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WILLIAM LINDSAY AGAINST OUTLOOK FINANCE LTD [2021] ScotCS CSOH_82 (12 August 2021)
URL: http://www.bailii.org/scot/cases/ScotCS/2021/2021_CSOH_82.html
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[2021] CSOH 82,
[2021] ScotCS CSOH_82,
2021 GWD 26-349
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OUTER HOUSE, COURT OF SESSION
[2021] CSOH 82
CA66/20
CA67/20
OPINION OF LADY WOLFFE
In the cause
WILLIAM LINDSAY
Pursuer
against
OUTLOOK FINANCE LIMITED
Defender
--
WILLIAM LINDSAY
Pursuer
against
OUTLOOK FINANCE LIMITED
Defender
Pursuer: Thomson QC et MacDougall; Halliday Campbell WS
Defender: McIlvride QC et Kinnear; TLT LLP
2
12 August 2021
Introduction
The parties
[1]
The pursuer in each of these two commercial actions is William Lindsay, who sues in
his capacity as executor of the estate of his uncle, the late Euan Lindsay ("Euan Lindsay") of
Harperfield Farm, Sandilands, Lanark ("Harperfield"). Euan Lindsay died on 3 June 2011,
aged 59. Euan Lindsay was the grantor of the several deeds in favour of the defender in
September and October 2009 which the pursuer seeks to challenge in these two actions,
principally on the ground of facility, circumvention and lesion . The defender in each action
is Outlook Finance Limited ("Outlook"), a company based in Stourport. It is a matter of
agreement that at all material times Outlook's controlling mind, and one of its two directors,
was Derek Fradgley. All dealings any member of the Lindsay family (collectively "the
Lindsays") had with Outlook were conducted with Derek Fradgley.
Prior debate
[2]
At an earlier debate, the defender challenged the relevancy of the pursuer's case
based on facility, circumvention and lesion, its case based on unjustified enrichment and it
challenged the competency of the second action, in which only a declarator is sought. After
hearing that debate, I repelled the defender's challenges to the relevancy of the pursuer's
two actions. The decision is reported at [2020] CSOH 90 ("the Debate Opinion").
[3]
After sundry procedure, I heard a 9-day proof (not a proof before answer) in these
two actions.
3
Outline of the parties' positions
The pursuer's two actions
[4]
The pursuer challenges certain deeds on the ground that these were procured from
Euan Lindsay when he was in a facile state, by the circumvention of Derek Fradgley, to
Euan Lindsay's `lesion' or loss. The deeds sought to be reduced in the first action ("the
reduction action") are:
(1)
an all-sums standard security granted by Euan Lindsay on 3 October 2009 over
Harperfield in favour of Outlook ("the impugned standard security"). This replaced
an earlier standard security Euan Lindsay granted in October 2008 restricted to the
sum of £275,000 ("the first standard security"); and
(2)
a loan facility agreement between Euan Lindsay and Outlook, dated
29 September 2009, for £1,335,000 ("Loan Agreement 1"). This contained a personal
indemnity by Euan Lindsay in favour of Outlook in respect of the obligations in Loan
Agreement 1 ("the Loan Agreement 1 indemnity").
The pursuer also concludes for payment of £182,217 by Outlook to the pursuer on the
ground of unjustified enrichment.
[5]
In the second action ("the action for declarator") the pursuer seeks declarator that a
second loan agreement ("Loan Agreement 2"), also dated 29 September 2009 between
Euan Lindsay and Outlook, was obtained by facility, circumvention and lesion. This also
contained a personal indemnity by Euan Lindsay in favour of Outlook ("the Loan
Agreement 2 indemnity" and referred to collectively with the Loan Agreement 1 indemnity,
"the Loan Agreement indemnities"). Loan Agreement 2 related to the farm near Carlisle,
known as Metal Bridge Farm ("Metal Bridge Farm"), where three members of the Lindsay
family (as after-noted) conducted their farming businesses. A legal charge in English form
4
("the legal charge") had also been granted over Metal Bridge Farm in favour of Outlook.
Some years later, though well before these two actions were raised, Outlook called up or
realised the legal charge, Metal Bridge Farm was sold and its proceeds passed to Outlook.
The impugned deeds
[6]
The deeds the pursuer seeks to challenge in these two actions are Loan Agreement 1
and Loan Agreement 2 (collectively, "the Loan Agreements") and the impugned standard
security. As noted below, in certain other agreements Euan and James Lindsay entered into
in late June 2008 prior to the Loan Agreements, they each had also granted personal
indemnities in favour of Outlook which were unlimited in amount ("the first indemnities").
(I shall refer to the first indemnities and the Loan Agreement indemnities collectively as "the
indemnities".) The purser moved for reduction of the indemnities ope exceptiones. I shall
refer to the two Loan Agreements, the impugned standard security and the indemnities
collectively as "the impugned deeds".
The misrepresentation and the ultimatum at the meeting on 26 August 2008 between Euan Lindsay
and Derek Fradgley
[7]
The pursuer's primary ground of challenge to the impugned deeds is on the ground
of facility, circumvention and lesion. This is on the footing that by the time Euan Lindsay
came to grant the impugned deeds he was suffering from very poor health. The dairy
business conducted at Harperfield had always been conducted separately from the business
activities carried on by the members of the Lindsay family near Carlisle. Until
Euan Lindsay's grant of the first standard security, Harperfield (which had a value of
c £1,000,000 to £2,000,000) had been unencumbered. While Euan Lindsay had granted the
5
first standard security in a restricted amount, the pursuer's case is that at a meeting between
Euan Lindsay and Derek Fradgley at Harperfield on 26 August 2009, Euan Lindsay was
prevailed upon to agree to grant the two Loan Agreements, the impugned standard security
and the legal charge. He was importuned to do so, after Derek Fradgley represented that
Euan Lindsay owed the sum of £2.6 million to Outlook (which the pursuer asserts was a
misrepresentation) under certain prior agreements; and that Derek Fradgley presented
Euan Lindsay with, in effect, an ultimatum, that the only way to prevent "the bank" (whom
Derek Fradgley represented as standing behind and pressuring Outlook) from selling the
cattle, equipment and Metal Bridge Farm, was for Euan Lindsay to grant the impugned
deeds ("the ultimatum"). In fact, there was no bank involved or pressuring Outlook and it is
accepted that Derek Fradgley's statements to the contrary were untrue. Derek Fradgley
admitted as much in a witness statement dated 7 January 2014 he provided for a litigation in
Birmingham High Court ("the Fradgley Witness Statement") by the Lindsays against
Outlook (among others).
[8]
Central to that allegation of circumvention is a settlement calculation Derek Fradgley
produced at that meeting ("the Settlement Calculation"). As will be seen, the figures
provided for finance agreements recorded in the Settlement Calculation were subjected to
extended analysis by the parties' experts, neither of whom could justify the figures it
contained.
[9]
The pursuer's secondary ground of challenge is on the basis of fraudulent
misrepresentation. The pursuer also avers that Derek Fradgley was a de facto director of
Metal Bridge Limited ("MBL"), a company set up at the instigation of Derek Fradgley and
which, from about mid-2008, became the vehicle through which the businesses at Metal
6
Bridge Farm traded. MBL was the debtor to Outlook and in respect of whose indebtedness
Euan Lindsay was a guarantor.
[10]
These cases are unusual, in at least two respects. First, neither Euan Lindsay nor
Derek Fradgley, who were respectively the alleged representee and representor (or the
alleged circumventee and circumventor), was available to give evidence. Derek Fradgley
died in July 2017 and Euan Lindsay died in 2011. Secondly, there was, therefore, no direct
witness to what Derek Fradgley said to Euan Lindsay at the meeting of 26 August 2009 or
what representation was made at that time in respect of the Settlement Calculation. For that
reason, the pursuer led family members to speak to Euan Lindsay's health and to what
Euan Lindsay told them at the time about what Derek Fradgley told him at that meeting
about the Settlement Calculation.
The defender's response
[11]
Outlook denies the essentials of the pursuer's case. Its case is that Derek Fradgley
and Outlook were financially supportive of the Lindsay businesses; that the Lindsay
businesses conducted from Metal Bridge Farm were generally unprofitable, and they
required repeatedly to be propped up by Outlook. This was generally done by refinancing,
which took the form of replacing ongoing agreements with new agreements. This practice
was variously referred to as "rolling up", "wrapping up", or consolidating, although it was
not a matter of agreement as to how, precisely, any arrears in the ongoing were rolled up
into the replacement agreements. The parties' expert accountants made different
assumptions of how the rolling up operated.
[12]
In relation to the impugned deeds, Outlook's position is that Euan Lindsay was
actively involved in the affairs of MBL. It seeks to establish that the sums represented in the
7
Settlement Calculation were not incorrect. In any event, if there were any misrepresentation
in the Settlement Calculation, that was corrected by Outlook's subsequent letter of
4 September 2009 ("the Outlook Letter"). It also contends that Euan Lindsay had legal
advice; that he was motivated by a desire to assist the other members of his family (not as
a consequence of any misrepresentation or pressure) and that, accordingly, there was neither
facility nor circumvention. It also contends that, even if the pursuer establishes one of its
grounds of challenge, he is not in a position to satisfy the requirement of restitutio in
integrum, and reduction should therefore be refused.
[13]
The proposition that Derek Fradgley was a de facto director of MBL was not
strenuously resisted, though the point was not conceded.
[14]
As with the pursuer, the person who would have been Outlook's principal witness,
Derek Fradgley, is not available. It had no other direct witnesses to fact and, accordingly, it
was critically reliant on the available documentation from Outlook's files.
The Fradgley Witness Statement and issues of credibility arising from Outlook's
documentation
[15]
This is not the first litigation between the parties. There have been litigations in
England. One, at the instance of Outlook (and referred to in evidence as "the Manchester
proceedings"), resulted inter alia in the realisation of the legal charge over Metal Bridge
Farm. Another action was at the instance of the Lindsays. The pursuer relies on the
Fradgley Witness Statement from one of the English proceedings. Mention was also made
in the evidence to other proceedings in the sheriff court. I note the relevant paragraphs from
the Fradgley Witness Statement below, but the pursuer founds on the passage in which
Derek Fradgley admits that his representations that there was a bank behind him, or to
8
which Outlook was liable in respect of sums advanced by Outlook to its clients (including
the Lindsays), were untrue. Derek Fradgley's justification for this was said to be that having
"funders to blame for difficult decisions" made the relationship between Outlook and its
customers easier. Mr Thomson QC, who appeared for the pursuer together with his junior
Mr MacDougall, referred to this in submissions to justify taking a critical view of
Derek Fradgley and any document he generated on behalf of Outlook.
[16]
The relevant passages from the Fradgley Witness Statement, in which Derek Fradgley
acknowledges the misrepresentations about having funders and his rationale for these, are
as follows:
"36. During disclosure in these proceedings the Claimant [the Lindsays] through
correspondence has made requests for information about our funders. .....
[...]
37. In response to the Claimants enquiry [sic] it has been candidly admitted by me
that although I have referred on a number of occasions in my dealings with the
Lindsay to `funders' implying that the monies Outlook loans [sic] have themselves
been borrowed from third party funders and has made the 2009 loans from its own
resources....
[...]
38. The reason for the reference to funders from time to time is simply that having
`funders' to blame for difficult decisions makes the relationship between Outlook
and its customers easier."
[17]
The pursuer's attack on Outlook's reliance in the documentation, and which was
central to its defence for the reasons explained, went further. The pursuer's witnesses were
sceptical of the contents of much of the documentation issuing from Outlook and they did
not accept that what some of the documents purported to record (eg the conduct of board
meetings of MBL or of Euan Lindsay's participation in those meetings) reflected the reality
of how those meetings were conducted, or even that some documentation subsequently
produced by Outlook was ever sent on the date it bore (eg the termination notices in
August 2009). Accordingly, unusually for a commercial action, the accuracy or veracity
9
of the documentation underpinning Outlook's defence was a live issue and deployed as
a means to reflect adversely on Derek Fradgley's credibility.
The Proof
Witnesses
The pursuer's witnesses
[18]
The pursuer called the following members of the Lindsay family: Rodger Lindsay
(the pursuer's brother, one of Euan Lindsay's nephews and the principal witness for the
pursuer), James Lindsay (the sole surviving brother of Euan Lindsay), and the pursuer
(another of Euan Lindsay's nephews). He also called as an expert, Peter Graham, a
chartered accountant with Henderson Loggie. Mr Graham had prepared a report analysing
the many agreements between Outlook and the businesses run by Rodger Lindsay,
Kerr Lindsay and Helen Lindsay near Carlisle, and the later agreements (including the Loan
Agreements, and the prior agreements rolled up into them) between MBL and Outlook, with
a view to testing the figures in the Settlement Calculation. He spoke to the report he had
produced ("the Henderson Loggie Report").
Outlook's witnesses
[19]
Outlook called David Lingard and Mark Hodgson, its Scottish and English solicitors
who had, respectively, prepared the impugned standard security and the legal charge on
behalf of Outlook. Outlook also called Derek Fradgley's son in law, Paul Philips. He had no
direct knowledge of the material events, having been appointed a director of Outlook only
in 2017. Finally, Outlook also called an accountant as its expert witness, Stuart Preston of
Grant Thornton, who, in his first report ("the first Grant Thornton Report") undertook a
10
similar analysis as Mr Graham had of the many finance agreements. He also produced a
second report ("the second Grant Thornton Report"). The opinion evidence is set out from
paras [159] to [199], after the part of the Opinion recording the evidence of the parties'
witnesses to fact.
Documentation considered at proof
[20]
Consistent with commercial practice, the evidence in chief of the parties' witnesses
at proof was by affidavit, augmented to some extent by oral evidence, followed by
cross-examination. In addition to their witnesses to fact, the parties led opinion evidence
from their respective experts, who spoke to the Henderson Loggie Report and the two Grant
Thornton Reports. The parties also produced a joint bundle of productions, a joint bundle
of authorities (which the pursuer supplemented at the stage of submissions), notes of
argument, a joint minute and a joint chronology. The defender also lodged additional
documents in respect of its recall of Rodger Lindsay ("the recall productions"). After the
close of evidence, parties were afforded several days in which to produce their written
submissions, before their oral submissions were heard over 2 days. I have had regard to all
of these materials. I do not propose to rehearse the contents of these documents or the oral
submissions.
The Settlement Calculation
[21]
One of the critical productions was the spreadsheet which parties understood Derek
Fradgley had prepared and presented to Euan Lindsay at the meeting at Halltown on
26 August 2009, shortly before Euan Lindsay entered into the impugned deeds. It was
referred as "the Settlement Calculation" (a usage adopted in this Opinion). It was the focus
11
of the parties' expert witnesses and their analyses in their expert reports. The Settlement
Calculation is shown below:
Parties proceeded on the footing that the Settlement Calculation purported to identify the
outstanding debt owed by Metal Bridge Limited ("MBL") to Outlook as at 25 August 2009.
(By this point in time Euan Lindsey had granted the impugned standard security and the
first indemnities, as guarantor of MBL's indebtedness to Outlook.) It should immediately be
noted that agreement number 1569 (recorded under the heading "Mortgage Number")
included in the fourth line was not an agreement between MBL and Outlook. This was an
agreement between Outlook and Lindsay's Dairy and was referred to as "the Chattels
Mortgage" (and which I will refer to in this Opinion as "the Lindsay Mortgage", the better to
distinguish it from Outlook's agreements with MBL). The four other agreements included,
12
being numbers 1596, 1597, 1598 and 1619 (the items in the first, second, fifth and third lines,
above), were agreements entered into between Outlook and MBL in late June 2008 ("the first
MBL agreements"). I shall refer to all five of the agreements included in the Settlement
Calculation (the first MBL agreements and the Lindsay Mortgage) collectively as "the
Settlement Calculation agreements"). The Settlement Calculation agreements were those in
force immediately before, and were replaced by, the Loan Agreements.
Uncontroversial or unchallenged evidence
[22]
In relation to the parole evidence, given the absence of any witness for Outlook
having direct knowledge of the circumstances leading up to, and forming the context of, the
impugned deeds, Mr McIlvride QC, Senior Counsel for Outlook, was constrained in his
ability to cross-examine the pursuer's witnesses on certain chapters of their evidence.
Furthermore, much of the evidence given by Rodger, James and William Lindsay
(collectively "the Lindsay witnesses"), particularly as regards the ailing health of
Euan Lindsay or the circumstances that led to the bankruptcies in England of
Rodger Lindsay, Helen Lindsay and Kerr Lindsay in 2008, overlapped (as well as being
unchallenged). Accordingly, I propose to summarise this uncontested or uncontroversial
evidence in the next sections, and to do so without attributing every statement to an
individual witness. I will also incorporate the matters agreed in the joint chronology and
joint minute. Where appropriate, I will also include evidence that was not agreed, but
which, in the end, was not challenged in cross examination or was not otherwise
contradicted by other evidence I have accepted.
13
Euan Lindsay's health
[23]
Euan Lindsay was one of five brothers, of whom only James Lindsay remains alive.
The others died untimely deaths. Gordon died aged 35. Ronald, Euan Lindsay's older
brother, died at the age of 63. He suffered a similar condition to Euan Lindsay and was a
heavy smoker. Apart from James Lindsay, they were all bachelor farmers. Parties were
agreed that from about 1975, Euan Lindsay suffered from a condition known as "farmer's
lung". In or around 2000, as a result of his condition, Euan Lindsay stopped working at
Harperfield and he moved down to Carlisle to live with James and Helen Lindsay at
Halltown. Euan Lindsay took various medications to manage his condition. Over time his
condition deteriorated and by 2008 he was on a permanent oxygen supply.
[24]
Rodger Lindsay and William Lindsay spoke to the effect of Euan Lindsay's condition
on his physical and mental health. For some time, Euan Lindsay had been on a waiting list
for a lung transplant. However, on the first occasion when he was called to the hospital for
a transplant, he was sent home as too poorly to undergo such an operation. On the second
occasion, at the beginning of 2002, the donor organs were unsuitable. Rodger Lindsay
described how Euan Lindsay often suffered from low mood and anxiety. He was on
antidepressants. These caused side effects in the form of painful ulcers and nausea.
Euan Lindsay was concerned that he had stomach cancer, which increased his anxiety. At
times, this led Euan Lindsay to ring for an ambulance to attend. His levels of anxiety
increased as he became more dependent on oxygen, and was described as being "petrified"
of not being able to get his breath and of being very anxious lest he run out of oxygen or
there was a power cut. Euan Lindsay was very susceptible to any type of infection and, as
Rodger Lindsay explained, there was not a winter that Euan Lindsay was not hospitalised.
This got worse over the years to the point where Euan Lindsay required a large mask "to
14
push the full amount of oxygen into him". In terms of mobility or other physical tasks,
by 2008 Euan was tethered to an oxygen tank which rendered him effectively housebound,
apart from the odd car journey to the cattle markets. By 2008 he no longer had the strength
to carry the oxygen canister himself. He was by then in a very weakened state. This is how
Rodger Lindsay described Euan Lindsay at that time:
"He was heartbroken for us when we lost the bull case [ie the AI litigation] As cattle
breeders, we were very passionate and met a lot of interesting stockman, and Euan
appreciated that and it had an impact on him as much as us. By 2008, he was unable
to do any work at all, couldn't leave the house or be away from his machine. We
could take him in the car to the doctor with his oxygen canisters. We had to have
them in house anyway in case the power supply went off. At first when he came to
live with us, he could carry the oxygen canisters himself, but by end he couldn't. He
didn't have strength to do that from well before 2008."
Going into the spring of 2009, Rodger Lindsay described Euan Lindsay physical and mental
condition:
"I remember Christmas dinner that year. A foreign chap who was working for
us came up and had supper with us, and Euan was there at end of table. But
by boxing day, he was very ill, and just couldn't breathe. An ambulance was
called, can't remember who called it, and he was admitted to hospital. I was
milking a day or two after that, it was still between Christmas and new year,
and mother had got up and discovered a message from the hospital about 2 or
3, saying could someone come up to hospital, Euan was very very poorly. I
went up. They had put him in an isolation room, and the nurse said I could see
him, but the doctor wanted to speak to me. Euan was sitting up, he was more
stable by then, he had been through the worst of it. The doctor told me it was
at the point where Euan's heart and lungs were so bad, that if he had a seizure,
they would not resuscitate him. His illness had reached that point. He tried to
explain it to me, he was not saying that would just let him die, rather that
resuscitation wouldn't work. That really shook me. He did pull through
though, and he came back out in January 2009."
[25]
By reason of his condition Euan Lindsay was described as fit for little else than
sitting inside the house. He liked to sit in the room used as an office beside the fax machine
and to read faxes received. In his evidence, Rodger Lindsay explained that Derek Fradgley
15
knew that Euan Lindsay sat by the fax machine in the office and, if Derek Fradgley wanted
to upset Euan Lindsay, he would send a fax.
[26]
None of this evidence was challenged. I deal separately, below, with the contentious
evidence of the meeting between Euan Lindsay and Derek Fradgley in late August 2009 and
the subsequent conduct of those persons.
The Lindsay family's separate businesses
The partnership of DM Lindsay run by Euan Lindsay and the pursuer from Harperfield
[27]
The Lindsay family have been dairy farmers for many years. Some members of the
family operated a dairy business from Harperfield from around 1946 trading under the
name "DM Lindsay". Euan Lindsay became involved in that business in about 1968 and
from about 1982, Euan Lindsay and the pursuer traded in partnership as "DM Lindsay"
from Harperfield. Euan Lindsay's active involvement in DM Lindsay ceased in about 2000,
when ill-health compelled him to move into Halltown with his brother, James and his
sister-in-law Helen, the other branch of the Lindsay family, who lived and farmed near
Carlisle.
[28]
Prior to Euan Lindsay's involvement with Outlook, Harperfield was unencumbered
with any borrowings or security.
The Lindsay's AI and Lindsay's Dairy partnerships run by Rodger Lindsay, Helen Lindsay and
Kerr Lindsay near Carlisle
[29]
Euan Lindsay had two other nephews, Rodger Lindsay and Alexander Kerr Lindsay,
known as "Kerr" ("Kerr Lindsay") who are the sons of James Lindsay. Rodger Lindsay is a
dairy farmer and cattle breeder.
16
[30]
From about the mid-1990s Rodger Lindsay began a business known as "Lindsay's
AI" (the "AI" stands for artificial insemination). This did not require much borrowing at the
start, as Rodger Lindsay organised all of the insemination work himself and the overheads
were low. The Lindsay family had a good history of stockmanship, having won prizes at the
Highland Shows. The business grew and more staff were taken on. By 1999 the business
was doing about 150 farm visits a day. It was decided to acquire their own bull stud and
Lindsay's AI looked for finance to support its expansion plans. This was outwith the
experience of High Street banks. Rodger Lindsay heard of Outlook from a fellow farmer.
The early agreements between the Lindsay businesses and Outlook : 2000 to 2005
[31]
This led to the first involvement between Derek Fradgley and Rodger Lindsay from
around this time, when various small finance agreements were entered into between
Rodger Lindsay and Outlook. (In point of fact, some early agreements were with a company
known as Outlook Financial Services Limited, but, as Outlook acquired the assets of that
company, parties were content simply to refer to this, too, as Outlook.) These early
agreements were generally to fund a specific need, eg the acquisition of equipment
(Rodger Lindsay mentioned the purchase of a machine for £5,000 to put bull semen into
storage vials called "straws") or to build the bull centre facilities (between 1998 and 2000).
[32]
In about 2000 Rodger Lindsay set up another business in partnership with his mother
and brother, Helen and Kerr Lindsay, known as "Lindsay's Dairy", which traded from
Lynefoot Farm, Carlisle. Rodger described a typical working day as a dairy farmer. It began
with the first milking round at around 4:00am. This was followed by feeding the young
stock, attending to any dry cows and other stock that needed to be checked. Depending on
the time of year, the cattle were taken to grazing pastures or fed. The fields needed tending
17
and machinery maintained. Other regular work entailed preparing animals for auction,
meeting on site with the vet and the routine paperwork (eg bills and animal passports)
required in the management of a dairy herd. The second milking began about 3.00pm and
finished in the early evening. When the Lindsay's Dairy operations were carried on at Metal
Bridge Farm, the business was managed more intensively, in that the cows were milked
three times a day in order to increase the overall yield of the herd. That often entailed a
finish around midnight. Dairy farming was a physically-demanding and a round-the-clock
enterprise.
[33]
Outlook also entered into a number of finance agreements with the partners of
Lindsay's Dairy, typically involving the lease or hire of cattle for that business. The timing
for establishing a dairy was unfortunate, as the foot and mouth epidemic of 2001 resulted in
the destruction of the cattle. This effectively shut down the operation of Lindsay's Dairy for
around a year. In about 2002, the business of Lindsay's Dairy resumed. The partners of
Lindsay's Dairy entered into further finance agreements with the defender in 2002 and 2003
(used, in part, to restock cattle). By reason of the financial pressures of foot and mouth, they
also used the services of a factoring firm. On occasion, if they needed additional sums to
settle arrears or to refinance a set of agreements with Outlook, the factoring firm advanced
them funds and then they would catch up in due course. Outlook provided further loans to,
and entered into finance agreements with, Lindsay's Dairy from 2002 onwards. In
around 2006, Lindsay's Dairy set up a dairy operation from Metal Bridge Farm using loans
from, and finance agreements, with Outlook at that time.
[34]
I now turn to the witnesses' evidence on the contested chapters of evidence.
18
The pursuer's witnesses
Rodger Lindsay
[35]
I have recorded, above, Rodger Lindsay's evidence in relation to Euan Lindsay's
health, the activities of the Lindsay businesses near Carlisle up to 2006, and his early
dealings (in general terms) on behalf of those business with Derek Fradgley and Outlook.
[36]
Rodger Lindsay described the early agreements with Outlook as being those to
restock after foot and mouth or to fund specific purchases, such as a bulk tank for storing
milk. The Lindsay businesses also had finance arrangement with a different finance
company, Cumbria Leasing, but those were all paid off in 2005. Rodger described the
Lindsay businesses as follows:
"We were washing our faces, making steady progress, only survived because we
were a family business pulling together and being bloody minded about it. The
whole time we operated, never really lost money, but sometimes we made very little.
The year after F&M [foot and mouth]was the only time we lost money, but that's
how family and farming is."
[37]
He explained that in the early days of dealing with Outlook, Derek Fradgley always
came up to get documents signed personally with the Lindsay businesses. They were
provided with copies, because their accountant needed them to reclaim VAT on leases.
Derek Fradgley never used the post for original documents. While he faxed a lot, he always
brought original agreements with him. The Lindsays never put this down to ulterior or
sinister motives, and just assumed that Derek Fradgley was being thorough. Rodger Lindsay
observed it was an 8-hour round trip, but Derek Fradgley would say he had arranged
meetings with others. In these early, pre-MBL, dealings the Lindsays trusted Derek Fradgley
absolutely. Rodger Lindsay said that he
"always understood what we were doing, what the objective was and what we were
paying. If we were consolidating to get lower payments, he would say `we'll extend
by x months and you'll pay y'. We wouldn't really read through the agreements, the
19
payments were there on it and we knew what they were before we signed and how
long for. We always knew what assets we were talking about, up until Metal Bridge
Limited was formed. We would all three of us (me, mother and Kerr) sign the
agreements...Derek Fradgley would never allow us to roll up arrears into any
re-financing agreement. Any arrears always had to be cleared first of all."
Signing the agreements never took long. They knew they were paying more than if they
went to a high street bank, but that was because they did not have much equity in the
Lindsay businesses. Rodger Lindsay described Derek Fradgley as coming and wanting to
do business with them in the early years of their dealings. The Lindsays believed in
Derek Fradgley and trusted him.
Purchase of land at Metal Bridge Farm
[38]
In around 2001 Rodger Lindsay bought bare farmland at Metal Bridge, near Carlisle,
which was funded partly from cash and partly with a mortgage from a third party.
Rodger Lindsay bought additional land at Metal Bridge in 2006. The partners of Lindsay's
Dairy perceived this as an opportunity to establish new dairy operations at Metal Bridge
Farm and, to that end, they entered into further finance agreements with Outlook in 2006.
Finance agreement no 1569 or "the Lindsay Mortgage"
[39]
In November 2007, the Lindsays also entered into a finance agreement 1569 (ie the
Lindsay Mortgage). It is not disputed that the Lindsay Mortgage had been entered into with
Rodger Lindsay on behalf of Lindsay's Dairy in late 2007, and for which MBL had no
responsibility. MBL was not incorporated until June 2008, well after that agreement was
entered into. It is important to note this, because Derek Fradgley included this agreement in
the Settlement Calculation as if it were a liability of MBL which Euan Lindsay was obliged to
settle.
20
[40]
Rodger Lindsay explained the genesis of the Lindsay Mortgage. In 2005, the
monthly outgoings for Lindsay's Dairy were too high. Milk prices were low. It was decided
to refinance with a view to reducing outgoings. To that end a new agreement, namely, the
Lindsay Mortgage, was entered into between Outlook and Lindsay's Dairy for £410,000.
The purpose was to develop the bare land at Metal Bridge Farm into a working dairy. The
money advanced enabled all outstanding indebtedness with Outlook as well as with other
third party providers of credit (Cumbria Leasing, Oak Finance and others) to be repaid.
Rodger Lindsay explained that Derek Fradgley insisted that any outstanding arrears with
Outlook were always repaid. No arrears ever rolled up into a new agreement. The Lindsay
Mortgage was secured over Metal Bridge Farm. As part of that arrangement, monthly
payments of £7,150 were mandated to be paid directly from First Milk to Outlook from the
monthly "milk cheque" that First Milk paid to Lindsay's Dairy. So far as Rodger Lindsay
could recall, no payments were ever missed under the Lindsay Mortgage.
The outbreak of TB in February 2008
[41]
Further bad luck befell Lindsay's Dairy when TB struck the herd in February 2008,
resulting in the lock down of the business and the cull of 80 cattle. The compensation
of £38,000 eventually received for the cull was paid by Lindsay's Dairy to Outlook, although
Rodger Lindsay noted that this payment was never accounted for anywhere by Outlook, nor
traced by the parties' accountants (a matter on which he was not challenged). The new farm
buildings were nonetheless completed over the winter of 2007 to 2008 and dairy production
commenced in May 2008.
21
The AI litigation
[42]
The Lindsay's Dairy business was not the only one of the Lindsay businesses beset
by misfortune. The mis-labelling of "stems" (or small vials in which bull semen is stored)
held on behalf of a customer led to an action ("the AI litigation") and judgement against
the partners of Lindsay's Dairy in May 2008, with the consequence that, shortly thereafter,
bankruptcy orders in England were pronounced against Rodger Lindsay and Kerr Lindsay
in August 2008.
Agreement number 1595 for the Pottinger machine
[43]
Meantime, the operations at Metal Bridge Farm were up and running by about
May 2008. This was just before the judgements against the Lindsays in the AI litigation were
pronounced. At that time, Lindsay's Dairy had agreed to buy a Pottinger machine, which
was used for cutting grass and taking it into the cows. This was the subject of finance
agreement no 1595, with the Lindsays paying a £5,000 deposit and Outlook paying the
balance of around £40,000 to 45,000.
Derek Fradgley's return to get a second agreement signed for the Pottinger
[44]
By May 2008 the Lindsays, as well as Derek Fradgley, were all aware that Lindsays
AI was going to lose the litigation. Rodger Lindsay described Derek Fradgley coming up
and wanting another agreement signed for the Pottinger:
"He [Derek Fradgley] went round the farm and listed the serial numbers of
everything he could find, wee piddly things like shear grabs, attachments for
tractors, anything at all, and he put it all into a second agreement 1595. No
further sums were lent to us, he just added more security."
22
Rodger Lindsay described how everything was "spinning". Lindsay's Dairy had lost a lot
of good cattle in February 2008, due to the TB outbreak. They had lost the AI litigation and
bankruptcy was imminent. He described Derek Fradgley as
"jumping up and down, making out he was exposed to the bank, he was upset
about all of the money he owed. The machinery and cattle and farm couldn't have
been sold at that time due to the TB restrictions. In June 2008, if we had packed up
and left, he couldn't have sold to anyone else - the value of his assets had
diminished, and he was in a very bad way . The cattle left were worthless, only
slaughter value less costs for that. I don't remember when the cull market came back
out, might just have been burner value of £200 for each, instead of £800 each."
(Emphasis added.)
These events all took their toll on Rodger Lindsay, who described being "punch drunk,
worn out, broken and stressed by it all." The litigation had been very bitter and Lindsay's
AI never recovered. The dairy business was doing better and the Lindsays wished to
continue it.
Derek Fradgley's removal of the loan documentation after the bankruptcies
[45]
When Rodger Lindsay and Kerr Lindsay were made bankrupt (Helen Lindsay's own
bankruptcy was in February 2009), Derek Fradgley came and took away all of the original
agreements between Outlook and the Lindsay businesses. Rodger Lindsay said that
Derek Fradgley told him that "he [Derek Fradgley] would speak to our trustee and explain
them". Rodger Lindsay did not keep copies. (It is for that reason that, for the purposes of
this action, the Lindsays have had to piece things together retrospectively from a box of
papers Derek Fradgley delivered to them after MBL was dissolved, and from disclosures
obtained in some of the court cases.)
23
The discussions between Rodger Lindsay and Euan Lindsay regarding the future at Metal Bridge
Farm
[46]
Following the litigation against Lindsay's AI, it was apparent that the partners of
Lindsay's AI and Lindsay's Dairy were to be made bankrupt. Discussions ensued between
Rodger Lindsay and Derek Fradgley, and also between Rodger Lindsay and Euan Lindsay,
as to how to keep the dairy business going at Metal Bridge Farm. Rodger Lindsay described
how it came about that Euan Lindsay offered to assist, essentially by providing a security
over Harperfield to secure the release of £200,000 for working capital.
"46. It was in around June 2008 during the period of coming to terms with losing
the court case and the impending bankruptcy, when my conversation with Euan
happened.
47. This was after we knew we had lost court case for sure and it had sunk in.
There was nothing planned about it, Euan was in the room (the office) on his oxygen
machine. The stress was all out of the situation, and I was resigned to the position.
Euan asked `what happens now?'. I said `We'll be bankrupted'. `What happens to
Metal Bridge?' I explained everything would be sold, Metal bridge, the cows,
everything. Euan said `Maybe speak to Bill (the Pursuer) and see if DM Lindsay can
buy everything then, we can speak to the bank'. I said fine. It was embarrassing
what had happened to us. I didn't know the implications or practicalities of how
DM Lindsay could buy everything, I hadn't thought it through. I remember Euan
specifically saying `better speak to Bill'. Euan was not man of business. He said it
would have to be done with Bill, I remember that clearly. The conversation ended
there, as something to talk about later, I had things to do and had to go."
(The reference to "Bill" are to William Lindsay, the pursuer. It was understood that
William Lindsay would inherit Harperfield.)
How Derek Fradgley became aware of Harperfield
[47]
As Rodger Lindsay described it in his evidence (and which was not subject to
challenge in cross-examination), it was around this time that Derek Fradgley became aware
of the existence of Harperfield and that it was unencumbered. Euan Lindsay had never
had any connection with the Lindsay businesses. Euan Lindsay owned Harperfield but, as
24
Rodger Lindsay described him, Euan Lindsay never took on any debt. Up to this point, all
that Derek Fradgley would have known was that Euan Lindsay lived at Halltown and spent
his day sitting in the office there. Rodger Lindsay explained that it was in this context that
Derek Fradgley first became aware of Euan Lindsay's ownership of Harperfield and that it
was unencumbered:
"48. Derek Fradgley was on the phone to me most days at that point. We weren't
bankrupt at that point, we were just getting advice about criteria to do it yourself, we
were still deciding. When Derek Fradgley phoned me that afternoon, really to get
him off phone I think, I said, `We're going to speak to Willie, Euan's suggested DM
Lindsay could maybe buy the assets. We're bankrupt, we can't do anything else,
maybe they'll buy the assets.' Derek Fradgley asked how DM Lindsay were going to
pay for them. I said `They'll just use Harperfield, there is nothing owed on it.' Euan
hadn't specifically said that to me, but I had worked that out. My uncles Ronald and
Euan never spent any money beyond what they had in the bank. They wouldn't take
on debt. They were very reserved that way, particularly Ronald, they were very
frightened of borrowing money. Derek Fradgley said `no need to do that, far easier if
set up a limited company, and the agreements can carry on. If Euan is prepared to
put legal charge on property, I'll get working capital for it'. We then had a family
discussion at Halltown. We didn't know implications of how it could work, but we
thought it wasn't a bad idea. We thought things would carry on as they were, with
just us and a significant amount of working capital in bank. I didn't know anything
about the rules of limited companies. I had no idea about limited companies. I
had never been involved in one. I was always in a partnership, and always on the
line for everything." (Emphasis added.)
As I record below, the defender sought to recall Rodger Lindsay in order to cross-examine
him on the passage highlighted in bold. Rodger Lindsay explained that it was his
understanding that the formation of a limited company, as Derek Fradgley proposed, would
not affect the operation of the dairy business at Metal Bridge Farm and that he would
remain in charge of it:
"49. I thought I would have a management role in the new company. I thought
Kerr and I would be running it. Ownership or the concept of shareholder didn't
occur to me at all. I thought it would be our company and that was it. In that
conversation on the phone with Derek Fradgley, I said `we don't know anything
about limited companies' and he said it was all very simple, it is all laid out for you
in the laws, I'll do all that, not a problem, I know that backwards in my sleep. He
made it out to be such a simple task. He wasn't talking about managing the
25
company, just filling in forms. I thought once the forms were filed, that was it -
Derek Fradgley would be doing a one off job.
50. After I went back and spoke to Euan, father, mother and Kerr, Euan then had
conversation with Willie. I knew he was going to speak to him. Euan wasn't going
to commit or do anything without Willie. Euan wasn't a big confident investor, he
was a fish out of water. There was more than one conversation between them, I
think, but the conclusion was, there had to be a limit, and couldn't be more
than £200k. If it went wrong, the business of DM Lindsay could cope with that
amount. I didn't speak to Willie about it.
51. After I came back from milking, Euan said `Willie has been on. You can
have £200k working capital, but that is maximum it is be, limited to that.' I spoke
to Derek Fradgley and told him that, on the phone. I was very clear, and
Derek Fradgley said that was grand, he was the big joy happy man again. `I'll get
it all sorted and I'll be up.'"
[48]
Once it became clear that Euan Lindsay would grant the first standard security over
Harperfield, albeit in a restricted amount, Rodger Lindsay described events as moving very
quickly:
"52. I can't remember talking about the name of the company or anything like that .
I've always said, it seemed to me as soon as I said `Yes, we'll go on that basis', it
seemed like Derek Fradgley was at the door in 5 minutes, sign this and that. It was
maybe in reality a day or 2 days later, but it was ferocious, very very fast. He
turned up, having travelled for about 3.5/4 hours by car from his office, with all
these papers to be signed. It was at that point that he pushed me and Kerr to the
side and explained that the law didn't allow us to be directors. He said the director
would have to be someone who wasn't bankrupt. I know from papers I have seen
since that the company was already incorporated at that point though, so we must
have had a conversation about father being a director before that. I don't know
how he would have got father's details otherwise. I don't remember whose idea the
name of the company was, it must have been his. I was burnt out and I didn't give a
monkeys what it was called. I do recall it wasn't just all done in one day.
Derek Fradgley was back up two or three times in the June 2008 to get papers signed.
There was never any discussions about him having a management role of any kind -
no discussion or agreement at all. I don't remember any discussion about Euan
being director. As far as I was concerned, Euan's only involvement was providing
the security on Harperfield. It only came to light in the following few months that
Euan was a director (to me anyway). The first Metal Bridge Ltd agreements with
Outlook are dated 27 June 2008. Derek Fradgley never mentioned in the
discussions I had with him anything about indemnities either. All that was
agreed was the security on Harperfield Farm. (Emphasis added.)
[49]
Rodger Lindsay had initially expected to be involved in the same way as he had in
running the Lindsay businesses. Of all of the members of the Lindsay family, he was the one
26
who was regarded by them as taking a lead on decisions concerning the Lindsay businesses.
He was the spokesman for the Lindsay family. This is borne out by Paul Philip's evidence,
that Derek Fradgley regarded Rodger Lindsay as the Lindsay family's "man of business".
He was the one who dealt with Outlook on behalf of the Lindsay businesses. However, he
did not become a director of MBL, as he explained:
"24. Derek Fradgley told us we couldn't be caught anywhere near the company or
they would lock us up and throw the key away. It's a minefield, he said, they'll
crawl all over this company. We weren't bankrupt at that point. We didn't become
bankrupt until August 2008. Derek Fradgley had all these documents, and we were
pushed away out the room. He had everything in a briefcase, be got everything
signed by James and Euan, he never left anything to look at. We thought Euan
was only there for the security. We had been told that the Lindsay's Dairy and
Lindsay's AI agreements would continue just as they had done. I didn't know at
the time that Derek Fradgley had prepared new agreements and had them signed."
(Emphasis added.)
It was Rodger Lindsay's evidence that Euan Lindsay rarely met Derek Fradgley.
Euan Lindsay got upset and found dealings with him and MBL all very stressful.
Rodger Lindsay described Derek Fradgley coming up to Halltown but Euan Lindsay saying
he "wasn't well" and would not come to any meeting. Derek Fradgley was pressing Euan
Lindsay to grant an all-sums standard security over Harperfield in June 2008. Euan Lindsay
wanted any standard security to be restricted to £200,000. Rodger Lindsay described
Derek Fradgley going through to Euan Lindsay, Euan Lindsay asking if it was restricted and
Derek Fradgley confirming that it was. Euan Lindsay agreed to sign it. Rodger Lindsay
explained that Euan "wasn't a big confident investor, he was a fish out of water",
The formation of Metal Bridge Limited
[50]
Metal Bridge Limited ("MBL") was incorporated on 24 June 2008. Derek Fradgley
was responsible for all aspects of the incorporation of MBL. The registered office of MBL
27
was the same as Outlook's. He also selected his own agents and accountants to be those of
MBL. Each of Rodger Lindsay and William Lindsay gave unchallenged evidence that
Derek Fradgley was the sole signatory on MBL's bank account and that bank statements
were sent directly to Outlook. The Lindsays had no say in any of these decisions.
Euan Lindsay and James Lindsay were appointed as the directors of MBL. However,
Euan Lindsay was a director only from 1 July until 1 October 2008. James Lindsay was a
director and Derek Fradgley was the company secretary for the duration of MBL's existence.
Euan Lindsay and Derek Fradgley each held 50% of the shares in MBL. (In a later document
Derek Fradgley represented that he was the sole shareholder, but there is n o evidence as to
how that came about.) MBL was dissolved on 1 February 2011. (The pursuer founds on this
evidence to establish that Derek Fradgley was a de facto director of MBL.)
The first MBL agreements and the inclusion of the first indemnities
[51]
The documentation discloses that 3 days after the incorporation of MBL, it entered
into three new agreements with Outlook, namely agreement 1596 (for machinery),
agreement 1597 (for cattle), and agreement 1598 (a loan) all dated 27 June 2008. These
agreements (which Rodger Lindsay referred to as "leases") contained personal indemnities,
unrestricted in amount, from Euan Lindsay and James Lindsay in favour of Outlook (ie the
first indemnities).
[52]
However, there is a significant divergence between the documentation comprising
the first MBL agreements and Rodger Lindsay's evidence. He was clear that the agreement
with Derek Fradgley was that the original agreements with the Lindsay businesses would
continue as they were. No specific or new terms were ever discussed. Neither he nor any
member of the Lindsay family was aware of the first MBL agreements at the material time.
28
It was only when they were produced in these actions that he saw the first MBL agreements
or the ones under challenge. Until then he had not been aware that this was the means
purportedly to transfer the loans and leases the Lindsay businesses had with Outlook to
MBL. He also disputed that Outlook sent termination notices in June 2008 of the existing
agreements Outlook had with the Lindsay businesses, which were first produced in
Outlook's enforcement actions against them in 2012 or 2013.
[53]
Furthermore, it was also Rodger Lindsay's firm evidence that neither he nor any
other member of the Lindsay family was aware of the first indemnities contained in those
agreements. No copies of any documents the Lindsays entered into with Outlook were ever
left with them. The Lindsays had not seen these agreements. He believed Derek Fradgley's
assurance that everything would continue as before, meaning that the existing agreements
with the Lindsay businesses would continue. A fourth agreement was entered into between
MBL and Outlook (agreement number 1619) and it, too, contained personal indemnities
from James Lindsay and Euan Lindsay in favour of Outlook in respect of MBL's obligations.
These agreements were subsequently rolled up into the Loan Agreements under challenge.
[54]
Roger Lindsay's specific comments on these agreements were as follows:
1)
agreement 1596: This appeared to have rolled up leases 1595 and 1570. This
purported to be for a term of 60 months. That was not known to or agreed by
him. He agreed with Peter Graham's assessment that the balancing figure
of £25,921 included had already been included in a settlement figure for
lease 1570.
2)
agreement 1597: This purported to be for a 10-year term. A 10-year lease for
cattle was a nonsense (he explained that the productive life of a dairy cow was
around 4 years), and he would never have agreed to this.
29
3)
agreement 1598: This appeared to relate to the £200,000 of working capital
Euan had provided. He had not seen this at the time, but knew about it.
Rodger Lindsay explained that some years later, they had been able to secure
MBL's bank statements from NatWest once James Lindsay provided a
mandate. These disclosed that Outlook did not credit MBL with the £200,000
advance secured by the grant of the first standard security. The sum credited
had only been £101,000;
4)
agreement 1619: Rodger Lindsay had been aware of this agreement, entered into
in January 2009, but again there was no mention of the indemnities this
agreement contained and signed by Euan and James. He described Euan as
being very ill at that time, and in and out of hospital. This agreement related to
getting more cows to get the milking shed up to capacity. Rodger Lindsay
described having spent a good part of the year (from MBL's formation) arguing
for this. Outlook sold the Pottinger (which had been subject to lease 1596) to a
Mr Hughes in order to fund this. However, he explained that Outlook took
the money received from the sale of the Pottinger, but did not credit this
to lease 1596. It put the cattle purchased under agreement 1619. Outlook also
purported to sell the Pottinger to Euan, and for which it invoiced him.
[55]
The first bankruptcy order pronounced against a member of the Lindsay family was
made on 14 August 2008.
[56]
Both parties instructed expert reports to try to trace the progress of all of the various
loans and finance agreements. In the Henderson Loggie Report, Peter Graham went so far
as to produce a "family tree", endeavouring to show how the agreements were rolled over
from time to time until they were eventually rolled over into the first MBL finance
30
agreements. As will be noted more fully below in the discussion of the accountants'
evidence, the inadequacy of Outlook's records made it difficult for them to trace with any
certainty or completeness the sums properly rolled up into the Loan Agreements under
challenge.
The manner in which Derek Fradgley secured signatures for any MBL documentation
[57]
I have already noted Rodger Lindsay's evidence, above (at para [37]), about the
straightforward and open manner in which documents were signed on behalf of the Lindsay
businesses with Outlook. Rodger Lindsay contrasted this with the how Derek Fradgley
secured signatures to the MBL documentation. He explained that when Derek Fradgley
came to get the documents signed to set up MBL he told Rodger Lindsay and Kerr
"that the authorities would lock us up and throw away the key if we were caught
near the management or decision making. He said it was a minefield. He spoke
about government departments having the power to intervene....It would blight
the rest of your life if they investigate, he said. It was all emotive. He said it was all
for our great benefit that we didn't know what was happening with the money. It
was a funny feeling, because we were vulnerable and in a weak place after everything
that had happened to us, but on the other hand, there was nothing not to trust him
about at that time. When he wanted to be charming, he could be. ....I felt pushed
out...I thought Euan taking the steps he had agreed with Willie was the best option,
there would be £200,000 of capital there, it would all be sorted in a day and
everything could carry on, but I was not completely comfortable with it....."
(Emphasis added.)
[58]
Once MBL was incorporated, when signatures were required these were generally
obtained at the end of a meeting. Derek Fradgley never sent by post a document to be
signed. He attended in person. He never afforded the Lindsays a chance to read through
any document before signing it. Rodger Lindsay and James Lindsay each described
Derek Fradgley becoming more heated or aggressive about this. As Rodger Lindsay
described it, Derek Fradgley would present whatever the document was to be signed as a
31
formality, and he would turn over the signature page of whatever document had to be
signed. Copies were not left. While prior to the formation of MBL the documents to be
signed were relatively few (being the various agreements), after the formation of MBL there
were more documents to be signed.
The manner in which Derek Fradgley took control of MBL
[59]
Rodger Lindsay described the change in how Derek Fradgley conducted himself,
and how he involved himself in operational decisions about the business, once MBL was
incorporated. He controlled everything. Rodger Lindsay spoke, with some feeling, of an
incident shortly after MBL was formed, when Derek Fradgley called a meeting with
Rodger Lindsay and a supplier, and how, at that meeting, he slapped Rodger Lindsay down
for having spoken directly to the supplier about payment. Derek Fradgley told him he was
never to do that. Derek Fradgley said "That's my job, you don't make any decisions about
who gets paid. It's my credit rating, my standing". Rodger Lindsay described feeling
humiliated. It felt as Derek Fradgley was the boss and the Lindsays were all working for
him.
Derek Fradgley's control of the business and of all financial documentation
[60]
From the outset Derek Fradgley was in control of MBL. He made all of the decisions.
Rodger Lindsay described wanting to buy more cows, because the milking shed had
capacity for 400 cows but they only had a herd of 300, but Derek Fradgley refused, saying
that the money was required to pay bills and leases to Outlook. Derek Fradgley set up
MBL's registered office at Outlook's premises. He insisted that all documents relating to
MBL be kept there; nothing was to be at Halltown. Everything was sent to Outlook.
32
Rodger Lindsay said he never saw a bill. He only received delivery notes from suppliers.
There had been no discussion about Derek Fradgley having any formal role in MBL. At that
time, Rodger Lindsay did not know what a "shareholder" was, but Derek Fradgley never
said he would be anything. Rodger Lindsay said:
"The agreement I thought [we] had made with him, was that he would keep us right
with annual accounts and make sure all was done in time. I was surprised when I
realised all the bills etc were to go to him. After the day he gave me a dressing down
at the very beginning, I was frightened....I had just wanted to farm and get by."
He explained that James Lindsay and Euan had had nothing to do with the Lindsay
businesses, and that remained the case in respect of MBL. Rodger Lindsay also described
Derek Fradgley saying that MBL "was about to go bust", even shortly after MBL began
trading. Rodger Lindsay described Derek Fradgley pressuring them about money, saying
that there was not enough money to pay the Lindsays until the milk cheque came in . There
was at least 1 month when Derek Fradgley did not pay them anything. By the third monthly
board meeting, in August or September 2008, Derek Fradgley made out that MBL had no
money left, and that MBL was
"on life support. I didn't believe him, but I had no proof. He [Derek Fradgley] had
the bank account and was in control of everything, including paying the bills. He
was always putting high, high pressure on us, but the bills all got paid as far as I
know. I was never refused deliveries anytime, no suppliers ever said anything to
make me think there were any problems. I would have known if things weren't
getting paid. Derek Fradgley had been away on holiday just before this meeting, and
he had just come back. He was obnoxious, arrogant and bad tempered. I genuinely
thought was all going to melt down at that point. He said there was no money left.
We tried to ask how? He never answered, he just told us we had all these bills, and
we were spending this and that." (Emphasis added.)
Rodger Lindsay could not understand how MBL was not profitable, given the capital
injection of £200,000 supported by Euan's grant of the first standard security in favour of
Outlook. As he described it in his supplementary statement:
33
"Our businesses [ie the Lindsay businesses] only failed because of an operational
mistake with the labelling of AI straws, not because of the non-payment of [Outlook].
[Outlook] was always paid by us. Once [Derek Fradgley] took over and set up MBL,
I had no knowledge or control over what was or wasn't being paid, but I would
question why we were always able to pay [Outlook] up until MBL was formed, and
them why MBL, with a supposed capital injection of £200,000, suddenly couldn't
afford to pay [Outlook] anymore. That doesn't make sense to me."
Looking back, he believed MBL was nothing more than a vehicle for Derek Fradgley to try
to get signatures to get a charge on Harperfield. He described how Derek Fradgley told him
that the bank insisted that the cattle passports be kept in the bank's vaults, which Rodger
Lindsay thought was nonsense.
Rodger Lindsay's comments on the board minutes Derek Fradgley prepared for MBL
[61]
In his parole evidence, Rodger Lindsay augmented the description in his affidavit
about how board meetings of MBL were actually run. Rodger Lindsay had had experience
from sitting on other committees or boards of how there would be an agenda to be followed,
and with an opportunity for those present to speak. The minutes would reflect the
discussions and decisions of the meeting. By contrast, at the meetings for MBL,
Derek Fradgley essentially presented the Lindsays with his instructions as to what was to be
done. No prior minutes were reviewed. There was no interaction; no discussion. He did
not provide any financial information relative to MBL. The reality was that Derek Fradgley
came and told the Lindsays what was to be done and by whom. They felt like they were just
employees of Derek Fradgley, who was "the big boss".
[62]
Rodger Lindsay also said that what the board minutes purported to record bore no
relation what was actually discussed at the meetings. They purported to record matters that
in truth were never discussed. Derek Fradgley did send board minutes by email but
34
Rodger Lindsay did not read these at the time, given the amount of physical work he was
engaged in. He gave examples of entries which he disputed:
1)
While some board minutes stated that budgets and profit and loss accounts
would be produced, this was not the case (eg as in the first minutes, dated
11 July 2008, the minutes of 11 November 2008, or those of 13 May 2009)).
Other minutes purported to record that financial statements "were reviewed
and explained" (eg the minutes of 11 November 2008 or 8 January 2009), or that
Rodger Lindsay had "prepared budgets", or budgets for 3 years (as suggested
in the minutes of 11 November 2008), or that the directors had seen and
"accepted" the financial statements (minutes of 11 November 2008). None of
these statements was true. Derek Fradgley never put any such financial
information before the Lindsays in respect of MBL. Rodger Lindsay did not
prepare budgets.
2)
In the minute (of 11 July 2008), in respect of the "authorisation" of
Rodger Lindsay to negotiate contracts on behalf of the MBL, this did not
happen. Derek Fradgley controlled MBL;
3)
Any suggestion that Derek Fradgley was "detached from the operational side"
of MBL (eg as stated in the Memorandum of 13 September 2008), was
strenuously disputed by Rodger Lindsay. Derek Fradgley ran MBL. He was
the boss telling the Lindsays what to do;
4)
In respect of any figures Derek Fradgley quoted, Rodger Lindsay was sceptical.
He gave as an example a memorandum dated 13 May 2009. It recorded that
Outlook's current investment in MBL was stated to be £151,000. He could not
understand this as £200,000 of new cash had been provided at the start, in late
35
June 2008, but only £100,000 had been put in the bank. Rodger Lindsay could
not understand how there could be arrears, as Derek Fradgley insisted. When
he ran the dairy business as Lindsay's Dairy, it was profitable, it did not make a
lot, but it was profitable. When it started, MBL did not have any creditors other
than Outlook and it had the new capital supported by Euan Lindsay's grant of
the first standard security. Rodger Lindsay could not understand
where £200,000 had gone between August 2008 and May 2009. By around
December 2008 dairy production had doubled and the milk cheques were up to
about £50,000 to 60,000 a month, a sum Rodger Lindsay described as "colossal"
for a single farm. At around the same time, finance agreement 1619 was
entered into to enable the purchase of a whole herd from a fellow farmer.
Derek Fradgley never put financial information before them and so the
Lindsays could not test what was stated. DL always went on about arrears;
5)
Any entry suggesting that Euan Lindsay was actively involved in any way was
a fiction. Rodger Lindsay described the suggestion that Euan Lindsay or
Rodger Lindsay could have prepared forecasts as "ludicrous". The Lindsays
simply had no financial information to do so: no bank accounts, no sales
ledgers, nothing. Rodger Lindsay explained that when he was running
Lindsay's Dairy, they had always used accountants to produce any budgets for
lenders. They used professionals. In respect of the entry that Euan Lindsay
had undertaken a stock check or a count of the AI stems (as suggested in the
minutes to 13 May 2009) was also ludicrous, given his poor health and the
physical demands entailed in those tasks.
36
[63]
There were other matters recorded in the MBL documentation that Rodger Lindsay
discovered later and which caused him concern. These included the following:
(1)
that Outlook was charging rent to MBL;
(2)
that agreements 1568, 1587 and 1570 Lindsay's Dairy had with Outlook were to
be carried over have the same terms as any agreement with MBL, but this had
not been the case;
(3)
that Derek Fradgley maintained that the monies had to be repaid quickly, but
some agreements were in fact for 10 years;
(4)
that Outlook were also charging MBL for the cattle;
(5)
that, in the course of Derek Fradgleys enforcement actions against the Lindsays
in 2012 and 2013, Derek Fradgley produced a letter, purportedly dated
June 2008, terminating all of the agreements with the Lindsay businesses.
Rodger Lindsay was adamant that no such termination letter had been received
at the time;
(6)
the bank accounts disclosed never showed MBL in debt at the material time;
and
(7)
that there was no bank standing behind Derek Fradgley or to whom Outlook
owed money. This was the case, notwithstanding Derek Fradgley's frequent
references to "the bank", or being pressured by "the bank", or "the bank"
requiring the cattle passports.
The events leading up to 26 August 2009
[64]
Rodger Lindsay described Derek Fradgley's increasingly fraught behaviour from
late 2008 into the spring and summer of 2009. Throughout that period, Derek Fradgley was
37
representing that MBL was in dire financial straits. By reason of MBL's bank statements going
directly to Outlook, none of the Lindsays was in a position to question Derek Fradgley's
presentation of MBL's affairs. Rodger Lindsay contrasted Derek Fradgley's statements of
MBL's position with his (Rodger Lindsay's) own dealings with MBL's suppliers, who did not
raise any issues of non-payment. Derek Fradgley was always saying that everything "had to
be paid back so quickly", and it was only later that Rodger Lindsay learned that the first MBL
agreements (which he had not seen at the time) were for 10 years. He explained that it got to
the point where he was the only one of the family interacting with Derek Fradgley, as
everyone else was "fed up". Rodger Lindsay described himself as trying to hold it together
and being "frightened for the family".
[65]
Matters came to a head in August 2009. Derek Fradgley sent a fax on 19 August
claiming that MBL was in trouble and that another £200,000 was needed from Euan Lindsay.
Rodger Lindsay understood that it was a deliberate act on the part of Derek Fradgley to do
this by fax, given that he knew Euan Lindsay sat beside the fax machine. Rodger Lindsay
described Euan Lindsay becoming very upset, but insisting that Derek Fradgley would get
no more money.
"81. After the August 2009 Board Meeting, something important happened. On
19 August 2009, Derek Fradgley sent a fax to Euan and me [Core Bundle Production
No. 25, page 296]. He had sent a fax because he knew Euan would read it - the fax
machine was next to where Euan sat. The fax had some gobbledegook about
creditors, and it concluded with him saying that the only solution to the problem
would be for Euan to produce another £200,000 security over Harperfield.
[Derek Fradgley] said be must have confirmation of this by Friday at the latest.
82. I remember I was in the office with Euan that morning when the fax came
through. Euan said, we can't do that, Bill will go daft as well! We spoke with father
too, and he said, well what does he need it for? Father said, we've never had any
money, where has the last £200,000 gone?! Euan got awfully upset. So I said, well,
we'll just tell him that he can't have it. So I phoned him back and I said `No, that
was the maximum that would be done Derek, you can't get any more.' I got a rant
38
from him, but I can't remember the exact words of what he said. I had heard him
worse though." (Emphasis added.)
The Little Chef meeting between Derek Fradgley and Rodger Lindsay on 23 August 2009
[66]
The next thing Rodger Lindsay knew, Derek Fradgley summoned Rodger Lindsay
down to a meeting at a Little Chef restaurant, somewhere in the Midlands, on Sunday
23 August 2009. Rodger Lindsay described Derek Fradgley shouting at him and carrying on
about MBL's dire financial position (as Derek Fradgley presented it), and that "the bank"
was after him [Derek Fradgley] because of all of the outstanding loans. Derek Fradgley said,
"The bank only had to sign a form" to go to court to make MBL insolvent. Rodger Lindsay
felt under pressure. Derek Fradgley was saying that MBL was insolvent and that everything
had to be sold - the cattle, the farm and the machinery - and that this all had to be done
immediately. There was no mention then of any indemnities. Derek Fradgley was really
angry and said he was "finished" with them. Rodger Lindsay described becoming
embarrassed by Derek Fradgley's behaviour in a public place. Rodger Lindsay was pressed
several times in cross-examination, but he confirmed that he had not mentioned to
Derek Fradgley at the Little Chef meeting any intention on the part of the Lin dsays to buy
out the assets of MBL. That proposal only arose after the meeting at the Little Chef.
The Lindsay family discussion to buy out the assets of MBL
[67]
Rodger Lindsay described going back that evening to Halltown to discuss matters
with the family. (Given that Euan Lindsay was living in the same household with
Rodger Lindsay, there is no doubt that Euan Lindsay and the other Lindsays would learn
of the tenor of Rodger Lindsay's discussions with Derek Fradgley at the Little Chef
meeting.) The outcome of that discussion was that they felt they were back where they were
39
the year before, and the only solution was to try to buy the assets from Outlook.
Rodger Lindsay estimated that they would require just over £1 million to buy the farm,
stock and machinery and would need an additional £200,000 to settle the legal charge. In the
days that followed, Rodger Lindsay explored financing with a third party, Agricultural
Mortgage Corporation. The plan was to obtain a bridging loan for a few years in order to
settle the business and establish a track record. They could then secure refinancing at a
lower rate on a long-term loan. The Lindsay businesses had worked well in the past with a
different specialist bridging finance company when they had purchased Metal Bridge Farm
in 2002. He also explored having MBL's assets valued, as he wanted to pay a fair price for
them.
Derek Fradgley's unexpected arrival at Halltown and his journey with Rodger Lindsay to see
Harperfield
[68]
When, a few days later, Rodger Lindsay called Derek Fradgley and told him of the
Lindsay family plan to buy the assets of MBL, he described Derek Fradgley "being fine"
with this. Rodger Lindsay then described what happened shortly after that call:
"
86. Shortly after that call while I was milking at Metal Bridge I received a
call from [Derek Fradgley] out of the blue, saying he was needing to see
me immediately and would be there shortly, the bank had to be resolved
today. When he arrived he put me in the car and said that unless he got
new agreements in place today Euan would be sued for over £2,000,000,
he had managed to convince the bank to make av ailable funds to settle
the Metal Bridge Ltd loans with new mortgages on Harperfield and
Metal Bridge. I was shocked and spinning and I said it's £200k Euan
owes, that's all he is liable for, the discussion got very heated, he pointed
his finger at me and raised his voice 'he signed the leases and is liable for
them as well, look either we get this sorted today or the bank will
make
Outlook sue him for all the money Metal Bridge owes
Outlook... .' and unless he has got £2 million in his hip pocket he will be
bankrupt and he won't even have Harperfield, and I have had to write off
all the money I have put into Metal Bridge to get the bank
to do this
40
deal, I'll never see that again. I was spinning and he was not interested in
any discussion about it, he said he had been through it with Euan and he
had signed the agreement, he needed me to take him to see Harperfield so
that he could report back to the bank that he had seen it and I had to go
with him now and show him it, so he could get back to them that
afternoon. On the journey he told me that the deal would allow us to get
the cows I had told him we were going to buy on the last call we had, and
he said
he would set up a new company to run it all and just manage
things within Outlook until he got that done. When we got near
Harperfield he asked me just to point it out and so we looked at it from the
main road and just returned back to Carlisle where he dropped me off."
(Emphasis added.)
Halltown, where Euan Lindsay then lived, is 3 miles from Metal Bridge Farm.
Rodger Lindsay had been milking at Metal Bridge Farm when Derek Fradgley unexpectedly
turned up to make him accompany him two Harperfield (a 2-hour drive away) so
Derek Fradgley could view it. Rodger Lindsay had not been present at the meeting between
Derek Fradgley and Euan Lindsay at Halltown which had just taken place. (In submissions,
the pursuer submitted it was significant that Rodger Lindsay had not been included in that
meeting, notwithstanding his status as the Lindsay family's spokesman and man of business.)
Rodger Lindsay described Euan's state when Rodger Lindsay arrived back at Halltown:
"87. When I got back to the house at Halltown and saw Euan and father
they were at the kitchen table, Euan was in some distress and trying to
use his inhaler. I said how do we
owe all that to [Outlook] Euan was
shaking and he said that was what it said on his bit of
paper, I had to
sign it, he was going to sue me, he was going to make me bankrupt,
he was very upset, father said he had said he would sue him
for £2.6 million." (Emphasis added.)
It should be noted that in the Settlement Calculation the figure of £2,662,812 appears
under the heading "Balance of Rentals".
41
The nature of the document Euan Lindsay signed at his meeting with Derek Fradgley
[69]
One of the unanswered questions in these cases is what, in fact, was the document
Euan Lindsay is reported as saying he had signed at the unplanned meeting with Derek
Fradgley. Rodger Lindsay's evidence was as follows:
"Euan did have solicitors acting for him in the conveyancing that was required after
his meeting with Derek Fradgley in or around 26 August 2009, but they were
instructed after that meeting, and neither firm gave Euan any advice on the loan
agreement itself. As far as I understood at that time, from speaking to Euan and
father, and my conversation with [Derek Fradgley] in the car immediately
afterwards, Euan had signed the mortgage papers that day at the meeting with
[Derek Fradgley]. [Derek Fradgley] told Euan he had to, to avoid being made
bankrupt by NatWest bank. [Derek Fradgley] made out to me that he was to be
thanked for getting such a great deal for Euan, and getting a discount and so on. So,
as far as we all understood, the deal was all done that day. All that remained to be
done was the conveyancing aspects, which the solicitors had to do." (Emphasis
added.)
Rodger Lindsay explained Derek Fradgley's conduct in the immediate aftermath of the
meeting on 26 August 2009:
"[Derek Fradgley] was always calling me and putting pressure on me to get
everything completed quickly after that meeting. He wanted the conveyancing
completed by 1st October he said to me that he didn't want a "fiasco" like the last
time, when Euan agreed to the £200,000 security. It was always me [Derek Fradgley]
called, not Euan. I didn't know the ins and outs of what was to happen, but [Derek
Fradgley] told me that I had to get Euan to instruct a solicitor to act in the transfer of
Metal Bridge farm to him. I contacted Baines Wilson solicitors at some time in the
second half of September 2009, and they then got in touch with Euan, about the
conveyancing of Metal Bridge farm. [Derek Fradgley] also asked me a few times to
get Euan to contact his Scottish solicitors, to deal with the legal charge over
Harperfield. I asked Euan to contact Gebbie & Wilson solicitors, and he told me he
did that. Euan was very upset and withdrawn after that meeting with [Derek
Fradgley], so communication with him was fraught, and we didn't speak about the
conveyancing at all, other than when Derek Fradgley put pressure on me to ask Euan
to get solicitors instructed, and then to hurry them up.
I did not at the time know anything about [Derek Fradgley] coming back to Halltown
and getting Euan to sign any further copies of loan letters after that meeting. I have
seen from OFL's solicitors' files that Derek Fradgley brought further loan papers to
Halltown to be signed by Euan on a Sunday. I would have been at church from 9am
until 3 or 4pm on a Sunday, so I wouldn't have been there, and Euan would not
necessarily have told me, given how withdrawn he was at that time."
42
[70]
Rodger Lindsay also spoke to the enquiries he made in 2012 of the English and
Scottish agents (Gebbie & Wilson and Baines Wilson, respectively) who had prepared the
security documentation for Euan Lindsay in September 2009. Those enquiries disclosed that
the only loan facility letter on file with Gebbie & Wilson was the letter the Outlook Letter (of
4 September 2009), being the letter attached to the impugned standard security Euan had
signed. There was no sign of either of the Loan Agreements in either solicitors' files.
Rodger Lindsay also observed that from Mr Lingard's affidavit it was apparent that neither
of the Loan Agreements was on his file, either. It was clear to Rodger Lindsay that neither
the English nor the Scottish solicitors had given Euan legal advice in respect of the Loan
Agreements or the impugned standard security. Rodger Lindsay was not cross-examined
on any of this evidence.
The "by hand" termination notices dated 25 August 2009
[71]
Rodger Lindsay cast doubt on the veracity of some of the documentation Outlook
founds upon in these actions. Two examples are the termination notices dated 25 August
2009. One of the differences in approach between the parties' experts is whether the
termination provisions of the agreements were operated (being the premise on which
Outlook's expert proceeds), or whether these were never sent at the time (the Lindsay's
position and one of the reasons why the pursuer's expert's report is prepared without
regard to any contractual terms). I therefore note Rodger Lindsay's evidence on these two
documents.
[72]
There are two termination letters dated from about the same time as the meeting
between Euan Lindsay and Derek Fradgley (collectively, "the `by hand' termination
notices"). Both were dated 25 August 2009 (though both refer to Outlook having terminated
43
the agreements on 23 August.) The one addressed to Euan Lindsay, and declared to be `by
hand' (no address is provided), was in the following terms:
"I am writing to you regarding the indemnity and security you provided to us in
respect of three lease agreements and a loan agreement between Outlook Finance
Limited and Metal Bridge Limited.
As you know, payments have not been made on these agreements for some time,
and they are substantially in arrears. Because of the arrears and because there is no
prospect of the customer, Metal Bridge Limited being able to pay rentals for
August, the hiring of the assets under the three lease agreements was terminated
on 23
rd
August.
The net position in respect of the three leases is that the balance outstanding
is £1539120, and for immediate settlement of them in total, we will require £935051.
The loan agreement immediate settlement figure is £223000, meaning that the total
amount due to us from you, as the indemnifier, is £1158051. We offer the leased
assets to you as indemnifier for £935105 for immediate purchase.
I understand that you propose to address this matter by forming a new company,
Harperfield Farms Limited, and consolidating your existing business with the
assets that are currently the subject of our leases and increasing the herd numbers
by 150 additional cows. To do this, you wish to purchase also the land and
buildings at Metal Bridge where we are moving to become mortgagee in possession.
You have made an offer of £465000 for this property , which we are minded to
accept. For the purpose of record, you know that the proprietors of this land are in
bankruptcy and that Outlook must deal with the administrator of the bankruptcy
before any sale can take place. Should we not be in a position to time the purchase
contemporaneously, we will provide and expect irrevocable undertakings to and
from you.
Without prejudice to our rights, and subject to contract, we will be prepared to
accept £623051 for the various assets above. You will be responsible for all legal
and professional expenses, stamp duty and VAT.
To assist you in the purchase, we will, subject to contract and subject to our being
able, arrange funding of £1.8m which will be secured on your current farm land at
Harperfield and on the land and buildings at Metal Bridge by way of a first legal
charge. I have seen your projections for the business that indicate a net income
of £68902 in the first year, rising to £202814 by the end of year two. On the basis of
these projections, we would consider a funding arrangement based on the payment
of interest only for two years at 7% pa fixed rate. After two years, we will require
capital payments that will ensure the completion of the loan including interest within
20 years. The rate of interest that we will charge after the fixed rate period will be
linked to base rates, with a minimum rate of 7% pa.
44
Under the proposed transaction, Harperfield Farms Limited will be the owner of the
assets that are currently leased by us to Metal Bridge Limited. Neither I nor Outlook
Finance will have involvement in the ownership or administration of the business,
but will require regular financial information to ensure that the business is working
to plan an able to service the loan debt." (Emphasis added.)
[73]
The second of these `by hand' termination notices was addressed to James Lindsay.
It did not have an addressee's address and it also bore to be "by hand". Derek Fradgley
wrote in his capacity as the company secretary and sole shareholder, explaining that he had
"dealt with the paperwork for you since the business started, and left the day to day running
of the operation to you..." The termination notice was longer than the notice to Euan, as it
also dwelt on James Lindsay's responsibilities as a director, and how he would be acting in
contravention of company law if he continued to trade. It declared that Outlook "has now
(23
rd
August) terminated the hire of the assets leased to Metal Bridge Limited and will be
take possession of them immediately." It stated that these would be sold. Its penultimate
paragraph stated:
"I understand that Euan has suggested an alternative scheme of amalgamating the
Metal Bridge and Harperfield enterprises, and settling the debts of Outlook off
through the re-mortgaging of both properties. I have not seen full estimates of
this proposed scheme, and it is not my concern, but I advise you that the amount
required to settle off all of the debt to Outlook in accordance with the agreements is
currently £2.185m. I have calculated a special figure based on Outlook writing off
all future charges, and this would amount to £1.623m today, exclusive of any VAT.
I have some concern as to the ability to raise the amount of money required at the
current time, but you should be aware of the figures above if you wish to consider
this option for the future." (Emphasis added.)
[74]
Rodger Lindsay's evidence was that these were not received at the time.
"98. I have seen versions of the By Hand letters dated 25 August 2009. These don't
make sense to me. I never saw these until 2013. They mention `Harperfield Farms
Ltd'. That makes no sense, that was never a proposal at any point. My proposal was
that the owners would be DM Lindsay, not a limited company. Derek Fradgley was
obsessed with limited companies. I don't think these letters were contemporaneous
nor delivered at the time. Looking back now, with the benefit of hindsight and
documents that have been disclosed in the various litigations, I think the real
reason Derek Fradgley wanted to end Metal Bridge Limited, was because our
45
trustee, Dodds & Co, had raised a dispute with him, and were raising queries and
wanting money. The timing seems to coincide with when he got panicky. That
was when he moved to shut it down, in August 2008. He made out that the bank
was on his back and the company was insolvent, but what we know now is that
Dodds had started demanding big amounts, £70-£80k, from Metal Bridge Ltd."
(Emphasis added.)
(I note parenthetically, that the reference in the penultimate sentence to "2008" must be
mistaken, as he is referring to letters dated 25 August 2009.) In his parole evidence, Rodger
Lindsay queried why Derek Fradgley would send these to Euan or James, given that he was
running MBL himself. Outlook had made no demand to return machinery or cattle. He as
adamant that that had never happened. He did not know who the agents were, who were to
receive the cattle. The address was a garage forecourt in the middle of England. He also
noted that the dates of termination referred to in Outlook's documentation kept changing:
this notice referred to 23 August, other documents said 28 August.
Rodger Lindsay's comments on the profitability of the Lindsay businesses in contrast to MBL's
position and other dealings by Derek Fradgley
[75]
In his second affidavit, Rodger Lindsay commented on the proposition in the
Outlook statements that the Lindsay businesses were unprofitable and required su pport
from Outlook:
"Our family businesses, before Metal Bridge Limited ("MBL") was formed, were
always modestly profitable. We were good customers of Outlook Finance Limited
("OFL"), and Derek Fradgley ("Derek Fradgley") said so in a sworn statement to
Carlisle County Court in April 2008. He also confirmed we were up to date with all
payments.... OFL made a lot of money from the various lease agreements they had
with us over the years. Our businesses only failed because of an operational mistake
with the labelling of AI straws, not because of the non-payment of OFL. OFL was
always paid by us. Once Derek Fradgley took over and set up MBL, I had no
knowledge or control over what was or wasn't being paid, but I would question
why we were always able to pay OFL up until MBL was formed, and then why
MBL, with a supposed capital injection of £200,000, suddenly couldn't afford to
pay OFL anymore. That doesn't make sense to me." (Emphasis added.)
46
[76]
Rodger Lindsay also gave evidence about Outlook taking rent in respect of Metal
Bridge Farm in the aftermath of the Lindsays' bankruptcies, but doing so without their
knowledge or agreement, and the inconsistent ways that Derek Fradgley presented this to
different parties at that time.
"I have seen from MBL bank statements, that [Derek Fradgley] was taking £3,825.30
per month from MBL and paying it to OFL for "rent" for Metal Bridge farm, between
August 2008 onwards. There was no written lease, certainly not one I have seen, and
there was never anydiscussion about rent payments nor a lease. Kerr, mother and I
originally owned Metal Bridge farm and had a mortgage over it with OFL ...., but we
had been made bankrupt by the time these payments were being made. Metal
Bridge farm vested in our trustee at that point, as far as I understand [Derek
Fradgley] said he would speak to our trustee on our behalf about everything, so at
the time, we were not really aware of what was going on. I have seen from
documents later though, that OFL did not take steps to take possession of Metal
Bridge farm from our trustee until October 2009, so I do not understand why OFL
were entitled to take rental payments for the farm from MBL. I think those payments
should have been made to our trustee. I have also since seen a letter that Derek
Fradgley's solicitors, Talbots, sent our trustee in October 2009, saying that the
mortgage payments due for Metal Bridge farm had not been paid since May 2008....
OFL had in fact been taking these "rent" payments (which were equal to the
mortgage payment amounts) out of MBL's bank account since August 2008. [Derek
Fradgley] said in para 31 of his Witness Statement ... in the Manchester action that
all rent paid by MBL had been credited to loan number 1569, which is contradictory
to what is said in the letter Talbots sent to our trustee."
[77]
Rodger Lindsay commented on the terns of the first MBL agreements. In respect of
agreement number 1619, he was aware that this was being entered into in January 2009.
This was at a time when Euan was very ill, and in and out of hospital. There had been no
mention of there being any indemnity from Euan. The purpose of this agreement was to
purchase more cattle. However, Rodger Lindsay noted some irregularities in Outlook's
dealing with this agreement. The Lindsays understood that Outlook sold the Pottinger in
order to fund the purchase of cattle. While Outlook took these proceeds, it did not credit
this to the agreement (number 1596) which had included the Pottinger. Moreover, the same
47
Pottinger was purportedly sold to MBL under one of the Loan Agreements and invoiced
MBL. (The invoice was produced in process.) He was not cross-examined on this evidence.
The valuation of the assets of the Lindsay businesses sold to MBL
[78]
As part of the overall transaction reflected in the Loan Agreements, Outlook sold the
assets it held under first MBL agreements to MBL. The figures attributed to these assets,
which are included in the second Grant Thornton Report, were £635,000 for the cattle and
£300,000 plus VAT for the machinery. Rodger Lindsay believed that these valuations were
grossly overstated. He instructed retrospective valuations, which brought out figures of
£161,266 and £59,000, respectively, for the cattle and the machinery- in other words, a global
figure that was £714,734 lower than the Outlook figures. Again, this evidence was not
subject to cross-examination.
The sums paid to Outlook
[79]
Rodger Lindsay also explained the sums paid to Outlook under the impugned deeds.
Outlook received payments totalling £380,690 from Euan (and from his estate, after his
death). These payments are also recorded in Outlook's payment schedule lodged in the
Manchester proceedings. Rodger Lindsay provided a breakdown of the different ways in
which these sums were paid. Outlook also received £599,000 from the sale of Metal Bridge
Farm after that was repossessed. (Outlook's statutory demand associated with this was
produced and it was one of the documents agreed by the parties' Joint Minute.) Finally,
Outlook retained about £110,000 for agreement number 1540. The rationale was that this
was to pay for more cattle but it was never applied for that purpose nor credit ever given by
Outlook. As Mr Preston did not deduct this from his final calculation, this would need to be
48
done from his figures. The total of these figures is £1,089,690. None of this evidence was
subject to cross-examination.
Cross-examination of Rodger Lindsay
[80]
Rodger Lindsay's cross-examination lasted for a full court day, extending over 2
days. The first, and extended, passage of cross-examination explored the premise of
whether the Lindsay businesses had traded profitably. For a large part of this, Mr McIlvride
and the witness were at cross purposes. Rodger Lindsay acknowledged that there might be
"arrears", in the sense of not paying a creditor when a sum fell due, but he was adamant
that creditors were eventually paid; whereas Mr McIlvride assumed that this meant a
default (ie a failure to pay at all). Rodger Lindsay's position was that, while they could not
always pay creditors when they liked, they paid their creditors. The Lindsays had grown
the business from the mid-1990s to 2007. Rodger Lindsay maintained that if these
businesses were as financially parlous as was now being suggested, Derek Fradgley would
not have become involved with them. Rodger Lindsay strongly denied the suggestion,
derived from the first Grant Thornton Reports, that Lindsay's Dairy had missed 13
payments in a row under agreement number 1309. Derek Fradgley would never have
permitted that. Rodger Lindsay readily acknowledged that he and the other partners had
been made bankrupt. There had been mistakes by a government agency (DEFRA) which
had affected cash flow. The Lindsay businesses had faced and lost a serious litigation (the
AI litigation). The trade creditors were around £300,000 and the judgement debt
was £168,000. That, and the cost of funding their defence to the AI litigation, had been too
much.
49
[81]
When pressed on the detail of some of the earlier agreements, Rodger Lindsay
explained that there were some agreements that they did not recognise and they had no
record of them. He referred to a disclosure by Derek Fradgley in one of the early litigations.
Derek Fradgley had produced copies. When further copies were lodged, they had been
altered from those earlier copies. The Lindsays tried to get the originals. In respect of
agreement 1499, they simply did not recognise this. It did not correlate to anything they
had.
[82]
Rodger Lindsay was also questioned under reference to the accounts of MBL to the
year 30 June 2009, but Rodger Lindsay explained they had never seen these at the time.
They had only become aware of them when Derek Fradgley enforced the legal charge
against Metal Bridge Farm. The loss for the period of £341,682 covered by the accounts was
put to him, but Rodger Lindsay maintained that he was not a director and had nothing to do
with MBL's finances. Derek Fradgley was in charge and these accounts had been prepared
by him. He described the numbers as colossal. He could not understand it; they had 200
cows, 200 calves and 200 acres of corn and silage. He asked, where did these accounts show
the £200,000 advanced by Outlook? Rodger Lindsay rejected the proposition that he or the
Lindsays had been kept updated with MBL's financial records. Nothing like this was ever
discussed. Derek Fradgley was running MBL; the figures were his figures. The Lindsays
knew absolutely nothing at that time.
[83]
In respect of the board minutes, Rodger Lindsay readily acknowledged that board
minutes were emailed to him, although not to his personal address. They did not print these
out or make files. He did not read them. He could not say that he had not seen them. They
were sent but he was busy farming. He really only knew of, or became aware of the
contents of, the minutes in 2012 (when the litigations started). He could not comment on
50
their accuracy, at least in matters outwith his knowledge, as he did not have the financial
information. The entry from the first minute, dated 1 July 2008 was put to him, which noted
that MBL had entered into two lease agreements with Outlook and that both had been
"indemnified" by Euan Lindsay and James Lindsay. It was suggested to him that someone
reading this might ask: "what's an indemnity?". Rodger Lindsay replied that at that time,
the Lindsays had trusted Derek Fradgley. They had been dealing with Derek Fradgley for
12 years. He had never asked for, and Rodger Lindsay had never signed, a personal
guarantee or indemnity. The word "indemnity" meant nothing to him at the time.
Derek Fradgley could have written those words knowing that the Lindsays would not know
what an indemnity was and that they would not understand it.
[84]
Rodger Lindsay was firm that Derek Fradgley had never mentioned the indemnities
or explained them. Any signing of their agreements was done briefly. The so-called board
meetings at Halltown really involved Derek Fradgley doing all of the talking, which was
mostly about operational matters. Rodger Lindsay contrasted how Derek Fradgley
conducted those meetings with how he, Rodger Lindsay, had seen them conducted at other
meetings, where there was a proper chair and minutes and these were signed off and
approved. Derek Fradgley simply came with a brown folder and talked about "this and
that". A particular source of tension was about Lindsays getting invoices raised. The
Lindsays had had a simple system that had worked well - they had used it with their factors
- but Derek Fradgley was insisting that all invoices be sent to him, and this led to
duplication of effort. What they had not known at the time was that Derek Fradgley was
charging them fees for all of this.
[85]
He was questioned about attachments of financial statements to some of the later
minutes. Rodger Lindsay was adamant that Derek Fradgley never produced or went
51
through these materials at the meetings with the Lindsays. They were not "board"
meetings; they were just meetings. Nor did Derek Fradgley provide "updates", as the
minutes stated.
[86]
Other entries from the minutes were put suggesting that Euan Lindsay had been in
attendance. Rodger Lindsay did not accept these were correct. Euan Lindsay did not like
the meetings. They caused him anxiety. He was also adamant that Euan Lindsay did not
provide stock figures for the cattle or the AI stems, as the minutes purported to record.
Euan Lindsay did not have the physical stamina to do any of this. Checking the AI stems
required climbing a ladder to the top of the tanks, where the semen was stored in liquid
nitrogen at -140
0
. Once the tank was opened, the vapour had to clear. The effect was to
draw the oxygen out of the air. It was a dangerous and tricky job, even for a healthy person.
It was a "total nonsense" that Euan Lindsay could have done this. Nor was it correct, as the
minutes sought to portray, that Euan Lindsay was involved in other ways with the
paperwork. Rodger Lindsay did all of that. At most, Euan Lindsay might fax some
documents down. That was all that he was capable of doing. He rejected as "utter
nonsense" senior counsel's proposition that Derek Fradgley might infer that Euan Lindsay
was involved in the preparation of the paperwork. Rodger Lindsay had always done this.
He could place no faith in anything that Derek Fradgley produced, given the alterations
Derek Fradgley had made to documents and which had come to light in other litigations.
[87]
In relation to references to Rodger Lindsay "preparing budgets", Derek Fradgley had
never asked him to produce budgets or cash flow forecasts. When running Lindsay's Dairy,
Rodger Lindsay had always instructed accountants to do that kind of work. He was a
farmer not an accountant. Any statement that the budgets appended to some of the minutes
were prepared by Rodger Lindsay or any other member of the Lindsay family, as was
52
recorded in the minutes, was false. Nothing like that ever took place with MBL.
Derek Fradgley ran it.
[88]
Rodger Lindsay was challenged on his statement that Derek Fradgley had assured
them at the time MBL was set up, that the agreements with the Lindsay businesses would
continue as before. He maintained his position that his understanding was that the
company would be set up but that the Lindsays would carry on in the same way. He was
unaware of the first MBL agreements at that time. There were no termination letters sent to
the Lindsays at that time in respect of the extant agreements with the Lindsays. The
Lindsays first saw these termination notices was when Derek Fradgley produced them in a
litigation in 2012 or 2013. There would have been "some stushie" if Derek Fradgley had
produced them on the date they bore (being June 2008), because the leases and numbers
they contained bore no relation to the agreements in place at that time.
[89]
The circumstances leading up to Derek Fradgley's meeting with Euan Lindsay on
26 August 2009 were explored. Rodger Lindsay confirmed in cross-examination that there
was no intention on the part of the Lindsays to take any more funding from Derek Fradgley
or Outlook. He was adamant on this point. At the Little Chef meeting a week or so before,
Derek Fradgley had expressed his displeasure with the Lindsays and he made
Rodger Lindsay "feel like a small or low type person because we had left him with all this
debt". Derek Fradgley had been "really angry" at the Little Chef meeting and had made it
clear that he "never wanted anything to do with us". Derek Fradgley had been fed up with
the Lindsays and he had stated that MBL was insolvent and finished. He was not present
when Derek Fradgley turned up and met with Euan Lindsay. Derek Fradgley had not left
any paperwork behind.
53
[90]
He was asked about the document Euan Lindsay had mentioned signing at the
meeting he had had with Derek Fradgley (see para [68], above), but Rodger Lindsay had not
been there and had not seen any document. Rodger Lindsay described it all happening very
quickly. Derek Fradgley had sent a fax on 19 August 2009, demanding another £200,000. He
knew that Euan Lindsay would see it. Euan Lindsay had refused. Derek Fradgley had
summoned Rodger Lindsay down to the Little Chef on the following Sunday. This was
when Derek Fradgley was ranting loudly and saying things like, "MBL was insolvent,"
"everything had to be sold", and that all "the bank" needed to do was sign a piece of paper.
After that, Rodger Lindsay had discussed with the others what to do. They had resolved to
buy out the assets and had begun to explore this with other funders. At some point,
Rodger Lindsay phoned Derek Fradgley to apprise him of their intentions to buy out the
assets, and this had led Derek Fradgley to turn up very quickly after that. Rodger Lindsay
accepted that any buy out would involve another standard security over Harperfield as the
means to raise funds, but this would be with another lender, not Outlook.
[91]
Rodger Lindsay was challenged to explain what had become of the piece of paper
Euan Lindsay said he had signed. Rodger Lindsay could not say, he had not been at the
meeting between Euan Lindsay and Derek Fradgley. He had not seen the paper Euan
Lindsay had said he had signed. All he could speak to was of Euan Lindsay being in such a
state, because Derek Fradgley had told him that "the bank had to be sorted today or
[Derek Fradgley] will have to sue him [ie Euan Lindsay]" unless he had £2 million.
Euan Lindsay believed that Harperfield would be lost. Rodger Lindsay was pressed about
his recollection of the date of the meeting between Euan Lindsay and Derek Fradgley.
Rodger Lindsay could not recall the exact date, but he was clear in his recollection about the
sequence of events which he had described.
54
The `by hand' termination notices of 25 August 2009
[92]
Termination notices dated 25 August 2009 were put to Rodger Lindsay. The `by
hand' termination notices purported to terminate the agreements and demanded delivery of
the cattle or machinery concerned. Rodger Lindsay was pressed on this, and that these had
been sent and received, but he maintained that no termination notices had never been
received at the time. (In re-examination, he confirmed that he was not just speaking for
himself. Had any of the others received such notices, he would have been bound to know.)
These `by hand' termination notices only came to light when Derek Fradgley sought to
enforce the mortgage years later. There was never any demand for return of the equipment
or other items, as these stated. That had never happened. He was adamant on this point.
The discussion among the Lindsays had been to get the assets valued and then buy them
from Outlook. When Rodger Lindsay called Derek Fradgley, he said this was fine, but the
next day Derek Fradgley arrived, demanding all these debts be paid and insisting that MBL
was insolvent. These `by hand' termination notices had never been received at Halltown. In
support of his position on this point, Rodger Lindsay referred back to his earlier evidence
about the disclosures that Outlook had made in the Manchester proceedings, an
examination of which revealed that Derek Fradgley had altered some agreements between
the time of his first lodging them in that litigation and the versions subsequently lodged in
the same proceedings. He gave a further example of an agreement that Derek Fradgley
produced, purporting to date from 2003, but listing cattle that had not yet been borne.
The Outlook Letter to Euan Lindsay
[93]
Rodger Lindsay was also questioned under reference to the Outlook Letter (being the
letter dated 4 September 2009 from Outlook to Euan Lindsay), in which figures were
55
provided of sums said to be due by him to Outlook and asserting that the sum for which
Euan Lindsay was liable as indemnifier was £1,158,051, and offering to sell him the leased
assets at £935,105 plus VAT. That letter, addressed only to Euan Lindsay, stated:
"I am writing to you regarding the indemnity and security you provided to us in
respect three lease agreements and a loan agreement between Outlook Finance and
Metal Bridge Limited.
As you know, payments have not been made on these agreemen ts for some
time, and they are substantially in arrears. Because of the arrears and because there
is no prospect of the customer, Metal Bridge Limited being able to pay rentals for
August, the hiring of the assets under the three lease agreements was terminated on
28
th
August.
The net position in respect of the three leases is that the balance outstanding
is £1539120, and for immediate settlement of them in total, we require £935051. The
loan agreement immediate settlement figure is £223,000, meaning that the total
amount due to us from you, as the indemnifier, is £1,158,051. We offer the leased
assets to you as indemnifier for £935105 plus VAT for immediate purchase."
(Emphasis added. Note that the figures underlined do not appear in the Settlement
Calculation.)
Rodger Lindsay's evidence was that he had not seen this letter at the time. He disputed the
figures stated. His understanding from MBL's bank statements (which he had no access to
at that time) showed that between 25 and 28 August 2009 Derek Fradgley had transferred
£54,000 out of MBL's bank account into Outlook's own account. The rental amount due to
Outlook was only around £16,000 per month and he simply did not accept that what was
asserted in the Outlook Letter was true. In his view, Derek Fradgley was trying to get a
legal charge to property he was not entitled to.
[94]
The Outlook Letter also purported to record Euan Lindsay's intention to form a new
company ("I understand you propose to address this matter by forming a new company,
Metal Dairy Bridge Farm Limited ..."), and his offer to purchase Metal Bridge Farm
for £465,000. It then stated:
"Without prejudice to our rights we will be prepared to accept £1,623,051 for the
various assets above. You will be responsible for all legal and professional expenses,
56
stamp duty and any VAT. Once you have accepted this offer, you will be bound to
pay the legal and other costs incurred by us, whether the transactions proceed to
completion or not.
To assist you in the purchase, we will, subject to contract and subject to our
being able, arrange funding of £1,800,000 which will be secured on your current farm
land at Harperfield and on the land and buildings at Metal Bridge by way of a first
legal charge. I have seen your projections for the business that indicate a net income
of £68,902 in the first year, rising to £202814 by the end of the year two. On the basis
of these projections, we would consider a funding arrangement based on the
payment of interest only for two years at 7% pa fixed rate. After two years, we will
require that loan to be settled either by placing the arrangements with another
funder, or by or by arranging a new loan with us where capital payments will ensure
the completion of the loan including interest within 20 years. The rate of interest that
we will charge after the fixed rate period will be linked to base rates, with a
minimum rate of 7% pa.
Under the proposed transaction, you will be the owner of the assets that are
currently leased by us to Metal Bridge Limited. Neither I nor Outlook Finance will
have involvement in the ownership or administration of the business, but will
require regular financial information to ensure that the business is working to plan
and able to service the loan debt."
Rodger Lindsay could not understand this. There was no company called Metal Bridge
Dairy Farm Limited.
[95]
Rodger Lindsay was also questioned on his statement that if Derek Fradgley wanted
to upset Euan Lindsay, he would fax. Rodger Lindsay explained that Derek Fradgley could
always email, but he knew that Euan Lindsay liked to sit by the fax machine in the office.
Derek Fradgley faxed so as to upset Euan. He knew how unwell Euan was. He did it to put
pressure on the Lindsays.
[96]
Rodger Lindsay was also cross-examined under reference to the one of the experts'
reports, in particular the passage noting that there was an agreement that had been in
arrears for 13 months. Rodger Lindsay did not accept that sums due under an agreement
were unpaid, or were in arrears for that length of time. Derek Fradgley would not have
permitted that. There were arrears in 2004 and 2005, because of the problems the Lindsay
57
businesses had faced at that time, as he had explained. Any arrears were always paid when
agreements were consolidated into new ones. The Lindsays did not default on the
agreements. The accountants could only go on what was written down by Derek Fradgley.
Rodger Lindsay also rejected the proposition that the Lindsay businesses were only able to
stay afloat because of Outlook's support. This was not true. There had been a difficult patch
in 2004 and 2005. Outlook always got paid. The Lindsays did not need to do business with
him; Derek Fradgley came looking for the business.
Recall of Rodger Lindsay
[97]
After the close of the pursuer's case and before the start of the defender's,
Mr McIlride QC, who appeared on behalf of Outlook, moved for the recall of
Rodger Lindsay. The passages from Rodger Lindsay's affidavit which Outlook wished to
challenge were Rodger Lindsay's statement that:
"... I didn't know anything about the rules of limited companies. I had no idea about
limited companies. I had never been involved in one. I was always in a partnership,
and always on the line for everything."
The allegation was that, contrary to that statement, Rodger Lindsay had experience as a
director, having been on the board of First Milk, and that he had concealed this in his
evidence. I heard argument on that matter, and continued consideration of that motion to
the end of the day to enable the scheduled witnesses to be heard. I granted the motion and
Rodger Lindsay was recalled two days' later.
[98]
I comment below on the defender's asserted basis for that motion, but it is here
relevant to note the evidence elicited. This is because the purpose of the recall was to
challenge Rodger Lindsay's statement that he had never been a director and was unaware
of how companies operated (quoted in the preceding paragraph, and which is set out more
58
fully at para [47] above). In advance of his recall, Rodger Lindsay produced a short
supplementary statement ("the recall statement") and the defender lodged the documents in
its eighth and ninth inventories under which it wished further to cross-examine him. The
additional documentation included First Milk's Annual Returns and Financial Reports
covering the period when Rodger Lindsay was a farmer director.
First Milk Limited
[99]
The documentation produced in relation to First Milk Limited ("First Milk")
discloses that it is not a limited company under the Companies Acts. Nor is it registered in
Companies House. The extract from the Mutuals Public Register, maintained under the
auspices of the Financial Conduct Authority, records that First Milk was registered under
the Co-operative and Community Benefit Society Act 2014. It is in the nature of a
co-operative society whose objects are to promote the interests of its members.
[100]
Rodger Lindsay explained that as he understands it, First Milk is a farmers' co-
operative or friendly society comprised of approximately 2000 dairy farmers across the
whole of the UK. It is a non-statutory successor to the old Milk Marketing Board and its
equivalent in England. The purpose of the co-operative is to gather milk producers together
to market their milk and to maximise the price of milk they can obtain. In terms of its
governance, First Milk had a main board comprised of executive directors and six farmers as
non-executive directors. The executive directors ran First Milk. They were career directors,
not farmers, drawn from industry and big business. Its chairman was a professional
chairman, having previously been a director of Unilever. The secretary was a qualified
solicitor. Sitting beside the main board were six farmers. They were elected on a rotational
basis from the 30 farmers serving at regional level.
59
[101]
Rodger Lindsay became involved in First Milk in around 2003. He had two roles in
First Milk. One was as a representative at regional level. A position he enjoyed because he
got to meet with other dairy producers. He was meeting a lot of farmers visiting them as
customers of AI. The other producers were also small family firms. He liked dealing with
them. It was interesting work. He described it as "a bit like a sewing bee - all dairy farmers
tend to be breeders too, and we knew them all, and it was good to talk about cattle and
stockmanship with them." He mentioned receiving "something like" a £1,000 a quarter as
an honorarium. He was requested by an area manager to become the "local director" for
First Milk. He was elected for two 3-year periods, from 2003 to 2006 and 2006 to 2009, as a
farmer director to the main board. He did not like this as much, but felt it was his duty to do
so when he was asked. However, he resigned in 2008, as Derek Fradgley told he had to do,
due to his bankruptcy.
[102]
When he sat on the main board, he went to monthly board meetings. The chairman
had an agenda, the executives would update the others (ie the farmer directors) on items
on the agenda, such as budgets or decisions to be discussed. He gave as an example the
contemplated purchase of a creamery by First Milk, so as to maximise the milk price. In his
experience, this was all conducted by the executive directors and the farmer representatives
such as himself just went to the meeting and
"got told what they were talking about. We were looking after how things were
being done and then brought the information back to the farmers in our region."
Every committee of First Milk had to have a farmer director and Rodger Lindsay sat for a
time on the audit committee. That committee had an executive director. All of the auditing
was done by professionals, such as KPMG, who would explain the accounts prepared. He
could not recall ever making an intervention. The farmer representatives just took the
60
recommendations. As he put it, "I had nothing to do with saying whether the numbers were
right or not". It was the secretary who took the minutes and either gave a view on the law
or sought professional advice when needed.
[103]
Derek Fradgley was well aware of Rodger Lindsay's role in First Milk. It had
had also been discussed in the Manchester litigation. Outlook's other director at the time,
Derek Fradgley's daughter, Alice, and Outlook's solicitors, Derek Simmonds of Gunner
Cooke, all knew of Rodger Lindsay's involvement in First Milk. He referred to his principal
evidence, when he had described his experience of First Milk's board meetings, albeit he had
not named First Milk (see para [61], above), and which he had contrasted with his
experience of how Derek Fradgley conducted MBL's meetings. He also explained that he
had mentioned his involvement in First Milk twice in the original draft of his precognition,
but that this had been removed at the suggestion of junior counsel as not relevant.
William Lindsay
[104]
William Lindsay is the pursuer, the nephew of Euan and his sole beneficiary. He
was 17 when he first came to work at Harperfield, which belonged to his uncles, Euan and
Ronald Lindsey. They ran it in partnership as DM Lindsay. In due course, William was
made a partner, too. After Ronald died, it was always understood that Harperfield would
pass to William. It was for that reason that Euan sought his permission before he agreed to
grant the first standard security.
[105]
In respect of Euan's heath, his evidence echoed that of Rodger Lindsay. From 2000
Euan was on an oxygen machine for 24 hours a day, which restricted him a lot. He
described Euan as suffering really badly from depression. William did not live at Halltown,
but he spoke to Euan a couple of times a week on the phone. In around 2008, Euan
61
Lindsay's health went downhill again. When he spoke to him on the phone, he could hear
the stress in Euan's voice. His breathing problems worsened, he was having problems with
his digestive system and he believed something else was wrong. He went down mentally at
the same time and was less and less like himself. He lost interest in things and he lost his
sense of humour.
[106]
He explained that Euan was not a businessman. He knew the value of a cow, but
that was it. He needed help with simple things, like getting new chequebooks when Ronald
died. Ronald had dealt with all of the business aspects of DM Lindsay. William took over
that role after Ronald's death. Euan knew what a standard security was. He did not know if
Euan would have known what a personal guarantee or indemnity was. William himself
only came to know what this was from being involved in the court actions with Outlook.
He could say "for certain ...that Euan never discussed or even mentioned personal
guarantees nor indemnities to me in our discussions, ever". He explained Euan's pride in
Harperfield. It was everything to him. It had been in the family since the 1930s. There was
never any debt on Harperfield in William's life-time. The family did not like debt and did
not want it over the family home. In his family, "you earned the pound before you spent it".
The DM Lindsay overdraft was always kept separate from the family home. Harperfield
was unencumbered, a word whose meaning he had learned by his involvement in the court
actions. Euan shared this dislike of debts. He had no debts at all.
[107]
William first met Derek Fradgley in 2011, after Euan's death. However, he was
aware who he was from discussions in the family. He knew that Euan had no dealings with
Derek Fradgley at all until 2008. It was around then that Euan called him and told that it
looked like the family down there (meaning at Halltown) were going to lose a court action
(ie the AI litigation) and would lose the business. Euan had discussed things with Rodger
62
and the rest of the family there, and Euan wanted to give them £200,000 to put capital into
their business. To do that he was going to borrow the money and secure it over Harperfield.
He asked William's permission. It was agreed that any standard security Euan granted
would be restricted to £200,000. Euan used Gebbie & Wilson to act for him in the
preparation of the standard security.
[108]
In respect of Euan's involvement in MBL, Euan mentioned to him in the summer
of 2008 that he had been made a director of MBL and was being asked to sign things. He felt
really uncomfortable about that. William was puzzled by this, because Euan was just
providing security for a loan. William told him if he did not want to do it, he should tell
Derek Fradgley and Rodger that. He never knew at the time if Euan remained a director or
was moved, as Euan did not mention it.
[109]
Euan called him about a year later, stating that Derek Fradgley wanted
another £200,000 to go into the business. William said his reaction was to ask "how am I
going to pay that back if it goes wrong? It's not on!". It was obvious to him that Euan did
not want to do that either. He explained that neither he nor Euan was willing to agree. So
far as he knew, Euan had refused. William never heard any more about it after that.
William never knew if Euan ever did grant another security. Euan did not mention it to
him.
[110]
In cross-examination, the following matters were put to him:
1)
When asked if he only saw Euan at Christmas or cattle shows, William did not
accept what was being inferred. He knew Euan well. He spoke by phone with
Euan quite often;
2)
He soundly rejected the suggestion that Euan was helping out with the dairy
farming. Euan was at death's door when he moved down to Halltown in 2000.
63
William had not expected him to last as long as he did. He was in and out of
hospital. It was "absurd" to suggest that Euan could do any work. He was not
capable of drawing up stock lists and the like;
3)
As for Euan being a director, he described it as "farcical" that Euan could be a
director of any company. Had he been able to do this, he would have done so
in respect of his own business. He understood that it had been Derek Fradgley
who had made Euan a director. He rejected the suggestion that Euan had been
appointed a director at Rodger's instigation or following any discussion with
Euan;
4)
In response to a series of questions about MBL, he confirmed that he knew
nothing about its business or financial position, other than when Euan was
asked to provide £200,000 in June 2008 to support it;
5)
In relation to the first MBL agreements, entered into between June and
August 2008, he did not know about these because Euan had nothing to do
with any of that as far as he knew. If Euan had been involved, he would have
told him.
[111]
On the issue of indemnities, it was put to him that Euan might have signed an
indemnity and never mentioned it to him. William rejected this. If Euan had signed an
indemnity, he simply would not have understood what that was. He was prepared to sign
a security restricted to £200,000. But if he had been told what was involved with an
indemnity, meaning one in unrestricted terms, he would never have signed it. The terms of
one of the indemnities was put to him (from agreement 1596), but he repeated his evidence:
Euan would have needed a dictionary to look up the word and he would not have
understood what it was. He himself didn't know what an indemnity was until it had been
64
explained to him. It was put to him that it warned the grantor "to take legal advice", but
William was firm that no legal advice had been taken. Gebbie & Wilson said they knew
nothing about this. They had nothing in their files about this. When pressed, William
expanded on his answer: he had told Euan he was prepared to let Euan grant the first
standard security as long as it was capped at £200,000. Euan agreed with that and he
instructed Gebbie & Wilson to that effect. But they received an agreement for an all-money
charge and also a continuing indemnity. Euan had signed and returned the deeds to
Gebbie & Wilson. They rejected these and advised Euan not to sign a standard security until
it was restricted. (This explains the length of time between the date of the first MBL
agreements and the date of the first standard security.) William had recalled a business
meeting at around that time, and the person he was dealing with had advised him to make
sure it was a restricted security.
The Gebbie & Wilson Letter of 29 September 2009
[112]
The terms of Gebbie & Wilson's letter of 29 September 2009 ("the Gebbie & Wilson
Letter"), sent by one of its partners, Russel Patterson, to Euan, was put to him. This stated:
"I have today received the letter from Outlook Finance Ltd to you of 4
th
September
2009. As advised on the telephone I am concerned at the proposed level of
indebtedness to Outlook Finance Ltd and the timescale involved (see letter from
Leonards attached). Can you please let me know what stage has been reached
regarding the asset acquisition and also in relation to the security over the land and
buildings at Metal Bridge. I would stress that I am not advising you in connection
with any part of the asset acquisition or in relation to securities over property in
England. Nor am I advising you regarding the time scale for the various aspects of
the transaction.
As regards the first paragraph of said letter of 4
th
September 2009, I am unclear as
to the `indemnity' to which they refer. Further, according to my file the standard
security over Harperfield Farm is limited to £275,000 (plus charges costs, expenses
etc).
65
Whilst I appreciate that you wish to proceed with the `new security' in order to
assist your relatives, as stated above I am seriously concerned at the level of
indebtedness (£1.8 million). In addition the security they are asking you to give is
an `all sums due or to become due' type which means It is not limited to said amount
and can cover further indebtedness. If you default in payment for whatever reason
`Outlook Finance' will no doubt repossess and sell the whole property for the best
price they can achieve. You may not have the chance to sell off part to repay the
debt. I am not sure if the sale price achievable in any event would pay off the debt in
full and if it does not then they could pursue you for any outstanding balance. Is it
not the case that you have a relative currently living in Harperfield Farm and
working the land?
As you appear to be determined to proceed with the transaction I enclose the
Standard Security as prepared by Leonards on behalf of Outlook Finance Ltd. This
deed should be signed by you where indicated by your pencilled initials, before and
independent witness who should sign to the left of your signature adding the word
`witness' after his/her name." (Emphasis added.)
The first underlined passage was put to William Lindsay, with the suggestion that its terms
made it clear that what Euan was being asked to sign was an "all sums" security. William
repeated that he knew nothing after Euan had been asked for the extra £200,000. He saw the
spreadsheets of what Derek Fradgley had told Euan at a meeting, and it was for a lot more
than the figure mentioned. Euan was having pressure put on him to sign. He accepted that
the letter warned about the effect of an "all sums" security. The Outlook Letter of
4 September 2009 had offered a 20-year loan, but this had been removed. Russell Paterson
(of Gebbie & Wilson) did not have the full context. In his view, Euan was being pressured to
sign away his farm to a greedy man. Euan's solicitors, Gebbie & Wilson, were in the dark. If
Euan had been healthy and sound he was sure this would not have happened. William
rejected the proposition that Euan had been motivated to save the Lindsay businesses at
Halltown. There was nothing in it for Euan or the Lindsays. If Euan had had advice before
he signed it never would have happened. It did not help the Lindsay business to continue if
it meant Harperfield was lost. Derek Fradgley had browbeaten Euan. William accepted that
he had never seen a conversation between Derek Fradgley and Euan. He rejected the
66
proposition that Derek Fradgley was trying to help the family in circumstances where he
was saying that Euan owed Outlook some £1.8 million in the space of 12 or so months.
Euan did not sign the impugned standard security freely. He signed it because
Derek Fradgley had told him that otherwise "the bank" would sell everything and he would
lose Harperfield.
[113]
In re-examination, under reference to the second paragraph of the Gebbie & Wilson
Letter, where it stated "I am unclear as to the `indemnity' to which they refer", he was asked
what he understood it referred to. William Lindsay explained that it referred back to the
standard security for the £200,000. The only indemnity Gebbie & Wilson would have seen
was the continuing indemnity which they had rejected. In relation to his description of
Derek Fradgley browbeating him, he accepted that he had not seen any conversation
between Derek Fradgley and Euan, but he was aware of this because his father, James
Lindsay, had told him what had happened on that day and about the spreadsheet (meaning
the Settlement Calculation) that Derek Fradgley presented to Euan, and used to support the
level of debt Euan was told he owed. Speaking of the occasion when Derek Fradgley called
in at Halltown on 26 August 2009, James had said that Derek Fradgley "came into the house
and told Euan that he owed him a lot of money and unless he signed the agreement today
the bank was going to take Harperfield off him". James had told him this in 2011; up to then
he had not known that Harperfield had been signed away. He confirmed that what he
meant by the spreadsheet was the document where Derek Fradgley had lumped everything
together and said Euan was responsible for all of it. He confirmed that the spreadsheet he
was referring to was the same as the Settlement Calculation.
67
James Lindsay
[114]
James Lindsay is Euan's brother and the father of Rodger and William Lindsay. He
did general farm labouring and milking of cows, but was now long retired. He confirmed
what Rodger and William had said about Euan's poor health, about Euan being tethered to
an oxygen cylinder and about his being of anxious disposition. He was aware who
Derek Fradgley was, though he had never had anything to do with him until MBL was set
up. He knew nothing about running companies. He had never drawn up plans or
projections or anything like that. He was aware he had been appointed as a director of MBL.
This was because Derek Fradgley had told him that three people were needed for a
company and the members of the family who had been bankrupted could not be directors.
As Derek Fradgley explained to him:
"...there was really nothing I had to do as a director- he would take care of
everything. I don't remember the specific date of this, but that was when Metal
Bridge was first formed. He told me I was just a name, to get the company
registered. He didn't tell me I would need to sign anything at all, he said he
would take care of everything.
In the end, I signed a lot of bits of paper, but don't ask me what they were. I never
got to see what they were. Derek Fradgley would hand things across to sign and you
just signed them and gathered them up and put them in his briefcase and you never
saw them again. He never left a copy of anything....."
He could not recall Euan being asked to be a director, but Derek Fradgley treated him and
Euan the same and they were both asked to sign bits of paper. He remembers being told
by Derek Fradgley at a meeting that Euan would cease to be a director the next month.
James Lindsay explained that Derek Fradgley had made it clear that they weren't to handle
any money or sign any cheques from First Milk, as Derek Fradgley was in sole charge of all
of that. It was arranged for the milk cheques from First Milk to be paid directly to Outlook.
These were paid monthly in arrears, but ranged between £40,000 and £60,000 a month.
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[115]
In relation to his signature in finance agreements 1596 to 1598, and 1619, this looked
like his signature but he did not know what he was signing. Derek Fradgley never
explained anything. He just said "I need you to sign this, and this". James Lindsay did not
ask what they were. He did not worry because he trusted Derek Fradgley. In relation to his
signature on the annual accounts for MBL for the year 2008 to 2009, it could be his signature,
but "it would be a bad signature of mine". He had never seen the annual accounts before.
He did not recall ever being asked to sign accounts or being sent anything in the post by
accountants. These might have been one of the documents he was just asked to sign.
[116]
He explained that he did not know what an indemnity was. Derek Fradgley never
explained the nature of any of the documents that he and Euan were asked to sign.
Derek Fradgley had never used the words "guarantee" or "indemnity". He explained that
Euan was more inquisitive than he was and if Derek Fradgley had mentioned either of these
words, Euan would have wanted to know what they were. Derek Fradgley never
sent anything by post, nor did he ever hand-deliver any documents. As soon as he got
documents signed, he would pack these back up his briefcase and would leave immediately.
He had got what he came for.
[117]
In respect of the monthly board minutes, he said at the first few meetings everything
was rosy. He attended all the meetings, but Derek Fradgley did all the talking. They never
went over the minutes of the last meeting. At the beginning, Derek Fradgley suggested that
all was going well: there was still £170,000 of Euan's £200,000 in the bank account and
the milk cheques were coming in. After he returned from a holiday, however, it was all
changed and the business was suddenly "going down the pan". James queried where all of
the money went, but Derek Fradgley just told him it had been spent. All the meetings after
that were how bad the company was doing and the need to sell up.
69
[118]
As for the conduct of the board meetings, James explained that "you couldn't
disagree with Derek Fradgley". He would shut you down. "Everything was to be done his
way, and that was that". He explained that Euan got fed up. At times he would tell him, "I
can't go through and talk to that man".
[119]
James Lindsay never took any legal advice about any document he signed. As he
explained:
"It was definitely never suggested to me by Fradgley. In fact, Derek Fradgley never
appreciated anyone saying they needed to take legal advice, h e always had an
excuse. `Haven't time because funders have to have these back' was one I
remember."
He was aware that Euan had taken legal advice at one point. This was to do with
the £200,000 loan at the beginning. The security over Harperfield was to be no more
than £200,000. He described Euan getting angry when Derek Fradgley wanted it to be
against the whole of Harperfield. He knew that Euan said no to that, as he did when
Derek Fradgley asked for a further £200,000.
[120]
James Lindsay was the only witness who could speak to the meeting between Euan
and Derek Fradgley at which he presented the Settlement Calculation and represented that
the sum of £2.6 million was owed by Euan. He described how the circumstances in which
that meeting took place:
"I remember one day that Fradgley came to the house [at Halltown] to see Euan very
well. I don't remember the date, but it was near the end of Metal Bridge Ltd. It was
a nice sunny day, I think it was maybe late summer. That day, I was in the kitchen
and I looked out the window and saw Fradgley's car drive in. It was about 3 pm, or
maybe a bit later, 3:30 pm or 4 pm. I shouted through to Euan that Fradgley had just
turned up. Euan shouted something back like `what the hell is he wanting?'.
Fradgley usually came once a month for Board Meetings, but this was completely
unplanned and unexpected. He was also usually always at the house early in the
morning, around 9 am, so it was very unusual for him to turn up like that at this
time. It was a long drive from his office to our house maybe three hours. I also think
he charged the business £360 every time he made a visit to us. He said `is Euan
there?' and I said, 'He's through in the room'. Fradgley went through to the room
70
with Euan and I carried on doing what I was doing in the kitchen. I heard Fradgley's
voice getting louder and louder, so I thought I'd better go through. Euan said `I
never knew we owed all of this' Fradgley said `You are going to have to sign it
Euan, or the bank will make you bankrupt'. I was really worried, because the
atmosphere was awful and completely alien. Fradgley was being downright nasty
I said `he can't sign that without getting advice' That made Fradgley explode even
worse. He said `He hasn't got time, they'll make him bankrupt in two or three
days!'. Euan was saying `All it should be is £200,000!'. Fradgley said something
like `This is the way things turn out'. He was dogmatic about it. The thought of
bankruptcy frightened Euan to death. It was a dirty word to Euan, something
shameful. He had seen family members made bankrupt. He didn't want to lose
the family business. I found out later that Fradgley told him he owed something
like £2.6 million, but could discount it to £1.6 million, and that he wanted the
security of Harerfield for it, but I didn't hear him say the amounts to Euan myself.
....Fradgley was very unpleasant, it was the worst I have ever seen him. He was hell
bent on getting Euan to sign, and he got his signature. I was standing back and
didn't see what was actually signed. Fradgley then just turned and left, he didn't
even say goodbye. Euan was very, very upset. Not angry, but upset. That night,
Euan couldn't eat, and he kept repeating over and over to Helen my wife that he
had no idea he owed that amount. He was in shock. He was absolutely ill for a
while after that. I'd say that was the start of the end, in terms of Euan's health."
(Emphasis added.)
[121]
In his statement, James Lindsay noted one document from Outlook's papers that had
really annoyed him. He returned to this in his parole evidence. It was a purported minute
of a General Meeting said to have been held in 24 June 2008 at Outlook's premises in
Stourport. The minute, which concerned an amendment to the Memorandum and Articles
of MBL, recorded James Lindsay and Euan Lindsay as being "present". He described this as
"totally fiction! Neither Euan nor I ever went to Fradgley's offices".
[122]
In cross-examination, it was put to James Lindsay that if Euan had said `no' to the
second demand for £200,000 then Euan was able to "stand up" for himself. James Lindsay
said Euan could work out what Derek Fradgley was up to. In relation to signing documents,
he was pressed that he could have taken the time to read them, and that where the word
`indemnity was used it was prominent. James Lindsay was adamant that Derek Fradgley
did not permit this. The documents to be signed always came at the end of a meeting, when
71
Derek Fradgley was ready to go. Derek Fradgley would just say, "here, you need to sign
this" and that was that. James Lindsay illustrated the way that Derek Fradgley would
present a document across the table, obscuring the text or the nature of the deed to be signed
with his forearm, apart from the place where a signature was required. James Lindsay
rejected the proposition that he had "chosen" not to read the documents Derek Fradgley
asked him to sign. James Lindsay was adamant: he never got the chance; the piece of paper
would come over to him and he would sign. This was against a background where
Derek Fradgley had said at the beginning that James Lindsay would not need to sign
anything, not a single thing. James Lindsay explained that Derek Fradgley had a very good
way of doing it. Derek Fradgley would be sat at the far end of the table. He handed over
the paper so he could only see the bottom half of the paper. He demonstrated this in his
parole evidence, showing how Derek Fradgley's arm would be positioned over the
document to achieve this. The top half of the page was hidden. That was how
Derek Fradgley did it every time. That was how he always conducted business.
Mr McIlvride put the terms of several documents to him (eg some of the agreements), to
suggest that certain things stated were "obvious", but James Lindsay said Derek Fradgley
never gave him a chance to read it. He rejected the proposition that James Lindsay could
have taken time to read the document; that was not how Derek Fradgley conducted the
meetings. Things to be signed were always sprung at the end and then Derek Fradgley was
away. This was how James Lindsay signed all of the documents Derek Fradgley placed
before him. He had never seen the terms of any of these. When pressed to accept that he
had "chosen" not to read the documents, the witness' evidence became firmer: not once did
Derek Fradgley ever explain what James was asked to sign. Derek Fradgley would rant, and
72
say "sign that" and then he would take all of the documents away. No one was given time
to read anything. Derek Fradgley "didn't like you to cross him on anything".
[123]
In respect of Derek Fradgley's visit to Halltown on the afternoon when he met just
with Euan, this meeting was completely unplanned. He adhered to his description of the
meeting (quoted above, at para [120]). He acknowledged that he had not heard the specific
figures mentioned. He could not say what the piece of paper was that Derek Fradgley got
Euan to sign. Once Derek Fradgley had that, he just turned on his heels and went out of the
house. It was a fair comment to describe Derek Fradgley as "nasty" that day.
[124]
James Lindsay rejected the proposition that he had got together with other members
of the Lindsay family to concoct a story about Derek Fradgley, to paint him as a terrible
individual. James Lindsay denied this. He had described Derek Fradgley as he had come
across to James Lindsay. James Lindsay's signature at the foot of the minute of the general
meeting in Stourport was put to him. James Lindsay`s evidence was that this was a pure
forgery.
[125]
In re-examination, James Lindsay confirmed that Derek Fradgley always kept hold
of the document being signed. Derek Fradgley had used the same method of securing
signatures from Rodger Lindsay and Euan.
[126]
James Lindsay confirmed that he left school when he was 14 or 15. He was able to
read, but he could not write. Euan had left school at about the same age.
The defender's factual witnesses
Paul Philips
[127]
Mr Philips is one of two current directors of the defender. He was appointed in 2017,
the same year in which his father in law, Derek Fradgley, fell ill and died. He only really
73
become involved in the defender's business after Derek Fradgley's death (which was in
July 2017). While he stated that he "knew about the business" of Outlook from
Derek Fradgley, this was only in the most general sense. Derek Fradgley had worked for 30
years with a firm called General Guarantee, before branching out on his own and setting up
Outlook. It specialised in sub-prime asset-based lending. To the extent he had any
awareness of the Lindsays as customers of Outlook, again this was only in the most general
sense, gleaned from casual conversations with Derek Fradgley on family occasions.
[128]
He understood from Derek Fradgley that Rodger Lindsay was the Lindsay family's
spokesman and "man of business". Derek Fradgley might have met other members of the
Lindsay family, but he invariably met with Rodger Lindsay. He accepted that the
allegations now made by the Lindsays in these proceedings had been made before, during
Derek Fradgley's lifetime (in the English proceedings), and when he had a chance to
respond to them and defend his reputation.
[129]
He referred to Derek Fradgley and Rodger Lindsay having meetings about the
"failure of MBL" and whether there was a way for the Lindsays to continue farming at Metal
Bridge Farm. He stated that Rodger Lindsay had proposed that:
"Euan Lindsay settled the debts of MBL by raising finance using Harperfield as
security. Derek understood from Rodger that this had been discussed by the family
and that Euan Lindsay had agreed to it".
He stated that he was aware from Derek Fradgley at the time of these events, because it was
a big deal for Derek Fradgley to go up to Scotland. Derek Fradgley was going up to discuss
more funding proposals and the property that Euan Lindsay owned (ie Harperfield). He
was not aware of any meetings between Derek Fradgley and Euan Lindsay other than that
Derek Fradgley had mentioned that Euan Lindsay was on oxygen and had farmer's lung,
when Derek Fradgley "had a meeting with the whole family "- or what he (Mr Philips)
74
presumed to have been the whole family. He had never witnessed any meeting between
Euan Lindsay and Derek Fradgley or between Rodger Lindsay and Derek Fradgley. Nor
had he been present to see how Derek Fradgley got the Lindsays to sign documents. He had
no knowledge of anything that Derek Fradgley might have said in conversation with any of
the Lindsays.
[130]
He was challenged on the following statements in his witness statement:
1)
He stated that he had "spent a great deal of time looking over [Outlook's]
books and records" and that Outlook "did not have any other problem
customers". However, in his parole evidence he immediately had to qualify
this, acknowledging that other customers of Outlook were in default; it was the
fact of the litigations with the Lindsays that made them "problem" clients.
2)
He asserted that Derek Fradgley had provided a "huge amount of support" to
the Lindsay businesses, but that these never generated the income they hoped
for. He was pressed to explain what "books and records" he had reviewed.
The only records he could confirm having actually reviewed were bank
statements. He had not seen any documentation about the income of the
Lindsay businesses. When pressed further, he said his references were from
the English proceedings. He could not actually give any evidence about
Outlook. His statement was just a "generalisation" based on what
Derek Fradgley might have mentioned. He maintained that he "must have"
seen documents, but he could not say what documents he had seen.
3)
In terms of his statement about the MBL's lack of profitability, he accepted that
he was wholly reliant on MBL's board minutes for that information. He had
not interrogated these or checked them to test if they were true or accurate. He
75
was challenged as to the basis for his statement that, from "payment records"
relating to Outlook, "very few of the monthly rentals were ever paid". He
accepted that the only records he had seen were spreadsheets of default
payments and an overall summary of the agreements Derek Fradgley had
prepared for the English proceedings.
4)
He was also challenged on his statement that Euan Lindsay "was involved in
the day to day running" of MBL. He accepted that that was the sole basis for
his statement was Derek Fradgley sending faxes and that Euan Lindsay liked to
fax documents. He could not contradict other evidence to the effect that
Euan Lindsay did not have day to day involvement in MBL. When he stated
that Derek Fradgley "was satisfied Euan understood what he was getting into",
he accepted that Derek Fradgley had not stated this to him. It was "probably a
surmise" on his part. He was pressed as to whether Derek Fradgley had said
this to him. He could not say, he just presumed so. It was quite a long time
ago. Derek Fradgley never said Euan Lindsay was incapacitated. Mr Phillips
assumed that Euan Lindsay was capable, because Derek Fradgley had never
mentioned otherwise. He himself had never met with Euan Lindsay.
5)
In respect of his statement that he knew from Outlook's records that
Derek Fradgley "met with Euan Lindsay on or around 26 August 2009", in
his parole evidence he "presumed" that this was one of the board minutes. He
had no direct knowledge of this. He knew Derek Fradgley was going up to
Scotland for a further meeting; that Derek Fradgley had meet with
Euan Lindsay and that he then carried on with Rodger to look at the lan d and
buildings at Harperfield.
76
[131]
He accepted that he could not explain Outlook's lending to the Lindsays. He had
been made a director of Outlook specifically to deal with the solicitors and the ongoing
litigation. The Settlement Calculation was put to him but he was unable to explain what this
showed or how the sums were set out. He did not "personally" know if the figures or sums
were correct. He could not vouch its accuracy in any way. His preparation for giving
evidence had amounted to reading a folder relating to the English proceedings. He could
not assist with any question about MBL's accounts for 2008 to 2009. He had never seen
them. He could not comment on the financial regulations governing the business of
Outlook. He did not work in the finance business and did not know how it worked.
David Lingard
[132]
David Lingard, a director of the firm of Leonards for many years, was the Scottish
Solicitor who acted on behalf of Outlook in respect of Euan's grant of the first standard
security in September 2008, and the impugned standard security for all sums in
October 2009. He was called as a witness to fact to speak to those transactions. He had
produced each transaction file (included in the Joint Bundle). He candidly accepted that he
had no present recall of matters recorded in his file notes. In respect of the first standard
security, he opened a file for this matter on 29 July 2008; received the title deeds from
Gebbie & Wilson under their letter of 5 August 2008; and produced a draft for "all sums".
This was not progressed but a second draft, restricting the security to £275,000 was
ultimately produced and signed by Euan on 24 October 2008. He was instructed on behalf
of Outlook in September 2009 in respect of the impugned standard security. A new all-sums
security was required because the first standard security had been restricted in amount .
Mr McIlvride sought to explore with Mr Lingard what was meant by the comment in his file
77
note dated 30 September 2008 that "[Euan Lindsay] was apparently a working director in
the business". Mr Lingard had no recall or direct knowledge, he presumed he had been told
this and that Euan was physically involved in the business.
[133]
In cross-examination, Mr Thomson drew out the following points:
1)
That the first file note relating to Mr Lingard's involvement in the preparation
of the impugned standard security was on 7 September 2009;
2)
That he spoke with Euan Lindsay's Scottish solicitor, Mr Patterson, on
22 September, the file note for which records that he [Mr Lingard] "gave him
an outline of the transaction";
3)
That there were a number of versions for the loan offer (the earliest he had on
his file was one from 2 September 2009), but Euan Lindsay had signed the offer
on 4 September 2009; in other words about 2 weeks before this was emailed to
Mr Lingard (on 22 September 2009) and before Mr Lingard was outlined
matters to Euan Lindsay's solicitor, Gebbie & Wilson, on 22 or 23 September
2009); and
4)
That what Mr Lindsay was doing was advising Outlook on the grant of the
impugned standard security, which was the same task in which Mr Patterson
was engaged.
[134]
There was one passage in Mr Lingard's affidavit that Mr Thomson explored with
him in detail. This was Mr Lingard's comment that he had presumed Mr Patterson "had
discussed the proposed facilities" with Euan Lindsay. This came at the end of the following
paragraph:
"15. I received an email chain from Talbots on 24 September 2009 which included
draft facility letters. I prepared a draft standard security and discharge of
the 2008 Security, which I emailed to Gebbie & Wilson the same day along with
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a copy of the draft facility letter in relation to the loan to be secured over
Harperfield Farm (page 763 of the joint bundle). I note that I had received on
24 September 2009 a letter from Gebbie & Wilson dated 23 September 2009
(page 750 of the joint bundle) confirming they had been instructed by
Mr Lindsay to proceed with the re-financing package. I would take from that
Mr Paterson had discussed the proposed facilities with his client. It would be
very surprising if he hadn't."
Mr Thomson pressed him: Having accepted that Mr Patterson had been engaged in the
same task as Mr Lingard, which was simply advising their respective clients on the standard
security, how could he presume that Mr Patterson did more? Mr Lingard provided a long
answer in which he explained his practice when acting for a borrower granting a security
over property, which was to ask to see the terms of the loan, as part of the commercial loan
package. He accepted that he was not privy to any discussion between Euan Lindsay and
Mr Patterson. But he volunteered that it was good practice when acting for a borrower to
ask to see the loan to look at the rate of interest, any early repayment provision or penalties
and the like. Mr Thomson queried how this could operate where, as here, Euan Lindsay had
already signed the loan agreement associated with the impugned standard security.
Mr Lindsay maintained that it was good professional practice to do this. He accepted that
the scope of the duty was confined to looking at things like interests rates and so on. In
re-examination he confirmed that he had done a number of transactions with Mr Patterson
over the years and regarded him as a good solicitor.
Mark Hodgson
[135]
He was the English solicitor who acted for Outlook in respect of the legal charge
granted over Metal Bridge Farm. He no longer had access to the files. He confirmed the
communications he had had with Mr Lingard and the terms of the offer. The proposal was
for Euan Lindsay to buy the farm, cattle and machinery at Metal Bridge Farm, to be funded
79
by a loan from Outlook for £1.8 million. Metal Bridge Farm was to be purchased
for £465,000. There was no cross-examination of Mr Hodgson.
Comment on credibility and reliability of the fact witnesses, and on the Outlook
documentation
[136]
Before considering the opinion evidence, it is convenient to comment on the
credibility and reliability of the factual witnesses. Mr McIlvride challenged the credibility
and reliability of the Lindsays who gave evidence, particularly Rodger Lindsay. He went
so far as to suggest that the three Lindsays had colluded to concoct a story about
Derek Fradgley and to cast him in the worst light. In submissions, Mr McIlvride invited me
to disregard their evidence. Mr Thomson's position was that little of the evidence given by
the Outlook's fact witnesses was relevant.
The credibility and reliability of the pursuer's witnesses to fact
Rodger Lindsay
[137]
I have already noted that Rodger Lindsay was recalled on the opposed motion of
the defender. This purpose of recalling Rodger Lindsay was to challenge his statement that
he knew nothing about limited companies, and to cross-examine him under reference to
documents from First Milk coinciding with his involvement in it. Dealing first with the
matter of First Milk, Mr McIlvride submitted that Rodger Lindsay's account was partial and
misleading. I reject that submission. First, I accept Rodger Lindsay's explanation that he
had mentioned First Milk in his draft affidavit but that this had been excised by his legal
representation as not relevant. In his parole evidence, Rodger Lindsay made repeated
references to First Milk. It is clear, in the light of his recalled evidence, that when he had
80
referred to the experience he had of sitting on the committees, and which he had contrasted
with Derek Fradgley's conduct of MBL's meetings, this was to First Milk, even if not then by
name (see [61], above). When recalled, Rodger Lindsay himself referred back to that earlier
passage of evidence. Further, Rodger Lindsay was correct in his understanding that First
Milk is not a company. It is a form of mutual society or co-operative. There is no
inconsistency or concealment in the statement Mr McIlvride sought to challenge. Moreover,
his role was as a "farmer director". I accept his evidence that this was, in effect, very much a
watching brief on behalf of the farmers - in his words, he was their "eyes and ears" on the
board. This non-executive role was contrasted with the executive directors (a distinction
that is maintained in the records of First Milk), whom Rodger Lindsay described as very
experienced and supported by professionals. Mr McIlvride's submission ignored that
distinction. Having regard to these distinct roles, it is meaningless to refer to First Milk's
turnover to present Rodger Lindsay as a captain of industry whose efforts had generated
that turnover. Mr McIlvride sought to make something of the fact that Rodger Lindsay sat
on the audit committee. However, Rodger Lindsay explained that each committee had a
farmer director appointed to it. He was diffident in that role and relied on the executive
directors and the professionals. In other evidence, Rodger Lindsay had made it clear that for
his own businesses, he had always instructed professionals to do the accounts. In his words,
"he was a farmer, not an accountant". On accountancy matters he deferred to the
professionals.
[138]
Mr McIlvride sought to make something of the difference in the figures for
remuneration Rodger Lindsay had mentioned in his recall witness statement, and that
noted in the First Milk documentation. The figure that Rodger Lindsay mentioned in his
recall statement, which was a few £1000s, related to his initial role at local level.
81
Rodger Lindsay pointed out that he had volunteered this information in his recall statement
and could have omitted it. He had not been asked about remuneration. Nor do I accept that
there was any concealment or downplaying by Rodger Lindsay of his role in First Milk. The
First Milk accounts disclose remuneration as a farm director £35,000. I accept
Rodger Lindsay's explanation that he had forgotten this. He was being questioned in
respect of matters that were 12 or more years ago. More importantly, the ground of recall
and challenge was to his experience as a director, not his level of remuneration. The overall
impact of the evidence Rodger Lindsay gave when recalled reinforced his credibility.
[139]
Mr McIlvride went further and submitted that the presentation of the Lindsays as
"financial ingenues (sic) was a clear fabrication to mislead the court for the purpose
of creating the impression that he and other members of the Lindsay family were
easily deceived and exploited by a devious and sophisticated banker".
This is a serious charge. To the extent that this was directed against Rodger Lindsay's
evidence, I have dealt with, and rejected, the principal basis for the defender's challenge that
Rodger Lindsay sought to mislead the Court. While Paul Philips said that Derek Fradgley
regarded him as the Lindsay's man of business, on Rodger Lindsay's evidence he was not
confident with understanding or organising financial data. Mr McIlvride's submission also
fails to take into account unchallenged evidence about the other members of the Lindsay
family. On James Lindsay's own evidence he had left school at 14 able to read, but not able
to write. He had been a farm labourer most of his working life. His brother Euan had left
school when he was about the same age. On William Lindsay's evidence, Euan Lindsay did
not take any role in the management of the business carried on at Harperfield. This was left
to Ronald and, after his death, taken over by William. Indeed, Euan Lindsay needed help
with the most basic exercise of securing a new chequebook from the bank after Ronald's
death. While Euan Lindsay's financial nous or lack of it is a central issue, given the charge of
82
collusion, it is pertinent to note other evidence of financial naivety among the Lindsays. The
first is their own lack of understanding that James Lindsay's status as a director would have
entitled him to get copies of MBL's bank statements, a step that was only taken long after the
disputed events. The second is their lack of any understanding as to what an indemnity was
or what kind of liability it might expose them to. This is entirely consistent with the ethos of
the older generation of Lindsays, especially Ronald and Euan, of not carrying any debt:
"you had to earn the pound before you spent it"; and which was put into practice in that
Harperfield was unencumbered (another word the Lindsays came to know only as a
consequence of the litigations). Rodger Lindsay's evidence was also consistent with this and
the way he had run the Lindsay businesses explains his lack of familiarity with the concept
of indemnity or of standing guarantor. He spoke of having a bank overdraft for the Lindsay
businesses. He was never asked for an indemnity. In commercial terms that is explicable
because, as a partner in a partnership, he was already (in his words) "on the line". The
Lindsays' lack of sophistication in financial matters is also reflected in the fact that
Euan Lindsay did not take legal advice and that the Lindsay's were quiescent in the face of
Derek Fradgley's exclusive control over the books, records and business of MBL.
[140]
Rodger Lindsay gave evidence for 2 days, the majority of which was under
cross-examination, and he was recalled to give further evidence specifically to challenge
the veracity of some of his evidence. Throughout his evidence, he presented as
straightforward, sincere and honest. While his business activities were beset with
misfortune, in the form of foot and mouth, TB, errors with DEFRA, as well as the labelling
errors that resulted in the AI litigation, he conducted himself with considerable fortitude in
the face of those many challenges. He had to revisit some of these events in his evidence. It
was apparent that at times he found the experience of giving evidence difficult. He
83
nonetheless did not flinch or minimise chapters of evidence that might have cast him in a
bad light (eg the bankruptcies or the episode where Derek Fradgley humiliated him in front
of a supplier). In the course of cross-examination when he was recalled, he strove to be
courteous even under the extreme provocation of the nature of the questions and their
imputation on his character and truthfulness. It is not surprising that, given the passage of
time, he was not always certain in his recollection of dates. When he was not sure, he said
so. What he said about remembering the sequence of events rings true. His narrative of the
sequence was consistent in his affidavit and parole evidence. It is also consistent with such
documentation as exists. I have no hesitation in accepting him as a fundamentally honest
and credible witness, and reliable in the essentials of his evidence. I reject the submission
that he committed perjury, which had been the basis for his recall.
William Lindsay
[141]
William Lindsay, whose evidence was in short compass, gave his evidence in a
straightforward and unvarnished manner. He did not endeavour to speak to matters
outwith his knowledge. He spoke simply about matters he had observed. I do not accept
that there is any foundation for the defender's submission to accord his evidence little
weight.
James Lindsay
[142]
James Lindsay also presented as an honest and plain-speaking witness. In particular,
his account of Derek Fradgley's unexpected visit on 26 August 2009 to see Euan Lindsay at
Halltown is vivid in its details in a way that is eloquent of it being a strong memory. He
could not recall the date, but knew it was in late summer, on a sunny day, and that
84
Derek Fradgley's arrival was out of the ordinary in the ways he described (just turning up
and at an odd time of day). The fact that he described himself as going back to what he was
doing in the kitchen - taking him out of the room of the very meeting so critical to the
pursuer's case, where Euan Lindsay and Derek Fradgley were speaking, and only returning
when he heard raised voices - has the absolute ring of truth. All he could speak to, and
all he endeavoured to speak to, was the manner of Derek Fradgley's departure, what
Euan Lindsay told him in the immediate aftermath, and the effect all of this had on
Euan Lindsay. He readily acknowledged that he did not know what the piece of paper was
that Euan Lindsay said he had signed. That kind of loose end is consistent with someone
telling the messy truth, rather than a tidy lie. I have no hesitation in accepting his evidence
as credible and reliable in its essentials.
Paul Philips
[143]
Mr Philips's evidence was troubling. While he blandly stated in his statement that
he had reviewed all of Outlook's books and records, it quickly became apparent that he had
done no such thing. Time and again, as I have recorded above, when he was interrogated as
to the basis of a categoric statement in his affidavit, it was revealed to be manifestly without
any basis or, at most, was no more than an impression garnered from his father-in-law years
before and of which he had no direct knowledge. There is an air of improbability in his
being able to recall the specific details he said he did from a casual conversation years before
and long before the litigations made the Lindsays "problem" clients. He was neither candid
nor credible. Notwithstanding his appointment as a director of Outlook in 2017, he did not
have even a nodding acquaintance with basic matters, such as MBL's annual accounts for
the critical year of 2008 to 2009, or the kind of authorisation Outlook had had from financial
85
regulators. He sought to explain his inability to answer questions as being made a director,
just to deal with the litigations. Nonetheless, he made assertions in categorical unqualified
terms in his witness statement, but which he was compelled to retract in his parole evidence.
Given those features of his evidence, and the guardedness of some of his answers, he did not
present as a witness trying to do his best to assist the court, even in respect of the
documentation which is so critical to the Outlook's case. He had scant relevant evidence to
give. In any event, I find his evidence to be wholly unreliable and I place no weight on it.
[144]
Equally troubling is the narrative he provided to Outlook's senior counsel in support
of the recall of Rodger Lindsay. His discovery of Rodger Lindsay's involvement was all said
to have come to light as he reviewed the notes of evidence, especially of the cross-
examination of Derek Fradgley, in the Manchester proceedings, the night before he was due
to give his own evidence in this case. Mr Thomson's observation was that it was indeed
very odd that a propos of nothing Mr Philips volunteered that Rodger Lindsay was a director
of First Milk. Given that the pursuer's witness statements have been available several
months before the proof, that the papers are full of references to First Milk and that Rodger
Lindsay never sought to hide his involvement with First Milk (which was known to Derek
Fradgley), and that Mr Philip has been a director of Outlook since 2017 with specific
responsibility for the conduct of the litigations, his explanation borders on the disingenuous.
David Lingard and Mark Hodgson
[145]
Most of Mr Lingard's evidence was formal, speaking to some of the exchanges which
preceded the production of the first standard security and the impugned standard security.
In respect of the statement recorded in his file note, that Euan Lindsay was a "working
director", Mr Lingard readily acknowledged that he had no present recall of what was
86
stated and could only presume that he had been told this. Mr Hodgon's evidence was
confined in scope and had little relevance to the issues in these cases.
Comment on the veracity of the documentation and what may be inferred about
Derek Fradgley
[146]
For the reasons already explained, the defender in this case is critically dependent
on the Outlook documentation. Some of that documentation gives cause for serious
concerns about its veracity or of Derek Fradgley's bona fides. The first of these concerns
arises from Derek Fradgley's repeated misrepresentations that there was a bank behind or
pressuring Outlook.
Derek Fradgley's repeated misrepresentations that there was a bank behind or funding Outlook
[147]
As noted at the outset, before his death Derek Fradgley had admitted that his
references to funders or "the bank" were untrue. (See paras [15] to [16], above.) The
documentation produced in this proof is replete with those misrepresentations. So, for
example, in a fax to Rodger Lindsay dated 17 April 2009, Derek Fradgley stated "I've just
had a very unsatisfactory meeting with the bank". In a further communication, dated 5 May
2009, to Rodger Lindsay and Euan Lindsay, Derek Fradgley was chasing up details of the
cattle. He wrote:
"We need to nail down these final queries, and perhaps it would h elp you to know
why they are being raised by the bank. Outlook, when it purchases stock, or enters
into a new agreement, has to borrow money. The bank lens [sic] us the money, but
have ownership of the assets, and so, when they see several animals are not
accounted for, they say to me, pay us back what you borrowed. Therefore, unless I
can tell the bank what has happened to the missing animals, they will expect to
repay me the loans." (Emphasis added.)
87
This misrepresentation that there was a bank was also used to exert control, even to bizarre
extremes - eg needing to hold the cattle passports, or precluding time to get legal advice
about the documents (because of the funders' imminent demands (eg as referred to by James
Lindsay, at para [119], above).
[148]
Mr Thomson's submission is well made that, contrary to this being used to take the
heat out of difficult conversations (the rationale provided in the Fradgley Witness
Statement), it was used in this case as an instrument of oppression. This was eloquently
spoken to by Rodger Lindsay in his evidence. It was an effective instrument of oppression,
because it led the Lindsays to believe that Outlook or Derek Fradgley had no leeway and
that Outlook was powerless in the face of a third party bank pressing it for repayment. This
was particularly so when used as a threat, that the bank was about to force a sale of Metal
Bridge Farm and its cattle and equipment. That threat was made, and repeated, at the
critical points to enable Derek Fradgle to secure an advantage for himself or Outlook, in the
form of the first standard security in June 2008 and, at the Little Chef meeting on 23 August
2009 (see para [66], above) and the meeting between Euan Lindsay and Derek Fradgley on
26 August 2009 (see James' Lindsay's evidence at para [120], above) in the period leading up
to the grant of the impugned deeds.
Untrue statements and other false matters disclosed in the Outlook documentation
[149]
I note other troubling matters disclosed in the Outlook documentation:
1)
There is the statement that Euan Lindsay and James Lindsay had attended a
general meeting in Stourport for the purposes of an MBL general meeting. I
accept James Lindsay's evidence that neither he nor Euan Lindsay ever
attended Outlook's premises, the location of the purported general meeting. I
88
also accept his evidence that his signature (and by implication, Euan's) was
forged. This is very troubling, all the more so that it seems to have been don e
so casually and simply for the sake of a minute of a general meeting.
2)
There are the references in MBL's board minutes to many matters that, on other
evidence I have accepted, are patently untrue: that James Lindsay would be in
a position to produce budget reports or forecasts, that Euan Lindsay was
undertaking stock checks or auditing the stems, or that Euan Lindsay was
preparing budgets and was proposing the formation of yet another company in
August or September 2009. On William Lindsay's evidence of Euan's lack of
experience in financial matters, which I accept, the statements that Euan
prepared accounts, budgets or forecasts as recorded in the minutes; and also
asserted in the `by hand' termination notice addressed to Euan and the
Outlook Letter (see the text emphasised in paras [72] and [94], respectively,
above), are false. All of these entries were contrived to give an impression
which did not accord with the reality, and to protect Derek Fradgley's interests
- if his dealings ever came under scrutiny;
3)
I accept the Lindsays' evidence that some Outlook documents produced in
these proceedings were not produced to them on the dates those documents
bore. Two examples of that are the purported termination notices of June 2008
and the `by hand' termination notices dated 25 August 2009. All of these
purported to demand the return of machinery and cattle. Given the Lindsays'
strong desire to keep the dairy operations at Metal Bridge Farm intact, I accept
Rodger Lindsay's evidence that had those been received on the dates they bore,
there would have been an explosive reaction on the part of the Lindsays.
89
Further, those documents are fundamentally inconsistent with other evidence,
namely, of the continuity of Outlook's involvement with the Lindsays (even if
using the vehicle of MBL). Moreover, there are internal inconsistencies
between the asserted date of termination (of 23 August) in the `by hand'
termination notices (dated 25 August 2009), and the date (of 28 August 2009)
stated in the Outlook Letter of 4 September 2009. These documents do not tie
up with other evidence I have accepted. If Outlook really had terminated the
agreements with the Lindsay business on 23 August 2009, why didn't Derek
Fradgley advise Rodger Lindsay of this at their meeting at the Little Chef
meeting on that same date? Outlook did not attempt to address questions like
these to which the documentation gave rise.
4)
More significant than the individual untrue or misleading entries in the
Minutes was their cumulative effect amounting to an elaborate contrivance to
give the appearance that the Lindsays were in control of MBL, and that
Derek Fradgley was at arms' length - when the reverse was true. Added to this
is the effect of Derek Fradgley having sole control over (and no possible
scrutiny by the Lindsays of) the bank statements, and his keeping them in the
dark on other financial matters such as invoices. All of these were defensive
measures adopted in the event of external scrutiny, and calculated to give a
wholly false impression of Derek Fradgley being remote from MBL's affairs.
They also served to mask instances where Derek Fradgley preferred his own
(or Outlook's) interests to those of the Lindsays'.
90
Other steps Derek Fradgley took to avoid external scrutiny
[150]
The documentation contains other instances of irregular steps Derek Fradgley took to
protect his dealings with the Lindsays and with MBL from external scrutiny. These include
the removal of all of the agreements then in the hands of the Lindsays on the eve of their
bankruptcies, and the production of a second agreement for the Pottinger, and the inclusion
of additional movables covered in that agreement but without providing any fresh advance.
(The latter is redolent of the kind of conduct creditors engage in when their debtor is verging
on insolvency (as the Lindsays were in May and June 2008) and which may amount to an
unfair preference.) A further instance is found in MBL's first set of accounts, which the
Lindsays did not see at the time. These record that MBL's accountants (based in nearby
Stourbridge) were directed to prepare only as unaudited accounts. On the evidence, it may
reasonably be inferred that Derek Fradgley gave that instruction. That meant that neither
the claimed administrative expenses of £79,441, nor the related party transactions (in note 6
to the accounts) between MBL and a company under the control of Derek Fradgley needed
to be vouched, as they would have had to have been, had the accounts had been audited.
Instances of financial irregularity or a failure to account or give full value to the Lindsa ys
[151]
In his evidence, Rodger Lindsay stated that Outlook failed to credit MBL's account
with the full advance of £200,000 at the start of its trading in July or August 2008. In
particular, Rodger Lindsay's evidence that the amount deposited was about £100,000 short
was not challenged and it is consistent with the relative bank statements. As will be seen,
the experts also found round-figure and "balancing figures" added to agreements, or there
were sums stated that simply could not be vouched from the Outlook documentation. There
91
were instances where they were unable to establish that a credit balance due to the Lindsays
was in fact ever paid or credited to them.
Derek Fradgley as a de facto director
[152]
It is here convenient to consider whether Derek Fradgley was a de facto director of
MBL applying the classic dicta from Secretary of State for Trade and Industry v Hollier
183A-C; Secretary of State for Trade and Industry v Tjolle [1998] 1 BCLC 333, 343-344. On the
evidence, MBL had complete and exclusive control over the financial affairs of MBL. Derek
Fradgley ensured that he, and he alone, had access to MBL's financial information, in the
form of its bank statements and invoices. These were directed to Outlook's own premises.
He selected its bankers and its accountants. He was the sole signatory on its bank account.
None of this evidence was challenged. There is also Rodger Lindsay's evidence that he, and
other family members, felt like employees of Derek Fradgley and that Derek Fradgley made
clear in no uncertain terms that Rodger Lindsay and Kerr Lindsay could not have anything
to do with the running of MBL. The inescapable conclusion from this evidence, is that Derek
Fradgley was a de facto director of MBL. That status gave rise to duties he owed to MBL and
which put him into a position of conflict of interest in respect of MBL's dealings with
Outlook.
[153]
However, there are other adminicles of evidence, in the form of statements Derek
Fradgley made in other documentation to third parties which reinforces the evidence that he
was the driver in setting up MBL for his own purposes and thereafter controlling its affairs.
The context, spoken to by Roger Lindsay, is the realisation after the Lindsays lost the AI
litigation that their bankruptcies would soon follow. This evidence, which was not
92
challenged, provides a specific motivation for Derek Fradgley's actings thereafter, and his
rush to incorporate MBL in late June 2008 and to create new agreements a few days later as
the means to transfer the Lindsay's personal indebtedness and obligations to it. In doing so,
Outlook would not have to pursue any claims in the Lindsays' bankruptcy proceedings or
incur any loss arising from the shortfall in the asset cover for the Lindsays' indebtedness. By
that means, too, Outlook could avoid scrutiny of any documentation it would have had to
produce to vouch its claims. Furthermore, the issue of whether Outlook had obtained an
unfair preference for itself (eg, in relation to adding new items to an existing finance
agreement, as described by Rodger Lindsay) or otherwise fell foul of any other rules by
which transactions with a debtor shortly before his insolvency may be struck down (eg such
as unfair preferences or substituting of different terms), would not be subject to scrutiny by
any third party.
[154]
That this was a concern to Derek Fradgley may be inferred from a lengthy email he
wrote to his adviser (Butcher Wood), on 15 February 2009, seeking advice following the
receipt of correspondence from Dodds, the firm overseeing the Lindsays' bankruptcies.
Derek Fradgley opened the email in the following terms:
"Dear Rod, I would appreciate your professional opinion in respect of developments
prior to and following the bankruptcies of Rodger and Kerr Lindsay. I am concerned
that I (Metal Bridge Limited) have received the attached letter from Dodd and Co
following the provision of information that they requested." (Emphasis added.)
Derek Fradgley then set out the background. After referring to the AI litigation (and
another court case against the Lindsays), the bankruptcies of Rodger Lindsay and
Kerr Lindsay, and the impending bankruptcy of Helen Lindsay, he described the situation
as at 1 July 2008 from Outlook's perspective.
93
"3. At the end of June 2008 I formed metal bridge Limited and appointed Rodger's
father, James as a director with me a Co. Sec. James' brother Euan was also a
director for a short period, but is no longer.
4. On 1
st
July 2008, all of the lease and mortgage agreements were in arrears and we
Outlook Finance Ltd) [sic] terminated them in accordance with the contracts. On the
same date we agreed to enter into new lease agreements with Metal Bridge Limited
on identical terms in respect of the entire herd of cattle and the entire stock of
machinery that was the subject of the terminated agreements with the Lindsays.
5. The mortgage agreement between the Lindsays and Outlook in respect of the
dairy unit was terminated, but the premises have not been transferred to MBL..."
(Emphasis added.)
Derek Fradgley then detailed his response to Dodd's query that the sale of the str aws to
MBL had been at an undervalue, and might be a void disposition. (Dodd's concern arose
from the price of £0.75 per stem versus a market price of £1, and from the fact that the
invoice referred to 25,802 stems but more than 29,000 had been transferred.) Derek Fradgley
closed this passage, with the curious sentence "I feel I may have been a little too honest
there", the implication being, perhaps, that he was prepared to be less honest if this suited
the circumstances.
[155]
Derek Fradgley's email invites comment. First, as noted in the opening paragraph
(and repeated in the third paragraph), he was clearly equating himself with MBL, which
supports the position that he was a de facto director given that MBL was established at his
instance and the degree of control he exercised. Further, the statement (in numbered
paragraph 3) that the new agreements (ie the first MBL agreements) were "on identical
terms" is demonstrably untrue (not least, because of the inclusion of the first indemnities),
but this would have deflected any enquiry as to whether any new terms, if more onerous,
breached any rules against unfair preferences and the like that applied to dealings between
creditors and their debtors shortly before their insolvencies. The second untrue statement is
that Outlook terminated these agreements in June 2008. (Rodger Lindsay's unchallenged
evidence was that no termination notices were ever received.) Finally, as will be seen when
94
the Settlement Calculation is considered, Derek Fradgley's assertion that he had terminated
the mortgage agreement (agreement 1569 or the Lindsay Mortgage), is inconsistent with
Derek Fradgley's inclusion of it within the Settlement Calculation 7 months later.
[156]
The finding that Derek Fradgley was a de facto director of MBL is significant in two
respects. First, it placed him under certain duties to act in the best interests of MBL and not
to place himself in a position of conflict of interest. On the evidence, these duties owed as
they were to MBL- were breached. However, his status as a de facto director is not simply a
matter of technical company law. The greater significance of that finding is that, viewed in
the context of the whole evidence, it was one of the ways in which Derek Fradgley excluded
the Lindsays, and kept them from any position of actual power or authority in MBL.
Putting it another way, Derek Fradgley was the driver to form MBL and to have it assume
the Lindsay businesses' indebtedness to Outlook on the eve of their bankruptcies. This was
all to Outlook's benefit. It would limit Outlook's financial exposure, while acquiring
additional security (in the form of the first standard security) and it would avoid any
external scrutiny of the dealings between the Lindsay business and Outlook.
[157]
For the foregoing reasons, it is unsafe to place reliance on the Outlook
documentation. Where this a conflict between what is stated in an Outlook document (or
the date it bore or whether it was sent) and the evidence of the Lindsays', I prefer the
evidence of the Lindsays.
[158]
Having dealt with the witnesses to fact, I turn to consider the opinion evidence
parties elicited at the proof.
95
The opinion evidence
The experts and their reports
[159]
The pursuer instructed Paul Graham ("Mr Graham") of Henderson Loggie who
produced the Henderson Loggie Report. In undertaking his calculations to establish what
capital sum was due under the Settlement Calculation agreements he applied the Statement
of Standard Accounting Practice Accounting for leases and hire purchase contracts"
("SSAP 21"). The defender instructed Stuart Preston ("Mr Preston") of Grant Thornton. He
produced two reports: the first ("the first Grant Thornton Report") carried out essentially the
same exercise as Mr Graham did in the Henderson Loggie Report, including the SSAP 21
calculation. Mr Preston produced a second report in which he looked at the terms of th e
agreements, rather than undertake any SSAP 21 calculation ("the second Grant Thornton
Report").
The experts' focus on the Settlement Calculation
[160]
It is a matter of agreement that Derek Fradgley presented the Settlement Calculation
to Euan Lindsay at the critical meeting of 26 August 2009, as representing the total sum due
by Euan Lindsay in respect of MBL's indebtedness to Outlook. The Settlement Calculation
contained Derek Fradgley's calculation of the amounts due under the five agreements
contained in the Settlement Calculation, namely the first MBL agreements and the Lindsay
Mortgage. Accordingly, in order to assess whether there was any lesion to Euan Lindsay by
entering into the impugned deeds in the amounts they stated, one has to compare these to
the amounts due under the immediately preceding agreements (being the ones contained in
the Settlement Calculation), after making an allowance for the purchase of the MBL assets.
It is for that reason that, in this case, the purpose of the opinion evidence was to establish
96
whether the figures in the Settlement Calculation could be supported from Outlook's
papers. This was also reflected in parties' approach to the opinion evidence generally.
While the Henderson Loggie Report and the first Grant Thornton Report undertook detailed
analyses of each prior agreement, neither Senior Counsel sought to prove or challenge the
individual calculations for each agreement. Their cross-examination focused on the higher
level methodological differences in approach (outlined below) with some probing as this
applied to specific agreements.
The settlement calculation
[161]
The Settlement Calculation is reproduced below:
[162]
As the rows are unnumbered, I shall refer to the rows with the numbered agreements
as the first to fifth rows so, for example, the fourth row is to that detailing agreement 1569
97
and the sixth row is the one with totals under each of the headings, culminating in the
figure of £1,623,879 under the right-most heading.
Preliminary observations
No expert could support the figures in the Settlement Calculation
[163]
The Settlement Calculation contained Outlook's figures for five agreements, namely
the first MBL agreements and the Lindsay Mortgage. The several columns within the
Settlement Calculation contain totals (in row 6) under several headings, including
1)
The "Balance of Rentals" was stated as £2,662,812,
2)
The "Per Agreement Termination Amount" was stated as £2,185,383, and
3)
The "**Special Termination Amount" was stated as £1,623,879.
Underneath the last total, of £1,623,879, there is a manuscript note of "+ new catt 180,000"
and, below that, the notation "1.8 m.". Parties are agreed that the manuscript notations are
those of Derek Fradgley and that the effect of those notations was that the so-called "special
termination amount" Outlook was offering was £1,800,000, including the new cattle.
Which figures in the Settlement Calculation are relevant?
[164]
While the Settlement Calculation detailed the five agreements Outlook had in place
as at August 2009, Mr Thomson takes the point that one of these agreements was with
Rodger Lindsay (number 1569 or the Lindsay Mortgage), not MBL. The sum due thereunder
(the "special termination amount" for which was stated to be £465,828) was not owed by
MBL and, therefore, was not covered by the terms of Euan Lindsay's indemnities (assuming
these were valid). Mr McIlvride did not challenge that analysis and, indeed, the second
Grant Thornton Report omitted it from its scope.
98
The totals of the first MBL agreements under the several headings
[165]
Mr Thomson takes the further point that the proper analysis of Euan Lindsay's
indebtedness under the first MBL agreements is to ascertain what was due without
consideration of the extra amount added in for the purchase of the assets. The Settlement
Calculation does not itself contain the totals for just the first MBL agreements. As these
totals were referred to in the evidence, and some of these figures are contained in the
4 September 2009 Letter, it is convenient here to note those (using the headings from the
Settlement Calculation):
1)
the total under the "Balance of Rentals" for only the first MBL agreements
would have been £1,802,120;
2)
the total under the "Per Agreement Termination Amount" would have
been £1,719,555; and
3)
the total under "**Special Termination Amount" would have been £1,158,051.
Mr McIlvride relies on the Outlook Letter of 4 September 2009 (quoted above, at paras [93]
and [94]) as correcting any misunderstanding (as Outlook would have it) or
misrepresentation (as the pursuer contends) in the Settlement Calculation. Mr Thomson's
response is that the figures in the Settlement Calculation reflect those in the Outlook Letter.
His submission was that therefore that letter could not be relied on as "correcting" the
earlier representation made by Derek Fradgley to Euan Lindsay under reference to the
Settlement Calculation.
The experts' aggregate figures for the total indebtedness of MBL and the Lindsays
[166]
It must be noted that neither expert could support Outlook's figures in the
Settlement Calculation. In respect of the amount due under the five Settlement Calculation
99
agreements, the Henderson Loggie Report brought out a figure of £909,613 (including the
minor adjustment of £2,050 agreed by the experts). In other words, the figure brought out in
the Henderson Loggie Report for the Settlement Calculation agreements is 56% of the
Outlook figure (again, its "Special Termination Amount") of £1,623,879.
[167]
The figures in the first Grant Thornton Report for the Settlement Calculation
agreements was £1,344, 479, which is 83% of the Outlook's comparable figures (using the
"Special Termination Amount") in the Settlement Calculation.
The experts' aggregate figures for MBLs indebtedness under the first MBL agreements
[168]
In respect of the amount due under the first MBL agreements, the Henderson Loggie
Report brought out a figure of £537,011, which is 46% of the comparable Outlook "Special
Termination Amount" figures in the Settlement Calculation of £1,623,879.
[169]
The figures in the first Grant Thornton Report for the first MBL agreements was
£928,399, which is 80% of the Outlook's comparable figures (using the "Special Termination
Amount") in the Settlement Calculation. The total identified in the second Grant Thornton
Report, adopting a different methodology, for the first MBL agreements was £827,065 or 71%
of the comparable Outlook figures in the Settlement Calculation.
[170]
On any of the experts' figures, the figures in the Settlement Calculation were
overstated, the difference between them being the extent of the overstatement.
The defender's critical reliance on the documentation
[171]
My comments on the veracity of the documentation, above, are relevant to the expert
evidence. This is because of the different approaches the experts adopted to that
documentation. As will be seen, Mr Graham was generally unwilling to accept a figure
100
stated in an Outlook document unless it was also vouched (eg showing that Outlook paid
for the asset or that it gave credit in the amount stated) or it was traceable to an earlier
agreement (and not wholly settled by that earlier agreement). Mr Graham referred to this in
his parole evidence as "professional scepticism". By contrast, Mr Preston was generally
prepared to accept what was stated in the Outlook documentation at face value, even if
vouching could not be found. On occasion, he sought to vouch these by resorting to other
materials, such as entries in Outlook's sales ledger, in its cash book or bank statements, or
which could be justified as in accordance with what was said to be the "practice" of Outlook
(of carrying arrears into its sales ledger). On other occasions, he assumed the sums stated
for "assets" was correct, even when he was unable to identify from Outlook's papers what
those "assets" actually were.
The pursuer's objection to passages of Mr Preston's evidence
[172]
Mr Thomson objected to those passages in the Grant Thornton Reports which relied
on these extraneous materials (such as Outlook's sales ledger or cash book). Furthermore,
there was no evidence led from any witness to fact to speak to the "practice" Mr Preston
referred to, of carrying arrears into Outlook's sales ledger. I accept this objection as well-
founded. It is a fundamental that the data or other materials on which an expert's opinion is
based is produced to enable this to be tested by others. This is both a question of
admissibility but also fairness. In the first Grant Thornton Report Mr Preston refers
repeatedly to additional documentation or sources which have not been produced,
including Outlook's sales ledger, cash book and the "practice" of posting arrears to the sales
ledger- of which Mr Phillips (the relevant witness to fact) made no mention.
101
SSAP 21
[173]
Both experts undertook an SSAP 21 calculation. This seeks to identify inter alia the
amount of capital still unpaid by the borrower at any point during the currency of an
agreement. It does so using the "sum of the digits" method to allocate income over the
notional period of the agreement and having regard to the number of payments to be made.
The rationale underlying an SSAP 21 calculation is that the gross earnings of the lessor (or
creditor) should normally be allocated to accounting periods to give a constant periodic rate
of return on the lessor's (or creditor's) net cash investment in the lease (or agreement) in
each period. Accordingly, the sum of the digits (which is based on the total number of
payments to be made) is used to allocate income across the duration of the agreement .
Having done so, one can then work out the capital repayment, and hence any outstanding
capital balance, at any point in time. Mr Graham and Mr Preston undertook SSAP 21
calculations because they found evidence in Outlook's papers that Derek Fradgley had done
so in respect of agreements being rolled up. It should be noted that the figure brought out in
an SSAP 21 calculation is not the same as the number for the total rentals due to be paid and
which would include future income not yet taken (which the experts referred to as
"unearned income")). "Unearned income" was also the term used to describe the element of
interest that was due, but unpaid, when arrears accrued under the agreements. As noted
below, one of the differences between the experts was their treatment of this particu lar
unearned income. Mr Graham excluded it from his calculations. Mr Preston included it.
SSAP 21 itself provides no guidance as to the treatment of unearned income.
102
Points of agreement between the experts
[174]
Before turning to the substance of their evidence, I note the areas of common ground
between the experts, or at least between the Henderson Loggie Report and the first Grant
Thornton Report (which adopted the same methodology). These included:
1)
The "family tree" of the agreements: In appendix 4 to the Henderson Loggie
Report, Mr Graham included a "family tree" endeavouring to trace how the earlier
agreements were (to the extent not paid in full) rolled up into later agreements and
ultimately into the five agreements which featured in the Settlement Calculation.
This was necessary because of how Outlook rolled up the amount due under existing
agreements into new agreements including, critically to this case, the roll up of the
sums due by MBL (under the first MBL agreements) and the sum due by
Rodger Lindsay (the Lindsay Mortgage) into the Loan Agreements under challenge.
The experts' analysis, while not complicated, was convoluted as it involved
identifying and allocating payments under earlier agreements, undertaking the
SSAP 21 calculation, and endeavouring to trace where outstanding capital was rolled
over into one or more agreements. The family tree records 42 agreements, of
which 11 were said to have been settled in full. Accordingly, there were 26 prior
agreements that were ultimately rolled up into the five agreements contained in the
Settlement Calculation. The experts were agreed that the inadequacy of the Outlook
records made this a less straightforward task. The relationship between agreements
rolled up into others was not always clear and not all amounts stated could be
supported. Mr Preston essentially agreed with Mr Graham's presentation of the
likely antecedent agreements rolled up into each of the five Settlement Calculation
agreements.
103
2)
The application of SSAP 21: Both experts were agreed that an SSAP 21
calculation was appropriate and that Derek Fradgley had used this method.
Mr Preston produced the second Grant Thornton Report which does not use the
SSAP21 calculation. I address that report separately.
3)
Minor adjustment upward of the capital sum due: At the meeting of the experts,
Mr Preston produced an invoice to vouch the purchase of cattle in the amount
of £2,050, which Mr Graham accepted. In his parole evidence he modified the totals
contained in the tables in the Henderson Loggie Report. However, given the modest
level of that adjustment, I will not endeavour to change the tables in the Henderson
Loggie Report. (I do take this into account when considering the issue of lesion.)
The principle differences between the Henderson Loggie Report and the first Grant Thornton
Report
[175]
The principal methodological differences between the experts' respective approaches
in the Henderson Loggie Report and the first Grant Thornton Report are as follows:
1)
In undertaking the SSAP 21 calculation, Mr Graham disregarded the terms of
the agreements. He distinguished between a termination (which might trigger a
penalty or other payment under the terms of the agreements) and refinancing
(which, essentially, was the parties' agreement of new loan figures, interest rates and
payment periods). What Outlook did in rolling up was refinancing. In any event, he
did not have regard to any termination provisions in the agreement considered
because he found no termination notices in Outlook's paper. This is consistent with
Rodger Lindsay's evidence that the Lindsays had never received termination notices.
104
(I have noted the `by hand' termination notices relied on by Outlook as having been
issued in late August 2009: see para [92], above.)
2)
The SSAP 21 calculation is silent on the question of how to treat interest on
arrears that may have accrued up to the point of termination. If there were arrears at
the point of termination, Mr Graham excluded these, as they were unearned income
and therefore, in his view, irrelevant to an SSAP 21 calculation. The focus on the
capital due is because it is the balance of any capital outstanding which was rolled
into a new lease agreement. Accordingly, his SSAP 21 calculation was taken at the
point when the last payment was actually made (and not the later point when an
agreement was refinanced or rolled over). If these arrears fell to be included, that
was a contract issue and so outwith his expertise. By contrast, Mr Preston continued
to take income on the amounts unpaid between any last payment and the date of
refinancing or consolidation. The different approaches on the issue of unearned
income led to a £51,602 difference between the experts' figures. However, the effect
of the differences between the experts in their calculation of the capital due under the
earlier agreements was compounded as they carried forward their figures into their
calculations of the later agreements. The effect of this compounding was variously
described as a "gush" or an "upward cascade".
3)
Further, as noted more fully below, Mr Preston was much more willing to
take Outlook's figures at face value, even if unvouched. This led to significant
differences in their respective totals.
These methodological differences generated large variations between the experts' respective
totals. So, for example, Mr Preston's inclusion of unearned income and his resort to
extraneous materials produced a difference of £105,591 for agreement 1596 (per the first
105
Grant Thornton Report table 2.3 (reproduced at para [189]) and paragraph 2.9 of the first
Grant Thornton Report), and a difference of £113,450 for agreement 1619 (ibid).
[176]
I now turn to consider the experts' evidence in detail.
The Henderson Loggie Report and Mr Graham's evidence
[177]
I have already noted Mr Graham's production of a family tree of the agreements and
the purpose of an SSAP 21 calculation if a finance agreement is terminated before its full
term has run. Mr Graham undertook the SSAP 21 calculations because he had seen similar
workings by Derek Fradgley for some of the earlier agreements. The reason why he did not
follow Mr Preston's approach, and add in arrears (or the unearned income on arrears), is
because he had not seen any termination notices.
[178]
I do not propose to record his individual calculations on each of the agreements. It
suffices to note some of these to illustrate the differences between his and Mr Preston's
approach.
Illustrations of Mr Graham's differences from the Outlook figures
[179]
In a significant number of Mr Graham's analyses of the sums payable under the
individual agreements, he declined to accept the Outlook figures. The reasons included the
following:
1)
If the "assets" said to be covered by a new agreement could not be identified
or vouched, for example, by invoices or supporting documentation contained in the
brown folder, Mr Graham omitted such entries. An example of this was agreement
number 1399, or the unsupported figure of £44,347 comprising part of
agreement 1569. In one instance, he excluded from an agreement an asset which had
106
been purchased and invoiced after the date of the agreement which purported to
include it;
2)
If the sum purported to be rolled up in the agreement being analysed had
already been rolled up in another agreement. An example of this double-counting (if
not stripped out) was agreement number 1404;
3)
There were errors in Derek Fradgley's SSAP 21 calculations. In agreement
number 1404, for example, Derek Fradgley appeared to include VAT on the last
rental (of £10,400 plus VAT) whereas the correct SSAP 21 figure was £9,900. In
respect of this agreement, Mr Graham believed that the balance of £19,402 should
have been repaid to the Lindsay, although he records that Rodger Lindsay does not
recall any monies ever being repaid;
4)
In some cases Derek Fradgley included figures for unearned income (eg
agreement 1501), which would not be included in a SSAP 21 calculation. This
appeared to be done in the some of the first MBL agreements, including
agreements 1596 and 1597, in which the sums of unearned income of £89,020.80
and £165,223.43, respectively, were claimed;
5)
The only time Outlook purported to include penalty figures was in relation to
the first MBL agreements. In each instance, these were substantial figures.
Mr Graham's approach was to do an SSAP 21 calculation without reference to the
terms of the agreements, because he had not seen penalties levied in earlier
agreements;
6)
In respect of some agreements, the paper trail was inadequate or difficult to
follow. This was the case for agreement 1540. Having tried to follow the trail,
Mr Graham was unable to find any entry to show that a credit balance of £110,000
107
retained by Outlook was ever allocated to other indebtedness of the Lindsays. There
is a similar inability to demonstrate any subsequent credit given for a retention
of £15,140 under agreement 1595;
7)
In some cases, Outlook claimed round figures (eg arrears of £15,000) or a sum
is stated to have been taken from the sales ledger (eg of £37,034) both examples are
taken from agreement 1499 but there is no breakdown or vouching of either figure.
Agreements number 1456 and 1596 are further examples where Mr Graham excluded
an unsupported sales ledger balance (in the latter, the sum of £25,921 was claimed.
Mr Graham's approach was to attribute a nil value until some evidence was
provided to demonstrate what these sums related to;
8)
In some cases, an adjustment of an earlier agreement (eg number 1417) has an
impact on the correct figure rolled up in a later agreement (eg agreement 1456).
[180]
An illustration of how Mr Graham's approach informed his analysis may be found in
his treatment of agreement number 1426. Mr Graham's table ("the Henderson Loggie
Report 1426 table") is reproduced below:
108
He explained that the analysis for Outlook's total of £64,021 "is not clear on the file" and he
attempted a good faith calculation. He also surmised that this agreement was being used as
a large scale settling of other leases by adding the last payments due and adding VAT . The
adjustments in the second to fourth lines of this table are to substitute the correct SSAP 21
figure. The reason for the "nil" entry in the first line is because Mr Graham had identified
that this was already rolled up in a different lease. The fifth line adjustment arises for
similar reasons: Derek Fradgley's figure would involve double-counting if included, because
the agreement has already been accommodated. Finally, he noted that the Lindsays dispute
ever receiving a cheque for £35,886. Indeed, they dispute that this agreement is even
genuine. While he noted that this appeared to be rolled up into agreement number 1456,
that had been settled in the amount of £69,448, which cannot be the SSAP 21 figure. At
most, he can support only £7,431 of the £64,021 claimed.
[181]
As this agreement is said to have been rolled up in agreement 1456, then the
adjustment Mr Graham made must also be reflected in the calculation of the appropriate
amount. This is illustrated by the second line of the following ("the Henderson Loggie
Report 1456 table"):
One sees the impact of Mr Graham's adjustment of the earlier figure (for agreement 1426)
reflected in the capital sum rolled up in the later agreement (number 1456). Although not
reflected in the above table, Mr Graham noted that the Outlook calculation failed to take into
109
account that payments scheduled to be paid over 15 instalments were in fact paid in two,
and that there has been an overpayment of £3,925. Similarly, a like adjustment was made to
the sums rolled up in later agreements (eg numbers 1479 and 1480), the effect of which is to
convert a capital sum Outlook said was due into an overpayment by the Lindsays.
[182]
Having given examples of the kinds of errors or deficiencies Mr Graham identified,
or of how his methodology informed his assessment of individual agreements, I note
Mr Graham's conclusions on the five agreements included in the Settlement Calculation, as
follows:-
Mr Graham's total for the capital actually due under the five Settlement Calculation
agreements was £907,563 (and adjusted up by £2,050, to £909,613 to reflect the late invoice).
The total The Henderson Loggie Report figures for the MBL Settlement Calculation
agreements is only 46% of the aggregate of Outlook's figures in the Settlement Calculation.
On any view, that is a material difference. In submissions, Mr McIlvride did not seek to
suggest otherwise.
Cross-examination
[183]
The following points were put to Mr Graham in cross-examination:
110
1)
Mr Graham readily acknowledged that he did not take into account the
contractual terms of the agreements or of the Loan Agreements. While Mr Preston
had taken into account default provisions, Mr Graham had not done so because, as
far as he could see, Outlook had not done so. When an agreement terminated,
Derek Fradgley performed an SSAP 21 calculation. Mr Graham elaborated on his
understanding of SSAP 21. There was a need to give proper regard to the fact that
after an agreement was brought to an end, the lessor was not entitled to the full
amount. The lessor was only entitled to the balance of capital due. If the arrears
were rolled over, that was generally by refinancing. There was therefore no
justification for adding arrears in the way that Mr Preston did in the first Grant
Thornton Report. Refinancing gave the lessor the opportunity to extend the period
for repayments, to lend more funds or to increase the interest rate. In his opinion,
this was not a "missed opportunity" or an instance where the lessee got out of
paying interest. He confirmed that he had not taken into account any default
provisions. When pressed, Mr Graham defended his approach. This was because
when Outlook rolled over leases, it undertook a SSAP 21 calculation, it did not
operate default provisions.
2)
He also accepted that SSAP 21 did not represent guidance about how to
calculate sums actually due by a borrower under a particular contract. That would
be a matter of contract interpretation, which was outwith his expertise.
3)
In relation to his exclusion of unidentified assets from agreemen t 1399, which
had simply been described as "assets from previous lease", Mr Graham maintained
that it was not possible to justify from Outlook's papers the figure Outlook attributed
to those assets. There was no prior identifiable agreement from which these could be
111
rolled up. He offered to reconsider his position if another lease was placed before
him to vouch this, but none was. He simply could not ascribe any asset value.
Furthermore, he saw no cheque or invoice going out to support these.
4)
It was put to Mr Graham that Mr Preston had adopted Outlook's accounting
practice of putting arrears into the sales balance. Mr Graham could not comment on
this practice. He had had no opportunity to discuss this with Outlook's accountants.
In any event, the sales ledger would include VAT but it was not appropriate to levy
this for arrears.
5)
Mr Graham maintained his position that it was irrelevant to take into account
arrears up to the date of termination, as Mr Preston had done. He noted that
Mr Preston had not referred to any provision in the agreements which supported
this. He invited Mr McIlvride to place before him a "payments not received clause"
in the agreements, but that invitation was not taken up. He did not accept that it was
"reasonable" to include arrears. Mr Preston's inclusion of these amounts found no
support in SSAP 21, in accounting practice, or in any applicable contractual
provision. Mr Graham's position had been to identify the amounts actually lent.
[184]
In re-examination, he was asked to comment on how differences between the experts
on earlier agreements affected their figures for later agreements. In Mr Graham's words,
this did not just bleed through, it was a "gush". This was because, latterly, the credit
charges were so huge.
The Grant Thornton Reports
[185]
Outlook's expert, Mr Preston, produced two reports. The first report also undertook
SSAP 21 calculations, although there were differences of opinion as to the treatment of
112
arrears. The second Grant Thornton Report was quite different, in that it undertook an
analysis looking only at the contractual termination provisions, but without undertaking
any SSAP 21 calculation.
The first Grant Thornton Report
[186]
Mr Preston described two steps in his SSAP 21 calculation:
1)
His first step was to calculate the total outstanding loan payment ("capital
plus interest") at the point of consolidation; and
2)
Calculate the unearned income at the point of consolidation and deduct this
from the sum found under step one. He defined unearned income as the interest
charge that would have accrued after the date of consolidation.
By focusing on the date of consolidation, as opposed to date of the last payment (as
Mr Graham had done) the amount being identified under his SSAP 21 calculation included
the interest on arrears. Mr Preston's rationale for doing so, notwithstanding that SSAP 21 is
silent on this, is that this is reasonable to do. In his view, just because a lease payment was
not paid, this should not stop income accruing.
[187]
Mr Preston summarised in table 2.1 ("the first Grant Thornton Report table 2.1") the
amount he calculated as due, and also those "per Outlook" and those stated in the
Henderson Loggie Report:
113
(£)
My calculation
Per
Outlook
Per Henderson
Loggie report
Agreements rolled up into the £1,335,000 loan
Balance from Agreement 1596 (Table 5.51)
264,362
328,043
158,771
Balance from Agreement 1597 (Table 5.66)
364,978
529,730
113,777
Balance from Agreement 1598 (Table 5.67)
223,000
223,000
200,000
Balance from Agreement 1619 (Table 5.70)
76,059
77,278
64,462
Balance from Agreement 1597/1619 (loan
agreement)
-
27,992
-
Sub-total
928,399
1,186,043
537,010
Other sums advanced
Arrangement fee
4,000
4,000
-
Stamp duty for Metal Bridge acquisition
13,950
13,950
-
Balance in cash
113,450
113,450
-
Other (cannot trace)
-
17,557
-
Total £1,335,000 loan
1,059,799
1,335,000
537,010
Agreements rolled up into the £465,000 loan
Balance from Agreement 1569 (Table 6.8)
416,071
465,828
370,552
Adjustment
-
(828)
-
Total £465,000 loan
416,071
465,000
370,552
Overall total
1,475,870
1,800,000
907,562
Difference between Mr Preston's figures and Outlook's figures in the Settlement Calculation
[188]
Mr Preston's total figure, of £1,475,870, is lower than Outlook's figure. Mr Preston
explained that there were a number of instances where he was not able to find support for
the amounts advanced. These related to six earlier agreements and the total of the
unsupported entries was £130,082 (per Table 2.2 of the first Grant Thornton Report). The
114
errors he found included the wrongful inclusion of VAT (£23,750) or of a profit figure on
settlement (£10,860), double-counting (£9,349), invoicing for assets (cows) that had in fact
been returned to the seller (£23,746), or sums said to have been advanced but which could
not be traced through the manual cash book (£35,886). By reason of the effect of
compounding as agreements were repeatedly rolled up, it would not suffice to deduct the
figure of £130,082 from the Outlook figure in the Settlement Calculation. Mr Preston
calculated that the effect of this compounding by August 2009 was £324,130 (ibid). This is
the difference between his figure and Outlook's.
The difference between Mr Preston's totals and Mr Graham's totals
[189]
Mr Preston's total figure, of £1,475,870, is materially higher than that in the
Henderson Loggie Report, of £907,562. The differences were represented in the following
table ("the first Grant Thornton Report table 2.3"):
115
Table 2.3: Differences between my calculation of sums advanced and Henderson Loggie
Agreement
Description
Amount (£)
Various
Difference in calculation of income/charges
51,604
Evidence found to support amounts unsubstantiated per the Henderson Loggie repo rt
1399
Additional assets and part exchange of milk tank
6,295
1426
March payment on 1404 and extended hiatus on 1426
5,434
1456
Arrears on sales ledger
10,913
1499
Arrears and rent arrears
52,034
1569
Invoice for two cows
847
1569
Cattle from lease 1568 and cheque
7,647
1570
Pressure washer and generator
12,000
1596
New assets ex Oak finance
25,900
1619
Invoice for one cow
2,050
174,724
Impact on Agreements once consolidated
Results in difference in Agreement 1569 when changes rolled up
45,519
Results in difference in Agreement 1596 when changes rolled up
105,591
Results in difference in Agreement 1597 when changes rolled up
251,201
Results in difference in Agreement 1598 when changes rolled up
23,000
Results in difference in Agreement 1619 when changes rolled up
11,597
438,908
Other charges in Loan not included by Henderson Loggie
131,408
Total difference
568,308
Source: my calculations and Agreement files
Mr Preston explained that the principal differences between his approach and Mr Graham's
arose as follows:
116
1)
The effect of the differences in their treatment of unearned income in their
respective SSAP 21 calculations was £51,606 (stated in the first line of the table),
which Mr Preston included as due;
2)
There were a number of agreements where there was no supporting
documentation in the brown folders, but where Mr Preston sought to vouch this
from other sources, such as an examination of the cash book;
3)
Mr Preston also included figures described as "arrears on sales ledger", as he
had been told that it was Outlook's practice to carry arrears into its sale ledger;
4)
In one agreement, three new assets were listed but had no specific value
ascribed, so in Mr Preston "assumed the [Outlook] assessment of value to be
accurate", and included its figure.
The total of these initial adjustments was £174,724 (the subtotal of the first ten items, half-
way down the table). However, by reason of the compounding effect as agreements were
repeatedly rolled up, Mr Preston estimated that the figure which correctly reflected the
differences between his and Mr Graham's approach was £568,308.
[190]
In his examination in chief, he was taken through his calculation of a number of the
agreements, essentially to illustrate the different outcomes arising from his approach to
SSAP 21 and that of Mr Graham, taken together with the compounding effect of initial
adjustments by which initial differences were magnified as they were repeatedly rolled over.
The second Grant Thornton Report
[191]
The purpose of the second Grant Thornton Report was to calculate the liability
payable on termination of the first MBL agreements (namely, agreements 1596, 1597, 1598
and 1619). This did not involve an SSAP 21 calculation, but was based on the contractual
117
wording of the agreements. On this approach, he stated the total termination liability
as £827,605. If one added Outlook's figure of the value of the assets sold to Euan Lindsay,
which was £935,000, then the total he identified as due by Euan Lindsay was £1,762,605.
This was Mr Preston's "approach 1", in the top half of the table ("the second Grant Thornton
Report table 2.1"):
Agreement Number
£
1596
1597 and 1619
1598
Total
Approach 1
Arrears of rental
54,460
9,000
24,000
242,000
329,460
Compensation due -
discounted termination
362,918 1,001,745
68,483
-
1,433,145
Sale Proceeds
(300,000)
(635,000)
-
(935,000)
Liability at termination
117,378
468,228
242,000
827,605
Asset value of machinery
sold to Euan Lindsay
300,000
635,000
-
935,000
Total due by Euan Lindsay
417,378
1,103,228
242,000
1,762,605
Approach 2
Arrears of rental
54,460
9,000
24,000
242,000
329,460
Compensation due -
discounted termination
362,918 1,001,745
68,483
-
1,433,145
Sale Proceeds
(59,000)
(161,266)
-
(221,166)
Liability at termination
357,478
941,962
242,000
1,541,439
Asset value of machinery
sold to Euan Lindsay
59,900
161,266
-
221,166
Total due by Euan Lindsay
417,378
1,103,228
242,000
1,762,605
[192]
Mr Preston had also produced "approach 2", which was the same exercise to
produce the termination figure, but using William Lindsay's figure for the value of the
assets sold to Euan Lindsay. However, because that figure is first deducted (at line 3) and
added back in (at line 5), the same figure is brought out under both approaches.
118
Cross-examination
[193]
The Settlement Calculation was put to Mr Preston. He was not sure if he had seen it,
but he did recall the figure of £1.6 million. He acknowledged this was defined as the
"special termination amount" (stated as £1.63 million). It was noted that in the first Grant
Thornton Report table 2.1 Mr Preston had used the figure of £1.3 million as Outlook's figure,
not the figure of £1.6 million from the Settlement Calculation. Mr Preston explained that the
figure of £1.3 million was from Loan Agreement 1, the sum Euan Lindsay borrowed.
Mr Preston acknowledged that he had started with this figure, and not any figure in the
Settlement Calculation. He accepted that, without any "discount", the sum Derek Fradgley
appeared to identify as the total due as the "Per Agreement Termination Amount"
was £2.185 million.
[194]
Mr Preston was challenged for basing his conclusions on sources of information
which had not been produced to the Court. These included, for example, his resort to the
cashbook and the sales ledger to support several figures or an additional invoice he had
found. Mr Preston acknowledged that he had not produced these materials. (The figures
arising from his reliance on the extraneous materials are the first ten figures in the table in
para [189], above.) He accepted that it was reasonable for Mr Graham to be sceptical and to
exclude entries or figures in Outlook's documentation for which there was no vouching.
[195]
Mr Preston was challenged that, given the discrepancies that emerged between some
of his figures and those in the Outlook documentation in the earlier agreements, he should
have adopted an independent and curious scepticism in respect of the Outlook
documentation or any unvouched figures within it. Examples of earlier discrepancies
included:
119
1)
His analysis of agreement number 1426 (set out in his table 5.16), produced a
figure of £13,090 against Outlook's settlement figure of £64,031. (Mr Graham's figure
was £7,432.) Mr Preston accepted that the figures of either expert were "nowhere
near" that claimed by Outlook. The same point was put to him under reference to
agreement 1568, in which Outlook's figure was £240,800 in comparison to
Mr Preston's figure of £134,417. (Mr Graham's figure was lower still, at £7,500.).
2)
Mr Preston was also challenged where he made uncritical assumptions that
entries which were simply referred to "assets" without further description "must"
have some value, and which led him simply to accept the Outlook figures. This was
illustrated under in respect of the following:
(a)
Agreement 1399, in which Mr Preston stated that he was unable to
identify the lease being rolled over but, he assumed that there must be some
value for the assets listed, and so he used Outlook's unvouched figure; an d
(b)
Agreement 1596, in which "new assets ex Oak Finance" were listed
at £25,900 but not otherwise identifiable or traceable.
Mr Preston acknowledged the fairness of the point being put to him.
[196]
In relation to second Grant Thornton Report, Mr Preston was asked about how it
came about that the line entry for Euan Lindsay's purchase of the assets came to be included
in his report, given that its stated purpose was to identify the termination amounts
calculated by reference to the contract wording. The narrative preceding the second Grant
Thornton Report table 2.1 was as follows:
"2.1
I have been instructed to quantify, based on the information available to me,
the liability on termination for four specific agreements between Metal Bridge and
Outlook, namely agreements numbered 1596, 1597, 1598 and 1619.
120
2.2
My assessment of the liability at termination for the four agreements
reviewed ranges from £827,605 to £1,541,439 depending on the approach adopted.
2.3
For completeness I have also included the value of th e assets transferred to
Euan Lindsay and funded by the Loan Agreement to assess the total amount due by
Euan Lindsay.
2.4
When the value of the assets acquired by Euan Lindsay under the Lease
Agreement is taken into account the amount due by Euan Lindsay is £1,762,605
under both approaches."
The question was prompted because paragraph 2.3 in this passage is a non sequitur.
Mr Preston explained that he had been asked to include the assets sold to Euan Lindsay.
The two approaches simply reflected the parties' different views on valuation. It was put to
him that the purpose of the Settlement Calculation had been to identify MBL's indebtedness
under the first MBL agreements. He accepted that the correct figure for comparative
purposes was the figure of £827,605 he had identified as the liability at termination of the
first MBL agreements, and not his asset-inclusive figure of £1,762, 605. He also accepted that
his approach two (using the Lindsay figures for the assets), had not been Derek Fradgley's
view in August 2009.
[197]
In relation to SSAP 21, Mr Preston accepted that the difference between him and
Mr Graham was a difference of opinion between accountants about the application of
SSAP 21.
Discussion of the opinion evidence
Comment on the experts
[198]
There were three principal drivers to the different totals reached by Mr Graham and
Mr Preston. These were:
1)
The treatment of unearned income (£51,606),
121
2)
The inclusion of amounts Mr Preston sought to vouch by resort to extraneous
materials (£123,120, being £174,724 less £51,606), and
3)
The consequential or compounding effect of these different approaches as
agreements were rolled up (£436,908). (All figures are derived from the first Grant
Thornton Report table 2.3, above, at para [189].)
Cumulatively, this led to a difference of £568,308.
[199]
In considering the evidence of the parties' experts, I note that both have impressive
professional qualifications as chartered accountants, both hold senior positions within
highly reputable firms and both have ample professional experience. On that last matter,
Mr Graham has the advantage of longer experience in professional practice (by about a
decade) than Mr Preston. No party suggested that there was any issues of credibility. Both
were plainly doing their best to assist the Court in the application of their expertise. What
distinguished them were their divergent approaches to unearned income as part of the
SSAP 21 calculation, and the more intangible quality of their interrogation or acceptance of
the Outlook documentation- a matter that was ultimately a question of professional
judgement.
[200]
Having carefully considered their reports and their evidence, together with parties'
submissions thereon, I have no hesitation in preferring the evidence and report of the
pursuer's expert, Mr Graham, for the following reasons.
Mr Graham
[201]
Mr Graham was an impressive witness and exhibited all of the requisite qualities of
an expert. He was patently careful and maintained the necessary detachment from the
interests of the party instructing him. In the substance and content of his report, and in the
122
manner in which he gave his parole evidence including the manner in which he answered
questions in examination from senior counsel and from the Court he was at all times giving
his independent opinion evidence. This was always well supported by cogent reasons as to
why he differed from the approach or conclusions in the Grant Thornton Reports.
[202]
Mr Graham was demonstrably sceptical and independent. That was amply
demonstrated in the passages in his report where he declined to include figures in the
absence of adequate vouching in Outlook's records (insofar as he had access to these), and
also at the meeting of experts, where he was prepared to depart from his position if proper
vouching was provided to him (as it was for the additional invoice of £2,050).
[203]
Mr Graham accepted that there was little by way of actual disagreement between the
experts on many issues. Both agreed that SSAP 21 applied and there were many instances in
the respective reports where the same figures were arrived at.
Mr Preston
[204]
An expert must always maintain his independence and bring to bear a robust
professional scepticism. This was particularly important in a case such as this, where there
are questions as to the veracity of some of the documentation and which was known in
advance (there are repeated references in the witness statements casting doubt on the
Outlook documentation). Even if Mr Preston was unaware of that particular challenge at
the outset of his analysis, the repeated instances of his inability wholly to support Outlook's
figures as he worked through the earlier agreements should have led to a more critical
interrogative approach rather than uncritical adoption of Outlook's figures. Mr Preston
fairly acknowledged the force of that observation in cross-examination and, accordingly, he
could not wholly maintain the figures stated in the first Grant Thornton Report .
123
The experts' different approaches to SSAP 21
[205]
Turning to the differences arising from their treatment of unearned income and
SSAP 21, I accept Mr Graham's evidence that SSAP 21 was silent on the question of
unearned income and to include it would result in double charging. On this matter, I prefer
the professional judgement of Mr Graham to that of Mr Preston.
The second Grant Thornton Report
[206]
In relation to the second Grant Thornton Report, this was an essentially irrelevant
exercise, as it was wholly at odds with the evidence of what the parties actually did when
entering into agreements. The rolling up of agreements was effectively a refinancing
exercise, and to which the contractual terms of the rolled up agreement were not applied.
Other than the reference in one of the headings of the Settlement Calculation (the "Per
Agreement Termination Amount"), there was no evidence that Derek Fradgley invoked or
applied the termination provisions of the agreements. Even in respect of the "Per
Agreement Termination Amount" figures contained in the Settlement Calculation, his
reliance on the "Special Terminating Amount" in the same document clearly departed
from the only instance in which Outlook purported to rely on termination provisions. In
any event, to the extent that Outlook sought to justify the amounts in the Loan Agreements
or the figures in the Settlement Calculation on the basis of any termination notices of the
Settlement Calculation agreements, I accept Rodger Lindsay's evidence that they never
received these at the time. For these reasons I place little weight on the second Grant
Thornton Report, as it did not reflect the approach generally taken by Outlook when it
rolled up prior agreements into new ones. In respect of the inclusion of the asset figures in
the second Grant Thornton Report, Mr Preston included these because he was told to do so.
124
This led to two changes in the second Grant Thornton Report. The first change was the
introduction of the "first" and "second" approaches (illustrated in the tables). The second
change was materially to increase the total brought out in the second Grant Thornton
Report, which was more favourable to the position Outlook adopted in its defence to these
actions. Whatever the relevance or otherwise of the inclusion of the MBL assets in a report
concerned with the calculation of sums due under the Settlement Calculation agreements on
the application of the contractual wording, Mr Preston should have explained in the second
Grant Thornton Report how that information came to be included and why it was relevant.
Conclusion on figures spoken to in the opinion evidence
[207]
It follows that I accept the pursuer's expert's figures and find that the sums due
under all of the Settlement Calculation agreements were no more than £909,612 (being
the £907,562 noted in the pursuer's report together with the £2,050 for the late invoice). I
also find that the lesser sum for the total of the first MBL agreements, which was the proper
measure of Euan Lindsay's liability, was £537,011 (see above, at para [168]).
[208]
I now turn to consider the legal grounds of the pursuer's case as applied to the
evidence that I have accepted.
Discussion
Introduction
[209]
Parties produced written submissions and bundles of authorities. I also heard
submissions over two days. I have considered all of these materials and do not propose to
rehearse them in this Opinion.
125
[210]
I have already addressed the pursuer's objection to passages of Mr Preston's
evidence and analysed the opinion evidence (which was directed principally to the element
of lesion). I will consider the several grounds on which the pursuer challenges the
impugned deeds before considering the issue of restitutio in integrum.
Facility, circumvention and lesion
[211]
The pursuer's principal ground of challenge to the impugned deeds is on the ground
of facility, circumvention and lesion. As noted at the beginning of this Opinion, I have
already dealt with Outlook's challenge to the relevancy of the pursuer's pleadings and have
considered the case law on this ground of challenge in the Debate Opinion. I need only
summarise the relevant propositions for the purposes of this Opinion. In order for the
pursuer to succeed it must show (1) weakness and facility, (2) circumvention, and (3) lesion.
On the case law, these three elements are all treated as interrelated and they invite a single
question: whether the total effect of the evidence on these discrete elements is to suggest an
invalidity of consent to the deed in question . (See Mackay v Campbell 1966 SC 237 per Lord
Justice Clerk (Grant) at 249). The pursuer is under necessity of seeking reduction because a
contract obtained through facility and circumvention is voidable, not void. It is valid until it
is reduced. I propose to consider the evidence in respect of these three discrete elements,
but always bearing in mind that that assessment is a unitary one encompassing all three
elements.
Facility
[212]
Facility is the term used to describe a mental frailty which calls into question the
capacity of the granter to consent to the deed in question. It is not possible to state the
126
degree of facility which is required to invalidate a deed. This is because facility is one of
three factors which founds a challenge based on facility and circumvention. On the case
law, there is an inverse relationship between the degree of facility and the degree of
circumvention: the greater the one, the lower the standard required of the other (Munro v
Strain (1874) 1 R. 1039 ("Munro") per Lord Benholme at 1047).
[213]
Facility usually arises from some weakness of the faculties caused by age or illness.
However, proof of facility does not require the pursuer to demonstrate any form of mental
senility. This is the import of Lord Benholme's observations in Munro (at p 1047) that
"...the weakness and facility necessary to be established may be of a varied
character, and may arise from a variety of different causes; that it may arise
from the natural disposition of the individual, or from the decay and
prostration of his mental and bodily powers consequent upon advanced age or
severe affliction, or many other agencies."
In the same case, Lord Ormidale noted (at p 1044) that part of the relevant context to
consider facility may be the existence of a professional relationship or one of trust by the
person said to be facile in the person said to be the circumventor:
"...the weakness and facility forming the earlier part of such an issue may take
its character and its nature from the fraud or circumvention with which it is
combined; and that if...in reference to the defender, Paterson was subject to
weakness and facility, arising from over confidence, or from professional
relations which led the one to exercise and the other to submit to a certain
intellectual dominion which would not have occurred had that relation not
subsisted, I am satisfied that sufficient...[to form the basis for a finding if
facility]" (Emphasis added.)
The pursuer relies on that passage and contends that Derek Fradgley stood in a position of
trust or in a professional relationship to the Lindsays. On the evidence, I find that
submission well-founded. More than once the Lindsay witnesses stated that they had
trusted Derek Fradgley. The sense of hurt and betrayal Rodger Lindsay displayed when
giving his evidence is eloquent of its truthfulness.
127
Has the pursuer proved Euan Lindsay's facility?
[214]
The question of facility is addressed by considering Euan Lindsay's state of health
and mind at the time of signing the Loan Agreements and the impugned standard security.
Euan Lindsay was diagnosed as having "farmer's lung", a condition which rendered
Euan Lindsay incapable of work by 2000. The condition was progressive in its effects on
Euan Lindsay, who in his last years became weak, housebound and on a permanent oxygen
supply. He died of this condition only two years after signing the Loan Agreements. All of
the Lindsay witnesses spoke to how Euan Lindsay's mental and physical state deteriorated,
and to his resultant low mood and anxiety. He was in and out of hospital in his later years,
causing him to become more distant and withdrawn. None of this evidence was challenged.
[215]
Focusing on the period preceding the signing of the Loan Agreements, Euan Lindsay
was poorly through much of the winter from 2008 to 2009. On Rodger Lindsay's evidence,
Euan Lindsay's involvement with MBL was reluctant, at best, and caused his mood to
worsen further. He had provided the £200,000 working capital to allow members of his
family to continue in business. Prior to providing that money, he had had no involvement
with either of Lindsay's AI or Lyndsay's Dairy. When he became aware that further monies
were being demanded, in August 2009, his mood dropped further. On the evidence I have
accepted, which was not challenged, I find that Euan Lindsay was in a frail physical
condition and weak mental state when he signed the Loan Agreements and the impugned
standard security. He was in the same condition when he was induced to sign the first
indemnities in the first MBL agreements between Metal Bridge Limited and Outlook.
[216]
Mr McIlvride submitted that there was no evidence to show that Euan Lindsay was
susceptible to having his will overcome by Derek Fradgley. He went further and submitted
that Euan Lindsay was "perfectly capable" of resisting proposals put to him, such as the first
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draft of the first standard security as one for all sums, and in his refusal to extend a
further £200,000 when Derek Fradgley wanted this in August 2009. Mr McIlvride also
referred to the phrasing in the Gebbie & Wilson Letter that Euan Lindsay was "determined"
to proceed. I do not accept that that phrasing supports his submission. There is no evidence
that Euan Lindsay ever met with the author of the Gebbie & Wilson letter. The submission
in relation to the first standard security is inconsistent with William Lindsay's evidence that
Euan Lindsay had actually signed and returned the first draft of the first standard security
(which was for all sums) to his agents, and that it was his solicitor who, on receipt, would
not allow the first standard security to be granted in those terms: see para [111], above. In
relation to Euan Lindsay's refusal to grant a further £200,000, on Rodger Lindsay's evidence
it was he that is, Rodger Lindsay who decided that Euan should refuse when he saw
how upset Euan became, and it was Rodger Lindsay who communicated that decision to
Derek Fradgley: see para [65], above (the passaged emphasised in bold). More
fundamentally, Euan's disinclination to grant a further £200,000 is the very stance which if
the remaining elements of the pursuer's case are established was circumvented by
Derek Fradgley. Indeed, the firmness of Euan Lindsay's resolve at that time to protect
Harperfield is a benchmark against which to assess how that resolve was overcome. In any
event, that evidence must be placed in the wider context which included the continuing
effect of the ultimatum and the fact that Derek Fradgley had prevailed upon Euan Lindsay
to encumber Harperfield.
[217]
On the evidence, Euan Lindsay was a quiet man who kept to himself. He had had
limited education and was not comfortable even in basic financial matters.
William Lindsay's evidence was that his uncle needed help to obtain a new cheque book and
that he had had played no part on the financial side or in the management of DM Lindsay at
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Harperfield. There was some evidence that, even though Euan Lindsay was very
uncomfortable about having been made a director, he was diffident in expressing that,
having done so to William, who advised him to speak to Rodger. He was also a private
man. William did not know that Euan Lindsay had in fact been removed as a director,
although that would have been at most within a few weeks or months of their conversation.
There is the further evidence of Rodger Lindsay, which I accept, that Euan Lindsay would
not attend the MBL meetings after the initial meetings. It was his evidence that
Euan Lindsay became very stressed about it and found these meetings difficult to attend.
Euan Lindsay was removed as a director on 1 October 2008 at around the time the first
standard security was granted.
[218]
Mr McIlvride did not seek to address the additional factor founded on by the
pursuer, that Derek Fradgley was regarded by the Lindsay family as a trusted adviser. I
accept the Lindsays' evidence that he did indeed have that status, given the long hist ory of
dealings between Derek Fradgley, on behalf of Outlook, and the Lindsays. That was
reflected in other ways: the straightforward nature of the early agreements and
Rodger Lindsay's evidence that he felt he understood what a particular agreement was for
and that it did not take long to sign these; his willingness for Derek Fradgley to take away
all of the copies of the agreements on the eve of Rodger Lindsay's bankruptcy, and his
acceptance of Derek Fradgley's assurances that he would explain things to the trustee.
[219]
The force of Derek Fradgley's personality (in contrast to Euan Lindsay's) may be
tested in his dealings with Rodger Lindsay at the time of the formation of MBL.
Rodger Lindsay was the Lindsay's man of business. Notwithstanding that, what
Derek Fradgley had said about the consequences for Rodger Lindsay if he were found near
MBL had terrified Rodger Lindsay and was effective to exclude him. The reality was that
130
there was no other member of the Lindsay family who could replace Rodger Lindsay in that
role, when it came to the Lindsays' involvement in MBL, or who could stand up to
Derek Fradgley. If Rodger Lindsay could not do so, as a younger and fitter man with
experience of running the Lindsay businesses, there was little prospect for someone with
Euan Lindsay's attributes being able to do so.
[220]
On no view could Euan Lindsay be described as having a forceful personality. By
contrast, Derek Fradgley was persistent, domineering and, at times, aggressive in order to
get his way. The grant of the first standard security illustrates Derek Fradgley's intellectual
domination. The family ethos was of financial prudence: "you earned the pound before you
spent it". At this point in time Derek Fradgley had no leverage over Euan Lindsay. (That
may be contrasted with the circumstances in which Euan Lindsay was prevailed upon to
sign the impugned standard security.) Euan Lindsay was terrified of debt and had kept
Harperfield free of any form of security. Euan Lindsay's timidity when faced with formal
financial deeds may be seen in the fact that he signed the earlier draft of the first standard
security for all sums, notwithstanding his clearly expressed intention that it should be
capped at £200,000. The more disturbing aspect of that chapter of evidence is that,
notwithstanding that Derek Fradgley knew that that was Euan Lindsay's position from the
outset, he had his own agents send a deed framed as an all-sums security. That is verging
on duplicitous. One of the puzzles of the case is how, in any event, the first standard
security was for £275,000, as the Lindsay witnesses who spoke to Euan Lindsay's insistence
that it be capped consistently mentioned the figure of £200,000.
[221]
On the whole evidence, I accept that the pursuer has established that Euan Lindsay
was facile to a very high degree at the material time.
131
Circumvention
[222]
Circumvention is the term used to describe an unlawful advantage being taken of a
given situation and an individual's facility. It is distinct from fraud. It is not necessary that
there should be deceit. It is enough that there should be solicitation, pressure, importunity
and, even in some cases, suggestion. The degree of circumvention depends on the degree of
facility (Gibson's Exr v Anderson 1925 SC 774, per Lord Blackburn at 788).
The wider factual context
[223]
The critical meeting was that between Euan Lindsay and Derek Fradgley on
26 August 2009. However, it is important to place the evidence about that in a wider
context. Much of the evidence led by the pursuer was unchallenged. This included the
evidence of the Lindsay witnesses regarding Euan Lindsay's weakened physical and mental
state, the complete trust they reposed in Derek Fradgley, the difficulties they faced as a
consequence of foot and mouth, TB and the loss of the AI litigation, the bankruptcies and
the limited basis of financial support Euan Lindsay was prepared to offer in the summer of
2008, how MBL came to be established, the way in which Derek Fradgley assumed control
over the business once MBL was established and Derek Fradgley's domination of the
Lindsays.
[224]
In submissions, Mr McIlvride derided the pursuer's portrayal of Derek Fradgley as
undergoing a Jekyll and Hyde transformation when MBL was formed. However, that is to
ignore Outlook's significant exposure in the event of the Lindsays' bankruptcies. Outlook
was the principal creditor of the Lindsay businesses. Rodger Lindsay's view was that at that
time the value of their assets was significantly depressed. The then-current TB outbreak
meant that the cattle could not be sold. Accordingly, had MBL not been set up and assumed
132
the liabilities of the Lindsay businesses, Outlook would have borne a significant loss. That
this was apparent to Derek Fradgley is clear from the steps he took to increase the asset
cover, in what prima facie was an unfair preference, in the episode where he turned up and
added additional items to an agreement. By this point there were other features of
Derek Fradgley's conduct that at least raised questions of his bona fides in his dealing with
the Lindsays. There was the curious episode where he compelled Rodger Lindsay to enter
into a second agreement (and one of the experts had found some evidence of duplication in
the agreement numbers), and the more curious episode when he attended at Halltown
shortly before the first of the Lindsays' bankruptcies and removed all of the agreements. His
explanation was so he could explain matters to their trustees whereas it is more likely that
this was to avoid scrutiny by an independent third party. (Rodger Lindsay gave another
example when Derek Fradgley gave certain assurances about sorting the mortgage over
Metal Bridge Farm, but Rodger Lindsay later discovered that not only had Derek Fradgley
not done so, he had charged MBL rent without the Lindsays' knowledge or MBL's
agreement.)
[225]
While Derek Fradgley portrayed the setting up of MBL as a formality which would
leave the businesses to be run by the Lindsays and on the same terms they had had with
Outlook, he had much more to gain from establishing MBL. In doing so, he substituted a
new solvent debtor in the form of MBL for the Lindsays, who were days or weeks away
from bankruptcy and, further, he had also obtained enhanced protection in the form of the
first standard security in the amount of £275,000 in respect of Outlook's new debtor.
[226]
The extent to which Derek Fradgley and Outlook benefited from the new
arrangements to the detriment of the Lindsays may also be demonstrated by considering the
counterfactual. Had MBL not been formed (and Outlook's indebtedness been assumed by
133
it), Outlook would have borne a substantial loss. Mr McIlvride accepted in submissions that
the loss to Outlook would have been many thousands of pounds. The Lindsays would have
been discharged of that indebtedness and, while the assets of the Lindsay businesses might
have been sold, the Lindsays would at least have had the opportunity to buy them, and to
do so at a fair market value. That, after all, had been the Lindsay family proposal in
June 2008, but which Derek Fradgley had deflected by promoting the creation of MBL.
[227]
Another relevant feature of the wider context is how Derek Fradgley assumed total
control of all of MBL's finances in the manner described by Rodger Lindsay. All of MBL's
bank statements and invoices were sent to Outlook's address. Derek Fradgley also
effectively excluded any oversight by the Lindsays, by warning Rodger Lindsay off any
involvement under threat of dire consequences, and otherwise kept the Lindsays in the dark
as to MBL's financial state. There was no prospect that either Euan Lindsay or
James Lindsay had the inclination or financial nous effectively to query any statement or
decision of Derek Fradgley's in relation to MBL. In any event, the lack of any financial
information precluded their having any basis to do so, even if they had been so inclined.
The Lindsays' description of how Derek Fradgley ran the MBL meetings is revealing of his
domination: as James Lindsay explained, Derek Fradgley did not like to be challenged on
anything; it all had to be done his way. There is also the matter by which Derek Fradgley
secured signatures on documents and which precluded the Lindsay from being able to read
or consider the deed and, of course, no copies were ever left. In light of all of that evidence,
which I accept, Rodger Lindsay's description of feeling like the Lindsays were just
employees and Derek Fradgley was the "big boss" accurately portrays the realities of the
imbalance of power between Derek Fradgley and the Lindsays. As Rodger Lindsay
described it, he "felt totally out of control....and [he] was sick of it".
134
[228]
I return to Derek Fradgley's protestations that MBL was in a dire financial state and
how his threats of what "the bank" might do was used to put further pressure on the
Lindsays. The starting point is to consider the Lindsay businesses as they operated before
MBL was formed. Rodger Lindsay's evidence was that, prior to the insolvencies brought
about by the loss of the AI litigation, the Lindsay businesses had been modestly profitable.
Rodger Lindsay acknowledged that there were lean times, especially in the aftermath of foot
and mouth and of TB. He also acknowledged that there might be arrears from time to time,
but that the Lindsays paid their debts. They entered into finance agreements, but these were
generally to fund an acquisitions with a view to expanding the business (eg to buy more
cattle or to build a milking shed with a greater capacity). Rodger Lindsay estimated that the
milk cheque MBL was receiving was about £30,000 to £40,000 per month. After the
acquisition of additional cattle to increase milk production, which Derek Fradgley only
agreed to after the turn of the year (in early 2009), the milk cheque increased to £50,000
to £60,000 per month. This was a substantially greater sum than the monthly payments due
under the first MBL agreements. I accept Rodger Lindsay's evidence regarding the
Lindsay's business and that Derek Fradgley came looking for the business. It is improbable
that Derek Fradgley or Outlook would have continued to enter agreements with the
Lindsays, if their businesses were as Outlook now seeks to portray them. Moreover, as
Mr Thomson correctly pointed out, there was no objective evidence to support
Derek Fradgley's repeated assertions from early spring 2009 onwards that MBL was in a
parlous financial state. It was against the backdrop of those assertions that the series of
further events took place and which Derek Fradgley brought to a head in August 2009.
[229]
I am satisfied that the financial position of MBL was not as Derek Fradgley sought to
portray it between January and August 2009. In the first place, the bank statements disclose
135
that Derek Fradgley did not give full credit for the £200,000 Euan Lindsay had advanced.
Only about £110,000 was credited to MBL's account at that time. So far as the available bank
statements disclose, MBL always had a credit balance on its account. What prompted
Derek Fradgley to increase the pressure and present MBL's finance in apocalyptic terms?
Rodger Lindsay referred to the fact that the trustees on the Lindsay insolvencies were
chasing Outlook or challenging some of MBL's early transactions: see para [74], above. That
Derek Fradgley had concerns was apparent from the email he sent in February 2009 to his
own advisers, Butcher Woods (see para [154], above).
The events immediately preceding the 26 August meeting between Derek Fradgley and Euan Lindsay
[230]
After MBL's board meeting in August 2009, Derek Fradgley sent a fax on 19 August
stating that "the only chance of solving [MBL's asserted financial difficulty] is if Euan is
willing to provide security for a further £200,000 loan". Accepting Rodger Lindsay's
evidence that Derek Fradgley would fax when he wanted Euan Lindsay to see a
communication, it may be inferred that this was calculated to put pressure on Euan Lindsay.
However, Euan Lindsay refused to give security for a further £200,000. In the wider family
context, it was understood that William Lindsay would inherit Harperfield. That is why
Euan Lindsay is recorded as needing to speak to him before Euan could agree to grant the
first standard security. This is also consistent with James Lindsay's evidence that
Euan Lindsay would not do anything to harm the other branch of the family (meaning the
Lindsays at Harperfield).
[231]
Euan Lindsay's refusal, which Rodger Lindsay communicated to Derek Fradgley, led
to the extraordinary demand that Rodger Lindsay meet Derek Fradgley 2 or 3 days later at a
Little Chef in the Midlands on 23 August 2009. It was there that Derek Fradgley advised
136
Rodger Lindsay that MBL was insolvent; that "the bank" only had to sign a form to go to
court and everything would be sold. This is a telling example of Derek Fradgley's use of
"the bank" as a threat to powerful effect. It was, of course, a lie: Outlook owned the assets
which were let to the Lindsays under the first MBL agreements. Whether these were sold or
not was within Derek Fradgley's sole control, as there was no bank standing behind
Outlook. However, the Lindsays did not know this at the time. Their understanding,
fostered by Derek Fradgley's repeated misrepresentations about "the bank", was that the
bank was dictating how Outlook could respond.
[232]
After the Little Chef meeting Rodger Lindsay explored other avenues of support, as
he described in his evidence, in order to enable the Lindsays to buy back the assets of
Outlook. On the information then known to the Lindsays, this was a feasible step. At this
point in time Rodger Lindsay was not aware of the indemnities. In his then state of
knowledge, the financial exposure of the Lindsays was limited to the extent of the first
standard security. It was in those circumstances that the Lindsay family advised
Derek Fradgley that they would try and buy the assets themselves. Had the Lindsays been
able to do so, it is likely that MBL would have been wound up with very little cash to pay its
creditors. That would mean its main creditor, Outlook, would receive little or nothing
beyond the £200,000 (or £275,000) secured on Harperfield. These factors provided a
powerful incentive for Derek Fradgley again to deflect the Lindsay family proposal to obtain
external finance in order to buy back the assets, and instead to retain control of MBL and
increase Outlook's security cover.
[233]
Further, had the Lindsays been able to secure a buyout of MBL's assets, a number of
matters were likely to have come to light and which would have reflected adversely on
Derek Fradgley. These would have included the indemnities and the different and more
137
onerous terms of the first MBL agreements. That, in turn, might have prompted the
Lindsay's to obtain an independent review of Derek Fradgley's conduct of MBL's affairs.
Derek Fradgley's elaborate and prolonged artifice of drafting board minutes which
minimised his involvement and provided untrue descriptions of the active involvement of
Euan and James Lindsay, and the other fictions disclosed in the papers, such as Euan and
James Lindsay travelling down to Stourport for an MBL general meeting, may have been a
defensive strategy adopted by Derek Fradgley to deflect just such an enquiry.
The meeting at Halltown between Euan Lindsay and Derek Fradgley
[234]
It is at this critical juncture that the meeting on 26 August 2009 between
Derek Fradgley and Euan Lindsay occurred. Many features from the evidence point to how
irregular this meeting was. Rodger Lindsay was the Lindsay's point of contact with Outlook
and he attended all meetings with Derek Fradgley. However, on this occasion,
Derek Fradgley turned up without warning. Instead of coming in the morning which, on
Rodger Lindsay's description of a normal day, would be at the morning break after the first
milking round was completed, Derek Fradgley arrived mid-afternoon. This coincided with
the second milking round, when Rodger Lindsay would have been at Metal Bridge Farm a
few miles down the road from Halltown. On James Lindsay's narrative, Derek Fradgley
came into the house looking for Euan (not Rodger Lindsay). From all of these features it
may be inferred that Derek Fradgley wished to engineer a meeting with Euan without
Rodger Lindsay being present. From that circumstance, coupled with the significance of
what was to be discussed (especially from Outlook's perspective), it may also be inferred
that Derek Fradgley knew Euan was likely to be at his most vulnerable without
Rodger Lindsay.
138
[235]
The meeting James Lindsay described was intense: Derek Fradgley was aggressive
and dogmatic; the atmosphere was "awful and completely alien"; Derek Fradgley was being
nasty, very unpleasant and he was "the worst" that James Lindsay had seen him.
Derek Fradgley was "hell bent on getting Euan to sign". James Lindsay spoke to
Derek Fradgley deploying the threat that either Euan signed or "the bank will make you
bankrupt". All of these aspects of that meeting, and the highly unusual circumstances by
which it came about, lead to the conclusion that Derek Fradgley engineered this meeting
with the specific intention of overcoming Euan Lindsay's refusal a week earlier to extend the
security by a further £200,000. Mr Thomson was right to describe Derek Fradgley's resort to
"the bank" as a tool of oppression. I also accept his characterisation of Derek Fradgley's
conduct in this regard as "deceit". On the evidence I have accepted, there is no doubt that
Euan's conduct thereafter was driven by the fear of losing Harperfield and that he entered
into the Loan Agreements and the impugned standard security to avoid that outcome. I
accept Mr Thomson's submission as well-founded, that that meeting began the chain of
events which resulted in the documents now sought to be reduced being signed.
[236]
Before turning to consider the Settlement Calculation, the position between parties
may be summarised as follows: Derek Fradgley had effective and exclusive control of MBL.
He was also in complete control of its main creditor, namely, Outlook. Derek Fradgley
stood in a fiduciary position towards MBL. The Lindsays reposed complete trust in him at
that time. On the evidence I have accepted, Derek Fradgley manifestly preferred his own
interests, and those of Outlook, to the interests of Euan Lindsay, the Lindsays and MBL. In
doing so, he presented a false narrative of "bank pressure" and grossly misrepresented the
position to Euan Lindsay and the Lindsays in respect of MBL's financial position.
139
The Settlement Calculation
[237]
It was at this meeting, which took place in the circumstances Derek Fradgley
contrived to bring about, that Derek Fradgley produced the Settlement Calculation. This
stated that the balance of rentals was £2,662,812 (the figure is consistent with
James Lindsay's evidence that afterwards the figure Euan Lindsay mentioned was of
"£2.6 million"). It stated that the "Per Agreement Termination Amount" was £2,185,383.
The "**Special Termination Amount", offered for a time-limited period, was £1,623,879 and,
with the inclusion of the new cattle, totalled £1,800,000. It was under reference to these
figures that Derek Fradgley had issued what was, in effect, an ultimatum: either
Euan Lindsay bought Metal Bridge Farm and all of the cattle and machinery for £1,800,000,
or the debt would be called up, Euan Lindsay would be held personally liable and this
would lead to the forced sale of Harperfield. This ultimatum tapped into Euan's fear,
spoken to by the Lindsay witnesses, of losing Harperfield. The following month
Euan Lindsay entered into the Loan Agreements and he granted the impugned standard
security. James Lindsay and Rodger Lindsay both spoke to Euan's state immediate after
that meeting, of being in "some distress", "shaking", "very upset", and "in shock". What
they describe reinforces the other evidence that Euan had been prevailed upon to do the
very thing he was loathe to do: to imperil Harperfield by agreeing to further burdening it.
This evidence also rebuts any inference that Euan Lindsay was his own man, as Mr
McIlvride sought to portray him, or had freely consented to what Derek Fradgley had
proposed.
[238]
Euan Lindsay is reported to have said at the meeting that "all it should be was
£200,000" and James Lindsay described him that evening repeating over and over "that he
had no idea he owed that much". It is perhaps a further indication of the trust the Lindsays
140
then reposed in Derek Fradgley that, notwithstanding the huge disparity between the figure
of £200,000 mentioned by Euan Lindsay and the sum of between £1.6 and £2.6 million
Outlook demanded, none of the Lindsays thought to challenge Outlook's figures at that
time, but instead the Loan Agreements reflecting Outlook's figures were entered into.
[239]
Mr McIlvride took the point that there was no evidence for what was said
specifically by Derek Fradgley to Euan Lindsay under reference to the Settlement
Calculation and no evidence of what document Euan signed. (Mr McIlvride's criticism on
that latter point is to misunderstand the pursuer's case; no case is based on the document
Euan Lindsay was prevailed upon to sign at that meeting and whose contents are unknown
to this day.) Mr McIlvride submitted that, if Euan had focused on the figure of £2.6 million,
then he plainly "misunderstood" the document. He submitted that the correct figure
was £1,719,555. Mr McIlvride arrived at this figure by deducting from the total of the "Per
Agreement Termination Amount" of all of the agreements (a figure of £2,185,383), the
amount of the Lindsay Mortgage (£465,828). There are three difficulties with that
submission. First, the figure of £1,719,555 appears nowhere on the Settlement Calculation.
Having regard to the tenor of the meeting, as James Lindsay described it, and
Derek Fradgley's objective of securing Outlook's exposure, it is improbable that
Derek Fradgley would have taken the time to break down the figures in the way
Mr McIlvride now suggests, in order to strip out the Lindsay liability (not MBL's) under the
Mortgage. It is all the more unlikely that Euan Lindsay would have been able to carry out
that calculation himself, much less to do so in the intensely pressured and wholly
unexpected face-to-face meeting with Derek Fradgley. Secondly, the realisation that, if the
Settlement Calculation purported to portray Euan Lindsay's liability for MBL's
indebtedness, it had erroneously included the Lindsay liability under the Mortgage, appears
141
to have come late. The first Grant Thornton Report and the Henderson Loggie Report both
analysed the Settlement Calculation without stripping out the Lindsay Mortgage. That was
only done in the second Grant Thornton Report, in December 2020. Thirdly, the submission
fails to reflect the evidence of the only figures from the Settlement Calculation referred to by
the single contemporaneous witness, James Lindsay, of Euan Lindsay's understanding of the
Settlement Calculation: that £2.6 million was owed, but that Derek Fradgley would
"discount" this to £1.6 million. And indeed, subject to the addition of the figure for cattle to
bring the figure up to £1.8 million, the total of the sums of the Loan Agreements reflect that
number.
The Outlook Letter
[240]
Turning to the Outlook Letter (of 4 September 2009), Outlook placed considerable
reliance on this as correcting any misrepresentation or error in the Settlement Calculation.
He did so under reference to the discussion of misrepresentation in Gloag, The Law of
Contract, 2nd ed at p 468, including the reference to Lord Chancellor Brougham's
observation in Irvine v Kirkpatrick (1850 Bell's App. 186 at 237, to the effect that if the
representee discovers the truth, any misrepresentation ceases to operate. (This was to meet
Mr Thomson's submission that there was a continuing duty on the representor to correct a
misrepresentation.) Outlook's position was that the Outlook Letter corrected any
misrepresentation that may have been made under reference to the Settlement Calculation.
[241]
Leaving aside whether Euan would have understood the word "indemnifier", this
letter was unlikely to have improved Euan Lindsay's understanding, as three of the figures
it mentioned do not appear in the Settlement Calculation (these are the figures underlined in
the text quoted at para [94], above). In any event, Mr Thomson's submission is well-made
142
that the Outlook Letter relied on, rather than "corrected", the figures in the Settlement
Calculation. I accept that submission. While the subtotal of the three agreements stated in
the Outlook Letter was £935,051, that figure does not appear in the Settlement Calculation.
It appears to be based on the first three figures in the final column of the Settlement
Calculation. Similarly, the amount "as indemnifier" is stated to be £1,158,051, which is
derived from the first three and the fifth figures in the final column of the Settlement
Calculation. While it is correct that the Lindsay Mortgage liability has been stripped out
from the figure of £1,158,051, I accept the evidence William and Rodger Lindsay that the
word "indemnity" or" indemnifier" would have been meaningless to Euan Lindsay.
Having stripped out the Lindsay Mortgage to arrive at the total figure representing
Euan Lindsay's liability of £1,158,051 in respect of the first MBL agreements, the sum due
under the Lindsay Mortgage was immediately added back in, in the next paragraph under
the guise that Euan Lindsay "intended" to form a new company ("Metal Bridge Dairy Farm
Limited") and had "offered" to purchase Metal Bridge Farm for £465,000. Leaving aside
those patently untrue statements, Euan Lindsay was unlikely to be able to discern from this
letter that his liability in respect of the first MBL agreements might be less than either of the
headline figures of £2.6 million or £1.6 million. Rather, the overall presentation of the
Outlook Letter reinforced its position that Euan Lindsay's total liability was £1.8 million, as
had been represented at the critical meeting on 26 August 2009.
The Gebbie & Wilson Letter
[242]
That leaves the Gebbie & Wilson Letter of 29 September 2009. I have already found
on the evidence that Euan Lindsay did not take legal advice. There is no evidence that
Euan Lindsay met personally with his solicitor and Rodger Lindsay's evidence, having
143
reviewed the agents' files, reinforces the other evidence that Euan Lindsay had not done so.
Mr McIlvride noted that the Gebbie & Wilson Letter contained the figures stated in the
Outlook Letter. That may be so but Gebbie & Wilson had never seen the underlying Loan
Agreements. They stated in terms that they were not offering any advice. Further, they
were not aware of any personal indemnities. So far as they would have been aware, Euan
Lindsay's liability was capped at the amount of the first standard secu rity. In that state of
ignorance, Gebbie & Wilson could have not appreciated that the figure of £1,158,051 was
"correcting" any figure in the Settlement Calculation- a document they never saw.
Furthermore, as is apparent from Mr Lindgard's file entries (see para [134(3), above]), Euan
Lindsay had signed Outlook's offer on 4 September 2009, more than 3 weeks before the
Gebbie & Wilson Letter.
[243]
In any event, the terms of the Gebbie & Wilson Letter were unlikely to divert
Euan Lindsay from the course his meeting with Derek Fradgley had set him on. On the
evidence I have accepted, I do not accept Mr McIlvride's submission that Euan Lindsay was
motivated to help his family. I also accept William Lindsay's evidence that there was no
way Euan Lindsay would help some family members at the cost of others.
[244]
In meeting the pursuer's case on circumvention, in submissions, Mr McIlvride relied
on the evidence that Euan Lindsay had sufficient force of personality to refuse to grant the
unrestricted standard security Derek Fradgley sought in June 2008 and to have himself
removed as a director from MBL by October 2009. He submitted that in this case the
Lindsays had contrived to present Euan Lindsay as a financial ingénu which was misleading.
In any event, Mr McIlvride's submission was that, had there been any circumvention or
misrepresentation in the Settlement Calculation, this was corrected by the time of the
4 September Outlook Letter. This submission does not accord with the evidence I have
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accepted about Euan Lindsay's ceasing to be a director which, at best, was equivocal. The
overall impression from this chapter of the evidence is of Euan Lindsay`s diffidence. He
mentioned his discomfort to William, who advised him to discuss this with Rodger Lindsay.
Given Euan Lindsay's personality, his mental and physical state at that time, and his
unwillingness to attend meetings at which Derek Fradgley was present, it is unlikely that
Euan Lindsay asked Derek Fradgley to have him removed as a director of MBL. Contrary to
the inference Mr McIlvride seeks to infer of Euan's agency, such evidence as there is on this
matter reinforces Euan Lindsay's timidity and lack of agency.
[245]
I find on the whole evidence that Euan Lindsay was impelled by the ultimatum
Derek Fradgley had issued under reference to the Settlement Calculation at the critical
meeting of 26 August 2009. In contrast to the position when Euan Lindsay granted the first
standard security, Derek Fradgley's leverage in August 2009 was significant. It is in this
context that Derek Fradgley deployed the threat of "the bank" repossessing "everything"
and coming after Harperfield, coupled with his ultimatum that Euan Lindsay had to buy off
this threat in order to prevent the bank stepping in . In the whole circumstances, this was a
powerful ultimatum that Euan Lindsay was unable to resist and which continued to impel
him when he entered into the Loan Agreements and to grant the impugned standard
security.
[246]
I have already dealt with the Outlook Letter. On the evidence I have accepted
nothing in the terms of the Gebbie & Wilson letter which would have relieved Euan Lindsay
of the ultimatum Derek Fradgley had issued, and which led him to grant the Loan
Agreements and the impugned standard security. Rather, I find that Euan Lindsay only
agreed to provide the further security (in the form of the impugned standard security) and
to enter the Loan Agreements, because Derek Fradgley had persuaded him he was
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personally liable and he had falsely misrepresented at their meeting that "the bank" was
going to call up the debt, liquidate MBL and then come after Euan Lindsay to take
Harperfield.
Has the pursuer proved circumvention?
[247]
In considering whether the pursuer has proved the element of circumvention, I note
that circumvention does not require there to be fraud or even deceit. This is clear from
Lord Blackburn`s articulation of the modern meaning of circumvention in Gibson's
Executors v Anderson (at p 788):
"...It is not necessary that there should be deceit. It is enough that there should
be solicitation, pressure, importunity, even in some cases suggestion. The
degree of circumvention would depend upon the degree of facility..."
I accept Mr Thomson's submission, made under reference to these observations, that in the
present case there was deceit, solicitation and pressure effected by Derek Fradgley and that
the deceit took many forms. It included: obtaining the personal indemnities; falsely
representing the level of debt owed to Outlook; and falsely claiming that "the bank" was
compelling him to take action. I also accept as amply supported by the evidence his
submission that the pressure Derek Fradgley applied at the material time could not have
been much greater. Derek Fradgley told Euan Lindsay he would be held personally liable
for the debts of MBL if he did not sign. The inescapable outcome of that would be losing
Harperfield. All of this was done at a time when there was a high degree of facility.
[248]
On the whole evidence I find that the pursuer has established circumvention of
Euan Lindsay by Derek Fradgley on behalf of Outlook. From the evidence I have accepted,
Derek Fradgley was adroit at manipulating all of the Lindsays, not just Euan Lindsay, in
order to advance his own interests by illegitimate means. Those means included his
146
complete control of the affairs and finances of MBL, to the exclusion of the Lindsays; the
means by which he secured the Lindsays' signatures to any document that suited Derek
Fradgley or Outlook; his misrepresentations of the amounts due by MBL (which, from
Outlook's own records, he could not but know to be false); the repeated false
representations about "the bank", and which was deployed with devastating effect at critical
junctures; and the production of board minutes and other documents containing fictional
entries to disguise the degree of control he was exerting. By contrast with a one-off
misrepresentation made on a single occasion, the circumvention Derek Fradgley achieved in
these case was a prolonged and elaborate circumvention to a very high degree.
Lesion
[249]
Lesion is the term used to describe the injury suffered by one who does not receive a
full equivalent for what he gives in a contract. To put it another way, it requires the
individual to have suffered some form of loss. (This element of facility, circumvention and
lesion will also be relevant to the issues of restitution and unjust enrichment.) Lesion on its
own is never a basis to invalidate a contract. However, when combined with the other
factors of facility and circumvention, they can combine to invalidate consent.
Lesion
[250]
In reliance on Mr Graham's evidence, Mr Thomson submitted that Euan Lindsay
suffered loss as a result of signing the Loan Agreements and the impugned standard
security.
[251]
It is undoubtedly the case that a consequence of the transaction Outlook's position
was material improved to the detriment of Euan Lindsay. Prior to the impugned deeds,
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Outlook had the first standard security, which was restricted in amount, and the first
indemnities which were susceptible to challenge. As a consequence of the Loan Agreements
and the impugned standard security, Outlook had acquired valuable real security over the
whole of Harperfield, and it need not rely on the indemnities.
[252]
Mr McIlvride accepted in submissions that in entering Loan Agreement 1,
Euan Lindsay had undertaken liability for new debts in addition to those due under the pr e-
existing indemnities, and that he had granted an unlimited or all-sums standard security in
place of the restricted terms of the first standard security. On that concession, there is prima
facie lesion. Nonetheless, Mr McIlvride submitted that the effect of those transactions could
be equated with an individual who buys a house with a mortgage and thereby secures "a
substantial benefit" in the form of the house. In my opinion, that analogy is unpersuasive.
It is highly unlikely that a person compelled to buy house s/he does not want and to imperil
an unencumbered asset by the grant of an unrestricted standard security in order to
purchase the unwanted house, would regard this as "a benefit" in the real world. Moreover,
this submission also ignores the degree of compulsion under which Euan Lindsay acted.
Mr McIlvride also seeks to justify the benefit to Euan Lindsay, by noting what would
happened if Outlook had instead taken steps to sell Metal Bridge Farm and repossess the
cattle and machinery. I have already considered the counterfactual and do not accept it
would be as Mr McIlvride sought to portray it. At the very least, the Lindsays would have
been able to buy the assets at their true value which on an extrapolation from the
retrospective valuations Rodger Lindsay spoke to would have been materially lower than
the sum of more than £900,000 that Outlook demanded and received. (As noted above, at
para [78], the Outlook figures for the assets may have been overstated by more than
£700,000.)
148
[253]
What is surprising is Mr McIlvride's abandonment in submissions of any reliance by
Outlook on the first Grant Thornton Report. In respect of the first Grant Thornton Report,
Mr McIlvride's position in submissions was that both experts had erred in undertaking the
SSAP 21 calculation. The experts had been wrong to focus on identifying the capital due;
they should have applied the termination provisions of the agreements they had analysed.
A debtor's liability should be determined by the terms of the new agreement. In his
submission, only the second Grant Thornton Report adopted the correct approach. Under
reference to the Settlement Calculation Mr McIlvride sought to argue that, in fact, that was
not intended to identify the whole figure Euan Lindsay would need in order to buy the
assets and pay off the liabilities to Outlook. The figures of £2.6 million and £2.185 million
were both wrong. The correct figure although nowhere stated on the Settlement
Calculation was £1.7 million, which was the "correcting" figure stated in the Outlook
Letter. This submission prompted Mr Thomson to intervene. What was now being said in
respect of the Settlement Calculation was a complete departure from the parties' agreement
in the Joint Minute of what that document sought to portray, which was MBL's
indebtedness to Outlook at the material time. There is force in Mr Thomson's observation
that this is an impermissible departure from the terms of the parties' Joint Minute. I note
that in making his submission, Mr McIlvride took the Court for the first time to the
termination provisions in the first MBL agreements. Neither these terms, nor the argument
Mr McIlvride now seeks to advance, was put to any witness to fact. More fundamentally,
this argument was wholly at odds with the evidence in two respects. First, Mr Graham had
noted that Derek Fradgley never applied termination provisions when rolling over earlier
agreements into later ones. Rather, Derek Fradgley undertook an SSAP 21 calculation. Both
experts had found evidence that this is what Derek Fradgley had done. Secondly,
149
notwithstanding the inclusion of "termination amounts" in the Settlemen t Calculation, even
Derek Fradgley departed from the figures brought out in the fifth column (and stating to be
the "Per Agreement Termination Amounts") at the very latest by the time he wrote the
Outlook Letter. Accordingly, the argument now advanced as the basis to disregard the
Henderson Loggie Report and the first Grant Thornton Report, in order to prefer the second
Grant Thornton Report, has no foundation in the evidence. Finally, Mr McIlvride's general
submission, that a debtor's liability is assessed by the terms of the agreement, is beside the
point. What the Settlement Calculation sought to portray as parties agreed was to
identify MBL's liabilities under the first MBL agreements. On the evidence, that was done
by the kind of SSAP 21 calculation Mr McIlvride now seeks to discredit. I find that that
approach is misconceived, for the reasons provided.
[254]
Turning to the question of what was the likely indebtedness of MBL or under the
Lindsay Mortgage at the material time, I have already noted my conclusions on the opinion
evidence, and my acceptance of Mr Graham's evidence in preference to that of Mr Preston. I
have noted the sums above, but neither expert could support the "**Special Termination
Amount" of £1,623,879 in the Settlement Calculation, much less the "Per Agreement
Termination Amount" £2,185,383. Nothing like as much as those sums was actually due.
The pursuer's expert valued MBL's indebtedness under the Settlement Calculation
agreements as £909,613 (as adjusted); the defender's expert's figure in the first Grant
Thornton Report was £1,475,870 and in the second Grant Thornton Report (applying the
contractual provisions) was £827,605 (after deducting the figure for the assets he had been
instructed to add in).
[255]
For present purposes, it matters not which expert's total figure is accepted. On any
of their assessments, Euan Lindsay did not receive the full value of the £1.8 million that
150
Outlook received upon the execution of the Loan Agreements and Euan Lindsay's grant of
the impugned standard security. One Mr Graham's assessment, looking solely at the figures in
the Settlement Calculation, the loss to Euan Lindsay was more than £700,000 (ie taking the
lowest total from the Settlement Calculation, of £1,623,879, less £909,613 and producing an
overstatement of £714,266).
[256]
However, there were two other detriments to Euan Lindsay. The first was the grant
of the impugned standard security over Harperfield for an unrestricted amount. The second
detriment was the inflated value of the machinery and cattle MBL acquired. While there
was little evidence on this latter point, it may be inferred from Rodger Lindsay's
unchallenged evidence of the retrospective valuations he obtained that Outlook's figures
were grossly overstated. This is not surprising, as there is no evidence that Outlook allowed
for depreciation and, against that, there is Rodger Lindsay's evidence that dairy cows have a
relatively short productive life.
[257]
Accordingly, on the whole evidence, I find that Euan Lindsay incurred an immediate
and substantial loss when he entered into the Loan Agreements and granted the impugned
standard security over Harperfield. The lesion proved in these cases was very substantial.
Conclusion on the pursuer's case based on facility, circumvention and lesion
[258]
For the foregoing reasons, I find that the pursuer has established each of the three
elements of facility, circumvention and lesion, and that the evidence in these cases in
support of each element was strong. Returning to the unitary assessment that falls to be
made, having regard to the evidence of each of these three factors, I find that the pursuer has
amply established on the evidence that there was a want of consent by Euan Lindsay to the
151
impugned deeds on the basis of his facility and the circumvention of Derek Fradgley on
behalf of Outlook, all to Euan Lindsay's loss.
Alternative grounds for reduction: Fraudulent misrepresentation and bad faith
[259]
The pursuer's alternative grounds for reduction were fraudulent misrepresentation
and bad faith. The latter ground was directed to all of the indemnities Euan Lindsay
granted. In the grant of the indemnities, Euan Lindsay was acting as guarantor or cautioner
of MBL's liabilities. Outlook, as the creditor benefitting from indemnities, owed certain
duties to Euan Lindsay qua cautioner. In this context, a creditor (such as Outlook) owes a
general duty of good faith to a potential cautioner (Euan Lindsay). That duty requires all
representations to a potential cautioner to be done in a full and fair manner. The creditor
must not mislead the cautioner. If the creditor misleads the cautioner either by his silence of
some positive representation he will be acting in bad faith and may lose the right to enforce
a contract: see Smith v Bank of Scotland 1997 SC (HL) 111 per Lord Clyde at 118C. The
pursuer also invokes a separate proposition, to the effect that a party who acts in breach of
contract will lose the right to enforce against the other party the contractual obligations
incumbent upon the other party which are the counterpart of those breached by the first
party: Macari v Celtic Football and Athletic Co Ltd 1999 SC 628 per LP Rodger at 640G.
Did Outlook breach the duties it owed to Euan Lindsay qua cautioner in his grant of the indemnities?
[260]
Mr Thomson submitted that neither James nor Euan Lindsay would have
appreciated the legal significance of signing an indemnity. I have already noted the
evidence of the family members to that effect. Each confirmed that he did not know what an
indemnity was prior to these actions. Mr Thomson also submitted that to the Lindsays it
152
was a foreign word, let alone a legal term of art. I accept that submission is amply
supported by the evidence. It is entirely consistent with other evidence that I have accepted:
that Euan Lindsay, together with some of the other family members in the same generation,
such as James Lindsay, left school at 14; Euan's lack of experience or sophistication in
financial matters, coupled with his horror of debt and the perception that "bankruptcy" was
a dirty word; and the family ethos that enjoined financial prudence. This is also consistent
with Rodger Lindsay's feelings of shame in being made bankrupt.
[261]
Mr Thomson points to a body of circumstantial evidence to support the proposition
that neither Euan Lindsay nor James Lindsay would have understood what an indemnity
was.
1)
Euan Lindsay was always clear that his contribution and liability was to be
capped at £200,000. The original security drafted by Outlook sought an "all-
monies" security. That was specifically negotiated out by Euan Lindsay's
solicitor. That capped security (ie the first standard security) was not signed
until 4 October 2008. However, the first indemnities were signed before that,
in July 2008. If Euan Lindsay had understood and accepted the extent of his
personal liability under the indemnities there would have been no point in
restricting the first standard security.
2)
The letter dated 29 September 2009 from Gebbie & Wilson to Euan Lindsay's
solicitor to Euan Lindsay provides further support. That letter was from the
same solicitor who dealt with the first standard security. The solicitor noted
that he was "unclear" as to the indemnity being referred to by Outlook. The
proposition that Mr Thomson advanced was that if Euan Lindsay had been
aware of and understood the indemnity prior to signing the first standard
153
security, he would have told his solicitor about it at the time. The fact that
Euan Lindsay's solicitor appears to have known nothing about the
indemnities over a year later was, Mr Thomson submitted, compelling.
[262]
Mr Thomson posed the question: if Outlook had valid and enforceable personal
indemnities, why would Derek Fradgley need to pressure the Lindsays for more funds?
Mr Thomson submitted that the only credible explanation was that the first indemnities
would not have stood up to scrutiny and, indeed, he moved for reduction of the
indemnities ope exceptionis. Had Derek Fradgley sought to enforce the alleged indemnities at
that time, Euan Lindsay was still alive and could have given evidence that he had not
understood what he was signing and the fact of legal advice not having been taken. In those
circumstances, Derek Fradgley instead obtained the Loan Agreements, which were secured
by an all monies charge and the impugned standard security which was unrestricted in
amount. I accept that the circumstantial evidence Mr Thomson identifies supports the
inferences he invites me to draw.
[263]
There are two other features of the evidence that support the pursuer's challenge to
the indemnities. The first was the manner in which signatures were obtained, giving the
granter no opportunity to read and consider the deed to be signed, and the fact that from the
time MBL was incorporated, copies of documents signed by the Lindsays were not provided
to them but retained by Derek Fradgley. The second feature from the evidence, not yet
noted, arises from the statements at the end of the Loan Agreements, to the effect that Euan
Lindsay was of "high net worth". The purpose of these statements was to remove the
protections and remedies available under the Consumer Credit Act 1974 that would
otherwise have applied to the Loan Agreements. Give the manner in which Derek Fradgley
obtained signatures and his push for the Loan Agreements to be completed as soon as
154
possible, it may be inferred that the import of signing these declarations were not explained
to him nor understood by him. I note, too, that Mr McIlvride accepted in submissions that
there was no evidence that the author of the deed certifying that Euan Lindsay was a high
net worth individual had ever met Euan Lindsay.
[264]
I am persuaded on the whole evidence, that Outlook`s representations to Euan as a
potential cautioner had not been done in a full and fair manner and that Outlook breached
the duties it owed to Euan Lindsay qua cautioner.
[265]
Finally, in relation to pursuer's case based on fraudulent misrepresentation, the
evidence I have accepted demonstrates a pattern of deceit culminating in the S ettlement
Calculation and that, in its representation of figures for liability, Derek Fradgley could not
but have known these figures to have been grossly overstated and untrue as a representation
of MBL's liabilities (and hence Euan Lindsay's). The pursuer's alternative case of fraudulent
misrepresentation is made out.
[266]
In meeting the pursuer's alternative grounds, Outlook relied on the same evidence it
had identified in meeting the pursuer's principal ground of challenge. However, so far as I
understand it, it also contended that there was no evidence to entitle the Court to find what
sums were due to Outlook under the Lindsay Mortgage at the time Euan Lindsay entered
into Loan Agreement 2 and, therefore, there was no basis to say if any sum Derek Fradgley
attributed to the Lindsay Mortgage was a misrepresentation. This submission
misunderstands the pursuer's case: the misrepresentation was that Euan Lindsay was liable
for the sums claimed as indemnifier of MBL, whereas this was a liability of Rodger Lindsay
wrongly included in the Settlement Calculation. In the context, the value attributed to the
Lindsay Mortgage was not material. Moreover, as is amply demonstrated by the Settlement
Calculation, Outlook's own approach was to combine all of the extant agreements the first
155
MBL agreements and the Lindsay Mortgage in stating the global liability Euan Lindsay
was induced to accept when he entered into the Loan Agreements and the impugned
standard security. There is no merit in this argument.
[267]
Accordingly, in light of the whole evidence I have accepted, the pursuer has
established each ground of challenge he advanced. I therefore turn to consider the remedies
he seeks
The remedies the pursuer seeks
[268]
The pursuer seeks to free Euan Lindsay's estate from any liability to Outlook under
the Loan Agreements and to free Harperfield, the principal asset in Euan Lindsay's estate,
from the impugned standard security. The primary remedy is the production and reduction
of one of the Loan Agreements and the impugned security and redu ction ope exceptionis of
the indemnities. The declarator in respect of Loan Agreement 2 in the second action is
advanced on the same grounds. I have already concluded that the pursuer has established
all of the grounds for reduction he advanced. However, it is a distinct requirement of the
remedy of reduction that the pursuer must be able to offer restitutio in integrum. On this
matter, the pursuer maintains that, not only has it satisfied this procedural requirement, it
has also established that Outlook has been unjustly enriched at the pursuer's expense. This
is the subject of his third conclusion, for payment. Before considering that issue of
unjustified enrichment, I consider the issue of restitutio and Outlook's arguments that that
requirement cannot be satisfied in this case.
156
Restitutio in integrum and unjustified enrichment
Restitutio in integrum
[269]
By reduction, the pursuer seeks to have a deed rendered of no legal effect. However,
the prerequisite to the grant of that remedy is the obligation, of restitutio in integrum, that the
other party to the deed under reduction be restored to the position in which s/he was in
before the contract was made. If restitutio cannot be achieved then reduction, which is
fundamentally an equitable remedy, is precluded. In the case of a defender who has been
guilty of fraudulent misrepresentation, the requirement for restitutio may be modified, at
least to the extent that the fraudulent person is not entitled to found on dealings which s/he
has enabled by his or her fraud to be carried out (Spence v Crawford 1939 SC (HL) 52 per Lord
Thankerton at 71).
[270]
Outlook contends that restitutio is impossible. As Mr McIlvride put it in submissions,
the obligation on the pursuer is to "restore the other party to precisely the same
position....before the contract was entered into" (emphasis added), but that the pursuer is
not in a position to return to the defender "the cattle and equipment which Euan Lindsay
obtained under Loan Agreement 1". Accordingly, he submitted that the pursuer was
"unable to offer substantial restitution" and that the Court's equitable powers "do not
extend to fashioning a remedy which simply involves any cash payments being treated as a
substitute for the cattle and equipment". This is a surprising submission in two respects.
First, the party who contends that restitutio is impossible bears the onus of proving that
contention. However, in this case Outlook led no evidence at all on this issue. This is also a
surprising submission, given that this is the same argument advanced at the Debate and
which I rejected and it was for that reason this is a proof, and not a proof before answer. I
refer to paras [35] to [38] of the Debate Opinion.
157
[271]
Dealing with the submission, in my opinion the inflexible formalism underpinning
Outlook's submission is wrong in law. The purpose of restitutio is to achieve a state of
affairs, broadly restorative of, if not always precisely achieving, the parties' position prior to
their entry into the now-impugned deed. Scots law has long recognized, in a case of the
highest authority, the use of a compensatory payment where strict restitutio could not be
achieved: see Lord Thankerton's analysis in Spence v Crawford 1939 SC (HL) 52 from pp 69
to 72, and especially his discussion of the "modifications" to the requirement of restitutio,
which was not a doctrine "to be applied too literally"; and see the cases analysed at paras
[33] to [35] in Somerville v 1051 GWR Ltd [2019] CSOH 61. There might have been some force
in Outlook's argument (assuming it had been supported by relevant evidence) if the thing
incapable of restoration had some distinctive quality important to Outlook, and use or
enjoyment of which would be lost because restitutio is not possible. That is not the case here.
Outlook never possessed, used or enjoyed the assets at issue (which do not include Metal
Bridge Farm). It acquired ownership of the cattle and machinery, without ever having
possession, purely as a form of security, consistent with the asset-backed financing it
offered. The only value of the assets to Outlook was their monetary value in security of its
claim. It is a truism that reduction is an equitable remedy. In my view, the equitable
jurisdiction the Court exercises is not confined to the power to reduce; it must necessarily
extend to its oversight to ensure that there has been sufficient restitutio which is a
prerequisite of its grant of reduction. Had this been a live issue, I would have held, that in
the circumstances of this case, the payment by the pursuer of any balance due to Outlook (if
that had arisen) would have satisfied the requirement of restitutio.
[272]
The pursuer's position is that in this case, perhaps unusually, the requirement of
restitutio does not arise. The pursuer's position is that the payments Outlook received
158
exceeded the amount owed by the Lindsays to Outlook at the time the Loan Agreements
were entered into. The evidence on this chapter was in relatively short compass. In relation
to the sums Outlook received since the date of entering into the Loan Agreements, these
were as follows:
1)
payments under the Loan Agreements from totalling £380,690 (per the
schedule at pp 354 to 364 of the joint core bundle);
2)
the sum of £599,000 realised upon a repossession of Metal Bridge Farm (per
Outlook's statutory demand served on the pursuer in July 2014); and
3)
the sum of £110,000 Outlook retained on agreement number 1540.
These total £1,089,690. Rodger Lindsay spoke to all of these figures and to the supporting
documents in his principal affidavit (at paragraphs 114 116). None of this evidence was
subject to cross-examination.
[273]
In submissions, Mr McIlvride took issue with two of these figures. In relation to (2),
he contended that Mr Graham "does not confirm" that £110,000 had been retained by
Outlook and that, in relation to (3), the sum truly due from the sale was, on Mr Preston's
investigation, only £460,252.
[274]
Outlook faces several difficulties on this branch of its case. First, if a party intends in
submissions to challenge the evidence of a witness or to invite the Court to disregard it,
fairness requires that the basis of challenge be put to the witness so s/he may respond. That
was not done. Rodger Lindsay was not cross-examined on any of the figures he spoke to.
Secondly, Mr Preston's evidence about his investigations to trace the proceeds, which he
endeavoured to do via Outlook's cashbook, falls within the scope of the pursuer's objection
and I therefore exclude that evidence. In any event, there was no challenge to the figure of
£599,999 the figure stated by Outlook in its own statutory demand. Even had I not
159
excluded Mr Preston's evidence on this point, I would have preferred, and held Outlook to,
the figure it stated in the statutory demand - a formal legal document whose very purpose
was to state the true level of its claim relied on by the pursuer. The aggregate of those two
sums is £1,060,255, which (if the pursuer's evidence is accepted) is more than the sum due to
Outlook. For completeness, I note that Mr McIlvride's submission on item (3) appears to be
based on a misreading of Mr Graham's report. What Mr Graham actually wrote was that:
"4.2.98 .....At the foot of the invoice for £130,800 is a note that the balance of £110,000
was to be used to settle an outstanding cattle lease.
4.2.99 It is not clear from the documentation that I have seen where the £110,000
retained by [Outlook] has been allocated to other debts owed to [Outlook]".
(Emphasis added.)
The tenor of that passage is that while Mr Graham had found that the sum of £110,000 had
been retained (the text in bold), he was unable to find that it had been allocated or set off
against other debts due to Lindsay (the text underlined); in other words, he was unable to
find that any credit had been given to the Lindsays for the sum retained. Pace
Mr McIlvride's reading, I find that this passage supports the evidence given by Rodger
Lindsay. The final, and insurmountable, difficulty is that Outlook bears the onus of showing
that restitutio is not possible. It led no evidence of its own that this was so. I accept the
pursuer's evidence and its analysis of the amounts paid to Outlook. I turn to consider the
other side of the equation, being the sums owed to Outlook at the material time.
[275]
The expert evidence was led to determine the sums truly due to Outlook at the point
the Loan Agreements were entered into. As noted above, Mr McIlvride eschewed reliance
on the first Grant Thornton Report. In any event, as also noted above, I have preferred the
evidence of Mr Graham. On his calculation, £909,612 was the total sum owed to Outlook at
the material time (this is his original figure of £907,563 with the addition of £2,050 for the
invoice he accepted at the meeting of the experts). Deducting the sum paid to Outlook
160
(£1,089,690) from the sum that was properly due to it (£909,612), produces an overpayment
by the Lindsays of £180,077.
[276]
It follows that I accept the pursuer's submission that, in all the circumstances, the
requirement of restitutio does not arise; and that he has made out his case for the remedy of
reduction. I next deal with the pursuer's third conclusion for payment, the ground for
which is unjustified enrichment.
Unjustified enrichment
[277]
The evidence just noted, that on balance Outlook received payments amounting to
more than was due to it, is relevant to the issue of unjustified enrichment. In the Debate
Opinion I held that the pursuer had pled a relevant case. The authoritative statement of the
law on unjustified enrichment is, of course, Lord Rodger in Shilliday v Smith 1998 SC 725, at
727 D to E. It is common ground that a person may be said to be unjustly enriched at
another's expense when s/he has obtained a benefit from the other's actings or expenditure
without there being a legal ground which would justify retention of that benefit. In general,
one has a right to have an unjust enrichment reversed. As the law has developed it has
identified various situations where persons are to be regarded as having been unjustly
enriched at another's expense and where the other party may accordingly seek to have the
enrichment reversed.
[278]
The pursuer's case was shortly put: the only legal basis upon which Outlook retains
the monies obtained by it are the Loan Agreements. If these are reduced (or declared void)
on the basis they were obtained by facility and circumvention, Outlook will no longer have a
legal basis upon which to retain the balance of the sums paid beyond those truly due to it
immediately before these agreements were entered into.
161
[279]
Outlook's principal defence to this part of the pursuer's case was to rely on the
defences already advanced (ie that there was no circumvention or misrepresentation and
that the pursuer had not proved the figures necessary to his case). I have already rejected
Outlook's position on those matters.
Decision
[280]
I accept that the pursuer has made good its case, in both fact and law, and that he is
entitled to the remedies sought in these two actions. I shall grant interlocutors giving effect
to my decision. I will reserve all question of expenses meantime.
