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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> WILLIAM LINDSAY AGAINST OUTLOOK FINANCE LTD [2020] ScotCS CSOH_90 (28 October 2020)
URL: http://www.bailii.org/scot/cases/ScotCS/2020/2020_CSOH_90.html
Cite as: [2020] CSOH 90, [2020] ScotCS CSOH_90, 2020 GWD 37-476
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OUTER HOUSE, COURT OF SESSION
[2020] CSOH 90
CA66/20 & CA67/20
OPINION OF LADY WOLFFE
In the causae
WILLIAM LINDSAY
against
OUTLOOK FINANCE LIMITED
Pursuer
Defender
Pursuer: MacDougall; Halliday Campbell WS
Defender: McIlvride QC, TLT LLP
28 October 2020
Introduction
The pursuer’s two actions
[1] I heard this two-day debate in these two actions by WebEx. Collectively, the actions
challenge two loan agreements (and associated securities over heritable or immovable
property situated, respectively, in Scotland and in England) entered into between the
pursuer’s now deceased father (“Mr Lindsay”) and the defender in respect of the
Harperfield farm (“the reduction action”) and the farm at Metal Bridge (“the action for
declarator”). While the remedies sought in the two actions differ, the basis of challenge is
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the same, namely that the loan facilities (and associated security or legal charge) were
obtained by facility, circumvention and lesion.
Defender’s grounds of challenge at Debate
[2] The defender challenges the relevancy of the pursuer’s actions. In short, the
criticisms are that looking at each specific factor of facility, circumvention and lesion
individually, there were insufficient averments to plead a relevant case and the pursuer’s
actions were therefore bound to fail. Separately, it was argued that the pursuer was not
offering restitutio in integrum; that that was an essential concomitant to a reduction and so,
even if there were a relevant ground of reduction, the pursuer’s case was still bound to fail.
A further, albeit late, challenge was made to the competency of the action of declarator,
essentially on the footing that it was irrelevant for want of a live issue.
Papers considered
[3] In considering these challenges and the defender’s reply, I have had regard to
parties’ notes of arguments, their revised notes of arguments and other written and oral
submissions, the bundle of authorities provided and the additional cases handed up during
the debate, the joint minute and the productions and other items on parties’ respective
reading lists. I do not propose to rehearse those materials. It suffices to provide the
substance of my decision.
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Consideration of the reduction action
Facility and circumvention
[4] It is clear on the authorities that while the different elements of facility and
circumvention must all be proved, the court does not take an overly particular or
prescriptive approach to the circumstances that may satisfy these criteria. While the
defender’s senior counsel parsed these individual factors and argued that the pursuer’s
averments of each of these factors was wanting, that approach is inimical to the ‘in the
round’ approach enjoined by the cases. Rather, the assessment of these factors is of their
cumulative impact and effect. The strength of one factor (eg a high degree of facility) may
permit a lesser degree of another factor (eg circumvention). Whether there was facility,
circumvention and lesion is necessarily an intensely fact-sensitive assessment and is
quintessentially a matter for proof. Rare indeed will be the case where the court can
conclude on the averments alone that the case pled is bound to fail. This is not one of those
cases. In my view, the pursuer has pled more than a sufficient basis to go to proof. I turn to
consider the defender’s particularised criticisms.
[5] In respect of facility, the defender’s senior counsel’s scepticism that this might be
present in a man only in his late 50s did not persuade me that the many medical conditions
and medications referred to, and their impact on Mr Lindsay’s personality and
circumstances, were incapable of proving facility on his part. Indeed, that observation
reinforced the perception that such matters could only be assessed after proof and not on the
pleadings alone.
[6] In relation to circumvention, the pursuer has detailed averments (eg in articles 7
and 8 of the reduction action, and which are repeated in the action for declarator) about the
approach by the individual, Derek Fradgley (who stood behind the defender), with certain
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proposals and the effect of which was, as senior counsel for the defender accepted,
materially to increase Mr Lindsay’s exposure (essentially as a guarantor of the debts of other
family members and enterprises) to the benefit of the defender. These averments include
Mr Fradgely creating a company (Metal Bridge Dairy Farm Limited (“MBL”)), which was
the vehicle for the earlier agreements that became rolled up or subsumed into those covered
by the loan agreements under challenge, and which company it is averred Mr Fradgely
thereafter “controlled entirely”. This is further particularised by a number of actions
attributed to Mr Fradgely, including his taking a 50% shareholding in MBL; establishing the
defender’s address as its registered office; appointing Mr Lindsay and his brother as
directors; controlling all of MBL’s finances; administering its bank account and being the
sole signatory for cheques. While not pled explicitly in such terms, this kind of conduct is
redolent of Mr Fradgely potentially acting as a shadow or de facto director of MBL and which
may give rise to questions about whether he thereby owed fiduciary duties or had put
himself in a situation of a conflict of interest.
[7] This passage is followed by averments of certain matters being concealed or “falsely
represented”; of Mr Fradgely pressuring the directors of MBL at a time of financial stress
and demanding that they sign the loan agreements which he (or the defender) had drafted.
There are further averments to the effect that certain terms of the loan agreements were
more onerous than Mr Lindsay had previously agreed to (eg the £200,000 limit to his liability
was removed and his whole assets (of c £1 M) were at risk). While Mr Lindsay was not
party to those earlier agreements entered into by MBL, this was all in the context of intra-
family dealings and, most critically, in respect of which Mr Lindsay’s exposure as guarantor
was materially increased as a consequence of the loan agreements. It is further averred that
Mr Fradgely “grossly” overstated the extent of Mr Lindsay’s personal liability; he
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threatened Mr Lindsay with legal action to recover the whole amount (ie that owed by the
wider family) unless Mr Lindsay provided the standard security over his own property;
and that Mr Fradgely “put extreme pressure” on Mr Lindsay. In my view, these cannot be
described as weak, inspecific or irrelevant averments of circumvention.
[8] In respect of lesion, the defender’s senior counsel levelled a number of criticisms at
the pursuer’s expert’s report on quantum (eg he had not had regard to default provisions in
the loan agreements; he had relied on certain statements of accounting practice etc). He
submitted that, if one could not identify the precise baseline of what was in fact owed,
averments of lesion were necessarily irrelevant even if the pursuer has averred that
Mr Fradgely’s representations of Mr Lindsay’s liabilities were “grossly” overstated. It
became clear in the course of the debate, that there is additional documentation potentially
relevant to the issue of what was the actual liability at the point when the loan agreements
were entered into, and against which the effect of the loan agreements may be measured.
Having regard to the strength of the other factors of facility and lesion, I would be
disinclined to uphold a challenge on the lack of specification of lesion. The difference
between what was said to have been owed (at the time by the defender) and what is actually
owed (as the pursuer asserts in these actions) is averred to be “grossly excessive” and is of
such a magnitude that the defender can be in no doubt as to the kind of case the pursuer is
making. It is not a matter of a fine difference of a few pounds and pence. Finally, in my
view the nature of these criticisms reinforces the impression that all of these matters can
only be resolved at proof, and not on the basis of the averments alone.
Restitutio in integrum
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[9] A free-standing ground of challenge was that a decree of reduction required that
parties be capable of being restored to their positions as they were before the impugned
deed was entered into. Here, the pursuer was not offering to return certain cattle and
equipment used in the dairy business, ownership of which had passed from the defender
under the loan agreements, and therefore the (it was said) essential requirement of restitutio
in integrum could not be satisfied.
[10] In my view, the approach the defender’s senior counsel adopted is not supported by
the cases cited, including those of high authority which are binding on me. Spence v
Crawford 1939 SC (HL) 52 is not authority for a rigid requirement of restitutio in integrum;
rather the reverse. After a careful analysis of the earlier authorities (some also issuing from
the House of Lords), in his speech Lord Thankerton affirmed the use of a compensatory
payment where strict restitutio could not be achieved. The cases on reduction and the extent
to which restitutio in integrum can be achieved, and which are analysed at paras 33 to 35 in
Somerville v 1051 GWR Ltd [2019] CSOH 61, are replete with the language of pragmatism.
[11] In short, in the exercise of this equitable jurisdiction, the court exercises its discretion
and powers flexibly and pragmatically to fashion a remedy in doing justice between the
parties. The purpose is to achieve a state of affairs, broadly restorative of, if not precisely
achieving, the parties’ position prior to their entry into the now - impugned deed. On
instructions, the defender’s senior counsel affirmed that his clients wanted the return of the
cattle and equipment. This might be an unusual stance for a no-longer-licenced finance
company to adopt. Moreover, the defender does not propose to use these items to engage in
dairy farming. The rationale, as I understood it, was that at least the defender could realise
these items and get some funds. If that is the basis for the defender’s stance, which is to
insist in restoration of ownership of these items to it, this in truth appears to be as a form of
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security for payment of sums the defender says are due (and for which other procedures or
protections may be more appropriate). That stance does not, in my view, provide strong
support for the necessity of requiring restitution of a thing – and, indeed, founding on that
to preclude reduction - where the intention is not thereafter to use that thing but to convert it
into ready money. This, it seems to me is, a more roundabout way to achieve precisely the
kind of alternative compensatory payment discussed by the House of Lords in Spence.
[12] The defender’s challenge based on its restitutio argument fails for another reason.
The onus is on the defender to aver and prove this as a bar to reduction: see Somerville at
para 37. The single averment that the defender points to, lately added, does no more than
assert that the pursuer’s averments anent this are inadequate. In my view, the defender’s
single averment is not sufficient to discharge the onus incumbent upon it.
The asserted incompetency of the action of declarator
[13] The competency challenge, which emerged only shortly before the debate, was
directed solely to the action of declarator. In that action, the legal charge over Metal Bridge
has already been realised and the farm sold. There would be no point in seeking reduction,
where the subject matter of the impugned deed has been transferred to a third party in good
faith and for value. For those reasons, the pursuer confines himself to a declarator that the
loan agreement was obtained by facility, circumvention and lesion. Under reference to
in these circumstances, there is no live issue. In my view that case is distinguishable: the
action of declarator is not being used as a means to defeat a concluded action in a sister
jurisdiction. I accept the explanation provided by the pursuer’s counsel, that the two actions
are interlinked: a declarator in favour of the pursuer, if granted, might be relevant to, and
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be taken into account in, the overall assessment of what might be due by the defender to the
pursuer, if the ground for reduction and declarator is established.
The challenge to the fifth conclusion in the reduction action
[14] Finally, in the reduction action, the defender challenges the relevancy of this part of
the pursuer’s case for want of an averment that a payment had been made in error. This
seems to conflate the principles of restitution (or unjustified enrichment) with the
requirements for repetition (narrowly understood as one of several restitutionary remedies).
On this matter, I prefer the submissions of the pursuer. The defender’s approach does not
and principled approach to the question of whether one party (here, said to be the defender)
is unjustifiably enriched to the loss of another and without there being a legal ground to
justify retention of that benefit. That is what I understand to be the basis of the pursuer’s
case, not the narrower ground of error (as the basis of the pursuer’s actions) or the (formerly
styled) remedy of “repetition” (which was understood to be the remedy for monies paid in
error). If the pursuer establishes that the defender has been unjustifiably enriched – and
which need not depend on proof of error, for here the ground the pursuer invokes is facility
and circumvention—then the Court considers how restorative justice is best achieved. In
that context, in light of Shilliday, the Court approaches the question of remedy with the
utmost flexibility and pragmatism and untrammelled by the old rules or arcane categories
that formerly bedevilled what is now described as “unjustified enrichment”.
[15] For these reasons, I reject the defender’s challenges to the relevancy of the pursuer’s
averments and find that these matters can only be resolved by a proof. It follows that I
refuse the defender’s motion and allow that of the pursuer.
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[16] I shall meantime reserve the question of expenses and pu t the matter out shortly for
a procedural hearing for discussion of preparation for a proof.