the adequacy of the consideration, a margin of appreciation may properly be allowed.

[77] In my view the transaction between the Company and Kilbowie Retail was genuinely conceived of and effected by the directors as an exchange for value. The Company, which was in various difficulties in maintaining its footballing activity, was presented with the prospect of a sale of its shares to a third party which was apparently prepared to inject substantial funds into these footballing activities but was interested in acquiring them only if the two heritable properties were separated off from the remaining assets of the Company. That could be effected only by the "hiving off" of those properties to a property company formed for that purpose. It was always envisaged that consideration would be given by that property company for such property. Initially it was thought that both the debt of £600,000 secured over Kilbowie Park and the debt of £75,000 associated with Braidfield would be assumed by Kilbowie Retail and form the consideration. When difficulties emerged about transferring the latter debt to a property company, that element ceased to be part of the consideration passing to the Company - though an alternative financial adjustment was made with the prospective purchaser of the shares. The consideration passing to the Company was not only the £600,000 (its liability for which was discharged) but the avoidance of the risk of that loan, together with interest thereon and some £20,000 of expenses, being called up against it in relatively early course should development of Kilbowie Park not go ahead - a risk which could not be discounted and which would have been likely to lead to the liquidation of the Company. (Among other possible commercial disadvantages, including rival developments, Kilbowie Park lay outwith the Clydebank Enterprise Zone and developed subjects there would accordingly not attract rate rebates etc.) In these circumstances, notwithstanding that the values of the properties have retrospectively been assessed at a cumulo figure of £765,000, the exchange, regarded as a single transaction, cannot in my view be regarded as "at a gross undervalue" or as "manifestly beyond" what was justified in the whole circumstances or as otherwise unreasonable. In these circumstances and so regarded the disposals of Kilbowie Park and Braidfield did not, in my view, constitute a "distribution" within the meaning of section 263.

[78] If, contrary to my view, the disposals of Kilbowie Park and of Braidfield require for this purpose to be considered discretely, then presumably the discharge of the loan to Vico falls to be attributed to the Kilbowie Park transaction with no consideration being given in respect of Braidfield. In such circumstances my conclusion in respect of Kilbowie Park must clearly be the same - it is a a fortiori of the disposals regarded together. However, on the basis of a discrete treatment it is difficult to regard the disposal of Braidfield as being otherwise than at a gross undervalue. I am unable to accept that, regarded as an item of property and looked at in isolation, Braidfield can at all reasonably be regarded as having had no value at all as at July/September 1997. So far as the second defender suggested in evidence that Braidfield could be regarded at that time as a valueless piece of land, I am unable to accept his evidence. It had been purchased during the previous year for £75,000. Although there was some suggestion that this was a special bargain, there was no proper basis in the evidence for any conclusion that the price then paid was grossly inflated. It was professionally valued for Kilbowie Retail as at December 1997 at £50,000. The experts instructed in this case have subsequently agreed that its open market value as at the summer of 1997 was £65,000. Accordingly, if contrary to my opinion, it is necessary to treat Braidfield discretely, the disposal of it was, in my view, a distribution (and on that basis by concession an unlawful distribution) within the meaning of section 263.

[79] As I have held that, on a proper approach to the issue, there was no "distribution", the issue whether the defenders have any liability in respect of an unlawful distribution by the Company does not strictly arise. But it is appropriate that I deal with it. Mr Wallace submitted that it was sufficient to bring home liability against the defenders that (1) there had been an unlawful distribution and (2) the defenders had as directors participated in the decision which had resulted in that distribution. No authority was cited in support of that proposition, which I reject. An authority cited by Mr Wallace in another context, Precision Dippings Ltd v Precision Dippings Marketing Ltd [1986] 1 Ch. 447, tends to support a contrary view. In that case it was held that there had been an unlawful distribution and that the recipient (the parent company) of the distribution (a cash dividend) had no defence to a claim that it held that cash as a constructive trustee and was liable at common law to repay it (pp. 457H-458B). It was, however, recognised that the claim against the directors involved wider considerations (pp. 454G-455A). It is plain, in my view, that directors are liable only if it is established that in effecting the unlawful distribution they were in breach of their fiduciary duties (or possibly of contractual obligations, though that does not arise in the present case). Whether or not they were so in breach will involve consideration not only of whether or not the directors knew at the time that what they were doing was unlawful but also of their state of knowledge at that time of the material facts. In reviewing the then authorities Vaughan Williams J. in In re Kingston Cotton Mill Company (No.2) [1896] 1 Ch 331 said at p. 347 -

"... in no one of [the cases cited] can I find that directors were held liable unless the payments were made with actual knowledge that the funds of the company were being misappropriated or with knowledge of the facts that established the misappropriation."

Although this case went to the Court of Appeal, this aspect of the decision was not quarrelled with (see [1896] 2 Ch 279). In modern times and in certain circumstances some matters not within a director's actual knowledge may be imputed to him (Bairstow v Queens Moat Houses plc, per Nelson J. at pp. 559-60). On the basis of his actual and/or imputed knowledge a degree of fault, assessed objectively, is a precondition of liability (Bairstow v Queens Moat Houses plc, per Nelson J. at p. 558).

[80] In considering whether a director has been in breach of a fiduciary duty it is, in my view, relevant to consider to whom that duty is owed. The immediate answer is "to the company" but that answer is not in this context instructive. It is necessary to address what interests in the company are potentially affected. In West Mercia Safetywear Ltd v Dodd [1988] B.C.L.C. 250 the Court of Appeal required to consider the effect of a transfer of funds instructed by a director from the bank account of the company to its parent company in circumstances where the transferor company was known by the director to be insolvent. In holding that the director was guilty of breach of duty Dillon L.J., with whom both other judges agreed, cited with approval a statement by Street C.J. in Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 at p. 730 where he said -

"In a solvent company the proprietary interests of the shareholders entitle them as a general body to be regarded as the company when questions of the duty of directors arises. If, as a general body, they authorise or ratify a particular action of the directors, there can be no challenge to the validity of what the directors have done. But where a company is insolvent the interests of the creditors intrude. They become prospectively entitled, through the mechanism of liquidation, to displace the power of the shareholders and directors to deal with the company's assets. It is in a practical sense their assets and not the shareholders' assets that, through the medium of the company, are under the management of the directors pending either liquidation, return to solvency, or the imposition of some alternative administration."

That statement (and its application by the Court of Appeal in West Mercia Safetywear v Dodd) recognises that, for the purposes of the duties of directors, different interests in a company may require to be addressed distinctly. It also recognises that, at least in some circumstances, a particular interest or persons representing it may pass from a right which might otherwise have been available to it to challenge the validity of what the directors have done - a proposition of potential relevance in a later context. In general, the fiduciary duty of a director is owed, in my view, to the members of the company as a whole. In some situations, including such as the present, that duty is also owed to the company's creditors as a whole - in the present case because infringement of section 263 could, by the unlawful removal of capital from the company, adversely affect their interests.

[81] In the present case I am satisfied that the directors duly addressed and discharged their duties to both classes of interest. The arrangement proposed and ultimately carried through separated the company's heritable property and its other assets. Such separation was a necessary precondition to any sale to Dr Hall and his associates. Given the difficulties being experienced by the Company in relation to its footballing activities, such a sale provided an opportunity for such activities to be continued successfully, albeit with a new majority shareholder, whereas in the absence of a sale there was a real and immediate risk that the Company would be unable to maintain such activities. It was thus designed to promote the primary object for which the Company had been incorporated. It was anticipated that those shareholders who wished to retain their holdings in the Company would be free to do so, the second defender having received an assurance from Dr Hall to that effect (although it was subsequently reneged on). The separation also allowed any development potential in Kilbowie Park to be retained for the benefit of the persons who were, prior to the sale, shareholders of the Company and that in the proportions in which they were such shareholders. Those arrangements, objectively considered, were and were intended to be in the financial and other interests of all the existing members of the Company including the dissentient minority. It is unsurprising that no such dissenting member has been found to support the present claim. Insofar as it was necessary for the directors to consider the position of future shareholders, their interests were also catered for. The immediately prospective shareholders were Dr Hall and his associates - in the event the corporate vehicle, later styled Riverbank Limited, was used for the purpose. It was from the outset a fundamental aspect of their purchase proposal that the heritable properties would be separated off. The price was fixed largely by reference to the residual net value of the Company's assets, an adjustment being made to reflect the circumstance that the Company was in the event to retain the obligation to The Football Trust. Insofar as it was necessary for the directors to consider the position of any purchaser from Riverbank Limited, such purchaser might reasonably be presumed to make his purchase on the basis of the value of the Company as it stood at the time of his purchase. As to the position of the creditors of the Company, the two major creditors were Vico and The Football Trust. The former was dealt with by the assignation to Kilbowie Retail, with Vico's consent, of the relevant debt. The latter remained, for good practical reasons, a creditor of the Company in circumstances where the Company remained solvent and it was expected that substantial funds would be injected into it by the share purchaser, whose purchase price had been adjusted to deal with The Football Trust debt. That debt was in the event duly discharged. Trade debtors were paid off. It is unsurprising that no creditor or any person representing creditors as a whole has appeared to support this claim. In the whole circumstances the directors, in my view, discharged their fiduciary duty to the Company, that is, to all the persons, regarded as a whole, with relevant interests in the Company. Although not determinative of the issue, it is material to notice that the directors, through the second defender, took both legal and accountancy advice in relation to the proposed transactions. There was no suggestion that any professional adviser suggested that the proposal was unlawful or might give rise to a breach of fiduciary duty. The second defender's letter of 16 June 1997 forms no basis for any proposition that he or any of his fellow directors believed as at that date (or in the weeks which followed) that Kilbowie Park had a value substantial

[82] In considering the exercise of the directors' fiduciary duty it is appropriate, in my view, to consider the transaction as a whole. However, if contrary to that view it is necessary to consider separately the exercise of that duty in respect of Kilbowie Park and of Braidfield, I would conclude that in each such case their duty was, for the reasons expressed above, duly discharged.

[83] Insofar as Mr Wallace's submissions of breach of fiduciary duty rested on a proposition that, distinctly from any matter of distribution, there was an improper alienation of the Company's property at below its true value, I reject it for the same reasons as expressed above. The arithmetical difference ultimately found to exist between the consideration given and the value at which the properties have now been assessed does not of itself point to any failure in duty. In the whole relevant circumstances the defenders, in my view, discharged this alternative formulation of their duty.

[84] In these circumstances it is unnecessary to reach a decision on other defences urged in this action. It is appropriate, however, that I deal with them, albeit relatively briefly. The defenders' fourth plea-in-law (as amended) is in the following terms -

"On the hypothesis that the Transfers were distributions (within the meaning of Section 263(2) of the 1985 Act) or contravened Section 320 of that Act or both (which hypothesis is denied), (i) the whole members of the Pursuer when the Transfers were completed formally approved the transfers and (ii) the purchaser of all the shares in the Pursuer has by its actings agreed not to raise any action against the Defenders in respect of the Transfers, all as averred, and the Present Defenders should be assoilzied."

The argument advanced in support of element (i) in this plea was based on the proposition that, while a company by the unanimous vote of its members may not ratify an act which is ultra vires of the company, the shareholders may, even by a majority vote, determine that a remedy available to the company in respect of that ultra vires act should not be pursued, to the effect of preventing the minority pursuing it. The proposition receives some support from the reasoning of Vinelott J. in Taylor v National Union of Mineworkers (Derbyshire Area) [1985] B.C.L.C. 237 at p. 246 and at p. 254 (cited with approval by Knox J. in Smith v Croft (No.2) [1988] 1 Ch. 114 at pp. 178-81). That proposition has, however, in my view no immediate relevance to the present case. While it may be that shareholders of a company may, by a majority, determine that a remedy available to the company in respect of a past ultra vires act should not in the interests of the company be pursued, such a determination would at least require that the members, when making such a determination, were aware that the act had been ultra vires but had nonetheless, bona fide and in the best interests, as they saw it, of the company, so determined. There is no question of a determination of that kind having been made by those who were shareholders of the Company prior to the completion of the share purchase agreement in 1997. So far as appears, all the members who participated in the proceedings at the Extraordinary General Meeting on 29 July 1997 proceeded in the belief that what was proposed was lawful. There was no question of retrospectively (or even prospectively) deciding that a remedy available in respect of an unlawful act should not be pursued. In any event, I find it difficult to see the relevance of element (i). There is in the present case no question of any member of the dissenting minority either pursuing a corporate claim in his own name or lending active support to the claim in the name of the Company. I reserve my view as to what would have been the position had either of those situations obtained. As to element (ii) I doubt whether it can properly be said on the evidence that the purchaser (i.e. Riverbank Limited) "agreed not to raise any action against the defenders in respect of the transfers". The circumstances in my view fall short of agreement to that effect. The purchaser was (as I have held) fully aware of all the material circumstances relative to the transaction. It might be said with some force that the purchaser had (and has) in the circumstances no legitimate interest in or is personally barred from maintaining, in the name of the Company, the present claim. In Flitcroft's Case, Cotton L.J. at p. 536 observed -

"If the corporation were suing for the purpose of paying over again to the shareholders what the shareholders had already received the Court would not allow it."

However, I would not have sustained the defenders' fourth plea in its present form in so far as advanced as a defence to the claim based on section 263. I would for similar reasons not have sustained it so far as advanced with reference to sections 320-2.

[85] The defenders also have a plea that, in the event of their being otherwise liable for any breach of duty, they ought to be relieved of any such liability under section 727 of the 1985 Act. That section provides -

"(1) If in any proceedings for negligence, default, breach of duty or breach of trust against an officer of a company ... it appears to the court hearing the case that that officer ...is or may be liable in respect of the negligence, default, breach of duty or breach of trust, but that he has acted honestly and reasonably, and that having regard to all the circumstances of the case ... he ought fairly to be excused for the negligence, default, breach of duty or breach of trust, that court may relieve him, either wholly or partly, from his liability on such terms as it thinks fit."

The application of this subsection essentially involves a subjective test (Bairstow v Queens Moat Houses plc, per Nelson J. at p. 560). As I have found that the directors were not in breach of any fiduciary duty (and have no liability under sections 320-2) it is somewhat artificial to address this plea. However, I am quite satisfied that the directors acted honestly throughout - indeed there was no suggestion otherwise. They also, I am satisfied, acted reasonably. Although there is an arithmetical difference between the consideration given and the values I have assessed, no professional valuations were at the material time before the directors which pointed to any such difference. Nor was it suggested in evidence that any should have been obtained. Had valuations been instructed, it is conceivable that figures as low as those spoken to by Mr Anderson (which are professionally tenable albeit not wholly accepted by me) might have been indicated. On a true analysis no prejudice was sustained by any person. The defenders acted throughout on the basis of legal and accountancy advice. In the whole circumstances I would, had this matter been live, have been disposed to relieve the defenders, wholly and unconditionally, from any liability. I should add, in relation to the case made under sections 320-2, that notwithstanding the arithmetical difference the Company in the whole circumstances truly sustained no loss or damage as a result of the transaction.

[86] For the reasons stated I shall repel the pursuer's fifth, sixth and seventh pleas-in-law, sustain the defenders' third plea-in-law and assoilzie them from the conclusions of the summons. It is unnecessary or inappropriate to deal with the remaining pleas.