Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2011] CSOH 189
CA126/08	OPINION OF LORD HODGE in the cause JAMES STEVENSON GILLESPIE Pursuer; against (1) THOMAS GRAHAM GILLESPIE, (2) ALLAN WILKINSON STANFIELD GILLESPIE, (3) THE PARTNERSHIP OF THOMAS GRAHAM GILLESPIE, ALAN WILKINSON STANFIELD GILLESPIE, JAMES STEVENSON GILLESPIE AND GARY STANFIELD GILLESPIE Defenders: ­­­­­­­­­­­­­­­­­________________

Pursuer: Iain W. F. Ferguson QC, Simpson; Semple Fraser LLP

Defender: McIlvride; Anderson Fyfe LLP

18 November 2011

[1] This opinion, which relates to a site at Ballochney, Plains, Airdrie ("Ballochney East") is the second of four opinions in the four actions in which I heard a conjoined proof. I have set out the background to the actions and also my findings on many matters which are relevant to all four actions in my opinion in the action relating to the site at Ballochney West (CA 132/08). By Joint Minute in each of the actions the parties have agreed that evidence in any action is, so far as relevant, evidence in the other three actions. I adopt my findings, which I set out in that opinion, as part of this opinion for the sake of brevity and use the same abbreviations. The findings in the other two actions are less directly relevant to this action but are, so far as relevant, part of the picture which has influenced me in reaching the determinations which I have made.

[2] Mr Steven Gillespie seeks a declarator that he and his brothers are partners of a partnership established to acquire, undertake mineral extraction operations, develop and sell a site comprising 19.7 hectares of land at Ballochney, Plains, Airdrie. The site lies immediately to the East of the Ballochney West site which is the subject of action CA 132/08 and is separated from it by Arbuckle Road and Learigg Road which run generally in a north west - south east direction. The Ballochney East site comprised an equestrian centre, at which the Gillespie brothers carried on part at least of their equestrian business in the 1990s, and agricultural land. The equestrian centre was located immediately to the North of the curtilage of a farmhouse, which Mr Graham Gillespie held under a separate title and in which he then resided with his wife. The agricultural land surrounded the house and its curtilage and the equestrian centre.

The background to the sale of Ballochney East

[3] The financial difficulties which JWS faced in 1995 formed the backdrop to the sale of the site as they did to the sale of Ballochney West site. See in particular paragraphs [12] to [14] in my opinion in the Ballochney West action.

[4] A difference between the sale of Ballochney West and Ballochney East was that the former brought £300,000 into JWS. Mr Graham Gillespie purchased Ballochney East for £30,000 and did not pay any funds to the company as the transaction was effected by a reduction by that amount of his director's loan account. The disposition of the site from JWS to Mr Graham Gillespie was dated 10 November 1995 and had a date of entry of 8 November 1995, which was about the same time as JWS disponed the site at Ballochney West to Piula.

[5] That coincidence in timing is not surprising as the development of each of the sites was inextricably linked to the other. The proposal in relation to Ballochney West was to exploit the site by opencast coal mining before restoring it for sale for residential development. That is what occurred. But the land at the southern part of the Ballochney West site had a large deposit of peat, which was up to twenty feet thick, above the coal deposits. This peat had to be removed from the site and encapsulated in clay, as Mr John Evans explained in his evidence. In addition, materials were required for compacting the site after the opencast mining in preparation for its development. As a result, it was arranged that JWS would operate both Ballochney West and Ballochney East. The opencast mining of land within Ballochney East created a void in which the peat from the Ballochney West site could be encapsulated and a borrow pit in the Ballochney East site provided the minerals for compacting Ballochney West in preparation for its development. JWS obtained an opencast operating licence from the Coal Authority dated 18 July 1996 which authorised mining activity on Ballochney West and on part of Ballochney East in an area close to the farmhouse. It carried out opencast mining on the two sites in this mutually beneficial way between 1996 and 1998 and prepared the Ballochney West site for its eventual sale by Piula to Toondale Limited in 2003 for residential development. Both Mr Steven Gillespie and Mr Graham Gillespie must have been aware, through their involvement in JWS's business, of the uses to which that company intended to put the two sites when they were sold in 1995.

Mr Steven Gillespie's case
[6] Mr Steven Gillespie gave evidence that the four brothers decided to take land at Ballochney out of the ownership of JWS. The company received £300,000 from Mr Thomas Gillespie for Ballochney West and it transferred Ballochney East to Mr Graham Gillespie. The brothers had always intended to mine and then develop the land at Ballochney and recognised that it would take some years to achieve that development. When the brothers agreed to transfer Ballochney East they did so on the basis that they were each to get a share of profits if the land were developed. The brothers all had interests in the horses which were kept at Ballochney East at that time. He rejected the idea that his brother wanted to own Ballochney East outright for reasons of residential amenity. JWS entered into an agreement with Mr Graham Gillespie on 29 March 1996 which allowed opencast mining in close proximity to his house. He stated that Mr Graham Gillespie had never liked living at Ballochney and that he ceased to do so later when he separated from his wife, who continued to live there. But he did not have any contemporaneous documentary evidence to illuminate what was the intention of the Gillespie brothers when they agreed to the transfer of Ballochney East from JWS to Mr Graham Gillespie.

Mr Graham Gillespie's explanations of the transfer and his use of the land

[7] In his affidavit Mr Graham Gillespie stated that he bought Ballochney East to prevent a third party from developing the ground adjacent to his family home, in which he, his wife and two children had lived since 1982. He developed the equestrian centre primarily for the use of his daughter, who is a show jumper. He also referred to the agreement between himself and JWS dated 29 March 1996 and stated that it was not signed by him or Mr Gary Gillespie and that Mr Steven Gillespie might have put their signatures there. In his second affidavit he stated that, while the local plan in 1994 had identified Ballochney West as a potential site for residential development, Ballochney East remained unallocated for any purpose other than agriculture. The transfer of peat from Ballochney West to that site meant that much of it was sterilised for development unless the peat were moved elsewhere.

[8] In his oral evidence he gave several reasons why he had acquired the land. He said that the land would "finish off" his house. He stated that he did not wish his horses to be on land which he did not own. He said that he was preventing another company from exploiting the coal reserves which were on the site. He also suggested, erroneously in my view, that the site was worthless to JWS. Like his brother, he had no contemporaneous documentation to cast light directly on the reason for the transfer of the site into his name.

[9] In his submissions Mr Ferguson criticised this evidence as contradictory and unreliable. He pointed out that at the time JWS intended to exploit the coal reserves close to the house and that that exploitation was a necessary part of the mining and eventual development of Ballochney West. I do not think that the reasons which Mr Graham Gillespie gave were contradictory; but I am not persuaded that they were a reliable account of his reasoning at the time of the transfer. His evidence on this matter did not take account of the brothers' wish to get assets out of the name of JWS and their then current intention to have JWS exploit both sites within Ballochney farm before preparing Ballochney West for possible development and sale. I observe that the plan attached to the agreement of 29 March 1996, which showed the proposal to mine both Ballochney West and Ballochney East, was dated November 1994. In this context I consider that issues of residential amenity played at most a minor role and give little support to the suggestion that he sought to own the land himself.

[10] Mr Graham Gillespie subsequently spent large sums of money in re-developing the stables as an equestrian centre. He also initiated, or allowed Mr Gary Gillespie to initiate, investigations into the potential development of the site. The "Gillespie Investments Portfolio", which I discussed in paragraphs [55] and [56] of my opinion in the Ballochney West action and which was produced in late 2005 or early 2006, presented a proposal to develop a nine-hole golf course and driving range and a residential development. The proposed development encompassed Ballochney East, the farmhouse, Ballochney North, which GM Mining Limited had acquired in 1997, and also part of Ford Farm, which was situated to the South of and adjacent to Ballochney East. The portfolio included a plan by James Barr Limited, chartered surveyors, dated 21 June 2005 and entitled "Proposed Development Option 3", which illustrated this proposal. In January 2005 Ms Anna Thomas of Savills (L&P) Limited carried out a preliminary valuation of the farmhouse and Ballochney East. By missives dated 15 and 16 August 2006 with Mr and Mrs Neil Watson, Mr Graham Gillespie obtained an option to purchase parts of Ford Farm, after Mr Gary Gillespie had approached Mr Watson with a proposal that "the Gillespies" wished to buy the land. I do not accept Mr Graham Gillespie's evidence that the purpose of the option was to support a self-standing development related to a proposal for a railway station at Plains. A plan by James Barr Limited, which was attached to the missives, showed a development site which encompassed Ballochney North, Ballochney East and Ford Farm to the north of the A89 at Main Street, Airdrie.

[11] There was also evidence of another proposal by Airdrie North Limited, a company controlled by Mr Graham Gillespie, for a major waste management project involving energy from waste, recycling and landfill on a large site incorporating Drumshangie, Ballochney North and Ballochney East. While it was not clear precisely when work commenced on this proposal, it appeared that there were current discussions to obtain planning permission at the time of the proof.

[12] In December 2008 Mr Graham Gillespie disponed a small part of the site, including the equestrian centre, to the trustees of the GAS Retirement Benefit Scheme, which was his pension trust fund, for £1,025,000. He entered into this transaction to reduce his personal indebtedness to the bank.

Discussion

[13] There is no evidence of any express agreement which the Gillespie brothers entered into on a specific day at a meeting at a specified place. The evidence is not of that quality. There was however evidence from, among others, Mr Frank Paterson, who was the family's accountant and a partner of PKF, that the four brothers had a general practice of working together and sharing business opportunities in 1990s before the fight between Mr Steven Gillespie and Mr Graham Gillespie in 2000 and also afterwards. That practice is also vouched by other legal actions in which the parties are engaged. There were exceptions to this practice, such as Mr Graham Gillespie's individual investments in horses, but the general practice, which was not seriously contested, forms the backdrop to the transaction in this case. So also does the general practice of the Gillespie brothers to take title to properties in the name of one brother or a company under the control of one brother, although all the brothers had equal interests in a joint venture to exploit and develop the properties.

[14] There are a number of matters which in my view point against the conclusion that the sale of the site to Mr Graham Gillespie involved a renunciation by the Gillespie brothers of any interest in the land. Until the transfer, the land was the property of JWS, in which the four brothers had equal interests through their shareholdings in its parent company. The transfer was not at market value but appears to have been at book price. While £30,000 may have been a reasonable valuation of the agricultural land if it had no other use, it seems a very low price for an equestrian centre and over 19 hectares of agricultural land which had potential for exploitation in opencast mining. All of the brothers had an economic interest in the land as JWS needed the land to mine the coal on it and to use it to facilitate the mining of the Ballochney West site. The brothers individually also had an interest in some of the horses at the equestrian centre at that time.

[15] There was no suggestion that Mr Graham Gillespie had made any declaration of conflict of interest when JWS agreed to transfer title to him. That might be consistent with each of the corporators retaining an interest in the property. But the lax practices of the Gillespie brothers in relation to corporate governance, which were discussed in the earlier actions by GIL, mean that not much weight can be attached to that consideration. Further, Mr Graham Gillespie's inability to give a reliable justification for his assertion that the property was transferred to him outright militates against the view that the brothers agreed that JWS would alienate the property to him at an apparent undervalue.

[16] In the absence of contemporaneous documentary evidence and in view of the principal witnesses' lack of reliable recall, I attach considerable weight to the documentary evidence of the negotiations in 2000 as a reliable indicator of the parties' understanding at that time. In Mr Paterson's letter of 15 August 2000 to Mr Steven Gillespie, in which he recorded the proposals which the other three brothers had made, he stated at point 6:

"Your share of any royalties arising from Bogley will be paid separately to yourself, as will your interest in Ballochney Farm when realised."

In his letter of 19 August 2000 to Mr Graham Gillespie, in which he recorded Mr Steven Gillespie's response to the proposal, Mr Paterson stated:

"6. Agreed. For the avoidance of doubt, this would include Easter Balbeggie royalties and land sales."

The matter was concluded by a further letter by Mr Paterson to Mr Steven Gillespie dated 29 August 2000 in which he recorded the response of the other three brothers thus:

"Point 6 Always understood to be the case. Amounts payable will of course be net of legitimate expenses."

Mr Steven Gillespie gave uncontested evidence, which I accept, that at that time the parties spoke of Ballochney Farm without drawing any distinction between the two sites which were later referred to as Ballochney West and Ballochney East. Mr McIntyre also gave evidence, which I accept, that he understood that Ballochney Farm was to be split equally between the four brothers and that he did not remember any discussion of that distinction.

[17] The draft agreements, which I discussed, along with the prior settlement negotiations, in paragraphs [20] to [35] of my opinion in the Ballochney West action, were prepared in order to implement the deal which was set out in Mr Paterson's correspondence. An early draft of a composite agreement (GillespieAgt.doc) stated in paragraph 9.3:

"Graham, Gary and Alan shall procure that Steven receives an equal share of the profits from the sale or development of land at Ballochney Farm."

The draft also contained a clause dealing with other assets in the following terms:

"12.1 The interests and assets of the parties in the Companies and the Partnership not specifically agreed to be divided or otherwise dealt with in terms of this Agreement shall be retained by the parties in their present proportions."

A manuscript addition to that clause added the words "and any other properties" after "Partnership". Thereafter, as I stated in the Ballochney West opinion, the lawyers separated the draft agreement into two draft agreements to take account of uncertainties which appear to have related, at least in part, to the nature of any interest of the brothers in sites in the ownership of companies controlled by Mr Thomas Gillespie.

[18] The first draft agreement dealt with the family companies, family houses, directorships and Mr Steven Gillespie's future employment. It also contained a sweep-up provision, essentially on the lines of the clause 12.1 set out above with the manuscript amendment, which stated:

"8.1 The interests and assets of the parties in the Companies and the Partnership and any other property and assets owned by the parties jointly or in common not specifically agreed to be divided or otherwise dealt with in terms of this agreement shall be retained by the parties in their present proportions."

As I stated in my opinion in the Ballochney West action (at paragraph [30]) "Partnership" was defined as the partnership of the four brothers.

[19] The second draft agreement covered the allocation of horses between the brothers, the selection of family paintings and, in clause 4, the preservation of interests for Mr Steven Gillespie in Bogleys Farm, Easter Balbeggie Farm and part of Ballochney Farm. Clause 4.3 stated:

"Graham, Gary and Alan shall procure that Steven receives a share equal to those individually received by Graham, Gary and Alan of profits from the sale or development of the brownfield site at Ballochney Farm shown cross-hatched and shaded brown on the plan annexed and signed as relative hereto."

There was only fleeting mention in the evidence about the circumstances of Bogleys Farm and I can draw not reliable conclusions about that matter. The other two sites were those held by companies under the control of Mr Thomas Gillespie and I infer that clause 4 of this agreement reflects the brothers' uncertainty as to the nature of their legal interest, if any, in those sites.

[20] Clause 4.3 was not, in my view, addressing the circumstances of Ballochney East but was designed to deal specifically with Ballochney West and the circumstance that it was owned by Piula. The prior agreement that the four brothers were to share equally any profits from the development or sale of Ballochney Farm was covered, so far as Ballochney East is concerned, by clause 8.1 of the first draft agreement.

[21] In reaching this view I have not overlooked Mr Steven Gillespie's testimony that the plan which was to be attached to the draft was produced in error. Mr McIntyre gave evidence that he met Mr Steven Gillespie and his assistant, Elizabeth Mulholland, on 4 December 2000 to discuss Mr Cannon's revisals to the two draft agreements and discussed the addition of a plan to clause 4.3 of the second draft agreement. In his manuscript note of that meeting he recorded:

"Agt 2. 4.3 - attach plan of bit of site at Ballochney Farm."

Mr Steven Gillespie instructed his staff at Eastercroft House Limited to have the plan prepared and sent to Mr McIntyre. A fax was sent under his name from that company to Mr McIntyre on 5 December 2000 with the plan attached. The cover sheet stated that the shaded area was land for development at Ballochney. The shaded and cross-hatched area on the attached plan was the area of Ballochney West.

[22] Mr Stephen Gillespie's testimony was that the plan was incorrect and that he was out of the office when it was prepared and sent in his name to Mr McIntyre. The plan, he suggested, should have shown the whole of Ballochney Farm as that was what had been agreed in the deal brokered by Mr Paterson. I accept his evidence that he did not see the plan and I am also satisfied that that deal did envisage that the brothers would share equally in the profits from the development or sale of any part of Ballochney Farm, But I am not persuaded that he is correct in his assumption that the plan was incorrect. As I have said, it appears that clause 4.3 of the second draft agreement was included to deal with problematic assets in which the brothers' entitlement was not clear. In that context it made good sense for the clause to refer to, and plan to show, the part of the farm which Piula owned. The interest which Mr Steven Gillespie had in the residue of Ballochney farm, namely Ballochney East, was, as I have said, protected by clause 8.1 of the first draft agreement.

[23] Mr Graham Gillespie's letter to Mr Gary Gillespie dated 22 March 2006, which I discussed in paragraphs [36] to [39] of my opinion in the Ballochney West action, does not cast much light on his understanding of the status of the Ballochney East site. He did not refer to Ballochney East as one of the properties which he had sought to develop for the family. That is consistent with a belief, which I accept he had by then, that it was not a shared asset. But in the letter he also acknowledged that he had in the past agreed that his brothers would share equally in the businesses which he had developed. This is consistent with the general practice which I described in paragraph [13] above.

[24] Mr Frank Paterson stated in his written evidence that Mr Graham Gillespie stayed at Ballochney, his stables were there and it was generally accepted as his. He was not involved in the transaction by JWS to transfer the land and had no knowledge of its details. His role in discussion with one or more of the Gillespie brothers was to reflect in the company's accounts the financial consequences of the transactions which they had implemented. He gave oral evidence that he had a general understanding that Mr Graham Gillespie owned Ballochney East outright. But he also stated that, in view of what he had written in his letters when he attempted to broker a settlement in August 2000, it might be that he had been told then that the properties were held for all four. He said that in most cases one of the brothers held a property on behalf of all four brothers.

[25] Although he was the family's accountant, Mr Paterson was not able to shed much light on the central issue in this case. His recollection was somewhat impressionistic. That may not be surprising with the passage of time. I prefer to rely more on what he wrote in his correspondence in 2000 when he was brokering a deal.

[26] I do not attach much weight to the development proposals which were prepared in 2005 and 2006 or thereafter as an indicator of the intentions of Mr Graham Gillespie and his brothers in 1995. Nor do I consider that the payment by GIL or other Gillespie companies of professional fees for work in developing those proposals is a significant pointer to what was understood in 1995. Gary Gillespie's involvement in investigating the potential for the development of a site which included Ballochney East might be an indicator that some at least of the Gillespie brothers envisaged that they would receive some benefit from the development of that site. But, again, that does not cast much light on the circumstances which existed in 1995. In 1995 the Gillespie brothers were alert to the planning status and potential of Ballochney West to support a residential development and I can reasonably infer that they must have been aware that the proximity of Ballochney East to that proposed development gave rise to a realistic prospect of its development at some time in the future. While the peat which was transferred to Ballochney East would have to be relocated to allow its development, the topography of the site created a realistic prospect of future residential development.

[27] The dispute between the brothers in this action, like many of their disputes which have resulted in the multiplicity of actions before this court, is bedevilled by the informal way in which they conducted their business interests, the lack of good corporate governance and the impressionistic nature of the evidence which the leading witnesses gave. That makes it difficult to determine precisely what occurred when the brothers decided to divest JWS of Ballochney East. I have decided on a balance of probabilities that when they agreed to that divestiture, it was on the understanding that they each would benefit from the mining and any future development of that site. The former was secured by their interest in JWS; the latter depended on Mr Graham Gillespie holding the land on their behalf. Thus I conclude that it was envisaged that Mr Graham Gillespie would hold the title to the site for the benefit of the four brothers. In reaching this view I have attached weight to (i) the circumstances of the transaction, and in particular the financial predicament of JWS, which made divestiture a sensible option, and its need to exploit both of the Ballochney sites, (ii) the general practice of the four brothers sharing in business enterprises, (iii) the absence of any other reliable explanation for the transaction, (iv) the terms of the negotiations and draft agreements in 2000, and (v) the understanding of Mr Paterson and Mr McIntyre at that time.

[28] Mr Steven Gillespie seeks a declarator of the existence of a partnership. I am satisfied that he is entitled to such a declarator. Partnership, as section 1 of the 1890 Act states, is "the relation which subsists between persons carrying on a business in common with a view of profit." In Scots law, in which the partnership has separate legal personality it may be more intelligible to interpret "relation" as an association. The contract which gives rise to a partnership can be, and often, is inferred from the actions of the parties rather than set out in writing. I am therefore not concerned by the absence of specification of time and place of the agreement. I am satisfied that the brothers intended that all should obtain financial benefit from the exploitation of Ballochney East in mining by JWS and in any future development of the site. While the development of the site and any profit therefrom may lie in the future, it seems to me that there remains an association which carries on a business with a view of profit.

[29] Counsel agreed that, if I held there to be a partnership, the default rule in section 24(1) of the Partnership Act 1890 would apply so that each brother would have an equal share in the profits of the partnership.

[30] Finally, for the reasons set out in paragraphs [74] and [76] of my opinion in the Ballochney West action, I reject the defence of waiver contained in the plea in law that the pursuer had agreed to resign from the partnership.

Conclusion
[31] I propose to repel the first defender's third, fourth, fifth and seventh pleas in law and the second defender's third, fourth and seventh pleas in law, to sustain the pursuer's first three pleas in law and to grant certain declarators. But I have some concerns about the wording of the declarators sought. I will therefore have the case put out by order to allow parties to address me on their terms and to deal with the expenses of the action to date.