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Cite as: [2022] CSOH 29, [2022] ScotCS CSOH_29

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OUTER HOUSE, COURT OF SESSION

[2022] CSOH 29

CA1/21

OPINION OF LORD CLARK

In the cause

(FIRST) COLONNADE PROPERTIES LIMITED, KEITH BRIGGS STEPHEN and

OLIVER JAMES STEPHEN, AS THE TRUSTEES OF THE NEWBATTLE PENSION FUND;

(SECOND) COLONNADE PROPERTIES LIMITED

Pursuers

against

BEECHMOUNT LIMITED (IN LIQUIDATION)

Defender

Pursuers: McColl QC, Brodies LLP

Defender: Ower; Morton Fraser LLP

30 March 2022

Introduction

[1]

The parties were previously involved in two litigations. A settlement agreement was

reached. Beechmount Limited then went into liquidation. In this case, the pursuers seek

payment from the defender, said to be due in terms of the settlement agreement. The

defender contests the pursuers' right to payment on three grounds: (i) the liquidator is not

bound by the terms of the settlement agreement; (ii) the settlement agreement was

frustrated as a result of the appointment of the liquidator; and (iii) the pursuers' claim could

only succeed if other obligations under the settlement agreement had been discharged,

which had not occurred. To resolve these issues, the case called before me for a proof before

answer, conducted remotely via Webex.

Background

Initial dispute

[2]

For the purposes of clarity Beechmount Limited is referred to h erein as "the

Company" and the term "defender" is used when referring to the liquidator. The Company

was incorporated on 5 March 1996. The two directors of the Company for most of the time

of its operation were Iain Dewar and Keith Stephen. There are three shareholders in the

Company, each with the same percentage of shares: the Newbattle Pension Fund (the first

pursuer), Colonnade Properties Limited (the second pursuer) and Iain Dewar. The first

pursuer is a trust set up by Keith Stephen. He is also a director of the second pursuer. The

only significant asset of the Company was a property named Beechmount House, in

Edinburgh.

[3]

There was a breakdown in relations between Iain Dewar and Keith Stewart. In 2017,

the Company and Iain Dewar were the subject of a petition brought by the pursuers seeking

orders under section 996 of the Companies Act 2006 on the grounds that the pursuers had

been subjected to unfair prejudice. In 2018, Iain Dewar brought a petition under the same

statutory provisions against the pursuers, Keith Stephen and the Company. These

litigations were resolved extra-judicially by way of an agreement dated 17 October 2018

between the pursuers, Keith Stephen, the Company and Iain Dewar (the settlement

agreement). The sale of Beechmount House formed part of the settlement agreement.

[4]

Each director, along with family members or connected persons had spent time

living at Beechmount House or in another property within its grounds. In settling their

dispute, one issue which the parties felt they required to consider was whether, as a result of

living there, benefits-in-kind were obtained to which HMRC would wish to have regard in

dealing with the Company's tax liabilities. This included a subsidiary issue as to whether, if

there were benefits-in-kind, these might be viewed as a salary and that could have an impact

on National Insurance Contributions due by the Company.

Terms of the settlement agreement

[5]

The settlement agreement stated, under the sub-heading "Background" that:

"The parties have entered into this agreement in order to settle the current dispute(s)

between them, to regulate the sale of Beechmount House by Beechmount Limited,

the liquidation of Beechmount Limited and the distribution of the proceeds and a

mechanism to encourage co-operation between the parties in relation to the

settlement of certain potential tax issues with HMRC".

Clauses 3, 4 and 5 are in the following terms:

"3.

ARRANGEMENTS WITH HMRC

Each party shall use reasonable endeavours to co-operate with the others in relation

to agreeing with HMRC any tax outcomes relevant to any benefits in kind that the

directors and/or their families or connected parties may have enjoyed from

Beechmount Limited.

Specifically, each party shall appoint a recognised tax adviser to represent them in

discussions with HMRC and instruct such advisers to co-operate and use reasonable

endeavours to reach agreeable positions on the level and nature of any benefits in

kind.

In the event that the tax advisers cannot reach agreement between themselves in so

far as that may be necessary, either may ask the President of the Institute of

Chartered Accountants Scotland to nominate a third party to act as arbitrator in

relation to such disagreement and such person shall be paid half and half by lain

Dewar and Keith Stephen.

The parties shall appoint an independent expert on behalf of Beechmount Limited,

nominated by agreement or in the absence of agreement by the President of the

Institute of Chartered Accountants Scotland who shall represent the interests of

Beechmount Limited in those discussions with HMRC.

PAYMENT TO THE COMPANY IN RESPECT OF HISTORIC BENEFITS IN

KIND

The parties have agreed that the following payments be made or are procured in

payment to Beechmount Limited for certain benefits in kind which may have been

enjoyed by Keith Stephen, lain Dewar and/or certain of their family members or

connected parties.

(a)

Keith Stephen will pay or procure the payment of £410,722 such

payment to be made by set off against the loan to the company from [the

second pursuer] and the balance in cash.

(b)

lain Dewar will pay £385,452 such payment to be made by a

combination of set off against the loans to the company from lain Dewar and

McKay Limited and the balance in cash.

Such payments will be made (in respect of the cash payments) and deemed to have

been made (in respect of the set off) by 30 November 2018 at the latest (with the

deemed set offs deemed to have been made on the same date as the cash payment).

If any additional benefits in kind are not taken to zero by the above mechanism

resulting in tax consequences for either director such liability will be for the

respective individual directors to meet any tax effect on them personally.

DISTRIBUTION OF FUNDS

The parties agree that further to the resolution of matters in paragraphs 3 and 4 and

the completion of the sale of the property (with the payment of any relevant tax

liabilities) that the net assets held by Beechmount Limited will be distributed in the

following manner:

The first £800,000 is paid to [the first and second pursuers] in

proportion to their respective shareholdings.

The remaining surplus is paid 50% to lain Dewar and 50% to [the first

and second pursuers} in proportion to their respective shareholdings.

The parties agree following the sale of Beechmount House promptly to put

Beechmount Limited into solvent members voluntary liquidation by appointing a

liquidator as agreed, or in the absence of agreement, as nominated by the President

of the Institute of Chartered Accountants Scotland. The liquidator is hereby directed

to distribute the net assets of the company as agreed.

Prior to appointment of a liquidator, at the option of Keith Stephen, the distribution

of the first £800,000 may be paid by way of dividend if so requested and all parties

agree to pass a shareholders resolution to the extent necessary to amend the articles

to facilitate that payment. A liquidator shall be appointed no later than 7 days after

the payment of said dividend".

Events after the settlement agreement

[6]

Following the settlement agreement, there was a substantial amount of

correspondence between the solicitors acting on behalf of the pursuers (Brodies LLP) and

those acting for Iain Dewar (Rooney Nimmo). The correspondence related largely to

seeking to implement the agreement, including clause 3. One of the issues, covered by many

emails, concerned whether Johnston Carmichael CA ("JCCA") should represent the

Company in discussions with HMRC. JCCA tendered certain advice, including that the

payments suggested in clause 4 of the settlement agreement should not take place. The

pursuers proposed to add a supplementary settlement agreement, to assist implementation

by seeking to make the appointment of JCCA irrevocable and dealing with the effect of

clause 4 not being necessary. If the supplementary settlement agreement was not agreed to

by Iain Dewar, the pursuers indicated that they would raise proceedings for the compulsory

winding-up of the Company.

[7]

Beechmount House was sold on 5 April 2019 for £3,250,000. In July 2019, a winding-

up notice was issued on behalf of the pursuers. Iain Dewar engaged a new firm of solicitors

and discussions continued. The pursuers' winding-up notice was not progressed. In

November 2019, Iain Dewar presented a petition seeking orders for the Company to be

wound-up. The pursuers did not oppose the winding-up petition. By an interlocutor dated

17 December 2019, the court ordered the Company to be wound-up and appointed

Maureen Leslie as the interim liquidator. She was subsequently appointed liquidator on

31 January 2020. Following her retiral, she was replaced as liquidator on 22 November 2021

by Donald McKinnon.

Key factual issues

[8]

The pursuers' case is based on enforcement of clause 5 of the settlement agreement.

In light of the fact that clause 5 states that net funds will be distributed "further to the

resolution of matters in paragraphs 3 and 4" and that the defender contended that resolving

these matters had not occurred, a significant amount of the evidence concerned whether

such resolution had indeed happened. This involved evidence about many email exchanges

by or on behalf of the parties.

[9]

In relation to clause 3, the central factual raised was whether or not the parties had

complied with the obligation to "appoint an independent expert on behalf of Beechmount

Limited, nominated by agreement ...". This was a core feature of the evidence and

submissions. Emails about making an appointment of the accountancy firm JCCA had been

sent. JCCA had done some work and in due course sent an invoice to the liquidator. In

essence, the pursuers' position was that the evidence showed that this obligation had been

complied with. The defender's position was to the opposite effect.

Witnesses

[10]

On behalf of the pursuers, evidence was led firstly from Oliver Stephen, a trustee of

the first pursuer and director and company secretary of the second pursuer . He is the son of

Keith Stephen. He spoke to the circumstances before the settlement agreement, the efforts

made to implement it and the circumstances leading up to the liquidation of the Company.

On his evidence, the pursuers had made repeated attempts to take matters forward in

respect of the point in clause 3 about making reasonable endeavours to co-operate in

agreeing a position with HMRC in relation to benefits-in-kind. The witness refused to

accept that JCCA had not been appointed to represent the interests of the Company. On the

contrary, his understanding was that JCCA had been instructed on behalf of th e Company.

JCCA had done work (including preparing a document described as a strategy note) and

sought to charge the Company for it, by sending the invoice to the liquidator. While he had

sought to have a supplementary agreement reached, the settlement agreement itself was in

any event entirely enforceable. It was agreed by the parties, as Iain Dewar said in his

witness statement, that clause 4 would not be implemented.

[11]

Evidence was led next from Iain Rutherford, a partner in Brodies LLP, the firm of

solicitors which acted for the pursuers. He gave evidence about communications with the

solicitors who acted on behalf of Iain Dewar, and was taken through a large amount of email

correspondence. His understanding was that JCCA had received instructions on behalf of

the Company. As far as he was aware, no engagement letter had been issued. In relation to

the supplementary agreement proposed by the pursuers, there was an email sent by him to

Mr Dewar's solicitor on 5 June 2019, which stated that if there was no response on the

supplementary settlement agreement by the end of the week, it would be assumed that

agreement is not possible and that the only available route for resolution is winding up. The

pursuers also called Ross Mitchell, an associate and solicitor-advocate in the same firm of

solicitors. He explained the background and some of the correspondence with the solicitors

who acted on behalf of Iain Dewar. He understood that agreement was reached between the

directors regarding instruction of JCCA.

[12]

John Nimmo gave evidence. He is a partner in the firm of solicitors, Rooney Nimmo,

which acted for Iain Dewar. He spoke about the correspondence on behalf of Iain Dewar

sent by colleagues who worked at Rooney Nimmo and noted that Iain Dewar did not

consider that his instructions had been properly implemented. Solicitors in his firm always

sought to act in accordance with a client's instructions. There may, however, have been

some misunderstanding. Acting for Iain Dewar was dealt with largely by another solicitor

in the firm rather than by the witness. JCCA had a long-standing relationship with the

Stephen family, which concerned Iain Dewar in relation to them being appointed on behalf

of the Company.

[13]

Parties agreed that the contents of the witness statement of Brian Rudkin, a director

and Head of Employer Services at JCCA, could be taken as his evidence for the purposes of

the action, without calling him as a witness. In summary, Mr Rudkin's position was that

there had been no instruction on behalf of the Company to appoint JCCA to act on its behalf

in liaising with HMRC and there had been no formal letter of engagement. The witness

statements of two other witnesses were also agreed as evidence, but that evidence did not

ultimately bear upon the issues in dispute.

[14]

The defender led evidence from Iain Dewar. He spoke to the circumstances leading

to the settlement agreement, the obligations set out in the agreement and whether those had

been performed or were no longer relevant, and the circumstances leading up to and

surrounding the liquidation of the Company. His evidence included that clause 4 of the

settlement agreement was resolved by agreement that the payments provided for under that

clause would not be made. As to clause 3, notwithstanding the content of correspondence

sent on his behalf by solicitors, he was adamant that he did not agree that JCCA should be

appointed on behalf of the Company and he could not have given instructions to that effect.

It appeared to him that his solicitors "had their wires crossed". His perception was that he

had agreed to exploratory talks between his accounting advisor (Bruce Connolly) and JCCA.

He accepted that on his behalf Bruce Connolly had agreed that JCCA should approach

HMRC and that there was email correspondence from Rooney Nimmo, on his behalf, that

JCCA will be appointed to act for the Company. But at no time did he actually instruct

anyone to employ JCCA. They had acted for the Stephen family and he did not wish to

instruct them to act for the Company.

[15]

Bruce Connelly gave evidence. He acted as an advisor to Iain Dewar, including on

tax and strategic matters, and in relation to the long-running dispute between Mr Dewar

and Keith Stephen. His evidence included the circumstances of the settlement agreement,

and his discussions with the liquidator, on behalf of Mr Dewar, throughout the liquidation.

He was referred to the emails about JCCA acting for the Company. He explained that he

had not been averse to JCCA taking on the role in relation to the benefits-in-kind issue and a

point about National Insurance Contributions, but that was all. It would not include any

discussion with HMRC about personal loans to Iain Dewar. However, when shown the

emails from Rooney Nimmo on behalf of Iain Dewar he had not been aware that these were

being sent and they "cut across" the position as he understood it.

[16]

Maureen Leslie, the former liquidator of the Company, gave evidence about the

circumstances leading to her appointment, the liquidation of the Company, the terms of the

settlement agreement and the information which she had about the obligations set out in it .

She had been told that both Keith Stephen and Iain Dewar had been in receipt of benefits-in-

kind as a result of occupation of the property. She had been made aware that Iain Dewar

was adamant that JCCA had not been formally instructed. JCCA made a claim in the

liquidation for payment for work done in preparing the strategy note but that claim was

subsequently withdrawn. She had reached the view, following discussion and advice with

tax advisers, that there was no need arising from the benefits-in-kind for the liquidator to

hold back from distribution of any funds, any tax issue being primarily a matter for the

individuals who obtained those benefits. However, the terms of the settlement agreement

required to have been satisfied before any payment under clause 5 could be made. Senior

counsel had advised that the settlement agreement was not binding upon the liquidator.

Submissions

Submissions for the pursuers

[17]

The purpose of the settlement agreement was to see to it that the principal (if not

sole) asset of the Company, Beechmount House, would be sold and the funds generated

thereby distributed between the pursuers and Iain Dewar. Clause 5 created an obligation

that was binding upon the Company, as a party to the agreement. The words "further to the

resolution of matters in paragraphs 3 and 4" did not make the obligation to distribute the

funds dependent upon those clauses having been implemented or otherwise r esolved. It

was effectively saying that those points had been dealt with, using the past tense as opposed

to it being prospective. In any event, even if clause 5 was construed in the manner argued

by the defender, both of those clauses were dealt with, prior to the Company going into

liquidation.

[18]

There was no dispute between the pursuers and Iain Dewar that clause 4 was

resolved by agreement that the payments provided for under that clause would not be

made. This was supported by the evidence of Iain Dewar, Bruce Connelly and

Oliver Stephen. The need to make payments in terms of clause 4 had been waived.

[19]

In relation to clause 3, that was also resolved or dealt with. The overarching

obligation on the parties under clause 3 was to use reasonable endeavours to co-operate in

agreeing a position with HMRC in relation to benefits in kind, The pursuers plainly met

that obligation by making repeated attempts to take matters forward in this regard (as

narrated in the evidence of Oliver Stephen). That was sufficient to meet the obligation on

the pursuers in terms of clause 3, such that it would be resolved (so far as required by

clause 5). Further, the position had been reached, endorsed by Ms Leslie as liquidator, that

there is no need for the Company to make any payments to HMRC in respect of historic

benefits-in-kind. Any liability in that regard would attach to the individuals who enjoyed

those benefits. Clause 3 proceeded on the underlying hypothesis that there were such

historic liabilities but that position did not, in fact, pertain. Thus, clause 3 has been resolved

in that manner.

[20]

In any event, tax advisers were properly appointed by each party. Mr Dewar

accepted in cross-examination, on more than one occasion, that there was an agreement that

JCCA be appointed for the Company. The evidence about the meeting of 3 December 2018

between Mr Connelly and JCCA and the subsequent preparation by JCCA of the strategy

note supported that position, to which Mr Connelly (acting for Mr Dewar) said he was "not

averse".

[21]

The terms of the e-mail correspondence between Rooney Nimmo and Brodies

between November 2018 and January 2019 showed that Rooney Nimmo clearly and

correctly set out Mr Dewar's agreement to the appointment of JCCA. Mr Dewar did not

suggest that this correspondence was sent against his instructions. The position was

reiterated in correspondence between Rooney Nimmo and Brodies LLP as at April 2019.

JCCA were instructed by Iain Dewar (as director of the Company) by way of the

Rooney Nimmo e-mail of 16 April 2019. Similar instruction had also been given on behalf of

Keith Stephen as the other director of the Company. JCCA rendered a fee for work done

further to its appointment on behalf of the Company. It would not have done so

fraudulently and, indeed, the plain evidence of Ms Leslie was that she was minded to accept

the fee as being properly due for payment by the defender. While the defender may seek to

found upon the statement of Mr Rudkin, it was important to note that he does not say that

work was not done for the Company by JCCA and does not say that JCCA were not

instructed to act for the Company by the directors. All he observes is that no engagement

letter was executed after April 2019. But the instruction had been given prior to that and,

notably, work for which JCCA sought to charge a fee had been carried out . There was no

need for a letter of engagement.

[22]

The result was that, prior to the Company entering liquidation, there was a purified

obligation on the Company to distribute the initial £800,000 tranche of funds to the pursuers

under clause 5 of the settlement agreement. There are ample funds within the present

solvent liquidation for this payment to be made. Even if there has been rejection of the

settlement agreement by the liquidator, this would simply mean that the Company was in

breach of its obligations under the settlement agreement and damages would fall to be paid.

[23]

On the defender's point about frustration, that had not occurred. There was no

supervening event that rendered performance of the contract impossible. There had already

been a crystallised payment obligation when liquidation took place. The payment obligation

was not dependent upon voluntary liquidation taking place.

Submissions for the defender

[24]

The liquidator was not bound by the terms of the settlement agreement. It did not

bear to impose any obligations on a court-appointed liquidator, nor could it competently

have done so. It sought to impose obligations on a liquidator appointed as part of a solvent

members' voluntary liquidation, following the carrying out of certain obligations in terms of

the settlement agreement. Moreover, no members' voluntary liquidation took place.

[25]

The obligation to distribute the Company's assets in accordance with the provisions

of clause 5 in the agreement was not imposed upon the Company, but rather on the

voluntary liquidator whose appointment was contemplated by the agreement. Many of the

obligations provided for in terms of the settlement agreement had not been met by the date

on which the liquidator was appointed.

[26]

The terms of the settlement agreement were also so unclear that it could not be

implemented. That was why the pursuers considered that a further supplementary

settlement agreement was necessary (see the evidence of Oliver Stephen). A draft

supplementary settlement agreement was prepared by the pursuers' solicitors but no

supplementary agreement was agreed between the parties.

[27]

Even if the settlement agreement could be said to have imposed obligations on a

court-appointed liquidator it was, in any event, frustrated at common law, in part because of

the fact that the various steps which it required to be taken prior to the distribution of its

assets were not taken; but primarily because of the appointment of a court-appointed

liquidator as part of a compulsory winding-up by the court. Reference was made to

McBryde, The Law of Contract on Scotland (3rd ed, at 1-04); Davis Contractors v Fareham Urban

DC [1956] AC 696 at 729; and Paal Wilson & Co A/S v Partenreederei Hannah Blumenthal

[1983] 1 AC 854.

[28]

Frustration having occurred, the settlement agreement was not productive of any

further obligation on any party. It has been deprived of its effect. Any rights which the

pursuers had under the contract ended on the date on which the liquidator was appointed, if

not before. There was no breach of contract; and, consequently, no right to payment under

that contract, or damages in respect of its alleged breach.

[29]

In relation to the interpretation of clause 5, reference was made to familiar authorities

on contractual construction: Ashtead Plant Hire Co Ltd v Granton Central Developments

Limited 2020 SC 244; Wood v Capita Insurance Services Ltd [2017] AC 1173 and Bank of Scotland

v Dunedin Property Investment Co Ltd 1998 SC 657. The intention of the parties at the time at

which the settlement agreement was entered into was, plainly, that the obligations set out in

clauses 3 and 4 required to be obtempered before distribution of funds in accordance with

clause 5.

[31]

It appeared from the evidence of Iain Dewar that the parties agreed that the

payments provided for in clause 4 would not be made. It was, however, clear from the

evidence that the parties' position on clause 4 changed as matters progressed. More

importantly, the matters provided for in clause 3 had not been resolved. Ms Leslie's

evidence was that she was advised by Bruce Connelly that this was one of the points in issue

between Mr Dewar and Mr Stephen and had never been resolved. In relation to the

pursuers' assertion that they had met their obligations under clause 3 to use reasonable

endeavours, that did not suffice to discharge the obligations. Actual appointment was

required. No expert was appointed for the Company. In that regard, the evidence of

Brian Rudkin was that he was involved in "preliminary discussions" with Oliver Stephen on

behalf of his father, Keith Stephen, and Bruce Connelly, on behalf of Iain Dewar. He had

"exploratory meetings" with both parties. Oliver Stephen requested that Mr Rudkin

prepare a "tax advice note", which he duly did. Mr Rudkin says expressly in his witness

statement that JCCA had not been appointed to act for the Company at that time. He made

clear that an engagement letter was necessary but none was ever issued. Formal

appointment from the Company, that is by both directors, was required. The absence of an

appointment was supported by the pursuers' own correspondence, including by solicitors

on its behalf. JCCA submitted, but later withdrew, its claim in the liquidation.

[32]

As the matters in clause 3 had not been resolved, there was no obligation on the

Company, and hence the defender, to make the distribution provided for in terms of

clause 5.

Decision and reasons

[33]

It is convenient to deal firstly with clause 4 of the settlement agreement.

Mr Stephen's evidence was that JCCA had advised that clause 4 was incompatible with

JCCA's proposed strategy and the payments under clause 4 should not be made. In his

supplementary witness statement, Iain Dewar said that it is correct that JCCA and

Bruce Connelly understood that the payments envisaged by clause 4 would not be accepted

by HMRC and so he and Mr Stephen agreed not to make these payments. Clause 4 was

therefore dispensed with.

[34]

Turning to clause 3, it is clear that it did not merely require reasonable endeavours

by the parties. That expression is used in the opening paragraph but the clause goes on to

say that the parties shall appoint an independent expert on behalf of Beechmount Limited,

nominated by agreement, which failing the president of ICAS would make the appointment.

As to whether an appointment was actually made, there is no doubt that the pursuers

wished to instruct, and indeed instructed, JCCA to act for the Company. The

correspondence from Rooney Nimmo, on behalf of Iain Dewar, about instructing JCCA is

also of some importance. On 16 April 2019, in an email to Brian Rudkin of JCCA,

Mr Dewar's solicitor stated:

"Thank you for sending over your details. My client, Mr Dewar (director of

Beechmount Limited) has confirmed his intention to instruct JCCA to act on behalf of

Beechmount Limited in regard to any NIC liabilities which may be due by the

company. I understand this is the confirmation you need to start the ball rolling and

I look forward to receiving your letter of engagement and the information request

soonest."

Later that day, an email from the same solicitor to Brodies LLP included the following:

"Please can you have Oliver and Keith confirm to Brian Rudkin that he is engaged on

behalf of the company as soon as possible. We have confirmed the same on behalf of

Iain Dewar. Please then request Brian Rudkin to issue his engagement letter soonest

and promptly comply with any AML requested as we are doing this afternoon".

Iain Dewar, at two separate email addresses, was copied into this second email.

[35]

In light of the number of emails sent and the words used, I am unable to accept

Mr Dewar's evidence that the solicitors must have "had their wires crossed". Mr Nimmo

made clear that solicitors in his firm acted only on instructions. The suggestion that they

would make these statements about Iain Dewar's position when he had never given any

such instructions and indeed was vehemently against JCCA working for the Company

makes no real sense. Read against the background of the other correspondence issued on

his behalf, these emails can only have been based on his instructions. Indeed the oral

evidence of his advisor Mr Connolly about not being averse to JCCA acting for the

Company fits with that approach. Plainly Iain Dewar had no desire for JCCA to act for him

as an individual, and Mr Connolly knew that and would not have sought that to occur, but

acting for the Company is a different point and the emails make the position on that point

clear.

[36]

However, the fundamental problem when reading the terms of the emails in the

context of all of the evidence is that formal instruction by the Company did not take place

and there was no letter of engagement from JCCA. Brian Rudkin of JCCA had a discussion

with Oliver Stephen in early April 2019 in which he advised that both directors required to

confirm there was a joint instruction from the Company. After Brian Rudkin had received

the email on 16 April 2019 from Rooney Nimmo, he had a telephone conversation with

John Nimmo to explain that JCCA required Beechmount Limited to instruct the firm to act

on this matter, not just an instruction by the directors separately. He then sent an email to

Oliver Stephen on 17 April 2019, which included the following:

"Further to our discussion earlier this week, I wanted to let you know that I have

received instructions from Mr Dewar's legal advisors to appoint JC as advisors to the

company in resolving the benefit in kind issues.

However, I have reiterated that we are acting for Beechmount the company and not

the individual directors and, given the fractious relationship between the two

directors, it is important that we receive formal appointment as advisors from the

company itself."

Mr Rudkin's evidence was that no further correspondence took place with either

Oliver Stephen or Iain Dewar (through his advisers) on the specific engagement terms. No

instruction of a formal appointment was sent on behalf of the Company. There was no other

evidence in contradiction of that position. The result was that JCCA did not progress

matters and did not issue a formal engagement letter and terms of business.

[37]

It is correct that JCCA did some work. Mr Rudkin and his colleagues had met with

Oliver Stephen in October 2018 and thereafter in December 2018 with Bruce Connolly on

behalf of Iain Dewar. These discussions resulted in the drafting by Mr Rudkin of the

strategy note (giving tax advice) which was as requested by Oliver Stephen and was shared

with him and Iain Dewar (via Bruce Connolly). It is also correct that JCCA later sought to

bill the Company, through the liquidator, for this work, although that invoice was

subsequently withdrawn.

[38]

However, as noted above Mr Rudkin had expressly explained to the parties, very

shortly after the key discussions with the pursuers and the emails from Rooney Nimmo, that

JCCA had to receive a formal appointment as advisors from the Company itself. That was

simply never taken forward. On that evidence, having particular regard to the neutral

position of Mr Rudkin and the absence of any reason why he would mis-state the position, it

is not possible to conclude that JCCA were appointed by the Company to act on its behalf.

Appointment of an independent expert must involve that expert agreeing to be appointed.

JCCA would, it seems, have agreed to be appointed, but, as it made clear to the parties, that

could occur only if appointment was made by the Company. Absent such an appointment,

JCCA did not proceed any further. Clause 3 was not implemented and hence there was, at

the time of the compulsory liquidation, no crystallised obligation on the part of the

Company to make the distributions stated in clause 5.

[39]

If such a crystallised obligation had been reached prior to the liquidation, I would

not have regarded the liquidation as amounting to frustration of the settlement agreement. I

do not view the reference to voluntary liquidation in the agreement as meaning that if that

did not occur then distribution could not take place. It is clear from clause 5 that if clauses 3

and 4 have been resolved, and tax paid, the obligation to distribute would arise. The

provision stating that distribution was to be done by voluntary liquidation set up the

method or means of distribution rather than being a condition or precursor for the existence

of the obligation itself. The right to payment was not inter-dependent on voluntary

liquidation occurring. In consequence, while the court-appointed liquidator was not a party

to the settlement agreement and not bound thereby, there would have been an obligation

upon the Company which the liquidator would have required to consider.

[40]

However, as clause 3 had not been implemented or resolved by the time of the

compulsory liquidation, the effect of the process was that the liquidator took control of the

Company's affairs and the directors ceased to have authority to bind the Company,

including in appointing an independent expert. In the result, there was frustration of the

agreement because this supervening event rendered performance of the outstanding

elements of the contract impossible.

[41]

Ms Leslie, on balance, decided not to make a declaration to HMRC about the

benefits-in-kind, because in her view any such declaration would be extremely vague in its

terms as she had no personal knowledge in relation to the benefits. She was advised that the

Company's liability in this regard would certainly be substantially less than the liability

which might accrue to the individual directors, assuming that such liability could be proved.

She considered that this was not something she should take forward with HMRC. Her view

was that final distribution could be made without any payments by the Company to HMRC,

because that liability would fall largely on the individuals. While the liquidator received

advice to the effect that the benefits-in-kind issue is not a matter for the Company but is for

the individuals to deal with, that was a point for her to decide upon . It does not and cannot,

post-frustration, amount to a means of resolving clause 3, which required appointment by

the parties of an independent expert for discussion between the Company and HMRC.

Clause 3 was not dispelled by compliance of the parties with its terms, because that did not

occur.

Conclusion

[42]

For the reasons given, the matters in clause 3 of the settlement agreement were not

resolved and, as a result, the obligation to distribute under clause 5 was not crystallised.

Compulsory liquidation removed the ability of the parties to perform clause 3 and thereby

caused frustration of the contract.

Disposal

[43]

I shall sustain the second, third and fourth pleas-in-law for the defender, repel the

pursuers' pleas-in-law, and grant decree of absolvitor, reserving in the meantime all

questions of expenses.